United Kingdom VAT & Duties Tribunals Decisions

Unilever Bestfoods UK Ltd v Revenue & Customs Rev 1 [2007] UKVAT V20016 (14 February 2007)

20016

ZERO-RATING – Food – Excepted item – Knorr Vie shots – Whether food – Yes – Whether "Excepted" as being beverage – No – VAT Act 1994 Schedule 8 Gp 1 item 1 – Excepted item 4

LONDON TRIBUNAL CENTRE

UNILEVER BESTFOODS UK LIMITED Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents Tribunal: SIR STEPHEN OLIVER QC (Chairman) LYNNETH SALISBURY

Sitting in public in London on 22 January 2007

Geoff Tack of Ernst & Young for the Appellant

Sarabjit Singh, counsel, instructed by the acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007 DECISION
1. The Appellant, Unilever Bestfoods UK Limited ("Unilever"), supplies Knorr Vie shots ("Vie shots"). The Respondents ("the Customs") have decided that the supply constitutes a standard rated supply, being a supply of a beverage. Unilever appeals on the grounds that the supply should be at the zero-rate because it is a supply of food of a kind used for human consumption and is not a supply of a beverage.

The Legislation

2. Section 30(2) of VAT Act 1994 provides that a supply of goods is zero-rated if the goods are of a description specified in Schedule 8. Group 1 of Schedule 8 provides that a supply of anything comprised in the general items set out in the Group is zero-rated unless it is also comprised in any of the "Excepted items", in which case it is standard-rated; however, if (which is not the case here) it is comprised in any of the items overriding the exemptions it is zero-rated.
3. The "Excepted items" are, as far as is relevant, defined as follows:

Excepted items

Item No.

…

3. Beverages chargeable with excise duty ….

4. Other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals or other products for the preparation of beverages.

The Issue

4. The issue for us is whether the Vie shots are beverages within the meaning of item 4 of the excepted items and so are standard-rated, as the Customs contend, or whether (as Unilever contends), they are zero-rated, because they are not removed from the class of "food of a kind used for human consumption"..

The Evidence

5. Unilever produced samples of the Vie shots as sold in three-packs. We tasted the samples.
6. We heard evidence from Wendy Barnaville BSc, Nutrition Development Manager at Unilever UK Foods. She explained the nutritional features of the four varieties of Vie shots. She introduced us to a paper, called "Claim Substantiation Knorr Vie shots", the purpose of which was to substantiate Unilever's claim that Vie shots deliver 50% of the individual's daily needs of fruit and vegetable.
7. Darren Grivvell, Brand Building Director, Savoury Foods, at Unilever, the executive with responsibility for Vie shots, gave evidence as to the marketing of Vie shots.

The Facts

8. Unilever sells Vie shots in packs of three containers. Each individual container holds 100mls. Each container holds a thick juice whose ingredients vary depending which of the four varieties of product it belongs to.
9. The individual container, a plastic mini-bottle, has a foil top on which is printed a sell-by date (several weeks ahead of the date of display) and a registration number. Around the body of the container (which stands 9cm high and whose four sides are each about 4cm wide) is a label which reads "Vie shot" and the relevant product description. These are:

Pineapple, Passion fruit, Sweetcorn.

Apple, Carrot, Strawberry.

Orange, Banana, Carrot.

Banana, Pumpkin, Kiwi.

10. The juice can be consumed by drinking direct from the container or from a cup or glass. When decanted into and drunk from a glass it leaves behind a filter of fibre on the inside of the glass. It is easily drinkable, but the texture is filling; for our part we would not take more than one Vie shot at a time. If slaking our thirst were our reason for drinking, we would choose a different and less concentrated liquid.
11. The containers in the three-pack are held at the neck by a single item of packaging. On the side facing the customer are the words "Knorr Vie shot" above the basic description of the product, e.g. pineapple, passion fruit, sweetcorn". Beside those words is the claim – "Boosts your daily fruit and vegetable intake". At the back of the packaging is a narrow strip which sets out the main ingredients by percentages, Unilever's name and address and the words – "A delicious blend of …." e.g. "pineapple, passion fruit and sweetcorn concentrated juices and purees". Along the top are illustrations of the main vegetable and fruit ingredients and nutrient information. For example, the pineapple, passion fruit and sweetcorn variety is shown to contain one part pineapple, two parts carrot, one part passion fruit, a quarter of a part of sweetcorn and one half of a part of apple.

