Edited version of your written advice

Authorisation Number: 1051458122529

Date of advice: 7 December 2018

Ruling

Subject: GST and food

Question

Is the supply of the specified products (the Products) GST-free?

Answer

No. The supply of the Products is a taxable supply.

Relevant facts and circumstances

You are registered for GST.

You manufacture and distribute the Products to retailers in Australia. You also have an online presence, where you sell the Products directly to consumers.

You have provided details of the ingredients, the manufacturing process and photographs of the packaging of the Products.

The Products come in different flavours. They consist of various sweet or savoury ingredients such as seeds, nuts, plant based milk, sugar, fruit puree, fruit juice concentrate, starch and minerals.

For each product, the ingredients are measured and mixed/blended together at certain stages using hot water. Once the right viscosity is reached the mixture is batch dosed into individual containers. The Products are then sterilised by placing them in the retort cooker (steam/water spray) that heats them in a high temperature for an extended period of time.

The Products are non-dairy products.

The Products are not frozen.

The Products are located in the chiller section in the store.

Relevant legislative provisions

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)

Summary

The supply of the Products is a taxable supply as the Products are food of a kind covered under item 20 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Detailed reasoning

A supply of food is GST-free under section 38-2 of the GST Act if the product satisfies the definition of food in section 38-4 of the GST Act and the supply is not excluded from being GST-free 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 (paragraph 38-4(1)(a) of the GST Act).

The Products are food for human consumption, and therefore, satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act.

However, paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free if it is food of a kind that is specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1).

In this case item 20 in Schedule 1 (item 20), is relevant for consideration. Therefore we need to consider whether the Products are a pudding or of a kind of a pudding.

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 [Online], viewed on 20 November 2018, www.macquariedictionary.com.au does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

noun 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 Lansell House Pty Ltd & Anor v FCT 2010 ATC 20-173 (Lansell 2010), the Court considered whether a product known as ‘Mini Ciabatte’, which was described on its packaging as ‘Italian flat bread’, was taxable. The issue was whether the product fell under item 32 of Schedule 1 being ‘food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers’. The Federal Court agreed with the ATO’s decision and found that the product was ‘of a kind’ of the cracker genus and subject to GST.

In Lansell 2010, the Court provided that classification decisions for GST purposes are often described as questions of fact and degree, a matter of overall impression and a combination of fact finding and evaluative judgment. At paragraphs 108 and 109 it stated:

108. Classification decisions for sales tax, GST and VAT purposes are often described as questions of fact and degree (Ferrero at 884), value judgments (Procter & Gamble at [13]), a matter of impression (Procter & Gamble at [19]) and a combination of fact finding and evaluative judgment (Procter & Gamble at [47]). In Procter & Gamble the VAT and Duties Tribunal did not "grade" the relevant factors in coming to its decision. It stood back and took all the factors of appearance, taste, ingredients, process of manufacture, marketing and packaging together in deciding the proper classification of "Regular Pringles". The Court of Appeal approved that approach. Lord Justice Jacob said at [19]:

"It was not incumbent on the Tribunal in making its multifactorial assessment not only to identify each and every aspect of similarity and dissimilarity (as this Tribunal so meticulously did) but to go on and spell out item by item how each was weighed as if it were using a real scientist's balance. In the end it was a matter of overall impression."

109. Adopting that approach, I am not persuaded that the Commissioner's classification of Mini Ciabatte as an item 32 product was wrong …

On appeal, the Full Federal Court, in Lansell House Pty Ltd & Anor v. FCT 2011 ATC 20-39 (Lansell 2011), also found that Mini Ciabatte was subject to GST. The Court considered the phrase ‘of a kind’ and said, at paragraph 30:

The phrase 'of a kind' has been defined by the Oxford English Dictionary (online edition, Oxford University Press, 2010) as 'of the same sort, not a typical or perfect specimen of the class'. The word 'kind' is appropriately used to denote a genus, class or description (Commonwealth of Australia v Spaul (1987) 74 ALR 513 at 516 per Davies, Lockhart and Neaves JJ)... Thus, a new product that does not possess all of the same characteristics of known [products] may nevertheless be within the relevant item... The question is whether the resulting product comes within the genus, class or description of the listed item.

