Federal Commissioner of Taxation v. Totalisator Administration Board of Queensland

Judges:
Thomas J
Derrington J
Ambrose J

Court:
Supreme Court of Queensland (Full Court)

Judgment date: Judgment handed down 4 September 1989.

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Thomas J.

The facts are not in dispute in this case. The only question is whether certain printed material which the TAB prints for the use of itself and its agents is ``goods manufactured by a taxpayer and applied to his own use''. If it does conform to that description in sec. 17(1) of the Sales Tax Assessment Act (No. 1) 1930 it is exigible to sales tax. If it does not, the Commissioner's claim to tax is ill-founded, and the TAB is entitled to appropriate declaratory relief. McPherson J. (at 88 ATC 5025) held that the TAB was not liable to pay sales tax on such material and declared that it was not now, and had not at any time since February 1982 been liable to pay sales tax under that Act upon the material printed by it.

I am unable to state the facts more concisely or relevantly than did his Honour (at pp. 5026-5027):

``The Board is a body corporate constituted or continued by the Racing and Betting Act 1980-1983 . By sec. 189(2)(a) its primary function is to control, supervise, regulate and promote investment on its `totalisators', meaning a scheme or system by which investments are accepted and aggregated, and dividends are calculated, declared and paid on a proportional basis dependent on the result of any race or races in accordance with a prescribed formula (sec. 5). The races involved cover galloping horses, harness racing and greyhound racing taking place in Queensland and elsewhere in Australia.

There is no dispute about the relevant facts. The T.A.B. owns a printery which is located at its headquarters in Brisbane. The printery employs one qualified printer and another permanent employee, together with some 10 casual employees. Material printed there falls broadly into three categories, which in the evidence before me have been helpfully classified as `A', `B' and `C'. Category `A' comprises material used exclusively for administrative purposes in the Brisbane head office, such as stickers, business cards, petty cash vouchers, cash slips, report on audit, memorandum paper, racing fixtures calendar, staff roster, news release, planning chart, report sheet, repair form, record labels, employment application form, etc. Category `B' consists of material provided to T.A.B. cash offices, which are staffed either by T.A.B. employees or by independent `agents', and which is used

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ATC 4879

exclusively for internal administrative purposes of those offices. A random selection is head office address sticker, self addressed envelope, pay packet, message pad, fire precautions, casual time sheet, suspense account, bank account reconciliation, instruction sheet, language of racing booklet, general message form, weekly return, and various other forms of returns. Category `C' consists of material produced for display in the public areas of T.A.B. cash offices for the use or information of `investors'. It includes account cards, betting cards, posters, form guides, race lists, scratchings, information sheets, race times sheets, calendars, dividends cards, logo, etc. At one time in the past the T.A.B. did, for a period of some months, make a small charge for form guides at the T.A.B. head office. This was done to discourage the overuse by customers of galloping horse form guides; but the practice of making a charge for them was soon abandoned as being uneconomic.''

Section 17(1) of the Act provides, subject to the provisions of the Act, that sales tax ``shall be levied and paid upon the sale value of goods manufactured in Australia by a taxpayer and sold by him or treated by him as stock for sale by retail or applied to his own use '' (I have underlined the words directly applicable.) Subsection (2) then provides, with respect to the underlined words:

``(2) The reference in subsection (1) to goods manufactured in Australia by a taxpayer and applied to his own use shall be read as a reference -

• (a) 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 that business or for any other purpose and whether or not the goods are of a class manufactured by the manufacturer for sale; and
• (b)...''

(I have underlined a phrase to which particular attention is drawn in the discussion.)

It was submitted by counsel for the Commissioner, both here and below, that six elements may be isolated in this provision, all of which are necessary to establish a liability. They are:

• (a) Goods.
• (b) Manufactured.
• (c) In Australia.
• (d) By a manufacturer.
• (e) In the course of carrying on a business.
• (f) Applied to his own use.

It is common ground that elements (a), (b), (c), (e) and (f) were established. The principal basis for his Honour's conclusion in favour of the TAB was that it was not ``a manufacturer'', and the principal reason for this conclusion was that it did not engage in the business of manufacture.

