Edited version of your private ruling

Authorisation Number: 1012484318274

Ruling

Subject: Product Classification

Question 1

Is the product you intend to manufacture subject to wine equalisation tax (WET)?

Answer

No

Question 2

Is the product you intend to manufacture an 'other excisable' beverage and subject to excise?

Answer

Yes

Question 3

Is the product you intend to manufacture subject to the goods and services tax (GST)?

Answer

Yes

This ruling applies for the following period(s)

Relevant facts and circumstances

· The addition of the ingredient to act as a preservative and to stop natural fermentation.

· Following the Food Standards Australia New Zealand guidelines, you have labelled your product accordingly.

· Various internet sites show that a product that can be consumed by drinking and well as being used as an ingredient or condiment for foods.

· Your product is not labelled as a beverage or an ingredient for a beverage that is to be consumed by drinking.

· You intend to manufacture a product which is made from juice and with an ingredient.

· Your product will have an alcoholic strength of x% by volume

· You currently sell this product as a food

· Your product is prepared by the following process:

· - Ingredient one is pressed to extract the juice

· - A low sugar content is produced

· - The juice is pasteurised to prevent fermentation

· - Ingredient two, at an alcoholic strength of x% by volume, is added as a preservative

· - The product is bottled and labelled under FSANZ Food labelling guidelines

Relevant legislative provisions

A New Tax System (Wine Equalisation Tax) Act 1999 Section 31-2

A New Tax System (Wine Equalisation Tax) Act 1999 Section 31-3

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

Issue

Question 1

Summary

No, the product you intend to manufacture will not be subject WET.

Detailed reasoning

From the information supplied on the proposed formulation, it is considered that your product has the essential characteristics of a beverage.

The case of Bristol-Myers Company Pty Ltd v Commissioner of Taxation (1990) 23 FCR 126 (Bristol-Myers) is considered a leading case in defining the term beverage.

Lockhart J stated:

I prefer the simpler definition attributed to the word "beverage" by the Macquarie Dictionary which is simply "a drink of any kind".

Following this line of reasoning, the Commissioner considers your product 'verjuice' (a mixture of grape juice and grape spirit) as a beverage which can be drunk.

Furthermore, your website supports the Commissioners view that your product 'verjuice' is a beverage by promoting the fact that 'verjuice' can be sipped while cooking.

However as a beverage, it fails to meet the requirements of the definition of grape wine under the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act).

Section 31-2 of the WET Act defines grape wine as follows:

(1) Grape wine is a beverage that:

(a) is the product of the complete or partial fermentation of fresh
grapes or products derived solely from fresh grapes; and

(b) complies with any requirements of the regulations, made for
the purposes of section 31-8, relating to grape wine.

(2) A beverage does not cease to be the product of the complete or partial
fermentation of fresh grapes or products derived solely from fresh grapes
merely because grape spirit, brandy, or both grape spirit and brandy, have
been added to it.

It also fails to meet the requirements of the definition of grape wine product under the WET Act.

Section 31-3 of the WET Act provides that a 'grape wine product' is a beverage that:

a) contains at least 700 millilitres of grape wine per litre ; and

b) has not had added to it, at any time, any ethyl alcohol from any other source, except :

(i) grape spirit ; or

(ii) alcohol used in preparing vegetable extracts (including spices herbs and grasses) ; and

c) contains at least 8% by volume of ethyl alcohol, but not more than 22% by volume of ethyl alcohol ...

The manufacture of your product does not meet the requirement of section 31-2 that it be the product of the complete or partial fermentation of fresh grapes, or products derived solely from fresh grapes. Your product is therefore not grape wine for the purposes of the WET Act.

As section 31-3 requires that a grape wine product must contain at least 70 percent grape wine and your product cannot meet the definition of grape wine product under section 31-3.

Your product is not subject to the WET.

Question 2

Summary

Yes, the product you intend to manufacture is an 'excisable good' and will be subject to excise.

Detailed reasoning

Under section 4 of the Excise Act 1901 (Excise Act), excisable goods are goods in respect of which Excise duty has been imposed.

Section 5 of the Excise Tariff Act 1921 (Excise Tariff Act) provides that duties of Excise are imposed as per the Schedule to that Act.

The Schedule to the Excise Tariff Act relevantly contains the following excisable goods:

In your case, your product exceeds x% by volume of alcohol. However, for it to be considered excisable goods, it must either be classified as an 'other excisable' beverage or a spirit. If it is not an 'other excisable' beverage or a spirit, then excise duty will not apply to it.

Is your product an 'other excisable' beverage?

Having already determined that your product has the essential characteristics of a beverage and does not satisfy the legislative requires of a 'grape wine', we need now determine whether it meets the definition of an 'other excisable' beverage.

The term other excisable beverage is defined in the Schedule to the Excise Tariff Act as:

Any beverage containing more than 1.15% alcohol by volume, but does not include:

(a) beer; or

(b) brandy; or

(c) wine.

The Schedule to the Excise Tariff Act 1921states, inter alia, that a beverage containing more than 1.15% alcohol by volume that is not defined as wine under the WET Act becomes an 'other excisable beverage'. Consequently, your product is considered a beverage and as a result becomes an excisable product.

Question 3

Summary

Yes, your product will be subject to GST.

Detailed reasoning

Your product will be subject to GST under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless it can be considered a GST-free supply of food.

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 any of the exclusions listed in section 38-3 of the GST Act.

The definition of food in section 38-4 of the GST Act includes as food; ingredients for food for human consumption, beverages (or ingredients for beverages) for human consumption and goods to be mixed with or added to food for human consumption.

As discussed earlier, your product is a beverage and it can be used with food for human consumption consequently it can be treated as food for GST purposes.

Therefore, it is now necessary to determine if it is excluded from being food for GST purposes under any of the exclusions listed in section 38-3 of the GST Act.

Of importance in section 38-3 of the GST Act is paragraph 38-3(d) which excludes from being a food a beverage (or an ingredient for a beverage) unless it is a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2 of the GST Act (Schedule 2).

To determine if your product can be considered as a beverage for GST purposes, we refer to the ATO view GSTD 2002/2 - Goods and services tax: what supplies of fruit and vegetable juices are GST-free? Paragraphs 5 to 8 of GSTR 2002/2 state the following in relation to beverages:

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.

8. Liquids that are consumed other than to quench thirst or for nourishment (for example, liquids consumed for medicinal purposes) do not satisfy the requirements of Items 11 or 12 of Schedule 2.

Following these paragraphs, we conclude that your product is a type of drink that when drunk can quench thirst to some degree. It is also not a beverage (or ingredient) of a kind that is specified in Schedule 2.

Given this, your product is not GST-free under section 38-3(d) of the GST Act and hence, it will be subject to GST under section 9-5 of the GST Act when sold.