Thorn, EMI Pty Ltd v Commissioner of Taxation for the Commonwealth of Australia
[1987] FCA 108
•16 MARCH 1987
Re: THORN EMI PTY. LIMITED
And: COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA
No. G184 of 1986
Sales Tax
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beaumont J.
CATCHWORDS
Sales Tax - applicant sold goods by retail through an agent - "indirect marketing arrangements" - new regulations deeming certificate to have been quoted - sales tax imposed on notional wholesale sales - whether permissible to refer to regulation - whether regulation beyond power.
Sales Tax Assessment Act (No.1) 1930; ss.3(1),3(4A), 11, 12, 73
Sales Tax Assessment Act (No.2) 1930; ss.3, 4(1), 10(2A)
Sales Tax Regulations; regs.11, 12(1)(a), 12(1)(e), 14A(2), 48(1)(b), 49(1), 49(2), 50(5).
Deputy Federal Commissioner of Taxation for the State of South Australia v. Ellis & Clark Limited (1934) 52 CLR 85
Brayson Motors Proprietary Limited (In Liquidation) v. The Commissioner of Taxation (1985) 156 CLR 651
Davies Coop and Company Limited v. Federal Commissioner of Taxation (1948) 77 CLR 299
Coates v. Commissioner for Railways (1960) 78 WN (NSW) 377
Hunter Douglas Australia Pty. Ltd. v. Perma Blinds (1970) 122 CLR 49
Webster v. McIntosh (1986) 32 ALR 603
University of Wollongong v. Metwally (1984) 56 ALR 1
Neill v. Glacier Metal Co. Ltd. (1965) 1 QB 16
Jackson v. Hall (1980) AC 854
Morton v. The Union Steamship Company of New Zealand Limited (1951) 83 CLR 402
Shannahan v. Scott (1957) 96 CLR 245
HEARING
SYDNEY
#DATE 16:3:1987
Counsel and Solicitors for Applicant: D.G. Hill Q.C. with B.J. Sullivan instructed by Freehill, Hollingdale & Page.
Counsel and solicitors for Respondent: Mrs. P. Flemming Q.C. with D.H. Bloom instructed by Australian Government Solicitor.
ORDER
The proceedings be dismissed.
The applicant pay the respondent's costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
In these proceedings, which were remitted from the High Court, the applicant seeks, inter alia, a declaration that it is not liable to pay sales tax pursuant to the provisions of the Sales Tax Assessment Act (No.2) 1930 ("the (No.2) Act") in respect of the sale by it of certain goods.
At material times, the applicant carried on the business of purchasing, and selling by wholesale, records, cassettes and compact discs under the name "EMI Records Australia"; it also carried on the business of purchasing, and selling by retail, records, cassettes and compact discs under the name "EMI Retail Promotions". Prior to 30 May 1985 (the date upon which relevant amendments were made to the (No.2) Act) the applicant: (a) purchased from the manufacturer certain records, cassettes and compact discs ("the goods"); (b) delivered those goods to a retailer at arm's length with the applicant upon the terms (i) the retailer would act as the applicant's agent for the sale of the goods; (ii) until such sale, property in the goods would remain in the applicant; (iii) the retailer would be entitled to a commission on any sale. After 5 June 1985 (the date upon which relevant amendments were made to the Sales Tax Regulations) the goods were sold by retail by the retailer as agent for the applicant.
