Is the supply of the Coffee Concentrate (the Product) GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Yes.
You manufacture a range of coffee products. You are registered for GST. The Product is available in the various sizes. The Product is produced by soaking the coffee beans in water overnight, then filtering the remains five times to create a concentrated coffee liquid. This is then bottled. The coffee concentrate ingredients are coffee and filtered water. There are no other ingredients added. The coffee concentrate is rich black in colour and is a thick liquid. The Product is not in a ready-to-drink form and needs to be mixed prior to consumption. The Product is mixed with water, milk or other beverages to create a drink. The Product is sold at retail and wholesale outlets, online and in cafes/small supermarkets. When sold in a supermarket it is usually located near milk or other mixers. You provided a picture of the label which shows the Product is made purely from coffee and filtered water. There are serving suggestions to use the Product as a cocktail mixer or added to milk, hot or cold water or coconut water or use as a cooking ingredient. Your website and social media accounts provide similar information.
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.
Summary The supply of the Coffee Concentrate (the Product) is GST-free under section 38-2 of the GST Act. Detailed reasoning 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. The term 'food' is defined in section 38-4 of the GST Act to include, among other things, ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act). However, paragraph 38-3(1)(d) of the GST Act provides that a supply of food is not GST-free if it is a beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). Item 5 of Schedule 2 (item 5) provides that coffee and coffee essence is GST-free. Clause 2 of Schedule 2 states that none of the items in the table relating to the category of tea, coffee etc include any beverage that is marketed in a ready-to-drink form. Application to this case
The Product is a coffee concentrate made of coffee and filtered water, with no other ingredients added. The coffee concentrate is rich black in colour and is a thick liquid. The Product is not in a ready-to-drink form and needs to be mixed prior to consumption, with water, milk or other beverages to create a drink. We consider that the essential character of the Product is as an ingredient for a beverage. The Product is coffee of a kind covered under item 5 of Schedule 2. In addition, the Product is not a ready to drink coffee beverage. Hence, the exclusion at paragraph 38-3(1)(d) of the GST Act does not apply. Furthermore, the supply of the Product does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of the Product is GST-free under section 38-2 of the GST Act.