Spicer Axle Structural Components Australia Pty Ltd and Secretary, Department of Industry, Tourism and Resources - [2006] AATA 1004

CATCHWORDS – AUTOMOTIVE COMPETITIVENESS AND INVESTMENT SCHEME – unearned credit liability – whether a type D investment – investment – whether investment in approved plant and equipment used to produce automotive components – whether requirement to pass final quality control at end of production line – whether the Secretary may make a determination of lack of entitlement to duty credit – decision set aside

A New Tax System (Goods and Services Tax Transition) Act 1999 s 13
ACIS Administration Act 1999 ss 3, 4, 6, 6A, 6B, 6C, 7, 14A, 16, 17, 18, 20, 26, 27, 28, 30, 31, 32, 34, 35, 36, 41, 46, 52, 55, 56, 59, 60, 62, 63, 64, 65, 66, 68, 70, 71, 74A, 75, 79-89, 93, 94, 95, 96, 109, 110 and 114
ACIS Administration Bill 1999
ACIS Administration Regulations 2000 rr 13, 13C and 13E
Administrative Appeals Tribunal Act 1975 ss 37 and 43
Administrative Decisions (Judicial Review) Act 1977 Schedule 1
Credit Act 1984 (Vic)
Customs Tariff Act 1995, Schedule 3, item 8419.50.10
Federal Court Rules 1979 Order 38 Rule 1
Finance Act 1939 (UK)
Income Tax Assessment Act 1936s s 166, 221D and 221H
Life Insurance Act 1945 s 39
Road Safety Act 1986 (Vic) s 26
Sales Tax (Exemptions and Classifications) Act 1935, Third Schedule, Item 1, paragraph (c)

ACP Publishing Pty Ltd v Commissioner of Taxation (2005) 142 FCR 533
Anderson Stuart & Ors v Treleaven & Ors [2000] NSWSC 283
Clyne v Deputy Commissioner of Taxation (1986) 14 FCR 304; 67 ALR 600
Coco v Commissioner of Taxation (1993) 42 FCR 219
Custom Credit Corporation v Gray [1992] 1 VR 540
Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450; 116 ALR 420
Elazac Pty Ltd v Commissioner of Patents (1994) 125 ALR 663
Federal Commissioner of Taxation v Broken Hill South Ltd (1941) 65 CLR 150
Fletcher v Commissioner of Taxation (1988) 19 FCR 442
Gas Lighting Improvement Co Limited v Inland Revenue Commissioners [1923] AC 723
George Morgan & Co Ltd v Federal Commissioner of Taxation (1927) 40 CLR 463
Gordon M Jenkins & Associates Pty Ltd v Coleman (1989) 23 FCR 38
Hanlon v Law Society [1981] AC 124
HR Products Pty Ltd v Collector of Customs (1990) 20 ALD 340
Hunter Resources Ltd v Melville (1988) 77 ALR 8
Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396; 71 ALR 441
Inland Revenue Commissioners v Gas Lighting Improvement Co Limited [1922] 2 KB 381
Inland Revenue Commissioners v Rolls-Royce Ltd [1944] 2 All ER 340
Marks v Rowe (1980) 31 ALR 649
Melville v Mutual Life and Citizens Assurance Co Ltd (1980) 31 ALR 649
New South Wales Associated Blue Metal Quarries Limited v Federal Commissioner of Taxation (1956) 94 CLR 509
Peacock v Zyfert (1983) 48 ALR 549
Pepsi Seven-Up Bottlers v Commissioner of Taxation (1995) 62 FCR 289
Re Christie and Queensland Industry Development Corporation (1993) 1 QAR 1
Re Shahin Enterprises Pty Ltd and Registrar of Trade Marks and Exxon Mobil Oil Corporation (2003) 76 ALD 272; [2003] AATA 765
Roads Corporation (t/as VicRoads) v Magistrates’ Court of Victoria [2005] VSC 99
Secretary, Department of Health, Housing, Local Government and Community Services v Kaderbhai (1994) 122 ALR 577
State Bank of New South Wales v Commissioner of Stamp Duties (1993) 93 ATC 5005
Webster v McIntosh (1980) 32 ALR 603
Whitten v Falkiner (1915) 20 CLR 118
Worsteds Pty Ltd v Federal Commissioner of Taxation (1974) 3 ALR 123
Yager v R (1977) 13 ALR 247

DECISION AND REASONS FOR DECISION [2006] AATA 1004

ADMINISTRATIVE APPEALS TRIBUNAL     )
  )          V2003/917
GENERAL ADMINISTRATIVE DIVISION     )

Re SPICER AXLE STRUCTURAL COMPONENTS AUSTRALIA PTY LTD

Applicant

AndSECRETARY, DEPARTMENT OF INDUSTRY, TOURISM & RESOURCES
Respondent

DECISION

Tribunal:                   Deputy President S A Forgie
Date:  24 November 2006
Place:  Melbourne

Decision:The Tribunal:
1.sets aside:
the respondent’s decision under review in so far as it relates to 901,203 duty credits in relation to the automotive tooling produced by the applicant; and
2.substitutes:
a decision that the applicant does not have an unearned credit liability amounting 901,203 duty credits in relation to the automotive tooling produced by the applicant.
S A FORGIE
Deputy President

REASONS FOR DECISION

The Secretary of the Department of Industry, Tourism and Resources (Secretary) has decided that the applicant, Spicer Axle Structural Components Australia Pty Ltd (“Spicer Axle”), has an unearned credit liability of 901,203 duty credits under s 94(1)(b) of the ACIS Administration Act 1999 (ACIS Act). Those duty credits related to the period encompassing the first quarter of 1999 to the fourth quarter of 2002.[1] The ACIS Act established the Automotive Competitiveness and Investment Scheme (ACIS) under which participants can receive duty credit which can be applied against customs duty payable, or paid, on certain eligible imports. Spicer Axle has acquired automotive tooling intended to be used, and in fact used by it or on its behalf, to manufacture automotive components, being parts of the rear axle module assembly for the Barra motor vehicle, for sale. It is registered as an Automotive Components Producer (ACP) under ACIS.

[1] Documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (AAT Act) (T documents) at 592-594

Whether it has an unearned credit liability has raised two main issues. The first is whether it has made a type D investment[2]. That depends on whether, in relation to a quarter in which it lodged a return or a relevant quarter, Spicer Axle undertook an investment in that part of its approved plant and equipment that is used to produce automotive components. That raises subsidiary questions:
[2] See [57] for definition of “type D investment” in s 6(1)
1.whether Spicer Axle undertook an investment:
(a)whether an investment may only be recognised when the plant and equipment is recognised, in Spicer Axle’s accounts, as an asset in accordance with normal accounting practices;
2.whether it undertook an investment in approved plant and equipment:
(a)whether it was allowable plant and equipment; and
3.whether that approved plant and equipment is used to produce automotive components:
(a)whether any automotive components produced by Spicer Axle must have passed final quality control at the end of the production line in Australia before approved plant and equipment can be said to be used to produce automotive components.

Only if Spicer Axle has not made a type D investment, does the second issue arise. That turns on the interpretation of ss 94 and 95 of the ACIS Act and is:
whether it is open to the Secretary to make a determination under those sections that Spicer Axle is a person who is not entitled to a certain duty credit on the basis that:
(a)quarterly returns that it made contained ineligible plant and equipment claims; and
(b)without identifying or specifying the particular information said to be inaccurate or incomplete; and
even if it is so open:
(c)can the Secretary make such a determination even if, in issuing a duty credit, he or his delegate was aware at the time that the quarterly returns did include, or were likely to include, ineligible plant and equipment claims.

It has been agreed between the parties, and I agree, that the first issue should be determined only in relation to the rear sub-frame of the rear axle module assembly for the Barra motor vehicle. Consideration of the second issue relates to all the automotive components produced by Spicer Axle.

I have decided that Spicer Axle has undertaken investment in approved plant and equipment being automotive tooling. That investment, however, is not taken to have occurred for the purposes of the ACIS Act because it is not regarded as Spicer Axle’s asset in accordance with normal accounting practices. I have also decided that Spicer Axle did not receive the duty credits because of an error in calculating them. An error in calculation in s 94(1)(a) refers to an error in the nature of an arithmetical error and not to an error in working out whether Spicer Axle had a type D investment for the purposes of the formula set out in s 46 of the ACIS Act. Therefore, Spicer Axle is not liable to pay the Commonwealth an unearned credit liability of 901,203 duty credits.

BACKGROUND

There was no disagreement between the parties as to the facts forming the background to the issues that I must decide. In light of that and on the basis of the material admitted in evidence, I make the findings of fact set out in the following paragraphs. Many of them are made on the basis of the statements of Mr Peter James Greer. He is Spicer Axle’s Finance Director and has been since 23 August 2003. Before that time, he had held positions as DANA’s Finance Director and as a Divisional Controller. Before July 2000, he was the Divisional Controller for the Drive Train Systems Division of BTR Engineering (Australia) Ltd (BTR Engineering). In all, he has spent 25 years working in the automotive industry. In his positions as Finance Director he was responsible for overseeing all financial and statutory reporting of operations for the company he was engaged by.

Spicer Axle: corporate history

Spicer Axle is registered as an Automotive Component Producer (ACP) under ACIS. The business that it operates was established in 1962 by another company that was ultimately purchased by BTR Engineering. The business became part of BTR Engineering’s Drive Train Systems Division in 1996. On 1 July 2000, BTR Engineering became a fully-owned subsidiary of DANA Australia Pty Ltd (DANA). Its business was transferred to Spicer Axle, which had been a shelf company until that time and which was part of the DANA corporate group. DANA is a company that supplies automotive components to motor vehicle producers (MVPs). The primary products manufactured by Spicer Axle are integrated structural and suspension underbody components and assemblies and brake dust shields and booster components but it also manufactures a number of other products. In addition, it has the capacity to carry out machining suspension arm metal stamping and volume robotic MIG and spot welding.

The development and ultimate production of a rear sub-frame

BTR Engineering, and late Spicer Axle, manufactured the rear sub-frame of the AU Ford Falcon motor vehicle in production and for sale in Australia. The AU Ford Falcon was the predecessor of the Barra, which was in its planning stages in 1999 and 2000. The rear sub-frame was part of the AU Ford Falcon’s rear suspension system.

In about 1999, Ford and DANA began negotiating over DANA’s supplying Ford with the rear axle module assembly for a new model known as the Barra. Ford gave DANA a copy of a document entitled “E169/S197 – Statement of Work – Rear Suspension Modules” dated 25 March 1999 (Statement of Work) and another entitled “C3P CAD Statement of Work Guidelines for Completion” (Statement of Work Guidelines) that had been revised on 14 June 1999. The Statement of Work included a statement:
“R&VT Engineering with the concurrence of Core Purchasing will identify approved 2^nd tier suppliers. The Module Supplier will use the list of approved component sub-suppliers for competitive quoting and component source selection. The Module Supplier will be responsible for developing and validating the designs to the Ford Engineering requirements/specifications and conforming to any applicable SDS requirements. The Module Supplier is not responsible for the function of the driveline or braking systems unless he has been selected by Ford to be the Full Service Supplier of those systems. The Module Supplier is responsible for integrating Ford sourced systems into the Modules.”[3]
[3] Exhibit B at [50]

In about February 2000, DANA gave BTR Engineering a copy of a document entitled “Component Targets” (Targets). The document set out the requirements for the design of, among other things, the sub-frame and the prototype tooling for the sub-frame.

