Dick Smith Electronics Pty Ltd v Commissioner of Taxation
[1997] FCA 261
•18 APRIL 1997
CATCHWORDS
SALES TAX - Exemptions - “Adaptors” - Whether certain items are “adaptors” for the meaning of item 43(3) (a) of Schedule 1 of the Sales Tax (Exemption and Classifications) Act 1992 (Cth) - Essential character or function of electrical items - Meaning of word ‘adaptor in electrical industry - Dictionary definitions of “adaptor, converter and transformer”
Sales Tax (Exemptions and Classifications) Act (Cth) 1992 Schedule 1, item 43
Sales Tax (Exemptions and Classifications) Act (Cth) 1935 Schedule 1, item 43
Lake Macquarie Shire Council v Aberdare County Council, 123 CLR 327
Magna Stic Magnetic Signs Pty Ltd & Anor v Commissioner of Taxation 28 FCR 39
Telstra Corporation Ltd v F.C. of T. 95 ATC 4,400
Thomson Australian Holdings Pty LtdvCommissioner of Taxation 20 FCR 85.
Commissioner of TaxationvThomson Australian Holdings Pty Ltd 25 FCR 481
Whitton v Falkiner 20 CLR 118
DICK SMITH ELECTRONICS PTY LTD v. COMMISSIONER OF TAXATION
No. NG 243 of 1996
Emmett J
SYDNEY
18 April 1997
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 243 of 1996 ) GENERAL DIVISION )
BETWEEN: DICK SMITH ELECTRONICS PTY LTD
ApplicantAND: COMMISSIONER OF TAXATION
RespondentCORAM: EMMETT J PLACE: SYDNEY DATED: 18 APRIL 1997
MINUTES OF ORDER
The Court orders that:
The proceedings be dismissed.
The applicant pay the respondent’s costs.
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 243 of 1996 ) GENERAL DIVISION )
BETWEEN: DICK SMITH ELECTRONICS PTY LTD
ApplicantAND: COMMISSIONER OF TAXATION
RespondentCORAM: EMMETT J PLACE: SYDNEY DATED: 18 APRIL 1997
REASONS FOR JUDGMENT
The applicant (“the Taxpayer”) commenced proceedings against the respondent (“the Commissioner”) in the High Court of Australia by writ of summons and statement of claim filed on 29 February 1996. On 18 March 1996, McHugh J., by consent, ordered that further proceedings in that action be remitted to this court and that the action proceed in this court as if the steps already taken in the action in the High Court had been taken in this court.
The dispute between the parties is whether any of the items described below as an “AC adaptor” is an “adaptor” within the meaning of item 43(3)(a) of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act.
The Taxpayer sells electrical goods by wholesale to distributors and by retail to members of the public. Between 1 January 1993 and 28 February 1996, the Taxpayer sold by wholesale to distributors, among other things, each of the following:
(a) a Shimasu Kiddicall Baby Monitor (“the baby monitor kit”)
and
(b) a Digitor Personal CD player (“the CD kit”)
In addition, during that period, the Taxpayer sold by wholesale to distributors a device labelled as “Sanyo AC Adaptor Model No. KRO522.”
There was sold with the baby monitor kit, and included in the price for it, two devices which are labelled and are described in the accompanying owner’s manual as “AC adaptor”. There was also sold with the CD kit, and included in the price for it, a device described as “AC adaptor”. That device was also labelled and described in the owner’s manual as “AC adaptor”.
By the writ of summons, the Taxpayer sought the following declarations:
A declaration that the AC adaptors sold with the Shimasu Kiddicall Baby Monitor Kit for one inclusive price are within sub-item 43(3)(a) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1992.
A declaration that so much of the taxable value of the Shimasu Kiddicall Baby Monitor Kit by the plaintiff to distributors as is attributable to the AC adaptors, namely the price for which the AC adaptors could reasonably be expected to have been sold if they had been sold separately, is not subject to sales tax.
A declaration that the AC adaptor sold with the Digitor Personal CD Player Kit for one inclusive price is within sub-item 43(3)(a) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1992.
A declaration that so much of the taxable value of the sale of the Digitor Personal CD Player Kit by the plaintiff to distributors as is attributable to the AC adaptor, namely the price for which the AC adaptor could reasonably be expected to have been sold if it had been sold separately, is not subject to sales tax.
