Otto Australia Pty Ltd v Commissioner of Taxation

[1991] FCA 127

Re: OTTO AUSTRALIA PTY. LIMITED
And: THE COMMISSIONER OF TAXATION OF THE COMMONWALTH OF AUSTRALIA
No. G417 of 1990
FED No. 127
Sales Tax
91 ATC 4305/21 ATR 1453
28 FCR 477
72 LGRA 310

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Sheppard(1), Beaumont(2) and Burchett(3) JJ.

CATCHWORDS

Sales Tax - exemption in respect of goods "for use" by a municipal or shire council - contractor engaged by council to collect and remove rubbish from premises in its area - garbage bins provided by contractor to occupiers of premises - whether garbage bins for use by the council - exemption not available where sales tax "passed on" to purchaser - sales tax taken into account in calculation of price charged for bins but not as an identifiable sum - whether sales tax had been "passed on".

Sales Tax (Exemptions and Classifications Act) 1935, Item 78 of Schedule 1.

Local Government Act 1919 (N.S.W.) ss. 282, 283, 285

Ordinance 51 made pursuant to Local Government Act 1919 (N.S.W.)

HEARING

SYDNEY

#DATE 10:4:1991

Counsel for the appellant: Mr D. F. Jackson Q.C.

Mr R. F. Edmonds

Solicitors for the appellant: Abbott Tout Russell Kennedy

Counsel for the respondent: Mr I. V. Gzell Q.C.

Dr. H. R. Sorensen

Solicitor for the respondent: Australian Government Solicitor

ORDER

1. The appeal be dismissed.

2. The appellant pay to the respondent his costs of the appeal.

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

JUDGE1

This matter was heard immediately after the matter of Commissioner of Taxation v. Brambles Holdings Limited (No. G445 of 1990) in which judgment is being delivered today. Like the Brambles matter it involves a question of the application of Item 78 of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935. The articles in question are garbage bins. Motor vehicles are not in issue.

1. The legislation and the relevant contracts are in many ways similar to those which arose for consideration in the Brambles case, but there are differences in the detail of both the legislation and the contracts.

2. Section 282 of the Local Government Act 1919 (N.S.W.) provides that the council of an area may control and regulate the keeping on premises and the removal, disposal, and destruction of all kinds of rubbish. The term used to designate rubbish is "depot-rubbish" which includes garbage. Section 283(5) provides that the council may remove or require the removal of garbage from any premises and may require that the removal of garbage shall be by a service conducted by or on behalf of the council. This section and section 285 envisage that the removal of garbage may be by a contractor on the council's behalf.

3. Ordinance No. 51 made pursuant to the Local Government Act is entitled "Garbage". Clause 2 of the Ordinance provides that every owner or occupier of premises is to provide a sufficient number of "pans" for the reception of garbage and refuse arising from or existing upon the premises. The council may supply garbage pans to premises and in such a case the owner or occupier shall accept, pay for and use such pans. Clause 3 of the Ordinance obliges occupiers of premises to keep garbage pans clean and to be maintained in good order and condition. By clause 5 occupiers must cause all rubbish pans to be placed, on days appointed for the removal of garbage, in an accessible position for removal.

4. In this case a number of contracts entered into by the appellant were in evidence. The learned primary Judge selected the contract made between the appellant and the Wyong Shire Council as being representative of the contracts made between the appellant and other councils. The same course was adopted by counsel on appeal.

5. The contract is dated 1 February 1983. It follows the usual practice of commencing with some general conditions and then of incorporating other documents, including the Council's specification and the appellant's tender. Clause 1 of the contract provides that the appellant shall for a period of seven years from 1 February 1983 carry out the work of disposal of garbage in the Wyong Shire. Clause 5 provides that the appellant shall render garbage services subject to such variations as are provided for in the contract and shall be paid at a monthly rate specified in the contract.

6. Clause 41.3 of the specification provides that the appellant shall provide at its own cost "for loan and use at each residential building, flat and commercial (shop) building, or occupation, a mobile plastic garbage bin ....... for the purpose of containing household garbage ....... until collection and removal by the contractor".

7. The bins are to be distinctively marked with a serial number which can be used to associate the bin with the premises for which it was supplied. All bins are to be marked with the name of the council. The appellant is to replace at its own cost any lost or damaged bins at any premises within twenty four hours of notification by the council or the householder. All bins must be supplied and maintained to the satisfaction of the shire health surveyor for the life of the contract.

8. The bins are to remain the property of the appellant subject only to the provisions of clause 88.6 which deals with the powers of the council in the event of default by the appellant.

