Edited version of private advice

Authorisation Number: 1051785793923

Date of advice: 19 February 2021

Ruling

Subject: Seeds and nuts mixed with spices

Question

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

Answer

No.

Relevant facts and circumstances

You are registered for GST.

On your website, there are Products' information in pictures and in words, such as price and description.

You sent us pictures of the packaging, which contain ingredients and nutritional information and other information.

There are also marketing information on the internet.

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)

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 1 table items 15, 16 and 18

Reasons for decision

Summary

The supply of the Products is a supply that is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as the product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act (food of a kind that is specified in Schedule 1 of the GST Act (Schedule 1).

The Products are a kind of savoury snacks, under item 16 and item 18 in the table in Schedule 1 to the GST Act (item 16 and item 18), because they are seeds and nuts which have been treated by spicing and roasting.

Item 16 lists seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way.

Item 18 specifies food similar to that covered by item 15 or 16, whether or not consisting wholly or partly of any vegetable, herb, fruit, meat, seafood or dairy product or extract and whether or not it is artificially flavoured.

Hence GST is payable on your supply of the Products provided all of the requirements of section 9-5 of the GST Act are met.

Your contentions

Comparable Product - Dukkah

A comparable product with the same characteristics and application to the Products is Dukkah. Dukkah is a mix of seeds, nuts and spices which is gently toasted and sprinkled over meals at the completion of cooking or used as a spice rub before cooking. The Products are utilised in exactly the same manner as Dukka, as a topping to complete the meal, or as an ingredient added during the cooking process. Dukkah and the Products are not formulated to be eaten on their own as a snack food. The Products are designed as a condiment or ingredient to be sprinkled sparsely over a meal.

GST List of Food - Dukkah (Dry Dip or Marinade) - "Condiment. Ruling - GST Exempt. Paragraph 38-4(1)(e) of the GST Act applies. Added with effect from 31 August 2011".

The Products are designed as a health product.... They are sugar free, gluten free, dairy free, vegan and low on sodium and include a range of 'superfood' ingredients.

The Products as a Food Additive:

The Products can be used as an additive to many food.....

GST List of Food - Food Additive - which, at time of importation would, if it had been a supply; have a measurable nutritional value (carbohydrate, fat, protein, vitamin or dietary mineral); and be supplied for use solely or predominantly in the composition of food; and be essential to the composition of that food. - GST Exempt. Exempt food additive (import). Section 13-10 and paragraph 38-3(1)(e) of the GST Act and paragraph 38-3.02(2)(b) of the GST Regulations apply".

Our reply to your contentions:

We do not agree with your contentions.

The Products are not comparable to Dukkah which consists of roasted and finely ground nuts and seeds, and can be used as a dry dip or marinade.

https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=GSTFBSearch#GSTFBSearch/questions

dukkah (dry dip or marinade)

GST-free

Condiment. Paragraph 38-4(1)(e) of the GST Act applies. Added with effect from 31/08/2011

The Products are essential nuts and seeds which have been toasted and mixed with spices for flavouring.

The Products have been marketed on the packaging and on your website as snacks.

Even if the Products are marketed as capable of being consumed on its own as a health product, they are still consider as food for human consumption and are subjected to the paragraph 38-3(1)(c) of the GST Act, which provides that food is not GST-free if it is food of a kind specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1).

It should be noted that the GST Act does not provide an exception for foods that are marketed as health food or 'superfood' on the basis that they provide extra health benefits beyond just nutritional value.

Paragraph 38-4(1)(e) of the GST Act

The Products are not Food Additive, they do not have the characteristic of foods described in paragraph 38-4(1)(e) of the GST Act. We consider that the Products are food for human consumption under paragraph 38-4(1)(a) of the GST Act.

Paragraph 38-3(1)(e) of the GST Act is about food additive (other than exempt food additives specified in the GST Regulations).

Issue 11 of the Food Industry Partnership - issues register on the following link states:

https://www.ato.gov.au/Business/GST/In-detail/GST-issues-registers/Food-Industry-Partnership---issues-register/?page=10

...goods to be mixed with or added to food for human consumption (paragraph 38-4(1)(e) of the GST Act).

The word 'additive' is defined in The Macquarie Dictionary (3rd edition, 1997) to mean '...3. a substance added to a product, usually to preserve or improve its quality'. Examples of products that are considered to be food additives for GST purposes include:

•         colourings

•         flavourings

•         preservatives

•         antioxidants

•         sweeteners

•         vitamins

•         minerals

•         modifying agents (vegetable gums, mineral salts, food acids, emulsifiers, humectants, thickeners).

