[2009] UKFTT 351 (TC)

TC00289

Appeal number: LON/08/1929

ZERO-RATING – food supplied for delivery – whether supplied above ambient temperature in order to demonstrate that it is freshly cooked or for the purpose of enabling it to be consumed hot – the latter (by Chairman’s casting vote) – appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	DELIVERANCE LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (VAT)	Respondents

		TRIBUNAL: 	JOHN F AVERY JONES CBE (Tribunal Judge, Chair)
NICHOLAS DEE

Sitting in public in London on 12 October 2009

Alun James, counsel, instructed by Vantis Group Limited, for the Appellant

Richard Smith, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	Deliverance Limited appeals against a decision letter of 28 July 2008 rejecting its voluntary disclosure claiming repayment of VAT of £184,945.00 (subsequently reduced in respect of items no longer supplied) for periods 07/05 to 01/07.  The issue is whether certain food supplied by the Appellant is standard-rated for VAT as “hot food.”  The Appellant was represented by Mr Alun James, and the Respondents (“HMRC”) by Mr Richard Smith.
2.	The statutory provision in issue is Note (3) to Group 1 of Schedule 8 to the VAT Act 1994: 
“(3) A supply of anything in the course of catering includes—
(a)    … 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 above that temperature at the time it is provided to the customer.”
3.	We heard evidence from Mr Sherman Dye, the Director of Operations of the Appellant and we had the benefit of visiting the Appellant’s premises at 8-10 Warner Street, London EC1 to see food being prepared.  A sample of food was prepared in the normal way and dispatched to the Tribunal where we sampled it.  A witness statement of officer Elaine Mort, who had visited the premises earlier, was admitted unopposed.  We found the evidence of Mr Dye both credible and consistent given his considerable experience in the food business.  We find the following facts:
(1)	The Appellant supplies food for delivery only.  All food is cooked to order and delivered to the customer by motorcycle within 45 minutes of ordering.
(2)	There is a menu comprising salads, and European, Italian, Japanese, Chinese, Thai and Indian dishes, and also puddings, wines and beers and snacks.  Most of these are clearly hot or cold food but the items in dispute are: aromatic crispy duck pancakes (comprising duck, pancakes, spring onion and cucumber and plum sauce which the customer makes up into individual pancakes), spring rolls (duck and vegetable) with dip, samosas with dip, falafels with dip (no longer sold), sesame prawn toast, onion bhajis, and breads (naan, pitta, garlic and peshwari).  The menu does not describe food as hot or cold, except that the separate summer menu describes a few items as served cold where this might otherwise be unclear.
(3)	The duck for the duck pancakes is bought cooked and frozen and is defrosted and then deep fried and put into a foil bag.  The pancakes are purchased in sealed packets of six which are stored chilled.  At the time of the voluntary disclosure they were heated in a microwave, but this is not now carried out as they are put into the same foil bag as the duck and are warmed by the duck, which facilitates separating them, one from another.  The spring onion and cucumber salad is prepared and stored in the fridge and served in a sealed plastic container.  The plum sauce is made by the Appellant and stored in individual containers in the fridge.  After delivery the customer needs to shred the duck with two forks, the pancakes need to be separated and then individual pancakes made up with each of the ingredients.
(4)	The spring rolls, bhajis, samosas, falafels and sesame prawn toast are already cooked and prepared and then frozen.  They are deep fried and then placed in a cardboard box with the dip (not applicable to sesame prawn toast) which had previously been kept refrigerated.
(5)	The breads are made from dough prepared internally.  The dough is rolled and baked and put into foil bags which have holes punched in them to allow the steam to escape.
(6)	All the cooked items are put into a cardboard box which is put on a shelf with heating above while the complete order is assembled.  Cold items are put in bags.  The hot items of the complete order are put in a heated cupboard for a maximum of 15 minutes pending dispatch.  The complete order including the cold items is then put into a padded bag which goes into a lined box on the motorcycle for delivery.  The reason for treating the disputed items in the same way as other hot food in this respect is to save having a separate system for dealing with them and in order to comply with the Regulations below.
(7)	Mr Dye carried out temperature checks of food in July 2009 when the room temperature was 26°C.  These showed that the duck after cooking was at 87 to 90°C and after an assumed dispatch time of 15 minutes and journey time of 20 minutes it was 55 to 61°C.  The salad started at 8°C and was 26 to 27°C on delivery; the plum sauce started at 8°C and was 24 to 27°C on delivery; and the pancakes (at the time microwaved) started at 36 to 38°C and were 38 to 40°C on delivery.  After assembly of the individual pancakes the temperature of the whole was 27 to 29°C.
