HM Revenue & Customs v Compass Contract Services UK Ltd

Neutral Citation Number: [2006] EWCA Civ 730 IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION) ON APPEAL FROM THE MANCHESTER VAT AND DUTIES TRIBUNAL Case No: C/2005/1334 Royal Courts of Justice Strand, London, WC2A 2LL 09/06/2006 Before : LORD JUSTICE MUMMERY LORD JUSTICE SCOTT BAKER and SIR CHARLES MANTELL - - - - - - - - - - - - - - - - - - - - - Between : HM REVENUE & CUSTOMS - and - COMPASS CONTRACT SERVICES UK LIMITED Appellant Respondent - - - - - - - - - - - - - - - - - - - - - (Transcript of the Handed Down Judgment of Smith Bernal Wordwave Limited, 190 Fleet Street London EC4A 2AG Tel No: 020 7404 1400, Fax No: 020 7831 8838 Official Shorthand Writers to the Court) - - - - - - - - - - - - - - - - - - - - - MS MELANIE HALL QC & MR OWAIN THOMAS (instructed by the Acting Solicitor for HM Revenue & Customs) for the Appellant MR JONATHAN PEACOCK QC (instructed by Reynolds Porter Chamberlain ) for the Respondent - - - - - - - - - - - - - - - - - - - - - Judgment Lord Justice Mummery: The dispute 1. 2. 3. This is an appeal by HM Revenue & Customs (Customs) against a decision of the Manchester VAT and Duties Tribunal dated 6 May 2005. The Tribunal allowed an appeal by Compass Contract Services UK Limited (Compass), as representative member of the Compass VAT Group, against a decision letter dated 6 August 2003. The letter contained a determination by Customs that supplies of cold prepared food (such as sandwiches, salads, snacks and drinks) by Compass to customers from retail food outlets operated by it at the BBC Television Centre at Wood Lane, Shepherd’s Bush, London did not qualify as zero rated supplies of food for VAT purposes. According to Customs standard rate tax applied to the supplies. Although Compass in fact supplies a range of cold prepared food from its retail outlets in the BBC Television Centre, it will avoid unnecessary repetition and simplify this judgment if I take sales of sandwiches by Compass at the outlets as the relevant supplies. For VAT purposes there is no difference between supplies of sandwiches and supplies of other kinds of cold prepared food. The basis of Customs’ determination was that Compass supplies the sandwiches to its customers “in the course of catering.” If that is correct, the supplies are excepted from the zero rating of general items of food used for human consumption and the purchasers of the sandwiches must pay VAT on them to Compass: see section 30 and Group 1 Schedule 8 to the Value Added Tax Act 1994 (VATA 1994). VAT: some basic points 4. In order to grapple with the principal issues on the appeal it must first be appreciated that, for the purposes of VAT on supplies of food, two crucial distinctions are made in the VATA 1994. (1) Condition of the food The first distinction relates to the condition in which the food is supplied. A distinction is drawn between supplies of hot food (eg fish and chips) and supplies of cold food (eg sandwiches.) (2) Premises The second distinction relates to the premises on which the relevant supplies of food are to be consumed. A distinction is drawn between supplies of food for consumption on the premises on which the food is supplied (eg in a restaurant, café or sandwich bar) and supplies of food for consumption elsewhere (eg in the office, in the park or at home). 5. Two general rules and an exception should also be noted: (1) Standard rating The general rule is that supplies of hot food are standard rated. This is so whether the food supplied is to be consumed on the premises on which the supplies of the food are made or on other premises. (2) Zero rating The second rule is that, subject to exceptions, supplies of food for human consumption are zero rated. (3) Exception to zero rating If supplies of food fall within the exception, standard rating applies. The relevant exception to zero rating is supplies of food “in the course of catering.” This case is about the nature and scope of the exception. The precise question for the VAT Tribunal was whether supplies of sandwiches to customers by Compass from its food outlets at the BBC Television Centre are “in the course of catering.” 6. 7. 8. On the scope of the expression “in the course of catering” Note (3) to Schedule 8 VATA 1994 is important. The Note deals separately with supplies of food for consumption on the premises and with supplies of hot food. Section 96(9) VATA 1994 provides that Schedule 8 is to be interpreted in accordance with the Notes contained in the Schedule. According to Note (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”: see Note (3) (a). This case is essentially concerned with supplies of sandwiches to be consumed by people who work at the BBC Television Centre or are visitors to the Centre, but not in the particular areas of the BBC Television Centre in which the Compass retail outlets are located and the supplies made. Note (3) also deals specifically with supplies of hot food, which are indirectly relevant to this case. Any supply of hot food for consumption off the premises on which it is supplied is a supply “in the course of catering”: see Note (3) (b). The effect of the Notes is that standard rating applies whether the hot food is to be consumed on the premises or off the premises on which it is supplied. Leapfrog appeal 9. 