9. The appellant is to collect from each residential premises all garbage placed out for collection in approved containers. There are provisions of the contract about the manner in which the garbage collection vehicles used by the appellant are to be painted and fitted out. It is unnecessary to refer to the detail of these provisions.

10. Unlike the contract in the Brambles case, there is no provision whereby the bins are hired to the Council. Nor apparently is there any legislation containing provisions similar to those of By-Law 42 made by the Knox City Council which was considered in the Brambles case. It would appear that the intention of the parties was that the appellant should provide at its own cost bins for the use of each occupier of premises. There is no indication in the contract nor in any legislation to which we were referred of a recognition that the Council itself might need to exercise control over the bins in the event of their being damaged, destroyed or lost. In the Brambles case counsel for the Commissioner relied, in relation to the new ground of appeal upon which he wished to rely, on the proposition that the bins were delivered directly to occupiers of premises who thereupon became gratuitous bailees of them. Plainly enough in the present case the relationship of bailor and bailee arose when the appellant delivered the bins to each occupier. I do not decide whether the bailment was a gratuitous one but there was no bailment to the council nor the conferring of any right upon the council which entitled it, if it chose to do so, to take immediate possession of the bins.

11. But the question is whether the bins were nevertheless used by the Council notwithstanding that they were also used by both the occupiers of premises and the appellant. The case for an affirmative answer to this question is based upon the Council's statutory obligation to see that rubbish is removed from premises in its area and the fact that it has engaged the appellant to perform this service for it. The contractual documents are not as explicit as they were in the Brambles' case but it is clear that the appellant engaged the Council to do what otherwise it would have had to do, namely, institute and itself operate a satisfactory system for the removal of garbage from premises in its area. I think the Council has a statutory obligation in this respect notwithstanding that the statutory language is facultative rather than mandatory.

12. In the Brambles' judgment I said that I thought cases such as this must involve questions of degree and proximity. I do not think that one can do more than take the facts of the matter and apply to them the words of the statute giving to those words their ordinary English meaning. I think the conclusion is that the Council, notwithstanding its right to supervise the way the contract was carried out, left it to the appellant to discharge its functions on its behalf so that equipment used in relation to the contract could not properly be said to be equipment being used by the council. It follows that I am in agreement with the conclusion reached by the primary Judge.

13. Like him, however, I think I should express an opinion on the other matter that was argued which I regard itself as fatal to the success of the appeal. Involved is a question of the construction of sub-sec. 11(1A) of the Sales Tax Assessment Act (No. 5) 1930. Sub-s. 11(1) of that Act provides that, subject to sub-sec. (1A), where the Commissioner finds in any case that the tax has been overpaid by a person, the Commissioner shall refund the amount of the tax overpaid. Sub-section 11(1A) provides:
    

"Sub-section (1) does not apply in relation to any tax paid by a person unless the Commissioner is satisfied that the tax has not been passed on by the person to another person or if passed on by the person to another person, has been refunded by the person to the other."

1. It is common ground that the appellant's charge to each council was computed or calculated by reference to its costs which included but were not limited to the landed costs of the bins which included both customs duty and sales tax. The submission which was put to us, which appears to have been different from the one put to the learned primary Judge, was that the subsection does not apply unless there has been passed on to the purchaser an amount equal to the sales tax overpaid which can be shown to be an identifiable increase in the price of the articles in question. Only then can it be said that the amount of the tax had been passed on.

2. I would reject this submission. Once it is conceded, as it has been, that the charge for each bin was computed by reference to costs which included sales tax, that cost was passed on. The fact that the sales tax was not passed on in an identifiable form is not in my opinion of relevance. In those circumstances the Commissioner could not have be satisfied that the tax had not been passed on with the consequence that sub-sec. 11(1) could not have any application.

3. In the result I would dismiss the appeal with costs.

JUDGE2

Otto Australia Pty. Ltd. ("Otto") appeals from an order of a judge of the Court dismissing an application by Otto. The application followed a request made by Otto to the Commissioner to refer to the Court, pursuant to s.41 of the Sales Tax Assessment Act (No. 1) 1930, the Commissioner's decision to disallow Otto's objection against an earlier decision of the Commissioner refusing Otto's application for the refund of certain sales tax. These proceedings are now reported: see 90 ATC 4,604.

1. The facts and holding in the case are summarised in the headnote to the report as follows:
   

"The taxpayer sought a refund of sales tax on the basis that certain garbage bins were goods for use by councils and therefore exempt from sales tax pursuant to item 78 in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935.

The taxpayer contracted with various municipal and shire councils to provide garbage collection services. The main product used for the domestic garbage collection contracts was a 240 litre wheeled cart known as the Otto cart. The taxpayer imported the carts from Germany and paid sales tax at the time of importation. Before being used, each cart was embossed with the name of the relevant council. However the terms of the contracts provided that property in the carts remained with the taxpayer.

