Case Q40 (Public hearing: Nimrod Theatre Company Ltd. v. F.C. of T.)

Judges:
HP Stevens Ch
BR Pape M
TJ McCarthy M

Court:
No. 1 Board of Review

Judgment date: 13 May 1983.

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H.P. Stevens (Chairman)

The question for decision in this reference is whether the Nimrod Street Theatre Co. Ltd. has been correctly regarded as liable to sales tax in respect of the ``construction'' of a set for the play The Sea on the basis that Nimrod has been involved in the manufacture of a taxable item applied to its own use in terms of sec. 17(2)(a) of Sales Tax Assessment Act (No. 1).

2. Founded in December 1970 Nimrod has as its objects, inter alia, the:

• (a) promotion and encouragement of ``drama opera ballet music and other acts of the theatre'';
• (b) production and presentation of ``plays opera ballet and other forms and kinds of theatre or entertainment'';
• (c) establishment and conduct of schools, seminars ``and other forms of education in drama and other acts of the theatre'';
• (d) teaching, instruction and promotion of ``education and research in drama and other arts of the theatre''; and
• (e) co-operation with other bodies both within Australia and overseas having objects ``similar to the objects of'' itself;

whilst cl. 5 of its memorandum provided, inter alia, that:

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``The income and property of the Company whencesoever derived shall be applied solely towards the promotion of the objects of the Company... and no portion thereof shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise howsoever by way of profit to the members of the Company.''

3. Without going into detail it is fair to say that Nimrod has carried out the objects for which it was established and has, since its formation, inter alia, produced some 196 plays - apparently 12 during the year ended 31 December 1979. During 1982 approximately 1,000 performances were given with the total audience around 200,000. The revenue from ticket sales is not sufficient to make Nimrod self-supporting and it relies ``very heavily [on] subsidy from the Federal Government through the Australia Council and the New South Wales Government through the Department of Cultural Affairs''.

4. During the relevant period Nimrod was operating out of (or in) two separate premises. One was its building at Surry Hills consisting of two theatres - the upstairs theatre accommodating ``300 people sitting on three sides around a flat space'' with the downstairs theatre seating only 70. The other is a ``workshop'' at Glebe used, inter alia, for two purposes - the storing of ``properties'' and the ``construction'' of sets (for use at Surry Hills) by employees of Nimrod.

5. Where a particular play to be performed in the upstairs theatre requires some form of set, what happens, in general terms, is that a freelance designer ``is contracted to design the play'', i.e. the set and costumes and, at times, also the lighting for the set. Having been designed the set is assembled in the workshop by Nimrod's permanent carpenters (and any necessary casual staff) and then transported to Surry Hills (in sections) for reassembly on the ``flat space'' in the upstairs theatre. After the performances have ended it is disassembled into sections and returned to the workshop. If the play is to go on tour or the like the sections will be stored as such but otherwise they will be subject to ``recycling'' - i.e. as much as possible that can be reused is salvaged (the balance thrown out).

6. Turning now to the particular play in question, The Sea, the set was designed by a freelance designer, Mr. Eastwood, who gave evidence before the Board. He said the first thing done was to read the play and then have a discussion with the director on, inter alia, how ``the play is going to be visualised''. Having agreed on a basic concept the designer brings it ``down to specifics'' and there is discussion ``on a scene by scene basis'' of the basic requirements including mechanical requirements of actors' movements, scenery changes, etc. Subsequently a scale model is built by the designer - this being ``the easiest way for everybody to understand, whether it be a production manager who finally is given the job of building it, or an actor to understand where he is going to be at a given time in a scene, or the lighting designer to light it''. Once the director and designer are in agreement the scale model and a set of working drawings ``goes to the production manager of the theatre, who is responsible for the set being built'' and the designer would regularly visit the warehouse to see ``the set in the course of its being put together''.

