FEDERAL COURT OF AUSTRALIA SALES TAX – whether the taxpayer is entitled to a credit for the sales tax which it claims to have borne in respect of offcuts remaining after the manufacture of furniture and sold to an exporter – examination of the criteria necessary for a claim under CR8 and CR10 Sales Tax Assessment Act 1992 (Cth) WORDS AND PHRASES – "application to own use" Sales Tax Assessment Act 1992 (Cth) – ss 11, 22, Deputy Federal Commissioner of Taxation v Taubmans (NSW) Pty Ltd (1966) 115 CLR 570 – cited Max Factor & Co Inc v Federal Commissioner of Taxation (1971) 124 CLR 353 – cited Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385 – cited Genex Corporation Pty Ltd v Commonwealth of Australia (1991) 30 FCR 193 – cited Commonwealth of Australia v Genex Corporation Pty Ltd (1992) 176 CLR277 – cited Federal Commissioner of Taxation v Jack Zinader Pty Ltd (1949) 78 CLR 336 – cited NEW STYLE FURNITURE SALES PTY LIMITED v DEPUTY COMMISSIONER OF TAXATION NG 107 of 1998 HILL J SYDNEY 20 AUGUST 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 107 of 1998 BETWEEN: new style furniture sales pty limited Applicant AND: deputy commissioner of taxation Respondent JUDGE: HILL J DATE OF ORDER: 20 AUGUST 1998 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application be dismissed. 2. The Applicant pay the Respondent's 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 107 of 1998 BETWEEN: new style furniture sales pty limited Applicant AND: deputy commissioner of taxation Respondent JUDGE: HILL J DATE: 20 AUGUST 1998 PLACE: SYDNEY REASONS FOR JUDGMENT The Applicant, New Style Furniture Sales Pty Ltd ("the Applicant") is a contract furniture manufacturer. It manufactures furniture ordered by retail customers (i.e. retail stores) using, in the course of upholstering the furniture, fabric or leather which it purchases from outside suppliers. However, in some cases, it uses material, leather or fabric, supplied by the retail customer. It receives payment from these customers for the furniture it sells or makes up and pays sales tax on the sale of the furniture or its delivery, as the case may be. The basis upon which this sales tax is charged, which is later explained in the course of these reasons, is not the subject of controversy. However, it is perhaps an almost inevitable consequence of its business that the Applicant is left with offcuts of fabric or leather not used or discarded in the manufacturing process. It sells these offcuts on a weight basis to an exporter for export. That transaction is not subject to sales tax, if otherwise an assessable dealing, for at least two reasons. First, the exporter quotes a certificate in respect of the non taxable export sale to it (see, eg. ss 30 and 32F of the Sales Tax Assessment Act 1992) ("the Assessment Act"); second, the material in any case would be exempt from sales tax under either Item 150 or Item 152 of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1992. The present case raises the question whether the Applicant is entitled to a credit for the sales tax which it claims to have borne in respect of the offcuts after the sale to the exporter is effected. It claims that it is entitled to a refund of $101,890.18 covering sales of the offcuts for export in the period 1 November 1993 to 31 October 1995. The Commissioner refused the credit and on the Applicant's objection to this decision the present proceedings were instituted in the Court by way of an appeal, in the original jurisdiction, against the objection decision of the Commissioner. The primary facts are not in dispute, although there is some dispute as to the conclusions which flow from these facts. As will be shortly noted the facts divide, generally speaking into two separate categories. The parties are in agreement that the Court deal with the matters of principle at issue between the parties leaving, if the Applicant is wholly or partly successful, to the Commissioner in consultation, if necessary, with the Applicant the working out of the mathematical consequence of the decision. THE PRIMARY FACTS The Applicant deals largely with two retail stores: Design Warehouse and Corso De'Fiori. Together they account for approximately 80% of the orders which the Applicant receives. It does, however, deal with a number of small retailers as well and some interior designers and members of the public. Although there may be some small differences in the dealings with retailers other than the two principal customers these were not explored and the case proceeded on the basis that the transactions with these two customers were typical of all transactions, at least for relevant purposes. I propose to exclude from consideration furniture ordered directly by members of the public or through interior designers as these classes of case were not the subject of either evidence or argument. It suffices, however, here to say that, although the method of calculation of sales tax on what would or, in the case of interior designers, probably would be retail transactions would differ, no different issue would arise in the present proceedings. The Applicant only manufactures furniture (couches and chairs) as ordered by the retail customer. That customer in turn would have received an order from a member of the public for the purchase of the furniture. All relevant items of furniture are covered in either fabric or leather. The Applicant maintains a wholesale price list which forms the basis of the price which it charges retail customers for furniture which it manufactures to order. This price list records, among other information not presently relevant, the cost of making up the item without taking into account the cost of the fabric or leather required ("the white price"), the number of lineal or square metres as the case may be of fabric