Edited version of private advice

Authorisation Number: 1051703530255

NOTICE

This is an edited version of a revised private ruling. It replaces the edited version of the private ruling with the authorisation number 105154395185.

Date of advice: 22 June 2020

Ruling

Subject: GST and food classification

Question

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

Answer

Yes.

Your supply of the Products is GST-free under section 38-2 of the GST Act.

Relevant facts

You are an Australian company which is registered for GST.

You supply range of food Products in variety of flavours in Australia.

The products are sold in 500gm and 1 kg bottles.

The Product can be used on its own as a nutritious drink or add it to smoothies or pour on cereals or muesli.

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)(a)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(c)

A New Tax System (Goods and Services Tax) Act 1999 Schedule 2

Reasons for decision

Summary

The supply of the Products by you is GST-free pursuant to section 38-2 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:

·         food for human consumption (whether or not requiring processing or treatment) (paragraph

38-4(1)(a) of the GST Act) and

·         beverages for human consumption (paragraph 38-4(1)(c) of the GST Act).

Is the product a beverage?

The meaning of beverage was considered Lockhart J in Bristol-Myers Company Pty Ltd v. Federal Commissioner of Taxation (1990) 23 FCR 126; 21 ATR 417; 90 ATC 4553, which considered the word 'beverage', Lockhart J said:

I prefer the simpler definition attributed to the word "beverage" by the Macquarie Dictionary which is simply "a drink of any kind".

Lockhart J goes on to say that:

"Drink" when used as a noun is defined in slightly different ways by dictionaries, but in my view it means any liquid which is swallowed to quench thirst or for nourishment.

Lockhart J also discussed the distinguishing features of a beverage:

A beverage is consumed either hot or cold and is normally taken to quench the person's thirst or for stimulation or as an accompaniment to solid foods either at mealtimes or between meals. Beverages may contain stimulants such as caffeine and they may be used for refreshment or to overcome thirst. Beverages are not generally formulated to provide nor do they invariably provide essential nutrients to the meals with which they are consumed. An important part of a beverage is to replenish fluids. It is an important element in the concept of a beverage that it is something one drinks not eats. This is quite a usual means of distinguishing beverage from other types of liquid foods which are not beverages such as gravy, sauce and syrup.

In classifying food and beverages for the purposes of sales tax in Bristol-Myers, 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 Court found that "Sustagen Gold" constituted a beverage notwithstanding that it may also be consumed as a meal replacement. Lockhart J stated:

"Sustagen Gold'' is a concentrated milk drink with some added vitamins and minerals. The fact that it contains added nutrients does not alter its characterisation as a beverage.

The decision making process for classifying products for GST purposes was also considered by Sundberg J in Lansell House Pty Ltd & Anor v. FC of T 2010 ATC 20-173. It was held that (emphasis added):

108. Classification decisions for sales tax, GST and VAT purposes are often described as questions of fact and degree (Ferrero at 884), value judgments (Procter & Gamble at [13]), a matter of impression (Procter & Gamble at [19]) and a combination of fact finding and evaluative judgment (Procter & Gamble at [47]). In Procter & Gamble the VAT and Duties Tribunal did not "grade" the relevant factors in coming to its decision. It stood back and took all the factors of appearance, taste, ingredients, process of manufacture, marketing and packaging together in deciding the proper classification of "Regular Pringles". The Court of Appeal approved that approach. Lord Justice Jacob said at [19]:

"It was not incumbent on the Tribunal in making its multifactorial assessment not only to identify each and every aspect of similarity and dissimilarity (as this Tribunal so meticulously did) but to go on and spell out item by item how each was weighed as if it were using a real scientist's balance. In the end it was a matter of overall impression."

Is a Product a beverage?

In accordance with the case law above, including the ordinary meaning of beverage as outlined in Bristol-Myers, the following factors are considered relevant in determining whether The Products are a beverage:

·         The product is of a consistency that is thinner than other X sold in tubs, but is thicker than milk. The consistency is similar to that of custard.

·         The product is of a consistency that such that a person would be able to drink it, however that is not the main intended use of the product.

·         Given its ingredients and consistency it is unlikely it can be used by consumers to quench or overcome thirst or to replenish fluids.

·         The product is marketed as a cultured pouring X that is to be poured over cereals or muesli or alternatively as an ingredient for a smoothie.

·         The product is measured in grams and not millilitres. Beverages are usually measured in millilitres and food is measured in grams.

When these factors are taken into account, it is considered that your Products do not have sufficient characteristics to be classified as a beverage. The overall impression is your Products are fundamentally X to be eaten and not a beverage for drinking.

Differences to drinking X

You should note that the Detailed Food List, which is a public ruling for the purposes of the Taxation Administration Act 1953, provides details of the GST status of major food and beverage product lines and includes the following:

The following are characteristics of products that are considered to be drinking X:

·         The product is in a small size bottle intended to be consumed as a healthy snack.

·         The product is labelled as a X drink.

·         The product is measured in millilitres rather than grams.

·         Marketed as a product that you can drink 'on the go'. You can consume the product without needing a spoon.

·         Is of a thinner consistency than X sold in a tub.

Based on the information provided, it is considered that the Products are significantly different to drinking X. The Products are not marketed as a drink; its main use is for pouring on cereals or muesli or adding to smoothies. Although it is possible to drink the products, this is not its intended use as reflected in its marketing and the size of its packaging. Accordingly, it is not considered that the Products fall within the drinking X category listed on the detailed food list.

As the Products are not a beverage it is only necessary, in these circumstances, to consider whether the Products are a food of a kind specified in Schedule 1 of the GST Act.

We do not consider the Products are food of a kind specified in Schedule 1 of the GST Act. As a result, the supply of the Product is GST-free under section 38-2 of the GST Act.