Ath CATCHWORDS Sales tax - taxpaver enaaqed in retreadinag tvres - whether retreading manutacture or repair - whether retreaded tvre a different article from the old tvre - relevance of cost of old tvre and scale and complexity of taxpaver 3 operations. Sales Tax Assessment_Act (No. 1) 1930, ss. 3, 17, 17A and 18 THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v. Ss LIMIT No. G2ef of 1984 Coram: Lockhart. Sheppard and Wilcox JJ. 21 December 1984 Svdnev ES ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G369 of 1984 . ) GENERAL DIVISION ) BETWEEN : THE COMMONWEALTH OF AUSTRALIA THE COMMISSIONER OF TAXATION OF Appellant AND: JAX TYRES PTY LIMITED Respondent ORDER JUBGFES MAKING_ORDER : Lockhart, Sheppard and Wilcox JJ. DATE OF. ORDER : 21 December 1984 WHERE _MADE : Svdney THE COURT OKDERS THAT: 1 The appeal be dismissed. Zz. The appellant pay the respondent's costs of the appeal. IN_THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY | No. G349 of 1L9OR4 J GENERAL DIVISTON ' UN APPRAL FROM THE OTMDGMENT OF OA SINGLE TUDGE uF THE FEDERAL COURT oF ANISTRALTA BETWEEN : COMMISSTCNER OF TAXATION FOP THE COMMONWEALTH OF _ AMSTRALTA Appellant AND: JAX TYPES PTY. LIMITED Fespondent Coram: Lockhart. Sheppard and Wilcox IJ. Date: 21 December, 1984 REASONS FOR .TUOGMENT TUCKHART T. The wsrinecipal question raiser ov this 7382 13 'sheatner rhe process of retreading a tvre produces sometning ditterent and distinct from the worn tvre that was retreaded and, if wt dces, whether fhe procegs answers the description «f "manufacture . The question arises wm the context of the sales tax Lleqislation of the Commonwealth, -n particular the Sales Tax Aszessmenh Act tNo. t2 19320 ¢"the Ace", Jax Tvreg Pty. Limited. the respondent. commenced proceedinas in the Hich Court of Australia seeking a declaration ta the etfectr 2. That the process of retreading tyres carried on by the respondent does not answer the description of the "manufacture" of anods by it and that retreaded tyres are not "qoods manufactured in Australia", in each case for the purposes of the sales tax leaislation of the Commonwealth including the Act. The Hich Court remitted the matter to this Court, and the proceedina was heard at first instance by Beaumont J. His Honour made orders declaring that:- 1. The operations carried on bv the respondent wherebv tvres that had previouslv been used in Australia are retreaded do not constitute the "manufacture" of woods bv it for the purposes of the Ach; and , The retreaded tvres resulting from he noerations carried on by the respondent in retreadin: tyres that had been previously used in Australia wre not yoods "manufactured" in Austrajia for the purposes of the relevant leaislation including the Act. The Commissioner of Taxation ("rhe Conmissioner") appealed to the Pull Court af this Court from His Honour $s tidoment tne tacts are not in dispute, Mv narration of them 13 taken primarily from the reasons for iudament of the learned trial Tidae. The respondent carries on business in premises 1b describes as a 'cetread factorv" in a suburb of Svdnev. Part of the respandent's' 3. business is retreading tyres for its customers and charaing a fee for its services; in which case no property in the tvres passes to the respondent. About 90-95% of truck tvres and about 50% of passenaer car tyres retreaded by the respondent are in this <class. The respondent also purchases worn tvres. orocesses them and sells them as "cetreads"; this accounts for some 5% of truck tvres and about 50% of passenaer car tyres retreaded bv the respondent. The processes of retreading emploved by the respondent are known as "fop capping", "full capping", "remouldina" and "precuring". "Top cappina"" involves the application of new tread rubber to the area of the casing of the tvre which normallv comes into contact with the road. "Full capping" involves the new tread rubber being applied, not only ta the area of the worn tvre casing whi- comes into contact with the read, but to the shoulder areas of th- casing as well. In the process of "remoulding" the new rubber 1s =xrended bevond ooth the area of the carina which normally comes into contact with the road and the shoulder areas and proceeds dawn to the bead of the tvre., The area of the bead is that part of the tvre made of steel wires, wrapped or veinforced by ply cords and shaped to fit the rim of the wheel. For each of these processes the respondent obtains 'orn tvres (for pork oaasenger vehicles and rriucks) from worn tvra casina dealers. tyre retailers and private owners - especialiv friuick operators. 