Revenue & Customs v Premier Foods Ltd.

This is the appeal of the Commissioner for Her Majesty’s Revenue and Customs from the decision of the VAT and Duties Tribunal (Messrs Theodore Wallace and John Robinson) released on 16 March 2007. That decision allowed the appeal of Premier Food Holdings Ltd from assessments to VAT in the sum of £192,723 for the periods 02/04 to 07/06 in respect of supplies of Hartley’s Fruit Bars. The issue, in summary, is whether such bars are confectionery for the purposes of the VAT Act 1994, Schedule 8, Part 2, Group 1, excepted Item 2 having regard to the contents of Note 5.

HMRC considered they were, and in a decision letter dated 17 October 2005, decided to raise the assessment to VAT. On the appeal of Premier to the VAT and Duties Tribunal, pursuant to a notice dated 3 July 2006 following a two-day hearing on 22 and 23 February 2007, the Tribunal disagreed. They considered that such bars were not confectionery with the result that they are zero-rated. HMRC contend that the Tribunal erred in law in arriving at that conclusion.

It is convenient to start with a reference to the relevant legislation. Zero-rating of goods or service is permitted by Article 28(2)(a) of the Sixth Directive, 77/388/EEC, now Article 110 of VAT Directive 2006/112/EEC. The VAT Act 1994, Section 30, subsection 2, provides for the zero-rating of the supply of goods or services:

“If the goods or services are of a description for the time being specified in Schedule 8.”

Schedule 8, Part 2, Group 1, relates to:

“The supply of anything comprised in the general items set out below except (a) [which I omit as irrelevant] and (b) a supply of anything comprised in any of the excepted items set out below which relates to that excepted item.”

The general items include:

“(1)

Food of a kind used for human consumption.”

The excepted items include:

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

The notes include the following:

“(5)

… 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.”

Premier produced three types of fruit bar between June 2005 and March 2006 namely apple and strawberry, apple and blackcurrant and mango and passion fruit. The Tribunal heard evidence from two witnesses for Premier. They saw and tasted some of the fruit bars. They considered analyses of their ingredients and method of production. They examined their wrapping, packaging and advertising. The facts as found by the Tribunal are set out in paragraphs 6 to 16 both inclusive of their decision. It is sufficient to refer only to some of them. I start with paragraphs 6 and 7 which state the following:

“The bars were 8 centimetres long by 2.2 centimetres wide by 8 millimetres 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 the stated amount of fat (3 per cent in the case of mango and passion fruit and 1 per cent, apple and strawberry and 1 per cent, apple and blackberry).

(7)

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 one fruit portion to your recommended five a day”. They were also marked “ideal for lunchboxes √ Fruit On-The-Go!!!”

In paragraphs 8, 9, 10 and 11, the Tribunal set out the percentage of the various ingredients of the particular bars in question. It is not necessary for me to refer to them further. In paragraphs 12 to 14, they found the following:

“(12)

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 to prevent microbiological growth. These comprised under 10 per cent of the product. The dried fruits were not heated.

(13)

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 cornstarch which comprised around 7.5 per cent, 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.

I turn now to the decision of the Tribunal. After setting out the arguments of counsel and referring to a number of previous decisions of the Tribunal itself, their conclusions in this case were set out in paragraphs 22 to 29. They included, as far as is relevant, the following. First, the issue depended on whether the fruit bars are confectionery for the purposes of excepted Item 2. Second, there being no statutory definition of the word “confectionery” and applying the decision of the Court of Appeal in the Commissioners of Customs and Excise v Ferraro UK Limited [1997] STC 881, the relevant question would be what view would be taken by the man in the street, informed as the Tribunal had been; but that would not help as such a man would ask what the questioner meant by “confectionery”. Third, the last part of Note 5 had been taken from the judgment of Mr Justice Lawton in Commissioners of Custom and Excise v Popcorn House Ltd [1968] 3 All ER 782 in relation to Group 34 for purchase tax purposes in the Purchase Tax Act 1963 but neither the Act nor any dictionary afforded much help.

In paragraphs 26 and 27, they said:

“Mr Singh was entirely correct in pointing out that the meaning of words could alter, however, we do not consider the essentials of the concept of confectionery have altered since the judgment of Lawton J in Popcorn House. There is no doubt confectionery is normally eaten with the fingers. Products which are regarded as confectionery is 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 sweeter than their natural state.

(27)

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 heating 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.”

