FC of T v SMITH & NEPHEW PTY LIMITED
Members: Jenkinson JBeaumont J
Beazley J
Tribunal:
Full Federal Court
Beaumont J
Introduction
This is an appeal, brought by leave granted, from orders made by Hill J. answering certain separate questions in a disputed claim for exemption from sales tax in respect of the respondent's goods which are described as ``cotton tips'' or ``cotton buds'' (reported at 93 ATC 5213). The provision relied on in the claim for exemption was Item 42 in Division VII of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935. Division VII is entitled ``Drugs, Medicines and Medical and Surgical Goods''. Item 42 is as follows:
``42. Surgical appliances (and parts therefor), viz.:
- (1) Abdominal belts
- (2) Absorbent cotton wool, gauzes and lint (emphasis added)
- (3) Adhesive plaster and strapping
- (5) Artificial eyes
- (6) Artificial limbs
- (7) Bandages and bandage winders
- (7A) Bath seats of a kind used by invalids or aged persons
- (7B) Colostomy, ileostomy and supra- pubic appliances; urinals made principally of rubber or other pliable material
- (8) Crutches
- (9) Elastic bandages, knee caps and stockings
- (10) Invalid chairs, invalid carrying chairs, invalid wheeled lounges and lounge chairs, invalid tricycles including motor propelled invalid wheel chairs and invalid tricycles; spinal carriages and other invalid hand carriages; wheeled beds of the kind used by invalids
- (11) Spectacles and eye-glasses (and cases and wipers therefor), but not including goggles, sun glasses, field glasses or similar optical goods
- (12) Surgical boots, braces and irons
- (13) Surgical, medical and first-aid outfits
- (14) Trusses
- (15) Umbilical belts
- (16) Uterine supports, including surgical pessaries
- (17) Wigs and hair-pieces for use by a person in respect of whom a legally qualified medical practitioner has certified that the use of a wig or hair- piece is necessitated by the loss of hair through sickness or disease (other than naturally occurring baldness) or the effects of the treatment of sickness or disease.''
On behalf of the respondent, it was submitted at first instance, and Hill J. held, that the goods
ATC 4510
fell within Item 42(2) as ``surgical appliances... viz.... absorbent cotton wool''.The goods
The learned primary Judge described the goods as ``a stick or stem on to which at each end is wound small tufts of absorbent cotton... for cosmetic use in applying and removing makeup, first-aid in applying medication to minor injuries, and in baby-care as being suitable for cleaning a baby's nose, mouth and navel''.
(As Hill J. noted (at 5216) in fact ``cotton wool'' contains no wool: cotton buds are 100% cotton; a ``ripple pack'' of a continuous length of cotton wool ``is made of a mixture of 85% rayon and 15% cotton''; and ``cotton balls'', that is, small balls of cotton wool, are made of a mixture of 80% rayon and 20% cotton. However, nothing turns on this for present purposes.)
There was evidence at the trial of the use of cotton buds in hospitals which Hill J. summarised as follows (at 5216):
``In the intensive care unit of the Royal North Shore Hospital at St Leonards in Sydney, non-sterile cotton buds are used for cleaning the inside of tracheotomy tubes and cleaning the site of entry of the tracheotomy tube to prevent pressure sores and infection. In the maternity ward of the same hospital, sterile cotton buds are used for neo-natal umbilical cord care, primarily cleaning the umbilical stump. At Royal North Shore Hospital it would seem that the process of sterilising cotton buds is carried out by the hospital itself. At St Francis Xavier Cabrini Hospital in Victoria, cotton buds are purchased already sterilised from another manufacturer. At that hospital the sterile cotton buds are used for:
- (a) rolling grafts (that is, rolling the recipient graft to eradicate exudate under the graft area);
- (b) cleaning wounds;
- (c) cleaning wound surrounds;
- (d) painting wounds with ointment or lotions;
- (e) absorbing exudate from wounds;
- (f) cleaning umbilical cords; and
- (g) applying ointments to areas of broken skin.
At the same hospital non-sterile cotton buds are used for cleaning nasal passages after nasal surgery, painting mouth ulcers and cleaning ears after ear surgery.
The parties agreed, for the purpose of litigation, that the two hospitals mentioned were each 300 bed hospitals and that the cotton buds those hospitals used were, if not the [respondent's] product, at least substantially identical to it.''
The reasoning at first instance
On the general approach to be taken in construing Item 42(2), and, in particular, on the question whether the heading ``surgical appliances'' should be disregarded (see, e.g.
