Procter & Gamble UK v Revenue & Customs (including Supplemental Judgment) [2008] EWHC 1558 (Ch)

[2008] EWHC 1558 (Ch)

Case No CH/2007/APP/0432

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

ON APPEAL FROM THE VAT & DUTIES TRIBUNAL

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 04/07/2008

Before

MR JUSTICE WARREN

Between

Procter & Gamble UKAppellant

The Commissioners For Her Majesty's Revenue & CustomsRespondent

Mr Roderick Cordara QC and Mr Edward Brown (instructed by Robert Newey &Co.) for Appellant

Mr Raymond Hill (instructed by the Solicitor for Commissioners for Her Majesty's Revenue and Customs) for the Respondent

Hearing Hearing date: 14th May 2008

Judgment

Introduction

[1]This is an appeal from a decision dated 23 May 2007 (“the Decision”) of the VAT & Duties Tribunal (Dr John Avery Jones and Catherine Farquharson) (“the Tribunal”). The Tribunal dismissed the appeal of Procter & Gamble UK (“P&G UK” - a partnership of companies whose ultimate parent is The Proctor & Gamble Company of Ohio) against a decision letter dated 4 January 2006 upheld on review on 6 March 2006, that P&G UK’s product, Regular Pringles (also known as Base Pringles) is standard-rated.

[2]The issue before the Tribunal was whether Regular Pringles are standard-rated as being within the words “potato crisps, potato sticks, potato puffs and similar products made from the potato, or from potato flour, or from potato starch” in excepted item 5 of Group 1 of Schedule 8 to the VAT Act 1994. As the Tribunal observed, the appeal related only to Regular Pringles. The formulation had changed in the autumn of 2004 but the Tribunal were not concerned with the status before then. The status of another product, Pringle Dippers, had been the subject of a previous appeal to the VAT & Duties Tribunal. I shall refer to that case as “Pringle One”. Reliance is placed by Mr Cordara, who appears for P&G UK on this appeal (as he did before the Tribunal), on Pringle One, in which the tribunal decided that Pringle Dippers were zero-rated. One ground for this decision was that Pringle Dippers were not packaged for human consumption without further preparation (as required by the opening words of excepted item 5), and were thus outside the exception; but another ground was they were not a similar product made from the potato etc lacking both similarity and the necessary potato content.

Legislation

[3]The domestic legislation is found in the VAT Act 1994. Group 1 of Schedule 8 zero-rates, among other things, a supply of anything comprised in the general items set out except a supply of anything comprised in the excepted items unless it is also comprised in any of the items overriding those exceptions. Included in the general items is “Food of a kind used for human consumption”: generally speaking, therefore, food is zero rated.

[4]Paragraph 5 of the excepted items reads as follows:

“5. Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs and similar products made from the potato, or from potato flour, or from potato starch, and savoury products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell.”

These items are standard-rated.

[5]Zero-rating, as the Tribunal pointed out, is permitted in certain circumstances by Article 28.2 of the Sixth Directive (now Article 110 of the Recast Directive). The permitted derogation from standard-rating is to be found in earlier legislation, namely Article 17 of the Second Directive which provides that Member States may:

“….provide for reduced rates or even exemptions with refund, if appropriate, of the tax paid at the preceding stage, where the total incidence of such measures does not exceed that of the reliefs applied under the present system. Such measures may only be taken for clearly defined social reasons and for the benefit of the final consumer, and may not remain in force after the abolition of the imposition of tax on importation and the remission of tax on exportation in trade between Member States”

[6]It might be noted that the measure which may only be taken for clearly defined purposes is the zero-rating of the supply; it is not the exception from zero-rating which needs to be so justified. Thus there is no need to discover a clearly defined social purpose to except potato crisps and the other items in paragraph 5 (or indeed the items in the other paragraphs) of Schedule 5 from the zero-rating which would otherwise apply to them as items of food.

The Decision

[7]After setting out the legislation, the Tribunal make a number of findings of fact in 22 sub-paragraphs of paragraph 5. I set those out in the Annex to this judgment.

[8]The Tribunal then set out in summary form the arguments on behalf of P&G UK and HMRC.

[9]The arguments recorded on behalf of P&G UK are as follows:a. Regular Pringles are not similar to potato crisps on the ground of regularity of shape, having a shape not found in nature, uniform colouring, texture, taste particularly “mouth melt”. Crisps do not contain non-potato flours as does Pringles. Crisps are not normally packaged in tubes.

b. No one ingredient of Regular Pringles is over 50 per cent.

c. The manufacturing process is different from potato crisps and more like that of a cake or biscuit, being made from a dough, then cut into a standard shape, and then cooked separately.

d. Customers do not see Regular Pringles as potato crisps. The ingredients of products in the modern snack market are largely irrelevant to purchasers, as is demonstrated by the labelling requirements.

e. The approach of the Tribunal in the Pringles Dippers case should be followed both as to similarity to potato crisps and whether Regular Pringles are made from potato flour.

f. The World Customs Organisation categorises Regular Pringles with other savoury snacks and separately from potato crisps, which is merely a factor to be taken into account.

[10]The arguments recorded on behalf of HMRC are as follows:a. The Tribunal in the Pringle Dippers case had made two errors. First, it considered that it was possible to make potato crisps almost entirely out of potato. The maximum potato content of a normal potato crisp is in the 60s and 70s per cent range. There was no need for the draftsman to say partly made from the potato etc because none of the potato crisps, potato sticks or potato puffs could be made wholly from potato. The “made from the potato, from potato flour or from potato starch” part of the test implies that the product is partly made from such products. The degree is determined by whether the product is similar to a potato crisp.

b. Secondly, the Tribunal confused two tests. The reason that potato cakes (or farls) which are made almost wholly from potato, remain zero-rated is that they fail the test of being similar to potato crisps. That cannot support the argument that the comparative amount of potato is not conclusive and therefore the product must be made almost wholly from potato products in order to satisfy the “made from” test.

c. The similarity of Regular Pringles with potato crisps consists of the following: potato is the main ingredient; they are not intended for dipping as are tortilla chips; they are intended to be eaten as a snack and are not purchased primarily for nutrition; they are intended to be eaten on their own; the texture is more similar to potato crisps than tortilla chips; they broadly resemble the shape of potato crisps rather than the triangular shape of tortilla chips; any product made from potato flour will have to be manufactured from a dough; not all potato crisps are sold in bags, some are sold in canisters.

d. The World Customs Organisation categorisation is based on different criteria. Food labelling regulations are also irrelevant as they apply also to non zero-rated non-potato products.

[11]It is self evident, I think, that the factors relied on by each party in these summary submissions support the contention of each party. The submissions on behalf of P&G UK point to the alleged lack of similarity and suggest that Regular Pringles are not “made from” potato etc. In contrast, the submissions on behalf of HMRC highlight the alleged similarities and suggest that Regular Pringles are indeed “made from” potato etc.

[12]The Tribunal then give their reasons and state their conclusions in paragraphs 8 to 18 of the Decision. It is necessary to set out in some detail what they say since an important part of the appeal against their decision is that(a) they do not explain what test they were applying

(b) they apply an incorrect approach to the knowledge of the reasonable man in assessing similarity and

(c) they fail to identify the separate elements which weigh in the balance and thus fail to explain which way each factor points or the weight they attach to it.

[13]In relation to the correct approach to adopt, the Tribunal referred in paragraph 8 to the decisions in C&EC v Ferrero UK Ltd

[1977] STC 881

and C&EC v Quaker Oats Ltd

[1987] STC 683

. Since the parties do not agree about what, if any, assistance can be derived from those decisions in the present case, I should say something about them before looking at how the Tribunal applied them.

The approach to construction of the statutory provisions

[14]Ferrero raised the issue whether the wafer products concerned were biscuits within excepted item 2 in Group 1 “Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or with some product similar in taste and appearance…”. In this context, a note to item 2 expressly states that “confectionery” includes chocolates, sweets and biscuits…; and any item of sweetened prepared food which is normally eaten with the fingers”. The taxpayer contended that the products were biscuits whereas HMRC contended they were not but were to be treated as confectionery and therefore not zero-rated as food. The issue was thus the correct categorisation of the products. The issue was whether the wafer products were biscuits, and not whether they were “akin to” biscuits, it being part of HMRC’s case that the tribunal had applied the wrong test: the argument, rejected by the Court of Appeal, was that the tribunal had applied an “akin to” test rather than asking whether the wafer product actually was a biscuit. As to that, it is a matter of fact whether or not a product is a biscuit within the ordinary meaning of that word. As Hutchison LJ put it at p 888:

“There is no ideal concept conformity with every aspect of which is necessary before an aspiring manufacturer can call his product a biscuit. It is a question of fact in each case whether the article in question can properly and sensibly be said to be a biscuit.”

[15]Lord Woolf MR identified the correct approach from a passage in the tribunal’s decisions:

“the words in the statute must be given their ordinary meaning. What is relevant is the view of the ordinary reasonable man in the street”

. As he put it in his own words (see at p 885):

“That is, what is the view of the ordinary person as to the nature of the product and whether or not the product is one which falls within the relevant category which here is that of a biscuit.”

[16]Then, a little later on the same page he quotes from the tribunal describing it as uncontroversial:

“We must give the word biscuit its ordinary meaning and must ask what view would be taken by the ordinary man in the street, who had been informed as we have been informed.”

[17]In reaching their conclusion that the wafer products were indeed biscuits, the tribunal went into the issue in great detail as Lord Woolf remarked, giving a long and carefully worded decision citing a number of authorities, trying to identify the characteristics of biscuits and, because of certain of the authorities, other products.

[18]It is against the background of the question in issue and of the approach of the tribunal that some more general comments made by Lord Woolf, on which HMRC rely and which the Tribunal clearly had in mind, are to be read. He said this:

“I commend the tribunal for the care which it took over this matter, but I am bound to say that, no doubt because of the submissions which were made to it by the parties, the treatment of the issue which was before it, was far more elaborate than was necessary. I do urge tribunals, when considering issues of this sort, not to be misled by authorities which are no more than authorities of fact into elevating issues of fact into questions of principle when it is not appropriate to do so on an inquiry such as this. The tribunal had to answer one question and one question only: was each of these products properly described as biscuits or not? If it had confined itself to that issue which is, and has to be, one of fact and degree, then the problems which subsequently arose would have been avoided.”

[19]In Quaker Oats, Kennedy J was dealing with an appeal from a tribunal which had decided that two products – chewy bars - did not fall within excepted item 2 to Group 1 as it then stood. The wording in those days excepted from zero-rating “Chocolates, sweets and similar confectionery ….; and biscuits and other confectionary (not including cakes) wholly or partly covered with chocolate or some product similar in taste and appearance.”

[20]The tribunal held that, although the chewy bars could not be described as biscuits, they were more akin to biscuits that to chocolates or sweets; further, they found that the chewy bars were not wholly or partly covered with chocolate or any similar product. Consequently, the chewy bars were not excepted from zero-rating as confectionary similar to chocolates or sweets.

[21]On the appeal, the issue had been refined: the question was not whether the chewy bars were chocolates or sweets, but whether they were similar confectionary (ie similar to chocolate or sweets), it apparently being common ground that they were confectionary and common ground also that they were not chocolates or sweets. In contrast with the situation in Ferrero, the legislation concerned in Quaker Oats thus envisaged a comparison: The Judge asked himself two questions Was this confectionary similar to chocolates and sweets? What is confectionary? He clearly saw these questions as ones concerning the ordinary meaning of language – What would ordinarily be regarded as confectionary? Were the chewy bars similar to chocolate and sweets? And, in quoting a passage from the judgment of Cross J in Candy Maid Confections Ltd v C&EC

[1968] 3 All ER 773

, he seems to have considered it appropriate to ask what the man in the street would say.

[22]The Judge approved, for the purposes of that case, a comparison based on ingredients, process of manufacture, appearance and marketing. He listed the matters slightly differently at page 686, but the discussion proceeds under the four headings I have just mentioned, identifying the submissions of each side in relation to each heading.

[23]One criticism made by the Crown of the tribunal was that they did not address themselves to some of the matters which, by reference to this list, were clearly of importance, such as appearance generally and the product overall, including packaging as well as taste. Although apparently adopting those criteria, the Crown argued that the tribunal did not actually apply them. But in that context, the Judge focused on a passage in the decision which he sets out: “On the particular facts before us we reach the unanimous conclusion that while the chewy bars could not be described as biscuits, they were in our view more akin to biscuits than to chocolates and sweets”.

[24]The taxpayer submitted that that was just the sort of overall general view and of precisely the kind which the tribunal ought to have taken. The Crown, in contrast, said that underlying this could be said to be the wrong question: the tribunal was not addressing itself to the statutory question but rather to a similar albeit relevant question.

[25]The Judge did not expressly resolve each of the competing submissions made by the parties. But he did conclude by saying this:

“In the result I have come to the conclusion that this tribunal did that which was required of it. It considered the provisions of the statute. It clearly had regard to the relevant law because indeed it is from the tribunal decision that I have been able to extract, for the purposes of this judgment, the statutory provisions. Having had regard to the relevant law and the facts of the particular case with which it is concerned, it came to a decision on those facts. If that is a correct interpretation of which occurred, then it seems to me that there can be only once course which this court can adopt. It cannot possibly interfere.”

[26]I have dealt, perhaps at undue length, with Quaker Oats because, in the present case, Mr Cordara criticises the Tribunal for a failure to address each factor to be taken into account in assessing similarity, to explain how each factor is taken into account (in particular on which side of the scales it sits) and the weight to be attached to it in the balance. It seems to me, however, that Quaker Oats is an example of the court upholding a decision of a tribunal even where the tribunal had not itself set out in its decision a detailed consideration of each and every factor which fell to be taken into account, explaining how it fell to be treated in the balance and the weight attached to it.

[27]The true interpretation of the statutory provisions with which I am concerned is, of course, a matter of law. In contrast, the ordinary meaning of an English word is a matter of fact: see Brutus v Cozens

[1973] AC 854

, the issue of fact in that case being whether behaviour on the part of the defendant was “insulting behaviour” within the meaning of section 5 Public Order Act 1936. It was held that those words had to be given their ordinary meaning and that, absent some special meaning, it was a question of fact for the justices whether the behaviour of the defendant was insulting. Questions which on their face may seem to be questions of fact might, on closer analysis, be matters of mixed fact and law. Thus in Fitzpatrick v IRC and Smith (HMIT) v Abbot

[1994] STC 237

, the question whether expenditure incurred by journalists in the acquisition of newspapers and magazines was incurred “wholly, exclusively and necessarily in the performance of the said duties” within the meaning of section 189 Income and Corporation Taxes Act 1970, that is to say in the performance of their duties as journalists, was a mixed question of fact and law. More recently, in HMRC v Premier Foods Ltd

[2007] STC 176

, the Chancellor, Sir Andrew Morritt, has thrown valuable light on the correct approach quoting a passage from Bennion on Statutory Interpretation (3rd edn, 1977) at pp 945-6 which is worth repeating:

'The question of what a word means in its context within the Act is a question of legal interpretation, and therefore of law. The court is required to arrive at the legal meaning of the term. This does not mean that a jury cannot be left to apply an ordinary word without judicial exegesis. Nor does it mean that an interpretation put on an ordinary word by lay magistrates or any other lay tribunal is to be disturbed on appeal unless it is within the Wednesbury principle. Buckley LJ said of the meaning of the word “plant” in the Income Tax Acts – ‘The statutes have not, at any time, contained a definition of the meaning of 'plant'

. Consequently the question is: what does that word mean and how does it apply to the particular circumstances of this case? That is a question of law, being one of interpretation, but nevertheless it is a jury question in the sense that the word 'plant' is not a term of art: it must be interpreted according to its ordinary meaning as a word in the English language and the context in which it has to be construed; that is to say, the court of construction must interpret it as a man who speaks English and understands English correctly but not pedantically would he interpret it …’” Bennion refers to Brutus v Cozens in a footnote to this passage.

[28]In Premier Foods Ltd,the Chancellor held that the meaning of “confectionery” in excepted item 2 and note (5) to Group 1 was a matter of law so that the tribunal had erred in law in applying a dictum of Lawton J in C&ER v Popcorn House Ltd

[1968] 3 All ER 782

. In that case, the word took, from the context of its use, a special meaning which could not properly be applied in Premier Foods Ltd. It is a matter of law what meaning is to be attached to words, but once it is decided, as a matter of law, that a word is to be given its ordinary meaning, it is a matter of mixed fact and law what that meaning actually is. It is a jury question, as explained, in the sense that a jury can determine it without judicial exegesis.

[29]In my judgment, the question whether Regular Pringles are “similar products made from the potato etc” raises questions of law and of mixed fact and law. The meaning of “made from” in the context of excepted item 5 is a matter of law; it is necessary to identify what concept is identified by those words before applying the facts to that concept. So far as concerns similarity, the concept of similarity in the statutory context is not, in my view, something which is clear and obvious. There are different views about the level on which similarity is to be assessed and about the criteria which should be applied in assessing actual similarity: see further paragraph 35 below. This is not a case where all that has to be done is to apply clear and undisputed principles to the facts which have been found: see the words of Lord Mustill in Fitzpatrick at

[1994] STC 255

. If I consider that the Tribunal has (or perhaps even “may have” if their reasoning is not sufficiently clear) applied the wrong concept of similarity, their decision is open to review notwithstanding that their decision is, in one sense, a matter of fact. I am not restricted to a review on Edwards v Bairstow principles. However, the reasonable man in the street is not to be removed from the scene by some judicially imposed detention-without-charge. Once he has understood the context in which he is to form a view, the question of similarity is for him.

The Decision (continued)

[30]Returning to the Decision itself, the Tribunal next look at the purpose of the legislation in paragraph 9 of the Decision. They accept the contention of Mr Hill (who appeared before them as he did before me for HMRC) that in general the intention of Parliament was to standard-rate food that was not purchased primarily for the purpose of nutrition. However, one must be very careful about reading too much into the statutory provisions. It cannot, in my view, be said that the legislation shows a clear policy to tax “junk food”. What difference, one might ask, is there between a turnip crisp and a potato crisp in terms of its “junkiness” or otherwise? One might think that the answer is very little and yet the former is zero-rated and the latter standard rated. It is not difficult to multiply examples of that sort. There are plenty of “junk foods” which do not fall within any of the exceptions from zero-rating for food; there are also examples of healthy foods which are standard rated, for instance freshly squeezed orange juice available in supermarkets which falls within excepted item 4.

