Deputy Federal Commissioner of Taxation v. Australian Safeway Stores Pty. Ltd.
Judges:Gray J
Court:
Supreme Court of Victoria
Gray J.
In this action, the Deputy Commissioner of Taxation seeks to recover $1,371 from Australian Safeway Stores Pty. Ltd. (``Safeway'') as sales tax due and payable. The tax is alleged to be due in relation to the purchase by Safeway in February 1979 of an imported machine, known as a Valuematic System.
Safeway alleges that the machine is exempt from sales tax under the Sales Tax (Exemptions and Classifications) Act 1935, because the machine was acquired for use as an aid to manufacture.
Before turning to consider the provisions in the Acts and regulations which touch upon the disputed issue, it is convenient to state the relevant facts and circumstances.
In 1979, Safeway conducted a large number of supermarkets throughout Victoria. The machine in question was purchased for use in the meat department of Safeway's Camberwell store.
At that time, there were about two hundred separate meat products sold at Camberwell. These were represented by a number of cuts of different kinds of meat and a number of other products which were the result of mincing, seasoning, rolling or tenderising.
There are about fourteen persons employed in the meat department. The meat is delivered in carcass from daily and is hung in a cool room. The carcasses are then trimmed of fat and chopped up by butchers, in accordance with a manual which sets out all the standard cuts. The resulting cuts of meat are placed on trays. A good deal of the meat is put through mincers, which produce different grades and types of minced meat. Some meat is put through a machine which tenderises it. Other cuts are spiced with mint, garlic, pepper or other seasoning. Other meat is rolled up with a layer of seasoning and trussed with string and skewers. Other meat is crumbed. Some meat is formed into shasliks or kebabs, which involves the introduction of vegetables.
When the meat has been cut and, where necessary, treated, it is divided into portions which are in accordance with the anticipated demand. Each portion is then placed on a small plastic tray and put through a shrink wrapping machine which places a sheet of transparent plastic wrapping tightly across the meat and the tray. This procedure involves the portion of meat travelling through a shrink tunnel, which causes the tightening of the plastic wrapping. When each item emerges from the shrink tunnel, it is in the physical form in which it is finally sold to the consumer.
After emerging from the shrink tunnel, each package becomes concerned with the machine the subject of this litigation. Each package is
ATC 4278
carried by a conveyor on to a roller weighbridge of the machine. The recorded weight is relayed electronically to an inbuilt computer. The computer relates the weight to the price rate per kilogram and calculates the actual price of the package. This information is transferred to a printer facility which is part of the machine. The printing facility produces a printed label showing the date, the type of meat, weight, price per kilogram and retail price of that package. The label is a heat seal adhesive type. The printed label passes over a heat seal activator on to a fixing arm. As the package rolls off the weighbridge along the conveyor, the arm falls upon the package and sticks the label on to the transparent wrapping of the meat. The package is then taken to the retail display cabinets, from where the customer makes a selection. The activities of the Valuematic System are confined to the weighing, calculating and production of the printed label. The affixing arm is a separate unit, although part of the conveyor system by which the meat is packaged and labelled.When a different cut of meat at a different price is due to pass along the conveyor, an operator presses keys on the machine to gear it to deal with the different meat.
At the present time, about 30,000 meat packages are sold weekly at Camberwell. In 1979, the figure was somewhat less, but comparable. Apart from a small quantity of meat products which are purchased from outside suppliers, all the meat packages pass through the Valuematic System for weighing and labelling.
The whole process of handling the meat from the carcass stage until it reaches the display benches is a systematic exercise in meat marketing. The evidence showed that Camberwell has nearly 30,000 customers weekly and that it would not be possible to market meat efficiently without an automatic labelling system. Meat sales represent about nine per cent of the business of Camberwell store and it is apparent that customers are greatly convenienced by having the price of each package and the other particulars shown on the label. Furthermore, the information provided by the labels is required to be on the product as a result of a number of statutory regulations dealing with food standards and weights and measures.
The foregoing account of the circumstances prevailing at the Camberwell store and the part played by the machine will serve as an introduction to the problem which is presented by this case.
The action is brought under sec. 30 of the Sales Tax Assessment (No. 1) which provides that sales tax, when due and payable, shall be a debt payable to the Commissioner which may be sued for by him.
Section 3 of the Sales Tax Assessment Act (No. 8) provides that sales tax shall be levied and paid upon the sale value of goods which have been imported into Australia and sold to a taxpayer who has applied the goods to his own use.