4. After the tyre is received at the respondent's factory it is inspected to ensure that it is suitable for retreading in accordance with the standards prescribed bv Australian Standard Specification No. 1973-1976 in respect of ""retreaded pneumatic passenger car tvres". More than one State of Australia has enacted legislation (for example, the Motor Traffic Requlations 1935 (N.S.W.)) prohibiting the fitting of tyres to motor cars which have been retreaded tinless the § gs comply with the prescribed Australian Standard Specification No. te »D rg 1973-1976. This specification prescribes the minimum requirements for iD oO aw fhe retreading of pneumatic passenger car tvres and defines the performance and the dimensional and physical requirements for the retreaded tyres. Each retreaded tvre 15 required by the specification to be marked with the word "retread". Ar rhe time of tnspection., repairs to nail hales in the inside of the :asing are made. Tf the caging of a tyre remains sound. if may be retreaded more than once. This happens frentutentlv in the case of truck tyres but not often in the case of passenger car tvres. In the retreading process the entire rread surface wnich is Fo be treated is uniformly buffed fo remove all old and excess rubber and fo prepare a clean and smooth surface A smooth buff promotes proper adhesion of Fhe tread rubber. Truck tvres and, in some cases, passender car tyres are Spraved with a rubber sqlutian ta ensura adhesion of tread rubber to the buffed surface. The rubber is rhen applied by one of two methods. In the processes of "recappind", "foo 5. capping" and "remoulding" a machine 1s used to apply automaticallv extruded tread rubber to the casina. The rubber 1s extruded in the form of a continuous hot ribbon which 13 wound, in overlapping lavers. around the circumference of the casing. The depth and contour of the tread shape is determined bv an electronicallv controlled system. The Process of "pre-curing" igs employed bv the respondent only for retreading truck tvres. In that process the tread rubber 15 purchased by the respondent alreadv cured with the desired tread pattern moulded tnto it, A thin laver of unvulcanised rubber bonding is applied to the back of the pre-cured tread. Atter the application of the new tread rubber the tT a] Lay a ew a ready for curina. The curing process involvss the application of neat and pressure to the tyre. iD tvre 1s The cubber which 18 applied to the tread area of i) th aianificantly stronger than that forming or appileito the casina: sinc> casing rubber dees not come inte centacr with rhe road. 1t does not wear as quickly as the tread area 30 that it 18 vossible ty refread a tyre more than once. 'There are Limits ra the depth of fread which can be applied to 4 worn casina. Qurinad 38 a tvre will build up heat which is directly related fa the deoprn of rreaad- the treater Khe tread depth the arearer the roncentraricn tr beat, "Len censequenr Increase in the oraspect of farlure of the casing 6. The trial Judge accepted evidence that. although retreaded, the original tyre does not lose its identity and that 1t 13 easy, even for the inexperienced, to distinguish between a new tvre and a retreaded tvre. In the case of passenger tvres the average weight of rubber applied in the retreading process 18 approximatelv 3 kiloarammes. for a truck tvre the weight is in the range of 10 to 12 kiloarammes. The price of a retreaded truck tvre 1s approximatelv $200 cheaper than the price of a new tyre. The retail price of a new cheap radial tyre for a passenger vehicle ranqes from $45 ta $50 The same type of tvre when retreaded 1s sold ag a retread in the retail price canae of $26 to $35. There 13 also a marke: for second hand ar 'sed tvres which have not been retreaded. fection 17 of the Act provides that saies tax shall be leried and paid pon the sale value of aoods manufactured in Australia hv a taxpayer and sold bv him. Section 17A .teems a Ffransacrion bv which one person manufactures aoods for another out of that other's materials to be a gale. The section provides that where qoods are manufactured for a person. wholly or in part out of materials supplied bv him, the manufacturer of the aonds shall. for the purroses of the Act, be deemed to have scld the goods to the first mentizned person, at the time ot their delivery to him, for the amount charged =o him by the manufacturer in respect of those aocds. Pacagraoh i8(l)i-) nakes 7. the amount so charged the sale value of the aoods for the purposes of the Act, subject to certain immaterial exceptions. The word "manufacture" is defined by sub-3. 