Chief Commissioner of State Revenue v. Telstra Corporation Limited [2006] NSWCA 370

CATCHWORDS: TAXES AND DUTIES - STATUTES - Duty on hire of goods - Exemption in relation to goods provided solely to enable the contractual provision of a service - Hire by Telstra of telephone handsets - Whether to enable contractual provision of a service - Whether solely to enable such provision.

Commissioner of Taxation v. Distribution Group Ltd. [2003] FCAFC 182, (2003) 130 FCR 517 CASES CITED: Distribution Group Ltd. v. Commissioner of Taxation [2003] FCA 202, (2003) 52 ATR 426 Dranichnikov v. Minister for Immigration & Multi-Cultural Affairs [2003] HCA 26, (2003) 197 ALR 389

PARTIES: Chief Commissioner of State Revenue - appellant Telstra Corporation Limited - respondent

COUNSEL: Mr. N.J. Williams SC with Mr. H.R. Sorenson for the appellant Mr. M. Richmond for the respondent

SOLICITORS: I.V. Knight, Crown Solicitor for appellant Mallesons Stephen Jaques, Sydney for respondent

LOWER COURT JURISDICTION: Administrative Decisions Tribunal of NSW

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40165/06 ADT Appeal Panel 49041

HODGSON JA McCOLL JA BRYSON JA

Wednesday 20 December 2006 CHIEF COMMISSIONER OF STATE REVENUE V. TELSTRA CORPORATION LIMITED Judgment 1 HODGSON JA: On 24 March 2004, the respondent (Telstra) objected against an assessment of duty issued by the appellant (the Commissioner) in respect of the hire of telephone handsets for the period of 1 December 2003 to 31 December 2003. The Commissioner disallowed this objection. 2 On 7 May 2004, Telstra lodged an application to the Administrative Decisions Tribunal of New South Wales (the ADT) for a review of the Commissioner's decision. On 31 August 2004, the ADT affirmed the Commissioner's decision. 3 Telstra then appealed to the Appeal Panel of the ADT, which on 7 March 2006 made orders "appeal allowed" and "decision under review set aside". Although the orders did not expressly say so, it seems clear that their effect was to allow Telstra's objection, with the result that Telstra was not liable for the duty assessed. 4 The Commissioner appeals to this Court from the decision of the Appeal Panel. Such appeals are limited to questions of law.

STATUTORY PROVISIONS 5 This appeal involves questions arising under the Duties Act 1997 (the Act). The Act in Chapter 6 charges duty on the "hire of goods" (s.180). Under s.183(1), a hire of goods is: An arrangement under which goods are or may be used at any time by a person other than the person hiring out the goods, unless the arrangement is excluded under section 186. 6 The issue in this case is the proper construction of s.186(1)(f) of the Act, which provides that a hire of goods does not include: (f) an arrangement for the use of goods the provision of which is incidental and ancillary to the provision of a service if the provision of the goods is solely to enable the contractual provision of the service. 7 Telstra is registered as a commercial hire business under Chapter 6 of the Act (see ss.194 and 195), and lodges monthly returns "in the approved form" as required by s.199. However, Telstra's contention is that, although it must disclose the relevant hiring charges in these returns, it is not liable to pay duty because of s.186(1)(f). 8 It is also relevant to have regard to some provisions of the Telecommunications Act 1997 (Cth) and the Telecommunications (Consumer Protection and Service Standards) Act 1999 (Cth) (Standards Act). 9 The Standards Act provides in s.5(1) that, unless the contrary intention appears, expressions used in the Standards Act and the Telecommunications Act shall have the same meaning in the Standards Act as in the Telecommunications Act. In the Telecommunications Act s.7, "carriage service" is defined as follows: "carriage service" means a service for carrying communications by means of guided and/or unguided electromagnetic energy. 10 The Standards Act also provides as follows in ss.6(1) and (2), 9 and 9E: 6. Standard telephone service (1) A reference in a particular provision of this Act to a standard telephone service is a reference to a carriage service for each of the following purposes: (a) the purpose of voice telephony; (b) if: (i) voice telephony is not practical for a particular end-user with a disability (for example, because the user has a hearing impairment); and (ii) another form of communication that is equivalent to voice telephony (for example, communication by means of a teletypewriter) would be required to be supplied to the end-user in order to comply with the Disability Discrimination Act 1992 ; the purpose of that form of communication; (c) a purpose declared by the regulations to be a designated purpose for the purposes of that provision; where: (d) the service passes the connectivity test set out in subsection (2); and (e) to the extent that the service is for the purpose referred to in paragraph (a) - the service has the characteristics (if any) declared by the regulations to be the designated characteristics in relation to that service for the purposes of that provision; and (f) to the extent that the service is for the purpose referred to in paragraph (b) - the service has the characteristics (if any) declared by the regulations to be the designated characteristics in relation to that service for the purposes of that provision; and (g) to the extent that the service is for a particular purpose referred to in paragraph (c) - the service has the characteristics (if any) declared by the regulations to be the designated characteristics in relation to that service for the purposes of that provision. (2) A service passes the connectivity test if an end-user supplied with the service for a purpose mentioned in paragraph (1)(a), (b) or (c) is ordinarily able to communicate, by means of the service, with each other end-user who is supplied with the same service for the same purpose, whether or not the end-users are connected to the same telecommunications network. …

