The Collector of Customs for the State of Tasmania v Davis, J.B

[1989] FCA 438

Re: THE COLLECTOR OF CUSTOMS FOR THE STATE OF TASMANIA
And: JOHN BERNARD DAVIS
No. TG14 of 1988
FED No. 438
Federal Court - Customs and Excise - Words and Phrases
10 AAR 439
23 FCR 378

COURT

IN THE FEDERAL COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY
GENERAL DIVISION
Beaumont J.(1)

CATCHWORDS

Federal Court - "Appeal" from Administrative Appeals Tribunal - whether a question of law or fact is involved.

Customs and Excise - Diesel fuel rebate - fuel used to dry parsley after harvesting - whether an operation connected with gathering in of crops - meaning of "agriculture" and "primary production".

Words and Phrases - "primary production", "agriculture", "connected with".

HEARING

SYDNEY

#DATE 10:8:1989

Counsel and Solicitors Mrs. S. Singh instructed by
for the Applicant: the Australian Government Solicitor

Counsel and Solicitors Mr. P. Rae instructed by
for the Respondent: Bishop, Gunton and Rae

ORDER

Objection to competency overruled.

Appeal dismissed.

Applicant to pay three-quarters of the respondent's costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The applicant, the Collector of Customs for the State of Tasmania, appeals from a decision of the Administrative Appeals Tribunal ("the Tribunal"), setting aside a decision of the Collector to refuse to pay a statutory rebate of duty paid in respect of diesel fuel purchased by the respondent, John Bernard Davis. Under the statutory scheme in question, a rebate of duty paid is payable in respect of diesel fuel used for certain purposes. The essential question for the decision of the Tribunal was whether the fuel was purchased by the respondent for use in "primary production" within the meaning of s.164 of the Customs Act 1901 ("the Act").

1. The respondent grows parsley. He markets the crop in a "dried", that is, a dehydrated condition. He purchases fuel for use in an oil-fired agricultural drying machine which is used to dehydrate the parsley crop. The respondent contends that this use of the fuel is "in primary production" within the meaning of the Act. The Tribunal upheld his argument and decided that the rebate of duty paid was payable by the Collector.

2. The present proceedings, in the nature of judicial review of an administrative decision, are brought pursuant to s.44(1) of the Administrative Appeals Tribunal Act 1975. Under that provision, an "appeal" may be brought to this Court on a question of law. The respondent objects to the competency of the application. He argues that the only matter now raised for determination is a question of fact and not one of law. But in order to understand the significance of the arguments of the parties on the objection to competency, it is first necessary to describe the legislative scheme, the facts of the case and the reasoning adopted by the Tribunal in arriving at its decision.
   The legislative scheme

3. Section 164(1) of the Act provides that a rebate is, subject to certain matters, payable to a person who purchases diesel fuel, being diesel fuel upon which duty has been paid for use by him, inter alia, "(aa) in primary production (otherwise than for the purpose of propelling a road vehicle on a public road")". (Emphasis added). By s.164(7), it is provided that, in s.164, "primary production" means, inter alia, "agriculture". "Agriculture" is defined to mean the following:
   "(a) the cultivation of the soil;
   (b) the cultivation or gathering in of crops; or
   (c) the rearing of live-stock,
   and includes -
   (d) viticulture, horticulture, pasturage or
   

apiculture;

(e) hunting or trapping carried on for the purpose of

a business; or

(f) other operations (including operations by way of

pest or disease control or by way of soil or water conservation) connected with any operations referred to in paragraph (a), (b), (c), (d) or

(e),

but does not include fishing operations or forestry; (emphasis added)."

1. "Horticulture" is defined so as to include, inter alia, the cultivation or gathering in of herbs. It is common ground that parsley is a herb.
   The facts

2. The facts are not in dispute. The parsley is harvested by a mechanical cutting machine drawn by a tractor. The machine blows the harvested product into a following bin. When the bin is full, its contents are transferred onto a concrete slab on the farm. The drying machine stands on the slab. A front end loader transfers the heap of parsley into the front of the dryer. The crop is then dried by heat in the form of a flame which has its source in the diesel fuel now in contention.

3. The Tribunal found that, in order to preserve the crop, it was essential that it be dried. Solar heat, which is used to dry hay, is not effective to dehydrate a parsley crop. It is necessary to apply artificial heat. The Tribunal said:
   "The applicant further explained that after cutting
   

fresh parsley in a heap it will begin to deteriorate in less than an hour and then it would soon lose colour and begin to smell. It is obviously imperative that in order to be able to market parsley in large quantities, it must be dried as soon as possible after it is culled. The applicant admitted that he would not bother to grow it at all unless it could be sold dry."

1. The Tribunal accepted the respondent's evidence, which was not challenged by the Collector, in all material respects.
   The Tribunal's reasoning

2. The Tribunal held that the process of drying the parsley was "connected with" the "gathering of crops" within the meaning of the definition of "agriculture" in s.)64(7). The Tribunal said:
   "The Shorter Oxford Dictionary defines 'to connect' as
   

including 'to join, fasten or link together'. 'Connection' includes 'relation between things one of which is...involved with another'.

There is no difficulty in arriving at a conclusion that

the process of drying the parsley is involved with the process of gathering it in.

The speed with which it is necessary to apply hot air

to the parsley after it is cut and transported to the drier demonstrates a close relationship between each process. The fact that the parsley undergoes no physical change other than the removal of moisture further demonstrates a close relationship between the product before and after the process. The consequences of a failure to apply the drying process immediately make it apparent that gathering in the crop is insufficient to render that process an economically viable act if no more is done. Parsley by the two ton load is useless if it is not dried. It will deteriorate rapidly and therefore be unmarketable.

These considerations are sufficient to warrant a

finding that there is a connection between the operation which uses diesel fuel and the gathering in of the crop."

1. After referring to the Minister's explanation and statement of the legislation, the Tribunal considered the decision and reasoning of the Full Federal Court in Collector of Customs v. Cliffs Robe River Iron Associates (1985) 7 FCR 271 and in Australian National Railways Commission v. Collector of Customs, South Australia (1985) 8 FCR 264. The Tribunal said:
   "...the evidence in this case does show that the crop is
   

dealt with as part of the process of production and harvesting. It is simply not possible to describe the drying process as being concerned only with the marketing of that primary produce. It does not become the produce which the grower seeks to obtain after cultivation until it is in a form which enables it to be treated and prepared for distribution to market.

Even if the drying process is seen as one which enables

the product to be marketed it is also one which is involved with and therefore connected to the harvesting or gathering in operation. The rebate remains payable even if the drying operation is simultaneously the end process in primary production and the beginning of secondary production. The diesel fuel was purchased for use in an operation connected with the gathering in of the crop."

The grounds of the appeal

1. In his notice of appeal, The Collector contends that the Tribunal erred in the following respects: (1) by failing to "delineate what was covered" by the expression "gathering in" as found in the statutory definition of "agriculture" before considering what was "connected with" the operation of "gathering in" the crop; (2) in its determination of the issue whether the drying of parsley was an "other operation" "connected with" the cultivation of gathering in of crops for the purposes of s.164(7); (3) in taking into account the way in which parsley was marketed. These contentions were developed in oral submissions. In her oral argument, counsel for the Collector also submitted that the relevant statutory definition sought to distinguish primary, from secondary, industry; she argued that the "gathering in" process was complete when the parsley was dumped on the concrete slab; it followed, she said, that the drying process was a secondary, rather than a primary, activity.
   The objection to competency

2. As has been noted, the respondent objects to the competency of the application on the ground that only a question of fact, and thus no question of law, is involved in the "appeal". It is clear that s.44(1) of the Administrative Appeals Tribunal Act 1975 confers no jurisdiction upon this Court to review a "mere" question of fact. As Brennan J. said in Waterford v. The Commonwealth of Australia (1987) 163 CLR 54 at pp 77-8:
   "A finding by the A.A.T. on a matter of fact cannot be
   

reviewed on appeal unless the finding is vitiated by an error of law. Section 44 of the A.A.T. Act confers on a party to a proceeding before the A.A.T. a right of appeal to the Federal Court of Australia 'from any decision of the Tribunal in that proceeding' but only 'on a question of law'. The error of law which an appellant must rely on to succeed must arise on the facts as the A.A.T. has found them to be or it must vitiate the findings made or it must have led the A.A.T. to omit to make a finding it was legally required to make. There is no error of law simply in making a wrong finding of fact. Therefore an appellant cannot supplement the record by adducing fresh evidence merely in order to demonstrate an error of fact. As the purpose for which a document is brought into existence is a question of fact (per Jacobs J. in Grant v. Downs...), the contents of document 29 are immaterial to the question whether the A.A.T. has made an error of law on the material before it."

1. It is often difficult to characterise the relevant question in an "appeal" (such as the present proceedings) as a "mere" question of fact (where jurisdiction is denied), on the one hand, or on the other, a "pure" question of law, or a question of mixed fact and law (thus attracting jurisdiction).

2. In distinguishing questions of fact from questions of law, the observations of Kitto J. in N.S.W. Associated Blue-Metal Quarries Ltd. v. Federal Commissioner of Taxation (1955) 94 CLR 509 (at p 511-512) have been regarded as authoritative. He said:
   "This (i.e., whether certain operations filled the
   

description "mining operations upon a mining property" within the meaning of s.122 of the Income Tax and Social Services Contribution Assessment Act 1936-1952) is a mixed question of law and fact:...First it is necessary to decide as a matter of law whether the Act uses the expression 'mining operations' and 'mining property' in any other sense than that which they have in ordinary speech. As to this, it is enough in the present case to say that the expressions are not defined in the Act, that they have no technical legal signification, and that neither in the provisions of Div. 10, nor in any of the other provisions of the Act in which these or similar expressions occur...is there to be found any indication that the Parliament intended any other meaning than that which the words ordinarily have in this country and at this time. The common understanding of the words has therefore to be determined, and that is a question of fact:...The next question must be whether the material before the Court reasonably admits of different conclusions as to whether the appellant's operations fall within the ordinary meaning of the words as so determined; and that is a question of law:...If different conclusions are reasonably possible, it is necessary to decide which is the correct conclusion; and that is a question of fact:..." (Emphasis added)

1. This reasoning was applied by Mason J. in Hope v. The Council of the City of Bathurst (1980) 144 CLR 1 at pp 7-8, where it was held that the question, whether certain activities were a "business" within the meaning of rating legislation, was a mixed question of law and fact.

2. In the present case, it is not suggested that any of the material terms of the legislation have any special meaning. It follows their ordinary meaning should be treated as a question of fact. On the other hand, to adopt the words of Kitto J., can it be said that the evidence before the Tribunal "reasonably admits of different conclusions as to whether the (applicant's) operations fall within the ordinary meaning of the words as so determined"? If so, a question of law is involved.

3. In my opinion, the activity of drying the harvested parsley by the respondent's method is reasonably capable of leading different minds to different conclusions with respect to the question whether it is something done "in agriculture" for the purposes of the Act. That is to say, in my view, it is reasonably arguable that the respondent's activity in drying the crop is something done "in agriculture". At the same time, it may be argued, quite reasonably, that it is not so. For present purposes, it is not, of course, necessary to decide which of the two possible, but reasonable, contentions is correct. It is enough to say, on this question of jurisdiction, that the competing points of view are both reasonably taken. It must follow that there is a question of law in the "appeal" (see also Australian National Railways, supra, at p 277). Put differently, neither party, before the Tribunal or in this Court, sought to dispute the facts. The facts were common ground. Thus the only question, for the Tribunal, and for the Court, was whether the circumstances of the case necessarily fell within the statutory definition of "agriculture", as the respondent contends, or, necessarily outside the definition, as the Collector argues. This was also the situation which arose in Cliffs Robe River Iron, supra. It was held that a question of law was involved. The Court (Bowen C.J., Morling and Neaves JJ.) said (at p 275):
   "There is much authority to the effect that where all
   

the material facts are established, the question whether they fall within a statutory description is a question of fact. See Mattinson v. Multiplo Incubators Pty Ltd (1977) 1 NSWLR 368 at 372 and the cases there cited. In such a case no question of law arises unless it is contended that the situation disclosed by the evidence is necessarily inside or outside the statutory description. The case for the Collector was argued upon the basis that the evidence necessarily showed that the generation of electricity for the township fell outside the definition of mining operations. Thus a question of law was raised and the court has jurisdiction to determine it."

1. The objection to competency must be overruled.

2. I turn next to consider the appeal itself.
   Is the fuel used in the "cultivation", or "gathering in", of the parsley?

3. The first question in the appeal is whether the respondent's drying methods fall squarely within the description the "cultivation", or "gathering in", of his crop. By "squarely" is meant the notion that the dehydration procedure is an integral part of the cultivation, or gathering in, of the crop, as distinct from something merely ancillary or incidental to it.

4. According to the Macquarie Dictionary, three primary meanings of "cultivate" are:
   "1. to bestow labour upon (land) in raising crops;
   

till; improve by husbandry. 2. to use a cultivator on. 3. to improve the growth of (a plant etc.) by labour and attention."

(And see, as to the meanings of "cultivate" and "agriculture", Frauenfelder v. Reid (1963) 109 CLR 42 per Windeyer J. at pp 52-3.)

1. According to the Macquarie Dictionary, one of the definitions of "gather" is "4. to pick (any crop or natural yield) from its place of growth or formation: to gather grain, fruit or flowers."

2. Support for the conclusion that the drying process is an integral part of the operation of the cultivation, or gathering in, of the crop, may be be found in the reasoning of the High Court in The Commissioner of Taxation of the Commonwealth of Australia v. ICI Australia Limited (1972) 127 CLR 529. In considering whether certain crystallisation processes were part of "mining operations", it was there held, first, that identification of what was sought by the mining operation was crucial; and secondly, that the expression "mining operations" was capable of including the recovery of salt by the pumping of brine from a natural deposit in the crust of the earth. Walsh J. said (at p 549):
   "Having decided that ICI is carrying on mining
   

operations, the further question whether all the processes up to the crystallisation of the salt fall within that description depends in my opinion upon a decision whether the object of the mining activities should be regarded as the obtaining of brine or as the obtaining of salt in crystallised form."

Barwick C.J. said (at p 565):

"(T)he recovery of the mineral raised by the mining

operation is not complete until the evaporative process has taken place..."

Gibb J. said (at pp 583):

"In my opinion, the treatment of the brine after it had

been pumped to the surface and before it was harvested in the crystallisers was for the purpose of separating that which it was sought to obtain by mining, namely, salt, from that which was mined with it, namely water and the calcium an magnesium salts. The object of ICI's operation was, I consider, to obtain salt, not to obtain brine."

1. In the present case, it may be possible to say, by analogy, that the object of the respondent's agricultural pursuit is to obtain dry, not wet, parsley; or, put differently, to adapt the language of Barwick C.J., the recovery of the crop is not complete until the dehydration process has taken place. (see also Willeroo & Manbulloo Ltd. v. The Commissioner of Taxation of the Commonwealth of Australia (1964) 111 CLR 336 per Kitto J. at pp .340-1; W.F. Montague Pty. Ltd. v. Federal Commissioner of Taxation, 1971 ATC 4048; Camden Park Estate Pty. Ltd. v. Commissioner of Land Tax (N.S.W.) (1983) 84 ATC 4334 at p 4,337; Commissioner of Taxation v. Reynolds Australia Alumina Ltd. (1987) 18 FCR 29 at pp 35-39; pp 46-49).

2. On the other hand, support for the contrary view, that the drying process is not an integral part of the agricultural activity, may be found in the following statement of Barwick C.J., McTiernan and Menzies JJ. in Commissioner of Taxation of the Commonwealth of Australia v. Broken Hill Proprietary Company Limited (1967) 120 CLR 240 (at p 277):
   "To build a blast furnace near the mining property could
   

not, we think, be said to develop the mining property although, of course, it would provide a valuable outlet for what is mined."

1. Moreover, it will be recalled that s.164(1)(aa) speaks of fuel for use "in" primary production; and the word "in" has been judicially construed as a restrictive word: see Halstead (H.M. Inspector of Taxes) v. Condon (1970) 46 TC 289 at p 292, a decision of Megarry J.; Robe River Mining Co. Pty. Ltd. v. Federal Commissioner of Taxation (1989) ATC 4,606 at p 4,611; cf. MacPherson v. Secretary of State for Scotland (1985) JPL 788.

2. It is apparent that the question whether the drying procedure is an integral part of an agricultural activity is a matter of some difficulty. Questions of degree are involved and the dividing line is not easily identified. Although I incline to the view that the dehydration process is an integral part of the agricultural activity, it is preferable not to express a concluded view on the point. For reasons to be given shortly, I have come to the conclusion that, in any event, the rebate was payable because the drying procedure is "connected with" the cultivation, or gathering in, of the crop.
   Is the fuel used in "horticulture"?

1. This raises the same question, in principle, as in the case of the "cultivation" or "gathering in" of the crop. The comments made above must apply here also.
   Is the dehydration process ancillary or incidental to the "cultivation", or "gathering in", of the crop, or to the "horticulture"?

2. Whether or not the drying procedure is an integral part of these activities, a separate question arises as to whether the dehydration process may be ancillary, or incidental to them. Again, since I have come to the view that there is a relevant "connection" between the dehydration process and these activities, it is unnecessary that I express any conclusion on the point.
   Is the dehydration process an operation "connected with" the
   "cultivation", or "gathering in", of the crop?

3. In its ordinary meaning, "connected with" suggests a link or an association (see The Commissioner for Superannuation v. Benham, Full Federal Court, 4 April 1989, unreported, at p 10). The meaning of "connected with", in the present statutory context, was considered in the two Federal Court decisions relied on by the Tribunal.

4. In Cliffs Robe River, supra, it was held that the use of diesel fuel to generate electricity for the use of a township established by a mining company to house its mine employees was use of the fuel "in mining operations" within the meaning of s.164 of the Act. The Court said (at p 275):
   "The meaning of the word 'connection' is both wide and
   

imprecise. One of its common meanings is 'relation between things one of which is bound up with, or involved, in another' (Shorter Oxford English Dictionary). We were referred to a number of cases where, in other contexts, the meaning of the word 'connection' has been discussed, but we do not think that any assistance is to be derived from them. Given that the generation of electricity in the present case was carried out at a place adjacent to the area in which the mining occurred, the question of law which arises is whether, on the facts of this case, it was open to the Tribunal to hold that the generation of electricity for the township was an operation connected with the mining for minerals. In our opinion it was.

The construction of the town of Pannawonica, and the

supply of electricity to it, was an essential part of the scheme to establish the mine. It was a condition of the agreement made between the State of Western Australia and Basic Materials Pty Ltd pursuant to which the mine was established - vide Iron Ore

(Cleveland-Cliffs) Agreement Act 1964 (W.A.). The township forms part of the infrastructure of the mine, its sole function being to provide a place of residence for the mine workers, there being none other available. The township was constructed and is operated by the respondent solely for the purpose of enabling it to mine the minerals on the adjacent land. The township has no alternative source of electricity, and without electricity it could not provide a place of residence for the mine workers and the mine could not operate. Having regard to these facts, it was well open to the Tribunal to conclude that the generation of electricity for the township was so bound up with and involved in the mining for minerals that it was an operation connected with the mining for minerals."

1. In my opinion, this reasoning is applicable to the present circumstances.

2. In the second case, Australian National Railways, supra, the applicant claimed that a rebate was payable in respect of diesel fuel used by trains transporting (i) livestock from one place of pasture to another (either in the course of disease control or to better pasture); (ii) fertiliser from the point of manufacture to a landowner, a spreading contractor or the manufacturer's own country depot; and (iii) grain from country silos to central points on the sea-board.

3. It was held that (i) the transport of stock in these circumstances was connected with their rearing and therefore fell within the definition of "primary production". However, it was further held that the transport of fertiliser was part of the manufacture and distribution process and the transport of grain a part of the marketing of produce which had been grown and harvested. Accordingly neither (ii) nor (iii) was a part of the process of cultivation or getting in of crops nor an operation "connected" therewith. Davies J. said (at p 271):
   

"In my opinion the evidence as to the superphosphate did not show that what occurred was part of, or was connected with, the usage by primary producers of superphosphate as distinct from the distribution of superphosphate by the manufacturers of stocks to centres where it would be available for retail or user use. Nor was it shown that the grain was transported as part of the process of production and harvesting of grain as distinct from the process of distributing or disposing of the grain once harvested. The diesel fuel rebate looks to operations within a narrower compass than the operations in respect of which the applicant's claims in this respect were made. The rebate for primary production is concerned with production of primary produce, not with the manufacture and wholesale distribution of superphosphate or with the marketing of primary produce once grown and harvested. The applicant's claim on these two matters were correctly rejected."

1. In dealing with transport of the stock, Sheppard and Burchett J. said (at p 276):
   

"We find it difficult to understand why each of these carriages is not to a sufficient degree connected with the rearing of the livestock. To remove stock exposed to the danger of infestation by disease to a place where that risk will not exist seems to us to be a carriage directly concerned with their rearing. The return of the cattle after the carrying out of a programme of eradication seems to us to be in like category. Similarly, the transport of livestock from an area in which they are bought in store condition to another area for the purpose of fattening them seems also to be directly connected with their rearing, as does their removal from a drought area to be agisted on land not subject to drought."

1. With respect to the carriage of fertilisers, their Honours said (at p 277):
   

"The next type of carriage is the carriage of fertilisers. In relation to this matter we are in agreement with the Tribunal in the conclusion which it reached. In many cases questions of fact and degree will be involved. In our opinion the carriage of the superphosphate in the circumstances postulated in the Tribunal's decision is remote from any operation connected with the cultivation of the soil. The operations are rather the distribution of superphosphate to depots, areas or properties from which it will eventually be taken for the purpose of fertilising the soil. We are not persuaded that what the Tribunal has said reflects any error of law. Our view in relation to the third category of carriage is the same. In order to succeed the applicant has to show that as a matter of law the carriage of the grain in the circumstances postulated was an operation connected with the gathering in of a crop. In our opinion the carriage is remote from this operation. The operation is connected rather with the distribution of the gathered-in product than with the actual operation of getting it in. Again, we can detect no error of law in what the Tribunal has said."

1. This case illustrates that, for present purposes, a judgment has to be made as to the relative proximity, or remoteness, (as the case may be) of the activities in question. The distribution and marketing of the fertiliser and the grain were there seen to be too remote from the primary, or agricultural activity to warrant the inference that they were "connected".

2. The present case is different. The activity in question is, first, necessary for the preservation of the crop; and, secondly, both temporally and physically proximate to the primary activity of harvesting the crop. In my judgment, it is appropriate to conclude that the dehydration process was "connected with" the "cultivation", or "gathering in", of the crop. It follows that the appeal must fail.
   Costs

3. Because the respondent failed on the objection to competency but succeeded in the appeal itself, it is appropriate that he receive three-quarters of his costs.
   Orders

4. I propose to make the following orders:
   1. Objection to competency overruled.
   2. Appeal dismissed.
   3. Applicant to pay three-quarters of the respondent's costs.