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Ruling

Subject: Goods and services tax (GST) and fruit juice product

Question

Is the supply of your frozen juice product GST-free?

Answer

No, the supply of your frozen juice product is a taxable supply.

Relevant facts and circumstances

You are registered for GST.

You import and market (resell) a fruit juice product (product) in Australia.

The product is sold to retail outlets.

You have been selling this product in Australian retail outlets as a GST-free product.

The product consists of 100% fruit juice, and is packaged in individual 100 ml plastic sachets.

You have launched a specific retail pack of fruit juice product.

The product can be sold and consumed either as a 100% fruit juice to be drunk as a beverage or as a 100% fruit juice ice block.

When sold to some retail outlets the product is supplied at ambient temperature in liquid form as it has been pasteurised and are shelf stable, and may then be frozen by the retailer prior to sale if required.

When sold in supermarkets and health food stores, the product is supplied in specific packs.

When sold in supermarkets and health food stores, the product is sold frozen as it is not pasteurised and is preservative free.

When the product is sold in supermarkets and health food stores, they are taken home by the consumers to be consumed either as a 100% fruit juice beverage or an ice block.

Reasons for decision

You make a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if:

you make a supply for consideration

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

the supply is connected with Australia, and

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.

It is understood that you make supplies of the product for consideration, and that you do so in Australia in the course or furtherance of your enterprise. Further, you are registered for GST. Thus, all four of the abovementioned positive elements of a taxable supply are met.

The supply is not input taxed under any of the provisions in Division 40 of the GST Act.

However, your product consists of 100% fruit juice, and the product is supplied as food for human consumption.

Division 38 of the GST Act sets out the supplies that are GST-free, and certain provisions in that Division relating to the GST-free supply of food are of relevance to the product in question.

GST-free food

Section 38-2 of GST Act provides that the supply of food is GST-free. The meaning of the term 'food' for GST purposes is defined in section 38-4 of the GST Act. Under paragraph 38-4(1)(a) of the GST Act the term 'food' includes food for human consumption, whether or not it requires processing or treatment. Under subsection 38-4(1) of the GST Act food for human consumption includes any of the following or a combination of any of the following:

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

ingredients for food for human consumption

beverages for human consumption, and

ingredients for beverages for human consumption.

However, supplies of beverages or ingredients for beverages for human consumption will only be GST-free if they satisfy the requirements in clause 1 of Schedule 2 to the GST Act.

Further, under section 38-3 of the GST Act, the supply of certain foods is excluded from being GST-free.

Paragraph 38-3(1)(d) of the GST Act excludes beverages from being GST-free, other than those of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act.

The meaning of the word 'beverage' for GST purposes has been considered in Goods and Services Tax Determination GSTD 2002/2 Goods and Services Tax: what supplies of fruit and vegetable juices are GST-free? (GSTD 2002/2)

At paragraphs 5 -7, GSTD 2002/2 states:

'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.^'

6. For something to be a drink, it must be a liquid to be swallowed:

• to quench thirst; or

• for nourishment.

7. A liquid providing nourishment will sustain life by assisting in growth or providing energy. A nutritional purpose may be contrasted with a medicinal purpose which arises where a liquid is provided for the treatment of disease or has curative or remedial properties.

In your case, the product is supplied to retailers in frozen or liquid form, and it is intended and able to be consumed in either frozen or liquid form. Further, it is supplied to the final consumer by retail outlets in frozen form. As a consequence, the product is also not always consumed as a beverage, even though it is possible to consume the product in liquid form. On that basis the product does not have the essential character of a beverage, as it is not a liquid supplied to quench thirst or to provide nourishment. Therefore the product does not have the essential character of a beverage.

GSTD 2002/2 also states:

Explanation

3. A supply of food is GST-free. Food is defined to include beverages for human consumption and ingredients for such beverages. However, supplies of beverages or ingredients for beverages will only be GST-free if they satisfy the requirements in clause 1 of Schedule 2 to the GST Act. The items in Schedule 2 that concern fruit and vegetable juices are Items 10, 11 and 12.These items are shown in the following extract.

'Schedule 2 - Beverages that are GST-free

1 Beverages that are GST-free

Beverages specified in the third column of the table are GST-free.

Beverages that are GST-free
Item	Category	Beverages
10	Fruit and vegetable juices	concentrates for making non-alcoholic *beverages, if the concentrates consist of at least 90% by volume of juices of fruits
11		non-alcoholic carbonated *beverages, if they consist wholly of juices of fruits or vegetables
12		non-alcoholic non-carbonated *beverages, if they consist of at least 90% by volume of juices of fruits or vegetables

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.

It is noted that your product consists of 100% pure fruit juice, and is not carbonated. As such, the product is not a concentrate for making a non-alcoholic beverage as described in Item 10 of Schedule 2 to the GST Act. Nor is it a non-alcoholic carbonated beverage consisting wholly of the juices of fruits and/or vegetables. Therefore, the product is not a beverage as described in Item 11 of Schedule 2 to the GST Act. Although the product is non-alcoholic and non-carbonated and consists of at least 90% by volume of fruit juice, it is not 'of a kind' of beverage listed in Item 12 of Schedule 2 to the GST Act as it does not have the essential character of a beverage.

Accordingly, your product is not regarded as a GST-free beverage under Schedule 2 to the GST Act as it is not a beverage of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act.

Further, paragraph 38-3(1)(c) of the GST Act refers to exclusions foods of a kind specified in the third column of Schedule 1 to the GST Act. Schedule 1 to the GST Act includes a category 'Ice-cream food' consisting of items 28 to 31. The foods listed under these items are:

'Schedule 1 - Food that is not GST-free

1 Food that is not GST-free

Food specified in the third column of the table is not GST-free.

Food that is not GST-free
Item	Category	Food
28	Ice-cream food	ice-cream, ice-cream cakes, ice-creams and ice-cream substitutes
29		frozen confectionery, frozen yoghurt and frozen fruit products (but not frozen whole fruit)
30		flavoured iceblocks (whether or not marketed in a frozen state)
31		any *food similar to food listed in items 28 to 30

In your case it is relevant to consider the application of items 29, 30 and 31 in respect of your product.

Your product consists of 100% fruit juice, and it is supplied to various retail outlets in a frozen form. In its frozen form the product is covered by item 29 of Schedule 1 to the GST Act, as this item includes frozen fruit products.

Further, when supplied in liquid form at ambient temperature to certain retail outlets, the essential character of the product is one of a flavoured iceblock. In this form it is covered by item 30 of Schedule 1 to the GST Act, which includes flavoured iceblocks whether or not marketed in a frozen state.

The supply of your product is therefore excluded from being GST-free under both item 29 and item 30 of Schedule 1 to the GST Act.

Furthermore, item 31 of Schedule 1 to the GST Act includes food of a kind which is similar to food listed in item 29 and item 30 of Schedule 1 to the GST Act. Therefore, even if the supply of your product does not fall within the ambit of food of food listed in item 29 and item 30 of Schedule 1 to the GST Act, the essential character of the product is food of a kind similar to food listed under item 29 and item 30 of Schedule 1 to the GST Act.

Accordingly, the supply of your product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act as it is food of a kind covered by an item of Schedule 1 to the GST Act. As a consequence, the supply of your product is taxable under section 9-5 of the GST Act.