Private ruling: GST and supply of frozen fruit product
Date of advice: 16 May 2018
Published: July 2018

Ruling: Q1: Is the supply of the Product GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. The supply is a taxable supply under section 9-5 of the GST Act.


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 Paragraph 38-3(1)(d). | A New Tax System (Goods and Services Tax) Act 1999 Section 38-4. | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(d). | A New Tax System (Goods and Services Tax) Act 1999 Schedule 2.

Reasons for decision: Summary: The supply of the Product is not GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The supply is a taxable supply under section 9-5 of the GST Act. | Detailed Reasoning - Detailed reasoning: The Product is made up of various ingredients which by themselves may be GST-free. However, it is the end product that needs to be considered. A supply of food is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (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 food for human consumption (paragraph 38-4(1)(b) of the GST Act) and ● ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act). Ingredients that are used for the purpose of making a beverage may fall within either or both of these definitions. Whilst a product can be characterised in more than one way, this is irrelevant for the purposes of the GST Act, as a product can only be classified as one particular item ( Lansell House Pty Ltd & Anor FC of T 2011 ATC 20-239 at [7] (Lansell 2011) Further in Customs and Excise Commissioners v. Ferrero UK Ltd [1997] STC 881 at 888, where the question to be answered as to the characterisation or classification of a product is one of fact and degree, as it was for biscuits, Lord Wolf MR concluded that where a product has the characteristics of two categories, it is placed in a category in which it has sufficient characteristics to qualify. In determining whether a product is an ingredient for food or an ingredient for a beverage, it is important to determine the essential character of the product. There are products that are generally only used as an ingredient for a beverage – for example, milk powder. Although milk powder could be used as an ingredient for cooking, its essential character is that of an ingredient for a beverage. The Product consists of frozen fruit pieces. The packaging states that it makes a number of servings of a beverage. It includes the direction to blend the Product with water and then pour into glass. The directions also state that one can customise the Product by adding coconut water, orange juice, natural yoghurt, almond milk or ice cream for a different flavour or adding alternate ingredients such as spinach, and other fruits. The front of the package includes the pictures of the fruit ingredients and a glass container of liquid with a straw. The packaging states that the Product can be used to top-up of an arrangement of seeds, grains, nuts, and fresh seasonal fruit. It can also be used in making a cake or ice block. The Product is marketed as a frozen fruit pack which is ready to blend. We believe that a consumer will purchase the Product to be added to a liquid to produce a beverage. We consider that the Product is supplied as an ingredient for a beverage for human consumption. Where a product is characterised as an ingredient for a beverage, GST will apply unless the ingredient is of a kind listed in the table in clause 1 of Schedule 2 of the GST Act (Schedule 2). Of relevance are items 10, 11 and 12 of Schedule 2. | Detailed Reasoning - Beverages: 10 Fruit and vegetable juices concentrates for making non-alcoholic * beverages, if the concentrates consist of at least 90% by volume of juices of fruits 11 non-alcoholic carbonated * beverages, if they consist wholly of juices of fruits or vegetables 12 non-alcoholic non-carbonated * beverages, if they consist of at least 90% by volume of juices of fruits or vegetables Note 3: Fruit and vegetable juices: For the purposes of items 11 and 12 in the table, herbage is treated as vegetables. The ATO view for item 10 is outlined in paragraph 9 of Goods and Services Tax Determination (GSTD) 2002/2: | Detailed Reasoning - Concentrates: 9. Item 10 provides that certain concentrates for making beverages can be supplied GST-free, where they are for making non-alcoholic beverages. These products contain concentrated fruit or vegetable juices, and when reconstituted by the addition of water, return to a drinkable 'pure juice' state. However, to be supplied GST-free, the concentrate must consist of at least 90% by volume of juices of fruits or vegetables. By the state of the fruits in the photos provided, being frozen cut-up pieces of fruit, we believe the Product does not meet the ordinary meaning of ‘concentrate’ as it has not gone