20072
ZERO-RATING – Food – Fruit bars – Whether confectionery so excluded from zero-rating – Manufacture involved neither sweetening nor cooking – Tangy taste – Popcorn House Ltd [1968] 3 All ER 782 per Lawton J applied – VATA 1994 Sch 8, Group 8, item 1, excepted item 2 – Appeal allowed
LONDON TRIBUNAL CENTRE
PREMIER FOODS (HOLDINGS) LTD
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: THEODORE WALLACE (Chairman)
JOHN ROBINSON
Sitting in public in London on 22 and 23 February 2007
Mario Angiolini, counsel, instructed by Deloitte & Touche LLP for the Appellant
Sarabjit Singh, counsel, instructed by the Acting Solicitor for the Respondents
© CROWN COPYRIGHT 2007
DECISION
- This appeal concerns the treatment for VAT of Hartley's Fruit Bars. Customs contend that the bars are standard rated being excluded from the zero-rating of food on the grounds that they are confectionery. The Appellant contends that the bars which are of three types, apple and strawberry, apple and blackcurrant and mango and passion fruit, are not confectionery.
- The appeal is against the decision in a letter dated 17 October 2005 and against assessments for the period from period 02/04 to 07/06 totalling £192,723. The assessments also covered Hartley's Extra Thick Fruit Smoothies. Customs withdrew the decision as to Smoothies shortly before the hearing so that and the appeal against part of the assessments has therefore succeeded already.
- The relevant legislation is contained in Group 1 of Schedule 8 to the VAT Act 1994 which specifies zero-rated supplies. Group 1 provides,
"The supply of anything comprised in the general items set out below, except –
(a) a supply in the course of catering; and
(b) a supply of anything comprised in any of the excepted items …"
The general items include,
"1. Food of a kind used for human consumption."
The excepted items include,
"2. Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance."
There are a series of items overriding the exceptions, however none is relevant to this appeal. Note (5) includes the following,
"… for the purposes of item 2 of the excepted items 'confectionery' includes chocolates, sweets and biscuits; drained, glace or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers."
The predecessor to Note (5) was introduced by the Value Added Tax (Confectionery) Order 1988, S.I.1988 No.507, part of the wording being taken from item 2 of the excepted items in the 1983 Act, the words following the semi-colon being introduced for the first time. The history of Note (5) is of some relevance because some of the cases cited on confectionery were on the previous legislation.
The Evidence
- We heard two witnesses : Mrs Helen Touchais, marketing manager of Hartley's dessert and fruit snacks department, and Jason Waddup, senior new product development manager of the Appellant company, both of whom confirmed written statements and were cross-examined. There was an agreed bundle which included a breakdown of the components of the fruit bars.
- The bars are in fact no longer being produced. We tasted examples made to the same recipe, the originals having passed their sell-by date. Examples of the actual bars were exhibited with the boxes in which they were sold.
- The bars were 8cms long by 2.2cms wide by 8mm thick. Each bar was in an orange airtight sleeve. The bars were sold in boxes of five, the boxes also being orange. Both bars and boxes were marked "Hartley's" with the type of bar and pictures of the fruits. Both were marked "One fruit portion" with a black circle; the boxes had "x5". Both bars and boxes had nutrition information and ingredients. Both stated that there was no added sugar and no artificial colours or flavours and less than a stated amount of fat (3% in the case of mango and passion fruit and 1% apple and strawberry and 1% apple and blackberry).
- The boxes had on the bottom:
"Hartley's is on a mission : to get everyone to be as passionate about eating fruit as we are …! Hartley's offers a range of pressed fruit bars that are packed full of real fruit goodness, which contribute 1 fruit portion to your recommended 5-a-day".
They were also marked "Ideal for Lunchboxes ?Fruit On-the-Go!!!"
- A table showing the breakdown of the components of each of the fruit bars was produced showing the total sugar content of the bars varying from 58.8% for apple and strawberry bars, to 58.3% for apple and blackcurrant and 55.9% for mango and passion fruit bars.
- Approximately 87% of the components of apple and strawberry bars was dried fruit, apple fibre and puree and date paste; the percentage of sugar content present in each of those individual ingredients varied from 27% for apple puree and 50% for apple fibre to 69.4% for sultanas.
- Approximately 86% of the components of apple and blackcurrant bars was dried fruit, apple fibre and puree and date paste; the sugar content present in the ingredients varied from 27% for apple puree to 69% for raisins.
- Approximately 74% of the components of mango and passion fruit bars was dried fruit, apple puree and fibre; the sugar content present in the ingredients varied from 27% for apple puree to 68% for dried peach, apple, mango, pineapple and apricots.
