Edited version of your private ruling

Authorisation Number: 1012544585717

Ruling

Subject: Food classification

Question

Is the supply of frozen fruit products to food wholesalers/manufacturers GST free?

Answer

Yes

Relevant facts:

· You are registered for the goods and service tax (GST).

· You import frozen fruit in bulk to supply to food wholesalers/manufacturers.

· The products contain frozen fruit purees. The frozen fruits are supplied as food ingredients for the manufacture of other foods such as cakes, yoghurts and ice cream.

· The frozen fruit could also be used as ingredients for beverages.

· There is no indication or marking on the packaging on the products' use.

· The frozen fruit are packed in large containers and are not suitable for immediate consumption.

· The frozen fruit are not for home use or retail sales. The products are sold to wholesalers/manufacturers for further processing.

Reasons for decision

A supply of a product is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (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 section 38-3 of the GST Act.

Food is defined in section 38-4 of the GST Act to include food for human consumption whether or not requiring processing or treatment (paragraph 38-4(1)(a) of the GST Act) and ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act).

Your food products satisfy the definition of food as they are food for human consumption whether or not requiring processing or treatment and ingredients for food for human consumption. You supply the frozen fruit to food wholesaler/manufacturers as ingredients for food for further processing into foods for human consumption.

However, subsection 38-3(1) of the GST Act specifies some foods that are excluded from being GST-free. The subsection states:

A supply is not GST-free under section 38-2 if it is a supply of:

(a) *food for consumption on the *premises from which it is supplied; or

(b) hot food for consumption away from those premises; or

(c) food of a kind specified in the third column of the table in clause 1 of Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind; or

(d) a *beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2; or

(e) food of a kind specified in regulations made for the purposes of this subsection.

* denotes a defined term in the GST Act

You supply the frozen fruit to food wholesalers/manufacturers. The frozen fruit are used in the manufacture of other foods such as cakes, yoghurts and ice cream. The frozen fruits could be used as ingredients for beverages. Therefore we consider the relevant paragraphs in section 38 -3 of the GST Act are paragraphs 38-3(1)(c) and 38-3(1)(d) of the GST Act.

Paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free if it is food of a kind specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1) or it is food consisting of a combination of one or more foods with at least one of which is food specified in Schedule 1.

Based on the information provided, the relevant items in Schedule 1 which may apply to your frozen fruit are items 29 of Schedule 1 (item 29). Item 29 is about frozen confectionery, frozen yoghurt and frozen fruit products (but not including whole fruit). These foods are generally ready for consumption (as ice cream products) and do not require any processing.

Paragraph 38-3(1)(d) of the GST Act provides that a supply of a beverage or an ingredient for a beverage, is not GST-free unless it is of a kind listed in the table in clause 1 of Schedule 2 of the GST Act (Schedule 2). A supply of ingredients for a beverage that is listed in Schedule 2 is not excluded from being GST-free by paragraph 38-3(1)(d) of then GST Act.

Frozen Fruits

You advise that the frozen fruits are food ingredients and are fit for human consumption. The frozen fruits are packed in large containers and there is no indication or marking on the packaging on the products uses or applications. You market the frozen fruits in bulk to food wholesalers/ manufacturers. The frozen fruits are intended to be used in the manufacture of other foods such as cakes, yoghurts and ice cream.

However the frozen fruits have other applications such as ingredients for beverages.

Where a food product has alternative uses, the Australian Taxation Office (ATO) view on the GST status of the product is outlined in paragraph 6 of the ruling "Goods and Services Tax Industry Issue - Food Industry Partnership - What is Food?" The paragraph states:

There is no requirement for the supplier to ascertain how the purchaser will use the product. The GST status of the product depends on whether it is a supply of food for human consumption as defined in the Act.

This is explained further in the GST Food Guide. The GST status of a product depends on whether the supply is a sale of a food fit for human consumption or for other application such as ingredients for beverages. A supplier can work out from the physical product and the nature of their supply like product packaging and storage in conditions suitable for food, product labelling, marketing and descriptions of the products in their invoices, etc. Therefore, the supplier determines the GST status for their supplies from the physical product and not the purchaser's intended use for the product.

The frozen fruit products are supplied in large containers to food wholesalers/ manufacturers for further processing into foods for human consumption. The frozen fruits are not for retail sales and are not intended for home consumptions. The food products consist of frozen fruits puree in large containers. There is no marking on the packaging or labelling to indicate that the frozen fruits are marketed as an ice-cream product and ready for consumption. Therefore the frozen fruits supplied in the large containers are not food of a kind specified in item 29. As the frozen fruits are not food of a kind listed in Schedule 1, they are not excluded from being GST-free by paragraph 38-(3)(c) of the GST Act.

Further, there is no indication on the frozen fruit products packaging and marketing to confirm that the frozen fruits are supplied as ingredients for beverages. You supply the frozen fruit to your customers, as ingredients for foods for further processing into other food products.

It is therefore accepted that the nature of your supply of the frozen fruit to food wholesalers/ manufacturers are that of supplies of ingredients for food for human consumption, notwithstanding the possibility that some of these frozen fruit could subsequently be used as ingredients for beverages. Therefore, paragraph 38-3(1)(d) of the GST Act has no application on the frozen fruits.

In summary, as paragraphs 38-3(1)((c) and (d) of the GST Act do not exclude your wholesale supply of the frozen fruit products to food wholesalers/manufacturers as ingredients for food for further processing into food for human consumption, your supply of the frozen fruits is GST-free food under section 38-2 of the GST Act.

Other issues

Under paragraph 13-10(b) of the GST Act, an importation is a non-taxable importation if, had the importation been a supply, the supply would have been GST-free or input taxed.

The ATO view on non-taxable importation under paragraph 13-10(b) of the GST Act is outlined in Goods and Service Tax Ruling GSTR 2003/15. Paragraphs 250 to 251 of GSTR 2003/15 outline the conditions for non-taxable importations of goods under paragraph 13-10(b) of the GST Act. The paragraphs state:

250. An importation of goods that would have been GST-free or input taxed, if it were a supply, is a non-taxable importation. For example, the supply of a wheelchair is GST-free, therefore, an importation of a wheelchair is a non-taxable importation.

251. In determining whether an importation, if it had been a supply, would have been GST-free or input taxed, the Commissioner considers that you need to hypothesise that the importation were a supply to the importer. If this hypothetical supply to the importer would have satisfied one of the exemptions in Chapter 3 of the Act, the importation is non-taxable.

Therefore, as your supplies of the frozen fruits is GST free under section 38-2 of the GST Act, the importation of the frozen fruits is a non-taxable importation under paragraph 13-10(b) of the GST Act.