Kithock v Comm Act Revenue

[2001] HCATrans 374

IN THE HIGH COURT OF AUSTRALIA

Registry
  No C20 of 2000

B e t w e e n -

KITHOCK PTY LTD trading as ARNOLD’S AUTOS

Applicant

and

COMMISSIONER FOR AUSTRALIAN CAPITAL TERRITORY REVENUE

First Respondent

ATTORNEY-GENERAL OF QUEENSLAND

Second Respondent

Application for special leave to appeal

GLEESON CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 12 OCTOBER 2001, AT 9.33 AM

Copyright in the High Court of Australia

MR S.J. GAGELER, SC:   If the Court pleases, I appear with MR G.C. CORR and MS G.K.Y. WONG for the applicant.  (instructed by Michael Baumann)

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR G.R. KENNETT, for the first respondent.  (instructed by ACT Government Solicitor)

MR P.A. KEANE, QC, Solicitor‑General of Queensland:   If the Court pleases, I appear with MR G.R. COOPER for the second respondent.  (instructed by the Crown Solicitor of Queensland)

GLEESON CJ:   Yes, Mr Gageler.

MR GAGELER:   Your Honours, the short question raised in the application is whether a tax on the retail sale of second‑hand goods constitutes a duty of excise.  That question has never been squarely addressed by this Court, let alone determined.

HAYNE J:   Has it ever been suggested that it is an excise before this case?

MR GAGELER:   The issue has never been agitated before this Court or before any other court before this case, your Honour.  The error in the decision of the Full Court, in our submission, can be seen at page 38 of the application book in paragraphs 21 to 23 and the error, your Honours, is to treat the question as foreclosed by the formulation in Bolton v Madsen, which is set out in paragraph 21.

There are, your Honours, two things to say about the Bolton v Madsen formulation.  The first is that it is not addressed to the position of second‑hand goods at all and, with respect to the Full Court and what is said in paragraph 22 on that page, it is, in our submission, impossible to spell out of the reference to consumers a limitation to the first consumer.  That is the first thing to be said, your Honours.

The second thing is that as a definition of a duty of excise, the Bolton v Madsen formulation is, in the light of Capital Duplicators [No 2] and Ha, at the very least incomplete and, in our submission, it is, again in the light of those authorities, wrong to the extent that it might be read as suggesting that there must be some link in some line that runs between home production in Australia and consumption in Australia, so that a tax to be a duty of excise must have some link back, ultimately, to home production.

GLEESON CJ:   Mr Gageler, would you just remind us of the precise nature of the tax with which we are concerned.

MR GAGELER:   Yes, your Honour.  Your Honours will see the relevant legislation extracted sufficiently for present purposes at pages 33 and following of the application book and the taxing provision itself is section 56A, which is at the top of page 34, which provides that:

The determined amount –

which at relevant times, I am instructed, was 3 per cent ad valorem of tax –

is payable on each sale of a used vehicle by a licensed vehicle dealer.

A “licensed vehicle dealer” is defined in section 4 and, in substance, your Honours, covered a retailer of used vehicles in the ACT and then there was an exemption in section 56B(b), which dealt with a sale from one “licensed dealer” to another.  So the tax, in substance, your Honours, was a tax on the retail sale of used motor vehicles.

GLEESON CJ:   And the taxpayer is the used car dealer.

MR GAGELER:   That is correct, but section 56EA, which your Honours will find at page 35, contemplated that the used car dealer would, of course, pass the tax on to the purchaser, as one would expect.

HAYNE J:   Do you accept that the vehicles the subject of tax have, if you can use the expression “consumption”, in relation to a vehicle, entered consumption by the time they are taxed because they have previously been sold and used by a consumer of the vehicle, if, again, “consumer” can be applied to a vehicle.

MR GAGELER:   I do not accept that, your Honour, because I do not accept that the notion of “consumption” has any application to durable goods which can come into the hands of someone who can be described as a consumer, for some purposes, but then re‑enter the field of commerce and are sold in a commercial transaction which is the subject of a tax.  No, your Honour, I do not accept that consumption has anything to do with the present case.

