Herbert Adams Pty Ltd v Federal Commissioner of Taxation [1932] HCA 27; (1932) 47 CLR 222 (4 August 1932)

Herbert Adams Proprietary Limited Defendant, Appellant; and The Federal Commissioner of Taxation Plaintiff, Respondent.

Wilbur Ham K.C. (with him Robert Menzies, A.-G. for Vict., and Herring), for the appellant.

I think that Mann J. arrived at the right conclusion. I adopt the reasons contained in the judgment of my brother Dixon. The appeal should be dismissed.

Sales tax is imposed upon the sale value of goods manufactured in Australia by a taxpayer and sold by him or applied to his own use, and the tax is payable by the manufacturer of the goods (Sales Tax Acts, No. 25 and No. 26 of 1930). By sec. 20 of the Act No. 25, the tax is not payable upon the sale value of goods manufactured in Australia specified in the First Schedule. One of these items is: "Pastry but not including cakes or biscuits." The appellant manufactured a class of goods described in its return to the Commissioner of Taxation as "sponge." In the main, it is a mixture of eggs, sugar, flour, and water, and is baked either in round tins or as oblong blocks. The Commissioner assessed the appellant to sales tax in respect of the goods so manufactured. But the appellant claims that the sponge is "pastry" within the exemption contained in the Schedule and is not cake or biscuits. The learned Judge in the Court below (Mann J.) was of opinion that the sponge was not pastry within the commonly accepted meaning of that term, and he gave judgment for the Commissioner. Hence this appeal.

Words of common speech are, or are supposed to be, within the judicial knowledge, and should be "interpreted according to their common and ordinary meaning, namely, that which they bear in ordinary colloquial speech" (Falkiner v. Whitton[1]). But unfortunately the words in question here have no clearly defined meaning in ordinary speech. Indeed, the exemption itself—"pastry but not including cakes or biscuits"—indicates that the word "pastry" cannot be confined to articles of food made from paste or of which paste forms the essential part. Further, it is beyond doubt that the business of a pastry-cook is not confined to such articles: he manufactures and sells a large variety of small dainty goods, such as buns, cakes (plain and fruit), sponge slices, eclairs, &c., all of which pass in common speech under the denomination "pastry," but are not articles made from paste or of which paste forms an essential part. Again, the commercial understanding of the terms used in the Act confirms their use in common speech. It is often said that the denomination of articles enumerated in the revenue laws should be construed according to the commercial understanding of the terms because the law is addressed to persons engaged in trade or business. But I do not think the commercial understanding in this case differs, or is proved to differ, from that used in common speech. The trades of bread-making, pastry-cooking, and cake and biscuit-making overlap a good deal, and we find no clear line of demarcation between them. It is not surprising, therefore, that precise and mutually exclusive definitions of the terms bread, pastry, cake, and biscuits, do not exist. But it is beyond all doubt, from the trade evidence—including the books, catalogues, advertisements, &c., to which our attention has been called—that the manufacture of sponge falls within the range of the art of the pastry-cook, and that sponge is commonly denominated as pastry. Is it, however, in the form in which it is manufactured in the present case, within the description of pastry that is commonly and ordinarily known as cake? That question must be answered in the affirmative. The word "cake" is used to describe a small mass of various constituents such as flour, butter, sugar and other ingredients, baked or cooked in different shapes, e.g., round, in blocks, &c. Butter or fatty substances are largely used, but a light cake is made without the use of fatty substances, or at all events with but little use of such substances. The sponge-cake is a wellknown representative of this last class of cake. The sponges in the present case, which were baked in round tins, are quite ordinary forms of cakes and are rightly described in the evidence as sponge-cakes. Those which were baked in blocks differ only in form, and the term "sponge-cakes" describes them more accurately than any other: they are an instance of a class of greater extent called cakes; the form depends upon the requirements of the customers of the trade, but is otherwise unimportant for the purposes of classification.