(8)	The temperature of the other food items, giving the after-cooking and delivery temperatures respectively (separated by a /) were:
(a)	Spring rolls 73 to 74°C/49 to 50°C; and the dip 8°C/36 to 38°C.
(b)	Breads (four types) 85, 85, 87 and 91°C/45, 47, 47 and 49°C
(c)	Bhajis 70°C/50°C; dip 8°C/30°C
(d)	Sesame prawn toast 77°C/47°C
(e)	Samosas 97°C/56°C; dip 8°C/26°C.
(9)	The majority of complaints were about food intended to be supplied hot not being hot.  The disputed items did not normally give rise to any such complaints.
(10)	Mr Dye’s evidence was that the Appellant’s purpose in heating the food and keeping it hot pending and during delivery was so as to demonstrate that the food was freshly cooked.  We accept this and consider below the effect on the interpretation of Note (3).  We accept his evidence that all the disputed items could be eaten cold.  We regard it as a matter of opinion whether they are better eaten hot or cold.
4.	The Food Safety (Temperature Control) Regulations 1995 (applicable for periods to 11 January 2006) provide in reg 4 that no person shall keep any food which is likely to support the growth of pathogenic micro-organisms or the formation of toxins, with respect to any commercial operations, at a temperature above 8ºC.  The current Food Hygiene (England) Regulations 2006 are the same in reg 2 of Sch 4 (the appropriate Regulations are referred to below as “the Regulations”).  In relation to hot food
(1)	Regulation 8 of the 1995 Regulations provides:
8. No person shall in the course of the activities of a food business keep any food which-
(a) has been cooked or reheated;
(b) is for service or on display for sale; and
(c) needs to be kept hot in order to control the growth of pathogenic micro-organisms or the formation of toxins,
at or in food premises at a temperature below 63°C.
(2)	Regulation 6 of Sch 4 of the 2006 Regulations provides: 
6. Any person who in the course of the activities of a food business keeps at or in food premises at a temperature below 63°C any food which -
(a) has been cooked or reheated;
(b) is for service or on display for sale; and
(c) needs to be kept at or above 63°C in order to control the growth of pathogenic micro-organisms or the formation of toxins,
shall be guilty of an offence.
Food premises are defined in s 1 of the Food Safety Act 1990: “‘food premises’ means any premises used for the purposes of a food business.” 
(3)	Regulation 9(2) of the 1995 Regulations provides:
(2) In any proceedings for an offence of contravening regulation 8, it shall be a defence for a person charged to prove that the food-
(a) had been kept for service or on display for sale for a period of less than two hours; and
(b) had not previously been kept for service or on display for sale by that person.
Regulation 7(2) of Sch 4 to the 2006 Regulations is the same with a different cross-reference.
(4)	Regulation 11 of the 1995 Regulations provides:
11. A food business responsible for cooling any food which must, by virtue of this Part, be kept at a temperature below ambient temperatures shall cool that food as quickly as possible following-
(a) the final heat processing stage; or
(b) if no heat process is applied, the final preparation stage,
to the temperature at which, by virtue of this Part, it must be kept.
We did not see any corresponding provision in the 2006 Regulations. 
5.	In relation to the Regulations we find that the minimum 63°C for cooked food in reg 8 applies to food premises, which means the Appellant’s premises and not the delivery motorcycles.  Although there is a defence for food kept for service (which we find is the case here) for less than two hours, the person allowing food to be kept below 63°C would have potentially have committed an offence to which this is a defence.  Mr Dye said that he would not rely on the defence and the Appellant kept the food above 63°C while on the premises to comply with the Regulations.
6.	Mr James, for the Appellant, contends in outline:
(1)	The Appellant’s aim is to provide food that is freshly cooked.  That was the dominant purpose even though inevitably the disputed items (except for the duck pancakes) retained some heat.  The fact that they were hot did not mean that it was the Appellant’s purpose to enable them to be consumed hot any more than was the case with the pies in John Pimblett and Sons Limited v Customs and Excise Commissioners [1988] STC 358.
(2)	The disputed items are “deli” items which are unlike other hot food.  Unlike the situation in Domino’s Pizzas v Customs and Excise Commissioners (2004) VAT Decision 18866, here the Appellant is indifferent to whether the disputed items are consumed hot.  They are equally good when eaten cold.  The menu makes no representations about their being hot or cold.
