CASE 16/96

Members:
BJ McMahon DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 9 February 1996

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BJ McMahon (Deputy President)

This application concerns the same catalogues that were dealt with in another application in which the Chief Executive Officer, Australian Customs Service, was the respondent and in which reasons for decision are to be handed down at the same time as these reasons. The question to be determined there was the correct Tariff classification of the catalogues for Customs duty purposes. The question to be considered here is whether the catalogues, the subject of the other application, are exempt from payment of sales tax under any one or more of Items 105, 106 or 193 of Schedule 1 of the Sales Tax (Exemptions and Classifications) Act (the Exemption Act). Some of the issues in both cases overlapped. However, as the respondent is different in each case, and each respondent was separately represented, I will repeat in these reasons material common to both applications.

Description of the goods

[Paragraphs 2 to 5 are taken from the Reasons in the related matter]

2. It is necessary first to identify the goods objectively in their state or condition as imported, as they would appear to an informed observer. The intentions of the importer are irrelevant in that inquiry. (
Times Consultants Pty Limited v Collector of Customs (1987) 76 ALR 313.) I will refer to the goods as catalogues because that is the word most commonly used by the applicant to describe them, although whether they are catalogues for the purpose of the tariff, will be one of the issues to be decided in this case. Forty-three pallets of catalogues (approximately 24,000) were imported. The pro forma invoice (document T-19) states their customs value as £ 165,873.60. Each catalogue is in bound form and consists of 1,503 pages. The contents of each catalogue are divided into 41 chapters, dealing with various types of electronic products. The bulk of the catalogue consists of a description of each item, often accompanied by a photograph, giving certain technical details concerning the item, quoting a separate order code for each item and quoting a price in Australian dollars. The catalogue was manufactured by the applicant's English parent

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company and with a significant exception, to which I will refer, is almost entirely devoted to products manufactured by that parent.

3. On the inside cover of the ``catalogue'' (a term used on 4 occasions on that page and used in conjunction with the word ``product'' in an affidavit of the managing director of the applicant) there is a full description of the services available from the applicant. The introduction states: ``A broad line fully illustrated and priced catalogue, updated twice each year, offering you over 35,000 products from major international and local manufacturers. Product selection is made simple by using the comprehensive description and manufacturers' part number, cross reference indexes. Technical support is also on hand to assist with your product selection''.

4. Intending purchasers are then invited to telephone order staff. Special after hours facilities are made available. Same day dispatch of orders is guaranteed for all that are placed by 4-30 pm.

5. After the index of chapters, there is a page which explains how to use ``the catalogue'', a following page describing the software version of the catalogue and then 19 pages illustrating new products. At the foot of each new products page, the applicant's services are further described in boxes. On every subsequent page, reference is also made to the applicant's services that are available to purchasers. At the back of the catalogue, after the product pages, are indexes by order code and description. Then follows 2 pages setting out the conditions of sale. These conditions are prefaced by the paragraph: ``This catalogue embraces a range of specialised electronic components which are carried in stock, subject only to being generally available from the manufacturers concerned. It is available only to electronics users in industrial concerns, research establishments, universities, technical colleges and schools''.

Item 106

6. The first question to be determined in the present proceedings is whether the catalogues fall within Item 106. This item is in the following terms-

``(1) Printed matter covered by paragraph (d) of item 32 in Schedule 4 to the Customs Tariff.

[local entry only]

(2) This Item does not cover:

• (a) printed matter designed to advertise the sale or hire of goods, or the provision of services, by any person in Australia;
• (b) overseas travel literature or other printed matter relating to overseas travel.''

7. Paragraph (d) of item 32 in Schedule 4 to the Customs Tariff relevantly refers to ``Goods as prescribed by by-law being:... (d) catalogues... and other printed matter''. By-law 873 6225 was prescribed under item 32 and is in these terms-

``Paper catalogues and paper price lists relating exclusively to products or services of a country other than Australia.''

8. In considering Item 106, the first question to be decided therefore is whether the subject goods (which are clearly printed matter) are covered by the terms of the by-law. If they are not, then the above paragraph (2) has no application. In the related matter, I held that the goods were not covered by the by-law for the following reasons.

Application of the By-Law

[Paragraphs 9 to 17 are taken from the Reasons in the related matter]

9. The by-law in question is reproduced on page 85 of the s 37 documents. It is however accompanied by certain notes which, it was agreed, do not form part of the by-law and ought not to be taken into account in its construction. The terms of the by-law therefore are-

``Paper catalogues and paper price lists relating exclusively to products or services of a country other than Australia.''

10. There is no real issue that the goods in question are either paper catalogues or paper price lists. In so far as they relate to services, clearly it can not be said that they are services of a country other than Australia. All services are carried out by the applicant, an Australian subsidiary. The catalogue goes to great length to emphasise the services that are available and the way in which they may be availed of. The English parent company does not provide any services that appear in the catalogue.