9. Universal service obligation (1) For the purposes of this Act, the universal service obligation is the obligation: (a) to ensure that standard telephone services are reasonably accessible to all people in Australia on an equitable basis, wherever they reside or carry on business; and (b) to ensure that payphones are reasonably accessible to all people in Australia on an equitable basis, wherever they reside or carry on business; and (c) to ensure that prescribed carriage services are reasonably accessible to all people in Australia on an equitable basis, wherever they reside or carry on business. (2) To the extent necessary to achieve the obligation mentioned in subsection (1), the universal service obligation includes: (a) the supply of standard telephone services to people in Australia on request; and (b) the supply, installation and maintenance of payphones in Australia; and (c) the supply of prescribed carriage services to people in Australia on request. (3) The Minister may make a written determination that the universal service obligation includes the supply, installation and maintenance of payphones at specified locations in Australia. The determination has effect accordingly and a copy of the determination must be published in the Gazette . (4) An obligation does not arise under paragraph (2)(a) in relation to particular equipment, goods or services the supply of which is treated under section 9E as the supply of a standard telephone service if the customer concerned requests not to be supplied with the equipment, goods or services. (5) An obligation does not arise under paragraph (2)(c) in relation to particular equipment, goods or services the supply of which is treated under section 9F as the supply of a prescribed carriage service if the customer concerned requests not to be supplied with the equipment, goods or services. (6) To avoid doubt, an obligation arising under paragraph (2)(a) in relation to customer equipment requires the customer concerned to be given the option of hiring the equipment. …

9E Supply of standard telephone services (1) A reference in this Part to the supply of a standard telephone service includes a reference to the supply of: (a) if the regulations prescribe customer equipment for the purposes of this paragraph - whichever of the following is applicable: (i) that customer equipment; (ii) if other customer equipment is supplied, instead of the first-mentioned customer equipment, in order to comply with the Disability Discrimination Act 1992 - that other customer equipment; and (b) if paragraph (a) does not apply - whichever of the following is applicable: (i) a telephone handset that does not have switching functions; (ii) if other customer equipment is supplied, instead of such a handset, in order to comply with the Disability Discrimination Act 1992 - that other customer equipment; and (c) other goods of a kind specified in the regulations; and (d) services of a kind specified in the regulations; where the equipment, goods or services, as the case may be, are for use in connection with the standard telephone service. (2) A reference in this Part to the supply of a standard telephone service includes a reference to the supply, to a person with a disability, of: (a) customer equipment of a kind specified in the regulations; and (b) other goods of a kind specified in the regulations; and (c) services of a kind specified in the regulations; where the equipment, goods or services, as the case may be, are for use in connection with the standard telephone service.

CIRCUMSTANCES 11 There was an Amended Statement of Agreed Facts before the ADT. So far as now relevant, and omitting footnotes and annexures, this statement was as follows: 1 Telstra Corporation Limited 1.1 Telstra Corporation Limited (ACN 74 051 775 556) ("Telstra"), formerly known as Australian and Overseas Telecommunications Corporation Limited ("AOTC"), is the successor in law to Australian Telecommunications Corporation ("Telecom") and Overseas Telecommunications Corporation ("OTC"). Telstra is a public company listed on the Australian Stock Exchange.

1.2 Telstra is a provider of domestic and international telecommunication services, providing local, STD, IDD and mobile carriage services for the purpose of voice telephony ("VT Carriage Services").

