Edited version of your written advice

Authorisation Number: 1051454153155

Date of advice: 05 December 2018

Ruling

Subject: GST classification of frozen pastry product

Question

Is the supply of the Sweet Pastry GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The supply of the Sweet Pastry is a taxable supply.

Relevant facts and circumstances

You sell the Sweet Pastry.

The Sweet Pastry is manufactured for you by a company overseas.

You provided a picture of the packaging which shows that the Sweet Pastry is made of rolled-up raw puff pastry with a sweet filling. Each package contains a number of pastries. The package also provides the baking instructions.

You provided a copy of a statement from the manufacturer which includes the ingredients being cream and pastry. It also provides for the preparation process of the Sweet Pastry.

The Sweet Pastry is sold in supermarkets.

You have been paying GST on the importation of the Sweet Pastry and have been including GST on your sales.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 38-2

A New Tax System (Goods and Services Tax) Act 1999 section 38-3

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-3(1)(c)

A New Tax System (Goods and Services Tax) Act 1999 section 38-4

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-4(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-4(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1, Clause 1, item 22

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1, Clause 1, item 23

Summary

The supply of the Sweet Pastry is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The supply is a taxable supply under section 9-5 of the GST Act.

Detailed reasoning

A supply of food is GST-free under section 38-2 of the GST Act if it satisfies the definition of food in section 38-4 of the GST Act and it is not excluded by section 38-3 of the GST Act.

Food is defined in section 38-4 of the GST Act to include:

● food for human consumption (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act) and

● ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act).

You consider paragraph 38-4(1)(b) of the GST Act applies to the Sweet Pastry because it is fresh frozen pastry with raw cream filling.

The Sweet Pastry is made up of sweet cream and pastry which by themselves are ingredients for food. However, it is the end product, that is, the Sweet Pastry that needs to be considered. The Sweet Pastry is sold frozen and baked before consumption. It is not added as an ingredient of food, and therefore, does not satisfy the definition of food in paragraph 38-4(1)(b) of the GST Act. The Sweet Pastry is food in its own right, and therefore, satisfies the definition of food in paragraph 38-4(1)(a) of the GST Act as food for human consumption.

However, under paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food of a kind that is specified in clause 1 of Schedule 1 to the GST Act (Schedule 1). Sweet Pastry is not specifically listed in Schedule 1. As such, the issue is whether Sweet Pastry is 'food of a kind' specified in Schedule 1.

Of a kind

The phrase 'of a kind' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The Macquarie Dictionary (1997) does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

1. A class or group of individuals of the same nature or character, especially a natural group of animals or plants. 2. Nature or character as determining likeness or difference between things: things differing in degree rather than in kind. 3. A person or thing as being of a particular character or class: he is a strange kind of hero. 4...

In sales tax cases and when determining the phrase ‘of a kind’, the Courts have determined the ’essential character of the goods‘. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part.

The GST case Lansell House Pty Ltd & Anor FC of T 2010 ATC 10851 (Lansell 2010) did not provide an essential character test, rather it provided an overall impression test. Sunberg J held that the words in item 32 are not used in a specialised or trade sense that differs from their ordinary usage and that it is a matter of overall impression in deciding the proper classification of a product. Note that this Federal Court decision has been upheld by the Full Federal Court hence this quote from the Federal Court decision is still relevant.

Accordingly, something will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the thing or group in question.

In addition, the case law Lansell House Pty Ltd & Anor v FC of T 2011 ATC 20-239 (Lansell 2011) at [30] relevantly provides:

The use of the words "of a kind" in s 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1: Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item…

Accordingly, it is considered that food will be 'food of a kind' listed in Schedule 1 if it is food belonging to the same class or genus as food listed in Schedule 1.

Included under the category bakery products in Schedule 1 are:

● item 22 in the table in clause 1 of Schedule 1 of GST Act (item 22) which lists pies (meat, vegetable or fruit), pasties and sausage rolls, and

● item 23 in the table in clause 1 of Schedule 1 of GST Act (item 23) which lists tarts and pastries.

You contend that Sweet Pastry is not covered by items 22 or 23 because the Sweet Pastry contains raw cream and is similar to the beef wellington and the chicken filo parcels that have not undergone a cooking process. Also it is not similar to the Danish pastry or pastry triangles/parcels listed in the Detailed Food List as it has not been baked prior to supply to the customer.

