ZEROZ PTY LTD v DFC OF T

Members:
Carr J

Tribunal:
Federal Court

Decision date: Judgment handed down 6 August 1996

Carr J

Introduction

This is an appeal from the Administrative Appeals Tribunal. It involves the classification, for sales tax purposes, of a product which the applicant imports and sells at wholesale as ``Zeroz Soft Serve Frozen Yoghurt'' (``the Product''). The question is whether the Tribunal erred in law in deciding that the Product is excluded from the sales tax exemption in respect of food because it is either an ice-cream substitute or frozen confectionery (other than frozen yoghurt). The case involves an exemption from an exclusion from an exemption; an idea which would probably have appealed to Mr Samuel Goldwyn.

Factual Background

The Product is manufactured in the United States of America. Its manufacture involves three phases described as ``the dairy phase'', ``the sweetener phase'' and ``the combination of dairy phase and sweetener phase''. In the dairy phase, a solution of non-fat milk, fortified with condensed skim milk is homogenised and pasteurised. It is then inoculated with a bulk starter culture medium containing bacteria of the types known as Lactobacillus bulgaricus, Streptococcus thermophilus, and Lactobacillus acidophilus. This is followed by six hours of fermentation at which time the Product becomes completely curdled in the form of a thickset gel of custard-like consistency having a pH level (a matter dealt with later in these reasons) in the range of 4.45 to 4.65. It is then cooled to 35-40°F and held in a tank for later processing. The sweetener phase (conducted separately from the dairy phase) involves mixing and processing of liquid sugar, liquid corn syrups, malto-dextrin, vegetable stabilisers or emulsifiers and, sometimes, cocoa powders. That separate solution is also pasteurised, homogenised and immediately cooled to 35-40°F. The substances which have to this point been separately processed are then (in the combination of dairy phase and sweetener phase) pumped together into the same tank and agitated under high speed until homogenised. The mixture is then submitted to a ``sheering'' process (very high speed mixing) which breaks down any remaining curd or precipitated milk protein and results in a thin viscosity liquid mix

ATC 4742

which can appropriately function in a soft serve freezer and soft serve dispenser. The mixture has a pH level of about 5.7 to 5.8. The Product is then packed into cartons and frozen, for shipment to customers. The applicant imports the Product into Australia and wholesales it in frozen form to retailers. The retailers partly thaw the Product, stir it for aeration purposes and sell it at a temperature of about 4°C.

On 27 April 1993 the respondent issued to the applicant two assessments of sales tax. The first assessment was made under s. 10(1) of the Sales Tax Assessment Act (No. 6) 1930 (Cth) and related to sales made by the applicant between 1 December 1989 and 31 December 1992. The second assessment was made under s. 101(1) of the Sales Tax Assessment Act 1992 (Cth) in respect of sales between 1 January 1993 and 31 January 1993.

On 15 June 1993 the applicant objected to both assessments. On 28 April 1994 the respondent disallowed both objections and on 24 June 1994 the applicant applied to the Tribunal for review of the respondent's decisions to disallow its objections.

The Legislative Framework and the Applicant's Contentions Before the Tribunal

It was common ground that the Product comprised food for human consumption which would be exempt from sales tax (in respect of the first assessment) under Item 23 of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1935 (Cth) (``the 1935 Act'') unless it fell within one of the exceptions to that item. Item 23 read as follows:

``23 Goods-

(a) of a kind sold exclusively or principally; or

(b) put up for sale, as food for human consumption (whether or not requiring processing or treatment) or as ingredients of food for human consumption or as goods to be mixed with or added to food for human consumption, including condiments, spices and flavourings, but not including-

(c) beverages (except beverages of a kind marketed exclusively or principally as food for infants or invalids) or cordials;

(d) confectionery or goods of a kind marketed exclusively or principally as ingredients of confectionery;

(e) goods of a kind marketed exclusively or principally as ingredients of goods falling within paragraph (c);

(f) biscuits, other than biscuits manufactured in premises or vehicles in which the business of manufacturing biscuits is carried on exclusively or principally for the purpose of sale by retail directly from those premises or vehicles;

(g) mixes marketed exclusively or principally for use (other than household use) in the manufacture of biscuits;

(h) goods, being ice-cream, ice-cream cakes, ice-creams, ice-cream substitutes, frozen confectionery (other than frozen yoghurt), flavoured iceblocks (whether or not marketed in a frozen state) or similar goods, other than any such goods manufactured in premises or vehicles in which the business of manufacturing goods of that kind is carried on exclusively or principally for the purpose of sale by retail directly from those premises or vehicles;

(j) mixes marketed exclusively or principally for use (other than household use) in the manufacture of ice-cream, ice-cream cakes, ice-creams, ice-cream substitutes, frozen confectionery (other than frozen yoghurt), flavoured iceblocks or similar goods;

(ja) mixes marketed exclusively or principally for use (other than household use) in the manufacture of thick-shakes or of similar goods;

(k) savoury snacks;

(m) goods consisting principally of any 2 or more of the following, namely confectionery, biscuits and savoury snacks;

(n) bicarbonate of soda marketed exclusively or principally for non- culinary purposes; or

(o) salt marketed exclusively or principally for non-culinary purposes.''

