Totalizator Agency Board v Commissioner of Taxation

[1995] FCA 753

CATCHWORDS

TAXATION - Whether the TAB is "a State" for the purposes of an exemption from sales tax - constitutional concept of "a State" not incorporated into Item 126(1)(a) of Schedule 1 to Sales Tax (Exemptions and Classification) Act 1992, by reason of context - "authority completely controlled by a State" to be considered under Item 126(1)(b) - whether TAB's expenditure is "exclusively borne by a State".

Constitution, s 114.
Sales Tax (Exemptions and Classifications) Act 1992 (Cth), Sch.1, Item 126.
Sales Tax Assessment Act 1992 (Cth), ss 5, 16, 24, 102.
Totalizator Act 1916 (NSW)
Totalizator (Off-Course Betting) Act 1964 (NSW)

Commissioner of Taxation v State Bank of New South Wales (1992) 174 CLR 219
Government Insurance Office of New South Wales v Commissioner of Taxation (1992) 35 FCR 247
Bank of Western Australia v Federal Commissioner of Taxation (1994) 125 ALR 605
Diethelm Manufacturing Pty Ltd v Federal Commissioner of Taxation (1993) 44 FCR 450
The Commonwealth v Baume (1905) 2 CLR 405
The King v Berchet (1688) 1 Show K.B. 106; 89 ER 480

TOTALIZATOR AGENCY BOARD v COMMISSIONER OF TAXATION
NG 530 of 1994

Sackville J.
Sydney
19 September, 1995

IN THE FEDERAL COURT OF AUSTRALIA    )
NEW SOUTH WALES DISTRICT REGISTRY    )    No. NG 530 of 1994
GENERAL DIVISION  )

BETWEEN:
  TOTALIZATOR AGENCY BOARD
  Applicant

AND:
  COMMISSIONER OF TAXATION
  Respondent

CORAM:     SACKVILLE J.
PLACE:     SYDNEY
DATE:     19 September, 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The application be dismissed, with costs.

NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA    )
NEW SOUTH WALES DISTRICT REGISTRY    )    No. NG 530 of 1994
GENERAL DIVISION  )

BETWEEN:
  TOTALIZATOR AGENCY BOARD
  Applicant

AND:
  COMMISSIONER OF TAXATION
  Respondent

CORAM:     SACKVILLE J.
PLACE:     SYDNEY
DATE:     19 September, 1995

REASONS FOR JUDGMENT

The Proceedings           
The Totalizator Agency Board ("the TAB") is a body corporate constituted under the Totalizator (Off-Course Betting) Act 1964 (NSW) (the "TAB Act"). The TAB is the applicant in two proceedings, which were heard together.

The first proceedings were commenced in the High Court on 22 February 1993 and were remitted to this Court by a consent order made on 30 August 1994.  In these proceedings, which I refer to as the "refund proceedings", the TAB claimed a refund of amounts, totalling approximately $2.5 million, paid by it as sales tax upon printed materials manufactured by it and applied to its own use during the period February 1987 to February 1992.  It was common ground that the amounts were paid by the TAB in the

mistaken belief that it was liable to sales tax in respect of the manufacture and use of the materials.  The TAB ceased paying amounts as sales tax and sought a refund of amounts previously paid, in consequence of the High Court's decision in Deputy Commissioner of Taxation v State Bank of New South Wales (1992) 174 CLR 219. In that case the High Court held that the tax imposed by s.3 of the Sales Tax Act (No.1) 1930 (Cth), on goods manufactured in Australia and applied to the taxpayer's own use, was, in its application to printed matter manufactured by the State Bank and applied to its own use, a tax on the property of a State in breach of s.114 of the Constitution. Section 114 provides, inter alia, that the Commonwealth shall not "impose any tax on property of any kind belonging to a State".

In the course of the hearing the parties narrowed the issues, and most argument centred on the TAB's entitlement to recover interest on the amounts paid by it in respect of sales tax.  In the event, I was informed after the hearing had concluded that the refund proceedings had settled.  The parties subsequently filed consent orders resolving all issues in the first proceedings.

