Deputy Federal Commissioner of Taxation v. Lincoln Industrial Cleaners Pty. Limited.

Judges:
Sheppard J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 3 October 1975.

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Sheppard J.: This is a claim for sales tax and additional sales tax in the sums of $4086.87 and $1843.36 said to be due to the plaintiff by the defendant. The tax is claimed in respect of the sale value of a product known as ``Karpet'' manufactured and sold by the defendant during the period 1st April, 1969 to 31st October, 1970. The case is a test case in that the defendant has continued to manufacture and sell ``Karpet''. If my decision is adverse to it further sums will be due for sales tax and additional tax in respect of its manufacture since 31st October, 1970.

The defendant markets its product in various containers, namely (I use imperial measurements) thirty-three pounds, eight pounds and twenty ounces. On each of the containers appears the name of the product in large letters. Underneath the name and in letters not so large, but nevertheless prominent, appear the words,

``INSECTICIDAL powder carpet cleaner''

The larger containers contain directions both for use in emergency and for use in what is described as area cleaning and regular maintenance. Relevantly the emergency directions contain the following statements, ``At the first sign of pest damage, immediately treat the total carpeted area as directed under `Regular Carpet Maintenance'. Leave for one hour before vacuum cleaning. KARPET kills all destructive carpet pests and then protects.'' The regular maintenance directions include these statements, ``All KARPET-cleaned areas are impregnated automatically against pest damage. Remember that carpet beetle and moth attack is most prevalent in undisturbed areas, especially edges and corners.''

Although there has been, upon occasions when the matter has been mentioned during its interlocutory stages, disagreement between the parties as to the uses and properties of ``Karpet'', there was eventual agreement that its principal purpose was that of a carpet cleaner, but that a secondary purpose for which it might be used was as an insecticide in respect of some insects which attack carpets. That agreement exists, although on the small container there is no indication of the quantities of ``Karpet'' required, nor the time during which it should be left, in order to fulfill its secondary purpose. Those quantities and times do appear on the larger containers.

The plaintiff purports to levy the sales tax which he claims pursuant to the Sales Tax Act (No. 1) 1930, as amended. Liability to tax under that Act arises under the provisions of the Sales Tax Assessment Act (No. 1) 1930 as amended, as qualified by the Sales Tax (Exemptions and Classifications) Act, 1935, as amended. Section 5 of that Act provides that notwithstanding anything contained in any Sales Tax Assessment Act, sales tax shall not be payable upon the sale value of any goods covered by any item or sub-item in the first column of the first schedule to the Act. Division XV of the first schedule contains item

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139 which is divided into four paragraphs. Its first column is as follows -

``(1) Preparations and materials for use in the destruction of insect pests

(2) Appliances of a kind used exclusively or primarily and principally for the purpose of the use of goods covered by sub-item (1) of this item

(3) Fly papers, fly traps and other appliances of a kind used exclusively or primarily and principally in the destruction of insect pests

(4) Parts for goods covered by sub-item (2) or (3) of this item.''

The defendant claims exemption under item 139(1) on the ground that the material in question is a preparation for use in the destruction of insect pests.

It was submitted by the plaintiff that the words were open to one of three possible interpretations, and that, no matter which was found to be the correct one, the preparation in question was not entitled to the benefit of the exemption. The possible interpretations were -

• (1) The words ``for use'' should be interpreted as the use intended by the end user at the time of the purchase of the product by him. In other words it was a question of the consumer's use or intended use at the time of purchase.
• (2) The relevant intention is that of the manufacturer, so that one looks to see whether his intention at the time of manufacture was that the product be used by the end user in the destruction of insect pests.
• (3) The words ``for use'' are intended to denote some quality apparent in the article itself to persons who know its character which shows that it is specially fit for the particular purpose specified rather than for any other.

The third interpretation was the one preferred by the Commissioner and submitted by him to be the correct one. His second preference was for the first possible interpretation. The third possibility comes from the dissenting judgments of Griffiths C.J. and Barton J. in
Chandler v. Collector of Customs (1907) 4 C.L.R. 1719. Notwithstanding that it appears in dissenting judgments (the majority judgments do not refer to it), I think, that it is the meaning to be attributed to the words here used in the exemption. It must be remembered that the tax is imposed at the time of the last wholesale sale; cf.
D.F.C. of T. (S.A.) v. Ellis & Clark Limited (1934) 52 C.L.R. 85 at p. 89. That being the case, it is difficult to approach the matter upon the basis of what the purpose of the ultimate purchaser was in acquiring the article. It is perhaps not so difficult to approach it upon the basis of what the manufacturer's purpose was in manufacturing the article, but I think the third interpretation in legislation of this kind overcomes such problems as looking at purposes or intentions of users or manufacturers pose and permits one to look at the problem more objectively.

The conclusion I have reached does not assist very much in the resolution of the problem. It is the plaintiff's submission that the word ``use'' refers to the principal or predominant use to which the product in question is to be put. The plaintiff relied upon Chandler's case (supra) and upon
Randwick Municipal Council v. Rutledge (1959) 102 C.L.R. 54.

