CASE 41/94
Members:BA Barbour SM
Tribunal:
Administrative Appeals Tribunal
BA Barbour (Senior Member)
This is an application to review a decision of the respondent of 18 January 1993, disallowing an objection of the applicant, dated 4 May 1992, against the refusal of the respondent to refund sales tax in respect of certain goods.
2. The hearing of this matter took place at Sydney on 2 May 1994. The Tribunal had before it documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975. The applicant company, represented by Mr Forsyth QC and Mr Robertson, tendered affidavits and exhibits referred to therein. One witness (TM) gave oral evidence. The respondent was represented by Mr Slater QC and Mr McMillan. The Tribunal also had before it an issues paper and reply prepared by the parties prior to the hearing of this matter.
3. The goods that are the subject of this application, as agreed between the parties, are the modules that go to make up supermarket refrigerated cases and cabinets. Typical of these cabinets are ``island freezer'' cabinets that run the length of supermarket aisles, and upright dairy cabinets. The applicant tendered photographs, marked TM1, that show the modules that make up the refrigerated cases and cabinets, and brochures, marked exhibits TM2 and TM3, showing the various models of completed refrigerator units. The parties agreed that, for the purpose of levying any sales tax, the time of sale was at the delivery of the modules to supermarkets.
4. The issue before me is whether the applicant should be allowed sales tax credit claims of $1,547,056.65 made in June and July 1991, in respect of sales tax paid on modules sold by the applicant between 1 June 1988 to 30 April 1991.
5. Section 17 of the Sales Tax Assessment Act (No. 1) 1936 (the No. 1 Act) levies sales tax on goods manufactured in Australia, and section 19 imposes the liability on the manufacturer in certain circumstances, including liability for goods ``... (a) sold by the manufacturer to an unregistered person...'', and ``... (b) treated by the manufacturer as stock for sale by retail...''. Section 20 of the No. 1 Act provides that sales tax is not payable on goods exempted by virtue of the Sales Tax (Exemptions and Classifications) Act 1935 (the Exemptions Act).
6. The applicant contends that the goods fall within either item 84 or item 93 of the First Schedule of the Exemptions Act, and hence are sales tax exempt pursuant to section 5 of that Act and section 20 of the No. 1 Act. Alternatively, the applicant argues that the modules fall within section 6A of the Exemptions Act, in that they are prefabricated building sections, and therefore sales tax is not payable in relation to some of the materials that make up the modules.
7. At the hearing of the application, the applicant abandoned three grounds on which the appeal had initially been based: that the refrigerated cabinets were exempt from sales tax because they fell within item 86 of the First Schedule of the Exemptions Act; that the refrigerators were subject to a 10% sales tax only, in that they fell within item 1(e) of the
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Third Schedule of the Exemptions Act; that the applicant was entitled to remission of sales tax that was unpaid in June and July of 1991 pursuant to section 12D of the Sales Tax Procedure Act 1934. I consider these concessions to be properly made.8. The applicant led evidence describing the modules, their construction and installation; I shall briefly outline that material. The modules go to make up supermarket refrigerator cabinets, such as island freezers, and those for the display of dairy, meat, produce and delicatessen goods, that are a feature of all modern supermarkets and which, for the sake of convenience, I shall refer to as cabinets. The applicant company had, during the relevant period, manufactured the modules under licence from an American corporation, although it had modified them for Australian conditions. The cabinets are not independent devices, but rather, are connected, by means of pipes and conduits, to refrigerator motors and the supermarket drainage system (see affidavit of TM, para 12).
9. The location of the cabinets in prospective supermarkets is amongst the earliest considerations of the store designers, and is determined to a large part by the supermarket's marketing philosophy. The importance of an early decision in their location is ``... because it was necessary to ensure that [the] layout of the supermarket was suitable for the plant room, pipes and conduits, air-conditioning and drainage which would be required to service the refrigeration units of the supermarket...''; see affidavit of FC, para 19(a). The cabinets are an integral part of the supermarket design, as the piping and conduits to and from the cabinets are located under the floor slab, and to specific points in the cabinets, ``... [h]ence the items had to be taken into account before the main slab of the supermarket was poured...''; see affidavit of FC, para 26.
