CASE Z10

Members:
P Gerber DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 21 February 1992

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Dr P Gerber (Deputy President)

In brief outline, on 30 March 1987, the respondent issued an assessment under sub-sec 25(2A) of the Sales Tax Assessment Act (No. 1) 1930 (``the Act'') in respect of the period 1 August 1983 to 30 June 1986 inclusive. The ``Particulars of Assessment'' attached to that assessment stated that the assessment was ``In respect of goods manufactured by Dust Inc, a Division of [the applicant], and sold or applied to its own use in taxable circumstances''. The total amount payable under the assessment was $36,275.26, which included an amount of $12,579.40 representing ``Additional tax under sub-section 45(2) of Sales Tax Assessment Act (No. 1) 1930''. The applicant's subsequent objection to that assessment was partially allowed in that the $12,579.40 additional tax component was reduced to $7,454.72. The applicant was dissatisfied with that objection decision. Hence this reference.

2. At the hearing, the parties advised the Tribunal that they had reached agreement on a number of matters, including the provision of a brief statement of agreed facts and issues. Importantly, the parties agreed that the only issue for determination by the Tribunal is whether the fitting of new and second-hand bodies with new cab chassis in the circumstances constitutes ``manufacture'' for the purposes of sub-sec 3(1) of the Act. The parties have also agreed on the following matters relating to the quantum of the assessment in dispute:

• (a) the respondent abandons the remainder of the additional tax component of that assessment;
• (b) if the Tribunal determines the issue in dispute in favour of the applicant, that assessment should be reduced to $6,257.40 in line with the schedule in paragraph 4 of the ``Statement of Facts, Issues and Contentions'' prepared by the applicant; and
• (c) if the Tribunal determines the issue in dispute in favour of the respondent, that assessment is nevertheless excessive and should be reduced to $16,196.66 in line with annexure ``A'' to the affidavit of Mr P - exh 1.

3. The following represents the brief agreed facts in this matter:

• (a) the applicant carries on business providing refuse collection services in Queensland, New South Wales, Victoria, Western Australia and South Australia;
• (b) the applicant carried out the fitting of various new and second-hand truck bodies with new and second-hand cab chassis during the period 1 August 1983 to 30 June 1986; and
• (c) the following job numbers as set out in Schedule A of the assessment dated 30 March 1987 relate to the following unit numbers and body types:

Job No.             Unit No.          Body Type
QB 24                 9               Front lift non-tipping
                                      body
QB 28                 6               Front lift non-tipping
                                      body
QB 32                51               Roll on Roll off
QB 36                 1               Front lift non-tipping
                                      body
QB 54               111               Rear lift non-tipping
                                      body
QB 44                16               Front lift tipping
                                      body
QB 50                52               Roll on Roll off
QB 60                22               Front lift non-tipping
                                      body
QB 66                15               Front lift non-tipping
                                      body
QB 67                17               Front lift non-tipping
                                      body
QB 74               101               Rear lift non-tipping
                                      body
QB 71                14               Front lift tipping
                                      body
QB 77                55               Roll on Roll off
J 02                  8               Front lift non-tipping
                                      body
J 18                  4               Front lift tipping
                                      body
          

4. In order that I might understand the procedure and circumstances surrounding the fitting procedures (for want of a better expression) the applicant tendered affidavits from Messrs M and S, both holding positions with the applicant during the relevant period which, I am satisfied, qualified them as experts in the area involving this dispute. Both were called and adopted their affidavits (exhs ``B'' and ``C''), as well as giving additional oral evidence. Without taking away from the extensive and detailed evidence given by both witnesses, set out below is a summary of the

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ATC 155

evidence they gave, which I accept, as it relates to the period in question:

• (a) the following four types of bodies in consideration in this matter represent the full range of bodies that form part of the applicant's commercially used waste collection vehicles:
  • (i) front lift non-tipping bodies;
  • (ii) front lift tipping bodies;
  • (iii) rear lift non-tipping bodies; and
  • (iv) roll on roll off bodies;
• (b) all the body types in consideration operate on a ``live drive'' system, that is, a hydraulic pump is mounted onto the cab chassis as part of the fitting operation and is mechanically attached to the cab chassis engine, such that the hydraulic pump which runs the various hydraulic devices on the body is driven by the cab chassis' engine;
• (c) the front lift non-tipping and tipping bodies form part of the typical type of vehicles which pick up standard industrial bins by lifting the bin over the truck cabin; they differ in the extent to which they utilise a hydraulic compaction device to push the waste towards the rear of the body for ejection through the body's back door at a refuse tip rather than a hydraulically powered tipping mechanism;
• (d) the rear lift non-tipping bodies form part of the typical type vehicles which pick up household garbage bins; their hydraulic emptying mechanism is similar to that of the front lift non-tipping bodies;
• (e) the roll on roll off bodies are used for sitting large industrial waste bins on; those bins being left on a customer's site and, once full, are dragged onto the body via various methods; their hydraulic tipping mechanism is similar in effect to that of the front lift tipping bodies;
• (f) S gave evidence that he was able to say from his 10 years experience in the waste industry that, to his knowledge, the applicant's main competitors in that industry carried out similar sorts of fitting operations to those that are the subject of these applications. Smaller competitors used sub- contractors to undertake those fitting operations; which option, he believes, is a purely commercial decision based on such considerations as economies of scale, available expertise and facilities;
• (g) the vehicles (being made up of a body and cab chassis) do not process the waste; the service provided is merely one of removal from a customer's site and transportation to a waste facility;
• (h) the applicant maintains a body of staff with trade qualifications or satisfactory experience in mechanical fitment in order to carry out these fitting operations; which operations are carried out in the same workshop, using similar equipment as that used in the maintenance and repair of its vehicular fleet;
• (i) as can be seen from paragraphs 4, 5 and 7 to 11 of S's affidavit (exh ``B''), the process of fitting one of the four mentioned body types to a cab chassis involves many steps, with various modifications being required, including shortening the length of the cab chassis which were purchased from various manufacturers. This process, with the various differences between the four body types noted by S in the abovementioned paragraphs, took the applicant's fitting staff a considerable time to complete, ranging from 200-250 man hours in the case of the fitting of a front lift non-tipping body to 350-400 man hours in the case of a roll on roll off body;
• (j) prior to their fitting with the cab chassis, the particular bodies in question in this application had not been fabricated by the applicant, but had been acquired from other sources; and
• (k) the body (being the part that actually contains the refuse) has a longer working life than the cab chassis with which it is fitted.

5. The applicant also called one B, who during the relevant period held the position of assistant taxation manager with the applicant. The following is a summary (as far as is relevant) of the evidence given by this witness by way of affidavit (exh ``D'') and supplementary oral evidence, which I accept:

• (a) the applicant carries on a number of different commercial activities through various divisions, each with registered business names. One of those divisions, Dust Inc - the Division with which this matter is concerned, carries on the business of providing waste collection, treatment and disposal services to Commonwealth and State Government instrumentalities,

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  ATC 156

  Municipal, Shire and City Councils and private, commercial and industrial businesses;
• (b) after analysis of the applicant's asset register and other records, B was able to set out the history of the bodies and cab chassis with which they were fitted which are the subject of these proceedings. From those histories the following points are able to be made:
  • (i) the applicant's longstanding practice has been to treat the bodies and cab chassis to which they have been attached as separate assets in its records;
  • (ii) Job Nos QB 71 and J 18 involved the fitting of bodies with cab chassis which had both been only recently purchased new, and had not previously been fitted with any other cab chassis or bodies as the case may be;
  • (iii) Job No QB 50 involved the fitting in March 1985 of a body which had been purchased second-hand by the applicant in 1980, with a cab chassis which had only recently been purchased new and had not previously been fitted to any other bodies. The evidence given by B provides a detailed history of all fittings by the applicant (both prior and subsequent to the fittings in question) relating to the bodies and cab chassis involved in the fittings which are the subject of this dispute. In light of this detail in respect of all other fittings, I am prepared to assume, in the absence of any recorded details of intervening fittings, that the abovementioned 1985 fitting was the first occasion the applicant had fitted that body to a cab chassis;
  • (iv) the remaining 12 fittings in question involved the fitting of bodies which had on at least one previous occasion each been fitted with other cab chassis by the applicant, with cab chassis which had only recently been purchased new and had not previously been fitted to other bodies; and
  • (v) a significant proportion of the 15 bodies in question were subsequently re- fitted with other cab chassis.

