Edited version of private advice

Authorisation Number: 1051934984756

Date of advice: 22 August 2022

Ruling

Subject: GST and oats and yoghurts

Question 1

Is the supply of the Yoghurt Products a GST-free supply of food pursuant to Subdivision 38-A of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Question 2

Is the supply of the Oats Products a GST-free supply of food pursuant to Subdivision 38-A of the GST Act?

Answer

No.

Relevant facts and circumstances

You are an online food retailer predominantly delivering meal packs, snacks and beverages to customers under prepaid meal plans.

The Products are exclusively sold online through your website and delivered directly to the customers. The range may be added to an existing meal plan or as part of a new meal plan for customers. The Yoghurt Products require refrigeration for their storage.

The Yoghurt Products

The Protein Yoghurt products are packed in a plastic container with two separate compartments (each is sealed with a foil cover) for:

• the yoghurt (the larger compartment), and
• the yoghurt topping (i.e. fruit, nuts, seeds, chocolate chip etc.), this is contained in a smaller compartment with a transparent cover, which acts as a lid.

Consumers pour and mix the yoghurt toppings into the yoghurt prior to consumption using the customer's own implements to eat. The ingredients differ across the Protein Yoghurt range, but all have yoghurt and can include a combination of a variety of fruits, nuts and/or choc chips.

The weight is Xg and the cost is $Y.

The Oats Products

are packed in a plastic container with two separate compartments (each is sealed with a foil cover) for:

•         the oats blend: rolled oats and pea protein (the larger compartment), and

•         the oats topping (i.e. fruit, nuts, seeds, chocolate chip etc.), this is contained in a smaller compartment with a transparent cover, which acts as a lid.

All the seeds and nuts in the relevant yoghurts and oats range are unflavoured and unprocessed and are not of a kind that have been processed or treated by salting, spicing, smoking or roasting or in any other similar way for the purposes of item 16 of Schedule 1 of the GST Act.

Pea Protein information:

This is one of the ingredients in the smaller compartment (which contains the yoghurt topping) of each Yoghurt Product and also in the larger compartment (which contains the rolled oats) of each Oats Product. The samples of pea protein show that the pea proteins are small, crispy, puffy, have a light crunchy texture with a very mild pea flavour and melt in the mouth.

Raspberry Flavoured Kibbles

These are raspberry flavoured toffee, made by amanufacturer of confectionery inclusion products. They contain sweetener.

Caramel Flavoured Kibbles

These are caramel flavoured confectionery, made by amanufacturer of confectionery inclusion products. They contain sweetener.

Chocolate Chips

The dark chocolate chip is a product with overall characteristics of roasted with a slightly bitter note in chip form. They have no sugar added but contain sweetener.

Relevant legislative provisions

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)(a)

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

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 Paragraph 38-4(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 1

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 2

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 3

Reasons for decision

Summary

The supply of the Yoghurt Products is not GST-free, the Products satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act but are excluded from being GST-free due to paragraph 38-3(1)(c) of the GST Act. The Products are food which are a combination of one or more foods at least one of which (chocolate chip and/or protein pea ) is food of a kind specified in Schedule 1 of the GST Act (Schedule 1).

Alternatively, the Yoghurt Products are food of a kind that is marketed as a prepared meal, therefore not GST-free pursuant to paragraph 38-3(1)(c) and item 4 in Schedule 1 to the GST Act (item 4).

The supply of the Oats Products is not GST-free, the Products satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act but are excluded from being GST-free due to paragraph 38-3(1)(c) of the GST Act. The Products are food which are a combination of one or more foods at least one of which (protein pea, raspberry kibble, choc chip, caramel kibble) is food of a kind specified in Schedule 1 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 (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, 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 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 specified in Schedule 1.

You contend that the Products are a combination of one or more foods, none of which is a product under Schedule 1, hence the Products should be treated as GST-free insofar as there are no other applicable exclusions under section 38-3 of the GST Act.

Combination arguments:

This is the description of the Yoghurt Products:

•         Consisting of yoghurt, sweeteners and flavouring

•         Packaged in a plastic container which has two moulded compartments, each compartment is sealed by a tin foil cover (which is peeled off prior to consumption).