- The manufacturing process for all types of bar involved the use of a Hobart mixer at ambient temperature to mix the dried fruits to create a viscous, fibrous mass. The date paste was produced by passing dried dates through a sieve. The concentrated fruit juice, starch and nature identical flavours were heated to 90°C to pasteurise so as to prevent microbiological growth; these comprised under 10% of the product. The dried fruits were not heated.
- The thickened liquid mix was then combined with the dried fruits and maltodextrin in the Hobart mixer and mixed until homogenous. The maltodextrin, an easily digestible carbohydrate made from natural corn starch which comprised around 7.5%, had a nil sugar content and was to reduce water activity and act as a drying, bulking and binding agent. The mixture was loaded into trays and passed through rollers to produce slabs which were then passed through knives to form the bars.
- The bars were targeted at mothers purchasing food for school lunch boxes for their children. The individual bars provided one of the five portions of food a day recommended by the government. The labelling and marking on the bars and the boxes was designed to comply with Trading Standards and Food Standards Agency requirements. The bars were stocked by Tesco and Sainsbury being placed next to cereal products and dried fruit. The bars were launched in June 2005 but ceased to be produced for the UK market in February or March 2006.
Submissions
- Mr Angiolini, for the Appellant, said that the approach of Lawton J in Customs and Excise Commissioners v Popcorn House Ltd [1968] 3 All ER 782 was in accordance with the ordinary meaning of confectionery and formed the basis of the final part of Note (5). Confectionery is normally eaten with the fingers, is made with a cooking process and contains sweetening matter. Here the ingredients had not been cooked in any normal sense, although 10-15% of the ingredients had been pasteurised before being added to the rest. The products were not sweetened because the majority of the ingredients were inherently sweet and no sweetener was added.
- He said that the approach in Popcorn House had been followed by the Tribunal in E Round & Son Ltd v Customs and Excise Commissioners (1986) No.2069, W Jordans (Cereals) Ltd v Customs and Excise Commissioners (1988) No.3275, SIS (Science in Sport) Ltd v Customs and Excise Commissioners (2001) No.17116 and Golden Wonder Ltd v Customs and Excise Commissioners (2004) No.18650. He said that if Customs were correct in contending that confectionery does not have to have been sweetened provided it is sweet, Jordans and SIS were wrongly decided. Furthermore the interpretation advanced by Customs would make the last sentence of Note (5) redundant. It would have been easy for the legislation to refer to "sweet" instead of sweetened or specify a certain percentage of sugar. On the approach by Customs any industrially dried fruit which is sweet would be confectionery.
- Mr Angiolini said that the ingredients, manufacturing process, appearance and taste and marketing are all relevant, citing Customs and Excise Commissioners v Quaker Oats Ltd [1986] STC 683. He submitted that the ingredients here were not typical of confectionery in that there was no sweetening matter added. The fruit was acquired by the Appellant already dried and was then chopped up and pressed rather than cooked and was mixed and sieved in the case of date paste. The appearance of the bars was not similar to confectionery : they were more likely expected to be found in a health food shop. A survey showed that children thought that it tasted too much like dried fruit and that the apple and strawberry bars were not sufficiently like strawberry. The goods were displayed by retailers next to cereal products and dried fruits. The packaging was not typical of confectionery, being in boxes of five bars.
- Mr Singh, for Customs, said that the bars fell within the normal meaning of the word "confectionery" in excepted item 2 without regard to Note (5). Customs accepted that the product was not sweetened, nevertheless the ordinary meaning of confectionery covers prepared food which is rich in sugar although not sweetened. He referred to the definition of "Confectionere
" in the Concise Oxford English Dictionary, "a dish or delicacy made with sweet ingredients." He said that there is no statutory definition.
- He said that a cooking process is not necessary, but that if he was wrong in this pasteurisation and mixing involved cooking. The decision in Popcorn House Ltd was 40 years ago and the meaning of words alters. Nothing in the Act precludes unsweetened prepared food from being confectionery.
- He said that the Tribunal decisions in W Jordans (Cereals) Ltd and SIS (Science in Sport) Ltd are not relevant since they concerned Note (5) and its predecessor as did the reference to adding sweetener in Golden Wonder Ltd. There have been no decided cases concerning whether unsweetened prepared food can be confectionery if rich in sugar.
