Uniq Group Plc v Customs & Excise [2005] UKVAT V19125 (16 June 2005)

19125

VAT – SUPPLY OF GOODS – SINGLE OR MULTIPLE –“Dippin’ Fingers” consisting f chocolate finger biscuits and chocolate mousse – table top supply with mousse predominate – zero-rated – No – two separate supplies – chocolate fingers standard rated – mousse zero-rated – Appeal dismissed – Card Protection Plan applied.

LONDON TRIBUNAL CENTRE

	UNIQ GROUP PLC	Appellant

	- and -

	HM REVENUE and CUSTOMS	Respondents

			Tribunal:	MICHAEL TILDESLEY (Chairman)
					ELIZABETH MACLEOD JP, CIPM (Member)

Sitting in public in London on 4 April 2005

Amanda Brown, Director of Indirect Tax Legal Services of KPMG Chartered Accountants for the Appellant

Shaheen Rahman, Counsel instructed by the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION
The Appeal
1.	The Appellant  is appealing against the Respondents’ decision dated 10 May 2002 confirmed on Review dated 9 August 2002 to treat “Dippin’ Fingers” as two supplies: a standard rated supply of chocolate finger biscuits and a zero rated supply of chocolate mousse.
2.	The Notice of Appeal dated 22 August 2002 had the following ground:
“The Commissioners contend that “Dippin’ Fingers” is a product consisting of chocolate mousse together with chocolate coated finger biscuits included for the purpose of eating the mousse and or with the mousse. The product is held out for sale as a composite supply of mousse with biscuits where those biscuits represent a better means of enjoying the mousse. Properly applying European jurisprudence there is a singe supply of zero rated food stuff”.
The Issue for Determination
3.	The issue for determination is whether “Dippin’ Fingers” constituted a single composite supply or separate supplies of chocolate finger biscuits and mousse for VAT purposes.
Evidence
4.	We heard evidence from
(1)	 Paul Moore who was employed as the Senior Development Technologist by the Appellant responsible for the development and launch of “Dippin’ Fingers.
(2)	Michael Green, Director of Financial Share Services for St Ivel.
5.	A bundle of agreed documents was supplied to the Tribunal. 
Relevant Legislation
6.	Group 1 of Schedule 8 of the Value Added Tax Act 1994 zero-rates food of a kind used for human consumption. However, within group 1 there are number of exceptions to zero-rating, one of which is chocolate biscuits. Thus the relevant parts of Group 1 provide that
The supply of anything comprised in the general items set out below, except
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.
Excepted Items
Item No
2. Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance.
Authorities
7.	We were referred to the following authorities:
Customs and Excise Commissioners v United Biscuits(UK) Ltd (trading as Simmers) [1992]  STC 325
Faaborg-Gelting Linien A/S v Finanzamt Flensburg (Case C –231/94) [1996] STC 774
Card Protection Plan Ltd v Customs and Excise Commissioners (Case C – 349/96) [1999] STC 270
Customs and Excise Commissioners v FDR Ltd [2000] STC 672
Kimberley – Clark Ltd v Customs and Excise Commissioners [2004] STC 473
College of Estate Management v Customs and Excise Commissioners [2004] STC 1471
Dr Benyon and Partners Ltd v Customs and Excise Commissioners [2005] STC 55
8.	We were referred to the following decisions of the VAT and Duties Tribunal:
MD Foods PLC v Customs and Excise Commissioners [2001] 17080
Domino’s Pizza Group Ltd v Customs and Excise Commissioners [2003] 18010
Submissions
9.	Mrs Brown for the Appellant contended that “Dippin’ Fingers” was designed and marketed as a mousse desert; the mousse had been modified to stick to the chocolate finger. The economic reality of this product was that the two parts were integral to each other and should not be artificially separated. A single price was charged for the product. Mrs Brown acknowledged  that the case law on supply of goods and single supply was limited, and none of the cases addressed a factually similar situation to “Dippin’ Fingers”. She was of the view that this case presented a new and previously untested situation. 
10.	Mrs Brown relied on the principles in Card Protection Plan and FDR Limited to substantiate the Appellant’s case that “Dippin’ Fingers” consisted of a single supply. She accepted that the ancillary element test enunciated in Card Protection Plan was somewhat difficult to apply to these circumstances as neither the fingers nor the mousse were strictly ancillary to each other. However, she considered that the principles established in FDR Ltd which developed the law relating to composite/mixed supplies were relevant to this case. In FDR Ltd the Court of Appeal recognised there may be a single supply for VAT purposes which consisted of a bundle of supplies  none of which predominates. In this situation the single supply was described as a table top compared with an apex where one supply was ancillary to the other.  Under a table top supply it would be necessary to look again at the elements which comprised the single supply and decide on the facts which of the supplies predominated to determine the tax treatment.
11.	Mrs Brown, therefore, contended that “Dippin’ Fingers” was a table top supply consisting of a core of both the mousse and  chocolate fingers where neither of them predominated. Further the mousse was heavier than the chocolate fingers, marginally more expensive and the predominant taste in the product. “Dippin’ Fingers” was stored in chiller cabinets and  in competition with other desserts.  Mrs Brown concluded that on a fair and reasonable examination of the facts the mousse element of “Dippin’ Fingers” should predominate to determine the VAT treatment of the product.
