Edited version of private advice

Authorisation Number: 1052019896263

Date of advice: 8 September 2022

Ruling

Subject: GST and supply of blended vegetables

Question

Is the supply of the Products 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 Products is a taxable supply.

Relevant facts

You produce the Products.

You are registered for GST.

The Products are single serve cubes and sold as a box of a number of cubes. The Products are sold frozen and a box is currently sold for a specified amount.

There are a number of flavours and the ingredients are fruits, vegetables, herbs and seeds.

The manufacturing process is to weigh, wash, blend, pump into cubes, chill and store frozen.

The texture of the Products is a little like yoghurt with fibre. The appearance is fresh and vibrant in colour.

The Products are sold online, at the markets and retail stores.

The business of selling the Products started as you wanted to prepare your own version of a smoothies, and as you wanted convenience, you made them in bulk and froze them.

The packaging includes the serving suggestion which is also included in the brochure that you provided. The instructions are to peel the covering of the cube, pour the contents into a glass, add a liquid and then stir.

The brochure provides that the Products can be enjoyed as a beverage, as a meal or added to any dish.

You provided a link to your website which states that one cube meets the daily nutritional requirements and is for busy people who care about their health.

Your website states that for simplicity, to add water to the Products and stir through, blend with other kinds of beverages, or as an option, the Products can be added to any dish. Your website includes recipes for food and beverages which include the Products in the ingredients. Your website also includes a number of videos of people using the Products to prepare drinks by mixing with liquids such as coconut water in a glass or in a blender to make smoothies. In the videos people comment that the Products are a convenient and easy way to prepare healthy and delicious beverages.

Your social media pages state that the Products are for busy or active people who care about their health. The social media pages state that you can just pop a cube straight into a glass of water, take it as a smoothie or add it in any dish.

Customer reviews and social media posts indicate that the Products are seen as being a quick and convenient way of getting the necessary nutrients by adding the Products to a liquid to make a drink or mix with other food items to make a smoothie.

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 Schedule 1.

Reasons for decision

Summary

The supply of the Products is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The supply of the Products 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.

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) and

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

In Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329, Sunberg J concluded at [108] and [109] that classification decisions for GST purposes were a question of fact and degree and a matter of overall impression

On appeal, the Full Federal Court in Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6 confirmed that a product may exhibit the characteristics of two categories, however for the purposes of the GST Act, a product can have only one 'classification'.

In determining whether a product is an ingredient for food or an ingredient for a beverage, it is important to determine the essential character of the product. There are products that are generally only used as an ingredient for a beverage - for example, milk powder. Although milk powder could be used as an ingredient for cooking, its essential character is that of an ingredient for a beverage.

The Products consist of a blend of fruits, vegetables, herbs and seeds. The texture of the blend is a little like yoghurt with fibre. The appearance is fresh and vibrant in colour.

Your website includes recipes for food and beverages which include the Products in the ingredients. The brochure provides that the Products can be enjoyed as a beverage, as a meal or added to any dish.

Although the Products can be used in a variety of dishes or drinks, we consider that they are more generally used as an ingredient for beverages. This conclusion is supported by the following:

•                    The business of selling Products started as you wanted to prepare your own version of a smoothie, and as you wanted convenience, you made them in bulk and froze them.

•                    There are a number of cubes in a box and the labelling states that one cube meets the daily nutritional requirements.

•                    The Products are marketed as nutrients for busy people who care about their health.

•                    The serving suggestion on the packaging and brochure provides to peel the cover of the Product, pour the content into a glass, add a liquid and stir.

•                    Your website states that for simplicity, to add water to the Products and stir through, blend with other kinds of beverages or as an option, the Products can be added to any dish.

•                    Your website includes a number of videos of people using the Products to prepare drinks by mixing with liquids such as coconut water in a glass or in a blender to make smoothies. In the videos people comment that the Products are a convenient and easy way to prepare healthy and delicious beverages.

•                    The videos and customer reviews indicate that your customers regard and use the Products predominantly as ingredients for beverages. They are seen as being a quick and convenient way of getting the necessary nutrients by adding the Products to a liquid to make a drink or mix with other food items to make a smoothie.

•                    The nature of the Products indicates that they are intended for use as ingredients for beverages, despite the fact that they can also be added to food.

We consider that the essential character of the Products is that of ingredients for beverages for human consumption. The fact that the Products have subsidiary uses for cooking does not alter their characterisation as ingredients for beverages and therefore should be classified as such. Hence, the Products satisfy the definition of food in paragraph 38-4(1)(d) of the GST Act.

However, paragraph 38-3(1)(d) of the GST Act provides that where a product is characterised as an ingredient for a beverage, GST will apply unless the product is an ingredient of a kind that is specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

Of relevance are items 10, 11 and 12 of Schedule 2.

Clause 3 of Schedule 2 provides that for the purposes of items 11 and 12 herbage is treated as vegetables.

Item 10

The word 'concentrates' is not defined in the GST Act and therefore it takes its ordinary meaning. Macmillan Publishers Australia,The Macquarie Dictionary online, www.macquariedictionary.com.au, defines 'concentrates' as:

-verb...

3. Chemistry to increase the strength of a solution, usually by evaporation.

-noun 8. a concentrated form of something; a product of concentration.

Therefore, a fruit or vegetable juice concentrate is a fruit or vegetable juice from which most of the water has been extracted.

The Products consist of fruits, vegetables, herbs and seeds that have been weighed, washed and blended. The blend is then formed into cubes, chilled and stored frozen. The Products therefore do not meet the ordinary meaning of a 'concentrate' as they have not gone through the same process as a concentrate. Accordingly, we do not consider that the Products are 'concentrates' of a kind listed in item 10.

Items 11 and 12

Paragraphs 4 and 5 of Goods and Services Tax Determination 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 legislationand 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 Products consist of blended fruits and vegetables, which are used as an ingredient for making beverages. The Products are not a drink or a liquid which is swallowed to quench thirst or for nourishment'. Hence, the Products are not beverages of a kind listed in items 11 and 12.

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

Taxable supply

The supply of a 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 Products satisfies the requirements of paragraphs 9 5(a), 9 5(b), 9-5(c) and 9-5(d) of the GST Act. Furthermore, the supply of the Products 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 Products is a taxable supply.

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