Ready Mixed Concrete (Victoria) Pty. Ltd. v. Federal Commissioner of Taxation.
69 ATC 4038
Judgment date: Judgment handed down 28 March 1969.
Kitto J. (for the Court): This appeal raises questions as to the meaning and application of sec. 62AA of the Income Tax Assessment Act 1936-1966, a section which was inserted by the amending Act No. 39 of 1962. By sub-sec. (5) of that section a taxpayer is entitled to an allowable deduction from his assessable income of the first year in which certain manufacturing plant is used, as manufacturing plant, for the purpose of producing assessable income. The deduction is of an amount equal to one-fifth of the taxpayer's expenditure on that manufacturing plant, but it is allowable only where the expenditure was of a capital nature and the plant was new plant for use by the taxpayer in Australia for the purpose of producing assessable income.
During the year ended 30 June 1967 the appellant purchased, for sums totalling (after sales tax refunds), $74,494, certain articles called transit mixers for use in producing assessable income in connection with its business of a producer and supplier of ready mixed concrete. The main element in a transit mixer is a drum resembling a large steel barrel, on its side but tilted towards one end.
At the higher end it has an opening and a receiving attachment into which wet concrete or the ingredients for it may be poured. Outside the lower end, which is closed, there is a motor and a chain-drive for rotating the drum. Around the interior surface of the drum and welded to it is a helical blading which will mix the contents when the drum is revolved and move them in a forwards or backwards direction according as the drum revolves one way or the other. The unit includes a gear-box with the necessary levers for regulating the speed and direction of revolution of the drum: it may be made to revolve forwards (at a speed of either 2 or 18 revolutions per minute) or backwards so as to eject the contents from the opening at the higher end. The complex is completed by a water tank, a water meter and a hose, by means of which measured quantities of water may be added to the contents of the drum when the consistency, or ``slump'', of the mixture so requires. The unit is constructed to be mounted on a truck or similar vehicle so that, while doing its work in connection with the concrete inside, it may be transported from the producer's plant, the ``batching plant'', to the place where the customer requires it to be delivered. The mixer depends for its operation upon its own motor only.
The production of ready mixed concrete involves the mixing, in proper proportions, of fine and coarse aggregate, that is to say sand and crushed stone, together with cement and water. The cement and the water react chemically, and the wet concrete when so mixed as to be ready for delivery is undoubtedly not a mere collection of substances but a new substance. It is therefore within the definition of ``goods'' in sec. 62AA(1), and the process of production is clearly a process of manufacture. The ready mixed concrete is therefore ``manufactured goods''.
The expression ``manufacturing plant'' in sub-sec. (5) is defined by sub-sec. (1) to mean a unit of property in relation to which the section applies, and the property to which the section applies is described in sub-sec. (2) subject to a number of exclusions provided for by sub-sec. (3). The appellant claims under sec. 62AA a deduction, from its assessable income of the year ended 30 June 1967, of one-fifth of the expenditure which it incurred on the transit mixers. They were new, the expenditure was of a capital nature, the purpose was the use of the mixers in Australia for the producing of assessable income, and the mixers were in fact used as plant for that purpose. The Commissioner, however, has refused the deduction, taking the view that the transit mixers were neither ``manufacturing plant'' nor used by the appellant as such; and he supports his decision on several grounds.
First, he says that the mixers do not fall within the description in para. (a) of sub-sec. (2) of property in relation to which the section applies, para. (a) being the only part of sec. 62AA upon which the appellant relies to make the mixers ``manufacturing plant''. So far as it need here be quoted, the relevant provision is that the section applies in relation to -
``any property being plant or articles owned by the taxpayer that is for use by the taxpayer primarily and principally, and directly -
- (a) in any part of the operation by means of which -
- (i) manufactured goods are derived from other goods... by the taxpayer...; or
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- (ii) manufactured goods manufactured by the taxpayer... are... brought into or maintained in the form or condition in which they are sold... by the taxpayer...''
The Commissioner's first contention is that in fact the mixers, though owned by the appellant, were not all acquired by it for its own use and were not in fact all used by it during the relevant year of income. Some were acquired for use, and were in fact used, he says, only by owner-drivers of motor trucks under agreements that they would permit the affixing of the mixers to their trucks (though without affecting the ownership of the mixers) and would themselves operate the trucks and the mixers in the course of the supply of ready mixed concrete by the appellant to its customers. The manner in which an owner-driver does the work for which he is engaged is described in detail in the evidence, and I may sufficiently indicate it in summary form as follows.
