FEDERAL COURT OF AUSTRALIA Clean Investments Pty Ltd v Commissioner of Taxation [2001] FCA 80 TAXES AND DUTIES – Sales tax – concessional rate of tax – "goods of a kind ordinarily used for household purposes" – coin-operated washing machines of a capacity apt for the washing of a household – whether must be ordinarily found within a household or its curtilage – whether must be of a kind used by one household rather than a succession of households – whether members of household must have an exclusive possessory or proprietary interest or right in relation to the machine. WORDS & PHRASES – "goods of a kind ordinarily used for household purposes" Sales Tax (Exemptions and Classifications) Act 1935 (Cth) Sched 3, Item 1(f) Sales Tax (Exemptions and Classifications) Act 1992 (Cth) Sched 2, Subitem 1(1)(i) Deputy Commissioner of Taxation (NSW) v Newbound & Co Pty Ltd (1952) 26 ALJ 386 applied Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385 discussed Commissioner of Taxation v Sherwood Overseas Pty Ltd (1985) 75 FLR 474 discussed Kentucky Fried Chicken Pty Ltd v Federal Commissioner of Taxation (1986) 17 ATR 1039 discussed Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396 discussed O R Cormack Pty Ltd v Federal Commissioner of Taxation (1992) 23 ATR 151 discussed Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450 applied Commissioner of Taxation v Chubb Australia Ltd (1995) 56 FCR 557 applied CLEAN INVESTMENTS PTY LIMITED v COMMISSIONER OF TAXATION N 539 OF 2000 N 540 OF 2000 LEE, COOPER AND LINDGREN JJ 14 FEBRUARY 2001 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 539 OF 2000 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: CLEAN INVESTMENTS PTY LIMITED APPELLANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGES: LEE, COOPER AND LINDGREN DATE OF ORDER: 14 FEBRUARY 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The respondent pay the appellant's costs of the appeal. 3. Orders 1, 2 and 3 of the primary Judge in proceedings N 1289 of 1999 in the Court be set aside and in lieu of those orders it be ordered that the decision given by the Tribunal on 13 October 1999 be affirmed. 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 N 540 OF 2000 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: CLEAN INVESTMENTS PTY LIMITED APPELLANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGES: LEE, COOPER AND LINDGREN DATE OF ORDER: 14 FEBRUARY 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The respondent pay the appellant's costs of the appeal. 3. Orders 1, 2 and 3 of the primary Judge in proceedings N 1337 of 1999 in the Court be set aside and in lieu of those orders it be ordered that the decision given by the Tribunal on 13 October 1999 be affirmed. 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 N 539 & 540 OF 2000 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: CLEAN INVESTMENTS PTY LIMITED APPELLANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGES: LEE, COOPER AND LINDGREN DATE: 14 FEBRUARY 2001 PLACE: SYDNEY REASONS FOR JUDGMENT LEE AND COOPER JJ: 1 We have had the opportunity to read the draft reasons of Justice Lindgren and agree with the orders proposed by his Honour for the reasons he gives. I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justices Lee and Cooper. Associate: Dated: 14 February 2001 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 539 & 540 OF 2000 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: CLEAN INVESTMENTS PTY LIMITED APPELLANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGES: LEE, COOPER AND LINDGREN DATE: 14 FEBRUARY 2001 PLACE: SYDNEY REASONS FOR JUDGMENT LINDGREN J: INTRODUCTION 2 The appellant ("the Taxpayer") appeals from the primary Judge's allowance of two appeals by the Commissioner from a decision of the Administrative Appeals Tribunal. The Tribunal had decided, on the Taxpayer's application, that certain objection decisions of the Commissioner should be set aside. 3 The case raises the question whether coin-operated washing machines, that are not ordinarily found in the houses of "nuclear households" (there was statistical evidence before the Tribunal which led it to treat, as I do, the expression "nuclear household" as referring to two adults and their 2.8 children who live in the same house) but are ordinarily used to wash the clothes of households in succession, are goods "of a kind ordinarily used for household purposes", and, accordingly, attract a special lower rate of sales tax. 4 At relevant times the Taxpayer carried on business as a wholesaler of imported washing machines, dryers and parts for such goods. 5 On 15 April 1993 the Taxpayer applied for a refund of sales tax in a sum of $189,983.59 paid in respect of the period 1 April 1990 and 31 March 1993. The Commissioner disallowed the application on 14 July 1993. The Taxpayer objected. On 19 December 1997, the Commissioner allowed the objection in part and disallowed it otherwise. On 16 February 1998 the Taxpayer applied to the Tribunal for review of the Commissioner's decision in so far as it disallowed the objection. 6 On 21 June 1996 the Taxpayer applied for a refund of sales tax in a sum of $543,223.00 paid in relation to the period 1 May 1993 to 30 April 1996. There were two applications because the new régime of sales tax legislation had come into force in the meanwhile. The Commissioner disallowed the second application on 10 August 1998. The Taxpayer objected. On 11 August 1998 the Commissioner allowed the objection in part and disallowed it otherwise. On 17 August 1998 the Taxpayer applied to the Tribunal for review of the objection decision in so far as it disallowed the objection. 7 The Tribunal heard both applications for review together. On 13 October 1999, the Tribunal set aside the Commissioner's objection decisions. By two notices of appeal filed on 10 November 1999, the Commissioner appealed from the Tribunal's decision. Section 44 of the Administrative Appeals Tribunal Act 1975 (Cth) authorises an appeal to this Court from a decision of the Tribunal on a question of law. The primary Judge heard both appeals together. legislation 8 The first refund claim raises a question under the Sales Tax (Exemptions and Classifications) Act 1935 (Cth) ("the 1935 Act"). Items 1 and 2 of Schedule 3 to the 1935 Act are, relevantly, as follows: "1. GoodsĽof a kind ordinarily used for household purposes, namely:-- Ľ (f) washing machines, wringers and other appliances used for or in connexion with laundering;Ľ 2. Parts, fittings and accessories for goods covered by item 1,…". The second claim arises under the Sales Tax (Exemptions and Classifications) Act 1992 (Cth) ("the 1992 Act"). Subitems 1(1) and 1(2) of Schedule 2 to the 1992 Act are, relevantly, as follows: "1(1) The following goods of a kind ordinarily used for household purposes:Ľ (i) washing machines and other appliances of a kind ordinarily used in, or in connection with, laundering clothes;Ľ 1(2) Goods marketed principally as parts, fittings or accessories for goods covered by subitem (1)." 9 It was not in dispute that there was relevantly no difference between the wording of the two provisions and that in relation to both claims, the critical expression calling for construction was, "of a kind ordinarily used for household purposes". For convenience, I will refer to both Items 1 simply as "Item 1". the proceeding before the tribunal 10 The hearing before the Tribunal extended over seven full hearing days and generated a substantial body of evidence. The Tribunal's reasons were extensive. The question was whether or not the concessional rate of sales tax was applicable to certain imported washing machines and dryers bearing the brand names "Maytag", "Primus" and "Speed Queen". The model numbers that were originally in dispute ("the relevant machines") were identified in columns 1 to 4 of the following Schedule in the Tribunal's statement of its reasons ("the Schedule"): "Maytag Washer Model Numbers: [1] [2] [3] [4] [5] [6] [7] Coin-Slide Coin-Dropper Programmable Coin-Slide Push-Bar Heavy Duty Control Panel Standard Control Panel Rated Dry Weight Capacity (kgs) MAT10CS MAT10PB MAT11MN LAT5004 6 MAT23CM MAT23PB MAT24CA LAT112 6 MAT23CS MAT23PB MAT24CA LAT112 6 MAT25CM MAT25PB MAT26CA LAT7300 6 MAT25CS MAT25PB MAT26CA LAT7300 6 Primus Washer Model Numbers: [1] [2] [3] [4] [5] [6] [7] Coin- Coin-Dropper Programmable Coin-Slide Push-Bar Heavy Duty Control Panel Standard Control Panel Rated Dry Weight Capacity (kgs) Slide W7 W7 7 W10 W10 10 HS10 HS10 10 GF10 GF10 10 GF7 GF7 7 R6 R6 R6 6 R7 R7 R7 7 R10 R10 R10 10 F10 F10 10 F7 F7 7 Speed Queen Washer Model Numbers: [1] [2] [3] [4] [5] [6] [7] Coin-Slide Coin-Dropper Programmable Coin-Slide Push-Bar Heavy Duty Control Panel Standard Control Panel Rated Dry Weight Capacity (kgs) [see Note] EA1111 EA1111 6 EG1120 EG1120 7 EG5121 EG5121 7 RG6190 RG6190 2 x 7 SG4990 SG4990 7 Note: Dry weight capacities shown as 2 x 7 indicate the capacity of twin stack dryer models. Each such model has two drums each with a capacity of 7 kilograms. Maytag Dryer Model Numbers: [1] [2] [3] [4] [5] [6] [7] Coin-Slide Coin-Dropper Programmable Coin-Slide Push-Bar Heavy Duty Control Panel Standard Control Panel Rated Dry Weight Capacity (kgs) [see Note] MDE11CS MDE11PB MDE11MN 2 x 7 MDE27CS MDE27PB MDE27MN 2 x 7 MDE22CS MDE22PB 2 x 7 MDE10CS MDE10PB MDE10MN LDE7304 7 MDE26CS MDE26PB LDE7600 7 MDE24CS MDE24PB MDE24MN LDE212 7 MDG11CS MDG11PB MDG11MN 2 x 7 MDG27CS MDG27PB MDG27MN 2 x 7 MDG22CS MDG22PB 2 x 7 MDG10CS MDG10PB MDG10MN LDG7304 7 MDG26CM MDG26PB MDG26CA LDG7600 7 MDG26CS MDG24C MDG24PB MDG24CA LDG212 7 Note: Dry weight capacities shown as 2 x 7 indicate the capacity of twin stack dryer models. Each such model has two drums each with a capacity of 7 kilograms." The Taxpayer imported the machines and then, as a wholesaler, on-sold them to a related corporation which sold them by retail or rented them out. 11 At the commencement of the hearing the Tribunal was told that it would be required to reach a decision only in respect of: (a) the machines listed in columns 1, 2 and 3 of the Schedule, all of which were coin-operated machines; and (b) those machines in the Schedule which had a dry linen capacity of 10 kg (the Primus models W10, HS10, GF10, R10 and F10), which are referred to as the "10 kg machines". 12 A key to understanding the Schedule is to understand that sometimes the one model had a coin mechanism and in other cases it did not, having a push-bar device instead. 