Terminals (NZ) Ltd v Comptroller of Customs
[2013] NZSC 139
•6 December 2013
| IN THE SUPREME COURT OF NEW ZEALAND |
| SC 6/2013 [2013] NZSC 139 |
| BETWEEN | TERMINALS (NZ) LIMITED |
| AND | COMPTROLLER OF CUSTOMS |
| Hearing: | 5 and 6 August 2013 |
Court: | Elias CJ, McGrath, William Young, Glazebrook and Gault JJ |
Counsel: | R E Harrison QC and A C Sorrell for Appellant |
Judgment: | 6 December 2013 |
JUDGMENT OF THE COURT
A The appeal is dismissed.
BCosts of $25,000 plus usual disbursements (to be determined by the Registrar if necessary) are to be paid to the respondent. We certify for two counsel.
____________________________________________________________________
REASONS
(Given by Glazebrook J)
Table of Contents
| Para No | |
| Introduction | [1] |
| The legislative background | [7] |
| Issues in the appeal | [14] |
| Definition of manufacture | [17] |
| The parties’ contentions | [18] |
| The processes involved | [20] |
| Composition of motor spirit | [22] |
| Our assessment | [26] |
| Approach to the interpretation of taxation statutes | [35] |
| Terminals’ contention | [35] |
| Our assessment | [39] |
| Caselaw on the terms “manufacture” and “production” | [42] |
| Terminals’ submissions | [42] |
| The Comptroller’s submissions | [45] |
| Our assessment | [46] |
| Legislative history | [50] |
| Terminals’ submissions | [50] |
| Legislative history | [52] |
| The definition of manufacturing as first introduced | [58] |
| The effect of the 2002 amendment | [65] |
| Different limbs of the definition | [73] |
| Terminals’ submissions | [73] |
| Our assessment | [74] |
| Double taxation | [77] |
| Terminals’ submissions | [77] |
| Our assessment | [79] |
| Conclusion | [81] |
| Result | [82] |
Introduction
Terminals (NZ) Ltd owns and operates a facility at Mt Maunganui, where it stores motor spirit (petrol), diesel and other fuel products for its sister company, Gull New Zealand Ltd. It also stores motor spirit for BP New Zealand Ltd. As and when requested by Gull or BP, it dispatches stored fuel products (usually into a bulk fuel tanker) for transportation by road to fuel retailers in the North Island.[1]
[1]It also dispatches fuel products via a direct pipeline to a Gull service station located adjacent to the facility.
Since 2003, as part of its operations, Terminals has blended butane[2] with motor spirit. The total volume of the pre-existing motor spirit is increased during this process so that, if five litres of butane is added to 100 litres of motor spirit, this produces 105 litres of motor spirit.[3]
[2]Butane is a gas usually produced as a consequence of, or in conjunction with, oil and natural gas production. It is reduced to liquid form for transportation and storage.
[3]The butane added by Terminals to motor spirit is generally less than five per cent of the overall delivery.
The question in this appeal is whether this blending of motor spirit with butane constitutes “manufacture” for the purposes of the Customs and Excise Act 1996.[4] In other words, the issue is whether the blending constitutes “any operation, or process, involved in the production of the [motor spirit]”.[5] The Comptroller of Customs contends that it does, with the consequence that Terminals ought to have been paying duty at a higher rate on the full volume of motor spirit resulting from the process. Terminal’s position is that it does not and that no further duty is payable.
[4]We note that we will not be dealing in this judgment with any of the changes brought in by the Customs and Excise Amendment Act 2012. Because the events in question occurred between 2003 and 2011, the 2012 amendments are not relevant to this case.
[5]Customs and Excise Act 1996, s 2(1), para (b) of the definition of manufacture. The definition is set out in full at [12] below.
In broad terms, the Customs and Excise Act imposes excise and excise-equivalent duties on specified categories of locally manufactured and imported goods.[6] Butane and motor spirits are both specified goods for excise duty purposes. The issue arises because the rates of duty for butane and motor spirits are different (10 cents per litre for butane compared with 48 cents per litre for motor spirit).[7]
[6]Excise duties are imposed on goods manufactured in New Zealand, while excise-equivalent duties are imposed on imported goods. We will use the term “excise duties” from this point onwards, unless the context requires otherwise, as the excise and excise-equivalent rates for the products in question are the same.
[7]The rates vary from time to time so we have taken rounded figures for the purposes of simplicity in the examples we use.
In this case, the motor spirit used is imported into New Zealand and excise duty is paid on it at the 48 cent rate. The butane is manufactured in New Zealand and duty is paid on it at the 10 cent rate. The Comptroller has made a provisional assessment of the duty payable on the product resulting from the blending process at 48 cents per litre but has allowed a credit for the duty already paid on the two constituent goods.[8]
[8]Under the figures we are using, this means that Terminals would effectively be liable for duty at 38 cents per litre (48 cents less 10 cents) on every additional litre of motor spirit resulting from the mixing process. On the example we have given above, there would be an additional five litres of motor spirit and the added 38 cents per litre would be paid on that only. ACC and Petroleum or engine fuel monitoring (PEFM) levies and Goods and Services Tax (GST) would also be payable on the additional volume of motor spirit: Energy (Fuels, Levies, and References) Act 1989, s 24; Goods and Services Tax Act 1985, s 8; Accident Compensation Act 2001; and Accident Compensation (Motor Vehicle Account Levies) Regulations 2010 (and 2012).
In the High Court, Mallon J made a declaration that the Terminals operation was not “manufacturing” under the Customs and Excise Act, “with the result that excise tax at the motor spirit rate is not payable on the butane”.[9] That decision was reversed by the Court of Appeal.[10] Leave to appeal to this Court was granted on the issue of whether the activities of Terminals amounted to the manufacture of motor spirit.[11]
The legislative background
[9]Terminals (NZ) Ltd v Comptroller of Customs [2012] NZHC 1139, (2012) 2 NZCC 55-038 [Terminals (HC)] at [136] (Mallon J). Terminals brought the proceeding in the High Court by way of judicial review. The Comptroller of Customs initially raised an objection to this choice of proceeding in the High Court but later withdrew it in the interests of efficiency. The Court of Appeal proceeded on the basis that there was no objection to the procedural vehicle adopted: Comptroller of Customs v Terminals (NZ) Ltd [2012] NZCA 598, (2012) 2 NZCC 55-040 [Terminals (CA)] at [10] (Arnold, Randerson and Wild JJ).
[10]Terminals (CA), above n 9. The facts of the case are set out in more detail in the decisions of the Courts below: see Terminals (HC), above n 9, at [4]–[33]; and Terminals (CA), above n 9, at [12]–[15].
[11]Terminals (NZ) Ltd v Comptroller of Customs [2013] NZSC 22. Terminals raised two additional arguments in the Courts below that, if a duty was payable, then the Comptroller was breaching a legitimate expectation that it would not have to pay it, arising from discussions and correspondence between representatives of Terminals and the Comptroller in 2002. On the same basis, Terminals argued that it could rely on promissory estoppel. These arguments were not renewed in the application to this Court.
Excise duty is an indirect tax on consumption. While it is imposed on the importer or the manufacturer, the consumer ultimately bears the economic burden of the duty as it will be passed onto the consumer in the form of a higher price. Excise duty is levied by reference to a specific unit[12] (“per litre”[13] in the case of fuel). This enables the tax to be hypothecated or earmarked for specific social expenditure. In the case of motor spirits, since 1927 excise duty has largely been earmarked for the purpose of contributing towards the cost of transport infrastructure.[14]
[12]Unlike GST, which is the other main indirect tax in New Zealand.
