High Court of Australia Dixon, Williams and Webb JJ. Commissioner of Taxation (Cth) v Jack Zinader Pty Ltd [1949] HCA 42 ORDER Question answered in the affirmative. Judgment for the plaintiff for £311 2s. 1d. with costs. Cur. adv. vult. The following written judgments were delivered:— Sept. 27 Dixon J. The question for our decision is whether fur coats, stoles, capes and collars formed by remodelling fur garments are, for the purposes of the Sales Tax Assessment Act (No. 1) 1930-1942, goods manufactured and sold. Section 17 of that Act provides that sales tax shall be levied and paid upon the sale value of goods manufactured in Australia by a taxpayer and sold by him. Section 17A imposes upon a transaction by which one person manufactures goods for another out of that other's material the artificial character of a sale. The section provides that where goods are manufactured for a person wholly or in part out of materials supplied by him the manufacturer of the goods shall for the purposes of the Act be deemed to have sold the goods to the first-mentioned person, at the time of their delivery to him for the amount charged to him by the manufacturer in respect of those goods. Section 18 (1) (c) makes the amount so charged the sale value of the goods for the purposes of the Act. That, however, is subject to s. 18 (5A) and Part IIIa. of the regulations which together operate to reduce the sale value. The word "manufacture" is defined by s. 3 (1) (b) to include the combination of parts or ingredients whereby an article or substance is formed which is commercially distinct from those parts, subject to a qualification that is not in point. The taxpayer in the present case, a company which is the defendant in the action, carries on business in Sydney as a furrier and repairs and remodels fur garments. The company is registered under the Act as a manufacturer. The commissioner claims sales tax in respect of fur coats, stoles, capes and collars which the defendant company has remodelled on the ground that the remodelling of fur garments for customers is hit by s. 17A. An inspection of s. 17A will show that the claim depends on the remodelling amounting to a manufacture of goods and upon its being done for the customer "wholly or in part out of materials supplied by him." "The essence of making or of manufacturing is that what is made shall be a different thing from that out of which it is made" (per Darling J., McNicol v. Pinch [1] ). The first and, it may be thought, the decisive question in the case, is therefore whether the garments which result from the process of remodelling are different things, that is are different "goods," from the garments that the customer hands over. This perhaps is rather a question of fact than of law, but, although the form of the proceeding before us is a case stated, it is stated under s. 18 of the Judiciary Act 1903-1948, which authorizes a reference of both fact and law and no objection has been raised to our drawing inferences of fact. The commissioner distinguishes between repair and remodelling and does not claim sales tax in respect of repair even although it may mean some change in, for example, the length of the garment. We are told that an old or worn fur coat is remodelled into a modern style of coat, that a fur necklet is remodelled into a stole and a fur necklet or fur stole is remodelled into a cape. A full length fur coat may be converted into a "saunter" or the somewhat similar "swagger" coats which are considerably shorter but full and often flared at the bottom. But the conversion may be to a jacket, which is waist length and secured in front by a clasp or a belt, or into a coatee, which is less than waist length and fits more closely and usually is not fastened in front. To effect these changes the collar, sleeves and linings of the coat handed in by the customer are removed, and the remainder of the coat is laid out upon a proper pattern prepared to the customer's measurement and is cut to the pattern. Worn skins are replaced by skins from what is cut off or by new skins. The body of the garment is then dampened and is nailed out on a pattern board to the shape and measurements of the paper pattern. By this means it is stretched and irregularities are removed. Usually the sleeves are remodelled. They and the collar, if one is necessary, are attached and the remodelled garment is lined and finished. Sometimes the lining is new; sometimes the old lining is washed and used. 1. (1906) 2 K.B. 352, at p. 361. The same or an analogous practice is followed when a necklet is converted into a stole or a necklet or stole into a cape. In a necklet the skin is sewn together so as to form a cylinder of fur and an animal's head is attached at one end and a tail at the other. In a stole, which is often of considerable length, the skin is flat and is lined. On the side of the taxpayer it is contended that these procedures do not change the identity of the garment but only some of its characteristics. The customer hands in a fur garment and takes away a fur garment. It is altered and renovated but it is still a fur garment; it is her fur garment; it is the fur garment she brought to the furriers. On the side of the commissioner it is said that a different fur garment has been brought into existence. The old fur garment has been used only to provide the materials or some of them from which the new fur garment has been made. It is a thing of a different description both commercially and from the point of view of the wearer. It is a different entity and has a new identity. "Goods" have therefore been produced. On the whole the commissioner's view appears to be the more correct. The work of the furrier is to use skins to form garments. In skins he works with materials often of great value and usually of some permanence. His skill lies in the use he can make of them and the descriptions of garment he produces. Fashion, commercial usage and his customer's tastes combine to distinguish the various descriptions of garment he makes and to compel the recognization of them as separate categories of "goods." When he takes skins made up into one description of fur garment and produces another, he cannot be treated as having altered an