Edited version of your written advice

Authorisation Number: 1051371402351

Date of advice: 10 May 2018

Ruling

Subject: GST and supply of food

Question

Is the supply of the specified products subject to GST?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You propose to sell specified products (the Products).

The products contain ingredients such as eggs, meat, vegetables, flour and milk.

The Products initially start as a batter which is deposited onto metal trays and baked in ovens. They are then snap frozen and packaged.

The Products will be sold in the freezer cabinets.

Relevant legislative provisions

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

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

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

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

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

Reasons for decision

Summary

The supply of the Products is a taxable supply as the Products are of a kind of food covered under item 1 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).

Of relevance to this case is item 1 of Schedule 1 (Item 1) which provides that 'quiches’ are not GST-free. Therefore, it must be determined whether the Products are ‘of a kind’ of quiche.

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 7 May 2018, www.macquariedictionary.com.au, (Macquarie Dictionary), 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 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 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 to 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 Macquarie Dictionary defines ‘quiche’ as:

a savoury custard tart, a specialty of Alsace and Lorraine, regions in north-eastern France.

Further the Commissioner has considered the GST classification of frittatas as outlined in the Detailed Food List, and has determined that frittatas fall under item 1 being food that is similar to quiches, despite the fact that frittatas do not have a crust and their preparation method may be different to quiches. We also note that not all quiches have a crust.

In this case the Products have significant similarities to quiches and frittatas. Similar to quiches and frittatas, the Products are egg based dishes containing other similar ingredients such as cheese, meat and vegetables. Similar to quiches and frittatas the Products initially start as a batter which is baked in the oven. The Products have a similar appearance to quiches and frittatas. Considering their ingredients the Products will also be similar in taste to quiches and frittatas.

Given the greater generality afforded by the operation of paragraph 38-(1)(c) of the GST Act, we consider that the Products have sufficient similarity to quiches and therefore come within the genus, class or description of such food items. Thus, despite some differences, the overall impression is that the Products are of a kind of quiche and hence fall under item 1.

The Products are cooked and sold frozen.

Clause 2 of Schedule 1 of the GST Act (Clause 2) operates to ensure that food listed at item 1 is not GST-free regardless of whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

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.