Whitbread Group Plc v Customs & Excise

This is an appeal by the Appellant, Whitbread Group Plc (“Whitbread”) against the decision of the VAT Tribunal of 4^th June 2004 (Mr J Demack, Chairman) when it dismissed Whitbread’s appeal against a refusal by HM Customs and Excise to repay £235,310.69, which Whitbread contended it had paid a standard rate of VAT thereon, when it should have been zero rated as “cold food not sold on the premises”.

The supplies in question were retail sales of cold sandwiches and similar items, which were made to air passengers and other persons authorised in the departure area at various airports within the United Kingdom. The actual supplies were made by Whitbread’s subsidiary, Costa Ltd. Technically it could be said that Costa should be the Applicant and Appellant, but HMCE quite sensibly is not taking a point on that.

The Commissioners rejected the claim for repayment by letter dated 18^th February 2003, saying “all supplies of cold food in the departure areas of airports are supplies for consumption on the premises and therefore standard rated. The premises are not confined to the outlet and associated chairs and tables, but are the whole of the departure area”.

The appeal is brought pursuant to section 11(1) of the Tribunal’s and Enquiries Act 1992, which provides as follows:-

“… if any party to proceedings before [the tribunal] is dissatisfied in point of law with a decision of the tribunal, he may, according as rules of court may provide, either appeal from the tribunal to the High Court or require the tribunal to state and sign a case for the opinion of the High Court.”

It follows therefore that the Court can only entertain the appeal in so far as it raises an error of law. There is no appeal against a finding of fact, although that can be qualified to this extent; if the tribunal states a conclusion which on its face is a finding of fact, but is a finding that such as no reasonable tribunal properly and instructed in the law could have made, the tribunal made an error of law.

Costa Ltd. supplies foods and drinks to the public. The supplies are made from shops, kiosks or other units often in close proximity to public transportation systems. “Costa Coffee” outlets are a familiar site to members of the travelling public. The appeal concerned those supplies made within the “air side” curtilage of public airports. The airports in question are; London Heathrow, Gatwick, Stanstead and Birmingham. Supplies made from outlets located at railway stations are not subject to the appeal.

The provisions are to be found in the Value Added Tax 1994 Schedule 8 (“the Act”). The relevant provisions are as follows:-

“Value Added Tax Act 1994 Schedule 8

Part II

The Groups

Group 1 — Food

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 set out below, unless it is also comprised in any of the items overriding the exceptions set out below which relates to that excepted item.

General items

Item No.

1.

Food of a kind used for human consumption.

2.

Animal feeding stuffs.

3.

Seeds or other means of propagation of plants comprised in item 1 or 2.

4.

Live animals of a kind generally used as, or yielding or producing, food for human consumption.

Excepted items

Item No.

1.

Ice cream, ice lollies, frozen yogurt, water ices and similar frozen products, and prepared mixes and powders for making such products.

2.

Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance.

3.

Beverages chargeable with any duty of excise specifically charged on spirits, beer, wine or made-wine and preparations thereof.

4.

Other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals or other products for the preparation of beverages.

5.

Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs, and similar products made from the potato, or from potato flour, or from potato starch, and savoury food products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell.

6.

Pet foods, canned, packaged or prepared; packaged foods (not being pet foods) for birds other than poultry or game; and biscuits and meal for cats and dogs

7.

Goods described in items 1, 2 and 3 of the general items which are canned, bottled, packaged or prepared for use—

(a)

in the domestic brewing of any beer;

(b)

in the domestic making of any cider or perry;

(c)

in the domestic production of any wine or made-wine.

Items overriding the exceptions

Item No.

1.

Yoghurt unsuitable for immediate consumption when frozen.

2.

Drained cherries.

3.

Candied peels.

4.

Tea, "matè," herbal teas and similar products, and preparations and extracts thereof.

5.

Cocoa, coffee and chicory and other roasted coffee substitutes, and preparations and extracts thereof.

6.

Milk and preparations and extracts thereof.

7.

Preparations and extracts of meat, yeast or egg.

Notes:

(1)

"Food" includes drink.

(2)

"Animal" includes bird, fish, crustacean and mollusc.

(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 at the time of the supply above that temperature.

(4)

Item 1 of the items overriding the exceptions relates to item 1 of the excepted items.

