COSCO HOLDINGS PTY LTD v FC of T
Judges:Spender J
Court:
Federal Court
Spender J
These two applications are appeals pursuant to s. 42C(3) of the Sales Tax Assessment Act (No. 1) 1930 (Assessment Act No. 1) by Cosco Holdings Pty Ltd (``Cosco'') against the disallowance by the Commissioner of Taxation (``the Commissioner'') of objections to notices of assessment to sales tax issued by the Commissioner against Cosco.
Cosco was and is a manufacturer of, inter alia, facial tissues and toilet paper. Under the sales tax regime applying at the time of the transactions in question, Cosco contends that facial tissues are properly to be classified under sub-item 8(1)(r) of the Third Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (``the Exemptions and Classifications Act'') or, alternatively, under sub-item 8(2), sub-item 8(5) or sub-item 9(b) of that Third Schedule. In respect of toilet paper, Cosco contends that it is within sub-item 8(2) or sub- item 9(b) of the Third Schedule. If any of these contentions is correct, the rate of sales tax applicable is 10%.
The Commissioner says that neither facial tissues nor toilet paper is exempt from taxation under Schedule 1 nor fall within Schedules 2-6 of the Exemptions and Classification) Act and as a consequence the goods are to be taxed at the general rate as set out in s. 4(d) of the Sales Tax Act (No. 1) 1930, namely 20%.
The legislation imposing sales tax was substantially amended in 1992. These applications fall to be considered on a construction of what is referred to as the ``old law'' in the Sales Tax Amendment (Transitional) Act 1992. It is to be noted that many of the items with which these applications are concerned have a similar item under the ``new law'', but in many instances the items are not expressed in terms identical to the earlier description. While these applications fall to be determined under the old law, I set out a table listing the old law items with the ``corresponding'' items under the new law.
"Old Law" Item "New Law" Item
-------------- --------------
Sch 3, Item 8(1)(p) Sch 2, Item 2(1)(f)
Sch 3, Item 8(1)(r) Sch 2, Item 2(1)(e)
Sch 3, Item 8(2) Sch 2, Item 3(b)
Sch 3, Item 8(5) Sch 2, Item 2(1)(k)
Sch 3, Item 9(a) Sch 2, Item 3(a)
Sch 3, Item 9(b) Sch 2, Item 3(c)
Sch 1, Item 120(5) Sch 1, Item 150
(former) Sch 1, (former) Sch 1,
Items 60(1)(e) & (f) Item 108(6)
Under the legislation applicable to these applications, Cosco's liability to sales tax arises because it is a ``manufacturer of goods manufactured in Australia'', who has sold goods either to an unregistered person or a registered person who has not quoted an exemption certificate: s. 19 of the Assessment Act (No. 1).
It is common ground that Cosco has a liability to sales tax. The question at issue is whether the amount of that liability has been correctly assessed at 20% or whether Cosco is liable to pay tax only at the rate of 10%.
Sales tax is payable on the ``sale value'' of manufactured goods at the rates imposed by the Sales Tax Act (No. 1) 1930 (the ``Rating Act (No. 1)''): s. 17(1) of the Assessment Act (No. 1). There is no dispute as to the sale value of the subject goods. By s. 3 of the Rating Act (No. 1), sales tax is imposed at the rate specified by s. 4 of that Act on the sale value of Australian manufactured goods which have, relevantly, been sold by their manufacturer, in this case, Cosco.
Section 4 of the Rating Act (No. 1) relevantly provides:
``The rates of sales tax imposed by this Act are
- ...
- (b) in respect of goods covered by the Third Schedule to [the Sales Tax (Exemptions and Classifications) Act 1935] - 10%
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- ... and
- (d) in respect of goods not covered by the Second, Third, Fourth or Fifth Schedule to that Act and on the sale value of which it is not provided by that Act that the sales tax imposed by this Act shall not be payable - 20%.''
Cosco's case is its goods fall within the Third Schedule to that Act and therefore attract sales tax at the rate of 10%: s. 4(b) of the Rating Act (No. 1). The Commissioner contends that the goods are not covered by the Third Schedule, and by s. 4(b) of the Rating Act (No. 1) the rate of sales tax is 20%.
Section 25AA(1) of the Assessment Act (No. 1) provides that a taxpayer may request the Commissioner to make an assessment in respect of a specified transaction or operation effected by the taxpayer. By s. 25AA(3) the Commissioner is obliged to comply with each request made under each such request, and by s. 25AA(4) is to cause notice in writing of the assessment to be served on the taxpayer who has made that request.
Section 40(1) provides:
``A taxpayer who is dissatisfied with an assessment may, within 60 days after service on the taxpayer of notice of the assessment, lodge with the Commissioner an objection in writing against the assessment.''
By s. 40(6) the Commissioner is obliged to consider each objection and may either disallow it or allow it wholly or in part and by s. 40(7) is to cause notice in writing of his decision on each objection to be served on the objector. Section 41 provides that an objector dissatisfied with a decision under s. 40, on an objection, may, within 60 days after service on the objector of notice of the decision, lodge with the Commissioner in writing, inter alia, a request to refer the decision to the Federal Court.
Section 42C(3) provides:
``The referral of a decision on an objection to a Federal Court constitutes the instituting by the objector of an appeal against the decision.''
Section 42G(3) provided:
``Where the Federal Court hears an appeal under this Part, the Court may make such order in relation to the decision to which the appeal relates as it thinks fit, including an order confirming or varying the decision.''
In accordance with those provisions, Coopers & Lybrand on behalf of Cosco, on 13 February 1990 made representations to the Commissioner regarding the ``sales tax classification of toilet paper produced by it for sale''. On 21 June 1990 the Commissioner made an assessment under s. 25AA(3) of the Assessment Act (No. 1) ``in respect of toilet tissues manufactured and sold by you'' and the rate adopted in that assessment was 20%. Cosco, by notice of objection dated 3 July 1990 objected to that assessment. The grounds now relied on by Cosco are concerned with Items 8(2) and 9(b) of the Third Schedule to the Exemptions and Classifications Act. On 23 August 1991 the Commissioner disallowed the objection. In the notice of decision on objection the Commissioner said, inter alia:
``Item 8(2) Third Schedule of the Sales Tax (Exemption and Classification) Act [sic] does not apply as toilet paper is not a `cleaning and polishing cloth'. Item 8(2) Third Schedule of the Sales Tax (Exemption and Classification) Act does not apply as toilet paper is not a piece good under Item 120(5) First Schedule of the Sales Tax (Exemption and Classification) Act.''
On 25 September 1989 Coopers & Lybrand on behalf of Cosco made representations to the Commissioner regarding ``the sales tax classification of facial tissues''. On 1 October 1990 the Commissioner issued an assessment under s. 25AA(3) of the Assessment Act (No. 1) ``in respect of facial tissues manufactured and sold by you''. The assessment adopted a rate of 20%. Cosco objected by Notice of Objection dated 9 October 1990. The grounds of objection now relied on by Cosco being claims that the facial tissues were covered by Item 8(1)(r), 8(2), 8(5) and 9(b) of the Third Schedule of the Exemptions and Classifications Act. Cosco's objection was disallowed on 23 August 1991 and in the notice of decision on objection the Commissioner stated:
``Item 8(1)(r) Third Schedule of the Sales Tax (Exemption and Classification) Act [sic] does not apply as facial tissues are not `towels, face cloths and face washers'. Item 8(5) Third Schedule of the Sales Tax (Exemption and Classification) Act does not apply as facial tissues are not `made of cloth'. Item 8(2) Third Schedule of the Sales Tax (Exemption and Classification) Act does not apply as facial tissues are not piece
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goods covered by sub-item (5) of Item 120 of First Schedule.''
Item 8 of the Third Schedule relevantly provided:
``(1) Household drapery and soft furnishings, namely-
- ...
- (r) towels, face cloths and face washers, but not including goods covered by sub- item (5) of item 124 in the First Schedule.
(2) Cleaning and polishing cloths (including dusting cloths, dishcloths and sweat-cloths) made of piece goods covered by sub-item (5) of item 120 in the First Schedule, but not including goods consisting, in whole or in part, of metal or plastic abrasive substance.
...
(5) Handkerchiefs made of cloth.''
Item 9 provided:
``Goods of the following kinds for sale for cleaning purposes, namely-
- (a) sponges, including synthetic sponges;
- (b) goods consisting wholly of synthetic absorbent material;
- (c) engine-cleaning cotton waste.''
The exception in sub-item 8(1)(r) of goods covered by sub-item (5) of item 124 of the First Schedule has no application in these proceedings.
Item 120(5) so far as is relevant provided:
``Clothing, footwear, piece goods and yarns (other than goods covered by any item in the Second or Third Schedule) viz.:-
- ...
- (5) Piece goods, being cloth (whether woven, felted, knitted, netted or crocheted), including plastic and rubber sheeting, table baize and cloth made wholly or partly of glass fibre, rubber, synthetic or plastic material, but not including tracing cloth or floor coverings.''
Cosco contends that the toilet paper it manufactures comes within ``cleaning cloths'' as defined in sub-item 8(2) of the Third Schedule and that it also comes within sub-item 9(b) of the Third Schedule because the toilet paper is within the definition ``goods for sale for cleaning purposes, namely, goods consisting wholly of synthetic absorbent material''. Cosco contends that its facial tissues are each of ``towels'', ``face cloths'' and ``face washers'' in sub-item 8(1)(r) of the Third Schedule; the facial tissues are ``a cleaning... cloth'' as defined in sub-item 8(2) of the Third Schedule, referring to sub-item 120(5) of the First Schedule and further that its facial tissues may be regarded as ``handkerchiefs made of cloth'' within sub-item 8(5) of the Third Schedule.
Speaking generally, a taxpayer claiming the benefit of an exemption from the imposition of a tax has the burden of establishing the facts necessary to fall within that exemption:
Cuming Smith & Co. Pty Ltd v. The Melbourne Harbour Trust Commrs (1905) 2 C.L.R. 735 at 742;
Jackett v. DFC of T [1932] S.A.S.R. 405 at 407.
In the present applications there is nothing to suggest that any relevant word or phrase in any of the relevant sub-items are used with a particular commercial meaning and the sub- items have to be construed according to their ordinary English meaning.
The question whether the goods fall within the descriptions in the item requires an assessment of the ``essential character'' of the goods. In
FC of T v. Newbound & Co. Pty Limited (1952) 10 A.T.D. 59, the High Court was concerned with item 90D which commenced:
``90D. Household fittings and sanitary ware... of a kind installed in houses or other buildings so as to become fixtures therein, viz....''
and there followed a number of specific descriptions of articles. Dixon CJ (at p. 60) accepted that the term ``household fittings'' in the general class description with which item 90D commenced was ``descriptive of the character of the things that follow and do not require that the sale of the article shall be to a person who intends to use it for household purposes''.
In
Rotary Offset Press Pty Ltd v. DFC of T 72 ATC 4212; (1972) 46 A.L.J.R. 609, where the question was whether a periodical was to be treated as ``advertising matter'', Stephen J held at ATC p. 4213; A.L.J.R. p. 609 that the question of characterisation was ``a question of fact to be decided upon an inspection of the document guided by common knowledge''. The reference to guidance by common knowledge has a relevance in the present proceedings.
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The High Court in that case approved the decision of Gibbs J (as he then was) at first instance, reported at
DFC of T v. Rotary Offset Press Pty Ltd 71 ATC 4170. Gibbs J had held (at 4175) that the question depended on whether ``the periodical, viewed objectively and without regard to the actual intentions of those publishing it, answers that description''. See also
Downland Publications Limited v. DFC of T 83 ATC 4137 at 4139; (1983) 57 A.L.J.R. 286 at 288.
In
Thomson Australian Holdings Pty Ltd & Ors v. FC of T 88 ATC 4916; (1988) 20 F.C.R. 85, Davies J said at ATC 4917; F.C.R. 86 that the essential character of goods is ``what essentially the goods are, not some characteristic that the goods might have. The essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part''.
The question in Thomson Australian Holdings was whether a liquor guide and a car dealers' guide fell within the first schedule exemption of ``books, pamphlets, periodicals, magazines and printed music, and [not including] catalogues or price lists''. Davies J said ATC 4917; F.C.R. 86-87:
``Evidence which clarifies the manner in which a publication circulates and the use to which it is put, that is to say its function or purpose, is undoubtedly of assistance in determining what the essential character of the publication is.''
The decision of Davies J at first instance was affirmed on appeal to the Full Court, which did not question his formulation:
FC of T v. Thomson Australian Holdings Pty Limited & Ors 89 ATC 4696; (1989) 25 F.C.R. 481.
I am not here concerned with the problems of interpretation that arise when the formulation of the item involves a consideration of the ``ordinary usage'' of the goods in question, as was the case in
Diethelm Manufacturing Pty Limited v. FC of T 93 ATC 4703, where the question before Davies J and the Full Court was whether office furniture fell within the item ``Goods... of a kind ordinarily used for household purposes, namely: (a) furniture...;''.
It is a curious feature of the present applications that, while there is a large body of expert evidence as to the paper making process and the means by which the goods come to be toilet paper or facial tissues, there is virtually no evidence as to the use to which these goods are in fact put.
Perhaps the parties were of the view that the uses were so obvious that there was no need for such evidence, but I do not know whether it is permissible to approach the question of classification of toilet paper on the basis that apart from its most usual use, it may serve as a substitute for facial tissue for the purposes of blowing one's nose. Further, is it right for me to proceed on the assumption that, for men, the overwhelming use of facial tissue is for blowing one's nose, but that, for women, the uses are more varied, including the application and removal of make-up? I could not even guess the proportion of facial tissue used by men and what proportion is used by women. I know that in certain countries and circumstances, facial tissue may serve as a substitute for toilet paper (and vice versa), and that facial tissues often perform a general cleaning function unconnected with personal hygiene, as well as a function in the cleaning of children, including infants, that is not necessarily restricted to the facial area.
I turn now to the evidence.
Toilet paper and facial tissues are paper products.
Paper comes in many different forms. It is common practice in the pulp and paper industry to classify paper into four main classes according to the end use of the paper. These classes are newsprint grades, used for newspapers; printing and writing grades, such as writing paper, photocopying paper and computer paper; packaging and industry grades, such as bag paper, wrapping paper; thicker grades for making boxes and cartons and paper for use in plaster board manufacture; and tissue grades, being toilet paper, facial tissues, towelling and serviette grades. The divisions are not always clear and sometimes other classifications are used.
I accept that tissue is regarded in the industry as a particular broad class of paper products. The term ``tissue'' can also be used to describe any very thin sheet of paper. However, in industry usage, the term is more commonly used to describe the particular grades of thin paper used as toilet paper, facial tissue, towelling and serviettes, which have particular application in the hygienic field and which are generally creped products, creping being a
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process used in the manufacture of tissue grades of paper as described later in these reasons.The different end uses of paper have different quality requirements, which have a use in helping to define the differences between the main classes of paper. Toilet paper, facial tissue, towelling and serviettes require the properties of softness, absorbency, brightness, appearance or cleanness and strength (whether wet or dry), although the relative ranking of those qualities depends on the particular purpose to which the tissue product is to be put.
The qualities of softness and absorbency are particularly relevant to the tissue grades of paper compared with the other grades and which helps to distinguish tissue paper from the other main classes of paper. The report by Jaakko Poyry Pty Ltd, who are consultants and consulting engineers to the pulp and paper industry, noted:
``It is interesting to note, however, that these two quality parameters, softness and absorbency, are often a feature of cloth.''
A sheet of paper, and in particular tissue paper, consists of a mass of cellulose fibres substantially lying randomly in the plane of the paper. Relative to other kinds of paper, tissue paper is thin and has fewer fibres stacked one on the other in layers than does, for example, newsprint, which is thicker. The cellulose fibres for paper making are of the order of 1-2 millimetres in length and under a microscope appear as frayed ribbons. The ratio of length to thickness is of the order of 10:1.
Wet cellulose fibres have the property of bonding to each other as they dry out, the bond being a hydrogen bond. The process of making paper, including tissue paper, is that of draining and drying a dilute slurry of fibres in water. As the water is pressed and dried out, the fibres pull together and develop the strong hydrogen bonds forming a sheet of paper. The bonding is reversible but is only dissolved by water, products such as methylated spirits or kerosene being unable to create or dissolve the bond.
Cosco has a factory at Carol Park in Brisbane at which various products are produced from tissue manufactured on site. Its range of products includes at least 11 grades of tissue ranging from lighter weight facial tissue product to heavier grade serviette product. Within the range there are categories of type of tissue, namely, toilet, facial or serviette; there are varying categories according to the grams per square metre, which range from 14 gms per square metre for facial tissue to 18-20 gms per square metre for toilet tissue, and 21 gms per square metre for serviette tissue. The product range varies according to the percentage of recycled fibre in the pulp mix and as to the number of plys; facial tissue being a 2-ply product and toilet paper being sometimes a 2-ply and sometimes a 1-ply product. The various components of the range vary according to the apparent sheet thickness per ply and whether there is a wet strength additive. The toilet tissue products in the range do not have a wet strength additive but the facial and serviette products in the range do.
The wet strength additive which is included in the wet pulp when producing tissue product used for ``wet wiping'' of the facial area enhances the inherent strength of the wetted tissue. This additive does not change the fibre formation in the tissue web but enhances the fibre bonding when wetted after manufacture.
The various packaging of products are different because of the nature of the tissue web in each. The web can be created to provide varying characteristics of softness, feel, texture, colour and particular strength.
The production process occurs in three steps. The first is the production of a single layer of tissues to the various grades that I have described, generally into large rolls called ``jumbos''. The second stage involves rewinding the jumbos, in some cases combining two sheets into a 2-ply product and slitting into narrower reels for the packaging lines. The third stage involves rolling, cutting, and embossing, perforation, plastic pack wrapping or boxing and cartoning to reach the final product.
The first step, the production of the single layer of tissue, may be described as follows: the main ingredient of the raw material for tissue production consists of processed wood fibres, normally purchased in the form of bales of dried pulp. Each type of wood fibre has specific characteristics contributing to the final quality of tissue, which depends upon the type of tree as well as the specific method used to process the tree fibre into its form as dried pulp. Softwood trees produce fibres of long fibre length, hardwood trees of shorter fibre length, and intermediate grades of trees such as eucalypts produce a medium length fibre.
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The raw material ``feed'' consists of a carefully chosen mixture of a number of different dry pulps, the tissue strength being determined by the character of the mix of fibre lengths selected. Waste paper can be used in the raw material mixture, the waste paper being just another source of processed wood fibres which does not change the process or principles of tissue formation.
The process of forming a single layer of tissue paper commences with the dried pulps being mixed with water to form a feed of porridge-like consistency. Mechanical agitation is used to break up the dried pulp feed into clumps of wetted fibres, which are pumped to the next stage. The wet pulp mixture is then sequentially pumped through machines known as deflakers and refiners which apply vigorous mechanical rubbing action to break down all the wet pulp to as close to individual fibres as possible, resulting in an ``unbundling'' of the fibres. This stage is followed by screening, cleaning and dilution to complete the preparation of a mixture known as ``stock'' ready for feeding the tissue making machine.
The stock, which consists of a very dilute mixture of mixed length, unbundled, processed wet fibres is pumped at high pressure into the tissue machine headbox, which, by means of specially contoured inner-channelling distributes the flow very evenly across the width of the machine. The stock is sprayed or jetted at a closely controlled velocity and angle parallel to a continuous forming fabric. The forming fabric is a continuous belt of tightly woven polyester fabric the full width of the machine. The speed at which the forming fabric travels is closely controlled in relation to the velocity of the jetted stock being sprayed on to it.
The pattern on the forming fabric surface is critical for tissue formation. The woven nature of the fabric allows drainage of water from the stock leaving pulp fibres behind. The forming fabric acts as a filter layer where the majority of water and some very fine fibres drain through and pass into the machine process water stream for recycling. As the stock drains, the fibres on the fabric surface are formed by the surface pattern of the forming fabric to mingle and weave together. It is the surface pattern on the forming fabric which forces the desired lay and intermingling of the mixture causing the fibres to overlap and weave one into another, creating a continuous web of interlaced fibres. At the web formation stage the moisture content of the tissue sheet is of the order of 75-85%. Further processing involves subsequent drying of the tissue web to achieve approximately 5% moisture as a final product.
The wet formed web of tissue travels from the forming fabric to the underside of another fabric travelling in the same direction and speed, the second fabric being known as the ``pick-up felt'' which is a polyester fabric material with a very smooth surface. The pick- up felt carries the tissue web, passing a number of vacuum boxes which suck moisture through the pick-up felt from the upper side, resulting in the tissue web being progressively dried while still adhering to the underside of the felt.
The web of tissue is transferred from the pick-up felt to a large rotating drying drum by a process of press rolling. The pressure involved in the transfer of the tissue web to the drying drum has the added effect of forcing the intertwined fibres into closer contact with each other at the moment of transfer and further reducing the moisture content. On the surface of the drying drum, which drum is called a ``Yankee cylinders'' the web is subjected to heat, steam being supplied to the drying drum internally and heated air forced on to the surface of the tissue via large hoods over the drum. The web is scraped from the drying drum by special blades and run on to a take-up reel to be wound into a roll about 1.2 metres in diameter, 2.7 metres long and weighing about 900 kilograms.
By operating the take-up reel at a slightly slower speed than the speed of the drying drum, the paper is ``creped''. Because of the speed differential, the scraper blade, called the ``doctor blade'', concertinas or crepes the web of fibres sticking to the drying drum and peels it off. The difference between the take-off speed from the Yankee and the Yankee speed, called the ``crepe factor'', is about 20%.
The crepe is only in the machine direction: the tissue stretches only in the lengthwise direction and not in the crosswise direction. The aim of creping is to improve thickness and stretch. This in turn helps to improve absorbency and strength. In general, the creping process is not used in other paper grades.
The resultant product on the jumbo roll is a single ply tissue web.
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To achieve final product the reels are rewound and/or slit to various sizes and fed through various packaging lines which convert the single ply tissue web to the many and varied products of toilet, facial and serviette tissue packages.
The process used at the Cosco factory does not involve the use of chemicals to promote adhesion of the tissue web to the Yankee cylinder.
In a well-known work on the paper industry, Handbook for Pulp and Paper Technologists (2nd ed) by G.A. Smook, the author says, at page 1:
``Paper has traditionally been defined as a felted sheet formed on a fine screen from a water suspension of fibers.''
This description was not accepted by Mr Richard Maddern, a private consulting engineer to the paper manufacturing industry, who was called on behalf of the Commissioner, nor is it a view shared by the authors of the report from Jaakko Poyry, prepared for Cosco. That report contains a section dealing with the process of felting and states:
``As we understand it, felting is a process for making a form of cloth which does not involve weaving. Instead it involves the `needling' of a mat of fibres, normally animal hair. The needling process is a continuous pricking with a set of barbed needles in and out of the fibre mat. This is designed to pull the ends of the fibres first to the top of the mat and then to the bottom of the mat thus producing maximum inter- twining of these fibres. The inter-twining and mechanical entanglement resulting from this process increases the strength of the fibre mat so that it produces a cloth of reasonable strength. This needling process can be considered as one of the stages in the manufacture of felts for such things as felt hats.
...
The major difference with the paper manufacturing process is that after the web is formed it undergoes the needling process. After the felt is dried it relies on the mechanical entanglement or inter-twining of the fibres for its strength. Hence there is a distinction with tissue which relies on chemical bonding between the fibres for its strength.''
In my opinion, the machinery employed by Cosco does not constitute a means of felting, nor is tissue paper properly to be described as felted.
Consistent with the evidence of all the experts who gave evidence concerning the question, the interleaving of fibres plays a minor role in the strength of tissue. Fibres in tissue paper are normally held together with hydrogen bonding and in some cases, but not in any of the products produced by Cosco, with the assistance of a bonding agent. The products produced by Cosco exhibit some interlacing of fibres to a small degree but that interlacing is not a major factor in holding the networks together.
I turn now to consider the contentions of the applicant.
It is convenient to deal first with those concerning toilet paper. In my opinion, toilet paper is not within item 8(2) of the Third Schedule because, even if toilet paper can properly be classified as a ``cleaning cloth'', toilet paper is not ``made of piece goods'' covered by sub-item 5 of item 120 in the First Schedule.
In my opinion, ``cloth'', when used in sub- item 120(5) of the First Schedule is used in an expansive sense and might be wide enough in that item to include paper products, but the fatal difficulty for the applicant is that toilet paper is not ``piece goods'' nor is it ``made of piece goods''.
In
Zendel Australia Limited & Anor v. FC of T & Anor 92 ATC 4515, Hill J said at 4517:
``The expression `piece goods' is defined in the Oxford English Dictionary (2nd ed) as follows:
`Textile fabrics, such as calico, shirtings, mull, etc, woven in recognised lengths (see PIECE sb 4a) for sale; a term formerly applied to Indian and other Oriental fabrics exported to Europe, but subsequently chiefly applied to Lancashire cotton goods exported to the East.'
...
The Macquarie Dictionary (2nd Revision) defines the expression `piece goods' as:
`goods or fabrics woven in lengths suitable for retail sale by the usual linear measure.'
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The publication `Textile Terms and Definitions' (8th revised ed), compiled by the Textile Institute, defines `piece goods' as: `fabric sold by or from the piece'.''
Hill J. said at 4517:
``In my view the essential characteristic of `piece goods' is, as the publication `Textile Terms & Definitions' makes clear, the sale of the goods by retail `by or from the piece', that is to say by or from a linear measure. It is to facilitate such a sale that `piece goods' are initially produced in defined lengths. Once, however, exposed to retail sale, they may then be sold either by the metre, yard etc or the total length. That is to say, that they must be goods put up for sale in lengths and sold by or from the piece. A familiar example of an item which is within the category of `piece goods' would be curtain material. Such material is put up for sale as a roll or `bolt' of material of standard length. However, it is generally sold by retail by the metre. This would not preclude, of course, a customer buying the whole bolt, but the material is not put up for sale by the bolt.''
The submission for Cosco in this regard is that the toilet paper is made from jumbo rolls and the jumbo rolls constitute ``piece goods''. In my opinion, this is a brave but hopeless submission. Jumbo rolls are not put up for sale by the length, and the product on the jumbo roll is not sold by the length or piece. In my opinion, toilet paper is neither itself ``piece goods'' nor is it made from ``piece goods''.
The second basis relied on for the desired classification of toilet paper was sub-item 9(b) of the Third Schedule. However, in my opinion, toilet paper is not ``goods consisting wholly of synthetic absorbent material''. Indeed, the evidence before me establishes that toilet paper contains no component of synthetic material.
The submission for Cosco is that the ``goods'' consist of tissue and that the tissue is a synthetic material. The tissue is said to be a synthetic material relying on the meaning of ``synthetic'', as defined in the Macqauarie Dictionary (1st ed.), as meaning ``of, pertaining to, proceeding by, or involving synthesis'' or in its other meaning of ``denoting or pertaining to chemical compounds, resins, rubbers etc. formed by chemical reaction in a laboratory or chemical plant as opposed to those of natural origin''.
In my opinion, the reference to ``goods consisting wholly of synthetic absorbent material'' focuses attention on the characteristic of the constituent parts of the goods. In this case, the constituent parts of tissue paper are wood pulp fibres coming from trees, and water. Those products are, in my view, natural rather than synthetic and toilet paper does not consist ``wholly of synthetic absorbent material''.
Toilet paper, in my opinion, is not within sub-item 9(b) of the Third Schedule.
So far as facial tissues are concerned, for the same reasons that toilet paper is not within sub- item 8(2) of the Third Schedule, namely, not being goods ``made of piece goods'', facial tissues are not within sub-item 8(2). For the same reasons that toilet paper is not within sub- item 9(b), facial tissues are not within that sub- item.
In my opinion, facial tissues do not come within the description ``handkerchiefs made of cloth'' because ``cloth'' in sub-item 8(5) of the Third Schedule does not encompass paper products. In my opinion, ``cloth'', where it appears in sub-item 8(5) is used in its meaning according to the Macquarie Dictionary (1st ed.) as ``a fabric formed by weaving, felting etc. from wool, hair, silk, flax, cotton or other fibre used for garments, upholstery and many other purposes''. Cloth is used in its traditional understanding of the word in the sense of a fabric or textile. The requirement that the handkerchiefs be made of cloth is to exclude from the operation of the sub-section handkerchiefs made from, inter alia, cellulose fibre or paper.
The final question is whether facial tissues come within sub-item 8(1)(r), namely, whether facial tissues are properly to be described as ``towels, face cloths and face washers''.
Sub-item 8(1)(r) of the Third Schedule speaks generically of towels, face cloths and face washers. The descriptions, in my view, focus on the identified function or type of goods rather than the constituent material from which they might be fashioned. There is, in particular, no requirement similar to that which appears in sub-item 8(5) that the goods be ``made of cloth'' or of any other type of material.
In
Kentucky Fried Chicken Pty Limited v. FC of T & Ors 86 ATC 4701, Yeldham J at first instance held, inter alia, that paper serviettes supplied by a vendor of fast food products in its
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business can properly be described as ``table napkins'' and were articles of household drapery covered by sub-item 8(1)(p) of the Third Schedule, which covers:``(1) Household drapery and soft furnishings, namely:
- ...
- (p) tablecloths, table covers, table mats, table napkins, table runners and doylies.''
Further, Yeldham J held that refresher towels supplied by Kentucky Fried Chicken in the course of its business can properly be described as ``towels, face cloths and face washers'' and by definition are included within the extended meaning of household drapery and soft furnishings covered by sub-item 8(1)(r) of the Third Schedule.
Yeldham J referred to the judgment of Olney J in
FC of T v. Sherwood Overseas Pty Ltd 85 ATC 4267, where Olney J concluded that a ``Kreepy-Krauly'' cleaning device for cleaning the bottom and sides of domestic swimming pools could be described as ``goods of a kind ordinarily used for household purposes''. Olney J, in the course of his reasons for judgment said at 4271:
``In my opinion a robust approach ought to be taken to the construction of the Third Schedule particularly in view of the fact that it is part of a statute imposing taxation and I take the view that any goods which fall within the particulars described in para. (a) to (p) of the first item which are ordinarily used in or about a dwelling house can fairly be said to be ordinarily used for household purposes.''
Yeldham J said at 4710 of the Kentucky Fried Chicken case:
``I see no reason why a refresher towel does not come within the expression `towels, face cloths and face washers' notwithstanding that it is not made of textile fabrics. Adopting a robust approach to the construction of the items in question, I consider that in this day and age paper serviettes can properly be described as `table napkins' which, by definition, come within the description `household drapery and soft furnishings'. I consider also that refresher towels, which again are not made of cloth but of paper, are to be described as `towels, face cloths and face washers' which again, by definition, are included within the extended definition of household drapery and soft furnishings.''
I note in passing the reference by his Honour to the refresher towels not being ``made of cloth but of paper'', which is an illustration, in my opinion, of the ordinary distinction that is made between cloth and paper, which distinction has a clear relevance to the proper interpretation of sub-item 8(5).
An appeal from the judgment of Yeldham J to the Court of Appeal was dismissed:
FC of T v Kentucky Fried Chicken Pty Limited & Anor 88 ATC 4363. Responding to the submission by the Commissioner on the appeal, that ``household drapery and soft furnishings'' are articles necessarily made of textile material of some kind and that therefore paper serviettes and paper towels could not fall within either the general description or the particular descriptions in item 8, Hope JA said [at p 4375]:
``Despite all the dictionary definitions that have been produced I find it difficult to imagine that paper refresher towels and paper serviettes cannot properly be regarded as falling within the `towels, face cloths and face washers' and `table napkins' specified in the item. Other listed particular items are `chair back covers', `laundry bags' and `meat bags'. I would have thought that although these items may now often be made of textile material, they are also often made of other material, and I can see no reason in purpose or policy to justify the restricted meaning which the Commissioner contends for.''
In my opinion, facial tissues manufactured by Cosco fall within sub-item 8(1)(r) of the Third Schedule.
I will hear the parties as to the form of orders I should make to give effect to these reasons, and as to costs.
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