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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> O'Muircheasa (Inspector of Taxes) v. Bailey Wastepaper Ltd. [2003] IEHC 116 (10 April 2003) URL: http://www.bailii.org/ie/cases/IEHC/2003/116.html Cite as: [2003] IEHC 116 |
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THE HIGH COURT
REVENUE
2002 NO. 102 R
P. O'MUIRCHEASA (INSPECTOR OF TAXES)
APPELLANT
AND
BAILEY WASTEPAPER LIMITED
RESPONDENT
(Note: [*#] denotes the start of a new page of the transcript)
Judgment of Mr. Justice Murphy dated the 10th day of April, 2003.
This is a case stated under the Income Tax Act, 1967, section 428 (as applied to Corporation Tax by Corporation Tax Act, 1976, section 145) by the Appeal Commissioners for the opinion of the High Court.
Section 39 deals with the meaning of goods as goods manufactured within the State and the course of a trade by a company which, in relation to the relevant accounting period, is the company claiming relief in relation to the trade.
Subsection 5 provides that without prejudice to that and other subsections goods shall not, for the purpose of the section be regarded as manufactured if they are goods which result from a process –
(a) Which consists primarily of any one of the following:
(i) Dividing (including cutting), purifying, drying, mixing, sorting, packaging, branding, testing or applying any other similar
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process to a product, produce or material that is acquired in bulk so as to prepare that product, produce or material for sale or distribution, or any combination of such processes, or
…
(iv) Improving or altering any articles or materials without imposing on them a change in their character, …
(a) The Company carries out the first stage in the re-pulping process which results in wastepaper being recycled into new paper products.
Wastepaper is acquired from various sources. It is the basic raw material. The collected matter consists of a mixture of discarded paper, board and rubbish which arises from five main areas.
(i) Trimming and off cuts made by numerous establishments as a result of their operations in printing, publishing, envelope making, box making, carton making and such like activities.
(ii) Old files and letters, ledgers and such like items discarded by office and businesses.
(iii) Spoiled products arising from the production of paper and board, commonly called "broke."
(iv) Containers and packing paper used for the carriage of consumable goods to shops and supermarkets and such like outlets.
(v) Miscellaneous paper, newspaper, magazines, books and so forth which are thrown away by householders and others.
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The Company's business is to transform this raw material into a pulp substitute fibre suitable for the various types of paper produced by paper and board mills. Waste paper is a valuable raw material but its potential is realised only after due processing.
(b) The use of waste paper in the manufacture of new paper is divided into two main types – that used for board making and that used for paper making.
Paper mills require different grades of waste paper to make different types of finished products – thus tissue paper which is now made exclusively from wastepaper, requires letter type which based material.
(c) The initial process within the factory is the rough grading of all incoming material as it is unloaded into board and paper grades.
(i) Material such as paper wound on cores, the butt end of reels, must first be separated from the cores with the use of a heavy industrial saw using three phase electrical power. The cores, along with other bulky materials, are cut down to a manageable size for further processing in a heavy duty shredding machine.
(ii) Prior to/or after the foregoing process, a large proportion of waste received is shredded as it cannot be compressed in its existing form. This applies to cores, books, cheque books, telephone directories and so forth. Business records, files, invoices, ledgers and other related documentation must be shredded as also magazines which may have gift offers, vouchers and such like.
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(iii) In relation to board making material, any impurities such as the metal elements of files are first removed by hand. The board is then fed on to a vibrating conveyor belt to shake out dirt and remaining impurities. An extractor fan mounted at the end of the conveyor removes the dust remaining.
What remains is then passed to a compressing machine where it is compressed into 500/600 kg bales suitable for the board mills.
(iv) In relation to paper, the distinct grades are more finely extracted (there are approximately fifty different grades) into their various categories ranging from white wood free unprinted paper through paper with mechanical content printed and unprinted, to coloured papers to C.C.S. (commonly known as N.C.R. or no carbon required).
The individual grades are then subject to examination and extraction of any contaminated matter, such as plastic, carbon, polycoated materials and canteen waste as the failure to identify and extract this matter could have disastrous consequences at later stages of the repulping process such as blocking or severely damaging the mill's pulp machine.
As with the board making machine, the distinct paper grades are then fed onto the vibrating conveyor belt to shake out dust and remaining impurities. The extractor fan at the end of the conveyor removes the dust remaining.
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Certain grades are at this stage soaked via a water sprinkler mounted at the top of the conveyor to help with the binding of the fibre in the compression chamber.
A further rough shredding process is performed on some grades by means of a rotating blade above the compression chamber. The distinct purified and segregated grades are then compressed into a solid bale of pulp substitute fibre suitable for the paper mills.