2 Background to these proceedings 2.1 On government deregulation of telecommunications services on 1 July 1991, Telstra separated its previous bundled service charges imposed in the monopoly era and replaced these with individual charges including a service or line rental fee and a fee for rental of the handset. From that date Telstra commenced to pay hiring arrangement duty in New South Wales (under the Stamp Duties Act 1920) in respect of the hire of telephone handsets.

2.2 Prior to 1 July 1991, Telstra had a monopoly over the provision and installation of the exchange line and the first telephone handset in the customer's premises. Under deregulation Telstra lost its monopoly over both the provision of the exchange line and the first telephone handset. The position from 1 July 1991 was as follows: (a) The customer was then free to hire or purchase the handset from Telstra. The customer was also free to hire or purchase the handset from a third-party supplier. (b) While Telstra lost its monopoly in respect of the provision of the exchange line on 1 July 1991, effectively Telstra was the only entity for a number of years after that date which connected customers to the exchange line. Telstra owns and operates a dedicated exchange line which is its own property. When a service provider such as Optus Networks Pty Ltd ("Optus") seeks to connect a telephone customer to the telecommunications system, Optus can perform the same function as Telstra either by utilising appropriate interconnect arrangements, or by using a hybrid fibre coaxial cable, which is not a dedicated exchange line. However, that cable provides access to the exchange line in order for the service to be connected. Optus commenced providing this service from around 1997.

2.3 At all times since 1 July 1991, Telstra has retained its legal obligation to provide the exchange line from the telephone exchange to the customer's premises. A separate rental fee is charged in respect of this service.

2.4 On and from 1 July 1998 Telstra has been registered under Part 2 of Chapter 6 of the Duties Act 1997 (NSW) (the "Act") and paid the duty charged under that Chapter on the hire of goods by return as a "commercial hire business".

… 3 Statutory Obligation to Provide a Handset on request 3.1 At all times since 1 July 1997 Telstra has held a carrier licence under Division 3 of Part 3 of the Telecommunications Act 1997 ("Telecommunications Act")). As the holder of a carriers licence, Telstra is required, pursuant to sections 57 and 61 of the Telecommunications Act, to comply with both the Telecommunications Act and the Telecommunications (Consumer Protection and Service Standards) Act 1999 ("Standards Act").

3.2 At all times since 1 July 1998 Telstra has been: (a) subject to the obligation known as the "universal service obligation" imposed: (i) in the period up to the enactment of the Standards Act, by former s.151 of the Telecommunications Act; (ii) from the enactment of the Standards Act, by s.12C of the Standards Act; and (b) either the "national universal service provider" or, following the enactment of the current Part 2 of the Standards Act, the "primary universal service provider" for the whole of Australia in respect of the universal service obligation relating to standard telephone services referred to below.

3.3 The universal service obligation is defined to include the obligation to take all reasonable steps: (a) to ensure that "standard telephone services" (defined to include a carriage service for the purpose of voice telephony) are reasonably accessible to all people in Australia on an equitable basis, wherever they reside or carry on business; (b) to the extent necessary to achieve the obligation mentioned in (a), to supply standard telephone services to people in Australia on request.

3.4 The obligation referred to in para 3.3(b): (a) includes the supply of a telephone handset that does not have switching functions; (b) in relation to customer equipment (as defined in s.21 of the Telecommunications Act), including telephone handsets, requires the customer concerned to be given the option of hiring the equipment.

3.5 Pursuant to s.63(3) of the Telecommunications Act the Minister for Communications, Information Technology and the Arts made the Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (the "Declaration"). …

3.6 Pursuant to paragraph 11(2)(a)(i) of the Declaration the Minister declared that if the licensee [ie Telstra] provides a customer with a standard telephone service, but does not supply a rental telephone handset for use with the service, the licensee's charge to the customer must be for at least $30 less than the annual charge for supplying the standard telephone service.

3.7 Clause 3 (and item 2 of Schedule 1) of the Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No.2 of 2002) omitted the required $30 ceiling from Telstra' s carrier licence conditions from 30 June 2002. …

4 Terms on which handsets were hired to customers 4.1 At all times during the period from 1 July 1998 to 31 December 2003 (the "Relevant Period") Telstra only agreed to hire a telephone handset to a customer who had agreed to receive, or was already receiving, a VT Carriage Service from Telstra.

