GKN AUSTRALIA LTD v FC of T
Judges:Foster J
Court:
Federal Court
Foster J
In this application the applicant, GKN Australia Limited (``GKN'') appeals to the Court from a decision of the respondent, Commissioner of Taxation (the ``Commissioner'') of 17 June 1993 disallowing an objection by GKN against a refusal, notified on 19 October 1992, to allow certain refunds of sales tax applied for by GKN.
At all relevant times GKN carried on the business of manufacturing and selling scaffolding equipment for use in the building industry. The equipment to which this case relates was marketed under the names of (a) Kwikstage Scaffolding and (b) Milsystem Scaffolding. There were numerous component parts of scaffolding marketed under each name. The two scaffolding systems were distinct in that the component parts were not interchangeable between the systems, although they served similar purposes in each system. The relevant component parts of each system will be referred to later in these reasons.
Between 1 May 1988 and 30 June 1992 GKN paid sales tax, pursuant to the Sales Tax Assessment Act (No. 1) 1930 (Cth) in respect of components of equipment from both systems manufactured and sold by it. The amount of sales tax so paid was $1,396,709.87. GKN claimed a refund of this amount pursuant to s 26(1) of the Sales Tax Assessment Act (No. 1) 1930 (Cth) on the basis that sales tax had not been payable by virtue of s 5(1) of the Sales Tax (Exemptions and Classifications) Act 1935 (Cth) (the ``Act''). The exemption from tax was claimed to have arisen because the components in question fell into one or more of the categories of exemption constituted by Items 82A(1), 82A(2), 86, or 113G of the First Schedule to the Act.
The individual scaffolding components in question have been described in the evidence and have also been the subject of photographs which have been made exhibits in the case. It will be necessary to consider each component individually in order to determine whether the Commissioner was in error, as alleged, in refusing the claim for exemption and consequent refund of sales tax paid. Before doing so, it is appropriate to make the observation that the evidence indicates that
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since the Act came into force there has been a not inconsiderable evolution in the technology relating to building scaffolding, reflected in improvements made in the scaffolding systems manufactured and supplied by GKN. Whereas earlier scaffolding, described as tubular scaffolding, consisted of lengths of metal tubing of appropriate strength, together with a variety of ancillary devices designed to secure such tube lengths to each other so as to form rigid scaffolds, later improvements in design of scaffolding equipment have resulted in individual components having specialised purposes and incorporating design features appropriate to those purposes. These comments apply to both the Kwikstage and Milsystem equipment manufactured by GKN.The First Schedule to the Act contains numerous ``items'' for which sales tax exemption applies. Most of the items in question in these proceedings fall within the section of the Schedule headed ``Division XII - Building Materials''. This Division contains 17 separate items, the majority of which has numerous sub-items. Together the items and sub-items cover a multiplicity of materials and equipment components of disparate kinds used in building. A number of the provisions in these items relate to equipment and material which are themselves excluded from the exemption otherwise given by the item. It is clear that, as might be expected, these provisions have been subject to not infrequent alterations in accordance with policy changes put into effect from time to time. It may be said, however, that the overall policy of Division XII is one of encouragement and assistance to the building industry through the provision of exemptions from sales tax in what are, at relevant times, considered to be appropriate areas.
The nature of the legislation has led the Courts to adopt an approach to construction of the wording of the individual items which may be described as less strict than that normally applied in statutory interpretation. This matter was considered in some detail by French J in his judgment in
Diethelm Manufacturing Pty Limited v FC of T 93 ATC 4703 at 4708 where his Honour said:
``As a general proposition the taxpayer claiming the benefit of an exemption from the imposition of a tax has the burden of proving the facts necessary to fall within that exemption -
Cuming Smith & Co. Pty Ltd v. The Melbourne Harbour Trust Commissioners (1905) 2 CLR 735 at 742;
Jackett v. DFC of T [1932] SASR 405 at 407. On the other hand an exemption which exists for the purpose of encouraging, rewarding or protecting some class of activity is not to be given a narrow application.''
His Honour developed the matter further at 4713-4174 where he said:-
``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 sea 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 a 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 generic class description followed by specific classes linked to it by the word `namely' or some synonym, it is intended
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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.''
In the present case there is nothing which, in my opinion, would require a narrow construction to be given to the words of the items in question. I received evidence from experts as to the meaning accorded in the building industry to certain words appearing in the items. I did so with some hesitation, and over objection, as I felt some doubt whether the words in question should not more properly be regarded simply as being of ordinary usage and not susceptible to expert evidence as to trade or industry usage. In the upshot, I would have come to the same view as to their meaning without expert assistance. The description, through expert testimony, of the nature and operation of the relevant scaffolding components was, however, of considerable assistance.