10. The Tribunal disagreed with Customs’ determination. It held that the supplies of sandwiches at 6 retail food outlets operated by Compass at the BBC Television Centre were not supplies of food “in the course of catering.” Zero rating applied. The Tribunal observed that the modern manner in which supplies of food are made has changed since a number of High Court authorities cited to the Tribunal on the interpretation of the statutory expression “in the course of catering.” The Tribunal considered that the Court of Appeal should supply guidance on the issue. That explains the grant of permission by the Tribunal to appeal direct to the Court of Appeal. The Tribunal certified that its decision involved a point of law relating wholly or mainly to the construction of an enactment (VATA 1994), which had been fully argued before the chairman and considered by him: Article 2(b) Value Added Tax Tribunals Appeals Order 1986. Outline facts 11. Compass makes supplies of sandwiches (as well as other items of hot and cold food and drink) to customers, who include thousands of BBC employees and visitors to the BBC Television Centre, at 6 retail outlets located in 4 principal buildings at the BBC Television Centre: (1) The Filling Station in the Spur. This is the largest retail outlet with the greatest range of food, including hot drinks, hot soup, pizza and jacket potatoes, as well as sandwiches and other sorts of cold prepared food. There are about 50 adjacent seats grouped around tables close to, though not at, the Filling Station outlet. The Compass units do not provide seating and tables. Plates are not provided, though disposable cutlery is. Food and drink are generally placed in a paper bag at the cash till and then taken away by the customers for consumption elsewhere than at the Filling Station. A more limited range of food is on offer at the 5 other retail outlets listed below where a similar procedure is adopted. (2)The Green Tea Bar in the Doughnut. This has seating for about 40 close to the unit. Chairs and stools, which are not provided by Compass, are grouped around tables. (3) The Third Floor Tea Bar in the Doughnut. (4)The Sixth Floor Tea Bar in the Doughnut. This is a counter. No hot food is available. Customers stand in the adjacent corridor as they are served. (5)The Design Tea Bar in the Design Building (6) The East Tower Tea Bar in the East Tower 12. The 6 retail food outlets were established at the BBC Television Centre after the BBC’s decision in 2001 to outsource the performance of functions which were not central to its core activities. The provision of property-related services to the BBC, including management of food provision, was covered by a contract between the BBC and Land Securities Trillium (Media Services) Limited (LST), a property partnership made up of a BBC entity and LST Media, dated 17 September 2001. Compass, which is the largest food service organisation in the world, was appointed sub-contractor by LST under a contract dated 3 October 2001 to provide food services to LST Media at, among other sites, the BBC Television Centre. The wide range of services covered by the Compass contract include a self-service restaurant, food bar “deli-bar” style service, a beverage vending service and a hospitality service 13. 14. for meetings, conferences and events. In accordance with the terms of the sub- contract Compass also entered into a contract direct with the BBC. The relevance of the existence and the terms of the outsourcing contracts to the question whether a supply of food is “in the course of catering” was central to the arguments before the Tribunal and this court. Customs attach great importance to the overall and inescapable commercial catering/service contract context, within which Compass is enabled to supply sandwiches to customers at the BBC Television Centre. Customs argue that the supplies of sandwiches by Compass are closely associated with the fact of the catering services, which Compass contracted to provide at the BBC Television Centre to meet the needs of employees and visitors there. Careful attention to the actual language of the legislation is all-important: the question is not whether the supplies of sandwiches by Compass are catering, but whether the particular supplies by Compass are “in the course of catering.” Supplies of sandwiches may be made “in the course of catering” to someone other than the recipient of the catering services. So, Customs submitted, the catering service at a wedding reception is usually supplied by the caterer to the bride’s father, but the items of food are supplied by the caterer to the wedding guests at the reception “in the course of catering.” VAT Legislation discussed 15. 16. 17. In general, zero rating applies to supplies of food of a kind used for human consumption. As explained later, national authorities are entitled to zero rate supplies of food under Article 28 of the Sixth EC Directive (77/388/EEC). Sandwiches fall into this general item. There are exceptions to zero rating for supplies of food. The excepted supplies are of two kinds: the first kind refers to the nature or condition of the food supplied and the second kind refers to the nature of the supply. This case is concerned with an exception of the latter kind, that is a supply “in the course of catering.” In what circumstances is a supply of sandwiches by Compass to a customer at the BBC Television Centre “in the course of catering”? Statutory definitions are thin on the ground. Parliament has not supplied a definition of “catering,” probably for the good reason that it did not need to do so. “Catering” is an ordinary English word, which lawyers unreasonably expect to have a more precise meaning tham most words in everyday usage ever need to have. In most situations most people know what is and what is not catering and they know when something is done “in the course of catering.” It is reasonable to assume that the parliamentary plan was to leave it to the tribunals and courts, as the constitutional bodies responsible for the authoritative interpretation of legislation, to do their best, on a pragmatic case by case basis, to adopt a reasonably consistent approach to deciding what is “in the course of catering.” 18. The Tribunals, taxpayers and Customs have been supplied with some guidance in the legislation on the sort of thing that was to be an exception to the general rule of zero rating. The guidance is contained in Note (3) which I 19. 20. 21. 22. mentioned earlier. It states what “in the course of catering” includes. It is common ground that “includes” indicates that what follows is not meant to be an exhaustive definition, but is only illustrative of the general concept. The illustrative examples may have the effect of restricting or extending the generally accepted meaning of the expression. The Note falls into 2 parts. The first part (a) relates only to the premises where the food supplied is to be consumed. If the premises on which the supply is made and the premises on which the food supplied is to be consumed are the same, the supply of the food is treated as a supply “in the course of catering.” There is nothing surprising about this. It is directed at the standard case of the supplies of prepared food in a restaurant or café. Catering takes place on the premises and the food supplies are made in the course of it. It applies whether the items of food supplied to be consumed on the premises are hot or cold: both the supply of the hot soup and the supply of a bread roll to accompany the soup, are standard rated supplies of food made “in the course of catering” and as such are excepted from the general rule of zero rating. The second part of Note (3) (b) relates to the nature of the supply- that it is of hot food. Supplies of hot food are always treated as standard rated supplies of food “in the course of catering.” Again this is not surprising: it is directed at the standard case of a supply of hot prepared take-away or carry-out food to be consumed by the customer not at the caterer’s premises, but at home or elsewhere. Supplies of hot food for consumption on or off the supplier’s premises are supplies “in the course of catering.” If only Note (3) governed the circumstances in which supplies of food were “in the course of catering” for VAT purposes, the position in this case would be relatively straightforward. The Note states what are treated as supplies “in the course of catering.” An express indication of what “in the course of catering” includes might be taken to be at least a pointer to what it does not include. The supplies of hot food, whether they are to be consumed on or off the premises where the supplies of the food takes place, are treated as supplies “in the course of catering.” The supplies of sandwiches are also treated as supplies of food in the course of catering if they are to be consumed on the premises where the supplies take place. The Note impliedly indicates that supplies of sandwiches to be consumed off the premises are, for VAT purposes, to be treated differently from hot food to be consumed off the premises. They would be zero rated, because the supplies are not “in the course of catering.” Although the Note supports Compass rather than Customs, Compass fairly accepts that the Note does not exhaustively define the expression “in the course of catering.” It is common ground that supplies “in the course of catering” may take place, even in cases not expressly covered by Note (3). The area of dispute is the proper approach to be followed by the Customs and tribunals in deciding whether supplies of food, which are not covered by Note (3)(a) or (b), are nevertheless a standard rated supply “in the course of catering.” 23. In considering this question it is necessary to look beyond the limited circumstances of the place of supply and consumption and the hot or cold condition of the food identified in the Notes to all the surrounding circumstances in which the supplies of food are made. In this case Customs repeatedly emphasised that the surrounding circumstances include all the outsourcing contractual arrangements for the supply of catering services to the BBC by LST/Compass at the BBC Television Centre and other BBC premises. The catering services are supplied to the BBC by Compass throughout various food outlets in the Television Centre and the supplies of food at the outlets to employees and visitors to the BBC Television Centre are pursuant to the catering service contracts. Customs’ main points 24. Ms Melanie Hall QC appearing for Customs made three main points. 25. 26. First, all supplies of food by Compass at the retail outlets at the BBC Television Centre are “in the course of catering” because Compass contracted to supply catering services for the BBC at the outlets there. It was a “unitary obligation” on the part of Compass to provide fresh high quality hot and cold meals during “normal operating hours.” The exception to zero rating is not confined to the place of the supply of food or to the condition of the food supplied. The wider context of the circumstances in which, and the nature of the obligations pursuant to which, the supplies of food take place, are relevant. The catering contracts colour the context of all the supplies of food by Compass at the BBC Television Centre. Secondly, this approach must be adopted in order for the zero rating regime in the United Kingdom, as a member state of the European Union, to be consistent with the vires of national authorities contained in Article 28 of the Sixth VAT Directive read with the last indent of Article 17 of the Second Council Directive of 11 April 1967. Member states are permitted to apply the zero rate for clearly defined social reasons and for the benefit of the final consumer. In this case there was no clearly defined social reason for zero rating the provision of the sandwiches for the benefit of the final customers at the BBC Television Centre. 27. Thirdly, the relevant “premises” for determining whether the sandwiches in question were supplied for consumption “on the premises where the supplies were made” were the entire BBC Television Centre, not just the particular retail food outlets at which Compass made the supplies. Tribunal decision 28. The Tribunal (the Chairman sitting alone) held that the supplies of sandwiches by Compass to customers at the food outlets at the BBC Television Centre were not supplies “in the course of catering” in circumstances where the supplies were not for consumption of the sandwiches on the premises of the food outlet. 