(d) Following compression, both the board and the paper grades are moved on to a holding bay where a final inspection takes place prior to the export of the bales to the U.K. and European paper mills. The end products are bales of graded wastepaper and board for use by paper and board mills.
(e) An understanding and knowledge of paper making is required in the sorting and grading area.
(a) The provisions of section 39(5) Finance Act, 1980 (as amended by section 41 Finance Act, 1990), provides that, "goods shall not … be regarded as manufactured if they are goods which result form a process which consists primarily of any one of the following" and it then goes on to list five processes in paragraphs (a) (i) to (v) inclusive.
(b) The various activities undertaken by the company, whereby discarded paper and board products are converted into pulp substitute for supply to paper and board mills, do not fall primarily under sub paragraph (a) (i) of section 39 (5) Finance Act, 1980. The wastepaper is not acquired in bulk and, in addition, the other main applicable word in that sub
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-paragraph is "sorting", which is part of the overall process, but the process does not consist "primarily" of that activity or of that and the other activities (or any of them) mentioned in that particular sub-paragraph.
(c) Sub-paragraph (ii), (iii) and (v) of Section 39 (5) (a) Finance Act, 1980 clearly do not apply to the company activities.
(d) The Company's various processes do improve and alter materials to such an extent that they undergo a change in character whereby they are converted into a new product, namely pulp substitute fibre. The provisions contained in sub paragraph (iv) of section 39 (5) (a) Finance Act, 1980, therefore do not apply to defeat the Company's claim to Manufacturing Relief.
(a) The provisions of section 39 (5) of the Finance Act, 1980, were inserted by Section 41 (1) (c) of the Finance Act, 1990, and apply to accounting periods beginning on or after April, 1990.
These provisions state that …
"without prejudice to the generality of subsection(1) … goods shall not, for the purposes of (this section), be regarded as manufactured, if they goods which result from a process -(a) which consists primarily of any one of the following:(i) dividing (including cutting), purifying, drying, mixing, sorting, packaging, branding, testing or applying any other similar process to a product, produce or material that is acquired in bulk so as to prepare that product, produce or material for sale or distribution, or any combination of such processes, or …"
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(b) The company is engaged in a process of producing graded wastepaper and board for use by paper and board mills in producing recycled goods.
(c) This process requires the company to acquire its raw material of large quantities of wastepaper and board. While this material is acquired from numerous sources, it is acquired in bulk, within the meaning of the section. The Company's machinery can only process bulk loads of raw material.
(d) The process is essentially one of purifying and sorting. Purifying involves contaminates such as staples, metal binders, chemical adhesive strips and gummed cores being removed as these cannot be processed in the production of graded wastepaper. The sorting of the raw material is also an extremely important part of the process, because it is at the sorting stage that the grade of paper to be achieved is essentially determined. This is outlined in full details in the description of the manufacturing process.
(e) There is ongoing visual testing of the wastepaper throughout the various stages of the process.
(f) The process applied by the company to the raw material of wastepaper consists primarily of dividing (including cutting), sorting and testing.
(g) The Company's claim to Manufacturing Relief for the year ended April 30th, 1992 fails because the provisions of section 39 (5) (a) (I) of the Finance Act, 1980 (as inserted by section 41 of the Finance Act, 1990) apply to it.
(h) Alternatively, the Company's claim to Manufacturing Relief for the year ended April 30th, 1992 fails because of the provisions of section
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39 (5) (a) (IV) of the Finance Act, 1980 (as inserted be section 41 of the Finance Act, 1990).
Ms. Grainne Clohessy submitted that the decision was unreasonable based on the facts found in relation to acquisition in bulk. There was, within the meaning of the section, an acquisition of material in bulk even where it came from different sources. The dictionary meaning of bulk in the sense of heap or cargo indicated large amounts or quantities. Their own findings included one that the material came in lorries.
She referred to Mara v. Hummingbird (1982) ILRM 421 at 426 where Mr. Justice Kenny referred to case stated consisting in part of findings on questions of primary fact, inferences from those primary facts and the Commissioners conclusion.
If the conclusions from the primary facts are ones which no reasonable Commissioner could draw, the Court should set aside his findings on the ground that he must be assumed to have misdirected himself as to the law or made a mistake in reasoning. Finally, if his conclusions show that he has adopted a wrong view of the law, they should be set aside. If however they are not based on a mistaken view of law or a wrong interpretation of documents,
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they should not be set aside unless the inferences which he made from the primary facts were ones that no reasonable Commissioner could draw.
Judge Kenny referred to the evidence which support one or other conclusion and in relation thereto stated:
These are essentially matters of degree and (the Commissioners) conclusions should not be disturbed (even if the Court does not agree with them, for we are not retrying the case) unless they are such that a reasonable Commissioner would not draw them or they are based on a mistaken view of the law.
