DECISION
1. The
appellant lodged voluntary disclosures totalling nearly £7million reclaiming
output tax paid on sales of certain dog foods in the period 1 January 1980 to
31 January 2009. HMRC refused these claims on 21 September 2009 and upheld
this refusal on review on 17 December 2009. The appellant appealed the review
decision.
2. The claim
was divided up in time as follows: the “Fleming claim” covering the period 1
January 1980 – 31 October 1996; the protective claim for the period 1 November
1996 to 31 January 2006; and the capped claim for the period 1 February 2006 to
31 January 2009.
3. The
quantum of the claim has been agreed by the parties and we are not asked to
address it, and in the event that our ruling is that some but not all the
supplies in respect of the claim products were zero rated, the parties
indicated that they expect to be able to reach agreement on quantum. In so far
as there is an issue as to whether and to the extent that the appellant’s
voluntary disclosure was made in time (the protective claim), we are not asked
to decide the matter. Similarly we are not asked to rule on (should the
appellant succeed in principle), HMRC’s liability to compound interest as that
issue is also stayed behind other cases. Nor are we asked to address any
question of unjust enrichment.
4. We are
therefore asked to give a preliminary ruling solely on the question of the VAT
status of the appellant’s supplies of certain dog foods in that period: were
the supplies standard rated or zero rated?
The facts
5. From the
evidence we heard and saw, we find the facts to be as follows.
The background
6. The
appellant is a company set up over some 30 years ago to take over the running
of a very long established business. The family of the appellant’s chairman,
Mr Skinner, have been millers at the company’s site in Suffolk for some two
hundred years. In the last century, the business had evolved into being a
manufacturer of farm animal feeds and dog biscuits, as well as producing flour.
7. Mr Skinner
first joined the business (while it was still a partnership) in 1964. In 1971
the partnership manufactured its first dog food under the brand name of its
customer, called Linacre. Linacre’s customers were hill farmers with sheep
dogs or breeders and trainers of working dogs. Linacre failed in 1972. But Mr
Skinner was inspired to invent and manufacture a better quality, more
digestible dog food. Basically, Mr Skinner’s main insight was that the cereals
used should be first cooked (to make them more digestible) before being mixed
with other ingredients (meat and bone meal, fish, fat and vitamin and mineral
supplements) and then passed through a die used to produce cattle food. He
also made other changes to the recipe to produce what he considered to be a
unique dog food in 1970s.
8. The
partnership marketed its new dog food for four years in a joint venture with
another business and sold it under the name “Down’s Dog Nuts”. Its customers
were owners of working dogs.
9. From 1
June 1977, the partnership sold its dog food under its own label as “Skinner’s
Dog Food”. Shortly afterwards it added “Skinner’s Dog Meal” which was
essentially the same as the Dog Food, but not passed through a die, so that the
purchasers could see the various constituents of the food. It looked somewhat
like a muesli. Although the term was not used at the time, we find it is now
common practice to describe dog foods of this type as “muesli”.
10. At this time, the
partnerhip’s sales of dog food were modest. But in around 1979 Mr Skinner
decided to market the product nationally in the belief that he had identified a
niche market (working dogs and, in particular, gun dogs) for which he had a
product that had been locally very successful.
11. On 1 January 1980, the
appellant company took over the marketing and sales of the dog food. For a
while the partnership continued to manufacture the dog food but, ultimately,
the appellant took over the manufacturing too.
The witnesses
12. Mr Skinner was
director and chairman of the appellant. He was knowledgeable and clearly very
proud of his products. He was very actively involving in developing and
marketing the claim products up to the time that he retired from the business
in 1997 and handed over day to day running to a professional manager.
13. We find, as he agreed, that
he was less familiar with what had happened with the business from that time
onwards.
14. We accept him as a credible
witness: he made a few mistakes over certain facts (for instance he said that
he had asked Mr Livingston of BP Nutrition to check the formula of the dog food
but then accepted it was not Mr Livingston but someone else at BP Nutrition who
had been asked to check the formula.) Despite a few mistakes on details, we
consider that overall his evidence was reliable
15. Mr Hart was employed
by the appellant as sales manager and then as sales director (although he has
no residual financial interest in the company). He was with the company from
October 1990 until 2000. He now works as Sales Director for a pet food
company, producing a specialist food that is not in competition with any of the
appellant’s products.
16. We found Mr Hart to be a
reliable and credible witness. He was cross examined at length and gave open
and consistent evidence. He freely admitted to matters that could not be
expected to advance the appellant’s case such as that he tried to expand the
sales of the appellant’s dog food into the pet food market.
17. Mr Hart’s and Mr Skinner’s
evidence was largely but not entirely consistent. One such inconsistency was
whether the claim products were ever held out as suitable for pets. Mr Skinner
said no and Mr Hart said otherwise. We accept Mr Hart’s evidence on this
because Mr Hart explained what steps they had taken to market it as pet food
(summarised in paragraphs 114-119 below), and, as mentioned above, Mr Skinner
was better at remembering the business as it was in the 1970s and 1980s but we
found Mr Hart’s recollection of what happened in the 1990s was much sharper.
18. Mr Whittle was a
chartered accountant acting for appellant and gave evidence about how the
spreadsheets used to calculate quantum were compiled. Although quantum was not
in issue, there was a query about what products were within the description
“gundog foods” in his spreadsheets. We accepted his evidence as reliable and
find this description was Mr Whittle’s shorthand for the claim products and,
therefore, the description did not give the Tribunal any information about who
actually bought the products.
19. Mr Livingston was Mr
Skinner’s contact at BP Nutrition, a company which supplied vitamin and mineral
supplements to food manufacturers. He confirmed that Mr Skinner did engage BP
Nutrition to check the analysis of his dog food but Mr Livingston himself was
not involved with this analysis.
20. Mr Hill. Mr Hill
worked in the prison service at Dartmoor and was responsible for Dartmoor’s prison dogs. He also owned his own gun dogs and represented England in championships with his dogs. He started to use the Skinner’s claim products in 1980 and
fed them to the prison dogs and his own dogs. Mr Hill thought it was an
excellent product and recommended it. He bought Skinner’s dog food as agent
to sell on to others, selling some 100 tonnes per year when his business was at
its peak. So far as he was aware, his customers only bought the food for
working dogs. His customers were not exclusively gun dog owners: he mentioned
as examples one customer who bought the food for his huskies which he ran in
competitions and another customer who bought it for sheepdogs.
21. We accepted him as a
reliable witness.
22. Mr & Mrs Halstead
– the evidence of Mr & Mrs Halstead was unchallenged and we accept it. We
discuss it in paragraph 107 below.
23. Mr Southey gave
expert evidence on the meaning of “meal” which was relevant to the second limb
of this appeal. He had a degree in Animal Nutrition and an employment
background in the production of pet foods. He also chaired the additives
committee of the Pet Food Manufacturers Association 2007-2010. We found him
knowledgeable on his subject and had no hesitation in accepting him as an
expert on it.
The products
24. The products in issue in the
appeal are as follows:
|
Dog food
|
Period of
sale
|
|
Skinner’s Dog Food
|
1 January 1980 to May 2008
|
|
Skinner’s Dog Meal
|
Entire claim period
|
|
Skinner’s Protein 23
|
1987 to December 2002
|
|
Skinner’s Ruff & Ready
|
1990 to date
|
|
Own label Waveney Gold and Crane Dog Food
|
1989 to approximately 2004
|
Samples
25. We were given “samples” of
dog food to look at (we forebore to taste them) but with the exception of Ruff
& Ready, which is still in production, the appellant was unable to
produce samples of the actual claim products as they are no longer in
production. Instead, we were given samples of the most similar product Mr
Skinner could find. We were also given samples of comparator products.
26. Skinners Dog Food. We
found this to be a cubed food of even consistency and light greyish in colour.
It was fairly homogenous in appearance although tiny pieces of white and brown
could be discerned evenly distributed throughout. As are all the other claim
products, this was a complete food in the sense any dog fed it could subsist
entirely on this food without supplementation with other foods.
27. Its ingredients were (in
descending order of quantity): steam cooked flaked wheat, meat and meat
derivatives, steam cooked flaked maize, porridge oats, wheat bran, white fish
meal, vitamins and minerals & oils.
28. Skinners Dog Meal. We
find that this was made from basically the same ingredients as Skinners Dog
Food but was not put through the pelleting process. As we have already
commented, the individual ingredients could be seen so its appearance was
rather like a muesli. It contained visible flakes of cereal and was mixed with
a brown powder. It was a complete food.
29. Protein 23. This was
an extruded dog food. Again no sample of this could be produced as production
of it had ceased but we were given a sample of Field & Trial Working 23.
This was a dog food still produced by the appellant and which HMRC
accept is zero rated. Mr Skinner informed us it was virtually identical to Protein
23. We explain the Field & Trial range in more detail in
paragraphs 93-101.
30. An extruded food, we find,
is made from raw ingredients which are mixed and placed in an extruder which
puts them under high pressure. This results in a high temperature which
“cooks” the food. Extruded foods are not baked or steamed. The end product is
superficially similar to a pelleted food, but the process of producing it is
different. Unlike the pelleted food, its appearance was entirely homogenous.
31. The appearance of the
product was of rough balls (larger than peas but smaller than marbles) of
uniform reddish brown colour. Its ingredients were (in descending order of
quantity): whole wheat, beef meat meal, maize, maize gluten, rice, oats,
chicken fat, bran, vitamins & minerals.
32. We find on the evidence that
many dog and cat foods produced today are complete, extruded foods but, relying
on the evidence of Mr Southey and the Monopolies and Mergers Report referred to
in more detail below in paragraphs 221-222, sales of extruded food for dogs
and cats were rare or unknown before the 1980s. Extruded dog and cat foods
have grown in popularity since that time for a number of reasons including that
extruded foods are more easily digested.
33. Ruff & Ready, was
a moist muesli food for dogs. It is a more sophisticated muesli than
the Skinner’s Dog Meal in that it was a mix of ingredients some of which
were baked, some extruded, some cooked flaked cereals, and some pelleted
proteins. By 1996 Ruff & Ready was the appellant’s best selling dog
food and it remains in production today.
34. Mr Skinner’s evidence which
we accept is that its ingredients were very similar to those of Field &
Trial Muesli Mix for hard working dogs. Indeed his evidence was that
Skinners had taken the formula for Ruff & Ready and made a few minor
changes and packaged it as Field & Trial Muesli Mix.
