Brisbane .... June & July 1952 CANADIAN PACIFIC TOBACCO CO. REASONS FOR JUDGMENT CORAM: WEBB J. DELIVERED. Sytnsy 18 $2 RE OLA: f 8 PAC es : i2D. TUDE ET. REEBOT. Thie action was commenced by specially endorsed writ claiming £12329.12,6 excise duty at the rate of 13/9 per 1b demanded pursuant to the izeiee Tariff Validation Aot 1951 and Exoiee Tariff proposglg Mo. 2 on a deficiensy of 17934 lbs of tobacce leaf not accounted for to the satisfaction of the Collector of Customs. Tobacco leaf had been preelaimed a material for the purpose of the Exoige Agt 1901 ~- 1942, However, im April 1952, after the issue of the writ « re-weighing of the tobacco leaf revealed that certain clerical errors had beer made at the preceeding weighing and other slight discrepancies appeared; and se the Crown, taking thie weighing in April 1952 as correct, applied et the commencement of the trial for leave to amend the endorsement by claiming 212124.1.3 exeise duty at the rate of 13/9 cer 1b. om 17635 lbe cf tobacco teat. leave was granted and the amendment made. The claim for duty ié made under 5. 109 of the Bxelse Act 1901 - 1942, 8. 105 hag been in the act since its enactment im 1901. Counsel could not say from whence it was derived: but it is not improbable that it wae to be found in the exeise legislation of one or mere of the Australian colonies, However, counsel did not know, ner de I, of any ease in this Court, or in a State dupreme Court in whiok the meaning of 3. 105 or%e similar section was considered, although Mr. Woynahan of thal Counsel for the Crown said 5. 105 hed often been implemented. "2. S, 109 reader- "ae offieer way ot any time check the steck of material of any producer or desler, end if any deficiency ie found whieh canuet be accounted fer te the satisfaction of the Colleeter the preducer or dealer shall pay duty on the amount of material found to be 2 (-@efhetent ae if it had been manufactured inte excieable ogeeda", Ceuneel raised the following questions on this eeetion 3 (1) What is the meaning and effeat of the words *gannet be accounted fer"? (2) ts any particular person required to give the aseount? if eo, then seca (3) By whem, im partiewlar, i¢ the aceount to be given? (4) Ie the particular person. required te acoeunt te be called upen te do ee befere the duty is _ sought to be recovered? if so, in what form? ($} Te what extent can a court review the discatiefaction of the Collector? (6) Tf the material in whieh the deficiency is found oan be manufactured inte sore than one 'uind ef excieable gooda, and different rates of @xoise duty are payutle im respect of each kind, what rate of duty oan be claimed by the Crown om the deficiency? sgte (1): I do net think that the liability te pay the duty on the aeficiency arisee only when the eirowstancee are eugh that if ie impossible for anybody at any time to aacount for the deficiency. if that were intended it would be unnecessary to maze the dissatisfaction of the Cellester in particular the condition of liability. =3- It seems to me that the words "cannot be accounted for" do not mean a permanent or perpetual disability to account, but only a disability to account at the time by the person required to maxe the account. ee Regina v. Heyep (8 G.B. 546% 115 E.R, 981 per Coleridge J. at 986). As te (2) and (3): I think the account must be given by the dealer, or by some person ees i for him. I de not think that if he faile to give an aeceunt within a& Teasonable time after being called upon so te do it is etill the duty of the Collector te satisfy himself as to the Sauee of the deficiency, which ordinarily would te a matter peculiarly within the knowledge of the dealer or person in control of the material, It ie not te be readily supposed that the Celleetor would have imposed on him an independant duty in that regard. As te (4): The dealer or person acting for him must be given an opportunity te account for the deficiency vefore the duty is demanded. Ko particular form is required to be followed in ealling upon him te account. It is sufficient if it appeare from the communication by the Collecter to the dealer or that other person that 8. 105 is being implemented. Ag to (5): It is the failure te satisfy the Collector that finally determines the liability te pay the duty on the deficiency. It is the Collector's want of satisfaction, and not a coutt's, that is made the test of liability by 5. 105. The court must, however, examine the material which was tefore the Collector to see whether there could have been any reasonable ground for the dissatiefaction of the Collester. ut unlese the court finde that his want of satisfaction was not honest, or was arbitrary or capricious, or against sound and fundamental principle, or based on some fundamental error, 1¢% @annet interfere. See Harward v. Hackney Union and nor. (14 T.L.K. 306 per A.L.Smith L.J. at 307)) Fletoner y. Alkstone Corporation 96 3.7. 7 per Sleseer L.J. at 26)5 Moreau v. Federal Commingioner of taxation (39 ¢.L.R. 65 per Ieaace J, at 67); The australian Seale Co, vy. Sommissioner of Texation ef cueenstand (53 C.L.R. 554 per Rich and Dixon JJ. 955); Minister of Hational Revenue v. Vrighte' Cenadian Ropes Ltd. (1947 4.0. 