Sub One Ltd (t/a Subway) ((in Liquidation)) v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice McCombe,Lord Justice Briggs,Lord Justice Rimer |
| Judgment Date | 10 June 2014 |
| Neutral Citation | [2014] EWCA Civ 773 |
| Docket Number | Case No: A3/2012/3400 |
| Court | Court of Appeal (Civil Division) |
| Date | 10 June 2014 |
[2014] EWCA Civ 773
Lord Justice Rimer
Lord Justice McCombe
and
Lord Justice Briggs
Case No: A3/2012/3400
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM UPPER TRIBUNAL TAX & CHANCERY CHAMBER
Mr Justice Arnold
FTC272011
Royal Courts of Justice
Strand, London, WC2A 2LL
Philipa Whipple QC, Andrew Young and Isabel McArdle (instructed by Dass Solicitors) for the Appellant
Melanie Hall QC, Owain Thomas and Ewan West (instructed by HMRC Solicitors Office) for the Respondents
Hearing dates: 11–13 March 2014
(A) Introduction
This is an appeal by Sub One Limited ("the Appellant") from the judgment and order of the Upper Tribunal (Tax and Chancery Chamber) (Arnold J) of 3 October 2012. The Upper Tribunal ("UT") dismissed an appeal from the First-tier Tribunal (Tax) ("FTT"). The FTT on 14 October 2010 had dismissed the Appellant's appeal against the Respondents' decision to treat supplies by the Appellant of toasted sandwiches (known as "Subs") and of a further product called meatball marinara as falling within Schedule 8 Part II Group 1 Note 3(b) of the Value Added Tax Act 1994, and hence as being "standard-rated" rather than "zero-rated" for the purposes of Value Added Tax ("VAT").
VAT will usually be charged, where applicable, at no less than a minimum rate specified in the relevant Directive, and the law of the European Union only allows Member States to make exceptions in limited historical cases "for clearly defined social reasons and for the benefit of the final consumer".
The broad approach in the United Kingdom ("UK") has been to apply the zero-rate to food, except as supplied in the course of "catering". In broad terms, this has meant food supplied in restaurants or as hot "take away" food is "standard rated"; other food is "zero-rated". The policy seems clear: as Arnold J put it, human beings have to eat, but they don't have to eat in restaurants or to have their food cooked by others. It all seems tantalisingly simple. However, the domestic statute, as interpreted in this court in 1987 (in John Pimblett & Sons Ltd. v Customs and Excise Commissioners [1988] STC 358 (" Pimblett") and applied by Tribunals over the years, has given rise to disputes, at the margins of take away food supply, as to whether the zero-rate or the standard rate applies. In paragraph 69 of his judgment Arnold J in the UT set out a table of the different decisions, in broadly comparable areas of food supply. Slightly modified, this table was produced to us uncontroversially in Appendix 1 to the Appellant's skeleton argument. I append this table to this judgment.
The Appellant submits that the result has been to cause a breach of a principle of EU law, that of "fiscal neutrality", designed to prevent the distortion of competition by discriminatory tax treatment of similar products or services.
The Appellant says that, in its case, the differing VAT treatment of its products as compared with that of competitors infringed the fiscal neutrality principle, rendering it unable to compete fairly and contributing significantly to its ultimate liquidation.
The Appellant carried on business as a franchisee in the well-known "Subway" chain. The products, with which the FTT was concerned, were toasted sandwiches, called "subs", and meatball marinara. Its appeal to the FTT was one of some 1200 appeals by such franchisees challenging the Respondents' decisions that such products should be standard-rated rather than zero-rated. Those other appeals, we are told, remain stayed, pending the outcome of these proceedings.
The appeal is, therefore, of great significance to this individual Appellant and involves very substantial sums of money in the outstanding appeals as a whole.
(B) The Domestic Legislation
I think it is convenient to set out first the relevant provisions of the Value Added Tax Act 1994 (" VATA 1994"), before attempting to summarise the facts of the case.