7. Insofar as the construction of the particular set is concerned ``one of the design concepts was that we want to give the impression of a shore line, of a shore, and that necessitated the floor of the stage to be raked''. This meant ``a kind of new stage floor, having ignored the original underneath'', i.e. the flat space component, which ``was achievable by the use of various rostrum modules that the theatre already own and keep in stock'' supplemented by other pieces that had ``to be assembled to make up that particular shape because that particular shape of the whole stage had never actually been put together before''. The rostrum modules consist of a ``steel frame on which is affixed a three-quarter inch ply top'' able to be slotted together and the rake was achieved by adjusting the height of the steel legs. To further heighten the effect of a shore line wave shapes were incorporated at the front and rear of the set (mainly the rear). These were made of laminated plywood ribs (to get the shape and give strength and rigidity) sheeted in plywood. The plywood was covered ``with a pleated canvas that was pleated in a wave shape'' - the raked floor

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being similarly covered. The canvas was then ``painted and stained and treated with the required'' colours. A set of steps was installed behind one of the rear waves to give access to the top of the wave.

8. It was agreed that the set was first assembled in the ``workshop'' in substantially finished form on 3 May 1979, dismantled and transported to and then erected (some finishing done at the time) in the upstairs theatre on 5 May 1979, used for rehearsals on 7 May 1979 and for performances commencing on 9 May 1979 - 45 performances in all over a period of seven weeks. At the end of the performances the set was returned to the ``workshop'' and ultimately only the rostrum modules were retained for future use - the canvas and wave shapes being taken ``to the tip''.

9. In June 1979 the Commissioner wrote to Nimrod referring to it having ``recently been established that you are engaged in the manufacture of scenery and props for use in stage productions'', pointing out that such ``constitutes the manufacture of taxable goods for sales tax purposes'' and requesting that returns for the period 1 June 1976 to 31 May 1979 should be furnished and the appropriate tax paid. Nimrod in reply denied it was engaged in the manufacture ``of scenery and props within the meaning of that term in all or any of the Sales Tax Assessment Acts Nos. 1 to 9 inclusive'' stating that ``what we `manufacture', our essential business operation, is theatre and our marketable product is seats to live performance''. Further correspondence ensued with the Commissioner contending, inter alia:

``The production of scenery and props constitutes the manufacture of taxable goods and theatres which engage in such activities are required to effect registration and account for sales tax on the scenery and props manufactured.

It is not necessary for goods to be sold to attract tax. A liability is incurred where a person manufactures goods and applies them to his own use and this is the position where theatre produces its own scenery and props for use in conjunction with the plays it presents''

and Nimrod reiterating ``that we are not the `manufacturer' of any `goods'''. Nimrod also said:

``Without in any way conceding liability to sales tax at all, we claim that, if liability were established, the sale value of the alleged goods allegedly manufactured by us should be assessed under the proviso to sec. 18(3) of the said Act.

We should be pleased if you would raise an assessment under sec. 18(3) so that the issue of liability may be tested''

and, on 3 April 1980, the Commissioner issued an assessment for the period 1 May 1979 to 31 May 1979 under sec. 25(2A) of Sales Tax Assessment Act (No. 1) based on a sale value of $11,117.16 ``in respect of scenery and props manufactured by you and applied to your own use for the production of The Sea ''. This figure of $11,117.16 was based on a new materials purchased amount (less sales tax paid to suppliers) of $2,188.76 marked up, inter alia, by ``direct labour used in manufacture'' of $4,464.20. The assessment was objected to and upon disallowance thereof reference to a Board of Review was requested.

10. The hearing was conducted on the basis of a prior agreement that the Commissioner's assessed sale value of $11,117.16 should be reduced to $6,374. As a result argument concerned matters of principle only and the precise basis for the reduction is unknown, apart from the fact, inter alia, that the Commissioner's direct labour figure included some amount applicable not to the initial construction of the set but to the dismantling of the set after the performances had been completed.

11. On behalf of Nimrod Mr. Hill put forward three principal submissions which he said interrelated to each other, viz.:

``Firstly we would submit that the sales tax legislation, when read as a whole, makes it clear that it is a requirement of a person being a manufacturer and thus required to register the activity which is said to be manufacture be either a business in itself - whether or not he carries on some other business - or, at the very least, an activity which is more than something which is incidental to another business, not itself being manufacture.

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Secondly - and it is really alternative or additional to that - that, on the true meaning of the legislation as a whole, a company is not relevantly a manufacturer unless the activity of `manufacture' in which it engages is one directed towards the sale of goods, not necessarily being the goods it manufactures but an activity directed towards the sale of goods.

Thirdly - and to some extent rather tied up with those other submissions in some way or other - is that an activity of a taxpayer cannot be broken up into its component parts and examined and say, well, that particular part of its overall activity is manufacture to determine whether a person is, in the relevant sense, a manufacturer.''