10. The modules themselves are of certain standard widths and lengths, and can be assembled, like building blocks, into refrigerator cabinets of different sizes. The modules are usually open at both ends to enable long and undivided cabinets to be built, these cabinets being closed off, in the case of an island freezer, by a ``crown end'' (see exhibit TM1, photo 7), or a wall known as a ``patch end''. The cabinets are constructed at the supermarket from the prefabricated modules, which are connected to the various pipings, then bolted together and sealed, once the supermarket is substantially constructed and secure. Some are constructed on plinths, and some are not, and the cabinets have kick plates fitted to protect them from trolleys and the like. The cabinets are cemented, tiled and/or glued and have a life of approximately 15 to 20 years.
11. TM gave oral evidence that the different types of cabinets were variations of the same theme, and some of the parts were interchangeable. The island freezer cabinets are low back cabinets, while the dairy cabinets are high back cases with a roof and a number of shelves.
12. His affidavit evidence estimates that the modules (by weight) contain the following materials: Steel sheeting, 80.5%; Aluminium, 3%; Copper, 7.5%; Foam, 3%; Masonite/ Plastic/Various, 6%. A cross-section of the modules shows external steel sheeting, a thin piece of galvanised metal (0.9mm thick), and then a layer of foam, another piece of galvanised metal, and then a space for the cold air to move, and a white panel with holes, supported by a welded steel assembly.
13. There was no dispute between the parties as to the technical specification of the goods, their make-up and function, and I find the above an accurate summary of the goods that form the subject matter of this application.
Item 84, First Schedule
14. The applicant first contended that the modules properly fell within item 84(1) of the First Schedule to the Exemptions Act. Relevantly, it provides an exemption for:
``... 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...''
15. As identified by Barry J in Case Z26,
92 ATC 250, and in the context of this application, there are four matters to be considered in determining whether the modules fall within the item 84(1) exemption:
- (i) whether the modules are metal building materials (including fabricated units);
- (ii) whether the modules were for use in the construction of the supermarket;
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- (iii) were the modules, in the construction process, wrought into, or attached, so as to form part of the supermarket;
- (iv) can the supermarket be considered a building or fixture.
16. As I understand the respondent's submissions, there is no contest as to either points (iii) or (iv), and the only matters in dispute remain points (i) and (ii).
17. As to whether the modules are metal building materials, the applicant's submission centred around a characterisation of the modules as fabricated units composed of metal building materials.
18. It was submitted that it was unnecessary that the modules be wholly metal, either because that adverb ``wholly'' was not present in the phrase, despite being present in other items in the schedule, or because the item allows the inclusion of attachments to fabricated units. The applicant cited the decision of Senior Member Beddoe in Case 27/93,
93 ATC 324, where a free standing wood stove with a large glass ceramic door on the front was found to be a metal building material, as an example of goods not wholly metal coming within the item 84(1) exemption. The applicant further submitted that the expression ``... fabricated units composed of...'' metal building materials connotes that the unit is principally and not wholly made up of metal building materials.
19. As to whether the modules were used in the construction of the supermarket, the applicant preferred an approach that saw the modules as a permanent and integrated part of a supermarket, and that they were part of that landscape and not an optional fixture. Also, they are attached so as to become physically integral to the supermarket.
20. The respondent in reply noted that item 84(1) featured in a division entitled ``Building materials'', and that item 84(1) should be read in the context of appearing in a set of provisions dealing with building materials. However, it should be noted that there is some friction between this proposition and the legislative intention stated in subsection 3(2) of the Exemptions Act, which states that these headings ``... shall not be read as affecting the interpretation... of any item in that Schedule...''. The proper approach, in interpreting an item, is that the heading of the division in which the item falls is not a relevant consideration.
