Kodak (Australasia) Pty Limited v The Commonwealth of Australia & Anor; The Commonwealth of Australia & Anor v Genex Corporation
[1992] HCATrans 101
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, • ~
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IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney Nos Sl36, Sl37 and Sl38 of 1991 B e t w e e n -
KODAK (AUSTRALASIA) PTY LIMITED
Appellant
and
THE COMMONWEALTH OF AUSTRALIA
THE COMMISSIONER OF TAXATION
Respondents
Office of the Registry
Sydney No Sl34 of 1991 B e t w e e n -
THE COMMONWEALTH OF AUSTRALIA
THE COMMISSIONER OF TAXATION
| Kodak(3) | 1 | 7/4/92 |
| MASON CJ | ||
| BRENNAN J | ||
| DEANE J DAWSON J | ||
| TOOHEY J | ||
| GAUDRON J MCHUGH J |
Appellants
and
GENEX CORPORATION PTY LTD
First Respondent
RABBIT PHOTO (SA) PTY LTD
Second Respondent
RABBIT PHOTO (WA) PTY LTD
Third Respondent
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON TUESDAY, 7 APRIL 1992, AT 10.19 AM
Copyright in the High Court of Australia
| MR D.M.J. BENNETT, QC: | In the first of those matters, if |
the Court pleases, I appear with my learned friend, MR B.J. SULLIVAN, for the appellant. (instructed by
Mallesons Stephen Jaques)
MR I.V. GZELL, QC: If the Court pleases, in the first of
those matters, I appear with my learned friend,
MR A.H. SLATER, for the Commonwealth and the
Commissioner of Taxation and for the appellant in
the second of those appellants. (instructed by the
Australian Government Solicitor)
| MR D.H. BLOOM, QC: | May it please the Court, I appear in the |
second matter with my learned friend, MR B.J. SULLIVAN, for the respondents. (instructed
by Blake Dawson Waldron)
| MASON CJ: | Mr Bennett. |
| MR BENNETT: | If the Court pleases. Your Honours, I hand up |
an outline of submissions. I also, Your Honours, because of the complexity of the matter, have had
prepared a second document entitled appellant's
submissions, which gives a much more detailedversion of our submissions.
MASON CJ: Yes, Mr Bennett?
MR BENNETT: If I can just give Your Honours a guide to the
way these have been set out. The six points of law are set out in the outline. In substance there are probably five rather than six. The lengthier
| Kodak(3) | 2 | 7/4/92 |
document has a number of pages of background at the
beginning, then it goes on to deal with the six
submissions separately.
Then at the end, on pages 11, 12 and 13, it
sets out the six submissions again with a summary
in each case of what is contended for by the
taxpayers and the Commissioner and what was found
by the Court of Appeal and the Federal Court on
each issue, as well as what one might colloquially
call a mud map of how the submissions fit together.
We have done it in terms of: "If yes, go to
2; if no, go to 3", and so on. Your Honours will
not need to worry about those "go to" commands
until Your Honours have reached conclusions on the
questions. It is just a convenient way of working
out what arises and what does not and how one getsto a result.
Your Honours, there are two other preliminary matters before I start.
The first is that my
learned friend Mr Gzell has provided for the Court
a ·volume of legislation and some explanatory
memoranda and so on on which he will be relying,
and that has conveniently been placed before
Your Honours. We are indebted for that assistance. There are two volumes, apparently, which he has provided.
The second matter is this, that I propose in
the course of the morning to make an application
for leave to amend my notice of appeal by adding a
short additional matter. The short additional matter is a matter which cannot be argued before
Your Honours because it is a constitutional point,
of which notice has not been given.
I propose to explain to Your Honours, (a), why
we are in the position of doing this and, (b), why in any event, it will not affect Your Honours at
all.
The reason we are in the position is that the point arises as a result of the decision in Mutual
Pools; the point came to our attention last
Friday - we have been considering it since
then; the point was apparently reserved by Genex,
by the respondent to the other appeal, in the
Federal Court because, of course, the proceedings in the Federal Court are a stated case, and the point was reserved so that, if Your Honours decide
in favour of the Commissioner in that matter, they
still have the point available to them. We, as I say, were not aware of the point until Friday. We simply wish to be in the position that if Genex can
argue it in the Federal Court, so can we.
| Kodak(3) | 3 | 7/4/92 |
It only arises in a particular combination of
answers to the other questions, and it may well
be - and I will explain that to Your Honours
perhaps at the end of the argument rather than
before it. So, it is probable that it will not
arise in any event. What we would be asking Your Honours to do if leave is granted is simply to
adjourn that issue at this stage and then, if it
arises on Your Honours' decision, to make an order
remitting it to the Federal Court so that we, at
least, are in the same position as Genex inrelation to the point if it is ultimately to be
argued in the Federal Court.
The point is - and I can explain it very
briefly in one or two sentences - that if the
negative is not new goods but is deemed to be for
the purpose of the sales tax legislation so that atax is imposed on the development of the negative
after it has gone into consumption as the property
of the customer, then the tax is a consumption tax,
or at least a tax imposed after the goods have
reached the end of the excise chain and, therefore,
in the Mutual Pools principle, under section 55,
cannot be in the same Act and cannot be placed in
it by a deeming process.
As I say, it only arises on a certain
combination of answers and we will not be asking
Your Honours to deal with it but merely to remit it
at the end of the day. I propose to make the application formally at the end of my submissions
so that Your Honours will be in a better position
to see where it fits into the overall argument.
The facts of the appeal are in a very short
compass and are not in dispute and the only reason
I need to go to them is to explain the terms which
are used which appear in the background at the front of the detailed submissions. I have underlined the four terms which I will be using.
One starts with unexposed negative film, which
is purchased from a retailer and, at the
appropriate point in the prior chain, a first sales
tax is exacted on that. No problem arises in this case in relation to that tax.
The customer then exposes it in his camera and
it becomes exposed negative film. It is then
delivered to us where its surface is subjected to asimple chemical process; it was described in the
evidence in both cases, while obviously in
different terms there is no difference in substancebetween the way it was described. It involves the removal of a small part of the surface, the fixing of certain other chemicals on the surface and the
| Kodak(3) | 4 | 7/4/92 |
addition of certain elements and, ultimately, one
has the familiar photographic negative. That is
known as the development of the film.
The negative - and it is important to realize
that it is always the customer's property - is then
used by us in a process under which light is shone
through it and that is done on to a piece of
sensitized paper which is then manufactured into a
print. There is no dispute, again, that sales tax
is payable on the sale by us to the customer of the
print.
The problem which arises in this case is that
the Commissioner claims that there is a third sales
tax. What he says is that the process of development of the negative constitutes
manufacture, either under the general law or under
an extended part of the definition, which I will
take Your Honours to. Therefore, he says, there is manufacture and the negative is then either applied
by Kodak to its own use, although it is not its
goods, and that raises the problem Your Honours
left open in State Bank recently, or when it is
given back to the customer there is a deemed sale
under section 17A of the Act, and section 17A,
without taking Your Honours to it now, simply says
that if a customer gives goods to a manufacturer
which he makes up and the manufacturer then gives
them back to the customer, even if the goods remain
the customer's property there is a deemed sale so
as to pick up a sales tax, and the Commissioner
says, by one or the other of those two ways, he is
entitled to the tax. In other words, what he is
seeking to do ultimately is to treat the Act rather
like a VAT, or as it is now being called inAustralia, a goods and services tax. The idea that
one looks at each stage and to make the system work
one has to have every stage covered by the tax.
Now, I referred Your Honours to an amended
definition. That appears at the top of page 2,
where in 1986 the definition of "manufacture" was
amended by adding the words saying that manufacture
includes, in effect, the development of exposed negative film into a negative. So we are faced with the fact that there is a deemed manufacture
which there takes place.
I propose now to go to the six detailed
submissions, the six questions and deal with them each in vacuo and then at the end of the day show
Your Honours how they fit together. But, it is
probably easier, because of the volume of
provisions one needs to look at, to look at each
one as a separate question at this stage.
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The first submission on the top of page two,
is that the development of exposed negative film
into a negative is not "manufacture" within the
ordinary meaning of that word. Now, I can be very brief about this submission, because both
Full Courts were in my favour on it and in a senseit is, although we have not had a formal notice of contention, we have little doubt that my friend is
going to argue this. In those circumstances, I do
not propose to, as I say, take Your Honours to it
in detail, but merely to show Your Honours how the
point arises and what the point is.
There is a line of cases in both England and
Australia where the courts have tried to draw a
line between two concepts: one is the alteration of
existing goods, which of course is not manufacture,
and one is the manufacture of new goods, which of
course is, and as Your Honours can appreciate,
there are many situations where there is a border
line. The best known cases are the three I have mentioned there, which Your Honours need not go to.
In Jax Tyres it was said that retreading tyres was
not the manufacture of new goods. In McNicol
v Pinch, which is the leading case in England,
there was a product called "330 Saccharin", which
had some minor impurities in it and therefore did
not have the sweetness of totally pure saccharin.By making it more pure and taking out some of the
impurities, one converted it into "550 Saccharin"
and that process was said not to be manufacture. There is an interesting dissent in that case
by Mr Justice Ridley and the point of
His Lordship's judgment is that one cannot answer
the question merely by looking to the words used.
In other words, His Lordship expressed the view in
his dissent that the majority judgment was simply
based on saying, well the word "saccharin" is used
both times, therefore it is not manufacture. The majority, in fact, went much further than that, but of course, the mere use of words cannot control one
way or the other. We use the words "exposed negative film" and "negative" and we say, well it is really the same thing. The Commissioner would say, no they are two completel'y separate types of
goods. But one does not really answer that by
saying, is there a different word for them? One has to go a little deeper than that. An example the other way is Jack Zinader,
which is of course one of the leading cases in
Australia, where reconditioned fur coats were held
to be the manufacturer of new goods. The customers
brought in their old furs, they were cut up, resewn
and made into different coats, I suppose. The
| Kodak(3) | 6 | 7/4/92 |
Court held that as a matter of degree, that was on
the other side of the line.
Here, the process is a chemical process. It
results in a removal of a very small part of the
surface of the exposed negative film and the fixing
of certain things on it and the addition of certainchemicals, but the bulk of the object is the same.
It has, of course, some different properties. One
could not shine light through the exposed negative
film to make a print directly, although there is a
procedure which Polaroid, I believe, uses which
does something similar to that, but we are not
concerned with that procedure in this
case.Certainly the type of film we are talking
about here, the evidence is it cannot be treated in
that way; one must go through the intermediate
step.
In Jack Zinader, there were a number of
phrases used. Mr Justice Williams used the phrase, "goods of a different character", and
Sir Owen Dixon used the phrase, "he cannot be
treated as having altered an existing thing without
producing a new one". What we say and what we said
below, and what appears to have been accepted, is
that this case in a sense is in a unique category,
which makes a lot of these cases - and if number of cases in the digests where things have
been held to fall on one side or the other of the
line. We do not think they help very much. There is one distinction in this case from
every other one of these cases, and that is that this is a case where the goods were simply going
through a process for which they were always
intended as part of their use. In other words, if one looks at the piece of unexposed negative film
when it is sold to the customer at the very first point in the chain and one says to the customer, "What are you buying this for?", the customer's answer, assuming he gives a careful and considered answer, will be, "I am buying it so that it can go
through a process. That process will have three
main steps. The first is that I will point my
camera at something and press the shutter. The second is that Kodak will develop the exposed negative film into a negative, and the third is that they will shine light through it so that I
have a print. It's really the print that I want.That's the purpose of the whole exercise". In that sense, our submission is, ultimately,
that the reason this is not manufacture is it is
part of the process of consumption which is the
very process it is bought for. It is what it is
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always intended to go through. If I wanted to take
perhaps a very remote analogy to demonstrate the
point, one does not say that a caterpillar, when itbecomes a butterfly, is becoming a different
creature. It is simply going through a process it
was always destined to go through as part of its
existence and when the caterpillar was born, one of
the things it was born for was to become a
butterfly.
This is not a case of some new object being
made which has any different commercial
significance. In all the other cases, whichever
side of the line they fall on, one can say perhapsthere is some difference of commercial
significance. The new tyre, no doubt, has a c:.; f ferent commercial value in significance to the
_d unretreaded tyre that is worn ·)ut; the new fur coats and the old fur coats, similarly. The purified saccharin may have a different price or
value or commercial purpose than the old saccharin,
and one can say that in all the other cases.
But here, one has something which is simply
two steps in a process. It is not that the exposed
film has a different purpose or commercial value
than the negative. Its only purpose or commercial
value is to become a negative. There is nothing
else you can use it for, and that feature is
different in the other cases. It is certainlydifferent in Jack Zinader, which is the leading
case the other way. There were things that could
be done with old fur coats other than cutting them
up and making them into new fur coats. But here you have an object which is really just a slightly
earlier developmental stage of the same object.
As I say, that argument succeeded in both Federal Courts and it is up to my learned friend to
challenge it, but that is the way we put it. The reason it is the same object is the purpose of reason. If one does look to the other reason, and
I will not spend any time on this, if one does look
to the question of degree of alteration, we say
here when Your Honours read the evidence there is a
fairly minor degree of alteration, and there is an
affidavit by Mr Forbes, who is a chemist employed
by Kodak, who describes the process, and if
Your Honours skim through that Your Honours will
see that what happens is that there is a fairly
minor series of chemical changes which are effected
to it. That is the first of the six points.
The second point depends upon the first being
answered adversely to my submission. It was not
considered at all by the Court of Appeal although
it was argued in the Court of Appeal and written
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submissions were put in in relation to it; and my
friend concedes that. I have the written submission if Your Honours wish to see them but
there is no advantage because my friend agrees it
was put to the Court of Appeal.
The Federal Court, again, accepted the taxpayer's argument on this point.
And this point
arises in this way: would Your Honours please go
to the black sales tax volume which I believe
Your Honours have. The starting point is the
definition of "goods" and that is at page 92,141.
Your Honours see that there is an exclusion in
paragraph (a):
goods which have, either through a process of
retailing or otherwise, gone into use or
consumption in Australia - The reason for that - as Your Honours will
appreciate and I will come to in more detail
later - is that in the first of the big sales tax
cases, in Ellis & Clark, the Court held that
secondhand goods or goods which had gone into use
or consumption - the phrase is used in the case -
were not subject to sales tax and this provision
was put in substantially to embody the decision in
that case.
One then goes to section 17A, which appears on page 92,222. That provides:
Where -
(a) goods have been manufactured in Australia
by - Kodak for the customer -
(b) the goods were manufactured in whole or in part out of materials supplied by the
customer -
if we are assuming question 1 against me, those two
conditions are satisfied because the goods are
manufactured, the goods being the negative which is
said to be manufactured from the exposed negative
film, Kodak shall -
for the purposes of this Act, be deemed to
have sold the -
negative -
to the customer at the time when the -
negative is -
| Kodak(3) | 9 | 7/4/92 |
de .vered to the customer .... and the customer
s l ..... be deemed to be the purchaser -
So, although the negative is at all times the customer's goods, although he has paid for them -
he has paid for the negative when he or she bought
the unexposed film - this section deems the goods
to be sold to the person who is, in fact, theirowner and the sale takes place at the time when the
goods are delivered back, when we hand back the
negative with the print~
If Your Honours now go back to section 17, two
pages back, it is 92,214, that provides that:
sales tax ..... shall be levied and paid upon
the sale value ~ goods manufactured in
Australia by a saxpayer -
and then one of three things happens -
sold by him or treated by him as stock for
sale by retail or applied to his own use.
And the argument is these goods have been
manufactured, they are then deemed to be sold by
section 17A, so they are sold back to the customer
and therefore sales tax is exigible. The fallacy in that argument, which Mr Justice Hill and the
Full Federal Court upheld and which the Court of
Appeal did not consider, is a very simple one. The negative, after it was manufactured, on the assumption we are making, had light shone through
it to make a print. It has thus gone into use or
consumption in Australia. It is therefore no
longer goods and it is not goods when it reaches
the taxing point of the deemed sale to the customer
when it is given to him. The point is as simple as
that.
May I make good the submission that the
shining the light through it is going into use or
consumption. Common experience will tell one that although a negative is normally returned to a
customer and in the cases we are talking about, itis returned to the customer, no doubt for the
purpose of having further prints made if the
customer wishes, in practice it is obvious that in,
I suppose, whether it is 99 or 99.9 per cent of the
cases, the negative is either thrown away or left
to languish in a top drawer until it is thrown away
many years later. No doubt all of us have top drawers full of old negatives.
There is the theoretical purpose that if the
unusual customer wishes he can take it back and
have fresh prints made from it and that may happen
| Kodak(3) | 10 | 7/4/92 |
occasionally and it is, no doubt, the reason the negative is given back to the customer. But the
primary purpose, the real reason it was brought
into existence, the reason the customer wasprepared to pay the cost of having it brought into
existence, was to make that initial print, or pair
of prints if two are made. That is really all it
was brought into existence for. If one had to
apportion its raison d'etres; if one had to
apportion why the thing was made, one might saysomething under one per cent, if common experience
is right, is so someone can make more if he wants
to and have the negative in his top drawer, but the real reason is to make the print the customer wants
initially.
That is so far and away the predominant reason
as to make anything else insignificant, and it has
already had that reason happen to it before the
customer gets it; before it reaches the taxing
point. So if "use and consumption" means anything, it must mean that. Looked at a little differently,
if one, assuming that it is a very small proportion
of customers who ever want a further negative, no
doubt if one were to say to customers, how much
less would you be prepared to pay if you do not get
the negative, no doubt the answer would be, very
little indeed. No doubt, in most cases, the negative is a fairly unimportant piece of material
which will clutter up top drawers. Its importance
is it had to be made so that the print could be
made; once that is done, it is a fairly valueless
piece of plastic, in most, except the very few
cases where the customer actually wants more
prints.