They then commented that counsel had referred them to various dictionaries, none of which they found of any particular help, and concluded in paragraph 29:

“Turning to the criteria mentioned in Quaker Oats Limited, 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 puree 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 there was no added sugar, no artificial flowers or flavours and low fat. This is not typical of confectionery; nor is the reference to the recommended portions of fruit.”

For those reasons, they allowed the appeal.

Before me, counsel for HMRC submitted that the Tribunal was wrong in law in at least the following respects. First, they were wrong to apply the dictum of Mr Justice Lawton in Commissioners of Custom and Excise v Popcorn House Ltd. That decision was based on earlier legislative provision in the Purchase Tax Act 1963 which was in materially different terms. Second, she submits they were wrong to conclude that confectionery, for the purposes of excepted Item 2 and Note 5, must include additional sweetening matter. Her submission is to the effect that it is perfectly permissible for confectionery to consist of primary ingredients which are themselves sufficiently sweet. Third, she submits the Tribunal were wrong to consider that confectionery for the like purposes must have been cooked in some respect when any form of preparation or confection is, she would submit, sufficient.

Counsel for Premier Foods submitted that the Tribunal was right and, in particular, its decision was one of fact which cannot be disturbed on appeal which lies only in point of law. He submitted that the fruit bars do not fall within any of the extended meanings of confectionery as set out in Note 5, so they can only be standard rated if they can be properly described as confectionery within the ordinary meaning of the word. He submitted the Tribunal did not rely on the dictum of Mr Justice Lawton in Popcorn House but they were right to consider confectionery normally includes sweetening matter. Similarly, he submitted they were right to conclude that confectionery normally undergoes some cooking process. He submitted that appearance and taste and marketing were all proper matters for the Tribunal to evaluate and their decision in respect of them was unassailable.

I can express my conclusions more shortly. The provision to be applied is excepted Item 2 and Note 5 in Schedule 8, Part 2, Group 1 to the VAT Act 1994. The statutory context in which the word “confectionery” appears is materially different to the earlier provisions to be found in the Purchase Tax Act 1963, Group 34 or in the VAT Act 1983. Thus, the conclusion of Mr Justice Lawton in Popcorn House Ltd, the relevant parts of which were quoted by the Tribunal in paragraph 25 of their decision, which was expressly limited to the meaning of confectionery in Group 34 of the Purchase Tax Act 1963, cannot be applied to the wholly different context of excepted Item 2 and Note 5.

Paragraph 26 of the Tribunal’s decision appears to me to disclose an error in that Mr Justice Lawton did not purport to define the word “confectionery” by reference to its ordinary meaning but by reference to the different context of Group 34, the Purchase Tax Act 1963. Thus, the conclusion of the Tribunal involved first a misreading of what Mr Justice Lawton had said and second, a misapplication of what he did say.

The approach of the Tribunal required by the Court of Appeal decision in Commissioners of Custom and Excise v Ferraro is to give to the word “confectionery”, its ordinary meaning, that is, and I quote from the judgment of Lord Woolf, Master of the Rolls:

“What is the view of the ordinary person as to the nature of the product and whether or not the product is one which falls within the relevant category …”

Counsel for Premier Foods seizes on this dictum and submits that the ordinary meaning is a question of fact so that no appeal lies from its particular application. He referred me to Brutus v Cozens [1973] AC 854. That case was concerned with a conviction for insulting behaviour under Section 5 of the Public Order Act 1936. At page 861, Lord Reid said:

“The question in the case stated for the opinion of the court is ‘Whether on the above statement of facts, we came to a correct determination on a decision in point of law’. This seems to assume that the meaning of the word “insulting”, in Section 5, is a matter of law and the Divisional Court appear to have proceeded on that footing. In my judgment, that is not right. The meaning of an ordinary word of the English language is not a question of law. The proper construction of the statute is a question of law. If the context shows that a word is used in an unusual sense, the court will determine in other words what that unusual sense is but here there is no question of the word “insulting” being used in any unusual sense. It appears to me, for reasons I shall give later, to be intended to have its ordinary meaning. It is for the Tribunal which decides the case to consider not as law but as fact whether, in the whole circumstances, the words of the statute do or do not, as a matter of ordinary usage of the English language, cover or apply to the facts that have been proven. If it is alleged the Tribunal has reached a wrong decision, then there can be a question of law but only of a limited character. The question would normally be whether that decision was unreasonable in the sense that no Tribunal acquainted with the ordinary use of language could reasonably reach that decision. Were it otherwise, we should reach an impossible position. When considering the meaning of a word, often one goes to a dictionary. There, one finds other words set out and if one wants to pursue the matter and find the meaning of those other words, the dictionary will give the meaning of those other words and still further, words which often include the word whose meaning one is searching. No doubt the court could act as the dictionary. It could direct the Tribunal to take some word or phrase other than the word of the statute and consider whether that word or phrase applied to or covered the facts proved but we have been warned time and again not to substitute other words with the words of the statute and there is a very good reason for that. Few words have exact similes. The overtones are almost always different.”

