SOFTEX INDUSTRIES PTY LTD ACN 010 152 913 (FORMERLY COSCO HOLDINGS PTY LTD) v FC of T
Judges:Drummond J
Court:
Federal Court
MEDIA NEUTRAL CITATION:
[2000] FCA 1693
Drummond J
This is an appeal under s 44 the Administrative Appeals Tribunal Act 1975 (Cth) from a decision of the Administrative Appeals Tribunal affirming a decision of the Commissioner of Taxation made in November 1996 disallowing the applicant's objection of January 1996 against an earlier decision of the Commissioner in December 1995. By this decision, the Commissioner disallowed in full the applicant's claim for a refund of sales tax said to have been paid by the applicant in the period from 1 January 1993 to 30 June 1995 on the purchase by it of bales of paper feed for use in its own manufacturing operations.
2. There are organisations that collect waste paper and by passing that waste through an industrial process consisting of a series of operations involving the use of machinery, remove contaminants such as paper clips, plastic and clay fillers from the waste, sort it into paper of various kinds and grades and then shred and bale the paper in each sorted lot. These bales are then sold by the collectors as feed to manufacturers of paper products. The applicant, which makes tissue paper in its factory, buys these bales from the waste paper collectors for use as feed in its tissue paper making process. It has paid the waste paper collectors at a price per bale. The waste collectors add much value to the waste paper they collect by processing it into bales of the kind they sold to the applicant. The unsorted waste attracts prices of the order of $40 per tonne; bales sell for from $400 to $600 per tonne.
3. The applicant has claimed a refund of sales tax on these purchases pursuant to s 51 the Sales Tax Assessment Act 1992 (Cth) (``the Act'') and ground CR6 of Table 3 in Schedule 1 of the Act. To make good its claim to a refund, the applicant has to show that it has ``borne tax'' within the meaning of that term in ground CR6 on these bales, ie, in the circumstances of this case that it has ``borne tax'' within s 11(3) of the Act. It is common ground that there is ``a sufficient link'' for the purposes of s 52 of the Act between the tissues manufactured by the applicant and the bales of waste paper purchased by it from the collectors. It was also common ground before me that the waste paper collectors have not themselves paid sales tax in respect of the bales sold to the applicant. But if they manufacture the bales from the waste collected by them, the applicant contends that they were liable to pay sales tax on sales to it pursuant to s 16 of the Act by reason of those sales being ``assessable dealings'' by the collectors within item AD1a of Table 1 to Schedule 1. It is then said that, because of that, the prices paid by the applicant for the bales should be assumed to include the sales tax that the waste paper collectors should have paid on those sales. The result, so the applicant says, is that it has ``borne tax'' in the prices it paid the collectors and is therefore entitled to a credit within the meaning of that term in s 11(3) of the Act. The Tribunal determined this issue adversely to the applicant.
4. The applicant did not attempt, in the proceedings before me, to challenge the correctness of the Tribunal's rejection of the case the applicant advanced to it based on an economic analysis of the relevant dealings which was designed to show that, if the paper collectors were manufacturers, their prices to the applicant should be taken to include a component for the sales tax they were liable to pay or, alternatively, a component which the paper collectors themselves should be taken to have paid in respect of part at least of the sales tax which should be assumed to have been paid by the original manufacturers of the paper before it became waste. The applicant contended that, if I were to conclude that the Tribunal went wrong in law by failing to find that the collectors were manufacturers and so were liable to sales tax on their dealings with the applicant the matter should be sent back to the Tribunal. It was said that whether the applicant had ``borne tax'' was a matter which could only be determined after facts additional to those found by the Tribunal in the initial hearing are found. Notwithstanding this, there was canvassed before me, in written submissions, an argument that, if the collectors were liable to pay sales tax on their sales of the bales to the applicant, the applicant should be taken to have ``borne tax'' in respect of those bales because it should be inferred ``as a matter of logic'' that the collectors recovered any sales tax liability of their own in the prices they charged the applicant. This argument appears to accept that it is not enough, for the purposes of s 11(3) of the Act, to show that a person has
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borne tax on goods to show only that he has purchased the goods from someone who is himself liable to pay tax on that sale. That is, the applicant appears to assume that whether a person can be taken to have borne tax within s 11(3) of the Act involves factual issues, such as whether the price he paid for the goods in question did, in fact, include tax. That cannot be ascertained merely by a finding that the vendor of the goods was liable to pay sales tax on that transaction. It therefore seems to me correct to say that the matter must be sent back to the Tribunal to determine whether the applicant should be taken to have borne tax on the bales it purchased from the collectors and that a conclusion can only be drawn on this issue after facts have been found additional to those the subject of the concession that the paper collectors did not, in fact, pay tax on any of the sales of bales to the applicant. The respondent accepted that if the Tribunal went wrong in concluding that the paper collectors were not manufacturers of the bales, the case should be remitted.5. None of the waste paper collectors from whom the applicant purchased baled paper in the period in question was a party to the proceedings before the Tribunal. It was not suggested that any such organisation should be joined in the proceedings in this Court.
