Sondo Pty Ltd v Federal Commissioner of Taxation

[1991] FCA 500

Re: SONDO PTY LIMITED
And: THE FEDERAL COMMISSIONER OF TAXATION
No. WA G20 of 1991
FED No. 500
Sales Tax
91 ATC 4731
22 ATR 409/102 ALR 362

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Sheppard(2), Burchett(1) and Lee(3) JJ.

CATCHWORDS

Sales Tax - item referring to amusement machines "the operation of which is designed to depend on the insertion of money" - whether machine designed for push-button operation but also for easy conversion to coin operation fell within item - meaning of "designed" - whether item required an exclusive method of operation - whether design involves purpose and whether in the particular circumstances evidence of steps taken after sale could be used to show the purpose of design features.

Words and Phrases - "designed"

Sales Tax (Exemptions and Classifications) Act 1935, Second Schedule, item 60(1).

HEARING

PERTH

#DATE 5:8:1991

Counsel for the Appellant: Mr B.J. Sullivan

Solicitors for the Appellant: Messrs Phillips Fox

Counsel for the Respondent: Mr C.J.L. Pullin QC with Mr P.R. MacLiver

Solicitors for the Respondent: Australian Government Solicitor

ORDER

The order of the court is that the appeal be dismissed with costs.

JUDGE1

This is an appeal from a decision of a judge of this court in respect of an appeal from the Administrative Appeals Tribunal. In such a matter, the court is, of course, limited to questions of law. Although this case also raised other issues, the fundamental question is whether the tribunal erred in law when it formulated the matter to be decided by it, or when it took the evidence to be sufficient to justify, as a matter of law, the finding it was prepared to make.

1. The question arose under item 60(1) of the Second Schedule to the Sales Tax (Exemptions and Classifications) Act 1935, which describes certain goods assessable to tax at the rate of thirty per cent instead of the rate of twenty per cent otherwise applicable to similar goods. Item 60 reads as follows:
   

"60(1) Goods, being machines, instruments or devices of a kind used for the purpose of gambling,

entertainment or amusement, the operation of

which is designed to depend upon the insertion of money or tokens in the goods or in machines, instruments or devices connected to, or

associated with, the goods

(2) Goods, being machines, instruments or devices, where-

(a) the operation of the goods is designed to depend upon the insertion of money or

tokens in the goods; and

(b) the goods are designed for use in

connection with the use of goods of a kind used for the purpose of gambling,

entertainment or amusement

(3) Accessories and parts for goods to which sub-item (1) or (2) applies."

1. The factual context is somewhat curious. From 1984 to 1988, the appellant's holding company, Avel Pty Limited ("Avel"), had manufactured coin-operated amusement machines for sale, or for use in its own amusement centres. Sales tax was paid under item 60(1). On 11 August 1988, Avel obtained a ruling from a Deputy Commissioner of Taxation that amusement machines "which are manufactured by your company and are operated by simply pushing a button, are subject to sales tax at the general rate of 20 percent". Promptly thereafter, the appellant was acquired, as a wholly owned subsidiary, to manufacture push-button machines having a capacity to be converted easily and quickly into the coin-operated machines required by the nature of Avel's business. The machines were manufactured at the appellant's premises, just over the road from Avel's premises, with a push-button connected to the mechanism by clip-on wiring. But, upon delivery of the machine across the road, its push-button would, in 99 cases out of 100, be removed, the wiring would be unclipped, and a coin-operated device would be attached instead - its wiring also being simply clipped into place. At the same time, a coin collection box would be provided at a location already prepared, with a platform or stand, in the layout of the machine. As the tribunal found (with ample justification), the evidence reveals that the platform was constructed "for the purpose of allowing a quick conversion to coin operation". It was provided to take the coin collection box.

2. In these circumstances, the Deputy Commissioner of Taxation treated his earlier ruling as irrelevant to these particular machines, and claimed sales tax under item 60(1). The first issue for the tribunal was whether he was right in so doing. The tribunal took the question to be one of fact "which must be answered by an objective characterisation of the goods themselves in the light of all the relevant circumstances". Included in the circumstances, it thought, was the use to which the goods were subsequently put. Such a characterisation of the goods showed that item 60(1) applied. The learned primary judge held there was here no error, and I agree.

