FEDERAL COURT OF AUSTRALIA Commissioner for ACT Revenue v Kithock Pty Ltd [2000] FCA 1098 CONSTITUTIONAL LAW – duties of excise – exclusive power of Commonwealth Parliament pursuant to s 90 of the Constitution – where tax imposed pursuant to the Stamp Duties and Taxes Act 1987 (ACT) (the Act) in respect of the sale of used motor vehicles – whether a tax on goods after they reach consumers is a duty of excise – whether s 56A of the Act is invalid. Stamp Duties and Taxes Act 1987 (ACT), s 56A The Constitution, s 90 Capital Duplicators Pty Ltd v Australian Capital Territory (1992) 177 CLR 248 followed Ha v New South Wales (1997) 189 CLR 465 followed Parton v Milk Board (Vict) 1949) 80 CLR 229 cited Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561 cited Bolton v Madsen (1963) 110 CLR 264 applied Dennis Hotels v Victoria (1960) 104 CLR 529 cited Anderson's Pty Ltd v Victoria (1964) 111 CLR 353 applied Western Australia v Hamersley Iron Pty Ltd (No 1) (1969) 120 CLR 42 cited Western Australia v Chamberlain Industries Pty Ltd (1970) 121 CLR 1 cited Dickenson's Arcade Pty Ltd v Tasmania (1974) 130 CLR 177 applied COMMISSIONER FOR AUSTRALIAN CAPITAL TERRITORY REVENUE v KITHOCK PTY LTD ACN 055 714 933 TRADING AS ARNOLD'S AUTOS, AND ATTORNEY-GENERAL OF QUEENSLAND A 69 OF 1999 SPENDER, MATHEWS, SUNDBERG JJ 11 AUGUST 2000 SYDNEY (heard in Canberra) IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY A 69 OF 1999 BETWEEN: COMMISSIONER FOR AUSTRALIAN CAPITAL TERRITORY REVENUE APPELLANT AND: KITHOCK PTY LTD ACN 055 714 933 TRADING AS ARNOLD'S AUTOS RESPONDENT AND: ATTORNEY-GENERAL OF QUEENSLAND INTERVENOR JUDGES: SPENDER, MATHEWS, SUNDBERG JJ DATE OF ORDER: 11 AUGUST 2000 WHERE MADE: SYDNEY (heard in Canberra) THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The orders of Miles CJ of 11 August 1999 concerning the first question, and the order concerning costs of 24 December 1999, be set aside. 3. The question "Is section 56A of the Stamp Duties and Taxes Act 1987 (ACT) invalid by virtue of the operation of section 90 of the Constitution of the Commonwealth of Australia?" be answered "No". 4. The matter be remitted to the Administrative Appeals Tribunal for determination according to law. 5. The respondent pay the costs of the appellant in the Supreme Court of the Australian Capital Territory and of the appeal, to be taxed if not agreed. 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 A 69 OF 1999 BETWEEN: COMMISSIONER FOR AUSTRALIAN CAPITAL TERRITORY REVENUE APPELLANT AND: KITHOCK PTY LTD ACN 055 714 933 TRADING AS ARNOLD'S AUTOS RESPONDENT AND: ATTORNEY-GENERAL OF QUEENSLAND INTERVENOR JUDGES: SPENDER, MATHEWS, SUNDBERG JJ DATE: 11 AUGUST 2000 PLACE: SYDNEY (heard in Canberra) REASONS FOR JUDGMENT 1 This is an appeal from the decision of Miles CJ, reported at (1999) 138 ACTR 1, wherein his Honour answered two questions on a stated case referred to the Supreme Court of the Australian Capital Territory (the ACT) by the President of the Administrative Appeals Tribunal pursuant to s 48 of the Administrative Appeals Tribunal Act 1989 (ACT). The Commissioner for Australian Capital Territory Revenue assessed Kithock Pty Ltd (Kithock), which traded as Arnold's Autos, as liable to pay stamp duty in respect of the sale of certain used vehicles. Kithock, in challenging that assessment, contended that the Stamp Duties and Taxes Act 1987 (ACT) (the Act) contravened s 90 and s 99 of the Constitution. Each of those challenges gave rise to a question referred to the Supreme Court. 2 Miles CJ held that s 99 of the Constitution was not contravened. No appeal has been brought from this part of his Honour's decision. 3 The sole question on the appeal is whether Miles CJ was correct in answering in the affirmative the first question reserved, which was: "Is s 56A of the Stamp Duties and Taxes Act 1987 (ACT) invalid by virtue of the operation of sections [sic] 90 of the Constitution of the Commonwealth of Australia?" The opening paragraph of s 90 of the Constitution provides that: "On the imposition of uniform duties of customs the power of the Parliament to impose duties of customs and of excise, and to grant bounties on the production or export of goods, shall become exclusive." 4 The question on the appeal raises in sharp focus the question of what is an excise. The respondent submits that any tax on goods is an excise, contending that the impost in this case is a tax on a dealing of a good in commerce. The appellant contends that a tax on goods, after the goods have first reached the hands of consumers, is not an excise. The Attorney- General of Queensland intervened on the appeal to support the appellant, submitting that s 56A of the Act does not impose a duty of excise and is a valid law. 5 The Act was repealed by the Duties (Consequential Transitional Provisions) Act 1999 (ACT), but it continues to apply in respect of the sales the subject of the assessment under challenge. 