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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> European Independent Purchasing Company Ltd & Anor v Revenue & Customs [2008] UKVAT V20697 (02 June 2008)
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Cite as: [2008] UKVAT V20697

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European Independent Purchasing Company Ltd & Anor v Revenue & Customs [2008] UKVAT V20697 (02 June 2008)

20697

VAT – ZERO RATING – HOT FOOD CONSUMED OFF PREMISES – separate purposes for supplies of heated sandwiches – crisp up the bread for cold range – hot range for consumption hot – single purpose found – heating the sandwiches to be consumed hot – standard rate supplies – Appeal dismissed

LONDON TRIBUNAL CENTRE

EUROPEAN INDEPENDENT PURCHASING COMPANY

LIMITED (1) Appellants

SUB RETAIL UNIT (2)

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

JOHN ROBINSON (Member)

Sitting in public in London on 21 and 22 February 2008

Kevin Prosser QC and Richard Vallat counsel instructed by KPMG for the Appellants

Sam Gronzinski, counsel instructed by the Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The Appeal

The Appellants were connected with the Subway sandwich chain in the United Kingdom and Ireland. They were appealing against the Respondents' decision which standard rated the toasted range of sandwiches sold by Subway franchisees for consumption off the premises.

The disputed decision dated 16 December 2005 related to the standard rating for VAT purposes of the then six varieties of toasted sandwiches: Chicken and Bacon Ranch, Turkey, Ham and Bacon Melt, Chipotle Southwest Cheese Steak, Cheese Steak, Meatball and Italian BMT. The original Notice of Appeal from the First Appellant contested the standard rating of the six varieties. The Appellants conceded subsequently that the Cheese Steak (both types), Meatball and Chicken and Bacon Ranch were properly classified as standard rated supplies. The Appeal was, therefore, restricted to the Melt and the Italian BMT. The Appellants have since expanded their range of toasted sandwiches and requested the Tribunal to express a view on the full range of toasted sandwiches which for the purposes of this Appeal were split into the cold and hot ranges of toasted sandwiches. The Respondents agreed with this course of action subject to the proviso that they did not accept that separate ranges of cold and hot toasted sandwiches existed in reality. We adopted the convention of the cold and hot ranges of toasted sandwiches in this decision in order to highlight the dispute between the parties.

The Appellants contended that the cold range of toasted sandwiches if consumed off the premises should be zero-rated for VAT purposes. The Appellants conceded that the sandwiches in the hot range were correctly designated as standard rated.

The First Appellant was an independent purchasing company that procured food and paper products for franchisees of the Subway sandwich chain. The Second Appellant was a typical Subway franchisee. The First and Second Appellants were joined by a direction made by consent. The First Appellant was acting as a proxy for Subway franchisees in order to determine the correct VAT treatment of the cold range for all the franchisees. The Appeal, however, was concerned with the dominant purpose of the Second Appellant who as a franchisee supplied the toasted sandwiches.

The Dispute

The dispute concerned whether the cold range of sandwiches toasted in the oven and consumed off the premises was hot food within the meaning of group 1 schedule 8 of the VAT Act 1994. The Appellant accepted that the cold range of sandwiches was provided to the customer at above the ambient air temperature.

The test for hot food was laid down by the Court of Appeal in John Pimblett and Sons Limited v Customs and Excise Commissioners [1988] STC 358 (CA). The test was "What was the dominant purpose of the seller in heating the food disregarding any inevitable results which might flow". The test was a subjective one concerning the intention of the seller. If the seller has more than one purpose it was his dominant purpose that counted (Malik t/a Hotline Foods v CEC [1998] STC 537).

The Appellant contended that the cold range of sandwiches was toasted in the oven to crisp the bread, and in the case of the Subway melt to make it attractive to eat with the melted cheese. The Respondents, on the other hand, submitted that the sandwiches were toasted in order to be consumed hot.

In this Appeal we were deciding the dominant purpose of one Subway franchisee, the Second Appellant, which was determined by reference to the dominant purpose held by its managing director, Mr Windscheffel.