On 3 March 2000, Ford and DANA entered a Target Agreement for DANA to supply Ford with a rear axle module assembly for the Barra (rear axle module assembly) including the sub-frame. In addition, it undertook to produce the necessary machine tooling to produce that rear axle module assembly. As part of that agreement, DANA became a “participating member of the Project Team”. As such, it had joint responsibility for ensuring that the Suspension Driveline Module supported the established programme functional/weight/quality/cost objectives, had participated in reviewing the Targets and would participate in the design and development process. Before 24 months had passed, a Production Purchase Order based on Ford’s standard purchase order terms and conditions would be issued. It would incorporate the targets contained in the Target Agreement unless Ford made a change in the programme or sub-system/end item/component direction or DANA was unable to continue with the design and development of the sub-system/end item/component or carry out all of the responsibility it undertook in the Target Agreement. If that were to happen, Ford and DANA were each to absorb their own cost of work for the programme. If a Production Purchase Order were not issued because DANA were unable to continue, Ford had the option of acquiring DANA’s technical information and data together with any licences required to use its intellectual property free of royalties. It could acquire them for their actual cost. [4]
[4] Exhibit B, Annexure PJG-16 at 1

BTR submitted a quotation to DANA to produce prototype tooling and 50 samples of the sub-frame.[5] On 2 May 2000, DANA issued a purchase order to BTR Engineering for certain prototype sub-frames and prototype tooling for the Barra.[6] On or about 31 May 2000, DANA asked BTR Engineering for a quotation to produce the sub-frame.[7] On 28 June 2000, BTR Engineering sent a quotation to DANA to manufacture the prototype sub-frames and associated tooling.[8] It quoted two prices: one was the cost outright and the other if the price of the machinery and tooling were amortised in the piece price of the sub-frame extended over seven years and on the assumption that 100,000 sub-frames were sold. The quotation showed individual prices for particular aspects of the work.
[5] Exhibit B, Annexure PJG-23
[6] Exhibit B, Annexure PJG-24
[7] Exhibit B, Annexure PJG-25
[8] Exhibit B, Annexure PJG-26

In July 2000, DANA acquired part of the Drive Train Systems Division of BTR Engineering and transferred it to Spicer Axle. On or about 28 July 2000, Spicer Axle advised Comau Australia Pty Ltd (Comau) of its requirements for the fabrication of tooling to manufacture the sub-frame and gave it certain engineering information.

DANA sent Spice Axle a letter dated 14 September 2000. It was headed “Letter of Intent & Target Agreement”[9] and stated that it was DANA’s intention to source the sub-frame from Spicer Axle. DANA estimated the annual volume to be 100,000 vehicle sets and the letter specified the target cost and the end customer as Ford. It then set out that its intent to source the sub-frame was subject to Spicer Axle’s confirming and accepting the “articles” that it then set out:
[9] Exhibit B at [72]
“∙ Spicer Axle Structural Division [i.e. Spicer Axle] has a responsibility to design the above referenced product/s to meet the functional/weight/quality/cost targets, and agrees to take responsibility for the design and development process to achieve these goals. It is acknowledged that the current quoted cost for the above referenced product is $... [AA] … and that Spicer Axle Structural Division will work toward achieving the cost target.
∙Spicer Axle Structural Division agrees to co-locate a product engineer within the Dana Australia facility during the design optimization period and or until such time as both parties are comfortable with the final production design. This engineer will return during the customer’s Certification Proto-type Build (CP), to ensure the production design is fit for the purpose and that any issues are resolved in a timely manner.
∙Spicer Axle Structural Division accepts the terms and conditions described in the accompanying documents, and will comply with the criteria contained therein. Final agreement to these terms and conditions must be received no later than 15/9/2000.
∙In accordance with the conditions of the statement of work, Spicer Axle Structural Division will manage the program using the industry standard APQP processes and will supply a timing plan detailing all the stages of the project to Dana Modules & Systems Australia no later than 15/9/2000.
On or before Job #1, a production order based on DANA Modules & Systems Australia [i.e. DANA] standard purchase order terms and conditions will be issued, which incorporates the targets contained herein, unless either or all of the following occurs:
1.Ford Motor Company of Australia Limited makes significant changes to the program direction and/or production design.
2.Your company is unable to continue with the design and development of the product and/or carry out all the responsibilities outlined in this Letter Of Intent and Target Agreement.
3.Ford Motor Company of Australia Limited, through reasons beyond the control of DANA Module & Systems Australia, cancels or defers the project for a time considered significant by both parties.
In which case DANA Module & Systems Australia and Spicer Axle Structural Division agrees to absorb their own costs of work for this program. If a production order is not issued due to item 2 above, DANA Module & Systems Australia, at its option, may then acquire from your company, at actual cost, all or any portion of the technical information and data related to work your company performed for the program which was approved by DANA Module & Systems Australia, together with whatever licences are required under your company’s intellectual property rights, to use that information and data on a royalty free basis.”[10]
[10] Exhibit B, Annexure PJG-27

On 19 September 2000, Comau sent Spicer Axle a quotation of $2,932,710 for the design, manufacture, try-out and supply of pressed metal tooling for the parts it listed for the Barra project. Comau recognised that there could be changes in the scope of the supply required as well as in the engineering specifications but regarded its quotation as a base from which the parties could conduct future negotiation.[11]
[11] Exhibit B, Annexure PJG-28

DANA produced a document entitled “Statement of Requirements” on 19 September 2000. It gave it to Spicer Axle and other component suppliers to assist them in quoting for the sub-frame and the tooling for the sub-frame. Under the heading of “Engineering Summary”, DANA stated:
“The following information is provided to assist potential suppliers in quoting for the tooling and manufacture (tooling cost, piece cost and timing) of the parts listed above. Proto-type tooling and production tooling are required and should be identified separately in the quotation. Details presented here are accurate at the time of issue of this document.”[12]
[12] Exhibit B, Annexure PJG-29 at [72]

Under the heading of “Quotation Requirements”, the Statement of Requirements read:
“All quotations must include, but is not limited to, the following information:
∙Signed and completed Confidentiality Agreement.
∙Acceptance of DANA Modules & Systems Group Terms & Conditions.
∙Prototypes Cost & Timing.
∙Component Prices (FIS & FOB Dana M&SA Transport).
∙Quotations must include ex-works, Free into Store DANA Plant (Campbellfield), Free into Store with consignment stock managed by the supplier costings.
∙Imported content identified separately.
∙GST identified separately.
∙Tooling, Fixtures and/or Gauges amortisation, where applicable (see below)
∙Complete timing plan. (The timing plan must support the overall program timing).
∙An engineering single point of contact identified for the duration of the program. Local support may be necessary at Ford of Australia in Geelong, Victoria, Australia and must be provided by component supplier when needed.
∙Payment terms of 40 days from receipt of invoice.”[13]
[13] Exhibit B, Annexure PJG-29 at [77]

Under the heading of “Tooling, Fixtures and/or Gauges”, the Statement of Requirements read:
“Effective immediately Ford Motor Company of Australia Limited has changed their Tooling Guidelines for recoverable lump sum payments on tooling, fixtures and gauges. The generally accepted practice of fully recovering costs associated with tooling, fixtures and/or gauges from the customer, (Ford Motor Company of Australia), no longer applies.
Preference will be for the Supplier owned tooling, fixtures and/or gauges. Where a Supplier is requesting DANA Modules & Systems Group to pay a lump sum for tooling, fixtures and/or gauges, a comprehensive cost break down will be required, along with justification for the claim.
7.0 Component Targets
The Supplier is required to meet the component(s) targets which support the IRS Module Assembly targets established by Ford Motor Company of Australia Limited. Where the Supplier does not have the capability to meet targets, a detailed explanation should be tabled to Dana Modules & Systems Group including recommendations and/or continuous improvement plans to achieve the targets.
∙Target Costs is $...[BB]
∙Target Tooling Costs is $2,000,000.
∙Weight of Sub-Frame not to exceed to be advised kg.
Note: Component Suppliers must perform various benchmarking, alternative materials and process studies if requested by Ford and/or Dana Modules and Systems Group.
Suppliers must develop a cost reduction program over the period of the development process with a target of reducing costs by a further 5% through simultaneous engineering … and other innovative ideas.
9.0 Design Changes & Modifications
Parts will be developed with the assistance of the selected supplier; design modifications are envisioned.”[14]
[14] Exhibit B, Annexure PJG-29 at [78]

In a letter dated 20 September 2000, Comau sent Spicer Axle a provisional quotation for the manufacture of the production line machinery necessary for the manufacture of the sub-frame at Spicer Axle’s plant. The quotation, for the sum of $6,982,000, stated that it covered:
“… THE PROCESS PLANNING, DESIGN, MANUFACTURE, TRY-OUT, BREAKDOWN, AND SHIPMENT, INSTALLATION AND COMMISSIONING AND STANDBY FOR THE EXTENT OF SUPPLY AS DETAILED WITHIN.”[15]
[15] Exhibit B, Annexure PJG-30 at [79]

Spicer Axle submitted quotations to DANA for some of the tooling necessary to manufacture some of the parts making up the sub-frame for the Barra. It did that on 21 September 2000 when it wrote to DANA stating that it had signed DANA’s Letter of Intent & Target Agreement dated 14 September 2000. Spicer Axle offered to supply the sub-frame at a unit price of $AA with that price fixed for four years. It also advised DANA that it need to increase its target tooling cost from $2,000,000 to $FF in view of Comau’s quotation dated 19 September 2000.[16]
[16] Exhibit B, Annexure PJG-31 at [80]

Spicer Axle decided to purchase two of the items of tooling listed in Comau’s quotation from another source: Ford Motor Company (AMO) Australia Limited (Ford AMO). The two items were the front and rear cross member. In addition to the tooling, it wanted Ford AMO to manufacture the relevant parts of the sub-frame using the tooling because it, Spicer Axle, did not have a press big enough to accommodate tooling of that type. Ford AMO would be a Tier 3 supplier to Spicer Axle. Ford AMO gave Spicer Axle a quotation in a letter dated 21 September 2000. In it, Ford AMO stated that Spicer Axle’s “tooling investment” would be $CC and $DD respectively for the relevant items of tooling.[17]
[17] Exhibit B, Annexure PJG-32 at [83]