- Mr Singh accepted that the taste is relevant and submitted that the bars were extremely sweet. He said that much turns on the Tribunal's impression. He accepted that the dried fruit was not manufactured. Confectionery does involve mixing. He said that it was not correct to treat the final part of Note (5) as a definition of confectionery. The word should be given its ordinary meaning as understood by the man in the street, see Customs and Excise Commissioners v Ferrero UK Ltd [1997] STC 881 per Lord Woolf MR at p.884.
Conclusions
- This appeal turns solely on whether the Appellant's fruit bars were "confectionery" within item 2 of the excepted items in Group 1. If they were confectionery, they were standard-rated and the assessments stand in part. If they are not confectionery, the assessments fall to be set aside in full.
- There is no definition of confectionery in the Act. It is trite law that the words of a statute must be interpreted in the context in which they are used. In Customs and Excise Commissioners v Ferrero UK Ltd [1997] STC 881, Lord Woolf approved the approach of the Tribunal that,
"The words in the statute must be given their ordinary meaning. What is relevant is the view of the ordinary reasonable man in the street."
In that case the Tribunal had stated that it must ask,
"What view would be taken by the ordinary man in the street who had been informed as we have been informed."
- That case involved the word "biscuit." We suspect that the ordinary reasonable man in the street, if asked whether a product other than chocolate or sweets is confectionery, would respond by asking the questioner what he means by confectionery.
- The Act does not give much help. Note (5) provides that confectionery includes chocolates, sweets and biscuits. Chocolates and sweets are clearly confectionery on any view. Biscuits which are not sweet are not normally referred to as confectionery, particularly water biscuits or savoury biscuits. The last sentence of Note (5) is clearly based on the meaning attributed to confectionery by Lawton J in Popcorn House Ltd [1986] 3 All ER 782 when he said at page 784,
"I adjudge that the word 'confectionery' as used in the first part of Group 34 means any form of food normally eaten with the fingers and made by a cooking process, other than baking, which contains a substantial amount of sweetening matter."
Group 34 referred to purchase tax which VAT replaced. The zero-rating provision and exception while not identically worded to Group 34 was very similar. The reference in Note (5) to food "normally eaten with the fingers" is the same as that used by Lawton J.
- Mr Singh was of course entirely correct in pointing out that the meaning of words can alter, however we do not consider that the essentials of the concept of confectionery have altered since the judgment of Lawton J in Popcorn House. There is no doubt that confectionery is normally eaten with the fingers. Products which are regarded as confectionery are made with a cooking process and do include a substantial amount of sweetening matter. A cooking process clearly involves heating. The derivation of the word "confectionery" involves the concept of putting together or mixing and confectionery is invariably sweet. In our view the normal use of confectionery involves the ingredients being made more sweet than in their natural state.
- On the evidence in this case the primary ingredients namely the fruits were intrinsically sweet and were not sweetened in any way. Furthermore the only part subjected to any hearing process were the juice concentrates, starch and fruit flavours which were pasteurised before being added to the other ingredients and only account for a small proportion of the whole.
- Mr Singh referred to the Concise Oxford English Dictionary and Mr Angiolini referred to the current edition of the Oxford English Dictionary and to the New Shorter Oxford English Dictionary (1993). We also looked at the New Oxford English Dictionary (1998). These gave little help. The New Oxford English Dictionary comes closest in our view to ordinary usage in defining confectionery as "Sweets and chocolates considered collectively." However that is clearly narrower than the use of the word in Group 1.
- Turning to the criteria mentioned in Quaker Oats Ltd, we do not consider that the ingredients are those normally associated with confectionery; in particular there was no added sweetening matter. The production process is not that which is typical of confectionery; in particular it was not cooked. These of course were aspects considered by Lawton J in Popcorn House. Although sweet to taste, the bars have a distinctive tang which would not appeal to all children. Once the coloured sleeve was removed, the bars looked quite dissimilar to typical sweets or chocolates: they are a brownish colour with visible fibres. Their content, in the main, is pulped dried fruit and fruit purees, both of which are intrinsically sweet. The sugar content of the dried fruit and purees also have seasonal variations. Therefore, the final sugar content of the fruit bars also fluctuated – unlike typical confectionery. The overall sugar content of the manufactured fruit bar is either similar to or less than the sugar content of the main ingredient – dried fruit. Neither of us considered that their taste was what we would associate with confectionery, in particular the tangy after taste. The marketing stressed that there was no added sugar, no artificial colours or flavours and low fat. This is not typical of confectionery; nor is the reference to the recommended portions of fruit.
- For these reasons we allow the appeal. We direct that any applications for costs or interest are made within two months with the necessary particulars.
THEODORE WALLACE
CHAIRMAN
RELEASED: 16 March 2007
LON 2006/711
