CASE 27/93
Members:KL Beddoe SM
Tribunal:
Administrative Appeals Tribunal
KL Beddoe (Senior Member)
The applicant seeks review of a decision of the respondent Commissioner under the Sales Tax Legislation. The respondent issued an assessment in respect of free standing wood heaters (``the goods'') under Sales Tax Assessment Act (No 1) 1930 in which sales tax at 10% of the sale price was assessed to the applicant. The applicant objected to that assessment on the basis that one or other of Items 82(1), 84(1) or 86(1) in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (``the Act'') applied so as to make the goods exempt from sales tax under that Act. The objection also relied upon section 6A of the Act.
2. In Case Y2,
91 ATC 104 I drew attention to the somewhat anomalous requirement that a classification decision under the sales tax law is subject to section 14ZZJ of the Taxation Administration Act 1953 (previously section 14ZK of that Act). As a consequence these reasons have been prepared on a basis that is not likely to enable the identification of the person who applied for the review. Given that the goods are sold to the public the task of maintaining confidentiality is difficult and, in my view, contrary to the public interest. Further, when the respondent makes such a decision the decision is very often published.
3. Exhibit B is a brochure which describes in detail the free standing wood stove. Without going to the specifications, the stove has a traditional enclosed firebox with flue, stand and large ceramic glass door on the front of the box. It is finished in black enamel and is clearly designed for use in domestic premises. That is not to say it can only be used in such premises. The unit provides heat radiation and convection and is designed for slow combustion including overnight burning. The goods are not dissimilar in appearance to other solid fuel units commonly for sale as domestic heaters.
4. Exhibit C is a copy of technical drawings of the goods. lt is essentially constructed of welded mild steel which forms the firebox, the ceramic glass door, heat shields, flue outlet, an ashtray and fire bricks lining. Additional materials used include decorative finishes, spring handles and mild steel bolts. The unit weighs 140 kg.
5. Installation of the unit depends only upon a suitable hearth and the appropriate flue outlet through the roof. Fixing to the hearth is not necessary but the flue must be fixed to the top of the heater. Of installations, about 23% are said to be in new houses.
6. In certain installations a fan for forced air heating is installed and it is also possible to connect a hot water service to the heater. In these cases a heat transfer copper coil is installed in the fire box with flow and return pipes connected at the rear of the heater and running back to a storage cylinder.
7. Once installed the goods generally would be regarded as fixtures in the premises. They are not designed for temporary fixing and in no sense can they be described as a portable heater. However, once the flue is removed it is a relatively simple task, allowing for the weight, to remove the goods.
8. The respondent called expert evidence from a chartered builder, a Mr BR Kerven, well qualified in the building and construction industry. Exhibit 1 is a copy of Mr Kerven's curriculum vitae. Mr Kerven examined the copies of the documents Exhibits B, C and 1 in these proceedings. Exhibit 1 is a copy of the Australian Standard 2918-1990 in respect of the installation of domestic solid fuel burning appliances.
9. Exhibit 2 contains a list of questions put to Mr Kerven by the Australian Government Solicitor and Exhibit 4 is Mr Kerven's written response to these questions. In summary Mr Kerven's report said that the goods would not be considered a structural or architectural unit in the building industry. Nor would it be classified as metal materials but would be considered to be a fabricated unit but not part of a building unit. The goods would not be considered to be metal building materials in the industry and would not be used in the construction of buildings. The goods would be situated in the building after completion. Nor would the goods be used in the repair of buildings and the goods do not become a fixture in the building of necessity. He did say, however, that some goods could be built into a building to such an extent that they became, in effect, a fixture because it would be expensive to relocate the unit.
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10. Nor could Mr Kerven agree that the goods could be characterised as prefabricated building or a prefabricated building section.
11. In cross-examination Mr Kerven did agree that where such goods are installed in a house they would normally be treated as a fixture upon sale of the land, but he went on to make it clear that he saw the goods as being in the same category as household appliances such as washing machines and dishwashing machines.
