Case X35

Members:
CJ Bannon QC

Tribunal:
Administrative Appeals Tribunal

Decision date: 20 March 1990.

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C.J. Bannon Q.C. (Deputy President)

The taxpayer imports and sells, for home consumption, electrical equipment. The equipment in question is described in the trade brochures of its Japanese manufacturers as ``Fuji electrical inverters''. The taxpayer

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contends that there is no liability to pay sales tax with respect to goods sold, because the equipment does not fall within the term ``converters'' appearing in item 90C in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (Cth) (``the Act''). Item 90C provides for exemptions from sales tax subject to exceptions set out therein. The only portion material to this application is item 90C(1) set out hereunder:

``ITEM 90C

(1) Electrical fittings and accessories (including electronically operated electrical fittings and accessories), and electrical materials, being goods of a kind used exclusively or primarily and principally as part of fixed electrical installations in consumers' premises, but not including -

• (a) bell equipment, burglar alarm equipment, fire alarm equipment, recording equipment and electronic equipment (other than electronically operated electrical fittings and accessories);
• (b) brackets, canopies, chains, hooks and galleries;
• (c) candelabra, chandeliers, electroliers, electric light globes, lamps and tubes, pendants, shades, bowls and reflectors;
• (d) condensers, converters, starters and transformers;
• (e) electrically operated appliances, apparatus or machines;
• (f) engines, alternators, primary and secondary batteries and other generating equipment;
• (g) flexible cables;
• (h) light boxes;
• (i) neon signs and other luminous discharge lighting equipment, including fluorescent lighting equipment; or
• (j) goods covered by item 2, or sub-item (4) of item 12, in the Third Schedule or goods or parts for goods referred to in sub-item (3) of item 12 in the Third Schedule.''

Section 5(1) of the Act provides that notwithstanding anything contained in any Sales Tax Assessment Act, sales tax shall not, subject to that section, be payable upon the sale value of any goods covered by any item or sub-item in the first column of the First Schedule, under any Act specified in the second column of that Schedule opposite that item or sub-item. In this case it is agreed the only relevant Act is the Sales Tax Assessment Act (No. 6), 1930 (Cth). Unlike the Customs Tariff legislation, there are no rules for interpretation of the classification provided, save for the interpretation provisions in cl. 1 to Sch. 1 of the Act. Although a formal submission was made on behalf of the respondent that the goods in question did not fall within the general words of the opening paragraph of item 90C(1) in the Schedule, the evidence made it apparent that the goods fell within those words. The only serious issues before me were whether or not the goods fell within the exceptions set out in item 90C(1)(a) or (d).

The principles of construction which the Tribunal will adopt are those set out by Gibbs J., as he then was, in
Western Australian Trustee Executor and Agency Co. Ltd. v. Commr of State Taxation (W.A.) 80 ATC 4567 at p. 4571. There is no need to recite them. The main question is whether or not the goods in question fall within the term ``converter'' as used in the Act, bearing in mind that item 90C was introduced into the Act by Act No. 37 of 1950. The term ``converter'' is obviously a technical term in relation to electrical fittings, as defined in the item.

The principal submission made by the solicitor for the taxpayer was that the meaning of the term ``converter'' was limited to the denotation it had in 1950, and did not extend to new exemplifications, such as the equipment in issue, which was more properly described as an ``inverter''. He relied upon the views expressed by this Tribunal in
Re Pacific Film Laboratories Pty. Ltd. and Collector of Customs (1979) 2 A.L.D. 144, particularly para. (iv) of the propositions set out at p. 155. Those propositions received some approval in the Federal Court in
Collector of Customs v. Bell Basic Industries Ltd. (1988) 83 A.L.R. 251 and are set out by French J. at pp. 261-262.

In 1928, the standard work, Chambers Technical Dictionary, defined ``converter'' in part as follows:

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``A machine or device for changing alternating-current power to direct-current power or vice versa, or from one frequency to another.''

In the 1974 revised edition of the same work, ``converter'' is defined as follows:

``(Elect. Eng.) A machine or device for changing a.c. to d.c. or the converse, particularly transistor oscillator for supplying high-tension from low-tension.''

The same dictionary also defines ``inverter'' thus:

``(Elect. Eng.) A d.c. -a.c. converter using, e.g. a transistor or thyristor oscillator.''

