18706
VAT — supplies of cold food by concessionaire to passengers "airside" in airport departure lounges in some cases where dedicated accommodation of tables and seating provided and in others where no such accommodation — whether zero-rated supplies of food or standard-rated supplies of catering — held on facts supplies of catering.
MANCHESTER TRIBUNAL CENTRE
WHITBREAD PLC Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Mr J D Demack (Chairman)
Sitting in public in Manchester on 3rd and 4th June 2004
Mr Richard Barlow of counsel instructed by Messrs Haines Watts chartered accountants for the Appellant
Miss Sara Williams of counsel instructed by the Solicitors office of HM Customs and Excise for the Respondents
© CROWN COPYRIGHT 2004
DECISION
- In this appeal by Whitbread plc ("Whitbread"), I am required to decide whether supplies of certain cold foods it made "airside" in departure areas of various airports by its subsidiary, Costa Ltd ("Costa"), were zero-rated supplies of food, as it claims, or were standard-rated supplies of catering, as the Commissioners of Customs and Excise contend.
- The supplies in question were retail sales of cold sandwiches and similar items, and were made to air passengers and other persons authorised to be in the departure areas concerned. Further, they were in almost all cases made to passengers and others who were provided with dedicated accommodation in the form of tables and chairs contractually provided by Costa at which to consume their purchases.
- The dispute between the parties arose when, on 19 December 2002, Whitbread lodged a voluntary disclosure for accounting periods 12/99 to 09/02 inclusive in which it claimed to have standard-rated and paid VAT on supplies which "should have been zero-rated as the food was not consumed on the premises." An accompanying letter indicated that Costa had carried out a monitoring exercise to determine its true level of zero-rated sales, which exercise had revealed £235,310.69 VAT "overcharged". The Commissioners rejected the disclosure by letter of 18 February 2003, saying: "All supplies of cold food in the departure areas of airports are supplies for consumption on the premises and therefore standard-rated. The premises are not confined to the outlet and associated chairs and tables but are the whole of the departure area"
- To put the dispute into context, it is helpful at this juncture to include the relevant statutory provisions. They are to be found in Group 1 of Schedule 8 to the Value Added Tax Act 1994, which Group, so far as relevant, provides for the zero-rating of food in the following terms:
"The supply of anything comprised in the general items below, except –
(a) a supply in the course of catering;
. . .
Item No
- Food of a kind used for human consumption
. . .
Notes
(3) A supply of anything in the course of catering includes –
(a) any supply of it for consumption on the premises on which it is supplied;"
The facts
- I make the following findings of fact from a joint bundle of copy documents, a copy of an undated and incomplete Catering Concession Agreement ("CCA") made between Heathrow Airport Ltd (which I was given to understand is a subsidiary company of BAA plc) and Costa relating to an airside outlet providing food and drink at Terminal 4 of London's Heathrow Airport, and the parol evidence of Mr Giorgio Fioravanti, the regional manager of Costa responsible for its airport operations, and Mr Paul Jepson, the Commissioners' assessing officer. (The CCA before me defines "airside" as meaning "those parts or part of [the relevant airport] to which access is restricted to persons holding a valid airside pass and passengers in possession of a valid boarding card in respect of such areas within [the relevant terminal]." I adopt that definition).
- As I have just indicated, the CCA produced was incomplete. In particular, the second schedule to it, defining "Catering Service", was missing. I was however provided with a copy of what was said to be the second schedule to another, unidentified but similar, CCA in which "Catering Service", defined in the CCA before me as meaning "the preparation, supply and sale of food, refreshments and alcohol by the Concessionaire [Costa] as listed in more detail in Schedule 2", was particularised as follows:
"The core product offer should comprise, although not exclusively, the following
Beverages
A full range of high quality teas and coffees plus hot chocolate
A full range of post mix cold drinks
Food
Danish pastries
A range of patisserie items and morning goods
Hot and cold sandwiches and baguettes."
- Whilst evidence in general terms confirmed that Costa supplies the "core product offer" from its outlets, none was adduced with sufficient particularity to enable me to find what was supplied by the individual kiosks and carts referred to at para 14 below. I do not consider any deficiency in that behalf to affect the outcome of the appeal
- Customers visit Costa's units to take advantage of its "catering service". They decide on their purchases and place their order. Having been served, they pay for them. They may then take them to the table and seating accommodation provided by Costa for its customers and eat and drink them there. Alternatively, they may take them away and consume them wherever they wish. Those customers wishing to consume supplies away from Costa's premises are provided with paper bags in which to carry them.
