19319
	 VALUE ADDED TAX — zero-rating — food — potato crisps sold with a dip — VATA 1994 Sch 8 Group 1, Excepted Item 5 — whether crisps “packaged for consumption without further preparation” — no further preparation necessary — crisps component of product standard-rated — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	UNITED BISCUITS (UK) LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Colin Bishopp (Chairman)
						Gilian Pratt 	

Sitting in public in Manchester on 11 October 2005

Nigel Gibbon, solicitor, for the Appellant 

Rebecca Haynes, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	The Appellant manufactures and distributes a range of food products. The product with which were are concerned in this appeal is, or was, sold as “McCoy’s Dips” and consisted of a 100 gram packet of McCoy’s potato crisps with a 95 gram plastic tub of a “dip”, packaged together in a large foil bag and sold as a single product. It is common ground that the dip is zero-rated; the issue before us is whether, as the Appellant contends, the crisps are also zero-rated or, as the Respondents maintain, are standard-rated. Formally, this is an appeal against the Respondents’ ruling, set out in a letter of 28 May 2004, that the crisps do not attract zero-rating.
2.	We should make the point, to eliminate any possible doubt, that neither party contends that the product is the subject of a single supply, to which the VAT treatment of the dominant constituent is to be applied, in accordance with the principle laid down by the European Court of Justice in Card Protection Plan Limited v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270. The Appellant accepts that, were that principle to be applied, the entire product would be subject to the VAT treatment of the crisps which were, indisputably, the dominant element of the supply. Thus if we were to decide the appeal, as it was argued before us, in the Appellant’s favour, it would gain no more by applying the Card Protection Plan principle; while were it to lose, the entire product would be standard-rated. The Respondents do not, however, urge that outcome on us.
3.	The Appellant was represented before us by Nigel Gibbon, solicitor, and the Respondents by Rebecca Haynes of counsel. We had the unchallenged oral evidence of Julian Ogden, the Appellant’s indirect tax manager, who provided some background information about the marketing of the product, and a small bundle of documents. The facts which follow were uncontroversial.
4.	The product – which is not currently sold – was available in three different combination of flavours: rock salt crisps with salsa dip; balti curry crisps with mango chutney dip; and flame grilled steak crisps with “BBQ” dip. Identical crisps of those flavours were in each case sold separately, though in bags of different sizes: 35 gram, 50 gram and 175 gram. The 100 gram size included in these products could not be obtained alone. This particular type of crisp was chosen for the combined product as it was especially suitable for dipping, being thicker than most crisps and therefore less liable to break, and its corrugated, or “crinkle cut”, shape allowed it to retain the dip easily. We understand that the dips were produced only for this product and were never sold separately. Mr Ogden’s evidence was that the intended market was not the impulse buyer, who might purchase a packet of crisps at a garage or convenience store, but that the product was designed to attract customers in supermarkets who were consciously buying in advance of consumption. The size of the portion of crisps was such that most buyers would expect to share the product with others. Its price was significantly greater than that of the equivalent quantity of crisps alone, and the product was unlikely to be bought by a customer who required only the crisps. The intention was that the crisps and the dip should be consumed together. The product provided, as Mr Gibbon put it, a different “eating experience”.
5.	As is well known, the scheme of the relevant legislation in the Value Added Tax Act 1994, section 30 and schedule 8, Group 1, is to zero-rate “Food of a kind used for human consumption” in principle, but to exclude from zero-rating (and therefore to standard-rate) certain categories, listed as excepted items. The exclusion relevant here appears in excepted item 5 in these terms:
“Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs, and similar products made from potato, or from potato flour, or from potato starch, and savoury food products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell.”
6.	Unsurprisingly, Mr Gibbon relied upon the decision of the tribunal in Procter & Gamble UK v Customs and Excise Commissioners (2003) VAT Decision 18351 in which it had to consider Pringles Dippers, a product in the form of a crisp designed to be eaten with a dip which, in that case, the purchaser had to obtain (or make for himself) separately. He relied in particular on the comment at paragraph 23 of the decision:
“We accept the evidence of Mr Hogg that dipping products are more like a meal than a snack; they are not designed to be eaten on their own but with a complementary dip. Dipping products come in large bags because they are designed for sharing and they are more suitable for entertaining with friends rather than for eating at work or on the move. There are many different appetisers and dips and there are both chilled dips and dips served at ambient temperatures.”
