MP Metals Pty Ltd v Commissioner of Taxation

MP Metals Pty Ltd v Commissioner of Taxation - [1968] HCA 89 - HCA 1967 case summary — Zoe

[5]

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 production) 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. [1] : "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. "

[29]

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. [1] . 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. [2] (a case under the Sales Tax Acts), Dixon J. quoted a statement by Darling J. in McNicol v. Pinch [3] 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. [1] : 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.

[69]

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 [1] . 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.

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Before

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Judgment (75 paragraphs)

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