Kimberly-Clark Australia Pty Ltd and Secretary of the Department of Industry, Tourism and Resources
[2003] AATA 697
•24 July 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 697
ADMINISTRATIVE APPEALS TRIBUNAL )
) N2002/53 and N2003/377
GENERAL ADMINISTRATIVE DIVISION ) Re
Kimberly-Clark Australia Pty Ltd
Applicant
And
Secretary of the Department of Industry, Tourism and Resources
Respondent
DECISION
Tribunal Mr RP Handley, Deputy President Date24 July 2003
PlaceSydney
Decision The Tribunal affirms the decisions under review.
...............................................
RP Handley
Deputy President
CATCHWORDS
GRANT ENTITLEMENT – AusIndustry – AusIndustry Textile, Clothing and Footwear Strategic Investment Program Scheme - grant in connection with or incidental to the design and manufacture in Australia of textile, clothing and footwear products – whether products manufactured by the Applicant fall within the category of textile finishing or clothing manufacture – examination of the Applicant’s products – nappies, incontinence products and feminine hygiene products – examination of the manufacturing process – whether “eligible TCF activity”– held that the products are essentially medicinal or hygiene products and do not fall within Part C3 or C4 – decisions of the Respondent affirmed.
Textile, Clothing and Footwear Strategic Investment Program Act 1999 ss 5, 8, 11, 11(2), 13, 14, 15(4), 16, 16(1), 17, 19, 20, 21, 22, 27, 31, 52, 61, 75, 76, 87, 88,
Textile, Clothing and Footwear Strategic Investment Program Scheme 1999 (TCF SIP)
REASONS FOR DECISION
24 July 2003 Mr RP Handley, Deputy President 1. This matter involves applications by Kimberly-Clark Pty Ltd (“the Applicant”) for a review of two decisions of delegates of the Secretary of the Department of Industry, Tourism and Resources (“the Respondent”):
(a) File No N2002/53 – a decision made on 21 December 2001 affirming a decision of 19 November 2001 to determine the Applicant’s grant entitlement under the AusIndustry Textile, Clothing and Footwear Strategic Investment Program Scheme (“the Scheme”) for the pre-program years 1998/1999, 1999/2000, and the program year 2000/2001 was $1,130,320, and disallowing the Applicant’s claim to further grants totalling $21,072,088;
(b) File No. N2003/377 – a decision made on 7 February 2003 affirming a decision made 12 December 2002 that determined the Applicant’s maximum eligible claim amount under the Scheme for the program year 2001/2002 was $698,614.48, and disallowing the Applicant’s claim to further grants.
The decisions involved a finding that the Applicant’s manufacture of nappies, feminine hygiene and incontinence products were ineligible TCF activities under the Scheme and therefore did not qualify for a grant.
2. At the hearing, lead Counsel for the Applicant was David Yates, and lead Counsel for the Respondent was Neil Williams. The evidence before the Tribunal comprised the documents produced pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (“the T Documents”), together with documents tendered by the parties at the hearing. Evidence was given by Emeritus Professor Ross Griffith, Rebecca Doyle and Mary Goldfinch.
Background
3. Kimberly-Clark Australia Pty Ltd (“KCA”) is an Australian company which manufactures a range of products including infant garments, feminine hygiene products and adult incontinence products at its processing plants in Ingleburn, Albury and Warwick Farm in New South Wales and Lonsdale in South Australia. KCA also has plants in Millicent and Tantoola, South Australia. The company commenced business in Australia in the 1930s as Kotex Australia Limited. It became part of the Kimberly-Clark group in June 1956 when it adopted its present name. Until June 2001, the company was jointly owned by Kimberly-Clark and Amcor Limited but, since then, has been solely owned by Kimberly-Clark. KCA has business assets worth approximately $600m generating annual sales exceeding $800m. It has about 1800 employees.
4. KCA states that 67 per cent of its profits are generated from the manufacture and sale of non-traditional textiles. KCA has a vertically integrated business and most of the textiles it manufactures are used in KCA products. It does, however, buy in some textiles for use in its products. In the course of its production, KCA also engages in textile finishing, a process to enhance the end-use properties of textiles.
5. On 31 May 2000, KCA lodged an application for registration under the Scheme in respect of grants for expenditure relating to new plant and equipment (Type 1 expenditure); research and development and product development activities (Type 2 expenditure); and textile clothing and footwear value added (Type 3 expenditure).
6. On 1 November 2000, KCA was advised that its registration was approved, on the basis of an eligibility test, for the pre-program periods 1998/1999 and 1999/2000 and the first year of the program 2000/2001.
7. On 12 April 2001, KCA lodged an application for renewal of registration under the Scheme. On 11 May 2001, KCA was advised that its registration had been accepted on the basis of an eligibility test for the 2001/2002 period.
8. On 21 May 2001, officers of the Respondent conducted an on-site inspection of KCA’s manufacturing plant at Albury where the Applicant’s non-woven fabric is produced. On 28 June 2001, officers of the Respondent conducted an on-site inspection of KCA’s plant at Ingleburn where disposable nappies are manufactured incorporating non-woven textile imprints manufactured at the Albury plant. A report on these visits was subsequently produced.
9. On about 8 August 2001, KCA lodged a claim for Type 1, 2 and 3 grants and a request for determination of grant entitlement. There followed further correspondence between the parties as to the nature of the products manufactured and the expenditure in respect of which the claim was made. Ultimately, on 19 November 2001, a delegate of the Respondent decided that KCA’s maximum grant eligibility in relation to the 1998/1999 and 1999/2000 pre-program years and the 2000/2001 program year was $2,849,471. The delegate did not determine the final grant entitlement as KCA had not provided a revised audited statement of total eligible revenue.
10. KCA sought a reconsideration of this decision and supplied an independent audit report dated 6 December 2001. On 21 December 2001, the delegate of the Respondent confirmed KCA’s grant entitlement and determined the grant payable to KCA as $1,130,320. On 16 January 2002, KCA lodged an application with the Tribunal for a review of this decision (designated File No N2002/53).
11. On 7 November 2002, KCA lodged a Request for Determination of Grant Entitlements and Claim form for the 2001/2002 program year with the Respondent, together with supporting financial documentation. On 25 November 2002, an officer of the Respondent requested further information regarding the claim for the second year program, answers to which were provided to the Respondent on 2 December 2002.