In this case, Safeway has denied liability for the tax. The plaintiff has taken advantage of sec. 10 of the Sales Tax Procedure Act 1934 and has produced a certificate stating that the tax is due. This has the effect of entitling the plaintiff to judgment ``except insofar as the defendant proves that the sales tax... is not payable''.
Safeway's denial of liability is founded on a contention that the Valuematic System is an item exempted from tax by sec. 5 of the Sales Tax (Exemptions and Classifications) Act 1935. The allegation is that the machine falls within Item No. 113C of the First Schedule to the last-mentioned Act.
Item No. 113C(1) refers to ``Goods applied by a registered person to his own use as aids to manufacture''. For the purposes of Item No. 113C(1), aids to manufacture means aids to manufacture as defined in the regulations made under the Sales Tax Assessment Acts.
Regulation 4 provides a definition of ``aids to manufacture''. The relevant part of reg. 4 reads:
``4.(1.) In these Regulations, unless the contrary intention appears -
`aids to manufacture' means goods for use by a registered person... being -
- (a) machinery, implements and apparatus for use exclusively, or primarily and principally -
- (i) in the actual processing or treatment of goods to be used in, wrought into or attached to goods to be manufactured;
ATC 4279
- (ii)...
- (iii) in any processing or treatment for the purpose of bringing goods into, or maintaining goods in, the form or condition in which they are to be marketed or used by the manufacturer of the goods;''
```goods to be used in, wrought into or attached to goods to be manufactured' means goods to be so used or dealt with that those goods, or some essential element thereof, will form an integral part of the goods to be manufactured;.''
``Manufacture'' is defined in sec. 3 of the Sales Tax Assessment Act (No. 1) as including:
``(a) production;
(b)...
(c) any treatment applied to foodstuffs as a process in the preparation of the foodstuffs for human consumption,.''
It was accepted that the definition of ``manufacture'' applied to the Sales Tax Regulations by virtue of sec. 73 of Act (No. 1) and sec. 12 of Act (No. 8) and sec. 46 of the Commonwealth Acts Interpretation Act.
Accordingly, the first question which arises is whether all or any part of Safeway's operations in relation to the marketing of meat amounts to ``manufacture'' within the ordinary meaning of that word or the extended meaning contained in the statutory definition.
If the answer is affirmative, there is a further question as to whether the subject of the manufacture was meat in its various forms or packaged and labelled meat.
At the outset, I express the opinion that Safeway's activities in relation to meat did not amount to the manufacture of meat or packaged, labelled meat within the ordinary meaning of the word.
In
F.C. of T. v. Rochester (1934) 50 C.L.R. 225, the High Court was invited to hold that a person who cooked fish and potato chips for sale incurred a liability for sales tax. At that time ``manufacture'' was defined as including production. For the Commissioner, Dr Coppel argued that, because the defendant had to prepare the fish for cooking and then cook it, he had produced a commodity which, so far as commerce was concerned, was a separate commodity. He submitted that the process amounted to ``manufacture''. This argument was rejected in a few words by Rich, Evatt and McTiernan JJ. Dixon J. expressed himself as follows (at pp. 226-227):
``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 (1931) 46 C.L.R. 572 and
Irving v. Munro & Sons Ltd. (1931) 46 C.L.R. 279 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 seems to me an odd and inappropriate use of terms to describe cooked fish as either produced or manufactured. In the same way, I think the use of oil or grease and condiments in cooking fish cannot be described properly as a `combination of parts or ingredients' producing `an article or substance commercially distinct from those parts or ingredients' within the new definition of `manufacture'.''
The emphatic judgments of the judges of the High Court in Rochester's case are, in my opinion, applicable to the facts of this case. It would not be an ordinary use of language to describe Safeway as the manufacturer of the meat it sells.
Some reliance was placed by Mr Forsyth upon In
re Searls Ltd. (1932) 33 S.R. (N.S.W.) 7 and
F.C. of T. v. Riley (1935) 53 C.L.R. 69. In Searls case, Harvey C.J. in Equity held that a florist who made up and sold wreaths, bouquets and floral baskets was a manufacturer within the N.S.W. Sales Tax Acts because ``by means of skill applied to the component elements'' a new saleable entity was brought into existence. In Riley's case, the High Court,
ATC 4280
by a majority, held that photographic portraits taken and sold to clients amounted to ``goods manufactured in Australia'' and were liable to tax.Another example of this class of case is
F.C. of T. v. Jack Zinader Pty. Ltd. (1949) 78 C.L.R. 336, where the High Court, by a majority, held that a furrier who remodelled worn fur garments into modern styles and resold them was selling ``manufactured goods''.
