CASE 40/94

Members:
BH Pascoe M

Tribunal:
Administrative Appeals Tribunal

Decision date: 4 August 1994

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BH Pascoe (Member)

This is an application for a review of a decision of the Commissioner of Taxation to disallow an objection against a special assessment of Sales Tax issued under Section 25AA of the Sales Tax Assessment Act (No. 1) 1930. The special assessment had been issued at the request of the applicant in respect to sales of three items, namely three models of goods described as ``powerboards'', sold during the month of August, 1992. The request had

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been made following advice that a private ruling dated 29 March, 1990, which treated powerboards as exempt from Sales Tax under Item 90C(2)(a) of the First Schedule of the Sales Tax (Exemptions and Classifications) Act 1935, was withdrawn and that sales tax should be levied at the general rate of 20% from 1 October, 1992. This private ruling in 1990 had contradicted an earlier ruling that powerboards were covered by Item 2 of the Third Schedule and taxable at 10%.

2. In its objection to the special assessment the applicant claimed that the relevant goods, described as ``powerboards'', are exempt from sales tax under Item 90C of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935. Whilst it was claimed that the paragraphs (1) and (2) of that item apply, no submissions were made at the hearing in relation to paragraph (1). The argument was primarily directed at paragraph (2) and, specifically, that the relevant goods are ``adaptors'' under Item 90C(2)(a). The relevant wording is:

``[ITEM] 90C.(1) Electrical fittings and accessories (including electronically operated electrical fittings and accessories) and electrical materials, being goods of a kind used exclusively or primarily and principally as part of fixed electrical installations in consumers' premises, but not including-

• (a) bell equipment, burglar alarm equipment, fire alarm equipment, recording equipment and electronic equipment (other than electronically operated electrical fittings and accessories),
• (b) brackets, canopies, chains, hooks and galleries;
• (c) candelabra, chandeliers, electroliers, electric light globes, lamps and tubes, pendants, shades, bowls and reflectors;
• (d) condensers, converters, starters and transformers;
• (e) electrically operated appliances, apparatus or machines;
• (f) engines, alternators, primary and secondary batteries and other generating equipment;
• (g) flexible cables;
• (h) light boxes;
• (i) neon signs and other luminous discharge lighting equipment, including fluorescent lighting equipment; or
• (j) goods covered by item 2, or sub-item (4) of item 12, in the Third Schedule or goods or parts for goods referred to in sub-item (3) of item 12 in the Third Schedule

(2) Goods of a kind used exclusively, or primarily and principally, in connexion with fixed electrical installations in consumers' premises, namely-

• (a) Adaptors;
• (b) Plugs;
• (c) Electrical safety devices for the protection of persons''

3. Mr de Wijn of counsel appeared for the applicant and Miss Davies of counsel for the Respondent. Witnesses called by the applicant were the chief executive of the applicant company, Mr Curry, a professional electrical engineer who had been employed by the State Electricity Commission of Victoria for over 25 years and had been chairman of the SEC Electrical Approvals Board and various Electrical Approval Standards Committees of the Standards Association of Australia, and Mr Holdsworth who had been Merchandise Director at Kmart for some ten years. Witnesses called by the respondent were Dr Gosbell, Associate Professor of the Department of Electrical and Computer Engineering at the University of Wollongong, and Mr Robson, a Project Manager with the Standards Association of Australia who is the coordinator of the committee responsible for standards for electrical accessories.

4. The evidence submitted made it clear that none of the three items in consideration could be regarded as exempt under Item 90C(1). They are not used ``as part of fixed electrical installations'', it being accepted by all witnesses who addressed their evidence to this point that fixed electrical installations finished at the fixed outlet or power point. However, the respondent and the witnesses conceded that the relevant items were used ``in connexion with fixed electrical installations'' so as to come within the general description of Item 90C(2). Nevertheless, paragraph (2) is then restricted to three specific types of goods and the only one of the three under which these particular items could come is ``adaptors''.