29. 30. After setting out the facts, including the contractual catering arrangements, and after reviewing the case law in detail, the Tribunal stated (paragraph 90) that the relevant sales were of sandwiches and similar items packaged in precisely the same way as they are presented in high street shops and that Compass provided no element of service to distinguish the supplies made by Compass from those made by high street sandwich shops. Although this part of the Tribunal’s decision did not expressly mention “in the course of catering,” it is clear from earlier passages in the decision (see, in particular, paragraphs 88 and 89) that the Tribunal had the legislative language well in mind and had reached the view that it is not sufficient, if a supply is to be regarded as one made in the course of catering, merely to supply food. The customer must receive “something else” together with the food. That might take various forms, such as an event of which the supply of food is part, or the service of presenting the food or of being supplied with some form of package including the supply of food, or some other element of service. 31. Ms Hall criticised the Tribunal’s decision principally on the grounds that the Tribunal ignored the context of the contract by Compass to supply catering services at the BBC Television Centre. It ignored the fact that the Compass food outlets provided a catering service “in the course of” which sandwiches were supplied by Compass. The Tribunal disregarded the supplies which LST undertook to make to the BBC under its contract with the BBC and the supplies which Compass undertook to make to LST under its contract. Instead, it focused exclusively on the narrow context of supplies comprising the sale of a food items by Compass to the customer in exchange for payment. By isolating that type of transaction as the supply the Tribunal wrongly equated supplies of sandwiches by Compass with supplies of sandwiches by High Street retailers, when in fact the Compass sandwiches were supplied in an overall catering contract context. 32. 33. 34. In selling sandwiches at the BBC Television Centre Compass is discharging its contractual obligation to provide catering services by ensuring that a wide range of food and drink was available to staff at and visitors to the Centre at a variety of different venues with varying levels of catering services. By contrast, High Street retailers do not make supplies “in the course of catering”: they simply make retail sales of sandwiches to customers. It was also submitted, as indicated earlier, that the catering does not have to be made to the person paying for the food supplied in the course of that catering: the question is not whether individual sales of sandwiches are supplies of catering, but whether the supplies comprising sales of individual items of food are made “in the course of catering,” words which in their ordinary meaning signify something more than merely making a supply comprising a food item. Catering involves the provision of an element of service or number of services associated with food. The added elements vary in nature and extent according to context and the type of food involved, ranging, for example, from self service to waitress service. 35. 36. The Tribunal was also wrong in treating Note (3) as if it were an exhaustive statutory definition, when it only consisted of illustrative examples. It also relied too much on the earlier authorities, which concentrated on an irrelevant nexus between the supply of food and a particular event or occasion. The Tribunal’s approach would lead to the drawing of fine distinctions which would make VAT law over complex and difficult to administer. For obvious practical reasons the supplier must be able to determine at the point of sale whether the supply was zero rated or standard rated. It was accordingly submitted that the only conclusion reasonably available to the Tribunal was that the individual sales of sandwiches by Compass at the BBC Television Centre are made “in the course of catering.” It is a forceful submission on a question that deserves careful and full consideration. Discussion, guidance and conclusions on “course of catering” points 37. 38. The issue for this court on the appeal, which is confined to points of law, is whether the Tribunal erred in law in its interpretation of “in the course of catering” in the 8th Schedule to the VATA 1994. In deciding that question the court is also asked to provide guidance on the law for tribunals, Customs and taxpayers. In giving guidance the practical considerations are certainty, workability and consistency. The person who makes the supply has to determine at the time of supply whether the supply is zero rated or standard rated. In this area a huge number of supplies are made every day. Fine distinctions should be avoided, if possible. 39. A number of points appear to me to be uncontroversial- (1) Compass supplies catering services to the BBC via LST. The supplies of those services are standard rated. They are not, however, the supplies with which this case is concerned (ie supplies of sandwiches to BBC staff and visitors at Compass food outlets in the BBC Television Centre). Customs have made it clear that they do not rely on the fact of standard rated supplies of catering services to the BBC to argue that sandwiches supplied at the food outlets by Compass to employees and visitors must also be standard rated. The issue is whether the supplies of the sandwiches to customers at the food outlets are supplies made “in the course of catering.” (2) A supply by Compass of standard rated food, such as hot food, at food outlets obviously does not cause all the supplies of food made by Compass from the outlets to be “in the course of catering” and to be standard