I do not accept the submission of counsel for Premier Foods. The issue is what is the meaning of the word “confectionery” in excepted Item 2 and Note 5? That is a question of law. The position is accurately summarised in Benyon on Statutory Interpretation, 3^rd Edition, page 945 to 956 in the following terms:

“The question of what a word means in its context within the Act is a question of legal interpretation, and therefore of law. The court is required to arrive at the legal meaning of the term. This does not mean that a jury cannot be left to apply an ordinary word without judicial exegesis. Nor does it mean that an interpretation put on an ordinary word by lay magistrates or any other lay tribunal is to be disturbed on appeal unless it is within the Wednesbury principle. Buckley LJ said of the meaning of the word “plant” in the Income Tax Act, ‘The statutes have not, at any time, contained a definition of the meaning of “plant”. Consequently the question is: what does that word mean and how does it apply to the particular circumstances of this case? That is a question of law, being one of interpretation, but nevertheless it is a jury question in the sense that the word “plant” is not a term of art; it must be interpreted according to its ordinary meaning as a word in the English language and the context in which it has to be construed; that is to say, the court construction was to interpret it as a man who speaks English and understands English correctly but not pedantically would he interpret it …”

The passage which I have just read notes in footnote 6 the case of Brutus v Cozens to which I had earlier referred.

Accordingly, it appears the error of the Tribunal in applying the dictum of Mr Justice Lawton in Popcorn must be recognised as an error of law. Its application also gave rise to two more errors. In paragraphs 26, 27 and 29, the Tribunal clearly directed themselves that for an item to be classified as confectionery for the purposes of excepted Item 2 and Note 5, its production must have involved (a) a process which can be recognised as cooking and (b) the addition to the primary ingredient of an extra element as sweetness. In my judgment, neither of those elements is a necessary condition for a product to be classified as confectionery. I accept the production of confectionery must involve some process applied to the ingredients in their natural state for that is necessarily implicit in the word. I do not consider that such process can only be one capable of being described as cooking. Any process of mixing or compounding is, in principle, sufficient. Similarly, I accept in its ordinary usage, confectionery is limited to products which can be described as sweet but I cannot see why such sweetness may not be inherent in the principal ingredient in its natural state but must be added by some further sweetener with which it is mixed or compounded. So far as I know, a stick of barley sugar does not involve any addition of further sweetness over and above its principal ingredient yet no one would doubt that it should be categorised as confectionery. It appears that in paragraphs 26, 27 and 29, the Tribunal erred in law in considering those two elements were essential to the categorisation of these fruit bars as confectionery.

Finally, I should note an argument raised by counsel for Premier Foods by reference to Note 5. By virtue of the Note, there is to be specifically included in the word “confectionery” both “drained, glace or crystallised fruits” and “sweetened, prepared food which is normally eaten with the fingers”. The submission was that as fruits and food of those particular descriptions required specific mention, fruits and food generally are not otherwise included in the term “confectionery”. I do not accept that submission either. First, it is illogical. The need to include fruits and food of a specific description does not lead to the implication that fruits and food generally would be otherwise excluded. This is particularly clear when one recognises that Note 5 provides for the specific inclusion of “sweets”. But such specific inclusion cannot lead to the inference that sweets would otherwise be excluded. They are the paradigm of confectionery. Second, it is contrary to the well recognised canon of construction that an enlarging definition does not normally affect the width of the term being enlarged. See, for example, Bennion, page 441.

In conclusion, I accept the Tribunal erred in the three respects I have mentioned. Those respects are all errors of law. Accordingly, I allow the appeal and as asked, remit the matter to the Tribunal to be differently constituted for them to determine afresh whether or not these fruit bars were or were not confectionery within the meaning of excepted Item 2 and Note 5 as set out in the VAT Act 1994, Schedule 8, Part 2, Group 1.

I will allow the appeal with costs and I will remit the matter to the Tribunal as indicated.