[2010] UKFTT 124 (TC)

			
TC00435

Appeal number LON/2009/0814

Value Added Tax  -  whether supplies of food from vending machines was zero- or standard-rated  -  whether supplies should be treated as made in canteens when machines were located in machines  -  whether the supplier’s subjective intention governed the question of whether supplies were made for consumption on or off the premises  -  Appeal dismissed

FIRST-TIER TRIBUNAL
TAX CHAMBER

	WEST COUNTRY VENDING SERVICE LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Value Added Tax)	Respondents

				TRIBUNAL: 	 JUDGE HOWARD M NOWLAN
						 DR CHRISTINA HILL WILLIAMS

Sitting in public in London on 22 and 23 February 2010

Andrew Hitchmough and Jonathan Bremner, counsel, for the Appellant 

Denis Edwards, counsel, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

Introduction

1.     This case involves the rejection by HMRC of the Appellant’s claim for a refund of overpaid VAT, the claim being made in a voluntary disclosure made on behalf of the Appellant by Grant Thornton on 7 November 2008, the total amount of the claim being £380,996.57.   The dispute relates to when sales of food items from vending machines should be treated as being made “for consumption on the premises”, such that supplies of items that would otherwise be zero-rated become standard-rated.

2.      The Appellant’s trade is to provide its 5000 food vending machines to its customers in one of various ways, always for location in their office or factory premises etc.   Ignoring at this stage the fairly irrelevant detail of the ways in which the machines are provided, it is invariably the case that the Appellant cleans, services and stocks the machines.   Where machines are leased to customers, the Appellant prefers to adopt the arrangement, in the case of perishable food (sandwiches etc), that the Appellant simply stocks the machines with the perishable food, supplying that food therefore to the customer who has leased the machine, and thereafter it is that customer who makes the supplies to end-consumers.   It is generally the case, in contrast, that the Appellant itself makes direct supplies to end-customers of non-perishable items, such as chocolate bars and products such as flapjacks.

3.      Prior to the decision of the Court of Appeal in HMRC v. Compass Contract Services UK Ltd [2006] STC 1999 (CA), it was generally supposed by HMRC and all vending machine operators that where, as was inevitably the case,  the machines were located “in premises” (whether office or factory premises, for instance) supplies of food that would rank as standard-rated only if made “in the course of catering”, or “for consumption on the premises” would rank as standard-rated supplies when made from the machines.   This was because the food was almost inevitably to be consumed somewhere in the overall premises, i.e. the office or factory. 

4.      The relevant Court of Appeal decision in Compass dealt with various catering kiosks operated by Compass in the BBC Television Centre.   The Court of Appeal  decided that since food bought at the kiosks was to be consumed elsewhere in the Television Centre in areas over which Compass had no control, and not in the kiosks,  it was not realistic to treat the food as being “supplied for consumption on the premises, where it was supplied”.

5.     This decision had (with very minor exceptions) no bearing on supplies of “perishable” food by the Appellant , because that food was almost always supplied by the Appellant to its various lessee customers, as part of the “stocking process”.   The decision also had no bearing on supplies of chocolate and crisps, and other items whose supply was standard-rated, regardless of where the food was to be consumed.   It did however mean that, where the Appellant had been supplying items such as flapjacks to end-consumers, the supply of which  would be zero-rated when not supplied for consumption on the premises, that VAT had been overpaid in the past, at least where it was tenable that the supplies had not been made “for consumption on the premises where the supplies had been made”. 

