• The impact of this case on ATO policy is discussed in Decision Impact Statement: Snugfit Australia Pty Ltd v Commissioner of Taxation (AAT 2013/0711).

SNUGFIT AUSTRALIA PTY LTD v FC of T

Members:
J W Constance DP

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2013] AATA 802

Decision date: 13 November 2013

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J W Constance (Deputy President)

INTRODUCTION

1. The question for the Tribunal in this application is whether the supply of a product marketed as "SnoreBeGone" is GST-free in accordance within the provisions of A New Tax System (Goods and Services Tax) Act 1999 (Cth), ("the GST Act"). The product is designed to support the body when a person is sleeping in such a way as to prevent the person snoring.

2. On 10 October 2012 the Commissioner made a private binding ruling that supply of the product was subject to GST. The Applicant Company's objection to this ruling was disallowed by the Commissioner and the Company has applied to the Tribunal to review this decision.

3. For the reasons which follow I am satisfied that the supply of the product is GST-free and the decision of the Commissioner will be set aside.

FACTS

4. The facts are not in dispute. Any material before me which was not identified in the Commissioner's ruling does not alter the scheme identified in that ruling. The use of the product was demonstrated at the hearing; this did no more than assist me in understanding the evidence.^[1] The Tribunal is not entitled to consider facts which would give rise to a materially different scheme : Heinrich and Commissioner of Taxation [2011] AATA 16 , [14].

5. The scheme is set out in the private ruling as follows:

• • You (Snugfit Australia Pty Ltd) are registered for GST.
• • You carry on an enterprise of premium bedding protection products.
• • You supply a product known as the SnoreBeGone.
• • You supply the product wholly within Australia.
• • Your product is designed to position the body to reduce the incidence of snoring.
• • Your product is designed for people with sleep deprivation and snoring, which in turn helps to control sleep apnoea.
• • Your product is designed to address the problems associated with snoring by:-
  • ○ Supporting the entire body not just shoulders and neck
  • ○ Elevating the body; the elevation needed to prevent gravitational collapse of airways
  • ○ Ergonomic design to maintain correct posture - ensuring spine and shoulders remain at right angles
  • ○ Design encourages side sleeping and prevents sleeping on back (leaving air passages open to breathe easier)
  • ○ The weight of the body holds the Sleep Positioning System in place, while allowing a left or right lateral position for sleep
  • ○ Recess channel provides space for shoulder and arm to rest stress-free
  • ○ Detachable and adjustable headrest ensures optimal comfort
  • ○ Detachable arm rests ensure arms can lay flat and relaxed (for added comfort when extending the arm)
  • ○ Extension cushion prevents slide and provides full body support.
• • Your product comprise [sic] of numerous components including:-
  • ○ detachable and adjustable headrest
  • ○ shoulder and arm recess channel
  • ○ incline and weight support
  • ○ extension cushion (slide minimiser)
  • ○ arm support extensions.
• • Your main market for the product will be sleep clinics and chiropractors.^[2] S.37 documents p.124.

The product is made of foam with a fabric cover; a photograph is reproduced in the schedule to these reasons.

LEGISLATION

6. Section 38-45(1) of the GST Act provides:

38-45 Medical aids and appliances

(1) A supply is GST-free if:

• (a) it is covered by Schedule 3 (medical aids and appliances), or specified in the regulations; and
• (b) the thing supplied is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability.

7. Schedule 3 relevantly provides:

Schedule 3 - Medical aids and appliances

Note 1: GST-free supplies of medical aids and appliances are dealt with in section 38-45.

Note 2: The second column of the table is not operative (see section 182-15).

Medical aids and appliances
Item	Category	Medical aids or appliances
…	Mobility of people with disabilities - physical: bedding for people with disabilities
64		bed restraints
…
67		backrests, leg rests and footboards for bed use
…	Mobility of people with disabilities - physical: positioning aids
82		night-time positioning equipment modifications
…	Mobility of people with disabilities - physical: seating aids
87		cushions specifically designed for people with disabilities

The second column headed "Category" is not operative in relation to the product under consideration.^[3] S.182-15 of the GST Act.

ISSUES

8. The issue for determination is whether the supply of the product is covered by any of items 64, 67, 82, and 87 of Schedule 3.

9. The parties agree that the requirements of subsection 38-45(1)(b) are satisfied as the product "is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability." This agreement is appropriate.

CONSIDERATION

The "essential character test"

10. In
Thomson Australian Holdings Pty Ltd v Commissioner of Taxation^[4] (1988) 20 FCR 85 . the Federal Court considered the classification of goods under sales tax legislation. The principle set out is equally applicable to the legislation under consideration here. The Court said:

… the task… is to determine the essential character of the goods, what essentially the goods are, not some characteristic that the goods might have. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part.^[5] (1988) 20 FCR 85 , 86.

The use which may be made of Column 2 in the Table

11. As previously mentioned Column 2 is not operative. However subsection 182-10(2) of the GST Act provides:

182-10 Explanatory sections, and their role in interpreting this Act

(2) Explanatory sections form part of this Act, but they are not operative provisions. In interpreting an operative provision, an explanatory section may only be considered:

• (a) in determining the purpose or object underlying the provision; or
• (b) to confirm that the provision's meaning is the ordinary meaning conveyed by its text, taking into account its context in this Act and the purpose or object underlying the provision; or
• (c) in determining the provision's meaning if the provision is ambiguous or obscure; or
• (d) in determining the provision's meaning if the ordinary meaning conveyed by its text, taking into account its context in this Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable.