(Emphasis added)

Schedule 1 to the 1935 Act contained a definition of ``confectionery'' in the following terms:

ATC 4743

```confectionery' includes-

(a) goods marketed as confectionery or consisting principally of confectionery;

(b) popcorn;

(c) confectionery novelties;

(ca) goods known either as muesli bars or health food bars, and similar foodstuffs;

(d) crystallised fruit, glacé fruit or drained fruit;

(e) crystallised ginger or preserved ginger; or

(f) edible cake decorations,

but does not include candied peel;''

The 1935 Act did not define ``ice-cream'', ``ice-cream substitutes'', ``yoghurt'' or ``frozen yoghurt''.

Items 68 and 70 of Chapter 7 of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1992 (Cth) (``the 1992 Act'') defined, for the purposes of the Sales Tax Assessment Act 1992 (Cth), the following items as being exempt from sales tax:

``Item 68: Food for human consumption

(1) Goods marketed principally as:

(a) food for human consumption (whether or not requiring processing or treatment); or

(b) ingredients of food for human consumption; or

(c) goods to be mixed with or added to food for human consumption (including condiments, spices and flavourings).

...

Item 70: Milk products

(1) Milk products.

(2) Goods that consist of milk products to the extent of at least 95%.

(3) Lactose...''

The relevant exclusions from exemption (which apply in respect of the second assessment), contained in s. 14 of the 1992 Act are expressed as follows:

``14 Unless otherwise indicated, Chapter 7 does not cover:

...

(b) confectionery, or goods of a kind marketed principally as ingredients for confectionery;

...

(f) ice-cream goods, other than ice-cream goods manufactured in premises or vehicles in which the business of manufacturing ice-cream goods is carried on mainly for the purpose of retail sale directly from those premises or vehicles.''

Section 3(2) of the 1992 Act defines ``confectionery'' and ``ice-cream goods'' respectively in the following manner:

```confectionery' includes:

(a) goods marketed as confectionery or consisting principally of confectionery;

(b) popcorn;

(c) confectionery novelties;

(d) goods known as muesli bars or health food bars, and similar foodstuffs;

(e) crystallised fruit, glacé fruit or drained fruit;

(f) crystallised ginger or preserved ginger;

(g) edible cake decorations;

but does not include candied peel;

...

`ice-cream goods' means the following goods, or any similar goods:

(a) ice-cream, ice-cream cakes, ice- creams and ice-cream substitutes;

(b) frozen confectionery (other than frozen yoghurt);

(c) flavoured iceblocks (whether or not marketed in a frozen state);''

In common with the 1935 Act, the 1992 Act did not contain any definition of the terms ``yoghurt'' or ``frozen yoghurt''.

The applicant contended before the Tribunal that the Product was ``frozen yoghurt'' and, as such, fell within that exception to the exclusion from exemption from sales tax in both the 1935 Act and the 1992 Act. The applicant contended that ``yoghurt'' should be understood in its ordinary dictionary sense as being a prepared food of custard-like consistency, which can be

ATC 4744

sweetened and flavoured, and is made from milk that has been curdled by the action of enzymes or other cultures.

The applicant sought from the Tribunal ``confirmation as far as needs be'' that the product was not ``ice-cream goods'' or ``confectionery'' as used or as defined in either the 1935 Act or the 1992 Act and thus did not fall within the exclusions from exemption contained in Item 23 of the First Schedule to the 1935 Act or s. 14 of the 1992 Act.

The respondent conceded, both before the Tribunal and in this Court, that the Product was not ``ice-cream'', but contended that it was not ``yoghurt''. The respondent submitted that the word ``yoghurt'' as used in both Acts had an accepted technical meaning in the dairy products industry in Australia which required it to have a pH level of 4.5 or lower. The respondent further contended that the Product fell within the categories ``confectionery'' or ``ice-cream substitutes''.

The Tribunal's Decision

The Tribunal took the view that the key issue was ``... whether [the Product] is yoghurt or frozen yoghurt at the time of retail sale''. At the hearing of the appeal Mr R.W.F. Sceales, counsel for the applicant, submitted that this statement had led the Tribunal into error. It was common ground that the taxing point was at the point of last wholesale sale. Mr Sceales submitted that the future use of the Product after such sale was not a relevant factor when deciding the essential character of the Product at the time of wholesale sale. Mr K.J. Martin, counsel for the respondent contended that the reference to ``retail'' was ``a slip''. He took me to later portions in the Tribunal's reasons which, he said, made it clear that the Tribunal understood that the time of assessable dealing was when the Product was sold by the applicant to a retailer and not the sale between retailer and consumer. I accept Mr Martin's submission. In my view it is quite clear from the last sentence in paragraph 50 of the Tribunal's reasons and the text quoted in paragraph 51 that the Tribunal well understood that the point of assessable dealing was at the last wholesale sale. I think that the earlier reference to ``retail'' was intended to be to ``wholesale''.