The general legislative scheme, as it then stood, was described by Dixon J. in Deputy Federal Commissioner of Taxation for the State of South Australia v. Ellis & Clark Limited (1934) 52 CLR 85 at pp 89-95 and by the Full Court of the High Court (Gibbs C.J., Mason, Wilson, Deane and Dawson JJ.) in Brayson Motors Proprietary Limited (In Liquidation) v. The Commissioner of Taxation for the Commonwealth of Australia (1985) 156 CLR 651 at pp 656-662. The relevant provisions, as they stood on 30 May 1985 (i.e. before the amendments to the (No.2) Act, already mentioned, came into effect) were as follows:
(i) a person who became a manufacturer or wholesale merchant was to become registered as prescribed (the Sales Tax Assessment Act (No. 1) 1930) ("the (No. 1) Act"), s.11(1));
(ii) a "registered person" meant a manufacturer or wholesale merchant registered under the
(No.1) Act (s.3(1));
(iii) a "wholesale merchant" meant a person who engaged, whether exclusively or not, in the sale of goods by wholesale (the (No. 1) Act, s.3(1));
(iv) upon registration, a certificate of registration was issued (the (No. 1) Act, s.11(3));
(v) a registered person was to quote his certificate, inter alia (a) in respect of the purchase by the registered person of goods for sale by him by wholesale (Sales Tax Regulations, reg.12(1)(a)); (b) if, in a State in which the registered person had a place of business in respect of which a certificate has been issued to him, he was a wholesale merchant who sold goods principally by wholesale - in respect of the purchase by him, for the purposes of that business, of goods for sale by him, not being goods purchased by him specifically for sale by him by retail (Sales Tax Regulations, reg.12(1)(e);
(vi) subject to, and in accordance with the provisions of the (No. 2) Act, the sales tax imposed by the Sales Tax Act (No. 2) 1930 was to be levied and paid upon the sale value of goods manufactured in Australia and sold by a taxpayer who purchased them from the manufacturer (the (No. 2) Act, s.3). The sale value was, relevantly, the amount for which those goods were -
"sold by a registered person, or a person required to be registered, who purchased the goods from the manufacturer thereof, to an unregistered person or to a registered person who has not quoted his certificate in respect of that purchase:
Provided that where goods are sold by retail by a registered person who has quoted his certificate when purchasing the goods the sale value of the goods shall be the amount which would be the fair market value of those goods if sold by him by wholesale, but if the Commissioner is of opinion that the amount set forth in any return by the registered person as the sale value of any such goods is less than the amount which would be their fair market value if sold by wholesale, the Commissioner may alter the amount set forth in the return to the amount which, in his opinion, would be the fair market value of the goods if sold by wholesale, and the amount as so altered shall be the sale value of the goods for the purposes of this Act."
(The (No. 2) Act, s.4(1)).
The applicant was, at material times, registered as a "wholesale merchant". However, it did not quote its certificate in respect of the purchase of the goods from the manufacturer. Accordingly, sales tax, in the total sum of $69,366.06 was levied and paid on the then sale value of the goods. There is no dispute about that tax. However, the applicant claims that it is not liable to pay further sales tax in respect of the sales by it through the agency of the retailer. The Commissioner, on the other hand, claims that, by virtue of the amendments effected to the legislative scheme in 1985, the applicant became liable to pay sales tax on the sale value of the goods, determined in accordance with the proviso to s.4(1) of the (No. 2) Act. The Commissioner claims tax in the total sum of $206,610.47 but, pursuant to Part IX of the Sales Tax Regulations, he has credited the applicant with the sum of $69,366.06, being the tax already paid. The Commissioner has assessed a further amount of sales tax in the total sum of $137,244.41 on a default basis, acting under the default provisions of s.10(2A) of the (No.2) Act.
The amendments to the legislative scheme were introduced into Parliament in May 1985. In his second reading speech, the Treasurer explained the objectives sought to be achieved by the amendments as follows (House of Representatives, 9 May 1985 - Parliamentary Debates at p.1984).
"Indirect Marketing Arrangements
....The level of sales tax payable directly affects the ultimate price of goods and its avoidance by one firm in an industry gives an unwarranted competitive advantage in the market-place to that firm....One particular avoidance arrangement that has gained currency relies on the fact that sales tax is generally payable on the last wholesale sale in the marketing chain. The amount on which the liability for tax is calculated is intended to include all the costs and profit-margins of those in that chain up to, but not including, the retailer. Known as agency schemes, these arrangements are based on a wholesaler appointing a normal retailer as agent. As a result, the wholesaler technically becomes the retailer for the purposes of the sales tax law.
