Norton Harvesters Pty. Limited v. Federal Commissioner of Taxation.
Judges:Samuels J
Court:
Supreme Court of New South Wales
Samuels J.: Gordon Edgell Pty. Limited (``Edgell'') during the financial year ending 30 June 1970 carried on the business of producing, inter alia, frozen and canned peas at factories in Tasmania, New South Wales and Queensland. Norton Harvesters Pty. Limited (``the taxpayer'') pursuant to an agreement with Edgell made on 6 August 1969 carried out the harvesting of the peas in the paddock, using substantially its own equipment.
ATC 4081
The equipment used for this purpose consisted, so far as presently relevant, of what are called trail type mobile pea viners and the tractors which draw them.
It is necessary to judge with care the moment at which the peas on the vine have reached the optimum stage of maturation for the processing required in the production of frozen or canned peas. Edgell, therefore, enters into contracts with growers to plant and tend acreages of pea vines, and the growth and maturation of the crops are carefully checked and supervised by Edgell. When a crop is judged to be ready for harvesting, Edgell notifies the taxpayer, which moves into the field and first mows the vines, that is, severs them from the earth, and then windrows them, that is, places them in small heaps. Then the mobile viners pick up the windrowed vines, shell and clean the peas, and ultimately discharge them into a hopper bin mounted on the viner. This is the standard procedure, and was observed during the year in question.
Now, as soon as the vine is severed, deterioration of the pea commences. And, to quote from the affidavit of Mr. M.N.F. Gray, one of Edgell's branch managers, ``When the pea is separated from its pod, deterioration accelerates rapidly and the time interval between that separation and the commencement of the actual freezing or cooking process is critical to the quality and therefore to the value of the end product... If a certain period of time between separation of the seed from its pod and the commencement of the actual freezing or canning commences (sic) is exceeded, the peas are no longer suitable for freezing or canning. This period varies... but is of the order of two to three hours under average conditions for prime quality peas''.
Hence, without delay the peas are discharged from the mobile viners' hoppers into lorries which carry them to the nearest Edgell factory. At the factory the peas are sampled and exposed to a further cleaning process. I infer that at the sampling stage peas plainly unfit for production would be rejected. They are then conveyed to hot water screw blanchers in which they are subjected to a temperature of 200 degrees Fahrenheit for a period of one minute. They are then either frozen or canned. For canning, they are in effect cooked in the can, to which a brine solution has been added.
Prior to the introduction of mobile viners, the vines were mowed and loaded into lorries by hand. The viners were then transported to static vining stations, owned and operated by Edgell, which might be housed in a separate building only yards from the factory itself. The static viner carried out the same function as the mobile viner, but cleaned the peas less efficiently. Additionally, there are significant savings in costs to be derived from the use of mobile viners, which also serve to reduce the lapse of time between harvesting and the commencement of freezing or cooking.
It is apparent that the sequence of events between mowing and blanching must be carefully supervised, and the various procedures performed according to a time scale which is, within limits, inflexible.
The taxpayer sought to apply the allowance provided by sec. 62AA of the Income Tax Assessment Act (``the Act'') to its harvesting equipment, including the mobile viners and the tractors. The Commissioner disallowed the claim. The taxpayer appealed against the Commissioner's determination, and its claim for an allowance of $82,815 is now confined to sixteen mobile viners and twenty tractors.
Section 62AA of the Act, so far as relevant provides -
``(2)... this Section applies in relation to any property being plant or articles owned by the taxpayer that is for use by the taxpayer primarily and principally, and directly -
- (a) in any part of the operations by means of which -
- (i) manufactured goods are derived from other goods (including other manufactured goods) by the taxpayer or by persons on whose behalf the taxpayer performs services involving the use of that property;...''
The question which arises concerns the construction and application of sec.
ATC 4082
62AA(2)(a)(i). It is whether the plant in question - the tractors and mobile viners - were used primarily and principally and directly in any part of the operations by means of which frozen and canned peas were derived from other goods by Edgell on whose behalf (as is admitted) the taxpayer performed the harvesting service which involved the use of that plant. I have inserted into the text of para. (a)(i) certain of the facts of the case so as to render more clearly the immediate application of the provision. But I have not sought at this stage to make any substitution for the words ``other goods''. Once that is done, the problem is solved, because the problem is to determine what those other goods were.I will not attempt a definition of ``manufacture'' or ``manufactured goods'', a task which if I may respectfully say so, daunted Windeyer J. in
M.P. Metals Pty. Ltd. v. F.C. of T. (1967) 117 C.L.R. 631 where at p. 638 his Honour said -
``Whether or not a particular article answers the description `manufactured goods' must depend upon the context of language and subject matter in which the phrase is used. Not much more can be said.''
Perhaps the little more that can be said was said by Dixon J. (as he then was) in
F.C. of T. v. Rochester 50 C.L.R. 225 at pp. 236-7 -
``I think that in the interpretation of these very difficult provisions there is no safe guide but the common use of English terms. To attempt some logical analysis of the conceptions of manufacture and of production, and to apply the analysis to any process or operation that appears to possess the attributes found to constitute these conceptions, although it would not ordinarily be described by the words `manufacture' or `production', must lead to results which do not represent the true interpretation of the Act. It may be difficult to distinguish one process by which things are constructed, obtained, prepared, or altered in condition from another. But if we follow the method laid down in Adams v. Rau and Irving v. Munro & Sons Ltd. and simply apply the terms used in the Act as they are ordinarily applied in English speech, I think that it is inevitable that this demurrer should be allowed.''
