An important tax issue #2 – cakes

Reading tax cases is generally something that should be avoided at all costs, however, it appears that they are a rich source of (amusing) definitional issues.

The issue which occupied the High Court in the 1932 case of Herbert Adams v Federal Commissioner of Taxation was whether a sponge was a pastry (in which case it was exempt from sales tax) or whether it was in fact a cake or biscuit. There would have been no doubt in my mother’s mind that it was a “sponge cake” (and the Court agreed with her!). I have set out some extracts from the judgments below:

Starke J

The trades of bread-making, pastry-cooking, and cake and biscuit-making overlap a good deal, and we find no clear line of demarcation between them. It is not surprising, therefore, that precise and mutually exclusive definitions of the terms bread, pastry, cake, and biscuits, do not exist. …. The word “cake” is used to describe a small mass of various constituents such as flour, butter, sugar and other ingredients, baked or cooked in different shapes, e.g., round, in blocks, &c. Butter or fatty substances are largely used, but a light cake is made without the use of fatty substances, or at all events with but little use of such substances. The sponge-cake is a wellknown representative of this last class of cake. The sponges in the present case, which were baked in round tins, are quite ordinary forms of cakes and are rightly described in the evidence as sponge-cakes. Those which were baked in blocks differ only in form, and the term “sponge-cakes” describes them more accurately than any other: they are an instance of a class of greater extent called cakes; the form depends upon the requirements of the customers of the trade, but is otherwise unimportant for the purposes of classification.

Evatt J had a more practical approach:

Samples of the appellant’s manufacture were produced, and in my opinion the goods made were undoubtedly “cakes.” According to the Oxford Dictionary a “sponge” is “a very light sweet cake made with flour, milk, eggs, and sugar.” A dictionary reference may not be necessary. Perhaps this is one of the few things that every schoolboy knows.

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