Edited version of private advice

Authorisation Number: 1051688337281

Date of advice: 28 May 2020

Ruling

Subject: Goods and services tax (GST) and food classification

Question

Is a supply of 100% sparkling juice by an Australian entity (you) GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. Your supply of 100% sparkling juice is GST-free under section 38-2 of the GST Act.

Relevant facts and circumstances

You are an Australian entity which is registered for GST.

You intend to launch non-alcoholic carbonated sparkling juice products. ('Products'), each made wholly from the juices of fruit, each of which will be comprised wholly of juice of fruit at the time of supply, and each will be ultimately sold to consumers. Relevant packaging was provided

The Products consist of juice, and the remaining flavour.

The flavour is captured in the concentrate making process allowing complete re-constitution of the juice and added back to the concentrate.

The flavour is extracted in a liquid form.

There are no preservatives being added to the flavour before adding back the concentrate.

There are no further processes are undertaken on the flavour from the time it is captured to the time it is added back to the concentrate.

There are no preservatives are being added to the Products at any stage.

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

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

Reasons for decision

Detailed reasoning

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

The term food is defined in subsection 38-4(1) of the GST Act. Food includes any of the following, or any combination of any of these:

(a) food for human consumption (whether or not requiring processing or treatment);

(b) ingredients for food for human consumption;

(c) beverages for human consumption;

(d) ingredients for beverages for human consumption.

From the facts provided the Products are beverage for human consumption and satisfies paragraph 38-4(1)(c) of the GST Act.

However, under paragraph 38-3(1)(d) of the GST Act, a beverage other than a beverage of a kind that is specified in the third column in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2), is not GST-free. That is, the beverage must fall under Schedule 2 to be GST-free.

The Products will only be GST-free if the Products are beverages of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act. The Products need to fall within Item 11 of the table, an excerpt from which is as follows:

Item 11 in Schedule 2 (Item 11) is relevant to your carbonated juice product.

Item 11 specifies 'non-alcoholic carbonated *beverages, if they consist wholly of juices of fruits or vegetables'.

* Asterisked terms are defined under section 195-1 of the GST Act.

Based on the information provided, the Products are non-alcoholic carbonated beverages. We now need to consider whether the Products consist wholly of juices of fruits or vegetables.

The ATO is of the view that wholly means 100%. This is consistent with the view expressed by Gzell J in P & N Beverages Australia Pty Ltd v FC of T (2007) ATC 4481.

37. The concession by P & N that the word "wholly" meant 100% was a proper one. Items 10 and 12 in the table to cl 1 in Sch 2 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) are, respectively, concentrates for making non-alcoholic beverages if the concentrates consist of at least 90% by volume of juices of fruits, and non-alcoholic non-carbonated beverages if they consist of at least 90% by volume of juices of fruits or vegetables. In that context, "wholly" must, in my view, mean 100%.

The Tax Office's Goods and Services Tax Detailed Food List provides that:

The Products consist of fruit juices and flavour.

The Tax Office is of the view that the addition of any substance that is listed as a food additive in the Australian New Zealand Food Standards (ANZFS) will prevent a product from consisting wholly of juices of fruits or vegetables.

Food additives

Food additives are described in Standard 1.3.1 of the Australia New Zealand Food Standards (ANZFS). It defines a food additive as any substance not normally consumed as food in itself and not normally used as an ingredient for food, but which is intentionally added to a food to achieve one or more of the technological functions specified in Schedule 5 [emphasis added].

Given the ANZFS approach, an additive as defined under ANZFS is, for GST purposes, considered to be a discrete substance. It follows that even if an additive is originally derived from fruit and/or vegetables, its character has changed so that it cannot be considered to be the juices of fruits or vegetables.

ANZFS Standard 1.3.1 regulates the use of food additives in the production and processing of food. A food additive may only be added to food where expressly permitted in the Standard. Additives can only be added to food in order to achieve an identified technological function.

The main point that should be remembered is that the ANZFS considers that if something is an additive, it no longer is fruit or vegetables. If something is fruit or vegetables, there is no requirement under the standards to have it separately mentioned and given its own code number. By definition, anything that had a code (or should have a code) cannot be fruit or vegetables.

Flavours and flavour enhancers

Flavours and flavour enhancers are used to enhance the existing taste and/or odour of a food. Flavours and flavour enhancers as a class are not usually considered to contain herbs and spices which are dealt with under the ANZFS Standard for fruit and vegetables.

ANZFS' Flavouring and Flavour Enhancers User guide (August 2002) notes that there are three types of permissible flavouring substances:

·         natural - obtained from plant or animal raw materials, by physical, microbiological or enzymatic processes,

·         nature-identical - obtained by synthesis or isolated through chemical processes, and

·         artificial - are not identified in a natural products intended for human consumption, whether or not the product is processed.

Clause 11 of ANZFS Standard 1.3.1 (additives) provides permission for the above classes of flavouring substances to be added to food. The above flavouring substances are regarded as additives under the ANZFS.

Facts indicate that the Products consist of fruit juices with the flavour. We need to determine whether the flavour used in the Products falls under the above classification.

Based on the facts provided, the flavour is captured during the juice concentration process. It is a liquid by-product of the juice and is not synthetically created nor is it fermented, or otherwise reduced to crystal form. Furthermore there are no further processes are undertaken on the flavour from the time it is captured to the time it is added back to the Products. You also stated that there are no preservatives being added to the Products at any stage.

On the basis of the above facts, the Products meet the definition of consisting of 'wholly of juices of fruits or vegetables' and therefore satisfy the requirement under item 11 in Schedule 2 to the GST Act. Accordingly, your supply of Products is GST-free under section 38-2 of the GST Act. Hence, GST is not payable on your supply of the Products.

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