MURRAY GOULBURN CO-OPERATIVE CO LTD v FC of TJudges:
MEDIA NEUTRAL CITATION:
 FCA 453
Murray Goulburn Co-operative Co Limited (``Murray Goulburn'') manufactures butter, cheese and other dairy products at six factories in Victoria. It makes daily collections of milk from dairy farmers. For this purpose it uses bulk milk collection tankers (``BMC tankers'') consisting of a prime mover and a trailer. (``Trailer'' is not a name used in the dairy industry but it is a convenient neutral term for the purposes of discussion.)
2. Questions have arisen under the 1935 and 1992 Sales Tax (Exemptions and Classifications) Acts (hereafter referred to respectively as ``the 1935 Act'' and ``the 1992 Act''). Broadly speaking the issues are:
- (i) whether the BMC tankers are for use for collection of milk from dairy farms which are ``contiguous'' (1935 Act) or ``adjacent'' (1992 Act) to one another and which are ``controlled'' by Murray Goulburn (``the premises issue'');
- (ii) whether parts of the trailers are parts, accessories and/or attachments to ``tanks for bulk-milk tankers'' (1935 Act) or ``tanks for a bulk milk tanker'' (1992 Act)(``the tank issue'').
3. Details of the refund applications which gave rise to the appellable objection decisions are as follows:
Application Goods Item Act Period Amount 1st BMC tanker 157 1935 18/12/91-31/7/92 $188,206 with prime mover 2nd Parts 7(11) 1935 13/11/89-30/6/92 $183,710 3rd Parts 7(11) 1935 30/6/92-1/1/93} 5 1992 1/1/93-30/6/95} $285,728 4th BMC tanker 18 1992 1/1/93-25/11/94 with prime mover 28 1992 $1,100,000
4. As to the claims concerning parts, the Commissioner accepts that the pumping equipment and the barrel on the trailers are exempt. In essence the dispute concerns items such as the suspension, wheels, axles, tyres and landing legs.
Murray Goulburn and its operations
5. Murray Goulburn was incorporated in 1950. It currently has over 3000 shareholders and annual revenue in excess of $1 billion. It requires dairy farmers to become shareholders before it will purchase their milk. It pays what is described as a nominal dividend once a year, but the farmers obtain their principal return from the price Murray Goulburn pays for their milk.
6. Murray Goulburn operates six factories, each of which services a major dairying region in Victoria. These factories are located at Koroit, Rochester, Cobram, Kiewa, Maffra and Leongatha.
7. The farmers are paid monthly on the basis of the quantity and quality of milk supplied. The only contractual documentation between Murray Goulburn and the individual farmer relating to the supply of milk is a one page document. This has provision for the name and address of the farm owner and any share farmer. There is a space to indicate whether either is a Murray Goulburn shareholder and to indicate the apportionment of payments under any share farming arrangements. Details are to be given of bank accounts to which payments are to be made. There is nothing in the document obliging the farmer to deliver any particular quantity or quality of milk at any particular price, on any particular date or over any particular period. The main purpose of the document seems to be to direct where and to whom Murray Goulburn is to make payments.
8. When a farmer becomes a supplier to Murray Goulburn the farmer is visited by a Murray Goulburn field officer who explains the company's requirements relating to the supply of milk, including the layout of driveways on the farm to facilitate access by collection vehicles.
9. The farmer stores milk for collection in a refrigerated vat within the milk storage and collection area on the farm, usually in a milk room or shed. This can be at the road frontage of the property or some hundreds of metres within it. In order to minimise any risk of contamination the storage and collection area for milk must be separate from the area in which the cows are milked. Milk is pumped from this latter area through pipes to the refrigerated vat.
10. In the course of a run, the driver of the Murray Goulburn vehicle will call on farms at any time of the day or night. More often than not the farmer is not present. The driver checks the temperature of the milk and carries out certain tests. The driver then loads the milk into the trailer by means of the motorised pump on the vehicle. The driver is an authorised Farm Collection Milk Grader under the Dairy Industry Act 1992 (Vic) (``the Victorian Act''). Murray Goulburn itself is an authorised agent appointed to act on behalf of the Victorian Dairy Industry Authority. The Victorian Act provides a detailed regime for the collection and storage of milk and the manufacture of milk products. In addition Murray Goulburn has its own additional microbiological and other requirements, for example a thermoduric standard.
