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Prepared by: Carol Ann Villeneuve
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Telephone No.: 957-8224
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Date: January 5, 1995
File: 11850-2/e; 11850-2/m
C.N.: 2492
Dear Mr. XXXXX
This is in response to your letter of October 2, 1995, in which you requested a ruling on the application of the Goods and Services Tax (GST) to the supply of the food product "XXXXX" supplied by your client XXXXX[.] A letter from XXXXX authorizing you to act on their behalf accompanied your letter as did samples of the goods in question for our examination.
As noted in your letter, a ruling on the application of the GST to the supply of XXXXX has been issued to another GST registrant.
The facts of the case are as follows:
1) XXXXX are a chocolate coated wafer biscuit.
[2)] XXXXX[.] The packaging is consistent with a product packaged and sold as cookies and the product is sold along side cookies in most grocery stores.
3) XXXXX are also sold in alternative packaging. In this case, the outer package is a plastic bag inside of which are XXXXX. At no time are the XXXXX sold separately. The outer bag and the XXXXX are labelled with XXXXX It is acknowledged that the product is not labelled as "candy" or "confectionery".
4) This type of packaging is identical to that used to package candies, confectionery that may be classed as candy and goods sold as candies, including chocolate bars.
5) It is our experience that this type of product may be typically displayed along side other candies and confectionery. You state in your letter that these goods may be placed in other locations in a retail store including in-aisle displays, the cookie aisle and do not generally have a set location in a store. We also acknowledge that this type of packaging is not the type of packaging used for candies and confectionery when they are sold at the grocery store check out counter. Neither traditional candy or confectionery are sold in this packaging format at the check-out counter.
6) As per your submission, the bag format is used for holidays when demand for the product increases.
7) You also state that XXXXX have been classified by Canada Customs as a zero-rated basic grocery.
In your letter you provide definitions of candy and confectionery from various dictionary sources which appear, in your view, to exclude XXXXX from being considered candy or confectionery. We submit that, in spite of these definitions, there are numerous goods composed of biscuits, chocolate and sometimes other ingredients, which their suppliers readily acknowledge as candy or confectionery for GST purposes.
You also relate the information contained in the former Federal Sales Tax (FST) Ruling Card 5900/30 which quotes information supplied by the Canadian Biscuit Manufacturers Association defining candies, confectionery, goods which may be classed as candies, and biscuits. We acknowledge the information in the ruling card, yet also stress that notwithstanding the presence of the ruling card, the sale of the goods composed of biscuits, chocolate and other ingredients were also subject to the FST under paragraph 1(e) of Part V of Schedule III to the Excise Tax Act (ETA) as "candies, confectionery that may be classed as candy and all goods sold as candies. ..".
In your letter you also discuss the information discussed in GST Memorandum 300-3-3 which you state leads one to conclude that the supply of XXXXX are properly considered to be subject to the GST under paragraph 1(m) of Part III of Schedule VI to the ETA. The information in GST Memorandum 300-3-3 "Basic Groceries" is not intended to be all inclusive and the lists describing certain classes of goods are regrettably not exhaustive. When this Memorandum is revised, which happens to be imminent, this portion of the Memorandum will be changed to better reflect this position.
You also discuss the significance of packaging in our ruling and state that, in your opinion, as sweetened baked goods (goods under paragraph 1(m) of Part III of Schedule VI to the ETA), the supply of this class of good would only be subject to the GST at 7% when packaged in quantities of less than six single servings as per that provision. This position is based on your assertion that the goods are, in all circumstances, in fact, sweetened baked goods. This is the core of the issue. It is our opinion that the definition of candies, confectionery, and goods which may be classed as candies is not as static as you contend.
Notwithstanding the fact that your client's product is labelled as XXXXX your client does not control the product's placement in the actual grocery store. When XXXXX are placed among or next to similar products which are acknowledged by their supplier as "Candy" or "Confectionery" the consumer and Revenue Canada considers them to be confectionery. Reciprocally, when goods like chocolate covered macaroons are packaged in a manner consistent with sweetened baked goods under paragraph 1(m) and sold in the cookie aisle, they are for all intents and purposes sweetened baked goods and accepted by the Department as such. When the packages of macaroons contain six or more single servings the supply is properly zero-rated.
Regarding your statement that Revenue Canada Customs has ruled that XXXXX are a zero-rated basic grocery item we would like to make the following comments:
Revenue Canada Border Services (our former Customs Branch) may indeed classify the goods in the Customs Tariff under a classification number which includes some sweetened baked goods. However, these classification numbers are set up to accept either a zero-rated GST status (GST Code 59) or a taxable status (Code 7) because the descriptions of classification numbers in the Tariff often includes both zero-rated and fully taxable goods. The clearance of an importation using GST Code 59 is not a departmental acceptance of your client's position. The importation documents (Customs form B3) for all goods are always subject to post-audit by GST auditors under a GST audit. If our Border Services Branch has misled your client in any other way, we apologize on behalf of the Department.
In conclusion, I regrettably, must reiterate our position that the supply of XXXXX when packaged in the bag format containing XXXXX, is considered to be subject to the GST under paragraph 1(e) of Part III of Schedule VI to the ETA. This position is based on the understanding that packaging and product placement is as important a factor in determining the GST status of a good as is the composition of the good.
We also maintain our position that when packaged in the traditional box format containing more than six single servings, the supply is zero-rated under paragraph 1(m) of Part III of Schedule VI to the ETA.
If you would like to discuss this matter further, please do not hesitate to contact, Ken Syer. A/Senior Policy Officer, at (613) 952-9590.
Yours truly,
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
Policy and Legislation Branch
c.c.: E. Vermes
c.c.: J.A. Venne
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