Products that satisfy paragraph 38-4(1)(e) are used for the purpose of adding to the taste or flavour of finished foods and are not products that are used in the manufacturing process (although some products may fall for consideration as both an ingredient for food and as a good to be mixed with or added to food for human consumption).

.... Section 38-3.01 of the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) applies to food additives. This regulation gives effect to paragraph 38-3(1)(e) of the GST Act and determines those foods that are not GST-free.

Subsection 38-3.01(1) of the GST Regulations states that food additives other than exempt food additives will be subject to GST. The term 'exempt food additive' is defined in subsection 38-3.01(2) of the GST Regulations to mean:

•         a food additive which, at the time of supply is packaged and marketed for retail sale; or

•         a food additive which, at the time of supply:

-        has a measurable nutritional value; and

-        is supplied for use solely or predominantly in the composition of food; and

-        is essential to the composition of that food.

The purpose of the Regulations is to give effect to the Government's original intention that a supply of a potential food additive which may be produced to a 'food grade quality', but is not actually used as an ingredient or mixed with food for human consumption, be subject to the GST (Explanatory Statement to the A New Tax System (Goods and Services Tax) Amendment Regulations 2001 (No. 2)).

These 3 tests for a food additive in subsection 38-3.01(2) of the GST Regulations are intended to limit the application of the GST-free provisions to food additives which play an integral part in the make-up of food as defined in section 38-4 of the Act.

It is not considered that the Products meet the ordinary meaning of a food additive. They are not used for the composition of food. As highlighted by the Explanatory Statement the intent of the provision is to apply to for example, hydrochloric acid and sulphuric acid are capable of being produced to 'food grade quality' and are listed in the Australian Food Standards Code. However, they are not manufactured for use exclusively in food for human consumption. The ordinary meaning of a food additive should be informed by its industry meaning and therefore the definition in the joint Australia New Zealand Food Standards Code.

Food additive is relevantly defines as any substance not normally consumed as a food in itself and not normally used as an ingredient of food, but which is intentionally added to a food to achieve one or more of the technological functions specified in Schedule 14[ of Standard 1.3.1 of the Joint Australia New Zealand Food Standards Code (under this link https://www.legislation.gov.au/Details/F2016C00165 , as in force on 1 March 2016)

Examples of the functions which may be performed by food additives include acidity regulator, anti-caking agent, antioxidant, colouring, emulsifier, flavour enhancer, flavouring, firming agent, gelling agent, glazing agent, intense sweetener, preservative and thickener. A list of substances that may be used as food additives is included in Schedule 15 (under this link https://www.legislation.gov.au/Details/F2016C00194) and does not include a product that is similar to the Products subject to the ruling request.

We conclude that the Products do not have the characteristics of food additives listed under paragraph 38-4(1)(e) of the GST Act.

We refer you to our detailed reasoning below:

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 (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act). The Product is food for human consumption and therefore, satisfies 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 food is not GST-free if it is food of a kind specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1) or food that is a combination of one or more foods, at least one of which is food of such a kind. The Products consists of seeds and nuts which are roasted with spices for flavouring. The Products are not food products that combines a taxable food and a GST-free food as distinct items. We do not need to discuss the 'food that is a combination of one or more foods, at least one of which is food of such a kind'.

The items that are relevant for consideration in this case are item 15 of Schedule 1 (item 15), item 16 of Schedule 1 (item 16) and item 18 of Schedule 1 (item 18) which state:

The Products are not covered by the foods specified in item 15. However, they may fall under item 16 (seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way).

Item 18 specifies food similar to that covered by item 15 or 16, whether or not consisting wholly or partly of any vegetable, herb, fruit, meat, seafood or dairy product or extract and whether or not it is artificially flavoured.

The word 'similar' is not a defined term in the GST Act. The Macquarie Dictionary [Online], www.macquariedictionary.com.au, defines the term as:

having likeness or resemblance, especially in a general way.

The similar classification argument was unsuccessfully raised by the applicants in the first instance before the Federal Court in Lansell House Pty Ltd & Anor v FCT 2010 ATC 20-173 (Lansell House 2010). This case considered whether a product known as 'mini ciabatte' was taxable. The product was imported and described on its packaging as 'Italian flat bread'. Sundberg J dismissed the 'similar classification arguments' (see paragraph 107) and concluded at paragraphs 108 to 109:

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 ...