[13]Under s 2(2) of the Customs and Excise Act, “litre” means the quantity of product expressed in litres at a temperature of 15°C.
[14]Motor-spirits Taxation Act 1927, ss 6 and 9. Under the Land Transport Management Act 2003, as amended in 2008, all excise duty and excise-equivalent duty on motor spirits, compressed natural gas, or liquefied petroleum gas under the Customs and Excise Act (excluding applicable refunds or drawbacks of duties, and goods and services tax payable under the Goods and Services Tax Act) is paid into the National Land Transport Fund to be used for land transport activities and associated costs: ss 6(b) and 10. Prior to the 2008 Amendment (and therefore encompassing some of the events concerned in this case) only a portion of the excise tax, as prescribed by regulations, was paid into the Fund: Land Transport Management Act, ss 6, 10, and 40, read with Land Transport Management (Apportionment and Refund of Excise Duty and Excise-Equivalent Duty) Regulations 2004, reg 4. The change from partial to full apportionment of motor spirit excise duties to the Fund was part of a large reorganisation of the land transport management regime in 2008: Land Transport Management Amendment Act 2008.
Excise duty[15] is imposed on three categories of goods: tobacco, fuel and alcohol, including food items containing alcohol.[16] Excise duty on manufactured goods is imposed by s 73, while excise-equivalent duty on imported goods is imposed under s 75 of the Customs and Excise Act.
[15]The term “duty” is widely defined and includes not only excise duty but also duties from taxes or levies imposed under other legislation such as the Goods and Services Tax Act, the Accident Compensation Act, and the Energy (Fuels, Levies, and References) Act – see the definition of “duty” under the Customs and Excise Act, s 2(1). As noted above at n 6, we use the term “excise duty” to include “excise-equivalent duty”.
[16]See Excise and Excise-equivalent Duties Table (1 July 2013) < Prior to the introduction of GST in New Zealand, excise duty was levied on a wide range of items, including food products, non-alcoholic beverages, medicines, clothing, household items, machinery, farm products: see, for example, Customs and Excise Duties Act 1895, sch A.
The Customs and Excise Act provides for a system of control by the New Zealand Customs Service within Customs controlled areas (CCAs).[17] Both imported goods and manufactured excisable goods remain subject to the control of Customs from the time of importation or manufacture until they are lawfully removed from a CCA for home consumption or export.[18] Goods are deemed to be removed for home consumption when the goods are physically removed from the CCA unless they are moved to another CCA with the approval of the Chief Executive of Customs or they are removed for export.[19]
[17]Customs and Excise Act, ss 10 and 11.
[18]Subsections 20(1)(a) and (e). Terminals’ facility is within the Port of Tauranga, which is a Customs controlled area (CCA).
[19]Section 72 and see also s 20(2). Goods can also be moved temporarily with the consent of the Chief Executive of Customs.
No one may manufacture goods that are subject to excise duty, except in a manufacturing area licensed under the Customs and Excise Act.[20] Under subs 10(a)[21] no area may be used to manufacture excisable goods unless it is in a CCA.[22] Excise-equivalent duty and excise duty are payable only at the time that imported or manufactured goods pass the entry for home consumption or, are removed for home consumption, respectively.[23] As the excise regime is a domestic consumption tax, excise duties are not payable on exported goods. Where goods are imported for the purposes of manufacture, the payment of duty can be deferred until after the manufacturing process is completed and the goods are removed for home consumption.[24]If duty has already been paid on imported goods that are later used in the manufacture of excisable goods, a credit is available under s 85:
85 Duty credits
(1) Where the licensee of a manufacturing area purchases materials or goods for use in manufacture, the licensee may, at the time of making an entry for home consumption as required by section 70, claim, as a credit, excise duty or excise-equivalent duty paid in respect of those materials or goods.
…
(3) The amount of the excise duty or excise-equivalent duty that may be claimed by the licensee of a manufacturing area as a credit relating to materials—
(a) to which subsection (1) applies, is the amount of excise duty or excise-equivalent duty originally paid by the licensee of a Customs controlled area, importer, or owner in respect of the materials; or
(b) to which subsection (2) applies, is the amount of excise duty or excise-equivalent duty paid by the licensee—
...
[20]Section 68(1). There are certain exemptions available (ss 68A, 68B and 68C, see below n 22) but none are applicable in this case.
[21]See also the s 2(1) definition of “manufacturing area”. An area can only become a CCA if it acquires a licence under s 11.
[22]There are three exceptions to the requirement of having a licence. Under subss 12(4) and (5), the Chief Executive of the New Zealand Customs Service has a discretion, in assessing an application for a licence, to direct that the area need not be licensed as a CCA and that it accordingly be exempt from the provisions of the Act. Under ss 68A, 68B and 68C, tobacco, alcoholic beverages and biofuel respectively can be manufactured outside of a CCA for personal use.
[23]For goods manufactured in a CCA: s 76(1), and for imported goods: s 75(3). Under s 74, unless an express exception applies (such as those set out at n 22 above), excise duty is payable on excisable goods even where they are manufactured outside of a CCA.
[24]This is because the excise duty on imported goods is payable only on their removal from the CCA. Goods that are moved from one CCA to another for manufacturing, with the consent of the Chief Executive of the Customs Service, will not be deemed to have been removed for home consumption for the purposes of excise duty: s 72(a). This is also reflected in the Excise and Excise-equivalent Duties Table, which includes a tariff for motor spirit intended for further manufacture. This tariff is listed under part A of the table, which deals with manufactured goods, and not part B, which deals with imported goods.
The rates of duty are set out in a Duties Table, which may be modified from time to time.[25] Part A of that table sets out the rates of duty in relation to specified goods manufactured in New Zealand. Part B provides the rates of duty for imported goods. The excise rates for motor spirit and butane are, however, the same for both imported and manufactured goods.[26]
[25]Defined in s 76A of the Act as a document certified by the Chief Executive under s 76B. See also ss 76G and 77. The current table is the Excise and Excise-equivalent Duties Table, above n 16.
[26]This is because, as an indirect consumption tax, excise duties are intended to apply equally to imported and manufactured goods.
The term “manufacture” is defined in the Customs and Excise Act as follows:[27]
manufacture, in relation to goods specified in the Excise and Excise-equivalent Duties Table, means,—
(a)if the goods are tobacco, the process of cutting, pressing, grinding, crushing, or rubbing raw or leaf tobacco, or otherwise preparing raw or leaf tobacco or manufactured or partially manufactured tobacco, and of making cigarettes whether from duty-paid or from non-duty-paid tobacco, and of putting up for use or consumption scraps, waste, chippings, stems, or deposits of tobacco resulting from processing tobacco:
(b)if the goods are a fuel, any operation, or process, involved in the production of the goods:
(c)if the goods are neither tobacco nor a fuel,—
(i)any operation, or process, involved in the production of the goods; and
(ii)any ancillary process (as defined in subsection (3)) that takes place on premises that are not licensed, or required to be licensed, under the Sale of Liquor Act 1989
[27]Section 2(1).
The section 2(3) definition of “ancillary process” includes filtering, diluting and blending the specified alcohol products and the putting of such products into containers such as bottles or cans and labelling or marking such containers once filled:
(3) For the purposes of paragraph (c)(ii) of the definition of manufacture in subsection (1), the term ancillary process, in relation to the manufacture of goods specified in the Excise and Excise-equivalent Duties Table that are neither tobacco nor a fuel, means 1 or more of the following processes:
(a) filtering the goods, diluting the goods, or blending the goods with other goods (whether the other goods are the same as, similar to, or different from, the goods):
(b) putting the goods for the first time into a container (for example, a bag, barrel, bottle, can, cask, drum, or keg) in which they might be presented, or from which they might be dispensed, for sale to the public or any member of the public:
(c) labelling or marking, for the first time, containers filled with the goods.