4.2 During the period from 1 July 1998 to 3 November 2000, the agreement between each customer and Telstra regarding the hire of the handset was not reduced to writing. The agreement was evidenced by the monthly invoice sent by Telstra to the customer for the VT Carriage Service which included a separate charge for "telephone handset rental" of $2.50 per month. …

4.3 On 3 November 2000 the position changed. From that date the hire of telephone handsets by Telstra to its customers has been governed by Part 5C of the Telstra Public Switched Telephone Service Section of the standard form of agreement ("SFOA") which, pursuant to s.479 of the Telecommunications Act, sets out the terms and conditions on which Telstra supplies goods and services to its customers. The SFOA came into force on 1 July 1997, but Part 5C was not inserted into it until 3 November 2000.

4.4 Parts 3, 4 and 5 of the Telstra Public Switched Telephone Service Section of the SFOA sets out the terms and conditions under which Telstra supplied a VT Carriage Service to its customers during the Relevant Period. Parts 3, 4 and 5 came into force on 1 July 1997 but they have been subject to a number of amendments since that date.

… 5 Amount charged by Telstra for the hire of handsets 5.1 During the period from 1 July 1998 to 30 June 2003 Telstra charged $30 per annum (being $2.50 per month) for the hire of telephone handsets. Telstra did not recover from the customer any amount in respect of hire of goods duty paid or payable under the Duties Act 1997 (NSW). The hire of goods duty paid by Telstra was calculated on the total amount of the hiring charges received in each month and was paid away by Telstra as a cost.

5.2 During the period from 1 July 1997 to 30 June 2002 the amount charged by Telstra for the hire of telephone handsets was limited to $30 per annum under clause 11(2) of the Declaration.

5.3 Notwithstanding the removal of clause 11(2) of the Declaration with effect from 30 June 2002 (see para 3.7 above), Telstra continued to charge $30 per annum for the hire of telephone handsets until 1 July 2003, when the charge was increased to $36 per annum, being an increase of $0.50 per month. The charge of $36 per annum for the use of the telephone handset applied during the month of December 2003.

6 Relationship between hire of handsets and Telstra's voice telephony service 6.1 At all times since 17 December 1991: (a) Telstra has only hired telephone handsets to a customer to whom a VT Carriage Service was being provided by Telstra; (b) a customer who initially, in connection with a VT Carriage Service provided by Telstra, hired a telephone handset from Telstra and subsequently ceased that service, was required to inform Telstra of that fact and return the handset; (c) Telstra has only charged a customer for rental ora telephone handset where that customer was one to whom a VT Carriage Service was being provided by Telstra;

(d) telephone handsets which were hired by Telstra to customers did not have a switching function attached and were a basic telephone apparatus built with the capacity only to receive and answer standard telephone calls.

6.2 During the year ended 30 June 2003 the rental income received by Telstra from the hire of telephone handsets in New South Wales was approximately 0.240% of Telstra's total annual income. For the 6 month period from 1 July 2003 to 31 December 2003 the rental income received by Telstra from the hire of telephone handsets in New South Wales was approximately 0.216% of Telstra's total income for that same period.

6.3 The percentage figure for the other years in the Relevant Period was similar to the figure for the year ended 30 June 2003. They were as follows: Year ended 30 June 2000 Percentage 1998/99 0.290% 1999/00 0.231% 2000/01 0.215% 2001/02 0.268%

6.4 During the year ended 30 June 2003 the rental income received by Telstra from the hire of telephone handsets in Australia was approximately 0.602% of Telstra's total annual income. For the 6 month period from 1 July 2003 to 31 December 2003 the rental income received by Telstra from the hire of telephone handsets in Australia was approximately 0.535% of Telstra's total income for that same period.

6.5 The percentage figure for the other years in the Relevant Period was similar to the figure for the year ended 30 June 2003. They were as follows: Year ended 30 June 2000 Percentage 1998/99 0.793% 1999/00 0.605% 2000/01 0.530% 2001/02 0.685%

12 Relevant provisions of the SFOA referred to in par.4.3 are cls.3.1, 3.2, 3.3 and 3.8, some relevant definitions, parts of cl.5.1, and cl.5.2, cl.5A.1, and cl.6.1: 3 TELSTRA'S PUBLIC SWITCHED TELEPHONE SERVICE ("PSTS") 3.1 This section sets out the terms on which Telstra supplies the PSTS. The PSTS consists of the Basic Telephone Service and a number of call types, some of which can only be used together with a Basic Telephone Service.

