Chobani Pty Ltd v FC of T
Members:R Olding SM
Tribunal:
Administrative Appeals Tribunal, Brisbane
MEDIA NEUTRAL CITATION:
[2023] AATA 1664
R Olding (Senior Member)
WHAT IS THIS CASE ABOUT?
1. This case concerns whether Chobani Flip Strawberry Shortcake flavoured yoghurt ("the Product") is subject to GST.
2. The Product comprises strawberry flavoured yoghurt which sits in the main compartment of a plastic tub and dry inclusions[1]
3. The tub has a score line between the two compartments, allowing the consumer to bend the tub and flip the dry inclusions in the smaller tub into the flavoured yoghurt in the larger tub.
4. It is not in dispute that the Product is "food" as defined for GST purposes and that a sale of the Product constitutes a single supply.
5. The issue for determination is whether GST-free status of the supply of the Product is excluded by s 38-3(1)(c) of the GST Act.[3]
food of a kind specified in the third column of the table in clause 1 of Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind.
6. While it will be necessary to return to the definitions in more detail, broadly this means the issue for determination is whether Chobani has discharged the burden of proving the Product is not food that is a combination of one or more foods at least one of which is biscuit goods or confectionery or food of such a kind.
TEST CASE
7. Chobani sells a range of "flip" products with different flavours and dry inclusions.
8. In 2021, the Commissioner advised Chobani he would be changing his earlier view that supplies of the "flip" range of products are GST-free, but that change would be implemented prospectively, from September 2021.
9.
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Chobani and the Commissioner agreed this case would be used to test the Commissioner's view that Chobani's range of "flip" products is subject to GST.
Decision under review
10. To test that view, Chobani brought GST to account on a single supply of an 8 pack of the Product in its activity statement for the April 2021 tax period, resulting in a deemed assessment of the net amount taking into account GST on that supply. Other supplies of the Product were treated as GST-free in that return in accordance with the administrative arrangement that the Commissioner would apply his revised view from September 2021.
11. Chobani objected against the resulting deemed assessment of the net amount. The decision before the Tribunal for review is the Commissioner's decision disallowing Chobani's objection.
GSTR 2001/8
12. Broadly speaking, taxpayers are entitled to protection if they rely on a public ruling to determine whether a supply of a product is GST-free. The GST treatment of such a supply is determined in accordance with the ruling: Taxation Administration Act 1953 (Cth), Schedule 1, s 357-60.
13. Public ruling GSTR 2001/8 contains, in paragraph 21, a concession allowing taxpayers to treat certain supplies involving two or more parts as a "composite supply". That is not a statutory term. The expression is used to describe "a supply that appears to have more than one part but is essentially a supply of one thing".[5]
14. In its written outline of submissions, Chobani relied upon GSTR 2001/8 as an alternative to its submissions based on the terms of the GST Act. However, Ms Baker SC, who appeared for Chobani, confirmed that Chobani had not relied upon GSTR 2001/8 in treating the supply that is the subject of its objection as GST-free in its activity statement. That is because Chobani treated the supply as subject to GST to generate a deemed assessment against which it could object to bring on a test case.
15. In those circumstances, GSTR 2001/8 can have no application to the question before the Tribunal: whether the assessment is excessive.[6]
16. Chobani did continue to rely on GSTR 2001/8 for the purpose of determining the GST treatment of other supplies of the Product in the April 2021 tax period and it is the assessment of the net amount in its entirety Chobani has the burden of proving is excessive. However, again, whether reliance on GSTR 2001/8 was available to Chobani for those supplies could not change a conclusion regarding whether the assessment is excessive. Those supplies were not treated as subject to GST in Chobani's return or, therefore, the deemed assessment.
17. Notwithstanding that Chobani did not rely on GSTR 2001/8 in relation to the supply before the Tribunal, Ms Baker submitted the Tribunal should include in its reasons a conclusion regarding whether Chobani was entitled to rely on GSTR 2001/8 to treat supplies of the Product as GST-free. Contrary to Chobani's submissions, the Commissioner says that GSTR 2001/8 could not apply to the product.
18. The basis on which Ms Baker put this submission was that if the Tribunal were to include a conclusion regarding GSTR 2001/8 it would quell a live dispute between the parties and avoid a potential multiplicity of proceedings potentially arising from the need to bring a separate proceeding or proceedings to resolve that issue.
19. The Tribunal's jurisdiction is confined to review of decisions as provided for by Parliament. It has no inherent jurisdiction. In the current context, the Tribunal's role is confined to hearing and deciding the application for review of the objection decision to determine whether Chobani has discharged the burden of proving the assessment is excessive. For the reasons outlined, whether Chobani could rely upon GSTR 2001/8 has no part to play in the discharge of that duty.
20.
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Accordingly, any conclusion the Tribunal might include in its reasons would be in the nature of an advisory opinion. It would not be a binding decision let alone appellable. It would be no more than my personal opinion which would have no formal status or effect.21. For those reasons, I consider it is inappropriate to express a view on this issue. To do so would be to use the Tribunal's processes for purposes outside the jurisdiction conferred by Parliament.
THE PARTIES' SUBMISSIONS IN SUMMARY
Chobani's primary submission - the product is not "food that is a combination . . ."
22. Chobani's primary submission is that, properly construed in context, the expression "food that is a combination . . ." does not cover the Product. The applicant says "combination" has such a broad and imprecise meaning that s 38-3(1)(c) cannot have been intended to exclude every form of combination of food, including where ingredients are subsumed into a distinct product. Some level of separate identification is required. The question for the Tribunal is what that level of separation is.
23. In answer to that question, Chobani submits that determining whether a product is caught by the exclusion involves:
characterising the nature of the supply by asking the questions: what is the food, and can that food sensibly be described, as a matter of commercial, economic and practical reality, as a "combination". This approach would require each of the components to be practically, economically and commercially distinct in the sense that they could each be acquired and enjoyed separately, with each component making a reasonably significant, if not equal, contribution in characterising the nature of the food supplied so that one cannot be regarded as practically, economically and commercially subsumed into the other.