7.	That comment, he said, was equally appropriate here: the Appellant’s crisps, when packaged as they were in the case of this product, were designed to be eaten with the dip, and were not to be considered in the same way as crisps sold alone. At paragraph 60 of its decision in Procter & Gamble the tribunal went on to say:
“We are unable to agree with Mr Hill [counsel for the Respondents] that ‘preparation’ means more than ‘serving with’. Many foods (for example, salads) are ‘prepared’ by being served with other foods. If an unflavoured rice cake, which is intended to be eaten with a topping and a savoury breakfast food obtained from the swelling of cereals, which is intended to be eaten with the addition of milk, can be taken out of excepted item 5 on the ground that they are not ‘packaged for human consumption without further preparation’ then we cannot see why a blandly flavoured dipping chip which is intended to be eaten with a dip should not similarly be regarded as not ‘packaged for human consumption without further preparation’. We agree with Mr Hill that the new product could be eaten without a dip but that cannot be the test because unflavoured rice cakes can be eaten without a topping and cereal can be eaten without milk. The test is not whether a product can be eaten without further preparation but whether it is ‘packaged’ for consumption without further preparation. The packaging of the new product will make it clear that it is a dipping chip intended to be used with a dip.”
8.	There is, Mr Gibbon said, no material difference between the Appellant’s product and Pringles Dippers when they are considered in the light of that observation. Both are packaged so as to be eaten with a dip, and they would not normally be bought by a customer who did not intend to eat both the crisps and the dip; the more so in this case as he would have to pay the enhanced price of the combined product. As with the breakfast cereals and rice cakes referred to in Procter & Gamble, the fact that the crisps can be eaten alone is not determinative; the manner of packaging is the critical factor. It is plain that this product is packaged for consumption after further preparation, namely the addition of the dip, and that is sufficient to take it out of the exception.
9.	Miss Haynes’ argument, although she put it rather more diplomatically, was that Proctor & Gamble was wrongly decided on this point but, she said, even if it was correct, the two cases could be distinguished on their facts. In Procter & Gamble, the product under consideration was a bland chip (although, as Mr Gibbon demonstrated, Pringles Dippers are now available in a number of distinctive flavours – a possibility to which the tribunal referred) specially shaped for dipping, and they were not provided with the dip, which the purchaser had to obtain separately. Despite the tribunal’s comments at paragraph 60 of the decision in Proctor & Gamble, she said it was impossible to regard merely inserting a crisp into a dip as “preparation”.
10.	We are bound to say, with respect, that we have some misgivings about the tribunal’s conclusions in Proctor & Gamble, and in particular what it said at paragraph 60.  The analogy with breakfast cereals is, we think, a false one since they are not, as we interpret the legislation, “savoury” products, taking “savoury” to be the antonym of “sweet”, which, by applying the ejusdem generis rule, seems to be the draftsman’s intention. Thus while we accept that breakfast cereals are designed to be, and normally are, consumed with milk, we do not think it is the addition of milk, supposedly amounting to “further preparation”, which takes them out of the exception; they do not come within it at all. Rice cakes, by contrast, are not merely intended to be eaten after further preparation, they are (at least to most people) unpalatable without it. It may be that their preparation does not entail a great deal, but we do agree with the implicit view of the tribunal in Proctor & Gamble that it is the fact rather than the degree of preparation which matters, and that the question is not whether the product is capable of being eaten without further preparation, but the manner in which it is packaged. In many cases there will be little or no difference between the tests, but the distinction nevertheless remains a real one. 
11.	Where we differ more fundamentally from the earlier tribunal is in our conclusion about the meaning of the word “preparation”. In Customs and Excise Commissioners v Ferrero UK Limited [1997] STC 881, Lord Woolf MR warned against adopting an excessively elaborate, or analytical, approach: the words of the exception must be given their ordinary meaning and the issue is essentially one of fact. We do not need to decide where the dividing line should fall but, giving the word its ordinary meaning, we are satisfied that dipping a crisp into a pot of salsa cannot amount to “preparation” in any normal sense of the English language. The purchaser of the Appellant’s product is required to do no more than open a packet of crisps and a pot of dip. He may, or may not, dip the crisps into the pot. The process of conveying crisp to mouth, whether or not it pauses at the pot, is, in our view, commonly and correctly described as eating; it is not preparation. 
12.	The appeal is dismissed. There will be no direction in respect of costs.

COLIN BISHOPP
CHAIRMAN
Release Date:2 NOVEMBER 2005

MAN/04/0285