Private ruling: GST and food classification
Date of advice: 21 June 2022
Published: September 2022

Ruling: Q1: Is your supply of 100% sparkling apple and pomegranate juice GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes.

Relevant facts and circumstances: You are an Australian entity which is registered for GST. You intend to launch a non-alcoholic carbonated sparkling apple and pomegranate juice product ('Product'), made wholly from the juices of fruit and will be comprised wholly of juice of fruit at the time of supply. The Product consists of 85% reconstituted apple juice and 15% reconstituted pomegranate juice. The reconstituted pomegranate juice contains.01% pomegranate flavour. The pomegranate flavour is captured in the pomegranate concentrate making process allowing complete re-constitution of the pomegranate juice and added back to the pomegranate concentrate. The rectified distillation technique is used to capture the flavour from the alcoholic volatile aromatic substances of the pomegranate juice. The pomegranate flavour is extracted in a liquid form. There are no preservatives being added to the pomegranate flavour before adding back the pomegranate concentrate. There are no further processes are undertaken on the pomegranate flavour from the time it is captured to the time it is added back to the pomegranate concentrate. It has been confirmed that at no stage, the pomegranate flavour fermented, evaporated or otherwise reduced to a crystal from. There are no preservatives being added to the Product at any stage.

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: Detailed Reasoning - Detailed reasoning: 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 is not excluded by section 38-3 of the GST Act. The term food is defined in subsection 38-4(1) of the GST Act. Food includes any of the following, or any combination of any of these: (a) food for human consumption (whether or not requiring processing or treatment) (b) ingredients for food for human consumption (c) beverages for human consumption (d) ingredients for beverages for human consumption. From the facts provided the Product is a beverage for human consumption and satisfies paragraph 38-4(1)(c) of the GST Act. However, under paragraph 38-3(1)(d) of the GST Act, a beverage other than a beverage of a kind that is specified in the third column in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2), is not GST-free. That is, the beverage must fall under Schedule 2 to be GST-free. The Product will only be GST-free if the Product is a beverage of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act. The Product needs to fall within Item 11 of the table, an excerpt from which is as follows: Item 11 in Schedule 2 (Item 11) is relevant to your carbonated apple juice product. Item 11 specifies 'non-alcoholic carbonated *beverages, if they consist wholly of juices of fruits or vegetables.' * Asterisked terms are defined under section 195-1 of the GST Act. Based on the information provided, the Product is a non-alcoholic carbonated beverage. We now need to consider whether the Product consists wholly of juices of fruits or vegetables. The ATO is of the view that wholly means 100%. This is consistent with the view expressed by Gzell J in P & N Beverages Australia Pty Ltd v FC of T (2007) ATC 4481 . 37. The concession by P & N that the word "wholly" meant 100% was a proper one. Items 10 and 12 in the table to cl 1 in Sch 2 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) are, respectively, concentrates for making non-alcoholic beverages if the concentrates consist of at least 90% by volume of juices of fruits, and non-alcoholic non-carbonated beverages if they consist of at least 90% by volume of juices of fruits or vegetables. In that context, "wholly" must, in my view, mean 100%. The Tax Office's Goods and Services Tax Detailed Food List provides that: | Detailed Reasoning - Notes: non-alcoholic carbonated beverages consisting of 100% pure fruit/vegetable juice GST-free Schedule 2, item 11 of the GST Act applies. non-alcoholic carbonated beverages consisting of less than 100% pure fruit/vegetable juice Taxable Not a beverage of a kind specified in Schedule 2 of the GST Act. The Product consists of 85% reconstituted apple juice and 15% reconstituted pomegranate juice. The reconstituted pomegranate juice contains.01% pomegranate flavour. The Tax Office is of the view that the addition of any substance that is listed as a food additive in the Australian New Zealand Food Standards (ANZFS) will prevent a product from consisting wholly of juices of fruits or vegetables. | Detailed Reasoning - Food additives: Food additives are described in Standard 1.3.1 of the Australia New Zealand Food Standards (ANZFS). It defines a food additive as any substance not normally consumed as food in itself and not normally used as an ingredient for food , but which is intentionally added to a food to achieve one or more of the technological functions specified in Schedule 5 [emphasis added]. Given the ANZFS approach, an additive as defined under ANZFS is, for GST purposes, considered to be a discrete substance. It follows that even if an additive is originally derived from fruit and/or vegetables, its character has changed so that it cannot be considered to be the juices of fruits or vegetables. ANZFS Standard 1.3.1 regulates the use of food additives in the production and processing of food. A food additive may only be added to food where expressly permitted in the Standard. Additives can only be added to food in order to achieve an identified technological function. The main point that should be remembered is that the ANZFS considers that if something is an additive, it no longer is fruit or vegetables. If something is fruit or vegetables, there is no requirement under the standards to have it separately mentioned and given its own code number. By definition, anything that had a code (or should have a code) cannot be fruit or vegetables. | Detailed Reasoning - Flavours and flavour enhancers: Flavours and flavour enhancers are used to enhance the existing taste and/or odour of a food. Flavours and flavour enhancers as a class are not usually considered to contain herbs and spices which are dealt with under the ANZFS Standard for fruit and vegetables. ANZFS' Flavouring and Flavour Enhancers User guide (August 2002) notes that there are three types of permissible flavouring substances: • natural - obtained from plant or animal raw materials, by physical, microbiological or enzymatic processes, • nature-identical - obtained by synthesis or isolated through chemical processes, and • artificial - are not identified in natural products intended for human consumption, whether or not the product is processed. Clause 11 of ANZFS Standard 1.3.1 (additives) provides permission for the above classes of flavouring substances to be added to food. The above flavouring substances are regarded as additives under the ANZFS. Facts indicate that the Product contains 0.01% pomegranate flavour. We need to determine whether the pomegranate flavour used in the Product falls under the above classification. Based on the facts provided, the pomegranate flavour is captured during the pomegranate juice concentration process. It is a liquid by-product of the pomegranate juice and is not synthetically created nor is it fermented, or otherwise reduced to crystal form. Furthermore, there are no further processes are undertaken on the pomegranate flavour from the time it is captured to the time it is added back to the Product. You also stated that there are no preservatives being added to the Product at any stage. On the basis of the above facts, the Product meets the definition of consisting of 'wholly of juices of fruits or vegetables' and therefore satisfy the requirement under item 11 in Schedule 2 to the GST Act. Accordingly, your supply of the Product is GST-free under section 38-2 of the GST Act.