Nomad Industries of Australia Pty. Ltd. & Anor v. Federal Commissioner of Taxation.

Judges:
David Hunt J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 31 January 1986.

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David Hunt J.

When papers and other goods of a relatively non-substantial size and weight are sent by courier, they are inevitably carried in what is known as a courier bag. These bags are large envelopes, available in different sizes.

The first plaintiff is the importer of such courier bags from the United States. They are called ``Nomad'' bags. When they are imported, the bags are already printed and made up to suit the requirements of the freight company or the courier company by which they are to be used. The material from which the bags imported by the first plaintiff are made is known as ``Tyvek'', and it is manufactured by the Dupont organization. Once imported, the courier bags are sold by the first plaintiff to the second plaintiff in circumstances which attract no sales tax. They are then resold by the second plaintiff to the freight company or to the courier company for whom they have been printed and made up.

The second plaintiff claims that the sale by it of these courier bags is exempted from sales tax. Section 5(1) of the Sales Tax (Exemptions and Classifications) Act 1935 provides that such tax is not payable by reason of the Sales Tax Assessment statutes upon the sale value of those goods covered by the various items in the First Schedule to that Act. Item 96(1), so far as it is immediately relevant, exempts:

``Goods of a kind used to wrap up or secure goods for marketing or delivery, namely -

• (a)... bags consisting of... flexible film
• ...''

I shall have to quote the whole of Item 96 at a later stage of this judgment.

The Commissioner accepts that the plaintiffs' courier bags are bags, and that they consist of flexible material. He does not, however, accept that that material is a film, nor that the bags are used to wrap up or to secure ``goods for marketing or delivery'', as that phrase in Item 96 should be construed.

The second plaintiff seeks a declaration that its courier bags do fall within Item 96. The Commissioner unsuccessfully disputed the jurisdiction of this Court (or indeed of any other court) to hear the claim for such a declaration:
Nomad Industries of Aust. Pty. Ltd. v. F.C. of T. 83 ATC 4480; (1983) 2 N.S.W.L.R. 56. An application to the High Court for special leave to appeal from that decision was subsequently and by consent dismissed. No submission has been made by the Commissioner that, as a matter of discretion, I should decline to grant declaratory relief if I find that the plaintiffs' courier bags do fall within Item 96. The procedure is, in my view, an appropriate one; see, for example,
F.C. of T. v. Jax Tyres Pty. Limited 85 ATC 4001; (1984) 58 A.L.R. 138.

The first issue therefore is whether Tyvek is a film. That issue necessarily requires an initial determination of how the word ``film'' in item 96 should be construed. It is not defined by the statute, but several other definitions abound. Dictionaries define the word ``film'' variously as:

``Thin skin, sheet, coating or layer.''

(Oxford Concise)

``a thin layer or coating... a thin skin or membrane... a delicate web of filaments or fine threads.''

(Macquarie)

``a thin coating or layer... a thin sheet of any material, as of plastic or packaging... a gauzy web of filaments or fine threads.''

(Collins English, Australian Edition)

The much older Shorter Oxford English Dictionary defines the word ``film'' as:

``A membrane... A thin pellicle or lamina of any material.''

A ``pellicle'' is in turn defined as:

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``A small or thin skin; a fine sheet or layer of some substance, either covering a surface or (less usually) enclosing a cavity; a membrane, cuticle, film.''

In a publication entitled Terms relating to plastics issued by the Standards Association of Australia, the word ``film'' is defined as:

``(a) Thin sheeting of arbitrarily limited thickness.

(b) A flat section of plastics material, usually thermoplastic, with a thickness generally less than 500 um.''

On the other hand, the S.A.A. Packaging Code (Pt 1 - Glossary of Packaging Terms) defines the word ``film'' as:

``A very thin, flexible, non-fibrous, non-metallic material, e.g. cellophane.''

In the United States, the American Society for Testing and Materials has issued its Standard Definitions of Terms Relating to Plastics, and defines the term ``film (plastics)'' as:

``an optional term for sheeting having a nominal thickness not greater than 0.25 mm.''

The word ``sheeting'' is in turn defined as:

``a form of plastic in which the thickness is very small in proportion to length and width and in which the plastic is present as a continuous phase throughout, with or without filler.''

The Kirk-Othmer Concise Encyclopedia of Chemical Technology (a U.S. publication) adopts the definition of the word ``film'' given by the Modern Plastics Encyclopedia in these terms:

``a flat section of thermoplastic resin or a regenerated cellulosic material that is very thin in relation to its length and breadth and has a nominal thickness not greater than 0.25 mm.''

The Kirk-Othmer Encyclopedia goes on (at p. 476) to assert that a modest volume of film is manufactured by ``fiber forming''.

On the evidence, it is clear that Tyvek is referred to in the packaging industry as a ``film''. This was not really in dispute.

The Commissioner relied to a very large extent upon the evidence and upon the opinions of a Mr Lennon, who is presently employed as a scientist with the National Materials Handling Bureau of the Commonwealth Department of Science and Technology. Mr Lennon produced his own definition of ``flexible film'', in these terms:

``material capable of being bent or twisted without breaking and consisting of a flexible thermoplastic or regenerated cellulose sheet produced directly by a calendering casting or extrusion process resulting in the formation of a homogeneous sheet of material in which the thickness is very small in terms of the length and breadth.''

He subsequently withdrew the requirement that the material had to be homogeneous, but said that instead it had to have in it plastic in a continuous phase. It was conceded that such definition produced by Mr Lennon did not accord with that to be found in any published work. It appears to be a collection of every ingredient of every known definition, so that the material - in order to be a flexible film - would have to comply with every one of those definitions. There was no suggestion that this extremely limiting definition has ever been recognised by anyone other than Mr Lennon. The Commissioner argued that, as Tyvek is fibrous, and as it does not have the plastic present in it as a continuous phase, Tyvek is not a film.

Mr Lennon concluded that Tyvek did not have plastic present in it in a continuous phase because, he asserted, it contained air. He had not, however, performed any tests of a microscopic nature to support that assertion. The Commissioner nevertheless relied upon a photograph of Tyvek reproduced in promotional material issued in America by Dupont in relation to Tyvek when used as protective clothing material, but I am satisfied by the evidence of the plaintiffs' expert (Dr Burford) that the photograph in question is not useful for the purpose for which the Commissioner sought to use it.

Dr Burford is a senior lecturer in Polymer Science who has done extensive consulting work both to government bodies and to industry in relation to the make-up of various materials and polymers (plastics). He conducted a number of scientific tests upon Tyvek. I prefer his evidence to that of Mr Lennon, and I accept his evidence that Tyvek does have the plastic present in it as a continuous phase.

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There is no dispute that Tyvek is manufactured from plastic fibres, which are bonded together by heat and pressure. Mr Lennon maintained that, despite that bonding, the material remained fibrous in nature - once a fibre always a fibre, he said. Dr Burford said that the finished product behaves not as a fibre but as a flexible film: it is not like a woven fabric from which the fibres could be extracted. He nevertheless agreed that the finished product could be described as fibrous. The point which he made, however, is that the original components of a product do not determine whether or not it is correctly categorised as a film. A film, he says, is a shape rather than a particular composition, and it is independent of the materials from which it is produced. That point of view is certainly supported by the dictionary meanings given to the word ``film'' which I have already quoted.

The Commissioner also relied upon the descriptions given to Tyvek by Dupont, its manufacturer, as (a) having a fibre structure, (b) being formed by bonding together with heat and pressure very fine, interconnected fibres spun into continuous fibres and (c) comprising a network of minute or extremely fine-denier polyethylene fibres. Dupont's same promotional literature also contrasts Tyvek to films such as vinyl in relation to its ``exceptional resistance to tear propagation'', although that literature makes it clear that Tyvek is also to be contrasted even to tightly woven fabrics in ``hold-out performance''. It is, in my view, somewhat difficult to see what weight can be given to promotional material issued in America for the use of Tyvek as protective clothing material. A description of Tyvek as a ``film'' in those circumstances would hardly seem to be a good selling point. In the end, I have concluded that this promotional material is of very faint weight indeed.

All of this scientific evidence was very interesting, but I did not find it to be of any great assistance to me in determining whether Tyvek is a flexible film within the meaning of Item 96. If a word in a statute is not defined, it must be given its usually accepted meaning:
Cody v. J.H. Nelson Pty. Ltd. (1947) 74 C.L.R. 629 at pp. 647-648; that is, in the context in which it is found:
A.G. v. Prince Ernst Augustus of Hanover (1957) A.C. 436 at pp. 461, 473;
Cooper Brookes (Wollongong) Pty. Ltd. v. F.C. of T. 81 ATC 4292 at pp. 4295-4296, 4304-4306; (1981) 147 C.L.R. 297 at pp. 304-305, 319-321. The immediate context in which the words ``flexible film'' are used in Item 96 is as follows:

``(1) Goods of a kind used to wrap up or secure goods for marketing or delivery, namely: -

• (a) wrapping material or bags consisting of paper, netting, flexible film or metallic foil, or of any combination of those materials;
• (b) single-faced corrugated fibre board; and
• (c) twine, lashing, rubber bands and adhesive tape

but not including goods covered by item 13 in the Third Schedule

(2) Strapping of a kind used to secure goods for marketing or delivery, and seals for use with that strapping

(3) Corner brackets for use with wire strapping of a kind used to secure goods for marketing or delivery''

There is nothing in that context which suggests that the legislature was intending to limit the goods exempted by any particular scientific description of those goods, so that goods of one scientific description used for wrapping or securing would be exempt but other goods of another scientific description used for the same purpose would not be so exempt. The intention was clearly enough to describe the goods more by their use than by their scientific qualities. No particular policy can be discerned from the identification of the goods so used as ``paper, netting, flexible film or metallic foil'' as intending to exclude from the exemption goods used for that purpose which are fairly within the usually accepted meaning of those words - and, in particular, within the usually accepted meaning of the word ``film'' - but which may also be constructed by bonding together plastic fibres. Why should fibrous material be excluded if that material is nevertheless fairly within the usually accepted meaning of the word ``film''? I can see nothing in the context of Item 96 to suggest that it should be so excluded.

I was impressed with Dr Burford's common sense view that a film is a shape rather than a particular composition, and that it is

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independent of the materials from which it is produced. It is upon that basis that I find that the usually accepted meaning of the word ``film'' is that given by the dictionaries - namely, a thin layer or coating or a delicate web of filaments or fine threads. If the material is within the usually accepted meaning of the word ``film'', if it is flexible and if it is of a kind used to wrap up or secure goods for marketing or delivery, then in my view that material is within the exemption granted by Item 96. I am satisfied that Tyvek is ``film'' within the meaning of Item 96.

If, however, I am held to be wrong in the ``not unduly pedantic'' assumption that words mean what they say (cf.
Cooper Brookes (Wollongong) Pty. Ltd. v. F.C. of T. at ATC pp. 4295-4296; C.L.R. p. 304), and that I should have taken into account, for example, the definition given by the Standards Association of Australia Packaging Code (``A very thin, flexible, non-fibrous, non-metallic material, e.g. cellophane''), I accept Dr Burford's views as far preferable to those of Mr Lennon, that ``fibrous'' in that context should in effect be equated with ``woven'', and that - although Tyvek could be described as ``fibrous'' because it was made by bonding together plastic fibres - Tyvek is nevertheless correctly categorised as a film in the packaging industry: cf.
Herbert Adams Pty. Ltd. v. F.C. of T. (1932) 47 C.L.R. 222 at p. 227;
D. & R. Henderson (Manufacturing) Pty. Ltd. v. Collector of Customs (1974) 48 A.L.J.R. 132 at p. 135.

I turn then to the second issue in this case. That is the issue whether Tyvek bags consist of material ``of a kind used to wrap up or secure goods for marketing or delivery''. It is obvious that the bags fall within the literal meaning of those words. The Commissioner, however, argued that those words apply only where the goods wrapped or secured by the bags have a sale value and are themselves subject to sales tax or are exempted from that tax by some specific provision in the Exemptions and Classifications Act. (Usually, the sales tax is payable on the last wholesale transaction.) The Commissioner argued that such a limited construction of the words ``goods for marketing or delivery'' is directed by the context in which those words appear and the purpose underlying the sales tax legislation, and that it is confirmed by the second reading speech by the Minister when Item 96 was inserted into the First Schedule: sec. 15AA and 15AB of the Acts Interpretation Act 1901.

Acceptance of the Commissioner's argument would appear to require a distinction to be drawn between, for example, wrapping paper of a kind used to wrap up for delivery those goods which are liable to sales tax or specifically exempted from it and wrapping paper of a kind used to wrap up for delivery those goods which are not so liable to or specifically exempted from sales tax. How is wrapping paper or a bag used for wrapping up for delivery second hand goods (Sales Tax Assessment Act (No 1) 1930, sec. 3(1)(b)) different in kind to that used for other goods being sold which have a sale value and which are liable to sales tax or specifically exempted from it? Why is it not simply that material is exempt if it is of a kind used to wrap up goods (any goods) for marketing or delivery? This approach for which the Commissioner contended stands sec. 15AB(1)(b) of the Acts Interpretation Act upon its head; it replaces what is in my view a clear and unambiguous interpretation of the words of the statute themselves with a meaning which leads to a result which is manifestly absurd.

There is, in my view, no ambiguity or obscurity in the words used in Item 96. The purpose for which the goods in question are being wrapped up or secured is ``for marketing or delivery''. If the Commissioner's interpretation were correct, the usually accepted meaning of the word ``delivery'' would be fully comprehended within the word ``marketing'' and thus would be useless. Yet the word ``delivery'' must be given some useful function in Item 96 (
The Commonwealth v. Baume (1905) 2 C.L.R. 405 at pp. 414-415;
Beckwith v. The Queen (1976) 135 C.L.R. 569 at p. 574), and I can see no reason why the word ``delivery'' should not be construed in its usually accepted meaning of simply carrying something and handing it over to another person at its destination.

The immediate context in which the words ``goods for marketing or delivery'' appear has already been quoted. The less immediate context appears under a heading ``DIVISION XIII - CONTAINERS''. Item 91(1) exempts containers used in marketing certain goods. Item 92 exempts bags used for marketing certain goods. Item 93(1) exempts certain boxes manufactured for use in marketing

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goods. Item 94 exempts bottles leased for use in marketing certain goods. Item 94A exempts other bottles for the marketing of certain goods. Item 99A exempts cylinders of a kind used in the marketing of gases. Items 97 (``Sewing twine'') and 99 (``Wool packs'') make no reference to the use or the purpose of those materials.

The Commissioner argued that all of the goods to which reference is made as being within the containers in those items in Div. XIII are themselves subject to sales tax because they are subject to a sale. That appears to be so, but it is hardly surprising, for (except for Items 97 and 99) each of those items in Div. XIII refers only to the ``marketing'' of the goods. Item 96, however, refers to ``delivery'' in addition to ``marketing''. If this less immediate context is to be looked to, as the Commissioner contended that it should, the addition of the word ``delivery'' must be given a meaning which is not already comprehended within the word ``marketing''. The addition of that word ``delivery'' would tend to suggest that the goods within the containers exempted by Item 96 are not necessarily contemplated as being the subject of a sale and thus to sales tax as are most of the other items in Div. XIII.

Nor would the plaintiffs' case be destroyed if the general context in which these words ``goods for marketing or delivery'' appear was somewhat inappropriate to the construction for which they contend, for the meaning of those words remains literally clear and unambiguous, there is no inconsistency between that construction and the remainder of Div. XIII, and the plaintiffs' construction does not bring about a result which could be described as inconvenient, improbable or unjust, and still less as absurd or irrational: cf.
K. & S. Lake City Freighters Pty. Ltd. v. Gordon & Gotch Ltd. (1985) 60 A.L.R. 509 at pp. 512, 519.

Nor does either the history of the legislation or the Minister's second reading speech assist the Commissioner. It was originally Item 91 which related to the marketing of certain goods in paper bags where the containers were for use in marketing, but the item excluded other paper bags used to wrap up and to secure goods for delivery. An exemption was first given to bags ``being goods of a kind used to wrap up and secure goods for marketing and delivery'' when Item 96 was inserted in 1954. This was described by the Treasurer (Sir Arthur Fadden) in his second reading speech as one of the ``new exemptions designed to reduce costs''. He went on to say:

``Vendors of goods generally, particularly retailers, will have their costs reduced by a new exemption of paper bags, wrapping paper and string used to wrap up and secure goods for delivery.''

Further amendments were made to Item 96 in 1957, 1963 (when ``polythene film products'' and metallic foil were added), 1967 and 1985, but none of these amendments is of any significance to the proper construction to be placed upon the words ``goods for marketing or delivery''. Nor is there anything of assistance to the Commissioner in the second reading speech of the Minister or in the explanatory memoranda relating to those amendments. Indeed, there is some positive harm to the Commissioner's argument in the explanatory memorandum relating to the Bill to amend Item 96 in 1985. The amendment excluded from the exemption those goods covered by Item 13 in the Third Schedule, which item was inserted at the same time in effect to levy a 10% sales tax upon, inter alia, wrapping material or bags when marketed exclusively or principally for household purposes. The explanatory memorandum, after describing what was exempted by Item 96(1), went on to say:

``Because similar products are used for household purposes, the exemption applies to many household products, such as aluminium foils, flexible plastic films and paper and plastic lunch bags.''

It is clear that in 1954 the Minister contemplated that the amendment which he was introducing would reduce the burden of sales tax when goods were sold in containers. But that circumstance does not, in my opinion, assist in ascertaining the meaning of the words ``goods for marketing or delivery'' in question. Their meaning, in my opinion, remains clear and unambiguous, and whilst the Minister's speech does not confirm that meaning, that speech cannot be used to alter that meaning where the meaning is clear and unambiguous in the statutory context in which it finds itself. Nothing in sec. 15AB of the Acts Interpretation Act permits such circumstances to be taken into account for such a purpose. Nor can it be said that the construction for which the plaintiffs contend is inconsistent with the purpose of a

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statute passed to grant exemptions from taxation.

Had there been some ambiguity in the meaning to be given to the words in question, a nice choice might have had to be made between the recognition (pursuant to sec. 15AA) that the purpose of the Act was to relieve taxpayers of the burden of the sales tax legislation (cf.
F.C. of T. v. Top of the Cross Pty. Ltd. and Travel Holdings (Aust.) Pty. Ltd. 81 ATC 4563 at p. 4571) and the recognition (pursuant to sec. 15AB) that when enacted that was perhaps only a limited perception on the part of the legislature and that that attitude appears to have changed thirty-one years later: cf.
Dugan v. Mirror Newspapers Ltd. (1978) 142 C.L.R. 583 at p. 598. That is not, however, a choice which I have to make in this case.

Next, the Commissioner argued that the plaintiffs had failed to establish that Tyvek bags are of a kind which are predominantly used for the purpose of wrapping up or securing goods for marketing or delivery, or that that is their characteristic use. This point was, however, inextricably linked with the last point, that those goods themselves had to be subject to sales tax. It was said to be supported by the evidence that some 85% of the goods carried in the Tyvek bags consisted of correspondence, which obviously does not constitute goods for sale. (There was, however, no dispute that documents were properly regarded as ``goods''.)

I have some difficulty in seeing how any question of predominant use enters into this case. Item 96 speaks of goods ``of a kind'' used for the particular purpose. The word ``predominantly'' does not appear there. If it was the legislature's intention to require a predominant use, it has failed to employ express words to achieve that result: cf.
National Mutual Life Association of Australasia Ltd. v. F.C. of T. 70 ATC 4134 at pp. 4137-4140; (1970) 122 C.L.R. 13 at pp. 18, 20, 22. That the legislature did not in fact intend to require a predominant use is confirmed by the explanatory memorandum with the 1985 amendment, to which reference was made earlier: cf. sec. 15AB(2)(e). The exemption given by Item 96 is expressed as widely as it could be expressed. The decision of the High Court upon which the Commissioner relied (
D.F.C. of T. v. Stewart & Anor 84 ATC 4146) was not concerned with an exemption which contained the words ``of a kind''. Indeed, Deane J. (at p. 4155) emphasises that, where it is intended that a use be exclusive or ``primarily and principally'' before it falls within an exemption, the First Schedule expressly says so. As I have already pointed out, the First Schedule does not say so here.

In any event, the evidence demonstrates that the Tyvek bags are used almost exclusively for the wrapping up or securing of goods for delivery - once those words are read in their usually accepted meaning and not in the limited sense for which the Commissioner contended. That is the use for which the bags themselves are marketed. Some of the bags are no doubt used simply to carry goods, in a sense of being carried by the owner of those goods for his own purposes. That may well not be a use for delivery within the meaning of Item 96. But the proportion of bags so used would be infinitesimal.

The Tyvek bags, in my judgment, fall within the terms of Item 96(1) and the second plaintiff is entitled to the declaratory relief which it seeks. It is conceded that the first plaintiff is not entitled to any relief in these proceedings. The Commissioner initially asked for his costs of the proceedings to July 1984 (when the second plaintiff was added as a party), but wisely did not press that request in the light of his lack of success in the proceedings up to that time.

I make a declaration in the following terms:

• That the Nomad courier bag imported into Australia by the first plaintiff and sold by the second plaintiff is within item 96(1) of the First Schedule of the Sales Tax (Exemptions and Classifications) Act 1935, being

• ``Goods of a kind used to wrap up or secure goods for marketing or delivery, namely: -
  • (a)... bags consisting of... flexible film...''

I order the Commissioner to pay the plaintiffs' costs of the proceedings. I direct the entry of judgment accordingly.