Telstra Corp Ltd v The Commissioner of Taxation of the Commonwealth of Australia
[1996] FCA 705
•13 AUGUST 1996
CATCHWORDS
SALES TAX - Exemptions - "terminating blocks and/or overvoltage protection cassettes" - whether "fixed electrical installations" - whether "electrically operated apparatus" - whether "electrical safety devices for the protection of persons"
Sales Tax (Exemptions and Classifications) Act 1950, Item 90C
Sales Tax (Exemptions and Classifications) Act 1953, Item 90C
Sales Tax (Exemptions and Classifications) Act 1935, Item 90C
Sales Tax (Exemptions and Classifications) Act 1945, Item 90C
Sales Tax (Exemptions and Classifications) Act 1957
Sales Tax (Exemptions and Classifications) Amendment Act 1983
Sales Tax Assessment Act (No 1) 1930, s.21
Acts Interpretation Act 1901, s. 15AA
Post and Telegraph Act 1901-1973 (Cth), ss 3 and 147
Telecommunications Act 1975 (Cth), s. 3(1) and (2)
Australian and Overseas Telecommunications Corporations Act 1991, s.11
Australian Gas Light Co v Valuer-General (1940) 40 SR (NSW) 126
Diethelm Manufacturing Pty Ltd v FCT (1993) 93 ATC 4,703
GKN Australia Ltd v FCT (1994) 94 ATC 4,417
Commissioner of Taxation v Thomson Australian Holdings Ltd (1989) 25 FCR 481
Agfa-Gevaert Ltd v Collector of Customs (1994) 124 ALR 645
Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280
- 2 -
Brutus v Cozens [1973] AC 854
Rotary Offset Press Pty Ltd v Deputy Commissioner of Taxation (1972) 46 ALJR 609
Pepsi Seven-Up Bottlers Australia Pty Ltd v FCT (1995) 95 ATC 4,746
FCT v Smith & Nephew Pty Ltd (1994) 94 ATC 4,507
Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297
Kingston v Keprose Pty Ltd (No 3) (1987) 11 NSWLR 404 (CA)
Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385
Commissioner of Taxation v Lincoln Industrial Cleaners Pty Ltd [1975] 2 NSWLR 499
Federal Commissioner of Taxation v Hamersley Iron Pty Ltd (1981) 81 ATC 4,582
Mayne Nickless Ltd v Federal Commissioner of Taxation 91 ATC 4,621
Statutory Interpretation in Australia, 4th Ed, 1996
The New Shorter Oxford English Dictionary
The Macquarie Dictionary 2nd Revised Edition
TELSTRA CORPORATION LIMITED v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA and THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v TELSTRA CORPORATION LIMITED
VG 911 of 1995
Ryan, Heerey and Lindgren JJ
Melbourne
13 August 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY ) No VG 911 of 1995
)
GENERAL DIVISION )
On appeal from a decision of a Judge of the Federal Court of Australia
BETWEEN: TELSTRA CORPORATION LIMITED
(Appellant)
AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
(Respondent)
AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
(Cross Appellant)
AND: TELSTRA CORPORATION LIMITED
(Cross Respondent)
CORAM: Ryan, Heerey and Lindgren JJ
PLACE: Melbourne
DATE: 13 August 1996
MINUTES OF ORDER
THE COURT ORDERS:
That the appeal be allowed.
That the orders of Jenkinson J made on 28 November 1995 be set aside in so far as they dismissed Telstra's application in part and provided for costs.
And declares that the "overvoltage protection cassettes" were exempt from sales tax and that Siemens has overpaid sales tax on them.
That the Commissioner pay the costs of Telstra as applicant and of the appeal.
That the cross-appeal be dismissed.
That the Commissioner pay Telstra's costs of the cross appeal.
NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY ) No VG 911 of 1995
)
GENERAL DIVISION )
On appeal from a decision of a Judge of the Federal Court of Australia
BETWEEN: TELSTRA CORPORATION LIMITED
(Appellant)
AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
(Respondent)
AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
(Cross Appellant)
AND: TELSTRA CORPORATION LIMITED
(Cross Respondent)
CORAM: Ryan, Heerey and Lindgren JJ
PLACE: Melbourne
DATE: 13 August 1996
REASONS FOR JUDGMENT
RYAN J: I have had the advantage of reading in draft each of the judgments of Heerey J and Lindgren J. I can therefore indicate briefly, without repeating the extensive legislative and factual background detailed by Lindgren J, my reasons for agreeing in the orders which they propose.
Is the MDF a "fixed electrical installation"?
The phrase "fixed electrical installation" as a compound of ordinary English words not having individually, or in that compound form, a technical or other specialised meaning, is a question of fact to be resolved by this Court for itself; see e.g. Australian Gas Light Co v Valuer-General (1940) 40 SR (NSW) 126 at 137. Item 90C, as originally framed, was concerned with the "installing" in, i.e. introducing into, houses of electric power and the deployment or distribution of that power around the houses to which it had been introduced to the various points at which it was to be consumed. However, the Sales Tax (Exemptions and Classifications) Act 1950 introduced a heterogeneous collection of items excluded from the exemption by paras (a) to (i) of sub-item 2. As a result, it was no longer possible to discern any coherent principle by reference to which those exclusions were fixed upon so as to retain as exigible to tax the items which they comprehended. For example, transformers, converters and, particularly, flexible cables might be thought to be part of the mechanism for introducing electric power to premises and distributing it around them to points before the power was consumed by lights or other electrically operated appliances. However, as a result of the amendment, those items were excluded from the exemption.
The notion of exempt items being used as "fixed" electrical installations which was introduced in Item 90C as it emerged after the Sales Tax (Exemptions and Classifications) Act 1953 seems to have been designed to narrow further the range of articles made exempt by Item 90C.
I agree that, on the evidence, an MDF is a "fixed installation" within the ordinary English connotation of those words. As a matter of ordinary usage, the epithet "electrical" can appropriately be applied to it in the same way that a fuse box or switch board in a consumer's premises which only houses, but does not comprise, electrical fittings and apparatus can be described as an "electrical installation". Like Lindgren J, I derive no assistance in this context from reference to the different, popular, usage involved in the expression "electricity" employed as an adjective in the phrase "electricity bill".
Nor have I been able to uphold the related argument advanced on behalf of the Commissioner which, as I understood it, proceeded from the premise that as a matter of ordinary usage a mutual distinction has come to be drawn between "electrical installations" and "telephone" or "telephonic installations" notwithstanding that a feature of the latter is the use of electric current. Such a distinction may be implicit in the customary reference to "telephone wires" or "telephone cables" as distinct from "electricity" or "power lines", even though the former as a matter of fact convey electric current. However, I am not persuaded, on the evidence, that such distinction extends to preclude all installations which play a part in the transmission of telephone signals, from being described in ordinary parlance as "electrical installations".
Are OPCs "electrically operated apparatus"?
I regard the phrase "electrically operated" in this expression as synonymous with "activated by electricity". The expression therefore comprehends an apparatus which is electrically driven or made to work by electric power or which depends on electric power for its intended method of operation. I agree with Lindgren J that the intended method of operation of OPCs does not involve their being activated at all. Rather, they are passive receptors or conduits of electric power which, when it exceeds the desired maximum voltage, is diverted away from equipment or apparatus which it would otherwise "operate".
Are OPCs "electrical safety devices for the protection of persons"?
It follows from the conclusion which I have reached on the first question identified above that OPCs are used in connection with fixed electrical installations being the MDFs already discussed. On an objective characterization of OPCs in the light of the evidence as to how they are actually used, I cannot conclude that a purpose of the OPCs is not the protection of persons. The evidence suggests that purpose has been subsumed in the consideration of those concerned with the functions and performance of OPCs, in the protection against excessive power surges of equipment forming part of the system. However, to acknowledge that the focus of attention has been on a broader purpose is not to deny that OPCs have as a purpose, albeit subsidiary, the protection of persons.