12. On 12 December 2002, the Respondent advised KCA that the Company’s maximum eligible claim amount for the 2001/2002 program year was $698,614.48. It also advised that KCA’s claim for Types 1, 2 and 3 expenditure had been disallowed as the products claimed were deemed ineligible activities.
13. On 8 January 2003, KCA requested a reconsideration of the grant. On 7 February 2003, the delegate confirmed the decision of 12 December 2002. On 6 March 2003, KCA lodged an application with the Tribunal for a review of the decision, in particular that certain KCA activities were not eligible TCF activities as defined in the Scheme (designated File No N2003/377).
14. The relevant TCF products at issue in these proceedings are:
(a)DEPEND® Bed Protector
(b)HUGGIES® nappies, VIP KIMBIES® nappies and SNUGGLERS® nappies;
(c)DEPEND® Shield adult incontinence product, DEPEND® pad adult incontinence product, DEPEND® Undergarment adult incontinence product and POISE® Liner incontinence product;
(d)KOTEX® Maxi pad feminine hygiene product and KOTEX® Ultra thin feminine hygiene product.
Applicable Law
15. The primary legislation is the Textile, Clothing and Footwear Strategic Investment Program Act 1999 which took effect on 22 December 1999 (“the Act”). Section 8 provides the power to make a scheme for the making of grants and/or loans in connection with, or incidental to, the design and manufacture in Australia of eligible textile, clothing and footwear products. The scheme, known as the Textile, Clothing and Footwear Strategic Investment Program Scheme 1999 (“the Scheme”) came into operation on 5 January 2000. The Scheme allows grants for the program years from 2000/2001 to 2004/2005 and for the pre-program years 1998/1999 and 1999/2000.
16. Section 11(2) of the Act provides that there be five types of grants:
(2) The objective is that there are to be 5 types of grants, as follows:
(a) the first type of grants are to be known as grants in respect of new TCF plant/building expenditure;
(b) the second type of grants are to be known as grants in respect of TCF research and development expenditure;
(c) the third type of grants are to be known as grants in respect of TCF value-adding;
(d) the fourth type of grants are to be known as special grants in respect of second-hand TCF plant expenditure;
(e) the fifth type of grants are to be known as special miscellaneous grants in respect of TCF-dependent communities.
The grants specified in paragraphs (a), (b) and (c) are relevant in this matter.
17. Section 14(2) of the Act sets a cap in respect of the total grants of TCF value-adding made to an entity for eligible activities and s15(2) sets a cap in respect of grants payable during a particular income year for various activities including new TCF plant/building expenditure and research and development expenditure.
18. Section 14 of the Scheme states that a Type 1 grant is:
(1)A Type 1 grant, for an entity, is a grant relating to eligible expenditure by the entity in connection with, or incidental to, any of the following activities carried on by the entity in respect of an eligible TCF activity:
(a)the acquisition or construction of new TCF plant or equipment, of which the entity is the financial owner, for use exclusively in Australia;
…
19. Section 16 of the Scheme states that a Type 2 grant is:
(1) A Type 2 grant, for an entity, is a grant relating to eligible expenditure by the entity in connection with, or incidental to, any of the following activities carried on by, or on behalf of, the entity in respect of an eligible TCF activity:
(a) a research and development activity of a kind mentioned in section 17;
(b) a product development activity of a kind mentioned in subsections (2) and (3).
(2) For paragraph (1) (b), a product development activity must be:
(a) innovative product design within the meaning of section 18; or
(b) innovative process improvement within the meaning of section 19; or
20. Section 27 of the Scheme provides that a Type 3 grant is:
(1) A Type 3 grant, for an entity, is a grant relating to eligible TCF value added by the entity in respect of eligible TCF activities carried on by the entity in a program year.
(2) A Type 3 grant may be made to an entity for a program year only if a Type 1 or Type 2 grant is also made to the entity for the program year.
(3) A Type 3 grant may be made in addition to a grant of another type under the Scheme.
21. Section 3 of the Scheme defines the following:
eligible TCF activity has the meaning given by section 5.
eligible TCF product means a product resulting from an eligible TCF activity mentioned in paragraph 5 (1) (a) or (e).
eligible TCF value added, for an entity, has the meaning given to section 28.
TCF plant or equipment means plant or equipment used in an eligible TCF activity.
22. Section 28 states:
For an entity, the total eligible TCF value added by the entity, in respect of eligible TCF activities carried on by the entity for a program year, is worked out in the way set out in Schedule 2.
23. Section 5 of the Scheme states the meaning of “eligible TCF activity”. It provides relevantly:
(1) For the Scheme, each of the following activities is an eligible TCF activity:
(a) a manufacturing activity of a kind mentioned in Parts A to E of Schedule 1 carried on in Australia by an entity; …
…
(e) an activity of a kind mentioned in Part G of Schedule 1 carried on in Australia by an entity using an eligible TCF product resulting from a manufacturing activity mentioned in paragraph (a) carried on in Australia by the entity.
(2AB)Despite anything else in this section, a manufacturing activity of a kind referred to in Subdivision 21 or any of Subdivisions 23 to 29 of Division of ANZSIC, and not mentioned in subsection 1, is not an eligible TCF activity.
24. The Scheme requires that if an entity intends to apply for a Type 1, Type 2 or Type 3 grant, they must apply to the Secretary to be registered for the Scheme (s31(1)). The applicant is not eligible to register unless it carries on an eligible TCF activity (s31(2)). The claim, made in accordance with s52, is then assessed by the Secretary (s61) who must be satisfied that if the claim is for a Type 1 grant, the amount of expenditure is eligible within the meaning of s15; if the claim is for a Type 2 grant, the expenditure is eligible within the meaning of ss23 – 26; and if it is a Type 3 grant, the amount of the expenditure is the total eligible TCF value added by the entity in accordance with s28. Sections 64, 65 and 66 provide caps, respectively, for Type 1, 2 and 3 grants. Section 85A imposes an overall limit on the total grants that become payable to an entity during a particular year of income of the entity. At the time of making the claim, the applicant may request that the Secretary determine if the applicant is entitled to a grant (s75). If the Secretary is satisfied that the applicant does qualify, then the Secretary must determine the amount to be paid (s76). Section 87 provides that an entity affected by and dissatisfied with a decision may request the Secretary to reconsider the decision. Section 88(6) empowers the Tribunal to review the decision.