13 The Tribunal stated: "… the Respondent conceded that all relevant machines having a dry linen weight capacity of less than 10 kgs, and which do not have a coin mechanism are entitled to the concessional rate. Put in other words, the Respondent contends that a machine whose operation commences with a coin mechanism (of whatever type) is inherently commercial and to be distinguished in respect of its genus or class from domestic machines, whose operation commences with a switch, a slide or some other mechanism which does not involve a coin; both of these classes are furthermore to be distinguished from industrial machines (of large dry linen weight capacity) used by factories, hotels and other large establishments for the purpose of their own laundering requirements." In fact, although machines with a greater capacity than 10 kgs are manufactured, none of the relevant machines had such a greater capacity. The dry weight capacity of the relevant machines was 6 kg, 7 kg or 10 kg; all the 6 kg or 7 kg machines in dispute were coin-operated; and the 10 kg machines, all of which were in dispute, were either coin-operated or push-bar operated. Accordingly, apart from the push-bar operated 10 kg machines, all the relevant machines in dispute were coin-operated. 14 The Tribunal used the expressions "domestic machines", "commercial machines" and "industrial machines". It referred to washing machines and dryers to which the Commissioner conceded the concessional rate applied as "domestic machines". These were machines available in the market with a dry linen weight capacity of less than 10kg (in fact, up to 7.5 kgs) and without a coin mechanism. They were commonly sold by retail to customers for use in nuclear households who have available to them a machine of their own that is not shared. The use of the expressions "commercial machines" and "industrial machines" gave rise to difficulty. Ultimately, the Tribunal thought that the boundary between the two occurred at a level somewhere above 10 kgs. The Tribunal stated that the most significant factor was that 10 kg machines were generally (although, as already noted, not invariably) coin-operated. The Tribunal stated that coin-operated machines were needed for household purposes in the sense of the processing of the washing of households in succession, but that a factory or hotel using its own laundry facilities does not need or desire a coin operation. The Tribunal continued: "By contrast, those machines used in shared premises or laundromats would frequently require the coin operationĽ" 15 In summary, for the Tribunal: · "industrial machines" were larger capacity (exceeding a level somewhere above 10 kgs) machines, not coin-operated, used by such establishments as factories, hotels and hospitals, to process their own washing; · "commercial machines" were of 10 kg capacity or less and were coin-operated; · "domestic machines" were of less than 10 kg capacity and were not coin-operated. The non coin-operated 10 kg machines did not fit this system of nomenclature. 16 The Tribunal found that coin-operated machines were commonly sold for use in shared laundry facilities which it described as including the following: "Ľ(1) public housing, including flats, home units and town houses; (2) flats, company and strata title home units, town houses, and other privately owned medium density housing; (3) aboriginal and other community housing; (4) housing provided by public benevolent institutions; (5) supervised care retirement units and hostels including housing provided by public benevolent institutions; (6) nursing homes; (7) residential colleges of universities, schools and other educational institutions; (8) seminaries; (9) defence forces barracks; (10) gaols and other corrective institutions adapting self care regimes; (11) employee quarters including those for hospital, agricultural, forestry, mining and construction employees; (12) caravan parks; (13) private hotels; (14) hostels; (15 lodges and self care resorts; (16) guesthouses; (17) motels; (18) public hotels; and other residential premises or in other premises used in connection with such residential premises." 17 According to the Tribunal, in some but not all of these forms of shared accommodation and shared laundry facilities, cost-sharing is intended to preserve equity between users. This consideration applies, typically, to blocks of home units that have shared laundry facilities, and to caravan parks, hotels, motels and residential housing of various types. But there are also shared laundry premises, such as army barracks and gaols, whose inhabitants, although requiring the use of machines on a shared basis, are not required to pay for their use. 18 Another class of premises in which coin-operated machines are commonly required is the laundromat. Machines in laundromats may be unattended or may be attended in part or at all times by employees. Typically, a user enters the laundromat to do his or her own washing and deposits coins in the machine to activate it for that purpose. Attendants may be on hand to supervise, and, when needed, to assist, but there is no attendant on duty for machines in shared premises. 19 There appeared to the Tribunal to be no significant difference between the three mechanisms (coin-slide, coin-dropper and programmable coin-slide) according to which coins are received and activate a machine. Machines can be programmed to take coins of different denominations. In some cases there is a profit objective, for example, in the case of a caravan park or laundromat. Other machines may be programmed so as not to yield a profit, for example, in the case of a block of home units. In yet other blocks of units, the body corporate will make no charge because it will have exacted a charge through a levy, and locked electrical connections, one for each unit, will ensure that each unit bears the cost of electricity for the use that is made of the machine on account of that unit. 20 "Routers" and "renters" are a feature of the industry. A renter buys a machine and rents it out to a user. The user will often be a laundromat, but might also be one of the classes of shared premises referred to above. The renter will receive a fixed rent calculated by reference to the cost of the machine and its life expectancy, but is not entitled to a share of the coins deposited in the machine. The router, however, obtains a licence to place a machine in shared premises, is obliged to service the machine, and is entitled to all, or a share, of the coins deposited in it. 21 Line drawings before the Tribunal did not indicate any significant difference between coin-operated 6kg or 7kg machines and non coin-operated 6 kg or 7 kg machines. The Tribunal found that the two species were very much alike. To an undiscerning eye, there appeared to be no significant difference, apart, of course, from the presence or absence of the coin-operation mechanism. But, in fact, the Tribunal found in addition: · that the commercial machines were stronger, more robust and more durable than the domestic machines; and · that the control panels of the commercial machines were less complex (more simple), more robust, and offered less options than those of the domestic machines. These differences arose from an expectation that the commercial machines would be used successively by a large number of people at different times. 22 The commercial machines appeared to the Tribunal to be a little more expensive than the domestic ones. The price differential was only partly explained by the non-concessional rate of sales tax applied to them to date. 23 The Tribunal made the following further specific findings: (i) 6-7 kg non coin-operated machines (domestic machines) are those most usually found in nuclear households; (ii) the commercial machines are designed for handling clothes on an almost continuous basis; (iii) the Primus machines of 10kg capacity appeared to have larger motors than the domestic machines had; (iv) in some cases it is easy to alter from a coin mechanism to a non-coin mechanism but this is not invariably the case, and there are some instances where such an alteration is rather more complex; (v) the majority of washing machines in blocks of home units are coin-operated; (vi) a distinction was drawn at the level of the franchisor in the case of the Maytag machines in that a different distributor (currently a subsidiary of Maytag) had the right to market the domestic machines. 24 The Taxpayer tendered voluminous exhibits and boxes of annexures with a view to establishing the destinations and uses made of its machines. The Taxpayer supplied a summary of this evidence which the Tribunal set out in its reasons for decision. The summary related to the periods 1 April 1990 to 30 June 1990, 1 July 1995 to 30 June 1996 and 1 July 1996 to 30 June 1997. Omitting cross-references back to the exhibits, the summary ("Distribution Schedule") was as follows: "The evidence as to the types of premises in which the disputed laundry equipment was installed during the 3 months ended 30 June 1990, and the years ended 30 June 1995 and 1997 is summarised as follows: (Ľ) 1 April 1990 to 30 June 1990 [1] [2] [3] [4] [5] [6] Model No. Disputed laundry equipment installed in shared laundry facilites of residential accommodation (excluding laundry equipment installed by route business) Disputed laundry equipment installed in shared laundry facilities or residential accommodation by route business [NOTE 2] Disputed laundry equipment installed in laundromats Total no. of units Total % [NOTE 1] % {NOTE 1] % [NOTE 1] % A25 76 18 6 17 100 DE19 - 100 - 2 100 DE24 100 - - 2 100 HS7 100 - - 1 100 W10 - 100 - 1 100 SQEA11 50 50 - 4 100 SQRG51 - 100 - 3 100 1 July 1995 to 30 June 1996 [1] [2] [3] [4] [5] [6] Model No. Disputed laundry equipment installed in shared laundry facilites of residential accommodation (excluding laundry equipment installed by route business) Disputed laundry equipment installed in shared laundry facilities or residential accommodation by route business [NOTE 2] Disputed laundry equipment installed in laundromats Total no. of units Total % [NOTE 1] % {NOTE 1] % [NOTE 1] % MAT10CM/CS 54 22 24 780 100 MDE10CM/CS 41 35 24 152 100 MDG10CM/CS 74 17 9 103 100 MDE11CM/CS 84 13 3 32 100 R10 32 11 57 35 100 MDG11CM/CS 76 7 17 42 100 R7 - 33 67 6 100 1 July 1996 to 30 June 1997 [1] [2] [3] [4] [5] [6] Model No. Disputed laundry equipment installed in shared laundry facilites of residential accommodation (excluding laundry equipment installed by route business) Disputed laundry equipment installed in shared laundry facilities or residential accommodation by route business [NOTE 2] Disputed laundry equipment installed in laundromats Total no. of units Total % [NOTE 1] % {NOTE 1] % [NOTE 1] % MAT10CM 50 20 30 424 100 MAT10PS 69 3 28 32 100 MDG10CM/CS 63 27 10 30 100 MDE10CM/CS 69 28 3 88 100 MDE11CM/CS 65 12 23 26 100 MDG11CM/CS 64 18 18 11 100 MAT12CM/CS 59 16 25 373 100 MAT12PS 57 19 24 125 100 MDG12CM/CS 47 32 21 34 100 MDE12CM/CS 69 20 11 85 100 MDE12PS 70 17 13 23 100 MDG13CM/CS 76 18 6 17 100 MDE13CM/.CS 82 7 11 28 100 R10 14 15 71 34 100 R7 40 20 40 5 100 F10 - - 100 1 100 R6 100 - - 1 100 NOTES [1] Rounded to nearest 1%. [2] Route businesses never or virtually never install laundry equipment in premises other than the shared laundry facilities of residential accommodation. (Ľ)" The presiding Senior Member said he was satisfied that the Distribution Schedule was "accurate". He continued as follows: "The Tribunal notes that it considers that the three periods selected constitute adequate samples and that the distribution schedule adequately summarises the relevant evidence. It is to be noted that a major or at least substantial percentage of each model was installed in shared premises." 