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Edited version of private advice
Authorisation Number: 1051674357760
Date of advice: 13 May 2020
Ruling
Subject: GST on the supply of a frozen product
Question
Is the supply of the 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 is a taxable supply under section 9-5 of the GST Act.
Relevant facts
You sell food products and is registered for GST.
The Product is manufactured by a third party who specialises in supplying frozen fruits and vegetables. The Product is mixed and packaged pure frozen fruits and vegetables.
The Product packed in a certain weight pouch is a single portioned, nutritionally formulated frozen frozen fruits and vegetables mix.
The Product is to be mixed with a certain amount of water or other liquids and blended.
The Product is sold in supermarkets where it is placed in the frozen fruit and vegetable section. The Product is also sold to food service distributors.
Your website contains information about the Product. The Product is marketed as a nutritious and convenient drink in seconds.
The Product comes in a variety of flavours.
The provided pictures of the Product and the labels.
Relevant legislative provisions
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 Paragraph 38-3(1)(d).
A New Tax System (Goods and Services Tax) Act 1999 Section 38-4.
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(d).
A New Tax System (Goods and Services Tax) Act 1999 Schedule 2.
Reasons for decision
Summary
The supply of the Product is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as the Product is not an ingredient for a beverage of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).
The supply of the Product is a taxable supply under section 9-5 of the GST Act.
Detailed reasoning
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 section 38-3 of the GST Act.
Food is defined in section 38-4 of the GST Act to include:
- ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act) and
- ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act).
A product can only be classified as one particular item, even if it if can be characterised in more than one way. (Lansell House Pty Ltd & Anor FC of T 2011 ATC 20-239 at [7]). In this case, Sunberg J held it is a matter of overall impression in deciding the proper classification of a product.
In Bristol-Myers Company Pty. Limited v Federal Commissioner of Taxation 90 ATC 4553, Lockhart J found it necessary to 'pay regard to the constituent qualities or ingredients of the goods themselves as well as how the goods are sold or marketed or put up for sale'.
The way food items are marketed affects their GST status. Marketing includes:
· how goods are promoted or advertised
· the name, price, labelling, instructions, packaging and placement of the goods in the store.
The frozen Product consists of cut up pieces of fruits and vegetables. The Product is packed in a single serving pouch. The packaging of the Product provides the direction on how to use the Product to make a drink. The Product is to be mixed with a certain amount of water or other liquids and blended. The Product is marketed as a nutritious and convenient drink in seconds.
The overall impression of the Product and how consumers perceive the Product are factors contributing to the Product being an ingredient for a drink. As the Product is primarily marketed as a frozen product which is ready to blend in order to make a drink, it is reasonable to conclude that a consumer will purchase the Product for this reason. Therefore, we consider the Product is characterised as an ingredient for a beverage for human consumption as per paragraph 38-4(1)(d) of the GST Act.
Where a product is characterised as an ingredient for a beverage, GST will apply unless the ingredient is of a kind listed in Schedule 2.
Of relevance are items 10, 11 and 12 of Schedule 2.
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Beverages that are GST-free |
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|
Item |
Category |
Beverages |
|
10 |
Fruit and vegetable juices |
concentrates for making non-alcoholic * beverages, if the concentrates consist of at least 90% by volume of juices of fruits |
|
11 |
non-alcoholic carbonated * beverages, if they consist wholly of juices of fruits or vegetables |
|
|
12 |
non-alcoholic non-carbonated * beverages, if they consist of at least 90% by volume of juices of fruits or vegetables |
|
Note 3: Fruit and vegetable juices: For the purposes of items 11 and 12 in the table, herbage is treated as vegetables.
The Product is made up of various ingredients which by themselves may be GST-free. However, it is the end product that must be an ingredient for a beverage of a kind listed in Schedule 2.
The ATO view for item 10 is outlined in paragraph 9 of Goods and Services Tax Determination 2002/2 (GSTD 2002/2):
Concentrates
9. Item 10 provides that certain concentrates for making beverages can be supplied GST-free, where they are for making non-alcoholic beverages. These products contain concentrated fruit or vegetable juices, and when reconstituted by the addition of water, return to a drinkable 'pure juice' state. However, to be supplied GST-free, the concentrate must consist of at least 90% by volume of juices of fruits or vegetables.
By the state of the fruits and vegetables in the photos provided, being frozen cut-up pieces of fruits and vegetables, the Product does not meet the ordinary meaning of 'concentrates' as it has not gone through the same process as a concentrate. A concentrated juice is generally made from the juice going into a hot evaporator, which the Product is not. Furthermore, the Product only contains fruit and vegetable pieces and is not a juice or in liquid form.
We do not consider that the Product is a concentrate for making fruit and/or vegetable juices of the kind listed in item 10.
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 is not a carbonated beverage, nor is the Product a beverage consisting of at least 90% by volume of juices of fruits or vegetables. The Product consists of frozen fruit and vegetable pieces, which is used as an ingredient for making a beverage. The Product is not considered 'a drink of any kind' or 'any liquid which is swallowed to quench thirst or for nourishment'. Hence, we do not consider that the Product is of a kind listed in items 11 and 12.
As the Product is not an ingredient for a beverage of a kind listed in Schedule 2, the supply of the Product is not GST-free pursuant to section 38-2 of the GST Act.
Taxable supply
The supply of the Product is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.
Section 9-5 of the GST Act provides that you make a taxable supply if:
(a) you make the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that you carry on
(c) the supply is connected with the indirect tax zone, and
(d) you are registered, or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
In this case, the supply of the Product satisfies the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act. Furthermore, the supply of the Product is neither GST-free nor input taxed under any provisions of the GST Act or another Act. Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of the Product is a taxable supply.