Edited version of your private ruling

Authorisation Number: 1012553296887

Ruling

Subject: product

Question

Is the supply of your product GST-free?

Advice:

Yes

Relevant facts:

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

· You carry on an enterprise of foods retailing.

· You are retailing a product in your store.

· The product is stored chilled in the refrigerators section for dairy foods.

· The product is not frozen.

· The product is packed in a soft pouch with a screw-on cap

· In the retail industry, the product will fall into the "pouch" category.

· The product is promoted as a breakfast type food and its target market are the busy people.

· The product is not for quenching thirst or as refreshment to replenish fluids

· The package describes the product in the pouch as creamy and the product has the. appearance of a thick creamy fluid.

· The manufacturer provides information on the product. They consider the texture of the creamy product in the pouch to be mid-range between a food and a drink. The pouch product is consumed through eating while the product drink is consumed through drinking.

· You advised that pouch and tub products are stirred products. The stirred product is manufactured by fermentation. When the fermentation reaches the desired level, the product is cooled to stop fermentation.

· However, the drinking product is produced by diluting the stirred product to form a drink. The product drinks are normally packed in bottles or cartons, similar to other drinks.

Reasons for decision

A supply of food 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 subsection 38-4(1) of the GST Act to include foods and beverages which are for human consumption. The product in the pouch is for human consumption and therefore satisfy the definition of food in subsection 38-4(1) of the GST Act.

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 retail the product as a breakfast food. The product has the appearance of a creamy fluid packed in a pouch with a screw-on cap for the consumer's convenience. The consumer could consume the product from the pouch by squeezing the product into their mouth or onto a container. Therefore the relevant paragraphs in section 38 -3 of the GST Act that may apply to the pouch product are paragraphs 38-3(1)(c) and 38-3(1)(d) of the GST Act.

Paragraph 38-3(1)(c) 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.

In this case, the relevant item in Schedule 1 that may apply to the product is item 29 of Schedule 1 (item 29). Item 29 is about frozen confectionery, frozen yoghurt and frozen fruit products (but not including whole fruit). The frozen product will include soft serve product because they are foods of a kind similar to ice-cream foods.

You advised that the pouch product is stored chilled in the refrigerators section for dairy foods. The product in the pouch is a creamy fluid and is not frozen. The consumer can consume the product directly from the pouch. Therefore, the product products are not food of a kind listed in item 29. The product pouch is not excluded from being GST free by paragraph 38-3(1)(c) of the GST Act.

Paragraph 38-3(1)(d) of the GST Act

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). Drinking product is a beverage that is not is listed in Schedule 2 and is therefore excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act.

Is pouch product a beverage?

The term beverage is defined in the GST Act to include water. Paragraphs 5 to 8 of GSTD 2002/2 provide an explanation on beverages. Paragraphs 5 to 7 of GSTD 2002/2 state:

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

Therefore, a beverage is a liquid consumed (swallowed) for the purposes of quenching thirst or for nourishment.

We consider that the pouch product does not satisfy the above criteria for beverage. The pouch product is supplied as a food to be consumed through eating, rather than swallowing. The product is packed in a pouch with screw-on cap for the consumers' convenience. The pouch product is promoted as breakfast foods for busy people.

The manufacturer provides information on the product. They consider the texture of the creamy product in the pouch to be mid-range between a product food and a product drink. The pouch product is consumed through eating, similar to the tub product while the product drink is consumed through drinking. You advised that both pouch and tub product s are stirred products and the drinking product is made by diluting the stirred product.

A consumer consumes the product from the pouch by squeezing the creamy product directly into their mouth. Therefore, the product in the pouch is not a beverage and paragraph 38-3(d) of the GST Act does not have application on pouch product.

As the pouch product is not excluded from being GST-free under section 38-3 of the GST Act, the supply of pouch product is GST-free under section 38-2 of the GST Act..