25 After reviewing the evidence and the authorities at length, the Tribunal stated its conclusions. It considered the fact that the goods were used "outside the relevant household" did not prevent their falling within Item 1. It considered that too much importance was attached by the Commissioner to the "mere adaptation of a piece of laundry equipment so as to ensure that its starting mechanism is coin-operated". The Tribunal stated as follows: "122. (a) The Tribunal considers that the appellation 'commercial' is no more than just that, an appellation, designed to distinguish commercial machines from domestic machines. The distribution schedule is (when considered in conjunction with the box file evidence and the more detailed schedules which preceded it) of crucial importance. It indicates that the commercial machines are used to an overwhelming extent in either laundromats or shared premises. Indeed, it is precisely the coin operation which ensures that this is so. (b) It is, in the Tribunal's opinion, decidedly odd to conceive of the use of a washing machine in shared premises as not being a household use. In a block of units, a member of the household goes to the shared laundry accommodation to use the (common) washing machine or dryer. He or she does so precisely because that particular family (or household) does not have its own and separate and private washing machine/dryer. In a caravan park or hotel residence the use is similarly a household purpose. It is to be remembered that it is not a pre-requisite of use that it occur within the household. (c) The user of the machine at the laundromat/laundrette does so precisely because he or she does not have the same facility available at home." 26 The Tribunal concluded that commercial 6 kg and 7 kg machines and domestic machines were of the same genus or class because they were both designed and used to process household washing. Accordingly, the former also attracted the concessional rate of sales tax. 27 The Tribunal also found that the evidence in respect of the 10kg machines favoured a conclusion, on the balance of probabilities, that they attracted the concessional rate. The Tribunal referred to the Distribution Schedule which showed that while less 10 kg machines were sold than the smaller machines, those sold were nonetheless predominantly installed in either shared premises or laundromats (and were therefore, like the smaller machines, used for the processing of household washing). reasoning of the primary judge 28 The learned primary Judge formulated the question before him as follows: "The question is whether it is sufficient that the machines in dispute are utilised by numerous persons to do household laundry or to launder clothes and other linen of households. Alternatively does the preamble require, as the Commissioner contends, that there be some relevant nexus between the location of the use of the goods and the goods themselves, namely, that the goods are of a kind ordinarily used in the immediate confines or curtilage of a household dwelling." (at [33]) 29 His Honour referred to dictionary definitions of "household" and was of the opinion that the word could mean an establishment, as distinct from the people who made up a household. He said (at [37]): "Household purposes, therefore, might be purposes pertaining to a household or to a domestic establishment." 30 His Honour thought that while not decisive, the approach taken by Davies J in O R Cormack Pty Ltd v Federal Commissioner of Taxation (1992) 23 ATR 151 indicated an acceptance of "household" in a "physical sense" rather than as referring to the persons who might make up a household. He stated (at [46]): "I consider that the notion of goods used for household purposes signifies use pertaining to a household. Whether "household" means the persons who make up the household or the physical establishment, it must be possible to demonstrate that the particular kind of goods are goods ordinarily used for the purposes of a household. It is not sufficient to show that members of many household happen to be permitted, by paying a fee, to place washing in a particular machine, even if that washing could be characterised as household washing." (my emphasis) The learned primary Judge found support in a passage from the Second Reading Speech in respect of the Bill that first introduced the concession, in which the then Treasurer, The Hon Sir Arthur Fadden, stated (Parl Debs, HR, 18 August 1954, p418): "There is a wide demand for exemption of furniture and household goods. These goods cover a very wide range, indeed, and the cost of a complete exemption would be so heavy as to render this impracticable at present. It is proposed, however, to reduce from the general rate of 12 1/3 per cent. to a special rate of 10 per cent. a wide range of furniture and household goods as specified in the Bill. It is believed that this will appreciably reduce the costs of home establishment." (my emphasis) The learned primary Judge gleaned from this passage two propositions: that the concession was to be for "household goods"; and that the concession was intended to reduce "the costs of home establishment". 31 His Honour further stated (at [49], [50]): "The expression, "used for household purposes," directs attention to the persons whose use is important. In my view, it also directs attention to the concept of a household in a physical sense. I do not consider that non-exclusive use by many householders in shared laundry facilities, or in a commercial facility such as a laundromat, is relevantly use for household purposes. The question is whether the purpose of persons who have [sic – no] exclusive proprietary or possessory right or interest in relation to the machines can be a relevant purpose. The Tribunal's findings indicate that the purpose of the persons who have proprietary or possessory rights in relation to the machines will be to generate income from customers, or perhaps to provide a service to guests of hotels, or caravan parks, or occupants of shared accommodation. The purpose of those persons who have an exclusive proprietary or possessory interest in the machines, is not a household purpose. It is not a purpose pertaining to a domestic establishment." 32 His Honour noted that there was no finding by the Tribunal that commercial machines (or industrial machines) were goods of a kind ordinarily used for the purposes of a household, by the members of the household, to the exclusion of others. He said that in practical terms, machines in the disputed categories would be of a kind ordinarily used for household purposes in the relevant sense if they were of a kind ordinarily to be found "within" domestic establishments, but that it would be curious for a domestic establishment to keep its washing machine and dryer "away from the physical premises or curtilage of the premises which constitute the household" (at [51]). 33 His Honour concluded (at [52]) as follows: "I consider that the Tribunal has misdirected itself in concluding that goods might be said to be of a kind ordinarily used for household purposes in circumstances where there is no connection physically between such goods and a household. Putting it another way, where the members of a particular household have no exclusive possessory or proprietary interest or right in relation to a kind of goods, I do not consider that it can be said that the goods are of a kind ordinarily used for household purposes." (my emphasis) reasoning on the appeal Issues on the appeal 34 The Taxpayer submits that the questions which arise on the appeal are whether the expression goods "of a kind ordinarily used for household purposes" are capable of applying to washing machines and dryers which (a) are used by numerous persons to do their household laundry; and (b) which may not be located within the curtilage of a dwelling; and (c) in respect of which members of a household may not have any exclusive possessory or proprietary interest or right. The authorities 35 The expression "of a kind ordinarily used for household purposes" or a predecessor expression has been considered in several cases to which I will refer in chronological order. 36 (i) In Deputy Commissioner of Taxation (NSW) v Newbound & Co Pty Ltd (1952) 26 ALJ 386 ("Newbound"), the goods in question were "washfountains". They were designed to fulfil the function of an ordinary wash-bowl or basin, but were adapted for use by up to ten persons at the one time. The washfountains consisted of a circular bowl or basin about 4' 6'' in diameter. From the centre rose a pillar, from the top of which, when a tap was turned on, a spray of water was directed outwards and downwards into the bowl, from which it escaped through a pipe. The bowl was supported by a pedestal with which it was integral. The washfountain was intended to be installed in such a position that there was access to it at any point on its circumference. 37 Because up to ten persons could wash their hands at the same time, the washfountain was well adapted for use in a factory, for example, where it would take the place of ten individual wash-bowls or basins, and was not intended or adapted for use in an ordinary dwelling house or domestic establishment. 38 The ordinary wash-bowl or basin could be attached to a wall or stand on a pedestal, but the washfountain would not achieve its maximum usefulness unless there was access to it all round. 