Pioneer Concrete (N.S.W.) Pty. Limited v. Federal Commissioner of Taxation.

Judges:
Yeldham J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 11 July 1986.

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Yeldham J.

The plaintiff is a subsidiary of Pioneer Concrete Services Limited through which the latter conducts its concrete business in New South Wales. On or about 1 April 1985 the plaintiff purchased from Rheem Australia Limited a transit mixer unit upon which it has not paid sales tax. The plaintiff is a registered person for sales tax purposes. The issue in the present case is whether or not it is liable to pay sales tax upon the mixer and, if it is, whether it is entitled to the benefit of a concessional rate of tax because of certain statutory provisions to which I will refer.

The nature and operation of the transit mixer unit were described in evidence, which was not the subject of challenge, by Mr Sneddon, the General Manager of the plaintiff, who, in an affidavit, said (inter alia):

``7. A transit mixer unit is constructed to be mounted on a truck or similar vehicle so that the process of mixing the ingredients, making the concrete and keeping it in a usable condition may be carried on while the truck is being driven to the place where the concrete is to be poured. The design of the transit mixer unit enables it to be bolted to the truck chassis. Now exhibited to me and marked `SKSI' is a bundle of photographs showing how a transit mixer is bolted to the chassis of a truck. Most mixers depend for their operation upon their own motor only, although some are driven from the truck engine by means of a hydraulic transmission.

8. The main element in a transit mixer is a large steel barrel lying along the length of the truck with the end at the rear of the truck higher than the end behind the driver's

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cabin. This higher end of the barrel is open and is positioned under a receiving attachment through which wet concrete, or the ingredients for it, may be poured into the barrel. The lower end of the barrel is closed and has attached to the outside of it mechanisms to rotate the barrel. The unit includes the devices and controls necessary to regulate the direction of rotation and the speed of rotation of the barrel from 2 to 18 revolutions per minute. Helical blading is welded to the interior surface of the barrel. When the barrel rotates in one direction these blades move the contents to the closed lower end. This causes the materials to mix by tumbling over themselves as more material is drawn into the mass at the closed lower end. When the barrel is rotated in the other direction the aforesaid helical blades move the contents to the opening at the higher end of the barrel from which they fall on to chutes and are so discharged from the unit....

11. Most pre-mix concrete is loaded at a batching plant, permanently located on its own site. The process of loading the ingredients that are used to make concrete in a transit mixer that is fixed to the chassis of a truck involves placing the truck in such a manner that the transit mixer is beneath the overhead hoppers of a batching plant in which crushed stone, sand and cement are held. As these ingredients and water from an overhead tank flow down through a flexible hose or sock into the mixer, the mixer is rotated at 18 revolutions per minute. Rotation is continued for a few minutes so that the materials are thoroughly mixed in the barrel to the point where a uniform consistency is achieved.''

In evidence Mr Sneddon said:

``MR HILL: Q. You say in cl. 8 of your affidavit, and it is amplified later, that there are two things that may happen when the concrete is to be loaded into the mixer. The first is the dry ingredients may be loaded into it and secondly wet ingredients may be loaded into it, is that generally right? A. Yes.

Q. In a case where wet ingredients are loaded into it, they would usually be where the concrete has been pre-mixed? A. I would say yes, and perhaps only partially pre-mixed, perhaps not completely mixed.

Q. It may be either wholly or partially pre-mixed? A. Yes.

Q. In that event the mixer will serve two functions, the first being a function of transporting the concrete and the second, a function of ensuring that in that transport it does not clog together? A. Rather it does not separate. If concrete is transported in an ordinary vessel the fine material would shake to the top and the stones to the bottom, called segregation.

Q. That is to ensure that it doesn't separate during the transporting of the concrete? A. Yes.

Q. In a case where merely the dry ingredients plus fluid are added into the mixer itself, the mixing process - which you have described as manufacture in your affidavit - takes place. I assume in the first couple of minutes, would that be right, it is agitated and mixed as soon as these ingredients are poured into the mixer? A. Yes, a couple of minutes, five minutes.

Q. During that time I take it the transit mixer is stationary? A. Quite often but not always.

HIS HONOUR: Q. It doesn't have to be? A. No, that could be happening while -

MR HILL: Q. It could be also happening while the truck is moving? A. Yes.

Q. But generally speaking the largest proportion of time in which the mixer is in use is the time in which it spends proceeding from your premises to wherever the concrete is to be ultimately dropped? A. Yes.''

It was common ground between the plaintiff and the defendant (the latter being the Commissioner of Taxation), that if the transit mixer in question was an ``aid to manufacture'' as defined in reg. 4 of the Sales Tax Regulations no sales tax was payable in relation to it (Sales Tax (Exemptions and Classifications) Act 1935, sec. 5).

Regulation 4 of the Sales Tax Regulations says that, unless the contrary intention appears, ``Aids to manufacture'' means:

``... goods for use by a registered person in the course of carrying on a business (where that use is exclusively, or primarily and

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principally, for the purposes of that business), being -

• (a) Machinery, implements and apparatus for use exclusively, or primarily and principally...
  • (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...

But does not include the following goods, unless those goods are of a kind ordinarily manufactured by the registered person for sale...

• (e) road vehicles of the kinds ordinarily used for the transport of persons or the transport or delivery of goods...
• (m) parts for any goods expressly excluded from this definition...''

In the same regulation ``parts'' in relation to road vehicles is defined to include:

``... bodies for those road vehicles (including insulated bodies, tank bodies and other bodies designed for the transport or delivery of goods of a particular kind), underbody hoists and other equipment or apparatus of a kind ordinarily fitted to road vehicles, being equipment or apparatus used in connection with the transport or delivery of goods by those road vehicles.''

It was conceded on behalf of the defendant that the transit mixer in question prima facie fell within the definition of an aid to manufacture, because it came within para. (a)(iii). The defendant claimed however that it was excluded from such definition, principally because it was within para (m) (``parts for any goods expressly excluded from this definition''), or alternatively within para. (e).

So far as para. (m) is concerned it must be observed that the relevant criterion is parts for any goods and not of any goods and that such goods, for relevant purposes, must be ``road vehicles of the kinds ordinarily used for the transport of persons or the transport or delivery of goods'' within reg. 1(e). One basic submission made by Mr Hely, senior counsel for the plaintiff, was that the transit mixer was adapted for use in connection with the manufacture of goods, rather than for use in connection with the transport and delivery of them. If that submission is correct then it is not necessary to consider the definition of ``parts'', a definition which was not to be found in the regulations at the time of the decision in
D.C. of T. v. Fowler Rex (N.S.W.) Pty. Ltd. (1967) 118 C.L.R. 160. That case was concerned with a transit mixer unit similar to that presently under consideration, with the exemption of ``aids to manufacture'', and principally with the question of whether the mixer was accepted from such a description as being within the class of ``road vehicles of the kind ordinarily used for the transport of persons or the delivery of goods'' and ``parts'' for any of the goods in the specified classes. Owen J. who decided the case in the High Court, rejected a submission that the units were ``parts for road vehicles of the kinds ordinarily used for the delivery of goods'' and said that the words ``parts for'' do no more than bring into the excepting provisions those things which in ordinary parlance would be described as ``spare parts''. At a later date, as I have indicated, the definition of ``parts'', which has already been set out, was inserted in the regulations.

In
Ready Mixed Concrete (Vic.) Pty. Ltd. v. F.C. of T. 69 ATC 4038; (1969) 118 C.L.R. 177 Kitto J. in considering also a transit mixer, and a section of the Income Tax Assessment Act which for present purposes is not relevant, said (at ATC p. 4042; C.L.R. p. 184), speaking of a transit mixer:

``It is not really a component of a total vehicle comprising itself and the truck, being a vehicle ordinarily used for the delivery of ready mixed concrete. Notwithstanding the mode and degree of annexation, the truck and the mixer are functionally separate and independent units of property. The function of delivery belongs to the truck. The use of the mixer is for mixing, as a step in the production of concrete in the condition required for pouring, and its nature is under stated to the point of misdescription by saying the machine... is ordinarily used for delivery... The mixer does contain concrete, but only in order to work upon it in the course of the process that continues during the transportation to the point where delivery will ensue.''

It is convenient to consider first of all the provisions of reg. 4(i)(e). In my opinion the

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mixer which, as Kitto J. pointed out in the case before him, is a functionally separate and independent unit of property from the truck to which it is attached - a view which is borne out by the evidence in the present matter - cannot be said to be a ``road vehicle'' and hence para. (e) is of no application.

