CASE 1/98

Members:
KL Beddoe SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 20 January 1998

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KL Beddoe (Senior Member)

The applicant company seeks review of an objection decision of the respondent Commissioner notified on 27 May 1997 to refuse a claim for exemption from sales tax in respect of the purchase of a six ton hydraulic hammer and a power pack (T9). The respondent had made and notified an assessment pursuant to a request made under s 102(1) of the Sales Tax Assessment Act 1992 (``the Assessment Act''). Being dissatisfied with that assessment the applicant lodged an objection pursuant to s 107 of the Assessment Act and Part IVC of the Taxation Administration Act 1953.

2. The central issue is the extent of the exemption from sales tax granted by the operation of s 25 of the Assessment Act, together with s 4(2)(b) and Item 37, Schedule 1 of the Sales Tax (Exemptions and Classifications) Act 1992 (``the Exemption Act''). Item 37 depends for its operation on the facts of this case, on items 126 and 127 of the said Schedule 1 being relevant:

3. The relevant items read as follows:

``Item 37:

(1) Machinery, implements or apparatus (other than general-purpose road vehicles or parts for those vehicles) for use by a person

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mainly in earth-moving in the course of carrying out contracts for a body whose own use of the machinery or equipment would be covered by exemption Item 64, 126 or 127.

(2) In this Item, `earth-moving' means the excavation or movement of earth, rock or natural deposits in the soil.

Item 126:

(1) Goods for use by:

• (a) an Australian government; or
• (b) an authority that is completely controlled by an Australian government, and whose expenditure is exclusively borne by that government; or
• (c) an authority that is completely controlled by 2 or more Australian governments, and whose expenditure is exclusively borne by those governments.

(2) ...

(3) ...

Item 127:

(1) Goods for use by any of the following bodies that is constituted by a law of the Commonwealth or of a State or Territory:

• (a) a municipal, shire or district council that is constituted for general purposes of local government;
• (b) a public authority that is constituted for the purpose of carrying out some or all of the functions that are ordinarily carried out by a council of the kind described in paragraph (a);
• (c) a harbour board, harbour trust or marine board...

(2) ...

(3) ...''

4. By virtue of the operation of s 8(3) of the Exemption Act Item 37 extends exemption to parts and accessories for use exclusively as associated goods.

5. Item 37 is a re-enactment in different form of Item 78B of the Sales Tax (Exemptions and Classifications) Act 1935.

6. The Explanatory Memorandum circulated by authority of the Treasurer relating to the Sales Tax (Exemptions and Classifications) Bill 1992 describes the change in the law effected by the repeal of former Item 78B and enactment of new Item 37 as follows:

``Earthmoving equipment for local government contracts

Change: There will be an exemption for machinery, implements and apparatus for use for earth-moving in the course of carrying out a contract with a local government authority.

Existing law: Machinery and equipment is exempt if it is for use for earth-moving in the course of carrying out a contract with a local government authority.

Financial impact: Nil''

Both items specifically refer to use in the excavation or movement of earth, rock or natural deposits of soil.

7. At the hearing Ms Downes appeared for the applicant company and Mr Coulsen appeared for the Commissioner. The Tribunal had before it documents lodged in the Tribunal pursuant to s 37 of the Administrative Appeals Tribunal Act 1975, two bundles of materials handed up to the Tribunal by counsel for the applicant, a number of documents tendered and marked as exhibits, and a video recording also marked as an exhibit. Oral evidence was given by John Paul Wagstaff, Managing Director of the applicant company and Neville John Morrison, both called by Ms Downes.

8. The goods in issue are part of a Banut 700 hydraulic piling rig described in the papers as a pile hammer, together with a power pack. Both the rig and power pack are mounted on to a crawler type chassis. No issue arises before me in relation to such a chassis. The material before the Tribunal illustrates rigs mounted on different types (albeit similar) crawler units. Exhibit B is a diagram showing a piling rig and a power pack mounted on an Akerman H14B crawler chassis. A copy of Exhibit B (with witness markings deleted) is annexed as an attachment to these reasons [not reproduced].

