[2010] UKFTT 487 (TC)

TC00747
	Appeal number: LON/2009/0824 

VAT – ZERO RATING OF FOOD – the Appellant sold toasted sandwiches (known as Subs) and a filling, meatball marinara – was the Appellant’s dominant purpose for heating the foodstuffs to enable them to be consumed at a temperature above ambient air temperature – Yes – toasted subs and meatball marinara standard rated – Appeal dismissed – note 3(b) group 1 schedule 8 VAT Act 1994.

FIRST-TIER TRIBUNAL
TAX 

	SUB ONE LIMITED (t/a SUBWAY)	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	MICHAEL TILDESLEY OBE (TRIBUNAL JUDGE)					MARILYN CROMPTON				
				SUSAN STOTT FCA				

Sitting in public at Alexandra House, 14-22 The Parsonage, Manchester on 19, 20 and 21 May 2010

Andrew Young counsel instructed by Dass Solicitors  for the Appellant
Owain Thomas counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs, for HMRC

© CROWN COPYRIGHT 2010

DECISION
The Appeal
1.	By a re-amended Notice of Appeal dated 23 March 2010 the Appellant appeals against HMRC’s decision to treat supplies of toasted sandwiches (known as Subs) and meatballs as standard rated for the purposes of VAT. The Appellant further appeals against HMRC’s refusal to credit it with the VAT accounted for on the disputed supplies.
2.	This Appeal is concerned solely with the correct VAT liability of the disputed supplies of toasted Subs and meatballs.
3.	The issues to be decided  are:
(1)	Are any of the supplies of toasted subs and/or meatballs to be regarded as supplies of hot food within the meaning of note 3(b) group 1 schedule 8 of the VAT Act 1994, and if so
(2)	What was the purpose of heating each and every sub and/or meatballs product, and
(3)	What is the proper rate of tax for each item supplied.
4.	The question to be determined is whether the Appellant’s dominant purpose was to enable the supplies of toasted Subs and meatballs to be consumed at a temperature above the ambient temperature. The test is a subjective one.
5.	This Appeal is one of about 250 Appeals from Subway franchisees challenging the correct VAT treatment of the supplies of toasted subs and meatballs. On 1 February 2010 the Tribunal directed that the Appellant be treated as the lead Appeal for the purpose of determining the liability of the disputed supplies in accordance with rule 18(1) of the Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009. Directions have been made binding the other Appeals to the decision in this Appeal subject to the rights of the other Appellants to make representations in accordance with rule 18(4) of the 2009 Rules.
6.	The VAT & Duties Tribunal in European Independent Purchasing Company and Sub-Retail Unit v HMRC [2008] UKVAT V20697 decided that supplies of toasted Subs specifically restricted to the Melt and Italian BMT varieties were standard rated for the purposes of VAT. This decision pre-dated the changes in Tribunal rules which allowed the option of lead Appeals, and was, therefore, not binding. The Appellant argued that the decision was wrongly decided, and should be ignored for the purposes of this Appeal.
7.	This decision is set out in three parts:
(1)	The substantive decision on the correct VAT liability of the disputed supplies.
(2)	The findings that relate to its status as a lead Appeal.
(3)	The chronology of the Appeal and the connected procedural matters.
The Hearing
8.	The Appeal was heard on the 19, 20 and 21 May 2010. The Appeal was adjourned part-heard to enable the Appellant to submit its final submissions in writing with rights of reply and further reply given to HMRC and the Appellant respectively. The Tribunal reconvened in the absence of the parties on 15 June 2010 to consider the evidence and the submissions.
9.	The Tribunal heard evidence for the Appellants from
(1)	Mrs Kay Mulligan who was a director of the Appellant. She gave evidence on how the Appellant operated its Subway franchised stores in and around the Huddersfield area. Mrs Kay Mulligan was the controlling mind of the Appellant, and it was her intention in respect of the disputed supplies that formed the dispute in this Appeal 
(2)	Professor Bronislaw Leon Wedzicha of the School of Food Studies and Nutrition, The University of Leeds, gave expert evidence on the chemical changes associated with the toasting of a Subway sandwich, and with the  marinating of the  meatballs with the sauce.
(3)	Professor Liam Blunt, Taylor Hobson Chair of Surface Metrology at the School of Engineering, University of Huddersfield, gave expert evidence on the temperature measurements of toasted sandwiches at the Appellant’s Subway store in Kings Street, Huddersfield.
(4)	Dipak Jotangia, a partner in the firm of Dass Solicitors who provided a witness statement which related to the Appeal’s status as a lead Appeal 
10.	The Tribunal heard evidence for HMRC from
(1)	Mrs Rachana Pancholi, a Subway franchisee, who was also a board member of the International Franchise Advertising Fund which arranged advertising on behalf of United Kingdom Subway franchisees. Mrs Pancholi was principally called to give evidence on the various advertising campaigns for Subway products in the United Kingdom. Her oral testimony, however, expanded to include her operations as a franchisee. 
(2)	Dr Slim Dinsdale, an independent food safety and quality consultant, who gave expert evidence on the temperature measurement of toasted sandwiches at the Appellant’s Subway store in Kings Street, Huddersfield. He also commented on Professor Wedzicha’s report with regard to the changes in the meatballs.
11.	Mr Thomas counsel for HMRC explained that Mrs Pancholi gave a statement to the Appellant’s solicitors. HMRC decided to call her after being informed that the Appellant did not require her to give evidence. HMRC considered that it was right and fair that the Tribunal should hear evidence of her statement.
12.	The Tribunal admitted a bundle of documents into evidence, which included a joint report of the experts’ meetings by telephone on 12 May 2010.
13.	A full transcript of the proceedings was kept.
The Law
14.	Group 1 of schedule 8 to the VAT Act 1994 zero rates supplies of food used for human consumption except a supply made in the course of catering which is standard rated.
15.	Note 3 to group 1 provides a definition of a supply in the course of catering which 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.
16.	Hot food within note 3(b) 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.
The Evidence
Background
17.	Doctor’s Associates Incorporated (DAI), a company based in Florida, United States of America is the owner of the intellectual property rights for a system to sell food under the Subway trademark. DAI has granted a licence to use the system outside the United States of America to Subway Systems International Ansalt (SSIA), a company established and located in Liechtenstein. SSIA has granted a sub-licence to Subway International BV (SIBV) in the Netherlands whose role is to grant franchises to third parties across the Globe. 
18.	There are currently almost 33,000 Subway stores worldwide in 91 countries. In the United Kingdom the stores are owned and operated by independent franchisees. The aim of the franchisees is to produce made to order high quality sandwiches using the freshest and best ingredients.
19.	The Appellant operated four Subway franchise stores in and around the Huddersfield area. The Appellant was owned and run by a partnership of Mrs Mulligan, her sister and mother. The franchise agreement to the partnership was dated 17 May 2004. Under the franchise agreement the partners in their capacity as franchisees were required to attend a training programme organised by DAI before opening the restaurant. The partners were obliged to operate the restaurant in accordance with Operations Manual licensed by DAI which also set out specifications for the layout of the restaurant and the equipment to be used.
20.	Mrs Mulligan had been a Subway franchisee since 2002. She undertook her training programme at a dedicated facility ran by DAI in Milford, Connecticut, USA. Mrs Mulligan opened her first Subway store in June 2003. She was also a director of another company called Subs 2 Go Ltd which was owned in partnership with two other people and ran a Subway store in Huddersfield. Mrs Mulligan was the Subway Franchisee of 2007.
21.	Around 2004 DAI commissioned the development of a speed cook oven from two suppliers for exclusive use in the Subway stores. The two ovens were known as the Tornado Turbo Chef and the MerryChef 402S Series. This technological innovation enabled Subway stores to offer the option of toasted sandwiches. According to Mrs Mulligan and Mrs Pancholi toasted sandwiches were introduced in the United Kingdom sometime in 2005, in response to competition from Quiznos which was offering the option of toasted sandwiches.
22.	Mrs Mulligan and Mrs Pancholi estimated that toasted Subs constituted about 80 per cent of their total sales from their Subway stores. At the time of the Appeal Subway stores in the United Kingdom offered a standard range of 17 types of Subs including two vegetarian options. Examples of the standard range were chicken and bacon ranch, tuna, Subway melt and chicken breast.  Subway stores also supplied a range of breakfast Subs which were sold in the morning before 11am. The breakfast Subs formed about 2 per cent of sales and were regarded by the Subway franchisees as standard rated for VAT purposes.  The Stores also sold a range of drinks, crisps and cookies which were baked on the premises.
The Sandwich Building Process
23.	The Appellant followed exactly the same procedure for the making of every sandwich. The members of staff who constructed the sandwiches were known as sandwich artists. The process for making the sandwich began at one end of the counter, known as the order point and finished at the other end of the counter, known as the payment point. The Appellant provided its members of staff with scripts for each part of the operation, and written instructions on how the sandwiches were made including the quantities of ingredients.
24.	The first stage in the process was referred to as the meet & greet where a customer was greeted by a sandwich artist and asked to choose a sandwich from the menu, a size (six inch or foot-long), and a type of bread. A sheet of deli paper was then placed on the counter immediately in front of the sandwich artist for the selected bread, which was taken from the bread storage cabinet located immediately behind the artist.  The bread was then cut in a prescribed manner. The artist then asked the customer if he wished to have his sandwich toasted.
25.	The next stage involved adding the meat and cheese to the sandwich. The quantity of meat in each sandwich was pre-determined either by slices or weight. The meat was taken from plastic storage containers which were located in the chilled section of the sandwich counter, where food items were held at a temperature of 1 degree to 5 degrees centigrade. The meat slices were placed on the top half of the bread and evenly distributed along its length. The customer was then asked whether he wanted cheese and if requested, four slices of cheese were placed on top of the meat.
26.	If the customer asked for a toasted Sub, the sandwich was placed open in the speed oven using a basket located on a flat metal paddle. The controls on the oven were pre-programmed by means of button presses. Mrs Mulligan used one of the two combo options which toasted the sandwich for 20 seconds for a six inch Sub or 30 seconds for a foot-long Sub. The oven had the facility to toast more than one Sub at any one time. The oven was situated immediately behind the artist. The oven emitted a series of three audible beeps to signify that the Sub had been toasted. .
27.	The toasted Sub was returned to the counter where the salad items, sauces and other condiments were stored at the appropriate temperature. The customer was asked which salad vegetables he wished added to the Sub. The artist would suggest a group of three vegetables, the portions of which were predetermined either by weight or by a specific number of slices.   Finally the artist offered a choice of sauces which amounted to three passes of a selected sauce on either the meat or the vegetables. The customer could choose more than one sauce. Following the addition of the sauce the two sides of the sandwich were folded together to form the completed Sub, which was then wrapped in thin paper bearing the Subway logo and placed in a plastic bag before being handed to the customer. The process for wrapping and bagging was identical for all sandwiches including toasted ones. No form of insulated packaging was provided.  
28.	The customer was then offered extra items, such as drinks, cookies and crisps, to complement his sandwich at additional cost. After which payment was taken either by cash or card.
29.	Mrs Mulligan adopted a uniform business model for operating her Subway stores characterised by a fixed store layout and a prescribed way of making sandwiches with the aim of getting the customers in and out of the store as quickly as possible. The process up to the time of the Sub being placed in a bag could be as quick as 30 seconds but anywhere up to two minutes if the store was particularly busy. Mrs Mulligan accepted that she deliberately placed the meat and or cheese filling and the bread together in the speed oven with the Sub open. The salad and dressings were the only ingredients not put in the oven. Mrs Mulligan would not toast the bread alone in the speed oven. 
30.	Mr Young and Mr Thomas, counsel, asked questions of Mrs Mulligan about possible changes to the production process and store layout. Mrs Mulligan effectively stated that it was not possible to change the operations. In response to a question by Mr Young about adding meat and sauces after the toasting process Mrs Mulligan said:
“Because we just could not work like that. The equipment follows the production line, so they get the bread on what we call head or meet-and-greet, and the equipment sits on the counter and is convenient to how we work and how the customer filters down the counter”.
31.	Mrs Mulligan and her sister published an in-house operations manual and acted as mystery shoppers at their stores to ensure that members of staff adhered to the procedures and recipes for making Subs. The franchisor, Subway, conducted monthly evaluations of the Appellant’s stores to secure compliance with the franchisor’s requirements.
Marinated Meatballs
32.	The meatballs were delivered to the stores partially cooked but deep frozen. Mrs Mulligan stored the meat balls in a freezer until required for use when they would be transferred to a refrigerator and allowed to thaw for 24 hours. 
33.	At the start of each day the staff prepared the meatballs for sale in the store. This involved mixing the thawed meatballs with chilled marinara sauce to ensure that all the balls were covered in the sauce. At this stage in the process the sauce was thick, glutinous, and unpalatable. The mixture was then heated in a microwave for three successive periods of eight minutes with the mixture being stirred at the end of each period. At the end of the microwaving the temperature of the mixture was in the range of 74 to 76 degrees centigrade, which was confirmed by the insertion of an electronic thermometer probe. The temperature of 74 to 76 degrees centigrade was critical to ensure that the marinara sauce infused the meatballs to create the sandwich filling of meatball marinara.
34.	The heated meatball marinara was transferred to another container, (a bain-marie), in the hot well of the sandwich counter unit. The temperature of the meatball marinara was allowed to cool in the bain-marie to between 63 and 68 degrees centigrade. The meatball marinara was then kept and sold at that temperature. The shelf life of meatball marinara once in the hot well was four hours.
35.	Mrs Mulligan accepted in cross-examination that the marination process was complete once the meatballs and the sauce had been micro-waved. Mrs Mulligan kept the meatball marinara in the bain-marie so that she could sell it straightway as a freshly prepared product which could only be done if she complied with food safety legislation on the sale of hot food. The legislation required the meatball marina to be maintained at a temperature of between 63 and 68 degrees centigrade. Mrs Mulligan acknowledged that the meatball marinara when cold would not be palatable.  The sauce would be thick and glutinous. Cold meatball marinara did not conform to her aim of selling freshly prepared products.  
The Ovens
36.	Mrs Mulligan’s stores had a microwave and a separate speed oven used for toasting the Subs. The speed oven was specifically designed for Subway to produce the toasted Sub. Mrs Mulligan had the TurboChef version of the speed oven in her stores. She kept the microwave below the counter, whilst the toasting oven was placed in a prominent position on the counter behind the service area. The respective positions of the two ovens reflected their use in the store, with the microwave only being used on a sporadic basis. Mrs Pancholi explained that following the introduction of speed ovens Subway stores stopped using the microwaves and offered consumers a toasted product which was different from those products previously heated in the microwave. Mrs Pancholi stated that microwaves were only used to heat meatballs as in to marinate the meatballs. 
37.	The speed ovens were different from conventional ovens in that they used a patented combination of high speed forced air convection heating and microwave energy to cook food up to 12 times faster than conventional methods. The TurboChef  Owner’s Manual described the process as:
“An easy way to understand our cooking is to think of the microwave cooking from the inside out and the airflow cooking from the outside in. The two energy gradients meet and greatly reduce the cook time”.
38.	Mr James K Pool 111, Senior Vice President of TurboChef, in a letter dated 6 May 2010 to the Appellant’s solicitors explained the process in more detail:
“The TurboChef NGC rapid cook oven uses two heat transfer mechanisms to toast: impingement heat and microwave energy. The microwave energy reacts with the water molecules in the bread and the food items or foodstuffs. As the microwave energy is absorbed into the foodstuffs, their water molecules vibrate, generate heat, and migrate to the exterior surface of the food item.  In concert with the microwave heating, impingement airflow is acting to toast the exterior of the sandwich. In order to properly toast the foodstuffs, the moisture from the surface of the food must be removed such that evaporative cooking is minimized, thus allowing the foods to finally toast. By introducing microwaves, the oven can toast the product faster because the microwaves accelerate dehydration at the surface of the food, thus allowing the product to toast at a speed that has been deemed and proven acceptable to Subway and their customers”.
39.	Mr Pool 111 confirmed that conventional technologies, such as toaster ovens, conveyor ovens or microwaves  either took longer than the speed of service required by Subway or could not provide a toasted sandwich at all, as was the case with microwaves.
40.	Mrs Mulligan acknowledged that she was not an expert on the heating technologies employed in the speed oven. Mrs Mulligan accepted, however, that she understood that the oven used a combination of heating methods, and that it was all about speed and productivity. She confirmed that it was her experience that the Turbochef cooked food up to 12 times faster than conventional methods. The oven toasted the Sub in a very short period of time which maintained the productivity throughput on the main counter. In her view the oven produced the perfect toasted Sub as per Subway’s specification.
41.	Mrs Mulligan gave contradictory responses about whether the speed oven heated the Sub throughout. In this context the Sub meant the bread roll and the filling without the salad.  In response to a question on Chef Martone’s statement she stated that just the surface of the Sub was toasted. Later to a question about the explanation given in the TurboChef Owner’s Manual about cooking from the inside out she agreed with a question put to her by the Appellant’s counsel about whether it toasted the centre of the Sub. Mrs Mulligan stated: Yes it toasts the Sub. In cross-examination Mrs Mulligan accepted that she was not in a position to dispute the manufacturer’s specifications for the oven.
42.	Mrs Pancholi also disagreed with Chef Martone’s statement stating that the sandwich did not get hot all the way through when it was toasted.
43.	HMRC counsel challenged Mrs Mulligan’s description of the oven as a toaster. Counsel referred Mrs Mulligan to the section entitled Speed Oven Training in the in-house operations manual. Counsel pointed out that the word oven not the word  toaster was used throughout  the manual. Mrs Mulligan acknowledged the wording in the manual was an inconsistency on her part. The manual, however, was produced in 2005, and the section on Speed Oven Training was a straight lift from the instructions supplied by the oven manufacturers in order to comply with policies and procedures. Mrs Mulligan maintained that she used the word toaster on a daily basis in her stores and that it was a proper description of what it actually did, namely to toast Subs.
44.	The in-house manual also stated that the oven took 90 minutes to cool down and the oven heated at temperatures of 500 degrees centigrade.
45.	Mrs Mulligan accepted that the specification for the oven and the terms upon which it was used was determined by Subway. The controls on the oven were pre-programmed. Mrs Mulligan did not have discretion to over-ride the programmes. She simply pressed the appropriate button, which in her case was the combo sub, which activated both the microwave and the air convection heater.  This control was used with variation to toast six inch, foot-long and multiple Subs. The parties adduced no evidence about the functions of the other programmes for the oven. The oven was switched on in the morning taking 15 minutes to heat up to 500 degrees centigrade, and then left on for the duration of the working day.
The Subway Operations Manual
46.	DAI as part of its proprietary system, created an Operations Manual that provided guidance to the Subway franchisees. The franchise agreement for Mrs Mulligan, her mother and sister dated 17 March 2004 required them to operate the restaurant in accordance with the Manual. Copies of the Manual were issued to new franchisees, after they signed the franchise agreement. The Manuals were typically updated annually with copies of the update being sent out to franchisees. The Operations Department at Subway USA Headquarters despatched the Manuals by mail to the franchisee’s preferred address. The mailing, however, was not tracked which meant that the Operations Department held no record of receipt of the Manual.  A copy of the Manual was also posted on the Subway partners’ website which was accessed by Subway franchisees. The contents of the Manual were a trade secret.
47.	The Appellant throughout the Appeal stated that it did not rely upon the Subway Operations Manual. Mrs Mulligan was in no doubt that she complied with the standards set by Subway but she could not recall having a copy of the Manual in her stores. Mrs Mulligan was aware of Subway partners’ website but did not access it to look at the Manual.  In her view, the Operations Manual was not important to her business, and it was not something that Subway checked upon. Mrs Mulligan’s stores met the requirements of the monthly evaluation inspections carried out on behalf of Subway.
48.	Mrs Pancholi held a copy of the Manual in her store. She did not, however, use the Manual in her business except as a reference document. According to Mrs Pancholi, she learnt the contents of the Manual on her training in the USA where the Manual contents were drilled into new franchisees.
49.	HMRC stance on the Manual was that its case on the liability of the disputed supplies was not primarily based upon its contents but on the nature of the products and circumstances surrounding the transactions subject to VAT. Mr Thomas, counsel for HMRC, however, wished to bring certain points on the Manual to the attention of the Tribunal.
50.	Following an application by HMRC, the Tribunal on 27 April 2010 directed Ms Corcoran of Franchise World Headquarters to supply a copy of the Subway Franchisee’s Operations Manual to the Appellant’s Solicitors for the purpose of the Tribunal proceedings. The Tribunal undertook to take appropriate steps within its powers to preserve the commercial confidentiality of Manual. The terms of the disclosure order followed the suggestion of the Appellant’s representative  A copy of the 2009 Manual was included in the agreed bundle of documents. 
51.	At the end of the second day Mr Thomas suggested that a copy of the 2005 version of the Manual be included in the bundle which was apparently the one before the VAT & Duties Tribunal in the EIPC and Sub-Retail Unit case. The Appellant obtained a copy of the 2005 Manual but objected to its admission on the grounds of relevance and procedural irregularity. Mr Thomas did not understand the Appellant’s objection because in his view it was tantamount to re-opening the issue of disclosure which had already been decided by the Tribunal on 27 April 2010. In those circumstances Mr Thomas considered that the 2005 Manual should be admitted but his submissions on the 2005 contents would be the same as those made in respect of the 2009 Manual because there were no material differences between them. 
52.	 Although the Appellant had stated that the Manual formed no part of its case, Mr Young for the Appellant led on parts of the 2009 Manual in his examination in chief, and did not object to the questions put by Mr Thomas on the Manual. The Tribunal’s principal concern was whether the contents of the 2005 Manual, if admitted, would impugn the evidence already given by the parties on the contents of the 2009 Manual. Mr Thomas confirmed that there was no material difference between the Manuals in respect of the evidence given. 
53.	The Tribunal considers that the admission of the 2005 Manual was covered by the terms of the disclosure order of 27 April 2010. The relevance of the 2005 Manual was that it confirmed that the contents of the 2009 manual provided a representative view of the franchisor’s expectations during the period covered by the Appeal. The Appellant was not prejudiced by the admission of the 2005 Manual. The contents of the 2005 Manual did not impugn the evidence given on the 2009 Manual.  
54.	Mrs Mulligan confirmed to Mr Young that she followed the 13 steps for making toasted sandwiches as set out in the 2009 Manual. Mrs Mulligan, however, disagreed with that part of the manual entitled Hot Products. Mrs Mulligan pointed out that she did not hold the four specified hot products in her stores, only the meatballs, which she thawed for 24 hours as opposed to the 48 hours stipulated in the manual. She was of the view that this part of the Manual did not apply to her because it was designed specifically for the North American market. 
55.	Mr Thomas  when questioning Mrs Mulligan referred to specific passages  in the manual which read:
Toasting Sandwiches
“Place the meat on the top half of the bread:
………
For pre-portioned product kept in the cold well, place cold meat on the bread (no need to microwave first)”.
Hot Sandwiches
“When making a hot sandwich, the procedure differs depending on if the product is held in the hot well or pre-portioned, and if the sandwich will be toasted or micro-waved”. 