(5)

Items 2 and 3 of the items overriding the exceptions relate to item 2 of the excepted items; and 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.

(6)

Items 4 to 6 of the items overriding the exceptions relate to item 4 of the excepted items.

(7)

Any supply described in this Group shall include a supply of services described in paragraph 1(1) of Schedule 4”.

Although Costa sells hot food and cold food from the outlets, the appeal is only in respect of cold food, which is sold at the outlets for consumption off the premises. For these purposes Costa contends the Premises comprise the area occupied by it under a concession arrangement with the Airport Authority. The cold food in question consists mainly of pre-packaged sandwiches.

Two copies of catering concession agreements were provided in the bundle of documents for the Tribunal in respect of Terminal 1 and Terminal 4 of Heathrow Airport respectively. Each grants Costa a non-exclusive right to supply “the catering service” from the “catering outlets”. Catering service means the preparation and supply and sale of food, refreshments and alcohol by the concessionaire as listed in Schedule 2, and the catering outlet is defined as those areas made available at the airport from which the concessionaire is required to operate, including backup store, kitchen/food preparation area shown as red on the relevant plan. The term is for 5 years and 3 months from the date of the calendar month following that in which the trading date falls and the fee is a turnover fee based on a percentage of the sales. There are clauses in the document designed to establish that the relationship is licensor/licensee as opposed to landlord/tenant. Nothing turns on those for the present purposes. I note in passing that there is a right on the part of the Airport Authority to move the concessionaire to different sites within the departure area. It is the areas covered by the concession agreements from time to time that Whitbread contends are the premises for the purposes of the Act.

I do not derive any assistance from the description of the services provided in the concession agreement, merely because they describe it as a catering service cannot have any impact on the question of law as to the applicability of the Act.

In paragraph 5 and following of the written decision, the Tribunal made a number of factual findings based upon the joint bundle of documents and the parole evidence of Mr Giorgio Fioravanti, Costa’s regional manager and Mr Paul Jepson, the Commissioners’ assessing officer.

Customers visit Costa’s units to take advantage of its catering service. They decide on their purchases and place their order. Having been served they pay for them. They may then take them to a table where seating accommodation is provided by Costa for its customers and eat and drink them there. Alternatively they take them away and consume them wherever they wish. Those customers wishing to consume supplies away from Costa’s premises are provided with paper bags in which to carry them.

In addition, Costa offers a discount of 10% on sales to persons employed by Airlines, the Authority Airport and others holding airline passes. Such sales would be readily calculable by pressing an appropriate button at the till when a discount card was presented. Equally, Costa would be able to identify those customers who purchased cold products only for consumption outside the defined area of the concession. Thus Whitbread contends there would be no difficulty in identifying those parts of their income which is subject to VAT and those parts which are zero rated.

A major aspect concerned the provision of these cold products to passengers who intended to eat them on the lo-cost airlines. Generally, on such airlines food is not included in the price and has to be bought on the aeroplane. As is usual with trapped audiences the prices can be quite high, so it is not uncommon for passengers on such aeroplanes to pre-purchase foods for consumption on them. This was a major part of Costa’s case, but no evidence was produced by Mr Fioravanti (see paragraph 14 of the determination). Nor was any evidence provided as to the volume of discounted sales to people who are not passengers. Apart from rejecting Mr Fioravanti’s evidence, the Tribunal did not in its reasoning address use by non-air passengers. It seems to me that Mr Young (who did not appear below) is correct in his skeleton argument (paragraphs 35 – 36). Apart from an argument as to de mininis (and as I have said no clear evidence was adduced) it does not seem to me that supplies to staff with discount cards could be anything other than zero rated, as there was no room for any provision in the Act and Costa’s services to air passengers in the departure area, which would enable supplies to the staff to be taxed on the same basis. How much this involves is a question of evidence, which was not properly put before the Tribunal. To that extent in so far as Whitbread can establish by evidence sales to such employees, the VAT should be zero-rated.

Equally the question of Costa’s operations otherwise than in airside departure lounges must be considered. It is suggested on behalf of Whitbread that the operation is the same in respect of non-airside outlets and the same in respect of railway stations. In all of those cases it was contended that cold food products are accepted by the Customs and Excise as being zero-rated. The only possible justification, it seems to me, that can be used to distinguish those areas is the fact that the departure lounge is (save in respect of employees) closed to the public generally, whereas the same cannot be said of non-airside outlets, nor outlets at railway stations. However, those types of outlets are not before me and I should say nothing more about them.

