W R Moran Pty Ltd v Deputy Federal Commissioner of Taxation (NSW)

[1940] UKPCHCA 3

63 CLR 338

Constitutional Law-Scheme of degislation-Validity-Discriminatory taxation-

Acts other than taxing Act-Financial assistance-Distribution of burden of taxation-Flour tax-Whent-industry assistance-Distribution of proceeds May 30.

amongst States-Special grant to TasmaniaDistribution under Tasmanian Act of such grant to taxpayers-The Constitution (63 &64 Vict. c. 12), secs. 51 (ii.), (iii.), 96-Flour Tax (Wheat Industry Assistance) Assessment Act 1938 (No. 48 of 1938)-Flour Tax Act 1938 (No. 49 of 1938)-Flour Tax (Stocks) Act 1938 (No. 50 of 1938)-Flow Tax (Imports and Exports) Act 1938 (No. 51 of 1938)- Wheat Tax Act 1938 (No. 52 of 1938)-Wheat Industry Assistance Act 1938 (No. 53 of 1938), secs. 6, 7, 10, 14-Flour Tax Relief Act 1938 (Tas.) (2 Geo. VI. No. 40).

There is nothing in sec. 51 of the Constitution to prevent the Parliament of the Commonwealth from passing measures in concert with any State or States with a view, by means of a grant of financial assistance under sec. 96 of the Constitution, to a fair distribution of the burden of proposed taxation, pro- vided always that the Act imposing taxes does not itself discriminate in any way between States or parts of States and that the Act granting financial assistance to a particular State is in its purpose and substance unobjectionable but, in determining whether there is discriminatory taxation contrary to sec. 51 (ii.) of the Constitution, it may be necessary to take into account an appro- priation or tax-assessment Act, as well as the taxing Act, or to have regard to the real substance and effect of Acts passed by the Commonwealth Parliament at or about the same time if it appears clear from a consideration of all the relevant Commonwealth Acts that the essence of the taxation is discriminatory

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The scheme of legislation consisting of the Flour Tax Act 1938, the Flour Tax (Stocks) Act 1938, the Flour Tax (Imports and Exports) Act 1938, the Wheat Tax Act 1938 and the Flour Tax (Wheat Industry Assistance) Assessment Act 1938 (which Acts impose certain taxes on flour and wheat), the Wheat Industry Assistance Act 1938 (which provides for the appropriation of the proceeds of the taxes in payments to the States, and, in sec. 14, for an addi- tional payment to Tasmania of an amount having a direct relation to the tax paid on flour consumed in that State), and the Flour Tax Relief Act 1938 of the State of Tasmania (providing for the distribution of such additional payment amongst payers of tax on flour consumed in that State) is not invalid as amount. ing to taxation SO as to discriminate between States.

Decision of the High Court: Deputy Federal Commissioner of Taxation (N.S.W.) v. W. R. Moran Pty. Ltd., (1939) 61 C.L.R. 735, affirmed.

APPEAL from the High Court to the Privy Council.

This was an appeal by the defendant from the decision of the High Court of Australia in Deputy Federal Commissioner of Taxation (N.S.W.) v. W. R. Moran Pty. Ltd. 1, an action brought by the plaintiff in the District Court of New South Wales and removed to the High Court under sec. 40 of the Judiciary Act 1903-1937, and in which the States of New South Wales, Victoria, South Australia and Tasmania intervened.

VISCOUNT MAUGHAM delivered the judgment of their Lordships, which was as follows :-

This is an appeal by special leave from a judgment of the Full High Court of Australia dated 7th June 1939, consisting of the Chief Justice Latham, Mr. Justice Rich, Mr. Justice Starke, Mr. Justice Evatt and Mr. Justice McTiernan (1). By the judgment it was ordered that the respondent (plaintiff in the action) do recover against the appellant the sum of £85 12s. for flour tax and additional tax alleged to be due to the Commissioner of Taxation under the provisions of two Commonwealth Acts entitled the Flour Tax (Wheat Industry Assistance) Assessment Act 1938, No. 48, and the Flour Tax (Stocks) Act 1938, No. 50. The grounds of defence were that the appellant was not indebted as alleged for the reason that the two Acts were invalid and ineffective as being ultra vires the Commonwealth Parliament. This defence raises questions of great constitutional importance.