6.     On 7 November 2008, a voluntary disclosure, requesting a repayment of overpaid VAT, was made on behalf of the Appellant.   Ignoring the minor fact that the voluntary disclosure wrongly included one 3-month VAT period in the 3-year past period for which repayment claims could be made, the voluntary disclosure called for repayment of allegedly over-paid VAT for the immediately preceding 3-year period, and for the period from the commencement of VAT in April 1973 to 4 December 1996.   Back claims could be made for this earlier period because there had originally been no time bar on the making of recovery claims for over-paid VAT, and when this rule was changed, the Fleming decision had ruled that, for the change to be valid for past periods, where taxpayers had accrued rights, a transitional period had to be given within which the historic claims could be made.   The relevant voluntary disclosure in this case was made within that transitional period, which explains why the recovery claims applied to the very early period up to 1996, and to the last 3 years, but not to the period between 1996 and 2005.   

7.     HMRC rejected the recovery claim.  The ground for this was that the voluntary disclosure had not identified where vending machines had been located in customers’ premises.   Aside from the general lack of information, HMRC indicated that if, for instance, vending machines were located in canteens where food purchased was regularly consumed on the canteen premises, then the claim should be rejected (in part at least) because the food would then often be being supplied for consumption on the premises where it was supplied.    HMRC indicated that where vending machines were, by contrast, located in corridors where there was no seating provision, and where food would be taken away and consumed elsewhere, the claim was likely to be admitted.    Nevertheless evidence had to be produced to indicate where machines had been located, or some form of accurate sampling process would have to be undertaken, whereupon it might then be appropriate to assume that the results of the sampling process would govern the various claims for past periods.   

8.     The Appellant did not provide evidence as to where vending machines had been located, or indeed where they were currently located.   Instead the Appellant advanced two arguments in support of the proposition that, without any evidence of location and without any allocation, all relevant food supplies should be treated as having been zero-rated.    It was first contended that cases such as Compass had proceeded on the basis that the supplier had control over the kiosk area where food was supplied, and that if food was to be consumed outside that area (for instance elsewhere in the office premises where the supplier had no control over the premises) the supplies of the relevant food would be zero-rated.  And in this case, since the Appellant had control at most (if it had any control at all) only of the machine itself, or possibly the floor area where it was located, and the food could not be consumed on or in the machine, then all relevant supplies should rank as zero-rated.  In the alternative, the Appellant relied on a second line of authority.    This indicated that since food had to be supplied “for consumption on the premises where it was supplied”, this involved a subjective question as to where the supplier intended the food to be consumed.    It was then asserted that the Appellant had no control over where machines were located in customers’ premises, and the managing director of the Appellant, in giving evidence, said that he did not care where food was to be consumed so long as sales were made.     The supplies should accordingly be zero-rated because the supplier had no subjective intention that the food supplied was supplied “for consumption” on the premises where it was supplied.  

9.     Our decision is that both of the Appellant’s arguments are wrong.    We agree with HMRC that where machines are located in canteens, and much of the food bought in canteens, whether from some separate counter or from vending machines, is consumed at tables in the canteens, then some at least of the food supplied from the machines must be said to be supplied “in the canteens”, and “for consumption in the canteens”.   Regardless of the fact that the owner of the vending machine may have had no control over the area of the canteen, other than the small space where the machine was located, and may indeed have had no control over that area either, we decide that in any common sense approach, the premises where the food is supplied must encompass the canteen.   To the extent, therefore, that food sold from the machines is sold for consumption in the canteens, it is consumed “on the premises, where it was supplied”. 

10.     We also reject the Appellant’s second argument.     We do not accept that the statutory reference to food being supplied “for consumption” on the premises in which it is supplied is invariably resolved, or indeed is very much influenced, by the subjective intention of the supplier.   If it is accepted that food sold from the canteen counter is sold “for consumption on the premises” if the customer indicates that he wants to eat the food on a plate, and not to take it away in a paper bag, it cannot make sense that the mere fact that the machine might be mindless and incapable of understanding where the food is to be consumed inevitably means that the food is not supplied “for consumption” on the premises.   We certainly consider it irrelevant that the managing director of the Appellant asserted that he often did not know where machines were located (when obviously his service personnel would have known that information) and irrelevant that his dominant intention was just be to sell the maximum items from the machines. 