On 29 September 2000, Spicer Axle sent Ford AMO a letter of intent stating that it intended to source the front and rear cross member from Ford AMO subject to the confirmation and acceptance of articles that it set out. Among those articles were the following:
“∙ This letter of intent is based on the supply of the above items as detailed in the CAD data dated 28 July 2000 and Ford Motor Company (AMO) quotation dated 21 September 2000.
∙Ford Motor Company (AMO) Australia Limited has responsibility to design tooling and gauges for the above referenced product/s to meet the quality/functional/cost targets of Spicer Axle, and agrees to take responsibility for the design and development process to achieve these goals. It is acknowledged that the current quoted cost for the above reference product is $... [EE], and that Ford Motor Company (AMO) (AMO) will work towards reducing the quoted cost.
…
On or before the commencement of any item of the Ford Motor Company (AMO) quotation, a product tooling order, based on the Spicer Axle standard purchase order terms and conditions, will be issued, unless either or all of the following occurs:
1.Ford Motor Company of Australia/DANA Modules and Systems makes significant changes to the program direction and/or production design.
2.Your company is unable to continue with the design and development of the product and/or carry out all of the responsibilities outlined in this Letter of Intent & Ford quotation, dated 21^st September 2000.
3.Ford Motor Company of Australia /Dana Modules and Systems, through reasons beyond the control of Spicer Axle Structural Components, cancels or defers the project for a time considered significant by both parties.
In which case Spicer Axle Structural Components and Ford Motor Company (AMO) agrees to absorb their own costs of work for this program …”[18]
[18] Exhibit B, Annexure PJG-33 at [84]

Spicer Axle followed this letter with another letter of the same date to Comau. It notified Comau that it had sourced the two items from another but attached a Letter of Intent to Comau in relation to the remaining items. The quoted cost for those remaining items was $GG.[19] The Letter of Intent read in part:
[19] Exhibit B, Annexure PJG-34 at [85]
“Spicer Axle … advise that it is our intent to source the … products with Comau Systems Australia, subject to confirmation and acceptance of the following articles:
∙This letter of intent is based on supply of above items as detailed in the CAD data dated 28^th July 2000 and Comau Systems Australia quotation, reference number 000919JHQ/01 dated 19^th Sept. 2000.
∙Comau Systems Australia has responsibility to design tooling and gauges for the above referenced product/s to meet the quality/functional/cost targets of Spicer Axle, and agrees to take responsibility for the design and development process to achieve these goals. It is acknowledged that the current quoted cost for the above reference product is $... [GG], and that Comau Systems will work towards reducing the quoted cost.
…
On or before commencement of any item of the Comau quotation, a production tooling order, based on the Spicer Axle standard purchase order terms and conditions, will be issued, unless either or all of the following occurs:
1.Ford Motor Company of Australia/Dana Modules and Systems makes significant changes to the program direction and/or product design.
2.Your company is unable to continue with the design and development of the product and/or carry out all of the responsibilities outlined in this Letter of Intent & quotation, reference number 000919JHQ/01.
3.Ford Motor Company of Australia/Dana Modules and Systems, through reasons beyond the control of Spicer Axle Structural Components, cancels or defers the project for a time considered significant by both parties.
In which case Spicer Axle Structural Components and Comau Systems Australia agrees to absorb their own costs of work for this program …”[20]
[20] Exhibit B, Annexure PJG-34

DANA submitted those quotations to Ford. Ford then issued documents headed “Official Tooling Order” (OTO) to DANA including the figures given in those quotations. It did so on 2 October 2000. Each was dated October 2000 and was in the following form:
“FORD MOTOR COMPANY OF AUSTRALIA LIMITED, the Buyer, hereby agrees to Purchase, and [DANA] … the Seller, agrees to Design and Construct or to Rework as provided herein, the Tools, Jigs, Dies and Fixtures, Moulds or Patterns (‘Tooling’) specified below in accordance with the Buyer’s Standard and Tool Order Terms and Conditions expressed in Terms and Conditions booklet dated May 2000 (copy available from the Buyer), and any Special Terms and Conditions set out below. Also, Seller warrants that supplies produced from this tooling are designed to be used up to, during and after the calendar year 2000A.D. and that such supplies will provide full functionality and operate without error relating to date in perpetuity.”[21]

There then followed a “Description of Tooling and Gauges – Ford Owned” setting out various items with a price against each. At the bottom of the OTO were the words:

“Anticipated Tool Life is 500000 pieces.
Ford’s intent and obligation is to reimburse only the actual costs incurred on the subject tooling, up to amount authorised.
This purchase order is also subject to the following clauses set out in the Terms and Conditions booklet: clause 23.”[22]

The OTO also specified that the “Total PO Value Exclusive of …” Goods and Services Tax (GST) was not to exceed $FF. An invoice was to be submitted when a sample was submitted.[23] The PSW Date, or Part Submission Warrant, was specified as 52 weeks. That meant that DANA had to submit sample parts using the tooling specified in the OTO within that time.[24]

[21] Exhibit B, Annexure PJG-19 at [56]

[22] Exhibit B, Annexure PJG-19 at [56]

[23] e.g. Exhibit B, PJG-19

[24] Exhibit B at [57]

The Terms and Conditions booklet to which the OTO referred contains standard terms and conditions for the production of parts and non-production goods and services.[25] Clause 106 of the Terms and Conditions booklet provides that:
“All right, title and interest in and to any part of Tooling to be paid for by Buyer (‘Buyer-owned Tooling’) shall pass to Buyer as soon as it is acquired or fabricated in accordance with a Tooling Purchase Order. During the term of a Purchase Order, all such Buyer-owned Tooling in the possession of Seller shall be deemed to be Bailed Property and shall not be deemed to be a fixture or part of Seller’s real property. Seller will (i) properly house and maintain such property on Seller’s premises, (ii) prominently mark it “Property of Ford Motor Company of Australia Limited’, (iii) refrain from intermingling it with the property of the Seller or with that of a third party, and (iv) adequately insure it against loss or damage and (v) not move it to another location whether owned by the Seller or a third party, without the prior written consent of Buyer. Seller shall indemnify Buyer against any claim adverse to Buyer’s ownership of the Buyer-owned Tooling, except as such claims may result from any acts or omissions of Buyer. To the extent permitted by law, Seller waives its right to object to the repossession of Buyer-owned Tooling by Buyer in the event Seller is involved in bankruptcy proceedings, becomes insolvent or has a receiver, manager, administrator or liquidator appointed over any or all of its assets. While in its possession, Seller, at Seller’s expense, shall maintain the Buyer-owned Tooling in first class condition and immediately replace any items which are lost or destroyed or become worn out. All repaired or replaced Buyer-owned Tooling shall be the property of Buyer. Wear and repair of the Buyer-owned Tooling is the Seller’s responsibility. Title to any modifications, changes or accessions to Buyer-owned Tooling shall vest in Buyer regardless of whether Buyer has reimbursed Seller for such modification, changes or accessions. …”[26]

Clause 107 provides for payment for buyer-owned tooling to be made in accordance with its standard/normal payment terms unless otherwise stated on the Tooling Purchase Order.[27]

[25] Exhibit B at [58]

[26] Exhibit B, Annexure PJG-20

[27] Exhibit B, Annexure PJG-20

In addition to the tooling it acquired for the manufacture of the sub-frames, Spicer Axle has acquired tooling for the manufacture of other motor vehicle components for Ford and for other motor vehicle manufacturers. Once a production run has ceased, the relevant tooling remained in Spicer Axle’s possession and this was so even when there was a clause in the contract between them to the effect of clause 106 above.[28] Once production of a component comes to an end, Spicer Axle removes the tooling from the robots and production line and stores it for a number of years. On occasions, it is re-activated in order to produce after-market parts or to fulfil warranty obligations. After approximately eight years, Spicer Axle moves the tooling to a tooling graveyard located at its premises. From there, it may be cannibalised for parts or scrapped at its own expense. To Mr Greer’s knowledge, none of the motor vehicle manufacturers had ever tried to take possession of any tooling.[29]
[28] Exhibit C at [5]
[29] Exhibit C at [6]-[7]

Comau returned the signed Letter of Intent to Spicer Axle on 3 October 2000. It did so under cover of a further letter of that date. It read, in part:
“3. WE WILL BE SUBMITTING OUR NEW COSTING AGAINST THIS NEW ENGINEERING CHANGE LEVEL AS SOON AS POSSIBLE. WE HOPE TO HAVE THIS NEW ENGINEERING INFORMATION EITHER TODAY OR TOMORROW. WE WILL THEN FORMALLY ADVISE YOU OF OUR REVISED COSTING ACCORDINGLY.”[30]

On the following day, 4 October 2000, Ford AMO wrote to Spicer Axle and returned a signed copy of the Letter of Intent.[31]

[30] Exhibit B, Annexure PJG-35

[31] Exhibit B, Annexure PJG-36

On or about 23 October 2000, DANA issued an external order to Spicer Axle for it to acquire some of the tooling required to manufacture the sub-frame. The description of the tooling matched that in the OTO as did the requirement that the price of the tooling was not to exceed $FF.[32] The external order also contained the following passage:
“(f) ‘DELIVER PER: FORD OWNED TOOLING
All tools are to be identified as Ford Owned.
(As per clause 23 set out in the Ford Terms & Conditions Booklet)’.

DANA’s Purchase Order Terms and Conditions applied to the external order.[33]

[32] Exhibit B, Annexure PJG-37

[33] Exhibit B at [94] and see Annexure PJG-38

Spicer Axle issued two external orders dated 13 November 2000 to Ford AMO for pressing tools, fixtures and gauges in relation to the front cross member and the rear cross member for the Ford Barra project. The total value of the order for the former was not to exceed $HH[34] and for the latter it was not to exceed $II. All related design works, tool/gauge/fixture design, wire cutting layout and data was to remain the property of Spicer Axle and was to be returned to it at the completion of the project. Under the heading of “Special Requirements”, it was written “Scope of supply and other details including payment terms to be confirmed via separate supplier agreement.”[35] No such agreement was reached between Spicer Axle and Ford AMO.[36]
[34] Later, and due to an accounting oversight, Spicer Axle made no claim in relation to this expenditure.
[35] Exhibit B, Annexure PJG-39 at paragraph J
[36] Exhibit D at [1]

As foreshadowed in its earlier correspondence, Comau gave Spicer Axle an amended quotation for the tooling referred to in its earlier quotation dated 19 September 2000. It did so in a letter dated 30 November 2000 when it quoted $JJ for the new press tooling detailed in an attachment. That attachment referred to the front and rear cross members being supplied by Ford AMO.[37] Spicer Axle accepted Comau’s amended quotation when it issued an external order dated 18 December 2000. Like that to Ford AMO, the external order also referred to a separate supplier agreement.[38] None was ever concluded between Spicer Axle and Comau in relation to the order.[39]
[37] Exhibit B, Annexure PJG-40
[38] Exhibit D, Annexure PJG-53
[39] Exhibit D at [2]

As a subsidiary of DANA, Spicer Axle asked for $6,900,000 to cover its purchasing from Comau the plant and equipment it needed to establish a dedicated manufacturing cell to manufacture the Barra independent rear suspension sub-frame to be supplied to DANA. Although it had previously built the rear sub-frame for the AU Ford Falcon, that production line was, apart from the paint line, unsuited to the new task. The approvals were signed between January and February 2001.[40]
[40] Exhibit B, Annexure PJG-41

Spicer Axle paid Comau for the tooling it produced in four tranches: $587,283 in January 2001; $939,653 in May 2001, $352,370 in June 2001 and the balance of $234,913 in December 2001.[41]
[41] Exhibit D at [3]. All sums quoted excluded GST.