Making Cold Products Hot
“If sandwich will be toasted: place stacked meats or cold pre-portioned meat onto the top half of the bread ….. Place in the speed oven to heat and toast”.
“if sandwich will not be toasted: cold product must be heated prior to placing the product on the bread…. Heat uncovered trays in the microwave”.
56.	Mr Thomas questioned Mrs Mulligan on the above extracts. She agreed that in the Manual a cold product could be made hot by the speed oven or the microwave. Mrs Mulligan, however, pointed out that the Manual was only guidance, and that it only had relevance for the North American market. In re-examination, Mrs Mulligan suggested that the extract on Making Cold Products Hot was restricted to products from the hot well. Mrs Mulligan just kept the meatball marinara in the hot well. 
Advertising
57.	A body known as the International Franchise Advertising Fund (IFAF) organised the national advertising for Subway franchisees in the United Kingdom. The fund charged each franchisee 4.5 per cent of his net weekly takings to pay for the advertising. The fund concentrated on above the line advertising using the full marketing mix of television, radio and print. The advertising calendar consisted of eight marketing windows which featured various promotions. The individual stores received the marketing materials two weeks prior to the launch date for the promotions. IFAF did not get involved in local marketing which was left to individual franchisees. 
58.	The board for IFAF was made up of franchisees elected by the body of franchisees as a whole. The board was assisted by a small team to administer the day-to-day business. The board agreed the marketing strategy direction which the team implemented by liaising with appointed agencies. The board’s role was to develop a comprehensive strategy to be executed at stores level to increase sales and profitability.
59.	By application dated 9 March 2010 HMRC applied for disclosure of copies of all advertising material covering the range of products that were the subject of this Appeal and copies of the advertising materials dealing with the toasted or hot nature of the products from the inception of the toasted range to the present day. At the hearing on 27 April 2010 the Tribunal was informed that the Appellant had supplied HMRC with copies of the relevant advertising material. The Tribunal with the consent of the parties directed that Mrs Mulligan supply a witness statement on current and historical advertising in Sub One outlets. The Appellant was also ordered to supply the Tribunal with a witness statement from an experienced Subway franchisee giving details of the national advertising. Mrs Pancholi made this statement. 
60.	Mrs Mulligan confirmed that she did not retain historical advertising materials. She occasionally advertised in a local newspaper which was restricted to special offers and made no reference whatsoever to toasted Subs. Mrs Mulligan commissioned in or around 2008 one local radio advert on the Sub of the day. No reference was made to toasted  Subs in the radio advert.
61.	The Appellant obtained copies of all printed advertising for Subway stores up until January 2009 from Northern Print.  The Appellant obtained copies of television and radio adverts from 2006 which were stored on a memory stick. HMRC also supplied copies of television adverts of Subway products principally from outside the United Kingdom. 
62.	The bundle contained 147 copies of printed adverts for Subway stores in the United Kingdom. Five adverts were for toasted Subs, three other adverts used the word hot which related to the time-limited chicken, gravy and stuffing Sub. There were several adverts dealing with the launch of breakfast Subs. These adverts did not use the word hot. One advert for breakfast Subs mentioned the toasting option.
63.	Mrs Pancholi stated that the adverts for toasted Subs promoted the message of freshly toasted Subs. She accepted that the images for toasted Subs showed the bread significantly brown in colour and the cheese melted. 
64.	Mrs Pancholi explained that the term hot was restricted to products heated in the microwave first. The term hot was not used to advertise toasted Subs.
65.	 The memory stick contained 15 television and radio United Kingdom adverts supplied by the Appellant, and eight television adverts obtained by HMRC of Subway products with two adverts from the United Kingdom and six from outside the United Kingdom.
66.	The key messages in the Appellant’s United Kingdom adverts were “Made in Front of You”; “Eat Fresh”; and “Made the Way You Want It”.  The messages reflected the cornerstone of Subway’s marketing and advertising strategy which was made fresh in front of the customer and giving the customer  what he wanted.  None of the Appellant’s United Kingdom television and radio adverts featured toasted Subs.
67.	HMRC’s sample of television adverts included one advert from the United Kingdom, and several adverts from outside the United Kingdom which dealt with toasted Subs. The United Kingdom advert showed the new chicken peri peri Sub change colour to amber when the toasted version was displayed. This commercial was commissioned in April 2010, outside the period covered by this Appeal. The script for the advert described the amber colour as the orange glow of the grill.
68.	 The adverts not from the United Kingdom had smoke or steam coming off the toasted sandwiches. Mrs Pancholi explained to the Tribunal that the use of smoke or steam was an advertiser’s way of telling consumers that the product was freshly toasted. Mrs Pancholi also observed that the advert dealing with the hot chicken, gravy and stuffing Sub displayed steam from the Sub.
69.	Mrs Pancholi pointed out that the United Kingdom Subway franchisees had no control over advertising campaigns in other countries. She indicated that United Kingdom Subway stores did not sell the same products as Subway stores in North America. Mrs Pancholi, however, assumed that the fresh toasted Sub was the same whether in the United Kingdom or in North America. 
70.	The advertising material did not form a significant part of either party’s case. The Appellant was not seeking to rely on it, whilst HMRC considered aspects of the advertising relevant but not critical to its case. 
The Experts
Professor Wedzicha
71.	Professor Wedzicha explained that toasting was a process whereby the surface of bread and other food substances (including meat and cheese) were subjected to intense heat with the intention of changing the characteristics (colour, flavour, texture) of the surfaces of the food components. The changes to the foodstuffs by toasting were effected by a chemical reaction known as the Maillard reaction. 
72.	Professor Wedzicha stated that the application of heat to a Sub browned the bread and cheese, intensified the flavour of the meat and altered the distribution of fat. The heat caused the different flavour constituents to be transported between the components of the sandwich. Professor Wedzicha pointed out that the changes brought about by toasting the Sub were irreversible, and that the toasted Sub was a new product which was chemically distinct from the unheated combination of ingredients used to construct the sandwich. 
73.	Professor Wedzicha said that once toasted, the flavour components of toasted food lost their impact as the toasted product was allowed to cool. In his view the best quality Subway sandwiches were expected to be those which were freshly toasted and the topping warm, leading to the most rapid flavour release. Mrs Mulligan confirmed that a toasted Sub would go soggy if left to cool on a cold surface.
74.	Professor Wedzicha accepted that he conducted no temperature measurements of the toasted Sub, and would defer to the other experts called in this case who carried out the measurements.
75.	Professor Wedzicha stated that the application of heat to the meatball and the marinara sauce enabled the flavour of the sauce to permeate the meatballs throughout by the process of marination. In his opinion, the action of heat on the meatballs and sauce created a new product which was chemically distinct from the unheated combination of ingredients. Professor Wedzicha accepted that once the heating process was complete the meatballs would retain the flavour of the marinara sauce even after cooling. Further Professor Wedzicha acknowledged that the process of heating meatballs in sauce was no different from conventional meatballs in sauce that might be put on plate of pasta or something.
76.	 Dr Dinsdale, HMRC’s expert, agreed with the contents of Professor Wedzicha’s report except his statement that the flavour sauce would permeate the meatball throughout. Dr Dinsdale believed that the flavour would simply penetrate the surface of the meatball. Dr Dinsdale accepted that this difference was academic, and that when the meatball was eaten the differing flavours of the meatball and the sauce would merge.
Professor Blunt
77.	Professor Blunt was instructed by the Appellant to obtain core temperature readings of the full range of toasted sandwiches prepared at the Appellant’s store in Huddersfield. This he did on two occasions on 11 September 2009 and 11 November 2009.
78.	Professor Blunt used a flexible temperature sensing strip with 16 individual temperature sensors which were placed on the filling side along the length of the Sub. An average of the readings from the 16 sensors was used to give the average core temperature along the sandwich length. He also took separately the core temperature of the bread in a small sample of toasted Subs by inserting a temperature probe. Foot-long toasted Subs were used for the temperature readings. The Subs were prepared in the normal way with the temperatures being taken within approximately 30 seconds after the Sub was wrapped.
79.	  Professor Blunt measured the ambient air temperature by inserting a sensor just above the till at a point where the Sub would be handed over to the customer. He did not take measurements of temperature in other parts of the store. He averaged the ambient temperature readings taken over the two days, and plotted them on a line graph between the times of 10:33am and 12:57pm. The chart showed variations in the ambient temperature throughout the time slot with a low of 24 degrees, and a high of 25.4 degrees centigrade. The overall average ambient air temperature for the duration of the two tests was 24.5 degrees centigrade.
80.	Professor Blunt chose the location above the till for measuring the ambient air temperature because he considered this was the point where the Sub would be handed over. Professor Blunt accepted that the location for the temperature sensor was close to the speed oven and the refrigeration equipment. He identified various variables including the oven, height of the room, and the number of people that might increase the ambient air temperature.
81.	Professor Blunt produced a table of the average core temperature readings taken over the two test days for each sandwich type. This table showed that the average core reading ranged from 12.3 degrees centigrade for BBQ Rib to 26.8 degrees centigrade for meatballs. He also plotted a line graph of the core temperature readings over a period of 3.5 minutes starting with the time the sandwich was taken out of the oven. The graph showed the temperature at its highest just above the ambient air temperature after being taken out of the oven. The temperature then fell after the addition of the salad, and then started to rise for about two minutes following closure of the sandwich. The rise in temperature was attributed to thermal lag caused by the equalisation of the different temperatures for the various components of the sandwich. Professor Blunt took no temperature readings after the period of 3.5 minutes, although he would have expected the sandwich to cool down.
82.	The bread temperature results obtained by Professor Blunt showed that the average bread temperature in the Sub ranged from 30 to 47 degrees centigrade with an average of 40.1 degrees centigrade. The reading of 30 degrees centigrade arose because the temperature probe was placed under the salad, whereas the other readings were taken directly from the bread. The bread temperature readings were considerably higher than that for the core filling.
83.	Professor Blunt also took a thermal image of a ham toasted Sub. This image produced a temperature range for the Sub from 1.7 (the chilled salad) to 43.7 degrees centigrade (the bread part).   
84.	Dr Dinsdale did not consider that the method of average core temperature employed by Professor Blunt provided a representative temperature for the Sub. In Dr Dinsdale’s view the average core temperature did not take into account the temperature of the surrounding bread, and was overly influenced by the temperature of the cold salad filling. Professor Blunt whilst defending his methodology accepted that the temperature measurements were of the core of the sandwich, namely the filling. Professor Blunt considered the bread to be a separate component of the sandwich, which was why individual temperature readings were taken of the bread. 
Dr Dinsdale
85.	Dr Dinsdale was instructed by HMRC to take temperature readings of the toasted Subs. He used infrared thermography to measure the temperatures across a cut exposed surface of a toasted Sub. Thermography involved the production of temperature calibrated infrared or heat pictures by an infrared camera. Dr Dinsdale utilised the services of a level 3 thermographer. She had 14 years experience in the field of thermography. The technology supplied measures of average temperature and the temperature range across the cut face of the Sub.
86.	The procedure used by Dr Dinsdale was as follows:
(1)	A toasted Sub from the sale list of Subs as used by Professor Blunt was ordered. The first two Subs were foot-long which were then changed to six inch Subs at the request of Dr Dinsdale. The first group of Subs tested were of the usual build with salad and dressing. Dr Dinsdale then repeated the test but this time on Subs without salad and dressing.
(2)	The wrapped Sub was then taken to a table within the store where the wrapped and unwrapped Sub was weighed and photographed. 
(3)	A vertical cut was then made through the Sub at approximately one third from the end. The Sub was then positioned at a pre-determined mark and a 10 second sequence was taken by the camera.
(4)	A second cut was made at approximately one-third distance from the cut-end followed by a repeat of the camera procedure.
87.	Dr Dinsdale disagreed with Mr Young’s assertion that he was testing the Subs more quickly than the time to hand them over to customers. Dr Dinsdale pointed out that the Subs were given to him in the same manner as they would be handed to a potential customer. After handover the Subs were taken to the table where they were weighed, unwrapped and cut before the temperature was taken. Dr Dinsdale stated that the temperature of the first cross-section was taken about 30 – 40 seconds after the handover of the Sub, whilst the temperature of the second cut was taken about 20 seconds after the first cut.
88.	Dr Dinsdale recorded the ambient air temperature by means of a data logger which was located on the table at which the tests were taken. The data logger recorded the temperature at regular intervals from the time of arrival at 11:15am to 2:15pm, which showed that the ambient air temperature started at 21 degrees centigrade and increased to 22.5 degrees centigrade by the time of Dr Dinsdale’s departure. The average ambient air temperature for the duration of the tests was 21.5 degrees centigrade.
89.	Dr Dinsdale accepted that the table was near the toilet but denied that he had deliberately chosen the coldest place of the store. He pointed out that the printed record of the ambient temperature showed a relatively smooth increase in temperature with no sharp changes in temperature. This suggested that the opening and closing of the toilet door had no material impact on the ambient air temperature. Dr Dinsdale was satisfied that his average ambient air temperature readings were representative of the temperature within the store.
90.	The temperature of the first and second cuts varied on the type of Sub being measured. Those Subs with salad had an average temperature on first cut of 25.4 degrees centigrade with a range from 21.3 to 36.6 degrees centigrade. The average temperature reading for the second cut was 24.3 degrees centigrade with a range of 17.6 to 31.8 degrees centigrade.
91.	The Subs without salad had significantly higher average temperatures of 43.9 degrees centigrade within a range of 36.3 to 53.6 degrees centigrade on the first cut. In respect of the second cut the average temperature was 41.5 degrees centigrade within a range of 24.5 to 59.4 degrees centigrade.
92.	Dr Dinsdale exhibited the heat pictures of each Sub which showed that the temperature within the sub ranged from -1.7 to 68 degrees centigrade for the first cut of a toasted Sub with salad. The temperature range for the second cut was very similar to that of the first cut. In respect of Subs without salad the temperature range started at a much higher temperature of around 20 degrees centigrade and ended with temperatures around 70 degrees centigrade in some Subs. The photographs and the different temperature ranges for toasted Subs with salad and without salad demonstrated that the bread and the meat and or cheese filling were above the ambient temperature, whilst the salad was below ambient. The bread and the meat and or cheese filling constituted a substantial part of the toasted Sub.    
93.	Dr Dinsdale unequivocally concluded from his tests that the temperature of the filling and the bread was above the ambient air temperature and that in all cases parts of the Sub were above the ambient air temperature when provided to customers.
94.	Appellant’s counsel challenged the credibility of Dr Dinsdale in respect of his qualifications, scientific knowledge, and the manner in which he conducted the tests. Professor Blunt, however, agreed that the method adopted by Dr Dinsdale of using thermal imaging cameras and taking the average temperatures of a cross section of a Sub was a valid method for providing a representative temperature of a Sub.
95.	Dr Dinsdale and Professor Blunt agreed that the paper used to wrap a Sub would have an insignificant insulating effect on the temperature of the Sub at the point of handover.
Mrs Mulligan’s Intention
Toasted Subs
96.	Mrs Mulligan explained in her witness statement dated 27 November 2009 that it was not her purpose to supply hot food which was sandwiches heated for the purposes of consumption at a temperature above ambient air temperature. Her intention was to supply toasted sandwiches. She described the effects of toasting the bread which were
