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MP Metals Pty Ltd v Federal Commissioner of Taxation [1968] HCA 89; (1968) 117 CLR 631 (12 January 1968)

CATCHWORDS

HEARING

DECISION

2. The question is whether amounts expended by the taxpayer in the purchase of equipment it used for the treatment of scrap in these ways were expended for the purchase of "new manufacturing plant" within the meaning of s. 62AA of the Income Tax and Social Services Contribution Assessment Act 1936-1965 (Cth). That section, first enacted in 1962, is long and at first sight complicated. Put briefly, it provides that a manufacturer who incurs expenditure of a capital nature on new manufacturing plant shall be allowed an amount equal to one-fifth of that expenditure as a deduction from his assessable income of the first year in which the plant was used or installed ready for use. The deduction is, with some qualifications, in addition to the annual allowance for depreciation under other and older provisions of the Act. It is allowed only in respect of "manufacturing plant", the term it uses for articles or plant used, in one of the ways it describes, in or in conjunction with manufacturing operations. It relates only to new articles or plant of a capital nature. The word "new" is defined as meaning "not having previously been either used by any person or acquired or held by any person for use by that person". Second-hand equipment is thus excluded, although it be newly acquired by the taxpayer. It is not disputed that the various articles in question in this case were all new and that the expenditure by which they were acquired was of a capital nature. (at p633)

3. The argument for the taxpayer put considerable weight upon what was said to be a general policy and purpose discernible in the enactment. The things which qualify as manufacturing plant as described are, mainly and speaking broadly, machinery or mechanical appliances. Hand tools and other loose tools as described in sub-s. (3.)(i) are expressly excluded. It was said therefore that the object of the section could be seen as the encouragement of mechanization in secondary industry, there being in another section (s. 62AB) corresponding provisions in respect of expenditure on plant used in primary production. But that does not seem to me to state correctly the policy which underlies the enactment. 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 a statute must be used cautiously in the interpretation of particular provisions. The only indication of a general policy that I can discern in s. 62AA (dealing with manufacturing plant) and s. 62AB (dealing with plant used in primary productions) is that the deductions they allow presumably tend to encourage the investment of savings - savings and investment being economic correlatives - in new plant of a capital nature to be used in production in Australia. These deductions are no doubt peculiar in that they seem to transgress the general principle that an income tax is a tax on income, and that expenditure on capital goods is not taken into account in ascertaining income except to the extent that, in a continuing business, an annual sum is allowed for depreciation. But the Parliament evidently desired to give a benefit to some taxpayers, manufacturers and primary producers. Those to whom the benefit is given are in my opinion those, and only those, who come precisely within the terms of the enactment. The scope of those terms cannot be enlarged by assumptions of policy or purpose. It is idle to ask oneself why taxpayers, whose position may seem similar to those who are included, were either not included, or in some cases expressly excluded. Those who buy plant and equipment for use in building, civil engineering or transport do not get the same benefit as those who buy manufacturing plant - Why? Simply because the Parliament has not given it to them. A manufacturer is entitled to the deduction in respect of an electric motor used to drive his machinery, but not for a computer, calculating machine or other office equipment. Why? Simply because Parliament has said so. It is enough for me to remind myself at this point of what Scrutton L.J. said in Bailey, R. O. v. Potteries Electric Traction Co. Ltd. (1931) 1 KB 385, at p 479 : "We, however, have not to frame an equitable scheme of relief from taxation; our duty is to endeavour to interpret the words in which Parliament has expressed its intention. . . ."

The nature of the taxpayer's business. (at p634)

4. The evidence in the case was directed to explaining the taxpayer's business, and generally the manner in which the trade in scrap metal is conducted. I do not think it necessary that I rehearse all this. It is enough to state a few salient facts. Pieces of scrap suitable for use in furnaces must not be too large to go into the charging box. At one time most people who bought scrap metal as the raw material for steel making and other metal manufacturing would, generally speaking, take it as it was offered, not necessarily in a form suitable for immediate use in a melt. They cut up by oxy-acetylene blowpipes pieces which were too large for immediate use. Today there are machines by which cold scrap can be cut or "sheared". And today the shearing process is generally done by the scrap merchant to meet his buyers' requirements, rather than by the buyers. Thus, generally speaking, what the scrap merchant sells is either sheared scrap or baled scrap. Bales can be made in various sizes to suit buyers' requirements as dictated by the capacity of charging boxes and furnaces. For example, scrap which the taxpayer sold to several of its customers in Australia was in bales which were eleven-inch cubes. In addition to a steady demand from Australian foundries, there is a considerable export trade in scrap, mainly to Japan. Scrap for Japan and elsewhere abroad is generally sent in bales of about five feet by two feet by two feet. As a result of American trade practices, there are now internationally recognized descriptions or specifications by which scrap is classified, bought and sold. These are set out in a booklet prepared by an American organization called the Institute of Scrap Iron and Steel. (at p635)