24. Thus, Chobani says, consistent with the Explanatory Memorandum to the Bill that introduced the provisions for GST-free treatment of basic foods (to which I return later in these reasons), the familiar combination of crackers and cheese packaged together would be such a combination. A cake would not because the ingredients are subsumed into the finished product.
25. Applying those principles, Chobani says the ingredients of the Product are so closely linked that they form, objectively, a single supply of flavoured yoghurt, which it would be artificial to split by separately recognising the dry inclusions. The individual components of the dry inclusions would not be recognised irrespective of whether they are properly characterised as biscuits goods, confectionery or food of either of those kinds.
Chobani's alternative submission - the dry inclusions are not biscuit goods or confectionery
26. If, contrary to its primary submission, the dry inclusions should be separately recognised, Chobani says what would be separately recognised is the blend of dry inclusions, not the cookie pieces or the chocolate chips.
27. The blend of dry inclusions is, Chobani says, neither biscuit goods nor confectionery. Nor is there a class or genus of goods specified in Schedule 1 that would include the blend of dry inclusions.
The Commissioner's submissions
28. The Commissioner submits that:
a combination of foods should be understood, consistent with the ordinary meaning of the term, as something that is recognisable as a result of the joining of individual food items. What is required is a short practical assessment of appearance and physical attributes, taste, ingredients, use, marketing and packaging to identify whether the overall impression of what is supplied is a combination of foods. Whether those attributes are considered in totality, the correct conclusion is that the Product is a combination of three foods: strawberry flavoured yoghurt, white chocolate pieces and cookie/biscuit pieces.
29. The Commissioner also rejects Chobani's alternative submission that the blend of dry inclusions should be viewed in its totality and, as such, is neither biscuit goods nor confectionery. In any case, even if it is correct to consider the dry inclusions as a
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blend, the Commissioner says the blend would fall within the definition of biscuit goods.
"FOOD THAT IS A COMBINATION . . ." - SECTION 38-3(1)(c)
30. In the immediately following paragraphs, I consider whether the Product is a "combination" of the type covered by s 38-3(1)(c). The discussion is premised on the dry inclusions being biscuit goods and/or confectionery or food of that kind. Following that discussion, I consider Chobani's alternative argument that the dry inclusions are neither biscuit goods nor confectionary or of either of those kinds, but rather are a blend.
31. Consistent with Chobani's submissions, I have approached the matter by endeavouring to first determine the correct construction of the expression "food that is a combination . . ." and then determining whether the Product falls within the expression as so construed. This may be considered to follow an orthodox logical sequence. However, as both parties' submissions demonstrate, construction and characterisation may become intertwined, especially in respect of policy arguments.
Construction issue
The parties' positions
32. Neither party submits there is a trade meaning for the expression "combination" or "food that is a combination . . .". They agree it must take its ordinary meaning. Based on dictionary definitions, "combination" includes the product or outcome of joining two or more things together in some way.[7]
33. The Commissioner says the combination required by s 38-3(1)(c) refers to food "that gives the overall impression of being the product of joining together" two or more food items. That approach, reflecting characterisation cases referring to an overall impression, may conflate construction of the legislation and characterisation of the product: the outcome or product of joining together is a suggested construction of the phrase while the overall impression may inform whether the product has that character.
34. Chobani's approach calls for a more limited meaning of "food that is a combination . . ." Chobani would limit the expression to combinations that leave the components sufficiently distinct from one another "that one cannot be regarded as practically, economically and commercially consumed into the other".
Statutory interpretation principles
35. There are no existing authorities concerning the construction of the second limb of s 38-3(1)(c). Accordingly, I must construe the provision in accordance with accepted principles.
36. The following principles may now be regarded as reflecting the orthodox approach to statutory interpretation. The task of construction begins and ends with the statutory text. However, the text must be construed having regard to the provision's context in the broadest sense and the evident policy of the statutory provision ascertained by permissible means. Context must be considered at the outset.
37. Because, as will be seen, the GST-free categories of food products were intended to "in general" mirror the former sales tax exemptions, legislative history must also be examined as part of the context and in consideration of the policy underpinning the food exemptions and the exceptions.
Policy as revealed by the Explanatory Memorandum
38. As the statutory text provides little in the way of clues to the degree of combination or separate identity required, I now turn to consider the policy of the provisions as gleaned from the Explanatory Memorandum to the amending Bill that introduced GST-free treatment for foods.[8]
39. Under the heading "Purpose of the amendments", the Explanatory Memorandum summarises the amendments as follows:
1.3 The amendments will ensure that basic food for human consumption is GST-free. In addition, they will ensure that the current WST[9]
“WST” is an abbreviation for Wholesale Sales Tax as the former sales tax is sometimes called. exemptions for food are, in general, maintained.
Basic food?
40. Stated at that high level - "the amendments will ensure that basic food for human consumption is GST-free" - the summary gives an indication of the overall
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object of the amendments. However, it provides little assistance in determining whether Chobani's construction is to be preferred.41. Biscuit goods and confectionery are not basic foods. They are plainly excluded from GST-free treatment. It is not surprising that GST-free status would also be denied for products that are properly characterised as food that is combination which includes biscuit goods and/or confectionery.
42. However, even assuming the Product includes biscuit goods and/or confectionery, that merely begs the question whether the combination of those items with the flavoured yoghurt is a combination of the type envisaged by s 38-3(1)(c). The statutory test is not whether such foods are included in a supply, but whether the food in question is "food that is a combination . . ." that includes one or more such items.
43. I have not attempted to determine whether the Product would be properly described as basic food. That would seem to impermissibly amount to construing and applying the Explanatory Memorandum rather than the statutory text.
