Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) - [2013] NSWCA 470

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 470
Hearing dates: 9 July 2013
Decision date: 23 December 2013
Before: Beazley P at [1];
Gleeson JA at [2];
Sackville AJA at [235]
Decision:
(1) Appeal allowed.
(2) Cross-appeal allowed in part as to Ground 1, but otherwise dismiss the cross-appeal.
(3) Set aside orders 1 and 2 made by Gzell J on 13 September 2012.
(4) In lieu of orders 1 and 2 referred to in Order 3, make the following orders:
(a) that each of the following Notices of Assessment issued by the respondent to the appellant be set aside:
(i) Notice of Assessment No 5654095 dated 12 January 2010 (the 2005 Assessment);
(ii) Notice of Assessment No 5670903 dated 27 January 2010 (the 2006 Assessment);
(iii) Notice of Assessment No 5653846 dated 12 January 2010 (the 2007 Assessment);
(iv) Notice of Assessment No 5670885 dated 27 January 2010 (the 2008 Assessment);
(v) Notice of Assessment No 5670880 dated 27 January 2010 (the 2009 Assessment);
(b) that the respondent issue the appellant with a replacement Notice of Assessment for the relevant financial year in respect of each of the Notices of Assessment referred to in (a) above, as if the objection lodged by the appellant under s 86 of the Taxation Administration Act had been allowed in whole;
(c) the respondent pay the appellant's costs of the proceedings in the Equity Division, other than the costs of Mr Feil's report.
(5) The respondent pay the appellant's costs of the proceedings in the Court of Appeal.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: TAXES AND DUTIES - payroll tax - liability to taxation - Payroll Tax Act 2007 - Payroll Tax Act 1971 - contractor provisions - whether contractors engaged under a "relevant contract" - whether appellant was supplied services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them - whether apportionment provisions of the Payroll Tax Acts should apply
Legislation Cited: Accident Compensation Act 1985 (Vic), s 9
Payroll Tax Act 2007, ss 6, 7, 10(1), 13(1), 32, 35
Payroll Tax Act 1971, ss 3(1), 3A, 3AA, 6(1)(a), 7, 8
Payroll Tax (Amendment) Act 1986
Payroll Tax (Amendment) Act 1985
R v Khazaal [2012] HCA 26; 86 ALJR 884
Supreme Court Act 1970, s 101
Taxation Administration Act 1966, s 101(1)(d)
Cases Cited: Accident Compensation Commission v Odco Pty Ltd [1990] HCA 43; 64 ALJR 606
Arnold v Minister Administering the Water Management Act 2000 [2008] NSWCA 338; 73 NSWLR 196
Baterham v Makeig [2010] NSWCA 86
Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788; 222 ALR 599
Central Asbestos Co Ltd v Dodd [1973] AC 518
Certain Lloyd's Underwriters Subscribing to Contract No IHOOAAQS v Cross [2012] HCA 56; 293 ALR 412
Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 293 ALR 257
Commissioner of Taxation v Unit Trend Services Pty Ltd [2013] HCA 16; 297 ALR 190
Dasreef Pty Ltd v Hawchar [2011] HCA 21; 243 CLR 588
Dungowan Manly Pty Ltd v McLaughlin [2012] NSWCA 180
Heperu Pty Ltd v Patricia Belle (No 3) [2013] NSWSC 1088
Koala Motels Pty Ltd v Chief Licensing Inspector (1977) 18 ALR 12
Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390
Kuru v State of New South Wales [2008] HCA 26; 236 CLR 1
Macquarie International Health Clinic Pty Ltd v University of Sydney (1988) 98 LGERA 218
McCleary v Director of Public Prosecutions (Cth) (1998) 20 WAR 288
McFarlane v Kelly (1986) 85 FLR 357
Minister for Local Government v South Sydney Council [2002] NSWCA 288; 55 NSWLR 381
New South Wales Crime Commission v Ollis [2006] NSWCA 76; 65 NSWLR 478
Nix and Dunn v Pittwater Council (1994) 84 LGERA 199
NTL Australia Pty Ltd v Minister for Land and Water Conservation [2001] 112 LGERA 403
O'Grady v Northern Queensland Co Ltd [1990] HCA 16; 169 CLR 356
Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72
Regina v Her Majesties' Treasury; ex parte Smedley [1985] QB 657
R v McMahon; ex parte Darvall [1982] HCA 56; 151 CLR 57
Repatriation Commission v Law (1980) 31 ALR 140
Roncevich v Repatriation Commission [2005] HCA 40; 222 CLR 115
The Noordam (No 2) [1920] AC 904
Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256; 288 ALR 385
Waters v PC Henderson (Aust) Pty Ltd [1994] NSWCA 338; 254 ALR 328
Texts Cited: Macquarie Dictionary, 5th ed, 2009
Oxford English Dictionary, 3rd ed, 2000
Category: Principal judgment
Parties: Smith's Snackfood Company Ltd (Appellant/Cross-Respondent)
Chief Commissioner of State Revenue (Respondent/Cross-Appellant)
Representation: Counsel:
D Russell QC and D J Price (Appellant/Cross-Respondent)
C Leggat SC and I Young (Respondent/Cross-Appellant)
Solicitors:
Johnson Winter & Slattery (Appellant/Cross-Respondent)
I V Knight, Crown Solicitor (Respondent/Cross-Appellant)

File Number(s): CA 2012/296415
Decision under appeal

Citation:

The Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) [2012] NSWSC 998 and 1116

Before:

Gzell J

File Number(s):

2010/307535

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant, Smith's, sold snack foods and drinks in vending machines throughout Australia. They engaged independent contractors to service the machines. Smith's required the contractors to sign a new Goods Distribution Agreement (GDA) each year. The contractor's obligations under the GDA included distribution of goods, collection of cash, removal of spoiled products. Smith's required the contractors to supply their own vehicle. The contractor's were also trained to clean, maintain and repair the machines.

Under the Payroll Tax Act 2007 (2007 Act) (and its predecessor, the Payroll Tax Act 1971 (1971 Act)) payroll tax is charged on all taxable wages: s 6. "Wages" was defined to include an amount taken to be wages by any other provision of the 2007 Act. This included s 35(a), which is included in the Division 7 - Contractor provisions, by which amounts paid by an employer for, or in relation to, the performance of work relating to a "relevant contract" were taken to be wages.

"Relevant contract" was defined in s 32:

"(1) In this Division, a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person:

...

(b) has supplied to the designated person the services of persons for or in relation to the performance of work".

However, s 32(2)(d) exempted from the definition of "relevant contract" a contract of service under which the designated person in the course of business carried on by the designated person:

"(d) is supplied with:

(i) services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them."

In the proceedings below, Smith's contended that the GDA did not qualify as a "relevant contract" under s 32(1) of the 2007 Act (or s 3A(1) of the 1971 Act) and was therefore exempt from payroll tax. Smith's argued that the services provided by its contractors were to be properly regarded as comprising solely of the conveyance of goods by means of a vehicle provided by the person conveying them. In the alternative, Smith's contended that the GDA was exempt from the definition of "relevant contract" because the services provided were ancillary to the conveyance of goods. Smith's described this as the so-called "owner-driver" exemption.

Alternatively, Smith's contended below that if the GDA was a "relevant contract", there should be an allowance greater than 25 per cent for the part of the payment to the contractor that is not attributable to the performance of work relating to the GDA, under the apportionment provisions in ss 35(2) of the 2007 Act and s 3A(2) of the 1971 Act.

The respondent, Chief Commissioner of State Revenue, submitted below that the GDA qualified as a "relevant contract" and the exemption did not apply because not all services provided by the contractor were ancillary to the conveyance of goods by means of a vehicle.

The primary judge:

1 found that the GDA entered into between Smith's and the contractors was partly a "relevant contract" and partly not a "relevant contract";

2 found that the exemption to the definition of "relevant contract" only applied to the extent that the contractor supplied Smith's with services ancillary to the conveyance of goods by means of a vehicle and made findings as to which services were ancillary to the conveyance of goods and which were not;

3 found that to the extent that the GDA was partly a "relevant contract", because some services were not ancillary to the conveyance of goods, amounts paid or payable by Smith's under the GDA were taken to be wages, but Smith's was entitled to a greater reduction in taxable wages under the apportionment provisions for the non-labour component, than the 25 per cent reduction allowed by the respondent; and

4 remitted the matter to the respondent to be determined in accordance with the Court's findings.

Smith's appealed, contending that there is no "relevant contract". The respondent cross-appealed, contending that the primary judge erred in dividing or slicing the "relevant contract" into exempt and non-exempt parts. The respondent also contended that certain services provided under the GDA were not ancillary to the carriage of goods and that the apportionment provisions did not apply.

The material provisions of the 2007 Act and the 1971 Act are relevantly identical, apart from the apportionment provisions in s 35 of the 2007 Act and s 3A(2) of the 1971 Act.

Appeal allowed. Cross-appeal allowed in part:

1 The GDA was a contract under which Smith's, in the course of its business, had supplied to it the services of persons for or in relation to the performance of work: [53] - [62] (Gleeson JA); [239] (Sackville AJA).

Considered: Accident Compensation Commission v Odco Pty Ltd [1990] HCA 43; 64 ALJR 606; R v Khazaal [2012] HCA 26; 86 ALJR 884; O'Grady v Northern Queensland Co Ltd [1990] HCA 16; 169 CLR 356; Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390; Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788; 222 ALR 599.

2 The GDA is exempted from the definition of a "relevant contract", because Smith's was supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them: [62] - [94] (Gleeson JA); [237], [240] (Sackville AJA).

Considered: Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 293 ALR 257; Commissioner of Taxation v Unit Trend Services Pty Ltd [2013] HCA 16; 297 ALR 190; Certain Lloyd's Underwriters Subscribing to Contract No IHOOAAQS v Cross [2012] HCA 56; 293 ALR 412.

3 The exemption in s 32(2)(d) of the 2007 Act cannot apply to part of a "relevant contract" and not apply to other parts of a "relevant contract". The focus of the exemption is on an entire and indivisible "relevant contract". The exemption is directed to whether the GDA answered the description of a contract "under which" Smith's is supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them. "Relevant contract" should be, absent any contrary indication, given a consistent meaning in ss 32(1) and (2) and s 35 of the 2007 Act: [112] - [121] (Gleeson JA); [244] (Sackville AJA).

Considered: Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 293 ALR 257.

4 The ancillary services included ordering and storing goods to be conveyed in the vehicle; collecting and disposing of spoiled goods from machines; and undertaking to maintain the vehicle to Smith's satisfaction. These particular services are outside the process of loading, unloading, conveying and delivering the goods. However, having regard to the terms of the GDA, they are services which should be characterised as ancillary to the conveyance of goods: [122] - [158] (Gleeson JA); [241] - [243] (Sackville AJA).

Considered: McFarlane v Kelly (1986) 85 FLR 357; The Noordam (No 2) [1920] AC 904.

The primary judge refused to make an order as to costs because the proceedings were remitted to the respondent for re-determination. The cost position must be assessed as if the result before the primary judge had been as found by the Court of Appeal. As such the costs discretion must be re-assessed and the respondent is to pay Smith's costs in the proceedings below, other than the costs of the expert report of Mr Feil. The respondent is to pay the costs of the proceedings in this court.

Judgment

BEAZLEY P: I agree with the reasons of Gleeson JA.

GLEESON JA: This is an appeal under the Supreme Court Act 1970, s 101 from orders made by Gzell J under the Taxation Administration Act 1966, s 101(1)(d). His Honour's orders remitted the matter to the respondent (Chief Commissioner) for determination in accordance with the Court's findings and decision in relation to the assessments by the Chief Commissioner issued to the appellant (Smith's) in January 2010 for payroll tax for the years ending 30 June 2005, 2006, 2007, 2008 and 2009 (for his Honour's principal reasons: see [2012] NSWSC 998; for his Honour's reasons on orders and costs: see [2012] NSWSC 1116).

