Edited version of private advice

Authorisation Number: 1051897426844

Date of advice: 9 September 2021

Ruling

Subject: GST and XXXX product

Question

Is the supply of XXXX 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 Product is not GST-free under section 38-2 of the GST Act as the Product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

Relevant Facts and circumstances

You are an Australian entity and registered for GST.

You supply XXXX (Product) to the retail market in Australia.

The Product is sold in frozen form in the supermarkets. The Product is displayed in the frozen foods section in supermarkets, near frozen apple pies and other desserts.

The Product is supplied in a foil tin and has a structured appearance when frozen. The XXXX filling is covered with a layer of crumble on the top. The crumble also covers the filling around the sides but not the base. The crumble mixture is crumbly and, after baking, is crisp. The filling, after baking, is soft and lumpy and does not have structure.

The Product is served warm, with a scoop of ice cream or cream.

Ingredients

Fruit, Wheat Flour, Sugar, Water, Salt, Milk Solids, Emulsifiers, Antioxidant, Natural Flavour, Colour, Thickener, Dextrose, fruit Juice Concentrate, Salt, Cinnamon, Citric Acid

The Product has two components:

-       Filling - XXXX, sugar, water and starch mixed together cold.

-       Crumble - flour, margarine and spices mixed together.

The XXXX filling is deposited into a foil tin, the crumble is deposited on top of the filling and the product is then baked. The Product is then cooled, frozen, packed, palletised, and stored frozen.

You provided samples of the Products in their packaging. The Products are supplied in a foil tin that is placed in a box.

The Products have a structured appearance when frozen. The filling is covered with a layer of crumble on the top but not the base. The crumble mixture is crumbly.

Reasons for Decision

Summary

The supply of the Product is not GST-free under section 38-2 of the GST Act as the Product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. The Product falls under item 22 in the table in clause 1 of Schedule 1 to the GST Act. It is considered that the Product is a 'pie' or 'a kind of pie'.

The supply of the Product therefore 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 it satisfies the definition of 'food' in section 38-4 of the GST Act and it is not excluded by section 38-3 of the GST Act.

'Food' is defined in paragraph 38-4(1)(a) of the GST Act to include 'food for human consumption (whether or not requiring processing or treatment)'. In the present case, it is accepted that the Product is a 'food for human consumption' under section 38-4 of the GST Act.

However, under paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food 'of a kind' that is specified in clause 1 of Schedule 1 to the GST Act ('Schedule 1').

Schedule 1 includes the following items:

Clause 2 to Schedule 1 indicates that, in relation to prepared food, bakery products and biscuit goods:

For the purposes of determining whether particular *food is covered by any of the items in the table relating to the category of prepared food, bakery products or biscuit goods, it does not matter whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

Meaning of 'of a kind'

The product will be GST-free unless it is food 'of a kind' specified in the Schedule 1.

The phrase 'of a kind' is not defined in the GST Act, but was considered by Sundberg J in Lansell House Pty Ltd & Anor v Federal Commissioner of Taxation (2010) 76 ATR 19 (Lansell 2010).

His Honour was required to determine whether a product known as mini ciabatte was 'of a kind' of cracker, and therefore not GST-free. The product was described on its packaging as 'Italian flat bread'.

Sundberg J reviewed the relevant authorities, including Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 ('Air International'), and agreed with the comments of Tamberlin J in that case, that the words 'of a kind' added something to the words 'specified':

If the intention had been simply to exclude the items in the table in the schedule, Parliament would have used the words "food specified in the third column". What then does "of a kind" add? In Air International the Full Court was concerned with a classification of goods under tariff subheadings in Schedule 3 of the Customs Tariff Act 1995 (Cth) - goods "of a kind used as replacement components in passenger motor vehicles". Tamberlin J, with whom O'Loughlin J agreed, said at [53]:

"It is helpful to look at actual use, if any, when deciding whether goods are of a kind used as replacement components. Where they are so used, then that points to a conclusion that they are 'of a kind' so used. The words 'of a kind' add a further level of generality to the expression 'used' so that even if (to use the Tribunal's expression) the goods are not so used but are within a range of goods of a type which are used, then they satisfy the required description.