The Tribunal held that the exemption provisions were addressed to a particular trade or industry, namely the dairy products industry in Australia. In that industry ``yoghurt'' had a special meaning. Accordingly, the Tribunal held that references to ``yoghurt'' should be interpreted according to that special meaning. The industry had adopted the meaning of ``yoghurt'' as documented in the Australian National Food Authority's ``Standard H8 - Yoghurt and Yoghurt Products'' (``Standard H8''). Standard H8 was first published in the Commonwealth of Australia Gazette on 27 August 1987 and subsequently amended on twelve occasions.

The Tribunal accepted the evidence of some five witnesses, four of whom were senior executives of various companies engaged in the Australian dairy products industry. None of those witnesses was cross-examined and each deposed to the fact that ``yoghurt'' had an accepted technical meaning in the Australian dairy products industry as being the product described in Standard H8. Standard H8 requires that yoghurt shall have a pH value not greater than 4.5. The pH level is a measure of relative acidity. Acidity gives yoghurt its distinctly sour taste. pH levels run on a scale from 1 (extreme acidity) to 14 (extreme alkalinity) numerically equal to the negative logarithm of the concentration of the hydrogen ion, in gram atoms per litre. Pure water has a pH value of 7 (neutral), acidic solutions have lower pH values and alkaline solutions have higher values. The difference between a pH value of 4 and a pH value of 5, for example, is thus a tenfold increment in the concentration of the hydrogen ion, in gram atoms per litre.

The Tribunal recognised that there was also an ordinary or vernacular meaning of the word ``yoghurt'' as defined in the New Shorter English Dictionary and the Macquarie Dictionary. That ordinary or vernacular meaning did not include any pH value limitation; in fact it did not even mention pH value.

The applicant tendered in evidence before the Tribunal an affidavit from Mr F.M. Di Cosola. Mr Di Cosola, who resides in the United States of America, is the Vice-President-Operations of the company which supplies the Product to the applicant. Mr Di Cosola's affidavit describes the processes by which the Product is produced. His evidence was that at the conclusion of those processes, the Product has a pH value of between 5.8 and 6.0. An attachment to Mr Di Cosola's affidavit showed that there are fifty-

ATC 4745

one different products which comprise the Product range. Their appropriate pH levels vary between 4.82 to 6.29 (with a mean of 5.74 and a standard deviation of 0.413).

The Tribunal held that the essential character of the Product at the point of assessable sale was not yoghurt or frozen yoghurt but was as the sole ingredient for an ice-cream substitute, or frozen confectionery. It expressed its conclusions in the following terms:

``At the point of assessable sale, [the Product] is an homogenised and stabilised frozen mixture of yoghurt and sweeteners having an essential character of the ingredient for an ice-cream substitute or frozen confectionery rather than the normally marketed curd-like product of yoghurt. It does not conform with the yoghurt industry standard insofar as its pH exceeds 4.5. These facts, in the light of the above statement [a reference to observations by Hill J (with whom Whitlam J agreed) in Diethelm Manufacturing Pty Ltd v. Commissioner of Taxation (1993) 44 FCR 450 at p. 470], lead the Tribunal to the view that [the Product] is not yoghurt or frozen yoghurt for the purposes of the 1935 and 1992 Acts but is an ice-cream substitute or frozen confectionery.''

The Questions of Law Raised by the Applicant

A. Whether the Tribunal erred in interpreting the exemption provision in relation to ``frozen yoghurt'' according to a particular technical and trade meaning rather than its ordinary natural meaning ?

The question whether a word or phrase in a statute is to be given its ordinary meaning or some technical or other meaning is quite clearly a question of law:
Collector of Customs v. Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at p. 287 and the cases there cited.

It does not follow automatically that because a term has an accepted technical meaning in an industry then Parliament must be taken to have intended to use that word in the technical sense. Otherwise, the mere existence of such a generally accepted use of a term in an industry would decide the question whether Parliament had used a word in its ordinary natural meaning or in a particular technical meaning.

Nevertheless, the fact that the term ``yoghurt'' had a generally understood particular technical meaning in the Australian dairy industry when this exemption provision was first introduced in 1985 has, in my view, considerable relevance. I shall return to that matter below. First, I turn to the cases in which there has been consideration of how one resolves the question whether a word is used in a statute in its ordinary natural meaning or in a particular technical meaning.

In
Herbert Adams Pty Ltd v. FC of T (1932) 2 ATD 31; (1932) 47 CLR 222 the High Court of Australia had to consider whether a qualified exemption in the Sales Tax Assessment Act (No. 1) 1930 (Cth) in respect of ``pastry'' used the word ``pastry'' in its popular sense or in (as the Court below had found) a wider technical sense in which the word ``pastry'' was commonly used and understood among pastry-cooks. At ATD p 33; CLR p. 227 Dixon J. observed:

``... A revenue law directed to commerce usually employs the descriptions and adopts the meanings in use among those who exercise the trade concerned.''

