Deputy Federal Commissioner of Taxation v Stewart [1984] HCA 11;

Deputy Federal Commissioner of Taxation v Stewart [1984] HCA 11; - HCA 1984 case summary — Zoe

[7]

2. Before 1 September 1977 the respondents, who traded under the name of Globe Agencies, conducted a business of selling lottery tickets, mainly to sporting bodies which use the lottery as a means of raising funds. The form of the lottery was simple; participants would buy tickets and the holders of certain tickets would be entitled to receive prizes. In about September 1977 the respondents were approached by the Surf Life Saving Association of South Australia with a request to design a small machine which could be used to sell the tickets mechanically - i.e., a machine which would yield a ticket to anyone who inserted a twenty-cent coin. The Association, because of its financial commitments, did not wish to buy the machine, but requested the respondents to supply it free of charge. The respondents acceded to this request and did design a machine and supplied it to the Association at no cost. Thereafter, during the period 1 September 1977 to 30 November 1979, the respondents made a number of the machines and supplied them free of charge to various organizations, including the public benevolent institutions, which wished to use them for the purpose of raising funds by the conduct of the lottery. The machines remained the property of the respondents, who serviced them free of charge, and, when necessary, replaced them free of charge. They were supplied on condition, inter alia, that only tickets supplied by the respondents were to be dispensed from the machines. The benefit to the respondents from these transactions was that they tended to increase the demand for lottery tickets, which the respondents sold, at a profit, to the organizations using the machines. It may be added for the sake of completeness that after 1 July 1978 the tickets were sold, not by Globe Agencies, but by a company, Globe Vending Pty. Ltd., which was the trustee of a settlement under which the respondents were beneficiaries. Although it was contended in the courts below that since after 1 July 1978 the tickets were not sold by the respondents, but by the company, the machines were therefore not supplied for the benefit or purposes of the respondents, this argument was not advanced before us, and it is convenient to refer (as I have done) to the sale of the tickets by the respondents and accurate to say that the supply of the machines was for their own business purposes. (at p388)

[26]

5. It is clear that once a machine had been supplied to a public benevolent institution it would come within the description contained in item 81 unless it had first ceased to be "goods" within the meaning of that definition. The First Schedule to the Sales Tax (Exemptions and Classifications) Act describes exempted goods in two main ways - by reference to the nature of the goods themselves and by reference to the use to which it is intended to put them. In many cases of the second kind the words "for use" indicate the purpose to which it is intended the goods shall be put, rather than the use for which the goods were designed. That this is so is evidence in the case of many items - e.g. anthorpological speciments "for use by research workers" (item 61), articles for use of the Governor-General (item 73(i)) and goods for use by a municipal council (item 78(i)). It is certainly true of item 81(1), since many goods used in a hospital or by a public benevolent institution might equally well be used by any person or any other organization. The word "use" does not connote exclusive use. Where it is intended that the use should be exclusive express provision is made in the Schedule to that effect: see for example items 74D and 77 and see also items 13(1), 14A, 41(ii) and 42B. If item 81 were construed as requiring that the goods should be exclusively used by a public hospital or public benevolent institution, inconvenient or absurd results would follows. For example, many goods necessarily obtained by a public hospital are used not only by the hospital but by patients and visitors. Hospital beds, and chairs in a hospital ward, provide obvious examples. 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. However if the goods are intended to be put substantial use by a public benevolent institution, they will fall within item 81 notwithstanding that they may be applied to the use of others as well. The provisions of cl. 3 of item 81 do not provide any indication that goods which are for use for fund raising by public benevolent institutions can fall only within that clause and not within cl. 1. If the institution itself uses the goods for the purpose of fund raising the case will fall within cl. 1, whereas if the goods are used by an organization which is established to raise money for the institution it will fall within cl. 3. (at p391)

[30]