Diethelm Manufacturing Pty Ltd
v
FC of T
93 ATC 4703
at 4708-4709; 4717-4718;
(1993) 44 FCR 450
at 457-60; 468-9
), his Honour said (at 5218):
``I have formed the view that it is quite impossible to accept any ordinary meaning of the words `surgical appliance' so as to encompass each and every one of the items (1) to (17) listed below the heading. It is hard on any view to imagine a first-aid outfit as being a surgical appliance. Similarly, a hair piece falling within item (17), while being required by virtue of sickness or disease, could hardly be described as a surgical appliance. Gauzes, lint and bandages cannot appropriately be referred to as `surgical appliances' in the ordinary sense. This consideration leads me to the conclusion that the proper interpretation of item 42 requires only that the goods in question fall within one of the lettered paragraphs and that it is unnecessary for the item also to fall within the words `surgical appliances'. However, the words `surgical appliances' give colour and context to the items that follow so that each must have, at the least, a medical application.''
Turning to the question whether cotton buds were ``absorbent cotton wool'' for present purposes, Hill J. said (at 5218):
``Cotton wool lengths, cotton wool balls or cotton buds are in truth but different ways of offering cotton wool for sale. While, no doubt, there are some applications for which cotton wool in a large piece would be required, or where a ball of cotton wool would be required rather than a cotton bud, there are many applications for which the
ATC 4511
three products are quite interchangeable. Cotton wool is normally used either for cleaning or for the application of some form of medical lotion. Which form that cotton wool will take will depend upon the type of application. No doubt the cotton wool bud has a convenience which other forms of cotton wool do not have because it comes complete with a stem, but that stem does not, in my view, so change the nature of the product that it becomes a different product altogether.''
His Honour went on to say (at 5218):
``At the heart of the Commissioner's submission is that the presence of the stem causes the cotton wool to become a new and commercially distinct product from cotton wool, that product being, namely, a cotton bud. With respect, I do not agree. To use an example suggested by counsel for the [respondent], an ice cream does not cease to be an ice cream merely because it comes frozen together with a stick, making it more convenient to eat. So it is said that the stem of the cotton wool bud merely makes the cotton wool more convenient to use.''
Hill J. expressed his conclusion thus (at 5219):
``In my view the stem, like a reel upon which cotton is wound, is merely a vehicle to make more useful the product wound upon it. The presence of a stem (or `applicator') does not, in the relevant sense, bring into being a new and different product. The product retains its essential character of being cotton wool.''
At first instance, it was alternatively submitted for the respondent that even if the stem were to be regarded as separate from the cotton wool wound upon it, nonetheless it should be treated as an exempt ``container'' by virtue of cl. 1(1) of the First Schedule which provides as follows:
```container' means -
- (a) the inner or outer coverings in which goods are packed or secured, or are to be packed or secured, in the ordinary course of business (including inside linings and inside packing materials); or
- (b) goods ordinarily used to secure or seal, or to describe the contents of, coverings to which paragraph (a) applies, being goods forming part of the completed coverings,
and includes can keys, glass droppers and other goods that -
- (c) are accessories of coverings or goods to which paragraph (a) or (b) applies or of goods marketed in such coverings;
- (d) are attached to or form part of the inner coverings, or are contained in the outer coverings, of the goods so marketed; and
- (e) are sold with those goods for one inclusive price;''
Hill J. held that, if, contrary to his earlier conclusion, the stem were to be regarded as another ``good'', it should be viewed as an ``accessory'' to goods marketed in coverings to which para. (a), above, applied, which were contained in the outer coverings and sold with the goods for one inclusive price and were thus exempt.
The Commissioner's contention on the appeal
On behalf of the Commissioner, it is submitted that the subject goods should be described as ``a flexible paper or plastic stem to the ends of which there is fixed a winding of carded cotton''. Then it is said that ``cotton buds'' are commercially distinct articles of commerce from ``absorbent cotton wool'', which, the Commissioner says, should be described as ``a carded compound of rayon and cotton which is marketed in a pleated or rippled web or in balls''. Specific to cotton buds, the argument runs, is the desirability of a stem for handling and for application to confined or limited areas; whereas such precision of application is not possible with the gross bulk of tufts or balls of cotton wool, which is applicable to uses, for instance, padding or large scale absorption, not appropriate for cotton buds.
The Commissioner further argues that, as a matter of construction, a conjunction of introductory words and an enumeration prima facie requires that the article falls within both the introduction and the subsequent specification; so that, in order to qualify as an exemption, the goods are, in the terms of Item 42, the ``surgical appliance'' that is ``absorbent cotton wool...''. According to the argument, ``surgical appliance'' has a recognised meaning, that is, ``a device designed to support a damaged or deformed part of the body''; and
ATC 4512
in its common usage is something worn for that purpose, although the context here suggests something broader, that is, that the device need not be worn. Since cotton buds are used for the application of medicine, lotions and the like, or for cleaning, they are not capable of use for support; in particular, they cannot be used in the way absorbent cotton wool, lint and gauze are used for padding and bandaging.Finally, the Commissioner denies that the stems, which he says, are central to the use of cotton buds, are containers. The stems, the contention goes, are an essential component of the distinct goods which comprise cotton buds; they are an integral part of, and thus not an accessory to the buds and in any ordinary use of the words, they are not a ``container''.
