Kiefel J

Federal Court

Judgment date: Judgment handed down 16 October 1996

Kiefel J

The Appeal Question

The question in this appeal, brought from the decision of the Administrative Appeals Tribunal confirming the decision of the Deputy Commissioner of Taxation, is whether a cane inspector's vehicle attracts an exemption under Item 3 in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1992 (``the Act''). The principal issue in that connexion is whether the vehicle ought to be regarded as used ``mainly in carrying out activities in agricultural industry''.

The Legislation

Paragraph (a), of Item 3 Schedule 1, of the Act specifies that four wheel drive motor vehicles, of a particular body type, are exempt from sales tax if used ``by a person mainly in carrying out activities in agricultural industry''. It is common ground that the vehicle meets the physical description. The term ``agriculture'' is defined in s 3 to include:

  • ``(a) viticulture, horticulture, pasturage, apiculture, poultry farming and dairy farming;
  • (b) other operations connected with the cultivation of the soil, the gathering in of crops and the rearing of livestock;''

``Mainly'' is also defined, to mean to the extent of more than fifty percent.

The Background Facts

The Deputy President of the Administrative Appeals Tribunal set out some background facts and the relevant evidence of the applicant's Chief Cane Inspector, which concerned the duties of cane inspectors. They were not in dispute. I shall attempt to summarise them.

The applicant has about 230 co-operative members. Cane grown on their farms is harvested and transported to the applicant's mill where it is crushed. Ninety percent of the use of the vehicle in question occurs during the crushing season, which lasts 24 weeks. The principal function of a cane inspector, as the Deputy President emphasised, is the facilitation of complex logistical problems of harvesting and cane transport. In more specific terms the cane inspector's responsibilities were listed as: farm mapping , which term is self explanatory and involves driving to properties to organise controls for aerial photographs of new ground or changes in boundaries of assigned areas; estimating , which is a lengthy task conducted largely on farms and which is subject to monthly checks and final adjustment by visual inspection; calculation of daily allotments to harvesting groups , the facilitation of cane transport and determination of priorities for crushing. In the latter respect the timely transport to the mill is important to both grower and mill. It requires attendance at various points daily. Additionally the cane inspector monitors extraneous matter which is that material not suitable for processing and this involves some inspection and perhaps advice to growers concerning methods of cutting. The inspectors also provide assistance to the Cane Protection and Productivity Boards with respect to research programs and check information in the productivity data base for accuracy.

Before the Deputy President considerable reliance was placed upon the proposition that a significant part of cane inspectors' duties involve the giving of advice at a much earlier stage than the point where the harvested cane was transported to the mill, and that that advice covered not only cultivation, but the production and harvesting of the cane. The reason for pressing this view of the evidence, which would place the inspector's activities closer to farm production, will become apparent if it is not already. The Deputy President however dismissed, as insignificant, the extent of the inspector's involvement in these respects.

The Deputy President also considered the statutory obligations of cane inspectors which required, in the main, that they serve upon or advise committees which were concerned with harvesting practices. In the carrying out of these obligations, which involved the use of vehicles travelling to and from farms, the Deputy President was satisfied that they involved the inspectors in activities in the agricultural industry. It was not necessary, in his view, that the vehicle itself be used for agricultural purposes, for instance by carting livestock or, here, cane. Such a view is the subject of a notice of contention to which I shall refer at the conclusion of my reasons with respect to the

ATC 5018

primary question. It was not essential to the conclusion reached by the Tribunal on the main issue. And, by way of explanation as to how a person such as a cane inspector might be said to carry out activities within the industry, without actually being engaged in it, the Deputy President gave, as examples, crop dusters, agricultural experts and veterinarians, those persons whose level of involvement is the provision of advice or services associated with livestock or crops.

Reasons for the Tribunal's Decision

Having reasoned thus far, the Deputy President went on:

``Where the taxpayer fails in this case is that it is unable to demonstrate that the motor vehicle is used mainly in agricultural activities. Indeed, the evidence has satisfied me that the main use of the vehicle is to carry cane inspectors to the various farm properties to ensure the smooth transfer of the cane to the mill, the management of cane bin delivery and collection by cane locomotives, a task undertaken for the efficient running of the mill rather than the grower - and the mill is not engaged in agricultural activities. I am furthermore satisfied on the evidence, as mentioned before, that to the extent that a cane inspector can be said to be engaged in activities which can be characterised as involving `agricultural industry' as defined, such activity is minor, and falls far short of the statutory requirement of more than the 50 per cent necessary for this application to succeed. If I were compelled to characterise just what a sugar mill does in converting cane to sugar, it comes close to `applying a treatment to foodstuffs as a process in preparing them for human consumption', thus falling within the definition of `manufacture' (cf sec 5 of the Sales Tax Assessment Act 1992).''