[31]The Tribunal sets out some history in paragraph 9 which I do not think it is necessary to repeat. They accept Mr Hill’s contention that in general the intention of Parliament was to standard-rate food that was not purchased primarily for the purpose of nutrition. I do not think one can go that far. In any event, the Tribunal expressly state that they find little help in the purpose of the legislation in deciding the appeal, drawing attention to “the unreality of our task is demonstrated by the fact that while the legislation concentrates on potato content, for which there was no doubt good reason in the 1960s when potato crisps were the main savoury snack, as stated in paragraph 1(13)of the Annex, six of the Appellant’s top 10 competing products have no potato content and five of them are zero-rated (one being standard-rated on other grounds)” I can only agree with that.

[32]The comparison in the present case is to be made between potato crisps, potato sticks and potato puffs on the one hand and similar products made from the potato, or from potato flour, or from potato starch on the other. That similarity is to be assessed in the context of Group 1 and the exceptions (and overrides of the exceptions) as a whole, and in particular the need for packaging for human consumption without further preparation and the reference to certain savoury food products in paragraph 5. The approach taken by both parties before the Tribunal and of the Tribunal itself (see paragraph 10 of the Decision) has been to address two questions separately. First (limb (a)), whether the Regular Pringle is similar to a potato crisp etc and secondly (limb (b)), whether it is made from the potato etc. It is of course sensible to address the two limbs of the statutory provision independently, but it is important to remember that there is only one statutory test which is whether the Regular Pringle is a product made from the potato etc which is similar to a potato crisp etc. There is a danger, in addressing each limb separately, of making an incorrect comparison since, or so it seems to me, each limb informs the other.

[33]The Tribunal recognises that potato content is not decisive. I would interpose to remark that the total absence of potato is decisive: if the product contains no potato, it is not even necessary to address limb (a) (the “similar” to requirement). But even where potato content is high, it does not follow that the product is standard-rated: a product made entirely from potato is only standard-rated if it is similar to a potato crisp. The Tribunal identifies the problem that a product may be made partly from potato and partly from other ingredients: this is the case with the Regular Pringle. But the legislation is silent on the proportion that satisfied the requirement that it is made from the potato etc. The Tribunal recite the competing approaches of P&G UK and HMRC but do not, at this stage, express their own views.

[34]In paragraph 11 of the Decision, the Tribunal identify that Regular Pringles are a unique product in ingredients, taste and shape: they therefore see asking whether they are similar to potato crisps etc as required by the limb (a) as a difficult task. They refer to the impressive lists produced by each side of the ways in which they were similar or dissimilar. They note that in Quaker Oats it was agreed that the test in limb (a) was that of the ordinary reasonable man in the street which should take into account appearance, taste, ingredients, process of manufacture, marketing and packaging. No doubt those are relevant criteria, or will be in most cases, but I add that it should not be thought that the list is exhaustive if, in a particular case, some other factor can be seen to be of relevance to similarity.

[35]In paragraph 12, the Tribunal recognises that the answer in relation to limb (a) depends on the level of generality at which the question is posed. In that context, I would add that it also depends on the context in which it is posed for the context will inform the adoption of the correct level. Thus, at a high level, a Regular Pringle is similar to a potato crisp in that they are both edible: but that is certainly not the level at which the question needs to be asked. Take an example away from snacks: an edible mushroom may be similar to a poisonous mushroom for some purposes eg classification, but is clearly dissimilar in the context of food for human consumption. At a more relevant level, the position may not be straightforward. For instance, if one asks the question, in the context of savoury snacks, whether a Regular Pringle is a similar snack to a potato crisp viewed as a snack, the answer is not self-evident. One therefore needs to identify how similarity is to be assessed in the particular context of the wording of this excepted item. Further, one needs to do so in the context of the whole comparison (ie between a potato crisp and other products made from the potato etc and not simply other products).

[36]As the Tribunal correctly recognise, all material factors must be taken into account, but in doing so it says this: “But if we are to take account of all the factors of appearance, taste, ingredients, process of manufacture, marketing and packaging, it is clearly wrong to say that Regular Pringles are similar to potato crisps as a crispy savoury snack, with potato content, made by frying, and marketed as a snack”.

[37]In applying the “ordinary reasonable man in the street” test, the Tribunal, in paragraph 13, exclude certain factors.a. First, they exclude the difference that Regular Pringles are made from flours and that the manufacturing process involves making a dough on the basis that this is true of any product made from potato flour or potato starch which clearly must be capable of satisfying limb (b).

b. Secondly, they ignore the US website with references to Pringles’ similarity with potato crisps on the basis that crisp has no particular meaning in US parlance.

c. Thirdly, they ignore the World Trade Organisation categorisation as being aimed at a different test and also probably being outside the knowledge of the reasonable man. I will consider whether they were right to exclude them later.

[38]I need to quote paragraphs 14 and 15 in full:

“14. We are reluctant to grade the other factors to be considered, as the Tribunal did in the Pringles Dippers case, who took the ingredients as the most important, the size of packaging, marketing for dipping, manufacture, appearance and taste apparently in that order (or at least taking the first three as the most important in that order). We consider that the reasonable man applies the test as a whole without applying an order. However, we do not regard the shape of Regular Pringles as particularly important to this test given the wide variety of products on the market. Nor do we regard the size of packaging as particularly important. While potato crisps may primarily be sold in smaller packs, they are often sold in larger packs, and occasionally in tubes, and a smaller proportion of Regular Pringles are sold in smaller packs. While we are aware of the potato content, the reasonable man may not be aware of the fact that a normal potato crisp has a maximum potato percentage in the 70s, the next largest ingredient being fat, or that Regular Pringles have a potato content of about 42 per cent because this is not required to be stated on the packaging. While the potato content of Regular Pringles is not advertised as such, a purchaser can see from the label that it does contain potato. 15. Standing back and taking all the factors of appearance, taste, ingredients, process of manufacture, marketing and packaging together (other than the ones we have stated above that we should ignore) and applying the reasonable man test in test (a) [ie the test in limb (a)], we consider that while in many respects Regular Pringles are different from potato crisps and so they are near the borderline, they are sufficiently similar to satisfy that test.”

[39]The Tribunal, it can be seen, expressly reject the grading of factors undertaken by the tribunal in Pringle Dippers. They explain why they do so and also state that they do not regard the shape of the Regular Pringle or the size of packaging as particularly important. More significantly, however, they refer to the reasonable man as perhaps not being aware of the potato and fat content of crisps and Regular Pringles, although noting that he will be able to see from the Pringle package that it does contain some potato.

[40]The Tribunal then turn to limb (b) and examine whether Regular Pringles are made from the potato etc. The tribunal in Pringle One concluded that limb (b) included only products which are made wholly (or substantially wholly) from potato. They relied on the reference to “the potato” and the fact that the words “made from” are not followed by “or partly made from”. They found support for their conclusion in the fact that the presence of potato, or the amount of potato, in a product is not a factor which, by itself, takes the product out of zero-rating, noting that some products made almost entirely out of potato (eg potato farls) are zero-rated. They correctly say that the mere fact that a product contains some potato is not conclusive but then draw the conclusion that the comparative amount of potato (if less than the whole) cannot be conclusive either.

[41]The Tribunal disagree with that conclusion. In paragraph 16, they say this:

“The context is that such products are similar to potato crisps, the potato content of which is in the 60s to 70s per cent range, the higher figure being for low fat crisps which we suspect were not made in the 1960s although we do not have any evidence of this. We consider that the draftsman should be taken to know that potato crisps are not made substantially wholly from potato. Nor do we read anything into the slightly pedantic reference to “the potato” rather than to “potatoes.”

We agree with Mr Hill’s criticism of the second part of the quotation; the reason why some products made wholly from potato are zero-rated is that they are not similar to potato crisps in test (a), and so test (b) is irrelevant and this cannot be used as an argument for the interpretation of test (b). We do not therefore find any implication that similar products must be so made. Accordingly we consider that the implication is that they can be partly so made. This immediately raises the question of what is the minimum proportion that will satisfy the test. We are attracted by Mr Hill’s argument that the question is unlikely to arise when the proportion is very low because such a product is unlikely to be similar to a potato crisp, but we do not need to decide that in this case”.

[42]Having decided that a product made only partly of potato can satisfy limb (b), the Tribunal raise the question of what is the minimum proportion that will satisfy the test. They express their conclusion in this way at paragraph 17:

“Here the potato flour content is over 40 per cent; it is the largest single ingredient by about 9 percentage points; and it is nearly three times larger than the other flours in the ingredients taken together. We have to give a yes or no answer to the question “are Regular Pringles [partly] made from the potato, from potato flour or from potato starch” and we are bound to say yes. There are other ingredients but it is made from potato flour in the sense that one cannot say that it is not made from potato flour, and the proportion of potato flour is significant being over 40 per cent. The fact that it is also made from other things does not affect this.

(b) ”

The duty to give reasons

[43]I want to say something now about the duty of a tribunal to give its reasons. Appellate courts are prepared in some cases to take a less strict approach to the decisions of tribunals than of courts in terms of the clarity of reasoning and the giving of detailed reasons. One sees this in the case of decisions of Hearing Officers of the UK Intellectual Property Office. Such individuals are experts in their field but are not (necessarily) lawyers. I would not, however, consider it appropriate to apply a less strict approach to a skilled tribunal such as the VAT & Duties Tribunals that to a judge of a civil court, be it the County Court of the High Court.

