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Relevant case law
Relevant case law
We will refer to some of the authorities to which we have been referred by the parties later in our discussion. There is one key authority on the application of excepted item 5 to which we should refer at this stage. It is the decision of the Court of Appeal in Proctor & Gamble UK v HMRC [2009] EWCA Civ 407 (“P&G”).
That decision concerned the application of excepted item 5 to “Pringles”, a manufactured savoury snack made from potato flour, corn flour, wheat starch and rice flour. The VAT and Duties Tribunal decided that Pringles fell within excepted item 5 and so supplies of Pringles were standard rated for VAT purposes. The High Court allowed the company's appeal. However, the Court of Appeal allowed HMRC's appeal and reinstated the tribunal’s decision.
The main judgment was given by Jacob LJ. The key points that we take from his judgment are as follows.
The statutory question posed by excepted item 5 can be restated as whether the relevant products are “similar to potato crisps, potato sticks, or potato puffs and made from the potato, or from potato flour, or from potato starch”? (P&G [12]).
It is a composite question. “So, although it is convenient to ask separately whether the [relevant products] are ‘similar’ to potato crisps etc. and whether they are ‘made from potato’, one must also take into account the composite nature of the question” (P&G [13]).
That question involves a value judgment, which requires “a multifactorial assessment based on a number of primary facts”. An appeal court or tribunal “should be slow to interfere” with such a value judgment made by the fact-finding tribunal (P&G [9]).
The question is one of classification for VAT purposes, but it is “not one calling for or justifying over-elaborate, almost mind-numbing, legal analysis. It is a short practical question calling for a short practical answer” (P&G [14]).
The first limb of the composite question – that is whether the products are “similar” to potato crisps, potato sticks, or potato puffs – requires a multifactorial assessment. However, it is not incumbent upon the fact-finding tribunal to set out and identify the weight given to each and every factor. All that is required is that the judgment of the tribunal enables the appellate court or tribunal to understand how the decision was reached. Jacob LJ said this at P&G [19]:
… It was not incumbent on the Tribunal in making its multifactorial assessment not only to identify each and every aspect of similarity and dissimilarity (as this Tribunal so meticulously did) but to go on and spell out item by item how each was weighed as if it were using a real scientist’s balance. In the end it was a matter of overall impression. All that is required is that “the judgment must enable the appellate court to understand why the judge reached his decision” (per Lord Phillips MR in English v Emery [2002] EWCA Civ 605, [2002] 1 WLR 2409 at 19]) and that the decision “must contain... a summary of the Tribunal’s basic factual conclusion and statement of the reasons which have led them to reach the conclusion which they do on those basic facts” (per Thomas Bingham MR in Meek v Birmingham City Council [1987] IRLR 250).
The question for the tribunal is simply “what is a reasonable view on the basis of all of the facts”. (The VAT and Duties Tribunal in P&G had invoked an “ordinary man in the street” test, but this had to be qualified by reference to knowledge of all the facts that were before the tribunal.) Jacob LJ said this at P&G [21]:
To my mind this approach is saying no more than “what is the reasonable view on the basis of all the facts” – it does not matter if some of the facts would not be known to the “man in the street.” That is why the test accepted as proper in [Customs & Excise Commissioners v Ferrero] adds “who had been informed as we have been informed.” The uninformed view of the man in the street is deliberately not being invoked.
The test on an appeal is simply whether the fact-finding tribunal has reached a conclusion that no reasonable tribunal, properly construing the statute, could reach. Jacob LJ said this at P&G [22]:
So one can put the test for an appeal court considering this sort of classification exercise as simply this: has the fact finding and evaluating Tribunal reached a conclusion which is so unreasonable that no reasonable Tribunal, properly construing the statute, could reach?
As regards the second limb – that is whether the products are “made from” the potato, or potato flour, or potato starch – there is no particular level of potato content that is required (P&G [26]-[32]). On the facts of the case, the Tribunal found that Pringles, which had a potato flour content of over 40%, were “made from” potato flour. Jacob LJ expressed the view that there was “more than enough potato content” for it to be a reasonable view that Pringles were “made from the potato” (P&G [33]).