So the submission simply is, whatever "use or
consumption" means, it must mean this. Of course, the phrase is not an hendiadys; the phrase is one
which has two elements and it is, on any view of it, quite clearly use. And it is not a minor use
for the reason I have given. It is true that the
use does not damage it; that is true, but, on the
other hand, it is a use which really uses up almost
all of the value and purpose that it has.
| DAWSON J: | And the effect of this is that it is deemed to |
have been sold to the customer, but in effect it is
second-hand goods, ..... unsold.
| MR BENNETT: | Yes, but we would say in any event that is so; |
it is clearly second-hand goods.
| DAWSON J: | And therefore does not fall within section 17. |
| MR BENNETT: | Yes. | I do not need to use the words |
"second-hand goods" though, Your Honour, or to
| Kodak(3) | 11 | 7/4/92 |
confine myself to that. The statutory phrase is "use or consumption" and that is the phrase on
which we rely. Now, it may be one way of justifying my position is to say, what the section
means is second-hand goods and these are
second-hand goods, but even if one were to say,
these are not second-hand goods in the ordinary
sense, we would say it is still clearly "use or
consumption", and as I say, the Full Federal Court
supported that and the Court of Appeal did not deal
with it, but in our respectful submission, should
have.
The third submission is one with - - -
DEANE J: There is no definition that says, delivered
includes applied to the use of the customer?
| MR BENNETT: | No, Your Honour, there is no definition of |
"use" or "consumption".
DEANE J: Well, "delivered" would be the operative word.
MR BENNETT: Yes. There is no definition there,
Your Honour.
BRENNAN J: Is it perfectly clear that "goods" has the same
meaning throughout 17A? The thing that is
manufactured would be goods at that time. It is
only when you shine the light through them that
they cease to be goods, is that not so?
| MR BENNETT: | Yes, Your Honour |
BRENNAN J: Therefore you fasten on the time at which the
goods are delivered to the customer, which is after
the light has been shone through.
| MR BENNETT: | Yes, Your Honour. |
| BRENNAN J: | What does the deeming relate to? |
| MR BENNETT: | The deeming, Your Honour, is for the purpose of |
fixing the taxing point under section 17. Section
17 identifies three taxing points.
BRENNAN J: But are the goods which are deemed to have been
sold the same goods as those which are
manufactured?
| MR BENNETT: | Yes, Your Honour. |
| BRENNAN J: | Do they lose their character as goods from the |
time of manufacture under 17A to the time of
delivery under 17A?
| Kodak(3) | 12 | 7/4/92 |
| MR BENNETT: | Yes, Your Honour, they can, and in this case |
they do. Suppose they were destroyed during that period, suppose we did not give them back to the
customer but destroyed them, there would be no
deemed sale.
| BRENNAN J: | So goods in paragraphs (a) and (b) may be goods |
for all purposes of the Act and, though it is the same substance, it ceases to be goods at the time of delivery.
| MR BENNETT: | Yes, Your Honour, in this case they do and they |
can. May I just put to Your Honour in perhaps a little more detail the example I just put to
Your Honour. Suppose we say, "We won't give you
your negative back. We will destroy the negative or perhaps even melt it down and use it for fresh unexposed film" - if that is possible - "but it is
destroyed as goods". If one then reads
section 17A(l), one gets this position: a negative has been manufactured in Australia by Kodak for a
customer. It was manufactured out of materials
supplied by the customer. The manufacturer, Kodak, is then deemed to have sold the goods at the time when the goods are delivered to the customer. If the goods are never delivered to the customer,
there is never a deemed sale. The phrase of course is, "the goods were delivered''. It assumes that
the goods are delivered to the customer.
The purpose is to create a deemed sale, not
where the customer provides goods which are used
and then destroyed, but used for the customer'sbenefit in some way by the manufacturer, but rather to create a deemed sale where he actually gets them
back in their improved state and pays for them.
There is nothing surprising in the result in this
case once one assumes that the negative really has very little value to the customer, and certainly a value a good deal less than the cost of producing
it, because the real value of the cost of producing the negative is so the light can be shone through
it to make that first print.
That is the real reason it is done, that is
the real value. While there may be a small
residual value for a residual purpose, it would be
surprising if the cost of the development of the
unexposed negative film were made taxable as if
that were part of the value of the goods delivered
back to the customer. So it is really in accordance with common sense that goods should have
the same meaning throughout section 17A.
BRENNAN J: That is not - perhaps if I have not made my
point clearly enough, that may not be in your
favour if it has the same meaning throughout in the
| Kodak(3) | 13 | 7/4/92 |
sense of the same denotation as distinct from
connotation. If it denotes the same substancethroughout, you have goods at the point of
manufacture falling within the Act. If the term
"goods" used in reference to the delivery is that
substance, then it matters not what has happened to
them after the point of manufacture, those goods
have been delivered and the deeming operation takes
effect.
| MR BENNETT: | I follow what Your Honour is putting to me. | My |
submission is that the point on which section 17A
substantially fixes is the taxing point, not the
conditions. Paragraphs (a) and (b) are merely
preconditions. It is of less importance for thepurposes of the Act that they be goods at that
stage. The key to the section is, at the moment you give the goods to the customer there is a
deemed sale and the conditions for that occurring
are that something has happened before. So,
although grammatically the conditional clause
appears first, it is really a subsidiary clause.
The substantive clause is the first two lines of the long paragraph, so that is the point where we
would submit they have to be goods. Whether or not
there have to be goods at the earlier stage does
not, perhaps, matter.
One reads it, in other words, as if the
section read this way, "A manufacturer who delivers
goods to a customer shall be deemed to have sold
them to the customer at the time of delivery if",
and then (a) and (b), and that is really what it
means.
There is a second answer to Your Honour
Justice Brennan's question, and that is that the
primary operative provision is not section 17A but
section 17, and the tax is only levied if:
the sale value of goods manufactured in Australia by a taxpayer and sold by him -
so there must be goods sold by him and that means,
again, it is the deemed sale to which one has
looked. It is the moment of the deemed sale when there must be goods. Indeed, one wonders,
otherwise, why section 17A has made the point about
time and specifically said, "at the time when the
goods are delivered to the customer". That, we
submit, is for the purpose of emphasizing that that
is the crucial moment for all purposes under
section 17A as it is under the primary provision of
section 17.
Of course, if I were incorrect in this, we
would concede the tax would be exigible, assuming
| Kodak(3) | 14 | 7/4/92 |
there is manufacture if we do not make prints. In
other words, if a customer comes to us, as no doubt
some customers may, and say, "I just wish you todevelop this exposed negative film for me and give
me the negatives. Do not bother to make a print, I have got a light in my own studio and I can shine the light through it myself", now if the customer
says that to us then, of course, section 17A would
deem there to be a sale. That is the case where
the negative has not gone into use or consumption
in Australia. But where we perform the whole process it is brought into existence for and then
happen to give it to the customer, the fact that we
happen to give it to the customer rather thandestroying it should not be the occasion for the imposition of the additional tax. Your Honours, that is the second of the six questions.
The third question goes back a step. We are
now looking at deemed manufacture and Your Honours
recall that the 1966 amendment, which Your Honours
can see in all its glory on page 92,142,
"manufacture" includes, in paragraph (d):
the processing or treatment of exposed
photographic or cinematographic film to
produce a negative.
Now, the problem is that, let it be assumed that we deem what occurs to be manufacture, what
the legislature has not done is to amend the
definition of "goods". "Goods" are defined so as to exclude: goods which have ..... gone into use or
consumption in Australia.
On any view of it this object which started its
life as an unexposed negative film and has now been
exposed by the customer and developed, has gone into use or consumption in Australia, within every
meaning of that words. It has been purchased by an ultimate consumer. He has put it to the only use to which he can put it, or she can put it, by using
it in the camera. It has been exposed. In every
sense of the word, if one looks at the exposed
negative film, immediately after the customer hastaken the customer's picture, one has, in every
sense of the words, used goods and, indeed, goods
of no value to anyone else. It is well and truly
goods which have gone into use or consumption in
Australia. Now, deeming something to be a manufacture cannot also deem the negative to be
something which it is not. It cannot deem it to be goods.
| Kodak(3) | 15 | 7/4/92 |
It is simply a case where the legislature, if
it wished to achieve the result that it caught the
goods which we are concerned about in this case, it
needed to amend the definition of "goods" as well
and say, as a qualification to paragraph (a),
"except in the case of negatives". The negative simply is not goods. It has gone into use or
consumption in Australia long before the light hasshone through it.
DAWSON J: It is really only a slight variation on the
previous submission, is it not?
| MR BENNETT: | The previous submission did not involve any |
problem about what the legislature intended by
making the amendment; this submission does. This
submission involves a partial misfiring of that
intention. Assuming I am right in our first
submission that it is not manufacture at common
law, the legislature has succeeded in making this a
manufacture and if the negative is then delivered
to the customer without a print being made from it
- I am sorry, I withdraw that. The legislature has
not succeeded, no. It has failed because the
negative is goods which have already gone into use
or consumption in Australia and, therefore, it has,
on this submission, totally failed in its
intention.
| BRENNAN J: | I suppose another way of putting that is that |
what is manufactured are the goods which are
referred to in paragraph (a) of the definition of
goods.
MR BENNETT: Yes. What the Federal Court said - and I will
come to the Federal Court argument in a moment, I
wish to deal with the Court of Appeal first - was, "Well, you read the word 'goods' in paragraph (a),
in the exclusion, as meaning or as including, at
least, something which is deemed to have been
manufactured. " I have given an example on pages 4 and 5 which
those of Your Honours who heard the leave
application have already seen. I will not spend a lot of time on the example, it simply illustrates
the type of misfiring which we say has occurred in
this case and it shows that there are cases whereparliamentary intention is not the whole of the
answer.
An example we give is this: you have
legislation which says "No person shall drive an
unlicensed vehicle on a public highway". There are
detailed provisions for licensing vehicles and
vehicles are defined as cars and trucks. The effect of that Act is that the licensing scheme is
| Kodak(3) | 16 | 7/4/92 |
enforced by paragraph 1. Paragraph 1 is the
operative provision which enables it to work. If
you did not have paragraph 1 the licensing scheme
and the definition would both be quite pointless
because it would not have any effect.
Assume Parliament then, because of complaints about refrigerators contaminating food or being
left on garbage dumps and having children enter
them, decides that all refrigerators should be
registered and controlled in the same way as motor
vehicles but it is concerned about the cost of
setting up a registration procedure, so it says,
"We'll use the motor vehicle registry and we'll use
the Motor Traffic Act and we will just define
'vehicles' by adding the words 'and
refrigerators'." So that we now have a licensing system for refrigerators. And all the second reading speeches and all the explanatory memoranda
say "The purpose of this legislation is so that we
can treat refrigerators like motor vehicles and
have the benefit of the registration provisions
that have been so successful for motor vehicles at
a very small extra cost to the government."
And assume that Parliament forgets one thing:
it forgets, in doing that, that the operative
provision is "no person shall drive an unlicensed vehicle on a public highway", and no one drives a
refrigerator at all, let alone on a public highway.
So, the primary operative provision is going to
have no effect. The result is, people are going to be able to ignore the provision about registering
their refrigerators, because the provision which
provided the whole means of enforcing it and made
it work, just is not there.
Now, the court is not going, in that case, to
say, "Well, we see what the Parliamentary intention
was, we know what Cooper Brookes said, let us see
if we can, in some way, effectuate Parliament's intention; let us read the words "drive on a public
highway" as meaning "store food in in one's
kitchen". Now, clearly no one is going to do that. It is an example of a case where the intention has
misfired. I have not put this case on my list, but I have given Your Honours an example of a case
where tax legislation did misfire, an English case
of Birmingham Corporation, where it is discussed.
But it misfires because they have amended a
definition provision, but have not made a
consequential amendment which has to be made. It
is not like Cooper Brookes. Cooper Brookes was
concerned with the procedural problem where one
section picks up a reference to another section and
does not say, as it should say, mutatis mutandis,
and the wrong subparagraph was referred to.
| Kodak(3) | 17 | 7/4/92 |
It is much easier in that case for the court to say, by a very slight extension of the law in
relation to construction of statutes, that one can
take a benevolent approach. After all, in
construing contracts, the courts have always said
that one can delete or add the word "not", where
there is an obvious mistake. Your Honours recall the cases on that, where someone has the word "not"
in a provision and it is absolutely clear that the
word "not" was not intended to be there. The process of eliminating that word "not", is not a
process of rectification; it is a process ofconstruction. Fitzgerald v Masters is the leading
example. The court says it is quite clear what was intended. Fitzgerald v Masters was the case where
the terms of the Real Estate Institute form wereincorporated, but "only to the extent that they are
inconsistent herewith" and, as a process of
construction, the court says, that means
"consistent herewith''; it is an obvious draftsman's
mistake.
Now, that is really all Cooper Brookes stands
for. The omission of mutatus mutandis, or the referring to the wrong subparagraph number, or the failure to refer to an additional subparagraph,, is
an easy mistake to cure by analogy to that sort of
rule. But that is very different here; here one
has to go much further. Here, to achieve thelegislative intention, one has to say - and when
something is manufactured, the result is deemed not
only to be goods but to be goods different from
what it is manufactured from, because if one does
not say that, it is goods that have gone into use
or consumption in Australia. And, in our respectful submission, for that reason, the
Court of Appeal was wrong.
Now, the Full Federal Court - I am now on the
bottom of page five - dealt with the matter
slightly differently, as I have indicated, and it rejected this argument on the basis that it took
the word "goods" in paragraph (a) of the exclusion
in the definition of "Goods" on page 92,141, and
said, "Well, that must be taken as including
something which is deemed to have been
manufactured, and if something is deemed to have
been manufactured, it is 'goods'". We would submit that that simply does not get one there. When one deems something to be manufactured, one does not
necessarily apply a consequence of deeming. If you
deem a boat to be a motor vehicle, you do not also
deem it to have wheels because all motor vehicles
have wheels. When one deems something to be manufactured, one does not thereby deem it to be
different goods from what occurred before. The deeming stops at the definition and the only
| Kodak(3) | 18 | 7/4/92 |
purpose of the definition is, that where one sees
the word "manufacture", one regards this process as
a manufacture, but it does not go to the next step.
And, for those reasons, we submit that the
amendment does not achieve that result.
I might just jump ahead and deal with the
sixth point now before I come to 4 and 5, because
the sixth point is really a combination of the last
two matters I have put to the Court, and it does
not involve independent argument.
The sixth question applies the new definition
of manufacture to the second stage, the shining the
light through, and it says "Well, even if the Full
Federal Court is right, and the Court of Appeal is right, in saying, 'At the end of a process of
deemed manufacture you must have something that is
deemed to be goods', even if that is so, you stillhave the problem that those deemed goods go into
use or consumption in Australia when the light is
shone through them."
In other words, the second stage, which takes
it out of the definition of goods, applies equally
to the deemed goods which the negatives are, if my
third submission fails. And one can make this comment about that point: if it is wrong, if I am
wrong in what I put to Your Honours, these deemed
goods are different to all other goods and all
other deemed goods which one could imagine, because
unlike anything else they can have virtually the
whole of their use and consumption take place and
yet remain goods, although nothing else can. And
nothing in the Act suggests that.
I simply remind Your Honours also that this
submission does not involve a misfiring of the
legislation because, again, if one has the
situation where the customer merely asks to have his negatives developed, his exposed negative film
developed, and does not want a print, then this
argument would not be available and the sales tax
would be exigible.
When one thinks about it, that is in
accordance with common sense because that customer
is buying something valuable, that customer is
getting what he wants, he is getting his negative,
which was the reason he had the exposed film go
through the process. Unlike the customer who gets
his prints, which is what he really wants, and
happens to have the negative in case he wants some
more, this customer is getting something which is
worth, to him, the full cost of development. In
relation to the other customer, of course, thevalue to him is something significantly less than
| Kodak(3) | 19 | 7/4/92 |
that cost of development; that value is in
something else.
So the sixth argument then is that even if one
relies on the deeming and one says this is a deemed
manufacture, one still has argument 2 available,
and parliamentary intention simply does not defeat
that. First of all, Parliament is never shown to
have intended to create this special class of goods
which remain goods notwithstanding going into use
or consumption; and secondly, the parliamentary
intention works perfectly in the case where it
should work, namely, where the customer is buying
something which has, to him, the whole value of the
cost of production.
DEANE J: That assumes, does it not, that if you be wrong on
the effect of the "deeming" and the relevant goods are the treated exposed negative, that the treated exposed negative was not put to the manufacturer's
use when he used it to produce the print?
| MR BENNETT: | Yes, it does, Your Honour, because that is the |
argument to which I am now corning. That is why, if
Your Honour goes to - - -
| DEANE J: | I was looking at your mud map, as you called it. |
It said if you succeeded on the manufacture point,
you go straight to 6, but that does not seem to be
so. Do not take time with it now.
MR BENNETT: It may be, Your Honour, that one has an
additional loop, that if one goes by that route
to 6, one has to go back to 4 and 5.
| DEANE J: | You still have to exclude the "to his own use". |
| MR BENNETT: | Yes, I do. | We had quite a lot of trouble |
trying to construct that, and it may still have
defects in it, because there are different ways one
gets to some numbers which may have different results for earlier numbers. Your Honours, the remaining two submissions deal with the application
to "own use". The contention is made against us, although both courts again decided it in the
taxpayer's favour, that Kodak, when it shines the
light through the negative, is applying it to its
own use.
The application to "own use" is the third of the three taxing points in section 17.
The classic
case that is always given in examples when one
talks about this provision is the manufacturer of
light globes who takes one light globe out of light
globe producing machine at the end of the day and
screws it into a socket directly over that machine
to illuminate the machine while it produces more
| Kodak(3) | 20 | 7/4/92 |
light globes. That, I suppose, is the classic case
of a manufacturer who takes a product and applies
it to his own use. One could no doubt think of numerous other examples.
In the State Bank case, it was put on behalf
of the Commissioner in that case that one could
apply goods to one's own use even if they were not
one's own goods. The Court did not need to decide
that question and it expressly left it open. So the question now arises again. There are of course
numerous examples in the authorities of application
to "own use", but one thing which is significant,
and particularly significant for the purpose of the
present case, is that in three of the leadingcases, the application to "own use" consisted of
parting with ownership.
