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XXXXXKevin W. Smith
Goods Unit
Excise & GST/HST Rulings
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March 15, 200134647
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This memorandum is in response to your facsimile of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX powder (the 'product').
XXXXX
In preparing our comments, we also referred to a copy of the product label that we have on file as well as information found on the Internet.
Product Description:
1. The product is a naturally flavoured powdered XXXXX mix.
2. The product is available in XXXXX flavours: XXXXX[.]
3. The product is available in XXXXX canisters.
4. A sample XXXXX label provides the following information about the product.
XXXXX XXXXX XXXXX XXXXX[.]
5. Marketing information found on the internet (XXXXX states: XXXXX[.)]
Client's Position:
In a submission dated XXXXX, the client's representative XXXXX put forth their analysis of the product. Their comments are summarized as follows.
1. The product is a powdered XXXXX drink.
2. The product is sold in containers that exceed a single serving.
3. The product is a fruit-flavored beverage with greater than 25% fruit content as many of the ingredients are 'fruits' within the botanical sense of the term.
CCRA's Position:
In response to these comments, we provide the following comments in the same numerical order.
1. The product is a powdered XXXXX drink.
The word 'beverage' is not defined in the Excise Tax Act (ETA). Administratively, a 'beverage' is considered to be a drink that is consumed for pleasure or to quench thirst.
XXXXX Many of the ingredients found in the product have therapeutic properties. On their own, ingredients such as XXXXX are taken for their beneficial effects on the gastro-intestinal system. The product label goes as far as differentiating between XXXXX and XXXXX[.] This supports the position that the product is intended to be consumed as a therapy for personal health.
XXXXX[.] Our analysis indicates that the product is a dietary supplement intended to alter a real or perceived deficiency XXXXX in a person's diet. Although the product is mixed with fluids and consumed by drinking, it is our position that the resultant blend is not a beverage within the administrative meaning. This is supported by the manner in which the product is labelled, packaged and promoted. The product label and marketing information emphasizes the XXXXX content and the health aspects of product use.
Dietary supplements are not consumed to alleviate hunger as are foods traditionally considered basic groceries. Dietary supplements are supplied in various formats - made from synthetic or natural ingredients and produced in tablet, pill, capsule, or granulated or powdered form, and commonly sold by pharmacies, and health food shops. Examples include alfalfa, yeast, ginseng, lecithin, bee pollen, seaweed or fibre produced in tablet, pill and capsule form as well as in powdered and liquid form. Dietary supplements are not within the scope of Part III of Schedule VI to the ETA and are therefore taxable at 7% (or 15% as applicable)[.]
2. The product is sold in containers that exceed a single serving.
As we feel that the product is not a beverage, paragraph 1(n) of Part III of Schedule VI to the ETA is not applicable.
3. The product is a fruit-flavored beverage with greater than 25% fruit content as many of the ingredients are 'fruits' within the botanical sense of the term.
The client contends that paragraph 1(d) of Part III of Schedule VI to the ETA applies, and that the product is a zero-rated supply since the natural 'fruit' content satisfies the 25% (by volume) condition. To support their contention, the client's representative has relied on various dictionary definitions of the term 'fruit' to claim that XXXXX fit within the scope of paragraph 1(d) of Part III of Schedule VI to the ETA.
Paragraph 1(d) of Part III of Schedule VI excludes non-carbonated, non-milk-based fruit juice beverages or fruit-flavoured beverages that contain less than 25% (by volume) of natural fruit juice(s) or goods that, when added to water, produce a beverage included in this paragraph, from zero-rating. As discussed in point #1 above, in our view, the product is not a 'beverage', so paragraph 1(d) is not applicable. Notwithstanding this, we would like to make the following comments regarding the application of paragraph 1(d).
The term 'fruit' is defined in Black's Law Dictionary as,
"The produce of a tree or plant which contains the seed or is used for food. The edible reproductive body of a seed plant ..."
In the Third Edition of Biology of Plants (Biology of Plants, 3rd. Ed. Raven, Evert, Curtis, 1981, Worth Publishers), the term 'fruit' is similarly defined.
"... a mature, ripened ovary (or group of ovaries), containing the seeds; also applied informally, as in "fruiting body," to reproductive structures of other groups of organisms, together with any adjacent parts that may be fused with it at maturity".
However, these technical definitions do not reflect the sense of the word in common ordinary usage. In common usage, the term 'fruit' is not taken in a purely botanical sense. Ordinarily, the term 'fruit' is not associated with such things as pumpkins, cucumbers, zucchini, aubergines (eggplants), beans, almonds, rice and corn. Although they are fruits within the botanical sense of the term 'fruit', they are commonly referred to as vegetables, nuts or grains.
In Nix v. Hedden 149 U.S. 304 (1893), heard before the U.S. Supreme court, the court supported a tomato being a 'vegetable' despite its scientific status as being a 'fruit'.
The modern rules of statutory interpretation apply the ordinary sense of words in forming decisions. E.A. Driedger stated, "... the words of an Act are to be read in their entire context and in their grammatical and ordinary sense." (Construction of Statutes, 2nd ed., E.A. Driedger.)
Section 1 of Part III of Schedule VI to the Excise Tax Act (ETA) does not define 'fruit'. Instead, following the modern rule of statutory interpretation, the terms 'fruit', 'nuts', 'seeds', 'cereals' and 'popcorn' are used in the ETA to distinguish goods according to the ordinary sense of these terms. For instance, salted peanuts are subject to the exclusion of paragraph 1(g) of Part III of Schedule VI as a peanut is considered a 'nut' within the ordinary sense of the word.
We have reviewed our database and found no instances where we have allowed the botanical sense of the word 'fruit' to prevail over the ordinary sense.
Furthermore, after reviewing the Consumer Packaging and Labelling Act; the Canada Agricultural Products Act (Fresh Fruit and Vegetable Regulations & Processed Product Regulations) and the Food & Drugs Act (Division 11 of the Food & Drug Regulations: Fruits, Vegetables, Their Products And Substitutes), we could not find an instance where the word 'fruit' was not used entirely by its ordinary sense.
Thus, the contention that XXXXX should be properly treated as 'fruit' under the ETA is not in accordance with the ordinary sense of the word 'fruit' and the application of Part III of Schedule VI to the ETA.
Conclusion:
Based upon the ingredients, and the manner in which the product is labelled, packaged and promoted, it is our position that this product is not a beverage but a powdered XXXXX supplement (i.e. a dietary supplement). Accordingly, the product is not within the scope of Part III of Schedule VI and is taxable at 7%, or 15% as applicable.
If you have further questions or comments, please contact me at (613) 952-9218.
Kevin W. Smith
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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