To determine which side of the line each particular case falls is a question of fact. No doubt there are matters of emphasis and degree involved.
But, in my opinion, what Safeway did to its meat before sale is of quite a different character to the activities of the florist, the photographer or the furrier. The Safeway staff were essentially engaged in preparing meat for sale, as distinct from manufacturing ``a new saleable entity'' from basic components. See also
M.P. Metals Pty. Ltd. v. F.C. of T. (1968) 117 C.L.R. 631.
Turning to consider the statutory definition of ``manufacture'', it can first be said that the reasoning in Rochester's case leads to the conclusion that the activities of Safeway did not amount to the ``production'' of meat or packaged, labelled meat within the ordinary meaning of that expression. Accordingly, I conclude that the activities of Safeway do not fall within para. (a) of the statutory definition.
No reliance was placed upon para. (b), but Mr Forsyth contended that para. (c) was applicable to the facts of this case. For my part, I am satisfied that at least part of Safeway's conduct in relation to the meat at Camberwell falls within para. (c) of the definition.
Paragraph (c) was inserted in the definition following the decision in Rochester's case. It was doubtless intended to bring the sale of cooked food within the Act. Mr Larkins Q.C., leading counsel for the Commissioner, submitted that the only treatment of meat by Safeway which comes within (c) is the seasoning, minting and crumbing of meat which the evidence reveals. He put it that the cutting, trimming or mincing to which the bulk of the meat was subjected was not a treatment ``applied to'' the meat.
To my mind, the expression ``treatment'' in para. (c) is wide enough in its ordinary meaning to include the cutting, trimming and mincing of the meat. Furthermore, I consider the treatment was applied to the meat as a process in the preparation of the meat for human consumption.
It is to be noted that I am referring to the meat, as distinct from individual packages of meat, as being the ``foodstuffs'' to which the treatment is applied as a process in its preparation. In
F.C. of T. v. Hamersley Iron Pty. Ltd. 81 ATC 4582, the Full Court was concerned with an appeal in which the taxpayer was a mining company which used certain equipment to deal with quantities of iron ore in such a way as to produce a standard mix and blend which was desirable for the purposes of sale. The question arose whether the equipment was ``to be used in the treatment'' of bulk iron ore. For the Commissioner it was argued that the iron ore fragments remained unchanged throughout the process and that ``treatment'' required some change in the condition of the ore fragments. The taxpayer contended that the changed juxtaposition of the fragments was sufficient. At p. 4591 of the report of the judgment of Lush J. (with which Kaye J. agreed), his Honour said:
``The goods, so identified, are shown by the evidence to have been subjected to a desired change. If a chemical change is sought, the change wrought in the goods is a reduction of variability in the concentration of chemicals throughout the ore. If a change in form, nature or condition is sought, then the goods have been changed in such a way that, if they have not been made marketable, they have at least been made marketable to the better advantage of both seller and buyer. In a word, the change in the goods justifies the application of the word treatment to the mode of producing the change. If it be necessary, it should be held that in the context of item 14 chemical change is not of the essence of treatment.''
Later in the same judgment (p. 4592), Lush J. concludes that the iron ore had also been ``processed'' by the blending, because the individual fragments are ``intentionally and usefully rearranged vis-a-vis one another''.
Accordingly, I am persuaded that the procedures carried out by the Safeway staff upon the meat from the carcass stage to the shrink wrapping stage amounted to
ATC 4281
``manufacture'' within the meaning of para. (c) of the statutory definition.The next question is whether the Valuematic System comes within the definition ``aids to manufacture'' in reg. 4(1).
Mr Forsyth relied upon para. (i) and (iii) of reg. 4(1), with the greater emphasis being placed upon para. (iii).
In relation to para. (i), Mr Forsyth submitted that it should be read, omitting immaterial parts, in the following way:
```Aids to manufacture means machinery for use primarily in the actual processing or treatment of goods (labels) to be attached to goods (meat) to be manufactured.''
It was said that the machine processed the labels by adding the particulars of the weight and price of the meat. The processed labels, when attached to the meat, form an integral part of the package of meat which is the subject of the manufacture. This was said to be so because the meat package could not be lawfully sold or presented for sale until the label, with its particulars, was attached. It was further put that the label forms an integral part of the meat package, because the benefit conferred upon the customer by access to the particulars on the label is an essential part of the overall procedure whereby the meat package is manufactured and sold.