(1)	The exposed surfaces of the bread become harder and crisper the texture being particularly enhanced due to the softer US bread.
(2)	The bread was browned which enhanced the visual appearance.
(3)	The aroma of the bread was increased and enhanced.
(4)	The bread became warmer.
97.	Mrs Mulligan stated that toasting brought out the flavour of the bread and ingredients. She accepted that the toasted Sub would go soggy if allowed to cool. Mrs Mulligan said that she would use the microwave if she wanted to warm the bread. In cross-examination she accepted that bread warmed in the microwave would be unpalatable. 
98.	Mr Thomas established that Mrs Mulligan had read the Tribunal case of EIPC and Sub-Retail Unit before she made her witness statement dated 27 November 2009.  Mrs Mulligan accepted that she knew the legal test relating to intention and understood the VAT rules when she formulated her statement on intention. 
99.	Mrs Mulligan elaborated upon her intention in examination in chief stating that
“I want to serve a toasted Sub, a Sub that has been in the toaster, that is a harder bread, a crunchier and a crispier Sub. ….My intention is to serve a toasted Sub not a hot Sub”.
100.	Mrs Mulligan denied that the Appellant’s stores offered a hot and cold range of toasted Subs. She offered hot breakfasts. Mrs Mulligan stated that toasted Subs were not hot. If she wanted to make the filling hot she would use a microwave. Mrs Mulligan explained that the bread would be burnt and the Sub ruined, if she heated the filling in the speed oven to a temperature where it could be served hot. 
101.	Mrs Mulligan considered that if she intended to serve the toasted Subs hot, she would not allow the lining up of toasted Subs on the counter waiting for the addition of salad and sauces.
102.	Mr Thomas questioned Mrs Mulligan’s understanding of hot food: 
Mrs Mulligan: “Hot food to me would be when I received something that was meant to be hot, it would be hot to touch, hot to put in the mouth. It would not be – if I went to a restaurant and received a plate of food at the same temperature as my Sub, I do not believe I would be happy. I would complain and send it back. A hot product is something that I would not give to my five year old son for him to take a bite out of straightaway. A hot product is hot”.
Mr Thomas:  …. “You say a hot dinner is a hot dinner and a toasted sandwich is not”.
Mrs Mulligan: “That’s right”.
Mr Thomas: “ .. If the law says that your toasted sandwiches are hot food, you would accept that you intend to supply hot food? Because you intentionally supply these sandwiches. Its not incidental ..”
 Mrs Mulligan: “Yes if that was the ruling, but then surely they would have to tell us what temperature that hot food is”.
Mr Thomas: “…. I think what you are saying is:
I just don’t think the toasted sandwiches count as hot food because my definition doesn’t include them
I think that’s roughly speaking your position isn’t
Mrs Mullgan “Yes, they’re (toasted Subs) not hot. I don’t believe that they even reach ambient. I know that we have sat and listened to the experts argue over a couple of degrees here or there, but I do not supply a hot product”.
103.	 Mr Thomas explored Mrs Mulligan’s intention through the following questions and answers:
Mr Thomas: “And you don’t dispute either that we have been told a lot about the fact that one of the virtues of Subway, which is marketed to the public, is freshness and we’re told that one of the advantages of these sandwiches is that they are freshly toasted  to order”?
Mrs Mulligan: “That’s right”
Mr Thomas: “So you make a great deal of effort to provide a freshly toasted sandwich to your customers”?
Mrs Mulligan: “Mm-hm”
Mr Thomas: “And the only reason that you say that does not equal an intention to enable your customers to consume hot food is because you have a different definition of what hot food is, which excludes this particular product”
Mrs Mulligan: “Yes. But I would not say that my definition of a hot product is that far out”.
Mr Thomas: “ So would you accept in those circumstances that if your intention each and every time is to supply your customer with a freshly toasted sandwich that your intention is to enable your customers to consume the product in that state as a freshly toasted sandwich”?
Mrs Mulligan : “Yes if they requested a toasted Sub I will make it that way and that’s how they will eat it”.
Mr Thomas: “And there are a number of features of the process which underpin the particular intention of yours. The first is the fact that everything is made to order. Would you agree”?
Mrs Mulligan: “Everything is made to order – Yes”.
Mr Thomas: “The second is that the product is made in front of you”?
Mrs Mulligan: “Everything is made to order – Yes”.
104.	 Mr Young in cross-examination put to Mrs Mulligan:
Mr Young: “When you supply a toasted Sub, are you supplying a hot product or something else”.
Mrs Mulligan: Something else. I’m attempting to serve a toasted Sub”
Mr Young: “And so where does the heat come in”
Mrs Mulligan: “We use the heat to toast the Sub”.
Meatball Marinara
105.	Mrs Mulligan in her statement dated 27 November 2009 said that her primary intention in heating the meatball and marinara sauce was to perfectly infuse the component meatballs with the component marinara sauce and thus enhance the flavour and palatability of the finished product.  The purpose of maintaining the meatball marinara in the bain-marie at temperatures of 63 to 68 degrees centigrade was to comply with environmental health requirements in the Food Hygiene (England) Regulations 2006. Mrs Mulligan pointed out that if the meatball marinara was kept at a lower temperature it would lead to bacterial growth resulting in serious food safety issues and likely prosecution. 
106.	Mrs Mulligan added in examination in chief that she put the meatballs and marinara sauce in the microwave because she wanted to marinate the meatballs with the sauce and change the taste of the meatball. 
107.	Mrs Mulligan acknowledged that instead of using the bain-marie she could cool down the meatball marinara in a fridge for at least 24 hours without compromising food safety. She, however, considered this option unacceptable because it would take up another day’s shelf life and the meatball marinara would have to be reheated before being sold to customers. Mrs Mulligan explained that when the meatball marinara cooled down the sauce thickened becoming very glutinous and unpalatable. 
108.	Mrs Mulligan told Mr Thomas she kept the meatball marinara in the bain-marie so that it could be served straightaway as a freshly produced product. She agreed that the meatball marinara only met the standard of freshness if it was maintained at a temperature consistent with hot food. Mrs Mulligan also accepted that she complied with the food safety regulations in order to serve the food hot.
109.	Mrs Mulligan confirmed that there was no need to ask the customer whether he wanted the meatball marinara hot because it had already gone through the cooking process to make it hot.
Legal Analysis
Statutory Construction
110.	 The zero-rating provisions under group 1 to schedule 8 of the VAT Act 1994 are an exception to the general rule that transactions should be standard rated for VAT purposes.  The general principle of construction is that the provisions of group 1 which set out the scope of the exemption should be strictly but not narrowly construed. However, this principle of construction does not apply in this Appeal because the disputed question of law concerns the meaning of catering supplies which are an exception to the exemption (Elizabeth Blasi v Finazament Munchen [1998] ECR 1 – 481 at paragraph 19). Thus catering supplies should be given their ordinary and natural meaning.
111.	 Group 1 zero rates supplies of food fit for human consumption except if the supply is in the course of catering. Note 3(b) to group 1 defines a supply in the course of catering, as including any supply of hot food for consumption off those premises. If the statute stopped there it would give rise to disputes about the meaning of hot food.  Notes 3(b)(i) and (ii) provide the definition for hot food which is:
“Food which, or any part of which, has been heated for the purposes of enabling it to be consumed at a temperature above the ambient air temperature, and is above that temperature at the time it is provided to the customer”.
112.	 The construction of Notes 3(b)(i) and (ii) has the following elements:
(1)	Hot food within the meaning of Note 3(b) comprises two operative parts: heated for the purposes of enabling it to be consumed at a temperature above ambient; and above ambient air temperature at the time it is provided to the customer.
(2)	The statutory benchmark for temperature measurement of hot food is ambient air temperature, which applies to both parts of note 3(b). 
(3)	The statute does not stipulate that the ambient air temperature is the one to be measured at the point of payment. The normal and ordinary meaning of ambient temperature is the surrounding temperature.
(4)	The requirement for food to be above ambient air temperature is met if any part of the food is above ambient temperature.
(5)	The statute does not discriminate between different types of heating. The statute uses a broad word heated which encompasses all forms of heating. It would include microwaving, grilling and toasting.
(6)	The phrase enabling it to be consumed hot means that the statute is not concerned with the supplier having control over when or where the food is consumed. If the two operative elements of note 3(b) have been met, it is irrelevant to the statutory definition of hot food that the food may be below ambient air temperature when it is actually consumed.
Case-Law
113.	 The starting point is the decision of the Court of Appeal in HMRC Commissioners v Proctor & Gamble UK [2009] EWCA Civ 407, which stressed that Tribunals should not enter into an over elaborate legal analysis when faced with a straightforward  question about the legal classification of a particular transaction or product. The dispute in Proctor & Gamble UK was whether Pringles were similar to potato crisps and made from potato. Lord Justice Jacob at paragraph 14 said
“Before going further, I have this general observation. This sort of question – a matter of classification – is not one calling for or justifying over-elaborate, almost mind-numbing legal analysis. It is a short practical question calling for a short practical answer. The Tribunal did just that”.
114.	 Lord Justice Jacob recounted the words of Lord Woolf MR in CCE v Ferrero [1997] STC 881 at 884:
“I commend the Tribunal for the care which it took over the 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 issues 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”. 
115.	 The question that is to be decided in this Appeal was whether the Appellant’s dominant purpose for heating the Sub and or meatball marinara was to enable the foodstuffs to be consumed at a temperature above the ambient air temperature. The test is a subjective one and must be applied solely to the purposes of the Appellant. The authority for this proposition is the Court of Appeal decision in John Pimblett and Sons Ltd v CCE [1988] STC 358.  
116.	The facts of the Pimblett case concerned pies which were baked in  retail shops to cook the pastry covering and then placed on wooden racks to cool before being offered for sale. The main purpose of the baking was not  to enable the pies to be eaten hot  but to provide a pleasant smell and atmosphere and to make it plain to the customers they were getting freshly baked pies. Evidence showed that some customers bought the pies during the lunch hour for the purpose of consuming them hot. The evidence which was given by the taxpayer’s witnesses as to their purpose was not rejected, and indeed counsel for the Crown did not suggest that they were other than perfectly honest witnesses. What counsel submitted was that it must have been part of the purposes of heating to enable it to be consumed hot because the taxpayers were aware that was what would happen.
117.	Lord Justice Parker stated at pages 361 and 362:
“The matter for consideration and determination on this Appeal is whether the supplies or part of the supplies of these pies were such as to attract value added tax. Before the tribunal, and before the Judge at first instance, it was common ground that the test was a subjective test, and must be applied solely to the purposes of the seller; in other words, it had to be determined whether the purpose of the taxpayers was to enable the pies to be consumed at a temperature above the ambient air temperature”.
“What has to be determined is what is intended by the words used in note(3); and the question which has to be asked is: Were these pies, or any of them, heated for the purpose of enabling them to be consumed hot? The evidence was that it was not part of the purpose of the taxpayers to enable the pies to be consumed hot, but it is said that they must have had, unconsciously or consciously, a direct or indirect purpose that to some extent at any rate, the heat was applied for that purpose”.
“What is effect being advanced is that provisions of note (3) should have read into them additional words. Instead of reading has been heated for the purpose of enabling it to be consumed at a temperature above the ambient temperature; there should be added these words also 
‘Or which to the knowledge of the supplier, would or might be consumed at a temperature above the ambient air temperature’.
I can see no warrant for reading into a taxing statute words that are not there….”
118.	Keene J in Malik (trading as Hotline Foods) v CCE [1998] STC 537 held that
(1)	The proper test in determining whether the supplier had made a supply of hot food for consumption off the premises was to determine the dominant purpose of the supplier.
(2)	There was no reason for confining the meaning of heated to some process which took place after the cooking process had produced a finished product.
(3)	The Tribunal is entitled to look at all the circumstances to arrive at a conclusion as to the supplier’s purpose which included what he said and what he did after the cooking process. 
119.	 The question of the evidential requirements for determining subjective intention was also considered in Pimblett and in the High Court decision of Ian Flockton Developments v Commissioners of Customs and Excise [1987] STC 394.  Starting with Flockton Stuart Smith J said on the evidential requirements:
 “…….. the tribunal should approach any assertion that it is for the taxpayer company’s business with circumspection and care, and must bear in mind that it is for the taxpayer company to establish its case and the tribunal should not accept the word of the witness, however, respectable. It is both permissible and essential to test such evidence against the standards and thinking of the ordinary business man in the position of the applicant. If they consider that no ordinary business man would have incurred such an expenditure for business purposes that may be grounds for rejecting the taxpayer company’s evidence, but they must not substitute that as the test. It is only a guide or factor to take into account when considering the credibility of the witness, and no doubt there will be many other factors which bear on that question which the tribunal should well understand.
The Tribunal must look at all the circumstances of the case and draw such inferences as they think fit. In the end it is a question of fact for them whether they were satisfied on the balance of probability that the object in the taxpayer company’s mind at the time the expenditure was incurred was that the goods and services were to be used for the purposes of the business” ([1987] STC 394 at 399).
120.	Similarly in  Pimblett, Parker LJ observed that
“It might well be that the facts were such that a tribunal in one case might come to the conclusion that the asserted purpose could not be accepted as, for example, whilst asserting that it was no part of their purpose in heating the pies to enable them to be consumed hot, evidence was given that there were extensive heating cabinets in the shop which kept the pies hot. Given such facts, I can well see that a Tribunal might conclude that the assertion that it was no part of the seller’s purpose to enable them, or some of them, to be consumed hot was unacceptable. But that goes simply to the weight of the evidence and to nothing else”(at 362).
121.	 The Tribunal was referred to a number of Tribunal decisions by the parties. Save for the EIPC and Sub-Retail Unit decision the Tribunal does not intend to comment on those cases because they were decided on their particular facts.
122.	 The EIPC and Sub-Retail Unit decision concerned the proper VAT classification of two specific toasted Subs. The Tribunal which included the Judge in this Appeal decided that the specific toasted Subs were hot food within the meaning of note 3(b) group 1 to schedule 8 of the VAT Act. 1994. Mr Young for the Appellant referred to the decision as the elephant in the room. He submitted that the decision was wrong in law and should be totally disregarded, using the colourful expression that it was time to cull the elephant. Mr Thomas for HMRC considered the decision persuasive particularly as in his view Mr Young had not demonstrated that the Tribunal’s evaluation of the nature of those products was factually in error. The decision was not appealed.
123.	 The Tribunal treated the EIPC and Sub-Retail Unit decision in the same light as the other Tribunal decisions referred to by the parties, in that it was decided on its facts and of no particular assistance in this case. The Tribunal had previously indicated its position on EIPC and Sub-Retail Unit  in its decision of 4 December 2009 on the lead Appeal  when it said in rejecting HMRC’s alternative application of EIPC and Sub-Retail Unit  being the lead Appeal:
“The second argument was that if a lead Appeal was appropriate it should be the Tribunal decision in EIPC.  This decision was not capable of being a lead Appeal because at the time it was made there was no power to direct a lead Appeal binding on the parties. Further EIPC did not meet the requirements of rule 18(1)(b) in that the Tribunal has made a decision disposing of the proceedings in that case. Finally the issues and the evidence were not the same. In these Appeals, the Appellants were disputing the liability of the whole range of toasted subs, whereas in EIPC the Appellant challenged HMRC ruling in respect of specific toasted sandwiches. The Appellants in this Appeal appear to be calling new evidence in the form of expert witnesses on toasting and temperature”
