19241

VALUE ADDED TAX -  zero-rating -  two products consisting of the juices of vegetables – whether products were “other beverages (including fruit juices)” and so standard-rated – yes – appeal dismissed - VATA 1994 S30(2) and Sch 8 Grp1 Item 1 Excepted Item 4

LONDON TRIBUNAL CENTRE 

	GROVE FRESH LIMITED
		Appellant
	Appellant
	- and -

	H M REVENUE AND CUSTOMS  
Respondents

Tribunal: DR A N BRICE (Chairman)
MRS C S DE ALBUQUERQUE

Sitting in public in London on 5 August 2005

Andrew Shupick, a Director of the Appellant, for the Appellant 

Nicola Shaw of Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

The appeal
1.	Grove Fresh Limited (the Appellant) appeals against a decision of the Respondents dated 29 October 2004. The decision was that two vegetable juices (the products) manufactured by the Appellant were beverages and so were standard-rated for value added tax purposes. The Appellant was of the view that the products were not beverages but, even if they were, they were still zero-rated.    

The legislation
2.	Section 30(2) of the Value Added Tax Act 1994 provides that a supply of goods is zero-rated if the goods are of a description specified in Schedule 8. Group 1 of Schedule 8 provides that a supply of anything comprised in the general items set out in the Group is zero-rated unless it is also comprised in any of the excepted items in which case it is standard-rated; however, if it is comprised in any of the items over-riding the exceptions it is zero-rated.  

3.	Item 1 of the general items is "food of a kind used for human consumption" which is, therefore, zero-rated. Note (1) provides that "food" includes drink. However Item 3 of the excepted items specifies alcoholic beverages and Item 4 of the excepted items specifies "other beverages (including fruit juices and bottled waters)" and so all these are standard-rated. Group 1 goes on to provide that a number of beverages, including tea, cocoa, coffee and milk are included in the items over-riding the exceptions and so these are, therefore, zero-rated. 

The issue
4.	The issue for determination in the appeal was whether the products manufactured by the Appellant were beverages within the meaning of Item 4 of the excepted items and so standard-rated (as argued by the Respondents) or whether they were zero-rated (as argued by the Appellant).

The evidence
5.	A bundle of documents was produced by the parties. The Appellant produced some empty cartons in which its products are sold. The Appellant also produced samples of both of its products which we tasted and also a sample of another manufacturer's Gazpacho soup which we also tasted. The Appellant also produced a small bottle of lemon juice, a small bottle of lime juice and a tin of Slimfast which had been purchased from a supermarket together with till rolls which indicated that all these products were zero-rated. 

The facts
6.	From the evidence before us we find the following facts.

7.	The Appellant manufactures fruit juices and the value added tax treatment of the fruit juices is not an issue in the appeal. The Appellant now also produces two vegetable juices. The first has been marketed since about 1998 and is a tomato and vegetable juice. Its ingredients are the pure juice of organically grown vegetables being tomatoes (89%), celery, carrots, beetroot, onions, organic lemon juice, sea salt and organic pepper. The second was first marketed in March 2005 and is a carrot, tomato and red pepper juice. Its ingredients are carrots (45%), tomatoes (39%), red pepper (15%), organic lemon juice, sea salt and organic pepper.   

8.	Both products consist only of the juices of the named vegetables. They are not made from concentrates and there is no added water. The juices are sold chilled and can be found in the chilled cabinets in the shops. After sale, they have to be stored in a refrigerator and must be consumed within five days of purchase. They are sold in waxed cartons each of which contains one litre and on the cartons the product is described as "Vjuice". The packaging and marketing is very similar to those used for fruit juices. 

9.	The tomato and vegetable juice contains thirty calories for a 250 ml serving and the carrot, tomato and red pepper juice contains 58 calories for a 250 ml serving. Each 1 litre carton indicates that it contains the juice of 1.5 kilograms of fresh, organic vegetables with natural seasoning and nothing else. The carton containing the tomato and vegetable juice contains the following information:

	"A one 250 ml serving 
		* provides one of the 5 daily portions of fruit and vegetables recommended for a balanced, healthy diet ...
		* provides 25% of your daily needs of vitamins A and E
		* is suitable as part of a calorie controlled meal replacement for slimmers."   

10.	The carton containing the carrot, tomato and red pepper juice contains the following information:

	"A one 250 ml serving 
		* provides one of the 5 daily portions of fruit and vegetables recommended for a balanced diet ...
		* provides 170% of your daily needs of vitamin A
		* provides 25% of your daily needs of vitamin E
		* is suitable as part of a calorie controlled meal replacement for slimmers."   

11.	In July 2005 the products were advertised in Weight Watchers Magazine; the advertisements stated that the products "were perfect to include as part of your diet. Not only is one large glass under 60 calories but, because we use only 100% organic vegetables, it's packed full of nutrients and goodness". 

12.	In May 2002 the Respondents published Notice 701/14/02. Paragraph 3.7 of that Notice dealt with drinks and read:

	"Although most drinks (other than medicinal drinks) are considered to fall within the general category of "food" for VAT purposes, many drinks are standard-rated as alcoholic or non-alcoholic beverages. For VAT purposes a beverage is-
		
		"A liquid commonly consumed to increase bodily liquid levels, to slake thirst, to fortify or to give pleasure."