44. Nor will I seek to test my conclusion on the character of the Product against whether it is properly characterised as basic food. Whether a food product is a basic food involves a value judgement on which, at least in cases at the margin, reasonable minds may differ. As the Tribunal constituted to hear and decide this review, it is not my task to apply my own value judgement on whether the Product is basic food. As I will come to, the resolution of this matter may ultimately be somewhat impressionistic. But if that is so it is an impression of whether the Product is properly characterised as falling within the statutory text as properly construed, not whether it is basic food.[10]
Examples
45. Chobani's submissions draw attention to specific examples in the Explanatory Memorandum of combinations that would not be GST-free. In particular, a "snack pack containing cheese and biscuits" and a "package containing a mix of biscuits and chocolates". Both of those examples would clearly be "food that is a combination" of foods at least one of which is food of the excluded kind whether Chobani's or the Commissioner's approach is applied. As such, they merely confirm what is plain from s 38-3(1)(c): that combinations of that kind are intended to be taxed. That, in itself, sheds little light on whether construing the exclusion in the way Chobani submits would be consistent with the policy of the provision.
46. If these examples are relevant at all to that question it is not their inclusion as such. Rather, it is their listing as examples of where the exclusion would apply without listing other combinations where the foods do not so clearly maintain their separate identity.
47. It is impossible to know whether the absence of such further examples reflects a deliberate choice by the author of the Explanatory Memorandum or merely that the document was prepared in haste and only clear examples were chosen. Or indeed whether combinations involving less clear delineation between the components were commonly marketed or well-known at the time. There is no evidence that products of the kind marketed by Chobani as "flip" products or like products were on the market almost a quarter of a century ago when the Explanatory Memorandum was drafted.
48. The Explanatory Memorandum does provide this example of a combination that would not be treated as a single taxed item:
1.18 The exclusion in the above paragraph would not apply where a mix of packaged goods is packed and sold together (eg. a hamper containing a packet of biscuits, box of chocolates and a jar of coffee). These items would be taxed individually (ie. biscuits and chocolates subject to tax and the coffee GST-free).
49. Again, that example does not cast any light on whether the policy is for combinations involving less clear delineation of the components to be taxed.
50. For these reasons, I find the examples to be of limited assistance in respect of the construction issue.
Legislative history - former sales tax exemptions
51. The obvious observation regarding the reference in the Explanatory Memorandum
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extracted above to previous sales tax exemptions for food is that it does not suggest a policy that all of the exemptions would be maintained. Rather, it suggests the policy is that "in general" that would occur.52. The non-universality of the policy of maintaining the previous sales tax exemptions is illustrated by passages in the Explanatory Memorandum identifying various ways in which the GST treatment would depart from the sales tax treatment. Against the background of the Explanatory Memorandum specifically identifying some departures from the sales tax treatment, Chobani sought support for its construction from the absence of any mention of such a departure under s 38-3(1)(c).
53. There are two difficulties with that proposition.
54. The first is that there is nothing in the passages to suggest they were intended to provide an exhaustive list of all departures from the sales tax treatment.
55. The second is that s 38-3(1)(c) is materially different to its predecessor in the sales legislation. The corresponding provision in the Sales Tax Assessment Act 1992 (Cth) is s 14(e) which excludes from exemption:
goods consisting principally of 2 or more of the following:
- (i) confectionery;
- (ii) biscuit goods;
- (iii) savoury snacks
(Emphasis added.)
56. That provision is markedly different to s 38-3(1)(c). It does not use the contested expression "combination" and, significantly, contains a "principally" test not found in s 38-3(1)(c).
57. Chobani points out that its product (I interpose, had it existed) would have been exempt from sales tax because it could not be said to consist principally of the dry inclusions, which amount to a mere 10% of the weight of the Product. That does not assist in construing s38-3(1)(c) - the sales tax exemption would have applied because of the "principally" condition not found in s 38-3(1)(c).
58. Because of the marked differences between the sales tax and GST provisions, I find the legislative history of limited assistance in construing s 38-3(1)(c).
"practically, economically and commercially distinct"
59. Concepts such as the "social and economic reality" of a transaction or whether a part, or parts, of a supply are subsumed into others emerged in connection with determining whether a transaction involved a supply of a single thing classified in a particular way for GST purposes or two or more things classified differently.[11]
60. The question of the classification of that thing is not determined by the conclusion that the Product is the subject of a single supply. It is still necessary to determine the GST classification of the single thing supplied.
61. A food product manufactured from ingredients which include biscuit goods or confectionery that in the process of manufacture have lost their separate identity may, in one sense, be regarded as food that is a combination that includes biscuit goods or confectionery. That is especially so when it is recalled that the definition of food includes ingredients for food.
62. I accept that a combination of that kind is not intended to be excluded by s 38-3(1)(c). However, it does not follow that only combinations where, as Chobani submits, the biscuit goods or confectionery:
- (a) "could each be acquired and enjoyed separately", with
- (b) "each component making a reasonably significant . . . contribution in characterising the nature of the food supplied", so that
- (c) "one cannot be regarded as practically, economically and commercially subsumed into the other",
are intended to be excluded.
63. Why should s 38-3(1)(c) be limited in that way? Why is it not sufficient that the excluded items are separately identifiable as such in the product? One reason, according to Chobani, is that its construction promotes greater certainty and merely requiring the excluded product to be separately identifiable would create uncertainty.
64.
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There have been various judicial references to the significance of GST being "a practical business tax" or the like. It is clear that does not mean there is any special canon of construction that applies for the GST law but rather that feature of the tax is part of the context against which the GST law is to be construed.[12]65. That context might add weight in favour one construction that is reasonably open over another if the former would involve less uncertainty and therefore greater ease of application by business people. However, there are, in my view, a number of difficulties with Chobani's submission that its preferred construction would have that advantage and the Commissioner's would not.