35. The product consisted of
large yellow flakes, rough balls of red/brown colour, square biscuit pieces and
some round pieces. Its ingredients were (in descending order of quantity):
protein pellets containing meat and meat derivatives, terrier meal, cooked
flaked maize, extruded wholewheat biscuits, cereal coating, dried meat greeves,
cooked flaked peas, cooked wheatflakes, oils, vitamins & minerals.
36. Waveney Gold and Crane
Dog Food: the appellant also sold dog food under two other supplier’s
labels. Mr Skinner’s unchallenged evidence was that the company’s two customers
were agricultural companies which sold the own label dog food to people local
to them with working dogs. He said selling like this gave the appellant a
larger share of the overall working dog market. In appearance, these two own
label foods were most similar to Ruff & Ready. They comprised yellow
flakes, brownish extruded pieces, and lighter biscuit pieces. The ingredients
were (in descending order of quantity): protein pellets, flaked maize, cereal
coating, flaked wheat, baked terrier meal, dried meat, extruded wheat discs,
flaked peas, soya oil, vitamins & minerals.
37. The appellant also did an
own label food for greyhounds called Trak Dog. HMRC accept that it
should have been zero rated and it is not one of the products in respect of
which a claim has been made and refused.
38. We were also given samples
of other dog foods for purposes of comparison.
39. Omega G: This was an
extruded dog food produced from about 1980 onwards and sold into the pet
food market. It was entirely homogenous, being a reddish brown colour, and
comprised uniform circular discs with a hole in the middle. Its ingredients
(in descending order of quantity) were: cereals, meat and animal derivatives,
vegetable protein extracts, derivatives of vegetable origin, oils & fats,
and minerals.
40. Pig finisher nuts. Mr
Skinner’s evidence which we accept is that it was a pelleted compound feed for
pigs and produced by a manufacturing process similar to that used for Skinner’s
Dog Food. In fact, it looked very similar to the Skinner’s Dog Food
except that it was clearly made with a smaller die as the pellets were
smaller. Its ingredients were (in descending order of quantity): wheat,
barley, wheat feed, niprosoya, molasses, limestone, dical, soyaoil, sow
supplement, salt and yeast.
41. Pointers Plain Terrier
Meal. This comprised small irregular pieces which were a pale beige/cream
colour and looked rather like coarse broken biscuits. We describe its
production process more fully when we deal with the expert evidence below in
paragraph 205. Its ingredients were (in descending order of quantity): wheat,
oils & fats, and minerals.
Formulated for all dogs?
42. We have already said in paragraphs
7 & 10 that we accept Mr Skinner’s evidence that from the start he
formulated the dog food with working dogs in mind because he saw this a niche
market in which the appellant might be successful.
43. We also find that he asked
BP Nutrition (see paragraph 14), and more recently experts from Premier
Nutrition, to check that the products were suitable for working dogs. It
is high energy food and easily digestible.
44. Although the claim period
covers some 30 years, we find that the recipes remained virtually unchanged
from when first formulated.
Suitable for all dogs?
45. It was accepted by the
appellant that all the claim products were suitable to be fed to pet dogs as
well as gun dogs or other working dogs. Mr Skinner was not sure that Skinner’s
Dog Food was necessarily suitable for toy dogs as the pieces were large but
accepted that the packaging held it out as suitable for dogs of any size.
46. We find the claim products
were high quality dog food that, in particular, were good for a dog’s
digestion. In so far as some dogs were likely to have digestive problems, we
find this was likely to be related to the breed of the dog rather than whether
it was a pet or working dog. For example, we were told Alsatians, used as both
pets and prison dogs, were prone to digestive problems.
47. We find that the protein
content varied between the various claim products from 19.5% to 23%. One of
the comparator products, the pet dog food Omega, had 24% protein
content. Therefore, although we accept the claim products contained a lot of
protein, we find its protein levels were no higher than in pet food.
48. Mr Skinner’s evidence was
that the food also contained high fat and carbohydrates to give working dogs a
lot of energy. We do not accept that this made it more suitable for working
dogs than pet dogs as, firstly, we find that the fat content varied
considerably between the various claim products (between 5% and 10%) and was
comparable to that in the pet food comparator product. We accept Mr Skinner’s
explanation that historically (before the company had extruding machines) it
was difficult to put a high fat content into the food. We had no evidence on
carbohydrate content other than Mr Skinner saying it was high.
49. Secondly, Mr Skinner and Mr
Hart accepted, and we find, that high energy foods can be as suitable for pet
dogs as well as working dogs. Some pet dogs, taken on long walks, might use
more energy than some working dogs who may have to sit quietly for long periods
until given a command. Mr Skinner’s evidence, which we accept, was that a pet
which did not exercise much would get fat (but not ill) if it was fed the claim
products: as Mr Hart colourfully put it, the claim products were not food for
Tricky Woo.
50. Our conclusion is that it
was a good quality dog food which could be fed safely to any dog but was
particularly suitable for active dogs, whether pets or working dogs.
Of a type for working dogs?
51. Mr Skinner’s evidence was
that the claim products looked more like animal feed than pet food. We accept
that Skinners Dog Food looked more like pig finisher nuts (a comparator
product) than the extruded hoops of Omega produced from 1980s onwards.
We also accept from reliance on the Monopolies and Mergers Report (mentioned in
more detail below in paragraph 221) that complete dog foods were unusual in the
1970s.
52. Our overall impression is,
and we find, that while the Skinners Dog Food and Skinners Dog Meal were
on the whole unlike most pet dog foods available in the 1970s, when the market
was dominated by canned food, over time the claim products and pet dog foods
have tended to converge in appearance. While pelleted foods were and remain
unusual as pet dog foods, it is clear that types of muesli-like complete dog
foods are now marketed as pet foods, and types of extruded dog foods have been
marketed as pet foods since around 1980.
Packaging - appearance
53. During the first part of the
claim period the appellant sold only its Dog Food and Dog Meal. These
were sold in 20KG blue bags with a sketch of a golden retriever. We find
retrievers are the archetypal gun dog but we also take judicial notice of the
fact that they are also very popular as pets.
54. At some point in the 1980s
the appellant switched to selling the claim product in white bags with a colour
picture of a golden retriever. These bags carried the strapline:
“carefully balanced food for all dogs”
55. Dog Food, Dog Meal and
Ruff & Ready also all carried the statement:
“Delicious and nutritionally complete dog food for
all breeds”
56. The description on Skinner’s
Protein 23 stated:
“suitable for all dogs, and particularly for
those dogs with a high energy requirement, such as hunting dogs and working
dogs.”
57. Mr Hart described these bags
as having a “very agricultural presentation” and we agree with him. They were
large, heavy paper sacks with crude artwork. The earlier bags as described to
us would have been even more basic in appearance.
58. The packaging changed
again. Mr Skinner’s and Mr Hart’s evidence on when this happened was not
consistent. Mr Skinner said it happened in around 2002 and Mr Hart said in
around 1998. However, taking into account that Mr Skinner ceased to be
responsible for the day to day management of the company in 1997 and was
somewhat vague on events in relation to the company that took place after this date,
and that Mr Hart stopped working at the appellant in 2000 yet had overseen the
introduction of the new bags, we prefer Mr Hart’s evidence that these new bags
came into use in around 1998.
59. These new bags remained in
use until the various claim products went out of production and were still in
use for Ruff & Ready at least until the end of the claim period.
They were plastic and had rather more detailed and sophisticated artwork. The
artwork on the front page included a new logo. Mr Hart explained that the logo
was meant to be representative of the dogs of Britain: the logo comprised the
heads of five dogs. There was a retriever to represent gundogs; a spaniel to
represent England; a Wolfhound for Ireland, a Collie (sheepdog) for Wales and a West Highland terrier (Scottie) for Scotland. All these breeds, with the exception of
the wolfhound (wolves having been extinct in Britain for some centuries), could
be used as working dogs, but, of course, were all breeds kept as pet dogs too.
60. Artwork on the bag included
a feeding guide with both pictures of dogs and examples of types of breed. The
appellant accepted and we find that not all the breeds pictured or mentioned
were breeds that were ever used as working dogs.
61. In conclusion we find that
none of the bags of food for the claim products (with the exception of Protein
23), in any of the three incarnations, mentioned working dogs or pet dogs.
So far as information could be gleaned from the packaging, the food was
suitable for all dogs of any breed. So far as Protein 23 was concerned
this was explicit in the sense the bag said it said it was suitable for all
dogs with high energy requirements such as working dogs.
Bag size
62. The various claim products
were all sold mainly in 20kg bags, but all were available in a smaller size,
ranging from 2.5kg, 3kg and 10kg. Mr Skinner said that the smaller sizes were
really only used to be given away as samples. But while we find they were
given away as samples, it is clear from Mr Hart’s evidence and the sales
figures produced to us that small but significant quantities of the smaller
bags were also sold. Mr Hart’s explanation is that working dog owners
occasionally wanted small bags, for example, when staying away for a weekend’s
shooting with their dog. We accept this explanation as it explains why sales
of the small bags were very limited compared with the large bags. We also find
the appellant advertised in its leaflets the availability of all sizes of the
dog food.
63. We find that the 20kg bag,
is as Mr Hart said, the size of an agricultural feed sack and that most pet
food is sold in smaller bags. Nevertheless, we also find that some pet food
was sold in 20kg bags, and that the appellant sold its Field & Track
Working Dog 23 in 15kg bags.
Holding out
64. We find that the appellant
introduced its Menu range for pet dogs and cats in 1990 and in or around 1996
it changed its logo to state:
“pet food manufacturers”
Independent reports
65. A Mr Peter Moxon wrote an
article about Skinner’s Dog Food and Dog Meal in the Shooting
Times and Country Magazine in early 1980. His article praised Skinners Dog
Food. Nowhere does the text mention that the dog food is for working dogs:
nevertheless the article is headed “Gundogs” and printed in a magazine intended
for persons who shot game. Further, we find Mr Moxon was well-known in
gundog-owing circles. He trained gundogs and wrote the “bible” for gundog
trainers and competitors. The text might not mention gundogs but the intended
audience of the magazine, we find, would know the author wrote the article with
gundogs in mind.
66. An article in Sporting
Gun by another author dated May 1991 reported on a visit to the appellant’s
factory as a visit to “a factory producing grub for gundogs”. Again the
article praises the food and the underlying assumption of the article is that
it is food for gundogs from puppyhood to adulthood.
67. The appellant benefited from
word-of-mouth recommendations and indeed it was their evidence it was part of
their marketing strategy. One example was a recommendation from a dog trainer
in Suffolk to a dog handler at Dartmoor prison which secured the appellant a
contract to supply the dog food to the prison service.
