20959

VAT - zero rate – catering? – same premises? – no – appeal allowed.

MANCHESTER TRIBUNAL CENTRE

MADE TO ORDER LIMITED
		Appellant

-and-

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

Tribunal: Richard Barlow (Chairman)

					 	

Sitting in public in Manchester on 3 October 2008.
Closing submissions in writing received 8 and 20 November 2008.

Kevin Prosser QC for the Appellant instructed by Mazars LLP.

Jonathan Cannan counsel, instructed by the Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2009

DECISION

1.	This appeal is against a ruling given by the respondents on 26 February 2007 and subsequently confirmed on review that cold food sold by the appellant at three outlets is to be treated as taxable at the standard rate of VAT.

2.	Following the oral hearing both parties have submitted their closing arguments in writing.  The supplies in question are the sales of cold “submarine sandwiches” which are sandwiches made to order consisting of a particular type of bread bun with a choice of fillings.  Some such sandwiches are made up with hot fillings but this case only concerns those where the food is cold food at the point of sale.

3.	The appellant holds a number of franchises from a company not involved in this appeal which entitle it to sell food under the name “Subway”.  The terms of the franchise agreement are not relevant to this appeal.  The appeal concerns sales at three outlets namely: the Subway Kiosk at the Orient Food Chain area in the Trafford Centre Manchester, the Subway Kiosk at the Food Court in the White Rose Centre Leeds and the Subway Kiosk in the Food Chain at the Arndale Centre Manchester.

4.	On the day of the oral hearing the Tribunal visited the Arndale Centre to view the layout.  I announced to the parties that I am very familiar with the layout of the relevant part of the Trafford Centre and they invited me to visit the White Rose Centre at a convenient time to view the layout there.  The decision has been delayed by the need to make that visit.  Both parties invited me to have regard to such observations without referring back to them or holding a further hearing to discuss my observations before giving my decision.

5.	The legal issue in this appeal is whether the supplies in question are zero rated or standard rated and the relevant provision is Group 1 of Schedule 8 to the VAT Act 1994 the relevant part of which reads:

“The supply of anything comprised in the general items set out below, except 

(a)	a supply in the course of catering,
…

General items

1.	Food of a kind used for human consumption.
2.	…

NOTES

…
(3) A supply of anything in the course of catering includes-

(a)	any supply of it for consumption on the premises on which it is supplied,
…”

6.	As can readily be seen, the definition of catering is not exhaustive.  A supply for consumption on the premises on which it is supplied is always deemed to be catering whether or not it would fall within the normal meaning of the word “catering” but what else might be catering depends upon giving that word its normal meaning as a common word in the English language.

7.	Numerous tribunal and Court cases have considered this subject.  The parties cited Compass Contract Services (UK) Ltd –v- HMRC (19053) and on appeal HMRC –v- Compass Contract Services (UK) Ltd [2006] STC 1999 (CA); R –v- Customs and Excise Commissioners ex parte Sims [1988] STC 210; M Armstrong –v- The Commissioners (1984) VATTR 53 and Crownlion Seafood Ltd –v- The Commissioners (1985) VATTR 188.

8.	In addition the respondents cited a case (Kalron Foods –v- HMRC [2007] STC 1100) concerning the burden of proof which it is not in dispute lies on the appellant.  The respondents cited Elm Milk Ltd –v- HMRC [2006] STC 792 for the proposition that a person should be taken to intend the natural consequences of his acts, in this case concerning whether a customer is intended to consume food near the kiosks.  The respondents also cited the case of Ian Flockton Developments –v- C&E [1987] STC 394 to remind me that assertions by the parties should not be taken at face value and that their evidence should be scrutinised (which I take to be a principle that applies equally to both parties).

9.	My findings of fact are as follows.  I will deal with each outlet separately.

10.	The kiosk at the Arndale Centre is situated in a food court with a number of other such kiosks in a horseshoe shape.  The kiosks are separated from a central seating area by a pedestrian circulating area.  In the central seating area chairs and tables are provided and, by observation, I was able to see they were occupied indiscriminately by customers from any of the kiosks.  There are places for customers to leave their trays and packaging and any uneaten food after they have eaten, though not all do that.  Staff not connected with any particular kiosk tidy up where necessary.

11.	Access to the food court can be gained directly from the street or via internal staircases from other parts of the Centre and the circulating areas are mainly, though not exclusively, for the purpose of access to or from the food court.  During the time of observation some customers of the Subway outlet took their food on trays and some just in bags.  Most appeared to stay to eat rather than to take the food away from the food court.