66. Foremost is that it is not at all clear to me that Chobani's construction would in fact promote greater certainty. What, for example, would it mean in a practical sense to require that a food item is not "practically, economically and commercially" subsumed into another? That seems likely to require a subjective judgement, at least for marginal cases, and perhaps also to an extent knowledge of factors, such as the relative "economic" contributions of inclusions, that would not necessarily be available to downstream suppliers in particular.
67. Taking the product in this case as an example, why would the dry inclusions be regarded as meeting this description? They are, after all, physically separated from the flavoured yoghurt in the smaller compartment of the tub. Even taking into account that it is intended the customer will flip the dry inclusions into the flavoured yoghurt, views of business people could well differ regarding whether the compartment of dry inclusions is practically, economically and commercially subsumed into the flavoured yoghurt.
68. Further, what would it mean in practice to say each food item could be acquired and enjoyed separately? Most, if not all, of the excluded products could be acquired and enjoyed separately if there were a market for the items. Again, taking the Product as an example, there seems to be no reason why cookie pieces and chocolate chips could not be acquired and enjoyed separately. Surely, whether they are in fact supplied for enjoyment in that way by Chobani, which may not be known by downstream suppliers, cannot be determinative.
69. It is not clear to me that Chobani's construction would promote greater certainty than a construction that merely required a combination in which the excluded food or foods remain separately identifiable. Arguably, it is easier to apply the latter test than to determine whether particular inclusions could be regarded as practically, economically and commercially subsumed into other inclusions.
70. Chobani's submissions posed a number of questions said to illustrate uncertainties that would arise if the Commissioner's construction were to be adopted. Mainly, those questions relate to what is meant by the Commissioner's construction and are of the same character as I have posed above regarding Chobani's construction.
71. However, one warrants further discussion. Chobani asks when would separate identifiability of inclusions be tested: at the point of sale or on consumption? In my view it is clear the answer can only be at the point of supply. It is at that point or shortly thereafter that the supplier must determine the GST classification for the purpose of issuing tax invoices and accounting for GST in its returns.
72. That is not to say the intended use of the product by the consumer is necessarily irrelevant when a product is designed and marketed for that use, as discussed further below. But in my view, it must be the Product in the form in which it is supplied that is to be characterised for GST, not the Product after it has been applied in a particular way by the consumer even if the Product will invariably be applied in that way. It is the thing supplied that must be classified for GST, not the thing as varied or applied by the ultimate consumer.
Conclusion on construction issue
73. For the reasons outlined, there is nothing in the text of the legislation considered in context or the policy of either the food provisions generally or s 38-3(1)(c) that
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warrants confining the provision in the way Chobani submits.74. In my view, the exclusion in s 38-3(1)(c) applies at least when a product meets the description: food that is a combination of foods that includes separately identifiable food or foods excluded by the table in clause 1 of Schedule 2 or foods of that kind. There may be cases where excluded items remain separately identifiable but nevertheless are so integrated into the overall product, or so insignificant, that they would not affect the characterisation. That is clearly not so in respect of the Product in this case. As discussed below, the dry inclusions are not integrated into the yoghurt and are significant as indicated by their physical separation in the product as sold; relative weight and cost; the marketing of the Product and consumer experience; and indeed, even its naming as a "flip" product.
75. I appreciate this construction would leave room for undesirable uncertainty in cases at the margin. But not more so, I believe, than Chobani's construction for the reasons already indicated. That is the inevitable consequence of the policy decision to exempt some but not all foods, as evidenced by the unfortunate history of sales tax, customs duty and GST litigation here and elsewhere.
Characterisation issue
Principles to be applied
76. The parties' submissions on characterisation gave rise to a controversy regarding the extent to which the Tribunal should have regard to the fate of the product after it leaves Chobani's premises. I have already touched upon this in connection with the point at which classification is to be determined.
77. Additionally, Chobani provided the Tribunal with a sample of the product. Ms Baker urged me to examine the structure of the tub and its labelling, and also to sample the product myself after the conclusion of the hearing and take into account my own impressions, such as whether the dry inclusions were too dry to enjoy separately from the flavoured yoghurt.
Lansell House case
78. Both parties referred to the decision of Sundberg J at first instance in
Lansell House Pty Ltd v Commissioner of Taxation[13]
79. Lansell House concerned whether a product called "Mini Ciabatte" and labelled as "Italian flat bread" was a "cracker". The case was concerned with the first limb of s 38-3(1)(c), not the second. Nevertheless, it is instructive for the approach to characterisation and the factors the Court took into account.
80. The following principles may be drawn from the judgement of Sundberg J endorsed by the Full Court:
- (a) Classification of a food product for GST involves questions of fact and degree involving fact finding and evaluative judgement.
- (b) It is appropriate to stand back and take into account all factors of appearance, taste, ingredients, process of manufacture, marketing and packaging together.
- (c) This may include a Court or Tribunal relying on its own experience of how a product is used and undertaking a physical examination of the product.
- (d) In the end, what is involved is a matter of overall impression.
81. Applying these principles, Sundberg J had regard to a range of factors, including the product's use, in-store display, moisture and sugar content, appearance and shelf-life.
82. The Court also relied upon his Honour's own experience of the uses to which a cracker may be put. This suggests it is not inappropriate to take into account how the consumer will use the Product in this case. But that does not detract from the conclusion indicated earlier that it is the character of the Product at the point of supply that is to be determined, not its character after the final consumer has interacted with it, for example by flipping the dry inclusions and mixing them into the flavoured yoghurt.
83. On the specific question of whether the Tribunal should sample the Product itself, I note Sundberg J observed:
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The Mini Ciabatte is hard and crisp to the touch. It breaks with a distinct crack. Its consistency when eaten is like that of a biscuit, save that it is slightly more chewy.
84. I infer from this extract that his Honour both physically examined the product and ate a sample. Following that judicial lead, I did likewise with the sample Chobani provided, as discussed below. However, for the reasons indicated below, I did not find flipping and eating the Product particularly useful for the characterisation question which I would have answered the same way without the benefit of consuming the sample.
Evidence
85. Before turning to consider the features of the Product, I should outline the evidence available to the Tribunal. Aside from the Product sample, the evidence included several promotional videos and witness statements of four Chobani employees.
86. The Commissioner did not require the witnesses for cross-examination but did object to several parts of the statements on the grounds of relevance. With the consent of Ms Clarebrough, who appeared for the Commissioner, I admitted the statements into evidence in their entirety on the basis that I would hear submissions as to the weight to be given to the challenged evidence. I deal with these submissions as necessary below in the consideration of the relevant factors relating to the Product.
87. The evidence of the witnesses was otherwise unchallenged. I accept that evidence. Except where otherwise indicated, to the extent that factual matters are stated below, the findings are based on this unchallenged evidence.
88. The witnesses who provided witness statements are:
- (a) Hamish McMicking, Head of Supply Chain;
- (b) John Paul Williams, New Product Development Manager;
- (c) Julia Clark, General Manager of Demand;
- (d) Lyudmyla Goretska, Financial Controller.
89. Mr McMicking's statement included evidence placing the Product in the context of Chobani's broader activities, including other products in the "flip" range and Chobani's similar "FiT X line"; and evidence relating to procurement of the dry inclusions, and marketing and consumption of the Product.
90. Mr Williams' statement included evidence relating to the development of the "flip" range; packaging; ingredients and composition, including costings; and ultimate consumption of the Product.
91. Ms Clark's statement mainly concerned marketing matters, including for the FiT X range, and the impact of the change of GST treatment on Chobani's sales.
92. Ms Goretska's statement provided information regarding the relative cost of dry ingredients and Chobani's reliance upon GSTR 2001/8.
Consideration of factors
93. Chobani submits the supply of the Product should be characterised as a single supply of flavoured yoghurt. Of course, strictly speaking the issue for the Tribunal is not whether the Product is flavoured yoghurt. Rather, the issue to be determined is whether Chobani has discharged the burden of proving it is not food that is a combination excluded by s 38-3(1)(c).
94. In discussing that question by reference to the various factors identified, I address whether they support, or otherwise, a characterisation in accordance with my preferred approach to construction of s 38-3(1)(c). Where relevant to the topic under discussion, I include reference to my own experience sampling the Product and to promotional videos put in evidence by Chobani, which Ms Baker urged me to view after the hearing.
95. Following the structure of Chobani's submissions, I address the features of the product in this order:
- (a) Chobani's "Flip" range
- (b) Ingredients and composition
- (c) Packaging and appearance
- (d) The dry inclusions
- (e) In-store display and immediate competitors
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- (f) Marketing
- (g) Cost of goods sold
- (h) Trademark registrations.
- (i) Effect of GST treatment on price.
Chobani's "flip" range
96. Mr McMicking's statement describes how the Chobani "flip" products and similar products are built around a base of strained Greek yoghurt. The only ingredients of this yoghurt are milk and live cultures, with a flavouring, such as strawberry in the case of the Product.
97. As with the Product, other products in the "flip" range of 10 products are supplied in the plastic tub with two compartments, one containing the yoghurt including flavouring, and the other smaller tub containing dry ingredients intended to be flipped into the flavoured yoghurt. Background evidence regarding the development of these products was also provided.
98. Ms Clarebrough submitted that no weight should be given to evidence concerning products other than the Product the subject of the proceeding. I accept Ms Baker's submission that this evidence may be relevant as the Product is marketed as part of a range of "flip" products and similar products. Accordingly, I will consider this evidence as part of my consideration of the marketing of the Product.
Ingredients and composition
99. The yoghurt base of the Product is blended, strained Greek yoghurt comprising less than 5% fat, with 15% strawberry fruit mixed in. Chobani makes the yoghurt itself from its own recipe and sources the fruit from an external supplier.
100. The yoghurt, including the strawberry, weighs approximately 126g. This makes up 90%, by weight, of the overall Product.
101. The dry inclusions are a mixture of cookie pieces and small pieces of white chocolate. The dry inclusions in total weigh approximately 14g, representing 10% of the overall product by weight. The cookie pieces at 9.8gms account for 7% by weight and the chocolate chips at 4.2gms account for 3%.
Packaging and appearance
102. I have already described the single container, with two compartments allowing the dry inclusions to be flipped into the larger compartment containing flavoured yoghurt. There is a single foil covering that is intended to be peeled off at the point of consumption.
103. Mandatory labelling appears on the moulded container. Product identification and branding appear prominently on the foil covering.
104. The labelling includes the following words on the foil cover:[15]
NO PRESERVATIVES, ARTIFICIAL COLOURS OR FLAVOURS
CHOBANI
GREEK YOGHURT
"flip."
Strawberry Shortcake
Strawberry Low-Fat Yoghurt with Cookie Crumble
and white chocolate
The dry inclusions
105. Chobani developed the recipe for the dry inclusions and purchases the dry inclusions as a blend from an external supplier, Scalzo Foods. The blend is made to Chobani's specifications and Chobani directs Scalzo where to source the dry ingredients. Scalzo cannot sell the blend to other customers.
106. The cookie pieces are supplied to Scalzo by Ellison Bakery which calls them "Dry Sugar Graham Pieces" and in its product specification describes them as follows:
Classification: Baked Cookie Pieces
Intended Use: Dessert or Snack Ingredients
Appearance: Broken, irregular, graham cracker colored, cookie pieces
Taste: Moderately sweet graham type cookie
Odor: Baked cookie aroma.[16]
Tribunal Book, page 432.