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5. Unfortunately, but not unexpected, the technical experts who appeared differed in their view of whether the relevant items can be described as adaptors. Mr Curry took the view that each of the items fell within the general meaning of the word as it would be used in the electrical industry as it relates to household goods. His opinion was that ``the use of the word `adaptor' as applied to a socket outlet adaptor is not affected by the number of socket outlets that are available as adaptors are simply a means of allowing more than one appliance or item of electrical equipment to be connected to supply from one socket outlet''. He supported this opinion with the wording of an Order in Council of 20 October, 1987 made under the State Electricity Commission Act 1958 (Victoria) which prescribed ``plug socket adaptors'' to be prescribed electrical equipment. These were defined in the Order as a ``single or multiple connecting device (other than a plug) for insertion into a plug socket''. He noted that Australian Standards draw a distinction between socket outlet adaptors and electrical portable outlet devices. However, he believed that the distinction was required to impose different standards to adaptors having more than two outlets (the electrical portable outlet device) as opposed to those limited to two outlets (socket outlet adaptors). Under cross- examination, Mr Curry accepted that the 1993, revision of the Order in Council included a qualification to the definition of ``plug socket adaptor'' by adding the words ``but does not include a plug or an outlet device portable type''. In his view this revision simply followed the same distinction as adopted by Australian Standards and for the same reasons.

6. Mr Robson provided a history of the standards produced by the Standards Association of Australia concentrating on AS 3122 Plug Socket Adaptors and AS 3105 Electrical Portable Outlet Devices. AS 3122 was originally issued in 1939 (then called C. 122). The definition of ``plug socket adaptor'' in that original standard and each subsequent revision until 1981 was ``an accessory whereby a plug of another form, two or more plugs, or two or more flexible cords, or one or more plugs and one or more cords, may be connected to a plug socket''. However under the heading ``Prohibited Types'' were the words ``A plug socket adaptor shall not include more than two outlets, the term `outlet' being deemed to include facilities for the connection of a flexible cord''. In the 1981 revision the definition of ``plug socket adaptor'' was changed to read ``an accessory for insertion into a socket outlet and containing metal contacts, to accommodate two plugs, or a flexible cord and one plug''. The same wording was contained under the heading ``Prohibited Types'' as had appeared in the earlier versions. The 1981 wording has remained in each subsequent revision up to the latest revision in 1993. Mr Robson stated that, in the late 1970's or early 1980's, the Standards Association was asked to produce standards in relation to new types of devices that had come onto the market which had one or more socket outlets, usually multiple, attached to a flexible cord. It was considered that the standard applicable to socket outlet adaptors was inappropriate for these devices which Standards Australia originally called ``Load Centres'', but are now referred to as ``Electrical Portable Outlet Devices'' (``EPOD''). In 1984 AS 3105 was issued covering EPOD which was defined as ``A device, other than a cord extension set, having a single means of connection to a low voltage supply and one or more outlet facilities. It may incorporate a reeling or coiling arrangement''. Two essential requirements for an EPOD were that it must have over-current protection where the device has three or more 10 amp socket outlets or a socket outlet rated in excess of 10 amp and must be connected to the electricity supply by a flexible cord of not less than.9 metre and a plug, or an appliance inlet. Subsequent revisions of AS 3105 have not made any material changes to the definitions and requirements. Mr Robson accepted that AS 3122 Plug Socket Adaptors covers the device commonly known as a ``double adaptor''. However, based primarily on the fact that Standards Australia have clearly distinguished between double adaptors and the devices now commonly known as ``powerboards'', comprising multiple socket outlets attached to a flexible cord, he took the view that a ``powerboard'' is not another form of adaptor. As with Mr Curry, Mr Robson accepted that the distinction between Plug Socket Adaptors and Electrical Portable Outlet Devices by Standards Australia was made primarily for reasons of safety. He also accepted that there were other devices known and accepted as ``adaptors'' which were not covered by AS 3122. Two examples were ``lamp holder adaptors'' covered by another standard AS 3199 and

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``travel'', or ``international'', adaptors which were not covered by any existing standards.

