Divas Beverages Holdings Pty Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (VID 1439/2016)
Judgment date: 27 April 2018
Date published: 18 June 2018

Summary of decision:
At issue before the Court was whether the proposed products to be manufactured fell within the definition of 'wine', specifically, whether the proposed products were 'grape wine' or a 'grape wine product', in subsection 31-1 of A New Tax System (Wine Equalisation Tax) Act 1999 (the WET Act).

Overview of facts:
The applicant sought approval to acquire duty free spirits to manufacture 'VKAT' and 'VKAT Raspberry' using two alternative production methods. First, the starting point for either alternative is the acquisition of 'low-sugar juice'. Secondly, low sugar juice is then blended with either 'liquid sugar' (Liquid Sugar VKAT) or grape concentrate (Grape Concentrate VKAT) resulting in a 'blend'. Both blends undergo the same subsequent processes. | Thirdly, the blend is fermented to approximately 2% alcohol content by the addition of yeast, nutrients and the application of heat (if necessary) to create a 'fermented product'. | Fourthly, processes commonly used in wine making are applied to the fermented product to remove colour, odour and taste from the fermented product, resulting in the 'unfortified product'. | Fifthly, grape spirit is then added to fortify the unfortified product to an alcohol content of approximately 22%. | The last and sixth stage of the process involves a final filtration resulting in a bottled product, which is a clear colourless, odourless and neutral tasting alcoholic beverage. | VKAT Raspberry is manufactured by blending VKAT (88% by volume) with further liquid sugar, colourings and non-alcoholic flavourings (12% by volume). | Issues decided by the court | The Court held that: 1. The test of whether a 'beverage' is wine is to be applied to the finished product and not to the liquid as it exists during the stages of production. 2. The statutory definition of grape wine does not impose any requirements as to the appearance, state or other characteristics of the final product, other than the requirement that the beverage is to be produced from the fermentation of fresh grapes or products derived solely from fresh grapes. 3. There is no residual operation of an 'essential character' test in relation to determining whether a beverage is grape wine after the amendments to the WET Act. 4. The application of processes commonplace in wine making to the fermented product does not prevent the finished product from being the product of the fermentation of fresh grapes or products derived solely from fresh grapes. 5. Liquid Sugar VKAT is not grape wine because one of the products fermented, liquid sugar, is not derived from grapes. Liquid Sugar VKAT is also not a grape wine product because it does not contain at least 700 millilitres of grape wine per litre. 6. Grape Concentrate VKAT is grape wine because: a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes. | 1. The test of whether a 'beverage' is wine is to be applied to the finished product and not to the liquid as it exists during the stages of production. 2. The statutory definition of grape wine does not impose any requirements as to the appearance, state or other characteristics of the final product, other than the requirement that the beverage is to be produced from the fermentation of fresh grapes or products derived solely from fresh grapes. 3. There is no residual operation of an 'essential character' test in relation to determining whether a beverage is grape wine after the amendments to the WET Act. 4. The application of processes commonplace in wine making to the fermented product does not prevent the finished product from being the product of the fermentation of fresh grapes or products derived solely from fresh grapes. 5. Liquid Sugar VKAT is not grape wine because one of the products fermented, liquid sugar, is not derived from grapes. Liquid Sugar VKAT is also not a grape wine product because it does not contain at least 700 millilitres of grape wine per litre. 6. Grape Concentrate VKAT is grape wine because: a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes. | a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes.

Issues decided:
The Court held that: 1. The test of whether a 'beverage' is wine is to be applied to the finished product and not to the liquid as it exists during the stages of production. 2. The statutory definition of grape wine does not impose any requirements as to the appearance, state or other characteristics of the final product, other than the requirement that the beverage is to be produced from the fermentation of fresh grapes or products derived solely from fresh grapes. 3. There is no residual operation of an 'essential character' test in relation to determining whether a beverage is grape wine after the amendments to the WET Act. 4. The application of processes commonplace in wine making to the fermented product does not prevent the finished product from being the product of the fermentation of fresh grapes or products derived solely from fresh grapes. 5. Liquid Sugar VKAT is not grape wine because one of the products fermented, liquid sugar, is not derived from grapes. Liquid Sugar VKAT is also not a grape wine product because it does not contain at least 700 millilitres of grape wine per litre. 6. Grape Concentrate VKAT is grape wine because: a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes. 1. The test of whether a 'beverage' is wine is to be applied to the finished product and not to the liquid as it exists during the stages of production. 2. The statutory definition of grape wine does not impose any requirements as to the appearance, state or other characteristics of the final product, other than the requirement that the beverage is to be produced from the fermentation of fresh grapes or products derived solely from fresh grapes. 3. There is no residual operation of an 'essential character' test in relation to determining whether a beverage is grape wine after the amendments to the WET Act. 4. The application of processes commonplace in wine making to the fermented product does not prevent the finished product from being the product of the fermentation of fresh grapes or products derived solely from fresh grapes. 5. Liquid Sugar VKAT is not grape wine because one of the products fermented, liquid sugar, is not derived from grapes. Liquid Sugar VKAT is also not a grape wine product because it does not contain at least 700 millilitres of grape wine per litre. 6. Grape Concentrate VKAT is grape wine because: a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes. a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes.

ATO view of decision:
The Commissioner accepts the Court's decision.

Administrative treatment:
The advice provided on ato.gov.au regarding ' Clear or characterless grape-based products ' (QC 46919), which was published following a consultation paper (17 November 2014) has been withdrawn.

Legislative references: A New Tax System (Wine Equalisation Tax) Act 1999 The Act Excise Act 1901 The Act Excise Tariff Act 1921 The Act
Case references: Bristol-Myers Co v FCT (1990) 23 FCR 126 (1990) 21 ATR 417 90 ATC 4553 Deputy Commissioner of Taxation v Pepsi-Cola Metropolitan Bottling Co Inc (1967) 10 FLR 101 (1967) 14 ATD 433 [1967] 2 NSWR 47 Esso Australia Ltd v FCT [2011] FCA 360 (2011) 83 ATR 47
Other references: Explanatory Memorandum to A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999 (Cth) ato.gov.au - 'Clear or characterless grape-based products' QC 46919