Edited version of private advice

Authorisation Number: 1051895275256

Date of advice: 17 September 2021

Ruling

Subject: GST and classification of food

Question

Is the sale of the specified seeds or nuts products (the Products) a taxable supply?

Answer

Yes, the sale of the Products is a taxable supply.

Relevant facts and circumstances

You are registered for GST.

You purchase a variety of raw seeds and nuts. You process and treat the raw seeds and nuts by:

• salting and/or spicing or flavouring the seeds and nuts, and
• further processing them until they are crispy and crunchy.

The seeds and nuts are then packed to be enjoyed as a snack.

You provided samples of the Products.

The Products do not have the taste and texture of raw seeds or nuts. The seeds and nuts have a taste, weight, texture and colour, similar to roasted seeds and nuts. They have an enhanced flavour similar to roasted seeds and nuts and are slightly salty. They are lighter in weight compared to raw seeds and nuts and are crispier and crunchier than raw seeds and nuts.

You have been treating the sale of the Products as taxable supplies.

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 16

Reasons for decision

Summary

The sale of the Products is not GST-free. The sale of the Products is specifically excluded from being GST-free by paragraph 38-3(1)(c) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which provides that food of a kind specified in the third column in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1) is not GST-free.

Item 16 of Schedule 1 (item 16) provides that 'seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way' are not GST-free.

The specified process by which the raw seeds and nuts are treated are processes or treatments similar to salting, spicing and roasting specified in item 16.

Accordingly, the sale of the Products is a taxable supply.

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 food is not GST-free if it is food 'of a kind' specified in Schedule 1 or food that is a combination of one or more foods, at least one of which is food of such a kind.

Schedule 1 lists food items that are not GST-free. Item 16 provides that 'seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way' are not GST-free.

The word 'similar' is not defined in the GST Act and therefore it takes its ordinary meaning. Macmillan Publishers Australia, The Macquarie Dictionary Online, www.macquariedictionary.com.au, (Macquarie Dictionary),accessed 15 August 2021, defines the word 'similar' as:

adjective 1. having likeness or resemblance, especially in a general way.

Further, the phrase 'of a kind' in paragraph 38-3(1)(c) is also not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term.

The Macquarie Dictionary defines the word 'kind' to mean:

Noun 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.

....

A number of cases have dealt with classification of food products. In Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329, the Federal Court considered whether a product known as 'mini ciabatte' was 'a cracker' under item 32 in Schedule 1 and therefore taxable. The product was imported and described on its packaging as 'Italian flat bread'.

The Court held 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. Ultimately, the court found that the mini ciabatte was a 'cracker', and thus was not GST-free. In coming to that decision, the court considered a number of factors in relation to the mini ciabatta to establish the nature and character of the product.

On appeal, the Full Federal Court, in Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6, upheld the Federal Court's decision. The Full Federal Court also considered the meaning of the words 'of a kind' and held that the use of the words 'of a kind' in paragraph 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1 therefore this description should not be construed narrowly. The court noted that the question was whether the product being considered comes within the genus, class or description of an item described in Schedule 1. At [30] the Court stated:

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.

Accordingly, a product will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the class or genus in question.

In the current case, the Products are seeds and nuts that have been treated in a specific way which results in the seeds and nuts being slated, spiced or flavoured and further processed until they are crispy and crunchy. The Products have the taste, weight, texture and colour similar to roasted seeds and nuts. That is, the seeds and nuts have an enhanced taste and flavour similar to roasted seeds and nuts. The Products are also slightly salty. Similar to roasted seeds and nuts, the Products have a reduced moisture content and are therefore lighter in weight compared to raw seeds and nuts and are crispier and crunchier than raw seeds and nuts.

Item 16 specifically refers to seeds and nuts that have been processed or treated by salting, spicing or roasting or in any other similar way. We consider that the way the Products are processed is within the scope of item 16. As such, the Products are of a kind covered by item 16 and are therefore excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. Consequently, 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 under section 9-5 of the GST Act as:

• you supply the Products for consideration
• the supply is made in the course or furtherance of an enterprise that you carry on
• you supply the Products in Australia
• you are registered for GST, and
• the supply of the Products is neither GST-free nor input taxed.