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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012498497328

Ruling

Subject: GST and beverages

Questions

1. Would a product made from a fruit condensate be considered a fruit juice despite it having more of the characteristics of water?

    2. Would it attract goods and services tax (GST)?

Answers

1. No.

    2. Yes.

Relevant facts and circumstances

      · You are registered for GST.

      · You are to manufacture a product that you will sell (Product).

      · The Product is manufactured by collecting the condensate obtained from heating a fruit juice in a vacuum.

      · Once collected, the condensate is then treated with a chemical, a form of preservative. It then undergoes filtration, reverse osmosis, ion exchange and UV treatment prior to bottling.

      · The above processes will remove the chemical from the condensate.

      · Apart from the chemical, nothing is added to the condensate before bottling.

      · You are to market the Product as water for human consumption.

      · The Product has the characteristics of water being both colourless and tasteless.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 38-2

Section 38-3

Section 38-4.

Reasons for decision

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 by section 38-3 of the GST Act.

Food is defined in section 38-4 of the GST Act to include beverages for human consumption (paragraph 38-4(1)(c)). Given that the Grape Water is to be marketed as a beverage for human consumption, it will satisfy the definition of food contained in section 38-4 of the GST Act.

However, under paragraph 38-3(1)(d) of the GST Act, beverages are only GST-free if they are of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

The Product is not specifically listed in Schedule 2. However, Schedule 2 does make reference to two products that need to be considered:

      · non-alcoholic non-carbonated beverages if they consist of at least 90% by volume of juices of fruits or vegetables (Item 12), and

      · natural water, non-carbonated and without any other additives (Item 14).

Non-alcoholic non-carbonated beverages

The condensate collected from the fruit juice would (as a result of the evaporation process) no longer contain many of the chemical compounds that make up the fruit juice. For example, many of the compounds that affect taste and colour would be removed or significantly reduced. The filtration, reverse osmosis, ion exchange and UV treatments (principally used to remove the added chemical and for sterilization) would also further reduce the presence of these compounds in the condensate.

Given this, we consider the fruit juice would have undergone a process that would produce something that is a different thing from that out of which it will be made. The condensate would have lost its fruit juice characteristics and would become a new type of liquid that has more the characteristics of water.

Consequently, the Product would not consist of at least 90% by volume of juices of fruits or vegetables and therefore would not be captured by Item 12 of Schedule 2.

Natural water, non-carbonated and without any other additives

Of key importance in Item 14 of Schedule 2 is the word natural. The word natural is not defined in the GST Act so therefore it takes its ordinary meaning. The Macquarie Dictionary (5th edition) defines natural to mean:

    existing in or formed by nature; not artificial: a natural bridge.

    2. based on the state of things in nature; constituted by nature: the natural day.

    …

In this case, the Product does have the characteristics of water. However, to obtain this liquid from the fruit juice requires a sequence of manufacturing processes. To be natural as defined in the dictionary definition cited above, the Product has to be formed by nature and not brought into existence through the manufacturing processes described above. Therefore, albeit the Product could be treated as water, it is not natural water for the purposes of the GST Act and therefore is not captured by Item 14 of Schedule 2.

Given this, your supply of the Product will not be GST-free under section 38-2 of the GST Act but taxable under section 9-5 of the GST Act.


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