Max Factor and Co Inc v Federal Commissioner of Taxation

[1971] HCA 36

HIGH COURT OF AUSTRALIA

Barwick C.J., McTiernan, Windeyer, Owen and Gibbs JJ.

MAX FACTOR &CO. INC. v. FEDERAL COMMISSIONER OF TAXATION

(1971) 124 CLR 353

18 August 1971

Sales Tax (Cth)

Sales Tax (Cth)—Goods given by manufacturer to employees and potential customers for the purposes of sales promotion and goodwill—Whether "applied to" use of manufacturer—Use of manufacturer—Sales Tax Assessment Act (No. 1) 1930-1966 (Cth), s. 17.

Decisions

August 18.
The following written judgments were delivered: -
BARWICK C.J. In this matter I have had the advantage of reading the reasons for judgment prepared by my brother Gibbs. I fully agree with his conclusions and with the reasons which he gives for reaching them. I do not desire to add anything on my own behalf and am of opinion the answers to be given to the questions asked in the stated case should be as my brother Gibbs proposes. (at p358)

McTIERNAN J. I agree in the judgment and in the reasons of my brother Gibbs. (at p358)

WINDEYER J. I would answer the questions as my brother Gibbs proposes. I have nothing to add to the reasons that my brother Owen and he have advanced for that conclusion. (at p358)

OWEN J. This is a case stated pursuant to s. 18 of the Judiciary Act. The appellant carries on business in Australia as a manufacturer and seller of cosmetics. Some of its products are supplied by it free of charge to various persons and classes of persons. Those to whom these goods are supplied and the uses to which the goods are put by them are described in the stated case, as amended during the argument, and need not be repeated. The purpose is, as the case states, to achieve and maintain a satisfactory volume of sales of the appellant's products. (at p358)

2. The question is whether the goods so given away are "applied to" the appellant's "own use" within the meaning of s. 17 (1) of the Sales Tax Assessment Act (No. 1) 1930-1966 (Cth). That subsection provides that:

"Subject to, and in accordance with, the provisions of this Act, the sales tax imposed by the Sales Tax Act (No. 1) 1930 shall be levied and paid upon the sale value of goods manufactured in Australia, either before or after the commencement of this Act, by a taxpayer and on or after the first day of August One thousand nine hundred and thirty sold by him or treated by him as stock for sale by retail or applied to his own use".

And by sub-s. (2),

"For the purposes of this section goods manufactured in Australia by a taxpayer and applied to his own use means goods manufactured in Australia in the course of carrying on a business and applied by the taxpayer to his own use whether for the purpose of that business or for any other purpose and whether or not those goods are of a class manufactured by that person for sale."

For the appellant, the broad contention is that a person who gives away an article which he has manufactured cannot be said to have applied it to his own use even if he has given it for the purpose of promoting the sale of his products. A submission to this effect was made to Windeyer J. in Deputy Federal Commissioner of Taxation v. Taubmans (N.S.W.) Pty. Ltd. (1966) 115 CLR 570 and, in my opinion, was rightly rejected by his Honour who expressed the view that "it cannot be said that a thing is not applied by a person to his own use because the use to which he puts it is to make it available to be used, according to its nature, by somebody else" (1966) 115 CLR, at p 574 . With that I respectfully agree. And in my opinion sub-s. (2) emphasizes what in any event would be, to my mind, clear enough had sub-s. (1) stood by itself, namely, that goods manufactured by a taxpayer are applied to him to his own use if, in the course of carrying on his business, they are applied by him for the purpose of that business. That is the case here and accordingly I am of opinion that all the goods in question were "applied to" the appellant's "own use" within the meaning of s. 17 (1). (at p359)

GIBBS J. The appellant, a company incorporated in the State of Delaware in the United States of America, carries on business in Australia as a manufacturer of cosmetics. Most of the goods which it manufactures are sold, but "with a view to achieving and maintaining a satisfactory volume of sales of cosmetics" (par. 14 of the case stated) the appellant gives away some - a small proportion - of its manufactured goods in the circumstances about to be mentioned. The case stated raises for decision the question whether certain goods given away free of charge by the appellant were applied by the appellant to its own use within s. 17 of the Sales Tax Assessment Act (No. 1) 1930-1966 (Cth) and s. 3 of the Sales Tax Assessment Act (No. 4) 1930-1966 (Cth). During argument it was agreed that the facts stated do not bring the goods within the Sales Tax Assessment Act (No. 4), since the appellant was not the purchaser of the goods, and that the questions put should be understood as referring only to the Sales Tax Assessment Act (No. 1). (at p360)

2. The goods which the appellant has given away free of charge, and to which the questions relate, are as follows:

(1) Lipstick testers (lipstick contained in plastic holders) given to retailers to be placed in counter merchandisers designed to stand on a shop counter as a means of displaying the appellant's lipsticks and of enabling prospective buyers to try out their colours.

(2) Lipstick, face powder, perfume and other cosmetics supplied to retailers, not for sale by them but for the purpose of promoting sales of goods of the appellant's manufacture.

(3) Lipstick, face powder, perfume and other cosmetics supplied to females employed by the appellant in demonstrating its products, for use in their work.

(4) Lipstick, face powder, perfume and other cosmetics supplied to females employed by the appellant in demonstrating its products, for their private use.

(5) Lipstick, face powder, perfume and other cosmetics supplied to make-up artists employed by retailers, for use in their demonstrations to customers.

(6) Lipstick, face powder, perfume and other cosmetics supplied to members of the public attending classes in the appellant's own salons, for use during instruction and to take away for their own use.

(7) Lipstick, face powder, perfume and other cosmetics supplied to members of the public attending classes in salons conducted by departmental stores, for use during instruction.

(8) Cosmetics supplied to buyers employed by departmental stores or pharmacies, for their own use.

(9) Cosmetics supplied as prizes in competitions. (10) Cosmetics supplied to customers who had purchased goods manufactured by the appellant, and who were
dissatisfied with their purchases. (at p360)

3. The general scheme of the sales tax legislation was discussed in Deputy Federal Commissioner of Taxation (S.A.) v. Ellis &Clark Ltd. (1934) 52 CLR 85, particularly at pp 89-92 . The Sales Tax Assessment Act (No. 1) deals with the imposition of sales tax upon the sale value of goods manufactured in Australia and sold by the manufacturer or applied to his own use. Section 17 of that Act reads as follows:

"(1) Subject to, and in accordance with, the provisions of this Act, the sales tax imposed by the Sales Tax Act (No. 1) 1930 shall be levied and paid upon the sale value of goods manufactured in Australia, either before or after the commencement of this Act, by a taxpayer and on and after the first day of August One thousand nine hundred and thirty sold by him or treated by him as stock for sale by retail or applied to his own use. (2) For the purposes of this section goods manufactured in Australia by a taxpayer and applied to his own use means goods manufactured in Australia in the course of carrying on a business and applied by the taxpayer to his own use whether for the purpose of that business or for any other purpose and whether or not those goods are of a class manufactured by that person for sale."

The sale value of the goods is to be ascertained in accordance with s.18 of the Act, but that section does not seem to me to assist in the decision of the present case. (at p361)

4. On behalf of the appellant it is submitted that the goods which it gave away were not applied for its own use within s. 17 (1). The goods were given by the appellant with a view to achieving and maintaining a satisfactory volume of sales of cosmetics, and thus for the appellant's own purposes, but it is submitted that this is not enough. It is said that the words "to his own use" in s. 17 (1) are not equivalent to "for his own benefit" or "for his own purposes" but refer to the physical use or consumption of the goods by the person on whom the tax is imposed. In other words, the submission on behalf of the appellant is that goods manufactured by the appellant gave the goods away to someone who did not receive them if the appellant physically used the goods itself, and that if the appellant gave the goods away to someone who did not receive them as its servant or agent it cannot be held to have applied them to its own use, notwithstanding that they were given for the purposes of the appellant and that the transaction was beneficial to the appellant. (at p361)

5. I cannot accept this submission. The meaning of the noun "use" is not confined to physical consumption ; its ordinary meanings, according to the Shorter Oxford English Dictionary, include: "Purpose served. A purpose, object or end, especially of a useful or advantageous nature." Of course the sense in which a word is used may be effected by the context in which it appears but I can see nothing in the context of s. 17 (1) to restrict the meaning of the word "use" in the manner suggested by the appellant. The word "applied" in no way contracts the sense of the phrase in which it appears; that word simply means "devoted to" or "employed for the special purpose of" (Williams v. Papworth (1900) AC 563, at p 567 , cited in Davies v. Perpetual Trustees Executors and Agency Co. of Tasmania Ltd. (1935) 52 CLR 604, at p 608 ). The phrase "applied to his own use" is of broad import, and is equivalent in meaning to "employed for his own purposes". The words of s. 17 (2), which suggest that "use" in that subsection is synonymous with "purpose", support the view that in s. 17 (1) the word "use" should be given the same meaning. In my opinion a manufacturer may apply goods to his own use within the meaning of s. 17 (1), notwithstanding that he gives away the goods to others, provided that the purpose for which the goods are given is a purpose of the manufacturer. (at p362)

6. I must however refer to three decisions of this Court which were cited to us by counsel. In Deputy Federal Commissioner of Taxation (S.A.) v. Ellis &Clark Ltd. (1934) 52 CLR 85 , Dixon J., in the course of explaining why the general policy of taxing the last sale by wholesale did not admit of universal application, said (1934) 52 CLR, at p 90 that manufacturers and others "might take into their own consumption or use the goods they had acquired in the course of their business". He went on to say that elaborate provisions are made in the Acts and regulations to deal with these matters, and said that "manufacturers also must pay tax when they take their manufactured goods into use or consumption". The expression "use or consumption" is used again in two other places in the course of the same passage. If in this judgment Sir Owen Dixon was treating "use" as meaning "consumption" it is clear that he was not directing himself to the question that now arises and I do not believe that he intended to hold that physical consumption by the manufacturer himself is necessary before there can be an application of the goods to his own use within the meaning of s. 17 (1). (at p362)

7. In Davies Coop and Co. Ltd. v. Federal Commissioner of Taxation (1948) 77 CLR 299 , the question arose whether sales tax was payable by the defendant, a manufacturer of cotton yarn and woven and knitted piece goods, on the sale value of certain cardboard cones and tubes, upon which the yarn was wound as it came from the spinning machine; some of the cones and tubes, wound with yarn, were sold by the defendant, but others were used by the defendant in knitting and weaving operations. Starke J., at first instance, rejected the contention that all the cones and tubes were applied by the defendant to its own use and held that those upon which yarn was wound by the defendant and sold to other weavers and knitters and manufacturers were not so applied. He said (1948) 77 CLR, at p 301 :

"The expression 'applied to his own use' in the Sales Tax Act points to some use of the goods by the taxpayer himself and not to the use by some other manufacturer or person of those goods unaltered in form and condition, but prepared for use by that other manufacturer or person in weaving and knitting operations as by winding yarn around them."

The decision of Starke J. was reversed on appeal on grounds which did not require it to be decided whether all the cones and tubes were applied by the defendant to its own use. However Rich J. (1948) 77 CLR, at p 312 expressed general agreement with Starke J. on all except two particular points and thus appears to have agreed with his conclusion on the question now material. On the other hand, Williams J. accepted (1948) 77 CLR, at p 319 the submission that the defendant applied all the cones and tubes to its own use when it first wound the yarn upon them. The other three members of the Court, Latham C.J. and Dixon and McTiernan JJ., expressed no opinion on this question, although Dixon J. did say (1948) 77 CLR, at p 315 :

"There is something to be said for the view that, when the sales tax legislation makes sale and application of goods to the taxpayer's own use two occasions of liability for tax, it is really making a distinction which corresponds to that between the distribution and consumption of goods. But I find that it is unnecessary to pursue the question because I have reached the conclusion that the cones and tubes are exempt from sales tax."

This decision is no authority for the view that the cones and tubes which were sold by the defendant were not applied by the defendant to its own use but, in any event, the facts of that case are distinguishable from those of the present. There the goods sold were intended for use by others for their own purposes and not for the purposes of the seller; here the goods were given away for the purposes of the appellant. Another possible point of distinction is that the section of the Act expressly refers to goods "sold" by the taxpayer as well as to goods "applied to his own use" and it may be (although I need express no opinion on the point) that in so doing it treats a sale as something different from an application of the goods. The decision in Davies Coop and Co. Ltd. v. Federal Commissioner of Taxation (1948) 77 CLR 299 may be compared with that in Shell-Mex and B.P. Ltd. v. Clayton (1956) 1 WLR 1198: (1955) 1 WLR 982 . In that case it was held by the Court of Appeal that oil was "intended for the use of" the appellant notwithstanding that the appellant received the oil for the purpose of sale and distribution. The Court (1955) 1 WLR, at p 1004 expressly rejected the argument that "use" means "consumption" and went on to say:

"We apprehend that a retail tradesman can, with perfect accuracy, be said to be using his stock when he sells it to customers and to have used it up when it is all sold."

The decision was affirmed by the House of Lords, but not all of their Lordships found it necessary to discuss this question. Of those who did, Viscount Simonds and Lord Tucker were of the same opinion as the Court of Appeal but Lord Morton was of a contrary opinion (1956) 1 WLR, at pp 1206, 1212, 1210 . Viscount Simonds said (1956) 1 WLR, at p 1206 :

"It would, in my opinion, be in its context placing too narrow a meaning on 'use' to confine it to use by consumption. It may, and, I think, does, include such use as a trader makes of his stock in trade, that is, by selling it. In this sense the oil is intended for the use of the appellants and is in fact so used by them." (at p364)

8. The very question that now arises fell for decision in Deputy Federal Commissioner of Taxation v. Taubmans (N.S.W.) Pty. Ltd. (1966) 115 CLR 570 . In that case a wholesale merchant which carried on the business of selling paint supplied the retailers who sold its wares with colour cards which were made available to intending buyers or inquirers for the purpose of assisting them in choosing the colour of the paint they required, and it was held by Windeyer J. that the wholesaler had applied the colour cards to its own use within s. 3 of the Sales Tax Assessment Act (No. 4). Windeyer J. said (1966) 115 CLR, at p 573 that, "The idea connoted by the phrase 'applied by him for his own use' is not inconsistent with a gratuitous disposal of the thing by its owner", and further (1966) 115 CLR, at p 574 that, "if free samples of goods be distributed in conjunction with a business carried on by their owner, distributed that is for his business purposes, they can be said to be applied by him to his own use". I respectfully agree with these observations and with the decision in that case. (at p364)

9. It obviously does not follow that every gratuitous disposition of goods will be an application of those goods to the use of the person who disposes of them. The question is for what purpose they are given; if they form the subject of a true gift, prompted, for example by charitable motives, and are not given to serve any end of the donor, they cannot be said to be applied by the donor to his own use. Thus, I should be inclined to think that a manufacturer of foodstuffs who donated some of his products for the purposes of a children's picnic, or to an organization holding a garden party in aid of charity, could not be said to be applying the goods to his own use, unless it could be shown that the purpose of his gift was not to aid others but to benefit himself by securing an advertisement of his products or in some other way. (at p365)

10. In the present case all of the goods in question were applied by the appellant to its own use. The goods given in the circumstances mentioned in pars. 1, 2, 3, 5, 6 and 7 above were plainly given for the purpose of advertising the appellant's goods and promoting their sale and those mentioned in par. 10 were given for the purpose of maintaining good business relations between the appellant and purchasers of its products. As to the cosmetics given to employees of the defendant and to buyers employed by departmental stores and pharmacies for their own use (pars. 4 and 8), it seems to me that the proper inference to be drawn is that the goods were given by the appellant to attract or preserve the goodwill of its staff and of buyers who might put business in its way. Cosmetics supplied as prizes in competitions might not necessarily be given for a purpose of the donor but the general admission made in par. 14 of the case stated shows that the object of supplying the prizes mentioned in par. 9 was to achieve and maintain a satisfactory volume of sales of cosmetics. In each case the goods were given for a business purpose of the appellant. (at p365)

11. In my opinion all the goods were liable to sales tax and I would answer the questions in the case stated as follows, premising however that the questions should be understood as though the references to s. 3 of the Sales Tax Assessment Act (No. 4) were deleted from them: Question 1 (a) and (b): Yes. Question 2: All the goods. Question 3 (a) and (b): No. Question 4: Unnecessary to answer. (at p365)

Orders

The following questions asked in the stated case answered as follows namely: -

1. On the abovementioned facts am I -
(b) bound to
find that the appellant applied any of the classes of goods referred to in the notices of assessment to its own use within the meaning of s. 17 (1) and (2) of the Sales Tax Assessment Act (No. 1).

Answer - Yes.

2. If the answer to 1 (a) or 1 (b) is 'yes' in respect of which of the classes of goods referred to in pars. 18 to 22 inclusive of this case, am I -
(b) bound,
so to find? Answer - All the goods. Costs of the stated case to be paid by the appellant taxpayer.