In the second proceedings, No. NG 530 of 1994, the TAB appeals to the Court against a decision by the respondent ("the Commissioner") to disallow an objection relating to an assessment of sales tax issued on 20 June 1994 in respect of the purchase of an item of equipment known as a CTMN 515S Austext receiver from TEAC Australia Pty Ltd on 1 November 1993.  The receiver has
been placed by the TAB in a branch where it displays information relating to racing events. The assessment was issued under s.102 of the Sales Assessment Act 1992 (Cth) ("the Assessment Act 1992"), which permits a taxpayer to make a written request for an assessment on a specified dealing.  The assessment notified the TAB that it was liable to pay sales tax at the rate of 30 percent on the value of the receiver, a total of $147.50.  The appeal was intended to raise for consideration the construction of an exemption Item contained in Schedule 1 to the Sales Tax (Exemption and Classifications) Act 1992 (Cth) ("Exemptions Act 1992"). By virtue of s.24 of the Assessment Act 1992, an assessable dealing is not taxable if the goods are covered by an exemption Item in force at the time of the dealing and all the requirements of that Item have been met at the time of the dealing. Item 126(1)(a) of Schedule 1 to the Exemption Act 1992 exempts from sales tax goods for use by an "Australian government", a term which is defined to include a State. One question raised in argument is whether the exemption applies to the purchase by the TAB of the equipment for use by it. A second question is whether the terms of Item 126(1)(b) are satisfied. This raises the issue of whether the TAB's expenditure is "exclusively borne by" the State of New South Wales, within the meaning of Item 126(1)(b).

In the course of argument, it became clear that there were procedural difficulties in the path of the relief sought by the TAB in the second action, since the liability to sales tax in respect of the sale of the equipment is imposed by the 1992
Assessment Act 1992 on TEAC Australia Pty Ltd, as the vendor of the Austext Receiver, and not on the TAB: see s.16 and Table 1. After the hearing, a further application was filed on behalf of the TAB, without objection from the Commissioner. The application was made under s.39B of the Judiciary Act 1903 (Cth), and sought an order restraining the Commissioner from enforcing the assessment issued to the applicant on 20 June 1994. It is by no means clear that this overcomes the difficultq created by the absence of the manufacturer/vendor, which is the party liable to pay sales tax in respect of the transaction (unless the exemption applies). However, both parties agreed that I should address the substantive issue, since the matter had been fully argued. I propose to do so, but to give the parties an opportunity to consider the form of order that is appropriate, having regard to the conclusion I have reached, and the absence of TEAC Australia Pty Ltd as a party.

The TAB
A totalizator is defined by s.2 of the Totalizator Act 1916 (NSW) ("the 1916 Act") to mean:

"(a)a system used to enable persons to invest money on horse races or greyhound races with a view to successfully predicting specified outcomes of those races and to enable the money left after providing for the payment of commission to be divided and distributed among those persons who successfully predict those outcomes; and

(b)any instrument, machine or device through or by which the system is operated and, in particular, for showing the number of investments made on those races and the amounts of those investments."

The 1916 Act legalised on-course totalizator betting in New South Wales.  The TAB was established by the Totalizator (Off-course Betting) Act 1964 (NSW) ("the TAB Act") in order to provide an off-course betting service.

The TAB is constituted as a body corporate by the TAB Act, ss.3(1), 5(1). The ten members of the TAB include Ministerial nominees and persons nominated by various racing clubs such as the Australian Jockey Club and the Sydney Turf Club. In the exercise of its powers and functions, the TAB is subject to the direction and control of the Minister: s.3(1A). The evidence showed that Ministerial control is exercised in a range of matters. The Commissioner did not dispute that the TAB is "completely controlled" by the State of New South Wales for the purposes of Item 126(1)(b) of Schedule 1 to the Exemptions Act 1992.

The TAB is empowered to conduct "off-course totalizator betting on any event or contingency scheduled to be held on any race-course within or outside Australia": ss.12(1), 13.  All bets made with the TAB in respect of any such event or contingency are received by the TAB as agent for the relevant racing club using a totalizator for that event or contingency and must be paid into that totalizator: s.12(2).  This is a reference to the conduct of on-course totalizators by racing clubs on racecourses on which they hold meetings, an activity authorised by s.3A(1) of the 1916 Act.