7. Professor Gosbell gave detailed evidence on the various features of what he described as ``Adaptors as a genus'' and ``Powerboards as a genus''. Much of his evidence, which culminated in the view that ``powerboards'' were not adaptors, was again based on the distinction drawn by Standards Australia and also the considerable amount of research done into numerous catalogues produced by manufacturers and retailers. He concluded that the major types of devices which could be called adaptors within the electric power field were:

• Double Adaptor - allowing two plugs to be connected at a power point outlet.
• Plug Adaptor - allowing one plug and one flexible lead to be connected at a power point outlet.
• Travel Adaptor - allowing a plug of a different type to be connected to a power point outlet.
• Bayonet Connector Adaptor - allowing a flexible lead to be connected to a bayonet connector lampholder.

His research into catalogues demonstrated that, in the main, manufacturers and retailers did not describe ``powerboards'', either identical or similar to the particular items with which this hearing was concerned, as ``adaptors''. Much of Professor Gosbell's evidence could not be regarded as expert evidence as being outside his area of expertise. His views on marketing, use of devices by consumers, interpretation of the English language and other areas outside electrical engineering were of limited value in assisting at arriving at a conclusion.

8. In the end, the evidence of the expert witnesses provided by either side did not produce a clear view of the definition of an ``adaptor'' simpliciter within their fields of expertise. The bulk of evidence relating to adaptors required the word ``adaptor'' to be included in a composite phrase such as ``plug socket adaptor'', ``double adaptor'' or ``travel adaptor''.

9. The chief executive of the applicant company gave evidence of inventing the product now known as ``powerboard'' in 1972. He envisaged that the product would be used to replace the dangerous practice of ``piggy- backing'' double adaptors to increase the number of available outlets from one power point. He eventually called this new product a ``powerboard'' and that original trade name has become the generic name for similar products now produced by several manufacturers. Mr Holdsworth gave evidence that these new products were sold by Kmart in large volumes after they were released and sales of double adaptors reduced in volume substantially. In his view the length of the flexible cord attached to the powerboard is not something which would play a significant part in advertising and did not consider that the products were marketed or purchased as extension leads.

10. It was accepted by both parties and all of the witnesses that the product known as a ``double adaptor'' is an adaptor for the purpose of Item 90C(2)(a). The primary thrust of the applicant's argument was that the items in dispute were no more than the equivalent of a double adaptor but providing more than two outlets from one power point. It was argued that the basic differences between the double adaptor and the powerboard were the attachment to the power outlet by a flexible cord, the over-current protection and the use of more than two outlets. The use of the flexible cord was said to be more practical than a plug attached to the body of the board itself as the potential weight would make direct attachment to the power socket unsafe and, in any event, the use of a flexible cord of a minimum length was mandatory under Australian Standards. Further, it was argued, the flexible cord, again required by the standard, was an integral part of the product and not detachable. The incorporation of over-current protection was both practical and a requirement of the standard. The fact that over-current protection was prohibited in a double adaptor but mandatory with a device providing three or more outlets was said to be a safety issue and not something which alters the similarity of the two devices as being devices to allow two or more plugs to be connected to one outlet.

11. For the respondent it was argued that notwithstanding some common features between a double adaptor and a powerboard the latter is not an adaptor. A powerboard has the additional features of a flexible cord and over- current protection which are not present in a double adaptor. Much reliance was placed on the definition used by Standards Australia which preclude a device with the features of a

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powerboard from being regarded as a plug socket adaptor.

