Perfek Pty Ltd v The Deputy Commissioner of Taxation; Lansell House Pty Ltd v The Deputy Commissioner of Taxation

[2011] HCATrans 247

[2011] HCATrans 247

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M14 of 2011

B e t w e e n -

PERFEK PTY LTD

Applicant

and

THE DEPUTY COMMISSIONER OF TAXATION

Respondent

Office of the Registry
  Melbourne  No M15 of 2011

B e t w e e n -

LANSELL HOUSE PTY LTD

Applicant

and

THE DEPUTY COMMISSIONER OF TAXATION

Respondent

Applications for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 2 SEPTEMBER 2011, AT 11.01 AM

Copyright in the High Court of Australia

____________________

MR N. ROSENBAUM:   If it please the Court, I appear on behalf of the applicant in both matters, your Honour.  (instructed by Russell Kennedy)

MS H.M. SYMON, SC:   If the Court pleases, I appear with my learned friend, MS J.E. JAQUES, for the respondent.  (instructed by Maddocks)

GUMMOW J:   Thank you.

MR ROSENBAUM: Your Honours, the central issue in both of these matters is exactly the same. It has to do with the proper interpretation as a matter of law of section 38‑3(1)(c) of the A New Tax System (Goods and Services Tax) Act 1999 when read in conjunction with item 32 of Schedule 1 to that Act. Your Honours, for convenience I will be referring to that Act as the GST Act, as it is commonly referred to.

What flows from that proper interpretation is to what extent, when one is considering whether an item falls within item 32 of the schedule, whether findings of fact that the attributes in this case of the product under consideration, Mini Ciabatte, are substantially the same or largely the same as those of a cracker.  Both at first instance and before the Full Federal Court the issue the courts found which had to be determined was whether in fact the item, Mini Ciabatte, was or was not a cracker.

Cracker is one of the types of food which appears in item 32 in Schedule 1 to the GST Act. In considering the attributes and indicia of Mini Ciabatte, both at first instance and on appeal, the courts adopted the approach of overall impression, an approach which emanates from the Procter & Gamble Case ‑ ‑ ‑

GUMMOW J:   What should they have done instead?

MR ROSENBAUM:   The starting point, your Honour, is not so much that they used the wrong test, but they had to use it within context of the legislation.  When one takes a look at the legislation, particularly the schedule, there are a number of items in the schedule which refer to types of food which are similar, and if I can take your Honour to examples of that to be found at item 31, which talks about:

any food similar to food listed in items 28 to 30 –

At item 18, which talks about:

food similar to that covered by item 15 or 16 –

We also have, at items 3, 6 and 11, not a separate item per se, but an extension where, for example, in item 3 it talks about:

pizzas, pizza subs, pizza pockets and similar food –

You have an extension, for the, I suppose a variation in theme of the ejusdem generis rule, in items 6 and 11 where in 6 it refers to:

hamburgers, chicken burgers and similar food –

In 11:

food known as muesli bars or health food bars, and similar foodstuffs –

It is within that context that the schedule contains already items where it is referable to a type of food and then extends it to similar foods, so when one takes a look at using the overall impression approach as was set out in Procter & Gamble, and in that particular case it is interesting that the actual classification type under consideration was where “Regular Pringles” were being considered as whether they fell within being similar to potato chips and made of potato. 

In this particular case where Schedule 1 has a number of items which deal with similar foods, the overall impression approach, I submit, has a limited application and cannot be used to in fact cure a deficiency in the indicia of a food item under consideration, or can it be a mechanism for disregarding a deficiency of an indicia of a food item under consideration.

It is my submission here this is where both at first instance and on appeal the courts were in error. In looking at item 32 in conjunction, as it is read with section 38‑3(1)(c) of the GST Act, they paid no attention whatsoever to the remaining items, and when one takes a look at the remaining items and applies the overall impression approach, it is necessary to take a look at that where you have item 32, which does not have a corollary similar provision, either as a separate item number or tacked on as you find it in items 3, 6 and 11, it necessarily requires the court to ensure that the overall impression is not in anyway to be used to overcome findings of fact which show a distinction or an absence of indicia of the food under consideration compared to, in this particular case, crackers as appears in item 32.

The difficulty which the courts did not turn their minds to is if one uses this approach as being an avenue to enable the court to say we can make findings, as the court did, that there were ingredients largely the same as those found in crackers and that the ratio of ingredients of Mini Ciabatte and crackers are substantially the same, or the manufacturing processes are largely the same, by extending the definition of “crackers” to something other than crackers, they are falling outside of the clear legislative intent as contained in item 32. 

Importantly, at first instance, and this was not challenged in any way, his Honour Justice Sundberg found – and this is found in paragraph 81 of his judgment at page 27 of the application book:

it is a feature of all crackers containing yeast of which there was evidence that they are made with a lamination process.  This feature distinguishes Mini Ciabatte from crackers.  Either crackers contain no yeast, or they contain yeast, but undergo lamination.  Mini Ciabatte contains yeast and has no lamination process.