3/1) to include (a) "production" and (b) the combination of parts or ingredients whereby an article or substance is formed which is commerciallv distinct from those parts or inaredients. subtect *o 4a qualificatiin that igs not in point. The word "aoods" ts defined by sub-s. 72/1) of the Acr fo include rommodities but not to include +a) qoois "which have, earther through a process of retailing or otherwise. tone into use or consumption in Australia: or (b) ageds which are sold as second hand tond3 and are manufactured exclusively or pri c1pallv from soods whith either have. whether alone or a3 parts of ofner aands,. «tone into use er consumption in Australia; and in the ovinion 2f the Commissioner, in their condition as parts of the soods 30 manufactured. retained their character as qoods or parts of goods which have aqone into use or consumption in Australia. A person is deemed fo nave sold woods if. in the oerrormance + ns w rp) wv my a 5s + D> iD wa w + sD ww rm,3 D> rey mmmL 1D cay of any contract (not being a con a@nich he has received, or 13 entitled te cecerre, valuable eAnsideration, he 3upplies aoods the propert~ in which 'whether a3 qoods or in some other form) passes, winder the terms of the cantract, ta 30me other person: gub-3, 3/4). Hence, where anv person for valuaple consideration repaics the qoods of another nerson and, in the 8. course of making those repairs. supplies qoods which are used in. brouqht into or attached to the caoods of that other person. the aoods so supplied are deemed to be sold by the repairer to that other person. The Commissioner submitted first. that the process of retreading tvres constitutes 'manufacture" within the meaning of that term in sub-3. 3(1) of the Act: and second. that the retreaded tyres are "goods" within the meaning of that sub-section. It was common around in arqument before us that, if the process of retreading tyres does not answer the description of "manufacture" according to the ordinarv meanina of that expression, then the appellant must fail in the appeal. <f was also common around that the result of this appeal does not "urn onanv differences between the processes of "top capping". "full cappine", ""remoulding" and ""precuring'. Tt is fa the question whether the operaticns 07f cetreading earried on by the appellant constitute "manufacture" that T now turn. The definition of the word "manufacture" in the Act 15 not exhaustive. When the word "includes" 13s sed ina detinition section 1t 1s jwenerally used to enlarg@ the meanina of the word tt defines. So far a3 1fts meaning 13 not defined in the relevant statute 1t must be aiven 1ts ordinary meaning. The primary meaning of the word "manufacture®" when used as a verb is to make something by hand: but since the industrial revolution the word has come to mean manufacture by machinerv, often on a large scale and with a division of labour. This accords with the dictionary definition. As Windever J. said in Readvmixed Concrete (W.A.) Ptv. Limited v. Federal Commissioner of Taxation (1971) 71 A.T.C. 4107 at p. 4109: "All that can perhaps be said of the word manufacture is that its derivative and etvmoloaqical sense no Longer determines its meanina. No longer is it restricted to the handiwork of individual craftsmen, " To manufacture an article necessarily involves producing a different article from the articles, materiils or t1naredients from ns > which 1t was made. As Darlina J. gaid in M ineoi v. Eimch (1306) 2 ha " K.B. 352 at po. 361: "IT think the essence of making or of manufacturing is that what is made shall bea different thing fram that out of which 1t is made". That passage was approved and applied bv Dixon J. in Federal Cummissioner of Taxation v. Jack Zinader Ptv. Limited (1449) 78 CLLR. 336 - the leading case in this field. Whether the artitle which results from the proceag of manufacturing is a dirferent article from fhe canstituents or inaredients from which 1t was made 13 a question of fact: the Jack Zinader Case. 10. "Production". which is included in the definition of "manufacture" (para. 3(1)(a)). igs a word of wide import: but 1f still involves the element of producing somethina different from the materials from which 1t was made. [t is not oassible to formulate precise definitions of such cqeneral terms as "manufacture" and "production"; but thev do not bear a restricted meanina. Whatever answers the description of "manufacture" or "preduction" of doods according to accepted usage of the English lanquage 13 within the Act. Paragraph (b) of the definition of "manufacture", namelv, the combination of parts or ingredients whereby an article 13 formed which 1s commercially distinct from those parts or inaredients, was introduced into the Act by Act No. 39 of 1932 following the judgment of the High Court in Irving v. Munroe & Som> Limited (1931) 46 CLLR. 279. In that case the defendant was a distr: utinag azent in New South Wales and Queensland of a well-known English make of motor cvzles. The woter cyclas were imported by the defendant from Enaland in cases each of which contained all the parts necessarv +> compiete a motor eycle with the exception of tvres and tubes. Wnen the ti90as arrived at the defendant's works in Svdnev the oarrs ware remeved from che earticular case and reassembled, 'isually by ao man with the aia of a spanner. Tyres and tubes were purchased lLlacally and fitted to the motor cycles which were then ready for sale. It was Feld by the hich Court that there was no activity which could oe 4ascribed as manufacture. ll. In my opinion, para. (b) of the definition applies only where there is a mere combination of parts or ingredients. This conclusion follows from the legislative history of the definition and the lanauage of para. (b) itself, especially 3ince the word "whereby" in para. (b) relates back to and is aqoverned by the previous word "combination" in the whole expression "the combination of parts or ingredients whereby an article or substance 1s formed ..." This was the conclusion reached by the Full Court of the Supreme Court of Victoria in Cohns Industries Ptv. Limited v. Deputv Federal Commissioner of Taxation (1979) 24 A.L.R. 658: but the point was not central to the case and their Honours did not tive reasons for the conclusion. See also Adams v. Federal Commissioner of Taxation (1948) R A.T.D. 332 per Williams J. at p. 335. When considering "ne question whetrer particular qaoods are manufactured for the purposes of the Act, 1t must be remembered that the general policy of sales tax legislation in this country 13 to Llevv sales tax once and only once upon the last sale of aoods by wholesale (that 1s, 'upon the sale ta the retarler by the Last wholesalers: to avoid double taxation upon goods which have, through the process or rekalling, gone into use or consumption in Australia and are in this sense second hand goods and outside the scope of the leaislation. Tt 1g rhe evident purpose of the Act that the retail orice of aoods shall not be increased bv the incorporation in 1t of nore than cne amount of sales tax: see Deputv Federal Commissioner of Taxation (S.A.) v7. Ellis «Clack Limited (1934) £2 «.L.R. 95 and Adams v. Federal Commissioner ot_Taxation (supra). 12. I do not find it helpful to refer to the numerous authorities to which we were taken in arqument bevond stating the principles relevant to this case for which some of them are authority and which I have already mentioned. Some of the cases concerned sales tax legislation of the Commonwealth; others involved sections of the Income Tax (Assessment) Act 1936 concerning investment allowances (ea. gs. 62AA) - which raise similar. thouagh not the same. questions. Thev all turn on their particular facts and present a wide range of businesses as diverse as restoring ineffective batteries 'Adams v. Federal Commissioner of Taxation (supra)): repairing electrical qoods (Deputv Commissioner of Taxation S.A. v. Ellis & Clark Limited (supra)): cooking fish and chips (Federal Commissioner of Taxation 7. Rochester (1934) 50 C.L.R. 225); makina aerated waters 'Cohns Industries Pty. Limited wv. Deputy Federal ommissioner of Taxation (gupra)): taking and supplying photoqraphs iFederal Commissioner of Tavation v. Riley (1935) §3 C.L.R. 69); making aagregate for use in the construction industry (Readymixed Concrete W.a. Pty. Limited v. Federal Commissioner of Taxation (supra'!, makina split peas (Case B56 1970 «670 A.T.C. 267): cutting aranite and freestone (Faderal Commissioner of Taxation v. Stronach (1334) 45 CL.R. 2050: remodelling old fur aarments (Federal Commissioney of Taxation v. Tack Zinader Pty. Limited (supra'); vrocessing srrao metal (M.P. Metals Pty. Cimited v. Federal Commissioner of Taxation (1967) 117 C.L.P 631): reporting judicial proceedings and producing transcripts ('Adams vy. Pau (1931) 46 C.L.R. 572). Retreading tyres may now be added cto the List in Australia. It has already been considered bv courts in 13. the United States of America and Canada: Skinner v. U.S. (1934) R F.Supp. 999; Zook v. Perkins (1948) 195 P.R. 2d 962: State Ex. Rel. A.M.F. Inc. v. Spradling (1974) 518 S.W. 2d 58 (the U.S. cases): Biltrite Tvre Company v. The King (1937) 10D.T.C. 360; The King v. Boultbee Limited (1938) 1 D.T.C. 443: Crown Tvre Service Limited v. The Queen (1983) 83 D.T.C. 5426 (the Canadian cases). The United States cases support the view that retreading tvres 1s not manufacturing; but the Canadian cases generally treat 1t as manufacturing. The Commissioner araued that the process of retreading commenced with a worn tyre that has normally suffered treadwear to such an extent that the qrooved depth 1s reduced to the point where the tvre is either unsafe or illeqal or both. The worn tvre 1s bought for a price which 18 determined, not with reference to the residual rubber. but merely by reference to factors of market supplv. The cost is small and varies in the case of passenger tvres from 50c to $8 and in the case of truck tyres from $2 to $60 or $70. Extruded rubber applied in the process of "recapping", 'topo capping" or 'remouldinag" varies in cost - depending on whether the tvre 15 4a passender car tvre or truck tyre - from $5 to $28 and in the case of remoulding it 1s still higher. In the case of "precured" strips which ar2 used for retreading trick tvres the cast of the handac and bonding material is about $45. In addition to the cost of raw materials 1t 13 necessary to add the cost of items such as power, labour and aeneral factorv overhead costs. In the result. the proportion of cost borne by the worn tyre to the market price for the retreaded tyre, althouch 14. variable, is not large. Other arguments advanced by the Commissioner in respect of other matters included the following: (a) the capacity of the respondent's factory enables it to produce retreaded tyres at the rate of about 40 tyres per hour. What is involved is "production" on a large and recurring scale, an activity which bears the aeneral description and appearance of manufacturing; (b) The retreaded tyre receives a new tread which comprises the whole portion of that part of the tyre which comes into contact with the road: (e) The new tread normally has a different pattern to that borne by the original tyre: and fd A retreaded tvre has its own discrete market which is different from that of a new tyre and a worn out or used tyre and it has 1ts own prescribed standards and performance characteristics. It was submitted on behalf of the Commissisaner that, in these circiimstances, the operations of the respondent answer the descripticn xf "manufacture" according to both the ordinary meaning of the word and 1ts extended meaning in sub-s. 3(1). 15. In my opinion the activities in which the respondent enaages resulting in a retreaded tyre (using that expression to encompass the processes of "top capping", "full cappina", "cemouldina" and "precuring") are not accurately described as the manufacture of anything. What the appellant does in reality is to put a new tread on an old tyre. It is not any old tyre that can be used. It must be one that after inspection and testing can receive anew tread. The Commissioner's case is superficially advanced by the circumstance that there is a market for retreaded tyres. But in reality what the respondent does is to use an existing worn tyre as the basis of its operation. The old tyre to be used 1s examined and any breaks are repaired. A buffer 13 used to remove anv old or excess rubber and to produce a clean and smooth surface. A rubber solution is aenerally applied and then fhe rubber is itself applie1 and the tread inserted (in "precured" tyres the tread has already been inserted). The rebu1llt tyre is fhen cured, When the operation 1s complete no new product or article has been produced. A tvre is manufactured with an tnherent cavoacity for retreadina. Indeed, Toyo Australia Limited, a manufacturer of truck tvres, specifically contemplates that a retread nay be carried out on tyres manufactured by 1t because. included in tne warranty which 1t aives aqainst defects in workmanship or materials. there 1s a provision that such warranty subsists for a woeriod of three vears "from the date of manufacture or up to the butfina stage of the second recap, whichever comes first, provided that the recap has been carried out by one of Toyo's own retread factories". 16. The manufacturer knows that once a tyre is fitted 1t must meet and continue to meet the safety standards which are orescribed by law and that once the tyre becomes bald 1t can continue to be used on public roads only if it is retreaded. A new tread has no identity or existence apart from the tyre. The original tyre has not become a component or part of a new product; rather the tread rubber and other substances have become components or varts of the tyre. There has not peen the manufacture of a new article but the repair or remodelling of an old one. Retreading is not manufacturing as that word is qenerallv understood or as the extended statutory definition provides. The essence of manufacturing implies a change from which a new and different article must emerge having a distinctive character or use. This 13 not what happens with a retreaded 'tvre. The fact that the taxpayer's activities appear to be conductet on a fairly large scale does not affect my conclusions in this case. It 18 a relevant, though by no means a cecisive, consideration. The trial Judge correctly concluded that the retreaded tvres in this case did not result from a process of manufacture. It is not necessary, therefore. for me to consider whether the retreaded tyres answer the description of "aoods" for the purposes of sub-s. 3(1) of the Act. TI would dismiss the appeal with costs. I certify that this and the fifteen (15) preceding pages are a true and accurate copy of the Reasons for Judgment herein of The Hon Mr. stjceAcckhart Associate —~ * 21 December 1984 1. IN_THE FEDERAL COURT OF AUSTRALIA NEW SOUTH _WALFS DISTRICT REGISTRY No. G369 of 19284 GENERAL DIVISION BETWEEN : THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appellant ID: JAX TYRES PTY LIMITED Respondent COPAM: Lockhart, Sheppard and Wilcox JJ. 21 December 1984 REASONS FOR JUDGMENT SHEPPARD J.: This is an appeal from a judgment of a single judge of this Court (Beaumont J.) delivered on 28 September 1984. The respondent successfully sought a declaration that its operations, whereby used tyres are retreaded. did not constitute the manufacture of aqoods by 1t for the npurposes of the Sales Tax Assessment Act (No. 1) 1530. His Honour also declared that the retreaded tyres, resultina from the operations of the respondent, were not goods manufactured in Australia for the purposes of the Sales Tax Assessment Act (No. 1) nor the Sales Tax Assessment Act (No. 3) 1930. The respondent carries on business in a factory ina Svdney suburb where it retreads tyres for passenger vehicles and trucks. Its operations involve a varictyv ot processes. 2. These include topcappina,. tullcapping, remoulding. pre-curinag and curing. The essential distinction in the first three of these processes 15 the extent to which new rubber 1s applied to the casind. ; In the process known as topcappinag the new tread rubber is applied only to that area of the casing normallv in contact with the road. In tullcapping new tread rubber is applied. not only to the area of the casind normally in contact with the road. but also to the shoulder area of the tvre,. The rwrocess of remouldina involves the removal of rubber where necessarv and the application of new rubber extending from bead to bead. The bead is that part of the tyre made of steel wires, wrapped or reinforced by plv cords, that is shaved to fit the rim. The retreadinag process involves a number of stages: a preparatory stage, the application of the new rubber and the curina. Used tvres are inspected to ensure that thev are suitable for retreadina. If a tvre is suitable, the surface of the tvre 1s buffed. All excess rubber and foreign materials are removed and a smooth surface i¢ created. Tread rubber can be applied to a prepared tvre by means or an orbitread machine or bv a pre-curina precess. His Honour described the application of tread rubber and the processes of pre-curing and curing thus:- "In the processes of recapping, topcapping or remoulding, an orbitread machine 1s used ta apply extruded tread rubber to the casing. The rubber 1s extruded inthe formof a continuous hot ribbon which is wound, in overlapping lavers, around the circumferences of the casing. In the process of pre-curing, which the plaintiff uses onlv for retreading truck tyres, the tread rubber purchased bv the plaintiff is alreadv cured with tre desired tread pattern moulded into it. A thick laver of unvulcanised rubber bonding 1s applied to the back of the pre-cured tread. After the application of the new tread rubber. the tvre is readv for curing. The curing processes varv, but it will suffice to sav that thev involve the application of heat and pressure to the tvre... In the case of a passenaer tyre, the average weiaht of rubber applied in the retreading process is approximately three kiloqrammes. For a truck tvre. the weiaht is in the rande of ten to twelve kilogrammes." The respondent cannot apply its processes to all used tvres. Sometimes the casings will not be in sufficiently satisfactory condition to enable the retreaded tvres to be made safe. In some States there is