He also advanced some subsidiary submissions, viz. that:

• (a) when the activity of the taxpayer is looked at, it is not an activity of manufacture;
• (b) within the relevant definition the set was not goods; and
• (c) the determination of a sale value would produce ``extremely odd results which seem somewhat inconsistent with the policy of the legislation''.

In support of his various submissions Mr. Hill referred to the definition of the word ``engaged'' in the Oxford English Dictionary and to the cases of
Buntine v. Hume (1943) V.L.R. 123 ;
Stuart v. Diplock (1889) 43 Ch. D. 343 ;
A. Lewis & Co. v. Bell Property Trust Ltd. (1940) 1 Ch. D. 345 ;
D.F.C. of T. (S.A.) v. Ellis & Clark (1934) 52 C.L.R. 85 ;
Adams v. Rau (1931) 46 C.L.R. 572 ;
F.C. of T. v. Riley (1935) 53 C.L.R. 69 ;
Irving v. Munro & Sons Ltd. (1931) 46 C.L.R. 279 ;
Cohns Industries Pty. Ltd. v. D.F.C. of T. 79 ATC 4243 .

12. Mr. Simos Q.C. for the Commissioner submitted that Nimrod engages in the manufacture of goods ``in the course of carrying on a business, namely the business of producing plays and selling tickets and therefore falls within the taxing section of the statute''. He said, inter alia:

``... this is a result which flows from the application of the first rule of construction of statutes and indeed other documents, and that is that you must give a literal interpretation to the words and that seems to involve, although it is sometimes suggested that it is a separate rule or a subrule, that you give them their ordinary, natural meaning and further that you do not depart from that literal, ordinary, natural meaning unless really you are compelled by some other circumstance such as other provisions in the Act or the Act as a whole to do so...

We would submit that if you have to modify the ordinary meaning of words by, in effect, reading words into the statute which are not there that is a very extreme step to take and there would have to be the very clearest compelling considerations of construction to produce that result and we submit that what the taxpayer's submissions here involve is just that very thing because he is not seeking, with respect, to simply modify the meaning of words; we submit with respect that in relation, for example, to sec. 17(2)(a) he is seeking to read words into the statute. He is seeking to say that in the course of carrying on a business means you have got to read into that section, subsection, subparagraph, the words carrying on a business of manufacture of goods. Those words simply are not there.

The legal approach is that you must ascertain the intention of the legislature from the words that they have used, and we submit that there is no difficulty when you do that when you apply the relevant words to the facts of this particular case. Really, at the end of the day if I may say so with respect, that is the burden of our submissions. We do not say that the Act in all sections and in all respects and aspects and the regulations operate as a consistent logically consistent whole.

Obviously that is what a draftsman tries to do when he sits down to draft an Act and if the words permit it, that is the sort of construction that a Court and this tribunal should give to an Act. There is no question that it is a rule of construction that you should construe an Act so that it will be a consistent logical whole, if you can. But there are many cases where the Courts have said we cannot do that.''

Mr. Simos Q.C. submitted that, on the facts,

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the set constituted goods manufactured in Australia by Nimrod and applied to its own use in the course of carrying on its business. It was not necessary, in order to be liable, that a person had to be carrying on business as a manufacturer. In addition to the references listed in the preceding paragraph he referred to
Cooper Brookes (Wollongong) Pty. Ltd. v. F.C. of T. 81 ATC 4292 ;
F.C. of T. v. Rochester (1934) 50 C.L.R. 225 .

13. In reply Mr. Hill said:

``You do nothing more than take the literal words of the Act. Ellis & Clark is a person who sells goods by wholesale: these are goods which it sold. No doubt if you look at the dictionary definitions of sale by wholesale, you will see they are concerned with sales in large quantities, and literally Ellis & Clark pays sales tax. Literally, the secretary of this Board roneos off, in due course, the Board's reasons for decisions. The secretary might be said to be the agent of the Board. We will assume the Board was carrying on business for the moment, which it is obviously not. Literally, therefore, the Board is a manufacturer of transcripts or judgments. The solicitor is a [manufacturer] of the memorandum and articles that he produces and so on and so on.