Leaflet
68. The appellant produced a
marketing leaflet, ‘Fit for Life’, that was in use from the mid-1980s onwards.
Although it stated many benefits for dogs fed on the appellant’s product,
nowhere did it explicitly state that the product was only intended for working
dogs. Rather, it said:
“No supplementation whatever is needed to sustain
healthy life for the pet or working dog”
Elsewhere it referred to dogs without distinguishing
between pet or working dogs. The leaflet had line drawing reproductions of
pictures of dog heads. Many breeds were featured, many of which were breeds
used as working dogs, but one dog represented was clearly intended as a
representation of a pet dog as it had a bow on its head.
69. The leaflet also included on
the whole of one of its 7 pages a reproduction of the full text of Mr Moxon’s
article referred to above together with its heading “Gundogs” in very large
print. Indeed, apart from the strapline on the front page of “Fit for Life”
and the name “Skinners” on the back page, this was the largest text used in the
leaflet.
70. Our overall impression of
this leaflet is that the food was intended for gundogs: it did not expressly
say this but gave great prominence to the article headed ‘Gundogs’. It also
devoted space to the food’s suitability for lactating bitches and puppies being
weaned, which contributes to the impression that this was not ordinary pet food
but food to be considered by persons in the business of raising puppies.
71. The leaflet ceased
production at some point and was replaced with another, a sample of which we
were not given. Mr Hart was responsible during his period of employment by the
appellant for the production of this replacement leaflet and we agree with HMRC
and find that it too would have had at least some representations that the
products were suitable for pet dogs. This is because Mr Hart said in the hearing
that in his period of employment he wished to broaden the customer base of the
appellant and wanted to hold out the food as also suitable for pets. The
leaflets were distributed to wholesale/retail purchasers of the appellant’s
products for them to distribute to their retail customers. They were also
distributed at dog shows.
Website
72. The appellant set up its own
website in 2002 to advertise its products. We had no evidence of how it
appeared at that date. The evidence we had was that in 2010 (one year outside
the claim period) the only two remaining claim products still in production at
that time (Ruff & Ready and Dog Meal) were sold in the
category designated “for domestic pets” rather than the category “for working
dogs”. However, a page accessed from the question “what product suits you” had
a “pets” option and the products which came up under this option did not
include any of the claim products.
73. Our finding based on this
evidence is that the appellant did not use its website to actively promote Ruff
& Ready and Dog Meal as pet food (because otherwise they would
have been listed under the “pets” option). Nevertheless the appellant chose to
place them in the “pets” category rather than the “working dogs category”.
However, we accept that having worked hard to comply with HMRC’s requirements
for zero rating for its Field & Trial range the appellant did not
chose to list the food that was not accepted by HMRC has having zero rated
status with the range that did have such status.
Advertisements
74. The appellant advertised its
product in magazines: the magazines in which it chose to advertise were
working dog magazines, such as the Shooting Times, The Field, Terrier and
Lurcher Field Magazine, and Working Dog. Its adverts featured
imagery of men and dogs in the shooting field.
75. It did not advertise the
claim products (although it did advertise its Menus range) in general pet dog
magazines nor in periodicals aimed at show dogs. This was because the
appellant perceived working dog (particularly gundog) owners to be its target
audience. We note, though, that the appellant also advertised its Menu
range in some working dog magazines.
76. It also advertised the claim
products in year books for working dog breeds such as the year book for
labradors and retrievers.
Dog shows and field trials
77. Mr Skinner’s strategy from
1980 was to advertise the appellant’s products by travelling around the UK visiting gun dog breeders and trainers, exhibiting at field trials and country shows.
Sales in 1980 grew by about 700%. And by the end of the 1980s sales of the two
dog foods were nearly 10 times what they were in 1980.
78. Attendance at dog shows
continued throughout the claim period. The appellant sometimes even sponsored
dog shows to advertise the claim products. Most of the dog shows attended were
exclusively for working dogs, although later in the claim period the
appellant’s representatives attended a few shows which were also (but not
exclusively) for pet dogs, such as Crufts, which had a large section for
working dogs.
79. Representatives of the
appellant would also attend field trials to advertise its dog food. Field
trials, we find, are competitions between owners of gun dogs where a prize is
given to the owner of the best performing dog retrieving shot game. Such trials
would not include competitions for pet dogs.
80. Throughout the claim period
the appellant regularly attended and promoted the claim products at game shows,
such as the Country Landowners Association annual Game Fair and the
Northern Irish and Welsh game fairs. It also exhibited at agricultural shows,
such as the Black Isle Show, Royal Welsh Show, The Royal Bath & West and
other shows.
81. In summary the appellant
attended some 12-15 events per year and of the events attended, only Crufts,
which they did not attend very often, included sections for pets.
Sponsorship
82. The appellant purchased dog
trailers and allowed them to be used by persons transporting gun dogs to
competitions: this was a marketing device as the outside of the trailer
advertised the appellant’s dog food and the trailer would be seen at field
trials all over the country.
83. The appellant was also the
sole sponsor of the England gun dog team at the Game Fair and of the
International Gundog League’s Retriever Championships.
84. The appellant also provided
food as prizes in field trials.
Agents
85. The appellant was a
manufacturer. It aimed to sell in bulk. The larger kennels (say with 10 dogs)
might be able to buy in sufficient quantity for it to be worth the appellant’s
while to supply them direct. From the appellant’s order books, it was apparent
that it had supplied many kennels direct. But we find on the evidence an order
for dog food of anything less than half a tonne had to go through an
intermediary in order to be financially worth while.
86. Its first intermediaries
were persons it described as agents: these were gundog owners who bought in
bulk in order to feed their own dogs and to supply the food to other dog
owners.
87. As already mentioned in
paragraph 20, we had evidence from Mr Hill who was one such agent for very many
years. His evidence was that he sold the food to working dog owners. He said
he was unable to remember even one customer with a pet dog. He admitted that
in his later years as agent that he had had also sold the appellant’s products
to his next door neighbour who ran a pet shop but even then he thought his
neighbour’s customers for the food were gundog people.
Sales representatives
88. To expand sales beyond the
agents, before Mr Hart was employed, the appellant contracted with a self-employed
sales representative on commission. Mr Hart joined in 1990 and recruited a
team of five sales representatives.
89. Mr Hart agreed with HMRC’s
counsel that these sales reps were told to hold the food out as suitable for
all dogs but he also said that the reps were told primarily to stress the
products’ suitability for gundogs. We accept this evidence because Mr Hart was
a reliable witness and his evidence was consistent.
90. He said that any
representations would have been made to owners of working dogs – and not
wholesalers or retailers – because it was Mr Hart’s strategy to identify
suitable kennels for the reps to target from lists of gundog breeders listed in
the Kennel Club publication. Mr Hart’s rule was to “start with the dog” in
order to generate demand for the appellant’s products.
91. It was the appellant’s
experience that an intermediary, such as a country store, farm shop or pet food
retailer or wholesaler, would not stock the appellant’s food unless satisfied
it could sell it: so the appellant’s strategy was to create demand at consumer
level as described in the previous paragraph, and then find a retailer and/or
wholesaler who would agree to buy the food in bulk in order to sell it on in
smaller quantities to the identified customers. Mr Hart’s evidence was that it
was unlikely that the sales reps would discuss with the intermediaries the
suitability of the food for all dogs as all the intermediary would want to know
was that there were customers already lined up to buy the food: they would not
buy in the food speculatively.
92. The evidence from the day
books shows that originally many of the buyers were dog owners, breeders or
trainers or suppliers thereto: over time the appellant was less able to state
who the consumer of the food would be as a much larger percentage of its
supplies were to intermediaries. By 1993 68% of buyers (measured by name not
quantity) were not known to be working dog owners, breeders, trainers or
suppliers thereto. We find this is consistent with the explanation we were
given of the appellant’s sales strategy over time which evolved from word of
mouth in 1980 to agents and on to established business intermediaries.
The appellant’s Field & Trial Range
93. We find that in response to
HMRC’s acceptance that specifically labelled and formulated working dog food
could be zero rated, and in response to competition, the appellant created a
new brand range of dog food called Field & Trial. HMRC accepted
from the start of its production in 1998 that this was zero rated and it is not
part of the claim.
94. The appellant still
manufactures dog food under the name Field & Trial.
95. We find that, since the
introduction of its Field & Trial range, sales of the claim products
diminished. Sales have diminished to the extent that only one of them (Ruff
& Ready) now remains in production.
96. We find all of the claim
products showed a significant decrease in sales between September 1997 and May
1999, and (with the exception of Ruff & Ready) the decline
continued. When sales had dropped to around £5,000 a month or less, production
ceased. On the other hand, the Field & Trial range leapt from
about £35,000 sales per month in mid-1999 to twice that a year later and then
to over £200,000 per month after some years in production.
97. Ruff & Ready
showed a different pattern. Its sales dropped by about one third shortly after
the introduction of Field & Trial and then sales stabilised at this
lower level of £60,000-£90,000 per month. It remains in production.
98. HMRC pointed out that it was
a slow shift from the claim products to Field & Trial. The earliest
to be discontinued (Protein 23 in 2002) was discontinued only after
about 5 years: the Dog Food and Dog Meal were not discontinued
for at least 10 years. They pointed to an inconsistency between Mr Skinner’s
evidence (which was that some conservative working dog owners stayed with the
claim products which they had been using for years) while Mr Hart’s evidence
was that they all switched.
99. We find that, as the figures
show, there has been a gradual switch from the claim products to Field &
Trial. HMRC’s case is that the slow shift to Field & Trial and
the retention of Ruff & Ready, indicated that some of the consumers
were not owners of working dogs. What working dog owner would buy Ruff
& Ready in 2009 at the end of the claim period in its non-specific
packaging when the appellant had been offering Field & Trial “for
hard working dogs”, with its packaging featuring a shot gun and game bags,
since 1998?
100. However, we
accept what Mr Skinner said that, despite the price differential, there would
have been product loyalty from the more conservative customers and this
accounts for the slow switch over to the Field & Trial range. Our findings
of fact in relation to the retention of Ruff & Ready are at 192-193.
101. We note in this
regard that, of course, the continental buyers of the appellant’s food would be
unaffected by the VAT differential in price as either way the appellant’s sales
to the continent were free of VAT. However, we were informed and we find, that
the sales figures produced to us excluded the continental sales. This was
therefore not the explanation of the continuing sales of Ruff & Ready..
The proforma letters
102. For the purpose
of this appeal, the appellant sent out pro forma letters to its customers
asking them to confirm that they were selling the claim products to
“predominantly owners, breeders or trainers of working dogs or suppliers to
such persons”
103. No negative
responses were received and we agreed with HMRC’s counsel that little can be
read into this as a person unable to agree with the pro forma letter would
simply not bother to respond. On the other hand, we do not think that anything
could be read into the number of persons overall who failed to respond as we
had no way of knowing whether they did not respond because they did not agree
with the proposed statement or because they did not read the letter or simply
did not find the time to respond to it.
104. Some 16 positive
responses were received. Some were from private breeders and many were from
kennels. One was from a company which described itself as “traditional millers
of animal feeds and pet foods”; another was from a “general merchants” on
Shetland; one was on behalf of the home office prison department dog section;
two were from animal feed suppliers and one was from a veterinary practice.
105. Only one
response was in the “don’t know” camp. This was a farm shop which said it kept
no records but assumed that its customers were likely to be gundog owners as
the shop was based in the country.
Consumers
106. The Appellant’s
case was that the product was ultimately sold primarily to owners of working
dogs, whether by itself or through an agent or an intermediary such as a
wholesaler or retailer.
107. We had evidence
from Mr & Mrs Halstead who owned and trained working dogs and had used
Skinner’s dog foods for over 40 years. It was apparent from their witness
statements that, while they must originally have used either or both Skinner’s
Dog Food and Skinner’s Dog Meal, as the only two products manufactured
by Skinners 40 years ago, at some point they had swopped to the Field &
Trial range, as they were under the mistaken impression it had always been
called Field & Trial. Their evidence of their loyalty to the
products was a testimonial to the products’ quality but tells us little of
relevance to this appeal: Mr & Mrs Halstead are clearly the archetypal
customer Mr Skinner had in mind but their evidence does not tell us whether or
not pet owners would also buy the claim products.
108. Mr Livingston
(see paragraph 19) left BP Nutrition sometime in the 1980s and went to a pet
food manufacturer where he was employed until he retired. We accept his
evidence that his employer did not see the appellant as a “major competitor”
because the appellant was perceived to manufacture gun dog food rather than pet
dog food. We also accept his evidence that he understood that the appellant’s
intended market for its dog foods was gundogs and other working dogs.
109. We also find
that the appellant had contracts for the food from the home office to supply
various prisons, which used it to feed prison dogs.
110. The other
evidence we had on consumers, such as that mentioned in paragraph 20 from Mr
Hill, was that so far as he knew the product was ultimately purchased only by
owners of working dogs. Mr Hart’s evidence was to the same effect (see
paragraph 119 below).
111. HMRC pointed to
the sales of small bags as evidence that the claim products were bought by pet
owners, but we do not agree. Sales of small bags were very low in comparison
to sales of the 20KG bags of the claim products and therefore we accept Mr
Hart’s evidence that these were to the same persons who bought the 20KG bags
but who occasionally wanted a smaller quantity for travel.
Conclusion on customer base
112. In conclusion,
we find from evidence of the witnesses and from the fact that the introduction
of the Field & Trial range spelled the demise of all bar one of the
claim products, that the consumers of Skinner’s own label dog food (barring Ruff
& Ready after 1998) were mainly if not entirely owners of gundogs and
working dogs.
113. From Mr
Skinner’s unchallenged evidence we find that the customers of the two claim
products produced by the appellant under the label of agricultural companies (Waveney
Gold and Crane Dog Food) were people with working dogs who lived
locally to the two agricultural company customers of the appellant’s.
Attempt to broaden customer base
114. Mr Hart’s
evidence was that when he joined the company the market knew that all Skinners
did was food for gundogs. He was concerned that the entire business rested on
a very small sub-sub-section of the market: in other words, the appellant
depended on sales to gundog owners, gundogs being a sub-set of working dogs,
and working dogs being only a small proportion of the dogs in the UK. He called this an inverted pyramid.
115. To improve the
appellant’s position he did a number of things in the decade he worked for the
appellant. He introduced the appellant’s “Menus” range for pet cats and dogs.
This was sold in brightly coloured 15kg bags. It is still sold today.
116. Mr Hart’s
evidence was that pet food would usually not be sold in bags bigger than 15kg
as, if they were any heavier, women (seen as the primary buyer of pet food)
would be put off buying them. We accept his evidence that 20kg bags are
unusual for pet food.
117. Mr Hart
improved the bags used for the claim products and we have discussed these new
plastic bags at paragraphs 58-60 above. He accepted that he wished to make the
food attractive to a wider audience and in particular pet dog owners. He did
not reduce the size of the bag to 15kg. He said it was impractical to do so.
The Ruff & Ready 20 kg bag, however, had the strapline:
“special 20kg pack – a third more food than standard
15kg bags”
Mr Hart accepted that this was to point out the
advantages of the larger bag to pet owners and said it was part of his strategy
to widen the customer base.
118. He said he made
no attempt to contact supermarkets as that would have been a waste of time: he
said he put minimum effort into expanding the customer base of the claim
products to pet dog owners. Other than the improved packaging, this comprised
solely, when delivering an order, of including leaflets for distribution to
consumers
119. His evidence,
which we accept (as it was borne out by the other evidence such as in
paragraphs 106-112), was that he was “singularly unsuccessful” in holding out
the appellant’s claim products for sale to pet dog owners. He managed to grow
the appellant’s sales during his time in office, but only by creating a market
for it amongst gundog owners on the continent. Mr Hart summed up his evidence
by saying “the reality of our offering is that it was about working gundogs”.
The law
120. Although the
claim covers nearly 30 years, the relevant legislation on the zero rating of
animal feeding stuffs and pet food has remained unchanged although re-enacted,
so in this decision we refer only to the legislative provisions in the current
VAT Act.
121. As did its
legislative predecessors since the introduction of VAT in 1973, Section 30
Value Added Tax Act 1994 (“VATA”) combined with Schedule 8 VATA provides that
certain supplies are zero rated. Group 1 of Schedule provides zero rating for
certain supplies of food. In so far as relevant to this appeal it provides:
Group 1 –
Food
The supply of
anything comprised in the general items below, except –
(a) ….
(b) a supply of
anything comprised in any of the excepted items set out below…….
General Items
Item No
1…
2 Animal Feeding
stuffs
3…..
4…..
Excepted
Items
1 ….
2 ….
3 …
4 ….
5 ….
6 Pet foods,
canned, packaged or prepared; packaged foods (not being pet foods) for birds
other than poultry or game; and biscuits and meal for cats and dogs.
7 …”
122. The appellant’s
case is that various dog foods at issue in this appeal are “animal feeding
stuffs” and not within the pet food exception. HMRC agrees that the dog foods
are “animal feeding stuffs” but considers that the dog foods in issue are
either or both “pet foods, ….packaged or prepared” or “…meal for … dogs”. We
deal with each exception in turn.
Interpretation
123. Firstly we look
at the general rules of interpretation of this particular schedule. It has
been considered in two Court of Appeal cases.
124. In Ferrero UK
Ltd [1997] STC 881 the Court had to consider the meaning of “biscuits”, as
confectionary other than cakes and biscuits are an excepted item to food for
human consumption. Lord Woolfe MR emphasised that it was a question of fact in
each case whether the food in question was of a particular description:
[884 b-c]“I commend the tribunal for the care which
it took over this matter, but I am bound to say that, no doubt because of the
submissions which were made to it by the parties, the treatment of the issue
which was before it, was far more elaborate than was necessary. I do urge
tribunals, when considering issue of this sort, not to be misled by authorities
which are no more than authorities of fact into elevating issues of fact into
questions of principle when it is not appropriate to do so on an inquiry such
as this. The tribunal had to answer one question and one question only; was
each of these products properly described as biscuits or not? If it had
confined itself to that issue which is, and has to be, one of fact and degree,
then the problems which subsequently arose would have been avoided.”
125. The second case
in which the Court of Appeal considered the construction of words in the food
zero rating provisions was Proctor & Gamble UK [2009] EWCA 407 where
the Court had to decide whether the product in issue was “similar” to “potato
crisps” and “made from the potato”. Mummery LJ said:
[79] “…the VAT legislation uses everyday English
words, which ought to be interpreted in a sensible way according to their
ordinary and natural meaning.”
126. We consider,
therefore, that we are to give “pet”, “pet foods” and “meal” their ordinary
meaning; and that the findings of facts of previous tribunal decisions in no
way bind us and indeed should not influence our decision.
What a child thinks
127. HMRC saw the
case as being fundamentally very simple. The packaging held the claim products
out as suitable for all dogs. Most dogs are pets. Therefore, they say, the
claim products were pet foods. They referred to Mummery LJ’s reference to the
question in Proctor & Gamble being suitable for a child to answer:
[79] “The ‘made from’ question would probably be
answered in a more relevant and sensible way by a child consumer of crisps than
by a food scientist or culinary expert.”
128. The appellant
does not agree that the question must be reduced to one that a child could
answer and we agree that what Mummery LJ said should not be taken out of
context. We take him as meaning that where the question was the ordinary
meaning of a word used to describe a food children are fond of, a child might
give a better answer than an expert on food. It was a stricture not to
overcomplicate matters. But it was not a stricture to ignore relevant
evidence: we will consider all the evidence and not just the evidence in
relation to the packaging.
129. While the
question is simple, the evidence may be voluminous and not entirely
consistent. As so often the Tribunal has to conduct a balancing exercise and
(perhaps we flatter ourselves) it is not an exercise for a child.
Narrow construction?
130. HMRC also
submitted that words conferring zero rated status should be narrowly construed
on the basis that the CJEU has on many occasions ruled that exceptions to the
general principle that supplies are subject to VAT should be narrowly
construed. Ms Mitrophanous cited Stichting Uitvoering Financiele Acties v
Staatssecretaris van Financien C-348/87 as authority for this and the
principle is stated in many other CJEU decisions.
131. However, we
agree with the appellant that it has no application in this case. In this case
we are considering the meaning of a provision of VATA that is permitted but
not directed by the Sixth VAT Directive (or its replacement the Principal VAT
Directive). The rule of interpretation enunciated by the CJEU in Stichting
Uitvoering Financiele Acties and many other cases applies to the
interpretation of the Sixth VAT Directive (and Principal VAT Directive) or any
national provision implementing a directly effective provision of those
Directives.
132. As long as
national legislation, such as the zero rating for food provisions in Schedule 8
VATA is within the derogation permitted by the Sixth VAT Directive (and there
is no suggestion it is not), then the interpretation of those provisions is a
matter of national law. And there is no rule of national law that says zero
rating provisions are to be narrowly construed. On the contrary, the rule is
as stated in Proctor & Gamble UK, that the words should be given
their ordinary meaning.
