Food Supplier and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (NT 2005/468)
Judgment date: 16 July 2007
Date published: 16 November 2007

Summary of decision:
Outlines the Tax Office response to this case which concerned the supply of a GST-free food product packaged with a non-food product for a single price and whether GST was payable on the supply of the non-food product.

Overview of facts:
The Applicant was a food supplier. The Applicant sold GST-free food products like instant coffee. | Sometimes the Applicant supplied its food product packaged with a non-food product. It did this for the purposes of promotion. The non-food products included items such as mugs, alarm clocks, radios and cricket balls. The non-food products were branded with the Applicant's name. The combined packages were sold for the same price as the food product alone. The non-food product was labelled as 'free'. The non-food product could only be acquired in packages with the food products. The Applicant did not supply the non-food products alone free of charge. | The Applicant was assessed to GST on the supply of the non-food products. The food products were GST-free. General interest charge (GIC) was imposed for failure to pay its GST liability in respect of the supply of the non-food products on time. The Applicant objected, and following the disallowance of the objection, applied to the AAT for review of the objection decision and the GIC. | Issues before the AAT | Whether GST was payable on the supply of the non-food product. | How the GST payable was to be calculated. | Whether GIC should be remitted. | Issues as decided by the AAT | The AAT found against the Applicant and held that the supply of the non-food product was taxable and that the AAT had no jurisdiction to entertain the application to remit GIC. President Downes decided as follows. • The supply of the packaged products was for consideration. • The consideration was for the supply of the packaged products as a whole, including the non-food product. The consideration for the supply of the food and non-food products was the single price paid for the two of them. The purchaser made a payment 'in connection with' the supply as a whole. • It was dangerous to equate 'free' with the absence of consideration. While the non-food product was labelled 'free', it did not follow that, as a component of the package, the non-food product was without consideration. • It did not matter that the food product was simultaneously sold separately for the same price - the food product was actually being sold at a discount. • The supply of the packaged products was a mixed supply. The non-food products were not integral, ancillary or incidental to the main food products. The non-food products had intrinsic value, would not be consumed with the food and were mostly unconnected with the food. This was so even where, for example, the food product was a jar of coffee and the non-food product was a mug in which the coffee could be served. • The United Kingdom decisions of Kimberly-Clark Ltd v Customs and Excise Commissioners [2004] STC 473 and Tesco plc v Customs and Excise Commissioners [2003] STC 1561 were found to be distinguishable on the facts, with the latter case also distinguishable on the legislation. • The supply of the packaged products was partly taxable (the non-food product) and partly GST-free (the food product). • Section 9-80 required apportionment of the value of the packaged products as between the taxable non-food product and the GST-free food product. • The Commissioner's discretion to remit GIC under section 8AAG of the Taxation Administration Act 1953 was not a reviewable decision because it was not a part of the Commissioner's assessment. | • The supply of the packaged products was for consideration. • The consideration was for the supply of the packaged products as a whole, including the non-food product. The consideration for the supply of the food and non-food products was the single price paid for the two of them. The purchaser made a payment 'in connection with' the supply as a whole. • It was dangerous to equate 'free' with the absence of consideration. While the non-food product was labelled 'free', it did not follow that, as a component of the package, the non-food product was without consideration. • It did not matter that the food product was simultaneously sold separately for the same price - the food product was actually being sold at a discount. • The supply of the packaged products was a mixed supply. The non-food products were not integral, ancillary or incidental to the main food products. The non-food products had intrinsic value, would not be consumed with the food and were mostly unconnected with the food. This was so even where, for example, the food product was a jar of coffee and the non-food product was a mug in which the coffee could be served. • The United Kingdom decisions of Kimberly-Clark Ltd v Customs and Excise Commissioners [2004] STC 473 and Tesco plc v Customs and Excise Commissioners [2003] STC 1561 were found to be distinguishable on the facts, with the latter case also distinguishable on the legislation. • The supply of the packaged products was partly taxable (the non-food product) and partly GST-free (the food product). • Section 9-80 required apportionment of the value of the packaged products as between the taxable non-food product and the GST-free food product. • The Commissioner's discretion to remit GIC under section 8AAG of the Taxation Administration Act 1953 was not a reviewable decision because it was not a part of the Commissioner's assessment. | President Downes' reasons for decision also included a tentative opinion that the apportionment made by the Commissioner (based on the price paid by Food Supplier to acquire the non-food products) was reasonable.