...

The description can apply where there is no actual use of a good as a replacement component if the goods are of that genus. That is to say they are of the same type of component which is used to replace components of passenger motor vehicles. The genus, in my view, is a relatively broad one and the word "kind" should be so construed." [Emphasis added.]

His Honour also noted that the same approach was taken in Customs and Excise Commissioners v Mechanical Services (Trailer Engineers) Ltd [1979] 1 WLR 305, a value added tax case. The question was whether the particular goods fell to be classified as 'Goods of a kind suitable for use as parts of goods within item 1 or item 5'. His Honour referred to the passage by Megaw LJ [at 316], which was quoted with approval in Air International [at 28]:

Presumably the three words 'of a kind' have not been introduced merely for elegance of prosody or to provide meaningless padding. They do affect the meaning. It is not 'the goods' - the particular articles, here the couplings and the winch - which have to be suitable for use as parts. It is the kind of goods to which those particular articles belong, their genus, which has to be thus suitable. The addition of 'of a kind' would be meaningless if goods which are themselves suitable are necessarily also goods of a kind which is suitable.

Ultimately, Sundberg J found that the mini ciabatte was a 'cracker', and thus was not GST-free. His Honour did not need to rely on the product falling within the broader description of 'of a kind'.

The taxpayer's appeal to the Full Federal Court was dismissed in Lansell House Pty Ltd & Anor v Federal Commissioner of Taxation (2011) 190 FCR 354 ('Lansell 2011'). The Full Court (comprising Bennett, Edmonds and Nicholas JJ) held that:

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... The question is whether the resulting product comes within the genus, class or description of a cracker.

The Full Federal Court was satisfied that the mini ciabatte was 'of a kind' of the cracker genus, after taking into account the other characteristics of the product as set out by Sundberg J at [109], which included the following factors in relation to the goods:

(a)  use;

(b)  percentage / ratio of ingredients;

(c)   origin of the product / tax treatment in the country of manufacture;

(d)  in store display;

(e)  marketing;

(f)    appearance and physical attributes.

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, having regard to the factors set out above.

Approach to interpreting meaning of items listed in the Schedule

A number of items listed in the Schedule are not defined in the GST Act.

The Federal Court (French, Hill and Whitlam JJ) in Diethelm Manufacturing Pty Ltd v Federal Commissioner of Taxation (1993) 44 FCR 450, provided a guide for interpreting words in a revenue statute where they are not otherwise defined in legislation. The case concerned the classification of chairs for the purpose of Item 1(a) of the Third Schedule to the Sales Tax (Exemptions and Classifications) act 1935 (Cth). French J, at p. 457, made these observations:

The construction of a revenue statute requires at the outset a consideration of whether or not its words are used in their natural and ordinary meaning, or in some commercial sense, or perhaps, between those poles, some extension or limitation of the ordinary or commercial meaning. Revenue laws directed to commerce frequently employ the descriptions and adopt the meanings in use among those in the relevant trade: Herbert Adams Pty Ltd v Commissioner of Taxation (Cth) (1932) 47 CLR 222 at 227 (Dixon J). On the other hand, the inclination to adopt commercial construction must not be taken to exclude the possibility that the words of a relevant statute may bear their ordinary and natural meaning: D&R Henderson (Mfg) Pty Ltd v Forbes (Collector of Customs (NSW)) (1974) 48 ALJR 132 and see generally Collector of Customs v Bell Basic Industries Ltd (1988) 20 FCR 146 at 156-158.

Conti J made similar observations in Saga Holidays Ltd v Commissioner of Taxation (2005) 149 FCR 41, in the context of the GST Act. His Honour explained that revenue provisions often employ technical language because the provisions are intended to be understood by people in the industry:

A contextual consideration involved in construing the GST Act is that GST is traditionally a tax on 'businessmen', to be assessed and paid by businessmen, and to be administered and interpreted in accordance with the understanding of businessmen. This is in contrast to other forms of taxation, such as income tax, which is ordinarily assessed by the Commissioner.

