ATO ID 2004/536: GST and oriental pancakes with sweet filling
Date of decision: 13 June 2002
Business line: Indirect Tax

Issue
Is the entity, a food supplier, making a GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells oriental pancakes with a sweet filling?

Decision
No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells oriental pancakes with a sweet filling. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts
The entity is a food supplier. The entity sells oriental pancakes with a sweet filling such as red bean paste or lotus seed paste. While called 'oriental pancakes', these products are similar to tortillas and flat breads and do not resemble pancakes. The ingredients of the oriental pancakes are wheat flour, margarine, sugar, salt, vegetable oil and red beans or lotus seed paste. Oriental pancakes do not contain egg or milk. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: A supply of food is GST-free under section 38-2 of the GST Act if the product satisfies the definition of food in section 38-4 of the GST Act and the supply is not excluded from being GST-free by section 38-3 of the GST Act. Food is defined in section 38-4 of the GST Act to include food for human consumption (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act). Oriental pancakes with a sweet filling are food for human consumption and satisfy the definition of food contained in paragraph 38-4(1)(a) 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 the table in clause 1 of Schedule 1 to the GST Act (Schedule 1). Item 20 of Schedule 1 (Item 20) lists various bakery items including pancakes and crepes. Therefore, it needs to be determined whether the oriental pancake is a kind of 'pancake' or 'crepe'. 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 Macquarie Dictionary (1997) 3rd edn, The Macquarie Library Pty Ltd, New South Wales 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. The terms 'pancake' and 'crepe' are also not defined in the GST Act. The Macquarie Dictionary (1997) defines pancake as 'a thin flat cake made from a batter of eggs, flour, sugar and milk, cooked in a frying pan' and 'crepe' as 'a thin pancake'. Although the products are labelled as pancakes, they are not made from a batter of egg, flour, sugar and milk. Therefore, the oriental pancakes are not a kind of pancake or crepe as listed in Item 20. Item 27 of Schedule 1 (Item 27) lists 'bread (including buns) with a sweet filling or coating'. An oriental pancake is a flat bread that contains a sweet filling. Therefore, oriental pancakes are food of a kind specified at Item 27 and the supply of oriental pancakes is excluded by paragraph 38-3(1)(c) of the GST Act from being GST-free under section 38-2 of the GST Act. The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply of oriental pancakes with sweet filling is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells oriental pancakes with sweet filling.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 section 38-2 section 38-3 paragraph 38-3(1)(c) section 38-4 paragraph 38-4(1)(a) Division 40 Schedule 1 clause 1 Schedule 1 clause 1 table item 20 Schedule 1 clause 1 table item 27
Related ATO interpretative decisions: ATO ID 2002/908
Other references: The Macquarie Dictionary, 1997, 3rd edn, The Macquarie Library Pty Ltd, New South Wales
Subject references: Goods and services tax GST food Bakery products GST supplies & acquisitions Taxable supply