Conclusion
For these reasons, as elaborated in those of Heerey J and Lindgren J, I agree in the orders which they propose.
I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment of his Honour Justice Ryan.
Associate:
Date:
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY ) No. VG 911 of 1995
)
GENERAL DIVISION )
B E T W E E N:
TELSTRA CORPORATION LIMITED
Appellant
- and -
THE COMMISSIONER OF TAXATION OF
THE COMMONWEALTH OF AUSTRALIA
Respondent
- and -
THE COMMISSIONER OF TAXATION OF
THE COMMONWEALTH OF AUSTRALIA
Cross Appellant
- and -
TELSTRA CORPORATION LIMITED
Cross Respondent
CORAM: Ryan, Heerey, Lindgren JJ
DATE: 13 August 1996
PLACE: Melbourne
REASONS FOR JUDGMENT
HEEREY J:
I have had the advantage of reading in draft the reasons for judgment of Lindgren J and fortunately can adopt his Honour's exposition of the factual and legislative setting of this case. I turn to the issues identified by his Honour.
Main Distribution Frames - are they "Fixed Electrical Installations"?
The expression "fixed electrical installations in consumers' premises" in the opening words of item 90C(1) is wide and general. The exclusions in paras (a) to (j), considered cumulatively, also cover a broad and varied field. Some of those exclusions, such as burglar alarm equipment (para (a)) and chandeliers (para (c)), are quite specific. However others, and in particular para (e) with which the present case is concerned, are expressed in generic terms and in themselves comprehend an extensive variety of goods.
I do not see the exclusions as providing a ground for reading down the generality of the opening words of item 90C(1). Indeed the contrary is the case. The more likely drafting rationale is that the very width of the opening words has compelled an extensive categorisation of goods which in most instances would otherwise fall within them. Therefore if particular goods do not fall within an exclusion there is no reason why the opening words should not be given their natural meaning. Put another way, if the draftsman had intended any limitation, the obvious drafting solution is an appropriate exclusion - expressed, if need be, in wide and generic terms - rather than hopeful reliance on what judges might do by way of reading down the opening words.
In the area of sales tax legislation, the general rules as to the construction of revenue statutes (see Pearce and Geddes "Statutory Interpretation in Australia", 4th Ed, 1996, pp 235-236) have given rise to the more specific canon that classifications of goods attracting exemptions or beneficial rates should be liberally construed unless the text or context requires a narrow construction: Diethelm Manufacturing Pty Ltd v FCT (1993) 93 ATC 4,703 at 4,713 per French J, followed by Foster J in GKN Australia Ltd v FCT (1994) 94 ATC 4,417 at 4,419.
The legislative history of item 90C no doubt indicates some broad legislative intentions. First there was concern to assist by way of tax exemption the building of houses in the course of post-war construction. Then in 1953 there was the major extension from "houses" to "consumers' premises", an expression which, as counsel for Telstra pointed out, is not limited even to buildings. But beyond that there is in my opinion no safe guide by way of extrinsic materials, or in the text of the statute itself, leading to the distillation of an underlying philosophy which can then be used to cut down the general meaning of the opening words of item 90C(1). As French J said in Diethelm, 93 ATC at 4,713,
While purposive construction is desirable, the purpose to be served by a particular exemption or rebate may be beyond discovery.
The MDFs are "fixed". They may well be fixtures in the real property law sense, but in any event they are "made fast or firm; firmly implanted" (Macquarie Dictionary). They are also "installations". I did not understand either of the foregoing propositions to be in dispute.
In my opinion the MDFs are also "electrical", in the sense that, in the words of Lindgren J, they are "designed to accommodate fittings and accessories which deal with electricity". The characterisation in para 21 of Telstra's statement of claim also seem apt. It is there pleaded that MDFs are "large permanent items of equipment designed and used to regulate the flow of electric current". The evidence before his Honour clearly
supported these conclusions as to the nature and function of MDFs.
Counsel for the Commissioner relied on Commissioner of Taxation v Thomson Australian Holdings Ltd (1989) 25 FCR 481 and especially the judgment of Burchett J at 487-488. Counsel argued that the present case is one where a word can be used in a wider or a narrower meaning and that the history of this legislation, together with other evidence of usage, shows that the word "electricity" or "electrical" is used in a narrow sense which excludes reference to telephone services. The word in question in Thomson was "catalogue", which was held not to cover guides published for retailers in the liquor and used car industries. However in the present case we are concerned with the compound expression "fixed electrical installations".
Although there was a great deal of evidence as to usage called at the trial, his Honour found that the words in question did not have a technical or trade sense differing from ordinary parlance. This was a question of fact: Agfa-Gevaert Ltd v Collector of Customs (1994) 124 ALR 645 at 648 (proposition (i)) per Gummow J. The learned trial Judge's finding was clearly open on the evidence and was not challenged on appeal by the Commissioner, or at least not directly. There being no technical or trade meaning established, his Honour did not have to consider whether the statute used the expression in that special sense (a question of law: Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287, Brutus v Cozens [1973] AC 854). The
meaning of the words in question as a matter of ordinary English was therefore, strictly speaking, one for resolution by the Court itself "by considering the word(s) in (their) context with the assistance of dictionaries and other books, and not by expert evidence": The Australian Gas Light Co v The Valuer-General (1940) 40 SR(NSW) 126 at 137 per Jordan CJ, see also Rotary Offset Press Pty Ltd v Deputy Commissioner of Taxation (1972) 46 ALJR 609 and Pepsi Seven-Up Bottlers Australia Pty Ltd v FCT (1995) 95 ATC 4,746 at 4,752 et seq.
The Commissioner's argument necessarily involved the proposition that there is a narrow use in popular speech of the compound expression "fixed electrical installations", namely "fixed electrical installations other than installations used in connection with telephone services". The learned trial Judge in my respectful opinion correctly rejected this contention, whether it was to be considered as a matter of evidence or of ordinary English usage.
Even if evidence of actual usage be admissible, the fact that people might not have used the expression "fixed electrical installations" in referring to MDFs is not to the point. In everyday speech the word "car" is used rather than "motor vehicle", but the latter term nevertheless comprehends the object to which we refer as a car. Cotton buds are "cotton wool" although not referred to as such in ordinary speech: FCT v Smith & Nephew Pty Ltd (1994) 94 ATC 4,507.
I do not doubt that people can use the word "electricity" in a sense which excludes telephone services - as in counsel's example "I am paying the electricity bill", which would not usually be taken as comprehending payment of a telephone bill. But the example is no more than an illustration of the truism that, in matters of construction, context is everything. Nor do I see any significance in the fact that in some legislation (the Post and Telegraph Act 1901-1973 (Cth) ss 3 and 147 and the Telecommunications Act 1975 (Cth) s 3(1) and (2) were the only examples given) a distinction is drawn between telegraphic or telephonic apparatus on the one hand and electrical apparatus on the other. Historically such distinctions are probably explicable by the circumstance that telegraphic and telephonic services were a Commonwealth responsibility and electricity supply was a function of the States. To the extent that the history of legislation is any guide, it could be said that those drafting the sales tax legislation in 1944, 1950, 1953, 1957 and 1983 probably would not in fact have had in mind the taxing of equipment in telephone exchanges for the simple reason that until 1987 the Commonwealth entity responsible for telephone services was not liable for sales tax at all. However it was not put that such a history prevented item 90C(1) applying in the present case if MDFs answered the statutory description, and rightly so in my opinion. The legislation is to be treated as "always speaking": Pearce and Geddes, op cit, p 91.
Applying the principles expounded by the High Court in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation
(1981) 147 CLR 297, the conclusion I reach is that the ordinary and grammatical meaning of the compound expression "fixed electrical installations" comprehends the MDFs. There is nothing inconvenient, unjust, absurd, extraordinary, capricious, irrational or obscure about that result, or the further and consequential result that TBs and OPCs are exempt from sales tax. It simply means that in the application of sales tax legislation, which deals in detail with goods of many different descriptions, the goods in question are found to be exempt from sales tax.
