Edited version of your written advice

Authorisation Number: 1051485352151

Date of advice: 01 March 2019

Ruling

Subject: GST and food marketed as prepared meal

Questions 1

Is the supply of product A, a supply of ‘food marketed as a prepared meal’ within the meaning of Item 4 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (the ‘GST Act’)?

Answer

Yes.

Questions 2

Is the supply of product B, a supply of ‘food marketed as a prepared meal’ within the meaning of Item 4 of Schedule 1?

Answer

Yes.

Questions 3

Is the supply of product C, a supply of food marketed as a prepared meal within the meaning of Item 4 of Schedule 1?

Answer

Yes.

This ruling applies for the following tax periods

The tax period commencing on a specified date up until and including the tax period ending 30 June 20XX.

The scheme commences on:

A specified date.

Relevant facts and circumstances

The Applicant

The Applicant is registered for GST.

The Applicant operates a food store in a specified location in Australia (the Store). The Applicant has requested a private ruling in relation to the GST characterisation of the supply of certain food products that are sold from the Store.

As at the date of this ruling request, there are a specified number of similar branded stores (brand stores) operating in Australia. Around a specified number of these stores are franchisee operated and the remaining stores are operated by the company group or, like the Applicant, operated separately from the company group.

The Applicant provided information about the directors and the structure of the group of entities within the company group (collectively referred to as the Group).

The Applicant is not a party to a franchise agreement, nor is it a party to any other written agreement that governs its operation of the Store. Notwithstanding, the Applicant has access to all the benefits and the use of rights that would otherwise be granted to a franchisee operating a similar brand store.

The Applicant follows the Group’s standard business model (which is discussed further below).

A specified entity in the Group (the Franchisor) enters into franchising agreements that require franchisees to operate the brand stores by applying a specified business model (discussed below).

Some of the brand stores have seating areas for a specified number of customers. The remaining stores either have no seating or others have limited seating for a specified number of customers at any given time.

A specified number of the brand stores (including the Applicant) are located in or near a food court.

The Group

The literature published by the Group about its products provides that the products are fresh, of a high quality, can be enjoyed anytime anywhere, are available from conveniently located stores and are produced by qualified chefs.

The Group’s Business Model

Subject to the qualification that the Applicant, as a standalone entity, has the autonomy to depart from the Groups business model, all the brand stores are generally operated consistently using the same business systems, equipment, processes and procedures according to manuals and recipes provided by the Group. This business model is referred to below as the Group System.

The Group’s Store menu lists the products that are sold by the brand stores. The Group nominates to franchisees all set suppliers and materials to be used to produce and sell items that are listed in the Group’s Store menu.

A franchisee agreement provides for respective rights and obligations for the Franchisor and the franchisee. The franchisees are provided with (amongst other things): the Group’s System; use of the Group’s intellectual property (including trademarks); training and assistance; in return for the payment of certain amounts set out in the franchise agreement. Payments include amounts in respect of royalties and an Advertising Contribution, both based on a percentage of an outlet’s monthly sales.

The Store

The Store is consistent with the set up and operation of other brand stores. It is situated along pedestrian thoroughfare in a specified location.

The Store is open seven days a week and has relatively long trading hours. The Stores peak trading hours are generally 12pm- 2pm, and 4.30pm- 5.30pm, Monday to Friday. The Store can choose to change its trading hours depending on business.

The outlets on either side and directly opposite the Store are mainly food outlets.

The Store has an instore seating area with a specified number of tables and chairs.

The products sold by the brand stores

A specified style of cuisine underpins the Group’s business concept.

The brand stores sell individual products, as well as pre-packaged products. The pre-packaged food items are not the subject of the Applicant’s ruling request. This allows customers the flexibility to mix and match products of their own choice to eat.

A sample analysis was undertaken on sales data provided by the Applicant. The analysis shows whilst products can be purchased individually, the smaller products at issue are very rarely purchased individually.

The Group’s Store menu outlines all the products available for purchase, their kilojoule intake, price and if they are gluten free and/or vegetarian.

The Group’s Store menu provides that their products are fresh and healthy.

The Store sells other food products including, tea, soup, pre-bottled soft drinks, juices and water.

The Products at issue

The Products A, B and C are the subject of this ruling request and are collectively referred to as the ‘Products’.