The critical question - and this was recognised by counsel - is whether the unit in question comes within para. (m) as being a part for a road vehicle of the kind ordinarily used in the transport or delivery of goods. On behalf of the defendant it was submitted that the mixing unit was a ``body'' for such a road vehicle and, secondly, that it came within the words ``other equipment or apparatus of the kind ordinarily fitted to road vehicles, being equipment or apparatus used in connection with the transport or delivery of goods by those road vehicles''. Mr Hely submitted that a body of a motor vehicle is a component of it and is what might be called a passive article that enables the vehicle to perform its function of delivery. Mr Hill argued that the mixer is either a ``body'', or the whole vehicle, into which it is bolted so as to form part of it and of which it is a complete and integral part for the transport of cement. Calling in aid the reference to the examples of insulated bodies and tank bodies in the definition of ``parts'', Mr Hill argued, by analogy, that the mixer was in the same category, and hence was a part for the motor vehicle within the expanded definition. Principally, however, he submitted that the mixer was ``other equipment or apparatus of the kind ordinarily fitted to road vehicles, being equipment or apparatus used in connection with the transport or delivery of goods by those road vehicles''. While Mr Hely submitted that a mixer is not normally fitted to a road vehicle, I regard such a submission as involving an erroneous view of the requirement that the equipment or apparatus in question must be of a kind ``ordinarily fitted to road vehicles''. Plainly the reference is not to all or the majority of road vehicles but to those customarily used for the transport or delivery of goods of the type for which the vehicles are designed, in the present case, concrete.

In my opinion the mixer is in substance machinery, and falls within the ordinary meaning of ``apparatus''. In my view also the apparatus is used in connection with the transport or delivery of concrete. Although it was submitted by the plaintiff that the definition of ``parts'' is directed to accessories of vehicles to enable them to function more efficiently in transporting or delivering goods, as distinct from manufacturing them, and ``this mixer has to do with manufacture, it is not in connection with the barely subsidiary or incidental function or transportation'' I have come to the conclusion that such submission should be rejected. I have already set out the substance of the evidence given by Mr Sneddon, and there is no doubt that one function, and an important one, of the road vehicle as a whole is in transporting concrete from the plaintiff's plant to various job sites for delivery there, notwithstanding that one object of the apparatus is to rotate the concrete so as to preserve it in the state in which it is required. The expression ``in connection with'' involves a substantial relation in a practical business sense between the equipment and the transportation or delivery of goods (
Berry v. F.C. of T. (1953) 89 C.L.R. 653 at p. 659;
Emery v. I.R. Commr (1981) S.T.C. 150 at p. 171). In my opinion there is here a substantial connection (which need not be the only connection so long as it is not incidental) between the transport and delivery of concrete and the use of a concrete mixer ordinarily fitted to road vehicles used for such transport or delivery. There is no doubt, as Mr Hill submitted, that without the mixer the plaintiff could not transport concrete from its premises to building sites.

Because of the insertion in 1981 of the present definition of ``parts'' it is not appropriate to apply to the present case the decision of Owen J. in the Fowler Rex case (ante), which was itself applied by Gibbs J. (as the learned Chief Justice then was), in 1971 in
Polaroid v. D.F.C. of T. 71 ATC 4249 at p. 4252-4253.

Although the conclusion which I have expressed really renders it unnecessary to deal with the matter further, I should mention that Mr Hill relied also on the provisions of sec. 15AB of the Acts Interpretation Act (as inserted by the Acts Interpretation Act 1984 No. 27) and the Explanatory Memorandum given by the Treasurer at the time being when the relevant definition of ``parts'' was inserted. The Explanatory Memorandum (Ex 1) discloses that at p. 18 it was said that the new definition would include within its ambit equipment or apparatus, such as ``cranes in transit, concrete

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mixers''. Whilst this, of course, can only be of relevance within the limits laid down by sec. 15AB, it does tend to confirm the view at which I have independently arrived.

Thus I reached the conclusion that the mixer in the present case, although an ``aid to manufacture'' within the meaning of reg. 4(1)(a)(iii), and not being within (e) of the same regulation is, none the less, excluded from the definition because it is, within para (m), ``parts for any goods expressly excluded'' from the definition, within the meaning of the expression ``parts'' as defined in 1981. The consequence is that the mixer is not an ``aid to manufacture''.

