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OPTUS VISION PTY LTD & ANOR v FC of T

Judges:
Emmett J

Court:
Federal Court

MEDIA NEUTRAL CITATION: [2001] FCA 346

Judgment date: 2 April 2001

Emmett J

The applicants, Optus Vision Pty Ltd (``Vision'') and Optus Networks Pty Ltd (``Networks'') are members of the Optus group of companies (``the Optus Group''). The business activities of the Optus Group involve primarily the provision of telecommunications services and the establishment and installation of a telecommunications network infrastructure to facilitate the provision of those services.

2. In early 1992, the Optus Group commenced construction of its telecommunications network infrastructure. Since that time, the Optus Group has continually developed and expanded that infrastructure. Since commencement of the construction of the infrastructure, the Optus Group has used fibre optic cable (``FOC'') as the primary information-carrying medium. That FOC has been purchased by both Vision and Networks from local manufacturers and local distributors of overseas manufacturers.

3. Vision and Networks claim that the sale of FOC to them during the period prior to 7 November 1996 (``the Last Date'') was exempt from sales tax pursuant to the Sales Tax (Exemptions and Classifications) Act 1992 (``the Exemptions Act''). That contention is disputed by the respondent, the Commissioner of Taxation (``the Commissioner''). By their second further amended application, Vision and Networks seek declarations that the sale of certain specific types of FOC prior to the Last Date would be exempt from sales tax pursuant to Item 43 in Schedule 1 to the Exemptions Act.

Statutory framework

4. Table 1 of Schedule 1 to the Sales Tax Assessment Act 1992 (``the Assessment Act'') sets out all of the assessable dealings that are subject to sales tax. Thus, where a person manufactures goods in the course of any business and sells those goods by wholesale, that person (``seller'') is required to impose sales tax on the price for which the goods were sold - Item AD1a of Table 1. Alternatively, where a person, not being the manufacturer of the goods, sells goods by wholesale, that person (``seller'') is also required to impose sales tax on the price for which the goods were sold - Item AD1b of Table 1. Under Part 5 of the Assessment Act, the sales tax must be remitted by the seller of the goods to the Commissioner. However, under s 24 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 for the exemption item have been met.

5. Tables 3 and 3A in Schedule 1 to the Assessment Act set out the situations in which a claimant is entitled to a credit of tax - s 51(1). Item CR1 of Table 3 provides that a claimant who has paid an amount as tax that was not legally payable is entitled to a credit of the amount of overpaid tax to the extent that the claimant has not passed the tax on. Tax is not legally payable if the goods are covered by an exemption item.

6. However, a claimant is not entitled to a credit unless the claim for the credit is lodged within three years after the time when the credit arose - s 51(3). The claim for credit must be made in the form and manner approved by the Commissioner, and must be accompanied by such supporting evidence as the Commissioner requires - s 51(4). As a claimant must be a person who pays ``an amount as tax'', it is the seller in the examples outlined above, not the buyer, who must make the application for a credit within the three year period - s 53(3).

ATC 4250

This proceeding

7. The declarations sought by Vision and Networks will not necessarily result in either of them being entitled to a credit, since additional conditions must also be satisfied before a credit would be available. For example, the actual application should have been made by the sellers of FOC to Vision or Networks, as the case may be. Further, the application would have to have been made within three years of the overpayment. In addition, the sellers would have to establish that the tax overpaid had not been passed on. None of those questions is raised by the application in the present proceeding.

8. Under s 22 of the Federal Court of Australia Act 1976, the Court must, in every matter before it, grant all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward, so that, as far as possible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of proceedings concerning any of those matters avoided. For the reasons outlined above, questions could well arise in the future, even if sales of FOC prior to the Last Date were exempt from sales tax, as to whether any person is entitled to a credit in respect of the tax that has in fact been paid in respect of those transactions. If not, the application of Item 43 to FOC would be entirely hypothetical. For that reason, I had some reservations as to whether it was appropriate to deal with the narrow question raised by this proceeding.

9. However, the parties have agreed that there is utility in the Court determining the question of whether FOC was within Item 43 prior to the commencement of the Amendment Act, notwithstanding that it might turn out to be hypothetical. I had already vacated hearing dates on two occasions by reason of changes in the case advanced by Vision, which was the only applicant at that stage. Further, the parties joined in requesting that I determine the questions raised. Accordingly, I embarked on this hearing. If Vision and Networks succeed on the question presently raised by the proceeding, it may be appropriate to treat the question of the application of Item 43 as a preliminary determination of a matter essential to the determination of the ultimate question between the parties, namely, whether any person would be entitled to a credit in respect of transactions relating to FOC that occurred prior to the Last Date. Whether that is necessary will depend upon the outcome of this proceeding.