The TAB has power, notwithstanding anything else in the TAB Act or the 1916 Act, to enter into arrangements or agreements with any authority conducting off-course totalizator betting in any place inside or outside Australia, for the purpose of enabling amounts received by that authority from "investors" to be paid into a totalizator used by the TAB: TAB Act, s.12(5). With the approval of the Minister, the TAB also may conduct totalizator betting upon any event or contingency scheduled for decisions within or outside Australia, otherwise than at a race meeting: s.12A(1). In fact the TAB conducts totalizator betting on rugby league, rugby union, soccer and motor racing. All bets made with the TAB in respect of these events must be held separately from other money coming under its control, placed in a totalizator conducted by the TAB in respect of that event or contingency, and be available for distribution in accordance with the TAB Act: s.12A(2). Where money is dealt with in accordance with s.12A(2), the TAB is required to deduct any amounts refundable to investors and distribute the balance by paying 75% as dividends or prize money; retaining 15% or such lower figure as is prescribed as commission; and paying the balance as commission to the Minister: s.13H(2).

The distribution of moneys derived by a racing club conducting a totalizator is dealt with by the 1916 Act.  That Act provides that the racing club using the totalizator must first deduct from the total money paid into the totalizator any sums refundable to investors or transferable to another type of totalizator in accordance with the regulations: s.8A(a).  It then must
distribute the balance in accordance with the Act: s.8A(b).  Where part of the balance is derived from bets made through the TAB, a percentage (which varies according to the kind of totalizator) is paid as commission to the Minister and a percentage (which varies from 7.5% to 8.5%) is paid to the TAB as commission: see Part 3, Divisions 1 and 2.  The evidence shows that in the year ended 30 June 1994 about 84% of what was described as "total sales" was returned to investors.

Section 14(3) of the TAB Act prescribes how the Board is to apply its income:

1. The Board shall apply amounts paid to the Board as commission under [the 1916 Act], amounts retained by the Board as commission under [the TAB Act] and, except as otherwise provided in this or any other Act, any other income of the Board:

(a)firstly in or towards paying the costs and expenses of the operations of the Board,

(b)secondly, with the approval of the Minister, in or towards payment of the expenses of or connected with or arising out of the carrying out of any of the matters referred to in section 10 in relation to the establishment of additional offices, branches or agencies or the making of additions to or extensions or improvements of existing offices, branches and agencies; and

(c)thirdly in annual or other periodical payments to the Greyhound Racing Control Board, the Harness Racing Authority of New South Wales, racing clubs approved by the Board and the Racecourse Development Fund in accordance with the financial scheme submitted to, and approved by, the Minister pursuant to section 14B and for the time being in force."

Money held by the TAB pending payment pursuant to s.14(3)(c), to the Greyhound Racing Control Board, the Harness Racing Authority
or approved racing clubs are to be held in trust for those bodies: s.16.

The TAB Act provides for a "T.A.B. Adjustment Account": s.14A. Where an error in calculation or determination of bets or dividends is made by the TAB and a "profit" results, it is paid into the Account: s.14A(2)(a). If the error produces a "loss" an equivalent amount is paid from the Account to the TAB: s.14A(2)(b). Any balance remaining in the Account on 1 June and 1 December in each year is paid into the Consolidated Fund: s.14A(3). The Account is liable for a "loss" only to the extent of any balance available in the Account: s.14A(4). The amounts payable to the Minister under the TAB Act are not to be affected by any error: s.14A(5).

The TAB is authorised to invest moneys not required for the purposes of the TAB Act: s.16A. In practice, investments are made through the New South Wales Treasury Corporation, the commercial arm of the Treasury. The TAB may also, with the approval of the Governor, use facilities or services not fully utilised in its betting operations for commercial undertakings: s.16B.

The State Bank Case
Since the refund proceedings have settled, it is not necessary to consider the arguments put by the parties.  However, it is relevant for the purposes of the second proceedings to note a concession made by the Commissioner in the refund proceedings and
accepted in the second proceedings.  That concession was based on the State Bank Case.

In the State Bank Case, the Bank printed documents as part of its business as a banker and used the documents for its own purposes. The Deputy Commissioner instituted proceedings to recover sales tax on the value of the documents. The Bank pleaded in its defence that it was the State of New South Wales and that the law imposing the tax was a law imposing a tax on property belonging to a State, in contravention of s.114 of the Constitution, and was therefore invalid. The Commissioner demurred to this defence. The Court overruled the demurrer and gave judgment for the defendant. The Court held that the Bank was the State for the purposes of s.114. The tax was imposed on the use of the Bank's property and was therefore a tax on the property of the State within the meaning of s.114.

In the refund proceedings, the statement of claim filed on behalf of the TAB alleged that the TAB is the State of New South Wales for the purposes of s.114 of the Constitution. That allegation was admitted by the Commissioner, no doubt on the authority of the State Bank Case. Thus there is no dispute between the parties that the TAB is indeed the State of New South Wales for the purposes of s.114.

Background to Item 126
A new legislative sales tax regime commenced operation on 28 October 1992, but only imposes tax on any act, transaction or operation that happens on or after 1 January 1993: see Sales Tax Amendment (Transitional) Act 1992 (Cth). This regime includes a number of acts imposing sales tax, including the Sales Tax Imposition (General) Act 1992 (Cth) ("the Imposition Act"); the Assessment Act 1992; and the Exemptions Act 1992. The old sales tax regime, which applied to acts, transactions or operations happening prior to 1 January 1993, included a series of Sales Tax Acts and associated Sales Tax Assessment Acts.

Under the old sales tax regime, sales tax was imposed, inter alia, on the sale value of goods manufactured in Australia and sold by a taxpayer who purchased them from the manufacturer: Sales Tax Assessment Act (No.2) 1930 (Cth) ("Assessment Act 1930"), s.3. Where a person (being registered or required to be registered under the legislation) purchased goods from the manufacturer and sold them to an unregistered person, the seller was liable to pay sales tax: Assessment Act 1930, s.5. However, sales tax was not payable upon the sale value of goods exempt from sales tax by virtue of the Sales Tax (Exemptions and Classifications) Act 1935 (Cth) ("Exemptions Act 1935"): Assessment Act 1930, s.6. The Exemptions Act 1935, s.5(1) provided that sales tax was not to be payable upon the sale value of any goods covered by an item in the First Schedule.

The predecessor to Item 126 of Schedule 1 to the Exemptions Act 1992 was Item 74 of Schedule 1 to the 1935 Exemptions Act.  Item 74, insofar as relevant, read as follows:

"Goods for official use...and not for sale, by a
department of the Government of the Commonwealth [or] a State...or an authority which is completely controlled by, and the expenditure of which is exclusively borne by, the Government of the Commonwealth [or] a State...as the case may be, provided that, in the case of goods for the use of a department or an authority of the Government of a State...an arrangement has been made between the Governor-General and the Governor-in-Council of the State...for the collection and payment by the State...of sales tax upon the sale value of goods sold by the Government of the State...and by every such authority established under the law of the State...in the conduct of an enterprise which, in the opinion of the Commissioner, is a trading enterprise...."

In Government Insurance Office of New South Wales v Commissioner of Taxation (1992) 35 FCR 247, Heerey J. held that the word "department" in Item 74 meant (at 251):

"a part of the Public Service of the Commonwealth or a State organised for the carrying out of particular governmental functions and for which a Minister of the Crown is responsible."

His Honour concluded that the GIO, which was a body incorporated by New South Wales legislation to carry on the business of general and life insurance, was not a "department of the Government [of New South Wales]". However, his Honour found that the GIO was an "authority" for the purposes of Item 74, there being no dispute that the GIO was completely controlled by, and its expenditure completely borne by, the Government of New South Wales: 35 FCR at 251-254. GIO (NSW) v Commissioner of Taxation was followed by Lindgren J. in Bank of Western Australia v Federal Commissioner of Taxation (1994) 125 ALR 605, at 627, 641. There his Honour held that each of four banks, including the Bank of Western Australia and the State Bank of New South Wales, was
an "authority" within Item 74 in Schedule 1 to the Exemptions Act 1935. His Honour also held that each bank was "completely controlled by, and [its] expenditure [was] completely borne by the Government of...a State" within the meaning of Item 74.