The good example really is the sort of thing like the memorandum and articles of association of the company, solicitors routinely duplicate them off. True they are doing, in the course of their business activity, that which a printer might do, and if a printer does it, of course, the printer pays sales tax: he is registered. But, one just cannot take sec. 17 and ignore the rest of the Act, with respect, and ignore what Sir Owen Dixon had said was the evidence of the policy of it.''

14. As will be appreciated, this reference involves the general policy of the sales tax legislation. Its factual situation is different to previously decided cases and one can only refer thereto in the hope of gaining guidance as to the principles to be applied. If the basic requirement of the legislation is that there must be a business of manufacture - a business directed to the sale of goods - then the issue must be resolved in favour of Nimrod (irrespective of whether the construction of the set is the manufacture of goods) for it is clear that Nimrod does not sell goods as such, and is not in business for that purpose. It is in business (putting it at the highest for the Commissioner) to stage plays in the hope that people will come along to the theatre and purchase tickets to see the plays staged. Nimrod certainly goes to a lot of trouble to put together something that it hopes will attract patrons to its theatre but I do not think that what it is ``selling'' is ``goods''. On the other hand if it is sufficient that there be simply a business (whether it be of manufacture or not) the situation is different and it then would become important to determine whether the construction of the set constitutes the manufacture of goods.

15. I should say that I do not share the views expressed by Mr. Hill in his reply. Where the Board is ``engaged'' (if that be possible) to ``arbitrate'' upon a problem and, as an incident thereof, produces copies of its reasons, I think that situation is clearly covered by Adams v. Rau (supra). Similarly for solicitors who produce memoranda and articles to satisfy ``engagements'' by clients. As Rich, Dixon and McTiernan JJ. said in F.C. of T. v. Riley (supra) at pp. 78-79:

``But there are many vocations and pursuits in the exercise of which physical things incidentally come into existence, and become the property of the client or customer, although the essential character of the work is the performance of skilled services and not the supply of things.''

In Riley's case the claim therein failed because what was involved was ``a process practised commercially to produce an article which will be bought'' (per Rich, Dixon and McTiernan JJ. at p. 79). In the present case it can be said what Nimrod does is something ``practised commercially to produce'' a show that patrons will pay to see but that is not ``an article'' (or goods) ``which will be bought''. There are other examples which Mr. Hill could have referred to which would have more validity, e.g. an organisation which has its own printing section to produce all the books of account, invoices, etc., needed by it in the conduct of its business, as illustrations of the point he was seeking to make, i.e. the Commissioner's interpretation would have consequences that surely could

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not have been intended by the legislature. What then does the legislation reveal?

16. By Act No. 25 of 1930 (assented to on 16 December 1930 but deemed to have commenced on 18 August 1930) the sales tax legislation came into being and almost immediately litigation ensued. The relevant sections for present purposes are 3(1), 11(2), 12, 13, 17, 18 and 21.

17. Section 3(1) inter alia defined ``manufacturer'' as meaning ``a person who engages, whether exclusively or not, in the manufacture of goods...'' and ``registered person'' as meaning ``a manufacturer... who is registered under this Act''. Section 11(2) provided ``every person who becomes a manufacturer... after the commencement of this Act shall... become registered as prescribed...'' whilst sec. 12 stated:

``(1) A registered person shall quote his certificate in such manner and under such circumstances as are prescribed.

(2) A registered person shall not quote his certificate except as prescribed.''

By sec. 13 ``any person carrying on business as a manufacturer... who fails... to become registered... shall be guilty of'' an offence. Section 17 (see also para. 20) provided:

``Subject to, and in accordance with, the provisions of this Act, the sales tax imposed by the Sales Tax Act (No. 1) 1930 shall be levied and paid upon the sale value of goods manufactured in Australia, either before or after the commencement of this Act, by a taxpayer and on or after the first day of August one thousand nine hundred and thirty sold by him or treated by him as stock for sale by retail or applied to his own use''

whilst sec. 18 stated:

``(1) For the purposes of this Act, the sale value of goods, not being goods to which the next succeeding sub-section applies, which are sold on or after the first day of August one thousand nine hundred and thirty, shall be the amount for which those goods are sold to an unregistered person, or to a registered person who has not quoted his certificate in respect of that sale...

(2) For the purposes of this Act the sale value of goods treated by the manufacturer of the goods on or after the first day of August one thousand nine hundred and thirty as stock for sale by him by retail, shall be the amount which would be the fair market value of those goods if sold by him by wholesale.