39 The question for decision was whether the washfountain enjoyed exemption from sales tax by reason of its falling within Item 90D in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (Cth), which, so far as relevant, was as follows: "Household fittings and sanitary ware (and parts therefor, including chains, plugs and washers) of a kind installed in houses or other buildings so as to become fixtures therein, viz: (1) Baths, bath and shower screens, pedestal lavatory basins, wall and bowl basins, sinks, sink tops, draining boards, combination sinks and drainers, wash troughs or stands and pedestals therefor." (my emphasis) The High Court held by a three to two majority that the washfountain fell within the words that I have emphasised above. The majority comprised Williams, Webb and Fullagar JJ; the minority, Dixon CJ and McTiernan J. 40 Fullagar J, with whom Williams J agreed, thought that the washfountain was clearly a "pedestal lavatory basin". His Honour then noted the Commissioner's argument that it must also fall within the expression "household fitting"; that this expression signified "fittings intended or adapted for use in an ordinary dwelling house or domestic establishment"; and that the washfountain was not a household fitting. His Honour rejected the argument. He said that prima facie the word "namely" signified that it was wrong to regard the generic description as limiting the specific descriptions. As will be seen later, this construction is not applied to Item 1 with which we are concerned. Therefore, it is more relevant for our purposes that his Honour also thought that the Commissioner gave the expression "household fittings" "an unnecessarily narrow meaning", and that the expression meant "fittings which serve a household or domestic purpose (such as the washing of hands or clothes)". His Honour continued (at 389): "If we give them such a meaning, all difficulty disappears. It does not follow that they are otiose or superfluous. They would, of course, serve to exclude articles in an industrial establishment which had a purely industrial function – for example, a wash trough in a tannery in which hides were soaked in the course of an industrial process. The manufacture of leather is not a household or domestic purpose, but the washing of hands is." His Honour clearly rejected the Commissioner's contention that "household fittings" meant "fittings fitted in a dwelling house" or "[fittings] intended or adapted for use in an ordinary dwelling house", because it did "not represent a legitimate construction of the language used." In so far as he rejected a requirement that the goods be within a house or its curtilage ("physical connection") and favoured a test of domestic function ("domestic function"), his Honour's approach favours the Taxpayer in the present case. 41 Unlike Fullagar and Williams JJ, the third member of the majority, Webb J, thought that the generic description did qualify the specific classes. Like them, his Honour thought that the washfountain fell within the specific description, but he continued (at 388): "But is it a household fitting? The circular shape of the washfountain and the necessity to install it some distance from a wall if it is to be fully utilized do not prevent it from being a household fitting. Any difficulty in so regarding it arises from the fact that the circumference of the basin is so large and the spray of water on such a scale and released in such a manner that ten persons can use it at the same time. This might appear to suggest that the washfountain is really designed and suitable for exclusive use in shops, factories and other business and industrial operations as a measure of economy, and not for use in dwellings. No doubt the purpose for which it is manufactured is a material consideration, and in the case stated it is agreed that this washfountain is designed for use in factories, hospitals, and the like, and not for an ordinary household, that is, for a family. But a household may be comprised of persons who are not related. A number of friends might occupy the same dwelling, and with or without their children, but more particularly with their children, they might be so numerous and living under such circumstances, say in a holiday house at the seaside, that a washfountain would be found very desirable and installed. It is difficult to deny that the washfountain would be a household fitting in such circumstances. Other examples could be given of cases in which a washfountain would properly be regarded as a household fitting. An article may be at the same time a household fitting and a factory fitting, e.g., a window frame, a lock and key and an electrical fitting are both. Item 90D is not confined to articles which are household fittings and nothing else: where the restricted meaning is intended that is expressed, as in Items 90B and 90C. Further, the fact that an article is rarely used as a household fitting does not prevent it from being one. I do not find it necessary to deal in detail with the arguments and alternative arguments of counsel. But one argument of Mr Bowen for the defendant company seems to me to be sound, namely, that this washfountain wherever installed is, because of its exclusive purpose, i.e., the washing of hands, of an essentially domestic nature, and so can be said to be suitable for use in at least a limited number of households, and therefore comes within the category 'household fittings' within Item 90D, which, as already stated, is not restricted to articles which are household fittings and nothing else. After all a washfountain is only a substitute for a number of washbasins, i.e., for a number of household fittings in the truest sense of the term." (my emphasis) In the present case, the relevant machines were designed to accommodate household laundry loads, and can be viewed as substitutes for a number of domestic machines. 42 Like Webb J, Dixon CJ (dissenting) considered that goods must satisfy the general description as well as come within one of the specific classes. However, the Chief Justice thought that the washfountain did not satisfy the former because it was not a "household fitting". His Honour added (at 387): "It may be true that the washfountains compete in trade with pedestal lavatory basins and wall and bowl basins, in the sense that the washfountains may take their place in factories and like places. If so, it may be unfortunate that the washfountain should not be exempt. But that is not enough to bring it within the exemption as it is framed." 43 McTiernan J (also dissenting) said (at 387): "It appears from the case stated that a 'washfountain' is designed for use in factories, hospitals and the like 'to enable ablutions to be performed by several persons at the one time': and that it is not designed for use in an 'ordinary household'". Like Dixon CJ, McTiernan J thought that the washfountain was not a household fitting because it was "designed for other than household use". 44 In sum, Dixon CJ, McTiernan J and Webb J thought it necessary that goods meet the general description as well as come within one of the specific classes, whereas Fullagar and Williams JJ did not; Webb, Fullagar and Williams JJ thought the general description satisfied if goods satisfied a "domestic function" test, while Dixon CJ and McTiernan J thought this insufficient and that the goods did not qualify if they did not satisfy a "physical connection" test; and Webb J also thought, in any event, that the washfountain might be found, even if in unusual circumstances, located within a household, that is, satisfy a physical connection test. 45 To my mind, the expression "household fittings" more clearly points to a physical connection between goods and a household than does the expression "goods of a kind ordinarily used for household purposes". Accordingly, if, as Webb, Fullagar and Williams JJ thought, the expression "household fittings" is satisfied where goods are used exclusively for a domestic function, even though not located within a house or its curtilage, one might be pardoned for thinking that the position would be a fortiori where the expression to be applied is "goods of a kind ordinarily used for household purposes". 46 (ii) Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385 ("Stewart") concerned the expression "[goods] for useĽbyĽa public benevolent institution" in Item 81(1)(c) in the first column of the First Schedule to the 1935 Act. The taxpayers sold lottery tickets in bulk. They also manufactured coin-activated machines designed to dispense the tickets upon the insertion of a 20 cent coin. They bailed the machines to certain benevolent institutions free of charge on condition that only tickets supplied by the taxpayers be dispensed from the machines. The institutions used the machines to sell the lottery tickets to raise funds for their purposes. The machines remained the property of the taxpayers who serviced them. 47 By a four to one majority the High Court held that the machines were exempt from sales tax under Item 81(1)(c). The significance of the case for present purposes is threefold. First, it was held that the machines could satisfy the terms of the item even though they could also be seen to be used by the taxpayers to promote their sales of lottery tickets to the institutions. Similarly, it is not fatal in the present case that the relevant machines can also be seen to be of a kind ordinarily used for the commercial purposes of, for example, a laundromat operator, renter or router. 48 Secondly, the expression "for use … by" did not require that the goods be exclusively or primarily or principally for use by a public benevolent institution. 49 Thirdly, Deane J said (at 401): "While the subjective intentions of manufacturer or purchaser are relevant and may well be conclusive, what is required is an objective characterisation of the goods themselves in the light of all the relevant circumstances. That characterisation must be made as at the time when liability to sales tax would otherwise attach. It will, in an appropriate case, be made with the benefit and in the context of knowledge of the actual use which was subsequently made of the goods." Ordinarily, the taxing point is the occasion of importation or the first wholesale sale in Australia. 