The general scheme of the new sales tax legislation is the same as the old. Section 16(1) of the Assessment Act 1992 provides that Table 1 sets out all the assessable dealings that can be subject to sales tax. The effect of Table 1 and s.16(2) of the Act (which explains the effect of the Table) is that, in relation to goods manufactured in Australia, the phrase "assessable dealings" includes

lwholesale sale by a person who manufactured the goods in the course of any business (Item AD1a); and

lwholesale sale by a person who is not the manufacturer of the goods (Item AD1b).

In each case the person liable to pay sales tax is the seller and the liability arises at the time of the sale: Table 1, columns 3, 4.

The Imposition Act specifically provides that the Act "does not impose a tax on property of any kind belonging to a State": s.4(1). The phrase "property of a kind belonging to a State" is defined to have the same meaning as in s.114 of the Constitution: s.4(2). Thus the limitation imposed by s.4(1) of the Imposition
Act is co-extensive with the effect of s.114 of the Constitution. Subject to any further exemption created by the legislation, neither s.4(1) of the Imposition Act nor s.114 of the Constitution prevents sales tax applying to a sale by a wholesaler to a "State". This is because the tax is not imposed on the State, as the purchaser of the goods, but on the vendor of the goods. If the vendor does not pay, the Commissioner cannot recover the tax from the State, and no legal remedy is available against the goods once title has passed to the State: GIO (NSW) v Commissioner of Taxation, at 256.  The fact that, in practice, the vendor adds the sales tax to the invoiced price of the goods is not to the point: GIO (NSW) v Commissioner of Taxation, at 256-257.

The liability to pay sales tax is subject to the application of any exemption: Assessment Act 1992, s.16(2). An assessable dealing is not taxable if the goods are covered by an "exemption Item" that is in force at the time of the dealing: Assessment Act 1992, s.24. An "exemption Item" is an Item in Schedule 1 to the Exemptions Act 1992: Assessment Act 1992, s.5.

Item 126 in Schedule 1 to the Exemptions Act 1992 covers ground similar to that covered by Item 74 in Schedule 1 to the Exemption Act 1935.  Item 126, insofar as relevant, reads as follows:

"(1)Goods for use by:

(a)an Australian government; or

(b)an authority that is completely controlled by an Australian government, and whose expenditure is exclusively borne by that
government; or

(c)an authority that is completely controlled  by 2 or more Australian governments, and whose expenditure is exclusively borne by those governments.

...

(3)In this Item, "Australian government" means the Commonwealth, a State, the Australian Capital Territory or the Northern Territory."

It is to be noted that the language of Item 126(1)(b), when taken together with the definition in Item 126(3), is very similar, although not identical, to that used in the second part of the substantive exemption created by Item 74 of Schedule 1 to the Exemption Act 1935.  However, Item 126(1)(a), when the definition in Item 126(3) is taken into account, exempts, inter alia, "goods for use by a State". This language is different from that used in Item 74 in the Exemptions Act 1935, which referred to "[g]oods for official use...by a department of the Government of...a State" (emphasis added).  As Heerey J. recognised in GIO (NSW) v Commissioner of Taxation, the language in Item 74 clearly distinguished between a State department and an incorporated body carrying out governmental functions.

The Arguments
Mr Bloom QC, who appeared with Mr Robertson for the TAB, argued that, since the Commissioner had conceded that the TAB is the State of New South Wales for the purposes of s.114 of the Constitution, it is also "a State" for the purposes of Item 126(1)(a) in the Schedule to the Exemption Act 1992. Thus, as there was no dispute that the Austext receiver had been purchased
for use by the TAB, the terms of Item 126(1)(a) were satisfied in the circumstances of the present case. 