In both cases, the Courts attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers and were satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus (Lansell 2010 at para 73 and Lansell 2011 at para 33).

In Lansell 2011, at para 24, the Court quoted Jacob LJ in Commissioners for Her Majesty's Revenue and Customs v. Procter & Gamble UK [2009] STC 1990, that the question of classification 'is not one calling for or justifying over-elaborate, almost mind-numbing, legal analysis. It is a short practical question calling for a short practical answer’. It further stated that ‘in a case where scientific analysis does not form part of the characterisation of the product, its classification is not a scientific question'.

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.

The ATO view on pudding is outlined in Issue 13 of the Food Industry Partnership – Issues Register (Issue 13). Issue 13 states:

What is the definition of a 'pudding' for the purposes of item 20 in Schedule 1?

Clause 1, item 20 of Schedule 1 of the GST Act operates to subject the following products to GST:

"cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings"

These terms are not defined in the GST Act and are therefore afforded their ordinary meaning. Therefore, the word 'pudding' is defined to mean:

a cooked food that is a sweet or savoury dish made in many forms and of various ingredients, as flour (or rice, tapioca, or the like), milk and for eggs, with or without fruit, meat or other ingredients and is a cooked dish consisting of various sweet or savoury ingredients, especially as enclosed within a flour-based crust or mixed with flour, for eggs, etc., and boiled or steamed; a baked batter mixture.

Although 'puddings' are incorporated under the category "Bakery products", the category headings are not operative, as per Note 2 in Schedule 1 and section 182-15 of the GST Act. However, the category "Bakery products" can be considered in accordance with subsection 182-10(2) to assist

"(a) in determining the purpose or object underlying the provision; or

(b) to confirm that the provision's meaning is the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision; or

(c) in determining the provision's meaning if the provision is ambiguous or obscure;..."

Therefore, the ATO is of the view that 'puddings' for the purposes of item 20 in Schedule 1 of the GST Act only include those products that satisfy the above meaning.

Below are examples of products that would be considered a 'pudding' and subject to GST:

● Rice pudding**

● Tapioca pudding

● Self-saucing puddings

● Steamed puddings

● Christmas pudding

It should be noted that the following products are not considered to be a 'pudding' and will be GST-free:

● Yoghurt

● Dessert mousse (for example, chocolate)

● Crème caramel

● Dairy desserts

● Custard

● Jelly

** Products that are commonly known as creamed rice, creamed rice dairy dessert or rice puddings that consist of boiled rice in a milk or cream solution, which are not baked, will be GST-free.

In this case the Products are non-dairy products. Whilst the ingredients or manufacturing process may be factors in determining whether the Products are ‘similar to’ puddings in item 20, they will not, of themselves, be determinative. As stated in Lansell House 2011 at paragraph 30, a new product that does not possess all the same characteristics of a known item listed in Schedule 1 may nevertheless be within the relevant item; the question is whether the resulting product comes within the genus, class or description of that known item.

We consider that the Products are of a kind of a pudding and come within the genus, class or description of known items such as rice puddings or tapioca puddings and hence fall under item 20. The Products are similar in nature to a tapioca pudding and they have heat applied to them (the water in the first step is hot and then the Products are placed in the retort machine that heats them in a high temperature for an extended period of time). The Products are cooked, as the ‘sterilisation in an overpressure retort cooker’ is a steaming process that cooks the ingredients while also killing any bacteria.

Accordingly, the supply of the Products is not GST-free under section 38-2 of the GST Act as the Products are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. The supply of the Products therefore is a taxable supply where all the other requirements of section 9-5 of the GST Act are met.

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