21. The respondent further submitted that the quality that brings materials within item 84(1) is that they be metal building materials, that expression being a compound expression. It was argued that the modules under consideration are not building materials, but goods, and that they are not metal, in that functionally, the object of the modules is to insulate, and it is the foam and not the metal that does this. Additionally, by volume, the metal is of a much smaller proportion than the foam (the respondent said 4% of volume). The respondent argued that the goods need to be wholly metal, otherwise, provided the goods contained some metal and are affixed to a building, they would fall within item 84(1).
22. Additionally, the respondent submitted that the goods were placed inside a completed building, and that they were items of commerce affixed to a building, rather than metal building materials used to make the building.
23. As to whether item 84(1) contemplates wholly metal building materials, I would note that in Case 27/93, the question of whether the goods were metal building materials was not in contention. The goods were found to be so ``... because the goods were fabricated units composed of metal building materials...'', this being ``... self evident on the uncontested evidence before the Tribunal and as a matter of common sense given the specification of the goods...''. Unlike this application, it was never argued that the goods were not metal building materials, and hence that case is of little assistance.
24. I was referred to item 86(1) which refers to metal materials ``... made wholly of metal other than precious metal...'', as an indication that, if it was intended that item 84(1) be constrained to wholly metal materials, the Parliament would have inserted the word ``wholly'' at the beginning of that paragraph. I would have thought, however, that the purpose of that qualification in item 86(1) was to ensure that no materials with precious metals fell within the exemption.
25. In my view, to fall within item 84(1), it is necessary that the goods under consideration be metal building materials (my emphasis); if the applicant relies on the completed modules being fabricated units, these units must be composed of ``these goods'', that is, metal building
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materials (including... sheets...), and only metal building materials.26. The item allows for there to be attachments to the fabricated units, and it is not inconsistent with the interpretation I have adopted that the attachments themselves may be made of other than metal. An attachment is relevantly defined in the Macquarie Dictionary (Second Revision) as ``... 5. an adjunct or supplementary device: attachments to a reaping machine...''.
27. The modules before me, being characterised as fabricated units, are constructed of metals (approximately 90% by weight) and other materials (approximately 10%), these being mainly foam, plastic and masonite. They are patently not wholly metal.
28. The non-metal components of the units are functionally amongst the most important, particularly the foam, which, as was attested to by TM, and of which I would have determined without his evidence, prevents the cold air from escaping the refrigerated cabinets. In no sense is the foam an attachment to, or supplementary to the module, but rather it is integral and essential to it. It forms part of the ``fabricated unit''.
29. Even if I were to find that the fabricated unit need not be wholly metal, but rather that it need only be principally metal, it is only by weight that the modules would clearly satisfy this criterion. By volume, the modules are principally foam, this material being plainly very much thicker than the steel sheeting used to make up the modules; this is self evident on the photographs before me (exhibit TM1). Further, the foam is functionally attune to the objective of insulation of foodstuffs from the outside air, and without the foam the cabinets would, in the words of counsel for the respondent, ``... not work terribly well...'', with which the applicant's production engineer agreed. It would be indeed a curious result if goods could be brought under item 84(1) simply because they can be characterised as principally metal on any criteria that was favourable to the taxpayer.
30. Given my findings, it is unnecessary to consider the further arguments of the applicant on item 84(1). I find that the modules do not fall within item 84(1) of the First Schedule of the Exemptions Act.
Item 93(1), First Schedule
31. Item 93(1) of the First Schedule provides an exemption for:
``Boxes, cases and crates manufactured in Australia for use in marketing goods manufactured in Australia, being goods covered by any item or sub-item in this Schedule, other than item 100 or 103, but not including boxes, cases or crates covered by item 18 of the Third Schedule''
32. The respondent conceded (generously in their submission and my opinion) that whatever goods are displayed in the modules, those goods are Australian. There was no dispute between the parties that the modules are manufactured in Australia. The issue, then, is whether the modules are ``... Boxes, cases and crates... for use in marketing goods...''. Most of the argument before me centred on the characterisation or otherwise of the modules as ``cases''.
