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BOWATER TUTT INDUSTRIES PTY LTD v FC of T

Members:
Whitlam J

Tribunal:
Federal Court

Decision date: Judgment handed down 17 October 1996

Whitlam J

This is an appeal from a decision of the Administrative Appeals Tribunal (``the Tribunal'') concerning the applicant's liability for sales tax under the Sales Tax Assessment Act (No 1) 1930. The goods in question are modules manufactured by the applicant that were sold between 1 June 1988 and 30 April 1991 for installation as refrigerated cabinets and cases in supermarkets.

The applicant had claimed a refund of tax from the respondent on the basis that these goods were covered by sub-item 84(1) in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (``the Exemptions and Classifications Act''). The respondent had not allowed the claim, and the applicant had lodged an objection against the respondent's ``refund decision''. The grounds stated in the objection considerably expanded the basis upon which the refund claim was originally made. The respondent had disallowed the objection.

Upon the review before the Tribunal, the applicant relied, in the alternative, on only three grounds stated in its objection, namely, that the goods were covered by sub-item 84(1) or sub- item 93(1) in the First Schedule to the Exemptions and Classifications Act, or that they were ``pre-fabricated building sections'' within the meaning of s 6A of the Exemptions and Classifications Act. The Tribunal affirmed the respondent's decision disallowing the objection. The Tribunal's reasons for decision are reported: Case 41/94,
94 ATC 378;
(1994) 29 ATR 1118.

The questions of law raised on the present appeal involve the Tribunal's construction of the statutory provisions mentioned and one aspect of the fact finding by the Tribunal. It is convenient to commence with the Tribunal's description of the goods:

``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....

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

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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 any 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 supermarkets...'; 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 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.''

Relevantly, the sub-item primarily relied on by the applicant provides:

``84 (1) 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, but not including-

  • (a) liners for, components of, or goods designed to form part of, swimming pools or spa baths, including panels and sheeting;
  • (b) channelling used for slides or water slides;
  • (c) piping or tubing;
  • (d) duct work or channelling of a kind used in forced draught ventilating or air conditioning systems;
  • (e) 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; or
  • (f) goods covered by item 12, 14 or 14A in the Third Schedule.''

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Having set out the parties' submissions on the meaning and application of this provision, the Tribunal said:

``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' [sic], that is, metal building 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 [and Classifications] Act.''

Counsel for the applicant submits that the Tribunal misconstrued sub-item 84(1) by holding that, in order to fall within the exemption, fabricated units must be composed ``only'' of metal building materials. He contends that the sensible and natural construction of the words used is that a fabricated unit must be composed ``principally'' of metal. Several reasons were advanced in support of this construction. I shall deal with them in the order that they were raised by counsel:

  • (a) In contemporary society, it is said, there are few things that do not have various bits and pieces made from other materials (particularly plastics) incorporated in them. Counsel instances the fireboxes, which were held in
    Jetmaster Fireplaces Pty Ltd v FC of T 89 ATC 4464 to fall within sub-item 84(1). They had been fabricated from mild steel, yet they had also been painted. That may be so, but it appears to have been accepted by the parties for the purpose of that case that the fireboxes were fabricated units composed of metal.
  • (b) In sub-item 86(1) in the First Schedule to the Exemptions and Classifications Act, Parliament employed the adverb ``wholly'' in the expression ``made wholly of metal other than precious metal'' to qualify the metal materials described in that sub-item. In the context, it is said to be significant that such an adverbial expression is absent in sub-item 84(1) to limit the meaning of ``composed''. In
    DFC of T v Lincoln Industrial Cleaners Pty Ltd 75 ATC 4208; [1975] 2 NSWLR 499, Sheppard J relied upon such a contrast in the language used in different sub-items of the same item in order to hold that the goods in that case were covered by one of those sub-items. But that

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    was a very different case. I have not undertaken an exhaustive analysis of the First Schedule to see where else, if at all, the expression ``wholly'' is used. The true construction of sub-item 84(1) is, in my opinion, unaffected by the provisions of sub- item 86(1). To paraphrase Sheppard J (at ATC 4212; NSWLR 504), the words of sub- item 84(1) are the words to be considered.
  • (c) The express inclusion in sub-item 84(1) of ``attachments'' is inconsistent with a legislative policy that goods must be ``100% metal''. This is said to be so because the attachments for fabricated units would very often not be metal or wholly metal. However, I am quite unable to see how the fact that such units may have attachments that are not metal could render those attachments ``metal building materials''.
  • (d) A similar submission is made by reference to the goods described in pars (a)- (f) of sub-item 84(1). Again, simply because it is possible to conceive of such goods that are not metal, that will not assist in construing the meaning of ``metal building materials''. The nominated exclusions will not serve to expand the category of goods covered by the sub-item.
  • (e) Decided cases are said to illustrate how it is artificial and contrary to natural usage of language to say that any non-metal component precludes description of a fabricated unit as ``composed of metal'' materials. Two cases are called in aid.