5. The taxpayer had at the relevant times a large and long-established business as a scrap merchant in Victoria. It had yards at Geelong, Brooklyn, Clayton, Yarraville and Kensington. It collected loose scrap from various sources and brought it to these premises. There it was sorted. Some of it was suitable for baling. Some not. Some which was not balable required shearing. Some did not. When sorted and classified it was where necessary processed by shearing or baling before sale. (at p635)

6. The taxpayer claims the benefit of s. 62AA in respect of items of equipment which are set out in a schedule to its income-tax return. They are as follows:

(a) A Lafon scrap-metal shear, which cost 20,046 pounds. It is a
large electrically-driven machine which cuts up large pieces
of scrap into smaller pieces. It is installed at the Brooklyn
yard. In the schedule it is shewn as having been delivered
in July 1963. It was first used on 1st December 1964 and the
claim for a deduction is on the basis that the first use of it
was in the year of income ended 30th June 1965. (at p635)

7. I am inclined to think that when s. 62AA (5.) speaks of the first year during which the plant is either used or installed ready for use, the relevant year is the first in which either event occurred. It is however not disputed that, if the taxpayer is entitled to a deduction under s. 62AA in respect of this Lafon shear, the claim is made in respect of the right year.

(b) A section of a gantry of an overhead crane which cost
3,226 pounds. It was acquired in October 1964.
(c) A Macgrab lifting magnet which cost 2,617 pounds. It was
acquired in March 1965.
(d) A chain set which cost 56 pounds, acquired in September 1964.
(e) An electric motor which cost 180 pounds, acquired in

8. The above items (b), (c), (d) and (e) are used in connexion with feeding scrap to the baling or shearing machine.

(f) Certain scrap boxes costing in all 795 pounds, acquired during
the relevant year.
(g) A number of marrel buckets costing in all 8,263 pounds acquired
during the relevant year. (at p636)

9. A marrel bucket is the box or carriage component of a special form of load-carrying vehicle. It is detachable from the prime mover on to which it can be lifted by a mechanism on the prime mover. The scrap boxes and buckets were used for the collection of scrap and bringing it to the taxpayer's yards for treatment and also in connexion with the delivery of scrap after treatment. (at p636)

10. In addition to the Lafon shear in question, in this case the taxpayer had two other shears at its Brooklyn yard. They had been there longer. One was a Lafon. The other was a much larger machine called a Lupre shear. It could cut scrap fed into it to various lengths as desired from about twenty inches to six feet. But it was found not economical to run it to cut small pieces. Buyers who had small foundries wanted material of not more than six to eight inches, whereas the steel mills wanted larger cuts for their furnaces. Therefore the scrap which came in was sorted and directed to the shear by which it could be most expeditiously and economically cut to a suitable size for users of either large pieces or small pieces.

Is scrap as sold by the taxpayer "manufactured goods"? (at p636)

11. The taxpayer's first proposition is that it is entitled to a deduction in respect of all the items as they are used by it in the making of manufactured goods. Bales of scrap, it says, are manufactured goods, manufactured from loose pieces. Sheared scrap, it says, is manufactured goods, manufactured by cutting larger pieces into smaller pieces. (at p636)

12. Section 62AA(2. reads as follows:

"Subject to the next succeeding sub-section, 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;
or
(ii) manufactured goods manufactured by the taxpayer
or by other persons are (otherwise than by packing,
placing in containers or labelling) brought into or
maintained in the form or condition in which they
are sold or used by the taxpayer or those other
persons, as the case may be." (at p637)