(3) For the purposes of this Act, the sale value of goods manufactured by any person and, on or after the first day of August one thousand nine hundred and thirty, applied to his own use shall be such amount as, in the opinion of the Commissioner, would be the fair market value of the goods if sold by that person in the ordinary course of trade.''

By Act No. 39 of 1932 effective from 5 October 1932 sec. 18 was amended with subsec. (3) as a result providing:

``For the purposes of this Act, the sale value of goods manufactured by any person and applied to his own use shall be -

• (a) where the goods are of a class which the manufacturer himself sells by wholesale - the amount for which the goods would be sold by the manufacturer if sold by wholesale; and
• (b) where the goods are of a class which the manufacturer himself does not sell by wholesale - the amount for which the goods would have been purchased by the taxpayer from another manufacturer if that other manufacturer had manufactured those goods in the ordinary course of his business for sale to the taxpayer.''

Section 21 dealt with returns to be lodged and, inter alia, required a ``manufacturer who, during any month... (c) applies to his own use any goods specified in sub-section (3) of section eighteen of this Act'' to furnish within 21 days a return in prescribed form.

18. These various provisions were the subject of consideration by the High Court but unfortunately not in the present context. In
F.C. of T. v. Beard, Watson Co. Ltd. (1931) 45 C.L.R. 272 the company was in all senses a manufacturer whilst in Adams v. Rau (supra) it was held that there was no manufacture involved. Again in D.F.C. of T. (S.A.) v. Ellis & Clark Ltd. (supra) the issue was unrelated; it involving whether the Act

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applied to secondhand goods. However in that case Dixon J. did examine the Act as a whole and at p. 89 said:

``... it was passed in the form of nine separate machinery statutes and nine separate taxing Acts. They constitute, however, a single legislative scheme to the complete operation of which all are necessary, and they should be construed together. Moreover, the legislation depends in a remarkable degree upon the regulations made under the power which it confers on the Executive. Without the regulations, not only is it unworkable, but the expression of legislative policy is so inadequate as almost to be unintelligible.''

He on a number of occasions referred to a person who is registered ``or ought to be registered'' (p. 91) or ``required to be registered'' (p. 93) and at p. 95 his Honour said:

``... The legislation attempts to trace the goods from commercial source to commercial destination by means of certificates. It attempts to avoid double taxation by a complete system of rebates and dispensations from a second tax. In all these respects it would fail of its purpose in respect of second-hand goods.''

19. Turning to the regulations the more relevant are 5, 12, 13, 19, 46 and 48. By reg. 5(1) ``every person required to become registered shall make application in writing''. Regulation 12(b) required a manufacturer to quote his certificate in respect of, inter alia, the purchase ``of goods to be used in, wrought into or attached to goods to be manufactured by him for sale'' whilst reg. 13(a)(i) and (ii), inter alia, provided that a manufacturer should not quote his certificate in respect of the purchase of goods:

``(i) for the purpose of providing, erecting, operating, maintaining, repairing or replacing any factories, plant, machinery, tools, equipment, furniture, fittings or other assets used by him in carrying on his business;

(ii) to be applied by him for his own use in any other manner;''

Regulation 19 dealt with the forms required for returns with (3) providing:

``The form to be used -

• (a) by any person who applies to his own use goods manufactured by him; or
• (b) by any registered person who applies to his own use goods in respect of the purchase or importation of which he has quoted his certificate,

shall be in accordance with Form J.''

Regulation 46(c) dealt, inter alia, with payments to prevent double taxation being made to a person ``who is liable to pay tax upon the sale value of any goods... and who has purchased goods, which have been used in, wrought into or attached to those goods, at a price which includes tax which some other person has paid or is liable to pay'' whilst reg. 48(2) provided for a refund (by way of rebate) ``to the extent of the tax which is included in the price for which he purchased those goods''.

