Myer Stores Ltd v Commissioner of Taxation

[1997] FCA 793

FEDERAL COURT OF AUSTRALIA

TAXATION AND REVENUE - sales tax - liability to taxation - interpretation - meaning of ‘container’ - whether container includes manuals packaged with products

Sales Tax Assessment Act 1992: s 5

MYER STORES LIMITED v COMMISSIONER OF TAXATION
NG 520 of 1996

LOCKHART J
SYDNEY
20 AUGUST 1997

IN THE FEDERAL COURT OF AUSTRALIA	)
)
NEW SOUTH WALES DISTRICT REGISTRY	)  NG 520 of 1996
)
GENERAL DIVISION	)

BETWEEN:	MYER STORES LIMITED Applicant
AND:	COMMISSIONER OF TAXATION Respondent

JUDGE(S):	LOCKHART J
PLACE:	SYDNEY
DATED:	20 AUGUST 1997

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. A declaration that the manuals sold with the Sunbeam Mixmaster Mixer on 6 March 1996, the Kelvinator No Frost Refrigerator on 5 July 1995 and the Voxson Micro 999 Mobile Telephone Kit in or about September 1994, in each case for one inclusive price, are not “containers” within the meaning of that expression in s 5 of the Sales Tax Assessment Act 1992.

1. A declaration that so much of the taxable value of the said sales of the said three products as is attributable to the manuals concerned, namely, the price for which the manuals could reasonably be expected to have been sold if they had been sold separately, are not subject to sales tax.

1. The Commissioner of Taxation shall pay the costs of Myer Stores Limited of this proceeding, including any reserved costs.

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

IN THE FEDERAL COURT OF AUSTRALIA	)
)
NEW SOUTH WALES DISTRICT REGISTRY	)   NG 520 of 1996
)
GENERAL DIVISION	)

BETWEEN:	MYER STORES LIMITED Applicant
AND:	COMMISSIONER OF TAXATION Respondent

JUDGE(S):	LOCKHART J
PLACE:	SYDNEY
DATED:	20 AUGUST 1997

REASONS FOR JUDGMENT

This proceeding, remitted to the Federal Court by the High Court of Australia, concerns the liability to sales tax of certain instruction manuals, packaged with the goods to which they relate and sold for one inclusive price.

Myer Stores Limited (“Myer”) is a retailer of consumer goods including the Sunbeam Mixmaster Mixer (“the Mixmaster”), the Kelvinator No Frost Refrigerator model number N350C (“the Refrigerator”) and the Voxson Micro 999 Mobile Telephone (“the Mobile Telephone”).

Sunbeam Corporation Limited (“Sunbeam”) is a wholesaler of a range of small consumer appliances including kitchen appliances such as the Mixmaster.  The Mixmaster is sold by Sunbeam to retailers together with an instruction manual.  The Mixmaster is manufactured on behalf of Sunbeam in China; the instruction manual, that accompanies the product, is printed and packaged with the Mixmaster in China.  Sunbeam imports from China the complete packaged product and sells it in that form to its customers for a single price.  One of Sunbeam’s customers is Myer.  Sunbeam includes in its invoices to Myer an amount equal to the sales tax payable in respect of its sale of the Mixmaster and accompanying instruction manual, and subsequently remits that amount to the Commissioner of Taxation, the respondent.

The manual sold with the Mixmaster comprises 45 pages on which is printed information including features of the Mixmaster and its operation, broad recommendations to kitchen safety, oven temperature charts, guidelines and instructions for cleaning and maintaining the Mixmaster, 34 pages of recipes; also details of the manufacturer’s service centres and a guarantee.

Email Limited (“Email”) is a manufacturer and wholesaler of a range of consumer electrical goods including whitegoods.  Those whitegoods include the Refrigerator which is manufactured by Email in Australia and is sold together with an owner’s instruction manual and a warranty card for one inclusive price.

The manual sold with the refrigerator comprises 17 pages on which is printed instructions for installing, operating and cleaning the refrigerator; and guidelines for food storage.

The manual is printed on behalf of Email by external printers.  Email quotes its sales tax registration number to the printers in respect of its purchase of the completed manuals and obtains those goods at a price exclusive of sales tax.  The completed manuals are sent by the printers to Email’s premises in South Australia and from there they are sent by Email to its factory in Orange, New South Wales.  As the refrigerator approaches the final assembly point on the production line in Email’s factory, the manual is placed loose into the crisper section of the refrigerator together with the warranty card.  The refrigerator is then packaged.  From time to time Email sells to Myer the refrigerators together with the manual for one inclusive price.  Email includes in its invoice to the applicant an amount equal to the sales tax payable in respect of its sale of the refrigerator and accompanying manual, and subsequently remits that money to the Commissioner of Taxation.