On or about 11 September 2001, Spicer Axle took delivery of the tooling manufactured by Comau. That tooling remains at its premises. Spicer Axle has spent further sums on it to get it to a working state and has marked the expenses as repair and maintenance costs. Neither Ford nor DANA has reimbursed Spicer Axle for those costs and nor have they reimbursed it for the costs of ongoing maintenance and repairs. Spicer Axle has spent $257,449.76 with one engineering company alone in the period 26 June 2001 to 2 April 2004.[42] It insures the tooling at its own cost. The two pieces of tooling Spicer Axle purchased from Ford AMO remain at Ford AMO’s premises.
[42] Exhibit B, Annexure PJG-43

In February or March 2002, Spicer Axle began test production of the sub-frame. These test sub-frames were incorporated in test versions of the Barra and Ford tested them in various environments.

On or about 8 April 2002, Ford and DANA signed a Memorandum of Understanding Relating to the Supply of Products (MOU). It was intended to supplement the terms and conditions of Ford’s Purchase Orders for the supply of a number of items including the rear axle module assembly. The MOU provided, in part:
“While it is the intention and desire of Ford to purchase 100% of its requirements for Products and/or Services from the Seller during the Period, if the Seller at any time during the Period is unable or unwilling for any reason whatsoever to supply products to Ford:
(a)in such quantities as Ford requires, or at all;
(b)in accordance with Ford’s delivery and timing requirements;
(c)at world class quality or technology levels; or
(d)at the agreed prices;
of if the Seller
(e)fails to reach and/or maintain Q1 status;
Ford may at its option:
(a)purchase some or all of the Products and Services from another supplier;
(b)suspend the operation of this Memorandum for such period as is reasonable in the circumstances; or
(c)terminate this Memorandum, pursuant to the terms and conditions of the Orders.”[43]
[43] Exhibit B, Annexure PJG-21

On 2 July 2002, Spicer Axle made a further request to DANA for an appropriation for the sum of $456,000 in order to purchase a fume extraction system, weld penetration equipment, material handling equipment, press tooling, stillages and modifications to the paint line. These were necessary to complete the dedicated manufacturing cell and, in turn, to meet the customer’s requirements on weld penetrations, occupational health and safety issues and the completion of press tooling.[44]
[44] Exhibit B, Annexure PJG-44

From time to time, DANA would issue an open purchase order to Spicer Axle for the sub-frame. DANA issued such an open purchase order each time there was an engineering change to the sub-frame. It did not specify any agreed number of sub-frames to be manufactured and supplied. It was to be read with a Price List that DANA sent to Spicer Axle from time to time setting out the price it would pay for each sub-frame. The Price List stated “For Terms and Conditions refer to Dana RFQ Pack”.[45]
[45] Exhibit B, Annexures PJG-48 and 49

In approximately August 2002, Spicer Axle began to produce the sub-frame. This was so even though Ford had yet to approve the sub-frame. What it had done was to direct that the sub-frame be used at the then current level manufactured to nominals and tolerances specified in the attachment. An action plan was being formulated to address the sub-frame’s capability. That was to be due in the week of 26 August 2002.[46] The approval process continued over several months but, in the meantime, Spicer Axle sent DANA an invoice dated 8 September 2002 for the first 168 sub-frames it produced.[47]
[46] Exhibit B, Annexure PJG-51
[47] Exhibit B, Annexure PJG-50

Spice Axle also issued an invoice to DANA dated 30 August 2002 for payment of $2,970,000 ($FF plus $FF plus 10% for GST) for tooling listed in DANA’s external order dated 23 October 2000.[48] Spicer Axle paid Ford AMO the sum of $DD in September 2002 for the tooling referred to in the external order relating to the rear cross member.[49] It also paid Ford AMO the sum of $412,000 in respect of the other external order relating to the front cross member.[50]
[48] Exhibit B, Annexure PJG-45
[49] Exhibit D at [6]
[50] Exhibit D at [6]

DANA paid Spice Axle the full amount on or about 31 December 2002. It did so despite not having sample approval for the sub-frame.[51] The lack of approval was reflected in the invoice that DANA had earlier sent to Ford on 18 December 2002 when it requested payment of 90% of the OTO i.e. a sum of $KK rather than the total amount of $FF. Ford paid the invoice on or about 19 December 2002. Despite the fact that Ford had still not given sample approval for the sub-frame in March 2003, it paid DANA the remaining amount on 12 March 2003.
[51] Exhibit B, Annexure PJG-46 and [106]

Spicer Axle’s net acquisition cost of the Barra tooling it acquired from Comau and Ford AMO was, excluding GST, $LL. The sum that it received from DANA for Barra tooling was, excluding GST, $FF. This is a shortfall of $MM. This sum is in addition to the $USNN it has had to incur in purchasing additional welding robots and fixtures to meet Ford’s revised weld requirements for the sub-frame. Spicer Axle increased the cost of the sub-frame in the expectation that it would recover the cost over 3.7 years. Ford approved the requested price increase to compensate for the added weld time and capital requirements.[52]
[52] Exhibit B, Annexure PJG-47

As at 31 July 2005, Spicer Axle had sold DANA 217,644 sub-frames and DANA had paid for them on normal commercial terms. Ford has paid DANA for the assemblies that it has made incorporating the sub-frames. It has done so on normal commercial terms. This has occurred despite Ford’s not giving its final approval to the sub-frames. Although not fully compliant, the sub-frames were within Ford’s acceptable tolerances.[53]
[53] Exhibit D at [9] and see also Exhibit C at [8]

Spicer Axle’s claims under the ACIS

On 21 December 2000, Spicer Axle applied to the Secretary of the Department of Industry, Tourism and Resources (Department) for registration under the ACIS Act as an ACP under the ACIS.[54] Its application was accepted on 24 January 2001.[55] The ACIS Act commenced on 30 December 1999.[56]
[54] T documents at 181-192, T5
[55] T documents at 193, T6
[56] Commonwealth Government Gazette 1999, No. S627

On 29 August 2002, officers of AusIndustry, which is a Division of the Department, visited Spicer Axle’s premises. Spicer Axle gave AusIndustry three documents:
∙an undated document entitled “Accounting Treatment of RT Recoverable Tooling” detailing the steps involved in recording recoverable tooling to maximise ACIS credits;[57]
∙a document entitled “ACIS Meeting 29/08/02” outlining a number of issues relating to SASCA – Introduction/Overview and Business Plan; ACIS – Record Keeping & Tracking, Criteria, R & D and P & E;[58] and
∙a spreadsheet for the 2^nd quarter return for 2002.[59]

LEGISLATIVE BACKGROUND

[57] T documents at 430-432, T48

[58] T documents at 433-447, T49

[59] T documents at 448-449, T50

General outline

The ACIS was established by the ACIS Act with effect from 1 January 2001. Section 3 states that the purpose of the ACIS Act:
“… is to provide transitional assistance to encourage competitive investment and innovation in the Australian automotive industry in order to achieve sustainable growth, both in the Australian market and internationally, in the context of trade liberalisation.”

ACIS provides incentives in the form of “duty credits”. A “duty credit” is a “… modulated capped production credit, unmodulated uncapped production credit, modulated investment credit, or unmodulated type J investment credit … that has been entered in the ACIS ledger”.[60] Duty credits can be used to offset Customs duty payable on eligible imports or to obtain a rebate or refund in respect of duty already paid.[61] They are also transferable.[62]

[60] s 6(1)

[61] s 74A(1)(a) and (b)

[62] s 75

Registration

MVPs, ACPs, Automotive Machine Tool, Tooling Producers (AMTPs) and Automotive Service Providers (ASPs), who are known collectively as “participants” if they are registered under the Administration Act,[63] are able to claim duty credits according to the provisions of that legislation.[64] An application to be registered as an ACP must be made in accordance with Division 5 of Part 2 and conform to any specifications set out in the ACIS Administration Regulations 2000 (Regulations).[65] A person, who is a producer of automotive components, may be registered as an ACP if producing the number of automotive components or automotive components to the value specified in s 17 in the 12 months preceding the application for registration.[66] A person who is unable to demonstrate production of that sort, may apply for registration if it can satisfy the Secretary that the person is likely to produce the number of automotive components or automotive components to the value specified in s 17 in the 12 months following the application.[67] A person may also seek the Minister’s permission to apply for registration on the basis that registration would be in the national interest.[68]
[63] s 6(1)
[64] Part 2
[65] s 17(3)
[66] s 17(1)(a)
[67] s 17(1)(b)
[68] s 20

The Secretary must examine each application for registration and determine, within the period set by s 26(4), if he is satisfied of seven matters set out in s 26(2). Of relevance in this case is the requirement that the Secretary be satisfied that the applicant is eligible to apply for registration.[69] If, after seeking any further information he requires to make a decision,[70] he is satisfied that all seven matters have been met, he must, subject to s 14A, grant the application for registration.[71] Section 14A provides that the Secretary must not grant an application for registration unless satisfied that registration would further the purpose in s 3 of the ACIS Act. That is so even though the person applying for registration meets all of the relevant requirements for registration.[72] In the case of a person who is registered after the commencement of the ACIS Act, registration has effect on and from the date it is granted.[73]
[69] s 26(2)(a)
[70] s 27
[71] s 26(2)
[72] s 14A(2). In the case of an ACP who is not a group of related companies, the “requirements for registration under ACIS” are those in ss 17(1)(a) or (b).
[73] s 28(3)

Once registered, there are ongoing requirements of registration that must be met by an ACP that is not, as Spicer Axle is not, a group of related companies. In broad terms, those requirements reflect the production rate and value required for registration.[74] As Spicer Axle was registered as an ACP after the commencement of the ACIS, it must meet those ongoing requirements in each ACIS year following the ACIS year in which its registration takes effect.[75] If “the Secretary is satisfied that the participant is not likely, or has failed, to comply with the ongoing registration requirement in section … 31 …”, he may, at any time, deregister the participant or, in this case, the registered ACP.[76]
[74] s 31(1)
[75] s 34(3) An “ACIS year” is a year commencing on the ACIS Scheme commencement date: s 6(1).
[76] s 110(2)(b)

A second ground on which the Secretary may deregister a participant arises on an ACP’s failing to comply with the requirement in s 109 to provide an update of any business plan provided in relation to the application for registration as an ACP.[77] The third ground on which the Secretary may deregister a participant may occur if the participant is registered on the basis of its expected production in the 12 months following the application for registration. If the Secretary is satisfied at any time during the 12 months following the application that it is unlikely that a registered ACP is unlikely to be able to meet the production specified in ss 17(1)(b)(i) and (ii), he may deregister the ACP. The fourth ground arises if the Secretary determines that registration does not further the purpose of the ACIS Act.[78]
[77] s 110(4)
[78] s 110(5)(c)

