Sub One Ltd (t/a Subway) v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 October 2012 |
| Neutral Citation | [2012] UKUT 34 (TCC) |
| Date | 03 October 2012 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Arnold J.
[2012] UKUT 34 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Value added tax - Zero-rating - Hot food - Supply in course of catering - Supply of hot food for consumption off premises - Toasted sandwiches and meatball marinara - Whether heated for purposes of consumption at above ambient air temperature - FTT applying wrong test - Pimblett decision contrary to EU law - EU law requiring objective test - Food heated for purpose of being consumed hot - Supply subject to VAT and not zero-rated - HMRC's failure to appeal erroneous decisions not placing UK in breach of principles of fiscal neutrality and effectiveness - Taxpayer's appeal dismissed - Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 8 group 1Sch. 8, Grp. 1, Note (3)(b).
This was a lead appeal by a Subway franchisee against a decision of the FTT ([2010] UKFTT 487 (TC); [2011] TC 00747) that the taxpayer's supplies of toasted sandwiches and meatball marinara were standard-rated for VAT purposes.
A large number of Subway franchisees had challenged decisions of HMRC to treat supplies of toasted sandwiches known as subs and of meatballs as liable to VAT at the full rate rather than as zero-rated. The food was for consumption off the premises. HMRC took the view that the supplies in question were supplies "in the course of catering" within the Value Added Tax Act 1994, Sch. 8, Grp. 1, and thus excepted from zero-rating, because they fell within Note (3)(b)(i) as supplies of hot food for consumption off the premises which had been heated for the purpose of enabling it to be consumed at above ambient temperature. The taxpayer argued that its dominant purpose in heating the food was not to enable it to be consumed hot. The First-tier Tribunal (FTT), applying a subjective test in accordance with John Pimblett & Sons Ltd v C & E Commrs (1987) 3 BVC 161, concluded that the food had been heated for the purpose of enabling it to be consumed hot ([2010] UKFTT 487 (TC); [2011] TC 00747). The taxpayer appealed and the appeal was treated as a lead appeal. The grounds of appeal were that, although the FTT identified the correct legal test, it went on to ask itself the wrong question; it reached conclusions on the evidence which were irrational; and its conclusions gave rise to a result that was in breach of EU law because there was inequality of treatment as between the taxpayer and other traders making objectively similar supplies and its supplies were not of services, but of goods. The taxpayer argued that Note (3)(b)(i) could not be interpreted in a manner consistent with Community law, whereas HMRC argued that it could and that it imposed an objective test. The taxpayer further argued that the inconsistent decisions following Pimblett were in breach of EU law and that the UK was responsible for that state of affairs by failing to overrule Pimblett by legislation; by HMRC's failure as litigants to ensure correct application of EU law, if necessary by appealing legally erroneous decisions, and by failure on the part of HMRC to issue appropriate guidance.
Held, dismissing the appeal:
1.Note (3)(b) distinguished between food which was hot (i.e. above ambient temperature) at the time of supply because it had been heated for the purposes of enabling it to be consumed at such a temperature on the one hand, and food which was hot at the time of supply because it had been heated for some other purpose on the other hand. The use of the word "purpose", rather than "intention", suggested an objective test.
2.It was common ground that EU law required Note (3)(b)(i) to be construed as imposing an objective test, and that, to the extent that Pimblett decided differently, it was wrong in law. Moreover, by virtue of TFEU, art. 4(3) and the principle in Marleasing SA v La Comercial Internacional de Alimentacion SA (Case C-106/89) [1990] ECR I-4135, the Upper Tribunal was not merely free, but obliged, to depart from Pimblett to the extent that it was necessary to do so in order to interpret Note (3)(b)(i) in accordance with EU law.
3.It was possible to construe Note (3)(b)(i) in a manner which did not infringe the principle of fiscal neutrality. It was for the UK to determine the boundary between zero-rated supplies and standard-rated supplies. Note (3)(b)(i) had to be interpreted as imposing a wholly objective test, the subjective intention of the supplier being immaterial. That would ensure that supplies which were objectively the same were not treated differently merely because of a difference in the subjective intention of the supplier, still less because of a difference in the willingness of tribunals to disbelieve or discount the supplier's evidence as to its subjective intention. Secondly, the question to be addressed was whether, on an objective assessment, the food was above ambient temperature at the point of supply because it had been heated for the purposes of enabling it to be consumed hot or because it had been heated for some other purpose. Thirdly, account had to be taken of the reasons why consumers preferred to eat food hot. Finally, the tribunal had to use its common sense and avoid artificial distinctions. If that approach was adopted, it should be possible to treat objectively similar supplies in the same manner and objectively different supplies differently.