107. The white chocolate chips are supplied to Scalzo by Fresh Food Industries Pty Ltd. A product information form contains the following:
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Product description:Real white chocolate in the form of chips
Legal description/Suggested labelling description:
Sugar, Milk Solids, Cocoa Solids, Emulsifier (Soy Lecithin - 322), Natural Flavour
Specify the intended use of the product :
Food may be used as an ingredient, or may be retail-ready finished product
Specify which best describes the product :
Solid, semi-solid or powder substance, ready for consumption
108. Mr Williams described the chocolate chips as "about the same size as chocolate chips available for purchase by consumers". They are smaller than at least some chocolate chips marketed for baking.[17]
109. As Mr McMicking stated, the biscuit pieces are designed to bring "crunch" to the mix, while the chocolate chips bring sweetness. Mr Williams put it in a slightly different way:
For the Strawberry Flip Yoghurt, the Strawberry Yoghurt Dry Ingredient Mix has the white chocolate which acts as the creamy flavour, texture and colour; the biscuit crumble achieves the textural crunch.
110. The dry inclusions are kept separate from the yoghurt component for two reasons. First, to prevent the yoghurt base from spoiling due to the microbial load of the dry inclusions. This could be prevented by adding preservatives but that would be contrary to Chobani's commitment to supplying preservative-free products.
111. The other reason for keeping the dry inclusions separate is to retain the integrity, flavour, texture and "crunch" of the dry inclusions. In other words, so they do not become a less appetising, soggy mush from pre-mixing, as Ms Baker put it.
112. Mr Williams stated:
It would be very difficult to eat the yoghurt and dry ingredients separately; the ultimate consumer would need really nimble fingers or chopsticks to do so. It was also likely to be very messy as biscuit crumbs would go everywhere. From a food texture perspective, the dry ingredients would be too dry to be enjoyable if consumed alone because the ratio of biscuit crumb to white chocolate pieces would be too high.
113. Following Ms Baker's urging, I did not experience these difficulties when sampling the dry ingredients alone. I was able to readily extract a sample using a teaspoon. Nor did I find the experience unpleasant. The mix was quite sweet but not unpleasantly dry. Having said that, the mix did not strike me as a type of product that I would look to consume on its own in any other context.
In-store display and immediate competitors
114. The Product is sold in the chilled area of major supermarkets in the same area as other yoghurt products.
115. Along with other "flip products", the Product is always placed in the "single serve yoghurt" subsection of the yoghurt section. Although Chobani recommends this, the choice of product placement is the retailers'. The retailers call the section where they display the "flip" products the "mix in" section.
Marketing
116. The Product has never been marketed as a dessert or confectionery snack. Rather, the focus has been on providing a substitute for afternoon snacking. This is consistent with the marketing campaign vision for "flip" products: "To become Australia's everyday snack you can feel good about eating."[18]
117. The flipping aspect has also been a significant element in the marketing of the "flip" range. Chobani see this as part of the strategy of positioning the flip products as "fun". As Ms Clark put it:
We are focussed on health, but also about light-hearted positive fun, are bit cheeky and we want to surprise and delight.
118. This theme is also found in one of the promotional videos put into evidence by Chobani. The voiceover says:
At Chobani we're leading the way with naturally protein-rich yoghurt combined with deliciously crunchy mixes. For goodness that really satisfies - Chobani.
119. The reference to "crunchy" is significant. The "crunch", which Chobani refers to as a "crave-worthy crunch", is promoted as part of the consumer experience.
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As Mr McMicking stated, Chobani used the "strapline" - "high quality ingredients with a crave worthy crunch" - in the market.[19]120. The promotional videos also show a consumer flipping the dry inclusions of a "flip" product into the yoghurt compartment and proceeding to eat from that compartment with a teaspoon. The videos do not show the consumer mixing the dry inclusions into the yoghurt. Dry inclusions remain visible on top of the yoghurt as the consumer takes a spoonful of the product. Similarly, other videos show a spoonful of product, with dry inclusions sitting on top of the teaspoon of yoghurt.
121. This is consistent with my own experience in sampling the Product. No doubt because of the consistency of the yoghurt, after I flipped them in the dry ingredients largely remained on top of the yoghurt. They did not disappear below the surface of the yoghurt and would only have been mixed in if I chose to do so before consuming the product.
122. When I did mix the remaining dry ingredients into the yoghurt, they became, as would be expected, integrated with the yoghurt, leaving a mixture of yoghurt, fruit, cookie pieces and chocolate. As promised, the crunch factor was observable on consumption, as was the sweetness of the chocolate.
Cost of goods sold
123. A 2021 costing for the Product produced for Coles showed the dry inclusions accounted for 16.92% of the direct cost of producing a carton of the Product or 8.13% of the total cost calculated by adding other costs such as distribution and promotional costs.[20]
Trademark registrations
124. The trademarks "Chobani 'Flip'" and "Flip" and trademarks for associated products were registered by Chobani's parent company.
125. Each trademark was registered under the category that applies to yoghurt and Greek yoghurt.
Effect of GST treatment on price
126. Ms Clark stated that Chobani's sales of the Product and other "flip" products have decreased since Chobani started adding GST in accordance with the Commissioner's ruling.
127. The Commissioner maintained this evidence should be given no weight on the basis that it is irrelevant to the issue before the Tribunal. For Chobani, Ms Baker submitted:
In my submission, it might be convenient for the [C]ommissioner to assert that the financial impacts of the changing position are irrelevant to the matter at hand, but in my submission that should be rejected insofar as characterisation of the product takes into account the market in which the product is sold, and its competitors, and also the fact that the GST is intended to be a practical business tax, meaning that the tribunal should be cognisant of the commercial impacts of the change in classification that is at issue before the tribunal today.
128. I am, with respect, unable to see how the impact on prices of adding GST is relevant to the character of the Product. It may be the case that adding GST makes the Product less attractive than other products available at lower prices. That is simply a function of the impact of price on demand. I do not understand how such evidence could assist in forming a view regarding whether the Product is of the kind to which the exclusion in the second limb of s 38-3(1)(c) applies. I do not understand how being cognisant of the commercial impact of GST being added to prices assists in that task.