11. Assuming the terms of the by-law may be read disjunctively, the question is then whether the catalogues relate exclusively to products of a country other than Australia. The evidence is

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that of the approximately 40,000 lines of product, only 81 are manufactured in Australia. The applicant submitted that the ``de minimis rule'' should be applied and that notwithstanding this local element in the catalogues, they should nevertheless be regarded as related exclusively to overseas products. Without such an ameliorative aid, the catalogues clearly do not fall within the description in the by-law.

12. There is a Latin tag ``de minimis non curat lex'', which could be translated roughly as meaning that the law does not concern itself with trifles. So far as I know, however, it is nothing more than a tag. It might offer some useful support in certain circumstances, for example, in sentencing. However, it is not a rule of law and is certainly not a rule of construction.

13. The applicant offered no authority to support the application of the so-called de minimis rule to the terms of the by-law. I was referred to
Repatriation Commission v Kohn 87 ALR 511 at 526. The question in that case was whether for the purposes of a Veteran's Entitlements Act application the applicant had ``continuous full time service outside Australia'' because of the fact that when he travelled by boat between Townsville and Cairns, for several hours he was outside Australian territorial waters. Hill J decided the case on the basis of statutory construction of the relevant legislation and its predecessors. Almost at the end of his judgment he said, at page 526-

``Since I am of the view that Mr Kohn was not, on the proper interpretation of the expression, rendering continuous full time service outside Australia, it is unnecessary to consider a further submission that the 6 hours spent outside Australia should be treated as de minimus [sic] and be accordingly ignored. However, I should say that on the facts of the present case, there was much to be said for this submission.''

14. Clearly the observations of His Honour were not necessary to his decision. They do not amount to a recognition of the legal force and effect of the Latin tag. The passage quoted in support of the present applicant is not authority for any relevant proposition. It was the only case to which I was referred on this point and I have been unable to find any other.

15. I was also referred to provisions in the Anti-Dumping Agreement of the World Trade Organisation Uruguay Round, a document of course which has no force or effect as such in Australian municipal law.

16. Paragraph 5.8 of that agreement excludes from the concept of dumping anything less than 2 per cent expressed as a percentage of the export price and refers to this as ``de minimis''. What appears in an international agreement as a pragmatic solution to a particular problem in a particular area, namely dumping, can of course have no bearing upon the interpretation of the present by-law.

17. The use of the word ``exclusively'' makes it clear that the by-law is to be read literally. There is nothing appearing in its terms, or in the facts to be considered in relation to the by-law, which would entitle me to read down the word ``exclusively'' in any way. The so called de minimis rule is certainly not a rule of interpretation. It is not even mentioned obliquely in the Third Edition of Statutory Interpretation in Australia by Pearce and Geddes. Accordingly I find that the subject goods do not fall within the terms of the by-law.

18. As the subject goods are not covered by the by-law, it will not be necessary to consider the effect of the exclusions set out in sub- paragraph 2 of Item 106 above. The applicant is not entitled to claim exemption from sales tax in respect of the catalogues under this Item.

Item 105

19. This item exempts ``imported trade catalogues, but not including catalogues imported for sale or distribution [local entry only]''. I have held that the subject goods are imported trade catalogues. Furthermore the uncontested evidence was that the catalogues were not sold. The applicant keeps a computer generated customer list of electronic users in industrial concerns, research establishments, universities, technical colleges and schools. The list is updated from time to time by the addition of new customers and the deletion of those who no longer wish to deal with the applicant. The evidence was that there are approximately 18,000 persons or institutions on the list, to each of whom a copy of the catalogue was sent. In relation to the application of Item 105 the only question for determination, therefore, is whether the trade catalogues were imported for (that is to say with the intention of) distribution. In my opinion, clearly they were.

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20. Distribution is obviously a word of wider connotation than sale, as sale is only one of a number of means by which distribution can be accomplished. There may, however, be cases where a sale would not be a distribution as in the case where a single catalogue might have been sold to an individual. The word distribution seems to indicate the handing out of more than one article to more than one individual. I was referred to 2 Canadian cases where this treatment was accorded to the meaning of the word distribution. They were
R V Fraser, Harris and Fraser Book Bin Limited (1965) 51 DLR (2d) 408 at 413, (British Colombia Court of Appeals) per MacLean JA, which was affirmed by the Supreme Court of Canada in [1967] SCR 38.

21. It is not necessary, however, to rely upon these cases in order to give the word distribution its ordinary meaning. The second meaning in the Macquarie Dictionary of the verb to distribute is ``to disperse through a space or over an area; spread; scatter''. To send a large number of copies of the subject goods to a large number of people throughout Australia, is clearly to distribute the catalogues. The applicant submitted that the manner in which the catalogues are used, by providing them to established customers and potential customers for the purpose of enabling them correctly to identify goods when ordering them, did not fall within the concept of distribution. It seems to me that the use to which the addressees intended to put the catalogues is irrelevant in considering whether they were distributed. Furthermore, I do not accept the submission that distribution means indiscriminate dispersement. The fact that donees of a catalogue consist of a large closed class of persons does not alter the characterisation of the circulation of the catalogues as distribution. The catalogues were not imported for storage in the warehouse or for supplying on demand. They were imported for the express purpose of distributing them to a large number of organisations with whom the applicant would like to do business. In my view that excludes the operation of Item 105 and precludes the applicant from claiming exemption under that item.