This country does not have a comprehensive tax at uniform rate on all goods and services. Instead, sales tax applies at differing rates to a multitude of goods legislatively specified and an equally multitudinous range of goods is exempt. As suggested earlier in this judgment, to apply conventional techniques of statutory interpretation in search of some underlying coherent philosophy - or sub-philosophies - is likely to be unrewarding. This view is not some form of interpretational nihilism, still less a suggestion that sales tax legislation is arbitrary and capricious. Rather it recognises that there are all sorts of political, fiscal, social and economic factors at work, including, amongst other things, perceptions as to the intrinsic social usefulness of particular goods or the importance to society (and political power) of people who sell or use them: see Diethelm, 93 ATC at 4,713. All a judge can do is to endeavour to apply the ordinary meaning of the language Parliament has chosen.
Overvoltage Protection Cassettes - are they "Electrically Operated Apparatus"?
The relevant meanings given by the Macquarie Dictionary for the noun "apparatus" are:
An assemblage of instruments, machinery, appliances, materials etc. for a particular use.
Any complex appliance for a particular purpose.
While in some settings "apparatus" might comprehend a collection of objects which merely accept the application of energy, for example gymnasium apparatus, in the context of item 90C(1)(e) "apparatus" conveys the notion of a thing which, by means of the application of a particular kind of energy (electricity), works in a particular way (mechanical, optical, chemical, thermal etc) and for a particular purpose. This reading comes partly from the colour given by the other articles mentioned in para (e) (appliances and machines) and partly from the presence of the verb "operated". The first two meanings of "operate" given by the Macquarie Dictionary are:
To work or run, as a machine does.
To work or use a machine, apparatus or the like. (Emphasis added)
In my opinion, the OPCs are not "electrically operated apparatus" in the sense discussed. They are not worked or used by electricity. They do not function or work in a mechanical way, or in any other way. Electricity passes through them, but when an undesirable level is reached, the current is directed to
earth.
One must treat analogies with care since, ex hypothesi, the analogised thing or circumstance is something different from the matter under consideration. Nevertheless I found some illumination in the spillway analogy advanced by counsel for Telstra. The purpose of a spillway is to avoid the water in the dam accumulating beyond the desired level. When the water rises above that level and goes over the spillway, one would not say that the spillway was "hydraulically operated" (even though it might be said that the spillway was "in operation"). By contrast, one would say that turbines which were powered by water were hydraulically operated.
Further, I think that "apparatus" in this context connotes something whole, complete, or self-contained. It is an assemblage or complex appliance (see the Macquarie Dictionary definitions referred to above) which stands ready (paratus) for use for the desired purpose. One would not ordinarily speak of a nail or a screw, or a fuse, as an apparatus, at least when it formed part of a large assemblage.
I would therefore with respect take a different view to that of the learned trial Judge in this issue.
"Electrical Safety Devices for the Protection of Persons"
I agree with Lindgren J for the reasons that his Honour gives that OPCs serve to protect persons from the potentially harmful
effects of electricity to human life and health, whether from direct contact or as a result of fire. The inherently dangerous nature of electricity is a matter for judicial notice.
Orders
I agree with the orders proposed by Lindgren J.
I certify that this and the preceding nine (9) pages are a true copy of the reasons for judgment of his Honour Justice Heerey.
Dated:
Associate
Appearances
Counsel for the applicant: Mr N Forsyth QC with Mr J W de Wijn
Solicitor for the applicant: Mallesons Stephen Jaques
Counsel for the respondent: Mr B Shaw QC with Mr G Davies
Solicitor for the respondent: Australian Government Solicitor
Dates of hearing: 12 and 13 June 1996
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VG 911 of 1995
GENERAL DIVISION )
On appeal from a Judge of the Federal Court of Australia
BETWEEN:
TELSTRA CORPORATION LIMITED
Appellant
AND:
THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Cross Appellant
AND: TELSTRA CORPORATION LIMITED
Cross Respondent
CORAM:Ryan, Heerey, Lindgren JJ
PLACE:Melbourne
DATE:13 August 1996
REASONS FOR JUDGMENT
LINDGREN J:
INTRODUCTION
The appellant/cross respondent ("Telstra") is a company incorporated under the laws of the Australian Capital Territory and is, pursuant to s 11 of the Australian and Overseas Telecommunications Corporations Act 1991, the successor in law to the Australian Telecommunications Corporation Limited ("Telecom") and OTC Limited.
Telstra appeals, and the respondent/cross appellant ("the Commissioner") cross appeals, from a judgment of a Judge of the Court in respect of his holdings as to whether both or
either of certain "terminating blocks" ("TBs") and/or certain "overvoltage protection cassettes" ("OPCs") are exempt from sales tax. The TBs are used in the "main distribution frames" ("MDFs") of telephone exchanges. The OPCs are plugged into the TBs. The TBs and OPCs were purchased by Telstra and Telecom from Siemens Limited ("Siemens"). Telstra contends, and the Commissioner disputes, that the TBs and the OPCs are exempt by the operation of sub-s 5 (1) of the Sales Tax (Exemptions and Classifications) Act 1935 ("the Exemptions and Classifications Act") and item 90C in the first schedule to that Act.
On 3 June 1992 Telstra caused a writ of summons and statement of claim to be filed in the High Court of Australia seeking, against the Commissioner, a declaration that the OPCs supplied by Siemens to Telstra and Telecom since 1 October 1987 are exempt from sales tax and that Siemens has overpaid sales tax in respect of the OPCs sold to Telecom and Telstra since that date. Telstra sought similar declarations in relation to the TBs supplied by Siemens to Telstra since 1 April 1989. The action was remitted to this Court.
The learned trial Judge held that the TBs are exempt and that the OPCs are not. Accordingly, Telstra appeals in respect of the OPCs and the Commissioner cross appeals in respect of the TBs.
BACKGROUND
As required by s 21 of the Sales Tax Assessment Act (No 1) 1930 ("the No 1 Act"), Siemens lodged returns with the Commissioner. These included details of the sales of TBs and OPCs to Telecom and Telstra. Siemens has included in its prices to Telecom and Telstra amounts equal to the sales tax paid by Siemens to the Commissioner in respect of the sales. Siemens has unsuccessfully requested a refund from the Commissioner. It has agreed with Telstra that it will pass on to Telstra any amounts refunded.
LEGISLATION
Sub-section 5 (1) of the Exemptions and Classifications Act provides as follows:
"Notwithstanding anything contained in any Sales Tax Assessment Act, sales tax shall not, subject to this section, be payable upon the sale value of any goods covered by any item or sub-item in the first column of the First Schedule under any Act specified in the second column of that Schedule opposite that item or sub-item."
At the relevant times, that is to say, from 1 October 1987 to 3 June 1992 (the date of filing in the High Court), item 90C in the First Schedule was relevantly as follows:
"90C(1)Electrical fittings and accessories Nos. 1 to 9
(including electronically operated
electrical fittings and accessories)
and electrical materials, being goods
of a kind used exclusively or primarily
and principally as part of fixed
electrical installations in consumers'
premises, but not including -
(a)bell equipment, burglar alarm
equipment, fire alarm equipment,
recording equipment and electronic
equipment (other than electron-
ically operated electrical
fittings and accessories);
(b)brackets, canopies, chains, hooks
and galleries;
(c)candelabra, chandeliers,
electroliers, electric light
globes, lamps and tubes, pendants,
shades, bowls and reflectors;
(d)condensers, converters, starters and
transformers;
(e)electrically operated appliances,
apparatus or machines;
(f)engines, alternators, primary and
secondary batteries and other
generating equipment;
(g)flexible cables;
(h)light boxes;
(i)neon signs and other luminous
discharge lighting equipment,
including fluorescent lighting
equipment; or
(j)goods covered by item 2, or sub-
item (4) of item 12, in the Third
Schedule or goods or parts for
goods referred to in sub-item (3)
of item 12 in the Third Schedule.