The assessments of the liability of Smith's to payroll tax were based on the provisions contained in Division 7 - Contractor provisions of the Payroll Tax Act 2007 (2007 Act) for the 2008 and 2009 years and s 3A of the Payroll Tax Act 1971 (now repealed) (1971 Act) for the 2005, 2006 and 2007 years. The assessments were issued by the Commissioner on the basis that the payments by Smith's to independent contractors who transport its goods to vending machines throughout the State in vehicles which they provide, is subject to payroll tax.

The questions raised by the dispute concern the meaning and operation of s 32 and s 35 of the 2007 Act and s 3A of the 1971 Act. The provisions are relevantly identical, except for the apportionment provisions in the 2007 Act, that are in different terms from their counterpart in the 1971 Act.

Liability for payroll tax

2007 Act

Under the 2007 Act, payroll tax was charged by s 6 on all taxable wages. Section 7 provided that the tax was to be paid by the employer, by whom the taxable wages were paid or payable. Taxable wages were defined in s 10(1) as wages that are taxable in this jurisdiction. The term "wages" was defined in s 13(1) to mean wages, remuneration, salary, commission, bonuses or allowances, paid or payable to an employee, including under subparagraph (e), an amount that is taken to be wages by any other provision of the Act. One such provision is s 35(1), which is contained in the Division 7 - Contractor provisions.

By s 35(1) amounts paid or payable by an employer for, or in relation to, the performance of work relating to a "relevant contract" were taken to be wages. The expression "relevant contract" was defined in s 32. For the purposes of this appeal, the material provisions of Division 7 of the 2007 Act provided:

"Payroll Tax Act 2007

32 What is a relevant contract?

(1) In this Division, a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person:

...

(b) has supplied to the designated person the services of persons for or in relation to the performance of work, or

(c) ...

(2) However, a relevant contract does not include a contract of service or a contract under which a person (the designated person) during a financial year in the course of a business carried on by the designated person:

...

(d) is supplied with:

(i) services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them, or

(ii) services solely for or in relation to the procurement of persons desiring to be insured by the designated person, or

(iii) services for or in relation to the door-to-door sale of goods solely for domestic purposes on behalf of the designated person,

unless the Chief Commissioner determines that the contract or arrangement under which the services are so supplied was entered into with an intention either directly or indirectly of avoiding or evading the payment of tax by any person.

(3) ....

35 Amounts under relevant contracts taken to be wages

(1) For the purposes of this Act, amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract or the re-supply of goods by an employee under a relevant contract are taken to be wages paid or payable during that financial year.

(2) If an amount referred to in subsection (1) is included in a larger amount paid or payable by an employer under a relevant contract during a financial year, that part of the larger amount which is not attributable to the performance of work relating to the relevant contract or the re-supply of goods by an employee under the relevant contract is as determined by the Chief Commissioner."

1971 Act

The provisions of the 1971 Act were similar. Payroll tax was charged on all taxable wages by s 7 of the 1971 Act. Section 8 provided that the tax was to be paid by the employer, by whom the taxable wages were paid or payable. Taxable wages were defined in s 3(1) to mean wages that, under s 6, were liable to payroll tax. By s 6(1)(a) the wages that were liable to payroll tax were wages that were paid or payable by an employer for services performed or rendered during a month or part of a month and were wages that were paid or payable in New South Wales. Wages were defined in s 3(1) to have the meaning given by s 3AA. By this provision, wages were defined to mean any wages, salary, commission, bonuses or allowances paid or payable (whether at piece work rates or otherwise and whether paid or payable in cash or in kind) to an employee as such.

By s 3AA(2)(e), wages included any amount deemed by or under a provision of the 1971 Act to be wages. One such provision was s 3A(2)(c), which deemed amounts paid or payable by an employer for, or in relation to, the performance of work relating to a "relevant contract" to be wages. This provision was in similar terms to s 35(1) of the 2007 Act.

The Contractor provisions of the 1971 Act, s 3A, were introduced by the Payroll Tax (Amendment) Act 1985. According to the Explanatory Note to the Payroll Tax (Amendment) Act, the terms of the definition of "relevant contract" in s 3A(1) were:

"directed to capture several means of disguising the employer-employee relationship by contractual arrangements which have been increasingly resorted to in recent years by persons seeking to defeat the objects of the Principal Act. The definition contains appropriate exclusions so that the parties to genuine service contracts will not be prejudiced."

These provisions were amended in 1986 by the Payroll Tax (Amendment) Act 1986. As amended, the material provisions of s 3A provided:

"Pay-roll Tax Act 1971

3A Application of this Act to certain contracts

(1) A reference in this section to a relevant contract in relation to a financial year is a reference to a contract under which a person (in this subsection referred to as the designated person), during that financial year, in the course of a business carried on by the person:

(a) ...

(b) is supplied with the services of persons for or in relation to the performance of work, or

(c) ...

but does not include a reference to a contract of service or a contract under which the designated person, during a financial year, in the course of a business carried on by the designated person:

(d) ...

(1A) For the purposes of this section, a contract under which:

(a) a person is supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them,

(b) a person is supplied with services for or in relation to the procurement of persons desiring to be insured by the person, or

(c) a person is supplied with services for or in relation to the door-to-door sale of goods to consumers on the person's behalf,

is not a relevant contract, unless the Chief Commissioner determines that the contract was entered into with an intention either directly or indirectly of avoiding or evading the payment of tax by any person.

(1B) ...

(2) For the purposes of this Act:

(a) a person:

(i) (Repealed)

(ii) to whom during a financial year, under a relevant contract, the services of persons are supplied for or in relation to the performance of work, or

(iii) who during a financial year, under a relevant contract, gives out goods to other persons,

shall be deemed to be an employer in respect of that financial year,

(b) a person who during a financial year:

(i) performs work for or in relation to which services are supplied to another person under a relevant contract, or

(ii) being a natural person, under a relevant contract, re-supplies goods to an employer,

shall be deemed to be an employee in respect of that financial year,

(c) amounts paid or payable by an employer, and benefits paid or payable by an employer and received by a person that would be fringe benefits if they were paid or payable to the person in the capacity of an employee of the employer, during a financial year for or in relation to the performance of work relating to a relevant contract or the re-supply of goods by an employee under a relevant contract shall be deemed to be wages paid or payable during that financial year, and

(d) where an amount referred to in paragraph (c) is included in a larger amount paid or payable by an employer under a relevant contract during a financial year, that part of the larger amount which is not attributable to the performance of work relating to the relevant contract or the re-supply of goods by an employee under the relevant contract may be prescribed by the regulations, and

(e) ... ."

The Explanatory Note to the Payroll Tax (Amendment) Bill 1986 stated, relevantly, that the purpose of the amendment which introduced subsection (1A) to (3A) of the 1971 Act:

"... makes it clear that the section does not apply to certain contractual arrangements relating to the carriage of goods, insurance brokerage and door-to-door selling."

On the second reading of the 1986 Amendment Bill on 29 April 1986, Mr Debus, Minister for Employment and Minister for Finance stated:

"On 20th March, I announced that the Government had made a decision to exclude contracts involving owner-drivers, direct sellers and insurance agents from payroll tax under the relevant contracts provisions. This decision will keep the New South Wales legislation in line with almost identical legislation that has operated in Victoria since January 1984. Schedule 1(1) of the Payroll Tax (Amendment) Bill contains provision to exempt these groups."

The dispute

The first part of the dispute concerns whether the contractors were engaged by Smith's under a "relevant contract" in accordance with s 32(1) of the 2007 Act (and s 3A(1) of the 1971 Act), and thereby liable to payroll tax, or whether the contract was exempt under s 32(2)(d)(i) of the 2007 Act (and s 3A(1A)(a) of the 1971 Act), and thereby not liable to payroll tax.

The second part of the dispute concerns whether, if there is found to be a "relevant contract", should a reduction in taxable wages be allowed for payments by Smith's to the contractors which were not attributable to the performance of work in accordance with the apportionment provisions under s 35(2) of the 2007 Act (and s 3A(2)(d) of the 1971 Act). That is, should there be a reduction in taxable wages for the non-labour component of the payments to the contractors?

In the proceedings below, Smith's contended that the contract entered into between Smith's and its contractors, in terms of a standard form Goods Distribution Agreement (GDA), did not qualify as a "relevant contract" because the services provided were to be properly regarded as comprising solely the conveyance of goods by means of a vehicle provided by the person conveying them. Alternatively, Smith's contended that the GDA was exempt from the definition of "relevant contract", because the services provided were services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them.

The Chief Commissioner contended below that the GDA qualified as a "relevant contract" and that the exemption did not apply because not all services provided by a contractor were ancillary to the conveyance of goods by means of a vehicle. A fuller explanation of the Chief Commissioner's position was contained in his letter to Smith's dated 12 January 2010:

"...the services (ie, transportation, filling and maintaining vending machines) together constitute the overall obligations under the contract, and none alone can be considered secondary or subservient to the other"

and in the Chief Commissioner's subsequent letter to Smith's dated 14 December 2010:

"We do not consider the main purpose of the contract is the conveyance of goods and that the other services provided by the contractor are ancillary to this purpose."

The Chief Commissioner's written submissions on appeal adopted the analysis in these two earlier letters (Orange 41 [9]).

As to the second part of the dispute, Smith's contended below that if the GDA was a "relevant contract" the allowance appropriately made for that part of the payment to the contractor which is not attributable to the performance of work relating to the GDA was larger than the 25 per cent allowed by the Chief Commissioner. The Chief Commissioner contended that the apportionment provisions did not apply at all, and that the 25 per cent reduction under the assessment was an ex gratia allowance.

The primary judge did not accept the approach of either party to the first part of the dispute. He found that the GDA entered into between Smith's and the contractors was partly a "relevant contract" and partly not a "relevant contract". His Honour construed the exemption to the definition of "relevant contract" as only applying to the extent that the contractor supplied Smith's with services "ancillary" to the conveyance of goods by means of a vehicle. On this approach, the services supplied to Smith's by the contractors under the GDAs were partly taxable and partly exempt. His Honour made findings as to which of the services were ancillary to the conveyance of goods and which were not. To the extent that the GDA was partly a "relevant contract" because some services were found to be not ancillary to the conveyance of goods, the primary judge considered that Smith's was entitled to a larger reduction in taxable wages under the apportionment provisions than the 25 per cent allowed by the Chief Commissioner.

In his principal reasons, the primary judge foreshadowed revoking the assessments: at [88]. In his further reasons given on the making of orders, his Honour decided that the preferable course was that the matter be remitted to the Chief Commissioner for determination in accordance with the Court's findings and decision. His Honour made no order as to costs (see [2012] NSWSC 1116).

For the reasons set out below, the appeal by Smith's should be allowed and the cross-appeal by the Chief Commissioner should be allowed in part as to Ground 1, but otherwise be dismissed. The Chief Commissioner should pay Smith's costs at first instance, other than the costs of Mr Feil's report, and Smith's costs of the proceedings in this Court.

The fundamental difference between my conclusions and those of the primary judge is whether the GDA is partly a relevant contract and partly not a relevant contract. In my view, the dividing or "slicing" of a "relevant contract" in the manner adopted by the primary judge, is not in accord with the exemption in s 32(2)(d)(i) of the 2007 Act (and s 3A(1A)(a) of the 1971 Act). I have concluded that the GDA is exempted from the definition of a "relevant contract" under s 32(2)(a) of the 2007 Act (and s 3A(1A)(a) of the 1971 Act). Accordingly, the apportionment provisions in s 35(2) of the 2007 Act (s 3A(2)(d) of the 1971 Act) do not apply. The assessments for 2005, 2006, 2007, 2008 and 2009 should be revoked and consequential orders made as sought by Smith's.

Factual background

Smith's sells various snack foods and drinks in vending machines throughout Australia (goods). It engages and pays independent contractors to store, transport and restock the vending machines, to remove and transport goods which have passed their use by date, to collect the money paid by purchasers of the goods in the form of notes and coins and to deliver the money to cash handling companies that credit Smith's.