Sec. 20 (h) of the Sales Tax Assessment Act (No. 1) 1930-1931 provides that sales tax shall not be payable under that Act upon the sale value of the goods specified in the First Schedule. Under the heading of goods manufactured in Australia that Schedule specifies "Pastry but not including cakes or biscuits." The phrase sounds odd because, according to present usage, the description "pastry" is not commonly applied either to cakes or biscuits. It appears, however, both from the evidence of witnesses and from trade manuals and text-books that among pastry-cooks the word "pastry" is used as a general expression describing most of the products of their art. Mann J., from whom this appeal comes, found on the evidence "that the word is quite commonly used in the trade in a much wider sense, usually along with a qualifying word such as mixed or fancy, to include all or nearly all classes of flour goods other than bread, commonly made and sold by pastry-cooks, confectioners, bakers or caterers."

The popular meaning of "pastry" appears to have been reached by a process of specialization, and perhaps the wider trade meaning is a survival. But, whether the usage is to be explained as a persistence of an older meaning or as an extension by trade custom of that now prevailing, the Legislature has expressed itself in a manner which amounts to a recognition, if not an adoption, of the trade meaning. Such a recognition might be expected, because the tax is levied by the various statutes upon persons who sell commodities in the common course of distribution, whether they manufacture or produce the goods they sell or acquire them by purchase. A revenue law directed to commerce usually employs the descriptions and adopts the meanings in use among those who exercise the trade concerned. In Marquis Camden v. Commissioners of Inland Revenue[2] Phillimore L.J. says: "In construing a modern statute, not dealing with the particular customs of a particular locality, or the practice of a particular trade, but of general application, evidence such as is sought to be adduced in this case is inadmissible"; that evidence being tendered to prove that among land agents an ordinary English expression possessed a special meaning and should be so understood in a statute of general application. But, whatever may be covered by the phrase "practice of a particular trade," it has been considered permissible in applying a customs tariff to resort to evidence to ascertain what according to mercantile understanding are the characteristics connoted by the descriptive names used in the items as well as to identify the articles of commerce which possess them. See Markell v. Wollaston[3]; Chandler & Co. v. Collector of Customs[4]; Robertson v. Salomon[5]. In the case of the Schedule of exemptions to the Sales Tax Assessment Act it is only upon proof of the general meaning prevailing in the trade that an explanation appears of the use of the strange expression "pastry ... not including cakes or biscuits." In the present case the appellant, the taxpayer, contends that the preparation which pastry-cooks and consumers alike call "sponge" falls within this exemption. In the trade "sponge" is included under the head "Pastry." It is said that "pastry not including cakes" means "pastry except cakes," and that "sponge" is "pastry" and is not "cake." To my mind it is in this last step that the appellant's greatest difficulty lies. It cannot be doubted that in common speech pieces of sponge, with or without filling, icing or other addition, would be denominated "cakes." But again trade usage is relied upon. It appears that among pastry-cooks the word "cake" has obtained a specialized meaning, and is often applied to distinguish articles in which some form of fat is a substantial or basic ingredient from other things, such as sponge, which consumers might call cakes. To establish that the Schedule of exemptions has adopted this limited or restricted meaning is no easy undertaking. In the first place, there is nothing in the form of expression "pastry not including cakes or biscuits" to suggest an unusual signification of "cake" as there is in the case of "pastry." In the next place, it is always less difficult to show that a word has a wider meaning than it is to establish a specialized use. For an extension of meaning involves no abandonment of the use in respect of things to which it would in any case apply; but a uniformly restricted application among any class of persons is necessary in order to establish that it has among them a narrower meaning and that meaning only. In this case a consideration of the trade evidence and of the manuals and technical books has failed to satisfy me that among pastry-cooks the word "cake" is not used for the purpose of their trade as often as not in a sense which includes "sponge." I think that, whenever occasion arises to distinguish between articles such as "sponge" in which fat is not a substantial ingredient and other products, the word "cake" is used for the purpose in the specialized sense claimed, but, when there is no occasion for doing so, it is used in the trade in the generic sense of common speech and includes sponge. There is no sufficient reason for attaching to the word "cakes" in the Schedule a special sense which would exclude "sponge."

