Lansell House Pty Ltd and Perfek Pty Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (VID 312 of 2010 and VID 313 of 2010; M14-15 of 2011)
Judgment date: 31 January 2011
Date published: 18 November 2011

Summary of decision:
Outlines the ATO's response to this case, which concerned the issue of whether "Mini Ciabatte", is, 'food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers' and therefore is subject to GST.

Overview of facts:
The appellants sold a product imported from Italy, known as Mini Ciabatte, which is described on its packaging as 'Italian flat bread'. The appellants treated the sales as GST-free supplies. | The Commissioner issued assessments to both of the appellants on the basis that the supplies of Mini Ciabatte were subject to GST because it is food of a kind specified in item 32 of the table in clause 1 of Schedule 1 to the GST Act (which lists food that is not GST-free). The appellants objected, claiming that Mini Ciabatte is bread and is GST-free. The Commissioner disallowed the objections and the appellants appealed to the Federal Court. | Issues decided by the court | Issues decided at first instance | The primary judge (Sundberg J) dismissed the appeal. Sundberg J acknowledged that although a product can be "characterised" in more than one way, for the purposes of the GST Act a product can only have one "classification". His Honour therefore took the view that the question to be answered was whether the product falls within item 32 - that is, food that is, or consists principally of, crackers - and that evidence that the product fits within the definition of bread would not be sufficient to establish that it is not a food of a kind listed in item 32. His Honour held that the appellants failed to establish that the product is not food that falls within item 32. | His Honour also held that the words in item 32 are not used in a specialised or trade sense that differs from their ordinary usage, and that it is a matter of overall impression in deciding the proper classification of a product. Finally, his Honour held that a supplier cannot, by a label, govern the classification of a product for the purposes of the GST Act. | Issues decided by the Full Court | On appeal, the Full Federal Court also found that Mini Ciabatte is subject to GST on the basis that the product is food that is, or consists principally of, crackers. | The Court noted that: • The primary judge concluded that the words of item 32 'are ordinary English words in common usage'. • The primary judge considered he was able to form his own view as to the significance of similarities or differences between biscuits, crackers and bread, having regard to the evidence before him. • Various indicia were considered in comparing Mini Ciabatte with crackers and that, with the exception of water and yeast, the ingredients of Mini Ciabatte fell within the ranges of the ingredients for crackers. • The primary judge attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers, on the basis of the appellants' evidence that there may be exceptions with crackers that fall outside those ranges and that the percentages of ingredients of the Mini Ciabatte were 'rough estimates'. • The primary judge concluded that 'classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment'. | • The primary judge concluded that the words of item 32 'are ordinary English words in common usage'. • The primary judge considered he was able to form his own view as to the significance of similarities or differences between biscuits, crackers and bread, having regard to the evidence before him. • Various indicia were considered in comparing Mini Ciabatte with crackers and that, with the exception of water and yeast, the ingredients of Mini Ciabatte fell within the ranges of the ingredients for crackers. • The primary judge attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers, on the basis of the appellants' evidence that there may be exceptions with crackers that fall outside those ranges and that the percentages of ingredients of the Mini Ciabatte were 'rough estimates'. • The primary judge concluded that 'classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment'. | The Court also: • Rejected the appellants' submission that the differences in respect of water and yeast content posed threshold questions which needed to be evaluated before the primary judge, as the finder of fact, could consider an overall impression of the nature of the product. In particular, the Court concluded that the appellants had failed to establish that such threshold requirements exist. • Accepted the Commissioner's submission that what is or what is not a cracker is not a 'bright line' defined by the percentage of its ingredients. • Held, quoting 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'. • Rejected the appellants' criticism that the primary judge had formed his overall impression by reference to the fact that the product is displayed in supermarkets together with crackers. In particular, the Court held that the primary judge did not find that the location of the display of the product in supermarkets governed the classification of the product - it was just one of the factors taken into account by his Honour. • Held that a supplier cannot, by a label (in this case, by describing the product on its packaging as 'Italian flat bread'), govern the classification of a product for the purposes of the GST Act. • Held that, 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, the word 'kind' is appropriately used to denote a genus, class or description. Furthermore, the Court said that 'the use of the words 'of a kind'... adds further generality to the description of the items in Schedule 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 question is whether the resulting product comes within the genus, class or description of a cracker.' • Was satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus. | • Rejected the appellants' submission that the differences in respect of water and yeast content posed threshold questions which needed to be evaluated before the primary judge, as the finder of fact, could consider an overall impression of the nature of the product. In particular, the Court concluded that the appellants had failed to establish that such threshold requirements exist. • Accepted the Commissioner's submission that what is or what is not a cracker is not a 'bright line' defined by the percentage of its ingredients. • Held, quoting 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'. • Rejected the appellants' criticism that the primary judge had formed his overall impression by reference to the fact that the product is displayed in supermarkets together with crackers. In particular, the Court held that the primary judge did not find that the location of the display of the product in supermarkets governed the classification of the product - it was just one of the factors taken into account by his Honour. • Held that a supplier cannot, by a label (in this case, by describing the product on its packaging as 'Italian flat bread'), govern the classification of a product for the purposes of the GST Act. • Held that, 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, the word 'kind' is appropriately used to denote a genus, class or description. Furthermore, the Court said that 'the use of the words 'of a kind'... adds further generality to the description of the items in Schedule 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 question is whether the resulting product comes within the genus, class or description of a cracker.' • Was satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus. | The Full Court also held that the primary judge did not err in exercising his discretion not to accept a further supplementary affidavit which the appellants first sought to file and rely upon on the second day of the hearing. The Court noted that the appellants had sought leave to file a further affidavit as a result of the cross-examination of one of the witnesses called on behalf of the appellants, and that the primary judge refused leave to file the further affidavit on the basis that it would 'open a can or worms' and would necessarily invite responses from the experts whose earlier opinions were based on an agreed statement of the manufacturing process. | The appellants sought special leave to appeal to the High Court, which the High Court refused, with costs.