Consideration of relevant factors to form an overall impression
129. Before considering the factors, I reiterate that I see the task as requiring characterisation of the Product in the form in which Chobani supplies it to retailers. In forming an impression of the Product, I have regard to the intention that the ultimate consumer will flip the dry inclusions into the flavoured yoghurt compartment and at least in some cases may mix them in. But it is the character of the Product in the form in which it is packaged and sold that I must consider having regard to packaging, marketing and other factors.
130. I take as my starting point the physical appearance of the Product. The dry ingredients are, as a matter of physical presentation,
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unequivocally identifiable as separate from the flavoured yoghurt. They are contained in their own compartment in the tub.131. Further, as I have observed from my own interaction with the Product, the white chocolate chips, although small, are plainly identifiable in the blend. Their creamy colour and distinctive shape, and their size, mean they stand out against the cookie pieces. The cookie pieces are in turn quite distinct in appearance from the chocolate chips.
132. That is not surprising as the chocolate chips and cookie pieces comprise, respectively, 3% and 7%, together 10%, by weight of the complete product. Their significance is also reflected in the relative costs of goods sold data set out above.
133. I accept that most if not virtually all consumers will flip the dry inclusions into the flavoured yoghurt before consuming the Product. That is how the Product is marketed. I did not find the dry ingredients blend as distasteful or inconvenient to eat separately as Chobani suggests. But flipping the dry ingredients into the flavoured yoghurt is the logical way to eat the Product.
134. It is less clear that, after flipping in the dry inclusions, consumers would necessarily mix the dry ingredients into the flavoured yoghurt before consuming the Product. The promotional videos as described above suggest that would, at the least, not always be the case. But even if it were, the difficulty for Chobani is that it is the nature of the Product at the point of supply that is determinative. How the ultimate purchaser consumes the Product does not and cannot change the physical character of the packaged Product supplied by Chobani.
135. Further, this is not a case where the additional items are so insignificant that they would not impact upon the overall impression of the Product. Visually, the dry ingredients are not insignificant. They sit in a separate compartment. They account for a material proportion of the overall weight and mass, as well as the cost, of the Product.
136. As a matter of its intended appeal to the market, the dry inclusions play a central role. Texturally, the cookie pieces provide the promoted "crave worthy crunch" experience.
137. The flipping of the dry ingredients is also important to the marketing of the "flip" range, forming part of the name of the Product, a name considered important enough for Chobani to take out trademark registrations. It features in the promotional videos. It is part of the "fun" Chobani aims to project.
138. Chobani's own evidence highlights the significance of the "crunch" that comes from the cookie pieces. The "flip" products are described in promotions as "deliciously crunchy mixes".
139. I accept that the Product is co-located by the supermarkets that sell it with other yoghurt products (albeit in the single serve subsection which is consistent with Chobani positioning "flip" products as a healthier alternative for afternoon snacking). That is scarcely surprising since it contains 90% flavoured yoghurt. But that does not mean the Product is not food that is a combination of foods in which the cookie pieces and the white chocolate are not readily identifiable. They plainly are, in their own separate compartment.
140. I have already observed that the question is not whether the Product is flavoured yoghurt but whether it is food that is a combination that includes biscuit goods and/or confectionery. Nevertheless, I note the "flip" product range is not marketed only as flavoured yoghurt. As extracted above, the promotional video refers to:
naturally protein-rich yoghurt combined with deliciously crunchy mixes.
141. Thus, Chobani itself describes the "flip" range not as yoghurt, but yoghurt combined with crunchy mixes ie the dry inclusions. That description is not far removed from "food that is a combination" of flavoured yoghurt, cookie pieces and chocolate.
142. Nor is the Product itself marketed as flavoured yoghurt. The words Chobani Greek Yoghurt appear prominently on labelling. But so, too, does the important expression "flip", followed by "Strawberry Shortcake". The most complete description appearing on the label, albeit in smaller font size, is:
Strawberry Low-Fat Yoghurt with Cookie Crunch and White Chocolate
143.
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That is how Chobani describes the Product on its label. That is what it is: strawberry-flavoured yoghurt, with cookie pieces and white chocolate chips.144. Having regard to the physical composition and presentation of the Product; how it is marketed; and the significance of the dry ingredients to the marketing of the Product and the consumer experience, in my view the overall impression that the Product is a combination of strawberry-flavoured yoghurt, cookie pieces and white chocolate chips - in which the cookie pieces and chocolate chips are not insignificant; remain readily identifiable; and are not subsumed into a separate product - is inescapable. It follows that, if the dry inclusions are biscuit goods and/or confectionary, the exclusion in s 38-3(1)(c) applies and the supply of the Product is a taxable supply.
CONFECTIONERY/BISCUIT GOODS - SCHEDULE 1, ITEMS 8 AND 32
145. As indicated earlier, the foregoing discussion was premised upon one or both of the dry inclusions being covered by the exclusions in items 8 and 32 for confectionery and biscuit goods respectively. I now consider Chobani's alternative submission that the dry ingredients comprise a blend that is neither confectionery nor biscuit goods.[21]
Legislative provisions
146. For the purposes of item 8, "confectionery" is a label (not an operative part of the Schedule) for this class of food:
confectionery, *food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery.
147. For the purposes of item 32, "biscuit goods" is a label for:
*food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers
148. The asterisk preceding "food" reminds the reader that "food" is defined - in a way that includes any combination of food or ingredients for food: GST Act, s 38-4.
Confectionery
149. There can be little doubt that chocolate sold for immediate consumption such as in the familiar form of a block of chocolate, and not for baking purposes, is confectionery. It may be the case that cooking chocolate is not confectionery.
150. The supplier's product information form extracted above is somewhat equivocal in respect of the white chocolate chips. It specifies the intended use of the chips as "may be used as an ingredient, or may be retail-ready finished product". However, the white chocolate pieces are not sold for consumption other than as part of the dry inclusions. They are not sold separately as a product for consumption on their own or as cooking chocolate.
