Vale Press Pty Limited v The Deputy Commissioner of Taxation

[1991] HCATrans 125

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S12 of 1991

B e t w e e n -

VALE PRESS PTY LIMITED

Applicant

and

THE DEPUTY COMMISSIONER OF

TAXATION

Respondent

Application for removal

pursuant to section 40 of the

Judiciary Act 1903

MASON CJ DAWSON J GAUDRON J

Vale 1 10/5/91

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 MAY 1991, AT 9.32 AM

Copyright in the High Court of Australia

MR B.R. PAPE:  May it please Your Honours, I appear with my

learned friend, MR C.J. BEVAN, for the applicant.

(instructed by Rowlandson Hannam & Co)

MR D.F. JACKSON, QC:  May it please the Court, I appear with

my learned friend, MR s.w. GIBB, for the

respondent. (instructed by the Australian

Government Solicitor)

MASON CJ: Is the application opposed?

MR JACKSON:  Yes, Your Honour.

MASON CJ: Yes, Mr Pape.

MR PAPE:  Your Honour, might I hand the Court an outline of

submissions and a chronology.

MASON CJ: Yes.

MR PAPE:  Your Honour, the applicant seeks to have the

proceedings in the Federal Court removed into the

High Court because it raises a major constitutional

issue in that section 18(l)(b) is not a law with

respect to taxation.

MASON CJ:  It raises a constitutional issue. I do not know

that it raises a major constitutional issue.

MR PAPE: With respect, the consequences if that be the

case, in our submission, would be that the

Commonwealth would be deprived of a large amount of

revenue.

MASON CJ: It would be deprived of some revenue.

MR PAPE:  Some revenue. Sales tax presently in 1990 was

some $12 billion.

MASON CJ: But it does not all rest on 18(l)(b), does it?

MR PAPE:  No, Your Honours, but there would be a substantial

part, in my submission, that may rest on the

situation. The case is founded upon the

proposition that the sales tax legislation is a

wholesale sales tax which is imposed on the last
wholesale sale. Where a manufacturer sells by

retail, as in the case of Vale Press who is a

printer and prints goods to the order of individual

customers, that wholesale sale value can only be
determined on a notional basis or, as in our

submission, arbitrarily and the basic - - -

MASON CJ: Yes, I follow that from your submissions. But

why should the question not be determined in the

first instance in the Federal Court? Why should we

Vale 2 10/5/91

deprive ourselves of the advantage of a

consideration of the question by the Federal Court?

MR PAPE:  Your Honours, the submission I make there is that

if this matter was found by the Federal Court in the taxpayer's favour, that would bring the laws

relating to the collection administration of sales tax into great difficulty because, as Your Honours

will know, sales tax is returned on a monthly basis

21 days after the end of each month and payable

thereafter. It would affect many many persons in
the community and, indeed, the Commonwealth, and

that is the proposition that if it went there, then

went to a Full Bench of the Federal Court and

special leave application, there would be a great

period of time where the law would remain

uncertain.

DAWSON J:  The Commissioner seems to view that with

equanimity.

MR PAPE:  He may, Your Honours, but in my submission when

one comes to what my submission would be in

relation to the strengths of the case, is that when

one looks at section 18(l)(b) it can only be

determined on an arbitrary basis. If one goes to

the appeal book, the application was made on one

fact only, and that fact, in my submission, the

Commissioner accepted, that the applicant was a

retailer who printed goods to the order of

individual customers. On the basis of that fact he

denied dispensation for registration as a

manufacturer. He accepted that and denied it. On

that basis he says sales tax is payable. If one

goes to his reasons at appeal book page 16, at

lines 16 to 19:

Vale Press Pty Limited is a manufacturer engaging in transactions in respect of which

sales tax is payable by the Company.

Then on page 17: 

Where a printer sells goods by retail -

he accepts that fact -

and does not sell similar goods by wholesale,

then the wholesale value of those goods is to

be determined. The wholesale value should

include all manufacturing costs, direct and

indirect, a value for administration and

selling costs at the wholesale stage, and a

wholesale profit margin.

