The Supreme Court has dismissed an appeal by Bookfinders Ltd., a Subway franchisee based on Tuam Road in Galway, over the VAT rate applied to hot sandwiches, tea and coffee sold by the business.
The dispute concerned a December 2006 claim for a refund of VAT paid at a composite rate of 9.2% on sales between January/February 2004 and November/December 2005. Bookfinders argued that much of its turnover should instead have been zero-rated. The company said 70–80% of its trade was takeaway.
In a judgment delivered on 29 September 2020, Mr Justice O’Donnell said the statutory provisions placed qualifying staples within the zero-rate schedule, but excluded supplies covered by the schedule for food and drink heated or kept warm for consumption above ambient temperature. The Court concluded that this included hot tea and coffee. The statutory reference to tea and coffee in the zero-rate schedule covered products such as leaf tea and ground coffee sold in packets; it did not prevent prepared hot drinks from falling within the reduced-rate provision.
The Court also rejected Bookfinders’ argument that “food and drink” meant that the 13.5% rate applied only when food and drink were supplied together. It read the phrase in context as covering food or drink supplied separately.
The bread used in the heated sandwiches contained sugar equal to 10% of the weight of the flour, above the statutory 2% limit for sugar. The Court held that exceeding the limit for one ingredient meant the product did not qualify as “bread” for the zero rate. It therefore rejected the company’s argument that the bread component took the heated sandwiches outside the reduced-rate provision.
Bookfinders also argued that the VAT treatment breached the EU principle of fiscal neutrality, which concerns similar goods treated differently for VAT. The Court said evidence about the relevant market, products and consumer behaviour would assist that assessment. It was not persuaded that the claim could be established on the evidence before it and concluded that the principle was not engaged, still less breached. It also declined to seek a reference from the Court of Justice of the European Union.
The Supreme Court upheld the Appeal Commissioner’s determination and the High Court and Court of Appeal decisions, and dismissed the appeal.