Item 43

10. Up to the commencement of the Taxation Laws Amendment Act (No. 3) 1997 (``the Amendment Act''), which applied to dealings with goods after 7 pm Australian Capital Territory time on the Last Date, Item 43 was relevantly in the following terms:

``43(1) The following goods, if they are of a kind ordinarily used as part of fixed electrical installations in consumers' premises:

  • (a) electrical fittings (including electronically operated electrical fittings);
  • (b) electrical accessories (including electronically operated electrical accessories);
  • (c) electrical materials (including electrical conduit).

43(2) Subitem (1) does not cover:

  • (a)...
  • (b) electronic equipment (other than electronically operated electrical fittings and accessories);
  • (c) electrically operated appliances, apparatus and machines;

...''

11. By the Amendment Act, paragraph (4) was inserted into item 43 as follows:

``(4) This item does not cover goods of a kind ordinarily used in the provision of communications or audio visual services.''

That amendment was made in consequence of the decision of the Full Court in
Telstra Corporation Ltd v FC of T 96 ATC 4805; (1996) 68 FCR 566 (``the Telstra case''). In his speech on the second reading of the Bill for the Amendment Act, the Parliamentary Secretary to the Treasurer said that the Government considered that that decision ``goes beyond the intended coverage of the exemption for electrical fittings'' contained in Item 43 and, therefore, posed a threat to the existing coverage of the wholesale sales tax system. No claim for exemption, therefore, is made by Vision and Networks in respect of any transaction after the Last Date.

ATC 4251

Fibre optic cable

12. The term ``fibre optic cable'' is used universally to describe goods that:

  • • appear visually as tubular lengths of pipe or hose;
  • • consist of:
    • - an outer tubular ``sheathing'', which is usually polymer or some other synthetic substance in composition;
    • - a number of optic fibres encased inside that sheathing; and
    • - various other, usually synthetic, materials encased inside that sheathing, for the purposes of protecting the optical fibres;
  • • perform the sole function of conveying electro magnetic energy, in the form of infra red radiation, primarily in the context of the telecommunications industry; and
  • • are used in the telecommunications industry as one of the media through which information, in the form of infra red radiation, is transmitted between equipment that transmits such radiation and equipment that receives such radiation.

A diagrammatic representation of FOC is set out in Appendix 1.

13. Four different samples of FOC were in evidence as exhibits ``TSI1'', ``TSI2'', ``TSI3'' and ``TSI4''. It is convenient to refer to the samples by their exhibit numbers. The samples were tendered as typical examples of FOC that were the subject of transactions prior to the Last Date. The question is whether FOC identical to such samples falls within Item 43.

14. TSI1, TSI2 and TSI4 are mainly used by telecommunications carriers to link their exchanges and in joining such exchanges to a central office. They are designed for outdoor application and not for use in buildings. They are not suitable for applications inside buildings because they are too rigid. Each of them requires a very large bending radius, not commonly available inside a building. The rigidity is due to the presence of an anti- buckling member at the centre of the cable. Such a member is composed of extremely strong non-metallic filaments bonded in an age resistant and temperature stable resin. FOC designed for indoor use does not normally have such a central member or such stiffness.

15. TSI1 and TSI2 enter commercial high rise buildings of a specialised type, such as a telephone exchange or data centre. TSI1 normally enters more important buildings in the telecommunications network than the buildings that TSI2 enters. Where a communications network is to be connected to a site in a building, FOC enters the building through a gap in the outer fabric of the building. A few metres of FOC would enter a building for that purpose. The FOC would terminate at a ``patch room'' containing communications equipment. Other equipment is not permitted in such rooms.

16. In the patch room, the TSI1 or TSI2 is connected to another cable for distribution of signal within the building. At that point, the TSI1 or TSI2 might be spliced into a different form of FOC. If the TSI1 or TSI2 is to be spliced into another FOC, it could be spliced to join TSI3, which is designed for use as riser cable within multi storey buildings. Alternatively, the TSI1 or TSI2 might be connected to a ``converter''. A converter, in the context of a communications infrastructure, is a device that converts a signal from a form capable of transmission along FOC into a form capable of transmission along a copper cable or from a form suitable for copper cable to a form suitable for FOC.

17. TSI4 does not enter a building, even to the extent described for TSI1 and TSI2. TSI4 is used where FOC is provided in a residential street for transmission of a signal to individual households for such purposes as pay television. Such FOC terminates in the street at a ``hub''. From the hub, copper coaxial cables branch out and are connected to households that are to be connected to the network. The coaxial copper cable is connected to a particular household at a connection box. From that box, further copper coaxial cable enters the residential household, where it will be connected to television sets, computers, telephones and the like.

18. The hub incorporates a converter to convert the optical or infra red signal from the FOC to a signal capable of transmission along the copper cable. Where there is to be interaction between householder and the service provider, the converter operates in reverse to convert the electrical signal from the customer into an optical signal for transmission to the service provider along FOC. Such converters are powered by electricity provided by the service provider.