6 In Capital Duplicators Pty Ltd v Australian Capital Territory (1992) 177 CLR 248, the High Court held that the prohibition on the imposition of duties of excise in s 90 of the Constitution applies to the ACT. This Court is bound by that decision. The appellant has reserved its position in relation to the correctness of that decision, should this matter go further. 7 In Ha v New South Wales (1997) 189 CLR 465 (Ha), Brennan CJ, McHugh, Gummow and Kirby JJ said at 498: "When a constitutional limitation or restriction on power is relied on to invalidate a law, the effect of the law in and upon the facts and circumstances to which it relates – its practical operation – must be examined as well as its terms in order to ensure that the limitation or restriction is not circumvented by mere drafting devices." 8 It is thus necessary to examine the practical or operational substance, as well as the form, of the law which is impugned as contravening a constitutional limitation or restriction on power. 9 In this case, the appellant accepts that both in form and in substance, the Act imposes a tax on goods in the sense that it imposes a tax on some step taken in dealing with goods. That concession, it is submitted by the respondent, is sufficient to require the tax to be characterised as an excise. 10 The Act was primarily directed to the raising of revenue for the public purposes of the ACT. Part VI of the Act was headed "Vehicles". Section 4, the interpretation section of the Act, relevantly provided: "4. Interpretation (1) In this Act, unless the contrary intention appears: … 'determined amount', in relation to stamp duty or tax, has the same meaning as in the [Taxation (Administration) Act 1987]; … 'licensed vehicle dealer' means a licensed dealer within the meaning of the Sale of Motor Vehicles Act 1977. … 'used vehicle', in relation to a licensed vehicle dealer, means a vehicle offered or exposed for sale by the dealer in the course of the dealer's business, being a vehicle – (a) which was registered under the [Motor Traffic Act 1936] or a corresponding law at some time prior to its acquisition by the dealer; or (b) whose first registration (whether under the Motor Traffic Act or a corresponding law) was in the name of the dealer where, before being offered or exposed for sale, it was used – (i) personally by the dealer or a member of the dealer's staff; (ii) as a demonstration vehicle; or (iii) for the general purposes of the dealer's business; … 'vehicle' means – (a) a motor vehicle within the meaning of the Motor Traffic Act; or (b) a trailer within the meaning of that Act." 11 The relevant provisions in Part VI were in the following terms: "PART VI – VEHICLES Division 1 – Sales by licensed vehicle dealers 56A. Taxable sales The determined amount of tax is payable on each sale of a used vehicle by a licensed vehicle dealer. 56B. Exempt sales Tax is not payable under section 56A of the sale of a used vehicle if – (a) the purchaser has given to the dealer a certificate under section 62 to the effect that, on the date of the sale, the purchaser is exempt from tax payable under section 57 in respect of the registration of the vehicle; (b) on the date of sale the purchaser is – (i) a licensed vehicle dealer; or (ii) a licensed dealer under a corresponding law to the Sale of Motor Vehicles Act 1977; and the vehicle is purchased as trading stock to be sold by the dealer; (c) the purchaser is – (ia) the Territory; (ib) the Commonwealth; (i) an authority, established by or under a law of the Commonwealth, that is, by virtue of that law, not liable to pay tax under a law of the Commonwealth, the Territory, a State or another Territory; (ii) a prescribed Territory authority; or (iii) a prescribed authority of a State or another Territory; (e) the vehicle – (i) is registered under a corresponding law to the Motor Traffic Act; and (ii) is purchased – (A) by a person who is not resident in the Territory; or (B) by a body corporate the registered office of which is not in the Territory; or (f) the vehicle is registered under the Interstate Road Transport Act 1985 of the Commonwealth. … 56D. Returns and payment A licensed vehicle dealer shall, not later than 14 days after the end of each month – (a) if the dealer made a taxable sale during the month – (i) lodge with the Commissioner a return in the approved form in respect of each such sale; and (ii) pay the tax payable in respect of the sale; or (b) if the dealer made no taxable sales during the month – lodge with the Commissioner a return in the approved form including a statement to that effect. … 56EA.Recovery of tax by licensed vehicle dealer (1) A licensed vehicle dealer