ATO Interpretative Decision

ATO ID 2005/62

Excise

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Issue

Is a beverage made by the addition of grape spirit or neutral spirit to fermented fruit juice 'fruit or vegetable wine' as defined in section 31-4 of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) if the fruit juice before the addition of the spirit had an alcohol content below 8%?

Decision

No. A beverage made by the addition of grape spirit or neutral spirit to fermented fruit juice is not 'fruit or vegetable wine' as defined in section 31-4 of the WET Act if the fruit juice before the addition of the spirit had an ethyl alcohol level below 8%.

Facts

Juice is produced by crushing fruit.

The juice undergoes a fermentation process.

Grape spirit or neutral spirit is added to the juice to produce a beverage with an alcohol content between 15% and 22% (inclusive) of ethyl alcohol by volume.

The alcohol content of the fruit juice was below 8% prior to the addition of the spirit.

Reasons for Decision

Wine is defined in subsection 31-1(1) of the WET Act as meaning grape wine, grape wine products, fruit or vegetable wine, cider or perry, mead and sake. Each of these beverages is in turn defined.

Fruit or vegetable wine is defined in section 31-4 of the WET Act as a beverage that:

...

(a)

is the product of the complete or partial fermentation of the juice or must of:

(i)

fruit or vegetables; or

(ii)

products derived solely from fruit or vegetables; and

(b)

has not had added to it, at any time, any ethyl alcohol from any other source, except as specified in the regulations; and

(c)

has not had added to it, at any time, any liquor or substance that gives colour or flavour, except as specified in the regulations; and

(d)

contains at least 8% by volume of ethyl alcohol, but not more than 22% by volume of ethyl alcohol; and

(e)

complies with any requirements of the regulations, made for the purposes of section 31-8 of the WET Act, relating to fruit or vegetable wine.

Paragraph 31-4(d) of the WET Act requires that to be fruit or vegetable wine, the beverage must have an alcohol level between 8% and 22% by volume of ethyl alcohol. In this instance, the beverage had an alcohol level below 8% prior to the addition of the grape spirit or neutral spirit.

Paragraph 31-4(b) of the WET Act specifies that to be a fruit or vegetable wine, no ethyl alcohol may be added from any source, except as specified in the regulations.

Subregulation 31-4.01(2) of the A New Tax System (Wine Equalisation Tax) Regulations 2000 (WET Regulations) states that 'ethyl alcohol, from grape spirit or neutral spirit, may be added to fruit or vegetable wine'.

Subregulation 31-4.01(3) of the WET Regulations adds that 'if ethyl alcohol, from grape spirit or neutral spirit, is added to fruit or vegetable wine, the resulting beverage must contain at least 15% by volume of ethyl alcohol and not more than 22% by volume of ethyl alcohol'.

Subsection 31-8(2) of the WET Act specifies the types of requirements that may be stipulated for various types of wine. These include;

...

(a)

the substances that may be added to that type of wine;

...

(d)

the substances that may be used in the production of that type of wine;

...

Subregulation 31-4.01(2) of the WET Regulations is clearly written in a style consistent with paragraph 31-8(2)(a) of the WET Act in that it specifies the circumstances under which ethyl alcohol may be added to fruit or vegetable wine. The subregulation does not specify the circumstances under which ethyl alcohol may be used in the production of fruit or vegetable wine.

Given the wording of subregulation 31-4.01(2) of the WET Regulations, ethyl alcohol (from grape spirit or neutral spirit) may only be added to a beverage that is already fruit or vegetable wine. Paragraph 31-4(d) of the WET Act specifies that a beverage can only be fruit or vegetable wine if it contains at least 8% by volume of ethyl alcohol, but not more than 22% by volume of ethyl alcohol.

In this instance, the beverage, prior to the addition of the ethyl alcohol, contains less than 8% by volume of ethyl alcohol. Therefore the beverage is not fruit or vegetable wine prior to the addition of the ethyl alcohol. As subregulation 31-4.01(2) of the WET Regulations in effect provides that ethyl alcohol may only be added to a beverage that is already fruit or vegetable wine, the addition of ethyl alcohol to a beverage that is not already fruit or vegetable wine contravenes the requirement in paragraph 31-4(b) of the WET Act that ethyl alcohol not be added to the beverage, except as specified in the regulations. As the beverage fails to meet this requirement, it is not fruit or vegetable wine as defined in section 31-4 of the WET Act.

Legislative References:
A New Tax System (Wine Equalisation Tax) Act 1999
   subsection 31-1(1)
   section 31-4
   subsection 31-8(2)
   paragraph 31-4(b)
   paragraph 31-4(d)
   paragraph 31-4(e)
   paragraph 31-8(2)(a)

ATO Interpretative Decisions overturned by this decision
ATO ID 2004/790

Keywords
Alcohol
Fortified wine
Fruit wine
Vegetable wine
Wine
Wine equalisation tax

Business Line:  Indirect Tax

Date of publication:  18 February 2005

ISSN: 1445-2782