Edited version of private advice

Authorisation Number: 1052083521973

Date of advice: 06 March 2023

Ruling

Subject: GST and baby rusk

Question

Is the supply of the Product GST-free pursuant to 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 the Product, and it is sold at many stores in the baby section.

Your website and the websites of the retailers market the Product as rice rusk for babies and also as first food and baby snack.

The ingredients include rice and fruit and vegetable powder.

You sent photos of the sample Product in its packaging and the manufacturing process.

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)(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

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.

The Product satisfies the definition of food, as food for human consumption (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 the table in clause 1 of Schedule 1 to the GST Act (Schedule 1).

In this case item 32 of Schedule 1 (item 32) is relevant for consideration. Item 32 states:

Table 1: Food that is not GST-free

Clause 5 of schedule 1 to the GST Act (clause 5) states:

None of the items in the table relating to the category of biscuit goods include:

(a)            breakfast food consisting principally of compressed, rolled or flattened cereal; or

(b)            rusks for infants or invalids, or goods consisting principally of those rusks.

Courts' approach to food classification issues

Meaning of 'of a kind'

The phrase 'of a kind' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The Macquarie Dictionary online, www.macquariedictionary.com.au, (The Macquarie Dictionary),accessed XX September 20XX, does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

noun 1. a class or group of individuals of the same nature or character, especially a natural group of animals or plants.

2. nature or character as determining likeness or difference between things: things differing in degree rather than in kind.

3. a person or thing as being of a particular character or class: he is a strange kind of hero.

4 ...

The phrase 'of a kind' has been the subject of judicial consideration in a number of cases in the context of different legislative provisions.

In Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329 (Lansell House 2010), Sundberg J reviewed the relevant authorities, including Air International Pty Ltd v Chief Executive Officer of Customs [2002] FCAFC 84; 121 FCR 149, and stated at [19]:

... 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.'

Sundberg J also noted, at [20], 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 in that case 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'. At [316] Megaw LJ said:

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'.

In Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6 (Lansell House 2011), the Full Federal Court was satisfied that the mini ciabatta was 'of a kind' of the cracker genus, after taking into account the characteristics of the product as set out by Sundberg J in Lansell House 2010. The Full Federal Court held at [30] that:

... The phrase 'of a kind' has been defined by the Oxford English Dictionary (online edition, Oxford University Press, 2010) as 'of the same sort, not a typical or perfect specimen of the class'. 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 Cascade Brewery Company Pty Limited v Commissioner of Taxation [2006] FCA 821, Sundberg J, in the course of determining the meaning of the phrase 'of a kind' in the context of whether a beverage was 'of a kind marketed principally as food for infant', reviewed the authorities including Hygienic Lily Ltd v Commissioner of Taxation [1987] FCA 155 13 FCR 396 , being one of the authorities upon which the Commissioner relied in his submissions. In Hygienic Lily Ltd v Commissioner of Taxation (1987) FCA 155; 13 FCR 396 , Gummow J, in relation to the question of whether waxed paper cups used by McDonald's Restaurants were 'goods of a kind ordinarily used for household purposes', stated, at 399:

... the setting in which the phrase "goods of a kind" appears suggests it is directed not to the use for which the particular goods in question were designed or manufactured, nor to the purpose to which it is intended those particular goods shall be put, but rather to the nature, quality and adaptation of goods in the class or genus in question. Thus, goods are "of a kind ordinarily used for household purposes" if they are to be recognised as members of a class or genus which commonly or regularly (albeit not necessarily exclusively or principally) is used for household purposes; cf. Customs and Excise Commissioner v Mechanical Services (Trailer Engineers) Ltd [1979] 1 WLR 305 at 312 - 313, 315, 316 - 317.

Accordingly, it is considered that food will be 'food of a kind' specified in schedule 1 if it is food belonging to the same class, genus or description as the food specified in schedule 1.

The overall impression approach

Lansell House 2010 adopted the overall impression test when considering whether a product known as 'mini ciabatte' was taxable. The product was imported and described on its packaging as 'Italian flat bread'.

Sundberg J stated 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 2011, upheld the Federal Court's decision. The Full Federal Court 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 and stated at [24]:

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.

In Lansell House 2011, the phrase 'of a kind' was also considered. The Full Federal Court said, at [30]:

... First, as explained above, there is no bright line test for what is or is not a cracker. Secondly, although the primary judge did not need to consider whether or not Mini Ciabatte is 'goods of a kind' specified in schedule 1 as a cracker, this answers many of the appellants' submissions. The phrase 'of a kind' has been defined by the Oxford English Dictionary (online edition, Oxford University Press, 2010) as 'of the same sort, not a typical or perfect specimen of the class'. 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 [73] and Lansell House 2011 at [33]).

The approach in Lansell House was recently 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.

Based on the meaning of 'of a kind' and the overall impression approach established by the case law as discussed above, what is required in food classification cases, as the courts inform us, is a common sense, practical approach to form an overall impression. Something will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the thing or group in question. A new product that does not possess all of the same characteristics of a known product may nevertheless be within the relevant item.

Therefore, what needs to be determined is whether the Product is of a kind of food belonging to the same class or genus as food specified in item 32 or are 'rusks for infants' and therefore excluded from the category of biscuit goods by clause 5(b).