If Your Honours recall the facts of Max
Factor, Hornibrook and Taubmans, that was so in
each of those cases. In Max Factor, cosmetics were
applied by the manufacturer to its own use by
giving them away as samples. In Taubmans, the
paint cards, the plastic cards which showed all the
different shades of colours of Taubmans paints,
were applied to Taubmans' own use by being given to
retailers to show them to customers in their shops.
In each case of course, it was the giving away the
object in the promotion of the manufacturer's trade
which was applying it to its own use.
Hornibrook is another example. There the
concrete piles, which no doubt one can still see
when one crosses the Brisbane River, were applied
to Hornibrook's own use by being fixed into the
ground, thereby becoming fixtures and becoming the
property of the owner of the realty - one assumes
the purchaser of the bridge - but in each case itapplied it to its own use by disposing of it.
That, of course, is not the only way one can
apply goods to one's own use, but the fact that a
form of application to one's own use involves the
disposition of property in the goods suggests verystrongly that one can only apply goods to one's own
use if they belong to one. Of course, in the normal case, application to "own use" will consume
the goods, or at least make them second-hand. If
the light globe is unscrewed from the ceiling overthe machine and sold as stock, no doubt it should
be sold as second-hand goods and, no doubt, it is
goods which have gone into use or consumption in
Australia and therefore excluded, so there is no
second sales tax when that _ight globe is then sold
on to the customer.
| Kodak(3) | 21 | 7/4/92 |
In all the other examples, in the QTAB case,
of course, the various forms and documents were
applied to the TAB's own use by being, in somecases, pinned to notice boards and then becoming
defunct when the meeting was held. In other cases, when there were forms being filled in and used as
forms, the application to "own use" was something
which depended upon the documents being in the
ownership of the party concerned.
There is no case where goods not the property of the manufacturer have been said to be applied to
its own use and, in our respectful submission, in
no sense does the manufacturer apply these
negatives to its own use. It applies them, if
anything, to the customer's use. It may expose
them to a use, and we say it does, but it is not
its own use, it is someone else's and the reasonfor that is that it is the customer's negative; it
is simply not the manufacturer's negative.
The other way one gets to the same result is
by looking at the three matters in section 17.
Your Honours will recall in Mutual Pools earlier
this year - it is reported only at this stage in
104 FLR 545 in the loose part - that in that case
the court stressed the point that there were three
alternative ways set out by section 17, and there
is a balance between those three. They are all ways in which a person deals with his own goods in
a semi-final sort of way; he sells them, he treats them as stock for sale by retail, or he uses them
himself. In my respectful submission, that very
parallelism makes it unlikely that one is talking
of someone else's goods. One cannot, of course, sell someone else's goods. One cannot treat someone else's goods as stock for sale by retail.
How, therefore, can one apply someone else's goods
to one's own use? By definition, it is that other
person's use.
The final submission is the one concerning
aids to manufacture and this is a submission which
requires going through a number of fairly complex
provisions in the Act. It assumes, for reasons
Your Honours will see, that Your Honours are
against me on application to "own use", because if
the goods are not applied to one's own use, this
area does not arise.
The starting point is item 113C in the First
Schedule to the Exemptions and Classifications Act.
It is as page 95,741 of the booklet - and
Your Honours see at page 95,741 the item is:
| Kodak(3) | 22 | 7/4/92 |
Goods (other than lubricants) applied by a
registered person to his own use as aids to
manufacture (as defined by regulations - So the goods have to be applied by the manufacturer
to his own use. I see that gender neutral drafting
has not yet seeped into this item. One then goes to the regulations to see what an aid to
manufacture is and subregulation 4(1) contains the
definition and that appears at page 93,502 and that
defines "aids to manufacture" as "goods for use by"
Kodak "in the course of carrying on a business"
being - and then paragraph (d):
goods (other than those specified in paragraph
(a) or (b) ..... for use as specified in
paragraph (a).
And it is slightly convoluted, but it is capable of
explanation and rational meaning. What that means is, in effect, you go to the subparagraphs of
paragraph (a), (i) to (xi), but ignore the preamble
and the relevant subparagraph is subparagraph (3).
So to come within (d) one must be goods for use in
any processing or treatment for the purpose of
bringing goods into the form or condition in which
they are to be marketed or used by the
manufacturer. So goods used in any processing or
treatment for the purpose of bringing those goodsinto the form or condition in which they are to be
used et cetera are included in (d), but it is
"other than those specified in paragraph (a)" so it
is not "machinery, implements or apparatus". So,
what (d) picks up is where the goods themselves are
used in the way described in 3 although they are
not "machinery, implements or apparatus".
So the argument is - and this part I do not
understand to be controversial, but I may be
corrected on that, I do not understand it to be - that exposed film is therefore goods, not being
"machinery, implements or apparatus", which is
used:
in any processing or treatment for the purpose
of bringing goods into ..... the form or
condition in which they are to be marketed or
used by the manufacturer -
That is, bringing them into the condition of being
a negative so that they can be used by the
manufacturer at the next stage. Now, thus far I have been perhaps prolix, but I hope not too
controversial. The problem arises in relation to paragraph (k), which appears on the following page,
93,504, and that is an exclusion - (a) to (d) are
inclusions; (e) to (p) are exclusions, just to make
| Kodak(3) | 23 | 7/4/92 |
it easier to follow the paragraph, or the
subregulation, and paragraph (k), the exclusion is:
(k) goods for use in connection with the manufacture for sale of goods, if the first-mentioned goods are to be sold to the purchaser of the goods to be so
manufactured, -
So, the exposed film is goods for use in connection with the manufacture for sale of negatives, if the negatives are to be sold to the purchaser of the
negatives so to be manufactured. So, the argument
is, because the negatives are deemed to be sold to
the customer, that picks up this exclusion. The exclusion is, it is goods for use in connection with the manufacture for sale of goods, because
those goods are to be sold to the purchaser. Now, that involves treating the word "sold" as including
a deemed sale, and it is there, we say, that the
fallacy in the application of this paragraph
arises, because we say "sold" there means actually
sold, not subject to a deemed sale.
Your Honours will be aware, of course, of the provisions of the Acts Interpretation Act, in
relation to Acts and Regulations, and - - -
DEANE J: Mr Bennett, I am sorry, you have lost me along the
way. If we come to (k), the relevant goods are the
treated negatives, are they not?
| MR BENNETT: | No, Your Honour. |
| DEANE | J: | Why? |
MR BENNETT: | The untreated negative; the exposed negative film before it is a negative. |
| DEANE J: | I thought that you were trying to use this to get |
an exemption in respect of the treated negative.
MR BENNETT: | I am sorry. If I could just go back a moment, Your Honour, to the earlier provision, because I |
| may have tied myself up on this. | |
| DEANE J: | No, I am no doubt wrong, because it is a bit of a |
maze, but - - -
| MR BENNETT: | Your Honour, let me just go back a step. | I |
one goes back to 4(l)(iii), there is an exclusion
in relation to "aids to manufacture". We say the -
DEANE J: But your starting point is that you are assuming
that the treated exposed negative is goods which
otherwise attract sales tax and you are using this
to escape from that position.
| Kodak(3) | 24 | 7/4/92 |
| MR BENNETT: | No. | No, I am not Your Honour. | What I am |
submitting is that the exposed negative film,
before it is treated, is an aid to manufacture,
because it is used in the processing or treatment
for the purpose of bringing that exposed negative
film into the condition in which it is to be
marketed or used. Now, if one puts it that way, the paragraph (k) has no application. If one
treats it the second way and says the negative is
used in the shining of the light through, so the
negative is used:
in any processing or treatment for the purpose
of bringing -
a print into -
the condition in which
it is -
to be marketed or used -
one then turns to (k) and what has to be sold to
come within that exclusion is the negative.
So the area in which the present argument
arises, the argument dealing with (k), is in the
second of the two ways I put it and I may not have
made this clear the first time through. If one
treats paragraph (iii) as referring to the negative
- what Your Honour has called the treated negative
- that is used:
in any processing or treatment for the purpose
of bringing -
prints -
into ..... the form or condition in which they
are to be marketed -
So it is within the primary exclusion, and then (k)
says "negatives" -
for use in connection with the manufacture for
sale -
of prints -
if the first-mentioned goods -
ie, the negatives -
are to be sold to the purchaser of the goods
to be so manufactured -
| Kodak(3) | 25 | 7/4/92 |
So the exclusion arises if the negative is to be sold to the person who buys the print.
DEANE J: That was what I thought I was suggesting to you.
| MR BENNETT: | I am sorry, Your Honour, if I misunderstood. | I |
had perhaps tied myself up in the convolutions of
these provisions. The argument we make is that that sale cannot include a deemed sale. The negative is of course always the property of the
customer, of the owner of the negative, the ownerof the exposed film, and therefore it is not goods
to be sold to him. The argument for the Commissioner is there is a deemed sale under the
Act, and that brings this in.
The argument to which I now turn in the final
matter with which I will be troubling Your Honour
is how the Interpretation Act applies to this
exercise. The Interpretation Act provision is set out on page 9 of my submissions.
DAWSON J: Is this a negative argument merely to take it out
of the exemption? You would otherwise have to bring it in, would you not?
| MR BENNETT: | My argument is to bring it into the exemption. |
DAWSON J: But from the other side, it would be merely a
negative argument.
| MR BENNETT: | Yes, Your Honour. | The other side's argument is |
that paragraph (k) takes it out of "aids to
manufacture", and I am now dealing with that.
Your Honours, section 46 of the Acts Interpretation
Act is set out on the top of page 9 of my
submissions. Your Honours see it says that: unless the contrary intention appears,
expressions used in any instrument -
which include the regulations -
shall have the same meanings as in the Act
conferring the power.
The regulations are made under Acts including
Assessment Act (No 1), and one then has to go to
section 17A which deems a sale in certain
circumstances. The phrase used, Your Honours see in the first line of the main paragraph of 17A(l),
is:
the manufacturer of the goods shall, for the
purposes of this Act, be deemed to have sold
the goods.
| Kodak(3) | 26 | 7/4/92 |
Your Honours will recall - I will not take
Your Honours to it - that there were numerous
discussions on deeming provisions and what deeming provisions mean. This Court and other courts have
referred to that on many occasions. One of the leading expositions is that of Mr Justice Windeyer
in Hunter Douglas v Perma Blinds, (1970)
122 CLR 49. There is a detailed discussion which I
will not take Your Honours to at pages 65 to 66 of
that report.
What is important about that discussion and
about the general discussions of deeming is that
there are two types of deeming. There is deeming
which is purely definitional. A deeming which is
purely definitional cannot of course deem any fact
to exist; it simply is a matter of defining a
term. It cannot be wrong. That is the sort ofdeeming which is picked up by section 46 of the
Acts Interpretation Act, definitions in the
principal Act and deemings which are definitional
deemings.
But this is not a definitional deeming. This
is rather saying that something shall be deemed to
have occurred. It is a bit like the example given
in Penna Blinds of deeming a document filed with
the Registrar of Patents to have been filed on some
earlier date. That would not carry with it the
consequence that for all purposes, it was done on
the earlier date. It is simply a deeming effect
for limited purposes.
That type or deeming, we submit, is not picked
up by section 46 of the Acts Interpretation Act.
The point is really as simple as that. Indeed, one
would not expect it to be, because the whole point
of these provisions about aids to manufacture is
that something occurs where there is an actual
sale. The whole point of the exclusion in (k) is where there is an actual sale. Where there is merely a deemed sale, there is simply no reason for
applying the exclusion.
It is also significant, when Your Honours look
at (k) - and I need to take Your Honours back to it
for this purpose; it is 93504. If Your Honours go
to (k), Your Honours will see it is:
goods for use in connection with the
manufacture for sale of goods, if thefirst-mentioned goods are to be sold -
and it is "manufacture for sale", it is looking forward to a future sale. It is hardly likely that it is looking forward to a future deemed sale. Paragraph (k) is concerned with the time of
| Kodak(3) | 27 | 7/4/92 |
manufacture. It is concerned with goods which are
going to be sold. The fact that subsequently they
go through something which the Act deems to be sale
for some artificial purpose does not make them into
goods which are going to be sold or goods which are
in the manufacture for sale.
That is not a problem with the words "for
sale" because the goods there being described are
the print which is sold, but in relation to the
words "to be sold", it is referring to the
negatives and they simply cannot be treated as
goods which are "to be sold". They are not going to be sold but they may turn out to be subject to a
transaction which is a deemed sale.
Those are our substantive submissions. should briefly now mention the amendment.
I
The
amendment arises in this way: If Your Honours hold
that questions 1 or 2 should be answered, "No", but
that the taxpayer loses because of question 3, and
it is also only going to arise if 4 or 5 is
answered, "No", because it means that we lose - it
only arises if we lose solely on question 3, or
perhaps question 6, what would flow would be that
there is something which is not the manufacture of
goods at common law within the ordinary meaning of
that word, it is something which is simply applying
some process to the customer's goods, but which is
deemed to be a manufacture followed by something
deemed to be a sale although it is not a sale.So, one has a non-manufacture and a non-sale. When one strips that away as Mutual Pools requires
one to do to look at the rail tax, what is really
being done is to impose a tax on a process applied
by Kodak to a customer's goods at the customer's
request, the goods then being returned to thecustomer. It is like servicing a washing machine, or upgrading it, or upgrading a computer to a new
grade by putting some card in it. There is a service being done for the person in relation to
his own goods after those goods have been sold tohim and well after they have left the commercial arena outlined by the doctrine of excise between
production and distribution to the customer. I am not going to argue the point obviously, but the point is that that creates a non-excise. The rest of the Sales Tax Act, of course, is the Excise Act,
as Mutual Pools lays down and, therefore,
section 55 applies. As I say, it only arises if
that is the point on which we lose, and the only
point on which we lose.
We have prepared amended notices of appeal.
There are three of them, but they are identical, so
I will not hand Your Honours the three identical
| Kodak(3) | 28 | 7/4/92 |
documents and clutter up Your Honours' records with
those, but they will be handed to officers of the
Court afterwards. I will simply give Your Honours
one set in proceedings number 136 and Your Honours
can take it that the others are identical.
If Your Honours grant leave it is our
intention, when Your Honours deliver judgment, if
the point then does appear to arise, and it will
not on most versions of the answers to the
questions, but if it does arise we will then askYour Honours to remit this issue to the Federal
Court.
What has occurred is, as I said at the very
beginning of my submissions, that unbeknownst to us
with some admirable foresight because it was before
Genex reserved this point in the Federal Court, to the validity of the provision in the Federal
Court. Because it is a stated case from the Federal Court, if the taxpayers lose these proceedings, they can go back and argue this point
in the Federal Court and we simply want to be part of all that. So we simply wish to hitch our wagon
to their horses in respect of this point which they
have taken and we only became aware of at the end
of last week. It will not involve the Court -
| MASON CJ: | You are not expecting a grant of leave, even at |
the best, until the Court delivers judgment on the
arguments that you have presented thus far.
| MR BENNETT: | I am content with that, Your Honour. | The only |
slight problem arising out of that is - the only
thing that concerns me about that is the practical
problem that always arises in that judgment is
often taken on very short notice and taken by
people who are not familiar with the case, and it
may be necessary, if that is done, for someone to
ask for a short adjournment, which might be inconvenient to the Court. I am only concerned about the practicalities in relation to that.
MASON CJ: Yes.
| MR BENNETT: | I would prefer, if Your Honours were prepared |
to do it, for leave to be given at this stage, on
the condition, if one likes, that the point wouldonly be raised if it arises, and if it arises we
will remit it to the Federal Court so that that
court can hear it with the argument in Genex's case
in that court.
| MASON CJ: | When would you intend to serve the 78B notice if |
we gave leave to amend now?
| Kodak(3) | 29 | 7/4/92 |
| MR BENNETT: | Your Honour, I think what we would do - |
although it probably is not necessary - is serve a
notice now which explains the procedural step weintend to take so that the Attorneys will realize
that there will be no need to intervene unless and
until the matter goes back to the Federal Court. I would not anticipate that they would have any interest in the procedural issue as to whether I
get leave or not.Obviously there would have to be a notice before the hearing in the Federal Court of the
matter, and it would only be a matter of courtesy which would dictate that we serve one now. I would have thought the real one, if I may put it that
way, would be after the matter was remitted. In
fact, on thinking about it, there is probably
little reason, even courtesy, for telling the
Attorneys now. It may concern them with a matter
which will never arise and cause them
inconvenience. So we would envisage serving it, Your Honour, when and if the matter was remitted to
the Federal Court. May it please the Court.
| MASON CJ: | Thank you, Mr Bennett. | Yes, Mr Gzell. |
MR GZELL: If the Court pleases, first, might I simply say
we do not oppose -
| MASON CJ: | Mr Gzell, it may be convenient to hear what |
Mr Bloom has to say at this stage because we will
then get the totality of the argument from that
side and that may be of assistance to you.
| MR GZELL: | If Your Honours please. Your Honour, before I |
resume my seat, might I simply say we do not oppose
the application for leave to amend.
MASON CJ: Thank you. Yes, Mr Bloom.
| MR BLOOM: | Can I hand up an outline of our submissions, |
Your Honours.
| MASON CJ: | Mr Bloom, I should say the Court will grant leave |
to amend as requested by Mr Bennett.
MR BLOOM: | If Your Honours please. Your Honours, we point out in the beginnic | that the businesses of the |
respondents invol\: two things: the first is the
developing of the films, the customer's films; and the second is the printing of photographs from
those developed films or the negatives as they have
been called, the prints being sold to the
customers.
In not all cases are the prints made. In some
cases, the sole service which the respondents
| Kodak(3) | 7/4/92 |
perform is to develop the films so as to produce
the negatives and those negatives are then returned
to the customers. The point of that distinction isto remind Your Honours that the effect of the
decision of the Federal Court, if it be correct, is
that sales tax will be exigible in those cases. It
will not be exigible in respect of the negatives
where the negatives are used to perform the further
step of making the prints but it will, on what theFederal Court has held, be exigible in those cases
where the negatives are returned without that
further use by the respondents.
