Kalron Foods Ltd v Revenue & Customs

Whether a product is a “beverage” for VAT purposes is ordinarily a question of fact and degree. The tribunal must apply the ordinary meaning of the word unless the statutory context requires a special meaning. No exhaustive or prescriptive multi-factor test is required. Ingredients, nutritional value, processing, presentation, marketing, place of sale and manner of consumption may assist, but their relevance depends on the evidence. The taxpayer challenging HMRC’s classification bears the burden of showing that it is wrong. A tribunal may decide the appeal on that basis where the evidence does not satisfy it that the product falls outside the exception. The “junk food” policy proposed for the VAT exceptions could not be derived from the legislation.

Kalron appealed from a decision of the Value Added Tax and Duties Tribunal, which held that its freshly blended fruit and vegetable product, sold in takeaway cups, was a “beverage” within Excepted item 4 of Part 2 of Group 1 of Schedule 8 to the Value Added Tax Act 1994 and was therefore standard-rated.

Kalron argued that the product was liquid food rather than a beverage, and that the Tribunal had applied the wrong burden of proof and failed to apply the correct legal test. HMRC contended that the product’s ingredients, processing, appearance, presentation and manner of consumption supported its classification as a beverage. The central issues were the meaning of “beverage”, the burden of proof, and whether the Tribunal’s decision disclosed an error of law.

1. Appeal dismissed. The Tribunal had applied a correct approach to the burden of proof. A taxpayer appealing an HMRC assessment or classification must establish that it is wrong. The ultimate question whether a product is a beverage in ordinary language is one of fact, not law, although the construction of the statutory provision is a question of law.
2. The word “beverage” in Group 1 of Schedule 8 had no special meaning different from its ordinary meaning. The statutory context did not justify restricting it to drinks resembling alcoholic or fizzy drinks, or to products with little nutritional value. The reference to fruit juices in Excepted item 4 supported their inclusion within the ordinary meaning of beverages.
3. The proposed seven-factor test was rejected as unnecessarily prescriptive. Ingredients, nutritional value, manufacturing process, place of sale, reasons for purchase, appearance and texture, and marketing and packaging could all be relevant, but the list was not exhaustive and it was unnecessary to consider every factor in every case. The ultimate question remained whether the product was a beverage as a matter of fact and degree.
4. The Tribunal had considered the relevant evidence, including the product’s ingredients, consistency, nutritional qualities, processing, place of sale and manner of consumption. It was entitled to find that the product could constitute both food and a beverage, and to conclude that Kalron had not shown HMRC’s classification to be wrong.
5. The Tribunal’s decision did not satisfy the Edwards v Bairstow standard for appellate intervention. The Judge added that, even if remittal had been necessary, the available findings of fact were sufficient to conclude that the products were beverages.

• High Court (Chancery Division): appeal from the Value Added Tax and Duties Tribunal dismissed. The Tribunal’s classification of the product as a beverage was upheld.