12.	The kiosk is rented by the appellant and the lease describes the demised premises as kiosk 7 as marked on a plan.  The definition of the demised premises also states with precision what is included and there is reference to the shop front and facia.  It is plain from that wording and from the fact that no part of the circulating area or seating area is mentioned that no part of the area outside the kiosk itself was part of the demise.  The food court is defined in terms of the part of the building provided by the landlord “primarily for the consumption of food and beverages purchased at the Food Court kiosks including the areas of such kiosks …”.  The landlord is obliged to provide services including cleaning, furnishing and clearing waste from the Food Court and a service charge is made in respect of those services.  Despite the layout of the kiosk, as described, the permitted use of the demised premises is “for the operation of a SUBWAY® outlet for consumption on and of (sic) the Demised Premises …”.  I was told and I find it to be the case that that wording is standard wording used in other similar leases and does not imply that on the premises consumption is possible.  The premises means the kiosk as defined in the lease and I find that it would be physically impossible for members of the public to eat on the premises in that sense because there simply is not room to do so.  Of course it does not follow that “the premises” for the purpose of zero rating are the same as those demised, that is in issue in this case. 

13.	Mr Simon Hallas, the appellant’s manager of the kiosk gave evidence.  He said that when the food is ready, sandwiches are always put in a bag and often the bag is placed on a tray by the server.  Nothing is done by the appellant’s staff to either encourage or discourage customers from using the seating area.  Many but not all do use it.  Mr Hallas has seen people come to the seating area with their own food or just to sit down and has not seen any of the Centre staff send them away.  Centre staff are the only people who clear up.  Even if there is a spillage in front of the kiosk the appellant’s staff have to find a member of the Centre staff to clear it and, at most, his staff would stand by the spillage if it appeared dangerous to warn customers it was there until it is cleared.  The Centre staff bring clean trays to the Kiosk as needed.

14.	At the Trafford Centre the appellant’s kiosk is also on the outside of a crescent shaped row of kiosks and they are separated from the central seating area by a fairly wide circulating area and there is a reasonably substantial rail barrier a little like a ship’s rail (consistent with other features of that part of the Centre) between the seating area and the circulating area.  In this case the circulating area is a direct access from one of the Centre car parks into the Centre and many visitors to the Centre pass through on their way to the shops.  Within the seating area there is also a dance floor and when that is in use, for dancing and other activities, visitors have to pass near the kiosks on their way to the dance or other activity whether or not they are en route from the car park just mentioned or from the rest of the Centre. 

15.	The lease defines the premises as the lettable unit and deals in detail with what that consists of.  Parts but parts only of the front fascia are demised and the absence of any mention of any part of the circulating area or the seating area in the definition of the premises makes it plain that the demise only relates to the kiosk itself.  The lease refers to common parts and they are defined as all the pedestrian areas, toilets etc. in the whole Centre (which is one of the largest in the United Kingdom) and although the appellant has the right to use such of them as are reasonably stipulated no part of them is demised to the appellant.  

16.	The landlord’s obligations are contained in part in a separate Quality Assurance Document and I find as a fact that the landlord operates in a very similar way to the landlord at the Arndale Centre.  Trays are provided by the landlord and cleared where customers do not clear them.  The lease places an obligation on the appellant to encourage customers to use the seating area though Mr Neil Lidguard, who is the manager of the kiosk, said in evidence that there was not really much they could do to achieve that.  In fact the relative absence of seats elsewhere in the Centre and the distance between the food court and the rest of the Centre, though not great, is sufficient to ensure that most customers do sit down in the seated area if they do not take their purchases away from the Centre altogether.  The system for spillages is the same as at the Arndale Centre.  The appellant’s staff are not allowed to clear them up and must find a member of the Centre staff to do it.

17.	At the White Rose Centre the appellant’s kiosk is one of a number in a circle round a central seating area.  The kiosks are separated from the seating area by a wide circulating area and pedestrians using that area may be passing from one part of the Centre to another without any intention of buying food.  The circulating area lies between two of the major retailers who occupy large shops in the Centre.  The Centre staff clear up in the same was as at the other centres.

18.	The lease granted by the Centre owners defines the demised premises in a similarly precise way as in the other two centres and specifically includes the Kiosk frontage.  Again, the precision with which the premises are defined and the absence of any mention of the circulating area or the seating area in the lease make it clear that the demise does not include any part of those areas.  The lease provides for the landlord to provide services much like those at the other two centres.  In this case the appellant occupies the kiosk by way of an underlease granted by Subway Realty Limited rather than the Centre owners but that underlease refers directly to the terms of the lease itself as just described.   

19.	Mr Mark Smyth, the appellant’s manager at the centre gave evidence much to the same effect as the other two witnesses.  His staff do not encourage or discourage customers to use trays though these are always available and they make no attempt to encourage them to use the seats.  In this case there is a large office building nearby and some customers come from there though Mr Smyth did not claim to know how many took food away from the Centre or ate at the seating area.  He had seen people bring food to the seating area that had come from places other than the kiosks and there are also dances at this Centre held in the food court area.