We remind Your Honours of the sections
imposing sales tax, that is, of course, in the
Rating Act, section 3 of which is at page 92,423:
Sales tax is imposed, at the rates specified
in section 4, upon the sale value of goods
manufactured in Australia by a taxpayer
and ..... sold by the taxpayer or treated by the
taxpayer as stock for sale by retail or
applied to the taxpayer's own use.
Section 19 of the (No 1) Assessment Act defines the
taxpayer. It appears at page 92,273:
Sales tax shall be paid by the manufacturer of
goods manufactured in Australia and -
(a) sold by the manufacturer .....
(b) treated by the manufacturer as stock for
sale by retail; or
(c) applied by the manufacturer to his own
use.
And, of course, the same three taxing events are
referred to in section 17 which is the provision
usually cited as the provision levying the tax. Your Honours have been taken to the definition
of "goods" and "manufacture" and I will not, at
this point take Your Honours to those further.Section 17A was inserted for a particular purpose,
really to deal, it appears, with made-up suits,
where the customer supplied his own bolt of cloth.
Sir Owen Dixon, in Commissioner of Taxation v Jack
Zinader, 78 CLR 336, dealt with this purpose at pages 342 to 343. At the bottom of page 342:
Section 17 of the Act provides that sales tax
shall be levied and paid upon the sale value
of goods manufactured in Australia by ataxpayer and sold by him. Section 17A imposes
upon a transaction by which one person
| Kodak(3) | 31 | 7/4/92 |
manufactures goods for another out of that
other's material the artificial character of a
sale. The section provides that where goods are manufactured for a person wholly or in
part out of materials supplied by him the
manufacturer of the goods . . shall for the purposes of the Act be deemed to have sold the
goods to the first-mentioned person, at thetime of their delivery to him for the amount
charged to him by the manufacturer in respect
of those goods.
The point of that, Your Honours, is that
section 17A is a general provision. It was not
inserted to deal specifically with the facts of
this case but was inserted, indeed, much earlier to
deal with the particular situation to which
Sir Owen Dixon refers and as, I think,
Mr Justice Hill also sets out in His Honour's
judgment in the Federal Court, if I might just take
a moment to find that. At appeal book 67,
commencing at the bottom bottom of that page,
His Honour said:
Section 17A, on its face has clear application to a class of case where the
customer supplies materials (eg cloth) to a
manufacturing tailor, who makes up goods from
that material and then delivers the finished
product (eg the suit) to the customer. The
manufacturing tailor is then deemed to have
sold the finished product to the customer. By virtue of s.18(1B) of Assessment Act No 1,
introduced at the same time ass 17A, the sale
value will normally be the making-up feeunless the materials themselves are exempt
from sales tax in whole or in part. The finished suit is clearly made in whole or in
part out of the materials supplied (the cloth)
Now, the point is, Your Honours, that in the cases and is delivered in that form to the customer. to which it is directed, section 17A will operate
without straining the word "goods" wherever
appearing in that section. It is only in this case
where the Commissioner calls section 17A in aid
that he asks for a strained construction of the
word "goods" in order to achieve the result he
wants. Ax he does so in the face, Your Honours,of two pro,risions which were in the same amending
Act as introduced the definition of "manufacture"
to include the processing of film to form
negatives.
If Your Honours go back to the definition of
"Manufacture" on page 92,142, Your Honours recall
| Kodak(3) | 32 | 7/4/92 |
that that part of the definition with which this
case is concerned is paragraph (d):
the processing or treatment of exposed
photographic or ..... film to produce a
negative.
But paragraph (e) and (f) were also added by the
same Act. Paragraph (f) deals with:
the copying or reproduction of visual images
or sounds -
and in relation to those additional amendments, and
in particular paragraph (f), there were inserted
two more sections; sections which, in the case of
visual images and sounds, do the work which the
Commissioner wants the general provision,
section 17A, to do here. Section 3(3A) at
page 92,161 says this:
Where goods to which section 18B would apply -
these are goods embodying visual images or sounds -
if the goods were sold by a person to another
person are given by the first-mentioned
person -
like the negatives here -
then, for the purposes of this Act, the
first-mentioned person shall be deemed to have
sold the goods -
So there is a specific provision dealing with
visual images or sounds; 17A is not relied upon.
The next section is section 18B, which
specifically defines a sale value - that is at page
are embodied. There was no attempt in the same 92,264 - for goods in which visual images or sounds statute - which incidentally was the statute which inserted the provisions dealing with concrete pools - to put in similar provisions to deal with negatives and it is completely possible that the
legislature intended therefore that negatives wereto be treated as manufactured and to be treated as goods - that is against us, but were to be treated as goods, by that deemed manufacture process - and that in those cases only where the negatives were redelivered to the customer as such without first
having been used to make a print, there would be
sales tax exigible and that is supported, with
respect, by the fact there were no provisions
similar to 3(3A) and 18B to deal with negatives.
| Kodak(3) | 33 | 7/4/92 |
Your Honours, I have digressed a little from
our outline of submissions, but I do so to take
account of the fact that Your Honours have alreadyheard a little about this matter from my learned
friend, Mr Bennett.
Our submissions are set out in paragraph 6 in
summary form at page 3. We say, and both courts below have accepted this, there was no
"manufacture" within the ordinary meaning of that
word. We put secondly, but obviously not as strongly, that notwithstanding that, in terms, the
definition of "manufacture" is satisfied, that is
the amended definition, there were no "goods
manufactured". Alternatively, we say, that_ if on
either construction there were "goods
manufactured", no taxing point ever arose in
respect of such "goods", because they were not
applied by the manufacturer to his own use, becausethey were not his goods and they were not sold by
him and they were not deemed by section 17A to be
sold because, at the point at which they were
delivered to the customer, they were no longer
goods within the definition.
Your Honours, as to the first of those points, there is no manufacture within the ordinary
meaning, it is clear from the cases that what is
required for there to be "manufacture", in the
ordinary sense of that word, is that new and
different goods emerge, and that is the test which
the courts have said, in both England and
Australia, is the test to see whether there has
been "manufacture". McNicol v Pinch is where it first appears; in Jack Zinader, Sir Owen Dixon, at
the pages indicated, said that that is the test to
be applied here.
In Jax Tyres, the question arose as to whether
the substantial processes involved in turning a worthless tyre into a retread, which had a
distinctive commercial market and which was used by
many people in place of brand new tyres, whether
that substantial process was "manufacture" for
sales tax purposes, and the Full Federal Court held
that it was not, because you started with a tyre
and you ended up with a tyre; you did not get new
and different goods in the sense which the cases
require.
Your Honours, there is a passage in
Totalisator Administration Board, 170 CLR 508, the
passage at page 511, where Your Honours remind us
at about point 3:
However, it has long been accepted that the
expression "goods manufactured in Australia",
| Kodak(3) | 7/4/92 |
even with the aid of the definitions contained in section 3(1) of the Act, does not extend to
every object transformed or brought into
existence by a physical process or operation.
BRENNAN J: Is function a test of newness?
MR BLOOM: | Not of itself, Your Honour; it is one of the things that one looks to, certainly. | Change in |
character; change in utility; one looks at all
those things, but the retreaded tyre, for
instance - and Your Honour knows that on aircraft
tyres are retreaded some 15 times, or at least if
Your Honour was in that case Your Honour would know
that - those are not new goods. There is obviously
a difference in utility; difference in function.
One cannot use the tyre before it has been
retreaded, except for a swing in the backyard or
some similar purpose, but as a useful item as a
useful tyre it must have this process of retreading
applied to it, but because one starts with a tyre
and ends up with a tyre, the cases held that that
is not "manufacture".
And it was the same with the saccharin. The
two saccharins had different markets; the one which
was in question, that had been produced from the
earlier saccharin, was far sweeter, far stronger;
it had a definite different market, but it was held
that none the less, that was not the manufacture of goods for the purpose of legislation concerned with the concept of manufacture.
BRENNAN J: That does indicate, does it not, that mere
physical substance, though carried from one stage
to another, is not necessarily inclusive of the
identity of the thing manufactured?
| MR BLOOM: | Yes, Your Honour. |
| BRENNAN J: Well, in this case we have got the film exposed |
before something is done to it. At that stage it
is incapable of producing a print. Afterwards, we
have got something which is capable of producing a
print with an alteration in the chemical substance
of that film. Is that sufficient to make it new goods?
| MR BLOOM: | We say no, Your Honour. |
| BRENNAN J: | Why not? |
| MR BLOOM: | I think that the way it was best put was by |
Mr Justice Mahoney in the Court of Appeal. It is set out in this appeal book in the judgment of
Mr Justice Hill, if I might just find that passage
because it really puts it very aptly, with respect,
| Kodak(3) | 35 | 7/4/92 |
and better than I could. In the Kodak appeal book,
my learned friend Mr Gzelle says it appears at
page 91, and in Genex at page 55, about line 17:
The description of the goods when purchased
was "photographic film"; it was not, I think,
"unexposed photographic film". The goods remain, I think, photographic film, whether
they be unexposed, exposed, or so treated that
the chemicals upon them disclose in negative
form the images to which they were
exposed ... ".
It remains the same goods, Your Honour, and if that
is right, then there is no manufacture.
DAWSON J: It remains the same piece of actual physical
film, does it?
MR BLOOM: It remains exactly the same film. All that has
happened is that it has passed through a process
and, Your Honours - - -
DAWSON J: Yes, and when you get the bits that are snipped
up, those are bits of the film which you bought?
| MR BLOOM: | Yes, Your Honour, just gone through that process. |
Your Honour, the definition of "manufacture", if I could take Your Honours back to that at 92,142,
does include certain combinations and certain
treatments specifically in it but not this sort of
treatment. For instance, a treatment applied to
food stuffs as a process in the preparation of food
stuffs for human consumption is defined as
manufacture, and one presumes that without that itwould not be, and this sort of treatment would not ordinarily be manufacture, and is not specifically
defined as such until one gets to paragraph (d)
in 1986, and there is a reason for the specific
need to so define it, in our respectful submission.
Your Honours, there is clearly "manufacture"
within the extended definition, that is within
paragraph (d), but as my learned friend,
Mr Bennett, pointed out, the legislature has not taken the further step of deeming the product of
that manufacture to be goods. The definition of
"goods" does not include it. There is nomanufacture according to ordinary concepts, and so
there does appear, if my learned friend's
submission is right on that point, to be a
misfiring totally of the legislation.
There was a not dissimilar situation, different in one respect which I will come to,
involved in Commissioner of Taxation v Comber, a
decision of the Full Federal Court, the only report
| Kodak(3) | 36 | 7/4/92 |
for which we have in 17 Australasian Tax Reports
413. That was a case involving section 109 of the
Income Tax Assessment Act. That section says that
certain overpayments of salaries by a company to
directors shall be deemed to the extent of the
overpayment to be a dividend.
So section 109 deemed it to be a dividend. Section 44 of the Tax Act, however, says that the
only person who can be taxed on a dividend is a
shareholder. The particular director who received the overpayment was not in fact a shareholder. The Commissioner argued that notwithstanding, because
the amount was deemed to be a dividend, and
dividends can only be paid to shareholders, he
should be assessable on it as having received a
dividend and as being deemed to be a shareholder.
The Federal Court refused to accept that. It
said it was paid to him, he was not in fact a
shareholder. Section 44 of the Tax Act requires
the recipient to be a shareholder, therefore he was
not assessable. But it is true that they could come to that conclusion in the light of a provision
which deemed it to be a dividend paid by the
company and so had an effect for the purposes of the company's assessment. The company would not get a deduction for an amount of such an
overpayment, but the amount would be a dividend
that would be taken into account for the purpose of
what was then undistributed profits tax.
At page 420 in the judgment of
Mr Justice Fisher, at the top of the page:
I find the Commissioner's construction
unacceptable. In my opinion deeming
provisions are required by their nature to beconstrued strictly and only for the purpose
for which they are resorted to. It is improper in my view to extend by implication
the express application of such a statutory
fiction. It is even more improper so to do if such an extension is unnecessary, the express
provision being capable by itself of sensible
and rational application.
Here we do not have that rider. Here, if
Your Honours accept the submission that
notwithstanding the deemed definition of
"manufacture", there are no goods, the legislation
misfires in its entirety. It is no doubt that
reason which led the Federal Court to conclude that
the legislature must have intended that what would
be the product of deemed manufacture should be
deemed also to be goods, notwithstanding the
absence of a specific provision. But it remains
| Kodak(3) | 37 | 7/4/92 |
the case, and we stress that point, that there is
no provision deeming these to be goods.
McHUGH J: | What do you say about what Lord Diplock once said in an extra-judicial speech that if courts can |
| identify the target of legislation, their duty is | |
| to ensure that it is hit, not to record that it has | |
| been missed? | |
| MR BLOOM: | I could not say a lot in contradiction to that, |
Your Honour, especially not when Lord Diplock says
it. It is no doubt precisely what led the Federal
Court to hold here that the negatives should be
treated as goods as the product of that which was
defined as manufacture. I do not say much in strong opposition to that, Your Honour.
BRENNAN J: What is the subject that is deemed to be
manufactured, or is ''manufacture" a concept which
exists in vacuo?
| MR BLOOM: | If one goes back to the definition, Your Honour, |
it is perhaps by use of the words in the definition
of manufacture:
the processing or treatment of exposed
photographic or cinematographic film to
produce a negative -
Presumably that which is produced, the negative, is
intended on that construction to be goods. But it is not defined as such, but none the less may be
because why else would the legislature define it as
manufacture if that were the result. I know it is against us to put it that way, Your Honour. Your Honours, if the negatives are goods, it
then becomes necessary to determine whether a taxing point arises and, as my learned friend
Mr Bennett pointed out, there are two possible taxing points. One is application to own use and the other is deemed sale under section 17A. They are the only two possibilities. Your Honours, we have given Your Honours a reference to York Motors to remind Your Honours
of the Rating Act and sections 17 and 19 of the
that the three taxing events specified in section 3 predicated of a manufacturer, of a taxpayer, that
he may do all of the three things. That is, he may sell the goods by wholesale or he may apply them to his own use or he may treat them as goods which he
will sell by retail. And at least two of those can only be done by the owner because he is the only one who could sell them by wholesale or by retail and we say that since all three of those things are
| Kodak(3) | 38 | 7/4/92 |
intended to be something that that one person can
do, application to own use likewise can apply only
to the owner. The question which Your Honours passed over in State Bank could only be answered,
with respect, in that manner, now that it arises
here.
We have given Your Honours a reference to a
passage in the judgment of Lord Green in Morris v
Lunzer. His Honour was there dealing with the
English purchase tax and identified the equivalent to application to own use in that English
legislation as really an alternative to sales,
selecting a point of time comparable to delivery in
the case of a sale. Again, the concept is that one
may sell them or apply them to one's own use, but
can do either.
It was Mr Justice Dixon, at the page we have
referred Your Honours to at the top of page 5 in York Motors who first said, before this Court in State Bank, that those three events are true
alternatives.
Your Honours, negatives have only one use. It
is clear from the appeal book, page 23, paragraph
44, that they can only be used to produce prints.
That is their only use. That is part of the stated
case. It is accepted. The question is, though,
can that involve an application to own use. We say, no, we are not the owner. We may be the manufacturer of the goods and the manufacturer of
the prints, but in using those negatives, which atall times, it is accepted, remain the customer's
goods, we are not applying them to our own use
because we do not own them.
Your Honours, the cases dealing with
application to own use, two of which my learned
friend Mr Bennett referred to - Taubmans and Max
Factor - express it in those terms. In Taubmans, 115 CLR 570 - - -
DAWSON J: If I applied the negatives to make prints for my
own purposes, would I be applying them for my own
use?
MR BLOOM: | If you were the customer and you owned them, Your Honour, yes, but Your Honour is not a |
| manufacturer and there is no sales tax. |
DAWSON J: Well, who owns the prints before they are given
to the customer?
| MR BLOOM: | The prints are owned by the manufacturer and he |
sells them, but the negative never is. The developer; the photographic laboratory. The
| Kodak(3) | 39 | 7/4/92 |
negative, however, remains at all times the
property of the customer.
| DAWSON J: | Why can he not apply it for his own use in making |
prints?
MR BLOOM: | He can, but that does not have any effect for taxing purposes. | The question is whether, when the |
photographic laboratory uses the customer's
negative to make prints, the photographic
laboratory can be said to be applying goods not its
own to its own use.
DAWSON J: Yes, well, why can it not?
| MR BLOOM: | Because it does not own them. |
DAWSON J: It does not matter. If you lend me your
negatives and I apply them to make some prints for
myself, I am applying the prints for my own use, am
I not?
MR BLOOM: | It depends on what application to own use means and the significance of the word "own", | |
| ||
| but - - - | ||
| DAWSON J: | By if I use something for me, I am applying it |
for my own use, am I not?
| MR BLOOM: | If I give you the negatives and ask you to make |
the prints for me, I may, with respect,
Your Honour, be asking you to apply them to my use.
The question is, what is the significance - - -
DAWSON J: | What I am saying is, the prints are not the customer's until he pays over the money for them. |
| MR BLOOM: | But the negatives are. | I accept what Your Honour |
says.
DAWSON J: That is a different thing.
| MR BLOOM: | No, and may I say why, Your Honour, because I am |
obviously not making it clear. Our submission is this, that because of the fact that those three
taxing events are true alternatives, application to
own use, sale by wholesale, sale by retail, that
those events are events, all of which can be done
by the manufacturer, the taxpayer. Now, sale can
only be done by the owner, and given that one
construes the sales tax legislation as a whole in
this manner, what one is targeting in section 17
and section 19 and in the Rating Act is acts by the
owner of the goods which are being applied to own
use. Now, if that is right it matters not that one
| Kodak(3) | 40 | 7/4/92 |
could in ordinary parlance say that they are being
applied also to use of others.
| DAWSON J: | I understand what you are saying and I accept |
that that is the argument. All I was suggesting to
you is it is perfectly clear when goods are
consumables. I mean, if the manufacturer of beer
drinks some of his beer, he is applying it to his
own use and there is no further use to which it can
be put. Where you have something like a negative which can be used to manufacture a further article
and that article is, at the time it is
manufactured, that of the developer, until it issold it is a slightly different situation.
