FEDERAL COURT OF AUSTRALIA SALES TAX - instruction manuals packed with goods and sold for one inclusive price - whether so much of the taxable value of the goods that was attributable to the instruction manuals was subject to sales tax - whether manuals were "containers" - construction of definition of container under s 5 of the Sales Tax Assessment Act 1992 - in particular, whether manuals were "ancillary items that are packed or secured with the contents and are intended ... to allow or facilitate the use of the contents". Sales Tax Assessment Act 1992 Sales Tax (Exemptions and Classifications) Act 1992 Deputy Federal Commissioner of Taxation (SA) v Ellis & Clark Limited (1934) 52 CLR 85 - cons. CCA Beverages (Sydney) Pty Ltd v Federal Commissioner of Taxation (1997) 143 ALR 212 - cons. EMI Australia Pty Ltd v Federal Commissioner of Taxation (1994) 94 ATC 5008 - cons. COMMISSIONER OF TAXATION V MYER STORES LIMITED NG 723 of 1997 JUDGES: BEAUMONT, HILL AND SACKVILLE J. DATE OF ORDER: 31 MARCH 1998 WHERE MADE: SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 723 of 1997 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: COMMISSIONER OF TAXATION AppELlant AND: MYER STORES LIMITED Respondent JUDGES: BEAUMONT, HILL AND SACKVILLE JJ. DATE OF ORDER: 31 MARCH 1998 WHERE MADE: SYDNEY ORDERS: 1. Appeal dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 723 of 1997 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: COMMISSIONER OF TAXATION AppELlant AND: MYER STORES LIMITED Respondent JUDGES: BEAUMONT, HILL AND SACKVILLE J. DATE: 31 MARCH 1998 PLACE: SYDNEY REASONS FOR JUDGMENT BEAUMONT J: INTRODUCTION This is an appeal from orders of a Judge of the Court (Lockhart J) declaring that certain instruction manuals, packed with the goods to which they relate, and sold for one inclusive price, were not liable for sales tax as "containers" within the meaning of s 5 of the Sales Tax Assessment Act 1992 ("the Assessment Act"). The case is reported as Myer Stores Ltd v Federal Commissioner of Taxation (1997) 36 ATR 584. The background facts, which were not in dispute, were as follows: · Myer Stores Limited ("Myer"), the respondent, is a retailer of consumer goods including the Sunbeam Mixmaster Mixer ("the Mixmaster"), the Kelvinator No Frost Refrigerator model number N350C ("the Refrigerator") and the Voxson Micro 999 Mobile Telephone ("the Mobile Telephone"). · Sunbeam Corporation Limited ("Sunbeam") is a wholesaler of a range of small consumer appliances including kitchen appliances such as the Mixmaster. The Mixmaster, which is manufactured for Sunbeam in China, is sold by Sunbeam to retailers together with an instruction manual. This manual, which accompanies the product, is printed and packaged with the Mixmaster. Sunbeam buys the complete packaged product and sells it in that form to its customers for a single price. One of Sunbeam's customers is Myer. · The manual sold with the Mixmaster provides information including features of the Mixmaster and its operation, broad recommendations to kitchen safety, oven temperature charts, guidelines and instructions for cleaning and maintaining the Mixmaster, 34 pages of recipes, together with details of the manufacturer's service centres and a guarantee. · Email Limited ("Email") is a manufacturer and wholesaler of a range of consumer electrical goods, including the Refrigerator, which is sold, together with an owner's instruction manual and a warranty card, for one inclusive price. The manual provides instructions for installing, operating and cleaning the Refrigerator, and guidelines for food storage. · The manual is printed for Email by external printers. As the Refrigerator approaches the final assembly point on the production line in Email's factory, the manual is placed loose into the crisper section of the Refrigerator together with the warranty card. The Refrigerator is then packaged. From time to time, Email sells to Myer the Refrigerators, together with the manual, for one inclusive price. · Myer purchases mobile telephones from Voxson Sales Pty Limited ("Voxson"), a manufacturer and wholesaler of the Mobile Telephone. The manual sold with the Mobile Telephone kit provides information including instructions for placing and receiving telephone calls, operating the software relating to memory functions and other features, and a memory card directory. The instruction manual is printed on Voxson's behalf by external printers. Once printed, the instruction manual is sent to Voxson's factory where it is packaged inside a cardboard box together with the Mobile Telephone, the AC adaptor, battery charger and two batteries. The Mobile Telephone is then sold in its packaged form to customers, including Myer. It was common ground before us that the manufacturer or importer quoted its sales tax registration number at the time of purchase or importation of the subject goods. THE ISSUES The primary issue in the litigation was whether so much of the taxable value of the sale of each of the three products that was attributable to the manuals was subject to sales tax. In the first place, that issue turned on whether the manuals fell within para (b) of the definition of "container" in s 5 of the Assessment Act. If they did, the Commissioner contended that this ended the matter and that the manuals were, accordingly, liable to sales tax. Myer contended that the manuals were not "containers" within the meaning of that word in s 5; and that, even if they were, they were nonetheless exempt from sales tax because of their status as "books" or "pamphlets" under Item 100 of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992. It was not disputed at first instance that the instruction manuals were exempt "books" or "pamphlets" within the meaning of Item 100. But the Commissioner argued that, even so, s 5 of the Assessment Act was the overriding provision; so that, he argued, since the manuals were "containers" under s 5, it was irrelevant that they would otherwise be "books" or "pamphlets" within Item 100. In the circumstances, the learned primary Judge did not need to deal with Myer's exemption claim. THE DEFINITION OF "CONTAINER" IN THE ASSESSMENT ACT The Assessment Act defines "container" in s 5 to mean: "(a) packaging in which, or with which, any property ('the contents') is packed or secured, in the ordinary course of a business, for the purpose of the marketing or delivery of the contents; (b) ancillary items that are packed or secured with the contents and are intended, and reasonably necessary, to allow or facilitate the use of the contents." (Emphasis added). The Commissioner accepted that para (a) could not apply here; but he contended that para (b) was applicable. THE REASONING AT FIRST INSTANCE In holding that the manuals did not fall within s 5(b), Lockhart J said (at 587): "The first point to note, in considering the question whether the three manuals are 'containers' within para (b) of the definition of that expression in s5 of the Assessment Act, is that what is being discussed is a 'container', not its contents. It is the thing that houses the contents. The definition in para (a) is plainly a container according to the ordinary (and dictionary) meaning of the term and the FCT does not suggest otherwise. In my opinion, s 5(b) is directed to items that are ancillary to the packaging, rather than the products. The definition