Bristol-Myers Company Pty. Limited v. Federal Commissioner of Taxation

Judges:
Lockhart J

Court:
Federal Court

Judgment date: Judgment handed down 27 June 1990.

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Lockhart J.

The sales tax legislation of Australia is no stranger to fine points; the questions in this case hone the edges of the legislation even further. The question here is whether a product known as ``Sustagen Gold'' is a ``beverage'' within the meaning of item 23 of Div. VI of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (``the Act''). If it is, then it is not exempt from sales tax. Bristol-Myers Company Pty. Ltd., the applicant, asserts in the alternative that ``Sustagen Gold'' is a medicine within the meaning of item 38 of Div. VII of the First Schedule to the Act and therefore exempt from sales tax, an argument which is probably more

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ATC 4554

attractive to the applicant's legal advisers than to its marketing consultants.

The questions were the subject of much close and subtle argument reminiscent of W. Browne, Polex II 309 (1647):

``The soules of the Embassadors lay... drown'd in that delicious bev'rage wherein Polexander's Eloquence had throwne them.''

I turn first to the question whether ``Sustagen Gold'' is a beverage under item 23.

Item 23 provides relevantly for present purposes:

``Goods -

• (a) of a kind sold exclusively or principally; or
• (b) put up for sale, as food for human consumption (whether or not requiring processing or treatment) or as ingredients of food for human consumption or as goods to be mixed with or added to food for human consumption, including condiments, spices and flavourings, but not including -
• (c) beverages (except beverages of a kind marketed exclusively or principally as food for infants or invalids) or cordials;''

It is agreed between the parties that ``Sustagen Gold'' answers the description of goods of a kind sold exclusively or principally or put up for sale as food for human consumption within the meaning of item 23. The question is whether it is also a beverage and thus excluded from the exemption by para. (c) of item 23.

The applicant is a member of the Bristol-Myers group of companies which is a multinational group of companies having its headquarters in New York. Companies within the Bristol-Myers group manufacture and market a wide range of pharmaceutical products including anti-cancer drugs, cholesterol reducers, antibiotics and cardiovascular pills. ``Sustagen'' products of more than one kind have been marketed and sold by members of the Bristol-Myers group for many years under various names including ``Sustagen'', ``Unflavoured Sustagen'', ``Flavoured Sustagen'', ``Sustagen Hospital Formula'' and ``Sustagen Sport''.

``Sustagen Gold'' was first marketed in about 1985 following joint research and development work between the applicant and the Commonwealth Scientific and Industrial Research Organisation (CSIRO). One of the aims of the research was to produce a product that conformed to the Australian Foods Standards Code 1987 for formula dietary foods. ``Sustagen Gold'' was registered on 17 February 1986 as a proprietary medicine under the Health Act 1958 (Vic.) and ``Sustagen Gold'' (``Dutch Chocolate Flavour'') was registered on 10 April 1986 as a proprietary medicine under that Act. When ``Sustagen Gold'' was proposed to be launched in May 1985 it was regarded by the applicant essentially as a ``specialised, nutritionally balanced food drink'', the main competitors of which were ``Milo'', ``Tetrabrik'', ``Ovaltine Ready-to-Go'', ``Moove'' and ``Big M'' type flavoured milks. Marketing tests showed that children tended to like the taste of ``Sustagen Gold'' and that among the consumers were those ``who drink for refreshment''.

``Sustagen Gold'' is in liquid form. It is sold in more than one sized container, but the particular size with which this case is concerned is the 250 ml size. It appears in what is today a fairly familiar size and type of packet which has a form of straw attached to it so that upon piercing the prepared hole in the top of the packaging the consumer may drink the product through the straw, so long as the straw remains within reach. ``Sustagen Gold'' is a milk-based product. The packaging and advertising of the product states that it is not ``just another milk-based drink'', that it is ``low fat and protein rich''. It purports to be a ``nutritionally balanced liquid food''. The packaging indicates that it ``may be consumed as often as desired'' and it states that it is ``ready to drink''. ``Sustagen Gold'' contains added protein, carbohydrates, fats, vitamins, minerals and other ingredients. It may be purchased from supermarkets, sandwich shops, milk bars and pharmacies, fast-food bars and take-away-food shops and is generally displayed in cabinets with other liquids. It is marketed as a formula dietary food.

Since about October 1985 ``Sustagen Gold'' has been marketed by the applicant by means of advertisements on television and radio, cinemas and point-of-sale advertising placed in outlets selling the product. It is sold in two flavours:

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ATC 4555

``Dutch Chocolate'' and ``Honey Nut''. Some of its advertising stresses that it is ``a meal in itself'' and is a substitute for a meal. The principal consumers appear to be in either the 18- to 40-year-old age group of ``health conscious'' adults or school-aged children who have what is said to be the benefit of ``health conscious mothers''. It is asserted to be a ``nutritious energy drink for busy people on the go''.