ATC 4252

19. In the communications infrastructures in which FOC and converters used, neither is a dispensable, subordinate contributor to the functioning of the other. Each has a discrete integral function, which is equally important to the communication infrastructure. Neither can be dispensed with. Generally, the communic- ations networks of service providers, such as the members of the Optus Group, have spare cable routes, such that if one cable in the network is cut, the signal can be diverted to alternative routes in the network by way of alternative or spare cables. However, within the infrastructure, each component, whether transmitting or receiving equipment or FOC, is essential to the operation of the infrastructure. Loss of such components can only be overcome by provision of spare or alternative components for the infrastructure.

Movement of electromagnetic energy

20. Evidence was adduced of the spectrum of electromagnetic energy. A diagrammatic representation of the spectrum depicts a continuum of frequencies, moving from high frequency/shorter wave lengths to lower frequency/longer wave lengths, as follows:

  • • gamma rays
  • • ultra violet radiation
  • • visible light
  • • infra red radiation
  • • microwaves
  • • radar
  • • television
  • • radio frequencies
  • • audio frequencies
  • • alternating current electricity for domestic supply
  • • direct current electricity.

21. The conveying of information using FOC, as a medium for the purposes of providing telecommunications services, entails the guiding of electromagnetic energy at extremely high frequency. The optical fibres that are encased inside FOC convey electromagnetic energy at carrier frequencies of around 1,000 million, million Hz (1015). Such electromagnetic energy is commonly referred to as infra red radiation. It is sometimes referred to as infra red light. Such radiation, whether characterised as ``light'' or not, is ideally situated for the conveying of information because of its speed, accuracy, endurance and safety in use.

22. Electricity is a form of electromagnetic energy. The essence of electricity is the production of phenomena created by the presence and movement of electrons. However, there are two kinds of such movement of electrons. In one kind, electrons actually flow from atom to atom, as in the conduction of an electric current along a copper cable. In the other kind, the electrons vibrate or oscillate about the nucleus as in the transmission of infra red radiation along FOC. In the latter case there is a small current, called a displacement current.

23. While the passage of electromagnetic energy through FOC is in some respects comparable with the passage of current along a copper cable, there are significant differences in the two processes. The passage of the electric current along a copper cable involves the entry of electrons into the cable at one point and the departure from the cable of the same quantity of electrons, but not necessarily the same electrons, at another point. That process occurs because copper contains ``free'' electrons. The free electrons are bound relatively weakly to the nucleus of the atoms in the copper and can be liberated from the atoms with relative ease. Copper, therefore, is a good conductor of electricity.

24. By comparison, there are materials in which electrons are strongly attached to their parent nuclei and which have very few ``free'' electrons. Such materials are commonly known as electrical insulators, because they resist the flow of electrons. The glass used in FOC is primarily silica in composition. Silica molecules have 30 electrons, but none of them is ``free''. Rather, the electrons in silica are very strongly attached to their parent nuclei. The glass in FOC is therefore an electrical insulator.

25. Glass nevertheless constitutes an excellent conduit for electromagnetic energy transmitted at very high frequencies, such as infra red radiation and light. The glass in FOC has the ability to operate as a guiding medium. Thus, as electromagnetic energy, at the frequency of infra red radiation or light, travels along the predominantly silica ``core'' of the optical fibres contained in FOC, it ``touches'' the predominantly silica ``cladding'' of those optical fibres. That causes the silica electrons in the cladding to ``polarise'' at one side of the

ATC 4253

atom. The protons polarise at the other side. The electrons then return to their starting points. The result is internal reflection and guidance, containing the electromagnetic energy within the core of the FOC.

26. The movements of electrons in both cases are referred to as ``excursions''. The primary difference between the excursions of electrons in the case of electricity passing at power frequencies through copper and the excursions of electrons in the case of infra red radiation or light passing at optical frequencies through FOC is that the amplitude of the excursions is very much smaller in the case of FOC. Excursions in the case of FOC are 10-11 metres. That means that the electrons do not move outside the diameter of the atom itself. On the other hand, in the case of an electric current, the electrons move outside the diameter of the atom.

27. A substance such as silica, in which the phenomenon occurs that is described above, is described as ``dielectric''. An electric current will not pass through it easily, because it is an insulator. A dielectric substance differs from a conductor in that there are no conduction electrons in it that are free to move throughout the body of the material under the influence of an electric field. An electric current will not pass through it. All the electrons are bound more or less tightly to the space lattice structure of atomic nuclei, constituting a solid. Nevertheless, the molecular forces holding those aggregates together are elastic in nature. Accordingly, if an electric field is present, polarisation occurs when the positive and negative portions tend to separate in the direction of the field resulting in both mechanical and electrical distortion.

