[2013] UKFTT 94 (TC)
TC02512
Appeal number: TC/2012/03034
VAT – zero rating - food –
coconut water – is it a beverage? – yes – supplies held to be standard rated –
Group 1, Schedule 8, VAT Act 1994
FIRST-TIER TRIBUNAL
TAX CHAMBER
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CHI DRINKS LIMITED
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE NICHOLAS ALEKSANDER
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ELIZABETH BRIDGE
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Sitting in public at Bedford Square , London on 11 January 2013
Jonathan Newman, director for
the Appellant
Rita Pavely, an officer of HM
Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2013
DECISION
1.
This is an appeal by Chi Drinks Limited ("Chi") against a
decision by HMRC that the sale of coconut water is a standard rated supply.
2.
Chi's business is the sale of coconut water. Following a request by Chi
for a ruling, by a letter dated 19 July 2011 HMRC ruled that the supply of
coconut water was zero rated. However HMRC reconsidered this ruling following
a VAT repayment claim made by Chi. By a letter dated 20 December 2011, HMRC
withdrew their ruling, and ruled that the sale of coconut water was standard
rated. On a review, that new ruling was upheld, and Chi now appeal against the
new ruling.
3.
Before this Tribunal, Chi were represented by their director Mr Newman,
and HMRC were represented by Ms Pavely. Very limited evidence was before us.
We were shown print-outs of some pages from Chi's website, and were given print
outs from two online dictionaries, from an online catalogue of a trade
exhibition (at which Chi exhibited), and from Wickepedia. In particular we
would note that we did not see or taste Chi's coconut water product, nor was
its packaging produced to the Tribunal (although an indistinct picture of the
package was included in the trade exhibition catalogue), nor did we have any
evidence about how coconut water was consumed in practice (other than from the
description on Chi’s web site and in Wikepedia).
Law
4.
All supplies are standard rated, unless they fall into one of the
categories of zero rated or exempt supplies.
5.
Group 8, VAT Act 1994 lists supplies that are zero rated. Relevant to
this case is the "Food" category in Group 1. The relevant provisions
of Group 1 are as follows:
Group 1 — Food
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 excepted items set out below, unless it is also comprised in any
of the items overriding the exceptions set out below which relates to that
excepted item.
General items
Item No
1 Food of a kind used for human
consumption.
[…]
Excepted items
Item No
[…]
3 Beverages chargeable with any duty of
excise specifically charged on spirits, beer, wine or made-wine and
preparations thereof.
4 Other beverages (including fruit juices
and bottled waters) and syrups, concentrates, essences, powders, crystals or
other products for the preparation of beverages.
4A Sports drinks that are advertised or
marketed as products designed to enhance physical performance, accelerate
recovery after exercise or build bulk, and other similar drinks, including (in
either case) syrups, concentrates, essences, powders, crystals or other
products for the preparation of such drinks.
[…]
Items overriding the exceptions
Item No
[…]
4 Tea, maté, herbal teas and similar
products, and preparations and extracts thereof.
5 Cocoa, coffee and chicory and other
roasted coffee substitutes, and preparations and extracts thereof.
6 Milk and preparations and extracts
thereof.
[…]
NOTES:
(1) “Food” includes drink.
[…]
(6) Items 4 to 6 of the items
overriding the exceptions relate to item 4 of the excepted items.
[…]
6.
Thus the scheme of the legislation is that food (including drinks) is
zero rated, unless the food falls within one of the listed excepted items. If
the food falls within an excepted item, it is not zero rated, and falls back to
being standard rated. However, if the food falls within the list of items
overriding the exceptions, then it is excluded from the excepted items, and
therefore will be zero rated.
7.
The terms “beverage” and “milk” are not defined further in the
legislation. However the meaning of “beverage” has been considered in a number
of cases. In particular, the decision of the VAT and Duties Tribunal in Bioconcepts
(1993) Decision No 11287 sets out the well known fivefold test of what
constitutes a beverage. The test has been criticised in other decision (for
example in Kalron [2007] STC 1100 and Innocent [2010] UKFTT 516),
but it provides a useful starting point for any analysis.
8.
The tribunal in Bioconcepts said the following:
It seems to us that notwithstanding the Oxford
English Dictionary[’s definition] of “beverage” meaning drink, it is not used
in the sense of meaning all drinkable liquids. Its meaning in ordinary usage
covers drinks of “liquors” that are commonly consumed. This is the primary
meaning in the Oxford English Dictionary. Liquids that are commonly consumed
are those that are characteristically taken to increase body liquid levels, to
slake the thirst, to fortify, or to give pleasure. That meaning covers the
liquids recognised [by counsel] as beverages (eg alcoholic liquids, tea,
coffee, cocoa, chocolate and soft drinks and meat-based preparations.
9.
Therefore the issues for this Tribunal to consider are:
(1)
Is coconut water "food" (including drink) of a kind used for
human consumption?
(2)
If it is, does it fall within one of the excepted items? Of the
excepted items, the only relevant one is item 4 – other beverages.
If coconut water is a beverage within excepted item 4, does it fall within
the list of overriding exclusions, in which case it would be zero rated? The
only relevant overriding exclusion is item 6, milk.
Facts
10.
On the basis of the evidence before us, we find the background facts to
be as follows.
11.
The product sold by Chi is coconut water. Coconuts are the fruit of the
coconut palm. Coconut water is the fluid found in immature green coconuts.
The fluid is extracted from the coconut and packaged into tetrapak cartons for
sale. The coconut water undergoes no processing other than pasteurisation..
12.
Coconut water can be distinguished from coconut milk. As the coconut
matures, the fluid is absorbed by the rind of the coconut meat. Coconut milk is
prepared by squeezing grated coconut meat through a cheesecloth.
13.
We find Chi’s coconut water product to be a beverage for VAT purposes.
Indeed it was no part of Chi’s case that coconut water was not a beverage.
Chi’s coconut water is sold as a product to be drunk by humans. Chi’s web site
refers to the coconut water product as a “coconut juice drink”. The web site
also makes reference to the coconut water being a “healthy electrolyte drink”,
and to its hydration qualities. Coconut water meets all five elements of the Bioconcepts
test. Standing back and adopting a “common sense” approach we consider that
there can be no real doubt that coconut water is a “beverage”, and not some
other kind of liquid food.
14.
Mr Newman sought to persuade us that the common meaning of “coconut
milk” includes the liquid that is drained from a coconut when it is cut open,
and that Chi's coconut water was therefore a form of coconut milk. As coconut
milk was zero rated, so therefore should be Chi's coconut water. He referred us
to section 3.7 of HMRC’s public notice 701/14 (“Food”) which addresses the
taxation of drinks. Paragraph 3.7.3 lists a number of drinks (including
coconut milk), supplies of which it states should be zero rated.
15.
However Mr Newman could produce no evidence to support his submission
that the liquid drained from a coconut is commonly called coconut milk. Indeed
all of the sources to which we were referred (including Wikepedia and Webster’s
Online Dictionary) distinguish between coconut milk and coconut water and
stress the importance of not confusing the two. We find that coconut milk and
coconut water are distinct and separate products, and the VAT treatment of
coconut milk has no bearing on the VAT treatment of coconut water.
16.
Even if Mr Newman was correct that the term "coconut milk" was
also used to describe coconut water, that would not persuade us that Chi's
coconut water was zero rated. This is because paragraph 3.7.3 of the public
notice makes it clear that HMRC’s VAT treatment of coconut milk is on the basis
that it is a food that is not a beverage. As we had no evidence before us as
to why HMRC take this view, we can only speculate, but we assume that it is
because coconut milk is marketed and used primarily as a food ingredient rather
than as a beverage that meets the tests in Bioconcepts. In contrast
Chi's coconut water is both marketed and apparently used as a beverage that
meets the Bioconcepts tests.
17.
For completeness, we also find that Chi's coconut water does not fall
within any of the overriding exclusions, in particular it is not milk. We have
already found that coconut water is not coconut milk, and therefore the term
"milk" is not apt to describe coconut water. Even if it was, the
reason coconut milk is treated by HMRC as zero rated is because it is not a
beverage – not because it is a beverage, but falls within the overriding
exclusion for "milk". And we have found that coconut water (in
contrast to coconut milk) is a beverage.
18.
We heard no argument, and had no evidence, as to the meaning of
"milk". But we are aware of the Alpro case before the VAT
Tribunal {(2006) Decision Number 19911 (not cited to
us in this case)). In the Alpro case, the Tribunal (which had the
benefit of expert evidence) held that soya milk was not "milk" for
the purposes of Group 1, but neither was it a beverage - and for that reason it
was zero rated. By analogy, coconut milk would therefore not be capable of
falling within the overriding exclusion for "milk" in any event.
Conclusions
19.
For the reasons we have given above, we find that Chi's coconut water is
a beverage for VAT purposes, and its supply is therefore standard rated. Chi's
appeal is dismissed.
20.
We note that Chi originally obtained a formal ruling from HMRC as to the
VAT status of its coconut water. HMRC acknowledged during the course of the
hearing that the ruling was obtained on the basis of full disclosure to them of
all relevant factors. We therefore note that Chi would have had a legitimate
expectation that HMRC would abide by that ruling until Chi was given notice
that the ruling was withdrawn.
21.
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.
NICHOLAS ALEKSANDER
TRIBUNAL JUDGE
RELEASE DATE: 1 February 2013