I turn then to the specific claims for exemption made by GKN. It is convenient to consider, in the first instance, those claims made under item 113G. This item appears in Division XV which is titled ``Miscellaneous''. It provides as follows:-
``(1) Equipment of a kind used exclusively, or primarily and principally, in the course of industrial operations to protect persons engaged in those operations, including masks, respirators, shields, goggles, vizors, helmets, belts and machine guards
(2) Parts for goods covered by sub-item (1)''
The pieces of equipment for which exemption is sought under this item are:-
- (a) Sole Plates
- (b) Ledgers
- (c) Braces
- (d) Tie Bars
- (e) Metal Stairs
- (f) Stair Stringers
- (g) Ladders.
Each of these items is the subject of description in the evidence and also of photographs. Ledgers, tie bars, and ladders are also claimed as being exempt under other items to which I shall make reference later. There is no dispute that these components are ``equipment of a kind used... in the course of industrial operations''. The Commissioner contends, however, that they are not otherwise covered by the item.
The words ``primarily and principally'' were the subject of consideration by Lockhart J in
Parker Pen v Export Development Grants Board (1983) 46 ALR 612 at 619-20. His Honour, for reasons there given, expressed the view that the phrase conveyed the meaning of ``mainly'' or ``chiefly''. I am of the same opinion. Accordingly, the question for my decision is whether these individual pieces of equipment can properly be regarded as used exclusively or mainly or chiefly for the protection of persons engaged in building operations.
The first four pieces of equipment are all used in the construction of the scaffolding structure itself. The last three items do not form part of that structure but are used for the purpose of enabling workers to ascend and descend the scaffolding when erected. In general terms, it may be said that the first four items each play a role in the construction of the scaffolding and in ensuring its integrity and stability. The sole plates are substantial sections of flat wood used as a base upon which the standards or upright members of scaffolding are erected. They provide a stable and secure surface for the transferring of the load from the standard to the ground. They obviously contribute to the stability of the scaffolding structure particularly where the ground underlying the structure is soft or uneven or both. Ledgers are horizontal members which span longitudinally between the standards and are connected to them. This connecting function is essential to the construction of the scaffolding. They may also be used as hand rails or guard rails on a working deck. Braces are components used to form a diagonal connection between two standards and perform the function of keeping a section of the scaffolding square and rigid. Tie bars are part of
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the scaffolding attached to brackets for the purpose of keeping a working deck in position.It is plain that, in a broad sense, it can be said that all these pieces, insofar as they contribute to the stability of the scaffolding structure and to the support of working surfaces, play a role in the safety of persons using the scaffolding. Their main role, however, in my opinion, is to play an integral part in the structure of the scaffolding for use in building operations. This is their ``primary and principal'' role. Their contribution to safety is, although important, properly to be seen as incidental. I am satisfied that they do not fall within item 113G.
So far as the metal stairs, stair stringers and ladders are concerned, I am satisfied that their basic role, although not part of the scaffolding structure, is to provide access to workers moving about the scaffolding for the purpose of performing building operations. Whilst it is true that they are subject to regulations relating to precautions to be taken to ensure safety in their use this does not, ipso facto, accord them the character of safety equipment. In my opinion their use is mainly and chiefly to provide necessary means of access. Safety considerations are incidental to this main purpose. Accordingly, I am satisfied that item 113G does not apply to them.
I come then to the equipment components for which exemption is sought under item 82A(l). That item provides as follows:-
``Piping or tubing of a kind used exclusively, or primarily or principally, in the construction or repair of, and wrought into, or attached to, so as to form part of, buildings, fixtures, structures or other works, but not including piping or tubing being-
- (a) duct work or channelling of a kind used in forced draught ventilating or air conditioning systems;
- (b) piping or tubing of a kind used as duct work or channelling in forced draught ventilating or air conditioning systems;
- (c) fittings, accessories or attachments for, components of, or goods designed to form part of, duct work or channelling of a kind used in forced draught ventilating or air conditioning systems;
- (d) piping or tubing of a kind used for slides or water slides;
- (e) piping or tubing of a kind used in or in connection with beer drawing plant;
- (f) rubber hose or rubber tubing or any hose or tubing of a kind used principally for any of the purposes for which rubber hose or rubber tubing is ordinarily used; or
- (g) goods covered by item 12 in the Third Schedule''
The equipment, in both systems, claimed to be covered by this item consists of:-
- (a) Standards
- (b) Ledgers
- (c) Braces
- (d) Stage Board Brackets
- (e) Ladders
- (f) Ladder Beams
- (g) Steel Pallets
It is the contention of GKN that all these items of equipment meet the description of ``tubing of a kind used exclusively or primarily and principally in the construction... and wrought into, or attached to, so as to form part of,... structures...''.