9. The evidence of Mr Wagstaff, who is a civil engineer, established the following matters to my satisfaction:

• (a) ``pile'' is a generic term which is not confined to concrete, steel or timber structural members but also includes concrete, crushed rock and sand;
• (b) piles are classified generally into types as specified in the Australian Standard

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  AS2159-1995 ``Piling Design and Installation'' (Exhibit A):
  • (i) displacement piles are forced into the ground by the pile hammer or cast in place after a tubular liner is driven into the ground to create a void;
  • (ii) non-displacement piles are forced into the ground by the pile hammer after preboring by the rig has removed soil;
• (c) ``displacement piles'' are defined in Australian Standard AS2159-1995 as ``those which displace the ground through which they are being installed... the displaced volume shall approximate the pile volume'';
• (d) the Australian Standard describes non- displacement piles as piles formed in situ by removing soil or rock to create a void which is then filled with concrete or grout;
• (e) although using different attachments for the particular installation the piling machinery used by the applicant is basically very similar and often interchangeable;
• (f) pile driving machines can also be used for lifting functions on smaller contracts (I infer when a crane is not readily available) but these functions represent only 5 to 15% of usage;
• (g) exhibit E illustrates the actual process of driving a concrete pile;
• (h) the pile itself cannot move the earth - it is the pile driving machine which provides the energy, through the hammer, required to move the earth which is moved in an area 5 times the diameter of the pile; and
• (i) the host machine for the hammer and power pack was itself purchased exempt from sales tax.

10. The evidence of Neville John Morrison, a civil engineer, established that the essence of pile driving was to get down to a suitable sub- stratum so as to provide a foundation capable of carrying the load of the structure to be built on the piles. This is achieved by driving the piles through the weak ground. In this regard he noted that the Venetians had driven timber piles through weak ground in the 10th century. According to Mr Morrison an essential feature of all forms of foundation construction, including driving piles (and caissons) moves the earth to a greater or lesser extent depending on the foundation construction method used. It is an essential feature of pile driving that the earth must be moved to drive the pile.

11. There is no issue before me that the contracts by the applicant company do not qualify within the terms of Item 37 when read in conjunction with items 126 and 127.

12. Taking into account the material before me and, in particular, the photographs and video recording, I am satisfied that the Banut 6 ton Hydraulic Hammer and the Power Pack are each either a part, accessory or attachment to a pile driving machine.

13. In particular I am satisfied that each piece of machinery in issue constitutes a component part or accessory which is attached so as to form part of a pile driving machine, and I so find.

14. I am also satisfied, and find, that where a concrete, steel or timber pile is driven through the earth a process of compaction of the earth takes place similar in effect to the use of a road roller to compact on a horizontal plane. Where, however, a caisson is driven then it is an essential step in that process that the earth is actually removed to another place.

15. The respondent's case is based in part on a contention that the hammer and the power pack each have a utility of their own and are not parts of a pile driving machine. It follows, it is said, that the hammer and power pack must therefore be associated goods of specified type for use exclusively with goods covered by Item 37. However, I am satisfied that the hammer and power pack are not associated goods because they form part of the machine described as a pile driver. Without them the machine could not be described as a pile driver because it would not be capable of driving a pile albeit that it may perform different functions if other accessories are attached.

16. In
DFC of T v Polaroid Australia Pty Ltd 71 ATC 4249 the ultimate question was whether Polaroid film packs were part of a Polaroid camera. Gibbs J held they were not. At page 4252 his Honour said:

``... This evidence did not however establish that a film pack or picture roll is part of a camera. One thing does not become part of another simply because the latter thing cannot be put to proper use without the aid of the former, even if, in use, the two things are fixed together. In my opinion a film is not part of a camera, nor a bullet of a gun, nor petrol of a motor vehicle. A Polaroid camera is a different thing from a film pack

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or a picture roll, and is complete even though it has no pack or roll in it. A person who contracted to buy a camera could not, in my opinion, successfully contend that his contract entitled him to the supply of a film as well, or, if he had contracted to buy a Polaroid camera, to the supply of a film pack or a picture roll.''