(2)Goods of a kind used exclusively, or Nos. 1 to 9
primarily and principally, in connexion
with fixed electrical installations in
consumers' premises, namely:-
(a)Adaptors;
(b)Plugs;
(c)Electrical safety devices for
the protection of persons.
(3)Switch lampholders.
(4)Parts for goods covered by this item."
(emphasis supplied)
"Nos. 1 to 9" was required by sub-s 3 (3) of the Exemptions and Classifications Act to be read as a reference to the "Sales Tax Assessment Acts", the short titles of which concluded with a reference to a number in the series "1" to "9" and the year "1930".
The trial Judge noted that the Commissioner did not submit:
(a)that the TBs were not within the expression "electrical fittings and accessories ..., being goods ... used ... primarily and principally as part of" MDFs; or
(b)that a telephone exchange building was not within the expression "consumers' premises".
His Honour noted but rejected the Commissioner's submission that the OPCs were not within the expression quoted in (a) above. It has been accepted on the appeal that OPCs, like TBs, are "electrical fittings and accessories ... used ... primarily and principally as part of" MDFs.
The remaining issues before his Honour were as follows:
Are the MDFs "fixed electrical installations" within the meaning of exemption sub-items 90C (1) and (2)?
If "yes" to (1), do the TBs and the OPCs fall within the expression "electrically operated ... apparatus" in para 90C (1) (e) so as to be excluded from exemption sub-item 90C (1)?
If "yes" to (1),
(a)Are the TBs "adaptors" within the meaning of para 90C (2) (a) and therefore exempt under that paragraph?
(b)Are the OPCs "plugs" within the meaning of para 90C (2) (b) and therefore exempt under that paragraph?
(c)Are the OPCs "electrical safety devices for the protection of persons" within the meaning of sub-para 90C (2) (c) and therefore exempt under that paragraph?
On the appeal, only issues 1, 2 and 3 (c) remained alive.
The function and operation of the MDFs, OPCs and TBs
The function and operation of the MDFs, OPCs and TBs were the subject of extensive expert evidence before the trial Judge. I gratefully adopt the following account given by his Honour:
"Telephone exchanges in which the two items [TBs and OPCs] are used are housed in buildings in which the applicant consumes electricity supplied to it for reward by electricity supply authorities. Commonly the supply is at 240 or more volts, of 400 amperes,
alternating current. The current flows through fuses and consumption meters to equipment which diverts current for heating, ventilation, air-conditioning and lighting within the exchange. The equipment also diverts current, of 100 amperes, to a transformer, by which the current is converted from the voltage at entry into the building to 50 volts. In the same equipment complex the current is converted by a rectifier to direct current of a nominal voltage of 48 volts. Thence the direct current is carried by busbars to banks of batteries, by which current is supplied when a failure in the supply of electricity by the supply authority occurs or when an unexpected load is imposed in the exchange. The current then flows to a power distribution cabinet, whence the current flows by cables to magazines (called line interface magazines) in which are stored sets of equipment known as line interface cards. Each set on a card has functions for several telephone services. Current enters the magazines as 8 amperes at 48 volts direct current. The equipment in the magazine operates to provide current for each individual telephone service as 0.02 to 0.01 ampere. Direct current at 48 volts is available for the operation of the telephone service and alternating current at 95 volts is available to operate the alerting device (whether bell or tone ringer) in the subscriber's premises. When the phone rings in the subscriber's premises and the phone is answered the direct current flows through the circuit, the voltage dropping from 48 volts at the exchange to about 10 volts at the subscriber's phone. The signal generated by the subscriber's voice is carried by alternating current at about 10 volts as the signal leaves the subscriber's premises and rising to about 30 volts as the signal enters the exchange. Direct current is drawn upon to operate other functions in the subscriber's premises : dialling signals, stored telephone number memory, clock and digital display.
Between the equipment housed in a line interface magazine and the exterior of the telephone exchange each pair of wires which constitutes the electrical circuit dedicated to a particular telephone service passes through a structure called a main distribution frame. That is a rigid metallic structure about six feet high, of greater length, rectangular in shape, about two feet wide. On either side of the structure are fitted banks of structures known as main distribution frame terminating blocks. A terminating block consists of an assemblage of pairs of metallic conductors in a housing of rigid insulating material about 10 centimetres long. Four of five pairs are housed
side by side as a set within rigid insulating material. The goods known as main distribution frame terminating blocks consist of banks of these sets enclosed within a solid frame of insulating material. The banks of sets lie horizontally at half a dozen or more levels within the main distribution frame. Each pair of wires, constituting a telephone service circuit, entering the exchange is firmly attached to the outer end of a pair of conductors in one of the sets in a terminating block on the main distribution frame. That side of the frame is called the line side. On the other side of the main distribution frame, called the equipment or exchange side, are banks of similar terminating blocks, similarly arranged. Connecting the inner terminals of each pair of conductors which are in use on the line side and the inner terminals of a pair of conductors on the exchange side is a pair of flexible insulated wires called jumper cabling. Thus the circuit is extended from the line side to the exchange side, whence it is extended through a line interface magazine to the processing and switching equipment of the exchange.
Over voltage protection cassettes are devices which may be plugged into a set of 4 or 5 conductors in a terminating block. They are plugged into the sets of conductors in use on the line side of the main distribution frame. In the cassette are containers filled with a gas, one container for each pair of conductors in the set. The gas does not conduct electricity of a voltage and current within parameters regarded as normal for a telephone system, but the gas becomes conductive of electricity beyond those parameters. Metallic conductors in the gas container and elsewhere in the cassette are so arranged that under normal conditions the electrical circuit is maintained. But when the gas conducts electricity a path for the electricity to earth of much lower resistance than the path into and through the jumper cables is created. If an abnormally high voltage or current flows from the line side of a circuit most of the electricity flows through the electrically conductive gas to earth. When voltage and current return to normal the gas ceases to be conductive and the normal circuit is re-established. The gas container is not impaired and the over voltage protection cassette remains serviceable for many years.
A main distribution frame was, when electrical fittings used in connection with electrical installations were first included in the First Schedule of the Exemptions Act [the Exemptions and Classifications Act] in 1945, and remains now, a part of most telephone exchanges. It serves a number of purposes. It provides a convenient means of exposing in an easily accessible position the pairs of wires which constitute a vital part of every telephone service, where testing of the circuit may easily be undertaken, where alteration of the course of the circuit may easily be effected, to accommodate change or termination of a service and changes in the processing and switching functions beyond the equipment side of the frame, by disconnecting wires or jumper leads from one pair of conductors in the terminating block and connecting them to another, and where protection of the exchange equipment from damage by unacceptably high voltage and current surge is best undertaken, at the point where aggregates of pairs of wires emerge from cabling into separate pairs. In 1945 and for long after 1945 the protection was by fuses and the connection of wires was by soldering. Now the protection is by ionising gas and the connection of wires to conductors is by a terminating tool which strips plastic insulation from the wire and effects sound electrical contact between the wire and the terminating block conductor by pressing it into pincers at the end of the conductor. But the purpose and function of the main distribution frame have remained the same."
CONCLUSIONS OF THE TRIAL JUDGE
The learned trial Judge considered that the expression "fixed electrical installations in consumers' premises" had a meaning which comprehended MDFs. He thought that an MDF was an installation fixed in telephone exchange premises and that it was an "electrical" installation, being a structure for the transmission of electric current.
In relation to the exclusion in para 90C (1) (e), his Honour held that the TBs, whether considered alone or in connection with OPCs, did not fall within the expression "electrically operated ... apparatus" and so were not excluded. However, he considered that the OPCs did fall within the ordinary meaning of that expression and so were excluded by para (e) from the exemption which they would otherwise have enjoyed under sub-item 90C (1).
