Although I usually try and limit this blog to Australian cases, I couldn’t resist writing something about the UK Court of Appeal case The Commissioners for Her Majesty’s Revenue & Customs v Proctor & Gamble UK. This was another tax case where “Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs and similar products made from the potato, or from potato flour, or from potato starch, and savoury products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell.” are zero rated for VAT.

So in the opening paragraph of the judgment, Lord Justice Jacob succinctly described the issue on appeal as follows:

“Are Pringles “similar to potato crisps and made from the potato?” That is the question. Upon it hangs the question of whether rather a lot of money, as much as £100m of tax for the past and about £20m a year for the future...”

The appeal was allowed and once again (as in the previous tax case blogs) there is some interesting judicial discussion about what constitutes a potato crisp. Lord Justice Mummery summed up (in the very last paragraph) in the following way:

“The response to these points is that it is vital to recall why the Tribunal was required in the first place to answer the question whether the goods in question are “made from” the potato. It was not in answer to a scientific or technical question about the composition of Regular Pringles, or in response to a request for a recipe. It was for the purpose of deciding whether the goods are entitled to zero rating. On this point the VAT legislation uses everyday English words, which ought to be interpreted in a sensible way according to their ordinary and natural meaning. The “made from” question would probably be answered in a more relevant and sensible way by a child consumer of crisps than by a food scientist or a culinary pedant. On another aspect of party food I think that most children, if asked whether jellies with raspberries in them were “made from” jelly, would have the good sense to say “Yes”, despite the raspberries.”

I have also set out an extract from Lord Justice Jacob’s judgment commencing at paragraph 22. I have done some of my own editing and underlined some of the highlights:

“So one can put the test for an appeal court considering this sort of classification exercise as simply this: has the fact finding and evaluating Tribunal reached a conclusion which is so reasonable that no reasonable Tribunal, properly construing the statute, could reach?

The Tribunal here perhaps concerned itself a little too much with how much the man in the street would know about the potato content of Pringles. It does not matter – one of the factors to be considered in judging similarity is, to my mind, clearly potato content.

The Judge was persuaded that the Tribunal had misread the language of the statute. He thought one should disregard the potato content when considering the question of similarity. I cannot agree. As I have said similarity involves a question of degree and a multifactorial assessment of all the factors. One would not disregard the potato content if there were not the further requirement of “made of the potato“. I do not see why adding it makes any difference.

There really is no more to be said about similarity. Even, if I had any temptation to try to analyse its meaning further – which I do not – I should resist it.

The “made of potato” point is equally short. …. He pointed to wholly or partly making the advocate-type point that if Parliament had intended to include a product made wholly or partly of potato in Item 5 it knew how to say it and did not do so.

I reject these submissions. First the normal use of language does not compel that conclusion. As Mummery LJ said in the course of argument, if it were right a marmalade made using both oranges and grapefruit, would be made of neither – a nonsense conclusion.

Secondly, not even potato crisps or potato sticks (no-one knew about potato puffs, even what they were) are 100% potato. So it is improbable that Parliament intended that a product, to be similar, must do so.

Thirdly the Item 2 “wholly or partly” point is not helpful. One can equally well say that when Parliament wanted to say “wholly” it said so. The different classes are essentially free-standing: so there is no reason to suppose that the draftsman trawls over each for an unnecessarily elaborate consistency between them….

…I reject that submission too. As to “potatoness” I cannot think Parliament intended to invoke such an elusive test. It is an Aristotelian question: does the product have an “essence of potato”. Moreover I have no real idea what the suggested test means: when pressed Mr Cordara could not provide any further elucidation. It cannot be taste, partly because potato chips have lost all or nearly all of the natural taste of a potato, even when some overpowering flavour such a cheese and onion has not been imposed. And I do not see that it can be anything else besides taste.”

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