28. The term ``dielectric'' is defined as:

``Non conducting: conveying electric effects otherwise than by conduction, as a medium through which electricity acts in the process of induction.''

- Macquarie Dictionary, 2nd revision.

``Pertaining to or involving a dielectric, or the transmission of electric force without an electric current; non conducting''

- The New Shorter Oxford English Dictionary.

29. FOC achieves its purpose of guiding electromagnetic energy by means of the movement of electrons. Polarisation occurs in much the same way as electrons move in the case of an electric current passing through a copper cable. The vibration or oscillation of electrons that occurs in FOC may therefore be characterised as an electrical activity. However, while such vibration or oscillation of electrons in a dielectric substance might be described as an electrical activity, it is completely different from the electrical activity associated with the flow of electric current through a conductor such as a copper cable.

30. In the case of FOC there is no movement of charged particles, although there is a movement of photons. A photon emerging from FOC has no charge whereas the electrons leaving a copper cable carry a charge. There is a loss of energy during the progress of infra red radiation along FOC, such that holding on to FOC could give a sensation of warmth. However, it will not generate the sensation that results from an electric charge, such as when a live copper cable is held.

Installations of FOC in buildings

31. There are several types of installations that might be found in modern commercial buildings as follows:

  • • Power circuits. These are almost invariably 50 Hz in Australia and normally 240V, or 415V in the case of three phase circuits. A circuit that runs at more than 32V and less than 600V is generally described as low voltage. Circuits running at more than 600V are described as high voltage. Special purpose power circuits that run at less than 32V, alternating current, or 50V direct current, are described as extra low voltage. Such special purpose circuits are used where safety is a particular issue.
  • • Telephone circuits. These circuits run at a number of frequencies, which include direct current and frequencies normally more than 100 Hz and less than 10,000 Hz. More specialised circuits can run at much higher frequencies. Alternate current voltages are usually significantly less than 32V.
  • • Information circuits, other than telephone circuits. These circuits can be of many different kinds but are invariably extra low voltage. Computer links are an example of such circuits, which include copper-based connection and optical fibre links.
  • • Alarm circuits. These circuits are usually extra low voltage, including direct current with

    ATC 4254

    voltages usually less than 32V. They can also involve a telephone connection.
  • • Bell and signalling circuits. These circuits are similar to alarm circuits but are usually more restricted in scope.

32. FOC is installed in commercial buildings by telecommunications carriers such as members of the Optus Group and its competitors. It is also installed as part of local area networks for computers by many other contractors. Such installation is usually for tenants rather than for the owners of buildings. Commercial leases often require tenants to remove such installations upon vacation of the leased premises, although FOC installed by a tenant is often left after the premises are vacated by the tenant.

33. Telecommunications installations in buildings are provided for separately by the construction of specialised ducts, risers, cabinets, rooms and racks and by the provision of special supporting services, such as appropriate power, air conditioning and fire services to such spaces. FOC, together with other specialist communications equipment, is only permitted to be installed in buildings in ducts specifically for that purpose. It has not been the practice to install FOC in ducts associated with other building services, such as plumbing or fire services. FOC is relatively light and exerts no dynamic forces on the structure of a building. It is often left loose in narrow ducts or conduits. In larger ducts or spaces, it is usually only lightly strapped to a supporting frame or tray. Such straps are often made of plastic so that they can be easily snipped with side cutters.

34. Telecommunications equipment and circuits, where they use electricity, operate at low voltage and energy levels, whereas electrical power installations operate at a minimum of 240 volts and often at 415 volts or higher in typical buildings. Telecom- munications installations are therefore isolated from power installations for reasons that can be summarised as follows:

  • • the low voltage used in tele-communications equipment means that ``live'' electrical telecommunications circuits can be worked on safely without special protection procedures;
  • • telecommunications equipment and circuits, since they operate on very low voltage and energy levels, need minimal insulation;
  • • telecommunications equipment and circuits are highly susceptible to damage from electrical energy and voltage levels, such as those commonly associated with power installations;
  • • it is sound practice to design separate services in larger buildings to facilitate the installation and maintenance of those services.

35. Safety regulations require that all singly insulated circuits of either high voltage, low voltage or extra low voltage be run in separate ducts from each other. An exception is that doubly insulated low voltage circuits can be run with extra low voltage circuits.

36. Interface between a telecommunications installation and a power installation occurs when electric current is fed, at low voltage, and in a carefully controlled manner, from the power installation to the telecommunications installation, for the purpose of providing power for the latter. The patch room described above is an example of such an interface. Similarly, there would be an interface between such installations where power is used to operate a device designed to receive the information being transmitted by means of the communications installation and convert it into a readable form. Telephones, modems and facsimile machines are examples of such devices.

