[2009] UKFTT 264 (TC)

TC00211
VALUE ADDED TAX – zero-rating – food product presented a seed stacked flapjack bar containing seeds, oats and honey – whether properly categorised as cake – no – decision that product should be categorised as confectionary and standard-rated – VAT Act 1994, s. 30, sch. 8, group 1, item 1, excepted item 2, note (5) – appeal dismissed

FIRST-TIER TRIBUNAL (TAX CHAMBER)

 
 	
					ASDA STORES LTD	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Ian Vellins (Judge)
		Jon Denny (Member)
			
Sitting in public in Manchester on 13th August 2009

W. Gill, VAT controller, for the Appellant

Richard Chapman, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2009
DECISION

Introduction
1.	Asda Stores (“the Appellant”) appeals against a decision of the Commissioners for Her Majesty’s Revenue and Customs (“the Commissioners”) that sales of the Appellant’s product, known as “Seed Stacked FlapJack” (“the product”), are subject to the standard rate of Value Added Tax.  The Appellant argues that the product should be zero-rated.
The relevant legislation
2.	Section 30 of the Value Added Tax Act 1994 provides that a supply of goods or services is zero-rated if the goods or services are of a description for the time being specified in Schedule 8.  Group 1 of Schedule 8 is headed “Food” and provides that the supply of food of a kind used for human consumption shall be zero-rated unless it is a supply in the course of catering or a supply of anything comprised in any of the excepted items, subject to a supply of certain items overriding the excepted items.
3.	This appeal does not relate to a supply in the course of catering.  The appeal relates to item 2 of the excepted items, namely – 
“Confectionary, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste or appearance.”
4.	Note (5) to Group 1 provides that – 
“… for the purposes of item 2 of the excepted items “confectionary” includes chocolates, sweets and biscuits; drained, glacé or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers.”
The issue for determination
5.	The Appellant argues that the product is a cake.  The Appellant argues that the product is a flapjack and therefore a cake.  The Commissioners argue that the product is not a cake.  The Commissioners argue that the product is standard-rated confectionary.  Accordingly, the issue for our determination is whether it is a “cake” so as to fall outside item 2 of the excepted items.
The background
6.	The background to this hearing can be set out as follows as an agreed statement of facts by the parties, and which we find as facts.
7.	The Appellant is registered for VAT with effect from 3 May 1981 under registration number 361012792.  The Appellant carries on business as a general retailer, including the production and sale of food products.  By a letter dated 1 May 2008 the Appellant sought the Commissioners’ agreement to the zero-rating of the product, which was to a be a new product described as a “flapjack”.  By a letter dated 24 June 2008 the Commissioners decided that the product was classed as confectionary rather than a cake and so standard-rated rather than zero-rated.  By a letter dated 23 July 2008 the Appellant requested a reconsideration of that decision.  By a letter dated 22 August 2008 the Commissioners upheld their decision on review.
8.	The Appellant appealed, stating in its Notice of Appeal dated 25 September 2008 as the grounds of appeal “the Commissioners have ruled that our produce “Seed Stack FlapJack” is an item of confectionary.  I consider that in terms of ingredients, preparation, presentation and fact, it is a cake similar to a traditional “flapjack”.  The produce has not been deliberately sweetened – honey has been used to bind the ingredients instead of butter”.
9.	Returning to the pre-hearing correspondence, it is relevant to set out in more detail the correspondence between the Appellant and the Commissioners.
10.	In the Appellant’s first letter to the Commissioners dated 1 May 2008, the Appellant stated that the Appellant was shortly to begin selling a new “own label” product and was seeking an agreement that it would be zero-rated.  The Appellant had held a “Dragons’ Den” competition and the winner had developed a product which was to be sold in the Appellant’ stores.  The Appellant stated that the product was to be a “Seed Stacked FlapJack”, and that the name implied that it was basically a traditional “oat flapjack – but with added seeds for health and digestive benefits”.  The Appellant stated that the ingredients were – 
	“23.3% rolled oats;
	13.5% sunflower seeds;
	13.5% linseed;
	7.36% pumpkin seeds;
	4.3% sesame seeds;
	39.8% honey.
	flavoured with nutmeg and vanilla extract.
