ZEROZ PTY LTD v DFC of T
Members:TE Barnett DP
RD Fayle SM
Tribunal:
Administrative Appeals Tribunal
TE Barnett (Deputy President) and Associate Professor RD Fayle (Senior Member)
Background to this review
1. This matter has been returned to the Tribunal by the Federal Court to be decided according to law as directed. The history of this review is that initially the matter came before the Tribunal to review two objection decisions of the respondent, those decisions were the subject of an appeal to the Federal Court (Carr J) in the first instance, which decision was appealed to the Full Court (Lee, Hill and RD Nicholson JJ).
2. The factual basis and relevant legislation is conveniently summarised by the Full Court in its judgment [97 ATC 4277] and will not be repeated here, except to the extent that those facts and legislative background are directly relevant to these reasons.
3. In sum, the applicant imported a product called Zeroz Soft Serve Frozen Yogurt (``the product''). This was sold by it wholesale, the applicant claiming sales tax exemption. The two assessments under review were assessed pursuant to different Sales Tax legislation because of the different periods in which the sales were made. The first period covered sales between 1 December 1989 to 31 December 1992 for which exemption was claimed pursuant to Item 23 of Schedule 1 of the Sales Tax (Exemptions and Classifications) Act 1935 (``the 1935 Act''). The second assessment covered sales during the period 1 January 1993 to 31 January 1993, the exemption being claimed pursuant to s 14 of the Sales Tax (Exemptions and Classifications) Act 1992 (``the 1992 Act''), in particular, under Item 70 of Schedule 1.
4. As to whether there is any relevant difference between these two provisions, the Full Court, at page 4286, noted:
``Having regard to the history of the legislation of which the 1992 Act is part as being intended, unless otherwise indicated, to restate the law in simplified terms rather than to change it, nothing turns upon the difference between the 1935 Act and the 1922 Act.''
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The legislation
5. Therefore, focusing only on the 1992 legislation, Chapter 7, Item 70 exempts various products which might be described generically as ``milk products''. But in s 14 of that Act those exemptions do not apply to goods as listed, which include, at paragraph (f):
``14 Unless otherwise indicated, Chapter 7 does not cover:
- ...
- (f) ice-cream goods,...''
(rest not relevant)
6. Section 3(2) of the 1992 Act defines ``ice- cream goods'' as:
```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 ); [emphasis added]
- (c) flavoured iceblocks (whether or not marketed in a frozen state);''
The first Tribunal decision
7. The gravamen of the Tribunal's original decision affirming the objection decisions under review accepted submissions that to be ``yogurt'' the product must comply with the Food Standards Code, Standard H8, first published in the Commonwealth of Australia Gazette No P27 of 27 August 1987. The Tribunal concluded that because the product had a pH value exceeding the limit set out in that Standard then it was not (in Dairy Industry trade terms) ``yogurt'' (also spelt ``yoghurt'') and therefore not ``frozen yogurt''.
8. Nevertheless, the Tribunal found as a fact that the product was an ``ice-cream substitute'' or ``frozen confectionery'', neither of which is exempt from sales tax. That finding is undisturbed by subsequent appeals and its implications, of necessity, will be dealt with in the present context.
The Full Federal Court decision
9. The Full Court in reaching its decision to remit this matter back to the Tribunal, to be heard again in accordance with the principles discussed in its reasons, guides the Tribunal in several particular passages. The Full Court said:
``... in the present case, there was need for an initial enquiry into whether `frozen yoghurt' was no more than a yoghurt which is frozen, or whether there is actually a product called `frozen yoghurt' having characteristics of its own... (p. 4283)
It is hard to resist the conclusion in the present case that `frozen yoghurt' is something other than `yoghurt' which has been `frozen' . At the very least there will need to be the addition of an emulsifier to aid the smoothness of the product when frozen, as well as sweeteners and flavouring. Indeed it may thus be said that `frozen yoghurt' is no more yoghurt which is frozen than ice-cream is cream which has been iced.... (p. 4283)
Having identified the word or phrase to be construed it is then necessary for the Tribunal to determine whether there is some trade usage of the word or expression and if so what that trade usage is. In this quest the Tribunal will be required to determine the appropriate trade in which the expression is used.... (p. 4284)