of 'container' is talking about containers and it embraces in para (a) packaging in the ordinary sense and in para (b) things which are ancillary to the packaging. One can readily think of items that are ancillary to packaging. For example, drinking straws attached to packets of soft drink such as Ribena, can keys to open cans such as cans of sardines, and corks in the tops of bottles that contain liquid (the packaging being the bottle). Such items are ancillary to the packaging and facilitate the use of the contents. The critical question, then, is whether the instruction manuals are ancillary to the packaging. This is a relatively straightforward issue. The manuals are intended to serve the purpose of instructing the users of the products how to use them. The manuals play no role in the convenience or utility of the packaging. They add nothing to the container itself and serve no purpose in relation to it. They are instruction manuals, separate from both the packaging and the product, but contained in the packaging." His Honour made orders declaring that the manuals sold with the Mixer, the Refrigerator and the Mobile Telephone kit, in each case for one inclusive price, were not "containers" within s 5; and that so much of the taxable value of the said sales of the three products as was attributable to the manuals concerned, namely, the price for which the manuals could reasonably be expected to have been sold if they had been sold separately, were not subject to sales tax. THE COMMISSIONER'S GROUNDS OF APPEAL By his amended notice of appeal, the Commissioner advances the following grounds of appeal as reasons why it should now be declared that each manual is a "container" within s 5: · It was erroneous to construe para (b) of the statutory definition of "container" as directed to items that are ancillary to the packaging, rather than to the products. · It should have been held that items ancillary to the contents are within that definition. · It should have been held that, since the manuals inform the user, and thus allow or facilitate the use of the contents, the manuals are "ancillary items... packed or secured with the contents [and are] intended and reasonably necessary to allow or facilitate the use of the contents". · It should have been held that, having become a "container" there was no further assessable dealing with respect to the manuals and the exemption in Item 100 had no operation. MYER'S NOTICE OF CONTENTION By its notice of contention, Myer contends that the decision at first instance should be affirmed on grounds other than those relied on by his Honour, those grounds being as follows: · The manuals were not "reasonably necessary, to allow or facilitate the use of the contents" within para (b). · Whether or not a manual was a "container", it had exempt status under Item 100, and apportionment was required under s 95 of the Assessment Act because there is a "need to know" the price for which the instruction manuals were sold so as to give effect to the Item 100 exemption. THE LEGISLATIVE SCHEME It is accepted by the parties, correctly in my view, that there is some room for doubt as to the true interpretation of para (b) of s 5, and in particular as to the meaning, operation and application in the present context of the word "ancillary" in that paragraph. That being so, it is legitimate, in my opinion, that reference be made to the Explanatory Memorandum of the Bill for the Assessment Act as an aid to construction of the legislation. The relevant Explanatory Memorandum is to the following effect: · Assessable goods will be treated as becoming a container, and being "applied to own use" ("a packing AOU") at the same time. (Once goods have been AOU, they become "Australian-used goods" - as such they cannot be the subject of any further assessable dealings.) Broadly speaking, goods will become a "container" at the time their contents are put in them. The container will also be a "packing AOU" at the same time (para 20.5). · A packing AOU will comprise more than just the act of putting contents into goods. Rather it will be "any act that causes goods to become a container". (Emphasis added). These will be: "(i) packing or securing any property in packaging, (in the course of carrying on any business), for the purpose of marketing or delivery of the goods; (Emphasis added). (ii) packing or securing any ancillary items with the contents that are intended and reasonably necessary to allow or facilitate their use. (Emphasis added). NOTE: 'Ancillary items' will not be defined but will include items such as can keys, glass droppers, drinking straws and batteries. The 'reasonably necessary' condition will exclude items such as 'gifts' packed with goods." (para 20.6) By s 5 of the Assessment Act, the term "assessable goods" is defined to mean goods that have been manufactured in Australia or imported goods, but does not include "Australian-used goods", which are defined to mean (a) goods that have been applied to a person's own use in Australia (whether imported or Australian goods); or (b) imported goods that were a container at the time of importation. The concept of "application to own use" includes - "5(e) doing anything with the goods that results in the goods becoming a container for other property." (Emphasis added). CONCLUSIONS ON THE APPEAL When it comes to define "container", s 5 uses language which picks up the key concepts described in para 20.6 of the Explanatory Memorandum. The statute is expressed more compendiously than the Explanatory Memorandum in its definition of "container". The Memorandum makes it plain that the subject of statutory treatment is intended to be a process - "any act that causes goods to become a container". However, when all of the definition provisions in s 5 are taken into account, a theme similar to that found in the Memorandum emerges: the statutory definitions of "application to own use" include, as has been noted, "doing anything with the goods that results in the goods becoming a container for other property". It follows, in my opinion, that when s 5 is read as a whole, and is viewed in the light of the Memorandum, the central concept in the definition of "container" is the process of packing or securing property in packaging. This is made explicit in para (a) of the definition; and in both of the situations described in the Memorandum. In my view, it is also implicit in para (b), which should be seen as an extension of para (a), rather than a free-standing provision. It is true that, if viewed in isolation, the subject of para (b) appears to be things that may be described as "ancillary items", rather than a process. But, in my view, when para (b) is read in the above context, and if necessary, read in the light of the Memorandum, a legislative intent is revealed in which the focus, quite appropriately, is upon the process, rather than the thing. That is to say, the subject in both paras (a) and (b) is the packing or securing of something. This interpretation is reflected, in terms, in the Memorandum. But it is also consistent with the statutory context, which is an aspect of "application to own use" and with the general purpose of the legislation, which is to tax transactions, or notional transactions (or dealings) rather than things. Moreover this construction preserves the distinction, sought to be drawn in the legislative scheme, between the "container" on the one hand and its "contents" on the other. It follows, in my view, that any ambiguity in the language of s 5 should be resolved by the adoption of this purposive construction. I would add that, even if the literal approach urged by the Commissioner were properly open, its adoption here would lead to such an artificial and unintended result as to justify the employment by the Court of a process of interpretation so as to treat para (b) as if the words "packing or securing" were inserted before "ancillary items", as was done in the Memorandum (see Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 320-321). It must follow, in my view, that the manuals were not "containers" within s 5(b): they were not part of the process of packing or securing the ancillary items. Rather, the manuals should be viewed as part of the contents of the container. I would dismiss the appeal on this ground alone. In the circumstances, it is also not necessary for me to consider Myer's exemption claim. ORDERS I propose that the appeal be dismissed, with costs. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont Associate: Dated: 31 March 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 723 of 1997 on appeal from a judge of the federal court of australia BETWEEN: the commissioner of taxation Appellant AND: myer stores limited Respondent JUDGES: beaumont, HILL and sackville jj DATE: 31 MARCH 1998 PLACE: SYDNEY REASONS FOR JUDGMENT HILL J: I have had the advantage of reading the judgment of Beaumont J which sets out the relevant facts of the matter. I am relieved therefore of restating them. As will appear, I am in substantial agreement with the reasons which his Honour has given. THE ISSUES IN THE APPEAL The appeal and notice of contention raised three separate issues. These are: 1. Whether the manuals can be said to be "contents" (the word "contents" is defined in paragraph (a) of the definition of the word "container"). 2. If the answer to the first question is "no", whether the manuals are within the meaning of paragraph (b) of that definition "intended, and reasonably necessary, to allow or facilitate the use of the contents". 3. If the first question is answered "no" and the second question "yes", whether the manuals, albeit that they are containers, are nevertheless exempt from sales tax having regard to the provisions of Item 100 of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1992. The parties joined issue on each of these questions, the Commissioner submitting that questions 1 and 3 should be answered "no" and question 2 "yes" and the taxpayer submitting that questions 1 and 3 should be answered "yes" and question 2 "no". THE CONTEXT IN WHICH THE ISSUES ARISE It is well established that the task of statutory interpretation does not involve construing the language of a statute in a vacuum. Rather, the Court will seek to ascertain the meaning of the words as used in the context in which they appear and having regard to the parliamentary intention: CIC Insurance Limited v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408. Sales tax is a tax on various transactions in goods. The basic scheme of the sales tax legislation carried over from the initial 1930 legislation to the so called "streamlined" sales tax rewrite in 1991. Sales tax is payable, generally speaking, on the last wholesale sale in respect of goods and on a value which represents a wholesale sales value: Deputy Federal Commissioner of Taxation (SA) v Ellis & Clark Limited (1934) 52 CLR 85, Brayson Motors Pty Limited (in liquidation) v Federal Commissioner of Taxation (1985) 156 CLR 651. As Sir Owen Dixon remarked in the former case at 90 "the general policy of taxing the last sale by wholesale, the sale by a wholesaler to a retailer, did not admit of universal application". Thus the present legislation envisages that sales tax may be paid in certain circumstances where goods are sold by retail; also where goods are applied to the use of the person who is liable to pay tax on them. In both cases a wholesale value bears the basis for assessment. Under the present legislation once there has been an "application to own use" ("AOU") as that expression is defined in s 5 of the Sales Tax Assessment Act 1992 ("the Assessment Act") the goods will (but subject to ss 9A and 10 of the Assessment Act) become "Australian used goods", therefore excluded from "assessable goods" and, in consequence, outside the operation of the legislation should there be a further dealing with them as a result of Note 1 to Table 1 of the Schedule to the Assessment Act. In the present case the Court is not concerned with a sale by retail. Each of the mix master, refrigerator and mobile phone became the subject of assessable dealings as listed in Table 1 of the Schedule to the Assessment Act being, in respect of the refrigerator and mobile phone, each of which was manufactured in Australia, within AD1a, that being an assessable dealing arising where there has been a wholesale sale by a person who manufactured the goods in the course of any business. The fifth column of Schedule 1 determines the normal taxable value in such a case to be "the price (excluding sales tax) for which the goods were sold". In the case of the mix master, which was manufactured outside Australia and imported into Australia and sold by the importer, the assessable dealing arose under AD11b by virtue of being a wholesale sale by the importer to Myer Stores Limited and again in accordance with the fifth column of Part B of the Schedule, the taxable value upon which sales tax is payable will be "the price (excluding sales tax) for which the goods were sold". Although the import into Australia may be an assessable dealing, it is open to the importer to quote a certificate and import the goods free of sales tax: s 82(1)(a). This is no doubt what happened in the present case. It is obviously a truism as a matter of general law, and accepted by the sales tax legislation, that a purchaser may purchase for a single price more than one item of goods. Where more than one item of goods is sold for a global price and the goods are subject to the same rate of sales tax there will never be a need to distinguish between the prices paid for each item of goods. However, if there is a sale of more than one item of goods and either different rates of sales tax are payable on each item or no sales tax is payable on one item and sales tax at a rate is payable on the other, then s 95 of the Act permits an apportionment of the price among the goods in accordance with the price at which each could reasonably have been sold separately. The legislation deals specifically with containers. No doubt in the ordinary case, where parties contract for goods which are contained within a non returnable container, the price paid will carry with it the passing of title in the container to the purchaser even if the purchaser, if asked, would not be interested in obtaining title to the container. Sometimes the parties may seek to allocate a separate amount to the container and to the contents contained. In such a case s 35 of the Assessment Act adds to the taxable value of the contents but the general policy, as was stated by Lehane J in a judgment with which Lockhart and Sackville JJ agreed in CCA Beverages (Sydney) Pty Limited v Federal Commissioner of Taxation (1997) 143 ALR 212, is to ensure that containers are taxed at the same time and at the same rate (if any) as the contents contained; see too Pepsi Seven-Up Bottlers Perth Pty Ltd v Federal Commissioner of Taxation (1995) 132 ALR 632 at 634-5. The word "container" is defined by s 5 as meaning: "(a) packaging in which, or with which, any property ("the contents") is packed or secured, in the ordinary course of a business, for the purpose of the marketing or delivery of the contents; (b) ancillary items that are packed or secured with the contents and are intended, and reasonably necessary, to allow or facilitate the use of the contents." This definition replaces two definitions previously in the now superseded legislation and other occasions where the expression was used in accordance with its ordinary English meaning. The definition of the word "container" in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 upon which it was suggested that the present definition was modelled, and upon which His Honour in part relied, was in the following form: "(a) the inner or outer coverings in which goods are packed or secured, or are to be packed or secured, in the ordinary course of business (including inside linings and inside packing materials); or (b) goods ordinarily used to secure or seal, or to describe the contents of, coverings to which paragraph (a) of this definition applies, being goods forming part of the completed coverings, and includes can keys, glass droppers and other goods that - (c) are accessories of coverings or goods to which paragraph (a) or (b) of this definition applies or of goods marketed in such coverings; (d) are attached to or form part of the inner coverings, or are contained in the outer coverings, of the goods so marketed; and (e) are sold with those goods for one inclusive price." It is perhaps useful to note how the legislation would work where the manuals were printed in Australia if the manuals were, as the Commissioner contended, within a definition of paragraph (b) of the word "container". A not dissimilar analysis would follow where the manuals were printed outside Australia, the packaging, manual and contents (ie. the Mixmaster) were all imported into Australia. Those wholesalers who purchase in Australia the manuals from the printer would be subject to an assessable dealing being AD1a if the printed goods were sold by wholesale or AD2a if there were a retail sale by the printer of the goods to the taxpayer. However, although there was an assessable dealing, no sales tax would be exigible at that stage because Item 100 of the First Schedule together with s 24 of the Assessment Act would operate to cause the assessable dealing to be non taxable. When the booklets become a container there would be an application of them to own use to which paragraph (e) of the definition of that expression in s 5 of the Assessment Act could apply, so the Commissioner suggested. That paragraph is in the following terms: "doing anything with the goods that results in the goods becoming a container for (emphasis added) other property;" If at that stage there were, as the Commissioner suggested, an application to own use the manuals would then become "Australian used goods". At that stage no sales tax would be payable because of the exemption in Item 100 in the First Schedule to the Sales Tax (Exemptions and Classifications) Act. Any subsequent dealing with the goods (ie. for present purposes assumed to be the manuals) would not give rise to a further assessable dealing. In the ordinary case the price for which goods are sold where no separate price is allocated to the container will reflect both the value of the goods and the container. In such a case the policy that the container and the goods bear the same rate will be satisfied. If a separate price is allocated between the container and the goods s 35 will operate cf CCA Beverages at 218-219. Assuming s 35(3) is limited to this latter case that subsection would treat the taxable value of the contents as increased by so much of the value of the container as could reasonably be expected to have been recouped by the taxpayer in connection with the hypothetical sale of the contents. Again the policy stated above will be fulfilled. If the manuals, being containers as submitted, fall outside paragraph (e) of the definition of "application to own use" as the taxpayers suggested they would be applied to own use, if not sold, at the time of the wholesale sale attracting sales tax. Item 100 would presumably continue to apply. By contrast they submitted that the booklets were not containers. If this submission is satisfied, the following result would follow: 1. The manufacturer of the electric or electronic goods would, by quotation, obtain the booklets exempt from sales tax if printed in Australia by a printer relying upon item 100. 2. If the electric or electronic goods and the booklets were both imported into Australia by a distributor, that distributor would likewise quote a certificate in relation to the goods and the booklets and no duty would be payable. 3. A sale by the manufacturer or distributor to Myer for an inclusive price would require the application of s 95 of the Act so that a price would need to be allocated between the goods and the booklets. This would have the consequence that the taxable value, namely price, payable for the goods would be reduced as a portion of it would be allocated to the booklets. The booklets would be exempt: item 100, the good at the reduced taxable value would bear sales tax at the appropriate rate. Hence the advantage to Myer of success in the present case. It is evident from this short discussion and from an examination of the definition of the word "container" that a distinction is drawn in the definition between contents on the one hand and packaging in the extended definition on the other. The first paragraph of the definition of the word "container" both defines container in accordance with the ordinary English meaning of the expression and distinguishes it from "the contents" being the property in goods which are in or secured with the packaging, the word "packaging" being used in its ordinary English sense. It will be necessary in any case to determine the "contents" as defined in that paragraph. That will ordinarily not be difficult. It will usually be easy to determine whether particular items are goods which are in or secured with the packing on the one hand and whether they are packaging and thus to be treated as a container. Assistance will generally be obtained by considering the contract of sale in respect of the goods. Parties seldom contract specifically for packaging but do so for contents. The question of fact should be determined in a commonsense way: EMI Australia Pty Limited v Federal Commissioner of Taxation (1994) 94 ATC 5008 at 5016. No doubt there will in some cases be a question of degree involved. Paragraph (b) with which the present dispute is concerned includes within a definition of "container" certain ancillary items. The legislature has not specifically indicated to what the items in question are "ancillary". However that is made clear when it is realised that the items in question have to be packed or secured with the contents and that there is a dichotomy to be found in the definition between "contents" as defined and packaging or