Once registered, each participant must provide a return to the Secretary in respect of each quarter that ends, in the case of Spicer Axle, after the date of its registration.[79] The contents of the return are governed by s 37:
[79] s 35(1)(d): this is the later of the scheme commencement date and the date of Spicer Axle’s registration.
“(1)   An ACP’s quarterly return must set out:
(a)particulars of the expenditure on eligible investments undertaken by the ACP in that quarter; and
(c)particulars of the sales value by the ACP in that quarter of:
(i)     automotive components, automotive machine tools and automotive tooling; and
(ii)     automotive services; and
(e)particulars of any other Commonwealth assistance within the meaning of section 11 provided in respect of eligible investments referred to in paragraph (a) and, if paragraph (b) is applicable, paragraph (b); and
(f)any other particulars required by the form.
(2)A return under subsection (1) in respect of the last quarter of an ACIS year must include particulars of the production of automotive components produced by the ACP in that year. ”

Working out the unmodulated investment credit for the ACP for a quarter

As soon as practicable after an ACP provides a quarterly return to the Secretary in respect of a quarter, the Secretary must:
“… work out the unmodulated investment credit for the ACP for that quarter in relation to type D investment in accordance with the formula:
[] – CA
where:
CA is the total amount of other Commonwealth assistance (if any) received by the ACP in relation to the type D investment referred to in component K of the formula and to the type D investment referred to in component L of the formula.
K is the amount of type D investment by that ACP in the quarter concerned.
L is the total of the type D investment by that ACP in all relevant quarters preceding that quarter.
RQ is the total number of relevant quarters in relation to that quarter.”[80]
[80] s 46

A “relevant quarter”, referred to in “L” in the formula, is defined in s 6(1). It varies according to whether the participant is providing a return for a particular quarter that is the registration quarter or one, two or more quarters following the registration quarter.[81] A “registration quarter” means the quarter in which the registration took effect, or is taken to have taken effect, under s 28.[82]
[81] s 6(1)
[82] s 6(1) Where an application for registration was made after the ACIS Scheme commenced, registration generally has effect from the day on which it was granted: s 28(2).

The effect of the definition of a “relevant quarter”, when read with the formula, is that, in addition to the investment made in the particular quarter for which the return is made, regard is had also to the total type D investment by the ACP in a period that is determined by the definition. That period begins with an initial period of two years preceding its registration when the participant provides a return for its registration quarter and increases by steps to 2¾ years after its registration. That longer period arises when it provides a return for any quarter that is more than two quarters after its registration quarter. That is the effect of the sliding scale used in defining the expression “relevant quarter”:
“relevant quarter, in relation to a participant who provides a return for a particular quarter such as a participant under section 35, means each of the quarters included within the period comprising:
(a)if that particular quarter is the registration quarter for that participant – the 8 quarters preceding that registration quarter; and
(b)if that particular quarter is the first quarter following the registration quarter for that participant – the 9 quarters preceding that particular quarter; and
(c)if that particular quarter is the second quarter following the registration quarter for that participant – the 10 quarters preceding that particular quarter; and
(d)if that particular quarter is any later quarter following the registration quarter for that participant – the 11 quarters preceding that particular quarter.”[83]
[83] s 6(1)

By having regard to more than one quarter in the formula and by having regard to past quarters on more than one occasion, the formula ensures an “averaging” of the figure calculated as the unmodulated investment credit for an ACP for any particular quarter.

Modulation of unmodulated credits

Most unmodulated credits are modulated in accordance with Part 5 of the ACIS Act. Caps are set on the ACIS and for each participant and those caps are taken into account in the modulation process.[84] The Minister must make modulation guidelines.[85] Division 5 of Part 5 provides for the modulation process in relation to ACPs. When the Secretary has worked out the unmodulated investment credit in relation to each ACP and a particular quarter in an ACIS Stage[86] in respect of eligible investments, the Secretary must modulate each unmodulated investment credit to be issued to the ACP.[87] That must be done in accordance with the guidelines made by the Minister under s 55.[88]
[84] s 52(2) and see Division 2 of Part 5
[85] s 52(3) and Division 3 of Part 5
[86] There are three ACIS Stages with the first commencing on the commencement of the ACIS Scheme, the second on 1 January 2006 and the third on 1 January 2011 and finishing on 31 December 2015: s 4(1A).
[87] s 59
[88] s 60

What are eligible investments?

The expression “eligible investments” means, in relation to an ACP, “type D or type E investments by the ACP”.[89] A “type E investment” is an investment relating to research and development and is not relevant to this part of the case. A “type D investment”:
“… in relation to a quarter and an ACP, means investment undertaken by the ACP in that quarter (whether or not that quarter preceded, or in part preceded, the ACP’s registration) in that part of the ACP’s approved plant and equipment that:
(a)is used to produce automotive components, automotive machine tools or automotive tooling; or
(ii)is used to facilitate the provision of automotive services.”[90]
[89] s 6(1)
[90] s 6(1)

Type D investment: what is an investment undertaken by an ACP?

The definition of a “type D investment” includes expressions that are themselves defined. I have already noted that a “participant” includes an ACP. Therefore, the expression “investment undertaken by the ACP” equates with the expression “investment undertaken by a participant”. That latter expression, s 6(1) provides:
“… has a meaning affected by:
(a)regulations, if regulations have been made under subsection (5); and
(b)section 6C and any regulations made under section 6C.”[91]
[91] s 6(1)

Section 6(5) provides that the Regulations may state:
“(a) at what point in time, and in what circumstances, particular investment undertaken by a participant is taken to have occurred for the purposes of this Act; and
(b)at what point in time investment determined under section 6C to be investment undertaken by a participant is taken to have occurred.”

Regulation 13C provides that:

“(1)   For paragraph 6(5)(a) of the Act, an investment in plant and equipment undertaken by a participant is taken to have occurred for the purposes of the Act:
(a)if the investment is by way of acquiring the plant and equipment by purchase or under a finance lease (other than under a sale and leaseback arrangement):
(i)     at the time when the plant and equipment is recognised, in the participant’s accounts, as an asset in accordance with normal accounting practices; or
(ii)     if at the time referred to in subparagraph (i) the plant and equipment is not in Australia – at the time when the plant and equipment is imported into Australia; or
(b)if the investment is by way of acquiring the plant and equipment under an operating lease:
(i)     every time rent is paid under the lease; or
(ii)     if at a time referred to in subparagraph (i) the plant and equipment is not in Australia – at the time when the plant and equipment is imported into Australia and every time rent is paid under the lease after the plant and equipment has been so imported; or
(c)if the investment is by way of building or making the plant and equipment:
(i)     at the time when the plant and equipment is recognised, in the participant’s accounts, as an asset in accordance with normal accounting practices, or at the time when the plant or equipment is recorded in the participant’s register of assets, whichever is earlier; or
(ii)     if the plant and equipment (the new plant and equipment) is part of an existing plant and equipment – at the time when the building or making of the new plant and equipment is recognised, in the participant’s accounts, as an increase in asset value in accordance with normal accounting practices, or at the time when the building or making of the new plant or equipment is recorded in the participant’s register of assets, whichever is the earlier.

(2)For paragraph 6(5)(a) of the Act, an investment in plant and equipment undertaken by a participant by way of acquiring the plant and equipment under a sale and leaseback arrangement is taken to have occurred at the time when the previous investment would, apart from section 6B of the Act, have been taken to have occurred under these Regulations and the Act.
(3)…”

Section 6C provides for an investment undertaken by one person to be treated as an investment undertaken by another person who is a participant.

Type D investment: what happens if approved plant and equipment is sold by an ACP?

If approved plant and equipment is sold by, or on behalf of, an ACP, s 6B of the ACIS Act provides that:
“… the investment in that plant and equipment is to be treated, for the purposes of the operation of sections 43, 44, 46, 48 and 50, with effect from the start of the quarter in which that sale took place, as if the investment had never occurred.”

Only s 46 is relevant. It relates to the Secretary’s working out the unmodulated investment credit for an ACP for that quarter in relation to a type D investment.[92]

[92] see [51] above

Type D investment: what is “approved plant and equipment”?

The expression, “approved plant and equipment”, is defined in s 6A.[93] The expression “approved plant and equipment” has two aspects.[94] First, it must be “… allowable plant and equipment …”.[95] If it is allowable plant and equipment, the second aspect is that it is allowable only to a given value.[96] The maximum claimable value is either specified in the Regulations or calculated according to the method set out in the Regulations.[97]
[93] s 6(1)
[94] s 6A(1) and see also the definition of “approved plant and equipment” in s 6A(2).
[95] s 6A(1)(a) and see also the definition of “allowable” in s 6A(2).
[96] s 6A(1)(b)
[97] s 6A(2)

In order to meet the description of “allowable” as required by the first aspect, plant and equipment must first be of a kind declared by the Regulations to be allowable.[98] Regulations may provide for the kinds of plant and equipment that are “allowable plant and equipment”[99] and in fact do so. Plant and equipment that is allowable plant and equipment is specified in r 13E(2).[100] Of relevance in this case is:
“plant and equipment for the manufacture, assembly, design, development or engineering of motor vehicles, engines, engine components, automotive components, automotive machine tools or automotive tooling”.[101]
[98] ss 6 and 6A(1)(a) and (2)
[99] s 6A(3)(a)
[100] r 13E(1)
[101] r 13E(2)(a)

Investment type D: what is an automotive component?

The expression “automotive component” is defined to mean “… any component (whether its construction or assembly has been completed or not) … that is for use in any type of vehicle that, if imported, would be classified to Chapter 87 of Schedule 3 to the Tariff; or that has the essential character …” of such a component unless declared not to be so by regulations made under the ACIS Act.[102]
[102] s 6(1)

Investment type D: “produce automotive components”

The word “produce” is not defined but the word “production” is defined in s 6(1). That section provides that the word has the meaning set out in s 7. For the purposes of the ACIS Act, 7(2) provides that “… a person is taken to produce a thing only at the time when the person sells the thing produced.” Also for the purposes of the ACIS Act, s 7(1) provides that:
“… a person is taken to produce a thing even if the process of production consists entirely of assembling the thing from component parts and the person does not produce any of those component parts.”

Subject to both ss 7(1) and (2), s 7(6) provides that:

“… an automotive component, an automotive machine tool or automotive tooling is taken to have been produced in Australia if:
(a)at least one substantial process in the manufacture of the automotive component, automotive machine tool or automotive tooling is carried out in Australia; and
(b)the automotive component, automotive machine tool or automotive tooling, as the case requires, has passed final quality control at the end of the production line in Australia.”