Item 82: night-time positioning equipment modifications

12. One of the arguments put by the Company is that this item is applicable as the product is designed to modify the position in which a person sleeps. The marketing material describes the product as a Sleep Positioning System.^[6] Exhibit A3. However in interpreting a statutory provision it is necessary to give meaning to all the words used. The argument put ignores the word "modifications." It is the "modifications" to "night-time positioning equipment" which are exempted, not the equipment itself.

13. The Commissioner put the following proposition:

…the ordinary meaning of this item is that the product is a specific modification to an existing product that is "night time positioning equipment" in circumstances where no other item covers the existing product that is "night time positioning equipment". For example, changing the shape of a device that is night time positioning equipment to accommodate a particular requirement of a disabled person would satisfy this item.^[7] Respondent’s Written Submissions para.22.

14. I am satisfied that the product does come within the description contained in item 82 for the very reason that it is accurately described by the example given by the Commissioner. The product modifies the shape of a mattress, which is "night time positioning equipment", to accommodate the particular requirement of a person with a disability.

15. A mattress is properly described as "night time positioning equipment" as it provides a surface which holds a person in a horizontal position, commonly for the purpose of sleeping at night. The essential purpose of the product is to modify that horizontal surface by changing its shape so that the person's torso is held in an inclined position and the head is elevated from the mattress.

16. The description of the product in its marketing material makes clear that the product is designed to be used in conjunction with a mattress and thereby to modify it:

Place SnoreBeGone® on a medium to firm mattress where you would normally sleep. (A medium to firm mattress will prevent sagging/buckling and will ensure optimal positioning).^[8] Exhibit A1

Further, although the product is referred to as providing full body support^[9] Exhibit A1. , it is apparent that the extension cushion at the end of the product does not support the legs for their entire length. It is clear that the product is designed for use with another sleeping surface.

17. The Commissioner further argued that "'[n]ight time positioning equipment' should be construed as a reference to equipment designed to modify a person's position while in bed."^[10] Respondent’s Written Submissions para.27. I cannot see any justification for imposing such a restriction on the ordinary meaning of the words used. The interpretation proposed qualifies the "positioning equipment" by restricting the equipment itself to having the purpose of modifying the user's position. This would mean that the description in Schedule 3 is limited to modifications of modifying equipment. This would be an unjustified departure from the ordinary meaning of the words used.

18. In accordance with subsection 182-10(2)(b), reference to the heading in Column 2 (Category) confirms that the meaning which I have accepted is the ordinary meaning conveyed by the text.

19. The Category of which Item 82 is part is:

Mobility of people with disabilities - physical:

positioning aids

Included in this category are certain items and, separately, modifications of those items. For example, both standing frames and standing frames modifications are included. As noted earlier "night - time positioning equipment" is not included. This is consistent with the interpretation that suggests that "night-time positioning equipment" envisages commonly used items, such as mattresses.

Item 64: bed restraints

20. As I have decided that the product comes within Item 82 the product is GST-free. However for completeness I will deal briefly with the arguments raised in relation to the remaining items.

21. The Company relies on the ordinary meaning of the word "restraint" taken from the Australian Oxford Dictionary 2012 as "a device which limits or prevents freedom of movement". It is argued that the product is designed to limit or prevent the user's freedom of movement in bed.

22. I do not accept this argument. By reason of its shape, the product encourages the user to sleep on his or her side rather than back. It does not limit movement or constrain the user to the bed in any way. In common usage, an item on which a person lies, with no restriction or constraint is not an item which would be described as a "restraint" in the common usage of that term.

Item 67: backrests, leg rests and footboards for bed use

23. The Company argues that the product is designed to maintain correct posture and that the ordinary meaning of "backrest" does not imply that the back actually contacts the supporting product.

24. On this question I agree with the submission of the Commissioner that the product is a device designed to position the body to prevent snoring and, although part of it may support the back, its essential character is not that of a "backrest". Similarly, although the product may support part of the user's legs, this is not its essential character.

Item 87: cushions specifically designed for people with disabilities

25. The description of this item is strange as it includes in its description words with the same meaning as those in subsection 38-45(1)(b), namely that the thing is specifically designed for people with a disability/disabilities.

26. It is not in dispute that the product is designed for a person with a disability.

27. The question is whether it is properly described as a cushion. The Company referred me to a number of dictionary definitions which indicate that the ordinary meaning of "cushion" is:

• (a) a mass of soft or yielding material;
• (b) used to lie on; and
• (c) used to give support or comfort to the body in reclining.^[11] Applicant’s Outline of Submissions para.38.

28. Accepting for present purposes that this may be the ordinary meaning of "cushion", again it is not the essential character of the product. Various parts of the product are properly described as cushions, but the essential character of the product as a whole is not simply to give support or comfort to the body. As previously stated, the essential character of the product is a device to position the body to prevent snoring.

CONCLUSION

29. For the reasons given the decision of the Commissioner of Taxation made 20 December 2012 disallowing the objection of Snugfit Australia Pty Ltd will be set aside.

30. In substitution it will be decided that the supply of the product "SnoreBeGone" Sleep Positioning System is GST free under 38-45(1) of the A New Tax System (Goods and Services) Act 1999 (Cth).

Schedule