It was said by Dixon J. in
Davies Coop & Co. Ltd. v. F.C. of T. (1947) 77 C.L.R. 299, at p. 316, that this part of the definition is ``confusing''. With that comment I respectfully agree. In that case, the High Court was concerned with the question of whether certain cardboard cones were exempt from sales tax as ``aids to manufacture''. The appellant company was a manufacturer and vendor of cotton yarn and woven or knitted piece goods. As yarn came from the spinning machine, it was wound on to a cone in a special manner so that, when placed in a creel, it could be drawn evenly off the cone into a weaving or knitting machine.
At that time, reg. 4(1) did not include the words ``machinery, implements and apparatus''. Otherwise the relevant parts of the regulation were in identical terms to the present except that the first three subclauses of reg. 4(1) were (a), (b) and (c), rather than (i), (ii) and (iii), and that there were some presently immaterial differences in the language of the definition of ``goods to be used in, wrought into or attached to goods to be manufactured''.
In the judgment of Dixon J., with which McTiernan and Williams JJ. agreed, there is a passage (at pp. 316-317) which, in my opinion, throws considerable light upon the present problem. It is necessary to set it out in full:
``The two material paragraphs are these: `Aids to manufacture' means goods for use by a registered person (a) in the actual processing or treatment of goods to be used in, wrought into or attached to goods to be manufactured; (c) in any processing or treatment for the purpose of bringing goods into, or maintaining goods in, the form or condition, in which they are marketed or used by the manufacturer thereof. The goods first mentioned are the exempt goods. They must be used by the registered person, here a manufacturer. It is under this category the cones and tubes fall. The goods next mentioned are those which are the subject of processing or treatment. Under this category the yarn must fall. But in par. (a) the properties or characteristics which the latter category must have are set out in the definition of the phrase. I shall not set out the whole of that definition but I shall pick out the material words. To come within it the yarn must `be so used or dealt with that those goods' (the yarn) `will form an integral part of the goods to be manufactured' (the cotton piece goods) `and will remain in those goods as an element essential to the goods in their completely manufactured condition'. Then follow some words of exclusion with which I need not deal, because I think that they will be seen to be clearly inapplicable if it is held steadily in view that they are referring to the goods serving the purpose the yarn serves and not the purpose the cones and tubes serve.
The definition is confusing but by inserting the words `yarn' and `cotton piece goods' I hope I have made clear how to my mind it works out. I see no reason why it should not apply to the yearn on the cones and tubes. It is true that the yarn forms or may form the whole of the woven or knitted fabric and that the definition might seem rather to speak of an element contributing to the whole result. But the words do not require such a distinction and I feel sure that it was
ATC 4282
not intended. What goes into a manufactured article and forms part of its substance is sold as part of it so to speak, and then bears sales tax in its manufactured form and for the first time. The phrase is defined so as to cover such things. The purpose is seen when the phrase is taken up into the paragraphs of the definition of `aids to manufacture'. The purpose is to secure the result, to take par. (a), that whatever is used in processing or treating such goods will qualify as an aid to manufacture. The question then is whether the cones and tubes may properly be said to be used in the actual processing or treatment of the yarn. On the whole I think that the winding upon the cone or tube of the yarn from the ring bobbin should be considered as part of the processing or treatment of the yarn. It is part of the method of taking the yarn from the machines and of putting it into a final condition for handling and use. But in addition I agree with the learned judge from whom the appeal comes, Starke J., that par. (c) applies. The winding upon the cone or tube is part of the processing or treatment of the yarn and its purpose is to give the goods, that is the yarn, a form or shape in which the yarn may be marketed, and also one in which it may be used in the creels of a manufacturer of knitted or woven piece goods.''
In seeking to apply Dixon J.'s analysis to the present situation, it is necessary to identify the subject matter of the manufacture. In considering that question in the light of the statutory definition of ``manufacture'', the answer, in my opinion, must be that the goods to be manufactured were meats, meat products or, possibly, packaged meats and meat products.
If that is correct, can it be said that the printed labels, when attached to the already packaged meat, formed an integral part, or any part, of the ``goods to be manufactured''. In my opinion, the answer must be no.
Unlike the part played by the cone and yarn in the Davies Coop case, the attaching of the printed label to the meat package takes place after the process of manufacture has been completed. At least by the time the packaged meat emerges from the shrink wrapping tunnel, it is in its final form and condition for sale. The fact that it cannot legally be sold before a label with certain particulars is attached is no more relevant than saying that a bottle of beer cannot be lawfully sold at a hotel after the close of trading hours.