All three Products are:

● individually priced;

● itemised separately on tax invoices;

● stored and sold from refrigerated display cabinets;

● premade on the premises prior to sale but can also be prepared on-the-spot upon a customer's request;

● never sold hot; and

● are not packaged prior to sale.

The unpackaged products are placed directly in the display cabinets, according to their variety and behind the relevant identifying labels.

Photos of the Products, a description of each product including the price and their nutritional information were provided by the Applicant.

The kilojoule content of each product only represents an average of X% of the average adult daily kilojoule intake.

Packaging

Customers queue and advise the cashier as to which product or products they wish to purchase. The customer then pays and collects their products. Each item purchased appears separately on the related tax invoice.

The Store does not distinguish between takeaway and dine-in supplies. Customers do not receive their order at their tables. The packaging of the customer’s order is consistent such that the customer is able to transport the products away from the premises, regardless of whether the customer chooses to do so.

The Products are supplied ready to eat straight from their packaging and require no further cooking or preparation (although condiments may be added). Customers can help themselves to straws, forks, spoons, and serviettes which are situated next to the cash register. The Store also provides takeaway bags.

Small containers are used when any of the Products is sold individually.

The Applicant provided photos and details of the dimensions of the packaging.

Marketing

The Franchisor receives an Advertising Contribution from franchisees and applies this marketing contribution for the purposes of marketing the brand stores and Group’s products. The Franchisor’s advertising and promotional expenditure includes but is not limited to: printing and distribution fees; advertising agency fees; marketing and consulting costs; and public relations expenses.

The Franchisor is obliged to administer and expend the Advertising Contribution for the benefit of all the franchisees.

The Group’s consolidated Trading, Profit and Loss Statement for the financial year ended 30 June 20XX is considered representative for the period to which the ruling relates, it includes the following amounts:

Advertising expenditure is further broken down as follows:

The Applicant has not entered into a written agreement to contribute to the marketing expenditure referred to above. Nevertheless, the Applicant has an understanding with the Group that it should share in the advertising and marketing expenses of the Group. Based on this understanding, the Applicant pays a contribution to the advertising and marketing expenses of the Group (based on its sales) to the Franchisor. The contribution to advertising and marketing expenses that the Applicant paid to the Franchisor for the financial year ended 30 June 20XX was $X. This is considered to be representative of the yearly amount paid for advertising and marketing expenses for the period to which the ruling relates. Although not specifically covered by any written agreement, it is clear that the Applicant would also be a beneficiary of the amount spent by the Franchisor on advertising and marketing.

The Applicant has stated that the Group has a strong marketing team and that they are very much focused on marketing. The Group spends money on cinema, radio and billboard advertising.

The Group brand and marketing is not product specific. It is directed at eating fresh food for immediate consumption including the Products at issue as indicated by the details of the advertising material. The advertising campaigns show the brand stores as a place to go to eat.

Various marketing activities of the Group and the Store are set out below. These are subject to change but are considered representative of the marketing undertaken for the period to which the ruling relates.

Product Branding

Branding and trademarks are used in advertising and marketing to influence consumer’s perceptions of a business. The Group has a trademark/logo. The logo was designed to stand out visually and give a certain sense and impression. It is used across the business group including on: packaging; visual displays; staff uniforms; and delivery vans.

Instore displays

The Store has a number of display boards. The Applicant provided photos of the display boards. The Products are not specifically marketed to be purchased individually. Rather the marketing is directed at ‘up selling’. That is, the images on the display boards generally promote consumption of multiples of the products, for example, by offering free additional food products if certain products are purchased simultaneously.

Billboard Advertising

The Group also advertises its brand and products, including the Products at issue, on billboards.

Radio

The Group has had sponsorship campaigns with multiple radio stations during a specified period. The Applicant provided details of the radio advertisements.

Cinema

The Group carries out advertising in cinemas. The Applicant provided details of the cinema advertisements.

Social media

The Group’s social media pages posts (amongst other things) information about the brand stores and any promotions.

Promotions

The Group runs promotions. For example, a specific promotion carried out by the Group in the past required a customer to make a minimum purchase to be eligible to take part in a specific competition.

Internet

The Group's website home page provides information about the Group’s products.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 7-1

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-A

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1

Reasons for Decision

Summary

The Products are not GST-free as they are food of a kind that is marketed as a prepared meal pursuant to paragraph 38-3(1)(c) and Item 4 of Schedule 1.