11.     We accept, as we believe HMRC does also, and as HMRC has indeed indicated in HMRC VAT Notice 709/1, that where the items supplied in the contentious category are all wrapped, such that a substantial proportion are likely to be put in the purchaser’s pocket and consumed off the premises, the mere fact that the machines may be located in canteens does not mean that all the supplies are to be classed as being “for consumption on the premises”.   We will consider below how we consider that one should determine what proportion of the contentious goods are purchased “for consumption on the premises”, and what proportion for consumption elsewhere.

12.     We might finally mention, in this Introduction, that whilst we consider that the Appellant has failed to sustain the two “win everything” arguments that it has advanced, we nevertheless surmise that the great majority of sales from machines will in fact have been made “not for consumption” on the premises.   No detailed evidence was given, and none was relevant to the two arguments advanced by the Appellant, but we still gathered that the great majority of machines had been in corridors, on factory floors, or in small alcoves in open plan office areas.     Generally speaking all sales from these machines are likely to have been made for consumption off the premises.   Even in the case where machines were located in canteens, the range of contentious foods indicated that they were all wrapped, and whilst they might have been eaten after a main course, when seated in the canteen, they would very often have been taken away and eaten elsewhere.    Leaving aside at this stage the method by which we consider that sales and purchases should be allocated for the purposes of this difficult dividing line when products are sold from a mindless machine, we still suspect that it will eventually emerge in negotiation that the majority of products sold from machines located in canteens will still have been sold for consumption off the premises.   

The evidence

13.      Evidence was given, before us, by Mr. William Howard Booty, the Managing Director of the Appellant.    In expanding on the facts below, we will summarise the relevant information given to us by Mr. Booty.   At this point, we simply record, first, that Mr. Booty was an entirely reliable witness, and secondly that in the light of the two points in contention, many of the facts given were of very little relevance. 

14.     A written Witness Statement was provided by Mr. James Alderton, an officer of HMRC.   This Statement was not contentious and Mr. Alderton was not called upon to supplement his evidence, and he was not cross-examined.    Since Mr. Alderton’s evidence largely corresponded to HMRC’s basic contention that they accepted that sales of the relevant food items would remain zero-rated if, for instance, the machines were located in corridors with no seating accommodation, and that it would even be accepted that some sales from machines located in canteens would remain zero-rated where, on a fair allocation, it could be said that food purchased was to be eaten elsewhere than in the canteens, we see little need to refer to Mr. Alderton’s Statement. 

The facts in more detail

15.     The Appellant was said to be the, or one of the, largest independent suppliers of food and snack vending machines.    It currently had (in one sense or another) about 5000 vending machines placed with its various customers. 

16.      We were given an explanation of the various different ways in which machines were placed with customers. 

17.      Whilst initially it was suggested that machines were either leased to customers, or “lent” to them (a slightly nebulous distinction), it emerged that there were four possible arrangements, of which the first three were for present purposes identical. 

18.     The first three structures were that a machine might be sold outright to a customer; it might be sold to a finance company that would then lease it to a customer, or thirdly it might be leased directly by the Appellant to the customer.  It seems to us that in all those cases, the customer would treat the machine as its machine, or one in which it plainly had the right to possession.  The role of the Appellant in relation to machines in these categories was:

•	to clean, maintain and service the machine;
•	to stock the machine with those drinks and perishable foods (sandwiches etc) that the customer would then sell itself to its staff or visitors, this stocking function either being performed daily or two or three times a week; and
•	to sell itself from the machine, directly to end-customers, “confectionary” in its widest sense, thus including chocolate and similar items that would in any event occasion standard-rated supplies, and also flapjacks and numerous other packeted items, whose supply would be either standard- or zero-rated in the normal case (ignoring the arguments in this case) according to whether they were supplied for consumption on, or off, the premises where they were supplied. 