11. The Murray Goulburn driver physically inspects the milk storage and collection areas to ensure they comply with the relevant statutory standards, and in particular that they are clean and easily accessible. After collecting the milk the driver cleans the area and rinses out the refrigerated vat.
12. At the factory the milk is pumped into holding silos. Further sampling and testing is carried out. Milk is then directed to the various production lines in the factory.
13. Murray Goulburn field officers have access to members' farms and provide instructions and information as to farm management. Field officers take soil and milk samples for analysis and advise members on such matters as the planting of grazing crops, the use of fertilisers, depasturage, the milking of cows and the storage of milk, the objective being optimum quality and capacity milk production. Field officers will request the farmer to alter his or her practices whenever it is determined that the farmer's practices are adversely affecting the quality of the milk. Field officers will request that animals, etc be kept away from the refrigerated storage vat, that the storage and collection area is kept clean and that mechanical or maintenance repairs be carried out where these are required, all to ensure high quality milk.
14. The field officer, assisted by testing and sampling undertaken by the factory laboratory, continues to monitor the supply of milk by the member farmer. Although there are no specific rules governing unsatisfactory performance by
ATC 4458a member farmer, the practical position is that if Murray Goulburn, having consulted with a member, is dissatisfied with the supplies of milk from that member, and there is continued non-compliance, it will simply cease to collect milk from that member. It will then refund in full all monies paid for the shares. The threat of cessation of supply is a real one and invariably members comply with Murray Goulburn's requirements. Murray Goulburn does terminate the collection of milk from a member on occasions and farmers also cease to supply milk to Murray Goulburn from time to time.
15. Murray Goulburn is not the only company buying milk from Victorian farmers. Other competitors include Bonlac and Nestlé.
16. A glimpse of a typical Victorian dairy farming locality appears in the evidence of Murray Goulburn's witness Mr Alan Russell, who has a farm at Rochester. His farm is 80 hectares, which he described as ``a whisker bigger than the average'' in his area. He milks 180 cows. He has got two of the old 100 odd acre lots but there are some neighbours who have three such lots and milk 350 cows. Between one-third and a half of the dairy farmers in his area are Murray Goulburn suppliers. Apart from a golf course on one boundary he is surrounded by other dairy farms. Two are Murray Goulburn suppliers but one is not.
The milk runs
17. Throughout Victoria, Murray Goulburn would conduct on any given day some 400 to 500 milk collection runs. Runs are constantly scheduled and rescheduled to produce the most efficient and least costly route, taking into account matters such as the number of pickups and their locations, the expected volumes from each farm, the number of vehicles available and weather and road conditions. Usually the vehicle will go empty to the furthest farm and then make collections progressively on the way back to the factory. Two years ago Murray Goulburn installed a computerised scheduling system.
18. Murray Goulburn tendered computer printouts of collection runs from each of its six factories for 25 August and 23 October 1998. The latter date was the peak of milk collection for 1998.
19. An example of the information provided is that relating to tanker 1002 which operated out of Murray Goulburn's Cobram factory. It did three runs on 25 August 1998. On the first run it left the factory at 6.30 am and travelled 20.35 km to the first farm. It spent 11 minutes loading and then travelled 8.67 km to the next farm. Subsequent collection stops occurred at intervals of 1.0, 1.08, 0.38, 1.56, 8.22 and 1.01 km. From the final collection until return to the factory was 27.51 km. In all the vehicle travelled 69.79 km over 2 hours 27 minutes and collected 19,754 litres of milk.
20. On behalf of the Commissioner arithmetical calculations were made to determine the average distance between stops. These calculations were based upon the distance from factory to first farm, farm to farm, and last farm to factory. The average distances between stops calculated in this way were:
25 August 1998 16 km 23 October 1998 18 km
21. The trailers are constructed by Tieman Industries Pty Ltd (``Tiemans'') in its factory at Keon Park. Tiemans does not manufacture or supply prime movers. The trailers are specifically designed to collect bulk milk from farms. They are constructed from stainless steel.
22. The construction process initially consists of constructing an inner barrel by rolling sheets of stainless steel. To give the barrel strength whilst maintaining its flexibility, metal rings which encircle the exterior of the barrel are attached to the barrel at regular intervals along its length. To these rings are welded two metal beams which run the full length of the barrel. These beams or rails are load bearing and form the backbone of the barrel. This form of construction allows stresses to be dissipated through the rings and gives flexibility and strength to the inner barrel.