Conclusions on the appeal
It was first necessary for the primary Judge to decide, as a matter of law, whether the language used in the Item, ``surgical appliances... viz.:... (2) absorbent cotton wool'' had a meaning other than the meaning which it has in ordinary speech. For this purpose, it would be relevant to inquire whether the expression is defined in the Act, whether it has a technical legal signification, and whether there is any other indication in the legislation that the Parliament intended any other meaning than that which the words ordinarily have in this country and at this time. The common understanding of the words has therefore to be determined and that is a question of fact. The next question must be whether the material before the court reasonably admits of different conclusions as to whether the goods fall within the ordinary meaning of the words as so determined. That is a question of law. If different conclusions are reasonably possible, it is necessary to decide which is the correct conclusion. This is a question of fact: see, generally,
New South Wales Associated Blue-Metal Quarries Ltd.
v
FC of T
(1955-1956) 11 ATD 50
;
(1955-1956) 94 CLR 509
, per Kitto J. (at ATD 52; CLR 511-512)
;
Hope
v
The Council of the City of Bathurst
80 ATC 4386
;
(1980) 144 CLR 1
, per Mason J. (at ATC 4389-4390; CLR 7-8
);
Magna Stic Magnetic Signs Pty Ltd
&
Anor
v
FC of T
91 ATC 4216
at 4223;
(1991) 28 FCR 39
at 49
.
It is common ground that the subject legislation makes no provision for any special or technical meaning to be assigned to the expression used in Item 42(2).
Hill J. referred to the dictionary meaning ( Oxford and Macquarie ) of certain of the words in question. Taking the definitions offered by the Macquarie Dictionary , 2nd ed. for present purposes, the position as a whole is as follows:
- (1) ``surgical appliance'' is defined as ``any device designed to be worn to support a damaged or deformed part of the body''.
- (2) ``viz.'', that is, ``videlicet'' is defined as ``namely, that is to say (used to introduce examples, details, lists, etc.)''.
- (3) ``cotton wool'' is relevantly defined as: ``1. raw cotton for surgical dressings and toilet purposes which has had its natural wax chemically removed...''
- (4) ``absorbent'' is defined, as an adjective, as ``capable of absorbing; performing the function of absorption''. The verb ``absorb'' is relevantly defined as ``to suck up or drink in (liquid): a sponge absorbs water''.
In essential respects, Hill J. proceeded on the footing, correctly I think, that the language used in Item 42(2) had its ordinary meaning.
The next question for the primary Judge was whether the material before the Court reasonably admitted of different conclusions as to whether the goods fell within the ordinary meaning of the words as understood in ordinary speech. In my opinion, only one conclusion was reasonably open. It was, as Hill J. in my view correctly held, that, as a matter of impression, the goods fell within the statutory description. For this purpose, it was relevant to consider the nature of the goods, the uses for which they were designed and the uses to which they could be put (see
Pioneer Plastic Containers Ltd.
v
Customs and Excise Commrs
[1967] 1 Ch 597
per Buckley J. (at 601
);
FC of T v Thomson Australian Holdings Pty Ltd
&
Ors
89 ATC 4696
at 4698-4699, 4701-4702, 4703-4704;
(1989) 25 FCR 481
at 482-484, 486-488, 489-490
;
Magna Stic Magnetic Signs Pty Ltd v FC of T
, above (at ATC 4223; FCR 49);
Comptroller-General of Customs
&
Anor
v
ACI Pet Operations Pty Ltd
(1994) 121 ALR 347
(at 364-8
)). When those matters are taken into account, it is, I think, appropriate to characterise the ``cotton buds'' as a surgical appliance in the form of absorbent cotton wool. As has been noted, the dictionary meaning of cotton wool refers to its use for surgical dressings and toilet purposes. In that connection, the stem performs no more than an incidental function which does
ATC 4513
not deprive the cotton wool of its essential character. Further, the reference in the dictionary definition of ``cotton wool'' to ``surgical dressings'' indicates that it is not stretching the language to describe a cotton bud as a kind of surgical appliance.In the result, I am not persuaded that Hill J. made any error of law or of fact. Nor am I persuaded that the appellant has demonstrated that his Honour's decision should be reversed. Not only did his Honour have the advantage of considerable experience in the revenue field but, in my opinion, the observations made by Gibbs C.J. (with the agreement of Mason J.) in
SW Hart
&
Co Pty Ltd
v
Edwards Hot Water Systems (a firm)
(1985) AIPC
¶
90-242
(at 36,368);
(1984-1985) 159 CLR 466
(at 478
) are equally applicable in the present case
-
``The nature of the issue, involving as it does matters of impression, is one in which particular respect and weight should be given to the decision of the trial judge unless some error in his judgment has been demonstrated.''
In the circumstances, it is not necessary for me to consider the alternative submissions made on behalf of the respondent.
I would dismiss the appeal, with costs.
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