Myer purchases mobile telephones from Voxson Sales Pty Limited (“Voxson”).  Voxson is a manufacturer and wholesaler of Voxson products including the Mobile Telephone.  The manual sold with the mobile telephone kit comprises 38 pages on which is printed information including instructions for placing and receiving telephone calls, operating the software relating to memory functions and other features, and a memory card directory.  The instruction manual is printed in Australia on Voxson’s behalf by external printers.  It is Voxson’s practice to quote its sales tax registration number in respect of all its purchases from a printer.  Once printed, the instruction manual is sent to Voxson’s factory in Queensland where it is packaged inside a cardboard box together with the mobile telephone, the AC adaptor, battery charger and two batteries.  The mobile telephone is then sold in its packaged form to customers including Myer.  Voxson includes in each of its invoices to Myer for the mobile telephone an amount equal to the sales tax payable in respect of the sale of that mobile telephone and accompanying manual and accessories.  Voxson subsequently remits such amounts to the Commissioner.

The issue in this case is whether so much of the taxable value of the sale of each of the three products that is attributable to the manuals (the “instruction manuals”) is subject to sales tax. That issue turns primarily on the question whether the manuals fall within paragraph (b) of the definition of “container” in s 5 of the Sales Tax Assessment Act 1992 (“the Assessment Act”). If they do, the Commissioner contends that that ends the matter and the manuals are accordingly liable to sales tax. Myer contends that the manuals are not “containers” within the meaning of that word in s 5 and, that, even if they are, they are still exempt from sales tax on the basis that they have a separate exempt status as “books” or “pamphlets” under Item 100 of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 (“the Exemptions and Classifications Act”).

It is not disputed that the instruction manuals answer the description of “books” or “pamphlets” within the meaning of Item 100. But the Commissioner argued that, even if they do, s 5 of the Assessment Act is the overriding provision; since the manuals are “containers” under s 5, it is irrelevant that they would otherwise be “books” or “pamphlets” within Item 100.

I turn to the questions raised by s 5 of the Assessment Act.

The word “container” is defined by s 5 as meaning:-

“(a)packaging in which, or with which, any property (‘the contents’) is packed or secured, in the ordinary course of a business, for the purpose of the marketing or delivery of the contents;

(b)ancillary items that are packed or secured with the contents and are intended, and reasonably necessary, to allow or facilitate the use of the contents.”

The construction of this definition is assisted by the judgments of Full Courts of this Court in EMI Australia Pty Ltd v Federal Commissioner of Taxation (1994) 94 ATC 5,008 and CCA Beverages (Sydney) Pty Ltd v Federal Commissioner of Taxation (1997) 143 ALR 212; but they were not concerned directly with the question in issue in this case.

It is common ground that the manuals do not fall within paragraph (a) of the definition of “container”. 

Myer’s principal argument was that paragraph (b) of the definition does not apply to the manuals because they are not “ancillary items”.  The reference in paragraph (b) of the definition to “ancillary items” was said to be to items which are ancillary to the packaging (for example, can keys or drinking straws).  The reference is not to items which are ancillary to the contents.  The manuals are not ancillary to the packaging because they add nothing to the convenience or utility of the packaging.

Counsel for Myer pointed to the fact that instruction manuals fell outside the definition of “container” in the earlier Sales Tax (Exemptions and Classifications) Act 1935 and were always accepted by the Commissioner as being exempt from taxation, whether the manuals were sold with the goods to which they related or separately. The 1992 legislation should not be interpreted as producing a different result in relation to manuals sold with taxable goods in the absence of express indication to the contrary.

The first point to note, in considering the question whether the three manuals are “containers” within paragraph (b) of the definition of that expression in s 5 of the Assessment Act, is that what is being discussed is a “container”, not its contents. It is the thing that houses the contents. The definition in paragraph (a) is plainly a container according to the ordinary (and dictionary) meaning of the term and the Commissioner does not suggest otherwise.

In my opinion, s 5(b) is directed to items that are ancillary to the packaging, rather than the products. The definition of “container” is talking about containers and it embraces in paragraph (a) packaging in the ordinary sense and in paragraph (b) things which are ancillary to the packaging.

One can readily think of items that are ancillary to packaging.  For example, drinking straws attached to packets of soft drink such as Ribena, can keys to open cans such as cans of sardines, and corks in the tops of bottles that contain liquid (the packaging being the bottle).  Such items are ancillary to the packaging and facilitate the use of the contents.