6. The respondent called one P, the officer employed by the respondent who was responsible for both the assessment which is the subject of this review and the investigation into the aspects of the applicant's business which forms the subject matter of this review. He was called simply to prove (by adoption of affidavit evidence) a schedule showing various calculations which had been made in determining the amount of sales tax remaining in dispute in this matter. He conceded in cross- examination that there were ``instances of the applicant changing motor vehicle bodies from one cab chassis to another other than those which are the subject of this assessment during the relevant period''. He went on to explain that those were instances where the applicant fitted second-hand bodies with second-hand cab chassis. These were not deemed by him to constitute ``manufacture'' within the meaning of the Act.

7. During the relevant period, the definition of ``manufacture'' in sub-sec 3(1) of the Act was as follows:

```Manufacture' includes-

• (a) production;
• (b) the combination of parts or ingredients whereby an article or substance is formed that is commercially distinct from those parts or ingredients;
• (c) any treatment applied to foodstuffs as a process in the preparation of the foodstuffs for human consumption;
• ...

but does not include:

• (g) a combination falling within paragraph (b) (other than a combination whereby a prescribed article or substance is formed) if, in the opinion of the Commissioner, the combination is of a kind that is customarily undertaken by persons who use the articles or substances formed by combinations of that kind for the purposes for which the articles or substances are intended to be ultimately used;''

8. In
Cohns Industries Pty Ltd v DFC of T 79 ATC 4243, the Full Court of the Supreme Court of Victoria held that the definition of ``manufacture'' in sub-sec 3(1) of the Act had an inclusory (rather than exclusory) operation. As a consequence, it is only necessary to consider sub-paragraphs (a) to (c) and the exclusion relating to combinations falling within (b) if the fitting operations in question do not fall within the ordinary English meaning of the word ``manufacture''.

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ATC 157

Ordinary meaning of ``manufacture''

9. The Full Federal Court had occasion to deal with the ordinary meaning of ``manufacture'' in
FC of T v Jax Tyres Pty Ltd 85 ATC 4001. On this aspect, I can do no better than respectfully concur with the various observations of their Honours. Thus Lockhart J (with whom Wilcox J agreed) stated that:

``I do not find it helpful to refer to the numerous authorities to which we were taken in argument beyond stating the principles relevant to this case for which some of them are authority... They all turn on their particular facts and present a wide range of businesses...''

(at p 4005).

Sheppard J (with whom Wilcox J agreed) noted:

``The test to be applied in determining whether or not an article is manufactured is that formulated by Darling J. in
McNicol v. Pinch (1906) 2 K.B. 352 where his Lordship said (p. 361), `The essence of making or of manufacturing is that what is made shall be a different thing from that out of which it is made'. That test has been adopted by the High Court; see
F.C. of T. v. Jack Zinader Pty. Ltd. (1949) 78 C.L.R. 336 per Dixon J. (as he was) at p. 343. I refer also to the judgment of Williams J. who said (p. 350):

`Work which could be fairly described as a mere repair or modification of the goods would not affect their original character. But once the work done causes the goods to lose this character, they become goods within the meaning of the Act.'

The application of these tests may sometimes be a difficult exercise. The question is one of fact and degree. An exercise in judgment is involved.''

(at pp 4008-4009)

10. It is also clear that that ``difference'' may be either in appearance or use; cf Lockhart J (and Wilcox J) in Jax Tyres (supra) at p 4008, and Davies J in
WEA Records Pty Ltd v FC of T 90 ATC 4779 at p 4784.

11. In the instant case, the respondent submitted that all the fittings in question constituted ``manufacture'', whilst the applicant contended that they were not, each relying on Jax Tyres (supra) in support of their submission.

12. Having carefully studied the evidence, detailing what is involved in each of the couplings of body and chassis, I have come to the conclusion, applying the tests formulated in the cases cited above, that some of the couplings constitute ``manufacture'', whilst the majority do not.

13. As noted in paragraph 5 above, Job Nos QB 71 and J 18 involved the fitting of bodies and cab chassis which had both been recently purchased new and had not previously been fitted to any other cab chassis or bodies, as the case may be. I am satisfied that these fittings, involving as they do, many steps and various modifications in each case to the constituent cab chassis and body, amount to manufacture in the ordinary sense of the word. Classically, what is made is different, in both appearance and use, from that out of which it is made.

14. The remaining 12 fittings (excluding for the moment Job No QB 50) involved the fitting of bodies which had on at least one previous occasion each been fitted with other cab chassis by the applicant, with cab chassis which had at the time only recently been purchased new and had not previously been fitted to other bodies. Mr Logan of learned counsel for the respondent sought to impress upon me that the complexity of the fittings, the fact that the operation required skilled staff using a multitude of equipment, the fact that the fittings were carried out on a large scale and each took several hundred man hours to complete, all point to a manufacturing process. Further, he submitted I should avoid the same error into which McPherson J fell in