HAYNE J:   Thus the attack you make is an attack, root and branch, on the notion of consumption being relevant?

MR GAGELER:   Well, your Honour, can I say this about consumption?  The short answer is, yes, your Honour.  I say, first, that consumption is irrelevant, that is, I can win without needing to make any attack at all on the decision of the majority in Dickenson’s Arcade.  But I say this further about consumption, that if the decision of the majority in Dickenson’s Arcade is wrong, then my argument is somewhat enhanced.  That is, that there is, ordinarily, no limitation on a duty of excise to say that it cannot occur at or after the point of consumption.

Your Honours, I had sought to make the point that the interpretation of the passage in Bolton v Madsen, adopted by the Full Court, appeared to be one which erroneously linked a duty of excise to home production, hence one can see a logical finishing point with consumption.  Your Honours, that link with home manufacturer, or home production, can be seen in the subsequent passages from other cases, set out in the judgment of the Full Court at page 38 and following.  One can see it in paragraph 24 in the extract from the judgment of Justice Kitto, the reference to “goods originating in Australia”.  In the same paragraph, in the judgment of Justice Menzies, the reference to “goods of home production only”  ‑ ‑ ‑

GLEESON CJ:   The context in section 90, in which the expression “duties of excise” appears, puts that expression in juxtaposition with duties of customs and bounties on the production or exports of goods.

MR GAGELER:   Yes, and, your Honour, that was explored fully in Capital Duplicators [No. 2] and Ha.  Can I take your Honours to the critical passage in Ha, which is in my learned friend’s bundle of materials behind the first tab. Your Honours will see, at page 499, the ultimate formulation adopted by the majority, 499 point 9, your Honours will see that what was said was this:

Therefore we reaffirm that duties of excise are taxes on the production, manufacture, sale or distribution of goods, whether of foreign or domestic origin.  Duties of excise are inland taxes in contradistinction from duties of customs which are taxes on the importation of goods.  Both are taxes on goods, that is to say, they are taxes on some step taken in dealing with goods.

Then they go on to say:

In this case, as in Capital Duplications Case [No 2], it is unnecessary to consider whether a tax on the consumption of goods would be classified as a duty of excise.

Your Honours, that passage is introduced as a reaffirmation.  What it is is a reaffirmation of the reasoning of the majority in Capital Duplicators, which their Honours summarised at pages 488 to 490.  I will not read a passage there, but the gist of that reasoning is that, read in context, and read by reference to the constitutional purpose to which I will come, duties of excise and duties of custom together cover the entire field of taxes on goods.  That is, they exhaust the possible categories of taxes on goods, and an excise is any inland tax on goods as distinct from a tax at the border, which is a duty of customs. 

The underlying principle your Honours will see at page 497, point 6, looking at section 90 within its constitutional context and attributing to it a constitutional purpose.  Picking up what is said after footnote 120, their Honours said: 

what is material is that the States yielded up and the Commonwealth acquired to the exclusion to the States the powers to impose taxes upon goods which, if applied differentially from State to State, would necessarily impair the free trade in those goods throughout the Commonwealth. 

The constitutional purpose there identified is one which is concerned with preventing differential taxes which would impair free trade.  It is not linked, and specifically not linked, to impairing or in some way impeding Commonwealth policies with respect to production only or with respect to importation only.  So, in our submission, whether one takes the formulation at page 499, point 9, or whether one looks to the underlying principle at page 497, point 7, one can readily see that a tax on the commercial sale of second-hand goods is an excise in precisely the same way that a tax on the commercial sale of any other goods ‑ ‑ ‑

GLEESON CJ:   In Hematite Petroleum Pty Ltd v Victoria (1982‑1983) 151 CLR 599 at 665, Justice Deane said this:

In substance, a duty of excise, as that expression is used in the Constitution, is a tax upon the manufacture or production of goods. In its most obvious form, it is a tax which is imposed upon either the general process of manufacture or production of goods or upon the taking of a particular step in such manufacture or production and which is calculated by reference to the quantity or value of goods manufactured or produced. It is, however, established by the cases that a tax on goods which is imposed at a point which is either preliminary or subsequent to actual manufacture or production, including a step in the acquisition of raw materials and a step in the distribution of the finished product, may be a duty of excise.