3.2 The Basic Telephone Service comprises: · connection to Telstra's PSTS network on the conditions and at the charges set out in clauses 4 and 5; · a telephone number; · a free listing of the telephone number in a telephone directory, under a name proposed by the Customer and agreed to by Telstra; · access to certain call types (although access to some call types is subject to certain conditions being met); · a 24 hour fault reporting service; and · maintenance and repair of equipment and facilities used to provide connection to Telstra's PSTS network. as described in Attachment 3.

3.3 A number of call types forming part of the PSTS are described in clauses 6 and 7 of this section. Where a Table setting out charges for a particular call type does not specify the kind of telephone service from which the call is made, the call is a call from a Basic Telephone Service. …

3.8 In addition to the connection of Basic Telephone Services described in clause 4 and the maintenance services described in Attachment 3, various types of works are provided by Telstra to Customers, both on Telstra's side and the Customer's side of the network boundary point. Some of these are described in clause 13 of this Section. Others are not included in this Section but are subject to separate agreement with the Customer.

MDF means a Mains Distribution Frame: (a) which is at Premises where a Basic Telephone Service is supplied; and (b) at which cable forming part of Telstra's network terminates. An MDF may also be referred to as a "Network Boundary Distributor". …

Network boundary Point or NBP means a physical point where Telstra's network ends. Generally, this is an MDF or, where there is no MDF, the first telephone socket.

Standard Rental Telephone means a standard rental telephone that is supplied to a Customer for use with a Basic Telephone Service .

5 ANNUAL CHARGES FOR THE BASIC TELEPHONE SERVICE 5.1 The annual charges for: … (e) the following types of Non-Business Services: · a HomeLine Complete Service, which is a Basic Telephone Service available to Non-Business Customers who preselect Telstra for National Long Distance calls, International calls and calls to cellular mobile services from the PSTS; or · a HomeLine Part Service, which is a Basic Telephone Service available to Non-Business Customers who do not preselect Telstra for National Long Distance calls, International calls and calls to cellular mobile services from the PSTS; or · a HomeLine Net service, which is a Basic Telephone Service available to Non-Business Customers who preselect Telstra for National Long Distance calls, International calls and calls to cellular mobile services from the PSTS and who: (i) apply electronically for the HomeLine Net service over the Internet in accordance with the procedures notified by Telstra from time to time; (ii) must agree not to acquire services from other carriage service providers by dialling the access override code of those carriage service providers while subscribing to the HomeLine Net service; and (iii) agree to the terms and conditions of the HomeLine Net service as described in clause 11.12 (a) to (i) (inclusive) of this Section; … 5.2 The annual charge for a Basic Telephone Service is payable pro rata calculated on a daily basis.

5A PROVISION OF RENTAL EQUIPMENT 5A.1 Telstra rents: (a) for use with Telstra's Standard Telephone Service: (i) Standard Rental Telephones; and (ii) Disability Rental Equipment in accordance with Telstra's Disability Equipment Program; and (b) Calling Number Display Rental Telephones; and (c) EasyChat Cordless Telephones (but only to customers who currently rent an EasyChat Cordless Telephone as at 1 July 2003. Telstra will not enter into any new rental agreements for EasyChat Cordless Telephones).

6 SOME FREQUENTLY USED CALL TYPES LOCAL CALLS 6.1 The charges for different types of local call, other than QuickCall local calls, and for Untimed Local- Rate Calls are set out in Table 6.1. 13 There was also evidence that the making and receipt of telephone calls involved the transmission of electrical signals within Telstra's network to and from the NBP, and on the customer's side of the NBP to and from the handset itself; and that the carriage of voice telephony would be inoperable without a handset.

DECISION OF APPEAL PANEL 14 The Commissioner has identified the following findings of the Appeal Panel as being relevant to its appeal: (a) The "service" has been agreed between the parties as being the provision of access, via a connection point, to the telecommunications system and the operation of that system.

(b) The difference between the provision and the receipt of a service is not relevant to the question posed by para (f); goods for the provision and the receipt of a service are not mutually exclusive.

(c) As to "solely" - there is nothing in the evidence to suggest that Telstra is supplying the handset other than to make the service functional.