Issues in the appeal
The Comptroller supports the decision of the Court of Appeal. She submits that the blending process in this case comes within the definition of manufacture in the Customs and Excise Act. She relies on the plain meaning of the text of the definition, read in light of the general context of the Act, its legislative history and its purpose.
For Terminals, it is submitted that the Court of Appeal did not address the question of the appropriate approach to the interpretation of taxation legislation. Secondly, it is submitted that a long line of English, New Zealand and Australian revenue cases have held that the expressions “manufacture” and “production” require there to be a process where the resulting goods are intrinsically different from the component parts or ingredients utilised and that this militates against the interpretation of the definition that the Court of Appeal favoured. Thirdly, Terminals submits that the Court of Appeal did not pay proper regard to the striking differences between the three limbs of the definition of manufacture and to the legislative history of the definition. Finally, it is submitted that the Comptroller’s approach leads to double taxation.
We propose to deal with the submissions under the following headings:
(a)definition of manufacture;
(b)approach to the interpretation of taxation statutes;
(c)caselaw on the terms “manufacture” and “production”;
(d)legislative history;
(e)the different limbs of the definition; and
(f)double taxation.
Definition of manufacture
As noted above, the issue in this case is whether blending butane with motor spirit constitutes manufacture as defined in the Customs and Excise Act, being “any operation, or process, involved in the production of [motor spirit]”.[28] There seems little doubt (and it is accepted by Terminals) that the blending of butane with motor spirit in this case is an “operation” or “process”. The issue is whether this results in the production of motor spirit.
The parties’ contentions
[28]Customs and Excise Act, s 2(1).
For Terminals, Dr Harrison submits that the “dispatch activity” conducted by Terminals does not in any real sense “produce” the combination of motor spirit and butane. The dispatch activity involving butane occurs alongside other frequent dispatches of stored fuels to their owners, with or without combination of components. All that occurs is that Terminals simultaneously delivers into tankers two distinct, duty-paid forms of fuel. The resulting mixture of motor spirit and butane is still classified as motor spirit and, as such, it remains fully compliant with the Engine Fuel Specifications Regulations 2011 (Regulations).[29] No new product is produced. In Dr Harrison’s submission, a mere change in volume or alteration in chemical composition, which does not change the nature of the allegedly manufactured product, does not amount to “production” or “manufacture”.
[29]Under the Engine Fuel Specifications Regulations 2011 [Regulations], petrol (motor spirit) is classified as either regular or premium grade. Regular grade petrol has a minimum research octane number (RON) of 91.0 and a minimum motor octane number (MON) of 81.0, while premium grade petrol has a minimum RON of 95.0 and a minimum MON of 85.0. The Regulations set out specific qualities such as percentage volume evaporated and vapour pressure that fuels must have to comply as petrol. The 2011 Regulations differ slightly from the regulations in force during the periods relevant to this case. Prior to their revocation in 2008, the operative regulations were the Petroleum Products Specifications Regulations 2002 (amended in 2003 and 2006) followed by the Engine Fuel Specifications Regulations 2008. These differed only very slightly from the 2011 Regulations, for example, between 2002 and 2011 the minimum MON for regular grade petrol was 82.0 rather than 81.0.
For the Comptroller, Dr Palmer submits that motor spirit that is blended with butane is different from motor spirit that has not been blended with additional butane. In other words, when motor spirit A is blended with butane, it creates motor spirit B. A new “good” is produced. It is also submitted that Terminals’ description of its activities as “dispatch activity” is misleading, given the sophistication of the blending process and the fact that it is separate from the process of dispatching the motor spirit when a tanker is driven away. It is further submitted that this interpretation is supported both by the fact that excise duty is levied on volume and by the text of the definition of “manufacture” and by the wider statutory scheme.
The processes involved
Terminals’ blending process uses custom-built, computer-controlled, dedicated pumping and pipeline facilities to blend the motor spirit with the added butane. Pipes transport motor spirit from large storage tanks to large tankers, which then transport the fuel to retailers. Connected to these delivery pipelines are smaller pipes linked to tanks containing additives such as butane. A system of computer-controlled individual pumps and valves enables precise amounts of butane (or other additive) to be pumped into the main pipes delivering the motor spirit to achieve the desired blends. The exact amount of butane to be added depends on the season, as well as the region to which it is to be sent for ultimate consumption.[30] The resulting blend is classified as motor spirit and remains compliant with the relevant Regulations.[31]
[30]Vapour pressure specifications change between seasons and sometimes regions to accommodate differences in temperature. This is to ensure that, even in the coldest likely temperatures, enough petrol vaporises to permit an engine to start, but not so much as to prevent the proper functioning of fuel systems in the highest likely temperatures: “Transportation” in Robert McHenry (ed) The New Encyclopaedia Britannica Macropaedia (15th ed, University of Chicago, Chicago, 1992) vol 28 at 778.
[31]Engine Fuel Specifications Regulations 2011, above n 29.
The blending process takes place in a licensed manufacturing area but the licence does not relate to butane. In October 2003, Terminals sought and obtained a licence to store and denature ethanol (denaturing licence). Ethanol is ethyl alcohol that has been denatured (rendered non-potable) by the addition of a small amount of motor spirit. In 2009 Terminal’s licence was amended to authorise the manufacture of biofuel. Ethanol is zero-rated for excise duty when blended with certain amounts of motor spirit[32] (more than required for denaturing) as an incentive to increase the use of renewable biofuels.[33] The blending of ethanol with motor spirit and the blending of butane with motor spirit is done in the same facility. A number of Terminals’ blended motor spirit products contain both ethanol and butane.
Composition of motor spirit
[32]Motor spirit containing ethanol is classified as a separate product in the Excise and Excise-equivalent Duties Table (see above at [11]). The ethanol part of biofuel is zero-rated. Accordingly, duty is payable on biofuels only in relation to the amount of motor spirit that they contain: see Excise and Excise-equivalent Duties Table, above n 16, at 4, fuel 99.75.05F (ethanol biofuel) where duty is payable per litre of motor spirit (“per lms”).
[33]Biofuel Bill 2007 (148-2) (explanatory note) at 11–12 and 18.
Evidence for the Comptroller was given by Dr Vladimir Koutsaenko. His evidence (which is not challenged by Terminals) was that motor spirit is a blend of various chemicals, primarily a dozen or more liquid hydrocarbons.[34] Motor spirit is not a new substance produced as a result of a chemical reaction. It is a blend of the various components, which co-exist together without reacting. This is why it is possible to define the content of motor spirit and quantify its various ingredients, as required by the Regulations.[35]
[34]There is no one single formula for motor spirit as these hydrocarbons can co-exist in various proportions in the blend.
[35]Above n 29.
Butane is not motor spirit. It is only one of the constituent ingredients of motor spirit[36] and therefore does not fall within the definition of petrol[37] under the Regulations.[38] When butane is added to motor spirit it is still separately identifiable but it does become part of the motor spirit. In other words, the result of the blending process is that the volume of motor spirit is increased by approximately the amount of butane added.[39]
[36]Butane is separated from motor spirit during the refining process but some always remains, as explained by the Terminals’ operation manager in his affidavit.
[37]The Regulations use the term “petrol” rather than “motor spirit”. However, as Dr Koutsaenko explained in his evidence, both terms carry the same meaning.
[38]Petrol is defined in reg 5 of the Regulations, above n 29, as “a refined petroleum distillate, or other liquid hydrocarbon fuel, normally boiling within the limits of 15°C to 220°C, whether or not it contains additives, that is intended for use as a fuel in spark-ignition internal combustion engines” and includes “petrol containing up to 10% ethanol by volume”. As Dr Koutsaenko recorded in his evidence, butane has a different boiling point to petrol: n-butane has a boiling point of 0°C, while isobutane has a boiling point of approximately minus 12 °C.
[39]As the example at [2] above illustrates.
Dr Koutsaenko’s evidence was that, when butane is mixed with motor spirit it “is not the same [motor spirit] as it was before the mixing” in the sense that it is not chemically identical.[40] When butane is blended with motor spirit, the Vapour Pressure of the motor spirit will change and the Percentage Volume Evaporated at 70˚C is likely to change slightly. Both Percentage Volume Evaporated and Vapour Pressure are terms used in the Regulations, which require these factors to change from season to season, with some regions also setting out different requirements.[41]
[40]Terminals accepted in its submissions that the blended product is not chemically the same as the motor spirit before it is blended.
[41]See above n 29.
Depending on the quantities of butane added, Dr Koutsaenko’s evidence was that this could also result in the Research Octane Number (RON) and/or the Motor Octane Number of the motor spirit changing, although it appears that the amounts of butane that Terminals was blending with its motor spirit are not sufficient to change the RON.[42]
Our assessment
[42]Premium motor spirit and regular motor spirit are listed under the current Duties Table as separate goods, with separate (though equal) excise rates. They are distinguished by their different RON and MON, see above n 29.
We do not accept Terminals’ argument that the blending and resulting increase in the quantity of motor spirit is merely part of its dispatch operations. This, as pointed out by the Comptroller, fails to take account of the complex nature of the blending process undertaken in this case. In any event, the blending is rightly accepted by Terminals to be a “process” or “operation”. The sole question is whether it results in the production of motor spirit. If what is dispatched has been “produced” then manufacturing has occurred under the statutory definition.
There is much to be said for the position taken by the Comptroller that the addition of butane produced a different motor spirit, in light of the Koutsaenko evidence that the blended product is not chemically identical to the pre-blended motor spirit. As explained, the blended product would have a higher Vaporisation Rate and different Vapour Pressure from that of the motor spirit before the extra butane was added.[43] If, to use the Comptroller’s terminology, motor spirit B is a different good to motor spirit A, then it follows that the operation or process (adding butane) carried out to turn motor spirit A into motor spirit B must be an operation or process “involved in the production of” motor spirit B.
[43]This was also the view of the Court of Appeal: Terminals (CA), above n 9, at [101].
Even if we had taken the view that the good has not changed and remains motor spirit both before and after the addition of extra butane, this would not have prevented the process of blending butane with motor spirit from falling under the definition of manufacture. We take the example set out above whereby five litres of butane is blended with 100 litres of motor spirit.[44] Even if it is not accepted that a different good has been produced, it is clear that the process has resulted in there being five more litres of motor spirit.
[44]Above at [2].
On Terminals’ argument, that extra five litres has not been produced at all. But it clearly exists: the butane, while it is still separately identifiable from the motor spirit, does not exist separately from the motor spirit of which it is now a part. In other words, the added five litres is not five litres of butane; it is an additional five litres of motor spirit. The whole 105 litres which exists after the blending process will be sold, marketed and consumed as motor spirit. A “good”, namely the extra five litres of motor spirit, has accordingly been “produced”. The “process” or “operation” that went into its production was the blending of butane with motor spirit.[45]
[45]Terminals (CA), above n 9, at [99]–[100]. The Court commented at [99] that it may be that minor additives that do not increase the volume by other than a de minimis quantity would not amount to manufacturing for excise duty purposes.
That the blending of butane with motor spirit comes within the definition of manufacture is also contextually supported by the fact that excise duty is imposed on motor spirit (whether imported or locally manufactured) on the basis of volume.[46] Terminals’ argument would result, in the example given above, of five litres of motor spirit being subject to excise duty at a lower rate. As pointed out by the Court of Appeal, excise duty at the motor spirit rate is payable on the total volume of motor spirit without differentiation according to its constituent elements, except in the case of ethanol where Parliament has determined that no duty is payable on the ethanol content of the relevant volume of motor spirit.[47]
[46]Terminals (CA), above n 9, at [92]–[93].
[47]At [93].
Dr Harrison accepted in the Court of Appeal that, if the butane had been added to the motor spirit prior to importation, duty would have been payable at the motor spirit rate on the full volume of motor spirit imported.[48] He also accepted before this Court that, if butane was blended into motor spirit at a domestic oil refinery, then this would be part of the manufacturing process carried out at the refinery. In such circumstances, it might be thought anomalous if duty on the whole volume of the resultant motor spirit could be avoided by adding the extra butane before importation or by the extra butane being added after importation by an entity other than a refinery.
[48]At [94].
We also accept the submission made on behalf of the Comptroller that there are other indicia supportive of this interpretation in the wider statutory scheme. The fact that the duty is a proxy for consumption, that it is an hypothecated tax and that the rates are effectively set on the basis of the cost of roading and related costs are all powerful indications that it was not intended that any volume of motor spirit released for home consumption would be subject to duty at a lower rate than the motor spirit rate.[49] Terminals submitted in the High Court that this is not a true hypothecation as the tax payable is ear-marked for roading costs at the point of importation or manufacturing, not “at the pumps”.[50] We do not accept this argument. The duties are payable on removal for home consumption. This is a proxy for consumption.
[49]It is also relevant that ss 66 and 68 of the Land Transport Management Act link revenue (including from duties) with transport expenditure. Under those provisions, the Minister of Transport must issue a Government Policy Statement (GPS) on land transport which includes estimates of the likely revenue, including changes to the duties, fees, and charges paid into the National Land Transport Fund, a maximum and a minimum level of expenditure for the national land transport programme, and an allowable variation between expenses and capital expenditure incurred under the national land transport programme and the inflows received by the Fund: s 68(2)(b)(iii), (v) and (vi).
[50]Terminals (HC), above n 9, at [99]. Mallon J accepted Terminals’ argument that too much weight should not be placed on the hypothecation of excise duty. The provisions under which the duty was hypothecated were found in statutes other than the Customs and Excise Act. “Manufacturing” should be interpreted by reference to the purpose of the Customs and Excise Act, not the overall tax regime of which it was only one part: at [100].
The Comptroller also points to a refund facility for excise duty in relation to consumers whose vehicles do not impact on the road system as significantly as the average consumer.[51] In her submission this raises the possibility of consumers being refunded the amount of a duty that has not actually been paid at the full rate.[52]
[51]Land Transport Management Act, s 41; and Land Transport Management (Apportionment and Refund of Excise Duty and Excise-Equivalent Duty) Regulations 2004, reg 5. These provisions were not affected by the 2008 amendments relevant to the National Land Transport Fund discussed above at n 14. The predecessor provision to s 41, which was in force for part of the time of the events concerned in this case, was s 101 of the Transit New Zealand Act 1989.
[52]Other statutory indications that Parliament intended that excise tax on motor spirit operate as a consumption tax include: s 24 of the Energy (Fuels, Levies, and References) Act 1989, which imposes a PEFM levy on “each complete litre of petroleum or engine fuel” specified in the Excise and Excise-equivalent Duties Table. Similarly, the Accident Compensation (Motor Vehicle Account Levies) Regulations 2010 prescribe the current ACC levies for motor vehicles and fuel based on a levy “per litre of motor spirits” (reg 5), payable with any excise duty payable (reg 6(2)(b)).
All these reasons point to the conclusion that the blending of butane with motor spirit constitutes “manufacture” in terms of the definition in the Customs and Excise Act. We now examine whether the other arguments raised by Terminals change this conclusion.
Approach to the interpretation of taxation statutes
Terminals’ contention
It is submitted on behalf of Terminals that the Court of Appeal failed to consider and give effect to the comments of this Court in Stiassny v Commissioner of Inland Revenue on the proper interpretation of taxation statutes. In that case this Court said:[53]
In this country, the general approach to the interpretation of a revenue statute is much the same as for other statutes. The purpose of a taxing provision may be a guide to its meaning and intended application. But, as Burrows and Carter point out, in most cases the only evidence of that purpose is the detailed wording of the provision and the safest method is to read the words in their most natural sense. In construing and applying a taxing provision, a court leans neither for nor against the taxpayer, but should require that before the provision is effectual to make the taxpayer amenable to the tax, it uses words which, on a fair construction, must be taken to impose that tax in the circumstances of the case.
[53]Stiassny v Commissioner of Inland Revenue [2012] NZSC 106, [2013] 1 NZLR 453 at [23] (citations omitted).
It is submitted on behalf of Terminals that the application of the “fair construction” principle should favour a non-expansive approach to the interpretation of any key threshold concept (such as the definition of “manufacture”) which has the effect of triggering a liability to pay a tax or duty.
In Dr Harrison’s submission, the corollary of the “fair construction” approach is that the nature of any activity that may lead to taxation should be limited to what is clearly specified by the taxing statute. Further, on a “fair construction” approach, traditional interpretative tools such as expressio unius interpretation (discussed below[54]) can and should play a legitimate part.
[54]See below at [74]–[76].
It is also submitted that where, as here, the taxing statute lacks any anti-avoidance provision, taxpayers must be entitled to arrange their affairs and conduct their business in a way that minimises exposure to tax or duty.
Our assessment
Under s 5(1) of the Interpretation Act 1999, the text of a provision is to be construed in light of its purpose. Taxation statutes are construed purposively in the same manner as any other statute, as this Court indicated in the passage quoted above. The comment about “fair construction” was not intended as a gloss on that principle. It was a reference back to there being no presumption in favour of either party and to the purposive construction accorded to all statutes. The comment must also be evaluated in the context of the argument presented in that case for the Commissioner of Inland Revenue, which was described as “ingenious”.[55]
[55]Stiassny v Commissioner of Inland Revenue, above n 53, at [26]. The Commissioner’s “ingenious” argument in that case was not accepted by this Court but the Court did find in favour of the Commissioner on other grounds.
The fact that there is no general anti-avoidance provision in the Customs and Excise Act does not change the principles of interpretation that are to be applied. The majority of this Court in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue[56] held that there are two inquiries to be carried out when interpreting statutes which include a general anti-avoidance provision. The first inquiry is to assess whether the legal substance[57] of the relevant arrangement comes within the specific provisions of the statute construed purposively.[58] It is only after the arrangement in question has been held to come within the specific provisions construed purposively, that the question of whether that arrangement contravenes the general anti-avoidance provision is considered.[59]
[56]Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289.
[57]At [47]–[48] per Tipping, McGrath and Gault JJ.
[58]At [103], [106] and [107] per Tipping, McGrath and Gault JJ.
[59]At [107] per Tipping, McGrath and Gault JJ. The minority took a slightly different approach but, if anything, their approach would lead to a greater, rather than lesser, role for the specific provisions than is accorded in the majority judgment: at [3]–[7] per Elias CJ and Anderson J.
The only relevance of there being no general anti-avoidance provision in the Customs and Excise Act therefore is that the analysis stops at the first stage of Ben Nevis with a purposive interpretation of the specific provision in question; in this case with a purposive interpretation of the definition of manufacture.
Caselaw on the terms “manufacture” and “production”
Terminals’ submissions
Terminals submits that the definition of manufacture in the Customs and Excise Act was enacted against the background of a long line of English, New Zealand and Australian revenue cases that have held that the expressions “manufacture” and “production” require there to be a process where the resulting goods are intrinsically different from the component ingredients used to produce it.[60]
[60]See, for example, Wellington City Council v Attorney-General [1990] 2 NZLR 281 (CA) where the Court of Appeal held that the repair and replacement of parts of a road sweeper did not constitute manufacturing so as to render the sweeper in question “part manufactured in Australia” and thus not subject to customs tax; Adams v Rau (1931) 46 CLR 572 where the High Court of Australia held that the taking down and transcribing of evidence in trials was not manufacturing for income tax purposes; Commonwealth of Australia v Genex Corporation PtyLtd (1992) 176 CLR 277 where the High Court of Australia held that the creation of negatives in the development process of photographic prints were not manufactured for the purposes of sales tax; Federal Commissioner of Taxation v Jax Tyres Pty Ltd [1984] 5 FCR 257 (FCAFC) where the Federal Court held that the re-treading of tyres was not manufacturing for the purposes of sales tax; and McNicol v Pinch [1906] 2 KB 352 at 360 where the Court held that subjecting previously-manufactured saccharin to a chemical process which greatly increased or decreased its sweetness was not manufacturing.
Terminals also submits that those cases demonstrate that, even if an operation or process effects some change to the goods, this may not amount to manufacture.[61] In addition, it is submitted that there has to be proper consideration of the operation or process as a whole, rather than concentration on one aspect of it.[62]
[61]It may amount to no more than treatment: Commonwealth of Australia v Genex Corporation Pty Ltd, above n 60, at 290; and McNicol v Pinch, above n 60, at 360.
[62]Adams v Rau, above n 60, at 579.
Having regard to the whole of Terminals’ dispatching operation, it is submitted that the dispatched motor spirit, far from being “altogether different” or “essentially different” or “a new product” by comparison with what previously existed, is “essentially the same”. Further, the motor spirit has not even been exposed to a chemical or other technological process.[63] All that has occurred is that, in the course of transferring motor spirit into the road tanker, a small amount of butane has been added to the motor spirit by means of simultaneous pumping of the two products into the main pipe which dispatches the particular product blend into the tanker.
The Comptroller’s submissions
[63]By contrast with the saccharin in McNicol v Pinch, above n 60, and the film negatives in Commonwealth of Australia v Genex Corporation Pty Ltd, above n 60.
The Comptroller submits that the authorities on which Terminals relies were largely customs or sales (rather than excise) tax cases and in many cases there is either no definition of “manufacture” or “production” or a definition different from the one at issue here. They were also decided in a different legislative context, including situations where the issue was determining the country of manufacturing origin. Requiring the resulting goods to be different from their constituent parts may be appropriate in the context of determining the country of manufacturing origin; in New Zealand there are separate and different definitions of manufacture for those purposes.[64] This illustrates that different definitions are relevant to regimes with different purposes and, if Parliament had wanted to adopt the definition Terminals contends for, it could easily have done so. The Comptroller points out that neither the High Court nor the Court of Appeal considered that the overseas authorities controlled the interpretation of manufacture under the Customs and Excise Act.[65]
Our assessment
[64]See, for example, the definition of “manufacture” in reg 32 of the Customs and Excise Regulations 1996 (promulgated pursuant to s 65 of the Customs and Excise Act) dealing with country of origin claims relating to Australia: manufacture means the “creation of an article essentially different from the matters or substances that go into the article”.
[65]See Terminals (CA), above n 9, at [72]; and Terminals (HC), above n 9, at [73]–[75].
