Case: Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450
Outcome: considered
The decisions in Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450 (' Diethelm '), Commissioner of Taxation v Chubb Australia Ltd (1995) 56 FCR 557 (' Chubb '), Clean Investments Pty Ltd v Commissioner of Taxation [2001] FCA 80 ; (2001) 105 FCR 248 ( 'Clean Investments ') and Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396 (' Hygienic Lily ') all involved the construction and application of an expression found in Item 1 of the Third Schedule of the Sales Tax (Exemptions and Classifications) Act 1935 (Cth), namely 'goods ... of a kind ordinarily used for household purposes ...'. I will not attempt to discuss every relevant aspect of these cases because they were reviewed at length by Lindgren J in Clean Investments at 260-274 [35]-[103]. 82 Secondly, it is preferable to pose the statutory question (ie the question whether the goods in issue in the particular case are goods of a kind ordinarily acquired for personal, domestic or household use or consumption) as a single composite question: see Clean Investments at 273 [91]-[93] per Lindgren J; Diethelm at 472 per Hill J; and Chubb at 559[F] per Burchett J. This can be contrasted with a two-stage inquiry as to, first, the genus of goods in question, and secondly, whether that kind of goods is ordinarily acquired for personal, domestic or household use or consumption. As Lindgren J pointed out in Clean Investments , posing the genus question separately as a threshold one runs the risk of prejudging the answer to the statutory question. His Honour said at 273 [92] [93]: 'In some cases it may be misleading to address separately the question of identification of the "genus" to which the particular goods in question belong, and the question whether that genus meets the description "ordinarily used for household purposes". The problem can be indicated by the question "What kind of goods is the Item speaking of?" Answering the genus question separately as a threshold one will assume, without making explicit, an answer to this question. Goods and purposes can be equally correctly described in different ways, in particular, broadly or narrowly, yet the description selected may dictate the answer to the statutory question. For example, an architect's stool, an office chair and a kitchen stool or chair may be described as "stools" or "chairs" and their purpose as being "to provide seating". Yet it would be wrong to conclude that the architect's stool or the office chair is of a kind ordinarily used for household purposes for no other reason than that, like the kitchen chair, it is ordinarily used for the purpose of providing seating.' French J drew attention to the same risk in Diethelm at 465: 'It cannot be enough to say that because some goods fall into a genus wide enough to encompass goods ordinarily used for household purposes, they are therefore "goods of a kind ordinarily used for household purposes". The mere fact that office chairs and domestic chairs both provide "seating", which in some applications is a household purpose, is not sufficient to establish that office chairs are of a kind ordinarily used for household purposes.' To my mind, the risk to which their Honours draw attention is a real one. I agree that it is preferable to pose the statutory question as a single composite question. On my reading, that was the course adopted by French J in Diethelm and, I think, by both Hill J and Tamberlin J in Chubb. 83 Thirdly, depending on the precise statutory question and the circumstances of the particular case, it will be relevant to inquire as to the essential character of the goods in question. In Diethelm , French J thought that the answer to the statutory inquiry depended critically on the essential character of the goods. Adopting what had been said by Gummow J in Hygienic Lily at 399, Hill J said that the question whether goods are of a particular kind was to be determined objectively, by reference to the nature, quality and adaptation of the goods in the class or genus in question. However, Hill J also expressed reservations about the essential character test, saying that the inquiry may be useful in some cases but in other cases it may suffer from a lack of precision: at 470. In Chubb , Burchett J doubted the usefulness of the essential character test: at 559. Hill J in Chubb looked beyond the essential character of the goods and took into account evidence that explained the attributes, the intended use and the cost of the goods; Tamberlin J adopted much the same approach as Hill J. In Clean Investments , Lindgren J said that the essential character test lacked sufficient precision to assist in answering the question whether the coin-operated washing machines under consideration in that case constituted goods of a kind ordinarily used for household purposes: at 273 [96]. Lindgren J added that there is a danger that the essential character test may serve simply to give an undeserved legitimacy to first impressions. 87 Fourthly, the question posed by s 74A(2)(a) is ultimately a question of fact and degree. In Chubb at 559, Burchett J described the question which arose under Item 1 of the Third Schedule of the Sales Tax (Exemptions and Classifications) Act 1935 (Cth) in the following way: 'That is a question of fact into which degree and impression must enter largely, but I do not think its resolution is assisted much by turning back to the essential character of the article. Rather, attention must be focused on the statutory question whether goods of that kind are ordinarily used for household purposes.' In the same case, Hill J said at 572 that the trial judge's finding that certain safes were of a kind ordinarily used for household purposes involved: '... a question of judgment based upon a consideration of the description and in some cases photos or drawings of the relevant safe. No error is apparent in her Honour's judgment, although it is possible that minds could differ as to the outcome in a particular case.' These assessments are borne out by the actual decisions in Diethelm and Chubb . Both cases ultimately turned on the sufficiency of the evidence to discharge the burden of proof which rested on the applicant for sales tax exemption. 