In the Matter of The Totalisator Administration Board of Queensland 88 ATC 5025, adopted by the Full Supreme Court (89 ATC 4877) and only rectified by the Full High Court on appeal (90 ATC 5041), that is, that someone may be a ``manufacturer'' within the definition in sub- sec 3(1) even though their business is not such that it would ordinarily be described as that of a manufacturer. With respect, that proposition is no more than a truism and does not derogate from the equal truism that what constitutes ``manufacture'' depends on its own peculiar facts. It is equally true to say that it is difficult to manufacture a principle of law from earlier decisions in which the issue of ``manufacture'' was determinative of the outcome. I can do no better than to repeat, with great respect, the illuminating attempts by Lockhart and Sheppard JJ to provide the co-ordinates of ``manufacture'' in Jax Tyres (supra), where Lockhart J noted:

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ATC 158

``The essence of manufacturing implies a change from which a new and different article must emerge having a distinctive character or use. This is not what happens with a retreaded tyre. The fact that the taxpayer's activities appear to be conducted on a fairly large scale does not affect my conclusions in this case. It is a relevant, though by no means decisive, consideration.''

(my emphasis; at pp 4006-4007)

15. Sheppard J stated:

``In the course of his submissions, counsel for the appellant drew our attention to the very cheap prices at which worn tyres could be obtained by the respondent and others retreading tyres and to the sophistication and complexity of the respondent's very extensive operations. They are conducted in a building called a factory and involve the use of much automated equipment. The production rate is very high.

Some support for the view that those considerations are relevant to be taken into account may be thought to be found in the judgment of Dixon J. in the Zinader case [supra]. After concluding that the process in question in that case produced a different article, his Honour added (p. 345):

`When that consideration is added to the fact that the actual work done and the procedure employed in producing the new, that is the distinct, article is characteristically a manufacturing process, it must follow that the "goods" are "manufactured" within the ordinary meaning of that term.'

I can understand that some may think that the process here is characteristically a manufacturing process. It has the hallmarks of it. But that looks only to the operations which are carried on and the machinery and other equipment which is used. It seems to me clear from the way the matter was approached by Dixon J. that the fact that a process may characteristically be a manufacturing process is not the determining factor. The critical question is always that earlier stated by his Honour when adopting what was said by Darling J. in McNicol v. Pinch (supra). What is made must be a different thing from that out of which it is made; otherwise there is no manufacture.''

(at p 4009).

16. As noted in paragraph 4 above, the evidence discloses that the body has a longer working life than the cab chassis with which it is fitted. Further, the evidence discloses that each of the 12 fittings remaining in question involved the fitting of new cab chassis to bodies which had on at least one occasion been previously fitted with another cab chassis. I am satisfied that, in light of that evidence, the process of refitting a body previously used by the applicant with a new cab chassis does not involve the making of a different thing and therefore does not constitute ``manufacture'' within the ordinary meaning of that term. Here, without a cab chassis underneath it, a body is not able to play its previous part in the collection and transportation of waste to a waste facility, that is, it is virtually useless. However, I would gratefully adopt the analogy used by his Honour, Sheppard J, in Jax Tyres (supra) (treating the body as the shoe and the cab chassis as the sole):

``Shoes, which need resoling are no doubt worthless to their owner. Resoling them makes them useful again. But it does not turn them into a different article.''

(at p 4009).

Applying this analogy to this case, a body without a chassis is worthless to this applicant, coupling a new cab chassis with that used body makes it useful again without turning it into a different article. Put another way, to use the expression of Williams J in Jack Zinader (supra), the 12 fittings in question can be described as ``repair or modification'' (at p 350).

17. That leaves the combination - QB 50 - involving a body purchased second-hand by the applicant in September 1980. As set out in paragraph 5 above, I am satisfied that the fitting of that body to a new cab chassis in March 1985 was the first fitting by the applicant of that body to any cab chassis. Being described as ``second-hand'', I find that it is more probable than not that that body had been previously used for the purpose for which it was constructed, i.e. had been previously fitted to a cab chassis. It follows that, like the other 12 fittings mentioned above, this fitting does not involve the making of a different thing, and therefore does not constitute ``manufacture'' within the ordinary meaning of that term but constitutes ``repair or modification''.

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18. Having found that the fittings involved in Job No QB 71 and J 18 constitute ``manufacture'' in the ordinary meaning of the term, it is only necessary for me to consider the application of sub-paragraphs (a) to (c) of the definition in respect of the 13 fittings considered not to be ``manufacture'' within the ordinary meaning of the term.

Production

19. Paragraph (a) includes ``production'' within the definition of ``manufacture''. Does the term extend the ordinary meaning of ``manufacture''? The matter was briefly dealt with by the Full High Court in
Adams v Rau & Anor (1931) 46 CLR 572, where the Court noted:

``We do not think that it is possible to formulate abstract definitions of such general terms. It may be conceded that they were not intended to bear any restricted meaning, and that whatever according to the received usages of English speech may be called the manufacture or production of goods or commodities is within the statute... The definition should receive an operation according to the natural and ordinary meaning of its terms, neither widened nor narrowed by inferences sought to be drawn from special provisions, exclusions and exemptions. After all, it is a taxing Act and its ambit should not be enlarged by anything less than the clearest implication.''

(at pp 577-578)

20. Applying much the same reasoning, Lockhart J stated in Jax Tyres (supra):