13. Following par. (a) (i) and (ii) come other pars, (b) to (g), each of which describes a usual form of factory activity or operation ancillary to the process of actually making goods. To such of these as are relevant I shall come later. The taxpayer relies primarily on par. (a) (i), claiming that baling and shearing scrap are operations by means of which manufactured goods (baled scrap and sheared scrap) are derived by it from other goods ("unprocessed" scrap). And as, by s. 62AA (1.), " 'manufactured goods' includes goods manufactured for the purpose of use as materials in the manufacture of other goods" the taxpayer says that its "processed scrap" is goods manufactured for the purpose of use in the manufacture of other goods, namely steel and other metal foundry products. (at p637)

14. I was referred to definitions in dictionaries, and paraphrases in other cases, of the words "manufacture" and "manufactured goods". I was pressed too with a variety of analogical arguments: for example. I was invited to say that confetti is manufactured by cutting up scraps of paper, flock by shredding rags or other material, and that therefore cutting up large pieces of scrap into smaller pieces of scrap could be said to be manufacturing cut-up scrap; or that pressing powdered medicinal preparations into tablets is manufacturing tablets, and that therefore pressing together loose pieces of scrap is manufacturing bales of scrap. It seems to me, however, that the question I have to decide is not to be solved by either lexicography or analogy. Broadly speaking, any goods created by man out of other materials can, I suppose, be described as manufactured goods. Ordinarily, however, the term is restricted in various ways. Ordinarily speaking, manufactured goods are goods produced for sale, commodities of commerce. Ordinarily speaking, the term is restricted to commodities made from inanimate objects: a butcher who kills a sheep would not normally be called a manufacturer of mutton. And it has become common for some purposes to distinguish between manufactured goods and agricultural products. But which description is apt in a particular case may depend upon the matter in hand. For example, a butter factory is a place where butter is manufactured: see Producers' Co-operative Distributing Society Ltd. v. Commissioner of Taxation (N.S.W.) [1944] HCA 39; [1944] HCA 39; (1944) 69 CLR 523, at p 530 per Latham C.J., affirmed (sub. nom. Producers' Co-operative Distributing Society Ltd. v. Commissioner of Taxation (N.S.W.)) [1947] UKPCHCA 2; (1947) 75 CLR 134; (1948) AC 210 . (at p638)

15. As long ago as 1856 the Court of Exchequer, speaking of an Act which enabled a railway company to charge a special rate for the carriage of "manufactured goods", said that this term "must be understood in a popular sense and must mean not merely goods produced from the raw state by manual skill and labour but such as are ordinarily produced in manufactories. . . . It should be observed, however, that, having given what we conceive to be the meaning of the term, the application of that meaning to particular articles is a question of fact, not of law": Parker v. Great Western Railway Co. ; (1856) 6 E & B 77, at p 109 [1856] EngR 300; (119 ER 793, at p 805) . 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. Attempts to answer the question in the present case by the application of abstract considerations, said to be universally decisive criteria, produced only logical fallacies and ambiguities. It is no doubt true that all manufacturing involves the making of a new thing. But it is not true that every making of a new thing is, in the relevant sense, manufacturing. And what is meant by a new thing? In Federal Commissioner of Taxation v. Jack Zinader Pty. Ltd. [1949] HCA 42; (1949) 78 CLR 336, at p 343 (a case under the Sales Tax Acts), Dixon J. quoted a statement by Darling J. in McNicol v. Pinch (1906) 2 KB 352, at p 361 that "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 is indisputable. But what is a different thing? Various paraphrases were offered to me, such as a "substantially different thing", not merely an "altered thing"; "a new entity"; "a distinct commodity". But these are all pregnant with ambiguity. Identity and difference, as concepts, must always be related to some quality of the thing or things in respect of which identity or difference is to be determined. It may be colour, shape, chemical composition or any other quality. To speak of "substantial differences", as distinct from small differences, means little or nothing, unless some quality of the thing is postulated as its essential. And whether a thing is so different a thing from the thing or things out of which it was made as to be properly described as a new commodity may depend not only upon physical characteristics but also on differences in its utility for some purpose. This was emphasized in the argument for the taxpayer. Scrap before it was treated by shearing or baling was, it was said, not "usable" ; by such treatment it was made usable. But I do not think the inquiry is advanced by this or by speaking of a "new entity". If a piece of metal be cut into two, then clearly two new entities are created, neither of which is in size the same as the piece which as an entity has been destroyed. To take an illustration suggested by remarks of Scrutton L.J. in Bailey, R.O. v. Potteries Electric Traction Co. Ltd. (1931) 1 KB 385, at p 493 : a shopkeeper who slices rashers from a side of bacon with a mechanical cutter. He is creating new things. They are things which have a name of their own, rashers, and are usable in a way that the piece from which they were cut was not. It may be that only by thus creating them could he find buyers for his bacon. Still he would not ordinarily be called a manufacturer, and his goods would not be called manufactured goods. That, it may be said, is because the bacon itself was not manufactured, that the butcher who kills a pig does not manufacture pork, and the bacon curer does not manufacture bacon. But if that were the only answer, one could turn to Lord Justice Scrutton's other shopkeeper, the man who cuts off pieces from a roll of calico. I mention these things not because I think analogies, whether false or true, are of any help in this case, but rather to shew that they are not. (at p639)