or leather which would be required to make up the furniture and, in the case of furniture covered in leather, the cost of covering the furniture in five different classes of leather. The retail customer places an order for the furniture to be supplied to the Applicant. There are no written terms and conditions otherwise relevant. That order stipulates the fabric or leather to be used. In the majority of cases the Applicant then places an order on the supplier of the fabric or leather as the case may be. For ease of reference these cases will be described as "the typical orders". Fabric is measured by lineal metres and is delivered by the fabric supplier on a roll. Leather is measured in square metres and is delivered in hides. Generally, it would seem there are no relevant written conditions of sale governing the contracts formed for the purchase of fabric or leather, although in some cases it is provided that title is not to pass until payment. There is no evidence dealing with whether payment is made by the Applicant to the supplier before the fabric or hide is made up and it may be inferred that title has passed to the Applicant at the latest before the furniture is ultimately delivered to the customer. In any case, if title passed later than the delivery of the furniture to the retail customer that would have no bearing on the present problem. It can hardly be disputed that at some time title in the fabric or hide passed to the Applicant and thence to the retail customer, even if that occurred after delivery of the made up furniture. While this might (I need not decide whether it does) affect the time sales tax is paid on the sale of the furniture to the retail customer it has no bearing on the credit claim before the Court. In a minority of cases (about 28.36% in the case of furniture to be covered in fabric and less than 0.005% in the case of leather) the order placed by the retail customer will be that the Applicant make up the relevant item of furniture covered by fabric or leather supplied by the retail customer. For ease of distinction these orders will be referred to as the "customer fabric order cases". In a small number of these cases the retail customer may stipulate that it receive by way of return any offcuts of material or leather supplied. Usually, however, the retail customer is indifferent as to what is to happen to the offcuts. Certainly at least the two major retail customers are aware of the high probability that offcuts will emerge in the course of covering the furniture. They give no direct permission either to sell or otherwise dispose of them. However, it may safely be inferred, and it is said to be the custom in the industry, that unless the retail customer has requested return of the offcuts the retail customer at least impliedly authorises the Applicant to dispose of them or otherwise use them. Where the retail customer supplies its own fabric or leather, the customer advises the Applicant of the cost to it of the leather or fabric required. This is necessary, as will be later seen, to enable the Applicant to calculate the sales tax payable on delivery of the furniture to the customer. In the case of orders emanating from Design Warehouse in the period involving fabric covering where the Applicant ordered the fabric from the supplier the Applicant added a charge of 5% to cover its handling and storage costs. In some cases (approximately 10% of total orders) furniture is ordered to be covered from one of the four grades of black leather which the Applicant has purchased from a supplier and holds in stock. There is, in my view, no relevant distinction between these cases and the "typical orders" transactions. The discrepancy between the four grades here referred to and the five grades referred to in the Applicant's price list was not explained but, in any event, has no bearing on the issues which divide the parties. Although, as has been noted, in the transactions involving typical orders the Applicant places the order with the supplier, the retail customer will often have contacted the supplier of fabric (or leather) to ascertain the availability of the fabric or leather with the chosen design or texture. For example, in the case of Design Warehouse, if that contact indicates that the fabric or leather selected is in short supply the supplier will be told that a formal order will be placed by the person who is to manufacture the furniture within a few days. Occasionally the fabric or leather supplier may invoice the retailer, notwithstanding that the Applicant has placed a formal order and had the leather or fabric delivered to it. While obviously it would be necessary to analyse the particular facts of a particular case (none is sufficiently clear to make findings) to determine whether there was a contractual relationship between the Applicant and the supplier or between the retail customer and the supplier, it is obvious that such cases will either fall within the class of typical orders where the contract for the supply of material is with the Applicant or the customer fabric order case where the contract is between the supplier and the retail customer. The offcuts arise for a number of obvious reasons. First, the covering for furniture is cut from the fabric rolls or hides by the use of templates which result in amounts being left over. Further, there will often be some fabric left on a roll after cutting has taken place. In the case of hides the calculation of the required square meter amount will necessarily take into account imperfections in the hides which require that a greater amount be purchased than is in fact ultimately used for covering. Thus some 30% of the leather purchased by the Applicant or supplied to the Applicant may be left over. Leather offcuts not returned to customers are sold