Factual and Procedural Background
This case concerns whether a food product called "Mega Marshmallows," sold by the Defendant, Company A, is zero-rated under schedule 8 to the Value Added Tax Act 1994 ("VATA 1994"). The key issue is whether "Mega Marshmallows" qualify as "confectionery" within the meaning of the schedule. The First-tier Tribunal (FTT) held that they are not confectionery and thus zero-rated as "Food of a kind for human consumption." The Upper Tribunal dismissed an appeal by HM Revenue and Customs (HMRC). HMRC now appeals against the Upper Tribunal's decision.
"Mega Marshmallows" are larger than normal marshmallows and are marketed primarily for roasting over an open flame, as reflected in their packaging which includes instructions and imagery related to roasting and consumption as a snack or in s'mores. The packaging and sales patterns indicate a seasonal increase, especially in warmer months, and the product is typically sold separately from confectionery in supermarkets, often in barbecue or world foods sections.
HMRC assessed the Defendant as liable for VAT totaling £472,928 for supplies made between June 2015 and June 2019 on the basis that "Mega Marshmallows" were not zero-rated. The FTT allowed the Defendant's appeal against this assessment, and the Upper Tribunal dismissed HMRC's appeal. HMRC now appeals to this Court.
Legal Issues Presented
- Whether "Mega Marshmallows" fall within the definition of "confectionery" in Item 2 of Group 1 of schedule 8 to VATA 1994.
- Whether Note (5) to Group 1, which includes an "inclusive definition" of confectionery, applies to "Mega Marshmallows" as "sweetened prepared food which is normally eaten with the fingers."
- The proper interpretation and legal effect of Note (5) in determining whether a product is confectionery for VAT purposes.
- Whether the FTT erred in its approach to Note (5) and whether the Upper Tribunal correctly upheld the FTT's decision despite any such error.
Arguments of the Parties
HMRC's Arguments
- Note (5) should be interpreted as conclusive: any product described therein is "confectionery" unless applying it would produce an absurd or anomalous result.
- "Mega Marshmallows" are "sweetened prepared food which is normally eaten with the fingers" and thus fall within Note (5) and are confectionery.
- The Upper Tribunal erred in treating Note (5) as a "rebuttable presumption" rather than a definitive inclusive definition.
- The matter should be remitted to a differently constituted FTT to determine whether "Mega Marshmallows" meet the Note (5) description.
Defendant's Arguments
- Supports the Upper Tribunal's view that Note (5) is an inclusive definition but not conclusive; other factors may outweigh the presumption that a product is confectionery.
- "Mega Marshmallows" are marketed and used primarily for roasting, not as confectionery normally eaten with the fingers.
- The FTT's conclusion that the product is not confectionery was reasonable based on the multi-factorial assessment of usage, marketing, and consumer perception.
Intervener's Arguments
- The intervener, Company B, supports the Upper Tribunal's decision and refers to a related FTT decision involving products deemed confectionery under Note (5).
- Argues that the tailpiece in Note (5) should not be limited by the ejusdem generis principle and that Note (5) defines what is confectionery for VAT purposes.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Revenue and Customs Commissioners v Premier Foods Ltd [2007] EWHC 3134 (Ch), [2008] STC 176 |
Interpretation of inclusive definitions and statutory notes. |
Used to support the view that Note (5) is an "inclusive definition" enlarging the meaning of "confectionery." |
| Dilworth v Commissioner of Stamps [1899] AC 99 |
Interpretation of the word "include" as enlarging statutory definitions. |
Supported the conclusion that Note (5) must be construed as enlarging the meaning of "confectionery." |
| Thomas v Marshall [1953] AC 543 |
Use of inclusive definitions in statutory interpretation. |
Analogous to Note (5) enlarging the definition of "confectionery." |
| Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1975] AC 591 |
Primary source of statutory meaning is the words used by Parliament. |
Emphasized the importance of the statutory text in interpreting Note (5). |
| Project for the Registration of Children as British Citizens v Secretary of State for the Home Department [2022] UKSC 3, [2023] AC 255 |
Role of explanatory notes and purposive statutory interpretation. |
Guided the approach to interpreting the statutory notes and avoiding absurdity. |
| Project Blue Ltd v Revenue and Customs Commissioners [2018] UKSC 30, [2018] 1 WLR 3169 |
Avoidance of absurd or unlikely statutory interpretations. |
Supported the exclusion of absurd cases (e.g., cooked chicken skewers) from the definition of confectionery. |
| R (Edison First Power Ltd) v Central Valuation Officer [2003] UKHL 20 |
Presumption against absurd or impractical statutory results. |
Supported the principle that Note (5) does not apply if it produces absurd outcomes. |
| Wm Morrison Supermarkets plc v Revenue and Customs Commissioners [2024] UKFTT 181 (TC) |
Clarification of the purpose and effect of Note (5). |
Confirmed Note (5) provides certainty and clarifies the meaning of confectionery. |
| Corte Diletto UK Ltd v Revenue and Customs Commissioners [2020] UKFTT 75 (TC) |
Definition of confectionery including sweetened prepared food normally eaten with the fingers. |
Used to illustrate the dual routes to establish confectionery status for VAT purposes. |
| R v Edmundson (1859) 28 LJMC 213 |
Principle of ejusdem generis limiting general words by preceding specific words. |
Considered but rejected as applicable to Note (5) in this context. |
| Sun Fire Office v Hart (1889) 14 App Cas 98 |
Application of ejusdem generis depends on context and terms. |
Supported the view that ejusdem generis does not limit Note (5)'s tailpiece. |
| Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16, [2022] AC 690 |
Importance of identifying legislative purpose in statutory interpretation. |
Applied to emphasize purposive construction of VAT provisions. |
| Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51, [2005] 1 AC 684 |
Determining whether a transaction falls within a statutory description. |
Supported purposive approach to defining "confectionery." |
| Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46 |
Realistic view of statutory application to transactions. |
Supported purposive interpretation emphasizing realistic application. |
| Gumbs v Attorney General of Anguilla [2009] UKPC 27 |
Strength of presumptions depends on reasonableness of statutory construction. |
Reinforced approach to avoiding unreasonable statutory interpretations. |
| R v McCool [2018] UKSC 23, [2018] 1 WLR 2431 |
Presumption against absurd statutory consequences. |
Supported exclusion of absurd applications of Note (5). |
Court's Reasoning and Analysis
The Court analysed the statutory framework under VATA 1994, focusing on Item 2 of Group 1 of schedule 8 and Note (5), which provides an inclusive definition of "confectionery" to include "chocolates, sweets and biscuits; drained, glacé or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers."
The Court agreed with the Upper Tribunal that Note (5) is an inclusive definition rather than a mere presumption, meaning that any product falling within its terms is, absent absurdity, conclusively "confectionery" for VAT purposes. The Court rejected the Upper Tribunal's characterization of Note (5) as akin to a rebuttable presumption and clarified that the statutory text and section 96(9) require the schedules to be interpreted according to their notes.
The Court acknowledged that absurd or anomalous results should be avoided, exemplified by excluding products like cooked sweet chilli chicken skewers, which would not sensibly be considered confectionery despite fitting the literal wording of Note (5).
Applying these principles, the Court held that if "Mega Marshmallows" are "sweetened prepared food which is normally eaten with the fingers," they fall within Note (5) and are therefore confectionery and standard-rated for VAT.
The Court noted that the FTT did not make a definitive finding on whether "Mega Marshmallows" are normally eaten with the fingers, which is a factual question on which the burden lies on the Defendant to prove that they are not. The Court found that the absence of such a finding was material and that the matter should be remitted to a differently constituted FTT to determine this question, allowing for cross-examination if necessary.
Holding and Implications
The Court's final decision is to ALLOW THE APPEAL and remit the question of whether "Mega Marshmallows" are "sweetened prepared food which is normally eaten with the fingers" within Note (5) to a differently constituted First-tier Tribunal for determination.
The direct effect is that the prior decisions of the FTT and Upper Tribunal are set aside to the extent that they did not make a finding on this key factual issue. No new precedent is established beyond clarifying the legal interpretation of Note (5) as conclusive absent absurdity. The remittal ensures that the factual question will be properly resolved with the opportunity for further evidence and cross-examination.