124.	 The above quotation highlighted the key factual distinction between the two cases. In EIPC and Sub-Retail Unit Mr Windscheffel, the Subway franchisee, accepted that toasted Subs except for two varieties were hot food within the statutory definition. His inability to give a persuasive justification for having two separate purposes for a single process of heating sandwiches was a decisive fact against him. The factual matrix of this Appeal is very different. The Appellant asserted that none of the toasted Subs were hot food. The Appellant also challenged HMRC’s VAT classification of meatball marinara which was not an issue in the EIPC and Sub-Retail Unit Appeal.
125.	The Tribunal did not have regard to the evidence given in the EIPC and Sub-Retail Unit except those points raised by the parties in their questioning of witnesses.
Outline Summary of the Parties’ Submissions
The Appellant
126.	 Mr Young contended that this dispute involved a straightforward established legal test. The test was a subjective one. The question to be asked: what was the Appellant’s dominant purpose for toasting the Subs and heating the meatball marinara. The question was one of fact, having regard to all the circumstances of the case. Mr Young contended that Mrs Mulligan was a credible witness and should be believed. Mr Young summarised the evidential points in support of each party, and concluded that the weight of the evidence was in the Appellant’s favour.
127.	Mr Young placed weight on Mrs Mulligan’s unequivocal evidence of her stated purpose that she was heating the Subs to firm up the bread and improve texture and flavour. Mr Thomas’ attempts to discredit Mrs Mulligan in respect of her prior knowledge of the EIPC and Sub Retail Unit decision and her use of the word oven in the in-house manual were without foundation. 
128.	Mr Young considered that when evaluating Mrs Mulligan’s subjective intention it was both correct and appropriate to elicit from Mrs Mulligan what she thought she was doing and how she went about it. Mrs Mulligan’s state of mind and belief was relevant to the issue of purpose. The evidential value of Mrs Mulligan’s belief of not providing hot food was not diminished by her incomplete understanding of ambient air temperature as the statutory benchmark. 
129.	Mr Young identified the critical question in respect of the meatball marinara as what was the purpose behind the process for preparing the foodstuff. In Mr Young’s view, Mrs Mulligan supplied clear evidence that she heated the meatball marinara to effect marination of the meatballs. The dominant purpose of keeping the meatball marinara in the bain-marie was storage in a safe condition. Mr Young observed that Mr Thomas devoted a single paragraph to meatball marinara, effectively saying that the meatballs were obviously hot food. 
130.	Mr Young considered that Mr Thomas was introducing an objective test for determining dominant purpose with his challenge on Mrs Mulligan’s interpretation of providing freshly toasted sandwiches. According to Mr Young, the logical consequence of Mr Thomas’s approach was that it was axiomatic that freshly toasted sandwiches were hot food within the meaning of Note 3. Mr Thomas’ analysis denied the existence of the Appellant’s subjective intention. Mr Young also accused Mr Thomas of providing an elaborate legal analysis contrary to the Court of Appeal dictum in Proctor& Gamble UK.
HMRC
131.	Mr Thomas submitted that HMRC’s case was principally based on the circumstances in which the transactions took place, including the nature of the product. If the statute was applied to those circumstances as established by the evidence the conclusion must be that the products were standard rated. 
132.	Mr Thomas pointed out that the Appellant had conceded that the sub had been heated and that it had been heated above ambient air temperature. In those circumstances the question that remained was whether the toasting process had been done for the purposes of enabling the Sub to be consumed above ambient air temperature. Mr Thomas concluded that the answer must be yes because of the Appellant’s declared purpose of producing freshly toasted sandwiches. The method of operations in the Appellant’s store ensured a quick throughput of Subs with no substantial time lag between the heating of the Sub and its provision to the customer. In Mr Thomas’s view, that was all the statute required and the Appellant was bound to fail unless it could establish that the application of heat in the toasting process was incidental to its commercial purpose of providing freshly toasted sandwiches.  According to Mr Thomas, it was not incidental that the Sub was still above ambient air temperature at the time it was provided to the customer, having regard to all the effort put in by the Appellant to supply a freshly toasted Sub.  
133.	Mr Thomas disagreed with Mr Young’s assertion that he was advocating an objective test. In determining the Appellant’s subjective intention the Tribunal had to take into account all the circumstances of the case in order to test the credibility of the Appellant’s asserted purpose. Those circumstances were objective in the sense that they were objectively ascertainable facts but that did not mean HMRC was contending that the statutory test was objective.
134.	Mr Thomas concluded that Mrs Mulligan’s belief of not providing hot food had no evidential value. Her belief that toasted Subs were not hot was derived from her definition of hot food which had no connection with the statutory test of above ambient air temperature. In Mr Thomas’ view, it was, therefore, not surprising that Mrs Mulligan asserted she had no intention of serving hot food. Further Mrs Mulligan’s stated purpose for heating the Sub which was to provide a toasted sandwich was equally devoid of substance and had no relevance to the dispute. Toasting was just a description of a particular type of heating. 
135.	Mr Thomas noted that Mrs Mulligan’s evidence was formulated at a time when she knew the legal test for zero rating food supplies. In those circumstances the Tribunal should be wary of the words used by Mrs Mulligan to describe her intention because of their fiscal context. In any event, Mr Thomas submitted that Mrs Mulligan’s cross-examination revealed that her disagreement with HMRC was not about her intention but with the statutory definition for hot food.
136.	 Mr Thomas submitted that the meatballs were obviously hot and supplied with the intention of enabling them to be consumed above ambient air temperature.
Consideration
Summary of the Disputed Issues
137.	 The Appeal concerned two separate foodstuffs, toasted Subs and meatball marinara. The parties agreed that the foodstuffs were for consumption off the premises. The Appellant conceded that the foodstuffs were heated, and that the temperature of the foodstuffs was above ambient temperature at the time of supply. The Appellant’s concession on the ambient air temperature for toasted Subs was restrictive, in that only parts of parts of the toasted Sub were just above ambient temperature. The validity of the restrictions placed by the Appellant on its concession in respect of toasted Subs was a matter of factual dispute.
138.	 The principal issue in dispute was the same for both foodstuffs, namely, what was the Appellant’s dominant purpose in heating them. The Tribunal is bound by the decision of the Court of Appeal in Pimblett which formulated the question as were the foodstuffs heated for the purpose of enabling them to be consumed hot? The test is a subjective test, which must be applied solely to the purposes of the seller. In this Appeal it was common ground that the purposes of Mrs Mulligan represented those of the Appellant.
139.	 The factual circumstances for toasted Subs and meatball marinara, however, were different in material respects. The Tribunal, therefore, intends to deal with them separately starting with the toasted Subs. 
140.	Before dealing with the facts, the Tribunal makes some preliminary observations on counsels’ submissions on their respective approaches in respect of the Appeal. The Tribunal disagrees with Mr Young’s assertion that Mr Thomas was introducing an objective test for assessing the Appellant’s purpose. Mr Thomas adopted a line of questioning which directly challenged Mrs Mulligan’s stated purpose from the perspectives of her rationale and the factual circumstances of the transactions. Mr Thomas’ approach was entirely consistent with the method approved in Pimblett and Flockton for assessing the subjective intention of the seller. 
141.	Mr Young took umbrage with Mr Thomas’ reliance on Mrs Mulligan’s prior knowledge of the legal test for hot food suggesting that Mr Thomas was making an unwarranted attack on her credibility. The Tribunal did not interpret Mr Thomas’s reliance on prior knowledge in the same way as Mr Young. In the Tribunal’s view, Mr Thomas was simply making that point that in those circumstances Mrs Mulligan’s actual words should be carefully examined against the background, and not accepted at face value, which again was consistent with the authorities on the correct approach for evaluating subjective intention.  
142.	The Tribunal found helpful Mr Thomas’ construction of the statutory provisions to the extent of identifying the boundaries of the dispute. The Tribunal, however, agreed with Mr Young’s observation that over reliance on aspects of the statute had the potential to obscure the critical issue of dominant purpose from the seller’s perspective.
Findings of Fact on Toasted Subs
143.	The Tribunal starts with its findings on the expert evidence. There was a measure of agreement between the parties on the conclusions to be reached on the expert evidence. It was agreed between them that the evidence showed that the statutory requirement of being above the ambient air temperature at the time of provision was met in respect of the toasted Sub but that agreement hid wide differences between the parties’ respective positions.
144.	 Professor Wedzicha’s evidence on toasting was uncontroversial between the parties. The Tribunal places weight on the following three aspects of his evidence:
(1)	The changes brought about by toasting the Sub were irreversible, and that the toasted Sub was a new product which was chemically distinct from the unheated combination of ingredients used to construct the sandwich.
(2)	Toasting altered the flavour of the Sub including the meat, and this flavour was inextricably linked with the effect of toasting. 
(3)	The flavour components of toasted food lost their impact as the toasted product was allowed to cool. In his view the best quality Subway sandwiches were expected to be those which were freshly toasted and the topping warm, leading to the most rapid flavour release.
145.	The Tribunal agrees with Mr Thomas’ conclusion that Mr Wedzicha’s evidence demonstrated that the toasting process was intimately connected with the temperature at which the toasted sandwich was eaten.
146.	 The Tribunal was not impressed with the Mr Young’s challenge on Dr Dinsdale’s credibility. He was a founder member of the Expert Witness Institute and aware of his responsibilities as an expert witness. Crucially in this respect Professor Blunt agreed that the method for taking the temperature of the Sub adopted by Dr Dinsdale was a valid procedure for providing a representative temperature of a Sub. The Tribunal was satisfied that the point at which Dr Dinsdale took the temperatures of the Sub corresponded with the point when a toasted Sub would be provided to a customer. Dr Dinsdale explained that there was a time lag of about 30 seconds from the handover of the Sub and the taking of the temperature which would correspond with the time taken to complete a normal transaction after the bagging of a toasted Sub. 
147.	The Tribunal preferred Dr Dinsdale’s measure for the ambient temperature which in the Tribunal’s view was more representative of the surrounding temperature for the store than that taken by Professor Blunt. Dr Dinsdale recorded an average ambient temperature of 21.8 degrees centigrade within a range of 21.3 to 22.5 degrees centigrade. There was no evidence to support the Appellant’s assertion that Dr Dinsdale took his measurements in the coldest part of the store. The purported cooling effect by the opening and closing of the toilet door was undermined by Dr Dinsdale’s record for ambient air temperature which showed a steady upward progression with no sudden drops in the temperature.  Professor Blunt’s temperature sensor was located about 30 centimetres above the till which was close to the working area of the store in which the refrigeration equipment and oven were located. The Tribunal concluded that it was reasonable to infer from the wealth of evidence given on the variables affecting room temperature that Professor Blunt’s measurement of ambient air temperature was increased by the higher position of the temperature sensor in the store, and the proximity of that sensor to the oven and the refrigeration equipment. Further Professor Blunt made no attempt to obtain a representative measure for ambient temperature.  He selected the position above the till because he believed that was the point of handover.   
148.	Dr Dinsdale and Dr Blunt were instructed to provide a representative temperature for each toasted Sub in the range sold by the Appellant’s Huddersfield store. Dr Dinsdale considered that Professor’s Blunt’s proxy of average core temperature did not give a representative temperature for a toasted Sub. The Tribunal agrees with Dr Dinsdale’s observation because the core temperature measured the filling and did not include the temperature of the bread component of the toasted Sub. Professor Blunt carried out a separate measurement of the bread in selected samples of toasted Subs. 
149.	The Tribunal decides that the average temperature readings taken by Dr Dinsdale supplied a representative temperature for a toasted Sub because his readings encompassed the whole Sub. Dr Dinsdale’s results showed that the average temperature for the complete range of toasted Subs with salad as a whole was 25.4 degrees centigrade on first cut and 24.3 degrees centigrade on second cut. The average temperature for toasted Subs exceeded the ambient air temperature. The average temperature for individual toasted Subs varied from 21.3 to 36.6 degrees centigrade on first cut, and 17.6 to 31.8 degrees centigrade on second cut. Dr Dinsdale pointed out that three toasted Subs had average temperatures below the highest reading for ambient air temperature.
150.	 The measures for average temperature confirmed that the toasted Subs were above ambient air temperature at the time they were provided to the customer. The Tribunal considers the measurements of the temperature range within individual toasted Subs carried greater evidential weight than average temperature for the purposes of this Appeal, particularly as note 3(b) applies to any part of the foodstuff. Dr Dinsdale’s results showed that the temperature range for a toasted Sub was from -1.7 to 68 degrees centigrade which proved that temperatures for parts of the toasted Sub were significantly above ambient temperature when provided to the customer. This finding was also confirmed by Professor Blunt’s temperature readings for the bread alone and of the temperature range within a ham Sub. 
151.	The Tribunal accepts that Subs without salad did not constitute a toasted Sub. The Tribunal, however, found the results obtained by Dr Dinsdale for Subs without salad instructive in two respects. First, the toasting oven heated both the filling and the bread. Second, the photographs and the average temperatures showed that both the filling and the bread were significantly above the ambient air temperature and that the respective temperatures for the bread and the filling were similarly high.
152.	Dr Dinsdale and Dr Blunt did not undertake a systematic study of the rate of the cooling down for a toasted Sub. Dr Dinsdale’s results showed that the average temperature for the toasted Sub decreased between the first and second cut. Professor Blunt’s results for the core temperature of a toasted chicken Sub showed that the temperature of the filling remained fairly constant above ambient temperature from the time it was taken from the oven to the addition of the salad filling. The temperature then fell rapidly following closure of the Sub and then increased for a period of two minutes after closure. This was due to equalisation of temperature throughout the toasted Sub which probably resulted in a corresponding fall in the temperature of the bread and the toasted Sub as a whole but this was not confirmed by Professor Blunt.   
153.	The Tribunal makes the following findings on the temperature readings for toasted Subs which means toasted Subs with salad and dressing:
(1)	The overwhelming majority of toasted Subs were provided to customers when the temperature for the individual Sub as a whole was above the ambient air temperature.
(2)	In all toasted Subs the part represented by the bread and the meat and or cheese filling constituted a substantial portion of the toasted Sub.
(3)	 In all toasted Subs, substantial parts of the Sub were above the ambient air temperature at the time they were provided to the customers.
(4)	In all toasted Subs, the temperature of the bread, and in most Subs, the temperature of the meat and or cheese filling were above ambient air temperature at the time they were provided to the customers.
(5)	In all toasted Subs the temperature of the bread, and in some Subs the temperature of the meat and or cheese filling were significantly above ambient air temperature at the time they were provided to the customers
(6)	The toasting oven heated not only the bread but also the meat and or cheese filling to temperatures significantly above ambient air temperature.
(7)	There was no statistical evidence of the rate of temperature loss of a toasted Sub after being provided to the customer.
154.	  The critical question in relation to Tribunal’s findings on the expert evidence concerns their significance for the disputed issue in this Appeal. Mrs Mulligan in her witness statement dated 27 November 2009 relied on the Appellant’s expert evidence in two particular respects, namely:
(1)	A toasted sandwich was a quite distinct product from an un-toasted sandwich both in terms of flavour, appearance and texture. The creation of toast was quite different from just warming or heating bread.
(2)	The Subway toasted sandwiches supplied bar two were not actually above the ambient air temperature as at the time of the supply. Indeed the majority of the toasted sandwiches were significantly below the ambient air temperature.
