Banks v Customs and Excise [2005] UKVAT V18904 (07 January 2005)
18904
VAT – Zero-rating – Group 1 Schedule 8 – Food – Linseed Oil – Not food but supplement so Standard rated.

LONDON TRIBUNAL CENTRE

	DURWIN BANKS	Appellant

-	and –

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	ADRIAN SHIPWRIGHT (Chairman)
						RAY BATTERSBY

Sitting in public in London on 12 November 2004

Mr Banks for the Appellant 

Rebecca Haynes of Counsel instructed by theSolicitor for theCustoms and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

Introduction

1.	This is an appeal by Durwin Banks (“the Appellant”) against the decision by the Respondents contained in the “reconsideration letter” of 27 May 2004 which denied zero-rating treatment for the supply of:

(a) 	capsules; and

(b) 	500 millilitre bottle;
of linseed oil.

The Issue

2.	The issue is whether or not zero-rating applies to supplies of:

(a) 	capsules; and

(b)	500 millilitre bottle;
of linseed oil.

The Law

3.	The relevant law includes the following statutory provisions.  Section 30 Value Added Tax Act 1994 provides for zero-rating of specified supplies.  The supplies which are to be zero-rated are specified in Schedule 8 to that Act.  Group 1 Schedule 8 is headed “Food”.  It provides:

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

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

(b)	a supply of anything comprised in any of the accepted items set out below, unless it is also comprised in any of the items overriding the exceptions set out below which relates to that accepted item.
General Items

Item Number

1.	Food for kind use for human consumption: …
Notes
(1)	“Food” includes drink.”

4.	Copies of the following cases were produced at the Tribunal:

	Brutus Cozens [1972]2AER1297
	Ayurveda Decision Number 3860
	Brewhurst Health Foods Supplies  Decision Number 8929
	National Safety Associates of America (UK) Limited Decision Number 14241
	Nature’s Balance Limited Decision Number 12295
	Marfleet Refining Company Limited Decision Number 129

The Evidence

5.	A bundle of documents was produced by the Respondents.  It was not disputed by the Appellant and was admitted in evidence.

6.	The Appellant produced various documents which were not disputed by the Respondents and were admitted in evidence.  Copies of documents referred to at the hearing were, with the Respondent’s consent, sent to us and admitted in evidence.

7.	The Appellants made certain Statements which were accepted by the Respondents who chose not to cross examine the Appellant.

The Facts

8.	From the evidence, we make the following findings of fact:

	(1)	The Appellant is a partnership registered for VAT from April 1975.

	(2)	The Appellant operates from Muntham Home Farm, Near Horsham in Sussex and carries on business growing and processing Linseed.

	(3)	The Appellant makes supplies of capsules and 500 millilitre bottles of Linseed Oil.

	(4)	These Linseed Oil products are edible and are suitable for and intended for human consumption.  This was common ground.  We make no finding as to palatability.

	(5)	The Appellant produced a report which emphasised the high Omega-3 content of Flax Oil, which is essentially the same as Linseed Oil for this purpose.

	(6)	The oil produced by the Appellant was not Linola which had a high Omega-6 content.

	(7)	Printouts of searches against Linin and Linseed on the Internet were produced, these contents of which we accept.

	(8)	The Appellant asked his Clients in a survey whether they would consider Linseed Oil to be either a food or a supplement.

	(9)	The Appellant said he had sent out 300 forms for this survey of which 166 had been returned.

Of those forms returned 122 said that they would consider Linseed Oil to be a food ie 73% of the returned forms, but less than 50% of the forms sent out.

(10)	The survey of the customer base allowed the customer £1 off the further supply for regular customers and included an stamped addressed envelope for others.

Appellant’s Contentions

9.	The Appellant contended that the supplies should be zero-rated as they were clearly food.  This was because Linseed Oil had a high Omega-3 essential fatty acid content.  Linseed Oil was edible and was therefore a food.

	(a)	As regards the capsules they were like a sausage.  They were food contained within a skin.

(b)	The recommended dose was purely for guidance.

(c)	The survey showed clearly that Linseed Oil was a food.

(d)	As this was its end use its supply should therefore be zero-rated as Hemp Oil is. 

Respondent’s Contentions

10.	It was contended on a behalf of the Appellants that the supplies did not fall to be zero-rated.

	(a)	The interpretation of the word “food” in group 1 of Schedule 8 was to be given its ordinary usage (see Brutas v Cozens).

	(b)	This was as a matter of impression of a reasonably well educated person.  It had to be judged in the present circumstances and not by reference to the past or future.

	(c)	The question was not whether the oil was edible, but whether it was food.  The Respondents accept that the oil is edible as it can be consumed by humans without ill-effect.

	(d)	What was involved here was not food but was a food supplement, ie it was to supplement the diet to make good the deficiency of Omega-3 essential fatty acid.  These were not present in food generally in sufficient quantities so that the Linseed Oil was a substance one took to improve one’s nutrition.  Accordingly, it was a food supplement.

	(e)	As regards the oil, it was submitted that it was not palatable.  The Appellant had not produced any direct evidence or witnesses as to palatability.