Hence we will look at all the factors of appearance, taste, ingredients, process of manufacture, marketing and packaging together in deciding the proper classification of the Products.

'Of a kind'

Further, the use of the words 'of a kind' in paragraph 38-3(1)(c) has also been considered by the Courts and held that it adds further generality to the description of food specified in Schedule 1 therefore this description should not be construed narrowly. See Lansell House Pty Ltd & Anor v. FCT 2011 ATC 20-239 (Lansell House 2011) at paragraph 30 where the Full Federal Court said:

30. ...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). 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. For example, in the present case, included within item 32 are products that do and do not contain yeast and products that might be produced by different manufacturing processes. The question is whether the resulting product comes within the genus, class or description of a cracker.

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 House 2010 at para 73 and Lansell House 2011 at para 33).

In Lansell House 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'

Hence the question at law is whether the Products come within the genus, class or description of seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way. Whether the Products are of a kind of food specified in Schedule 1, is a question of fact and degree and a matter of overall impression.

Application to your Products:

The food products listed in Item 16 are seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way. Accordingly, to determine the classification of the Products we need to consider the appearance, taste, ingredients, process of manufacture, marketing and packaging to form the overall impression of the Products and consider whether the Products are of a kind of food specified in item 16 or item 18.

(We then proceed to examine each product). The marketing includes product information on the website, the packaging and internet marketing.

Placement in the store:

You mainly sell the Products online, but some Products are also sold at a range of stores.

This is highly variable from store to store, but the Products are often placed in the same location as Dukkah. Each retailer makes their own decisions about placement, but generally the Products sit in....

Our opinion:

Whilst ingredients, manufacturing process, texture, taste and appearance, packaging, and marketing (including placement in the store) may be a factor in determining whether the Products are 'of a kind' of snack foods in item 16, or item 18, they will not, of themselves, be determinative. As stated above, a new product that does not possess all of the same characteristics of a known product specified in Schedule 1 may nevertheless be within the relevant item.

Taking all the above factors into account, we consider that the overall impression of the Products is that they are similar to snack foods in item 16 and are therefore of a kind covered by item 18:

•         The Products consists of seeds and nuts which are roasted with spices for flavouring.

•         The Products are in loose, small, bite-sized pieces and nut and seed products covered by item 16 have such a form and consistency. The nuts and seeds in the Products retain the shape and texture, some large nuts may be chopped but the nuts and the seeds are not finely grounded and incorporated into the Products, they retain a separate identity of being roasted nuts and seeds which have been roasted and spiced for flavour.

•         In order for a nut product to be covered by item 16, the processing must be one that enhances or adds to the flavour of the nuts. The manufacturing process of roasting the nuts and seeds, then mixed them in spices, adds to the flavour of the nuts and seeds. Salted or spiced nut or seed products covered by item 16 have a flavour coating. The Products would have a salty and a spicy taste and slightly sweet due to the ingredients in the Products. Therefore, the nuts and seeds in your Products have undergone a process similar to salting, spicing, or roasting for the purposes of item 16.

•         The Products would be crispy and crunchy to the bite (due to the roasting), like other savoury spiced nuts snacks. Each Product contains sodium and sugar, we note that the amount of sodium is similar to other savoury spiced nuts snacks. The Products would taste slightly sweet and salty, like other savoury snacks

•         the Products are marketed as snacks on the front and the back of the packaging of each Product. It is also marketed as snacks from your website. We accept that the Products have been marketed for other uses such as baking, adding to soup, salad, pasta and meat dishes, and desserts. However, we look at the overall impression of the Products in addition to marketing.

•         The Products are sold in a small snack size bag, with RRP of... The size and price are similar to other savoury and spicy nut and seed snacks.

In summary, the Products exhibit characteristics similar to food items listed under item 16, being nuts and seeds which are roasted, salted and spiced, thus have a likeness or resemblance in a general way to such food items. The Products also fall under item 18 as food that is similar to food listed under item 16.

As the Products are covered by item 16 or 18, they are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. As such, the supply of the Products is not GST-free under section 38-2 of the GST Act.

The supply of the Products is a taxable supply as all the requirements of section 9-5 of the GST Act are satisfied as follows:

•         you supply the Products for consideration

•         the supply is made in the course or furtherance of an enterprise that you carry on

•         the supply is connected with the indirect tax zone

•         you are registered for GST and the supply of the Products is neither GST-free nor input taxed.

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