155.	In view of the Appellant’s concession that the statutory test of above ambient air temperature had been met, Mr Young in his final submission downplayed the significance of the expert evidence.  Mr Young pointed out that Professor Blunt had been instructed to highlight the inaccuracy of the methodology adopted by the Officers in the EIPC case not to demonstrate that the temperature of the toasted Subs was below ambient air temperature. Mr Young also argued that the finger test for measuring temperature was equally valid as the scientific methods when assessing Mrs Mulligan’s subjective intention. Mr Young, nevertheless, made several points in respect of the expert evidence. He relied on Professor Wedzicha’s evidence about the irreversible nature of the toasting process. He contended that only parts of the parts of the toasted Sub may be above ambient air temperature, even though on a scientific analysis the whole may be regarded as below ambient temperature.  Mr Young asserted that not all the bread was hot and that it was only the bread exterior that achieved a temperature above ambient air temperature. Finally there was no evidence that toasted Subs having been taken away from the Appellant’s premises were consumed at a temperature above the ambient.
156.	 The Tribunal makes the following observations in respect of Mr Young’s submissions:
(1)	The Appellant instigated the expert evidence. That evidence has not come up to proof in respect of Mrs Mulligan’s second point in her statement dealing with the temperature of the toasted Subs. 
(2)	 The use of experts provided an accurate and reliable measurement of the temperature of the toasted Sub which was a material fact in the Appeal. The use of experts alleviated the uncertainty often associated with Appeals on the zero-rating of food when the only evidence of temperature before the Tribunal consists of the parties’ value judgments and or random temperature checks. If the Appellant’s expert evidence on temperature had come up to proof, HMRC’s position that toasted Subs were hot food would have been severely compromised.
(3)	The Tribunal’s findings on the expert evidence formed part of the factual matrix for assessing the Appellant’s subjective intention. 
(4)	The Tribunal’s findings demonstrated that the temperature of a substantial portion of the toasted Sub exceeded the statutory temperature threshold in note 3(b) to group 1 schedule 8 of the VAT Act 1994.
(5)	The Tribunal’s findings contradicted Mr Young’s submissions that only parts of the parts of the toasted Sub may be above the ambient air temperature and that only the bread exterior was hot. 
(6)	The Appellant adduced no evidence of the rate of temperature loss of the toasted Sub after it was provided to a customer. 
157.	The Tribunal now considers the Appellant’s operations in its stores, and finds the following facts:
(1)	The Appellant made sandwiches to order in front of the customer.
(2)	The sandwiches made to order, however, were limited to a defined range of sandwiches with a choice of bread. The Appellant gave the customer what he wanted within that range.
(3)	All the sandwiches within the range were made in the same way, using prescribed recipes for each sandwich and following a prescribed plan for the building of the sandwich.
(4)	 The components for each sandwich were set out in the required quantities in containers in the front counter.
(5)	The lay-out of the store was designed to facilitate quick throughput of customers. The process started at one end of the counter, with strategic points along the counter for each of the build stages for the sandwich, and finished at the other end. The required equipment was located at the point in the process where it was required. 
(6)	Members of staff were given specific roles to perform in the process, and occupied the appropriate position in the store to undertake the assigned role.
(7)	The Appellant adopted specific measures to speed up the service. The in-house manual identified that the salad part of the process carried the highest risk of delay. The manual told members of staff to eliminate the delay by taking the initiative at the salad stage, which involved identifying the choices open to the customer and stopping the customer from building the sandwich. 
(8)	Mrs Mulligan tolerated no variations to the set procedure which was designed to ensure speed of delivery with the stated aim of getting customers in and out of the store as quickly as possible.
158.	 Mrs Mulligan mentioned the potential pitfalls that could slow down service delivery, particularly if the store was busy. The evidence given of the delay was not significant in time, probably a minute. The Tribunal, however, was satisfied that delays in service delivery were the exception and kept to a minimum. Equally the Tribunal placed no weight on departures from the norm that speeded up the process or altered the nature of the toasted Sub, such as a toasted Sub sold without salad. 
159.	The Appellant gave its customers the option of a toasted Sub, made in the same way as a Sub except that the bread, and meat and or cheese filling were placed in an oven. The Tribunal places weight on the following facts found in relation to the toasting stage: 
(1)	The meat and or cheese were placed on the top half of the bread with the cheese on top of the meat. The bread and filling with the Sub open were then put in the oven by the allocated member of staff using a paddle. The paddle was necessary to protect members of staff from potential health and safety risks associated with a hot oven.
(2)	The Appellant used a TurboChef oven for the toasting process. The TurboChef was one of two ovens specifically commissioned by Subway for the toasted Sub. Subway required their franchisees to use one of these ovens for the toasting process.
(3)	The two ovens were different from conventional ovens in that they used a patented combination of high speed forced air convection heating and microwave energy to cook food up to 12 times faster than conventional methods. The combination of the microwave and the air convection heating cooked the foodstuffs from the inside out and from the outside in.
(4)	The controls on the oven were pre-programmed. Mrs Mulligan did not have discretion to over-ride the programmes. She used one of the pre-programmes for all toasted Subs which was the Combo Sub programme activating both the microwave and air convection heating for a specific period of time (20 seconds for a six inch Sub or 30 seconds for a foot-long Sub). 
(5)	The Appellant left the oven on throughout the day. The Appellant’s in-house operations manual stated that the oven took ninety minutes to cool down.
(6)	The oven heated both the bread and the filling significantly above the ambient temperature. 
(7)	Mrs Mulligan understood that the oven used a combination of heating methods, and that it was all about speed and productivity. She confirmed that it was her experience that the Turbochef cooked food up to 12 times faster than conventional methods. Mrs Mulligan in-house manual described the oven used to toast the Subs as a speed oven which ran at 500 degrees centigrade and took 90 minutes to cool down.
(8)	The Tribunal finds Mrs Mulligan’s statement that the oven toasted just the surface of the Sub totally implausible. She possessed detailed knowledge about the oven. She knew that it operated at a temperature of 500 degrees centigrade and was 12 times faster than conventional ovens The procedures adopted by Mrs Mulligan in handling the oven emphasised its hotness. Mrs Mulligan deliberately put the bread and the filling with the Sub open in a hot oven. Having regard to those findings the Tribunal is satisfied that she knew that the oven heated both the bread and filling throughout, significantly above ambient air temperature. 
160.	Mrs Mulligan pointed out that she added cold products, the salad and dressing, to the toasted Sub after it came out of the oven. The experts’ evidence showed that the insertion of the salad materially reduced the average temperature for the whole Sub after it was closed. The short time gap between the Sub’s closure and handover which Mrs Mulligan ensured by the way she organised her business meant that the toasted Sub was above ambient air temperature with parts of it significantly above ambient air temperature when provided to the customer. Mrs Mulligan’s principal reason for adding salad was to give the customer a choice of fresh vegetables not to reduce the temperature of the Sub. The choice of fresh vegetables was an integral part of the Subway brand.
161.	The Tribunal agrees that the toasted Sub was wrapped in paper which had no insulating qualities. The Tribunal considers the significance of this fact for the Appellant’s case  was much diminished when viewed in the following context:
(1)	The nature of the toasted Sub, which meant that it could be consumed from the hand straightaway after handover.
(2)	The speed of the Appellant’s service and its values of fresh made to order sandwiches ensured that the toasted Sub was fresh out of the oven when handed over to the customer. 
(3)	There was no evidence that the Appellant’s business included a home delivery service for toasted Subs.
162.	Mr Young for the Appellant asserted that there was no evidence of toasted Subs being consumed at a temperature above the ambient temperature. Mr Young submitted that given that toasted Subs would be lukewarm at the time of handover then on the balance of probabilities the toasted Subs would be consumed at or below ambient temperature. The Tribunal has found that at the time of handover a substantial portion of the toasted Sub was above the ambient air temperature with parts of it significantly above ambient air temperature. No statistical evidence was adduced by the Appellant of the rate of temperature loss of the toasted Sub after handover. The Tribunal considers that it was incumbent upon the Appellant to substantiate its assertions with reliable evidence of temperature loss and of consumption which it failed to do. In any event the Tribunal questions the relevance of Mr Young’s submission on when the Sub was actually consumed. The facts of this case did not involve delivery of the toasted Subs to the customer’s home. Moreover the statute was concerned with enabling the toasted Sub to be consumed hot, not with whether the toasted Sub was in fact consumed hot.
163.	The Tribunal finds that the Appellant ensured adherence by members of staff to the established procedures through the presence of Mrs Mulligan and her sister in the stores, the mystery shopper exercise conducted by Mrs Mulligan and her sister, and the in-house operations manual which included detailed scripts and instructions for members of staff. The Appellant was also subjected to monthly compliance checks by Subway.
164.	 .Mrs Mulligan asserted that the Subway Operations Manual was not important to the running of her business, particularly as it was directed at the needs of the North American market.  Mrs Mulligan could not recall having a copy of the Manual in the store. Mr Young submitted that Mrs Pancholi’s evidence corroborated Mrs Mulligan’s assertion on the Manual. The Tribunal is not convinced by Mrs Mulligan’s explanation that the Subway Operations Manual had no influence over the running of its business, and that she was not aware of its contents. 
165.	The Tribunal finds the following facts in relation to the Subway manual:
(1)	The Appellant’s franchise agreement required it to comply with the requirements of the Operations Manual. Mr Young for the Appellant contended that the franchise agreement must be construed in accordance with the Law of Lichtenstein. He said that as a matter of domestic procedure, foreign law was a question of fact and the only evidence concerning the application of the Operations Manual was found in the evidence of Mrs Mulligan and Mrs Pancholi. In the absence of evidence to the contrary, the Tribunal, as a matter of law, was unable to rule that the witnesses were wrong when they gave evidence that they were not obliged to follow the Operations Manual. The Tribunal is not persuaded by Mr Young’s submission. The Tribunal had before it a legal document signed by both parties clearly setting out their respective obligations. Mrs Mulligan and Mrs Pancholi observed the terms of the agreement in respect of advertising and Subway inspections. Mrs Mulligan’s statement of 10 May 2010 dealing with the Operations Manual was carefully worded, essentially stating that in practice she did not refer to the Manual when running the business. 
(2)	Mrs Mulligan’s statement that she was unaware of the contents of the Manual has to be weighed against the evidence that Subway sent copies out to each franchisee, Mrs Pancholi had received her copy and the manual was posted on the Subway Partner’s website to which Mrs Mulligan as a franchisee had access. 
(3)	Mrs Mulligan’s procedure for making toasted Subs as set out in her witness statement of 27 November 2009 closely followed the procedure set out in the Subway Operations Manual. She offered no explanation for why this was so, if she had no knowledge of the Manual’s contents.
166.	The Tribunal finds on the evidence that Mrs Mulligan was aware of the contents of the Subway Operations Manual, and of the requirement to have regard to it in running its business.  The Tribunal accepts that Mrs Mulligan was an experienced franchisee who did not have a need to refer to the Manual on a regular basis. Mrs Pancholi confirmed that she held a copy of the Manual and would only use it as a reference document.
167.	The principal dispute between the parties regarding the Subway Operations Manual concerned the interpretation of the sections on Hot Sandwiches and Making Cold Products Hot. Mr Young asserted that these parts of the Manual referred only to products taken from the hot-well. Mrs Mulligan confirmed she only kept the meatball marinara in the hot-well, in which case the Manual sections had no relevance to her business. Mr Thomas for HMRC disagreed with the Appellant’s interpretation of the Manual. Mr Thomas pointed out that under the Manual there were different procedures for making a hot sandwich. The particular procedure adopted depended upon whether the sandwich filling was pre-portioned or held in the hot-well. If the filling was pre-portioned the sandwich was made hot by heating it in the speed oven without the need to put the filling in the microwave first. In short, the Manual advised franchisees to put specific sandwiches in the speed oven to make them hot. The Tribunal agrees with Mr Thomas’ interpretation of the manual.
168.	The Tribunal accepts that the Subway Operations Manual represented the views of the franchisor (Subway). Further the Tribunal is concerned with the franchisee’s purpose not that of the franchisor. The views expressed in the Manual, however, were authoritative on the operations in Subway stores, and formed part, albeit a small part, of the factual matrix for assessing the Appellant’s subjective intention.  The Tribunal’s finding on the interpretation of the Manual on making cold products hot was significant in one respect, which concerned the Appellant’s use of the microwave.
169.	. Mrs Mulligan stated that if she wanted to make products hot, she would heat the filling without the bread in the microwave, and if the customer wanted it toasted Mrs Mulligan would then place the bread and the hot filling in the speed oven. The facts showed that the microwave was not an essential part of the process being located outside the production line. The microwave was used for a limited number of products: breakfast Subs, meatball marinara, and time-limited Subs, such as chicken stuffing and gravy. 
170.	The correctness of Mrs Mulligan’s statement that there was only one way  to make a hot Sub was contradicted by the procedures laid down by the  franchisor in the Manual which advocated the use of the speed oven in certain circumstances for making a hot Sub. The franchisor’s view together with the Tribunal’s findings on Mrs Mulligan’s knowledge of the speed oven and of the Manual undermined the credibility of Mrs Mulligan’s stated reasons for heating the Sub in the toasting oven.  
171.	The Tribunal acknowledges that Mrs Pancholi stated that she would use a microwave to make a Sub hot. The Tribunal, however, attached no weight to Mrs Pancholi’s purported use of the microwave because it related to her intention for heating Subs which was not the subject of this Appeal, and did not attract the same scrutiny as Mrs Mulligan’s intention. She was not asked specific questions on the Manual’s contents dealing with the alternative procedures for making a hot Sub.  Finally Mrs Pancholi was called to give evidence on the advertising undertaken by Subway franchisees in the United Kingdom. Mrs Pancholi’s use of the microwave and her purposes for heating the Sub did not form part of her witness statement. 
172.	The Tribunal finds that the Appellant under the terms of its franchise agreement financially contributed to the marketing of Subway products in the United Kingdom. The body of Subway United Kingdom franchisees elected thirteen members from their number to serve on a board which had ultimate responsibility for the marketing campaign. The cornerstone of the marketing strategy was: made fresh in front of the customer and giving the customer what he wants.  Toasted Subs did not feature prominently in the adverts evidenced before the Tribunal. Although the adverts for toasted Subs did not use the word hot, the Tribunal finds that the strap-line of fresh toasted and the images of browned bread and melted cheese were consistent with the application of heat. The one television advert for a toasted Sub related to a new product which was launched outside the period covered by this Appeal. The Tribunal disregarded the adverts of Subway products from outside the United Kingdom. The Appellant had no influence over the contents of  these adverts.
173.	Mr Young considered that Mrs Mulligan’s evidence on the non-existence of cold and hot ranges of Subs assisted the Appellant’s case. The Tribunal finds the evidence irrelevant. HMRC did not rely on the existence of cold and hot ranges. The origin of the Appellant’s contention stemmed from the facts of the EIPC and Sub-Retail Unit case, in which the Tribunal adopted with the consent of the parties the artificial construct of cold and hot ranges of toasted Subs. This construct was necessary to distinguish in the written decision between those toasted Subs which the franchisee admitted were hot, and those which were not. The EIPC and Sub-Retail Unit decision also found at paragraph 21 that the Subway restaurant chain offered a range of hot sandwiches heated in a microwave prior to the introduction of the toasting oven in 2004, which was denied by Mrs Mulligan. The Tribunal considers that Mrs Mulligan’s denial has no evidential value because it concerned the situation before toasted Subs.
