New South Wales Supreme Court CITATION : CEO of Customs v Camile Trading Pty Ltd & Ors [2006] NSWSC 475 26/04/06 HEARING DATE(S) : 01/05/06 - 05/05/06 08/05/06 - 10/05/06 15/05/06 - 18/05/06 JUDGMENT DATE : 25 May 2006 JURISDICTION : Common Law Division JUDGMENT OF : Kirby J DECISION : (1) The application for judgment for want of evidence is dismissed; (2) The costs should be the plaintiff's costs in the cause. CATCHWORDS : Application for Judgment for want of evidence - construction of amendments to Excise Act and regulations - petrol blending. LEGISLATION CITED : Excise Act 1901 Excise Tariff Act 1921 Chief Executive Officer of Customs (Pl) Camile Trading Pty Limited (1st Def) PARTIES : Leslie Ronald Fletcher (2nd Def) Evenfont Pty Limited (3rd Def) Robert Leonard Pullinger (4th Def) FILE NUMBER(S) : SC 1997/20859 P S Hastings QC/R B Wilson (Pl) COUNSEL : P Byrne SC/S J Stanton (1st & 2nd Defs) J Horowitz (3rd & 4th Defs) Aust Govt Solicitor (Pl) SOLICITORS : Access Business Lawyers (1st & 2nd Defs) Horowitz & Bilinsky (3rd & 4th Defs) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION DAVID KIRBY J Thursday 25 May 2006 1997/20859 CHIEF EXECUTIVE OFFICER OF CUSTOMS v CAMILE TRADING PTY LTD & ORS JUDGMENT (Application for Judgment for Want of Evidence) 1 KIRBY J: By Further Amended Statement of Claim, the Chief Executive Officer of Customs ("Customs") (the plaintiff) has commenced an action under the Excise Act 1901 and the Excise Tariff Act 1921 against four defendants, namely: · The first defendant, Camile Trading Pty Ltd ("Camile Trading"), a petroleum wholesaler at Albion Park Rail. · The second defendant, Mr Leslie Ronald Fletcher, a director and shareholder of Camile Trading. · The third defendant, Evenfont Pty Limited ("Evenfont"), the operator of a refinery at Seven Hills and later at Rutherford, New South Wales. · The fourth defendant, Mr Robert Lenard Pullinger, a director and shareholder of Evenfont. 2 The plaintiff seeks the conviction of each defendant in respect of offences under the Excise Act 1901, namely: · Section 35, which is concerned with the manufacture of excisable goods. · Section 61, which is concerned with the movement of excisable goods. · Section 120(1)(iv), which is concerned with the evasion of excise duty payable in relation to excisable goods. 3 Customs also seeks to recover the unpaid duty and further seeks the imposition of certain penalties. 4 The matter has proceeded for thirteen days. The case for the plaintiff has concluded, apart from one minor aspect, which is the subject of discussion between counsel. The defendants, in these circumstances, have moved for judgment for want of evidence under Pt 29 r 29.10 of the Uniform Civil Procedure NSW. Background. 5 The action is concerned with three products marketed by Camile Trading, namely, diesel, unleaded petrol and leaded petrol. The plaintiff asserts that Camile Trading (with the complicity of other defendants), purchased various petroleum products from different sources, which were then blended. The blend was supplied as diesel, unleaded petrol or leaded petrol. In the case of unleaded petrol, for instance, Camile Trading, according to one witness, blended the following products: · 60% unleaded petrol purchased from Mobil Oil or another major oil company, upon which full excise duty had been paid. · 22.5% white spirits. · 7.5% toluene or xylene. · 10% ethanol. 6 Leaded petrol was, according to the same witness, blended in similar proportions. The motive attributed by the plaintiff to the defendants was the saving in excise by combining leaded or unleaded petrol or diesel with cheaper products such as white spirits or heating oil, which attracted a lower rate of excise. The Legislation. 7 To succeed in this action the plaintiff must establish, in respect of each alleged offence, that there were excisable goods. The offences were allegedly committed between 1 April 1994 and 21 November 1996. The 1st April 1994 was selected because it marked the commencement of certain amendments to the Excise Act and Regulations. The Excise Act was amended by inserting a new Part, namely: "PART VIIB - SPECIAL PROVISIONS RELATING TO BLENDED PETROLEUM PRODUCTS" 8 In the Second Reading Speech, the Minister identified the objective of the amendments relevant to this action in these terms: " MR PUNCH: This bill is part of a package of bills introducing the following measures, ... Thirdly, there will be amendments to the Excise Act 1901, together with amendments to the Excise Tariff Act 1921, to address substantial revenue loss through the substitution of excise free or low duty products for petroleum fuels. Resolution of this issue involves ensuring certain blended petroleum products and crude oil or condensate delivered for use otherwise than as refinery feedstock are excisable products, and that the excise duty payable on the blend, the crude oil or condensate will be payable at a rate equal to either the diesel rate or the leaded petrol rate, depending upon the composition of the petroleum product." 