Federal Commissioner of Taxation v. Sherwood Overseas Pty. Ltd.

Judges:
Olney J

Court:
Supreme Court of Western Australia

Judgment date: Judgment handed down 27 May 1985.

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Olney J.

The Commissioner of Taxation (the Commissioner) seeks an order declaring that the rate of sales tax payable by the defendant on certain cleaning units known as Kreepy Kraulys sold by it between 1 March 1979 and 30 June 1979 is 15%. It is common cause that between the relevant dates the defendant manufactured and sold a number of machines known as Kreepy Krauly Automatic Pool Vacuum Cleaners and that the Commissioner levied sales tax at the rate of 15% whereas the defendant maintains that the rate should have been 2½%. The parties regard this as a test case and have submitted as the basis of the litigation an agreed statement of facts which I set hereunder. I have paraphrased some of the paragraphs in order to avoid having to refer further to the pleadings which are mentioned in the statement tendered in evidence by reference to their paragraph numbers in the statement of claim:

• 1. The machine known as the Kreepy Krauly Automatic Pool Vacuum Cleaner comprises:
  • (a) a cleaning mechanism including seal;
  • (b) a hose;
  • (c) a control valve and clamp

  and is referred to hereafter as ``Kreepy Krauly''.

• 2.... the defendant was at all material times a manufacturer of goods (being Kreepy Kraulys) manufactured in Australia and sold by it to an unregistered person or a registered person which did not quote its certificate in respect of the sales.
• 3. (Pursuant to sec. 3 and 4(d) of the Sales Tax Act (No. 1) and the Sales Tax Assessment Act (No. 1) 1930 sales tax upon the goods sold) at the rate of 15% was imposed but the defendant denies it was duly imposed.
• 4. (The goods) were Kreepy Kraulys and were all sold by the defendant in the manner set out in para. 2 above between 1 March 1979 and 30 June 1979.
• 5.... the defendant was at all material times a manufacturer duly registered pursuant to the Sales Tax Assessment Act (No. 1) 1930 (Cth).
• 6....
• 7.... Kreepy Kraulys manufactured by the defendant were and are of a kind ordinarily used in domestic pools.

Section 3 of the Sales Tax Act (No. 1) 1930 imposes sales tax at the rate specified in sec. 4 upon the sale value of goods manufactured in Australia by a taxpayer and sold by him by retail. Relevantly the rates of sales tax imposed by sec. 4 are:

• (a)...
• (b) in respect of goods covered by the Third Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 - 2½%.
• (c)...
• (d) in respect of goods not covered by the Second, Third, Fourth or Fifth Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 and on the sale value of which it is not provided by that Act that the sales tax imposed by this Act shall not be payable - 15%.

The goods covered by the Third Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 are:

``1 Goods (not being covered by an item in the Second Schedule or cut glassware) of a kind ordinarily used for household purposes, namely: -

• (a) furniture, but not including pictures, picture frames, statuary, sculptures, plaques, medallions, medals, inlays,

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  mosaics, tapestries, cameos or representations of mottoes, proverbs or verses;
• (b) crockery and articles of a material other than earthenware used for purposes similar to the purposes for which crockery is used;
• (c) glassware;
• (d) cutlery and cutlery sharpeners;
• (e) refrigerators, ice chests and other appliances used for the cooling or freezing of food;
• (f) washing machines, wringers and other appliances used for or in connexion with laundering;
• (g) vacuum cleaners, carpet sweepers, floor polishers and other appliances for use for cleaning purposes;
• (h) radiators and other room heaters, portable grillers, portable stoves, portable cookers, toasters, mixing machines, immersion heaters, hot water jugs and kettles, percolators and other appliances, whether operated by electricity or by gas, kerosene or other fuel, for use for room heating or for culinary purposes, but not including goods covered by sub-item (2) of item 90B, or item (1) of item 152, in the First Schedule;
• (ha) electric fans;
• (hb) air conditioners of a kind used exclusively, or primarily and principally, for air cooling;
• (i) kitchen utensils and hardware;
• (j) brooms, mops, dusters, brushes, buckets, dippers and basins;
• (ja) incinerators, garbage cans and stands and holders for garbage sacks;
• (k) fruit bottling outfits and fruit preserving bottles and jars;
• (l) floor coverings and bath and door mats;
• (m) blinds;
• (n) mattresses, pillows, other bedding and cushions;
• (o) sewing machines and knitting machines;
• (p) appliances and fittings used for or in connection with electric, gas or other lighting; candles and tapers.