37. All of the circuits referred to above are generally described as electrical. Tradesmen who physically install power and telecommunications installations in the buildings, and who are licensed to carry out such work, are generally described as electrical tradesmen. Power installations have always been carried out by contractors having an approved qualification, which is now known as qualified supervisor's certificate, issued by the Department of Fair Trading. Various specific types of fixed installations require persons installing the installations to undergo specialised training and corresponding licence endorsements in relation to the standard TAFE ``Electrical Installation and Servicing'' qualification. For example, telecommunications installations were usually carried out by employees of Telstra Corporation Ltd with qualifications improved by their employer.

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38. When the installations are substantial, such as in large high rise commercial buildings, they will be designed by electrical engineers under instructions from the building architects. Almost all electrical engineers will handle all aspects of the installation and, to the extent that information services point to the need for optical fibre connections, electrical engineers will handle those parts of the design as well.

39. Electrical engineers ensure that all safety requirements are complied with. Electrical engineers will also usually combine such minimum requirements with their current knowledge of good practice. That involves a complex and evolving myriad of issues aimed to minimise unwanted interference with adjacent circuits. Such issues are sufficiently complex to defy attempts to achieve formal regulation, although extensive guides and protocols exist.

40. Electrical engineers, who design installations for buildings for both electric power and communications purposes, normally belong to the Electrical College of the Institution of Engineers Australia. Such engineers normally hold the qualification of Bachelor of Electrical Engineering from a recognised tertiary institution. Generally, electrical engineering is regarded as covering not only electric power engineering but also communications engineering, electronics and control systems. The basic qualifications possessed by electrical engineers who deal with power supply and those who deal with communications are essentially the same.

41. It is not uncommon for the study of fibre optics to take place within a school or department of electrical engineering within a tertiary institution. For example, within the University of New South Wales, the optical communications school is part of the school of electrical engineering. Teaching on the subject of fibre optics takes place as an option within the electrical engineering degree in that university. At the University of Sydney, the issues related to electric power, communications and fibre optics are dealt with as a seamless continuum in the syllabus for the post graduate course work program within the Department of Electrical Engineering at that university.

42. Separate technical handbooks are published in relation to telecommunications and power installations. Thus, the Standards Association of Australia has published a handbook entitled ``Australian Standard Telecommunications Handbook''. The handbook is recognised within the building industry as specifically referable to telecommunications wiring. The Handbook is the accredited text for people working in the telecommunications industry within a building in Australia. It has a separate chapter on fibre optic cables. The only mention of power cabling is in terms of separate communications cables for power cables. The Standards Association of Australia has also published in Australia a standard entitled ``Wiring Rules''. ``Wiring Rules'' is the accredited text for electricians and persons working in the electricity industry. It is regarded within the building industry as the ``Bible'' for people installing power wiring. The Wiring Rules do not mention fibre optic cable.

FOC and item 43

43. The Commissioner contended that, having regard to the terms of the Amendment Act and the comments made on the second reading of the Bill for that Act (see [11] above), Item 43 should be construed in a way that would exclude goods of a kind ordinarily used in the provision of communications or audio visual services. The Commissioner placed reliance upon the proposition that a provision of a statute passed too late to apply to a particular case may nevertheless be considered on the question of interpretation - see
Grain Elevators Board (Vic) v Shire of Dunmunkle (1946) 73 CLR 70 at 86. However, while the view taken by Parliament as to the legal meaning of a doubtful enactment may, in some circumstances, be treated as a persuasive, though not binding, authority (see
Kalwy v Department of Social Security (1992) 38 FCR 295 at 299), a statute means what it means, as a matter of law, from the time of its enactment. Its meaning would not be changed by what the Parliament says subsequently, unless the Parliament were to legislate retrospectively. There has been no suggestion that paragraph (4) operated retrospectively.

44. If any question arose as to the proper construction of paragraph (4) of Item 43, the comments made by the Parliamentary Secretary may well have a bearing on the proper interpretation of those provisions. However, where the Parliament has done no more than amend the Exemptions Act because its proper

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construction, as determined by a court exercising proper jurisdiction, did not accord with the views of the government of the day as to its purpose, the terms of the amendment and comments made in Parliament concerning the reasons for the amendment, do not have a bearing on the meaning of the Exemptions Act prior to the amendment.

45. The terms of the Amendment Act expressly provide that it was to operate with respect to transactions that occurred after the commencement of the Amendment Act. Accordingly, I do not regard either the passing of the Amendment Act or the comments made on the second reading of the Bill for the Amendment Act as constituting any useful assistance in the interpretation of Item 43 in the present proceeding.