After the ingredients have been mixed they are baked for approximately fifty minutes.”
11.	The Appellant wrote that the published guidance on products of this type was not without ambiguity, but that the Appellant believed that the product should be seen as a cake rather than an item of confectionary, because it claimed that it has the appearance of a flapjack, it does not contain “cereals other than oats”, it is baked, and it is unlikely to appeal to children or to be eaten as a “sweet snack”.
12.	In the Commissioners’ reply dated 24 June 2008, written after the Commissioners had received a sample of the product, the Commissioners set out that the initial aspect considered was on what basis was the product (leaving the name to one side) a flapjack?  The Commissioners considered that the product, whilst containing oats, did not contain any other typical ingredients of a flapjack (butter or margarine, brown sugar or golden syrup).  The Commissioners considered that in fact oats were actually a very minor part of the bar when compared to the other contents (oats 23.3%, seeds of all types 38.66%, honey 39.8%).  The Commissioners considered that on the basis of the contents, it seemed more apt to call the product a “seed bar” and comparable with a cereal bar rather than a flapjack.
13.	The Commissioners in the letter also considered whether the product should be treated as a cake or not, using the following tests – 
“1. Name: whilst called a flapjack, for the reason explained above, just because it contains oats does not automatically mean that it is a flapjack.
2. Ingredients: in this case as noted above there is no similarity between these bars and an ordinary flapjack other than the presence of oats.
3. Texture: the Jaffa Cakes case considered that a cake would generally be soft and friable, not able to be snapped and not crisp.  The product meets this criterion.  However I think in the context of a Jaffa Cake, the Tribunal was making a comparison between a cake and a biscuit, rather than a cereal bar.
4. Size: typical of both a cereal bar, other ordinary confectionary or a small piece of cake, therefore not really notable for any argument.
5. Packaging: much as the point above, cereal bars and cakes are commonly sold in similar packaging.
6. Marketing: no information held to comment on this point.
7. Manufacturing technique: the bars seem to be manufactured in a way that is similar to both that of ordinary cereal bars and ordinary flapjacks.
8. Consistency when stale: no information held to comment on this point.
9. Presentation: these bars are presented in a manner similar to many cake, cereal and flapjack products.
10. Attractiveness to children: not considered relevant to this product.
11. Core ingredients: whilst oats are a part of the product, they are in the minority both in bulk, texture, appearance and possibly in taste.  In this sense it is unlike an ordinary flapjack.”
14.	The Commissioners addressed the points raised by the Appellant on 1 May 2008 stating :-
“It is very debatable if this has the appearance of a flapjack.  It seems to look like many ordinary cereal bars, and the high proportion of seeds mean that it does not resemble any ordinary flapjacks.
It does not contain cereals other than oats.  However it only contains 23% of oats and they are in the minority to other ingredients that give the bar its character.
We consider that the manufacturing process is not relevant.  What matters is what the final product is.
This point about appealing to children is covered at 10 above.
Considering all the above factors…, we conclude that this product is not a cake and should be classed as confectionary and subject to VAT at the standard rate.”
15.	The Appellant’s letter dated 23 July 2008 requesting the reconsideration of the decision stated as follows :-
“The product is not yet in full production; however I can confirm that the ingredients are
	Honey 40%
	Rolled oats 19%
	Sunflower seeds 14%
	Linseed 14%
	Pumpkins seeds 7%
	Sesame seeds 6%
	Plus nutmeg and vanilla extract.
It seems to me that this product can only be excepted from the zero-rating which applies to “food for human consumption” if it meets the definition of “confectionary”.  Whilst it may well be that many cereal bars are liable to VAT, I do not think that such products are necessarily included within the second excepted item, it is necessary to determine whether they are either confectionary in the everyday sense, or items of sweetened prepared food.  I do not dispute that this product is likely to be “eaten with fingers”.
