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Edited version of private ruling

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Ruling

Subject: GST and supply of food products

Questions:

1. Is your supply of tea bags a taxable supply?

2. Is your supply of gravies and flavour enhancers a taxable supply?

3. Is your supply of flavoured tea preparations a taxable supply?

Answers:

1. No, your supply tea bags is not a taxable supply.

2. No, your supply of gravies and flavour enhancers is not a taxable supply.

3. No, your supply flavoured tea preparations is not a taxable supply

Relevant facts and circumstances

You are a manufacturer of dry foods.

You are registered for goods and services tax (GST).

You entered into a contract to manufacture and sell the following food products to another entity (the recipient):

· tea bags - manufactured and sold in various flavours and pack sizes.

· gravies and flavour enhancers - manufacture and sold as dry powders. The gravies are mixed and heated with water and then added to other foods. The flavour enhancers are added to foods during the cooking process.

· flavoured tea - is a blend of dairy and tea products manufactured and sold as dry powders . Each portion is mixed with boiling water to make a single serving of tea.

Under the contract, you order and pay for all the raw materials and packaging materials and convert them into finished goods. The consideration you receive from the recipient is for the finished goods rather than for manufacturing services.

You deliver the goods to the recipient's distribution centre in Australia.

You have a written agreement with the recipient that the recipient will issue recipient created tax invoices (RCTI) for your supply of the food products.

The first RCTI that you received from the recipient did not include GST on your supply of the food products.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 38-2,

A New Tax System (Goods and Services Tax) Act 1999 section 38-3

A New Tax System (Goods and Services Tax) Act 1999 section 38-4.

Reasons for decision

According to section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act):

In your case, make the supply of the food products for consideration and in the course of your enterprise. The supply is connected with Australia as you deliver the goods in Australia. Furthermore, you are registered for GST. As such, the requirements in paragraphs 9-5(a), 9-5(b) 9-5(c) and 9-5(d) of the GST Act are satisfied. Therefore, the supply of the food products is a taxable supply unless it is GST-free or input taxed.

The supply of the food products is not an input taxed supply under any provision in the GST Act. However, section 38-2 of the GST Act provides that a supply of food is GST-free.

The term 'food' is defined in section 38-4 of the GST Act to include, amongst others, beverages for human consumption, ingredients for beverages for human consumption, and goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings).

1. Tea bags

Under paragraph 38-3(1)(d) of the GST Act, a supply of a beverage (or an ingredient for beverage) is not GST-free unless it is a beverage (or an ingredient for a beverage) of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

Item 5 of Schedule 2 of the GST Act (Item 5) lists tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations), coffee and coffee essence, chicory and chicory essence. Accordingly, your supply of tea bags is GST-free.

2. Gravies and flavour enhancers

Gravies and flavour enhancers are goods to be mixed with or added to food for human consumption; as such, they are food as defined in section 38-4 of the GST Act.

Paragraph 38-3(1)(c) of the GST Act provides that a supply is not GST-free under section 38-2 of the GST Act if it is a supply of:

Food specified in Schedule 1 of the GST Act do not include gravies and flavour enhancers; therefore they are not excluded by paragraph 38-3(1)(c) of the GST Act from being GST-free. Accordingly, your supply of gravies and flavour enhancers is GST-free.

3. Flavoured tea preparation

The flavoured tea preparation is a blend of dairy and tea products manufactured and sold as dry powders. It is mixed with boiling water to make a flavoured tea.

Item 7 of Schedule 2 of the GST Act (Item 7) lists preparations for drinking purposes that are marketed principally as tea preparations, coffee preparations, or preparation for malted beverages. Accordingly, your supply of the flavoured tea preparation is GST-free.

Additional information

A tax invoice for a taxable supply must be issued by the supplier unless it is a recipient created tax invoice (RCTI), in which case it must be issued by the recipient.

The Commissioner has made a determination under subsection 29-70(3) of the GST Act. The A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No.1) 2000 (determination) is about the classes of tax invoices that a recipient of a taxable supply may issue.

Where the supply made is GST-free, the recipient is not a recipient of a taxable supply. Therefore, the recipient cannot issue RCTIs for the supply.

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