After reciting the facts and dealing with various authorities the Tribunal’s decision appears in paragraphs 30 – 36 as follows:-

“Conclusion

30.

As it is common ground that the food provided by Costa is of a kind used for human consumption, the questions before me are reduced to my deciding whether the trade carried on by Costa is that of catering in the ordinary sense of that word, or, if it is not, whether Costa’s trade is that of catering by virtue of the fact that the food it sells is for consumption on the premises on which it is supplied.

31.

In each of the cases cited to me, the tribunal dealt with a single sales outlet, whereas I am faced with a variety of outlets varying between a kiosk with dedicated accommodation for 120 covers (Heathrow Terminal 4) to a small cart with no dedicated accommodation but with ample nearby public seating (Gatwick Pier Gate 46). That variety may warrant different VAT treatment for different outlets.

32.

Like the proverbial elephant, catering is difficult to define but recognisable when one sees it. The dictionary definitions do little more than identify the basis for what Sir Douglas Frank QC in Cope referred to as “a popular meaning” when he described it as “the provision of food incidental to some other activity, usually of a sporting, business, entertainment or social character.” Mr Barlow focused his submissions on the word “activity”, quite understandably since in the cases subsequent to Cope courts and tribunals have repeated the use of that word. But in my judgment “activity” does not necessarily encompass all arrangements which fall to be defined as catering for some people concerned may not be involved in activities but rather have the same purpose or intention: it all depends on the particular circumstances. That, it appears to me, necessarily to follow from Sir Douglas Franks’ use of “usually” to refer to the various forms of activity he had in contemplation. I accept that the use of “purpose” or “intention” may widen the concept of catering, but not in my judgment to any material extent.

33.

Mr Barlow also maintained that the facts of the instant case were sufficiently similar to those of Armstrong for me to follow that case. I am unable to agree. In Armstrong the tribunal was concerned with one of six fast food concessionaries for all of whom the owner of the shopping centre in which they traded provided tables and chairs at which food purchases could be consumed, or which could be used by the general public simply to take a rest. In other words, there was no dedicated provision of accommodation. Similarly in Cope and Sims, there was no dedicated accommodation available. In contrast, in Travellers Fare such accommodation was available, but I found that it was open to the general public and thus the supplies made were not catering. The airside departure areas concerned in this appeal are not open to the public.

34.

I observe, or perhaps I should say repeat, that the CCA for the kiosk at Terminal 4 is called a “Catering Concession Agreement”. It defines the expressions “catering equipment”, “catering outlet” and “catering service”. Clearly, the parties to the CCA assumed that they were dealing with supplies of catering and not the mere sale of food for, as I mentioned earlier, Mr Fioravanti maintained that a CCA in similar terms had been entered into for every kiosk and cart, the subject of Costa’s monitoring exercise. And whilst the parties description of the operation is not conclusive for VAT purposes, it is at least a very strong indicator of the nature of the supplies with which I am dealing.

35.

In my judgment, in those cases in which the CCA provides for dedicated accommodation in the form of an area for tables and chairs, and notwithstanding that the area may be relatively small, the service Costa provides is that of catering. That follows from the fact that the persons provided for (ignoring those with airside passes, whose use of Costa’s facilities may properly be described as incidental) are a closed group, all having the same intention or purpose. And constitute air travellers once they have passed into airside departure areas. In those cases, there is no need to consider Note (3).

36.

But if I am wrong in so holding in the cases where dedicated accommodation exists then I am satisfied that in both those cases and in the remaining one before me, the supplies constitute catering as falling within Note (3); the kiosks and carts and the departure areas are properly to be regarded as an enclave on or in which food for human consumption is both supplied and consumed”.

As the Tribunal observed, there were two issues, namely whether these products were supplied in a manner which was said to be “catering” in the ordinary sense of that word, or if not whether Costa’s trade was catering by virtue of the fact that food itself for consumption on the premises on which it is supplied (the extended definition of catering to be found in Note (3) set out above). The second of those requires a factual determination as to what were premises for the purposes of that note. The Tribunal determined (paragraph 36) that the entirety of the departure areas is properly to be regarded as an enclave for the purpose of that rule. No express reasons are given for that conclusion in paragraph 36.

