Philip Morris Ltd v Commissioner of Business Franchises (Vict)

[1989] HCA 38

HIGH COURT OF AUSTRALIA

Mason C.J., Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ.

PHILIP MORRIS LTD. v. COMMISSIONER OF BUSINESS FRANCHISES (VICT.) (1989) 167

(1989) 167 CLR 399

24 August 1989

Constitutional Law (Cth)

Constitutional Law (Cth)—Duties of excise—Exclusive power of Commonwealth Parliament—State law imposing tobacco wholesalers' licence fee—Fee calculated upon value of tobacco sold in period preceding commencement of licence period—Validity—The Constitution (63 and 64 Vict. c. 12), s. 90—Business Franchise (Tobacco) Act 1974 (Vict.).

Decisions

MASON C.J. AND DEANE J. This is a case stated pursuant to s.18 of the Judiciary Act 1903 (Cth). The case raises questions as to the validity of licence fees payable under the Business Franchise (Tobacco) Act 1974 (Vict.) ("the Act"). The plaintiffs contend that the licence fees are invalid because they are duties of excise within the meaning of s.90 of the Constitution.

2. The plaintiffs, Philip Morris Limited ("PML"), Statewide Tobacco Services Limited ("STS") and G.P.M. Cigarette Distributors (Australia) Limited ("GPM"), are wholly owned subsidiaries of Philip Morris (Australia) Limited. The first defendant is the officer responsible for the administration of the Act.

3. The facts raised in the stated case may be recounted briefly. At the date of the commencement of the action in which the case was stated, 23 December 1987, the plaintiffs jointly held a group wholesale tobacco merchant's licence. The first defendant issued that licence on 1 December 1987. The licence was for a one month period. During each of the months between October 1978 and November 1987 the plaintiffs jointly held a group wholesale tobacco merchant's licence issued by the first defendant. Each such licence was for a one month period and was issued at the beginning of the relevant month or thereabouts. Similarly, during each month since December 1987 the plaintiffs have jointly held a group wholesale tobacco merchant's licence issued by the first defendant. Again, each such licence was for a one month period and was issued at the beginning of the month or thereabouts.

4. In order to obtain the December licence the plaintiffs made written application to the first defendant and paid to her a cheque for the sum of $1,903,522.78. The plaintiffs calculated that this sum was the amount of the licence fee due and payable for a group wholesale tobacco merchant's licence for the month of December 1987. The amount was paid under protest. The plaintiffs followed a similar procedure when applying for licences before and after December 1987, save that they did not make the payments under protest before April 1980 or for the months of September, October and December 1984.

5. PML has at all material times carried on the business of manufacturing, importing, distributing and selling tobacco products for human consumption in all States and Territories of Australia. PML's manufacturing operations involve the manufacture of cigarettes at Moorabbin in Victoria. The tobacco leaf used by PML in its manufacturing operation consists partly of leaf grown within Australia and purchased at auctions in Victoria and Queensland and partly of leaf imported from overseas. After PML manufactures the cigarettes they are packaged, placed in containers at Moorabbin and transported to PML's central warehouse facility at Noble Park in Victoria or to its similar facilities in other States. At these warehouse facilities, the cigarettes are placed in bonded stores.

6. PML distributes and sells throughout Australia its manufactured cigarettes to wholesale vendors of tobacco products, including STS, and to retail vendors of tobacco products, including large retail chain stores.

7. The breakdown of PML's sales in Victoria for the year ended 31 December 1987 was approximately as follows:
PURCHASER PERCENTAGE OF SALES
Statewide Tobacco Services 13.6 Limited Other Wholesalers holding a 69.1 Wholesale Tobacco Merchant's Licence Retail Chains 16.3 Other Retail Vendors 1.0

100.0

PML only pays a licence fee under the Act based upon its sales in Victoria of tobacco products to retail vendors.

8. PML also imports finished tobacco products from overseas. It distributes, sells and supplies these products throughout Australia to both wholesale and retail vendors of tobacco products. These imported tobacco products represented only 1.55 per cent of PML's sales during 1987. PML exports its manufactured products and its imported products to countries in the Pacific region. This export trade is a very minor part of PML's overall business.

9. STS has at all material times carried on the business of distributing and selling tobacco products in Victoria, South Australia and New South Wales and to a limited extent in the Northern Territory. In the course of its business, which is essentially a wholesale distribution business, STS purchases from PML cigarettes which PML has manufactured at Moorabbin. In addition, STS purchases imported tobacco products from PML, including some brands of cigarette. STS also purchases and obtains supplies of tobacco products, including cigarettes, from other Australian manufacturers.

10. During the year ended 31 December 1987, STS purchased tobacco in approximately the following proportions:
MANUFACTURERS/ PERCENTAGE OF DISTRIBUTORS PURCHASES PML 52.5 Rothmans 43.3 Wills 2.1 Others 2.1

100.0

11. STS distributes and sells tobacco products purchased by it to both wholesale and retail vendors of tobacco products. In 1987 it made approximately 3 per cent of its sales in Victoria to other wholesale vendors holding either a wholesale tobacco merchant's licence or a group wholesale tobacco merchant's licence. STS pays no licence fee in relation to such sales. In 1987 it made approximately 97 per cent of its wholesale sales in Victoria to retail vendors of tobacco products. STS took these sales to retail vendors into account in calculating licence fees which it paid to the first defendant.

12. GPM ceased to carry on the business of selling and distributing tobacco and tobacco products on or about 30 November 1983. Prior to that date GPM had carried on business in Victoria and elsewhere in Australia as a distributor of tobacco products to wholesale and retail vendors of such products.

13. The revenue collected by the States and the Northern Territory from business franchise fees has risen markedly from the year ended 30 June 1979 to the year ended 30 June 1988. In the year ended 30 June 1988 the revenue collected from business franchise fees in Victoria amounted to 11.21 per cent of that State's total tax revenue. In the case of other States, the percentages for that year were: New South Wales 10.54 per cent; Queensland 4.90 per cent; South Australia 13.62 per cent; Tasmania 23.95 per cent; Western Australia 17.91 per cent; and in the case of the Northern Territory it was estimated at 19.26 per cent. With the exception of Queensland, all States and the Northern Territory collect business franchise fees in relation to tobacco, petroleum and liquor. South Australia also collects business franchise fees in relation to gas. Queensland collects business franchise fees in relation to liquor only.

14. The questions asked in the stated case are:
"A. Were the fees referred to in the Statement of

Claim insofar as they were paid by:- (i) the First Plaintiff, (ii) the Second Plaintiff, (iii) the Third Plaintiff, invalid as being exacted contrary to the provisions of Section 90 of the Constitution?

B. Is the Act invalid insofar as it applies to a person in the position of:- (i) the First Plaintiff, (ii) the Second Plaintiff, (iii) the Third Plaintiff, as being contrary to the provisions of Section 90 of the Constitution? C. Are Sections 7 and 10 of the Act invalid
insofar as they apply to a person in the position of:- (i) the First Plaintiff, (ii) the Second Plaintiff, (iii) the Third Plaintiff, as being contrary to the provisions of Section 90 of the Constitution?"

15. The Act is described in its long title as "An Act with respect to the licensing of Persons who sell Tobacco in Victoria and for other purposes". Section 6 of the Act provided at the relevant time:

"(1) A person shall not on or after 1 January,

1975 carry on tobacco wholesaling unless he is the holder of a wholesale tobacco merchant's licence or a group wholesale tobacco merchant's licence. (2) A person shall not on or after 1 July,

1975 carry on tobacco retailing unless he is the holder of a retail tobacconist's licence under this Act. Penalty: 10 penalty units. (3) Where a person is convicted of an offence

under sub-section (1) or (2) in addition to any other penalty imposed on that person, the court may order him to pay to the Commissioner double any amount which the court is satisfied should have been but has not been paid to the Commissioner by way of a licence fee if a licence had been issued under this Act. (4) Without prejudice to any other method of

recovery thereof as an order of the court for payment of a civil debt any amount ordered to be paid pursuant to sub-section (3) shall, only for the purposes of its recovery and the consequences of failure to pay, be regarded as a fine imposed by the court upon a conviction in the exercise of that court's ordinary criminal jurisdiction."

16. The Act makes provision for the making of applications for a retail tobacconist's licence (s.7(1)(a)), a wholesale tobacco merchant's licence (s.7(1)(b)) and a group wholesale tobacco merchant's licence (s.7(1)(c)). The Commissioner is required to issue a licence to an applicant where a fee has been paid which is, in the opinion of the Commissioner at the time at which the licence is issued, the fee required to be paid under the Act (s.7(3)). The expression "tobacco "retailing" is defined to mean "the business of selling tobacco by retail in Victoria either alone or in conjunction with any other merchandise and includes such business carried on as part of or in conjunction with any other business" (s.2(1)). The expression "tobacco wholesaling" is defined to mean "the business of selling tobacco in Victoria for the purposes of resale either alone or in conjunction with any other merchandise and includes such business carried on as part of or in conjunction with any other business" (s.2(1)).

17. Section 8(1) provided at the relevant time:

"On or after the 1st day of July, 1975 a

person shall not sell tobacco in Victoria unless he is the holder of a licence under this Act. Penalty: 10 penalty units."

18. Section 8(3) provided:

"A licensee who carries on the business of

tobacco retailing or tobacco wholesaling on premises which are not specified in the licence as premises to be used for that business shall be guilty of an offence against this Act. Penalty: 10 penalty units."

19. A retail tobacconist's licence, other than a retail tobacconist's licence which is revocable at will, a wholesale tobacco merchant's licence and a group wholesale tobacco merchant's licence shall be in force from the date specified in the licence as the date of commencement until, unless it sooner ceases to have effect, the last day of the month in which it commenced (s.9(1)).

20. Section 10(1) prescribed the fees for licences as follows:
"(a) For a wholesale tobacco merchant's licence a

fee of $50 together with an amount of 25 per centum of the value of tobacco sold by the applicant in Victoria in the relevant period (other than tobacco sold to the holder of a wholesale tobacco merchant's licence or a group wholesale tobacco merchant's licence); (b) For a group wholesale tobacco merchant's
licence a fee of $50 together with an amount of 25 per centum of the value of tobacco sold by the members of the group of wholesale tobacco merchants of which the applicant is a member in Victoria in the relevant period (other than tobacco sold to the holder of a wholesale tobacco merchant's licence or a group wholesale tobacco merchant's licence); ...

(d) For a retail tobacconist's licence of the duration specified in section 9 (1) a fee of $10 together with an amount of 25 per centum of the value of tobacco sold by the applicant in the course of tobacco retailing in the relevant period (other than tobacco purchased in Victoria from the holder of a wholesale tobacco merchant's licence or a group wholesale tobacco merchant's licence)."

The rate of the variable portion of these fees was 12 per cent prior to December 1983 and was increased to 30 per cent in February 1988.

21. Section 2(6A) provides that a reference to "the relevant period" in relation to a retail tobacconist's licence of the duration specified in s.9(1), a wholesale tobacco merchant's licence or a group wholesale tobacco merchant's licence which, if granted, will expire at the end of a particular month is a reference to the last preceding month but one, so that, if the licence is granted for the month of July, the relevant period is the month of May last past. Section 2(6A)(b) makes different provision for a retail tobacconist's licence revocable at will but that is not presently material.

22. Section 10 went on to provide:

"(2) The value of tobacco sold for the purpose

of sub-section (1) shall be determined by the Commissioner as 100/125 of the gross amount (including any duties thereon) for which in his opinion it would ordinarily be expected to be purchased by persons engaged in tobacco retailing. (3) Where an application is made for a retail

tobacconist's licence and the applicant did not carry on the business of a retail tobacconist at all of the premises specified in the application for the whole of the relevant period, the fee payable by the applicant in respect of the licence shall be such amount as is assessed by the Commissioner as being just and reasonable in the circumstances of the case having regard to the tobacco that would have been handled by the applicant had he been carrying on the business in respect of which the application for the licence was made at all of those premises for the whole of the relevant period, the relevant principles of determining fees under sub-section (1) and the period that the licence, if granted, will be in force. ... Sub-sections (4) and (5) provide for

wholesale tobacco merchant's licences and group wholesale tobacco merchant's licences in terms similar to sub-s.(3). (6) The value of any tobacco sold for

delivery and consumption outside the State shall be disregarded in determining the fees payable under this section. (7) Where a person has applied for a licence

pursuant to section 7 of this Act and that person has not paid or tendered the fee which is, in the opinion of the Commissioner payable under section 10(1) for the licence, the Commissioner may make an assessment of the amount which in his opinion should be paid for the issue of the licence and that person shall be liable to pay that amount less any amount previously paid by that person except insofar as he establishes on objection or appeal that the assessment is excessive."

23. In so far as the Act requires the payment of a licence fee upon the issue of a retail tobacconist's licence it is indistinguishable from the similar provisions in the Tasmanian legislation which this Court held to be valid in Dickenson's Arcade Pty. Ltd. v. Tasmania (1974) 130 CLR 177 where the Court followed its earlier decision in Dennis Hotels Pty. Ltd. v. Victoria (1960) 104 CLR 529. The plaintiffs sought to overcome this obstacle to their success by submitting that the Court should now overrule so much of its decision in Dennis Hotels as held that s.19(1)(a) of the Licensing Act 1958 (Vict.) did not impose a duty of excise, as well as the decision in Dickenson's Arcade. For its part, the State of South Australia submitted that Dennis Hotels and Dickenson's Arcade should be overruled to the extent that they held that some of the fees involved were excise duties. The Commonwealth and the other intervening States opposed the reopening of those two decisions or of the decision in H.C. Sleigh Ltd. v. South Australia (1977) 136 CLR 475 which followed them.

24. This is not the first occasion on which the Court has been asked to reconsider these authorities. In Evda Nominees Pty. Ltd. v. Victoria (1984) 154 CLR 311 the Court declined to hear further argument urging it to depart from the actual decision reached in those cases. Gibbs C.J., Mason, Murphy, Wilson, Brennan and Dawson JJ. said (at p 316):

"Although the Court is not bound by its own

decisions, that does not mean that the Court will hear full argument on every occasion when counsel wishes to contend that a previous case was wrongly decided. In the present case, the legislation which the plaintiffs seek to impugn as imposing a duty of excise is indistinguishable from that which was upheld in Dickenson's Arcade Pty. Ltd. v. Tasmania. In that case, the Court heard argument directed to show that the earlier decision in Dennis Hotels Pty. Ltd. v. Victoria should not be followed, but declined to accept that argument. Again, in H.C. Sleigh Ltd. v. South Australia the Court held that those cases should be followed. The Court does not consider that it should now hear further argument urging it to depart from the actual decision reached in those cases, particularly since the States have organized their financial affairs in reliance on them."

25. In the present case, after hearing outline of argument for and against an overruling of the three decisions, the Court announced that it did not propose to reconsider the correctness of the actual decisions in the three cases in question. Thereafter the plaintiffs presented arguments seeking to distinguish the present case from those previous decisions.

26. In order to examine these arguments, it is necessary to look to the text of s.90, the long history of its interpretation by the Court, its antecedent history and its relationship to other provisions in the Constitution. The first limb of the section provides:

"On the imposition of uniform duties of

customs the power of the Parliament to impose duties of customs and of excise, and to grant bounties on the production or export of goods, shall become exclusive."

27. The central problem which this provision presents to those who seek to interpret it is that, though the Constitution treats the term "duties of excise" "as if it had a definite, fixed, invariable meaning" (John Fairfax &Sons Ltd. and Smith's Newspapers Ltd. v. New South Wales (1927) 39 CLR 139, at p 144), the term "has never possessed, whether in popular, political or economic usage, any certain connotation and has never received any exact application", to use the words of Dixon J. in Matthews v. Chicory Marketing Board (Vict.) (1938) 60 CLR 263, at p 293. For this reason efforts have been made to elucidate the meaning of the text by reference to what has been seen as the constitutional purpose that the section is designed to serve. The quest for a constitutional purpose has proved to be almost as contentious as the quest for a meaning of the text has been elusive. In the result the absence of a judicial consensus as to the meaning of "duties of excise" and the purpose which s.90 serves led to the controversial and difficult decision in Dennis Hotels and the cases which followed in its wake.

28. We pause only to observe that we do not regard reference to the history of successive drafts of s.90 or to the Convention debates as being at all helpful to the problem of eliciting what may be the constitutional purpose of the section. This view is due not to a refusal to acknowledge the relevance of the historical context in which the provision was drafted and enacted, but to the sheer lack of evidence of a convincing or consistent nature from the available materials.

29. The interrelationship of s.90 and other sections of the Constitution sheds rather more light upon the issue. First, the reference to "duties of excise paid on goods produced or manufactured in a State" in s.93 supports the view that the necessary relation between taxpayer and goods is that "the taxpayer is taxed by reason of, and by reference to, his production or manufacture of goods", to use the words of Fullagar J. in Dennis Hotels, at p 555. But we do not regard this reference as compelling the conclusion that a tax on the sale or distribution of goods stands outside the constitutional conception of an excise.

30. Secondly, and more importantly, s.90 must be read together with s.92. Section 90 gives exclusive power to the Parliament of the Commonwealth to impose duties of customs and of excise and to grant bounties on the production and export of goods. Section 92 requires freedom of trade, commerce and intercourse among the States. Together, these sections combine with the safeguards against Commonwealth discrimination in s.51(ii) and (iii) and s.88 to ensure equality of opportunity both for inter-State trade and commerce and for local manufacture and goods and ordain that the Commonwealth be an economic union, not an association of States each with its own domestic economy: Hematite Petroleum Pty. Ltd. v. Victoria (1983) 151 CLR 599, at pp 631, 660-662. Customs duties, excise duties and bounties are measures which are designed to affect domestic production and manufacture of goods and the supply of goods to the domestic market. The Commonwealth having exclusive power over these aspects of fiscal policy, the sources of State revenue in relation to commerce in goods are correspondingly confined. This led Dixon J. to say in Parton v. Milk Board (Vict.) (1949) 80 CLR 229, at p 260, that s.90 "was intended to give the Parliament a real control of the taxation of commodities and to ensure that the execution of whatever policy it adopted should not be hampered or defeated by State action".

31. In the very first decision on s.90, Peterswald v. Bartley (1904) 1 CLR 497, the Court held that a brewer's licence fee of 30 pounds a year imposed under s.71 of the Liquor Act 1898 (N.S.W.) was not a duty of excise within the meaning of s.90. The amount of the licence fee was not quantified by reference to the amount of beer brewed or sold by the brewer. The Court considered that the purpose of the relevant statutory provisions was to regulate and control the production of beer. For example, the Liquor Act required the brewer to permit inspectors to enter premises with a view to preventing adulteration. The Court concluded (at p 509) that the term "excise" was "intended to mean a duty analogous to a customs duty imposed upon goods either in relation to quantity or value when produced or manufactured, and not in the sense of a direct tax or personal tax". In arriving at this definition, which was not essential to the actual decision in the case, Griffith C.J., who delivered the judgment of the Court (comprising himself, Barton and O'Connor JJ.), referred at some length (at pp 508-509) to the discussion in Quick and Garran's Annotated Constitution of the Australian Commonwealth, (1901), at pp 837-838, of the origin and use of the term "excise" in England and Australia. There the learned authors said:
"The fundamental conception of the term is that of
a tax on articles produced or manufactured in a country. In the taxation of such articles of luxury, as spirits, beer, tobacco, and cigars, it has been the practice to place a certain duty on the importation of these articles and a corresponding or reduced duty on similar articles produced or manufactured in the country; and this is the sense in which excise duties have been understood in the Australian colonies, and in which the expression was intended to be used in the Constitution of the Commonwealth." In an earlier passage (at p 837) the authors stated that in England fees charged for licences to manufacture, produce or dispose of goods or for licences to carry on a business or engage in an activity were all known as "duties of excise".

32. Griffith C.J. observed (at p 509) that the extended use in England of the term "duties of excise" had no parallel in the Australian States. According to his Honour, whereas taxes upon beer, spirits and tobacco were known in Australia as duties of excise, fees for publicans' licences and for licences for various other businesses were not commonly understood as included under the head of excise duties. This proposition seems to have been distilled from classification of excise duties in statutes of the Australian colonies, though the statutes were not identified by their Honours. In this way the Court arrived at what was a distinctively Australian meaning of "duties of excise", namely, that set out in the preceding paragraph, a meaning described as the popular meaning in this country at the time of federation. The Court acknowledged that the imposition of a fee for a licence might in substance amount to an imposition of a duty of excise, but denied that s.71 imposed such a duty. The reasons for this conclusion are not presently relevant as they drew on the now discredited doctrine of reserved powers. But the lump sum character of the licence fee and the regulatory character of the statutory provisions were influential factors pointing towards the conclusion which the Court reached.

33. It has always been accepted, as it was accepted in Peterswald, that an excise is a particular form or category of tax. An impost will not constitute an excise unless it is a tax. In other words, a person seeking to invalidate an impost on the ground that it is an excise must establish initially that it is "a compulsory exaction of money by a public authority for public purposes, enforceable by law, and ... not a payment for services rendered", to use the words of Latham C.J. in Matthews, at p 276. As the Court recently observed in Air Caledonie International v. The Commonwealth (1988) 165 CLR 462, at p 467, Latham C.J.'s definition is not exhaustive and it needs to be understood in the light of the comments made in that case. In Air Caledonie, the Court, after discussing the positive attributes of a tax mentioned in the definition, went on to say (at p 467):
"Thus, a charge for the acquisition or use of
property (and) a fee for a privilege ... are other examples of special types of exactions of money which are unlikely to be properly characterized as a tax notwithstanding that they exhibit those positive attributes. On the other hand, a compulsory and enforceable exaction of money by a public authority for public purposes will not necessarily be precluded from being properly seen as a tax merely because it is described as a 'fee for services'." It follows that, if an exaction is in truth no more than a fee for a licence, it does not amount to a tax and, accordingly, is not an excise. That was the view taken of the licence fee in Peterswald.

34. As the passage already quoted from Air Caledonie impliedly recognizes, the statutory description or label "fee for a licence" may serve as a cloak for the imposition of a tax and, what is more important for present purposes, a tax that amounts to an excise. When a statute fixes a lump sum in a moderate amount as a licence fee there is no necessary reason to characterize the exaction as a tax or as an excise. On the other hand, when the statute exacts, as the fee for a licence to carry on a business of manufacturing, producing, selling or distributing a commodity, an amount calculated by reference to the quantity or value of the commodity manufactured, produced, sold or distributed by the licensee during a particular period, the exaction has the attributes of a tax. Although the exaction is expressed to be for the grant of the right to engage in the business, which is collateral to actual manufacture, production, sale or distribution, the mode of calculation of the fee reveals its character as a tax on the activity carried on by the licensee under the licence.