It is my submission that that distinction, that finding there, means that the use and the way of the overall impression approach cannot be used in a way which would still enable the court to properly, as a matter of law, find that Mini Ciabatte, which has yeast but no lamination, is a cracker for the purposes of item 32.  Inevitably Mr Justice Sundberg at first instance did not have to consider the provisions of 38‑3(1)(c) and the phrase there:

food of a kind specified in . . . Schedule 1 –

The Full Federal Court on appeal, however, did look at those provisions and said that when one was looking at the phrase “food of a kind specified”, the word “kind” - and this is found at paragraph 30 of the reasons for the judgment of the Full Federal Court, and that is found at the application book at page 60, the Full Federal Court noted in its joint judgment that:

The word “kind” is appropriately used to denote a genus, class or description . . . The use of the words “of a kind” in s 38‑3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1 . . . Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item.

In considering those words “of a kind specified” and interpreting them in that way in regard to item 32 and saying that it expands the particular item to include potentially items that do not possess all of the same characteristics, in my submission, is incorrect, as it does not fit ‑ ‑ ‑

GUMMOW J:   What do you say about paragraph 33 on page 61?

MR ROSENBAUM:   In my submission I would say the court is in error here as a matter of law because you cannot have a fundamental finding of fact where the court has found with regard to lamination that it distinguishes a cracker from Mini Ciabatte or vice versa, Mini Ciabatte from a cracker, and then go and say, well it falls within a genus.  Either it is or it is not.

The legislation, in looking at Schedule 1, contemplates similar foodstuffs in other items but there are no similar provisions, I said, in regard to item 32. A Mini Ciabatte which contains yeast but no lamination would fairly and squarely fit within a type of foodstuff similar to crackers but would not be a cracker, if one takes a look at the way in which the legislature has dealt with other items contained within Schedule 1, and that, in my submission, is where the court is in error.

Given the approach to interpretation of classification, Justice Sundberg at first instance made reference to the fact that he was not referred to any Australian cases on the matter, and when one takes a look at the backgrounds here - Procter & Gamble was a case, as I said previously, looked at classification of “Regular Pringles” as whether they were similar to potato chips and made of potato. Again, they were looking at a similar type provision, again a word which we find in certain of the items which appear in Schedule 1, particularly items 18, 31, 3, 6 and 11. When one goes back prior to that to the Ferrero Case ‑ ‑ ‑

HAYNE J:   But regardless of what is in the cases, Mr Rosenbaum, why does one go beyond identifying a cracker as a thin, crisp, dry, hard biscuit?  Why do you look to the way in which it is manufactured?  Why do you look to its ingredients?  Why do you look to anything except the description of the product?

MR ROSENBAUM: Because when a fact finder embarks upon that exercise of fact‑finding then identifies things which distinguish the item under consideration from a cracker. It is incumbent to come to a conclusion which, if it is not exactly the same as a cracker, it is similar to a cracker. Ipso facto, if it is not a cracker, it must be similar. If it is not a cracker it does not fall within item 32 and that is the crux of the submission that when one takes a look at the other items in Schedule 1 the concept that an item may be similar to something considered in one of the other items is picked up by the legislature.

In those various item numbers which I have referred your Honours to, it is clear that the legislation did not consider that the way in which the Full Federal Court wanted to deal with the phrase “food of a kind specified” into expanded genus to include items which may or may not already be in existence, or may or may not already have identified all of those indicia of established crackers or whatever the particular item under consideration is, is indicative of the fact that when it comes to item 32, where there is no similar provision, one has to look at it in absolute terms.  Once the fact finder has identified facts which distinguish, as occurred here, Mini Ciabatte from a cracker, in my submission, the court was obligated to find that the item, Mini Ciabatte, was not a cracker. 

When one takes a look at the notion of the phrase “of a kind specified” as it appears in 38‑3(1)(c) and contemplates – if those words in that phrase expand the items as contemplated by the Full Federal Court, how would they operate when applied to item 31, for example, which talks about:

any food similar to food listed in items 28 or 30 ‑

Would you be extending it to not only foods similar, but similar to similar foods?  In my submission, that ends up with a result which is a nonsense.  In the absence of interpreting item 32 as being an absolute and properly taking into account that there are limitations in the application of the overall impression approach, it is my submission that the administration of justice has not been carried out in this case.

GUMMOW J:   Thank you.  We do not need to call on the Deputy Commissioner.

There are insufficient prospects of success to warrant grants of special leave in these applications and special leave is refused with costs.

The Court will adjourn to reconstitute.

AT 11.18 AM THE MATTERS WERE CONCLUDED