Otto Australia Pty. Ltd. v. Federal Commissioner of TaxationJudges:
This case is about garbage bins. The particular question arises under the Sales Tax (Exemptions and Classifications) Act 1935 (``the Act''). The Act exempts from sales tax under item 78 in Div. XI of the First Schedule:
``Goods for use (whether as goods or in some other form) and not for sale by -
- (i) a municipal, shire or district council constituted for the general purpose of local government under any law of the Commonwealth or of a State or Territory;...''
Otto Australia Pty. Ltd., the applicant, provides a garbage collection service in various municipalities and shires in Australia by contracts with the relevant municipal and shire councils. Garbage bins are imported from Germany for the purpose of performing the contracts. The applicant says that the garbage bins are ``for use... by a municipal, shire... council'' within the meaning of item 78; the Commissioner says that they are not.
The facts are not in dispute. The applicant is part of the Otto group of companies of the Federal Republic of Germany which manufactures waste removal equipment and provides waste removal services. Companies within the Otto group manufacture a wide range of products for waste removal, the major product for domestic waste collection being the 240 litre wheeled cart (``the Otto cart''). The average useful life of an Otto cart is about 10 years. From about 1982 the applicant has imported into Australia the Otto cart for supply to residents of local government municipalities and shires with which the applicant has waste removal contracts including Berwick City Council, Campbelltown City Council, Wyong Shire Council, Ryde Municipal Council, Gosford City Council, Brunswick City Council and the Bulla Shire Council.
The general practice of the applicant is that, as soon as agreement has been reached with the particular council, the applicant places an order by telex with Otto Germany, the parent company of the applicant, for the number of Otto carts required to perform that contract to be delivered to Australia. Otto carts are usually ordered in lots of about 1,000 or greater. Otto carts have not been ordered other than for the purposes of the contracts entered into with local government councils. Virtually all the carts required by the applicant are imported from Germany. The arrangement between the applicant and Otto Germany is that the carts are rented to the applicant and formal rental agreements are signed between Otto Germany and the applicant. The applicant pays Otto Germany a weekly rental for the carts. At all material times the applicant has paid the sales tax due in respect of Otto carts as the person entering the goods into Australia.
It is a requirement of all the council contracts entered into by the applicant that the name of the relevant council be imprinted on the cart. Waste collected in the Otto carts is usually emptied in rubbish tips owned and operated by the council concerned.
On 1 February 1983 the applicant entered into a written waste removal contract with the Wyong Shire Council which provides for 34,850 Otto carts. The applicant entered into a waste removal contract with the Ryde Municipal Council by written contract dated 8 February 1983 which was replaced by a new contract dated 23 October 1984. By contract dated 7 November 1983 the applicant entered into a waste removal contract with the Gosford City Council. Other contracts were entered into by the applicant with other municipal or shire councils to which further reference is unnecessary.
I have chosen the contract between the applicant and the Wyong Shire Council as being representative of the other contracts between the applicant and other councils. This was the course suggested by the parties who agreed that nothing turned for presently relevant purposes on any differences between the various contracts.
Under the contract of 1 February 1983:
- • The applicant agreed to ``collect, remove and dispose of all garbage and bulk refuse from every household, shop, workshop or other premises, including all premises owned by the council, within the shire in accordance in all respects with the provisions of the specification and the tender except as herein otherwise expressly provided...'' (cl. 4).
- • The ``specification'' is defined in the contract and expressed to be part of it as is the ``tender''. The ``tender'' is defined as meaning the ``tender provided by the contractor for the collection and disposal of garbage within the scavenging district of the shire''.
- • The agreement is expressed to continue in force for seven years from 1 February 1983 or earlier determination (cl. 6).