- The CCA before me, which I take as representative of all the catering concession agreements concerned in the appeal (the Commissioners having not challenged it as being otherwise and despite Birmingham Airport not being under the control of BAA plc), provides for the grant to Costa of a non-exclusive right to supply and sell those items defined as "the catering service" from the "catering outlet". "Catering outlet" is itself defined as meaning those areas made available at the airport in question from which the concessionaire is to operate "including back-up, store, kitchen/food preparation area and office facilities as shown for identification purposes [on the annexed plan]". But the grantor has the right to move the "concessionaire's operations and/or the catering outlet" within the terminal of original siting on 14 days' notice, subject to its using reasonable endeavours to move them/it to a "comparable and no less advantageous location", and paying for relocation. The term of the CCA is set out, as are the financial terms on which it was granted. The CCA requires Costa to accept debit and credit cards, luncheon vouchers, delayed flight vouchers issued by airlines, and specified foreign currencies. Costa is required to provide at its own cost "all crockery, cutlery, utensils, glassware and other . .. . items" and fully equip and run the catering service. Costa is not allowed to charge prices exceeding those it makes for the same products at an identified outlet of its own. It is also required to obtain the written approval of the grantor to the "fixtures and fittings", being "all additions whether fixed or otherwise in the catering outlet supplied, made or otherwise by the concessionaire whether at its own cost or otherwise". The CCA further requires Costa to pay for all utilities, to keep the outlet clean, remove catering debris etc.
- Costa offers a discount of 10 per cent on sales to persons employed by airlines, the airport authority and others holding airside passes.
- By way of background, Mr Barlow, counsel for Whitbread, explained that because of increased security requirements in recent years, air travellers now spend longer at airports awaiting departure of their planes than previously. It is uncommon for there to be specific departure lounges for particular flights and, after check in, passengers for various flights wait in large airside departure areas usually near departure gates until their flights are called. The airport authority provides seats for them in those areas. I accept Mr Barlow's background explanation as fact.
- Although not a matter dealt with in CCAs, the outlets provided by Costa take one of two forms; carts and kiosks or units. There are two types of cart, both described as "mobile". On the one hand there is a cart on wheels, and, on the other, one which is mobile only to the extent that it may be moved from one point to another by being dismantled. The former measure 6' x 3' x 7' high; the latter 12' x 9' x 8' high. Hot drinks are supplied either in plastic or paper disposable cups, whilst cold ones are served in such cups or bottles; but only cold food is supplied from some carts. Fresh water and drainage are provided on the carts, thus avoiding the necessity for their being plumbed in (although Mr Fioravanti did mention that one cart is plumbed in). Due to the nature of the containers in which drinks are served, no washing up facilities are needed. Although initially introduced for temporary trading of between 6 and 12 months, the normal CCA for a cart is now for a standard 5 year term. All carts are the subject of a written CCA.
- The fixed units or kiosks, each also the subject of a CCA, are of a more substantial nature than carts, and are of a design specific to Costa. From a photograph of one, I find that they have a counter at the front, with a food preparation area and associated facilities behind. They are connected to mains services. The CCA for each kiosk includes in the "catering outlet" an area indicated on the departure area floor by means of coloured markings or other equally obvious means as specifically allocated to Costa for furnishing with chairs and tables for use by its customers. A wider range of foods is sold than at carts, and some kiosks are licensed for the sale and consumption of alcohol. Cutlery and crockery are provided to customers using the dedicated accommodation, but since the events of 11 September 2001 the former has only been of a plastic variety.
- The individual units, the subject of the voluntary disclosure, may be described in the following way.
A) London Heathrow
1) Mystery Square Terminal 1
This kiosk has dedicated seating and table accommodation for 80 covers. In addition, Heathrow Airport plc, the grantor of the concession, provides additional tables and chairs specifically for 20 Costa customers, so that the total accommodation is for 100 covers. The kiosk is part of a retail complex of some 7 shops serving the main departure area of Terminal One, and adjoins a seating area capable of accommodating up to 1000 people .
2) Terminal 4
This is another kiosk, and the subject of the CCA produced. Schedule 1 to the CCA indicates the "catering outlet" to have a main area of 112m² and a "backup" area of 19m². Within the total area is seating and table accommodation for 120 covers. (No evidence was adduced of the whereabouts of the "back up" area, so that I am unable to say whether it adjoins the main area or is to be found elsewhere). The term of the CCA would appear to be 5 years and ends on 31 December 2006. Costa is not allowed to charge prices in Terminal 4 which exceed those for the same items at its Uxbridge High Street outlet. There is public seating on either side of the unit.