(3)	The duck pancakes are in a separate category as they required preparation by the customer before they could be eaten and they were within the range of ambient temperature when provided to the customer, meaning when the customer had made up the pancakes.
(4)	Following the hearing in reply to Mr Smith’s further written submissions (see below) about The Lewis’s Group Limited v Customs and Excise Commissioners (1990) VAT Decision 4931 and Stewart’s Supermarkets Limited 195) VAT Decision 13338, these cases were on all fours with the present.  There a supermarket cooked chickens and kept them above 63º C in heated cupboards for regulatory reasons and the Tribunal found that they had no purpose that they should be eaten hot.  If a customer wanted to eat a chicken hot he could time the purchase accordingly, but that was an effect rather than one of the taxpayer’s purposes.  The fact that the supply was by a supermarket was not relevant or relied on in the decisions.  Food is not generally accompanied by cutlery, napkins etc (except for very small numbers of cutlery).  The fact that hot chickens were less manageable to eat as a takeaway item was an additional but not essential element in the decision in Lewis’s; it is more emphatically true here of the crispy duck which requires further preparation.
7.	Mr Smith, for HMRC, contends in outline:
(1)	The disputed items are dealt with in exactly the same way as other food which it is accepted is heated for the purpose of enabling it to be consumed hot.  Unlike Pimblett the disputed items were kept hot after heating, which the Court of Appeal regarded as a factor to be taken into account in assessing the asserted purpose.  The Tribunal was not bound by the asserted purpose.  It was logically impossible to have a purpose of demonstrating that the disputed items were freshly cooked without also having the purpose of enabling them to be consumed hot.
(2)	The Appellant would have satisfied the two hour defence in reg 9(2) of the 1995 Regulations or para 7 of Sch 4 of the 2006 Regulations if it had not kept them hot after cooking.
(3)	On Mr Dye’s temperature measurements all the disputed items (or at least one of the items in an order comprising more than one item) were above the ambient temperature when provided to the customer, meaning the time of delivery.  There is no possibility of saying that they were within the range of the ambient temperature.
(4)	Following the hearing he made a further submission in writing on The Lewis’s Group decision that had not been cited in advance.  That case was distinguishable on its facts: the supermarket was normally selling cold food, the chickens were cooked in batches rather than to order, no attempt was made to enable the customer to eat it hot (it was packed in a foil bag to prevent grease getting on other shopping, unlike this case where it was kept warm in an insulated bag), the customer could only eat it hot by timing the purchase with a mealtime (here the order would be timed to arrive at a mealtime), and the Tribunal accepted that if the taxpayer had intended it to be eaten hot it would have been packaged differently with condiments, vegetables and plastic cutlery (here the meal is complete).  In practice HMRC apply zero-rating to food sold in supermarkets if it is not held out for sale to suggest that it is intended to be eaten hot; that it does not form part of a “meal deal” suggesting that it is part of an overall supply of a meal; consumption hot is not facilitated by for example including cutlery or providing heat retaining packaging; there are no separate checkout facilities or positioning of the food close to the exit to facilitate immediate consumption.
8.	Guidance on the construction of Note (3) has been given by the Court of Appeal in Pimblett in which the test was described as a “precise one.”  The facts in that case were:
“The pies are centrally prepared in the bakery. In the bakery the filling of the pies is cooked and the cooked fillings are enclosed in their pastry covers. They are then taken early in the morning to the retail shops, where the second process of heating takes place. They are baked in the shops in ovens with which the shops are equipped in order to cook the pastry covering which, in this process, re-heats the filling which had been previously cooked in the bakery. When the pies come out of the oven, properly cooked and for the first time in a condition to be sold, they are stacked on trays, and after an initial period to enable them to be cooled sufficiently to be handled, they are stacked in wooden racks stacking from the top downwards. When they are sold, they are sold also from the top downwards so that what the customer gets, short of a particular request for something else, will always be the coolest of the pies which are in the stacked rack. 
There is not in any of the shops any means for keeping the pies hot; they are simply put in the racks where they cool naturally. It takes some considerable time for the pies to cool so that they are below the ambient temperature–whether one regards that as being the temperature within or without the shop–but they remain pleasantly warm for a period of about one hour.
