Edited version of private advice

Authorisation Number: 1051545384822

Date of advice: 24 July 2019

Ruling

Subject: GST Beverage classification

Question

Is your product GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the supply of the product is not GST-free pursuant to section 38-2 of the GST Act. The supply is a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances

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

You carry on an enterprise in Australia as a food retailer.

The product does not contain any alcohol.

The product is not carbonated.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

section 9-5.

section 38-2.

section 38-3.

section 38-4.

Schedule 2

Reasons for decision

In this ruling:

·         unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act),

·         all terms marked by an *asterisk are defined terms in the GST Act, and

·         all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au

A supply of food is GST-free under section 38-2 if the product satisfies the definition of food in section 38-4 and the supply is not excluded from being GST-free by section 38-3.

Section 38-4 provides the meaning of food, amongst others listed, to mean any of the following:

·         ingredients for food for human consumption;

·         beverages for human consumption (including water);

·         ingredients for beverages for human consumption.

Whilst a product can be characterised in more than one way, this is irrelevant for GST purposes, as a product can only be classified as one particular item (see Lansell House Pty Ltd & Anor v FC of T 2011 ATC 20-239 at [7]).

In determining whether a product is an ingredient for food or an ingredient for a beverage, it is important to determine the essential character of the product. There are products that are generally only used as an ingredient for a beverage - for example, milk powder. Although milk powder could be used as an ingredient for cooking, its essential character is that of an ingredient for a beverage.

The product is advertised as concentrated blended vegetables. The vegetables and fruits are blended then frozen. The product contains no alcohol and is not carbonated.

As such, we consider the Product is predominantly an 'ingredient for beverages' and satisfies the definition of food under paragraph 38-4(1)(d).

Certain supplies of food, as set out in section 38-3, are not GST-free under section 38-2. Paragraph 38-3(1)(d) provides that a supply of a beverage (or an ingredient for a beverage) is not GST-free unless it is a beverage (or ingredient) of a kind specified in the third column of the table in Cause 1 of Schedule 2 (Schedule 2).

Schedule 2 relevantly lists items 10, 11 and 12 as follows:

Clause 3 of Schedule 2 provides that for the purposes of items 11 and 12, herbage is treated as vegetables.

Juices of fruit and vegetable

Items 10, 11 and 12 of Schedule 2 all refer to juices of fruit or vegetables. Therefore for the items to be satisfied the product has to be considered juices of fruit or vegetables. The Macquarie Dictionary defines juice as:

noun 1. the liquid part of plant or animal substance

3. any extracted liquid, especially from a fruit.

verb (t) (juiced, juicing)

7. to extract juice from (fruit or vegetables).

The product you are selling consists (in the main) of various vegetables and fruits that are blended then frozen.

Although the product is advertised as a concentrated blend of organic vegetables, the product is not juice that has been extracted from whole fruits or vegetables.

Paragraphs 4 and 5 of GSTD 2002/2 discuss items 11 and 12 of Schedule 2 as follows:

Fruit and vegetable juices

4. Item 11 provides that a carbonated beverage will only be GST-free if it consists wholly of fruit or vegetable juices. Item 12 provides that non-alcoholic and non-carbonated beverages will only be GST-free if they consist of at least 90% of juices of fruits or vegetables by volume. However, to be supplied GST-free the fruit and vegetable juices must be beverages under the ordinary meaning of the word beverage.

The meaning of beverage

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 legislationand 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'.

The product consists (in the main) of blended vegetables and fruit and is used as an ingredient for making beverages. The product in its current state is not considered 'a drink of any kind' or 'any liquid which is swallowed to quench thirst or for nourishment'.

You need to add water or milk to make the product into a liquid form in which it can then be swallowed to quench thirst or for nourishment.

According to the Commissioner, the ordinary meaning of "juices", in the context of the GST Act, suggests that "juices of fruits" is the liquid extracted from those fruits. The extraction process entails that the juice originally formed "part" of the fruit and, therefore, the juice is extracted from the fruit through some mechanical process such as pressing or crushing. The product is therefore not juices of fruit.

As such, we also do not consider that the product is of a kind listed under items 10, 11 and 12 of Schedule 2 and therefore is not GST-free under section 38-2.

As your product if not GST-free, you are making a taxable supply under section 9-5.