MR BLOOM: There are difficulties, of course, with this
particular piece of property. The print is not the laboratory's for sale to anyone it pleases. The print can only be sold back to the owner of the
negatives because of copyright or, alternatively,
sold to others with the permission of that person.
It is a particular sort of property. But what we are really saying, Your Honour, is this, that
because of the way the sales tax legislation isconstructed, application to own use means
application by the owner of the goods about whom
the question arises, have those goods been applied
to own use, and here that is the negatives and theyare not owned by the photographic laboratory and,
therefore, for the sales tax legislation purposes
the taxing event, or the taxing point, has not been
passed.
Your Honours, in Taubmans, 115 CLR 570,
Mr Justice Windeyer, at 573 to 574, posed the
question in the second-last paragraph:
The question then is simply: did the
defendant apply the goods to its own use
within the meaning of the Act? The argument
that it did not is based largely on the notion
purpose of their being then by them given that they were given away to retailers for the away. In one sense that is so. But that does not conclude the question.
And then, the next paragraph:
Whether or not a thing is used by its
owner or applied by him for his own use -
so His Honour Mr Justice Windeyer felt it necessary
to add in the word "owner" there in the context of
the sales tax legislation -
he being a person conducting a business
depends, it seems to me, upon the use to which
that kind of thing is put in that kind of
business. The idea connoted by the phrase
| Kodak(3) | 41 | 7/4/92 |
"applied by him for his own use" is not
inconsistent with a gratuitous disposal of the
thing by its owner. The nature of the use to which the thing is designed to be put is a
most material consideration.
And in Max Factor in the judgment of
Sir Harry Gibbs at page 361, about point 5 of the page:
On behalf of the appellant it is
submitted that the goods which it gave away
were not applied for its own use within
s. 17(1). The goods were given by the
appellant with a view to achieving and
maintaining a satisfactory volume of sales of
cosmetics, and thus for the appellant's ownpurposes, but it is submitted that this is not
enough. It is said that the words "to his own
use" ins. 17(1) are not equivalent to "for
his own benefit" or "for his own purposes" but
refer to the physical use of consumption ofthe goods by the person on whom the tax is
imposed. In other words, the submission on
behalf of the appellant is that goods
manufactured by the appellant would be applied
to its own use withins. 17(1) only if the
appellant physically used the goods itself,
and that if the appellant gave the goods away
to someone who did not receive them as its
servant or agent it cannot be held to have
applied them to its own use, notwithstanding
that they were given for the purposes of theappellant and that the transaction was
beneficial to the appellant.
I cannot accept this submission. The
meaning of the noun "use" is not confined to
physical consumption.
So, Your Honours, we say there was no application to own use for the simple reason that the negatives
did not belong to the respondents at the time at
which - -
TOOHEY J: Is that the only reason, Mr Bloom? Is it vital
to your argument about application to own use that
the goods were not owned by the taxpayer?
| MR BLOOM: | Yes. Your Honour. | We say that application to own |
use in the sales tax legislation can only refer to the owner of those goods, and not only section 17,
not only section 3 of the Rating Tax, but very
clearly section 19 of the Assessment Act in
identifying the taxpayer makes that clear. And may I also remind Your Honour of section 18(3) which
supports this construction. That is the section -
| Kodak(3) | 42 | 7/4/92 |
it appears at page 92,251 - that gives a sale value
in the case of goods applied by the manufacturer to
his own use and it supports, with respect, the
construction for which we contend, namely that theperson there referred to is the owner of the goods:
For the purposes of this Act, the sale
value of goods manufactured by any person and
applied to his own use shall be the amount for
which those goods could reasonably be expected
to be sold by the manufacturer -
So he has got to be the person who would be able to
sell those goods, that is pass title in them.
Your Honours, Sir Owen Dixon, in all the sales tax cases - Ellis & Clark, Davies Coop - always
said that one must read section 17 and 17A, with
the sale value provisions in section 18 to get a
proper understanding of the sales tax scheme.
And in further answer to Your Honour
Justice Toohey, we do say that we use them and, if
they were our own goods, we would be applying them
to our own use, and that is a fundamental part of
our argument as well, but they are not our own
goods, therefore we do not apply them within the
meaning of that term in the legislation.
TOOHEY J: Yes, I understand that.
| MR BLOOM: | Your Honours, we then pass to section 17A. | I |
have already taken Your Honours to what
Sir Owen Dixon said in Jack Zinader on section 17A as to the purpose of that section and to the
passages in the judgment of Mr Justice Hill in the
court below at pages 67 and following, but if I may
take Your Honours back to page 68 in the appeal
book, where His Honour deals with the argumenthere. In the middle of page 68:
When one seeks to apply section 17A to the present facts there are two difficulties.
The first may readily be overcome. There is
some oddity of language in describing the
negatives as having been manufactured (reading
"manufacture" in its defined sense as
including the processing or treatment of
exposed photographic film to produce a
negative) out of the materials supplied by the
customer -
Section 17A contains those words. It may assist if Your Honours were to have on the left-hand side
section 17A at the same time as one is reading what
His Honour says at page 68 and following. So the first problem, His Honour says, can readily be
| Kodak(3) | 43 | 7/4/92 |
overcome, because mere oddity of language ought not
to stop one from concluding that the exposed films
are, in effect, materials supplied by the customer,out of which the negative is manufactured goods.
This is the last paragraph on page 68:
For the applicants it was submitted that at
the at which s 17A spoke, that is to say at
the time of delivery of the negatives to the
customer, the negatives, assuming them to have
been "goods" at all, had ceased so to be by
virtue of the fact that as negatives they had
gone into use and consumption in Australia, ie
that they had been, by then, used in the
printing process. For the Commissioner, on
the other hand, it was submitted that as a
matter of construction it was unnecessary that
the negatives be goods at the point of
delivery, but even if it were necessary, the
negatives were not used in the printingprocess, that process merely amounting to
shining light through them. This last
submission, which involves an over simplistic
view of the process of making prints, and
results in there being no real use at all of
negatives, may be immediately rejected -
particularly in the face, Your Honours recall, of
the stated fact that the only use for negatives is
to make prints.
If I might just interpolate there for a
moment, "use" is a word of very wide definition.
This Court in Stewart's case, 154 CLR 385,
indicated that "use" was a word of very wide
connotation in the context of the sales tax
legislation, as elsewhere. At page 391, the middle
of the page, in the judgment of Sir Harry Gibbs:
The starting point of the argument
presented on behalf of the Deputy Commissioner is that the machines were applied by the
respondents to their own use, and therefore
liable to tax under ss 17 and 19 unless
exempted by the Sales Tax (Exemptions and
Classifications) Act. The next step in the argument is that the application of the
machines to the use of the respondents
occurred when they were manufactured, and
before they were supplied to the public
benevolent institutions. It followed, so itwas submitted, that as soon as the machine had
been manufactured it had "gone into use" in
Australia within the meaning of those words in
the definition of "goods", and had therefore
ceased to be "goods" as defined ..... and didnot fall within the
| Kodak(3) | 44 | 7/4/92 |
exemption ..... Alternatively, it was submitted
that ss 17 and 19 provide three "taxing
points", one of which is the application of
the goods to the use of the manufacturer, and
that it is at the time when the goods pass thetaxing point that it is necessary to inquire
whether they are covered by -
the exemption. That was a submission by the
Commissioner that the goods having been applied to
own use by the unquestioned manufacturer and owner
of them in that case, they had, also, therefore,
gone into use. And having therefore gone into use, they were no longer goods at that point in time,
having regard specifically of the definition of
"goods" and its exclusion of goods which, by a
process of retailing or otherwise, have gone into
use or consumption.
At page 393, at about the middle of the page,
after the reference to York Motors:
The Court was there discussing the meaning of
of "treated" ins 17, and not the meaning of "applied", and it was not concerned with the effect of the Sales Tax (Exemptions and
Classifications) Act, or with the meaning of the words "gone into use" in the definition of
"goods". The word "applied" means "devoted to" or "employed for the special purpose of"
(Max Factor & Co Inc v Federal Commissioner of
Taxation) and although in some cases goods may no doubt be applied to the use of a person simply by keeping them in reserve - eg by
keeping spare parts for use in the person's
vehicles or machinery - in the circumstances
of the present case the application of the
machines to the use of the respondents
occurred when they were devoted to therespondents' purposes by supplying them to the
institutions. In other words, the respondents
did not apply the machines to their own use, and the machines did not go into use, when
they were made and kept ready for subsequent
delivery to one of the institutions.
The point of that, Your Honours, is this, that
there is a connection drawn there between the
concept of application to "own use" which, in our
submission, of course, is something which only the
owner can do, and the goods at that same point in
time going into use in Australia so as to cease
being, for sales tax purposes, goods.
Of course, we say that when one gets to section 17A, at the point of delivery, they have
been used to print photographs, that being their
| Kodak(3) | 7/4/92 |
only use, they have therefore gone into use, they
are therefore not goods, and section 17A cannot be
strained to achieve that result. Your Honour Justice Brennan was to the same effect at page 396
in that case.
Your Honours, we have referred to the relevant principles of statutory construction.
They have
recently been gathered in the judgment of
Justice McHugh in Hepples' case. The only report for that we have is 65 ALJR 650, and the passage
commences at pages 667 to 668, under a reference to
a section which one is perhaps grateful is not
involved in these proceedings. Your Honour Justice McHugh said: In Attorney-General for Canada v Hallet &
Carey Ltd, Lord Radcliffe pointed out that
"the paramount rule remains that every statute
is to be expounded according to its manifest
or expressed intention". In determining thatintention a court "must give effect to what
the words of the statute would be reasonably
understood to mean by those whose conduct it
regulates" -
I would pause there to remind Your Honours that we
are concerning the general provisions of section
17A, which the Commissioner wants strained to deal
with this particular case; not generally, but to
deal with this particular case.
Black-Clawson Ltd v Papierwerke, per
Lord Diplock, at 638. These statements do not
mean, however, that the intention of
Parliament is commensurate with the ordinary
grammatical meaning of the legislative
provision in question. As I pointed out in Corporate Affairs Commission of New South
Wales v Yuill, the literal or grammatical
meaning of a legislative provision is not always the meaning which Parliament intended the enactment to have. Thus, Parliament is presumed to have intended that the meaning of its enactment should be determined by applying the rules of construction which traditionally the courts have used to construe legislation.
The application of those rules often results in the "intended" or statutory meaning being
different from the literal or grammatical
meaning of the enactment. As Mason and Wilson JJ pointed out in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation: "The fundamental object of statutory
construction in every case is to
| Kodak(3) | 46 | 7/4/92 |
ascertain the legislative intention by
reference to the language of the
instrument viewed as a whole.
That means here, section 17A, viewed in the light
of the definition in section 3, and one is asking
vis-a-vis 17A, is there a context which requires a
different construction of the word, is there a
context in 17A that requires a differentconstruction?
But in performing that task the courts look to
the operation of the statute according to its
terms and to legitimate aids to construction.
The rules (of construction), as
D. C. Pearce says ..... are no more than rules
of common sense, designed to achieve this
object. They are not rules of law. Departure
from the literal or grammatical meaning of a
legislative provision "extends to any
situation in which for good reason the
operation of the statute on a literal reading
does not conform to the legislative intent as
ascertained from the provisions of the
statute, including the policy which may be
discerned from those provisions".
Now, pausing there for a moment, that may well
apply to the situation where we have a deemed
process of manufacture, but no deemed goods and we see the force of that argument, but in the case of
section 17A which on its ordinary interpretation, as it was inserted, is perfectly fit to deal with the situation for which it was inserted - there is
no call, with respect, to depart from those words
and the definitions of terms used in that section
merely to accommodate the peculiar factual
situation with which the Commissioner finds himself
here, particularly in the light of the fact thatthe same piece of amending legislation contained
equivalence of what the Commissioner is asking this provisions to deal with visual sounds that were the Court to do here with section 17A. Your Honours, I see it is a quarter to one.
MASON CJ: Yes. We will adjourn until 2.15, Mr Bloom.
AT 12.45 PM LUNCHEON ADJOURNMENT
| Kodak(3) | 47 | 7/4/92 |
| UPON RESUMING AT 2.17 PM: | ||
| MASON CJ: Yes, Mr Bloom. |
| MR BLOOM: | If Your Honours please. Your Honours, |
immediately before the luncheon adjournment I had
arrived at paragraph 16 of our outline. If I may
just summarize where we are at that point in
relation to this issue. First we are assuming
against ourselves, indeed as the Federal Court held
and as Lord Diplock would hold, that the
legislation ought not to be stultified and that
negatives are goods which are manufactured, because
the processing or development is defined as
"manufacture". But now the Commissioner wants to go one step further. He wants to say that notwithstanding that in most cases the negatives
are used to print photographs, none the less they
should be treated as still being goods for the
purposes of section 17A. So that, not only in
those cases, as the Federal Court held, where thenegatives are produced and then redelivered to the
customer should sales tax be exigible on the value
of the negatives, but he wants to say that in all
cases, including those where the negatives are used
to print photographs and redelivered with the
prints, and that he says comes about because of
section 17A. And what he asks the court to do there is to interpret section 17A in such a way
that the word "goods", at least in one part of it,
namely where it crosses the taxing point, does not
bear its ordinary meaning, that is, as defined by
section 3.
Now Your Honours, our answers are these:
firstly, one is construing section 17A as a general
provision, not as a provision enacted specificallyto deal with the facts of this case; secondly,
section 17A is perfectly capable of being given an interpretation on the ordinary and grammatical
basis which will achieve the purpose for which it,
that is section 17A, was enacted; thirdly, it
should not be given a strained interpretation just
to accommodate the Commissioner's case here; and
fourthly, that is especially so where, on the
Federal Court's interpretation, the 1986 amendments
will have operation, that is in those cases where
the negatives are redelivered without being used to
make prints, and secondly where, in those same 1986
amendments, there were specific provisions inserted
in relation to other matters, the definition of
"manufacture" in paragraph (f) dealing with the
embodying of:
visual images or sounds -
| Kodak(3) | 48 | 7/4/92 |
and the like, and there were specific provisions in
subsection (3A) and section 18(3B), inserted to do
the very thing which the Commissioner wants from
section 17A here.
Your Honours, if I could take you back to
Justice McHugh's judgment in Hepples' case,
65 ALJR, where at the last paragraph on page 668:
Unless the context of a legislative provision or the purpose of the statute or the
application of a rule of construction throws
real doubt on the literal or grammatical
meaning of the provision -
here, section 17A -
that meaning must be taken as representing
Parliament's intention as to the meaning of
the provision. A court is not entitled to depart from the literal or grammatical meaning
of a provision simply because that meaning
produces anomalies or inconveniences. Of course, if the literal or grammatical meaning
gives rise to an injustice, or even in somecases to an anomaly or inconvenience, it may
indicate that Parliament did not intend that
meaning to prevail. In Cooper Brookes,
Mason and Wilson JJ pointed out:
"Quite obviously questions of degree
arise. If the choice is between two strongly
competing interpretations, as we have said,
the advantage may lie with that which produces
the fairer and more convenient operation so
long as it conforms to the legislative
intention. If, however, one interpretation
has a powerful advantage in ordinary meaning
and grammatical sense, it will only be
displaced if its operation is perceived to be That is again the operation of section 17A.
unintended."
Your Honours, in paragraph 16 of our outline,
after the reference to Justice McHugh's judgment in
Hepples, we repeat this: given its natural
meaning, the section will bring to tax transactions not previously, that is before the 1986 amendments, taxable. In those circumstances, it would be
inappropriate to extend the words of the section
where the legislature itself has not chosen to do
so. We refer Your Honours to Lord Simonds' speech in Wolfson's case, (1949) 1 All ER 865. The passage is at page 868, two lines under the
letter B:
| Kodak(3) | 49 | 7/4/92 |
It was urged that the construction that I
favour leaves an easy loophole through which
the evasive taxpayer may find escape. That
may be so, but I will repeat what has been
said before. It is not the function of a
court of law to give to words a strained and
unnatural meaning because only thus will a
taxing section apply to a transaction which,
had the legislature thought of it, would have
been covered by appropriate words. It is the
duty of the court to give to the words of this
sub-section their reasonable meaning, and Imust decline on any ground of policy to give
to them a meaning which, with all respect to
the dissentient Lord Justice, I regard aslittle short of extravagant. It cannot even
be urged that, unless this meaning is given to
the sub-section, it can have no operation. On
the contrary, given its natural meaning it
will bring within the area of taxation a
number of cases in which by a familiar device
tax had formerly been avoided.
And that, Your Honours, is this case based on what
the Federal Court has held. We have given Your Honours a reference to two cases, firstly a
judgment of Chief Justice Gleeson in Bryan's case
and secondly a judgment of this Court in Bolton. It
is probably better that I leave those to reply
because they really deal with the use that we
anticipate our learned friends will make of the
explanatory memoranda and to this point, at least inthis case, there has been no use sought to be made
of those explanatory memoranda at all.
Your Honours, if we are wrong in our argument
that the negatives are not applied to our own use
because we do not own them and, if contrary to
that, they are applied to our own use, then it is
our submission that they are exempt as aids to manufacture and, if Your Honours will forgive me
for taking Your Honours through it again, I might
just retrace the steps which Your Honour
Justice Deane and my learned friend Mr Bennett took
this morning, on the definition of aids to
manufacture. The interpretation is, we perceive, that which Your Honour Justice Deane put to my
learned friend during the course of argument.
The relevant items are at page 95,741 and are
items 113B and c. Both of those apply to the respondents in the second appeal. The first item picks up the definition as aids to manufacture in the Exemptions and Classifications Act and the
second, 113C, picks up the definition in the
regulations. But, as Mr Justice Hill said below,
| Kodak(3) | 50 | 7/4/92 |
there is no real distinction, for present purposes,
between those two definitions.
If one then goes to the regulations: regulation 4 appears at 93,502, and if one goes
first to paragraph (d) on 93,503, aids to
manufacture will be "goods (other than those"
excluded relevantly by paragraph (k) "for use as
specified in paragraph (a). One goes back to paragraph (a) and ignores the words "machinery,
implements and apparatus" and inserts instead
"goods" by virtue of paragraph (d) and those goodsare, of course, the negatives. And then one reads it, with respect, we think this way: goods for use
by a registered person in the course of carrying on
a business, being negatives, "for use exclusively
or primarily and principally", down to (iii):
in any processing or treatment for the purpose
of bringing goods -
prints -
into the form or condition in which they are
to be marketed or used by the manufacturer of
the goods -
that is the prints.
