Frame Set & Match Pty Ltd v Commissioner of Taxation [2000] FCA 555

FEDERAL COURT OF AUSTRALIA

Frame Set & Match Pty Ltd v Commissioner of Taxation [2000] FCA 555

TAXATION – sales tax exemption – meaning of "mainly in producing motion picture films in the course of a business" – post-production facilities – telecine machine. Sales Tax (Exemption and Classification) Act 1992 (Cth) – Item 26(1)(c) Sales Tax Assessment Act 1992 (Cth) FRAME SET & MATCH PTY LTD V COMMISSIONER OF TAXATION NO. NG 1321 OF 1998 JUDGE: BEAUMONT J DATE: 13 APRIL 2000 PLACE: SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 1321 OF 1998

BETWEEN: FRAME SET & MATCH PTY LIMITED

APPLICANT

AND: COMMISSIONER OF TAXATION

RESPONDENT

JUDGE: BEAUMONT J

DATE OF ORDER: 13 APRIL 2000

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The application be 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 1321 OF 1998

BETWEEN: FRAME SET & MATCH PTY LIMITED

APPLICANT

AND: COMMISSIONER OF TAXATION

RESPONDENT

JUDGE: BEAUMONT J

DATE: 13 APRIL 2000

PLACE: SYDNEY

REASONS FOR JUDGMENT

BEAUMONT J: 1 The question here is the classification for sales tax exemption purposes of goods described by their manufacturer as a telecine machine. A specific issue is whether the Sales Tax (Exemptions and Classification) Act 1992 (Cth) applies so as to provide exemption from tax in the following circumstances: · The applicant carries on the business of providing to producers of motion picture films, certain "post-production facilities". · Speaking generally, these facilities involve a form of "editing" of certain of these films, e.g. television documentaries, feature films, commercials, television mini series, etc. That is, a producer may "shoot", say, a mini series on "film" and supply it to the applicant for "editing"; and in the editing process (which may involve, e.g. colour grading of the film) the applicant uses a machine known as a "telecine" machine, which is central to this dispute, to transfer the "cinematograph" film to video tape. · Specifically, on 27 February 1995, the applicant purchased from a local distributor, under quote, an "Ursa Gold telecine machine manufactured by Rank Cintell Limited" ("the goods"). The manufacturer's specification described the several systems provided by the goods as: (1) a Film Transport and Servo System; (2) a Film Scanning System ; (3) a Video System; and (4) a Digital Storage System. 2 The manufacturer's promotional material makes the following claim: "Since its launch in 1989, Ursa has been the benchmark by which film to video transfers are measured. Through the flexibility of its flying spot scan control, the repeatability of its digital video channel and alignment, and most of all because of the crystal clarity of its optical systems, it has become an essential part of high-end post production." 3 In the course of its business, the applicant applied the goods to its own use ("AOU") mainly to transfer cinematograph film, which had been exposed and developed, to video tape cassette. The applicant intended to use the goods mainly for that purpose when it purchased them. 4 On 1 July 1998, the Deputy Commissioner of Taxation issued an assessment of sales tax ("the assessment") to the applicant pursuant to s 101 of the Sales Tax Assessment Act 1992 (Cth) ("the Assessment Act"). The assessment was made on the basis that the assessable dealing subject to sales tax was AD3(c) of Table 1 in Schedule 1 of the Assessment Act and that no exemption applied (see s 16(2) of the Assessment Act). On 14 September 1998, the applicant objected against the assessment, relying upon the exemptions provided by Exemption Items 26(1)(c) and 36 (see below). On 30 September 1998, the Deputy Commissioner of Taxation decided to disallow the objection. On 3 December 1998, the applicant appealed to the Court against the objection decision. 5 As has been noted, the issue is one of classification, and as I followed the refinement of the issues in argument, only one real issue remains for determination; a question of construction. It arises in the following statutory context. 6 By s 25 of the Assessment Act, it is provided that a "non-lease" AOU is not taxable if the applier, at the time of the AOU, intends to deal with the goods so as to satisfy an Exemption Item that is in force at the time of the AOU. 7 Exemption Item 26(1) is relevantly expressed thus: "26(1)The following goods for use by a person mainly in producing motion picture films in the course of a business: (a) … (b) … (c) apparatus and materials for use by the person mainly in developing, editing or otherwise processing goods that are covered by exemption Item 25." (Emphasis added) 8 Item 25 is in these terms: "25(1)The following goods for use by a person mainly in producing motion picture films in the course of a business: (a) unexposed cinematograph film; (b) cinematograph film that has been exposed but not developed; (c) negatives, positives and reversals produced on cinematograph film. 25(2) This Item does not cover goods that (with or without further processing) are exhibition copies of motion picture films. 25(3) In this Item, 'motion picture film' does not include a film that is for private, domestic or personal use of the person by whom or for whom the film is produced." (Emphasis added) 9 In considering the meaning of these provisions, it should be noticed that there is no statutory definition of "cinematograph film"; nor, except for the negative definition in Item 25(3), is there any statutory definition of "motion picture film". There is, however, a statutory definition of "mainly", viz, it means to the extent of more than 50 per cent (see s 3(2) of the Exemptions and Classifications Act). 10 It appears that there is no authority dealing with the interpretation of Items 25 and 26 or their precursors. In my opinion, in the absence of any relevant statutory definitions, except for the word "mainly", the language used in those Items was otherwise intended to have its ordinary, dictionary meaning.