at a price which is typically about 0.0173% of the average cost of leather acquired calculated on a square meter basis. Fabric offcuts are sold at a price which is typically no more than 0.070% of acquisition cost, again calculated on an average of lineal meters. It is common ground that when sold the offcuts are exported. THE CONTRACTUAL ANALYSIS The transactions described above form part of three contracts which are typically involved, although only two are relevant. There will be, as has been indicated, a contract between the end purchaser of the furniture and the retail store (where such a store is involved) for the sale of the furniture by retail. That contract has no relevant sales tax consequence and may be disregarded for present purposes. Second, there will be a contract between the retail store (where such a store is involved) and the Applicant. That will take two forms. In the transactions involving the typical orders it will simply be a contract for the sale of goods, the relevant furniture ordered for a price, calculated in the manner already indicated. In the customer fabric order cases the contract will be one for the construction of the furniture using in part the customer fabric. It may be described as a contract for work and labour including the supply of other items, rather than a contract for the sale of goods. Finally, but only in the typical cases, there will be a contract between the Applicant and the supplier of hides or fabric for the sale to the Applicant of the hides or fabric as the case may be. Despite the submission of counsel for the Applicant to the contrary, there is nothing in the evidence which would suggest that in purchasing hides or fabric the applicant does so as agent for the retail customer or that in some other way title in the hides or fabric purchased passes to the retail customer independent of the sale of furniture. This would be so even if the retail customer first contacted the fabric or hide supplier to ensure availability without personally contracting with the supplier. It is possible, but the evidence does not permit any finding to be made, that in some cases there may be a contract between the hide or fabric supplier on the one hand and the retail customer on the other for delivery to the Applicant in circumstances where title did not pass to the Applicant, but rather passed directly to the retail customer. Such cases would then fall within the customer fabric order class of case and outside the class covered by the typical orders. It is unnecessary to consider this issue further for present purposes. PAYMENT OF SALES TAX BY THE APPLICANT ON DELIVERY TO THE RETAIL CUSTOMER The Applicant's liability to sales tax by reference to the contracts between it and the retail customers will differ depending upon whether the transaction falls within the typical order cases on the one hand or whether the transaction falls within the customer fabric order class of case. The typical order cases are, as already indicated, sales of goods. Where the sales take place to a retail customer, as will, except in rare cases, be so, these sales are sales of goods by wholesale. They will be assessable dealings categorised by Schedule 1, Table 1 of the Assessment Act with the number AD1a being : "wholesale sale[s] by a person who manufactured the goods in the course of any business." The consequence will be that the Applicant will be liable at the time of sale of furniture falling within this class of case to sales tax calculated on a taxable value defined in the same Table as being: "the price (excluding sales tax) for which the goods were sold." (see s 16 of the Assessment Act). The fabric or leather used as covering can thus be agreed to have borne, at least to the extent used, sales tax but only because the item of furniture sold itself does. At most, if not all, relevant times the rate of sales tax was 12% on furniture of the kind sold. However, where the furniture was made up by the Applicant, inter alia, out of fabric supplied by customers a different sales tax regime was applicable. There then falls to be considered an assessable dealing numbered AD4a in Table 1 to the First Schedule to the Assessment Act defined to be a : "delivery of customer's materials goods as defined by section 22." Where AD4a applies the Applicant is liable to pay sales tax at the time of delivery by reference to: "the amount (excluding sales tax) charged by the manufacturer to the customer in respect of the goods, plus the notional wholesale purchase price for any always exempt goods included in the materials supplied by the customer." It is necessary to the understanding of AD4a to set out the provisions of s 22 of the Assessment Act. That section provides: "(1) This dealing involves assessable goods that are manufactured by a person, in the course of a business, for another person ("the customer") wholly or partly out of materials that: (a) were supplied by the customer (or by someone else at the request of the customer); or (b) were purchased from the manufacturer by the customer (or by someone else at the request of the customer). (2) The dealing consists of the delivery of the goods either to the customer or to someone else at the direction of the customer or under an agreement to which the customer is a party. (3) …" The expression "assessable goods" is defined in s 5 to mean: "Australian goods or imported goods, but does not include Australian-used goods." "Australian goods" are goods manufactured in Australia. "Imported goods" are goods imported into Australia. "Australian-used goods" are, for relevant purposes defined in s 5 to be: "(a) goods that have been applied to a person's own use in Australia (whether the goods are Australian goods or imported goods);" Assuming the material supplied to be, therefore, goods