Our product is not sweetened; it is bound together with honey and has no added butter or fat, unlike a “traditional flapjack”, in order to enhance its healthy properties.  Honey is warmed prior to being added to the mixture in order to better bind the ingredients together.  During the cooking process the oils and fats in the seeds diffuse into the mixture and assist with the binding together.  Without the honey the product will simply remain loose and be best described as “seed stacked muesli”.
My colleague who developed the product set out with the aim of developing a healthy product, primarily as a way of including seeds in the diet in a palatable way – he certainly did not wish to produce confectionary.  In our view the “common man” if provided with our product would feel that it looked, smelled and tasted like a flapjack.
If left out of the packaging for any period of time this flapjack becomes hard.”
16.	In the Commissioners’ reply dated 22 August 2008, the Commissioners pointed out that the Compact Oxford English Dictionary gives the following definition of “flapjack” as, in Britain, “a soft, thick biscuit made from oats and butter”, and in north America as “a pancake”.  The Commissioners considered that the Appellant’s product did not fit this description, and pointed out that in the opinion of the Commissioners the “ordinary man in the street” would not regard the product as a flapjack.  The Commissioners considered that the Appellant’s product was similar in terms of how its VAT liability should be determined, to that manufactured by Bells of Lazenby Ltd which was the subject of a tribunal decision where the tribunal ruled that that product was not a cake and fell within the definition of “confectionary”.
The evidence at the hearing
17.	At the hearing, evidence was presented on behalf of the Commissioners in the form of a witness statement of Graeme Royston, a higher officer of the Commissioners, who had made the decision of the Commissioners dated 24 June 2008.  That witness statement was accepted by the Appellant.  Mr. Royston set out in his witness statement the correspondence between the Appellant and the Commissioners.  We heard oral evidence from Mr. Chris Thompson, who created the recipe for the product and who produced the product for the Appellant.  He produced a written presentation of the product, setting out the origins of the product, its ingredients and photographs of the product.  We were supplied with and sampled the product.
The facts
18.	We have already set out the facts that were agreed by the parties prior to the hearing, as set out in the background.  We make the following findings of fact as a result of the evidence that we have heard at the hearing of the appeal.
19.	The evidence at the hearing of the appeal on behalf of the Appellant was given by the creator of the product, Mr. Chris Thompson, whose original career was as a professional wrestler.  After being diagnosed with Crohn’s disease in 2005 he had lost four stone in weight during the first year and had to give up his career as a professional wrestler.  He had wished to include in his diet seeds due to their health benefits.  He found it boring eating seeds alone so started to create recipes in his kitchen.  He was placed in remission during February 2008, which he attributed mainly to his diet.  He decided to start selling some of the products that he created, including what he named as a Steed Stacked Flapjack, containing pumpkin seeds, sunflower seeds, linseeds, sesame seeds, oats, honey, nutmeg and vanilla.  He produced the product which he termed in his presentation document as a “bar” initially in Nottingham and finally at a factory in North Wales.  He entered a national competition at Asda, where he worked, in which he came first in this Dragons’ Den-style competition, as a result of which the Appellant undertook to sell the product in the Appellant’s stores.  Mr. Thompson said that his decision to call the product a flapjack was not in order to obtain any VAT benefit.  He said that when displaying the product for sale the Appellant did not treat the product as confectionary but placed the product in its stores on stacking units near to the fruit and vegetables, among the nuts, dried fruits and seeds.  Previously, in certain stores, the product had been placed near a till point with nuts and not amongst confectionary.  The policy of Asda had not been to market the product for children, and Mr. Thompson did not believe that the product was specifically attractive to children.  Mr. Thompson stated that the recommended retail price of the product was 79 pence inclusive of VAT, but that the Appellant sold the product at 65 pence inclusive of VAT.  The product was not only sold at Asda stores, but Mr. Thompson also supplied the product to over three hundred independent retailers.  He said that when sold at independent health food stores the product would be displayed with nuts and seeds on the shelf.  At present he did not sell the product to fitness centres or gymnasia.
