Federal Commissioner of Taxation v F H Faulding and Co Ltd

The Federal Commissioner of Taxation appealed to the Full Court of the High Court of Australia against a decision of Rich J. The dispute concerned the liability of F. H. Faulding and Co. Limited to pay sales tax on certain cordials. The company claimed exemption from sales tax under item 36 (3) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935-1948, which exempted "Essences, concentrates and cordials, consisting wholly or principally of juices of Australian fruits, for the making of non-alcoholic beverages". The Commissioner contended that the cordials, which contained significantly less than 50% Australian fruit juice by volume or weight, did not qualify for this exemption.

The legal issue before the Full Court was the interpretation of the phrase "consisting wholly or principally of juices of Australian fruits" as applied to the respondent's cordials. Specifically, the court had to determine whether "principally" referred to the quantitative composition of the cordial (by volume or weight) or to the qualitative aspect, such as the ingredient that gave the cordial its distinctive flavour or character. The respondent argued, and Rich J. had found, that the latter interpretation was correct, meaning the cordials were exempt even with a low percentage of fruit juice.

The Full Court, in allowing the Commissioner's appeal, reasoned that the word "principally" in the exemption provision must be construed in a quantitative sense, consistent with the word "wholly". The court held that "consisting wholly or principally of" referred to the physical components of the cordial, and therefore, a quantitative standard of volume or weight was required. Given that the "Lemon Squash Cordial" contained 29% fruit juice by volume and 26.4% by weight, and the "Raspberry Balm Cordial" contained 13.4% by volume and 11.44% by weight, neither could be said to consist "principally" of Australian fruit juices. The court rejected the interpretation that "principally" referred to the element giving the cordial its distinctive quality, as this would render the quantitative aspect irrelevant and potentially lead to inconsistencies in the legislation.

Consequently, the Full Court reversed the decision of Rich J. It ordered that the appeal be allowed, the judgment below be discharged, and judgment be entered for the plaintiff (the Commissioner) for the amount claimed, together with the costs of the action and the appeal.