ATO ID 2001/372: GST and unfermented grape juice
Date of decision: 9 August 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 100% unfermented grape juice?

Decision
No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells 100% unfermented grape juice. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts
The entity is a food supplier. The entity sells 100% unfermented grape juice. The unfermented grape juice is not supplied as a beverage until it is further processed. Grape juice is grape must (the liquefied product from the process of crushing grapes containing liquid, pulp, skins and seeds) that has the skins and seeds removed but not all of the pulp. The grape juice still contains approximately 5-8% solids. Grape juice can be used in the manufacture of both alcoholic and non-alcoholic beverages. 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 is 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. Paragraphs 38-4(1)(c) and 38-4(1)(d) of the GST Act define food to include beverages and ingredients for beverages for human consumption. Unfermented grape juice requires further processing before it can be consumed as a beverage. Therefore, it is not a beverage and does not satisfy the definition of food contained in paragraph 38-4(1)(c) of the GST Act. The unfermented grape juice is used as an ingredient for beverages and therefore satisfies the definition of food contained in paragraph 38-4(1)(d) of the GST Act. However, under paragraph 38-3(1)(d) of the GST Act, a supply of food is not GST-free if it is an ingredient for a beverage, other than an ingredient, of a kind, that is specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). The only ingredient for a beverage of relevance to this case is item 10 in Schedule 2 (Item 10). Item 10 provides that concentrates for making non-alcoholic beverages, if the concentrates consist of at least 90% by volume of juices of fruit, are GST-free. The unfermented grape juice that the entity supplies is not a concentrate and therefore does not fall within Item 10. The supply of unfermented grape juice is not a supply of food that is GST-free under section 38-2 of the GST Act. The entity is registered for GST and the supply satisfies 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 when it sells 100% unfermented grape juice.

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) paragraph 38-4(1)(c) paragraph 38-4(1)(d) Division 40 Schedule 2 clause 1 Schedule 2 clause 1 table item 10
Related ATO interpretative decisions: ATO ID 2001/373
Subject references: Goods & services tax GST food GST beverages Ingredients for beverages