•         The wet foods (i.e. yoghurt and other items pre-mixed into the yoghurt) are contained in the larger compartment.

•         The yoghurt topping/dry foods are contained in the smaller transparent compartment, which is part of the same container as the yoghurt, for quality control purposes to ensure that the dry foods retain the texture.

This is the description of the Oat Products:

•         Consisting of mixture of rolled oats, pea protein...

•         Packaged in a plastic container which has two moulded compartments, each compartment is sealed by a tin foil cover (which is peeled off prior to consumption).

•         The Oat mixture is contained in the larger compartment.

•         The Oat toppings are contained in the smaller transparent compartment. The oat toppings are added to the oat mixture after the oat mixture has been cooked with water or milk.

As the Products contain more than one type of food, we need to consider whether each food component within the Products is food of a kind specified in Schedule 1 (Element 1).

For each Product, if it contains one of the food items which is of a kind specified in Schedule 1, then we proceed to consider Element 2, which is to determine:

• whether the Product is a supply of a combination of foods to which paragraph 38-3(1)(c) of the GST Act applies; or
• whether it is a mixed supply of GST-free and taxable food.

The Yoghurt Products:

They contain Pea Protein, and one of the Yoghurt products also contains chocolate chips.

Chocolate Chips

Chocolate chip's ingredients consist of sweetener, cocoa solids... It is ingredient for food for human consumption as per paragraph 38-4(1)(b) of the GST Act.

In the Detailed Food List (DFL), which is available on ato.gov.au, there are 5 entries for chocolate chips as follows. (the DFL is a public ruling for the purposes of the Taxation Administration Act 1953):

The above entries imply that chocolate chips are taxable.

We consider that the chocolate chip is food of a kind specified in Schedule 1, Item 8 ('confectionery, food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery) as confectionery, and is excluded from being GST-free by section 38-3 of the GST Act. Hence, the chocolate chip is not a GST-free food under section 38-2 of the GST Act.

Pea Protein:

These products are marketed by the manufacturer as a crunchy source of protein made from pea protein. The texture is crispy, light, airy and crunchy.

It is 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 Schedule 1.

To determine whether the pea protein in question is food of a kind specified in Schedule 1, the items in Schedule 1 that are relevant for consideration are item 15, item 16 and item 18 which state:

Pea Protein is not covered by the foods specified in item 15 or item 16. Therefore, what needs to be determined is if it is covered by item 18.

Item 18 states that 'food similar to that covered by item 15 or item 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' is not GST-free.

The word 'similar' is not a defined term in the GST Act. The Macquarie Dictionary [www.macquariedictionary.com.au], viewed on 15 August 2022, defines the term as:

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

The similar classification argument was unsuccessfully raised by the applicants in the first instance before the Federal Court in Lansell House Pty Ltd & Anor v FCT 2010 ATC 20-173. This case considered whether a product known as 'mini ciabatte' was taxable. The product was imported and described on its packaging as 'Italian flat bread'. Sundberg J dismissed the 'similar classification arguments' (see paragraph 107) and concluded at paragraphs 108 to 109:

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....

Further, the use of the words 'of a kind' in paragraph 38-3(1)(c) has also 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 construed narrowly. See Lansell House Pty Ltd & Anor v. FCT 2011 ATC 20-239 (Lansell House 2011) at paragraph 30 where the Full Federal Court said:

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.

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 House 2010 at para 73 and Lansell House 2011 at para 33).

In Lansell House 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'.

In this case, it is acknowledged that the ingredients and the manufacturing process of the Pea Protein is not the same as the products listed under item 15 or item 16.

It is also worth noting that the category heading 'savoury snacks' is not an operative part of Schedule 1 (section 182-15 of the GST Act and Note 2 in Schedule 1). As such, the category heading may only be used as an interpretation tool in certain circumstances, for example, where the description of an item listed in Schedule 1 is ambiguous or obscure (paragraph 182-10(2)(c) of the GST Act). In this case, the meaning of item 18 is clear and it was intended to widen the scope of food snacks mentioned in item 15 and item 16.