Evidence
25. The evidence of the three witnesses who gave oral evidence at the hearing is summarised below. However, the Applicant tendered and the Tribunal admitted into evidence statements from nine other lay witnesses concerning KCA manufacturing processes and products, and from one other expert witness, Dr Gayle Fischer, a specialist paediatric dermatologist who provided an opinion on the utility of disposable nappies and adult incontinence products. The Respondent also tendered and the Tribunal admitted into evidence statements from three lay witnesses in relation to perceptions about the relevant KCA products. Those statements are referred to where relevant in the section below headed “Discussion of the Law and Findings”.
Professor Ross Griffith
26. Professor Griffith provided statements dated 29 August 2002 (A2), 26 February 2003 (A3) and 16 May 2003 (A4). Professor Griffith is an emeritus professor of the University of New South Wales where he was head of the School of Fibre Science and Technology from 1985 to 1997. He holds various honorary positions including Chairman of the Australian National Advisory Council of the Textile Institute. He has wide experience as a consultant textile technologist, including to both the Federal and State Governments, extensive research experience, and has published widely in the textile technical and general literature.
27. Professor Griffith included the following explanation in his statement of 29 August 2002 (A2):
Textile
17. A textile is a structure deriving from fibres or filaments as the basic element.
18. The most commonly recognised forms of textiles are fabrics, which are essentially two dimensional arrays of fibres. The fibres may be assembled into yarns, which become the basic manufacturing elements for fabrics.
19. These essentially single dimension assemblies of fibres in the form of yarns, threads, ropes etc are, together with the fibres themselves, also recognised as textiles. Assemblies of fibres for human use date back some 10,000 years, originally using fibres derived from natural materials such as plants (for example cotton or flax) and animals (for example wool or silk). Over time, most particularly the past century, artificial or man-made fibres have been produced (for example rayon, nylon, polyester or polypropylene), and mineral fibres have been identified and used (for example asbestos, silicon, boron or carbon). The term fibre is also used outside the field of textiles, in such contexts as dietary fibre, the fibrous structure of leather, and the fibrous nature of paper.
20. The distinguishing feature of textile fibres is that they have individually useful physical integrity and strength (that is a minimum size or diameter), and a length to diameter ratio in the order of 50:1 to 100:1. It is this latter concept that distinguishes textiles from, for example, paper.
21. Textiles generally are flexible structures, thus finding their major application in clothing and furnishings. The earliest structures were weaves and felts, supplemented over time with knit structures and a variety of specialties such as laces, nets and macramé amongst others. These materials are often referred to as “traditional” textiles. With the development of synthetic fibres in particular, alternate methods of coherent fibre assembly have been possible, and a plethora of new structures has arisen. Many of these structures have no yarn component, rather being direct assemblies of fibres bonded together to form a coherent structure, and exhibit mechanical properties similar to woven and knitted structures. They include thermally bonded structures, needle punched fabrics and chemically bonded structures amongst others. These fabrics are often referred to as “non-traditional” textiles.
22. In many cases they have become substitutes for “traditional” textiles in “traditional” applications; in other cases they have given rise to new applications for textiles such as in fibre or fabric reinforced composites.
23. Spunlaid or spunbonded fabrics are typical of this new generation of “non-traditional” textile fabrics. In the manufacture of this product, synthetic polymer, for instance polypropylene, is melted and extruded as multiple fine continuous filaments. The filaments are laid down in a somewhat random overlaying pattern, and before complete solidification on cooling, coalesce at points of fibre intersection to produce a thermally bonded structure.
24. A more sophisticated “non-traditional” fabric is a spunbond/meltblown/spunbond composite, which has entered the textile lexicon as “SMS” fabric. In this instance a polymer is extruded as a film, subjected to a high-speed air jet which breaks up the film into short fibrous polymerstrands. The process is known as meltblowing. The strands are directed between two layers of spunlaid web, the molten strands acting as a bonding or welding agent between the two spunbond layers.
Textile Finishing
25. Textile finishing refers to processes applied to textiles to produce particular desired properties.
26. The process may be as simple as ironing or pressing to produce a flat surface, ranging to processes where fundamental chemical or physical change is imposed on the textile to give such properties as crease resistance, permanent pleating, water repellency, water impermeability, light impermeability, enhanced thermal insulation, enhanced surface decoration, increased surface smoothness, resistance to mildew, and resistance to insect destruction amongst others.
27. Textile finishing is almost always applied to the newly created textile, whether it be woven, knitted or the outcome of the newer fabric forming technologies. It recognises the limitations imposed on the fabric by those fabric forming processes, or the inherent deficiencies of the fabric structure compared to consumer expectations.
28. Simple physical finishing processes include surface shearing to remove excess fibre; singeing to remove surface fibre; brushing to raise additional surface fibre for softness of handle or enhanced thermal properties.
29. Chemical finishing may include the modification of the fibre structure to “remember” a specific configuration (in permanent pleat and crease resist applications); modification of fibre surface structure to reduce fabric shrinkage due to mechanical action (for wool particularly); addition of surface chemicals with natural water repelling properties (such as silicones); amongst others.
30. More advanced physical modification includes applying coatings to the fabric to increase stiffness or to give light impermeability, and the joining of the textile to a layer of another material which itself has properties which the textile does not have.
31. Such processing is known as laminating, a common example being the adhesion of a layer of foam to a fabric for enhanced thermal insulation. Such finished fabrics are commonly used in the manufacture of cold climate clothing. Alternatively the principal textile (very often lightweight and thin for aesthetic reasons) may be bonded to another fabric which has bulk and hence warmth, but no aesthetic appeal.
32. Lamination is an increasingly common form of fabric finishing. Optimum outcomes for a product can thus be achieved by combining different materials, which each contribute their particular properties, for the benefit of the product as a whole. That particular property might be low cost; high strength; desirable surface properties; moisture absorbence; or waterproofing; for instance. The total benefit could not be achieved from a single available component. These laminates are exemplifications of the adage that “the whole is greater than the sum of the individual parts”.
33. Textile lamination is achieved by the adhesion of the principal textile to another component which adds valuable properties not present in the original, which itself has other desirable properties.