The ACIS ledger

Once the Secretary has worked out the modulated credit, he enters it in a ledger known as the ACIS ledger.[103] The ACIS ledger is the record of the modulated credit, among others, that a person owns either because the credit was issued to that person or transferred to that person.[104] The Secretary must enter in the ACIS ledger the modulated investment credit to be issued to an ACP and the ACIS Stage concerned.[105] Once a modulated credit is entered in the ACIS ledger in respect of a participant, be it an ACP or otherwise, the credit is issued to the participant as duty credit.[106]
[103] s 62
[104] s 63
[105] s 64(3)
[106] s 65

Section 66 is concerned with the circumstances in which the Secretary must amend the ledger: He must do so:
“in respect of a person and the person’s duty credit in the following circumstances:
(a)when the person applies duty credit in respect of the importation of eligible imports;
(aa)when the person applies duty credit in accordance with subsection 74A(1) against an earlier payment of duty on the importation of eligible imports;
(b)when the Secretary applies duty credit under Part 9 to offset an unearned credit liability that the person has;
(c)when the person transfers duty credit to another person;
(d)to give effect to a decision of the Administrative Appeals Tribunal or of a court concerning the person.
(2)If the Secretary determines under section 68 that there has been an error in the ACIS ledger that would require an increase in the duty credit entered in respect of a participant and an ACIS Stage, the Secretary must amend the ledger to fix the error if and only if:
(a)the cap for the stage has not been reached (section 53); and
(b)the personal limit for the participant for the ACIS year in which the error was entered in the ledger has not been reached (see section 54).
(3)If the Secretary determines that there is an error in the ledger that would require a decrease in the duty credit entered in respect of a participant, the Secretary must amend the ledger to fix the error.
(4)This section operates subject to section 71.”

The effect of s 71 is that the Secretary can only amend the ACIS ledger in respect of an ACIS Stage during that stage and during the six calendar years following that stage.

Section 68 permits a person to apply to the Secretary to amend the ACIS ledger if that person “… believes that there is an error in the ACIS ledger in respect of themselves and an ACIS Stage …”.[107] The person must make an application in accordance with s 68(2) and, in doing so, must “specify the entry that the person believes contains an error”[108] and the reasons for that person’s belief.[109] The application must be made during the ACIS Stage concerned or within a calendar year of it.[110] The Secretary must determine whether there is an error when he receives an application[111] but he may also determine if there is an error on his own initiative.[112]
[107] s 68(1)
[108] s 68(2)(b)
[109] s 68(2)(c)
[110] s 68(2)(e)
[111] s 68(4)
[112] s 68(5)

Audits and unearned duty credits

Part 8 of the ACIS Act provides a regime for the audit of the affairs of participants in so far as they relate to ACIS. So, for example, the Secretary may appoint authorised officers to enter premises to check information provided under ACIS or the ACIS Act and to ask questions .[113]
[113] ss 79-89

Part 9 is entitled “Unearned duty credit”. In the overview of the Part provided in s 93, it is said that “This Part provides for duty credit to which a person is not entitled to be recovered.”[114] I expand on this below.
[114] s 93(1)

CONSIDERATION

Whether Spicer Axle undertook an eligible investment in the quarter concerned depends upon whether it made a type D investment. In order to be a type D investment in relation to a quarter, Spicer Axle had to undertake an investment in that part of its approved plant and equipment that is used to produce automotive components. I will address each part of that definition of a type D investment in the following paragraphs.

Is automotive tooling plant and equipment?

Is that automotive tooling plant and equipment? The expression “plant and equipment” is not defined in the ACIS Act. There is an initial question whether the expression has a technical meaning. Determining that issue is a question of fact and evidence is admissible. [115] Whether or not that word is intended to be given that trade or technical meaning or another is a question of law. [116] Hill J summarised the circumstances in which evidence of the meaning of a technical term can be given in Pepsi Seven-Up Bottlers v Commissioner of Taxation.[117] His Honour said:
“The general principle and apparent exceptions can be expressed in the following propositions which, to some extent, overlap. In construing a statute, evidence may be given of the meaning and usage of a word in a trade:
(1)where it is clear that a word in the statute is used in a specialised or trade sense and that usage differs from the ordinary English usage of the word (the courts will be more ready to conclude that the word is used in a specialised or trade usage where the statute to be construed is a revenue law directed to commerce);
(2)where the word is used in a specialised or trade sense in the statute, the word has an accepted trade usage and it is necessary to determine whether that trade usage differs from the ordinary English usage;
(3)where the word is used in a specialised or trade sense in the statute and it is necessary to determine whether there is an accepted trade usage as a preliminary to showing that that usage differs from the ordinary English usage;
(4)where the word used in the statute is directed to a particular trade and there has not been occasion for a widespread adoption by the general public of the word or a particular denotation of the word;
(5)where the trade usage assists in supplying the context or background of surrounding circumstances necessary to the construction of a word used in the statute;
(6)where the trade usage may assist the court by way of background to determine whether the word used in the statute is used in a specialised or trade usage or in accordance with ordinary English usage.”[118]
[115] Whitten v Falkiner (1915) 20 CLR 118 at 127 per Isaacs J and see also HR Products Pty Ltd v Collector of Customs (1990) 20 ALD 340 at 342 per Lee J and Pepsi Seven-Up Bottlers v Commissioner of Taxation (1995) 62 FCR 289 at 299 per Hill J
[116] HR Products Pty Ltd (1990) 20 ALD 340 at 342 per Lee J and see also Yager v R (1977) 13 ALR 247 at 249 per Barwick CJ
[117] (1995) 62 FCR 289 at 298-299
[118] (1995) 62 FCR 289 at 298-299

On the evidence that I have been given, I am not satisfied that there is any technical or trade meaning that should be ascribed to the expression “plant and equipment”. I am left with the ordinary meaning of the expression when read in its statutory context.[119]
[119] cf Macquarie Worsteds Pty Ltd v Federal Commissioner of Taxation (1974) 3 ALR 123 at 126 in which Mahoney J decided that “plant” is an ordinary English word whose meaning may be influenced by the context in which it is used.

The ordinary meanings of the word “plant”, when used as a noun, include “… the buildings, equipment and machinery used in the manufacturing or production industries, eg a factory, a power station, etc. …”[120] The meanings of the word “equipment” include “… the clothes, machines, tools or instruments, etc necessary for a particular kind of work or activity. …”.[121] There is nothing in the ACIS Act to suggest that anything other than the ordinary meanings is to be attributed to the words. That is not to say that all plant and equipment triggers a participant’s entitlement under it. Clearly, the ACIS Act limits that which triggers an entitlement. Those limitations do not alter the ordinary meanings of the words,
[120] Chambers 21^st Century Dictionary, revised edition 1999, reprinted 2004, Chambers (Chambers)
[121] Chambers

I am satisfied that Spicer Axle’s automotive tooling is intended to be used, and is in fact used by it or on its behalf, to manufacture the rear axle module assembly for the Barra motor vehicle, for sale. As such, the automotive tooling comes within the ordinary meanings of the expression “plant and equipment”.

Is that automotive tooling approved plant and equipment?

For the purposes of the ACIS Act, it is not enough that the automotive tooling is plant and machinery. If Spicer Axle has made an investment in that automotive tooling, that automotive tooling must be “approved plant and equipment” as that term is defined in the ACIS Act. In order to come within that description, it must be “allowable plant and equipment …”.[122] Putting aside the automotive tooling’s value, only the first aspect of the definition of “… allowable plant and equipment …” is relevant.
[122] s 6A(1)(a) and see also the definition of “allowable” in s 6A(2) and see [60]-[61] above.

That first aspect raises the question whether the plant and equipment is, within the meaning of r 13E(2)(a):
“plant and equipment for the manufacture, assembly, design, development or engineering of motor vehicles, engines, engine components, automotive components, automotive machine tools or automotive tooling”.

There is no question that the rear sub-frame is an automotive component within the meaning of s 6(1) of the ACIS Act just as there is no question that the automotive tooling is plant and equipment. Is it plant and equipment “… for the manufacture, design, development or engineering of … automotive components …” (emphasis added) within the first aspect of the specification of “allowable plant and equipment” in r 13E(2)(a)? Given that Spicer Axle’s plant and equipment used by it or on its behalf to manufacture the rear sub-frame for the Barra motor vehicle for sale, it clearly meets this description. Therefore, it is approved plant and equipment.

Even if the plant and equipment were not actually used for the manufacture of automotive components, it would remain plant and equipment “for the manufacture … of … automotive components …” (emphasis added). The ordinary meanings of the word “for” include “… suitable to the needs of something ⁭ books for children. 15 having as function or purpose ⁭ scissors for cutting hair. …”.[123] It is clear from the ordinary meanings given in the dictionary that the books would retain their character as “books for children” even if they were never read by children. So too would “scissors for cutting hair” even if they were never used to cut a single lock of hair. In the same way, Spicer Axle’s plant and equipment that was suitable to manufacture automotive components or that had the manufacture of those components as its function or purpose, is plant and equipment “for the manufacture … of … automotive components …”. Consequently, it would meet the first aspect of the definition of “allowable plant and equipment” as specified in r 13E(2)(a). Therefore, it is approved plant and equipment.

Is the automotive tooling “approved plant and equipment that is used to produce automotive components”?

[123] Chambers

In order to be a type D investment, it is not enough that Spicer Axle has made an investment in approved plant and equipment. The definition of a type D investment requires that the investment in relation to a quarter be an “… investment undertaken by … [Spicer Axle] in that quarter …in that part of … [Spicer Axle’s] approved plant and equipment that … is used to produce automotive components …”.[124]
[124] s 6(1)

On behalf of the Secretary, Mr Hanks QC with Mr Stephenson drew my attention to the requirement of s 7(6) that an automotive component is taken to have been produced in Australia if at least one substantial process in the manufacture of the automotive component is carried out in Australia and the automotive component has passed final quality control at the end of a production line in Australia. He referred to cl 7 of the Explanatory Memorandum to the ACIS Act to support their submission that the operation of s 7 is not confined to determining whether a component has been produced in Australia or overseas. Instead, it refers to the minimum requirements under ACIS for “recognising production generally” and states that the “definitions are required for determining eligibility for registration under ACIS”. Clause 7 reads:
“Clause 7 – Meaning of Production of goods and provision of services in Australia
This clause sets out the minimum requirements under ACIS for recognising production generally, and production in Australia of: engines; motor vehicles; engine components; automotive components; automotive machine tools; automotive machine tooling; and the provision of automotive machine services. These definitions are required for determining eligibility for registration under ACIS and for determining the value of production for calculating ACIS production credit.”

It is clear both from the face of s 7 and from the Explanatory Memorandum that it is intended to establish certain bench marks relating to production. Those bench marks are of two forms. Sections 7(1) and (2) refer to the circumstances in which “a person is taken to produce a thing”. Sections 7(3), (4), (5), (6) and (7) refer to circumstances in which a thing[125] “is taken to have been produced in Australia”. As a matter of grammar, the definition of a type D investment refers to “plant and equipment that is used to produce” a thing such as an automotive component. Its focus is upon the use of plant and equipment and not upon when the production of a thing such as an automotive component has occurred. A similar distinction exists between the provisions of s 7(6) and the definition of a type D investment.
[125] The “thing” is an engine, motor vehicle, engine component, automotive component, automotive machine tool, automotive tooling or automotive service.

Quite apart from these semantic differences, the ACIS Act uses the word “produce” and the expression “produced in Australia”, “produced … in Australia” or “produce in Australia” in quite different contexts. It uses the latter variations in ss 16, 17 and 18, relating to the application for registration as an MVP, ACP or AMTP and ss 30, 31 and 32 relating to the ongoing requirement of registration as an MVP, ACP or AMTP. It uses the word “produce”, without reference to the location of that production, in s 7 in defining the various types of investment.

I will take s 17 as an example of those provisions relating to the registration provisions. It applies to an ACP and permits a person “who is a producer of automotive components” to apply for registration as an ACP. In the general case,[126] that section allows such a person to apply for registration based either on that person’s having “produced in Australia” one kind of automotive component for use in a specified number of vehicles or with a specified production value. If unable to demonstrate that production, the person may apply for registration if able to demonstrate that production in Australia is likely to meet those levels. If the provisions of s 7 require me to read “produce” and its derivatives as incorporating the requirements of s 7(6), I would have to read s 17 as only permitting an application for registration to be made by a person who produces automotive components in Australia and whose automotive components have passed final quality control at the end of a production line in Australia. That is unnecessarily restrictive and inconsistent with the remaining requirements of registration. They go on to require specified levels of production, or likely production, in Australia. There is no suggestion in the legislation that assistance is limited to those who already produce automotive components in Australia before their registration. Such a limitation would be inconsistent with the purpose of the ACIS Act to encourage competitive investment and innovation in the Australian automotive industry.
[126] The “general case” is that in which a person is registered after making an application otherwise than under s 20. Section 20 provides that a person may seek Ministerial permission to apply for registration as a participant on the basis that registration would be in the national interest.

The ongoing requirement of ACP registration is consistent with the ACIS Act’s purpose. In the general case, the requirements are satisfied if the ACP produces in Australia automotive components for use in the specified number of vehicles or with a specified production value. It must do so in each period required under s 34. Section 34 applies in the general case.[127] In relation to a participant whose registration takes effect after the commencement of ACIS, s 34(3) provides:
“If the registration of a participant to whom this section applies takes effect after the scheme commencement date, the participant must meet the ongoing registration requirement in respect of that registration in each ACIS year following the ACIS year in which the person’s registration takes effect.”

An “ACIS year” means the year commencing on the ACIS commencement date and each succeeding year before 1 January 2016.[128]

[127] s 34(1)

[128] s 6(1)

Under s 110, the Secretary may deregister a participant if satisfied of certain things. Two are relevant here in relation to an ACP. The first is that “the Secretary is satisfied that the participant is not likely, or has failed, to comply with the ongoing registration requirement in section … 31 …”.[129] The second applies in the case of a participant registered on the basis that in the 12 months following the application for registration, that participant is likely to do the things set out in s 17(1)(b)(i) or (ii)[130] i.e. to meet the production quotas or values specified in those provisions. If, at any time during the 12 months following the application, it appears to the Secretary that it is unlikely that the participant will be able to do those things, the Secretary may deregister the participant.[131]
[129] s 110(2)(a)
[130] s 110(5)(a)(ii)
[131] s 110(5)(b)

Again, the focus of the registration and the de-registration provisions upon production in Australia, and so a substantial process being carried out in Australia and automotive components’ passing final quality control, is entirely consistent with the purpose of the ACIS Act. That purpose is to assist and encourage competitive investment and innovation in the Australian automotive industry. That assistance and encouragement is intended to lead to the Australian automotive industry’s growing both in the Australian market and internationally.[132]
[132] s 3 and see [45] above

The notion that it is the Secretary’s obligation to work out the ACP’s entitlement, and not a matter for an ACP to self assess, is carried through in s 70 of the Act. That section provides that the Secretary must send a participant a notice setting out the entries made in the ledger. He must do so within seven days of a modulation day. A “modulation day” means “… in respect of a quarter, …the day that the Secretary enters modulated credit in the ledger under sections … 59 in respect of the quarter.” Section 59 provides that:
“When the Secretary has worked out the unmodulated investment credit in relation to each ACP … and a particular quarter, in respect of eligible investments, the Secretary must modulate each unmodulated investment credit to work out the modulated investment credit to be issued to each ACP …”[208]

An application may be made to the Tribunal for review of the Secretary’s decision under s 59 not to issue and ACP with modulated investment credit or as to the amount of any credit to be so issued.

[208] T documents at 99

It would appear that AusIndustry has chosen to administer ACIS as a self assessment scheme but its choice does not shift the Secretary’s legislative duties and obligations to the participant providing a return in respect of a quarter. The ACIS Act is not one of self assessment by the participants.

Did Spicer Axle receive the duty credits because of a clerical error or mistake in the ledger within the meaning of s 94(1)(c)? The ledger is the ACIS ledger that the Secretary must establish and maintain under s 62. It is a record of the modulated credit that each person owns either because the credit was issued to the person or because the credit was transferred to the person.[209] The Secretary must enter any modulated investment credit issued in respect of an ACP in the ledger in accordance with s 64(3). When the Secretary enters the modulated credit worked out under s 59 in respect of an ACP, that credit is issued to the ACP as a duty credit.[210] There are five circumstances in which the Secretary may alter the ledger. The fifth circumstance arises if the Secretary determines that there is an error in the ledger in respect of the person.
[209] s 63
[210] s 65

Against the background of the ledger and its role, it becomes clear that a “clerical error or mistake in the ledger” is not a reference to a clerical error or mistake that happened outside the context of the ledger. So, for example, if an error is made in calculating an ACP’s unmodulated investment credit under s 46 of the ACIS Act in calculating the modulated credit under s 59, that is not a clerical error or mistake in the ledger. Provided the ledger accurately records the modulated investment credit in the ledger in accordance with a decision under s 59, the ACP has not received a duty credit because of a clerical error or mistake in the ledger if it is later found that the decision under s 59 was incorrect. In that example, the ACP has received the duty credit because of an incorrect decision under s 59. The result is the same if the decision under s 46 is later found to be incorrect so that the decision under s 59 is incorrect.[211] Section 94(1)(c) does not mean that Spicer Axle is not entitled to the duty credit.
[211] This conclusion is consistent with that reached by Hargrave J in Roads Corporation (t/as VicRoads) v Magistrates’ Court of Victoria [2005] VSC 99 when considering whether s 26(2)(b) of the Road Safety Act 1986 (Vic) permitted an appeal based on a contention that an infringement notice was invalid. In the circumstances, an appeal could only be made if there had been a miscalculation in assessing the total number of demerit points incurred by the appellant. Hargrave J canvassed a number of errors that might lead to a miscalculation e.g. an error in the date of the offence could lead to demerit points’ being allocated to the incorrect period or a mistake as to the speed could lead to a higher number of demerit points’ being recorded than was correct. The word “miscalculation” could not, though, be extended to encompass an argument of invalidity: see [37]-[41].

What of s 94(1)(a)? Has Spicer Axle received the duty credit “because of the making of an error in calculating the duty credit …”? The ordinary meanings of the word “calculate”, from which “calculating” is derived, include “… 1 to work out, find out or estimate, especially by mathematical means. …”.[212] Relying on Hargrave J’s judgment in Roads Corporation (t/as VicRoads) v Magistrates’ Court of Victoria, Mr Cavanough QC submitted that the word “calculation” should be given a very limited meaning and confined to arithmetical errors.[213]
[212] Chambers
[213] see footnote 211 above

Each word, however, must be read in its context and the context of the ACIS Act is different from that of the Road Safety Act 1986 (Vic). Parliament has chosen to use the word “calculating” in s 94(1)(a) and the words “working out” in ss 46 and 59. Although the ordinary meaning of the former may include the latter, does Parliament’s choosing to use the word “calculating” in s 94 mean that it does not incorporate the “working out” processes in sections such as ss 46 and 59? Apart from Roads Corporation (t/as VicRoads) v Magistrates’ Court of Victoria, the word “calculate” has been considered in other contexts. The Court of Appeal (Vic), for example, considered it in the context of the Credit Act 1984 (Vic). Under s 36(1)(g), details as to the times for payments of instalments had to be stated in an offer only if they were “known” or could be “calculated”. McGarvie and Gobbo JJ said that they considered that:
“… ‘calculated’ in the context means ascertained in some convenient way adopted in commercial practice, such as calculating dates for the payment of instalments payable every 30 days from a given date.”[214]
[214] Custom Credit Corporation v Gray [1992] 1 VR 540 at 547

Order 38, Rule 1 of the Federal Court Rules 1979 provides that, where the Court finds that a party is liable to pay damages, the Court may direct that the amount to be paid be ascertained by the Registrar “… if it considers that the amount of damages to be recovered is substantially a matter of calculation”.[215] The trial judge had decided that the appellant had given negligent advice to the respondent and was liable to pay him damages. He did not make relevant findings of fact and did not give directions as to the task the Registrar was to undertake when he made a direction under Order 38 Rule 1. The Full Court of the Federal Court said:
“ The primary meaning of ‘calculate’ is ‘to ascertain by mathematical methods’ (see the Macquarie Dictionary). But did the matter referred to the Registrar involve, substantially, the ascertainment of an amount of damages by mathematical method? We do not think so. The decision by the Registrar called for by the reference involved elements of judgment and fact-finding on his part which went significantly beyond a process of mathematical method, or even substantially that process. In the absence of specific findings of the relevant costs incurred or to be incurred by the respondent, it would have been necessary for the Registrar to make such findings.”[216]
[215] Order 38 Rule 1(1)(b)
[216] Gordon M Jenkins & Associates Pty Ltd v Coleman (1989) 23 FCR 38 at 51

Among those administrative decisions made under an enactment that may not be reviewed under the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act) are:
“decisions making, or forming part of the process of making, or leading up to the making of, assessments or calculations of tax or duty, or decisions disallowing objections to assessments or calculations of tax charge or duty, or decisions amending, or refusing to amend, assessments or calculations of tax, charge or duty, under any of the following Acts: … [including the] Income Tax Assessment Act 1936 …”[217]
[217]Administrative Decisions (Judicial Review) Act 1977, Schedule 1, (e)

In Clyne v Deputy Commissioner of Taxation[218], Mr Clyde had estimated that his taxable income for a particular year would be nil. If the Commissioner of Taxation (Commissioner) has reason to believe that a taxpayer’s taxable income is or will be greater than that estimated, he may:
“(a) estimate the respective amounts which, in his opinion, should have been the amounts estimated by the taxpayer in pursuance of sub-section(1) [of s 221YDA] in respect of that year of income;
(b)calculate the amount of provisional tax that would be payable if the amount so estimated had been shown in a statement duly furnished by the taxpayer under sub-section (1); and
(c)serve on the taxpayer notice in writing specifying the amount of provisional tax so calculated.”[219]

In considering whether a decision made after following these steps is a “decision” for the purposes of the ADJR Act or whether it is excluded by paragraph (e) of the Schedule, Jackson J said:

“ There is no doubt in my mind that the estimation and calculation referred to in s 221YDA(4) by the Commissioner involves the making of a ‘decision’ in terms of the Administrative Decisions (Judicial Review) Act. Further, it is a step forming part of the process of making, or leading up to the making of, a calculation of an amount payable under the Income Tax Assessment Act 1936.”[220]

[218] (1986) 14 FCR 304; 67 ALR 600

[219] (1986) 14 FCR 304; 67 ALR 600 at 304; 601; ITAA, s 221YA(4)

[220] (1986) 14 FCR 304; 67 ALR 600 at 306; 602. The outcome of the case turned on whether a requirement to make a provisional payment, frequently described at the time as “provisional tax”, was a “tax”. Jackson J decided that it was not and that the Court’s jurisdiction was not excluded by paragraph (e) of Schedule 1 to the ADJR Act.