Issues decided:
Issues decided at first instance: The primary judge (Sundberg J) dismissed the appeal. Sundberg J acknowledged that although a product can be "characterised" in more than one way, for the purposes of the GST Act a product can only have one "classification". His Honour therefore took the view that the question to be answered was whether the product falls within item 32 - that is, food that is, or consists principally of, crackers - and that evidence that the product fits within the definition of bread would not be sufficient to establish that it is not a food of a kind listed in item 32. His Honour held that the appellants failed to establish that the product is not food that falls within item 32. His Honour also held that the words in item 32 are not used in a specialised or trade sense that differs from their ordinary usage, and that it is a matter of overall impression in deciding the proper classification of a product. Finally, his Honour held that a supplier cannot, by a label, govern the classification of a product for the purposes of the GST Act. | Issues decided by the Full Court: On appeal, the Full Federal Court also found that Mini Ciabatte is subject to GST on the basis that the product is food that is, or consists principally of, crackers. The Court noted that: • The primary judge concluded that the words of item 32 'are ordinary English words in common usage'. • The primary judge considered he was able to form his own view as to the significance of similarities or differences between biscuits, crackers and bread, having regard to the evidence before him. • Various indicia were considered in comparing Mini Ciabatte with crackers and that, with the exception of water and yeast, the ingredients of Mini Ciabatte fell within the ranges of the ingredients for crackers. • The primary judge attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers, on the basis of the appellants' evidence that there may be exceptions with crackers that fall outside those ranges and that the percentages of ingredients of the Mini Ciabatte were 'rough estimates'. • The primary judge concluded that 'classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment'. • The primary judge concluded that the words of item 32 'are ordinary English words in common usage'. • The primary judge considered he was able to form his own view as to the significance of similarities or differences between biscuits, crackers and bread, having regard to the evidence before him. • Various indicia were considered in comparing Mini Ciabatte with crackers and that, with the exception of water and yeast, the ingredients of Mini Ciabatte fell within the ranges of the ingredients for crackers. • The primary judge attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers, on the basis of the appellants' evidence that there may be exceptions with crackers that fall outside those ranges and that the percentages of ingredients of the Mini Ciabatte were 'rough estimates'. • The primary judge concluded that 'classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment'. The Court also: • Rejected the appellants' submission that the differences in respect of water and yeast content posed threshold questions which needed to be evaluated before the primary judge, as the finder of fact, could consider an overall impression of the nature of the product. In particular, the Court concluded that the appellants had failed to establish that such threshold requirements exist. • Accepted the Commissioner's submission that what is or what is not a cracker is not a 'bright line' defined by the percentage of its ingredients. • Held, quoting 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'. • Rejected the appellants' criticism that the primary judge had formed his overall impression by reference to the fact that the product is displayed in supermarkets together with crackers. In particular, the Court held that the primary judge did not find that the location of the display of the product in supermarkets governed the classification of the product - it was just one of the factors taken into account by his Honour. • Held that a supplier cannot, by a label (in this case, by describing the product on its packaging as 'Italian flat bread'), govern the classification of a product for the purposes of the