The Legislation

Section 30(2) of the VAT Act 1994 provides that a supply is zero-rated if it is of a description specified in schedule 8.

Group 1 of schedule 8 of the VAT Act 1994 so far as is relevant zero rates the supply of food of a kind used for human consumption except a supply in the course of catering.

Note 3 to group 1 defines a supply in the course of catering as including any supply of hot food for consumption off the premises.

Hot food means food which has been heated for the purposes of enabling it to be consumed at a temperature above the ambient air temperature and is above that temperature at the time it is provided to the customer.

The Evidence

We heard evidence for the Appellants from:

(1) Tom Windscheffel, managing director of Sub Retail Limited, which was set up us a Subway franchisee operating from three Subway stores in Alfreton, Ripley and Ilkeston in Derbyshire. He was the principal witness for the Second Appellant giving evidence on the operational procedures and his purposes for heating the ranges of toasted sandwiches.

(2) Merrie Baskin, an experienced and professionally qualified market research consultant, who organised a survey of the customers at the Alfreton store in the February 2008 about their reasons for purchasing a toasted sandwich.

Officers Kenneth Clark and Peter Birch gave evidence for the Respondents. Officer Clark carried out a series of visits to Subway franchisees in London for the purposes of verifying their VAT declarations, especially their levels of standard rated sales and conducted temperature readings of the toasted sandwiches sold from the Second Appellant's Alfreton store. Officer Birch was the senior officer who had lead responsibility for the Respondents' investigation of the toasted sandwiches sold by Subway. He also carried out temperature readings of toasted sandwiches sold in Subway stores which were not part of the Second Appellant's franchise arrangements. A witness statement of Stuart Atkins was admitted in evidence and concerned the sources of the documents used by the Respondents.

We made site visits of two Subway outlets in the area of Tottenham Court Road. We sampled a toasted sandwich from the cold range and hot range.

A bundle of documents was admitted in evidence.

The toasted sandwich sold by Subway franchisees was called a sub and fitted the description of a filled long bread roll rather than a typical sandwich. For simplicity we have used the word sandwich for the sub in this decision.

The Facts Found

Subway was a global sandwich chain with more than 28,000 restaurants in 85 countries. There were approximately 1,200 Subway stores in the United Kingdom which were run by franchisees selling Subway branded food and drink products both for takeaway and eat in purposes. Subway stores offered a range of sandwiches, salads and wraps which were made with an assortment of meats, cheeses, vegetables and toppings.

The Subway franchisor required franchisees to comply with the terms of the franchise agreement and the operating manual in order to uphold the values of the Subway brand which were:

(1) providing fresh and healthy products;

(2) fulfilling the customers' request to provide a quality bespoke product;

(3) fulfilling the customer's order in a prompt and efficient manner.

The effects of the franchise agreement were that franchisees used the same ingredients and applied the same preparation process to supply consistent Subway products. The franchisees sold the same range of products subject to a discretion not to offer for sale a limited range of specific products. All franchisees in the United Kingdom receive the same training to operate a Subway store which took place in the United States of America.

Up to the end of 2004 the Subway restaurant chain offered a range of hot sandwiches which were heated in a microwave and a cold range of sandwiches. The sandwiches in the cold and hot ranges which existed in 2004 did not correspond exactly with the sandwiches in the cold and hot ranges which were the subject of this Appeal. For example in 2004 chicken breast and the melts were described as hot sandwiches, whilst they fell in the cold range for the purposes of this Appeal.

On November 16 2004 Subway launched the Fresh Toasted Sub which enabled any sandwich from the Subway menu to be toasted in a special oven which heated the sandwich all the way through. The launch was described as one of the most significant developments in the history of the Subway chain. The press release included a quote from Chef Martone:

"The sandwich will be toasted all the way through, not just the bread and the cheese on top, so you get a hot sandwich. In addition, toasting will bring out the flavour of the bread and ingredients. You can see the hot bubbly cheese, taste the warm tender meat and delight in the crunch of the bed.

The screen print taken from the website of the United States for Subway advertised the toasted range of sandwiches as hot and fresh toasted. The United Kingdom website advertised the range as fresh toasted omitting the word hot. The United States website also included details of each of the nine toasted sandwiches which were all described as hot and fresh toasted.

The bundle also contained details of Subway websites from other countries including amongst others France, Belgium, Jamaica, Nicaragua and New Zealand which contained similar messages to that found on the United States' website

The screen print of Mr Windscheffel's website for the Alfreton store displayed a logo for the fresh toasted subs with flames emerging from the sandwich above the words fresh toasted. The narrative stated that

"In keeping with chain's tradition of customizing every sandwich to each customer's exacting specifications, right before their eyes, any sandwich from the Subway can be toasted in a special oven that was built exclusively for the Subway chain to heat the sandwich all the way through".

Mr Windscheffel could not explain why the material particularly from the United States described the various sandwiches from the cold range as hot. He did not know of Chef Martone who was quoted in the press release launching the toasted sandwiches. Mr Windscheffel considered the release to be public relations spin. Mr Windscheffel, however, did not think that his purpose was any different from the centralised procedures. He described himself as a typical franchisee. He did not consider his website to be a significant part of his business. He simply adopted what was provided centrally for his web pages which was a cut and paste job. Mr Windscheffel offered no explanation for the logo with flames other than it was there. He did not take orders on-line.

Mr Windscheffel used two approved brands of special ovens, the Tornado and the MerryChef for toasting the sandwiches. The ovens were described as speed ovens which used a combination of high speed forced air convection heating and microwave energy to cook food up to 12 times faster than conventional methods. The controls on the oven were preset which were activated by pressing a button on the oven. Specific buttons were pressed for heating different types of toasted sandwiches. The combo option was used for heating sandwiches from both the cold and hot ranges. There were specific buttons for heating chicken, steak and other meatball sandwiches. The duration of the heating process would take from 20 to 30 seconds which was the same for the cold and hot ranges. The oven would heat the whole sandwich whether from the cold or heat range all the way through. Mr Windscheffel accepted that the toasting would heat the sandwiches, particularly in the hot range. The ovens had a toasting option which browned the exterior of the bread but did not heat the filling. Mr Windscheffel did not use the toasting function for the cold range of sandwiches.

The operating manual for the speed oven explained that

"toasting allows us to offer hot subs that customers would be more likely to purchase at the dinner daypart".

Mr Windscheffel normally received three deliveries a week of fresh produce and two deliveries of meat and dough. The meat and vegetable fillings as well as salad and sauces were stored in chilled cabinets according to food health and safety requirements. Mr Windscheffel baked bread in each shop, usually about two or three times a day. Once baked the bread was placed on a cooling rack, reaching ambient temperature in about 20 minutes. Mr Windscheffel used fresh but not warm bread in the sandwiches.

Mr Windscheffel applied a uniform procedure for preparing and selling the cold and hot range of sandwiches which was in accordance with the operating procedures issue to franchisees. Three of the fillings for the hot range of sandwiches, meatballs, barbeque ribs and veggie patties were heated in a microwave because they were stored frozen. The rest of the sandwiches were heated in the oven. Mr Windscheffel stated that he stuck to the uniform procedure because it was easier for staff to remember and for operational simplicity

Under the uniform procedure all sandwiches were made to order in front of the customer. Mr Windscheffel generally employed three members of staff at the counter. The first member of staff (the greeter) would welcome the customer and take the order. The greeter was required under the procedure to establish at the outset whether the customer wanted to have his sandwich toasted. If the customer wanted a hot sandwich the greeter would ask: "We toast all hot subs, is this okay? If the customer wanted a cold sandwich the question was: "Would you like it toasted"? Mr Windscheffel, acknowledged that his staff often forgot to ask different questions and generally asked all customers whether they wanted the sandwiches toasted.