1(1939) 61 C.L.R. 735. 63 CLR 340

It is not in dispute that the two Acts mentioned, together with several other Acts to be referred to later, were passed to give effect to a scheme which had been agreed between the Prime Minister of the Commonwealth and the Premiers of the six States after a confer- ence at Canberra. The scheme is in fact mentioned in a preamble to one of the Acts in question. Its object and purpose was to ensure to wheat growers in all the States a payable price (as it was called) (N.S.W.).

for wheat, and to raise the necessary sum by imposing a tax upon flour sold in Australia for home consumption. The Premiers on behalf of the States undertook to co-operate in the scheme by passing Acts in the States fixing prices for flour sold for home consumption and providing for the distribution of the proceeds of the tax among wheat growers in proportion to the quantities of wheat. respectively produced by them. The millers, it was assumed, would pass on the tax to the consumers, SO that the ultimate result of the scheme would be that bread and other products of flour would be a little dearer than before, while the growers of wheat would be enabled to continue in business with the assistance of payments by the Common- wealth securing to them a payable price for their wheat. But here there arose a difficulty. Tasmania was in a special position, inasmuch as she alone of the States of the Commonwealth imports wheat from other States, and does SO because the quantity of wheat grown in Tasmania is relatively insignificant. The result of this circum- stance is that the people of Tasmania, if treated like the other States, would in the end have to bear the excise duty on flour by paying an increased price for bread and other wheat products whilst that State or its inhabitants would receive very little advantage from the distribution of the proceeds of the taxes which were being imposed on flour. This difficulty was by agreement to be met in this way. The scheme was to provide that the tax on flour was to be levied on flour consumed in Tasmania at the same rate as on flour consumed in the other States; but provision was to be made for the relief of Tasmania as a State to an amount not greater than the tax on flour collected in Tasmania. It was intended (following a course which had been previously adopted in Tasmania) that persons who paid the flour tax there would obtain relief out of the

63 CLR 341

sums to be paid by the Commonwealth to Tasmania in the manner hereafter described.

Their Lordships agree with the High Court in the view that in the circumstances of the case there can be no objection to examining the scheme, including the record of what was done at the conference at Canberra: and they also agree that an examination of that record does not add anything to what is apparent upon the face of the Federal and State statutes. There has been no attempt to disguise, still less to conceal, what has been done in this matter and the reasons for doing it. The scheme admittedly could not have been carried out by the Commonwealth Parliament alone, and the main question is whether in the course of taking the predominant part in carrying out the scheme that Parliament has infringed the Constitu- tion. Their Lordships however think it right to add that, at any rate in such a case as the present, where there is admittedly a scheme of proposed legislation, it seems to be necessary when the "pith and substance" or " "the scope and effect" of any one of the Acts is under consideration to treat them together and to see how they interact. The separate parts of a machine have little meaning if examined without reference to the function they will discharge in the machine. In the present case the purpose and substance of the Acts as a whole, which means little more than their scope and effect, may properly be looked at. The purpose in this sense is inseparably connected with the substance. This does not mean that the court is to seek out the objects, or the purpose, still less the intentions of the members of the Parliament or the members of the government responsible for passing the measure, but that, just as in construing a statute it is often necessary to ascertain the mischief which it was sought to remedy, SO in such a case as the present it is necessary to examine the scheme, and to have regard to its ultimate effect or its function as shown in the various Acts, and also of course to its substance See the majority judgment in R. v. Barger 1.

The scheme, as will shortly appear, was carried out by six Com- monwealth Acts and by certain State Acts passed by the various

1(1908) 6 C.L.R. 41, at pp. 74, 75. 63 CLR 342

States. The Acts passed by the Commonwealth Parliament imposing taxation provide, as the Constitution requires, for uniform taxes throughout the Commonwealth but it is contended by the appel- lants that those Acts are "part of a scheme of taxation operating and intended to operate by way of discrimination between Tasmania and the other States," and that such Acts and taxes are accordingly contrary to the provisions of sec. 51 (ii.) of the Constitution and (N.S.W.).

are therefore ultra vires the Commonwealth and void.

