ATO ID 2001/563: GST and the sale of medicinal herbs
Date of decision: 7 August 2001
Business line: Indirect Tax

Issue
Is the entity, a herb grower, 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 medicinal herbs?

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

Facts
The entity is a herb grower. The entity sells medicinal herbs to buyers who use them for a range of purposes, from food manufacture to herbal medicines. The herbs are labelled and marketed as being medicinal herbs. 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 if it satisfies the definition of food in section 38-4 of the GST Act and does not come within any of the exclusions listed in section 38-3 of the GST Act. Herbs can have both culinary and medicinal uses. Therefore, it is necessary to determine if herbs are food for the purposes of the GST Act. Food is defined in section 38-4 of the GST Act to include: As the phrase 'food for human consumption' is not defined in the GST Act, it takes on its ordinary meaning. It is considered that the ordinary meaning of the phrase 'food for human consumption' would exclude products that are principally consumed for medicinal or therapeutic purposes. The entity is selling medicinal herbs which have been labelled and marketed as being medicinal herbs. It is clear that the intention of the entity is to sell herbs which are intended to be used primarily for their medicinal or therapeutic properties, not as (or in) food for human consumption. Therefore, the sale of medicinal herbs is not a supply of food for GST purposes. Accordingly, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells medicinal herbs. 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 medicinal herbs.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 section 38-2 section 38-3 paragraph 38-4(1)(a) paragraph 38-4(1)(b) paragraph 38-4(1)(e) Division 40
Related ATO interpretative decisions: ATO ID 2001/562
Subject references: Goods & services tax GST free GST food Food for human consumption Ingredients for food Supplies & acquisitions Taxable supply