12.	 Miss Rahman for the Respondents submitted that neither the chocolate finger biscuits nor the chocolate mousse constituted the principal element in the supply. The biscuits and the mousse were two separate supplies that were made at the same time with each supply a means of better enjoying the other. Applying the principles in Card Protection Plan “Dippin’ Fingers” consisted of two separate supplies of goods which meant that the chocolate fingers were standard rated and the mousse zero rated. Mrs Rahman added that there was not a separate VAT treatment for desserts under the legislation. The facts of FDR involved a collection of complex financial supplies which were intertwined and indissociable. In contrast the facts in this case were straight forward, the two supplies were identifiable. 
The Facts Found
13. Cadbury “Dippin’ Fingers” consisted of four Cadbury’s chocolate finger biscuits and Cadbury’s chocolate mousse in separate compartments within a plastic container with a tear off foil lid. The chocolate finger biscuits were intended to be dipped in the mousse and then eaten.
14. St Ivel, part of the Uniq Group PLC had the licence from Cadbury for the manufacture of Cadbury’s desserts including its chocolate mousse. St Ivel was responsible for the product development, marketing and sale of  “Dippin’ Fingers”. The product was principally aimed at children of the age group six to ten years of age who were viewed as a growth area in the market with considerable purchasing power. The market research identified that  children enjoyed snacking, loved chocolate and wanted fun when eating. The market leader in the snack market for children was Cheese Dippers which involved dipping bread sticks in cheese. St Ivel identified that there was a gap in the pot dessert market where the existing products were not suited for eating on the go and required a spoon to eat. “Dippin’ Fingers” applied the concept of Cheese dippers to the dessert market with the chocolate finger dipped in the mousse which dispensed with the need for a spoon.  The pot dessert market was worth £1.2 billion a year with annual growth of 7.5 per cent, of which the “kids” market was valued at £189 million with 3.9 per cent growth. 
15. The product development took about nine months from identifying the idea to the launch in the shops. The central part of the strategy for “Dippin’ Fingers “was to highlight  the Cadbury brand and image to promote and sell the product. It was necessary, therefore, for St Ivel to agree the product specification with Cadbury. Under the specification the product was described as Cadbury’s milk chocolate mousse with Cadbury’s fingers. The mousse in “Dippin’ Fingers” differed from Cadbury’s chocolate mousse sold separately, in that its ingredients included six per cent chocolate rather than five per cent and had a wetter texture to enable the mousse to stick to the chocolate finger. The chocolate fingers were purchased direct from Cadbury’s suppliers. The fingers were packaged in trays wrapped in cellophane which meant that  St Ivel employees had to unwrap the packaging to extract the four fingers to place in the “Dippin’ Fingers”. 
16. The net weight of “Dippin’ Fingers” was 45 grams (25grams of mousse and 20 grams of fingers). The Appellant produced two cost breakdowns for the product. The first analysis showed that the cost of the biscuit element formed 37.8per cent of the total costs, whereas the mousse constituted 14.3per cent. This analysis did not include the labour costs for manufacturing the mousse nor did it allocate the packaging costs between the mousse and the fingers. The second analysis incorporated the labour costs and allocated the packaging and overhead costs in accordance with the respective weights of the mousse and fingers which resulted in the respective costs of the mousse and fingers being 54per cent/46per cent of the total costs. We consider that the second analysis did not take full account of the intensive labour costs involved in the unwrapping of the cellophane trays and manually placing four chocolate fingers in each pot. We, therefore, conclude that the costs associated with the chocolate fingers were higher than the costs connected with the mousse.
17. The majority of the time in the product development was spent on designing the pot for “Dippin’ Fingers”. The pot consisted of two compartments, with the mousse in one compartment and the fingers in the other. It had a foil cover which could be pulled from right to left enabling the mousse to be seen first. The pot was in Cadbury distinctive purple so that it could be readily recognised as a Cadbury product.  The pot was designed in such a way that it could easily be held in one hand and fit in the average sized lunch box. The name of the product, “Dippin’ Fingers” was prominently displayed on the label. “Dippin” was in red capital letters with a chocolate finger dipping in mouse replacing the first “i” in “Dippin”. Fingers were portrayed in chocolate and  resembled the design for packs of Cadbury’s chocolate fingers. The words “milk chocolate mousse dip with milk chocolate biscuits” were in much smaller print than “Dippin’ Fingers” and not that  noticeable.
18. The “Dippin’ Fingers” were sold either singly at a price of 49pence or in a triple pack with a price of £1.39. Cadbury’s chocolate fingers and chocolate mousse could be bought separately in the shops.