19.     The sale or lease structures considered in paragraph 18 were the various ways in which the Appellant preferred to operate.  Where, however, a customer was not prepared to acquire or lease a machine, the Appellant would sometimes “loan” a machine to a customer, which meant effectively that the customer would allow the Appellant to locate the Appellant’s machine somewhere on the customer’s premises, but beyond that the customer would have nothing to do with the machine, or sales from it.   In this situation, according to demand, the Appellant might stock some drinks and perishable items that the customers would themselves supply on the preferred structures, and it would certainly supply the confectionery items mentioned in paragraph 18. 

20.     Mr. Booty explained that the customer basically decided where a machine was to be located.   There naturally had to be an electricity supply, and where the machine was to dispense hot drinks, there also had to be a water supply.   The Appellant might make comments as to where a machine might most appropriately be located, and as to whether it would be feasible to move the machine to a chosen place, but nevertheless the basic decision of location was one that the customer made.   We certainly accept also that the Appellant would have no control over whether, for instance, a seating area might be installed in the proximity of a machine, or one might be removed.   Mr. Booty himself would often be ignorant of these details, though since the Appellant’s employees would install machines, and regularly service and stock them, it does naturally follow that the Appellant itself would always know where machines were located. 

21.     During the period prior to the Compass decision, nothing was thought to turn, for VAT purposes, on where machines were located, since it was assumed that all supplies made by the Appellant to end customers would have been standard-rated.    Equally if the Appellant had prevailed in this appeal, or if it was to overturn our decision on appeal, it would again follow that whilst the Appellant would have to allocate its supplies to end-customers between chocolate and other standard-rated supplies, and the zero-rated supplies that on the Appellant’s approach would apply to all those food items that were not automatically standard-rated, the location of machines would remain irrelevant. 

22.      Mr. Booty expressly stated that his personal intention was that he did not care greatly where machines were located, and he certainly did not care whether supplies made were in fact consumed in one place or another.    He only hoped that machines were so located as to generate maximum sales, and so long as there were good sales levels, he did not care where the food was consumed. 

23.      On account of the only two points that were in contention in the Appeal, we were given no firm indication as to where machines were in fact located, though it was suggested that only some minority of machines were located in canteens.  We were led to assume that the majority were in corridors, in reception areas, in open plan office areas, and on the factory floor.  

The Relevant Law

24.     The law in dispute in the present case consists on the proper interpretation of one short phrase, since there is a common acceptance by the parties of the other possible points of contention. 

25.     Food for human consumption is generally zero-rated by Group 1 of Part II to Schedule 8 to the VAT Act 1994.   Certain items are excepted from zero-rated treatment, such as the supplies of ice cream, chocolates etc.   More relevantly “a supply in the course of catering” is excluded from zero-rated treatment, and becomes a standard-rated supply. 

26.     The parties in this case both accepted that the supplies from vending machines were not “supplies in the course of catering” in the general sense in which that expression is defined for VAT purposes. 

27.     Note 3 in the Schedule, however, expands the meaning of a supply in the course of catering in the following terms:

“A supply of anything in the course of catering includes-
(a)	any supply of it for consumption on the premises on which it is supplied; and
(b)	any supply of hot food for consumption off those premises;
and for the purposes of paragraph (b) above “hot food” means food which, or any part of which – 
(i)	has been heated for the purposes of enabling it to be consumed at a temperature above the ambient air temperature; and
(ii)	is above that temperature at the time it is provided to the customer.”

28.     It follows that the only point for us to determine is whether and when supplies of those food items that are not automatically standard-rated when supplied from vending machines are aptly said to be “supplied for consumption on the premises on which they are supplied”. 

The contentions on the part of the Appellant

29.     As indicated in the Introduction, the Appellant advanced two distinct arguments, that were referred to in the hearing as “the premises argument”, and “the for consumption argument”.

30.     The premises argument was derived from the Compass case, and several others where the decision was influenced by observing that the taxpayer had some licence, lease or other form of interest and control over some element of wider premises, for instance a kiosk or servery area in a larger building, but no interest or control in any other part of the building.    Based on the conclusion in those cases that the food was not supplied for consumption “on the premises … where it was supplied” if it was to be consumed outside the kiosk or servery area, the Appellant contended that the only area in which it had any interest, or over which it had any control, was either the machine itself, or arguably the floor area on which the machine was located.     Accordingly even where food might be eaten elsewhere in a canteen in which the machine was located, it would invariably be the case that it would be the customer who would control, clean and maintain the seating area of the canteen, and that the Appellant had not the slightest interest in that area.    Therefore the food would not be being consumed in the premises, where it had been supplied, because the place of supply would be confined to the machine, or the floor area on which it stood. 

31.       The “for consumption” argument derived initially from an obiter remark of Mr. Justice Taylor in R. v. C&E Commissioners, ex part Sims (t/a Supersonic Snacks) [1088] STC 210, to the effect that the word “for” in the phrase “for consumption on the premises” ought to be construed in a similar manner to the word “for” in Note 3 (b)(i), quoted above, where “hot food” is defined by reference to the supplier’s purpose of heating it up for the purpose of enabling it to be consumed at above the ambient air temperature.  Accordingly it was contended in this case that it is the supplier’s subjective purpose that governs whether food should be said, when reading Note 3 (a) to be supplied “for consumption” on or off the premises. 

32.     It was accordingly contended that, because Mr. Booty was utterly indifferent to where the food was to be consumed, and that he personally would often be unaware where machines were located, we should still conclude that the supplier’s intentions meant that the purposive “for consumption” test should result in the Appellant winning its appeal on that ground, even if the Appellant’s “premises” case failed.

The contentions on the part of the Respondents   

33.     The Respondents contended, first, that it was altogether inappropriate to treat a machine as premises.
34.     The Respondents then contended that there was nothing in the statutory language that required the supplier to have any interest or control over the place where the food was supplied.    The “control” test and the significance of control extending to one part of the overall building, but not to the remainder of it, made very good sense in some cases, such as Compass, and Mr. Barlow’s recent VAT Tribunal decision in Made to Order Limited (decision 20959).     It was not appropriate, however, in this case, and as the HMRC Business Brief had made plain, the place where the supply was made should be addressed in a common sense manner.   In the case of machines located in canteens, the conclusion should be that supplies were made “in the canteen”, and not just “in the machine”. 

35.    The phrase “for consumption” had to bear the same meaning in Note 3 (a) as in the opening phrase of  Note 3 (b), supporting the contrast that food might be eaten “on the premises”, or “off the premises”.   That contrast made entire sense in the context of a café, restaurant, where food might be eaten in either sense, according to the expectations manifest by the end customer.  This sensible contrast would lead to an absurd result if the place where the supply took place when purchasing from a vending machine was said to be “in” or “on top of” the vending machine, because this would mean that in practice the test would be frustrated.  

36.     Finally, it was not the supplier’s subjective intentions that governed the determination of whether or not food was supplied “for consumption” on the premises. 

Our decision

37.     Albeit that we have read the various cases to which we were addressed, we will concentrate in this decision more on the statutory language.  We believe that our decision is perfectly consistent with those cases, but will not comment on and address each case.   In passing we would say that infinitely the most apt direction in the case law as to how we should address this precise issue is contained in the last paragraph of Lord Justice Mummery’s decision in Compass.    He said this:

“Tribunals will not go far wrong if they stick close to the language of the legislation and apply it with common sense to all the relevant circumstances of the particular case.  I fear that guidance in such guarded terms is neither particularly original nor illuminating, but is at least a reasonably reliable reminder of the nature of the issue to the person or persons who have to make decisions”. 
38.     Proceeding from that direction, we repeat that the simple question for us is to determine whether supplies made from the various vending machines were or were not “for consumption on the premises on [which they were] supplied”. 
The “premises” test

39.     The first point that we note on that language is that there is in fact no requirement that the supplier should have any interest, or control, whatsoever over the premises where the supply is made.    Perfectly consistently, the supplier of the food in the case of Zeldaline Ltd (Decision 4388 of the VAT and Duties Tribunal) had no interest in the office buildings where the girls went to sell sandwiches, but it was certainly not that factor that resulted in the appeal being allowed.  Of course they were supplying food “in premises” if they had walked into someone’s office block at lunch-time in order to sell food. 