There remains for consideration the second matter argued, namely, that the concrete mixer constituted goods falling within item 7(1) of the 3rd Schedule to the Sales Tax (Exemptions and Classifications) Act 1935, and hence was subject to duty at concessional rates - see Sales Tax Act (1930) sec. 4(b).

Item 7 in Schedule 3 to that Act is in these terms:

``7 ^* (1) Machinery, implements, apparatus and materials (other than road vehicles of the kind ordinarily used for the transport of persons or the transport or delivery of goods, towing trucks or salvage vehicles, or parts for those road vehicles, towing trucks or salvage vehicles) for use exclusively or primarily and principally, for business or industrial purposes, in -

• (a) servicing, repairing or reconditioning -
  • (i) motor vehicles;
  • (ii) aeroplanes (including flying boats, seaplanes and helicopters);
  • (iii) ships, boats and other vessels;
  • (iv) railway rolling stock; or
  • (v) parts of any goods specified in the preceding provisions of this paragraph;
• (b) repairing tyres, including retreading and recapping;
• (c) constructing, maintaining or repairing (or excavating or levelling in connexion with constructing, maintaining or repairing) buildings or other structures, or roads, dams, pipe lines, drains, trenches, tunnels or other works; or
• (d) repairing footwear for human wear,

but not including goods which become part of the goods, structures or works serviced, repaired, reconditioned or constructed, as the case may be, or lubricants as defined in sub-clause (1) of clause 1 of the First Schedule

^* (2) Machinery, implements, apparatus and materials (other than road vehicles of the kinds ordinarily used for the transport of persons or the transport or delivery of goods, or parts for those vehicles) for use by a person exclusively or primarily and principally in the repair or maintenance of machinery, implements or apparatus used by him and covered by sub-item (1), but not including lubricants as defined in sub-clause (1) of clause 1 of the First Schedule

^* (3) Parts for machinery, implements or apparatus covered by sub-item (1) or (2)''

Mr Hely submitted that the mixer was a concrete mixer adapted for use in the construction of buildings or works, because it performs an integral and necessary step as part of the process of construction i.e. the manufacture of concrete. He refuted the suggestion that the answer to his argument was that the mixer was not for use in construction, but for use in making concrete, so that it was something anterior to the construction process, by saying that ``if you imagine a concrete mixer on the site - concrete is mixed for the purpose of translation into the building and we submit it would be obvious that that piece of equipment is being used in the construction process because it forms a part or an integral step in that process. It doesn't matter whether it is on site or away from the site. It is adapted to a use in connection with the construction process... Basically it comes back to this, the primary use for which the mixer is adapted is the creation of a material which is necessary as part of the construction process. It has no other purpose and it serves no other end.''

Mr Hill's primary submission concentrated on the words ``for use... for business or industrial purposes in'', the last word being of critical importance. He argued that it was not sufficient for a concrete mixer to be used for business or industrial purposes simpliciter. He said that the business use in the present case was anterior to the construction and that it could not in any way be said to be used ``in''

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constructing buildings. He submitted that concrete mixer was not for use itself exclusively or primarily or principally for business or industrial purposes in construction, whether ``in'' is read as directly in or ``in the course of''.

It is clear from what I have already said that the words in parenthesis in item 7(1) are of no application. The critical question is whether the mixer is apparatus ``for use exclusively or primarily and principally for business or industrial purposes in... constructing... buildings''.

In my opinion the proper inquiry is whether the mixer is an apparatus used principally for industrial purposes in the course of the construction of a building. That question I would answer in the affirmative. The situation is precisely the same as if a concrete mixer had been used on site for the preparation of concrete for use in the building being erected upon that site. The critical inquiry is into the characteristic of the equipment. Here it is adapted to the construction of a building and that is the sole use to which it is put. In my opinion the word ``in'' should be construed as meaning ``in the course of'' or ``in connection with'' - see
Amalgamated Zinc (De Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295 at p. 309.

Thus I conclude that the plaintiff is entitled to a declaration that the concrete mixer constitutes goods falling within item 7(1) of the 3rd Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 but is not entitled to the other declarations or orders which it seeks. Although I have not heard counsel on the question of costs, my present view is that, because the plaintiff has succeeded on one of the matters argued, but not on the others, it is entitled to one-half of the costs of the summons. I shall hear argument from counsel upon that aspect if they desire to be heard on a date to be arranged with my associate.