50 (iii) In Commissioner of Taxation v Sherwood Overseas Pty Ltd (1985) 75 FLR 474 ("Sherwood Overseas"), Olney J held that machines called "Kreepy Krauly Automatic Pool Vacuum Cleaners" fell within par 1(g) of the Third Schedule to the 1935 Act as being "goodsĽof a kind ordinarily used for household purposes, namelyĽvacuum cleanersĽand other appliances used for cleaning purposes". His Honour thought that goods were required to satisfy both the general introductory description ("of a kind ordinarily used for household purposes") and the words of the specific classification ("vacuum cleaners,Ľand other appliances used for cleaning purposes"). His Honour thought that the purpose of the former was to distinguish between goods described in the listed classifications which were intended to attract the exemption and "similar goods that have uses outside a domestic establishment". He observed that many, if not most, of the groups of goods described in the numbered subparagraphs have an application in industrial or commercial contexts "as well as within the household", and referred to "office furniture, commercial refrigerators, industrial vacuum cleaners [and] air conditioners designed for use in a public hall" (at 477). 51 Olney J appears to have been content to treat the word "household" as referring to a physical thing. He concluded (at 479): "In my opinion a robust approach ought to be taken to the construction of the Third Sched. particularly in view of the fact that it is part of a statute imposing taxation and I take the view that any goods which fall within the particulars described in pars (a) to (p) of the first item which are ordinarily used in or about a dwellinghouse can fairly be said to be ordinarily used for household purposes. It is conceded that Kreepy Kraulys are goods of a kind ordinarily used for domestic swimming pools and in my opinion that concession is sufficient to bring them within the ambit of the Third Sched.". 52 His Honour's decision would not, however, dictate a result in the present case, which turns on an issue that was not before him. The case before his Honour raised the distinction between a house and its curtilage. The fact that it may suffice to attract the concessional rate that goods are of a kind ordinarily used within a dwelling house or its curtilage, does not indicate that they must be found there. It is consistent with his Honour's holding that goods which are not of a kind ordinarily used within a dwelling house or its curtilage can nonetheless be goods of a kind ordinarily used for household purposes within the terms of Item 1 in the Third Schedule. 53 (iv) Sherwood Overseas was followed in Kentucky Fried Chicken Pty Ltd v Federal Commissioner of Taxation (1986) 17 ATR 1039 ("Kentucky Fried Chicken") (affirmed by the Court of Appeal of New South Wales at (1988) 12 NSWLR 643). In that case the goods in issue were paper serviettes and refresher towels which the taxpayer, a seller of takeaway products through retail outlets, supplied with, or for use with, its food products as elements of "serviette packs". Each serviette pack comprised a paper serviette, a refresher towel and a plastic spoon, which were packed by the taxpayer in a cardboard or polystyrene foam carton. In relation to the paper serviettes and refresher towels, the question was whether they fell within Items 8(1)(p) or (r) of the Third Schedule to the 1935 Act. That Item was, relevantly: "Goods,Ľof a kind ordinarily used for household purposes, namelyĽ (1) household drapery and soft furnishings, namelyĽ (p) Ľtable napkinsĽ (r) towels, face cloths and face washers." 54 Yeldham J referred with approval to the statements by Olney J in Sherwood Overseas to the effect that the adjective "household" was intended to distinguish between qualifying goods and similar goods that have uses outside a domestic establishment; that a "robust approach" should be taken to the construction of the Third Schedule, particularly in view of the fact that it was part of a statute imposing taxation; and that any goods falling within the particulars described in pars (a) to (p) of Item 1 which are ordinarily used in or about a dwelling house, can fairly be said to be ordinarily used for household purposes. Like the passage from Sherwood Overseas set out above, this statement is not a statement that in order to qualify goods must be ordinarily used in or about a dwelling house. Observing that he was also adopting a robust approach to construction, Yeldham J held that the paper serviettes could properly be described as "table napkins" which, by definition, came within the description "household drapery and soft furnishings". Also he considered that the refresher towels, which were made, not of cloth but of paper, were to be described as "towels, face cloths and face washers", which again, by definition, were included within the extended definition of "household drapery and soft furnishings". His Honour held that it followed that the taxpayer was entitled to a declaration that the paper serviettes and refresher towels were within subitems 8(1)(p) and (r) respectively. 55 (v) The learned primary Judge was not referred to Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396 ("Hygienic Lily"). In that case the taxpayer manufactured and sold by wholesale cups of various capacities and sizes, together with lids for them. The cups were made of paper coated with wax. After manufacturing the cups, the taxpayer printed various designs on them, some of which were particular to the requirements of individual customers, being trademarks or designs employed by those customers in their respective businesses. 56 The evidence before his Honour related to the course of trade in the cups and lids by reference to the activities of one customer of the taxpayer, McDonald's System Pty Ltd, which owned 185 McDonald's restaurants throughout Australia. The overwhelming use to which the cups were put at the restaurants was to contain beverages sold there to customers. Approximately 55 per cent of the "total business" of the restaurants was in the sale of food and drink to customers who did not consume their purchases on the premises. Some of the restaurants had, as well as a counter-service, a drive-in facility which enabled customers to order and take away food and drink without leaving their cars. At these restaurants, approximately 40 per cent of the business was conducted at the takeaway counters. Gummow J noted (at 397): "It is not disputed that of these 'take-away' customers a number take the food and drink home and consume them there." 57 At issue was Item 1, par (c) of the Third Schedule to the 1935 Act. It was not disputed that if the cups fell within that Item, the lids were accessories within Item 2 and therefore also attracted the lower rate of sales tax (10 per cent rather than 20 per cent). 58 Gummow J considered that goods could be "ordinarily used for household purposes" within Item 1, even though they were not "exclusively or principally" so used. His Honour continued (at 399): "Further, the setting in which the phrase 'goods of a kind' appears suggests it is directed not to the use for which the particular goods in question were designed or manufactured, nor to the purpose to which it is intended those particular goods shall be put, but rather to the nature, quality and adaptation offo goods in the class or genus in question. Thus, goods are 'of a kind ordinarily used for household purposes' if they are to be recognised as members of a class or genus which commonly or regularly (albeit not necessarily exclusively or principally) is used for household purposes; cf Customs and Excise Commissioners v Mechanical Services (Trailer Engineers) Ltd [1979] 1 WLR305 at 312-313, 315, 316-317." His Honour's approach in this passage has been followed subsequently, as we shall see. Gummow J contrasted in the present respect the terms of Item 81(1)(c) that were in issue in Stewart, discussed earlier: "goods for useĽand not for sale, byĽa public benevolent institution." Yet, as his Honour observed, the High Court was able to hold that the coin-operated lottery ticket dispensing machines in question in that case met the description, even though they were not designed for use by a public benevolent institution or in fact exclusively used by the particular public benevolent institutions to which they were supplied. His Honour stated (at 400): "In my view, the cups involved in this case, are of a kind ordinarily used for household purposes because they are members of a class or genus (paper cups) which commonly or regularly (albeit not necessarily exclusively or principally) is used for household purposes (viz the carrying of beverages and the consumption thereof). In my view, a purpose may be a household purpose even if not exclusively or principally pursued in situ a dwelling." Gummow J continued immediately after this passage as follows (at 400): "In any event, even if one looks to the provenance of the particular goods and to the purpose for which they were manufactured, that does not, in my view, take them outside the genus of goods ordinarily used for household purposes. The cups have printed upon them 'McDonald's' and many stylised representations of the letter 'M'; it readily may be conceded that these goods are manufactured to fill orders placed upon the applicant to supply McDonald's Restaurants for use in filling with beverages sold to customers. However, in my view, that does not deprive them of the character of goods of a kind ordinarily used for household purposes. Item 1 does not predicate the criteria for classification upon so single-faceted a method of characterisation." 59 His Honour observed that previous cases were not of decisive importance in the dispute before him. Nonetheless, he referred to Newbound, Sherwood Overseas and Kentucky Fried Chicken. Of Newbound, his Honour stated as follows (at 402): "The judgments certainly illustrate the subtleties in meaning and in combinations of meaning that can be found in collocations of ordinary terms. Whilst there is no authoritative guidance for the resolution of the present question of construction of Item 1, it is to be observed, as the applicant submitted, that the term 'household' was at least by the majority, not read as limited to activities solely pursued in a domestic setting." 60 Gummow J referred to Olney J's holding in Sherwood Overseas that he had not understood the Commissioner to have contended that an article was to be regarded as ordinarily used for household purposes only if its ordinary use was "within the four walls of a dwelling house". His Honour found Olney J's approach supportive of his own approach to the construction of Item 1. 