Pet foods… packaged or prepared
133. It is common
ground that the dog foods in issue were “packaged and prepared”. On the
evidence we agree that this was the case. The only issue between the parties
here, therefore, is whether it was “pet food”.
134. HMRC’s case is
that pet food includes a dog food for all dogs including pets and that on the
facts the claim products were dog food for all dogs.
Are all dogs pets?
There were views expressed in the hearing on what a “pet”
was. The Oxford Dictionary has this definition:
“animal tamed and kept as favourite or treated with
fondness”
135. The Tribunal in Popes Lane [1986] VATTR 221 said:
“…a pet is an animal (tamed if it was originally
wild) which is kept primarily as an object of affection, in which I would
include an animal kept primarily for ornament. That test would exclude animals
kept primarily (a) for study or research….(b) as objects of general interest;
examples are animals in a zoo, (c) for work or produce, examples are cattle,
sheep dogs, police dogs, guard dogs, gun dogs, breeding animals, show animals,
racing animals such as greyhounds and racing pigeons, and a pack of hounds and
(d) for sale, examples are animals kept for sale by a breeder or in a pet
shop.”
136. HMRC did not
challenge the basis of the appellant’s claim that gundogs and other working
dogs were not pets. We find as a fact on the evidence that we were given that
as a general rule gun dogs are kept in kennels and not allowed in the house,
they are kept to work (to retrieve game that has been shot) and at the end of
their working life are likely to be (if not kept for stud) re-homed or put
down. They are not kept primarily as objects of affection. As Mr Hart
colourfully put it, gundogs were not given fluffy toys.
137. We are satisfied
that gun dogs are not pet dogs. Food “for” gun dogs is therefore zero rated
while food “for” pets is standard rated as pet food (if canned, packaged or
prepared).
138. In any event,
HMRC no longer advance the view so long advanced by them in their public
notices that all dogs are pets and therefore all dog food is pet food. They
agree that the appellant’s Field & Track range of dog food is
properly zero rated as animal feeding stuffs. Although we had no evidence on
working dogs in general, it was also not in dispute between the parties that
all working dogs (including prison dogs) are not pets and so we find.
139. There was an assumption
made by HMRC and Mr Hart that most dogs in the UK are pets. We take judicial
notice of the fact that most dogs in the UK are pets and not working dogs.
Is HMRC’s guidance relevant?
140. It was part of
the appellant’s case that their packaging on the claim products and leaflets
would have referred to the product being intended for working dogs had they
understood from HMRC’s guidance that food for working dogs was properly
zero-rated. It was Mr Skinner’s case that, from when he started to manufacture
dog food in the 1970’s when he had heard an HMRC VAT officer inform Mr Linacre
(see paragraph 7) that all dog food was standard rated, until 2002 (or 1996 for
racing greyhounds) that had remained HMRC’s published position. The appellant
had been unaware that HMRC’s published was not in accordance with the law.
141. We find that
from 1976 to 1994 HMRC’s written guidance to taxpayers (VAT Leaflet 701) stated
that “canned or packaged food for cats, dogs or other pets” was standard
rated. In 1984 VAT leaflet Pet Food 701/25/84 correctly reported the
legislation and appeared in one place to recognise the difference between pets
and working dogs (as it said food held for sale for pets but actually supplied
for consumption by working dogs would be standard rated) but then went on to
repeat from before that “food…for cats, dogs and other pets” is standard rated
if canned packaged or prepared.
142. The leaflet Pet
Food was re-issued on 1 November 1986 and included this same phrase.
143. Any ambiguity on
how HMRC may have intended this to be interpreted was made clear in its
Business Brief no 17 published on 12 September 1994 where it stated that
“Any canned, prepared or packaged dog food,
including complete feed, not specifically held out for sale as greyhound food,
is also standard rated.”
144. In other words
we find (and HMRC did not suggest otherwise) that HMRC’s public position up to
1994 was that all dog food was standard rated. Neverthless, HMRC’s published
position changed with this Business Brief because it accepted for the first
time that a complete food for greyhounds which was specifically held out
for sale as food for greyhounds would be zero rated. It published Notice
701/15/95 Food for Animals on 1 June 1995 in which it stated at
paragraph 12 that all dogs were pets unless racing greyhounds.
145. This Notice was
replaced in March 2002 with Animals and Animal Food 701/15/02. Here
HMRC recognised that working dogs were not pets. It stated:
“A product which is claimed as being suitable for
all breeds, size and age of dog is standard-rated.
If a specifically formulated food is held out for
sale exclusively for working dogs it will come within the scope of the VAT
relief – unless it is biscuit or meal.
Therefore ……
Dog food (other than biscuit or meal) is zero rated
if it is exclusively for….working sheep dogs of any breed, dogs trained and
used as gun dogs, racing greyhounds.”
146. Guidance agreed
between HMRC and the Pet Food Manufacturers Association was that “only new
products with approved packaging could be zero rated. Existing products
continued to be standard rated.” For this reason, says Mr Skinner, the
appellant developed a new range (Field & Trial) rather than seeking
zero rating for its claim products. It was not until much later, in 2009, that
it lodged the claim to recover VAT charged on the claim products.
147. The appellant is
particularly aggrieved that the view of the law stated in HMRC’s public notices
did not reflect a number of tribunal decisions starting with Popes Lane
in 1986 (we refer to them in paragraphs 167-171 below) with the result that the
appellant remained unaware that the tribunals had ruled the law to be something
other than what HMRC represented the law to be in its public notices.
148. The appellant’s
position is also that we should give less weight to its packaging than we might
otherwise, on the basis that HMRC’s position on the appellant’s packaging is
disingenuous: HMRC having, in the words of the appellant, flouted three
tribunal decisions and for so long stated that all dog food was standard rated,
and that therefore by implication taken the position that it would have made no
difference had the appellant’s packaging stated the food was for working dogs,
HMRC then took the position in this Tribunal that the appellant’s packaging was
highly relevant and indeed even determinative of the appeal against them.
149. We were given no
explanation for why HMRC’s manuals did not reflect the tribunal decisions we
discuss below, but then we did not ask for one as we are not undertaking and
nor do we have jurisdiction to undertake a judicial review. If the reason the
decisions were not reflected in the public notice was that HMRC at the time
considered the various Tribunal decisions to have been wrongly decided, we
think the proper course of action for HMRC would have been to appeal the
tribunal decisions, or at the very least acknowledge them in their public
notices.
150. Nevertheless, it
seems to us that, while HMRC’s conduct may be open to criticism, and that the
appellant might even have had some sort of claim against HMRC founded in
judicial review on the basis it acted to its detriment in reliance on incorrect
public notices, the question for this Tribunal is how the appellant actually
held out the claim products for sale: it is not a question of how they would
have held them out had HMRC’s leaflets properly reflected the law.
151. Therefore, we
are unable to agree with the appellant that HMRC’s public notices are relevant
to the questions in front of this Tribunal.
152. Mr Conlon
referred us to Moses J in Marks & Spencer [1999] STC 1999
205 at 241, where the judge was dealing with the issue of unjust enrichment,
to the effect that the tax authority could not expect perfect evidence when its
own failure had led to the imperfect evidence:
“…the tribunal of fact must bear in mind that in
making that assertion [that passing on the tax to the customer caused the
taxpayer damage] the trader may…. be forced into the position of providing
material relevant to a time when it did not suspect and had no reason to
suspect that it might be overpaying tax, and thus, have any need to prepare a
claim for repayment. …. Lacunae in the evidence should not be considered to
the detriment of the trader. It was, after all, the taxing authority which
caused the problem in the first place. Thus, it seems to me, if, after
considering all the evidence, there is uncertainty or absence of detail, that
should not be held against the trader….”
153. We cannot agree
that this is authority that we should ignore or downplay the relevance of the
appellant’s packaging. In that case, HMRC had the burden of proof to prove
unjust enrichment, and had proved that the tax had been passed on to the
taxpayer’s customer. This meant that an evidential burden had shifted to the
taxpayer to show that it had suffered damage despite the passing on of the tax
to its customer. What Moses J was saying was whether the taxpayer had
discharged that evidential burden was to be assessed sympathetically taking
into account that, due to HMRC’s fault in incorrectly applying the law, the taxpayer
would not have known at the time that it needed to keep the records necessary
to prove such damage.
154. Here we are not
concerned with lack of evidence to prove a point but with evidence that tends
to disprove a point. In that case, Moses J did not say that the taxpayer did
not need to prove damage, still less did he say that evidence tending to prove
that there was no damage could be ignored: all he said was that less then
complete evidence proving the point might be sufficient bearing in mind the circumstances.
155. There is
therefore nothing in this case to assist the appellant. We give no less weight
to the packaging and other marketing material than we would have given to it
in a case where there was no question of HMRC being at fault for misrepresenting
the law in its public notices.
Must food be specifically formulated for non-pet animals?
156. It was part of
HMRC’s policy that unless specially formulated for working dogs, a dog food was
a pet food as it would be suitable to be eaten by pet dogs.
157. While we agree
that a food unsuitable for a particular animal could not be described as food
for that particular animal, we do not agree with HMRC that just because a food
is suitable for a particular animal it is necessarily food for that sort of
animal. In Fluff Ltd (trading as Mag-it) [2001] STC 674, which was a
case where it had to be decided whether maggots, suitable as fish food, but
sold from a vending machine as fishing bait, were “animal feeding stuffs”,
Laddie J said that:
“in deciding that [whether it was fish food] one
must look not just at the nature of the material but the way in which it is
supplied”
So although suitable as fish food, the maggots were not
zero rated because they were not intended as fish food but rather as fish
bait.
158. On the facts of
this case we find that the claim products were specifically formulated for
gundogs (see paragraph 42) but that they were also suitable to be eaten by pet
dogs, particularly those with high energy requirements (see paragraph 50).
159. This does not
mean that the food was therefore pet food: applying Fluff Ltd, whether
it was pet food depends on the way in which it was held out for sale.
Purchasers’ intentions
160. All parties were
agreed, as we agree, that the subjective intention of the purchaser is
irrelevant. As the Tribunal in Popes Lane Pet Food Supplies [1986]
VATTR 221 said, a person might buy cat food as rodent bait but that does not
mean the food is anything other than cat food. Any other conclusion would
require the private intentions of a purchaser to be ascertained before the
vendor would know whether the item sold was subject to VAT or not.
161. It is HMRC’s
case that because the subjective intentions of the purchaser are irrelevant, it
is irrelevant whether or not the purchasers of the appellant’s various dog
foods in issue were in fact gun dog owners.