[44]The general rule, at least after a full hearing as in the present case, is that the tribunal must give reasons for the decision it has made. Thus in Flannery v Halifax Estate Agencies Ltd [2000] 1 W.L.R. 377, the Court of Appeal allowed an appeal where the judge had failed to give an reasons for preferring the evidence of one expert witness to that of another. In English v Emery Reimbold & Strick Ltd

[2002] EWCA Civ 605

, [2002] 1 W.L.R. 2409, the Court of Appeal explained why a trial judge must give adequate reasons. As succinctly summarised at the note CPR 52.11.5 in the White Book, reasons are necessary in order to render practicable any right of appeal. Justice must be seen to be done. It must be apparent to the parties and to the public why one party has won and the other has lost. The giving of reasons provides a necessary discipline for judges and it contributes to the setting of precedents for the future. The judge does not have to deal with every argument presented, but must make plain the principles on which he has acted and the reasons which led him to his decision. This approach was applied in Argos Limited, Littlewoods Limited v Office of Fair Trading

[2006] EWCA Civ 1318

. Submissions and discussion Policy

Submissions and discussion

[45]I have had lengthy written submissions from both sides and have heard full oral argument. The first matter I want to deal with falls under the head of policy. I hope I will be forgiven if I deal with this aspect briefly if only for the reason that I find appeals to policy in the context of this legislation of no help in resolving the issues before me.

[46]I do not dissent from Mr Cordara’s proposition, established by case law, that the VAT legislation has to be construed against a clear understanding of the policy, but that can only mean such policy as can be established. The starting point is EU legislation which allows, on grounds of social policy, for the zero-rating of supplies. It is on that basis that the UK legislation has an exemption for food. There is, however, no requirement that any exclusion from exemption for certain types of food be justified by any social policy. It does not seem to me, therefore, that any policy in relation to the exception of items from zero-rating is to be found in the EU legislation.

[47]Nor do I think that the exceptions from zero-rating need to be restrictively construed. Since the basic rule is that supplies are standard rated, the exception from zero-rating simply brings the supply back to the norm. Further, although there is also a general principle of equality that similar transactions and supplies should be treated in a similar way, it is by no means clear (in the light of Article 28(2) of the Sixth Directive and Idéal Tourisme SA v Belgian State [2001] STC at paragraph 35) that the UK could bring into zero-rating supplies which are currently standard-rated. In any event, the court cannot re-write our domestic VAT legislation and even if it could it might simply standard rate certain items of food which are currently zero-rated.The principle of equality is, however, one which should be borne in mind when interpreting our own legislation. But it seems to me that that will not help much, if at all, in the present case where Regular Pringles are in competition with a variety of snacks some of which are, and some of which are not, zero-rated.

[48]So far as our own domestic legislation is concerned, the purpose of the legislation is discussed in paragraph 9 of the Decision where the history of the legislation is also described. I agree with the Tribunal when they say that, because of the age of the legislation and the very considerable changes to the market since 1992, there is little help to be found (I would only change that to no help to be found) in the purposes of the legislation in deciding this appeal. In any event, I seriously question the admissibility, applying the principles of Pepper v Hart, of much of the material relied on. Since the construction of the legislation is a matter of law, I do not consider that I should rely on it one way or the other, whatever the Tribunal themselves may have done.

Construction

[49]I propose at this stage of my judgment to state my own conclusions on the correct construction of the legislation and the approach to be adopted addressing some of the submissions made by the parties as I go along.

[50]As I have already said, excepted item 5 must be construed as a whole and whilst separate examination of limb (a) and limb (b) may be helpful, each limb informs the other. Thus, limb (b) shows that there can be products which are similar to potato crisps but which are not made out of pure potato; they can be made from potato flour or starch so that the pure potato feature of a crisp is clearly not a requirement of a similar product; and it may be that the typical “crispyness” of a crisp, stick or puff does not have to be precisely matched, but can be found in something similar in the flour or starch product. For example, there are sticks on the market today made of potato flour rather than sticks of pure potato. Whether or not they are properly to be regarded as “potato sticks” or as a similar product does not matter; they are sufficiently similar to potato sticks (and are clearly made of potato flour) so as to fall within the excepted item.

[51]The issue of construction is a question of mixed fact and law (see paragraphs 27 to 29 above). The context in which that question falls to be answered is the context of the general zero-rating of food but with standard-rating for certain items. As the Tribunal remark in paragraph 12 of the Decision, the answer to limb (a) (similarity) depends on the level of generality at which the question is asked; but it also depends critically on the context. Thus, Regular Pringles and potato crisps are clearly similar in the sense that they are both edible; but equally clearly, edibility is not the criterion by which similarity is to be judged (even assuming that the Pringle satisfies the “made from” test of limb (b)). Just to illustrate the importance of context, consider an edible mushroom. It may well be that for some purposes, for instance taxonomy, an edible mushroom is similar to a poisonous mushroom (in contrast with a truffle or a toadstool) but for other purposes it is clearly dissimilar for instance in the context of food for human consumption. It makes no sense to ask the question “Is a poisonous mushroom similar to an edible mushroom?” without explaining the context and understanding what it is, in that context, which is relevant to ascertaining similarity. In the present case, it is likewise necessary to set the question in its context in order to identify how similarity is to be assessed in the particular context of the wording of this excepted item.

Similarity

[52]One might hope that policy considerations would give some sort of a steer in answering the question how similarity is to be judged. Unfortunately, for reasons already given, it is not possible to identify a policy which seeks to standard-rate certain broad categories of food which might be regarded as unhealthy. Further, one cannot detect a policy to penalise the potato as such nor a policy to penalise crisps and other savoury snacks as such: the potato as such, is zero-rated and there are plenty of savoury snacks which are also zero-rated. Indeed, vegetable crisps (non-potato varieties) are zero-rated. Similarity cannot therefore be judged against a policy which seeks to standard-rate what might appear to be unhealthy foods although I suppose that the relative unhealthiness of two products might be a relevant factor in assessing their similarity. That is not an issue in the present case since there is nothing to suggest that the Regular Pringle is any more or less healthy or unhealthy than a potato crisp.

[53]So one is left, I consider, having to answer the question in a context which does not tell us any more than that we are comparing two products as foods, or perhaps two savoury snacks. There is no guidance in the legislation about how to make that comparison, or to tell us, as a matter of law, what similarity comprises. There is not even a selection (as in Ferrero) to be made between two classes, putting Regular Pringles into one class or the other. If there were, it would at least be possible to identify the properties of each class and to see whether Regular Pringles are closer to the one class than the other.

[54]The guidance we do have is to be found in the case law, in particular in Quaker Oats or Ferrero, cases on which both sides rely. But in neither of those cases did the courts seek to lay down some sort of bright-line, or even not-so-bright-line, test by which similarity is to be judged, and thus they did not go on to see how factors identified as relevant fitted in with that test. Instead, as in Quaker Oats, the court went straight to the factors by which similarity was to be judged which thereby defined the very test of similarity itself. Thus, the courts did not explain why ingredients, process of manufacture, appearance and marketing were relevant to testing similarity, but appear either to have regarded it as self-evident or simply adopted the factors apparently agreed by each side to the dispute. One can readily see that ingredients, taste and appearance are relevant factors when one asks whether two foods are similar: this is because knowledge of the ingredients is important in understanding what the food product actually is; and the taste and appearance of food are properties of food which any description of an item, as an item of food, would contain. As to the other factors, these were regarded by the judge in the context of the facts of Quaker Oats, as relevant. I would make two observations.

[55]The first observation is this: the reason that these factors are relevant is not, so it seems to me, because the method of manufacture, the packaging and the marketing are or are not, of themselves, similar, but rather because those factors help to identify what it is about the relevant product (in that case the chewy bars, in our case Regular Pringles) which make them similar or dissimilar to something else (chocolate or sweets; and potato crisps). See further at paragraph 100 below.

[56]The second observation is this: I do not think that Quaker Oats, or indeed any other case, lays down the four factors considered in that case as necessarily exhaustive in all cases (or, indeed, as necessarily relevant in all cases). The relative nutritional values of two items of food, or their vitamin or iron content, may be highly relevant in assessing similarity in the context in which the question is asked. Conversely, difference in packaging may tell us absolutely nothing about differences in the product. All that can be said is that in Quaker Oats itself, the four factors were all that anyone thought were relevant.

[57]Before considering similarity further, I wish to address the issue of when a similar product can be said to be “made from the potato etc”.