Section 30 of the VATA 1994 provides as follows:
" Zero-rating
(1) Where a taxable person supplies goods or services and the supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section –
(a) no VAT shall be charged on the supply, but
(b) it shall in all other respects be treated as a taxable supply;
And accordingly the rate at which VAT is treated as charged on the supply shall be nil.
(2) A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are of a description for the time being specified in Schedule 8 or the supply is of a description for the time being so specified."
Next Schedule 8 Part II says:
"Schedule 8 Part II provides, so far as relevant:
" GROUP 1 – FOOD
The supply of anything comprised in the general items set out below, except –
(a) a supply in the course of catering;
…..
General items
Item No.
1. Food of a kind used for human consumption.
…..
Notes:
…..
(3) A supply of anything in the course of catering includes —
(a) any supply of it for consumption on the premises on which it is supplied; and
(b) any supply of hot food for consumption off those premises;
and for the purposes of paragraph (b) above 'hot food' means food which, or any part of which –
(i) has been heated for the purposes of enabling it to be consumed at a temperature above the ambient air temperature; and
(ii) is above that temperature at the time it is provided to the customer"
As I will explain later, in 1987 this court decided, or at least has been understood to have decided, that the operation of these provisions turned upon the subjective state of mind of the individual supplier. The result has been a number of cases before the Tribunals, including before the FTT in this case, where the evidence has been directed to ascertaining the subjective state of mind of the supplier in applying the food heating process in the individual case. The Appellant argues that this has led to broadly similar products to theirs being found to be zero-rated while their own products have been found to be subject to the standard rate.
(C) The Facts and the FTT decision
It is not necessary for the purposes of the present appeal to embark upon the detailed factual review conducted by the FTT. It suffices, I think, to set out the core statement of the production processes, for Subs and meatball marinara respectively, and the FTT's conclusions on those matters. (The chief factual witness for the Appellant in the FTT was Mrs Kay Mulligan who is referred to in the following passages taken from the FTT's judgment.)
So far as Subs were concerned, the FTT described the process in this way:
" The Sandwich Building Process
23. The Appellant followed exactly the same procedure for the making of every sandwich. The members of staff who constructed the sandwiches were known as sandwich artists. The process for making the sandwich began at one end of the counter, known as the order point and finished at the other end of the counter, known as the payment point. The Appellant provided its members of staff with scripts for each part of the operation, and written instructions on how the sandwiches were made including the quantities of ingredients.
24. The first stage in the process was referred to as the meet & greet where a customer was greeted by a sandwich artist and asked to choose a sandwich from the menu, a size (six inch or foot long), and a type of bread. A sheet of deli paper was then placed on the counter immediately in front of the sandwich artist for the selected bread, which was taken from the bread storage cabinet located immediately behind the artist. The bread was then cut in a prescribed manner. The artist then asked the customer if he wished to have his sandwich toasted.
25. The next stage involved adding the meat and cheese to the sandwich. The quantity of meat in each sandwich was pre-determined either by slices or weight. The meat was taken from plastic storage containers which were located in the chilled section of the sandwich counter, where food items were held at a temperature of 1 degree to 5 degrees centigrade. The meat slices were placed in the top half of the bread and evenly distributed along its length. The customer was then asked whether he wanted cheese and if requested, four slices of cheese were placed on top of the meat.
26. If the customer asked for a toasted Sub, the sandwich was placed open in the speed oven using a basket located on a flat metal paddle. The controls on the oven were pre-programmed by means of button presses. Mrs Mulligan used one of the two combo options which toasted the sandwich for 20 seconds for a six inch Sub or 30 seconds for a foot-long Sub. The oven had the facility to toast more than one Sub at any one time. The oven was situated immediately behind the artist. The oven emitted a series of three audible beeps to signify that the Sub had been toasted.
27. The toasted Sub was returned to the counter where the salad items, sauces and other condiments were stored at the appropriate temperature. The customer was asked which salad vegetables he wished added to the Sub. The artist would suggest a group of three vegetables, the portions of which were predetermined either by weight or by a specific number of slices. Finally the artist offered a choice of sauces which amounted to three passes of a selected sauce on either the meat or the vegetables. The customer could choose more than one sauce. Following the addition of the sauce the two sides of the sandwich were...
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