There are two bakings which take place in the shops. The first of them is at or before the time when the shop opens. There is a second baking shortly before the lunch-hour when demand is at its peak. This system has been in operation for a long time. It is accepted that the major purpose of the baking in the shops is because it provides a pleasant smell and atmosphere, and makes it plain to customers that what they are getting are freshly-baked pies.” (p.359j to 360d)
The Court of Appeal’s decision was:
“We were referred to a number of authorities on the different wordings as to the meaning of ‘purpose’. For my part, I find none of those authorities of any assistance. What has to be determined is what is intended by the words used in note (3); and the question which has to be asked is: Were these pies, or any of them, heated for the purpose of enabling them to be consumed hot? 
The evidence was that it was not part of the purpose of the taxpayers to enable the pies to be consumed hot, but it is said that they must have had, unconsciously or consciously, a direct or indirect purpose that, to some extent at any rate, the heat was applied for that purpose. 
For my part, I am unable to accept that that is the position. These pies were pies which were not capable of being sold at all until they had received their second baking. Having received their second baking, they would then be sold and no doubt, during the course of the lunch-hour, some people would buy them for their own purpose, namely, consumption hot. But I am unable to accept that, because that was the position, it must be regarded as the taxpayers’ purpose to enable the pies so to be consumed.
What is in effect being advanced is that the provisions of note (3) should have read into them additional words. Instead of reading ‘has been heated for the purpose of enabling it to be consumed at a temperature above the ambient air temperature’, there should be added these words also— 
 ‘or which, to the knowledge of the supplier, would or might be consumed at a temperature above the ambient air temperature’. 
I can see no warrant for reading into a taxing statute words that are not there. It is a first principle of revenue law that the subject shall only be taxed by clear words, and it is impermissible to look at the substance or to imply or read in anything. The words used cannot be made to cover supplies in this case, in my view, save by implication or reading in.” (p.360j to 361d)
The following guidance to Tribunals in future cases was given:
“The tribunal were perfectly entitled, as I see it, to look at the facts for one purpose and for one purpose only, and that is for the purpose of considering the validity of the evidence given by the taxpayers as to their purpose. It might well be that the facts were such that a tribunal in one case might come to the conclusion that the asserted purpose could not be accepted–as, for example, while stoutly asserting that it was no part of their purpose in heating the pies to enable them to be consumed hot, evidence was given that there were extensive heating cabinets in the shop which kept the pies hot. Given such facts, I can well see that a tribunal might conclude that the assertion that it was no part of the sellers’ purpose to enable them, or some of them, to be consumed hot was unacceptable. But that goes simply to the weight of the evidence and to nothing else.” (p.361f)
9.	Where there is more than one purpose it is necessary to decide which of the purposes was the dominant one.  In Malik v Customs and Excise Commissioners [1988] STC 537 Keene J said at p.542h:
“But the fact is that the evidence shows that the appellant did have two purposes when she heated this food by way of cooking; one was to render it edible and the other was to enable it to be eaten hot if the customer so chose.
Once that point had been reached in the analysis, the tribunal had to decide which of those two purposes was the dominant one, if, indeed, there was a dominant purpose.” 
The former purpose is inapplicable on the facts of our case because, except for the breads, all the disputed items have already been cooked.
10.	 In Domino’s Pizza Group Limited the Tribunal (of which the Chairman was chairman) relied on what the appellant did after cooking to determine its purpose, saying at [13]: 
“The question is therefore when considering the purpose of heating one can take into account that it is also the Appellant’s purpose to keep them hot after heating. Is this part of the purpose of heating them, or the effect of heating them, rather than a purpose, just as it is an effect that freshly-baked bread can be consumed hot, or that the pies in Pimblett can be consumed while hot, without this being the purpose of heating them?  The reason why in those cases it is an effect and not a purpose is that the supplier of bread or the Pimblett company can say that it is indifferent to whether or not it has enabled them to be consumed hot.  Indeed with bread it is much more normal to eat it cold.  Here, the Appellant cannot say that it is indifferent to whether it has enabled the products to be consumed hot.  Everything it has done after heating has finished is to keep them hot so that they can be consumed hot.  As the advertising states “There’s no point in going to all this effort if the pizza is delivered cold” (and the same could be said when it is collected by the customer).  Accordingly, in the context of the heating of these products the purpose must be not only so as to create an edible product, but also so as to enable them to be consumed hot.” 
 The Appellant says that, in contrast to the situation in that case, here it is indifferent to whether it has enabled the disputed items to be consumed hot.