20.	Mr. Thompson did not produce any market survey reports on his product, nor did he produce any documentation relating to the reaction of customers to the product.  He did say however that he had handed samples of the product to customers of the Appellant at its stores, and he said that he had received a lot of feedback from such customers that the product was too sticky to eat as a snack bar, but that the customers would eat the product in a bowl with yoghurt or cream on top.  He said that it was also very common for customers to heat the product in a microwave to soften the product to be eaten with a topping.  Mr. Thompson accepted however that he could produce no detailed evidence of any customer survey of the product.  The product had a shelf life date on the outer cellophane of eight months from the date of manufacture.  He stated that if the product was left for that eight month period the product would increasingly get drier and harder.  Mr. Thompson said that the product was not aimed at children.  He said that children could eat it but it could be too bitty and that the seeds were not attractive to children, and the look and taste of the product is an acquired taste, where the age group that consumed the product is generally over the age of thirty.  His intention to produce the product was originally to produce a natural, healthy product without unhealthy ingredients.  The honey is used to bind the product.  He had found that honey was a beneficial binding product for himself as a sufferer of Crohn’s disease, whereas other binding agents such as golden syrup, maple syrup, butter and sugar were not healthy for him to consume.  He said that he creatively marketed the product to people suffering from Crohn’s disease and digestive problems in his literature and in his sponsorship of a charity for sufferers of Crohn’s disease.  He believed that incorporating seeds in his diet had assisted him in his remission from the disease.  He had not produced any medical report, but said that a hospital in London was interested in working with him in research into Crohn’s disease.  He said that he personally consumed two bars for breakfast and another bar at the end of his main meal.  He said that 250,000 bars had been sold since the launch of the product.  The product is now contract-manufactured.
21.	Mr. Thompson said that honey was used to bind the ingredients both for health advantages and also because honey adds sweetness in its own right, so that no additional sweetener is needed.  He said that it was a matter of taste as to whether people found it sweet.  He said that some people saw the product as very sweet and other people found that it tasted savoury.  He agreed that the packaging and labelling contained the words “bound softly and sweetly together with natural honey”.  He agreed that people did associate honey as a sweetener.  He agreed that without the honey the product would be like seeds of muesli.  He said that the seeds and oats when mixed together were dry and that the honey was warmed to a running consistency in manufacture and then added to the seeds and oats which then swelled.  The product is baked at a low temperature, which pulls together the bar and drives off the moisture to hold the bar together.  Mr. Thompson did not agree that the product was similar to muesli and honey, as he said that he did not know anyone who would eat muesli with honey without adding milk or yoghurt.  He said that he did not agree that his product was merely muesli and honey in a bar and said that the packaging on the bar did not describe it as muesli.
22.	Mr. Thompson was asked if his product was any different from a seed bar.  Mt. Thompson replied that that would depend on how a person defined a seed bar.  He said that on the market were products which were called seed bars but he thought that these did not contain oats, and that they would have added sugar and other binding agents than honey, although they would contain a lot of seeds.  Mr. Thompson said that cereal bars covered a wide spectrum and usually contained more than one cereal, but he said that his product was not viewed by him as a cereal bar but as a flapjack.  He agreed that his product was different from a traditional flapjack as his product did not have all the ingredients of a traditional flapjack.  He agreed that oats were the only link between his product and a traditional flapjack, but he said that sometimes honey could be used in a flapjack.  He said that he had called it a flapjack because that was what he thought it was.  He said that if the product was taken out of its packaging he would still perceive it as a flapjack.  Mr. Thompson was asked if he would call his product a cake.  He replied that when eaten it lent itself to that as it was eaten after dinner.  When asked if it was really a cake he replied that that was subjective.  He said that he would eat it at the end of a meal for digestive reasons.  It was put to Mr. Thompson by the Respondents’ counsel that the bar was normally eaten with the fingers.  Mr. Thompson replied that it depended on who ate the bar.  He agreed that when packaged the bar was surrounded by cardboard on three sides (except the top), because Mr. Thompson said that it was too sticky otherwise to eat in the hand.  He agreed that it was not stacked in stores with cakes.  He said that he had tried to market the product to health conscious customers.