	A number of non-alcoholic beverages are, however, specifically alllowed zero-rating. These are listed at paragraph 3.7.2."

13.	Paragraph 3.7.2 listed the beverages in the items over-riding the exceptions, namely milk, tea, cocoa and coffee. Paragraph 3.7.3 read:

	"There are a number of types of drinks which do not fall within the above definition of a beverage. These (and the mixes etc. for making them) can be zero-rated. They are- ...

		meal replacement drinks for slimmers or invalids. ..."

The arguments in summary
14.	For the Appellant Mr Shupick argued that the products should be zero-rated. They were not beverages but, even if they were, they did not come within the meaning of excepted Item 4. He also argued that the products were part meal replacement drinks for slimmers or that they should be treated for value added tax purposes in the same way as soups. For the Respondents Miss Shaw argued that the products were beverages and so fell within excepted Item 4 and should be standard-rated.     

Reasons for Decision
15.	The arguments of the parties raised the following questions:

	(1)	are the products beverages?

	(2)	if they are beverages do they fall within excepted item 4?

	(3)	are the products meal replacement drinks for slimmers?

	(4)	should the products be treated in the same way as soups?  

(1)	Are the products beverages?
16.	For the Appellant Mr Shupick argued that the Appellant's products were not beverages within the meaning of the definition in Notice 701/14/02. They were not commonly consumed to increase bodily liquid levels, to slake thirst, to fortify or to give pleasure. Even if they did give pleasure that could not be the definition of a beverage as a fillet steak gave pleasure but it was not a beverage. 

17.	For the Respondents Miss Shaw argued that a beverage was different from a drink. She relied upon the definition of a beverage in the Oxford English Dictionary of "a drink other than water".  

18.	In considering the arguments we remind ourselves that the legislation provides that, in general, food (and drink) of a kind used for human consumption is zero-rated but that beverages are standard-rated. In our view the products are food (or drink) of a kind used for human consumption but they are also beverages. They are not unlike tomato juice (and indeed 89% of the ingredients of the tomato and vegetable product consist of tomatoes). Tomato juice is commonly used as a soft drink as an alternative to a fruit juice or to an alcoholic drink. Thus the products would normally be used in the same situations to increase bodily fluid levels, to slake thirst, and to fortify. In our view they will also give pleasure as we very much enjoyed the samples of the products which we tasted. The products are packaged and marketed as beverages.     

19.	We conclude that the products are beverages. 

(2)	Even if the products are beverages do they fall within excepted item 4?
20.	For the Appellant Mr Shupick argued that, even of the products were beverages, they did not fall within excepted Item 4 because they were not mentioned in that Item. The list in that Item was not exhaustive because some beverages were zero-rated. He accepted that tomatoes and red peppers were fruits rather than vegetables but in one of the products carrots were the main ingredient (although not the majority ingredient). However, he argued that public perception was that tomatoes and peppers were vegetables; in shops they were displayed with salads and vegetables and not with fruits. The products were marketed as vegetable juices and there had been no complaints about mis-description from customers or from the trading standards authorities. Also, there were a number of fruit juices which were zero-rated and he referred to the small bottles of lemon juice and lime juice which he had purchased and which had been zero-rated. 

21.	For the Respondents Miss Shaw argued that, in the excepted items, Item 4 appeared after Item 3 which specified alcoholic beverages. Item 4 was in general terms and therefore caught all other beverages. Item 4 specifically included fruit juices and the ordinary meaning of a fruit was the edible product of a plant which had seeds. The majority ingredients of both products were fruit juices. However, even if the ingredients had been wholly vegetable juices the position would be the same as the words "fruit juices" in excepted Item 4 illustrated the type of product which was excepted and vegetable juices were sufficiently similar as to come within the definition. Miss Shaw also argued that the lemon and lime juice purchased by Mr Schupick could not be regarded as beverages because no-one would drink them.   

22.	We agree with Mr Shupick that tomatoes and peppers are commonly thought of as vegetables. However, when applying legislation we have to apply the ordinary and correct meaning of words. Using the correct meaning of words, tomatoes and red peppers are fruits and, within that context, the products are fruit juices and so are specifically mentioned in excepted item 4. However, even if the products were strictly vegetable juices, we would still conclude that they came within excepted Item 4. The words in that Item of "(including fruit juices and bottled water)" are illustrative only and do not define the totality of "other beverages". The words "other beverages" must mean all beverages other than those specified in excepted Item 3 (which includes alcoholic beverages). We accept that some beverages are zero-rated but they are the beverages mentioned in Group 1 of Schedule 8 under "Items overriding the exceptions" and the products manufactured by the Appellant are not mentioned in the Items overriding the exceptions.  