which have been either manufactured in Australia or imported into this country and not having been applied to a person's own use in Australia, the computation for sales tax will be the charge levied by the manufacturer for making up the goods (here the furniture) plus the notional wholesale purchase price of the materials supplied by the customer (here the fabric or hide). "Notional wholesale purchase price" is defined in a note to Table 1 to be: "the price (excluding sales tax) for which the taxpayer could reasonably have been expected to purchase the goods by wholesale under an arm's length transaction" Hence the calculation of sales tax payable and paid by the Applicant for customer fabric order cases proceeds upon the basis : Rate x (white price + arm's length purchase price of fabric supplied) There is no dispute as to the method of calculation of sales tax payable by the Applicant in either class of case. It should, however, be noted that the notional wholesale purchase price of fabric or hide supplied is calculated not by reference to the value of fabric or hide, actually employed in making up the furnishing but the value of fabric supplied, including that which ultimately becomes an offcut. THE CLAIMS FOR CREDIT – GENERAL The Applicant's claims for credit were originally put on three alternative bases. However, at the hearing, the Applicant abandoned reliance on the credit ground numbered CR5 and restricted itself to two other grounds. First, it is said that a credit arises to the Applicant under CR8. Alternatively it is said that CR10 applies. These abbreviations are to be found in Table 3 to Schedule 1 of the Assessment Act and are in the following terms: CR8 reads: Summary of Ground Details of Ground Amount of Credit "Tax excluded from sale price of tax-paid goods sold to quoting purchaser Claimant has sold goods, to a purchaser who quoted on the sale, for a price that excluded some or all of the tax previously borne by claimant on the goods The tax excluded from sale price" CR10 reads: "Tax excluded from sale price of tax-paid goods sold to purchaser for export Claimant has sold goods to a purchaser who, at the time of sale, had the intention of exporting the goods (otherwise than as accompanied baggage) while they were still assessable goods. The price excluded some or all of the tax previously borne by the claimant on the goods The tax excluded from sale price" The requirement that the Commissioner afford certain credits for sales tax otherwise paid or payable finds legislative effect in s 51 of the Assessment Act. According to that section the situations set out, inter alia, in Table 3 are the situations in which a claimant is entitled to credit. The credit grounds, as thus enumerated in Table 3, play important functions in the general scheme of the so-called "streamlined sales tax" which became law in 1992. One function they play is to ensure that the policy of the sales tax is that one and one only levy of sales tax is made with respect to the same goods and that at a value equivalent to no more than the wholesale value of the goods: see, eg CR4. Another part they play is to ensure, as far as possible, that credit is given for any sales tax on business inputs which are taken into account in the ultimate price of goods for export, where the export of those goods is not a taxable event: see, eg CR6. Both CR8 and CR10 can be said to fall into this latter category, although CR8 is not limited to sales to persons who purchase for export. THE CLAIM FOR CREDIT UNDER CR8 It is clear enough that CR8 can have application only where there is a sale of goods. For relevant purposes, for the credit ground to apply the relevant goods sold must be the goods which are the offcuts and it must be shown that the offcuts have been sold to a purchaser who quoted on the sale. The evidence is that the purchaser of the offcuts from the Applicant quoted on purchasing the offcuts . So much may be accepted. However, for the Applicant to succeed under this ground it must show: 1. that the offcuts are "goods" as defined in the Act; 2. That the Applicant bore sales tax at a previous time on the offcuts; and 3. That the price at which the Applicant sold the offcuts excluded some or all of the tax which it had borne on the offcuts. All three of these propositions are disputed by the Commissioner. It is necessary, therefore, to consider the competing arguments. It is convenient in so doing to separate out the typical order cases from the customer fabric order class of transactions. CR8 THE TYPICAL TRANSACTIONS The expression "goods" is defined in s 5 of the Assessment Act to mean: "any form of tangible personal property, but: (a) does not include…" It is not suggested that the exclusions from the definition have any application. It is obvious enough that the offcuts are tangible personal property. The Commissioner did not suggest to the contrary. However it was submitted by counsel for the Commissioner, although to be fair to the submission it was really directed to another point, that the offcuts were not to be seen as goods separate from the fabric or hides which were used to cover the furniture. It is unnecessary to consider this argument in the present context. It suffices to say that there is no particular reason why the offcuts should not be considered goods for the purposes of CR8. However, the matter becomes more difficult when the second question arises, namely whether the Applicant bore sales tax in respect of the offcuts. If the matter were to fall for consideration in the ordinary sense of the words the answer would seem clearly to be no in respect of the typical order transactions. No sales tax was payable by the Applicant when it came to purchase the fabric or hides since they were both exempt. Sales tax was payable by the Applicant, albeit