United Biscuits (UK) Ltd v The Commissioners of Customs and Excise

London VAT Tribunal
LON/91/160, (Transcript)

HEARING-DATES: 13 June, 30 July, 21 August 1991

21 August 1991

COUNSEL:
D Garcia, Solicitor, for the Appellants; A Foster for the Commissioners

PANEL: Mr DC Potter, QC

THE TRIBUNAL: On Thursday the 13th June and Tuesday the 30th July 1991 sitting in London I heard the appeal of United Biscuits (UK) Limited ("the company") against a decision of the Respondent Commissioners contained in a letter dated 25 April 1991.

That decision concerns a form of confectionary called "Jaffa Cakes" which had previously been regarded as "zero-rated"; the Commissioners now have ruled that they are biscuits covered with chocolate and as such liable to the standard rate of value added tax.

The appeal having been commenced, the Commissioners delivered a "Statement of Case". At the commencement of the hearing before me I ruled that an amended Statement of Case be delivered. The relevant parts of the Statement of Case as so amended are as follows:

1. United Biscuits (UK) Limited . . . is a representative member of a group of companies registered under registration number 225 4766 56.

2. Under the trading name McVities, the Appellant manufactures cakes and biscuits in London.

3. One of the products manufactured by McVities is a "Jaffa Cake". The Appellant contends that the said Jaffa Cakes are food of a kind used for human consumption and chargeable to tax at the zero-rate under Schedule 5, Group 1 of the Value Added Tax Act 1983.

4. The Commissioners contend that Jaffa Cakes are not "cakes" within the exception to excepted Item 2 under Schedule 5, Group 1 so as to attract zero-rating.

5. The Commissioners contend that either

(i) Jaffa Cakes are biscuits covered with chocolate or chocolate substitute and as such fall within excepted Item 2 to the said group and are chargeable to tax the standard rate, or

(ii) Jaffa Cakes are "confectionery", also within excepted Item 2 and are similarly chargeable at the standard rate.

Miss Foster said that by virtue of Value Added Tax 1983 Section 16 Schedule 5 Group 1 -- "food" -- includes as zero-rated "food of a kind used for human consumption" but under "excepted items" includes (as amended) "confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or with some product similar in taste and appearance".

Among the notes to Group 1 in note (5) are the words ". . . and for the purposes of item 2 of the excepted items confectionery includes chocolates, sweets and biscuits; drained glace of crystallized fruits; and any item of sweetened prepared food which is normally eaten with the fingers".

It was common ground that Jaffa Cakes are "confectionery". At first it was suggested that the dispute centred on the question whether Jaffa Cakes were "cakes" or "biscuits"; but it quickly became evident during the hearing that the question was whether Jaffa Cakes, being confectionery, rank as "cakes" or are on the other hand either biscuits (being covered with chocolate) or are otherwise "confectionery" being an item of sweetened prepared food which is normally eaten with the fingers. In other words, the dispute can be summed up in the words "cake or non-cake". If Jaffa Cakes are truly "cakes", then they are zero-rated; but not otherwise.

A number of preliminary points have to be decided. Mr Garcia on behalf of the Appellants referred to the regulations relating to tariffs of the United Kingdom. In my view the treatment of Jaffa Cakes for the purposes of tariffs is irrelevant. Mr Garcia also sought to rely upon the treatment of Jaffa Cakes for the purposes of the purchase tax. Again I rule that out as irrelevant. The parties also were concerned as to the "burden of proof". Mr Garcia contended that, the Commissioners having recently changed a long established practice whereby they treated Jaffa Cakes as cakes and thus zero-rated, a fairly heavy onus lay upon them of justifying the change. Miss Foster contended that the Appellants have the onus of proving the case that they bring. It seems to me that my task is two-fold, first to consider the true construction of the statutory provisions; then as a question of fact and degree to determine whether the product Jaffa Cakes comes within the statutory wording especially the word "cakes". It was also suggested to me that I should use a "purposive interpretation". In my view the relevant law is admirably summed up in the decision of Mr Taylor QC and Mr Rowland in Panini Publishing Limited and Mirror Group Newspapers, unreported, the reference to which is LON/88/166Y, and I gratefully record the following extract from the decision in that case:

"In his judgment which was concurred in by the other members of the court Parker LJ put the principle in a short compass as follows:

'I can see no warrant for reading into a taxing statute words that are not there. It is a first principle of revenue law that the subject shall only be taxed by clear words and it is impermissible to look at the substance and to imply or read in anything'.

This principle applies also to a relieving provision in a taxing enactment. As was said by Lord Adam in an income tax case, Maughan v The Free Church of Scotland 1893 3 TC 207 at page 210:

'But if you claim exemption you must fall clearly within the words of the statute'."

Miss Foster submitted that I should derive no help from the evidence of the opinion of witnesses, and indeed submitted that none of the oral evidence tendered on behalf of the Appellants was relevant. That submission I reject. I have to give to the word "cake" its ordinary meaning, and for that purpose I may derive assistance from statistical evidence as to the views of ordinary shoppers, evidence as to the method of manufacture of cakes and of other confectionery such as biscuits, and the opinions of experts. I respectfully approve the approach of Mr Neil Ellis in Marks & Spencer Plc to which the reference is LON/88/1316Y where, towards the end of his decision, he sets out six factors, while not attempting a definition of "cake", which nevertheless assisted him and the other members of the tribunal in deciding that the product there under consideration was "cake".

I do not propose to set out the evidence of each of the witnesses. What I have to consider is the character of the goods at the time of the wholesale said and at the time of the retail sale, the second being in my view the more important. A Jaffa Cake has three elements: a small round of sponge-cake, soft when fresh; on that is a small dab of sweet orange jam; the whole covered by a thin layer of dark, brittle chocolate; in volume the greater part is sponge-cake; the taste is mainly of jam and chocolate. I have to apply the standard of the ordinary person, who has a reasonable knowledge of confectionery including cakes and biscuits, and has acquired some knowledge of manufacture, ingredients and other features which may not present themselves immediately to the casual purchaser. In weighing the evidence, I have given virtually no weight to the results of a market research or to the expert evidence of Mr Wood which, although skilled, goes beyond the capacity of the ordinary purchaser looking for cake, biscuit or other confectionery. I have given no weight whatever to a video that was shown, demonstrating how Jaffa Cakes were, some years ago, advertised on television.

I have gained no help from dictionaries. In common language I perceive no clear demarkation between "cake" and "biscuit". The same product could be capable of being both cake and biscuit, in my view. As a matter of construction of the first group of the fifth schedule I consider that no clear dividing line between cake and biscuit is imposed, and that a product which is a biscuit (whether or not covered in chocolate) is capable of being also a cake.

I now list the facts and considerations that I have taken into account in arriving at my decision.

1. Name. This is a very minor consideration indeed.

2. Ingredients. Cakes differ widely, from at one end sponge cakes, at the other Christmas cakes, which may appear to have little in common. However the ingredients of the sponge part of the Jaffa Cake are virtually the same as the ingredients of a traditional sponge cake. Egg, flour and sugar are kneaded together, and the result is aerated. The sponge-cake part of a Jaffa Cake is in itself "cake".

3. Texture. Reference was made by the witness Mr Wood to texture, but he regarded visible texture as important; what I have in mind is the physical texture. Generally, I would expect a cake to be entirely or mainly soft and friable, not able to be snapped and not crisp. The Jaffa Cake has the texture of a sponge cake, which the brittleness of the chocolate does not displace.

4. Size. The Jaffa Cake is small, being a couple of inches across, substantially smaller than the average cake. Generally I would expect a biscuit to be smaller than a cake, and the size of a Jaffa Cake is typical of a biscuit and not typical of a cake.

5. Packaging. Jaffa Cakes are packaged in a way that I regard as "uncakelike". They are sold in packets of 3 or 6 or 12 or 24; in any event in cylindrical packets, much like Digestive biscuits, which packets are then contained in cardboard boxes. This factor clearly points against Jaffa Cakes being cakes.

6. Marketing. Generally, in supermarkets, where cakes and biscuits are found in separate places, Jaffa Cakes are found with biscuits and are not found with cakes. The buyer will be unlikely to find Jaffa Cakes on a cake counter.

7. The sponge part of a Jaffa Cake is made from a thin batter containing egg, flour and sugar, whereas most biscuits may be expected to be made from a rather thicker mixture that may be cut. Generally cakes may be moulded from a thin batter whereas biscuits may not be moulded but cut. However, I do not regard this as an important factor.

8. A Jaffa Cake is moist to start with and in that resembles a cake and not a biscuit; with time it becomes stale, and last becomes hard and crisp; again like a cake and not like a biscuit. Generally I would expect a stale biscuit to have become soft.

9. Jaffa Cakes are presented, and accepted by the public, as being snacks, normally eaten with the fingers; whereas a cake, although sometimes eaten with the fingers, is normally to be found eaten from a plate, perhaps with a knife or pastry fork.

10. Jaffa Cakes may be expected to appeal particularly to children, who may consume one of them in one, possibly two, mouthfuls. In this respect if resembles a biscuit or a sweet.

11. The sponge-cake part is not simply a base for the jam and chocolate; it is a substantial part of the product, not in flavour, but in bulk and texture when eaten.

Generally, I come to the conclusion that Jaffa Cakes have characteristics of cakes, and also characteristics of biscuits or non-cakes. I conclude that they have sufficient characteristics of cakes to qualify as cakes within the meaning of item number 1 in group 1 of the fifth schedule. If it be relevant, I also determine that the Jaffa Cakes are not biscuits.

I therefore allow the appeal. The Appellants are at liberty to make an application in respect of costs.