61 Gummow J noted that in Kentucky Fried Chicken Yeldham J had held that the paper serviettes in question were within the classification in Item 8(1)(b) of the Third Schedule, "Household drapery and soft furnishings, namelyĽtable napkins". His Honour continued (at 402-403): "In my view in the same way that these goods did not cease to be of that character [ordinarily used in or about a dwelling house for household purposes] by their use in connection with supply of goods and services to customers at Kentucky Fried Chicken 'outlets', the cups in the present case are goods of a kind ordinarily used for household purposes." 62 It is difficult to know what the learned primary Judge in the present case would have made of Hygienic Lily if it had been drawn to his attention. The Commissioner submits that it is distinguishable from the present case on the ground that it was not disputed that a number of "take-away" customers took the McDonald's food and drink (the latter in the paper cups) home for consumption. I do not accept the submission. It seems to me that Gummow J was prepared to accept that particular goods might be of a kind ordinarily used for household purposes, although they were of a kind not used within a house or its curtilage at all. His Honour's noting of the fact that it was not disputed that some of the "take-away" customers took the drink home and consumed it there occurred in his setting out of the factual background, not in the "reasoning" section of the judgment. Moreover, as appears from the second passage set out above, his Honour treated the word "ordinarily" as meaning "commonly or regularly", yet he did not find that the cups were commonly or regularly taken home, and a finding to that effect is not implied by the mere reference to the fact that a "number" of customers took them home. Finally, his Honour stated that he accepted a submission of the taxpayer that "household purposes" in Item 1 may identify "an activity not necessarily or exclusively performed in or about a house" (at 401 – my emphasis). 63 The essence of Gummow J's reasoning is that he: (1) defined the relevant "class or genus" of which the particular cups were members as "paper cups"; (2) thought that "paper cups" were commonly or regularly used for "household purposes" because they were commonly or regularly used for "the carrying of beverages and the consumption thereof"; and (3) considered himself therefore compelled to conclude that the particular McDonald's paper cups were goods of a kind ordinarily used for household purposes. 64 By step (1), his Honour identified the relevant class or genus as "paper cups" rather than, for example, the narrower class or genus, "paper cups bearing the McDonald's name, trademark or logo". His Honour rejected such a form of classification as unacceptable because "single-faceted". In the present case, however, the coin-operated 6 kg or 7 kg machines are different from the domestic 6 kg or 7kg machines in more respects than just the presence of the coin mechanism: there are also the features mentioned earlier dictated by the intended repeated and continuous use by successive operators. 65 Step (2) in Gummow J's reasoning was the identification of the purpose for which the class or genus of goods (paper cups) was commonly or regularly used: "the carrying of beverages and the consumption thereof", rather than, for example, the narrower one of being filled at a restaurant in response to orders placed by customers and providing a means of delivering the contents at the restaurant to the customers. The choice made by his Honour in this respect makes clear that it is not determinative in the present case that the purpose of laundromat operators is non-domestic: consistently with his Honour's approach, it would be sufficient if goods of the class or genus in question are commonly or regularly used by the end-users for household purposes. The washing of clothes, bed linen, towels and other household fabrics is a household purpose. Consistently with the approach of Gummow J, the disputed relevant machines would fall within Item 1 subject to an appropriate initial identification of the class or genus to which they belong – a matter to which I shall return later. 66 (vi) In O R Cormack Pty Ltd v Federal Commissioner of Taxation (1992) 23 ATR 151 ("O R Cormack"), the taxpayer manufactured painters' equipment and sought a declaration that various paint brushes, paint rollers and associated painting equipment fell within Items 1 and 2 of the Third Schedule to the 1935 Act. Davies J found it helpful to ask whether the goods were "brushes of a kind ordinarily used for household purposes", rather that to ask separately whether they were "brushes", and, if so, whether they were "goods of a kind ordinarily used for household purposes". His Honour thought that the answer to this question depended, not upon the use to which the particular goods were put, but upon an assessment of their "general character", objectively determined by reference, at least principally, to the nature of the goods. 67 (vii) Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450 ("Diethelm") is the first of two Full Court cases on the Exemptions and Classifications provisions. The taxpayer was a manufacturer of office furniture. It sold chairs by wholesale to a related company which, in turn, sold them by retail, largely to commercial customers. Less than 10 per cent of purchasers from the retailer bought the chairs for domestic use. The evidence showed that almost all of the chairs were designed or adapted for "extended use at a work station or in an office environment". The primary Judge characterised the chairs as "primarily office furniture". But the function of a chair used at a computer terminal in an office was said to be the same as that of a chair used at a computer screen at home. Various features of the chairs relevant to their use at a work station were identified, including height adjustment, swivel, tension adjustable recliner facilities, and the provision of castors. The primary Judge found that the chairs were high quality office furniture which were occasionally bought for use in a home. 68 In order to attract the lower rate of sales tax, the chairs had to meet the following description which appeared in par (a) of Item 1 of the Third Schedule to the 1935 Act: "GoodsĽof a kind ordinarily used for household purposes, namely:- a) furniture". The trial Judge held that evidence that less than 10 per cent of the chairs were used in homes put the goods outside this category. 69 A Full Court unanimously dismissed the taxpayer's appeal. Two substantive judgments were delivered. After an extensive review of the authorities, French J concluded that the introductory general words ("of a kind ordinarily used for household purposes") qualified the listed specific classes, and continued (at 465): "It cannot be enough to say that because some goods fall into a genus wide enough to encompass goods ordinarily used for household purposes they are therefore 'goods of a kind ordinarily used for household purposes'. The mere fact that office chairs and domestic chairs both provide 'seating', which in some applications is a household purpose, is not sufficient to establish that office chairs are of a kind ordinarily used for household purposes. It may be that some of what was said by Olney J and Davies J in Sherwood Overseas Pty Ltd and OR Cormack Pty Ltd respectively conflicts with some of the reasoning in Hygienic Lily Pty Ltd. It is not, however, necessary for the purposes of this appeal to pass upon that decision." 70 Seeking to implement the purpose of reducing the costs of home establishment, and applying an "essential character" test (his Honour referred to support for this test to be found in judgments of Davies J in Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85 (affirmed, sub nom Commissioner of Taxation v Thomson Australian Holdings Pty Ltd (1989) 25 FCR 481) and in O R Cormack.), his Honour concluded that the chairs in question were "correctly identified as office furniture". He said (at 465): "That characterisation reflects the market in which the chairs were manufactured and sold having regard, inter alia, to their quality, cost, design, and intended and actual purchasers. While they were chairs sometimes used for household purposes, and performing physical functions similar to such chairs, they were not of a kind ordinarily so used." 71 Hill J, with whom, as noted earlier, Whitlam J agreed, stated that in order to qualify, particular goods must satisfy, first, the opening general words of Item 1, and, secondly, the terms of one of the categories of goods described in the lettered paragraphs. 72 His Honour thought that the "essential character" test might be found useful in some cases but that in other cases it might be "lacking in precision". 73 Hill J considered, apparently contrary to the approach of French J, that little assistance was to be gained by a consideration of the particular "realities of [goods'] manufacture and sale" (at 470). (Similarly, in Commissioner of Taxation v Chubb Australia Ltd (1995) 56 FCR 557, discussed below, his Honour stated (at 571): "the fact that there was no direct evidence that particular safes manufactured or imported by Chubb were used in households is irrelevant".) 74 His Honour emphasised that the question was not whether the particular goods in question were ordinarily used for household purposes but whether they were "goods of a kind" ordinarily used for such purposes. He observed as follows (at 471): "The use of the words 'goods of a kind' entail[s] the determination of a relevant genus. Therein lies an initial difficulty. The wider the genus is stated, the more likely it will be that it will be found that that class of goods is commonly used for a particular household function. That point is well illustrated by the decision of Gummow J in Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396. That case concerned the question whether three sizes of wax coated paper cups bearing designs including the trademark 'McDonalds', fell within the same Item. His Honour held that the goods did, being of the genus 'cups', that class of goods being of a kind ordinarily used for household purposes. Those purposes being, in his Honour's view (at 400): 'The carrying of beverages and the consumption thereof'. Had the cups in question been categorised in a more narrow way, for example, as cups delineated with the trademark of the manufacturer of the goods to be contained therein, then it might more readily have been held that the cups in question were of a kind ordinarily used in take-away restaurants, rather than for household purposes." 