The Fuji devices are described as ``inverters'' in the two brochures which became ex. A and B. Exhibit A refers to the device as a ``transistor inverter''. The brochure ex. B, deals with the Fuji inverter called a Frenic 5000 G5 and Frenic 5000 P5. This brochure gives particular attention to the sinusoidal shape of inverter output current provided, but whether this feature is simply the result of routine research into a common feature of inverters or whether it is special to Fuji inverters, was not explained in detail. However, the report, annexure VSR-2 to the affidavit of Associate Professor V.S. Ramsden (ex. C), discusses earlier techniques of achieving variable voltage and variable frequency and then states:

``The output waveform of the Fuji drive, with its sinusoidal pwm, closely approximates the sinusoidal wave obtained from these earlier frequency converters.''

This does not lead me to conclude that the Fuji devices possess any such novelty as against known devices, as to constitute a new electronic device outside the connotation of the word ``converter'' and ``inverter'' when used in Australia by skilled technical persons at the time of the introduction of item 90C into the First Schedule of the Act. See also extract from Harwood's Control of Electric Motors 4th ed. 1970 (ex. G). This tends to negative any novelty in Fuji's waveform output.

An affidavit by Mr B.D. Roberts, Senior Electrical Engineer Ironmaking Maintenance Support, Electrical Engineering Department, BHP Steel, Slab and Plate Products Division, Port Kembla, became ex. E. Mr Roberts is a person of considerable experience in industry. Paragraphs 7-10 inclusive of his affidavit are as follows:

``7. I consider that the Fuji inverters are not `converters' as that term is used in electrical engineering applications in the iron and steel industry. In common usage in that context the term is used to refer to devices which convert AC power to DC power. The most common examples are thyristor converters which are used to vary the voltage and thereby the speed of large DC motors with power ratings up to 8000kW. A typical application is to control the speed of motors in the BHP hot plate rolling mills which are used to roll steel from a thickness of 200mm to a thickness of 6mm. DC motors are suitable to use in this application but must be controlled by means of a converter.

8. The common usage of `inverter' in the industry, however, is to refer to a device which inverts power from DC to AC. They fall into 2 types - those which take a DC supply and change it to AC; and those which take an AC supply, change it to DC and then back to AC.

9. The first type is found in a restricted number of applications such as in ships, in the driving of AC equipment from a DC solar cell power source (such as is used in remote communication stations) or in uninterruptable power supplies for computers which revert to a back-up battery power supply in the case of failure of the AC supply.

10. The second and more common type combines an AC to DC converter with the DC to AC inverter. These devices are known as inverters because their most significant aspect is the variable AC ouput [sic] which is required for the specific applications to which the inverters are put. The Fuji inverter is a typical example of such inverters.''

In oral evidence (transcript pp. 69-74) Mr Roberts expanded upon his affidavit and explained that the Fuji devices gave more minute or accurate control of motor speed than earlier devices.

An affidavit by Dr C. Grantham, a senior lecturer in the Department of Electric Power Engineering, University of New South Wales, became ex. H. His oral evidence appears at

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transcript pp. 43-69. While he expressed views as to usage of the words ``converter'', ``rectifier'' and ``inverter'', I considered his evidence to be of limited value, as he was not shown to be a skilled person experienced in industry in Australia, but rather a person of largely academic background in this country, although with some industrial experience in the United Kingdom. Paragraphs 5-11 inclusive of his affidavit are as follows:

``5. It is my understanding that, in the 1940s and early 1950s, the word `converter' was used to describe electrical machines (such as rotary converters) which were used to vary the speed of other electrical machines by varying the frequency and voltage of the power supply usually from AC to DC.

6. At about the same time, the word `rectifier' was used to describe a type of device which was different from `converters'. Such devices were generally, mercury are rectifiers.

7. During the 1960s and 1970s, the meaning of the word `converter' began to refer increasingly to more modern equipment featuring diodes, thyristors and transistors. The electrical machinery to which it originally applied was by then superseded.

8. During the 1970s, in my experience there were differences of understanding amongst electrical engineers and electrical technicians as to the meaning of the word `converter'. These differences of understanding were compounded in the mid to late 1970s when inverters became commercially available. In my experience, the confusion of terminology persists today.

9. In general parlance in electrical engineering today, however, the word `converter' tends to be used to describe equipment such as rectifiers which rectify an alternating current (`AC') power supply to a direct current (`DC') power supply.