2 Parts, fittings and accessories for goods covered by item 1 in this Schedule.

3 Containers for goods covered by this Schedule.''

In addition to the agreed statement of facts evidence was called by the Commissioner from Mr R.M. Tucker, a consulting mechanical engineer who submitted an extensive written report on the Kreepy Krauly. In addition, a video tape prepared by the defendant for promotional purposes was shown to the Court and to the witness. I think it is fair to say that there is no real dispute as to the method of operation of the Kreepy Krauly nor the purpose for which it was designed. The following is an extract from the witness's report:

``POOL CLEANING OPTIONS

All swimming pools require cleaning to remove sand, dust, leaves and slime that deposits on the floor and/or walls of the pool. The amount of cleaning being proportional to the environment and location of the pool.

Prior to the advent of automatic pool cleaners domestic pools were cleaned (and still are in a majority of cases) using the manual systems. Manual cleaning involves the use of extended handled brushes to sweep vertical surfaces such as walls, steps etc. Then by running the pool pump/filter system and connecting a special flexible hose with long extension handles and cleaning head/brush plugged into the suction pump/filter system at the skimmer box; the pool is cleaned by manually moving the cleaning head/brush over the floor of the pool (approximately 3 man hours per week are involved).

General:

The Kreepy Krauly can be defined as a mechanical device for automatic vacuum cleaning of household pools. Kreepy Krauly is clearly an ancillary attachment to supplement and automate the pool vacuum cleaning system (Refer Appendix 1 and 4) and relies on the filter pump suction head to provide the necessary fluid flow for its motivation and vacuuming action. Kreepy

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Krauly operates in the fully submerged mode and is designed to clean the walls and bottom of pools up to and below the water level.''

In my opinion there appear to be a number of issues that require resolution and these are:

• 1. Whether the Kreepy Krauly can be regarded as coming within the description of ``goods of a kind ordinarily used for household purposes''.
• 2. If so, whether it can be regarded as:
  • (a) a vacuum cleaner, or
  • (b) an appliance for use for cleaning purposes as that term is understood in item 1(g) of the Third Schedule.

It is obvious that the Commissioner takes the view that the Kreepy Krauly is not caught by the Third Schedule and hence has levied sales tax at 15% whereas the opposite view taken by the defendant, if correct, would result in tax being payable at 2½%.

As the parties have been unable to refer me to any judicial precedent having a direct bearing upon the construction of the Third Schedule I propose to approach the task before me on the basis that the language used should be understood in its ordinary sense. At the outset, it is however important to determine the relationship between the general words appearing at the head of the first item of the Third Schedule and the specific descriptions of goods which follow in the various numbered subparagraphs. The general words and the particular are of course separated by the word ``namely'' which suggests that the descriptions which appear in the numbered subparagraphs are an exclusive definition of the goods covered by the item. In my opinion the opening words qualify each of the groups of goods described in the numbered subparagraphs so that insofar as the item refers to furniture it is to furniture of a kind ordinarily used for household purposes and likewise with refrigerators, washing machines, vacuum cleaners and indeed all of the other goods mentioned. Many, if not most, of the goods that are described have an application in industrial or commercial contexts as well as within the household. The item clearly does not refer to office furniture, commercial refrigerators, industrial vacuum cleaners or air conditioners designed for use in a public hall. In the context of this case the issue is whether the Kreepy Krauly is properly regarded as either a vacuum cleaner of a kind ordinarily used for household purposes or a cleaning appliance ordinarily used for household purposes.