may, by writing served on a person, advise the person that, if he or she purchases a specified used vehicle at a specified price from the dealer, there is payable to the dealer a specified amount, being an amount not exceeding the amount of tax payable by the dealer on the sale under this Part. (2) Where – (a) a notice in accordance with subsection (1) has been served on a person; and (b) the relevant sale takes place; the dealer may recover from the purchaser the amount specified in the notice as being payable by the purchaser. … Division 2 – Registration of vehicles 57. Registrations subject to tax The determined amount of tax is payable on the registration of a vehicle under the Motor Traffic Act by the person or persons in whose name or names the vehicle is to be registered unless – (a) the vehicle has previously been registered under that Act or a corresponding law; and (b) the last previous registration was solely in the name of that person or those persons. …" 12 For present purposes, it should be noted that a tax is not imposed on the sale which occurs when a vehicle first passes from the hands of the manufacturer, importer or distributor and into the hands of a consumer. The tax the subject of this appeal applies only to certain sales of vehicles which have previously reached the hands of a consumer. A "used vehicle" under the Act is one which had been registered for the purpose of use by consumers, or one which, after registration by the dealer and use by the dealer, is offered or exposed for sale by the dealer. 13 The definition of "used vehicle" in the Act adopts registration as the criterion for liability, but the stated case refers, as one of the criteria of liability, to the imposition of a tax on the sale of "used cars" by a licensed vehicle dealer, the term "used cars" being there used in its ordinary sense. All parties on this appeal have approached the matter on the basis that the impost is a tax on goods which previously had been acquired by a member of the public or a licensed dealer for use as a motor vehicle, and so, in substance, on the basis that the Act imposes a tax on the sale of certain secondhand (or laterhand) motor vehicles. 14 Section 90 of the Constitution makes the legislative power of the Commonwealth Parliament with respect to excise duty exclusive. In Parton v Milk Board (Vict) (1949) 80 CLR 229 (Parton) at 260, Dixon J observed: "In making the power of the Parliament of the Commonwealth to impose duties of customs and of excise exclusive it may be assumed that it was intended to give the Parliament a real control of taxation of commodities and to ensure that the execution of whatever policy is adopted should not be hampered or defeated by State action. A tax upon a commodity at any point in the course of distribution before it reaches the consumer produces the same effect as a tax upon its manufacture or production. If the exclusive power of the Commonwealth with respect to excise did not go past manufacture and production it would with respect to many commodities have only a formal significance." (emphasis added) 15 The difference between the parties in this appeal is that the respondent contends that it is sufficient to render a tax a prohibited duty of excise if the tax is imposed on some step taken in dealing with goods. The appellant contends that that circumstance is not sufficient to render the tax an excise, and that a tax imposed on a step taken in dealing with goods will not be a duty of excise if it is imposed after the goods have reached the hands of consumers. 16 The respondent's contention is said by it to be supported by the observations by the majority in Ha at 499, where Brennan CJ, McHugh, Gummow and Kirby JJ said: "…the correctness of the doctrine [the Parton line of cases] establishes must now be affirmed. Therefore we reaffirm duties of excise are taxes on the production, manufacture, sale or distribution of goods, whether of foreign or domestic origin. Duties of excise are inland taxes in contradistinction from duties of customs which are taxes on the importation of goods. Both are taxes on goods, that is to say, they are taxes on some step taken in dealing with goods. In this case, as in Capital Duplicators Case [No 2] [(1993) 178 CLR 561 at 590], it is unnecessary to consider whether a tax on the consumption of goods would be classified as a duty of excise." 