The Deputy President referred to two cases which amplified the distinction which he considered relevant, namely that as between production in agriculture and the subsequent treatment of the produce, the latter being a separate industry (
G Gramp & Sons v FC of T (1965) 115 CLR 170 and
The Producers' Co- operative Distributing Society Ltd v C of T (NSW) (1944) 7 ATD 493, 501; (1944) 69 CLR 523, 530.) He then concluded:

``Applying the legal analysis of the learned judge in that case to the instant facts, I am satisfied that when considering whether this four wheel vehicle is used by cane inspectors mainly in carrying out activities in agricultural industry - having regard to the total enterprise, from planting and growing cane, transporting it to the mill and producing sugar as the end product - I am satisfied that the vehicle in dispute is used mainly for purposes of the mill , which is engaged in the manufacture of sugar, and thus cannot be regarded as being mainly used in agricultural industry. Just as cows give milk and factories turns it into butter, so farmers grow cane and mills turn it into sugar - and that `the latter industry is not in a real sense the product of the former industry'.''

Extent of the Question of Law

It was not in dispute that the appeal involved a question of law, one arising with respect to the meaning of statutory terms or phrases, but the submissions revealed a difference as to the width of the question. For instance, it was argued at one point for the applicant, that the evidence showed inspectors' duties to have a connection with each of cultivation and harvesting, aspects of agriculture itself. It seems therefore necessary to identify, with some precision, that with which this Court is concerned on appeal and that which has come to conclusion by findings of fact made by the Tribunal. Necessarily involved in the ultimate conclusion reached by the Deputy President was a view of the evidence that a cane inspector's vehicle was used mainly in connection with the transfer of the cane to the mill and, as I have noted above, the rejection of the notion that it was used to any significant extent with respect to advising farmers as to matters associated with the production of cane. So far as the applicant's submissions rested upon some other conclusion, which might also have been open, these findings of fact are not the subject of reconsideration by this Court. The question, as to whether the facts, as found, bring the activity within the particular provision in the statutory schedule, is that with which the Court is concerned. It may properly be described as one as to the law, given that there is no ordinary or accepted meaning of the phrase ``activities in agricultural industry'' (or one with respect to agriculture and more

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relevantly ``operations connected with the gathering in of crops''):
Hope v The Council of the City of Bathurst 80 ATC 4386, 4389; (1980) 144 CLR 1, 7;
TNT Skypak International (Aust) Pty Ltd v FC of T 88 ATC 4279, 4284; (1988) 82 ALR 175, 182;
Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280, 289.

Whether Transfer to Mill has the Relevant Connection

The phrase ``in carrying out activities in agricultural industry'', in Item 3, to which the vehicle's use must relate requires a close connection with what is usually involved in and ordinarily associated with that industry. Here there are two industries which might, in general terms, be said to be concerned with different parts of the overall process involving the cultivation of sugar cane and its processing to a product for sale. But where the tasks associated with harvesting belong - as part of the farmer's activities or as the commencement of the process of manufacture at the mill - may be thought to be unclear. But, as with many issues of apparent difficulty in law, the answer lies partly in posing the correct question. It is, I think, not correct to characterise the relevant activities, in which the cane inspectors' vehicles are involved, as merely ``harvesting''. Rather the question is whether the relevant activities as found by the Tribunal, namely the organisation of the transport of the cane from pick up point at farm to mill, have the necessary close connection with agriculture by their association with the harvest of the cane.

Mr Morris QC, for the applicant, submitted that however one states the relevant enquiry posed by the Schedule it could not be said to be answered by a consideration of the purpose for which the activity was undertaken, namely whether it was for the mill's purpose or the cane-farmer's, and that the Tribunal appears to have approached the matter in this way. It is not, in this particular case, necessary to resolve the issue whether the words ``for the use in'', which are purposive in nature (see eg
FC of T v Hamersley Iron Pty Ltd 81 ATC 4582, 4,590) have regard to intention at the time of purchase, or what use the vehicle is in fact put to, although one would think the latter the more relevant consideration and likely determinative, in any event, of the former. Insofar as an objective assessment is necessary it does not seem to me that the Tribunal erred in this regard. The concern expressed in the submission with respect, arises more from the language employed than considerations of substance, involving the Tribunal's reasoning. The reference to the mill's ``purposes'' in the conclusion of the reasons was, I take it, by way of reference to the activities actually undertaken at the mill as part of the overall process of manufacture of sugar.

