Bookfinders Ltd v The Revenue Commissioners

• Jurisdiction: Ireland
• Judge: Ms. Justice Kennedy
• Judgment Date: 03 April 2019
• Neutral Citation: [2019] IECA 100
• Court: Court of Appeal (Ireland)
• Docket Number: Appeal No. 2017/201
• Date: 03 April 2019

BETWEEN/

BOOKFINDERS LIMITED

APPELLANT

- AND -

THE REVENUE COMMISSIONERS

RESPONDENT

[2019] IECA 100

Appeal No. 2017/201

THE COURT OF APPEAL

Case stated – Fiscal neutrality – Legal certainty – Appellant seeking to appeal from the judgment of the High Court – Whether the trial judge erred in finding that evidence was necessary in order to determine whether there had been a breach of the principles of fiscal neutrality and legal certainty

Facts: The appellant, Bookfinders Ltd, was a franchisee of a chain of food outlets and operated from premises in Galway preparing and selling, inter alia, hot sandwiches and teas and coffees, the majority of which were taken away but where there were limited facilities to consume food and drink on the premises. The appellant’s case arose from the fact that in or about December 2006, the appellant revised its calculation of VAT downwards having applied a zero rate on the basis of its belief that the supply of heated sandwiches and hot teas and coffees were subject to the zero rate of VAT rather than 13.5%. The appellant then sought repayment in respect of the period January/April 2004 to November/December 2005 which the respondent, the Revenue Commissioners, refused. The appellant appealed that refusal to the Appeal Commissioner. On the 21 February 2011, the Appeal Commissioner decided in favour of the respondent whereupon Bookfinders Ltd requested that the Appeal Commissioner state a case to the High Court pursuant to s. 941 of the Taxes Consolidation Act 1997. Six questions were asked of the High Court judge (Keane J), all of which he answered in the affirmative on 21 October 2016: “1) Was I correct in law in holding that the supply of heated sandwiches and hot tea and coffee was subject to VAT at 13.5% and without prejudice to the generality of the foregoing question; 2) Was I correct in law in holding that the words food and drink contained in paragraph (iv) of the Sixth Schedule should be read disjunctively and not conjunctively with particular regard to the principle against doubtful penalisation? 3) Was I correct in law in holding that the 13.5% VAT rate applies to heated tea and coffee sold in drinkable form having found that these drinks were specified in paragraph (xii) of the Second Schedule? 4) Was I correct in law in holding that paragraph (xii) of the Second Schedule and the exclusions from paragraph (iv) of the Sixth Schedule to the VAT Act 1972, as amended, do not operate to apply the zero rate of VAT to heated sandwiches made with bread as defined in paragraph (xii)(d)(II) of the Second Schedule to the VAT Act? 5) Was I correct in law in holding that the appellant’s bread was not bread as defined in paragraph (xii)(d)(II) of the Second Schedule with regard to the ordinary meaning of the word “each” in the first subparagraph of that provision and the principle against doubtful penalisation? 6) Was I correct in law in holding that the issue of fiscal neutrality did not operate to apply the zero rate to the appellant’s sandwiches?” The appellant appealed to the Court of Appeal from the judgment of the High Court. The appellant filed the following grounds of appeal: (i)(a) the trial judge erred in law in failing to apply the correct canons of construction applicable to tax statutes and consequently fell into error in his conclusions on each question asked; (i)(b) the trial judge erred in law in failing properly to construe the provisions of the legislation in question; (ii) the trial judge erred in finding that evidence was necessary in order to determine whether there had been a breach of the principle of fiscal neutrality; (iii) the trial judge erred in finding that the relevant legislation was consistent with the principle of legal certainty and in concluding that evidence was necessary to determine whether there had been a breach of the principle of legal certainty.

Held by Kennedy J that the High Court judge did not err in answering the six questions of the case stated in the affirmative.

Kennedy J held that the appeal would be dismissed.

Appeal dismissed.