17 Their Honours had earlier referred, at 489, to the following observation in the majority judgment in Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561 (Capital Duplicators [No 2]) at 587: "Parton …is a decision which has not been overruled or qualified by subsequent decisions. More importantly, ever since Parton, it has been accepted in the subsequent cases that the exaction of a tax, whether called a licence fee or not, on the sale or distribution of goods by a person other than the manufacturer of the goods will or may constitute an excise … In Bolton v Madsen [(1963) 110 CLR 264 at 271], it was decided unanimously that a tax on the taking of a step in the process of the production or distribution of goods before they reach consumers is an excise." (emphasis added) 18 At 490, the majority in Ha said: "The principle that an inland tax on a step in production, manufacture, sale or distribution of goods is a duty of excise has been long established. As a criterion of a duty of excise, it was expressed by Kitto J in Dennis Hotels [(1960) 104 CLR 529 at 559] and adopted by a unanimous Court in Bolton v Madsen [supra, at 273]. It can be traced back to the judgments in Parton [at 252-253, 260, 261] and, before that, to the judgment of Dixon J in Matthews v Chicory Marketing Board (Vict) [(1938) 60 CLR 263 at 291-304; see also at 277, per Latham CJ]. As Brennan J said in Philip Morris Ltd v Commissioner of Business Franchises (Vict) [(1989) 167 CLR 399 at 445]: 'If there be any rock in the sea of uncertain principle, it is that a tax on a step in the production or distribution of goods to the point of receipt by the consumer is a duty of excise.'" (emphasis added). 19 It is submitted on behalf of the respondent that statements to the effect that a tax on the taking of a step in the process of the production or distribution of goods before they reach consumers is an excise, do not establish that a tax on goods after receipt by the first consumer is not an excise. It is submitted that statements of the former kind are authority only for the proposition that such a tax, before receipt by the first consumer, must be an excise. 20 While it is true that the statements in Ha to which reference has been made, indicating that a tax imposed on goods before it reaches the hands of consumers is an excise, do not necessarily mean that a tax imposed after the point of receipt by the first consumer is not an excise, the same cannot be said of what may be termed the definitional observation by the High Court in Bolton v Madsen (1963) 110 CLR 264 (Bolton v Madsen). 21 In that case, the authoritative pronouncement of what is an excise was made by a unanimous High Court constituted by Dixon CJ, Kitto, Taylor, Menzies, Windeyer and Owen JJ, at 271: It is now established that for constitutional purposes duties of excise are taxes directly related to goods imposed at some step in their production or distribution before they reach the hands of consumers." (emphasis added) 22 This formulation does not refer to the "ultimate" or "final" or "intermediate" consumer, but is expressed by reference to the plurality of consumers and therefore is a reference to the first consumer. 23 In our opinion, this formulation is the authoritative test which this Court is bound to apply, with the consequence that the tax in question in this case is not an excise. 24 The test for a duty of excise expressed in Bolton v Madsen was expressly applied by the High Court in Anderson's Pty Ltd v Victoria (1964) 111 CLR 353 by four of the Judges in that case. Kitto J (with whom Taylor J agreed) said at 373: "…duties of excise are taxes directly related to goods (ie goods originating in Australia), imposed at some step in their production or distribution before they reach the hands of consumers." (emphasis added) Menzies J said at 377: "…nothing is, I think, to be gained by going back beyond Bolton v Madsen, where there appears a statement of what this Court has decided is a duty of excise [at 271]. It is a tax directly relating to goods – and, as I think, goods of home production only - imposed at a step in their production or distribution before reaching the consumer." (emphasis added) Barwick CJ at 364 said: "…it ought now to be taken as settled that the essence of a duty of excise is that it is a tax upon the taking of a step in a process of bringing goods into existence or to a consumable state, or of passing them down the line which reaches from the earliest stage of production to the point of receipt by the consumer. This in substance, is the formulation of my brother Kitto which received the endorsement of a court of six Justices presided over by the former Chief Justice in Bolton v Madsen [at 273]" (emphasis added) 25 Barwick CJ continued at 364-5: "I would merely add expressly what I think is implicit in his Honour's expression, namely that the step which puts goods into consumption is still in the line, albeit at the end of the line, to which his Honour refers." (emphasis added) 26 The Bolton v Madsen test as to what is a duty of excise was applied in Western Australia v Hamersley Iron Pty Ltd (No 1) (1969) 120 CLR 42 by Kitto J at 62 and Menzies J at 64-5. 