Item 18 is very wide in scope and broadens the range of food products that are similar to those listed in item 15 or item 16 by specifying that it does not matter what the composition or ingredients of the products are. Item 18 provides that a food product may be similar to food covered under item 15 or item 16 whether or not it consists wholly or partly of any vegetable, herb, fruit, meat, seafood or dairy product. This indicates that a snack does not necessarily have to be savoury, salty or spicy, or to have been made from potato, bacon/pork or prawn or seeds, to be considered food similar to that covered under item 15 or item 16. For example, item 18 may cover a product that is wholly made from fruit depending on the product's overall characteristics. None of the products listed in item 15 or 16 are made from fruit. Such a product would most likely have a sweet rather than a savoury flavour. Also, a snack food made wholly from a dairy product might be covered by item 18 despite the fact that none of the foods specified in item 15 or item 16 are made from a dairy product. Therefore, the interpretation of item 18 is not restricted to the food that is specified in item 15 or item 16.

Also, whilst ingredients, manufacturing process and shape may be a factor in determining whether Pea Protein is 'similar to' snack foods in item 15, they will not, of themselves, be determinative. As stated in Lansell House 2011 at paragraph 30, a new product that does not possess all the same characteristics of a known item listed in Schedule 1 may nevertheless be within the relevant item; the question is whether the resulting product comes within the genus, class or description of that known item.

Accordingly, in the current case, to determine the classification of Pea Protein we need to consider the characteristics of Pea Protein. In this case, the Pea Protein:

• is made from ingredients similar to other similar savoury snack products
• is produced using similar processing techniques as other similar savoury snack products
• is crispy and crunchy to the bite and have the texture and many other characteristics similar to other savoury snack products; and
• is marketed as a crispy crunchy food product.

Taking all the above factors into account, we consider that the Pea Protein possess the characteristic of snack foods mentioned in item 15. That is, the 'overall impression' is that they are similar to foods specified in item 15.

In summary, the Pea Protein exhibits characteristics similar to food items listed under item 15, being small, dry, crispy, crunchy snacks that have a likeness or resemblance in a general way to such food items. The Pea Protein is food of a kind specified in item 18 of Schedule 1 as it is similar to food listed under item 15. The supply of the Pea Protein therefore is not GST-free.

Summary for the Yoghurt Products

All products in the Yoghurt Products range contain Pea Protein, which is food of a kind specified in item 18 of Schedule 1 as it is similar to food listed under item 15. A supply of Pea Protein is excluded from being GST-free by section 38-3 of the GST Act.

In addition, one of the Yoghurt Products containsChocolate Chips which is food of a kind specified in item 8 of Schedule 1. A supply of Chocolate Chips is excluded from being GST-free by section 38-3 of the GST Act.

Oat Products:

Now we discuss the Oats products below. The following ingredients contained in the Oat Products are not GST-free:

Chocolate chips are not GST-free as discussed above.

Raspberry Flavoured Kibbles

These are raspberry flavoured toffee, made by amanufacturer of confectionery inclusion products. They contain sweetener.

Caramel Flavoured Kibbles

These are caramel flavoured confectionery, made by amanufacturer of confectionery inclusion products. They contain sweetener.

We consider that the 'overall impression' of the Raspberry Flavoured Kibbles and theCaramel Flavoured kibbles is that they are food of a kind specified in item 8 (confectionery, food marketed as confectionery, food marketed as ingredients for confectionery, or food consisting principally of confectionery) as confectionery, and are excluded from being GST-free by section 38-3 of the GST Act. Hence, they are not GST-free food under section 38-2 of the GST Act.

Summary for the Oat Products

The Oat Products range contain Pea Protein, which is food of a kind specified in item 18 of Schedule 1 as it is similar to food listed under item 15 of Schedule 1. A supply of Pea Protein is excluded from being GST-free by section 38-3 of the GST Act.