Now, there is no argument, it would see, and
that may be because of the complexity of the
section, that if there is application to "own use",
the respondents come within those opening
paragraphs. The sole question is whether they are excluded by subparagraph (k). Reading
subparagraph (k), if I may take the liberty of
doing it in the same way, it reads negatives:
for use in connection with the manufacturer
for sale of -
prints - if the first-mentioned goods -
the negatives -
are to be sold to the purchaser of the -
prints. Now, the question is, can you postulate of the negatives that they are to be sold to the
purchaser of the prints? The Commissioner's case
at no stage suggests that they are to be sold or
that they are, in fact, sold. His case is thatthey will, by the happening of certain events which
fall within section 17A, be deemed to have been
sold once those events take place, and it is our
| Kodak(3) | 51 | 7/4/92 |
respectful submission that one cannot interpret the
words "are to be sold" as if they read "are to be
dealt with in such in a way that when they have
been so dealt with they will be deemed to have been
sold", and so, we say, that subparagraph (k) does
not apply, and we gain, with respect, some
assistance from (k)(ii) which anticipates that the
purchaser of those goods in the future sale may be
able to quote his certificate. Of course, there
can be no quotation of certificate in the deemed
sale situation, and so that subsection or
subparagraph cannot, in our submission, be speaking
of a deemed sale.
Your Honours, there is one last matter which
is not in our outline of submissions, but
Your Honours will have seen that Mr Justice Hill at
page 71 of the appeal book raised a matter which
had not been argued below. He suggested, at about
line 10 of page 71, that a way for the Commissioner
to get around all this might be to treat as the
sale value of the prints the amount charged for
development and printing.
Your Honours, as His Honour expressly says,
that matter was not the subject of argument in the
Federal Court and was not the subject of any
statement of fact in the stated case or any other
evidence. It would depend very much upon the contract between the parties and the sort of matter
that was the subject of this Court's decision in
Commonwealth Quarries, the case mentioned at the top of page 71 by His Honour Mr Justice Hill and,
with respect, it not having been argued it would be
inappropriate, in our respectful submission, for
the-court to pass anything in relation to it. If
the Court pleases.
MASON CJ: Thank you, Mr Bloom. Yes, Mr Gzell.
| MR GZELL: | If the Court pleases. | I think our written |
outline is with Your Honours.
MASON CJ: Yes, Mr Gzell.
MR GZELL: If the Court pleases, there are, as we have
discerned them, four planks to the arguments that
our learned friends have advanced. First, they
submit that developing negatives is not manufacture
according to ordinary concepts. The answer to that
proposition which our case develops is that,
according to ordinary concepts, the production ofthe negatives is manufacture.
The second plank to their argument is that one
can have manufacture without producing goods and
our case is that there is a fundamental correlation
| Kodak(3) | 52 | 7/4/92 |
between manufacture and goods in the sales tax
legislation; that the legislation as a scheme
proceeds upon the basis that goods are the output
of manufacture. So that if one has a definition which extends the concept of manufacture, the
result of the process which is thereby encompassed
is goods.
The third plank to our friend's argument seems
to be this, that a lacuna exists in the Act,
because one can have a use, which takes an article
out of the definition of "goods", without crossing
a taxing point as an application to "own use" and
we say that that is a misconception of the scheme,
that either there is an application to "own use",
in this case, of the negatives, by which a relevant
taxing point is crossed, or if that is not so,
there is no relevant use of the goods, because they
are not relevantly taken into "use or consumption"
and that the exception to "goods", in thedefinition, of taking into "use or consumption", is
equivalent to one or other of the three crossings
of a taxing point, so that no lacuna exists between
application to "own use" and "use" within the
definition of "goods".And the fourth plank to their argument, which is put in the alternative and put on the basis, if their arguments be wrong in relation to the
non-crossing of a taxing point, their fourth
argument is, if against them the court takes the
view that there has been an application to "own
use", then the negatives are excluded as "aids to
manufacture", because paragraph (k), in the
definition of "aids to manufacture'', is limited to
sales in fact, and we say of that last proposition,
that sales under the Assessment Act include deemed
sales and hence they apply, either because the
regulation or the provision in the Exemption and
Classifications Act is but part of the one
structure or, alternatively, because of a provision
in the Exemption and Classifications Act which incorporates the meanings from the Sales Tax
Assessment Acts themselves.
And those four matters are, in our submission,
addressed in the argument as we develop it. In
speaking about the scheme of the sales tax
legislation, we have cited to Your Honours the
well-known passage in Ellis & Clark, to which Iwill not take Your Honours. Brayson Motors, we
have set simply because it is a recent statement to
the effect that, notwithstanding that the analysis
of Sir Owen Dixon was made many years ago and incircumstances where the structure of the
legislation was much less than it is now, this
Court has said none the less, that analysis still
| Kodak(3) | 53 | 7/4/92 |
holds good, notwithstanding that the changes had
been made, and that analysis and the passage from
Brayson Motors stresses that the structure or
scheme of the legislation is that all goods should
be taxed but taxed once only in the progress from
manufacture or importation into this country to
final "use or consumption".
The passage from Mr Justice Hill that we have
set out at the bottom of the first page, in his
analysis of the legislation we do not cavil, and we
submit to Your Honours that the analysis from
pages 36 to 38 of the appeal book is an accurate
analysis of the scheme of the legislation.
Reference has been made to the decision in
York Motors and the point has been made by our
learned friends that it was there said that the
three taxing points are alternatives. That is so.
It also appears from that decision that once one of
them is crossed, that is the end of the matter. In
other words, once one taxing point is crossed there
is no scope for the operation of the others, and
that was succinctly said by Mr Justice Williams at
page 468 - I am sorry, Your Honours, the citation
is 73 CLR 459, and the particular passage of
Mr Justice Williams is at page 468:
The tax becomes payable once and for all upon
the occurrence of any one of the three events
described in the section, namely: sale of the
goods by the manufacturer, their treatment by
him as stock for sale by retail, or their
application by him to his own us -
and in the Full Court of this Court, that
proposition was not doubted.
We have set out the proposition in general
terms at the top of page 2 that the scheme of the
will cause the negatives to be taxed if they are legislation as it applies to this particular case goods which have been manufactured and have crossed a taxing point unless they are the subject of an exemption. I should say in passing that it was common
ground at the time of the special leave application
in the Kodak matter, and I do not think it is
doubted - I will be corrected if I am wrong - but
there is no question of double taxation in this
case. The sale value with which Your Honours are concerned is a sale value which is confined to the
processing charge in respect of the negatives,
which processing charge was not until, in any
event, the 1986 amendments picked up in the sale
value of the prints. So it is not a question of a
| Kodak(3) | 54 | 7/4/92 |
tax upon the unexposed film and a tax upon the
prints and now a new tax being levied that causes
the goods to be double taxed. The negatives are not included in the process of determining the sale
value of the prints.
I might also say in this context that we agree
with the observation from our learned friend
Mr Bloom that the suggestion made by His Honour
Mr Justice Hill as to the way in which theprocessing charge might be addressed differently
should not trouble Your Honours. We would submit that the analysis of His Honour Mr Justice Hill may
well be wrong, depending upon the circumstances,
but it was not a matter which was argued and it isnot a matter which, in our submission, Your Honours
will be troubled with.
I should also say that if the Court is with us on the basis that the Commissioner is entitled to
tax the negatives, again there will be no question
of double taxation, because if there is a deemed
sale under section 17A(l), then the sale value is
picked up under section 18(1A)(b) and
section 18(1B) and confined to that processing
charge. If, on the other hand, there has been an
application of the negatives to the manufacturer's
own use, then section 18(3) applies, which again is
limited to the processing charge.
So that our first submission to Your Honours
is that one looks at the question whether the
negatives are goods and that, in our respectful
submission, is an easy question to answer, because
the definition of goods is a very wide one indeed.
The real question is not so much, "Do the negatives
fall within the definition of goods?", but, "Are
they excluded from that definition as second-hand
goods under paragraph (a) in the definition?"
Our learned friends have put the case that the
1986 amendments, which specifically included the
production of negatives within the definition of
manufacture, miscarried because there was no
corresponding amendment to the term "goods" to
include negatives specifically. We say that no such extension was necessary because ''goods" is an
all-embracing term. The real question is whether or not the exclusion of second-hand goods applies.
I made the general observation to Your Honours
earlier which we take up in paragraph 4 of our
outline, that there is a correlation between
manufacture and goods and that the outcome of
manufacture is goods. I should say this, that that correlation, although it is fundamental to the
operation of the legislation, is not specifically
| Kodak(3) | 55 | 7/4/92 |
stated anywhere. There is not a specific provision
which enunciates that the outcome of manufacture is
goods, but none the less that is to be clearly
determined as a matter of construction of the
legislation.
If I take Your Honours first to the definition
of goods, to which Your Honours have already been taken, at page 92,141 of the booklet - I am using
the 10th edition and I think Your Honours may have
the 9th edition, but I do not think there is anymaterial alteration to the pagination - in the
definition of "goods":
"Goods" includes commodities -
so that the inclusive part of the definition is one
that takes the view that "goods", according to the
ordinary concept of that term, are naturally
included; it extends to commodities; and then thereare exclusionary provisions. The first one is the
one with which we are concerned, of course, and it
is the one to which Your Honours' attention has
been drawn, but I am highlighting the correlation
between "goods" and "manufactured", and that
correlation becomes apparent in the second
exclusion:
goods which are sold as second-hand goods and
are manufactured exclusively or principally
from goods which -
(i) have, whether alone or as parts of other
goods, gone into use or consumption in
Australia; and
(ii) in the opinion of the Commissioner, in
their condition as parts of the goods so
manufactured, retain their character as goods
or parts of goods which have gone into use or
consumption in Australia.
The definition of "manufacture", which is on the
next page, speaks in terms, in paragraphs (e) and
(f), of manufactured items being embodied in goods,
so that in (e) one has the embodiment of the
computer program in goods; the embodiment of the
images or sound in paragraph (f) in goods and,
further down, in paragraph (h):
so as to embody the program ..... in goods, by a
person who is not the manufacturer of thegoods.
So, again, the correlation between goods and
manufacture is highlighted.
| Kodak(3) | 56 | 7/4/92 |
"Manufacturer", the term defined on the next
page in the work:
means a person who engages, whether
exclusively or not, in the manufacture of
goods, and includes a printer, publisher,
lithographer or engraver, and a person (not
being an employee) who manufactures goods,
whether or not the materials out of which the goods are manufactured are owned by him, but,
where one person -
and then it goes on similarly to deem a position
and to exclude another. But again the correlation is clear: goods are the output of manufacture.
Section 17(1), to which Your Honours'
attention has already been drawn, which is at page
92,214 of that work:Subject to, and in accordance with, the provisions of this Act, the sales tax imposed
by the Sales Tax Act (No 1) 1930 shall be
levied and paid upon the sale value of goods
manufactured.
So that, again, the correlation is apparent
and without taking Your Honours to it, the similar
correlation is highlighted in section 19 to which
Your Honours have been taken and also to section 3
in the Rating Act to which Your Honours have been
taken.
So that, notwithstanding that there is no
specific provision that says the outcome of
manufacture is goods, in our submission, the
correlation is apparent. It is the goods
manufactured which is the subject of the impost
under this Act.
The reference to McNicol v Pinch, I will not take Your Honours to. It has be.en drawn to
Your Honours' attention already. Jack Zinader is
of interest because it is a case in which the
obverse of the proposition presently being put by
our learned friends was rejected. Jack Zinader is
in 78 CLR 336, and at page 344 to 345, the passage
on which I rely appears. Jack Zinader, Your Honours will recall, is a case in which the
old furs were brought in, taken down, worn and
used, part excised, and the furs pinned out,
restretched for the purpose of being fabricated
into a replacement garment, and the High Court took
the view that this was a process of manufacture.
At the bottom of page 344:
| Kodak(3) | 57 | 7/4/92 |
On the whole the commissioner's view appears to be the more correct.
The work of
great value and usually of some permanence.
the furrier is to use skins to form garments.
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. But on behalf of the taxpayer answers to
this position are put forward by way of
confession and avoidance. Let it be so, it is
said. Nevertheless there is no
"manufacture" -
so the proposition which was there being put was
goods without manufacture. The opposite is being put to Your Honours. The process does not amount to manufacture.
It is not manufacture within the ordinary
meaning of the word nor within the statutory
definition. It is a reshaping or reforming of
an existing second-hand article. Taking a
thing to pieces and putting it together again
is not manufacture and putting it together in
a different shape is not enough to make
applicable the word "manufacture." So runs
the argument. The argument is answered by the consideration that, according to the
conclusion already stated, the process produces a different article. When that consideration is added to the fact that the
actual work done and the procedure employed in
producing the new, that is the distinct,
article is characteristically a manufacturing
process, it must follow that the "goods" are
"manufactured" within the ordinary meaning of
that term.
MASON CJ: But how far does that take you, because if you
look at page 347 in the paragraph commencing on
that page, His Honour evidently regarded it as
necessary to establish that the goods were not
excluded by paragraph (a) of the definition of
"goods"?
| Kodak(3) | 58 | 7/4/92 |
| MR GZELL: | Yes, quite so, Your Honour, but the question was |
whether or not there was to be an exclusion by
reason of a failure to overcome the proposition
that there was manufacture, so the proposition
which was being put was that if this was not a case
of manufacture, then the old goods, the old fur,
being second-hand goods, fell within the exception.
The argument which succeeded, of course, was that
because that which was fabricated out of the old
furs was a process of manufacture, new goods were thereby created, and since new goods were thereby
created, there could be no scope for the operation
of the exclusion of paragraph (a). And likewise here, if our friend's argument succeeds and there
is no process of manufacture creating a new good,
then the goods, which are the negatives, are
excluded as second-hand goods; they have already
gone into use in respect of the sale by retail of
the unexposed film to the customer.
If, on the other hand our argument succeeds
that the negative is a new good produced by a
manufacturing process, there can be no scope for the operation of paragraph (a), because that new
good is something distinct from the exposed film
that resulted from that which was bought by the
customer, and one then does not regard that new
good, the negative, as falling within the
second-hand exclusion in paragraph (a). So that the proposition which we then address is that the
making of the negatives is a process of manufacture
according to ordinary concepts.
Our learned friend, Mr Bennett, said to
Your Honours that all that happened was a simple
chemical process. Well, it may be simple to him;
it is not so simple to me. There are a series of
steps, the evidence in both cases reveal, which aretaken in respect of the exposed film to produce the
negative. I do not intend to take Your Honours to it, but I draw Your Honours' attention to Mr Forbes' affidavit in the Kodak matter at appeal
book page 36 and his second affidavit at appeal
book page 40, and in the Genex matter, in the case
which is stated, particularly at paragraphs 7 to 27
at the appeal book 10 to 18. But, very simply,
what appears from Mr Forbes' affidavit is that the
first thing that happens to the exposed film is
that it is taken through a developer solution and
the purpose of taking it through the developer
solution is that, what are described as couplers,
are converted into dyes, the couplers being in
various layers on the underlying plastic, and in
addition, the negative image is produced by theproduction of metallic silver.
| Kodak(3) | 59 | 7/4/92 |
The second process that then occurs is one in
which it is introduced to a bleacher and the
bleacher has the effect of making the metallicsilver soluble. It then goes through a fixing
solution under which the metallic silver is removed
and then through a stabilizer which preserves the
image and finally through a drying process and, in
the course of that simple chemical process, there
is, in our submission a change in the nature of the
exposed film, both chemically and physically and,
furthermore, it is a commercially different thing
because if one takes the exposed film and submits
it to light it will destroy any latent images that
are in it and the result of the process of
producing the negative is that it is resistant to
the application of light.
In our submission, Mr Justice Mcinerney got it
right in his analysis of the matter in the Kodak
appeal book at page 44 to 45, and the approach that
was taken by Mr Justice Mahoney on the one hand and
Mr Justice Hill in their respective judgments on the other, is to be rejected, in our respectful
submission. Mr Justice Mahoney took the view that
because the Exemptions and Classifications Act
recognizes goods by description, what the goods in
this case were was a photographic film, not an
unexposed photographic film, not an exposed
photographic film, not a photographic filmproducing negatives, but a photographic film, and
on that basis the description being of a
photographic film, he took the view that the change
which was wrought between the stage of exposure and
the stage of producing the negative was not
manufacture.
Mr Justice Hill approached it from the point of view that this was a service involving a
modification of existing goods and being a service
goods. But, in our respectful submission, the involving merely a modification did not create new material difference in physical composition, in the physical structure and in the commercial usability of the end result is sufficient to constitute it as a manufactured good.
Reference has been made to McNicol. The
distinguishing feature about the McNicol case was
that you had saccharin which had what were called
"para" compounds within it, and "para" compounds
had no sweetness, so the extent to which you had
"para" compounds mixed up within the saccharin, the sweetness was reduced relatively to the bulk of the
product.
What happened in McNicol was the removal of the "para" compounds, thereby increasing the
| Kodak(3) | 60 | 7/4/92 |
quantity that was saccharin and thereby increasing the sweetness. One can understand in that sort of
circumstance saying that that was not a process of
manufacture because what was produced at the end
was the same as before and an impurity, if you
like, had been removed.
Jax Tyres may be a little difficult to
reconcile with Jack Zinader. In Jax Tyres, like Jack Zinader, one had old tyres, and a retreading
process was added to them. The Court took the view that the retreading process did not create a new
article. I suppose one way of distinguishing Jax Tyres from Jack Zinader is that in Jack Zinader,
the fur was taken for the purpose of excising that
which was no longer serviceable and utilizing what
remained in restructuring a garment. That amounted
to manufacture, whereas in Jax Tyres, an old tyre
was taken, its surface was cleaned and it was
repaired by the extrusion of new tread.