12. A variety of dictionary definitions of adaptor were produced in evidence ranging from the Shorter Oxford English Dictionary, 3rd Edition, to the Australian Pocket Oxford Dictionary from The Macquarie Dictionary, 2 Revision, to the Collins Australian Ringbinder Dictionary, 1993 Edition. The majority of dictionary definitions were equivalent to that contained in The Macquarie Dictionary which defines adaptor as:

``1. one that adapts. 2. a device for fitting together parts having different sizes or designs. 3. an accessory to convert a machine, tool, etc., to a new or modified use. 4. Elect. an accessory plug for connecting a piece of apparatus fitted with one type of terminals to a supply point with a different type.''

In only two of the dictionary definitions provided did the definition extend to ``a device for connecting several electrical plugs to one socket''. These words appeared in the English Edition of the Concise Oxford Dictionary of Current English which was published in 1990 but were not present in earlier editions. This addition of multiple connections to the more usual restriction to incompatible connection also now appears in the Pocket Oxford Dictionary. The difficulty here is, if the majority of dictionary definitions are relied upon, then the ``double adaptor'' could not be regarded as an ``adaptor'' for the purpose of the relevant item. Nevertheless, the respondent readily accepted that the term ``double adaptor'' has been in common usage for very many years, the Australian Standards describe a double adaptor as an ``adaptor'' and that device is exempt under Item 90C(2).

13. It is not uncommon in cases involving sales tax or customs duty for disputes to arise as to whether particular words of a statute apply to a particular product. The problem in this case is not dissimilar to that faced by the High Court in
Herbert Adams Pty Ltd v FC of T (1932) 2 ATD 31; (1932) 47 CLR 222 where the meaning of the word ``pastry'' was in issue. In that case Starke J. said (at ATD p. 31; CLR p. 225):

``Words of common speech are, or are supposed to be, within the judicial knowledge, and should be `interpreted according to their common and ordinary meaning, namely, that which they bear in ordinary colloquial speech' (
Falkiner v. Whitton (1917) A.C. 106, at p. 110). But unfortunately the words in question here have no clearly defined meaning in ordinary speech.''

In the case of
Diethelm Manufacturing Pty Ltd v FC of T 93 ATC 4703, which was concerned with the question of whether chairs manufactured and sold by an office furniture manufacturer were goods of a kind ordinarily used for household purposes, French J. provided a summary of the general principles of interpretation of statutory classification of goods where he said (at pp. 4713-4714)

``The creation of statutory classes of goods or services which attract special rates of tax or rebates or exemptions from tax is a common device of revenue laws. Generalisation about the construction of such statutory classifications is to be undertaken with caution. Decisions on one such classification may have only limited application to another, albeit they share similar features. While purposive construction is desirable, the purpose to be served by a particular exemption or rebate may be beyond discovery. The efforts of special interest groups or perceptions of political imperatives at the time the classification was enacted may all be reflected in the definition of the particular category of goods in question. Subject to those caveats, some broad general principles emerge from the cases:

• 1. Classifications of goods attracting exemptions or beneficial rates should be liberally construed unless the text or context requires a narrow construction.
• 2. Revenue laws addressed to commercial people frequently but not always classify goods in terms known to those in the relevant trade or industry.
• 3. The question whether the words of a statutory classification are to be interpreted according to their ordinary natural meaning or special commercial meaning or some extension or limitation of either is a threshold question of law.
• 4. Words or phrases not accorded a special meaning should be construed according to popular usage.
• 5. Generally speaking where a statutory classification adopts the form of a

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  generic class description followed by specific classes linked to it by the word `namely' or some synonym, it is intended that the specific classes will exhaust the generic class.
• 6. The statutory classification of goods to define exemptions or particular liabilities under revenue laws requires the determination, by reference to objective criteria, of the `essential character' of such goods. Where design purposes are referred to in the classification by such phrases as `for use as', the subjective intention of the manufacturer and purchaser and actual uses to which the goods are put may be taken into account in the process of characterisation.''