All food offered for sale in Australia must conform to requirements of State or Territory food legislation. When food products are manufactured and processed they are subject to regulation under the Food Standards Code 1987 (``the Code'') which contains specific requirements governing the composition and labelling of some 300 to 400 foods and general provisions for all foods of which there are more than 5,000 different types. The Code was developed by the Food Standards Committee of the National Health and Medical Research Council. It is in the process of being adopted by all the States and Territories of the Commonwealth into their food legislation. In New South Wales, the Food Standards Code (Adoption) Regulation 1989, made pursuant to the Pure Food Act 1908 (N.S.W.), gave effect to the provisions of the Code as from 1 February 1989. The Code has been described in the evidence as ``the benchmark for the identification and regulation of all foods commonly sold for human consumption in Australia''. I need say little about the Code for two reasons: first, because it appears not to have come into effect until after the period with which this case is concerned, namely, 10-25 July 1987; and second, because it is, in my view, of little assistance in resolving the issues in this case. I should add, however, that, even taking into account all the evidence and the submissions made with respect to the Code, the conclusion which I reach and mention later would not have differed. I accept that ``Sustagen Gold'' meets all the requirements to be classified as a ``formula dietary food'' under category ``R4'' of the Code.

Although ``Sustagen Gold'' is a milk-based product it is different from a number of other flavoured milk products because it has additional vitamins and minerals. There is no doubt that it has the capacity, if desired by the consumer, to replace a meal and its marketing mentions this fact. On the other hand it is obvious that it is also intended to be, and is marketed as, a liquid to be drunk either with meals or between meals. Certainly it is used by various people in the community including schoolchildren and athletes as a drink to accompany their meals or as a drink by itself in between meals. There is some variance in the evidence as to whether ``Sustagen Gold'' is or is not entirely appropriate as a meal replacement, but in the end I do not think it matters. I accept, however, that ``Sustagen Gold'' does have added protein, carbohydrates, fats, vitamins, minerals and other ingredients which together supply the type and quantity of nutrients that may be associated with a meal. It may be, as was suggested in the evidence, that ``Sustagen Gold'' has been produced in liquid form merely for convenience and could quite easily have been transformed into a bar or frozen and put on a stick. The fact is, however, that it comes in liquid form.

It is plain that ``Sustagen Gold'' is frequently consumed as a nourishing drink. The television and radio advertising of ``Sustagen Gold'' refer to its attributes mentioned earlier, but they are not unique to ``Sustagen Gold'' and they could equally apply to other products including skim milk which is plainly a beverage. In my opinion ``Sustagen Gold'' is a concentrated milk drink with some added vitamins and minerals. Other liquids which are plainly beverages, such as the milk-based product ``Shape'', being a concentrated milk drink, contain added nutrients but this does not alter their character as beverages. The product ``Milo'' which is also a milk-based product is in this category. Milk, of course, is itself a beverage.

I am satisfied that, although ``Sustagen Gold'' is sometimes used as a meal replacement, it is more generally used as a drink either in association with other foods or by itself between meals rather than in substitution for other foods. The packaging of ``Sustagen Gold'' changed in more recent times with the advice of the tax advisers in mind at a time when the issues which are involved in this case were known to the applicant and its advisers. Prior to the change ``Sustagen Gold'' was advertised more distinctly as being a drink.

``Sustagen Gold'' has a water content of less than 75% whereas most beverages commonly have a water content of more than 90%;

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ATC 4556

however, that does not prevent it being a beverage. Other undoubted beverages have a similar water content including a banana milkshake or a thickshake. Also many solid foods have more than 90% water content.

Professor R.A.N. Edwards was called as a witness on behalf of the applicant. Professor Edwards is Professor and Head of the Department of Food Science and Technology at the University of New South Wales. Miss R.A. Stanton was called as a witness by the respondent. She is a consultant nutritionist and dietitian. Both Professor Edwards and Miss Stanton are highly qualified in their respective fields.

Professor Edwards' evidence was concerned to a large extent with the question whether ``Sustagen Gold'' is or is not a food, a question that appears to have been an issue in the early stages of the case but had ceased to be in issue before the trial commenced. It was common ground at the trial that ``Sustagen Gold'' was a food within the meaning of item 23. Professor Edwards' evidence was concerned to a substantial degree with the Code, its history, content and effect. The professor also directed a large amount of his attention in the evidence to the question of whether ``Sustagen Gold'' was correctly categorised under the Code rather than the question whether it had the necessary elements of a beverage. Both experts devoted themselves to some extent to the question of defining the expressions ``food'' and ``beverage'', but this is a matter which in my opinion is for the Court because they are ordinary English words and should be interpreted in item 23 according to their ordinary English usage.