Section lB(l)(b) is silent on every one of those

matters. It talks about a reasonable price. One

Vale 3 10/5/91

might look and say, well, it should be determined

in a rational basis, but where it fails to be

determined on a rational basis is the words "and a

wholesale profit margin", because what then occurs

is that the applicant or the Commissioner must take

a guess.

GAUDRON J: But that does not raise the constitutional

issue.

MR PAPE: It does, Your Honour, with respect.

GAUDRON J: That may raise a question as to the

reasonableness of the Commissioner's decision -

MR PAPE: With respect, it does raise the constitutional

issue because the Commissioner would then be

exercising the legislative power of the

Commonwealth where he is only authorized as an

executive officer of the Commonwealth. He would,

in fact, be determining what the sale value would

be and, in my submission, that is a matter for

Parliament to determine. In fact, the difficulty

which was adverted to when this legislation first

was enacted in 1930, and later in 1931 the

amendment to section 18(5A), in relation to "goods

manufactured to the order of individual customers"

and the case of tailors.

The regulation 26 provides that the sale value

in that case will be 60 per cent deducted from the

total amount payable. Now, that is an arbitrary

figure to make the section work, but that is a

figure determined by Parliament and by regulation.

What the Commissioner has done here on appeal book

page 17 is make up the ground rules himself.	In my
submission, he is not permitted to do that.

One can go further to the next paragraph on

appeal book page 17:

In circumstances where the manufacturer has

difficulty in establishing a wholesale value,

as an alternative, where similar goods are not

sold by wholesale, the Commissioner will
accept as a standard wholesale sale value, tax
exclusive retail selling price less 7.5%

provided this results in an amount greater

than the cost of manufacture.

Now that, in my submission, could not be more

arbitrary; why not 20 per cent? Why not

30 per cent? In the case of a tailor and the

photographers under regulation 26, he has said

60 per cent. In relation to applications which

were made in 1931 - and I will take Your Honours to

some extrinsic material which I have made available

Vale 4 10/5/91

in relation to the explanatory memorandum and I

might seek to hand that up, if I may - if I might

take Your Honours to page 4214, the extract from

the House of Representatives bill, the second
column at the bottom of the page, Mr Scullin who

was the then Prime Minister and Treasurer, in

speaking in relation to the proposed amendment

which introduced section 18(5A), said this:

The manufacturer who takes stock from his

factory into his retail shop is able to fix the sale value at the wholesale price. The

Commissioner is given the power to vary that

valuation if he is satisfied that it is not a

fair one. Representations have been made with

regard to another class of manufacturer, and

that is a person who makes goods to order for

his individual customers -

Vale Press, the printer -

Amongst them are tailors and photographers.

They have been compelled to pay tax on the

sale price of their goods because there was no

other basis on which they could be taxed. I

have discussed the matter at considerable
length with the commissioner and his officers

with a view to devising a formula which would

allow tailors, photographers and other small

manufacturers to pay, not on the retail price,

but on a fair wholesale value. Apparently no

definite formula can be evolved, but an

amendment will be proposed in committee to

provide that in respect of any goods
prescribed by regulation which are made to the

order of individual customers the sale value

shall be the amount ascertained in such manner

as is prescribed.

Well, the Commissioner did prescribe in

relation to tailors and photographers.	He
certainly has not prescribed in relation to

printers who print to the order of individual

customers or any other person who manufactures to

the order of an individual customer and, as I
indicated in the outline, let us look at the case

of the dental mechanic or the dentist who

manufactures dentures. One could not find a more

bizarre case as suggesting that there is a

wholesale market for the sale of dentures.

What is exposed in the application today is a

structural flaw in all wholesale sales tax

legislation. In other countries, this legislation

of a type came in in the depression because
governments were short of money right around the

world. In the United States they went the other

Vale 10/5/91

track; they introduced retail sales tax. In other

countries like Australia and Canada and route. But the structural flaw is in this problem

of where a manufacturer sells by retail. There has

to be an arbitrary figure. Now, that has been

overcome in this case in relation to only two

categories: tailors and photographers; those

people prescribed pursuant to section 18(5A) and

regulation 26. Certainly not printers.