10. On the other hand, the word `inverter' is used to describe a different type of equipment which inverts a DC power supply to an AC power supply.

11. The distinction which is drawn between `converters' and `inverters' today is illustrated by the way in which some recent text books [sic] deal with the subject. As a general rule, they treat `inverters' as being a separate category of device to `converters'. The word `converters' is generally used to describe rectifiers. Now produced and shown to me and marked with the letters `CG 3' are extracts from a number of textbooks [sic] illustrating this distinction.''

The annexures marked ``CG 3'' mentioned in para. 11 of his affidavit include extracts from publications, either of unstated or recent origin, which tend to differentiate between converters and inverters. In one of those extracts from Power Electronics by B.W. Williams (1987) published in the United Kingdom, ch. 11 deals with ``Naturally Commutating Converters'' and states:

``The converter circuits considered in this chapter have in common an ac supply input and a dc load. The function of the converter circuit is to convert the ac source into dc load power, mainly for high inductive loads.''

Chapter 14 of the same publication is headed ``Static Power Inverters''. It states:

``Inversion is the conversion of dc power to ac power at a desired output voltage or current and frequency.''

Thus Williams seeks to differentiate ``converters'' and ``inverters'' in a fashion different from Chambers Technical Dictionary, and also different from Fuji, who refer to the devices under consideration as ``inverters''. As is apparent from para. 10 of the affidavit of Mr Roberts set out previously, the Fuji devices convert electricity first from alternating to direct current, and thence from direct to alternating current, but giving a variable alternating current output. Dr Grantham's affidavit (ex. H), para. 7, indicates that a more specialised meaning was given to the word converter" in the period of the 1960s and 1970s by technical persons, but I fail to see how this can narrow the meaning of the word ``converter'' used in a statute enacted in 1950. Similar comments are applicable to other publications cited, which are either undated or dated after 1950, in so far as they show a more specialised use of the words ``converter'' or ``inverter''. This view appears to accord in large degree with the opinions expressed by Professor Ramsden in his affidavit (ex. C) and in the publication by Rashid, p.11 of which became ex. T, which states:

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``A dc-ac converter is also known as an inverter.''

The fact that Dr V.J. Gosbell and Mr P.M. Dalton used the term ``inverter'' in the two papers published in 1987, which became ex. U, is to my mind no more than an example of the specialised usage which has crept in in very recent times.

Coming now to the evidence given by Dr Gosbell, both orally (transcript pp. 108-122) and in his affidavit sworn 23 November 1989 (ex. 2), it is to be noted that apart from a distinguished academic career he has worked as a cadet engineer for the Sydney County Council from 1961 to 1965, and then for three months in 1975 with the Electricity Commission of New South Wales, and has done consultancy work.

Annexure B to his affidavit is a report by him, parts of which are set out hereunder:

``Part 1 - Background and survey of terms used

1.1 Variable speed drives

1.1.1 Need for variable speed operation: Most motors, when connected to a fixed supply, run at a speed which does not vary much with mechanical load. There are many applications in industry where variable speed operation is required, for example where a motor drives a pump and variable flow rate is necessary. If the motor speed needs to be varied then a direct connection of the motor to the fixed utility supply is unsuitable.

1.1.2 Techniques used to give variation of motor speed: Both ac and dc motors can have their speed varied if the supply can be suitably controlled. The speed of a dc motor is proportional to the voltage of its supply. The speed of an ac motor is proportional to the frequency of its supply, but to obtain a good response from the ac motor it is necessary to control its voltage as well.

1.1.3 Converter: Motor speed is controlled by interposing equipment between the utility supply and the motor to allow the supply frequency and/or voltage to be varied according to required motor speed. The process of changing the frequency and/or the voltage of a power supply is called `conversion' and the equipment which accomplishes this is called a `converter'. A converter is defined in the Institute of Electrical and Electronics Engineers `IEEE Standard Dictionary of Electrical and Electronics Terms' as (1978 printing, p. 140)

• `converter (1) (general). A machine or device for changing alternating-current power to direct-current power or vice versa, or from one frequency to another'

1.1.4 Types of converter: The input and the output frequency of a converter can each be either dc (direct current) or ac (alternating current). Simple converters are often classified according to input and output frequency into four types.

• (i) dc-to-dc converters
• (ii) dc-to-ac converters (often called inverters)
• (iii) ac-to-ac converters (often called rectifiers)
• (iv) ac-to-ac converters

See for example Rashid, M.H., `Power electronics', Prentice-Hall, 1988 p. 10.