passed on to the retail customer, not on the offcuts, but on the furniture which was covered by fabric or leather, albeit not covered by the offcut remnants. However the expression "borne tax" is defined in s 5 of the Assessment Act in an exclusive definition by reference to s 11 of the same Act. The latter section is in the following terms: "(1) This section sets out the 3 situations in which a person is taken to have borne tax on goods. (2) A person is taken to have borne tax on goods if the person has become liable to tax on an assessable dealing with the goods. However, the tax for which the person has become liable is not counted to the extent to which it has been the basis of a credit entitlement. (3) A person is taken to have borne tax on goods if the person purchased the goods for a price that included tax. However the amount of tax borne is to be reduced by any amount of the tax included in that price that has been refunded or credited to the person. (4) A person is taken to have borne tax on goods if the person was the customer for an AD4a delivery of the goods and did not quote for the delivery." Of these three situations only the first could have application. Neither the Applicant nor any other person ever purchased fabric or leather at a price which included sales tax for both are exempt from tax. Further, the Applicant was never the customer for an AD4a delivery to which s 11(4) refers. The Applicant submits, however, that the case is one falling within s 11(2), in that the Applicant became liable to sales tax on an assessable dealing with the goods (ie the fabric and leather offcuts) by virtue of the sale of the furniture covered by the leather or fabric. The submission can not be accepted. It is true that the fabric or hide was used to cut the covers which formed part of the furniture which bore tax, but the relevant goods on the Applicant's argument are the offcuts. The offcuts were never the subject of any assessable dealing even if the total cost of the fabric and hides was included in the price at which the Applicant sold furniture to retail customers. The price of the total rolls of fabric or the total hides purchased was an element used by the Applicant in the computation of the price for the furniture but at no time did the Applicant bear tax on the offcuts: it bore tax on the sale of furniture calculated by reference to the price for which it sold the furniture. Hence CR8 can have no application to the typical case. CR8 – CUSTOMER FABRIC ORDER TRANSACTIONS The Applicant's case appears stronger when one turns to consider the customer fabric order class of transaction and, in particular, the terms of AD4a and related provisions. It will be recalled that AD4a, which having regard to the provisions of s 22 of the Assessment Act is agreed to apply to the facts of the present case with respect to customer fabric order transactions, applies to the manufacture of the furniture and consists of the delivery of that furniture to the retail customer. The consequence is to make that delivery an assessable dealing and to provide a taxable value in respect of the dealing which includes as a component a notional wholesale purchase price for the material which has been supplied to the manufacturer by the retail customer. Does it follow from this that the Applicant has borne tax on the material in the sense in which that expression is defined in s 11? In my view it does not. It is not accurate to say, if the relevant goods to be considered are the offcuts, that the Applicant has become liable to tax on an assessable dealing which is "with" the offcuts. The assessable dealing is that described in AD4a. Although it is true that the furniture was manufactured in part out of material supplied to the Applicant (those materials including rolls or hides which encompassed within them at the time of delivery to the Applicant the fabric or leather which ultimately became offcuts) the relevant dealing is the delivery of the furniture. It is a dealing with the furniture, not a dealing with the offcuts which arose as a result of the furniture being manufactured. This conclusion is not in any way affected by the fact that the taxable value applicable to the assessable dealing includes as a component a computation of a hypothetical arm's length purchase price for the material. The structure of AD4a and s 22 is designed to prevent the avoidance of sales tax which could arise if the taxable value by reference to which sales tax is calculated on contract manufactured goods could be reduced by the customer providing, inter alia, the material from which the goods were to be manufactured with the result that there remained only the making up charge charged by the manufacturer upon which sales tax could be levied. The legislature has sought to equate for sales tax purposes as far as possible cases where materials were supplied by the manufacturer who purchased them from an outside supplier and cases where goods were manufactured out of goods supplied in whole or in part by the customer. It is for this reason that the transaction value includes as a component the notional wholesale purchase price of the goods supplied. But this does not have the consequence that the dealing is turned into one which is "with" the totality of the supplied material in the sense that word is used in s 11(2). CR10 – THE TYPICAL ORDER TRANSACTIONS In order to succeed under CR10 the Applicant must establish: 1. A sale of the offcuts to a purchaser who at the time of sale had the intention of exporting the offcuts. There is no suggestion that the intention was to do so as accompanied baggage; 2. That as at the time of the sale to the exporter the offcuts were still assessable goods; and 3. That the price paid by the exporter excluded some or all of the tax previously