Prior to entering into the scheme, the wholesaler's goods would be sold to the retailer who, as owner of the goods, would sell them to customers of the retailer's store. Under the scheme, the wholesaler retains ownership of the goods, but places them in the retailer's store alongside the retailer's normal stock. The retailer, as agent of the wholesaler, then sells the goods to those same customers of the retailer. This complex and highly artificial arrangement is claimed to have the result under the existing sales tax law that sales tax is payable, not on the wholesaler's former price to the retailer, but on the price at which the wholesaler purchases the goods. This price is, of course, much lower and excludes all of the marketing costs of the wholesaler and the wholesaler's profit margin....
At the same time, the Government recognises that some businesses have for many years, and for genuine commercial reasons, sold their goods to the public through agents....While there is no sales tax avoidance purpose present in this situation, the revenue is affected in the same manner and to the same degree.
The Government sees no valid reason for excluding from the amendments those who, although their use of agency ....can be justified on sound commercial grounds, benefit from similar reductions in the amount of sales tax payable. For this reason, the amendments will not require that there be a sales tax avoidance purpose, nor will they be retrospective in effect.
Under amendments proposed in this Bill, where any person, other than the manufacturer of goods, sells goods by retail under these arrangements - referred to in the Bill as indirect marketing arrangements - sales tax will in future be payable on the fair wholesale market value of the goods. In other words, the sales tax advantage sought to be achieved will be removed. This is done by treating persons who sell goods under indirect marketing arrangements as wholesale merchants for sales tax purposes. A similar result to this is already achieved in the case of a manufacturer under the existing law.
Some consequential changes to the sales tax regulations will be required and these will be submitted to the Federal Executive Council for approval after this Bill has been passed by the Parliament. The new basis for taxing sales of goods under indirect marketing arrangements will apply to sales of goods made after the date of royal assent to the Bill. This will allow time for those who will, under the Bill be now treated as wholesalers to become registered for sales tax purposes."
By the Sales Tax Laws Amendment Act 1985, (which was assented to on 30 May 1985, on which date it came into effect so far as is presently relevant), the following relevant amendments were made to the (No. 1) Act:
(1) The definition, in s.3(1), of "wholesale merchant" was expanded to include a person who sells goods under an "indirect marketing arrangement". Such an arrangement was defined (s.3(4A)) by reference to a person (the "vendor"), who is not the manufacturer of the goods, selling goods by retail -
(a) under an arrangement that provides, directly or indirectly, for the sale of goods (whether ascertained or not) by the vendor through another person acting for and on behalf of the vendor, whether in the name of the vendor or in any other name, but not being an employee of the vendor; or
(b) from premises that are used principally for the sale of goods by retail by any other person or persons; and are held out to be premises of, or used by, the other person or persons.
(2) The provisions of s.11 (dealing with the issue of certificates of registration) were amended to require that, where, on a particular day, a person who is a manufacturer or a wholesale merchant becomes required to be registered, the application for registration shall be lodged within 28 days after that day.
On and from 5 June 1985, the following relevant amendments were made to Part III of the Sales Tax Regulations, dealing with quotation of certificates:
(1) the following new interpretative provision was inserted -
"11. In this Part -
(a) 'wholesale merchant who sells goods principally by wholesale'...means a wholesale merchant...the total value of whose average yearly sales by wholesale is, or would be, in the opinion of the Commissioner, not less than 50 per cent of the total value of his average yearly sales, whether by wholesale or otherwise;
(b) 'a person who sells goods principally by retail' means a person whose sales of goods, not being sales of a kind referred to in (para.(b),(c),(e) or (g) of the definition of 'sale of goods by wholesale' in s.3(1) of (No. 1) Act)) are, in the opinion of the Commissioner, made principally by retail;
(c) a reference to a sale of goods by wholesale shall be read as including a reference to a sale of goods by retail under an indirect marketing arrangement; and
(d) a reference to a sale of goods by retail shall not be taken to include a reference to a sale of goods by retail under an indirect marketing arrangement."