I now turn to consider the argument presented on behalf of Safeway under para. (iii) of the definition of ``aids to manufacture''. Mr Forsyth submitted that the Valuematic machine is used in processing or treatment for the purpose of bringing goods (meat) into the form or condition in which they are marketed by the manufacturer. I was referred to a number of cases in which various procedures applied to commodities have been characterised as a process or treatment.
In
Federal Farms Limited v. The Minister of National Revenue (1966) Ex. C.R. 410, the Exchequer Court of Canada was concerned with the question of whether the appellant company was a ``manufacturing and processing corporation''. The evidence showed that in addition to packaging of carrots and potatoes, the company's operations included the washing, brushing, spraying, drying, culling and grading of the vegetables. The minister contended that the appellant's activities amounted to mere packaging. The Court held that the appellant's operations amounted to a series of ``processes'' to prepare the product for the retail market.
In
Carpenter v. W. Lusty & Sons Ltd. (1957) 1 Lloyd's L.R. 16, a divisional court dealt with an appeal from a magistrate's dismissal of an information charging the company with carrying goods for hire and reward contrary to the conditions of its licence. The evidence showed that the company had received clothing and shoes to be packed for shipment. The clothing had been compressed in bales and sealed, and the shoes were put in chests and secured with steel hoops. A provision of the Road and Rail Traffic Act 1933 created an exemption in the case of goods which had been subjected to a ``process or treatment'' in the course of a trade or business. Lord Goddard (with whom Cassels and Lynskey JJ. agreed), accepted the company's contention that it was within the exemption and dismissed the appeal.
In
Kilmarnock Equitable Co-op. Society Ltd. v. Commr of I.R. (1966) 42 T.C. 675, the Court of Session held that the screening and packing of bulk coal into 28 lb. paper packets for retail sale amounted to the ``subjection of goods or
ATC 4283
materials to any process'' within sec. 271(1)(c) of the Income Tax Act 1952.In
Re Southam v. Transylvanian Timbers Pty. Ltd. (1975) A.R. 144, the Industrial Commission of New South Wales held that the stacking of timber at a timber mill in order to cure the timber came within the statutory definition ``any handicraft or process involved in adapting any goods or any articles for trade or sale''.
In reliance upon this line of cases, Mr Forsyth submitted that the ``processing'' of the meat by Safeway was not confined to cutting, trimming, mincing, seasoning and packing of the meat, but extended to the printing of the label and its affixing to the package. He put it that Safeway's meat marketing operation must be looked at as a whole and that the printing and fixing of the label was the final and essential step in the processing of the meat products to bring them into ``the form or condition in which they are marketed or used by the manufacturer thereof''. Mr Forsyth submitted that the Valuematic machine fell within both the literal words and the plain meaning of the definition.
The foregoing argument has some force and no doubt the words ``form or condition'' are capable of being read in a way which embraces the affixing of a printed label to the meat package.
But if one takes the view, as I do, that the subject matter of the manufacture is meat or meat products, then a line has to be drawn at the point where the manufacture is complete and the marketing phase begins. I accept Mr Larkin's proposition that the very latest point to which the manufacturing phase can be taken is when the wrapped product emerges from the shrink wrapping tunnel. The product is then complete as a marketable commodity. The activities of Safeway thereafter are concerned with the marketing of the product, including the compliance with any relevant laws.
In construing a definition of ``aids to manufacture'', the Court should be reluctant to give it a meaning which would apply to equipment used only after ``manufacture'', as defined in the Act, is complete.
Insofar as the expression ``process'' has been given a wide meaning in the cases, it is noteworthy that in all the instances to which I have been referred, the goods in question were subjected to some form of handling or rearrangement. They were washed, sorted, stacked, bagged, compressed, blended or graded. In Lusty's case, which went furthest from Safeway's viewpoint, the shoes were put in chests and secured with steel hoops.
In this case, the Valuematic System does absolutely nothing to the meat package in any physical sense. It is quite unaffected by anything that the machine does. Even the affixing of the label is attended to by another machine, although I do not regard that fact as of any consequence.
In short, I consider that the meat has reached the ``form or condition'' in which it is to be marketed when it emerges from the shrink wrapper. It follows that the Valuematic System is not used to bring the meat into that condition.
In the result, the defendant has failed to persuade me that the tax referred to in the Deputy Commissioner's Certificate is not payable.
Accordingly, there will be judgment for the plaintiff for $1,371 with costs to be taxed, including transcript.
This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.