- By cl. 7 the applicant agreed with the council:
- • that it would provide sufficient numbers of employees for the purpose of performing its obligations under the contract to the satisfaction of the council's health surveyor (cl. 7(a));
- • that it would, during the term of the contract, at its own expense provide and maintain, to the standard required by the specification, a sufficient number of vehicles, bulk waste containers and plastic mobile garbage bins, the type of which shall be approved by the health surveyor, for the purpose of fulfilling its obligations under the contract to the satisfaction of the health surveyor (cl. 7(b));
- • that it would sweep up and remove from all footpaths, roads or lanes within the shire any garbage or bulk refuse spilt, scattered or upset thereon (cl. 7(c));
- • that it would comply with all directions of the health surveyor designed to minimise noise or any other nuisance emanating from the vehicles used by the applicant in the performance of the contract (cl. 7(d)).
- • In the event that the applicant commit any of the acts to which cl. 9 is directed, including its being wound up or the levying of execution upon its goods or without the consent in writing of the council selling, assigning, charging or otherwise encumbering the plant used or necessary for the proper performance of the contract, the council is empowered to use, take and retain possession of the plant, materials and effects of the applicant used or necessary for the performance of the contract and to enter into substitute arrangements with any other contractor so that it can perform the contract substantially the same way as the applicant agreed to perform it (cl. 9).
- • The council is empowered to maintain the continuance of the garbage supply service and for that purpose to take possession of the applicant's plant and equipment and employ its own servants and agents for that purpose in the event of the services becoming interrupted by reason of industrial disputes (cl. 7.1 of the specification).
- • The garbage bin which the applicant is required to use is defined in the specification as a plastic mobile garbage receptacle with a capacity of not less than 240 litres.
- • The council is responsible for all garbage depot site preparation and burial of garbage (cl. 14.1 of the specification).
- • The specification requires that the garbage vehicles used by the applicant shall be cleansed, washed down, steamed and disinfected at a suitable place approved by the shire health surveyor (cl. 15.1).
- • Clause 21.1 of the specification provides that it is the responsibility of the occupier of all premises (that is the residents) to cleanse their own bins as necessary and as directed by the shire health surveyor.
- • By cl. 27.2 of the specification the applicant agreed, in the performance of its duties under the contract, to accept and comply with all directions or orders of the health surveyor of the council. The applicant agreed to employ a sufficient number of staff to carry out its duties under the contract (cl. 35.3) and to dismiss any servants employed by it whom the president of the council or certain other officers including the shire health surveyor may direct (cl. 36.3).
- • The applicant agreed to provide a sufficient number of fully enclosed current model motor garbage vehicles, appliances and utensils for the proper and effective performance of the contract (cl. 38.3 of the specification).
- • The bins shall be distinctively marked with a serial number which can associate the bin with the premises to which it was supplied. The applicant is required to maintain an up-to-date register showing the location of each bin including the serial number of the bin and the date of issue. All bins shall be marked ``Wyong Shire Council'' or other approved identification symbol in lettering of such size as shall be approved (cl. 43.3 of the specification).
- • The bins shall remain the property of the applicant subject to the provisions of cl. 88.6 (cl. 47.3).
- • The applicant is required to service the garbage bins of every household, shop or
ATC 4607other premises (cl. 52.4 of the specification).
- • Clause 88.6 of the specification is another provision of the contract which empowers the council to seize the applicant's plant and to cancel the contract in certain events including the winding up of the applicant or its assigning or subletting the contract without the council's consent.
The above sufficiently summarises the principal provisions of the contract with the Wyong Shire Council. Some 34,000 Otto carts have been delivered to ratepayers in the Wyong shire pursuant to the agreement.
Each council employs inspectors to supervise the daily refuse collections by the applicant as contractor. Complaints by ratepayers are made to the council concerned. If complaints are made by ratepayers to the council a representative of the applicant attends the council offices on a regular basis and is informed of the complaints and steps are taken to correct the problem. There is regular communication between council officers and officers of the applicant to maintain satisfaction by ratepayers with the council services and proper standards of public hygiene.