The applicant submitted that the inspector's duties, requiring the use of the relevant vehicle, could be seen to fall within that part of the definition of ``agriculture'' namely ``... operations connected with... the gathering in of crops''. The latter phrase, it was submitted, referred to more than harvesting and ought be taken to extend to the place of ``first and safe storage'' which could have only been the mill. Factually however that would only be the case if one assumed that there must be storage. In some cases storage post-harvest might qualify as something connected with agriculture, for instance where it was then to be used for animal feed. One might compare that with storage in connection with later distribution on sale, or with manufacture, which one would think to have a more distant relationship to the farm and agricultural pursuits undertaken on it. The consideration of such issues in
Australian National Railways Commission v Collector of Customs, South Australia (1985) 8 FCR 264 at 295 is instructive. But it is however of little relevance here. It was nowhere suggested, in evidence, that cane is stored for any period. Rather the evidence was the steps, from harvest to mill for the purpose of crushing, are continuous and it is sought to avoid delay in delivery of cut cane. From a practical viewpoint those operations connected with the harvest, the ``gathering in of crops'' as distinct from its following manufacture, do not extend to the transport of the cane and the organisation of that transportation to the mill. Those activities are, as the Tribunal found, properly seen as connected with the mill's processing.

It was also submitted for the applicant that, even if one viewed these transport operations as somewhat more remote from the ``gathering in of crops'' nevertheless they could be encompassed by the definition because of the extension gained by the words ``connected with''. Those words have certainly been described as wide and imprecise in their meaning: ANRC v Collector of Customs, South

ATC 5020

(275) referring to
Collector of Customs v Cliffs Robe River Iron Associates (1985) 7 FCR 271, 275. That would not however, in my view, alter the description of the procedures I have outlined above. The cane inspectors' duties with respect to the timing and progress of the bins to the mill has no real or substantial connection with the harvesting of the crop. It is the next step in the sequence towards its processing. It may be compared with those activities actually associated with or which may facilitate the harvest itself. Whilst I can accept the applicant's submissions that the words ``connected with'' do not require that the tasks be the harvest itself, in the sense of physical involvement, (see Pozzolanic 280) the difficulty in the applicant's argument is that activities surrounding the transfer are removed from the harvest itself and are properly to be seen as connected with the mill. And it may also be observed that in connection with agricultural activities there is no extension provided for, as elsewhere appears in the Act, by way of including those activities ancillary to primary activities (see, for example, s 10 and Item 1).

It is strictly not necessary to deal with the contention advanced by the respondent Commissioner on notice. In my view the Tribunal was right in affirming the decision under review, that the cane inspector's four wheel drive vehicle did not attract the sales tax exemption, for the reason that the activities for which it was used had their proper connection with a manufacturing, and not an agricultural industry. The Commissioner's further contention, which did not find favour with the Deputy President, was that it must also be seen as intended that the activities referred to in Item 3, Schedule 1, required the vehicle itself to be used in carrying them out. Its use, for the transportation of persons undertaking activities in agriculture, would not then suffice.

In support of the contention Mr McGill SC, for the Commissioner, placed considerable reliance upon the physical description of the vehicles in Item 3 and those elsewhere appearing in the Schedule. For present purposes however it seems to me that little is gained by a comparison of the language employed in other Items in the Schedule, although one might glean that some are concerned to describe the vehicles which may qualify for exemption, in such a way that they are likely to be associated with work in the relevant industry and not with personal use. And it is also right to observe that some of them will not be used in the main for carrying the driver or other passengers to locations. The four wheel drive vehicle described in Item 3 may well be thought to have the potential for some element of private use, not connected with agricultural pursuits, although the other vehicles referred to in that Item may not. Beyond the physical description of the vehicle by reference to body type, the other qualification it must have is by reference to activity. And in this respect, it seems to me, the words ``for use by a person mainly in carrying out activities in agricultural industry'' are apt to refer to the use of the vehicle to facilitate a person undertaking tasks in that sphere. There seems to me no basis for reading those words more narrowly, particularly when the legislation could have done so by requiring that the goods, the vehicles listed, be themselves used for carrying out work in that industry. And such a restrictive interpretation, in the context of agriculture, is likely to produce some odd results. It would, for instance, exclude from exemption a vehicle used to convey workers to an orchard or field (the example referred to by Mr Morris QC) whereas a vehicle which regularly carried not only the driver, but also a few implements for use or a sack of feed, would qualify. And of course it would be productive of great uncertainty as to whether the vehicle's main use fell within or without the Item. There is, then, no substance in the argument raised by the notice of contention and the Tribunal was right to reject it.

The appeal from the Administrative Appeals Tribunal will be dismissed.


1. The appeal be dismissed.

2. The applicant pay the respondent Commissioner's costs of and incidental to the appeal to be taxed in the event of dispute.

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