4.It followed that the FTT had applied the wrong test in relation to Note (3)(b)(i). It was unnecessary to remit the matter to the FTT. The very full findings of fact made by the FTT provided an ample basis for the application of the correct test. On an objective assessment, it was clear that the toasted subs and meatballs were heated for the purpose of enabling them to be consumed at above ambient temperature, and not for some other purpose. It followed that the tribunal was correct to conclude that both toasted subs and meatball marinara had to be subject to VAT at the standard rate, even though it had applied the wrong test.
5.Although there had been a number of inconsistent decisions over a considerable period of time, that did not amount to an infringement of the principle of fiscal neutrality for which the UK could be held responsible. Further, the tribunal was not persuaded that HMRC's failure to appeal the adverse decisions in question combined with its support for the tribunal's decision in the present case had placed the UK in breach of the principles of fiscal neutrality or effectiveness. The decisions which HMRC failed to appeal were only res judicata with regard to the tax years in question. It followed that, subject to the applicable limitation period and any argument of abuse of process, it would be open to HMRC to argue that supplies of the same products in subsequent tax years should be standard-rated. Once it became clear that Pimblett was contrary to EU law, the correct interpretation of Note (3)(b)(i) was open to re-consideration. That had now happened without the need for the issue to be considered by the Supreme Court, let alone referred to the ECJ. Accordingly, the UK's superior courts and tribunals could not be said to have adopted an entrenched interpretation of the legislation in defiance of EU law and it was not incumbent on the UK legislatively to overrule Pimblett. HMRC's published guidance did not show that HMRC positively promoted a subjective interpretation of Note (3)(b)(i), as opposed to acquiescing in certain tribunal decisions. In any event the taxpayer was unable to demonstrate that the publication of such guidance had caused any contravention of the principles of fiscal neutrality or effectiveness. For example, it did not appear that HMRC's published guidance was a factor in any of the tribunal decisions favouring the taxpayer's competitors.
6.In general it did not matter for VAT purposes whether what was supplied was goods or services. Nor did it matter in determining whether or not a particular supply fell within exception (a) to Grp. 1 in Sch. 8, Pt. II. The exception was not of "catering services", but of supplies "in the course of catering". Classification of the supplies as being supplies of goods rather than of services was consistent with the supplies falling within Note (3)(b).
7.The taxpayer's challenge to the FTT's findings on the ground of irrationality was limited to its rejection of evidence as to the subjective intention in heating the toasted subs and meatballs, and in particular its categorisation of that evidence as not credible. The FTT had explained in considerable detail why it did not feel able to accept that evidence having regard to the objective circumstances. There was nothing irrational in that assessment and the FTT had been entitled to reach the conclusions that it did.
The following cases were referred to in the judgment:
Ainsleys of LeedsVAT No. 19,694; [2007] BVC 4,009
Åklagaren v Åkerberg FranssonECAS (Case C-617/10) 12 June 2012
Amministrazione delle Finanze dello Stato v San Giorgio SpAECAS (Case 199/82) [1983] ECR 3595
Amministrazione delle Finanze dello Stato v Simmenthal SpAECAS (Case 106/77) [1978] ECR 629
BLP Group plc v C & E CommrsECASVAT (Case C-4/94) [1995] BVC 159; [1995] ECR I-983
BridgewaterVAT No. 10,491; [1993] BVC 1,638
Coffee Republic plcVAT No. 20,150; [2007] BVC 4,096
Deliverance Ltd v R & C CommrsVAT [2011] UKUT 58 (TCC); [2011] BVC 1,601
Dilexport Srl v Amministrazione delle Finanze dello StatoECAS (Case C-343/96) [1999] ECR I-579
Dr Beynon and Partners v C & E CommrsUNKVAT [2004] UKHL 53; [2005] BVC 3
Domino's Pizza Group Ltd (No. 1)VAT No. 18,010; [2003] BVC 4,086
Domino's Pizza Group Ltd (No. 2)VAT No. 18,866; [2005] BVC 4,046
EC Commission v FranceECASVAT (Case C-481/98) [2001] BVC 302; [2001] ECR I-3369
EC Commission v ItalyECAS (Case 104/86) [1988] ECR 1799
EC Commission v ItalyECAS (Case C-129/00) [2003] ECR I-14637
EC Commission v UKECAS (Case 416/85) (1988) 3 BVC 378...
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