The ATO view on pastry products is provided in Issue 30 of the Food Industry Partnership – issues register (Issue 30).

Issue 30 provides that in order for products to be of a kind to the food products listed in items 22, 23 and 25, the products would need to be baked before consumption.

Item 22

Item 22 lists pies (meat, vegetable or fruit), pasties and sausage rolls.

The words ‘pies’, ‘pasties’ and ‘sausage rolls’ are not defined in the GST Act; therefore it is necessary to consider the ordinary meanings of those terms. The Macquarie Concise Dictionary 3rd Edition (the Macquarie Dictionary) provides the following definitions:

Pie - 'a baked dish consisting of a sweet (fruit, etc) or savoury (meat, fish, etc) filling, enclosed in or covered by pastry, or sometimes other topping as mashed potatoes'.

Pastie - 'a type of pie in which a circular piece of pastry is folded around a filling of vegetables, meat etc, and baked'.

Sausage roll - 'a roll of baked pastry filled with sausage meat'.

In this case, the Sweet Pastry is made of rolled-up raw puff pastry with a sweet cream filling.

We consider the Sweet Pastry is not food 'of a kind' known as ‘pies’, ‘pasties’ and ‘sausage rolls’ referred to in Item 22.

Item 23

Item 23 specifies that the supply of tarts and pastries is not GST-free. Therefore, the issue is whether the Sweet Pastry is considered to be ‘tarts’ or ‘pastries’.

The words ‘tart’ and ‘pastry’ are not defined in the GST Act; therefore it is necessary to consider the ordinary meanings of those terms. The Macquarie Dictionary provides the following definitions:

Tart – ‘a small and saucer-shaped shell of pastry, filled with cooked fruit or other sweetened preparation, and having no top crust’.

Pastry –

1. food made of paste or dough, as the crust of pies, etc.

2. articles of food of which such paste forms an essential part, as pies, tarts, etc."

In this case, from the definition of the word tart, the Sweet Pastry is not a tart under this definition. Therefore, it is necessary to determine whether the reference to pastry in item 23 should be interpreted to mean food made of paste or dough or whether the interpretation of the word pastry should be confined to articles of food of which such paste forms an essential part.

An accepted principle of statutory interpretation provides that words take their meaning from the words with which they are associated. As such, the meaning of the word pastry can be derived from the context of the surrounding words used in item 23.

The definition of the word tart provides that a tart must consist of a pastry shell and a filling. Therefore, although the word pastry can mean food made of paste or dough such as a pie crust without a filling, it is considered that its close association to the word tart restricts the meaning of pastry to food of which such paste forms a part, but which also contains a filling.

Issue 30 provides that products classified under item 23 are those products that are sweet and might be considered similar to a tart, and are generally sold by a bakery (although they may be supplied in other stores for example, supermarkets). For example, Danish pastries or profiteroles that, are made from choux pastry and contain a Sweet or cream filling. Moreover, item 23 is not intended to be a catch all provision for all products that are made from pastry.

We consider the Sweet Pastry to be food ‘of a kind’ known as ‘pastries’ referred to in item 23 because it is made of an outer layer of pastry and a sweet cream filling.

The fact that the Sweet Pastry is supplied raw and frozen, and requires cooking prior to consumption is not a relevant consideration in determining whether it is food of a kind listed in item 23. This is emphasised in Clause 2 of Schedule 1 which provides that, for the purpose of determining whether particular food is covered by any of the items in the table in Schedule 1 relating to the category of bakery products, it does not matter whether the food is supplied hot or cold, or requires cooking, heating or thawing or chilling prior to consumption.

Therefore, as the Sweet Pastry is food ‘of a kind’ listed in item 23, it is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. Hence, the supply of the Sweet Pastry is not GST-free under section 38-2 of the GST Act.

Taxable supply

The supply of the Sweet Pastry is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with the indirect tax zone; and

(d) you are *registered, or *required to be registered for GST.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(* denotes a term defined in section 195-1 of the GST Act.)

In your case, the supply of the Sweet Pastry is a taxable supply because all the requirements of section 9-5 of the GST Act are satisfied as follows:

● you supply the Sweet Pastry for consideration

● the supply of the Sweet Pastry is made in the course of your enterprise

● the supply of the Sweet Pastry is connected with Australia

● you are registered for GST, and

● the supply of the Sweet Pastry is neither GST-free not input taxed.

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