75 Hill J said (at 472) that it was not desirable to separate out the two questions, how the particular goods in question were to be categorised and whether the category decided upon was of a kind ordinarily used for household purposes. (In this respect, his Honour's approach differs from that of Gummow J in Hygienic Lily and is akin to that approved by Davies J in O R Cormack noted earlier). His Honour noted that the taxpayer's submission would first categorise the goods as "chairs" and their function as being "to be sat upon" – a function ordinarily performed in a household. Rather, Hill J thought it proper to ask simply the composite question whether the goods in question were goods of a kind ordinarily used for household purposes. His Honour continued (at 472): "This approach requires consideration of each of the particular chairs in question. Of some of them the question may readily be answered in the negative. A high back executive office chair is clearly not a chair of a kind ordinarily used for household purposes. Rather, it is of a kind ordinarily used for office purposes. The question, however, becomes more complicated with smaller chairs of a kind which may, on the one hand, be used in an office and on the other hand, are, in accordance with the evidence, sold by retail outletsĽfor what are clearly household purposes." 76 His Honour referred to the evidence before the primary Judge and concluded that that evidence did not permit a conclusion on the balance of probabilities that any of the types of chairs sold by the taxpayer was of a kind ordinarily used for household purposes. His Honour observed that the case had apparently been run on the basis that either all the chairs were within the Item or none were, but that if the taxpayer, which bore the burden of proof, had led further evidence, it may have established that some were of a kind ordinarily used for household purposes. 77 (viii) In Commissioner of Taxation v Chubb Australia Ltd (1995) 56 FCR 557 ("Chubb"), the taxpayer manufactured or imported, and subsequently sold or applied to its own use, relevantly, variousfreestanding safes or security cabinets. The Commissioner took the view that sales tax was payable at the rate of 20 per cent, whereas the taxpayer contended that the lower rate of 10 per cent applied because the safes and cabinets fell within Item 1(a) in the Third Schedule to the 1935 Act. Item 1(a) was as follows: "GoodsĽof a kind ordinarily used for household purpose, namely:- (a) furniture". 78 The primary Judge decided favourably to the taxpayer in respect of certain models of the freestanding safes. The Commissioner appealed and the taxpayer cross-appealed. 79 Burchett J referred to the difficulty of making "reality" fit a legislative system of classification, and continued as follows (at 559): "Ľa Court should not exacerbate the problem by giving to the Items in a statute setting out exemptions and classifications any narrow or rigid meaning. They must be understood in a flexible and elastic sense capable of accommodating the individual variations, unforeseen by the draftsman, which reality is certain to produce. It must be remembered, too, that a system of classification of articles used by the members of any society will be tested by constant changes in fashions and requirements. To read such a statute in the way I have endeavoured to state is simply to have regard to its nature as the essential context in which its words are used. At the same time, other rules of construction, familiar in relation to revenue legislation, may also have to be applied." 80 His Honour cast some doubt on the "essential character test" in the following passage (at 559): "Ľwith respect, I think the composite nature of the Item must be observed. It refers to furniture, and in that respect the essential character of something said to be furniture will often be determinative. However, the Item does not apply to a piece of furniture unless it also meets the description 'goodsĽof a kind ordinarily used for household purposes'. That is a question of fact into which degree and impression must enter largely, but I do not think its resolution is assisted much by turning back to the essential character of the article. Rather, attention must be focused on the statutory question whether goods of that kind are ordinarily used for household purposes." 81 Burchett J noted that the word "ordinarily" in the present context does not require that the goods be most commonly used for household purposes and that it sufficed that they be commonly used for such purposes. He said that the word "household", when employed as an adjective, signifies primarily "of or belonging to a household, domestic", citing the Shorter Oxford English Dictionary (3rd ed, 1985). Applying the understanding of "ordinarily" and "household" just mentioned, his Honour saw no error in the primary Judge's conclusions. 82 Hill J examined in some detail the evidence led at the hearing before the primary Judge. He noted the parties' agreement that the decision of the Full Court in Diethelm governed the appeal. He stated (at 569-570): "Where a question arises under Item 1(a) two issues will arise. The first, which is one of classification, requires the determination of the kind of goods to which the particular goods belong. This is sometimes spoken of as defining the genus to which the goods belong. The determination will be made in a commonsense way. In many cases mere observation of the Item will enable the classification to be made. In some borderline cases the task of classification may involve a consideration of evidence. The second issue involves giving an answer to the question whether the classification arrived at satisfies the language of the Item, that is to say, whether the relevant kind of goods is ordinarily used for household purposes. Again, in many cases, common experience will answer that question. In borderline cases, at least, it will be necessary to consider evidence to reach a conclusion." 83 Like Burchett J (and Davies J in O R Cormack), his Honour thought that the word "ordinarily" in the present context probably meant no more than "commonly". 84 Importantly, Hill J stated (at 570): "Finally, it may be noted that the Item does not require consideration of whether the relevant kind of goods is ordinarily used in households. The Item requires consideration of 'household purposes'. It draws attention to the purposes for which the kind of goods are used, not the location of that use. Storage of household valuables will clearly be a household purpose; storage of addictive drugs will not. Just as in the Diethelm case where the evidence made it clear that there were categories of chairs which included office chairs and domestic chairs (although, at least at the fringes, the categories overlapped), so too in the present case it is clear that there are domestic safes, on the one hand, and industrial and commercial safes, on the other. One difference between the two safes is to be found in the type of goods ordinarily kept in each kind of safe. At the extremes the categories of domestic and commercial or industrial safes are so divergent that, as her Honour recognised, there was a category of safe, namely, commercial and industrial safes, that could not be said to be ordinarily used for domestic purposes. At the other extreme there were clearly safes of which on the evidence it could be said that they were used for domestic purposes, indeed, were ordinarily so used, albeit that they were capable of use and, in fact, were used by non-domestic users, eg hotels, shops and small businesses. The safe keeping of money, jewellery and valuables and important family papers is clearly a domestic purpose. Perhaps the keeping of large amounts of cash in high security safes might be a different matter." 85 His Honour thought the evidence permitted the conclusions drawn by the primary Judge in respect of the various models of safes that were, and those that were not, of a kind ordinarily used for household purposes. 86 The third member of the Court, Tamberlin J, agreed with the conclusions and reasoning of Hill J. His Honour referred to the importance of appreciating that the Court does not come to consider questions of classification in a vacuum, and that the determination of borderline cases, in the final analysis, "must necessarily be based to a large extent on experience and common sense, after … close regard [is paid] to the factual material placed before the Court". His Honour thought that the primary Judge's conclusions had support in the substantial amount of evidence before her Honour. Conclusions on the appeal Certain general propositions 87 I think it useful and convenient to set out certain general propositions which apply to the resolution of the issues raised. 88 (1) Item 1 requires that goods both be of a kind ordinarily used for household purposes and fall within one of the listed specific categories of goods (Newbound per Dixon CJ, McTiernan J, Webb J; Sherwood Overseas; OR Cormack; Diethelm). 89 (2) The goods to which Item 1 must be applied are the particular goods of the taxpayer, that is, in the present case, the relevant machines, being the coin-operated 6 kg, 7 kg and 10 kg machines and the push-bar operated 10 kg machines identified in the Schedule (Diethelm per Hill J (with whom Whitlam J agreed) at 470 and 472). 90 (3) The statutory question is not whether those goods of the taxpayer will in fact be used for household purposes but whether they are goods "of a kind ordinarily used for household purposes" (Chubb per Hill J (with whom Tamberlin J agreed) at 571; Diethelm per Hill J at 470). 91 (4) I respectfully agree with Hill J in Diethelm (at 472) and, I suggest, with Burchett J in Chubb (at 559), that it is preferable to pose the statutory question as a single composite question. 92 In some cases it may be misleading to address separately the question of identification of the "genus" to which the particular goods in question belong, and the question whether that genus meets the description "ordinarily used for household purposes". The problem can be indicated by the question "What kind of kind of goods is the Item speaking of?" Answering the genus question separately as a threshold one will assume, without making explicit, an answer to this question. 