Private ruling: GST treatment of bulk chocolate-making ingredient
Published: December 2011

Ruling: Q1: Is the importation of bulk chocolate-making ingredient a non-taxable importation under section 13-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes.

Relevant facts and circumstances: You are registered for GST. You produce and import into Australia a bulk chocolate-making ingredient for use in production of your chocolate. The product is a proprietary formula which is only sold by way of intra-company transfers between your related entities for the sole purpose of producing chocolate. The product is not an edible product. It is not advertised or sold to any entities outside your related entities. The product undergoes numerous further processes before becoming the final chocolate product for sale to the public. The product is transferred in plain packaged bulk industrial-sized bags with no descriptive labelling. Each bag of product is loaded into special silos and piped directly into chocolate production.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 13-10 | Section 38-2 | Section 38-3 | Section 38-4

Reasons for decision: Summary: The product is an ingredient for food, and not marketed as an ingredient for confectionery. It is therefore a GST-free food. An importation of the product will be a non-taxable importation under section 13-10 of the GST Act. | Detailed Reasoning - Detailed reasoning: Under section 13-10 of the GST Act an importation is a non-taxable importation if the importation would have been a supply that was GST-free if it had been a supply. Generally a supply of 'food' is GST-free. 'Food' is defined in subsection 38-4(1) of the GST Act as, relevantly: (a) food for human consumption (whether or not requiring processing or treatment); (b) ingredients for food for human consumption … However, paragraph 38-3(1)(c) of the Act states that a supply of food is not GST-free if it is food of a kind specified in clause 1 of Schedule 1. The categories of food that are taxable pursuant to clause 1 of Schedule 1 include 'confectionery'. This category of food includes confectionery, food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery. You have advised that the product that you import is not in a form for consumption as confectionery (or otherwise). It requires further processing or treatment. Therefore, in the state in which you supply the product, it does not fall within the definition of confectionery. However, it is necessary to consider whether it is a food marketed as ingredients for confectionery. Food can be an ingredient for confectionery, without being marketed as an ingredient for confectionery. Even though the sole use of the product is as an ingredient for confectionery it is necessary to consider whether it is marketed as such. If it is not, then it will be GST-free. The document Food Industry Partnership - issues register available on the ATO website considers food marketed as ingredients for confectionery (at Issue 29). Indicators of whether a product is marketed as an ingredient for confectionery include the packaging of the product. For example, if it has recipes for chocolates it would be considered to be marketed as an ingredient for confectionery. Conversely, where the product is in clear bags with no statements as to their intended use then it is accepted that they are marketed as an ingredient for food for human consumption and are therefore GST-free. In your instance there is no packaging on your product and it is for internal sale only. It is not marketed or available at all to the general public. It is only sold in very large bulk containers, and needs to be used in industrial sized food processing equipment. Therefore we consider that in the circumstances described the product is an ingredient for food, and not marketed as an ingredient for confectionery. It is therefore a GST-free food. As a supply of the product in this form would be a GST-free supply, this means that an importation of the product will be a non-taxable importation under section 13-10 of the GST Act.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.