40.     A good and fairly realistic example of the point that a person with no interest in premises must obviously be treated as selling food in premises is the following.    Assume that Mr. A owns and operates a café, and sells food largely but not wholly for consumption on the premises.   Assume that Mrs. B is famous for making delicious home-made flapjacks, and that Mr. A considers that overall trade will be increased if Mrs. B appears at tea-time, and sells her flapjacks.   Matters may be so presented as to clarify that whilst most food is supplied by Mr. A, it is Mrs. B who supplies the flapjacks.     If Mrs. B serves a customer who also buys tea from Mr. A, and the customer is served at a table, it cannot make any sense for Mrs. B to assert that her supply is not for consumption “on the premises”.    The “premises” are the café, and not Mrs. B’s shoes, or the air-space occupied by Mrs. B.    No other conclusion makes the faintest sense. 

41.     In a “common sense” sense, we consider that if a vending machine is located in an office canteen, then supplies made from it are made “in premises” and those premises are “the canteen”.  We accept the technical point made on behalf of the Respondents that a machine cannot be “premises”, but we consider that the place where supplies are to be treated as made is in fact resolved by the simple common sense question of asking anyone where supplies made from a machine standing in a canteen are made, and plainly the answer would be “in the canteen”. 

42.     There could certainly be some odd inconsistencies if this were not right, quite apart from the point that any conclusion that the supplies were made elsewhere than “in the canteen” would seem to us to be ridiculous in any event. Assume that the customer who owned the office and the canteen served meals from a servery bar in the canteen, and from its own vending machine in the canteen, and assume that the Appellant supplied from its separate machine.  If product was taken from all three sources, with every indication that the purchaser was going to consume the food in the canteen, the supplies from the counter would obviously be for consumption on the premises.  As the customer would own the first machine, and control the canteen area, and indeed the rest of the building, we suggest that it is obvious that sales from the customer’s machine for consumption in the canteen would be for consumption on the premises.    

43.     We then consider that it is inconceivable that sales made from the Appellant’s separate machine should attract any different results.   They are still made in the canteen, and if for consumption in the canteen, the supplies should consistently be standard-rated. 

44.     The Appellant has largely argued its case on the “premises” point by contending that it has control over the machine, but no control over other areas of the premises where the machine is located.  Accordingly the Appellant contends that its case is on all fours with Compass and other  “control/no control” cases, albeit that the facts are embarrassingly extreme.   Beyond the fact that on common sense grounds we decide that, where the machine is located in a canteen, it is appropriate to say that the supplies are made in the canteen, and beyond our agreement with HMRC that a machine cannot be premises, we add a further point not addressed in the hearing.    This is that it seems to us that on the three preferred methods of operating summarised in paragraph 18 above, the Appellant probably has no control over the machine or its floor space in any event.  In the case where machines have been sold or leased to customers, the fact that the Appellant seems to have reserved the right to sell “confectionery” in its widest, non-VAT, sense from the customer’s machine does not give the Appellant the sort of interest in the machine that even gets the “control” argument off the ground. Even, therefore, if the control test is an apt one in all cases (which we doubt) where the trader has control of one part of the premises but not the remainder, we conclude that in the paragraph 18 situations (by far the majority we believe), the Appellant cannot even advance this argument. 

The “for consumption” test

45.      This test was initially advanced, as mentioned above, in an obiter dicta, by Mr. Justice Taylor, and has featured in other cases, such as Zeldaline. Two recent Tribunal decisions (those by Mr. Bishopp  in Compass and by Mr. Barlow in Made to Order Limited), have queried whether it is really right to look to the subjective intention of the supplier in determining whether supplies are made for consumption on the premises.  Moreover, admittedly when addressing the slightly wider “catering” question, rather than specifically the issue of what determines whether supplies are made for consumption on or off the premises,  Lord Justice Mummery made it clear that he was not that impressed by the suggestion that it was the supplier’s intentions that governed this issue. 

46.     We consider that the reference in Note 3 (b)(i) to someone having the purpose that food be heated up for the purposes of its consumption at above the ambient temperature is obviously a reference to the supplier’s  intention.  It is the supplier who heats up the food, with a view to selling it as hot food.  We fail however to see that this has any bearing on why the supplier’s intention should always be relevant in determining whether food is to be supplied for consumption on or off the premises in Note 3(a) and in the matching opening words of Note 3 (b). 

47.     In some cases, the basic facts and indeed the supplier’s and the purchaser’s intentions will all lead to a common conclusion as to whether the food is sold for consumption on or off the premises, and it is difficult to see which realistically governs the issue.   In an up-market restaurant where food is only to be supplied on the premises, it might be said that the supplier invariably intends to sell food for consumption on the premises.    But equally the customer has the same intention, and factually food is obviously to be supplied only for consumption on the premises.    Conversely food sold from a mobile van will inevitably be supplied for consumption “off the premises”, because it cannot be eaten in the van, the van is almost certainly not “premises” and the van cannot be squeezed into a canteen.  This is an obvious fact that the supplier and the customer will all note and accept. 

48.     In a café, cafeteria or canteen, however, where food might well be consumed on or off the premises, we consider that the proposition that expressed indifference on  the part of the supplier as to where the food is to be consumed means that HMRC cannot demonstrate positively that food is sold “for consumption on the premises” is wrong.   Since cafes regularly display two price-lists for food consumed “on” the premises and “off” the premises, and since café owners regularly ask customers whether they intend to eat on or off the premises, it seems that in these cases the café owner’s possible indifference is not treated as being relevant.    And indeed because it is the end-customer who dictates whether he intends to eat “in” or “out”, if anyone’s intention governs the “for consumption” test in this café and canteen example, it is  the customer’s intention, and not the supplier’s intention.   The supplier’s intention is at most a derivative intention, in that once the customer has indicated that he wishes to buy food and eat on the premises, then rather obviously the supplier then intends to supply food for consumption on the premises. 

49.     We find it impossible to conclude that any different result should arise for VAT purposes, if the same food that might be sold by the café owner in the previous example for consumption on the premises, is sold from a machine in the café that cannot discern the same intention on the part of the purchaser that the purchaser intends to consume the food on the premises, and cannot anticipate the plain fact that the food will be consumed on the premises.   It is factors remote from the supplier’s intentions that will have led to the conclusion in the previous example that the café owner was to supply food for consumption on his premises, and when the same intentions and factual expectation arise when the food is purchased from a machine, the result must be the same. 

50.     We also note that the statutory expression in question, namely the supply of food “for consumption on the premises where it is supplied” does not by any means definitely imply or state that someone’s, indeed anyone’s, intentions are either relevant or decisive.  Whilst a customer would hardly end up eating food “in” a café or a canteen unless he or she first intended to do precisely that, it seems a perfectly apt use of language to say that if food is supplied, and it is eaten on the premises, then it was “supplied for consumption on the premises”.  We accept that the test must be applied when the supply is made, and not at the later point when the customer walks to the table or out of the door, but we still consider it realistic to note that it is the fact of where the food is to be consumed, dictated by the customer’s intention alone, with that intention then usually being shared with the supplier, where there is a real person making the supply, that governs this issue.    