In that case his Honour also considered the question whether the word ``cakes'', contained in the exempting provision as an exclusion, should also receive a special technical meaning? His Honour thought not, for two reasons. First, there was nothing in the form of the expression ``pastry not including cakes or biscuits'' to suggest an unusual significance of ``cake'' as there was in the case of ``pastry''. Secondly, the particular technical use of the word ``cake'' in the trade only occurred when there was occasion to distinguish articles in which fat was a substantial ingredient from articles in which fat was not a substantial ingredient. The fact that his Honour relied upon the lack of a uniformly restricted application of the word ``cake'' in the industry lends support, in my view, to the importance of such universal understanding when deciding whether Parliament intends a term to have its ordinary meaning or a technical meaning.

In
Telstra Corporation Ltd v FC of T 95 ATC 4400 (another sales tax classification case) Jenkinson J was faced with what his Honour described as ``irreconcilable conflicts of evidence'' from witnesses concerning the meaning of the expression ``electrical installation'' (see p. 4406). At p. 4407 his Honour said:

``My inability to find a trade or professional usage of the expression `fixed electrical installations' different from the ordinary

ATC 4746
meaning of those words leads to the conclusion that the Parliament intended the meaning of common parlance.''

Mr Sceales relied upon the decision in Telstra as indicating that in this matter Parliament similarly intended to use the expression ``yoghurt'' in its ordinary natural meaning. I do not think that follows. The decision in Telstra was based upon the factual conclusion that there was no trade or professional usage of the expression in question different from its ordinary meaning. The opposite applies in the present matter. Here there is a well-accepted industry meaning for ``yoghurt''. That meaning differs from its ordinary meaning in a critical respect.

In
Pepsi Seven-Up Bottlers Australia Pty Ltd & Anor v FC of T 95 ATC 4746 Hill J considered the expressions ``take-away food'' and ``take-away beverage'' in a sales tax exemption provision. It appears (from p. 4749) that counsel for the taxpayer conceded that not every item of food or drink sold in an establishment in the take-away food industry could be referred to as ``take-away food'' or a ``take-away beverage''. At p. 4753 his Honour noted that:

``... The courts will be more ready to conclude that the word is used in a specialised or trade usage where the statute to be construed is a revenue law directed to commerce.''

His Honour concluded that those expressions were ordinary English words. At pp. 4751-4752 his Honour made these observations:

``Because the sales tax legislation is legislation directed to persons dealing in goods in the course of trade or commerce, many Exemption or Classification Items use language in a sense only capable of being understood by those engaged in the course of trade or commerce in particular goods. That is to say, Exemption or Classification Items are often framed by reference to trade usage. Without evidence from those in the trade, these Items would be unintelligible to a lay person. Other Items use language which to the lay person might or might not have a special or trade meaning and in such circumstances, it will be necessary to investigate usage in the trade to determine whether there was some special trade usage current at the time the relevant item was enacted.

There may, perhaps, even be said to be a presumption that words in legislation such as the sales tax legislation, directed to persons in particular industries, are used in a special trade sense. But, irrespective of whether it is correct to say that there is such a presumption, it may certainly be said that in the context of items in the Exemptions and Classifications Act, words will more readily be treated as being used in accordance with trade usage. See, for example, in the context of customs tariff classification:
Chandler v Collector of Customs (1907) 4 CLR 1719 at 1727 and proposition (ix) enunciated by Gummow J in Agfa-Gevaert Ltd v Collector of Customs (1994) 124 ALR 645 at 648-649. This might be expected, as Dixon J (with whose judgment Rich J agreed) observed in Herbert Adams Pty Ltd v FC of T (1932) 2 ATD 31 at 33; (1932) 47 CLR 222 at 227...''

In
Agfa-Gevaert Ltd v. Collector of Customs (1994) 124 ALR 645 [a decision of the Full Court of this Court in respect of which the High Court has currently reserved its decision on appeal], Gummow J (at p. 649) said:

``With respect to revenue laws directed to commerce, the courts are more ready to conclude that items have been described according to common commercial or trade usage rather than in their natural ordinary sense.''

The general approach indicated by the above cases together with another factor, to which I am about to refer, leads me to the view that the Tribunal did not err in law by finding that in the relevant provisions Parliament used and uses the expression ``yoghurt'' in its accepted technical and trade meaning.

That additional factor is the significance of Standard H8. Its significance is not confined to its general acceptance in the Australian dairy industry as defining ``yoghurt''.

