• The impact of this case on ATO policy is discussed in Decision Impact Statement: JMB Beverages Pty Ltd v Commissioner of Taxation (Published 21 July 2011).

JMB BEVERAGES PTY LTD v FC of T

Judges:
Stone J
Jessup J
Jagot J

Court:
Full Federal Court, Sydney

MEDIA NEUTRAL CITATION: [2010] FCAFC 68

Judgment date: 10 June 2010

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Stone, Jessup and Jagot JJ

Introduction

1. This an appeal from a judgment of a single Judge of the court given on 22 June 2009, in which the appellant's appeal under Part IVC of the Taxation Administration Act 1953 (Cth) was dismissed. That appeal was against a decision by the respondent disallowing the appellant's objection to a Notice of Assessment of its goods and services tax ("GST") "net amount", under the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("the GST Act"), with respect to the period 1 October 2006 to 31 December 2006.

2. The only question which arises on appeal is whether the primary Judge was in error to have rejected the appellant's contention that products sold by it were GST-free within the meaning of the table in cl 1 of Sch 2 to the GST Act. That table is as follows:

Beverages that are GST-free
Item	Category	Beverages
10	Fruit and vegetable juices	concentrates for making non-alcoholic beverages, if the concentrates consist of at least 90% by volume of juices of fruits
11		non-alcoholic carbonated beverages, if they consist wholly of juices of fruits or vegetables
12		non-alcoholic non-carbonated beverages, if they consist of at least 90% by volume of juices of fruits or vegetables

3. The appellant sold, by way of wholesale, four varieties of alcohol-removed wine products, three of which were non-carbonated and the fourth of which was carbonated. The appellant contended that they fell within the terms of items 12 and 11 of the table, respectively. In the case of the carbonated beverage, the question was whether it consisted wholly of juices of fruits, and, in the case of the non-carbonated beverages, the question was whether they consisted of at least 90% by volume of juices of fruits (there having been no suggestion that any beverage consisted, to any extent, of juices of vegetables). The primary Judge answered each of these questions in the negative, that is, adversely to the appellant. The appellant submits that his Honour was in error to have done so.

4. To understand how the appellant relies upon items 11 and 12 in the table, it is necessary to refer briefly to the means by which these beverages were produced, and to their composition. Each beverage was produced by a multi-stage process, in which the first stage was the production of a base wine by conventional wine-making processes, and using conventional wine-making grapes. Although such processes involve the making of various additions as required, it is sufficient for present purposes to note the uncontroversial fact that the material from which each base wine was produced consisted almost entirely of grapes, and that grapes are fruit within the meaning of items 11 and 12.

5. The base wine was then treated so as to remove almost all the alcohol therefrom. The substance so produced then underwent further treatments, including the addition of a small amount of rainwater said to be necessary to replace the water component of the base wine that was removed during the de-alcoholisation process. Less than 0.5% of the resulting liquid, by volume, was alcohol. For reasons which will appear, however, it is not necessary for us to delve further into aspects of the production process, or to deal with detailed quantitative issues of the kind agitated before the primary Judge.

6. Fundamental to the appellant's case was the proposition that the beverages in question consisted substantially of juices of fruits because they were made from, or derived from, grapes. The primary Judge rejected that proposition. His Honour said:

"In the current context the major component of the final beverage is the de-alcoholised 'base wine'. Although the wine making process commences with the juices of fruits, once the fermentation process commences (where the sugars are converted to alcohol) the nature of the component changes. The juices of fruits become wine and the later processes undertaken to remove the alcohol and restore its flavour never result in the product being returned to its original state."

Nothing put to us on appeal by the appellant has persuaded us that his Honour was in error in this part of his reasons. The passage set out above is entirely factual, and, despite an invitation extended to counsel for the appellant during the hearing of the appeal, we were referred to no evidence that cast even a shadow of doubt over the correctness of it.

7. Rather, the appellant sought to attack his Honour's conclusion by reference to the dictionary definition of "wine", namely, "the fermented juice of the grape used as a beverage". Although it is as plain as may be that the definition identifies wine as the product of fermentation, the appellant sought to turn this definition on its head, in effect, by proposing that wine was aptly described as "juice of the grape", notwithstanding that it had been fermented. Yet in other parts of their submissions made on behalf of the appellant, counsel contended that it would be wrong to describe their client's beverages as "wine".

8. With respect to counsel, we consider that these arguments amounted to little more than playing with words. As a matter of fact, the primary Judge found that the process of fermentation, which was used to produce the base wines which, after de-alcoholisation, constituted the major component of the beverages in question, changed the nature of that component. After, and as a result of, fermentation, juices of fruits were no longer present. The process of fermentation itself had changed the juices into wine. As we have said, we were referred to nothing in the evidence below that was inconsistent with this quite unremarkable conclusion by the primary Judge. His Honour was not in error to have drawn it.

9. When counsel for the appellant was pressed, he accepted that his client's case required the words "consist of" in items 11 and 12 of the table to be read as (or as extending to) "are made from". Quite clearly, a substitution of this kind would bring about a change in the sense of the provisions in question. We were provided with no sound legal basis for so proceeding. Indeed, his Honour below referred to long-standing authority which - uncontroversially, if we may so observe with respect - treated the words "consisting" in corresponding earlier legislation as referring to the "constituents actually existing at the time of tax":
Deputy Commissioner of Taxation v Pepsi-Cola Metropolitan Bottling Co Inc (1967) 10 FLR 101, 106. We were not invited to depart from this authority. The submission made on behalf of the appellant is quite inconsistent with it.

10. It follows that we have no need to be concerned with quantitative issues such as whether the appellant's carbonated beverage consisted "wholly" of juices of fruits, or whether its non-carbonated beverages consisted "of at least 90% by volume" of juices of fruits. In our view, his Honour was correct to conclude that the major constituent part of these beverages was not juices of fruits.

11. It follows that the appeal must be dismissed and consistent with the respondent's submission, there shall be no order as to costs..