9. The contention of the Deputy Commissioner that the machines were applied to the use of the respondents immediately on manufacture, and were not "for use" by any public benevolent institution until later, was based in part on the state of the evidence in the case and in part on his submission as to the effect of the provisions of the statutes. In the proceedings for the recovery of the tax in the Local Court there was produced a certificate by the Deputy Commissioner under s. 10 of the Sales Tax Procedure Act 1934 (Cth), as amended, certifying that the amount claimed was due in respect of goods manufactured by the respondents and applied to their own use, and this cast on the respondents the onus of proving that the tax was not payable. It was contended that the respondents had failed to discharge this onus. In particular it was said that they had not given evidence that satisfactorily established whether a machine was manufactured only on receipt of an order from the particular institution to which it was later supplied, or whether, on the other hand, the respondents manufactured a number of machines and drew upon the stock thus produced when an institution requested that it be supplied with a machine. In the course of examination in chief, the male respondent was asked: "After a machine was manufactured how did you go about conveying possession of that machine to the particular organization for whom it was manufactured?" To this question he replied: "They used to come to our factory and pick them up." This suggests that each machine was made on request, but the question was a leading one. That suggestion is supported by the fact that in most, but not all, cases the logo of the organization for which the machine was intended would be applied by the respondents to the face of the machine. If each machine was manufactured on request by the institution to which it was supplied the argument that the machines attracted sales tax before they qualified for the exemption cannot succeed, because the purpose that the goods should be used by an institution mentioned in item 81 would have existed from the very moment when the respondents formed an intention to apply the goods to their own use. However, it is not necessary to resolve this question of fact in order to uphold the decision in favour of the respondents. (at p393)

[33]

The Court was there discussing the meaning of "treated" in s. 17, and not the meaning of "applied", and it was not concerned with the effect of the Sales Tax (Exemptions and Classifications) Act, or with the meaning of the words "gone into use" in the definition of "goods". The word "applied" means "devoted to" or "employed for the special purpose of" (Max Factor & Co. Inc. v. Federal Commissioner of Taxation (1971) 124 CLR, at p 362 and although in some cases goods may no doubt be applied to the use of a person simply by keeping them in reserve - e.g. by keeping spare parts for use in the person's vehicles or machinery - in the circumstances of the present case the application of the machines to the use of the respondents occurred when they were devoted to the respondents' purposes by supplying them to the institutions. In other words, the respondents did not apply the machines to their own use, and the machines did not go into use, when they were made and kept ready for subsequent delivery to one of the institutions. While the machines were so held, they were only of potential use to the respondents, and they were not in fact used at all. This can be illustrated by the fact that a machine taken from stock and supplied to the Children's Hospital would have been of no benefit to the respondents, since the lottery tickets were supplied free by them to that hospital. (I do not consider that the fact that the machines carried, in addition to the logo, a small plate showing the name of the maker, meant that to supply them was for the benefit of the respondents.) In other words, until a machine was supplied, it could not be said whether or not the supply would amount to an application to the use of the respondents. When a machine was supplied to an institution which was or would become the purchaser of the respondents' tickets it was so applied. This conclusion is consistent with the decisions in Deputy Commissioner of Taxation v. Taubmans (N.S.W.) Pty. Ltd. [1966] HCA 18; (1966) 115 CLR 570 where it was held that the defendant applied the colour cards to its own use either when it used them directly or when it made them available to the storekeepers who stocked its goods (1966) 115 CLR, at p 574 , and with Max Factor & Co. Inc. v. Federal Commissioner of Taxation where it was held that the company applied the cosmetics to its own use when it gave them to its own employees or to buyers employed by departmental stores. (1971) 124 CLR, at p 365 (at p394)

At a glance

Court

Decision date

Source

Judgment (60 paragraphs)

Deputy Federal Commissioner of Taxation v Stewart [1984] HCA 11; (1984) 154 CLR 385 (15 March 1984)

Parties

Legislation Cited (3)

Cases Cited (6)