GST and supply of cola essence

Is the entity, a food supplier, 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 cola essence?

No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it supplies cola essence. The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is a food supplier. The entity supplies cola essence. The cola essence is a syrup that is supplied as an ingredient for a beverage for human consumption.

The entity is registered for goods and services tax (GST). The supply satisfies the other positive limbs of section 9-5 of the GST Act.

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.

Subsection 38-4(1) of the GST Act defines food to include ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act). The cola essence is supplied as an ingredient for a beverage for human consumption and therefore, satisfies paragraph 38-4(1)(d) of the GST Act.

However, under paragraph 38-3(1)(d) of the GST Act, a supply of an ingredient for a beverage is not GST-free unless it is an ingredient of a kind that is specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

Cola essence is not listed in Schedule 2. Therefore, the entity is not making a GST-free supply under section 38-2 of the GST Act when it supplies cola essence.

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 any other provision in 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 cola essence.