GST and partially cleaned sheep and cattle intestines

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 partially cleaned sheep and cattle intestines?

No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells partially cleaned sheep and cattle intestines. The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is a food supplier. The entity sells partially cleaned sheep and cattle intestines. The intestines cannot be used as sausage casings until they have been cleaned.

The entity is registered for goods and services tax (GST). The supply satisfies the other positive limbs of section 9-5 of the GST Act.

A supply of food is GST-free under section 38-2 of the GST Act if it satisfies the definition of food in subsection 38-4(1) of the GST Act and it is not excluded by section 38-3 of the GST Act.

Food is defined in subsection 38-4(1) of the GST Act for the purposes of section 38-2 of the GST Act. Paragraph 38-4(1)(b) of the GST Act lists 'ingredients for food for human consumption'. Therefore, it is necessary to determine whether the partially cleaned sheep and cattle intestines are 'ingredients for food for human consumption'. Sausages are food for human consumption. A sausage casing is considered to be an ingredient for a sausage because it is a constituent element of the sausage. Therefore, sausage casings come within the meaning of 'ingredients for food for human consumption' in paragraph 38-4(1)(b) of the GST Act.

However, the intestines in this case cannot be used as sausage casings until they have been cleaned. That is, they require further processing before being used in the manufacture of sausages. As such, it must be determined whether 'ingredients for food for human consumption' would include ingredients that require further processing or treatment.

An accepted principle of statutory interpretation (the noscitur a sociis rule) states that words take their meaning from the words with which they are associated ( Fox v. Warde [1978] VR 362: Supreme Court of Victoria). As such, the meaning of the words ''ingredients for food for human consumption' can be derived from the context of the surrounding words used in subsection 38-4(1) of the GST Act.

The definition of food in paragraph 38-4(1)(a) of the GST Act includes food for human consumption whether or not requiring processing or treatment. In contrast, the words 'whether or not requiring processing or treatment' are absent from paragraph 38-4(1)(b) of the GST Act. Therefore, it is considered that for an ingredient to satisfy the definition of food in paragraph 38-4(1)(b) of the GST Act, the ingredient needs to be in a processed or treated form. A product that requires further processing or treatment, before being capable for use as an ingredient, does not satisfy the definition of food in paragraph 38-4(1)(b) of the GST Act.

As such, the partially cleaned sheep and cattle intestines are not considered to be ingredients for food for human consumption. Therefore, the sheep and cattle intestines do not satisfy the definition of 'food' in paragraph 38-4(1)(a) of the GST Act. Accordingly, the supply of the sheep and cattle intestines is not 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 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 partially cleaned sheep and cattle intestines.