In addition, the Oats contain confectionery items which are food of a kind specified in item 8 of Schedule 1 such as: Chocolate Chips, Raspberry Flavoured Kibbles, Caramel Flavoured Kibbles.

A supply of Chocolate Chips, or Raspberry Flavoured Bits, or Caramel Flavoured Bits is excluded from being GST-free by section 38-3 of the GST Act.

Element 2 - Combination supply or mixed supply

As all Products contain food components that, if sold separately would not all be GST-free, we need to determine whether the supply of the Products is:

•         excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act, being a combination of one or more foods at least one of which is food of a kind specified in the third column of the table in clause 1 of Schedule 1; or

•         a mixed supply that has separately identifiable taxable and non-taxable parts.

Mixed supply:

According to Goods and Services Tax Ruling GSTR 2001/8, a 'mixed supply' is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised.

Further, paragraph 14 of Goods and Services Tax Ruling GSTR 2001/8 states:

14. On the other hand, a supply that may at first appear to be a combination of taxable and non-taxable parts is not such a combination if it is given a specific treatment under the GST Act. For example, a supply consisting of a combination of foods that comes within paragraph 38-3(1)(c) is not a mixed supply (that is, a combination of taxable and GST-free parts) because the whole supply is treated as food that is not GST-free.

Combination of food

Paragraph 38-3(1)(c) of the GST Act provides that the supply of food that is a 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 is taxable.

The term 'combination' is not defined in the GST Act.

The Macquarie Dictionary (1997) defines 'combination' to mean '1. the act of combining. 2. the state of being combined. 3. a number of things combined.' 'Combine' is defined in The Macquarie Dictionary (1997) to include 'to bring or join into a close union or whole; unite; associate; coalesce.'

Therefore, food that is a 'combination of one or more foods' could be either a number of food items joined or mixed together to make a single product or a number of food products that are merely sold together. As the word 'combine' could be interpreted in more than one way, the meaning of the phrase 'food that is a combination of one or more foods' in paragraph 38-3(1)(c) of the GST Act is unclear.

Subsection 15AB(1) of the Acts Interpretation Act 1901 provides that consideration may be given to material not forming part of an Act for particular purposes including 'to determine the meaning of the provision when the provision is ambiguous or obscure....'. Paragraph 15AB(2)(e) of the Acts Interpretation Act provides that any explanatory memorandum relating to the Bill containing the provision is extrinsic material that may be considered for this purpose.

Paragraph 1.17 of the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (EM) states:

Food that is a combination of one or more foods, at least one of which is food of a kind specified in the table in new Schedule 1A of the Bill (prepared food, confectionery, savoury snacks, bakery products, ice-cream food and biscuit goods) is not GST-free. For example, a snack pack containing cheese and biscuits is not GST-free because it contains at least one type of food specified in new Schedule 1A (biscuits)...

Paragraph 1.18 of the EM clarifies the intended scope of this provision by stating:

The exclusion in the above paragraph would not apply where a mix of packaged goods is packed and sold together (eg. a hamper containing a packet of biscuits, box of chocolate and a jar of coffee). These items would be taxed individually (ie. Biscuits and chocolates subject to tax and the coffee GST-free.

We consider that if a food has separately identifiable components, then the food product can be a combination of foods. However, this view does not extend to foods sold together but are independent of each other such as foods that make up a hamper as described in the EM.

Also, it is our view that the time for determining whether the components of the food are separately identifiable, is at the time of supply, rather than examining the intention at the time of consumption.

In the current case, at the time of supply, each Product is packaged in a plastic container which has two moulded compartments, each compartment is sealed by a tin foil cover (which is peeled off prior to consumption).

The Yoghurt Products:

•         Consisting of yoghurt, sweeteners and flavouring

•         Are packaged in a plastic container which has two moulded compartments, each is sealed by a tin foil cover (which is peeled off prior to consumption).

•         The Yoghurt topping/dry foods and include foods which are taxable such as pea protein (item 18 of Schedule 1), and chocolate chips (item 8 of Schedule 1).

•         The Yoghurt topping/dry foods are provided in a separate compartment, which is part of the same container as the yoghurt, for quality control purposes to ensure that the dry foods retain the crunchy texture.