Meaning of 'crumble'

The question is whether the Product described as Apple crumble or Rhubarb & Apple Crumble or Apple & Salted Caramel Crumble is 'of a kind' of food specified in Schedule 1.

The Macquarie Dictionary defines 'crumble' as 'a sweet dish containing stewed fruit topped by a crumbly pastry of brown sugar, flour and butter' [emphasis added].

The dish has also been described in The Diner's dictionary (2 ed) as:

A British dessert in which raw or stewed fruit (commonly apple) is topped with a layer made from flour and fat rubbed into the texture of breadcrumbs, and baked. The term is first recorded in 1947, but the technique itself seems to have been a product of Second World War culinary making-do.

The Oxford English Dictionary definition of 'crumble' states that crumble is 'a pudding made with crumble and fruit' [emphasis added].

Meaning of 'pie' or 'of a kind of pie'

Item 22 includes pies (meat, vegetable or fruit), pasties and sausage rolls.

The word 'pie' is not defined in the GST Act.

There is no indication that 'pie' has a technical or trade meaning for the purposes of the GST Act.

To ascertain the ordinary English meaning of the word 'pie' regard is had to the Macquarie Dictionary and the Australian Oxford Dictionary.

The Macquarie Dictionary defines 'pie', relevantly, as follows:

noun 1. a baked dish consisting of a sweet (fruit, etc.) or savoury (meat, fish, etc.) filling, enclosed in or covered by pastry, or sometimes other topping as mashed potatoes.

2. US → tart2.

The word 'pastry', as used in the Macquarie Dictionary definition of 'pie', is defined as 'food made of paste or dough, as the crust of pies, etc'.

The Australian Oxford Dictionary defines 'pie' as:

noun

1. a baked dish of meat, fish, fruit, etc., usu. with a top and base of pastry.

2. anything resembling a pie in form: a mud pie.

The word 'pastry' as used in the Australian Oxford Dictionary definition of 'pie' is defined as 'a dough of flour, fat, and water baked and used as a base and covering for pies, etc'.

These definitions support a wide interpretation of the word 'pie' as a baked dish consisting either of sweet or savoury filling (e.g. fruit, meat, etc), which is enclosed in or covered by pastry, but need not always have a top and base of pastry, may have another topping, such as mashed potatoes and there is not reference to a pie being a particular shape.

The above definitions do not suggest that pastry or mashed potatoes (as in shepherd's pie or cottage pie) are the only acceptable toppings for a pie. Mashed potatoes, in the Macquarie Dictionary definition, is used as an example of an alternative topping. The Australian Oxford Dictionary indicates that pies 'usually' have a top and base of pastry.

However, caution should be exercised in applying a strict interpretation of the word 'pie' based on the dictionary definition. This follows the comments of Evatt J in the leading Sales Tax decision on the classification of food, Herbert Adams Pty Ltd v. FCT 47 CLR 222 ('Herbert Adams'). In Herbert Adams, the High Court considered that reference to a dictionary might not be necessary to determine the meaning of the word 'cake'. Evatt J, at pages 229 to 230, said:

Samples of the appellant's manufacture were produced, and in my opinion the goods made were undoubtedly "cakes." According to the Oxford Dictionary a "sponge" is "a very light sweet cake made with flour, milk, eggs and sugar." A dictionary reference may not be necessary. Perhaps this is one of the few things that every schoolboy knows.

Pies share a number of similarities with cakes, in that they are baked goods that are often made in the home, and there are endless variations of recipes that can be used to make a pie. This supports a wide interpretation of the word 'pie'.

Application of the law to the facts

Characteristics of the Product

The Product has the following characteristics:

a.    Preparation and serving: The Product Is intended to be baked in an oven before serving, according to the method statement in the customer specifications and the instructions on the packaging of the Product under the heading 'To prepare your crumble'. Thus, the product is a baked dish. The Product is often served with ice cream or cream.

b.    Ingredients: The Product has a sweet filling, which - according to the ingredients list on the packaging - consists of fruit, sugar, water and starch.