On the evidence before it, it was open for the Tribunal to conclude that there was a product known as `frozen yoghurt' which would be recognisable to consumers or producers. It was then required to determine whether the product came within the ordinary meaning of `frozen yoghurt' , whatever that might be. Although it was entitled to embark upon an investigation whether there was any trade meaning of the expression `frozen yoghurt' which was different from the ordinary meaning, and from this evidence to draw conclusions as to the ordinary usage in the trade of the expression `frozen yoghurt' if this trade meaning was narrower than the ordinary English meaning of the expression, there was no indication in the statute that a meaning other than the ordinary meaning should prevail. In carrying out this task the Tribunal would be entitled to receive expert evidence from the relevant trade independently of any Standard, that prima facie being those who produce or market `frozen yoghurt' . (p. 4286)''
Reasons
10. At the hearing the applicant was represented by Mr M Barker QC, assisted by Mr R Lashansky, a solicitor. The respondent was represented by Mr KJ Martin QC, assisted by Mr T Carey from the Australian Government
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Solicitor's office. Oral evidence was given for the applicant by Mr Sam Novatscov, a director of the applicant, and Ms Julie Meek, a dietitian, and, for the respondent, by Mr Ian Downey, a dairy technologist with Regal Cream Products Pty Ltd, a Victorian manufacturer of frozen yogurt and Dr Nigel Thomas, a food scientist involved in the dairy industry. Also, the Tribunal received into evidence an affidavit by Mr Anthony Fairbrother, a lecturer in Food Science. In addition the Tribunal had before it documents filed pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 for the purpose of this hearing and also those before it for the purpose of the original hearing in this matter, its transcript and the affidavits relating thereto together with the transcript of the Full Court's hearing and documents forwarded to it by the Tribunal.
Is there a distinct product called ``frozen yogurt''?
11. The applicant relies, to some extent, on the affidavit evidence of Mr Fred Di Cosola sworn on 25 August 1995 for the purpose of the earlier hearing by the Tribunal in this matter [ Ex A6]. In it the witness outlines the process by which the product was manufactured in the USA for export, in a frozen state, to customers including the applicant. There is sufficient evidence before the Tribunal for it to confirm that the product is produced in a distinctly different way to the manufacture of ice-cream.[1]
96 ATC 150). Yogurt is a distinct product derived from a mixture of homogenised milk, cream, fresh or skimmed milk and what have been generically referred to as stabilisers to provide viscosity, such as gelatine, pectin, vegetable gums or starch. The mixture is pasteurised, heated and then cooled to kill off any unwanted bacteria. This mixture is inoculated with live cultures or bacterial organisms such as streptococcus, thermophilus and lactobacillus bulgaricus, which result in coagulation or curdling to produce the yogurt.[2]
12. As the Full Court thought, the product requires additional processing - not just freezing the yogurt. Mr Downey's evidence is that ``frozen yogurt'' as produced by Regal Cream Products Pty Ltd, begins with yogurt which is mixed with sweeteners, aerated, the degree of which determines the softness of the product, frozen and packed to be stored at minus 18 degrees Celsius. Mr Di Cosola, in his original evidence, said the manufacture of the product requires what he termed ``the dairy stage'' (which is the manufacture of the yogurt) and ``the sweetener stage''. That latter process involves the cooling of the mix and blending sweeteners and emulsifiers before pumping the thoroughly blended and homogenised solution through a pressurised sheering process to break down any remaining curd or precipitated milk protein, resulting in a thin viscosity liquid mix which can appropriately function in a soft serve freezer and soft serve dispenser. The description of the process employed by Honey Hill Farms in the United States of America, the exporter of the product to the applicant, is clearly a process having distinct similarities to that employed by Regal Cream Products in Victoria and the Peters and Brownes Group of companies in Western Australia.[4]
13. In the light of the findings by the Federal Court the Tribunal accepts that the pH count of the product is not determinative of whether it is ``frozen yogurt''. This is a matter conceded by the respondent at the hearing. Indeed, Mr Di Cosola's evidence is that the distinctive flavour of yogurt is determined by the product's titratable acidity, the measure used by the Regulatory Agencies in California, USA where the product is produced. Titratable acidity is affected by the age of the yogurt - in a fresh state, lactic acid will develop causing the pH to drop and the titratable acidity to rise as the yogurt becomes more acidic. In a frozen state lactic acid development is nominal. The pH level is an inverse proxy for titratable acidity, albeit the measure settled upon by food authorities in Australia for the labelling of products as ``yogurt''.
