Edited version of private advice

Authorisation Number: 1052064440797

Date of advice: 5 December 2022

Ruling

Subject: GST and supply of food products

Question

Is your supply of the Products GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You supply food products (the Products) that are manufactured using a process that gives the Products a firm, dry, crispy and crunchy texture.

The Products can be consumed on their own or by combining them with snack mix or trail mix.

You provided us your business website which contain images and information about the Products.

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, section 38-4

Reasons for decision

A supply of food is GST-free under section 38-2 of the GST Act if the product satisfies the definition of food in section 38-4 of the GST Act and the supply is not excluded from being GST-free by section 38-3 of the GST Act.

Food is defined in section 38-4 of the GST Act to include food for human consumption (whether or not requiring processing or treatment- paragraph 38-4(1)(a) of the GST Act).

The Products are food for human consumption and therefore, satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act.

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

The items that are relevant for consideration in this case are item 15 of Schedule 1 (item 15), item 16 of Schedule 1 (item 16) and item 18 of Schedule 1 (item 18) which state:

We do not consider that the Products are covered by the foods specified in item 15.

We do not consider that the Products are covered by the foods specified in item 16 either.

Therefore, what needs to be determined is whether the Products are covered by item 18

'Similar to that covered by item 15 or 16'

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 [Online], viewed on 28 November 2022, www.macquariedictionary.com.au, 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 (Lansell House 2010). This case considered whether a product known as 'mini ciabatta' 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 Ciabatta as an item 32 product was wrong ...

'of a kind' in paragraph 38-3(1)(c) of the GST Act

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 s38-3(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 relation to the Products:

We need to consider whether the Products are similar to the products specified in item 15 or item 16 and therefore are covered by item 18.

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 is clear that 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 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 items 15 and16 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 food 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.

We consider that while ingredients, manufacturing process and shape may be a factor in determining whether the Products are 'similar to' snack foods in item 15 or item 16, 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.

Application to the Products:

To determine the classification of the Products we need to consider the characteristics of the Products.

The Products have a firm, dry, crispy, airy, crispy and crunchy texture. The Products are consumed on their own or as components of a snack mix or trail mix.

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

It should be noted that the GST Act does not provide an exception for foods that are marketed as heathy snacks on the basis that they are all natural, or do not contain any preservatives, artificial flavour or colours.

In summary, the Products exhibit 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 Products fall under item 18 as food that is similar to food listed under item 15. The supply of the Products therefore is not GST-free. The supply of the Products is a taxable supply where all the other requirements of section 9-5 of the GST Act are met.