(d) The word "contractual" [in the context of "contractual provision"] describes the "provision of the service" and requires that it is according to a contract.

(e) Telstra was providing the handsets according to a statutory obligation to do so in order for its customers to be provided with a service. The Tribunal below had erred in restricting its consideration to the contractual provisions and in not having had regard to the statutory context.

(f) Telstra is bound by law to supply the telephone to certain customers of the service. These factors all support the conclusion that the supply is only to enable the provision of the service in accordance with the contract. There is nothing to suggest that the supply of the goods has any purpose other than to enable contractual provision of the service. 15 On the basis of those findings, the Appeal Panel held by a majority that the hiring of handsets by Telstra was within s.186(1)(f), so that duty was not payable.

ISSUES ON APPEAL 16 The Commissioner relies on the following grounds of appeal: 1. The Appeal Panel erred in law in concluding that the 'service' has been agreed between the parties as being the provision of access, via a connection point, to the telecommunications system and the operation of that system.

2. The Appeal Panel misconstrued s.186(1)(f) of the Duties Act 1997 in holding that provision of the telephone handsets to customers did enable the contractual "provision" of the VT Carriage Service.

3. Alternatively to Ground 2, the Appeal Panel misconstrued s.186(1)(f) of the Duties Act 1997 in holding that provision of the telephone handset to customers "is solely" to enable the contractual provision of the VT Carriage Service.

4. The Appeal Panel misconstrued s.186(1)(f) of the Duties Act 1997 in holding that the provision of the telephone handsets to customers "is solely to enable the contractual provision" of the VT Carriage Service. 17 The first, second and fourth grounds can conveniently be considered together: they focus on the contention that Telstra's contractual provision of the VP Carriage Service does not require the provision of a handset. The third ground focuses on the contention that the provision of a handset serves other purposes as well as the contractual provision of the service, so it was not "solely" to enable such provisions. I will deal with the issues in that order.

IS THE HANDSET REQUIRED FOR THE CONTRACTUAL PROVISION OF THE SERVICE? Submissions 18 Mr. Williams SC for the Commissioner submitted that the service in question was the Basic Telephone Service referred to in cl.3.2 of the SFOA, and this was provided whether or not calls were actually made or received. In any event, there was contractual provision of the service for vast numbers of customers who did not hire Telstra handsets, so provision of the handset could not be to enable the contractual provision of the service. Further, Telstra's obligations were limited to Telstra's side of the NBP, and those obligations could be fulfilled irrespective of what occurred on the customer's side of the NBP, including the use of a handset. 19 Mr. Williams submitted that the majority of the Appeal Panel erred in law in making finding (a), and in particular in including "the operation of the system". What was relevantly agreed between the parties was no more than par.1.2 of the Amended Statement of Agreed Facts. An erroneous statement concerning agreed facts was a denial of procedural fairness, and thus an error of law: Dranichnikov v. Minister for Immigration & Multi-Cultural Affairs [2003] HCA 26, (2003) 197 ALR 389 at [24]-[27]. Mr. Williams submitted that the Appeal Panel also erred in law in dismissing the distinction between provision and use of services (judgment par.[35]), and the distinction between provision and receipt of services (judgment par.[55]); and also in saying that par.(f) requires examination of "commercial circumstances" rather than contractual obligations (judgment par.[36]), and in holding that it was sufficient that the provision of the service be "according to the contract" rather than in fulfilment of contractual requirements (judgment par.[44]). Mr. Williams submitted that the importance of the distinctions was shown by the case of Distribution Group Limited v. Commissioner of Taxation [2003] FCA 202, (2003) 52 ATR 426 at [9] and [33].