```Production', which is included in the definition of `manufacture' (sec. 3(1)(a)), is a word of wide import; but it still involves the element of producing something different from the materials from which it was made.''

(at p 4004).

21. In light of the above pronouncements, and the lack of any direct authority on the point, I am unwilling, sitting as an administrative tribunal, to use the inclusion of the word ``production'' - a loose term at the best of times - as a means of artificially extending the meaning of ``manufacture'' by holding that the subject fittings are ``production'', having found that they are not ``manufacture'' within the ordinary meaning of that term.

Combination of parts or ingredients

22. It has been held that sub-paragraph (b) of the definition applies only where there is a mere combination of parts or ingredients; cf per Young CJ, Starke and Gray JJ in Cohns Industries Pty Ltd (supra) at p 4246; per Lockhart J in Jax Tyres (supra) at p 4005, and Williams J in
Adams v FC of T (1948) 8 ATD 332 at p 335. In the instant case, the fittings in question involve various modifications to the constituent bodies and cab chassis, so that there is not a ``mere combination of parts''. That is sufficient to take the operation out of the opening words of sub-paragraph (b), which speaks only of a combination, so that sub- paragraph (b) has no application. It is therefore unnecessary for me to deal with the exclusion relating to combinations falling within sub- paragraph (b): Cohns Industries Pty Ltd (supra).

23. As noted above, the parties agreed that:

• (a) if the Tribunal determined the issue in dispute in favour of the applicant, the assessment should be reduced to $6,257.40 in line with the schedule in paragraph 4 of the ``Statement of Facts, Issues and Contentions'' prepared by the applicant; and
• (b) if the Tribunal determined the issue in dispute in favour of the respondent, that assessment is nevertheless excessive and should be reduced to $16,196.66 in line with annexure ``A'' to the affidavit of Mr P - exh 1.

In light of the conclusion I have reached, it is necessary to add to $6,257.40 the difference between the figures said to be the tax payable on Job Nos QB 71 and J 18 in annexure ``A'' to the affidavit of Mr P (exh 1) as compared with paragraph 4 of the ``Statement of Facts, Issues and Contentions'', that is:

$6,257.40 + ($1,681.30 − $529.70) + ($1,522.71 − $529.70) = $8,402.01

24. In the result, the Tribunal varies the objection decision by reducing the assessment in issue to $8,402.01.