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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.

Lush J. (Kaye J. concurring)

This is an appeal from the decision of the trial judge in an action brought by the Commissioner of Taxation of the Commonwealth of Australia for the recovery from the respondent of sales tax on three items of goods purchased by the respondent in 1976, and in that year applied by the respondent to its own use. The items were, firstly, an alarm panel bought by the respondent for $1,301 and fitted to the cabin of an Hitachi bucket wheel reclaimer used at the Parker Point establishment of the respondent; secondly, two travel gears for an Hitachi stacker, also used at Parker Point; and thirdly, a repair kit for a Demag bucket wheel reclaimer at the respondent's mine at Paraburdoo. The price of the second item was $2,807.25, and that of the third does not appear in the evidence. The sums claimed in the action were $944.03 as sales tax, and $176.75 as additional tax. Tax was claimed in respect of the first two items pursuant to Sales Tax Assessment Act (No. 4) 1930-1973, and on the third item pursuant to Sales Tax Assessment Act (No. 8) 1930-1975, sec. 3. The action was brought as a recovery action under Sales Tax Assessment Act (No. 1) 1930-1973, sec. 30(2), which is made applicable to assessments under the other two Acts to which reference has been made

ATC 4584

by virtue of the provisions of sec. 12 in each of those Acts. The Sales Tax Procedure Act 1934-1973, sec. 10, provides for proof of the Commissioner's case by production of a certificate and places the burden of proving that the tax was not owing upon the defendant. Relevantly to this case, the respondent carried the burden of proving that the goods in question fell within any class of exempt goods.

The respondent claimed that each of the items of goods was exempt either under item 14 or under item 113C of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935-1973. Item 14, and the relevant parts of item 113C, are in the following terms:

``14. Machinery, implements and apparatus (and parts therefor), for use in the mining industry in carrying out mining operations and in the treatment of the products of those operations.

113C(1) Goods applied by a registered person to his own use as aids to manufacture.

(2) Goods applied by a registered person to his own use -

  • (a) in the processing or treatment of goods to be used by him as aids to manufacture; or
  • ...
  • (c) as integral parts in the construction in situ or repair of machinery, implements or apparatus to be used in the processing, treatment, cleansing or sterilising specified in paragraph (a) or (b) of this sub-item,

but excluding machinery, implements or apparatus (or parts therefor) which are not applied exclusively, or primarily and principally, in a manner specified in paragraph (a) or (b) of this sub-item or which are of any of the kinds specifically excluded from the definition of aids to manufacture.''

The definition of aids to manufacture which is referred to in item 113C is not the definition of that phrase which appears in Sch. 1, but the definition which appears in the Sales Tax Regulations. The relevant parts of that definition are as follows:

```Aids to manufacture' means goods for use by a registered person being -

  • (a) machinery, implements and apparatus for use exclusively, or primarily and principally -
    • (i) in the actual processing or treatment of goods to be used in, wrought into or attached to goods to be manufactured;
    • ...
    • (iii) in any processing or treatment for the purpose of bringing goods into, or maintaining goods in, the form or condition in which they are marketed or used by the manufacturer thereof;
  • ...
  • (c) parts for, or materials for use in the repair of so as to form part of, any of the machinery, implements or apparatus specified in paragraph (a) or (b) of this definition;...''

There is also in the regulations a definition of the phrase ``goods to be used in, wrought into or attached to goods to be manufactured'', which is given the meaning of ``goods to be so used or dealt with that those goods, or some essential element thereof, will form an integral part of the goods to be manufactured''.

The learned judge upheld the respondent's claim to exemption under each of the exemptions put forward.

The evidence, which was accepted by the learned judge, established the following facts. The respondent mined iron ore in the Hamersley Ranges, which was railed to the coast by a railway owned by the respondent, and was there shipped. The extensive ore deposits of the region are of a complex geology, and are consequently of varying degrees of quality in terms of the proportion of iron and other minerals and chemicals in the ore. The respondent operated two mines, one at Mount Tom Price, and one at Paraburdoo. These mines produced ore of qualities which in combination could be used to fulfil contracts calling for a standard level of iron content of 64 per cent. The complexity of the geology was such that the distribution of high grade ore was irregular

ATC 4585

and uneven, throughout the selected mining areas. One of the aims of the respondent in handling the uneven materials available was to achieve as closely as possible an iron content of 64 per cent in the delivered product, by blending ores which had greater or lesser contents. It was commercially more advantageous to blend ores to achieve this level, than to sell the best ore separately, it having a content of over 64 per cent. The blending also made possible the profitable sale of lower grade ores. Apart from iron, the ore contained alumina, phosphorus, sulpur and silicon. None of these is desirable, but the two which occasioned most difficulty in the respondent's ore were alumina and phosphorus. In 1971 Japanese customers complained concerning the alumina content of the ore, and thereafter the respondent began testing ore for alumina content, and began control of that content. The evidence shows no way of eliminating or reducing alumina in the ore, and the method of control is aimed at keeping a uniform level to avoid high peaks of alumina content. The same considerations apply to phosphorus.

The commercial basis for these endeavours may be seen in the terms of contracts entered into by the respondent. In a major Japanese contract, the respondent received a 20 cent per ton bonus for each one per cent of iron content above 64 per cent, but was subject to a penalty of 30 cents for each one per cent below 64 per cent, with further provisions if the iron content fell below 62 per cent. Penalties were incurred for sulphur content above.05 per cent, and for an alumina content above 3.2 per cent. A contract for supply to Germany provided a different basis of payment in respect of contained iron, but provided penalties for phosphorus exceeding.07 per cent, and for alumina exceeding 3.20 per cent. (See Exhibits 86 and 87.)

The respondent's mines operated by the open cut method. The capacity of the mines and shipping facilities was to produce and ship approximately 40 million tonnes per year, of which about 24 million tonnes originated at Mount Tom Price, and 16 million at Paraburdoo. The operations of the two mines were centrally planned, with the object that the two sources of production should complement one another. An example of this may be seen in a monthly operations plan, Exhibit 16, which designates the quantities and grades, including alumina and phosphorus content, of the ore which is to be extracted from each mine in the coming month, and the quantities to be railed to port. The physical steps involved in the operations were the blasting of the ore; the collection of the broken ore and the carriage of it to the crushers; crushing, screening, stockpiling and reclaiming at the mine site; rail movement to the port; and stockpiling, reclaiming and transfer to the ship at the port. The methods adopted were governed by the object of delivering to the ship an ore blended to contract standards in respect of iron content, with alumina and phosphorus kept at uniform, and so far as possible, low levels.

Planning began with the selection of areas for concurrent ore drilling. Exploratory drilling was carried out, and then followed drilling at much closer intervals. These operations resulted in the production of zone plans, and since the materials from each drill hole were examined and assayed the shape and qualities of the ore body could be assessed, not only in respect of its ore content, but also in respect of its alumina and phosphorus content. The information so obtained was recorded in plan form, of which Exhibits 13 and 24 provide examples. In plans of this kind, isobars indicate the position of areas of ore of common quality, either in iron, alumina or phosphorus content.

With the aid of these zone plans, there could be and were prepared, probably among other things, blast plans for the breaking up of the ore showing the portions of ore which are to be broken up, and repeating information as to the mineral content of the ore in the relevant area. Exhibit 13 is an example. Documents called run plans, dealing with ten days' operations at a time, scheduled the points from which the electric shovels were to pick up ore for delivery to the crushers in that period. The monthly operation plans have already been referred to. The result of all this was that materials of known characteristics, selected for those characteristics, arrived at the crushers.

The fact that all these operations took place before the ore reached the crushers provided a foundation for an argument that the effective blending of the ore was done

ATC 4586

either at the crusher stage or when the ore reached the first stockpile after screening.

When the ore was brought from the open cuts, it passed in sequence through the primary crusher, the primary stockpile, secondary and tertiary crushers, and the screenhouse. In the screenhouse lump ore was separated from fines, lump ore being materials between 6 and 30 millimetres in diameter, and fines being anything less. Lump ore and fines were then placed upon separate stockpiles at the mine site. As they passed from the screenhouse to the stockpiles, they were subject to hourly sampling and assay.

Elaborate records of the stockpile contents were kept, examples being Exhibits 34 and 41. These recorded not only quantities, but the overall quality of the ore stockpiled. From the stockpiles, the ore was moved by a reclaimer to conveyor belts and so to the train loading station. An exception to this is to be found at Mount Tom Price, the older of the two mines, where lump ore was removed from the stockpile by a tunnel method of truck loading, the ore falling through gates which led into a tunnel underneath the stockpile in which the rail trucks were positioned.

The ore then travelled by rail to the port. At Dampier, the respondent had two shipping installations, one at East Intercourse Island, and the other at Parker Point. None of the items of goods which the Commissioner seeks to subject to tax in this case were for use at East Intercourse Island and it is not necessary to describe the installation there. At Parker Point, the arriving trains were unloaded, and the ore transferred to a lump stockpile or a fines stockpile. It was possible to despatch ore direct from the train unloading point to the ship loading facilities, but this was rarely done. There was and is at Parker Point a pellet plant, and some fines were converted by it into pellets. Otherwise, when there was a ship to be loaded, the appropriate ore was reclaimed if lump by a conveyor belt and tunnel system and if fines by a reclaimer of the bucket wheel boom type, and despatched to the ship loader along conveyor belts, passing through a final screenhouse on the way. The function of this screenhouse was to extract, in the case of lump ore, any fines which had accumulated by degradation of the ore in successive handlings, and these, called ``return fines'', were collected and moved back by conveyor belt to the fines stockpile. For geological reasons lump ore generally has a higher iron content than fines derived from the same source, and as a result the return fines derived from the lump ore tended to be higher in iron content than the general run of fines, and could accordingly be used for enrichment purposes. It was for this purpose that they were returned to the fines stockpile, either for eventual shipment or for use in the pellet plant. The use of these return fines at Parker Point led to the proposition that at Parker Point there was a blending of fines from three sources, namely from Mount Tom Price, from Paraburdoo, and from the final screenhouse.

After the ore passed the screenhouse on the way to the ship, there was a final sampling point.

The only issue as to primary fact which arose before us related to the alleged existence of a sampling point for the return fines at Parker Point in 1976. The learned judge, despite a challenge by counsel for the Commissioner before him, found that it did exist, but the challenge was renewed before us. The controversy arises out of the fact that no such sampling point is shown in the Parker Point flow diagram, Exhibit 31. The witness who introduced this exhibit, Mr. A.J. Finucane, who at the time of the trial was Superintendent of Blending and Material Movement Control at Dampier, said that the flow plan had various inaccuracies, but his description of the operation as at 1976, which was for the most part expressed in the present tense, emphasised the importance in the blending of the fines of a knowledge of the quality of the return fines. This appears to presuppose the existence at the relevant times of a sampling point, and in fact, at one stage of his evidence, Mr. Finucane answered a question, ``In 1976 are you able to say, in general, how frequently samples of the return fines were taken?'' by saying, ``In general, I would say they were taken approximately hourly''. Exhibit 38 contains figures of assays of return fines on 6 and 8 August 1976. Mr. Finucane was pressed in cross-examination about the discrepancy in the flow diagram, but in the circumstances there appears to be no reason why this Court

ATC 4587

should, on appeal, disturb the finding of the learned judge.

The three machines relevant to the Commissioner's claim were the boom type bucket wheel reclaimer and the boom type stacker at Parker Point, and the bridge type bucket wheel reclaimer at Paraburdoo. The stacker was a large machine mounted on rails beside the stockpile area. Its boom carried a conveyor belt, and by means of it the stacker could drop materials from the end of the conveyor belt onto the top of a pile constructed in the stacking area. The evidence and exhibits deal with many techniques of stacking, but the method which appears to have been most commonly in use in conjunction with the bucket wheel reclaimers was the construction of a stockpile with a ridge running along the centre line of the stockpile area, and triangular in section. The method of construction was the depositing of each new lot of materials along the ridge of the pile. By moving along the rails, the stacker was able to distribute a batch of materials evenly over the stockpile in this way, each batch forming a layer which, in section across the stockpile, was in the shape of a chevron. From the information about the contents of the stockpile as they arrived and were placed, it was possible to deduce from the stockpile records the overall quality and chemical characteristics of the material in the stockpile as a whole. The component materials would, however, be layered in the stockpile.

The boom type reclaimer also operated on rails from the side of the stockpile. It consisted of a very large wheel on which were mounted scoops or buckets, which filled as they were moved by the rotation of the wheel upwards against the materials in the stockpile, and which dropped the materials onto a conveyor belt for removal. The boom type reclaimer removed ore from the stockpile in benches, and in the course of working on a stockpile made up in the method described, it would bite through the layers down to a predetermined level, and remove all the material in all the layers above that level.

The bridge type reclaimer at Paraburdoo was a machine of a later type. The bucket wheel mechanism itself was similar, scooping material from the stockpile and depositing it upon a conveyor belt. The bucket wheel, however, was mounted upon a bridge which straddled the stockpile area, and in turn moved upon rails on either side of the area. The wheel was capable of moving, always at the same level, close to the ground, within the framework of the bridge, backwards and forwards across the stockpile, the bridge itself slowly advancing into the stockpile. It was, accordingly, not working through one layer into the next from the side, but working on the ends of various layers at the one time, with mixed materials sliding down as the lower part of the stockpile was removed. This machine was capable of fully automatic action, after it had been set up and adjusted to its particular task by its operator.

Reference has been made to the tunnel method of loading out from the lump stockpiles at Mount Tom Price. When the loading gates were opened, the ore above them fell through leaving a crater-shaped depression above them in the stockpile, all the materials from the area now empty having been removed. There was evidence of various methods of constructing stockpiles with the object of achieving satisfactory blending in this process, and of the operation of the gates with the same object in view.

From this description of the method of operating and the machines, certain conclusions may at once be drawn. In the first place, the stackers were used with the obvious aim and with the result of distributing materials of different characteristics as evenly as possible throughout the stockpile, so that in toto the proportions of the various minerals in the stockpile would be as close as possible to those aimed at. That the two forms of reclaimer would have the effect, with varying degrees of efficiency, in further intermingling the component materials of the stockpile appears to be beyond doubt as would, with its own degree of efficiency, the tunnel loading method. Moreover, the evidence leads to the conclusion that they were intended to have this effect, and that their having this effect was a part of the system by which ore was brought to uniform quality for delivery.

Reference should be made to two exhibits which were tendered as relevant to the question of the degree of efficacy of the

ATC 4588

handling of ore through stockpiling and reclaiming in producing homogeneity of the ore. The first of these was Exhibit 43, which was a table showing standard deviations in assays of iron, alumina and phosphorus taken over a month at stockpiles at Mount Tom Price and Paraburdoo, and compared with the standard deviations revealed in the shipping sample assays taken over a period of a month but 14 days later than the stockpile assays. This table showed that the standard deviation in the iron assays of lump ore at Mount Tom Price was 2.146 per cent, and at Paraburdoo 2.000 per cent. This deviation was reduced, at shipping point, to 0.43 per cent. The corresponding figures for fines were 2.54 per cent at Mount Tom Price, 1.85 per cent at Paraburdoo, and 0.27 per cent at shipping point. The standard deviation figures from the alumina assays of lump ore were 0.758 per cent at Mount Tom Price, 0.607 per cent at Paraburdoo, and 0.17 per cent at shipping point. In the case of fines, the corresponding figures were 0.953 per cent at Mount Tom Price, 0.565 per cent at Paraburdoo and 0.15 per cent at shipping point. Similar reduction in standard deviation revealed by phosphorus assays was also recorded. These figures were challenged on the basis that it was not established that the ore at Mount Tom Price and Paraburdoo was identical with the shipped ore sampled, but the figures do not lose their significance because there is only partial identity, or indeed, within limits, if they did not relate in any degree to the same ore. Exhibit 44 was a study of the consequences of a breakdown of the Parker Point reclaimer. During the breakdown, the standard deviation revealed by assays of iron in samples of shipped ore was 0.31 per cent, compared with a figure of 0.25 per cent for a period of six months after the breakdown. The figures for alumina were 0.20 per cent during the breakdown, and 0.15 per cent for the period of six months after the breakdown. Reference will be made again to this breakdown.

Finally, reference should be made to evidence descriptive of the requirements of a buyer of iron ore. Mention has been made of the penalty provisions in a Japanese and a German contract. The existence of these penalties obviously reflects the buyer's view, and the seller's concession, that variation from stated levels was undesirable. In addition, evidence was given by highly experienced and qualified men which indicated that iron ore in lump form was destined for use in blast furnaces, and in the form of fines was destined either to be made into pellets or into a cake-like product known as sinter, from both of which the iron would finally be extracted in blast furnaces, and that in all these processes the presence or absence of chemicals in the ore and the quantities of them was critical, and since the relevant processes were continuous and not readily subject to adjustment, uniformity in the raw material was itself critical in the achievement of both quantity and quality of production.

From this evidence it emerges beyond doubt that the respondent intended its operations to produce deliverable ore conforming to what may be described as a specification which included 64 per cent iron content, not more than 3.2 per cent alumina content, and not more than about.06 per cent phosphorus content, and maintaining those levels as uniformly as possible. So much was not seriously disputed, but what was disputed was the contribution of the stacker and the reclaimers to the achievement of the objective.

For the Commissioner it was contended that the contribution of the stacker and the reclaimers to the uniform intermingling of the mixed ore was insignificant: that the desired result was really achieved in the selection of ores to be delivered to the crushers and was virtually complete when the mine stacker stockpiled the ore from the mine screenhouse. The functions of the subsequent reclaiming and stacking processes were properly to be classified as handling, transportation and storage.

The exercise of classification in this way is relevant to questions arising in relation to item 113C, but not to item 14. Each of the three machines played a part in handling, transportation and storage operations, but the evidence establishes that the Paraburdoo reclaimer completed a blending or intermingling phase the foundation for which had been laid by the operations of the mine stacker, that the Parker Point stacker intermingled on the stockpiles Mount Tom Price and Paraburdoo ore, and in the case of fines, return fines from the Parker Point

ATC 4589

screenhouse, and that the Parker Point reclaimer completed the intermingling of fines the foundation for which had been laid by the stacker. It also establishes that these results of the various operations were intended and desired, and that the contribution of each to the end result was significant. The last proposition is illustrated by the complexity of the steps which were taken to maintain the desired quality of the delivered product during the breakdown of the Parker Point reclaimer.

The notice of appeal is lengthy. It deals with a number of detailed points of fact or conclusions found or drawn by the learned judge, asserting that they should not have been found or drawn, and asserting that other facts or conclusions should have been found or drawn. It is not necessary to deal with these in detail. The evidence establishes the matters set out above: some other matters will be dealt with specifically.

The notice then puts forward a ground that inadmissible evidence was received. Broadly speaking, the evidence attacked related to practices and processes in the iron and steel industries and to related requirements of buyers of iron ore. It is unnecessary to deal with these grounds separately from the main point, which is the respondent's entitlement to exemption. If the matters dealt with by the evidence are not relevant to the construction and application of the exemption items, the evidence was inadmissible, but no harm results. If it is relevant to those matters, it was properly admitted. One specific point may be mentioned, namely that verbal and documentary evidence was given of criticisms and complaints by Japanese buyers made in 1971. If buyer requirements were relevant, then buyer complaints could be proved, the relevant fact being the making of the complaint. Verbal evidence was given of representations made in conference by members of a Japanese mission. This evidence was not, in the circumstances, hearsay. The minutes of the conferences were tendered and accepted in evidence: it does not appear that they were objected to, but their admission may well have been covered by a general objection to the whole subject matter of customer statements. The matter was not pursued before us, and since extracts from the minutes had been read, and since there were possible grounds on which they might have constituted an admissible record, this appeal should not turn upon their admissibility. In the circumstances, their admission could not have led to a miscarriage of justice.

The significant grounds dealt in detail with matters concerned with the qualification of the three articles for exemption from tax. Again, it is not necessary to recite each point taken.

The first, and main, question of substance is whether each of the three articles was exempt from Sales Tax under item 14, quoted above.

Both parties accepted that they were parts for machinery ``for use in the mining industry''. The appellant contended that they were not for use ``in carrying out mining operations'', upon the ground that those operations ended, at latest, at the mine ex screenhouse stockpiles. For this, counsel relied upon
F.C. of T. v. Broken Hill Proprietary Ltd. 69 ATC 4028 ; (1969) 120 C.L.R. 240 ,
F.C. of T. v. I.C.I. Australia Ltd. 72 ATC 4213 ; (1972) 127 C.L.R. 529 and
F.C. of T. v. Utah Development Corporation 76 ATC 4119 ; (1976) 50 A.L.J.R. 678 . The respondent did not concede this point, but in effect conceded that its argument could not be successfully put before this Court.

The remaining, and vital, question under item 14 was, therefore, whether the goods were parts for machinery for use in the treatment of the products of mining operations.

The first general matter argued was the meaning of the expression ``for use in''. A minor argument can be disposed of at once. That was that the use of the machines had to be determined at the times when the machines were bought - in the case of the Parker Point machines, in about 1966 and in the case of the Paraburdoo machine, in about 1970 or 1971. We are here concerned with parts for the machines, and if the actual or intended function of the machine, as distinct from its intrinsic design or nature, is relevant, then in the case of the purchase of parts the date at which the actual or intended function is to be ascertained is the date of the purchase of the part.

ATC 4590

The major argument for the Commissioner on this matter was that whether the part or machine was ``for use in treatment'' was to be determined by a consideration of its designed function or its intrinsic character as a machine. Thus the stacker was for use in carrying materials to an appointed place, and dropping them there, and the reclaimers were for use in picking up materials and transferring them to conveyors. The argument was supported by reference to the judgment of Sheppard J. in
D.F.C. of T. v. Lincoln Industrial Cleaners Pty. Ltd. 75 ATC 4208 at p. 4210; (1975) 2 N.S.W.L.R. 499 at p. 501 . His Honour was there considering the words ``for use in'' in item 139(1) in the first schedule to the Exemptions and Classification Act. He rejected constructions by reference to the use intended by the consumer at the time of the purchase or to the use intended by the manufacturer, and adopted a construction depending on ``some quality apparent in the article itself to persons who know its character which shows that it is specially fit for the particular purpose specified rather than for any other''.

This view was based on the dissenting judgments of Griffiths C.J. and Barton J. in
Chandler & Co. v. Collector of Customs (1907) 4 C.L.R. 1719 at pp. 1723 and 1727 . It was, however, as his Honour said, of little assistance in the resolution of his problem. He held that the requirement ``for use in'' called for only an appreciable and not a predominant use, and on this view, and on the facts, it appears to have made no difference which construction of the three to which he referred was adopted. In Chandler's case, the expression under consideration was ``for the purposes of'', though reference is made in the judgment of O'Connor J. at p. 1732 to American authority on ``used for''. In the end, however, the decision of the primary judge was upheld. That judgment is not reported, but it appears to have involved deciding the ``purposes'' by reference to evidence of the use most likely to be made of the goods by the consumer rather than to their intrinsic physical nature.

It may be noted that other items in Sch. 1 are expressed in terms which make it clear that goods which have a specialised use only are exempt: e.g. item 8, equipment for use in fruit-growing, not being of a kind ordinarily used for any other purposes; item 12(2), beekeepers' equipment, but not including articles ordinarily used for any other purpose; and item 13(1), machinery for use in agricultural industry, if of a kind used exclusively, or primarily or principally, in that industry.

The machines in question in this case were intended to perform, built to the respondent's order to perform, and did perform particular operations in a continuing process. The expression ``for use in'' is purposive, and this conjunction of facts, all relevant to purpose, leads to the conclusion that, if the operations of the machines constituted in a significant degree ``treatment'', the machines and the parts were ``for use in treatment''.

In passing, it may be noted that much of the evidence referred to above which related to practices, processes and requirements of buyers is relevant to the proposition stated in the last preceding paragraph.

Turning to the question of ``treatment'', the Commissioner's first submission was that the word was descriptive of some chemical change in the product treated: his second, that at least the word indicated an operation which changed the physical or mechanical condition of the ore. It was submitted in relation to both these propositions that ``treatment'' was a narrower word than ``processing'', both being used in item 113C.

Numerous dictionaries were quoted to us. The Oxford English Dictionary - ``treatment'', meaning 4 - lends support to the Commissioner's first submission, and it is to be regarded as the highest authority among the dictionaries. Webster gives a corresponding meaning to the verb ``treat'', with the addition that it is often used as meaning to subject an article to some process to improve, inter alia, its usefulness. In Webster, one of the definitions of process appears to give it a narrower meaning than treatment - ``other treatment designed to effect a particular result''.

Numerous cases were also cited. None deals directly with the ordinary meaning of the word treatment, used by itself. In
Dampier Mining Co. Ltd. v. F.C. of T. 81 ATC 4329 ; (1981) 55 A.L.J.R. 497 , the facts

ATC 4591

gave rise to arguments put to the Federal Court (79 ATC 4469; (1979) 40 F.L.R. 127, especially at ATC pp. 4482-4483; F.L.R. pp. 146-7) but not to the High Court relating to ``plant for use... in the treatment of minerals'', but the word ``treatment'' was the subject of definition in the relevant Act, the Income Tax Assessment Act 1936. In any case, the area of land relevant to that decision was capable of being regarded both as used for blending and as used for storage. The case involved the stacking of minerals, and ``blending by the process of reclaiming'', and it is of some slight interest that the witness quoted at p. 147 appears to have considered storage an incidental function of the process. In
Sweetway Sanitary Cleaners v. Bradley (1962) 2 Q.B. 108 , the adding of disinfectant to effluent before removal was held not to be treatment. In
D.F.C. of T. v. Stronach (1936) 55 C.L.R. 305 , the sawing of quarried blocks of stone into shapes and sizes for building was held to be a process or treatment resulting in an alteration of the form, nature or condition of the goods. At p. 312 there is a reference to ``treatment by planing''. In
F.C. of T. v. Henderson (1943) 68 C.L.R. 29 , the recovery of gold from slum dumps by a chemical process was held to be a mining operation. The word ``treat'' was applied to the process at pp. 39 and 50, and at p. 45 the expression ``treatment by a battery'' appears.

There are many other judicial dicta in which the word ``treatment'' is used. Examples are
Hines v. Eastern Counties Farmers Co-operative Association Ltd. (1931) A.C. 477 at p. 481 (treatment of seed by separating good seeds from weed seeds and dirt),
R. v. Drake-Brockman (1943) 68 C.L.R. 51 at p. 56 (treatment of coal by turning it into gas or into petrol);
Carpenter v. W. Lustey & Sons Ltd. (1957) 1 Ll.L.R. 16 (treating goods by baling and packing);
Kilmarnock Equitable Co-operative Society Ltd. v. Commrs. of I.R. (1966) 42 T.C. 675 (to ``subject'' (to a process) means to treat);
Canadian Wiravision Ltd. v. The Queen (1978) C.T.C. 69 at p. 76 (``processing'' used in the ordinary sense of ``treating or preparing, putting into marketable form'').

The respondent's argument was that the word treatment extended to any physical operation which brought about a desired change in the condition of goods.

In deciding this issue, it is necessary to decide what are the ``products of mining'' which are under discussion. For the Commissioner, it was argued that the products were the individual pieces of ore emerging from the tertiary crusher, and it followed that these were virtually unchanged except by an inevitable process of degradation in handling until they were shipped. For the respondent, it was contended that the product was bulk iron ore, which was changed by being brought to a desired state of low variability.

The respondent's argument identifying the product should be upheld. Support for it may be found in
Hudson's Bay Co. v. Thompson (1960) A.C. 926 , and the cases there cited, in which, the relevant question being whether goods had been ``adapted for sale'', it was held that the goods to be considered were not the individual items, but either the general bulk or the unit sold. The adoption of this view goes far to deciding the item 14 issue. The goods, so identified, are shown by the evidence to have been subjected to a desired change. If a chemical change is sought, the change wrought in the goods is a reduction of variability in the concentration of chemicals throughout the ore. If a change in form, nature or condition is sought, then the goods have been changed in such a way that, if they have not been made marketable, they have at least been made marketable to the better advantage of both seller and buyer. In a word, the change in the goods justifies the application of the word treatment to the mode of producing the change. If it be necessary, it should be held that in the context of item 14 chemical change is not of the essence of treatment.

The claim to exemption under item 14 should therefore be upheld.

The decision that the goods in question are exempt under item 14 makes a consideration of item 113C unnecessary, but as we have heard an extensive argument concerning this item it is desirable that a brief indication of conclusions be given.

The three machinery parts were, within item 113C(1) goods which were applied by a registered person, the respondent being such in accordance with sec. 11(1) of the Sales Tax Assessment Act (No. 1), a section of general application in the sales tax scheme, to his

ATC 4592

own use. The remaining question is whether they were so applied as ``aids to manufacture''.

The decisions that the operation of blending was ``treatment'', and that the goods treated were bulk iron ore and not the individual mineral fragments, establish that the machinery parts were for machines for use in the ``processing or treatment'' of the ore within the definition in the regulations of ``aids to manufacture'', para. (a)(i). The goods were to be ``wrought into... goods to be manufactured'', namely iron. (Compare the analysis of the corresponding earlier definition by Dixon J. in
Davies Coop and Co. Ltd. v. F.C. of T. (1948) 77 C.L.R. 299 at p. 316 .) Even if the decision on the meaning of ``treatment'' and the concept of what are the goods be rejected, the individual fragments of mineral are ``processed'' by the blending because they are, intentionally and usefully, rearranged vis-a-vis one another. In two Canadian cases it has been said that to give materials ``new combinations'' is an operation of manufacture - The
Queen v. York Marble Tile & Terrazzo Ltd. (1967) 65 D.L.R. (2d) 449 and
Nova Scotia Sand and Gravel Ltd. v. The Queen (1978) C.T.C. 279 . The Commissioner contended that a change in form or nature of the goods was required, but this is inconsistent with Carpenter v. W. Lustey & Sons (supra) and can be regarded as consistent with such cases as Kilmarnock Equitable Co-Operative. v. Commrs. of I.R. (supra). Federal Farms Ltd. v. Minister of I.R. (1966) Ex. C.R. 420 and
McCausland v. Ministry of Commerce (1956) N.I.R. 36 only if the goods the subject of the operation are regarded as the general mass of useful goods together with dirt, waste or impurities, and not the separate individual pieces intended for delivery or sale.

For the same reasons para. (a)(iii) covers the operation here in question, as a process or treatment for the purpose of bringing the goods into the form or condition in which they are marketed by the manufacturer. This form is not to be identified merely as marketable form. (It is noted that by reason of the definition of ``goods'' and ``manufacture'' in the No. 1 Act the respondent was the manufacturer of the ore.)

The difficult question under item 113C(1) is whether the goods were used, in the words of the definition of ``aids'' ``exclusively or primarily and principally''. The learned judge did not state a final opinion on the question whether the machines were used ``exclusively'' for blending: he recorded an argument that there was a single use, picking up and putting down, and that this was exclusively processing or treatment. The same point may perhaps be expressed in the form that whenever the machines operated they were processing or treating the goods, and that this satisfied the requirement of exclusive use regardless of the fact that the operation had simultaneous results in the storage or removal of the goods. This argument has its attractions, but it is capable of leading to the result that the machines were used exclusively for processing or treatment, or exclusively for storage and removal, depending on the form in which the relevant question is asked.

The learned judge, however, concluded that the machines were used primarily and principally for processing or treatment, expressing his view in these words:

``I confine myself to indicating my view that the machines in question here were used for processing and treatment of the ore and for no other separate use and that insofar as the use is to be described in terms of primary function I find that this was processing or treatment rather than storage or transportation.''

In reaching this decision the learned judge had expressed the finding or conclusion that on the evidence the primary purpose of the machines was blending.

The problem is unusual in that the one operation produced two results simultaneously, each of which contributed to the progress of the overall scheme. We were referred to various cases in which some such phrase as the present had been applied to particular facts, but for the most part they refer to uses of different parts of the subject matter, or uses at different times, or of the carrying out of distinct actions for each competing purpose.

Kitto J. dealt with problems calling for the application of a ``primarily and principally'' test in
Moreton Central Sugar Mill Co. Ltd. v. F.C. of T. (1967) 116 C.L.R. 151 and
Ready Mixed Concrete (Vic.) Pty. Ltd. v. F.C. of T. 69 ATC 4038 ; (1969) 118 C.L.R. 177 .

ATC 4593

The latter case concerned mobile concrete mixers, his Honour holding that the bowls, which were mounted on trucks, were used primarily and principally for mixing rather than for transport.

In the present case there can be no quarrel with his Honour's decision if his finding or conclusion of fact was correct. We were taken meticulously through the relevant parts of the evidence: on that evidence the finding appears correct.

The appeal should be dismissed.


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