23 To the outside of the rings and the rails is attached an outer metal skin which completely encircles the rings and rails, apart from the small surface of the rails left exposed for attaching other components such as the skid plate, the landing legs assembly and the suspension assembly. Before the outer skin is put around the rings and rails, insulation is applied to the outside of the inner barrel so that the gap between the inner and outer barrels is insulated. Caps are added at each end with
ATC 4459appropriate insulation. There is both a barrel cap and an outer skin cap. The net result is a double-skinned, structurally sound vessel supported by the rings and rails between the barrel and outer skin. Baffles are installed to the inside of the barrel to reduce the surging effect of milk on the weight distribution. There are a number of entry and exit points which include inlet and outlet lines requiring appropriate fittings to be flanged and welded. Manholes for access inspection need to be sealed with hinged lids and neoprene seal rings. To the outer skin, but at points which enable connection to be made through to the rails and/or rings for structural support, various items such as a walk rail, ladder and spare wheel carrier are either welded or bolted.
24. The boot, the skid plate, the landing legs assembly and the suspension assembly are all welded or bolted on to become an integral part of the whole.
25. The boot contains a pump compartment and a pump, a motor compartment and a motor and in more recent models automatic milk testing equipment.
26. The suspension assembly is constructed by fabricating a spacer and welding hangers to the spacer. To the hangers are bolted the suspension, axle and brake componentry. These are not manufactured by Tiemans. The suspension assembly at this point consists of the spacer, hangers, suspension, axles, wheels, mudguards and brakes. It is welded to the rails towards the rear end. To enhance strength, additional structural gussets are included over and between the rails and rings of the points where the spacer is welded. The spacer enables the tanker to sit at an angle to the ground.
27. As to terminology, I find that amongst those concerned with the construction of such vehicles, and also in the dairy industry itself, the expression ``tanker'' can be used to denote either the complete articulated vehicle, that is prime mover plus what I have called the trailer, or the trailer by itself. The term ``tank'' is used only to mean the cylindrical container or barrel which holds the milk. The trailer is not referred to as a ``tank''.
28. The term ``undercarriage'' is not used at all in relation to trailers. Generally the term ``chassis'' means the structural part of a truck or other motor vehicle to which a body is bolted or welded. It is not normally used in connection with trailers of the type described. The modern method of tanker construction does not employ a chassis because the necessary strength of the tanker is provided by the construction method involving the integration of inner barrel, rails and rings. This method of construction is sometimes referred to as ``monocoque''.
The premises issue
29. The legislation in question is complex. The drafting approach adopted is to define exemptions in general words. The meaning of some of those words are defined elsewhere in places which themselves direct the reader to still further definitions, and so on. Most of the linguistic network applicable to the present case did not give rise to any dispute and I shall not reproduce it in this judgment. Rather I shall go to those provisions which contain the statutory criteria, the application of which is disputed.
30. In the case of the 1935 Act, cl 14 of the First Schedule speaks of a ``general purpose road vehicle'' that:
- ``(a) is for use by a person mainly in carrying out one or more eligible activities; and
- (b) is for use exclusively:
- (i) within areas; or
- (ii) in going between contiguous areas; or
- (iii) both within areas and in going between contiguous areas;
- where each of those areas is an eligible area in relation to that eligible activity...''
``Eligible activity'' takes one, via cl 14(2), to ``eligible business goods'' (cl 3), one category of which is ``eligible storage handling and dispatch goods'' (cl 9(1)), which includes the requirement that such goods
``(b)... are for use mainly:
- (i) on premises owned, leased or controlled by the goods producer...''
31. ``Eligible area'' also involves the term ``eligible business goods'' and thus leads again to cl 9(1)(b).
32. In the 1992 Act, item 18 of Schedule 1 relates to goods used for a ``manufacture- related activity''. It exempts certain goods but excluding (under item 18(3)(b)) a ``general- purpose road vehicle''
``... unless it is for use exclusively:
- (i) within premises controlled by the exemption user...; or
- (ii) in going between adjacent premises covered by subparagraph (i); or
- (iii) for a combination of both.''
33. Item 28, relating to transportation activities, is in similar terms.
34. The Macquarie Dictionary gives as a definition of ``contiguous'':
- ``1. touching; in contact.
- 2. In close proximity without actually touching; near.''