Since 1981, Standard H8 has been the relevant food standard for ``yoghurt'' adopted by the National Food Authority and its predecessor the National Health and Medical Research Council. The standard has been incorporated into State and Territory legislation to the extent that it is, and has at all material times, been illegal to sell or advertise a product as ``yoghurt'' which does not comply with Standard H8: see for example the Health Act

ATC 4747

1911 (W.A.) s. 246O, 246R, 247(3), (4) and the Health (Food Standards) (General) Regulations 1986 at p. 154. On its own, the adoption of a health standard is not necessarily determinative of the question whether Parliament uses a term in a technical sense. For example in
Bristol- Myers Co Pty Ltd v FC of T 90 ATC 4553 at p. 4555, Lockhart J found that the Food Standards Code was of little assistance in deciding whether a product called ``Sustagen Gold'' was a ``beverage'' within the meaning of Item 23 of the First Schedule to the 1935 Act. That was for two reasons. First, because the relevant provision in the Food Standards Code did not come into effect until after the period with which the case was concerned. Secondly, his Honour formed the view that the expressions ``food'' and ``beverage'' were ordinary English words and should be interpreted according to their ordinary English usage. His Honour then turned to the question whether one of the products concerned was a drug or a patent medicine and thus fell within Item 38 of the First Schedule. At p. 4558 his Honour observed that registration of the product as a patent medicine under the Health Act 1958 (Vic):

``... has no relevance in my opinion to the present question; but even if it did, it would not be determinative in any way of any question in this case.''

Mr Sceales relied quite heavily on the Bristol-Myers decision. I agree, respectfully, with everything that was decided in that case. However, the question in this matter and the nature of the evidence before the Tribunal are different. The question here is whether Parliament intended to use the expression ``yoghurt'' according to what the evidence establishes is a universally accepted technical meaning in the Australian dairy industry. In my view, the significance (to which I have referred above) of Standard H8 assists in confirming that Parliament did so intend. Accordingly, in my opinion, the Tribunal did not err in law in deciding that a trade or industry meaning should be given to the expression ``yoghurt'' in the relevant provisions of the Sales Tax legislation applying to these two assessments.

Nor did it err in law when it found that the Product did not fall within that trade or industry meaning. There was abundant evidence to that effect. In those circumstances, it is not necessary to consider the respondent's contention (on notice) that even if the Product were ``frozen yoghurt'' it would not be exempt because it was also an ``ice-cream substitute''.

The trade or industry meaning of ``yoghurt'', by adoption of Standard H8 required the Product not to have a pH value in excess of 4.5 if it were to have the essential character of yoghurt and hence frozen yoghurt. Part of the applicant's submissions was that the Product was ``yoghurt'' both according to the ordinary meaning of the word and according to Standard H8 ``to which sweeteners and flavouring agents are added''. It was submitted that as a matter of law the Product was thus ``yoghurt'' or ``frozen yoghurt''. An analogy was drawn between the addition of soda water to a measure of whisky in a glass. I do not find the analogy helpful in resolving this matter. Part of the Product may have been ``yoghurt'' in accordance with the trade or industry meaning (i.e. to the extent that it had a pH value not greater than 4.5) at the conclusion of that stage of its manufacture described as ``the dairy phase''. The Tribunal so found (see paragraph 37). However, when it was mixed with the product of ``the sweetener phase'' it lost that quality because the resultant Product had a pH value greater than 4.5. It was common ground that the resultant Product had a pH value greater than 4.5. The evidence was that a critical criterion or requirement of ``yoghurt'' was a pH level of not greater than 4.5. It would seem that the upper limit of 4.5 was set to ensure an acidity sufficiently high enough to inhibit the growth of pathogenic micro-organisms (see paragraph 4 of Mr. M.P. Jackson's affidavit). The applicant's own evidence was that the finished Product, before freezing, was no longer in a curdled state due to the process of combination, which included high speed agitation. The question was - how should the Product be characterised? In my view, the Tribunal did not err in law when it reached the conclusion in the terms which I have set out above.

In the alternative, the applicant submitted that the Product was entitled to exemption either as a food stuff for human consumption or as a product consisting of milk products to the extent of at least 95%. This was a reference to Item 70 of Schedule 1 to the 1992 Act. In my opinion, the answer to this submission is that s. 14 of that Act operates to remove those exemptions in respect of, relevantly, ice-cream goods and confectionery as defined in s. 3. As will be seen below, I have come to the

ATC 4748

conclusion that the Tribunal did not err in law when it found that the Product fell within both those definitions. In relation to Item 23 of the First Schedule to the 1935 Act, in my view it is necessary, as a matter of construction, to read sub-paragraphs (a) and (b) together so that the exclusions effected by the words ``but not including'' at the end of sub-paragraph (b) apply equally to sub-paragraph (a).

B. Whether Standard H8 was relevant to the interpretation of the exclusions from exemption ?

For the reasons which I have stated above, I consider that the answer to this question is in the affirmative. Although Standard H8 was not determinative of the question raised above, it was in my opinion, for the above reasons, relevant. Furthermore, the evidence was that Standard H8 was generally accepted in the industry as describing the product ``yoghurt''.

C. Whether the Tribunal should have applied Standard L1 to determine whether the Product is ``ice-cream'', an ``ice-cream substitute'' or ``confectionery'' ?

D. Whether the Tribunal erred in law in finding that the Product is an ice-cream substitute or confectionery ?

The applicant contended that the Tribunal erred in law in finding that the Product is an ice-cream substitute or frozen confectionery, because, so it was put, that finding was not reasonably open on the evidence or on a proper construction of the legislative provisions.