At one of the appellant's batching plants the truck is placed so that the transit mixer is beneath overhead hoppers in which crushed stone, sand and cement are held. As these ingredients and water from an overhead tank flow down through a flexible hose or sock into the mixer, the mixer is rotated by its own motor at mixing speed, eighteen revolutions per minute, and this is continued for a few minutes so that although the materials arrive in the drum in a somewhat mixed condition they become thoroughly mixed in the drum to the point where a uniform consistency is achieved. If they have reached the drum directly from the hoppers the mass is wet to some extent, but it is called nevertheless a dry mix because the water has not been brought completely or sufficiently into contact with all of the other ingredients. Most often a dry mix is what the customer requires; but sometimes a wet mix is called for to satisfy particular needs, and then the materials pass from the hoppers into a mixing unit, resembling the transit mixer but forming an elevated and fixed part of the batching plant, and only when the mixture is in a thoroughly soaked condition is it released into the transit mixer on the truck beneath. In that case the drum is at mixing speed while it is filling but no longer, assuming that the ultimate product is to be plain concrete. Occasionally, however, a small quantity of an additive has to be introduced for the purpose of giving the finished concrete a colour or some other specially desired quality, and in that case the revolution of the drum must be at mixing speed for a short time so that the additive may be dispersed evenly throughout the concrete. The driver inspects the mixture to see whether it appears to have the requisite degree of ``slump'', and adds more water from the tank if it is needed. When the period of mixing it over, the speed is reduced to two revolutions per minute - the agitating speed as it is called - which serves only the purposes of keeping the ingredients from separating out, as they tend to do, and retarding the setting process. The truck, with the drum at agitating speed, proceeds to the site where delivery is to be made. On arrival and after any period of necessary waiting time has elapsed, the driver again inspects the concrete in the drum to form a judgment about the slump, adds any water necessary to restore the slump to the requisite standard, accelerates the drum to mixing speed in order to make the consistency uniform again, returns it to agitating speed, and is ready to discharge the concrete where the customer requires it.
The appellant's obligation under its contract with the customer is to supply a quantity of concrete in a stipulated condition both as regards constituents (including any desired additives) and as regards degree of slump, so as to be fit for pouring. I do not think that the process of manufacture of the goods the customer has ordered can be said to be complete until the final admixture of water has been put into the drum and completely dispersed throughout the load by the revolving of the drum at mixing speed for the requisite time. Conceivably this may occur before the truck leaves the batching plant, as when the time occupied in travelling is very short and the weather is cool so that no more water has to be added at the delivery site. In that case the owner-driver of the truck operates the transit mixer for the three purposes of completing the manufacture before leaving the batching plant, containing the fully manufactured concrete during the period of transportation, and maintaining it during that period in the condition in which it is to be sold. But in most cases, because the time that elapses and the conditions that are encountered during transportation cause an alteration in the degree of slump, water has to be added immediately before pouring,
69 ATC 4041
and in those cases the whole operation of the transit mixer is perhaps best regarded as an operation in the course of the manufacture of the concrete. The requisite degree of slump is reached, then lost, then reached again, so that the concrete is never being maintained in a condition for sale, but is finally brought to that condition - is finally manufactured in the sense of being derived from the ``other goods'' including among them the water that is added at the last moment - immediately before the sale.