109 at 122): BD. Rs Fraser & Co. itd. v. Ninister of National Revenue (1949 4.C. 24 at 36): dimen ott 25 tepgpetne (eh sat 6b ate -ente@®): and Denver Chemical Manufacturing Co. v. Vommissioner of Taxation (79 0.1.R. 296 per Dixon J. at 313 and Williame J. at 317), In tome Er : fupre at page 123 the fudicial | Committee said:- * The Court is always entitled to examine the facts which are shown by the evidence to have been before the Minister when he made his determination. If those facts are in the opinion of the Court ineufficient in law to support it, the determination eannet stand. In such a ease the determination san only have been an arbitrary one .... Again in Fraser's Case gupra at p. 36 their lerdships oaids * cee osee Af the diseretion has been exercised pone fide, uninfluenced by irrelevant considerations, and not arbitrarily or tilegally, ne court is entitled to interfere ewen if the court, had the diseretion been theirs, might have exercised it otherwise." in the © tr ities 9 me en: Commissioner of Stamp Duties v. Pearce (46 c.L.8. 985), and in 1951 A.L.R. 654 te raha i ere tadltammdcimeb pet mepentet), this Court took a broader view ef its power te review the Commissioner's i opinion; but thet nes because of the unlimited scope of the appeal provided for in the particular Queensland and New South Yeales Statutes. As. to.(6): The rate of duty recoverable under 8. 105 is, I think, the highest provided for under the Act unless it is proved by the person liable to pay the duty that the missing material could have been eonverted into excisable goods at « lover rate, when the lower rate would be recoverable. Vhere the deficiency eannot be accounted for to the satisfaction of the Collector it is probably because the materiel has been dealt with surreptitiously, and so there should be no presumption in favour of a lower duty. To hold otherwise would be to place a premium on fraudulent practices and provide an incentive for them. Then as to the facts: briefly they are that in 1948 the Hillman Tobacco Co. Pty. Ltd., which was registered as a dealer under Part [ii of the Excise Act in respect of tobacco leaf, had s lerge quantity of leaf in its store at Meenndah near brisbene. Om the 20th August 1948 a customs and excise officer completed @ weighing of the lesf in the store. Now registered dealers are required by the Act, and Regulation 10 of the Exeise Regulations 1925 mde thereunder, to mke quarterly returns of the weight of material in store at the commencement of each quarter; end also of the weight of material received into and taken out of the store during the quarter. The Hillman Tobacco Co. mide such returns for the quarters ended 30th September and 31st December 1948; and in the December return disclosed the transfer of the tobeeco leaf in the Mesandeh store to the defendant company on 1st December 1948, Thereafter the defendant ~ b= sompany, which wae alse @ registered dealer in tobacee leaf as well an o licensed manufacturer of tobacco with ite factory at Bulimba in Brisbane, made the quarterly returns of tebacce leaf in the Meeandah Store. Gver three years later, on 19th December 1951, the tobsece leaf in that etore wae transferred to the factory at Bulimba, and on arrival there was weighed and ite moisture content tested and recorded. It was on that weighing that the deficiency was found, after allewing for the quantity of tobaceo leaf that had been received into and taken cut of the Neeandah stere since the first weighing in august 1948, and for 983 ibe destroyed wader eupervision. In April 1992 a further weighing ef the same material wae made when the clerical errore already referred to were discovered, and other slight Gifferences appeared. Meanwhile the Colleetor, on the 4th January 1952 wrote the following letter to the defendant company, omitting formal parts:- *I beve to advise you that the recent transfer ; ef tobacce leaf from your registered dealer's store at Neeandah to the licensed factory disclosed a lose of 17934 lbs in respect of the dealer's etore over a period ef approximately three yeare*. "A review of the returns submitted by you in Yespect of the dealer's store discloses the following position:.- 1/12/48 stock trane- '48 Tranaferred ferred from Kian to factery 272335 lbs Hillman To- ; bacco Coy. 1922259ibe. 7/12/51 do 93617 . Destroyed 1 48 leaf reeeiy- under sup- Ba ed 192581 ervision 183 Leaf net accounted "In this connection your attention is invited te -7* *8, 109 of the Excise Act 1901 - 1949 which reads as foliows:- 7 . (The letter set owt Ss. 105 in full). *gefere giving the matter further consideration I shall be glad to receive, in writing, any explanation yeu may wish to offer in regard te this watter.* i think thie letter conveyed a alear intimation that the Cellector intended to implement &. 105, in the absence of any explanation of the deficiency to hie satisfaction, and thet the defendant company was being called upon by the letter to account for the deficiency. ; The defendant company relied on the 7th January as follows, omitting formal and immaterial parts:- "Your letter ... referring to the alieged shortages in Free Store. We refer you once again te the stoek- taking of Free Store in 1947 when it was found by your Exeise Dept. Officers that the raw leaf was heavily loaded with moieture due te circumstances well known te your Sept. It wae found necessary on that eocesion te write off over 82000 lve weight of leaf as unfit for manuvseture, it was aleo recorded that the remaining leaf in Free Stere wae aleo very- moist in content. Tt was alzo recorded that considerable lose after manufacturing this leaf had occurred, It was also recorded that a loss more than 82000 lhe and 9800 lbs in July 1949 taken by your Sydney officers wae a reasonable less. Under all cireumstances the less ef approximately 8000 ibe odd gince 1949 ie s reasonable one ag cur storea must be taken ae a whele since the large bulk firet came into existence in 1931, and the fact that the driest period on recerd had ecourred in Queensland during the past twelve monthe, and ~ 8. *@uring removal and taking of Steex. The faet that the Dept bringing a Regulation inte force in January 1992, a® per copy ef letter dated 27th hes. 1951 proves that our submiesion must be accepted from the point of view outlined. The moisture alone in old and new stocks woula eover any less as per your Regulation of recent date. We new respectfully require an adjustment of the alledged loee @isclosed by the recent cheek up and a Credit be recorded aceerdingly*. After considering the defendant comsany'e reply the Collector, on the 29th January 1952, sent the follewing rejoinder, omitting fermal and immaterial parts:- "seoee I am unable to accept the explanation ... fer the shertage ef 17934 pounds ..... found upen the eceasion of the cheek of your stock of material in December 1951 ose. The deficiency .... has not therefore been accounted for to my satisfaction and in accordance with 5. 