11.	The test we have to apply in relation to the disputed items is whether first, the food (or part of it) has been heated for the purposes of enabling it to be consumed at a temperature above the ambient air temperature (for short “hot”); and secondly, it is above that temperature at the time it is provided to the customer.  Dealing with the second item first, the temperature of all the items was above the ambient air temperature (26°C) when they arrived at the customer.  We find that the food is “provided” at that the time of delivery whether or not the customer has to take steps to make up the food before eating, as with the duck pancakes.  The natural meaning of provided in relation to food supplied for consumption off the premises is the act of supplying it to the customer.  It is always the case that the customer has to do something even if it is only removing the packaging before it is eaten.  It is also the case that the temperature test applies to any part of the food and so at the time of delivery this test is clearly satisfied at the time of arrival at the customer in relation to the duck for the duck pancakes.
12.	Turning to the first test, we have to determine the Appellant’s purpose (or dominant purpose) of heating the disputed items.  For this we need to look at what happens after heating because otherwise it could be argued that all food that needed cooking had been heated to make it edible.  Mr Dye’s evidence, which we have accepted, was that the purpose of heating and keeping hot the disputed items was to demonstrate that they were freshly cooked.  While the food was on the Appellant’s premises the Appellant was required by the Regulations either to blast chill it to reduce the temperature to 8°C, or to maintain the temperature above 63°C (subject to a defence if this did not last for more than two hours, which Mr Dye understandably did not want to rely on because it assumed that it was otherwise in breach of the Regulations).  The issue is, given that stated purpose, whether the disputed items (or part of them) have been heated for the purposes of enabling them to be consumed hot.  Mr James contends no and Mr Smith contends yes.  In particular, Mr James contends that the Appellant is indifferent about whether it has enabled the disputed items to be consumed hot or cold; they are treated in exactly the same way as other hot food during preparation and delivery not to enable it to be consumed hot if the customer wants, but because it would be too difficult operationally to treat the disputed items differently from other hot food and also in order to comply with the Regulations.
13.	A purpose is something that exists in the mind, here the mind of Mr Dye, the Director of Operations of the Appellant.  A purpose is limited to what is in the person’s mind, unlike intention, which includes the natural consequences of a person’s acts.  Is it then possible for the purpose of demonstrating that the food is freshly cooked not to include the purpose of enabling it to be consumed hot, which follows necessarily from demonstrating that it is freshly cooked?  Is it the case that they are different purposes, one of which is the dominant one?
14.	We are divided in our answer on this.  The Chairman considers that on the facts of this case the two formulations (demonstrating that the food was freshly cooked, and enabling it to be consumed hot) are different ways of describing the same purpose rather than two different purposes one of which is capable of being dominant, and rather than a purpose and an effect.  The only way of demonstrating that the food is freshly cooked is that the Appellant enables the customer to consume it hot.  The facts of The Lewis’s Group were different in that, while it was possible for the customer to buy a hot chicken and immediately take it home and eat it hot, nothing was done to assist this, such as providing heat retaining packaging, and there was nothing to demonstrate that the taxpayer’s purpose was to enable it to be consumed hot; here the Appellant assists the consumption of the disputed items while hot by keeping them in a heated cupboard before dispatch and in a padded bag during delivery.  This case is also different in nature from the two purposes in Malik of heating the food by way of cooking: one to render it edible, and the other to enable it to be eaten hot if the customer so chose, because the former is capable of being an independent purpose.  He accepts that the disputed items are different in nature from other food that is always served hot and therefore it is possible in principle for the Appellant to say that it is indifferent to whether it has enabled the disputed items to be consumed hot.  But the only way to demonstrate such indifference would be to supply the disputed items cold (the Regulations would be satisfied if they were chilled quickly).  This would be contrary to the stated purpose of demonstrating that they were freshly cooked, and so he does not accept that they are indifferent.  Accordingly he considers that the disputed items are within the definition of hot food.
15.	Mr Dee considers that there may be two different purposes, but standing back from the facts, and in the light of the Pimblett case, he finds that the appellant's dominant purpose was simply to provide freshly cooked food.  He would also rely on the distinction made in Malik in which Keene J accepted two different purposes of heating food by way of cooking: one to render it edible, and the other to enable it to be eaten hot if the customer so chose.  Here the two different purposes were to demonstrate that the food had been freshly cooked and to enable it to be consumed hot.  He would find that the former is the dominant purpose.
16.	Accordingly, by the Chairman’s casting vote, the appeal is dismissed.
17.	The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules.   The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN F AVERY JONES
TRIBUNAL JUDGE
RELEASE DATE: 4 December 2009