Each council employed inspectors to supervise the daily garbage collections undertaken by the taxpayer. Complaints by ratepayers were made direct to the relevant council. Regular communication between the council and the taxpayer helped to maintain proper standards of service and public hygiene.

The taxpayer said that if the goods were exempt under item 78, then the Commissioner was obliged to refund the tax paid. The Commissioner argued that a refund could not be given in any case, because the tax had already been 'passed on' in the contract price.

Held: application dismissed.

1. The word 'use' in item 78 does not connote exclusive use. The fact of shared use would not destroy the exemption if it were otherwise available.

2. The carts were used by the taxpayer as contractor and also by residents to store their garbage prior to collection.

3. The carts were 'for use' and were used by the taxpayer as contractor, they were not 'for use' or used by councils. There was no bailment of the carts to the council, so the council had no rights of use over them. Brambles Holdings Ltd. v. FC. of T. 90 ATC 4584 distinguished.

4. The taxpayer bore the burden of the sales tax and passed it on in the price which it charged the councils for the performance of its contractual obligations. Had the taxpayer not done so and had the sales tax not been exigible then sec. 11(1) would have required the Commissioner to refund the amount of overpaid sales tax ."

1. In Brambles' Case, which was argued on appeal before the same bench as constituted the Full Court in this appeal, reference is made to this matter. For the reasons given in Brambles in respect of the trucks, I am of the opinion that the Otto carts were not exempt.

2. In the circumstances, it is not necessary to consider, and I do not propose to consider, whether the tax was "passed on" within the meaning of s.11(1A) of the Sales Tax Assessment Act (No. 5) 1930.

3. I would dismiss the appeal.

JUDGE3

This appeal concerned circumstances closely analogous to those involved in the appeal and cross-appeal in Commissioner of Taxation v. Brambles Holdings Limited, in conjunction with which it was heard. For the reasons set out in the Brambles Holdings Limited matter, I consider that the garbage receptacles involved in the present case were "goods for use ... by ... a municipal ... council" within the meaning of item 78 of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935.

1. It is unnecessary to recite in detail the facts out of which the present appeal arises. As in the Brambles Holdings matter, the relevant service was introduced by a brochure which made it plain that the Council took responsibility for the garbage disposal operation, and that all enquiries should be directed to its Health and Building Department. The receptacles in question bore the name of the Council which closely supervised the entire activity. There was daily consultation between a representative of the contractor and officers of the Council in order to ensure that "the Council maintains control over the garbage collection activities of (the contractor)," as the Council's Director of Health Building and Development put it. The contract was in terms substantially similar to the terms of the contract with which the Brambles Holdings case was concerned. The Council's intimate involvement in the garbage collection process was perhaps even more clearly illustrated by a provision requiring the garbage removal vehicles "when not actually engaged in the removal of garbage (to) be housed at the approved depot or such other location as the Health Surveyor may approve." The Council was responsible for the garbage depot, and restricted entry to it. It was provided: "At the depot, the contractor shall dispose of the garbage as directed by council ... ." Apart from the branding of Council's name on the receptacles in question, there was also specific provision asserting Council's control over them. There was a term: "Other than where specifically provided in this specification it shall be the responsibility of the occupier of all premises to cleanse the bin as necessary and as directed by the Shire Health Surveyor." Generally, the contractor was required to
   

"accept and comply with any directions or orders or attend to any complaints which the Health Surveyor or authorised officer, may make or give and the contract shall be carried out to the satisfaction of the Health Surveyor whose decision as to whether any services or duties or obligations have or have not been rendered or performed shall be final and conclusive. ... The Health Surveyor may give such directions, orders and complaints at any time of the day, or by any means, that is to say, verbally, by telephone, or in writing."

1. The contractor was required to appoint an agent with "full power and authority to accept and act upon all directions, orders and complaints which may be given to the contractor under the contract, and to carry out the services and contract without limitation in any way whatsoever." As in the Brambles Holdings case, the Council kept a register of all garbage receptacles, their locations and serial numbers.

2. A difference, which the learned trial judge thought decisive, between the present case and the Brambles Holdings case is that, in the present case, there was no hiring of the garbage receptacles by the Council. However, for reasons which I have set out in my reasons for judgment in the other case, I do not regard this distinction as significant.

3. But my conclusion that the receptacles fell within item 78 is not an end of the matter. For I agree with Sheppard J. that s. 11(1A) of the Sales Tax Assessment Act (No. 5) 1930 provides an insuperable obstacle to the appellant's success. I have nothing to add to the reasons he has given for that conclusion. Accordingly I would dismiss the appeal with costs.