existing thing without producing a new one. He has made a different article. But on behalf of the taxpayer answers to this position are put forward by way of confession and avoidance. Let it be so, it is said. Nevertheless there is no "manufacture." The process does not amount to manufacture. It is not manufacture within the ordinary meaning of the word nor within the statutory definition. It is a reshaping or reforming of an existing second-hand article. Taking a thing to pieces and putting it together again is not manufacture and putting it together in a different shape is not enough to make applicable the word "manufacture." So runs the argument. The argument is answered by the consideration that, according to the conclusion already stated, the process produces a different article. When that consideration is added to the fact that the actual work done and the procedure employed in producing the new, that is the distinct, article is characteristically a manufacturing process, it must follow that the "goods" are "manufactured" within the ordinary meaning of that term. But then it is said that the goods are not "manufactured for a person wholly or in part out of materials supplied by him" within the true intention of the expression as it occurs in s. 17A. To hand in a garment for the purpose of its being altered into another garment cannot, it is claimed, be described as supplying materials to be manufactured into goods. One reason given is that second-hand materials are not within the purview of the provision. But apart from that reason, which really arises from a more general contention calling for separate consideration, it is hard to see why, once it is found that a new or different article is produced, the old garment should not be treated as containing the materials supplied for the purpose of manufacturing the different article. That leads to the final contention upon which reliance was placed for the taxpayer. The contention is that because the fur coat or other garment handed in is second-hand and because by consequence the resulting "new" or distinct garment is second-hand in the sense that it is made of used or worn skins, therefore the transaction or the goods must fall outside the scope of the tax. It is put in two ways. One is that upon the reasoning adopted in Deputy Federal Commissioner of Taxation (S.A.) v. Ellis & Clark Ltd. [1] the Act does not intend to tax a notional sale of such goods. The other invokes the exception in favour of second-hand goods placed, after the decision, in the definition of goods in s. 3 (1). 1. (1934) 52 C.L.R. 85. The first ground depends upon the conclusion of the Court in the case of Deputy Federal Commissioner of Taxation (S.A.) v. Ellis & Clark Ltd. [1] that the clear intention of the sales-tax legislation is to take the course of commerce between the first appearance in Australia of goods, whether as a result of importation or of manufacture, and the retail disposal of them and to impose the tax once only upon them, so that the retail price of the goods would be increased by the incorporation in it of one, but not more than one, amount of the tax. 1. (1934) 52 C.L.R. 85. One answer to this ground is that the application which the commissioner gives to s. 17A in the present case does not offend against the principle. It is no doubt true that the garment handed in has borne sales tax. The skins and other materials of which it consists have borne their due proportion of the sales tax paid originally in respect of the finished garment. On the assumption that, in the course of trade by which the furs and materials were supplied to the manufacturer of the original garment, certificates were properly quoted, the elements of which the garment was made up would have borne sales-tax once only and that as constituent parts of the finished article. For, to repeat what was said in Davies Coop & Co. Ltd. v. Federal Commissioner of Taxation [2] : "What goes into a manufactured article and forms part of its substance is sold as part of it so to speak, and then bears sales tax in its manufactured form and for the first time." 1. (1948) 77 C.L.R. 299, at p. 317. But the use that the commissioner makes of s. 17A does not mean that any part of the materials will bear sales tax a second time. What is taxed is the cost of the service performed by the furrier for his customer in remodelling the garment, or more correctly a portion of that cost. For that is the notional sale value under s. 18 (1) (c) and (5A) and Part IIIa. of the regulations. As that service ex hypothesi produces a distinct article, it is quite consistent with the policy of the sales-tax legislation and with the principle of the decision in Deputy Federal Commissioner of Taxation (S.A.) v. Ellis & Clark Ltd. [1] to impose a sales tax on a notional price consisting in part of the charge for the service. 1. (1934) 52 C.L.R. 85. Another answer is that, since that decision, the Parliament has reduced the principle judicially discovered in the legislation to statutory expression. That statutory expression should therefore afford the measure of the application of the principle. It is to be found in the exception in the definition of goods in s. 3 (1). Upon this exception the taxpayer relies as the second ground for the contention that the transactions in question must fall outside the scope of the tax because the garment providing the materials is second-hand. The exception is stated in two alternative paragraphs. The first, par. (a), says that the word "goods" does not include goods which have, either through a process of retailing or otherwise, gone into use or consumption in Australia. There is a very short answer to the taxpayer's reliance upon this paragraph. It is that the "new" or different garment produced from the old garment, the fur coats, stoles, capes or collars, have not as such gone into use or consumption. The skins of which they are made up have done so, but not the garments produced by remodelling. The skins have borne tax and they will not do so again. The cost of the work done in turning the skins to new account will provide the measure of the sale value taxed. Paragraph (b) of the exception could not be availed of by the taxpayer. For it depends (1) on the goods being sold as second-hand goods, and (2) on the existence of an opinion on the part of the commissioner that parts of the goods (the remodelled garments) retain their character as goods or parts of goods which have gone into use or consumption in Australia. As to (1), the notional sale under s. 17A can hardly be treated as a sale to the customer of her "new" or remodelled garment as a second-hand fur coat or the like. As to (2) the commissioner seems to have held no such opinion. The taxpayer's contentions therefore fail. The question in the case stated should be answered in the affirmative, and, in accordance with the agreement of the parties, judgment should be entered for the plaintiff for £311 2s. 1d. and with costs. Williams J. The question asked in the case stated is whether the garments referred to in par. 6 of the case, viz.:—fur coats, stoles, fur capes and fur collars are "goods manufactured in and sold in Australia within the meaning of the Sales Tax Assessment Act (No. 1) 1930-1942." The garments referred to in par. 6 are fur garments made by the defendant for customers who supply the materials consisting of existing fur garments which have become so badly worn or damaged that it is impossible to repair them by patch work and they are only usable as material from which the defective parts can be cut out and what is left remodelled into a fur garment which is most suitable or useful having regard to the extent, shape and nature of the available material. Customers' second-hand fur coats are remodelled into modern stoles and coats known as swaggers, saunters, coatees or jackets; their second-hand fur necklets are remodelled into stoles; their second-hand necklets or stoles are remodelled into fur capes; their second-hand fur capes are remodelled into stoles; their second-hand necklets or stoles are remodelled into fur collars; and their second-hand fur coats known as coats, jackets, saunters, swaggers or coatees are remodelled into fur capes by the processes described in the paragraph. Except to a small extent in the case of linings the materials used by the defendant in these processes are confined to those available from the customers' garments. About ninety-five per cent of the linings of the remodelled garments are the old linings. The defendant does not provide individual linings and where linings are necessary requires the customer to supply them. It is clear that there is no actual sale of the remodelled garments by the defendant to its customers. But the plaintiff relies upon s. 17A of the Act which provides that where goods 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, for the purposes of this Act, be deemed to have sold the goods to the first-mentioned person, at the time of their delivery to him, for the amount charged to him by the manufacturer in respect of those goods. This section was first introduced into the principal Act by Act No. 29 of 1934. At the time of its introduction the section contained the words "makes up those goods himself or procures their making up" but Act No. 78 of 1936 omitted these words and inserted in their stead the present words "manufactures those goods himself or procures their manufacture." The section was introduced before the case of Deputy Federal Commissioner of Taxation (S.A.) v. Ellis & Clark Ltd. [1] had come on for hearing in this Court. Section 3 of the Act of 1930 simply defined goods as including commodities and manufacture as including production. In Deputy Federal Commissioner of Taxation (S.A.) v. Ellis & Clark Ltd. [1] it was held that a person who purchased second-hand and other electrical goods (principally electrical motors) and resold them either with or without first repairing them was not liable to sales tax. It was pointed out that the general policy of the sales tax legislation, which must be considered as a whole, is to levy sales tax once and for all upon the last sale of the goods by wholesale, that is upon the sale to the retailer by the last wholesaler, and that to avoid double taxation goods which have gone through the process of retailing into use and consumption in Australia, and in this sense are second-hand, are outside the scope of the legislation. 1. (1934) 52 C.L.R. 85. 2. (1934) 52 C.L.R. 85. The definitions of goods, manufacture and manufacturer were amended by Act No. 78 of 1936 to adopt and possibly to enlarge the effect of this decision. Section 3 now provides that goods includes commodities, but does not include (a) goods which have, either through a process of retailing or otherwise, gone into use or consumption in Australia; (b) goods which are sold as second-hand goods and are manufactured exclusively or principally from goods which—(i) have, whether alone or as parts of other goods, gone into use or consumption in Australia; and (ii) in the opinion of the commissioner, in their condition as parts of the goods so manufactured, retain their character as goods or parts of goods which have gone into use or consumption in Australia. Section 3 also provides, so far as material, that manufacture includes (a) production (b) the combination of parts or ingredients whereby an article is formed which is commercially distinct from those parts or ingredients, except such combination as, in the opinion of the commissioner, it is customary or reasonably practicable for users or consumers of those articles or substances to undertake. Section 3 also provides, so far as material, that manufacturer means a person who engages, whether exclusively or not, in the manufacture of goods and a person (not being an employee) who manufactures goods, whether or not the materials out of which the goods are manufactured are owned by him. The Act therefore applies in terms to all goods which are goods or commodities in the ordinary meaning of those words except those goods which are excluded by pars. (a) and (b) of the definition. The Act also applies in terms to all goods which are manufactured according to the ordinary meaning of that word or which are manufactured within the meaning given to that word by the definition. In order that s. 17A may apply there must be a notional sale of manufactured goods within the meaning of the Act, and it was contended for the defendant that the remodelled garments, as they had been made entirely or substantially from second-hand materials, were really second-hand goods and that the policy of the legislation expounded in Deputy Federal Commissioner of Taxation, (S.A.) v. Ellis & Clark Ltd. [1] could only be carried into effect and double taxation avoided if such goods were held not to be goods within the meaning of the Act. There is in my opinion nothing in the judgments in Deputy Federal Commissioner of Taxation (S.A.) v. Ellis & Clark [1] to show that the policy of the Act has this result. Further, the Act has now been amended and the defendant must rely on the exceptions contained in pars. (a) or (b). A similar problem to the present problem was discussed in Adams v. Federal Commissioner of Taxation [1] and I see no reason to alter the view there expressed that the question at issue is one of fact and degree. The exception of goods which have, either through a process of retailing or otherwise, gone into use in Australia can only apply to particular goods whilst they remain such goods and not to what remains of such goods after they have been manufactured into goods which are different goods from their second-hand components. Work which could be fairly described as a mere repair or modification of the goods would not affect their original character. But once the work done causes the goods to lose this character, they become goods within the meaning of the Act. The amended definition of manufacture includes the combination of parts whereby an article is formed which is commercially distinct from those parts. There is nothing in this provision to suggest that the combination must consist exclusively or substantially of a combination of new parts. It includes in its ordinary signification a combination of parts all of which have gone into use in Australia. Paragraph (b) of the definition of goods would appear to have been inserted in the Act to authorize the commissioner to exclude from tax goods sold as second-hand goods which are not goods excluded by par. (a), and therefore to enlarge the exception in par. (a). This paragraph would seem to be confined to cases where the goods sold as second-hand goods are exclusively or principally a mere combination of second-hand articles or parts of such articles. 1. (1934) 52 C.L.R. 85. 2. (1934) 52 C.L.R. 85. 3. (1948) 8 A.T.D. 332. But it is unnecessary to discover its exact meaning because the defendant does not rely on it, and as at present advised I do not see how it could be applied to s. 17A. The sale value of the goods under the section is the value of the services of the manufacturer of the goods, and these services would have the same value whether the goods were manufactured from new or second-hand materials. The ordinary meaning of the verb manufacture is to work up materials into forms suitable for use. Where new materials are supplied there would plainly be a notional manufacture of goods within the meaning of the Act. Where old materials are supplied there would only be such a manufacture if the work done was more than a mere repair or modification of the old materials and was such as to change the old goods into goods of a different character. The purpose of the customer in leaving an old fur garment with the defendant is not to have that garment repaired or made to fit the wearer but to provide the material required for the making and fashioning of the remodelled garment. It is immaterial whether the customer leaves the old garment complete as a garment or first unpicks the old garment and leaves the pieces of fur and linings with the defendant. The defendant is not concerned to repair or alter the old garment, it is concerned to fashion a different garment out of the serviceable pieces of the old garment or, in other words, to work up this material into a new form suitable for use. This is manufacture within the ordinary meaning of the word. The manufacture goes further than merely combining the parts of the old garments into an article which is commercially distinct from those parts, although this would be manufacture within the meaning of the definition of manufacture in the Act. For these reasons I would answer the question asked in the affirmative and enter judgment for the plaintiff for £311 2s. 1d. and costs. Webb J. I have found this a difficult question of fact. However, I think it more likely than not that the remodelled garment in each case remains a second-hand garment. If the taxpayer bought used fur garments and sold them after remodelling he could not, I think, sell them as new goods without being guilty of misrepresentation. Persons intending to buy new fur garments would expect to be told that these were in fact used garments remodelled, and would, I suggest, be likely to refuse to buy them or to insist on their sale as second-hand goods. If these garments could properly be sold as new goods then so could any used but remodelled wearing apparel, however old, including hats and footwear. I do not suggest that new wearing apparel could never be made out of old materials. That would depend on the nature and extent of the processing of the old materials which themselves might be changed into new materials better and more durable than the old materials. Dr. Hannan submitted that new furniture might be made out of old packing cases. That is so, and the furniture might be better for being made out of seasoned timber. At all events the timber would be planed and polished or varnished. But, apart from any distinction based on permanence or durability, things made of wood or metal belong to a different category from used garments subjected to little or nothing more than re-shaping, repair and, to a minor extent, to laundering, and then continued in use for the same purposes by the same wearer, without any special treatment of the fur skins e.g. by tanning where the skins have not already been subjected to that process. In my opinion such garments remain second-hand goods: they are not commercially distinct from the used garments and so do not attract sales tax on an actual or notional sale. I would answer the question submitted in the case in the negative and enter judgment for the defendant.