(2) In reg.12(1)(e) which specifies certain of the circumstances in which a registered person was to quote his certificate (see p.3 above), the words after "by wholesale -" were omitted and there was substituted:
"in respect of...the purchase by him of goods, not being goods in respect of which he is required to quote his certificate under paragraph (a), for sale by him for the purposes of that business";
(3) By inserting a new reg.14A, deeming a certificate to have been quoted in certain circumstances. This provision is central to the present dispute. Relevantly, it provides:
"14A. (1) ....
(2) Where -
(a) at a time before the commencement of this regulation a person, being a registered person (whether or not a registered person at that time) or a person required to be registered (whether or not a person required to be registered at that time) purchased...goods,...for sale by him;
(b) the person or some other person had paid or was liable to pay tax upon a sale value of those goods; and
(c) the person, after the commencement of this regulation, sells any of those goods by wholesale,
the person shall be deemed to have quoted his certificate in respect of the purchase...of the goods so sold."
At the time the Sales Tax Regulations were thus amended, the Treasurer issued an explanatory statement, explaining inter alia, the objective sought to be achieved by reg.14A(2):
"At the date of making these regulations, a number of persons (both those registered and those required to be registered) would have had tax-paid stock on hand. On or after 30 May 1985 - the date of Royal Assent to the Laws Act - some of those persons would have become liable to tax in respect of sales of goods either by wholesale or by retail under an indirect marketing arrangement. Sub-regulation 14A(2) deems those persons to have quoted their certificates in respect of the purchase, importation or entry of the goods that are sold by wholesale (including retail sales under indirect marketing arrangements) from such tax-paid stock on hand. This sub-regulation prevents double taxation in respect of these wholesale sales of goods by ensuring that the affected persons are entitled to a credit or rebate in respect of any tax paid at the time of the purchase, importation or entry of the goods."
Refunds and other payments are dealt with by Part IX of the Sales Tax Regulations. At material times, they relevantly provided as follows:
(1) By reg.48(1)(b), payments to prevent double taxation may
be made to a person who in respect of a transaction in relation to any goods, becomes liable to pay tax on a sale value of those goods and who has purchased those goods at a price which includes tax which some other person has paid or is liable to pay, upon a sale value of those goods, in respect of some prior transaction in relation to those goods.
(2) By reg.49(1), where a registered person to whom reg.48
applies becomes liable to pay tax in a case to which that regulation applies, upon the amount for which any goods, in respect of the purchase of which he was not entitled to quote and did not quote his certificate, are sold by him by retail, the refund which may be made to that person shall be a refund, by way of rebate, of the whole of the tax so payable. By reg.49(2), the sale of goods by retail, in a case to which this regulation applies may, for the purposes of the Sales Tax Regulations be treated as a sale in respect of which tax is not payable.
(3) By reg.50(5), the payment which may be made to a person
to whom para.(b) of reg.48(1) applies, shall be a payment equal to the amount of the tax included in the price for which he has purchased goods as specified in that paragraph.
The Commissioner supports his assessment by the following process:
(i) The applicant fell within the extended definition of "wholesale merchant" in s.3(1) of the (No. 1) Act because it sold goods under an indirect marketing arrangement.
(ii) The sales of the goods by the applicant, which took place after the relevant amendments to the legislative scheme came into operation, prima facie attracted the provisions of ss.3 and 4(1) of the (No. 2) Act.
(iii) For the purposes of Part III of the Sales Tax
Regulations, the sales by the applicant by retail under an indirect marketing arrangement are deemed to be sales by wholesale (reg.11(c) and (d)).