34. The adhesion is achieved either through an applied adhesive agent (a glue in effect acting between the two components, or by modification of the surface of one or both components, for example by heat softening in the case of thermoplastic materials, and effecting a “weld” or “meld” between the two surfaces. In the present consideration, the lamination method is the application of an adhesive substance between textile fabric layers, with the application of pressure to ensure intimate surface contact.
35. In setting out the following opinions, as well as using my own knowledge, I have been mindful of the following definitions provided in “Textile Terms and Definitions” published by the Textile Institute, the foremost international professional body of textile science and technology:
(a)“Textile” The noun form of the definition is “Originally a woven fabric but the term is now applied to fibres, filaments, or yarns, natural or man-made, and products obtained from them. Note; For example, threads, cords, ropes, braids, lace, embroidery, nets, and fabrics made by weaving, knitting, felting, bonding, and tufting are textiles”.. The adjectival form of the definition is “Descriptive of fibrous or filamentous manufactures and of the raw materials, processes, machinery, buildings, and personnel used in, the organisations associated with, and the technology of, their manufacture”.
(b)“Fabric” is defined as “A manufactured assembly of fibres and/or yarns that has substantial surface area in relation to its thickness and sufficient mechanical strength to give the assembly inherent cohesion. Note: Fabrics are most commonly woven or knitted, but the term includes assemblies produced by lace-making, tufting, felting, net-making, and the so-called nonwoven processes”.
(c)“Fibre” is defined as “(1) Textile raw material generally. (2) A unit of matter characterised by flexibility, fineness, and a high ratio of length to thickness”.
(d)“Spunbond” is an abbreviation of “spunbonded”, defined as “An alternative name for spunlaid fabric”.
(e)“Spunlaid” is defined as “A nonwoven fabric made by the extrusion of filaments that are laid down in the form of a web and bonded”.
(f)“Meltblown” derives from the process of “meltblowing”, defined as “A process in which a polymer is melt-extruded through a die into a high velocity stream of hot air, which converts it into fine and relatively short fibres. After quenching by a cold air stream, the fibres are collected as a sheet on a moving screen”.
(g)“Nonwoven fabric” is defined as “In general, a textile structure made directly from fibre rather than yarn. Fabrics are normally made from extruded continuous filaments or from fibre webs or batts strengthened by bonding using various techniques: these include adhesive bonding, mechanical interlocking by needling or fluid let entaglement, thermal bonding and stitch bonding”.
(h)“Finishing” is the means to achieve a “finish”, defined as “A term used broadly in the paint, paper, printing ink, leather, plastics and textile industries to include the added materials, the finishing processes employed, and the final result. (1) A substance or mixture of substances added to a substrate at any stage in the process to impart desired properties. (2) The type of process, physical or chemical, applied to a substrate to produce a desired effect. (3) Such properties, e.g., smoothness, drape, lustre, gloss or crease resistance produced by (1) and/or (2) above. (4) The state of a substrate as it leaves a previous processor. (5) The quality or appearance of a paint or printing ink film.
(i)“laminated fabric” is defined as “A material composed of two or more layers, at leat one of which is a textile fabric, bonded closely together by means of an added adhesive, or by the adhesive properties of one or more of the component layers”.
28. In cross-examination, Professor Griffith was asked about the description of “Textile Finishing” in the Australian and New Zealand Standard Industrial Classification 1993 (“ANZSIC”) at p61, which states:
This class consists of units mainly engaged in bleaching, dyeing, printing, pleating or other finishing of yarns, threads, fabrics or other textiles on a fee or commission basis using client supplied materials or materials which are purchased or transferred in from other units.
Professor Griffith said he considered this description misleading because most textile finishing is part of a continuous manufacturing process.
29. Professor Griffith was asked about each of the relevant products listed in paragraph 5 above, although not in that order:
(a) Incontinence Products
(i) DEPENDâ Bed Protector
This product, which is an article and not a garment, is laid over the bottom sheet on a bed to protect the sheet and mattress from soiling associated with incontinence. A textile surface is presented to the patient with a liquid impervious barrier on the underside.
It incorporates two textile fabrics: a spunbonded fabric on the upper surface attached by adhesive to a spunbond/meltdown/spunbond composite known in the textile industry as an “SMS” fabric to which a thin polyethylene sheet has previously been laminated. Between the spunbond fabric and the SMS fabric is sandwiched a layer of absorbent material containing cellulose pulp. Professor Griffith said textile finishing occurs when the three layers are laminated, by adhesive, to form the sheet. The product only functions when all three layers are brought together. It is the white body-side fabric which is being finished by adding to it the absorbent layer.
(ii) DEPENDâ Shield (A6)
This is a garment-like adult incontinence product that has elastic insertions for shaping and form fitting which can be attached to other garments, and comprising two layers of nonwoven fabric - one spunbonded (next to the skin of the wearer) and the other a SMS fabric to which a thin sheet of polyethylene film has previously been laminated. Between the two fabrics is sandwiched an absorbent core. The fibre side of the SMS/polyethylene composite is on the outside of the product, presenting a more desirable surface for handling, softness etc. Textile finishing occurs in the manufacturing process when the three layers are laminated using adhesives. There is no physical or chemical change to the textile itself except at the site of the bonding.
(iii) DEPENDâ Pad Incontinence Product (A7)
This is an adult incontinence pad which is worn inside an undergarment such as underpants to which it is temporarily adhered. Like the DEPEND Shield, it comprises two layers of non-woven fabric between which is sandwiched an absorbent core, with the layers being laminated using adhesives. The textile finishing is similar to that for the DEPEND Shield.
(iv) DEPENDâ Undergarment (A8).
This is garment-like, larger than the DEPEND Shield, and has elastic strands incorporated into the sides for close body fit and to minimise leakage. The two outer layers are non-woven fabrics, the inner side of the outside layer, a SMS fabric, being laminated to a polyethylene film. The outer layer nearest the body is a spunbond fabric. Between the two outer layers is an absorbent core. The three layers are laminated using adhesives. In total, the product involves four laminating processes all of which are regarded as textile finishing.
(b) Nappies
(i) SNUGGLERSâ
(ii) VIP KIMBIESâ
(iii) HUGGIESâ
These products are disposable nappies and essentially similar. They have the characteristics of garments, ie shaped textile components and various attachments for shaping, solid containment and fastening. All have two layers of non-woven fabrics between which are sandwiched an absorbent bat and an impermeable polyethylene film which is laminated to the inner side of the outer layer of non-woven SMS fabric.
In SNUGGLERS, the absorbent bat is contained between two layers of a spunbonded fabric, whereas in VIP KIMBIES and HUGGIES it is contained between two layers of paper tissue. No purpose would be served by gluing the absorbent pad to its wrap. Indeed, this might impede its absorption of liquid. There are other minor differences in detail between the three products, especially as to shape and attachments. The manufacture of all three products includes laminating processes: three in the case of SNUGGLERS and four in the case of VIP KIMBIES and HUGGIES. The adhesion of elastic is a garment process rather than textile finishing.
(c) Feminine Hygiene Products
(i) KOTEXâ Maxi Pad
This product is a laminate of a spunbonded fabric to an impermeable polyethylene film, with an enhanced absorbent sandwiched between these two layers. Each of the three layers has its own function. The plastic backing is to protect the wearer’s underwear. The body side layer presents a comfortable, textile layer next to the wearer’s skin. Lamination is achieved by coating the constituent layers with adhesive and subjecting the assembly to pressure. The two applications of adhesive and subsequent bonding are textile finishing processes by lamination as defined above. The outcome is a process of manufacturing sanitary napkins by textile lamination.
(ii) KOTEXâ Ultrathin
This product is similar to the KOTEX Maxi Pad with alternative absorption media. Assembly of the product involves three laminations using adhesive which are textile finishing processes.
(iii) POISEâ Liner
This product is a laminate of body-side fabric to a liquid impervious polyethylene film between which are sandwiched an absorbent pad and a moisture transfer layer. Assembly involves three laminations using adhesive which are textile finishing processes.
30. In a second statement dated 26 February 2003 (A3), Professor Griffiths commented further on matters raised in the Respondent’s Statement of Facts and Contentions:
Opinion
11. Subject to the matters I note below, I agree in essence with the submission of the Respondent that “the textile finishing takes place simultaneously with converting, making up or assembly activities which are not textile finishing” in the case of every product listed with the exception of the Depend® Bed Protector. In the case of the Depend® Bed Protector, the only additional activities to the textile finishing activities involved in its manufacture are cutting, folding and packaging, which are not converting, making up or assembly activities. In the case of the other products listed, the manufacture of each of these products does involve processes other than the textile finishing processes. In my Report I have described these as “additional activities” and they include, for example, the insertion of elastic in some products or the attachment of fastening tape. At various points in my Report I have described these as “garment manufacturing processes”.. I do not consider these processes to be textile finishing processes and I stated as much in my Report.
12. My reservation relates to the use of the word “simultaneous” in the Respondent’s submission, which implies an inter-dependence of the finishing processes and converting, making up or assembly activities. In reality there is no inter-dependence. All the finishing processes I have described could take place on a stand-alone basis, producing finished textile goods for subsequent and independent converting, make up or assembly. It is coincidental (or to the credit of the plant engineers and manufacturing system designers) that the two separate activities of textile finishing and product assembly are combined into a continuum of processes on a single manufacturing unit.
13. Traditionally, textile finishing activities were separate from converting, making up or assembly activities, often occurring between production of the original textile and conversion to the final product. An example of this would be the coating of curtain fabric to make it impermeable to light, before it is converted into curtains, or the application of an “anti-shrink” chemical to cotton cloth before it is made up into clothing. This might be done at 2 distinct points in the one factory, or the textile finishing activities might even be outsourced. However, KCA manufactures its products using sophisticated assembly lines that can combine a number of processes simultaneously. The fact that the processes occur simultaneously does not change the classification of the processes. In the manufacture of each of its products KCA performs textile finishing by lamination several times.
14. Furthermore, in my opinion the textile finishing activities are the core activities that occur during the manufacture of KCA’s products. In the case of each product a textile that can be worn next to the skin is laminated with other textiles, an absorbent layer and a polyethylene layer to give the textile particular end-use properties, in particular making it extremely absorbent and impermeable to liquid. These end-use properties are essential to the function of KCA’s products. The laminated textile product is shaped and accessories are added to make the product fit the user better, but the fundamental characteristics of the product are achieved by use of textile finishing activities.
Rebecca Doyle
31. Ms Doyle made a statement dated 15 April 2003 (A15). She is the Product Category Manager for Baby Wear at “Bonds”, a division of Pacific Brands Pty Ltd. She holds the degree of Bachelor of Design (Fashion and Textile) from the University of Technology, Sydney, and has worked in the children’s clothing industry since 1991.
32. Ms Doyle stated that she had observed a change in the design of products for the lower half of the baby’s body since the early 1990s. An improved fit and reduction in the bulk of disposable nappies means that the shape of the baby’s body is not significantly altered when the baby is wearing a nappy. In the same way that it used to be common to see babies dressed in cloth nappies and a T-shirt, it is now common to see babies dressed in a vest or T-Shirt and a disposable nappy. Disposable nappies have become a substitute for underpants until the baby is toilet trained.
Mary Goldfinch
33. Ms Goldfinch provided a statement dated 29 August 2002 (A1). She is a registered mothercraft nurse who, since 1983, has conducted a private practice involving home visits to new mothers. She provides counselling on the challenges and problems facing new parents including feeding, sleeping, play and medical needs. She stated that, in her opinion, “disposable nappies are far more ‘user-friendly’ in that they are more comfortable, fit better and are easier to dress the baby in, than cloth nappies”.
34. Ms Goldfinch said disposable nappies are also more absorbent than a cloth nappy and can to some extent function as underwear, for example if an infant is partly toilet trained. A significant difference from the cloth nappy is the way a disposable nappy should fit snugly to the child permitting other clothing to be worn with ease.
Discussion of the Law and Findings
35. The issues to be determined by the Tribunal are first, how should KCA’s manufacturing activities be classified under the Scheme and, second, do KCA’s products result from an eligible TCF activity referred to in s5(1)(a) or (e) of the Scheme? If the answer to the second question is ‘Yes’, then KCA may be eligible for grants under the Scheme.
36. The relevant KCA products fall into three categories: first, incontinence products; second, disposable nappies; and third, feminine hygiene products. “The Respondent does not dispute that part of the process of manufacturing those products includes laminating textile components” (Respondent’s Submissions paragraph 41).
37. The Scheme requires the classification of different manufacturing activities in order to determine whether they are eligible TCF activities. The meaning of “eligible TCF activity” is set out in s5 of the Scheme and includes relevantly:
(1)(a) a manufacturing activity of a kind mentioned in Parts A to E of Schedule 1 carried on in Australia by an entity; …
(e) an activity of a kind mentioned in Part G of Schedule 1 carried on in Australia using an eligible TCF product resulting from a manufacturing activity mentioned in paragraph (a) carried on in Australia by the entity.
38. Schedule 1 of the Scheme lists eligible TCF activities in Parts A to G. Relevant in this matter are Part A4 Textile finishing, Part C3 Sleepwear, Underwear and Infant Clothing Manufacturing, and Part C4 Clothing Manufacturing n.e.c. [not elsewhere classified]. A note at the beginning of Schedule 1 states:
The activities listed in this Schedule are based on Division C, Subdivision 22 of the Australian and New Zealand Industrial Classification (ANZSIC).
Thus, where appropriate, reference could be made to ANZSIC as an extrinsic aid in the interpretation of relevant legislative provisions. Subdivision 22 is headed “Textile, Clothing, Footwear and Leather Manufacturing”.
39. However, s5(2AB) of the Scheme, inserted by an amending instrument that took effect on 4 June 2001, made the ANZSIC classifications an integral part of the Scheme. Section 5(2AB) states:
Despite anything else in this section, a manufacturing activity of a kind referred to in subdivision 21 or any of subdivisions 23 to 29 of Division C of ANZSIC, and not mentioned in subsection 1, is not an eligible TCF activity.
Thus, manufacturing activities classified outside Subdivision 22 fall outside the Scheme. The Tribunal notes that s5(2AB) was inserted by the Textile, Clothing and Footwear Strategic Investment Program Scheme Amendment 2001 (No 2) which, as stated above, took effect on 4 June 2001. The Explanatory Memorandum for the Amendment states relevantly about the amendment of s5 of the Scheme:
This amendment clarifies what is meant by eligible TCF activity under the TCF (SIP) Scheme by expressly aligning eligible TCF activities in the Scheme with Subdivision 22, Division C, Manufacturing, of the Australian New Zealand Standards Industrial Classifications (ANZSIC), published in 1993 by the Australian Bureau of Statistics. It is noted that the Productivity Commission also relied on ANZSIC to define the TCF industry in its review of the industry in 1997.
The amendment of Section 5 is intended to make it clear that activities of a kind mentioned in Subdivision 21 or any of Subdivisions 23-29 of Division C of ANZSIC are not an eligible TCF activity unless mentioned in subsection 5(1).
40. The relevant Parts of Schedule 1 of the Scheme state as follows:
A4 Textile Finishing
This category consists of any activities involved in the processes of dyeing, printing, and finishing, including any process of impregnation, coating or lamination for imparting particular end use properties to yarns, fabrics or other textiles.
· Textile dyeing, including textile pigmentation
· Textile printing, including flock printing
· Label, printed cloth, manufacturing
· Impregnation, coating or lamination.
C3 Sleepwear, Underwear and Infant Clothing Manufacturing
This category consists of the manufacturing of foundation garments, underwear, sleepwear or infants’ clothing from purchased or transferred in materials.
· Brassieres, manufacturing
· Corsets, manufacturing
· Foundation garments, manufacturing
· Girdles, manufacturing
· Infants’ clothing, manufacturing
· Sleepwear, manufacturing
· Underwear, manufacturing
C4 Clothing Manufacturing n.e.c.
This category consists of manufacturing of headwear, fur or leather clothing, clothing or clothing accessories n.e.c., and also includes the provision of clothing trade services such as hem stitching, basque knitting or buttonholing.
· Belts, manufacturing (for clothing)
· Clothing accessories, manufacturing n.e.c.
· Clothing, fur, manufacturing
· Clothing, leather or leather substitute, manufacturing n.e.c.
· Clothing manufacturing n.e.c., including clothing for protective or safety purposes
· Gloves, manufacturing (except rubber gloves)
· Handkerchiefs, manufacturing
· Hats* or headwear, * manufacturing
41. The Respondent contends that in so far as KCA undertakes laminating activities in the manufacture of its products, those activities are not properly classified under Part A4 Textile Finishing. Rather they are composite activities in which lamination occurs along with a number of other processes and only in a highly artificial sense can these activities be described as textile finishing. Moreover, the Respondent contends that the manufacture of the relevant KCA products falls outside the ambit of the Scheme because the manufacture is of baby napkins and sanitary napkins (and like goods) and not the manufacture of clothing (or any sub-category of clothing) (Respondent’s Submissions paragraph 4 and 5).
42. Subdivision 25 of ANZSIC (Petroleum, Coal, Chemical and Associated Product Manufacturing), class 2543 Medicinal and Pharmaceutical Product Manufacturing states:
2543 Medicinal and Pharmaceutical Product Manufacturing
This class consists of units mainly engaged in manufacturing drugs, medicines, medicinal chemicals or other pharmaceutical products for human or veterinary use. Units mainly engaged in manufacturing herbal medicines are also included in this class.
Exclusions/References Units mainly engaged in manufacturing sheep or cattle dips or blowfly specifics or pesticides are included in Class 2544 Pesticide Mfg.
Primary Activities
Anthelmintic mfg Ointment mfg
Antibacterial mfg Pharmaceutical preparation mfg
Antibiotic mfg Saccharin mfg
Antitoxin mfg Saline powder mfg
Baby napkins mfg Sanitary napkins mfg
Barrier cream mfg Serum mfg
Contraceptive mfg Tampons mfg
Ether mfg Toilet lanolin mfg
Feed supplement mfg Toxin mfg
Medical gas mfg n.e.c. Vaccine mfg
Medicine mfg Vitamin product mfg
Morphine mfg
43. Thus, pursuant to the Respondent’s contentions, if the relevant KCA products manufacturing activity should be classified under class 2543, for example as “Baby napkins” or “Sanitary napkins” manufacturing or the manufacturing of a like product, then s5(2AB) of the Scheme excludes that manufacturing from the definition of eligible TCF activity.
44. By contrast, the Applicant made the following submission:
105.Subsection 5(2AB) recognises that a manufacturing activity can be of a kind that is referred to in Subdivision 21 or any of Subdivisions 23 to 29 of Division C of ANZSIC and also be of a kind mentioned in Parts A to E of Schedule 1 to the Scheme. However, it is only where the activity is not mentioned in Parts A to E of Schedule 1 to the Scheme that sub-section 5(2AB) can operate. In this regard the wording of sub-section 5(2AB) stands in stark contrast to sub-section 5(2A).
106.Here, each claimed manufacturing activity is of a kind mentioned in Parts A4, C3 and C4 of Schedule 1. It follows that sub-section 5(2AB) does not apply.
107. Further, and in any event:
(a)the reference in ANZSIC 2543 is to “baby napkins”.. This reference is suggestive of the square piece of fabric employed for use to form, with other components, the traditional nappy, and not garments of the kind manufactured by the Applicant;
(b) there is no reference to adult incontinence products; and
(c)there is no reference to the textile finishing activities of Part A4 in Schedule 1.
45. In the Tribunal’s view, the key to resolving this issue is to determine what is meant by the term “manufacturing activity” in the context of s5(1)(a) of the Scheme. In doing so, the Tribunal must, of course, apply the principles of statutory interpretation.
46. Section 15AA(1) of the Acts Interpretation Act1901 states:
(1)In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object.
47. Section 15AB(1) permits reference to certain extrinsic materials where capable of assisting in ascertaining the meaning of a provision of an Act in order to confirm the ordinary meaning or determine the meaning where the provision is ambiguous or obscure or where the ordinary meaning leads to a result that is manifestly absurd or unreasonable.
48. Section 15AB(2) sets out, non-exhaustively, the type of extrinsic material that may be referred to. This includes the Explanatory Memorandum relating to the relevant Bill containing the provision and the Second Reading Speech in relation to the Bill.
49. Section 46 provides that delegated legislation made pursuant to a power in an Act shall be construed with the same meanings as in the Act unless the contrary intention appears.
50. In the Tribunal’s view, to determine the meaning of “manufacturing activity” in s5(1) requires an understanding of the purpose or object underlying the Act. In particular, was the Scheme intended to apply in all situations where a manufactured product contains textile components or only in situations where the finished product is itself a textile or comprises clothing? Ambiguities in the legislation permit reference to relevant extrinsic material to assist in clarifying the purpose or object of the legislation.
51. The Explanatory Memorandum to the Textile, Clothing and Footwear Strategic Investment Program Bill 1999 states (at p2):
The Bill establishes the framework for the implementation of the Textile, Clothing and Footwear Strategic Investment Program. The program aims to foster the development of sustainable, internationally competitive TCF industries in Australia during the transition to a proposed free trade environment under the Asia Pacific Economic Cooperation (APEC) by providing incentives which will promote investment, innovation and value adding in the Australian TCF industries and better exploit Australia’s natural advantages in raw materials such as wool, hides and cotton.
52. The Second Reading Speech in respect of the Bill contains the following statement (Hansard, House of Representatives, 11 February 1999, p2455):
The proposed Textile, Clothing and Footwear Strategic Investment Program Bill 1999 allows for the establishment of the TCF Strategic Investment Program as the key initiative for the TCF industries. The TCF Strategic Investment Program is a five-year, $700 million package aimed at encouraging additional investment in the TCF industries to add value to the products of early stage processing. The program aims to help in the development of sustainable, internationally competitive TCF industries in Australia during the transition to a freer global trade environment, by providing incentives which will promote investment, innovation and value adding in these industries. The program will also provide incentives to areas which are heavily dependent on TCF manufacturing industries, primarily regional areas.
The benefits available under the TCF Strategic Investment Program will be paid as cash, annually and in arrears. All firms engaged in textile, clothing, footwear and leather manufacturing in Australia, as defined by the Australian Bureau of Statistics, will be eligible to apply for assistance under the program.
53. In the Tribunal’s view, it is clear that the object or purpose of the Act and the Scheme are to provide incentives to encourage investment in the textile, footwear and clothing industries in Australia in order to foster the development of sustainable and internationally competitive TCF industries in Australia during the transition to a freer global trade environment. The focus in s5(1)(a) of the Scheme is on manufacturing activity and the relevant Parts of Schedule 1 of the Scheme involve textile finishing (Part A4), the manufacture of sleepwear, underwear and infant clothing (Part C3) or the manufacture of clothing not elsewhere classified (Part C4).
54. The first question is whether textile finishing which takes place in the course of other manufacturing activities – for example, in the manufacturing of sanitary napkins – and which is not itself the end product of the manufacturing activity in question, is to be separately identified as a manufacturing activity under Part A4. The Respondent does not dispute that part of the process of manufacturing the relevant KCA products includes laminating textile components.
55. The Tribunal also accepts Professor Griffith’s evidence that the manufacture of each of the relevant KCA products involves a process of lamination for imparting particular properties to the textile components of the end product. Thus, textile finishing as defined in Part A4 of Schedule 1 of the Scheme is involved. However, the textile finishing itself is not the end product of KCA’s manufacturing activity. The textile finishing occurs in the course of and as a step in a more complex manufacturing activity where the end product is a manufactured good.
56. In the Tribunal’s opinion, the Scheme only makes sense if the focus is on the overall manufacturing activity rather than its composite parts. So, for example, the end activity might be dyeing textiles, or coating a textile with an impervious waterproof layer (both within Part A4), or it could be manufacturing pyjamas or nightgowns (ie manufacturing sleepwear within Part C3), or manufacturing handkerchiefs (within Part C4). In each case, it is the overall manufacturing activity -– the sum of its composite parts, which is the activity on which the focus should be placed when classifying activities for the purpose of the Scheme.
57. Having so determined, regard must also be had to Subdivision 25 class 2543 Medicinal and Pharmaceutical Product Manufacturing, set out above. In particular, what do the terms “baby napkins” and “sanitary napkins” used there mean? In the Tribunal’s opinion, given that the list of primary activities noted in class 2543 is non-exhaustive and, presumably, intended to be indicative of the range of manufactured products included in that class, some latitude should be allowed in attributing a meaning to the terms “baby napkins” and “sanitary napkins”.. The Tribunal does not agree with the Applicant’s contention that the reference to “baby napkins”:
is suggestive of the square piece of fabric employed for use to form, with other components, the traditional nappy, and not garments of the kind manufactured by the Applicants;
Nor is the Tribunal persuaded by the fact that class 2543 makes no reference to adult incontinence products as justification for interpreting the term “sanitary napkin” narrowly. It is clear that the word “napkin” is used in the sense of a nappy which is defined in the Macquarie Concise Dictionary (Third Edition 1998) as:
A piece of muslin, cotton, or some disposable material, fastened around a baby to absorb and contain its excrement. (alteration of NAPKIN).