What do you say about that? 

MR GAGELER:   I say, it has been overtaken by Ha; it has been overtaken by Capital Duplicators. 

HAYNE J:   Well, has it been overtaken by Ha, in light of what is said in Ha at 490, from about point 6 at the page, underneath the larger quote? The apparent citation with approval of what Justice Brennan said in the Philip Morris Case. 

MR GAGELER:   Your Honour, the answer is still yes.  The answer is still yes because what was being pointed out there is that there is a core area which has never really been in dispute, and the core area that has never really been in dispute is the home-manufactured goods and a tax on those goods at the point of manufacture or at a subsequent point in their distribution.  That is the point to which the passage in Hematite goes, and that is the point that is being made at 490. But the whole judgment, your Honour ‑ ‑ ‑

HAYNE J:   I would take the point to be that the core is tax on step in production or distribution to the point of receipt by the consumer. 

MR GAGELER:   Your Honour, what is being pointed out is that that has not been disputed.  What their Honours left open, at page 499, is whether the limitation which would stop a tax on consumption, the duty of excise, is appropriate.  If your Honours were to go back to what was said in Matthews v Chicory Marketing Board (Victoria), which their Honours place some reliance upon in Ha, your Honours will see upon the last page, particularly Sir Owen Dixon saying that a duty of excise will occur where there is a tax which bears: 

a close relation to the production or manufacture, the sale or the consumption of goods –

and which is: 

of such a nature as to affect them as the subjects of manufacture or production or as articles of commerce. 

But going back, if I may, to answer a little more precisely the question your Honour the Chief Justice asked me, to treat Justice Deane’s statement as a complete statement of what is a duty of excise would be inconsistent with the holding in Ha, because ‑ ‑ ‑

GLEESON CJ:   No, I thought he was stating what the essence of a duty of excise was.

MR GAGELER:   Your Honour, the essence of a duty of excise, according to Ha, is that it is an inland tax on goods.  That is, that a tax on imported goods will be a duty of excise.  That is, a general retail tax that covers both home‑produced goods and imported goods will be a duty of excise.  That is the holding in Ha.  If that is so, then it would not matter whether at the time of importation the goods are used goods or new goods; they are simply

imported goods.  So one could imagine the possibility of a tax on the retail sale of antiques, which by definition are used goods.  If those antiques are imported, then according to Ha – and there is no doubt about this – that tax would be to that extent an excise.

But according to the Full Court’s decision here, to the extent that the antiques were not imported but had their providence within Australia, there would be no duty of excise, notwithstanding that the trade in antiques would be affected by differential taxes in different States and Territories.  Your Honours, I do not think I can take the point any further.

GLEESON CJ:   Thank you, Mr Gageler.  Yes, Mr Jackson.

MR JACKSON:   Your Honours, we accept of course that this case does raise directly a question whether a tax on the sale of used goods is a duty of excise, but we would submit that special leave should not be granted for two reasons:  first, because the issue is not attended by sufficient doubt; and secondly, because there is nothing to indicate that this case has sufficient importance to merit the grant of special leave.  May I deal with those aspects in that order.

As to the correctness of the judgment below, a distinction has been drawn in the cases between two things.  One is the description of the duty of excise in section 90, what constitutes a duty of excise, and the other, how one determines whether a particular tax satisfies that description.  There is a third aspect, a matter which was not agitated in the court below, raised by our learned friend today and that is the relevance of whether the goods originate in Australia or overseas.  That aspect is one that does not arise directly in the present case.

We would submit that the description of what constitutes an excise has been settled since Bolton v Madsen.  Could I take your Honours to page 38 of the application book.  Your Honours will see set out in paragraph 21 what, in our submission, was intended to be in that case and has been treated after it as being in effect a definition of what constitutes a duty of excise.  An essential element in it is before they reach the hands of consumers.  As to the Full Court said at the same page in paragraph 22, that refers, as we would submit, to the plurality of consumers and means in effect the first consumer of the goods.

