Seboa v The Commissioner of Business Franchises

[1994] HCATrans 239

~ ~~

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M4.of 1993

B e t w e e n -

WALTER SEBOA

Applicant

and

THE COMMISSIONER OF BUSINESS

FRANCHISES

Respondent

Application for special leave

to appeal

MASON CJ
TOOHEY J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

Seboa 1 11/3/94

AT MELBOURNE ON FRIDAY, 11 MARCH 1994, AT 9.59 AM

Copyright in the High Court of Australia

MR P.K. SEARLE: If Your Honours please, I appear on behalf

of the applicant. (instructed by Sly & Weigall)

MR D. GRAHAM, QC, Solicitor-General for Victoria: May it

please the Court, I appear with my learned friend,

MR N. LUCARELLI, for the respondent. (instructed

by T.D. Weerappah, Solicitor to the Commissioner of

State Revenue)

MR SEARLE:  If Your Honours please, in my submission, this

is an ideal vehicle for the Court to apply the

modern interpretation of section 90.

McHUGH J: What interpretation?

MR SEARLE:  The modern interpretation in conformity - - -

MCHUGH J: Which one is that?

MR SEARLE: 

You Honour, the majority judgment in Capital Duplicators case -

MASON CJ: 

The one to which the Justice subscribes.

MR SEARLE: 

Yes, of. the four - the ma_jority Jjudgment is one which both applies and does not overrule Dennis

Hotels, Dickenson's Arcade and Philip Morris and

yet, applying the test - effectively, Capital

Duplicators case is a threshold case, Your Honours, and the way that the courts below looked at the

question of section 90 illustrates quite clearly

that Capital Duplicators is a threshold case.

This case would involve a narrow question

involving no questions of fact and in so far as
there is a factual dispute, my learned friend, the

learned Solicitor-General, contends it is a matter
for legal argument whether the tax of $655,000 is a
fee for a retail tobacconist licence. Effectively,

that is the start and finish of any factual

dispute.

The question simply involves the question

whether a default assessment issued under

section 19A of the Business Franchise (Tobacco) Act
imposes a duty of excise. Unlike the earlier

cases - quite unlike them - this case does not

involve a fee for a licence to carry on a business

where a licence has been granted. So, in my

submission, the, as they were, dissenting judgments

of Your Honour Justice McHugh in Philip Morris and

of Justice Brennan in Philip Morris are apposite,

unless, in conformity with the test outlined by

His Honour the Chief Justice, together with

Justice Deane, it could be said that this tax may

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properly be characterized as a fee for carrying on

a business and, in my submission, it cannot.

So, to that extent, applying and accepting

Dennis Hotels - it is no part of the applicant's

submission, as my learned friend suggests, that

Dennis Hotels or Dickenson's Arcade would be

overruled or reconsidered. They are simply

inapplicable really partly for the reasons which

Your Honour Justice McHugh outlined in a succinct

form at page 501 of Philip Morris.	All of those
elements are there, and I quote:

The proximity of the calculation period

to the licence period -

here, only a month -

the shortness of the duration of each period -

here, the licence period is only one month but the

taxes on the sales are for a year and a half -

the size of the tax -

now, pausing there, the size of the tax is in two

parts. There is a fixed fee of $10 which, in

conformity with Dennis Hotels, Dickenson's Arcade

and Capital Duplicators is not an excise and it is

not calculated by reference to earlier sales. But

there is also an ad valorem tax at 30 per cent of

purchases over a period of a year and a half which

is an excise and which is simply a tax on those

sales. And, as Your Honour observed:

and the indication that it is to be collected

but once in the chain of distribution

overwhelmingly indicate that what is being

directly taxed bys 10 is the step of selling

tobacco in the course of the business.	The
licence fee in the present case, therefore, is
on a business but a tax on the sale of
tobacco.
Now, in my submission, in addition to the

not an exaction for the privilege of carrying

elements which Your Honour Justice McHugh and

Justice Brennan, in far greater detail, as is

outlined in my submissions, applied and held had

the effect that the tax imposed and calculated by

reference to section 10 was an excise is more

apposite here where no licence is ever granted.

TOOHEY J:  Why should we not regard section 19A, the

default assessment, as being simply a means of

implementing the operation of· section 10 in

circumstances where a licence had been granted?

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What puts section 19A in such a different category

from section 10?

