Federal Commissioner of Taxation v. Nimrod Theatre Company Limited.

Judges:
David Hunt J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 11 May 1984.

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David Hunt J.

Pursuant to the Sales Tax Assessment Act (No. 1) 1930, sec. 42(6), this is an appeal by the Commissioner of Taxation against a decision of the Taxation Board of Review No. 1 whereby the respondent, Nimrod Theatre Company Limited (``the Nimrod''), was held by majority not to be liable to sales tax in relation to scenery and stage properties constructed by its employees for its own use in the production of a play. The decision of the Board of Review is reported as Case Q40,
83 ATC 174.

Sales tax is payable upon the sale value of goods manufactured in Australia and sold by a taxpayer or treated by him as stock for sale by retail or applied to his own use. That tax is imposed by the Sales Tax Act (No. 1) 1930, and levied in accordance with the provisions of the Sales Tax Assessment Act (No. 1) 1930: sec. 17(1) of the Assessment Act (All subsequent references are to sections of that Act.) Goods manufactured by a taxpayer and applied to his own use are identified by sec. 17(2)(a) as being:

``to goods manufactured in Australia by a manufacturer in the course of carrying on a business and applied to his own use, whether for the purposes of his own use, whether for the purposes of that business or for any other purpose and whether or not the goods are of a class manufactured by the manufacturer for sale.''

A ``taxpayer'' is defined as a person chargeable with sales tax under the Assessment Act (sec. 3(1)), who in turn is identified, so far as is here relevant, as the ``manufacturer'' of goods manufactured in Australia and applied by him to his own use: sec. 19. A ``manufacturer'' is a person who ``engage, whether exclusively or not, in the manufacture of goods, and includes... a person... who manufactures goods'': sec. 3(1). ``Goods'' are given only an inclusive definition which has no relevance in this case. The noun ``manufacture'' is similarly given only an inclusive definition. Section 3(1) defines the noun as including ``production''; the remainder of that definition is of no direct assistance. The adjective or past participle ``manufactured'' and the verb ``manufactures'' are given a meaning corresponding to the noun ``manufacture'': sec. 3(1). (All of the definitions in sec. 3(1). are subject to the usual caveat ``unless the contrary intention appears'', but it has not been suggested by either party that any such contrary intention appears so far as this case is concerned.)

The Commissioner's assessment from which the respondent appealed to the Board of Review was based upon the scenery and stage properties constructed for use in the production of a play The Sea, performed in 1979. After the respondent's objection, the Commissioner adjusted their sale value at $6,374. The sales tax applicable (at the rate of 15%) is only $956.10, but the appeal is regarded by the parties as being a test case and the Commissioner has agreed to pay the costs of the appeal in any event (including the cost of two counsel for the respondent).

The scenery and stage properties were constructed by the Nimrod's employees, partly from new materials and partly from materials which had been used previously for the same purpose in relation to other plays produced by the company. The material used for the construction by the carpenters included metal frames, plywood and canvas. The equipment which was used in the construction was that usually to be found in a carpenter's workshop. Painters completed the work so as to produce for the Nimrod's audiences an illusion of the various scenes in which the play was set. The scenery suggested the sea; the stage properties consisted of chairs, a shop counter, a table and a lamp and things of that sort. The scenery was constructed in such a way that, at the end of the play's season, it could be dismantled and its materials used in the construction of scenery for other plays subsequently produced by the company.

The Commissioner does not argue that the Nimrod carried on the business of

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manufacturing theatrical scenery and stage properties, or indeed the business of manufacturing any goods. He accepts that the only business which the Nimrod has carried on is the provision of public entertainment for audiences who pay to see the plays which it produces.

