VAT — Zero-rating — food — confectionery product — "McV a:m Cereal Bites" whether a "biscuit" — yes — appeal allowed
MANCHESTER TRIBUNAL CENTRE
UNITED BISCUITS (UK) LIMITED Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Mr C P Bishopp (Chairman)
Miss C A Roberts (Member)
Sitting in public in Manchester on 1 April 2004
Nigel Gibbon, solicitor, for the appellant
Nigel Poole of counsel for the respondents
© CROWN COPYRIGHT 2004
DECISION
- The question for our determination in this appeal is the correct VAT treatment of a food product manufactured by the appellant and sold under the trade name of "McV a:m Cereal Bites". It is common ground that the product is "food of a kind used for human consumption" and therefore comes within item 1 of group 1 to Schedule 8 of the Value Added Tax Act 1994, and that it is also "confectionery" within the meaning of excepted item 2 to that group. The appellant's case is that the product is excluded from that exception because the cereal bites are biscuits. The respondents do not accept that the product is properly to be considered a biscuit. If the appellants are right, and the cereal bites are to be regarded as biscuits, they are zero-rated for VAT purposes; if the respondents are right they are standard-rated.
- The appellant was represented by Nigel Gibbon, solicitor, and the respondents by Nigel Poole of counsel. We heard evidence from Gerald Sweeney, the appellant's product development manager, who described the process by which the product is manufactured, and from Julian Ogden, who is the appellant's indirect tax controller, with whose assistance we examined not only the cereal bites but a very large number of other products, some manufactured by the appellant and some manufactured by its competitors, from which we were invited to draw our own conclusions about the meaning of the word "biscuit". We were further assisted in that task by the documents included within a small bundle produced by Mr Gibbon, including two technical publications.
- The appellant's product is offered for sale in airtight opaque bags similar to those in which potato crisps are now sold. Each bag contains five smaller bags made of the same material, and each of the smaller bags contains 30 grams of the product. The wording printed on the larger and smaller bags is not identical, but is materially the same. An example of the smaller bag identifies, on its front, the product by its trade name of "McV a:m Cereal Bites", states the flavour of the filling (which is based on a fruit) and describes the product as "a tasty way to start your day". That the product is aimed at what might be termed the alternative breakfast market is made clear by the wording on the reverse of the packet which indicates that this product, with a number of others marketed under the "a:m" name is intended to constitute the consumer's first meal of the day, and therefore is designed to be eaten in substitution for what might be regarded as a more traditional breakfast. The reverse of the packet also describes the product as "crispy biscuit cereal bites with an apricot fruit flavoured cream filling" (with variations in the wording for other flavours) and it also bears the list of ingredients and nutritional information commonly found on food packaging.
- The product itself resembles a pillow or cushion in shape. In one plane it is rectangular, roughly 20 mm by 17 mm. From its edges it rises to the centre, on both sides, to form a pillow shape. It is light brown in colour with a fairly open texture which is more clearly seen when the product is broken and the interior is exposed. In the centre can be seen the cream filling referred to on the packet. When eaten, the product crumbles readily in the mouth and requires minimal chewing. It is apparent to the untrained eye, even without reading the list of ingredients, that the outer part of the product is made mainly of cereal flours. The list of ingredients, however, discloses that the principal ingredient of the entire product, in terms of weight, is sugar, followed by maize flour, wheat flour, and vegetable oil.
- Mr Sweeney told us that the ingredients, other than those constituting the cream filing, are mixed together mechanically, and then fed into an extruder which partly cooks the ingredients. The cream filling is introduced into the centre of the material as it leaves the extruder and it is then cut and shaped in a manner which seals the cream within the interior before further cooking at 120°C for 10 minutes. The product is then placed in the packets which we have described.
- Mr Sweeney went on to explain that the process by which biscuits are manufactured has changed considerably in recent years. Until the 1960s biscuits were almost universally made by rolling the mixed ingredients into a sheet, which was then cut to form the individual biscuits. Although that basic process is still used, the methods used in the 1960s have in general been abandoned and replaced by something else. Most biscuits are now produced, he said, by rotary moulding rather than by sheeting and cutting. All biscuits have in common that they are cooked, and most are cooked twice, as is this product. Although biscuits were traditionally cooked in ovens, modern technology had introduced a variety of different cooking methods and the process used for producing this product was, he said, by no means unusual.
- Mr Sweeney produced the two publications which we have mentioned. One does not help to any significant degree but the other, which is in a series on "Biscuits, Crackers and Cookies" is entitled "Technology, Production and Management". It was written by Mr W H Smith and published, we were told, in 1972. The beginning of the publication carries the heading "What is a biscuit?" and after its author has set out a little of the history, there follows this passage:
"Let us now try to give our own definition of specification of a biscuit.
