30 March 1999 GST/HST Interpretation HQR0001321 - Importation of

We received a letter dated September 3, 1998, written by one of your staff and addressed to Alyson Trattner. Attached to the letter was a copy of the correspondence sent to you by the client and the client's customs broker, and the draft response prepared by your staff. Enclosed with the letter were several product samples. The draft response set out the relevant facts as follows:

1. XXXXX who is importing a product by the name of "XXXXX is being sold in Canada to various retail and wholesale distributors.

2. XXXXX is described and promoted as a snack food and is available in the following 3 flavours: XXXXX[.]

3. XXXXX  The ingredients of the crackers are listed as: enriched flour, sugar, hydrogenated soybean oil, salt, dried cheddar cheese, yeast, sodium bicarbonate, dairy ingredients, sodium phosphate, lactic acid, and colour.

4. XXXXX consists XXXXX[.] The ingredients of the cookies are listed as: enriched flour, sugar, hydrogenated soybean oil, high fructose corn syrup, water, yellow corn flour, cornstarch, salt, artificial flavour, ammonium bicarbonate, sodium bicarbonate, monocalcium phosphate, soy lecithin, and colour.

5. XXXXX  XXXXX[.] The ingredients of the pretzels are as follows: enriched flour, corn syrup, salt, sodium bicarbonate, malt and yeast.

6. XXXXX[.] Each single serving is packaged XXXXX is labeled as a single unit, the packaging is designed so that each single serving can be detached from the others and consumed separately.

7. XXXXX  XXXXX case will be sold to consumers as one unit whereas the other two types of packaging are simply for shipping purposes (e.g., a retailer can open the case XXXXX[.]

8. A universal product code XXXXX as well as information about ingredients and net weight appear on the XXXXX case as well as on each of the XXXXX[.]

9. The package label indicates that XXXXX  does not need refrigeration.

The draft response indicates that a supply of XXXXX  is not a supply of either of its constituent elements XXXXX. Rather, XXXXX as its own distinct character apart from its constituent elements. The response concludes that supplies of XXXXX  are excluded from tax relief under section 1 of Part III of Schedule VI by virtue of paragraph 1(f) on the basis that XXXXX is a "similar snack food" (i.e., similar to "chips, crisps, puffs, curls or sticks [such as potato chips, corn chips, cheese puffs, potato sticks, bacon crisps and cheese curls]") for the purpose of that provision.

We agree that XXXXX characteristics are distinct from those of its constituent elements. In other words, the elements come together to form a new product which is different in character from that of its constituent elements. Nevertheless, contrary to the conclusion set out in the draft response, in our view, supplies of XXXXX are not excluded under paragraph 1(f). Whether or not a product is a "similar snack food" for the purpose of paragraph 1(f) is a question of fact. In each case, we must consider the relevant points of similarity and dissimilarity and make a decision based on the balance of probability. The letter from your staff argues that, since XXXXX is referred to as a snack food in its name and on its packaging and promotional material, is to be eaten as a snack food, and is displayed alongside snack foods such as chips and cheesies, "we can clearly state that XXXXX ... (is a) "similar snack food" under paragraph 1(f) ... and is therefore taxable at (the standard rate)".

Although it is not apparent from the evidence presented to us, we will assume that XXXXX  is indeed displayed alongside chips and cheesies. We will also concede that, like these other products, XXXXX  is clearly a snack food. Nevertheless, there are a number of significant dissimilarities between XXXXX  and these other foods which have not been addressed. Unlike these other foods, XXXXX  incorporates two completely different constituent elements: XXXXX  consist of bread, cookies, and pretzels, none of which are similar to the other snack foods (note that, although pretzels are arguably similar to the other snack foods in some respects, they are mentioned separately in paragraph 1(f), so the legislators appear to have seen sufficient dissimilarity between them to warrant mentioning pretzels separately.). Further, again unlike the other snack foods, XXXXX is packaged in rigid plastic containers formed with two basins to hold both of the constituent elements. The containers are sold together in 5-packs from which one container can be detached and consumed separately from the others. And so on. All of these characteristics are dissimilar to the characteristics of the other snack foods.

Although XXXXX  may be similar to the other snack foods in some respects (most notably, like the other products, XXXXX is a snack food), in our view, the range of dissimilarities tip the balance in favour of the conclusion that XXXXX  is not "similar to" the other snack foods for the purpose of paragraph 1(f). As a result, paragraph 1(f) does not apply.

If supplies of XXXXX are not excluded from section 1/III/VI under paragraph 1(f), are there any other exclusions that might apply? Although XXXXX  constituent elements might be excluded from the application of section 1 if they were supplied separately, supplies of XXXXX  itself are not excluded. Consider XXXXX[.] If you were to supply its constituent elements (i.e., pretzel sticks and cheese dip) separately, the supply of the pretzel sticks would be excluded under paragraph 1(f), while the supply of the cheese would not be excluded at all. But XXXXX  itself is neither a supply of pretzels nor a supply of cheese; rather, it is a supply of a distinct snack product of which pretzels and cheese are merely constituents. And since none of the exclusions to section 1 apply to a product with the characteristics of XXXXX  supplies of XXXXX are zero-rated under section 1/III/VI.

The draft response is correct in its assertion that section 1/III/VI is generally intended to exclude supplies of snack foods. Nevertheless, for a supply of snack food to be excluded by one of the exclusions set out in paragraphs 1(a) through (r), the food must reasonably come within the meaning of one of those exclusions.

As a final remark, the draft response couches the ruling in terms of the application of section 165(1). The submission from the correspondent is unclear on this point, but it appears that the correspondent is most concerned with the application of the tax on importations of XXXXX  so we suggest that the response include a discussion of the application of Division III.

We hope you have found our comments useful. Please feel free to call me at (403) 231-4104 if you have any additional questions.