ancillary items. The paragraph thus makes clear that the ancillary items can not in themselves be the contents, albeit that they are "packed or secured with the contents and are intended, and reasonably necessary, to allow or facilitate the use of the contents". Further assistance is obtained from the definition of application to own use (paragraph (e)) which the Commissioner submits applies in the present circumstances. It will be recalled that the definition of "application to own use" in paragraph (e) reads as follows: "doing anything with the goods that results in the goods becoming a container for (emphasis added) other property;" The manuals in the present case could hardly be described as "becoming a container for other property". That, coupled with the fact that the ancillary items with which paragraph (b) of the definition of "container" is concerned are not items themselves which are contents, leads inevitably to the conclusion that, if the manuals in question are contents, then they cannot fall within the definition of container nor, whatever paragraph (e) may mean, could they be applied to "own use" with the consequences said thereafter to follow. It is common knowledge, of which judicial notice can clearly be taken, that most electronic appliances are sold with instruction manuals. Some of those manuals may have less significance than others. Most purchasers would expect to purchase not merely the electric or electronic appliance but also the instruction manual which makes it clear how the appliance is to operate at least in an optimal way. As a matter of commonsense, each of the instruction manuals in the present case can be regarded as part of the contents contained in the packaging surrounding the appliance. The manual would, in the absence of an express provision to the contrary, clearly be part of the property the subject of the contract of sale and the goods the subject of that contract, the electric or electronic appliance as the case may be, and the manual would be the one liable to tax and the other exempt from tax under Item 100 of the First Schedule with the consequence that s 95(1) of the Act would apply. To recapitulate, once a conclusion is drawn that the goods in question are contents then paragraph (b) of the definition of "container" could have no application to them, for being contents they could not be packed or secured with themselves. It was submitted for the Commissioner to avoid this conclusion that so to construe the definition of "container" was to give no meaning at all to paragraph (b) of the definition. With respect to the detailed submissions made by senior counsel for the Commissioner, no explanation was really given as to why the manuals were not contents. But in any event it is not correct to say that there is no work for paragraph (b) of the definition. Some examples are given in the judgment appealed from. In evidence were packets of soft drink known as "Ribena". Attached to the cardboard packaging of that drink were small straws. Clearly those straws would fall outside the definition of "contents" in paragraph (a) but be "ancillary items" packed or secured with them. Likewise can keys to open cans such as cans of sardines can be "ancillary items". Although the learned primary judge construed paragraph (b) as limited to ancillary items, ancillary to the packaging rather than to the contents, a view which is clearly open and has much to commend it, it can be said that there is no necessary reason in the definition itself to draw that distinction as long as there is a distinction between container and contents. It is unnecessary, and perhaps undesirable, in the present case to decide that question. In the present case all that is important to decide is that the manuals are themselves within the definition of the contents and thus are not containers. Reference was made in the course of argument to the explanatory memorandum to the Sales Tax Assessment Bill 1992, paragraph 20.6 at pages 320 and 321 in the following terms: "A packing AOU will comprise more than just the act of putting contents into goods. Rather, it will be any act that causes goods to become a container. These will be: (i) packing or securing any property in packaging, (in the course of carrying on any business), for the purpose of marketing or delivery of the goods; Note: This will include labelling if the labelling forms part of the packaging. (ii) packing or securing any ancillary items with the contents that are intended and reasonably necessary to allow or facilitate their use. Note: 'Ancillary items' will not be defined but will include items such as can keys, glass droppers, drinking straws and batteries. The 'reasonably necessary' condition will exclude items such as 'gifts' packed with goods." Given that the definition of "packing AOU" is an exclusive definition, referring to an application to own use ("AOU") that consists of "doing something with goods that results in the goods becoming a container for other property (emphasis added)", one may wonder at the correctness of the explanatory memorandum. While no doubt it is appropriate, perhaps generally essential, to have regard to the explanatory memorandum either where there is ambiguity or to confirm the ordinary meaning of the words or indeed to determine the mischief for which a particular statutory provision has been enacted, the explanatory memorandum cannot control the meaning of words used by the legislature. Perhaps the most extreme example that can be given of this is the decision of the High Court in Hepples v Federal Commissioner of Taxation (No. 2) (1992) 173 CLR 492, where the result reached was inconsistent with the explanatory memorandum and see Re Bolton; ex parte Beane (1987) 162 CLR 514 and Minister for Immigration and Ethnic Affairs v Tang Jia Xin (1994) 125 ALR 203 at 207. It is difficult to obtain any assistance from the definition of the expression "container" in the First Schedule to the Sales Tax (Exemptions and Classification) Act 1935 to which reference was earlier made. To start with that definition was one of two somewhat different definitions and other undefined uses of the term to which reference was earlier made. But, be that as it may, it can be suggested that it formed the basis for the definition of "container" now to be found in s 5 of the Assessment Act in the context of ensuring that only one definition would apply in the rewritten law. It will be seen, if the definition is examined, that the language is different from the present definition in that, in the earlier definition, the "can keys, glass droppers and other goods" must be "accessories of coverings or goods which paragraph (a) or (b) of this definition applies". The meaning of the word "accessory" in the context in which it appears has been the subject of considerable authority: Deputy Federal Commission of Taxation v Polaroid Australia Pty Limited (1971) 46 ALJR 32, a decision of Gibbs J; Federal Commissioner of Taxation v Kentucky Fried Chicken Pty Limited & Anor (1988) 12 NSWLR 643, a decision of the Court of Appeal of New South Wales; and Zendel Australia Pty Limited (t/as Glad Products of Australia) & Anor v Commissioner of Taxation (1993) 94 ATC 4022, a decision of the Full Court of this Court. No matter what meaning the word may have had in the context of the definition of "container", it is difficult indeed to see that manuals contained, for example, in the packaging of a mobile phone or inside the freezer compartment of a refrigerator, could be said to be accessories to any of the goods referred to in paragraphs (a) and (b) of the definition, even if the breadth of the Kentucky Fried Chicken case is accepted. It follows, therefore, though perhaps for slightly different reasons than those expressed by the learned primary judge, that the manuals are not containers and in consequence the wholesale sale will attract s 95, there being a composite sale of the electrical or electronic appliances on the one hand and the manuals on the other. There is no suggestion that apportionment under s 95 is not available (cf CCA Beverages (Sydney) Pty Limited v Federal Commissioner of Taxation (1997) 143 ALR 212) and in consequence the manuals would be treated as exempt from sales tax in any assessable dealing by virtue of the provisions of Item 100. It is unnecessary therefore to consider the remaining arguments which divided the parties. The appeal should be dismissed and the appellant should pay the respondent's costs of it. I certify that this and the preceding ten (10) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill Associate: Dated: 31 March 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 723 of 1997 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: COMMISSIONER OF TAXATION Applicant AND: MYER STORES LIMITED (trading as myer grace bros) Respondent JUDGES: BEAUMONT, HILL, SACKVILLE JJ. DATE: 31 March 1998 PLACE: SYDNEY REASONS FOR JUDGMENT SACKVILLE J: The Issue It is unnecessary to repeat the facts, which have been set out in the judgment of Beaumont J. The first issue that arises is whether the manuals can be said to fall within par (b) of the definition of "container" in s 5 of the Assessment Act: "(a) packaging in which, or with which, any property ("the contents") is packed or secured, in the ordinary course of a business, for the purpose of the marketing or delivery of the contents; (b) ancillary items that are packed or secured with the contents and are intended, and reasonably necessary, to allow or facilitate the use of the contents." If the manuals are not within par (b), there is no need to consider the other issues raised in the case. The Legislative Scheme Before addressing this question, it is helpful to consider the legislative scheme for taxing dealings in containers and their contents. This provides the broader statutory context within with the definition is to be construed. In CCA Beverages (Sydney) Pty Ltd v Federal Commissioner of Taxation (1997) 143 ALR 212 (FCA/FC), Lehane J (with whom Lockhart J and I agreed) said (at 223) that the Assessment Act and the Exemptions Act "contain a coherent legislative scheme for the taxation of dealings in containers and their contents". That scheme was described in the Explanatory Memorandum accompanying the Bill for the Assessment Act, as follows: "20.2 The general approach of the new law will be to apply the same treatment to containers as applies to their contents. This is also the approach of the existing law, but its implementation is complicated and numerous exceptions have obscured its effect. The new law will be designed to 'tax' containers at the same time and at the same rate (if any) as their contents. This will be achieved by the device of making containers liable to tax at the time that their contents are put in them, but exempting the dealing from tax if the contents are assessable goods. When the contents subsequently become liable to tax, the value of the container will be included in the taxable value of the contents." As the Explanatory Memorandum pointed out, there is no single part of the Assessment Act that deals exclusively with containers. Rather, the rules have been incorporated into the general legislative scheme. It is in this context that the definition of "containers" in s 5 of the Assessment Act operates. The definition applies also to the Exemptions Act: see Exemptions Act, s 3(1). The general scheme of the legislation, both in its present and earlier form, is that sales tax ordinarily should be a tax on the last wholesale sale, with goods being taxed at their full wholesale value: Brayson Motors Pty Ltd (in liq) v Federal Commissioner of Taxation (1985) 156 CLR 651, at 657, per curiam; CCA v FCT, at 222-223. However, tax is not always levied at the point of the last wholesale sale, as appears from the provisions relating to "application to own case" or "AOU", to which I refer shortly. Table 1 to Schedule 1 of the Assessment Act sets out "all the assessable dealings that can be subject to sales tax": Assessment Act, s 16(1). If at the time of an assessable dealing, no exemption applies, the dealing is a taxable dealing and the person specified in column 3 of Table 1 is the person liable to pay the tax: Assessment Act, s 16(2). The general rules for calculating the taxable value are set out in column 5 of Table 1: Assessment Act, s 34(1). An assessable dealing is not taxable if the goods are covered by an exemption Item in Schedule 1 to the Exemptions Act: Assessment Act, s 24. This case involves the wholesale sale of refrigerators by the manufacturer; the wholesale sale of mobile telephones by the manufacturer; and the wholesale sale of "Mixmasters" by an importer. The first two dealings are covered by No AD1a of Table 1 to Schedule 1 of the Assessment Act. The third is covered by No AD1b. The relevant parts of Table 1 are as follows: [1]No [2]Assessable dealing [3] Person liable [4]Time of dealing [5]Normal taxable value AD1a wholesale sale by a person who manufactured the goods in the course of any business seller time of the price (excluding sales tax) for which the goods were sold sale AD1b wholesale sale by a person who is not the manufacturer of the goods seller time of the price (excluding sales tax) for which the goods were sold sale The sale in the present case included the manuals. Where a sale of goods takes place for a single price, but the sale includes different categories of goods in respect of which sales tax is levied at different rates, the general principle is that the price is apportioned. Section 95(1) of the Assessment Act provides that "if there is a need to know the price for which particular goods were sold", but the parties have not allocated a particular amount to the goods, the price for which the gods were sold is, for the purposes of the sales tax law, the price for which they could reasonably be expected to have been sold if they had been sold separately. The note to Table 1 states that the Table does not apply to a dealing with goods unless the goods are "assessable goods" immediately before the time of the dealing, and are in Australia at the time of the dealing. Moreover, a sale of goods is not taxable if the purchaser quotes for the sale (that is, quotes a registration number or exemption declaration) at or before the time of the sale: Assessment Act, s 27(1). The expression "assessable goods" means goods that have been manufactured in Australia or imported goods, but does not include "Australian-used goods": Assessment Act, s 5. "Australian-used goods" is defined by s 5 to mean "(a) goods that have been applied to a person's own use in Australia (whether the goods are Australian goods or imported goods); or (b) imported goods that were