Edited version of private advice

Authorisation Number: 1052100461247

Date of advice: 27 April 2023

Ruling

Subject: GST and supply of sweetener

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 of the Product is a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances

You supply ingredients and equipment for use in beverages.

You are registered for GST.

The Product is a sweetener that is available in various bulk sizes.

You provided a link to your website where we extracted the following information:

•         The Product is listed in the category of products that are used to create the different flavours in beverages.

•         The Product is a sweetener and a raw material for use in beverages.

•         Your website includes pictures of the different package sizes.

•         The label of the Product includes:

−     The name of the producer

−     The name of the distributor

−     Ingredients

−     Lot number

−     Gross and net weight

−     Storage instructions and

−     Best before date.

You provided the certificates of analysis of the Product which include a description of the Product, such as, its viscosity, colour and flavour.

The Product is manufactured using a specified process.

You sell the Product only to manufacturers of beverages, who use the Product as an ingredient.

You stated that the sweetener sold for use by manufacturers of beverages is not differentiated from the sweetener sold for other food uses. It can be used interchangeably. It can be used for beverages or in baking, etc.

Your products are advertised on your website and social media channels as ingredients for beverages. Your website states that you supply quality ingredients and equipment to your customers for making beverages.

You were charged GST by Australian Border Force when you imported the Product, so you treated the sale of the Product as Taxable, pending the outcome of your private ruling request.

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 section 38-4

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

Reasons for decision

Summary

The supply of the Product is not a GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The supply of the Product is a taxable supply under section 9-5 of the GST Act.

Detailed reasoning

Under section 38-2 of the GST Act a supply of food is GST-free 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)(c) of the GST Act).

In Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329, Sunberg J concluded at [108] and [109] that classification decisions for GST purposes were a question of fact and degree and a matter of overall impression.

On appeal, the Full Federal Court in Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6 confirmed that a product may exhibit the characteristics of two categories, however for the purposes of the GST Act, a product can have only one 'classification'.

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. A product is considered to be an ingredient for a beverage where the supplier holds out the product for sale as an ingredient for a beverage.

Application to the Product

We acknowledge that the Product can be used either as an ingredient for food or an ingredient for a beverage.

However, from the information provided, you hold out the Product as an ingredient for a beverage. We consider that you are supplying the Product as an ingredient for a beverage for the following reasons:

•         You are in the business of selling ingredients and equipment for use in beverages.

•         The Product is listed on your website as an ingredient for beverages.

•         You sell the Product only to beverage manufacturers who use the Product to make beverages.

After determining that the Product is an ingredient for a beverage and therefore satisfies the definition of food in subsection 38-4(1) of the GST Act, it needs to be decided whether it falls under one of the exclusions in section 38-3 of the GST Act.

Under paragraph 38-3(1)(d) of the GST Act, the supply of an ingredient for a beverage for human consumption is only GST-free if it is an ingredient of a kind included in the table in clause 1 of Schedule 2 of the GST Act (Schedule 2).

As the Product is supplied as an ingredient for a beverage that is not 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 a 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.