162. We do not
agree. While we agree that individually the subjective intentions of the
purchasers are irrelevant, where it is apparent that the food is principally
bought for particular kinds of dogs, this is an indication (although not
conclusive) that objectively determined the intention of the supplier was to
supply food for that kind of dog.
163. In other words,
the intentions of any particular purchaser must be irrelevant: but if the
evidence is that all or virtually all customers bought the product for a
particular purpose, that is evidence (albeit not conclusive) that the product
was held out for sale for that particular purpose. And that is objectively
determined evidence of the supplier’s intention.
164. And it also
follows that, if we find in fact the food was held out as gun dog food, it
would be irrelevant if a few persons purchased it for their pets.
Objectively determined intention of supplier
165. We think that it
is the objectively determined intentions of the supplier that matters in order
to decide whether the food was intended “for” pets.
166. Despite
strictures in Ferrero against treating Tribunal decisions on food zero
rating as authorities on law rather than decisions on their own particular
facts, we were treated to an analysis of the various tribunal decisions on the
meaning of pet food.
167. HMRC considered
the Popes Lane case mentioned above as authority for the proposition
that dog food supplied in a manner that it was unlikely to be bought as pet
food (lumps of meat wrapped in bin liners) would not become pet food merely
because the supplier, in an attempt to broaden its customer base, changed its
name to include the word “pet” and advertised pet foods for sale. This just
seems to us to be an application on its particular facts of the principle that
that it is the intentions of the supplier objectively determined that dictate
whether the animal food is intended primarily for pets.
168. Supreme
Petfoods Limited [2011] UKFTT 19 (TC) seems to be another application of
the same principle but to very different facts. Ferret food was found to be
pet food because as a matter of fact the Tribunal found that most ferrets were
kept as pets.
“From the objective evidence we conclude (and find
as a fact) that food held out for feeding ferrets generally is pet food,
because ferrets generally are pets”
169. HMRC consider
this to be a “key” case in this appeal as it demonstrates that food for all
types of one animal species where most of that species are kept as pets is pet
food. In other words, their case is that as the appellant’s packaging stated
the claim products were suitable for all dogs, and as most dogs are pets, it
follows that they were pet foods.
Importance of packaging and labelling
170. HMRC saw Norman
Riding Poultry Farm Ltd [1989] VATTR 124 as application of the principle
that ascertaining objectively the supplier’s intention requires the Tribunal to
consider how the food is held out for sale. In that case minced chicken wrapped
in clingfilm, not specifically stated to be pet food and 75% of which was sold
to owners of working dogs, was found not to be pet food.
171. HMRC also relied
on the case of P A Peters & K P Riddles t/a Mill Lane Farm Shop (VTD
12937) as indicating that what matters is the packaging and signage. In this
case (say HMRC) the appellant’s intention was to sell to owners of working dogs
but his food was held out for sale under signs saying “frozen pet food” and was
therefore found to be standard rated.
172. We cannot agree
that this case is authority that the labelling (and by extension packaging)
(where there is any) exclusively determines what the holding out was and
therefore objectively the intentions of the supplier. Indeed the Tribunal went
on to look at the “predominant” holding out in respect of telephone sales and
bulk purchasers saying that the label over the freezer would be “insignificant”
to these purchasers and the significant matter was what was said to them over
the phone. The Tribunal said:
“how the products are held out for sale will depend
upon a number of factors including what is said to the customer leading up to
the sale, what is said on the products or their packaging, how they are
advertised and how the trader generally holds out his business.”
173. We agree with
the chairman in this case that we must look at the overall holding out by the
supplier, of which the packaging is a part, but not necessarily a
determinative, part.
174. We reject HMRC’s
case that the packaging alone will always determine how the seller is holding
the food out for sale.
The importance of packaging when sale is wholesale
175. By the 1990s
many, probably the bulk, of the appellant’s sales were wholesale sales in that
the appellant was only selling directly to the consumer (the dog owner) in the
minority of cases. HMRC considers a comparable case to be Supreme Petfoods
as that is the only case on pet foods involving a sale by a manufacturer. In
that case, the tribunal decision revolved around the packaging: there could be
no sign above the door for the tribunal to consider as the taxpayer was not a
retailer. Similarly HMRC think this case should revolve on the packaging as
what was on the packaging was how the appellant held the product out for sale
to the ultimate consumers.
176. We do not find
that the packaging gave an unambiguous representation that it was suitable for
all dogs including pets. We accept the evidence that the package itself (up to
the new bags in 1998) were agricultural in appearance, unusually large for pet
food, and the food itself (with the exception of Protein 23 and Ruff
& Ready) not of the normal appearance of pet food. For these reasons,
we do not consider that the packaging by itself represented the food as
suitable for pets. It gave mixed messages.
177. But in any
event, we are unable to agree that the packaging is determinative of the
question in this case. While in many cases, and indeed in the Supreme
Petfoods case, the packaging was the only or main way in which the
manufacturer made representations about its product to the ultimate consumers,
in this case on the facts it is clear that the appellant made representations
about its product to consumers by many other means. It attended shows and
field trials, it relied on word of mouth and recommendations by its agents; it
sponsored gundogs; and it relied on its sales reps to go direct to kennels and
promote the food as gundog food.
178. We find the
packaging was not the only nor even the main method the appellant utlilised to
make representations about its product to would-be consumers. For this reason,
too, the change in the logo in 1990 would have been insignificant at least to
its claim products.
179. We do agree with
Ms Mitrophanous that at shows and trials the packaged product would have been
on display, nevertheless the evidence was that the stalls were manned. We did
not have direct evidence on what was said at such events to prospective
customers but we do not find that the appellant represented the food to be pet
food. We find it represented the food to be gundog food. This follows because
(1) the evidence of all the
witnesses, both from the appellant and from other businesses was that the
market saw Skinner’s food to be gundog food (see paragraph 108 & 110);
(2) most shows attended were for
gundogs;
(3) the appellant sponsored
gundog events;
(4) its consumer base was gundog
owners and owners of other working dogs (see paragraph 112).
In these circumstances we find that the representations
made by the appellant were that the food was gundog food and working dog food.
180. Further, we
consider that it follows that the packaged product would in many cases have
been available in a shop, but we find (see our summary of the evidence in
paragraph 91) that the shop only stocked the product where the appellant had
already created a demand for it so we find the consumers would not have been
relying on the packaging when deciding to buy it.
181. It is of course
possible that other persons, not being gundog owners, bought the product if it
was displayed in retail shops such as a farm shop. As they would have had no
contact with the appellant, they must have relied on the packaging and there
was nothing on the packaging that suggested it was food only for gundogs. Our
finding of fact is that such sales were minimal: this is because (1) it was Mr
Hart’s unchallenged evidence that his attempts to broaden the customer base to
pet owners were unsuccessful; (2) as a matter of fact the introduction of Field
& Trial led to the discontinuance of all claim products bar one indicating
that the appellant’s market truly was working dogs only. We find (as explained
in paragraph 160 & 164) that occasional sales of the food as pet food are
irrelevant where the overall holding out was, as we find it was, (bar the
exception discussed below in paragraph 192-193) that the food was gundog food.
Subjective intention
182. Mr Hart’s
evidence is that he wished to expand the appellant’s customer base for the
claim products to include pet owners. The steps he took to achieve this were
(1) the introduction of plastic bags (2) producing leaflets.
183. It is part of
HMRC’s case that because Mr Hart (on behalf of the appellant) wished to widen
the claim products’ market to pet dog owners and actively took steps to do so,
then objectively the claim products were held out for sale as pet food.
184. But as a matter
of law the question is what was objectively the appellant’s holding
out. This requires the Tribunal to look at what the appellant actually did
overall, rather than considering what it intended to do. We find from the
start in the 1980s the appellant put a great deal of effort into marketing the
claim products as gundog food as set out in paragraphs 177 and continued to do
so up to 1998. Any effort in representing the product as suitable for pet dogs
– such as an inconspicuous line in a leaflet which gave much greater prominence
to the article “gundogs”; the packaging that said “suitable for all dogs” and
the leaflets distributed ineffectively to wholesalers, was very minor in
comparison to the effort and cost involved in its main marketing of attending
field trials and working dog shows, employing sales reps to visit working dog
kennels, advertising in shooting magazines, and sponsoring gundog events.
185. This finding of
fact is backed up by the related finding (paragraph 112) that the appellant’s
market was gundog and working dog owners.
186. Overall we find
that objectively the appellant held the food out as gun dog food (bar the
exception mentioned in paragraph 192-193 below).
Late claim
187. HMRC considered
it relevant that, when the PFMA guidance changed in around 2001, the appellant
did not at that point simply re-label its food as working dog food and claim it
was zero rated. Yet the guidance only said that a pet food that was
repackaged and labelled as working dog food would not qualify. This, said
HMRC, implies the appellant thought its dog food was pet dog food.
188. We do not
agree. As is clear from the summary of the evidence given above, we find that
the appellant did not consider its claim products to be pet food. We also find
that no one else considered the appellant’s claim products to be pet food.
The position post 1998
189. The new, more
sophisticated bags were introduced in 1998. At about the same time, the Field
& Trial range was introduced.
190. We have accepted
the appellant’s evidence that it actively marketed the claim products as gundog
and working dog food. But we did not have any evidence (apart from the
evidence about its website) about how it was marketed after Mr Skinner retired
in 1997 and Mr Hart left in about 2000. We infer that, from that from around
about the time of the introduction of its Field & Trial range in
1998, the appellant would have ceased to actively market the claim products as
gundog food. This follows as (1) logic dictates the appellant would have
switched its marketing activity to its new zero rated range; (2) sales of the
claim products did fall off significantly; and (3) by 2010 the remaining claim
products in production were relegated to the “pet” side of the appellant’s
website.
191. Therefore,
should we give the packaging a greater significance to the claim products sales
post-1998 sales then we have given to its earlier packaging? With one
exception, we think not. For all the claim products bar Ruff & Ready,
demand fell steadily if slowly until production ceased. As we have already
said, this indicates to us that its market was gundog and working dog owners
because it indicates that the consumers switched to the new working dog food
range. Although the buyer’s intentions are irrelevant by themselves, they are
as we explained in paragraph 162 an indication of how the seller held out the
product for sale. As the sales fell away to nothing, we find that the
post-1998 sales of the claim products were in response to pre-1998 holding out
(described above in paragraph 177) of the claim products as gundog and working
dog food. In particular, we do not find that (for the reasons given in
paragraph 73) that the sales were in response to the appellant’s website and we
accept Mr Skinner’s explanation of why the remaining claim products were placed
on the “pet” side.