20. If some of the obiter remarks of Dixon J. are taken to the ultimate it could be said that the requirements of reg. 13 that a certificate not be quoted (so that sales tax is ``paid'' on the acquisition) points to there being no further tax payable later. However I think reg. 46 and 48 point in the other direction. Whatever doubts there may be as to the original legislation these are removed by the amendments to reg. 12 and 13 by Statutory Rules No. 63 of 1933 and No. 34 of 1934 whereby a manufacturer became required to quote his certificate in the circumstances previously covered by reg. 13. At least from that point no differentiation could be drawn on the basis of the quotation or non-quotation of a certificate nor presumably on the grounds that it was only goods initially manufactured for sale but subsequently applied to own use that were covered by sec. 17, 18 and 21. This latter point may have lingered on for sec. 17 was amended in 1936 by the insertion of subsec. 17(2) providing:

``(2) For the purposes of this section goods manufactured in Australia by a taxpayer and applied to his own use means goods manufactured in Australia in the course of carrying on a business and applied by the taxpayer to his own use whether for the purpose of that business or for any other purpose and whether or

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not those goods are of a class manufactured by that person for sale, but shall not include any goods so manufactured and applied if the taxpayer establishes to the satisfaction of the Commissioner that goods of the same class and for the same particular class of use are not manufactured in Australia, by the taxpayer or by any other person, for sale or for supply to some other person in the circumstances specified in sub-section (4) of section three of this Act.''

Such subsection was, ``deemed to have commenced on the date of commencement of the Sales Tax Assessment Act (No. 1) 1930'', i.e. on 18 August 1930 and made clear that items did not have to be initially manufactured for sale. That part of the subsection commencing with ``but shall not'' was omitted in 1940 and its format was changed but not its substance. It is perhaps unfortunate that such ``definition'' of ``applied to his own use'' was not originally in the legislation (although retrospectively inserted) when considered by the High Court in the early cases - particularly when Dixon J. made his analysis - but since none related to this topic specifically, it is idle to speculate whether different remarks would have been made.

21. The doubts I might have in relation to the position prior to the 1933 and 1934 amendments referred to obviously were not shared by the authors of Sales Tax Official Rulings Acts and Regulations (prepared under the supervision of the Commissioner by Mr. H.R. Irving FFIA FIIS an officer of the New South Wales Branch of the Department) dated 31 December 1932. Paragraph 566 of that work regarded goods applied to a person's own use as including ``articles made, purchased or imported by a manufacturer in the general working of his factory, such as equipment, plant and machinery, tools, fittings, etc.''. Later paragraphs refer to the facts of quotation or non-quotation and para. 572 states that where ``tax has been paid by the manufacturer on these raw materials purchased or imported by him... he is entitled to a rebate of the amount of tax so paid from the amount payable by him in respect of the finished articles''. The later official publication The Sales Tax Law 1930-1938 explained the amendments requiring the quotation of a certificate as being ``designed to obviate the necessity, in cases where raw materials are obtained specifically for the manufacture of goods for application to own use, to substantiate claims for rebates of the tax which would, but for the regulation, be paid upon the acquisition of the raw materials''. This is in line with the previous viewpoint that tax is payable on the sale value of the item applied to own use irrespective of whether a certificate is quoted or not for the acquisition of its components and is readily explicable on the basis of overcoming administrative difficulties for both parties, i.e. the need to record details for reg. 46 purposes and the need for the subsequent checking thereof.

22. Whilst there has been much subsequent amendment to the Act and Regulations since 1933 and 1934 I do not think the basic situation has changed insofar as the current issue is concerned. Sections 3(1), 11(2), 12, 13, 17, 18 and 21 are still in the Act and reg. 5 and 12 (13 no longer relevant) remain in the Regulations. Regulation 19 is now covered by sec. 5 of the Sales Tax Procedure Act whilst reg. 46(c) and 48(2) are now 48(c) and 50(2) respectively. It seems unnecessary to set out the current terms of the legislation and I refrain from so doing - as Mr. Hill said in opening ``I have the original 1930 legislation here, and so far as I can see, nothing relevant has really changed''.

23. From what has been set out it is apparent that it can no more be said that sales tax is a tax on sales than it can be said income tax is a tax on income - both are a tax on whatever the legislative provisions bring within their purview. It is clear that goods do not have to be initially produced for sale (indeed there was no argument to the contrary) but it is far from clear as to whether there is a requirement that there be an activity directed towards the sale of goods. I would concede sec. 13 supports the first principal submission of Mr. Hill but I am uncertain whether the lack of a requirement to register can override the liability provisions of the Act. I am inclined to think not.