In relation to sub-item 90C (2), his Honour held that neither the TBs nor the OPCs were "adaptors" within the meaning of para 90C (2) (a) (it seems that Telstra had submitted only that the TBs were adaptors). He thought that the OPCs, although they "plug into" the TBs, were not "plugs" within the meaning of para 90C (1) (b). Finally, he considered that the OPCs were not "electrical safety devices for the protection of persons" within the meaning of para 90C (2) (c), because there was no evidence either that they had been brought into existence "for" the purpose of protecting persons from harm from electric current, or that they did in fact protect persons from such harm.
ISSUES AND CONTENTIONS ON THE APPEAL AND THE CROSS APPEAL
The issues on the appeal and the cross appeal are exposed by the parties' respective contentions.
(1)On his cross appeal, the Commissioner contends that the trial Judge erred in holding that the MDFs fall within the expression "fixed electrical installations" within the meaning of sub-items 90C (1) and (2) and Telstra seeks to support that holding. If the Commissioner succeeds in his contention, it will be unnecessary to consider any of the further issues noted below.
(2)On its appeal, Telstra contends that his Honour erred in holding that the OPCs are excluded from the exemption afforded by sub-item 90C (1) as "electrically operated ... apparatus" within the meaning of para 90C (1) (e). For his part, the Commissioner, in the alternative to his contention on his cross appeal noted in (1) above, seeks to support the trial Judge's conclusion that the exclusion in para 90C (1) (e) operates.
(3)On its appeal, Telstra contends that his Honour erred in holding that the OPCs are not within the expression "electrical safety devices for the protection of persons" within para 90C (2) (c) and exempted from sales tax by that paragraph. For his part, the Commissioner, in the alternative to his contention on his cross appeal noted in (1) above, seeks to support the trial Judge's conclusion that the OPCs fall outside para 90C (2) (c).
(4)Further, or in the alternative to (1), on his cross appeal the Commissioner contends that his Honour erred in failing to hold that the TBs are "electrically operated ... apparatus" within the meaning of para 90C (1) (e) and are therefore excluded from the exemption afforded by sub-item 90C (1). Telstra seeks to support the trial Judge's conclusion on this point.
REASONING ON THE APPEAL
General
The expressions to be construed are "fixed electrical installations", "electrically operated ... apparatus" and "electrical safety devices for the protection of persons". Before the trial Judge there was a considerable volume of expert evidence directed to showing that these expressions in item 90C bore technical or trade meanings. His Honour decided that they did not. On the appeal it was not submitted that his Honour should have found that they or any of them did bear such a meaning.
It is therefore necessary for the Court to ascertain the meanings of the three compound expressions in the contexts in which they respectively occur, as matters of ordinary English. In Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 ("Cooper Brookes"), members of the High Court described the proper approach to be taken in such a case. Four judgments were delivered, one of them a joint judgment by Mason and Wilson JJ. Gibbs CJ said this:
" ... if the language of a statutory provision is clear and unambiguous, and is consistent and harmonious with the other provisions of the enactment, and can be intelligibly applied to the subject matter with which it deals, it must be given its ordinary and grammatical meaning, even if it leads to a result that may seem inconvenient or unjust. To say this is not to insist on too literal an interpretation or to deny that the court should seek the real intention of the legislature. The danger that lies in departing from the ordinary meaning of unambiguous provisions is that 'it may degrade into mere judicial criticism of the
propriety of the acts of the Legislature', as Lord Moulton said in Vacher & Sons Ltd v London Society of Compositors [[1913] AC 107, at p. 130.]; it may lead judges to put their own ideas of justice or social policy in place of the words of the statute. On the other hand, if two constructions are open, the court will obviously prefer that which will avoid what it considers to be inconvenience or injustice. Since language, read in its context, very often proves to be ambiguous, this last mentioned rule is one that not infrequently falls to be applied." (at 305)
Mason and Wilson JJ saw problems in "the literal construction rule" and the "golden rule of construction", saying this:
"In some cases in the past these rules of construction have been applied too rigidly. The fundamental object of statutory construction in every case is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole. But in performing that task the courts look to the operation of the statute according to its terms and to legitimate aids to construction." (at 320)
Cooper Brookes was decided on 5 June 1981. Section 15AA of the Acts Interpretation Act 1901 was introduced by s 115 of the Statute Law Revision Act 1981 with effect from 12 June 1981. That section is as follows:
"In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object."
In Kingston v Keprose Pty Ltd (No 3) (1987) 11 NSWLR 404 (CA), McHugh JA described what he referred to as the "modern approach" and the "purposive approach" to statutory construction. His Honour said that a "purposive", as distinct from a "literal", approach now prevails. He said that although a search for the grammatical meaning constitutes the starting point and that in most cases that meaning will give effect to the purpose of the legislation in question, if it does not do so a meaning which does must be preferred.
The purpose or purposes intended to be served by the exemptions provided for by sub-items 90C (1) and (2) are not obvious. The miscellaneous categories of exclusion in paras (a) to (j) within sub-item 90C (1) are not clearly species of a genus which one might expect the opening words of that sub-item to describe. In relation to sub-item 90C (2), a similar observation can be made about the three kinds of goods referred to in paras (a), (b) and (c) of that sub-item.
Does the historical development of item 90C reveal its purpose?
Historical development of item 90C
Item 90C was introduced by the Sales Tax (Exemptions and Classifications) Act 1945 (Act No 36 of 1945) which was assented to on 11 October 1945 and was deemed to have come into operation on 13 September 1945. The item as introduced was in the following form:
"90C.Electrical fittings (and parts therefor) of a kind used exclusively, or primarily and principally, in, or in connexion with, electrical installations in houses viz:-
Ceiling roses, connectors and connector bodies, connectors of a kind used in junction boxes, flush plates, lampholders (including switch lampholders and batten lampholders), mains connexion boxes, plugs and plug sockets, plug receptacles, flush pilot receptacles, adaptors, switches, switch plugs, switch plug combinations, switchboards, fuse boards, distribution boards, switchboxes and flush switch wall boxes." (emphasis supplied)
Several aspects of this definition are noteworthy. First, the electrical fittings concerned were described by reference to an exclusive or primary and principal use as a matter of objective fact. Secondly, the reference to "houses", as distinct from other classes of buildings, is a limiting factor. Thirdly, the words which denote the relation between the "electrical fittings" and the "electrical installations in houses" are "in, or in connection with" - words of the widest import. Fourthly, the term "viz" introduces a list of specifics which narrows further the scope of the fittings referred to in the general introductory words. Fifthly, there is no exclusionary provision akin to that now found in sub-item 90C (1). The purpose of item 90C as introduced seems to have been to exempt, and in this way to encourage the use of, identified classes of goods associated with the installation of a supply of electricity in dwelling houses.
By the Sales Tax (Exemptions and Classifications) Act 1950 (Act No 37 of 1950) which was assented to on 14 December 1950 and came into operation on 13 October 1950, the following was added as sub-item (2):
Electrical fittings and accessories (and parts therefor) and electrical materials, n.e.i., being goods of a kind used exclusively or primarily and principally as part of electrical installations in houses or other consumers' premises, but not including -
(a)bell equipment, burglar alarm equipment, fire alarm equipment, recording equipment, and electronic equipment;
(b)brackets, canopies, chains, hooks and galleries;
(c)candelabra, chandeliers, electroliers, electric light globes, lamps and tubes, pendants, shades, bowls and reflectors;
(d)condensers, convertors, starters and transformers;
(e)electrically operated appliances, apparatus or machines;
(f)engines, alternators, primary and secondary batteries and other generating equipment;
(g)flexible cables;
(h)light boxes; or
(i)neon signs and other luminous discharge lighting equipment, including fluorescent light equipment." (emphasis supplied)
It will be observed that the exemption is widened by reference to "other consumers' premises" as an alternative to "houses". All premises where electricity is "consumed" are now encompassed. But this raised a difficulty for those drafting the legislation: while they might be familiar enough with the kinds of electrical fittings used in houses, they could not know the full range of all the kinds of electrical fittings encountered in every kind of premises where electricity is consumed. Identification of the specific kinds of fittings to be exempt from tax (the device which had been used in item 90C up to that time) was therefore not practicable in this instance.