Mr Bloom submitted that the first part of Item 74 in the Schedule to the Exemptions Act 1935 was of more limited scope than Item 126(1)(a), because it had referred to use by a "department of the Government of a State", rather than use "by a State". He argued that Item 126(1)(a) does not incorporate the distinction applied by Heerey J. in GIO (NSW) v Commissioner of Taxation, between a department of a State Government and an incorporated body, such as the GIO or a State Bank, performing the functions of a State. On Mr Bloom's approach, if an incorporated body is within the concept of a "State", for the purpose of s.114 of the Constitution, it is also within Item 126(1)(a). Mr Bloom contended that this construction of Item 126(1)(a) reflects a legislative intention that a State (in the constitutional sense) should be relieved from the economic burden of sales tax insofar as it increases the price of goods used by it. Section 114 protects a State when it manufactures goods which are applied to its own use, as was held in Deputy Commissioner of Taxation v State Bank. However, s.114 does not protect a State where it purchases goods which it applies to its own use, even though the cost of the goods includes the amount of sales tax payable by the wholesaler. Mr Bloom argued that Item 126(1)(a) is intended to protect the State in the second situation.

In the alternative, Mr Bloom submitted that Item 126(1)(b) was satisfied because the case was one in which the goods were "for
use by...an authority that is completely controlled by [a State] and whose expenditure is exclusively borne by that [State]".  There was no dispute that the TAB was "completely controlled" by the State of New South Wales.  The test as to whether expenditure is "exclusively borne by" a State was laid down by Lindgren J. in Bank of Western Australia v FCT, at 626:

"Against the background of those assumptions, the words "exclusively borne by" in Items 74 and 126 signify something other than primary legal liability and must be capable of applying even though an authority's costs and expenses do not exceed its receipts from third parties.  The criterion indicated by the words "exclusively borne by" is, in my opinion, satisfied at least in the case where every expenditure of the entity must give rise to a commensurate financial burden shouldered by the State.  That is so in respect of the four banks and of Perpetual.  In particular, every cent expended in payment of Commonwealth sales tax would be borne, in the financial and economic sense, by the State."

Mr Bloom submitted that the test was satisfied in the circumstances of the present case because, ultimately, the State of New South Wales bears expenditure incurred by the TAB. 

Mr Gageler, who argued this aspect of the case on behalf of the Commissioner, submitted that the constitutional concept of a "State" is wider than the concept of a "State" as employed in Item 126(1)(a).  He submitted that "an authority" falls within Item 126 only if it meets the test specified in Item 126(1)(b).  Otherwise, Item 126(1)(b) would be  otiose, since Item 126(1)(a) would cover goods acquired for use by an authority that is completely controlled by a State, regardless of whether its expenditure is exclusively borne by the State.  Mr Gageler also
submitted that, since the TAB bears its expenditure out of a fund comprising the income received by it as commission and from other sources, the expenditure incurred by the TAB affects only the surplus, which is payable by way of distribution to the racing clubs.  Thus the test formulated by Lindgren J. was not satisfied by the circumstances of the present case.  Mr Gageler formally submitted that the reasoning of Lindgren J. on this issue was wrong, but did not seriously dispute that I would follow it unless and until the Full Court substituted a different test.

Item 126(1)(a)
The arguments concerning the construction of Item 126(1)(a) are, in my view, finely balanced.  Mr Gageler's submission, as he accepted during argument, suggests that the phrase "Australian government" (relevantly defined to mean "a State") means "a department or executive officer of a State", as distinct from a statutory corporation discharging the functions of a State, at least where the statutory corporation is completely controlled by the State.  Yet, as Heerey J. held in GIO (NSW) v Commissioner of Taxation, this was the meaning of Item 74 in the old sales tax legislation.  As Mr Bloom pointed out, it is difficult to understand why Item 126(1)(a) should employ language different from that in Item 74 if no change in meaning was intended.  The construction urged by Mr Bloom is consistent with the principle applied by French J., in the context of a sales tax exemption, in Diethelm Manufacturing Pty Ltd v Federal Commissioner of Taxation (1993) 44 FCR 450, at 457, that

"an exemption which exists for the purpose of
encouraging, rewarding or protecting some class of activity is not to be given a narrow application."

(Hill J., with whom Whitlam J. agreed, did not address this issue.) 