MR SEARLE:  There are two reasons why not, Your Honour. The

first reason is that section 6(2) expressly

provides for a penalty for that purpose, that is, a

person shall not carry on after 1 July 1975 tobacco

retailing unless he is the holder of a retail
tobacconist licence under the Act. As the facts

disclose, the applicant was convicted under that

section. Pursuant to the section, on the

conviction, there was also the opportunity for the
court, upon convicting the applicant, to order that

he pay to the Commissioner double the amount which

the court is satisfied should have been but has not
been paid to the Commissioner by way of a licence

fee.

TOOHEY J: Are you suggesting, Mr Searle, that that excludes

the operation of section 19A in these

circumstances?

MR SEARLE:  No, Your Honour, but to the extent to which it

can be said that the legislative scheme is one of

the regulatory scheme which was very much in the

mind of .His .. Honour the .Chief -.. Justice and

Justice Deane in Philip Morris and in Capital

Duplicators, to the extent to which it is overall a

regulatory scheme, yes, certainly, it is a

regulatory scheme, but if you do not have a licence

for carrying on a business you can be convicted and

then the court can impose double the penalty.

Now, section 19A, with respect, does something

quite different. Section 19A, in the first

instance, only imposes a tax at the rate of $50

because a person who has just made an application -

if one takes the criterion of liability being the

application, then the liability is $50 in

conformity with section l0(c)(ii), and that is only

tax which is the calculation in the latter part of	$50. But the principal component of the tax is the
section l0(l)(c), that is that:

if the applicant has, in the relevant period,

purchased tobacco from a person carrying on

tobacco wholesaling who is not the holder of a

wholesale tobacco merchant's licence -

then a tax is imposed at the rate of 30 per cent.

So, section 19A has a number of effects. Now,

although the criterion of liability test is now not

accepted, in fact, by any member of the Court -

His Honour Justice Dawson agreeing with the dissent

of Your Honours Justices Toohey and Gaudron in

Capital Duplicators - the criterion of liability is

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still considered by the Court to be a sufficient
standard for the test of an excise although not a

necessary one.

Now, if one adopts the approach which

Justice McHugh and Justice Brennan had - and, in my

submission, now the Chief Justice and Justice Deane

in Capital Duplicators - one finds that this is

nothing more than a tax on the sale of goods.	It
is not only calculated by reference to them, but
that is precisely what it is. Your Honours will
recall that in the joint judgment in Capital
Duplicators at page 63, the joint judgment, in
fact, took a step further which is what I would

call, in my submission with respect, a modern test

of section 90 and that is, from the middle of the

paragraph at about point 3:

the term "duties of customs and of excise" in

s 90 must be construed as exhausting the

categories of taxes on goods.

So, if one has a tax on the sale, whether the goods

be imported or manufactured locally, it is either a

duty of customs or of excise.

Now, the only remaining issue in dispute, in

effect, in this Court now - there are three

dissentients on precisely the same basis - is

whether that is the test exclusively or whether one

requires, effectively in conformity with Cole v

Whitfield, that the test ought be a discriminatory

one. It is only in that narrow sense, perhaps,

that the dissentients, with respect, in Capital

Duplicators ought, perhaps, reconsider their

position, Your Honours, because if a State can

impose a duty of excise, in effect, a tax on

locally manufactured goods in a discriminatory

basis - it cannot do that, it cannot tax imported

goods because it is a customs and yet, on the

dissentient view at the moment, Your Honours,

effectively the State can tax both of them provided

they are in the same Act on a non-discriminatory

basis.

So, if the Business Franchise (Tobacco) Act

was separated into two Acts, one imposing a tax on

Australian manufactured goods and another imposing

tax on imported goods, the three dissentients, in

my submission, would now all hold, with respect,

that they would be a tax on sales on a

discriminatory basis, one on manufactured goods in

Australia, one on imported goods. With respect,

the concise formulation of the test in the majority

judgment in Capital Duplicators has the effect that

now, in conformity with high policy reasons of the

Commonwealth being one national economic union and,

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that being the basis behind section 90, only the

Commonwealth is imposing taxes on sales, whether

they be imported or manufactured, if the

Commonwealth decides they are not going to impose

any customs, in conformity with the GATT round or

the current Uruguay round, there is no room for the

States to impose a tax, and that is what is done.

