Federal Court of Australia|1989-08-10|Before: Beaumont J

The applicant, the Collector of Customs for the State of Tasmania, appeals from a decision of the Administrative Appeals Tribunal ("the Tribunal"), setting aside a decision of the Collector to refuse to pay a statutory rebate of duty paid in respect of diesel fuel purchased by the respondent, John Bernard Davis. Under the statutory scheme in question, a rebate of duty paid is payable in respect of diesel fuel used for certain purposes. The essential question for the decision of the Tribunal was whether the fuel was purchased by the respondent for use in "primary production" within the meaning of s.164 of the Customs Act 1901 ("the Act").

2. The respondent grows parsley. He markets the crop in a "dried", that is, a dehydrated condition. He purchases fuel for use in an oil-fired agricultural drying machine which is used to dehydrate the parsley crop. The respondent contends that this use of the fuel is "in primary production" within the meaning of the Act. The Tribunal upheld his argument and decided that the rebate of duty paid was payable by the Collector.

3. The present proceedings, in the nature of judicial review of an administrative decision, are brought pursuant to s.44(1) of the Administrative Appeals Tribunal Act 1975. Under that provision, an "appeal" may be brought to this Court on a question of law. The respondent objects to the competency of the application. He argues that the only matter now raised for determination is a question of fact and not one of law. But in order to understand the significance of the arguments of the parties on the objection to competency, it is first necessary to describe the legislative scheme, the facts of the case and the reasoning adopted by the Tribunal in arriving at its decision.

4. Section 164(1) of the Act provides that a rebate is, subject to certain matters, payable to a person who purchases diesel fuel, being diesel fuel upon which duty has been paid for use by him, inter alia, "(aa) in primary production (otherwise than for the purpose of propelling a road vehicle on a public road")". (Emphasis added). By s.164(7), it is provided that, in s.164, "primary production" means, inter alia, "agriculture". "Agriculture" is defined to mean the following:

"(a) the cultivation of the soil;

(b) the cultivation or gathering in of crops; or

(c) the rearing of live-stock,

and includes -

(d) viticulture, horticulture, pasturage or

apiculture;

(e) hunting or trapping carried on for the purpose of

a business; or

(f) other operations (including operations by way of

pest or disease control or by way of soil or

water conservation) connected with any operations

referred to in paragraph (a), (b), (c), (d) or

(e),

but does not include fishing operations or forestry; (emphasis added)."

5. "Horticulture" is defined so as to include, inter alia, the cultivation or gathering in of herbs. It is common ground that parsley is a herb.

6. The facts are not in dispute. The parsley is harvested by a mechanical cutting machine drawn by a tractor. The machine blows the harvested product into a following bin. When the bin is full, its contents are transferred onto a concrete slab on the farm. The drying machine stands on the slab. A front end loader transfers the heap of parsley into the front of the dryer. The crop is then dried by heat in the form of a flame which has its source in the diesel fuel now in contention.

7. The Tribunal found that, in order to preserve the crop, it was essential that it be dried. Solar heat, which is used to dry hay, is not effective to dehydrate a parsley crop. It is necessary to apply artificial heat. The Tribunal said:

"The applicant further explained that after cutting

fresh parsley in a heap it will begin to deteriorate in

less than an hour and then it would soon lose colour

and begin to smell. It is obviously imperative that in

order to be able to market parsley in large quantities,

it must be dried as soon as possible after it is

culled. The applicant admitted that he would not

bother to grow it at all unless it could be sold dry."

8. The Tribunal accepted the respondent's evidence, which was not challenged by the Collector, in all material respects.

9. The Tribunal held that the process of drying the parsley was "connected with" the "gathering of crops" within the meaning of the definition of "agriculture" in s.)64(7). The Tribunal said:

"The Shorter Oxford Dictionary defines 'to connect' as

including 'to join, fasten or link together'.

'Connection' includes 'relation between things one of

which is...involved with another'.

There is no difficulty in arriving at a conclusion that

the process of drying the parsley is involved with the

process of gathering it in.

The speed with which it is necessary to apply hot air

to the parsley after it is cut and transported to the

drier demonstrates a close relationship between each

process. The fact that the parsley undergoes no

physical change other than the removal of moisture

further demonstrates a close relationship between the

product before and after the process. The consequences

of a failure to apply the drying process immediately

make it apparent that gathering in the crop is

insufficient to render that process an economically

viable act if no more is done. Parsley by the two ton

load is useless if it is not dried. It will

deteriorate rapidly and therefore be unmarketable.

These considerations are sufficient to warrant a

finding that there is a connection between the

operation which uses diesel fuel and the gathering in

of the crop."

10. After referring to the Minister's explanation and statement of the legislation, the Tribunal considered the decision and reasoning of the Full Federal Court in Collector of Customs v. Cliffs Robe River Iron Associates [1985] FCA 96; (1985) 7 FCR 271 and in Australian National Railways Commission v. Collector of Customs, South Australia [1985] FCA 312; (1985) 8 FCR 264. The Tribunal said:

"...the evidence in this case does show that the crop is

dealt with as part of the process of production and

harvesting. It is simply not possible to describe the

drying process as being concerned only with the

marketing of that primary produce. It does not become

the produce which the grower seeks to obtain after

cultivation until it is in a form which enables it to

be treated and prepared for distribution to market.

Even if the drying process is seen as one which enables

the product to be marketed it is also one which is

involved with and therefore connected to the harvesting

or gathering in operation. The rebate remains payable

even if the drying operation is simultaneously the end

process in primary production and the beginning of

secondary production. The diesel fuel was purchased

for use in an operation connected with the gathering in

of the crop."

11. In his notice of appeal, The Collector contends that the Tribunal erred in the following respects: (1) by failing to "delineate what was covered" by the expression "gathering in" as found in the statutory definition of "agriculture" before considering what was "connected with" the operation of "gathering in" the crop; (2) in its determination of the issue whether the drying of parsley was an "other operation" "connected with" the cultivation of gathering in of crops for the purposes of s.164(7); (3) in taking into account the way in which parsley was marketed. These contentions were developed in oral submissions. In her oral argument, counsel for the Collector also submitted that the relevant statutory definition sought to distinguish primary, from secondary, industry; she argued that the "gathering in" process was complete when the parsley was dumped on the concrete slab; it followed, she said, that the drying process was a secondary, rather than a primary, activity.

12. As has been noted, the respondent objects to the competency of the application on the ground that only a question of fact, and thus no question of law, is involved in the "appeal". It is clear that s.44(1) of the Administrative Appeals Tribunal Act 1975 confers no jurisdiction upon this Court to review a "mere" question of fact. As Brennan J. said in Waterford v. The Commonwealth of Australia [1987] HCA 25; (1987) 163 CLR 54 at pp 77-8:

"A finding by the A.A.T. on a matter of fact cannot be

reviewed on appeal unless the finding is vitiated by an

error of law. Section 44 of the A.A.T. Act confers on

a party to a proceeding before the A.A.T. a right of

appeal to the Federal Court of Australia 'from any

decision of the Tribunal in that proceeding' but only

'on a question of law'. The error of law which an

appellant must rely on to succeed must arise on the

facts as the A.A.T. has found them to be or it must

vitiate the findings made or it must have led the

A.A.T. to omit to make a finding it was legally

required to make. There is no error of law simply in

making a wrong finding of fact. Therefore an appellant

cannot supplement the record by adducing fresh evidence

merely in order to demonstrate an error of fact. As

the purpose for which a document is brought into

existence is a question of fact (per Jacobs J. in Grant

v. Downs...), the contents of document 29 are

immaterial to the question whether the A.A.T. has made

an error of law on the material before it."

13. It is often difficult to characterise the relevant question in an "appeal" (such as the present proceedings) as a "mere" question of fact (where jurisdiction is denied), on the one hand, or on the other, a "pure" question of law, or a question of mixed fact and law (thus attracting jurisdiction).

14. In distinguishing questions of fact from questions of law, the observations of Kitto J. in N.S.W. Associated Blue-Metal Quarries Ltd. v. Federal Commissioner of Taxation [1956] HCA 80; (1955) 94 CLR 509 (at p 511-512) have been regarded as authoritative. He said:

"This (i.e., whether certain operations filled the

description "mining operations upon a mining property"

within the meaning of s.122 of the Income Tax and

Social Services Contribution Assessment Act 1936-1952)

is a mixed question of law and fact:...First it is

necessary to decide as a matter of law whether the Act

uses the expression 'mining operations' and 'mining

property' in any other sense than that which they have

in ordinary speech. As to this, it is enough in the

present case to say that the expressions are not

defined in the Act, that they have no technical legal

signification, and that neither in the provisions of

Div. 10, nor in any of the other provisions of the Act

in which these or similar expressions occur...is there

to be found any indication that the Parliament intended

any other meaning than that which the words ordinarily

have in this country and at this time. The common

understanding of the words has therefore to be

determined, and that is a question of fact:...The next

question must be whether the material before the Court

reasonably admits of different conclusions as to

whether the appellant's operations fall within the

ordinary meaning of the words as so determined; and

that is a question of law:...If different conclusions

are reasonably possible, it is necessary to decide

which is the correct conclusion; and that is a

question of fact:..." (Emphasis added)

15. This reasoning was applied by Mason J. in Hope v. The Council of the City of Bathurst [1980] HCA 16; (1980) 144 CLR 1 at pp 7-8, where it was held that the question, whether certain activities were a "business" within the meaning of rating legislation, was a mixed question of law and fact.

16. In the present case, it is not suggested that any of the material terms of the legislation have any special meaning. It follows their ordinary meaning should be treated as a question of fact. On the other hand, to adopt the words of Kitto J., can it be said that the evidence before the Tribunal "reasonably admits of different conclusions as to whether the (applicant's) operations fall within the ordinary meaning of the words as so determined"? If so, a question of law is involved.

17. In my opinion, the activity of drying the harvested parsley by the respondent's method is reasonably capable of leading different minds to different conclusions with respect to the question whether it is something done "in agriculture" for the purposes of the Act. That is to say, in my view, it is reasonably arguable that the respondent's activity in drying the crop is something done "in agriculture". At the same time, it may be argued, quite reasonably, that it is not so. For present purposes, it is not, of course, necessary to decide which of the two possible, but reasonable, contentions is correct. It is enough to say, on this question of jurisdiction, that the competing points of view are both reasonably taken. It must follow that there is a question of law in the "appeal" (see also Australian National Railways, supra, at p 277). Put differently, neither party, before the Tribunal or in this Court, sought to dispute the facts. The facts were common ground. Thus the only question, for the Tribunal, and for the Court, was whether the circumstances of the case necessarily fell within the statutory definition of "agriculture", as the respondent contends, or, necessarily outside the definition, as the Collector argues. This was also the situation which arose in Cliffs Robe River Iron, supra. It was held that a question of law was involved. The Court (Bowen C.J., Morling and Neaves JJ.) said (at p 275):

"There is much authority to the effect that where all

the material facts are established, the question

whether they fall within a statutory description is a

question of fact. See Mattinson v. Multiplo Incubators

Pty Ltd (1977) 1 NSWLR 368 at 372 and the cases there

cited. In such a case no question of law arises unless

it is contended that the situation disclosed by the

evidence is necessarily inside or outside the statutory

description. The case for the Collector was argued

upon the basis that the evidence necessarily showed

that the generation of electricity for the township

fell outside the definition of mining operations. Thus

a question of law was raised and the court has

jurisdiction to determine it."

18. The objection to competency must be overruled.

Is the fuel used in the "cultivation", or "gathering in", of the parsley?

20. The first question in the appeal is whether the respondent's drying methods fall squarely within the description the "cultivation", or "gathering in", of his crop. By "squarely" is meant the notion that the dehydration procedure is an integral part of the cultivation, or gathering in, of the crop, as distinct from something merely ancillary or incidental to it.

21. According to the Macquarie Dictionary, three primary meanings of "cultivate" are:

"1. to bestow labour upon (land) in raising crops;

till; improve by husbandry. 2. to use a cultivator

on. 3. to improve the growth of (a plant etc.) by

labour and attention."

(And see, as to the meanings of "cultivate" and "agriculture", Frauenfelder v. Reid [1963] HCA 3; (1963) 109 CLR 42 per Windeyer J. at pp 52-3.)

22. According to the Macquarie Dictionary, one of the definitions of "gather" is "4. to pick (any crop or natural yield) from its place of growth or formation: to gather grain, fruit or flowers."

23. Support for the conclusion that the drying process is an integral part of the operation of the cultivation, or gathering in, of the crop, may be be found in the reasoning of the High Court in The Commissioner of Taxation of the Commonwealth of Australia v. ICI Australia Limited [1972] HCA 75; (1972) 127 CLR 529. In considering whether certain crystallisation processes were part of "mining operations", it was there held, first, that identification of what was sought by the mining operation was crucial; and secondly, that the expression "mining operations" was capable of including the recovery of salt by the pumping of brine from a natural deposit in the crust of the earth. Walsh J. said (at p 549):

"Having decided that ICI is carrying on mining

operations, the further question whether all the

processes up to the crystallisation of the salt fall

within that description depends in my opinion upon a

decision whether the object of the mining activities

should be regarded as the obtaining of brine or as the

obtaining of salt in crystallised form."

"(T)he recovery of the mineral raised by the mining

operation is not complete until the evaporative process

has taken place..."

"In my opinion, the treatment of the brine after it had

been pumped to the surface and before it was harvested

in the crystallisers was for the purpose of separating

that which it was sought to obtain by mining, namely,

salt, from that which was mined with it, namely water

and the calcium an magnesium salts. The object of

ICI's operation was, I consider, to obtain salt, not to

obtain brine."

24. In the present case, it may be possible to say, by analogy, that the object of the respondent's agricultural pursuit is to obtain dry, not wet, parsley; or, put differently, to adapt the language of Barwick C.J., the recovery of the crop is not complete until the dehydration process has taken place. (see also Willeroo & Manbulloo Ltd. v. The Commissioner of Taxation of the Commonwealth of Australia [1964] HCA 51; (1964) 111 CLR 336 per Kitto J. at pp .340-1; W.F. Montague Pty. Ltd. v. Federal Commissioner of Taxation, 1971 ATC 4048; Camden Park Estate Pty. Ltd. v. Commissioner of Land Tax (N.S.W.) (1983) 84 ATC 4334 at p 4,337; Commissioner of Taxation v. Reynolds Australia Alumina Ltd. (1987) 18 FCR 29 at pp 35-39; pp 46-49).

25. On the other hand, support for the contrary view, that the drying process is not an integral part of the agricultural activity, may be found in the following statement of Barwick C.J., McTiernan and Menzies JJ. in Commissioner of Taxation of the Commonwealth of Australia v. Broken Hill Proprietary Company Limited [1968] HCA 16; (1967) 120 CLR 240 (at p 277):

"To build a blast furnace near the mining property could

not, we think, be said to develop the mining property

although, of course, it would provide a valuable outlet

for what is mined."

26. Moreover, it will be recalled that s.164(1)(aa) speaks of fuel for use "in" primary production; and the word "in" has been judicially construed as a restrictive word: see Halstead (H.M. Inspector of Taxes) v. Condon (1970) 46 TC 289 at p 292, a decision of Megarry J.; Robe River Mining Co. Pty. Ltd. v. Federal Commissioner of Taxation (1989) ATC 4,606 at p 4,611; cf. MacPherson v. Secretary of State for Scotland (1985) JPL 788.

27. It is apparent that the question whether the drying procedure is an integral part of an agricultural activity is a matter of some difficulty. Questions of degree are involved and the dividing line is not easily identified. Although I incline to the view that the dehydration process is an integral part of the agricultural activity, it is preferable not to express a concluded view on the point. For reasons to be given shortly, I have come to the conclusion that, in any event, the rebate was payable because the drying procedure is "connected with" the cultivation, or gathering in, of the crop.

28. This raises the same question, in principle, as in the case of the "cultivation" or "gathering in" of the crop. The comments made above must apply here also.

Is the dehydration process ancillary or incidental to the "cultivation", or "gathering in", of the crop, or to the "horticulture"?

29. Whether or not the drying procedure is an integral part of these activities, a separate question arises as to whether the dehydration process may be ancillary, or incidental to them. Again, since I have come to the view that there is a relevant "connection" between the dehydration process and these activities, it is unnecessary that I express any conclusion on the point.

Is the dehydration process an operation "connected with" the

30. In its ordinary meaning, "connected with" suggests a link or an association (see The Commissioner for Superannuation v. Benham, Full Federal Court, 4 April 1989, unreported, at p 10). The meaning of "connected with", in the present statutory context, was considered in the two Federal Court decisions relied on by the Tribunal.

31. In Cliffs Robe River, supra, it was held that the use of diesel fuel to generate electricity for the use of a township established by a mining company to house its mine employees was use of the fuel "in mining operations" within the meaning of s.164 of the Act. The Court said (at p 275):

"The meaning of the word 'connection' is both wide and

imprecise. One of its common meanings is 'relation

between things one of which is bound up with, or

involved, in another' (Shorter Oxford English

Dictionary). We were referred to a number of cases

where, in other contexts, the meaning of the word

'connection' has been discussed, but we do not think

that any assistance is to be derived from them. Given

that the generation of electricity in the present case

was carried out at a place adjacent to the area in

which the mining occurred, the question of law which

arises is whether, on the facts of this case, it was

open to the Tribunal to hold that the generation of

electricity for the township was an operation connected

with the mining for minerals. In our opinion it was.

The construction of the town of Pannawonica, and the

supply of electricity to it, was an essential part of

the scheme to establish the mine. It was a condition

of the agreement made between the State of Western

Australia and Basic Materials Pty Ltd pursuant to which

the mine was established - vide Iron Ore

(Cleveland-Cliffs) Agreement Act 1964 (W.A.). The

township forms part of the infrastructure of the mine,

its sole function being to provide a place of residence

for the mine workers, there being none other available.

The township was constructed and is operated by the

respondent solely for the purpose of enabling it to

mine the minerals on the adjacent land. The township

has no alternative source of electricity, and without

electricity it could not provide a place of residence

for the mine workers and the mine could not operate.

Having regard to these facts, it was well open to the

Tribunal to conclude that the generation of electricity

for the township was so bound up with and involved in

the mining for minerals that it was an operation

connected with the mining for minerals."

32. In my opinion, this reasoning is applicable to the present circumstances.

33. In the second case, Australian National Railways, supra, the applicant claimed that a rebate was payable in respect of diesel fuel used by trains transporting (i) livestock from one place of pasture to another (either in the course of disease control or to better pasture); (ii) fertiliser from the point of manufacture to a landowner, a spreading contractor or the manufacturer's own country depot; and (iii) grain from country silos to central points on the sea-board.

34. It was held that (i) the transport of stock in these circumstances was connected with their rearing and therefore fell within the definition of "primary production". However, it was further held that the transport of fertiliser was part of the manufacture and distribution process and the transport of grain a part of the marketing of produce which had been grown and harvested. Accordingly neither (ii) nor (iii) was a part of the process of cultivation or getting in of crops nor an operation "connected" therewith. Davies J. said (at p 271):

"In my opinion the evidence as to the superphosphate did

not show that what occurred was part of, or was

connected with, the usage by primary producers of

superphosphate as distinct from the distribution of

superphosphate by the manufacturers of stocks to

centres where it would be available for retail or user

use. Nor was it shown that the grain was transported

as part of the process of production and harvesting of

grain as distinct from the process of distributing or

disposing of the grain once harvested. The diesel fuel

rebate looks to operations within a narrower compass

than the operations in respect of which the applicant's

claims in this respect were made. The rebate for

primary production is concerned with production of

primary produce, not with the manufacture and wholesale

distribution of superphosphate or with the marketing of

primary produce once grown and harvested. The

applicant's claim on these two matters were correctly

rejected."