It is true that since Bolton v Madsen there has been a change in the manner of determining whether that test, that definition, has been satisfied because Bolton v Madsen was decided in days when what was looked at was the criterion of operation of the statute itself.  A different approach is taken today in the sense that, as the passage from Ha that is cited at page 32 in the application book at paragraph 7 makes apparent, the practical operation is considered as well. As it was in this case, one can see paragraph 13 of the reasons.

The question remains unchanged whether something is a duty of excise, and the way in which the excise is described in the cases has not changed at all, in our submission.  Your Honours will see, if I could refer to the passages cited at page 36, paragraph 14, the reference to Parton v Milk Board halfway through the paragraph, “at any point in the course of distribution before it reaches the consumer”, page 37, paragraphs 17 and 18, page 38, paragraph 24, and page 39, paragraph 25.  Could I say the reference in Justice Kitto in Anderson and Justice Menzies in the same case to home production or goods originating in Australia is one that itself may or may not be right following Ha, but nothing in Ha, in our submission, that suggests in the slightest degree that the remainder of the observation before they reach the hands of consumers has been changed.

HAYNE J:   But if we were to accept what you say, would we thereby be deciding the question explicitly left open in Ha about whether a tax on consumption would be classified as a duty of excise?  That is, can we dispose of this application on the basis of not attended by doubt without deciding that question?

MR JACKSON:   One can, your Honour, but of course it is right to say a question is what is meant by consumption because the word itself has a number of meanings.  What we would submit is contemplated by the conception, if I could put it loosely, of a tax on consumption, is that a tax is paid by the person who uses goods or consumes them in the sense of, if one takes the cigarettes, by actual consumption in the fuller sense of the term, by reference to the fact of consumption.  It may be by reference to the rate in which that occurs or something of that kind. 

What is in question here is simply a tax on a change in ownership of goods that are used.  It does not involve, in our submission, really fundamentally a question of a tax on consumption at all.  It involves simply, if I can put it this way, to use the language of Bolton v Madsen, a tax imposed on a step in a dealing a dealing with goods, but a step after they have reached the hands of consumers.  Your Honours, that is fundamentally all that it is.

Your Honours, could we say in relation to that - perhaps if I could just say if one looks at page 40, about the end of paragraph 28, about line 13, if one looks in the last couple of lines in that quotation:

imposed at some step in their production or distribution before they reach the hands of consumers.

What we would say is that this is a case where the tax is imposed on a step in their ownership.

GLEESON CJ:   What is the reason for this repetition of the expression “before they reached the hands of consumers” as the limiting point?  Why have all these cases said that over and over again?

MR JACKSON:   The reason ultimately, in our submission, is twofold.  One is that the concept of excise used in section 90 was one that itself required definition.  The reason being that a number of possible approaches to what was or what was not an excise were in existence at Federation, and so the question which arose fundamentally was, were they simply taxes on the event being production or manufacture or were they taxes on other steps?

GLEESON CJ:   If you take the approach of Justice Deane in Hematite and you say the essence of it is a tax on production or manufacture, I can understand why you would say, but it is not limited to production or manufacture, it could be a tax on a step on the distribution of goods up until the time they reach the hands of the consumer.  Any tax on a step in the distribution of goods up until that time is, in essence, a tax on production or manufacture.

MR JACKSON:   Yes, your Honour, that is so, that is the second point I was going to come to.  Essentially it is something that although not tied to production or manufacture directly is something which, in the end, is likely to increase the price to the consumer.  That is the essential nature of it, a tax in a step before it reaches the hands of the consumer.

Your Honours, the difficulty that arises if one is trying to adopt any kind of economic analysis to a sale after the first sale, in effect, used cars are a good example of it, it is impossible to know when the second sale will take place, what the condition of the item will be at the time of the second sale.  The car may have been sold 10 times, it may be the first sale, it may have been driven by a judge very occasionally and very well; it may have been driven like by one of my children.

GLEESON CJ:   Take the example given Mr Gageler of a tax on antiques.  What is there about a tax on a sale of an antique that relates to the concept of a duty of excise?