through the same manufacturing process as a concentrate. Typically, a concentrated juice is made from the juice going into a hot evaporator, which quickly heats the product, causing the water to evaporate, leaving only the concentrate. A concentrate is inherently a liquid, and the Product is not in liquid form. In addition, Item 10 only mentions juices of fruits, and the Product contains fruit pieces. The Product is neither marketed nor perceived by consumers to be concentrates for making fruit and/or vegetable juices. The Product is not concentrated fruit or vegetable juices, reconstituted by the addition of water into a drinkable pure juice of fruits or vegetables. We do not consider that the Product is a concentrate for making fruit and/or vegetable juices. Hence, the Product does not fit into item 10 of Schedule 2. Paragraphs 4 and 5 of GSTD 2002/2 discuss items 11 and 12 of Schedule 2 as follows: | Detailed Reasoning - Fruit and vegetable juices: 4. Item 11 provides that a carbonated beverage will only be GST-free if it consists wholly of fruit or vegetable juices. Item 12 provides that non-alcoholic and non-carbonated beverages will only be GST-free if they consist of at least 90% of juices of fruits or vegetables by volume. However, to be supplied GST-free the fruit and vegetable juices must be beverages under the ordinary meaning of the word beverage. | Detailed Reasoning - The meaning of beverage: 5. The GST Act defines beverage to include water, but does not otherwise discuss the meaning of a beverage. The word beverage appears in a similar context in the former sales tax legislation and has been considered by the courts to mean 'a drink of any kind' and, in turn, drink as 'any liquid which is swallowed to quench thirst or for nourishment’. The Product is not carbonated beverages (item 11), nor is the Product a beverage consisting of at least 90% by volume of juices of fruits or vegetables (item 12). The Product consists of frozen fruit pieces, which is used as an ingredient for making smoothie beverages. The Product is not considered 'a drink of any kind' or 'any liquid which is swallowed to quench thirst or for nourishment’. Hence, we do not consider that the Product is of a kind listed in items 11 and 12 of Schedule 2. As the Product is an ingredient for a beverage that is not of a kind listed in Schedule 2, the supply of the Product is not GST-free pursuant to section 38-2 of the GST Act. You should also note that the Detailed Food List, which provides details of the GST status of major food and beverage product lines, includes the following: | Detailed Reasoning - Notes: smoothie packs containing ingredients such as fruits, vegetables, seeds etc to be used to make smoothie beverages (fresh, frozen, tinned, packaged) taxable An ingredient for a beverage and the ingredient is not of a kind specified in Schedule 2 of the GST Act. | Detailed Reasoning - Taxable supply: The supply of the Product is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied. Section 9-5 of the GST Act provides that you make a taxable supply if: (a) you make the supply for consideration (b) the supply is made in the course or furtherance of an enterprise that you carry on (c) the supply is connected with the indirect tax zone, and (d) you are registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In this case, the supply of the Product satisfies the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act because: ● the supply of the Product is for consideration ● the supply of the Product is made in the course of your enterprise ● the supply of the Product is connected with Australia and ● you are registered for GST. Furthermore, the supply of the Product is neither GST-free nor input taxed under any provisions of the GST Act or another Act. Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of the Product is a taxable supply.

Relevant facts: You are a food retailer and are registered for GST. | The Product is sold as a frozen product. | The Product is sold locally to retailers. | You provided pictures of the packaging which provide product information as follows: | ● makes a number of servings of beverages | ● Ingredients: various fruits | ● storage instruction: keep frozen | ● Product contains no artificial colours or preservatives, only 100% real fruit pieces. | Add to water and blend then pour into glass. | Customise by adding other liquids such as coconut water, juice, natural yoghurt, milk or ice cream for a different flavour. Try adding alternate ingredients such as green leafy vegetables and other fruits. | To create a nutritious, top blended Product with an arrangement of seeds, grains, nuts, and fresh seasonal fruit. | ● There is a recipe for a cake and ice block. | You provided a picture of the small bags of fruit pieces inside the outer packaging: