IGY Manufacturing Pty Ltd v Commissioner of Taxation

[1999] FCA 1157

FEDERAL COURT OF AUSTRALIA

IGY Manufacturing Pty Ltd v Commissioner of Taxation [1999] FCA 1157

No question of principle

Sales Tax (Exemptions and Classifications) Act 1992 Sch 1 Items 39, 40, 41, 65, 68 and 77

Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385 cited
Telstra Corporation Ltd v Commissioner of Taxation (1996) 68 FCR 566 cited
Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450 cited
Woolworths Ltd v FCT (1999) 99 ATC 4, 187 cited
McNicol v Pinch [1906] 2 KB 352 referred to
In re Searls Ltd (1932) 33 SR (NSW) 7 referred to
Federal Commissioner of Taxation v Jack Zinader Pty Ltd (1949) 78 CLR 336 referred to
MP Metals Pty Ltd v Federal Commissioner of Taxation (1968) 117 CLR 631 discussed
Ready Mixed Concrete (WA) Pty Ltd v Commissioner of Taxation (1971) 45 ALJR 293 discussed
DCT v Stronach (1936) 55 CLR 305 discussed
Feltex Commercial Interiors Pty Ltd v FCT (1990) 90 ATC 4,925 cited
Dick Smith Electronics Pty Ltd v FCT (1997) 97 ATC 5,089 cited
Regional Director of Customs (WA) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108 considered
Commissioner of Taxation (Cth) v Broken Hill Pty Co Ltd (1969) 120 CLR 240 discussed
Abbott Point Bulk Coal Pty Ltd v Collector of Customs (1992) 35 FCR 371 applied
NSW Associated Blue-Metal Quarries Ltd v FCT (1955) 94 CLR 509 discussed
North Australian Cement Ltd v FCT (1989) 89 ATC 4,765 discussed

IGY MANUFACTURING PTY LTD v COMMISSIONER OF TAXATION

NG 1349 OF 1998

HELY J

25 AUGUST 1999
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 1349 OF 1998

BETWEEN:	IGY MANUFACTURING PTY LTD (ACN 000 539 033) Applicant
AND:	COMMISSIONER OF TAXATION Respondent
JUDGE:	HELY J
DATE OF ORDER:	25 AUGUST 1999
WHERE MADE:	SYDNEY

THE COURT DECLARES THAT:

1.Dri-Cat as sold by the applicant on 16 February 1998 and on 7 October 1998 to Franklins Ltd was stone within the meaning of Item 40(1) in Schedule 1 to the Sales Tax (Exemptions & Classifications) Act 1992.

2.Dri-Cat as sold by the applicant on 7 October 1998 to Franklins Limited was clay within the meaning of Item 40(2) in Schedule 1 to the Sales Tax (Exemptions & Classifications) Act 1992.

3.Dri-Cat as sold by the applicant on 16 February 1998 and 7 October 1998 was not a primary product derived directly from mining operations carried on in Australia within the meaning of Item 65(1) in Schedule 1 to the Sales Tax (Exemptions & Classifications) Act 1992.

THE COURT ORDERS THAT:

4.The respondent pay the applicant’s costs of these proceedings.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 1349 OF 1998

BETWEEN:	IGY MANUFACTURING PTY LTD (ACN 000 539 033) Applicant
AND:	COMMISSIONER OF TAXATION Respondent

JUDGE:	HELY J
DATE:	25 AUGUST 1999
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. This case concerns the sales tax treatment of absorbent spongolite and kaolinite granules produced by Supersorb Minerals NL (“Supersorb”), and which are sold by wholesale by the applicant under the name “Dri-Cat”.

2. The absorbent granules have a number of uses, including:

   ·           cleaning up of floors and driveways under leaky car engines;

   ·           absorbing industrial and commercial liquid spills;

   ·           reducing odours and absorbing liquid in rubbish bins;

   ·           absorbing barbecue fat and oil in drip trays;

   ·           use as pet litter to absorb waste and reduce odours;

   ·           use as a potting mix additive to aerate soil.

3. Supersorb produces absorbent granules at two locations.  One is near Mount Barker in Western Australia.  The other is near Duaringa in Queensland.  The absorbent granules are produced by digging, crushing, drying and grading a sedimentary rock.  Near Mount Barker, the sedimentary rock is “spongolite”.  Near Duaringa the sedimentary rock or clay is “kaolinite”.

4. The respondent accepted that what is removed from the ground at each location is “stone” or “clay” within the meaning of the relevant exemption Items in the Sales Tax (Exemptions and Classifications) Act 1992 (“the Act”). But it is the respondent’s contention that the treated granules are a different product, which is not appropriately characterised as “stone” or “clay” in terms of exemption Item 40 in Sch 1. There is a further issue as to the application of exemption Item 65 Sch 1. I shall return to the terms of these exemption Items at the conclusion of this account of the relevant facts.

5. Near Mount Barker, Supersorb’s extraction of spongolite is conducted pursuant to a Tribute Agreement granted to Supersorb by the lessee of a mining lease granted under the Mining Act 1978 (WA). The operations to which the Tribute Agreement relates are described as “mining of the spongolite mineral … by open cut mining methods”. A mine production flow chart describes the process by which the granules are produced commencing with “mine” and concluding with “final product”.

6. Near Duaringa, Supersorb’s extraction of kaolinite is conducted under a mining lease granted under the Mineral Resources Act 1989 (Qld). An amended plan of operations lodged by Supersorb describes the operation conducted under the mining lease as an “open pit mining operation” involving the extraction of kaolinite by a mining operation.

7. The spongolite, is extracted from the ground by mechanical excavator and moved into piles where it is left to dry in the wind and sun for anywhere between one and six months.  As it dries it turns from a light brown colour to a whitish grey, losing about 80 percent of its moisture content.  It is then loaded into a hopper and fed into a coal crusher, which crushes it into granules no bigger than about 75 millimetres in diameter.  The granules are then moved along a conveyor belt into a drying shed where the spongolite is stored in stockpiles under cover.  From there, the granules are loaded into another hopper, which feeds them onto another conveyor belt, which transports them to an adjacent shed, where they undergo further crushing, screening and drying.  This is achieved by dropping the granules by conveyor belt down a chute into a screen, which separates out granules with a diameter over 6 millimetres and granules with a diameter under 1 millimetre.  The granules over 6 millimetres are then transferred to another crusher where they are crushed, and then fed back into the screen.  Granules having diameters between 1 millimetre and 6 millimetres are then fed along another conveyor belt into a surge bin above a fluidised bed drier, which they pass through in a constant stream, remaining in the drier for 6 to 7 minutes.  This removes further moisture.  When they emerge from the drier, the spongolite granules are transported by another conveyor belt into a final hopper, from which they are able to be packed directly into plastic bags with the use of a gravity feed mechanism.

8. In the case of kaolinite, the mechanical excavator digs the kaolinite out of the ground and deposits it in piles where it is left to dry in the wind and sun for about 1 month.  It turns from brown to whitish grey as it dries, this removes about 50-60 percent of its moisture content.  It is then loaded into a hopper from which it is fed into a coal crusher, which crushes it into granules.  The granules are then taken by conveyor belt to a screen, which separates out granules larger than 14 millimetres in diameter and smaller than 2 millimetres in diameter.  Granules larger than 14 millimetres in diameter are passed through a further crusher and returned by another conveyor belt to the screen.  Granules between 2 millimetres and 14 millimetres in diameter are deposited in piles for loading and transportation to a further processing site, where they are deposited into a stockpile in an open sided shed.  There, they undergo further drying and screening before packing.  That is, they are first loaded into a hopper using a front end loader from where they are taken by a conveyor belt to a rotary kiln.  There, the kaolinite granules are dried, usually for about 7 minutes at a temperature between 50 degrees and 70 degrees Celsius.  From there, they are dropped into a rotary cooler where they are cooled for about 10 minutes.  From the rotary cooler, they are transported by a conveyor belt to a rotary screen, which separates granules between 2 and 6 millimetres in diameter to be deposited in another hopper.  From that other hopper, the granules are fed along another conveyor belt into a Syntron screen, which removes dust.  The granules are then finally transported by an elevator to a bagging bin, from where they are gravity fed into a bagging machine, which deposits them into plastic bags.

9. The respondent accepted (Exhibit A) that I should decide the case on the basis that there is no market for spongolite in the form in which it is dug from the ground, or in any form in which it exists before it emerges from the fluidised bed drier.  Similarly, that there is no market for kaolinite in the form in which it is dug from the ground or in any form in which it exists before it passes through the Syntron screen.

   Item 40

10. Item 40 in Sch 1 of the Act is as follows:

    “Item 40:  [Stone, gravel etc]

    (1)Stone (including synthetic stone) and decomposed rock.

    (2)Gravel, seashell, sand, clay and soil.

    (3)Crushed metals or crushed bricks.

    (4)Furnace slag, clinker and ashes (whether crushed or uncrushed).

    (5)Screenings, toppings and dust.”

    (Emphasis added)

11. As earlier indicated, the respondent accepted that spongolite, upon its extraction from the ground is “stone” within sub-item (1) of Item 40, and that kaolinite, upon its extraction from the ground, is “stone” within sub-item (1) and/or “clay” within sub-item (2) of Item 40.  The uncontested evidence of Associate Professor Ward, an expert in Geology, in relation to the Dri-Cat products is that:

    -the spongolite granules are “not significantly different in mineralogy” from the raw spongolite sample.  Hence each is appropriately classified as crushed and broken stone.

    -The kaolinite granules differ slightly from the original kaolinite sample through the apparent effects of heating.  Apart from the colour change due to additional haematite development, however, these effects are not mineralogically significant.  The kaolinite granules “are not significantly different in nature” from the original sample.  In layman’s terms, both the original sample, and the kaolinite granules, may be described as “stone” and, also as “clay”.

12. Exemption Item 40 describes the goods to which it relates by reference to their nature: cf Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385, 390. The reference is to the physical characteristics of the goods. To that the “get-up” or marketing of the goods is irrelevant. So too is the use or uses to which the goods may be put. When an exemption Item is concerned with the way in which goods are used (or ordinarily used or mainly used) or marketed (or ordinarily marketed or principally marketed or exclusively marketed) the exemption Item says so. Examples are Item 39(1) (“goods … of a kind ordinarily used as raw materials”), Item 41(2) (“Goods of a kind marketed principally as ingredients for concrete …”), Item 68(1) (“Goods marketed principally as … food for human consumption”) and Item 77(3) (“materials marketed exclusively for use for repairing footwear for human wear”).

13. It is, of course, the goods the subject of the assessable dealing which must be tested against the exemption Item.  The issue is whether the nature or physical characteristics of the spongolite and kaolinite granules sold under the name Dri-Cat is such that it is appropriate to characterise those goods as stone and/or clay.

14. The classification of goods attracting exemption from sales tax should be liberally construed unless the text or context requires a narrow construction: Telstra Corporation Ltd v Commissioner of Taxation (1996) 68 FCR 566, 569. There is no reason to give the words in Item 40 other than their ordinary meaning: Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450, 457, 464. For the reasons explained by Heerey J in Telstra at 571G-572A all a judge can do is to endeavour to apply the ordinary meaning of the language which Parliament has chosen, but unless the context otherwise indicates or requires, adopting a somewhat robust approach: Woolworths Ltd v FCT (1999) 99 ATC 4,187 at 4,194.

15. According to the Macquarie Dictionary, the ordinary meaning of “stone” is relevantly:

    “a particular kind of rock.”

    According to the same dictionary, “rock” is relevantly:

    “(a)mineral matter of various composition, consolidated or unconsolidated, assembled in masses or considerable quantities in nature, as by the action of heat (igneous rock), or of water, air, or ice (sedimentary rock), or by the structural alteration of either of these two types by natural agencies of pressure and heat (metamorphic rock).

    (b)a particular kind of such matter.”

16. According to the Macquarie Dictionary, the ordinary meaning of “clay” is:

    “1.A natural earthy material which is plastic when wet, consisting essentially of hydrated silicates of aluminium, and used for making bricks, pottery, etc.

    2.earth; mud.”

17. According to Associate Professor Ward, “stone” is not a specific geological term, but may be used in geology in a number of ways including:

    ·a general term for a small piece of rock;

    ·a piece of rock or mineral that may be used for decorative purposes, such as a precious stone or gemstone;

    ·material consisting of crushed or naturally angular rock particles such as might be produced from quarrying (eg crushed and broken stone).

18. In the respondent’s submission, the treatment to which the spongolite and kaolinite was subjected, resulted in the production of goods which are different from those with which the process commenced.  The raw materials are transmogrified by the treatment process into uniformly sized granules which have a utility, namely their absorption qualities, not possessed by the stone or clay in its original state when extracted from the ground.  Whilst the end product may not have a materially different mineralisation from that of spongolite and kaolinite, that is not determinative of whether the pellets should be characterised as stone or clay.  A ceramic bowl, for example, would not be characterised as “clay”, although derived from it.

19. The respondent sought to gain support for its position in authorities concerned with the ordinary meaning of “manufacture” in sales tax legislation.  In McNicol v Pinch [1906] 2 KB 352, 361 the general proposition was stated thus:

    “I think 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.”

20. In In re Searls Ltd (1932) 33 SR (NSW) 7 wreaths, bouquets and the like were held to be manufactured by a florist, notwithstanding that there was no change in the composition of the flowers. Harvey CJ in Equity said at 11:

    “In my opinion the fact that a new saleable entity is brought into existence by means of skill applied to the component elements of that new entity goes a long way to establish that the result is a manufactured article and if to that new entity people would in every day language apply the words “made” or “manufactured” and that entity is purchased for its own sake by reason of the skill which has been exhibited in putting the component parts into combination, I think it is proper to call the completed article a manufactured article.”

21. Likewise, in Federal Commissioner of Taxation v Jack Zinader Pty Ltd (1949) 78 CLR 336 the removing of worn fur and the remodelling of the remainder of a garment was held to result in manufactured goods. At 344-345 Dixon J said:

    “On the whole the Commissioner’s view appears to be the more correct.  The work of the furrier is to use skins to form garments.  In skins he works with materials often of great value and usually of some permanence.  His skill lies in the use he can make of them and the descriptions of garment he produces.  Fashion, commercial usage and his customer’s tastes combine to distinguish the various descriptions of garment he makes and to compel the recognization of them as separate categories of ‘goods’.  When he takes skins made up into one description of fur garment and produces another, he cannot be treated as having altered an existing thing without producing a new one.  He has made a different article.”

22. In M P Metals Pty Ltd v Federal Commissioner of Taxation (1968) 117 CLR 631 it was held that cutting metal scrap to length and compressing the metal into bales was not manufacture. It was pointed out, however, that manufacture not only includes changes in physical characteristics, it also includes differences in utility. At 638 after referring to McNicol and Jack Zinader, Windeyer J said:

    “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.”

23. His Honour later at 641 emphasised the utility aspect:

    “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.”

24. In Ready Mixed Concrete (WA) Pty Ltd v Commissioner of Taxation (1971) 45 ALJR 293 Windeyer J held that crushing and screening large pieces of stone to produce aggregates to meet stipulated requirements of size was manufacture notwithstanding the absence of change in the stone apart from size and the removal of other materials. At 294 (2^nd col D) – 295 (1^st col B) it was said:

    “I do not find it necessary here to go over again all the ground that I covered in my judgment in M P Metals Pty Ltd v Commissioner of Taxation (1967-68) 117 CLR 631. I adhere to all that I there said, encouraged to do so by the decision of the Full Court on appeal. The question in that case was in a sense the same as in this case: but the facts were essentially dissimilar. In my view the aggregates here are new goods derived from other goods, the blocks of quarried stone; and they are I think aptly described as “manufactured”. The difficulties of that word are not removed by saying that one looks at its use in ordinary parlance. In ordinary parlance a shipwright would not be called a manufacturer of ships, although a maker of motor cars is a manufacturer. All that can perhaps be said of the word is that its derivative and etymological sense no longer determines its meaning. No longer is it restricted to the handiwork of individual craftsmen. The old silversmith no doubt was a manufacturer of his wares: he manufactured them because he made them by hand. But today the phrases ‘manufacturing plant’ and ‘manufactured goods’ used in the Act connote I consider the production of goods in quantity. The question is not solved by saying that cutting up things and grinding things is not manufacturing. That is too general a proposition. A flour miller who grinds wheat is, I would have no doubt, a manufacturer. But a man who fells trees, cuts them into lengths and sells firewood for use in the domestic hearth is not, I think, properly called a manufacturer of firewood. Yet, on the other hand, a sawmiller who converts logs to lengths and forms to be used as architraves or flooring boards does, I would think, fall within the description of a person who is engaged in a process by means of which manufactured goods are derived from other goods. The question is in one sense one of mixed fact and law: or it may be said that strictly it is a question of law being a question of whether or not the facts answer a statutory description. Whether fact or law my answer is that the production of aggregates by crushing stone in a crushing plant is a manufacturing process.”

1. In my view little, if any, assistance is to be derived from these authorities. The issue is not whether the pellets have been manufactured in Australia, but whether they are covered by an exemption Item. The Act is structured upon the basis that exemption Items are applicable to manufactured goods. Whether the pellets are characterised as stone or clay is largely a factual issue, rather than one capable of resolution by reference to authorities as to the scope of “manufacture”.

2. In Ready Mixed Concrete (WA) Pty Ltd, referred to above, Windeyer J said at 294:

   “The first question then is, is the crushing of large pieces of stone to make aggregates an operation by means of which manufactured goods are derived from other goods?  When propounded the answer might at first seem to be in the negative, as the Commissioner thought it was.  I have, however, come to the conclusion that aggregate is, in a relevant sense, a new and different thing from blocks of stone.  It is all very well to say that it is still stone and only in small pieces instead of in big pieces.  That I think is too facile a solution of the problem.”

3. Whilst to say that it is still stone, but in small pieces, may be too facile a solution of the problem of whether manufactured goods have been  derived from other goods, it by no means follows that it is too facile a solution to the different question of whether the manufactured goods should be characterised as stone.  In DCT v Stronach (1936) 55 CLR 305 granite blocks were removed from a quarry and taken to a yard where they were classified for colour and size, sawn into suitable sizes for building construction and worked upon by hammer and chisel to correct size and shape. One side of the blocks was then planed and polished by abrasive stone. It was held that the goods were manufactured in Australia, and as they were not exempted by a provision in terms similar to Item 65 they were thus liable to sales tax until the Act was amended to insert an exemption in relation to “stone”. Whilst the court did not decide that the manufactured goods were appropriately characterised as “stone”, the Commissioner’s claim was limited to the period before the amendment came into effect, and at 311 both Starke J and Dixon J adverted to the fact that the amendment came into operation after the material date in that case.

4. Sedimentary rock has been crushed and dried.  That may raise the question as to whether the resultant product is appropriately characterised as “stone”, but it does not of itself suggest a negative answer to that question.  Little pieces of rock from which moisture has been extracted are still little pieces of rock, and thus rock.  The mere fact that the crushed and dried rock has utilities not possessed by the untreated product does not mean that the nature and physical characteristics of the treated product have so changed that it is no longer apt to describe it as rock.  A dried mushroom is still a mushroom.

5. In the end, the respondent’s submission reduced to the proposition that the processes to which the rock was subjected “create a commercially different end product” from the stone and clay from which the Dri-Cat is derived.  That may be so, but to put the matter in that way is to obscure the real question which is whether it is no longer appropriate to characterise the end product as stone.  That question is answered by reference to a consideration of the nature and physical characteristics of the end product, rather than the uses to which it can be put, although a change in the available range of uses may not be entirely irrelevant to the characterisation question.

6. As earlier indicated my view is that little pieces of rock from which moisture has been extracted are still little pieces of rock and thus within the description “stone”.  That view is reinforced by the evidence of Professor Ward.  It was not submitted by the respondent that recourse to that evidence was impermissible, although the characterisation question is ultimately one for the Court: cf Feltex Commercial Interiors Pty Ltd v FCT (1990) 90 ATC 4,925 at 4,936; Dick Smith Electronics Pty Ltd v FCT (1997) 97 ATC 5,089 at 5,093-5,094.

7. In the result, the applicant is entitled to the declaration it seeks in relation to exemption Item 40.

   Item 65

8. Item 65 is as follows:

   “Item 65: [Primary products]

   (1)Primary products that are derived directly from the following operations carried on in Australia:

   (a)mining;

   (b)cultivating land;

   (c)maintaining animals, poultry or bees;

   (d)fisheries;

   (e)timber-getting;

   and have not been subject to any process or treatment resulting in an alteration of their form, nature or condition.

   (2)This Item does not cover:

   (a)goods marketed principally as food for birds;

   (b)salt marketed principally for non-culinary purposes.”

9. In the applicant’s submission, the operations conducted by Supersorb near Mount Barker and Dauringa are mining operations, the object of which is the production of the absorbent granules.  They are the first saleable product which emerges from the operations.  The mining operation continues until there has been produced that which is the object of the mining operations, namely the absorbent granules: Regional Director of Customs (WA) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108. Those granules are derived directly from the mining operation and are not subjected to any process or treatment resulting in an alteration to their form, nature or condition.

10. The applicant accepted that it could not mount a case with any conviction that the treatment to which the spongolite and kaolinite rock was exposed did not result in an alteration to the form or condition of the rock.  Clearly it did.

11. In the respondent’s submission, the operation by which the spongolite and kaolinite rock is extracted from the ground is not a mining operation, but a quarrying operation.  Even if a mining operation, the operation is completed when the rock is extracted from the ground.  The absorbent granules are not derived directly from mining operations, but from operations which occur after the mining operations are complete.

12. Whether the operations in question are mining operations, and the point at which any mining operation finishes, are questions of fact to be decided in each case.  Dampier Salt contains some useful propositions which assist in an analysis of the facts, but the issue remains one of fact.  Dampier Salt recognises that “a point must be reached where the process of recovery of the mineral (the mining operation) will have come to an end and some other process, be that called treatment or preparation for marketing or preparation for sale, will have commenced. The difficulty is to define when that point occurs” (at 115). The Court quoted the following observation of the High Court in Commissioner of Taxation (Cth) v Broken Hill Pty Co Ltd (1969) 120 CLR 240 at 273:

    “We do not doubt that to separate what it is sought to obtain by mining from that which is mined with it … is part of a ‘mining operation’ but we would not extend the conception to what is merely the treatment of the mineral recovered for the purpose of the better utilization of that mineral.  Thus to crush bluestone in a stone crushing plant so that it can be used for road making, … is not, as we see it, a mining operation.”

13. In Abbott Point Bulk Coal Pty Ltd v Collector of Customs (1992) 35 FCR 371, 379 Ryan and Cooper JJ said (at 37):

    “The process of recovery includes, in our view, those steps which are taken by a miner before sale, by whatever process, to remove the mineral from that in which it is embedded or with which it is intermixed.  Such a process comprehends the refining of minerals or ore to remove impurities naturally occurring in the material as it has been mined.  Once the process of separation or refining has been completed, to subject the mineral product to a process or procedure designed purely to facilitate its better use as so separated or refined or to render it more readily or advantageously marketable is not in our view part of the recovery process.”

14. In the present case, the spongolite and kaolinite rock is crushed, dried and graded, not for the purpose of separating or isolating some mineral from the rock, but so that the rock will be commercially saleable.  In that important respect, the case differs from Dampier Salt.

15. Accordingly, I uphold the respondent’s contention that even if the operations by which spongolite and kaolinite rock are extracted are characterised as mining operations, the absorbent granules are not derived directly from those operations, but from operations which occur after the completion of the mining operations.

16. Thus the operation of Item 65 is not attracted.

17. It is not necessary, then, for me to consider whether the operations by which the spongolite and kaolinite rock are extracted are mining operations.  However, as the matter was argued, I should indicate my conclusion on the arguments put.  In Stronach’s case the High Court found, as a matter of fact, that open workings for the purpose of winning freestone and granite are not mining.  Winning building stone from ordinary quarries does not fall within the description “mining”.  The same result was reached in NSW Associated Blue-Metal Quarries Ltd v FCT (1955) 94 CLR 509. At first instance in that case Kitto J said at 512-513:

    “It is clear enough that ‘mining’ is not nowadays confined in its meaning to the winning of minerals by means of underground working, for although that is its primary meaning an extended sense has long been given to it in connection with some substances.  The extraction of coal by open-cut working, for example, is commonly referred to as open-cut coal-mining.  On the other hand it seems safe to say that the getting of some other substances, such as freestone and granite, in blocks for building purposes, would never be spoken of as mining.”

    In the Full Court it was said (at 524):

    “No one speaks of a bluestone mine.”

    Nor, it might be said, (subject to the comment as to Dr Johnson to which I will shortly refer), of a stone mine or a rock mine.

18. There is no evidentiary foundation for a conclusion that spongolite or kaolinite are commonly extracted by use of underground techniques.  The evidence, particularly Exhibit A, suggests that neither is a particularly valuable commodity.  These are matters which may be relevant to the issue of whether the method by which these rocks are extracted should be characterised as “mining”.

19. In North Australian Cement Ltd v FCT (1989) 89 ATC 4,765 Spender J made the point that, notwithstanding that Dr Johnson in his day defined a “quarry” as a “stone mine”, historically a distinction has been drawn between mining operations and quarrying operations to recover, for example, stone or blue metal. Whilst, on the facts of that case, his Honour concluded that the extraction of limestone for the manufacture of cement was properly to be characterised as mining operations, his Honour did so on the basis of evidence that, as a matter of usage, whereas mining refers to the extraction of useful minerals generally, quarrying more specifically refers to the extraction of materials for building or civil engineering purposes. The present case is closer to the latter than it is to the former.

20. The exception Item does not refer to “quarrying” but to “mining”.  The issue is not whether the activity is quarrying, but whether it is mining.  Having regard to the nature of the materials sought to be won, and the process by which that activity is undertaken, the activity is not appropriately characterised as “mining”.  Whilst it is relevant that the activities are described as open cut or open pit mining operations, in my view that is not sufficient to indicate, let alone to require a contrary conclusion.

21. For this further reason, the operation of exemption Item 65 is not attracted.

22. I declare:

    1.that Dri-Cat as sold by the applicant on 16 February 1998 and on 7 October 1998 to Franklins Ltd was stone within the meaning of Item 40(1) in Schedule 1 to the Sales Tax (Exemptions & Classifications) Act 1992.

    2.That Dri-Cat as sold by the applicant on 7 October 1998 to Franklins Limited was clay within the meaning of Item 40(2) in Schedule 1 to the Sales Tax (Exemptions & Classifications) Act 1992.

    3.That Dri-Cat as sold by the applicant on 16 February 1998 and 7 October 1998 was not a primary product derived directly from mining operations carried on in Australia within the meaning of Item 65(1) in Schedule 1 to the Sales Tax (Exemptions & Classifications) Act 1992.

    4.Order the respondent to pay the applicant’s costs of these proceedings.

I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Associate:

Dated:             25 August 1999

Counsel for the Applicant:	D H Bloom QC and S J Gageler
Solicitor for the Applicant:	Ernst & Young Legal Services
Counsel for the Respondent:	I V Gzell QC and S W Gibb
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	4 August 1999
Date of Judgment:	25 August 1999