Federal Commissioner of Taxation v F H Faulding and Co Ltd
(1950) 83 CLR 5949 ATD 201
[1950] ALR 862
(Judgment by: Latham CJ)
Between: Federal Commissioner of Taxation
And: F H Faulding and Co Ltd
Judges:
Latham CJWebb J
Fullagar J
Subject References:
Sales tax (Cth)
Judgment date: 2 November 1950
Judgment by:
Latham CJ
The question which arises upon this appeal from a decision of Rich J. is whether the respondent company, F. H. Faulding & Co. Ltd., is entitled to an exemption from sales tax under the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935-1948, item 36(3). Under that item the following articles are exempt from sales tax under the relevant statute, namely, Sales Tax Assessment Act (No. 1) 1930-1942:-
- "(3)
- Essences, concentrates and cordials, consisting wholly or principally of juices of Australian fruits, for the making of non-alcoholic beverages; non-alcoholic beverages consisting wholly of juices of Australian fruits." (at p595)
The Federal Commissioner of Taxation sued the respondent company for sales tax alleged to be due. The defendant admitted upon the pleadings that during the relevant year the company had manufactured and sold to persons not registered under the Sales Tax Assessment Act or to registered persons who did not quote their certificates of registration certain quantities of cordials, namely, lemon cordial and raspberry balm cordial. It was not contended that the latter part of the exemption applied; that is, it was not argued that the cordials were non-alcoholic beverages consisting wholly of juices of Australian fruits. It was not disputed that the liquids sold were cordials and, accordingly, questions as to the nature of a cordial such as were discussed in Collins Arden Products, Ltd. v. Barking Corporation [1943] KB 419 and Broughton v. Whittaker (1944) 60 TLR 247 did not arise for consideration. Nor was it disputed that the liquids were cordials for the making of non-alcoholic beverages or that they contained substantial quantities of juices of Australian fruits. They did not consist wholly of such juices. The only controversy was as to whether they consisted principally of juices of Australian fruits. (atp596)
The evidence showed that there were various kinds of cordials, some of which were not fruit juice cordials, e.g., peppermint cordials, but that all fruit juice cordials consisted of water, sugar, and fruit juice, with generally some preservative. The evidence showed that the lemon cordial manufactured and sold by the defendant company contained 29 per cent of Australian fruit juice by volume, 26.4 per cent by weight, and that the raspberry balm cordial contained 13.4 per cent of Australian fruit juice by volume and 11.44 per cent by weight. Thus, according to any quantitative standard, the cordials did not consist principally of fruit juices of Australian fruits. (at p596)
State legislation prescribes standards for fruit juice cordials which require a minimum quantity by weight of fruit juice in the case of orange, lemon, lime and raspberry cordials, varying from 12.5 per cent to 20 per cent, and of sugar varying from 25 per cent to 33 per cent. No evidence was given that any fruit juice cordial which was actually marketed contained more than 50 per cent of fruit juice, but the witnesses for the appellant conceded in evidence that they had heard of such cordials though they had not actually seen them or analysed them. (at p596)
It is the fruit juice in a fruit juice cordial which gives it a distinctive quality. Rich J. held that the words "consisting . . . principally of juices of Australian fruits" refer to the characteristic feature of the cordial - to what his Honour described as the element giving it its name and nature, its essential properties. (at p596)
The difficulty which this view meets is found in the words "consisting of". The reference is not to the principal characteristic of the cordial considered as a cordial, but to the content of the cordial. In the phrase "consisting wholly or principally of juice of Australian fruits" the word "wholly" necessarily requires the application of a quantitative standard. The word "principally" must, in my opinion, be similarly construed. Words might have been used which would have given the exemption to any fruit juice cordial in which the whole or larger part of the fruit juice used was juice of Australian fruits. So also an exemption might have been given to all cordials in which any flavouring of Australian fruit juice was contained. Possibly some such provision would represent the result which Parliament intended to achieve.
But the court cannot speculate upon such a matter. It must construe the words actually used. The word "consisting" refers to the physical components of the cordial, and the questions to be asked in determining whether the exemption is applicable are
- (1)
- Does this cordial consist wholly of juices of Australian fruits?
- In the present case the answer to this question must be - No.
- (2)
- Does it consist principally of juices of Australian fruits?
- The answer to this question must also, in my opinion, be - No, because the words "consisting principally of" must be read as referring to quantity expressed in terms of either volume or weight of the substance of the cordial and cannot be read as referring to that constituent of the cordial, whatever its proportionate quantity, which gives to the cordial its distinctive flavour as a cordial. (at p597)
In my opinion, therefore, the appeal should be allowed and judgment should be entered for the plaintiff for the amount claimed with costs of the action and of the appeal. (at p597)