How might the expanded exemption be appropriately limited? The drafter used two devices. Firstly, the words signifying the relation between the electrical fittings (now "[e]lectrical fittings and accessories and electrical materials, n.e.i.") and the "electrical installations" became the specific and confining "as part of", rather than the more general "in, or in connection with". Secondly, the drafter simply decided to be content with limiting the exemption only by reference to specific exclusions, leaving the general terms of the exemption, for better or for worse, to do their work.
It is not obvious what, if any, unifying concept underlay the list of exclusions. A broad notion of things not "reasonably necessary for the installation of an electrical system in a building", or of things not "reasonably necessary before it can be said that electricity is available to be consumed throughout a building", may have been influential. But the more likely explanation is to be found in particular responses to exigencies of political pressure.
It is convenient to think that by the next relevant Act, the Sales Tax (Exemptions and Classifications) Act 1953, (Act No 53 of 1953), which was assented to on 28 October 1953 and was deemed to have come into operation on 10 September 1953, sub-items 90C (1) and (2) exchanged positions. There were, however, some other changes. The new item 90C was as follows:
"90C-(1)Electrical fittings and accessories, and electrical materials, being goods of a kind used exclusively or primarily and principally as part of fixed electrical installations in consumers' premises, but not including -
(a)bell equipment, burglar alarm equipment, fire alarm equipment, recording equipment and electronic equipment;
(b)brackets, canopies, chain, hooks and galleries;
(c)candelabra, chandeliers, electroliers, electric light globes, lamps and tubes, pendants, shades, bowls and reflectors;
(d)condensers, converters, starters and transformers;
(e)electrically operated appliances, apparatus or machines;
(f)engines, alternators, primary and secondary batteries and other generating equipment;
(g)flexible cables;
(h)light boxes; or
(i)neon signs and other luminous discharge lighting equipment, including fluorescent lighting equipment
(2)Adaptors and plugs of a kind used exclusively or primarily and principally
in connexion with fixed electrical installations in consumers' premises
(3)Switch lampholders
(4)Parts for goods covered by this item." (emphasis supplied)
Why was the further limiting word "fixed" introduced to precede and qualify "electrical installations" in both sub-items? What method of affixation was signified? At the least demanding level, affixing by some means such as screwing, nailing or gluing, as distinct from, say, resting on a thing's own weight or plugging into a socket, was required. Perhaps the intention was to make clear that only an electrical system which was a "fixture" in the sense of "goods which, for legal purposes, are treated as having become part of land", was caught. The notion of a "fixture" in this sense has, of course, been much discussed in the cases and different "tests" have been suggested for the distinguishing of fixtures from non-fixtures. Examples of the tests are whether the thing was put in place with the intention that it be a permanent part of the particular building; whether the thing can be removed without damage to the building; whether the thing is in place for the better enjoyment of the particular building or of the thing itself.
By the Sales Tax (Exemptions and Classifications) Act 1957 (Act No 71 of 1957), which was assented to on 12 December 1957 and was deemed to have come into operation on 4 September 1957, sub-item (2) was omitted and replaced by the present
sub-item (2) quoted earlier. By the Sales Tax (Exemptions and Classifications) Amendment Act 1983 (Act No 63 of 1983), which was assented to on 18 October 1983 and was deemed to have come into operation on 24 August 1983, there was inserted in sub-item (1) "(including electronically operated electrical fittings and accessories)" after "accessories" and there was added at the end of para (a) "(other than electronically operated electrical fittings and accessories)", to give sub-item (1) its present form also quoted earlier.
In sum, it is not possible from the legislative history to identify an aim, purpose or objective of sub-items 90C (1) and (2) except, perhaps, one so broad as not to assist in the making of fine distinctions of the kind called for in the present case.
I turn now to the issues of construction on the appeal.
The issues of construction on the appeal
(1)Are the MDFs "fixed electrical installations in consumers' premises"?
This question calls for some understanding of the expression and of the nature of MDFs.
The following relevant dictionary definitions of "installation" are noteworthy:
The New Shorter Oxford English Dictionary "2 An apparatus, system, etc., that has been installed for
service or use."
The Macquarie Dictionary 2nd Revised Edition "1. something installed. 2. a system of machinery or apparatus placed in position for use."
Dictionary definitions of "electrical" are inevitably general. They refer to any kind of relation between electricity and a thing, leaving to context the kind of relation to which a particular use of the word refers. The following definitions illustrate:
The New Shorter Oxford English Dictionary: "2 Of or pertaining to electricity; of the nature of electricity; = ELECTRIC".
The Macquarie Dictionary 2nd Revised Edition: "1. electric. 2. concerned with electricity: ..."
It is necessary to refer only to the expressions "electrical engineer" and "electrical system" to make the point that the kind of relation between electricity and the noun to which the adjective "electrical" is applied varies according to context.
What is an MDF and what is the relation between an MDF and electricity? The evidence before the trial Judge included the following descriptions of an MDF:
"The main distribution frame is a large metallic structure laid out in an organised manner to facilitate the connection of customers' lines to exchange equipment. The main distribution frame constitutes the point at which incoming customer lines are distributed and connected to the lines which lead to the appropriate exchange equipment. An important emphasis in the design of a main
distribution frame is the layout of customer line terminations and the proximity of these terminations to the corresponding equipment side terminations. The main distribution frame constitutes a convenient point of access to conduct fault analysis upon customers [sic] lines, for the reason that these lines are elsewhere sealed within cables in the network. For the same reason, the main distribution frame constitutes the most appropriate location for protective devices, ..." (Ian Kenneth Stevenson, affidavit sworn 1 April 1993, para 8)
" ... a device which conveys or controls the use of electricity and which is permanently connected to the electrical supply." (affidavit of Donald McKenzie sworn 2 April 1993, para 8)
" ... a main distribution frame is a large metallic frame comprised of a number of units and brackets, upon which terminating blocks are mounted. A main distribution frame is galvanically joined (so as to provide an electrical connection) to an earthing bar in a telephone exchange. Each customer line is terminated at a terminating block to which protection by means of an over voltage protection cassette can be fitted." (affidavit of Ian Albert Hampton sworn 2 April 1993, para 7)
"The electrical system associated with a telephone exchange is several orders of magnitude larger than the electrical system in a domestic premises. (The electrical system in a domestic residence typically supplies 10000 kwh per annum of electric energy.) However, despite this huge difference in size, the main distribution frame is somewhat analogous to a fuse box or terminal box in a domestic or commercial premises in that individual electrical circuits pass through the main distribution frame, and the over voltage protection cassettes installed in the main distribution frame are somewhat analogous to fuses or circuit breakers which are also used to protect the electrical equipment of the system." (affidavit of Colin Grantham sworn 5 April 1993, para 10)
" ... the applicant's telecommunications equipment, such as its main distribution frames and its other telephone exchange equipment, has the function, not of distributing electrical power for use, but of transmitting information signals ..." (affidavit of Brian Leslie Morgan sworn 21 April 1993, para 5)
" MR FORSYTH: Mr Mathieson, when you were, in the early days, engaged in the construction and installation of telephone exchanges, as you say in paragraph 3, presumably you had experience in the construction and installation of main distribution frames, is that so?---That would be correct.
And you were with us on the inspection of the Lonsdale Street Exchange the other day, is that so?---I was.
And we saw there a main distribution frame. Was the frame itself, as distinct from the blocks and wires and everything on it, the same sort of thing as you used to construct and install back in that period, 1968 to 1973?---Essentially, yes.
Yes, and were those frames always very securely affixed to at least the floor?---Yes.