Issues decided:
Whether GST was payable on the supply of the non-food product. How the GST payable was to be calculated. Whether GIC should be remitted. | Issues as decided by the AAT: The AAT found against the Applicant and held that the supply of the non-food product was taxable and that the AAT had no jurisdiction to entertain the application to remit GIC. President Downes decided as follows. • The supply of the packaged products was for consideration. • The consideration was for the supply of the packaged products as a whole, including the non-food product. The consideration for the supply of the food and non-food products was the single price paid for the two of them. The purchaser made a payment 'in connection with' the supply as a whole. • It was dangerous to equate 'free' with the absence of consideration. While the non-food product was labelled 'free', it did not follow that, as a component of the package, the non-food product was without consideration. • It did not matter that the food product was simultaneously sold separately for the same price - the food product was actually being sold at a discount. • The supply of the packaged products was a mixed supply. The non-food products were not integral, ancillary or incidental to the main food products. The non-food products had intrinsic value, would not be consumed with the food and were mostly unconnected with the food. This was so even where, for example, the food product was a jar of coffee and the non-food product was a mug in which the coffee could be served. • The United Kingdom decisions of Kimberly-Clark Ltd v Customs and Excise Commissioners [2004] STC 473 and Tesco plc v Customs and Excise Commissioners [2003] STC 1561 were found to be distinguishable on the facts, with the latter case also distinguishable on the legislation. • The supply of the packaged products was partly taxable (the non-food product) and partly GST-free (the food product). • Section 9-80 required apportionment of the value of the packaged products as between the taxable non-food product and the GST-free food product. • The Commissioner's discretion to remit GIC under section 8AAG of the Taxation Administration Act 1953 was not a reviewable decision because it was not a part of the Commissioner's assessment. • The supply of the packaged products was for consideration. • The consideration was for the supply of the packaged products as a whole, including the non-food product. The consideration for the supply of the food and non-food products was the single price paid for the two of them. The purchaser made a payment 'in connection with' the supply as a whole. • It was dangerous to equate 'free' with the absence of consideration. While the non-food product was labelled 'free', it did not follow that, as a component of the package, the non-food product was without consideration. • It did not matter that the food product was simultaneously sold separately for the same price - the food product was actually being sold at a discount. • The supply of the packaged products was a mixed supply. The non-food products were not integral, ancillary or incidental to the main food products. The non-food products had intrinsic value, would not be consumed with the food and were mostly unconnected with the food. This was so even where, for example, the food product was a jar of coffee and the non-food product was a mug in which the coffee could be served. • The United Kingdom decisions of Kimberly-Clark Ltd v Customs and Excise Commissioners [2004] STC 473 and Tesco plc v Customs and Excise Commissioners [2003] STC 1561 were found to be distinguishable on the facts, with the latter case also distinguishable on the legislation. • The supply of the packaged products was partly taxable (the non-food product) and partly GST-free (the food product). • Section 9-80 required apportionment of the value of the packaged products as between the taxable non-food product and the GST-free food product. • The Commissioner's discretion to remit GIC under section 8AAG of the Taxation Administration Act 1953 was not a reviewable decision because it was not a part of the Commissioner's assessment. President Downes' reasons for decision also included a tentative opinion that the apportionment made by the Commissioner (based on the price paid by Food Supplier to acquire the non-food products) was reasonable.

ATO view of decision:
The decision of the AAT is consistent with the views expressed by the Commissioner in GSTR 2001/8 entitled 'apportioning the consideration for a supply that includes taxable and non-taxable parts'.

Administrative treatment:
Not relevant. | Implications on current Public Rulings & Determinations | None.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 9-5 9-10 9-15 9-80 11-5 11-20 38-2 Taxation Administration Act 1953 8AAG 105-50
Case references: Cachia v Commissioner of Taxation (No 2) [2005] AATA 819 2005 ATC 2297 61 ATR 1015 Chief Commissioner of State Revenue v Dick Smith Electronics Holding Pty Limited [2005] HCA 3 (2005) 221 CLR 496 2005 ATC 4052 58 ATR 241 213 ALR 230 HP Mercantile Pty Limited v Commissioner of Taxation (2005) 143 FCR 553 2005 ATC 4571 60 ATR 106 219 ALR 591 Kimberly-Clark Ltd v Customs and Excise Commissioners [2004] STC 473 Nationwide News Pty Limited v Australian Competition and Consumer Commission (1996) 71 FCR 215 142 ALR 212 Nyack Investments Pty Limited v Commissioner of Taxation [2005] AATA 469 2005 ATC 2173 59 ATR 1116 Pye v Commissioner of Taxation [2004] AATA 143 2004 ATC 2029 55 ATR 1024 Tesco pc v Customs and Excise Commissioners [2003] STC 1561 The Taxpayer v Commissioner of Taxation [2005] AATA 1039 2005 ATC 213 61 ATR 1044
Subject references: Goods and services tax supply consideration in connection with mixed and composite supplies apportionment packages containing food and non-food products General interest charge no jurisdiction to remit