Edited version of private advice

Authorisation Number: 1051983007237

Date of advice: 16 May 2022

Ruling

Subject: GST classification of small jelly product

Question

Is the supply of the jelly product GST-free?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You sell a specified jelly product (the Product).

You provided a sample of the Product.

The ingredients of the Product include, among other things, water, sugar flavours and colour.

The Product comprises of very small amounts (X grams) of sweet ready to eat jelly, that are individually enclosed in small colourful containers (jelly packs).

The jelly packs are a certain shape and size.

The jellies in the packs come in a variety of colours and flavours.

The Product comprises of X number of jelly packs that are packaged together in a brightly coloured packet.

The information and bright colourful images printed on the packet and the individual jelly packs indicate that they are designed to appeal to children.

The jelly packs are intended to be eaten by opening the packs and squeezing the content directly from the pack into the mouth of the consumer.

The Product is stored at room temperature and is ready for consumption.

The Product is listed on your website at www.ettason.com for sale.

You do not have any marketing material for the Product.

The price for the Product is $X.

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 section 38-4

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

Reasons for decision

Summary

The Product is covered by item 8 in the table in clause 1 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as food of a kind marketed as confectionary. The supply of the Product therefore is not GST-free under section 38-2 of the GST Act.

The supply of the Product 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 follows:

(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 Product is 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).

The courts' approach to food classification issues for GST purposes

In Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329, 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 products.

On appeal, the Full Federal Court (in Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6), 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. The question is whether the product being considered comes within the genus, class or description of an item described in Schedule 1.

The factors that may be relevant when considering the overall impression of a food product for the purpose of its GST classification include the following:

•                    appearance

•                    texture

•                    size, shape, weight, volume

•                    ordinary and trade meaning

•                    preparation and manufacturing process

•                    display location in a retail outlet

•                    labels/packaging/marketing

•                    ingredients

•                    shelf life

•                    intended use of the product

•                    storage requirements

•                    taste

In this case item 8 of Schedule 1 (item 8) is relevant for consideration. Item 8 covers:

•                    confectionery

•                    food marketed as confectionery

•                    food marketed as ingredients for confectionery, or

•                    food consisting principally of confectionery

Confectionary and food marketed as confectionery

There are a number of court cases that assist in determining whether a product is confectionery. The reasoning in Zeroz Pty Ltd v DFC of T 97 ATC 4277 and the decisions in Allied Mills Industries v FC of T 87 ATC 4387 and Candy Maid Confections v Customs & Excise Commissioners (1969) 1 Ch. 6111 lead to the conclusion that the word 'confectionery' must be given its ordinary meaning.

Aickin J in the High Court decision Landau and Anor. v Goldwater and Anor. 13 ALR 192 gave a general description of confectionery as follows:

... It is a word of common usage which embraces a wide variety of articles, many readily recognisable as examples of confectionery...They are primarily small articles of a sweet character containing substantial amounts of sugar and regarded as being in the nature of a delicacy in whatever quantity they may be consumed. There is, however, no doubt that in the ordinary parlance the term would now include blocks of chocolate, however small or however large.

Further to the above, a product is covered by item 8 if the product is 'marketed as confectionary'.

When considering whether food is marketed as a confectionery the activities of the seller are relevant. Consideration is given to the following:

•                    the name of the goods

•                    the price of the goods

•                    the labelling on any containers for the goods

•                    literature or instructions packed with the goods

•                    how the goods are packaged

•                    how the goods are promoted or advertised

•                    how the goods are distributed.

In the current case, the Product is called by a specified name. The Product is comprised of X number of small jelly packs that are packaged in a brightly coloured packet.

The jellies in the jelly packs come in a number of colours and flavours. Each jelly pack contains X grams of sweet ready to eat jelly.

The small amounts of jelly are placed in colourful packs of a certain shape and size.

The information and bright colourful images printed on the packet and the individual jelly packs are designed to appeal to children.

The jelly packs are small articles of sweet character. They are intended to be eaten by opening the packs and squeezing the content directly from the pack into the mouth of the consumer.

The sale price of the Product is $x.

The nature of the Product, its packaging and labelling indicate that the Product is marketed as confectionary and mainly targeted at children.

Taking into account all the above information we consider that the overall impression is that the Product comes within the genus, class or description of food of a kind marketed as confectionary and therefore covered by item 8.

As the Product is 'of a kind' specified in Schedule 1, the supply of the Product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. The supply of the Product therefore is a taxable supply.

We note that a product called Pencil Jelly was considered in the UK case, Unibev Ltd [2004] BVC 4053, and it was determined that the Pencil Jelly was confectionary as it was considered to be a 'sweetened prepared food which is normally eaten with the fingers'.

We acknowledge that the UK law expressly states that 'confectionary includes...any item of sweetened prepared food which is normally eaten with the fingers', whereas the GST Act does not include such a description for confectionary. However, the GST Act specifies that food of a kind that is marketed as confectionary is not GST-free.

We also acknowledge that the Detailed Food List provides that jelly is GST-free. However, the Detailed Food List is limited in its descriptions of both the product and the reason why a particular section of the law applies. Where jelly is marketed as confectionary, as in this case, the supply of the jelly is not GST-free.