Decision 20 In my opinion, the relevant service by Telstra is not just the "basic telephone service" in cl.3.2 of the SFOA, but is rather the PSTS which includes "call types"; that is, in my opinion, the actual carrying of voice telephony communications. And although that service can be provided to customers who acquire their own handsets, a handset is still necessary for the provision of the service. The mere circumstance that a customer can provide what is necessary in some other way does not in my opinion prevent Telstra's provision of the handset from being "to enable contractual provision of the service". If someone lends me a pen so that I can note something down, the fact that I could have got a pencil from someone else does not prevent the lending of the pen from being to enable the note to be made. 21 It is of course possible for a customer to contract for a connection to the Telstra network, and never to use it by making or receiving telephone calls, and for such a customer also to hire a handset. However, it is unrealistic to regard the service provided by Telstra as being limited to providing a connection to its network, and as not, at least potentially, including the actual use of the network by the customer. The Appeal Panel plainly did not so regard it, and this could not be an error of law. 22 It is also possible for a customer to use the connection to the network, and the handset, only for making calls pursuant to a contract with another service provider such as Optus; but in my opinion it was plainly open to the Appeal Panel to decide, as a matter of fact, that the provision of handsets was for use of Telstra's service for receiving telephone calls and for making telephone calls covered by the SFOA. Again, this was the view of the Appeal Panel, and in my opinion it could not be an error of law. 23 As regards finding (a), Mr. Williams conceded that, if "operation of the system" is taken to mean operation by Telstra within its network, then that can be considered as following from the agreed statement. In my opinion, that is how it should be understood. 24 As regards the case of Distribution Group, that case concerned a question whether a local area network (LAN) cable was excluded from an exemption from sales tax because it was "goods of a kind ordinarily used in the provision of telecommunication or audio-visual services". At [9] and [33], Goldberg J said this: 9 Network providers of telecommunications and audio visual services, such as Telstra or Optus, do not use LAN cable in the provision and delivery of those services to the point at which the services are provided to buildings or structures. For example, Telstra does not use LAN cable in any part of its network in Australia up to what is called the network boundary point or public network interface, that is the point at a consumer's premises at which the responsibility of Telstra as a provider of telecommunications and audio visual services ends. The network boundary point or public network interface marks the boundary between the telecommunications carrier's network and the premises of the user. "Public network interface" is defined in par 3.1.35 of Australian/New Zealand Standard 3080:2000 entitled "Telecommunications installations - Integrated telecommunications cabling systems for commercial premises" as: "a point of demarcation between public and private network. In many cases the public network interface is the point of connection between the network provider's facilities and the customer premises cabling". …

33 However, can it be said that the person or entity which sets up, maintains or uses the LAN network in a building, which is connected to a telecommunications service provided by a telecommunications network provider, is providing telecommunications services? In my opinion, the answer is in the negative. That person or entity is not providing telecommunications services itself, rather it is connecting into a telecommunications network whereby the network or operator provides the telecommunications services to the proprietor or operator of the LAN network in the relevant premises or building. I do not accept that the expression "the provision of telecommunications ... services" applies to the entire process of communication or connection between the initial provider of the services, such as the networker provider, and the ultimate consumer using a computer as part of a LAN network. That "provision" ends at the point at which the delivery system of the provider of the services terminates, namely at the network boundary point or public network interface. Although the telecommunication services may be reticulated along and through the LAN network, it does not follow that the proprietor or operator of the LAN network is providing the telecommunications services which have been delivered by the network provider to the network boundary point. 25 An appeal to the Full Federal Court was dismissed: The Commissioner of Taxation v. The Distribution Group Limited [2003] FCAFC 182, (2003) 130 FCR 517. The following appears at pars.[22]-[25] of the Full Court judgment: [22] It is inherent in the nature of a telecommunications service that it has a supply side and a demand side. Suppliers, such as Telstra or Optus, supply or provide the telecommunications service to consumers who receive the service. Goods may be used in connection with the provision of the service, as well as in connection with its receipt. It does not follow that goods which are used in connection with the receipt of a service are necessarily used 'in the provision of' that service. Whether goods are used in the provision of a service, as distinct from in connection with its receipt, may depend upon a number of factors, including whether there is a point prior to the receipt of the service by an end user at which the role of the service provider comes to an end.

[23] In the present case the primary judge found, as a matter of fact, that the provision of telecommunications services by the suppliers of those services ends at the point at which the delivery system of the providers of the services terminates, namely at the network boundary point or public network interface. The service provider fulfils its responsibilities by reaching that point. There was no challenge to that finding.

[24] The question then, is whether the notion of 'provision of telecommunications services', in the particular context under consideration, is confined to what the provider does in order to provide those services, or whether it extends so as to include things done by the recipient of those services to enable their enjoyment.