3) Terminal 3
This is one of the larger carts, and was originally installed for a trial period of about 10 weeks. In correspondence with the Commissioners, Messrs Haines Watts, Whitbread's accountants and representatives, described it as having no dedicated accommodation area, but in evidence Mr Fioravanti claimed, and I find, that the CCA provides dedicated accommodation for "about 24 covers".
B) Gatwick
1) Pier Gate 46
This unit consists of a small cart, and the CCA for it provides for no dedicated accommodation area. It serves 5 departure gates off a large departure area capable of seating over 1000 people. The nearest public seats are but 5 yards from the cart.
2) Gismo Gate 55
Mr Fioravanti described this unit as "built in". I assume it to be of kiosk style. He added that it provides china and cutlery to customers and has dedicated accommodation for 10 covers. (That contrasts with the correspondence which indicates that there is no such accommodation area). I accept Mr Fioravanti's evidence, so that I find that accommodation for 10 covers exists.
3) BA lounge Gate 57
Mr Fioravanti described this unit as similar to that at Gismo Gate 55, but larger. He explained the CCA as providing dedicated accommodation for 24/30 covers, adding that the unit has a pannini grill and a higher percentage of hot food takeaways (presumably than the other Gatwick outlets). Public seating for passengers is available near the unit.
C) Stansted
This is a "self-build" unit which provides dedicated accommodation for 86 covers. There is a large public seating area nearby for passengers using 10 departure gates. Mr Fioravanti claimed, but produced no evidence in support, that a large proportion of cold food takeaway sales, particularly sandwiches, was to passengers intending to eat their purchases on their planes. I was told that Go-Jet, a low cost, no frills airline, which does not provide meals to passengers now uses the Stansted terminal, but no evidence was adduced as to when that use commenced. In the absence of any substantive evidence that cold food sold is consumed on planes and the date on which Go-Jet's operations commenced, I am unable to find Whitbread's claim as to such consumption justified.
D) Birmingham
The form of unit was not identified. It is the only concession where BAA plc or one of its subsidiaries is not the grantor. It has dedicated accommodation for 74 covers, and there is public seating nearby in the airport lounge.
Submissions for Whitbread
- Dealing first with the question of whether Costa made supplies "in the course of catering", Mr Barlow relied on four decided cases. Having observed that, in the first, CEC v Cope [1981] STC 532, seafood sold from stalls at a racecourse was held to be supplied on the premises (the course itself), he noted that Sir Douglas Frank QC held (at p. 538) that "catering" included the supply of food "incidental" to some "activity" such as a sporting, business or entertainment activity. He added that in R v CEC, ex parte Sims [1988] STC 210, Taylor J (as he then was) held that it was "casting the net far too wide" to include, as the Commissioners there contended, that a linkage, nexus or shared activity of working in the same office existed so that the supply was incidental to that activity.
- Assuming the Commissioners adhered to the same view as they contended for in Sims about the need for a linkage between customers, Mr Barlow observed that they presumably conceded in the instant case that there was no linkage between persons who happened to be airside at an airport, such as to form a nexus or shared activity. He added that the analogous case of Travellers Fare Ltd v CEC (1995) Decision No 13482 confirmed that there was an absence of linkage in the context of rail travel and closed railway stations. (In that case, I myself held that persons at closed railway stations were not engaged in a common activity of the sort envisaged by Sir Douglas Frank). He submitted that the Travellers Fare decision appeared to agree with the appellant's argument that the reference to rail travel in Armstrong v CEC [1984] VATTR 53 at p. 62 was a reference to travel on trains, and not to persons being at stations.
- From Fresh Seafoods Barry Ltd v CEC (1991) VATTR 388, particularly at pp 404A – 405E, Mr Barlow claimed support for the proposition that where the public attended a place for various purposes that was not a common activity making the supply of foods to them "in the course of catering". He submitted that being at a place was not sufficient; and where the supposed common activity was itself only a means of furthering divers activities, nor was that sufficient. He further contended that rail or air travel were not a common activity; they were the means of carrying out other and various activities. To emphasise the point, he claimed that queuing for a bus was not a common activity; it was simply queuing, and not a means of carrying out other activities.