a container at the time of importation; ...". The expression "application to own use", in relation to goods includes "(e) doing anything with the goods that results in the goods becoming a container for other property." In the terminology of the Assessment Act, an application to use ("AOU") that consists of doing something with goods that results in the goods becoming a container for other property is known as a "packing AOU": Assessment Act, s 5. The effect of these definitions is that goods which have become a "container for other property" are excluded from the scope of the expression "assessable goods". Despite this exclusion, Table 1 includes as "assessable dealings" certain dealings involving an "application to own use" or "AOU". The Explanatory Memorandum sets out the intended scheme of the legislation, insofar as it related to goods that become containers: "1. Assessable dealing 20.5 Assessable goods will be treated as becoming a container, and being applied to own use, at the same time. In broad terms, this means that goods will become a container at the time their contents are put in them. The container will also be applied to own use at that time (this will be referred to as a packing AOU). ... 20.6 A packing AOU will comprise more than just the act of putting contents into goods. Rather, it will be any act that causes goods to become a container. These will be: (i) packing or securing any property in packaging (in the course of carrying on any business), for the purpose of marketing or delivery of the goods; .... (ii) packing or securing any ancillary items with the contents that are intended and reasonably necessary to allow or facilitate their use. Note: 'Ancillary items' will not be defined but will include items such as can keys, glass droppers, drinking straws and batteries. The 'reasonably necessary' condition will exclude items such as 'gifts' packed with goods. 20.7 In order for the packing AOU to be an assessable dealing, it will also have to satisfy the other requirements applicable to AOU assessable dealings e.g. if the container has been manufactured by the applier, then the container will have to have been manufactured in the course of a business in order for the AOU to be an assessable dealing. Note: Once goods have been applied to own use they become Australian-used goods and as such they cannot be the subject of any further assessable dealings. Therefore, it is only the first packing that is capable of amounting to an assessable dealing. ... 2. Exemptions 20.10 A packing AOU will not be taxable if an exemption applies. There will be 2 exemptions that apply specifically to containers: (i) General exemption: exemption Item 27will apply to exempt the contains if the contents are exclusively assessable goods; (ii) Export: an exemption for containers for export if the contents are exclusively assessable goods. ... 20.12 Exemption Item 27will apply only if all of the contents of a container are assessable goods, or assessable goods and their containers, and the following 2 conditions are satisfied: Condition 1: The contents are intended (or expected) by the applier to be the subject of a later assessable dealing while still in the container. That later assessable dealing must be a sale, a delivery of customer's materials goods, or a lease AOU. ... Condition 2: Possession and/or control of the container must pass to the person who is the purchaser, deliveree or lessee under that assessable dealing. ... 3. Taxable value of the container 20.17 If no exemption applies at the time of the packing AOU, then the container will be taxable at that time. The container will attract the ordinary taxable value rules applicable to AOUs of assessable goods." This scheme is implemented in part by Table 1, which includes the following provisions: [1]No [2]Assessable dealing [3] Person liable [4]Time of dealing [5]Normal taxable value AD3a untaxed-goods AOU as defined by section 21, by a person who is not the manufacturer of the goods applier time of the notional AOU wholesale selling price AD3b AOU by a person who manufactured the goods in the course of any business applier time of the notional AOU wholesale selling price AD3c AOU by a person who is not the manufacturer of the goods, but who obtained the goods under quote applier time of (a) the purchase AOU price, if the goods were purchased under quote; (b) in other cases, the notional wholesale selling price Section 21 defines an "untaxed-goods AOU" to include a non-lease AOU (that is, an AOU that does not consist of the granting of a lease) in the course of any business unless (a) the taxpayer obtained the goods under quote; or (b) the goods have previously been the subject of a taxable dealing or of an assessable dealing that was exempt. It will be recalled that s 24 provides that an assessable dealing is not taxable if the goods are covered by an exemption Item. Item 27 of Schedule 1 to the Exemption Act, which is referred to in the Explanatory Memorandum, provides as follows: "(1) Goods ("the main container") for use by a person ("the exemption user") as a container exclusively for contents consisting wholly of assessable goods (or of assessable goods and containers for those assessable goods). (2) In addition, the exemption user must intend or expect that: (a) the main container will be used as a container in relation to the contents at the time of an assessable dealing that consists of: (i) a sale of the contents; or (ii) ... (iii) ...; and (b) possession or control of the main container will pass to the person who is the purchaser, customer or lessee, as the case requires, for that assessable dealing." The result of these complicated provisions is that if sales tax is not payable at the point of AOU, whether by reason of the exemption created by Item 27 or for some other reason, and the container and the contents are subsequently sold, the value of the container is included in the taxable value of the contents. This comes about because, in the ordinary case, where a container and its contents are sold by wholesale without any apportionment of the price between the two, the wholesale price (excluding sales tax) is the taxable value under the Assessment Act, Schedule 1, Table 1, AD1a: CCA v FCT, at 218. Where the parties have allocated separate prices for the container and the contents, the Assessment Act ensures that the taxable value of the contents is increased to include a component for the container: Assessment Act, s 35; CCA v FCT, at 218. If a packing AOU is an assessable dealing, sales tax is payable at that point, by reference to the values specified in Table 1. In CCA v FCT, it was held that, where a manufacturer paid sales tax on containers purchased by it (because it had chosen not to quote for the sale), the tax paid was to be credited against the tax payable in respect of a later assessable dealing relating to the contents. The credit was available under Schedule 1, Table 3, CR8A: "Claimant is the taxpayer for an assessable dealing...with goods that are the contents of a container. Container is not covered by exemption Item 27(3). Claimant has borne tax on the container". CCA v FCT, at 222. It is not necessary to consider whether the reasoning in CCA v FCT applies to the case where sales tax is paid in respect of a non-exempt packing AOU, although there seems to be no obvious reason why CR8A