Edited version of private ruling

Authorisation Number: 1011663820794

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Ruling

Subject: GST and vegetarian health product

Question

Is the importation of vegetarian health product (Product) subject to goods and services tax (GST)?

Answer

Yes, the importation of the Product is subject to GST.

Relevant facts and circumstances

You are registered for GST

The Product is a vegetarian health product made overseas from a crop

After receiving approval from the Australian Quarantine Inspection Service (AQUIS) you have started to import the Product.

Detailed reasoning

Section 13-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) requires GST to be paid on taxable importations that you make.

Section 13-5 of the GST Act states that you make a taxable importation if:

goods are imported; and

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

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

In your case, you import the product for home consumption.

Section 13-10 of the GST Act provides that an importation is a non-taxable importation if

It is a non-taxable importation under Part 3-2 of the GST Act or

it would have been a supply that was GST-free or input taxed if it had been a supply.

As Customs have levied GST on the importation of the Product, it is not a non-taxable importation under Part 3-2 of the GST Act.

There are no sections of the GST Act or any other Act that would make the supply of the Product input taxed.

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 under section 38-3 of the GST Act.

You advised us that the Product is supplied as food for human consumption; however, the Product has a recommended serving and restrictions stated on the label.

Therefore, it is necessary to determine whether the Product is food for GST purposes.

The term 'food' itself is not defined under paragraph 38-4(1)(a) of the GST Act and therefore will bear its ordinary meaning. The Macquarie Dictionary (3^rd edition) defines 'food' as:

what is eaten, or taken into the body, for nourishment.

more or less solid nourishment (as opposed to drink);

a particular kind of solid nourishment: a breakfast food.

In the United Kingdom, 'food of a kind used for human consumption' is zero- rated (ie. not subject to tax) for the purposes of the Value Added Tax (VAT) legislation. The term 'food of a kind used for human consumption' is not substantially different to the term 'food for human consumption' in the GST Act.

In a number of cases, the Courts in the United Kingdom have held that food supplements are not considered to be food Frequently, food supplements, while not sold to relieve any specific medical condition, and making no specific medical claims, are taken for therapeutic reasons to prevent or compensate for some real or imagined nutritional deficiency, for eg. vitamin supplements.

In Grosvenor Commodities (LON/90/1805X) no 7221, royal jelly capsules were not considered to be food. The Chairman said:

the capsules do not satisfy hunger …they do not look like food, taste like food or fill the stomach like food. In my mind the capsules are clearly not food.

In classifying the products the Courts have determined the 'essential character' of the goods. The 'essential character' of goods originates from statue as discussed by Fox J. in Times Consult v. Coll of Customs (1987) 16 FCR at 457. The Courts have used the same approach in classifying goods under Sales Tax and provided the tests for classification of goods. For example Davies J in Thomson Australian Holdings Pty Ltd v. FCT (1988) 20 FCR 85 stated:

the task of the court is to determine the essential character of the goods, what essentially the goods are, not some characteristic that the goods might have. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part.

This means deciding what goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. The approach relies upon deciding what the basic nature of the goods and involves consideration of what the goods are made of and what they might be used for.

Further guidance as to the meaning of the word 'food' can be gained from similar cases decided in overseas jurisdictions. We will follow this approach in determining whether food supplements are considered to be 'food for human consumption' for GST purposes.

In your case, it is considered that the Product in question does not look like, taste like or fill the stomach like food. Therefore, the Product is not considered to be 'food for human consumption' for the purposes of paragraph 38-4(1)(a) of the GST Act.

Accordingly, we have determined that the 'essential character' of the Product is not food and therefore it does not fall under section 38-2 of the GST Act and not excluded from being subject to GST.

Under section 9-5 of the GST Act you make a taxable supply if:

you make the supply for consideration; and

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

the supply is connected with Australia; and

you are registered, or required to be registered.

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

The supply of the product is for consideration, you supply the product in carrying on or furtherance of your enterprise which is carried out in Australia and you are registered for GST.

As the supply of the product is not input taxed or GST-free, it is a taxable supply for GST purposes.

As the product is subject to GST under section 9-5 of the GST Act when you import your product you are making a taxable importation under section 13-10 of the GST Act.

However, as the Product is imported in carrying on your enterprise, you are entitled to an input tax credit (ITC) for your creditable importations. Section 15-20 of the GST Act provides that the amount of ITC available to you for your creditable importation will be equal to the amount of the GST you have paid on the importation. However, the ITC will be reduced if the importation is only partly creditable.