Edited version of private advice

Authorisation Number: 1051850062848

Date of advice: 30 June 2021

Ruling

Subject: GST and food

Question

Is the supply of the air-dried vegetable chips (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. The supply of the Products is a taxable supply.

Relevant facts and circumstances

You manufacture dehydrated vegetables and packages them for resale to retail and wholesale business. They are sold under a particular brand name.

You describe the Products as dry and crispy with a savoury taste.

You provided images of the Products and their packaging for further product information:

•         The Products are available in a variety of flavours.

•         The ingredients include a particular vegetable and seasonings.

•         The Products are in small, snack size packets.

You provided details about how the Products are manufactured:

• Fresh vegetables are cleaned with fresh water, sliced and mixed with the seasonings.
• The vegetables are then air dried at low temperature for a number of hours.

All the ingredients are fresh sourced. The Products are not fried, boiled or blanched. They are air dried at a low temperature over a very long period of time to retain freshness and original fresh vegetable nutritional content.

The Products are ready-to eat and are consumed fresh from the packet.

The Products are sold online and in some health food shops and fresh produce outlets. They will be located in the health food and fresh produce sections of supermarkets.

Your website describes the Products as flavoursome, delicious and nutritious snacks.

You provided samples of the Products and they are dry, 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 a supply of food of a kind listed in item 18 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Therefore, the supply of the Products is not GST-free.

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) and item 18 of Schedule 1 (item 18) which state:

The Products are not covered by the food specified in item 15.

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. Item 18 is very wide in scope and broadens the range of food products that are similar to those specified in item 15 beyond their composition, ingredients and their manufacturing process.

The word 'similar' is not a defined term in the GST Act. The Macquarie Dictionary [Online], viewed 25 June 2021, www.macquariedictionary.com.au, defines the term as:

having likeness or resemblance, especially in a general way.

Further, the use of the words 'of a kind' in paragraph 38-3(1)(c) has 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 read narrowly. Accordingly, a new product that does not possess all of the same characteristics of a known product or a product that might be produced by different manufacturing processes may nevertheless be within the relevant item. The question is whether the resulting product comes within the genus, class or description of the relevant item.

Therefore, 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 food products listed in Item 15 are snack 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 Products are made from fresh vegetables which are cleaned with fresh water, sliced and mixed with the seasonings and then air dried at low temperature for a number of hours.

The manufacturing process of itself is not a determinative factor when considering whether the Products are similar to foods in item 15. 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.

The Products are made from vegetables. They come in a small snack size bag similar to other chips snacks. They are ready-to eat and are consumed fresh from the packet. They are crispy and crunchy to the bite and slightly salty, like other chips snacks. Further, the Products are marketed as flavoursome, delicious and nutritious snacks.

Taking all the above factors into account, we consider that the Products possess the characteristics of the food products 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.

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.