Case 27/93,
93 ATC 324 involved free standing wood heaters with a large ceramic glass door on the front of the firebox. It was held ``on the uncontested evidence'' that such goods were fabricated units composed of metal building materials within the meaning of sub- item 84(1).

In
FC of T v Chubb Australia Ltd 95 ATC 4186; (1995) 56 FCR 557 a Full Court held that certain wall and floor safes fell within sub-item 84(1). Hill J, with whom Burchett J and Tamberlin J agreed on this issue, referred (at ATC 4192; FCR 565-566) to the trial judge's description of those safes. This included a reference to the door of the floor safes being ``designed to meet different levels of security, the construction material ranging from heavy steel plate to a steel cavity type door filled with highly resistant barrier protection''. It was suggested in argument that such protection material might occasionally be concrete. Nonetheless, the respondent's relevant submission in Chubb, as recorded by Hill J (at ATC 4199; FCR 574), was that these safes ``fell outside the exemption because they were units of complete manufactured goods, i.e. safes, which employed in their fabrication metal materials but which had lost their separate identity as metal building materials'' (emphasis supplied). It follows that I do not consider that either of these cases assists in elucidating the meaning of the expression ``metal building materials'' in sub-item 84(1).

Counsel for the respondent contend that, in any event, the Tribunal's reasoning process was not to say that the presence of any non-metal component precludes the goods from being ``metal building materials''. They submit that the Tribunal correctly focussed on the initial question whether the modules were metal building materials. The Tribunal's answer to that question, it is said, involves a question of fact.

I think that counsel for the respondent are too coy. The Tribunal's reasons, read as a whole, make it clear that the view expressed in par 25 of those reasons reflected its approach, as a matter of law, to the construction of sub-item 84(1). Moreover, in my opinion, the approach of the Tribunal was correct. The word ``metal'' is a noun, which has been used as an adjective in the expression ``metal building materials''. That expression is another way of saying ``building materials of metal''. Once that is appreciated, there is no call to add a gloss in the case of fabricated units that they be composed ``principally'' of metal. The construction contended for by the applicant is accordingly rejected.

The Tribunal found (par 27) that, ``by weight'', the modules were not constructed of metal. This finding is sufficient to sustain the conclusion that the goods were not covered by sub-item 84(1). The Tribunal went on, however, to make a further finding on the basis contended for by the applicant, namely, that the modules ``need only be principally metal'' (par 29). This finding was: ``By volume, the modules are principally foam.'' Counsel for the applicant submits that there was no evidence on which the Tribunal could so find and thus it erred in law.

The evidence referred to by the Tribunal in this part of its reasons is that of Timothy

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Moran, a production engineer employed by the applicant. His evidence before the Tribunal was given both by affidavit and orally. Exhibited to his affidavit were brochures for a D series range of supermarket display cases and an E series range of refrigerated supermarket cabinets, all of which were manufactured under licence by the applicant during the relevant period. The D series brochures described the insulation of the cases this way: ``Tyler foam-in place insulation is a sandwich construction of galvanised steel bonded to polyurethane of 57mm thickness''. The E series brochures referred to the ``proven technology'' of the cabinet's ``galvabond and polyurethane sandwich construction''. Mr Moran also exhibited to his affidavit photographs of typical refrigerator case modules and a drawing showing typical coving detail for plinth-mounted and floor-mounted cases. In his oral evidence Mr Moran referred to the insulated case body as the ``carcass'' and was asked questions about its insulation by reference to the photographs and the drawing.

I need not describe this evidence in any detail. It is sufficient to record the nature of the evidence and to observe that there was obviously evidence before the Tribunal as to the volume of foam and metal. If the Tribunal has made a wrong finding of fact, that is not sufficient to demonstrate error of law. This ground of challenge by the applicant also fails. In any event, the impugned finding is not necessary to sustain the conclusion reached by the Tribunal on what, in my opinion, is the correct view of the meaning of sub-item 84(1).