35. In dealing with transport of the stock, Sheppard and Burchett J. said (at p 276):

"We find it difficult to understand why each of these

carriages is not to a sufficient degree connected with

the rearing of the livestock. To remove stock exposed

to the danger of infestation by disease to a place

where that risk will not exist seems to us to be a

carriage directly concerned with their rearing. The

return of the cattle after the carrying out of a

programme of eradication seems to us to be in like

category. Similarly, the transport of livestock from

an area in which they are bought in store condition to

another area for the purpose of fattening them seems

also to be directly connected with their rearing, as

does their removal from a drought area to be agisted on

land not subject to drought."

36. With respect to the carriage of fertilisers, their Honours said (at p 277):

"The next type of carriage is the carriage of

fertilisers. In relation to this matter we are in

agreement with the Tribunal in the conclusion which it

reached. In many cases questions of fact and degree

will be involved. In our opinion the carriage of the

superphosphate in the circumstances postulated in the

Tribunal's decision is remote from any operation

connected with the cultivation of the soil. The

operations are rather the distribution of

superphosphate to depots, areas or properties from

which it will eventually be taken for the purpose of

fertilising the soil. We are not persuaded that what

the Tribunal has said reflects any error of law.

Our view in relation to the third category of carriage

is the same. In order to succeed the applicant has to

show that as a matter of law the carriage of the grain

in the circumstances postulated was an operation

connected with the gathering in of a crop. In our

opinion the carriage is remote from this operation.

The operation is connected rather with the distribution

of the gathered-in product than with the actual

operation of getting it in. Again, we can detect no

error of law in what the Tribunal has said."

37. This case illustrates that, for present purposes, a judgment has to be made as to the relative proximity, or remoteness, (as the case may be) of the activities in question. The distribution and marketing of the fertiliser and the grain were there seen to be too remote from the primary, or agricultural activity to warrant the inference that they were "connected".

38. The present case is different. The activity in question is, first, necessary for the preservation of the crop; and, secondly, both temporally and physically proximate to the primary activity of harvesting the crop. In my judgment, it is appropriate to conclude that the dehydration process was "connected with" the "cultivation", or "gathering in", of the crop. It follows that the appeal must fail.

39. Because the respondent failed on the objection to competency but succeeded in the appeal itself, it is appropriate that he receive three-quarters of his costs.

1. Objection to competency overruled.

2. Appeal dismissed.

3. Applicant to pay three-quarters of the respondent's costs.

Appeals Tribunal Act 1975

Social Services Contribution Assessment Act 1936

(Cleveland-Cliffs) Agreement Act 1964

Appeals Tribunal Act 1975

Social Services Contribution Assessment Act 1936

(Cleveland-Cliffs) Agreement Act 1964

Appeals Tribunal Act 1975

Social Services Contribution Assessment Act 1936

(Cleveland-Cliffs) Agreement Act 1964

Re Collector of Customs of Tasmania v John Bernard Davis [1989] FCA 308; 10 Aar 439 23 FCR 378 (10 August 1989)

Re Collector of Customs of Tasmania v John Bernard Davis [1989] FCA 308; 10 Aar 439 23 FCR 378

At a glance

Court

Decision date

Before

Source

Judgment (60 paragraphs)

Parties

Legislation Cited (9)

Cases Cited (12)

Re Collector of Customs of Tasmania v John Bernard Davis [1989] FCA 308; 10 Aar 439 23 FCR 378 (10 August 1989)