Applicant’s contentions

The Applicant has made the following contentions as to why its products are GST-free.

1. Each product is a component of a meal, rather than a meal in itself.

2. There is very little specific marketing that is carried out as to whether the Group’s products are prepared meals. The names, prices and kilojoule content of each item are considerably less than those of a meal. Nothing about the way the Group’s products are presented suggests that each product is marketed as a prepared meal.

3. Nothing about the products size, weight, nutritional make-up, is in fact, marketed as a complete meal.

4. At best, the Products could be components of a meal being served together to comprise a meal, although for GST purposes they remain individual supplies. No contrary intention can be drawn from the promotion, distribution or packing of the Products.

5. The reference to similar type of food products in the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (the ‘EM’) and not in the Schedule 1 to the GST Act is important and shows Parliament did not intend for all products referred to in the EM to be taxable but subject to the marketing test as a prepared meal.

Detailed reasoning

The correct approach to food classification issues

The Federal Court (in the first instance) in Lansell House Pty Ltd & Anor v FCT 2010 ATC 20-173 considered whether a product known as ‘mini ciabatte’ was taxable.

Sunberg J concluded at paragraphs 108 to 109 that the product was not GST-free as follows.

108. Classification decisions for sales tax, GST and VAT purposes are often described as questions of fact and degree (Ferrero at 884), value judgments (Procter & Gamble at [13]), a matter of impression (Procter & Gamble at [19]) and a combination of fact finding and evaluative judgment (Procter & Gamble at [47]). In Procter & Gamble the VAT and Duties Tribunal did not "grade" the relevant factors in coming to its decision. It stood back and took all the factors of appearance, taste, ingredients, process of manufacture, marketing and packaging together in deciding the proper classification of "Regular Pringles". The Court of Appeal approved that approach. Lord Justice Jacob said at [19]:

"It was not incumbent on the Tribunal in making its multifactorial assessment not only to identify each and every aspect of similarity and dissimilarity (as this Tribunal so meticulously did) but to go on and spell out item by item how each was weighed as if it were using a real scientist's balance. In the end it was a matter of overall impression."

109. Adopting that approach, I am not persuaded that the Commissioner's classification of Mini Ciabatte as an item 32 product was wrong.

The appellant taxpayers unsuccessfully sought special leave to appeal the Full Federal Court’s decision in Lansell House Pty Ltd & Anor v. FCT 2011 ATC 20-239. The Full Federal Court held that the primary judge had not erred and dismissed the appellants appeal. The Full Court endorsed Sunberg J’s approach to food classification at paragraph 24:

Where the question to be answered as to the characterisation or classification of a product is one of fact and degree, as it was for biscuits in Ferrero, Lord Wolf MR said that it is a "perfectly satisfactory statement of the approach" to be taken to consider different characteristics of the product and, if the product has the characteristics of two categories, to place it in a category in which it has sufficient characteristics to qualify (at 885). As Jacob LJ said in Procter & Gamble at [14], this sort of question, being a matter of classification, "is not one calling for or justifying over-elaborate, almost mind-numbing, legal analysis. It is a short practical question calling for a short practical answer". In a case where scientific analysis does not form part of the characterisation of the product, its classification is not a scientific question.

This approach was recently endorsed by the Full Federal Court in Comptroller General of Customs v Pharm-A-Care Laboratories Pty Ltd [2018] FCAFC 237 as follows at paragraph 24(2):

Secondly, subject to statutory context, function or purpose, courts should be cautious of subjecting words in legislation that have an ordinary everyday meaning to intensive analysis. Decision-makers should use “their local knowledge, experience of the world and common sense, to give a sensible interpretation” to the words used; an appellate court “required to review such decisions should endorse those that have been reached and confirmed in this way”: Lansell House Pty Ltd v Federal Commissioner of Taxation [2010] FCA 329; 76 ATR 19 (“Lansell House”) at [57] per Sundberg J (upheld on appeal at (2011) 190 FCR 354 per Bennett, Edmonds and Nicholas JJ); Seay v Eastwood [1976] 1 WLR 1117 (“Seay v Eastwood”) at 1121 per Lord Wilberforce.

Consistent with the above approach is the leading Sales Tax decision in respect of the classification of food, by the High Court in Herbert Adams Pty Ltd v. FCT 47 CLR 222. The issue in this case was whether the product at issue described as ‘sponge’ was ‘pastry but not including cakes or biscuits’. The taxpayer sought to argue that with reference to the trade meaning, sponge was a pastry and not a cake. The High Court in finding for the Commissioner, accepted the ordinary meaning of cake which included sponge.