105 of the txoise aot you are liable to pay duty upon the amount of 17934 pounds of material .... caloulated at the rate of 13/9 per pound. I therefore demand .... £12329 .19.6.* The deficiency of 17934 lbe wae a difference detween weighings made after the alledged losses of 82000 lbs and 9800 lba were recorded, assuming they were ineurred. This must have been obvious te the defendant company from the Collector's letter to whieh it was replying. The Cellecter might then have regarded the defendant company — ae having failed te aecount for the deficiency and preceeded to demand excise duty. Sut eut of fairness to the defendant company he decided without any obligation se te de, te consider moisture content of the defendant company's tebacco leaf during the relevant peried, so far as such -9- content wae known to him. this moisture content did net suppert the contention that evaperation ef moisture in the tebacce leaf was the cause of the deficiency. But he proceeded to eensider alee the moisture content of the tedacos leaf of other registered dealer's during the relevant period, and te apply the highest of them te the defendant company's leaf, exeept in one case when the average was applied. But these tests ef other dealers' leaf alse provided no suppert for the defendant company's contention. It is true that the moeistare content ef other regietered deslers' tebdaces leaf might not have been a reliable test, ae there were no particulars, among others relevant, of the classes and types of leaf, the plaeee and times, where and when the leaf was grown or stored, or of the conditions of weather, climate or otherwise, prevailing when and where it was weighed, Sut even if the moisture content of other dealers' tobacce leaf was not reliable, «till it was employed only ae a cheek ef the resulte following a consideration of the moisture content of the tebacee leaf at the Meeandah store, on which the Collector might properly have acted without making any check. In facet I think the Collester need not have considered the moisture content of any tobacco leaf, whether the company's or other dealers' leaf, but could have relied on the defendant company's failure to account for the deficiency in the reply of the 4th January 1952. : The defendant company produced ee evidence to show that the Celleeter acted on unreliable data. However eounsel fer the company subeitted, having regard to information obtained from Crown witnesses on cross-examination, that the soistare content was in all eases an unreliable guide; that ef other dealers' tobseece leaf fer the reasons indieated above, and that of the company's tobacco leaf, -~ 10 « because it might not have been representative of the whole stock of mterial in the Meeandah store, as it was confined to mterial removed from time to time from the store to the feetory, where moisture content wes tested and recorded. But, it is important te note here that the Collector mew the moisture content of about half of the tobacco lesf in the Heeandah store. T have not found it necessary to set out the details of the data employed in the moisture tests, as it is, I understand, only their application that is seriously challenged by the defendant company, although some question was raised as to the disdegard by the Collector of quantities in ascertaining percentages. A question was raised es te the correctness of the three weighings and of the recorded weights. Hovever, I em satisfied the scales were properly tested; that responsible officers of the defendant company were present at all weighings; and that they were satisfied with the weighings and the records made of them. In examining the Collector's vant of satisfaction I have wonsidered only the mtters which vere before him and not the fact ~ and I find it té be the fact ~- that one of the defendant company's officers had admitted to en excise officer that he had in the absence of the excise officers forced open s door which had been under Crown lock and key, and closed it again. That admission wes made some months after the Collector hed deeided to claim duty on the Geficiency. However it is unlikely that the locked door vas forced open for no particular purpose. There vas evidence that the door while under Crown lock and key had been forced open more then once. It is more likely than not that it ws forced open from time to time to take materials inte and out of the room - called the stemmery - in the course of evading exeise duty. There was on the#th January 1952 a demand for the duty sufficient to meet the requirements of the Excise We feriff Validation Act 1951. The demand vas for 13/9 per pound of the deficiency, and so ws good to the extent of the actual deficiency, although the deficiency was overstated in the demand. Accordingly I give judgment for the Crom for £12,12421:3 with costs.