borne by the claimant on the goods. The Applicant has no difficulty in establishing the first of these three matters. However, for the reasons I have already indicated, it fails to establish that it had previously borne sales tax on the offcuts. If anything the summary of the ground with its reference to "tax-paid goods" makes it clear that what CR10 is concerned with is the case where the goods sold for export have been acquired at a price which includes sales tax (ie "tax paid"). Having decided that the claim for credit under CR10 fails for this reason it is strictly unnecessary to consider the alternative submission of the Commissioner that at the time of sale to the exporter the offcuts were no longer "assessable goods". I will thus do so but briefly. The expression "assessable goods" is defined in s 5 of the Assessment Act to mean: "Australian goods or imported goods, but does not include Australian-used goods." There is no doubt that the rolls of fabric or the leather hides when acquired by the Applicant were "Australian goods" or "imported goods" as each of those terms are defined. In fact it may be assumed that the legislation assumes that these two expressions will cover all goods that are to be found in Australia, being either manufactured in the defined sense or imported. Were this not so there would be a clear lacuna in the legislative scheme. This is, however, the subject of any statutory exclusion. One such is the exclusion of "Australian-used goods" as that expression is defined in the Assessment Act, also in 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 (a) imported goods that were a container at the time of importation; but has a meaning affected by sections 9, 9A and 10." Only paragraph (a) is presently relevant. It is the Commissioner's submission that the offcuts have ceased to be "Australian-used goods" because they have been applied to a person's own use in Australia at a point of time earlier than the sale to the exporter. There is a definition of "application to own use" also to be found in s 5. It is not an exclusive definition and thus the expression has its ordinary meaning in addition to encompassing any one of the following acts: "(a) consuming the goods; (b) giving the goods away, or transferring property in the goods under a contract that is not a contract of sale; (b) granting a lease of the goods, or granting any other right or permission to use the goods; (d) using the goods as materials in manufacture, construction, repair renovation or other treatment or processing, whether or not it relates to or results in other goods; (e) doing anything with the goods that results in the goods becoming a container for other property; (f) if a person other than the owner has locally entered the goods anything done by the person that would be an application to own use of the goods by the owner if it had been done by the owner; but does not include: (g) selling the goods or consigning them for sale by consignment; (h) if the goods are imported goods – anything done with them after importation and before they are locally entered; (i) if a person processes or treats any exposed photographic or cinematograph film for another person ("the customer") so as to produce a negative, transparency or film strip – anything done with the negative, transparency or film strip before it is delivered to the customer." The ordinary meaning of the expression "application to own use" in what may be said to be the same context has been the subject of a number of decisions under the sales tax legislation extant prior to the commencement of the present 1992 legislation. These cases include: Deputy Federal Commissioner of Taxation v Taubmans (NSW) Pty Ltd (1966) 115 CLR 570, Max Factor & Co Inc v Federal Commissioner of Taxation (1971) 124 CLR 353, Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385 and Genex Corporation Pty Ltd v Commonwealth of Australia (1991) 30 FCR 193 in this Court and in the High Court reported as Commonwealth of Australia v Genex Corporation Pty Ltd (1992) 176 CLR277. It is unnecessary to discuss these cases in any detail. They make clear that while the undefined expression application to own use is capable of great width so that on one view any dealing with goods, even a sale of them may fall within it, the context makes clear both that the expression could not encompass a sale and that the relevant application is one carried out by the owner of the goods, not some other person. In the ordinary sense there will be an application to own use where the goods are employed for some purpose of the person employing them: Stewart at 397 per Brennan J, or at least some business purpose. In the 1992 legislation Parliament chose to adopt the same phrase but to define it in an inclusory definition. As appears from the Explanatory memorandum which accompanied the bills which became the 1992 legislative scheme the intention was that the definition in s 5 would: "… identify the parameters of the expression, although they will not necessarily be exhaustive." The same memorandum at 5.5 makes it clear that the legislative intention was that, with the exception of the 7th inclusion (now paragraph (f) of the definition) the only person capable of applying goods to own use would be the owner. It would seem obvious enough in the ordinary sense of the phrase that a person who uses goods in the course of manufacturing a product out of those goods must at that stage apply those goods to his or her own use. That ordinary usage is repeated in paragraph (d) of the definition. So, there could be little doubt that if one considered the roll of material or the hides of leather as a whole these were used by the Applicant when the material or leather was cut up to cover the furniture which the Applicant manufactured. Likewise it