By bolts and masonry anchors?---Yes, special provision would be made for constructing the main distribution frame in a physical sense over the cable entry area of the exchange.
Yes, that is to say the floor slab or whatever it was, was prepared especially to receive the main distribution?---In my experience, yes.
Yes, and do you know if that is still the case?---To the best of my knowledge, that is still the case. My experience with exchanges ceased approximately in 1990.
Yes?---And up to that point in time, building design, telephone exchange building design would incorporate that characteristic.
Yes, that is to say before they began to build the building they had said well the frame is going to go here and we have to make special provision in our building for that to happen?---Yes, in general that would be the case."
In my opinion, the foregoing evidence shows that an MDF is at least securely put in place for use as a permanent part of a
telephone exchange. It is a "fixed installation".
The Commissioner led a substantial body of expert evidence before the trial Judge directed to showing that in the telecommunications industry a distinction is recognised between "electrical installations" and "telecommunications installations". As noted earlier, however, the trial Judge rejected the submission that the expression "fixed electrical installations in consumers' premises" was used in a technical or trade sense in item 90C.
An MDF is not itself a conductor of electricity but is a frame which houses electrical fittings and accessories, relevantly TBs and OPCs. The "brackets, canopies, chains, hooks and galleries" of para (b) of sub-item 90C (1) and the "light boxes" of para (h) of that sub-item are in this respect similar.
To my mind, the MDFs are not prevented from qualifying as "electrical installations" by reason of the fact that they may also be properly and commonly referred to as "telecommunications installations". Senior counsel for the Commissioner made the point that in common parlance, the statement "make sure you pay the electricity bill" does not include a reminder to pay a telephone bill. That is so, but only because it is commonly understood that bills for electricity and telephone services issue from different sources, and that electricity bills do not include charges for
telephone services.
But I do not think that it is common knowledge that "electrical installations" and "telecommunications installations" are mutually exclusive categories in ordinary parlance so that something properly describable as a "telecommunications installation" can not be called an "electrical installation". Similarly, I do not think that the drawing of the distinction in ss 3 and 147 of the Post and Telegraph Act 1901-1973 and sub-ss 3 (1) and (2) of the Telecommunications Act 1975 between telegraphic or telephonic apparatus on the one hand, and electrical apparatus on the other hand, signifies that in sub-items 90C (1) and (2) the legislature was drawing the same distinction.
It is arguable, and the Commissioner so submits, that the expression "electrical installations" has reference to installations directed to making available a supply of electricity at points throughout consumers' premises as distinct from installations involved in the consumption of the electricity. In a house, for example, the distinction would be between the laying on of electric power down to the power points or sockets on the one hand, and the appliances that are plugged into them on the other. According to this view, the electric heater or stove and the personal computer are "on the consumer side" and are not part of the "electrical installation".
To speak of "consumption" in relation to what is done with the electricity entering a telephone exchange raises unusual and difficult questions. The electricity which enters the telephone exchange does so as alternating current. Some of this is consumed in the sense of being used by being converted into other forms of energy such as heat, light and mechanical power and, as such, is "used up" on the premises. However, much of the electricity is converted to direct current and as such it leaves the exchange so as to be serviceable for telephonic purposes. In one sense, the fact that the direct current leaves the exchange shows that not all the electricity entering the exchange has been "consumed". However, having regard to the peculiar nature and purpose of a telephone exchange, there is a sense in which it has been; what happens to electricity entering a telephone exchange can be regarded as "consumption" of the special kind which characterises a telephone exchange. Materials entering the premises of a manufacturer can be expected to leave it in a different form or, at least, as part of a new product. In one sense, the materials which enter are not consumed and in another sense they are.
Like the learned trial Judge, I have concluded that the MDFs are fixed "electrical installations". Considerations which persuade me to this view are that they are fixed installations which, according to ordinary parlance, are designed to accommodate fittings and accessories which deal with electricity; electricity is the form of energy which permits the exchange and its various components, including MDFs, to serve their purpose; and an MDF is an installation which accommodates fittings and accessories which are an essential part of that peculiar kind of "consumption" of electricity which constitutes the purpose of a telephone exchange.
There is nothing capricious or irrational in this conclusion or in its consequence that the electrical fittings and accessories forming part of a MDF enjoy exemption from sales tax unless otherwise excluded.
(2)Are the OPCs "electrically operated ... apparatus"?
It was not disputed that the OPCs constitute "apparatus". The issue which divides the parties is whether they are "electrically operated". The following dictionary definitions of the transitive verb "operate" may be noted:
The New Shorter Oxford English Dictionary: "4 Effect by action or the exertion of force or influence; bring about ... 5 Cause or direct the functioning of; control the working of (a machine etc.). ... "
The Macquarie Dictionary 2nd Revised Edition: "9. to manage or use (a machine, etc.) at work: to operate a switchboard. 10. To keep (a machine, apparatus, factory, industrial system, etc.) working or in operation. 11. to bring about, effect, or produce, as by action or the exertion of force or influence."
There was no dispute in the expert evidence as to the nature or modus operandi of an OPC. An OPC is a gas-filled cassette which plugs into a terminating block. It is so designed that under certain exceptional excess voltage conditions, the gas in the cassette ionises and thereby becomes conductive of electric current. The current flows through the gas-filled cassette to a large metal contact at the base of the OPC and thence, through metal and metal contacts, to the main earth system in the exchange premises.
Although it is an ordinary use of language to say that an OPC "operates" in the sense of "functions", the expression "electrically operated" signifies, to my mind, "caused to become active by electricity, in the manner of an electrically powered machine". No part of an OPC works as a machine. It is an immobile and passive conductor. It is something through which electricity passes by way of being diverted to earth.
Telstra submits that the "spillway" of a dam provides a good analogy. The spillway and the OPC are immobile devices which are not "caused to become active" by the excess of water or voltage. By means of both, an undesired excess of something (water or electricity) is diverted, but this occurs as a phenomenon of their static physical nature rather than by any active working of them. I think that the analogy is apt. The analogous distinction is that between a spillway and an hydraulically powered turbine.
(3)Are the OPCs "electrical safety devices for the protection of persons"?
The relevant part of the judgment of the learned trial Judge is as follows:
"The preposition 'for' in paragraph 90C(2)(c) requires, in my opinion, that one purpose for which the electrical safety device is brought into existence as goods is the protection of persons from harm by electrical current. The evidence does not persuade me that any person, either the manufacturer, Siemens, or the purchaser, the applicant, had that purpose. Further, if consideration of subjective purpose be excluded, I am not persuaded that a consideration of the goods, informed by the evidence of its function and operation and by such meagre information as the evidence and judicial notice afforded of the effect of electrical current on persons, enables me to identify them as within the description contained in paragraph 90C(2)(c)."
The reference to "brought into existence" in the first sentence in this passage may arguably suggest that the purpose to which para 90C (1) (c) implicitly refers is the subjective "purpose" of the manufacturer. But in my respectful opinion a purchaser cannot subjectively have or share in the purpose for which goods are brought into existence. The fact that his Honour refers in the second sentence to the purpose of Telstra as the purchaser of the OPCs suggests that by the expression "one purpose for which the electrical safety device is brought into existence as goods" his Honour had in mind a purpose substantially identical with the "objective purpose" to which he referred later in the passage quoted.
It seems to me that the following passage from the judgment of Deane J in Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385 is pertinent:
"While the subjective intentions of manufacturer or purchaser are relevant and may well be conclusive, what is required is an objective characterization of the goods themselves in the light of all the relevant circumstances. That characterization must be made as at the time when liability to sales tax would otherwise attach. It will, in an appropriate case, be made with the benefit and in the context of the knowledge of the actual use which was subsequently made of the goods." (at 401)
Other authorities conforming to this approach include Commissioner of Taxation v Lincoln Industrial Cleaners Pty Ltd [1975] 2 NSWLR 499 (NSW/Sheppard J) at 501 and Federal Commissioner of Taxation v Hammersley Iron Pty Ltd 81 ATC 4,582 (Vic/FC) at 4,590 (Lush J, with whom Kaye J concurred).