In the present case it is the pile which is akin to the film pack in the Polaroid case. The hammer is akin to the camera lens and the power pack is akin to the electric motor in the camera. While the hammer and power pack are commercially distinct goods they become component parts of the pile driver when they are attached to it.

17. I come then to the main issue. Are the hammer and power pack machinery, implements or apparatus for use mainly in excavation or movement of earth, rock or natural deposits in the soil as provided in Item 37?

18. The respondent submits that to succeed the applicant must show that the hammer and power pack are parts of machinery used in earth moving and that such parts alone are used mainly in earth moving. I must reject that submission. In my view the hammer and power pack must be considered as part of the whole machine, that is, the pile driver. If the pile driver is used mainly for earthmoving then the hammer and the power pack have the same essential character. To use an extreme example, it would be incorrect to say that the airconditioned cabin on the pile driver is for the use and comfort of the operator and not for use in earth moving. The relevant use in the context of Item 37 is the work undertaken by the machinery on a day to day basis. To attribute different uses to component parts of the whole would be contrary to the apparent intention of Item 37.

19. In so far as the respondent says that the essential character of the machinery is that of construction equipment rather than earth moving equipment I must reject that submission. Item 37 does not depend for its operation on a finding that the machinery implements or apparatus are of a kind used in earth moving. The question to be answered is whether the goods are for use ``mainly in earthmoving''. By way of example a road roller used to compact earth and road base could be exempt within Item 37 (the Commissioner says it is in his published ruling STD95/10 relied upon in the reasons for decision in this case) but would not be exempt under Item 37 if used for purposes falling outside the item, eg, development of private roads. The essential character of the road roller is not relevant. Its purposive use is.

20. Can it be said that the hammer and power pack are for use in construction or building? The evidence establishes that the piles or caissons are driven so as to stabilise the site and provide a foundation on which construction can be undertaken. I have already found that earthmoving takes place in this process.

21. The question then is whether the earthmoving which occurs is the primary purpose of the pile driving operation so that it can be said that the goods are for use mainly in earthmoving. I have come to the view that would be a correct characterisation of what occurs. The piles are driven into the earth to form a foundation sufficient to carry a construction, in most cases, although sometimes piles are driven merely to stabilise the earth. Caissons are driven firstly so that soil can be removed and then to form foundations poured in situ.

22. ``Mainly'' is defined in s 3(2) of the Exemption Act to mean, unless the contrary intention appears, to the extent of more than 50%. In
DFC of T v Stewart & Anor 84 ATC 4146 the issue was whether bailed gaming machines were for use by public benevolent institutions (``PBI'') or whether the machines had been applied to the bailor taxpayer's own use. It follows, in my view, that when Brennan J discussed the proposed use and said at page 4153 that the use must be sufficiently substantial in extent and time that it is right to regard that proposed use of the goods as giving a character to the goods his Honour was considering a different exemption item, which depended upon qualitative considerations of use by the PBI rather than quantitative considerations of use envisaged by the word ``mainly''.

23. The overriding purpose for driving piles and caissons is to provide a foundation in most cases and to stabilise the ground in some cases. In both instances earthmoving takes place. That movement of earth is the essential primary ingredient in the process being undertaken. The process would be unsuccessful if in driving the pile the earth did not move, thereby making pile

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driving impossible and likewise the driving of a caisson. Driving the pile compacts the earth to allow the insertion of the pile.

24. The significance of earthmoving is more readily apparent in the case of caissons because the soil is extracted from inside the casing.

25. First and foremost pile driving is undertaken to compact or remove earth both of which are earthmoving as defined in Item 37(2). I cannot see any contrary intent in Item 37 and I am therefore satisfied that pile driving and caisson driving is undertaken mainly for earthmoving purposes.

26. It follows that the decision under review must be set aside. I will substitute a decision to the effect that the hammer and the power pack are exempt goods within the terms of Item 37 of Schedule 1 of the Exemption Act. I will also certify that these proceedings have terminated in a manner favourable to the applicant.