192. However, we were
given no explanation of why Ruff & Ready remains in significant demand. We
find that after an initial fall in demand, sales of Ruff & Ready stabilised
and continue to this day. We do not accept that the continuing sales of Ruff
& Ready are still in response to customer loyalty generated by pre-1998
promotion of the product. So why is Ruff & Ready still in production? The
only representation made by the appellant after 1998 in respect of Ruff &
Ready of which we had any evidence was on its packaging and on its website.
Neither of these held it out as gundog food.
193. Our conclusion
is that we do not know what holding out by the appellant has caused demand for
Ruff & Ready to remain to this day. Therefore, we find in respect of Ruff
& Ready the appellant has failed to prove that its sales after 1998 were
the result of pre-1998 holding it out as working dog food rather than post-1998
representations (via its website and packaging) as suitable for all dogs.
Own label claim products
194. We had virtually
no evidence about the own label claim products. What matters is how they were
objectively held out for sale. We infer that the appellant’s only holding out
would have been made to its customers, the two businesses which bought the dog
food to sell under their own brand.
195. For the reasons
given above and in particular that Mr Skinner considered the appellant’s
product to be gundog food, and that we find based on his evidence (see
paragraph 36) that his purchasers required working dog food, we find he would
have held out the Waveney’s and Crane own-label food to
the company’s two purchasers to be working dog food.
196. We also find
based on this same evidence in paragraph 36 that the two purchasers would
themselves have held out the food to their customers to be working dog food.
197. For these
reasons we find that the holding out (during the entire claim period) in
respect of the two own label foods was that the products were for working
dogs. It was not pet food.
Conclusion
198. For the reasons
given above we find that the appellant has failed to make out its case that its
sales of Ruff & Ready after demand for it stabilised in about 2000 were not
as pet food. It has succeeded in showing that all other sales of the claim
products, including Ruff & Ready before 2000, were not sales of pet
foods. So we find that apart from sales of Ruff & Ready from 2000
onwards, its sales of the claim products were sales of “animal feeding stuffs”
and were not within the exception for “pet foods, canned packaged for prepared”
as they were not pet foods.
199. We move on to
consider whether any or all of them were within the exception “biscuits and
meal for cats and dogs.”
Meal for … dogs
200. A second and
distinct ground on which HMRC considered that some of the appellant’s claim
products should not have been zero rated was that they were “meal” and thus
excluded from zero rating even if animal feeding stuffs. As mentioned above,
excluded from animal feeding stuffs are:
“…biscuits and meal for cats and dogs”
This exclusion applies whether or not the biscuits and
meal are for pet dogs or other dogs.
201. HMRC suggested
that “meal” in this context meant “dried dog food that takes a muesli-like
form excluding extruded pellets”. They suggested all of the claim products
were meal with the exclusion of Protein 23 (on the basis Protein 23 was
extruded pellets).
202. We are concerned
with the ordinary meaning of “meal”. However, “meal” is a word which can carry
different meanings. So what we need to do is determine which of its ordinary
meanings it carried in the context of food zero rating. And for that we had
the assistance of evidence, and in particular expert evidence.
Expert evidence
203. Mr Southey’s
evidence was that only a baked product could be called a biscuit. Extruded or
pelleted foods are not biscuits.
204. In Mr Southey’s
opinion meal had different meanings depending on the context in which it was
used.
205. One type of
“meal” was made from the same ingredients as dog biscuits. These were made
mostly from wheat cereal with added vitamins, minerals oils and fats. The raw
ingredients were baked. We find this type of “meal” was baked like a biscuit
but on a continuous roller in a very long oven. By the time it emerged from
the oven it was cooked. It was then crumbled and bagged for sale.
206. An example of
this type of meal was the Pointers Plain Terrier Meal which we described in
paragraph 41.
207. Dog biscuits
were made from very similar or identical ingredients and baked in a similar or
identical fashion except that the mixture would be put in a mould to create a biscuit
shape (often a bone shape) rather than cooked as a continuous sheet and
crumbled. Producing the meal rather than the biscuits was obviously the more
efficient process but the result was a crude, irregular shape.
208. We find that
this kind of meal, like dog biscuits, was an incomplete food for dogs and was
properly described as a mixer in that it was intended to be fed to dogs
together with other food such as raw or tinned meat. The meal would act as a
binder, absorbing moisture from the meat and provide abrasive medium for
cleaning the dogs’ teeth. Biscuits and meal (in this sense) could also be used
as a snack or training treat for a dog.
209. It was Mr
Southey’s opinion that these two kinds of similar feedstuffs would be referred
to together as “biscuits and meal”.
210. Mr Southey said
“meal” was also used to describe products with a floury or mealy ground texture
such as bone meal or fish meal. These were produced by cooking animal
by-products and grinding the cooked product to a powder. Such meals are not
fed to animals by themselves but can comprise an ingredient from which animal
feeds are made.
211. He said in the
dog food industry what Mr Skinner called “meal” in the sense of Skinner’s Dog
Meal would now be described as a muesli-like dog food. This was because it
comprised microionised (ie steam cooked) flakes of cereal. Mr Livingstone said
muesli in the dog food sense was also likely to contain pelleted protein.
212. In the context
of dog food he would expect ‘meal’ to refer to the baked product made primarily
of flour. When muesli-like dog foods began to be sold in the 1970s he would
not have expected them to be referred to as meal, as meal already had the
“biscuits and meal” meaning of the crumbled, baked flour product.
What the witnesses understood by the term
213. Mr Skinner’s
evidence was that he called the appellant’s claim product Dog Meal because
his background was as an agricultural feed merchant and familiar with a dry
complete food for animals such as sow and weaner meal. Although such meals
contain ground cereals, these are only steamed, they are not baked and the
production of meal in this sense in no way resembles how a biscuit would be
produced. Mr Skinner clearly believed that his customers would understand that
a meal was a complete food because otherwise he would not have named the
product Skinners Dog Meal.
214. Mr Livingston,
whose background was also in agricultural feeds also understood “meal” in the
sense of a complete food such as sow meal or cattle meal. The same was true of
Mr Hill.
215. This was in
contrast to Mr Southey’s opinion which was that his clients (pet food
suppliers) would have been ill-advised to describe a complete dog food as
“meal” as it would be understood to be a mixer. We do not find Mr Skinner’s,
Mr Livingstone or Mr Hill’s evidence on the point detracted from Mr Southey’s
expert opinion as the two were readily reconciled: Mr Southey’s clients were
pet food suppliers; Mr Skinner considered his clients to be working dog owners
and suppliers to working dog owners. Such persons were much more likely to be
of an agricultural background and familiar with pig meal and would understand
“dog meal” to be a dry, complete food.
216. Mr Skinner in
any event said that in the context of “biscuits and meal” he would understand
meal to be a crumbled biscuit mixer. Mr Hart gave exactly the same evidence at
the hearing. We note that in an earlier letter he gave “meal” the meaning of
complete food. It is not surprising that Mr Hart, familiar with Skinner’s Dog
Meal and meal with the meaning of a biscuit-type mixer food, was inconsistent
in his use of the terms.
HMRC guidance
217. HMRC’s guidance
is not, of course, the law, but we refer to it as evidence of what HMRC at
least understood the meaning of “meal” in this context was at the time the
leaflets were written, and therefore as evidence of the common meaning of the
term in that context at that time . We note that in its 1984 Leaflet “Pet
Food” 701/25/84 HMRC stated of “meal” that:
“You must standard rate supplies of biscuits and
meal for cats and dogs and waste from the manufacturer of such products. This
includes rusk and similar cooked or baked cereal based products for cats and
dogs.”
218. In its Business
Brief no 17 of 1994 mentioned above in paragraph 143 we also note that HMRC
said:
“Ordinary biscuit or cereal based meal designed to
be mixed with meat or other food as part of the diet for dogs, including
greyhounds, is standard rated.”
219. HMRC repeated
this view the following year in New Notice 701/15/95 Food for Animals at
paragraph 17(c). A similar view was expressed in the replacement notice in
March 2002 Animals and Animal Food 701/15/02, which stated at paragraph
6.5:
“The terms ‘biscuit’ and ‘meal’ mean dry products
either –
-coarsely ground basic commodities; or
-baked products consisting predominantly of cereal
and fat and not providing all the nutrients required by the animal.”
220. We find from
this that HMRC has for at least 20 years consistently considered ‘meal’ in the
‘biscuits and meal’ context to refer to be a baked biscuit type product made
primarily from cereals and used as a mixer food.
Monopolies and Mergers
221. Similarly we
refer to the Monopolies and Mergers Report (“MMR”) published in 1977 on The
supply in the United Kingdom of cat and dog foods as evidence of the
meaning commonly attached to “meal” in the context of “biscuits and meal”. At
page 3 Chapter 1 divided up prepared dog and cat foods as follows:
“(a) canned foods;
(b) semi-moist foods;
(c) complete dry (including rehydratable) foods;
(d) biscuits and meal;
(e) others, including quick-frozen products and
cooked foods not supplied in cans.”
It further defined each of these terms. For (c) and (d)
it said:
“(c) Complete dry foods are based on cereal with
added animal or plant-based protein meals. They may be intended to be fed dry
or to be steeped in water beforehand (rehydratable).
(d) Biscuits and meal are intended to be fed to
dogs with suitable canned food, fresh food or scraps.”
It said (page 4):
“[9] Dog biscuits were the earliest type of food to
be manufactured specially for consumption by pets, originating in the
nineteenth century. Spillers has long been the principal manufacturer of dog
biscuits and meal in the United Kingdom….
[10] Canned meat for dogs and cats appeared on the
market in the inter-war years….The market for canned products expanded rapidly
after about 1950….
[11] Since 1970 two other American-owned
companies….have attempted to challenge the market leaders by introducing the
semi-moist and complete dry types of pet food which were new to the United
Kingdom market though already familiar in the United States. The impact of
these new products has not been very great so far, but with the increasing cost
of tinplate and increasing processing costs for canned foods, they are expected
to become more important in the future….”
222. From this it is
clear that the MMR regarded meal in the context of “biscuits and meal” to be a
mixer food in the nature of a biscuit and not the same as a complete dry food,
which it described under a different heading.
Other complete foods
223. HMRC referred us
to descriptions on their websites by other manufacturers of dog food of their
dog food as “meal”. One was called Pedigree Complete Junior Maxi Poultry and
Rice and was described as “Pedigree complete meal for large breed, growing
dog…..”. Cereals were the major ingredient followed by meat and meat
by-products.
224. Another was
Pitti Boris Vegetarian Complete Meal. Its wheat content was not more than
25%. Another was “Wilson’s Dog Meal Original”.