This is consistent with the Shorter Oxford definition:
- ``1. Touching, in contact; adjoining.
- 3. loosely. Neighbouring.''
As to ``adjacent'', the Macquarie meaning is ``lying near, close, or contiguous; adjoining; neighbouring'' and the Shorter Oxford ``lying near to; adjoining; bordering (not necessarily touching)''.
35. Giving a reasonably beneficial construction to words which confer exemption to tax liability (see
Burst v FC of T (1912) 15 CLR 469 at 482,
Diethelm Manufacturing Pty Ltd v FC of T 93 ATC 4703 at 4708; (1993) 116 ALR 420 at 426), I would accept that neither ``contiguous'' nor ``adjacent'' is used in the legislation in question in the strict or literal sense of touching. However, the characterisation of the vehicles in question has to be considered in the light of their proposed use as at the time of purchase. This characterisation cannot change from day to day or from one milk run to another. While doubtless there are some farmers who supply milk to Murray Goulburn whose farms are contiguous even in the strict sense (as evidenced by Mr Russell), or would be sufficiently close to be contiguous or adjacent in a looser sense, the fact remains that on average something like 16 to 18 km are travelled between collection point from farms of, in the main, a few hundred acres. Murray Goulburn contended that these averages were skewed because of what were called ``anomalous'' runs, that is dairying districts which were a long way from the factory. For example from Cobram there are runs to Wangaratta and Deniliquin, New South Wales. But there are only about six such ``anomalous'' runs in a total of 400-500 runs per day. And as Murray Goulburn's witness Mr Hobley conceded in cross-examination, there are also ``anomalous'' runs where the farms are basically next door to the factory. Thus taking into account both ``long anomalous'' and ``short anomalous'' runs there is an average of 16 to 18 km between stops. In no sense of the words could those farms be said to be contiguous or adjacent. Even less is this so when one considers as the relevant premises not the farms but the milk collection areas within the farms.
36. There was no evidence that Murray Goulburn owned or leased any dairy farms. (Murray Goulburn does provide finance for the acquisition by farmers of milk vats and associated equipment but does not, as far as the evidence disclosed, become the owner of such equipment.) The question then becomes whether Murray Goulburn exercises ``control'' over dairy farms, or at least those parts of them set aside for milk collection.
37. In my opinion the relevant relationship between the farmers and Murray Goulburn is simply that of vendor and purchaser. The farmer's capacity as shareholder is not relevant to the express or implied contractual arrangements for the purchase and collection of milk and access to the farm. Murray Goulburn stipulates the quality of the milk it requires and how that milk is to be made available for collection. But that does not give Murray Goulburn ``control'' over any part of the farm. The farmer can lawfully decide one day to sell his milk to Bonlac or Nestlé rather than Murray Goulburn and, as a consequence, refuse access to Murray Goulburn vehicles. At best Murray Goulburn has a licence to enter upon the farmer's premises for the specific purpose of collecting milk or related purposes, such as discussing the quality of the milk provided and farm management issues bearing on milk supply. Such a licence would be revokable on reasonable notice. In the circumstances that notice could be short, possibly as little as 24 hours.
38. Still less does the relationship between Murray Goulburn and the farmer give Murray Goulburn any right to exclude third parties from any part of the farm. ``Controlled'' takes colour from its presence in the collocation ``owned, leased or controlled''. An element of dominion is involved. Thus it would be said that a builder
ATC 4461``controls'' a building site of which he has possession under a building contract with the owner. But it would not be said that the builder ``controlled'' a timber yard which he visited regularly for the purpose of obtaining supplies.
The tank issue
39. Item 7 of the First Schedule to the 1935 Act exempts:
``Dairying machinery and equipment (and parts therefor) and dairying materials, viz.:-
(11) Tanks for bulk-milk tankers for use by producers, carriers, manufacturers or distributors of milk or other dairy produce exclusively for the collection of milk from farms, including pumping equipment and other fittings for those tanks, but not including any road vehicle, chassis or undercarriage to which any such tank is, or is to be, fitted, or parts for any such vehicle, chassis or undercarriage.''
Accessories and attachments to goods in Division I are exempted by item 13(2) and (3):
- ``(2) Accessories (being machines, implements or apparatus) of any goods (being machines, implements or apparatus) covered by any item or sub-item in Division I., if those accessories are of a kind ordinarily sold with those goods
- (3) Attachments (being machines, implements or apparatus, n.e.i.) for any goods (being machines, implements or apparatus) covered by any other item or sub- item in Division I., if the purpose of the attachments is to facilitate or supplement the primary function of those goods; and parts therefor.''