35. So, in the present case, the licence fees in question are taxes. That is the description that is generally given to them. Indeed, as appears from the facts recited in the stated case, taxes of this kind form a substantial proportion of the revenues of the States. Whether the licence fees are taxes amounting to excise duties is another question to which we now turn.

36. In the course of time it became apparent that the Peterswald definition of "duties of excise" was too narrow: see the judgment of the Court in Browns Transport Pty. Ltd. v. Kropp (1958) 100 CLR 117, at p 128 (where the Court went on to say that "the decision in that case has never been doubted"). The illuminating discussion of the history of excise duties by Dixon J. in Matthews, at pp 293-299, demonstrated that the reliance in Peterswald on the views of Quick and Garran was misplaced to some extent, though it is well established that the term "duties of excise" in s.90 does not include many classes of impost which in England have been described by that name: Matthews, at pp 276, 277; Browns Transport, at pp 128-129.

37. The suggestion in the Peterswald definition that an excise is an indirect tax was thought by some to introduce the distinction made by John Stuart Mill between "direct" and "indirect" taxation which was a feature of the Privy Council's interpretation of s.92(2) of the British North America Act 1867 (Imp.) which gave exclusive power to Provincial legislatures to make laws in relation to "direct taxation within the province". But it has since been recognized that the troublesome and confusing distinction has little relevance to the interpretation of s.90, which, as Fullagar J. pointed out in Dennis Hotels (at p 554), "was adopted in a quite different setting and employs much more specific terminology": see Browns Transport, at p 129. Accordingly, the reference in Peterswald to "a direct and personal tax" is now taken to amount to no more than an example of an impost which is not a duty of excise.

38. Two crucial problems with the Peterswald definition arose from the suggestions that, in order to constitute an excise, the tax must be imposed upon the production or manufacture of goods, as distinct from the sale or distribution of goods, and that the tax must be calculated by reference to the quantity or value of the goods. The two matters are interrelated. First, there is the question whether the tax must be imposed upon production or manufacture. Isaacs J. in The Commonwealth and Commonwealth Oil Refineries Ltd. v. South Australia (1926) 38 CLR 408, at p 426, held that opinion, as did Fullagar J. in Dennis Hotels, at p 557. But that view has been decisively rejected. John Fairfax &Sons Ltd. and Smith's Newspapers Ltd., the Commonwealth Oil Refineries Case and Parton were all cases in which a tax levied at the point of sale or distribution was held to be an excise. It is possible to say of the first two of these cases, but not of the third, that the tax was imposed upon the producer because the producer was the seller. Nonetheless it was sale, not production, that attracted the liability to tax: see Attorney-General (N.S.W.) v. Homebush Flour Mills Ltd. (1937) 56 CLR 390, at p 401; but cf. Dennis Hotels, at pp 556-558, per Fullagar J. Subsequently, in Browns Transport, the Court, in reference to an excise, said (at p 129):

"Its essential distinguishing feature is that it is a tax imposed 'upon' or 'in respect of' or 'in relation to' goods",

and cited Dixon J.'s judgment in Matthews, at p 304, for that proposition. There was no suggestion at all that the concept of an excise is limited to a tax upon production or manufacture and that it does not extend to a tax upon sale or distribution.

39. In Matthews Dixon J. had earlier remarked (at p 303):
"The basal conception of an excise in the primary
sense which the framers of the Constitution are regarded as having adopted is a tax directly affecting commodities." His Honour went on to say (at p 304):

"The tax must bear a close relation to the production or manufacture, the sale or the consumption of goods and must be of such a nature as to affect them as the subjects of manufacture or production or as articles of commerce."

In Parton his Honour qualified that statement (at p 261) by omitting the reference to "consumption".

40. In Dennis Hotels, two years after Browns Transport, all the members of the Court, with the exception of Fullagar J., were agreed that a tax on the distribution or sale of goods was, or could in certain circumstances amount to, an excise, even though the tax was imposed not on the producer but upon a distributor or seller: at pp 540-541, 549, 559, 573, 590, 601. And in Bolton v. Madsen (1963) 110 CLR 264, the Court was able to say in its unanimous judgment (at p 271):

"It is now established that for constitutional purposes duties of excise are taxes directly related to goods imposed at some step in their production or distribution before they reach the hands of consumers."

The later cases accept the correctness of this proposition: see, for example, Western Australia v. Chamberlain Industries Pty. Ltd. (1970) 121 CLR 1; Hematite; Gosford Meats Pty. Ltd. v. New South Wales (1985) 155 CLR 368.

41. A theoretical justification for the view appears in the judgment of Rich and Williams JJ. in Parton, at pp 251-252, endorsed by Kitto J. in Anderson's Pty. Ltd. v. Victoria (1964) 111 CLR 353, at pp 374-375, and by Barwick C.J. in Chamberlain Industries, at p 13, in these terms:
"... a tax upon goods at any stage of their
distribution will, in general, and sooner or later, according to circumstances, bear on the rate or level at which they are manufactured or produced or if not locally produced, on the extent of their importation. But there is no warrant, in my opinion, to require it to be established in any particular case that the tax in question will in fact so bear on manufacture or production. Its relevant effect will be presumed: it is enough that the impost is upon or in respect of goods before they have actually reached the consumer."

42. However, in Bolton the Court went on to make the statement (at p 271) that:
"(I)t is the criterion of liability that determines
whether or not a tax is a duty of excise. The tax is a duty of excise only when it is imposed directly upon goods or, to put the same thing in another way, when it directly affects goods, and to establish no more than that its imposition has increased the cost of putting goods upon the market by a calculable amount falls short of establishing the directness of relation between the tax and the goods that is the essential characteristic of a duty of excise." This statement reflected the earlier comments of Kitto J. in Dennis Hotels (at pp 559-560) concerning "the criterion of liability" which concluded with the proposition (at p 560) that the concept of an excise excludes "a tax which has no closer connexion with production or distribution than that it is exacted for the privilege of engaging in the process at all"; see also Matthews, at p 300.

43. Kitto J.'s treatment in Dennis Hotels of the victualler's licence fee imposed by s.19(1)(a) of the Licensing Act illustrates what his Honour meant by the notion of a tax imposed directly upon goods, especially in the context of a fee for a licence to carry on a particular type of business. His Honour conceded that if the section had imposed as the payment to be made for the licence what was in truth a sales tax, "so that a liability for the tax arose every time a sale of liquor was made under the licence", it would be an excise. He then continued (at p 563):
"The fact which makes a licence fee not a duty of
excise is not that the exaction is for the licence; it is that the exaction is only in respect of the business generally, and not in respect of any particular act done in the course of the business." So, according to his Honour, as the licence fee was calculated by reference to sales made during a period antecedent to the commencement of the licence, the relation of the licence fees to the goods to be sold under the licence did not connect any part of the fee with any particular goods; on the contrary, it was simply the relation between a fee for a licence to carry on a business and the business itself.

44. Although this application of the criterion of liability goes beyond what was subsequently said by the Court in Bolton, the statement of principle in Bolton has often been invoked in support of the proposition that a licence fee calculated by reference to sales made in a period before the commencement of the licence is not an excise: see Dickenson's Arcade, at pp 213, 223-224, 235-236; M.G. Kailis (1962) Pty. Ltd. v. Western Australia (1974) 130 CLR 245, at pp 258-259, 260-262; H.C. Sleigh, at pp 491-492, 501; Hematite, at pp 620-621, 643-646; Gosford Meats, at pp 377-380, 400-402, 416-418.

45. However, a long line of cases has made it abundantly clear that the Bolton formula, at least when applied in this way, no longer commands the acceptance of the Court. The decision in Chamberlain Industries was inconsistent with the formula; see the dissenting judgment of Walsh J. in that case. In Logan Downs Pty. Ltd. v. Queensland (1977) 137 CLR 59 Barwick C.J., Mason, Jacobs and Murphy JJ. refused to accept the formula. In H.C. Sleigh Mason J. (at p 499) indicated that as a result of the intervening cases the Bolton formula no longer commanded the unqualified acceptance of the Court, a view which we restated and endorsed respectively in Hematite (at pp 629-630, 664-665).

46. The point of dissension between the members of the Court, as it has been manifested in the more recent cases, is best illustrated by the contrasting approaches of Barwick C.J. and Kitto J. in Chamberlain Industries. Barwick C.J. asserted (at p 13) for the reasons we have already quoted that it should be regarded as settled doctrine that a tax "will be a duty of excise if it is upon or in respect of goods at any point including the point of manufacture or production, as they pass to consumption". According to his Honour, the criterion of liability is not to be applied as a test and is "not (To) be found exclusively in the verbal formulae of the statute" (at p 15).

47. On the other hand, Kitto J., while not denying that a tax upon the taking of a step in the distribution of goods is an excise, asserted (at pp 19-23) that a tax is a duty of excise only if it is imposed specifically, on the true construction of the legislation, upon the taking of a step in the production, manufacture or distribution of the goods. Thus, the point of disagreement was whether, in characterizing the tax with a view to determining whether it is an excise, the Court looks only to the legal operation of the statute rather than to its practical or substantial operation as well. On this issue the Court was divided, Windeyer and Owen JJ. taking a similar view to that expressed by Barwick C.J., while McTiernan and Walsh JJ. took a similar view to that expressed by Kitto J. Menzies J. concluded that the tax on receipts was an excise without committing himself to either view. This division of opinion, rather than any other issue, pervaded the later cases: see, for example, Logan Downs and Hematite.

48. The division of opinion which has thus arisen mirrors the similar controversy which arose in relation to the characterization of a law for the purpose of determining whether it infringed the freedom of inter-State trade and commerce guaranteed by s.92. That controversy was recently resolved by the unanimous judgment in Cole v. Whitfield (1988) 165 CLR 360, at pp 399-400, holding that a law is to be characterized by reference to its practical operation. Granted that s.92 strikes down discriminatory protectionist laws, the conclusion reached in Cole v. Whitfield does not dictate a similar answer in the context of s.90. But it must be said that the characterization of a law by reference exclusively to its strict legal operation, without regard to its practical or substantial operation, is bound to yield, at least in some instances, highly artificial results. In the field of excise duties under s.90, where the Constitution is concerned with substance not form, there is no reason at all for contemplating artificial results. One such artificial result has been the distinction between a licence fee based on a prior period (not an excise) and a licence fee based on a current period (an excise), a distinction which has been severely criticized: see H.C. Sleigh, at p 527; Hematite, at p 630; Gosford Meats, at p 389. Brennan J. has pointed out that the statutory criterion of liability to pay a tax and the statutory description of a tax are both indications of the character of the tax, neither being necessarily conclusive, and that some statutes prescribe more than one criterion of liability: Gosford Meats, at p 406. The majority decision in that case rejected the proposition that an abattoir licence fee calculated by reference to the number of animals slaughtered in a period prior to the commencement of the licence was not an excise.