6. The applicant identified the issues for determination as firstly, whether on the facts found the Tribunal was compelled to find that there was manufacture by the paper collectors and, in the alternative, whether they misconstrued the meaning of ``manufacture'' in the Act. The first issue was put this way in recognition of the limited jurisdiction of the Court to interfere with the Tribunal's decision. A more wide ranging case was run by the applicant in the Tribunal.
7. The Tribunal determined the first issue by holding that the waste paper collectors had not manufactured the bales so their sales to the applicant did not constitute ``assessable dealings'' in respect of which the collectors as sellers were liable under item AD1a to pay tax. This finding destroyed the basis for the applicant's claim to the credits under s 51 of the Act.
8. To succeed here, the applicant must show that the Tribunal made an error of law in finding that the collectors were not manufacturers of the bales sold to the applicant. The applicant acknowledged that, to do this, it had to persuade me that determining that the collectors were manufacturers was the necessary conclusion from the facts found by the Tribunal and not just the best of a range of conclusions which it was open to the Tribunal to draw on the basis of those facts. Reference was made to the fifth proposition and to the qualification to that proposition in
Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287-288, a passage cited with approval (subject to a reservation of no present relevance) in
Collector of Customs v Agfa-Gevaert Limited 96 ATC 5240 at 5244; (1995-1996) 186 CLR 389 at 395-396. It was submitted that in reaching a conclusion on the issue for my determination, I could have regard not only to the facts found, but also to facts not disputed before the Tribunal - see
Sharp Corporation of Australia Pty Ltd v Collector of Customs (1995) 59 FCR 6 at 16.
9. The case was fought on the basis that the word ``manufactured'' in the statutory description of the ``assessable dealing'' the subject of item AD1a of Table 1 was used in its ordinary non-technical meaning. It therefore follows from the fifth proposition in Pozzolanic and the qualification to it that, if on the facts found or not disputed, the question whether the paper collectors' activities was ``manufacture'' within the ordinary meaning of that word reasonably admits of different answers, then the Tribunal's determination that manufacture was not involved required it to select one from a number of available different conclusions, ie, to determine a question of fact, not law. Hence the acceptance by the applicant of the need for it to show that on the facts found by the Tribunal, the only conclusion reasonably open was that the activities of the waste collectors amounted to manufacturing.
10. On the critical question of whether the baled waste paper was manufactured by the paper collectors, the Tribunal referred to the definition of ``manufacture'' in s 5 of the Act, observed that it was inclusionary, rather than exhaustive in terms, and said: ``we should accord to it first its ordinary meaning and then consider the extended meanings brought within its ambit by the definition.'' The Tribunal referred to numerous authorities, including decisions on the definition of ``manufacture'' in the 1930 sales tax legislation which is similar to the definition of that term in s 5 of the current
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Act, such asCommonwealth of Aust & Anor v Genex Corp Pty Ltd & Ors 92 ATC 4764 at 4768; (1992) 176 CLR 277 at 289-290, where the Court said:
``The definition of `manufacture' in s 3(1) of the Act is inclusive, and there is nothing to displace the propriety of applying the word as it is `ordinarily applied in English speech'. It has long been accepted that one is required to ask whether that which is made is `a different thing' from that out of which it is made. And, equally, it is no novel proposition to say that this question is on occasion difficult to answer.''
