CASE Y2

Members:
KL Beddoe

Tribunal:
Administrative Appeals Tribunal

Decision date: 8 October 1990

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KL Beddoe (Senior Member)

The question for decision is whether certain timber products are exempt from sales tax pursuant to Item 90 in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (``the Act''). The goods in question will be described as ``pieces'' in these reasons.

2. Section 5 of the Act provides, in effect, that notwithstanding anything contained in any Sales Tax Assessment Act, sales tax is not payable upon the sale value of goods covered by an Item in the First Schedule to the Act for the purposes of any Assessment Act specified to which the exemption applies.

3. Item 90 of the First Schedule covers timber including timber goods as defined in the item to provide for exemption under Assessment Acts Nos 1 to 9. Insofar as it is relevant Item 90 reads as follows: -

``90 Timber, including -

• (a) timber (not being joinery or turnery) which has been mortised, tenoned, bevelled, chamfered, checked, bored, trimmed or shaped at an end or ends, or cut into lengths;
• (b)... mouldings...; and
• (c) joinery and turnery of a kind used in the construction or repair of, and wrought into or attached to, so as to form part of, buildings or other fixtures.''

4. These proceedings have been brought by the applicant for review of an objection decision of the respondent Commissioner of Taxation given effect in an assessment made by the respondent under Sales Tax Assessment Act (No 6) and notified by notice dated 7 July 1987. By a notice of objection dated 6 August 1987 the applicant objected to the assessment of the goods as being taxable pursuant to an item in the Third Schedule to the Act. That objection was disallowed by a notice dated 12 February 1988 which resulted in an application for review of the decision dated 12 April 1988. That application was filed in this Tribunal by the respondent on 6 March 1990.

5. Somewhat strangely, it might be thought, in the circumstances of this case, section 14ZK of the Taxation Administration Act 1953 has the effect of requiring the Tribunal to prepare these reasons so as not to disclose the identity of the applicant. Such a provision is inappropriate where the Tribunal is asked to review a classification decision in respect of goods freely available in the market place. The interest in these proceedings is not confined to the interests of the importer who has been assessed. Retailers of the goods and purchasers from those retailers also have an interest - they are the persons who will be required to pay the tax if the decision under review is affirmed. The applicant not having elected to have a public hearing the Tribunal has no alternative than to comply with section 14ZK. That will result in the Tribunal refraining from describing the pieces in question by their trade name.

6. It should be said at the outset that in this decision the Tribunal is not concerned to find whether the same pieces when sold as a CKD kit are subject to sales tax. That issue does not arise from the objection decision under review and was not argued before me.

7. The applicant, who carried on business under the registered trade name at the relevant time, gave evidence before the Tribunal as did an expert in building and furniture called for the respondent. Exhibit A is a copy of an invoice raised by the applicant on a retailer for supply of the pieces in question. That transaction is the subject of the objection decision.

8. Exhibit D is a representative sample of the pieces. It is obviously a piece of pine timber with nominal measurements of 9 cm wide by 2 cm thick, the length being variable as between pieces. The applicant described it as a wood fill which has been moulded through a moulding machine to establish the shape and accuracy of the timber. The leading edges are trimmed to a bullnose shape by the moulding machine. The timber is then cut to various standard lengths and the cut ends bevelled. To this point it would be obvious that the timber is nothing more than a piece of moulded and bevelled timber.

9. The separate commercial identity of the goods is achieved by the next two processes. The first is to cut notches measuring 2.5 cm by 2 cm within 1 mm tolerances at the extremities of the length being 3.5 cm from the bevelled ends. Further notches of the same specifications may or may not be cut at standard intervals of 42 cm along the length of timber. For completeness it should be added that the

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applicant also sold pieces cut to the same specifications except that they were half the width of the standard pieces.

10. The pieces are imported into Australia in their finished state except that they are usually lacquered in Australia. I say usually lacquered only because some pieces are sold without the application of lacquer to suit the requirements of retail customers. Such unlacquered pieces are not the subject of the decision under review.

11. Folio 41 of the section 37 documents displays in pictorial form the various pieces of the kind covered by the decision under review. (Attachment A to these reasons.)

12. I accept the applicant's evidence that the pieces are sometimes purchased at retail level for purposes other than creating pieces of furniture but in the vast majority of sales the pieces are purchased at the retail level for the purpose of creating furniture in domestic premises. That is clearly the intention to be gleaned from the applicant's sales brochures in the section 37 documents and also Exhibit 1.

13. The respondent called Mr M K Keane who is head of the School of Building and Furniture at Ithaca Technical College with expertise in building and furniture.

14. His description of Exhibit D, which is a piece of the same description and specification (except as to size) as the pieces under consideration, was as follows:

• Q. Might the witness see Exhibit D? Now, just looking at that, can you explain the processes it has been through?
• A. Well, after it has been milled from a log, it has been nosed along two edges, cut to length, chamfered on the ends, housing or check cut on each edge near both ends, and a clear lacquer applied.

The witness then went on to give evidence about the potential use of the piece in these words:

• Q. Is there anything further that needs to happen to that before I can make furniture from it?
• A. Other than to mate it with other similar pieces.
• Q. Is there anything else it is used for, that it is appropriate for?
• A. I do not think so.
• Q. So, really, its appropriate destination is as furniture?
• A. I would say so.

And in relation to marketing of such pieces the witness was asked:

• Q. The form that it is currently in, would you expect to buy that from a timber merchant?
• A. No.

In cross-examination the witness said that he would not recognise the piece as timber but rather as a part of something else because of the work that had been done on it. That really crystallises the issue which I have to decide.

15. In these proceedings the burden of proving that the assessment is excessive lies on the applicant (section 42E Sales Tax Assessment Act (No 1) 1930). The power to be exercised by this Tribunal in reviewing the objection decision is that of the respondent Commissioner under the sales tax law (section 43 Administrative Appeals Tribunal Act 1975).

16. I will deal firstly with one of the applicant's arguments to the effect that the specific provision in Item 2 of the Third Schedule of the Act does not override the operation of the general provision for exemption of timber in Item 90 of the First Schedule of the Act. Because of section 5 of the Act it is clear to me that where goods are covered by an item in the First Schedule of the Act then those goods are exempt from tax irrespective of the operation of an item in another schedule to the Act. That is the clear intent of section 5 as gleaned from the words of the section. No other tenable view presents itself on the words of the section. I therefore agree that the pieces will be exempt if found to be covered by Item 90.

17. In no sense can it be said that the pieces in question are goods of a kind used in construction or repair of buildings. It is equally obvious that the pieces have not been fashioned on a lathe and are therefore not turnery.

18. Joinery is the product of a joiner. A joiner is defined by the Australian Concise Oxford Dictionary to mean ``one who makes furniture, house fittings and other woodwork that is lighter than carpenters''. There is no

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evidence before me that suggests that the subject pieces were made by a joiner. The evidence is that they were made in a sawmill and a factory.

19. That reasoning means that the applicant cannot succeed under paragraph (c) of Item 90. It also means that the applicant is not excluded by a finding of joinery or turnery for the purposes of paragraph (a) of the item.

20. The essential submission for the applicant is that the pieces consist of timber (that is beyond argument) that has been cut to length, trimmed by nosing the edges, bevelled at the ends and checked to provide the slots which make the pieces. There is no difficulty in my view with finding that the pieces were cut to length, trimmed by nosing the edges and bevelled at the ends. Each of those operations are well understood and are clearly within the terms of paragraph (a) of Item 90.

21. In this case one difficulty is in the meaning of checked. The expert witness described the slots cut in the nosed edges as ``check cut'' or ``housing''. Housing is a term of some difficulty in the context of a length of timber but I understood the witness to mean a socket such as a mortise.

22. The applicant submitted that the word ``check'' should be given the relevant meaning attributed to it by Websters Comprehensive Dictionary, there being no relevant meaning in the Shorter Oxford Dictionary. Websters describe ``check'' as a ``notch or rabbit in a piece of wood or stone into which another piece fits''. Therefore it is said the slots cut in the nosed edges are ``checks'' within the meaning in Item 90. I agree with that submission and so find.

23. In the alternative the applicant submits that the pieces are ``mouldings'' within the terms of paragraph (b) of Item 90. There is, however, no evidence before me which in any way suggests that the pieces are mouldings except that the bullnose edges were done on a moulding machine. In my view that does not make the pieces mouldings.

24. The respondent argued on the basis that the pieces were no longer of the genus of timber. They were not sold in a timber yard having been worked and finished to a state beyond anything likely to be sold as timber, thereby losing the character of timber as a genus of the kind covered by Item 90. The pieces are correctly characterised as furniture parts and would be so described for purposes of marketing, particularly in advertising. That submission is supported by the advertising material before the Tribunal in the section 37 documents and Exhibit 1. All applications shown in that material are for domestic furniture. That submission was also sought to be supported by various authorities of which I need refer to only one.

25. That is
Beecham Foods Ltd v. Commissioners of Customs and Excise (1969) 3 All ER 135. The initial question considered by the High Court (England) was whether a product sold under the trade name ``Ribena'', being essentially blackcurrant syrup with added syrup and vitamin C, was a drug or medicine. That question is of course a long way from the question arising in this case but the dicta of the Court provides guidance in deciding the present case. His Lordship (Ungoed-Thomas J) set out the test to be applied in the context of the then British Purchase Tax in these words at page 141 -

``As it is common ground that it is manufactured or prepared, the issue is whether it is a drug or medicine. Purchase tax is, so far as we need be concerned with it, a tax on the wholesale value of goods which are purchased. It is levied at the wholesale stage of distribution for sale. It must, therefore, be decided at that stage whether the goods are liable to tax and under what classification affecting the rate of tax. So whether any particular items of those goods are a drug or medicine cannot depend on their ultimate use or on intention by an individual purchaser. Nor, so it seems to me, can this be determined by the subjective intention of the manufacturer or anyone else in the line of distribution. In my view, from the very nature of the tax as a tax on purchase at the wholesale stage, the classification of goods must be determined objectively on the goods as within a category of goods in the market for sale. So that the test is not whether goods are suitable for a particular purpose and so can be and even are to some extent used for the particular purpose, or to serve a particular need, but what kind of goods are they on the market? The question is not whether the goods can be used or even are, to some

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extent, used as a drug or medicine or as, for example, a drink or a food. What is Ribena in the market? A drug or medicine or what? As what does it, in general, pass from seller to buyer?''

26. The Court of Appeal reversed the decision of Ungoed-Thomas J ((1971) 1 All ER 701). The Court found that Ribena was a drug or medicine and it was not correct to characterise the goods by reference to the marketing of those goods. Ribena was therefore not subject to purchase tax.

27. That decision was reversed in the House of Lords ((1972) 1 All ER 498). Their Lordships took into account the way Ribena was marketed in coming to their decision that Ribena was taxable. The importance of the method of marketing goods was made clear by Lord Reid's speech at page 501 where he stated:

``Indeed I think that the same preparation sold with one get-up and method of marketing, advertising and user might not be a medicine while the same preparation sold with a different get-up and method of marketing, advertising and user might properly be regarded as a medicine. As with so many English nouns there is no clear limit to the denotation of the word medicine. All the circumstances must be considered and there may be cases where it is extremely difficult to decide whether or not the term medicine is properly applicable. But here I think that however one approaches the matter it would be a misuse of language to call Ribena a medicine and I would therefore allow the appeal.''

Lord Wilberforce made his view crystal clear with these words at page 506:

``... in my opinion Ribena is a health drink, of a kind which is not a drug or medicine... I think that this would be the conclusion of the average housewife or shopper....''

That view also gained support from Lords Pearson and Diplock with Lord Morris of Borth-y-Gest dissenting.

28. The decision in the Ribena case is of assistance in the present case because it is authority for the proposition that the manner of marketing the goods is a relevant objective consideration in determining the character of the goods.

29. In the present case the evidence establishes that the pieces were made of timber which had been trimmed, bevelled and checked. To that point in the operation I would have thought that it was beyond argument that the pieces are covered by Item 90(a) unless it is no longer correct to describe the pieces as timber. It does not follow, however, that something which is made of timber retains its identity as timber. For example, a pick handle made of wood is in one sense a piece of timber. However, it is not recognised in the market place as such. It would be described as a wooden (or timber) pick handle - not as a piece of timber.

30. The application of a protective coating such as lacquer does not alter the character of the goods.

31. The same reasoning applies to the pieces in question. The market place describes them as furniture parts made of pine timber or some similar description. This is established by the applicant's own brochures which describe the system as a ``modular system made from high quality solid pine'' and show the pieces as forming furniture.

32. The fact that something is made from timber does not support a conclusion that it is identified in the market place as timber.

33. For these reasons I am satisfied that the pieces in dispute are not covered by Item 90 of the First Schedule to the Act. It was not suggested to me that any other item in that schedule was applicable. The applicant has therefore failed to discharge the onus of proof in accordance with section 42E of Sales Tax Assessment Act (No 1) 1930 as that section applies for the purposes of Sales Tax Assessment Act (No 6) 1930.

34. The decision under review will be affirmed.