Edited version of private advice

Authorisation Number: 1051834397900

Date of advice: 20 May 2021

Ruling

Subject: GST and food

Question

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

Answer

No.

Relevant facts and circumstances

You import the Products. You are registered for GST.

The Products are made of vegetable and are roasted and seasoned. You describe the Products as small size, compressed, thin, crispy and crunchy.

You provided information about the Products which state the package sizes, labels and serving tips. You provided images of the packaging and food items which show that they are in small packed size bags. You stated that the Products' small package makes it efficient to have with meals and lunch boxes'.

You provided the manufacturing process of the Products which show that the vegetables are cooked, seasoned and salted before it goes for a second cooking process.

The Products are ready to eat straight from the pack or can be consumed with salad or rice.

The Products are sold in supermarkets.

You provided samples of the Products which show that the food items are bite-size, crispy, crunchy and slightly salty.

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 Schedule 1 clause 1 table item 18

Reasons for decision

Summary

The supply of the Products) is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

The supply of the Products 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 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 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 specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1).

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 or item 16.

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], viewed 16 April 2021, 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 ...

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'.

Whether a food product is of a kind of food specified in Schedule 1, is a question of fact and degree and a matter of overall impression.

Application to the Products:

The Products are not similar to food products specified in item 16.

The food products listed in item 15 are savoury foods that have undergone a cooking process and share certain other characteristics such as crispness. Accordingly, to determine the classification of the Products we need to consider the characteristics of the Products.

The Macquarie Dictionary [Online] defines the term chip as:

2. a very thin slice or piece of food, etc.: chocolate chips.

3. Also, potato chip.

a. a deep-fried finger of potato.

b. a thin slice of potato, fried and salted, usually eaten cold; crisp; potato crisp.

The Products are made from vegetables. The manufacturing process for the Product is that the vegetable is cooked initially, followed by seasoning with salt and oils before it is cooked a second time. The samples you provided are crispy, crunchy to the bite and slightly salty. The Products are ready to eat straight from the pack or can be consumed with salad or rice. Furthermore, the Products come in small package sizes.

Whilst ingredients, manufacturing process and shape may be a factor in determining whether the Products are 'similar' to foods listed in item 15, 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 Products possess the characteristics of the food items listed in item 15. That is, the overall impression is that they are similar to food products specified in item 15 and are therefore of a kind covered by item 18.

In summary, the Products exhibit characteristics similar to food items listed under item 15, being small, dry, crispy and crunchy thin seaweed layers, that have a likeness or resemblance in a general way to such food items. The Products fall under item 18 as food that is similar to food listed under item 15.

As the Products are covered by item 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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