16. I have considered cases to which I was referred and also some others concerning the denotation of the word "manufacture" appearing in other Acts. I have gained only two things from them. One is a conviction of the futility of trying to decide the present case by observations made about other facts and other Acts. The other is that the expression "manufactured goods" is not a technical term capable of a precise definition universally applicable. Rather it is to be interpreted "according to the received usages of English speech" : Adams v. Rau [1931] HCA 43; (1931) 46 CLR 572, at p 577 - "as a matter of ordinary parlance in any given case" : In re Searls Ltd. (1933) 33 SR (NSW) 7, at p 10 . The two cases just mentioned arose under the Sales Tax Acts where the word "manufacture" is associated with, and includes "production". The resulting phrase is very wide and apt to cover "all operations conducted for the purpose of bringing tangible things into existence for sale" : Federal Commissioner of Taxation v. Riley [1935] HCA 47; (1935) 53 CLR 69, at p 78 . (at p639)

17. Nevertheless when it was sought to levy sales tax upon the keeper of a fish shop on the basis that he was a manufacturer of cooked fish and chips, the Court quite quickly said "No". Yet what were put to me as tests or criteria, or at least as indicia, of manufacture were satisfied there. What was sold certainly differed from the things out of which it was made. Potatoes were cut into pieces ; and fish, one may suppose, was too. Entities were destroyed. A new commodity, fish and chips, was created. The result of the treatment was to make usable, that is eatable, what was not usable before. But this was not manufacturing. That case is as important as it seems absurd, simply because it illustrates how far astray from reality abstract reasoning can lead in this field. Dixon J. expressed in that case what seems to me the only sure guide. He said :

"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] HCA 43; (1931) 46 CLR 572
and
Irving v. Munro & Sons Ltd.
[1931] HCA 57; (1931) 46 CLR 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." : Federal Commissioner of Taxation v. Rochester
[1934] HCA 17; (1934) 50 CLR 225, at pp 226, 227
. (at p640)

18. Counsel for the Commissioner referred me to Hudson's Bay Co. v. Thompson (Valuation Officer) (1960) AC 926 , one of many cases arising under the English Factory and Workshop Acts or as a result of the introduction of their provisions into the Rating and Valuation Act. A factory, for the purposes of that legislation, is a place where persons are employed in manual labour in any process for or incidental to (i) the making of any article or part of any article or (ii) the altering repairing ornamenting . . . of any article or (iii) the adapting for sale of any article. It is noteworthy that the Parliament of the United Kingdom distinguished between making an article and adapting an article for sale. The distinction is not, I think, merely verbal. It reflects, I think, a commercially real, if a philosophically debatable, difference. I do not doubt that what the taxpayer in the present case does is adapting scrap for sale : see A. R. Brown, Macfarlane & Co. Ltd. v. Inland Revenue (1930) Sc LT 260 , and Langbaurgh Revenue Officer v. Langbaurgh Assessment Committee (1930) 46 TLR 508 , a decision of a divisional court, affirmed by the Court of Appeal (1931) 1 KB 426, 433, 507 . However, the conclusion that the process of breaking up scrap metal to sizes suitable for buyers' requirements, or of pressing it into bundles for delivery to buyers, is adapting an article for sale tends, it seems to me, to negative the idea that it is in a commercial sense manufacturing. (at p641)

