Edited version of your private ruling

Authorisation Number: 1012504382492

Ruling

Subject: GST and food classification

Question 1

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

Answer

No

Question 2

Is the supply of the food product (Product B) a GST-free supply of food under Section 38-2 of the GST Act?

Answer

No

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

· You are a business registered for goods and services tax (GST).

· You, through your stores, will soon be selling new food products.

· The new products you will be supplying are:

o Product A

o Product B.

· You have provided photos of the actual products, packaging and the ingredient list for the products which are the subject of your ruling requests.

Product A

· Product A is a cold set ready to eat dessert that is primarily dairy based.

· Product A is made principally from the following constituents:

o Cream

o Chocolate sauce

o Puffs

· Product A will be merchandised through your stores’ dairy chillers. The product will sit alongside and will compete against other similar branded products. The product must be kept refrigerated at X°C

· Product A is packaged in a sealed plastic tub. It is ready to eat and can be consumed directly from the plastic tub in which it is packed and sold.

Product B

· Product B is a cold set ready to eat dessert that is primarily dairy based.

· Product B is made principally of the following constituents:

o Mascarpone mousse

o Coffee soak

o Lady Fingers

o Cocoa preparation

· Product B will be merchandised through your stores’ dairy chillers. The product will sit alongside and will compete against other similar branded products. The product must be kept refrigerated at X°C.

· Product B is packaged in a sealed plastic tub. It is ready to eat and can be consumed directly from the plastic tub in which they are packed and sold.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 38-2

Section 38-3

Section 38-4

Schedule 1 clause 1

Schedule 1 clause 2

Schedule 1 item 20

Schedule 1 Item 28

Schedule 1 Item 32

Note 2 to the schedule

Reasons for decision

Issue 1

Summary

The products subject to the PBR are a supply of food that is not GST-free pursuant to Division 38.

The products are either listed specifically in Schedule 1 of the GST Act or are a cake, cheesecake or a kind of a cake or cheesecake (within the same genus, class or description) so that they are included within the exception of being GST-free provided by section 38-3 and Item 20 of Schedule 1.

Further or alternatively, they are considered to be a combination of foods at least one of which is specified as food of a kind listed in the third column of Schedule 1 so that they are included within the exception of being GST-free provided by section 38-3.

General

A supply of food is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (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). As the products subject to the PBR are a dessert food for human consumption, they satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act.

Once it has been determined that an item is food according to the definition, further consideration needs to be given to section 38-3 of the Act, which applies to make certain foods subject to GST. A supply of food will be subject to GST if it is a supply of, amongst other things:

· food for consumption on the premises from which it is supplied, or

· hot food for consumption away from those premises, or

· food of a kind specified in Schedule 1 of the GST Act, or

· food that is a combination of one or more foods at least one of which is food of such a kind

The products that are the subject of the PBR are not sold as hot food and are not for consumption on the suppliers' premises.

It is accepted that unless the food products fall within one of the exceptions within section 38-3 they will be GST-free. Paragraph 38-3(1)(c) is a relevant exception, which provides:

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.

Therefore the ‘relevant legislative test’ at issue, is whether the products are:

· 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.

Food of a kind

The term ‘of a kind’ is not defined in the GST Act. The phrase was considered in Lansell House Pty Ltd & Anor v. FCT 2011 ATC 20-239 (Lansell House) where the court confirmed that there was no ‘bright line’ test for what is or is not a food in Schedule 1. The phrase ‘of a kind’ was given its ordinary meaning and on the facts in Lansell House, the question was ‘whether the product at issue came within the genus, class or description of a cracker’?

Whilst a product can be characterised in more than one way, this is irrelevant for the purposes of the GST Act, as a product can only have one ‘classification’. In Customs and Excise Commissioners v. Ferrero UK Ltd Lord Wolf MR concluded that where a product has the characteristics of two categories, it is placed in a category in which it has sufficient characteristics to qualify.

The court held, quoting Jacob LJ in Commissioners for Her Majesty’s Revenue and Customs v. Procter & Gamble UK, 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.’

When classifying a food for the purposes of paragraph 38-3(1)(c), the term ‘food of a kind specified’ is a question of whether the resulting product comes within the genus, class or description of the item listed.

The category of bakery products extracted from Clause 1 of Schedule 1 is reproduced below:

Item 20 of clause 1 of the schedule of food that is not GST-free lists 'cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings'.

Please note:

1. When considering food under Item 20 we have to consider the condition outlined in clause 2 of Schedule 1 of the GST Act (Clause 2) which provides it does not matter whether the food is sold hot, cold or frozen or require cooking, heating, thawing or chilling prior to consumption.