It seems to me that provided the Tribunal properly identifies what the meaning of the word catering is, for the purpose of the Act, the question as to whether or not the particular activity constitutes catering is a question of fact.

Mr Young in his submissions suggested that the case of Faaborg-Gelting-Linien A/S –v- Finanzamt Flenburg [1996] STC 744 (ECJ) ought to be used as a basis for “premises” being the place where a supplier had established his business as a primary point of reference. I do not see that that case provides any assistance and it is a matter for construction of those particular regulations and not the Act. It seems to me that for the purpose of Note (3) premises from which the catering services are provided is also a question of fact and degree.

A large number of authorities was cited both to the Tribunal and myself, but most of those turn on their own particular facts and do not in my judgment have any clearly defined approach beyond the matters which I set out below. In Customs & Excise Commissioners –v- Cope [1981] STC 532 Sir Douglas Frank QC determined that a sale of seafood products from stalls or tents at race courses in disposable containers for consumption on the race course without seating accommodation was not zero-rated. Equally significant was the decision of Re. Travellers Fare Ltd. –v- CEC [1995] Decision Number 13482. That was a decision of Mr Demack again sitting at Leeds. It was in respect of cold take-away food sold from various platform outlets situated within British Rail Stations. Enclosed stations access was gained (at that time) either by a valid ticket or the purchase of a platform ticket. On open stations there was merely a warning that train journeys required tickets. Mr Demack in his conclusion dealt with the Cope and later cases and said that one common feature stood out; they all related to the provision of food for a specific group of people and no one outside that group. He made observations (by way of analogy) to air travel and a departure lounge being closed to the public. He rejected the argument that entry to closed stations was restricted and therefore concluded that such sales could not be catering and were therefore zero-rated. He went on to discuss the question of premises and that in the context of kiosks the sales that took place on the station were not taking place on the premises i.e. he did not accept that the railway station platform was premises. The reason for that was his finding that by use of tickets it was open to the general public.

In the Tribunals review of the law all the cases were carefully gone through and in the summary the Tribunal correctly (paragraph 32) considered that the word catering was a word, which has a popular meaning. Dictionary definitions or other descriptions intended to explain what the word means are generally unhelpful; see Pannini UK Ltd. –v- The Football Association Premier League [2002] EWCA CIV 995 (C.A.). The Tribunal plainly understood what was required to be determined, namely was the supply by Costa catering? It came to the conclusion that it was. However, in so doing, it seems to me that (for understandable reasons) the Tribunal did not consider passengers who bought to consume them on the aeroplanes and staff with discount cards. In the case of those categories there appears to be no clear evidence addressing them. In my view, supply of these items to those members of the public could not be described as catering. I accept Mr Young’s submission that the supply in those contexts would be no different to supply non-airside by Costa, nor for that matter to supply these kind of made up sandwiches in any other outlets such as W H Smiths. There is in my view no catering by such supply. It follows that if Whitbread produce evidence showing supply to those categories of a more than minimal amount those items should be zero rated.

I then go on to consider the Tribunal’s ruling in respect of the wider definition of premises; i.e. the whole of the departure lounge. The decision is short (paragraph 36) where merely a conclusion is stated. However, it is quite clear in my view that once again the Tribunal in its careful analysis of all the authorities well understood the principles and indeed distinguished between a previous decision of its own and the instant appeal. The determination of the premises in each case is a question of fact. I do not see that the Tribunal decision to determine that the whole of the departure area are premises can be faulted. Indeed it accords with my own view. That to my mind is reinforced by the plain fact that Mr Young did not disagree with the observation that I made that if the Airport Authority had manned the kiosks themselves with their own employees there would be no argument. Merely because the same facilities are offered in effect over the same area by virtue of a concessionary agreement should not in my view make any difference.

It follows therefore that on the evidence that was before the Tribunal the appeal will be dismissed. That does not however preclude the possibility of Whitbread, if it has evidence which is accepted by HM Customs & Excise in respect of travellers (who do not eat on the premises (i.e. the Departure Lounge), but only on the aircraft) and members of staff with concessionary cards who also neither eat within the concessionary area or within the airside area of the departure lounge should be subject to a zero-rate in respect of these particular classes of goods.