Diethelm Manufacturing P/L v Commissioner of Taxation

[1992] FCA 878

Re: DIETHELM MANUFACTURING PTY LIMITED
And: COMMISSIONER OF TAXATION
No. G 302 of 1992
FED No. 878
Number of pages - 6
Sales Tax
(1992) Aust Sales Tax Cases 85-163

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Davies J.(1)

CATCHWORDS

Sales Tax - whether the subject goods are entitled to a reduction in sales tax by falling within Item 1 para (a) of the Third Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (Cth) - whether the subject chairs are furniture of a kind ordinarily used for household purposes - interpretation of the words "ordinarily" and "of a kind".

Sales Tax (Exemptions and Classifications Act) Act (1935) (Cth)

O.R. Cormack Pty Limited v. Federal Commissioner of Taxation 92 ATC 4121

HEARING

SYDNEY

#DATE 6:11:1992

ORDER

The Court orders that:

The application be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

DAVIES J. This is an appeal brought by Diethelm Manufacturing Pty Limited ("Diethelm") against the disallowance of an objection to an assessment of sales tax. The amount of sales tax that is in dispute is, $337,882. The application refers also to another amount of $133,929, but that amount is conceded not to be presently within the jurisdiction of this dispute.

1. Diethelm is a manufacturer of furniture, which I take the liberty to describe at this stage as primarily office furniture. If I need any assistance in giving it that description I obtain it from the brochure that is in evidence which describes the furniture as being manufactured by Diethelm Office Furniture Pty Limited.

2. The question is whether the goods fall within Item 1, paragraph (a) of the Third Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (Cth), which paragraph has a number of essential elements. The Item refers to goods which must be of a kind, that is to say, a type or genus. That type or genus must be ordinarily used for household purposes. The goods must also fall within one of the categories laid down in the particular paragraphs, the first of which in paragraph (a) is "furniture".

3. I have expressed my interpretation of Item 1 in O.R. Cormack Pty Limited v. Federal Commissioner of Taxation, 92 ATC 4121. I adopt what I there said and I need not go into the matter in any particular detail. A crucial part of the interpretation adopted in Cormack's case is that, when one is characterising goods for the purpose of an item such as this, one gives the words their application in ordinary parlance, not adopting a technical, scientific approach, but rather looking at the words and weighing them up. One asks, do the goods fit within this description and are these goods fairly described by these ordinary words of the English language. That is to ask whether the goods have the essential character specified, and that is the same point.

4. In my view, you approach the interpretation of this Item in a straightforward way, not by moving artificially from word to word but by weighing up all the words used. In the end, the question is whether these subject goods are furniture of a kind ordinarily used for household purposes.

5. If one approaches the matter in that way, it is clear that the Item is directed to domestic goods and that the reduction in sales tax for which it provides is a reduction of sales tax given to goods that have the essential character of domestic goods. All the matters specified in each of the paragraphs fall readily into that description. Now, it is simple to state that. It is not always simple to apply the approach to goods and Cormack's case was not, I think, an easy case, because it was difficult to describe tools, at least the ordinary painting tools that were there in issue, as either domestic or otherwise. But there is, I think, a distinction generally understood in the community between office furniture and domestic furniture, and, in my view, Item 1 is looking to furniture of the type that is ordinarily found in households.

6. Mr A. Slater, counsel for Diethelm, has put the submission that the Item should be read differently and that one should apply it by going through a number of steps. He submitted that the first step was to identify the purpose of the goods, which purpose need not be exclusively or even principally pursued in situ in a dwelling. Mr Slater submitted that, in the present case, the purpose for which chairs are used, seating, is clearly a household purpose, and that the class or genus to which the goods in question belonged was the class or genus of chairs.

7. Mr Slater then submitted that chairs are ordinarily, commonly or regularly found in households and are used for household purposes and that, therefore, it was sufficient that the goods in question are chairs. Mr Slater defined a chair as a seat with a back and legs or other support, often with arms, usually for one person. He submitted that, in that sense, chairs were goods of a kind ordinarily used for household purposes and that the type of furniture which would be excluded from Item 1 was not a chair, but goods such as lecterns, pews, change lockers, compactuses, and filing cabinets.

8. It seems to me that the words "of a kind" are not to be given such an application. The words "of a kind" are not easy words. They are not precise. But, they convey a meaning. It seems to me that they do not require one to give a technical or unduly wide or unduly narrow definition to a genus and then to apply that genus to the remainder of the words of the section. Rather, the question is whether, having regard to all the facts, the subject goods should be described as goods of a kind ordinarily used for domestic purposes.

9. I think there is a well-understood distinction between goods which are ordinarily used for household purposes and goods which are ordinarily used for other purposes, and it seems to me that office furniture does not fall happily within the specified description.

10. That is not to say that every piece of furniture can be described as either office or household or that the characterisation of goods is a simple matter. The circumstances of commercial life are complex. In this respect also I disagree with Mr Slater's submissions. It seems to me that one should be careful with the broad brush. The Item intends every good to be looked at as to whether it fits or does not fit. Obviously, some furniture found in households, such as desks for use with computers or by children for doing their homework or study, are goods which could be described equally as office or household goods and might be bought equally for either purpose. It seems to me that such goods might very well be described as goods ordinarily used for household purposes even though, as a general category, they might appear to be office furniture. That is my general approach to the matter.

11. Evidence was given that Diethelm's furniture is high quality office furniture, and that less than 10% is sold for domestic purposes. That is, less than 10% is sold to persons who it is anticipated would use the goods in their home. From that, I take it that all of the subject goods are chairs which, on occasions, could be bought for use in a home, but that the high proportion of these goods are bought for office use, and furthermore, that they are high quality chairs designed for office use.

12. When you are determining the genus or kind, it seems to me that you are entitled to take quality into account. A finding that goods are of a particular quality, with components designed for office use, the quality of which makes them too expensive for general sale for use in households, is a factor which may take them out of the category of goods ordinarily used for domestic purposes. For example, one can find industrial tools of the general description that a handyman might use, e.g. drills, which are nevertheless designed for and sold for industrial use.

13. Mr Slater adduced evidence from a director of Diethelm, Mr Paul Anthony Todd, to the effect that the general function of the chairs produced by Diethelm is similar to that of chairs which a number of firms sell by retail for use in homes, that is to say, for domestic use. Mr Todd gave evidence that the difference did not lie in function but in quality, and that, because Diethelm produced high quality goods for extended use, that quality put Diethelm's goods out of competition with the other cheaper models.

14. It seems to me that Item 1 does not direct its attention specifically to function and that it is not of great assistance to say that these goods serve the same function as other goods. I think the task is simply to determine whether the goods satisfy the description in the Item, and that description is furniture of a kind ordinarily used for household purposes.

15. The parties have not put any particular emphasis on the individual chairs, which cover a wide range, and in the circumstances it seems to me that there can be no particular distinction drawn.

16. I would make only two other comments. Mr Slater submitted that the word "ordinarily" should not be given the meaning that I attached to it in Cormack's case, which he said was the meaning given to the word "principally" which is frequently found throughout the sales tax classifications. In Cormack's case, however, I adopted the meaning of "settled or usual" and I think that that is generally the meaning which the word denotes. It is not, of course, a technical meaning and can vary in respect of different classes of goods. I stand by the approach taken in Cormack in that respect. However, any difference in meaning is not a matter of significance in the present case. It seems to me that Mr Todd's evidence that less than 10% of his high quality furniture went to households clearly puts these subject goods out of the category of goods ordinarily used for household purposes.

17. Finally, Mr S. Gibb, counsel for the Commissioner, faintly suggested that a home office might be outside the ambit of the expression "household purposes." For the moment, I proceed upon the assumption that most homes have a room that would be described as a den or an office, and many of them contain computers or typewriters and desks. I would not exclude any of such goods if they were ordinarily found in households. I would not exclude them from the Item simply on the ground that there is some distinction between the purpose of a home office and a household purpose.

18. In the end result, however, it seems to me that the appeal must be dismissed, with costs.