The first part of this contention was that the Tribunal erred in finding that the words ``ice- cream'', ``ice-cream substitute'' and ``confectionery'' in both the 1935 Act and the 1992 Act are to be interpreted other than according to the ordinary vernacular meaning of the words used. This contention has a false basis. The Tribunal found only that ``yoghurt'' and hence ``frozen yoghurt'' was used in a technical or trade meaning. It is quite clear from paragraph 48 of its reasons that the Tribunal did not find that the words ``ice-cream'', ``ice- cream substitutes'' or ``frozen confectionery'' were used in a technical or trade meaning.

The applicant submitted that the Product was neither ice-cream nor an ice-cream substitute in the vernacular sense. Next the applicant contended that the Product was not an ice- cream in the technical sense either i.e. the Product did not have a milk fat content of greater than 10% and did not otherwise accord with Standard L1 of the Food Standards Code. I pause here to repeat the observation, made above, that the respondent never contended, and nor did the Tribunal hold, that the Product is ice-cream. The applicant's submissions in this regard simply amount to a challenge to the Tribunal's finding that the Product is an ice- cream substitute or frozen confectionery.

In my opinion, these submissions do not do justice to what the Tribunal decided. In the last three pages of its reasons for determination, the Tribunal had regard to the essential character of the Product, in accordance with, and by express reference to, the Full Court decision in
Diethelm Manufacturing Pty Ltd v FC of T 93 ATC 4703; (1993) 44 FCR 450. On three occasions (in paragraphs 51 and 52 of the Tribunal's reasons) the Tribunal found as a fact that at the point of assessable dealing the Product was the sole ingredient for an ice- cream substitute and on two occasions found that, in the alternative, the Product was ``frozen confectionery''. Then (in the last line of its reasons) the Tribunal referred to the Product as being an ice-cream substitute or frozen confectionery without repeating any reference to it being the sole ingredient for an ice-cream substitute. In doing so, it can be taken either as repeating its immediately preceding conclusions in a shorthand manner, or characterising the sole ingredient for an ice-cream substitute as amounting, in ordinary English, to an ice-cream substitute. Neither course, in my opinion involved an error of law. The Tribunal's decisions are not to be scrutinised over- zealously:
Minister for Immigration & Ethnic Affairs v. Wu Shan Liang (1996) 136 ALR 481.

The evidence of Mr N.A. Thomas (an expert witness) concerning industry usage included the following:

``Ice-Cream

Ice-cream is a frozen aerated confection with a milk fat content of greater than 10% and which accords with Standard L1 of the Food Standards Code.

Ice-Cream Substitutes

Ice-cream substitutes are products with similar textures and flavours to ice-cream but which do not meet the requirement of 10% milk fat.''

The Tribunal found that the expressions ``ice-cream'' and ``ice-cream substitutes'' as

ATC 4749

used in Item 23 were not used in a technical or trade meaning. But, in my view, that did not oblige the Tribunal to ignore Mr Thomas' evidence of what the industry regarded as ice- cream substitutes. Then there was the following evidence from the applicant's witness, Mr Di Cosola, that at the point of retail sale after aeration and thawing:

``... the product is not dis-similar from the more widely known soft serve ice creams, but it is... [distinguishable] because of the high level of viable and abundant organisms present in it. The product was designed to taste like ice cream, so there might be a tendency to mistake the product for ice cream from a consumer oriented, non- technical perspective.''

There was also the evidence of Ms J. Coates. Ms Coates described what she saw at three of the premises where the Product is retailed. The applicant's illustrated brochures were annexed to her affidavit which among other things, showed what the Product looked like at the point of retail sale to the consumer. This was after it had been served from a soft-serve dispensing machine similar to those used to dispense soft-serve ice-cream. The brochures compared the Product favourably to ice-cream in terms which included:

``Less than half the calories and one-fourth the fat of premium ice cream.''

Mr Sceales submitted that the Product was not a confection of the packaged variety referred to by Hill J in Pepsi Seven-Up Bottlers (at p. 4750). The Product, so it was put, did not have an indefinite shelf life. Pausing there, I would not have thought that would be an appropriate basis for distinguishing the Product from confectionery. The relevant term used in Item 23 of the First Schedule to the 1935 Act and s. 14(f) when read with s. 3(2) of the 1992 Act is ``frozen confectionery''. I accept that in both pieces of legislation there is also reference to ``confectionery'' simpliciter. In each Act the term ``confectionery'' is defined inclusively in fairly wide terms. One such inclusion is that confectionery includes ``goods marketed as confectionery or consisting principally of confectionery''. It was common ground that the term ``confectionery'' was used in its ordinary non-technical sense. Assuming (but without deciding) that it is possible to regard its meaning in the present context as one of law, my opinion is that the essential character of confectionery has two aspects. First (having regard to its Latin origin) it is something made by combination or mixture. Secondly it is something eaten as a sweet or savoury delicacy of a type which would be wide enough to include cakes, chocolates and pastries. The English authorities, to which Mr Sceales referred in argument, were decided in such a different context as not to be of any assistance in the resolution of this matter. In his reply, Mr Sceales submitted that the word ``substitute'' was used in a sense of ``something that is not natural''. He relied on the third alternative definition of ``substitute'' given in the New Shorter Oxford English Dictionary at p. 3124. I do not accept that submission. There is nothing in the context in which the expression ``ice- cream substitute'' appears to suggest that it is confined to a man-made food stuff or other substance used as an alternative for a natural substance. In my view it is used in the sense of a thing which is used or stands in place of something else. While a man-made food stuff or substance may properly be referred to as a substitute for ice-cream, that does not preclude a natural substance, such as the Product, equally being characterised or described as an ice- cream substitute.