For a typical order the customer would choose the type and size of bread, the filling, and the topping. The first member of staff would cut the bread, add the chosen filling and put it in the oven for toasting, if required by the customer. The second member of staff would take the sandwich out of the oven and add salad and other toppings. The sandwich was then wrapped in grease proof paper and put in a plastic bag with a napkin. The final member of staff would supply any drinks and side orders and take the payment. The whole process would take about two minutes.

The menu was displayed on boards above the serving counter and on paper sheets in the window. Mr Windscheffel as with other franchisees paid a percentage of their turnover to the Subway Franchise Advertising Fund Trust (SFAFT) for their menu boards and promotional material. Mr Windscheffel was not obliged to use the pricing set by the generic marketing material but did so in order to avoid the incurrence of additional marketing costs. The hot range of sandwiches was distinguished from the cold range on the menu board by a fresh toasted sticker placed just above and to the right of the sandwich name. However, the use of stickers distinguishing the hot range from the cold range appeared to be a recent phenomenon. The photographs of Mr Windscheffel's stores in the bundle did not show the stickers on the menu boards.

On 6 February 2008 customers of Mr Windscheffel's Alfreton store were asked by a market researcher to select their main reason from a pre-determined set of options for choosing a toasted sandwich, and when they expected to eat it. The interview was terminated early if the customer did not purchase a toasted sandwich. The survey consisted of 112 customers from 215 customers intercepted. Their reasons were as follows:

The Main Reason	Percentage of Customers Interviewed
Toasting makes it taste better	32
I want the cheese melted	17
I like my food hot	16
I like to have the bread crisped up	13
I prefer the toasted texture	12
Toasting brings out the flavours	5
It smells better when toasted	4
None of these	0

58 per cent of the respondents either eat their toasted sandwich immediately in the store (42 per cent) or immediately on the street outside (16 per cent). About 75 per cent of the group who liked the sandwich hot would consume it immediately compared with about 48 per cent of the group who liked the bread crisped up.

The survey was a one-off exercise commissioned for the Appeal. The research did not distinguish between the cold and hot range of toasted sandwiches. Mrs Baskin's market research agency was not involved in the original market research conducted by Subway when they introduced the toasted sandwich range.

Officers Birch and Clark carried out temperature tests on toasted sandwiches prepared in accordance with the Subway specification using temperature probes at specific time intervals. The tests of Officer Birch were carried out in July 2006 at the Watling Street and Longridge Stores in the presence of Subway staff and representatives from the First Appellant and their professional representative. At the time he conducted the tests, the dispute concerned the complete range of toasted sandwiches. He tested six sandwiches, one of which was from the cold range. Officer Birch discovered that the temperature readings for the products without sauce or salad were the highest averaging 65 degrees centigrade at preparation and 52 degrees centigrade at ten minutes after the sale. The average temperatures for sandwiches with sauce or salad were 40 degrees centigrade at production and 34.5 degrees centigrade at ten minutes.

Mr Clark's test took place on 6 February 2008 at Second Appellant's Alfreton store in the presence of Subway staff. He took the temperature of seven toasted sandwiches, five of which were from the cold range. He found that the temperatures of all sandwiches tested were significantly in excess of the ambient air temperature even after five minutes. Officers Birch and Clark accepted that the temperature probe was not placed at any particular point in the sandwich and that the readings would be dependent upon whether the probe rested against salad or hot chicken.

The Appellant produced a report of a temperature investigation of the toasted sandwiches conducted by an independent laboratory on behalf of the Subway Development Team in 2005. The report was commissioned as a result of new legislation which required the licensing of all outlets serving hot food after 11pm. The tests of the Subway team showed that the temperature of a toasted sandwich reduced quickly after serving and at a much faster rate of cooling than the studies conducted by Officers Birch and Clark. The study was conducted in a fully operational store on sandwiches made to the Subway specification. No member of the Subway Development Team was called to give evidence. The report was not authenticated by the independent laboratory.