The contractors were required to sign a new GDA each year. The commission payable to the contractor under it was a percentage of the retail sales through the contractor's vending machines. The obligations of the contractors under the GDAs included:

(1) the distribution of goods by stocking the vending machines at sites allocated to the contractor, the collection of cash takings and the removal of spoils (cl 3). The primary judge at [59], identified 19 services which the contractors may provide under the GDAs;

(2) the provision and maintenance at the contractor's expense of a reliable and roadworthy vehicle of less than five years old, suitable to carry the goods (cl 6); and

(3) a restraint of trade provision (cl 13.7).

Prospective contractors were trained to service vending machines, including procedures for filling, cleaning, cash collection, maintenance and repair. Contractors obtained a certificate of accreditation when its director successfully completed a training program within four weeks of becoming a contractor.

Contractors dealt with Smith's area sales managers (ASM) by telephone with varying frequency. Such communications included relaying any customer queries, stock issues and to receive or to communicate opportunities to increase the sites for vending machines.

Smith's provided "planograms" to its contractors that set out which snacks should be put into vending machines at particular sites. However, some contractors decided for themselves what snacks they should stock in particular machines, as they knew their customer base and knew the area where the machines they were to restock were located. Contractors wishing to change one of the snack foods in the vending machine were supposed to obtain approval from their ASM but in practice, contractors made a commercial decision about what stock was selling best and filled their vending machines accordingly, informing the ASM after the event.

The evidence below concerning the daily activities of contractors and their employees was given by way of a representative sample of corporate contractors. The primary judge summarised this evidence as follows:

"5 Typically, a contractor stored Smith's snack foods and drinks in a garage. A director usually did a weekly stock take to work out what replacement products were needed. The director did a complete stock take usually once a month. Each week the contractor placed an order with Smith's who delivered the products to the garage.

6 Usually on the day before a run, the director loaded the contractor's vehicle with the snack foods and drinks he thought he needed.

7 The director drove the contractor vehicle to the first vending machine. He opened the door of the vending machine and entered its number into a hand held unit (HHU) provided by Smith's. The quantity of each product stocked in the vending machine was displayed on the HHU. The number of each of the snacks remaining in the machine was counted and entered into the HHU. The director then printed out a pick slip from the HHU. That told him the total number of each of the snacks he needed to restock the machine.

8 The director then topped up the coin float, putting the excess notes and coins in a coin bag and printed out a coin bag receipt from the HHU and put that in the coin bag as well. The vending machine door was closed and the director returned to the vehicle and put the cash bag into a safe fitted to the vehicle at Smith's expense.

9 The director collected the snacks he needed and returned to the vending machine, opened its door and refilled the snacks, rotating stock to ensure that snacks with a low expiry date would sell first.

10 Snacks that would expire before the director's next round were removed and returned to the vehicle as spoils.

11 After refilling the vending machine the director pressed a button to see if the machine was working. If there were problems a red light showed up. The director was equipped to fix minor problems but if unable to fix a problem he called a Smith's technician.

12 Occasionally, the director was provided with point of sale promotional material that he placed on the vending machines. This involved removing earlier point of sale promotional material and putting on the new material.

13 The director cleaned the glass, wiped the sides and wiped out the tray of the vending machine. He locked the door and walked to the next machine or back to his vehicle with the spoils.

14 The director banked the notes and coins twice a week by driving to a nominated cash handling company.

15 If the director could not use a recycling bin to get rid of spoils and the cardboard containers in which Smith's delivered stock, he usually went to a local tip or dump once a week." (sic)

The primary judge's reasons

After summarising the evidence concerning the daily activities of contractors and their employees and identifying the material terms of the GDAs and the role of the ASMs in dealing with contractors, at [19] the primary judge observed that Smith's and the contractors carried out their individual businesses in collaboration. At [20], his Honour accepted the Chief Commissioner's description of the relationship between Smith's and the contractors as evidenced in the GDAs "as a commercial agreement in the nature of a shared enterprise", whilst noting the relatively high level of control of the contractors by Smith's: at [21].

The primary judge noted at [22] the Chief Commissioner's submission that one of the main commercial purposes of the GDAs was the collection of the vending machine takings and the restocking of the machines, and those services could not be described as subsidiary, incidental, accessorial or auxiliary to the conveyance of goods and hence the contracts stood outside any of the exemptions from a "relevant contract".

At [23], the primary judge rejected the Chief Commissioner's suggested approach to the meaning and operation of the exemption provided in the statute. His Honour considered that a two-step approach was required, as he had taken in Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788; 222 ALR 599 at 627 [221]. On this approach, the first question was whether the GDA answered the description of a "relevant contract"; that is, is it a contract under which Smith's is supplied with the service of the conveyance of goods by means of a vehicle provided by the person conveying them? The primary judge found that the GDA so provides: at [23] and [45]. The second question was whether any other services provided under GDA are ancillary to the conveyance. As explained below, the primary judge found that some services were and others were not ancillary to the conveyance.

Meaning of "relevant contract"

The primary judge considered the meaning of the definition of a "relevant contract" in s 32(1)(b) of the 2007 Act in connection with the first question referred to above. At [26], his Honour accepted that the expression "for or in relation to performance of work" did not qualify the content or scope of the preceding word "services". The expression was simply saying that the "services" as referred to in s 32(1)(b) must be work-related. His Honour considered that this construction was required having regard to the statements of the High Court in Accident Compensation Commission v Odco Pty Ltd [1990] HCA 43; 64 ALJR 606 at 612 (Odco).

Exemption for "ancillary services"

At [30], the primary judge stated that "ancillary" means subsidiary, incidental, accessory, auxiliary. His Honour also reviewed a number of authorities which had considered the meaning of the word "ancillary" in various contexts. He noted that there was a difference of opinion as to whether "ancillary" necessarily involved something which was subordinate or subservient. At [39], he expressed a preference, based on the reasoning in Arnold v Minister Administering the Water Management Act 2000 [2008] NSWCA 338; 73 NSWLR 196 at [67] (Arnold), that subservience is a characteristic of an ancillary matter.

At [44], the primary judge found that under the GDAs, the first requirement of s 32(2)(d)(i) of the 2007 Act is met: the contractors convey goods by means of a vehicle provided by the person conveying them, the contractor.

At [46], the primary judge noted the submission of the Chief Commissioner that unless every service provided by a contractor was ancillary to the conveyance of goods by means of the contractor's vehicle, the exemption would not apply to that contract.

The primary judge at [47]-[50] rejected this construction of the exemption provision. His Honour reasoned that such an interpretation would defeat the practical operation of the exemption. This was because if some de minimis service, other than one ancillary to the conveyance of goods, existed there would be no exemption: at [47].

At [48], his Honour observed that in contradistinction to s 32(2)(d)(i) of the 2007 Act (and s 3A(1A)(b) of the 1971 Act), the exemption in s 32(2)(d)(ii) of the 2007 Act in respect of insurance agents applied to "services solely for or in relation to" the procurement of persons desiring to be insured, whereas no such requirement that services be "solely" ancillary to the conveyance of goods was specified in s 32(2)(d)(i) of the 2007 Act. Whilst noting that the word "solely" was not contained in the predecessor legislation (s 3A(1A)(b) of the 1971 Act), his Honour considered the contrast in the 2007 Act to be significant and found that the absence of the requirement of exclusivity in the exemption in s 32(2)(d)(ii) of the 2007 Act meant that multiple services can exist: at [49].

The primary judge considered that the exemption required an analysis of the service and its relationship with the conveyance of goods. This was a qualitative rather than a quantitative exercise: at [56].

At [57], the primary judge found that the term "conveyance" in the exemption suggested something more than transport by road is involved and includes delivery of the goods. Thus the conveyance of goods did not end when the contractor parked his vehicle near a vending machine but included restocking the machine with Smith's products.

At [58], the primary judge observed that the Chief Commissioner accepted in ruling PTA 006 that for the purpose of the exemption, the term "conveyance" means transportation and delivery of goods. Consistently with this approach, the primary judge found at [64] that driving the vehicle to the vending machine is a transportation service and is part of the conveyance of the goods.

Dividing or slicing of "relevant contract"

The primary judge identified 19 services which the contractors provided to Smith's under the GDAs. He analysed whether each of those services were properly characterised as "ancillary" to the conveyance of goods, in the sense of being subordinate or subservient to the conveyance of goods by the contractors in their vehicles. His Honour's findings (at [60]-[77]) are summarised below:

Service provided by contractors

Findings

1. Placing orders for goods

not ancillary

2. Storage of goods

not ancillary

3. Loading goods into vehicle

ancillary

4. Driving vehicle to first vending machine

conveyance

5. Inspecting vending machine and printing slips

conveyance

6. Carrying out minor repairs

not ancillary

7. Making service calls if unable to repair

not ancillary

8. Collecting money from vending machines

not ancillary

9. Depositing money in vehicle safe

not ancillary

10. Collecting required goods from vehicle

conveyance

11. Delivering goods to vending machines

conveyance

12. Placing promotional material on vending machines

not ancillary

13. Cleaning vending machines

not ancillary

14. Depositing spoils in vehicle

not ancillary

15. Looking for business opportunities

not ancillary

16. Driving vehicle home

ancillary

17. Delivering money to cash handling companies

not ancillary

18. Delivering spoils and waste to dump

not ancillary

19. Stocktaking

not ancillary

Having concluded that some services provided by the contractors under the GDAs fell within the exemption and other services did not, the primary judge found that a GDA is not a relevant contract to the extent that it provides for an exempt service: at [79]. As a corollary to this finding, the primary judge found that it is only the other work-related services performed by the contractors under the GDAs that constitute them as relevant contracts "to that extent", and it is only payments made by Smith's with respect to those other work-related services that are taxable wages: at [80].

Apportionment provisions

The primary judge turned to the apportionment provisions in s 35(2) of the 2007 Act (and s 3A(2)(d) of the 1971 Act). At [81], he found that these will be engaged, to the extent that payments by Smith's are attributable to the provision of the motor vehicle, that is, the non-labour component. His Honour reasoned that because payments by Smith's will include a component for the provision of motor vehicles, the work-related payments will be included in that larger amount paid to the contractors. Accordingly, the Chief Commissioner is required to determine how much of the larger amount so paid to the contractors is not attributable to the performance of work.

The primary judge rejected the Chief Commissioner's submission that the apportionment provisions would only be engaged if there were two amounts, one of which was identified as a payment for labour: at [84]. His Honour reasoned that the apportionment provisions did not require anything more than the inclusion of an amount attributable to the performance of work (that is, the s 35(1) amount) in a larger sum payable under the relevant contract, referring to his earlier decision in Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue at 629 [237].

The primary judge referred to the various analyses which had been undertaken with respect to the contractors' non-labour costs as a percentage of their total costs, and of the time taken to drive on main roads as a percentage of the total time to provide the services under GDAs: at [86]. He noted that both exercises suggested a figure of 35 per cent, which was a better estimate of the non-labour cost, than was the 25 per cent allowed by the Chief Commissioner: at [87].

At [91], the primary judge referred to the Chief Commissioner's separate submission that the apportionment provisions in the 1971 Act were inapplicable because there was no relevant regulation as contemplated by s 3A(2)(d) of the 1971 Act, prescribing a statutory entitlement to a reduction in taxable wages for the non-labour costs. His Honour observed at [92] that notwithstanding the absence of a regulation, he assumed the Chief Commissioner would grant a reduction in his reassessment.

Relief

As already noted, in his judgment on the question of relief and costs ([2012] NSWSC 1116), the primary judge accepted at [19] the submission of the Chief Commissioner that it was inappropriate to revoke the assessments. His Honour considered that the preferable course was to make an order in terms of s 101(1)(d) of the Taxation Administration Act that the matter be remitted to the Chief Commissioner for determination in accordance with the Court's findings and decision.

The primary judge made no orders as to costs: at [32]. This was on the basis of the desirability of the finality of litigation in circumstances where his Honour considered it was not possible to predict the ultimate outcome of the Chief Commissioner's determination on the remitter, nor was it possible to predict the ultimate percentage of time taken in respect of exempt services under the GDAs, compared to Smith's submission that the exempt services accounted for over 80 per cent of the contractors' time, if that be relevant to the reassessment process.

Issues on appeal

Both parties were dissatisfied with the outcome below.

Smith's raised 4 grounds of appeal, raising 29 separate complaints. No submissions, either written or oral, were made in relation to the complaint in [24] of the notice of appeal. It may be assumed that this paragraph is not pressed. The Chief Commissioner raised 7 grounds of appeal in his notice of cross-appeal. The issues on appeal may be grouped as follows:

(1) Whether the GDAs did not qualify as a "relevant contract" within the definition, because no services are supplied to Smith's "for or in relation to the performance of work"? (Ground 1, [1], [2] and [3] notice of appeal)

(2) Alternatively, if the GDAs meet the description of a "relevant contract", whether the GDAs came within the exemption in respect of a contract under which Smith's is supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the contractor? (Ground 1, [4], [5] and [6] notice of appeal)

(3) Whether in applying the exemption, a "relevant contract" may be divided into assessable and exempt parts under s 32(2)(d)(i) of the 2007 Act (and s 3A(1A)(a) of the 1971 Act? (Ground 1, cross-appeal)

(4) Whether particular services supplied to Smith's by the contractors were the conveyance of goods or ancillary to the conveyance of goods? (Ground 1, [7]-[16] notice of appeal; Grounds 6 and 7, cross-appeal)

(5) Whether, assuming the GDAs were a "relevant contract", either in whole or in part, the apportionment provisions applied? (Grounds 2, 3, 4 and 5, cross-appeal)

(6) Whether the primary judge erred in rejecting the evidence contained in the report of Mr Feil, tendered on behalf of Smith's? (Ground 2, notice of appeal)

(7) Penalty tax - 2009 assessment. (Ground 3, [25] notice of appeal)

(8) Whether the primary judge erred in the exercise of his costs discretion? (Ground 5, notice of appeal)

Summary of parties' contentions

In summary, Smith's contended on appeal that:

(1) there is no "relevant contract" because no services are supplied to Smith's under the GDAs "for or in relation to the performance of work";

(2) alternatively, if the GDA qualifies as a "relevant contract", the exemption applies, because the GDA is a contract under which Smith's is supplied with services ancillary to the conveyance of goods by a means of a vehicle;

(3) alternatively to (2), if not all of the services supplied to Smith's are ancillary to the conveyance of goods, then the primary judge's construction of the exemption is to be applied so as to permit the division or slicing of a "relevant contract" into assessable and exempt parts. On this approach, the non-labour component of payments to contractors were greater than the 25 per cent reduction allowed by the Chief Commissioner and the apportionment provisions should be applied.

The Chief Commissioner contended that the GDAs answered the description of a "relevant contract" and that the exemption did not apply. This was because not all of the services supplied to Smith's were "ancillary" to the conveyance of goods. Further, it was contended that the apportionment provisions did not apply, because no amount was identified for the payment of labour to attract apportionment under the 2007 Act, and no regulation existed, as contemplated by s 3A(2)(d) of the 1971 Act, to attract apportionment under the 1971 Act.

(1) Is there a "relevant contract"?

Smith's submitted that the GDA was not a contract for the provision of services of persons "for or in relation to the performance of work" under s 32(1)(b) of the 2007 Act. It argued that those words are words of limitation, and that it is not sufficient to identify a contract under which there is some performance of work. In oral submissions, Smith's characterised the GDA as a contract for the performance of services, but acknowledged that undoubtedly work was involved (AT 7, lines 6-9).

The Chief Commissioner submitted that the GDA is a "relevant contract" because the contractor supplied to Smith's services "for or in relation to the performance of work". The Chief Commissioner adopted the reasoning of the primary judge at [26] and [27], where his Honour referred to the statement by the High Court in Odco at 612 in relation to similar language in an analogous provision in s 9 of the Accident Compensation Act 1985 (Vic).

In Odco the High Court said at 612 that it is a mistake to read the expression "for or in relation to the performance of work" as doing anything more than qualifying the content and scope of the word "services".

In my opinion, there was no error in the primary judge's reasoning. The question is whether the contract, in this case the GDA, answers the description of the broad terms of a "relevant contract" in s 32(1)(b). All that is necessary is that the services supplied by contractors under the GDAs are work-related: Odco at 612.

The expression "in relation to" may be described as a "relational term". As explained by French CJ in R v Khazaal [2012] HCA 26; 86 ALJR 884 at [31]:

"Relational terms ... may refer to a relationship between two subjects which may be the same or different and may encompass activities, events, persons or things. They may denote relationships which are causal or temporal or relationships of similarity or difference. The task of construing such terms does not involve the resolution of ambiguity. They are ambulatory words and may be designed to cover a variety of subjects and a variety of relationships between those subjects. The nature and breadth of the relationships they cover will depend upon their statutory context and purpose. Generally speaking it is not desirable, in construing relational terms, to go further than is necessary to determine their application in a particular case or class of cases." (emphasis added; footnote omitted)

The High Court has also observed that the prepositional phrase "in relation to" is of indefinite content: O'Grady v Northern Queensland Co Ltd [1990] HCA 16; 169 CLR 356 at 376 per McHugh J; Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390 at [24] per French CJ.

Subject to any contrary indication derived from its context or drafting history, the phrase "in relation to" requires no more than a relationship, whether direct or indirect, between two subject matters: O'Grady v Northern Queensland Co Ltd at 376 per McHugh J.

The submission of Smith's that the expression "for or in relation to the performance of work" are words of limitation is to be rejected. The meaning of those words as explained in Odco at 612 is to be applied. There is nothing in the context of s 32(1)(b), or in its legislative history, which suggests that the words "for or in relation to" should be read narrowly. The relevant connection or association is that the "services" supplied under the GDA must be work-related.

There is no error in the primary judge's finding that the GDA answers that description: see also Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue at [221], a case concerned with the Contractor provisions in the 1971 Act.

(2) Does the exemption apply?

The next question, or second step as referred to by the primary judge, is to determine whether the exemption to the definition of "relevant contract" applies. That is, whether under s 32(2)(d)(i) of the 2007 Act (s 3A(1A)(a) of the 1971 Act), the GDA is a contract under which a designated person (Smith's) in the course of a business carried on by Smith's:

"(d) is supplied with:

(i) services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them." (emphasis added)

Is the conveyance of goods itself exempt from payroll tax?

A preliminary issue raised by the parties' construction arguments is how the contract of conveyance is to be addressed with respect to payroll tax. The primary judge noted at [104] that the Chief Commissioner does not seek payroll tax with respect to a contract of conveyance of goods by means of a vehicle provided by the person conveying them. His Honour observed at [106] that the position is curious under both the 2007 Act and the 1971 Act, because there is no specific exemption for the conveyance of goods by means of a vehicle provided by the person conveying them. There is only the exemption for services ancillary to that conveyance.

The parties were in agreement that the contract of conveyance itself is exempt from payroll tax, but differed in their explanation of how this result was to be arrived at. The primary judge recorded the respective arguments at [107]-[108]. His Honour considered each interpretation equally awkward: at [109]. Smith's submitted that the contract of conveyance of goods should not be considered the performance of work and thus not a relevant contract under s 32(1) of the 2007 Act (s 3A(1)(b) of the 1971 Act). The Chief Commissioner submitted that the expression "services ancillary" in the exemption necessarily comprehended the conveyance itself.

An alternative approach raised by the Court during oral argument is that the driving of the vehicle by the contractor is a service ancillary to the conveyance of goods and thus if the exemption is engaged, the contract of conveyance is exempt from payroll tax. However, it is to be observed that this interpretation also has awkward aspects. In particular, it does not provide a satisfactory explanation of how the contract of conveyance is to be addressed, if the exemption is not engaged and one proceeds to the charging provision in s 35(1).

In oral argument, counsel for the Chief Commissioner initially adopted the suggestion that services ancillary to the conveyance of goods included the driving of the vehicle (AT 34, lines 6-15). Subsequently, counsel clarified that the Chief Commissioner's position was that the conveyance of goods means transportation and delivery of goods, so that the driving of a vehicle is to be considered part of the conveyance of goods. This was said to be in accord with the approach of the primary judge at [64] which also reflected the approach stated in the Chief Commissioner's ruling PTA 006: at [58] (AT 39, lines 35-40, line 16).

The Chief Commissioner did not seek to challenge on appeal the primary judge's approach. Although Smith's submissions on appeal repeated its position taken below as recorded at [108], Smith's also did not challenge the primary judge's finding at [64].

As neither party challenged the primary judge's finding at [64], it is unnecessary to decide how the contract of conveyance is to be addressed.

Submissions in relation to exemption

Smith's submitted that if the GDAs meet the description of a "relevant contract" in s 32(1)(b) of the 2007 Act (s 3A(1)(b) of the 1971 Act), then the exemption applied because the GDA was a contract under which Smith's is supplied with "services ancillary" to the conveyance of goods by means of a vehicle provided by the person conveying them. Smith's contended that any services supplied under the GDA other than the bare conveyance of goods, is either functionally part of the conveyance of goods, or alternatively, ancillary to such conveyance, or de minimis.

Smith's submitted that, in this case, "ancillary" must amount to "incidental, auxiliary or accessory" to the performance of the main rationale for the engagement. Given that the term "conveyance" includes delivery, it argued that the word "ancillary" must cover an area wider than delivery. It was further argued that "ancillary" does not necessarily convey the meaning of subordinate or subservient, as found by the primary judge. Such a construction, in the context of the Contractor provisions, was said to be likely to lead to fine distinctions of no relevance to the world within which those provisions have to operate.

In its reply submissions, Smith's advanced a number of further arguments in support of its contention that all the services provided under the GDAs were ancillary to the conveyance of goods. Underlying these arguments was a recognition that some of the services might not be considered to be subordinate or subservient to the conveyance of goods, if those concepts were implicit in the meaning of "ancillary" in the Contractor provisions. Smith's submissions explicitly recognised that, at least, cleaning the vending machines and repairs to the machines fell into this category. Smith's arguments included that:

(1) the determination of what is or is not ancillary requires reference to the whole of the relationship between Smith's and its independent contractors, rather than reading a particular contractual obligation in isolation;

(2) some of the services provided by the independent contractors involved de minimis activity compared to the conveyance by a vehicle of Smith's product and coin and note proceeds. Accordingly these services are to be regarded as ancillary to such conveyance, even though the particular service may not meet the description of something which is either subordinate or subservient to the conveyance of goods;

(3) it is the services actually provided, rather than the legal or contractual framework within which they are provided, which determines the application of the Contractor provisions. Thus, while Smith's accepted that the evidence revealed that other services were provided, such as cleaning machines and occasional repairs of the machines, it argued that the overriding commercial objective of the parties was to convey product for sale, collect the proceeds of sale and deliver those proceeds to cash handling companies (being the coins and notes) and to dispose of the unwanted goods (being spoils and waste).

The Chief Commissioner submitted that the exemption was not engaged. It was argued that the GDA is a multi-faceted arrangement between Smith's and the contractor, whereby the contractor provided a range of separate and distinct services to Smith's, some of which were in addition to, exclusive of, and did not form part of the conveyance of goods by means of a vehicle provided by the person conveying them. Examples were said to include storage of goods, stocktaking services, cleaning vending machines, carrying out minor repairs to vending machines and looking for new business opportunities.

The Chief Commissioner contended that the contractor fulfilled the role of storeman, stock-taker, driver, cleaner, repairman and business scout and that this was far removed from the exemption for contractors involving owner-drivers.

As part of its characterisation argument, the Chief Commissioner pointed to the fact that contractors are paid a percentage of retail sales made from the relevant vending machines, rather than remunerated on a basis referable or connected with goods conveyed by means of a vehicle provided by the contractor, or paid on the basis of kilometres travelled by the contractors.

