High Court of Australia Windeyer, J. Ready Mixed Concrete (WA) Pty Ltd v Commissioner of Taxation (Cth) ORDER Orders (Nos 88 and 89 of 1970) Appeals allowed in part. Assessments set aside. Matters remitted to the Commissioner to assess tax in accordance with this decision. Commissioner to pay two-thirds of the appellant's costs taxed on the basis that the two appeals were heard together. Usual order as to exhibits. This order to bear date 26 May 1971. Windeyer, J These are two appeals brought pursuant to the Income Tax Assessment Act, s 187, from decisions of the Commissioner who disallowed objections to assessments of tax in respect of the years ended 30 June 1968 and 30 June 1969. The appellant taxpayer had claimed to be entitled to a large deduction from its assessable income pursuant to s 62AA(5) of the Act. The amount in question is, I think, a fifth of about $580,000. I heard the two appeals together as they depend upon the same question, although the facts raising that question differ in the two years. At relevant times the appellant company — which I shall call the taxpayer — was, among other activities, engaged in remunerative undertakings of producing what was called aggregates, meaning quantities of small pieces of stone formed by breaking up large stones, the particles being all discrete, geologically homogeneous and more or less uniform in size and shape, the size and shape varying in different batches produced according to stipulated requirements. The word aggregate has long been used in this way to describe material to be used as a component of concrete in building construction. The sizes of the aggregate produced and sold to buyers varied from what was called three inch size to one and a half inch size and down to three-quarters of an inch. The material thus produced has a wide variety of uses. These include filter material in drains, ballasting for providing a firm bedding for sleepers in railway lines, in concrete mixing (that, as I have said, being where the name aggregate first came into use) and as screening in asphalt surfacing and sealing of roads and also for use in making masonry blocks, artificial stone, for building purposes. The manner in which these aggregates or screenings were produced was by crushing blocks of quarried stone by means of mechanical crushing machinery. The taxpayer carries on business in Western Australia; its main undertaking is at a place called Gosnells not far distant from Perth and from there it supplies most of the stone crushings required for Perth and neighbouring areas to the south-west down towards Fremantle and Albany. At Gosnells the taxpayer has a large area of freehold land. On it there is a granite quarry. It is from granite that most of the aggregate that the taxpayer sells in that part of Western Australia is produced. Among the granite there are some dykes of diorite. This has a special value for use in bituminous asphalt and other purposes, and aggregates of it are kept and sold separately from granite aggregates. Apart from its fixed undertaking at Gosnells the taxpayer was, from time to time, engaged in crushing stone at a number of places in Western Australia and also in forming aggregates by crushing from slag, the by-product of blast furnaces at Kwinana. The process of making aggregate from slag is, broadly speaking, the same as that of making aggregates from quarried stone, except that magnetic equipment is used to remove any metallic particles in aggregates made from slag, pieces of metal being regarded as undesirable impurities. To produce aggregates elsewhere than at its fixed location at Gosnells, the taxpayer used crushing plants which were moved from time to time to different places. The main project for which a mobile plant was first used was at Mount Newman. The taxpayer, in August 1967, made an agreement to stockpile ballast to be used for a railway that was under construction for the Mount Newman Mining Co Pty Ltd In the performance of its obligations under this contract it quarried and crushed stone from land the stone on which the Mount Newman company owned. The taxpayer was paid for doing this work at an agreed rate. The work was done at a place in the country remote from ordinary habitation. The taxpayer had not only to take its crushing plant there but also equipment for quarrying operations and appurtenances of various kinds and to set up a camp there for its work people. The taxpayer claims a deduction by virtue of s 62AA(5) of the Act of a fifth of the moneys it expended on articles associated with the conduct of its crushing operations by the crushing machinery that it from time to time set up in different places. It is admitted by the Commissioner that the expenditures in question were incurred at relevant times. Further, it is admitted, in effect, that if the plant and articles in question answer to the relevant statutory description the deduction is allowable. The first question is whether or not the several items which go to make up what was called a crushing plant were within the meaning of s 62AA(2)(a)(i)) "plant or articles owned by the taxpayer … for use by the taxpayer primarily and principally, and directly in any part of the operations by means of which manufactured goods are derived from other goods". Secondly, the question arises whether the articles and plant in question are excluded from the purview of s 62AA by virtue of subsection (3)(a) of that section as being "plant or articles for use in mining or quarrying operations". The company's undertakings of the kind in question, and the nature of the plant that it uses, were clearly and helpfully and frankly explained in evidence by Mr O'Callaghan, the taxpayer's manager. I do not think that I need rehearse here all that he said, or go in detail through all the documentary evidence that was put before me. It suffices, I think, to say that a crushing plant consists of a number of separate units working together and having a combined operation. Their working is, generally speaking, as follows: Blocks of quarried stone are brought by truck to the starting or receiving point of the crushing plant. They are there tipped on to conveyor belts and taken first to vibrating screens by which clay and other adherent materials called scalp are discarded from them. Next they enter a primary crusher. It, in the instances of which I have details, is a machine that can take pieces of stone up to seven feet in length by five feet wide. Any larger pieces are ordinarily not brought to the crushing plant. They are left to lie on the quarry floor because they do not fit into the bucket of the power shovel which loads the trucks which move quarried stone from the quarry to the crushing plant. I may interpose here to say that any pieces that upon the blasting of the quarry face prove to be too large for crushing are not necessarily waste as there is a market for large stones for building walls and for other uses including such things as harbour groynes. However, I can leave the larger pieces out of consideration for I am concerned only with the product of the crushing plant. The stones that enter the primary crusher are there considerably reduced in size. They are then taken by conveyor belts to secondary crushers and in some cases by different stages to still further crushers. Ultimately they go to screens where they are sized to the sizes required. The screens are vibrating screens electrically operated. The main moving parts of the plant are all electrically operated. The process is more complicated than this abbreviated description might suggest: but in essence it consists of crushing and screening to produce a clean aggregate to meet stipulated requirements of size. Those requirements may be precise in accordance with specifications promulgated by the Australian Standards Association. The first question then is, is the crushing of large pieces of stone to make aggregates an operation by means of which manufactured goods are derived from other goods? When propounded, the answer might at first seem to be in the negative, as the Commissioner thought it was. I have, however, come to the conclusion that aggregate is, in a relevant sense, a new and different thing from blocks of stone. It is all very well to say that it is still stone and only in small pieces instead of in big pieces. That, I think, is too facile a solution of the problem. I do not find it necessary here to go over again all the ground that I covered in my judgment in MP Metals Pty Ltd v Federal Commissioner of Taxation (1967), 10 AITR 385; 117 CLR 631. I adhere to all that I there said, encouraged to do so by the decision of the Full Court on appeal (see 10 AITR, at p 543). The question in that case was in a sense the same as in this case: but the facts were essentially dissimilar. In my view the aggregates here are new goods derived from other goods, the blocks of quarried stone; and they are I think aptly described as "manufactured". The difficulties of that word are not removed by saying that one looks at its use in ordinary parlance. In ordinary parlance a shipwright would not be called a manufacturer of ships, although a maker of motor cars is a manufacturer. All that can perhaps be said of the word is that its derivative and etymological sense no longer determines its meaning. No longer is it restricted to the handiwork of individual craftsmen. The old silversmith, no doubt, was a manufacturer of his wares: he manufactured them because he made them by hand. But today the phrases "manufacturing plant" and "manufactured goods" used in the Act connote, I consider, the production of goods in quantity. The question is not solved by saying that cutting up things and grinding things is not manufacturing. That is too general a proposition. A flour miller who grinds wheat is, I would have no doubt, a manufacturer. But a man who fells trees, cuts them into lengths and sells firewood for use in the domestic hearth is not, I think, properly called a manufacturer of firewood. Yet, on the other hand, a sawmiller who converts logs to lengths and forms to be used as architraves or flooring boards does, I would think, fall within the description of a person who is engaged in a process by means of which manufactured goods are derived from other goods. The question is, in one sense, one of mixed fact and law: or it may be said that strictly it is a question of law being a question of whether or not the facts answer a statutory description. Whether fact or law, my answer is that the production of aggregates by crushing stone in a crushing plant is a manufacturing process. Going then to the next point, I do not think that any part of the plant used in the actual process of crushing can be said to be plant or articles used in quarrying operations within the meaning of s 62AA(3)(a). Plant or articles used at the quarry, such as the power shovels, by which the blasted stone was loaded on to trucks to be removed could, I think, be said to be used in quarrying operations. Similarly, I would think the trucks which a quarry master uses to remove quarried stone from the quarry floor to wherever it is to be taken could be said to be used in quarrying operations. But that stone to be crushed is produced by quarrying does not mean that the crushing of it is a quarrying operation. The quarried stone is the raw material from which aggregate is manufactured in the crushing plant. As Lord Parker, CJ, said in Carfax Waste Paper Co Ltd v Minister of Labour, [1968] 1 All ER 1041, at p 1044: "Prima facie anything that takes place before by way of obtaining the raw material is something preliminary to or ancillary to the process of manufacture and is not part of it." In short, therefore, I consider that the taxpayer should be allowed the deduction it claims in respect of those items that fairly answer the description in s 62AA(2)(a)(i)). However, some items in respect of which the taxpayer claims the deduction as allowable must be excluded. I consider that no deduction is allowable in respect of the plant that was "mobile No. 7". This, at relevant times, consisted of units of equipment that were used to screen, and by so doing to clean and separate into different sizes, pebble stones found in what had apparently in some past age been a river bed. These pebbles were for the most part of small dimensions, smooth, if not round, having been worn by water. They could thus be used as aggregate without having to be broken up. The screening operations performed by the plant simply removed clay and debris from them and graded them according to size, enabling those that were too large to be rejected. The plant, although described as "crushing plant No. 7", had no crushing element incorporated in it until one was added in September 1969. Therefore, at the relevant time, it was not used in manufacturing. Simply cleaning up and grading stones is not manufacturing. At a later time a crushing element was added to this particular plant. It was added to enable the crushing of some of the larger rounded stones to give them flat angular surfaces as required by some buyers. However, the fact that in 1969 this plant was thus modified does not aid the taxpayer in its present claim. Next I think that various items of equipment used to provide facilities for employees of the taxpayer in mess huts and camps, such as electric lighting and refrigeration, must be excluded. Next is an item described as Euclid dump trucks. These are heavy duty tipping trucks that were used to carry quarried stone from the quarry at the Mount Newman site to the crushing plant there and dump it on the receiving conveyor belt. It seems to me that these trucks should not be regarded as used in the operation of making the ballast by crushing, but as used in the preliminary operation of bringing raw material to the place where it was to be made into ballast. I was referred, as a persuasive analogy, to the decision of the appellant division of the Supreme Court of South Africa in Secretary for Inland Revenue v Cape Lime Co Ltd, [1967] 4 SALR(AD) 226. In that case lime was made from quarried limestone. The limestone blocks, after being reduced in size by a reduction plant, were fed into kilns for calcination. Some of the larger pieces of limestone were reduced to manageable size at the quarry itself, before being loaded on to lorries to be carried to the reduction plant for further breaking. It was held that the lorries were "used for the purposes of trade and directly in a process of manufacture" within the meaning of a taxation Act. The facts were very different from those of this case. The Act was different. The question for decision was different. The decision of the Court was reached by a narrow majority. There are passages in some of the judgments that are remotely in point here: but, on the whole, I think that that case is of no great assistance for either side in this case. It was, however, contended by the taxpayer that, by virtue of s 62AA(2)(e), these trucks were plant for which the statutory deduction should be allowed. It was urged that, using the terms of the paragraph, the trucks were plant or articles used "in the transportation, within premises in which any property in relation to which this section applies [scil. the crushing plant] is used, of goods in relation to which that property is to be or has been used". An area of about 50 acres in the Mount Newman district had been allotted to the taxpayer as the place within which it was to quarry stone, set up its crushing plant and its camp facilities and conduct its operations in the performance of its contract to provide ballast for railway construction. Therefore, it was urged, this area constituted "premises" within the meaning of paragraph (e) in the subsection, and the trucks were used in transportation within those premises. I do not think that 50 acres of bushland become "premises" in the statutory sense merely because it was a defined area which the taxpayer was authorized to use for the purpose of carrying out its contract. Doubtless the conveyor belts which moved stone to different units of the crushing plant might be regarded as used in the transportation of goods in relation to which the crushing machinery was used. So regarded they would be within s 62AA(2)(e). However, I do not think it necessary to resort to that provision for the purpose of bringing the conveyor belts within the purview of s 62AA. I think they are better regarded as an integral part of the plant described in s 62AA(2)(a)(i) than as plant used in transportation. The two provisions are not mutually exclusive, I think. However that may be, I reject the proposition that the trucks used to bring stone to the crushing plant are properly described as used for transportation within premises in which the crushing plant is used. There are some other items which might seem of questionable validity as qualifying for the allowance of a statutory deduction, but those that I have mentioned were the only ones that argument for the Commissioner specifically challenged if I should be of opinion that the crushing machinery as a whole was, within the meaning of the Act, plant used in the manufacture of goods from other goods. Therefore, I have not considered — for the purpose of excluding them — any other items than those I have mentioned. I hand down to the parties a table of those items with the values set against them as extracted from Exhibit C. The parties may have time to consider whether there is anything further that they wish to say as to these items and as to the costs. [After a short adjournment, followed by some discussion, his Honour concluded his judgment substantially as follows]: Having heard some comments by counsel for the parties I now formally find that in arriving at the assessable income of the taxpayer for the years in question a deduction, calculated in accordance with s 62AA(5), should have been allowed in respect of the various expenditures the taxpayer claims as allowable, except such items as I tabulated and which, with a minor adjustment agreed by the parties, I now incorporate in this judgment. The several items and the amounts referable to each, which I have not allowed, are as expressed in Exhibit C — a document which was tendered, and evidence given of its accuracy, as a convenient summary of all expenditures that the taxpayer claimed ought to have been allowed by the Commissioner pursuant to s 62AA. 1968 Table of Items Shown in Exhibit C Mobile No. 1. $ 50 KVA Lister Powered Van Kaik Alternator — W626 4,288 Mobile No. 2. 50 KVA Leyland Powered Alternator — W671 3,372 Mobile No. 6. 40 KVA Lister — W661 4,040 40 KVA Lister Powered Alternator — W601 3,300 4 Euclid Dump Trucks W588 & W591 @ $27,780 ea. 110,120 W589 & W590 @ $27,280 ea. 110,120 Mobile No. 7. Whole 29,870 154,990 $154,990 1969 Mobile No. 7. Whole 1,299 $1,299 The result is that the amount which the taxpayer claimed as a deduction from its assessable income is reduced by $154,990 for the year ended 30 June 1968 and by $1297 for the next year: otherwise its claim is allowed, and tax should be assessed accordingly. As it is suggested that the Commissioner may wish to check the figures that I have set against his records, the order that I shall make will not take effect until a week from today. That will enable the Commissioner to consider the matter and make any application he wishes: but I accept the material in Exhibit C, which was tendered without objection. As to the costs: having heard both parties, the order will be that the Commissioner pay two thirds of the taxpayer's costs on the basis that the two appeals were heard together as one matter. The form of my order will be put into writing and added to the transcript of this judgment.