93 Goods and purposes can be equally correctly described in different ways, in particular, broadly or narrowly, yet the description selected may dictate the answer to the statutory question. For example, an architect's stool, an office chair and a kitchen stool or chair may be described as "stools" or "chairs" and their purpose as being "to provide seating". Yet it would be wrong to conclude that the architect's stool or the office chair is of a kind ordinarily used for household purposes for no other reason than that, like the kitchen chair, it is ordinarily used for the purpose of providing seating. 94 If, in the present case, one were to define the genus of which the relevant machines are members as "machines designed to wash fabrics", apparently even industrial washing machines would qualify as goods ordinarily used for household purposes. 95 In the present case, there seems to be no dispute that the relevant genus to which the disputed relevant machines belong is coin-operated 6 kg, 7 kg and 10 kg washing machines and push-bar operated 10 kg washing machines, all designed to wash and dry successively the clothes and other fabrics of the members of households. 96 (5) The "essential character" test lacks sufficient precision to assist, at least in the present case (cf Diethelm per Hill J at 470; Chubb per Burchett J at 559). In my view, there is a danger that that test may serve simply to give an undeserved legitimacy to first impressions. 97 (6) I accept that "ordinarily" means "commonly" or "regularly", not "principally", "exclusively" or "predominantly" (Hygienic Lily at 399, 400; Chubb per Burchett J at 560, Hill J at 570). Physical connection; "a household" or "several households"; exclusive possessory or proprietary interest 98 The Taxpayer cannot rely on physical connection, at least in the sense of containment of the machine within the boundaries of the dwelling of a conventional nuclear household and its curtilage. It is noteworthy, however, that in the case of all the instances of shared accommodation listed earlier, there would be varying degrees of physical propinquity between the shared facility and the places where its users live. For the reasons below, I do not find it necessary to explore the nature and extent of that physical proximity further. 99 The statutory question to be asked is whether the relevant machines are of a kind ordinarily (commonly or regularly) used for household purposes. The question is not, in terms, whether they are of a kind ordinarily found within a house or its curtilage and used there, that is, whether they are of a "domestic" kind in that physical sense. Physical connection or absence of it may, however, be relevant to the statutory question. If we knew a priori that all goods, or even only that all washing machines, of a kind ordinarily used for household purposes necessarily had a physical connection with a household, the absence of that connection would dictate a negative answer to the statutory question. But we do not know this, even though the fact that particular goods were of a kind ordinarily found within a house or its curtilage and used there would strongly, perhaps conclusively, indicate that they were of a kind ordinarily used for household purposes. 100 Where the question of physical connection has been referred to expressly, authority has rejected any such requirement in favour of a domestic activity or purpose test: cf Newbound per Fullagar, Williams and Webb JJ (on the expression "household fittings"); Hygienic Lily esp at 401; Chubb per Hill J at 570. 101 I accept that when the then Treasurer, the Hon Sir Arthur Fadden, introduced the concession in question in 1954, he probably had thought only of furniture and other goods that one would expect to find in a house. I have set out earlier an extract from his Second Reading Speech on the Sales Tax (Exemptions and Classifications) Bill 1954. But times change and so do the forms of home establishment able to be aided by the concession. Let it be assumed, for the sake of example, that the only use made of coin-operated machines was to provide a laundering facility to be shared by "nuclear households", and that the purpose of the payment was not to generate a commercial profit for anyone but to enable an equitable sharing of the facility as between its users. I suggest that the legislative purpose underlying the concession would be served in such a case, even though: · the machine was not located within the boundaries of any of the flats, home units or town houses served by it or their immediate curtilages; · the machine was used, not by one household, but by multiple households; and · none of the members of any of the households had a possessory or proprietary interest in the machine. Yet it was these considerations which, the learned primary Judge thought, took the relevant machines outside Item 1. 102 The three considerations mentioned are interrelated (if physical connection to one household is not an a priori requirement, it is difficult to see why confinement to use by a single household or the existence of a possessory or proprietary interest in the members of a household would be) and may be seen to be based on the concept of "household purposes" as the purposes of one household and no more. No doubt, this view of matters is an arguable one with some attraction, but ultimately I think it unnecessarily reads into the language "of a kind ordinarily used for household purposes" a limitation which unduly confines the concept underlying the concession. 103 It is difficult to accept that the presence of the coin device alone disqualifies a machine which would otherwise qualify as goods of a kind ordinarily used for household purposes. Let it be assumed that coins were "collected at the door" for the use of machines rather than by use of a coin device. It is difficult to accept that those machines would necessarily attract the concessional rate while others, with a coin device affixed but otherwise identical, would necessarily not do so. Certain evidence before the Tribunal 102104 Of the relevant machines of the Taxpayer listed in the Schedule (set out earlier), the models listed in column 1 below appear in the Distribution Schedule (also set out earlier). Column 2 below gives the total number of those models sold during the period in question. Column 3 gives the percentage installed as a shared laundry facility of residential accommodation, excluding route business; column 4 gives the percentage installed as a shared facility as a result of someone's route business; column 5 gives the percentage installed in laundromats; and column 6 gives the total percentage. [1] [2] Percentage installed as a shared laundry facility [5] [6] Model Total No of units Percentage installed in laundromats Total percentage [3] [4] excluding route business route business MAT10CM/CS 780 54 22 24 100 W10 1 - 100 - 100 R6 1 100 - - 100 R7 (95-6) 6 - 33 67 100 R7 (96-7) 5 40 20 40 100 R10 (95-6) 35 32 11 57 100 R10 (96-7) 34 14 15 71 100 F10 1 - - 100 100 MDE11CM/CS (95-6) 32 84 13 3 100 MDE11CM/CS (96-7) 26 65 12 23 100 MDE10CM/CS (95-6) 152 41 35 24 100 MDE10CM/CS (96-7) 88 69 28 3 100 MDG11CM/CS (95-6) 42 76 7 17 100 MDG11CM/CS (96-7) 11 64 18 18 100 MDG10CM/CS (95-6) 103 74 17 9 100 MDG10CM/CS (96-7) 30 63 27 10 100 103105 The Tribunal's reasons for decision do not break up the installations as between the numerous subcategories of shared residential accommodation identified by the Tribunal and listed by me earlier. Nor have the parties suggested that there might be a difference in result as between one model and another. Subject to one matter, the above figures suggest that the machines are ordinarily used as a shared facility for residential accommodation. Indeed, they suggest that generally that use far exceeds laundromat use. Only in the case of models R7, R10 and F10 does laundromat use exceed the shared facility use. In the case of models R7 and R10, there is still a substantial shared facility use. In the case of model F10, only one machine was installed – a sample too small to provide a sound basis for extrapolation. While the use of the coin mechanism to generate profits for route businesses is significant, installation otherwise as a shared facility in respect of residential accommodation is itself an ordinary (common or regular) use. 104106 The Tribunal found that the low capacity of relevant machines (most models were 6 kg or 7 kg and none exceeded 10 kg) showed that they were designed to accommodate household size washing loads and belonged to a different genus from that to which the industrial machines belonged. The presence of the coin mechanism may, as a matter of first impression, suggest a profit making purpose, but the evidence to which I have referred above suggests, as the Tribunal found, that ordinarily (commonly or regularly) its purpose was to ensure an equitable sharing of the cost of the machines as between users. 105107 Be that as it may, once one rejects, as I do, the proposition that in order for Item 1 to apply: · there must be a physical connection between a machine and a household; · a machine must be of a kind used by one household, rather than a succession of households; or · members of a household must have an exclusive possessory or proprietary interest or right in relation to the machine, it can be seen to have been open to the Tribunal to find, on the evidence before it, that the disputed relevant machines were of a kind ordinarily (commonly or regularly) used for the household purpose of the laundering of household clothes and fabrics, whether in a laundromat or as a shared facility of shared residential accommodation. 106108 I see no inconsistency between such a result and the objective "to reduce the costs of home establishment" referred to by Sir Arthur Fadden in 1954. conclusion 107109 For the above reasons, the appeal should be allowed with costs; orders 1, 2 and 3 of the primary Judge in proceedings N 1289 and N 1337 of 1999 should be set aside; and in lieu of those orders it should be ordered that the decision given by the Tribunal on 13 October 1999 be affirmed. I certify that the preceding one hundred and eight (108) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 14 February 2001 Counsel for the Appellant: S W Gibb SC and Mr J A Higgins of Counsel Solicitor for the Appellant: Grahame W Howe & Co Counsel for the Respondent: D B McGovern and Mr A J O'Brien of Counsel Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 31 August 2000 Date of Judgment: 14 February 2001