(iv) The ingredients of reg.14A(2) were satisfied in the present case because -
(a) before 5 June 1985, the applicant was a person required to be registered as a wholesale merchant since it sold goods under an indirect marketing arrangement and purchased goods for sale by it;
(b) the applicant or some other person had paid or was liable to pay tax upon a sale value of those goods;
(c) the applicant, after 5 June 1985, sold the goods by wholesale.
(v) The applicant is thus deemed to have quoted his certificate in respect of the purchase of the goods sold.
(vi) Prima facie, the sale value of the goods is their sale price; however, the proviso to s.4(1) of the (No. 2) Act applies here because:
(a) the goods are sold by retail;
(b) by a registered person who has quoted his certificate.
(vii) Therefore the sale value is the amount which,
in the Commissioner's opinion, would be the fair market value of the goods if sold by wholesale.
(viii) By the combined operation of regs.48(1)(b) and
50(5), the applicant should receive a rebate in an amount equal to the tax already paid.
The applicant challenges the assessment on a number of grounds. In the first place, it contends that, notwithstanding the provisions of reg.14A(2), the proviso to s.4(1) of the (No.2) Act should be construed as referring to a quotation in fact of a certificate and not a notional or "deemed" quotation. The submission assumes, in the applicant's favour, that the opening section of s.4(1) could not apply here. For the purposes of considering the applicant's argument, I will make that assumption also. The next step in the argument is to submit that, if the proviso is inapplicable, there is no sales value and thus no liability to tax.
In support of the first step in the argument, the applicant relies upon the decision in Davies Coop and Company Limited v. Federal Commissioner of Taxation (1948) 77 CLR 299. It was there held that in s.4(1) of the (No. 2) Act the expression "quoted his certificate" refers to an actual, if not necessarily lawful, quotation. It followed that the legislation did not impose tax upon a vendor if, being unaware that a quotation is bad in law, he accepts it as valid. According to Dixon J. (at p.315):
"The purpose and policy of the legilsation is inconsistent with any application of the theory that an unlawful or improper quotation must be treated as no quotation of the certificate."
(See also per Latham C.J. at p.310; per Williams J. at p.320).
The question, however, remains of the potential operation of reg.14A(2), a matter not addressed in Davies Coop. Of the regulation, the applicant makes two complaints. First, it says that reg.14A(2) purports to create a fiction by deeming an event to have occurred when in fact it did not. So much may be accepted, but it does not advance the applicant's argument. As Kinsella and Collins JJ. observed in Coates v. Commissioner for Railways (1960) 78 WN (NSW) 377 at p 384 -
"Where a statute provides that something shall be deemed to be a fact, it is necessarily implicit in such a provision that the assumption shall be made if necessary contrary to fact;..."
(See also D.C. Pearce, Statutory Interpretation in Australia, 2nd ed. at p 49; cf. Hunter Douglas Australia Pty. Limited v. Perma Blinds (1970) 122 CLR 49 at p 65; University of Wollongong v. Metwally (1984) 56 ALR 1, per Mason J. at p 12; F.A.R. Bennion, Statutory Interpretation at p 661.)
Secondly, the applicant contends that reference to reg.14A(2), as subordinate legislation, is not permissible as an aid to construction of the statute, i.e. the proviso to s.4(1); in other words, one cannot resolve any ambiguity in the language of Parliament by recourse to the regulations made by the Executive.
In my opinion, this branch of the argument should be rejected. It may be accepted, as a general proposition, that "the intention of Parliament in enacting an Act is not to be ascertained by reference to the terms in which a delegated power to legislate has been exercised" (per Brennan J. in Webster v. McIntosh (1980) 32 ALR 603 at p 606.) On the other hand, as Mason J. observed in the course of argument in Brayson Motors, supra, (at p 652) -
"One looks at regulations, not to construe an overall scheme or to throw light on ambiguity in a statutory provision, but to ascertain what the scheme is."