The Oat Products:

•         Are packaged in a plastic container which has two moulded compartments, each is sealed by a tin foil cover (which is peeled off prior to consumption).

•         The Oat Products include foods which are taxable such as Pea Protein (item 18 of Schedule 1), and confectionery items (item 8 of Schedule 1) such as Chocolate chips, Caramel flavour kibbles, and Raspberry flavoured kibbles.

The oat toppings are added to the oat mixture after the oat mixture has been cooked with milk or water.

In all Products, there are two sealed components, and the components of each Product are packaged together in a plastic container to be supplied as one single item. At the time the Yoghurts Products and Oats Products are supplied, the ingredients retain their separate identities. The Products are identifiable as protein yoghurt and yoghurt toppings, and protein oats and oat toppings respectively.

The Yoghurt Products are also described as yoghurt with the dry foods. For example, the description on the website as well as on the labelling mentions the ingredients separately:....

The name, description and marketing demonstrate that when the Products are supplied, the components in each Product have their separate identities, in particular the ingredient Protein Pea in the dry foods.

The physical appearance of the Yoghurt Products also support that the components have separate identities. Hence the Yoghurt Products fall within the meaning of a food that is a combination of one or more foods at least one which is taxable (the Pea Protein and the Chocolate Chips). The supply of the Yoghurt Products falls within 38-3(1)(c) of the GST Act and therefore is taxable.

Similarly, the description of the Oat Products on the website as well as on the labelling mentions the ingredients separately. The Oat Products are described on the labelling as:....

The name, description and marketing demonstrate that when the Oat Products are supplied, the components in each Oat Product have their separate identities.

The physical appearance of the Products also support that the components have separate identities. The taxable Protein Pea in the Oat Products has been discussed above. In addition, the Oat Products also consist of the taxable Chocolate Chips, Raspberry Flavoured Kibbles and Caramel Flavoured Kibbles.

Hence the Oat Products fall within the meaning of a food that is a combination of one or more foods at least one which is taxable. The supply of the Oat Products falls within 38-3(1)(c) of the GST Act and therefore is taxable.

Composite supply

For completeness, we consider that, but for paragraph 38-3(1)(c) of the GST Act the supply of all the Products could be considered a composite supply as per the various principles in GSTR 2001/8, such as paragraph 59.

As per the view in paragraph 19 of GSTR 2001/8, in this situation, paragraph 38-3(1)(c) of the GST Act requires the whole supply of the Products to be treated as a taxable supply despite having taxable and GST-free components. These Products are a food that is a combination of one or more foods, at least one of which is food of a kind listed in the third column of the table in Schedule 1. As such, paragraph 38-3(1)(c) of the GST Act specifically requires different treatment of the components of a transaction, and they must be separately recognised.

The Yoghurt Products - prepared meals for GST purposes

Alternatively, we consider the three Yoghurt Products satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act but are excluded from being GST-free as they are food of a kind specified in item 4 of Schedule 1 of the GST Act (''food marketed as a prepared meal, but not including soup').

Prepared meal

Approach to food classification issues- an overall impression

The Federal Court (in the first instance) in Lansell House Pty Ltd & Anor v FCT [2010] FCA 329 (Lansell House 2010) considered whether a product known as 'mini ciabatte' was taxable.

Sundberg J concluded at paragraphs 108 to 109 that the product was not GST-free as follows:

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] FCAFC 6 (Lansell House 2011) held that the primary judge had not erred and dismissed the appellants' appeal. The Full Federal Court endorsed Sundberg J's approach to food classification. At paragraph 24 the court stated:

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). 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.