Evatt J at pages 229–230 said:

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.

What is required in food classification cases, as the courts inform us, is a common sense, practical approach to form an overall impression. Not an overly pedantic, highly legal or scientific analysis.

Relevant Legislation

GST is payable on taxable supplies (section 7-1). It is accepted that the Applicant otherwise makes taxable supplies. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed (section 9-5).

Food is GST-free unless an exemption applies (section 38-2). Section 195-1 defines food by reference to section 38-4. It is accepted that the products at issue, fall within the definition of food.

Relevantly pursuant to section 38-3 food is not GST-free where:

(1) A supply is not GST-free under section 38-2 if it is a supply of:

…

(c) food of a kind specified in the third column of the table in clause 1 of Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind…

It follows that the products at issue will be GST-free unless the food is a kind of food marketed as a prepared meal or is a combination of one or more foods which are a kind of a food marketed as a prepared meal (paragraph 38-3(1)(c)).

Food marketed as a prepared meal

Relevant to paragraph 38-3(1)(c) and the food products at issue, is the category of ‘Prepared food’ in Schedule 1 and more specifically, Item 4 which is:

*food marketed as a prepared meal, but not including soup

Relevant to prepared food and meals, are clauses 2 and 3 of Schedule 1 which are as follows:

2 Prepared food, bakery products and biscuit goods

For the purpose of determining whether particular *food is covered by any of the items in the table relating to the category of prepared food, bakery products or biscuit goods, it does not matter whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

3 Prepared meals

Item 4 in the table only applies to *food that requires refrigeration or freezing for its storage.

The Products at issue are stored in refrigerated display cabinets and meet the additional tests set out in clauses 2 and 3 set out above.

A kind of food marketed as a prepared meal or is a combination of one or more foods which are a kind of a food marketed as a prepared meal

The use of the words ‘of a kind’ in paragraph 38-3(1)(c) adds further generality to the description ‘food marketed as a prepared meal’ in Item 4 of Schedule 1 therefore this description should not be construed narrowly.

The term ‘prepared meal’ is not defined in the GST Act and therefore takes on its ordinary meaning informed by the legislative context (discussed in more detail below). In the context of food, ‘prepare’ is defined in the Macquarie Dictionary as:

2. to get ready for eating, as a meal, by due assembling, dressing, or cooking.

And meal as:

noun 1. one of the regular repasts of the day, as breakfast, lunch, or dinner.

2. the food eaten or served for a repast.

Essentially therefore, a prepared meal would be a ‘repast ready for eating’. The Products at issue would be within the meaning of this broad description as the Products are either food that is already prepared in the store, or at the customer’s request, ready for eating. That is, the Products are supplied as a prepared meal as is ordinarily understood.

Size of meals – the supply of single or multiple products

It has been contended that the Products are not meals because:

● The names, prices and kilojoule content of each product is considerably less than those of a meal; and

● The kilojoule content of each product only represents an average of X% of the average adult daily kilojoule intake.

These contentions are not accepted for the reasons that follow. Further, if the supply of an individual product was too small to be considered a ‘prepared meal’, the question would become, how many individual products purchased together would comprise a ‘prepared meal’? This would make nonsense of the administration of the GST Act, where taxability would be determined by the number of products purchased by a consumer at any given time.

The legislation could not contemplate taxation being determined by pricing or meal size. Rather and as explained in the EM and discussed in more detail below, whether food is GST-free or taxable is determined by the type of food and relevantly in this case, the example being the category of restaurant food, take away food and prepared meals.

The ordinary meaning of a meal does not distinguish between pricing, sizes of meals or composition. The context informs the meaning of ‘prepared meals’ as being a range of restaurant or takeaway foods that are ready for consumption. The meaning does not require any scientific or dietary analysis. A prepared meal, as ordinarily understood may be, for example: large or small; contain any amount of kilojoules; be high or low in fats, protein or carbohydrates; contain meat or be vegetarian; or be gluten-free. Meals as ordinarily understood, are simply a function of individual taste, culture, health requirements and appetite.

