M.P. Metals Pty Ltd v Federal Commissioner of Taxation
(1968) 117 CLR 63141 ALJR 297
(Judgment by: Menzies JJ.)
M.P. METALS PTY. LTD.
v FEDERAL COMMISSIONER OF TAXATION
Judges:
Windeyer J.
Barwick C.J.
McTiernan
Kitto
Menzies JJ.
Judgment date: 28 April 1967
Judgment by:
Menzies JJ.
MENZIES J. Section 62AA of the Income Tax and Social Services Contribution Assessment Act 1936-1965 (Cth) authorizes a special deduction for expenditure of a capital nature on new manufacturing plant for use in Australia to produce assessable income. The section applies, inter alia, to "any property being plant or articles owned by the taxpayer that is for use by the taxpayer primarily and principally, and directly -
"(a) in any part of the operation by means of which -
- (i)
- manufactured goods are derived from other goods (including other manufactured goods) by the taxpayer or by persons on whose behalf the taxpayer performs services involving the use of that property; or
- (ii)
- manufactured goods manufactured by the taxpayer or by other persons are (otherwise than by packing, placing in containers or labelling) brought into or maintained in the form or condition in which they are sold or used by the taxpayer or those other persons, as the case may be." (at p647)
This appeal from the judgment of Windeyer J., dismissing the taxpayer's appeal against the disallowance of deductions claimed pursuant to s. 62AA, involves a consideration of the meaning and application of the foregoing provisions when read with the definitions to be found in sub-s. (1.) of s. 62AA. The two relevant definitions are as follows -
"'goods' includes -
- (a)
- liquids, gases and substances; and
- (b)
- ships and aircraft;
'manufactured goods' includes goods manufactured for the purpose of use as parts or materials in the manufacture of other goods." (at p647)
The scheme of s. 62AA (2.) (a) is to cover plant for use by the taxpayer in operations whereby manufactured goods are derived from other goods by the taxpayer, or by another person for whom the taxpayer performs services involving the use of plant, or, whereby goods manufactured by the taxpayer or by another person are brought or kept by the taxpayer in the form or condition in which the taxpayer or that other person sells or uses them. (at p647)
It is apparent from a comparison between sub-ss. (2.) (a) (i) and (2.) (a) (ii) that there is a distinction between manufacture on the one hand and, on the other, the ancillary procedures of bringing manufactured goods into or maintaining them in the form or condition in which they are to be sold or used. This will be material later. There is also a question of construction to be considered, namely, whether s. 62AA (2.) (a) (ii) applies when a taxpayer, by use of his plant, brings goods not manufactured by him into the condition in which he sells or uses them. In my opinion it does not. Having regard to the framework of the provision as a whole and to the words "as the case may be" at the end of the sub-section I have reached the conclusion that the learned trial judge was correct when he said that s. 62AA (2.) (a) (ii) is to be read reddendo singula singulis. The provision has, I think, been carefully framed to ensure that the operation of bringing or keeping goods already manufactured into or in the form or condition required for sale or use as the case may be, is covered only when that operation is auxiliary to the operation of manufacturing the goods. Two cases are covered; the first when a taxpayer works upon goods of his own manufacture ; the second when a taxpayer works upon the goods of another manufacturer in order that the other manufacturer may sell or use his goods. The other manufacturer falls within the limited class described as "those other persons". The words "as the case may be" in the context in which they appear secure the limited operation which the provision is intended to have and which is in keeping with sub-s. (2.) (a) (i) which distinguishes between two categories of goods (1) those manufactured by the taxpayer and (2) those manufactured by another who uses the services of the taxpayer in that manufacture. There is, of course, no justification for treating the words "as the case may be" as mere surplusage : cf. Bluston & Bramley Ltd. v. Leigh [1950] 2 KB 548 , at p 551 .
One other question of construction was raised by counsel for the appellant who argued that, for the purposes of s. 62AA (2.) (a) (i), a taxpayer performs services on behalf of another if he does something to goods of his own to put them in a state suitable for sale to that other, being a manufacturer, so that the taxpayer here in carrying out his own operations upon his own goods is performing services for his prospective customer overseas. This I reject. In the context a taxpayer performs services on behalf of another when, by arrangement with another, he carries out for him part of the operations leading to the derivation of manufactured goods from other goods. (at p648)
I am now in a position to consider the circumstances in which the appellant claims to be entitled to a deduction under s. 62AA. (at p648)
The appellant taxpayer in the course of its business has delivered to it scrap metal of a great variety of descriptions, and it supplies to some of its customers both here and overseas, iron and steel scrap, according to specifications which render that scrap suitable for the charging of furnaces. One process to bring the scrap, as it reaches the taxpayer, to the condition complying with its customers' specifications, is to put sorted scrap through a machine which cuts to a specified maximum length any pieces exceeding that length. The intake of the machine is scrap of various lengths, including pieces of a length greater than the maximum length specified ; the output of the machine is scrap of various lengths, but none in excess of the maximum length specified. Any longer pieces have been cut into shorter lengths. The second process with which we are concerned is to compress suitable scrap into bales of specified dimensions and density. The first of these operations is performed by plant called a Lafan Scrap Metal Shearer ; the second is performed by a baling press. The taxpayer's first claim was and is that each of these machines is plant for use in an "operation by means of which manufactured goods are derived from other goods by the taxpayer" so that s. 62AA (2.) (a) (i) applied in relation to it. Windeyer J. rejected this contention, holding that neither machine is such plant because the goods derived from the operations do not fall into the description of manufactured goods. I agree with this conclusion and will shortly state my reasons for so doing. I preface these reasons, however, with the preliminary observation that my conclusion is very much one of general impression based upon what seems to me a common usage of ordinary language : see Federal Commissioner of Taxation v. Rochester (1934) 50 CLR 225 , at p 226 , per Dixon J. (at p649)
First as to the shearer. The operation begins with a heap of scrap with some long pieces and finishes with a heap of the same scrap but now without any long pieces. It would in my opinion be a departure from the common use of the English terms to describe what has happened as the manufacture of new goods. The end result is the same as if instead of putting the whole heap through the shearer each over-length piece of scrap was to be taken from the heap and cut, by means of a hack saw, into pieces of correct length. In neither case would the result be a heap of new goods manufactured from old. It seems to me that the photographs exhibited reveal clearly enough that the operation of the shearer does not result in the derivation of manufactured goods from other goods. It appears that all that has happened is the cutting of some of the scrap into shorter lengths. (at p649)
Now as to the baler. A comparison between scrap as it enters the baler and scrap as it leaves the baler affords the taxpayer some ground for saying that new goods have been derived by manufacture from old. There is at least a marked difference in appearance between motor-car bodies and baled scrap. Eventually however I have come to the conclusion that Windeyer J. was correct in rejecting the taxpayer's contention that new goods have been derived from old. The scrap is still scrap. True after baling the scrap is in a form in which it can be handled or used to charge furnaces, but what has happened is not that manufactured goods have been derived from old, rather it is that manufactured goods have been brought into a condition in which they can be sold or used. It is at this point that I find the distinction already adverted to between the scope of s. 62AA, sub-s. (2.) (a) (i) and s. 62AA, sub-s. (2.) (a) (ii) helpful. The baling process seems to me to be a process of bringing goods into a form for sale or use rather than a process of manufacture. (at p650)
For the foregoing reasons I have reached the conclusion that the appellant is not entitled to a deduction claimed by virtue of s. 62AA, sub-s. (2.) (a) (i). (at p650)
It remains to consider the contention that s. 62AA, sub-s. (2.) (a) (ii), covers the appellant's operations. In my opinion it does not because although what the appellant does is to bring manufactured goods into a form in which it sells them it does this in relation to goods that are not of its own manufacture. Accordingly upon the construction which I have accorded to s. 62AA, sub-s. (2.) (a) (ii), this provision does not apply to the appellant's operations. (at p650)
In my opinion the appeal should be dismissed. (at p650)