In oral argument, the Chief Commissioner retreated somewhat from the position taken in his written submissions that all services provided under the GDAs need to be ancillary to the conveyance. Counsel for the Chief Commissioner accepted that it was not contended that one non-ancillary service taints the whole contract, so that the exemption cannot be engaged. It was also accepted that a de minimis non-ancillary service would not preclude the engagement of the exemption (AT 45, lines 41-47). The Chief Commissioner submitted that an evaluative exercise was involved in answering the question whether the GDA is properly characterised as one under which Smith's is supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the contractor (AT 46, lines 1-12).

Consideration

Both parties accepted that the operation of the exemption depended on a characterisation of the contract, in this case the GDA. Smith's submissions on the characterisation question have been referred to above. The Chief Commissioner's submissions, as refined during oral argument, contained the following propositions:

(1) That subservience is a characteristic of an ancillary matter, and that this concept is implicit in the words "services ancillary" in the exemption.

(2) The exemption is not engaged because the GDA is not a contract under which Smith's is supplied with services ancillary to the conveyance of goods by means of a vehicle because none of the services supplied (broadly referred to as transportation, filling and maintaining the vending machines) are secondary or subservient to the other.

(3) Alternatively, the exemption is not engaged because there is an implied requirement in the exemption that the services supplied to Smith's are primarily ancillary to the conveyance of goods by means of a vehicle.

In my view, the Chief Commissioner's submissions should be rejected.

First, as explained below under the heading "Meaning of 'ancillary'", none of the cases upon which the Commissioner relied for the meaning of the term "ancillary" are directed to a statutory provision in the same terms as s 32(2)(d) of the 2007 Act (s 3A(1A)(a) of the 1971 Act). Nor are the dictionary definitions of "ancillary", which include "subordinate or subservient", determinative. An ancillary service does not necessarily need to be a subordinate or subservient one to the conveyance of goods.

Secondly, the relevant question under s 32(2)(d) is not whether the services of transportation, filling and maintaining the vending machines (and the other services supplied under the GDAs) can be considered secondary or subservient to the other. The focus of the exemption is on the relevant contract. The question to be answered is whether the GDA is a contract under which Smith's is supplied with services ancillary to the conveyance of goods by means of a vehicle. The words "under which" may be taken as meaning "in accordance with", "pursuant to" or "required by" the terms of the GDA. It is the relationship between the services required to be provided to Smith's under the GDA and the conveyance of goods by means of a vehicle, which the terms of the statutory exemption are directed to, not the quite different question posed by the Chief Commissioner as to whether any of the services can be considered secondary or subservient to the other.

Expressed in another way, the Chief Commissioner's submissions characterising the GDA in terms of labelling the contractor as storeman, stock-taker, driver, cleaner, repairman and business scout, do not answer the question posed by the exemption. The task of statutory construction is not assisted by resorting to such labels. Those labels reflect no more than descriptions ascribed to particular services provided under the GDAs. This distracts attention from the correct question which is required to be answered in determining whether the exemption is engaged.

Thirdly, and related to the previous point, it is a mistake when determining whether the exemption is engaged to read a particular contractual obligation in isolation. Further, as ultimately conceded by the Chief Commissioner, de minimis activity compared to the conveyance of goods by a vehicle would not preclude the engagement of the exemption.

Fourthly, in undertaking what both parties agreed was an evaluative exercise in answering the question posed by the exemption, regard is to be had to the contractual arrangement under which the services are actually provided. Merely describing the GDA as a "multi-faceted arrangement" does not assist in answering the question as to whether the exemption is engaged.

Fifthly, the absence of the words of limitation or restriction such as "solely" or "only" qualifying the expression "services ancillary" in s 32(2)(d)(i) is significant, particularly when contrasted with the language of the exemption in subparagraph (d)(ii) which contains the qualification "solely" in relation to contracts relating to insurance agents. The absence of the requirement of exclusivity in s 32(2)(d)(i) (or s 3A(1A)(a)) means that the exemption can be engaged even where multiple services exist under a relevant contract, not all of which are ancillary to the conveyance of goods. Ultimately, this appeared to be accepted by the Chief Commissioner in oral argument: see [75] above.

Sixthly, contrary to the oral submissions of the Chief Commissioner, there is no basis for implying a requirement of primarily as qualifying the expression "services ancillary". This would involve a distortion of the statutory language. As the High Court has repeatedly stated, the process of statutory construction begins with a consideration of the text: Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 293 ALR 257 at 268 [39]. This requires a consideration of the ordinary and grammatical meaning of the words of the provision by reference to all the provisions of the statute. Context and legislative purpose are also important: Commissioner of Taxation v Unit Trend Services Pty Ltd [2013] HCA 16; 297 ALR 190 at [47] per French CJ, Crennan, Keifel, Gageler and Keane JJ, referring to the statement of French CJ and Hayne J in Certain Lloyd's Underwriters Subscribing to Contract No IHOOAAQS v Cross [2012] HCA 56; 293 ALR 412 at 418 [24].

The Chief Commissioner did not point to any textual indicator or drafting history which suggested that a requirement of "primarily" should be implied in the exemption.

It was argued by the Chief Commissioner that unless such a requirement was implied, there would be an irrational result in the operation of the exemption. Such an outcome was postulated by reference to a hypothetical "relevant contract" under which a range of services were supplied of which only one was ancillary to the conveyance of goods by means of a vehicle. However, whether the exemption would be engaged in respect of such a hypothetical contract would depend upon the facts of the particular case. The exemption involves the characterisation of a relevant contract having regard to its terms. It is necessary to address the question to be answered by the exemption by reference to the contract under consideration in this case.

What does the GDA provide?

One commences the analysis by examining the services to be provided under the GDAs.

The material provisions of the GDAs have been referred to at [24] above. It is necessary however to have regard to their particular terms. Clause 3 relates to the distribution of goods. It provides:

"3.1 The Contractor agrees, throughout the Engagement, to duly, promptly and efficiently distribute the Goods by stocking the Machines with the Goods at the Sites and keep all the Company's Machines at the nominated Sites optimally stocked with the Goods from Planograms as provided by the Company in accordance with the terms of this Agreement."

Clause 3.1 goes on to provide that the contractor further agrees to perform certain particularised services. These constitute the 19 services broadly identified by the primary judge at [59].

Clause 6.1 deals with the provision of the motor vehicle. It provides:

"Throughout the Engagement the Contractor will provide and maintain to the Company's satisfaction at its own expense a reliable and roadworthy vehicle of less than 5 years old at the date of this Agreement and of a make and model (equivalent to a Toyota Hi-Ace long-wheel base vehicle) that is suitable to carry the Goods and fitted with an alarm, immobiliser and all other equipment (other than as specified in clause 6.2) necessary to distribute the Goods, including: ..."

Clause 6.1 goes on to specify particular requirements which the contractor's vehicle must meet including matters such as the installation of a safe in the vehicle to ensure safe custody of cash.

In my view, when the question asked by the exemption is posed in the correct form, it is clear from an examination of the terms of the relevant contract, as well as the evidence of the time actually spent in the performance of the services supplied under the GDAs, which was the subject of the sampling evidence from contractors at the trial (as summarised by Smith's at Black 194-201), that the GDA is a contract under which Smith's is supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the contractor.

As a matter of characterisation of the GDA, the conclusion to be drawn is that the principal matter or subject of the GDA is the conveyance of goods (whether that expression be limited to the Smith's product or, as I have concluded in Section 4 below, also includes the money (coins and notes) spoils and packaging) and that the GDA is a contract under which Smith's is supplied with services ancillary to the conveyance. It is not to the point that some of the services, whether of a de minimis character or otherwise, are in and of themselves not ancillary to the conveyance. The engagement of the exemption does not require that the services supplied to Smith's be exclusively or solely ancillary to the conveyance.

Furthermore, when regard is had to the evidence from the sample of contractors at the trial of the time actually spent in the performance of the services supplied under the GDAs, it is apparent that the services supplied to Smith's very substantially comprised the conveyance of goods by means of a vehicle provided by the person conveying them and services ancillary to the conveyance of goods.

In my view, the primary judge erred in not finding that the exemption to the definition of relevant contract is engaged with respect to the GDAs. In deference to the learned primary judge, it must be acknowledged that the construction of the exemption is a matter upon which minds might reasonably differ. Furthermore, unlike the position on appeal, the primary judge was faced with an all or nothing submission advanced by the Chief Commissioner as to whether the exemption was engaged. By contrast, as noted above, on appeal the Chief Commissioner retreated from that position and accepted that one non-ancillary service did not taint the whole contract and preclude the engagement of the exemption, nor would non-ancillary services of a de minimis character have that effect.

Meaning of "ancillary"

The ambit of the expression "ancillary" is to be gleaned from the context, namely that the conveyance of goods is the principal matter and the exemption from the definition of "relevant contract" is provided where under the relevant contract there is supplied services which are ancillary to the principal matter.

The parties were in broad agreement that the primary judge correctly construed the word "ancillary" to mean "subsidiary, incidental, accessory, auxiliary". The area of disagreement concerned his Honour's finding that subservience is a characteristic of an ancillary matter.

Smith's submitted that "ancillary" did not necessarily import the characteristic of subservience, relying upon comments of Stein JA (with whom Mason P and Meagher JA agreed) in Macquarie International Health Clinic Pty Ltd v University of Sydney (1988) 98 LGERA 218 at 223. The Chief Commissioner sought to uphold the primary judge's reasoning.

The Chief Commissioner referred to a number of cases which have considered the meaning of "ancillary". The following propositions emerge from a review of those cases and other cases which have considered the meaning of the word "ancillary".

First, the word "ancillary" derives from the Latin "ancilla", a handmaid: Koala Motels Pty Ltd v Chief Licensing Inspector (1977) 18 ALR 12. That case concerned the concept of the supply of liquor as "ancillary to the meal" being taken in a dining room. Muirhead J considered that the word "ancillary" meant less than supplementary or supplemental to - it means "subservient" or "subordinate" and referred to the derivation from the Latin "ancillaries" - "ancilla".

However, as observed by Basten JA in New South Wales Crime Commission v Ollis [2006] NSWCA 76; 65 NSWLR 478 at 493 [60], whilst the derivation of the term "ancillary" is evocative, this does little to identify the bounds within which it must operate in a particular statutory context. Basten JA noted the breadth and arguably the vagueness of the concept, referring to McCleary v Director of Public Prosecutions (Cth) (1998) 20 WAR 288 at [320] per Ipp J.

Secondly, the relevant dictionary meanings given to "ancillary" are "subservient or subordinate", "auxiliary or accessory" or as "designating activities and services that provide essential support to the functioning of a central service or industry": Oxford English Dictionary, 3rd ed, 2000; and "accessory, auxiliary, subsidiary": Macquarie Dictionary, 5th ed, 2009.

Such dictionary definitions have met with approval in a number of cases including: Nix and Dunn v Pittwater Council (1994) 84 LGERA 199 at 205 per Gleeson CJ; Arnold at [73].

Thirdly, there are cases which define the word ancillary far more widely. As observed by McColl JA (with whom Young JA agreed) in Baterham v Makeig [2010] NSWCA 86 at [63]-[64], these cases include Regina v Her Majesties' Treasury; ex parte Smedley [1985] QB 657 at 674 where Slade LJ said at [673] that "ancillary" was a word of wide and somewhat uncertain import.

The prime example of the word meaning something which is supplemental and is not subordinate, is the decision of this Court in Macquarie International Health Clinic Pty Ltd v University of Sydney where Stein JA, with whom Mason P and Meagher JA agreed said:

"... an ancillary use does not necessarily need to be a subordinate or subservient one. It may be more than a minor use. It seems to me that an ancillary or incidental use is not capable of being reduced to a mathematical formula. It may also be noted that among the relevant dictionary meanings of ancillary are 'auxiliary' and 'accessory'."

For this reason, a teaching hospital could be ancillary to the educational purposes of the University even though the educational use of the hospital was relatively minor.

Fourthly, generally speaking, the relationship between two matters connoted by the word "ancillary" is intended to be narrower than that of "association": Nix and Dunn v Pittwater Council at 204; Arnold at [72].

Fifthly, there is authority in this Court that a concept of subservience is implicit in the idea of an "ancillary matter": Koala Motels Pty Ltd v Chief Licensing Inspector at 14, referred to with approval by Gleeson CJ in Nixand Dunn v Pittwater Council at [205] and by Pearlman J in NTL Australia Pty Ltd v Minister for Land and Water Conservation [2001] 112 LGERA 403 at 413 [28](c), in turn referred to with approval in this Court in Minister for Local Government v South Sydney Council [2002] NSWCA 288; 55 NSWLR 381 at 416 [160]; Arnold at 215 [74].

It is to be observed, however, that the relevant context of a number of these cases concerned the scope of jurisdiction of a court, and whether a matter was ancillary to matters in respect of which jurisdiction had been conferred upon a court. Thus, the context in which the question was asked, provided the circumstance that the concept of subservience was implicit in the idea of an ancillary matter, for the purposes of questions of scope of jurisdiction.

Likewise, in Koala Motels, the context of whether the supply of liquor was ancillary to the meal, was that the meal was clearly the principal thing that could be enhanced by the supply of liquor, and thus the latter was seen as subservient or subordinate to the principal matter, being the meal.

Sixthly, ultimately the question whether one activity is ancillary to another is a question of fact and degree: R v McMahon; ex parte Darvall [1982] HCA 56; 151 CLR 57 at 60 per Gibbs CJ; Arnold at [73] per Spigelman CJ (with whom Allsop P and Handley AJA agreed).

As already observed, none of the authorities relied upon by the Chief Commissioner on the meaning of the term "ancillary" are directed to a statutory provision in the same terms as s 35(2)(d) or a similar context.

In my view, the primary judge erred in adopting the approach that subservience is a characteristic of the expression "services ancillary" in the exemption. Neither the context of the provision nor anything in the legislative drafting suggests such a qualification.

(3) Whether the exemption applies to part of a relevant contract?

By Ground 1 of the cross-appeal, the Chief Commissioner contends that the primary judge erred in finding that the exemption in s 32(2)(d) of the 2007 Act (s 3A(1A)(a) of the 1971 Act) could apply to part of a relevant contract and not apply to other parts of a relevant contract.

Smith's supported the primary judge's construction of the exemption, as a fallback position to its primary contentions that either the GDAs were not a relevant contract, or the exemption applied to the GDAs.

There are a number of difficulties with the construction of the exemption provision favoured by the primary judge.

First, as the Chief Commissioner correctly submits, the primary judge's construction of the exemption involves reading into the exemption words which simply do not appear. However, the task of statutory construction must begin and end with the text, considered in context: Federal Commissioner of Taxation v Consolidated Media Holdings Ltd at [55].

The focus of s 32(1) and s 32(2)(d) is one entire, indivisible, "relevant contract". Those sections do not provide "a contract is not a relevant contract to the extent that exempt services are supplied". The approach of the primary judge involved reading into the text, such words of limitation or qualification before the words "the designated person" in s 32(2), so as to confer a power to dissect or slice a relevant contract between exempt parts and taxable parts. Nothing in the text of s 32 or any other provisions of the Act supports such an approach.

Secondly, although the primary judge correctly observed at [48] that there is no requirement of exclusivity in the exemption: that is, no requirement that the services supplied to Smith's are exclusively ancillary to the conveyance of goods, the focus of the exemption is not upon whether individual services are exempt. Rather, the exemption is directed to whether the "relevant contact", in this case the GDA, answered the description of a contract "under which" Smith's is supplied with services ancillary to the conveyance of goods.

Thirdly, the language of the charging provision in s 35(1) also requires focus on one entire, indivisible "relevant contract". Section 35(1) refers to "amounts paid or payable ... for or in relation to the performance of work relating to a relevant contract ...". The words "part of" do not appear immediately before the words "a relevant contract" in s 35(1). Nor do such words appear before the words "a relevant contract" in s 35(2). In the absence of a contrary indication in s 35(1) and in my view, none exists, the reference to a "relevant contract" should be given a consistent meaning in ss 32(1) and (2) and s 35.

Fourthly, it is to be observed from the concluding words in s 35(2) "as determined by the Chief Commissioner", that a power of apportionment is given in respect of a "relevant contract" for the purpose of calculating the amount taken to be wages under s 35(1). The existence of such a power of apportionment is a indicator against reading into the exemption under s 32(2)(d), a power to dissect or slice a "relevant contract" itself between taxable parts and exempt parts.

The same approach is to be taken in relation to s 3A(1A)(a) of the 1971 Act, the terms of which are not materially different to s 35(2)(d) of the 2007 Act.

In my view, Ground 1 of the cross-appeal should be upheld.

(4) Classification of particular services

By Grounds 4 to 16 of the notice of appeal and [59]-[73] of Smith's Rule 51.36(2) statement (Orange 32-36), Smith's challenges a number of the primary judge's factual findings that various services supplied under the GDAs were not ancillary to the conveyance of goods.

The contentions by Smith's involve two levels of argument. The first relates to the proper identification of what constitutes the conveyance of goods under the GDAs. The second relates to whether particular services supplied to Smith's under the GDAs are properly characterised as ancillary to the conveyance of goods.

On the first issue, Smith's contended that the conveyance of goods is not limited to Smith's product, but encompasses the conveyance of money (coin and notes) and spoils and packaging. The Chief Commissioner contended that the conveyance is limited to the conveyance of Smith's product.

In my view, the Chief Commissioner's submissions should be rejected.

First, the starting point is to observe that the charging provision in the 1971 Act, like the 2007 Act, does not bring to tax the whole of the payment under a relevant contract - only amounts "for or in relation to the performance of work": s 35(1) of the 2007 Act (s 3A(2)(c) of the 1971 Act); Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue at [236]-[239].

Secondly, in the case of the 1971 Act, the supplementary provision relating to determination of that part of the larger amount which is not attributable to the performance of work relating to the relevant contract, by reference to an amount prescribed under the regulations, is facultative only: s 3A(2)(d).

Thirdly, in the absence of a regulation under s 3A(2)(d) of the 1971 Act, the charging provision in s 3A(2)(c) only deems to be wages such amounts paid or payable by Smith's to the independent contractors "for or in relation to the performance of work relating to a relevant contract".

Fourthly, it is apparent that in allowing a reduction of 25 per cent for the non-labour component of the payments under a relevant contract (relevantly, for the years 2005, 2006 and 2007), the Chief Commissioner has proceeded on the basis that such a reduction is an ex gratia allowance. It does not represent an assessment by the Chief Commissioner within the terms of the charging provision.

There was no error in the primary judge remitting the assessments under the 1971 Act back to the Chief Commissioner for determination in accordance with his Honour's findings on this issue.

2007 Act - Included in a larger amount

By Ground 4 of the cross-appeal, the Chief Commissioner contended that the primary judge erred in concluding that s 35(2) of the 2007 Act does not require the identification of two amounts, and can have operation where there is one amount only paid or payable by an employer for or in relation to the performance of work relating to a relevant contract.

Central to the argument of the Chief Commissioner is cl 5 of the GDA, under which there is one amount only that is paid or payable to the contractor for or in relation to the performance of work. The Chief Commissioner contended that because there are not two or more amounts paid under the GDA, s 35(2) has no operation in this case.

The Chief Commissioner further contended that s 35(2) addresses circumstances where the parties to the contract expressly state that a certain percentage of income is being paid for the performance of work and a certain percentage of income is being paid for the non-labour component of the services, but that this is not what occurred in the GDAs.

The Chief Commissioner's submissions seek to characterise the power to determine the requisite amount under s 35(2) of the 2007 Act as being available to correct a disproportionate or excessive allocation of an amount paid to the contractor to items other than the performance of work: for example, if the parties attributed an excessive amount to the provision of equipment and consumable stores.

In my view, the Chief Commissioner's submissions should be rejected.

First, as submitted by Smith's, s 35(2) is properly characterised as a supplementary provision to the charging provision in s 35(1), which first requires a determination on the part of the Chief Commissioner of the amount paid "for or in relation to the performance of work". The operation of s 35(2) is not limited to the circumstances of a relevant contract under which the parties have stated certain percentages of income as being paid for the performance of work and otherwise being paid in respect of matters not attributable to the performance of work.

Secondly, the determination required by the Chief Commissioner under s 35(2) is conditioned simply on an amount being paid or payable by Smith's to the contractors "for or in relation to the performance of work", being "included" in a larger amount paid or payable by Smith's under a relevant contract. It does not depend upon the parties having separately identified in the relevant contract or elsewhere more than one amount, one being referable to the performance of work and the other referable to matters other than the performance of work.

Thirdly, the determination required by the Chief Commissioner under s 35(2) is directed to that part of the larger amount which is not attributable to the performance of work. The purpose for which it is asked that part of the larger amount is not "attributable" to the performance of work, is for the purpose of determining the non-labour component of the services supplied under the GDAs.

Fourthly, the words "attributable to" are allocative words directed to the determination of the portion of the larger payment that is not taxable under s 35(1). This is consistent with the general meaning of the word "attributable" in the authorities that "[T]he essential element is connection of some kind": Central Asbestos Co Ltd v Dodd [1973] AC 518 at 533 per Lord Reid. In some contexts, the word "attributable" involves some element of causation, although it need not be sole or dominant: Roncevich v Repatriation Commission [2005] HCA 40; 222 CLR 115 at [27]; Repatriation Commission v Law (1980) 31 ALR 140 at 151.

In this case, the apportionment provision in s 35(2) requires the Chief Commissioner to make a determination, for the purposes of the charging provision in s 35(1), of that part of the larger amount paid under the GDAs, which can be a single amount, which is not "attributable to" the performance of work. It is the connection between the payment of an amount "for or in relation to the performance of work", which is included in a larger amount paid for services supplied under a relevant contract, to which the allocation or apportionment by the Chief Commissioner must be undertaken.

In my view, there was no error in the primary judge's approach to the apportionment provision in s 35(2).

Treatment of capital or running expenses

By Ground 5 of the cross-appeal, the Chief Commissioner asserted that the primary judge erred in concluding that the capital or running expenses of a vehicle operated by a contractor ought to be treated as producing a "larger amount" for the purposes of s 35 of the 2007 Act.

The Chief Commissioner argued that this conclusion cannot be maintained in light of the admission in [15] of Smith's amended appeal statement, where the following is asserted:

"15 The Plaintiff makes no contribution, whether directly or indirectly, to the capital or running expenses of the vehicles operated by the Contractors."

The Chief Commissioner contended that no amount is payable by Smith's to the contractors that is referable, in any divisible sense, to the costs to the contractor of providing or maintaining a vehicle. This is said to be because no identifiable portion of the amounts payable by Smith's to the contractors under the GDA is referable to any recompense or contribution to the contractor for the purpose of their provision and maintenance of a vehicle. It is argued that as no term of the GDA refers to any portion of the payments by Smith's to the contractors being referable to the provision and upkeep of a vehicle, then no "larger amount" is paid to the contractor, rather an amount being only one amount is paid in accordance with the GDA. It is contended that s 35(1) has no operation because there is no larger amount and no smaller amount.

In my view, these submissions should be rejected.

First, the reliance on the so-called "admission" by Smith's in its amended appeal statement is misplaced. The assertion by Smith's in its appeal statement, as noted above, is not directed to the matter presently in issue. It is not disputed by Smith's that it makes only one payment to the contractors under the GDA. It is the character of that payment, in particular, whether included in that amount is an amount paid or payable by Smith's "for or in relation to the performance of work", that is the issue raised, relevantly, by s 35(1) of the 2007 Act.

The character of that payment is informed by the nature of the services provided by the contractor in respect of which the payment is made. Those services include the provision of a vehicle by the contractor for the carriage of Smith's product.

Secondly, the apportionment provisions are not directed or framed in terms of what contribution the employer makes to the capital or running expenses of the contractor's vehicle. At [81], the primary judge was simply making the point that "to the extent that" payments by Smith's to the contractors are attributable to the provision of the motor vehicles, then the apportionment provision will be engaged. This is undoubtedly correct.