49. Of course the controversy over the criterion of liability has not been confined to the issue of legal operation versus practical operation of the statute. As the preceding discussion has revealed, the controversy had its focus on what are the elements in the concept expressed in the term "a tax upon goods". In other words, what relationship between the tax and the goods is necessary to constitute an excise? The reference in the Peterswald definition to a duty imposed upon the goods "in relation to quantity or value" has not been regarded as an essential characteristic of an excise. So, in Matthews a levy imposed by reference to areas planted with chicory was held to be an excise, though it was impossible to establish a precise relation between the areas planted (and thus the levy) and the quantity or value of chicory produced. In that case Dixon J. observed (at pp 302-303):
"(T)here is no ground for restricting the
application of the word to duties calculated directly on the quantity or value of the goods. A definition which makes quantity and value the only basis of taxation which would satisfy the notion of 'excise' has no foundation either in history, economic or fiscal principle, nor in any accepted specialization." Since then the majority decision in Hematite established that a lump sum pipeline operation fee (a licence fee) was an excise. As Brennan J. said (at p 657):

"In principle, it is sufficient to establish that a tax is a duty of excise if it is a tax, however
calculated, upon a step in the process of production, manufacture or distribution."

The fact that the tax is imposed upon such a step in the relevant process constitutes the necessary relation between the tax and the goods to give the tax the character of an excise.

50. In the foregoing passage, Brennan J. was not denying that a range of factors must be taken into consideration when determining whether or not a particular impost amounts to an excise for the purposes of s.90. That this is so was recognized and endorsed by Barwick C.J. in Anderson's, at p 365, and by us in Hematite, at pp 629, 669, and it is consistent with the test of substantial and practical operation.

51. The concept of an excise, as we have just expressed it, does not require that it be an indirect tax, though a tax upon goods in the sense discussed will often, if not generally, be an indirect tax. An indirect tax is one that is demanded from one person in the expectation and with the intention that he shall indemnify himself at the expense of another: Matthews, at p 300; Attorney-General for Manitoba v. Attorney-General for Canada (1925) AC 561, at p 566. It may well be that the early and mistaken emphasis on the notion that an excise is essentially an indirect tax partly contributed to the development of the idea that the relation between the tax and the goods was to be found in the imposition of the tax by reference to the quantity or value of the goods so that the amount of the tax could be seen to be passed on to the next purchaser down the line.

52. Be that as it may, it was perceived to be necessary to define the conditions under which a tax described as a fee for a licence to engage in a business amounts to an excise; and that perception was the genesis of the criterion of liability with its emphasis on an arithmetical relationship between the tax and the goods sold under the licence: see Dennis Hotels, at pp 563-567; Gosford Meats, at pp 418-419. Central to this thinking was the proposition that it was natural or appropriate to calculate a licence fee by reference to the size or worth of a business measured by the volume of its past purchases or sales: Gosford Meats, at p 418. But there is no fundamental dichotomy between the category of licence fees and the category of excise duties. A particular impost or exaction may be accurately described as being both a licence fee and a tax which amounts to an excise. Indeed, in the present case it is not disputed that the imposts are both licence fees and taxes; the dispute is whether they are taxes that amount to excise duties. And that question brings us back to the relationship between the tax and the goods necessary to characterize the tax as an excise duty. In answering that question the fact, if it be a fact, that it is natural or appropriate to levy a licence fee by reference to the size or worth of a business measured by the volume of past sales does not tell us very much.

53. The test for distinguishing between a mere licence fee and a duty of excise has been expressed negatively in this way: a tax which has no closer connection with the production or distribution of goods than that it is exacted for the privilege of engaging in the process of production, manufacture, distribution or sale is not a duty of excise: Dennis Hotels, at pp 560, 561; and see M.G. Kailis, at p 254; Hematite, at p 634; Gosford Meats, at p 404. In a context where regard must be had to substance, the "no closer connection" test is not an absolute one. It postulates a question of degree, to be answered not by reference merely to the form of the statute imposing the tax but by reference to its operation. There are diverse factors which are relevant to the nature and extent of any connection between a licence fee and a step in production, manufacture, distribution or sale of goods by the holder of the licence or franchise, as Barwick C.J. pointed out in Anderson's, at pp 365-366. The amount of the licence fee is, of itself, one such factor.

54. As Dixon J. noted in Matthews (at p 301), it may be difficult to say when a licence fee or duty ceases to be a tax upon the person expected to bear the burden and becomes an element incorporated in the price of every article and becomes a tax upon goods. But in the general run of cases the imposition of a licence fee amounting to a tax, yielding a substantial amount of revenue, calculated by reference to past sales, will as a matter of commercial necessity be incorporated in the purchase price of goods produced or sold under renewed licences, the renewal of the licences being an incident and a sine qua non of the carrying on of the relevant business. In the end the reason why a tax upon any step in the production, manufacture, sale or distribution of goods is held to be a duty of excise is because such a tax has a general tendency to be passed on to persons down the line to the consumer and will prejudice the demand for the goods burdened by the imposition of the tax.
"It is the nature and general tendency of the tax
and not its incidence in particular or special cases which must determine its classification and validity", said Lord Cave, speaking for the Judicial Committee in City of Halifax v. Fairbanks' Estate (1928) AC 117, at p 126, a passage cited by Dixon J. with evident approval in Matthews, at p 300.

55. It is against this background of principle and authority that we turn to Dennis Hotels and Dickenson's Arcade. In Dennis Hotels, where the victualler's licence fee was calculated by reference to sales in a past period, it was held not to be an excise. The minority, Dixon C.J., McTiernan and Windeyer JJ., considered that the fee was an excise despite the fact that the fee was so calculated. Of the majority, Fullagar J. alone was of the opinion (at pp 554-556) that the licence fee was not an excise because an excise was a tax upon production or manufacture, not upon sale or distribution. However, like the minority, he did not regard the imposition of the tax by reference to sales in a past period as compelling the conclusion that it was not an excise. This was because he did not consider that it was an essential element of an excise that it should be measured by reference to the quantity or value of the goods (at p 556). Kitto, Taylor and Menzies JJ. concluded that the fee was truly a fee for the franchise to carry on a business and not an excise because, among other reasons, it was not a tax on the licensee's sales during the currency of the licence.

56. Three of the four Justices who constituted the majority on the issue arising under s.19(1)(a) (Fullagar, Kitto and Taylor JJ.) also concluded that the temporary licence fee under s.19(1)(b) was not an excise for the reason which they had given in relation to the victualler's licence fee. The three Justices who formed the minority on the s.19(1)(a) question (Dixon C.J., McTiernan and Windeyer JJ.) found that the s.19(1)(b) fee was an excise. On that question Menzies J. joined them to form a majority. And he joined them because he regarded the temporary licence fee as imposing a tax upon every purchase of liquor for sale under the licence (at p 591). Consequently, his Honour alone appears to have treated the presence or absence of the formula according to which the licence fee was calculated by reference to sales made in a past period as the critical consideration.

57. In this situation Dennis Hotels is not authority for the proposition that, as a matter of principle, the presence or absence of such a formula is of critical significance in determining whether a licence fee is or is not an excise. The case is authority only for the proposition that the presence or absence of the formula is a relevant consideration in determining such a question.

58. Nonetheless, by reason of the approach of Menzies J. the presence or absence of the formula was critical to the actual decision in Dennis Hotels. So it was not surprising that when the decision was subsequently considered in Dickenson's Arcade, where Barwick C.J. and Mason J. disagreed with the reasoning of the majority on the s.19(1)(a) question in Dennis Hotels, attention was focused on the presence of the calculation of the licence fee by reference to sales in a past period. In the meantime, Bolton had decided that a tax on a step in the sale or distribution of goods, as well as on a step in the production or manufacture of goods, was, or could amount to, an excise, thereby eliminating the ground on which Fullagar J. reached his conclusion in Dennis Hotels. So that ground was no longer a matter to be taken into account in Dickenson's Arcade. The approach taken in Dickenson's Arcade was again followed in H.C. Sleigh.

59. Thus, the fact that Dennis Hotels stands as authority for a result, rather than for any strand of reasoning common to a majority of Justices, has on two occasions led to its being followed due to the close similarity between the facts of the respective cases. In this way the supposed principle has arisen that a fee for a licence to conduct a business calculated by reference to sales made by the business in a past period is not to be viewed as an excise. But, as we have sought to demonstrate, no such principle in truth exists. The reasoning underlying such a principle is inconsistent with the broad approach of the authorities in cases not involving licence fees, which insist on a range of criteria being taken into account. As we have said, there is no basis for claiming a rigid dichotomy between licence fees and excise duties.

60. However, on the authority of Dennis Hotels, Dickenson's Arcade and H.C. Sleigh, the States have enacted laws imposing licence fees calculated upon trading in an antecedent period in businesses of liquor and tobacco retailing and sale of petroleum products. In Evda Nominees and again in argument in this case the Court decided not to reopen the three earlier cases. There are powerful considerations against overruling the actual decisions in those cases. Financial arrangements which are of great importance to the governments of the States and perhaps to the economy of the nation have been made for a long time past on the faith of these decisions. The power of this Court to overrule its previous decisions would not be properly exercised to disturb those arrangements unless, in the light of later insights into the true meaning of the Constitution, obedience to its terms or the interests of certainty in those arrangements clearly demanded that those decisions be reconsidered. That cannot presently be said of at least the first two of the trilogy of cases. Dennis Hotels and Dickenson's Arcade can be rationalized by reference to traditional considerations relating to the licensing of dealings in alcohol and tobacco and to the particular characteristics of those items of personal consumption.

61. What is desirable is a clearer statement of the scope of the authority of Dennis Hotels and Dickenson's Arcade in so far as they upheld the validity of the franchise fees there in question. Speaking of Dennis Hotels, Barwick C.J. in Dickenson's Arcade said (at p 188):
"There being no reason for decision common to the
majority of the Justices, the Court's decision in Dennis Hotels Pty. Ltd. v. Victoria, in my opinion, is authority only in relation to the statutory and factual situation it resolved and in relation to a case which has, if not precisely, at least substantially and indistinguishably the same statutory and factual situation. Cf. Lord Haldane in Great Western Railway Co. v. Owners of S.S. "Mostyn" 1928) AC 57, esp at pp 71-72). I do not consider myself bound by any of the several reasons given by the individual Justices for the conclusion to which they came: and, in particular, I do not regard myself as bound to use any of those reasons as a base on which to construct some further or other conclusion."

62. The basis upon which the decision in Dennis Hotels can be accepted is, we think, to be found in the circumstance that the impost took the form of a fee for a licence to sell liquor and that legislation providing for the issue of liquor licences has traditionally been of a regulatory character arising from the various public interest considerations relating to the sale and consumption of alcohol. The regulatory character of the legislation was a factor in the majority decision that the victualler's licence fee under s.19(1)(a) was not an excise. Thus Taylor J. said (at p 576):
"Though a system of licensing may frequently be
adopted as a convenient aid to the administration of excise laws and the collection of excise duties, this is not the part played by the system of licensing erected by the Licensing Act for the issue of licences under that Act is, as already appears, a traditionally accepted method of regulating a trade which the public interest demands shall be subject to strict supervision. In other words the requirement that liquor shall not be sold or disposed of without a licence appears as a substantive provision and not merely as an adjunct to a revenue statute." Viewed in this way, Dennis Hotels may be regarded as an example of a licensing fee which does not amount to an excise because the imposition of the licensing fee is an element in regulatory legislation controlling the sale and distribution of a particular commodity, which is designed to protect the public interest in the light of the characteristics of that commodity.

63. To say this is merely to add to the list of factors which must be taken into account when considering whether or not a given impost is an excise. Notwithstanding that it may well be seen as the decisive factor in Dennis Hotels, it is a factor which will rarely be present. Nevertheless its presence is the most satisfactory way of reconciling the result of Dennis Hotels with the general principles formulated in other decisions. The need for such reconciliation arises because of the disparity of reasoning in that case and the resulting absence of any compelling general principle which emerges from it.

64. The Court has refused to retreat from its decision in Dennis Hotels because of the need to ensure certainty in the area of State business franchise fees relating to alcohol. Similar policy arguments dictate that the same view be taken of Dickenson's Arcade. It would be possible to achieve this result by confining the two decisions strictly to their facts and going no further, in accordance with the approach indicated by Barwick C.J. in Dickenson's Arcade. Attractive though that course may be to those who, like ourselves, disagree with the decisions in those cases to the extent that they held that the licence fees were not duties of excise, we have come to the conclusion that we should not follow it. It appears to us that the effect of that course would be merely to force the States to impose artificiality and inefficiency in business and taxing procedures in order to ensure that taxing laws in the special fields of alcohol and tobacco enjoyed the protection of those decisions. The preferable approach is to accept Dennis Hotels and Dickenson's Arcade as authority for the proposition that, in the special fields of licences to sell alcohol and tobacco, a licence fee which would otherwise be regarded as a duty of excise will not be so regarded if it can properly be characterized as a fee for carrying on business and if it is calculated by reference to sales made during a period other than the period of the licence.

65. Liquor licensing has a unique history and it is not easy to imagine a range of commodities whose characteristics and history would lead to a similar outcome. However, in our opinion, a similar view may be taken of tobacco, though it lacks the long history of legislative regulation that has been a feature of the merchandising of liquor. Tobacco and tobacco products have like characteristics which invite regulatory control and that control is appropriate to sale and distribution of the commodities. In the case of neither is a tax imposed in relation to sale or distribution likely to be passed on as a significant component of the cost of different and dissimilar manufactured goods. It is on this footing that we would uphold the decision in Dickenson's Arcade.

66. For the purpose of deciding the present case it is unnecessary to reconsider H.C. Sleigh. Whether it stands conveniently with Dennis Hotels and Dickenson's Arcade is not a matter that we need to determine, though it may well be that petroleum products are not to be treated in the same way as alcohol and tobacco.

67. We should emphasize that in the foregoing discussion we have been dealing with circumstances in which what might appear to be a tax upon the sale or distribution of goods is seen to be no more than a licence fee standing outside the prohibition in s.90. But that analysis has no application to a tax upon actual production or manufacture, just as the decision in Dennis Hotels is not applicable in those circumstances as we explained in Gosford Meats, at p 385; Brennan J. agreed with that view (at pp 409-410), but cf. Gibbs C.J. (at pp 379-380), Wilson J. (at pp 394-399) and Dawson J. (at p 420). Neither the decision in Dennis Hotels nor the special considerations we have set out can prevent a tax upon production or manufacture from being characterized as an excise.

68. In the present case, subject to one matter that remains to be considered, the tobacco licence fees are within the special category of case falling within the criteria described above and protected by the decisions of this Court in Dennis Hotels and Dickenson's Arcade.

69. The question that remains is whether the exaction of the licence fee from a wholesaler who happens to be a manufacturer of tobacco products amounts to an excise. A similar question arose in H.C. Sleigh where, as here, the licence fee was calculated by reference to the value of products sold by the applicant for a licence during a period prior to the commencement of the licence. The appellant was a distributor of petrol in South Australia which it obtained under a system of refinery exchange from a refinery in South Australia operated by other oil companies. It was suggested that the licensing fee was a tax on manufacture because the appellant included one or more additives in the petroleum products which it obtained from the refiners (see p 503). In response to this argument Mason J. pointed out (at p 503) that the prohibition in the relevant legislation was against selling, not against manufacturing. The fee was, accordingly, a fee for a licence to sell and could not be regarded as a tax on manufacture or production. For this reason it was held not to be an excise.

70. By parity of reasoning, the licence fee in the present case is an impost on sale, not on manufacture. Because it is an impost on sale, the impost is to be characterized as a licence fee rather than as a tax on manufacture and thus an excise. The case is therefore on all fours with Dickenson's Arcade. The fact that the licence fee is payable by a wholesaler who happens to be a manufacturer is not a relevant point of distinction.

71. The questions in the stated case should be answered "No".

BRENNAN J. The judgment of Mason C.J. and Deane J. describes the businesses of the plaintiffs and the relevant provisions of the Business Franchise (Tobacco) Act 1974 (Vict.) ("the Act") which impose the group wholesale licence fee which is borne by those businesses. It suffices to restate the chief features of the Act, omitting unimportant qualifications. The Act requires a person carrying on or proposing to carry on the business of tobacco wholesaling or tobacco retailing to obtain a licence to do so. Licences are in force from the date specified in the licence until the end of the same month and are obtainable as of right from the Commissioner provided the Commissioner is of the opinion that the required fee has been paid. The required fee consists in a small fixed sum and a variable sum calculated on the value of tobacco sold by the applicant for the licence during the month last but one preceding the month in which the licence would expire.

2. The form of the Act may be attributed to three cases in which a tax imposed by a State law as a fee for a licence to carry on a business for a period and calculated in accordance with a formula applicable to transactions in an earlier period was held not to be a duty of excise and therefore not to be invalid by reason of s.90 of the Constitution: Dennis Hotels Pty. Ltd. v. Victoria (1960) 104 CLR 529; Dickenson's Arcade Pty. Ltd. v. Tasmania (1974) 130 CLR 177; H.C. Sleigh Ltd. v. South Australia (1977) 136 CLR 475 ("the franchise cases"). The formulae for calculating the licence fees which were upheld in the franchise cases were similar. In each case, a rate of tax was applied to the value of a commodity in which prescribed transactions had taken place in a period prior to the period for which the licence was to be current. I shall call such a formula a Dennis Hotels formula.

3. During argument the plaintiffs with support from the State of South Australia applied for leave to reargue these cases. The application was refused. The cogency of the considerations which led the Court to refuse a similar application for leave in Evda Nominees Pty. Ltd. v. Victoria (1984) 154 CLR 311 had been enhanced by that decision. As the judgment of Mason C.J. and Deane J. sets out, the States have placed increasing reliance on the franchise cases in organizing their financial affairs. Each State or Territory resorts to the tax base which these cases have preserved or provided to obtain a substantial but differing proportion of its tax revenue. It appeared inappropriate for this Court to permit argument to undermine the authority of earlier decisions and to cast doubt on the division of the tax base between Commonwealth and States effected by these cases, even though a new doctrine might emerge on reargument which would be logically better or more refined than the doctrine to be found in those cases. Better, it seemed, to adhere to existing principle and to resolve the instant case in the light of existing authority. For my part, the problem has proved to be more difficult than it then appeared. The licence fee in this case has many similarities to the fees which the franchise cases held to be valid, yet a consideration of the group wholesale licence fee in the light of established principle seems to show it to be a duty of excise. Which view should prevail? The tension between these cases and the existing principles is reflected in the divergent reasons for judgment in this case. Whether the time has come when a review of the cases decided under s.90 should be undertaken, as the Court undertook a review of the cases under s.92 in Cole v. Whitfield (1988) 165 CLR 360, is a question which is not now to be answered. In the present state of the authorities, however, whenever an attempt is made to distinguish the franchise cases, the attempt will succeed or fail and the width of the States' tax base will contract or expand according to the position of the dividing line determined by a majority of Justices between existing principles and the scope of those cases as precedents. That hardly seems to be a satisfactory approach to a judicial declaration governing an important field of taxation which affects not only the liability of taxpayers but also the financial arrangements between the Commonwealth and the States.

4. I should identify the propositions of principle relevant to this case which, I apprehend, have evolved in the decisions of this Court.
Proposition 1 : Tax on a step.

5. It is unnecessary for present purposes to go back to cases prior to Matthews v. Chicory Marketing Board (Vict.) (1938) 60 CLR 263. In that case, Dixon J. concluded (at p 304):
"To be an excise the tax must be levied 'upon
goods,' but those apparently simple words permit of much flexibility in application. The tax must bear a close relation to the production or manufacture, the sale or the consumption of goods and must be of such a nature as to affect them as the subjects of manufacture or production or as articles of commerce. But if the substantial effect is to impose a levy in respect of the commodity the fact that the basis of assessment is not strictly that of quantity or value will not prevent the tax falling within the description, duties of excise." In Parton v. Milk Board (Vict.) (1949) 80 CLR 229, at p 261, his Honour modified that statement to exclude a tax on consumers or upon consumption from the category of duties of excise. So modified, his Honour's proposition formed the basis of the test of a duty of excise formulated by Kitto J. in Dennis Hotels (at p 559) which a unanimous Court adopted in Bolton v. Madsen (1963) 110 CLR 264, at p 273. Kitto J.'s formulation was as follows:

"a tax is not a duty of excise unless the criterion of liability is the taking of a step in a process of bringing goods into existence or to a consumable state, or passing them down the line which reaches from the earliest stage in production to the point of receipt by the consumer."

6. This formulation has been divided into two propositions: one, that a tax on the taking of a step of the stated kind is a duty of excise; the second, that, to ascertain the character of a statutory impost, one looks exclusively to the statutory criterion of liability. The former proposition has commanded majority assent; the latter has not. As to the former proposition, Barwick C.J. in Anderson's Pty. Ltd. v. Victoria (1964) 111 CLR 353, at p 364, said that
"it ought now to be taken as settled that the
essence of a duty of excise is that it is a tax upon the taking of a step in a process of bringing goods into existence or to a consumable state, or of passing them down the line which reaches from the earliest stage in production to the point of receipt by the consumer."

The test was similarly expressed by Kitto J., at p 373. This test has been generally accepted by the Justices in later cases (Murphy J. excepted), but there have been conflicting opinions (presently to be examined) expressed as to the criterion of liability approach. In Logan Downs Pty. Ltd. v. Queensland (1977) 137 CLR 59 Gibbs J. noted (at p 64) that, since Dennis Hotels

"conflicting opinions have been expressed as to whether the criterion of liability under the statute imposing the tax, or the practical effect of the legislation, is determinative of the question whether the tax is a duty of excise. ... The difference of opinion that exists as to the importance of the criterion of liability has not extended to the other statements made in Bolton v. Madsen. The description there given of the nature of an excise has since been regarded as authoritative. It would be superfluous to multiply authority on this point, since in Dickenson's Arcade Pty.Ltd. v. Tasmania the majority of the members of the Court have so recently treated Bolton v. Madsen as correctly explaining the nature of duties of excise: particularly (130 CLR, at pp 185,209,213,223, 229-230,235) and also (at p 238)."

7. The continued acceptance of the test of "tax on a step" and the continuing conflict of opinion as to the "criterion of liability" approach can be seen in the reasons for judgment (other than those of Murphy J.) in the latest decisions on this point: see Hematite Petroleum Pty.Ltd. v. Victoria (1983) 151 CLR 599, at pp 615,629-630,655,665 666, and Gosford Meats Pty.Ltd. v. New South Wales (1985) 155 CLR 368, at pp 377-378,383-384,400-401,404,414-416. If there be any rock in the sea of uncertain principle, it is that a tax on a step in the production or distribution of goods to the point of receipt by the consumer is a duty of excise.

Proposition 2 : No closer connexion.

8. Steps which are taken in the production or distribution of goods are ordinarily taken by those engaged in a business of producing or distributing. In Dennis Hotels Kitto J. (at p 560) drew a distinction between a tax on a step in production or distribution and a fee for a licence to engage in a business in which such steps are taken:
"the impost is nevertheless a duty of excise if it
operates as a tax upon the taking of a step in a process of producing or distributing goods. To say so much is to exclude a tax which has no closer connexion with production or distribution than that it is exacted for the privilege of engaging in the process at all." If the tax takes the form of a fee for a licence to carry on a business for a period, it may be that the tax "has no closer connexion" in the sense in which Kitto J. distinguishes such a tax (which is not a duty of excise) from a tax on a step (which is). His Honour did not place licence fees in a category of immunity from s.90. Holding that a licence fee might be a duty of excise, his Honour said (at p 563):

"The fact which makes a licence fee not a duty of excise is not that the exaction is for the licence; it is that the exaction is only in respect of the business generally, and not in respect of any particular act done in the course of the business."

This is a fine distinction when the fee is calculated on the value of the commodity in which transactions in the business took place, and it is not surprising that judicial minds have differed about the side of the dividing line on which a case should fall. But the distinction is at the heart of the franchise cases (see, for example, M.G. Kailis (1962) Pty. Ltd. v. Western Australia (1974) 130 CLR 245, per Menzies J. at p 254) and it was accepted in terms by Gibbs J. in Dickenson's Arcade, at p 225, and in Gosford Meats, at p 378; by McTiernan J. in Swift Australian Co. (Pty.) Ltd. v. Boyd Parkinson (1962) 108 CLR 189, at p 206; by Mason J. in Hematite, at pp 633-634; by Wilson J. and by Dawson J. in Gosford Meats, at pp 404,414; and by me in Hematite, at p 656, and in Gosford Meats, at p 407. In the cases subsequent to Dennis Hotels, where principles (other than absence of any ground of distinction from the tax in an earlier case) have been applied to determine the character of a licence fee, the prevailing inquiry has been whether the fee is a "tax on a step" in production or distribution or has "no closer connexion" with production or distribution than that it is exacted for the privilege of engaging in the process. In Western Australia v. Chamberlain Industries Pty.Ltd. (1970) 121 CLR 1, not a licence fee case, Owen J. (at p 30) identified the question in Western Australia v. Hamersley Iron Pty. Ltd. (No.1) (1969) 120 CLR 42 in similar terms:

"whether there was a sufficiently close connexion between the duty imposed and a sale of the goods in the course of their passage from producer to consumer to justify the conclusion that the duty was a duty of excise."

Proposition 3 : Substance, not criterion of liability alone.

9. In Bolton v. Madsen, the Court unanimously accepted the proposition that the character of a tax depended on the statutory criterion of liability. In Anderson's Pty. Ltd. v. Victoria, at pp 373-374, Kitto J. explained that there is a tax upon goods when "some conduct is selected by the relevant legislation as being a step in the production, manufacture or distribution of goods and in that character is made of the essence of the tax." This view was shared by Taylor J. (at p 376) and Windeyer J. (at pp 378-379). And in Chamberlain Industries, at p 20, Kitto J. said that, to find the answer to the question whether a tax is "of a character referred to in a constitutional provision which denies to the State Parliaments the power to impose duties of that character"
"it is necessary to go to the taxing legislation
and to that alone. As the Court said in Bolton v. Madsen (at p 273), 'It is upon the legislation itself that attention must be focused'. And there is no other way of determining from legislation the character of a tax that it imposes than by ascertaining what criterion of liability the legislation selects. To say this is not to substitute a formula for the words of the Constitution; it is simply to recognize the essential nature of the question that arises when a particular tax is said to possess a character to which the Constitution refers." In the same case, Walsh J. said (at pp 37-38):

"When it has been said that the character of a duty depends upon the operation and effect rather than upon the form of the Act by which it is imposed I think that what has been meant is that an examination must be made of the provisions of the Act to determine its legal effect, according to the proper construction of its operative provisions, whatever their form may be and whatever label may be attached by the Act to the duty which is imposed by it. The duty so imposed cannot be characterized as being 'in reality' a duty imposed upon the act or transaction of selling goods and as, therefore, being an excise, unless it can be seen upon an examination of the provisions of the Act that it is that act or transaction which has been made the condition of the liability of the vendor to pay it."

10. In Dickenson's Arcade, Gibbs J. marshalled the authorities in favour of the criterion of liability approach. He said (at p 223):
"The three members of the Court who were in a
minority in (Western Australia v. Chamberlain Industries Pty. Ltd.) all accepted the view that the criterion of liability determines whether the tax is an excise (see per McTiernan J. (at p 18), per Kitto J. (at p 20) and per Walsh J. (at pp 35-38)) and one member of the majority, Menzies J. (at p 25), differed from the minority not on this ground but only because of the different view that he took of the effect of the statute in question. In my opinion the statement in Bolton v. Madsen (at p 271) should be accepted as an authoritative expression of principle. In deciding whether a tax is a duty of excise the Court must identify the criterion of liability under the statute which imposes the tax. Of course, as Walsh J. pointed out in Western Australia v. Chamberlain Industries Pty. Ltd. (at p 37), it is necessary to examine the provisions of the taxing statute to determine their legal effect according to their proper construction, 'whatever their form may be and whatever label may be attached by the Act to the duty which is imposed by it'."

11. The majority acceptance of the criterion of liability approach was gradually eroded. The assault on the notion was launched by Barwick C.J. in Anderson's Pty. Ltd. v. Victoria (at pp 365-366):
"... in arriving at the conclusion that the tax is
a tax upon the relevant step, consideration of many factors is necessary, factors which may not be present in every case and which may have different weight or emphasis in different cases. The 'indirectness' of the tax, its immediate entry into the cost of the goods, the proximity of the transaction it taxes to the manufacture or production or movement of the goods into consumption, the form and content of the legislation imposing the tax - all these are included in the relevant considerations. But in the end what must be decided is that the tax is in substance a tax upon the relevant step. That being the central question in a controversy as to the nature of the tax, it will not, in my opinion, necessarily be resolved by the form of the tax or by identifying what according to that form the legislature has made the criterion of its imposition, however important in any particular case those matters may be."

In Chamberlain Industries, his Honour pursued the point, observing (at p 15) that "the criterion of the liability to pay the tax will not be found exclusively in the verbal formulae of the statute." In Dickenson's Arcade, his Honour adhered to the views he had expressed (at p 186) and he was joined by Mason J. who said (at p 241):

"In the later cases Barwick C.J. has said that the criterion of liability to tax 'will not be found exclusively in the verbal formulae of the statute' (Western Australia v. Chamberlain Industries Pty. Ltd. (at p 15)). And it is apparent that neither Windeyer J. nor Owen J. considered the criterion of liability to tax as precluding an examination of the substance and effect of the tax thereby imposed. In these circumstances I am not bound to accept what was said in Bolton v. Madsen (at p 271) as a precise definition of a broad expression used in the Constitution to denote taxes on goods. I find myself in agreement with the observations of the Chief Justice in Western
Australia v. Chamberlain Industries Pty. Ltd., to which I have already referred, and with his earlier observations in Anderson's Pty. Ltd. v. Victoria (at p 365)".

12. The conflicting opinions expressed as to the criterion of liability approach were noted by Gibbs J. in Logan Downs in a passage which I have already cited.

13. In Hematite, Mason J. (at p 629) was able to assert that

" The Bolton v. Madsen formula has not emerged unscathed from the more recent decisions on s.90. It no longer commands the acceptance of the Court as a whole, or even of a majority, as a conclusive guide as to what is an excise."

Although Gibbs C.J. assented to and Wilson J. did not dissent from the Bolton v. Madsen criterion of liability approach (see pp 621,646), Murphy J. (for reasons dissociated from the present point), Deane J. and I rejected the criterion of liability as an exclusive test. Deane J. said (at pp 664-665):

"It also appears to me that at least four justices (Barwick C.J., Mason, Jacobs and Murphy JJ.) in Logan Downs Pty. Ltd. v. Queensland declined to accept that formula as constituting such a test. While the judgment in Bolton v. Madsen plainly provides important guidance in formulating the indicia of a duty of excise, it does not, in the light of these subsequent cases, compel acceptance of the proposition that, in the interests of desirable certainty in the law of the Constitution, the question whether a tax is a duty of excise is to be answered conformably with whether the legal effect of the impugned legislative provisions is such as to satisfy the formal requirements of some formularized criterion of liability. For myself, I decline, in the absence of compelling authority, to accept any such proposition."

I expressed my preference for the broader approach (at p 659).

14. In Gosford Meats, Mason and Deane JJ. reaffirmed their view that substance rather than form was to determine the character of a tax, saying (at pp 383-384):
" The fact that the question whether an impost
is a duty of excise is to be answered by reference to matters of substance rather than form underlies the refusal in subsequent cases in this Court to accept what was said in the joint judgment in Bolton v. Madsen as an exhaustive and definitive test of whether or not a tax is a duty of excise. Acceptance of the Bolton v. Madsen formula as such a test is inconsistent with the decision in Western Australia v. Chamberlain Industries Pty. Ltd. (see the dissenting judgment of Walsh J. (at p 35ff.) and the judgment of Barwick C.J. (at p 13ff.)) and with what was said in the judgments of at least four justices (Barwick C.J., Mason, Jacobs and Murphy JJ.) in Logan Downs Pty. Ltd. v. Queensland. It is also inconsistent with what was said in the judgments of each of the four members of the Court (Mason, Murphy, Brennan and Deane JJ.) who constituted the majority in Hematite Petroleum Pty. Ltd. v. Victoria. Recognition of the need for regard to be paid to substance rather than form must inevitably involve rejection of the notion that the question whether a tax is a duty of excise can be resolved by reference to whether the legal effect of the law imposing it satisfies the strict requirements of a formularized criterion of liability. If regard is truly to be had to substance rather than form, the question whether an impost is a duty of excise must be determined not by reference to some comprehensive formula of inclusion but as the result of 'consideration of many factors ..., factors which may not be present in every case and which may have different weight or emphasis in different cases': see per Barwick C.J., Anderson's Pty. Ltd. v. Victoria (at p 365), and Hematite (at pp 633,638, 658-659, 663-664)." I expressed a similar view (at p 406):

"What is insisted upon may, I think, be expressed
by saying that a tax is not a duty of excise unless the criterion of liability is the taking of a step in a process of bringing goods into existence or to a consumable state, or passing them down the line which reaches from the earliest stage in production to the point of receipt by the consumer." It was because his Honour thought (at p 563) that the licence fee was exacted "only in respect of the business generally, and not in respect of any particular act done in the course of the business" that he concluded that it was not a tax upon goods and, therefore, not a duty of excise. Although the criterion of liability formula was not mentioned by Taylor and Menzies JJ. in their judgments in that case, their conclusion that the fee was not an excise was also influenced by the form of the legislation.

15. Fullagar J., the other member of the majority in Dennis Hotels, held (at p 558) that the Act did not levy a duty of excise because it did not fall upon any producer or manufacturer and did not in any way affect production or manufacture.

16. The criterion of liability formula was also the basis of the decision in Anderson's Pty. Ltd. v. Victoria (1964) 111 CLR 353 where the Court held that legislation which imposed stamp duty, payable by the vendor, on hire purchase and credit purchase agreements fixed at the rate of 2 per cent of the "purchase price" of the goods did not levy a duty of excise. The "purchase price" was defined to mean the total amount payable under the agreement less the deposit or other consideration or for interest, insurance or other charge.