can be said of so much of the material as in fact covered the furniture that it was applied by the Applicant to own use. The Applicant's submission on this branch of the argument is essentially that the offcuts are to be treated as goods separately from the rolls or hides and so were not used at all in the manufacturing process. With respect this seems a rather narrow view of the facts. The reality is that the whole roll of cloth specifically purchased for the furniture which the Applicant contracted to build was used in the manufacturing process by cutting the cloth with the use of templates, using the cut cloth of the requisite shape to cover the furniture and necessarily being left with the offcuts. The same would be true of hides used to upholster in leather. Each case must be looked at as a matter of fact. It no doubt would be otherwise in part, if the Applicant purchased more material than was necessary (say 20 metres, but used only 10 in the furniture manufacturing process and had 10 metres over to be applied to some other furniture or otherwise sold). In such a case the 10 metres over would be looked at for the purposes of the legislation as separate from the 10 metres which was used. But the fact that cutting a roll of cloth with a template left irregular pieces of cloth over would not require the conclusion to be drawn that each of the pieces of cloth left over was to be treated as a separate good not yet applied to use. Nor do I think it makes sense to say that a small piece of cloth or leather left over after the cutting and no longer to be available for the manufacturing purposes of the Applicant should be treated as unused in the manufacturing process merely because a template had not been applied to it. It follows that I am of the view that in the typical class of case the offcuts are "Australian used goods" and in consequence neither "Australian goods" nor "imported goods" and thus not "assessable goods". Thus the Applicant is not entitled in respect of the typical order transactions to a credit under CR10. CR10 – THE CUSTOMER FABRIC ORDER CASES For the reasons earlier given the Applicant is not entitled to a credit in respect of these transactions because it has not borne tax upon the offcuts themselves. This suffices to dispose of the matter. However, again the Commissioner sought to argue that the offcuts were not relevantly "assessable goods" so that accordingly the Applicant was not entitled to a credit. It will be recalled that the rolls or hides in this class of case were supplied by the retail customer and what was done to the goods in the manufacturing process was done by the Applicant which on the face of it did not have title to the rolls or hides. So it was said that here there was no relevant application to own use capable of falling within paragraph (d) of the definition. So much may be accepted. Of course, if title never passed in any of the hides or fabric to the Applicant it might be difficult to say that the Applicant had sold the offcuts to the exporter since in the present context, at least, sale envisages an act which has the consequence that title in goods passes to a purchaser under a contract of bargain and sale at a price. Statutory extensions of the ordinary meaning of sale encompassing barter and exchange transactions no doubt extend the concept but have no material consequence with respect to the present facts. It was submitted for the Applicant that I should decide that there was an act of abandonment by the owner of the fabric or hides who supplied them such as to constitute the Applicant the owner of the fabric or hides, or at least the offcuts from them so as to be capable of selling them. It was alternatively submitted that if there was no abandonment of ownership at law the Applicant still had sufficient title to sell the offcuts by reason of the Applicant's possession. I was referred to various cases including: A L Hamblin Equipment Pty Ltd v Federal Commissioner of Taxation (1974) 131 CLR 570 at 587-8 per Jacobs J, Moorhouse v Angus and Robertson (No 1) Pty Ltd [1981] 1 NSWLR 700 at 702 per Hutley JA at 706 per Samuels JA and at 712 per Mahoney J, Cook v Saroukos (1989) 97 FLR 33 per Angel J of the Supreme Court of the Northern Territory at 40-41, Lang v Le Boursicot (1993) 5 BPR 97406 at 11787, Re Jigrose Pty Ltd [1994] 1 Qd R 382 at 384-7 and Keene v Carter (1994) 12 WAR 20 at 24-26 and the numerous cases and learned articles referred to therein all of which disclose a controversy as to whether there is a doctrine of abandonment applicable to chattels which brings about the consequence that title accrues to the finder; see also Pollock: "An Essay on Possession in the Common Law" 1990 ed at 93ff. The authorities and ultimate doctrinal conflict go back centuries. Like Samuels JA in Moorhouse, although without quite the same exercise of resolution, I resist the invitation of counsel for the Applicant to attempt to determine the issue, even if I can not resist quoting his Honour's explanation for declining so to do at 706: "Although it is tempting to endeavour to resolve the possible conflict of doctrine between Viner (Vin Abr Waife 409) and The Doctor and Student, Selden Society, 1 2 c 51, p290, on the one hand, and Blackstone 17th ed, (1830) Commentaries I, p 295; II p 9 on the other, involving, as it would, consideration of the rights of property in shrouds or coffins (Haynes's case (1614) 12 Co Rep 113; 77 ER 1389) and diseased pigs (R v Edwards & Stacey (1877) 13 Cox CC 384), I find it possible, by the exercise of some resolution, to deny myself this indulgence." It matters not to the outcome of the present case. If title passed in the offcuts to the Applicant then the Applicant gave good title under a sale to the exporter. The evidence fell, perhaps, short of proof of