Bookfinders Ltd v Revenue Commissioners

• Jurisdiction: Ireland
• Judge: Mr. Justice O'Donnell
• Judgment Date: 29 September 2019
• Neutral Citation: [2020] IESC 60
• Docket Number: S:AP:IE:2019:000131
• Court: Supreme Court
• Date: 29 September 2019

Between/

BOOKFINDERS LTD.

Appellant

and

THE REVENUE COMMISSIONERS

Respondent

[2020] IESC 60

Clarke C.J.

O'Donnell J.

MacMenamin J.

Charleton J.

O'Malley J.

S:AP:IE:2019:000131

AN CHÚIRT UACHTARACH

THE SUPREME COURT

Value added tax – Statutory interpretation – Fiscal neutrality – Appellant seeking a refund for VAT payments made at a composite rate of 9.2% – Whether the principle of fiscal neutrality was breached

Facts: The appellant, Bookfinders Ltd, submitted a claim to the respondents, the Revenue Commissioners, in December 2006, seeking a refund for VAT payments made from the period January/February 2004 to November/December 2005 at a composite rate of 9.2%, which Bookfinders claimed should instead have been subjected to 0% VAT. Having had the claim dismissed by the respondents, Bookfinders appealed to the Appeal Commissioner, who dismissed the appeal in a determination dated 21st February, 2011, after which Bookfinders appealed to the High Court by way of case stated, pursuant to s. 941 of the Taxes Consolidation Act 1997. Keane J gave judgment on 14th October, 2016, dismissing the appeal. Bookfinders then appealed to the Court of Appeal. Kennedy J gave judgment on 3rd April, 2019, dismissing the appeal. The appellants then sought leave to appeal to the Supreme Court. In a determination dated 14th November, 2019, the Court granted leave to appeal on the grounds of the principles of interpretation to be applied when interpreting tax statutes, particularly when principles of EU law are involved. The issues in this case were as follows: whether the tea and coffee supplied by Bookfinders falls within para. (xii) of the Second Schedule to the Value Added Tax Act 1972, as Bookfinders contended, or within the Sixth Schedule, as the Revenue argued; 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); and whether the principle of fiscal neutrality is breached, or indeed even engaged, in this case.

Held by O’Donnell J that, having considered matters concerning domestic and European principles of interpretation of VAT Acts, and applied them to the issues in this case, he would accordingly reject Bookfinders’ arguments and uphold the decisions of the Appeal Commissioner, High Court, and Court of Appeal respectively. O’Donnell J did not consider that the principle of fiscal neutrality was engaged, still less breached, in this case.

O’Donnell J held that the appeal would be dismissed.

Appeal dismissed.

Judgment of Mr. Justice O'Donnell delivered the 29 ^th day of September, 2020.

I - Introduction

A. Background

1 This appeal arises from a claim submitted to the Revenue Commissioners (“the respondents”) by Bookfinders Ltd. (“the appellant”) in December 2006. hi the claim, the appellant sought a refund for VAT payments made from the period January/February 2004 to November/December 2005 at a composite rate of 9.2%, which Bookfinders claimed should instead have been subjected to 0% VAT.

2 The case turns on the interpretation of two paragraphs in two Schedules to the Value Added Tax Act 1972 (“the 1972 Act”). Having established the general rate of 21% under s. 11(1)(a) of the Act, exceptions are provided for certain goods and services to be charged at 13.5% and at 0%. Under s. 11(1)(b), paras, (iii)-(xx) of the Second Schedule provide for those charged at 0%, while s. 11(1)(d) specifies that the Sixth Schedule details those charged at 13.5%. In effect. Bookfinders alleges that much of its turnover falls under para. (xii) of the Second Schedule and thus should be charged at 0%, and not under para. (iv) of the Sixth Schedule and charged at 13.5% (which, the respondents maintain, is the case). For ease of reference, the key excerpts will be laid out below.

3 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…’

4 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”.

5 Finally, the appellant cites s. 11(1) in support of the exclusion of certain items from one Schedule when specified in another and, in relation to the exclusion of an item specified in one paragraph of a Schedule from any other paragraph of the same Schedule, relies on s. 11(1A)(b), which states that:-

“Goods or services which are specifically excluded from any paragraph of a Schedule shall, unless the contrary intention is expressed, be regarded as excluded from every other paragraph of that Schedule, and shall not be regarded as specified in that Schedule”.

6 Bookfinders is a franchisee of the fast food chain. Subway, and is based on the Tuam Road in Galway. As is typical of fast food outlets, between 70-80% of Bookfinders’ trade is takeaway.

7 This is in fact the fourth appellate body to hear the case. Having had the claim dismissed by the respondents. Bookfinders appealed to the Appeal Commissioner, who heard the matter on a number of dates from May 2009, until October 18 ^th, 2010. The Appeal Commissioner dismissed the appeal in a determination dated February 21 ^st, 2011, after which Bookfinders appealed to the High Court by way of case stated, pursuant to s. 941 of the Taxes Consolidation Act 1997.

B. The High Court Judgment

8 The case came before Keane J. in the High Court, who gave judgment on October 14 ^th, 2016 ( [2016] IEHC 569), dismissing the appeal.

9 The Appeal Commissioner had submitted six questions to the High Court for determination (all of which Keane J. answered in the affirmative):

a. Did hot drinks and sandwiches fall under the Sixth Schedule of the 1972 Act, and were they thus taxable at 13.5%?

b. Should “food and drink” be read disjunctively - and not conjunctively - with regard to the principle of doubtful penalisation?

c. Does the 13.5% rate apply to hot tea and coffee, having found that they were specified by para. (xii) of the Second Schedule?

d. Was the Appeal Commissioner correct in holding that heated sandwiches were not subject to the 0% rate?

e. Did the bread used in the appellant's sandwiches fall outside the statutory definition of bread?

f Was the Appeal Commissioner correct to hold that the issue of fiscal neutrality did not operate to apply the 0% rate to Bookfinders’ sandwiches?

10 In considering the construction of VAT Acts, Keane J. found that the general principle was that all taxable goods and services were to be charged at the standard rate, and that any provisions permitting a lower rate to be charged on the items were exemptions and were consequently to be construed strictly. Exceptions to the exemptions brought the goods or services in question back under the general rate, and thus were not to be construed strictly, he found. However. Keane J. noted that even a strict interpretation of the provision could not be used to deprive the provision of its intended effect.

11 Bookfinders argued for the application of general principles of interpretation applied to tax stanites generally, and relied on Gaffney v. Revenue Commissioners [2013] IEHC 651 (” Gaffney”) to this end. In Gaffney. Dunne J. had relied on Inspector of Taxes v. Kiernan [1982] I.L.R.M. 13 (“ Kiernan”), where the Court had noted three principles in relation to the interpretation of tax statutes...