We found at our visits to the two Subway stores in the area of Tottenham Court Road that the procedures, menus and promotion material as described by Mr Windscheffel were in operation. We tasted a toasted steak and cheese sandwich from the hot range and a toasted Italian BMT (pepperoni, salami and ham) from the cold range. We considered the steak and cheese to be slightly warmer than the Italian BMT with both becoming lukewarm after several minutes.

Mr Windscheffel's classification of which sandwiches fell within the cold range was based on his own taste and experience of customer preferences.

Mr Windscheffel accepted that he heated the hot range of toasted sandwiches with the intention of them being consumed hot. He stated that his intention for toasting the cold range of sandwiches was to crisp the bread or to make them more attractive in the case of the Melt. He was not concerned about serving a sandwich from the cold range hot. If, however, a customer specifically asked for a cold sandwich to be served hot he would microwave the filling or toast it for longer and account for VAT at standard rate.

Mr Windscheffel added that his intention was to keep his customers happy. He was keen to give what the customer wanted. He did not know whether his customers liked their sandwiches hot or cold. Mr Windscheffel did not ask his customers about their reasons for choosing a toasted sandwich. He also did not know whether his customers knew the difference between the cold and hot ranges of toasted sandwiches. Mr Windscheffel accepted that his aim was to provide his customers with good to eat, palatable products which he acknowledged would contain some warmth. Mr Windscheffel considered that the Subway melt looked better and more attractive if the cheese was melted. He thought that his customers were not that bothered about whether the melted cheese was hot or cold.

Reasons for Decision

There was no dispute between the parties about the legal principles applicable to this Appeal. We were required to determine Mr Windscheffel's dominant purpose for heating the cold range of sandwiches. The test was a subjective one which must be applied solely to the purposes of Mr Windscheffel as the person in charge of the Second Appellant. We were, however, not bound by his assertions, which although important were not decisive. It was necessary to assess the truth of his assertions by reference to all the facts of the Appeal in order to arrive at his dominant purpose.

Mr Windscheffel's evidence was at the centre of the parties' submissions. Appellant's counsel contended that we should be slow to conclude that Mr Windscheffel was not a credible witness. He demonstrated his honesty when he said that he did not know or could give no explanation to some of the questions put to him by counsel for the Respondents. Further Mr Windscheffel did not shift his position during cross-examination on his dominant purpose of crisping the bread. Respondents' counsel, on the other hand, submitted that we should treat Mr Windscheffel's evidence with severe caution. In counsel's opinion it was regrettable that Mr Windscheffel had not brought to the Tribunal's attention the many documents including his website which contradicted his expressed purpose. He stated that he was a typical franchisee but distanced himself from that statement when faced with information about what a typical franchisee should know. His evidence about his stated purpose was unbelievable. Mr Windscheffel professed to keep his customers happy but had no idea what his customers preferred or why they chose to toast their sandwiches.

Appellant's counsel considered that Mr Windscheffel's testimony was backed up by the other evidence. The freshly toasted stickers were placed only against the names of the hot range of toasted sandwiches. There was no indication in Mr Windscheffel's outlets to his customers that he was selling hot food. The results of the market research also supported his testimony, only 16 per cent of the respondents chose a toasted sandwich because they liked it hot. Finally the testing done by the independent laboratory of the temperatures of the toasted sandwiches showed that they lost heat very quickly which demonstrated that heat of the food was not central to the eating experience of Subway sandwiches. Respondents' counsel contended that the external evidence confirmed the Respondents' view of Mr Windscheffel's purpose which was that the sandwiches were heated to enable them to be consumed hot. Mr Windscheffel applied exactly the same processes to both the cold and hot range of toasted sandwiches. The cold range of sandwiches was heated all the way through. The current advertising and the stickers were recent additions and contrasted with the earlier material and that from outside the United Kingdom. Subway was a highly centralised franchise operation whose purpose for toasting the sandwiches was clearly set out in the operations manual. The market research project drew no distinction between the cold and hot ranges of toasted sandwiches. The results offered no support for Mr Windscheffel's stated purpose of crisping the bread with only 13 per cent of the interviewees stated that they chose toasted sandwiches because they liked their bread crisped up. Counsel preferred the evidence of Officers Birch and Clark on temperatures which showed that the sandwiches cooled down at a slower rate than the results obtained by the independent laboratory.