This approach was endorsed by the Full Federal Court in Comptroller General of Customs v Pharm-A-Care Laboratories Pty Ltd [2018] FCAFC 237 as follows at paragraph 24(2):

Secondly, subject to statutory context, function or purpose, courts should be cautious of subjecting words in legislation that have an ordinary everyday meaning to intensive analysis. Decision-makers should use "their local knowledge, experience of the world and common sense, to give a sensible interpretation" to the words used; an appellate court "required to review such decisions should endorse those that have been reached and confirmed in this way": Lansell House Pty Ltd v Federal Commissioner of Taxation [2010] FCA 329; 76 ATR 19 ("Lansell House") at [57] per Sundberg J (upheld on appeal at (2011) 190 FCR 354 per Bennett, Edmonds and Nicholas JJ); Seay v Eastwood [1976] 1 WLR 1117 ("Seay v Eastwood") at 1121 per Lord Wilberforce.

Consistent with the above approach is the leading Sales Tax decision in respect of the classification of food, by the High Court in Herbert Adams Pty Ltd v. FCT 47 CLR 222. The issue in this case was whether the product at issue described as 'sponge' was 'pastry but not including cakes or biscuits'. The taxpayer sought to argue that with reference to the trade meaning, sponge was a pastry and not a cake. The High Court in finding for the Commissioner, accepted the ordinary meaning of cake which included sponge.

Evatt J at pages 229-230 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.

What is required in food classification cases, as the courts inform us, is a common sense, practical approach to form an overall impression. Not an overly pedantic, highly legal or scientific analysis.

Food marketed as a prepared meal

Relevant to paragraph 38-3(1)(c) and the three Protein Yoghurt Products, is the category of 'Prepared food' in Schedule 1 and more specifically, Item 4 which is:

*food marketed as a prepared meal, but not including soup

Relevant to prepared food and meals, are clauses 2 and 3 of Schedule 1 which state:

2 Prepared food, bakery products and biscuit goods

For the purpose 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 matterwhether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

3 Prepared meals

Item 4 in the table only applies to *foodthat requires refrigeration or freezing for its storage.

The Yoghurt Products require refrigeration for its storage. Clause 2 and clause 3 of Schedule 1 are satisfied, and they do not preclude the Yoghurt Products from being covered by Item 4.

As such, it is necessary to consider whether the Yoghurt Products are food 'of a kind' that is 'marketed as a prepared meal'.

Meaning 'of a kind'

The phrase 'of a kind' is not defined in the GST Act, but was discussed in Lansell House 2010. Sundberg J reviewed the relevant authorities, including Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 (Air International), and at paragraph 19, he agreed with the comments of Tamberlin J in that case, that the words 'of a kind' added something to the word '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]:

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.

...

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'.

In Lansell House 2011, the Full Federal Court was satisfied that mini ciabatta was 'of a kind' of the cracker genus, after taking into account the characteristics of the product. At paragraph 30 the court stated:

...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.

Meaning of 'prepared meal'

The term 'prepared meal' is not defined in the GST Act and will therefore bear its ordinary meaning.

Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au, accessed 24 September 2021, defines 'prepare' in relation to food as:

2. to get ready for eating, as a meal, by due assembling, dressing or cooking.

and 'meal' as:

noun 1. one of the regular repasts of the day, as breakfast, lunch, or dinner.

2. the food eaten or served for a repast.

Essentially therefore, a prepared meal would be a 'repast ready for eating'.

The Products would be within the meaning of this broad description as the Products are food that is already prepared ready for eating. That is, the Products are supplied as a prepared meal as ordinarily understood. This definition could be applied to a single food item or to a meal consisting of several food items.

The ATO view on prepared meal is provided in the Food Industry Partnership - Issue Register - Issue 5:

https://www.ato.gov.au/Business/GST/In-detail/GST-issues-registers/Food-Industry-Partnership---issues-register/?page=5#Issue_5, which deals with the interpretation and application of Item 4 as follows:

Issue 5 ...

What is a prepared meal?

Clause 1, Item 4 of Schedule 1 of the GST Act operates to subject the following to GST:

'food marketed as a prepared meal, but not including soup'. The Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 ('the EM') provides that the term 'prepared meal' is intended to cover a range of food products that:

•         directly compete against take-aways and restaurants;

•         require refrigeration or freezing for storage (clause 3 of Schedule 1); and

•         are marketed as a 'prepared meal'.

