ATO Interpretative Decision

ATO ID 2002/286

Goods and Services Tax

GST and the sale of grape juice concentrate for making alcoholic beverages
FOI status: may be released
Status of this decision: Decision Current

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a supplier of a grape juice concentrate, 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 grape juice concentrate that is for making alcoholic beverages, to a customer who makes a declaration that the grape juice concentrate will be used to make non-alcoholic beverages?

Decision

No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it supplies grape juice concentrate that is for making alcoholic beverages, to a customer who makes a declaration that the grape juice concentrate will be used to make non-alcoholic beverages. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts

The entity supplies grape juice concentrates to the wine industry. All of the entity's concentrates are marketed for use in alcoholic beverages and are stored identically. The grape juice concentrates consist of at least 90% by volume of fruit juice and are used for making alcoholic beverages.

However, a small number of the entity's customers use this product for making non-alcoholic beverages. At the time of sale, the customer makes a declaration that it will use the grape juice concentrate to make non-alcoholic beverages.

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

Reasons for Decision

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 ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act). The grape juice concentrate is an ingredient for a beverage for human consumption and therefore, satisfies the definition of food in paragraph 38-4(1)(d) of the GST Act.

However, under paragraph 38-3(1)(d) of the GST Act, ingredients for beverages are only GST-free if they are of a kind listed in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

Item 10 of Schedule 2 (Item 10) lists 'concentrates for making non-alcoholic beverages, if the concentrates consist of at least 90% by volume of juices of fruit.'

The grape juice concentrate supplied by the entity does contain at least 90% by volume of fruit juice. Therefore, it needs to be determined whether the grape juice concentrate for making alcoholic beverages sold by the entity is considered to be a concentrate for making non-alcoholic beverages when the customer has declared that the concentrate will be used to make non-alcoholic beverages.

Under the GST legislation, the GST status of a supply of food is determined on the basis of what is being supplied, not what the recipient of the supply intends to do with the food. Therefore, there is no requirement for the entity to determine how the customer will use the grape juice concentrate in order to determine the GST status of the supply.

The entity does not differentiate the grape juice concentrate when it supplies it to customers that may make either alcoholic or non-alcoholic beverages. All of its grape juice concentrates are marketed for use in alcoholic beverages and are stored identically. Therefore, the entity is supplying grape juice concentrate for making alcoholic beverages despite the customer's declaration.

Accordingly, the grape juice concentrate is not covered by Item 10 and the supply of the grape juice concentrate is not a GST-free supply 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 supplies grape juice concentrate that is for making alcoholic beverages, to a customer who makes a declaration that the grape juice concentrate will be used to make non-alcoholic beverages.

[Note: Under section 86 of the Sales Tax Assessment Act 1992, a recipient of a supply could make a declaration that it intended to use goods in such a way that it met the legislative requirements for an exemption from sales tax. The Sales Tax Assessment Act ceased to apply from 1 July 2000. The GST legislation does not include a declaration system similar to that used under sales tax. However, a recipient that meets the requirements of section 11-20 of the GST Act is entitled to an input tax credit for the GST included in an acquisition that it makes.]

Date of decision: 28 March 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 11-20
   Division 38
   section 38-2
   section 38-3
   subsection 38-3(1)(d)
   section 38-4
   paragraph 38-4(1)(d)
   Division 40
   Schedule 2 clause 1
   Schedule 2 clause 1 table item 10

Sales Tax Assessment Act 1992
section 86

Keywords
Goods & Services tax
GST-free
GST food
Ingredients for beverages
Supplies & acquisitions
Taxable supply

Siebel/TDMS Reference Number: CRS53563

Business Line: Indirect Tax

Date of publication: 28 March 2002

ISSN: 1445-2782

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).