rated. (3) Although the Notes in the 8th Schedule do not exhaustively describe the circumstances in which supplies of food are “in the course of catering”, they are an aid to interpretation of the expression “in the course of catering”. They are an indication of the importance attached to the place of consumption being different from the place of supply and to the condition of the food supplied, in particular its temperature. (4) The circumstances surrounding the supplies of food are relevant to whether the supplies are “in the course of catering” which expression indicates that the supplies in question must generally be part of, or associated with, a broader activity in which the supply of food is accompanied by an additional element, usually of service or other facilities designed to add something to the experience of buying and consuming the food supplied. The relevant circumstances include whether the supplies of food are associated with an organised activity, event or occasion, such as a wedding reception, a charity fundraising event, or a sporting occasion, in the course of which supplies of food are made. They also include the provision of facilities to supplement the experience of consuming the food supplied (eg. eating the food on the premises at which it is supplied is the instance of “in the course of catering” covered by the Note.) (5) The supplies of sandwiches for consumption off the premises from retail outlets, such as a sandwich bar or a supermarket outside the BBC Television Centre, or a garage across the road at Shepherd’s Bush, or from the newsagents outlet actually located in the BBC Television Centre itself, would not be supplies of food “in the course of catering.” 40. 41. As for further general guidance on the question of what supplies are “in the course of catering” I fully endorse the approach of Keene J in Customs and Excise Commissioners v. Safeway Stores plc [1997] STC 163 in preference to some of the earlier authorities cited in his judgment. He held that there was no error of law by the tribunal which held that the sales of “party trays” by a supermarket were not supplies made “in the course of catering.” Earlier decisions cited to Keene J were: Vodden v. Customs and Excise Comrs (1985) VAT Decision 1842; C Chasney Ltd v. Customs and Excise Comrs [1989] VATTR 152; and, in particular, the High Court decision (Sir Douglas Frank QC sitting as a deputy High Court judge) in Customs and Excise Commissioners v. Cope [1981] STC 532 in which the supply of seafood in disposable containers from stalls or tents let for a daily rental at certain racecourses for immediate consumption on the racecourse was incidental to some other activity, was “in the course of catering” and was not zero rated. The view expressed in that case at page 538d-e was that- “ A popular meaning of the word “catering ” is the provision of food incidental to some other activity, usually of a sporting, business, entertainment or social character. Thus, it covers food supplied at football matches, race meetings, wedding receptions, exhibitions and theatres.” 42. Keene J expressed reservations (rightly, in my view) about placing excessive emphasis on the need for there to be a “function or activity involving a gathering of people not assembled together simply for the purpose of having a meal. In my view it is perfectly possible for a supply to be “in the course of catering” when made to a family having a meal together, though in such a case one would expect certain other of the indicia of catering to be present, such as delivery, service at the table or the provision of cutlery and other ancillary articles.” (page 169c-d) There could even be catering just for an individual who wanted a cordon bleu meal catered for at home. Keene J concluded that the test was an objective one: “would the ordinary person regard what was being done as being “in the course of catering?”: see page 169j. He made 3 things clear: (a) the factors mentioned by him were not intended to be exhaustive; (b) no one factor by itself is likely to be decisive; and (c) the decision is to be made in the round taking all relevant considerations into account. As to individual factors he said at page 169f-h “ In my judgment whether a particular supply is “in the course of catering” is a matter of fact and degree. There will be a range of factors to be taken into account by the body which is making the decision. Those factors would appear to me to include such matters as whether the food is indeed supplied in connection with an occasion or other event; the degree of preparation which remains to be carried out by the recipient is likely to be a relevant consideration, as is the presentation of the food itself-in other words is the food in a form where one would ordinarily put it on the table with no further steps being taken? One would bear in mind whether crockery and cutlery are provided along with the food itself and any other of the usual ancillary items which go with a meal. Whether it is delivered, or not, by the supplier may often be a highly material factor. Whether it is served by the supplier to those eating it, at the place where consumption occurs, will also be a relevant factor.” 43. 44. Some of those factors are relevant to the present case. Others are not. In this case there is no particular event, activity or function, such as a party, that is being catered for. If any thing is being catered for, it is the ongoing nutritional daily requirements of people working at or visiting the BBC Television Centre. There was some disagreement in this case as to the relevance of the state of mind of the supplier, which was pressed by Mr Peacock, and the point of view of the consumer which was pressed by Miss Hall. I agree with Keene J that the test of whether a supply is in the course of catering is an objective one and that the states of mind or intentions of the parties do not really assist. 