23.	The wording printed on the cardboard surrounding the bar stated “Steed Stack FlapJack”.  On one side it was designated “natural seeds, oats and honey”, suitable for vegetarians, free from wheat and dairy and “indulge yourself in health”.  On another side, in addition to the sell-by date the product was described as “a delicious and energy packed flapjack, comprised of rolled oats, mixed with nature’s finest sunflower seeds, pumpkin seeds, sesame seeds and linseeds, then bound softly and sweetly together with natural honey”.  On the final side of the packaging are the words “Seed Stacked.  At Seed Stacked our aim is to bring healthy seeds back into everyday diet, incorporating them into tasty products and treats we all like to eat”.  The percentage of the ingredients is then stated together with allergen advice, and the weight of the ingredients.  The bar weighs 50g and the dimensions are 3 ¾” in length, about 1” in width and about 7/8 of an inch in depth.
24.	We tasted the product.  We found that the product had a slightly sweet taste of honey but that it was not very sweet.  It was chewy, and needed to be well-chewed before swallowing.  It was fairly dry.
The Commissioners’ guidance
25.	There was produced to us the Commissioners’ published guidance, so far as relevant to this case.  Notice 701/14 explains when food can be zero-rated.  Paragraph 3.4 states that most traditional bakery products such bread, biscuits and cakes are zero-rated but that some confectionary items are standard-rated.  The summary indicates that flapjacks are zero-rated but cereal, muesli and similar bars with honey or other added sweetening matter are standard-rated.
26.	Section 3.6 of the Notice is headed “confectionary” and states that standard-rated confectionary includes, chocolates, sweets and candies, chocolate biscuits and any other “items of sweetened prepared food which is normally eaten with the fingers” – and which must be both sweetened and have some sweetness to the taste.  Examples of zero-rated confectionary include cakes, including sponge cakes, pastries, éclairs, meringues, flapjacks and marshmallow teacakes.  Example of standard-rated confectionary include cereal bars with the exception of bars which qualify as cakes, and bars consisting mainly of sesame seeds and sugar or other sweetening matter, and compressed fruit bars, consisting mainly of fruit and nuts, with added sweetening matter (including honey).
27.	The Commissioners’ published manual includes Volume V Food 6200 – Excepted Items: confectionary: the bounds of confectionary, sweets (this was formerly V1-7-8).  This sets out that cakes, whether or not covered with chocolate, are excluded from the terms of excepted item 2, and are therefore zero-rated as food.  Cakes includes sponge cakes, fruit cakes, pastries, éclairs, meringues and Jaffa Cakes.  Though there is no accepted definition of the word, cake is often made from a thin batter containing flour and eggs, and aerated in the process of cooking.  The manual states that in most cases the borderline between cakes and confectionary causes few problems, but there are products whose status as cakes is not self-evident.  They will normally be marketed as cakes, through bakeries and supermarkets rather than through confectionary outlets, and will be displayed with cakes and biscuits rather than in the confectionary section.  The style of packaging used will also normally follow the pattern for bakery products, with a number of individual portions boxed and cellophane-wrapped so the contents are revealed.  They are also usually eaten as part of a meal rather than between meals as confectionary.  The manual states that flapjacks are zero-rated as cakes.
28.	Flapjacks are described in the guidance in the following terms :-
“Flapjacks.  It is our policy that there is a difference between flapjacks and cereal bars.  This policy development arose because, at the inception of VAT, flapjacks were widely accepted as cakes, and cereal bars were not widely available, if at all.  Flapjacks were accepted as being a cake of common perception and widespread home-baking, not because of any specific reasoning behind such factors as their recipe, ingredients or the manufacturing process.  However, since that time, the difference between flapjacks and cereal bars has narrowed due to the development of cereal bars and their current proliferation on the market.  The amendment to the law in 1988 was made to bring products, particularly cereal bars, within the scope of the standard rate by defining confectionary as sweetened items of prepared food normally eaten with the fingers.  As a result, cereal bars were standard-rated as long as they are sweetened.  The problem that has arisen is that flapjack is, historically, accepted as a cake, which should probably now be categorised as a cereal bar, and therefore standard-rated within the legislation.