19. I am unable to accept the view that by treating the scrap it collected as it did the taxpayer derived from it manufactured goods within the meaning of s. 62AA (2.) (a). These operations did not create a thing having a new industrial use ; and according to what seem to me the ordinary usages of the language of commerce, the processed scrap is not manufactured goods. I think therefore that the taxpayer does not bring its case within the first part of s. 62AA (2.) (a) (i).
The meaning of the alternative stated in paragraph (a) (i) of s. 62AA (2.). (at p641)

20. I turn to the alternative proposition, that based on the second part of par. (a) (i). It is said first that persons who, in Australia, Japan or elsewhere, use scrap supplied by the taxpayer for the purpose of their manufacturing steel or other foundry products thereby derive manufactured goods from scrap. That is so. It is the next step that is debatable. It is said that these makers of steel and other products are "persons on whose behalf the taxpayer performs services" using its plant in a "part of the operations" by which they, those other persons, derive their manufactured goods. (at p641)

21. The phrase "performs services" does not necessarily predicate a relationship of master and servant. But to say that the taxpayer performs services on behalf of other persons does, I think, predicate that what the taxpayer does is done by it in the performance of a contractual obligation to those persons. The requirement is not, I think, satisfied by a taxpayer using his own plant to produce cut-up or baled scrap for sale by him. If he does that he does it on his own account, not on behalf of those to whom he may sell his scrap, whether the sale be to a manufacturer or a merchant, whether in Australia or Japan. (at p641)

22. It was conceded by counsel for the Commissioner, and in my view rightly, that the result of this construction of the enactment which he advanced, and which I accept, is that a manufacturer who has his own plant for processing scrap as part of his manufacturing operations can have the benefit of s. 62AA : but a person who, like the taxpayer, has precisely similar plant which he uses to produce processed scrap for sale to manufacturers cannot. That seems to be an anomaly, and it is a temptation to a wider construction of the paragraph. But I think this would not be justified. Parliament must be taken to have intended manufacturers to benefit, and not scrap merchants. Perhaps it did not have them in mind at all.

The meaning of paragraph (a) (ii) of s. 62AA (2.). (at p642)

23. The taxpayer if its arguments under par. (a) (i) should fail, claimed to rely upon par. (a) (ii). It was suggested that this paragraph overlapped par. (a) (i), and that some operations could fall within both descriptions. I do not think that is so. Counsel for the Commissioner was, in my view, right in saying that the two paragraphs deal with two different aspects of manufacturing. The first deals with the actual making of goods : the second with what I may call finishing or preserving processes to which the goods after being made must be subjected to bring them into, or maintain them in, a condition for sale or use. The paragraph is compressed but the concluding words "as the case may be", seem to me to indicate that it is to be expanded and read reddendo singula singulis. I read it as applying in either of two kinds of cases : one where a taxpayer who is himself a manufacturer has plant for bringing his manufactured goods into (or maintaining them in) a form or condition in which he will either sell them, or use them (e.g. in the production of other goods) : the other where a taxpayer who is not himself a manufacturer has plant used by him for bringing goods manufactured by someone else into (or maintaining them in) a condition or form in which they are sold or used by their manufacturer. (at p642)

24. When par. (a) (ii) is construed in that way it and par. (a) (i) appear as corresponding provisions. Paragraph (a) (i) deals with plant used in operations by which manufactured goods are brought into existence. A taxpayer who has such plant gets the allowance if he be either himself the manufacturer or a person performing those operations for the manufacturer. Paragraph (a) (ii) deals with plant used in operations by which manufactured goods in existence are put into or maintained in a condition in which they can be sold or used. Again a taxpayer who has such plant gets the allowance if he be either himself the manufacturer of the goods or a person performing those operations for the manufacturer.

The effect of pars (b) to (f) and of par. (g) of s. 62AA (2.). (at p643)

25. The taxpayer said that if it were driven from the ground it had taken under par. (a) (i) or (a) (ii) of sub-s. (2.), it could still stand upon pars (c) and (e) and there defeat the Commissioner. I turn therefore to consider these paragraphs, but first to notice the structure and effect of sub-s. (2.), read as a whole. (at p643)