[25] This is a matter on which opinions might legitimately differ. However, the better view is that the notion of provision of telecommunications services is confined to what the supplier of those services does in order to provide them. It may be necessary for the recipient of telecommunications services to supply a piece of equipment, be it a plug, cable or some other device, to enable enjoyment of the telecommunications services which the supplier has provided. But goods provided by a recipient of telecommunications services to enable the use of those services in a manner adapted to the consumers' own requirements are not appropriately characterised as goods used in the provision of those services. The LAN cables are goods of that type. 26 The decision in Distribution Group is readily distinguishable from the present case. The words "used in the provision of telecommunication … services" suggests that what was in question there was use by the provider of the services, and the LAN cable was not used by the provider. The case does not establish a sharp distinction between the provision and receipt of such services. Usually, there cannot be one without the other, and the different words refer to the same thing from the different points of view of the provider and the customer. The case does not mean that something supplied by the provider of a service to enable a customer to receive the service cannot be to enable the provision of the service, simply because the thing is used by the customer beyond the limit of the service provider's responsibility.

IS THE PROVISION OF THE HANDSET SOLELY TO ENABLE CONTRACTUAL PROVISION OF THE SERVICE? Submissions 27 Mr. Williams submitted that the requirement "is solely" is not to be judged by reference to Telstra's purpose, but by an objective test having regard to all the circumstances. In other provisions in the Act, the expression "solely or predominantly" was used, but not here. 28 The provision of handsets could not, it was submitted, be solely to enable the contractual provision of the service, because such provision also serves other purposes, in particular: (a) compliance with the requirement imposed on Telstra by the "universal service obligation"; and (b) to facilitate access by the customer to telecommunication carriage services provided by other providers, such as Optus, as pointed out by the dissenting judgment in the Appeal Panel at par.[77].

Mr. Williams submitted that the majority of the Appeal Panel erred in law disregarding these purposes. 29 Mr. Williams suggested the analogy of pay television services. While provision of a dedicated set-top box unit could aptly be described as being "solely to enable the contractual provision of the service", provision of a television set which could be used to access other programs could not be so described.

Decision 30 In my opinion, what is under consideration is what the provision of the goods is for; and that requires consideration of the intention, of those responsible for the provision, as to the use for which the goods are provided. In circumstances where the provision is by Telstra as mandated by the Commonwealth Parliament, in my opinion what is relevant is the intention of Telstra and/or the Parliament as to what the handset is to be used for, as manifested by objective circumstances including the terms of the contract. I accept that the test is objective, in that matters going only to the subjective intentions of Telstra or its personnel are not relevant; but questions of purpose or intention have to be linked to the purpose or intention of some person or corporation or other body; and in my opinion, it is only the intention of the provider, and/or the Parliament that required the provision to be made, considered objectively, that is relevant here. 31 The question then is, did that intention extend to use of the handsets for any purpose other than to enable the provision of Telstra's service. 32 So far as Telstra is concerned, an intention of complying with the mandate of Parliament would not be an intention so extending, because that is not an intention as to the use for which the handsets are provided, and so does not go to what the provision of the handsets is for. What could be such an intention would be an intention of Telstra that the handsets be used for purposes other than making and receiving communications pursuant to the SFOA contract, which might perhaps be inferred if the provision of handsets were an independent money-making project for Telstra. In the case of a television set provided by a pay television service provider, it might be inferred that use of the television set for access to other television services was intended, particularly if the provision of television sets was an activity of some substantial commercial significance in comparison with the provision of pay television services. 33 However, in this case the evidence did not go further than showing uses of handsets for other purposes that were possible and not prohibited; and it did not show objective circumstances such that non-Telstra use must be considered part of what was intended by Telstra; or that the provision of handsets could be a matter of independent commercial significance for Telstra. In those circumstances, in my opinion it was open to the Appeal Panel to find that Telstra's intention in supplying the handsets was no wider than to provide handsets for use in connection with the service provided by Telstra; and none of the matters raised by Mr. Williams indicate any error of law in that regard. 34 As regards the intention of Parliament in requiring that the handsets be provided, the question was not directly addressed by the Appeal Panel, nor were any submissions made to us that the Appeal Panel erred in this respect. In my opinion, the sections of the Standards Act set out above make it clear that the intention of Parliament in mandating the provision of handsets is to ensure that customers are able to access and use the standard telephone service that is also being mandated, and not to enable any other use of those handsets.

CONCLUSION 35 For those reasons, in my opinion the appeal should be dismissed with costs. 36 McCOLL JA: I agree with Hodgson JA. 37 BRYSON JA: I agree with Hodgson JA. **********

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