It is convenient to mention here that a number of other objections to the Acts and the taxes were raised before the High Court of Australia and are dealt with in the judgments of that court; but they were not raised before this Board and need not be further mentioned.

On 2nd December 1938 the Commonwealth Parliament passed four Acts imposing taxes upon flour and wheat and also an Act providing the machinery for the assessment of such taxes. These Acts are entitled and briefly provide as follows -The Flour Tax Act 1938 (No. 49), which imposed a tax on flour manufactured in Australia by any person, and on or after 5th December 1938 sold by him or used by him in the manufacture of goods other than flour. The Flour Tax (Stocks) Act 1938 (No. 50), which imposed a tax on flour in excess of 1,000 lbs. held in stock on 5th December 1938 by any person other than the manufacturer of the flour. The Flour Tax (Imports and Exports) Act 1938 (No. 51), which imposed a tax on flour imported into Australia and on or after 5th December 1938 entered at the customs for home consumption and also a tax upon wheat exported from Australia on or after a date to be fixed by proclamation. The Wheat Tax Act 1938 (No. 52), which imposed a tax on wheat grown in Australia and on or after a date to be fixed by proclamation sold to a wheat merchant. The Flour Tax (Wheat Industry Assistance) Assessment Act 1938 (No. 48), which provided the machinery relating to the imposition, assessment, and collection of the above taxes.

These Acts were designed according to the scheme to raise money by taxing flour and flour products SO as to provide a fund available for the payment of moneys to farmers of wheat. The tax was fixed

63 CLR 343

upon the basis that 5s. 2d. per bushel of wheat on rail at Williams- town was a remunerative price, and the Acts were framed SO as to secure to the wheat farmers a payment upon the basis of 5s. 2d. per bushel on rail at Williamstown. If the price of wheat rose above that amount a tax was to be imposed on wheat SO as to form a fund out of which moneys could be paid to millers.

On the same day the same Parliament passed another essential part of the scheme, the Wheat Industry Assistance Act 1938 (No. 53). There is a preamble to this Act which briefly details (but without reference to Tasmania) the circumstances under which the Acts were passed and the general nature of the scheme which it was hoped to carry into effect. The preamble is in the following terms :-

Whereas at a conference between the Prime Minister of the Commonwealth and the Premiers of the States held in Canberra, at the request of the Premiers, on the twenty-ninth day of August One thousand nine hundred and thirty-eight, the co-operation of the Government of the Commonwealth was sought in putting into operation a scheme to ensure to wheat growers a payable price for wheat: And whereas the Premiers on behalf of their respective States undertook that, if the Commonwealth agreed to co-operate in the said scheme, legislation would be passed by the said States providing for the fixing of such prices for flour sold for home con- sumption in Australia as would provide for wheat growers a payable average price on all the wheat produced by them And whereas in order to ensure a payable price in respect of the wheat sold for home consumption in Australia, it was represented at the said conference that it would be necessary that a tax be imposed upon flour sold for home consumption in Australia and that the proceeds of the tax be distributed among wheat growers in proportion to the quantities of wheat respectively produced by them And whereas the Prime Minister on behalf of the Commonwealth agreed that the Common- wealth would co-operate in the said scheme and that any legislation necessary on the part of the Commonwealth would be submitted to the Parliament of the Commonwealth: And whereas legislation has been passed by the Parliaments of the States providing for the fixing of prices for flour sold for home consumption in Australia."

63 CLR 344

The most material sections of the Act were to the following effect -Sec. 5 provided for the creation of a Wheat Industry Stabilization Fund into which should be paid all moneys to be collected under the Flour Tax (Wheat Industry Assistance) Assessment Act, No. 48, and this covered flour tax under the Flour Tax (Stocks) Act, No. 50. Secs. 6 and 7 provided for payment out of the said fund of certain payments to the States respectively in the nature of financial (N.S.W.).

assistance. Sec. 14 provided for payment out of the said fund to the State of Tasmania of such amount in each year by way of financial assistance as the Minister should determine, but SO that the amount SO to be paid in any year should not be greater than the sum by which the amount collected in that year for flour tax under the assessment Act, No. 48, in respect of flour consumed in that State exceeded the total paid to that State in respect of that year under secs. 6 and 7 aforesaid and no amount should be payable under sec. 14 in respect of any year during which no tax (subject to an exception therein mentioned) was collected under the assessment Act, No. 48.