225. All these
websites were printed out in 2012 and are therefore no guide to how dog food
would have been sold in the 1960’s and 1970’s. Some of them were extruded
foods. The copy of the Wilson’s Dog Meal Original advert was particularly
unhelpful as the only words which could be made out apart from the title was
“working dog” although it was clear a description of the food was given on the
bag.
Case law on the meaning
226. The only case
previously to consider the meaning of “meal for … dogs” which was brought to
our attention was Bambers Frozen Meats Ltd (VTD 17626). In that case
the Tribunal held that the product, which was an extruded mixer food, was not
“meal” because it had a high wheat content of over 70%. The tribunal arrived at
this decision in reliance on the dictionary definition of “meal” as:
“the edible part of a grain or pulse ground to
powder. Now commonly understood to exclude the product of wheat (this being
called flour).”
The possible meanings of “meal”
227. From all this
evidence, in the context of this case, we find “meal” could have one of four
meanings:
Meaning 1: Ground cereals other than wheat; or
ground fish and bone.
Meaning 2: A mixer for use with meat or canned
dog food made primarily from wheat flour with other ingredients and baked; in
particular made from the same or similar ingredients to a dog biscuit and baked
in the same way but crumbled or broken up rather than cut into shapes;
Meaning 3: A complete feed for an farm animal
(such as pig meal);
Meaning 4: A serving of various foods sufficient
at that time to dispel hunger.
228. It can be seen
that the first three of these four meanings are mutually exclusive. Meaning 1
refers to something not containing wheat, while meaning 2 refers to something
largely made of wheat; Meaning 1 also is inconsistent with Meaning 3 as ground
cereals by themselves are not a complete feed for any animal (and certainly not
for dogs) and there is no evidence that ground cereals by themselves were
served as a complete feed.
229. Meaning 2 is
inconsistent with Meaning 3 as one is a mixer and the other a complete food.
230. Meanings 3 &
4 look superficially similar but one is “meal” and the other is “a meal”. One
is a type of food, the other is a serving of food. “Meal” in the Meaning 3
sense cannot be plural. They do not mean the same thing. Meal cannot be fed to
humans, whereas all humans consume meals. Meal can be fed to a dog, and a
serving of meal may be a meal to a dog. But although the pronunciation and
spelling is the same, and both uses imply something that is complete by itself,
the two meanings are distinct.
231. Nevertheless,
there is a clear overlap between Meanings 3 & 4 at least in the context of
working dog food. Skinners Dog Meal was meal in the sense of Meaning 3; but it
was also a complete food and could be described as “a meal” in the sense of
Meaning 4. We also note that Wilson’s dog food was a food for working dogs and
it is not clear if they used the description referred to above in paragraph 225
as “meal” in the Meaning 3 or Meaning 4 sense.
More than one meaning?
232. We have to
determine what the legislature meant by “meal” in the context in which it
appears in the VAT food zero rating provisions.
233. The first thing
we note, and contrary to HMRC’s submissions, is that whatever “meal” meant in
that context, it carried only one meaning. This is a basic rule of statutory
construction. Had the legislature intended to refer to more than one thing,
then it would have said so.
234. It is even more
obvious to us that “meal” could have only one meaning in the context in which
it was used in Group 1 when the choice of meanings which it could carry are
mutually exclusive or virtually mutually exclusive with each other.
235. Contrary to
HMRC’s submisstion, when Parliament used the word “meal” they did not intend it
to mean meal with Meaning 2 (crumbled biscuit mixer food) and meal with
Meaning 3 (dry complete food). They intended only one meaning.
236. So we reject
HMRC’s case that “meal” simultaneously carried Meaning 2 and Meaning 3 (and
potentially Meaning 4). While just possible it could have carried Meanings 3
& 4 simultaneously, Meanings 2 & 3 are entirely incompatible. “Meal”
could not have been intended to mean meal, the incomplete mixer food, at the
same time as (a) meal, a complete food.
237. Whichever of
these 4 meanings the word “meal” carried in VATA, it carried only one of these
meanings. And it has retained that meaning since it was first enacted.
Meaning 1
238. Neither party
suggested “meal” in the context of food zero rating carried the meaning
ascribed to it in Bambers (Meaning 1). We agree. As ground cereals,
fish or bone by themselves and without processing are not fed to dogs and cats,
we are quite sure that Parliament did not consider the use of the word “meal”
in the phrase “biscuits and meal for cats and dogs” to refer to ‘ground cereals
other than wheat’ or ground fish and bone.
239. Indeed, were it
to carry that meaning, it seems no food for dogs would be within the definition
as even in dog foods which include ground cereals, the predominant cereal used
appears to be wheat.
240. We had the
advantage of expert evidence and the MMR and must respectfully diverge from Bambers
on its reasoning. In the context of food zero rating, “meal” in excepted item 6
does not mean ‘ground cereals other than wheat’ nor ground fish nor ground
bone.
Meanings 2 & 3
241. It is HMRC’s
case that it carries the meaning of a dry muesli like product which is a
complete food. This, they say, was how it was understood by Mr Skinner, Mr
Livingstone and Mr Hill.
242. We are unable to
agree. This was how “meal” was understood by those witnesses as a stand alone
term because of their background in agricultural feeding stuffs. The evidence
overall, from Mr Southey, Mr Skinner, the MMR and HMRC’s use of the terms in
its own leaflets, is that in the 1970’s and thereafter “meal” in the context of
“biscuits and meal” referred to a biscuit-like mixer food for dogs.
243. We find at some
point “meal” came to be used in a pet food sense to refer to complete meals.
However, Mr Southey’s evidence was clear that it would not carry this meaning
if used in the phrase “biscuits and meal”. Further, in two of three examples
of we had of such useage (see paragraph 223 above) the manufacturers qualified
or explained the word “meal” with the word “complete” (and the wording was
illegible in the third and, as a food for working dogs, the manufacturer, like
the appellant, may have used “meal” in the animal feed sense).
244. Parliament in
using the term “biscuits and meal” would have intended “meal” to carry the
normal meaning as it would be understood by persons producing or consuming dog
food. That meaning in that phrase was, we find, a biscuit-like mixer.
245. Parliament would
not have used the word “meal” in the phrase “biscuits and meal” in 1973 (when
VAT was introduced) still less in 1969 (when the phrase was first used in the
purchase tax legislation) to indicate a complete meal. In the 1960s, we find
on the evidence of the MMR, that no complete dry foods were available in the UK and still only a very small part of the market in the 1970s. Parliament would not have
used “meal” with the meaning “complete meal” when at the time to the vast
majority of dog owners “meal” meant a mixer.
246. Lastly, if
“meal” meant a complete food, then this would lead to the bizarre result that
all dog biscuits are standard rated but crumbled biscuits for working dogs
would be zero rated. And while it is not always possible to discern a logic to
the food zero rating rules, Parliament could not possibly have intended to draw
a distinction between bone-shaped dog biscuits and the same product just crumbled
up.
Can a meaning change over time?
247. We were referred
to Innocent [2010] UKFTT 516 (TC) because it was said to show that
Parliament could be taken to have intended to legislate in respect of something
that did not exist at the time the law came into force:
[37] As Warren J noted in Kalron, the word
beverage is not commonly used now. There is also the point that smoothies are
a recent innovation. Would the draftsman of Group 1 back in 1972 have
considered a smoothie to be a beverage? If asked “is a smoothie a beverage?”
we assume he would answer “what’s a smoothie?”. Yet if we were now in the year
2010 to follow Mummery LJ’s suggestion (see paragraph 32 above) of asking a
child the same question, his reply would no doubt be “what’s a beverage?”.
The Tribunal in that case decided nevertheless that a
smoothie was a beverage.
248. But that is not
relevant here. The legislation in that case referred to ‘beverages’. The
meaning of beverage was known at the time of the legislation. The question was
merely whether a smoothie, although a drink unknown at the time of the
legislation, was within the definition of beverage as intended at the time the
legislation was enacted.
249. Here HMRC are
arguing the defined word “meal” should carry a meaning – that of a dry complete
dog food - that was unknown or virtually unknown at the time the provision we
are dealing with in this case first came into force in 1969. That it was a
virtually unknown meaning in 1969 is shown by paragraph [11] of the MMR (see
paragraph 221 above) where it is stated that only since 1970 were companies
seeking to sell complete dry dog foods. And even then the MMR does not refer
to them as meal.
250. For this reason
alone it is extremely unlikely that the legislature could have intended “meal”
in the dog food context in 1969 to refer to dry complete foods for dogs, but it
is virtually inconceivable that, had they wished to refer to such dry complete
foods they would have done so by utilising the phrase “biscuits and meal”,
which on the evidence we heard had a well-understood meaning in the 1970s (and
we find earlier from what is said in the MMR) of biscuits and crumbled biscuits
mixer food for dogs.
Conclusion
251. In excepted item
6 of group 1 of Schedule 8 VATA “meal” means a mixer for use with meat or
canned dog food made primarily from wheat flour with other ingredients and
baked; and in particular made from the same or similar ingredients to a dog
biscuit and baked in the same way but crumbled or broken up rather than cut
into shapes.
252. “Meal” had only
one meaning in this context.
253. During the
claim period, the appellant did not manufacture dog biscuits nor dog meal in
the sense of this baked mixer food. All the claim products were complete foods
in the sense of being nutritionally complete feeds.
254. Therefore, we
reject HMRC’s case that some of the claim products were standard rated as
“meal”.
255. We note in
passing, just for the sake of completeness, that although we did not agree
with the interpretation of “meal” in the case of Bambers, we agree with
the tribunal’s overall conclusion that the product in that case was not
“biscuits and meal”. This is because the mixer in that case was an extruded
product and not baked. It was therefore not a biscuit nor meal within the
meaning of the zero rating provisions.
Overall conclusion
256. We find for the
appellant in principle that its sales of the claim products were zero rated
except in relation to sales of Ruff and Ready in 2000 and afterwards. If the
parties are unable to agree the quantum, they are at liberty to revert to the
Tribunal. In so far the appellant’s claim for repayment of this overpaid VAT
is stayed behind other cases in respect of other legal issues which arise, as
referred to in paragraph 3, it remains so stayed with liberty for either party
to apply.
This document contains full findings of fact and reasons
for the decision. Any party dissatisfied with this decision has a right to
apply for permission to appeal against it pursuant to Rule 39 of the Tribunal
Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application
must be received by this Tribunal not later than 56 days after this decision is
sent to that party. 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.
BARBARA MOSEDALE
TRIBUNAL JUDGE
RELEASE DATE: 16 August 2012