MR JACKSON:   Nothing, nothing at all.  The cost of production is some time in the past.

HAYNE J:   You hope.

MR JACKSON:   The cost of production of a large part of it, a very big part.  New legs.  Your Honours, it has nothing to do with an excise, that is the short thing.

Could we seek to say that, and really this goes to the second aspect, this is a case where we would submit the nature of what was a duty of excise had been the subject of considerable debate prior to Ha, and Ha in a sense, was a repeat of the unsuccessful attempt in Capital Duplicators [No 2], to overrule the Parton v Milk Board approach to excise.  Underlying the decision of the Court in Ha, in our submission, is the conception which is now sought to be challenged.  Your Honours will see that if I can go to Ha 189 CLR 489 for a moment, halfway through page 489:

The submission now advanced by the defendants is inconsistent with –

and there is the line of cases referred to, and a reference to the majority judgment in Capital Duplicators [No 2], and in particular your Honours will see in the last four or five lines the adoption, in effect, of Bolton v Madsen and that goes over to the top of the next page.  Then page 490, the reference that your Honours have been taken to in the last paragraph on the page through to the bottom of the page from Justice Brennan, and the one thing that the Court does seem to be saying is not that what Justice Brennan is the limit of what so far has been decided, but saying this is what is the nature of a duty of excise.

Your Honours, we would submit that some good reason needs to be shown before putting things in the melting pot.  None emerges here.  All that this case involves, apart from it being $12,000, is a now repealed statute of the Territory.  The provisions are not replicated in the successor statute.  There is only one other case involving about $400, involving the present statute.  No other Australian jurisdiction seeks to impose a tax in these terms.  Your Honours, we would submit that this is not a case which has any feature which should merit the grant of special leave.

GLEESON CJ:   Thank you, Mr Jackson.  Yes, Mr Keane?

MR KEANE:   Your Honours, if we might seek to supplement our learned friend’s, Mr Jackson’s, answer to your Honour the Chief Justice in relation to the question “Where has the description of an excise been drawn short of consumption or dealings by consumers?”, the history, your Honours, of that qualification seems to be traced in the authorities in the difference between the judgment of Sir Owen Dixon in Matthews v The Chicory Marketing Board and the judgment in Parton.  Your Honours will find at page 14 of the application book at paragraphs 33 and 34 the citation of Sir Owen Dixon’s judgment in Matthews where his Honour had there

included in the description of excise the possibility of sale or use or consumption.

If your Honours go over the page to paragraph 35, your Honours will see that in Parton, the locus classicus of the broad conception of excise which was approved in Ha and Capital Duplicators, Sir Owen Dixon accepted the limitation stated by the Privy Council in Atlantic Smoke Shops v Conlon that a tax on consumers or upon consumption cannot be an excise.  Your Honours, the point to be made here is that in identifying the content of excise one is trying to determine what is within the scope of that description.  Not all taxes on dealings with goods are taxes on production. 

The antique example shows that nicely, in our respectful submission.  If one goes to the classic statement of the position in Parton which is in paragraph 14 of the Full Court’s judgment at page 36, one sees that the core, if one is seeking a core of what is within the scope of this definition, is tax on production and the line is drawn in terms of description and authoritatively so, in our respectful submission, by Sir Owen Dixon in that passage and in the passages in subsequent cases collected in our outline of argument at page 56, paragraphs 4 to 6. 

So that, to return to the first question your Honour Justice Hayne posed to our learned friend, Mr Gageler, it has never since been suggested that the conception of excise authoritatively settled in those cases could extend to cases of taxes on dealings with goods by consumers, for it has been authoritatively accepted that those taxes are outside the scope of taxes on production.

Your Honours, unless your Honours have something further to ask us, those are the submissions that we would advance, adopting of course the submissions made by our learned friend, Mr Jackson, as well.

GLEESON CJ:   Thank you.  Yes, Mr Gageler?