A declaration that the Sanyo AC Adaptor model no. KR0522 is within sub-item 43(3)(a) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1992.
A declaration that, having regard to section 24 of the Sales Tax (Exemptions and Classifications) Act 1992, an assessable dealing with the Sanyo AC Adaptor model no. KR0522 is not taxable.”
Item 43 relevantly provides as follows:
“(1)The following goods, if they are of a kind ordinarily used as part of fixed electrical installations in consumers’ premises:
(a)electrical fittings (including electronically operated electrical fittings);
(b)electrical accessories (including electronically operated electrical accessories);
(c)electrical materials (including electrical conduit).
(2)Subsection (1) does not cover:
.......
(i)condensers, converters, starters and transformers;
.......
(3)The following goods, if they are of a kind ordinarily used in connection with fixed electrical installations in consumers’ premises:
(a)adaptors;
(b)plugs;
(c)electrical safety devices for the protection of persons.”
(Emphasis added).
The historical background to item 43 may be a relevant consideration. The historical background to the predecessor of item 43 in the Sales Tax (Exemptions and Classifications) Act, 1935 (“the 1935 Act”) is set out in the judgment of Jenkinson J. in Telstra Corporation Limited v. F.C. of T. 95 ATC 4,400 at 4,403 and 4,404.
The predecessor of item 43 was first included in the 1935 Act in 1953. However, there was no evidence as to whether devices such as those presently in question existed in 1953. It may be unlikely that they did. Whether they did or did not, of course, while relevant, is not decisive.
The Commissioner contends that the relevant inquiry is as to the essential character of the devices in question and not some characteristic which the devices might have. Essential character is said to derive from the basic nature of the devices, from what they are, though composition, function and other factors necessarily play a part (see Thomson Australian Holdings Pty Limited v Commissioner of Taxation 20 FCR 85 at 86 per Davies J. and on appeal 25 FCR 481 at 482).
The possibility that the devices in question did not exist in 1953 rather confirms the need to identify their essential character. It is necessary to determine whether the devices are such as would have been connoted by the term “adaptor” in 1953 even though they may not have been denoted if they did not exist at the time.
While a term in a statute may at the time when the statute is enacted denote one thing, the connotation of the term may be wider. Whilst the connotation of a word in a statute will be fixed, the denotation of the word may change with changing technologies (see Lake Macquarie Shire Council v Aberdare County Council, 123 CLR 327 at 331 and 332). Thus, even if the devices presently under consideration did not exist in 1953, such that they would not have been denoted by the word “adaptor” used at that time, the connotation of the word “adaptor” may be sufficiently wide to embrace something which is, following a development of technology, an adaptor.
Evidence as to trade usage and commercial appellation is admissible as to what merchants and others did at the date of the relevant legislation. However, if articles were at that date unknown, one cannot, by merely appropriating a particular designation and attaching it to an article, bring the article into a classification which it does not fit (see, for example, Whitton v Falkiner 20 CLR 118 at 127, although the decision is not completely on point).
In Magna Stic Magnetic Signs Pty Limited & Anor v Commissioner of Taxation 28 FCR 39, the question in issue was whether certain items could properly be characterised as builders hardware. There was no evidence as to the meaning in the relevant trades of the term “builders hardware” but such evidence would, it seems, have been admissible (see per Davies J. at 42 and Beaumont and O’Loughlin JJ. at 47-8).
Evidence adduced by the Taxpayer in the present case which was designed, in part, to provide a basis for concluding that the word “adaptor” has a particular meaning in the electrical engineering field. Mr Alex Baitch, an experienced consultant in the field of electrical engineering, gave evidence on behalf of the applicant that he had examined the devices in question and that the term “AC adaptor” is a generic description for devices of the type examined by him.
Mr Baitch says that such devices are inserted into standard mains outlets which supply AC power (alternating current) in buildings and into an appliance for the purpose of connecting that appliance to the power supply to enable the appliance to operate. He also says that the devices in question perform three functions.
First, they provide a means of “physical adaption of the connection from one form to another”, namely, from the fixed electrical installation or socket outlet to the different plug connector on the appliance. Secondly, they provide “an electrical adaption of the supply from the fixed electrical installation (240 volt alternating current) to an electricity supply suitable for powering the appliance (low voltage direct current)”. Thirdly they provide “an enclosure for housing the various components that are required to provide both the physical adaption ....and the for the electrical adaption.....” Finally, Mr Baitch says that where a device fulfils those functions, the common usage term for “the combination” is an “adaptor”.
Trevor Blackburn, Associate Professor and the Head of the Department of Electrical Power Engineering, School of Electrical Engineering at the University of New South Wales, agreed that the terms “adaptor” and “AC adaptor” are commonly used to describe devices such as those in question. He referred, in particular, to safety recall notices published in newspapers as being indicative of the common usage of the term “adaptor” for such devices. However, Associate Professor Blackburn preferred to call the devices in question “converters”, notwithstanding his evidence as to common usage of the term “adaptor”.
Associate Professor Blackburn described the function of the devices in question as being to convert the 240 volt AC supply from the power outlet to the 9 volt DC supply required by the appliance utilising the device. To accomplish that conversion, the device incorporates a transformer and a rectifier within the housing and provides two terminals, one appropriate for the power outlet at the wall socket on the one hand and the other appropriate for the power input in the appliance on the other hand.
Associate Professor Blackburn also explained the specific function of transformers and rectifiers. A transformer is an electrical device which changes the voltage level of alternating current. It may increase or reduce the voltage level. In the case of the devices in question, of course, the voltage is reduced.
A rectifier is an electrical device which changes alternating current wave forms, which alternate between positive and negative values, to a unidirectional, or direct current, wave form which does not change from positive to negative. Rectifiers are invariably used with filters which provide a more uniform level of direct current supply. Filters reduce the large ripple of the rectified unidirectional supply to give it a substantially constant direct current supply with only a small ripple. Nothing put to Associate Professor Blackburn suggested any disagreement on the part of Mr Baitch with that description.
The evidence has established quite convincingly that devices of the same nature and function as those in question are regularly referred to as “adaptors”, “AC adaptors” or “AC/DC adaptors” in the electrical industry in which they are used. However, while that may be relevant evidence, the question is whether they are “adaptors” within the meaning of that term when it is used in item 43(3)(a).
Attention was drawn by the Commissioner to a number of dictionary definitions of the term “adaptor” as follows:
Macquarie Dictionary 2nd ed.(The Macquarie Library Pty Limited, Macquarie University, 1991): “an accessory plug for connecting a piece of apparatus fitted with one type of terminal to a supply point with a different type.”
Oxford English Dictionary 2nd ed.,(Clarendon Press, Oxford, 1989) “a connecting part; an accessory for insertion into a socket-outlet and containing metal contacts to which may be fitted one or more plugs for the purpose of connecting to the supply portable lighting fittings or other current using-appliances.”
The New Shorter Oxford English Dictionary (Clarendon Press, Oxford, 1993): “a device allowing connection of pieces of equipment,...unable to be connected directly. An electrical fitting of this nature, usually one enabling more than one plug to be connected to the same socket.”
The New IEEE Standard Dictionary of Electrical and Electronics Terms, 5th ed. Gediminas P. Kurpis, chair, Christopher J. Booth, ed.,(Institute of Electrical and Electronics Engineers, New York, 1993): “a device for connecting parts that will not mate. An accessory to convert a device to a new or modified use.”
From those definitions, it can be concluded that each of the devices in question performs the function of an adaptor as so defined. That is to say, it is a means whereby an appliance, which does not have a plug attached to it which will fit a wall power socket, can be connected to the wall socket.
However, the devices in question do much more than that. If an appliance designed to operate on 9 volt direct current were connected directly to the 240 volt alternating current supply, not only would the appliance not work, the supply could cause damage to the appliance. In other words, the device performs a very important and totally different function from merely adapting the input socket on the appliance to the output socket being the source of alternating current supply.
The 240 volt alternating current supply is useless for the operation of an appliance designed to operate on 9 volt direct current supply. Accordingly, an essential function performed by the device in question is to transform the voltage of the current from 240 volt to 9 volts and to rectify that current by converting it from alternating current to direct current.
The Commissioner also drew attention to other dictionary definitions. Thus, “converter” is defined as follows:
Macquarie Dictionary: “a device which changes alternating current to direct current or visa versa.”
Oxford English Dictionary: “an apparatus for converting high tension into low tension electricity. Also a device for changing current of one kind into current of another kind; = transformer.”
Shorter Oxford English Dictionary: “a device for altering the nature of an electrical current, especially for the interconversion of alternating current and direct current.”
The New IEEE Standard Dictionary of Electrical and Electronics Terms: “a machine or device for changing alternating current power to direct current power or vice versa or from one frequency to another.”
In addition, definitions of “transformer” were provided as follows:
Macquarie Dictionary: “an electric device, without continuously moving parts, which by electromagnetic induction transforms electric energy from one or more circuits to one or more circuits of the same frequency, usually with changed values of voltage and current; especially one for transforming a comparatively small alternating current of higher voltage into a larger current of lower voltage or conversely a current of lower voltage into one of higher voltage.”
Oxford English Dictionary: “an apparatus which transforms continuous currents from one voltage to another or continues into alternating currents.”
The New IEEE Standard Dictionary of Electrical and Electronics Terms: “a device which when used will raise or lower the voltage of alternating current of the original source.”
While some attempt was made in cross-examination of Associate Professor Blackburn to establish that the use of the device in question converted a portable CD player into a non-portable CD player, such a use of terminology strikes me as being somewhat forced. The function of a CD player is to produce sound. Whether the CD is made to operate either by the use of batteries or by physical attachment to another source of supply, the primary function of the CD player is to produce sound. I do not consider that there is any conversion of the appliance by the use of the device in question.
Assistance may sometimes be derived from the context in which a word appears in the relevant item. Thus, a “plug” could be regarded as being of the same genus as adaptor as the term “adaptor” is defined in the dictionaries. However, there was no evidence as to what might constitute “electrical safety devices for the protection of persons.” That term is new in the sense that it was not part of the relevant item when the exemption for adaptors was first included in the 1953 Act. It seems, therefore, that no assistance can be gained from that context.
On the other hand, paragraphs (1) and (3) of item 43 draw a distinction between goods used as part of fixed electrical installations and goods used in connection with fixed electrical installations. There are to be excluded from the first category goods described as converters and goods described as transformers. On the other hand, goods used in connection with fixed electrical installations will qualify for the exemption only if they are adaptors, plugs or other electrical safety devices as described.
That distinction indicates a recognition on the part of the legislature of the existence of converters and transformers as well as adaptors. It suggests that a converter or a transformer will not necessarily be an adaptor.
The considerations outlined above indicate that the term “converter” preferred by Associate Professor Blackburn appears to be an appropriate one for the devices in question, although that is not the question which arises in these proceedings.
The question is whether the devices are adaptors within the meaning of item 43. In terms of their essential character or function, they are more properly to be regarded, in the light of the evidence to which I have referred, as converters or transformers rather than adaptors. That is what they are: their function is to convert.
While the devices do perform the function of an adaptor as that term is defined in the dictionaries and as it is generally used both in common parlance and in the electrical engineering field, the adapting function is quite incidental to what I understand to be their essential function. The essential function is to convert the electricity supply from one which cannot be utilised by the appliance into an electricity supply which can be utilised by the appliance for its operation. The essential character of the devices is that of a converter or transformer.
The devices are not adaptors within the meaning of the dictionary definitions. Certainly the devices may be considered to perform the function of an adaptor, because the standard input socket on many appliances requires something to connect it to the output socket of a fixed electrical installation in consumers’ premises.
Nevertheless, the function of the devices is not to adapt in that sense, which is purely incidental, but to convert the electricity supply from a form which cannot be used by the appliance into a form which can be used by the appliance to make it operative. Their essential character is that of a device to transform and convert the electricity supply, not to adapt the input on the appliance to the output on the wall.
Therefore, apart from the fact that, in common usage, the devices are generally referred to as adaptors or AC adaptors or AC/DC adaptors, I would have had little hesitation in concluding that the devices are not adaptors within the meaning of item 43(3)(a). Nevertheless while I have some residual doubt about the question, I do not consider that the devices are adaptors within the meaning of item 43(3)(a). It follows that the proceedings should be dismissed with costs.
I certify that this and the preceding twelve pages are a true copy of the Reasons for Judgment of his Honour Justice Emmett.
Associate:
Dated: 18 April 1997
Heard: 26 February 1997
Place: Sydney
Decision: 18 April 1997
Appearances:
Counsel for the applicant: D.H. Bloom QC
P.A. Sharp
Solicitor for the applicant: Firmstone & Feil
Counsel for the respondent: R.F. Edmonds SC
S.J. McMillan
Solicitor for the respondent: Australian Government Solicitor
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