GST Act. • Held that, 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, the word 'kind' is appropriately used to denote a genus, class or description. Furthermore, the Court said that 'the use of the words 'of a kind'... adds further generality to the description of the items in Schedule 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 question is whether the resulting product comes within the genus, class or description of a cracker.' • Was satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus. • Rejected the appellants' submission that the differences in respect of water and yeast content posed threshold questions which needed to be evaluated before the primary judge, as the finder of fact, could consider an overall impression of the nature of the product. In particular, the Court concluded that the appellants had failed to establish that such threshold requirements exist. • Accepted the Commissioner's submission that what is or what is not a cracker is not a 'bright line' defined by the percentage of its ingredients. • Held, quoting 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'. • Rejected the appellants' criticism that the primary judge had formed his overall impression by reference to the fact that the product is displayed in supermarkets together with crackers. In particular, the Court held that the primary judge did not find that the location of the display of the product in supermarkets governed the classification of the product - it was just one of the factors taken into account by his Honour. • Held that a supplier cannot, by a label (in this case, by describing the product on its packaging as 'Italian flat bread'), govern the classification of a product for the purposes of the GST Act. • Held that, 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, the word 'kind' is appropriately used to denote a genus, class or description. Furthermore, the Court said that 'the use of the words 'of a kind'... adds further generality to the description of the items in Schedule 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 question is whether the resulting product comes within the genus, class or description of a cracker.' • Was satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus. The Full Court also held that the primary judge did not err in exercising his discretion not to accept a further supplementary affidavit which the appellants first sought to file and rely upon on the second day of the hearing. The Court noted that the appellants had sought leave to file a further affidavit as a result of the cross-examination of one of the witnesses called on behalf of the appellants, and that the primary judge refused leave to file the further affidavit on the basis that it would 'open a can or worms' and would necessarily invite responses from the experts whose earlier opinions were based on an agreed statement of the manufacturing process. The appellants sought special leave to appeal to the High Court, which the High Court refused, with costs.

ATO view of decision:
This decision has confirmed the Commissioner's classification of this particular product, and the reasoning of the Court will assist in the classification of other products for GST purposes.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | None indentified | Implications for Law Administration Practice Statements | None identified

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 38-3(l)(c) Schedule I Clause 1 item 32
Case references: Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 [2002] FCA 355 Commissioners for Her Majesty's Revenue and Customs v Procter & Gamble UK [2009] STC 1990 [2009] BVC 461 Commonwealth of Australia v Spaul (1987) 74 ALR 513 (1987) 16 FCR 292 Customs and Excise Commissioner v Ferrero UK [1997] STC 881 [1997] BTC 5294 Gantry v Parker and Parsley Petroleum Australia Pty Ltd [1994] FCA 1212 (1994) 123 ALR 29 51 FCR 554 Zeroz Pty Ltd v Deputy Commissioner of Taxation (1997) 35 ATR 349 97 ATC 4277
Subject references: Taxation goods and services tax 'Mini Ciabatte' product crackers taxable GST-free item 32 of clause 1 of Schedule 1 to the GST Act whether threshold indicia is required to be met - consideration of the phrase 'of a kind' in paragraph 38-3(1)(c) of the GST Act discretion to refuse to accept further affidavit during trial