Despite the essentially impermanent nature of scaffolding which is, of course, erected only for a limited purpose and which is thereafter to be dismantled, there is no dispute between the parties that scaffolding erected for building operations is a ``structure'' within the meaning of this item. Indeed, I was advised by counsel for the Commissioner that an exemption had been allowed in respect of all tubular steel and, apparently, associated necessary fittings used in accordance with earlier forms of GKN tubular scaffolding, where only lengths of plain tubular steel were used in the construction. The question, then, is whether the more specialised and sophisticated components utilising tubular steel involved in the Kwikstage and Milsystem scaffoldings should also attract the exemption under this item.
The phrase ``of a kind'' was the subject of definition by Lockhart J, at least in relation to its use in item 83 of the Schedule where it would appear to have a like operation to item 82A. In
Feltex Commercial Interiors Pty Limited v FC of T 90 ATC 4925 at 4933 his Honour said:-
``The words `of a kind' in the context of item 83 do not refer to the uses for which the particular goods in question are designed or
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manufactured, nor to the purpose to which it is intended that those particular goods shall be put, but `rather to the nature, quality and adaptation of goods in the class or genus in question': cf.
Hygienic Lily Ltd. v. D.F.C. of T. 87 ATC 4327 at p. 4330; (1987) 13 F.C.R. 396 at p. 399 per Gummow J.;
Customs & Excise Commrs v. Mechanical Services (Trailer Engineers) Ltd. (1979) 1 W.L.R. 305 at pp. 312-313, 315, 316-317.''
For my part I find the concept of ``adaptation'' of most use in approaching the construction of this item. The opening words of the item, so far as relevant, could be translated as ``tubing adapted for use exclusively...''.
It is the Commissioner's contention that the particular components for which the exemption is sought have, by dint of the fabrication and addition which they have undergone, ceased to answer the description of tubing. They have become inherently different components and, as such, have lost their claim to exemption. Counsel for the Commissioner, however, properly conceded that the approach to the wording of the item must necessarily be a broad one and that little or nothing is to be gained by comparing the wording of one provision with another. In this connection, I am of the view that the reference to ``fabrication'' in the verbiage of item 84, although in a very similar context, offers no significant assistance in the construction of item 82A. In this regard I respectfully agree with what Hill J said in
Smith & Nephew Pty Limited v FC of T 93 ATC 5213 at 5217 that ``[u]ltimately, the... case cannot be decided by reference to cases discussing the construction of other items in the Schedule. Rather, the question is one of construction of the item itself''.
In my view, the question must be resolved by a consideration of the individual pieces of equipment and the formation of a broad but educated impression of whether they fall within the statutory description. I do not really understand that the submissions made on behalf of the Commissioner dispute this view of the task enjoined by the statute.
Approaching the matter in this way, I am quite satisfied that the equipment described as standards sufficiently retains its characteristic as tubing to enable it fall within the item. The same may be said of ledgers and braces which manifestly retain their characteristic as lengths of tubing despite the addition of attachments. Indeed the attachments particularly adapt them for attachment to and forming part of the scaffolding structure.
The stage board brackets, according to the evidence, are attached to standards in order to provide support for steel kwikboards. Their description and photographs indicate that they are largely constructed of tubular steel which is bent so as to form a bracket support for a horizontal piece of angle iron upon which the kwikboard is to be placed. Additionally there are permanent attachments used for fixing the bracket to a standard. I have hesitated somewhat over this piece of equipment and have ultimately come to the view that it has not lost its basic characteristic of steel tube adapted for the incorporation of it into a scaffolding structure. It falls within the item.
The claim in respect of ladders, however, must, in my opinion, fail. Although the ladders are made, at least partly, of tubular steel, they are not used exclusively or mainly and chiefly in the construction of a scaffolding structure, nor are they attached to it so as to form part of it.
Ladder beams, which are quite different in their use from ladders, do form part of the structure of scaffolding. In my view, their fabrication does not cause them to lose their essential characteristics as tubular steel. They otherwise qualify for inclusion in the item and, therefore, attract the exemption.