The defendant's submission is that an article may have one use or quality or two or more uses or qualities. So long as one appreciable use to which the product can be put is that of an insecticide it falls within the exemption, notwithstanding that another use or quality may be the principal or predominant use or quality which it has. The defendant relied upon the decision of Gibbs J. in
National Mutual Life Association v. F.C. of T. 70 ATC 4134; (1970) 122 C.L.R. 13.

His Honour was there concerned with the construction of sec. 88 of the Income Tax and Social Services Contribution Assessment Act, 1936, as amended. The words in question in the section were ``land used for the purpose of producing assessable income''. The taxpayer had expended money in the repair of two buildings, one in London and one in Wellington, New Zealand. Each building was partially used for the carrying out of the taxpayer's business as a life assurance company. The balance of the premises in each case was let to tenants. The rents paid by the tenants in each case formed part of the income of the taxpayer ``but were not assessable

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income for they were exempt under sec. 23(q) of the Act''; ATC p. 4136; C.L.R. p. 16. Other income of the taxpayer was assessable although the incidence of tax was reduced by the provisions of sec. 112A of the Act. At ATC p. 4137 and C.L.R. p. 17 his Honour said that the circumstances showed that both the Wellington and the London land were used for the purpose of producing assessable income, but that this was neither the sole nor the dominant purpose of the use. The Commissioner submitted that sec. 88 would not apply to allow the expenditure in question. At ATC p. 4137 and C.L.R. p. 18 Gibbs J. proceeded -

``The question then is whether the words `used for the purpose of producing assessable income' in sec. 88(1) and (2) on their proper construction apply to land (or in the case of sub-sec. (1) to land, premises or machinery) only when it is solely used or chiefly used for the purpose of producing assessable income. The section itself contains no words restricting its operation in that way. If the provisions are literally construed, they apply when the land is used for the purpose of producing some assessable income, even though it is used for other purposes as well. No doubt the application of the section might be excluded if the use of the land for the purpose of producing assessable income was so insubstantial as to call for the application of the principle de minimis non curat lex, but it is unnecessary to consider that situation or those cases where the use of the land may amount to an arrangement within sec. 260.''

At ATC pp. 4137-39 and C.L.R. pp. 18-22 his Honour dealt with the question he had posed. He referred to a number of provisions relied upon by the parties for their respective contentions. These included sec. 26(a) relied upon by the Commissioner which has been construed to refer to the dominant purpose actuating the acquisition of the property in question. They also included a reference to sec. 57AA, relied upon by the taxpayer, which provides for a special allowance for depreciation to primary producers and which, by sub-sec. (2), is made applicable to units of property in respect of which depreciation was allowable to the taxpayer under sec. 54 and which were used during the year of income wholly and exclusively for the purposes of agricultural or pastoral pursuits, forest operations or fishing operations. To the same effect was sec. 58(1)(a) which provided that the section applied to a unit of property in respect of which depreciation was allowable under sec. 54 being a pipe-line constructed for use, and during the year of income used, wholly and exclusively for the purpose of transporting petroleum obtained from mining operations specified in the sub-section. The words ``used wholly and exclusively'' were also to be found in sec. 58(1)(b). At ATC p. 4139 and C.L.R. pp. 21-22 his Honour continued -

``In all these sections the legislature has, where necessary, qualified `used' by appropriate express words, or has otherwise expressly dealt with the situation that arises when the property in question is not wholly used for the purpose of producing assessable income. In sec. 88 however the words `used for the purpose of producing assessable income' are not qualified by any adverbial expression, and the section does not contain any provision limiting the amount deductible when the land is only partly used for producing assessable income, and this suggests that those words were not intended to be given a restricted meaning, and ought not to be read down to make them accord with a supposed legislative intention, which if it had existed, could easily have been expressed. If the legislature had meant sec. 88 to apply only where the land was chiefly, or in the main, or primarily and principally, used for the purpose of producing assessable income, it would have accorded with the scheme of the earlier provisions if the appropriate words had been included in the section. I conclude that the words of sec. 88 should be given the broad meaning which, in their ordinary and natural sense, they are capable of bearing, and should be understood as including a reference to land which has in fact been used for the purpose of producing assessable income whether or not that was the main use of the land.''

The defendant relied upon the judgment in the National Mutual Life case because of the similarity that there is between the legislation which was considered by Gibbs J. and the legislation here in question. The similarity exists, so it was submitted, because of the use, in relation to some provisions, of the words ``exclusively or primarily and principally'', as in item 139(2) of the first schedule to the Sales

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Tax (Exemptions and Classifications) Act, and the absence of such words in the case of other provisions, for example item 139(1).

Counsel for the plaintiff relied upon two authorities which caution one against too slavish a following of the maxim ``expressio unius, exclusio alterius''. Reference was made to
Colquhoun v. Brooks L.R. 21 Q.B.D. 52 and to
Rylands v. Morgan 27 S.R. 161. In the former case Lopes L.J. said at p. 65 -

``The maxim `Expressio unius, exclusio alterius,' has been pressed upon us. I agree with what is said in the Court below by Wills J., about this maxim. It is often a valuable servant, but a dangerous master to follow in the construction of statutes or documents. The exclusio is often the result of inadvertence or accident, and the maxim ought not to be applied, when its application, having regard to the subject-matter to which it is to be applied, leads to inconsistency or injustice.''