The exception to the rule, accepted by the

Court - and I do not attempt to move the Court away

from it - is that in the special areas of tobacco

and alcohol, if the tax "can properly be

characterized as a fee for carrying on business" -

to quote Your Honour the Chief Justice and
Justice Deane at page 440 in Philip Morris, "if it

can properly be characterized" then it will be held not to be an excise. Now, in conformity with those

tests, this tax of $655,000 but for the $10 is a

duty of excise, in my submission.

As I have outlined in my written submissions - I will not take the Court through them - in

paragraph (4), the critical reasoning of

Justice Kitto in Dennis Hotels upon which, in

effect, the modern approach has developed by the

Full. Court in Bolton v..Madsen applying

Justice Kitto's test is based on the essential part

of the reasoning, that if the licence is not

renewed, the licensee would pay no fee in respect

of the prior sales, and so much appeared at

pages 564 and 565 to 566 of His Honour's judgment.

That test has been accepted, and it has also

been accepted, with respect, Your Honours, that the

decisions in Philip Morris and Dickenson's Arcade,

because of the diversity of reasoning, are not, in

effect, able to apply very much past their factual
basis other than in the manner in which Your Honour

the Chief Justice and Justice Deane had proposed at

page 440 of Philip Morris, other than where the

licence fee can properly be characterized as a fee

for carrying on business.

They are the only two ways that this Court is

now looking at Dennis Hotels and Dickenson's

Arcade, with respect. Either it is limited to its

factual position, as His Honour Justice Brennan and

Your Honour Justice McHugh made clear in Philip

Morris or, that the preferable approach is to have

it characterized as a wider test only where the fee

can properly be characterized as a fee for carrying

on a business. In my submission, that simply

cannot be the case where no licence fee is ever

granted.

It is for that reason that I submit, in

paragraph (6) of page 4 of my submissions, that

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this fee imposed in purported conformity with

Dennis Hotels - and that is what it does - is of a

sufficient magnitude to deny it a regulatory

character but it also has all of those other

elements which Your Honour Justice McHugh has
already noted in Philip Horris, it has precisely

all those elements, plus it has the element that there is no licence fee, plus it has the element that the applicant has been convicted for carrying

on a business without a licence.

Now, in those circumstances, in my submission,

the Court ought apply the current or the modern

test concerning section 90. There has been a

consistent line of authority now since Dennis

Hotels, and the Court can apply it. If anything,
the dissentients - I agree with the learned

Solicitor-General in one sense, that the

dissentients would be invited by the applicant to

reconsider the basis of their dissent and to apply

the reasoning of the majority in Capital

Duplicators but other than that the rules, in

effect, have been set down by the majority, in my

submission.

Now, the other issue, the .notice _of. _assessment

issue, is a very narrow one. I have outlined it in

my submissions and I do not propose to address the

Court on that other than to address the Court on

the fact that it is highly anomalous for a court to

attempt to characterize a tax by virtue of its

characteristics as an assessment if it not be the

case that that assessment be properly reflected in
notice of assessment.

But as to the reasons why special leave should be granted, as I have outlined, the reasoning of

the court below, in my submission, is not

satisfactory for an appeal division, with respect,

of a State supreme court - it would not be

satisfactory if it were followed.	The State
supreme courts could virtually go in any direction,

in effect, failing to properly appreciate the significance of the way that the majority was formed in Philip Horris and also now the way that

the majority has been formed in Capital

Duplicators. If Your Honours please.

MASON CJ: Yes, thank you, Mr Searle. Yes, Mr Solicitor?

MR GRAHAM: If the Court pleases. As the Court is aware,

the scheme of the Business Franchise (Tobacco) Act

1974 is such as to impose a liability on

wholesalers and retailers of tobacco to pay

licence fees and the scheme of the Act is designed

to ensure that an valorem licence fee is paid in

respect of tobacco which is ultimately sold by

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retail, the fee being exacted either from the
wholesaler or the retailer and being calculated by

reference to sales made in an antecedent period.

These provisions and similar provisions have

been held, over the years, not to impose duties of
excise and we would submit that having regard to

the Court's recent reconsideration or partial

reconsideration of those matters in Philip Horris

and Capital Duplicators, the Court should not

embark upon a further reconsideration.

