ATO ID 2001/193: GST and wine must
Date of decision: 5 June 2001
Business line: Indirect Tax

Issue
Is the entity, a food supplier, making a GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it sells wine must?

Decision
No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells wine must. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts
The entity is a food supplier that sells wine must. Wine must is a liquefied product that results from the process of crushing grapes. Wine must is not 100% juice; it is a mixture of the grape juice, pulp, skins and seeds. Wine must is an essential component of the wine manufacturing process; however, it is not in itself, a drink. Additionally, wine must is not classified as wine, as it contains no alcohol because fermentation has not occurred. Wine, on the other hand, does contain alcohol. The entity is registered for goods and services tax (GST). The supply satisfies the other positive limbs of section 9-5 of the GST Act.

Reasons for decision
Summary: A supply of food will be GST-free under section 38-2 of the GST Act provided that it does not come within any of the exclusions listed in section 38-3 of the GST Act. Section 38-4 of the GST Act defines food to include beverages for human consumption and ingredients for beverages for human consumption. Subsection 38-4(2) of the GST Act states that 'beverage' includes water. Generally, where the word includes is used in relation to a definition of a word or phrase, the word or phrase defined has its ordinary meaning in addition to the matters specified in the definition ( Cohns Industries Pty Ltd v. Deputy FCT (1979) 24 ALR 658). The ordinary meaning of the word 'beverage' is found in The Macquarie Dictionary (1997) which defines beverage as 'any kind of drink, other than water'. Therefore, for the purposes of the GST Act, a beverage is any kind of drink, including water. Therefore, as wine must is not a drink, it is not a beverage. As such, the supply of wine must will only be GST-free if it is an ingredient for a beverage for human consumption. However, under paragraph 38-3(1)(d) of the GST Act the supply of a beverage (or an ingredient for a beverage) is only GST-free if it is a supply of a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). Therefore, the issue in this case is whether or not wine must is an ingredient of a kind specified in Schedule 2. Wine must is not specifically listed in Schedule 2. The only item that is of relevance to this case is item 10 of Schedule 2. Item 10 of Schedule 2 lists 'concentrates for making non-alcoholic beverages, if the concentrates consist of at least 90% by volume of juices of fruits'. As wine must is used in the production of an alcoholic beverage, (i.e.,) wine, it will not fall under item 10 of Schedule 2. Therefore, wine must is not an ingredient of a kind specified in Schedule 2. As such, the supply of wine must is not GST-free under section 38-2 of the GST Act. In this case, the entity is registered for GST and the supply meets the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 section 38-2 section 38-3 paragraph 38-3(1)(d) section 38-4 Division 40 Schedule 2, clause 1 Schedule 2, clause 1, Item 10
Case references: Cohns Industries Pty Ltd v. Deputy FCT (1979) 24 ALR 658
Other references: The Macquarie Dictionary 1997, 3rd edition, The Macquarie Library Pty Ltd, New South Wales.
Subject references: Goods and Services Tax GST food Food for human consumption GST beverages Ingredients for beverages Taxable supply