25 July 1997 GST/HST Interpretation HQR0000456 - Application of the GST/HST to Semi-liquid and Semi-gelatinous Fruit Snacks

                                                                        File: 11850-21(rl)
Par.: 1(j)/III/VI
HQR0000456

Dear Sir:

This is in response to XXXXX E-mail of December 12, 1996, requesting our opinion of the food product called XXXXX

Statement of Facts

1. XXXXX is a product that has the appearance of an ice lolly and is packaged in the same manner as an ice lolly. Each snack unit has a weight around XXXXX However, unlike the traditional ice lolly, it is designed to be consumed unfrozen.

2. XXXXX describes itself on the box in which it is sold as a XXXXX

3. The snacks are available in boxes containing xx snacks per box (also available in bulk in boxes containing XXXXX snacks each).

4. XXXXX texture is semi-liquid and semi-gelatinous.

5. The XXXXX snacks are available in three fruit flavours, namely, strawberry, blue raspberry and grape.

6. Each of these snacks contain XXXXX fruit juice and have other ingredients such as water, sugarglucose-fructose, concentrated pear juice, carrageenan, potassium citrate, sodium citrate, adipic acid, locust bean gum, fumaric acid, sucrose, potassium chloride, simulated flavours and colours.

7. In a typical XXXXX was placed amongst roll bars, fruit leathers and fruit drops.

The Examined Provisions

Paragraph 1(l) of Part III of Schedule VI of the Excise Tax Act (ETA), which reads as follows:

"(l) fruit bars, rolls or drops or similar fruit-based snack foods;"

Subparagraph 1(n) of Part III of Schedule VI, which reads as follows:

"(n) beverages (other than unflavoured milk) or pudding, including flavoured gelatine, mousse, flavoured whipped dessert product or any other products similar to pudding, except

(i) (...)

(ii) when sold in multiples, prepackaged by the manufacturer or producer, of single servings, (...)

The Issue

Does a specific provision of the ETA apply to XXXXX for determining its tax status?

The Registrant's Position

The registrant contends that XXXXX is a gelatine for the purposes of 1(n) and would consequently be zero-rated as a result of the application of 1(n)(ii). The registrant also used the argument that XXXXX has a composition similar to another product, XXXXX which is designed to be consumed in a cup with a spoon and to which 1(n) does apply. The registrant asserts that XXXXX and XXXXX having a comparable composition, should be treated in the same manner, i.e., 1(n) should apply to both of them.

The Department's Position

The Department's position is that XXXXX is taxable at 7% (15% in participating provinces) as a fruit-based snack food similar to fruit bars, rolls or drops for the purposes of paragraph 1(l) of Part III of Schedule VI.

Analysis

Non-application of 1(n)(ii)

Paragraph 1(n) refers to "beverages (other than unflavoured milk) or pudding, including flavoured gelatine, mousse, flavoured whipped dessert product or any other products similar to pudding.". The context of the provision refers to products that are pudding-like, or similar to pudding, the fact that a product is designed to be eaten with a spoon is quite a fundamental characteristic of pudding-like products and XXXXX does not have that characteristic.

The fact that XXXXX has a similar composition to XXXXX is a minor factor in determining its tax status. The composition is only one factor amongst others in determining the nature of a product, other factors being what it is designed for, how it is labelled, marketed, packaged and displayed. In terms of composition, XXXXX is also comparable to the products enumerated under 1(l). The registrant's contention implies an interpretation scheme which is too literal and does not sufficiently take account of the context of the provision.

The reason for which XXXXX fits into 1(n) is that it is a pudding-like product, designed to be consumed with a spoon: XXXXX does not have these characteristics.

Application of 1(l)

The Act is to be interpreted in light of its purpose. The purpose of Schedule III of Part VI is to zero-rate basic groceries and to tax foodstuffs that are not basic groceries, as the term is understood ordinarily. The exceptions must be explicit, but in the case of ambiguity, they must be interpreted broadly where a product is not a "basic grocery" as understood in the ordinary sense.

Marketing: the product XXXXX is displayed in the aisles amongst other products clearly identified in 1(l) and is in the same price category. On the box on which the product is sold, XXXXX is described under the brand name as follows: XXXXX

The following table situates XXXXX amongst other products as they were placed on a grocery shelf in a typical XXXXX

 XXXXX clearly are, most of the time, composed importantly of chemical and flavouring products, as in the case of XXXXX The word "fruit-based" does not necessarily mean dominantly composed of fruits and may refer to the use of fruit for flavouring purposes, as it is the case for products clearly falling under 1(l).

Conclusion

The product is clearly a snack food, is clearly presented as a snack food, is fruit-flavoured and presented as such. The marketing displays on the real fruit juice part of XXXXX which is not radically different from products very clearly under the application of 1(l).

If you have any questions, please do not hesitate to call the undersigned at (613) 952-8815.

Raymond Labelle
ARulings Officer
Industries Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate