CASE Z26

Members:
Barry J

Tribunal:
Administrative Appeals Tribunal

Decision date: 10 July 1991

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Barry J (Presidential Member)

This is a reference to the Tribunal following the disallowance of an objection by the Commissioner of Taxation against an assessment of sales tax.

The principal point in issue is whether various materials (anchors and chains) that were made the subject of a sales tax assessment are exempt under Item 84(1) of Division XII of the Exemptions and Classifications Act. The original assessment was made pursuant to Section 10AA of the Sales Tax Assessment Act (5). The actual assessment issued on 26 August 1988 and is to be found in Volume 2, document 50 of the bound volumes of documents handed up to the Tribunal. The total assessment is in the amount of $344,339.00. The goods which were assessed for sales tax were more particularly described as stevshark anchors and studlink chain which were used to securely moor a floating hotel on the Great Barrier Reef when it was installed there in early 1988. The anchors and chain were manufactured overseas to design specifications and imported into this country for the specific purpose of forming part of the single point mooring system to be used to secure the proposed floating hotel in position on the reef.

By Section 6 of the Sales Tax Assessment Act (5), goods are exempt from sales tax if they come within the Sales Tax Exemptions and Classifications Act.

Item 84(1) of the Exemptions and Classifications Act is in the following terms-

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ITEM 84(1) Metal building materials (including girders, rods, bars, wire, sheets, mesh, lathing and fabricated units composed of any of those goods, and attachments for such units) for use in the construction or repair of, and to be wrought into, or attached to, so as to form part of, buildings or other fixtures...

The question I have to determine is whether the anchors and chain fall within the category of exempted material set out above. The applicant company says they do and the Commissioner contends they do not.

It is common ground that the Floating Hotel was a unique experiment. The stevshark anchors are anchors specifically designed for use in similar situations such as oil rigs and other platforms moored at sea. When a lateral force is applied to the anchor, it becomes self- burying. The particular anchors in question were 7 metres in length and 7 metres across the fluke. Each was embedded in the sea bed at John Brewer Reef such that the top-most part of the anchor was some 2 metres below the ocean floor. In all, there were 6 such anchors buried in a circle with a diameter of about 500 metres. Each anchor weighed 18.4 tonne. The studlink chain connected each anchor to a counterweight which was located immediately underneath the hotel at what I might conveniently refer to as the bow end of the structure. The studlink chain was imported in 100 metre lengths, each 100 metre section weighing approximately 200 tonne. The installation occurred over a period of some 4 months. The anchors were manufactured in Rotterdam and the chain in Spain. The counterweight was attached to the bow end of the floating structure via a universal joint/swivel arrangement. At the other end of the structure, there were chains which fed back to two stern anchors. These were stevshark anchors of 17.4 tonne weight which had similarly been embedded in the ocean floor. A welter of documents was placed before the Tribunal in the course of the 2 day hearing including the applicant company's original prospectus, the environmental impact study and the plans and specifications for the hotel's mooring system. The original intention of the applicant was to leave the hotel in position permanently. The company argued it was there for the long haul. I accept that this was its intention at the relevant time, namely the date when the goods were imported. There was provision for the barge structure upon which the hotel was constructed to be moved in certain eventualities. Movement could be by dropping the stern anchors in cyclonic conditions in which event the structure would execute an arc of some 250 metres. It would finish up pointing into the wind still secured by the single point mooring system. There was also provision for the barge to be unshackled from the single point mooring system and the stern anchors and brought into harbour if major maintenance was required.

The hotel was installed amidst a great fanfare of publicity; guests came (but not enough of them) and ate and drank and slept blissfully unaware that underneath them was an anchoring system designed to withstand the most severe weather conditions which could be anticipated over a 100 year period. For a variety of reasons, which thankfully I do not have to explore, the hotel did not prove to be the money-making venture originally anticipated. The taxpayer company made a commercial decision to move the hotel to Ho Chi Minh City. Under this arrangement, the proposal was to only remove such of the mooring system as was above the sea-bed. The company let the tender for removal to an enterprising salvager who wished to get his hands on the anchors. His original proposal was to blow them out with explosives - a suggestion which was understandably met with shock and horror by the Great Barrier Reef Marine Park Authority. Eventually, by use of a barge and heavy winching system, the salvager removed the entire single point mooring system with a minimum of disturbance to the sea-bed.

In challenging the suggestion that the single point mooring system is or was a fixture, the Commissioner points out that it is difficult to conceive of it as a fixture when the hotel is in Vietnam and the anchor and chain are in storage in North Queensland awaiting resale. I shall deal with this aspect later on in these reasons.

Under the terms of Item 84(1), there are four matters the Tribunal must consider-

• 1. Are the anchors and chain building materials?
• 2. If yes, were they ``for use in the construction'' of buildings and fixtures?
• 3. Were they in the construction process wrought into or attached to so as to form part of the building or other fixture?
• 4. Can the structure (either the single point mooring system or the whole hotel complex

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  including its mooring system) be considered a building or fixture?

I shall consider each of these issues in turn-

1. It is clear beyond argument that the anchors and chain are fabricated units composed of sheet metals and rods respectively. There is uncontradicted evidence that this is so but in any event commonsense would indicate such is the case. The matter does not end there as the fabricated units have to be capable of being described as ``metal building materials''. It is a total misconception, in my view, when approaching a proper interpretation of this paragraph to think of the word ``building'' in a narrow sense of a house or high-rise city construction. A television antenna is comprised of various building materials as is a factory or a bridge. However, the way I interpret the first 2½ lines of the paragraph is that ``metal building materials'' however wide its eventual interpretation be, at the very least, it includes units fabricated from rods and sheet metals and used in building something. I accept the force of the submission made by Counsel for the applicant that a building material is anything which becomes an integral part of the structure into which it goes. I find that the anchors and chain are an integral part of the single point mooring system which was specifically designed to secure the hotel to the ocean floor.

Counsel for the Commissioner strenuously argued that anchors and chain are items which no reasonable person would classify as building materials. He argued if one looks at the essential character of these items and asks ``Are they building materials?'', the answer must be found in the negative. I am of the view that this submission proceeds on an unduly restrictive approach to what may be classed as a building material. There is no suggestion in the legislation that building materials is limited to onshore building materials. Had the legislature wished to place that limitation in the legislation, it could have well done so. Metal building materials, for the purpose of the opening words of the section, would include jetties, underwater observatories, oil rig platforms and many other offshore facilities.

2. Were the particular items ``For Use in the Construction'' of Buildings or other Fixtures?

I accept the submission made by Counsel for the applicant that the words ``for use in'' require interpretation by reference to the intended use. Having regard to the design of stevshark anchors, it is difficult to conceive of any other intended use other than to securely moor an offshore platform. Here there is no distinction between the intended use and the actual use other than that the actual use was terminated at a much earlier date than originally planned. The items were one-off design items - they were designed and built at considerable expense for use in the construction of the single point mooring system. I find, as a question of fact, that these anchors and chain were metal building materials for use in the construction of the single point mooring system and the mooring system generally.

3. Wrought Into or Attached so as to form part of the Building or Other Fixtures

The anchors and chain were certainly attached to the structure. I find it difficult to conceive of any situation envisaged by the legislation where building materials are attached to a structure but do not form part of it. As a question of fact, I am satisfied these anchors and chain were attached to the structure (be it the single point mooring system or the hotel complex) so as to form part of it. By a process of similar reasoning, I will conclude as a fact that the anchors and chain were wrought into the single point mooring system so as to form an integral part of it.

Mr McMonagle, an engineer called by the Commissioner, noted in evidence the ease with which the hotel structure could be detached from the sternline anchor and the single point mooring system. The anchors and chain were attached to the hotel and were certainly wrought into and attached to the single point mooring system. Similar considerations apply, in my view, in relation to the stern anchors. If one looks to the integrity of the whole structure, it would be artifical in the extreme to differentiate between the single point mooring system and the stern anchors by arguing one is not wrought into or attached to the fixture.

4. Building or Other Fixture

The Oxford Dictionary defines ``building'' as-

``That which is built; a structure, an edifice.''

The Macquarie Dictionary defines ``building'' as-

``Anything built or constructed.''

Despite these relatively wide definitions, I find great difficulty in being able to call a bridge a building. We speak of building bridges but it would be a forced use of language to call

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that bridge, when completed, a building. In the final result, I do not know that anything turns on the issue of whether a single point mooring system could or could not appropriately be described as a building as I am quite prepared to describe it as a fixture. The taxpayer advanced 3 propositions in support of its case on this point-

• (a) that the single point mooring system is a fixture;
• (b) the hotel attached to the single point mooring system is a fixture; or
• (c) the hotel is a building.

I would favour an interpretation based on either (a) or (c).

The fact that items may be dismantled and taken away from the structure does not prevent it being described as a fixture. The plumbing pipes of a house are clearly a fixture but with varying degrees of difficulty, a house could be stripped of its plumbing. In the present case, the evidence is that the single point mooring system was dismantled and returned to its component parts. The evidence also indicates this procedure was carried out with considerable difficulty in terms of both time and expense. If the system had been attached by piles, presumably the piles could have eventually been removed from the ocean bed if so required by the Great Barrier Reef Marine Park Authority. There would be little argument but that piles embedded in the ocean floor would constitute a fixture. I accept that at the time the installation was made, it was intended to be permanently in place, at least to the extent one can speak of any construction being permanent.

In Stoneham's text The Law of Vendor and Purchaser Law Book Company 1964 Volume 6 pp 257-258, the following passage appears-

``400A A fixture is not a chattel but is part of the land, yet on severance it is restored to the character of a chattel. But a fixture is a thing which was once a chattel, but which has become in law, land through having been fixed to land. The term `fixture' is, therefore, properly applied to any and every article of personalty, which is in such physical relation to real property that, if its position is not altered by severance or agreement, it is part of the realty. It may be a removable fixture but it is, nevertheless, a fixture until it is removed, and it is quite inaccurate to call it a chattel, even though its character so far partakes of the nature of a chattel that it may be converted into an unmistakable chattel by a simple physical act of removal by the proper person, but until the act of removal takes place, it is realty.

400B... Whether a thing is a fixture depends principally on two considerations; firstly, the mode of annexation, whether it can be easily removed `integre salve et commode' without injury to itself or the building; and secondly, the purposes of annexation, whether it was for the permanent improvement of the land or merely for a temporary purpose and the more complete enjoyment and use of it as a chattel.''

I am satisfied the single point mooring system satisfies both tests for determining a fixture as referred to above. In the alternative, I would have little difficulty in finding the hotel structure is a building. This much, indeed, was conceded by the Commissioner. I do not see any need to elaborate on this finding in view of this concession but, in any event, on the view I have taken, I would have thought the point was self-obvious.

I do not find it necessary to consider the nature of the statutory licence under which the hotel was allowed to remain at the site in question. There was a degree of permanence in the arrangement equivalent to a long-term lease. It was likely that the statutory licence would be renewed unless the applicant had somehow failed to comply with its obligations under the licence. It was clear that the applicant had carried out its costing with the intention of being at the site for some 20-30 years. The engineering specifications and other requirements were stipulated to an extremely high level having regard to the permanence of the structure.

In the end result, I find a world of difference between a large passenger cruiser dropping anchor in some scenic harbour and the installation of this fixed hotel. Although the concept of having a building 70 kilometres out in the Pacific Ocean may be somewhat unusual, it cannot be for this reason alone that it fails to fall within the classification of a building. Whatever may have happened subsequently, it is clear that the structure was a building and such building was held in place by its moorings. The moorings and the way they were fixed in the sea-bed were fixtures. I find the anchors and chain, in all respects, fall within the description

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of exempted goods as set out in Item 84(1) of the Exemptions and Classifications Act.

The determination of the Tribunal is-

That the Notice of Decision of Objection of the Commissioner of 4 September 1989 is set aside.

The Objection of the Taxpayer dated 26 August 1988 is allowed.