20 May 2003 GST/HST Ruling 45711 - Importation of Carbonated Mineral Water

Dear XXXXX:

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction(s) described below.

Statement of Facts

Our understanding of the facts, the transaction(s), and the purpose of the transaction(s) is as follows:

1. XXXXX is of the view that the importation of 1.5 litre bottles of XXXXX carbonated mineral water is taxable at seven per cent.

2. The importer, XXXXX, is of the view that this product is zero-rated pursuant to paragraph 1(n) of Part III of Schedule VI to the Excise Tax Act (the "Act").

3. The 1.5 litre bottles of carbonated mineral water are plastic wrapped with a cardboard base and vacuum sealed around the necks and sold for wholesale.

Transaction(s)

The carbonated mineral water is being imported into Canada.

Ruling Requested

The importation of the carbonated mineral water is subject to GST.

Ruling Given

Based on the facts set out above, we rule that the importation of the carbonated mineral water is subject to GST.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

GST is generally levied upon the importation of goods under Division III of Part IX of the Act. One of the exceptions is for goods that are zero-rated pursuant to Parts I to IV and VIII of Schedule VI to the Act. XXXXX has taken the position that the carbonated mineral water in this case is zero-rated as a basic grocery pursuant to paragraph 1(n) of Part III of Schedule VI to the Act.

Carbonated beverages are excluded from zero-rating pursuant to paragraph 1(c) of Part III of Schedule VI to the Act. This is explained in paragraph 32 of Memoranda Series Chapter 4.3, Basic Groceries, which states that this includes carbonated mineral water, whether flavoured or otherwise, and whether naturally carbonated or otherwise. Thus, the water in this case is fully taxable unless another relieving provision applies.

Paragraph 1(n) of Part III of Schedule VI to the Act is both a taxing and relieving provision. It excludes from zero-rating, among other things, "supplies of beverages (other than unflavoured milk)". However, subparagraphs 1(n)(i) to (iii) exempt from the exclusion (i.e., zero-rate) such supplies under the following conditions:

"(i) [not applicable in this case]

(ii) when sold in multiples, pre-packaged by the manufacturer or producer, of single servings, or

(iii) when the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving."

Paragraph 72 of Memoranda Series Chapter 4.3 merely repeats the above.

XXXXX view is that paragraph 1(n) removes from zero-rating all beverages (including carbonated mineral water) and then subparagraphs 1(n)(i) to (iii) zero-rate those same beverages where the conditions of those subparagraphs are met.

This is not the position of the Canada Customs and Revenue Agency. Paragraph 1(c) applies to all carbonated beverages, regardless of container size or packaging. Paragraph 1(n) cannot be used to zero-rate a supply that is fully taxable under one or more of the other paragraphs in section 1. The purpose of paragraph 1(n) is to zero-rate beverages which come within subparagraphs 1(n)(i) to (iii), but are not taxable under any other paragraph in section 1. For example, non-carbonated bottled water is not excluded from zero-rating under any provision other than paragraph 1(n). A bottle larger than a single serving is then zero-rated under subparagraph 1(n)(iii). A single serving sized bottle remains fully taxable.

This applies to other beverages excluded from zero-rating. For example, alcoholic beverages (paragraph 1(a)) and certain fruit beverages (paragraph 1(d)) are fully taxable, even when supplied in containers larger than a single serving.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-7909.

Yours truly,

Gunar Ozols
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate