K MART AUSTRALIA LIMITED v FC of T
Judges:Wilcox J
Beazley J
Tamberlin J
Court:
Full Federal Court
Wilcox, Beazley and Tamberlin JJ
THE COURT:
This is a case stated by Beaumont J pursuant to s 25(6) of the Federal Court of Australia Act 1976.
The question for consideration is whether what are described as ``domestic paint brushes of a kind ordinarily used for household purposes'', come within the classification ``brushes'' in the relevant schedules to the Sales Tax (Exemptions and Classifications) Acts (1935 and 1992).
The case was stated because the parties agreed that the decision of Davies J in
OR Cormack Pty Ltd v FC of T 92 ATC 4121 was squarely in point. As a result, there arose a question whether that decision was wrong. The facts are not in dispute and the point for decision is purely one of statutory interpretation.
The case is in these terms:
``SPECIAL CASE
1. The applicant was between 1 March 1987 and 30 June 1994 ( `the material times' ) a retailer of goods including the goods described below as the subject paint brushes.
2. At the material times there were two kinds of paint brushes for general painting:
- (a) those sold for use and generally used by professional painters in the course of their profession or trade ( `trade paint brushes' );
- (b) those paint brushes ( `domestic paint brushes' ) which within the meaning of the opening words of Item 1 of each of the Third Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (the `E&C Act 1935' ) and the Second Schedule to the Sales Tax (Exemptions and Classifications) Act 1992 (the `E&C Act 1992' ) are goods of a kind ordinarily used for household purposes.
3. During the material times the applicant purchased from the manufacturer thereof and the manufacturer sold to the applicant for sale by the applicant to the general public certain domestic paint brushes ( `the subject paint brushes' ).
4. The subject paint brushes consisted of bristles set in or attached to a handle for painting walls, ceilings, doors, windows, furniture, toys or fences.
5. There are three main parts to a paint brush; the ferrule, the bristle and the handle.
6. The ferrule is the metal ring at the base of the brush head. Ferrules are made from a variety of metals ranging from stainless steel, being the highest quality ferrule, to tin plate, being the lowest quality.
7. Almost all bristle paint brushes manufactured in Australia are made from Chinese Hog bristle. It is the preparation length and density of the bristle that largely determines the quality of the paint brush.
8. The subject paint brushes were sold by the manufacturer to the applicant under the following brand or trade names:
Lincoln Premium Performer Pricebrand 18mm cut in 25mm 12mm 25mm angle brush 25mm 50mm 25mm 50mm 75mm 38mm 63mm 100mm (Ex C 38mm cut in 75mm hereto) 50mm 100mm (Ex B Fence Finish 63mm hereto) 100mm 75mm Pack 3 (25, 38 100mm (Ex A hereto) & 63mm) Pack 3 Varnish9. The subject paint brushes were sold by the manufacturer to the applicant for sale by the applicant in areas of its retail stores designated as `Home Improvements'.
10. The subject paint brushes were packaged by the manufacturer and not repackaged by the applicant.
11. The subject paint brushes were not packaged nor directed, nor were any of them, for sale to those who would ordinarily use the paint brushes in the course of their profession or trade as painters but were packaged and directed for sale to purchasers who would ordinarily use them for painting walls, ceilings, doors, windows, furniture, toys or fences in and around their homes.
12. The subject paint brushes:
- (a) were capable of being used, but were not ordinarily purchased for use by persons in the course of their profession or trade as painters; and
- (b) were ordinarily purchased for use or used by persons for painting walls, ceilings, doors, windows, furniture, toys or fences in and around their homes.
13. The subject paint brushes were not sold by the manufacturer to the applicant for sale to those who would ordinarily use the paint brushes in the course of their profession or trade as painters but to those who would ordinarily use them for painting walls, ceilings, doors, windows, furniture, toys or fences in and around their homes.
QUESTIONS REFERRED:
Upon the basis of the facts stated above,
- A. Were the subject paint brushes to be classified within Item 1(j) of the Third Schedule to the E&C Act 1935 in respect of the sales of them by the manufacturer to the applicant in the period 1 March 1987 to 31 December 1992?
- B. Were the subject paint brushes to be classified within Item 1(1)(k) of Schedule 2 to the E&C Act 1992 in respect of the sales of them by the manufacturer to the applicant in the period of 1 January 1993 to 30 June 1994?''
Statutory Provisions
The applicant contends that the paint brushes are within Item 1(j) of the Third Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (the ``1935 Act'').
That Schedule relevantly reads:
``Item NoSpecification of Goods
- 1 Goods (not being goods covered by an item in the Second Schedule, goods of a kind used exclusively or principally in sport or games or goods designed for use exclusively or principally in, or in connection with, swimming pools or spa baths) of a kind ordinarily used for household purposes, namely:-
- (a) furniture, but not including pictures, picture frames, statuary, sculptures, plaques, medallions, medals, inlays, mosaics, tapestries, cameos or representations of mottoes, proverbs or verses;
- (b) crockery and articles of a material other than earthenware used for purposes similar to the purposes for which crockery is used;
- (ba) jardinieres and vases;
- (c) glassware and articles that are made of a material other than glass and are used for purposes similar to the purposes for which glassware is used;
- (d) cutlery and cutlery sharpeners;
- (e) refrigerators, ice chests and other appliances used for the cooling or freezing of food;
- (f) washing machines, wringers and other appliances used for or in connexion with laundering;
ATC 4158
- (g) vacuum cleaners, carpet sweepers, floor polishers and other appliances for use for cleaning purposes;
- (ga) space heaters, radiators and other appliances for use for room heating;
- (h) grillers, stoves, ranges, ovens, cookers, toasters, mixing machines, immersion heaters, hot water jugs and kettles, percolators and other appliances for use for culinary purposes;
- (ha) electric fans;
- (hb) air conditioners of a kind used exclusively, or primarily and principally, for air cooling;
- (i) kitchen utensils and hardware;
- (j) brooms, mops, dusters, brushes, buckets, dippers and basins ;
- (ja) incinerators, compost bins, garbage cans and stands and holders for garbage sacks;
- (jb) fire grates and fireplaces;
- (k) fruit bottling outfits and fruit preserving bottles and jars;
- (l) floor coverings and bath and door mats;
- (m) blinds;
- (n) mattresses, pillows, other bedding and cushions;
- (o) sewing machines, knitting machines, carding equipment, spinning wheels and weaving looms;
- (p) appliances and fittings used for or in connection with electric, gas or other lighting; candles and tapers.
- 2 Parts, fittings and accessories for goods covered by item 1,...''
Item 1(k) of Schedule 2 to the Sales Tax (Exemptions and Classifications) Act (1992) (``the 1992 Act'') is in similar but not identical terms. Nothing turns on the difference. That paragraph reads:
``(k) brooms, mops, dusters, brushes, buckets, and basins.''
The word ``dippers'' does not appear in the latter paragraph.
Legislative History
Item 1 of the Third Schedule to the 1935 Act was introduced into that Act by Act No. 45 of 1954. That amending Act also introduced Item 105 to Schedule 1. Items in Schedule 1 were exempt from sales tax.
Item 105 reads as follows:
``105(1) Hand tools of the kind used for industrial purposes , including power-driven tools, but not including-
- (a) tools of the kinds ordinarily attached to benches, stands or fixtures;
- (b) office equipment, equipment of the kinds used for or in connexion with writing or drawing or brushes of the kinds used by artists or draughtsmen; or
- (c) goods covered by an item in any other Schedule to this Act.
(2) Hand tools of the kinds used for gardening, but not including power-driven tools
(3) Abrasive implements and apparatus of the kinds used for industrial purposes, including revolving grind stones, grinding wheels and other grinders; abrasive cloths and papers
(4) Parts and accessories for goods covered by sub-item (1), (2) or (3) of this item.''
(Emphasis added)
Item 1(j) of the 1935 Act was in the terms set out earlier.
On the second reading of the Bill which became Act No. 45 of 1954, Sir Arthur Fadden, the then Treasurer, pointed out that the purpose of the Bill was to implement sales tax concessions involving a loss to revenue of 12.8 million pounds. He said:
``The Government has taken much care to select concessions which will either contribute to the reduction of costs in industry or will be of assistance to home builders and furnishers. Particular consideration has been given to the effect of sales tax upon industrial costs, because the Government regards the minimising of such costs of great importance.
...
ATC 4159
Hand tools of a kind used for industrial purposes are to be exempt. This exemption will contribute to the reduction of costs in industry and, in addition, will help artisans and home purchasers of such tools.... There is a wide demand for exemption of furniture and household goods. These goods cover a very wide range, indeed, and the cost of a complete exemption would be so heavy as to render this impracticable at present. It is proposed, however, to reduce from the general rate of 12½ per cent. to a special rate of 10 per cent. a wide range of furniture and household goods as specified in the bill. It is believed that this will appreciably reduce the costs of home establishment.''
Case Law
In OR Cormack (supra) Davies J decided that ``paint brushes'' or ``wire brushes'' were properly classified as tools and that they did not come within the term ``brushes'' in Item 1(j) of the Schedule to the 1935 Act. His Honour said at 4124:
``The expression `brushes of a kind ordinarily used for household purposes' does not immediately bring to mind paint brushes. Therefore, it is significant that the many individual paragraphs in Item 1 do not include a category for tools such as gardening, carpentry, painting, plumbing tools and the like. Most households would possess and use tools to some extent.
Tools may have been omitted because the legislature recognised the difficulty that there would be in deciding what tools were ordinarily used for household purposes. That description is not well suited to distinguishing between tools which may be used both for trade and for household purposes. Items such as a hammer or an axe may be used as readily in a household or in trade or in industry or on a farm.''
His Honour considered that the legislative history was another factor which pointed in the same direction. The reference to ``hand tools'' in Item 105 and the absence of any reference in Item 1 to a category of that type indicated, in his Honour's view, an intention that, in general, tools would not fall within Item 1 as household items.
His Honour concluded that although ``brushes'' in paragraph (j) was not a term to be read restrictively, nevertheless it did not include ``paint brushes''. He did not think that in common parlance and when read in the context of the other words in the paragraph, the term would comprehend ``paint brushes'' or ``wire brushes''. However, his Honour did not accept a submission that paragraph (j) was limited to goods used for cleaning purposes.
In that case his Honour was considering a wider range of paint brushes than in the present matter. The paint brushes were of various sizes and quality, ranging from those described as ``tradesman or professional quality'' to an ``Aussie'' brush described as ``an excellent handy brush for odd jobs around the house''. There were also stiff wire brushes used for the preparation of surfaces.
In the instant matter it is common ground (paragraph 2(b) of the Special Case) that the paint brushes are ``domestic'' brushes and were goods of a kind ordinarily used for household purposes. This matter was not agreed in the OR Cormack case.
Approach
As to the approach to be taken in deciding the issue, there are two recent decisions of the Full Court. These are
Diethelm Manufacturing Pty Ltd v FC of T 93 ATC 4703; (1993) 44 FCR 450 and
FC of T v Chubb Australia Ltd 95 ATC 4186; (1995) 56 FCR 557.
In Diethelm the question was whether chairs were of a kind ordinarily used for household purposes namely ``furniture''. The taxpayer conceded that the chairs in question were sold primarily to persons who would use them in offices (at ATC 4707; FCR 455). It was held that an objective assessment of the ``essential character'' of the chairs required that regard should be had to the intended and actual market usage. On this approach the chairs were held to be office furniture having regard to their quality, cost, design and to the intended actual purchasers.
Having reviewed the relevant authorities, French J distilled the following general principles at ATC 4714; FCR 464:
``1. Classifications of goods attracting exemptions or beneficial rates should be liberally construed unless the text or context requires a narrow construction.
2. Revenue laws addressed to commercial people frequently but not always classify goods in terms known to those in the relevant trade or industry.
ATC 4160
3. The question whether the words of a statutory classification are to be interpreted according to their ordinary natural meaning or a special commercial meaning or some extension or limitation of either is a threshold question of law.
4. Words or phrases not accorded a special meaning should be construed according to popular usage.
5. Generally speaking where a statutory classification adopts the form of a generic class description followed by specific classes linked to it by the word `namely' or some synonym, it is intended that the specific classes will exhaust the generic class.
6. The statutory classification of goods to define exemptions or particular liabilities under revenue laws requires the determination, by reference to objective criteria, of the `essential character' of such goods. Where design purposes are referred to in the classification by such phrases as `for use as', the subjective intention of the manufacturer and purchaser and actual uses to which the goods are put may be taken into account in the process of characterisation.''
Hill J rejected a submission that there were two separate questions to be answered, namely (a) how the goods should be categorised and (b) whether that category was of a kind ordinarily used for household purposes. At ATC 4720; FCR 472 his Honour said:
``... Rather, I think the proper approach is to ask, in respect of the goods in question, whether they are of a kind ordinarily used for household purposes. This approach requires consideration of each of the particular chairs in question. Of some of them the question may readily be answered in the negative. A high back executive office chair is clearly not a chair of a kind ordinarily used for household purposes. Rather, it is of a kind ordinarily used for office purposes.''
In that case, his Honour was not satisfied that the applicant had established that particular chairs were of a kind ordinarily used for household purposes and the appeal failed.
In Chubb (supra), the question was whether particular safes, having different specifications and dimensions, were within Item (1)(a) as goods of a kind ordinarily used for household purposes. The decision was that on the evidence some safes were within Item 1 being domestic safes and others were not, but were rather more accurately described as industrial or commercial safes. At ATC 4195; FCR 569-570, Hill J formulated the approach in this way:
``Where a question arises under Item 1(a) two issues will arise. The first, which is one of classification, requires the determination of the kind of goods to which the particular goods belong. This is sometimes spoken of as defining the genus to which the goods belong. The determination will be made in a commonsense way. In many cases mere observation of the item will enable the classification to be made. In some borderline cases the task of classification may involve a consideration of evidence.
The second issue involves giving an answer to the question whether the classification arrived at satisfies the language of the Item, that is to say, whether the relevant kind of goods is ordinarily used for household purposes. Again, in many cases, common experience will answer that question. In borderline cases, at least, it will be necessary to consider evidence to reach a conclusion.''
The Applicant's Submission
In this case it is agreed that the ``paint brushes'' in question are goods of a kind ordinarily used for household purposes. The narrow question therefore is whether the term ``brushes'' in Item 1(j) of the 1935 Act includes ``paint brushes''. That item refers to:
``Brooms, mops, dusters, brushes, buckets, dippers and basins.''
The submissions of the applicant can be stated in the following way:
1. Domestic paint brushes are ``brushes'' within the dictionary meaning of brush or brushes. See Macquarie Dictionary (Revised Edition). Examples include bottle brush, scrubbing brush, paste brush, tooth brush and nail brush.
2. In other paragraphs of Item 1, where it is intended to limit the wording used to a particular category, express wording is used such as ``for use in cleaning''; ((f) and (g)) or ``in connection with laundering clothes'' or ``of a kind ordinarily used for cleaning purposes'', ((1)(l) and (j) of the 1992 Schedule). Therefore the generic term ``brushes'' is not to be read
ATC 4161
down by any limitation. Where a particular genus is limited this is expressly stated.3. OR Cormack (supra) is wrong and should be overruled because it turns on the proposition that a paint brush is a ``tool'' and falls outside Item 1.
The applicant points out that Item 1 of the 1935 Act refers to goods which are ``tools''. For example, ``cutlery sharpeners, kitchen hardware, and other appliances used for culinary purposes''. Tools are therefore not excluded. Other Schedules also refer to ``goods'' which although they are not categorised as ``tools'' are nevertheless in their nature tools. Examples given are ``hay forks, hay knives, hay rakes, hooks and slashers''.
4. As to the effect of Item 105, the submission is that it was omitted by Act No 93 of 1982 and Item 5 in essentially the same terms was substituted. In turn, that item was omitted by Act No 98 of 1986. It is pointed out that, while it was in the Act, Item 105 referred to ``hand tools of the kinds used for industrial purposes''. It is said that it is unsafe to construe a provision in a taxing statute by reference to another special provision which has been repealed. Insofar as Davies J approached the matter on the basis that classification under one Item precluded classification under another the decision was wrong. Sections 5(1) of the 1935 Act and 15 of the 1992 Act are referred to specifically.
Section 5(1) of the 1935 Act provides:
``EXEMPTIONS
5(1) Notwithstanding anything contained in any Sales Tax Assessment Act, sales tax shall not, subject to this section, be payable upon the sale value of any goods covered by any item or sub-item in the first column of the First Schedule, under any Act specified in the second column of that Schedule opposite that item or sub-item.''
Section 15 of the 1992 Act provides:
``PART 4 - THE RATING SCHEDULES
RATES OF TAX
15(1) Schedules 2, 3, 4 and 5 specify the rates of tax that apply to taxable dealings with goods.
15(2) If, in a particular case, goods are covered by more than one of those Schedules, then the Schedule with the lower rate applies.''
5. It was said that the approach of his Honour in OR Cormack was also wrong because the test applied was contrary to that set out in Diethelm and Chubb. His Honour it is said, was wrong in approaching the matter on the basis of one issue as opposed to the two identified questions described by Hill J in Chubb (supra) at ATC 4195; FCR 569-570. If the right approach had been taken then it is suggested his Honour may have come to a different result.
Present Case
The term ``brushes'' appears in the collocation of words ``brooms, mops, dusters, brushes, buckets, dippers and basins''. The grouping throws some light on the legislative intention. The preceding words, namely ``brooms, mops and dusters'' all have an association or obvious use for cleaning purposes. The words ``buckets, dippers and basins'' also bear a connotation not inconsistent with cleaning, or performing work about a residence, although not necessarily limited to cleaning or associated activities.
Indeed, to use a ``mop'' a bucket may be necessary or useful. A ``basin'' or a ``dipper'' could be used for holding or transferring liquids such as water or detergents associated with cleaning activities. It is of course true, that buckets for example, could be used to carry contents such as sand or water or liquids not related to cleaning. ``Dippers'' could be used to move or stir liquids other than water.
However, the collocation or context can affect the meaning of a term and give it a connotation different to that which might otherwise be attributed if the term appeared in isolation.
It is not necessary in this case to decide whether there is a specific genus of goods used for cleaning or having a common characteristic associated with the activity of cleaning.
If the word ``paint brushes'' were to be included as one of the meanings attributable to brushes, then it would sit uneasily with the description of the other goods specified in the paragraph. It would be inappropriate given the context to say that the word ``brushes'' included for example a tooth brush, a nail brush, a hair brush, a clothes brush or a pastry brush. They are primarily directed to matters of
ATC 4162
personal grooming, or in the case of the pastry brush, to the activity of cooking.A ``paint'' brush is not a brush used for cleaning or analogous purposes. Its use is as an implement or tool in order to apply paint to a surface. The insertion of additional words in some of the paragraphs such as ``used for purposes similar to'' or ``other appliances for use for cleaning purposes'' does not assist the applicant. These can be read as words of expansion or enlargement of the preceding words and not as words of limitation. In our view, these additional words do not throw any light on the present question.
The legislative history is also important in the present matter. It is useful in this case to consider the meaning of the term as at the time it was inserted in the 1954 Act and to look at the legislative context in which it was inserted.
When it was inserted in 1954, Item 1(j) included ``garbage cans''. The inclusion of this item does not, in our view, affect the approach indicated above, because it is not inconsistent with an underlying connotation associated with cleaning. Garbage cans may be used to store, pending disposition, any dust, leaves or other rubbish produced in the course of a cleaning or sweeping activity. However, the contemporaneous insertion of Item 105 in the First Schedule is important. The effect of this insertion was to give a total exemption to ``hand tools of the kinds used for industrial purposes''. This term would include paint brushes used for industrial purposes, but would not include ``domestic'' paint brushes.
When referring to the exemptions, the Treasurer, in the second reading speech added:
``This exemption will contribute to the reduction of costs in industry and, in addition, will help artisans and home purchasers of such tools.''
In our view, the intention was that ``paint'' brushes of a type not used for industrial purposes would not be exempt under Item 105. That Item sets out the extent to which ``paint'' brushes would be exempt as hand tools. This exemption would be contrasted with ``paint'' brushes or domestic tools as opposed to tools used for industrial purposes.
The reference in the 1954 legislation was to tools of a kind used for industrial or gardening purposes and not to goods of a kind ordinarily used for other purposes. Hand tools for other purposes were not intended to be covered by Item 1 except as specified. No general exemption was given for tools for domestic purposes. No specific reference was made to hand tools used for domestic purposes.
The subsequent repeal of Item 105 does not affect the meaning of the term ``brushes'' as originally enacted. If it did not include such brushes when enacted, it will not encompass such brushes as a result of the partial repeal without some indication to that effect. (Cf
Attorney-General v Lamplough (1878) 3 ExD 214; Craies, Statute Law 7th edn (1971) at 414-5). There is no such indication in the present paragraph.
The use of the terms ``hand tools... for industrial purposes'' is to be contrasted with a possible grouping of hand tools used for non industrial or domestic purposes. The language of Item 105 indicates a category present to the mind of the draftsman being tools of a kind used for different purposes such as industrial or non-industrial. Yet no reference to domestic hand tools is introduced into Item 1. One might normally have expected a classification such as tools used for domestic purposes, if it had been intended to refer to hand tools of a domestic nature such as ``paint'' brushes.
The statutory history provides some further support for the view that items in the nature of domestic hand tools such as ``paint brushes'' were not intended to be included in paragraph (j). A domestic ``paint'' brush is an implement used for the application of paint and in that sense could be properly described as a hand tool. The reference in Item 1(d) to cutlery sharpeners does not in our view, detract from the conclusion, but rather supports it. The fact that the draftsmen referred to one specific ``domestic'' hand tool perhaps indicates that hand tools generally such as domestic ``paint'' brushes were not intended to be included in the paragraph.
Having regard to the setting in which the reference to brushes is found in paragraph (j), the term ``paint'' brushes is not included within that paragraph.
For analogous reasons we also conclude that ``paint'' brushes are not within Item 1(k) of the Second Schedule of the 1992 Act.
ATC 4163
We therefore answer the questions in the stated case:
- (1) No
- (2) No
The applicant should pay the respondent's costs in connection with the Special Case.
THE COURT ORDERS THAT:
1. The questions referred to the Full Court by Beaumont J be answered:
- A. No
- B. No
2. The applicant pay the costs incurred by the respondent in connection with the Special Case.
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