MR GAGELER:   Your Honours, if I can return to the central proposition that the conception of excise was authoritatively settled by Bolton v Madsen, one wonders what the argument was about in Capital Duplicators and Ha.  But if your Honours were to look at Ha at page 488, point 6, a quotation from the majority decision in Capital Duplicators [No 2], what their Honours said was this:

“The submissions advanced by the defendants and South Australia deny the proposition that ‘duties of customs and of excise’ in s 90 exhaust the categories of taxes on goods.  Those submissions accept that a tax which, in form or even in substance, imposes a duty on the importation of goods or on the local production or manufacture of goods would be within the scope of s 90.”

But then go on to say that some other form of tax would not.

That was the argument that was advanced in those cases and that was the argument which was rejected and it was rejected authoritatively in the statement that I read to your Honours from the bottom of page 499 point 9.  That is now the description of what constitutes an excise.

GLEESON CJ:   Mr Gageler, what do you say is the concept that led to that repeated reference to reaching the consumer as the limiting point on what constitutes a duty of excise?  Where did that formula come from and why was it repeated?

MR GAGELER:   I can tell your Honour precisely where it came from.

GLEESON CJ:   I mean conceptually.  I mean, what is the idea behind it?

MR GAGELER:   I am not sure there is one, your Honour, or if there is one, it is an erroneous one.  But can I tell your Honour historically how it arose.  I referred your Honours to the last page of the judgment of Sir Owen Dixon in Matthews v The Chicory Marketing Board which was a case decided in 1938.  In Sir Owen Dixon’s analysis of what constitutes a duty of excise and in the formulation of the test for a duty of excise, his Honour specifically included a tax on consumption as being a possible category of duty of excise.  That is, his Honour saw no limitation to the point of consumption. 

Now, his Honour, however, in a case decided in 1949, Parton v The Milk Board, almost as an aside, repeated the formulation in Matthews v The Chicory Marketing Board, but said by reference to the decision of the Privy Council in Atlantic Smoke Shops v Conlon, a decision dealing with the British North America Act and dealing with a completely different concept, that is, a concept of indirect taxes, that he would have to modify what he said in Matthews v The Chicory Marketing Board.

GLEESON CJ:   They seem to have expressed themselves in an astonishingly guarded fashion if, as you say, any tax on any dealing in any goods is a duty of excise.

MR GAGELER:   I say any tax on any commercial dealing in any goods, yes, a duty of excise.

GLEESON CJ:   Yes, if that is right, they have for a very long time been expressing themselves in an extremely oblique fashion.

MR GAGELER:   Your Honour, the point is that there was a raging debate with Sir Owen Dixon on one side and, perhaps, Sir Frank Kitto most prominently on the other side as to whether the central concept of a duty of excise is that it is a tax on a commercial dealing in goods.  That is Sir Owen Dixon’s view.  That view, in our submission, has prevailed, or whether it is a tax which is, in substance, on home production.  That was the view of Sir Frank Kitto.  That has not prevailed.  One can see elements of it in all the cases.  It was not resolved, your Honours, until Capital Duplicators [No 2] and reaffirmed in Ha.  That was the point of those cases.

Your Honours, if I can deal very briefly with the point of the utility of granting special leave in this case.  The case, of course, is one of constitutional principle.  It is one in which my client claims that he is being assessed to an unconstitutional tax.  One is concerned with a point of importance for taxing throughout Australia.  This particular legislation, your Honours, will - - -

HAYNE J:   But is there any relevant State analogy, other State analogy?

MR GAGELER:   Not currently, your Honours, but it raises a point of principle which has been around for some time.  This particular legislation, your Honours, was in force between 1990 and 1999, and the mere presence, in our submission, of the Attorney-General for Queensland as an intervener in the proceedings shows the continuing importance of the point of principle.  If your Honours please.

GLEESON CJ:   Thank you, Mr Gageler.

This case concerns legislation that has now been repealed and that finds no close analogy in other State or Territory legislation.  The general question reserved by the majority in Ha v New South Wales (1997) 189 CLR 465 at 499 about whether a tax on the consumption of goods is a duty of excise would not require decision in this case.

The Court is of the view that an appeal in this case would not enjoy sufficient prospects of success to warrant a grant of special leave and the application is refused with costs.

AT 10.13 AM THE MATTER WAS CONCLUDED