The average daily kilojoule intake of an adult is simply a guide and means of balancing how many kilojoules a person should take in against their daily energy needs over the period of a whole day. This recommendation does not inform the ordinary meaning of a meal or dictate the size a person’s meal must take for it to be classified as GST-free. The amount of kilojoules in food is not referred to in the legislation or the extrinsic material and has no relevance to the GST Act.

Further, if the Products at issue weren’t considered to be prepared meals on some strict view of Item 4, for example serving size alone, then they may still be marketed as prepared meals ‘of a kind’ given the greater generality afforded by the operation of paragraph 38-3(1)(c) (refer above).

The size of a meal, that is, whether one or more of the Products are supplied as part of a single transaction will not be determinative.

Marketed

Whilst individual franchisees may not themselves undertake extensive marketing other than at point of sale, the brand stores sell the same standard products and benefit from the marketing undertaken by the Group on their behalf.

Notwithstanding the absence of written agreements, the Applicant has an understanding with the Group that it should share in the advertising and marketing expenses of the Group. Based on this understanding, the Applicant pays a contribution to the advertising and marketing expenses of the Group based on its sales to the Franchisor.

The amount of advertising and marketing expenses that the Applicant paid to the Franchisor for the year ended 30 June 20XX was $X. This is considered to be representative of the yearly amount paid for advertising and marketing expenses for the period to which the ruling relates. Although not specifically covered by any written agreement, it is clear that the Applicant would also be a beneficiary of the amount spent by the Franchisor on advertising and marketing.

The Franchisor’s advertising and promotional expenditure includes but is not limited to: printing and distribution fees; advertising agency fees; marketing and consulting costs; and public relations expenses.

It has also been contended that the Products are not marketed as meals as:

● no contrary intention (that the Products are meals) can be drawn from the promotion, distribution or packing of the Products; and

● There is very little specific marketing that is carried out as to whether the Products are prepared meals.

The Commissioner does not agree that no contrary intention can be drawn from the promotion, distribution or packaging of the Products. Rather and because Item 4 contains a marketing test, these factors are relevant in determining if a product is in fact marketed as a prepared meal.

The Federal Court decision of Cascade Brewery Company Pty Ltd & Anor v FCT 2006 ATC 4339 (‘Cascade’) considered marketing in a GST context. Specifically, whether Ultra-C (the product at issue) was ‘marketed principally as food for infants or invalids’ so that it would fall within Item 13 of Schedule 2 and be classified as GST-free.

It is perhaps worth noting the use of ‘principally’ in Schedules 1 and 2 creates a higher test as it is included as an additional qualifier. Item 4 of Schedule 1 is not qualified by the use of ‘principally’ therefore a lesser standard in terms of the level of marketing activity is required.

In respect of ‘marketing’ Sunberg J had this to say at paragraphs 11, and 23 to 24:

11. The words "marketed principally as food for infants" in item 13 require an examination of the content of the advertising and other marketing in fact carried out either by the taxpayer or by competitors in the market. The witnesses to whom I have referred spoke somewhat generally about their aims and hopes in respect of the marketing. The relevant findings at [9] are based on the content of the marketing, that is to say, on what a reader of the labels, the Bounty bag brochure and the print advertisements or a viewer of the television advertisements would derive from them. The findings do not entirely accord with the witnesses' evidence about Cascade's aims. That evidence seems to me to have been subconsciously influenced by the existence of item 13 and the purpose of the litigation.

…

23. I have referred at [11] to one aspect of the word "marketed", about which the parties did not make submissions. Otherwise there does not appear to be any significant difference between their positions on the meaning of the expression "marketed principally". Cascade adopted the approach published by the Commissioner in SST11 - Sales tax: a guide to the classification of goods under the sales tax law (SST11):

"Marketing principally means the most important or the most significant of all the ways in which the product is marketed. Marketing involves an examination of the activities of the sellers of the relevant goods."

The document goes on to say that consideration may be given to the name of the goods, their price, the labelling on any containers, literature or instructions accompanying the goods, how they are packaged, how they are promoted or advertised, and how they are distributed.

24. This approach is consistent with the dictionary meanings of "marketing". Thus The Macquarie Dictionary refers to "the total process whereby goods are put onto the market". The Australian Oxford Dictionary refers to "the action or business of promoting and selling products, including market research and advertising".