Our learned friend, Mr Bennett, put some
stress on the fact that this case is different
because the film is bought with the very purpose of
having created from it a negative for the very
purpose in the end of producing prints. So he says it is like the butterfly emerging from the
caterpillar.
The same thing applies, in our respectful
submission, to the Jack Zinader case. One starts off with a fur that might be likened to a
caterpillar for a different reason, excises those
portions of it that are no longer beautiful and
produces a butterfly as the end result. It is
certainly not a case of making a silk purse from a
sow's ear, because the ingredients for the final
product existed.
We cavil with our learned friend's submission
that this case is unique. In WEA Records v Federal Commissioner of Taxation, Mr Justice Davies had to
consider whether or not the recording on to a tape
was a process of manufacture. That is very much
the same sort of situation to which our learned
friend, Mr Bennett, alludes, because the tape is
acquired for one purpose and one purpose only: to
have reproduced on to it the sound images or the
light images or both, as the case may be.
Mr Justice Davies had little difficulty in
concluding that the end result of that process was
one of manufacture. We take comfort from that decision because if the process of recording is
properly regarded as a matter of manufacture, then
so too, in our respectful submission, is the
concept of developing. What His Honour
| Kodak(3) | 61 | 7/4/92 |
Mr Justice Davies said - and the case is reported
in 96 ALR 365. The passage I wanted to take Your Honours to is at page 370:
In my opinion, the duplication process
undertaken by Image and Videocopy brought into
being a commodity which was different from the
blank cassettes on which the videos were
recorded. A cassette adapted to take a video recording is one thing. A cassette containing a video recording is another, as Mr Byron
recognised in his evidence. The commodities are different because the video recording,
which is the predominant feature of the one,
is absent from the other. The process whereby this occurs is not mere treatment but
production and, to my mind, manufacture, using
that term in its ordinary sense.
DEANE J: But that would really support the view that there
was manufacture at the time of exposure. It does
not support the view that there is manufacture when
the exposed film is treated because the equivalent
to what is put on the tape has already been put on
the film.
MR GZELL: | I take Your Honour's point because in the process of taking the tape and putting on to the surface of the tape metallic substances which give signals, |
| there is but one process involved. Whereas here, | |
| in order to get to the negatives one goes through | |
| two processes, that is, the images are cast in negative form on to the exposed film which is then | |
| stabilized by the process of taking it from exposed | |
| to negative. So I take Your Honour's point. But | |
| none the less, the process - I mean, one of the | |
| points that was being made against us was that one | |
| cannot envisage a function of manufacture if that | |
| which is- done is the very thing for which the i tern | |
| |
| in challenging that proposition, although I take | |
| Your Honour's point as to the distinction between | |
| the one process there and the two processes here. |
It is pointed out to me, of course, that if
one is talking about dividing the dual process that
goes on in exposing a film and then producing a
negative from it and comparing that which gives it
the quality of being a new product, one must
include the step of producing the negative because
there is nothing of lasting quality about the
exposed film. Unless one takes the next step and
stabilizes the latent image which the light has
produced on the sensitive paper, one has got
nothing like the cassette recording that one had in
the WEA case; so that albeit that there is a
double step in the situation with which
| Kodak(3) | 62 | 7/4/92 |
Your Honours are concerned, our submission is that
it is the second of the two steps which gives the
quality to the product which enables it to answer
the description of a good manufactured.
The other thing that I should say, and I
omitted to say in indicating to Your Honours the
way in which His Honour Mr Justice Hill had
approached the question in Genex, is that
His Honour ultimately did not form a concluded view
as to whether or not the creation of the negative
was a process of manufacture according to ordinary
concepts. He said it was unnecessary for him to finally decide that issue, at page 55 in the Genex
record, because of the view he took about the
extension to the definition of "manufacture''. So,
outline 5: "In the end it is not necessary to come
to a final conclusion on the matter".
There are a lot of cases, as my learned
friend, Mr Bennett, indicated to Your Honours; a
number of them are summarized in the Jax Tyre
decision and His Honour Mr Justice Hill adds a
number of others to it in his analysis but, in the
end, it does not assist simply to compare the
factual situations that have been held to fall on
one or other side of the fence. Ultimately it is a matter for Your Honours' judgment and I leave that
question and pass on to the next.That is, that in any event the extension of the definition of "manufacture" carried with it -
because of the correlation which we say underpins
the scheme of the legislation - the consequence
that negatives are goods. And this is not a question, like the decision of Comber to which our
friends referred, of deeming one thing to occur butnot deeming the other to occur, because Comber did
not involve a scheme which treated as a fundamental
which simply says, "We extend the definition of concept the output of manufacturers' goods and, that being the underlying concept, a definition manufacture", carries, as part of the structure, that concomitant.
That proposition did not concern
Mr Justice Williams in the slightest because, in
Jack Zinader, to which I have already made
reference, 78 CLR 336 at page 349 - and I apologize
to Your Honours, in paragraph 6 of our outline the
reference there should not be 346 but 349 - at
page 349, admittedly His Honour did not have the
precise point that Your Honours have before you buthe did not find any difficulty in regarding goods
as being the outcome of an extended definition of
the term "manufacture". At page 349, about
two-thirds of the way down that page:
| Kodak(3) | 63 | 7/4/92 |
The Act therefore applies in terms to all
goods which are goods or commodities in the
ordinary meaning of those words except those
goods which are excluded by pars (a) and (b)
of the definition. The Act also applies in
terms to all goods which are manufactured
according to the ordinary meaning of that word
or which are manufactured within the meaning
given to that word by the definition.
And we say that that approach is perfectly proper
in circumstances where the correlation underpins
the scheme.
Our learned friend, Mr Bloom, put some stress
upon provisions introduced into the Act at the same
time as the extension to the definition of
"manufacture", and his submission to Your Honours
was this, that paragraph (d) - and I am now back at
page 92,142 of the work - our learned friend,
Mr Bloom, pointed out that paragraph (d) was not
introduced alone in 1986, but paragraphs (e)
and (f) were also introduced at the same time, so
that the definition was extended not only to cover
the development of negatives but also the embodying
of computer programmes in goods and the embodyingof images or sounds or both in goods under
paragraphs (e) and (f).
Our learned friend said, "Well, in addition to
the definitional additions in paragraphs (e)
and (f), there were specific provisions introduced
at the same time to underpin (e) and (f), and
because there was no additional provision
introduced to underpin (d), that suggests a
legislative intent to treat (d) separately from (e)
and (f)". We cavil with the proposition. Our learned friends took Your Honours to sections 3(3A)
and 18B as the underpinning of paragraphs (e) and ( f). Might I take Your Honours to section 18B first, and that appears - at least in my edition -
at page 92,264. Now, 18B has gone through further
revision since it was introduced in 1986 and the condition of the legislation then appears in the footnote in the small type at page 92,271. What is
apparent, when one looks at the form of the section
when it was introduced in 1986, or if one looks at
the form of the provision now, is that it addressed
a totally different question. It addressed the
question where one, for example, copies a - or amanufacturer produces some computer software on a
floppy disc and the manufacturer sells you the
floppy disc for two and twopence but charges you a
licence fee to utilize what is on the floppy disc
for thousands of dollars. It was in order to
| Kodak(3) | 64 | 7/4/92 |
overcome that problem of bifurcating the
consideration for the commodity between a licensing
of its use and the sale of the good that
section 18B was addressed to.
If one looks at the small part of it, it talks
about, paragraph (a), where -
goods in which visual images or sounds, or
visual images and sounds (any of which are, in
this section, referred to as the "embodied material") have, or a computer program (in this section also referred to as the "embodied
material") has, been embodied, have, after19 August 1986, been -
(i) sold by the manufacturer of the goods to
an unregistered person or to a registered
person who has not quoted the person's
certificate in respect of the sale; or
(ii) treated by the manufacturer of the goods
as stock for sale by retail.
And then, if·one goes to page 92,271, to see what
it was like when it came into existence:
(b) where sub-paragraph (a)(i) applies -
that is it has been sold -
valuable consideration (in this section
referred to as the 'licence fee') has been
given by the purchaser or another person to
the manufacturer or another person in
connection with, or as consideration for, the
supply of, or the right to use, the embodied
material in the goods;
or, if it is held in stock -
(c) the sale value of the goods for the purposes of this Act would not, but for this
section, include the val_ue of the licence
fee -
then the provision goes on to say that the sale
value is to include the licence fee. And
section 3(3A) covered the situation where, instead
of the manufacturer selling the floppy disk, he
gave the floppy disk away, but still charged the
licence fee and section 3(3A), which is at
page 92,161 provides:
Where goods to which section 18B would apply
if the goods were sold by a person to another
person are given by the first-mentioned person
| Kodak(3) | 65 | 7/4/92 |
to the other person then, for the purposes of
this Act, the first-mentioned person shall be
deemed to have sold the goods to the other
person.
So that both of those provisions address a totally
different concept and do not affect the notion that
we submit to Your Honours that there was a
deliberate extension in 1986 of the definition to
cover the processing of negatives, the computer
programme or visual or sound image reproduction as
well.
We then go on to give Your Honours a reference
to Cooper Brookes. Our learned friends have taken Your Honours to Hepples. We might add to that the observations of this Court in Mills v Meeking,
which is on our part B list, but I can give
Your Honours the passages on which we rely in Mills
v Meeking, 169 CLR 214 at pages 223, 235, 242 to
243. I do not propose to address Your Honours on
the Cooper Brookes point. It is an area which is well known to Your Honours. We say that there is a
construction, we do not need to go to the extent of
saying, in our primary submission, to Your Honours
that the result would be absurd and therefore fix
the absurdity; we just simply say that the
interpretation which we have put is open and it is
an interpretation which gives effect to the
legislation and it to be preferred to any
over-literal interpretation which denies that
effect. · At paragraph 8 of the outline we address the
first of the two applicable taxing points in this
case; the third, clearly on the facts of the case,
being irrelevant. And I said to Your Honours earlier that either what is done with the negatives
by the manufacturer is properly to be regarded as
an application to own use by the manufacturer, in which case the taxing point is then crossed
or - - -
| DEANE J: | Does that not conceal a possible problem and that |
is, if you look at page 16 of the Genex book,
paragraph 26, there is a complete process by which
the complete negative film is cut up, put into
sleeves to produce the final product that is handed
back to the customer; now why would you not regard
the relevant process of manufacture, either under
the definition or as a matter of ordinary language,
as extending from the stage when processing
commences up until the stage where the separate
negatives are cut up and put into containers? I mean, in one sense that is the most dramatic thing
that happens in this whole process in terms of - we
| Kodak(3) | 66 | 7/4/92 |
are talking of manufacture because you end up with
quite distinct separate products.
MR GZELL: Well, if that is so and one takes the
manufacturing process - - -
DEANE J: Well, perhaps in fairness I should indicate where
the question leads, because if your answer is to
assent to that - - -
| MR GZELL: | I was not going to, Your Honour. |
| DEANE J: | - - - it would mean the application for use has |
been before the process of manufacture was
complete.
MR GZELL: Quite. That was the first observation I was
going to make. If that is so then there is no
question of an application to "own use" because
that proceeds the end of the manufacturing process
on that analysis and therefore we do not have the
problems that our learned friends raise in respect
of their contention that section 17A(l) can have no
application, because at the end of the
manufacturing process there has been no application
to "own use" - after the "good" has been
manufactured there has been no application to "own use" and on any view section 17A(l) would then not
be circumscribed by the sort of problems that
Your Honours have been addressed with.
In our respectful submission, the
manufacturing process of the negative - and
certainly this is the way the case has been fought
on both sides - concludes when the negative has got
to that stage of stability and completeness,
thereafter it being used in the production ofprints and ultimately chopped up and put into
sleeves and the rest, is a process which occurs
after the manufacturing process has concluded.
I accept what Your Honour puts to me as a
possibility. If one analyses that possibility,
then, with respect, the arguments that have been
advanced to the Court by the other side fall by the
wayside because one then has a clear section 17A(l)
delivery of manufactured goods which remain goods
at the point of delivery, because there has been
subsequent to their manufacture no application to
"own use" or "no use". But that certainly has not been the way that we came to the Court to grapple
with the problem.
| DEANE J: | And it is not the way you put it. |
| MR GZELL: | Your Honour, I accept it as a possibility and if |
that approach be the correct one, then we win, with
| Kodak(3) | 67 | 7/4/92 |
respect, because what flows from that is a pure
section 17A(l) situation on delivery of the
negatives, but we are prepared to grapple with it
in the way in which both cases have been argued
below. On that basis, we analyse the two alternatives, assuming for this purpose that the
manufacturing process concludes when the negative
is produced in its final form.
When I say in its final form, I did not mean
the end of the cutting up process, but when the
negative has been taken through the drying process
and is then in the condition in which it will
ultimately emerge to be cut up and put into the
sheaths and is then in the condition in which light
may be shone through it to produce the reverse and
positive image.
The first alternative is that when the taxpayers use the negative to shine light through
it to produce a latent image on the sensitized
paper - and I should just briefly say that the
process of producing the prints is a repetition, asit were, of the process by which the negatives have
been produced. A light is shone through the negative on to sensitized paper. The sensitized paper takes up a latent image, positive this time
rather than negative, and then the processes of
converting the couplers to dyes and of removing the
metallic substances are again taken through to the
ultimate production of the print.
The first proposition that we advance to
Your Honours is that the use that is then made of
the negatives, albeit that they are not owned by
the manufacturer, the use which is then made of the
negatives is an application to own use by the
manufacturers and a taxing point under
section 17(1) is then crossed. That does have an
attraction to it because the alternative to that proposition is that there is no use within the
sales tax legislation for a negative, and as ourlearned friends pointed out to Your Honours this
morning, Mr Justice Hill rejected a submission that
we had then made that the shining of the light
through it was not a use at all, rejected that
proposition on the basis that if that were so there
was no relevant use that the negatives had. So that there is some attraction ·.n saying if :he very
purpose of a negative - as our learned frie~ds have
submitted to Your Honour, we appear to be ad idem
at this stage - if the very purpose of the
negatives is to have light shone through them to
produce prints, then why is that not a relevant
use, and why is it not, we ask rhetorically, an
application to own use by the manufacturer? Why should a manufacturer have to own something before
| Kodak(3) | 68 | 7/4/92 |
he can apply it to his own use? We say that that is not necessary, albeit that we cannot point to a
case in which this has occurred.
The Max Factor case, the Taubmans case, the
Hornibrook case, have been drawn to Your Honours'
attention already. They establish, in our respectful submission, that there is an application
to own use if a manufacturer employs goods for his
own purposes. They do not stand for the proposition that there cannot be an application to
own use unless the goods are owned. Our learned friend, Mr Bloom, places weight upon the use of the
word "own" to submit to Your Honours that unless
there is ownership in the goods there cannot be an
application to own use. But, in our respectful
submission, the Act does not say that. The word "own" is not used in the sense of qualifying goods
and suggesting ownership. The word "own" is used to qualify the use.
| BRENNAN J: | How then do you account for section 18(3)? |
| MR GZELL: | I take the point that my learned friend, |
Mr Bloom, addressed to the Court, and that is that
one would not normally expect a figure in respect of a sale by the manufacturer unless it was owned
by the manufacturer, but again, section 18(3) does
not say so. Certainly it will deal with the
situation where that which is used is owned by the
manufacturer, but on the plain words all it
requires is a determination of what would have been
received had it been sold by a manufacturer, and it
does not exclude the possibility that that questionof an hypothetical sale figure can be determined,
irrespective of ownership.
| BRENNAN J: | How then do you determine the sale value of |
goods applied to own use by a manufacturer who does
not own them.
MR GZELL: | By having in mind the cost of processing the negative. | So that if the negative in this case |
were utilized by the manufacturer in the process of
developing the - I am sorry, I was not fast enough
to pick up the observation that my learned junior
was trying to feed to me. It is a further
expansion of what I had put to Your Honour Justice
Brennan, and that is this - might I, before I
specifically answer, because I was about to say
there are a number of provisions in the scheme of
this Act which require hypothetical sales to be
considered. For example, if there is a retail sale
which is involved, then what one must determine is
what the wholesale price would have been rather
than the resale price, if there is no wholesale
sale which is affected. So it is not unusual to
| Kodak(3) | 69 | 7/4/92 |
consider what would be achieved on an hypothetical
sale.
To answer Your Honour Justice Brennan, 18(3)
works quite logically if one assumes that - and if
one considers 18(3) on the basis that title to the
goods passes from the customer to the manufacturer,
for the purpose of then determining what price themanufacturer would recover in respect of a sale of
that good to the figure which is attributed to him
on an application to own use. Or, the way in which
I was seeking to answer Your Honour was saying, all
one is asked to do is to presuppose that there is a
sale of the negative by the manufacturer and one
does that by considering the ci~cumstance that the
manufacturer has produced the negative at a cost
and the Act requires one to consider what, in an
hypothetical sale situation, the manufacturer would
recover for it if he sold it.
And that, in our respectful submission, does
no damage to the language of the Act and accords
with the artificial notions of sales which must be
supposed throughout the structure of the Act in
circumstances where the only indicator of awholesale sale value is a retail sale, and one has
to suppose what would have happened if the goods
had been sold by wholesale.
| BRENNAN J: | The hypothesis being that the title passes from |
the customer to the manufacturer for the purposes
of a sale by the manufacturer to the customer.
MR GZELL: For the purposes of underpinning an hypothetical
sale.
BRENNAN J: But only to the customer.
| MR GZELL: | No. |
BRENNAN J: Usually people do not want other people's
photographs.
.
MR GZELL: That is right, Your Honour. It is not only to
the customer, except that one certainly would not
ex~ect anyone other than the customer to be the not
ov~ -anxious bidder in the market-place. Indeed,
You Honour is quite right in putting the
pro ~sition to me because of the uniqueness of
one's own films. There may be circumstances - I
retract that - in which there is a ready market for
a negative which some other person would not like
to see utilized to produce prints, but apart from
that exceptional sort of circumstance, one would
normally suppose that the value which is attributed
under 18(3) is the cost of processing because the
only likely person in the hypothetical market is
| Kodak(3) | 70 | 7/4/92 |
the very person whose prints are going to be
produced. If, in order to underpin that
hypothetical sale one has to imagine an
hypothetical transfer of title from the customer to
the manufacturer and then back again, so be it.