In my view it was plainly open to the Tribunal, on the evidence before it, to find that the Product is the ingredient for an ice-cream substitute, or frozen confectionery. If it found also that it was an ice-cream substitute, as I think it did, that finding was, in my opinion, also plainly open to it.

E. Whether the Tribunal erred in law on the matter of the flavour of the Product ?

The applicant submitted that the Tribunal erred in law in finding that the applicant's Product had a flavour akin to soft-serve ice- cream when there was no evidence to that effect and, more particularly, where flavour is not a relevant criterion to determine the existence or otherwise of exemption under the sales tax legislation. In my view there was evidence on the matter of flavour. I refer to the extract from Mr Di Cosola's evidence set out above. Mr Di Cosola said that the Product was designed to taste like ice-cream, so there might be a tendency to mistake the Product for ice-cream from a consumer-oriented non-technical perspective. There are further references to flavour in the applicant's brochures annexed to Ms Coates' affidavit. The brochures include

ATC 4750

references to ``creamy, delicious flavours... Chocolate and Vanilla Classic''.

The ``no evidence'' submission fails.

Similarly, in the context of deciding whether the Product was either an ingredient for an ice- cream substitute or an ice-cream substitute, I reject the submission that the Tribunal erred in law by taking into account the matter of flavour. It cannot be the case that flavour is an irrelevant consideration when deciding whether one food product is a substitute for another food product, especially as ``ice-cream substitute'' is to be understood in accordance with its ordinary meaning. This ground is not made out.

F. Refusal to take into account certain portions of Mr Di Cosola's affidavit evidence

In its reasons, the Tribunal referred extensively to Mr Di Cosola's affidavit and set out nearly three pages of extracts from it. It prefaced that by the following observation:

``14. The Tribunal, mindful of its obligation to determine the facts and inform itself on any matter in such manner as it thinks appropriate, accepted the whole of Mr Di Cosola's affidavit of 25 August 1995 in evidence but has taken into account only those matters of a technical, scientific or factual nature which are reproduced in the passages quoted below.''

The Tribunal omitted certain parts of Mr Di Cosola's affidavit in the passages reproduced. After setting out the passages upon which it relied, the Tribunal said:

``15. Apart from paragraph 8.2.5, which repeats an earlier fact that during the dairy phase the fermentation process lowers the pH level to 4.5, the balance of Mr Di Cosola's affidavit was not taken into account by the Tribunal being either unhelpful expressions of opinion, or statements which the parties agree are irrelevant.''

The applicant submitted that the Tribunal erred in refusing to take into account those parts of Mr Di Cosola's affidavit which-

• describe in factual terms the composition of the applicant's product;
• describe the applicant's product in the vernacular sense; and
• describe in factual terms the differences between ``yoghurt'' on the one hand, and ``ice-cream'' and ``confectionery'' on the other hand, and which explain why the product is neither ``ice-cream'', an ``ice- cream substitute'' or ``confectionery''.

Section 33(1)(c) of the Administrative Appeals Tribunal Act 1975 (Cth) provides that the Tribunal is not bound by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate. As Hill J. observed in
Casey v. Repatriation Commission (1995) 22 AAR 234 at p. 238:

``The criterion for admissibility of material in the Tribunal is not to be found within the interstices of the rules of evidence but within the limits of relevance.''

In
Repatriation Commission v. Maley (1991) 24 ALD 43 at p. 51 the wrongful rejection of evidence (on the grounds that it was not corroborated, although in law it did not require corroboration) was held by a Full Court of this Court to constitute error of law. I now turn to those portions of Mr Di Cosola's affidavit which the applicant contends should have been considered by the Tribunal.

The Tribunal chose to disregard certain parts of paragraphs 6.3.4, 6.3.5, 6.3.7, 6.3.8, 6.3.11 and 6.3.12 which dealt with the relevant ``Standard of Identity'' for ``frozen yoghurt'' in the United States of America. In my view, the Tribunal committed no legal error when it chose to disregard this evidence. Having decided the legal question that the term ``frozen yoghurt'' was used in a technical or trade meaning in Australia, it was not obliged to take into account the standard applicable in the United States of America in general or in the State of California [see 6.3.12] in particular.