If words in a statute are enacted against the background of an established interpretation of those words, then this may be an indication that the parliamentary purpose was to use the words in that sense.[66] Whether that is so or not will depend on a number of factors, including the context of the particular statute, how established the meaning is and the relevance of the previous caselaw to the situation covered by the statute in question.The meaning of the particular words in the particular statute must still be ascertained from the text considered in light of the purpose of the provision.[67]
[66]See JF Burrows and RI Carter Statute Law in New Zealand (4th ed, LexisNexis, Wellington, 2009) at 194–196.
[67]As required by s 5(1) of the Interpretation Act 1999.
The overseas cases relied on by Terminals have been extensively analysed by Mallon J in the High Court,[68] and in the Court of Appeal.[69] We do not propose to repeat that discussion here because we accept the submission of the Comptroller that the overseas cases relied on were decided in different legislative and factual contexts and are not directly relevant. We therefore do not accept the submission that these authorities suffice to show that there was a clear, accepted and universal meaning ascribed to the words “manufacture” and “production” and that the legislature must have intended the words it used to have that accepted meaning in an excise duty context.
[68]Terminals (HC), above n 9, at [63]–[72].
[69]Terminals (CA), above n 9, at [50]–[71].
In particular, in the context of a product (motor spirit) that is by its very nature blended, it would be unlikely that Parliament would have considered the cases that suggest that blending does not constitute manufacturing, to be controlling.[70] In any event, as discussed above,[71] the motor spirit which is produced as a result of the blending process does have different characteristics from the motor spirit before the blending. It is therefore arguable that it is a different product, at least for excise duty purposes.[72]
[70]See Cinzano (UK) Ltd v Customs and Excise Commissioners [1985] 1 WLR 484 (HL) discussed below at [50].
[71]Above at [24]–[25] and [27].
[72]There could be a different result in a different context.
As to the other points made on behalf of Terminals, we do not consider that it makes any difference if the blending occurs in a dispatch operation or a refinery. As pointed out above, the issue is whether goods have been produced.[73] Further, it is accepted that the blending in this case is a process or operation. There is nothing in the definition that requires this process or operation to be a “chemical or other technological process”. In any case, even if that were a requirement, the blending process here is a sophisticated computer-controlled operation which would surely fall within the concept of “technological” process.
Legislative history
Terminals’ submissions
[73]See discussion above at [26].
At the time the Customs and Excise Act was first passed it substantially re-enacted the definition of manufacture considered in the case of International Bottling Co Ltd v Collector of Customs.[74] Terminals submits that Parliament must be taken to have accepted the interpretation of the term reached in that case. Tompkins J in International Bottling cited with approval the House of Lords decision in Cinzano (UK) Ltd v Customs and Excise Commissioners,[75] which held that blending two different strengths of imported vermouth did not mean that Cinzano was “producing wine in the United Kingdom” and therefore did not have to pay a higher rate of duty on the blended vermouth.
[74]International Bottling Co Ltd v Collector of Customs [1995] 2 NZLR 579 (HC).
[75]Cinzano (UK) Ltd v Customs and Excise Commissioners, above n 70.
It is further submitted that when, in 2002,[76] Parliament chose to include in the definition of manufacture the additional ancillary processes (including blending), this was only for alcohol and not for fuels. It therefore must be taken to have decided to reverse the decision of International Bottling only for alcohol and not for motor spirit.
Legislative history
[76]Customs and Excise Amendment Act (No 2) 2002 (2002 Amendment Act), s 3(3) amending s 2(1) of the Customs and Excise Act.
International Bottling was decided in 1995. At the time the relevant definition of manufacture was contained in s 2(1) of the Customs Act 1966. It covered both fuel and alcohol[77] and provided that “manufacture” included “any process of production, assembly, packaging, and any other operation or process involved in the production of the goods”.[78]
[77]Manufacture as it related to tobacco was defined in a separate limb as including: “the process of cutting, pressing, grinding, crushing, or rubbing any raw or leaf tobacco, or otherwise preparing raw or leaf tobacco or manufactured or partially manufactured tobacco, and of making cigarettes whether from duty-paid or from non-duty-paid tobacco, and of putting up for use or consumption in any way any scraps, waste, chippings, stems, or deposits of tobacco resulting from any processing of tobacco”. This is identical to the definition as it relates to tobacco under the Customs and Excise Act.
[78]This definition applied to goods set out in the Third Schedule to the Act including fuel and alcohol. It was inserted in 1986 by s 2(5) of the Customs Amendment Act 1986. As set out above at n 77, there was a separate limb of the definition relating to tobacco.
When the Customs and Excise Act was first enacted in 1996, the definition of manufacture moved to an exhaustive rather than inclusive definition[79] but was otherwise in substantially the same terms as the provision at issue in International Bottling.The Customs and Excise Act received the royal assent on 4 June 1996, a year after the decision in International Bottling.
[79]Also the term “any process” was changed to “a process”.
On 8 October 2002, the definition of manufacture was amended by the Customs and Excise Amendment Act (No 2) 2002. This introduced the current definition of manufacture at issue in this case. The 2002 Amendment Act expanded the definition of manufacture by dividing it into three different limbs, dealing separately with tobacco, fuel and with goods specified in the Third Schedule which are neither tobacco nor fuel.[80] The definition of manufacture in relation to fuel is substantially similar to the definition at issue in International Bottling, except that it no longer contains a reference to “assembly” and “packaging”.
[80]These are all alcohols and food products containing alcohol.
The Hon Jim Anderton, then Acting Minister of Customs, who introduced the Customs and Excise Amendment Bill (No 4) 2002 to change the definition in 2002, stated that the new definition of “manufacture” was intended: [81]
… to overcome a difficulty that has arisen relating to the blending, dilution, bottling, and labelling of wine and spirituous beverages subsequent to their production. Although excluded from the current definition, those ancillary processes have been accepted in the past as being part of the manufacturing process.The new definition includes these processes.
[81](19 February 2002) 598 NZPD 14469. This explanation was repeated at the second reading of the Bill: (10 September 2002) 602 NZPD 403.
The explanatory note to the Bill explained the new definition of manufacture in the following terms:[82]
The new definition of the term manufacture distinguishes between all 3 of those classes of goods (tobacco, fuels, and alcoholic beverages) in order to extend the element relating to alcoholic beverages so that it includes ancillary processes (as defined by new subsection (3), proposed to be added by clause 3(4)).
[82]Customs and Excise Amendment Bill (No 4) 2001 (184-1) (explanatory note) at 2 (emphasis in the original). The select committee report on the Bill makes no comment on the definition of manufacture.
The definition of manufacture was also discussed when the Bill was debated in the Committee of the Whole House on 1 October 2002 in the context of the importation of the same definition into the Tariff Act 1988.[83] The Hon Rick Barker, the then Minister of Customs, explained that it had been argued that the blending of alcoholic products does not necessarily fall within the meaning of “manufacture”. He stated that the process of blending (along with diluting and filtering) had traditionally been incorporated in the definition, and tax had been accordingly paid. The legislation, he explained, was “a straightforward process of clarification”.[84]
The definition of manufacturing as first introduced
[83]The 2002 Amendment Act inserted into the Tariff Act 1988 the definition of manufacture. In Chapter 22 of the Tariff Act (which sets out tariffs relating to alcohols) the term appears in the expressions, “For manufacture in a licensed manufacturing area” and “For further manufacture in a licensed manufacturing area”. The Amendment Act inserted a note into the notes appearing at the start of Chapter 22 making the definition of manufacture in that chapter consistent with the definition in the Customs and Excise Act. Before this, there was no cross-reference to the definition of manufacture in the Customs and Excise Act. However, s 2 of the Tariff Act, which applies to the whole of the Tariff, states that “manufacturing area” is to have the meaning given to it by s 2(1) of the Customs and Excise Act. Manufacturing areas are CCAs.