45. The real point of disagreement is the impact of the terms of the overall contract “pursuant to which the supplies of foods are made.” It is difficult to give a more precise answer than that it depends on all the other circumstances. 46. Miss Hall submitted that the key issue in the appeal is whether it follows from the fact that supplies of sandwiches are made by Compass in the course of providing catering services at various units under the LST/Compass contract, which she described as the “contractual catering services,” that supplies in the course of catering are made within the meaning of Group 1 Schedule 8, which she described as the “statutory catering services.” 47. 48. 49. I have reached the conclusion that, although the terms of the overall catering contract are among the circumstances relevant to the question whether the sandwiches supplied by Compass are supplied “in the course of catering,” that particular circumstance has little impact in this case. I am unable to accept the submission that, to use the language of Ms Hall, the “statutory catering services” follow from the existence of the “contractual catering services.” In this context it should be borne in mind that the VAT in question is paid by the individuals to whom the supplies of sandwiches are made. In my view, it would be surprising if their liability to pay VAT was dictated by, or even much affected by, the overall LST/Compass/BBC catering contracts, especially when the individuals concerned can easily obtain zero-rated supplies of very similar sandwiches in the BBC Television Centre (ie from the newsagents premises located in the Centre) or from other nearby retail outlets, such as a sandwich bar, a supermarket or a garage across the road. This is more like the case of R v. Customs and Excise Commissioners ex p Sims [1988] STC 210 in which Taylor J held that the supply of food from a snack bar unit in an office block was not “in the course of catering” and was not caught by Note 3(a) I cannot think of a satisfactory reason why the liability of individuals to pay VAT should turn on whether the particular supply is from an outlet which is subject to an overall contract for the supply of catering services to another party. When supplies of sandwiches are made at the Compass food outlets the individuals to whom the supplies are made obtain nothing more than and nothing different from what could be supplied in another part of the BBC Television Centre, such as the newsagents located in BBC TV Centre, or close by in the High Street supermarket or sandwich shop. Viewed objectively the supplies of sandwiches made to individual customers are not “in the course of catering.” The individual customers are simply buying and being supplied with sandwiches in the same way as if they were buying them and being supplied with them zero rated from another available retail outlet. It makes little sense that they should be made liable to pay VAT in the one case, but not in the other. 50. If there were no contractual background in this case, it would be a clear case for saying that the supplies of sandwiches to consumers were not “in the course of catering.” Compass would simply be selling sandwiches to customers who pay for them and take them away to eat elsewhere. Does the added factor of the background of a contractual catering contract make all the difference and change a zero rated situation into a standard rated situation? In my view, the economic reality of the supplies of sandwiches by Compass to the retail customers remains the same. Compass is no more making supplies of sandwiches “in the course of catering” than the supermarket chain with a section set aside in its store for the sale of sandwiches. So far as the retail customers of Compass are concerned there is no relevant catering in the course of which sandwiches are supplied to them such as to render them liable to pay VAT on take-away sandwiches. 51. It follows that, in my judgment, there is no error of law in the conclusion of the Tribunal on this point. The Tribunal cited and applied the correct statutory provisions. It did not misinterpret or misapply them or the existing authorities. It took into account factors relevant to whether the supplies by Compass to retail customers were in the course of catering. It reached a conclusion which a reasonable tribunal properly directing itself was entitled to reach. I would dismiss Customs’ appeal on this point. Conclusion of the “premises” point 52. 53. This question arises on Note 3(a) if, contrary to my judgment, the sandwiches were supplied by Compass to retail customers “in the course of catering,” in which case Customs contend that the supplies were of food “for consumption on the premises” on which the supplies were made. After reviewing the law the Tribunal summarised the rival submissions and concluded that the reality was that Compass is confined to the units. Customs’ argument that Compass makes supplies from the Television Centre as a whole does not reflect the facts (paragraph 108): Compass controls the units it occupies; it has no control over any other part of the Television Centre, including the tables and chairs near two of the units; and in practice the units are left to Compass, which maintains and cleans them without interference by either the BBC or LST. It is immaterial in the view of the Tribunal that Compass pays no rent or that it receives payments from the BBC, via LST, for remaining open at unprofitable times. 54. Ms Hall submitted that the conclusion of the Tribunal (at paragraph 112) that the separate retail units constitute premises separate from the remainder of the BBC Television Centre and that Compass’s supplies are not made for consumption on the same premises was perverse and therefore constituted an error of law. She said that the perspective of the consumer was an important factor, relying on Article 28 of the Sixth Directive. A consumer, she argued, would not regard the Compass retail units at the BBC Television Centre as premises separate from the BBC Television Centre premises. She also relied on the fact that the contractual obligation of Compass to supply catering services was not tethered to a particular location, but extended to “Serviced Properties” of which the BBC Television Centre was one. 55. 56. This is the kind of fact-sensitive question on which an appeal court would not differ from the fact-finding Tribunal in the absence of a misdirection of law or a decision which was plainly wrong. In my judgment, it was fairly and reasonably open to the tribunal to conclude on the evidence before it that the case did not fall within Note (3)(a), as the sandwiches in question were supplied at retail units which constituted premises separate from the remainder of the premises comprising the BBC Television Centre. The sandwiches were not therefore supplied for consumption on the premises on which they were supplied. As mentioned earlier, the sandwiches were in fact supplied by Compass to retail customers at 6 particular outlets located at various points in the larger site, not everywhere or anywhere in the BBC Television Centre site. The geographical situation and the physical extent of the retail units under the control of Compass and to which customers have access are sufficiently identified to be regarded or recognisable as separate premises at which supplies of food are made to Compass customers within the meaning of Note (3)(a). No food is consumed in the Compass units themselves. That is where the supplies are made. It follows that the sandwiches supplied by Compass are not supplied for the purposes of being consumed on the premises on which they are supplied. Result 57. I would dismiss the appeal on the ground that there was no error of law in the decision of the Tribunal. In so doing I have attempted to clarify the overall legal position and to provide some general guidance to Customs, to the VAT tribunals and to taxpayers on the proper approach to deciding whether a supply of an item of food is a supply “in the course of catering” and therefore excepted from the general rule that supplies of food are zero rated for VAT purposes. It is impossible, however, for any court to provide precise guidance to cover all the possible factual situations in which the question might arise in the future. To make the attempt would be to risk giving general misguidance. 58. Tribunals will not go far wrong if they stick close to the language of the legislation and apply it with common sense to all the relevant circumstances of the particular case. I fear that guidance in such guarded terms is neither particularly original nor illuminating, but is at least a reasonably reliable reminder of the nature of the issue to the person or persons who have to make decisions. Lord Justice Scott Baker: 59. I have had the advantages of reading in draft the judgments of Mummery L. J and Sir Charles Mantell. The essential difference in their reasoning seems to me to relate to the weight to be given to the contractual arrangements between Compass and the BBC under which the sandwiches are eventually supplied to the customers. I find myself in complete agreement with the judgment of Mummery L. J, including his analysis of the legal position and his conclusions. 60. 61. There will obviously be borderline cases where it is difficult to determine whether the supply of an item of food is or is not a supply in the course of catering. The starting point seems to me to be that food for human consumption is generally zero rated whereas if an appreciable level of service is associated with its supply then it falls outside the scope of zero rating and it is standard rated. There is an obvious distinction between food bought in say a supermarket on the one hand and a meal provided in a restaurant on the other. Food supplied in the course of catering is an exception to zero rating. As Mummery L. J has pointed out, the legislature has drawn an important distinction between hot food and cold food and also between food consumed on and off the premises. I find the notes to Schedule 8, which by section 96(9) are of interpretive significance, to be a helpful guide. Note (3) provides: “A supply of anything in the course of catering includes- (a) (b) any supply of it for consumption on the premises on which it is supplied; and any supply of hot food for consumption off those premises; and for the purposes of paragraph (b) above “hot food” means food which, or any part of which (i) has been heated for the purposes of enabling it to be consumed at a temperature above the ambient air temperature; and (ii) is above that temperature at the time it is provided to the customer.” 62. Whilst this note is directed to what is included within the expression “a supply of anything in the course of catering” and is obviously not intended to be determinative of what is not, the way in which it is framed does seem to me to give a strong indication that a supply of cold food for consumption off the premises would not ordinarily be a supply in the course of catering. 63. 64. In my view it is necessary to focus on the supply of the sandwiches i.e. the sale to the customer rather than contractual arrangements further up the line which set out the circumstances in which the supplier (Compass) comes to be in a position to make the supply. It is after all the sale by Compass to the customer that would trigger the payment of VAT by him. If Customs’ construction is correct, the anomalous situation arises whereby the customer who buys a sandwich at one of the BBC outlets pays VAT at the standard rate whereas if he buys the self same sandwich at the outlet in the road outside it is zero rated. I do not think that is a conclusion that the draughtsman intended and it is one which should in my view be avoided if possible. 