We were not convinced by Mr Windscheffel's evidence of his dominant purpose of crisping up the bread, or that the Subway melt looked better if the cheese was melted. Mr Windscheffel offered no compelling explanation for holding different purposes between the hot and cold range of sandwiches. He readily accepted that he heated the hot range of sandwiches to enable them to be consumed hot, and yet for the cold range of sandwiches which he subjected to exactly the same processes as the hot range he adopted different purposes of crisping up the bread or making the Melt more attractive. Mr Windscheffel acknowledged that by putting the cold range of sandwiches in the oven he was heating the whole sandwich. He heated the cold range of sandwiches for 20 to 30 seconds dependent upon the type of the filling which corresponded with the times spent by the hot range in the oven.

Mr Windscheffel's evidence on which sandwiches were in the cold range was based on his own taste and experience of customer preferences. Mr Windscheffel, however, accepted in cross examination that he did not know whether his customers knew which sandwiches fell within the cold or hot ranges or their reasons for wanting their sandwiches toasted. The Subway's operational manuals and the promotional material from outside the United Kingdom did not use the terms cold and hot ranges. The United Kingdom material distinguished between the two groups by a fresh toasted sticker which omitted the word hot against the hot range. However, the introduction of the sticker appeared to be a recent phenomenon. The photographs of the menu boards displayed in Mr Windscheffel's store admitted in evidence did not show the stickers distinguishing between the cold and hot ranges. Appellant's counsel suggested that the cold and hot range was a continuation of the categories used by Subway before toasting was introduced. However, the hot category before 2005 included some sandwiches which Mr Windscheffel now regarded within the cold range. Further Mr Windscheffel's company was incorporated on 31 May 2006 after the introduction of the policy of toasting all sandwiches which did away with the cold and hot categories. Mr Windscheffel probably did not know about the previous cold and hot categories. Moreover there was no commercial justification in terms of the franchise arrangements and customers' preferences for Mr Windscheffel's choice of which sandwiches fell within the cold and hot ranges. We conclude that Mr Windscheffel's categorisation of cold and hot sandwiches was arbitrary and provided no justification for holding separate discrete purposes for heating sandwiches.

We find that Mr Windscheffel's credibility was undermined by his apparent lack of knowledge of the expectations of the franchisor for toasting. The operations manual made it clear that the purpose of toasting was to provide a hot sub. His dismissal of the Subway's launch of toasting as a public relations exercise did not fit with his description of being a typical franchisee who would pay particular attention to what was described as one of the most significant developments in the history of the Subway chain. Finally his explanation that his website was a cut and paste job rang hollow.

We consider Mr Windscheffel's adoption of a uniform process for greeting, preparing and toasting sandwiches from the cold and hot ranges indicated that he had a common purpose for heating the sandwiches. Mr Windscheffel's explanation of using a uniform process for operational reasons to ensure a swift service to his customers supported the existence of an underlying common purpose. If he had separate purposes for two groups of sandwiches his procedures would be more complicated involving different responses from staff dependent upon the type of sandwich to be toasted. As part of that uniform process the sandwiches from the cold and hot ranges were toasted in the same oven for a programmed period of time which had the effect of heating the sandwiches throughout. Mr Windscheffel did not choose the toasting option on the oven to heat the cold range of sandwiches which would have heated the bread but not the filling. The use of a powerful oven and the fact that the whole sandwich was heated to a temperature significantly above ambient air temperature all pointed to a common purpose of heating the sandwiches to enable them to be consumed hot.