33. The applicant submitted that ``case'' was the most suitable word in this instance. It was conceded that, by identifying the point of sale as the time of delivery, and the modules as the subject matter of the application, the submissions in relation to the module being a case were less strong than they would have been had the assembled refrigerator unit been the taxable goods.
34. ``Case'' is relevantly defined in the Macquarie Dictionary, Second Edition as ``... 1. a thing for containing or enclosing something, a receptacle. 2. a sheath or outer covering... 3. a box with its contents...''. In the Shorter Oxford English Dictionary, Third Edition, case means ``... 1. A thing fitted to contain something else; a box, chest, bag, sheath, etc. 2. The covering part of anything...'', while the Oxford English Dictionary, Second Edition, Volume II defines case as ``... 1 a. A thing fitted to contain or enclose something else; a receptacle or holder; a box, chest, bag, sheath, covering, etc.;... b. with various substantives or adjs. indicating special purpose; e.g. book-case, card-case, cigar-case, etc. (for which see their first element...''.
35. The applicant submitted that the modules did conform to the dictionary definitions, in that they are designed to be receptacles. The applicant also contended that the crown ends, separately from the other modules, as shown in photo 6 of exhibit TM1, are self-contained
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compartments, and may have a stronger claim to exemption under item 93(1) if it was necessary that a case completely cover its contents.36. The respondent argued that the applicant's use of the word case to describe the modules is inapposite to the context in which it is used in item 93(1). It was submitted that the legislative history of the item, and the original inclusion of ``... and wood in shooks for the manufacture thereof,...'', after the phrase ``... Boxes, crates and cases...'', shows that item 93(1) was intended to relate to goods which are packed for sale, and that the subjects of the item are used to hold goods for the purpose of sale, delivery, etc. The applicant in reply said that there was not much to be gained from the legislative history of the item, and did not accept that the case need be sold with the goods in order to come within item 93(1).
37. The respondent submitted that not much weight should be placed on the general use, in the supermarket industry, and the various affidavits, of the term ``case'' to describe the goods, and that the pamphlets of Tyler Corporation (the American company which provided the licence for the manufacture by the applicant of the freezers), describe them as ``Refrigerated Supermarket Cabinets''. The respondent also sought to place the word ``case'' in the context of the expression ``... Boxes, cases and crates...'', and that the natural meaning of cases is that the contents should be enclosed.
38. I would agree with the applicant that there is not much to be gained from the industry usage associated with the modules. They are described variously in the brochures as cases, cabinets and freezers, the latter probably being the most descriptive.
39. Nor do I gain assistance from consideration of the legislative history of the matter, the inclusion or otherwise of ``shooks'' not really qualifying in a meaningful sense the words boxes, cases and crates, except to expand that concept in a limited circumstance.
40. I agree with the applicant that the modules are designed to be receptacles, that contention perhaps being stronger when a fully installed refrigerated cabinet is taken into account, or when a crown end is considered on its own. But I do not think that, simply because they are used as receptacles, the modules become cases, in much the same way as a home refrigerator does not become a case because it is used as a receptacle for foods bought from perhaps the very modules under consideration.
41. In the context of item 93(1), the boxes, cases and crates referred to are necessarily subsidiary to the goods for which they are used in marketing. The item is not apposite to describing substantial refrigerated containers which have an identity beyond the goods in which they are used for marketing. Here, the modules are substantial units in their own right, the island freezers (made up of many modules) weighing several tonnes, and are something more than ``boxes, cases and crates'' within the ordinary meaning of these words. While I do not doubt that the modules are case-like, or box-like, that does not of itself bring the module within item 93(1). This reasoning applies to either the open ended or crown end modules. Rather than being boxes, cases or crates, the modules are properly described, when fully installed, and used for marketing Australian goods, as refrigerators. Prior to installation, and at the time of delivery to the supermarket (the taxing point), the modules are properly described as components of such refrigerators.