27 In Western Australia v Chamberlain Industries Pty Ltd (1970) 121 CLR 1, Menzies J said at 22: "It is, I think, no longer open to question that [a] tax upon the sale of new goods manufactured in Australia and sold in retail sale, or at any point anterior thereto, is a tax upon, or in relation to, the goods sold, and is therefore a duty of excise: Bolton v Madsen." 28 Walsh J at 35-36 summarised the essence of a duty of excise as authoritatively expounded by the High Court in Bolton v Madsen, Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529,and Anderson's Pty Ltd v Victoria (supra): "Unless this Court sees fit in the future to reconsider the statements of principles in Bolton v Madsen, its decision in this case whether the duty has or has not the character of an excise duty should be based upon the test there accepted as the test by which the character of the duty is to be ascertained. Their Honours said [at 271]: 'It is now established that for constitutional purposes duties of excise are taxes directly related to goods imposed at some step in their production or distribution before they reach the hands of consumers.' … Their Honours [at 273] adopted the formulation made by Kitto J in Dennis Hotels Pty Ltd v Victoria [supra]. That formulation was that [at 559]: '…a tax is not a duty of excise unless the criterion of liability is the taking of a step in a process of bringing goods into existence or to a consumable state, or passing them down the line which reaches from the earliest stage in production to the point of receipt by the consumer.' In Anderson's Pty Ltd v Victoria [supra], the judgment of Kitto J contained an explanation and elaboration of what he understood to have been laid down in Bolton v Madsen. Taylor J [at 376] expressed his agreement with the reasons of Kitto J and Windeyer J said [at 379] that he agreed in the explanation given by Kitto J of the concept embodied in the expression "tax upon goods". Kitto J said [at 373, 374]: 'It is now established, as the Court said in Bolton v Madsen, that for constitutional purposes duties of excise are taxes directly related to goods (ie goods originating in Australia), imposed at some step in their production or distribution before they reach the hands of consumers.' …" 29 In Dickenson's Arcade Pty Ltd v Tasmania (1974) 130 CLR 177 (Dickenson's Arcade), five out of six members of the High Court expressly held that the consumption tax in that case did not offend s 90: see Barwick CJ at 185 to 186, Menzies J at 209, Gibbs J at 223, and Stephen J at 229-230. Mason J at 238 accepted the correctness and authority of the relevant passage in Bolton v Madsen, but because of his view that the regulations purported to impose a tax levied on goods before they reached the hands of a consumer, his Honour found the regulations there to be invalid. 30 Gibbs J in Dickenson's Arcade said at 221: "Since Parton v Milk Board (Vict) no member of the Court has dissented from, and almost every member who has had occasion to discuss the matter has expressly affirmed, the proposition that a tax imposed on consumption is not a duty of excise." 31 While there are statements in Ha, and Capital Duplicators [No 2] suggesting some reservations by at least some judges of the High Court as to "whether a consumption tax would be classified as an excise", in our respectful view, each of the decisions in Bolton v Madsen, Anderson's Pty Ltd v Victoria (supra) and Dickenson's Arcade determines that a tax on goods after they have reached the hands of consumers is not an excise. 32 For the above reasons, the Act does not impose a duty of excise. 33 The appeal should be allowed and further orders made as follows: (1) The orders of Miles CJ of 11 August 1999 concerning the first question, and the order concerning costs of 24 December 1999, be set aside. (2) The question "Is section 56A of the Stamp Duties and Taxes Act 1987 (ACT) invalid by virtue of the operation of section 90 of the Constitution of the Commonwealth of Australia?" be answered "No". (3) The matter be remitted to the Administrative Appeals Tribunal for determination according to law. (4) The respondent pay the costs of the appellant in the Supreme Court of the Australian Capital Territory and of the appeal, to be taxed if not agreed. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Spender, Mathews and Sundberg. Associate: Dated: 11 August 2000 Counsel for the Appellant: Mr D.F. Jackson QC, and with him Mr M. Leeming Solicitor for the Appellant: ACT Government Solicitor Counsel for the Respondent: Mr G. Corr, and with him Mr G. Williams Solicitor for the Respondent: Michael Baumann, Solicitor Counsel for the Intervenor: Mr R.W. Campbell, and with him Mr G.R. Cooper Solicitor for the Intervenor: Queensland Crown Solicitor Date of Hearing: 8 February 2000 Date of Judgment: 11 August 2000