46. The Commissioner also relied on the provisions of s 12(2)(d) of the Exemptions Act as supporting his contention that goods of a kind ordinarily used in the provision of communications or audio visual services should be excluded from Item 43. Section 12(2)(v) relevantly provides as follows:

``The following property is generally- excluded property:

  • ...
  • (d) property that forms or is to form part of the infrastructure of a tele- communications network.''

The significance of that provision is that s 12(1) provides that property covered by s 12 is ``generally-excluded property for the purposes of Chapter 1''. Chapter 1 is entitled ``GOODS FOR USE IN BUSINESS OR INDUSTRY''. Item 1(1) refers to certain goods for use by a person mainly in carrying out one or more of the activities described in that subparagraph. However, paragraph (3) of Item 1 provides that the item does not cover ``generally-excluded property (as defined by section 12)''.

47. The Commissioner contended that the presence of a provision such as paragraph (3) of Item 1, coupled with the definition in s 12(2)(d), indicated a parliamentary intention that property that forms or is to form part of the infrastructure of a telecommunications network was not intended to have the benefit of any exemption such as Item 43.

48. However, Item 43 appears in Chapter 2, relating to ``BUILDING MATERIALS''. Section 12(2)(d) applies only for the purposes of Chapter 1, which is concerned with ``GOODS FOR USE IN BUSINESS OR INDUSTRY''. I do not consider that the express exclusion for the purposes of Chapter 1 should be construed as an indication that a similar exclusion should be applied to Chapter 2. If anything, it suggests that Parliament simply did not turn attention to the question of whether property that forms or is to form part of the infrastructure of a telecommunications network might fall within the exemptions contains in Chapter 2.

49. The relevant terms of Item 43 are set out in [10] above. The critical questions are as follows:

  • • is FOC properly described as ``electrical materials''?
  • • is FOC used as part of ``fixed electrical installations''?
  • • is all FOC of a kind that is ``used ordinarily'' as part of such installations?
  • • is FOC used in ``consumers' premises''?

50. FOC is clearly properly described as ``materials'' and, accordingly, if it can fairly be characterised as ``electrical'', it can fairly be described as ``electrical materials''. Further, FOC is ordinarily used as part of fixed installations notwithstanding that it is ordinarily installed by a tenant with the intention that it may be removed at the end of the tenancy. The question, however, is whether such fixed installations can properly be characterised as fixed electrical installations. Whatever might be meant by ``fixed electrical installation'' the concept of ``electrical'' is basic to it. It is also basic to the meaning of ``electrical materials''.

``Electrical''

51. The legislative predecessor of Item 43 was Item 90C in the First Schedule to the Sales Tax (Exemptions & Classifications) Act 1935 (Cth). Item 90C applied to ``electrical fittings and accessories, and electrical materials, being goods of a kind used... as part of fixed electrical installations in consumers' premises''. The construction of Item 90C was considered by the Full Court in the Telstra case. The goods under consideration in that case were:

  • • terminating blocks; and
  • • over voltage protection cassettes.

Both are used in main distribution frames in telephone exchanges.

ATC 4257

52. A main distribution frame is a part of most telephone exchanges. It serves a number of purposes. For example, it provides a convenient means of exposing in an easily accessible position the pairs of wires that constitute a vital part of every telephone service:

  • • where testing of the circuit may easily be undertaken;
  • • where alteration of the course of the circuit may easily be effected; and
  • • where protection of the exchange equipment from damage by unacceptably high voltage and current surges is best undertaken.

53. A terminating block is an assemblage of pairs of metallic conductors. Each pair of wires entering an exchange, constituting a telephone service circuit, is firmly attached to the outer end of a pair of conductors in one of the sets in terminating blocks on one side of the main distribution frame. Flexible insulated wires, called jumper cabling, connect the terminals on the blocks to similar terminating blocks on the other side of the main distribution frame.

54. Over protection cassettes are devices that may be plugged in to the conductors in the terminating blocks. Within the cassette are containers filled with gas. Metallic conductors within the cassette are so arranged that under normal conditions the electrical circuit is maintained. However, when the gas conducts electricity a path for electricity to earth at a much lower resistance than the path into and through the jumper cables is created. If an abnormally high voltage or current flows into the cassette, most of the electricity flows through the electrically conducted gas to earth. When voltage and current return to normal, the gas ceases to be conductive and the normal circuit is re-established.

55. The Full Court concluded that main distribution frames were fixed electrical installations within the meaning of Item 90C and that, since both terminating blocks and over-voltage protection cassettes were used in main distribution frames, they were part of fixed electrical installations. However, it is not easy to glean the precise basis for the Full Court's decision that a main distribution frame is part of a fixed electrical installation. While the decision of the Full Court was unanimous, each member of the Court gave his own reasons.

56. Ryan J concluded that the epithet ``electrical'' can appropriately be applied to a main distribution frame in the same way that a fuse box or switchboard in a consumer's premises can be described as an ``electrical installation'' - at ATC 4806; FCR 568D. This is so despite the fact that a fuse box or switchboard only houses, but does not compromise ``electrical fittings and apparatus''. I would have no difficulty in describing a fuse box or switchboard as part of a fixed electrical installation. However, I do not, with respect, see how that assists in determining how a main distribution frame can be characterised as an electrical installation. Its function is not in any way analogous to the function of a fuse box or switchboard, which is concerned with the delivery to a consumer's premises of electric current as a source of power.

57. Both Heerey and Lindgren JJ considered that main distribution frames are ``electrical'' in the sense that they are ``designed to accommodate fittings and accessories which deal with electricity'' - at ATC 4808; FCR 570C and ATC 4819; FCR 585B. Heerey J accepted the characterisation of main distribution frames in the pleadings as ``items of equipment designed and used to regulate the flow of electric current''. His Honour considered that the evidence supported such a conclusion as to the nature and function of main distribution frames - at ATC 4808; FCR 570C.

58. Another consideration that persuaded Lindgren J to the conclusion that main distribution frames are electrical installations is that electricity is the form of energy that permits the exchange and its varying components, including main distribution frames, to serve their purpose. His Honour also considered that a main distribution frame is an installation that accommodates fittings and accessories that are an essential part of that peculiar kind of ``consumption'' of electricity that constitutes the purpose of a telephone exchange - at ATC 4819; FCR 585B.

59. Thus, the basis of the decision appears to be that electricity, in the form of an electric current, passes through a main distribution frame, albeit as the means of conveying a signal for the purpose of telephonic communication. Main distribution frames were not characterised

ATC 4258

as parts of electrical installations because they were parts of systems for delivering electric current as power but because they were parts of installations that deal with electricity.

60. However, FOC does not deal with electricity in the same way that a main distribution frame deals with electricity. It may be that the dielectric process described above, which is involved in the transmission of infra red radiation by means of FOC, is an electrical activity in the sense that it involves a movement of electrons within the silica atoms. However, it does not involve the movement of electrons from one atom to another as occurs with the movement of electric current. Even if an electrical installation is one that deals with electricity in the sense referred to in the Telstra case, telecommunications installations of the nature that use FOC do not deal with electricity in that sense. It follows that the question in the present proceeding is not governed by the decision in the Telstra case.

61. The term ``electrical'' in ordinary parlance means:

``Of or pertaining to electricity; of the nature of electricity; charged with electricity''

- The New Shorter Oxford English Dictionary.

``Electric; concerning electricity''

- The Macquarie Dictionary (3rd ed.)

62. The term ``electricity'' in turn means:

``A property of matter or a phenomenon which manifests itself when substances such as glass and amber are rubbed, when a metal wire is moved through a magnetic field, and in other circumstances and which is now regarded as a form of energy occurring in two modes (positive and negative) as an intrinsic property of electrons and some other sub atomic particles; a flow of this energy, an electric current, especially as a source of power; a supply of electric current made on in a building or room''

- The New Shorter Oxford English Dictionary.

``An agency producing various physical phenomena, as attraction and repulsion, luminous and heating effects, shock to the body, chemical decomposition, etc., which are due to the presence and movement of electrons, protons and other electrically charged particles; electric current''

- The Macquarie Dictionary, 3rd ed.

63. The facts set out above indicate that a clear distinction can be drawn between installations for the supply of power, in the form of electric current, and other installations that do not involve the supply of electric current as a source of power. Certainly, electricity is a form of electro magnetic energy. However, it is energy of a character quite different from energy in the form of infra red radiation.

64. The conversions of electromagnetic energy that occur in a converter, as described above, involve the alteration of the frequency of the electromagnetic energy. However, while there is a continuum of electromagnetic frequencies and wave lengths, as described above, the different parts of the electromagnetic spectrum deal with radically different types of energy, having different characteristics. Those characteristics make the different types of energy suitable for different purposes. The radiation that is transmitted along FOC is not generated for the purpose of powering any device or appliance. Electric current, on the other hand, is generated for that purpose. Further, electric current, because of its inherent characteristics, cannot be transmitted by means of FOC.

65. There is a physical boundary discernible in an electric power installation. The boundary is formed by the sockets or outlets into which a plug is inserted that is attached to devices or appliances that need to obtain power. Clearly, the cabling and other devices leading from the back of the electricity socket or outlet to the source of supply from the electricity supplier would normally form part of a fixed electrical installation. Cables and wires leading to fixed lights in the ceiling and walls of a building, and to the switches for that lighting, would also clearly be fixed electrical installations. As indicated above, those installations are kept separate from telecommunications cabling, whether FOC or copper cables.