42. Analogous reasoning can be seen in the characterisation of wire products in
Re Acrow Australia Ltd and Collector of Customs (1985) 1 ALD 1, where the Tribunal, in discussing whether certain threaded rods were cold-drawn products, noted that (at para 18):
``... by reason of the further working to which the cold-drawn wire products were subjected in the thread rolling process, the imported threaded rods are no longer simply `cold-drawn products'. They are a new article of commerce distinguishable, both in terms of the physical properties of steel and the purpose for which they may be used, from the cold-drawn products from which they were made. They are therefore `more than' the product referred to in the Chapter note...''
43. I find that the modules do not fall within item 93(1) of the First Schedule of the Exemptions Act.
Subsection 6A(1), Exemptions Act
44. Subsection 6A(1) of the Exemptions Act provides:
``Notwithstanding anything contained in any Sales Tax Assessment Act, sales tax shall
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not be payable upon so much of the sale value under any Sales Tax Assessment Act of any pre-fabricated building or pre- fabricated building section which is made of timber, metal, fibro-cement or any other materials or combinations of materials as exceeds the amount which, in the opinion of the Commissioner, would have been the sale value of the taxable goods (if any) incorporated in the building or section if the transaction, act or operation in relation to the sale value of the building or section had been a transaction, act or operation in relation to those taxable goods only''
45. The applicant argued that the modules should be regarded as prefabricated building sections. If I find in favour of the applicant on this point, the matter would need to be remitted to the respondent Commissioner to work out the quantum of any exemptions. The respondent submitted that the applicant should not be permitted to advance this argument, as there is not sufficient material before the Tribunal to deal properly with the arguments. While I have some sympathy with that proposition, I will nevertheless, so that all matters in contention might be decided, consider the applicant's submission.
46. The applicant submitted that the modules were prefabricated building sections. ``Section'' is defined in the Macquarie Dictionary as ``... 1. a part cut off or separated... 3. one of a number of parts that can be fitted together to make a whole...''. In the Oxford English Dictionary, Second Edition, Volume XI, a ``section'' is relevantly ``... 2. A part separated or divided off from the remainder; one of the portions into which a thing is cut or divided.... I. One of the component parts of something which is built up of a number of similar portions so as to admit of enlargement when necessary, or which is constructed to be taken to pieces for facility of transport...'', while the Shorter Oxford English Dictionary defines it as ``... A part separated or divided off from the remainder; one of the portions into which a thing is cut or divided...''. The applicant argued that the modules are a prefabricated building section, and that on installation they become part of the building.
47. The respondent submitted that subsection 6A(1) of the Exemptions Act is concerned with prefabricated sections of buildings, walls, roofs and the like, and that if the applicant's argument were correct, anything which was a fixture in a building and was provided for in the initial design would fall within subsection 6A(1) of the Exemptions Act.
48. I accept that the modules are pre- fabricated sections, that is to say, they are portions of refrigerators that are used like building blocks to become, for example, island freezer cabinets, on installation and connection. On installation, the refrigerators become a part of the supermarket to the extent that fixtures become part of the land to which they are annexed (see e.g. Case 43/93,
93 ATC 470, and the discussion of fixtures therein).
49. But that does not, prior to their installation, and on arrival at the supermarket, make the modules prefabricated building sections. They are prefabricated sections of the refrigerator unit, which, upon installation, become fixtures in the supermarket's landscape, and therefore part of the building.
50. I find, therefore, that the modules are not prefabricated building sections within the meaning of subsection 6A(1) of the Exemptions Act.
Decision
51. The Tribunal affirms the objection decision under review.
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