Simple converters are classified as uncontrolled or controlled depending on whether the output voltage and/or frequency is constant or can be varied. More complex converters can be built up from a cascade connection of simple converters.

A dc motor drive uses a simple controlled ac-to-dc converter. An ac motor drive is a complex converter system, consisting of an uncontrolled ac-to-dc converter to give an intermediate fixed dc supply followed by a controlled dc-to-ac converter.

1.1.5 History of the use of the term converter: A converter was at first a rotating machine used for converting ac to dc or vice versa. Later the same function was able to be performed by a different approach, an electronic circuit without rotating parts [Shoults, D.R. & Rife, C.J., `Electric Motors in Industry', Wiley, 1942]. The first electronic devices used were mercury arc valves [Rissik, H., `Mercury-Arc Current Converters', Pitman, 2nd edition, 1947 (first published 1935)]. Improvement in electronic devices led to the mercury arc valve being replaced by the thyristor (SCR) and later by the transistor.

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Because of the functional similarity of the two approaches, both types of equipment were called converters [Blalock, G.C., `Principles of Electrical Engineering', McGraw-Hill, 3rd edition, 1950 (first published 1931), p. 600; Tweney, C.F. & Hughes, L.E.C., `Chamber's [sic] Technical Dictionary', Chambers, Revised edition 1957 (Reprint of of [sic] 1943 edition, first published 1940), p. 196]. They were distinguished by the classification into rotary and static converters [Rissik, H., `Mercury-Arc Current Converters', Pitman, 2nd edition, 1947 (first published 1935), title; Wells, R., `Static Power Converters', Chapman & Hall, 1962, title; Starr, A.T., `Generation, Transmission & Utilization of Electrical Power', Pitman, 3rd edition (first published 1937), p. 485].

It was easy to build a static converter for ac-to-dc conversion using the early mercury arc rectifiers and static converters have been used in some dc drives for many decades. It became inexpensive to build ac-to-dc converters soon after the thyristor was invented in 1957 and this soon led to the widespread use of dc drives. It was not easy to build static converters for dc-to-ac conversion until the advent of the power transistor in about 1980. Static converters are now well developed and have replaced the rotary converter in almost every application.

From my reading of technical books on power conversion written just before and just after 1950, I am of the opinion that the term `converter' was used then in its modern meaning, to describe any device intended for the conversion of electric power, whether by means of rotating machines or electronic devices [Rissik, H., `Mercury-Arc Current Converters', Pitman, 2nd edition, 1947 (first published 1935), title; Starr, A.T., `Generation, Transmission & Utilization of Electrical Power', Pitman, 3rd edition (first published 1937), p. 485].

1.1.6 AC machine drive/Variable frequency drive: The term ac machine drive is used interchangeably to mean the converter or the converter/motor system. Almost all modern ac machine drives now make use of a static converter, the most common form being a diode rectifier (an uncontrolled ac-to-dc converter) to give an intermediate fixed dc supply followed by a transistor inverter (a controlled dc-to-ac converter) to give the variable frequency/variable voltage supply to control the motor. Because an ac machine drive has to control the motor frequency it is also called a `variable frequency drive'.

1.1.7 Inverter: This term is now loosely used in the drives industry for the complete rectifier/inverter combination of an ac machine drive. Strictly an inverter is just the final dc-to-ac conversion stage as discussed under 1.1.4

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Part 2 - Detailed Opinion

2.1 The FRENIC 5000 Variable Frequency Drive

2.1.1 Description: The FRENIC 5000 series variable frequency drive appears to be a state-of-the-art ac machine drive. The main power stages consist of a diode rectifier unit and a transistor inverter unit. The rectifier unit consists of electronic devices and changes the fixed ac supply to a fixed dc supply. The inverter consists of electronic devices and changes this fixed dc supply to a supply with variable voltage and variable frequency according to the desired speed. Ratings are available from 44 to 400 k V A.

...

2.4.2 Item 90C(1)(d): In my experience, the term `converter', as ordinarily used in the practice of electrical engineering over the past forty years, includes a device which, in the manner of the FRENIC 5000 Variable Frequency Drive, changes a supply of fixed voltage and frequency to a power supply of variable voltage and frequency.''