151. In the course of the hearing, I noted that the chocolate pieces are quite small. In appearance, they reminded me of chocolate drops marketed for baking purposes. Ms Baker urged me to take into account my own experience of small chocolate drops being used for baking. On investigating further, I found the baking chocolate drops I had in mind are larger in diameter than the white chocolate pieces. The evidence shows that 20mm chocolate chips are not marketed by Fresh Food Industries for direct consumption but rather for baking.[22]
152. Nor is there anything in the evidence to suggest the white chocolate pieces are baking chocolate. They are not sold for baking purposes. In their context as part of the dry ingredients, they are intended to be consumed as is, albeit in the dry mix flipped into the flavoured yoghurt, not used for baking.
153. As indicated earlier, the product description appearing in the product information sheet is:
Real white chocolate in the form of chips
154. They are included for their sweet creamy flavour and texture, suggesting they are to be enjoyed as chocolate, albeit with the cookie pieces. Ms Baker's response to my question about baking chocolate aside, Chobani did not seek to establish, by reference to the evidence or other permissible means, that the pieces are not confectionery or food of that kind. At the least, I would conclude
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Chobani has not proved they are not confectionery or food of that kind.Biscuit goods
155. In my view, the cookie pieces are food of a kind that is covered by the definition of biscuit goods. The supplier's own product specification classifies them as "Baked Cookie Pieces". As a matter of impression, in my view the cookie pieces present as a crumble. They are not complete cookies or biscuits. However, they are, in my view, food of that kind. They are comprised entirely of cookie pieces, albeit small pieces in the nature of a biscuit crumble. It would be perverse, in the context of a policy to tax foods that are not basic foods, to attribute to Parliament an intention to tax complete biscuits/cookies but not pieces of the very same biscuit or cookie - at least where, as here, they are not marketed as ingredients to be used to prepare another food but rather as a significant distinguishing feature of a single Product.
156. In any case, Chobani did not submit that the cookie pieces, if considered separately, would not be goods of the kind covered by item 32. Rather, Chobani submitted that the cookie pieces had lost their separate identity as part of the blend of dry inclusions.
Blend?
157. Chobani sought to draw support for the submission that regard should be had only to the blend, and not the cookie pieces and chocolate chips separately, from the fact that Chobani acquired the mix from Scalzo as a mix. I do not consider this to be particularly persuasive. It surely would make no difference to the classification of the Product whether Chobani were to procure the dry inclusions as a blend or procure them separately and undertake the blending itself.
158. A difficulty for the argument that the blend is neither biscuit goods nor confectionery arises from the definition of biscuit goods which includes food that "consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers". It will be recalled that the cookie pieces make up 70%, by weight, of the dry inclusions, suggesting the blend consists principally of cookies or food of that kind.
159. Ms Baker endeavoured to meet this difficulty by submitting the process for determining whether the dry blend comprises principally cookie pieces is not one of pure mathematics. Rather, Ms Baker submitted:
the words "consists principally of biscuits" must be read together with "of a kind" to examine whether the nature, quality, or adaptation of the goods is one in which the part of the product involving biscuits is predominant as a matter of overall impression.
And subsequently summarising Chobani's position on this issue as:
So, in my submission the question is can the dry ingredients be disaggregated into their constituent elements, and if not, do the biscuit like features really predominate over the . . . white chocolate chip pieces, so that they can sensibly be said to be food that is a product that consists principally of biscuits. The applicant's position is that it can't be so described.[23]
Transcript of proceedings, P-32, line 36 and following.
160. Contrary to that submission, I do not see how the dry inclusions, considered as a blend, can sensibly be described as other than food of a kind that consists principally of cookie pieces. It is 70% cookie pieces by weight. From my visual inspection, it is plain that the cookie pieces also predominate by volume.
161. Looking to the nature, quality and adaptation of the goods, I see nothing that would lead to a different impression. In respect of the nature and quality of the blend, the biscuit pieces plainly predominate - they account for 70% of the blend while the white chocolate chips account for only 30% by weight. There is nothing in their nature or quality that causes the chocolate chips to predominate as a matter of impression. The adaptation of the dry ingredients as a blend in the smaller compartment of the tub does not detract from that impression in my view.
OTHER MATTERS
162. Ms Baker submitted there is an "anomaly that lies at the heart of the Commissioner's case" that Chobani could "reclaim" GST-free status for the Product by pre-mixing the dry ingredients into the flavoured yoghurt. That would require addition of preservatives. Ms Baker argued that would be a perverse outcome: a product with the
ATC 11199
same ingredients would be taxable if sold without preservatives and GST-free if sold with preservatives added.163. There are several responses to this submission. The first is that it assumes the pre-mixed product would be GST-free. Ms Clarebrough expressly declined to concede such a product would be GST-free. I express no view as it is the Product in the form in which it is sold and not in some other form that is before me for consideration. Further, as Ms Baker conceded, another reason for keeping the dry ingredients separate is for textural integrity to maintain the advertised "crunch". A pre-mixed product would present as a quite different product.
164. Ms Baker also referred to various classifications adopted by the Commissioner in respect of other products. The point of doing so, as I understood the submission, was to highlight what were said to be perverse outcomes that would result if the Commissioner's decision were to be upheld. I have not referred to those rulings on other products as I do not consider doing so would assist in resolving the classification of the Product. Just as Sundberg J observed in Lansell House, "I do not see my task as being to reach a decision that harmonises the rulings on various similar products or produces a result for [the Product] that accords with the classification of the product it most resembles."[24]
CONCLUSION
165. For the reasons set out above, I am not persuaded the Commissioner's classification of the Product is wrong. It follows the objection decision must be affirmed.
166. I conclude by thanking both counsel for their helpful submissions which were both thorough and concise.
Footnotes
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