Made from the potato etc

[58]Whatever the correct approach to similarity, it is also necessary to know what products can be said to be “made from the potato etc”(bearing in mind that similarity has to be judged in the context of the entirety of excepted item 5). No doubt there will be products which are so dissimilar that it is not necessary to decide whether they have sufficient potato content to be “made from” potato; and conversely, there will products which are so clearly not made from potato (eg a vegetable crisp with no potato content at all) that it will not be necessary to address the question of similarity The possible approaches to “made from” are, I think, the following:a. The product must be wholly, or substantially wholly, made from the potato etc. In other words, the product must contain nothing, or substantially nothing, other than potato. This is the meaning for which Mr Cordara contends. As will be seen, Mr Cordara says that if “made from” does not mean “wholly or substantially made from” in that literal sense, it does have that meaning in a qualified sense to which I will come. In referring later in this judgment to the first approach, it will be apparent whether I am referring to the literal or the qualified sense.

b. The product must be made wholly or partly from the potato etc or, which comes to the same thing, it must contain potato. No doubt there is a de minimis hurdle to pass, but subject to that, the need for potato content is simply a threshold test so that only products which contain no potato (or de minimis amounts) are excluded. This is, the meaning for which Mr Hill contends.

c. The amount of potato content necessary is to be ascertained as part and parcel of the assessment of similarity. In other words, there is only one exercise to perform which is to decide whether the product is similar to a potato crisp etc and potato content is taken into account in the performance of that exercise.

d. The amount of potato must be sufficient to make potato of the essence of the product. This is to correlate “made from” with “essential characteristic”; a product is “made from” the potato etc if its essential characteristic is, if I may use the word, its “potatoness”.

[59]As to the first approach, it is apparently easy of application. It is clear that the tribunal in Pringle One considered that this was the correct approach and Mr Cordara adopts their reasoning. I cannot go along with parts of their reasoning, however and prefer to deal simply with the submissions as Mr Cordara made them. He says that the first tribunal reached the right conclusion because it accords with a reasonable reading of the words “made from” rather than equating them with “made with” or “containing”. But as with the similarity test, everything depends on context. Suppose I have guests to a meal and serve them a sweet soufflé; it would make perfectly good sense to say “Here is my piece de resistance – a soufflé made from chocolate” even though the main ingredient is egg. The emphasis on chocolate is what distinguishes this soufflé from, say, a jam or cheese soufflé.

[60]Mr Cordara naturally focuses on the use of the word “potato” a number of times in excepted item 5. One sees potato crisps, potato sticks and potato puffs with similar products being confined to ones made from potato. This, he says, shows that the really important component of all the products is potato. It was unnecessary for the draftsman to say “made wholly from” since this is implicit in the whole structure of the provision

[61]The first approach is not, however, as straightforward and reasonable as it might seem and faces a difficulty on the facts. Mr Hill submits that, on the facts as found by the Tribunal, even a potato crisp in the packet is at most 70% or so potato. Accordingly, it is not made “wholly or substantially” from the potato and so a similar product need not be either.

[62]As to that, Mr Cordara has two main points.

[63]First, he says that the reason for the crisp in the packet being only 70% potato is because oil is left on them after cooking. The oil sits on the surface of the crisp and is a residue of the cooking process. As a matter of fact, I do not know if that is correct: it was not a finding of the Tribunal and it may, for all I know, be that some fat is absorbed by the potato slice in the cooking process. Be that as it may, the oil is there and it affects the texture and flavour of the crisp. I rather wonder what a potato crisp without oil would be. However, the fact that the cooking agent, oil, stays on the pure potato crisp after cooking throws no light, he says, on the question of what “made from” means.

[64]Secondly, he says that the fact that similar products have to be wholly or substantially wholly made from potato does not mean that the potato crisp itself must be so made. He points out that the position in relation to potato sticks and potato puffs is unknown: there was no evidence before the Tribunal about the potato content of a stick or a puff once cooked. Accordingly, even if it is right to say that a potato crisp is not “made from” the potato, other similar products do have to be “made from” the potato etc.

[65]I reject that second argument. In my judgment, excepted item 5 is drafted on the basis that the three specified products, potato crisps, potato sticks and potato puffs, are all products which are “made from” the potato; indeed, they are the paradigm potato products by which similarity of other potato products is to be judged. If any of those products is not, in fact, made wholly or substantially from potato, then the first approach cannot be right.

[66]On the basis that the crisp in the packet contains a significant amount of oil (as it does and as is recognised by labelling requirements) it might be said to be obvious that the crisp cannot be said to be made wholly or substantially of potato. In that (literal) sense, the potato crisp is made from potato (plus flavourings) and oil; it would be wrong to say that the oil residue is simply a by-product of the cooking process which can be ignored. To ignore the oil would be to ignore what it is that the product – the crisp in the packet – contains. Accordingly, when the draftsman says “made from”, he means simply “wholly or partly made from”.

[67]However, it can be said that that is not the sense in which the draftsman is using the words “made from” but rather that he is focusing on what it is in the relationship between the potato crisp and the potato which makes it correct to describe the crisp as “made from” potato (and similarly with the potato stick and the potato puff). The important aspect on this approach is what goes into making the crisp, its ingredients. The ingredients of a potato crisp are the potato slice and the flavourings (but the presence of these flavourings does not prevent the crisp being substantially made of potato). In contrast, the oil in which the crisp is cooked is not an ingredient of the crisp. Rather, on this approach, it is simply the medium by which the ingredients are cooked to produce the end product; the fact that the crisp contains perhaps 30% oil, does not mean that it is not “wholly or substantially made from” potato in the sense in which Mr Cordara says that the words “made from” are to be read.

[68]As part of his argument, he compares the products before cooking: such a comparison shows a pure potato slice versus an artificial culinary mix (made with a number of dry – that is to say non-oil – ingredients). He says that it would be odd if by addition of oil in the cooking process, the two became similar. I do not find that at all helpful in ascertaining the true meaning of “made from”. In any case, the statutory test requires comparison of a product with a potato crisp or something made from, for instance, potato flour. Imagine, on the one hand a pure potato slice and on the other hand potato dough. It may be said that the dough is no more similar to the potato slice than the Pringle mix. But the dough, when cooked, might result in a product which is similar to a potato crisp and would clearly satisfy the “made from” test. One can see that it does not necessarily follow from an apparent, one might say common-sense, perception of dissimilarity of ingredients that the resulting products are also dissimilar.

[69]Mr Cordara also referred to an argument which he anticipated HMRC would run namely that the “made wholly or substantially from” test cannot be right because Parliament is to be taken as knowing that one cannot make a flour based product without fat to bind. However, he says that the evidence on this aspect was that only 2 to 2.4% fat was needed to bind, an amount, accordingly to him, leaving the product clearly within the scope of “made wholly or substantially wholly from potato”. I am not sure that the evidence actually establishes that; even if it does, whether a flour-based product made with that amount of fat could ever be turned into a potato crisp etc or a similar product was not something the Tribunal decided and, so far as I know, there was no evidence on that point.

[70]I will return to the first approach after considering the other approaches.

[71]As to the second approach, I consider that it is a perfectly workable approach. If the legislation had said, expressly, “made in whole or in part from the potato etc” there would be no doubt about the meaning of the words: any product containing potato would be “made from”, the question then being whether the product is similar to a potato crisp etc.

[72]I have already mentioned, in considering the first approach, Mr Cordara’s focus on the word “potato”. That focus, he would say, should lead to rejection of the second approach. If the draftsman had intended products made partly from potato to have been capable of being similar to potato crisps etc, it would have been easy for him to say “made in whole or in part from”. That is true, but equally it might be said he could have said “made wholly or substantially from” if the first approach was intended.

[73]However, the words “made wholly or substantially from” potato would be inapposite to achieve the qualified version of the first approach. To use the words “wholly or substantially made from” would apparently be to prescribe the literal meaning. In that case, the potato crisp itself would not be “made wholly or substantially from” potato giving rise to the curious result that the similar product has to have a greater potato content that the crisp to which is it meant to be similar. Alternatively, it would be necessary to ascribe to the phrase “wholly or substantially made from” the special meaning which, on the first approach, is to be given to “made from”, an unnatural construction which I do not think could be supported.

[74]One attraction of the second approach is that it avoids the difficult factual issues which would be likely to arise on either of the third and fourth approaches. But the second approach does raise some difficult questions. In particular, the question arises whether, once the threshold is crossed, potato content has any further part to play in assessing similarity. I will answer that question in due course.

[75]It also raises, of course, the question of why on earth Parliament would want to tax an item which contained a small amount of potato but not a similar item which contained no potato. That sort of difficulty arises on any construction for one asks why on earth Parliament would want to tax a product made wholly of potato but not other snacks - even very similar snacks like vegetable (non-potato) crisps. But having said that, I think it is true to say that the difficulty is more stark on the second approach.

[76]A variant of the second approach would be “wholly or mainly made from” or “wholly or significantly” potato. However, each of those may be difficult of application; I can see no warrant in the wording for adopting either of them as compared with the first or second approaches.

[77]The third approach must, in my judgment, be rejected. On any footing, the product must contain some potato. The third approach is tantamount to saying that a product (which contains some potato) is made from potato if but only if it is similar to a potato crisp. The “made from” requirement adds nothing to the second approach. Further, there are other reasons for rejecting this approach including the following.:a. First, it is entirely unsatisfactory to have a test which is so inherently uncertain.

b. Secondly, even though limb (a) and limb (b) inform each other, it ought to be possible to say whether a product is made from potato before embarking on the enquiry whether it is similar to a potato crisp.

c. Thirdly (although this may be only a special case of secondly), this approach may lead to an anomaly. Consider two different products with the same potato content; after taking into account all relevant factors, one product is properly categorised as similar to a potato crisp and the other is properly categorised as not similar. It would be very odd if, even though they have the same potato content, the one product was “made from” potato but not the other.