Thirdly, insofar as the Chief Commissioner's argument relies upon the fact that a single amount is payable by Smith's to the contractors, the assertion that that amount is not in any divisible sense referable to the costs of the contractor providing or maintaining a vehicle, begs the question as to the determination required by the Chief Commissioner under s 35(2). This argument has already been considered and rejected above.

(6) Rejection of Mr Feil's report

By Ground 2 of the amended notice of appeal, Smith's asserts that the primary judge erred in rejecting the evidence of Mr Feil contained in his affidavits of 10 October 2011 and 1 December 2011. Mr Feil was an expert witness engaged by Smith's. The first affidavit annexed his report of the same date. The second affidavit dealt with formal matters only, relating to having read and understood the Expert Witness Code of Conduct.

The primary judge rejected the tender of both affidavits on the grounds of relevance. In an ex tempore judgment, his Honour reasoned as follows:

(1) Mr Feil's view was that the characterisation of the vending machine contractors' activities should be resolved by applying functional analysis, and that Mr Feil had experience in functional analysis: at [4].

(2) Mr Feil did not explain how his experience with respect to functional analysis applied to cross-border activities of taxpayers, should be applied to vending machine contractors: at [5].

(3) Whilst doubting that there is a relevant field of expertise which might be applied in this case, it is not functional analysis, but rather how the businesses of vending machine contractors are carried out and Mr Feil claimed no expertise with respect to those businesses, let alone that he had previously applied functional analysis to the business of a vending machine contractor: at [5].

(4) The question of how the businesses of the vending machine contractors is carried out is a question of fact, as to which evidence had been given by directors of the contractor companies: at [5].

(5) Functional analysis, if it be an area of expertise, is not one that is required for the resolution of this matter: at [11]. For this reason, Mr Feil's affidavit of 10 October 2011 should be rejected: at [12] and as there remained no relevance of his affidavit of 1 December 2011, it should also be rejected: at [13].

(6) As Mr Feil's evidence was not relevant, it was unnecessary to address the other objections taken to the admissibility of his evidence on the grounds that it did not satisfy the criteria of admissibility for expert evidence under s 79(1) of the Evidence Act 1995 at [9]; in particular whether Mr Feil had specialised knowledge based on his training, study and experience, and that his opinion was wholly or substantially based on that knowledge: Dasreef Pty Ltd v Hawchar [2011] HCA 21; 243 CLR 588 at 602 [32].

Smith's submissions on appeal focused on the admissibility of the opinion of Mr Feil in his report dated 10 October 2011 where he stated:

"1.16 ... my opinion is that the transport function and its essential sub-functions constitute almost the totality of the functions performed by vending machine contractors. The transport function and related sub-functions require the contribution of all assets employed and assumption of all risks involved in transporting goods and cash to and from vending machines."

Smith's contended that Mr Feil had specialised knowledge regarding both the taxation implications of the value of disaggregated elements of overall arrangements and the overall logistics associated with the transportation of goods. Smith's argued that Mr Feil's expertise was relevant to the allocation of value to the non-labour component of the payments made to contractors. This was said to be relevant to the apportionment issue. Smith's also argued that Mr Feil's evidence was relevant to the attribution of value to the components of the overall service provided by the contractors. This was said to be relevant, having regard to the overall approach of the primary judge and the Chief Commissioner's approach to the meaning of "ancillary" in his Ruling PTA033, which the primary judge noted at [52] of his principal reasons.

It will be observed that none of Smith's contentions address the fundamental difficulty identified by the primary judge with the admissibility of Mr Feil's evidence. This was that, even assuming that functional analysis is an area of expertise, and one held by Mr Feil, it was not relevant to the issue in the present case, which was how the businesses of vending machine contractors are carried out.

Furthermore, when one examines the opinion expressed in the conclusion to Mr Feil's report of 10 October 2011, the lack of relevance to the issues for determination in this case is exposed. Mr Feil concluded at [8]:

"... my Opinion is that Smith's vending machine contractors cannot be regarded as vending machine contractors who are similar to building supervisors."

As the Chief Commissioner correctly submited in his written submissions, it is irrelevant whether building supervisors are similar to vending machine contractors. This says nothing as to whether or not under the GDAs Smith's is supplied with services for or in relation to the performance of work, or whether such services are ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them.

Mr Feil's opinion concerning the lack of comparability of vending machine contractors and building supervisors was directed to the Chief Commissioner's Ruling PTA018 (Blue 160), in which the Chief Commissioner stated that for the purpose of apportionment under s 35(2) of the 2007 Act, the deduction for the non-labour components where the contractor provides equipment and/or materials would be 25 per cent in the case of building supervisors (who provide their own vehicles and inspect more than six sites per week).

As the primary judge correctly observed at [53] of his principal reasons, Rulings by the Chief Commissioner do not have the force of law. They are simply his expression of opinion. The appropriateness of the deduction which the Chief Commissioner is prepared to allow in respect of building supervisors is not determinative in this case of the application of the apportionment provisions under s 35(2) of the 2007 Act. Mr Feil's opinion as to the lack of comparability between vending machine contractors and building supervisors adds nothing. The primary judge was correct to reject his report of 10 October 2011.

Mr Feil's second affidavit of 1 December 2011 did not add anything substantive. As there was no error in the primary judge's rejection of his first affidavit and report, there is no error in the rejection of his second affidavit.

(7) Penalty tax - 2009 Assessment

By Ground 3 ([25]) of the amended notice of appeal, Smith's asserted that the primary judge erred in finding that the Chief Commissioner had a discretion to decide whether Smith's did not take reasonable care to comply with the taxation law with respect to the 2009 year. Smith's complaint was directed to the imposition of penalty tax in the 2009 year in an amount of $24,344.01.

The Chief Commissioner conceded in his written submissions that the penalty tax assessment for 2009 should be set aside. An order to this effect was sought in the relief claimed in [7] of the cross-appeal. The making of such an order assumed that the Chief Commissioner was otherwise successful on the cross-appeal, and that this Court made an order to the effect that the 2009 assessment, other than penalty tax, be confirmed: see the relief claimed in [8] of the cross-appeal.

However, in my view, the 2009 assessment along with the earlier assessments, should be set aside. For this reason, it is not appropriate to make an order in the terms sought by the Chief Commissioner.

(8) Costs

By Ground 5 of the amended notice of appeal, Smith's asserted that the primary judge erred in refusing to award costs in favour of Smith's.

Smith's contended that it should have received a costs order, including an indemnity costs order for the adjournment that occurred on 6 September 2012. The indemnity costs issue is considered separately below.

Smith's contended that the primary judge correctly noted at [26] of his costs reasons that Smith's had won, in the sense that the Chief Commissioner issued five assessments that were incorrect. Smith's referred to Dungowan Manly Pty Ltd v McLaughlin [2012] NSWCA 180 at [120] for the proposition that a plaintiff who succeeds in providing the core of his or her case will rarely be denied full recovery of costs, even if many of the guises in which the case is clothed are unsuccessful.

Smith's complained that an essential part of the reasoning of the primary judge for not making an order as to costs was because of the desirability of finality of litigation: at [32].

The Chief Commissioner submitted that the costs order should only be disturbed if it involved an error of principle, but that no error had been established in this case: Waters v PC Henderson (Aust) Pty Ltd [1994] NSWCA 338; 254 ALR 328 at 330-331.

The Chief Commissioner argued that the decision of the primary judge was much more evenly balanced and nuanced than that which Smith's submissions suggested. Further, it was submitted that the Chief Commissioner should not have to bear the costs of Smith's expert evidence which had been ruled inadmissible on the ground of relevance.

As to the outcome below, the Chief Commissioner contended that of the 19 identified services under the GDA, only 6 were relevantly found by the primary judge to be conveyances of goods or ancillary, and exempt on the primary judge's approach, whilst the remaining 13 items were found to not be ancillary and therefore not exempt.

The cost position below must now be assessed as if the result before the primary had been as I have found, including that his Honour's slicing approach to the exemption should not be accepted: Heperu Pty Ltd v Patricia Belle (No 3) [2013] NSWSC 1088 at [11]. Taking into account the success by Smith's on Issues 2 and 4, the position is that Smith's would have substantially succeeded below.

It is therefore necessary to re-exercise the costs discretion. I would order that the Chief Commissioner pay Smith's costs of the proceedings below, other than the costs of the expert report of Mr Feil.

Costs of Mr Feil's report

Although Smith's contended below that Mr Feil's evidence did not relate to a separate issue and the costs of this evidence should not be excluded on the basis that Smith's failed on the issue to which Mr Feil's evidence related, it remains significant that the whole of Mr Feil's evidence was rejected by the primary judge on the ground of relevance. I have concluded above that Smith's appeal against that ruling should be rejected.

Whilst the rejection of part of the evidence of a witness would not necessarily result in any discount in the award of costs, or indeed an adverse costs order against a successful party, the rejection of the whole of an expert's report on the ground of relevance is, in my view, in the circumstances of this case, a sufficient reason to discount the award of costs in favour of Smith's as the successful party below, to exclude the costs of Mr Feil's report.

Indemnity costs of adjournment

By Ground 5 ([29]) of the amended notice of appeal, Smith's asserts that the primary judge failed to address the issue of the costs of, and occasioned by, the adjournment of the proceedings on 6 September 2012. Smith's seeks an order that the Chief Commissioner pay these costs on an indemnity basis.

The primary judge did not expressly deal with Smith's claim for indemnity costs in respect of the adjournment on 6 September 2012. It is implicit however in his finding at [32] of the costs reasons, that he did not consider it appropriate to make such an order.

The circumstances justifying an indemnity costs order are not elucidated in Smith's written submissions. Smith's relies on its written submissions advanced before the primary judge (Black 221).

The materials available to this Court reveal that on 4 September 2012, Smith's filed a 2-page document headed "Preliminary Submissions on Costs". It appears that the Chief Commissioner provided 10 pages of submissions as to orders and costs on the morning of 6 September 2012, when the matter was listed before the primary judge.

The transcript of 6 September 2012 indicates that the primary judge considered there was insufficient time for him to address the matters raised by the Chief Commissioner concerning the appropriate form of relief. The proceedings were stood over to 13 September 2012. Smith's was directed to provide submissions in reply by 10 September 2012.

In its reply submissions of 10 September 2012, Smith's contended that the Chief Commissioner had failed in its duty as a model litigant and should pay Smith's costs occasioned by the adjournment on 6 September 2012 on an indemnity basis. It does not appear that any such application had been made to the trial judge on 6 September 2012.

Smith's submissions did not identify any directions which had been given by the primary judge prior to 6 September 2012, concerning the filing and service of written submissions by the parties on costs or orders. Smith's own submissions were only provided two days before that date. In all the circumstances, the basis for an indemnity costs order in respect of the adjournment on 6 September 2012 is not made out. No relevant delinquency has been identified in the conduct of the Chief Commissioner, such as failure to comply with any directions of the Court concerning the filing and service of submissions: Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [44].

Costs of appeal and cross-appeal

I have concluded that one of the primary arguments advanced by Smith's on the appeal, relating to the exemption to the definition of "relevant contract" should be accepted. Smith's has also been successful in opposing the Chief Commissioner's cross-appeal, other than Ground 1 concerning the primary judge's dividing or slicing approach to the exemption to a "relevant contract".

The issue on which the Chief Commissioner succeeded is properly viewed as a sub-issue of the construction argument concerning the exemption to the definition of a "relevant contract", on which Smith's was otherwise successful on appeal. In my view, no costs should be awarded in favour of the Chief Commissioner on the cross-appeal. The relevant principle is referred to in the judgment of Campbell JA (Macfarlan and Young JJA agreeing) in Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256; 288 ALR 385 at [107] where his Honour relevantly observed:

"There is an undoubted principle whereby, unless a particular issue or group of issues is clearly dominant or separable, it would ordinarily be appropriate to award the costs of the proceeding to the successful party without attempting to differentiate those particular issues on which it was successful and those on which it failed."

The issue on which the Chief Commissioner succeeded did not take up any significant time in hearing the appeal and ultimately did not affect the outcome.

In my view, the appropriate order as to costs is that the Chief Commissioner pay Smith's costs of the proceedings in this Court.

Conclusion and Orders

I have concluded that the relevant notices of assessment should be set aside. Consequential orders should be made in terms sought by Smith's in [3](b), [4](b), [5](b), [6](b) and [7](b) of the notice of appeal. No argument was advanced by the Chief Commissioner that such relief was inappropriate.

The orders that I propose are:

(1) Appeal allowed.

(2) Cross-appeal allowed in part as to Ground 1, but otherwise dismiss the cross-appeal.

(3) Set aside orders 1 and 2 made by Gzell J on 13 September 2012.

(4) In lieu of orders 1 and 2 referred to in Order 3, make the following orders:

(a) that each of the following Notices of Assessment issued by the respondent to the appellant be set aside:

(i) Notice of Assessment No 5654095 dated 12 January 2010 (the 2005 Assessment);

(ii) Notice of Assessment No 5670903 dated 27 January 2010 (the 2006 Assessment);

(iii) Notice of Assessment No 5653846 dated 12 January 2010 (the 2007 Assessment);

(iv) Notice of Assessment No 5670885 dated 27 January 2010 (the 2008 Assessment);

(v) Notice of Assessment No 5670880 dated 27 January 2010 (the 2009 Assessment);

(b) that the respondent issue the appellant with a replacement Notice of Assessment for the relevant financial year in respect of each of the Notices of Assessment referred to in (a) above, as if the objection lodged by the appellant under s 86 of the Taxation Administration Act had been allowed in whole;

(c) the respondent pay the appellant's costs of the proceedings in the Equity Division, other than the costs of Mr Feil's report.

(5) The respondent pay the appellant's costs of the proceedings in the Court of Appeal.

SACKVILLE AJA: I have had the advantage of reading the judgment of Gleeson JA. I agree with the orders proposed by his Honour.

As there is no material difference between the provisions of the Payroll Tax Act 2007 (2007 Act) and the Payroll Tax Act 1971, I shall refer only to the former.

In my view, the appellant (Smith's) has established, for each of the years in question, that the contract in standard form entered into with its contractors was not a "relevant contract" within the meaning of s 32(1) of the 2007 Act. Amounts paid or payable by Smith's pursuant to each contract were therefore not "for or in relation to the performance of work relating to a relevant contract". Accordingly, those amounts were not caught by s 35(1) of the 2007 Act and Smith's was not liable for payroll tax on those amounts.

There may be cases in which it is necessary to decide whether the expression "ancillary services" in s 32(2)(d)(i) of the 2007 Act connotes services that are subservient or incidental to "the conveyance of goods by means of a vehicle provided by the person conveying them". I do not think it is necessary to decide that question in the present case. Nor do I think it necessary to decide whether the word "goods" includes money in the form of coins and notes collected from machines by the driver and then conveyed in the vehicle.

For the reasons given by Gleeson JA, subject to the operation of s 32(2)(d)(i) of the 2007 Act, the contract between Smith's and its contractors satisfied the terms of s 32(1). That is, it was a contract under which Smith's (the designated person) in the course of a business carried on by it, had supplied to it the services of persons for or in relation to the performance of work.

But the contract was also one under which Smith's was supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them. The contract thus was within s 32(2)(d)(i) and was not a "relevant contract" for the purposes of s 32(1).

Whether or not the expression "ancillary services" connotes services that are subordinate or incidental to the conveyance of goods by the contractor, the contract required the contractor to provide Smith's with services ancillary to the conveyance. Without necessarily being exhaustive, the ancillary services included:

ordering and storing goods to be conveyed in the vehicle;
collecting spoiled goods from the machines, preparatory to loading them onto the vehicle, conveying them and ultimately disposing of them; and
undertaking to maintain the vehicle to Smith's satisfaction (although this requirement received little attention in argument).

These particular services cannot be regarded as part of the conveyance of goods by means of a vehicle. They are outside the process of loading, unloading, conveying and delivering goods. Having regard to the terms of the contract, however, they are services that should be characterised as ancillary to the conveyance of goods. If "ancillary" in the present context means "subsidiary" or "subordinate", these services were subsidiary or subordinate to the conveyance of goods, since the services were either necessary to collect or assemble goods to be loaded and conveyed in accordance with the contract or to ensure that the conveyance could take place safely and in a presentable vehicle. If "ancillary" does not necessarily connote subsidiary or subordinate services, the case for characterising the services as ancillary is stronger.

For the reasons given by Gleeson JA, there is no justification for implying into s 32(2)(d)(i) of the Payroll Tax Act a requirement that the ancillary services be a major component of the contract. No doubt ancillary services that do not rise above de minimis will not satisfy s 32(2)(d)(i), but the services I have identified went well beyond de minimis.

I also agree with Gleeson JA that once a contract of service satisfies s 32(2)(d)(i) of the Payroll Tax Act, it is not a "relevant contract" for the purposes of s 35. No question of "slicing" or apportionment arises.

Mr Leggat SC, who appeared with Mr Young for the Chief Commissioner, submitted that construing s 32(2)(d)(i) in this way gives the exemption an operation that is too wide and could lead to absurd results. Absurdity will rarely be a helpful notion in construing a revenue statute. The question is how the language used by Parliament applies to the particular factual situation.

Nonetheless, I note that the scope of the exemption in s 32(2)(d)(i) is limited by several considerations:

the services ancillary to the conveyance of goods have to be supplied to the designated person "under" the relevant contract;
the vehicle used to convey the goods must be "provided by the person conveying them"; and
the Chief Commissioner has power to determine that a particular agreement or arrangement has the effect of reducing or avoiding the liability of any person to the assessment, imposition or payment of payroll tax and to disregard the agreement or arrangement (Payroll Tax Act, s 47(1)).

On the other matters arising for decision, I agree with Gleeson JA.

**********

Decision last updated: 22 January 2014

Medium Neutral Citation:	Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 470
Hearing dates:	9 July 2013
Decision date:	23 December 2013
Before:	Beazley P at [1]; Gleeson JA at [2]; Sackville AJA at [235]
Decision:	(1) Appeal allowed. (2) Cross-appeal allowed in part as to Ground 1, but otherwise dismiss the cross-appeal. (3) Set aside orders 1 and 2 made by Gzell J on 13 September 2012. (4) In lieu of orders 1 and 2 referred to in Order 3, make the following orders: (a) that each of the following Notices of Assessment issued by the respondent to the appellant be set aside: (i) Notice of Assessment No 5654095 dated 12 January 2010 (the 2005 Assessment); (ii) Notice of Assessment No 5670903 dated 27 January 2010 (the 2006 Assessment); (iii) Notice of Assessment No 5653846 dated 12 January 2010 (the 2007 Assessment); (iv) Notice of Assessment No 5670885 dated 27 January 2010 (the 2008 Assessment); (v) Notice of Assessment No 5670880 dated 27 January 2010 (the 2009 Assessment); (b) that the respondent issue the appellant with a replacement Notice of Assessment for the relevant financial year in respect of each of the Notices of Assessment referred to in (a) above, as if the objection lodged by the appellant under s 86 of the Taxation Administration Act had been allowed in whole; (c) the respondent pay the appellant's costs of the proceedings in the Equity Division, other than the costs of Mr Feil's report. (5) The respondent pay the appellant's costs of the proceedings in the Court of Appeal. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	TAXES AND DUTIES - payroll tax - liability to taxation - Payroll Tax Act 2007 - Payroll Tax Act 1971 - contractor provisions - whether contractors engaged under a "relevant contract" - whether appellant was supplied services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them - whether apportionment provisions of the Payroll Tax Acts should apply
Legislation Cited:	Accident Compensation Act 1985 (Vic), s 9 Payroll Tax Act 2007, ss 6, 7, 10(1), 13(1), 32, 35 Payroll Tax Act 1971, ss 3(1), 3A, 3AA, 6(1)(a), 7, 8 Payroll Tax (Amendment) Act 1986 Payroll Tax (Amendment) Act 1985 R v Khazaal [2012] HCA 26; 86 ALJR 884 Supreme Court Act 1970, s 101 Taxation Administration Act 1966, s 101(1)(d)
Cases Cited:	Accident Compensation Commission v Odco Pty Ltd [1990] HCA 43; 64 ALJR 606 Arnold v Minister Administering the Water Management Act 2000 [2008] NSWCA 338; 73 NSWLR 196 Baterham v Makeig [2010] NSWCA 86 Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788; 222 ALR 599 Central Asbestos Co Ltd v Dodd [1973] AC 518 Certain Lloyd's Underwriters Subscribing to Contract No IHOOAAQS v Cross [2012] HCA 56; 293 ALR 412 Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 293 ALR 257 Commissioner of Taxation v Unit Trend Services Pty Ltd [2013] HCA 16; 297 ALR 190 Dasreef Pty Ltd v Hawchar [2011] HCA 21; 243 CLR 588 Dungowan Manly Pty Ltd v McLaughlin [2012] NSWCA 180 Heperu Pty Ltd v Patricia Belle (No 3) [2013] NSWSC 1088 Koala Motels Pty Ltd v Chief Licensing Inspector (1977) 18 ALR 12 Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390 Kuru v State of New South Wales [2008] HCA 26; 236 CLR 1 Macquarie International Health Clinic Pty Ltd v University of Sydney (1988) 98 LGERA 218 McCleary v Director of Public Prosecutions (Cth) (1998) 20 WAR 288 McFarlane v Kelly (1986) 85 FLR 357 Minister for Local Government v South Sydney Council [2002] NSWCA 288; 55 NSWLR 381 New South Wales Crime Commission v Ollis [2006] NSWCA 76; 65 NSWLR 478 Nix and Dunn v Pittwater Council (1994) 84 LGERA 199 NTL Australia Pty Ltd v Minister for Land and Water Conservation [2001] 112 LGERA 403 O'Grady v Northern Queensland Co Ltd [1990] HCA 16; 169 CLR 356 Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 Regina v Her Majesties' Treasury; ex parte Smedley [1985] QB 657 R v McMahon; ex parte Darvall [1982] HCA 56; 151 CLR 57 Repatriation Commission v Law (1980) 31 ALR 140 Roncevich v Repatriation Commission [2005] HCA 40; 222 CLR 115 The Noordam (No 2) [1920] AC 904 Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256; 288 ALR 385 Waters v PC Henderson (Aust) Pty Ltd [1994] NSWCA 338; 254 ALR 328
Texts Cited:	Macquarie Dictionary, 5th ed, 2009 Oxford English Dictionary, 3rd ed, 2000
Category:	Principal judgment
Parties:	Smith's Snackfood Company Ltd (Appellant/Cross-Respondent) Chief Commissioner of State Revenue (Respondent/Cross-Appellant)
Representation:	Counsel: D Russell QC and D J Price (Appellant/Cross-Respondent) C Leggat SC and I Young (Respondent/Cross-Appellant) Solicitors: Johnson Winter & Slattery (Appellant/Cross-Respondent) I V Knight, Crown Solicitor (Respondent/Cross-Appellant)
File Number(s):	CA 2012/296415
Decision under appeal	Citation: The Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) [2012] NSWSC 998 and 1116 Before: Gzell J File Number(s): 2010/307535

Service provided by contractors	Findings
1. Placing orders for goods	not ancillary
2. Storage of goods	not ancillary
3. Loading goods into vehicle	ancillary
4. Driving vehicle to first vending machine	conveyance
5. Inspecting vending machine and printing slips	conveyance
6. Carrying out minor repairs	not ancillary
7. Making service calls if unable to repair	not ancillary
8. Collecting money from vending machines	not ancillary
9. Depositing money in vehicle safe	not ancillary
10. Collecting required goods from vehicle	conveyance
11. Delivering goods to vending machines	conveyance
12. Placing promotional material on vending machines	not ancillary
13. Cleaning vending machines	not ancillary
14. Depositing spoils in vehicle	not ancillary
15. Looking for business opportunities	not ancillary
16. Driving vehicle home	ancillary
17. Delivering money to cash handling companies	not ancillary
18. Delivering spoils and waste to dump	not ancillary
19. Stocktaking	not ancillary