Directly compete against take-aways and restaurants

The EM states that the category of 'prepared food' is intended to cover a range of food products that directly compete with takeaways and restaurants.

The Yoghurt Products are delivered directly to the customers after customers order them online. The Yoghurt Products are listed under 'Breakfast' on your website. The Yoghurt Products are supplied ready for consumption as consumers can peel off the cover, pour and mix the dry foods/ crunch in the smaller compartment into the yoghurt in the larger compartment, and eat from the container. The Yoghurt Products are marketed as a prepared dish and are a reasonable alternative to prepared meals offered by takeaways/restaurants for breakfast.

We consider the Products compete with products sold in take-aways and restaurants.

Requires refrigeration or freezing for storage

As stated above, the Yoghurt Products require refrigeration for its storage, and therefore meets the requirement of clause 2 of Schedule 1.

Marketed as a 'prepared meal'

Item 4 contains a marketing test, therefore we need to determine if the Products are marketed as a prepared meal.

Marketing in a GST context

The Federal Court decision of Cascade Brewery Company Pty Ltd & Anor v FCT 2006 ATC 4339 (Cascade) considered marketing in a GST context. Specifically, whether Ultra-C (the product at issue) was 'marketed principally as food for infants or invalids' so that it would fall within Item 13 of Schedule 2 and be classified as GST-free.

It is perhaps worth noting that the use of 'principally' in Schedules 1 and 2 creates a higher test as it is included as an additional qualifier. Item 4 of Schedule 1 is not qualified by the use of 'principally' therefore a lesser standard in terms of the level of marketing activity is required.

In respect of 'marketing' Sundberg J had this to say at paragraphs 11, and 23 to 24:

11. The words "marketed principally as food for infants" in item 13 require an examination of the content of the advertising and other marketing in fact carried out either by the taxpayer or by competitors in the market. The witnesses to whom I have referred spoke somewhat generally about their aims and hopes in respect of the marketing. The relevant findings at [9] are based on the content of the marketing, that is to say, on what a reader of the labels, the Bounty bag brochure and the print advertisements or a viewer of the television advertisements would derive from them. The findings do not entirely accord with the witnesses' evidence about Cascade's aims. That evidence seems to me to have been subconsciously influenced by the existence of item 13 and the purpose of the litigation.

23. I have referred at [11] to one aspect of the word "marketed", about which the parties did not make submissions. Otherwise there does not appear to be any significant difference between their positions on the meaning of the expression "marketed principally". Cascade adopted the approach published by the Commissioner in SST11 - Sales tax: a guide to the classification of goods under the sales tax law (SST11):

"Marketing principally means the most important or the most significant of all the ways in which the product is marketed. Marketing involves an examination of the activities of the sellers of the relevant goods."

The document goes on to say that consideration may be given to the name of the goods, their price, the labelling on any containers, literature or instructions accompanying the goods, how they are packaged, how they are promoted or advertised, and how they are distributed.

24. This approach is consistent with the dictionary meanings of "marketing". Thus The Macquarie Dictionary refers to "the total process whereby goods are put onto the market". The Australian Oxford Dictionary refers to "the action or business of promoting and selling products, including market research and advertising".

As confirmed by Sundberg J in Cascade, consideration must be given to your total process in promoting and selling the Products. These include:

a)    The name of the goods

b)    The price of the goods

c)    The labelling on any containers for the goods

d)    Literature or instructions packed with the goods

e)    How the goods are packaged

f)     How the goods are promoted or advertised

g)    How the goods are distributed.

The following factors contribute towards the overall impression that the Yoghurt Products are food marketed as a prepared meal or of a kind of food that is marketed as a prepared meal under Item 4:

Name of the Yoghurt Products

The names identify the Yoghurt Products as more than a yoghurt, the Products contain multiple ingredients that is prepared and ready to eat. We consider that the name of the Products indicates to the consumer that the Products are capable of being a meal and is ready for consumption.

Price of the Yoghurt Products

Each Product Protein Yoghurt weighs Xg and sold at $Y. We consider that the pricing point of the Products is indicative that the Yoghurt Products are marketed as a prepared meal, competing with other breakfast products in the market such as:

........