abandonment, particularly where the owner of the cloth was unaware of the quantity and shape of what was said to be abandoned, or indeed, if there was anything at all to abandon. If possession gave title to sell the answer is the same. If no title passed the Applicant did not sell and so the credit claim would fail. What is perhaps more important for present purposes would be whether the owner of the fabric or leather applied it to own use when contracting with the Applicant to make up furniture upholstered with it, or if not then at the time the fabric or leather as the case may be was made up. Ordinarily the context of the sales tax legislation requires that an application to own use be by a taxpayer because application to own use constitutes a taxing point and indeed the final possible taxing point under the 1992 legislative scheme: cf Genex Corporation supra. The issue has not been decided under the present legislative scheme, although I doubt that a different conclusion would follow. It may well be, that goods can be applied to own use so as to become "Australian Used Goods" by the owner of those goods but in circumstances that do not constitute a taxable event. It might be envisaged, for example, that a person might manufacture an article, not in the course of business and apply that article to own use (not then a taxable event) before licensing another the right to use it in business in circumstances where the article if assessable goods would attract sales tax. Dire consequences were said to flow if this were so. The provisions of s 22 were referred to. It is not clear to me that dire consequences necessarily flow. An example of a case to test the proposition would be the fact situations to be found in Federal Commissioner of Taxation v Jack Zinader Pty Ltd (1949) 78 CLR 336, namely where a fur coat for example is, under contract, made up out of a larger and used coat supplied to the manufacturer by the customer. That situation under the pre 1992 sales tax law gave rise to a taxable event. It is now dealt with in AD4a and s 22 of the Assessment Act. The used fur would not be "always exempt goods" because not assessable goods, having at an earlier time not merely suffered sales tax but also having been applied to own use by a customer. The result in that case is that it is only the making up charge which would be the taxable value, on which sales tax would be paid, a result which followed from the pre 1992 legislation. Take on the other hand the facts of the present case. The rolls of material, albeit acquired exempt from sales tax, may be supplied to the manufacturer to be made up into chairs. The contract so to do may be an application of the goods to be supplied to own use, either in the ordinary meaning of the phrase or in the sense described in paragraph (c) of the definition. The materials supplied might thus cease by the time of the supply to be always exempt goods for, having been applied to own use by the supplier, they may not be at the time of supply "assessable goods". The result might then be that the taxable value determined by AD4a would be calculated without reference to the hypothetical purchase price of the fabric or hide supplied and in effect only by reference to the making up or other charge of the manufacturer. Reference to the Explanatory Memorandum accompanying the 1992 bills would suggest that this latter result does not accord with the Parliamentary intention, namely that in such a case the taxpayer on delivery of goods made out of goods supplied by the customer pays sales tax on the delivery at a taxable value which takes into account a notional hypothetical purchase price of the goods supplied. Indeed that is how the Commissioner has proceeded on the basis of the present facts and the Applicant does not challenge that. The solution may well be that the application to own use of the leather or fabric supplied by the retail customer is, while the result of the supplier's act rather than the manufacturer's act, affected not by the supply but by the completion of the contract of making up of the fabric or leather, as part of the manufacture of the furniture. On this basis the leather or fabric is to be treated as assessable goods at the time of supply and thus AD4a dictates a taxable value which includes the hypothetical purchase price of the fabric or leather supplied. In the alternative, it may be possible to argue as the Commissioner does that the word "always" in the defined expression "always exempt goods" should be taken to mean on every occasion (no matter how the goods are dealt with or by whom). So, if a customer delivers goods falling within an exemption item because they are used in a particular way or by a particular person, this should be treated as the supply of goods which are not always exempt goods. It is, I think, undesirable to resolve the issue, principally because it can not affect the outcome of the present case. It might be wise for the legislature in the meantime to enact remedial legislation to ensure that the problem can not arise in a future case which requires resolution. Since the Applicant can not establish that the rolls bore tax in the first place it can not fall within CR10, whether or not offcuts were or were not assessable goods. CONCLUSION The entitlement to credit under either grounds relied upon having failed the application must be dismissed with costs. In this result no questions of quantum remain to be decided. I certify that this and the preceding twenty (20) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill Associate: Dated: August 1998 Counsel for the Applicant: Mr P Fraser Solicitor for the Applicant: Deacons Graham & James Counsel for the Respondent: Mr K Connor Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 10 August 1998 Date of Judgment: 20 August 1998