Edited version of private ruling

Authorisation Number: 1011646955736

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: GST and the importation of herbal tea

Question

Is there a Goods and services tax (GST) liability on the importation of your herbal tea?

Advice/Answers

No. The importation of your herbal tea into Australia is a non-taxable importation as the supply of your herbal tea within Australia is GST-free. There is no GST liability on a non-taxable importation or a GST-free supply.

Relevant facts and circumstances

You are registered for GST

You will import a type of herbal tea into Australia for the purpose of supplying it at both a wholesale and retail level in Australia in the course of your enterprise.

This herbal tea consists of an infusion bag (tea bag) containing various herbs and other organic materials suitable for human consumption.

The herbal tea is intended for infusion into the drink of the consumers' choice.

You will import this herbal tea from overseas.

This herbal tea is supplied as a beverage to quench thirst.

This herbal tea is not intended for medicinal use.

Reasons for Decision:

Non-taxable importations

Under section 13-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Act you make a taxable importation for GST purposes if:

goods are imported into Australia, and

you enter the goods for home consumption within the meaning of the Customs Act 1901.

However, the importation of goods is not a taxable importation to the extent that it is a non-taxable importation.

Under section 13-10 of the GST Act an importation of goods is not a taxable importation if the supply of the good within Australia would be GST-free or input taxed.

Division 40 of the GST Act provides that certain types of supply are input taxed. Your supplies of herbal tea are not input taxed under any of the provisions of Division 40 of the GST Act.

However, you advised us that that you will supply your type of herbal tea as a beverage for human consumption. Thus certain provisions in Division 38 of the GST Act relating to the GST-free supply of food are of relevance to your herbal tea.

GST-free supplies of food - beverages

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, which provides that the term 'food' includes food for human consumption, whether or not it requires processing or treatment. Under this definition, 'food for human consumption' includes both beverages for human consumption and also ingredients for beverages for human consumption.

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)

GSTD 2002/2 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 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.

You have stated that your herbal tea is intended for infusion into the drink of the consumers' choice (for example hot water, juice or wine), and that it is not supplied for medicinal purposes. You advised us that your herbal tea is a beverage for human consumption as it is supplied as an ingredient for the preparation of a drink to quench human thirst.

GST-free beverages

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 (Schedule 2).

It is relevant to consider Item 5 of Schedule 2 with respect to your product. Item 5 of Schedule 2 includes the following as GST-free beverages: tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations), coffee and coffee essence, chicory and chicory essence. In addition, item 7 of Schedule 2 states that preparations for drinking purposes that are marketed principally as tea or coffee preparations or preparations for malted beverages are also GST-free.

The following guidance about the application of GST legislation to the supply of tea is provided in Issue 25 of the Food Industry Issues Register, which can be found on the taxation Office website www.ato.gov.au :

'Tea' is not further defined in the GST Act and is therefore given its ordinary meaning. The Macquarie Dictionary defines tea as:

'1. the dried and prepared leaves of the shrub, Thea sinensis, from which a somewhat bitter, aromatic beverage is made by infusion in boiling water.... 5. any of various infusions prepared from the leaves, flowers, etc., of other plants, used as a beverage or medicines.'

It is therefore determined that tea can be consumed both as a beverage and as a medicine. However, for the purposes of the GST Act, the definition of food is referring to those beverages that are primarily consumed for the purposes of increasing bodily liquid levels, to quench thirst or to give pleasure. It does not cover beverages or ingredients for beverages that are primarily consumed for medicinal or therapeutic purposes.

Therefore, item 5 of Schedule 2 of the GST Act is limited to those teas that are of a kind of a beverage, which by way of item 5 is extended to include substitutes for those teas (for example,. herbal teas, fruit teas, ginseng, etc).

Therefore item 5 of Schedule 2 of the GST Act excludes teas consumed primarily for medicinal or therapeutic reasons.

The words 'of a kind' and their meaning have been considered in a number of court cases including Hygienic Lily Ltd v. Deputy Commissioner of Taxation (NSW) (1987) 13 FCR 399. Gummow J in Hygienic Lily Ltd states:

' the setting in which the phrase "goods of a kind" appears suggests it is directed not to the use for which the particular goods in question were designed or manufactured, nor to the purpose to which it is intended those particular goods shall be put, but rather to the nature, quality and adaptation of goods in the class or genus in question. Thus, goods are "of a kind ordinarily used for household purposes" if they are to be recognised as members of a class or genus which commonly or regularly (albeit not necessarily exclusively or principally) is used for household purposes…'

You advised us that your herbal tea is not supplied to be used for any medicinal purpose. Rather, it is 'of a kind' of herbal tea supplied for the purpose of quenching thirst or providing nourishment. As a consequence your herbal tea falls within the class of the products specified under item 5 of Schedule 2 of the GST Act. Thus the supply of your herbal tea within Australia is GST-free under section 38-2 of the GST Act. There is no GST liability on a GST-free supply.

As the supply of your herbal tea within Australia is GST-free, your importation of this product is a non-taxable importation. As a consequence there is no GST liability on the importation of your herbal tea under section 13-10 of the GST Act.

Further Information

GSTD 2002/2 and GSTR 2003/15 can be found on our website www.ato.gov.au, as can the Food Industry Issues Register. A detailed Food Index and GST food classification tool are also available on the website, both of which can be used to locate information about herbal tea.

GST liabilities on imported goods are discussed in detail in Goods and Services Tax Ruling GSTR 2003/15 Goods and services tax: importation of goods into Australia. This can also be found on our website.

All of these reference sources can be located by using the search engine on the homepage of the website.