I accept Dr Gosbell's evidence, as set out above. Part of the literature referred to by him became ex. 3.

As is stated in Maxwell on the Interpretation of Statutes 12th ed. p. 102:

``The language of a statute is generally extended to include things which were not known and could not have been contemplated when the Act was passed, when the Act deals with a genus and the thing which afterwards comes into existence was a species of it.''

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This principle was applied by Sir Leo Cussen in
Chappell & Co. Ltd. v. Associated Radio Co. of Australia Ltd. (1925) V.L.R. 350 at p. 361 and was considered by Lee J. in
Wilson & Anor v. Commr of Stamp Duties (N.S.W.) 86 ATC 4631 at p. 4635; (1986) 6 N.S.W.L.R. 410 at p. 415. Whether or not the precise type of device made by Fuji using transistors was known in 1950, it appears to me to be another example of a device falling within the genus ``converter'' as understood by persons skilled in the electrical industry at that time. I consider it falls within the word ``converter'' as used by Parliament in the provision under discussion. Accordingly, the taxpayer's principal attack on the assessment fails.

Likewise, I accept Dr Gosbell's evidence that the Fuji articles consist of electronic devices, and are electronic equipment within the meaning of item 90C(1)(a). However, I also accept Mr Roberts' statement in para. 6 of his affidavit, which shows that they fall within the exclusionary parenthesis to item 90C(1)(a).

The respondent imposed a penalty of additional tax equal to the amount of the sales tax not paid by his assessment dated 17 July 1986 (ex. T2). This amounts to a considerable sum of money. The value of the imported goods is even more considerable. The duty of the respondent to impose additional tax is derived from sec. 45 of the Sales Tax Assessment Act (No. 1) 1930 (Cth) (``the Assessment Act'').

The managing director of the applicant swore an affidavit (ex. D) and gave oral evidence (transcript pp. 77-104) dealing with the circumstances surrounding the lodgment of sales tax returns. The affidavit outlines his reasons for believing the Fuji devices to be ``inverters'' and not ``converters''. A sales tax return for August 1985 was admitted in evidence as ex. 1. It made no reference to the Fuji devices, apart from claiming the sale of $10,867 of non-taxable goods. Having regard to his evidence, I am not satisfied that a deliberate attempt was made to mislead the Sales Tax Office as to the nature of the goods imported. However, in the applicant's initial approaches to the Sales Tax Office, as shown in ex. J and K, the Fuji devices were described first as being ``variable voltage, variable frequency speed control equipment'' and later as ``motor speed regulators'', when claiming exemption under item 90C(1). This seems a little curious when Fuji's brochures refer to the goods as ``General Purpose AC Adjustable Drive Fuji Inverters'' and as ``AC Adjustable Frequency Drive Fuji Inverters'' (ex. A and B). The description given might have led the respondent to conclude the goods fell within the general exemption from sales tax in item 90C. The Act casts the responsibility upon the taxpayer of making a correct return, and if a fuller description had been given, and the brochures supplied to the Sales Tax Office, the confusion as to liability might have been avoided. I consider the document emanating from the Australian Taxation Office dated 29 August 1984 (ex. L), stating incorrectly that the goods were exempt under item 90C(1), indicates that the respondent did not have a sufficient appreciation of the nature of the goods. It speaks of a ``Frenic 5000 Variable Frequency Drive, being a 1.6 Bit Micro-Processor based automatic voltage and frequency regulator''. Other correspondence is detailed in ex. M-R inclusive.

In the circumstances, it appears that the applicant has failed to comply with the requirements of sec. 45(1) of the Assessment Act. As regards sec. 45(2), I believe I should, by analogy, apply the decision of the High Court in
Murphy v. Farmer (1988) 165 C.L.R. 19 on sec. 229(1) of the Customs Act 1901 (Cth) and lean to the view that ``false or misleading'' in sec. 45(2) means purposely, deliberately or intentionally untrue. This is not proved with regard to the applicant. As this Tribunal stands in the shoes of the respondent as regards exercise of the Commissioner's discretion under sec. 47(3) of the Assessment Act, it may direct remission of part of the additional tax. In view of the applicant's attitude, as shown by the managing director's evidence and the correspondence, I direct the Commissioner to exercise his discretion so as to remit 80% of the additional tax.

The objection decision under review is affirmed as to the assessment of sales tax and is remitted to the respondent with a direction that 80% of the additional tax be remitted.