ATO Interpretative Decision

ATO ID 2001/200 (Withdrawn)

Goods and Services Tax

• The ATO view is covered in Goods and Services Tax Determination GSTD 2002/2.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

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 fruit drink concentrate?

Decision

No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells fruit drink concentrate. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts

The entity is a food supplier. In this case, the entity is supplying fruit drink concentrate. The fruit drink concentrate is used for making non-alcoholic beverages.

The ingredients of the concentrate are as follows: orange peel extract (12%); orange juice concentrate; sugar; food acid; preservatives; natural colour and water.

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

Reasons For Decision

Under section 38-2 of the GST Act a supply of food is GST-free provided that it does not come within any of the exclusions listed in section 38-3 of the GST Act. Food is defined in paragraph 38-4(1)(d) of the GST Act to include ingredients for beverages for human consumption. Fruit drink concentrate is an ingredient for a beverage for human consumption.

However, under paragraph 38-3(1)(d) of the GST Act, the supply of an ingredient for a beverage is only GST-free if it is a supply of an ingredient of kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

The issue, therefore, is whether the fruit drink concentrate is an ingredient of a kind specified in Schedule 2.

The category of relevance to this case is 'fruit and vegetable juices'. Concentrates for making non-alcoholic beverages, if the concentrates consist of at least 90% by volume of juices of fruit, are specifically included as being GST-free (item 10 of Schedule 2).

Therefore, for an item to fall within item 10 of Schedule 2, the concentrate must:

•

be used for making non-alcoholic beverages; and

•

comprise juices of fruits; and

•

be at least 90% by volume of juices of fruits.

In this case, the fruit drink concentrate is used for making non-alcoholic beverages, and contains juices of fruit. As such, in order to determine whether the concentrate falls within item 10 of Schedule 2, it is necessary to consider whether the product contains 90% by volume of juices of fruit.

Apart from the fruit juice concentrate, the product contains other additives. These are orange peel extract (12%), sugar, food acid, preservatives, natural colour and water.

For GST purposes, it is considered that orange peel extract does not constitute juice. As the orange peel extract makes up 12% of the concentrate (in addition to sugar, food acid, preservatives, natural colour and water), the concentrate contains less than 90% by volume of juices of fruits.

Accordingly, the fruit drink concentrate does not consist of at least 90% by volume of juices of fruit and, therefore, does not fall within the scope of item 10 of Schedule 2. As such, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells the fruit drink concentrate.

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 the fruit drink concentrate.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 38-2
   section 38-3
   paragraph 38-3(1)(d)
   paragraph 38-4(1)(d)
   Schedule 2, clause 1
   Division 40
   Schedule 2, clause 1, Item 10

Other References:
Food Industry Issues Register - Issue no. 19

Keywords
Goods and Services Tax
GST free
GST food
Food for human consumption
Ingredients for beverages

Business Line:  GST

Date of publication:  14 August 2001

ISSN: 1445-2782