Edited version of private advice

Authorisation Number: 1051968089717

Date of advice: 31 March 2022

Ruling

Subject: GST classification of plant-based products

Question

Is a supply of the plant based products ('Products') GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The supply of the Products is not GST-free under section 38-2 of the GST Act.

Relevant facts

You are an Australian entity which is registered for GST.

You supply the plant based products ('Products') which are in paste form, to make milk and smoothies.

The ingredients in the Products include raw nuts or seeds, and other ingredients.

The direction for use is to blend the Products with water to make a milk.

Manufacturing process of the Products

The ingredients for the Products are ground and combined through a processing machine to create a natural paste. Once the paste is created, it is then put through a filling machine in order to fill the container.

The paste is made from the ingredients, and the paste has never been made into a milk and then concentrated or condensed as part of its production to create the paste. The Products have never been a liquid/beverage. The Products are a natural paste, made from grinding, blending and combining the listed ingredients.

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)(c)

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

Reasons for decision

Summary

The supply of the Products is not GST-free under section 38-2 of the GST Act as the Products are excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act.

The Products are considered ingredients for a beverage but are not of a kind of milk products under item 1(a) in the table in clause 1 of Schedule 2 of the GST Act (Schedule 2). The Products are not covered by item 1(b) or 1(c) of Schedule 2 either. We also do not consider item 2 or item 4 of Schedule can apply to these products.

Your Products are not beverages or ingredients of beverages of a kind specified in the table in Schedule 2.

The supply of the Products is a taxable supply under section 9-5 of the GST Act and subject to GST.

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.

The term 'food' is defined in section 38-4 of the GST Act to include (among other things) beverages for human consumption (paragraph 38-4(1)(c) of the GST Act.

The products are characterised as ingredients for milk beverages for human consumption because they are sold in the form of paste, and the direction is to blend the products with water to make nut milk. Hence, the Products satisfy the definition of food because food is defined in paragraph 38-4(1)(d) of the GST Act to include ingredients for beverages for human consumption.

However, under paragraph 38-3(1)(d) of the GST Act, a supply of 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).

The phrase 'of a kind' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The Macquarie Dictionary (1997) does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

1. A class or group of individuals of the same nature or character, especially a natural group of animals or plants. 2. Nature or character as determining likeness or difference between things: things differing in degree rather than in kind. 3. A person or thing as being of a particular character or class: he is a strange king of hero. 4 ...

Accordingly, something will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the thing or group in question.

In addition, the case law Lansell House Pty Ltd & Anor v FC of T 2011 ATC 20-239 (Lansell) at [30] relevantly provides:

The use of the words "of a kind" in s 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1: Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item...

In coming to its decision, Lansell also considered, among other things, the product's

•         use

•         in store display

•         marketing

•         tax treatment in the country of manufacture, and

•         appearance.

Schedule 2

The relevant items in Schedule 2 to consider are:

Item 1

Relevant to the current case, plant based milks are not specified in item 1(a) of Schedule 2. However due to the use of 'of a kind' in paragraph 38-3(1)(d) of the GST Act, the ATO considers that plant based milks are of a kind of milks that are covered by item 1 (a) as they are within the same genus, class of products in that item.

In the present case, the Products are nuts/seeds pastes that used to make relevant milks by blending them with water, they are not milk in the form of liquid, powdered, concentrated or condensed, therefore are not within the same genus, class of products specified in item 1(a). As such, they are not of a kind of products covered by item 1(a).

Item 1(b) and item 1(c) of Schedule 2 list casein and whey products. Casein is a family of related phosphoproteins that are commonly found in mammalian milk and whey is the liquid remaining after milk has been curdled and strained, they are things that can only be derived from mammalian milk. It is considered item 1(b) and item 1(c) of Schedule 2 are not relevant in this case as the paste is neither casein nor whey.

For completeness, you also compare the Products to the rice milk powder and soy milk powder listed in the Detail Food List and contend the Products are similar to these products therefore should also be GST-free.

We do not consider the Products are similar to rice milk powder and soy milk powder based on the manufacturing process and the application of the products. Even if they are similar, the entries on the Detailed Food List reflect the ATO view on the listed items and not the ATO view of products that may seem similar. As your Products are not specified in the Detailed Food List, you cannot apply the Detailed Food List to your Products.

Item 2

Item 2 lists 'beverages consisting of products referred to in item 1 (or a combination of those products), to the extent of at least 95%, but not including flavoured beverages.

The Products are not beverages, they are sold in the form of paste and the direction for use is to blend the products with water to make a milk. The Products are ingredients for beverages; hence they are not covered by item 2. In addition, the Products are not of a kind of products covered by item 1 as mentioned previously, therefore they cannot consist of products referred to in item 1 as such will not be covered by item 2 of Schedule 2.

Item 4

Item 4 of Schedule 2 lists 'beverages consisting principally of soy milk or rice milk, but not including flavoured beverages'.

From facts provided, the Products are not in a liquid form and therefore not beverages, the Products are sold in the form of paste and the direction for use is to blend the Products with water to make a milk. Therefore, the Products are ingredients for beverages; hence not covered by item 4.

Based on the information provided,

•         the ingredients for the Products are ground and combined through a progressing machine to create a natural paste. Once the paste is created, it is then put through a filling machine in order to fill the container.

•         the paste has never been made into a milk and then concentrated or condensed as part of its production to create the paste.

•         the Products have never been a liquid/beverage.

•         the Products are a natural paste, made from grinding, blending and combining the relevant ingredients.

It shows that from the above, the Products are not liquid, powdered, concentrated, or condensed milk from either nuts or seeds. The Products are paste made from either nuts or seeds for making a milk or smoothies.

Accordingly, the Products are not beverages or ingredients of beverages in the table in Schedule 2 and are excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act.

The supply of the Products therefore is not GST-free under section 38-2 of the GST Act.

The supply of the Products is a taxable supply as all the requirements of section 9-5 of the GST Act are satisfied as follows:

•         you supply the Products for consideration,

•         the supply is made in the course or furtherance of an enterprise that you carry on,

•         you supply the Products in Australia,

•         you are registered for GST, and

•         the supply of the Products is neither GST-free nor input taxed.