	(f)	The fact that Linseed Oil can be ingested with other foods is not determinative.  The recommended dose was also unusual for food.

	(g)	The way in which it was suggested it should be used (with the exception of salad dressing) suggested that one should disguise taste so that one could ingest it because of the benefits.  This was despite the taste, not because of it.

	(h)	There was no evidence of widespread culinary use for Linseed Oil that had been produced.

	(i)	As regards the survey, it was submitted that it was loaded, leading and based on an unfair formulation.  It begs the question and did not invite the person to test the oil.  There was no evidence of a general survey as it was sent only to customers and so was not a representative sample of the general public.  Accordingly, the Respondents were not able to cross examine the survey Respondents as to what was meant.  Further, it was worthless as a statistical survey as it was a self-selected sample, not representative of the ordinary person in general but only at best of some of the Appellant’s customers.

	(j)	The Linseed Oil could not be distinguished from Cod Liver Oil nor could the capsules, so that their supply fell within the Marfleet case. 
 
	(k)	As regards the oil there was no evidence that an ordinary person would consider it to be a food.  It is clear that the Appellant’s recommendation on the bottle point to it being a supplement and not a food.
		
(l)	As regards the capsules, the Respondents would go further because of the form.  No one would consider this to be a food because of the shape.  Reference should be made in this context to the National Safety case concerning fruit tablets at [25] which reads:

“The factor which tells the most strongly against the Appellant is the form in which the products come – they are tablets.  Taking the word “food” in its normally understood sense, tablets do not look like food or taste like food.  They do not form part of a meal in the way in which the stock cubes or powdered tomato produced by the Appellant’s Representative would do if reconstituted or incorporated in a dish in the usual way.  If one went out for a meal, one would be a little taken aback to be served with these tablets.  The tablets in Ayurveda were not food.  The tablets in Nature’s Balance were not food.  Whether the tablets in SmithKline Beecham would have been held to be food is not  certain; the Commissioners conceded that they were but that concession does not create any sort of precedent.  With the greatest respect of the Tribunal’s decision in Nature’s Balance we doubt whether it is an inescapable logical conclusion, some tablets must qualify as food.  As Dr J F Avery Jones said in Nature’s Balance Ltd: “the question I ask myself is whether an ordinary educated Englishman” or if one prefers, as in Brewhurst, a broad minded VAT payer who has heard the evidence and tasted the product would regard it as food.
Applying this test as a matter of impression, I do not think the tablets would be described as food, even bearing in mind the tablets SmithKline Beecham would have qualified.  I believe that an ordinary person would regard Clorella Tablets in a similar way to vitamin tablets, no doubt good for you but not themselves food.

I have been troubled about the logics that the Commissioners would regard the identical product in its natural form as food, but this follows from the form of the product being a relevant factor.  If I am right, it would not be the only product to have a difference VAT categorisation in different forms.
I was told that Garlic is regarded as zero-rated in its natural form but is Standard Rated as capsules sold as a dietary supplement, rather than as food flavouring.  I believe that ordinary educated people would not regard Garlic Capsules sold as the dietary supplement of the food….”

(m)	The treatment of Hemp Oil is not of relevance here as we are concerned with these specific supplies of Linseed Oil.

Discussion

11. 	The first issue to consider here is to consider whether Linseed Oil is to be regarded as a food or a dietary supplement in the circumstances of the present case. Whilst we are sympathetic to the Appellant’s business and desire to be zero-rated we have to apply to the Law to the facts as they are found today.  It may be that, in the future, the factual background and public perception can be shown by evidence to be different from the position today. However, there is no clear objective evidence before us showing that the products are such that the Respondent’s view is not within the range of reasonable decisions. The treatment of Hemp Oil is interesting but remains not determinative of this case.

12.	It is common ground that the Linseed Oil under consideration here is edible.  However, this does not make it a food.  The test to be applied in our view is whether an ordinary educated individual or, if one prefers, a broadminded VAT payer who has heard the evidence would regard it as food.  In our view, because of the recommended dose and the lack of evidence as to palatability, and that the public at large would regard it as a food, we find it hard to regard Linseed Oil as food.  Further, the evidence that was lead was to the effect that  Linseed Oil was taken because of its high Omega-3 content and essential fatty acids which is not provided in sufficient quantity by the normal diet. The reason that Linseed Oil was taken was to increase the Omega-3 content of the diet. We regard this as akin to the Cod Liver Oil in Marfleet case.  Accordingly, we find as a fact on the evidence before us that the Linseed Oil is a supplement and not a food both in the form of capsules and when supplied in 5 millilitre bottles.

13.	This is sufficient to dispose of the case but as regards the Linseed Oil Capsules we find as a matter of fact that ordinary educated people would not regard further Linseed Oil Capsules any more than the Garlic Capsules in Nature’s Balance as a food but rather as a food supplement.

Conclusion

14.	Accordingly, we find as a fact that the supply of the capsules and of the 500 millilitre bottles of Linseed Oil is the supply of a supplement, and not of a food, and so dismiss the appeal.

ADRIAN SHIPWRIGHT

CHAIRMAN
RELEASE DATE: 7 January 2005

LON/2004/1030