McDonald's Aust Ltd v Com of Taxation

[2000] HCATrans 399

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S8 of 2000

B e t w e e n -

McDONALD’S AUSTRALIA LIMITED

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

GLEESON CJ
GAUDRON J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 8 SEPTEMBER 2000, AT 9.42 AM

Copyright in the High Court of Australia

MR D.H. BLOOM, QC:   If it please the Court, I appear with my learned friend,  MR S.J. GAGELER, for the applicant. (instructed by Baker & McKenzie)

MR I.V. GZELL, QC:   If the Court pleases, I appear with my learned friend, MR S.W. GIBB, SC, for the respondent. (instructed by the Australian Government Solicitor)

GLEESON CJ:   Yes, Mr Bloom.

MR BLOOM:   Your Honours, this application raises a short but important point with ongoing relevance.  The point is where the nature of consumable goods necessitates that they are supplied in wrapped form, what are the goods for the purposes of indirect taxation?  Are they the consumable alone or are they the wrapped consumable?  This case concerned, as your Honours, wrapped hamburgers, but the examples are not limited to food.  That would include, for instance, medicinal tablets, which is a relevant example, particularly for the GST.

Could I ask your Honours to go to the application book and to the judgment of Justice Gyles at page 4.  There at the top of the page is the first of the relevant sales tax provisions:

19(1) Goods for use by a person exclusively as raw materials for goods to be manufactured –

and then if one goes down to paragraph 4:

The expression “raw materials” is defined –

as –

Goods –

which –

are dealt with in such a way in manufacturing the other goods –

we say the wrapped hamburger here –

that the materials, or some essential element of the materials, become an integral part of the other goods –

the wrapped hamburger.

GLEESON CJ:   Just pause for a moment, please.

MR BLOOM:   Yes, your Honour.

GLEESON CJ:   What is the part of the materials that becomes an “integral part” of the hamburger?

MR BLOOM:   In the case of a “Big Mac”, your Honour, it is the collar, which is essential to keeping the form of the “Big Mac” from the inception and the wrapping paper which is a particular paper, as your Honours will see very shortly which ‑ ‑ ‑

GLEESON CJ:   That becomes an integral part of the hamburger?

MR BLOOM:   Of the wrapped hamburger, your Honour.  If the goods are the wrapped hamburger, then it becomes an integral part of that.

GAUDRON J:   But to say that the goods are the wrapped hamburger is to assume the answer to the question, is it not?

MR BLOOM:   Well, your Honour, we have to find the answer to the question, with respect.

GAUDRON J:   Perhaps we have to find the right question, to start with.

MR BLOOM:   This Court has said in Genex that having regard to the sales tax legislation, in particular, the goods are that which is the product of manufacture.  So if one takes, for instance, a Minty, one gets that in a wrapper, as one knows; and we say that the goods are the wrapped Minty, that is the ‑ ‑ ‑

GLEESON CJ:   The wrapping is an integral part of  ‑ ‑ ‑

MR BLOOM:   Yes, your Honour, of the wrapped Minty.

KIRBY J:   Why do you not make edible wrapping?  It is not beyond the capacity of McDonald’s.

MR BLOOM:   I think certain Chinese delicacies have rice paper as part of them, your Honour, and that is an example of something which is an integral part.

KIRBY J:   There would be no dispute.

GLEESON CJ:   Would that improve the nutritional value of McDonald’s?

MR BLOOM:   I am unable to help your Honour on that.  But your Honour sees that his Honour the learned trial judge says at paragraph 6 that:

Big Macs are packaged hamburgers –

this is on page 4, and he sets out the edible portions, and in paragraph (h):

a collar and wrap.

Over the page in paragraph 7:

The procedure for production of a Big Mac is that once the bun has been toasted, a cardboard collar is placed directly on the heel section of the bun.

GLEESON CJ:   But he was against you on this point, was he not?

MR BLOOM:   On a different point, your Honour.  He found that it did not constitute manufacture, something which our learned friends conceded before the Full Court, and so he went off, really, on a different point. 

The sauce is placed on the heel and the club.  The ingredients other than the meat patties are then placed on the heel of the bun inside the collar and on the club.  Once the meat patties are cooked, they are then placed one on the heel and one on the club.  The club is then placed on the heel section inside the collar.  The crown of the bun is then placed on the club section.

So the collar is there from the beginning, keeping the whole thing in form.

GLEESON CJ:   Do I gather from this that it is on item 19 that you place the principal weight of your argument?

MR BLOOM:   Yes, your Honour, yes, because that is the one with ongoing relevance and we can demonstrate that it has relevance to the new GST legislation as well, not in relation to food, but in relation to other products.  Then you will see from paragraph 9, your Honours, that:

The wrapping paper used by the applicant is specially treated and is used to prevent heat loss from the food products prior to sale and to facilitate hygienic handling.  The wrapping of the food products is also necessary to hold the food products together in the form in which they are sold –

that is why we say that is the end product of manufacture, that which is in the form in which they are sold because they can stay in the warming cabinet for a short period of time before they are either sold or disposed of.