May I hand to the Court a short document which

is designed to indicate the way in which the

provisions of the Act are meant to operate in the case of what I might call an ordinary retailer of tobacco. We summarize those provisions of the Act

which lead to the grant to a retail tobacconist of

a licence which will either be a monthly licence

or, as one would infer, an annual licence: for a

monthly licence, the fee being $10; for the annual

licence, the fee being $50.

The scheme of the Act is such that the ad

valorem fee, at the relevant time, 30 per cent, was

.normally exacted from the wholesal.er .but that .. is

all subject, of course, as Your Honour

Justice Toohey mentioned, to the operation of

section l0(l)(c) of the Act which applies in cases

where a retailer procures the supply of tobacco

from a person who is not the holder of a

wholesaler's licence.

Now, the point that we would make is that if

the applicant here had fulfilled his ordinary

statutory obligations as a tobacco retailer, he

would have had to pay a fee of $327,000-odd,

leaving aside the penalty which was subsequently

imposed. He would have had to pay that fee either

because he had bought his supplies from licensed

wholesalers or that he had made a full and true

disclosure in his application for a licence in

respect of the month of September 1989, following

the revocation of his licence in August, or, in

passing, I should say, by observing the
requirements of section llA of the Act which
provides for a retailer to prepare a note or

memorandum of all his purchasers from unlicensed

sources and supply that note or memorandum to the

Commissioner, thus, alerting the Commissioner to

the fact that an ad valorem fee will become payable

by the retail tobacconist upon the next renewal of

his licence, under section l0(l)(c).

In those circumstances, if the applicant had

followed his statutory obligations, it would not

have been open to him, on the present state of the

Seboa 11/3/94

authorities, to contend that the fee payable was a

duty of excise. We would submit it is at least

ironical that this applicant, having purchased

tobacco from an unlicensed supplier, having failed
to observe the requirements of section llA and

having made an application for a monthly licence

following the revocation of his earlier licence in

which he failed to make a full and true disclosure,
as he was required to do by section 7(2)(a) and

which was supported by an untruthful statutory

declaration - it is, in our submission, ironical

that he is able to avoid any liability to pay

licence fees which he would have had to pay if he

had observed the law, on the basis that the fee

which has been assessed has taken on the character

of a duty of excise, a character which, on the

authorities, it did not previously possess.

In our submission, the default assessment

provisions of the Act are designed to protect the

revenue and to facilitate the collection from

defaulters of fees which, if paid in the normal and

regular way, are not duties of excise. This was

clearly recognized in a sentence in the judgment of
the Appeal Division which appears at pages 55 to

56.      Mr Tadgell, giving .. the .judgment of the aourt,

said: 

Given the evident purpose and scope of

s 19A(l), an assessment thereunder is in my

view no more vulnerable to s 90 -

of the Constitution -

than fees exacted without the assistance of

s 19A( 1).

As to the notice of assessment issue, we would

submit, simply, that the decision of the Appeal

Division was clearly correct and we would further

submit that this is not a point worthy of the grant

of special leave to appeal. Those are our

submissions, if the Court pleases.

MASON CJ: Thank you, Mr Solicitor. Mr Searle?

MR SEARLE:  If Your Honours please, in my submission, my

learned friend has not addressed the question at

all. If there is a drafting defect in the

legislation which has the effect that this tax

imposed is an excise, then section 90 of the

Constitution makes it invalid.

It may be the case that there was another way

for the State to tax it but the fact is that the
applicant did have a licence for carrying on a

business in the earlier periods and that earlier

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licence was not cancelled. What my friend

complains about is that there were some

unanticipated purchases and sales of tobacco in

that period and he wishes to tax them all, thereby

tending to prove the scheme is an excise.

In so far as the scheme really has a validity,

it is because there is not a perfect similarity

between the purchases in the licensed period and

the purchases in the earlier period. If

Your Honours please.

MASON CJ: The Court is not persuaded that the decision of

the Court of Appeal Division is attended with

sufficient doubt to justify the grant of special

leave to appeal.	The application is therefore
refused.

MR GRAHAM:	I seek an order for costs in favour of the respondent, if the Court pleases.
MASON CJ:	You do not oppose that?
MR SEARLE:	No, Your Honour.
MASON CJ:	The application is refused.with~osts.

AT 10.23 AM THE MATTER WAS ADJOURNED SINE DIE

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