26. The sub-section sets out in separate paragraphs the kind of plant or articles which, if owned by a taxpayer, can entitle him to the deduction provided for in sub-s. (5.). It does this by reference to the use for which the taxpayer has the particular item of plant or article. Only par. (a) states what I may call independent uses. In each of the other paragraphs, (b) to (g) inclusive, the use postulated of the plant or article in question must be related to other property to which the section applies. At whatever paragraph one starts the same end is reached. It can be stated as follows. A taxpayer is entitled to the deduction in respect of plant as described in par. (a) and also for plant used in operations which are ancillary to or consequent upon the use of his plant as described in par. (a). In more concrete terms - plant used by a taxpayer in the manufacture of goods, or their finishing or maintaining in saleable condition, qualifies him for the deduction, and so does other plant (as described in pars (b) to (f) inclusive) which such taxpayer has and uses in connexion with his actual use of his plant as described in par. (a) ; and, by virtue of par. (g), so does plant which he has for use for assembling, maintaining, cleaning, repairing any plant or articles as described in pars (a) to (f).

Paragraph (c). (at p643)

27. This paragraph was relied upon by the taxpayer. It provides that the section applies to plant or articles for use by a taxpayer primarily and principally and directly -

"(c) in the disposal of waste substances resulting from the
use of any property in relation to which this section applies." (at p643)

28. The argument, as I understood it, was that scrap metal was a waste product of manufacturing operations ; that, by buying it and collecting it from the premises of motor-body builders and others where it occurs, and then processing it for sale to steel mills and foundries, the taxpayer used his shearing and baling plant "in the disposal of waste substances". Even if this be so, and the proposition seems to me far-fetched, it is not enough. To qualify for the deduction the plant must be for the disposal, not of any waste substances, but of "waste substances resulting from the use of any property in relation to which this section applies". It applies only to plant or articles owned by the taxpayer and used in one of the stated ways. And, as I have said above, when each of these ways be traced back, the question is reached again. Had the taxpayer any plant falling within the description in par. (a) ? In the result, unless the taxpayer establishes that it is engaged in manufacturing operations as described in par. (a), then, as I read the Act, it cannot claim the benefit of any of the later paragraphs of sub-s. (2.) for any of its plant or equipment.

Paragraph (e). (at p644)

29. The taxpayer also relied upon par. (e). This makes the section applicable, and the deduction therefore allowable, in respect of plant or articles owned by a taxpayer that are for use by him primarily, principally and directly -

"(e) in the transportation, within premises in which any
property in relation to which this section applies is used, of
goods in relation to which that property is to be or has been
used." (at p644)

30. The taxpayer contends that this description covers its marrel buckets and scrap boxes, and also the gantry and other equipment used in lifting and moving scrap in its yards. (at p644)

31. There are I think several reasons why this is not so. The main one is that I have already given, that the taxpayer's yards are not premises in which any property in relation to which the section applies is used. (at p644)

32. I should add that if I be wrong in my view that processed scrap is not manufactured goods - that is to say, if the taxpayer uses, or has for use, any property falling within the description in par. (a) - then I would have no doubt that the claim to a deduction should be allowed in respect of all the equipment in question in this case except the marrel buckets and the scrap boxes. As to these I would still not be satisfied.

The marrel buckets and scrap boxes - s. 62AA(3.). (at p644)

33. The marrel buckets and scrap boxes are used in the moving of scrap from place to place within the premises of the taxpayer. But that is not their only use. They are also used to move scrap to and from the premises ; and I doubt whether on the evidence their use within the premises could be called their primary or principal use so as to make them property to which the section applies. Moreover it seems that they are expressly excluded by sub-s. (3.) (f), which provides that the section "does not apply in relation to containers, spools or other articles in or on which goods are to be delivered by the taxpayer". That seems to describe the boxes and marrel buckets. If the marrel buckets are not "containers", then, as they are adapted to fit upon prime-movers and thus to form part of a vehicle used in the carriage of goods by road, it may be that they are "road vehicles" and thus disqualified under sub-s. (3.) (b). I express no opinion on that, especially as the matter is complicated in this case because I was told that, although the buckets are owned by the taxpayer, the prime-movers are owned by an associated company. (at p645)

34. I have, I think, considered all the matters argued. (at p645)

35. The taxpayer claims a deduction of 7,039 pounds. (This amount should, it seems, be 7,036 pounds.12.0. having regard to the amounts said to be the cost of the several items.) In my opinion the taxpayer is not entitled to the deductions claimed or any part thereof. I therefore dismiss the appeal, confirm the assessment, and order the taxpayer to pay the Commissioner's costs. (at p645)

36. Appeal dismissed with costs. Assessment confirmed. (at p645)

37. From this decision a further appeal was brought to the Full Court of the High Court by the taxpayer. (at p645)

38. K. A. Aickin Q.C. and A. P. Webb Q.C. and R. V. Gyles, for the appellant. (at p645)

39. N. M. Stephen Q.C. and R. C. Tadgell, for the respondent.

Cur. adv. vult. (at p645)

1968, January 12.