14. Much of Professor Gosbell's evidence related to his research into catalogues produced by manufacturers and retailers and his conclusion that these particular goods were not described or generally known as ``adaptors'' within the relevant trade. However, there were exceptions particularly in an English catalogue - Farnell Electronics Components Catalogue April 1992 - where several appliances were listed under the heading ``Adaptors'' or ``Connectors'' (including a ``4 Way Adaptor'') which some of the expert evidence would not regard as adaptors. On reviewing all of the expert evidence I am not satisfied that there is an established trade usage of the word ``adaptor''. As Lee J. said in
H.R. Products Pty Ltd v Collector of Customs (1990) 20 ALD 340 (at p. 353):

``The Tribunal correctly stated that in statutory construction the ordinary meaning of words is not easily displaced and that if a limited meaning arising from trade usage was contended for, the Tribunal had to be careful to see that such a narrower meaning was clearly established by the evidence.''

15. The applicant sought to argue that the ``powerboard'' is, in general terms a modern and expanded version of the ``double adaptor'' which has been available for many years. The decision of this Tribunal in Case X35,
90 ATC 316, which decided that a device described as an ``electric inverter'' was within the genus ``electric converter'' was cited as an example of ignoring the label placed on an article by the manufacturer and considering its actual function. Deputy President C.J. Bannon QC at p. 321 quoted with approval the statement in Maxwell on the Interpretation of Statutes 12th Ed. p. 102:

``The language of a statute is generally extended to include things which were not known and could not have been contemplated when the Act was passed, when the Act deals with a genus and the thing which afterwards comes into existence was a species of it.''

16. Given the ready acceptance of the device known as a double adaptor as an adaptor I am of the view that the word, in the context of Item 90C(2), includes both a device which enables connection to a fixed electrical outlet of a piece of apparatus fitted with a terminal plug of a different type and a device which enables connection of multiple plugs to one electrical outlet. In other words a device which allows connection of one or more plugs to an outlet which was not designed to accept either the quantity or type of plug. A device which ``adapts'' the outlet to a different or extended use. I take comfort from a comment by Dixon J. in the Herbert Adams case (supra) at ATD p. 34; CLR pp. 228-229 where he said:

``it is always less difficult to show that a word has a wider meaning than it is to establish a specialized use. For an extension of meaning involves no abandonment of the use in respect of things to which it would in any case apply; but a uniformly restricted application among any class of persons is necessary in order to establish that it has among them a narrower meaning and that meaning only.''

17. Having arrived at this view it is necessary to consider whether each of the three items in dispute can be described as adaptors. I am satisfied that each of the items has the flexible cord and plug as an integral part of the device. In the words of Mr Robson the product is ``non rewirable''. Consequently the whole of each device is one item. The first of the three items in dispute is a simple version of a four outlet powerboard with no features other than those required by law, namely a flexible cord for connection to the power outlet and over-current protection. The second of the three has four outlets and the additional features of each outlet being separately switched, safety shutters protecting each socket outlet and a neon indicator to show when power is connected to the powerboard. The third item is similar to the first but with two additional features of

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protection against power surges and a noise filter to eliminate electrical interference. It is advertised as a ``Surge and Noise Guard for protection of valuable electronic'' equipment such as computers, audio and television equipment. In my view it is appropriate to consider the ``essential character'' of each device. That is, whether the device is primarily to adapt one outlet to two or more or whether it is primarily used for another purpose with the ``adaptor'' function as a secondary characteristic. It is clear that a point is likely to be reached where the additional features of some ostensibly similar devices lead to the view that those features become the primary function or essential character with the adaptor function being ancillary to those features. I am of the opinion that the first two items have that essential character of an adaptor. The third item is not so clear. The consideration of this item is further clouded by the evidence which showed that a double adaptor is available on the market with power surge protection, but the respondent appeared comfortable that this was still an adaptor. On balance I take the view that the essential character of the third item in dispute is that of protection from power surges and noise interferences and would be primarily purchased for that purpose with its ability to provide four outlets from one socket as a secondary characteristic so that it is not to be regarded as an ``adaptor'' simpliciter.

18. The decision under review is varied to allow as exempt from sales tax the first two items in dispute under Item 90C(2) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935.