The following case has, by direction of the Minister for Trade and Customs, been submitted to me for opinion:

Section 89 of the Customs Act 1901 provides that-in all prescribed cases warehoused goods in manufacturing warehouses may in manner prescribed be utilised for manufacturing purposes and the manufactured article may be delivered for home consumption subject only to the payment of such duty (if any) as may be prescribed.'

Application has been made to the Department to permit of dutiable material being manufactured in a manufacturing bond (section 79) into handkerchiefs, and the latter to be delivered free, or at a reduced rate of duty.

The Minister would be glad to have opinion whether, in view of the fact that the Tariff Act of 1908 prescribes a duty on such articles, though not specifically by name, there is power to prescribe that handkerchiefs manufactured under the conditions stated might be delivered free or at a specified reduced rate of duty.

Section 89 is worded very widely, but I think it ought not to be read as authorising a regulation to be made permitting in effect a dutiable article to come in free, as that would be contrary to the intention of the Tariff, or to permit of a regulation being made which in effect would amount to the imposition of a new duty.

Manufacture may be a very complex matter involving the use of imported dutiable materials, imported free materials, Australian excisable materials, and Australian free materials, and in varying quantities, and in the process of manufacture portions of the different materials may become wasted or used up and not incorporated into the article made. It is not the intention of the Tariff or of the Customs Act to place Australian manufacturers in a worse position than the manufacturers of imported articles, but it may happen that some manufactured article which is free under the Tariff contains a small proportion of some dutiable material not made in Australia and, unless an adjustment could be made, the Australian manufacturer would be in a distinctly worse position than his foreign competitor. It will be seen therefore that there is ample scope under the section to make regulations for the adjustment of the duty or the ascertainment of the proper duty to be paid under the circumstances without in any way contravening the intention of the Tariff or imposing any new duty.

The Customs Regulations relating to Manufacturing in Bond (Statutory Rule 1909, No. 126, regulations 71, 72) appear to have been carefully framed to carry the view expressed in this opinion into effect.

They are based on the following general principles:

1. That, for the purpose of rectifying tariff anomalies whereby the Australian-made article is placed at a disadvantage, the manufactured article may be treated either as imported in its finished state, or as made in Australia from the imported (and Australian excisable) materials-whichever results in the lower duty.
2. Where the manufactured article is treated as imported in the finished state, it is delivered from bond at the same rate of duty as if it had been so imported, no import duty being charged on the materials.
3. Where the manufactured article is treated as made in Australia, an allowance is made for waste of dutiable materials, and import duty at tariff rates charged on the balance of those materials-and also on any by-products delivered from bond. If the manufactured article is excisable, it must also pay excise duty, at tariff rates.

In other words the principle of the present Regulations is that the bonded factory may be treated as being either inside or outside Australia as the case requires.

It would be difficult to set any limits to the power conferred by section 89 of the Customs Act if read by itself; but it should be read as limited by the general scope and purport of the Act which is for the purpose of carrying into effect, not neutralising, Tariff Acts. In my opinion any departure from the principles laid down by the existing Regulations-such as is suggested in the case of handkerchiefs-would be likely to involve grave difficulties of a constitutional, as well as of a political character.

To allow the manufacture in bond of handkerchiefs from imported material, and their delivery from bond for home consumption without the payment of either the duty on the material (after allowance for waste) or the duty on the finished article, would in effect be an alteration of the Tariff by the Executive Government. If section 89 were read as authorising this, it is hard to see how it would be possible to challenge the admission of any imported articles free of duty by the mere device of importing them in a slightly unfinished condition, and adding the finishing touches in bond.

[Vol. 7, p. 327]