Counsel for the applicant relied on the principle of construction that an exemption from a taxing statute should not be construed narrowly and referred me to
Penrith Rugby League Club Ltd. v. Commr of Land Tax (N.S.W.) 83 ATC 4709 and
Cronulla Sutherland Leagues Club Limited v. F.C. of T. 90 ATC 4215 at p. 4237.
Counsel for the applicant referred me to
D.F.C. of T. v. Stewart & Anor 84 ATC 4146 at pp. 4149, 4153 and 4154-4155; (1984) 154 C.L.R. 385 at pp. 390-391, 397-398 and 400-401 as authority for the proposition that the word ``use'' where appearing in item 81(1)(c) in the first column of the First Schedule to the Act does not connote exclusive use. Counsel submitted that goods may be used by different persons at the same time without disturbing the availability of the exemption and referred to
Tourapark Pty. Ltd. v. F.C. of T. 82 ATC 4105 at pp. 4107 and 4110; (1982) 149 C.L.R. 176 at pp. 181-182 and 187; also
Hamilton Island Enterprises Pty. Ltd. v. F.C. of T. 82 ATC 4302 at pp. 4304 and 4306-4307; (1982) 43 A.L.R. 519 at pp. 521-522 and 524-526.
Counsel for the applicant submitted that it is the local council which has the obligation to provide the service of garbage removal to ratepayers and that it may discharge that duty, as the councils did here, by contracting out and supervising the performance by the contractor. The Otto carts are used by the contractor to fulfil its contractual obligations to the council and are used by the ratepayers as garbage receptacles. Counsel submitted that the carts are also in a relevant sense used by the council to fulfil its obligations to the ratepayers and that this is enough to attract the exemption.
In my opinion the Otto carts are not goods ``for use'' by the respective councils within item 78. The applicant agrees by its contracts with the various councils to provide a garbage collection service for them. But the carts are ``for use'' and are used by the applicant as contractor, they are not ``for use'' or used by the councils. The applicant is required to provide the Otto carts at its own expense to fulfil its obligations under its various agreements with councils. The specification sets out in detail the obligations under each head agreement. I have referred above to the particular contractual obligations undertaken by the applicant in its contract with the Wyong Shire Council and to the powers which the council may exercise to ensure proper performance by the applicant of its contractual obligations. It is true that, if the applicant defaults in its contractual obligations or puts it beyond its control to perform them by, for example, being wound up, the council may take possession of the plant, materials and effects of the applicant including Otto carts and take steps to ensure that some other contractor performs the contractual obligations of the applicant.
It is also true that the applicant is required by its contracts to satisfy various requirements of the council officers including the council's health surveyors. But this does not involve use by the council. It is use by the applicant as contractor to discharge its contractual obligations. The Otto carts are used by the applicant as contractor and also by residents to store their garbage prior to collection.
The councils under the Local Government Act 1919 (N.S.W.) are empowered to ``do all things necessary from time to time for the promotion and preservation of public health,
ATC 4608safety and convenience'' (sec. 279). They are empowered to ``control and regulate the keeping on premises and the removal, disposal and destruction of all depot-rubbish'' (sec. 282), to ``maintain, manage, control and regulate depots'' for the disposal or destruction of rubbish (sec. 283) and to ``remove or require the removal of depot-rubbish from any premises'' and to this end are required to ``fix and define scavenging districts for nightsoil or garbage'' (sec. 283(5)).
Section 285(1) provides:
``In any contract for the removal of nightsoil, or garbage, or trade refuse, or any combination of such removals, the council may agree with the contractor for the collection by him and the retention for his own use of part or the whole amount of the charges in respect of such service.''
Section 303(1)(a) provides that ordinances may be made for carrying Pt X (public health, safety and convenience) into effect and in particular for and with respect to:
``(a) the supply by the council of... garbage pans, and requiring owners and occupiers of premises to accept, pay for, and use pans supplied by the council;
(c) the regulation of contractors for the removal of depot rubbish and the vehicles of such contractors...''
Section 516 empowers councils to ``enter into any contract for the purposes of the Act''.