The nature of Vie shots

12. Each of the four varieties is, as has already been noted, a combination of fruit and vegetables. That combination, we were told by Wendy Barnaville (and this was not in dispute) provides more nutrition than fruit juice alone or vegetable juice alone; the combined effect is to provide a wider variety of micro-nutrients such as vitamins, minerals and phytochemicals.
13. Most of the fruit and vegetables comprised in Vie shots contain carotenoids These are converted into Vitamin A in the body; but it is the carrots that provide significantly more than the other ingredients. In three of the varieties the carrot content is between 20 and 30%. In the banana, pumpkin and sweetcorn variety it is 8%.
14. The fruit and vegetables in Vie shots contain Vitamin C. In particular the acerola cherry concentrate (found in all four varieties, ranging from 1.5 - 3% in volume) contains significantly more Vitamin C than the other vegetable and fruit contents.
15. Vie shots are made from a mixture of fruit and vegetable concentrates combined with fruit purees. The mixture is gently pasteurised for a short time for longer shelf-life. In the course of the production process the water content of the original ingredients is reduced by 80% so as to make a concentrated nutritious liquid; some water, but much less than that 80% reduction, is added back to make the product more palatable.
16. Unilever claims that each 100ml container of Vie shot contains the equivalent of 200g of fruit and vegetable. This is made out in the "Claim Substantiation" included in evidence. The WHO and the UK Department of Health recommend that an individual eats a minimum of 400g of a variety of both fruit and vegetable every day. The fruit and vegetable content of a single Vie shot is claimed to be 50% of the WHO recommendation save for the fibre contents (i.e. the skin and other material) which has been reduced by half to make the product more palatable. Fruit juices made from a single type fruit cannot deliver 50% of the recorded daily need of fruit and vegetable; to achieve that there has to be, as here, a mixture of vegetable and fruit. The lack of fibre in Vie shots (attributable in part to the reduction in fibre made in the course of the manufacturing process) is the reason why the Department of Health will not endorse the Vie shot as more than one portion of fruit/vegetable out of the recommended five portions for daily consumption.
17. Vie shots were not, explained Wendy Barnaville, meant to be thirst quenching. While the fluid content of Vie shots will contribute to bodily fluids, the high sugar content of the Vie shot has the affect of slowing the rate of absorption. The Vie shot would not therefore, claimed Wendy Barnaville, be suitable for quick dehydration of bodily fluids of the drinker. That was confirmed by our impression.

Selling techniques

18. Vie shots are usually positioned in the mini-drinks cabinet alongside such products as drinking yoghurts e.g. "Actimel" and "Yakult". Some retailers have positioned Vie shots in the "functional juice" fixture. Advertising material depicts the fruit and vegetable content using the words "Squeezed full of fruit and vegetables" and "Helps you to five a day". There is no other advertising angle than the nutritional benefit.
19. We were referred by Customs to a March 2006 publication (by Mintel International Group Ltd) called "Soft Drinks – Consumer Attitudes – UK, Market Intelligence". Referring to Grove Fresh's launch in 2005 of its V Juice sub-brand, the publication noted that it targeted dieters by emphasising the lower calorie content of vegetable juice when compared with fruit and recorded that in the same year Unilever launched its Vie shot range. Later the report observed that "Unilever's involvement in the soft drinks market" was confined to two brands, one of which was Vie shot. Vie shot, the report said was aligning itself with "the successful probiotic dairy drink sector", being only available in packs of 3 x 100ml single-shot bottles. (We mention these last points because the Tribunal, in Grove Fresh, has recently decided that the product in that case ranked as a beverage : see para 29 below. There have, we believe, been no Tribunal decisions about products in the probiotic dairy drink sector.)

The decision of the Revenue Appeals Commissioner in Unilever Ireland Limited v The Revenue Commissioners

20. Following a hearing in Dublin, the Appeal Commissioner (Mr O'Callaghan) delivered a decision (on 14 December 2006) in which he concluded that Vie shots were within the expression "food and drink of a kind used for human consumption" and were not excluded from that on the grounds that they were "other beverages" (as the Revenue Commissioners for the Irish Republic had contended).
21. The approach of the Appeal Commissioner can be summarised as follows:

(i) The Irish Revenue had relied upon what they and the Appeal Commission referred to as "the Bioconcepts test". See page 6 lines 21-27. (Bioconcepts was a 1993 decision of this Tribunal relating to a substance sold and used as a food supplement to be consumed on a strict dosage basis. In the Bioconcepts case the Tribunal observed that the term "beverage" did not cover all drinkable liquids. But it did cover "drinks (or liquors) that are commonly consumed"; and such commonly consumed drinks were exemplified as those "characteristically taken to increase bodily liquid levels to slake the thirst, to fortify or to give pleasure".)