While the Applicant contended that there is no specific marketing in regards to the products; as confirmed by Sunberg J in Cascade, consideration must be given to the Group’s total process in promoting and selling the Products. These include:

a) The name of the goods

b) The price of the goods

c) The labelling on any containers for the goods

d) Literature or instructions packed with the goods

e) How the goods are packaged

f) How the goods are promoted or advertised

g) How the goods are distributed.

From the above therefore, each of the listed elements by which the Products are marketed will be considered in turn as follows.

Names of the products

The Products are named reflecting their individual descriptions. They are a type of food which is referred to in the EM as a prepared meal.

Pricing

The Products can be purchased for around $X, $Y and $Z respectively.

Generally speaking, profit making concerns set pricing taking into account a profit component and the trade environment.

The trade environment is essentially the market that the brand stores and more specifically the Store compete in and this is the ‘fast/take away food market’. The outlets surrounding the Store and the nearby food court, supply fast/takeaway food.

The Group’s concept is that a number of individual products can be purchased individually providing the consumer with choice.

Labelling on containers

The containers used for the sale of the Products do not have any labelling other than the brand’s logo. The logo is designed to give a certain sense and impression.

The serving sizes of the containers are all consistent with a single serving for a person to consume as a take away meal.

Customers can help themselves to straws, forks, spoons and serviettes which are situated next to the cash register. This facilitates the immediate consumption of the Products as a take away meal.

Literature or instructions packed with the goods

There is no literature or instructions packed with the Products. However such material is readily available on the Group’s website.

Promotion and advertising

Promotion and advertising occurs through the: Group branding; instore displays; billboard advertising; radio and cinema advertising; social media; promotions and website campaigns.

It has been contended, that the Products are not marked as prepared meals because there is very little specific marketing that is carried out in relation to the Products being prepared meals. Further that the Products are not meals because:

At best, the Products could be components of a meal being served together to comprise a meal, although for GST purposes they remain individual supplies.

These contentions are not accepted, primarily because they take a too narrow view as to what comprises the activity of marketing. Further, the Group brand and marketing is not product specific. It is directed at eating fresh food for immediate consumption as indicated by the details of the advertising material.

Further, the advertising campaign promotes the Products as being made daily and fresh.

A single supply of the Product is not marketed to consumers as anything different or unique within the Group brand. Importantly from the Applicant’s perspective, marketing is important and they want, when people think of similar type of food products, that they think of the Group’s brand. That is, the overall marketing strategy is directed at getting consumers to eat the Group’s brand products anytime, anywhere including the Products at issue.

The Products are not specifically marketed to be purchased individually or as a component of a meal. Rather the marketing is directed at ‘up selling’. That is, to encourage the purchase of multiple items in one transaction. This is evidenced by:

● The images on the display boards which promote consumption of multiples of the Products;

● The offer of free additional food products if certain products are purchased simultaneously;

● The menu and billboards which promote consumption of single items;

● The social media campaigns which encourage customers to eat multiples of the products;

● The Group’s website which pictures Group’s products in certain ways;

● The promotions which encourage customers to make a minimum purchase; and

● The advertising campaigns which show the brand stores as a place to go for a fresh prepared meal.

The inference from all this is the overall impression that the Products are intended to be seen and eaten as prepared meals.

Notwithstanding the above, based on an analysis of a sample of sales data provided by the Applicant, the reality is that single sales only make up a small percentage of total sales. Of this percentage of single supplies, the sale of the smaller Products at issue, are very minimal showing that it is very rare that these products are sold individually.

Distribution

The brand stores operate in food courts and compete with other fast/take away food stores. A food court’s busiest period is generally the lunch trade where shoppers and close by workers buy food for immediate consumption in the food court or nearby (eg parks, open spaces or work places).

Taking into consideration the individual elements of marketing and taking a common sense approach, the overall impression is that the Products are marketed as prepared meals or a kind of food that is marketed as a prepared meal. It follows that the Products are not GST-free.

The context - only basic food is GST-free

The EM explains that the purpose of the amendments was to ensure that basic food for human consumption would be GST-free (paragraph 1.3). The EM explains that food will be GST-free unless an exemption applies and relevantly one exemption is in relation to ‘restaurant, take-away and prepared meals’. Paragraph 1.19 explains the exclusion as follows.