Mr. Justice Kenny referred to the House of Lords decision in Edwards v. Bairstow (1956) AC 14 per Viscount Simonds, that the Court should set aside if it appears that the Commissioners have acted without any evidence, or on a view of the facts which could not reasonably be entertained.
In her submission the decision should not be set aside.
Having regard to the finding in the case stated, these transactions were not a sham, the real nature, on the facts by which I am bound, of this scheme was that the shares were purchased and the purchaser became the real owner thereof; that shares were sold and the vendor genuinely disposed thereof and that an option to purchase shares really existed in a legal person legally deemed to be connected with the person disposing of them.
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In those circumstances, for this Court to avoid the application of the provisions of the Act of 1975 to these transactions could only constitute the invasion by the judiciary of the powers and functions of the legislature, in plain breach of the constitutional separation or powers.
Such an approach appears to me to be entirely consistent with the decision of the former Supreme Court in Revenue Commissioners v. Doorley (1933) I.R. 750 and with the decision of this Court in Inspector of Taxes v. Kiernan (1981) I.R. 117.
Mr. McCann also referred to Mara v. Hummingbird.
The Commissioners, in his submission, having seen the premises and having found that:
The Company's business is to transform this raw material into a pulp substitute fibre suitable for the various types of paper produced by paper and board mills. Wastepaper is a valuable raw material but its potential is realised only after due processing.
There was a distinction to be made between the process so found and the bagging of coal, for example which clearly was excluded by virtue of the provisions of section 39.
In his further submission the respondent did not acquire in bulk. Rather they acquired in small quantities from the five main areas described in paragraph 3.5 (a) of the case stated.
Mr. McCann submitted that the Commissioners found that wastepaper was not acquired in bulk. This was a narrow but justifiable conclusion which would bring the case outside of section 39.
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Moreover, it was submitted, the respondent's activities consisted of extracting fibres and producing an amorphous bulk from the raw material. This is evident from the finding that the Company's business is to transform the raw material into a pulp substitute fibre.
Subsection 5 (1) (a) provides that goods will not be regarded as manufactured if a result from a process which consists primarily of four general categories, (i) 2 (v). If, as he believes the appellant argues, the goods result from a process at (i) which improves or alters any articles or materials without imposing on them a change in their character (at iv) then, technically, the subsection cannot apply.
In any event, there has been imposed on the raw material a real change in character. This, of course, has been excluded, by way of the finding of the Commissioners in paragraph 8:
We concluded that the sub paragraph does not have an application because we found that the process brings about a significant change in the materials.
Mr. McCann concluded that under the provisions of Hummingbird the Court cannot upset the decision unless there was no evidence to support it. There was such evidence. Accordingly the appeal should be dismissed.
The appellant's case is that the Appeal Commissioners made a mistake in reasoning. Mr. Justice Kenny in Hummingbird at 426 held that if (the conclusions) are not based on a mistaken view of the law or wrong interpretation of documents, they should not be set aside unless the inferences which (the Commissioners) made from the primary facts were ones that no reasonable Commissioner could draw.
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There is no doubt that the ways of conducting business have become very complex and, as acknowledged by Mr. Justice Kenny,
The answer to a question always depends on the importance which the Judge or Commissioner attaches to some facts. He will have evidence some of which support the conclusion and other which points to the opposite conclusion. These are essentially matters of degree and his conclusions should not be disturbed … unless they are such that a reasonable Commissioner could not draw them or they are based on a mistaken view of the law.
It seems to me that a significant fact which was adduced or admitted into evidence was that the Company's business was to transform the raw material into a pulp substitute fibre suitable for the various types of paper produced by paper and board mills. While this may support the view of "paper in/paper out" it is clear that the Commissioners belief of this evidence of transformation from wastepaper into pulp substitute fibre was the basis of their finding that the process brings about a significant change in the materials.
In this regard I see no mistake in reasoning or a view of the facts which could not reasonably be entertained.
Their conclusion was that their only concern was with paragraph 39 (5) (a) (i) which requires, inter alia, that the material be acquired in bulk. They had the benefit of visiting the respondent's premises. Though not included in the description of the manufactured process they hold that the material "arrives in the factory, generally in lorries, having been collected from various parts of the country in large and small quantities, often in mixed or variegated loads."
They conclude that this does not amount to the acquisition of material in bulk and that, on that basis, allow the Company's claim.
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It seems to me that that finding together with the fact adduced to be admitted into evidence that the collected material arises from five main areas and consists of a mixture of discarded paper, board and rubbish are facts which support the Commissioners conclusions.In the circumstance I would dismiss the appeal.