- It appeared to Mr Barlow from the statement of case that the Commissioners accepted that they had to rely on the extended definition of catering contained in Note (3), i.e. on what he described as the premises argument, and, by implication, did not regard the supplies as catering per se. In attempting to refute their argument, Mr Barlow relied principally on the cases of Sims, Armstrong and Travellers Fare. He noted that in Sims (at pp. 214-215), Taylor J held that the only premises over which the appellant had control were a small room rented by the appellant, and it was insufficient to constitute "premises" that that room was in the same building as the place where much of the food was consumed.
- He maintained that the facts in Armstrong were quite similar to those of the instant case. In that case the shopping centre in which the appellant's kiosk was situated had seating used by his customers but was held to be insufficient to constitute "the premises", Judge Rowland QC, the learned chairman, going so far as to say that note (3) "had no application" (see second paragraph on p. 63). Mr Barlow added that the instant case also had some similarities with Travellers Fare.
- In so far as the Travellers Fare decision suggested that persons entering departure lounges became a distinct group, Mr Barlow submitted that that did not mean that the departure lounge was the same premises as the place where the food was bought if the food was not bought in the departure lounge. On the facts of the instant case, he maintained, departure lounges had no relevance at all. He added that, in his submission, even if the persons who were all going to fly on the same plane did gather in one place and bought food nearby, that did not make sales to them "in the course of catering": their reasons for flying were disparate.
Submissions for the Commissioners
- Miss Williams, counsel for the Commissioners, opened her submissions by observing that, in Cope, Sir Douglas Franks QC expressly rejected the idea that "includes" in Note 3 should be construed as "includes and means", holding that it extended the definition catching any supply in the course of catering, including catering where the food was consumed on the premises on which it was supplied. She submitted that the ratio of the decision was that the supply to racegoers of seafood sold from stalls on the racecourse was a supply in the course of catering, and that there was no need to turn to Note 3.
- She also relied on the following passage from the decision of Judge Rowland QC at p. 62 of Armstrong:
"Taking the word [cater] in its ordinary and popular meaning, we think an ordinary person can recognise catering when he sees it. He sees it in every day situations where food is provided incidentally to a variety of functions of a sporting, business, entertainment or social character."
- Miss Williams further relied on the following passage from p. 7 of my decision in Travellers Fare:
"On arrival at an airport an air traveller checks in his luggage, and when the time approaches for his flight to depart he is called into the departure lounge. On going into the departure lounge, after having produced his boarding card at a manned barrier, the traveller is separated from the general public , and then and, in my opinion, only then does he become part of a specific group designated as air travellers."
- Miss Williams observed that both Sims and Armstrong concerned areas to which the public had access; and in Fresh Seafoods Barry Ltd, the appellant's kiosk was sited in a park to which the public had free access. She contrasted the multifarious purposes for which the public might enter a park with an airside departure lounge where, ignoring airport and airline staff, the sole purpose for entering was in connection with flight departures.
- The Commissioners did not accept that if food were not for consumption on the premises it could not be in the course of catering because, in Miss Williams' submission, that would be contrary to the decision in Cope which rejected the argument that the definition was restrictive. She added that the Commissioners' primary case on this point was that the provision of food and drink to air passengers was a supply in the course of catering because it was a supply to a "closed" group of people.
- In the event that I were to hold that supplies could not be "in the course of catering" unless they were incidental to a shared activity, then, submitted Miss Williams, the nexus in the instant case was catering, and making a specific supply to restricted members of the public engaged in the common activity of air travel, just as in the Cope case, the catering was to racegoers, and not to the world at large.
- Having observed that Note (3) extends the definition of "in the supply of catering" to those instances where the trader makes a supply of food or drink for consumption on the premises on which they are supplied, Miss Williams contended that the same rules applied to all outlets, whether a café, stall, concession or mobile van.
- Miss Williams submitted that Sims, Armstrong and Travellers Fare were all distinguishable from the instant case: Armstrong involved a kiosk in a shopping precinct, and the tribunal found as a fact that there was no delineated area capable of constituting premises where the actual consumption took place; Sims involved a snack bar in one room of an office block but no food was consumed in that room and otherwise the "block" consisted of three joint blocks; and Travellers Fare was another case where the public had general access, and it was held not to be the trader's purpose that the food sold should be consumed on the station premises where the sale took place. In contrast, she contended, it was clear that it was expected that the food and drink supplied by Costa would be consumed in the departure lounge to which access was restricted. The departure lounge was an area capable of precise description and definition. She submitted that if it could properly be said that the food and drink supplied by Costa had been supplied for consumption in the departure lounge, and the departure lounge was "the premises" on which that food and drink had been supplied, then the catering fell within the extended definition in Note (3). (She added that where access to parts of an airport was not restricted, and it was difficult to point to any particular area where food and drink might be consumed, the Commissioners accepted that sales of cold takeaway food qualified for zero-rating).