17. However, in no subsequent case has the criterion of liability formula constituted the ratio decidendi. Indeed, it is difficult to see how the criterion of liability formula can now be said to represent the law. The formula as expounded in Bolton is inconsistent with the decisions in Western Australia v. Chamberlain Industries Pty. Ltd. (1970) 121 CLR 1; I.A.C. (Wholesale); Logan Downs; Hematite Petroleum and Gosford Meats.

18. In Chamberlain Industries and in I.A.C. (Wholesale), the Court held that legislation imposing duties on receipts of payments in respect of sales were duties of excise within the meaning of s.90. In Logan Downs, a statutory majority of the Court held that a duty of excise was levied by legislation which empowered the Minister to make and levy annual assessments, at rates fixed by him, on an owner of cattle, horses, sheep and swine. Mason J. said (at p 78) that a tax on the ownership of livestock kept for their product was a tax on the meat, milk, wool and other commodities which they produced. In Hematite Petroleum, the Court held that a duty of excise was levied by legislation, which prohibited the use of a pipeline conveying hydrocarbons, without the grant of a licence upon which a fee of $10 million was payable. In Gosford Meats, the Court held that legislation requiring payment of an abattoir licence fee, which was calculated by reference to an amount for each animal slaughtered during a preceding period, was a tax upon the process of producing vendible meat products and a duty of excise within s.90. The decisions in these cases are quite inconsistent with the criterion of liability determining whether a tax is a duty of excise. In each of them the legislation selected as the criterion of liability a fact, event or thing which was not itself a step in the process of bringing the goods into existence or passing them down the line from the earliest stage in production to the point of receipt by the consumer. Yet in each case the tax was held to be a duty of excise because in substance, although not in form, it imposed a burden on such a step

19. In my opinion the criterion of liability does not determine whether or not a tax is an excise. In determining whether a tax is imposed on some step in the production or distribution of goods before they reach the consumer, consideration of many factors besides the "criterion of liability" is necessary. As Barwick C.J. pointed out in Anderson's, at pp 365-366:
"The 'indirectness' of the tax, its immediate entry
into the cost of the goods, the proximity of the transaction it taxes to the manufacture or production or movement of the goods into consumption, the form and content of the legislation imposing the tax - all these are included in the relevant considerations. But in the end what must be decided is that the tax is in substance a tax upon the relevant step. That being the central question in a controversy as to the nature of the tax, it will not, in my opinion, necessarily be resolved by the form of the tax or by identifying what according to that form the legislature has made the criterion of its imposition, however important in any particular case those matters may be." Regard must be had to the substance of the operation of the statute: Dickenson's Arcade, at p 186; Hematite Petroleum, at p 663. Moreover, it is not essential that there should be a proportionate relationship between the tax and the value or quantity of the goods: cf. Hematite Petroleum, per Brennan J. at p 657. Hence, what purports to be a licence fee may in substance be a tax upon goods: Peterswald, at p 509; Hematite Petroleum. However, a licence fee is not a duty of excise if in substance it is an exaction for the right to carry on a business generally and not an exaction in respect of a particular act done in the course of the business: Dennis Hotels, per Kitto J. at p 563; Hematite Petroleum, per Mason J. at pp 633-634.

20. For ease of expression I shall refer to the current effect of the Act on the sales of the plaintiffs, but what follows applies equally to the past effect of the Act on the sales of the plaintiffs in so far as they are the subject of the present proceedings and irrespective of whether the tax was 25 per cent or 30 per cent. Upon the facts in the case stated, I think that s.10 imposes a duty of excise on Philip Morris Limited ("P.M.L.") unless the legislation is indistinguishable from that considered in the franchise cases. I think that s.10 imposes a duty of excise because it imposes a tax of 30 per cent on the estimated value of tobacco which P.M.L., as manufacturer, sells in any month for which it holds its licence. Quantification of a licence fee by reference to events in a past period of business will not prevent that fee from being characterised as a duty of excise: Gosford Meats. The fee for the month in the present case is calculated by reference to the sales for the last preceding month but one. The close proximity between the two periods shows that the purpose of the legislation is to tax the sale of tobacco by reference to the estimated value of what will be sold. If the fee were calculated by reference to the likely or projected sales for that month, the fee would be an excise: cf. Matthews. The Act does not, of course, select the likely or projected sales for the licence month as the criterion of liability. But by selecting the sales in the preceding month but one, it selects a period which, according to the ordinary course of business, is likely to give as accurate a guide to the likely sales during the month of the licence as can be practically achieved. The fee bears, therefore, "a natural, although not a necessary relation to the quantity of the commodity" sold during the month of the licence: cf. Matthews, at p 303. The relationship between the fee and the quantity of tobacco sold is even more direct than the relationships between the fees and the quantities of commodities produced in Hematite Petroleum and Logan Downs and which were held to be excises. Moreover, the calculation of the fee by reference to a percentage of actual sales in the preceding month but one, the size of the percentage, and the recurrent nature of the fee as a monthly outgoing lead to the conclusion that what is admitted to be a tax of 30 per cent was intended to be passed down the line to the consumer as part of the price of tobacco products sold by the licensee during the month of the licence. Demand for tobacco products seems to be relatively inelastic (i.e. relatively irresponsive to price change): see New South Wales Tax Task Force, Tax Reform and N.S.W. Economic Development: Review of the State Tax System, August 1988, p 81. It is almost inevitable, therefore, that the incidence of the monthly licence fee will be shifted to the consumer. But whether or not the whole of the tax is passed onto the consumer, it is enough, according to the theory of this Court's decisions on excise, that the tax from its nature has "a tendency to enter into the price obtained": Parton, at p 259. Most of the monthly fee paid by P.M.L. is a direct tax on the sales made by a local manufacturer of its products (the balance is paid in respect of the sale of products which it does not manufacture). A tax payable by the producer of goods upon the first sale of goods produced by him is an excise: the Commonwealth Oil Refineries Case; John Fairfax &Sons.

21. The fee cannot be characterised as the right to carry on a business. The terms of s.10 operate to ensure that the fee is paid once only. If P.M.L. sold its products only to wholesalers during the relevant month, it would be under no obligation to pay the 30 per cent fee. Likewise, a retailer who has purchased tobacco in the course of intrastate trade from the holder of a wholesale tobacco merchant's licence or a group wholesale tobacco merchant's licence is under no liability to pay any fee other than the nominal fixed fee. This feature of the legislation makes it clear that the fee is not a price for carrying on the business. Its purpose is to ensure that, in the ordinary course of distribution, tobacco products will be taxed but once before they reach the consumer. Moreover, the selection of a period of one month for the duration of the licence tells heavily against the notion that the fee is an exaction for the price of carrying on the business. Annual licences for engaging in business, sporting and social activities are common enough. But, outside the field of revenue statutes dealing with business franchise licences, monthly licences are not common, if indeed they exist at all.

22. P.M.L. is a producer of tobacco, and s.10 operates to impose a tax on the sale of its tobacco products during the month in respect of which it is required to have a licence. Section 10, therefore, prima facie imposes an excise on the tobacco products manufactured by P.M.L. and sold by it by wholesale. In truth, the fee is a sales tax.

23. The decisions in Parton and I.A.C. (Wholesale) and so much of the decision in Dennis Hotels as related to the temporary licensing fee also require the prima facie conclusion that so much of the licence fee as is calculated by reference to the sale by P.M.L. of products which it does not manufacture (approximately 1.55 per cent of its sales) is a duty of excise on those sales. For the same reason, the licence fee payable by the second plaintiff is also prima facie a duty of excise.

24. In principle, therefore, I would conclude that the licence fee which the Act imposes on the plaintiffs is an excise unless the decisions in the franchise cases require, as a matter of authority, a contrary conclusion. Accordingly, I turn to the question whether there is any principle in those cases which governs the present case or whether, alternatively, the effect of the legislation in those cases is sufficiently comparable to the present Act to make the decisions in those cases applicable to the present case.

25. In Dennis Hotels, a bare majority of the Court (Fullagar, Kitto, Taylor and Menzies JJ., Dixon C.J., McTiernan and Windeyer JJ. dissenting) held that the Licensing Act 1958 (Vict.) did not impose a duty of excise in requiring payment of an annual licence fee of 6 per cent on the gross amount paid or payable for all liquor purchased for the premises during the 12-month period ended on the last day of June preceding the date of the application for the licence. No common thread can be found in the reasoning of the majority justices. Fullagar J. held (p 558) that there was no excise because the fee "does not fall upon any producer or manufacturer, and it does not in any way affect production or manufacture". Kitto J. said (p 563) that the exaction was "only in respect of the business generally, and not in respect of any particular act done in the course of the business". His Honour said (p 566) that, although the figures for past transactions might not provide in every case or perhaps in any case an accurate indication of future business, nevertheless "in so far as they are a guide to the probable volume of business in the near future they are a guide to the relative values, as between different businesses in the same class, of the advantages which licences will confer". Taylor J. recognised that a system of licensing might frequently be adopted as a convenient aid to the administration of excise laws and the collection of excise duties. But his Honour thought that that was not the part played by this licensing system. His Honour said (p 576) that:
"... the issue of licences under that Act is, as
already appears, a traditionally accepted method of regulating a trade which the public interest demands shall be subject to strict supervision. In other words the requirement that liquor shall not be sold or disposed of without a licence appears as a substantive provision and not merely as an adjunct to a revenue statute. But this very requirement necessarily means that partial monopolies will be enjoyed by licensees and that licensed premises will, as such, achieve an enhanced value." Menzies J. said (at p 579) that the fees in question were "imposed as part of the State's detailed control of the liquor trade which is effected by the Act". His Honour pointed out that it was part of the statutory scheme that there should be a licensing fund to be applied towards the carrying out of the provisions of the Act including the payment of compensation to owners and occupiers of licensed premises deprived of licences under the Act and that it was into that fund that all licence fees were to be paid. Menzies J. concluded (p 591) the licence fee was "a tax upon a licensed victualler as the price for his franchise to carry on a business, the most important element of which is to sell liquor from the licensed premises independently of whether the liquor is produced in Australia or abroad, or partly in Australia and partly abroad".

26. The reasoning of the majority judges in Dennis Hotels is so divergent that the decision is an authority only for the proposition that the Licensing Act did not impose a duty of excise on a licensee: see Dickenson's Arcade, per Barwick C.J. at p 188. I am unable to agree with the statement of Gibbs J. in Dickenson's Arcade (p 226) that Dennis Hotels "is authority for the proposition that legislation which provides for the grant of a licence to sell goods, on payment of a licence fee, the quantum of which is based on the value of the goods purchased for the premises in a previous year, does not impose a tax directly related to the goods". His Honour in my opinion incorrectly rejected the submission in that case that the decision in Dennis Hotels "should not be regarded as a binding authority because the reasons of Fullagar J. cannot be regarded as fully acceptable and the other members of the Court were equally divided in opinion". With respect, only the reasoning of Kitto, Taylor and Menzies JJ. in Dennis Hotels arguably supports the proposition for which Gibbs J. said that Dennis Hotels is an authority. Since the reasons for decision of Fullagar J. were different from those of the other judges in the majority, the case is an authority only for what it decided in respect of the legislation there under examination. That is to say, the Licensing Act in requiring the payment of an annual fee did not impose a duty of excise. Dennis Hotels is not an authority for any wider proposition. Ironically, the correct approach to a case like Dennis Hotels was expounded by Gibbs J. in H.C. Sleigh, at p 493, when he said that since the reasoning of the majority of the Court in M.G. Kailis (1962) Pty. Ltd. v. Western Australia (1974) 130 CLR 245 had no common basis "the authority of that case would appear to be limited to the very question it decided, i.e. that s.35G is invalid". See also the remarks of Gibbs C.J. in Gosford Meats, at p 379, where he said that M.G. Kailis was "of no value as an authority".

27. In Dickenson's Arcade, however, the decision in Dennis Hotels was influential, if not decisive, in this Court's conclusion that Pt III of the Tobacco Act 1972 (Tas.) did not impose a duty of excise on the retail sale of tobacco. In Dickenson's Arcade the licence fee was calculated by reference to the average monthly value of tobacco "handled" at the premises over the period of 12 months ending six months before the commencement of the annual period in respect of which the licence was granted. The effect of Part III was that the maximum fee payable was 2.5 per cent of the value of the tobacco handled in the relevant assessment period where the value was not less than $7,200.00. Barwick C.J., although doubting the correctness of the reasoning and the decision in Dennis Hotels, thought (p 189) that the "statutory and factual situation in this case is so substantially similar to and not distinguishable from the statutory and factual situation" in that case that he should follow that decision. Mason J. said (pp 243-244) that he also was unable to discern any difference between the two pieces of legislation. Menzies J. concluded (p 213) that the licence fee was a personal tax "for a franchise to sell tobacco in Tasmania". His Honour thought (p 211) that Dennis Hotels was an authority "against treating the tax as a duty of excise". Gibbs J. was of the opinion (p 255) that Kitto J. was correct in Dennis Hotels in stating that the licence fee was an exaction "only in respect of the business generally, and not in respect of any particular act done in the course of the business". His Honour went on to conclude (p 227) that the reasoning for which Dennis Hotels was authority led to the conclusion that the fee was not a tax on any purchase or sale of tobacco. I have already pointed out, however, that Dennis Hotels is only an authority for the proposition that the Licensing Act did not impose a duty of excise. Stephen J. said (p 236) that it was clear that current dealings in tobacco played no part in determining the amount of the licence fee and that, quite apart from authority, he would not regard the fee as demonstrating that what was being taxed was the taking of a step in dealing with particular quantities of tobacco. His Honour thought that the view he took of the "significance of the basis upon which licence fees are to be calculated" was supported by Dennis Hotels. McTiernan J. dissented.

28. Again, I do not think that it is possible to hold that Dickenson's Arcade is an authority for any general principle. The most that can be said about Dickenson's Arcade as an authority is that the reasons of three of the six judges - Menzies, Gibbs and Stephen JJ. - support the proposition that the nature of the fee imposed by the legislation in that case was not one directly related to goods. But that proposition adds nothing to what is to be derived from the actual decision in the case, namely that upon the legislation in that case no duty of excise was imposed.

29. Finally, I turn to consider H.C. Sleigh where the plaintiff alleged that the Business Franchise (Petroleum) Act 1974 (S.A.), which made it unlawful to carry on the business of selling petroleum products on and from 24 March 1975 unless a person was a holder of a licence, imposed a duty of excise. During the currency of the Act there were two licence periods. The first commenced on 24 March 1975 and ended on 23 September 1975. The second commenced on 24 September 1975 and ended on 23 December 1975. The fee payable for a licence comprised a fixed sum of money and a further amount which with one exception was "the prescribed percentage of the value of the quantity of petroleum products sold by the applicant during the relevant period reduced by the quantity of any petroleum products non-accountable in respect of that period". The relevant period for the first licence period was the financial year ending 30 June 1974 and for the second licence period the financial year ending 30 June 1975. Barwick C.J. held (p 488) that the case was governed by the decision in Dickenson's Arcade. Gibbs J. was also of the opinion (p 491) that the case was governed by Dickenson's Arcade. His Honour said (at p 491) that the Act did not "impose a tax on goods, because the fee for a licence to carry on the business of selling petroleum products is quantified by reference to the value of the quantity of petroleum products sold during a period preceding that in respect of which the licence is granted". Stephen J. also held (p 496) that the legislation in all relevant respects was indistinguishable from that considered in Dickenson's Arcade. He also rejected the notion that there was anything artificial in distinguishing between current and past sales. Mason J. said (p 503) there was nothing to distinguish the licence fee from that which was dealt with in Dickenson's Arcade. His Honour said that although "some attempt was made to suggest that the plaintiff was engaged in manufacturing operations in that it included one or more additives in the petroleum products which it obtained from refiners, the prohibition is against carrying on the business of selling petroleum products without a licence, that is against selling, not against manufacturing". Murphy J. was of the opinion (p 526) that the licence fees imposed no excise because "duties of excise for the purposes of Ch.IV of the Constitution are taxes on goods produced or manufactured in the State". Jacobs J. dissented.

30. Again I think that H.C. Sleigh is only an authority for the proposition that legislation of the kind there involved does not impose a duty of excise. That is the precise effect of the reasoning of Barwick C.J. and Mason J. Murphy J. decided the case on the basis that excise duties are limited to taxes on production or manufacture. Only the judgments of Gibbs and Stephen JJ. are capable of supporting a wider proposition.

31. It was also suggested in argument that H.C. Sleigh expressly decided that legislation requiring a producer to pay a licence fee is not an excise when the fee is calculated by reference to past sales of the producer. I cannot accept that submission. As I have pointed out, I do not think that H.C. Sleigh decided anything more than that the legislation in that case did not impose a duty of excise. It is true that in H.C. Sleigh the plaintiff sought to allege that it was a producer and fell within the authority of the decision in M.G. Kailis where a levy upon a producer was held to be an excise. But I think that the judgments in H.C. Sleigh show that the Court treated the plaintiff as a seller only and not as a producer who was a seller. Accordingly, I do not think that the decision can be taken as assimilating the position of a producer who is required to pay a licence fee quantified by reference to past sales with that of a retailer. Moreover, it would be astonishing if Mason J. was intending, sub silentio, to overrule the distinction which he made in M.G. Kailis between the position of a manufacturer or producer and a seller of goods. Indeed in H.C. Sleigh, his Honour expressly referred to M.G. Kailis and pointed out (p 500) that "although I accepted Dennis Hotels as an authoritative decision in relation to a licence fee having similar characteristics, I did not regard the majority judgments as expressing a principle that would necessarily govern all cases, in particular cases where a licence similarly calculated was imposed on the manufacture or production of goods". No doubt it is true that in M.G. Kailis the licence fee was calculated by reference to a step in production or manufacture and not by reference to the sales of the producer. But it would be absurd to suppose that there is any constitutional difference between the licence fee of a producer quantified by reference to a step in production (say the value of goods produced) and the licence fee of a producer quantified by reference to his sales. In Gosford Meats, Mason and Deane JJ. said (at p 385) that, although Dennis Hotels had been allowed to stand as an authoritative decision on its own facts, "it would fly in the face of both principle and authority to accept it as establishing a general proposition that can be applied to a tax made payable, in the form of a licence fee, by a manufacturer or producer of goods". The same comment can be made in respect of H.C. Sleigh.

32. In my opinion the decisions in the franchise cases do not require the conclusion that no duty of excise is levied by legislation which prohibits a manufacturer from selling his products except upon payment of a licence fee quantified by reference to his sales in a past period of business. In so far as the Act prohibits P.M.L. from selling the tobacco products which it manufactures except upon payment of a licence fee, the Act is an invalid attempt to levy a duty of excise on it.

33. Moreover, there is in my opinion a substantial difference between the legislation in the present case and the legislation considered in the franchise cases. That difference is more than one of degree. It reinforces the conclusion that the franchise cases are not authority for the proposition that fees levied upon P.M.L. in respect of the sale of products manufactured by it are not duties of excise. But more importantly, it leads to the conclusion that the decisions in the franchise cases do not require a finding that the fees calculated by reference to the sales by P.M.L. and the second plaintiff of products which they do not manufacture are not duties of excise.

34. In Dennis Hotels and in Dickenson's Arcade the licences were annual licences calculated by reference to annual periods which expired six months before the commencement of the licence periods. In H.C. Sleigh the first licence was for a six-month period and the second licence was for a three-month period which coincided with the termination of the legislation. In the case of the first licence period, the license fee was calculated by reference to an annual period which ended nine months before the licensed period commenced. In respect of the second licensed period, the licence fee was calculated by reference to an annual period which ended three months before the second licence commenced. In these three cases the length of the licence period, the smallness of the fee, and the length of time between the commencement of the licence period and the end of the period by which the licence fee was calculated gave rise to a respectable, if not necessarily correct, argument that the licence fees were for the privilege of carrying on the business. By way of contrast in the present case, the licences are monthly licences. They are calculated by reference to the sales for a one-month period in the immediately preceding month but one from the period for which the licence is granted. The proportion of the fee to sales in the present case is much higher than in the franchise cases. The fee is more likely to be passed on to the consumer than the fees in the franchise cases.

35. The proximity of the calculation period to the licence period, the shortness of the duration of each period, the size of the tax, and the indication that it is to be collected but once in the chain of distribution overwhelmingly indicate that what is being directly taxed by s.10 is the step of selling tobacco in the course of the business. The licence fee in the present case, therefore, is not an exaction for the privilege of carrying on a business but a tax on the sale of tobacco. The legislation and the decisions in the franchise cases furnish no reason, analogy or authority for reaching a different conclusion. If there is no constitutional difference between the licence and calculation periods in the present case and those in the franchise cases, it is difficult to see how there would be any constitutional difference if the licence was for a weekly or daily period quantified by reference to sales in the immediate preceding week or day but one. I doubt that the franchise cases were correctly decided. But they should be followed in the circumstances and for the reasons to which I earlier referred. That does not mean, however, that the Court should hold that legislation, which imposes a higher rate of tax or selects quite different licence and calculation periods from those involved in the franchise cases, does not levy a duty of excise.

36. In my opinion the Act imposed and imposes duties of excise on the plaintiffs. I would answer the questions submitted in the case stated:
1. Yes, except for the fixed amounts prescribed by

s.10 of the Business Franchise (Tobacco) Act 1974 (Vict.).

2. Yes, but only as to those parts of the several paragraphs of s.10(1) of the Business Franchise (Tobacco) Act 1974 (Vict.) which commence with the words "together with".

3. Sections 7 and 10 are invalid in so far as they apply to a person in the position of the plaintiff to the extent stated in the answer to question 2.

Orders

Answer the questions in the stated case as follows: A. Were the fees referred to in the Statement of Claim insofar

as they were paid by:- (i) the First Plaintiff, (ii) the Second Plaintiff, (iii) the Third Plaintiff, invalid as being exacted contrary to the provisions of Section 90 of the Constitution? Answer: (i) No. (ii) No. (iii) No.

B. Is the Act invalid insofar as it applies to a person in the position of:- (i) the First Plaintiff, (ii) the Second Plaintiff, (iii) the Third Plaintiff, as being contrary to the provisions of Section 90 of the Constitution? Answer: (i) No. (ii) No. (iii) No.

C. Are Sections 7 and 10 of the Act invalid insofar as they apply to a person in the position of:- (i) the First Plaintiff, (ii) the Second Plaintiff, (iii) the Third Plaintiff, as being contrary to the provisions of Section 90 of the Constitution? Answer (i) No. (ii) No. (iii) No.

The plaintiffs to pay the defendants' costs of the stated case.