In the Rylands case Long Innes J., at pp. 168-9 adopted what had been said by Wills J. and by Lopes L.J. in their judgments.

Whilst it is important to bear in mind what has been said in the judgments to which I have referred, it is also important to point out that in neither case was the legislation being considered similar to that in question here. In neither case was there the contrast between one provision which expressly indicated that a use had to be exclusive or of a primary or principal nature and another where such express words were not used. To Gibbs J., whose judgment I regard as binding upon me, the contrast was a compelling pointer to the intention of the legislature.

Of course it is important to look, when one approaches the construction of a statute, for reasons why the draftsman may have used words of exclusion or dominance in relation to some situations and not in relation to others. In the item under consideration, the words ``exclusively or primarily and principally'' are used in connection with appliances used for the purpose of the use of goods covered by paragraph (1) being the sub-item directly to be construed. It seems to me that there was good ground for making appliances to be exempted those which were to be exclusively or primarily and principally used for the purposes of the use of goods covered by the first sub-item; otherwise any appliance whatever, no matter that it might have had a variety of other uses not associated with the destruction of insect pests, would have been entitled to the exemption provided one of its uses or purposes was such destruction. I think different considerations apply when one comes to construe sub-item (3). It is difficult to imagine a fly paper or a fly trap which was not used exclusively or primarily and principally in the destruction of insect pests. It is not difficult to think of ``other appliances'' which might be used for that purpose and for other purposes as well. This would lead one to construe the words ``used exclusively or primarily and principally in the destruction of insect pests'' as qualifying the words ``other appliances'' and not the words ``fly paper'' or ``fly traps''. Without an exhaustive analysis of the schedule it would not be possible to say whether other items in the schedule, where the words ``exclusively or primarily and principally'' are used, could be explained in a similar way. It is enough to say, firstly, that the words of item 139 are the words to be considered and, secondly, that the consideration of such other items as I have noticed where the words are used (item 113D and item 146) would lead me to think that there was a special reason why they were used and that there was not, as was suggested might have been the position in both Colquhoun's case and Rylands' case, some oversight by the draftsman.

I have reached the conclusion that the construction contended for by the defendant here is the correct one. In reaching this conclusion I have taken into account the decisions already mentioned in Chandler's case and Rutledge's case. The former was concerned with the construction of the Customs Tariff 1902. There is no comparison to be drawn between the provisions of the Tariff and the provisions of the schedule in the Act in question here. The decision of the majority that the principal or predominant use of goods made liable to duty under that Tariff determines their classification does not assist in the resolution of the present problem. Rutledge's case was concerned with the question of whether or not the Randwick Race Course was a public reserve. In that case Windeyer J. said at p. 94 -

``The presence of `exclusively', `solely', or `only' always adds emphasis; and is not to be disregarded (
Reg. v. Cockburn (1852) 16 Q.B. 480 at p. 491 (117 E.R. 962 at p. 967))

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When such words are present, it is a question of fact whether the land is being used for any purpose outside the stipulated purpose (cf.
Trustees of Victorian Rifle Association v. Mayor of Williamstown (1890) 16 V.L.R. 251;
Down v. Attorney-General of Queensland (1905) 2 C.L.R. 639). As Kitto J. said in
Lloyd v. F.C. of T. (1955) 93 C.L.R. 645 at p. 671, such words confine the use of the property to the purpose stipulated and prevent any use of it for any purpose, however minor in importance, which is collateral or independent, as distinguished from incidental to the stipulated use. Even without such words, an exemption from rating based upon use or occupation for a particular purpose or in a particular manner can only apply when the property is so used that it can properly be described as used for that purpose or in that manner, any other user being merely incidental, or at least not inconsistent with such main user.''

What his Honour has said must be read in the light of the statute which he was concerned to construe and in the light of the question which arose for decision. In relation to the second matter I have mentioned, it is important to have regard to what his Honour had to say at p. 88, namely -

``In principle, for land to be used for public recreation and enjoyment, so as to be in some sense akin to a public park - which is what the Act contemplates (see, in addition to the definition, sec. 344-355) - and to be on that account exempt from rating, two conditions must be fulfilled. The land must be, in the relevant sense, open to the public generally as of right; and it must not be a source of private profit.''

I do not regard Rutledge's case as being directly in point, nor do I regard it, as was suggested in argument, as being in any way in conflict with the decision of Gibbs J. in the National Mutual Life case.

It follows that in my opinion the exemption here under consideration applies where the substance in question may have a number of different uses so long as an appreciable use or quality of the substance is in the destruction of insect pests. It is of no consequence that the primary use or quality of the substance is as a carpet cleaner as distinct from a pesticide.

There will therefore be judgment for the defendant. The plaintiff is ordered to pay the defendant's costs of the proceedings.