A separate question is whether the purpose indicated by the word "for" in para 90C (2) (c) is a "principal or primary" purpose or something less. His Honour said that the preposition "for" referred to "one purpose". With respect, I agree. The first schedule to the Exemptions and Classifications Act demonstrates that the legislature has been well able to insist upon a more stringent test, a good illustration being found in the opening words of sub-items 90C (1) and (2) in which an "exclusive" or "primary and principal" function or purpose is referred to (and cf the similar terms of item 113G which was in issue in Mayne Nickless Ltd v Federal Commissioner of Taxation 91 ATC 4,621 (Vic/FC)). In Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385, the expression "[g]oods for use (whether as goods or in some other form), and not for sale, by ... a public benevolent
institution" in para 81 (1) (c) in the first column of the first schedule to the Exemptions and Classifications Act was construed. Gibbs CJ, with whom Dawson J agreed, said this:
"No doubt an article would not fall within item 81 if the use to which it was to be put by the hospital or institution was transient or insubstantial; the suggestion in Federal Commissioner of Taxation v Hamersley Iron Pty Ltd [(1981) 37 ALR 595, at p 605; 12 ATR 429, at p 439; 81 ATC 4,582, at p 4,590] that the goods must be for use to 'a significant degree' would appear to be correct." (at 390)
I think that the learned trial Judge's reference to "one purpose" is properly understood as a reference to "one significant purpose" and the contrary was not submitted on the appeal.
Telstra submits that at least one significant purpose of an OPC is to protect persons. The Commissioner submits to the contrary, contending that the only significant purpose of an OPC is to protect property, namely equipment forming part of the telephone system.
There was, in my view, substantial uncontradicted evidence that an effect of the OPCs was to protect persons from the danger arising, directly or indirectly, from the introduction of extraneous currents and voltages onto the telephone system. One possible cause of such extraneous surge in voltage and/or current is a direct strike by lightning and another is an "unintended connection or near connection of telephone pairs
or cables to other electrical installations or power sources" (affidavit of Ian Kenneth Stevenson sworn 1 April 1993, para 10). A direct threat to human safety can arise if, for example, Telstra personnel are in contact with some part of the exchange system when the power surge occurs. An indirect threat to the safety of persons can arise if a power surge causes fire.
In Siemens' catalogue entitled "Gas-Filled Surge Arresters" (edition 6) relating to the OPCs, there appears the following:
"Overvoltages must be limited reliably to harmless values in order to prevent endangering persons and damaging equipment as far as possible."
Donald McKenzie, Senior Installations and Investigation Officer of the State Electricity Commissioner Victoria gave evidence that an OPC "provides some protection for persons" and that OPCs used on TBs at MDFs "provide protection for persons" (affidavit sworn 2 April 1993, para 20).
On the other hand, Victor John Gosbell, Associate Professor in the Department of Electrical and Computer Engineering at the University of Wollongong, gave evidence that OPCs were "not safety devices for the protection of persons" and that the protection of persons was a "subsidiary effect" which they had. He said that within the electrical industry there are many goods, such as insulation on electrical wiring, which also have that effect but which are not described in the industry as being "for the protection of persons" (affidavit sworn 2 April 1993, para 17). The evidence of Brian Leslie Morgan, Telecommunications Technical Officer of the Fixed Standards Section of the Technical Services Branch of the Australian Telecommunications Authority was to a similar effect (para 13 of his affidavit sworn 21 April 1993). It must be remembered, however, that the present task is one of construing ordinary English language rather than deciding between expert evidence as to industry or trade usage.
In 1986 Telstra undertook a review of the protective mechanisms used at the MDF to ensure that an adequate level of performance of the protective mechanism was maintained. The report of the working party included the following:
"5.4NETWORK PROTECTION DESIGN CONSIDERATIONS AND GUIDELINES
5.4.1Aims of protection against lightning.
There are two aims of protection
a/protect human life
b/protect equipment and plant
The first aim is not considered here but whatever choices are made for the second aim they must also be suitable to protect life." (emphasis supplied)
Ian Kenneth Stevenson, an officer of Telstra who was a member of the working party which undertook the review in 1986 and produced the report, said this of the report (in para 24 of his affidavit sworn 1 April 1993):
"As this report indicates, the issue of protection of personnel employed by the Applicant was regarded as important, but was ultimately excluded from the terms of reference of the working party. The reason for the exclusion of this issue from consideration was that the working party was to consider any necessary improvements in the protective mechanism over and above the performance characteristics of the protection system which was already in use. As the existing system would operate in the most circumstances hazardous to human beings, it is clear that there could be no additional improvements in human safety which could be gained by increasing the level of performance of the protective system."
Earlier, in para 2.7.2 of the report, "gas discharge tubes" were listed as one of various types of "PROTECTIVE DEVICES" which can be used in telephone exchanges. Others included "Fuses".
The Australian Standard entitled "Electrical installations - Extra-low voltage d.c. power supplies within public telecommunications networks" (AS 3015-1993) contained section 4 headed "Service Earthing and Bonding" in which appeared the following:
"The design of the telecommunications service earthing system (service earth) and bonding should allow for consideration of the following:
(a)the protection of people.
(b)... (g) ... ."
The learned trial Judge noted evidence that no OPC device is provided at the MDF of a telephone exchange in which the equipment is "analogue" and not "digital". His Honour said that the OPC is used, and was specifically designed, in order that digital exchange equipment be protected. His Honour recorded the following passage from the report of the 1986 review by the Telstra working party:
"The effect on personnel of overvoltage protection or the lack of it is important. However, this is an intricate and difficult problem and issue to address. So, although several papers have been tabled for illustration of the problem of overvoltage on personnel (see Appendix 6) the working party has concentrated on the effect of overvoltage on the operation and performance of the equipment and in particular the exchange equipment. Having specified the protection of the exchange and the subscriber terminal, there should be an investigation or at least monitoring of the effect of the new protection practices on personnel."
With respect, I do not think that this passage can be taken to indicate that it is not a significant purpose of an OPC to protect persons. In any event, the passage from Mr Stevenson's affidavit to which I referred above explains why the focus of attention in 1986 was on protection of exchange equipment rather than exchange personnel.
I think that on the evidence, the correct conclusion is that at least one significant purpose of the OPCs is the protection of exchange personnel from injury.
(4)Are the TBs "electrically operated ... apparatus"?
It was, I think faintly, submitted by the Commissioner that the TBs are also within the para 90C (1) (e) exclusion as "electrically operated apparatus". I do not think that they
are. They are not made to "work" (in the sense to which I referred in (2) above) by electricity. Having regard to the reasons which I gave in (2) above, a fortiori in my view the TBs do not fall within the exclusion.
CONCLUSION
In my opinion, on the appeal there should be an order that the appeal be allowed and that the orders of the learned trial Judge made on 28 November 1995 be set aside in so far as they dismissed Telstra's application in part and provided for costs. Instead, it should be declared that the OPCs were exempt from sales tax and that Siemens overpaid sales tax on them, and the Commissioner as respondent should be ordered to pay the costs of Telstra as applicant. As well, the Commissioner should be ordered to pay Telstra's costs of the appeal.
On the cross appeal, there should be orders that the cross appeal be dismissed and that the Commissioner pay Telstra's costs of the cross appeal.
I certify that this and the preceding 35 pages are a true copy of the Reasons for Judgment of his Honour Justice Lindgren
Associate:
Dated:13 August 1996
Heard: 12, 13 June 1996
Place: Melbourne
Decision: 13 August 1996
Appearances: Mr N H M Forsyth QC with Mr J W de Wijn of counsel instructed by Mallesons Stephen Jaques appeared for the appellant/cross respondent.
Mr B J Shaw QC with Mr G J Davies of counsel instructed by the Australian Government Solicitor appeared for the respondent/cross appellant.
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