ATO ID 2002/286: GST and the sale of grape juice concentrate for making alcoholic beverages
Date of decision: 28 March 2001
Business line: Indirect Tax

Issue
Is the entity, a supplier of a grape juice concentrate, 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 supplies grape juice concentrate that is for making alcoholic beverages, to a customer who makes a declaration that the grape juice concentrate will be used to make non-alcoholic beverages?

Decision
No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it supplies grape juice concentrate that is for making alcoholic beverages, to a customer who makes a declaration that the grape juice concentrate will be used to make non-alcoholic beverages. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts
The entity supplies grape juice concentrates to the wine industry. All of the entity's concentrates are marketed for use in alcoholic beverages and are stored identically. The grape juice concentrates consist of at least 90% by volume of fruit juice and are used for making alcoholic beverages. However, a small number of the entity's customers use this product for making non-alcoholic beverages. At the time of sale, the customer makes a declaration that it will use the grape juice concentrate to make non-alcoholic beverages. The entity is registered for goods and services tax (GST). The supply meets 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 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 beverages for human consumption (paragraph 38-4(1)(d) of the GST Act). The grape juice concentrate is an ingredient for a beverage for human consumption and therefore, satisfies the definition of food in paragraph 38-4(1)(d) of the GST Act. However, under paragraph 38-3(1)(d) of the GST Act, ingredients for beverages are only GST-free if they are of a kind listed in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). Item 10 of Schedule 2 (Item 10) lists 'concentrates for making non-alcoholic beverages, if the concentrates consist of at least 90% by volume of juices of fruit.' The grape juice concentrate supplied by the entity does contain at least 90% by volume of fruit juice. Therefore, it needs to be determined whether the grape juice concentrate for making alcoholic beverages sold by the entity is considered to be a concentrate for making non-alcoholic beverages when the customer has declared that the concentrate will be used to make non-alcoholic beverages. Under the GST legislation, the GST status of a supply of food is determined on the basis of what is being supplied, not what the recipient of the supply intends to do with the food. Therefore, there is no requirement for the entity to determine how the customer will use the grape juice concentrate in order to determine the GST status of the supply. The entity does not differentiate the grape juice concentrate when it supplies it to customers that may make either alcoholic or non-alcoholic beverages. All of its grape juice concentrates are marketed for use in alcoholic beverages and are stored identically. Therefore, the entity is supplying grape juice concentrate for making alcoholic beverages despite the customer's declaration. Accordingly, the grape juice concentrate is not covered by Item 10 and the supply of the grape juice concentrate is not a GST-free supply 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 supplies grape juice concentrate that is for making alcoholic beverages, to a customer who makes a declaration that the grape juice concentrate will be used to make non-alcoholic beverages.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 11-20 Division 38 section 38-2 section 38-3 subsection 38-3(1)(d) section 38-4 paragraph 38-4(1)(d) Division 40 Schedule 2 clause 1 Schedule 2 clause 1 table item 10
Subject references: Goods & Services tax GST-free GST food Ingredients for beverages Supplies & acquisitions Taxable supply