Mr Bloom's approach receives some support from the use of the phrase "a State", in s.4(1) of the Imposition Act. That sub-section clearly uses the phrase in the same sense as it is used in s.114 of the Constitution, since its object is to limit the scope of the sales tax legislation to the extent required by s.114 of the Constitution. The fact that Item 126(1)(a), once the definition in Item 126(3) is taken into account, uses the same phrase, rather suggests that Parliament intended to give it the same meaning in Item 126 as it bears in s.4(1) of the Imposition Act.

Despite these powerful arguments, the matter that tips the scales in favour of Mr Gageler's submission is that Mr Bloom's construction renders Item 126(1)(b) otiose.  In the State Bank Case the High Court rejected the argument that the State Bank was not a State for the purpose of s.114 of the Constitution. The Court said this (at 230-231):

"Once it is accepted that the Constitution refers to the Commonwealth and the States as organizations or institutions of government in accordance with the conceptions of ordinary life, it must follow that these references are wide enough to denote a corporation which is an agency or instrumentality of the Commonwealth or a State as the case may be. The activities of government are carried on not only through the departments of government but also through corporations which are agencies or instrumentalities
of government."

The Court held (at 231) that the "discarded" distinction between traditional functions of government, on the one hand, and trading functions of government, on the other, "can have no place in the interpretation of s.114 [of the Constitution]". The High Court also accepted (at 233) that a corporation exercising "governmental functions" is a State for the purposes of s.114. The test is whether the corporation is discharging governmental functions for the State.

In the light of these holdings, which doubtless prompted the concession that the TAB is the "State" for the purposes of s.114, it is difficult to see how Mr Bloom's construction of Item 126(1)(a) could leave any room for the operation of Item 126(1)(b). In particular, it is difficult to see how "an authority that is completely controlled by [a State]" could be outside the constitutional conception of a "State", as embodied in s.114. This is illustrated by the decision of Lindgren J. in Bank of Western Australia v FCT. In that case his Honour held that, unlike the bank, Perpetual Finance Corporation Ltd was not an "authority" for the purposes of Item 126(1)(b). This was so notwithstanding that all shares in the company were held by the Bank of Western Australia (which was an "authority") and that the other criteria in Item 126(1)(b) were satisfied. Lindgren J. took into account a number of factors (125 ALR at 641):

"[Perpetual] is not constituted by or pursuant to a special Act or otherwise recognised by the Western Australian Parliament; it does not carry on a commercial activity which governments commonly carry
on; its financial obligations are not guaranteed by the State; it is not subject to the public financial administration, reporting and audit requirements applicable to State instrumentalities, but is subject to the ordinary accounting and audit provisions of State companies legislation; the composition of its board of directors was not controlled, at least directly, by the State government or by any minister; and its board of directors was not required to consult with any minister or ministers or to submit any 'statement of corporate intent'."

If Lindgren J's analysis is correct, as I think it is, Mr Bloom's construction of Item 126(1)(a) would seem to leave no room for the independent operation of Item 126(1)(b). This is because it is hard to conceive of an "authority" that is completely controlled by a State, but does not discharge governmental functions for the State and is therefore not "a State" for the purposes of s.114 of the Constitution.

More importantly, the evident purpose of Item 126(1)(b) would be frustrated. That purpose is to exempt from sales tax goods used by an authority completely controlled by a State, but only if the expenditure is exclusively borne by that State. An authority might be completely controlled by a State (and therefore be "a State" for the purposes of s.114), yet its expenditure might not be exclusively borne by that State. On Mr Bloom's construction, the goods used by the authority would still be exempt from sales tax because they would be "goods for use by [a State]". It has long been acknowledged as a principle of statutory construction that an interpretation should be adopted such

"as that no clause, sentence or word shall prove superfluous, void, or insignificant, if by any other construction they may all be made useful and
pertinent".

The Commonwealth v Baume (1905) 2 CLR 405, at 414, per Griffith CJ., with whom Barton J. agreed, citing The King v Berchet (1688) 1 Show K.B. 106; 89 ER 480.

It must be remembered that the question before me is one of statutory construction, not one of constitutional interpretation.  The constitutional conception of "a State", as Dixon J. said in Bank of New South Wales v The Commonwealth (1948) 76 CLR 1, at 359,

"depends upon the meaning and operation of an unalterable constitutional provision which the intention of the legislature cannot affect".