The Product is covered on its top and sides by a crumble made of flour, margarine and spices. We note that the Macquarie Dictionary describe the crumble topping as a type of pastry. The topping does not contain water. However, water is not essential for every type of pastry or dough (for example, there are some sweet crust or gluten-free pastries that do not require water, but often require the addition of egg). Aside from the absence of water, the ingredients found in the Product are those that would be expected to be found in a pie.

c.     Appearance and structure: According to the photographs and samples supplied, the frozen Product is circular, or pie shaped. The Product Is covered on top and on its sides by a topping. The topping is crumbly and is not smooth like most doughs or pastries. The filling is soft and lumpy and does not have structure. After baking, the topping is crisp.

d.    Display: The Product is displayed in supermarkets in the frozen food section, alongside other frozen pie desserts.

e.    Use: The Product is consumed as a dessert and is most often served warm. This is confirmed by:

                                  i.    the packaging on the Product (i.e. the instructions on the packaging requiring the Product to be baked, and the description on the back on the packaging labelling the Product as a 'dessert');

                                 ii.    the Product's placement with other desserts in supermarkets, more specifically, desserts that are traditionally served warm, such as apple pies;

The use of the Product as a warm dessert is a feature shared in common with apple pies. The history of the Product also suggests that the crumble topping evolved as an alternative to traditional pastry (i.e. as used in traditional pies) during World War II rationing.

f.      Advertising / marketing: The Product is marketed and advertised as a dessert, in a similar manner to fruit pies.

The Product has some characteristics that may not be typically associated with a pie. In particular:

a.    The topping lacks the typical smooth appearance of a pastry;

b.    Due to the absence of a smooth pastry topping, the manufacturing method for the Product is different from that of a pie which has a smooth pastry topping. According to the manufacturing method for the Product, the crumble is 'deposited' on to the top of the filling.

c.     The Product, once served, also lacks structure and does not hold shape. We consider this factor does not weigh for or against the Product being a pie, as some pies will not be able to hold their structure or shape upon serving, depending on the composition of the filling.

However, and despite these potential differences from a particular perspective of typical pie characteristics, it does not follow that the Product is not considered to be a pie in the ordinary sense. On balance, it is considered that the Product is a pie within the ordinary meaning of the term.

Is the Product 'of a kind of pie'?

More importantly however, the key question to be answered after examining the characteristics of the Product is not whether the Product is simply a 'pie' but whether it is also 'of a kind' of pie. As noted by the Full Federal Court in Lansell 2011, those words add further generality to the categories included in Schedule 1 and thus a product that does not possess all of the same characteristics of the items described in the Schedule may nevertheless come within the genus, class or description.

The Full Federal Court in Lansell 2011 described the approach to be taken in determining whether a product is 'of a kind' specified in Schedule 1. The Full Court agreed that with the Primary Judge that:

Where the question to be answered as to the characterisation or classification of a product is one of fact and degree, as it was for biscuits in Ferrero, Lord Wolf MR said that it is a "perfectly satisfactory statement of the approach" to be taken to consider different characteristics of the product and, if the product has the characteristics of two categories, to place it in a category in which it has sufficient characteristics to qualify (at 885).

The Full Federal Court continued:

As Jacob LJ said in Procter & Gamble at [14], this sort of question, being a matter 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'. In a case where scientific analysis does not form part of the characterisation of the product, its classification is not a scientific question.

The test has also been described by Sundberg J in Lansell 2010 and Procter & Gamble, as a matter of impression.

An appropriate approach in the present case is therefore to consider the characteristics of the Product, as compared with the characteristics of the categories in the Schedule, and if the Product has characteristics of two or more categories, to place it in the category in which it has sufficient characteristics to qualify. This analysis does not require any scientific weighing of various factors. It is a question of overall impression.

Given the characteristics of the Product identified above, it is considered that the Product has sufficient qualities to be considered 'of a kind of' pie. 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 Product falls under item 22 in the table in clause 1 of Schedule 1 to the GST Act.

Is the product a kind of pudding or within item 20 of the Schedule?

If the Product is nota 'kind of' pie, it needs to be considered whether the Product is 'of a kind' of food listed in item 20, which lists 'cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings'.