The Commissioner objected to the competency of Mr Coco’s application in the Federal Court under the ADJR Act when Mr Coco had sought review of the Commissioner’s refusal to consider his application to vary PAYE deductions under s 221D of the ITAA. The Commissioner had refused to consider the application until Mr Coco had cleared all of his outstanding tax debts. In the Federal Court, the Commissioner submitted that a decision under s 221D directly impacts on the instalments of income tax during a tax year and is one of the steps forming part of the process of making or leading up to the making of the eventual assessment or calculation of tax under the ITAA for that year. Where the Commissioner receives a group certificate from an employee in a year in which PAYE deductions have been made and the tax payable has been assessed, the Commissioner must credit that sum in full or part payment of the tax payable by that employee and credit the employee with any excess. That is the effect of s 221H(2).

Spender J decided that the application was competent and not excluded from the operation of the ADJR Act. His reasons were:
“ While it may be accepted that a decision of the Commissioner under s 221D is a step forming part of the process of making or leading up to the making of a calculation of an amount payable under the Act, in my opinion the calculation of the PAYE instalments should not be regarded as a ‘calculation of tax’ or the ‘assessment of tax’ under the Act. It therefore follows that in my opinion par (e) of Sch 1 of the ADJR Act has no application, and the notice of objection to competency should be dismissed.
In summary, my opinion is that the procedure outlined in s 221H(2), namely the determination of the amount that a taxpayer has to pay, or alternatively the amount which the taxpayer is to be paid, reached after reconciling the amount of tax payable by a taxpayer with the amounts of the tax stamps or the amounts of deductions shown in the taxpayer’s group certificate, is not an assessment of tax or calculation of tax under the Act. The assessment of tax has been made before that arithmetical process.”[221]
[221] Coco v Commissioner of Taxation (1993) 42 FCR 219 at 225

The expression “working out” has been considered by the Full Court of the Federal Court in ACP Publishing Pty Ltd v Commissioner of Taxation.[222] It did so in the context of s 13 of the A New Tax System (Goods and Services Tax Transition) Act 1999 (GST Transition Act) which provided, in part, that it applied if:
“a written agreement specifically identifies a supply and identifies the consideration in money, or a way of working out the consideration in money, for the supply”.[223]

The supply identified in that way would be GST-free in certain circumstances.[224]

[222] (2005) 142 FCR 533

[223] GST Transition Act, s 13(1)(a)

[224] GST Transition Act, s 13(2)

Hill J said that:
“ The reference in s 13 to ‘a way of working out the consideration in money’ would seem to refer to a class of case where although a monetary amount is not identified in the agreement, there is a mechanism in the agreement whereby the monetary amount can be ascertained or ‘worked out’. There is no policy reason which requires the adoption of a narrow construction to these words. A narrow construction might require that the words ‘working out’ relate to there being set out in the agreement a method of calculation. For example, the adoption of a formula. The narrow construction would exclude a case (it might be thought to be a typical case for the operation of s 13) where rental for a further term of the commercial lease was to be determined by some expert such as the President of the Real Estate Institute. There would, in such a case, be no formula applied to calculate the consideration, but the rental consideration would have been worked out by a way of working it out identified in the agreement.”[225]
[225] (2005) 142 FCR 533; 219 ALR 307 at 544; 317 per Hill J

Finn J also considered whether the notion of “work out” in s 13 of the GST Transition Act should be given a narrower or a wider meaning. He said:
“… One of the meanings given the words ‘work out’ in the Oxford English Dictionary …, for example, is:
To go through a process of calculation or consideration so as to arrive at the solution of (a problem or question), to solve; also, to reckon out, calculate.
If such were the proper meaning to be given the formula used in s 13, it is arguable that the cl 7.1 deeming provisions would not satisfy the requirements of that formula. The clause does not identify any process of calculation, consideration or reckoning. Rather it indicates when and how the monetary consideration is to be ascertained but only by reference to the occurrence of events and their deemed consequence.
[62] The above OED meaning is but one of a number of possible meanings that could be given the formula in this context. A meaning of ’work out’ given in the Shorter Oxford English Dictionary, 5th Ed, 2002, vol 2, p 3671 is:
Give or produce a definite result, have or issue in a particular or specified result.
If the formula in s 13 was to be construed correspondingly, cl 7.1 would in my view satisfy it. It prescribes how a definite result, that is the ascertainment of the actual sum of the consideration, is to be produced.
[63] Given the end sought in s 13 (that is the identification of the consideration in money for a supply) I can see no reason for adopting a narrow construction of the way of working out formula unless compelled to do so by the purpose or object of the Transition Act itself. The ameliorative purpose of the Act does not require this. And when one has regard (i) to the contingencies and conditions they may employ, in prescribing what is to be the actual consideration in money for a supply, I can see no reason for not giving the ‘way of working out’ formula the full amplitude of meaning it can bear in this setting. Put in shorthand form, I would construe the formula as meaning ‘a way to ascertain the consideration in money’. …”[226]
[226] (2005) 142 FCR 533; 219 ALR 307 at 548-549; 322

The authorities show that there can well be a difference between the expression “work out” and the word “calculate”. In the appropriate context, the former is given a broader meaning to encompass the process and consideration leading to the answer to the issue to be decided. The word “calculate” is given a narrower meaning to ascertain by mathematical methods or to signify an arithmetical calculation. Even paragraph (e) of Schedule 1 of the ADJR Act distinguishes between the “calculations of tax” and the “decisions making, or forming part of the process of making, or leading up to the making of … calculations of tax …”.

It seems to me that Parliament has chosen to use the two expressions quite deliberately to signify that they do not mean the same thing. The Secretary must “work out” the unmodulated investment credits for an ACP under s 46 in accordance with the formula set out in that section. Section 46 does not simply require an arithmetical calculation according to the formula but an assessment of the amounts and numbers making up that formula. “K” for example is the “amount of type D investment by the ACP in the quarter concerned”. It is not simply the amount of type D investment shown by the ACP in its return. Working out the amount of type D investment by the ACP is part of the process of consideration that is integral to the Secretary’s working out the unmodulated investment credit. In the same way, following the Ministerial guidelines made under s 55 must be an integral part of the Secretary’s working out the modulated investment credit to be issued to an ACP under s 56.

On its face, s 94(1)(a) permits regard to be had to an error in calculating that goes back to the modulation process under s 59. Does it permit regard to be had to the process of working out the unmodulated investment credit under s 46? I think that it does. Section 94 refers to “duty credit”. “Duty credit” means, in the context of this case, “modulated investment credit that has been entered in the ACIS ledger”.[227] Section 65 effectively provides that modulated credit under s 59 becomes duty credit by virtue of its entry in the ACIS ledger. Modulated investment credit cannot be worked out in the absence of the unmodulated investment credit. Parliament has expressly referred to the modulation process in s 94(1)(a) but that express reference cannot be read as excluding the earlier process of working out the unmodulated investment credit.
[227] s 6(1)

The inclusion of the earlier processes does not mean that regard may be had to any error that occurs in the course of them. Had Parliament intended to capture in s 94(1)(a) any errors that occur in those processes, it could have chosen the words “working out” rather than the word “calculating”. The words “working out” would have mirrored those used in ss 46 and 59 and captured the whole process. There would have been no need to refer to a “mistake of fact” in s 94(1)(a) because any error, be it a mistake of fact, a mistake of law or an arithmetical error, could have been rectified in once more “working out” the unmodulated and modulated investment credits in the earlier stages. As it is, Parliament’s choice of “calculating” must be read as its choosing to limit the errors that lead to the consequence of a participant’s having an unearned credit liability. That accords with the nature of duty credits. Once they have been allocated, they can be transferred. Alteration of the ledger after that time is a serious matter and is likely to have grave commercial consequences. It also accords with the Secretary’s obligation to “work out” the unmodulated and modulated investment credits and so to work out the participant’s entitlement to them. Given the ordinary meaning of “calculate” and having regard to the wider meaning of the expression “work out” used elsewhere, I have concluded that the errors to which reference is made in s 94(1)(a) must be limited to errors of calculation in the sense of arithmetical errors. It cannot be extended to errors in working out the unmodulated investment credit and so to errors in “working out” what, for example, is type D investment in the case of a particular ACP.

An “error” is “… a mistake, inaccuracy or misapprehension …”.[228] Has there been such a mistake, inaccuracy or misapprehension of an arithmetical nature so that there has been an “error in calculating the duty credit” in this case? In calculating the unmodulated investment credit in relation to Spicer Axle, there has necessarily either been a mistake made by those calculating the duty credits on behalf of the Secretary or they have laboured under a misapprehension. I say “necessarily” in view of my decision that certain of Spicer Axle’s investments could not be taken to have occurred for the purposes of the ACIS Act and so were included in the amount representing “K” in the formula in s 46. That was an error but it was not an arithmetical error of the sort to which s 94(1)(a) refers.
[228] Chambers

Nor was it an “mistake of fact” to which s 94(1)(a) also refers. Given its context in the ACIS Act as well as its well known use in contra distinction to a mistake of law, that expression must be understood in its technical sense. The error that arose in this case arose in the calculation of the unmodulated investment credit and that error arose because of the error in determining the type D investment. The error arose because of a mistake of law, rather than a mistake of fact. It arose either because of a misunderstanding of the interpretation of r 13C and/or because of an inappropriate application of r 13C to the facts as have always been disclosed by Spicer Axle. In either case, the error arose because of a mistake of law and not a mistake of fact.[229]
[229] see, for example, Peacock v Zyfert (1983) 48 ALR 549 at 556 per Fox J, 561 per Franki J and 564 per Lockhart J.

In view of my conclusion, none of the situations in s 94 applies to Spicer Axle. Therefore, it does not have an unearned credit liability by virtue of the operation of ss 94 and 95. More particularly, it does not have an unearned credit liability amounts to 901,203 duty credits.

For the reasons I have given, I:
1.sets aside:
the respondent’s decision under review in so far as it relates to 901,203 duty credits in relation to the automotive tooling produced by the applicant; and
2.substitutes:
a decision that the applicant does not have an unearned credit liability amounting 901,203 duty credits in relation to the automotive tooling produced by the applicant.

I certify that the one hundred sixty-seven preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President S A Forgie,

Signed: ...............................................................

Jayne Rathjen Associate

Dates of Hearing  9 and 10 February 2006
Date of Decision  24 November 2006
Counsel for the Applicant             Mr A Cavanough QC with Mr C Caleo
Solicitor for the Applicant            Hunt & Hunt
Counsel for the Respondent         Mr P Hanks QC with Mr J Stephenson
Solicitor for the Respondent         Australian Government Solicitor