The following written judgments were delivered:-
BARWICK C.J. I have had the advantage of reading the reasons for judgment

2. I have had no difficulty in not accepting the contention that the taxpayer in what it does performs services for the manufacturer of goods within the meaning of s. 62AA (2.) (a) (i). With less certainty, as I have already indicated, I have come to the conclusion that s. 62AA (2.) (a) (ii) is limited to activities of the taxpayer with respect to goods of his own manufacture, and that in common parlance the taxpayer's operations in cutting and baling scrap are not to be described as a process of manufacturing, or the chopped or baled scrap to be described as manufactured goods. (at p646)

3. Accordingly, I agree with the conclusions and the reasons of my brother Menzies for dismissing this appeal. (at p646)

McTIERNAN J. I agree that the appeal should be dismissed. (at p646)

KITTO J. In my opinion the appeal should be dismissed for the reasons stated in the judgment of my brother Menzies. (at p646)

MENZIES J. Section 62AA of the Income Tax and Social Services Contribution Assessment Act 1936-1965 (Cth) authorizes a special deduction for expenditure of a capital nature on new manufacturing plant for use in Australia to produce assessable income. The section applies, inter alia, 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 operation 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 ;
or
(ii) manufactured goods manufactured by the taxpayer
or by other persons are (otherwise than by packing,
placing in containers or labelling) brought into or
maintained in the form or condition in which they
are sold or used by the taxpayer or those other
persons, as the case may be." (at p647)

2. This appeal from the judgment of Windeyer J., dismissing the taxpayer's appeal against the disallowance of deductions claimed pursuant to s. 62AA, involves a consideration of the meaning and application of the foregoing provisions when read with the definitions to be found in sub-s. (1.) of s. 62AA. The two relevant definitions are as follows -

"'goods' includes -
(a) liquids, gases and substances ; and
(b) ships and aircraft ;
'manufactured goods' includes goods manufactured for the
purpose of use as parts or materials in the manufacture of other
goods." (at p647)

3. The scheme of s. 62AA (2.) (a) is to cover plant for use by the taxpayer in operations whereby manufactured goods are derived from other goods by the taxpayer, or by another person for whom the taxpayer performs services involving the use of plant, or, whereby goods manufactured by the taxpayer or by another person are brought or kept by the taxpayer in the form or condition in which the taxpayer or that other person sells or uses them. (at p647)

4. It is apparent from a comparison between sub-ss. (2.) (a) (i) and (2.) (a) (ii) that there is a distinction between manufacture on the one hand and, on the other, the ancillary procedures of bringing manufactured goods into or maintaining them in the form or condition in which they are to be sold or used. This will be material later. There is also a question of construction to be considered, namely, whether s. 62AA (2.) (a) (ii) applies when a taxpayer, by use of his plant, brings goods not manufactured by him into the condition in which he sells or uses them. In my opinion it does not. Having regard to the framework of the provision as a whole and to the words "as the case may be" at the end of the sub-section I have reached the conclusion that the learned trial judge was correct when he said that s. 62AA (2.) (a) (ii) is to be read reddendo singula singulis. The provision has, I think, been carefully framed to ensure that the operation of bringing or keeping goods already manufactured into or in the form or condition required for sale or use as the case may be, is covered only when that operation is auxiliary to the operation of manufacturing the goods. Two cases are covered; the first when a taxpayer works upon goods of his own manufacture ; the second when a taxpayer works upon the goods of another manufacturer in order that the other manufacturer may sell or use his goods. The other manufacturer falls within the limited class described as "those other persons". The words "as the case may be" in the context in which they appear secure the limited operation which the provision is intended to have and which is in keeping with sub-s. (2.) (a) (i) which distinguishes between two categories of goods (1) those manufactured by the taxpayer and (2) those manufactured by another who uses the services of the taxpayer in that manufacture. There is, of course, no justification for treating the words "as the case may be" as mere surplusage : cf. Bluston & Bramley Ltd. v. Leigh (1950) 2 KB 548, at p 551 . One other question of construction was raised by counsel for the appellant who argued that, for the purposes of s. 62AA (2.) (a) (i), a taxpayer performs services on behalf of another if he does something to goods of his own to put them in a state suitable for sale to that other, being a manufacturer, so that the taxpayer here in carrying out his own operations upon his own goods is performing services for his prospective customer overseas. This I reject. In the context a taxpayer performs services on behalf of another when, by arrangement with another, he carries out for him part of the operations leading to the derivation of manufactured goods from other goods. (at p648)