VAT treatment of flapjacks.  We therefore define flapjack narrowly as it is intended to only apply to that product as it was at the inception of VAT.  We allow the zero-rating of standard flapjacks along with minor variations for example when ingredients like dried fruit, raisins, chocolate chips etc are added.  We view the addition of topping similarly, such as with a layer of chocolate or yoghurt.  We draw the line between flapjacks and cereal bars at any alteration to a flapjack that takes it into the category of being a cereal bar.  We interpret this with our policy that traditional flapjack consists solely of oats.  The addition of cereals to product turns it into a cereal bar, as it is no longer a traditional flapjack.  It is difficult to draw a borderline between the two products, as flapjacks could easily be viewed as cereal bars.  However the above policy is, we believe, fair and reasonable while being consistent with the law and with the development of the policy since the inception of VAT.  More recently this borderline was examined by the tribunal in the case of Torq Ltd (V.19389).  This case considered a cereal bar that was claimed to be either similar to a flapjack or a cake.  Accordingly it is relevant to this subject area.”
The Appellant’s contentions
29.	Mr. Gill for the Appellant submitted that the Appellant did not believe that the product was an item of confectionary, and considered that the product should be zero-rated and not standard-rated.  Mr. Gill submitted that the Appellant in selling the product had not treated it as confectionary.  He considered it to be a health product.  He also submitted that if the common man was provided with the product, the common man would feel that it looked, smelled and tasted like a flapjack.  Mr. Gill submitted that the Appellant did not need to prove that the product was a cake, but merely that it is not an item of confectionary.  Mr. Gill submitted that the product contained significantly different ingredients to a traditional flapjack, but submitted that the product could still be regarded as a flapjack.
The Respondents’ contentions
30.	Mr. Chapman submitted on behalf of the Respondents that the product was standard-rated for VAT.  He submitted that the case was not about seeing whether the product is confectionary but the question is whether or not it is a cake.  The burden is on the Appellant to show that it is a cake.  He submitted that cake and confectionary are not mutually exclusive.  He submitted that it is important to see that the key is the similarity of a product to a cake and not its similarity to a flapjack.  He submitted that the appropriate test was whether or not the ordinary person would treat the product as a cake.  He submitted that the fact that, after having discarded the term cake, it may be difficult to find any term other than “confectionary” to describe the product does not affect the task.
31.	Mr. Chapman submitted that the product was not a cake.  Although the product had “flapjack” within its name this was not determinative.  In any event its full name is a “Seed Stack FlapJack”, which focuses upon the inclusion of seeds.  This distances the product from a traditional flapjack.  He submitted that the only real similarity with a flapjack was the presence of oats.  However the main ingredients are seeds, which are not generally found in cakes.  He submitted that without the use of honey the product would simply be a stack of seeds.  He submitted that the product was primarily marketed by reference to the benefits of seeds.  The largest ingredient is honey which, although natural, sweetens the product.  The product is designed to be eaten with fingers.  The product is sold as a bar rather than a cake.
32.	Mr. Chapman submitted that in reality the product was a cereal bar and / or seed bar, but in any event its status as a “non-cake” renders the product standard-rated confectionary.
33.	Mr. Chapman submitted that the product would not be looked upon by an ordinary person as a cake.
34.	Mr. Chapman submitted that the product was marketed as having added sweetness with the ingredient of natural honey.  Mr. Chapman submitted that he had tasted the bar and that it did not taste very sweet but it did leave an aftertaste of honey and on any view it did taste sweet, although not as sweet as one might expect.  However, crucially, it was marketed as having sweetness with the words on the packaging “bound softly and sweetly together with natural honey”.  The cardboard packaging around the bar had the result that it was easy to be eaten with fingers, while holding the cardboard packaging to avoid stickiness.  He submitted that limited weight should be given to the evidence of Mr. Thompson relating to the reaction of customers to tasting the product, as Mr. Thompson had not produced a market survey or records of the response of customers, or indeed details of what customers were asked when they tasted a sample of the product.