[84](1 October 2002) NZPD 603 at 767.
We examine first the contention that, in enacting the definition of manufacture in the Customs and Excise Act when it was first passed, Parliament must have been intending for it to have the meaning ascribed to the substantially similar definition in International Bottling. That case concerned whisky that had been imported for resale. It had arrived at International Bottling’s premises in containers and had been sampled and tested. It had then been pumped into bulk storage tanks. From there it had been filtered through an attemporation plant into another tank, from whence it would have been processed, bottled and despatched. At some point in this process (and before bottling) a large amount of the remaining whisky had disappeared, presumed stolen. One of the issues in the case was whether what had happened to the missing whisky up to that point was manufacturing. In the course of his discussion of that issue, Tompkins J referred to some of the overseas cases relied on by Terminals.[85]
[85]Federal Commissioner of Taxation v Jax Tyres Pty Ltd, above n 60; Cinzano (UK) Ltd v Customs and Excise Commissioners, above n 70; and McNicol v Pinch, above n 60. These cases are all referred to in International Bottling Co Ltd v Collector of Customs, above n 74, at 583.
Tompkins J adopted the test set out in Federal Commissioner of Taxation v Jax Tyres Pty Ltd that the term “production” used in the definition of manufacture under the relevant Act involves an element of producing something different from the materials from which it is made.[86] Tompkins J held that Cinzano was consistent with the approach taken in Jax Tyres. As noted above, Cinzano related to the blending of imported vermouth of two different strengths. The blended vermouth would have attracted a higher rate of duty if it was classified as “wine produced in the United Kingdom”. Lord Brightman, with whom the other Law Lords concurred, concluded:[87]
I have no doubt whatever that when wine is “obtained” from the alcoholic fermentation of grapes, it is “produced”, and that wine is not again “produced” because two wines previously so obtained are then blended into a single wine.
[86]Federal Commissioner of Taxation v Jax Tyres Pty Ltd, above n 60, at 142–144 per Lockhart J.
[87]Cinzano (UK) Ltd vCustoms and Excise Commissioners, above n 70, at 488.
We do not consider that too much can be read into the fact that the definition of manufacture in relation to motor spirit was not changed in light of International Bottling to include blending. The first point is that the case before Tompkins J involved only storage of the whisky. It did not involve blending that whisky with any other substance.[88] The volume of whisky had not increased. Indeed, it had decreased as a result of the theft. Therefore, the facts of the case are very different to the present case. That Tompkins J’s decision was very much grounded in the facts before him was made clear in the concluding passage of the section of his judgment where he was considering the definition of manufacturing:[89]
The whisky had already been “produced” at the stage when it was manufactured in the United Kingdom. All that occurred to it during the relevant time was that it was held in various containers and was tested for quality. On the ordinary use of the English word, none of those processes amounted to “production” of the whisky.
[88]As noted at International Bottling Co Ltd v Collector of Customs, above n 74, at 582, the whisky was to be passed into a blending tank at some point in the process, but the whisky went missing before this could have occurred and the tax sought to be imposed was on the missing whisky in its “raw state”.
[89]At 583.
Secondly, we accept the Comptroller’s submission that in Cinzano the House of Lords was not setting out a general definition of “production”. Lord Brightman emphasised that the meaning depends on the context[90] and in that case the statute described prescriptively the manner and processes by which certain liquors could be produced.[91] Further, as noted by the Court of Appeal, the importation of wine and the production of wine were addressed in mutually exclusive subsections under the English legislation at issue in that case. The wine had been “produced” prior to importation and was not again produced during the blending process.[92]
[90]Cinzano (UK) Ltd vCustoms and Excise Commissioners, above n70, at 488.
[91]At 488.
[92]Terminals (CA), above n 9, at [55]; and Cinzano (UK) Ltd vCustoms and Excise Commissioners, above n 70, at 488 per Lord Brightman.
Thirdly, the Customs and Excise Bill, which eventually became the Customs and Excise Act, was introduced into Parliament on 27 July 1995,[93] just over four months after the International Bottling decision was handed down. The Bill was an extensive re-enactment of the customs and excise regime and its drafting would have taken many months. During the debates leading to the enactment of the Bill, reference was made, on numerous occasions, to submissions made by the wine industry but there was no mention of the definition of “manufacture” or International Bottling. We do not therefore consider that it is safe to assume that, in re-enacting the substantially the same definition as that contained in the 1966 predecessor Act, Parliament intended to accept the interpretation of that definition pronounced in International Bottling.
[93](27 July 1995) 549 NZPD 8264.
Finally, while it was held in International Bottling that the missing whisky was not manufactured, International Bottling was nevertheless liable to pay excise duty on the whisky as an importer.[94] There was therefore no taxation gap in the statute in the particular circumstances of that case.
[94]International Bottling Co Ltd v Collector of Customs, above n 74, at 586.
In summary, the circumstances at issue in International Bottling are far removed from those applying in this case. The decision related to alcohol only and it cannot safely be assumed that Parliament would have had in mind any possible wider import of International Bottling when it enacted the definition of manufacturing in the Customs and Excise Act, let alone that it intended that blending operations in relation to motor spirit were outside the definition of manufacturing.
The effect of the 2002 amendment
We now turn to Terminals’ submission that the changes made in 2002 to include ancillary processes, and in particular as they relate to blending, in the definition of manufacturing in respect of alcohol mean that it was not intended that blending be within the definition of manufacturing for motor spirits.
To the extent that the submission is dependent on the proposition that the definition in the Customs and Excise Act as it was re-enacted (and which was left largely intact for fuel after the 2002 amendments) was not intended to include blending, we reject it for the reasons outlined in the previous section.
To the extent that the submission is that the effect of the 2002 amendments was to overrule International Bottling and include blending as a manufacturing process for alcohol but not for fuel, we make a number of points. The first point is that, even if the 2002 amendments were partly responsive to International Bottling, it does not follow that in enacting them Parliament was specifically concerned with blending. The 2002 amendment expanded the definition of manufacture for alcohol in relation to more than just blending. It also included filtering, diluting, putting the goods into containers and labelling them for sale for the first time. Filtering, not blending, was the primary issue in International Bottling (and we note that filtering was included in the definition of ancillary processes inserted in 2002). While Tompkins J referred to Cinzano, a case which we accept did concern blending, this was because the test identified in Cinzano was said to be consistent with the test set out in Jax Tyres, which Tompkins J adopted.[95] Therefore, if Parliament did contemplate International Bottling in making the 2002 changes, it does not follow that it did so because it considered blending necessarily to fall outside of the existing definition of manufacture.
[95]See above at [59].
Both the Hon Jim Anderton and the Hon Rick Barker noted that the processes (including blending) outlined in the new definition of ancillary processes had been accepted as being included in the definition of manufacture in the past. The Hon Rick Barker went so far as to say that tax had been paid on that basis and that the amendment was merely a “clarification”.[96]
[96]See above at [55]–[57].
The second point is that International Bottling was concerned with alcohol and not fuel. There is no specific mention of International Bottling in the parliamentary debates leading to the 2002 amendments and, in particular, no mention of any principles the case may espouse as extending to motor spirit. We thus do not consider it safe to assume that Parliament’s attention was directed to the fuel limb of the definition at the time it changed the definition of manufacture with regard to alcohol. In both the parliamentary debates and the explanatory note, the difficulties that the amendment was intended to remedy were specific to wine and spirituous beverages.[97]
[97]See Hon Jim Anderton’s explanation, the Hon Rick Barker’s comments and the statement in the explanatory note above at [55]–[57].
In light of the paucity of the material explaining why the 2002 amendments to the definition of manufacture were made, even if it were accepted that Parliament had considered the wider definition, it would be unwise to draw conclusions about Parliament’s intentions in electing only to expand the definition to include ancillary processes as they relate to alcohol.
Choosing not to amend the definition of manufacture as it relates to fuels to include reference to blending may equally be taken to suggest that Parliament simply did not consider it necessary because blending was already taken to be included in the definition as it related to fuel. Which processes are “involved in the production of the goods” will necessarily be dictated by the goods in question. The evidence in this case is that motor spirit comprises a mix or blend of hydrocarbons.[98] Motor spirit is thus an inherently blended product.
[98]This was the evidence of Dr Koutsaenko, see above at [22].
We therefore do not consider the legislative history relied on by Terminals changes the conclusion we have reached as to the interpretation of the definition of manufacturing based on the text of the definition construed in light of its purpose.[99]
Different limbs of the definition
Terminals’ submissions
[99]See the conclusions set out above at [26]–[34].
Terminals relies on the textual contrasts between the three legs of the definition of “manufacture”.[100] Paragraph (a) in relation to tobacco expressly contemplates that “manufacture” may occur by virtue of activities conducted in respect of “manufactured or partially manufactured tobacco” and in respect of the making of cigarettes “whether from duty-paid or from non-duty-paid tobacco”. Paragraph (c) in relation to alcohol products directly mirrors, in sub-paragraph (i), the wording of (b), which relates to fuel. But the definition in respect of alcohol is expanded through sub-paragraph (ii) and s 2(3), in order to cover such activities as diluting and blending with other goods. It is submitted by Terminals that in applying the presumption of expressio unius,[101] the contrast between the definition as it applies to alcohol and the para (b) definition as it applies to fuel is significant. It argues that consideration of these linguistic features alongside the legislative history and the text and purpose of the Act, supports Terminals’ interpretation of the definition of manufacture.
Our assessment
[100]Set out above at [12].
[101]Expressio unius est exclusio alterius: the mention of one or more things of a particular class may be regarded as by implication excluding all other members of the class.
The proper approach to statutory construction is set out in the Interpretation Act. The primary task is to interpret the text in light of its purpose.[102] In undertaking this task, we accept that there may still be some place for the old canons of construction.[103] However, the maxim expressio unius does little more than draw attention to what might be seen as the obvious proposition that in many contexts mentioning a particular matter may warrant an inference that other relevant matters were intentionally excluded. But whether that is so or not depends on the context. The exclusion might have been accidental or there might have been good reason for it.[104]
[102]Interpretation Act, s 5(1).
[103]Burrows and Carter, above n 66, at 182–183.
[104]See the discussion in John Bell and George Engle Cross Statutory Interpretation (3rd ed, Lexis Nexis, London, 1995) at 140–141.
In this case the “exclusion” relied on is the exclusion from the definition of manufacturing in relation to fuels of processes that are expressly included in relation to tobacco and alcohol, most of which have no relevance to fuel. We refer, for example, to the deletion of references to “assembly” and “packaging” from the fuel limb of the definition of manufacturing when alcohol was separated out to be dealt with in the new third limb.[105]
[105]See above at [54]. Assembly and packaging would fall within the ancillary processes set out in s 2(3): see above at [13].
Interpreting the meaning of one part of a definition by contrast to another part of that definition that is dealing with entirely different goods must be approached with caution.[106] In this case, largely for the reasons already canvassed, and in particular, the fact that motor spirit is a blended product, we do not consider that the maxim aids in assessing the meaning of the definition of manufacture in so far as it relates to motor spirit.
Double taxation
Terminals’ submissions
[106]See Burrows and Carter, above n 66, at 642–648 regarding the dangers of analogous interpretive devices in the context of amending statutes, where the authors conclude that everything depends on the text and purpose of the relevant statute.
It is submitted on behalf of Terminals that the overall legislative purpose of the definition of manufacture relating to fuel is to levy excise duty on the occasion of initial manufacture (or importation). This contrasts with the position in relation to alcohol and tobacco where processes amounting to a second stage of manufacture are recognised in the definition. Dr Harrison submits that, on an analysis of the Duties Table, the scheme is that part B of the Table imposes excise-equivalent duty on a motor spirit blend which is imported in its blended state (that is, as to both components) but not otherwise. Part A of the Duties Table imposes excise duty on a motor spirit blend when the overall blended product has been manufactured (each component) in New Zealand and not otherwise. It is submitted that it is not part of the purpose of the Customs and Excise Act to levy excise duty on fuels twice over.[107]
[107]It is submitted that this is supported by an analysis of Chapter 27 of the Tariff promulgated under the Tariff Act.
In Terminals’ submission, the fact that duty credits may be allowable under s 85[108] (where the licensee of a manufacturing area purchases materials or goods to use in manufacture on which excise duty has previously been paid) cannot support the Comptroller’s interpretation of manufacture. It is submitted that s 85 was initially aimed at the expanded definition of manufacture for tobacco and now applies to both tobacco and alcohol products but that it should not be treated as encompassing fuel as well. In this case, because Terminals was not the purchaser of the materials or goods (the motor spirit and butane) used in its dispatch operations, it cannot avail itself of s 85.
Our assessment
[108]Above at [10].
We do not accept the submissions that there are two different regimes for imported goods and for manufactured goods. This is true in form but in substance there is an integrated regime whereby duty is paid only once. If goods are imported for the purposes of manufacture then the payment of excise duty is delayed until the goods are entered for home consumption. If excise-equivalent duty on goods has already been paid then a credit is available under s 85 where those goods are subsequently used in manufacture.
Section 85 is not limited to tobacco or alcohol. It applies to all excisable goods. Terminals submits that, because of the particular way in which Terminals operates its business,[109] s 85 may not (strictly interpreted) operate to provide it with a credit in this case. If that is the case, we do not consider this leads to the conclusion that the definition of manufacture must be limited in the manner contended for by Terminals. It may simply be that Parliament did not have in mind the particular business model that Terminals operates when it passed s 85 in the form it did. We note, however, that in fact a credit has been given to Terminals in this case and thus the Comptroller did not interpret s 85 to deny Terminals the credit.[110]
Conclusion
[109]Since 1 July 2007 Terminals’ business model has been to store and dispatch (including blending to specifications) products owned and imported by Gull on its premises. The excise tax, payable on importation, was paid by Gull from 1 July 2007. The present importer is Mobil. Prior to July 2007, Terminals purchased its own fuels and on-sold the final product on dispatch.
[110]The audit carried out of Terminals in 2011 credited the excise paid on the constituent products in calculating the additional duty owed by Terminals for the additional motor spirit: see above at [5]. We make no definitive comment on the proper interpretation of s 85. We are not however to be taken as suggesting that it should be interpreted strictly in a manner that would mean another entity in Terminals’ position would not be able to claim a credit under the section. After all, the scheme of the Customs and Excise Act is that duty is paid only once. Section 85 must be construed in light of the scheme.
The process of blending butane with motor spirit conducted by Terminals leads to the production of the motor spirit produced by that blending process. It therefore falls within the definition of manufacture in the Act.
Result
The appeal is dismissed.
Costs of $25,000 plus usual disbursements (to be determined by the Registrar if necessary) are to be paid to the respondent. We certify for two counsel.
Solicitors:
Jones Young, Auckland for Appellant
Crown Law Office, Wellington for Respondent
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