GST and supply of a herbal drink

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 a herbal drink?

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

The entity is a food supplier. The entity supplies a herbal drink.

The herbal drink contains ingredients that are specifically designed to improve the physical wellbeing of consumers.

The herbal drink is not a herbal tea.

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 by section 38-3 of the GST Act.

The meaning of food in section 38-4 of the GST Act includes beverages for human consumption (paragraph 38-4(1)(c) of the GST Act). The herbal drink is a beverage for human consumption and comes within the meaning of food contained in paragraph 38-4(1)(c) of the GST Act.

However, under paragraph 38-3(1)(d) of the GST Act, a supply of a beverage is GST-free only if it is a beverage of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

The herbal drink is not a beverage of a kind specified in Schedule 2. Therefore, the supply of the herbal drink is excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act. The fact that the herbal drink contains ingredients that are specifically designed to improve the physical wellbeing of consumers is not relevant in determining its GST status. Accordingly, the entity is not making a GST-free supply under section 38-2 of the GST Act when it supplies the herbal drink.

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 the herbal drink.

[Note: Herbal tea is listed in item 5 of Schedule 2. Therefore, paragraph 38-3(1)(d) of the GST Act does not exclude the supply of herbal tea from being GST-free.]