During the relevant period the appellant manufactured 40,692 "boards of sponge" and 7,082 dozens of "daisy and almond sponges." The ingredients of these articles included eggs, sugar and flour. After baking, such flavourings, icings, jams, and creams were added "as may be desired to produce the finished article." The appellant claimed that these goods came within the description of "pastry but not including cakes or biscuits" (First Schedule to Act No. 25 of 1930) and were thereby exempt from sales tax. The appeal fails if the goods are "cakes."

The appellant says that the goods are "sponges," which is true enough. The witness Camille Richoux said of such "sponge" that "it is nothing else but a light cake ... In any shape or form you call it sponge. It is a cake. You can mould it to any shape you like but it is a sponge."

Samples of the appellant's manufacture were produced, and in my opinion the goods made were undoubtedly "cakes." According to the Oxford Dictionary a "sponge" is "a very light sweet cake made with flour, milk, eggs, and sugar." A dictionary reference may not be necessary. Perhaps this is one of the few things that every schoolboy knows.

The learned Judge who tried the action found that the word "pastry," as a commercial term, was used in two senses. He said:—"I find on the evidence that the word is quite commonly used in the trade in a much wider sense, usually along with a qualifying word such as mixed or fancy, to include all or nearly all classes of flour goods other than bread, commonly made and sold by pastry-cooks, confectioners, bakers or caterers. In the absence of any generic word applicable to so many different varieties of food, those engaged in the trade frequently use the word pastry in a very wide sense, certainly extending to include the sponge which is the subject of this case. This is no doubt due, to a large extent, to what is usually implied in the word pastry-cook, but I also find that those engaged in the trade continue to use the word pastry in its more limited sense where it is necessary or convenient to differentiate between different classes of goods made and sold by pastry-cooks and the like." Referring to the context in which the word "pastry" occurs in the Schedule to the Act, I think that the view which is probably correct is that the Legislature did not use the term in the limited sense. In this view the term is wide enough to include "sponge." The context is as follows: "Pastry but not including cakes or biscuits." The question now arises whether "cakes" include sponge. His Honor, having come to the conclusion that "sponge" was not "pastry," did not make any finding on the question whether "cake" is a commercial term which embraces "sponge" or not. Upon the evidence—all of which the learned Judge accepted as sincere testimony—there is a conflict as to whether the substance denoted by the word "sponge" is known as "cake" in the trade. Turning to its ordinary meaning, the word "cakes" describes numerous classes of goods, including of course light cakes. The term "sponge-cake" in its ordinary meaning denotes a light cake. This view is confirmed by a reference to the Oxford Dictionary, where "sponge" is defined to include "sponge-biscuit, a flour biscuit of a similar composition to sponge-cake." Sponge-cake is there defined as "A very light sweet cake made with flour, milk, eggs, and sugar." I think that the goods described by the appellant as "sponge" are covered by the term "cakes."

Solicitor for the respondent, W. H. Sharwood, Crown Solicitor for the Commonwealth.

[1] (1917) A.C. 106, at p. 110.

[2] (1914) 1 K.B. 641, at p. 650.

[3] [1906] HCA 91; (1906) 4 C.L.R. 141.

[4] [1907] HCA 81; (1907) 4 C.L.R. 1719.

[5] [1889] USSC 115; (1889) 130 U.S. 412, at p. 415; [1889] USSC 115; 32 Law. Ed. 995, at p. 996.

High Court of Australia

Herbert Adams Pty Ltd v Federal Commissioner of Taxation [1932] HCA 27; (1932) 47 CLR 222 (4 August 1932)

HIGH COURT OF AUSTRALIA