19. The product had a shelf life of 12 days. It was required to be kept in chiller cabinet at ambient temperatures because of the mousse ingredients. 
20. The Appellant suggested that the mousse formed the predominant taste for the product, however, this opinion was not supported by evidence of consumer and market research.  Mr Moore stated that the fingers and the mousse were to be eaten together and that the mousse and fingers each facilitated the enjoyment of the other.
21. St Ivel intended to support the launch of the product with a television and marketing campaign. Unfortunately the campaign never happened. Initially the sales were good but began to falter,  production ceased at the end of 2002 which resulted in the withdrawal of “Dippin’ Fingers” from the shops.
Our Reasons for the Decision
22. The Court of Justice recognised in Card Protection Plan that it was not possible to give exhaustive guidance on the issue of composite and mixed supplies because of the diversity of commercial operations. It was necessary to examine the circumstances of each transaction. The Court, however, did lay down general principles for determining the issue, starting with the general principle that every supply of service must normally be regarded as distinct and independent. The subsequent development and refinement of the Card Protection Plan principles has been in the supply of services characterised by a  series of interdependent activities where the fiscal identity of the separate supplies has been lost or merged within the complexity of the commercial transaction.
23. In this case we are not dealing with a complex commercial supply of services. We are dealing with a supply of goods, where the fiscal treatment of those goods are clearly set out in Group 1 of Schedule 8 of the VAT Act 1994: chocolate finger biscuits standard rated; chocolate mousse zero rated. 
24. We consider that the factual circumstances of  “Dippin’ Fingers” support the conclusion that the supplies of the chocolate finger  biscuits and the chocolate mousse retain their separate identify for VAT purposes. “Dippin’ Fingers” was described in the product specification as Cadbury’s milk chocolate mousse with Cadbury’s fingers. The theme of two separate goods continued on the label with the words: “milk chocolate mousse dip with milk chocolate biscuits”. When the label was pulled off the chocolate fingers and the mousse were found in separate compartments in the pot. The commercial strategy for “Dippin’ Fingers” was based upon exploiting the established brand images of Cadbury’s chocolate fingers and Cadbury’s chocolate mousse. The product development concentrated upon the pot design rather than creating a new foodstuff with a distinct identity. The fingers and the mousse can be purchased separately. The fact that the chocolate mousse in “Dippin’ Fingers” had  one per cent more chocolate and a slightly wetter texture than the chocolate mousse sold separately in our view was not significant. St Ivel did not seek in its promotion of “Dippin’ Fingers” to distinguish the mousse in  the “Dippin’ Fingers” from the chocolate mousse sold separately. The reality was that St Ivel sought to widen the market opportunities for the sale of two established brands of goods by packaging them together with a view of taking advantage of a perceived market of snack deserts for children. The single package for “Dippin’ Fingers” can not convert  two separate supplies of goods into a single supply of goods for VAT purposes.
 25. Having considered the circumstances of “Dippin’ Fingers” we are satisfied that the starting principle of Card Protection Plan applies, namely, that every supply must be regarded as separate and independent. The single price for “Dippin’ Fingers” was not decisive. The evidence of Mr Moore for the Appellant acknowledged that the finger biscuits were not ancillary to the mousse or vice versa: they each facilitated the enjoyment of  other. The mousse and the finger biscuits were not integral to each other, they retained their separate identity in the product specification, on the label and in their separate compartments in the pot. We consider that it would be artificial and distort the VAT treatment  to regard “Dippin’ Fingers” as a single supply of goods. We, therefore, conclude as a matter of law and of fact that “Dippin’ Fingers” consists of two separate supplies of goods: one of chocolate finger biscuits which is standard rated for VAT purposes and one of chocolate mousse, zero-rated for VAT.
26. We would also add that if the Appellant was correct in its assertion that “Dippin’ Fingers” was a single supply of goods, we would not have found that the mousse was the dominant element in the supply. The product description on the label emphasised the chocolate finger not the mousse, the product itself was named “Dippin’ Fingers”. On our analysis the fingers were the more costly element and the difference in weight between the mousse and the fingers was not significant.  The Appellant’s analysis of the  VAT treatment of the “Dippin’ Fingers” on its own terms was, therefore, open to considerable dispute and uncertainty which would have compromised the principle of certainty and transparency for the VAT treatment of supplies.
27. We, therefore, dismiss the Appeal and make no order for costs.   

MICHAEL TILDESLEY 

CHAIRMAN
RELEASE DATE: 16 June 2005

LON/02/751