11. The Tribunal referred to statements by Windeyer J in
MP Metals Pty Ltd v FC of T (1967) 14 ATD 407 at 412; (1968) 117 CLR 631 at 639 to the effect that the term ``manufactured goods'', albeit in a different statutory context from that presently relevant, is ``not a technical term capable of a precise definition universally applicable''. The Tribunal also referred to
FC of T v Jack Zinader Pty Ltd (1949) 9 ATD 46; (1949) 78 CLR 336 and to
FC of T v Jax Tyres Pty Limited 85 ATC 4001; (1984) 5 FCR 257 for the proposition that, while the process involved in what is said to be manufacture is relevant to that characterisation, it is not a decisive consideration. The Tribunal appears to have found in the MP Metals case, a decision on facts not dissimilar from the present, support for its conclusion that the process engaged in by the waste collectors in turning waste paper into bales was not sufficient to justify characterising the collectors as having manufactured the bales by that process.
12. The Tribunal examined the paper collectors' activities saying:
``49. Having regard to the principles formulated in all of the cases, we turn to the paper collector's activities. The paper collected by the paper collectors is, with varying degrees of sophistication and by varying methods, sorted, shredded or not shredded as the case may be and baled. Foreign objects, such as paper clips and staples, are removed to varying degrees from the paper.
50. In a commercial sense, we are satisfied that the bales sold by the paper collectors attract a higher price than did the waste paper of which they are formed. We are also satisfied that waste paper which has been sorted and baled is in a form that is generally more commercially acceptable to paper mills and board mills than the material in the form in which it is collected by the paper collectors. The only exception to this statement might be unused paper such as letterhead.
51. We are also satisfied that the paper collectors make use of such equipment as conveyor belts and, to varying degrees, of hammer mills, shredders and automatic balers. These are items of equipment which might possibly be expected to be found in a manufacturing plant. The processes themselves are not, however, determinative of the issue. The issue is whether the goods at one end of those processes are different from the goods at the other end.
52. In our view, they are not. They are still waste paper albeit sorted, perhaps shredded and certainly in a form more easily handled by the paper mills and the board mills than the individual pieces of waste paper collected by the paper collectors. The sorting processes enable a manufacturer such as the applicant to know that it has paper of a certain quality in a particular bale and so to regulate the quality of waste paper that it adds to its processes. The shredding processes have led to the loss of clay and filler that assists in the disintegration process in the applicant's mill. Processes such as those assist the applicant's case but, at the end of them all, what has happened to the paper in the hands of the paper collectors is that the wastepaper has been brought into a condition in which it can more readily be sold or used and nothing more.
53. The case of Ready Mixed Concrete upon which Mr Batch relied is clearly of a different nature from the present case. One need only to have asked Michelangelo or Bernini on the one hand and John McAdam on the other to know that blocks of stone and aggregate are different goods even though they are both wholly comprised of stone. The former could not sculpt from the aggregate and the latter could not build roads from the blocks of stone per se. The same cannot be said of waste paper of any size. Waste paper remains precisely that whatever size it is. It has the same use
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whatever size it is. Certainly, paper mills and board mills may have to sort it and shred it if that process has not already been undertaken by the paper collectors. At the end of the day, however, that is essentially only a grading and sorting process and not a process which changes waste paper from being waste paper.54. It follows that we do not consider that the paper collectors have manufactured goods within the ordinary meaning of the word `manufacture'....''
13. There is a myriad of cases dealing with whether particular processes constitute manufacture for the purposes of Australian revenue legislation, including the sales tax acts and United Kingdom revenue legislation. The difficulty in discerning in this body of case law any principles of general application for resolution of the question whether activities will amount to activities of manufacture for the purpose of such legislation, ie, manufacture within the ordinary usage of that term emerges, in my opinion, from a comparison of MP Metals and
Ready Mixed Concrete (WA) Pty Ltd v FC of T 71 ATC 4107. Windeyer J was the judge in both cases. The question in both was whether machinery was for use in an ``operation by means of which manufactured goods are derived from other goods... by the taxpayer'' within the meaning of a revenue statute. In MP Metals, Windeyer J said of the numerous cases to which he was referred which dealt with the meaning of the word ``manufacture'' in both the revenue legislation before him and in other Acts (at ATD 412; CLR 639):
``... I have gained only two things from them. One is a conviction of the futility of trying to decide the present case by observations made about other facts and other Acts. The other is that the expression `manufactured goods' is not a technical term capable of a precise definition universally applicable. Rather is it to be interpreted `according to the received usages of English speech'... `as a matter of ordinary parlance in any given case'...''
14. His Honour referred to statements in the authorities that direct attention to whether that which is made is a different thing from that out of which it is made in order to determine whether there has been manufacture within the ordinary meaning of that term. He said (at ATD 411; CLR 638):
``... It is no doubt true that all manufacturing involves the making of a new thing. But it is not true that every making of a new thing is, in the relevant sense, manufacturing. And what is meant by a new thing?''
15. He went on to demonstrate the difficulty in treating the test of whether a new thing is made as a sure guide to determining whether manufacturing has occurred.
16. In MP Metals, scrap metal collected by the taxpayer was sorted and pieces in excess of a specified maximum length were put through a shearing machine to cut them into shorter lengths. The short lengths of scrap were then compacted in a baling press into bales of a relatively small standard size as feed for use in Australian smelters, while some were compacted into bales of a larger standard size for use as feed in Japanese steel mills to which they were exported. Windeyer J observed, at ATD 409; CLR 635, that, as a result of American trade practices, ``there are now internationally recognized descriptions or specifications by which scrap is classified, bought and sold.'' The plant in respect of which the investment allowance was claimed by the taxpayer formed part of a larger aggregation of plant consisting of an electrically driven scrap metal shear, an overhead crane, a large lifting magnet and a baling press. The plant in question was held not to be plant for use in an operation by means of which manufactured goods are derived from other goods.
17. In the Ready Mixed Concrete case, the equipment in question was a crushing plant consisting of conveyor belts that moved the large blocks of granite over vibrating screens to remove clay etc from them, then into a primary crusher that reduced the large feed blocks to smaller sized stones, thence through a series of secondary crushers that reduced the stones to progressively smaller stones and thence to screens which separated the crushed material into categories of aggregate that met stipulated requirements of size, including precise requirements specified by various Australian Standards. Like the baled scrap metal in MP Metals, the crushed aggregate in Ready Mixed Concrete was produced and sold as an intermediate raw material for use, eg, in the making of concrete and reconstituted blocks and stones as a building material and as
ATC 4800
material incorporated in various layers of road paving, although some was used as a bedding for sleepers in railway lines. The crushing plant was held to be used in operations by means of which manufactured goods were derived from other goods. In the Ready Mixed Concrete case, his Honour said, at 4109:``... I have, however, come to the conclusion that aggregate is, in a relevant sense, a new and different thing from blocks of stone. It is all very well to say that it is still stone and only in small pieces instead of in big pieces. That I think is too facile a solution of the problem.
... The question in that case [MP Metals] was in a sense the same as in this case: but the facts were essentially dissimilar. In my view the aggregates here are new goods derived from other goods, the blocks of quarried stone; and they are I think aptly described as `manufactured'...''
18. As Menzies J said in MP Metals on appeal, in agreeing with Windeyer J, at ATD 542; CLR 649:
``... my conclusion is very much one of general impression based upon what seems to me a common usage of ordinary language...''
19. In MP Metals, Windeyer J relied on a dictum by Dixon J in
Rochester v FC of T (1934) 2 ATD 466 at 466-467; (1934) 50 CLR 225 at 226-227 as providing the explanation for why the question: manufacture or not? had to be answered by a common sense application of the ordinary meaning of the expression ``manufacture'' rather than by a rigorous process of logical and abstract reasoning to determine whether it could be said that a process had been employed which resulted in the making of a new thing. Dixon J said:
``I think that in the interpretation of these very difficult provisions there is no safe guide but the common use of English terms. To attempt some logical analysis of the conceptions of manufacture and of production and to apply the analysis to any process or operation that appears to possess the attributes found to constitute these conceptions, although it would not ordinarily be described by the words `manufacture' or `production', must lead to results which do not represent the true interpretation of the Act....''
20. In both MP Metals and Ready Mixed Concrete, Windeyer J gave numerous examples of processes which could be said to result in the making of a new thing, but which could not be described in ordinary parlance as manufacturing.
21. At one level of abstraction, it is very difficult, in my opinion, to draw any distinction between the industrial process the subject of the MP Metals decision and that the subject of the Ready Mixed Concrete decision when trying to determine whether a new thing has been made. In the MP Metals case, in an organised industrial process, long pieces of scrap were sorted out from the delivered material, cut into short pieces and all were then compacted into bales of the particular sizes required by purchasers for use as feed in their own industrial activities. In the Ready Mixed Concrete case, in another industrial process, large blocks of material were crushed into smaller pieces and graded to the sizes required by particular purchasers for use as feed in their own industrial processes.
22. I think it emerges from this discussion of the authorities that it is impossible to say that the only conclusion open to the Tribunal on the facts found by it or not in dispute before it was that the bales of waste paper were manufactured goods. The characterisation of this kind of process, ie, one that it is not immediately obvious falls within the ordinary meaning of the term ``manufacture'', necessarily involves matters of impression and of judgment upon which reasonable minds can differ. It would, I think, be open to a decision-maker charged with forming a conclusion on whether the collectors' processes for producing bales amounted to manufacture to place more weight than the Tribunal did on the nature of the process engaged in by each in converting delivered waste paper into bales of graded feed paper for sale to paper manufacturers. That is on the authorities referred to by the Tribunal, a relevant though not decisive consideration. It would also be open to the decision-maker, applying the comment of Windeyer J in MP Metals at ATD 411-412; CLR 638-639, to place more weight than the Tribunal did on the fact that the collectors added very substantial value to the waste they collected by cleaning, sorting, shredding, grading and baling it to bring it into forms of particular utility as feed to paper manufacturers. But such criticisms of the
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Tribunal's decision, if it is correct to describe them as criticisms, go only to the weight the Tribunal chose to give to aspects of the evidence.23. The applicant has provided very detailed and extensive references to the evidence dealing with exactly what the processes were to which the collectors subjected the waste paper, from collection to production of the bales. But, as is demonstrated by the different outcomes in MP Metals and Ready Mixed Concrete, there is nothing about those processes that shows them to so clearly constitute the activity of manufacturing within the ordinary meaning of that term that it can be said that, even assuming the Tribunal may have erred in fact in refusing to characterise the processes as manufacturing ones, that error constituted an error of law within the principle stated in Pozzolanic.
24. The Tribunal made no error of law in holding that the process followed by the paper collectors in turning waste paper into bales of paper feed was a process of manufacture in the ordinary sense of that word.
25. Both in the Tribunal and before this Court, the applicant also contended that, even if the processes engaged in by the waste collectors to produce the bales did not constitute manufacture within the ordinary meaning of that term, they nevertheless came within the extended meaning of that term in sub-par (b) of the definition in s 5, viz:
```Manufacture' includes:
- ...
- (b) combining parts or ingredients so as to form an article or substance that is commercially distinct from the parts or ingredients.''
26. It was said that the Tribunal erred in law in holding that the waste paper had not been ``combined'' within the meaning of that term in this part of the definition and erred in concluding that the bales were not ``commercially distinct'' from the waste paper from which they were derived.
27. It is here, I think, the Tribunal did fall into error of law.
28. It concluded that the collectors' activities did not come within the extended definition of ``manufacture'' in para (b) for the following reasons:
``55. We have also considered whether the paper collectors' products comes within paragraph (b) of the definition of `manufacture'. Mr Gzell submitted that this paragraph came to be inserted in the Act after the High Court handed down its judgement in
Irving v Munro & Sons Pty Ltd (1932) 46 CLR 279 (Gavan Duffy CJ, Starke, Dixon, Evatt and McTiernan JJ). The defendant imported motor cycles from England. Each motor cycle was imported in a case, each was imported in parts and, with the exception of tyres and tubes, all of the parts for each motor cycle were in the case. Before the motor cycles were packed in the cases, they had been assembled, tested and disassembled. The defendant re-assembled the motor cycles. The High Court held that the defendant was not a manufacturer when he, or his employees, undertook this task. No reasons were given.56. The only principle that can be gleaned from this case is that the processes must be considered to determine whether or not there is a combination of parts or ingredients. If there is such a combination, it must then be determined whether that combination has formed an article or association that is commercially distinct from those parts or ingredients.
57. The parts or ingredients used by the paper collectors is paper of varying shapes, sizes, qualities and textures. On the evidence we have been given, we find that, with one exception on one occasion, some or all of the paper collectors shred or tear the paper, or some of it, into smaller pieces. All of them bale it in bales containing waste paper of particular grades. The description of those grades varies among the paper collectors but are determined by them with reference to the needs of their customers. The one exception on one occasion relates to a pallet or pallets of unused letterhead which we find one paper collector delivered directly to the applicant without any handling other than pick up and delivery. We will return to that letterhead later in these reasons.
58. The fact that the paper collectors may sort, grade and bale their waste paper does not lead to the conclusion that the waste paper has been `combined'. The ordinary meaning of the word `combine' is
- `... 1 v.t. Unite, join together; associate (persons etc.) in a joint action, feeling,
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etc. 1.ME. b Cause to coalesce or form one body...' (New Shorter Oxford English Dictionary)- `v.t. 1. to bring or join into a close union or whole; unite; associate; coalesce....' (Macquarie Dictionary)
59. The essence of the word `combine' is that there must be a joining together in some way or another. It must also be read with the remainder of the paragraph. There must be a joining together to form a commercially distinct product. The `combining' could be as simple as mixing together parts or ingredients without any chemical process or mechanical process to link the various parts or ingredients. Baking powder is an example of that. Ground rice, bicarbonate of soda and tartaric acid are mixed together and passed through a sieve. The process leads to an inextricable mixing of the parts or ingredients and so to their combination as baking powder. The individual ingredients can no longer be separately identified but exist only as part of a new and distinct product. When that baking powder is mixed with ingredients such as flour, eggs and sugar to make a cake, there has been a chemical reaction and the ingredients in the cake are no less inextricably mixed into a new and distinct product than those in the baking powder. That process too is a combination of parts or ingredients. So too is the physical process of combining the various parts of a motor cycle into a motor cycle. A new and distinct product is formed from those parts even though, unlike the cake, those parts may be able to be physically separated.
60. In the case of waste paper sold by the paper collectors, the waste paper (with the exception of the letterhead referred to previously) is gathered together in bales. It is not, however, combined in the sense in which that word is used in the definition. There is a sorting and grading process which does not amount to a combination of the waste paper in any sense. There may be a shredding or tearing process of some form but again the waste paper still has its individual identity even if each piece is by now in several smaller pieces. When the paper is baled, we find that the paper is compressed but, again, each piece within the bale retains its individual identity. There has been no joining of them in any sense be it physical, chemical or otherwise. Waste paper has been sorted, shredded perhaps, and baled and has come out as waste paper. That is so even though some value may have been added to it in that it is now a more saleable product to paper mills and board mills.
61. In view of our earlier findings, we have also concluded that the paper sold to the paper collectors is waste paper and no different from the waste paper of which it is comprised, we must also find that the goods are not commercially distinct. They cannot be commercially distinct if they are essentially the same. That is so even though the waste paper may be in a form which is more readily saleable because it is in a form more easily used by the paper mills and board mills.
62. It follows that the goods sold by the paper collectors to the applicant cannot be regarded as having been manufactured in Australia... They cannot be regarded as the subject of an assessable dealing and so the paper collectors cannot be liable to pay tax in relation to their dealings with them.''
29. The Tribunal correctly started from the premise that, in seeking the meaning of this sub-paragraph of s 5, the word ``combining'' must be read with the remainder of the paragraph. In
Secretary, Department of Social Security v Ekis (1998) 85 FCR 382, I said at 385:
``Interpreting a composite phrase by dissecting it into its component words and seeking a meaning for each has, however, long been identified as an inappropriate method of construing such a phrase: see, for example,
Mersey Docks & Harbour Board v Henderson Bros (1888) 13 App Cas 595 at 599-600 and
Collector of Customs v Agfa- Gevaert Ltd (1996) 186 CLR 389 at 399-400.''
30. A similar point was made by Lockhart J in Jax Tyres at ATC 4005; FCR 261, where his Honour said:
``In my opinion, para (b) of the definition [ of `manufacture' in the Sales Tax Assessment Act] applies only where there is a mere combination of parts or ingredients. This conclusion follows from the legislative history of the definition and the language of
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para (b) itself, especially since the word `whereby' in para (b) relates back to and is governed by the previous word `combination' in the whole expression `the combination of parts or ingredients whereby an article or substance is formed [which is commercially distinct from those parts]'.''
31. But though the Tribunal recognised that it was necessary to seek the meaning of the composite phrase in sub-par (b), rather than the aggregate of the meaning of the individual words in the phrase, that is not how it in fact proceeded. By focusing on the search for the meaning of the term ``combining'', it was I think led away from the true meaning of the statutory expression.
32. It can be seen that the Tribunal went about reaching its conclusion that the collectors' activities did not come within the extended definition of ``manufacture'' in sub- par (b) by focusing on the concept of ``combining'' and by concluding that the processing of the waste paper into bales did not ``amount to a combination of the waste paper in any sense'' for the reason that, though the waste paper collected may have been torn into pieces and the pieces baled, ``each piece within the bale retains its individual identity. There has been no joining of them in any sense be it physical, chemical or otherwise.''. Having reached that position, it concluded that because the baled paper was ``no different from the waste paper of which it is comprised, we must also find that the goods are not commercially distinct. They cannot be commercially distinct if they are essentially the same.''.
33. By basing its conclusion on the finding that each piece of waste paper collected retained its individual identity in the compressed and graded bales, even though shredded into smaller pieces, the Tribunal misapplied sub-par (b) of the definition. Whether a particular factual situation comes within the definition does not depend upon whether the original parts remain identifiable at the end of the process, but on whether the parts have been combined so as to form an article that did not previously exist which is commercially distinct from the original parts. As Lord Reid observed in
Hudson's Bay Co v Thompson [1960] AC 926 at 954, in dealing with a less sophisticated sorting and grading process than that in which the waste collectors were involved, you can speak in ordinary speech of having a different article at the end of a process from that which you started with, even where the parts making up the original article continue to exist physically unaltered in the end product. Each piece of waste paper collected may, as the Tribunal held, have retained its individual identity in the bales, though shredded into smaller pieces, at least in the sense that, with appropriate technology, it might be possible to reconstitute from the shredded and graded pieces in a bale the original piece of waste paper that was collected. But it seems to me that, if that can be said of the paper, it is equally true of the granules of the different ingredients that, when mixed, become baking powder by a process the Tribunal accepted involved manufacture. It seems to me that the task of confirming the separate identity of the pieces of paper would be no more difficult or easy than that task would be in relation to the ingredients of baking powder. Continued separate identifiability of the original parts is not a definitive test for determining whether an activity is ``manufacture'' within sub-par (b) of the definition.
34. The definition is satisfied where the original parts are combined into an article that did not previously exist and that article is commercially distinct from those parts. As the dictionary meanings of the word ``combine'' cited by the Tribunal in its reasons and the requirement for combination so as to produce commercial distinctiveness show, the term is not restricted in ordinary speech to situations involving connecting parts in a secure way by chemical or mechanical bonding: an activity capable of falling within the ordinary meaning of the word ``combining'' does not require that there be a chemical reaction that bonds or transmutes the parts into a new article or even that there be some form of secure mechanical connection between the parts, such as by nuts and bolts or by stitching together of pieces, before there can be an activity of manufacture within this extended definition. I do not understand the dictum of Williams J in Jack Zinader at ATD 52; CLR 351 to require a mechanical connection before there can be a combining of parts within the meaning of this sub-paragraph. His Honour there held that fashioning a new garment out of pieces retrieved from old garments was not only ``manufacture'' within the ordinary meaning of the word, but an activity that ``goes further than
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35. The Tribunal found that the waste paper is sorted into separate lots of uniform grades of paper; it is cleaned of impurities; it is generally shredded and finally compacted into bales of waste paper of the same grade. A bale, homogeneous in content, is thus significantly different from the lots of waste paper picked up at the collection points which (save only for the unused letterhead) are heterogeneous in content. The bales, moreover, have a use as feed for paper product manufacturers, including the applicant, in their own industrial processes that the unsorted, dirty waste picked up from the collection points does not have to those manufacturers. They are prepared to pay a sum for the bales much greater than the prices that equivalent tonnages of the unsorted waste paper command. Bales of paper, all of a particular grade, are commercially distinct from that same paper in the form in which it was collected as waste mixed promiscuously with other grades of waste paper.
36. Once the Tribunal made findings to this effect, the only conclusion reasonably open was that the paper collectors' activities came within the extended definition of manufacture in sub- par (b). By holding otherwise, the Tribunal made a further error of law.
37. For the reasons given, where a process, particularly a quite complex industrial process of the kind undertaken by the waste paper collectors, is engaged in for the purpose of sorting, cleaning and reshaping parts of mixed aggregates of little value into matched aggregates of much greater value in commerce, in my opinion, there will usually be a combining within the meaning of sub-par (b) of the definition.
38. In
Adams v FC of T (1948) 8 ATD 332 at 335, Williams J said, of the definition of ``manufacture'' in the sales tax legislation then in force materially identical to that now found in sub-par (b):
``... the definition expressly includes the combination of parts or ingredients whereby an article is formed which is commercially distinct from those parts or ingredients. This part of the definition would appear merely to incorporate an ordinary grammatical meaning of the word which is to work up materials into forms suitable for use.''
39. For the reasons given, I respectfully doubt whether, if intended to be a comprehensive statement of the effect of this provision, it is an accurate reading of sub-par (b). But, if it is, the waste paper collectors' activities, in converting waste into bales, seems to me to come squarely within the way his Honour reads this definition.
40. The Tribunal also explained why the applicant could not claim a credit for the unused letterhead which the applicant also purchased from the collectors:
``63. The one exception to which we have referred above is the unused letterhead which was collected by one of the paper collectors and delivered directly by that paper collector to the applicant. That paper cannot be said to have been manufactured by the paper collectors in any sense. It has simply been collected by the paper collector and delivered without further processing to the applicant. It follows that the letterhead cannot be regarded as `Australian goods' as they have not been manufactured in Australia by the paper collectors. Consequently, such goods are not `assessable goods' and the paper collectors were not liable to pay tax in relation to their dealings with those goods.''
41. The applicant did not challenge the Tribunal's decision, so far as it dealt with the unused letterhead.
42. The matter must therefore be remitted to the Tribunal for re-determination in accordance with these reasons whether in respect of all relevant purchases of bales by the applicant, other than purchases of unused letterhead, it should be taken to have borne tax within s 11(3) of the Act and whether, depending upon the Tribunal's finding on that issue, the applicant is entitled to any and, if so, what credit in respect of its purchases of bales.
THE COURT ORDERS THAT:
1. The appeal be allowed.
2. The matter be remitted to the Administrative Appeals Tribunal as originally constituted for determination, in accordance with the reasons of the Court, whether in respect of relevant purchases of bales of waste paper by the applicant (other than purchases of
ATC 4805
unused letterhead), the applicant has borne tax and whether, if the applicant has so borne tax, the applicant is entitled to any and, if so, what credit in respect of sales tax.This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.