Now, when the Commissioner determines that a

sale value in this way shall be imposed, it can

only be an arbitrary determination and that is

where one finds the Commissioner, whether he likes

it or not, exercising the legislative power of the

Commonwealth.

MASON CJ:  Mr Pape, in order to get this question of

validity determined, you would need to have certain

facts agreed or established, would you not?

MR PAPE: May I come to that, Your Honour. This application

was started and commenced by letter in December of

1989 seeking dispensation from registration. The

Commissioner replied six months later in May of

1990 refusing it. His refusal was based on one

proposition, that the manufacturer was a person who

sold goods by retail. That is the only fact that

needs to be established, in my submission, for this

Court to determine this issue.

MASON CJ: But why should not that be determined by the

Federal Court?

MR PAPE:  In my submission, the Commissioner in giving his

answer and later giving his section 13 reasons as

to why he has refused the application in those very

passages I have just read you has accepted that

fact. It is, in essence, in one way might call

this - the way these proceedings have been
commenced as a reverse demurrer.	The point has

been accepted by the Commissioner for the

determination that Vale Press is a printer who

produces and manufactures goods to the order of

individual customers. On that basis the

Commissioner says, "You are liable to sales tax;

therefore you must be registered and I will not

grant you dispensation from registration." The

applicant says, "On that basis, there can be no

liability to sales tax because that value, that

sale value, can only be determined arbitrarily" and

that is a situation where the Commissioner can only

exercise the legislative power of the Commonwealth,

contrary to section 1 of the Constitution.

Vale 6 10/5/91

That is, in a nutshell, what this case is

about. There was no need, before the case below,
to in essence put on an affidavit telling the court

what Vale Press did. That can be regarded no more

by way of background.

DAWSON J:  I do not know that that is so. The first method

which the Commissioner says is to be employed is to

take the manufacturing costs, direct and indirect,

a value for administration and selling costs to the

wholesale stage, and a wholesale profit margin.

That does not strike me immediately as being

arbitrary but, in any event, one would need some

evidence about that, would not one?

MR PAPE: May I take Your Honour to that proposition. Cost,

one cannot dispute, is not arbitrary, but the gap

comes to when one comes to the end of the cost

situation, one embarks upon an irrational situation

then of going to the wholesale price by determining

a figure which can only be made arbitrarily is the

wholesale profit, where there is no wholesale

market. I come back to the case of the dentures.

Let us look at the case of the denture.

DAWSON J: Well, a reasonable wholesale profit is not

something that is necessarily plucked out of the

air, is it?

MR PAPE: In my submission, in a case such as that, it must

be plucked out of the air. It can only be an

educated guess because there is no market.

DAWSON J: But you must know what wholesale margins are

elsewhere in the industry.

MR PAPE: This is a product which is not - - -

DAWSON J:  I am not wanting to debate that. All I am saying

is one would need some evidence about that.

MR PAPE:  In my submission, it is implicit in the nature of

the factual basis that I have put. For example,

one of the problems which arises is that sales tax

is imposed on the sale of goods. Now there are

certain goods which by their very nature .can

be ..... and that was the problem with the dentures

case. Was it a contract for work and labour and

materials provided or was it a contract for the

sale of goods? The courts have held it is a

contract for the sale of goods. But the very

nature of that is, as in the case of the tailor,

there is no wholesale market for a man who goes

into the tailor and.says, "Make me a suit." The

tailor runs the tape measure over. There is no one

else in the community who wants that suit,

presumably. It fits that particular individual. It

Vale 7 10/5/91

is custom built. And what I put to Your Honours

today is that it is a structural flaw that has been

papered over for years and the only time - one may
ask why has it not been challenged before? The

simple situation is it has always been passed on.

No one has taken the interest in it.

That, in my submission, shows that it is

arbitrary. It is a matter which - - -

MASON CJ: Yes, but you seem to be directing most of your

remarks to persuading us that we should, here and

now, make a declaration of invalidity. The

question is whether the case ought to be removed

into this Court.

MR PAPE: If I might. It ought to be removed into the Court

because of the consequences. May I hand

Your Honours - this is the Commissioner's

statistics on sales tax for the financial year

ended 1989-1990.	On page 281 the net collection
are shown as $9,677 million.	The class of tax

which is referable to these goods in the printing

area is on page 285 and the line 19 "Printing,

printed stationery, bookbinding and signwriting".