It may be noted that the legislature chose to use the words ``manufactured in Australia by a manufacturer''. It did not say ``by the taxpayer'', or perhaps even more relevantly, ``by any person''. Mr Davies Q.C. for the Commissioner submits that his Honour's conclusion was wrong because every person who manufactures (viz. per element (b)) is a manufacturer. It would follow that (d) is not really a separate element or factor at all, because it is automatically proved by (b) in every case. Such an approach, in my view, invites the Court to conclude that the words ``by a manufacturer'' are tautologous. It is preferable to think that they were put there for some purpose, especially if a sensible limitation is discernible thereby.

``Manufacture'' and ``manufacturer'' are separately defined in sec. 3(1). It is sufficient to note that ``manufacture'' includes production; and that ```manufacturer' means a person who engages, whether exclusively or not, in the manufacture of goods, and includes a printer...''. I respectfully agree with McPherson J.'s finding that the TAB is not ``a printer''. It is true that it prints material for limited purposes ancillary to its principal objects, but it is not in ordinary or in legal parlance a printer. Printing is not included in the definition of ``manufacture'' (which includes production but not printing).

It was submitted for the Commissioner that element (e) above requires no more than that the goods be manufactured in the course of carrying on a business and in particular that business does not need to be a manufacturing business. So much may be conceded, but this hardly addresses the real point. Is the TAB ``a

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ATC 4880

manufacturer'' within the meaning of sec. 17(2)(a)?

Counsel, no doubt on instructions, put a number of involved arguments relying upon inferences that might be drawn from the operation of other portions of the Act, and from the 1986 amendment, as supporting the view that ``a manufacturer'' is not limited to persons who carry on business as manufacturers. It is enough to note that that inference was said to be available from sec. 11 and 13 of the Act; and from the 1986 amending Act which added sec. 17(1A) (apparently to cover copying or reproduction of computer programs). It was said that this latter Act shows a legislative intention to regard such persons as manufacturers, otherwise the insertion of sec. 17(1A) would have been unnecessary. It is enough to say that I do not find any particular force in these submissions. It is impossible to find or expect to find a perfect consistency of purpose throughout this Act and cognate legislation, and the essential exercise is the application of the relatively straightforward concepts expressed in sec. 17, which has for a long time been the core provision for this kind of sales tax.

The courts have from time to time been asked to rule upon the question whether or not certain activities fall within sec. 17. Different results have flowed according to the nature of the activities involved. Those of particular interest are
Adams v. Rau (1931) 46 C.L.R. 572 ;
F.C. of T. v. Riley (1935) 53 C.L.R. 69 ;
M.R. Hornibrook Pty. Ltd. v. F.C. of T. (1939) 62 C.L.R. 272 ; and
F.C. of T. v. Nimrod Theatre Company Ltd. 85 ATC 4092 ; (1984) 5 F.C.R. 269 . The Commissioner placed particular reliance upon the M.R. Harnibrook case whilst the TAB placed particular reliance upon the Nimrod Theatre case, each contending that the preferred authority governed the present situation.

I do not think that the present situation is governed by specific authority. It seems plain that in determining whether the process is one of ``manufacture'' at all, the courts seek to categorise the activity engaged in. This is demonstrated by perusal of each of the above cases, in particular Rau's case at pp. 578, and 579; Riley's case at pp. 78 and 79; the Hornibrook case at pp. 281 and 284 and in the Nimrod Theatre case at ATC pp. 4096-4097 and 4102-4103; F.C.R. pp. 274, 282 and 283. For the Commissioner it was submitted that the only exception has emerged in favour of goods produced with a view to use in the provision of an artistic or professionally skilled service. However I do not think that that is the definitive description of goods that are beyond the reach of the Act, or that it is necessarily helpful to start with the premise that all goods produced in Australia and applied to the maker's own use are subject to sales tax, and then search for ``exceptions''. It is more helpful to look at the specifics of sec. 17(2). It is plain that the courts have looked at particular activities and have concluded, for example, that the production of transcripts does not fall within the section.

