The Queensland Cement and Lime Company Limited v. Deputy Federal Commissioner of Taxation.

Judges:
de Jersey J

Court:
Supreme Court of Queensland

Judgment date: Judgment handed down 12 November 1986.

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de Jersey J.

Section 5(1) of the Sales Tax (Exemptions and Classifications) Act 1935 provides that sales tax shall not be payable upon the sale value of any goods covered by any item in the first column of the First Schedule to the Act, under any Act specified correspondingly in the second column of that Schedule opposite that item. At the relevant time, item 113C(1) referred to ``goods applied by a registered person to his own use as aids to manufacture''. The second column specified Acts Nos. 1, 4, 6 and 8.

The plaintiff carries on business at Gladstone manufacturing clinker and cement. One of the principal raw materials used in that process is limestone. As part of the manufacturing process, the limestone is ground to a powder and mixed with water and other materials to form a slurry. The slurry is dried and subjected to heat, being thereby converted to clinker. The plaintiff's Gladstone operation is carried out at two separate locations, East End and Fisherman's Landing. The grinding and mixing occur at East End. The slurry is then conveyed by pipeline to Fisherman's Landing, where it is dried and converted into clinker. The slurry is forced through the pipeline by means of two pumps.

The plaintiff purchased those pumps prior to 21 July 1981, quoting its sales tax certificate number. The plaintiff contends that sales tax was not payable because the pumps were applied by the plaintiff to the plaintiff's own use, as aids to manufacture, so falling within item 113C(1). The defendant denies that contention, asserting that the pumps were not applied ``as aids to manufacture''. The plaintiff seeks a declaration as to the correctness of its contention. The relevant facts are agreed. They are set out in the statement of claim and its schedule and annexures.

For the purposes of item 113C, the expression ``aids to manufacture'' is defined, in its relevant parts, 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;
  • (ii) in any processing or treatment by which the goods to which that processing or treatment is applied are 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;''

Before considering the suggested application of those respective subparagraphs, I should say a little more about the operation of the pumps. The slurry is mixed at East End in agitation tanks. The pumps are designed and operate to force the slurry through the pipes so as to preserve the homogeneity of the blended slurry up to the time of its receipt into tanks at Fisherman's Landing. The process is described in some detail in the particulars comprising Schedule A to the statement of claim. That schedule describes, as ``the main purpose'' of the pumps, ``to transfer the slurry from the East End slurry basin in a homogeneous (and therefore usable) state to the slurry basin... at Fisherman's Landing''.

The plaintiff contends that the pumps are ``aids to manufacture'' because they fall in the following way within the subparagraphs of para. (a) of the definition of ``aids to manufacture'':

Subparagraph (i) The pumps are for use, primarily and principally, in the actual processing or treatment of the slurry which is to be used in, or wrought into, the clinker to be manufactured.

Subparagraph (ii) The pumps are for use, primarily and principally, in processing or treatment of the slurry by which the slurry is used in, or wrought into, the clinker to be manufactured.

Subparagraph (iii) The pumps are for use, primarily and principally, in processing or treatment for the purpose of maintaining the slurry in the form or condition in which it is used by the plaintiff (its manufacturer).

In support of those contentions, counsel for the plaintiff submitted that the use of the pumps is ``an integral part of one complete

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ATC 4773

manufacturing process even if they did no more than effect the movement from East End to Fisherman's Landing''. But, in any case, more than mere transportation is involved: the pumps continue the mixing process necessary for manufacture of the clinker by ensuring the homogeneity of the mixture delivered at Fisherman's Landing. These assertions are of course factually correct, as is conceded by the defendant's admission of para. 2 and 3 of the statement of claim and the material referred to therein.

The defendant seeks to counter these contentions by submitting that there was no need to make a slurry to manufacture clinker. Clinker could have been made from dry crushed raw materials, which could have been transported from the East End quarry to Fisherman's Landing by road. The possible alternative methods are mentioned in para. 2.2.1 of the Wurmli Report, which is annexure ``A'' to the statement of claim. The sole purpose of making the slurry was, it was said, to transport it in that form to Fisherman's Landing: the sole function of the pumps was to provide the motive power for that transport. The maintenance of the slurry in the pipes in homogeneous form is properly regarded as merely a necessary incident of the use of the pumps to pump the slurry as such. In these circumstances, it was submitted, the pumps were not for use ``primarily and principally'' in the processing of slurry to be used in the manufacture of clinker, or in the manner referred to in subpara. (ii) or (iii) of the definition of ``aids to manufacture''.

The defendant's submission concentrates on the necessity or otherwise of using the pumps in this way in the process of manufacturing clinker. But the definition of ``aids to manufacture'', in my opinion, invites attention to the plaintiff's actual method, not the adequacy of alternatives. It is conceded here on the pleadings that the process of manufacturing clinker commences (at the latest) with the grinding of the limestone extracted at East End. On a fair reading of the material before me, the manufacturing process then continues, through the phases of mixing, transportation to Fisherman's Landing, and drying at that location. Since the plaintiff has selected a process of manufacture which involves transporting the powder in slurry form, then regardless of the suitability of transporting it in dry form by, say, road, one should I think conclude that the primary, principal use of these pumps was as aids in this plaintiff's chosen process of manufacture.

I should add, with regard to a submission made on behalf of the defendant, that it would in my view be artificial to regard the conversion of limestone powder to slurry, and the transporting of that slurry to Fisherman's Landing, as standing apart from the process of manufacture of the clinker. This is, of course, apart from what I have already referred to as a concession on the pleadings. As I have indicated, fairly read, the material before me suggests one continuous process of manufacture, commencing at the latest with the grinding of the limestone. I note the description, in para. 2.2.1 of the Wurmli Report, of the alternative conveying schemes as ``only part of an entire clinker production process''.

With regard to the terms of the subparagraphs of the definition of ``aids to manufacture'', I should also record my view that the pumps were for use in the ``processing or treatment'' of the slurry. The defendant's submission appeared to me to involve the views first, that the transporting through the pipes was not part of the overall manufacturing process (the matter with which I have just dealt), and second, that the primary and principal use of the pumps was not in the ``processing or treatment'' of the slurry - being confined to its transportation to Fisherman's Landing. In my opinion, the use of the pumps to move the slurry through the pipes, and manage it at homogeneous and therefore usable consistency, did involve their use in the processing or treatment of the slurry. Clearly such use was and is the ``primary and principal'' use of the pumps.

I was referred to some cases. None is particularly helpful. There are, for example, factual similarities between the present situation and that dealt with in
F.C. of T. v. Northwest Iron Co. Limited 86 ATC 4202 at pp 4210-4211, but the question being addressed there was different. Similarly, the point at issue was different in
Moreton Central Sugar Mill Co. Ltd. v. F.C. of T. (1967) 116 C.L.R. 151 at p. 156 - here, further, the defendant is met with the concession that the instant process of manufacture dates at least from the grinding of the limestone at East End. The general

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ATC 4774

approach described at p. 317 of
Davies Coop & Co. Ltd. v. F.C. of T. (1947-1948) 77 C.L.R. 299 is not inapposite. But, in the end, the question must be determined by reference to the facts of this particular case.

I agree with the plaintiff's contentions as formulated above by reference to the subparagraphs of para. (a) of the definition of ``aids to manufacture''. There will be a declaration that each of the plaintiff's operating slurry displacement pumps situated at East End, Gladstone at the time at which it was, for the purposes of the applicable Assessment Act, applied to the plaintiff's own use, fell within the category of goods applied by the plaintiff to its own use as an aid to manufacture within the meaning of item 113C of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935.