2. Section 182-15 of the GST Act provides that the second columns of the tables in Schedule 1, 2 and 3 of the GST Act are not operative when interpreting the items in those tables. For example when considering food of a kind listed under item 20, it is not an issue whether the food is a bakery product or not.

It is our view that the label that is ascribed to the food product by the manufacturer or supplier is not determinative. It follows therefore, that each product must be considered separately and understood before applying the legislative test.

Ruling 1

Question 1

Summary

Product A is a supply of food that is not GST-free pursuant to Division 38 and Schedule 1, Item 23 of the GST Act.

Detailed reasoning

Product A

The Detailed food list provides the ‘ATO View’ on food products and is a public ruling (excluding appendixes) for the purposes of the Taxation Administration Act 1953. Relevantly, the Detailed food list indicates the following:

· xxxxxxxxxxx (filled, supplied hot or cold or requires cooking, heating, thawing or chilling prior to consumption), taxable, Schedule 1, item 23 and clause 2 of the GST Act apply. [emphasis added]

The Detailed food list does not describe or define the food items listed. For example, ‘dairy dessert’ is not defined nor does the term appear in Schedule 1. The Detailed food list only states:

“dairy desserts …Not a food of a kind specified in Schedule 1 of GST Act. Not similar to a cake, slice, cheesecake, pancake, waffle, crepe, muffin or pudding;…”

xxxxxxxxxxx is not defined in the Act and is therefore defined by its ordinary meaning. The Macquarie Dictionary defines xxxxxxxxxxx as

a small ball of choux pastry cooked, then filled with cream, jam, cheese, or the like.

**Note: Choux pastry, is a light pastry dough used to make profiteroles, croquembouches, éclairs, French crullers, beignets, St. Honoré cake, Indonesian kue sus, and gougères. It contains only butter, water, flour, and eggs. Like Yorkshire Pudding or David Eyre's pancake, instead of a raising agent it employs high moisture content to create steam during cooking to puff the pastry. Choux pastry is usually baked but for beignets it is fried

In this case, you contend that Product A is a cold set ready to eat dessert that is primarily dairy based and is best described as an immersion of baked puffs filled with cream in a chocolate sauce dessert mixture.

Product A are specifically listed in the Detailed food list as taxable. We consider that this is the most appropriate characterisation of the product, and therefore under this public ruling the product is taxable.

On the facts provided and the definition contained in the Macquarie Dictionary we are of the view that Product A are pastries and since pastries are specifically listed at item 23 of Schedule 1 of the GST Act, it is included within the exception of being GST-free.

Ruling 1

Question 2

Summary

Product B is a supply of food that is not GST-free pursuant to Division 38 and Schedule 1, Item 20 of the GST Act.

Further or alternatively, it considered to be combination of foods at least one of which is specified as food of a kind listed in the third column of Schedule 1 so that they are included within the exception of being GST-free provided by section 38-3.

Detailed reasoning

Product B

The Detailed food list provides the ‘ATO View’ on food products and is a public ruling (excluding appendixes) for the purposes of the Taxation Administration Act 1953. Relevantly, the Detailed food list indicates the following:

· cheesecake (supplied hot or cold or requires cooking, heating, thawing or chilling prior to consumption), taxable, Schedule 1, item 20 and clause 2 of the GST Act apply; [emphasis added]

· dairy desserts – including dairy rice, GST-free, Not a food of a kind specified in Schedule 1 of GST Act. Not similar to a cake, slice, cheesecake, pancake, waffle, crepe, muffin or pudding; [emphasis added]

· tiramisu (supplied hot or cold or requires cooking, heating, thawing or chilling prior to consumption), taxable, Schedule 1, item 20 and clause 2 of the GST Act apply. [emphasis added]

xxxxxxxxxxxx is not defined the GST Act and therefore it takes on the ordinary meaning. The Macquarie Dictionary describes xxxxxxxxxxx as an specific dessert made by layering sponge fingers soaked in a beverage and liquor with mascarpone.

The Australian Oxford Dictionary describes xxxxxxxxxxx as an specific dessert consisting of layers of sponge cake soaked in a beverage and brandy or liquor and a filling of mascarpone cheese topped with cocoa powder.

Where Product B is a food of a kind in Schedule 1, it will not be GST-free. Of particular relevance to Product B is Item 20, which provides that the following bakery products will not be GST-free:

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

More specifically, the most relevant food items within this are considered to be: cakes and cheesecakes.

Cakes

Cake is not defined in the Act and is therefore defined by its ordinary meaning. The Australian Oxford Dictionary defines cake as:

a mixture of flour, butter, eggs, sugar, etc, baked in the oven.

a quantity of this baked in a flat round or ornamental shape and often iced and decorated,

other food in a flat round shape (fish cake)

Sc.&N.Engl. thin oaten bread.

The Macquarie Dictionary defines cake as:

a sweet baked food in loaf or layer form, made with or without shortening, usually with flour, eggs, flavouring and a liquid.

a flat thin mass of bread especially unleavened bread.

a shaped or moulded mass of other food.

It is argued that for a food to fall within the same ‘class, genus or description of a cake’, not every element of the product will be comparable. As provided by Jacob LJ in Procter & Gamble 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.

In the Lansell House decision, when deciding if the Mini Ciabatte was bread or a cracker, the absence of the lamination process was not a deciding factor, rather it was taken into account in the context of all the characteristics of Mini Ciabatte and crackers.

In United Kingdom case of Customs and Excise Commissioners v. Ferrero UK Ltd in determining if a product could be properly described as a biscuit, the question was one of fact and degree. While the product at issue had some characteristics that were not commonly found in biscuits, this did not mean that they were not capable of being regarded as biscuits.

The Further Supplementary Explanatory Memorandum suggests that the term refers to the type of items sold from a bakery premises, rather than being a reference to the manufacturing process and states:

Bakery products

Bakery products that are listed in new Schedule 1A will be taxable. The goods included in the list of bakery products will be taxable when sold by bakeries as well as by other businesses. It will not matter whether a bakery product is sold fresh or frozen.

Item 20 does not exclusively include items which are baked. Other foods are subject to a range of production processes, some of which do not include baking. For example, the item includes: pancakes and crepes, which are sautéed; and slices which may be cold set.

Further it is argued that not all products that are considered to fall within the ordinary meaning of cakes are baked. For example, gateaux which are filled with custard or fruit; tortes, which are cake containing cream and other rich ingredients. Additionally and as discussed below, a cheesecake is a form of cake and cheesecakes are not necessarily baked but cold set instead.

Therefore we consider that your product is within the meaning of the word cake, or is food of a kind of cake.

Cheesecake

The term cheesecake is not further defined in the Act and will be defined by its ordinary meaning. A cheesecake is defined in the Macquarie Dictionary as:

A kind of cake or open pie filled with a rich, sweet mixture containing a soft cheese, such as cream cheese, and other flavourings.

The Oxford Dictionary defines cheesecake as:

A tart filled with sweetened curds on a pastry or biscuit crumb base.

The ordinary meaning of cheesecake is not defined by reference to its cheese content alone. The ordinary meaning contemplates that it can contain a sweet mixture of another flavour.

In Lansell House it was argued the differences between bread and a Mini Ciabatte lay in the relevant percentages of water (40-55% for a cracker and 35% for Mini Ciabatte) and yeast (0-1.25% for a cracker and 1.5% for Mini Ciabatte). Sunberg J attached little significance to the fact that the water and yeast contents were outside the typical rage of ingredients for crackers. The Full Federal court confirmed that the test is not a ’bright line’ defined by percentage of its ingredients. A similar conclusion was reached by the court in Zeroz in respect of what was considered to be yogurt.

Product B only contains a small percentage of mascarpone cheese. However a cheesecake is not defined by a ‘bright line’ test of percentages. The overall impression of the product is that it is a cheesecake and it will fall within the same genus, class or description. There is also no requirement that the cheese be Neufchatel cheese or any other specific variety.

Product B is served in a sealed plastic tub and has the shape of a cheesecake; it falls within the same genus, class or description of a cheesecake. It contains comparable ingredients to a cheesecake, in that it has a base layer and the container is then filled with a sweet mixture.

Item 32

Item 32 of Schedule 1 of the GST Act begins with ‘a food that is, or consists principally of biscuits’. The overall product need not be a biscuit or principally consist of biscuits, it only needs to be a combination of one or more foods at least one of which is a biscuit or consists principally of biscuits. That is, the test needs to be applied to the product’s individual components not against its overall composition. In other words, the component part to be tested is the layer of sponge biscuits.

In this case, the layers of the fillings and the sponge biscuit base are distinctive, which indicates that they are a traditional type of Product B.

Conclusion

On the facts provided, we consider that the Detailed food list indicates that Product B is taxable. Further analysis of the product and the legislation also confirms that the product is not GST-free.

Therefore, we consider that Product B is food of a kind similar to those foods described in item 20.

As Product B is food of a kind listed in Schedule 1, it is therefore excluded from being GST free under section 38-3 of the GST Act (paragraph 38-3(1)(c ) of the GST Act.

Furthermore, as Product B contains a combination of foods, one of which is specified (ie the layer of biscuits by virtue of Item 32), it will not be GST-free pursuant to the second limb of section 38-3(1)(c).