``in this case we cannot think that the description `manufacture or production of goods or commodities' can properly be applied to any part of the business or operations in which the shorthand writers engage''

(per Gavan Duffy C.J., Starke, Dixon and McTiernan JJ. in Rau's case at p. 578).

and

``They do not `produce' or `manufacture', their transcripts are not accurately described as `goods' or `commodities', nor are they engaged in the business of selling transcripts''

(per Evatt J. ibid. at p. 579).

It is equally easy to agree with the contrary conclusion which the Court reached with respect to the making of concrete piles by a bridge-engineering contractor company which that company delivered to another company in fulfilment of a contract ( Hornibrook (above) at p. 281). It was submitted that some dicta in the Nimrod Theatre case are wrong in law, but it will not be necessary for this Court to respond to that submission. It is enough to say that the decision itself was, with respect, plainly right. It is also fair to observe that whilst all the above cases are distinguishable upon the facts, the circumstances in Nimrod, where a company produced and used something ancillary for its own purposes, are closer to the present case than Hornibrook, where items of obvious saleable value were manufactured and supplied to another company.

Where then does the present case stand? The TAB is a body corporate which provides a fairly well-known service to the gambling public. To enable itself to function efficiently it prints its own forms and a wide range of

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ATC 4881

documents for its own use and that of its agents. Counsel for the TAB submitted that it was necessary that the commodity be saleable before it could be subject to such a tax. There are dicta to support that view in the Nimrod case (ATC pp. 4095-4096 and 4101-4102; F.C.R. pp. 272-273 and 281). In support of those dicta, the central exposed in sec. 17(1) as a tax ``paid upon the sale value of goods'', from which it may not be unreasonable to imply that the goods contemplated are those with some discernible sale value. It is true that in one sense practically any physical object is capable of sale either for scrap or even curiosity value, but the present items had no intrinsic value to anyone other than the TAB and its agents, and they were for all practical purposes unsaleable to anyone else. It is not necessary to rule whether saleability of the commodity is a condition precedent. It is sufficient for present purposes to observe that the character of the goods and the circumstances in which they are produced are relevant factors. It is more difficult to imagine a court finding unsaleable commodities to be subject to the tax than saleable commodities. As already noted, the items printed by the TAB were for all practical purposes unsaleable to any other person. It is equally true that the TAB would have to buy its documents from someone else if it did not produce them itself and that in that event sales tax would be payable. But that did not happen in this case, and that is not the basis upon which the tax is claimed. If it is intended to impose such a tax ``upon everything which you produce for your own use which you would otherwise have to buy'' the legislation should say so. If it did so, it would go further than the present legislation as interpreted in Rau's case, and indeed with the approach of the courts ever since. The relevant provisions, including sec. 17, have stood for nearly 60 years.

It seems to me that the fact that a taxpayer which makes nothing else produces something which is not of use to anyone else in the world than itself is at least a relevant factor in assessing whether it is a manufacturer which manufactures goods in the course of carrying on a business.

Counsel for the Commissioner further submitted that even if part of the taxpayer's business must be that of a manufacturer before the tax is payable, such a requirement is satisfied by the fact that it manufactures in the course of its business whatever the business might be. This is really another form of the argument (already dismissed) that element (d) equals element (b). Finally, great reliance was placed by the Commissioner's counsel upon the decision of
D.F.C. of T. v. Taubmans (N.S.W.) Pty. Ltd. (1966) 115 C.L.R. 570 . It is enough to observe that that case has nothing to say on the present issues, and that the submission that if Taubmans had printed their own colour cards the Court would have held them assessable to sales tax is a question-begging answer to a hypothetical question.

I do not purport to have dealt with every submission advanced on behalf of the Commissioner but believe I have traversed the principal arguments advanced.

The approach of McPherson J. to the matter was in my respectful view a correct one and, on the facts presented, his Honour's conclusion was correct. The TAB simply is not ``a manufacturer'' under the Act or in general parlance. Accordingly sales tax is not payable upon the relevant documents. I agree also with the further observations of Ambrose J. which I have had the opportunity of reading since preparing these reasons.

The appeal should be dismissed with costs.