The evidence of the experts was helpful, however, in analysing the product ``Sustagen Gold'', its various components and uses. There was some degree of conflict between the evidence of Professor Edwards and Miss Stanton and where it arose I prefer the evidence of Miss Stanton.

I have studied a number of dictionaries in the search for the meaning of the words ``food'', ``beverage'' and ``medicine''. Johnson's Dictionary contains the following interesting definition of the word ``beverage'' as perceived in the eighteenth century:

``BE VERAGE. n.f. [from bevere, to drink, Ital.]

1. Drink liquour to be drank in general.

• I am his cupbearer;
• If from me he have wholsome beverage,
• Account me not your servant.

Sheakespeare

• Grains, pulies, and all sorts of
• fruites, either bread or beverage, may
• be made almost of all

Brown's Vulgar Errours

• A pleasant beverage he prepar'd before,
• Of wind and honey mix'd.

Dryden

• The course lean gravel on the mountain sides,
• Scarce dewy bev'rage for the bees provides.

Dryden

2. Beverage, or water cyder, is made by putting the mure into the fat, adding water, as you desire it stronger or smaller. The water should stand forty eight hours on it, before you press it, when it is pressed, turn it up immediately.

Mortimer

3. A treat upon wearing a new suit of clothes.

4. A treat at first coming into a prison, called alfo garnifo.''

I prefer the simpler definition attributed to the word ``beverage'' by the Macquarie Dictionary which is simply ``a drink of any kind''.

``Drink'' when used as a noun is defined in slightly different ways by the dictionaries, but in my view it means any liquid which is swallowed to quench thirst or for nourishment.

``Food'' is what is eaten or taken into the body for nourishment, to maintain life and growth. What constitutes foods does not admit of any absolute definition because different societies accept and use different substances as food. Foods which maintain a defined shape are generally referred to as solids and, by contrast, foods which are not ``solid'' but which take up the shape of the container in which they are placed are either liquid foods or paste. Most beverages are foods, though tea is one notable exception. Tea is certainly a beverage and a drink but is not generally accepted as a food because it is not nutritious; it is a stimulant: see
Hinde v. Allmond (1918) 87 L.J.K.B. 893;

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ATC 4557

Sainsbury v. Saunders (1919) 88 L.J.K.B. 441 especially per Darling J. at p. 445 and
Diet Tea Co. Ltd. v. Attorney-General (1986) 2 N.Z.L.R. 693.

A beverage is consumed either hot or cold and is normally taken to quench the person's thirst or for stimulation or as an accompaniment to solid foods either at meal times or between meals. Beverages may contain stimulants such as caffeine and they may be used for refreshment or to overcome thirst. Beverages are not generally formulated to provide nor do they invariably provide essential nutrients to the meals with which they are consumed. An important part of a beverage is to replenish fluids. It is an important element in the concept of a beverage that it is something one drinks not eats. This is quite a usual menas of distinguishing beverage from other types of liquid foods which are not beverages such as gravy, sauce and syrup.

There are, however, some borderline substances which are not readily identifiable as food or beverage. Soup is one example. Soup would generally be regarded as a food and not usually as a beverage, although again modern marketing techniques produce a form of soup which is essentially sold as something to drink and certain persons in some parts of the world are more inclined to drink their soup from a bowl or cup rather than eat it from a bowl with a spoon. As Lord Wilberforce said in
Customs & Excise Commrs v. Beecham Foods Ltd. (1972) 1 W.L.R. 241 at pp. 249-250:

``We are here operating in a frontier zone of some width between food or nutrition and medicine. The frontiers are perpetually shifting as medical knowledge, fashion and standards of life change: they will not be the same in every society or every age. The medieval garden grew as medicines many plants and flowers now recommended as dietary or culinary ingredients. Conversely, until recently food was not, or at least not scientifically, esteemed for its chemical content. One cannot imagine Lucullus or Henry VIII calculating his protein intake.''

Item 23 describes the goods which answer the description of ``food'' by reference to whether they are of a kind sold exclusively or principally or put up for sale as food for human consumption and certain other matters to which the item is directed. Although this description does not specifically identify goods with reference to their own inherent qualities or characteristics, as distinct from their method of sale or marketing, it is obviously relevant to pay regard to the constituent qualities or ingredients of the goods themselves as well as how the goods are sold or marketed or put up for sale.

In my opinion ``Sustagen Gold'' is a beverage. Although it may be consumed as a replacement for a meal it may also be consumed as a nourishing drink and is consumed by people for this purpose either as an accompaniment to meals or between meals. This is how it is drunk, for example, by sportsmen and sportswomen and by school-children. It is in fact sold together with an attached straw so that it may be drunk. Claims made in the packaging of ``Sustagen Gold'', on its carton, and forms of advertisement are not inconsistent with its proper description as a beverage because it is a beverage of a kind that is also a food. Nor do I regard the meal replacement properties of ``Sustagen Gold'' as detracting from its character as a beverage. Also the words ``Ready to Drink'' on the package indicate a beverage. ``Sustagen Gold'' is a concentrated milk drink with some added vitamins and minerals. The fact that it contains added nutrients does not alter its characterisation as a beverage.

I have reached a firm view that ``Sustagen Gold'' is a beverage and that it is therefore outside the exemption which it otherwise would have obtained as food for human consumption under item 23.

The researches of counsel did not produce material which gives one a clear insight into why the legislature has decided to exempt foodstuffs from sales tax, though not beverages; but it seems from an analysis of item 23 and the history of the legislation that probably foodstuffs are exempted (though with many exceptions) because the intent is not to tax substances which supply essential nutrients to bodily welfare, namely, foodstuffs. In the case of beverages, since they can in effect include any drinks that may or may not have any nutritional value and often would not, they are not exempted. I notice in support of this view that item 23(c) expressly excepts from the description of beverages, beverages of a kind marketed exclusively or principally as food for infants or invalids.

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ATC 4558

I turn to the question whether ``Sustagen Gold'' is a medicine within the meaning of that term in item 38 of the First Schedule to the Act which appears in Div. VII ``Drugs, Medicines and Medical and Surgical Goods''. Item 38 is in the following:

``Drugs and medicines (including patent and proprietary medicines) used in the prevention, cure or treatment of sickness or disease in human beings, and in the compounding or preparation of such drugs or medicines, but not including...''

It is not suggested that ``Sustagen Gold'' is a drug or a patent medicine. Patent medicine is a term used for a medicine usually advertised to the public and a proprietary medicine is a term which includes any therapeutic preparation sold either directly to the public or solely on prescription by the medical profession: see Butterworths' Medical Dictionary 2nd ed. Again I have consulted the various dictionaries. The word ``medicine'' when used as a noun is according to its ordinary meaning in my opinion any substance or mixture of substances used in treating or preventing diseases or disorders. This is the meaning of the word in item 38.

``Sustagen Gold'' contains a mixture of many vitamins including vitamins A, D, C, B1, B2 and vitamin B12 together with minerals such as calcium. Although it is not beyond the bounds of possibility that ``Sustagen Gold'', with its mixture of vitamins and minerals, should in some circumstances be used to treat some patients with vitamin deficiencies, that would be an unusual use. Plainly ``Sustagen Gold'' would not be useful for treatment of any diseases or medical conditions except possibly, on a benign view of the facts, it might be of some use to patients suffering from vitamin or mineral deficiency. It is, however, unreal to think that there are illnesses or deficiency states for which ``Sustagen Gold'' would be appropriate treatment. There is evidence that ``Sustagen Gold'' has been registered by the Victorian Proprietary Medicines Advisory Committee pursuant to the provisions of the Health Act 1958 (Vic.). Registration was sought under that Act because failure to register a product exposes the person marketing the product to prosecution if it is a patent medicine as defined in that legislation. Registration under that Act has no relevance in my opinion to the present question; but even if it did, it would not be determinative in any way of any question in this case.

Evidence was given by Professor J.P. Seale, Associate Professor in Clinical Pharmacology at the University of Sydney and by Professor M.J. Rande, a Professor of Pharmacology at the University of Melbourne. Certain of the evidence of both gentlemen relating to the definition of the expression ``medicine'' is irrelevant because it is a term to be understood in its ordinary English usage and therefore a matter for the Court to decide; although I did not find that the definition which each gave was different one from the other or from the dictionary definitions of the term. Each of the professors gave evidence about the product ``Sustagen Gold'' and its properties and other matters some of which were relevant, some irrelevant. Although I do not think in the end the evidence is in any way conclusive of any issue in the case, where they conflict as they do on occasions, I prefer the evidence of Professor Seale.

In my opinion ``Sustagen Gold'' is not a medicine within the meaning of item 38 of the First Schedule to the Act.

It follows that the application must be dismissed with costs and the assessment of the respondent confirmed.

THE COURT ORDERS THAT:

1. The application be dismissed.

2. The assessment of the Commissioner be confirmed.

3. The applicant pay the costs of the respondent.