In the third column there is a figure of

$2,212 million and that is in relation to the item

under 20 per cent. Now, if one takes 20 per cent

of that sale value it is $440 million and that is a
conservative - I withdraw that - that is a figure

which one could look at. Some of that would be in

relation to goods printed to the order of

individual customers.

I come back to the proposition, Your Honours,

that this is a serious matter relating to the

working of the financial administration of the

Commonwealth. It affects this client, Vale Press,

but it also has far wider repercussions. If Vale

Press's contentions are correct it, in fact, will

have dire consequences for the Commonwealth. They

will, in fact, have to amend the legislation. Now,

I know that courts in construing the Constitution

will attempt to make it work but, in my submission,

here the gap is too wide.

MASON CJ: It is not a matter of construing the Constitution

to make it work.

MR PAPE:  To make the legislation work, I am sorry,

Your Honour. So, Your Honours, if the applicant

was successful before a single judge of the Federal Court, undoubtedly the Commissioner would appeal to the Full Bench of the Federal Court, then if the

applicant was still successful, there would be a

special leave application to this Court, and then

the matter would come on for hearing. That would

Vale 10/5/91

take some time. It may take two years. And during

that period the financial administration of the

Commonwealth would be uncertain.

That is the consequences of this application

· and those are my submission in relation to it.

MASON CJ:  Thank you, Mr Pape. Mr Jackson, you might direct

your attention first to the suggested dire

consequences that would flow if we allowed this

matter to proceed in the Federal Court.

MR JACKSON:  Yes. Your Honours, the case turns essentially

upon something which comes down to the facts of the

particular case, in our submission. If I may

indicate what I mean by that, and it is this:

Your Honours will see from section 18(1)(b) of the

Act that it says that the sale value is to be:

(b) if the goods were sold by retail -

(i) ..... the amount for which the goods could

reasonably be expected to have been sold by

the manufacturer by wholesale;

The inclusion in that provision of the reference to
reasonableness, one would think, would take away

the possibility that the provision by itself would

be capable of being regarded as arbitrary on its

face.

MASON CJ:  So that if you could not reasonably form an

expectation, the section would not apply.

MR JACKSON:  Your Honour, tha-t is one possible result. May

I say, however, that there is one other provision

to which I should direct attention before going on

to what I want to say. That is that the term

"manufacturer" is defined specifically to include a

printer. That appears at page 92,143 of the volume

which I think Your Honours have.

Having said that, one must then, to find any

argument to support the case on behalf of the

present applicant, look to see what are the facts

of the particular case. In the particular case, the

basic facts have not been found or agreed and the

identification of them is an essential part of the

applicant's case in order to demonstrate that the

provision either has no application or no valid

application in the particular circumstances. The

particular facts that are material seem to be, if I

can take Your Honours to them for a moment, those

which are summarized at page 18 in paragraphs (i)

to (iv) at the middle of the page and the evidence

which apparently will be relied on to support

findings of that nature appears in Mr Blackwood's

Vale 9 10/5/91

affidavit at paragraphs 2 to 10, Mr Blackwood's
affidavit commencing at page 23.

Could I ask Your Honours to note in going through that document that at the bottom of page 23

Your Honours will see that Mr Blackwood says he:

was a director of Boxvale Holdings Pty Limited

which had previously carried on a printing

business under the name of "Vale Press" as

trustee of the Blackwood Family Trust.

That business on 30 June 1985 was sold to Vale

Press. Your Honours, the reality of the

proposition that there may be factual matters which are of particular relevance to the applicant's case

and not relevant to other cases, and particular

aspects relevant to printers only - to put another

level of abstraction - appears from the findings

made by Mr Justice Wilcox in a rather similar case

brought by Boxvale Holdings, the applicant's
predecessor. That decision was Boxvale Holdings

Pty Limited v Commissioner of Taxation,

89 ATC 4927. May I hand Your Honours copies of

that decision. In that decision, His Honour dealt

specifically with evidence relating to the question

of the possibility of a reasonable wholesale price being calculated in sales of the kind presently in question.

Could I take Your Honours to the bottom of

page 4930, the right column. In the last paragraph

on that page, having earlier referred to some

observations of Mr Justice Burchett in another case
dealing with the fact that in some cases it might
be, as a practical matter, of some difficulty to

obtain a reasonable value, His Honour went on to

deal with the evidence given by Mr Blackwood in

relation to the manner in which a reasonable price

might be worked out. I would refer Your Honours to

the last paragraph on that page and then to the top

of the next page and to the fact that it was common	in the printing industry for there to be some form
of subcontracting of work. That appears,
Your Honours, in the paragraph at the top of that
page and then the passage commencing in the left
column, about half-way down the next paragraph and
going over to the first new paragraph in the right
column on page 4931.

MASON CJ:  The Court need not trouble you any further,

Mr Jackson. Yes, Mr Pape.

MR PAPE:  Your Honours, if I might refer to Boxvale.

Boxvale is a different case from this case.

Boxvale was related to the determination of a sale

value of certain goods. This case is about a fact

Vale 10 10/5/91

which is established, that the applicant is a

retailer and prints goods to the order of

individual customers. If it so transpires that in
the situation where the applicant did not print

goods to the order of individual customers but was

printing in relation to wholesale activities, the

dispensation of registration as a manufacturer

would be withdrawn pursuant to section 11(30).

This is a different case. This is a case

about whether the applicant should be registered as

a manufacturer; it is not a case about what is the

sale value in relation to various goods under the

precursor to the current section. So, in my

submission, that question of fact does not arise in

this case. If it so happened that Boxvale did

print goods as a wholesaler, the dispensation from

registration would be withdrawn. There is no

quarrel with that. That is what my learned friend

is, in fact, putting to Your Honours, that that is

what the factual situation would determine. In

this case the Commissioner has accepted in giving

his reasons for refusing registration - and that is

on that fact alone - that the application should

succeed.

Let me take Your Honours to the issue of what

is reasonable. Reasonable is a word which is

amorphous, as Mr Justice Windeyer referred to in

Giris' case, if I might just hand that up to

Your Honours.

MASON CJ:	We have copies of it.
MR PAPE:	If I might take Your Honours to the judgment of

Mr Justice Windeyer at page 383 where he says at

point 9:

But the idea of reasonableness seems to be

here amorphous. It is, of course, true that,

as a measure in fact of time, space, quantity

and conduct, reasonableness is a concept

deeply rooted in the common law: and so, in
such cases, is the power of a court to say

whether a particular decision of that fact is
or is not within the bounds -

Now, Your Honours, reasonableness in the situation here cannot be found on any basis; it is

irrational. So in relation to my learned friend's

argument in relation to reasonableness, we say that

section 18(1)(b), there can be no reasonable

situation. The factual basis, in our submission,

is determined. The matter has, on the chronology

that is before the court below, the applicant has
put on affidavits, the Commissioner did not seek to

put on any affidavit; he did not seek discovery.

Vale 11 10/5/91

There was a return date for subpoenas on

9 November. Now, for the first time, in this Court

the Commissioner seeks to raise an issue of fact.

MASON CJ: It may be that a declaration of invalidity

operates in rem. The Court cannot be placed in a

situation where it decides questions of validity in

the absence of facts properly agreed or found.

MR PAPE: Those are my submissions, Your Honours.

MASON CJ:  The circumstance that a question of

constitutional validity has been raised in the

Federal Court is not in itself a sufficient reason for the exercise by this Court of its discretion to

remove the case. Removal would deny this Court the

advantage of a consideration of the question by the

Federal Court.

More importantly, relevant facts need to be

agreed or established in order to enable the

question of validity to be determined and that

exercise should be undertaken in the Federal Court.

The application for removal is therefore

refused.

MR JACKSON:	I ask for costs of the app~ication?
MASON CJ:	You do not resist that, Mr Pape?
MR PAPE:	No, Your Honour.
MASON CJ:	The application is refused with costs.

AT 10.06 AM THE MATTER WAS ADJOURNED SINE DIE

Vale 12 10/5/91