You contend that the Product is designed and marketed as a teething rusk made from rice, for infants and babies as such clause 5 applies to exclude the Products from being biscuit goods. Therefore, a supply of the Product should be GST-free.

We disagree with your contention.

Whether the product is a rusk

The words biscuits, cookies, crackers, pretzels and wafers specified in item 32 are not defined in the GST Act therefore they will take their ordinary meaning.

Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au,defines biscuit, cookie, cracker, pretzel and wafer as follows:

Biscuit

a.              a stiff, sweet mixture of flour, liquid, shortening and other ingredients, shaped into small pieces before baking or sliced after baking.

b.              a savoury, unleavened similar mixture, rolled, sliced and baked crisp.

Cookie

1.              Chiefly US a biscuit

Cracker

1.              a thin, crisp biscuit.

Pretzel

1.              a crisp, dry biscuit, usually in the form of a knot or stick, salted on the outside.

Wafer

1.              a thin, crisp cake or biscuit, variously made, and often sweetened and flavoured, usually eaten with ice-cream.

2.              a thin piece, usually a disc of unleavened bread, commonly used in the celebration of the Eucharist.

3.              any various other thin, flat cakes, sheets, or the like

Whilst biscuits, cookies, crackers, pretzels and wafers are all defined to be a form of a biscuit, each type of product has certain characteristics that separates it from the other products specified in item 32. These may include things such as ingredients, texture, taste, function and appearance.

The word 'rusk' is also not defined in the GST Act and therefore it takes its ordinary meaning.

The following dictionary definitions assist in determining the ordinary meaning of the word 'rusk':

The Macquarie Dictionary

1.              a type of sweetened tea biscuit.

2.              a piece of bread or cake crisped in the oven.

3.              a similar commercially made product, given especially to babies when teething, and invalids

The Merriam-Webster Dictionary online, https://www.merriam-webster.com/dictionary/rusk viewed on XX February 20XX:

1:hard crisp bread originally used as ship's stores

2:a sweet or plain bread baked, sliced, and baked again until dry and crisp

Oxford University Press, The Australian Oxford Dictionary (2 ed.) online,

https://www.oxfordreference.com/view/10.1093/oi/authority.20110803100433827

viewed on XX February 20XX

Sweetened biscuit or piece of bread or cake crisped in the oven, especially as food for young children when teething.

The Australian Oxford Dictionary (2^nd ed) defines 'rusk' as:

'a slice of bread rebaked usu. as a light biscuit, esp. as food for babies. - origin Spanish or Portuguese rosca 'twist, coil, roll of bread'.'

The meaning of rusk in the Australian Oxford Dictionary aligns with the meanings from Merriam Webster Dictionary (twice-baked bread). It shares some similarities with the Macquarie Dictionary, particularly the references to bread or cake crisped in the oven, or 'rebaked'. Hence, the common elements of the above definitions are that a rusk is a type of bread that is baked (perhaps rebaked) until dry and crisp, especially for babies.

Further, Issue 26 of the Food Industry Partnership Issues Register, https://www.ato.gov.au/Business/GST/In-detail/GST-issues-registers/Food-Industry-Partnership---issues-register/?page=25, characterises rusks as a type of dried bread product that do not fall within item 32. This is consistent with the exemptions for rusks, listed in clause 5.

The Product does not have the characteristics of a rusk for infants as ordinarily understood which is normally a thick, solid, fairly hard dried bread that does not break easily.

Is the Product of a kind of food specified in item 32?

The Product has a special delicate texture that dissolves easily. The Product's marketing is for 6 months old babies and beyond.

The Product has the appearance of rice crackers and the ingredients include rice and fruit and vegetable powders.

After taking into account all of the above factors, the overall impression is that the Product has similar distinguishing qualities and is of the same nature and character as crackers. The Product therefore comes within the class/genus of crackers and fall under item 32.

We note that the Product is sold in the baby section of stores. The marketing aims for babies and there are photos of babies on the packaging of the Product.

We considering that above placement and marketing of the Product being aimed at babies on the package is not decisive that the Product is a rusk. For example, baby and toddler products such as biscuits, puffed snacks, crackers and rusks are usually located in the baby section in the retail store adjacent or close to each other.

We note that snacks and biscuit products for infants and toddlers are generally milder in taste and texture and may have no added sugar, salt or preservatives. However, where such products have sufficient characteristic to qualify as biscuit goods of a kind listed under item 32, they will fall under item 32.

We consider Clause 5 is not intended to exclude from item 32 biscuits, cookies, crackers, pretzels, cones or wafers that are marketed for infants or toddlers. If this was the intention of the Parliament then clause 5 would have specified that biscuit goods of a kind specified in item 32 that are for infants and invalids are excluded from item 32. The fact that clause 5 uses the word 'rusk' which is not specified in item 32, indicates that a rusk is not a biscuit, cookie, cracker or wafer as ordinarily understood.

In summary, the Product exhibits the characteristics of crackers and therefore is of a kind of food specified in item 32. The Product is not excluded by the exemption in clause 5(b) as it is not 'rusks for infants or invalids, or goods consisting principally of those rusks'. The supply of the Product therefore 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 supply of the Product is a taxable supply under section 9-5 of the GST Act.