For the purposes of sec. 62AA(2), however, it does not matter whether the use of the mixer for mixing the additional quantities of water into the concrete is to be considered as part of the operations by which the appellant ultimately derives the concrete, or as part of the operations by which the concrete taken from the batching plant is brought into or maintained in the condition in which it is sold. In either case the question must be answered whether the use of the mixer by the driver is a use of it by the appellant. It is a use at the request of the appellant, and in order to perform for the appellant work which the appellant has contracted to do. The precise terms of the agreement between the appellant and the owner-drivers have not been proved, although I invited each party near the end of the hearing to put the form of agreement in evidence. I accept the proposition, about which there is indeed no controversy, that the owner-drivers are independent contractors, so that the appellant would not be vicariously liable to third persons for damage caused by negligence in the course of the working of the transit mixer or the driving of the truck. No doubt the purpose for which the appellant owns a transit mixer mounted on the truck of an owner-driver may be described by saying that the article is ``for use'' by the truck-driver, in a context where ``use'' refers to personal acts in immediate relation to the article. But the context of sec. 62AA is not of that kind. The section is concerned with the relation of an article owned by a taxpayer to any part of the operations by which he (or another) derives manufactured goods from other goods or by which manufactured goods are brought into or maintained in a particular condition. In that connexion the word ``use'' seems to me to refer to use either by the taxpayer personally or by another person in applying the article at the taxpayer's instance to relevant purposes of his, whatever may be the legal nature of the relation between that other person and the taxpayer. The word ``directly'' in the section does not seem to me to affect this question. It cannot be intended to attach to ``the taxpayer'', so as to exclude uses by an agent, for that would prevent the section from ever applying to a corporation unless use by a servant for his employer is to be treated as a use ``directly'' by the employer while a use by any other kind of agent for his principal is to be treated as not a use ``directly'' for the principal. The section means, in my opinion, that the use must be a use directly in any part of the described operations; and it is of no consequence whether the article is to be put to use by the owner per se or per allum. If this be so, the conclusion in the present case must be that the transit mixers were all owned by the appellant for use by it, whether the use in particular instances was to be had by the hands of its servants or by the hands of independent contractors.
The question then arises whether the use by the taxpayer for which it bought the mixers was a use ``primarily and principally, and directly in any part of the operations by means of which'' ready mixed concrete in its final state was to be derived from its ingredients ``by the taxpayer'' and (in some cases perhaps) maintained in the condition in which it was to be sold. The Commissioner's contention is that the mixers were owned for use partly as holders of concrete during transportation, that is to say for use as part of a carrying complex consisting of truck and mixer, and that the importance of the purpose which the mixers served as containers during transportation was so great that their other purpose as instruments of manufacture and maintenance cannot fairly be described as primary and principal.
The answer in my opinion is that they were for use primarily and principally in the operations referred to in sec. 62AA(2) (a). Transit mixers are made mountable on trucks because of the advantages to be gained by giving mobility to the machinery needed for completing the preparation of the concrete and so allowing the process to go on while the distance from the batching plant to the place of sale is being traversed; but the fact remains that the mixer is essentially machinery for that purpose. As a result of its mobility there is no need of a container
69 ATC 4042
as an aid to transportation. The mixer does indeed perform the function of such a container, but only incidentally to its main function.
In my opinion, therefore, the transit mixers are property to which the section applies, unless they are excluded from that category by sub-sec. (3). That sub-section describes a number of classes of plant or articles, to none of which is it suggested that the mixers can be held to belong unless it be those described in paras. (b) and (f). Paragraph (b) refers to ``road vehicles... of the kinds ordinarily used for... the delivery of goods (including the delivery of goods of a particular kind)''. Even assuming that a component part of a road vehicle may be excluded from the section by this paragraph, it is clear, I think, that a transit mixer is not within the description. It is not really a component of a total vehicle comprising itself and the truck, being a vehicle comprising itself and the truck, being a vehicle ordinarily used for the delivery of ready mixed concrete. Notwithstanding the mode and degree of annexation, the truck and the mixer are functionally separate and independent units of property. The function of delivery belongs to the truck. The use of the mixer is for mixing, as a step in the production of concrete in the condition required for pouring, and its nature is under-stated to the point of misdescription by saying that the machine-for that is what it is - is ordinarily used for delivery.
I need not say much about para. (f): ``containers, spools or other articles in or on which goods are to be delivered by the taxpayer''. Concrete is not delivered by the appellant ``in or on'' a transit mixer. It is delivered from a transit mixer: there is no delivery until the concrete is poured. The mixer does contain concrete, but only in order to work upon it in the course of the process that continues during the transportation to the point where delivery will ensue. The customer does not take delivery of the finished product in the mixer.
In the result I am of opinion that a mistake has been made in refusing the appellant the deduction claimed in respect of the transit mixers, and I must direct that the assessment be amended by allowing the deduction.
Appeal allowed with costs. Assessment remitted to the Commissioner to be amended by allowing pursuant to sec. 62AA a deduction of $14,899 in respect of the transit mixers referred to in the notice of objection other than No. 196.