The same considerations do not apply to the construction of a provision in an Exemptions Act. If Parliament intended to adopt the policy attributed to it by Mr Bloom, it is curious that it retained in Item 126(1)(b) the language previously found in Item 74 of the Schedule to the Exemptions Act 1935. The Explanatory Memorandum for the Exemptions Act does not suggest that it was intended to broaden the scope of the exemption by incorporating the constitutional conception of a State into Item 126(1)(a), without regard to the apparent purpose of Item 126(1)(b). The Explanatory Memorandum says that the "exemption has been substantially re-worked to make it easier to read". The Memorandum contains no reference to the incorporation of the constitutional conception of "a State".

The conclusion I have reached is that goods for use by "an authority that is completely controlled by [a State]" are exempt from sales tax only if the authority's expenditure is exclusively borne by the State, as required by Item 126(1)(b). An authority that is completely controlled by a State is not "an Australian Government", as defined for the purposes of Item 126(1)(a). This is so notwithstanding that it is "a State" for the purposes of s.114 of the Constitution. Accordingly, the TAB, which is an authority that is completely controlled by a State, is not within Item 126(1)(a). Goods for use by the TAB are exempt from sales tax under Item 126 only if the TAB satisfies the requirements of Item 126(1)(b).

Item 126(1)(b)
The only issue debated in relation to Item 126(1)(b) was whether the TAB's expenditure "is exclusively borne by [the State of New South Wales]".  Although Mr Gageler formally submitted that the test formulated by Lindgren J. in Bank of New South Wales v FCT was incorrect, it is appropriate that the test be applied unless and until the Full Court or the High Court takes a different view.

In my opinion, the statutory framework governing the operations of the TAB, which has been outlined earlier, makes it clear that the test formulated by Lindgren J. is not satisfied. Every expenditure by the TAB does not (to use Lindgren J.'s language) give rise to a commensurate financial burden shouldered by the State. On the contrary, s.14(3) of the TAB Act provides that the
income of the TAB is to be applied, first, in meeting its costs and expenses, and secondly, in meeting certain expenses associated with the establishment of offices, branches and agencies. The balance is not to be paid to the State, but to nominated racing clubs or authorities. Any expenses of the Board are therefore borne, not by the State, but by the beneficiaries nominated in s.14(3)(c) of the TAB Act. Expenditure by the TAB does not affect the financial position of the State, but only the surplus available for distribution to the racing clubs and authorities.

Mr Bloom referred me to the Public Finance and Audit Act 1983 (NSW), which imposes certain audit and accounting requirements on statutory bodies within the non-budget sector of the New South Wales Public Sector. These statutory bodies include the TAB. Mr Bloom also referred to the fact that assets and liabilities of the TAB are taken up in the New South Wales Public Sector Annual Consolidated Financial Statements. However, in my view, these matters cannot alter the effect of s.14(3) of the TAB Act.

It follows that the TAB is not a body whose expenditure is exclusively borne by the State of New South Wales.  Thus, Item 126(1)(b) does not exempt from sales tax the Austext receiver acquired by the TAB for the purposes of its operations.

Conclusion
For the reasons I have given, the TAB has failed to establish that Item 126 exempts from sales tax the transaction under which
the TAB acquired the Austext receiver from TEAC Australia Pty Ltd. I have referred earlier to the fact that TEAC Australia Pty Ltd has not been joined in the proceedings.  In the light of the conclusions I have reached, I think that the appropriate course is simply to dismiss the proceedings with costs.  However, I shall give the TAB and the Commissioner an opportunity to consider my reasons and to make any further application they consider appropriate.  If no such application is made, the proceedings will be dismissed and the TAB will pay the Commissioner's costs.

I certify that this and the preceding 23 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville.

Associate:

Dated:19 September, 1995

Heard:10 August, 1995

Place:              Sydney

Decision:19 September, 1995

Appearances:        Mr D. Bloom QC, with Mr A. Robertson, instructed by Ternes & Salier, Solicitors, appeared for the applicant.

Mr A. Slater QC, with Mr S. Gageler, instructed by Australian Government Solicitor, appeared for the respondent.