I am reminded that in the case of
Estee Lauder, which my learned junior tells me is
reported in 88 ATC, but his photographic memorydoes not tell me the page, the question of what one
does do about supposing circumstances when dealing
with hypothetical sales arose, and it was held that one does not suppose more than is necessary for the
statutory hypothesis to work. So that, all that is
required in this circumstance is that there be an
hypothetical sale by a manufacturer of negatives.
I had been saying to Your Honours that the
word "own" does not qualify the goods but qualifies
the use, and to make that good I take Your Honours
back to 17(1) at page 92,214:
Subject to, and in accordance with, the provisions of this Act, the sales tax imposed
by the Sales Tax Act (No 1) 1930 shall be
levied and paid upon the sale value of goods
manufactured in Australia by a taxpayer and
sold by him or treated by him as stock forsale by retail or applied to his own use.
So that the word "own" is not there qualifying
the goods, it is qualifying the use that is made from them. Our learned friend, Mr Bennett, said
"Well, it is really a use of the customer and not a
use of the manufacturer". In a sense that is true
in a sense that it is for the use of the customer
to get his prints that the manufacturer utilizes -
to use a neutral term - the negatives. But the
fact that you have somebody with a use does not
mean that you cannot have concurrent uses and that
was clearly the case in Stewart, 154 CLR 385, to which reference was made this morning, in
particular at page 397 in the judgment of
Your Honour Mr Justice Brennan, where,
notwithstanding that two different persons could
have a use for it, the one did not exclude theother. About two-thirds of the way down the page:
The use by a public benevolent
institution referred to in item 81 is not
necessarily exclusive of the use of the goods
by others. Indeed, the use of particular
goods by others is often the use intended for
them by public benevolent institutions -
hospital beds, for example. But the proposed use by a public benevolent institution must be
sufficiently substantial in extent and time
| Kodak(3) | 71 | 7/4/92 |
that it is right to regard that proposed use
of the goods as giving a character to the
goods.
And there were two cases in the Full Court of the
Federal Court dealing with wheelie-bins, the
disposal garbage bins which, unlike my friend
Mr Bennett's refrigerator, did have wheels on the
bottom of them, and the question was,
notwithstanding that the wheelie-bins were used by
ratepayers for the purpose of putting their rubbishout was there also a relevant use by the local
authority which would bring them within one of the
exemptions under the Exemptions and Classifications
Act and in one case the court held that it was and
in the other case it held that it was not. Those
two cases are Otto and Brambles. They are probably reported elsewhere, I am sure that they are
probably in the Federal Court Reports, but they
are, in any event, reported in (1990) ATC 4605, and
Brambles at page 4584. I am told that is at first instance, which means that - we will get
Your Honours the reference, but the appeals will be
in (1991) ATC in both matters.
So that, notwithstanding that it may be an
unusual circumstance and notwithstanding that at
the time the particular provisions were introduced
into the Act this question was not in
contemplation, none the less there is nothing inthe legislation which would preclude, in our
submission, a utilization to own use,
notwithstanding that there is a lack of ownership.
Now, there are circumstances in which a
manufacturer will not necessarily own goods at the
time of manufacture. Section 17A(l) is a prime
example, because that is the circumstance in which
the goods are provided by the customer; no question
of ownership of those goods at the time of manufacture. Section 18(1A) is another example.
Section 18(1A) is at page 92,223.
Where -
(a) goods that have been sold by the manufacturer after 20 September 1978 to
an unregistered person or to a registered
person who has not quoted his certificate
in respect of the sale -
(i) were manufactured for the purchaser in
whole or in part out of materials
supplied by the purchaser;
So again, the situation in which, at the time of manufacture, ownership of the goods is not in the
| Kodak(3) | 72 | 7/4/92 |
manufacturer, and yet a taxing point that applies
as one of the alternatives throughout the (No 1)
Act is an application to own use. And that is echoed in the definition of "Manufacturer" at
page 92,143:
"Manufacturer" means a person who engages -
and I will miss a number of lines and take
Your Honours down to -
whether or not the materials out of which the goods are manufactured are owned by him, but,
where one person manufactures goods for
another, wholly or in part out of materials
supplied by that other -
So that, at a point immediately after manufacture
with which we are concerned, it may be that
ownership is not in the hands of the manufacturer.
Whenever I pose an example, it always
misfires, but I will try. Let us suppose that I am
a manufacturer and in order to construct the wheels
for Mr Bennett's refrigerator, I need a template ora jig or something of that nature, and I am
supplied with the materials by Mr Bennett and from
those materials I construct this jig or template or
mould and I then use that to honour my contract
with him of producing a refrigerator with wheels on
it. Now, in that circumstance, in our submission, there is an application to my own use of the jig or
the template or the mould or call it what you will,and yet I do not own it, but it is an application
to my own use, notwithstanding that I do not own
it, because the only way in which I can honour the
contract of producing the end result is to use this
thing in that process, and in our respectfulsubmission, there is no reason in the legislation why the concept of application to own use must be
limited to ownership in the manufacturer, albeit that it is an unusual circumstance.
The analysis of this matter by His Honour
Mr Justice Hill at pages 59 to 61 of the appeal
book in Genex is to be rejected, in our respectful
submission, because it misconceives an issue.
His Honour poses the problem of double taxation.
We say that it does not arise and it does not arise
- and the example he gives is at page 61 - because
if the negatives are delivered without having been
used to make prints, there is a sale, there is a
deemed sale under section 17A(l), and if there is a
deemed sale under section 17A(l), then one of the
taxing points under section 17(1) is crossed. The negatives have gone into use or consumption because
they have been sold and thereafter, when the
| Kodak(3) | 73 | 7/4/92 |
negatives are redelivered, under the example, to
produce prints, they are no longer goods because
they are being taken out under paragraph (a) as
second-hand goods.
Your Honours will recall that, in York Motors,
not only were the three taxing points said to be
alternatives but it was made clear that once one is
crossed, that is the end of the matter. So that His Honour Mr Justice Hill, in our submission, at page 61 of the record, has misconceived what
happens when the taxing point is crossed. In other words, if the taxing point of sale is crossed, one
does not have to use them in order for them to be
taken out under use and consumption. The very fact of retailing is that which constitutes the use and
consumption for the purposes of section 17(1).
Your Honours, the alternative argument which
we address at paragraph 12 is the answer to the
suggested lacuna that I mentioned at the beginning
of our submissions. Section 17A(l) is not a
provision which deems a taxing point to come into
existence. It is a provision which simply deems a
sale to have occurred. And one goes back to
section 17(1) for the purpose of determining
whether or not a taxing point has been crossed.
Section 17A(l), where goods have been:
manufactured in whole or in part out of
materials supplied by the customer,
manufacturer of the goods shall, for the
purposes of this Act, be deemed to have sold
the goods to the customer at the time when the
goods were delivered to the customer.
It says no more. It does not say that the goods thereby become exigible to tax under the Act. It is s1mply a provision which deems a sale to have occurred. One then goes back to section 17(1) and asks the question whether, by reason of the sale, a
taxing point has been crossed.
So there is absolutely no reason in section 17A(l) to concentrate on the taxing point
which our learned friend, Mr Bloom, submitted to
Your Honours. This is not a taxing provision. It
is a deeming provision. It is for the operation of
section 17(1) to determine whether a taxing point
has been crossed. If one looks at 17A(l) from that
point of view, it simply deems a sale to have
occurred, and one goes back to 17(1) to determinewhether the taxing point has been crossed.
If one then looks at 17(1) from the point of
view of whether or not upon the deemed sale having
| Kodak(3) | 74 | 7/4/92 |
occurred the negatives answer the description of
"goods", our friends' argument, put into the
context of section 17(1), is that they are no
longer goods for the purpose of determining whether
they cross the sale taxing point in section 17(1)
because they fall within paragraph (a) of the
definition of "goods" at page 92,141 because, ourfriends say, they are goods which have gone into
use or consumption.
Our answer to that is that there is no taking
into use or consumption relevantly for the purpose
of the exclusion in paragraph (a) unless the goods
have been taken across a taxing point. If one goes
to the exclusion in paragraph (a) of "goods" at
page 92,141, what is excluded are -
(a) goods which have, either through a process
of retailing or otherwise, gone into use or
consumption in Australia.
Our friends are saying the negatives are not used
by the manufacturer in an application of "own use",
but nevertheless, they have been used for thepurpose of excluding them from the definition of
"goods" in paragraph (a); and the consequence is
that they point up a lacuna in the structure of the Acts, the lacuna being circumstances in which there
has been a use which has not been sufficient for
whatever reason, to take the goods over a taxing
point of application to own use, but none the less,
they say, thereby render them second-hand goods forthe purposes of paragraph (a).
If that is right as a matter of construction,
the legislation has miscarried in respect of the underlying scheme of taxing all goods but taxing
them only once, because goods such as these fall
into the gap between application to own use and
exclusion. We say that it is not every use or utilization of goods which brings a matter within the exclusion in paragraph (a).
The type of use or consumption is pointed up
by the reference to one of the bases of crossing
the taxing point: retailing. In our respectful
submission, the taking into -use or consumption for the purpose of the exclusionary paragraph is those very alternative activities which constitute the
three taxing points in section 17(1).
So that, going back to section 17(1), if goods
are sold by the manufacturer, they are taken into
use and consumption. If they are treated by him as stock for sale by retail, they are taken into use
or consumption. If they are applied by him to his own use, they are taken into use or consumption.
| Kodak(3) | 75 | 7/4/92 |
Any use which falls short of that is not a relevant
use for the purpose of the exclusion.
Your Honours will recall that that paragraph
was introduced into the Act to enshrine the
decision in Ellis & Clark, Ellis & Clark being
concerned to ensure that a sale of second-hand
goods should not be regarded as falling within the
literal meaning of the words in the Act and the
legislature having reacted to that by a passage of
words which echo the judgments, as has been said by
this Court in subsequent cases.
So that when one looks at the history by which
paragraph (a) came into the Act and when one looks
at the structure of the Act which excludes from the
definition of "goods" those which have been taken
into use or consumption, that composite phrase "use
or consumption" carries a meaning, and the meaning
is that which takes the goods over a taxing
threshold, for otherwise the policy of ensuring
that all goods are taxed, but only once, would
miscarry.
It would be silly, in our submission, to think
in terms of some uses excluding the goods but yet
not amounting to application for own use. A couple are posed by Mr Justice Mahoney in the course of
his judgment. Suppose, for example, in Jack
Zinader, that in order to determine the way in
which the garment would properly hang, an employee
of Jack Zinader wore the fur, that is a use in one
sense, but is that a use which is going to exclude
the garment from the category of goods as a use or
consumption in paragraph (a), and we would say, no.
If one approaches it from the basis that it is
not every use, clearly the section does not posit
that every use is one which is going to exclude commodities from the definition but only those by
which, whether by retailing or otherwise, the
articles go into use or consumption, one sees acongruent construction for the Act which avoids the
lacuna that our friends have pointed up.
| BRENNAN J: | Mr Gzell, in the event of reliance upon |
section 17A, what is the sale value of the goods?
How does one ascertain it?
| MR GZELL: | Your Honour, 17A is a deemed sale concept. | One |
then comes back to specific provisions in the Act which deal with the value to be attributed to it.
The first provision that one looks at is
section 18(1A)(b), and that is at page 92,224 - at
least in my edition; so far they are the same -
which says where:
| Kodak(3) | 76 | 7/4/92 |
(b) goods -
(i) have been manufactured in Australia for
a person in whole or in part out of materials
supplied by that person;
(ii) are deemed by section 17A to have been
sold by the manufacturer to that person; and
(iii) the person to whom the goods are deemed
to have been sold was an unregistered person
or a registered person who had not quoted his
certificate -
then one goes to 18(1B) and one goes
to 18(1B)(c)(ii) relevantly in this circumstance: Subject to sub-section (4A), the sale value ofgoods to which this sub-section applies is -
(c) -
because (a) and (b) do not apply -
in any other case the sum
and we are not concerned with (i). We go down to (ii): the amount charged to the purchaser by the
manufacturer in respect of the goods.
BRENNAN J: (c)(i) does not apply?
MR GZELL: (c)(i) does not apply.
| BRENNAN J: | Thank you. |
| MR GZELL: | So that it is the processing charge that I |
mentioned earlier. I think I had said all I wanted to say about paragraph 13 in our outline.
Paragraph 14 takes up the construction point in respect of section 17A(l), which was put by one of
Your Honours this morning - I think it was
Your Honour Justice Brennan. Our learned friend, Mr Bloom had said one looks at 17A(l) conscious of
the taxing point; we say that that is not so.
Section 17A(l) is merely a deeming provision as towhat is a sale and the question of the taxing point
is dealt with elsewhere in the legislation. And if
one simply looks at it from the point of view of it
being a deeming provision in relation to sale,
there is no reason why, in our submission, one
should construe it to require that that which is
delivered still answers the description of goods.Now, I am on to an alternative argument clearly enough here, because thus far I have said to
| Kodak(3) | 77 | 7/4/92 |
Your Honours that, either there is an application
to own use by the manufacturer, in which event theCommissioner is entitled to tax as an application
to own use or, the alternative argument is, if that
is not so, the use that is made of the negatives is
not a use which takes them out of the definition of
"goods" and therefore at all points in the analysis
of section 17A(l) the negatives answer the
description "goods" and 17A(l) deems a sale to
occur, go back to 17(1) and there are goods which
are sold and a taxing point is crossed.
This argument is one which I must address if
Your Honours are against me; if Your Honours take
the view that there is a difference between
"consumption or use" in paragraph (a) of the
definition of "goods" and application to own use is
one of the taxing points in section 17(1). And this argument says, well, notwithstanding that, all
that is required by section 17A(l) is that the
negatives answer the description "goods" at the
time of manufacture and thereafter there is no such
requirement; thereafter, as a matter of
construction, there are simply references back to
the opening words.
So, where goods have been manufactured,
provided the negatives are regarded as goods
manufactured, whether according to ordinary
concepts or by reason of the extended definition of
manufacture, paragraph (a) is answered. Then, (b)
says "and the goods". All that it is doing is
referring back to goods manufactured. It does not
require any other temporal requirement in respect
of answering that condition:
the goods were manufactured in whole or in
part out of materials supplied by the
customer.
Indeed, it raises no different temporal
consideration because it uses the word "were" and
refers back to the manufacturing process. Then it goes on to say:
the manufacturer of the goods -
does not require that that be answered at any time
other than that which has gone heretofore -
shall, for the purposes of this Act, be deemed
to have -
done something. He is deemed: to have sold the goods to the customer.
| Kodak(3) | 78 | 7/4/92 |
It does not say he is deemed to have sold the goods
to the customer if they are delivered to the
customer as goods which answer the definition. The sufficient requirements for the deeming provision
are that goods were manufactured and that they:
were manufactured in whole or in part out of
materials supplied by the customer -
and then the deeming is complete. The fallacy of our friend's argument and the fallacy of the approach of His Honour Mr Justice Hill, with
respect, was that they have interpolated a third
requirement. They have interpolated a requirement
that the objects still answer the description of
goods at the time of delivery. They have construed it as if it read: the manufacturer of the goods shall for the
purposes of this Act, be deemed to have sold
the goods to the customer at the time when the
goods -
as goods -
were delivered to the customer -
and, in our respectful submission, there is no
justification for that course.
| DEANE J: | Why, on that argument, would not 17A apply, even |
if you be right on your 17 argument, and they have
been applied to "own use"?
| MR GZELL: | They do, but the answer to that, Your Honour, is |
that a taxing point has been passed, so that when
you take -
DEANE J: Well, you say a taxing point has been passed, but
you might as well say the point which takes them out of "goods" for the purposes of the Act is
comparable to a taxing point.
MR GZELL: Well, I put it slight differently, Your Honour.
Let us suppose that my primary argument is right,
the negatives are applied by the manufacturer to
own use when he shines the light through them.
17(1) then operates and takes the goods past the
taxing point of application to own use, and tax is
exigible at that point.
DEANE J: Well, you are putting it that way, but another way
of looking at it is that section 17, having
applied, they are no longer goods for the purposes
of the Act.
| Kodak(3) | 79 | 7/4/92 |
| MR GZELL: | We would say that logically the application |
precedes the 17A deeming sale because the 17A
deeming sale takes effect on delivery, so that
prior to delivery there has been an application to
own use, and section 17(1) is answered because one
of the taxing points is then crossed. Thereafter,
the negatives are delivered to the customer.
17A(l) says that is a deemed sale. Go back to 17:
but there can be no further exigibility in respect of the deemed sale because the taxing point having
been crossed, that is the end of the matter. As York Motors pointed out, you have three alternatives, but once one is crossed there is no
further operation for section 17.
DEANE J: Well, that answers my query in favour of yourself
by assuming that the reason one refers to a taxing
point being crossed is not that a taxing pointbeing crossed means that they are no longer goods
for the purposes of the Act. But if the reason the taxing point being crossed is that that means they
cease to be goods for the purposes of the Act, your
argument on 17A would lead to it applying,
notwithstanding that the taxing point had been
passed, because you say it does not matter whether
or not they are goods at the stage when 17A
attaches.
| MR GZELL: | I do not know whether I have quite got |
Your Honour's proposition but certainly Your Honour
is right in saying to me that the way I have put it
is upon the supposition that it is the crossing of a
taxing point which takes the commodity or article
out of the denotation of goods. No, my friend tells me it is the connotation of goods, at that stage.
| MASON CJ: | We might adjourn, Mr Gzell, and you can give it |
some thought.
| DEANE J: | I think you have got to say the opposite. |
MR GZELL: Connotation, perhaps.
| MASON CJ: | We will resume at 10.15 tomorrow. |
AT 4.19 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 8 APRIL 1992
| Kodak(3) | 80 | 7/4/92 |
Key Legal Topics
Areas of Law
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Tax Law
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Constitutional Law
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Statutory Interpretation
Legal Concepts
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Appeal
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Jurisdiction
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Statutory Construction
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Standing
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