Decision
35.	In this appeal, the Commissioners decided that the sales of the Appellant’s product, sold as “Seed Stack FlapJack”, are subject to the standard rate of Value Added Tax.  The Appellant appealed, submitting that its product should be zero-rated.  Schedule 8, group 1, item 2 excepts from zero-rating “confectionary,  not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance”.  Note 5 to group 1 provides that “for the purposes of item 2 of the excepted items “confectionary” includes chocolates, sweets and biscuits; drained, glacé or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers”.
36.	Having considered all the evidence in this appeal we find that the Appellant’s product is an item of sweetened prepared food, which is normally eaten with the fingers.  We find that the product has been sweetened with honey, honey being an ingredient comprising 40% of the product.  Having tasted the product we find that it has the taste of sweetened prepared food, although it is not highly sweet in taste.  We find that the method of packaging, as a bar, surrounded by cardboard and cellophane would be regarded by the ordinary customer as a bar which would be normally eaten with the fingers.  Mr. Thompson, as a sufferer of Crohn’s disease, found that it helped his digestion to eat the ingredients for breakfast with added milk or yoghurt.  We find that the normal customer purchasing a bar at a cost of 65p per bar, would normally purchase the bar to eat it with the fingers, and not normally to purchase a numbers of the bars to be broken up for breakfast to be eaten in a bowl with added milk or yoghurt.  On all the evidence in this appeal we find that the product is “confectionary” for the purposes of item 2 of the excepted items.
37.	However the Appellant argues that the product is a flapjack, and that as the Commissioners accept that flapjacks are cake, then the Appellants product should be regarded as a cake so as to fall outside item 2 of the excepted items.  The Commissioners contend that the Appellant’s product is not a cake.
38.	On all the evidence in this appeal we find that the Appellant’s product is not a cake, and we find that the product does not fall outside item 2 of the excepted items.
39.	We find that the ordinary person would not treat the product as a cake.  In reaching that decision we have taken into account a number of factors and reasons.
40.	The product is sold by the Appellant as a bar rather than a cake.  It is not displayed for sale on the stacks of the store on which cakes are sold.  Although the appearance of the product is not decisive, we find that the appearance of the product resembles a bar and does not resemble what is ordinarily seen as a cake.
41.	The bar is of the size, shape and consistency of a bar designed to be eaten with fingers.  We find that the product would normally be regarded by the ordinary person as a bar to be eaten with the fingers, although we accept that customers purchasing the bars could use them, for example, for breakfast purposes, by breaking up the contents of a number of bars, placing them in a bowl, and covering them with milk or yoghurt.  We find that the price of the product – at 65p per bar -, for a relatively small bar, would not be regarded as an economical purchase for the purpose of such breakfast eating, compared with the obviously much cheaper cost of purchasing larger packets of breakfast cereal to be eaten in this way.  We find that the product is designed to be eaten with fingers.
42.	40% of the ingredients consist of honey as a natural product, which sweetens the product.  We found that the product had a slightly sweet taste, and that the sweetness of the taste remained when the bar was chewed, the remaining products being oats and seeds, which blended in taste with the sweetness of the honey.  We find that the product is an item of sweetened prepared food which is normally eaten with the fingers.
43.	We find that the product is not primarily marketed as a cake.  It is marketed on the packaging of the product as being “Seed Stacked” with the emphasis being on the benefit of the seeds together with the oats and honey.
44.	We find that the product is not similar to a traditional flapjack, or to a cake.  We find that although the product contained oats, it did not contain any other typical ingredients of a flapjack such as butter or margarine, brown sugar or golden syrup.  We further find that the oats are a minor part of the bar when compared to the other contents of seeds and honey, the oats comprising of 19% of the ingredients.
