Federal Commissioner of Taxation v. Hamersley Iron Pty. Ltd.

Members: Lush J
Kaye J

Brooking J

Tribunal:
Supreme Court of Victoria (Full Court)

Decision date: Judgment handed down 9 November 1981.

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Brooking J.

Having had the benefit of reading in draft the reasons for judgment of the learned Presiding Judge, I am, subject to one matter, content to say that in my opinion the appeal should be dismissed, substantially for the reasons given by Lush J., on the ground that exemption is afforded by Item 14 of the First Schedule to the Sales Tax (Exemptions and Classifications) Act. I would prefer to express no opinion on the application of Item 113C of the Schedule.

Critical to the determination of the claim to exemption under Item 14 is the identification of the ``product'' of the mining operations, and I desire to make some further observations on this question. Mr. Batt contended that in the present case the ``product'' for the purposes of Item 14 was individual pieces of iron ore of manageable size. In this regard he referred to
F.C. of T. v. Broken Hill Pty. Co. Ltd. 69 ATC 4028 at p. 4031; (1969) 120 C.L.R. 240 at p. 273 , where it was laid down that once ore is obtained in manageable lumps then its further treatment, either to reduce or to increase its size so that it can be conveniently transported from the mine and better utilized in industry, forms no part of the mining operation. Mr. Batt invited us to follow each individual piece of ore in its travels as it was stacked or reclaimed and to conclude that it had not been treated because, apart from incidental degradation (which was unintended and insignificant and not to be viewed as an aspect of the supposed treatment), each lump ended its journey as it had begun, unchanged in any way. But to say that timber-getting ends once timber is gotten is not to refuse to see the wood for the trees. Mining operations end when the ore is in manageable lumps; but the product is iron ore in manageable lumps. The product of these mines is to be viewed, not as a multitude of fragmentary objects, but as a commodity - iron ore - torn from the earth in vast quantities; and crushed so that it may be carried away; and sold in bulk; and transported in bulk carriers. The product is the bulk; it is the bulk that is drilled and sampled and blasted and loaded and hauled and crushed and screened and sampled again and weighed and sold by the tonne in vast quantities.

The view that the ``product'' of mining operations for the purposes of Item 14 is in the present case iron ore viewed as a commodity, or bulk iron ore, gains support from a line of rating cases in which, in considering whether premises are used for the purpose of ``the adapting for sale of any article'', the courts have viewed as ``the article'', not the single object (for example, one egg), but a collection or agglomeration of objects. Courts have adopted this approach in answer to the suggestion that where a commodity is, for example, sorted and graded there is no adapting for sale because each object is the same before and after the supposed adapting. So premises have been regarded as used for adapting for sale where what is done is the separation of weed seeds and dirt from good seeds (
Hines v. Eastern Counties Farmers' Co-operative Association Ltd. (1931) 1 K.B. 446 , at p. 502; affirmed (1931) A.C. 456 , at p. 480 ; compare Samuel
McCausland v. Ministry of Commerce (1956) N.I. 36 ), the blending of whiskey (
James Buchanan & Co. Ltd. v. Assessor for Glasgow (1932) S.C. 358 , the sorting of rags (
Kaye v. Dewsbury Assessment Committee (1931) 1 K.B. 469 , at p. 508; affirmed (1931) A.C. 454 , at p. 477 ), the testing, grading, stamping and packing of eggs (
Commr. of Valuation v. McAllister (1954) N.I. 54 ) and the sorting, grading and matching of skins (
Hudson's Bay Co. v. Thompson (1960) A.C. 926 ). A number of other decisions are collected in Ryde on Rating, 13th ed., pp. 410-3. In the Hudson's Bay case Viscount Simonds at p. 943 described the judgment of Lord MacDermott L.C.J. in Commr. of Valuation v. McAllister, supra, as very valuable. It is of interest that the Lord Chief Justice of Northern Ireland, at p. 63, had said this:

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ATC 4594

``Has there been an `adapting for sale' of the eggs in bulk? I must confess that I can see no reason why, speaking generally, the process of sorting and segregating a mass of items that together constitute an `article' should not be capable of being an `adapting for sale' even though the items all remain physically unaltered when the process is completed. An example referred to in the course of the debate may serve to illustrate how difficult it is to resist this as a general proposition. The article is a quantity of crushed stone, the process the familiar one of putting the numerous fragments through a series of graduated sieves or riddles so that the mass is ordered and segregated into saleable parcels graded according to the size of the pieces. Nothing is done to alter the individual stones, but I think there can be no doubt that such a process would be commonly regarded as an `adapting for sale' as that expression is ordinarily used and understood. It is not, or course, every process of sorting or segregation that can be so reckoned. As Scrutton L.J. said in
Bailey's Case [1931] 1 K.B. 385, 494 :

• `In my view the question whether sorting or separation of an article to be sold from a bulk is an adapting for sale depends on the facts of each particular case, and cannot be determined simply by saying: `no sorting is adaptation for sale.' The original bulk may be such that it cannot be sold either legally, as in mixed seeds, or commercially, because an unsorted bulk is not wanted, and the process of sorting may be so complicated and mechanical as to deserve the title of a manufacturing process, i.e., of `adapting for sale.' On the other hand, the bulk and the article to be sold may be so similar and of such a nature, such as taking a quarter of a pound of bullseyes out of a bulk in a bottle, that the separation or sorting may well be regarded as an entirely minor incident of the sale or distribution.'

The question is one of degree to be answered according to the facts of each instance. But the principle is, in my opinion, clear. The process of sorting items in bulk may be an `adapting for sale.' This is entirely consistent with the dictum of Lord Dunedin already quoted, as is indeed made explicit in his opinion in the
Kaye [1931] A.C. 454, 477 , and
Hines [1931] A.C. 456, 477 , cases.''

Porter L.J. concurred with the judgment of the Lord Chief Justice, and at p. 69 Black L.J. also gave the example of screening crushed rock so as to separate stones into different sizes to meet the requirements of different purchasers.

What was said of the seed by Lord MacDermott in Samuel McCausland v. Ministry of Commerce, supra, at pp. 40-41 might be said of the ore in the present case. His Lordship was there concerned with what constituted the goods for the purpose of the inquiry whether the company was engaged in the manufacture of goods, and said this:

``I have no doubt that this is the right view and that the relevant `goods' in this case are the seed in bulk. To hold otherwise would be to lose all touch with reality. Though most of the various contrivances used by the company operate upon the dimensions and characteristics of individual seeds, what is being dealt with from first to last is seed in bulk and nothing else. As Scrutton, L.J. observed in Bailey v. Potteries Electric Traction Company [1931] 1 K.B. 385, 495,

• A seed is never sold by itself commercially, and I think the article to be altered or adapted for sale is the article to be sold, i.e. a bulk, not an individual item which is never sold by itself.'

... If one asks what goods the company produces one must, I think, look at the matter commercially and see what it is that is being produced for sale. And the answer is to my mind quite clear: the goods produced by the company are seed in bulk.''

There are a number of Australian and New Zealand decisions on whether an article or goods were prepared for trade or sale within the meaning of legislation relating to factories and shops, and some of these should be mentioned. In
Alderson v. Gold (1909) V.L.R. 219 a'Beckett held that the sorting, weighing and packing of nails was comprehended, notwithstanding that

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ATC 4595

nothing was done to improve or alter the character of the nails themselves. The contrary view was taken by the High Court of the unpacking, labelling and repacking of softgoods in a warehouse in
Henry Bull & Co. Ltd. v. Holden (1912) 13 C.L.R. 569 . Griffith C.J. considered (at p. 573) that something must be done to the article which altered its character or condition so as to make it fit or more fit for trade or sale: it was not enough merely to do something with respect to an article that retained its original character and condition so as to make it more convenient to sell it, such as exposing it for sale, or marking its name or price on it, or packing it after sale. In the view of Barton J. (at p. 575) the mere rendering of the articles visible and more accessible to purchasers fell outside the Statute. Isaacs J. laid down as the test whether an act was done to or in relation to the goods themselves which effected some alteration in their character or condition for the purpose of making them saleable, or improving their chance of sale, or obtaining a better price for them (p. 576). Cases in which Bull's case has been considered include
Billingham v. New Zealand Loan and Mercantile Agency Co. Ltd. (1914) V.L.R. 321 and
West v. Wilson (1937) N.Z.L.R. 866 ; in the decision last cited the testing, grading and repacking of eggs was held not to constitute preparing goods for sale.

Properly understood, Bull's case is by no means opposed to, and indeed supports, the approach taken in the English, Scottish and Irish cases in which the courts have viewed as ``the article'', not the single object, but a collection of objects. Griffith C.J. appears (at p. 574) to have accepted the correctness of
Hoare v. Robert Green Ltd. (1907) 2 K.B. 315 to have regarded that case as depending, not upon the use of wire and frames, but simply upon the circumstance that a bouquet of flowers tastefully arranged is substantially a different thing from the flowers lying unarranged. Barton J., citing Hoare's case and Alderson v. Gold, supra, with apparent approval, remarked (at pp. 574-5) that articles might be rendered fitter for sale without alteration in their structure or even in their individual appearance, as by arranging them so as to make them look more attractive or even by rearranging and repacking them so as to make them more suited to the needs of a class of purchaser.

Once it is accepted that the ``product'' for the purposes of Item 14 is the bulk ore and not each fragment, it is in my opinion tolerably clear that each of the machines in question was for use in the treatment of the product.

Item 14 in terms requires that the machinery be, not merely for use in the treatment of the products of mining operations, but for use in the mining industry in the treatment of those products. Mr. Forsyth contended that, putting to one side the limitation imported by the phrase ``in the mining industry'', there was treatment of a product if it was changed by being subjected to some action intended to have that result. Whether or not the word ``treatment'' in Item 14 has a meaning as wide as that contended for by Mr. Forsyth, I am satisfied that it at least comprehends the subjection of the product to some action which is intended to and does change the product in a way which is of significant advantage commercially to the producer, and that the machinery was for use in treatment in that sense.