JUDGMENT of Ms. Justice Kennedy delivered on the 3rd day of April 2019

1 This is an appeal from the judgment of the High Court (Keane J.) of 21 October 2016, Bookfinders Ltd v. The Revenue Commissioners [2016] IEHC 569. The matter came before the High Court by way of case stated seeking the opinion of the High Court pursuant to s. 941 of the Taxes Consolidation Act 1997 in respect of a determination issued by the Appeal Commissioner on the 21 February 2011. The determination of the Appeal Commissioner came about as a result of an appeal by Bookfinders Ltd which resulted in a decision favourable to the Revenue Commissioners whereupon Bookfinders Ltd requested that the Appeal Commissioner state a case to the High Court.

Background

2 The appellant is a franchisee of a chain of food outlets and operates from premises in Galway preparing and selling, inter alia, hot sandwiches and teas and coffees, the majority of which are taken away but where there are limited facilities to consume food and drink on the premises. In his recitation of the facts, the High Court judge noted that the Appeal Commissioner found that 70-80% of the business is a takeaway business.

3 The appellant's case arises from the fact that in or about December 2006, the appellant revised its calculation of VAT downwards having applied a zero rate on the basis of its belief that the supply of heated sandwiches and hot teas and coffees were subject to the zero rate of VAT rather than 13.5%. The appellant then sought repayment in respect of the period January/April 2004 to November/December 2005 which the respondent refused. Consequently, the appellant appealed that refusal to the Appeal Commissioner. The issue before the Appeal Commissioner was whether the supply of heated sandwiches and hot teas and coffees were subject to the zero rate or the 13.5% rate as contended by the Revenue Commissioners and the matter, now under appeal, turned on the interpretation of the Value-Added Tax Act 1972 (‘the Act’).

Questions

4 Six questions were asked of the High Court judge, all of which he answered in the affirmative:

‘1) Was I correct in law in holding that the supply of heated sandwiches and hot tea and coffee was subject to VAT at 13.5% and without prejudice to the generality of the foregoing question;

2) Was I correct in law in holding that the words food and drink contained in paragraph (iv) of the Sixth Schedule should be read disjunctively and not conjunctively with particular regard to the principle against doubtful penalisation?

3) Was I correct in law in holding that the 13.5% VAT rate applies to heated tea and coffee sold in drinkable form having found that these drinks were specified in paragraph (xii) of the Second Schedule?

4) Was I correct in law in holding that paragraph (xii) of the Second Schedule and the exclusions from paragraph (iv) of the Sixth Schedule to the VAT Act 1972, as amended, do not operate to apply the zero rate of VAT to heated sandwiches made with bread as defined in paragraph (xii)(d)(II) of the Second Schedule to the VAT Act?

5) Was I correct in law in holding that the appellant's bread was not bread as defined in paragraph (xii)(d)(II) of the Second Schedule with regard to the ordinary meaning of the word ‘each’ in the first subparagraph of that provision and the principle against doubtful penalisation?

6) Was I correct in law in holding that the issue of fiscal neutrality did not operate to apply the zero rate to the appellant's sandwiches?’

Legislative Framework

5 The relevant portion of s. 2 of the Act provides that VAT is a tax to be charged, levied and paid:

‘on the supply of goods and services effected within the State for consideration by a taxable person in the furtherance of any business carried on by him…’

6 Section 3 addresses the rules relating to supply of goods and section 5 addresses the rules relating to supply of services.

7 Section 11 determines the rate of VAT to be paid and permits alternative rates in certain circumstances. Section 11(1)(a) provides for a VAT rate of 21% as the chargeable tax rate save where otherwise specified in the subsection. Two separate subsections provide for a zero rate on certain goods and services and a 13.5% rate on others.

The Zero Rate

8 Section11(1)(b) provides for a rate of zero per cent in relation to goods specified in paragraphs (i) or ( ia) of the Second Schedule or of goods or services of a kind specified in paragraphs (iii) to (xx) of that Schedule.

9 We are concerned with para. (xii) of the Second Schedule which the appellant argues is the paragraph applicable to the goods it supplies.

10 This states 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;

(c) ice cream, ice lollipops, water ices, frozen desserts, frozen yoghurts and similar frozen products, and prepared mixes and powders for making any such product or such similar product;

(d) (I) chocolates, sweets and similar confectionary (including […], glace 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...