In paragraph 6.3.4 Mr Di Cosola expressed the opinion that if pH is a requirement of the Australian laws, he would consider that a pH in the range of 4.45 to 4.65 would be sufficiently close to such a standard for all practical purposes and that such a product would be generally regarded as ``yoghurt''. Given the evidence that the pH level was a critical criterion for yoghurt in Australia, the Tribunal was quite entitled to disregard this evidence as being ``unhelpful expressions of opinion'' (as it did).

Next, objection was taken to the rejection of Mr Di Cosola's evidence, in paragraph 6.3.5 of his affidavit, concerning the nature of the product produced upon completion of the dairy phase. In fact, it can be seen that the Tribunal

ATC 4751

paid close attention to the dairy phase and what was produced upon its completion. To the extent that Mr Di Cosola, in that paragraph, ventured his opinion about whether yoghurt had been produced according to vernacular definition and which complied with Standard H8 at the completion of the dairy phase, there are two comments to be made. First, the Tribunal had regard to other evidence and found that at the completion of the dairy phase, the resultant product to the extent that its pH level was not more than 4.5 met the vernacular definition and the Standard H8 definition of ``yoghurt''. It was entitled, on the same basis as referred to above, to reject Mr Di Cosola's evidence to the extent that it went further than the other evidence which the Tribunal preferred.

Other portions of Mr Di Cosola's affidavit which were not taken into account by the Tribunal attacked the use of pH values as the sole determinant of whether a product was ``yoghurt'' or not. Given the legal conclusion concerning the expression ``yoghurt'' being used in a technical or trade sense, the Tribunal was correct in rejecting these portions of evidence.

To the extent that the disregarded portions of Mr Di Cosola's affidavit described in factual terms the composition of the applicant's product, there was more than adequate other evidence from Mr Di Cosola which was set out in the Tribunal's reasons and which clearly described the composition of the Product.

The balance of the disregarded evidence amounted to:

• expressions of opinion on the very question which it was the Tribunal's function to decide. The Tribunal was entitled to reject those portions of evidence as being ``unhelpful''; or
• evidence which was irrelevant to the matters in issue before the Tribunal; or
• evidence, which though excluded from the considered portions of the affidavit, was admitted in another manner (see for example paragraphs 6.5.6 and 7.2).

Insofar as the applicant's objections relate to the rejected portions of evidence on the subject of ``ice-cream'', they have no substance because the respondent, both before the Tribunal and in this Court, conceded that the Product was not ``ice-cream''.

G. Whether the Tribunal erred in law by having regard to the market in which the retailers sell the Product ?

I do not think that this ground of appeal is maintained. Although there is reference in the Tribunal's reasons to the market in which retailers of the Product subsequently sold it, a close reading of the Tribunal's reasons (and in particular pages 23-24) shows that the Tribunal was concerned with the essential character of the Product at the time of wholesale. In the context of an ice-cream substitute it would be unrealistic to ignore how the Product was marketed to the general public after passing the taxing point. The concepts of substitutability (which must surely include substitutability of supply and demand) are inextricably intertwined with market definition. As the Trade Practices Tribunal, in its seminal determination in Re QCMA Ltd and
Defiance Holdings Ltd (1976) ATPR 40-012 observed (at p. 17,247):

``Within the bounds of a market there is substitution - substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firm's product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives.''

The application of Item 23 does not preclude consideration of what happens to goods after they pass the taxing point. How else would one be satisfied that, for example, an item was put up for sale ``as food for human consumption'', if one could not consider what happens to it after the taxing point? Hill J in Diethelm (at ATC p 4720; FCR pp. 472-473) was certainly not prepared to rule out such an approach, but in that case there was insufficient evidence. See

ATC 4752

also Jenkinson J in
Nicholas Kiwi Pty Ltd v FC of T 90 ATC 4662 at pp. 4669-4671. In this case I think there was sufficient evidence. Mr Di Cosola's own evidence (see paragraph 7.7 of his affidavit) was that at the time of retail sale the product is thawed, aerated in a mixing machine and dispensed as a soft serve product. Some further confirmation of the relevance of the marketing and final ``use'' of the Product can be derived from the definition of ``confectionery'' which, in both Acts, contains references to ``goods marketed as confectionery''. There are other similar references in the description of the items excluded from exemption from sales tax as food.

In Bristol-Myers Lockhart J (at p. 4557) referred to the description used in Item 23 in terms which included the following:

``... Although this description does not specifically identify goods with reference to their own inherent qualities or characteristics, as distinct from their method of sale or marketing, it is obviously relevant to pay regard to the constituent qualities or ingredients of the goods themselves as well as how the goods are sold or marketed or put up for sale.''

His Honour went on to examine how ``Sustagen Gold'' was sold at retail, including the fact that it was sold with an attached straw.

The Tribunal did not err in law when it had regard to the market in which the retailers sell the Product.

Conclusion

For the above reasons, I do not think that the Tribunal erred in law in any of the respects for which the applicant contended. Accordingly, the appeal will be dismissed with costs.

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The applicant pay the respondent's costs.

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