5. I am now in a position to consider the circumstances in which the appellant claims to be entitled to a deduction under s. 62AA. (at p648)

6. The appellant taxpayer in the course of its business has delivered to it scrap metal of a great variety of descriptions, and it supplies to some of its customers both here and overseas, iron and steel scrap, according to specifications which render that scrap suitable for the charging of furnaces. One process to bring the scrap, as it reaches the taxpayer, to the condition complying with its customers' specifications, is to put sorted scrap through a machine which cuts to a specified maximum length any pieces exceeding that length. The intake of the machine is scrap of various lengths, including pieces of a length greater than the maximum length specified ; the output of the machine is scrap of various lengths, but none in excess of the maximum length specified. Any longer pieces have been cut into shorter lengths. The second process with which we are concerned is to compress suitable scrap into bales of specified dimensions and density. The first of these operations is performed by plant called a Lafan Scrap Metal Shearer ; the second is performed by a baling press. The taxpayer's first claim was and is that each of these machines is plant for use in an "operation by means of which manufactured goods are derived from other goods by the taxpayer" so that s. 62AA (2.) (a) (i) applied in relation to it. Windeyer J. rejected this contention, holding that neither machine is such plant because the goods derived from the operations do not fall into the description of manufactured goods. I agree with this conclusion and will shortly state my reasons for so doing. I preface these reasons, however, with the preliminary observation that my conclusion is very much one of general impression based upon what seems to me a common usage of ordinary language : see Federal Commissioner of Taxation v. Rochester [1934] HCA 17; (1934) 50 CLR 225, at p 226 , per Dixon J. (at p649)

7. First as to the shearer. The operation begins with a heap of scrap with some long pieces and finishes with a heap of the same scrap but now without any long pieces. It would in my opinion be a departure from the common use of the English terms to describe what has happened as the manufacture of new goods. The end result is the same as if instead of putting the whole heap through the shearer each over-length piece of scrap was to be taken from the heap and cut, by means of a hack saw, into pieces of correct length. In neither case would the result be a heap of new goods manufactured from old. It seems to me that the photographs exhibited reveal clearly enough that the operation of the shearer does not result in the derivation of manufactured goods from other goods. It appears that all that has happened is the cutting of some of the scrap into shorter lengths. (at p649)

8. Now as to the baler. A comparison between scrap as it enters the baler and scrap as it leaves the baler affords the taxpayer some ground for saying that new goods have been derived by manufacture from old. There is at least a marked difference in appearance between motor-car bodies and baled scrap. Eventually however I have come to the conclusion that Windeyer J. was correct in rejecting the taxpayer's contention that new goods have been derived from old. The scrap is still scrap. True after baling the scrap is in a form in which it can be handled or used to charge furnaces, but what has happened is not that manufactured goods have been derived from old, rather it is that manufactured goods have been brought into a condition in which they can be sold or used. It is at this point that I find the distinction already adverted to between the scope of s. 62AA, sub-s. (2.) (a) (i) and s. 62AA, sub-s. (2.) (a) (ii) helpful. The baling process seems to me to be a process of bringing goods into a form for sale or use rather than a process of manufacture. (at p650)

9. For the foregoing reasons I have reached the conclusion that the appellant is not entitled to a deduction claimed by virtue of s. 62AA, sub-s. (2.) (a) (i). (at p650)

10. It remains to consider the contention that s. 62AA, sub-s. (2.) (a) (ii), covers the appellant's operations. In my opinion it does not because although what the appellant does is to bring manufactured goods into a form in which it sells them it does this in relation to goods that are not of its own manufacture. Accordingly upon the construction which I have accorded to s. 62AA, sub-s. (2.) (a) (ii), this provision does not apply to the appellant's operations. (at p650)

11. In my opinion the appeal should be dismissed. (at p650)

ORDER