14. Also, there is sufficient evidence before the Tribunal for it to conclude that the Dairy Industry in Australia, in compliance with the requirements of Standard H8,[5]
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example, Yakult, a yogurt based product containing lactobacillus cultured bacteria[7]15. In the light of these findings and the direction of the Federal Court, the Tribunal finds that frozen yogurt is a distinct product. The fact that some products manufactured in the same distinctive way as the product, which process is described above (in particular including coagulation), are not marketed as such does not detract from this finding. Labelling of frozen yogurt products for marketing in Australia is, since 1987 at least, clearly constrained by the requirements of Standard H8. That is the current Australian Dairy Industry trade practice.[9]
Is there a specific trade description for the purpose of the legislation?
16. The respondent, in its submissions that the product was not ``frozen yogurt'' for the purposes of the Sales Tax legislation, relied on a distinction between what it contended would be ``frozen yogurt'' and the product. That distinction, it submitted, is the distinctive taste associated with yogurt products. There was considerable evidence before the Tribunal that yogurt has a distinctive taste promoted by the acidity - this taste variously described as ``tart'', ``strident'', ``sour'' and ``acidic''. It was submitted that there is a trade understanding that yogurt products will have this distinctive taste which sets them apart from other dairy based products such as ice-cream and ice-cream substitutes.
17. The respondent pointed out that, in his affidavit, Mr Di Cosola makes specific reference to the fact that the product is designed to taste like ice-cream.[10]
18. In response to this submission Mr Barker cross-examined Mr Ian Downey at some length. As a result of Mr Downey's evidence, the Tribunal is of the opinion that but for the pH level distinction, the products marketed by Regal Cream Products, as ``frozen'' yogurt, are not clearly distinguishable from the product. In particular Mr Barker referred to the package label of that company's product Bulla Fruit `N Yogurt - Frozen Strawberry Yogurt. That label promotes their product as ``the creamy light alternative to ice cream'' which ``contains acidophilus & bifidus cultures'', albeit the latter phrase in much smaller print.
19. It would seem therefore, on the evidence before it, that it is open to the Tribunal to find that whilst yogurt has a distinctive stringent or sour taste, rendered by its titratable acidity (and reflected in its pH level), that stringency or sourness is reduced by addition of sweeteners which can result in a taste not all that distinguishable from the taste of some ice- cream products. However, that does not make the product any the less ``frozen yogurt'' for the purposes of the relevant Sales Tax legislation.
Does previous finding of the Tribunal foreclose the matter?
20. Finally, the respondent submitted that as the Tribunal has already found, as a matter of fact, that the product was an ```ice-cream substitute' or `frozen confectionery''' (neither of which are exempt from sales tax), a finding which has not been disturbed in subsequent appeals, then that, of itself, is sufficient to determining that the product is not exempt.
21. Those terms, ``ice-cream substitute'' and ``frozen confectionery'' are found in the 1992 legislation in the definition provision of s 3(2), being components of the definition of ``ice- cream goods'' which are excluded from the general food exemption by operation of s 14 of the 1992 Act.[11]
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preclude it from the exemption. However, the relevant definition of ``ice-cream goods'' includes ``ice-cream substitutes'' and, separately, ``frozen confectionery ( other than frozen yoghurt )'' [emphasis added]. In the Tribunal's opinion it does not strain the language of the provision in any way to conclude that once a finding is made that the product is specifically ``frozen yogurt'' that is sufficient for it to be excluded from the general class of ``frozen confectionery''. Similarly, as ``frozen yogurt'' is specifically excluded from the sub-class of ``frozen confectionery'' that is sufficient for it to be excluded from the generic class of ``ice-cream goods'' of which ``frozen confectionery'' is a sub-class. A finding that the product may also meet the criteria of another sub-class within that generic class (``ice-cream goods''), does not preclude the product's exemption from sales tax, as clearly intended by the words of the legislation. It makes no sense to say that as a good is within the broad description of a class of taxable goods then that is the end of the matter, even if the good is properly identified as a specific class of goods exempted from that broad class. Such a conclusion renders nonsensical the exemption provision.
Is there any relevant difference between the 1935 and 1992 legislation?
22. Mr Martin urged the Tribunal to find that the structure of the 1992 Act, in regard to the context of the legislation in which the exclusion for ``frozen yogurt'' appears is sufficiently different to the provisions of Item 23(j) of the 1935 legislation that it ought to be construed differently. The Tribunal is mindful of what the Full Court said about the purpose and effect of the 1992 Act and for that reason declines to engage in the esoteric analysis urged upon it by the submission of Mr Martin in this respect.
Decision
23. For the above reasons, in terms of s 43 of the Administrative Appeals Tribunal Act 1975, the decision under review is set aside and remitted to the respondent for reconsideration in accordance with the finding that for the two objection decisions under review, the product is frozen yogurt and therefore exempt from Sales Tax.
Footnotes
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