(ii) The view of the Appeal Commissioner was that "beverages" fall into two categories. The first is something that is drunk to slake or prevent thirst resulting from a drop in the bodily liquid balance. The second is something taken for its pleasurable qualities such as alcohol or hot chocolate (See page 8 lines 9-19 of the Transcript.)

(iii) The Appeal Commissioner did not accept that its "fortifying" capacity was a proper characteristic of a beverage: see page 8 lines 21-25.

(iv) The Appeal Commissioner was of the personal opinion that the Vie shot was not something to be taken to slake the thirst. He went on to say -"From the point of view of pleasure of the drink itself … I think it just does not get there"; (page 16 lines 20-22 and page 17 lines 2-5).

(v) The Vie shot was, in his opinion, "primarily directed at a nutritional level rather than at a beverage level" (page 16 lines 14-15).

(vi) The Appeal Commissioner's conclusion was that Vie shots are a liquid food; they do not come within the exclusion for beverages.

(We were not provided with a print-out of the Irish legislation on the point.)

Conclusions

22. The term "beverage" is, as far as we are aware, now mainly used in documents concerned with catering activities. And that word, or its diminutive "bevvy", has a slang sense of snack or alcoholic drink. Otherwise it is not in current colloquial use. Even in 1962 Parliament preferred to itemise the products (contained in Group 33) to be charged to purchase tax, rather than to use the single expression "other beverages" as now found in Excepted item 4. The full text of Group 35 is set out on page 7 of the Bioconcepts decision. So far as is relevant it charged to tax:

"(a) manufactured beverages, including fruit juices and bottled waters, and syrups, concentrates, essences, powders, crystal or other products for the preparation of beverages, but not including beverages or products in the list set out at the end of this Group.

(b) groups not comprised in paragraph (a)

(i) beverages chargeable with any duty of Customs or Excise

(ii) tea, maté, herbal teas and similar products, and preparations and extracts thereof,

(iii) cocoa, coffee and chicory and other roasted coffee substitutes and preparations and extracts thereof,

(iiii) preparations and extracts of meat, yeast, egg or milk."

23. Group 35 indicates that by the middle of the Twentieth Century manufactured fruit juices and bottled water were not, at least in Parliament's mind, regarded as beverages: "Fruit juices and bottled waters" were consequently brought into the category of "manufactured beverages" as chargeable items. It appears from the groups in (b) that Parliament felt the need to specify tea, cocoa and coffee and preparations of milk as chargeable items, rather than leave the question whether they were covered by the term "beverage" to an exercise of judicial interpretation. The indications of the 1962 legislation are that at that time the term "beverage", standing alone, had an imprecise and rather narrow meaning.
24. There being no commonly used sense in which the word "beverage" is employed, we need to explore the dictionary definitions and the findings of the Tribunals in relation to other products.
25. The dictionary definitions indicate a broader scope of the word "beverage" than the senses adopted by Parliament in 1962. The Shorter Oxford English Dictionary (1993), for example, defines beverage as: "A liquid for drinking, drinks". Collins English Dictionary gives to the noun "beverage" the meaning – "Any drink, usually other than water."
26. The Tribunal in Bioconcepts Limited (1993) VAT Dec 11287 quoted the Oxford English Dictionary definition of "beverage" as: "Drink, liquor for drinking especially a liquor that constitutes a common article of consumption."
27. With the Oxford English Dictionary definition expressly and the Collins definition implicitly in mind the Tribunal in Bioconcepts observed:

… that notwithstanding the Oxford English Dictionary definition of "beverage" meaning drink, it is not used in the sense of meaning all drinkable liquids. Its meaning … covers drinks or 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 bodily liquid levels, to slake the thirst, to fortify or to give pleasure."