51.     We accept that it is realistic for Mr. Booty to have recorded that his basic intention as a businessman was simply to sell more items, and he would be indifferent generally to where they were consumed.  We heard nothing in evidence, or in cross-examination that indicated that the choice of items to be stocked in machines might itself be influenced by where the machines were located.  We accordingly make very little of the following point, but it is certainly the case that employees of the Appellant would always have known where machines were located in customers’ premises.    Whether the location of a machine in a canteen, where employees would be buying meals, might influence the choice of stock items in the machines we do not know, but this does appear to be a possibility.  Were this so, and we repeat that there was no evidence on this point, it would further undermine the relevance of Mr. Booty’s businessman’s answer to the question of whether he intended food to be consumed in one place or another.   
The nature of the items supplied, and other borderline non-canteen cases

52.     At the end of the hearing in this case, we indicated to the parties the decision that we were likely to reach, and that we have, in fact, reached.   We added that we assumed that some sampling process would eventually govern the percentage of the supplies that ought to have been treated as zero-rated, and we made the fairly obvious point that we expected that percentage to be a high one.  This was for the two reasons that we were told loosely that most of the machines had been located in corridors, office premises etc, and not in canteens, and secondly we noted that the items sold were inherently likely to be eaten elsewhere, because they were all wrapped and many purchasers would simply put them in their pockets to eat elsewhere. 

53.     So far as the required allocation of supplies from machines actually located in canteen areas is concerned, the only sensible way to do the allocation seems to us to be to carry out a sampling exercise to see where, on average, product in the contentious category is actually consumed. That, it seems to us, will obviously indicate the purchaser’s intention, and will reflect where in fact the product is consumed.  To dispute this and say that a product is still to be treated as supplied for consumption “on the premises” when a CCTV camera might theoretically capture an image of the purchaser walking straight out of the canteen would seem to us to fly in the face of common sense. 

54.   We accept that no single average statistic would govern all supplies made in canteens.   If canteen premises are only open at lunch-time, there is a reasonable supposition that a greater proportion of food purchased from the vending machines will be eaten on the premises.   If the servery hatches of the canteen only operate at lunch-hour, and the machine is installed primarily to enable employees to buy a snack from an otherwise deserted and gloomy canteen outside the lunch-hour, the opposite inference is likely to be drawn. 

55.     No evidence was given to us as to where any machines were in fact located, so that we certainly did not have to consider the cases that might be considered to be borderline, where there is a seating area around the machine.   We would add however that we find it very difficult to fault paragraph 2.4 of HMRC Notice 709/1.  We interpret the third paragraph of that note to make the following sensible point where machines are located outside canteens, and in “thoroughfares and areas not designated for the consumption of food”.   We interpret that essentially to mean that for a seating area around a machine to lead to the conclusion that supplies might be made for consumption in the premises where the supplies are made, the area would have to be “designated for the consumption of food”.  In other words, the classic areas in this context are restaurants, cafes, canteens, cafeterias etc. Other areas would “have to quack like a duck”, or like a café, to fall into the same category.  Whilst we were given no relevant facts in this context, and there was no argument on this point, we consider that the addition of a few chairs in a corridor would be unlikely to make an area “one designated for the consumption of food”. The fact, moreover, that in Compass, all of the supplies were treated as being made “for consumption off the premises”, notwithstanding that two or three of the kiosk areas were surrounded by seating areas appears to assist the Appellant on this point.

Conclusion

56.    We have decided both the premises point and the “for consumption” point against the Appellant, and so this appeal is dismissed. 

Costs

57.      HMRC had made no requests for an order for costs, which indeed conformed with practice for cost requests from HMRC under the previous VAT and Duties Tribunal, where this appeal technically commenced.   Accordingly no award is made.

HOWARD M NOWLAN
TRIBUNAL JUDGE
RELEASE DATE:19 March 2010