ATO ID 2003/1142: GST and banana chips
Date of decision: 2 December 2003
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 supplies banana chips?

Decision
No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it supplies banana chips.

Facts
The entity is a food supplier. The entity supplies banana chips. Banana chips are thin, crisp, cross-sections (slices) of processed banana and are commonly supplied as a snack product. Banana chips are produced by cooking banana slices in oil. The resultant slices are thin and crisp. The banana chips are lightly flavoured with sugar, honey and artificial flavouring or they may be seasoned with salt or spices. The entity is registered for goods and services tax (GST) and the supply satisfies the other positive limbs of section 9-5 of the GST Act.

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). Banana chips are food for human consumption and therefore, satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act. However, paragraph 38-3(1)(c) of the GST Act provides that 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 18 of Schedule 1 (Item 18) specifies food similar to that covered by item 15 of Schedule 1 (Item 15) or item 16 of Schedule 1 (Item 16), whether or not consisting wholly or partly of any vegetable, herb, fruit, meat, seafood or dairy product or extract and whether or not it is artificially flavoured. Banana chips consist of a fruit (banana) with added ingredients including oil and flavouring or seasoning. Therefore, banana chips are food of a kind specified in Item 18 provided they are similar to food that is covered by either Item 15 or Item 16. Item 15 specifies potato crisps, sticks or straws, corn crisps or chips, bacon or pork crackling or prawn chips. The foods listed in Item 15 are snack foods that have undergone a cooking process and share certain other characteristics such as crispness. Although none of the foods listed in Item 15 is comprised of fruit, for a food to be covered by Item 18, the food need only be of a kind that is similar to that covered by Item 15. Banana chips are thin, sliced discs in the form of chips and are cooked in oil so that they are crisp and crunchy. They are generally supplied and labelled as banana 'chips'. Banana chips possess many of the characteristics of the foods specified in Item 15 and are therefore, similar to those foods. Furthermore, banana chips can be distinguished from foods in the class of dried fruit, due to the cooking and flavouring process used in their manufacture. Dried fruits are dried to varying extents, but do not exhibit other similarities to the foods listed in Item 15. Accordingly, banana chips are food of a kind covered by Item 18 and a supply of banana chips is, therefore, excluded from being a GST-free supply by the operation of paragraph 38-3(1)(c) 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 is neither GST-free under any other provision of 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 supplies banana chips.

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 15 Schedule 1 clause 1 table item 16 Schedule 1 clause 1 table item 18
Subject references: Goods and services tax GST food Food for human consumption GST supplies & acquisitions Taxable supply