Edited version of private advice

Authorisation Number: 1051963493180

Date of advice: 28 March 2022

Ruling

Subject: GST classification of food products

Question

Is the supply of the specified food products ("Products") a GST-free supply 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 are registered for GST.

You have recently developed the Products. The Products are marketed as an alternative to a specified type of food product which is GST-free (the specified GST-free food product).

You provided details of the Products and their packaging including samples of the Products.

The Products are made from ingredients similar to the ingredients used to make extruded snacks.

The Products are bite sized and have a certain shape.

The Products are salty and come in a number of flavours.

The Products have a light and airy texture and are crunchy and crispy to the bite.

The Products are packaged in non-resealable bags of X grams.

You use the extrusion process to manufacture the Products. The manufacturing process was specifically augmented to produce a food product similar to the specified GST-free food product.

The Products are marketed similar to the way that the specified GST-free food product is marketed.

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 15

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 not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

The supply of the Products is a supply of food of a kind covered under item 18 of Schedule 1 to the GST Act (item 18) and therefore it is not a GST-free supply.

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 as:

(1) Food means any of these, or any combination of any of these:

(a) food for human consumption (whether or not requiring processing or treatment);

(b) ingredients for food for human consumption;

(c) *beverages for human consumption;

(d) ingredients for beverages for human consumption;

(e) goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings);

(f) fats and oils marketed for culinary purposes; ...

The Products are food for human consumption under 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 third column of the table in clause 1 of Schedule 1 to the GST Act (Schedule 1). As such, the issue is whether the Products are 'food of a kind' specified in Schedule 1.

The food category in Schedule 1 that is relevant for consideration is 'savoury snacks', which states:

The Products are not food of a kind specified in item 15 of Schedule 1 (item 15) or item 16 of Schedule 1 (item 16).

Therefore, what needs to be determined is whether the Products are food of a kind covered by item 18. Item 18 specifies 'food similar to that covered by item 15 or 16 whether or not it consists wholly or partly of any vegetable, herb, fruit, meat, seafood or dairy product or extract and whether or not it is artificially flavoured'.

The word 'similar' is not defined in the GST Act. Macmillan Publishers Australia, The Macquarie Dictionary Online, www.macquariedictionary.com.au, accessed 28 February 2022, defines the term as:

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

The foods listed in item 15 are snack foods that have undergone a process and share certain characteristics such as crispness.

A number of cases have dealt with classification of food products. In Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329 (Lansell House 2010), the 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 noted 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 to establish the nature and character of the product.

Sunberg J concluded at paragraphs 108 and 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 ...

On appeal, the Full Federal Court in Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6 (Lansell House 2011), upheld the Federal Court's decision. It also considered the meaning of the words 'of a kind' and noted 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.

At paragraph 30 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'.

To determine whether the Products are covered by item 18 as being similar to the products specified in item 15, we need to consider the characteristics of the Products and form an overall impression.

Appearance

Extruded snacks are available in a variety of shapes and sizes including shapes similar to the shape of the Products. The Products are bite sized and can be eaten in the same manner as the products listed in item 15.

Texture

Snacks manufactured using the extrusion process come in different densities.

We consider that the texture and consistency of the Products when eaten is like that of many other extruded snack products. The Products have a light and airy texture and are crunchy and crispy to the bite similar to other puffed or extruded snack products on the market.

Taste

The Products are salty and come in a number of flavours.

We consider that the taste of the Products is similar to other snack products that fall under item 15 and item 18.

Ingredients

The wording of item 18 indicates that a product may be similar to food covered under item 15 even if it consists wholly or partly of other ingredients such as vegetable, herb, fruit, meat, seafood or dairy product. Therefore, item 18 is not restricted to ingredient of foods specified in item 15 or item 16. In addition, as pointed out by the Full Federal Count in Lansell House 2011, '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 1...Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item'.

The Products are made from ingredients which are similar to the ingredients used in a variety of snacks particularly in extruded snack products.

Packaging

Snack foods come in wide range of packaging types and sizes. Many come in non-resealable bags.

We consider that the size and type of packaging used for the Products is similar to the packaging of many snack foods available on the market.

Manufacturing process

We acknowledge that the extrusion process may be used to produce food other than snack food. However, in this case we consider that the extrusion method was used to produce a snack food that is covered under item 18.

Marketing

The Products are marketed similar to the way that the specified GST-free food product is marketed.

We consider that the products have sufficient characteristics similar to extruded snacks to be considered a snack food regardless of being marketed as an alternative to the specified GST-free food product.

The Products come in small snack sizes. The packaging of the Products is similar to the packaging of other puffed snack products. The Products are made using the extrusion process used to make extruded snacks. The Products are made from similar ingredients used in making extruded snacks. The Products are salty and flavoured similar to some snack foods on the market. The Products have the texture of other extruded snack products. That is, they are crispy and crunchy to the bite and have a light and airy interior like other puffed/extruded snacks.

While the Products may not possess all the same characteristics of foods specified in item 15, the word 'similar' in item 18 and the words 'of a kind' in paragraph 38-3(1)(c) of the GST Act add further generality to the description of food covered by item 18. Therefore, taking all the above factors into account, on balance, we consider that the overall impression is that the Products have sufficient characteristics to come within the genus, class or description of products that are covered by item 18 as being similar to the products covered by item 15.

The supply of the Products therefore 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
• you supply the Products in Australia
• you are registered for GST, and
• the supply of the Products is neither GST-free nor input taxed.