174.	Finally the Tribunal intends to deal with the status of Mrs Pancholi as a witness. Mr Young for the Appellant emphasised that Mrs Pancholi was a witness for HMRC, and placed weight on aspects of her evidence which appeared to contradict HMRC’s case. The circumstances leading to Mrs Pancholi being called as a witness for HMRC were unconventional. Mrs Pancholi was a Subway franchisee who was asked by the Appellant’s solicitors to give a witness statement on the details of the advertising both current and historical including sources used in the Appellant’s outlets pursuant to the Tribunal directions released 29 April 2010. HMRC was not involved with the drafting of her statement.  HMRC made arrangements for Mrs Pancholi to attend as a witness after being informed that the Appellant did not intend to call her to give evidence. Mr Thomas explained that HMRC did this so that Mrs Pancholi could provide the Tribunal with information on the advertising position in relation to franchisees of the Subway brand in the United Kingdom. 
175.	Mr Young also took the opportunity in cross-examination to widen the scope of Mrs Pancholi’s evidence which went significantly beyond the contents of her witness statement. The Tribunal decided that Mr Young’s cross-examination was legitimate. Equally the Tribunal understood Mr Thomas’ reticence in asking questions of Mrs Pancholi regarding evidence which had not been disclosed beforehand and with whom HMRC had no involvement in the preparation of her statement. 
176.	The Tribunal considers that given the context set out above Mr Young’s claims regarding the weight to be attached to Mrs Pancholi’s evidence arising from her status as a witness for HMRC should be treated with caution.  
Summary of the Facts Found
177.	 The Tribunal placed weight on the following findings:
(1)	The toasted Sub lost its distinctive characteristics and flavour if allowed to cool. Further the toasting process was intimately connected with the temperature at which the toasted sandwich was eaten (see paragraphs 144 and 145).
(2)	The temperatures of the toasted Sub as set out in paragraph 153, and in particular the temperature of the bread in all toasted Subs, and the temperature of the meat and or cheese filling in some Subs were significantly above ambient air temperature at the time they were provided to the customers. Also the finding that the speed oven heated not only the bread but also the meat and or cheese filling to temperatures significantly above ambient air temperature.
(3)	The Appellant’s ethos of made to order sandwiches, freshly toasted, and giving the customer what he wanted (see paragraphs 157 and 172).
(4)	The manner in which the Appellant organised  its business and managed its staff which was designed to ensure speed of delivery with the stated aim of getting customers in and out of the store as quickly as possible (see paragraph 157). 
(5)	The Tribunal was satisfied that delays in service delivery were the exception and kept to a minimum (see paragraph 158).
(6)	Mrs Mulligan’s use of a powerful hot oven to heat the Subs and her detailed knowledge of its workings. The Tribunal was satisfied that Mrs Mulligan knew that the oven heated both the bread and filling throughout, significantly above ambient air temperature (see paragraph 159).
(7)	The controls exercised by the Appellant to ensure adherence by members of staff to the established procedures (see paragraph 163).
(8)	Mrs Mulligan’s principal reason for adding salad to the Sub was to give the customer a choice of fresh vegetables not to reduce the temperature of the Sub (see paragraph 160).
(9)	The significance of  the toasted Sub being wrapped in paper which had no insulating qualities was much diminished when viewed in the context of the nature of the product (ready to be eaten from the hand), the speed of service delivery, and no evidence that the business relied on home delivery (see paragraph 161).
(10)	The credibility of Mrs Mulligan’s belief that a Sub was only hot if heated in a microwave was undermined by a combination of the franchisor’s instructions on the use of the speed oven for making a hot Sub together with Mrs Mulligan’s knowledge of the capability of the oven and her awareness of the Manual (see paragraphs 166 and 170). 
(11)	Although the adverts for toasted Subs did not use the word hot, the Tribunal found that the strap-line of fresh toasted and the images of browned bread and melted cheese were consistent with the application of heat (see paragraph 172).
(12)	The Appellant’s claims regarding the significance of Mrs Pancholi’s evidence arising from her status as a witness for HMRC should be treated with caution. The evidence of Mrs Pancholi’s intentions for heating the Sub carried no weight when determining the Appellant’s dominant purpose (see paragraphs 171 and 176).  
(13)	Mrs Mulligan’s evidence on the non-existence of cold and hot ranges of Subs was irrelevant (see paragraph 173).
(14)	The fact of when the Sub was actually consumed had no bearing upon the disputed issue which was concerned with enabling the toasted Sub to be consumed hot (see paragraph 162). 
The Findings on the Appellant’s Dominant Purpose 
178.	  Mrs Mulligan for the Appellant stated that her purpose in heating the Sub was to supply a toasted sandwich which brought out the flavour of the bread and ingredients not to provide a hot product. Mrs Mulligan in cross-examination agreed that her intention was to provide a freshly toasted Sub. Mrs Mulligan did not consider the toasted Sub was a hot product. Mr Young submitted that Mrs Mulligan held a reasonable belief that the toasted Sub was not hot, which should be taken into account when deciding on the Appellant’s dominant purpose for heating the toasting Sub.
179.	Mrs Mulligan indicated in cross examination that she was aware of the legal test for zero-rating food when she made her witness statement setting out her purpose for heating the Sub. Mr Thomas for HMRC urged the Tribunal not to take her statement at face value but to look at all the circumstances. The Tribunal intends to assess the Appellant’s stated purpose of providing a freshly toasted Sub against the facts found. The Tribunal accepts that the legal test is a subjective one. Thus the assessment against the facts found is conducted from the Appellant’s perspective not that of a reasonable business person.
180.	 The Tribunal found that Mrs Mulligan supplied made to order sandwiches using fresh ingredients with the aim of giving the customer what he wanted. Mrs Mulligan offered the customer a choice of a toasted Sub which was a different product from a Sub with its own distinctive texture and flavour. Mrs Mulligan agreed with Professor Wedzicha that a toasted Sub lost its distinctive characteristics and flavour if allowed to cool. Mrs Mulligan set about giving the customer the toasted Sub he wanted by putting the bread and the filling with the Sub remaining open in a hot oven. Mrs Mulligan knew that the oven used a combination of heating methods (microwave and air convection heating) which cooked food up to 12 times faster than conventional methods and at very hot temperatures of 500 degrees centigrade. Mrs Mulligan pressed the combo control on the oven which initiated the combination of heating methods.  Mrs Mulligan knew that the oven heated the bread and filling throughout, significantly above ambient air temperature. Mrs Mulligan organised her operations meticulously to guarantee a quick delivery of service. She did this by having standard procedures for sandwich making, giving precise instructions to members of staff on their role in the process, and establishing a layout for the store and equipment which facilitated speedy throughput of orders. Mrs Mulligan ensured adherence to procedures by means of an in-house operations manual and mystery shoppers.  Mrs Mulligan took active steps to eliminate potential delays in getting the toasted Sub fresh out of the oven to the customer. Mrs Mulligan told members of staff to take the initiative, identify the choices open to the customer and stop the customer from building the sandwich. These steps reduced the impact of the cooling effect of the salad on the toasted Sub. After the addition of sauce and salad the toasted Sub was closed, put in a bag with poor insulating qualities and handed to the customer with a napkin. At the time of hand-over a substantial portion of the toasted Sub was above ambient air temperature with some parts significantly above ambient air temperature. The toasted Sub handed over was ready to eat from the hand. 
181.	 The analysis of the facts found on Mrs Mulligan’s knowledge and actions undermined her stated purpose for heating the Sub which was to supply a toasted sandwich that brought out the flavour of the bread and ingredients not to provide a hot product. Mrs Mulligan’s stated purpose was dependent upon her evidence about the existence of a specific factual context. This context was that the heating of the Sub was incidental, the oven was a toaster, only the bread exterior was hot, the processes deployed in the outlet were not geared to keeping the Sub hot and Mrs Mulligan’s denials of the capability of the oven, of the hotness of the Sub, and of the different procedures for making a Sub hot.
182.	 The factual context found by the Tribunal was very different from that portrayed by Mrs Mulligan. The Tribunal found that Mrs Mulligan deliberately put the bread and fillings in a hot powerful oven which she knew heated the bread and the filling to temperatures significantly above ambient air temperature. Her ethos was to give the customer what he wanted. Mrs Mulligan knew that hotness of the toasted Sub was critical to maintain the distinctive texture and flavour of the Sub. The application of heat to the toasted Sub was central, not incidental to the process for producing a toasted Sub. Her meticulous organisation ensured that the toasted Sub was delivered quickly hot out of the oven to the customer. The toasted Sub was given to the customer ready to eat hot. When viewed against the factual context found by the Tribunal Mrs Mulligan’s stated purpose of not providing a hot product was not credible. The Tribunal concludes from the facts found on the Mrs Mulligan’s knowledge and actions taken as whole demonstrated that the Appellant’s dominant purpose in heating the toasted Sub was to enable it to be consumed hot. 
183.	The Tribunal does not consider that Mr Young’s submission about Mrs Mulligan holding an honest and reasonable belief that toasted Subs were not hot disrupted the above conclusion on dominant purpose. The Tribunal holds that the submission failed on three separate ground, each ground was fatal to the submission:
(1)	Mrs Mulligan’s honest and reasonable belief was not supported by the facts. Mrs Mulligan knew from her knowledge of the ovens that parts of the toasted Sub would be hot. Her meticulous organisation ensured that the toasted Sub remained hot when given to the customer. Mrs Mulligan should have known from the contents of the Subway Operations Manual that a cold product could be made hot in the speed oven.
(2)	Mrs Mulligan’s honest and reasonable belief when analysed was not about her purpose in heating the Sub. Mr Thomas’ cross examination of Mrs Mulligan revealed that her belief was that she simply preferred her own definition of hot food to the statutory definition of hot food being above ambient air temperature. She defined hot food as a hot dinner served in a hotel. According to Mrs Mulligan, she was not supplying hot Subs because it did not fit with her definition of hot food. Her belief was about her disagreement with the statutory definition of hot food. The belief had nothing to do with her purpose for heating the Sub. Similarly her belief that food was only hot if it was heated in a microwave was another variant of Mrs Mulligan applying her own definition of hot food.  The statute did not require food to be heated to a uniform temperature equivalent to having been heated in a microwave. 
(3)	The terms of note 3(b) group 1 schedule 8 of VAT Act 1994 are concerned with the supplier’s purpose for heating food not with his honest and reasonable belief about the temperature of the food when provided to the customer. The introduction of the concept of honest and reasonable belief adds words to the statute that are not there. In effect Mr Young’s submission amounted to a rewriting of note 3(b):
“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) the supplier honestly and reasonably believes is above that temperature at the time it is provided to the customer”.
184.	 The Tribunal holds for the reasons set out above that the Appellant’s dominant purpose for heating toasted Subs was to enable them to be consumed at a temperature above the ambient air temperature. The Tribunal found as fact that the toasted Subs had been heated, and that parts of it were above ambient temperature at the time it was provided to the customers. The Tribunal, therefore, decides that toasted Subs met the definition of hot food in note 3(b) group 1 schedule 8 of the VAT Act 1994, and supplies of it should be standard rated for VAT purposes.
Meatball Marinara
185.	Mrs Mulligan for the Appellant stated that her primary intention in heating the meatball and marinara sauce mix was to perfectly infuse the component meatballs with the component marinara sauce and thus enhance the flavour and palatability of the finished product.  The purpose of maintaining the meatball marinara in the bain-marie at temperatures of 63 to 68 degrees centigrade was to comply with environmental health requirements in the Food Hygiene (England) Regulations 2006. 
186.	The Tribunal finds the following facts:
(1)	Mrs Mulligan heated a mixture of thawed meat balls and chilled marinara sauce in a microwave for three successive periods of eight minutes with the mixture being stirred at the end of each period. At the end of the microwaving the temperature of the mixture was in the range of 74 to 76 degrees centigrade. 
(2)	Mrs Mulligan then transferred the meatball marinara to another container, known as a bain-marie, in the hot well section of the sandwich counter unit. In the hot well section the temperature of the meatball marinara was allowed to cool to a temperature between 63 and 68 degrees centigrade. The meatball marinara was then kept and sold at that temperature. The shelf life of meatball marinara once in the hot well was four hours.
(3)	The meatball marinara was sold either in a Sub or toasted Sub. 
(4)	The temperature of the meatball marinara when put in the Sub would have been between 63 and 68 degrees centigrade, significantly above the ambient air temperature. The Appellant did not dispute that the temperature of the meatball marinara was above ambient air temperature when provided to the customer.
(5)	Mrs Mulligan accepted that the marination process was complete once the meatballs and the sauce had been micro-waved.
(6)	Mrs Mulligan acknowledged that it was possible to cool down the meatball marinara without putting it in the bain-marie, and without compromising food and safety. This would be done by placing the product in a fridge and leaving it there for at least 24 hours.
(7)	Mrs Mulligan agreed that meatball marinara which had cooled down after being heated would be unpalatable. The sauce would be thick and very glutinous. The meatball marinara in a cold state did not conform to Mrs Mulligan’s aim of selling freshly prepared products. 
(8)	Mrs Mulligan sold freshly prepared products which could only be achieved if the meatball marinara was in a hot state.
(9)	Mrs Mulligan deliberately kept the meatball marinara hot after completion of the cooking process.
(10)	Mrs Mulligan sold the meatball marinara hot.
(11)	Mrs Mulligan could not sell the meatball marinara in a hot state unless she complied with the food safety regulations regarding hot food. 
187.	The Tribunal holds on the facts found that Mrs Mulligan sold freshly prepared food which in the case of meatball marinara could only be achieved if it was in a hot state. Meatball marinara was unpalatable if consumed cold. Mrs Mulligan heated the meatball marinara in a microwave to marinate the meatballs with the sauce, and to sell the meatball marinara hot. The marination process was complete once the mixture had been in a microwave. After microwaving the meatball marinara Mrs Mulligan, nevertheless, kept the meatball marinara hot in a hot well. The keeping of the meatball marinara in a hot well had nothing to do with the marination process, which had finished. Mrs Mulligan maintained the meatball marinara at temperatures of 63 to 68 degrees centigrade so that she could sell the meatball marinara hot within the law. Mrs Mulligan’s purported purpose of complying with food safety regulations made no sense unless she intended to sell the food hot. Compliance with food safety regulations was not an independent purpose but a consequence of her intention to sell meatball marinara hot. 
188.	The Tribunal decides on the above facts found on Mrs Mulligan’s knowledge and actions that she held two purposes for heating the meatball marinara. Her two purposes were to marinate the meatballs with the marinara sauce and to enable the meatball marinara to be consumed above the ambient air temperature. 
189.	The Tribunal decides that the Appellant’s dominant purpose for heating the meatball marinara was to enable it to be consumed at a temperature above the ambient air temperature because:
(1)	Mrs Mulligan deliberately kept the meatball marinara hot in a hot well at temperatures of 63 to 68 degrees centigrade after the marination process had been completed.
(2)	Mrs Mulligan did not opt to cool down the meatball marinara immediately after the heating process which she could have done by placing it in a refrigerator for 24 hours without compromising food safety.
(3)	Mrs Mulligan sold freshly prepared products which could only be achieved if the meatball marinara was in a hot state.
190.	The Tribunal holds for the reasons set out above that the Appellant’s dominant purpose for heating the meatball marinara was to enable it to be consumed at a temperature above the ambient air temperature. The Tribunal found as fact that the meatball marinara had been heated, and that it was above ambient air temperature at the time the meatball marinara was provided to the customers. The Tribunal, therefore, decides that the meatball marinara met the definition of hot food in note 3(b) group 1 schedule 8 of the VAT Act 1994, and supplies of it should be standard rated for VAT purposes.
Decision
191.	 The Tribunal decides that
(1)	 Toasted Subs met the definition of hot food in note 3(b) group 1 schedule 8 of the VAT Act 1994, and supplies of toasted Subs were standard rated for VAT purposes.
(2)	Meatball marinara met the definition of hot food in note 3(b) group 1 schedule 8 of the VAT Act 1994, and supplies of meatball marinara were standard rated for VAT purposes.
192.	The Tribunal, therefore, dismisses the Appeal.
193.	The Tribunal’s findings that relate to its status as a lead Appeal, and the chronology are set out in appendices one and two and form part of this decision.
194.	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.

