Edited version of private advice

Authorisation Number: 1052230304502

Date of advice: 28 March 2024

Ruling

Subject: GST and food classification

Question

Will the sale of the products constitute a GST-free supply on the basis that the products are not food of a kind specified under item 2 in the table in clause 1 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The sale of the products will not constitute a GST-free supply.

Relevant facts and circumstances

You are an Australian entity that is registered for GST.

You are proposing to sell products that consist of a type of flat bread and cooked fillings.

The flat bread is folded over itself to encase the fillings.

The products are supplied frozen and must be fully cooked before eating.

You provided images of the packaging of the products which show the ingredients of the products, storage and cooking instructions.

You provided flow diagrams of the process involved in cooking the fillings.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-2

A New Tax System (Goods and Services Tax) Act 1999 section 38-3

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-3(1)(c)

A New Tax System (Goods and Services Tax) Act 1999 section 38-4

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-4(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1, clause 1, item 2

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1, clause 2

Reasons for decision

A supply of food is GST-free under section 38-2 of the GST Act if it satisfies the definition of 'food' in section 38-4 of the GST Act and it is not excluded from being GST-free by section 38-3 of the GST Act.

'Food' is defined in paragraph 38-4(1)(a) of the GST Act to include 'food for human consumption (whether or not requiring processing or treatment)'.

In the present case, it is accepted that the products are 'food for human consumption' under section 38-4 of the GST Act.

However, under paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food 'of a kind' that is specified in clause 1 of Schedule 1 to the GST Act (Schedule 1).

Of a kind

The phrase 'of a kind' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au, accessed 25 March 2024 (Macquarie Dictionary), does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

1. A class or group of individuals of the same nature or character, especially a natural group of animals or plants.

2. Nature or character as determining likeness or difference between things: things differing in degree rather than in kind.

3. A person or thing as being of a particular character or class: he is a strange kind of hero.

4...'

Accordingly, something will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the thing or group in question.

In addition, Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6 (Lansell House 2011) relevantly provides at [30]:

The use of the words "of a kind" in s 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1: Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item...The question is whether the resulting product comes within the genus, class or description of a cracker.

Item 2

Item 2 in the table in clause 1 of Schedule 1 to the GST Act (Item 2) in the category of 'prepared food' in Schedule 1, provides that 'sandwiches (using any type of bread or roll)' is subject to GST.

'Sandwich' is not defined in the GST Act therefore it takes its ordinary meaning.

The Macquarie Dictionary defines a sandwich as:

Noun 1.

a. two or more slices of bread or toast, plain or buttered, with a layer of meat, cheese, salad or the like between.

...

2. 'something formed by a similar combination.

It should be noted that item 2 also states 'using any type of bread or roll'. We consider that this further expands the ordinary meaning of 'sandwich' for the purposes of the GST Act to cover any type of bread with filling.

The Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 in relation to the category of 'prepared food' states:

1.31 The category of prepared food as listed in new Schedule 1A is intended to cover a range of food products that directly compete against take-aways and restaurants. These products will always be taxable. It does not matter whether they:

•         are sold hot, cold or frozen; or

•         require any cooking, heating, thawing or chilling before consumption.

[Clause 2 of Schedule 1A]

1.32 Prepared food specifically includes quiches, sandwiches, pizzas, hamburgers and hotdogs...

Food specified under items 3, 6 and 7 in Schedule 1 have common characteristics with sandwiches in the sense that they consist of bread and fillings. They possess all those properties that are defined and given the label 'sandwich'.

This is supported, for example, by Merriam-Webster Dictionary online, https://www.merriam-webster.com, accessed 25 March 2024, which defines hamburger as a sandwich:

Sandwich

1 a: two or more slices of bread or a split roll having a filling in between

Hamburger:

2: a sandwich consisting of a patty of hamburger in a split typically round bun

The foods covered by items 3, 6 and 7 are very particular kinds of sandwiches that are separately listed in Schedule 1.

Where a food item meets the definition of a sandwich for GST purposes but is not one of the particular kinds of

sandwiches listed; the product is covered by item 2.

In Lansell House 2011 the Full Federal Court stated at [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.

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.

Application of the law to the Products

The products consist of flat bread and fillings.

The Macquarie Dictionary defines bread as:

a food made of flour or meal, milk or water, etc., made into a dough or batter, with or without yeast or the like, and baked.

The flat bread used in the products has similar ingredients as bread that are made into a dough and cooked.

While a sandwich typically consists of a filling between two or more slices of bread or toast, as defined in the Macquarie Dictionary, our view is that for the purpose of Item 2, a sandwich is something formed by a combination of bread and filling regardless of the type of bread or whether the bread is cut, folded or rolled to encase the filling.

The Detailed food list (DFL) which is a public ruling for the purpose of section 105-60 of the Taxation Administration Act 1953 provides details of the GST status of major food and beverage product lines.The DFL relevantly includes the following entries on Item 2:

Table 1: The Detailed food list (DFL) relevantly includes the following entries on Item 2:

The items listed above include entries for products that consist of different types of breads. Many are flat breads. Nevertheless, the supply of these breads when filled is covered by Item 2.

Similarly in this case, the products consist of a type of flat bread and fillings. The products are formed by folding the flat bread over itself to encase the filling. As such we consider the products are a kind of sandwich and covered under Item 2.

As the products are food of a kind listed in Schedule 1, the sale of the products is excluded from being GST-free by section 38-3 of the GST Act. The sale of the products will be a taxable supply under section 9-5 of the GST Act.