Section 576(1) provides that ordinances may be made in relation to all or any of the following matters or matters incidental thereto including:
``(a) Any of the powers or duties conferred or imposed upon councils or upon servants of councils.''
Ordinance 51 made under the Local Government Act 1919 (N.S.W.) applies to all municipalities other than the City of Sydney and to all shires and parts of shires that are garbage scavenging districts for the purposes of the ordinance. The ordinance contains a number of provisions to which it is not necessary that reference be made. I note, however, that sec. 4 requires each occupier of premises to ``cause all garbage and refuse arising from such premises to be deposited in such pans, bags or other receptacles''.
It follows that local government councils or shires in New South Wales have wide powers relating to the collection, control and disposal of rubbish within their boundaries including powers to collect and remove rubbish themselves or to engage contractors for this purpose. I have referred only to the powers of councils under the Local Government Act 1919 (N.S.W.); but it was not suggested by counsel that legislation of other States was relevant or, if relevant, that it differed in any relevant respects from the New South Wales legislation.
I agree that exemptions of the kind presently before the Court should not be contrued narrowly, a principle which I always follow when construing exemptions to taxing statutes. However, it is only in cases of ambiguity that the application of those principles becomes relevant because the primary task of the Court is to construe the language of the statute and this is generally done according to the plain and ordinary meaning of the words used by the legislature.
I agree also that the word ``use'' in the context of item 78 does not connote exclusive use; but this is not to the point in the present case because in my view there is no relevant use at all by the councils concerned. The use is the use of the bins by the applicant as contractor to the councils, though in one sense the use is shared by the local residents themselves who deposit their rubbish into the Otto carts. That fact of shared use would not, of course, destroy the exemption if it were otherwise available.
Tourapark and Hamilton Island Enterprises are cases far removed from the present case. Both cases concerned the investment allowance provisions of the Income Tax Assessment Act 1936, an Act with very different objects and provisions from local government legislation. To the extent that these cases are of any relevance to the present case, they support the conclusion that both the applicant and the residents may be said to be using the bins at the same time. They shed no light on the question of whether the bins were ``for use'' by the council or whether the council itself was using the bins. In any event this is not a case where the use of the bins by different persons at the same time might disentitle the applicant from the exemption. This is a case where on the facts it is plain that the bins were not used and were not ``for use'' by the councils themselves.
It follows that the exemption sought by the applicant is not available under item 78; and no other item was relied upon.
A second question would arise if I had reached a different conclusion and this concerns the interpretation of sec. 11(1A) of the Sales Tax Assessment Act (No. 5) 1930 which it was agreed was the relevant Assessment Act relating to sales tax.
Section 11(1) of the No. 5 Act provides that subject to subsec. (1A), where the Commissioner finds in any case that tax has been overpaid by a person, the Commissioner shall refund the amount of any tax overpaid.
Section 11(1A) provides:
``Sub-section (1) does not apply in relation to any tax paid by a person unless the Commissioner is satisfied that the tax has not been passed on by the person to another person or, if passed on by the person to another person, has been refunded by the person to the other person.''
Counsel for the applicant conceded that the applicant's charge to each council is computed or calculated by reference to its costs which include but are not limited to the landed costs of the Otto carts and that the landed cost itself includes customs duty and sales tax. But counsel argued that sales tax is not charged as a separate item and that in those circumstances it could not be said that there had been a ``passing on'' of the sales tax by the applicant to the councils of the sales tax paid by the applicant. It was said further that it could only be argued that there was a ``passing on'' on the basis of some doctrine of economic equivalence. Reliance was placed upon
Europa Oil (N.Z.) Ltd. (No. 2) v. Commr of I.R. (N.Z.) 76 ATC 6001 at p. 6007; (1976) 1 All E.R. 503 at p. 509 for the proposition that the doctrine of economic equivalence has no place in the interpretation of fiscal legislation. It was said that there can only relevantly be a ``passing on'' of sales tax where the sales tax is added to the price of the goods upon a sale and reliance was placed upon sec. 70C which appears in Pt X of the Sales Tax Assessment Act (No. 1) 1930 and is made applicable to the No. 5 Assessment Act by sec. 12(1) of the latter Act.
Although it is not strictly necessary for me to deal with this question it was argued by counsel and I think it desirable that I express my view on it. There is no substance in so much of the argument as relies on sec. 70C of the No. 1 Assessment Act. That section only applies in the case of a sale of goods by wholesale where the taxpayer is required to state upon the invoice delivered by him to the purchaser in respect of the relevant transaction the amount of sales tax payable in respect thereof. This is not a sale by wholesale so the section has no application.
What is sometimes described as the doctrine of economic equivalence seems to me to have nothing whatever to do with this case. This is simply a question of construction of sec. 11(1A) of the Sales Tax Assessment Act (No. 5), the purpose of which is designed to deal with a large number of varying circumstances where the sales tax has not been ``passed on'' by one person to another person, and, if it has not been passed on to the satisfaction of the Commissioner, then the Commissioner is obliged to refund the amount of tax overpaid.
``Passed on'' in the context of sec. 11(1A) must be given a sensible and practical meaning to cover the wide variety of circumstances which may arise in practice in sales tax legislation. It is plain from the facts of the present case that the applicant did in fact ``pass on'' the sales tax to councils concerned in that, when calculating the contract price for the tender with the councils, the applicant included a component, though not shown separately in the contract documents with the councils, of sales tax paid by it on importation of the Otto carts. In other words the applicant bore the burden of the sales tax and passed it on in the price which it charged the councils for the performance of its contractual obligations. Had the applicant not done so and had the sales tax not been exigible then sec. 11(1) would have required the Commissioner to refund the amount of the overpaid tax.
No question arises of whether sec. 11 of the No. 5 Act could apply to recovery of sales tax which is not exigible at all as a matter of law, as it was agreed by counsel for both parties that sec. 11 would apply in the present case if the applicant had in fact not passed on the sales tax to councils.
As the matter comes before the Court following a request by the applicant to the respondent pursuant to sec. 41 of the Assessment Act No. 1 to refer the respondent's
ATC 4610decision on the applicant's objection to the Court, I would dismiss the application.
As to costs the applicant must pay the costs of the respondent of the issues argued before the Court. At earlier stages of the case the issues were larger, but the good sense of the parties resolved them and only left the questions of principle for determination with which I have dealt in this judgment. It is agreed between the parties that there should be no order for costs with respect to those other issues. The order for costs is intended therefore to extend only to the issues with which the Court has dealt in this judgment.
In conclusion, since writing my reasons for judgment Davies J. gave judgment in
Brambles Holdings Ltd. v. F.C. of T. 90 ATC 4584. Substantially the same questions of law arose in Brambles as in this case. In Brambles the issue was whether certain refuse vehicles and rubbish containers were exempt from sales tax under item 78. Davies J. held that the refuse vehicles were not, but the rubbish containers were, ``for use by'' the relevant council.
The essence of his Honour's reasoning was that the refuse vehicles were owned and operated by the council's contractor, that the council had no rights in respect of the vehicles and that its rights were limited to ``overseeing the proper performance of the rubbish collection service according to the terms of the contract'' (p. 4589).
The rubbish containers were in a different position, primarily because they were hired by the contractor to the council, thus creating a bailment to the council, so that the council had rights of use over them. His Honour held therefore that the rubbish containers were ``for use by'' the council.
The hiring of the rubbish containers by the contractor to the council in Brambles is the vital point of distinction between Brambles and this case where no such hiring occurred.
My reasons are consistent with Davies J.'s reasons in Brambles.
THE COURT ORDERS THAT:
1. The application be dismissed.
2. The applicant shall pay the costs of the respondent of the issues argued before the Court on 4 June 1990; otherwise there shall be no order as to costs.