It is therefore scarcely possible to establish any criteria of general application, save that, as Windeyer J. pointed out in M.P. Metals at p. 633, all manufacturing involves the making of a new thing. It is no doubt also true that manufacturing involves working upon raw material. Not raw in the absolute sense because it may have already been wrought into sophisticated form by earlier processes as para. (a)(i) recognises; but raw in relation to the process which will turn it into something new, and different from what it was.
I would suppose it also beyond dispute that there must be the process of manufacture and the preparation for that process:
Lord Advocate v. Reliant Tool Company (1968) 1 W.L.R. 205 at p. 223 per Lord Wilberforce. The problem is in determining where one begins and the other ends; or in distinguishing between the raw material (the ``other goods'') and the manufactured product.
But although these considerations emphasise the difficulties which may be encountered in applying para. (a)(i) to any given set of facts, the general meaning of the provision is, in my respectful view, clearly described by Kitto J. in
Moreton Central Sugar Mill Co. Ltd. v. F.C. of T. (1967) 116 C.L.R. 151 at p. 156 -
``That is to say that what para. (a) means by the expression `the operations by means of which manufactured goods are derived from other goods' is those operations only which form part of the actual process which effects the derivation, so that operations by means of which the `other goods' are brought to the point where the manufacturing begins are excluded notwithstanding that they are preliminary to and indispensable for the manufacturing process. This means that the operations to which para. (a) applies in respect of the production of sugar commenced at the mill and not at the cane fields.''
ATC 4083
I turn to the arguments of counsel. Mr. R.J. Bainton Q.C. for the taxpayer first submitted that because of the general framework of the Act, and the nature of other provisions, sec. 62AA was to be broadly construed. He referred to what was said by Barwick C.J. in M.P. Metals at pp. 645-6 and in
F.C. of T. v. I.C.I. Australia Ltd. 72 ATC 4213 at pp. 4218-9; and by Menzies J. at p. 4223 and by Gibbs J. at p. 4230 in the same case. I can see no substance in this argument. If it is supposed to depend upon the revelation of policy, I would respectfully adopt what Windeyer J. said in M.P. Metals at p. 633 -
``The policy of an enactment is what its words and phrases, read in their context and having regard to the subject matter, reveal it to be; and assumptions as to the general intent of the statute must be used cautiously in the interpretation of particular provisions.''
Barwick C.J. at pp. 645-6 in his judgment in the same case plainly recognised that considerations of policy must yield to the ordinary meaning of the words which the legislature has chosen to use. I can see no ground, therefore, for construing the section liberally in favour of the taxpayer.
Mr. A.F. Rath, Q.C., for the Commissioner opened his argument by submitting, firmly in the case of frozen peas, and more diffidently in respect of the canned variety, that neither food answered the description of ``manufactured goods''. In substance his argument on both points was, to paraphrase the late Miss Gertrude Stein, that ``a pea is a pea is a pea'', and no process can transmute its character or essence. I will, for the moment, assume that the argument is wrong, and that both types of pea are ``manufactured goods''.
So to the main argument. Mr. Bainton's primary submission is that the ``other goods'' or raw material are the severed vines, and not the shelled peas. Hence the manufacturing process commences when the viner moves along the windrows of severed vines and picks up the vines. Mr. Rath, on the other hand, contends that the ``other goods'' are those peas - and only those peas - which, on arrival at the factory, are selected as fit for processing. Accordingly, the first stage of the manufacturing process is the blanching operation.
It seems to me that if the shelled peas could, without deterioration rendering them unfit for processing, be stored indefinitely, either in the custody of the taxpayer or of Edgell, Mr. Bainton's argument would certainly fail. On that assumption the process which leads to the production of shelled peas would be plainly preparatory to the process of manufacture. I think that Mr. Bainton recognises the likelihood of this conclusion. He therefore founds his case, as he must, upon two primary aspects of the evidence. First, that the whole operation from sowing to the arrival of the shelled peas at the factory was closely supervised by Edgell. Secondly, that the operation of harvesting was equally closely controlled, and depended upon the observance of fairly rigid time schedules, and was thus, as he submits, integrated with the manufacturing process. There is, to my mind, neither dispute nor doubt about these facts. But I do not think that they carry the taxpayer home.
A significant lapse of time between the final collection of the raw material, and the commencement of the manufacturing process, may well tend to emphasise the fundamental distinction between preparation and manufacture. But the character of the raw material, which may dictate the necessity of commencing work upon it without delay cannot assimilate the essentially different processes of preparation and manufacture. These two processes must exist separately. And they remain separate notwithstanding that no more than a limited period of time must elapse between the end of one and the beginning of the other. In Moreton Central Kitto J. accepted the evidence that the transportation of sugar cane to the mill had to be accomplished as promptly as possible because sugar cane deteriorates unless it is milled soon after being cut; see at p. 154. But he thought none the less that the production of sugar commenced at the mill and not at the cane fields. Similarly, in this case I am of the opinion that the production of frozen or canned peas begins at the factory and not in
ATC 4084
the paddock. Edgell do not manufacture processed peas from vines, or from peas in pods. They use clean shelled peas; and then only, as Mr. Rath submitted, those clean shelled peas which satisfy certain standards of fitness. Accordingly, the raw material or ``other goods'' are the shelled peas of acceptable standard. The manufacturing process - the operations to which para. (a)(i) applies - commences at the factory when the selected peas are submitted to blanching. The plant in suit is not used in any part of those operations.In my view, the fact that the operation now performed by mobile viners was previously carried out by manual means in the field and by static vining at, or in the vicinity of, the factory, compels no different conclusion. The line between preparation and manufacture could still have been drawn.
I therefore dismiss the taxpayer's appeal and confirm the Commissioner's decision. I order the taxpayer to pay the Commissioner's costs.
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