Kalron Foods Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judgment Date | 30 March 2007 |
| Date | 30 March 2007 |
| Court | Chancery Division |
Chancery Division.
Warren J.
Michael Thomas (instructed by Freeth Cartwright LLP) for the appellant.
James Puzey (instructed by the Solicitor for HM Revenue and Customs) for the respondent.
The following cases were referred to in the judgment:
Alpro LtdVAT No. 19,911; [2007] BVC 4,049
Bioconcepts LtdVAT No. 11,287; [1995] BVC 545
Brady v Group Lotus Car Companies plcTAX [1987] BTC 95
Brutus v CozensELR [1973] AC 854
C & E Commrs v Ferrero UK LtdTAX [1997] BTC 5,294
C & E Commrs v Quaker Oats LtdTAX [1987] BTC 5,097
Edwards v BairstowELRTAX [1956] AC 14; (1955) 36 TC 207
Grove Fresh LtdVAT No. 19,241; [2006] BVC 4,022
SiS (Science in Sport) LtdVAT No. 16,555; [2000] BVC 2,277
Tynewydd Labour Working Men's Club and Institute Ltd v C & E CommrsVAT (1979) 1 BVC 282
Unilever Bestfoods UK Ltd No. 20,016, 22 January 2007
Value added tax - Supply of goods - Zero-rating - Food of a kind fit for human consumption - Whether blend of fresh raw fruit and/or vegetables a beverage - Value Added Tax Act 1994, Sch. 8, Grp. 1, Value Added Tax Act 1994 schedule 8 group 1excepted item 4.
This was an appeal by the taxpayer company against the decision of the VAT tribunal ([2007] BVC 4,016) that its fruit/vegetable product was standard-rated for VAT purposes on the basis that it was a beverage within the Value Added Tax Act 1994, Sch. 8, Grp. 1, excepted item 4.
The taxpayer operated retail outlets selling various blends of fresh raw fruits and vegetables not unlike cold soup in consistency and sold in takeaway cups. Orders were blended for customers on the spot using a machine resembling a large metal liquidiser into which the fruit and/or vegetables were fed one by one and pulped by the machine. The process discarded any parts of the fruit or vegetable that were unsuitable to be liquefied for consumption, leaving a thick drink containing not only the juice but also the rest of the fruit or vegetable itself in drinkable form.
Customs classified the product as a beverage which was excluded from zero-rating by VATA 1994, Sch. 8, Grp. 1, excepted item 4. The taxpayer appealed to the VAT tribunal arguing that the product was a soft form of food within the meaning of Grp. 1, item 1. That was distinct from a beverage as it was a product suited to eating, like a cold soup, despite its liquid consistency. The tribunal dismissed the taxpayer's appeal, concluding that the taxpayer had failed to discharge the burden of showing that the product was not a beverage. On the evidence, the product came within Sch. 8, Grp. 1, excepted item 4 and was standard-rated for VAT purposes (Decision No. 19,738; [2007] BVC 4,016).
The taxpayer appealed contending that the tribunal had failed to apply the proper test to determine whether the product was a beverage: had it done so it could only have concluded that it was not; and, even if it had identified the correct test, it had failed to apply it correctly.
Held, dismissing the appeal:
1. It was for the tribunal to determine whether the product was a beverage or not applying the ordinary meaning of that word as a matter of the English language unless the context of the VAT legislation required a special meaning to be attributed to it. In the present case, there was nothing to indicate that "beverage" was to be given a special meaning in Grp. 1 different from its meaning as a matter of ordinary language. It was clear, without detailed analysis, that a product either was or was not a beverage. Where there was a product which had the characteristics of two products, as long as it had sufficient of the characteristics of the product to which the tribunal was going to classify it, it could be placed in the category to which it was more akin. (C & E Commrs v Ferrero UK Ltd [1997] BTC 5,294 applied.)
2. The tribunal had not applied an incorrect approach to the burden of proof. They were entitled to conclude that they were not satisfied that the taxpayer had met the burden of proof on it to show that the products were not beverages. Further the taxpayer could not establish that no tribunal, properly directed, and acting in accordance with its proper functions, could have reached the conclusion that the burden of proof was not satisfied. (Edwards v Bairstow [1956] AC 14; 36 TC 207 applied.)
3. Even if those conclusions were wrong, the court would not remit the matter to the tribunal since there were sufficient findings of fact for the court, on appeal, to decide whether or not the products were beverages. Taking all the relevant factors into account, the products in question were beverages. Excepted items 1 and 2 were items which might be regarded as unhealthy: but that did not indicate a policy. Moreover, excepted item 4 included fruit juices, many of which were healthy: there was no policy, therefore, in item 4 to exclude only "junk" drinks.