It will be noted that sec. 14 provides for special grants to the State of Tasmania in accordance with the scheme, and these are the payments (the greater parts of which were intended to be repaid to the millers) which it is asserted in effect amount to a discrimination in favour of Tasmania.

The State Parliaments had either passed, or had an applicable statute in operation, enabling them to fix the prices (at least maximum prices) of flour and bread in their States. The Tasmanian Act was entitled the Flour Tax Relief Act 1938, and like all the other Acts was assented to on 2nd December 1938. It provided that persons in the State who paid flour tax to the Commonwealth might apply to a State official for relief and might thereupon obtain a payment by way of relief in respect of the flour tax paid by them or at least a large part of it.

The result of the scheme of Federal and State legislation is admir- ably summarized in the judgment of Latham C.J. A Federal excise duty is imposed upon flour which is paid upon the same basis by persons in all States. The proceeds of the duty go into the Federal consolidated revenue. An equivalent sum is then taken

63 CLR 345

from the consolidated revenue and is paid by the Commonwealth by way of financial assistance to the States of the Commonwealth, upon condition that the States apply the moneys in the assistance and relief of wheat growers. In the case of Tasmania, however, a special grant is made by the Commonwealth which is not subject to any Federal statutory conditions, but which, in fact, is applied, and which it was known would be applied, by the Government of Tasmania in paying back to Tasmanian millers and others nearly the whole of the flour tax paid by them in respect of flour consumed in Tasmania " 1. Its ultimate purpose or effect, whichever word is preferred, is to enable growers of wheat to continue in business.

The first question to be considered is whether inasmuch as the Federal taxation Acts (Nos. 48 and 50 of 1938, above shortly stated) do not in any way discriminate between States or parts of States there is anything to invalidate those Commonwealth taxation Acts as being ultra vires. Sec. 51 (ii.) of the Constitution provides that the Commonwealth Parliament shall have power to make laws "with respect to taxation but SO as not to discriminate between States or parts of States." This it is truly said relates only to the law-making powers of the Commonwealth. The ultimate discrimina- tion in favour of Tasmania in this case arises, it is contended, from the Tasmanian Act above mentioned and the action of that legislature in relation to the sums paid to the State by the Common- wealth cannot be an infringement of sec. 51 (ii.), because that section does not apply to the Parliament of Tasmania. Anything, it is suggested, will be intra vires provided that the Commonwealth's taxation Act or Acts do not infringe the terms of sec. 51 (ii.). With the greatest respect to those judges in Australia who may have accepted this contention, it seems to their Lordships to go too far and certainly much further than is necessary for the decision of the present case. It would seem to justify every case in which there is

taxation Act containing no discriminatory provisions followed by an appropriation Act or a tax-assessment Act passed by the Common- wealth Parliament authorizing exemptions, abatements or refunds of tax to taxpayers in a particular State. It was argued before their Lordships that this would be intra vires. In the view of this

1(1939) 61 C.L.R., at pp. 756, 757. 63 CLR 346

board it is impossible to separate such an appropriation or tax- assessment Act from the taxation Act in considering the effect of sec. 51 (ii.), or to turn a blind eye to the real substance and effect of Acts passed by the Federal Parliament at or about the same time, if it appears clear from a consideration of all the Common- wealth Acts that the essence of the taxation is discriminatory. Laws imposing taxation must deal with one subject of taxation (N.S.W.).

only (sec. 55 of the Constitution), and the established practice in Australia is to follow the taxation Act with an "assessment" Act providing for the collection and recovery of the tax, for exemptions and for refunds in appropriate cases. In the opinion of their Lord- ships these Acts are all laws "with respect to taxation," all relate to taxation," and taken together must not discriminate between States or parts of States.