In the 1992 Act the relevant exemption is item 5 of Schedule 1:
- ``(1) Tanks for a bulk milk tanker if the tanks are for use by a person exclusively for collecting milk from farms.
[Parts, accessories and attachments]
- (2) Pumping equipment and other fittings for use by a person exclusively with a tank covered by subitem (1).
[Parts, accessories and attachments]''
40. The note ``[Parts, accessories and attachments]'' means that the sub-item extends to goods for use by the exemption user exclusively as associated goods of the specified type of goods covered by the sub-item: s 8(3).
41. In addition, s 6AA of the 1935 Act provides:
``6AA Notwithstanding anything contained in any Sales Tax Assessment Act, sales tax is not payable upon so much of the sale value under any Sales Tax Assessment Act of goods in which are incorporated any tanks as specified in sub-item (11) of item 7 in the First Schedule as is equal to the amount which, in the opinion of the Commissioner, would have been the sale value of those tanks under that Act if the transaction, act or operation in relation to which the first-mentioned sale value arose had been a transaction, act or operation in relation to those tanks only.''
Likewise s 48 of the [Sales Tax Assessment Act] 1992 provides:
``48(1) This section applies if:
- (a) the goods incorporate a tank; and
- (b) an exemption based on exemption Item 5 would have been available if the dealing had involved only the tank.
48(2) The exempt part is the amount that would have been the taxable value if the dealing had involved only the tank (assuming the dealing to be taxable).''
42. Once it is accepted, as the evidence clearly shows, that the term ``tank'' is not used to mean the trailer but only the barrel which holds the milk, it follows that it is only tanks as such , and their fittings, parts, accessories and attachments which are within the exemptions. The exempted items are ``tanks for bulk-milk tankers'' (1935 Act) or ``tanks for a bulk milk tanker'' (1992 Act). Each of Items 7(11) and 5 specifically distinguish between the tank and the tanker. It is only fittings, parts, accessories and attachments to the tank itself which are exempt. If the fitting, part, accessory or attachment is fitted, a part of, an accessory or an attachment to the tank er , it is not within the exemption item. While I accept that modern trailers do not have a chassis or undercarriage in the relevant modern usage of those words, it is not necessary to go to any further exclusionary provision.
43. Section 6AA of the 1935 Act and s 48 of the [Sales Tax Assessment Act] 1992 themselves make it clear that, if a tank is incorporated into something else, such as a BMC tanker, it is only
ATC 4462the tank itself and equipment necessary to operate the tank as a tank that is exempt from sales tax. Indeed, if (as Murray Goulburn contends) Items 7(11) and 5 extend exemption to the entire tanker, it is difficult to see any field of operation for ss 6AA and 48 at all. The way the legislation is intended to operate is that the purchase of a BMC tanker (with or without prime mover) is a taxable transaction. However, by virtue of the operation of ss 6AA and 48, so much of the sale value of the purchase price as represents the sale value of the tank alone is exempt from sales tax.
44. This conclusion is strongly supported by the history of the legislation. When introducing the Bill which introduced item 7(11) into the 1935 Act in 1960 the Treasurer, Hon Harold Holt, said (Hansard 16 August 1960 at 83):
``Assistance is being accorded to the dairying industry by way of exemption of tanks for bulk milk tankers which are used in that industry in picking up bulk milk from farms. The use of these tankers is a recent development in the industry, which increases efficiency but involves heavy expenditure on new equipment. The existing law authorises exemption of milk cans which are used in the dairying industry in the transport of milk. The bulk milk tanks now under notice actually take the place of these cans. It is therefore appropriate to encourage this new development towards efficiency by extending the exemption to the tanks. The proposed exemption will not apply to vehicles as such, but only to the insulated banks and associated fittings which are built into vehicles for this purpose.''
45. The Commissioner also contended that the second refund application was not lodged within the three year period prescribed by s 12C(1) of the Sales Tax Procedure Act 1934 (Cth). In view of the conclusion I have reached, it is not necessary to consider that issue.
46. The application will be dismissed with costs, including reserved costs.
THE COURT ORDERS THAT:
1. The application is dismissed.
2. The applicant pay the respondent's costs, including reserved costs.