Ireland, Supreme Court: Full bench of Clarke C.J. and O’Donnell, Mac Menamin, Charleton and O’Malley, JJ., made a very significant observation that as per VAT act, 1972 wherein ‘bread’ has been defined very specifically and a pertinent clause contained in the said provision is that the amount of sugar in bread shall not exceed 2% of the weight of flour included in the dough, whereas the bread supplied by Subway in its heated sandwiches had a sugar content of 10% of the weight of the flour included in the dough.”, hence the same could not be categorized as bread.
Instant appeal arose from a claim submitted to the Revenue Commissioners (respondent) by Bookfinders Ltd. (appellant) which is a franchisee of the fast-food chain, Subway.
Appellant sought refund of VAT payments as the same should have been subjected to 0% VAT.
Under Section 11(1)(a) of the Value Added Tax Act 1972, exceptions were provided for certain goods and services to be charged at 13.5% and 0%. Further, appellant alleged that much of its turnover falls under para (xii) of the Second Schedule and thus should be charged at 0%.
Para. (xii) of the Second Schedule reads as follows: –
“food and drink of a kind used for human consumption, other than the supply thereof specified in paragraph (iv) of the Sixth Schedule, excluding –
(a) beverages chargeable with any duty of excise specifically charged on spirits, beer, wine, cider, perry or Irish wine, and preparations thereof,
(b) other beverages, including water and syrups, concentrates, essences, powders, crystals or other products for the preparation of beverages, but not including
(I) tea and preparations thereof;
(II) cocoa, coffee and chicory and other roasted coffee substitutes, and preparations and extracts thereof,
(III) milk and preparations and extracts thereof, or
(IV) preparations and extracts of meat, yeast, or egg; […]
(d) (I) chocolates, sweets and similar confectionary (including glacé or crystallised fruits), biscuits, crackers and wafers of all kinds, and all other confectionary and bakery products whether cooked or uncooked, excluding bread,
(II) in this subparagraph ‘bread’ means food for human consumption manufactured by baking dough composed exclusively of a mixture of cereal flour and any one or more of the ingredients mentioned in the following subclauses in quantities not exceeding the limitation, if any, specified for each ingredient-
(1) yeast or other leavening or aerating agent, salt, malt extract, milk, water, gluten,
(2) fat, sugar and bread improver, subject to the limitation that the weight of any ingredient specified in this subclause shall not exceed 2 per cent of the weight of flour included in the dough,
(3) dried fruit, subject to the limitation that the weight thereof shall not exceed 10 per cent of the weight of the flour included in the dough, other than food packaged for sale as a unit (not being a unit designated as containing only food specifically for babies) containing two or more slices, segments, sections or other similar pieces, having a crust over substantially the whole of their outside surfaces, being a crust formed in the course of baking, frying or toasting…’
Para. (iv) of the Sixth Schedule then reads as follows:-
“the supply of food and drink (other than bread as defined in subparagraph (d), of paragraph (xii) of the Second Schedule) (other than beverages specified in subparagraph (a) or (b) of paragraph (xii) of the Second Schedule) which is, or includes, food and drink which-
(a) has been heated, enabling it to be consumed at a temperature above the ambient air temperature, or
(b) has been retained heated after cooking, enabling it to be consumed at a temperature above the ambient air temperature, or
(c) is supplied, while still warm after cooking, enabling it to be consumed at a temperature above the ambient air temperature, and is above the ambient air temperature”.
Summary of Issues
- Whether the tea and coffee supplied by Bookfinders fall within para (xii) of the Second Schedule?
- Whether “Food and Drink” must be read conjunctively?
- Whether the appellant’s bread can be said not to be included in para (xii) of the Second Schedule ( and thus in the 0% rate)?
- Whether the principle of fiscal neutrality is breached or indeed even engaged in the present matter?
Present matter is not a case of contest between a simple requirement of clarity on one hand and a broad purposive approach on the other.
Application:
Bookfinders argued that para. (xii) of the Second Schedule contains the only express reference to tea and coffee which they describe as “the tea and coffee saver”.
Objective of the Second Schedule was to provide that certain staples were to be included at the 0% rate. The object of the Sixth Schedule — to apply a reduced rate in certain cases, most obviously, in this context, the supply of hot food and beverages.
From a class of goods included in the broad category of food and drink of a kind used for human consumption, certain and specified items are then subtracted which fall to be rated at the general VAT rate, unless either specifically exempted, or included, in the Schedule containing items to be rated at the intermediate rate.
Adding to the above, it was explained that the Sixth Schedule is in general terms in that it captures the supply of food and drink (other than bread and beverages as defined) which have been heated, retained heated, or supplied when warm.
Bench stated that the Second Schedule included leaf tea and ground coffee etc. sold in packet form. There was nothing unnatural about the division of two schedules. It was entirely understandable that the legislature would wish to zero-rate teas and coffees when sold in a retail setting, but apply the intermediate level in the context of, for example, takeaway foods.
