Edited version of your written advice

Authorisation Number: 1051464627133

Date of advice: 19 December 2018

Ruling

Subject: GST and ingredient for beverages

Question

Is the supply of the Product GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The supply of the Product is a taxable supply.

Relevant facts

You sell a range of products which are specially formulated to support one’s wellbeing. You are registered for GST.

The Product is sold directly to consumers via your website and through resellers and distributors.

The Product will be sold in containers of varying volume.

Available from your online shop are your wellbeing products. You have recently introduced the Product.

You directed us to your website which contains information about the Product such as:

● Size of the bottle

● Sale price

● Health benefits

● The Product is a tonic made of a various ingredients of vegetable and fruit sources.

You provided a copy of the Product label and a sample of the Product which lists the ingredients of the Product and its health benefits.

You advised that the Product contains mainly a fermented fruit juice product and a vegetable juice concentrate.

You provided a copy of a factsheet for the Product which provides the following:

● There is really no limit to the ways you can enjoy the tonic.

● You can drink it diluted in water, brew it as your tea, shot it plain and simple, or dress it on your salad. Further, the Product label states that you can shake it and take it your way, sparkle it, brew it or dress it.

● The Product is non-carbonated and contains mainly fermented fruit juice product and fruit juice concentrate.

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 Paragraph 38-3(1)(d).

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

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(b).

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(d).

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(e).

A New Tax System (Goods and Services Tax) Act 1999 Schedule 2.

Reasons for decision

Summary

The supply of the Product is not GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The supply is a taxable supply under section 9-5 of the GST Act.

Detailed reasoning

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.

The Product is made up of various ingredients which by themselves may be GST-free. However, it is the end product that needs to be considered.

Food is defined in section 38-4 of the GST Act to include:

● ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act)

● ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act) and

● goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings) (paragraph 38-4(1)(e) of the GST Act).

You contend that your Product is a fruit juice product which is listed in the Detailed Food List as GST-free as an ingredient for food (paragraph 38-4(1)(b) of the GST Act) or a fruit juice product which is listed in the Detailed Food List as GST-free as a condiment for food (paragraph 38-4(1)(e) of the GST Act).

Whilst a product can be characterised in more than one way, this is irrelevant for the purposes of the GST Act, as a product can only be classified as one particular item (Lansell House Pty Ltd & Anor FC of T 2011 ATC 20-239 at [7] (Lansell 2011)

Further in Customs and Excise Commissioners v. Ferrero UK Ltd [1997] STC 881 at 888, where the question to be answered as to the characterisation or classification of a product is one of fact and degree, as it was for biscuits, Lord Wolf MR concluded that where a product has the characteristics of two categories, it is placed in a category in which it has sufficient characteristics to qualify.

In determining whether a product is an ingredient for food, an ingredient for a beverage or goods to be mixed with or added to food for human consumption such as condiments, it is important to determine the essential character of the product.

The fact sheet you provided states that there is really no limit to the ways you can enjoy the tonic. You can drink it diluted in water, brew it as your tea, shot it plain and simple, or dress it on your salad. Further, the Product label states that you can shake it and take it your way, sparkle it, brew it or dress it.

Although the Product contains mainly fermented fruit juice, it has other things added to it such as honey, herbs and vegetable juice. It can be consumed on its own or drizzled over salad. However, it is more generally used to make a drink or tea. It is used for a great tasting drink.

We consider that the essential character of the Product is not that of an ingredient for food or goods to be mixed with or added to food for human consumption such as a condiment. The Product has sufficient characteristics to be considered as an ingredient for beverages. The fact that the Product has subsidiary uses as a condiment does not alter its characterisation as an ingredient for beverages. Hence, the Product satisfies the definition of food in paragraph 38-4(1)(d) of the GST Act.

Where a product is characterised as an ingredient for a beverage, GST will apply unless the ingredient is of a kind listed in the table in clause 1 of Schedule 2 of the GST Act (Schedule 2).

The category “fruit and vegetable juices” in Schedule 2 lists items 10, 11 and 12:

Note 3: Fruit and vegetable juices: For the purposes of items 11 and 12 in the table, herbage is treated as vegetables.

The ATO view for item 10 is outlined in paragraph 9 of Goods and Services Tax Determination (GSTD) 2002/2:

Concentrates

9. Item 10 provides that certain concentrates for making beverages can be supplied GST-free, where they are for making non-alcoholic beverages. These products contain concentrated fruit or vegetable juices, and when reconstituted by the addition of water, return to a drinkable 'pure juice' state. However, to be supplied GST-free, the concentrate must consist of at least 90% by volume of juices of fruits or vegetables.

The Product is neither marketed nor perceived by consumers to be concentrates for making fruit and/or vegetable juices. Hence, we do not consider that the Product is a concentrate for making non-alcoholic beverage of a kind listed in item 10 of Schedule 2.

Paragraphs 4 and 5 of GSTD 2002/2 discuss items 11 and 12 of Schedule 2 as follows:

Fruit and vegetable juices

4. Item 11 provides that a carbonated beverage will only be GST-free if it consists wholly of fruit or vegetable juices. Item 12 provides that non-alcoholic and non-carbonated beverages will only be GST-free if they consist of at least 90% of juices of fruits or vegetables by volume. However, to be supplied GST-free the fruit and vegetable juices must be beverages under the ordinary meaning of the word beverage.

The meaning of beverage

5. The GST Act defines beverage to include water, but does not otherwise discuss the meaning of a beverage. The word beverage appears in a similar context in the former sales tax legislation and has been considered by the courts to mean 'a drink of any kind' and, in turn, drink as 'any liquid which is swallowed to quench thirst or for nourishment’.

The Product is non-carbonated and contains mainly fermented fruit juice product and fruit juice concentrate. Although the fermented fruit juice product may be made from fruit juice, it has gone through a process of fermentation such that it is no longer a beverage consisting of juices of fruits.

The Product is neither a carbonated beverage (item 11) nor a beverage consisting of at least 90% by volume of juices of fruits or vegetables (item 12). Hence, we do not consider that the Product is of a kind listed in items 11 and 12 of Schedule 2.

As the Product is an ingredient for a beverage that is not of a kind listed in Schedule 2, the supply of the Product is not GST-free pursuant to section 38-2 of the GST Act.

Taxable supply

The supply of the Product is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.

Section 9-5 of the GST Act provides that you make a taxable supply if:

(a) you make the supply for consideration

(b) the supply is made in the course or furtherance of an enterprise that you carry on

(c) the supply is connected with the indirect tax zone, and

(d) you are registered, or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case, the supply of the Product satisfies the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act because:

● the supply of the Product is for consideration

● the supply of the Product is made in the course of your enterprise

● the supply of the Product is connected with Australia and

● you are registered for GST.

Furthermore, the supply of the Product is neither GST-free nor input taxed under any provisions of the GST Act or another Act. Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of the Product is a taxable supply.

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