In the present context, it has been settled since the decision in Ellis & Clark, supra, that the Sales Tax Regulations are an essential part of the legislative scheme (see, especially, per Dixon J. at p.89). This approach was affirmed recently in Brayson Motors (at p.657) and it is unnecessary to pursue the questions which could arise in other contexts (cf. Neill v. Glacier Metal Co. Ltd. (1965) 1 QB 16 at p 27; Jackson v. Hall (1980) AC 854 at pp 884,889; Bennion, op cit., at p 146).
In my opinion, reference to the Sales Tax Regulations, including reg.14A(2), is not merely permissible; it is essential to an understanding of the legislative plan.
The applicant then submits that if the proviso in s.4(1) is to be construed by reference to reg.14A(2), then the regulation is beyond power.
By s.12(1) of the (No. 1) Act, a registered person shall quote his certificate "in such manner and under such circumstances as are prescribed." By s.12(2), a registered person shall not quote his certificate except as prescribed. By s.73 of the (No. 1) Act, the Governor-General may make regulations, not inconsistent with the Act, "prescribing all matters which by (the) Act are required or permitted to be prescribed, or which are necessary or convenient to be prescribed, for carrying out or giving effect to (the) Act..." Of a provision similar to s.73, the Full High Court (Dixon, McTiernan, Williams, Webb, Fullagar and Kitto JJ.) said (Morton v. The Union Steamship Company of New Zealand Limited (1951) 83 CLR 402 at p 410):
"In an Act of Parliament which lays down only the main outlines of policy and indicates an intention of leaving it to the Governor-General to work out that policy by specific regulation, a power to make regulations may have a wide ambit. Its ambit may be very different in an Act of Parliament which deals specifically and in detail with the subject matter to which the statute is addressed."
(See also Shanahan v. Scott (1957) 96 CLR 245 at p 250).
In my opinion, the challenge to the validity of reg.14A(2) must fail. The regulation must, of course, be seen in its context. Viewed in context, reg.14A(2) is no more than part of the legislative scheme introduced in May 1985 to deal with indirect marketing arrangements. The stated objective of the amendments, as appears on their face and from the Treasurer's explanation of the "mischief" aimed at, was to tax, as notional sales by wholesale, sales made under indirect marketing arrangements. In that connection, it was thought that, in the circumstances defined by reg.14A(2), a vendor selling by wholesale, or being deemed to do so because he sold by an indirect marketing arrangement, should be deemed to have quoted his certificate.
Given the important role assigned to the Sales Tax Regulations in the legislative scheme, it is not possible to say that the deeming of the quotation of a certificate by a regulation is beyond power. The Court is not, of course, concerned with the merits of the tax imposed. The only challenge is as to the scope of the Executive power to make the regulation. As has been said, since the decision in Ellis & Clark it has been accepted that the statutes provide no more than the broad framework in which the tax is to operate. It is necessarily contemplated that the regulation-making power will be invoked to supply essential details of the whole scheme. Reg.14A(2) is one such detail and, as such, is within power.
Finally, it was argued by the applicant that s.4(1) should be read down here so as not to apply to the retail sales made by the applicant. It is pointed out that the applicant carries on both a wholesale and a retail business; and that it was a "registered person" in respect of its wholesale business. In those circumstances, the argument runs, the decision in Brayson Motors requires s.4(1) to be read down, for the transactions of sale now sought to be taxed were not entered upon in the course of the particular business to which the certificate of registration related.
I cannot accept the argument. Ellis & Clark and Brayson Motors provide no analogy here. In those cases, the literal words of the legislation were read down in "fortuitous" or "accidental" circumstances. What is involved in the present case is an entirely different question, namely, the application, in a transitional context, of a parcel of specific provisions designed to deal with what was perceived to be a tax-avoidance situation. In this connection, there is no reason of logic or otherwise, to read down the ordinary meaning of the words used in the legislative scheme. If anything, reference to the Treasurer's explanatory statements only serves to reinforce this.
The proceedings must be dismissed with costs.