58. In the Macquarie Concise Dictionary, the term “sanitary napkin” is defined as:
a soft, absorbent, disposable pad worn during menstruation to absorb the discharge from the uterus.
The word “sanitary” is defined as:
1.having to do with health or the conditions affecting health, especially with reference to cleanliness, precautions against disease, etc.
2. favourable to health; free from dirt, germs etc.
59. In the Tribunal’s opinion, incontinence products of the kind at issue in this matter, excepting the DEPEND Bed Protector, are all forms of disposable napkin, the purpose of which, like sanitary napkins, is to absorb a bodily discharge. Furthermore, the word “sanitary”, taken on its own, is sufficiently broad to cover bodily discharges other than those associated with menstruation, and so “sanitary napkin” could also be interpreted more broadly to include all napkin-type products the purpose of which is to absorb or contain bodily discharges.
60. Given that the primary activities listed in class 2543 are non-exhaustive and that the class covers medicinal and pharmaceutical products for human use, in the Tribunal’s opinion, the Dependâ Bed Protector should be treated as a like product to “baby napkins” and “sanitary napkins” since it is a product for human health and cleanliness. The manufacturing activity involved is the manufacturing of an incontinence product and, although textile lamination is involved, is neither textile finishing nor clothing manufacture.
61. Thus far, the Tribunal has focused on Part A4 Textile Finishing when read in conjunction with s5(2AB) and Subdivision 25 class 2543. Reference must also be made to Parts C3 and C4 of Schedule 1 of the Scheme. Part C3, Sleepwear, Underwear and Infant Clothing Manufacturing specifically includes infants’ clothing and underwear manufacturing.
62. The Applicant contends (Applicant’s Submissions):
8.1the contemporary infants disposable nappy is a comfortable, well fitting and snug garment which takes the place of an undergarment (see the evidence of Mrs Goldfinch referred to above). It is common for a baby to be dressed in a disposable nappy and a vest or T-shirt, in which case the disposable nappy is being worn as clothing (see the evidence of Ms Doyle referred to above). Dr Fisher refers to the nappy as a “sufficient clothing for a baby or infant” and “a complete garment in themselves”. Clearly enough nappies are used as sleepwear for infants …
8.2It follows that the manufacture of nappies is a manufacturing activity of a kind mentioned, specifically, in Part C3 of Schedule 1. Therefore the manufacture of nappies is an “eligible TCF activity” and a nappy is an “eligible TCF product”.
8.3Feminine hygiene products and incontinence products are worn under outer clothes, and next to the skin. They clearly function as underwear and sleepwear. It follows that the manufacture of incontinence products and the manufacture of feminine hygiene products is each a manufacturing activity of a kind mentioned, specifically, in Part C3 of Schedule 1. Therefore, in each case, the manufacture of each of the products is an “eligible TCF activity” and an “eligible TCF product”.
63. With regard to Part C4, the Applicant contends:
84.Further, the applicant submits that the manufacture of each of the nappy products, incontinence products and feminine hygiene products is a manufacturing activity of a kind mentioned in Part C4 (clothing manufacture not elsewhere classified including the manufacture of protective clothing) of Schedule 1 to the Scheme.
85. This category includes “clothing for protective or safety purposes”.
86. The Macquarie Dictionary provides the following definitions:
“protective” as “1. Having the quality of protecting. 2. Tending or designed to protect”.
“protect” as including “1. To defend or guard from attack, invasion, annoyance, insult etc.; cover or shield from injury or danger”.
87.The Applicant submits that its nappy products, incontinence products and feminine hygiene products have a “protective” function in at least two sense [sic]. The first is in the sense that the products protects [sic] the wearer’s skin from injury in the sense of protecting it from urine. The second is in the sense of enhancing the feeling of “security” of the wearer and protecting, particularly in the case of feminine hygiene products and adult incontinence products, other garments which are worn.
64. The Respondent contends that KCA’s products are not clothing of any kind. Disposable nappies are more accurately described as “baby napkins” rather than “infants’ clothing”:
61.Feminine sanitary pads and most of the adult incontinence products (the pad and the shield) are worn inside underpants. Their function is to collect bodily waste fluids and to protect clothing. It is not itself clothing.
62.Even though baby napkins and the Depends [sic] Undergarment can be worn without clothing and even though they may make it unnecessary to wear underclothing (or in the case of baby napkins any clothing), this does not make these products clothing themselves. Their critical function remains to collect bodily waste fluids. They are worn solely because the wearer does not have bowel or bladder control and have a medicinal or hygiene function. They are no longer worn when the person concerned gains (or regains) bowel and bladder control.
63.The Respondent contends that, on any construction of the Scheme, the products are not clothing.
65. In the Tribunal’s opinion, the principal function of KCA’s nappies, feminine hygiene and incontinence products is, as the Respondent submits, to collect bodily fluids or waste – a hygiene function. While unlike the feminine sanitary pads and most of the adult incontinence products, which are absorbent pads worn inside underwear, the DEPEND Undergarment and disposable nappies can be worn without other underwear, their principal function is the absorption or collection of bodily fluids and waste. They are used once and then disposed of. They cannot be washed for reuse. They only serve as underwear as a matter of containment and convenience. Thus, the Tribunal concludes that none of the KCA products can be categorised as falling within Part C3 or C4. They are essentially medicinal or hygiene products which are more appropriately categorised as products falling within Subdivision 25 class 2543.
66. The Tribunal concludes that none of the KCA products in issue fall within Parts A4, C3 or C4 of Schedule 1 of the Scheme and the products are specifically excluded from the Scheme by reason of s5(2AB). Thus, the products do not result from an eligible TCF activity as defined in s5(1) of the Scheme and the decisions under review must be affirmed.
I certify that the preceding paragraphs are a true copy of the reasons for the decision herein of Mr RP Handley, Deputy President
Signed: .......................................................................................
AssociateDate/s of Hearing 19, 20, 21, 22 and 23 May 2003
Date of Decision 24 July 2003
Lead Counsel for the Applicant Mr David Yates SCLead Counsel for the Respondent Mr Neil Williams SC
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