20.	All three witnesses were cross examined by Mr Cannan but it was not suggested that their evidence was untruthful and I find that evidence to be true and have based my findings upon it as well as upon the documents produced.

21.	I turn now to consider the authorities cited and the parties’ arguments.  Mr Prosser contended that on the plain wording of Note 3(a) and on the facts of this case, the supplies of cold food were not supplied “for consumption on the premises on which they were supplied” and that therefore as the supplies were not otherwise “in the course of catering” and as they are clearly supplies of food for human consumption; they are zero rated.  He also advanced an argument that “for” consumption means that there must be some intention on the part of the supplier that the supplies should be consumed on the same premises and that that was absent.

22.	Mr Cannan did not contend that this case is one where the supply was catering per se on the ground that the customers were engaged in some common activity to which the sale of food was incidental, which has been taken in some cases to make the sale of cold food catering per se (Customs and Excise Commissioners –v- Cope [1981] STC 532 is an example).  The respondents’ argument was based solely on what might be termed the “same premises” argument.  The Commissioners contended that the “for consumption” argument required, at least, that the appellant should be able to show that it had no intention that the food should be consumed on the premises and that it had failed to show that to be the case on the facts as proved.  The Commissioners, as I understood their submissions, accept that if the premises are different premises the appeal would succeed whether or not the appellant intended that the food should be consumed in those different premises, namely the seating area, and the appellant would not need to rely upon the “for consumption” argument.  That approach is consistent with what Taylor J held to be the case in Sims (cited above) at page 215 d-g.  The respondents contend that if the seating area is part of the same premises as the kiosks the appellant would have to show that it had no intention that the food should be consumed there before its supplies would remain zero rated on the for consumption argument.  That is consistent with the obiter dicta remarks of Taylor J in the passage just cited.     

23.	The most relevant authority on the question of the same premises is Compass (cited above) in which the Court of Appeal confirmed the Tribunal’s holding that the sale of food from kiosks at the BBC Television Centre from kiosks to staff and visitors to the Centre was not on the same premises as those where the food was consumed.  The relevant passage is at paragraph [56] of the judgment of Mummery LJ (giving the main judgment for the majority of the Court which was unanimous on the same premises argument but differed on the catering per se point) in which he said:

“ … The geographical situation and the physical extent of the retail units under the control of Compass and to which customers have access are sufficiently identified to be regarded or recognisable as separate premises at which supplies of food are made to Compass customers within the meaning of note 3(a).  No food is consumed in the Compass units themselves.  That is where the supplies are made.  It follows that the sandwiches supplied by Compass are not supplied for the purposes of being consumed on the premises on which they are supplied”.

24.	It was acknowledged that cases like this one are vey much a question of fact and Mummery LJ said at paragraph [58]:

“Tribunals will not go far wrong if they stick close to the language of the legislation and apply it with common sense to all the relevant circumstances of the particular case.  I fear that guidance in such guarded terms is neither particularly original or illuminating, but it is at least a reasonably reliable reminder of the nature of the issue to the person or persons who have to make the decisions”.

25.	I hold that the facts of this case as I have found them to be indicate perfectly clearly that the kiosks are not in any common sense terms the same premises as the places where the food is consumed.  No food could be consumed in the kiosks and in respect of none of the three outlets does the lease even purport to give any rights of occupation or even use over the seated areas to the appellant.  The Centres promise the appellant that they will allow the customers to use those areas but that is not the same thing as making them in any sense the same premises.  My decision is mainly based on the conclusion that on any fair view of the facts the kiosks are simply not the same premises as the seating areas but the circumstance that the legal position as between the parties is consistent with that supports that conclusion.  This case is in many respects similar to the Compass case as a matter of fact. 

26.	The Crownlion and Armstrong cases are examples of fact finding by the tribunal and they add nothing relevant in my view.

27.	I venture to doubt whether the obiter dicta of Taylor J would necessarily be the conclusion of any Tribunal or Court that had to consider the “for consumption” argument.  A lot has happened in the VAT jurisprudence since 1988 and it may well be that a more objective approach would now be considered appropriate but as that point does not arise in view of my finding on the same premises argument I need say no more about it.

28.	The appeal is allowed.  Supplies of cold food from the three kiosks with which this appeal is concerned are correctly to be zero rated.  

29.	The appellant applied for costs in its skeleton argument, in the event that the appeal were to be allowed, and I direct that the respondents should pay the appellant’s costs to be determined on a standard basis by a chairman sitting alone if not agreed between the parties.

Richard Barlow
CHAIRMAN

Release date: 19 February 2009

MAN/07/0723