[78]That leaves the fourth approach which requires the “essential characteristic” of the product to be ascertained. The product is “made from” potato if its “potatoness” is sufficient. What I mean by essence in this context is the intrinsic nature of the product or the quality which determines its character: see for example the definition of the Compact Oxford English Dictionary. In this sense, the essence of a product is not necessarily determined quantitatively by its ingredients. It is not, as Mr Cordara puts it, a numbers game. The fact that potato is the single largest ingredient (eg 40% potato and 20% of each of two other ingredients) or even that it accounts for more that 50% does not mean that the potato represents the essence of the product or defines its essential characteristic. I can see that such a test might work in the context of similarity – a product is similar to a potato crisp if they have the same essential characteristics – but it is not a test which, in my judgment, can sensibly be adopted as the yardstick for whether a product is “made from” the potato etc. Indeed, an anomaly arises similar to that which arises on the third approach and mentioned in the third reason given in paragraph 77 above. This time, consider two different products with the same potato content; after taking into account all relevant factors, potato is the essential characteristic of one product but not of the other. It would, nonetheless, once again be very odd if the one product was “made from” potato but not the other.

[79]Having rejected the third and fourth approaches, the competition is between the qualified first approach and the second approach. I consider that the first approach is in principle correct although it may not always be easy of application.

[80]To say why this is so, I need to say something more about the interaction of limb (a) and limb (b). The three products specified in limb (a) are all products which can be said to be made of potato and not, relevantly, of anything else, notwithstanding that they in fact contain other matter, namely in the case of the crisp, residual oil (there is no evidence in relation to stick and puffs). Their distinguishing feature is that each of them is a product made substantially out of potato (and other ingredients including flavouring) to which a process has to be applied to turn them into crisps. Although that process involves adding a further ingredient to the product, it does not prevent the product being made from the potato in the sense required by the first approach. The use of the word potato in each limb reflects the need for the similar products in limb (b) to be comprised of potato in a way which corresponds to the way potato is comprised in one of the three products within limb (a). Since the products in each limb have to be similar, such correspondence should not be too difficult to ascertain.

[81]Take, for example, the potato stick; a similar product would be the stick made of potato flour instead of pure potato (or if that is said itself to be an actual potato stick rather than a similar product, imagine a circular version). The flour stick might have to be cooked in a different way and may retain different residues of oil or other product (perhaps more than the pure stick does, if indeed the pure stick has any such oil residue). But the end product is still a potato product; it should be possible to assess, as a matter of fact, whether the potato flour is in the same sort of relationship to the flour stick as the pure potato is to the potato stick; or, as part of the same approach, to assess whether the contents other than potato flour or pure potato are as irrelevant to the question whether the flour stick is made from potato flour as they are to the question whether the potato stick is made from potato.

[82]If this is the correct approach, then, for instance, a flour stick made half of potato flour and half of some other flour would not be “made from” potato in the sense required by excepted item 5. The way in which such a product is made from potato flour would not correspond with the way in which a potato stick is made from pure potato.

[83]This approach may be reasonably straightforward to apply in cases such as that where it is possible to see quite easily how such correspondence operates. In other cases, it may be more difficult to decide whether the required correspondence is present. And in yet other cases, it may be absolutely clear that there is no correspondence between the way the potato is comprised in the product and the way it is comprised in the potato, crisp, stick or puff. The Regular Pringle, on this approach, is clearly not “made from” potato.

[84]I consider that the statutory wording indicates that the draftsman intended this approach rather than the second approach, even though the second approach would be more simple to apply (which is so because it is easy to answer the question whether a product has any potato content). The second approach, however, does not, in my judgment, pay adequate regard to excepted item 5 as a whole nor to the interaction of limb (a) and limb (b). On the second approach, potato content is simply a threshold test and, as I have mentioned, leaves one asking why a very small amount of potato, exceeding a de minimis amount, should make a product taxable. Why did the draftsman not simply omit the words “made from” etc and make all products similar to potato crisps excepted items?

[85]It has been said that the potato crisp was the only snack around when the “made from” wording first found its way into the legislation. That may be so; but if the wording were to be construed by reference to those circumstances, it would, it seems to me, be a further ground for rejecting the second approach. This is because the draftsman could be seen to have in mind only products made from potato in the sense of the first approach since there were no other relevant snack products around. It is, in any case, not right to construe the words in that way; the words must be construed in the context of the VAT Act 1994. It is not appropriate to indulge in legislative archaeology and to construe the words in the light even of earlier VAT legislation, particularly where there are differences in wording. By 1994 there were many snack products on the market; the draftsman can only have included the words “made from” etc to distinguish two classes of similar product – those made from potato and those not so made. In that context it is far more likely, in my judgment, that he intended the distinction to turn on more than the threshold content appropriate on the second approach.

[86]In my judgment, the qualified first approach is correct. It follows, on the findings of fact made by the Tribunal, that Regular Pringles are not made from the potato, potato flour or potato starch so as to fall within excepted item 5.

Similarity (continued)

[87]In case that is wrong, I should address the question of similarity. I do so on the basis that the second approach is correct, seeing this as the only realistic alternative to the first approach. It is pointless to address similarity in the context of the first approach since it is clear that Regular Pringles are not, on that approach, made from potato.

[88]I raised earlier the question whether, once the threshold is crossed, potato content has any further part to play in assessing similarity. It seems to me that the quantity of potato has played its part in full at the stage of the threshold test and has no further part to play in assessing similarity on the second approach. In other words, it would not be correct to say that one product, containing 50% potato, is less similar to a potato crisp than an almost identical product, containing 55% potato. But that is not to say that the potato as such, rather than its quantity as such, has no further part to play in assessing similarity for the quantity of potato may impact on other factors to be taken into account in the comparison. Thus a product containing, say, 50% potato might contain another ingredient which overpowers the taste of potato. Since taste is a factor in the comparison, the potato content will be relevant to the comparison in that its presence, or rather lack of sufficient presence, produces a taste which is not similar to that of a potato crisp. What would not be correct is to take into account, in effecting the comparison, the quantity of potato as a factor in its own right.

[89]This is an extremely important point in the present case. It is on the basis of the case law (Quaker Oats and Ferrero in particular) that ingredients are not only taken into account but are taken into account in a quantitative sense. But in the present case, if I am correct in saying that potato content, in a quantitative sense, is exhausted at the “made from” stage, the proportion of potato is not, of itself, a relevant factor in assessing similarity. The Quaker Oats factors must be qualified to take account of that aspect. It is perhaps worth noting that the same is true on the first approach: on that approach, the potato content required before the product can be said to be made from potato is such that in practice the issue of similarity is assessed by reference to all the other relevant factors. The potato content is a given in both the potato crisp etc and in the other product; it is the other factors which determine whether these two potato products are similar.

[90]The Tribunal do not address that point. But in paragraphs 14 and 15 of the Decision, they do seem to have taken account of potato content in a quantitative way. Their approach to the “made from” issue (see the end of paragraph 16 and the whole of paragraph 17) also suggests that they see potato content as relevant to the similarity of products. If that is their approach, then it displays an error of principle assuming that I am correct in my conclusion that the quantity of potato is not a relevant factor in assessing similarity.

[91]It is, I think, an error which would justify allowing this appeal and ordering that the matter to be remitted, probably to a differently constituted tribunal. This is because(a) the Tribunal themselves found the case a borderline case on similarity and

(b) it is therefore impossible to say that, had the potato content in a quantitative sense been ignored, the result would have been the same.

[92]Accordingly, I would remit the matter if I were of the view that the second approach to “made from” was correct.

[93]In case I am wrong on that as well as in my conclusion that the first approach to “made from” is correct, I should deal with some more detailed submissions about similarity.

[94]Mr Cordara focuses on paragraphs 12 to 15 of the Decision. He submits that the Tribunal ought to have followed the tribunal in Pringle One which had held that a similarly constituted product was not similar to potato crisps etc. It is to be noted, however, that in reaching that conclusion, one dissimilarity was the dipping aspect: dipping was not a characteristic of the use of crisps and the shape of Pringle Dippers was designed for dipping, being flatter than the Regular Pringle. It may or may not be that the tribunal would have found the Pringle Dipper to be dissimilar even absent the dipping aspect but I do not know that for sure. Further, given that there were other reasons why Pringle Dippers did not fall within excepted item 5 – in particular because they were not packaged for human consumption without further preparation – I am not as concerned as the Tribunal seem to be that different conclusions have been reached in relation to the answers to the tests in limbs (a) and (b). To be fair to him, Mr Cordara does not rely on the first tribunal so much for the result as for the approach. But even then, matters are not as clear as he would have it. It is true that the first tribunal identified the relevant factors each way and gave some indication of how each factor played its part and the weight to be attached. But even they did not explain explicitly the concept of similarity which they were applying or the level at which similarity was to be assessed.

[95]Mr Cordara submits that the Tribunal ought to have proceeded to analyse in a distinct way the legally relevant factors under the various headings laid down in the case-law (ie the ingredients marketing, manufacture, packaging and/or appearance) and then to apply the words of the statute to the resultant conclusion, instead of taking a global and analytically unspecific view (see in paragraph 14 of the Decision, where the Tribunal expressed themselves ‘reluctant to grade’ the factors to be considered). He says that this is particularly so for two additional reasons namely(i) the Tribunal themselves considered the case to be a borderline case and

(ii) it was differing from the analysis of the first tribunal. While acknowledging that latitude must be allowed to tribunals when expressing their views, the approach in the Decision leaves one guessing, he says, in what respects the Regular Pringle is different from the potato crisp etc and how the balance has been struck (if indeed it has been) between those respects and other respects (unspecified) in which they are similar. In essence, he says that the Tribunal have failed to give their reasons for their decision in a way which complies with their duties.

[96]Criticism is made that the Tribunal mishandled the use of the “reasonable man in the street” test which I have already described. According to Mr Cordara, it made two errors. First, they withheld from the reasonable man knowledge of the degree of potato content of the Regular Pringle as compared to a potato crisp and secondly, by assuming that the reasonable man would not carry out the step by step analysis that the prior tribunal had carried out; instead, the Tribunal were reluctant to grade the factors to be considered taking the view that the reasonable man applies the test as a whole without applying any order.

[97]As to grading, I do not consider that the Tribunal can be criticised for refusing to grade the factors which they took into account in order of importance or to explain what weight they were attaching to each factor. I do not consider that they were obliged to do so as part of their duty to give reasons for their decision nor in identifying the view of the reasonable man. Provided that they identified the correct factors and took them into account, it was not an error of principle to make a global assessment.

[98]Criticism is made that the Tribunal compare the shape of the Regular Pringle not just to potato crisps as Mr Cordara says it should have done but also to a wider group of products. What the Tribunal actually say is that they do not “regard the shape of the Regular Pringle as particularly important to this test given the wide variety of products on the market”. The group with which a product has to be compared in testing similarity comprises not only crisps, but sticks and puffs. If one is seeking to identify what it is about the group that is important in assessing similarity, shape would not seem to play much, if any, part; it is not irrelevant to look at other products, not themselves crisps, sticks or puffs, which are on any view similar products and to take account of their shape too. Thus Mr Hill gives the example of a KP Hula Hoop which the Tribunal record at paragraph 5(13) of the Decision as being standard-rated being a product containing flour and with a cylindrical ring shape. I agree with him when he says that all the Tribunal are really saying is that if the ordinary reasonable man regards Hula Hoops as similar to a potato crisp, then he could not regard the shape as being a particularly important factor in deciding whether a product is similar to a potato crisp.

[99]Mr Hill also makes the valid point (relevant to shape but also in principle to other factors) that in assessing how the ordinary man would view Regular Pringles, it is inevitable that the Tribunal would have to look at the wide variety of snack products on the market. This is because the understanding of well-informed consumers as to what is a potato crisp or a similar product must derive from their experience of products on the market. Products change. A potato stick was originally made out of sticks of pure potato but, as the Tribunal observe in paragraph 5(16) today some may be made from potato powder or starch. In contrast, potato puffs are, according to the Tribunal, not generally known in the industry today, although Mr Hill did identify two such products on the market today. It is quite reasonable for the Tribunal to be informed of, and to take account of, the variety of savoury snacks on the market in determining whether a product is or is not similar to a potato crisp.

[100]Criticism is also made that the Tribunal consider the size but not the shape of the packaging. The Tribunal in fact make some fairly comprehensive findings about packaging in paragraph 5(9) of the Decision, including about shape and including a finding that there are examples of potato crisps being sold in tubular cans like Regular Pringles. They took packaging into account in paragraph 15 – or at least they stated that they took it into account without in any way restricting what aspects they took into account (apart from saying, in paragraph 14, that they did not regard the size of packaging as particularly important where they also refer to tubes and packets ie shape). In any case, the Tribunal does not seek to say that, because the packaging of a product (being a product which is similar to a potato crisp) is similar (or indeed even identical) to the packing of Regular Pringles, this is an indication that the Regular Pringle is similar to a potato crisp or that dissimilarity of packaging means dissimilarity of product. It seems to me that the size and shape of packaging is of relevance only to the extent that it helps identify what it is about a Regular Pringle which makes it similar to or dissimilar from a potato crisp: one must treat with some caution the dissimilarity between the packaging of crisps and Pringles as a factor pointing towards dissimilarity of the product without understanding why the difference in the packaging indicates a difference in the product, especially if products which are similar to crisps also have packaging which is dissimilar to that of crisps. To put this another way, packaging (and the same goes for marketing) are not part of the product; they are relevant to the issue of similarity not because the actual package (or actual marketing) is similar in each case, but because of what the packaging (and the marketing) tell one about the product and how and when it is to be enjoyed. That is why, typically, positioning on supermarket shelves can be relevant in cases of this sort, just as it is in trade mark disputes.

[101]Method of manufacture (in particular cooking) is also relevant not because of the similarity or dissimilarity of the process, but because of the result it has on the product. Care needs to be taken in how account is taken of this. A fried egg may be said to be dissimilar from a scrambled egg and the difference in cooking method may be pointed out as a dissimilarity. But the reality is that it is not the dissimilarity in the cooking as a process which is relevant, but the result that the different method of cooking has on the egg so that the fried egg is not similar to the scrambled egg.

[102]It is convenient at this stage to say something about the knowledge which is to be imputed to the reasonable man, since one of the Grounds of Appeal is that the Tribunal erred in withholding from him knowledge as to the degree of potato content of Regular Pringles as compared with potato crisps. What the Tribunal actually say, in paragraph 14, is set out in paragraph 38 above. They were certainly not saying that ingredients were irrelevant. However they do seem to be proceeding on the basis that the reasonable man would not know the actual potato content although he would know that Regular Pringles do contain some potato. It is not disputed that the reasonable man must be taken to be well-informed; but HMRC say that there cannot be imputed to him specific information about the precise percentage of potato in Regular Pringles which the manufacturer does not publicise; it will be remembered that the packaging of Regular Pringles does not state the potato content. Indeed, it is pointed out that it is part of P&GUK’s case that “the ingredients of products in the modern snack market are largely irrelevant to purchasers, as is demonstrated by labelling requirements”.

[103]If I am right in the account – or rather lack of it – which should be taken of potato content, viewed quantitatively, in assessing similarity, it makes no difference at all whether the reasonable man knows the actual content or not. But if I am wrong on that, I would incline to the view, without deciding the point, that the reasonable man would know more about the content than simply that potato is present. It seems to be common ground that the methods of manufacture of the Regular Pringle and the potato crisp are matters which, without going into technical detail, the reasonable man would know. If he is to be treated as knowing (or as having made sufficient enquiries to establish) the method of manufacture, it would be surprising to me if he did not also know the ingredients of each product and the rough, if not precise, proportions of each ingredient.

[104]What then does Mr Cordara say is the correct approach to similarity? He says that the correct approach would have been to accept the following:

[105]The appearance and taste of a Pringle is not that of a potato crisp;a. It has none of the irregularity and variety of shape that is always present in crisps. It has a shape not found in nature being designed and manufactured for stacking, and giving a pleasing and regular undulating appearance which permits comfortable eating. In this respect, it is unlike a potato crisp (and, I would add, stick or puff).

b. Its colouring is different, indeed quite unlike a crisp (although I am not sure that the same could be said in relation to a stick or a puff).

c. The texture is different when handled. This he says betrays it doughy origins. This is considered more in a moment.

d. A Pringle does not taste like a crisp or otherwise behave like one. Crisps give a sharply crunchy sensation under the tooth and have to be broken down into jagged pieces when chewed. It is totally different with a Pringle, indeed a Pringle is designed to melt down on the tongue (“mouth melt”). It is not designed to present the kind of jagged sensations associated with a crisp or similar product.

[106]Ingredients and manufacture:a. No single ingredient in the dough accounts for more than 50% of the whole. The percentage of potato varies: at the time of the hearing it was about 39.48%, today it is around 42.2% though it may drop again in 2008 to 35% to 38%. Accordingly, according to Mr Cordara, the product is clearly not a crisp nor is it a similar product. If Mr Cordara is intending to draw a distinction between crisps (of whatever sort) and Pringles, the potato content is not relevant, although if he is drawing a distinction between potato crisps and Pringles, I understand the point.

b. Unlike a crisp, a Pringle is not made from slicing and frying a slice of potato. Rather it is made from a dough like a cake or biscuit. That is, of course, true. The dough is pushed into a standardised metal shape and then passed through the cooking process on a conveyor belt. Each Pringle is separately cooked (unlike potato crisps which are fried up together) allowing for uniformity of shape, colour and texture. These are, according to Mr Cordara, the fundamental characteristics of a Pringle.

c. He says, therefore, that any relevant similarity under this head is totally lacking. I would have thought that was putting it too high on any footing. They both contain some potato and that at least is a similarity. Further, although this is a slightly different aspect, the legislation clearly contemplates that a product made from potato flour (and thus a dough) is capable of being similar to a crisp etc which might suggest that the concept of similarity does not require the method of manufacture to be the same as, or similar to, that of a crisp.

[107]Marketing and packaging:a. Mr Cordara refers to the different WCO classification, referring to this as another important factor; the Pringle is classified under “bread, pastry, cakes, biscuits and other bakers’ wares whereas crisps are classified under “potatoes, thinly sliced……..”. He says that this conforms with the fact that research shows that consumers do not see Pringles as potato crisps.

b. As to that, the finding of fact (see Decision paragraph 5(18)) was that focus groups of consumers asked to categorise savoury snacks will put Pringles into a separate category. When asked to put them with another category they will put them with potato crisps. The industry classifies Pringles as a savoury snack, which includes such items as maize (corn) snacks (for example, tortilla chips), extruded snacks, nuts, potato crisps, rice snacks, savoury snacks, popcorn and pretzels (see Decision paragraph 5(10)). The Tribunal ignored the WCO categorisation and it is perhaps worthy of mention, in the light of Mr Cordara’s enthusiasm for the tribunal in Pringle One, that that tribunal also did so. I consider that both tribunals were right to do so.

c. Mr Cordara suggests that ingredients may be of no importance to the purchaser in the snack market. He finds support for that in the labelling requirements (or rather lack of them) in relation to savoury snacks including Pringles in terms of the quantitative requirements imposed. He seeks to derive from that support for the view that the market does not view the product as a potato crisp or similar, although for my part I think it is entirely neutral.

d. Pringles are packed in distinctive tubes. He suggests that crisps are never sold in this way, although the finding of fact is to the contrary. The Tribunal found (see Decision paragraph 5(10)) that it is unusual for potato crisps to be sold in tubular cans but there are examples of this (Tyrrells in 500g tubular packs, and Yorkshire Crisps in 100g tubular packs). I have already stated that packaging is not part of the actual product and the similarity or dissimilarity is relevant because of what it tells one about the product and how and when it is to be enjoyed.

[108]Balancing the factors:a. Mr Cordara submits that the case-law indicates that a value judgment has to be made by a tribunal as to the relative weight to be given to the various factors just discussed.

b. That is no doubt correct as far as it goes. I have discussed the relevant case-law already (in particular Quaker Oats and Ferrero) but this approach has to be applied in the context of the particular relevant concept of similarity which needs to be applied, as a matter of construction of the statutory provisions – a matter of law, or of mixed law and fact.

c. It does not necessarily follow that a tribunal has to explain what weight it has attached. Indeed, I wonder what it would do. Would it adopt a points system, or a scale from “little weight” to very “great weight”. I do not think it needs to do that. At most – and it may not need to do even this – it should identify the factors and say which side of the balance it weighs (or perhaps that it carries no weight at all either way). I do not consider that there is any need for a tribunal to state explicitly a hierarchy of weighting.

[109]My conclusion on these attacks on the Tribunal is that they are misplaced. If, contrary to my view, the Tribunal have applied the correct approach as a matter of statutory construction to both similarity and the “made from” requirement, Mr Cordara’s attacks are said by Mr Hill to be a not-so-thinly-veiled attempt to go behind what are essentially findings of fact. Mr Cordara maintains that that is not so, saying that his examination of the facts is necessary to understand his complaints about the failure of the Tribunal to carry out the analytical approach which it should have, carried out. He does not seek a decision from me about whether the products are similar, but (ignoring the “made from” point) only a remitter in order that the proper test can be applied. I have nonetheless thought it right to look at the criticisms in some detail and, in doing so, I conclude that the Tribunal’s findings are ones which the Tribunal were entitled to reach on the basis of their findings of fact assuming, contrary to my view, that they have clearly applied the correct test.

[110]Further, the Tribunal refer to what they describe as the impressive lists of similarities and dissimilarities from each side, although they do not go through them, in the Decision, one by one. They can be seen, or at least some of them can, from the written submissions before the Tribunal. I do not consider that the duty to give reasons for a decision requires a tribunal to recite every detail of this sort before being able to rely on the list as part of its decision-making process. It will be obvious, from a reading of the lists, which way a particular factor points and since, in my judgment, there is no need to grade factors, let alone state expressly the weight to be attached to each factor, I do not perceive any objection to the Tribunal taking the broad-brush approach which it did in paragraph 15 of the Decision provided that no error of principle is exposed by what they do say.

[111]I would therefore reject the attack based on a failure to give reasons and the attack based on Edwards v Bairstow that no tribunal properly directed could have reached the conclusions on the evidence which it did.

Conclusion

[112]This appeal is allowed because Regular Pringles are not, on the facts found, products “made from the potato, or from potato flour, or from potato starch” within excepted item 5.

[113]If that is wrong, there is a serious question as to whether the Tribunal have applied the correct criteria in assessing similarity. This is because the amount of potato contained in Regular Pringles appears to have been taken into account as such, whereas such amount falls to be taken account of only as a factor in assessing whether Regular Pringles are made from the potato etc. Moreover, it appears that the Tribunal may have imputed an incorrect extent of knowledge to the reasonable man. Accordingly, the matter would fall to be remitted for rehearing. Annex Approved Supplemental Judgment

[1]In the light of my judgment, I am asked to deal with costs and the time for filing an Appellant’s notice seeking permission to appeal. The parties have made brief written submissions and are content for me to deal with this on the basis of those submissions.

Costs

[2]Although Mr Cordara seeks the whole of the Appellant’s costs, both here and in the Tribunal, Mr Hill submits that HMRC has had a measure of success and that an award of 75% of the Appellant’s costs here and in the Tribunal would more accurately reflect that level of success. He points out the following factors relevant to the exercise of my discretion in the light of CPR44(3)(4)(b):a. I rejected the Appellant’s primary argument on the meaning of “made from” and adopted instead its secondary qualified approach.

b. Although I accepted that the Tribunal had been in error in their approach to similarity, this was only because of the way in which they took account of potato content.

c. I rejected as misplaced the other submissions in relation to similarity and the Edwards v Bairstow attack.

d. The attack based on a failure to grade or to weight factors and to give adequate reasons failed.

e. In relation to the reasonable man, I rejected the suggestion by the Appellant that the Tribunal should not have taken account of other snack products on the market albeit that my inclination, without deciding the point, was that it would be wrong to withhold from the reasonable man the quantity of potato in a product.

[3]Mr Cordara submits that this is not a case in which a number of factual or other discrete allegations have been pursued, some of which have been determined against the Appellant. Rather, all of the submission concerned the central question of statutory interpretation, a single unitary issue. HMRC are wrong to attempt to sub-divide the arguments in the way they do.

[4]Further, at the Tribunal, much of the time and effort of the parties was concerned with responding to HMRC’s factual question and requests. The costs of this cannot, according to Mr Cordara, be apportioned in any meaningful way. It would be impractical to make an assessment based on the proportion of preparation and court time spent upon any particular submission on which the Appellant did not succeed.

[5]It seems tome that the case involved two distinct aspects: First, the question of statutory interpretation involving the correct approach to similarity and “made from”. Secondly, the application of the correct principles on the facts as found. At Tribunal level, there can be no question that the facts had to be found; nobody suggested that a preliminary issue about statutory interpretation should be decided. A large amount of preparation time and hearing time must have been involved in relation to those factual issues. The Appellant has won its appeal; success should carry with it the costs incurred in relation to those factual issues. Further, even though the Appellant was not successful on every point which it raised on appeal, it does not seem to me that there is any sensible way in which the costs up to the end of the Tribunal proceedings can sensibly be apportioned between questions on which the Appellant was, and was not, successful. Test it this way. Suppose that the Appellant had appealed only on the basis of the “made from” point and had run its case only on the qualified approach which I accepted. That would have meant 100% success on appeal; but in those circumstances, I would see no reason for depriving the Appellant of any of its costs up to the end of the Tribunal proceedings.

[6]On appeal, the Appellant has won the “made from” point. It is true that it put its case higher than the basis on which it succeeded; but HMRC did not put the basis on which the Appellant succeeded as its own secondary submission (hardly surprisingly, since that would have meant failure for them). It would hardly have made sense for the Appellant to argue the point other than on the alternative basis and doing so did not significantly, if at all, add to the length of the argument: even if the qualified approach has been put as the correct approach in the first place, it would still have been necessary for me to address the strict first approach if only to reject it.

[7]It would not have been possible to address the “made from” point without at the same time addressing similarity. For reasons which I hope are clear from my judgment, the two issues are closely connected; one cannot make sense of “made from” without at the same time having an understanding of what similarity involves. Even if the argument might have taken a different shape, and submissions in relation to similarity been shorter, this is not a case where the Appellant should be deprived of any part of its costs because time was spent on the similarity issue.

[8]In relation to the complaints that the Tribunal failed to give reasons, failed to grade and failed to attach weight, I have concluded that those attacks fail. I have held, however, that there was an error in the way in which potato content was taken into account, an error which would justify a remitter. But that flows from my decision about the correct approach to similarity as a matter of statutory interpretation, and is not really to be viewed as a partial success on the part of the Appellant in relation to a failure to give reasons etc. I consider that a small discount in the recoverable costs of the appeal ought to be made to reflect a conceptually separate aspect of the appeal on which the Appellant failed, a discount which I set at 10%. I do not think any further adjustment is appropriate in relation to the points concerning the reasonable man.

[9]Accordingly, I order HMRC to pay all of the Appellant’s costs up to the end of the Tribunal proceedings and 90% of its costs of the appeal.

Time for Appellant’s notice

[10]I do not propose to spend much time of this. I consider that this is a matter of which HMRC can reasonably ask for a longer time than is usual to carry out internal consultations and to instruct leading counsel. Although Mr Cordara says that it is only Pringles which are affected by my decision, I do not know that there are no other products on the market whose taxability turns on the “made from” point. HMRC need time to assess the economic consequences of my decision before deciding whether to seek permission to appeal. I extend the time for the Appellant’s notice, as requested by HMRC, to 8 August 2008.