The steel pallets do not qualify for inclusion within this item. Although they are made of steel tubing and, arguably, have not lost that characteristic by the fabrication of the tubing into the pallet, they are not intended to be attached to or to form part of a scaffolding structure. They are simply used for the handling, storage and transport of Kwikstage components.
The items claimed for exemption under item 82A(2) are, in my opinion, all properly claimed. The adjustable screw based jacks qualify as fittings for standards as do the connectors, clips and couplers. Indeed, no argument has been put to the contrary on behalf of the Commissioner once it is accepted that the standards themselves qualify for exemption under Item 82A(1).
This leaves for consideration the exemptions claimed under item 86. That item relevantly reads as follows:-
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``(1) Metal materials, namely, ingots, blooms, billets, slabs, bars, rods, plate, sheet (corrugated, flat or perforated), strip, circles, angles (including perforated angles), channel (including perforated channel), wire, mesh and rolled or extruded sections, made wholly of metal other than precious metal...''
It may be observed that this item posits no requirement that the materials referred to should form part of a structure. The use of the word ``namely'' indicates that what follows is intended to exhaust the class constituted by the opening phrase. Again, the construction of this item must be approached in a broad and beneficial fashion. It has been established, to my satisfaction, that some degree of fabrication of the basic material enumerated in the item will not in itself rob them of their essential characteristics as ``metal materials''. It is a matter of degree and broad impression. So much appears from the approach of Lockhart J in Feltex (see pp 4934-4936). It is also clear from the exceptions to the exemptions, which I have not reproduced in these reasons, that the item contemplates that fabricated versions of the materials set out in the item are not thereby prevented from qualifying for the exemption. The non-qualifying materials are examples of fabrication. If fabrication were excluded by the necessary construction of the item itself, then it would not have been necessary for these specific exclusions to have been formulated. I do not understand the decision in Case 43/93,
93 ATC 470 in the Administrative Appeals Tribunal to be at variance with this basic construction of the item.
The first piece of equipment to be considered is described as a ``transom''. The evidence indicates that transoms are horizontal members forming part of the structure of scaffolding. Reference to their description in the evidence and their photographs indicate that they are basically extruded metal sections with attachments to facilitate their use in scaffolding. In my opinion they have not lost their characteristic as ``extruded sections'' and, accordingly, fall within the item.
Similarly, the equipment referred to as a ``tie-bar'' retains its characteristic as an extruded metal section. As such it falls within the item.
Next is the equipment referred to as ``steel kwikboard''. These are used to form working decks on the scaffolding, being supported at either end by transoms, which are, in turn, attached to standards. These kwikboards are constructed of flat sheet metal apparently welded to a frame made from extruded metal sections. It appears to be a fairly simple fabrication. I am satisfied that the components used have not lost their characteristics in the fabrication process. Accordingly, I am of the view that they qualify for exemption under the item.
The final piece of equipment for consideration is described as a ``bin pallet''. From its description and its photograph it is used as a container for scaffolding parts. It is a comparatively complex piece of equipment. Although it is clearly fabricated from wire, mesh, and extruded sections, I am of the view that its construction is such that its components lose their original character in the process. I think it is an inherently new object and does not qualify for exemption under the item.
It follows that I uphold this appeal in part. I allow all the objections to the Commissioner's refusal to grant relevant refunds of sales tax except those objections relating to (a) ladders, (b) steel pallets, (c) bin pallets, (d) sole plates, (e) metal stairs and (f) stair stringers.
On my calculations, based upon the annexures to the affidavits of Ian Hill Timmis, the applicant is entitled to a refund of sales tax on the Kwikstage scaffolding components in the sum of $962,513.21.
In respect of the sales tax paid on the Milsystem's scaffolding components, the applicant is entitled to a refund of $164,874.73.
Accordingly, the total amount due to the applicant for overpaid sales tax is $1,127,387.94.
I should add that although argument was addressed to me on the pieces of equipment referred to as sole plates, and findings made by me in relation to them, it does not appear from the annexures referred to above that any sales tax was ever levied in respect of them. Accordingly, they do not enter into the calculations. If some error has occurred in this regard, I would expect that the parties would be able to adjust it between themselves without the necessity of approaching the Court.
The Court orders that:
1. The appeal be allowed in part.
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2. The objections to the respondent's refusal to grant refunds of sales tax be allowed, except those objections relating to a (a) ladders, (b) steel pallets, (c) bin pallets, (d) sole plates, (e) metal stairs and (f) stair stringers.
3. The applicant is entitled to a total refund for overpaid sales tax of $1,127,387.94.
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