23.	We conclude that the products are beverages and fall within excepted Item 4.

(3)	Are the products meal replacement drinks for slimmers?
24.	For the Appellant Mr Shupick argued that the products came within the definition of a meal replacement drink for slimmers as described in paragraph 3.7.33 of Notice 701/14/02. Each was marketed as part of a calorie controlled meal replacement for slimmers. He accepted that the products were not complete meal replacements but argued that one serving of the tomato and vegetable product contained 25% of the recommended daily allowance of both vitamins A and E and one 250 ml serving of the carrot, tomato and red pepper product contained 170% of the recommended daily allowance of vitamin A and 25% of vitamin E. Mr Schupick accepted that the products did not contain carbohydrates or protein but that was in order to keep them low in calories. A purchaser could supplement either product with other proteins and carbohydrates to get a full meal replacement. Slimfast was accepted to be a meal replacement, and so zero-rated, but it was a powder and each serving had to be mixed with 300 mls of milk to give the required levels of protein and carbohydrate. From that it followed, so he argued, that Slimfast was a part meal replacement just like the Appellant's products.   

25.	For the Respondents Miss Shaw argued that the products were not meal replacement drinks for slimmers and only provided part of the recommended daily allowance of all nutrients. They were not specialised products but were intended to be tasty and palatable drinks like other fruit juices. Many diet soft drinks had a low calorie and carbohydrate content, and were for consumption as part of a calorie controlled diet, but still came within excepted item 4. The Appellant's products were not meals in themselves. In order to qualify as a meal replacement a product had to satisfy the requirements of The Foods Intended for Use in Energy Restricted Diets for Weight Reduction Regulations 1997 SI 1997 No. 2182 (the 1997 Regulations).  

26.	The 1997 Regulations apply to the sale of "relevant food". This is defined in regulation 1(2) as "specially formulated food intended for use in energy-restricted diets for weight reduction, being food which complies with the compositional requirements in Schedule 1 and which, when used as instructed by the manufacturer replaces (a) the whole of the total daily diet or (b) one or more meals of the daily diet".  Schedule 1 sets out the essential composition of relevant food and gives specifications which refer to the products "ready for use, sold as such or reconstituted as instructed by the manufacturer". There are detailed specifications for levels of energy (calories), protein, fat, dietary fibre, and vitamins and minerals; twenty-three separate vitamins and minerals are specified together with minimum levels in respect of each. 

27.	It is clear that the Appellant's products do not constitute a meal replacement as defined in the regulations and Mr Shupick accepted that they did not. His argument was that the Appellant's products were part meal replacements. However, that argument has two difficulties. First, part meal replacements are not mentioned in paragraph 3.7.3 of Notice 701/14/2 (upon which Mr Shupick relied). And, secondly, almost any food or beverage at all could be a termed a part meal replacement. 

28.	We are reluctant to comment on the value added tax treatment of other products about which we had very little evidence. However, the Slimfast product can be distinguished from the Appellant's products. The Slimfast product has to be reconstituted with milk according to the manufacturer's instructions and no doubt when that has been done the product will conform to the requirements of the 1997 regulations. The Appellant's products do not have to be reconstituted and are not intended to conform to the requirements of the 1997 regulations.

29.	We conclude that the Appellant's products are not, either in whole or in part, meal replacement drinks for slimmers.        

(4)	Should the products be treated in the same way as soups?
30.	For the Appellant Mr Shupick argued that the products supplied by the Appellant were very similar to soups and, in particular, they did not differ from the Gazpacho soup, a sample of which he had provided. The Gazpacho soup consisted of tomatoes, pimentos, cucumber, onion and seasonings and it was zero-rated. Its packaging was very similar to the packaging of the Appellant's products and it was to be consumed cold. It could be consumed from a wine glass or tumbler and did not have to be eaten with a spoon from a soup plate. Accordingly, he argued, the Appellant's products should also be zero-rated because they also consisted of liquidised vegetables sold in a carton for consumption chilled.
 
31.	For the Respondents Miss Shaw argued that the Gazpacho was marketed as soup and not as a juice and that the texture and viscosity of the Gazpacho differed from that of the Appellant's products. 

32.	We agree that the texture and viscosity of the Gazpacho soup differed from that of the Appellant's products; the texture was more granulated and the taste more bland. We agree that the Gazpacho could be drunk from a wine glass or tumbler but that is not the intention; the intention is that it should be eaten as a soup. In our view almost any food could be eaten with a spoon from a soup plate but the intention is that the Appellant's products should be drunk. They are beverages and not soups and are marketed as such.

33.	We conclude that the Appellant's products should not be treated in the same way as soups.     

Decision

34.	Our decision on the issue for determination in the appeal is that the products manufactured by the Appellant are beverages within the meaning of Item 4 of the excepted items and so standard-rated.

35.	That means that the appeal must be dismissed. 

	DR A N BRICE

	CHAIRMAN

	RELEASE DATE: 14 September 2005

Tribunal decisions referred to in argument but not mentioned in the Decision

	Bioconcepts Limited v The Commissioners of Customs and Excise (1993) Tribunal Decision No. 11278 

	Smith Kline Beecham Plc v The Commissioners of Customs and Excise (1995) Tribunal Decision No. 13674

	SIS (Science in Sport) Limited v The Commissioners of Customs and Excise (2000) Tribunal Decision No. 16555; [2000] V & DR 195

LON/2004/2306
13.09.05