ATO Interpretative Decision

ATO ID 2004/49

Excise

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Issue

Can a beverage manufactured using flavours, that are made ready to be added to the beverage by the addition of ethyl alcohol other than grape spirit, be a 'grape wine product' as defined in section 31-3 of A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act)?

Decision

No. A beverage manufactured using flavours, that are made ready to be added to the beverage by the addition of ethyl alcohol other than grape spirit, cannot be a 'grape wine product' as defined in section 31-3 of the WET Act.

Facts

A manufacturer produces an alcoholic beverage consisting of a mixture of grape wine, flavours, sugar, water and glucose.

Ethyl alcohol, from a source other than grape spirit, is added to the flavours, as a carrying medium, to make them ready for addition to the beverage.

The flavours are extracted from vegetable matter.

Reasons for Decision

The term 'grape wine product' is defined in section 31-3 of the WET Act as a beverage that:

(a)

contains at least 700 millilitres of grape wine per litre; and

(b)

has not had added to it, at any time, any ethyl alcohol from any other source, except:

(i)

grape spirit; or

(ii)

alcohol used in preparing vegetable extracts (including spices, herbs and grasses); and

(c)

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

(d)

complies with any requirements of the regulations, made for the purposes of section 31-8, relating to grape wine products.

Under the definition, ethyl alcohol can only be added in the form of grape spirit or as alcohol which has been used in preparing vegetable extracts. The ethyl alcohol used as a carrying medium to make the flavours ready for addition to the beverage is not grape spirit. Therefore the beverage can only meet the definition of a 'grape wine product' if the ethyl alcohol is accepted as having been used in 'preparing vegetable extracts'.

The word 'preparing' is not defined in the WET Act and therefore takes on its ordinary meaning.

The Australian Oxford Dictionary, 1999, Oxford University Press, Melbourne, provides a number of alternative meanings of the word 'prepare'. The two meanings of most significance are:

1.

to make or get ready for use, consideration, etc...

4.

make (a chemical product etc.) by a regular process.

Thus, preparing vegetable extracts can mean either the readying of vegetable extracts for use or the process of making the vegetable extracts.

Alcohol is typically used as a carrying medium for flavours because of its qualities including:

•

it is able to dissolve different flavour concentrates

•

it does not impart any colour, odour or flavour

•

it is relatively cheap compared to other alternatives

•

it is readily absorbed in aqueous solutions.

Therefore, the addition of alcohol facilitates the use of vegetable extracts in the manufacture of beverages. If the meaning of 'preparing' in the context of the definition of 'grape wine product' means 'to make ready for use', then the use of alcohol, as a carrying medium, to make the flavours ready for addition to the beverage would be permissible under the definition.

However, we consider that the word 'preparing' in the context of section 31-3 of the WET Act should be interpreted as meaning the process of making vegetable extracts. The following points support this view:

1.

If the word 'preparing' equates to 'make ready for use', then potentially any quantity of ethyl alcohol from any source may be added to a beverage, as long as it accompanies a vegetable extract. It is reasonable to conclude that the definition of grape wine product is aimed at limiting the inclusion of alcohol from non-grape sources. This means the only interpretation of 'preparing' that enables the provision to be effective is that preparing equates to making.

2.

If the word 'preparing' equates to 'make ready for use', it would lead to a disparity of treatment between beverages produced using flavours made from vegetable extracts and those produced using artificial flavours. While alcohol used as a carrying medium for flavours made from vegetable extracts would be acceptable for the purposes of the definition of 'grape wine product', alcohol used as a carrying medium for artificial flavours would not.

3.

If the word 'preparing' equates to 'making', this effectively limits the level of alcohol that may be included in a beverage from a source other than grape spirit.

Conclusion

It is considered the definition of grape wine product should be interpreted as restricting the addition of ethyl alcohol to either grape spirit or other alcohol only where it has been used in the process of making vegetable extracts and has become an intrinsic part of the extract.

The use of alcohol, other than grape spirit, as a carrying medium to make vegetable extracts ready for use in the manufacture of a beverage is not considered to be 'preparing vegetable extracts' in the context of the definition of grape wine product. Accordingly, beverages containing alcohol (other than grape spirit) that have been used as a carrying medium to make vegetable extracts ready for use are not 'grape wine products' within the meaning of the definition in section 31-3 of the WET Act.

Legislative References:
A New Tax System (Wine Equalisation Tax) Act 1999
   section 31-3

Other References:
Australian Oxford Dictionary 1999, Oxford University Press, Melbourne

Keywords
Excisable goods
Excise
Excise collections
Grape wine products
Wine equalisation tax

Business Line:  Excise

Date of publication:  23 January 2004

ISSN: 1445-2782