65. Like Mummery L. J I prefer the approach of Keene L. J in the Safeway case and his reasoning to that in the earlier authorities. Posing the question: “would an ordinary person regard what was being done as being done in the course of catering?” my answer for the supply of sandwiches in the circumstances of the present case is: “no”. 66. I too would dismiss the appeal as I can see no error of law on the part of the tribunal. Sir Charles Mantell: 67. I am in full agreement with Mummery and Scot Baker LJJ on the “premises point”. However, in this Appeal we have been concerned chiefly with what has been called the “Catering per se” argument which the Tribunal resolved in favour of Compass at paragraphs 90 and 91 of the Decision. In so doing the Tribunal focussed upon the supply of sandwiches and salads by Compass to the eventual consumer which it found to be indistinguishable from supplies made by a high street sandwich shop. So it would be, viewed in isolation. However, the contrary argument is that supplies by Compass have to be seen as the fulfilment of their contractual obligations to the BBC, in other words, seen in context. (For present purposes I am putting on one side any unnecessary complications brought about by the intervention of LST and treating LST and BBC as one and the same). On this question I have reached a different conclusion from my brothers. 68. Compass obligations are set out in general terms in paragraphs 16.1 and 16.2 of Schedule 8 to their agreement with BBC/LST: “16.1. “Compass” in providing catering Services ensure a choice of beverages and nutritionally balanced, healthy meals and snacks, during Normal Operating Hours and for specified events, which reflect the multi ethnic, cultural and medical dietary needs of staff and visitors. 16.2. The Catering Services shall include: 16.2.1 self-service staff restaurant (Licensed)/cafeteria-style service ensuring that fresh, high quality hot and cold meals are provided during Normal Operating Hours; 16.2.2. food bar ‘deli-bar’ style service ensuring that fresh high quality hot and cold meals are provided during Normal Operating Hours; 16.2.3 beverage vending service to provide and maintain hot and cold beverages, 24 hours a day/7 days a week from hygienically maintained vending machines; 16.2.4 food vending service to provide and maintain snacks and confectionery 24 hours a day/7 days a week from hygienically maintained vending machines; 16.2.5 hospitality service (meetings, conferences and events) to support meetings and conferences, in accordance with agreed procedures, and 24 hours a day/7 days a week; and, 16.2.6 compliance with the requirements and the Food Standards Act (1999), Food Safety Act [1990], the Food Safety (General Food Hygiene) Regulations [1995], and any other relevant legislation, guidelines and licenses.” 69. Now, quite apart from the description or heading to those two paragraphs it seems to me unarguable that as between Compass and BBC the above are not “catering services”. So from 16.2.2, 16.2.3 and 16.2.4 the catering services provided by Compass in performance of the agreement include the sale of cold beverages and foods, including sandwiches, 24 hours a day for seven days a week. In ordinary language the supply of, for example, a sandwich by Compass in performance of its contract with BBC/LST is a supply in “the course of catering”. In those circumstances it is not necessary to consider whether the provision of cold food by Compass falls within the suggested meaning of the word ‘catering’ provided by Sir Douglas Frank at page 538 in Cope but I note in passing that it does involve “the provision of food incidental to some other activity” i.e. BBC’s business activities on the site. I should also mention for completeness that Mr Peacock Q. C. accepted in argument that a refusal to supply sandwiches to employees of BBC and visitors to the site would put Compass in breach of their agreement. 70. Do the notes make a difference? Note 3 to Group 1 of Schedule 8 to the Act provides “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; and (b) any supply of hot food for consumption off those premises”. 71. It might be argued that it is implicit that a supply of anything in the course of catering does not include any supply for consumption off the premises on which it is supplied and any supply of cold food for consumption off those premises. In my judgment that would be to misread the note. I prefer and am content to adopt the approach of Sir Douglas Frank in Cope when at page 538 he said “The first question to be decided is whether the word “includes” in note (3) is intended to be restrictive as counsel for the taxpayer contends, that is to say, should be construed as “includes and means” or whether, as counsel for the Crown contends, the note operates to extend rather than circumscribe the scope of para (a) in Sch 4. The word “includes” is generally used in order to enlarge the meaning of the words, but, as counsel for the taxpayer says, it is capable of the restrictive meaning if the context of the statute requires; see Stroud’s Judicial Dictionary. Counsel for the taxpayer submitted that there was no situation imaginable where ‘supply in the course of catering’ can mean for consumption off the premises on which it is supplied. However, as counsel for the Crown pointed out, that situation is quite common, as, for example, with wedding receptions, if the point of supply is taken to be the caterer’s premises. Accordingly, I do not find it imperative to give the word ‘includes’ a restrictive meaning but, on the contrary, I think it has its ordinary meaning, that it does not limit but, in accordance with the general rule, it has the extended meaning.” 72. That being so the note has no bearing on the present circumstances and leaves me with the conclusion that the argument presented on behalf of Her Majesty’s Revenue and Customs must prevail and that this Appeal should be allowed.