leqislation dealing with this matter. Thus the Motor Traffic Requlations (N.S.W.) 1935, (Schedule F, para. 82(d)) provide that on or after lL Januarv 1980, no tvre which has been treated by the process known as retreading shall be fitted to anv motor car (an omnibus excepted) unless such tvre complies with the provisions of Australian Standard AS 1973 - Retreaded Pneumatic Passenaer Car Tvres. The ranae of tyre referred to in the specification is that covered by AS D31, New Pneumatic 4. Passenger Car Tvres. and corresponding older tvres. It provides, amonast other things, for the condition of casings which mav be retreaded. The acceptable limits of damade to a casina vary depending on whether the tvre isa bias ply, bias-belted or radial plv tvre. Likewise the acceptable limits of damaqe due to buffing vary according to the oriaqinal nature otf the tyre The performance requirements of retreaded tyres, under the specification. also differ according to the type of tvre, not the process of retreadina. The retreading process does not alter the important distinctions between bias ply. bias-belted and radial tvres. A retreaded tyre is plainlv distinauishable from a new tvre. His Honour accepted evidence:- "that it is easy. even for the inexperienced. to distinguish between a new tyre and a retreaded tvre." Furthermore, the specifications require that each retreaded tyre be marked with the word "retread". Strangelv, there are no leqislative provisions prescribing the standard of truck tyres (and. apparently, aeroplane tyres) which may be used for retreadina. The respondent nevertheless applies care in selectina casings 5. which 1t uses. Verv similar considerations apolv in relation to truck tvres as applv in the case of motor car tyres. The respondent both retreads tvres tor customers and sells retreaded tvres on the market. In some cases, customers supply tvres to which the respondent applies its process for aftee. In other cases the respondent purchases used tyres, retreads them and sells them. Depending on the dearee of wear, it 18 possible to retread a tvre more than once. One truck tvre manufacturer, Tovo Australia, contemplates the application of the retreadina process to its new tyres in the warrantv it issues, Indeed, in certain circumstances the warranty for the new tvre may extend to cover the tyre after it has been retreaded. The warrantv is stated in the following terms:- "Tovo Australia Limited warrants the TOYO radial truck tyre casina against defects in workmanship or materials for a period of three vears (36 months) from the date of Manufacture or up to the buffing stade of the second recap, whichever comes first, provided that the recap has been carried out by one of TOYO's own retread factories." Section 17 of the Sales Tax Assessment Act (No. 1) provides that sales tax shall be levied and faid "upon the sale value of goods manufactured in Australia" sold bva taxpaver or treated by him as stock for sale by retail or applied to his own use. By s. 117A, where qoods are manufactured for a person wholly or in part out of materials supplied by him. the manufacturer of the goods. whether he manufactures those goods himself or procures their manufacture by another person, shall be deemed to have sold the aoods to the person for whom the goods were manufactured. The presence of s. 17A means that there 1s no relevant distinction between cases where the respondent retreads tvres for other persons and retreads them and itself sells them on the market. Sub-section 311) defines the words "manutacture", "manufactured", "manufactures" and "manufacturer". I do not find it relevant to refer to the meaning of "manufacturer". The words "manufactured" and "manufactures" have meaninas corresponding to that of "manufacture". "Manufacture" is not defined exhaustively, but so far as it 18 necessary to the present case, 1t includes:- "(a) production; (b) the combination of parts or inaredients whereby an article or substance is formed which is commerciallv distinct from those parts or inaredients, excerpt guch combination (not being a combination wherebv concrete, cement mortar, lime mortar or anv similar preparation of a kind used in the construction, repair or maintenance of buildinas or other structures 1s formed, or whereby anv other prescribed article or substance is formed) as, in the opinion of the Commissioner, it is customary or reasonablv practicable for users Or consumers of those articles or 7. substances to undertake:" The test to be applied in determining whether or not an article is manufactured is that formulated by Darling J. in McNicol _v.. Pinch £19061 2 K.B. 352 where his Lordship said (p. 361), "The essence of making or of manufacturing 1s that what is made shall be a different thing from that out of which it is made". That test has been adopted by the Hidh Court; see deral Commissioner of Taxation v. Jack Zinader Ptv Limited (1949) 78 C.L.R. 336 per Dixon J. (as he was) at p. 343. I refer also to the iudament of Williams J. who said (p. 350):- "Work which could be fairlv described asa mere repair or modification of the aoods would not affect their original character. But once the work done causes the goods to lose this character, they become aoods within the meaning of the Act." The application of these tests may sometimes be a difficult exercise. The question 1s one of fact and dearee. An exercise in judament is involved. Having aiven this Matter consideration. I have reached the conclusion that the process here 13 one, if not of repair, then of renovation. It 1s not manufacture. The essence of retreading 1s that, while the area that comes into contact with the road may be in need of renewal. the rest of the tyre remains sound and useful. A suitable worn tvre is rendered fit for use bv the application of a new tread. In the course of his submissicns, counsel for the appellant drew our attention to the very cheap prices at which worn tvres could be obtained by the respondent and others retreading tvres and to the sophistication and complexity of the respondent's very extensive operations. They are conducted in a building called a factory and involve the use of much automated equipment. The production rate 15s very high. Some support for the view that those considerations are relevant to be taken into account mav be thought to be found in the fudament of Dixon J. inthe Zinader case. After concluding that the process in question in that case produced a different article. his Honour added (p. 345):- "When that consideration is added to the fact that the actual work done and the procedure emploved in producing the new, that is the distinct. article is characteristically a manufacturing process, 1t must follow that the 'qoods' are 'manufactured' within the ordinary meaning of that term." I can understand that some mav think that the process here 13 characteristicallv a manufacturing process. It has the hallmarks of it. But that looks onlv to the operations which are carried on and the machinerv and other equipment which Ls used. It seems to me clear from the wav the matter 9. was approached bv Dixon J. that the fact that a process may characteristically be a manufacturina process 1s not' the determinina factor. The critical question 1s alwavs that earlier stated bv his Honour when adopting what was said bv Darlina J. in McNicol _ v._ Pinch. What is made must bea different thing from that out of which 1t 1s made; otherwise there 1s no manufacture. I would add that the answer to the question of whether or not there 18 a manufacture ought not to dernend on the Mature and extent of a particular retreader's operation. There is little evidence on the point, but one would think that there are probablv retreadina craanizations in the community whose operations are far less extensive and sophisticated than those of the respondent. Liability to tax ought not to depend on such distinction. I see no indication in the Act that the legislature thought that it should. The cost or price of the tvres before the retreadind operation takes place 1s a relevant factor to be taken anto account. But it cannot be determinative. Shoes, whicn need resoling are no doubt worthless to their owner. Resolina them makes them useful again. But it does not turn them into a different article. It remains to sav that I find nothing in para. (b) of the definition of "manufacture" earlier auoted which assists 10. the appellant's case. In my opinion the appeal should be dismissed with costs. I certlfy that this andthe Y preceding paces are a true copy of tne reasons for judgment herein of The Honourable Mr Justice Sheppard. LP Bhi Td Associate Dated 2/ DECENZER 1/9 FY IN THE ERAL COURT OF AUS I NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION No. G369 of 1984 we eve THE COMMISSZONER OF TAXATIUN OF THE COMMONWEALTH OF AUSTRALIA Appellant JAX TYRES FTY LIMITED Respondent CORAM: Lockhart, Sheppard and Wilcox JJ. 21 December 1984 REASONS FOR JSUDGMEN™ WILCOX JT.: Iam of the view that the appeal ought to be di3missedad. I agree with the reasons of bar: ceckhart and Sheppard Jd. I certify that this page 1s a true copy of the Reasons for Judgment herein of Mr. Justice Wilcgx. Associate VU ALAR oMex; ere oi 1a lex,