News

17th June, 2006

Sandwiched between law and commonsense

A newsy case to munch this week is a catering question concerning the BBC, that came up before the Supreme Court of Judicature Court of Appeal (Civil Division), UK: HM Revenue & Customs vs Compass Contract Services UK Ltd.

The story begins from 2001, when BBC decided to outsource its non-core activities. It entered into a contract with Land Securities Trillium (Media Services) Ltd or LST for property-related services, including management of food provision. LST appointed Compass, `the largest food service organisation in the world', as its sub-contractor.

Compass was to provide a wide range of services including "a self-service restaurant, food bar `deli-bar' style service, a beverage vending service and a hospitality service for meetings, conferences and events."

One learns from the text of the verdict dated June 9 that 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 six retail outlets located in four principal buildings at the BBC Television Centre.

`The largest retail outlet with the greatest range of food' is the Filling Station in the Spur. There, they serve `hot drinks, hot soup, pizza and jacket potatoes, as well as sandwiches and other sorts of cold prepared food.' Operational details are: "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."

What was appetising for the taxman, though, was something that seemed to be an opportunity for revenue. He said that that supplies of cold prepared food (such as sandwiches, salads, snacks and drinks) by Compass to customers from retail food outlets at the BBC Television Centre were `in the course of catering' and so the supplies "did not qualify as zero rated supplies of food for VAT purposes." Standard rate of tax would apply, insisted the taxman.

It would help to know that the UK VAT law speaks of two crucial distinctions. One, the condition in which food is supplied, hot or cold; examples of hot food are fish and chips, while supplies of cold food include sandwiches. Two, 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 (e.g. in a restaurant, caf or sandwich bar) and supplies of food for consumption elsewhere (e.g. in the office, in the park or at home)."

Though `supplies of food for human consumption are zero rated,' an exception to zero rating is supplies of food `in the course of catering'. Therefore, the question before the court was whether Compass' supplies at BBC's place were `in the course of catering'.

The Department argued, "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." As example, the taxman referred to catering service at a wedding reception, which 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.'"

Catering not defined

The court studied the relevant legislation and noted that statutory definitions are thin on the ground. "Parliament has not supplied a definition of `catering.'" Is that as bad as omitting to put salt in soup? No, there was probably a good reason for the lawmakers not to define the word, said the court.

"`Catering' is an ordinary English word, which lawyers unreasonably expect to have a more precise meaning than 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,'" reads the verdict by Lord Justice Mummery.

"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.'"

In a 1981 case, Customs and Excise Commissioners vs Cope, which was about the supply of seafood in disposable containers from stalls or tents let for a daily rental at certain racecourses for immediate consumption, catering had been defined thus: "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."

In the case on hand, there is no particular event, activity or function, such as a party, that is being catered for, said Lord Mummery. "If any thing is being catered for, it is the ongoing nutritional daily requirements of people working at or visiting the BBC Television Centre."

Looking at `the economic reality of the supplies of sandwiches by Compass to the retail customers', the judge observed that there was no difference between selling sandwiches to retail customers at a supermarket chain, where the supplies are zero-rated, and the supplies at BBC premises. The taxman's case was accordingly dismissed. Lord Justice Scott Baker concurred with Lord Mummery. However, the third judge, Sir Charles Mantell held a dissenting view.

Tailpiece

"Hey, new goggles! How much?"

"Psst... Are you from the Department?"

D. Murali