12. In answer to the Tribunal Mr Kerven made it clear that it would be an unusual case where the goods could be installed without a flue installation.
13. Mr Waugh submitted that the issue was the classification of the firebox unit itself. He said that the materials used for the flue and the floor hearth were ruled to be exempt from tax and it is the heater itself that has been assessed as taxable.
14. My attention was directed to the Federal Court decision in
Jetmaster Fireplaces Pty Ltd v FC of T 89 ATC 4464 and Case Z26,
92 ATC 250. The Jetmaster case was concerned with components for fire places built into buildings and is immediately distinguishable on that basis. In essence the components did not become a fireplace until constructed in situ in the building. The case is clearly distinguishable from the present case on these grounds and I need not consider it any further.
15. In relation to the decision of this Tribunal in Case Z26 there is considerable assistance to be gained from the reasons for decision and I will refer to that case again.
16. Mr Waugh submitted that I should take into account an explanatory memorandum circulated by authority of the Treasurer in 1985 when various bills to amend the sales tax legislation were before the Parliament. He referred me in particular to pages 27 and 28 of the memorandum dealing with the amendment of Item 84 of the First Schedule. I must say I have gained little assistance from the paragraphs referred to. However, it is relevant to note, as Mr Waugh did, that the amendments to the legislation dealt with in the explanatory memorandum included the repeal of Item 90B of the First Schedule which had provided for exemption of domestic stoves, ranges, fire grates and fireplaces and parts for those goods. The paragraph on page 28 of the explanatory memorandum evidences an intention to make such goods taxable under Item 1 of the Third Schedule to the Act. In no sense can the explanatory memorandum be conclusive as to the issue before me but it cannot be said, in my view, that the explanatory memorandum evidences an intent that the subject goods be exempt from sales tax.
17. Turning to the statutory provisions relied upon by Mr Waugh, section 5 of the Act provides that notwithstanding anything contained in any Sales Tax Assessment Act, sales tax shall not be payable upon the sale value of any goods covered by any Item or sub- item in the first column of the First Schedule under any Act specified in the second column of the First Schedule opposite that Item or sub- item.
18. Mr Waugh placed Item 84 of the First Schedule at the forefront of his case and it is appropriate that I deal with it first. That Item was carefully considered by Barry J sitting in this Tribunal in Case Z26. With respect, Barry J correctly raised four questions which need to be answered in the affirmative if goods are to be exempt under the Item. In the context of the present case those questions are:
- (a) Are the goods metal building materials?
- (b) If yes, were the goods for use in the construction of buildings and fixtures?
- (c) Were the goods wrought into or attained so as to form part of the building or other fixtures in the construction process?
- (d) Is the structure a building or other fixture?
19. The answer to question (a) must be ``yes'' because the goods are fabricated units composed of metal building materials. That is self evident on the uncontested evidence before the Tribunal and as a matter of common sense given the specifications of the goods.
20. The answer to question (b) must be ``no'' because the evidence does not establish that the goods are used in the construction of buildings and fixtures. The evidence shows that 23% of units are sold for use in new houses but Mr Kerven said that the installation of the unit itself does not form part of the construction process. I think a clear distinction exists between the installation of a flue and the installation of a hearth on the one hand and the installation of the goods on the other hand. The flue is of the same character as a waste pipe in a plumbing
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system and the hearth forms part of the floor of the building if it is constructed in situ. The goods on the other hand are not required to be fixed to the building at all although the flue will be connected to the goods. The mere fact of connection of the flue does not alter the character of the goods.21. For these reasons the answers to (c) and (d) must also be in the negative.
22. I am therefore not satisfied that the subject goods are covered by Item 84 First Schedule because I am not satisfied that the goods are to be wrought into or attached so as to form part of buildings or other fixtures. I have not overlooked the fact that some units may be connected to the plumbing as part of a hot water system and some may be connected to the electrical supply because they incorporate an electric fan. As I think I have already made clear the mere connection to such fixtures does not thereby mean that the goods are wrought into or attached so as to form part of buildings or other fixtures. The goods retain their separate character. That it may be a general practice for vendors of houses to leave the goods in the house on sale does not thereby qualify the goods as being part of the building rather than chattels.