94 In Diethelm , both French J and Hill J emphasised that their approach to the construction and application of the sales tax exemption was heavily influenced by its statutory context. 95 The issue in Diethelm was whether a manufacturer of office furniture was entitled to a special concessionary rate of sales tax on its office chairs on the ground that they fell within the category of 'goods of a kind ordinarily used for household purposes, namely furniture'. The trial judge found that, while all of the relevant chairs could be bought for use in a home, a high proportion were high quality chairs that were designed and bought for office use. French J dismissed the appeal, holding that the essential character of the chairs in issue was correctly identified as office furniture, reflecting the market in which the chairs were manufactured and sold having regard, inter alia, to their quality, cost, design and intended and actual purchasers: at 465. His Honour thought that the appropriateness of this characterisation was not altered by the fact that the chairs were sometimes used for household purposes, and obviously performed physical functions similar to such chairs, as they were not of a kind ordinarily so used. Hill J was less rigid about the characterisation of the chairs. In the case of some of the chairs, Hill J felt that the characterisation in question should be answered negatively to the manufacturer. For instance, he considered that the high back executive office chair is not a chair of the kind ordinarily used for household purposes; rather it is of a kind ordinarily used for office purposes. The proper characterisation of other chairs was more debatable. In the result, Hill J held that the manufacturer, who had the burden of proof, had not established on the evidence that any particular chair was of a kind ordinarily used for household purposes. In his Honour's view, the evidence did not permit a conclusion on the balance of probabilities that any of the types of chairs sold by the manufacturer was of a kind ordinarily used for household purposes: at 473. Consequently, Hill J dismissed the appeal. Whitlam J agreed with the judgment of Hill J. 97 French J said that, in contrast, the expression 'goods for use' introduces more subjective considerations into the characterisation process. In Commissioner of Taxation (Cth) v Hamersley Iron Pty Ltd (1981) 59 FLR 415, the Full Court of the Victorian Supreme Court noted that the expression 'for use in' is purposive, and makes relevant facts such as the operations which the machines in question were intended to perform, built to order to perform, and did perform: at 426 per Lush J (Kaye and Brooking JJ agreeing). In Deputy Commissioner of Taxation v Stewart [1984] HCA 11 ; (1984) 154 CLR 385, the High Court was concerned with the expression 'goods for use ... and not for sale, by ... a public benevolent institution'. Gibbs CJ (Dawson J agreeing) said that the words 'for use' indicate the purpose to which the goods are intended to be put, rather than the use for which the goods were designed: at 390. Deane J said at 401 that these words require an objective characterisation of the goods themselves in the light of all the relevant circumstances, including knowledge of the actual use which was subsequently made of the goods. French J in Diethelm summed up these authorities by saying, at 464: 'Where design purposes are referred to in the classification by such phrases as "for use as", the subjective intention of the manufacturer and purchaser and actual uses to which the goods are put may be taken into account in the process of characterisation.' 99 The differences between French J and Hill J in Diethelm may be questions of emphasis and degree. Nonetheless, in the context of the construction and application of the phrase 'goods of a kind ordinarily used for household purposes' in sales tax legislation, it seems that French J was prepared to allow a greater role for evidence concerning the commercial realities of the manufacture and sale of the goods in question, that is to say evidence concerning the quality, cost, design and the purpose of intended and actual purchasers of the goods in question, than Hill J would allow. 100 In Diethelm , Hill J observed that Gummow J adopted a similarly restricted approach to the characterisation of the goods in question in Hygienic Lily. However, the decision in Hygienic Lily reflects the very narrow basis on which the case was argued. The case concerned paper cups of different sizes that were manufactured for various customers and which were marked by the manufacturer with the various trade marks or designs employed by the relevant customers in their particular businesses. The applicant mounted its case by reference to evidence concerning cups ordered by one particular customer, McDonalds Restaurants. The sole argument advanced by the Commissioner of Taxation was that, as the cups in question were manufactured solely or substantially for the purpose of use in McDonalds Restaurants, they were not goods of a kind ordinarily used for household purposes within the meaning of the sales tax exemption: at 399. 104 Counsel for the respondent argued that this statement can be reconciled with the apparently more restrictive view which Hill J explained in Diethelm . Counsel pointed out that in Chubb, Hill J maintained the same two stage analysis that he adopted in Diethelm . The first stage involves the determination of the genus to which the goods belong, which is to be made in a common sense way and which may involve a consideration of evidence in borderline cases. The second stage requires a determination of whether the relevant kind of goods is ordinarily used for household purposes: see 569[G]-570[A]. Counsel submitted that Hill J's statement in Diethelm concerning the limited role of evidence was directed to the first stage of the inquiry, whereas his Honour's reference in Chubb to a broader range of evidence was directed towards the second stage of the inquiry.