We consider that the Product has sufficient characteristics to be classified under item 20 as a kind of pudding, such that it is not GST-free.

The word 'puddings' in item 20 is not defined in the GST Act. The Macquarie dictionary defines pudding as:

noun 1. a sweet or savoury dish made in many forms and of various ingredients, as flour (or rice, tapioca, or the like), milk, and eggs, with fruit, meat, or other ingredients; often cooked wrapped in cloth or in a round tin and boiled, steamed, or baked.

2.    ...

3.    British a skin filled with seasoned minced meat, oatmeal, blood, etc., and cooked; a kind of sausage.

4. anything resembling a pudding (def. 1), as in texture, etc.

The Australian Oxford Dictionary defines pudding as:

Noun

1. any of various sweet cooked dishes: plum pudding | rice pudding.

• a savoury dish containing flour, suet, etc.: Yorkshire pudding | steak and kidney pudding.

• the sweet course of a meal.

• the intestines of a pig etc. stuffed with oatmeal, spices, blood, etc.: black pudding.

2. (colloq.) a person or thing resembling a pudding.

3. ((Naut.) puddening /ˈpʊdənɪŋ/) a pad or tow binding to prevent chafing etc.

In the United States, puddings are nearly always sweet desserts of milk or fruit juice variously flavoured and thickened with corn starch, arrowroot, flour, tapioca, rice, bread, or eggs. The rarer savoury puddings are thickened vegetable purées, soufflé-like dishes, or like corn pudding, or custards.

However, in Britain, the word 'pudding' is used as a generic term for sweet desserts. In addition to dessert puddings of the American type are boiled puddings of fruit enclosed in a suet crust; steamed puddings made of leavened batter; boiled puddings of sweetened dough or pastry, often mixed with dried or fresh fruit; and rich boiled puddings of which the Christmas plum pudding represents the acme: mixtures of dried fruits (the original dried plums having been replaced by raisins and currants hundreds of years since), candied fruit peels, spices, breadcrumbs, chopped suet, eggs, and brandy or other spiritous flavouring.

The above suggests that 'pudding' encompasses a range of sweet dishes made with various ingredients, which can be cooked, boiled, steamed, or baked. Sweet puddings are most often made with flour, milk and/or eggs, with or without fruit or other ingredients, with some puddings being enclosed in a flour-based crust or mixed with flour, or eggs, etc.

In the present case, the Product has a number of characteristics of a 'pudding', specifically;

a.    Preparation - the Product is a baked dish, and puddings are 'often cooked'.

b.    Ingredients - the Product has a sweet filling of fruit, which is soft and lumpy but does not have structure. The Product is covered on top and on its sides by a crumble. We note that some puddings are enclosed in a type of crust, sprinkled with breadcrumbs. The fruit filling is common for puddings. The Product contains flour / starch.

c.     Use - the Product is consumed as a warm dessert, which is common with puddings.

d.    Appearance - the prepared Product lacks structure and form, similar to pudding dishes such as rice pudding.

e.    Display - the Product in supermarkets alongside other frozen desserts that might also be considered puddings, for example, sticky date puddings.

However, there are some features that distinguish the Product from puddings. In particular, the Product does not contain some ingredients that are usually found in puddings, such as milk and/or eggs. We note, however, that some puddings do not contain milk and/or eggs.

Nevertheless, given the Product's:

a.    appearance and physical attributes;

b.    use as a dessert;

c.     ingredients; and

d.    display,

We also consider that the Product fits within the broader genus of foods listed in item 20, which are generally considered to be various types of dessert.

The foods listed in item 20 generally have the following features:

a.    Ingredients - the foods are commonly sweet products, which contain sugar or are sweetened, and contain starch;

b.    Preparation / serving - the foods are served as a dessert dish;

c.     Display - the foods are displayed in bakery sections of supermarkets; or in the frozen desserts section.

The Product possesses the above features. For the reasons set out above, falls within the same class of a number of the foods listed in item 20.

However, based on the marketing / display of the product, and the ingredient similarities, it is considered that the Product is best considered a 'pie or kind of pie' rather than 'falling within item 20'.

Importantly however, and in either case, the Product would not be GST-free.