Warren J: Introduction
[1] This is an appeal by Kalron Foods Ltd ("Kalron") against a decision of the Value Added Tax and Duties Tribunal, Manchester Tribunal Centre (Michael Johnson, Chairman, and John Lapthorne FCMA). The decision was released on 24 August 2006 (see [2007] BVC 4,016). The Tribunal decided that Kalron's product sold under the designation "Zumo Fresh Blend" (and which I shall refer to as "the Product") is a "beverage" within item No. 4 of the excepted items in Part 2 of Value Added Tax Act 1994 schedule 8 group 1Group 1 of Schedule 8 to the Value Added Tax Act 1994 ("VATA") and thus standard-rated.
[2] Schedule 8 concerns zero-rating for VAT purpose. Group 1, Part 2 of Schedule 8 is headed "Foods" which are accordingly usually zero-rated. We are concerned with item 1 of the General items: "Food of a kind fit for human consumption".
[3] Following the General items is a list of excepted items. Summarising, they are, following the item numbers set out:
(2) Ice cream, ice lollies frozen yoghurts and similar frozen products and prepared mixes and powders for making such products.
(3) Confectionery (with certain exceptions).
(4) "Beverages chargeable with any duty of excise specifically charged on spirits, beer, wine or made-wine and preparations thereof".
(5) "Other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals and other products for the preparation of beverages".
(6) Potato crisps and similar products, savoury foods obtained by the swelling of cereals; and salted or roasted nuts other than nuts in shell.
(7) Pet foods and certain other foods for birds.
(8) Goods in General items 1, 2 and 3 used for domestic brewing/making/production of beer, cider, perry, wine and wine-made.
[4] Following the excepted items appears a list of items overriding the exceptions. Again summarising, they are, following the item numbers set out:
(2) Yoghurt unsuitable for immediate consumption when frozen.
(3) Drained cherries.
(4) Candied peels.
(5) Tea, mat, herbal teas and similar products, and preparations and extracts thereof.
(6) Cocoa, coffee and chicory and other roasted coffee substitutes and preparations and extracts thereof.
(7) Milk and preparations and extracts thereof.
(8) Preparations and extracts of meat, yeast or egg.
[5] The Notes at the end of these lists include the following:
"Food" includes drink
Items 4 to 7 of the overriding exceptions relate to item 4 of the excepted items.
[6] The first of those Notes is clearly an extension of the meaning of Food; it is not saying simply that liquid foods (which might also be called drinks) are included for the avoidance of doubt. But a particular item might in theory be both a liquid food and a drink: such an item is clearly included in "Food" since it is both a food and a drink; or, if it is argued that food ordinarily means solid food, liquid food comes in as a drink. However, if food in its ordinary meaning does include liquid food, as I think is the case, it is not necessarily the case that food and drink are mutually exclusive items which only come together as "Food" because of Note (1). It would be a question of the ordinary use of English words whether an item could at one and the same time be a liquid food and a drink.
[7] I will consider the meaning of "beverage" later. At this point I merely observe that all beverages are drinks (although not necessarily vice versa). Unless food (including liquid) and drink are, as a matter of ordinary language, mutually exclusive classes, a similar point arises in relation to food (including liquid food) and beverages. It is a question of the ordinary use of English words whether an item could at one and the same time be a liquid food and a beverage. I raise this point now because some of Mr Thomas' submissions seem to be based on the proposition that food and beverage are mutually exclusive classes.
[8] I should also mention that item 4 of the excepted items was worded differently in the earlier VAT legislation. It originally referred to "manufactured beverages" but the reference to "manufactured" was removed by the Value Added Tax (Beverages) Order 1993 (SI 1993/2498). According to an HMRC Manual, this was apparently to end uncertainty in the fruit juice trade following contradictory tribunal decisions. At the same time, excepted item 6 was added to remove any doubt about the zero-rated status of milk.
[9] It is difficult to detect any policy behind these detailed exceptions and overrides. Mr Thomas (who appears for Kalron) claims to identify a policy which is to exclude what he calls junk food: thus ice-cream, confectionery and crisps are excluded and become standard-rated. He suggests that the paradigm beverages within excepted item 4 are branded fizzy drinks typically bought in cans or plastic bottles which can, again, be seen to be in the nature of junk drinks. On that basis, he says that healthy products such as the Product should, if there is a doubt about their...
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