What the Commissioner says is that these goods were manufactured by the Nimrod in the course of carrying on that business, and were applied by it to its own use whether or not for the purposes of that business. As such, the Commissioner says, the goods fall squarely within the literal meaning of the words of sec. 17(2)(a) which I have quoted, and thus are liable to sales tax upon their sales value in accordance with sec. 17(1). The language of sec. 17(2)(a) is clear and unambiguous, the Commissioner says, and therefore the section should be interpreted in accordance with its literal (or ordinary and grammatical) meaning. He relies upon statements to that effect in
Cooper Brookes (Wollongong) Pty. Ltd. v. F.C. of T. 81 ATC 4292 at pp. 4295-4296, 4299-4300 and 4305-4306; (1981) 147 C.L.R. 297 at pp. 304-305, 310-311 and 319-321.

There is, as I understand it, no longer any issue before me that the scenery and stage properties consisted of ``goods'' within the meaning of the Act, or that these goods were applied by the Nimrod to its own use. The principal issue which I have to decide is whether the Nimrod is relevantly the manufacturer of its scenery and stage properties within the meaning of this legislation.

The Commissioner submits that, as the noun ``manufacture'' includes ``production'' and the verb ``manufactures'' therefore includes ``produces'', what the Nimrod has done by the construction of the scenery and stage properties is to produce goods, by the application of physical labour or mechanical power, which are distinct from the ingredients composing them. It has therefore manufactured those goods in the course of carrying on its business of producing plays for public entertainment:
F.C. of T. v. Riley (1935) 3 A.T.D. 183 at p. 189; (1935) 53 C.L.R. 69 at p. 78;
M.R. Hornibrook (Pty.) Ltd. v. F.C. of T. (1939) 5 A.T.D. 167 at p. 174; (1939) 62 C.L.R. 272 at p. 284.

That is the Commissioner's argument based upon the literal interpretation of sec. 17(2)(a). But it is also made clear in the passages upon which the Commissioner relies in the Cooper Brookes case that every provision in a statute must be read in its context, and that its meaning (and the intention of the Legislature) must be gathered from the whole of the statute. In relation to the Assessment Act, its provisions must be construed in the context of the machinery statutes, the taxing Acts and the Regulations thereunder, upon which the legislation depends to a remarkable degree and without which the legislative policy is so inadequate as almost to be unintelligible:
D.F.C. of T. v. Ellis & Clark Ltd. (1934) 3 A.T.D. 98 at p. 100; (1934) 52 C.L.R. 85 at p. 89. The context of sec. 17(2)(a) is as follows:

• (i) A person who becomes a manufacturer must become registered ``as prescribed'' within 28 days of becoming such a manufacturer: sec. 11(1). Pursuant to reg. 5 of the Sales Tax Regulations 1956, a person ``who... is required to become registered as a manufacturer'' must make application to the Commissioner in accordance with Form A for registration ``in each State in which he has a place of business as a manufacturer''. Such a requirement is not limited in its application to those who in fact have ``a place of business as a manufacturer''; the Regulation necessarily assumes that everyone ``who... is required to become registered as a manufacturer'' does have such a ``place of business as a manufacturer''.
• (ii) Form A requires the applicant for registration to state the name under which the ``business as manufacturer... is or will be carried on'', the address of the ``place where that date or will be carried on'' and the date or the proposed date of the ``commencement of business as manufacturer''. Form A also necessarily assumes that the applicant for registration carries on business as a manufacturer.
• (iii) Every person who is a manufacturer is obliged to keep proper books and to preserve all documents relating ``to his business'': sec. 70E. The certificate of registration once issued is made subject to a condition that the person to whom it is issued will, when required by the Commissioner, render true statements of sales made by him: sec. 11(6)(a)(ii). These two provisions of the Act necessarily assume that the applicant for registration carries on the business of