3. The goods are not, by the statute, characterised only by their state at sale, but by a feature of how they should be said to have been designed. The addition of that aspect of the item must have been deliberate, so that it cannot be construed as if it merely referred to the operation of the machines in fact. The appellant's argument seeks to eliminate, from the statutory language, any flavour of purpose. But that is impossible. When the operation of a machine is said to be designed to do something, the statement made says more than that the machine does it. The essential point of William Paley's famous example, of the watch found on the sand, is that design involves purpose, so that an inference of design must carry with it the inference of a designer who had the purpose. (I am not, of course, concerned with the deeper philosophical questions Paley's argument raises.) Since design involves purpose, item 60(1), which refers to design, cannot be understood in the way the appellant proposes.

4. And if purpose is an element, must the tribunal blind itself to evidence indicating purpose, simply because that evidence travels beyond the machines to the history of their manufacture, to what is done with them, and to the nature of the uses to which they are put? Why should these illuminated signs, indicating the purpose of features of the construction, be deliberately turned off by the tribunal? If, on Paley's cosmic sand, had been revealed, not just a watch but a wearer, must the observer ignore all except the metal case and its contents? In my opinion, the tribunal was entitled to look at the whole of the circumstances. It was correct in regarding Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385 as providing a useful analogy. See also Federal Commissioner of Taxation v Thomson Australian Holdings Pty Limited (1989) 89 ATC 4696 at 4699, where Bowen C.J. referred to the use to which a thing was put as indicative of its proper characterisation. Having looked at the circumstances, the tribunal was undoubtedly justified in concluding that the operation of the machines was designed to depend upon the insertion of money.

5. Another way the appellant's argument was put, was to say the goods must be considered at the instant of sale, and they then operated by push-button. But the past participle, "designed", cannot be confined to the instant of sale. It looks at what had been purposed and planned. In this case, the plan and purpose also looked forward to a conversion to coin operation, both intended and already prepared for by the layout of the machine, including the provision of the clip attachment of the wiring and the platform for the coin collection box.

6. The appellant sought to avoid the tribunal's conclusion by reading the word "depend", in item 60(1), as if it were "depend exclusively". Plainly enough, these machines were designed to operate in alternative ways. If the Act requires that coin or token operation be the exclusive method, the requirement is not satisfied, however dominant in the design concept coin operation may be. But I do not think the word "exclusively" should be read into item 60(1), so as to qualify the word "depend" or, more importantly, the word "designed". A machine's operation may be designed to depend on the insertion of a coin, although an alternative method of starting it is also provided. A racing yacht may be designed to operate by sail, and to depend upon the wind, although a diesel lies silent, perhaps sealed, below its deck. The appellant's argument is really inconsistent with the alternative, in item 60(1), of dependence upon insertion of money in associated devices. For, however the associated devices might activate the mechanism, the same activation could obviously be produced by an associated device which did not require the insertion of money. The one design would be suitable for the attachment of either device.

7. There will be a question of fact in each case. But that question must be answered by the application of the words of the statute, and not be importing into them a test of exclusive dependence upon the relevant method of operation. In this respect also, Stewart provides some guidance. As Gibbs C.J. pointed out (at 390), the word "use" does not connote exclusive use. (See also Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396 at 399.) The same is true of the expression in question here. Exclusivity is an exact concept which, if it had been intended by the draftsman, could have been expected to be stated expressly or by necessary implication. This point was elaborated, as a generalisation applicable to the construction of items in the First Schedule to the Act, by Deane J. in Stewart at 400-401.

8. An argument that s. 12D had application because of the Deputy Commissioner's ruling was abandoned at the hearing of the appeal.

9. The appeal should be dismissed with costs.

JUDGE2

I agree with the judgment which has just been delivered, and with the result which is proposed.

JUDGE3

I also agree, and have nothing further to add.