The critical question, then, is whether the instruction manuals are ancillary to the packaging.  This is a relatively straightforward issue.  The manuals are intended to serve the purpose of instructing the users of the products how to use them.  The manuals play no role in the convenience or utility of the packaging.  They add nothing to the container itself and serve no purpose in relation to it.  They are instruction manuals, separate from both the packaging and the product, but contained in the packaging. 

I was referred in argument by counsel for the Commissioner to the explanatory memorandum to the Sales Tax Assessment Bill 1992, paragraph 20.6(ii) at pages 320 and 321 in the following terms:

“A packing AOU will comprise more than just the act of putting contents into goods.  Rather, it will be any act that causes goods to become a container.  These will be:

(i)packing or securing any property in packaging, (in the course of carrying on any business), for the purpose of marketing or delivery of the goods;

Note:  This will include labelling if the labelling forms part of the packaging.

(ii)packing or securing any ancillary items with the contents that are intended and reasonably necessary to allow or facilitate their use.

Note:  ‘Ancillary items’ will not be defined but will include items such as can keys, glass droppers, drinking straws and batteries.  The ‘reasonably necessary’ condition will exclude items such as ‘gifts’ packed with goods.”

In my view the explanatory memorandum is of little assistance in resolving the present question.  Paragraph (ii) gives a small measure of support for the argument advanced on behalf of Myer, in that it seems to me to draw a distinction between the packaging and the contents, the reference to “ancillary items” tending to link such items with the packaging rather than the contents, although the examples of the ancillary items are of items that are intended and reasonably necessary to allow or facilitate the use of the contents.  The reference to “batteries”, however, is perhaps consistent with either argument.

The earlier definition of the term “container” in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 is interesting. It reads as follows:

“(a)the inner or outer coverings in which goods are packed or secured, or are to be packed or secured, in the ordinary course of business (including inside linings and inside packing materials); or

(b)goods ordinarily used to secure or seal, or to describe the contents of, coverings to which paragraph (a) of this definition applies, being goods forming part of the completed coverings,

and includes can keys, glass droppers and other goods that -

(c)are accessories of coverings or goods to which paragraph (a) or (b) of this definition applies or of goods marketed in such coverings;

(d)are attached to or form part of the inner coverings, or are contained in the outer coverings, of the goods so marketed; and

(e)       are sold with those goods for one inclusive price;”

That earlier definition of “container”, although in different terms to the present definition of that word in s 5 of the Assessment Act, is plainly meant to describe goods ancillary to the coverings in which goods are packed or secured, not the contents. I doubt that a different result was intended in the drafting of s 5.

In my opinion the instruction manuals are not “containers” within the meaning of that expression in s 5 of the Assessment Act.

It is not necessary to consider the Commissioner’s argument that, since the manuals fall within paragraph (b) of the definition of “container” in s 5 of the Assessment Act, apportionment of the total purchase price under s 95 of the Assessment Act is not available in accordance with the reasoning of the Full Court of this Court in CCA Beverages (Sydney) Pty Limited v Federal Commissioner of Taxation.  In view of my finding that the manuals are not “containers”, the Commissioner’s argument does not arise.

Nor is it necessary to consider alternative arguments advanced by counsel for Myer including the argument that the manuals are exempt in any event because they have a separate exempt status as “books” or “pamphlets” under Item 100 whether or not they also fall within the definition of “container”.

The Court makes the following declarations and orders:

1. A declaration that the manuals sold with the Sunbeam Mixmaster Mixer on 6 March 1996, the Kelvinator No Frost Refrigerator on 5 July 1995 and the Voxson Micro 999 Mobile Telephone Kit in or about September 1994, in each case for one inclusive price, are not “containers” within the meaning of that expression in s 5 of the Sales Tax Assessment Act 1992.

1. A declaration that so much of the taxable value of the said sales of the said three products as is attributable to the manuals concerned, namely, the price for which the manuals could reasonably be expected to have been sold if they had been sold separately, are not subject to sales tax.

1. The Commissioner of Taxation shall pay the costs of Myer Stores Limited of this proceeding, including any reserved costs.

I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lockhart

Associate:

Dated:            20 August 1997

Counsel for the Applicant:	D H Bloom QC S J Gageler
Solicitor for the Applicant:	Firmstone & Feil
Counsel for the Respondent:	I V Gzell QC S W Gibb
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	22 July 1997
Date of Judgment:	20 August 1997