It shall:
- be based on a cereal content—wheat, oat, maize, barley, soya, rye etc.;
- contain less than 5% moisture. If decorated with a non-cereal product (cream, marshmallow, icing, jelly, jam etc.) the moisture present in the decoration shall not be considered in the 5%;
- not be considered a biscuit when more than 60% of its total weight is not cereal based;
- be considered a biscuit if so-called by custom, habit or tradition. Biscuit and cookie shall be deemed synonymous."
- Mr Sweeney's evidence was that the cereal bites satisfied the first three criteria, which were all of an objective nature; and there was, he said, nothing about the product which disqualified it from satisfying the fourth criterion.
- Mr Sweeney also drew our attention to an agreement reached between the Flour Milling and Baking Research Association and Customs and Excise in April 1970, in relation to the similar legislation affecting purchase tax, which contained the following passage:
"A 'biscuit' shall be deemed to be the baked product of a mixture having not less than 8% flour content calculated on the weight of the finished article. The biscuit content must be readily recognisable as substantially a whole biscuit or as one or more continuous layers of cut biscuit or wafer. The finished product should have a moisture content of not more than 10%
Processes subsequent to baking such as sandwiching or coating with jam, fruit, etc. which may affect the total moisture content of the product, shall not be taken into account provided the biscuit portion falls within the scope of the foregoing paragraph. Flour shall be taken to mean any cereal product, for example wheat, oats, maize, etc."
- We were to hear more evidence about the fourth of Mr Smith's criteria from Mr Ogden who, in order to perform his function of advising the appellant on its indirect tax liabilities, necessarily has some close familiarity with its product range. As we have indicated, we examined during the course of Mr Ogden's evidence a large range of other products. We do not think it will assist to deal with them individually; it is sufficient to record that we are satisfied, from having done so, that Mr Gibbon is right in his contention that the traditional notion of a biscuit as a flat article, circular, square or rectangular in shape, brown unless covered with some other material and customarily eaten as an accompaniment to morning coffee or afternoon tea is quite outmoded. We saw several examples of items which were plainly biscuits (and accepted by Mr Poole so to be) but which did not comply with that traditional notion.
- We bear in mind the comment made by Lord Woolf MR in Customs & Excise Commissioners v Ferrero UK Limited [1997] STC 881 at 884 that we should not address the issue in an over elaborate manner, but should concentrate on the single question, whether the product is or is not a biscuit; and we bear in mind also his approval, at page 885, of the comment made by the tribunal in that case that "we must give the word biscuit its ordinary meaning and must ask what view would be taken by the ordinary man in the street, who had been informed as we have been informed." Shortly put, the only issue before us is whether such a man in the street would regard this product as a biscuit. It is not necessary for us to determine what the product is if it is not a biscuit since, as Mr Gibbon accepted, if it is not a biscuit it simply falls into the residual class of confectionery which is standard-rated.
- Mr Poole did not contend that the product failed to meet the first three of the criteria adumbrated by Mr Smith. His argument was that, even allowing for advances in technology, the manufacturing process was dissimilar from that of products which would normally be regarded as biscuits (an argument which he did not pursue with much vigour) and, more forcefully, that although eating habits have changed, the man in the street would not consider it normal to eat biscuits for breakfast. He would consequently be resistant to the notion that this product was a biscuit. He pointed us also to the evidence we heard that some supermarkets displayed the product among breakfast cereals, and not with biscuits. Mr Gibbon's argument relied principally upon the absence of any factor which disqualified the product from being a biscuit but he also added the observation that it would be anomalous to treat this product as a standard-rated item of confectionery when it was, as Mr Poole's argument emphasised, competing with breakfast cereals which are zero-rated.
- While we accept Mr Poole's point that biscuits are not (yet) commonly eaten for breakfast we are not persuaded that his is the correct test. It seems to us to be dependant upon prejudice. The test in our view is not whether one eats biscuits for breakfast, but whether what one might eat for breakfast is a biscuit. Put that way, we do not think the man in the street would be unwilling to accept that this product was a biscuit. Although, as we have indicated, it is not necessary to find an alternative name for the product, the fact that – as we accept – none readily comes to mind does suggest that "biscuit" may not be an inappropriate term. We were impressed by the very wide range, in size, shape and superficial appearance, of the products which we saw and we are satisfied the term "biscuit" is not to be applied only to a narrow variety of product as might have been necessary 40 or 50 years ago. In our view, the informed man in the street would conclude that this product is entitled to the name "biscuit" and that the product should be so regarded. The appeal is therefore allowed.
- We direct that the respondents pay the appellant's costs, to be assessed by a tribunal chairman sitting alone on the application of either party if they cannot be agreed.
COLIN BISHOPP
CHAIRMAN
Release Date:
MAN/02/0534