24. During the course of the hearing I posed to Mr. Hill the hypothetical situation

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of a large transport operator who determined that, in lieu of purchasing trucks from others, it would produce its own vehicles - not for ultimate sale but solely for the gaining of fees in respect of the use of those trucks in the carriage of goods for clients. As I understood his answer this involved a consideration of two questions of fact. First whether ``would a person call this company a manufacturer of trucks'' and second whether such activity was merely incidental. Mr. Hill contended ``if it is merely incidental then in our submission it is not caught by the Act'' - although he also said ``it may well follow that the Act as a whole being concerned with sales is not concerned with the situation where someone never sells anything''.

25. As indicated earlier there is a dearth of authority on the point but the decision in
Stewart & Anor. v. D.F.C. of T. 82 ATC 4321 raises some doubts in relation to Mr. Hill's submissions. In that case (on the facts stated) ticket dispensing machines were produced and supplied without charge to organisations to whom tickets for use in the machines were sold (who produced the tickets is unstated). It was conceded that a sales tax liability arose under sec. 17(1) until the sale of the tickets (a profitable exercise) ceased to be made by the producers of the machines and were then made by a trustee of a settlement. Nevertheless it was held that the sales tax liability existed except where covered by the exemption provisions. Admittedly no argument such as presented here was raised, but it is a fact that it was held that the liability existed even where the only return was by way of distributions as beneficiaries of a trust.

26. It is also I think rather difficult, when talking of goods applied to own use, to be seeking manufacture thereof as a business. ``Business'' implies a commercial operation in the usual sense and, whilst it may be apt to describe an entity as a manufacturer/wholesaler or the like, I do not think a description manufacturer/applier to own use is apt. Looking at an operation in isolation it is possible to say that it is manufacture (without it constituting a business) and I think that is the way the term should be looked at in relation to goods applied to own use.

27. In D.F.C. of T. (S.A.) v. Ellis & Clark Ltd. (supra) Dixon J. referred to ``commercial source'' and ``commercial destination'' respectively and in the case of a business which does not involve simply the performance of skilled services the construction of items to be applied to own use for the carrying on of that business, there are grounds for the view that the commercial ``test'' is fully satisfied regardless of whether the business concerned is purely one of manufacture. The business needs the items to carry on and can either acquire them from a ``pure'' manufacturer or can decide to apply some of its own resources to their construction - if the former there is both a commercial source and destination and, if the latter, the source has arisen out of a commercial decision and the items have a commercial destination, i.e. use in the business. Even where there is the performance of skilled services the same could be said in relation to the equipment needed to provide those services and I do not think Adams v. Rau (supra) or F.C. of T. v. Riley are necessarily to the contrary - they did not concern such equipment. If this be correct then all businesses (manufacturing and other) are affected equally by the sales tax legislation - they pay (in the price) if they purchase equipment, etc., produced by others and pay directly if they produce the equipment, etc., themselves.

28. Whilst still having some reservations, I have reached the view that, in relation to goods applied to own use, the general policy of the Act is to tax not only those who carry on business solely as manufacturers, i.e. manufacture goods for sale, but also those who, in the course of carrying on their business (whatever description), produce items for use in the conduct of that business. I do not need to consider whether it would cover a single occasion ( de minimis could apply) for in the present case the construction of sets is done with regularity (see number of plays produced para. 3 above).

29. It follows that, providing the construction of sets constitutes ``the manufacture of goods'', I would regard Nimrod as properly within the provisions of the Sales Tax Act. There may be some difficulties associated with determining the sale value but I do not think this can alter the situation - the amendment in 1936 of sec. 18(3) to alter the word ``would'' to ``could''

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removed problems that previously existed where there was no other manufacturer or supplier of the items concerned. In any event the determination of a sales value is not an issue (para. 10).

30. Looking at the facts it is my view that what is done does represent ``the manufacture of goods''. I do not agree that it is properly only to be described as ``a process of assembly'' and I think Mr. Hill really in the end conceded ``that what is involved would have to be called manufacture''. He did submit formally that the decision in Cohns Industries Pty. Ltd. (supra) was wrong but said ``maybe it is an argument that might be dealt with somewhere else but not in the course of this hearing''.

31. For the above reasons I would, except to the extent of the agreed reduced sales value of $6,374, uphold the Commissioner's decision upon the taxpayer's objection.