KIRBY J:   Did the evidence show that this was something which is universal to Big Mac hamburgers around the world?

MR BLOOM:   In the world?

KIRBY J:   Yes.

MR BLOOM:   Your Honour, I think we just dealt with Australian manufacture, but one presumes it is pretty universal.

KIRBY J:   Yes.  You can buy hamburgers without wrapping, of course.  I am not saying your hamburgers.

MR BLOOM:   No.

KIRBY J:   I am saying you can buy hamburgers in cheap eats without ‑ ‑ ‑

MR BLOOM:   They usually have to be handed across in some fashion, though, your Honour, usually either on a plate of some kind ‑ ‑ ‑

KIRBY J:   Yes, often with dirty hands.

GAUDRON J:   Usually they do not have collars.

MR BLOOM:   The collar is necessary because of the size of the Big Mac, your Honour; little Macs do not have them. 

Your Honours, at page 22, paragraph 8 in the judgment of Justices Hill and Hely, they note about the collar and the wrapping paper:

The collar is necessary to keep the three tiered hamburger together and indeed to facilitate its making.

GLEESON CJ:   I am sorry to interrupt you again, but what you just said about the decision of Justice Gyles appears to be contradicted by what appears on page 24, lines 40 to 45, where it is suggested that because of the view that he took on another aspect of the case, Justice Gyles did not need to consider or need to decide:

whether either the collar or the wraps became an integral part of the goods.

MR BLOOM:   That is right.

GLEESON CJ:   That is said on line 45, so ‑ ‑ ‑

MR BLOOM:   That is right, because of the view he took on the question of manufacture.

GLEESON CJ:   Right, so this issue was decided three nil against you in the Full Court?

MR BLOOM:   Yes, your Honour.

GLEESON CJ:   It was not decided by Justice Gyles.

MR BLOOM:   No, because he went off on that other issue.

GLEESON CJ:   But he did say or he is reported as having said, at line 40 on page 24:

Neither the wrap nor the collar do more than contain the foodstuffs and assist in maintaining the foodstuffs in a condition fit to be eaten.

MR BLOOM:   Yes.  But then if one compares that with paragraph 8 on page 22, their Honours in the joint judgment accept that:

The collar is necessary to keep the three tiered hamburger together and indeed to facilitate its making.  The wrapping paper is designed to prevent heat loss, to facilitate hygienic handling, to operate as a fat, oil and moisture barrier and no doubt also in part to prevent the hamburger drying out while it is in the holding bin.

GLEESON CJ:   What do you take the word “integral” to mean?

MR BLOOM:   Your Honour, the joint judgment said it does not have to be subsumed into, it is an integral part if it, in effect, loses its identity, not in the sense that it cannot obviously be regarded as a used wrapper thereafter, but if it loses its identity as a new wrapper because it is put into the wrapped hamburger, then it becomes an integral part of the wrapped hamburger, your Honour.

GLEESON CJ:   A possible point of view, and I realise ice-cream is dealt with separately, but a possible point of view is that an ice-cream cone is an integral part of the ice-cream, but an ice-cream bucket is not.  That is a possible approach.

MR BLOOM:   Yes, your Honour.  Yes, but here, though, and given what they say at page 22, one sees the collar facilitates the actual making and holding together of the hamburger.  Without it, it is going to fall apart, and one sees that the wrapping paper is specially designed to keep the moisture in to stop it from drying out, and also to provide the greaseproof.

KIRBY J:   But all of that is done by the bucket.  It stops the ice-cream getting all over you.

GLEESON CJ:   You could say the same of the wrapping that you get around a sandwich, if you just go to a shop and buy a sandwich.

KIRBY J:   Especially if it is a double bunger, a big sandwich.

MR BLOOM:   Well, such sandwiches are unlikely to have a collar, in the first place, as big as they might be and if one looks at American delicatessen sandwiches, they are pretty large.

GLEESON CJ:   They would all come wrapped, whether or not they have mayonnaise oozing out of the middle of them.

MR BLOOM:   Yes, but there you do not have a collar to play a part in the actual formation of the product itself and keeping it in that form.

GAUDRON J:   But is the colour any different from an egg ring which is disposed of after you cook – well, not disposed of, but you break the egg in the ring, it keeps it in shape, it is essential to the cooking process if you want a round shape, it does not become part of the egg.

MR BLOOM:   But it is re-useable.  If one takes a packet ‑ ‑ ‑

GAUDRON J:   I dare say these collars can be recycled too.