28. In parenthesis, the purpose of the Tribunal in Bioconcepts of including "to fortify" as an example of a liquid characteristically consumed as a drink (and consequently a beverage) was to recognize as beverages liquid products taken to enhance energy. That is not apparently a characteristic use of "beverage" as that word is understood in the Republic of Ireland (see paragraph 21(iii) above). Here, however, there is no evidence to suggest that Vie shots are manufactured or indeed consumed as fortifiants. If therefore there is a difference of interpretation between that of the UK Tribunal in Bioconcepts and the Irish Tribunal in the Unilever Ireland decision, it is not material in the present context.
29. Guidance as to the meaning of beverage is found in three recent UK Tribunal decisions. Grove Fresh Limited (2005) VAT Dec 19241 was concerned with two products comprising the juices of vegetables. They were sold in 1 litre waxed cartons. Observing that the packaging and marketing were similar to those used for fruit juices, such as tomato juice which is commonly used as a soft drink, and that the products were normally used to increase bodily fluids, to slake the thirst and to fortify, and that they gave pleasure, the Tribunal decided that they were beverages. In Alpro (2006) VAT Dec 19911 the Tribunal had to decide whether flavoured soya milk was a beverage. The expert evidence before the Tribunal had been that soya milk hydrates the body because of its high water content but, because both soya milk and animal milk contained protein, anyone drinking enough of them to hydrate themselves would feel uncomfortably full. This is because the digestive system processes the protein as food as well as the water content for hydration. (In the present case we have noted the evidence (in paragraph 17 above), confirmed by our own impressions, that the Vie shots are neither suitable for rapid hydration nor meant to slake the thirst.)
30. The liquidised fruit and vegetable "smoothies" in issue in the Kalron Foods Limited case (2006) VAT Dec 19738 have a consistency similar to cold soup. The fruit and vegetable are liquidated at the "Smoothie Bar" to the customer's order. The Smoothie Bars are located in publicly frequented places such as shopping malls and their function is to sell the Zumo products. The products are sold in disposable takeaway cups. At the Bar's counter are colourfully displayed different kinds of fruit and raw vegetable. The customer orders from a menu. The products comprise the whole of the fruit and/or vegetable in drinkable form, save for the discarded inedible bits. Ice may be added and a straw provided. A typical scenario in which the products, marketed as "Zumos", are consumed is when work colleagues at lunchtime "go down to the Smoothie Bar and have a Zumo". The Tribunal's decision records its impression of the Zumo as an easily drinkable fruit /vegetable juice made on the spot for immediate and pleasurable consumption. The Tribunal concluded that they were beverages being non-alcoholic drinks which were not sold as food substitutes.
31. The UK Tribunal decisions show that the Bioconcepts test is workable and produces an intelligible set of results. With that in mind we turn to the product itself and to the evidence.
32. We mention as a preliminary point that each of the four varieties of Vie shots has a substantial vegetable content. The Vie shots will not, therefore, rank as "Excepted items" on the basis that they are "fruit juices". Nor do we draw any conclusions, one way or the other, from the observation in the Mintel publication (see para 19 above) that Vie shots were part of Unilever's "involvement in the soft-drink market." If "soft drinks" connote non-alcoholic drinks, the evidence (such as it is) from the publication does not advance our present enquiry. In other respects, "soft drinks" is too wide an expression to be of any assistance.
33. One "shot" makes a substantial contribution to the recommended daily intake of fruit and vegetables with all the nutritional advantages explained by Wendy Barnaville. The Vie shot is sold and consumed for that purpose. To the extent that that feature was relied upon by the Irish Appeal Commissioner to disqualify Vie shots from the scope of "beverages" we disagree. The nutritional benefits of a liquid are not, we think, determinative of whether the product is or is not a beverage.
34. Is the Vie shot characteristically consumed to increase bodily liquid or to slake the thirst? The evidence (see paragraph 17 above) shows that it is not. Each Vie shot is a small quantity (100ml) of "delicious" thick liquid. It is sold in units that are one tenth the volume of the products in the Grove Fresh decision. Because so much of the liquid is removed from the fruits comprised in the Vie shots, there is a much lower liquid content in the Vie shot than there is in the Zumo considered in the Kalron case. Each Vie shot is two fifths of the volume of a Zumo. In common with the products in the Alpro decision the Vie shot is neither sold nor, we think, consumed as something to replace bodily fluids or to slake the thirst.
35. Is the Vie shot characteristically consumed for pleasure? We recognize that the Vie shot is described on its packaging as "delicious". But it is not, in contrast to the products in Grove Fresh and Kalron, sold or consumed as something to be drunk for pleasure. The "delicious" characteristic is an attribute but not the essential feature of the Vie shot. The essential feature is that it represents at least one unit (and on Unilever's claim, more than that) of the recommended daily intake of fruit and vegetables. The Vie shot has a relatively long shelf-life and is designed to be purchased and held in store for daily consumption. In this respect it is quite unlike the Zumos which, as we read the decision in Kalron, are sold for immediate gratification, being the sheer pleasure of drinking a smoothie coupled with an element of slaking the thirst.
36. We have already observed that the Vie shot is not characteristically consumed "to fortify".
37. For all those reasons we think that the Vie shot is not a beverage. In our view it falls fairly within the scope of the expression "food of a kind used for human consumption". The supplies are therefore zero-rated.
38. We allow the appeal.
39. We leave the question of costs to be agreed by the parties. If the matter cannot be agreed, the parties are at liability to apply to this Tribunal for further directions.
SIR STEPHEN OLIVER QC CHAIRMAN RELEASED: 14 February 2007 Re-Released Date : 15 & 14 March 2007

LON/06/133