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  manufacturing the goods upon which the sales tax is levied.
• (iv) Security must be lodged by the person to whom a certificate of registration is issued in the State in which he carries on business or, if he carries on business in more than one State, in that State in which the head office of his business is situated: reg. 23. Failure to register or to give the required security is made an offence by sec. 13. That section applies to ``(a)ny person carrying on business as a manufacturer... who is required by or under section 11 to become registered''. Unless the Legislature is to be understood as thereby intending to create a class of persons who, although they carry on business as manufactures, are nevertheless not required by sec. 11 to become registered - a somewhat unlikely intention - sec. 13 must be interpreted as demonstrating that all those who do carry on business as a manufacturer, and only those who do carry on business as a manufacturer, are required by sec. 11 to register.
• (v) Where a manufacturer to whom a certificate has been issued ceases during its currency to carry on the business to which the certificate relates, he is obliged to notify the Commissioner who then cancels the certificate: sec. 16. When the certificate of registration as a manufacturer is cancelled, the person to whom the certificate was issued ceases to be a registered person ``in respect of the business to which the certificate relates'': reg. 9. These two provisions also necessarily assume that those who are registered carry on the business of manufacturing the goods upon which sales tax is levied.
• (vi) There is no alternative system of registration provided in relation to persons who ``manufacture'' goods otherwise than in the course of either the business of manufacturing the goods upon which sales tax is levied or the business of manufacturing generally.

Section 11, which obliges any person ``who becomes a manufacturer'' to register as such, draws no distinction between (a) those who carry on the business of manufacturing goods generally, (b) those who carry on the business of manufacturing the goods upon which sales tax is levied, and (c) those who are not in the business of manufacturing generally but who ``manufacture'' goods for a purpose other than such a business. There is no other provision for registration. The certificates play a fundamental part in the legislative scheme: D.F.C. of T. v. Ellis & Clark Ltd. (supra), at A.T.D. pp. 101-102; C.L.R. p. 91. The whole system of levying sales tax depends upon registration under Pt. III of the Assessment Act, and upon the obligation placed upon those so registered (or required to be so registered) under the Assessment Act to furnish to the Commissioner returns ``for the purposes of the ascertainment of the liability of that person to sales tax'': Sales Tax Procedure Act 1934, sec. 5. There is no obligation placed upon those not so registered to file such returns.

From a consideration of the whole of this legislative scheme, I am satisfied that the intention of the Legislature is to impose sales tax only upon goods which are ``manufactured'' in the course of either the business of manufacturing the goods themselves or the business of manufacturing generally. As the Nimrod is not in either type of business, it is unnecessary for me to refine that proposition further. It is sufficient for me in this case to say no more than that there is no legislative intention to impose sales tax upon goods which are ``manufactured'' otherwise.

The Commissioner protests that to impose such a limitation upon the literal meaning of the words in sec. 17(2)(a) is in effect to add further words to them, so that the paragraph reads either:

``to goods manufactured in Australia by a manufacturer in the course of carrying on a business [of manufacture] and applied to his own use...''

or:

``to goods manufactured in Australia by a manufacturer in the course of carrying on a business [of manufacturing the goods applied to his own use which are] applied to his own use...''

Such a process of interpretation is, the Commissioner says, contrary to priciple and is not permissible: Maxwell on The Interpretation of Statutes (12th ed., 1969), at p. 33; Craies on Statute Law (7th ed., 1971), at p. 520.

I accept the principle upon which the Commissioner relies, but I do not accept that

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such is the process by which the Nimrod seeks to have sec. 17(2)(a) construed. I do not accept the Commissioner's argument that the language of the section is clear and unambiguous. The word ``manufacture'', it seems to me, may equally describe:

• (a) goods which are simply made or constructed so as to be different from the ingredients of which they are composed (as the Commissioner contends), or
• (b) goods which are made in the course of either the business of manufacturing generally (as the Nimrod contends).

To speak of goods which are manufactured rather than constructed, built, fabricated or created is, in my view, to suggest quite reasonably, as a matter of everyday language (In
re Searls Ltd. (1932) 2 A.T.D. 129; (1933) 33 S.R. 7 at p. 11), or as the common use of English terms (
F.C. of T. v. Rochester (1934) 2 A.T.D. 466 at pp. 466-467; (1934) 50 C.L.R. 225 at pp. 226-227), or in common parlance (
M.P. Metals Pty. Ltd. v. F.C. of T. (1968) 14 A.T.D. 540 at p. 541; (1968) 117 C.L.R. 631 at p. 646), that the goods were constructed, built, fabricated or created in the course of such a business. I do not say that the word ``manufacture'' must necessarily import such a meaning. It is sufficient that the word is capable of conveying either sense, for then the sense in which the word must be interpreted is controlled by its context. That context, in the present case, is overwhelmingly in favour of the contention of the Nimrod.