MR BLOOM:   Well, not really, your Honour.  That is not the ideal if we are talking about hygiene.

GAUDRON J:   They do not have to be recycled as collars.

MR BLOOM:   No, your Honour, the collars are disposed of together with the wrapper.  But if one takes a box of laundry detergent, there is no doubt that one consumes what is inside the box.  One does not consume the box, one throws it out when one is finished with it.  But one would still say that the goods that one bought is a box of laundry detergent, not just laundry detergent.

GAUDRON J:   They are not necessarily the goods that are manufactured.

MR BLOOM:   Well, no, the product of manufacture there would, we would suggest, with respect, be the box.  So too a bottle of soft drink or a bottle of oil.  I know there are places in the world where one can take one’s bottle and get it filled, but if one buys a bottle of oil, that is the subject matter of commerce, that is the goods.

KIRBY J:   Now, Mr Bloom it is always a pleasure to hear from you, you make the dries stuff sound terribly fascinating; but there are three judges here who have decided against you, one who arguably may have decided against you.

MR BLOOM:   Yes.

KIRBY J:   It is purely a matter of construction.  What is the importance of this?  We have a special leave procedure now.

MR BLOOM:   Yes, your Honour, and I appreciate it is necessary to take you to the GST to show you why it is an ongoing and difficult question.  Your Honour should have a booklet headed applicant’s additional material.  If I could ask you to go firstly to tab 3 and I know your Honours have been yearning to find out a little bit about the GST, other than that you have to pay it.  You will see a definition of “Taxable supplies” in section 9-5:

You make a taxable supply if –

it is –

for *consideration –

and at the bottom –

However, the supply is not a *taxable supply to the extent that it is *GST-free –

Then if you go to tab 4, section 9-10 defines “supply” as:

any form of supply whatsoever –

but –

Without limiting subsection (1) supply includes…

(a) a supply of goods –

Tab 5, section 9-30 deals with “Supplies that are GST-free or input taxed.”  I will not bother explaining to your Honours what input tax means because you do not need at this stage to know.  But:

(1) A supply is GST-free if:

(a) is GST-free under Division 38 or under a provision of another Act –

and then if your Honours turn to tab 7, section 9-80 provides for apportionment:

The value of taxable supplies that are partly GST-free or input taxed

(1) If a supply (the actual supply) is:

(a) partly a *taxable supply; and
(b) partly a supply that is *GST-free or *input taxed;

the value of the part of the actual supply that is a taxable supply is –

a certain proportion.  Then if you go back to tab 6, this is the GST-free supplies, firstly 38-2 dealing with “Food”:

A supply of *food is GST-free.

That does not include prepared things like hamburgers and then over the page, 38-6 “Packaging of food”:

(1) A supply of the packaging in which *food is supplied is GST-free if the supply of the food is GST-free.

(2) However, the supply of the packaging is GST-free under this section only to the extent that the packing:

(a) is necessary for the supply of the food; and
(b) is packaging of a kind in which food of that kind is normally supplied.

Now, the relevance of that provision is that it does not exist with respect to anything else in section 38.  It only exists with regard to food.

GLEESON CJ:   But it does not use the word “integral”.

MR BLOOM:   No.

GLEESON CJ:   So, whatever is the consequence of the application of that provision, it does not turn on the decision in this case, does it?

MR BLOOM:   It turns on the same question in this sense, your Honours:  if we are looking, one of the things, for instance, that is GST-free, drugs, tablets, whether prescribed, naturopathic and Chinese herbal, those sorts of things, now, they will come in a packaging, and if the goods that are being sold are the packaged tablets, then they will be GST-free in their entirety because there is not equivalent in relation to non-food items to subsection 6.  If, on the other hand, it is just the tablet, then the packaging is going to be taxable under that apportionment provision. 

GLEESON CJ:   I thought you were setting out to demonstrate to us that this decision, if allowed to stand, would have implications as a precedent for the operation of the GST?

MR BLOOM:   It has implications, your Honour, if I am correct in saying this, that identification of “the goods” as either the wrapped or unwrapped product is common to both Acts.  It is true that they use different words and it is true that “integral part” is the expression used in the sales tax legislation, but the same question, in our respectful submission, arises because the joint judgment in this case makes it clear that “integral” does not require a subsuming in any physical sense.  If that is the case, then, with respect, the same question does apply in relation to things like drugs under the GST and goods under the sales tax legislation.  If your Honours please, those are our submissions.

GLEESON CJ:   Thank you, Mr Bloom.

The Court is of the view that this case does not raise an issue which warrants a grant of special leave to appeal and, in addition, that there is insufficient reason to doubt the correctness of the decision of the Full Court of the Federal Court.  The application will be refused with costs.

MR BLOOM:   If the Court pleases.

AT 9.57 AM THE MATTER WAS CONCLUDED