Mr Windscheffel's assertion of holding two separate purposes for toasting the sandwiches was not supported by the written procedures for operating a Subway franchise and the promotional material for the Subway outlets from outside the United Kingdom. These sources of documentary evidence indicated that there was just one purpose for toasting sandwiches which was to produce a hot sub. The Appellants placed weight on the evidence of the fresh and toasted stickers which were identified only with the hot range of sandwiches as confirmation of the separate purposes for toasting the cold range of sandwiches. We regarded the evidence of the fresh and toasted stickers as suspect. The introduction of the fresh and toasted stickers for the hot range was recent and restricted to the United Kingdom. The stickers did not reflect what actually happened in Mr Windscheffel's outlets. His staff offered to toast any sandwich regardless of whether it was from the cold or hot range. The Appellants gave no substantive explanation for the United Kingdom practice of erasing the word hot from its marketing material which contrasted with the consistent references to hot in the material for the Subway franchises outside the United Kingdom. We hold that that the representations in the operating procedures and the Subway promotional material from outside the United Kingdom about toasting to give a hot sub were reliable and confirmed the existence of a single purpose for heating the sandwiches.

We preferred the evidence of Officers Birch and Clark about the rate at which the sandwiches cooled down once out of the oven. Their investigations were connected with the circumstances of the Appeal. They were cross-examined on their evidence. The Appellants relied on a report of an independent laboratory which showed that the rate of cooling down was much quicker than the rate measured by Officers Birch and Clark. The makers of the report were not called to give evidence. The report in the document bundle was not authenticated. The laboratory conducted the investigation some three years ago for a purpose unconnected with the Appeal.

Officers Clark and Birch found that the temperatures of the cold and hot ranges of toasted sandwiches remained above ambient aim temperature after five minutes and ten minutes respectively. The Appellants accepted that the statutory test for hot of above ambient air temperature at the time of provision to the customer was met in respect of the cold range of toasted sandwiches. The Appellants, however, argued that having regard to the rate of cooling the sandwiches were lukewarm when they were consumed, which suggested that the hotness of the food was not a major consideration for the customer. We found the food to be lukewarm when we tasted the two heated sandwiches at the Subway store visited. We, however, question the relevance of the Appellants' argument as it was directed at both the cold and hot ranges of toasted sandwiches. We did not consider that the argument had any bearing on the disputed issue of the VAT classification for the cold range. The argument reinforced our view that the Appellants' intention for the cold range was not distinguishable from that for the hot range.

We consider that the evidence of the market research project did not have significant implications for the dispute in this Appeal. The project was directed at customer preferences rather than Mr Windscheffel's intentions. The project was for a limited duration, involving a relatively small sample of customers. The design of the questionnaire was rigid which permitted only one answer from a pre-defined list. We find that the research did not assist the Appellant's case. The percentage of interviewees who liked their bread crisped up was lower than the small percentage who liked it hot. More significantly the market research did not distinguish customer preferences for the cold range from the hot range. The fact that the market research company examined customer preferences for toasted sandwiches as a whole was perhaps indicative that Mr Windscheffel's did not perceive a distinction between the two ranges.

Decision

Mr Windscheffel accepted that he heated sandwiches from the hot range in order to supply a product which could be consumed hot. We find on the evidence of his actions, the application of a uniform procedure and the use of a powerful oven that his stated purpose for heating sandwiches for consumption hot applied equally to the cold range of toasted sandwiches. Our finding was supported by the documentary evidence of the operating procedures and the marketing material from outside the United Kingdom, and by Mr Windscheffel's inability to give a persuasive justification for having two separate purposes for a single process of heating sandwiches. In view of our findings we are satisfied that Mr Windscheffel's dominant purpose for heating the cold range of sandwiches was to enable them to be consumed hot. We uphold the Respondents' decision to standard rate the Appellants' supplies of toasted sandwiches for consumption off the premises. We, therefore, dismiss the Appeal and make no order for costs.

MICHAEL TILDESLEY OBE

CHAIRMAN

RELEASE DATE: 2 June 2008

LON/2006/1028

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