In the present case however the matter is not SO simple. The discrimination in favour of Tasmania, if it should be SO described, is effected by the exercise in combination of three powers. One is that of the Commonwealth Parliament derived from sec. 51 (ii.) already mentioned another is that contained in sec. 96 of the Constitution under which the Commonwealth Parliament can grant financial assistance to any State or States SO long as that power remains in force. The third power is that of the Tasmanian Parlia- ment to distribute the financial assistance obtained from the Com- monwealth in giving relief to persons within the State who pay flour tax. A discrimination brought about in this way is asserted to be unobjectionable, since it is not within the prohibition on Commonwealth powers contained in sec. 51 (ii.).

The first answer of the appellants to this contention is that sec. 51 (ii.) contains a constitutional prohibition against any discrimina- tion as regards taxation between States or parts of States, from which it is said to follow that no grant of financial assistance can be made to any State which would have the effect directly or indirectly of creating such a discrimination. It is impossible to accept the contention in this wide form, for sec. 51 relates to a number of powers which are conferred upon the Commonwealth Parliament as regards the laws which may be made by Parliament for the peace, order, and good government of the Commonwealth and these powers

63 CLR 347

are expressly made "subject to this Constitution," a qualification which must include the power under sec. 96 (for a period which might be limited) to grant financial assistance to any State. So far from sec. 96 being subordinate to sec. 51 (ii.), or it may be added to sec. 51 (iii.), it would be more plausible to contend that powers conferred by sec. 51 are subordinate to sec. 96, and that the power of the Parliament under that section can be exercised even SO as to effect a plain discrimination. The question then arises whether this view can be accepted with or without qualification.

In dealing with the true construction of a constitutional Act such as we are now considering it is necessary to bear in mind that it substitutes a Federal Commonwealth for a number of separate colonial governments with their own legislative assemblies and powers of self government. Such matters as tariffs, taxation, bounties, intercommunications have to be agreed between the constituent States before federation is possible, and it is evident that the constitution ultimately agreed upon will contain certain prohibitions intended to provide fair and equal treatment between the States SO far as that is reasonably possible in a written constitu- tion. Without travelling into the history of the making of the Australian Commonwealth during the years from 1889 to 1900 or the special circumstances of the six States which by referendum agreed to the bill which contained the Constitution ultimately embodied in The Commonwealth of Australia Constitution Act 1900, there can be no doubt as to the necessity for the important restric- tions or powers contained in the sub-clauses of sec. 51 :- (ii.) Taxation but SO as not to discriminate between States or parts of States. (iii.) Bounties on the production or export of goods, but

SO that such bounties shall be uniform throughout the Common- wealth."

On the other hand no one can suppose that these qualifying sentences were ever regarded as affording protection against inequality as between the States in the incidence of taxation or in the advantages to be gained from bounties. The Commonwealth is very rich in minerals of many kinds, but they are, of course, unequally distributed between the States. Moreover, the climatic and soil conditions and the state of development are very different in these

63 CLR 348

various areas. Uniform taxes on selected metals or, for example, on the coal produced in the States may impose a heavy burden on some States whilst leaving other States wholly untouched or only slightly affected and the same remark is true as to the agricul- tural produce or the products of stock-raising in the various States: See R. v. Barger 1. This was and is obvious, and it would be a mistake to regard the restrictions contained in sec. 51 (ii.) and (iii) (N.S.W.).

as providing for equality of burden as regards taxation or equality of benefit as regards bounties. That could perhaps have been achieved by provisions of a very different nature which would have had regard to the amounts raised by taxation or the amounts of the bounties received in the different States. There was no attempt to do this in the Constitution, and sub-sec. ii. provides only that taxation shall be such that it does not discriminate between States. As Isaacs J. observed in R. v. Barger 2-a statement approved in Cameron v. Deputy Federal Commissioner of Taxation for Tasmania 3,- ************* the pervading idea is the preference of locality merely because it is locality, and because it is a particular part of a particular State. It does not include a differentiation based on other con- siderations, which are dependent on natural or business circumstances, and may operate with more or less force in different localities; and there is nothing, in my opinion, to prevent the Australian Parliament, charged with the welfare of the people as a whole, from doing what every State in the Commonwealth has power to do for its own citizens, that is to say, from basing its taxation measures on con- siderations of fairness and justice, always observing the constitu- tional injunction not to prefer States or parts of States."

