Bookfinders Ltd v Revenue Commissioners

• Jurisdiction: Ireland
• Judge: Mr. Justice Keane
• Judgment Date: 14 October 2016
• Neutral Citation: [2016] IEHC 569
• Court: High Court
• Docket Number: [Record No. 2015/11R]
• Date: 14 October 2016

[2016] IEHC 569

THE HIGH COURT

REVENUE

Keane J.

[Record No. 2015/11R]

BETWEEN:

BOOKFINDERS LIMITED

APPELLANT

– AND –

THE REVENUE COMMISSIONERS

RESPONDENT

Revenue – Appeal by way of case stated – S. 941 of the Taxes Consolidation Act 1997 – The VAT Act 1972 – VAT Consolidation Act 2010 – Consumption tax – Levy of taxes on hot tea and coffee

Facts: Following the decision of the Appeal Commissioner that the appellant's supplies of heated sandwiches, and hot tea and coffee were subject to a VAT rate of 13.5%, the opinion of the High Court is sought by way of a case stated by the Appeal Commissioner primarily on the question whether the Appeal Commissioner was correct in making the aforesaid decision. The other questions were whether the Appeal Commissioner was correct in reading the words "food and drink" as appearing under paragraph (iv) of the sixth schedule of the VAT Act 1972 disjunctively and that the 13.5%VAT rate applied to the heated tea and coffee sold in drinkable form as mentioned under paragraph (xii) of the second schedule of the Act of 1972.

Mr. Justice Keane answered all the questions raised by the Appeal Commissioner in the affirmative and upheld its decision. The Court held that the words should be given their plain and ordinary meaning to avoid any ambiguity. The Court observed that a plain reading of the statue of 1972 revealed that paragraph (xii) of the second schedule applied a zero rate of VAT to the supplies of food and drink for human consumption expressly excluding the supplies mentioned under paragraph (iv) of the sixth schedule. The Court noted that the bread manufactured by the appellant was not the bread within the meaning of paragraph (xii)(d)(II) of the second schedule and thus, it was not subject to zero VAT rate. The Court observed that the word "each" preceding the word "ingredient" under paragraph (xii)(d)(II) of the second schedule must be interpreted in the context in which it was employed and thus, the appellant's bread exceeded the required ratio of quantities prescribed for each ingredient under paragraph (xii)(d)(II) of the second schedule. The Court held that the exemption, by way of which VAT was to be charged at the reduced rate rather than the standard rate, must be interpreted strictly.

JUDGMENT of Mr. Justice Keane delivered on the 14th October 2016

Introduction

11 This is an appeal by way of case stated for the opinion of the High Court pursuant to s. 941 of the Taxes Consolidation Act 1997 (" TCA") by Ronan F. Kelly ("the Appeal Commissioner"), arising out of an appeal brought before him by the appellant taxpayer, Bookfinders Limited ("the appellant"). On that appeal, the Appeal Commissioner found for the Revenue Commissioners ("the respondent"), whereupon the appellant requested that he state a case for the opinion of the High Court.

2 The litigation arises out of the appellant's contention that its supply of heated sandwiches, and hot teas and coffees, through a food outlet that it operates, should have been properly subject to a zero rate of Value Added Tax ("VAT"), rather than the 13.5% rate that the respondent (and, later, the Appeal Commissioner) determined should apply.

Background

3 The appellant is a limited liability company and a franchisee of the " Subway" chain of food outlets. The appellant operates from a premises on the Tuam Road, Galway, and prepares and sells, inter alia, heated sandwiches and hot teas and coffees, which can be either taken away or consumed on the premises. There are limited facilities on the premises for the consumption of food and drink, but there is no waiter service and most people consuming food on the premises do so at counters. The Appeal Commissioner found that 70% to 80% of the business is takeaway.

4 The appellant returned VAT on sales in accordance with a "composite" rate of VAT, calculated at 9.2%. In or about December 2006, the appellant revised downwards its calculation of that composite rate on the basis of its belief that heated sandwiches and hot teas and coffees were properly subject to VAT at the zero rate, rather than the reduced rate of 13.5%. The appellant submitted repayment claims in respect of the periods January/February 2004 to November/December 2005 on the basis that it ought to have accounted for VAT on the said supplies at the zero per cent rate of VAT. The respondent refused that repayment claim and the appellant appealed that refusal.

The decision of the Appeal Commissioner

5 The appeal against the decision of the respondent was heard by the Appeal Commissioner on the 22nd May, 22nd June, and 9th December 2009, and the 18th October, 2010. The issue before the Appeal Commissioner was whether the appellant's supplies of heated sandwiches and hot teas and coffees were subject to a VAT rate of zero, as contended for by the appellant, or one of 13.5%, as contended for by the respondent. The Appeal Commissioner held in favour of the respondent.

Statutory provisions in issue

6 On the 1st December, 2010, the VAT Act 1972 ("the 1972 Act") was replaced with the VAT Consolidation Act 2010. However, as the issues arising in this appeal relate to 2004 and 2005, this judgment refers to the provisions of the 1972 Act which were then in force.

7 VAT was introduced in the 1972 Act in order to give effect to the mandatory provisions of directives adopted by the European Community. In particular, the 1972 Act, as amended, implemented Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value-added tax: uniform basis of assessment ("the Sixth Directive"). It is known as the Sixth Directive because it was the sixth VAT Directive published by the European Council, and it sets out the basic provisions of the VAT code. That Directive has since been repealed and replaced with Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax. The Sixth Directive, however, was in force for the entirety of the relevant period and, like the 1972 Act, provides for taxable and exempt supplies, and permits Member States to apply a range of VAT rates to various supplies.

8 VAT is a form of consumption tax. It is charged on consumer spending, collected by VAT-registered traders on their supplies of goods and services effected within the State, for consideration, to their customers. Generally, each such trader in the chain of supply from manufacturer through to retailer is required to charge VAT on his or her sales and is entitled to deduct from that amount the VAT that he or she has paid on his or her trade purchases, in accounting to the Revenue Commissioners as a taxable person.

9 S. 2 of the 1972 Act provides that VAT is a tax charged, levied and paid on:

"the supply of goods and services effected within the State for consideration by a taxable person in the course or furtherance of any business carried on by him..."

10 The 1972 Act then sets out in s. 3 the rules applicable to supplies of goods and, in s. 5, the rules applicable to supplies of services. The appellant is a taxable person in accordance with s. 8 of the 1972 Act, and made its supplies for consideration. S. 3 provides that a supply of goods means "the transfer of ownership of goods by agreement..." and s. 5 provides that a supply of services is "the performance or omission of any act or the toleration of any situation other than a supply of goods..."

The default rate of VAT

11 The rate of VAT is determined by s. 11 of the 1972 Act which provides, at subsection (1)(a), that 21% is the default rate in relation to the supply of taxable goods or services, save where otherwise specified in that subsection.

The zero rate of VAT

12 S. 11(1)(b) does specify otherwise, by providing that a rate of zero per cent applies to, inter alia, goods or services of a kind specified in paragraphs (iii) to (xx) of the Second Schedule of the Act.

13 For the purposes of the present appeal, the relevant paragraph in the Second Schedule of the Act is paragraph (xii). It states:

"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...