- The difference and distinguishing feature in the instant case, in Miss Williams' submission, was that it concerned the supply of food and drink to a restricted group of people in a restricted and defined area, and the supply to those in the departure lounge was therefore in the course of catering. Alternatively, she contended, the departure lounge was clearly the premises for the purpose of Note (3).
Conclusion
- As it is common ground that the food provided by Costa is of a kind used for human consumption, the questions before me are reduced to my deciding whether the trade carried on by Costa is that of catering in the ordinary sense of that word, or, if it is not, whether Costa's trade is that of catering by virtue of the fact that the food it sells is for consumption on the premises on which it is supplied.
- In each of the cases cited to me, the tribunal dealt with a single sales outlet, whereas I am faced with a variety of outlets varying between a kiosk with dedicated accommodation for 120 covers (Heathrow Terminal 4) to a small cart with no dedicated accommodation but with ample nearby public seating (Gatwick Pier Gate 46). That variety may warrant different VAT treatment for different outlets.
- Like the proverbial elephant, catering is difficult to define but recognisable when one sees it. The dictionary definitions do little more than identify the basis for what Sir Douglas Frank QC in Cope referred to as "a popular meaning" when he described it as "the provision of food incidental to some other activity, usually of a sporting, business, entertainment or social character." Mr Barlow focused his submissions on the word "activity", quite understandably since in the cases subsequent to Cope courts and tribunals have repeated the use of that word. But in my judgment "activity" does not necessarily encompass all arrangements which fall to be defined as catering for some people concerned may not be involved in activities but rather have the same purpose or intention: it all depends on the particular circumstances. That, it appears to me, necessarily to follow from Sir Douglas Franks' use of "usually" to refer to the various forms of activity he had in contemplation. I accept that the use of "purpose" or "intention" may widen the concept of catering, but not in my judgment to any material extent.
- Mr Barlow also maintained that the facts of the instant case were sufficiently similar to those of Armstrong for me to follow that case. I am unable to agree. In Armstrong the tribunal was concerned with one of six fast food concessionaires for all of whom the owner of the shopping centre in which they traded provided tables and chairs at which food purchases could be consumed, or which could be used by the general public simply to take a rest. In other words, there was no dedicated provision of accommodation. Similarly in Cope and Sims, there was no dedicated accommodation available. In contrast, in Travellers Fare such accommodation was available, but I found that it was open to the general public and thus the supplies made were not catering. The airside departure areas concerned in this appeal are not open to the public.
- I observe, or perhaps I should say repeat, that the CCA for the kiosk at Terminal 4 is called a "Catering Concession Agreement". It defines the expressions "catering equipment", "catering outlet" and "catering service". Clearly, the parties to the CCA assumed that they were dealing with supplies of catering and not the mere sale of food for, as I mentioned earlier, Mr Fioravanti maintained that a CCA in similar terms had been entered into for every kiosk and cart, the subject of Costa's monitoring exercise. And whilst the parties description of the operation is not conclusive for VAT purposes, it is at least a very strong indicator of the nature of the supplies with which I am dealing.
- In my judgment, in those cases in which the CCA provides for dedicated accommodation in the form of an area for tables and chairs, and notwithstanding that the area may be relatively small, the service Costa provides is that of catering. That follows from the fact that the persons provided for (ignoring those with airside passes, whose use of Costa's facilities may properly be described as incidental) are a closed group, all having the same intention or purpose, and constitute air travellers once they have passed into airside departure areas. In those cases, there is no need to consider Note (3).
- But if I am wrong in so holding in the cases where dedicated accommodation exists then I am satisfied that in both those cases and in the remaining one before me, the supplies constitute catering as falling within Note (3); the kiosks and carts and the departure areas are properly to be regarded as an enclave on or in which food for human consumption is both supplied and consumed.
- Lest the reasons I have given for my decision appear to be inadequate, I should say that I accept the case presented by Miss Williams in its entirety. In doing so, I have most carefully considered all the points made by Mr Barlow, but am not persuaded by them.
- I dismiss the appeal.
DAVID DEMACK
CHAIRMAN
RELEASE DATE:21/07/2004
MAN/03/493