We must now consider sec. 96, which is found in chapter IV., " Finance and Trade." It is in these terms :- During a period of ten years after the establishment of the Commonwealth and there- after until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit." There are no restrictions whatever in this section, and it is clear that while the section remains in operation, the Parliament-apart from the restrictions contained in

1(1908) 6 C.L.R., at p. 70. 2(1908) 6 C.L.R., at p. 108. 3(1923) 32 C.L.R. 68. 63 CLR 349

sec. 51 which must be considered in a moment-may in the matter of financial assistance discriminate between States as much as it thinks fit.

Their Lordships have accordingly to bear in mind, first, that sec. 51 (ii.) prohibits discrimination between States or parts of States, but is not concerned to deal with the matter of equality of burden, and, secondly, that sec. 96 does not prohibit discrimination. It is difficult to see any ground for an attack on the scheme, or on the various Acts which carry it into effect, in SO far as that attack is really based on the exercise by the Commonwealth Parliament of its powers under sec. 96. Those powers are plainly being used for the purpose of preventing an unfairness or injustice to the State of Tasmania or indirectly to some or all of its population. Such discrimination as may result between millers or their customers in Tasmania and in the other States is a by-product, SO to speak, of the endeavour to equalize the burden of the legislation by diminish- ing the special burden on Tasmania and it is of first importance to note that this is brought about by an exercise of power under sec. 96 which does not itself prohibit discrimination. Great reliance was placed by the appellants on the scheme; but in the view of their Lordships the scheme adds nothing to the argument for there is nothing in sec. 51 to prevent the Commonwealth Parliament from passing measures in concert with any State or States with a view to a fair distribution of the burden of the taxation proposed, provided always that the Act imposing taxes does not itself dis- criminate in any way between States or parts of States, and that the Act granting pecuniary assistance to a particular State is in its purpose and substance unobjectionable. In other words it seems to their Lordships, as it seemed to the High Court, that the various Commonwealth and State Acts, if considered together as part of an organic whole, contain nothing which is prohibited in the Constitu- tion.

In coming to this conclusion their Lordships wish to make it clear that, as at present advised, they do not take the view that the Commonwealth Parliament can exercise its powers under sec. 96 with a complete disregard of the prohibition contained in sec. 51 (ii.), or SO as altogether to nullify that constitutional safeguard. The

63 CLR 350

prohibition is of considerable importance and the Constitution should be construed bearing in mind that it is the result of an agreement between six high contracting parties with in some respects very different needs and interests. Cases may be imagined in which a purported exercise of the power to grant financial assistance under sec. 96 would be merely colourable. Under the guise or pretence of assisting a State with money, the real substance and (N.S.W.).

purpose of the Act might simply be to effect discrimination in regard to taxation. Such an Act might well be ultra vires the Common- wealth Parliament. Their Lordships are using the language of caution because such a case may never arise, and also because it is their usual practice in a case dealing with constitutional matters to decide no more than their duty requires. They will add only that, in the view they take of the matter some of the legislative expedients -objected to as ultra vires by Mr. Justice Evatt in his forcible dissenting judgment-may well be colourable, and such Acts are not receiving the approval of their Lordships. In the present case there seems to be no valid ground for suggesting that the sums payable to the Government of Tasmania pursuant to sec. 14 of the Wheat Industry Assistance Act 1938 (No. 53) are not in the nature of genuine financial assistance to the State, paid for the purpose of equalizing the burden on the inhabitants of Tasmania of taxation which was being imposed on all the millers throughout the Common- wealth for an end which might reasonably be considered to be both just and expedient.

Having regard to the view above expressed it is not necessary to deal with the point on which Mr. Justice Starke primarily relied, namely, that even if sec. 14 of the Wheat Industry Assistance Act 1938 (No. 53) was invalid, it could be treated as severable and distinct from the other provisions of that Act, and that its invalidity would not affect the legislation as a whole. On this difficult point their Lordships prefer to express no opinion.

In the result their Lordships will humbly advise His Majesty that this appeal should be dismissed.

The appellants will pay the respondent's costs. The interveners will bear their own costs.