The provision of para. (iv) of the Sixth Schedule is directed to all food and drink with the exception of those items specified. The statutory phrase does not merely refer to food and drink which has been heated, but rather to such food and drink which is heated to enable it to be consumed at temperatures above ambient temperature.
The effect of the Second Schedule is to provide that a wide range of food and drink, broadly speaking staples, will be subject to the 0% rate. The effect of the exclusion of the large number of products identified in the Second Schedule from the category of food and drink covered by the Second Schedule is that they would remain taxable at the standard rate.
Food and Drink – To be read Conjunctively?
Bookfinders argued that the phrase “food and drink” in para. (iv) of the Sixth Schedule should be given a conjunctive rather than disjunctive meaning, so that it would only capture a supply of food and drink when supplied together, and not food or drink if supplied separately.
Bench did not agree with Bookfinder’s interpretation of the phrase.
Adding to the above it was stated that it would be difficult to conceive of any plausible reason why the supply of food with drink should attract the intermediate rate of VAT, and the supply of the same food or the same drink (without the other product) by the same establishment to the same person, would not.
It is apparent from other provisions of the Act to which reference is made and where the phrase is found that no added conjunctive significance is to be attributed to the word “and” in the phrase “food and drink”.
Hence, “food and drink” is used in the Act as a generic term to cover the supply of any individual item or items that can come within that broad category.
Bread and Sandwiches
Bookfinders argued that the hot-filled sandwiches supplied by them do not fall within the provisions of the fourth schedule.
Two aspects:
- The bread in such sandwiches is “bread” as defined in para. (xii)(d) of the Second Schedule, and which is therefore expressly excluded from the provisions of para. (iv) of the Sixth Schedule by text inserted in 2005:- “the supply of food and drink other than bread as defined in sub paragraph (d) of paragraph (xii) of the Second Schedule …”
- Hot sandwiches, such as a meatball sandwich supplied by Subway, constitute the supply of “food and drink [in this instance bread, if Bookfinders’ argument is accepted] which… includes food and drink which… has been heated enabling it to be consumed at a temperature above the ambient air temperature”. The “food” of the meatball being, it is said, included in the “food” of the bread.
Court expressed that the Second Schedule contained a complicated definition of an everyday product and it was stated that the intent of the Act in doing so was to seek distinguish between bread as a staple food, which should be 0% rated, and other baked goods are from dough, which are, or approach, confectionary or fancy baked goods.
Hence, para. (xii)(d) excludes from the class of food and drink entitled to the 0% rate “… all other confectionery and bakery products whether cooked or uncooked”, but from that exclusion in turn, “bread” is excluded, thus leaving bread within the class of food covered by the Second Schedule and entitle to the 0% rate.
“Bread is defined as follows in para (xii)(d)(II):
It means food for human consumption manufactured by baking dough composed exclusively a mixture of cereal flour and any one or more of the ingredients mentioned in the following subclauses in quantities not exceeding the, limitation if any, specified for each ingredient –
- yeast or other leavening or aerating agent, salt, malt extract, milk, water, gluten,
- fat, sugar and bread improver, subject to the limitation that the weight of any ingredients specified in the sub clause shall not exceed 2 per cent of the weight of flour included in the dough,
- dried fruit, subject to the limitation that the weight thereof shall not exceed 10 per cent of the weight of flour included in the dough,
- other than food packaged for sale as a unit (not being a unit designated as containing only food specifically for babies) containing two or more slices, segments, sections or other similar pieces, having a crust over substantially the whole of their outside surfaces, being a crust formed in the course of baking, frying or toasting.”
Bookfinders argued that, when read closely, the definition only excludes a baked product which exceeds the limitation contained in the Act for each of the ingredients specified and which are used in the baking of the particular bread, and which are identified in para (xii).
Court’s function is to understand the provisions enacted by the legislature and give effect to them consistent with the principles of statutory interpretation and, in this case, the principle against doubtful penalisation.
Bench elaborated that when the entire provision is read together, it is, clear that if one ingredient exceeds the limitation, the resulting product falls outside the definition of “bread” for the purposes of the Act.
Supply by Bookfinders of a hot meatball sandwich (to take one example) should not be understood as coming within the “supply of food and drink … which includes food and drink which has been heated enabling it to be consumed” because the phrase “food and drink” is expressed to exclude “bread as defined in subparagraph (d) of paragraph (xii) of the Second Schedule”. The exclusion extends to bread (as so defined ) “which…includes food…which has been heated” et cetera.
Fiscal Neutrality
Bookfinders argues that the exclusion of their “bread” component from the category of “bread” as defined in the Second Schedule breaches the said principle.
In the present matter, the situation is complex since the product or item which was chargeable to VAT was not the bread component, but rather the heated sandwich in its entirety.
Hence, in Court’s opinion, the principle of fiscal neutrality was not engaged.
In view of the above discussion, appeal was dismissed. [Bookfinders Ltd. v. Revenue Commissioners, S:AP:IE:2019:000131, decided on 29-09-2020]