23. In the alternative Mr Waugh argued that the goods come within the terms of sub-item 82(1) in the First Schedule. That Item relevantly exempts from Sales Tax bricks, blocks, shapes, tiles, sections, slabs and other structural or architectural building units whether made of burnt clay, marble, granite, stone, cement, concrete, magnesite, cinder-cement, asbestos- cement, fibro-cement (and other materials not relevant to this matter) but not including a list of exclusions which I need not set out here. The applicant's argument is that the goods are architectural building units made of any other materials or mixture of materials. The basis on which the goods are said to be architectural is that a percentage are installed at the time of construction of new homes or at the time of renovating existing homes including some which are specified by architects.
24. It is therefore the applicant's submission that the goods have an architectural quality and are in many cases an architectural feature in their own right. There is, however, no material before me, which establishes that proposition. Mr Kerven's evidence is to the contrary.
25. I do not think there can be any doubt that the goods are units. But what is their character? Does a dishwashing machine become exempt because some dishwashers are installed in houses at the time of construction in accordance with the plans and specifications of architects? That rhetorical question can be asked in respect to a whole host of household appliances including sound systems, telephones, lights, and clothes dryers.
26. The answer is to be found in the clear intent of the Item which requires that the ejusdem generis rule of statutory interpretation be applied. That means that the words following the opening words of the Item take on the same general character of the particular words. Clearly the item is intended to deal with goods which have the general characteristic of masonry materials being building materials of non-metallic composition. Ferrous materials including units constructed from ferrous materials do not come within the positive limb of Item 81(1).
27. With respect to Mr Waugh's argument I am not satisfied that the goods come within Item 82 of the First Schedule.
28. As a further alternative argument Mr Waugh submitted that the goods are prefabricated building sections for the purposes of section 6A of the Act. The general effect of section 6A is to exclude the value of exempt goods from the sale value of prefabricated building sections. The operation of the section depends upon the goods in question coming within the defined meaning of ``pre-fabricated building section''. That definition excludes from the ordinary meaning of those words ``prefabricated duct work'' or ``prefabricated channelling for ventilation and airconditioning systems''.
29. Mr Waugh submitted that ``prefabricated building section'' takes on a similar meaning to the term ``building materials'' or ``building unit''. While I can agree that a building unit may be a prefabricated building section I cannot see any basis for saying that the subject goods come within the ordinary meaning of ``building unit'' or ``building section''.
30. The goods have their own distinct characteristic as a solid fuel heater and are recognised in the market place as such. There is nothing before me to suggest that the goods have any market recognition as building units or building sections.
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31. As a further alternative Mr Waugh relied upon Item 86(1) of the First Schedule. That Item provides for exemption of metal materials as set out in the Item but not including a number of goods including goods covered by Item 12 in the Third Schedule. Sub-item 12(1) covers water heating and hot water storage equipment, being goods of a kind installed as fixtures in domestic premises but excludes solar systems. The subject goods do have the capacity to operate as hot water heaters in domestic premises when installed with the necessary equipment for those purposes but as I have come to the conclusion that the goods are not metal materials I need not decide whether the goods are covered by Item 12 Third Schedule.
32. My reason for finding that the goods are not covered by Item 86 is to be found in the plain words of the Item. There is no word or combination of words in that Item that can be said to cover a fuel heater.
33. I have not overlooked that Mr Waugh relied upon two authorities of disparate quality, namely the Duke of Westminster and Professor DC Pearce; both eminent in their own field but of little assistance to the Tribunal in this case.
34. It was not suggested to me that the applicant was not liable for the tax assessed if the goods were not exempt under the First Schedule. I am satisfied that the goods are not exempt goods for the purposes of section 5 of the Act and so decide.
35. For these reasons the objection decision under review will be affirmed.
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