Taking the above information into account, we consider that the price of the Products is set to attract buyers that may otherwise buy similar products on the market or from takeaways.

Labelling of the Products

All three Yoghurt products have the following words on the labelling: 'Perfect for ON-THE-GO'. This promotes the idea of convenient food, which is a feature of prepared meals.

The labelling mentions the ingredients separately as follows, which promotes the idea of meals...

The labelling indicates that the Products include a variety of ingredients that have been prepared. This is one of the indications that the Products are marketed as a prepared meal.

Literature or instructions packed with the goods

........

The above words and the listed ingredients on the labelling give the impression that the Yoghurt Products as more than a yoghurt, the Products contain multiple ingredients, packed with protein and probiotics, that are prepared and ready to eat.

How the goods are packaged

The Yoghurt products are packed in a plastic container with two separate compartments (each is sealed with a foil cover):

a.    the yoghurt is in the larger compartment, and

b.    the yoghurt topping/dry goods (that is, fruit, nuts, pea protein, seeds, chocolate chips, etc.) are in the smaller compartment.

Customers pour and mix the toppings into the yoghurt prior to consumption using the customer's own implements to eat.

The lid allows customers to see what dry goods are being provided to eat with the yoghurt, this emphasises the multiple ingredients of the products.

Although not a decisive factor, the packaging of the Yoghurt Products show that the Products can be eaten from the container. The Products being Xg is also a similar size to products sold in the market which are promoted as for breakfast meals that would fall under Item 4.

How the goods are promoted or advertised

The labelling on the packaging shows the Yoghurt Products are ready to eat and the ingredient lists show multiple ingredients promoted for a healthy breakfast. The Yoghurt Products are assembled and ready for consumption. Customers just peel back the cover, mix the two compartments and ready to eat.

The following are the marketing of the Yoghurt Products as 'perfect light breakfast' on your website...

The information about the products on your website reinforces the idea that the Yoghurt Products are for convenience and contain enough to fill up a person: ....

How the goods are distributed

The Yoghurt Products are delivered directly to customers after they place their orders online at your website. This indicates a feature of convenience for prepared meals.

The lack of provision of cutlery and serviettes to the consumers does not exclude the Yoghurt Products from being food marketed as a prepared meal.

Conclusion

In summary, the following factors contribute towards the overall impression that the Yoghurt Products are food marketed as a prepared meal or of a kind of food that is marketed as a prepared meal under Item 4:

•         The names indicate the Products as more than a yoghurt, the products contain multiple ingredients that are prepared and ready to eat.

•         The pricing point of the Products is indicative that the Products are marketed as a prepared meal, competing with other yoghurt products on the market, which are being advertised as 'breakfast on the go'.

•         The labelling on the packaging shows the Products are promoted as ...and list the high protein amount. The marketing also refers to 'light breakfast'.

•         The Products are assembled and ready for consumption.

•         Although not a decisive factor, the packaging of the Products shows that the Products can be eaten from the container. The Products being Xg is also a similar size to breakfast products sold ready to consume on the market that would fall under Item 4.

•         The Products were promoted under the breakfast option on a website of a business which deliver prepared meals to consumers to save time for them in the kitchen.

•         The Products are ready for consumption and compete with prepared meals sold in take-aways and restaurants.

Therefore, the Yoghurt Products are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act, since the Yoghurt Products are food marketed as a prepared meal or of a kind of food that is marketed as a prepared meal under Item 4 in Schedule 1 of the GST Act. It follows that the supply of the Yoghurt Products is not GST-free.

Summary

The Products satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act but are excluded from being GST-free due to paragraph 38-3(1)(c) of the GST Act. All the Products are food which are a combination of one or more foods at least one of which is food of a kind specified in Schedule 1 of the GST Act.

Alternatively, the Protein Yoghurt Products are excluded from being GST-free due to paragraph 38-3(1)(c) of the GST Act, since they are food of a kind specified in item 4 of Schedule 1 of the GST Act (''food marketed as a prepared meal, but not including soup').