In passing, I should recite here an argument put forward on behalf of the Nimrod that part of the definition of the word ``manufacturer'' (as meaning ``a person who engages... in the manufacture of goods'') supports the interpretation of sec. 17(2)(a) for which it contends. The word ``engages'', it is submitted, necessarily imports the sense of a continuous business of manufacturing such goods: cf.
Buntine v. Hume (1943) V.L.R. 123 at pp. 127-128;
Southern Estates Pty. Ltd. v. F.C. of T. (1967) 14 A.T.D. 543 at pp. 545-546 and 548-549; (1967) 117 C.L.R. 481 at pp. 488-489 and 492-494. Whatever weight might otherwise be accorded to this use of the word ``engage'', however, its effect is lost when the remainder of that definition is seen, in that the word ``manufacturer'' also includes ``a person... who manufactures goods''.

Another argument of the Nimrod which should be noted is that the ``manufacture'' of scenery and stage properties is only an incidental part of its business of selling seats: cf. F.C. of T. v. Riley (supra) at pp. 189-190; C.L.R. pp. 78-79;
A. Lewis & Co. (Westminster) Ltd. v. Bell Property Trust Ltd. (1940) 1 Ch. 345 at pp. 348-351. This argument was countered by the Commissioner's reply that such an activity is an integral part of that business: cf.
Adams v. Rau (1931) 46 C.L.R. 572 at p. 578. I do not find either argument to be of particular assistance in the interpretation of the statute. Something which is an integral part of a business may at the same time be only an incidental part of that business; the two are not necessarily true alternatives.

The Courts have not previously been prepared to apply the legislation in the literal sense for which the Commissioner contends.

In Adams v. Rau (supra), it was held that transcripts produced by professional shorthand writers were not manufactured goods within the meaning of the Act, even though the transcript which they produced was a different entity from the paper upon which it was typed and was capable of sale. It was said (at p. 579) that it would be a misuse of English to describe a shorthand writer's employment as the manufacture and production of transcripts. In my view, it would also be a misuse of the English language to describe those employees of the Nimrod who constructed the scenery and stage properties for The Sea as manufacturing or producing such goods. It was also said in Adams v. Rau (at p. 578) that the services performed cannot be disintegrated and then one part examined while the rest is excluded entirely from consideration. Again, in my view, the same may be said in relation to the production of a play by the Nimrod.

In F.C. of T. v. Riley (supra), further illustrations were given - of the conveyancer who makes a will and hands it to the testator, and the writer who composes an article for a journal and sends in the typescript. Neither of these is the manufacturer of goods, even though in each case a new entity is produced which is capable of sale.

All of these examples would fall within the legislation when applied in the literal sense for

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which the Commissioner contends. I do not understand the more recent decision in
Pacific Film Laboratories Pty. Ltd. v. F.C. of T. (1970) 121 C.L.R. 154 to alter the effect of these earlier cases.

I am satisfied that the literal construction of sec. 17(2)(a) for which the Commissioner contends cannot stand in the context of the legislation as a whole, and that the approach which I have taken to that question is supported by the authorities to which I have referred. In my judgment, the intention of the Legislature in sec. 17(2)(a) is to impose sales tax only upon goods which are manufactured in the course of either the business of manufacturing the goods themselves or the business of manufacturing generally - it is unnecessary for me in this case to determine which of these is applicable. Section 17(2)(a) does not make liable to sales tax those goods which are manufactured otherwise. As the Nimrod has not manufactured any goods in the course of either the business of manufacturing the goods or the business of manufacturing generally, no sales tax was payable upon the scenery or stage properties which it constructed and applied to its own use.

It follows that the Commissioner's appeal must be dismissed. I direct the entry of judgment accordingly. I order the Commissioner to pay the Nimrod's costs.