45.	We have taken into account the name given by the Appellant to the product.  We find that although the product is called “Seed Stacked FlapJack” by the Appellant, the name given to the product by the Appellant is not definitive.  We find that it is not a flapjack.  We have taken into account the ingredients of the product.  We find that there is little similarity between the product and an ordinary or traditional flapjack.  We find that the texture of the product is not as soft as a traditional cake, although we would not describe it as being as crisp as some biscuits.  We find that the texture is not an important factor in this appeal.  The size of the product is typical of a cereal bar or health bar and of other ordinary items of confectionary, but the size could be comparable to the size of a small piece of cake, and we find that the size of the product is not significant.  We find that the packaging and manufacturing techniques are not definitive of the nature of the product, nor its presentation or attractiveness to children.  We find that the product does not have the appearance of an ordinary or traditional flapjack.
46.	In reaching our decision we have followed the guidance of the relevant legal authorities.  We have followed the guidance of Sir Andrew Morritt in HMRC v Premier Foods Ltd [2007] EWHC 31314 (Ch) at paragraph 13 and of Lord Woolf, MR, in Commissioners of Customs and Excise v Ferraro UK Ltd [1997] STC881, which suggests that the question that should be asked is “what is the view of the ordinary person as to the nature of the product on whether or not the product is one which falls within the relevant category?”.  Accordingly “confectionary” is to be given its ordinary meaning.
47.	In the Premier Foods Ltd case at paragraph 17 it was suggested that a process of cooking is not necessary for a product to be classified as confectionary – any process of mixing or compounding is in principle sufficient.  At paragraph 17 of that case it was considered that confectionary is limited to products which can be described as sweet, but that sweetness can be inherent in the principal ingredient in its natural state rather than requiring to be added by some further sweetener with which it is mixed of compounded.  That view was also taken in the case of Bells of Lazonby Ltd v The Commissioners For Her Majesty’s Revenue and Customs (VATD 20490).
48.	We agree with the chairman of the tribunal in the Bells of Lazonby Ltd case at paragraph 12 that a product’s similarity to a flapjack is not determinative of whether or not it is a “cake”.  We further agree with that chairman’s view at paragraph 17 that the purpose of Note 5 to Schedule 8 is not to limit confectionary but to bring within it items which might otherwise be outside it.  We have also taken into account the guidance offered by the tribunal in the case of United Biscuits (UK) Ltd v HMRC (VATD 6344) (the Jaffa Cake case), which considered that relevant considerations as to the category of a product are its name, ingredients, texture, size, packaging, marketing, manufacturing technique, consistency when stale, presentation, attractiveness to children and core ingredients.
49.	We agree with the conclusion of the tribunal in the case of Torq Ltd v The Commissioners of Customs and Excise (VATD 19389) that ultimately each case will turn upon a matter of impression.  The chairman at paragraph 32 stated “we have to consider, therefore, whether Torq Bars have sufficient characteristics of a cake to make them cake rather than some other product”.  At paragraph 74 the chairman stated “the question always is whether Torq Bars have sufficient affinities with cake to be recategorised as a cake”.  At paragraph 75 the chairman stated “the final decision in any particular case is likely to be a matter of impression based on any number of different combinations… rather than just seeing how many ticks there are on the list in comparison to the number of ticks on the particular list compiled by another tribunal in another case”.
50.	Accordingly, we believe the correct question is whether the Appellant’s product is a cake, and our answer on the basis of the evidence and our examination of the product is that it is not.  We find that the “Seed Stacked FlapJack”, sold and supplied by the Appellant, is not a cake, and that it is an item of sweetened prepared food which is standard-rated confectionary not being cake.
51.	It is not necessary for us to decide what is the precise attribution of the product.  However, we find that if we needed to identify or characterise the product, it would more likely to be as a cereal bar or seed bar or cereal and seed bar.  We do not categorise it as a flapjack.  Whatever the correct name or identification of the product should be, we find that it cannot be categorised as a cake and we therefore dismissed the appeal.
52.	We are satisfied that the Appellant’s product is properly classed as confectionary and not as cake, and that the appeal must be dismissed.  No application was made for a direction in respect of costs by the Commissioners and we make no order as to costs.
MAN/2008/1278

IAN VELLINS
JUDGE
Release Date: 16 October 2009