TRIBUNAL JUDGE
RELEASE DATE: 14 October 2010

Appendix One

The Status of Sub One Limited (T/A Subway) decision as a Lead Appeal

Introduction

1.	On 4 December 2009 the Tribunal directed in principle that there should be a lead Appeal to determine the liability of toasted Subs and meatball marinara.
2.	 On 1 February 2010 the Tribunal directed that 
Sub One Limited (T/A Subway) be treated as the lead Appellant in accordance with rule 18(1) of the Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009 for the purposes of the following preliminary issues:
a)	Are any of the supplies of toasted Subs and or meatballs to be regarded as supplies of hot food within the meaning of Schedule 8 Group 1 note (3)(b) VATA 1994; and if the answer is yes:
b)	What was the purpose of heating each and every toasted Sub and or meatballs; and
c)	Upon a proper application of Group 1 note (3)(b)(i) what is the correct rate of tax for each item supplied?
3.	The Tribunal directed in respect of all outstanding appeals by Subway franchisees that
(1)	The Appeals  were bound by the decision in the lead Appeal Sub One Limited (T/A Subway) LON/2009/0824 in respect of the following matters:
a) Are any of the supplies of toasted Subs and or meatballs to be regarded as supplies of hot food within the meaning of Schedule 8 Group 1 note (3)(b) VATA 1994; and if the answer is yes:
b) What was the purpose of heating each and every toasted Sub and or meatballs; and
c) Upon a proper application of Group 1 note (3)(b)(i) what is the correct rate of tax for each item supplied?
Unless a party applied to the Tribunal in accordance with rule 18(4) of the Tribunal Rules 2009 and the Application was upheld by the Tribunal.
(2)	The Appeals were stayed for 56 days after release of the decision in the lead Appeal Sub One Limited (T/A Subway) LON/2009/0824 or until 1 January 2011 whichever was the earliest.
(3)	The Tribunal extended the time limit in rule 18(4) to 56 days.
(4)	The time limits for service of statement of case shall be suspended until 1 January 2011.
The Effect of the Decision in Sub-One Limited (t/a Subway)
4.	The Appeals in which the direction in paragraph 3 has been made are bound by the Tribunal’s decision that toasted Subs and meatball marinara met the definition of hot food in note 3(b) group 1 schedule 8 of the VAT Act 1994, and that supplies of toasted Subs and meatball marinara  were standard rated for VAT purposes.
5.	The decision in Sub-One Limited (t/a Subway) does not deal with the quantum of the assessment and penalties. These issues remain outstanding, against which the Appellants can pursue their rights of Appeal to the First tier Tribunal
6.	The implementation of the decision in Sub-One Limited (t/a Subway) is subject to any right of Appeal on a point of law that may be exercised by the Appellant within 56 days from publication of the decision if permission to Appeal to the Upper Tribunal is granted.
7.	The Appellants in those Appeals in which the direction in paragraph 3 has been made may apply in writing for a direction that the decision in Sub-One Limited (t/a Subway) does not apply to and is not binding on their respective Appeals. The time limit in which such an application is made has been extended to 56 days after the date that the Tribunal sends a copy of the decision to the said Appellant or their representatives. (see rule 18(4) of The Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009).
The Tribunal’s Findings on Common or Related Issues of Fact or Law in Sub-One Limited (t/a Subway) 
8.	The Tribunal considers that the following matters arising from the decision in the in Sub One Limited apply to the Appeals subject to the direction specified in paragraph 3 above.
(1)	The Tribunal’s rationale for directing a lead Appeal on 4 December 2009 which has not been appealed against. The relevant parts of the rationale are reproduced below:
“I consider that HMRC adopted a blinkered approach to the legal test underpinning rule 18 which deals with lead Appeals. HMRC appeared to get stuck with the perceived illogicality of having a lead Appeal for cases where the determinative issue was the subjective purpose of the individual tax payer. The legal test under rule 18 required an examination of what the Appeals had in common in respect of issues of fact and law.  The law involved in the Appeals was the same and uncontroversial. The Appeals shared the same disputed issue which essentially was one of fact, namely, what was the dominant purpose of the Appellant in heating the sandwiches (subs). The next stage in the enquiry was to examine the evidence necessary and relied upon by the parties to prove or otherwise the disputed issue and decide whether the evidence was substantially the same in the Appeals. In my view HMRC overlooked the vital stage of actually considering the evidence. Had HMRC done so, it might have come to a different conclusion. 
I tackled the evidential stage of the enquiry into a lead Appeal by considering three questions.
Given that the disputed issue is one of subjective intention, what is the nature of the evidence relied upon by the parties to prove or otherwise the intention?
The fact the Appellants assert that their dominant purpose was to supply toasted sandwiches rather than hot food has little evidential weight. Their intention in respect of the toasted sandwiches would be established by testing   their assertion against all the evidence. 
In Ian Flockton Developments Commissioners of Customs and Excise [1987] STC 394 Stuart Smith J held that the evidential requirements for determining the taxpayer’s subjective intention were:
“…….. the tribunal should approach any assertion that it is for the taxpayer company’s business with circumspection and care, and must bear in mind that it is for the taxpayer company to establish its case and the tribunal should not accept the word of the witness, however, respectable. It is both permissible and essential to test such evidence against the standards and thinking of the ordinary business man in the position of the applicant. If they consider that no ordinary business man would have incurred such an expenditure for business purposes that may be grounds for rejecting the taxpayer company’s evidence, but they must not substitute that as the test. It is only a guide or factor to take into account when considering the credibility of the witness, and no doubt there will be many other factors which bear on that question which the tribunal should well understand.
The Tribunal must look at all the circumstances of the case and draw such inferences as they think fit. In the end it is a question of fact for them whether they were satisfied on the balance of probability that the object in the taxpayer company’s mind at the time the expenditure was incurred was that the goods and services were to be used for the purposes of the business” ([1987] STC 394 at 399).
 Similarly in John Pimblett, Parker LJ observed that
“It might well be that the facts were such that a tribunal in one case might come to the conclusion that the asserted purpose could not be accepted as, for example, whilst asserting that it was no part of their purpose in heating the pies to enable them to be consumed hot, evidence was given that there were extensive heating cabinets in the shop which kept the pies hot. Given such facts, I can well see that a Tribunal might conclude that the assertion that it was no part of the seller’s purpose to enable them, or some of them, to be consumed hot was unacceptable. But that goes simply to the weight of the evidence and to nothing else”.
The above analysis shows that there is no fundamental distinction between the nature of the evidence called in a case involving a subjective intention and a case concerning an objective test. What is different is the reference point for the enquiry. A subjective intention requires testing the evidence against the taxpayer’s assertion as opposed to assessing the evidence against an objective standard. 
 What is the evidence likely to be called by the parties and is it substantially the same in all Appeals?
The Appellants produced a bundle of the evidence that they intend to rely on at the hearing of the disputed issue. The evidence comprised a witness statement of Mrs Mulligan setting out the procedures for making sandwiches, and two reports from experts on the Temperature Measurement of Sandwiches, and The Changes which occur in the Subway Toasting Process. Counsel confirmed that the evidence in the bundle was common to all Appellants cited in Mrs Mulligan’s witness statement. As Mrs Mulligan explained in cross-examination the franchisees sell a branded product applying the same operating procedures and the same toaster.  
HMRC gave no indication at the hearing of the evidence that it is likely to call at the substantive hearing. Given that the onus is upon the Appellants to prove on the balance of probabilities their dominant purpose for heating/toasting sandwiches, HMRC’s approach would be one of discrediting the Appellants’ assertion on purpose against their evidence. This was the approach adopted by HMRC in EIPC decision. The reported decision shows that the evidence relied upon by HMRC were the inconsistencies of the Appellant’s assertion of dominant purpose with his operating procedures, and a bundle of documents appertaining to all Subway franchisees except some individual promotional material. The decisive evidence of the Officers involved in the Appeal concerned the temperature reading of the sandwiches which was adduced to rebut the Appellant’s evidence. In my view it is highly unlikely that HMRC would adopt a different approach in respect of this group of Appellants except that HMRC would probably call fresh evidence to counter the expert evidence relied upon by the Appellants. The critical question, therefore, is whether HMRC would adduce different evidence for each Appellant to discredit his/her testimony derived from a factual matrix which according to the Appellants would be common to them all. I suspect not, and that HMRC’s approach and evidence would be the same for this group of Appellants.
 Is it just and fair to make a direction for a lead Appeal?
I have so far found that the law involved in the Appeals was the same and uncontroversial. The Appeals shared the same disputed issue which essentially was one of fact. The evidence relied upon by the parties to prove or disprove the disputed issue would be the same in respect of the Appellants and in all probability the same for HMRC. I consider those findings meet the requirement of rule 18(1)(c), namely, the cases give rise to common or related issues of fact or law.
The question, therefore, is whether a direction for a lead Appeal is consistent with the overriding objective of dealing with cases fairly and justly. The prospect of holding nearly 200 Appeals involving the same area of law, same disputed issue and essentially the same evidence is not in line with the principles of dealing with cases proportionately and avoiding delay. Further it raises the spectre of Tribunals reaching different decisions on essentially the same facts, which would create uncertainty for the parties litigating, and bring the judicial process into disrepute. Finally the potential prejudice to HMRC in being denied the opportunity to test the subjective intention of each franchisee is mitigated by the provisions of rule 18(4). These provisions enable a party to apply for a direction that a decision in a lead Appeal does not apply to and is not binding on the parties in respect of another Appeal, providing the Application is made within 28 days of release of the lead Appeal decision. I hold that the making of a direction for a lead Appeal is consistent with the overriding principle of dealing with cases fairly and justly”.
(2)	The findings of the Sub-One Limited (t/a Subway) decision in respect of the factual matrix for assessing the seller’s subjective intention (see paragraph 177 which summarises the findings in respect of the toasted Subs, and paragraphs 186 and 189 for meatball marinara).
(3)	Mrs Mulligan at paragraph 12 of her witness statement dated 27 November 2009 identified 91 appeals involving Subway outlets where the  franchisees  were prepared to give a witness statement confirming that the procedures adopted by Mrs Mulligan in paragraphs 13 to 57 of her statement were common to their Subway outlets.
(4)	Mr Jotangia, a partner of the Appellant’s solicitors, supplied a witness statement dated 29 January 2010 confirming that all the Appellants listed in paragraph 12 of Mrs Mulligan’s witness statement agreed and adopted paragraphs 13 – 57 of Mrs Mulligan’s statement. Mr Jotangia identified in his statement an additional ten Appellants who also agreed with the relevant paragraphs of Mrs Mulligan’s statement.
(5)	The relationship between Subway and its franchisees, details of which are found at paragraphs 17-22, 46, 57 and 58 of the Sub One Limited (T/A Subway) decision.    

Appendix 2
Chronology of the Sub One Limited (T/A Subway) Appeal
1.	On 20 July 2009 a preliminary hearing was held for all Subway Appeals  which identified the following  preliminary matters:
(1)	Hardship.
(2)	Whether the Ken Clark letter constituted an Appealable decision
(3)	Whether the old costs regime should apply to those Appeals commenced before 1 April 2009.
(4)	The identification of a lead case(s) to deal with the liability issue in accordance with rule 18 of Tribunal Rules 2009.
         Directions were issued to progress the preliminary matters.
2.	On 19 November 2009 the Appellant’s solicitors requested that the proceedings be re-assigned to a different Judge on the grounds of perceived bias. Judge Tildesley refused the Application giving his reasons which were largely reproduced in the decision on 4 December 2009. Judge Tildesley indicated that he would continue with the case management hearing on 4 December 2009, and make the appropriate directions to bring the Appeal(s) to hearing.  Judge Tildesley, however, was mindful of the Appellant’s concerns and at the appropriate juncture he would invite representations from the parties on his participation in a substantive Appeal and give them his full consideration. 
3.	On 4 December 2009 a hearing was held to determine the preliminary matters. The tribunal decided that
(1)	HMRC application for strike out was dismissed. 
(2)	A direction in principle for a lead Appeal.
(3)	No direction made applying the “Old” costs regime to Appeals commenced before 1 April 2009.
4.	On 1 February 2010 the Tribunal directed with the agreement of the parties that
.Sub One Limited (T/A Subway) be treated as the lead Appellant in accordance with rule 18(1) of the Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009 for the purposes of the following preliminary issues:
a)	Are any of the supplies of toasted Subs and or meatballs to be regarded as supplies of hot food within the meaning of Schedule 8 Group 1 note (3)(b) VATA 1994; and if the answer is yes:
b)	What was the purpose of heating each and every toasted Sub and or meatballs; and
c)	Upon a proper application of Group 1 note (3)(b)(i) what is the correct rate of tax for each item supplied?
5.	Also on 1 February 2010 the Tribunal issued directions to progress the Appeal with the hearing of the disputed matter being fixed for the 19 – 21 May 2010 before a Tribunal of three. On 1 February 2010 the Appellant’s solicitors indicated that it had no objections to Judge Tildesley sitting on the substantive Appeal.
6.	On 3 March 2010 the Appellant’s solicitors advised the Tribunal in writing that 
“The Appellant expects that if Judge Tildesley presides over the Appeal, it will get a fair hearing. On this basis there can be no rational objection to the learned Judge”.
7.	On 9 March 2010 HMRC submitted an application for disclosure of range of documents which included, amongst others, the current franchise agreement, operating manuals, specifications for any equipment used to heat/toast the products and advertising material.
8.	On 26 March 2010 Judge Tildesley intervened in an ongoing dispute between the parties regarding the arrangements for the attendance of HMRC’s expert at the Appellant’s premises. Judge Tildesley advised that his preliminary view was that
“HMRC’s request that its expert and Officer attend without the presence of the Appellant’s expert be it physical or otherwise was reasonable.
Judge Tildesley suggests that the parties put in place the arrangements for discussion between the experts following the publication of the report by HMRC expert. 
If the Appellant objects to Judge Tildesley’s steer on the arrangements for experts …. Please submit written objections by 31 March 2010.
No objections were made by the Appellant.
9.	On 27 April 2010 the Tribunal heard HMRC’s application for disclosure of various documents. The Appellant agreed to disclose the documents requested (most of which had already been provided) The Tribunal made appropriate directions confirming the agreement reached between the parties. The Tribunal at the suggestion of the Appellant’s counsel, Mr Young, directed Ms Corcoran of Franchise World Headquarters to supply a copy of the Subway Franchisees’ Operations Manual to the Appellant’s solicitors for the purpose of the Tribunal proceedings. Mr Young, however, pointed out that he did not consider that the Tribunal had the authority to direct a person outside the jurisdiction to supply a document. The Tribunal took the view that the direction should be made in the terms suggested by Appellant’s representatives with the option of reviewing it if Ms Corcoran who was an attorney refused. Ms Corcoran supplied the required documents.
10.	   On 19 to 21 May 2010 the Tribunal heard the substantive Appeal. There was insufficient time on 21 May 2010 to hear the final submissions. The Appeal was adjourned part-heard to enable the Appellant to submit its final submissions in writing with rights of reply and further reply given to HMRC and the Appellant respectively. The Tribunal reconvened on 15 June 2010 in the absence of the parties to consider the evidence and the submissions. 
11.	 At the end of the hearing on 21 May 2010 HMRC invited the Tribunal to inspect a Subway premises to test the products. HMRC, however, did not press the matter. The Appellant did not consider an inspection was necessary but would not stand in the way if the Tribunal thought it appropriate. The Tribunal was of the view that an inspection would not be of assistance, and that it should base its decision on the evidence heard not on the vagaries of the tastes of the individual Tribunal members.
12.	On 21 June 2010 the Tribunal queried with the Appellant’s solicitors whether the Appellant had complied with the Tribunal’s directions regarding information on the settings for toaster ovens. The Appellant’s solicitors pointed out that they had supplied copies of the manufacturer’s manuals for both ovens. The solicitors reminded the Tribunal of Mrs Mulligan’s evidence. The solicitors expressed their concern that the origin of the Tribunal’s request appeared to arise from matters outside the evidence of the instant Appeal. The Tribunal was satisfied with the Appellant’s response about compliance with its direction. The Tribunal had no intention of making findings outside the evidence received in the Appeal. 
13.	On 20 September 2010 the Tribunal released the decision to the parties on a restricted basis to enable the parties to make submissions on commercial confidentiality of the Subway Operations Manual and to identify any spelling or grammatical errors in the decision.
14.	On 30 September 2010 the Appellant’s solicitors responded as follows:
“We have no comments on whether the decision breached commercial confidentiality of the Operations Manual. It is not a document that we disclosed, it was obtained directly from a third party as ordered by the Judge. The question of commercial confidentiality is not a matter for us. It is not our manual.
I confirm that we have no comments on this point.
15.	HMRC had no comments.
16.	The Tribunal directed disclosure of the Subway Operations Manual following a hearing on 27 April 2010 of an application made by HMRC. The wording of the direction which was made with the consent of the parties was as follows:
“By no later than 4pm on 29 April 2010 Ms Corcoran of Franchise World Headquarters supply a copy of the Subway Franchisees Operations Manual to Dass Solicitors for the purpose of the Tribunal proceedings. Dass Solicitors on receipt of the manual will provide HMRC with the Index for the Operations Manual and a copy of the section on Food Preparation. Dass solicitors will comply with any request from HMRC to have copies of the remaining sections of the Manual. In respect of these proceedings the Tribunal will take appropriate steps within its powers to preserve the commercial confidentiality of manual”.
17.	The issue of commercial confidentiality of the Operations Manual was raised by the Appellant. The Tribunal considers that the onus was upon the Appellant to identify whether the contents of the decision compromised the commercial confidentiality of the Operations Manual. The Appellant has been given the opportunity to make representations which it has declined to take up for the reasons given in the solicitor’s letter dated 30 September 2010. In those circumstances the Tribunal has no grounds to consider whether the published decision compromises the commercial confidentiality of the Subway Operations Manual.