I have no difficulty in coming to the conclusion that the term ``vacuum cleaner'' as understood in normal parlance is inappropriate to describe the Kreepy Krauly. The Shorter Oxford Dictionary defines ``vacuum cleaner'' as an apparatus for removing dust etc. from carpets etc. by suction and the more contemporary Australian Macquarie Dictionary defines the same term as an apparatus for cleaning carpets, floors etc. by sucking in dust. I do not think that the term ``vacuum cleaner'' is one that could ever be understood as extending to a device of the type described above used for cleaning the sides and bottom of a swimming pool.

The next question to consider is whether the Kreepy Krauly can properly be regarded as being an appliance. Referring again to the same dictionaries the definitions of the term ``appliance'' are thing applied as means to an end; utensil, device, equipment (Concise Oxford) and instrument or machine especially one operated by electricity and made for use in the home (Macquarie). There appears to be no reason why the narrower definition used in the Macquarie should be preferred to the more general meaning and I have no difficulty in accepting that in ordinary language the Kreepy Krauly can be regarded as an appliance and obviously it is an appliance for use for cleaning purposes.

The three specific articles mentioned in para. (g) of item 1 of the Third Schedule vacuum cleaners, carpet sweepers and floor polishers all have as their primary purpose the cleaning and maintaining of floors and the question arises as to whether the phrase ``other appliances for use for cleaning purposes'' ought to be construed in some way so as to limit the range of appliances to those used in respect of floor cleaning. I do not think such a limitation is justified. The paragraph does not refer to ``other similar appliances'' nor does it, as it could have (had that been the intention), refer to appliances for use for cleaning floors. A vacuum cleaner is normally electrically powered and cleans by suction. A carpet sweeper is normally a purely mechanical device deriving its sweeping facility from the forward movement of the thing

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itself whereas a floor polisher whilst normally electrically powered does not of itself sweep up dirt although it is in my view fair to regard it as an appliance used as an adjunct to floor cleaning. I do not think that there is a sufficient common genus in the specific articles to require the construction of the ``other applicances'' referred to to be limited either to electrically powered appliances or to those designed primarily for the purpose of cleaning floors.

It remains therefore to consider whether the Kreepy Krauly can be described as a thing of a kind ordinarily used for household purposes. Relevantly the term ``household'' is defined as a domestic establishment (Concise Oxford) and used for looking after and keeping a house (Macquarie). Neither of these definitions help much in determining whether a device used for cleaning a domestic swimming pool is used for a household purpose. Counsel for the defendant invited me to refer to rulings made by the Commissioner in respect of various other goods which in the past have been considered as coming within the scope of the Third Schedule but I do not think that this is a proper approach to statutory construction particularly as there appear to be a number of inconsistencies in the Commissioner's previous rulings which leave the matter very much at large. In any event if, as the defendant says, the Commissioner's present ruling in relation to Kreepy Kraulys is wrong, there is perhaps some reason to suspect that he may on a previous occasion have been in error in his classification of goods.

The use of the adjective ``household'' suggests that the intention has been to distinguish the particular goods in question from similar goods that have uses outside a domestic establishment. I have already made reference to commercial and industrial uses to which goods of a similar description can be put and I think that in broad terms this is the intention of using the words ``ordinarily used for household purposes''. I do not understand the Commissioner to have advocated that an article can only be regarded as ordinarily used for household purposes only if its ordinary use is within the four walls of a dwelling house. Indeed some of the items specified in the Third Schedule are inevitably used out of doors whereas a number of others can commonly be found in use both inside and outside.

In my opinion a robust approach ought to be taken to the construction of the Third Schedule particularly in view of the fact that it is part of a statute imposing taxation and I take the view that any goods which fall within the particulars described in para. (a) to (p) of the first item which are ordinarily used in or about a dwelling house can fairly be said to be ordinarily used for household purposes. It is conceded that Kreepy Krauly are goods of a kind ordinarily used for domestic swimming pools and in my opinion that concession is sufficient to bring them within the ambit of the Third Schedule.

In my view the rate of sales tax payable by the defendant on the cleaning units known as Kreepy Krauly sold by it between 1 March 1979 and 30 June 1979 is 2½%.