Item 193

22. This item exempts, relevantly, goods for use by a person... for donation to an always- exempt person. This sub-item does not apply unless the goods will be assessable goods when donated. This claim was originally rejected on the basis stated in the s 37 statement that since the taxing point of the goods was at the time of local entry, the taxing point was passed before the catalogues were given to TAFE colleges. Thus they would not be assessable goods at the time of donation. This basis of rejection appears to have been abandoned at the hearing before me. Counsel for the Commissioner simply relied on the fact that there was no evidence that the applicant had the necessary intention, pursuant to ss 24 and 25 of the Sales Tax Assessment Act (the Assessment Act), to which I will turn later. The submission he made was that there was some doubt about the always- exempt status of some, but clearly not all, of the donees. In the absence of differentiation, there was insufficient evidence of the applicant's intention. In my view, neither reason advanced by the Commissioner withstands examination.

23. The evidence of the applicant's managing director was that he estimated approximately 35 per cent of the catalogues were given to always- exempt persons. This figure was arrived at after an examination of the names on the mailing list coupled with an assessment of the number of occasions on which the applicant received statutory declarations from customers, claiming to have the relevant status. In each case, the claim was accepted. In some cases however, for example in the case of a large industrial company that was mentioned in evidence, there must be a doubt about entitlement to the relevant status. There is, however, no doubt in my mind that a number, possibly a large number, of the applicant's customers that consist of industrial concerns, research establishments, universities, technical colleges and schools, would be expected to have the always-exempt status. This is defined in sub- section 3(2) of the Exemptions Act to mean ``a person whose use of goods of whatever kind is always covered by an exemption item, regardless of the way in which the goods are used by the person''. It should be possible upon making further enquiries to establish the identity and status of customers falling within that classification. If the evidence before me was not as precise as it could have been, there is no reason to doubt that provided all other entitling factors are present, the existence of the applicant's always-exempt customers could be established. In my view, the essential matter to

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be determined in relation to Item 193 is whether the goods were assessable when donated.

24. Assessable goods is defined merely to mean Australian goods or imported goods but not to include Australian used goods. Goods become Australian used goods when applied to the own use of the importer.

25. Section 24 of the Assessment Act provides that an assessable dealing is not taxable if the goods are covered by an exemption item that is in force at the time of the dealing and all the requirements of that item have been met at or before the time of the dealing. Section 25 provides that a non lease application of the goods to the taxpayer's own use is not taxable, if the applier at the time of the application intends to deal with the goods so as to satisfy an exemption item that is in force at the time of the application to own use.

26. Section 24, therefore, provides the exemption which is then extended by s 25. Section 4(1) provides that schedule 1 has effect for the purposes of those parts of the Assessment Act that refer to exemption items, and sub-section 4(2)(a) of the Exemption Act provides that if all the requirements of an exemption item are satisfied at or before the time of an assessable dealing, the dealing is not taxable. Sub-section 4(2)(b) of the Exemption Act provides that a non lease application to own use is not taxable if, at the time of the application, the applier has the intention of satisfying the requirements of an exemption item. From a reading together of the effect of these provisions, it seems to me that the goods would be assessable goods when donated as the act of donation would be an application to own use. At the time of donation, the goods were ``imported goods'' and did not become ``Australian used goods'' until they were applied to the applicant's own use by being given away (
DFC of T v Taubmans (NSW) Pty Limited (1966) 14 ATD 188; (1966) 115 CLR 570).

27. Implicitly, counsel for the Commissioner agreed with this analysis by abandoning that basis for resisting the claim for exemption. I infer the necessary intention on the part of the applicant by its requirement that likely exempt persons were required to complete statutory declarations in support of their claims. The applicant not only knew of the always-exempt status of such bodies as TAFE colleges, but made a point of targeting its sales to such organisations. Of course not all the goods would be exempt from sale tax under this item. At its highest, it could not be put at more than 35 per cent of approximately 18,000 of the catalogues, even on the evidence put forward on behalf of the applicant. It is not appropriate to rely on estimates and guesses, however. A proper compilation should be made of those who have the necessary status and an appropriate apportionment of sales tax should be refunded to the applicant.

28. The decision under review is therefore set aside and the matter is remitted to the respondent with the direction that it carries out further enquiries in conjunction with the applicant to determine the exact number of persons falling within Item 109 to whom a copy of the catalogue was donated, that recalculations of the amount of sales tax payable be made upon this basis and that at any refund found to be due to the applicant, be duly paid.