Restaurant, take-away and prepared meals

1.19 The types of food covered by this exclusion will be:

● all food and drink supplied for consumption on the premises where it is supplied (eg. restaurant, eat-in facilities at a take-away establishment);

● all hot food and drink supplied for consumption away from premises; and

● food that is included in the category of prepared food listed in new Schedule 1A. This includes some types of food that would be sold by take-away outlets (eg. sandwiches) as well as food that is essentially the same as that sold by take-away outlets (eg. frozen pizzas). It also includes frozen meals which are sold in a form that just requires heating for consumption (eg. A TV dinner or a low fat dietary meal).

Paragraph 1.33 of the EM includes a reference to the type of food products at issue in the category of food marketed as a prepared meal as follows:

1.33 New item 4 of new Schedule 1A includes in the category of prepared food, food marketed as a prepared meal but not including soup. This item will cover things such as:

● prepared meals, such as curry and rice dishes, mornays and similar dishes sold cold by a takeaway or supermarket that only need reheating to be ready for consumption;

● fresh or frozen prepared lasagne;

● sushi;

● cooked pasta dishes sold complete with sauce;

● frozen TV dinners; and

● fresh or frozen complete meals (eg. single serves of a roast dinner including vegetables and low fat dietary meals).

In JMB Beverages Pty Ltd v FCT 2009 ATC 20-112, a GST beverage classification case, the Commissioner contended that a construction of the legislation that promotes the purpose of the GST Act is to be preferred to one which would not promote that purpose (see section 15AA of the Acts Interpretation Act 1901). Edmonds J concluded that the Commissioner’s approach was correct¹. In doing so, Edmonds J made reference to the following at paragraphs 61 and 62:

61. In Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273 at [11] the High Court affirmed the observations made by McHugh J in Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 42 that:

"[A] court is permitted to have regard to the words used by the legislature in their legal and historical context and, in appropriate cases, to give them a meaning that will give effect to any purpose of the legislation that can be deduced from that context."

62. It is the same with the GST Act. As Hill J (with whom Stone and Allsop JJ agreed) said in H P Mercantile Pty Ltd v Commissioner of Taxation 2005 ATC 4571; (2005) 143 FCR 553 at [44]:

"It is clear, both having regard to the modern principles of interpretation as enunciated by the High Court in cases such as CIC Insurance Limited v Bankstown Football Club Ltd (1997) 187 CLR 384 and s 15AA of the Acts Interpretation Act 1901 (Cth) that the Court will prefer an interpretation of a statute which would give effect to the legislative purpose, as opposed to one that would not. This requires the Court to identify that purpose, both by reference to the language of the statute itself and also any extrinsic material which the Court is authorised to take into account."

Edmonds J then went on to examine the policy aspect regarding GST-free food as follows.

67. Consistent with the policy that basic fare should be GST-free is the policy perspective that its consumption should not rise to the level of entertainment. Hence all food and drink for consumption on premises where it is supplied (i.e. restaurants, eat-in facilities, etc) will not be GST-free. There is also a policy predisposition against "hot food" which is not prepared in the home - the consequence being that standard takeaway food is liable for GST, for example, hamburgers, chips, BBQ chickens, pies, pizzas, as well as takeaways in plastic food containers.

68. As the express purpose of the amendments identified in the Explanatory Memorandum was to ensure that only "basic food for human consumption" was GST-free, it is also unlikely, the Commissioner submitted, that it was intended to encompass beverages where the essential character of the original "natural" nature of the product has been altered due to it having undergone a process.

69. Such a legislative purpose is also discernable both from the circumstances in which the amendments arose, and the context in which Items 11 and 12 appear in the Table. This was recognised by Gzell J in P & N at [32]:

"There is a lot to be said for the submission of the Commissioner that when the compromise was made for a qualified exemption for food to ensure the passage of legislation, as Sundberg J points out Cascade Brewery Co Pty Ltd v Commissioner of Taxation 2006 ATC 4339; (2006) 153 FCR 11 at [40], the legislature seems to have drawn the line between exempt and non-exempt food supplies in favour of food that is fresh, natural or unprocessed…”

Clearly the Products at issue are not ‘basic food for human consumption’. The Products are processed or prepared ready for eating as either a ‘dine-in’ or ‘takeaway’ food option. Further, the Products are marketed as a type of food which is referred to in the EM as an example of a prepared meal. It is clear from a policy perspective, that the Products should not be considered GST-free food and an interpretation which supports such an outcome should be preferred. Further, the context provided by the above extrinsic material assists in fixing the ordinary meaning of the relevant statutory text (as discussed above).