66. In accordance with the Full Court in the Telstra case, I consider the essence of electrical materials or electrical installations is that they pertain to electricity as a form of power or deal with electricity as an electric current. Having regard to the common understanding of the meaning of ``electrical'' and the findings I have made above, I do not consider that Parliament intended ``electrical installations'' to include installations of FOC. Rather, ``electrical installations'' are installations designed for the purpose of dealing with electricity in the form of electric current, usually, but not necessarily,

ATC 4259

as a power source for the operation of motors or for generating visible light. They are concerned with the carriage of current along copper cables and wires and other fittings that are good conductors. The cables and wires and fittings used in those installations will normally be insulated. When they are insulated, it is because of the danger attendant upon contact with a conductor carrying electric current at sufficiently high voltages. FOC on the other hand, while it may carry electromagnetic energy, is incapable of carrying an electric current. It is, therefore, not ordinarily used as part of an electrical installation. Nor can it be properly characterised as ``electrical materials''.

``Fixed''

67. Prima facie, goods become fixtures, and therefore part of realty, if they are affixed to realty by any means other than their own weight -
Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 712. That presumption may be rebutted by evidence of intention that the goods remain merely for some temporary purpose - Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 712. I have found that FOC is only permitted to be installed in buildings in ducts specifically designed for FOC. FOC is often left loose in ducts or conduits, and where it is fixed, it is usually strapped lightly to facilitate removal of FOC. Therefore, in some circumstances FOC may be said to be affixed. The fact that specialised ducts are designed in premises suggests that FOC has a permanent nature. This further suggests that FOC is fixed.

68. Commercial leases frequently envisage the removal of FOC at the expiry of the lease. On the other hand, the periods of commercial leases commonly allow FOC to remain as it is installed for four to twelve years. The requirement that tenants remove FOC is often ignored by parties to a commercial lease. In the circumstances, I consider that FOC is ordinarily part of ``fixed'' installations for the purposes of Item 43.

``Ordinarily used''

69. Each of the four samples of FOC is used in different circumstances as described above. Thus, FOC of the type of TSI4 is never found in buildings. TSI1 and TSI2 are only found within buildings to a very limited extent and then only for the purposes of affording access of the signal to a building. On the other hand, TSI3 is clearly ordinarily used inside a building.

70. When the four samples of FOC are considered from a functional point of view, it is clear that each performs the same function. Each of TSI1, TSI2, TSI3 and TSI4 is used for the transmission of information by means of infra red radiation along the optic fibre contained within the cable. There is no fundamental difference between them at all in terms of their function. The only difference is that one has more fibres than others and some are stiffer than others. Nevertheless, they are all cable of the same genus.

71. Each of the four samples is properly described as fibre optic cable. Fibre optic cable is a genus of which there are various species, including the four in question in this proceeding. If it can be said that TSI3 constitute goods of a kind ordinarily used as part of fixed electrical installations in consumers premises and are electrical materials, I consider that each of TSI1, TSI2 and TSI4 also falls within Item 43(1). That is to say, FOC, irrespective of its precise characteristics and specifications, constitutes a genus of goods for the purposes of Item 43 - see
Clean Investments Pty Ltd v FC of T 99 ATC 2371.

Consumers' premises

72. Item 43 requires that goods are part of a fixed electrical installation ``in consumers' premises''. The applicant contended that ``consumers' premises'' should be read as ``premises in which electricity is consumed''. If that were correct, virtually all premises would be ``consumers' premises''. Further, such a contention raises the question of what is meant by ``electricity''.

73. The applicants contended that if their contention as to the meaning of ``electrical'' is to be accepted, the process of transmitting electro magnetic energy in the form of infra red radiation through FOC involves a consumption of electrical energy. However, it is more accurate to say that, as infra red radiation is transmitted, some energy is consumed by being converted to heat. Consumers are not likely to desire such ``consumption'' or conversion because it arises from the imperfection of the dielectric process. Accordingly, I do not consider that Parliament intended such a meaning of ``consumers' premises''.

ATC 4260

74. If, on the other hand, the meaning of electrical adopted in the Telstra case, is accepted, the applicants contended that ``consumers' premises'' are any premises on which electricity is consumed. I consider that such a meaning is too wide. It leaves little work for the word ``consumers'' to do. I consider that ``consumers' premises'' must refer to the consumption by the electrical installation in question. Electricity must not be merely be consumed on the premises. It must be consumed by the ``consumers''.

75. It is clear that the notion of ``consumers premises'' does not sit happily in conjunction with the concept of a telecommunications installation. That fortifies my conclusion that FOC does not fall within ``electrical installations'' as the term is used in Item 43.

Conclusion

76. FOC does not fall within the exemption set out in Item 43. Accordingly, the declarations sought by Vision and Networks should be refused. The application should therefore be dismissed with costs.

THE COURT ORDERS THAT:

1. The application be dismissed with costs.


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