should not apply. Reasoning In my opinion, having regard to the legislative scheme and to the language used in the definition of "container" in s 5 of the Assessment Act, par (b) of the definition is intended to refer to items ancillary to the "packaging in which, or with which any property is packed or secured" and not to items ancillary to the contents. There are five factors which support this view. First, contrary to the Commissioner's submissions, the text of the definition suggests that the phrase "ancillary items" in par (b) is intended to refer to something other than items ancillary to the contents. Paragraph (b) does not expressly identify that to which the items must be "ancillary". In other words, par (b) does not specifically answer the question "ancillary to what?". But par (b) distinguishes between "ancillary items that are packed or secured" and "the contents" - that is, any property that is packed or secured in or with packaging. It would be a curious use of language to read the phrase "ancillary items" as referring to items ancillary to the contents, when the same paragraph uses the word "contents" to mean any property that is packed or secured in or with packaging. It is in accord with the ordinary meaning of the language to construe "ancillary items" as items ancillary to the packaging referred to in par (a) of the definition. Secondly, as the primary Judge pointed out, it is the word "container" that is defined. It is true that, when a word is defined exhaustively, it is generally not permissible to construe the definition by reference to the ordinary meaning of the defined word: Telstra Corporation Ltd v Australasian Performing Right Association (1997) 146 ALR 649, at 657, per Dawson and Gaudron JJ; Commissioner of Taxation v Prestige Motors Pty Ltd, 18 March 1997, FCA/FC, unreported at 35. But where the definition employs an expression such as "ancillary items", it is permissible to fill in the gap by reference to the word being defined, provided of course that to do so does not depart from the ordinary meaning of the language employed. In this case, the expression "ancillary items" should be construed as referring to items ancillary to "containers", given that that word is used in its ordinary sense in par (a) of the definition. Thirdly, again contrary to the submissions of senior counsel for the Commissioner, this construction leaves par (b) of the definition work to perform. Paragraph (a) of the definition refers to "packaging in which, or with which, any property...is packed or secured". The Explanatory Memorandum gives several examples of items that would not necessarily be regarded as "packaging", in the sense in which that word is used in par (a), yet can be classified as ancillary to the packaging in which or with which property is packed or secured. The examples given in the Explanatory Memorandum include can keys, glass droppers and drinking straws. In the absence of par (b) of the definition it would at least be doubtful whether each of these stems would be caught by par (a). In EMI Australia Pty Ltd v Federal Commissioner of Taxation (1994) 94 ATC 5008, at 5016, Hill J held that a single page information sheet inserted into the plastic cover of a compact disk was part of the container itself. That reasoning might not apply to the examples given in par 20.6(ii) of the Explanatory Memorandum. The can key, for example, is necessary to open the can, but it may not itself answer the description of "packaging in which or with which any property is packed or secured...for the purpose of marketing delivery of the contents". So, too, with glass droppers and drinking straws attached to a packaged fruit juice or soft drink. Fourthly, the context in which the word "container" is used in the legislation supports the construction of par (b) to which I have referred. Paragraph (e) of the definition of AOU refers to "doing anything with the goods that results in the goods becoming a container for other property". It is easy enough to understand how items ancillary to packaging can be regarded as part of a container "for other property". It is much more difficult to see how items ancillary to the contents, but not to the container, can be described in the same way. This can be illustrated by reference to the manuals in the present case. It is hardly an ordinary use of language to describe the manuals, at the time they are packed, as becoming a container for other property. Fifthly, there is nothing in the policy of the sales tax regime which requires the definition of "container" to be interpreted in the manner suggested by the Commissioner. Where a manufactured product is sold with "ancillary items", ordinarily the dealing will be taxed by reference to the overall price. If the ancillary items are taxed at a different rate from the main product, s 95 of the Assessment Act, provides for apportionment. Apportionment also applies where the ancillary items, like the manuals included with the manufactured products in the present case, are exempt from tax. In other words, the legislation ensures that items sold with other products, but which are "ancillary" to those products, will be subjected to sales tax at the appropriate rates. Nor is there anything in the regime outlined earlier for taxing containers that suggests a different result should be reached. The policy, in general, is to "tax" containers at the same time and at the same rate (if any) as their contents. To construe par (b) of the definition of container in the manner I have suggested does not interfere with that policy, nor with the provisions relating to "packing AOUs". There is, in my view, only one element in the Explanatory Memorandum which is difficult to reconcile with the construction of the definition. Paragraph 20.6(ii) gives, as an example of ancillary items, batteries included within the package. For myself, I would regard batteries, if they are ancillary to anything, as ancillary to the contents of the container, rather than to the container itself. This is because the batteries are presumably required to enable the principal item to function or at least function more effectively. But, as Hill J has explained in his judgment, which I have had the advantage of reading, an assumption in the Explanatory Memorandum cannot control the meaning of the legislation. The Commission did not suggest that, if this were the correct construction of the definition, the manuals were ancillary to the packaging. As the primary Judge said: "The manuals are intended to serve the purpose of instructing the users of the products how to use them. The manuals play no role in the convenience or utility of the packaging. They add nothing to the container itself and serve no purpose in relation to it. They are instruction manuals, separate from both the packaging and the product, but contained in the packaging." In the light of this conclusion it is unnecessary to consider the other issues debated in the appeal. I agree with the orders proposed by Beaumont and Hill JJ. I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville Associate: Dated: 31 March 1998 Counsel for the Applicant: Mr I Gzell QC with Mr S W Gibb Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Mr D H Bloom QC with Mr S J Gageler Solicitor for the Respondent: Firmstone & Feil Date of Hearing: 6 March, 1998 Date of Judgment: 31 March 1998