The other sub-item in the First Schedule to the Exemptions and Classifications Act relied on by the applicant is in the following terms:

``93 (1) 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 in the Third Schedule.''

The only issue joined by the parties before the Tribunal in relation to this sub-item was whether the modules fell within the reference to ``Boxes, cases and crates... for use in marketing goods''. The applicant submitted that the modules were cases and relied on dictionary definitions of a ``case'' as a ``receptacle''. In holding that the modules were not covered by sub-item 93(1), the Tribunal said:

``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.''

First, counsel for the applicant criticizes the conclusion that ``the modules are properly described, when fully installed, as... refrigerators''. It is said that the evidence before the Tribunal showed that the refrigerating equipment was quite separate and remote from the assembled modules. No doubt, part of it was, but the element of a refrigerating system consisting of the space to be cooled is usually described as a refrigerator. There is no error of law identified in the Tribunal's first finding on this question.

Next, however, counsel for the applicant submits that the Tribunal erred in stating that the goods referred to in sub-item 93(1) are ``necessarily subsidiary to the goods for which they are used in marketing''. It is argued that

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the display function of the modules is no different in relation to the exempt goods being marketed than that of the large wooden boxes used for such goods in shops. The modules are said to be simply cases of a specialized kind, namely ones that keep the goods displayed cold or cool. The Tribunal thus erred in failing to perceive that a refrigerated case is nonetheless a ``case'' for the purposes of sub-item 93(1).

The submission is superficially attractive. However, in my opinion, it strikes an insurmountable obstacle in the Tribunal's essential finding that, at the taxing point, the modules are ``properly described as components of such refrigerators'' (emphasis supplied). This means that, even if the applicant's submissions as to the character of the assembled ``cases'' and ``cabinets'' (as they are called in the brochures) be correct, the modules are, at the critical temporal point, at best merely parts for what may become cases when assembled. Accordingly, this submission must also be rejected.

Section 6A of the Exemptions and Classifications Act provides:

``6A(1) Notwithstanding anything contained in any Sales Tax Assessment Act, sales tax shall 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.

6A(2) In this section-

`pre-fabricated building section' does not include pre-fabricated duct work or pre-fabricated channelling, being duct work or channelling of a kind used in forced draught ventilating or air conditioning systems;

`taxable goods' , in relation to a pre- fabricated building or pre-fabricated building section, means goods that, if sold separately, would not be covered by any item in the First Schedule, and, in a case where there are incorporated in the building or building section goods (in this definition referred to as the `relevant goods'), being-

  • (a) duct work or channelling of a kind used in forced draught ventilating or air conditioning systems; or
  • (b) fittings, accessories or attachments for duct work or channelling of a kind used in forced draught ventilating or air conditioning systems,

includes the relevant goods.''

The Tribunal found that the modules were not pre-fabricated building sections within the meaning of s. 6A. It said:

``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,
(1993) 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.''

Counsel for the applicant submits that the Tribunal erred in law if it took the view that the modules were not pre-fabricated building sections because they were ``pre-fabricated sections of the refrigerator unit''. But that, in my opinion, is not what the Tribunal has done. The findings in par 9 of its reasons record the evidence of Fiona Currie, an architect employed by a supermarket operator, who deposed to how the size, shape and location of refrigerator cases were integral to the design and construction of a supermarket. But the findings in par 10 reflect the evidence of a refrigeration mechanic employed by the same operator as to the construction on-site at the supermarket of the refrigerator cases from the pre-fabricated modules. What the Tribunal has done is recognize the distinction between the fabrication off-site of the modules and the

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construction on-site of the refrigerated cabinets from those modules. Once more the taxing point is all-important. The Tribunal took the view that, at that point, the modules were not building sections. These were questions for the Tribunal. No error of law is demonstrated. The decision of the Tribunal involved matters of fact and degree.

The argument for the applicant is not assisted, in my opinion, by reference to the definition of ``pre-fabricated building section'' in subs 6A(2). It does not matter that, absent that definition, a building section might consist of duct work or channelling of the kind specified. Obviously a section of a building may have another name, such as a roof or a wall. Each case will turn on its own facts.

Here it was not necessary for the Tribunal to address the question whether the refrigerated cabinets, when fully assembled, were building sections. Even if the answer to such a question were in the affirmative, the fact that such cabinets were constructed from pre-fabricated modules would not, in law, turn these modules into building sections. One may as well argue that the piping and tubing from which duct work or channelling is constructed could be building sections. That would, of course, be an untenable argument.

The appeal is dismissed with costs.


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