9 The excisable goods said to have been manufactured (s35), moved (s61) and in respect of which duty was evaded (s120) were, according to the plaintiff, "excisable blended petroleum products". The new Part included the following provision relating to manufacture: " Blending is to be treated as manufacture 77H(1) For greater certainty so far as concerns the application of the provisions of this Act, petroleum blending to produce an excisable blended petroleum product is taken to constitute the manufacture of that excisable blended petroleum product. (2) Subsection (1) does not imply that, in the absence of such a provision, the blending of substances (whether petroleum products or not) would not constitute the manufacture of the substance produced by the blending." 10 The new Part also included a series of definitions, which are important in the context of the defendants' application: "Definitions 77G In this Part, unless the contrary intention appears: 'blended petroleum product' means the product of the blending of a petroleum product (including a petroleum product that is itself a blended petroleum product) with another substance or other substances, whether that other substance or those other substances are petroleum products or not; 'excisable blended petroleum product' means a blended petroleum product that is not an exempt blended petroleum product; 'exempt blended petroleum product' means a blended petroleum product that is exempt under section 77J; 'petroleum product' means: (a) any excisable goods classified to item 11 or 12 or to sub-item 17(A) or 17(B) of the Schedule to the Excise Tariff Act 1921; or (b) any imported goods that would be classified to item 11 or 12 of that Schedule if they were produced in Australia." 11 The classification in the Schedule, referring to "Gasoline and other petroleum of shale spirits", specified the rate. That rate was higher than that attracted by some of the constituents allegedly added to leaded, unleaded petrol or diesel supplied by Camile Trading. 12 The defendants, in their application, drew attention to the definition of "excisable blended petroleum product". Such a product must have two characteristics. First, it must fall within the definition of a "blended petroleum product" which, on the evidence, it plainly did. Secondly, it must not be an "exempt petroleum product", which is defined by s77J, in these terms: "Exempt blended petroleum products 77J(1) For the purposes of this Part, a blended petroleum product is an exempt blended petroleum product if: (a) it is made by a person who is not a statutory blender; or (b) it is declared by the regulations to be an exempt blended petroleum product. (2) For the purposes of subsection (1) but subject to subsection (3), a person is a statutory blender if that person, or another person acting on that person's behalf, produces, or has, at any time after this section commences, produced, in the aggregate: (a) more than 300 litres of blended petroleum products on any day; or (b) more than 600 litres of blended petroleum products during any continuous period of 30 days; or (c) more than 3,000 litres of blended petroleum products during any continuous period of 12 months. (3) ... (4) For the purposes of subsection (2), a blended petroleum product does not include a blended petroleum product that is declared, by regulations made for the purposes of paragraph (1)(b), to be an exempt blended petroleum product." 13 So the plaintiff must establish that Camile Trading was not a "statutory blender" and must further establish that the blended petroleum product had not been declared exempt by regulation. 14 I will come to the regulations shortly. It should, however, be noted that a person will not be a statutory blender in two circumstances. The first is where small quantities of petroleum products are blended, as set out in s77J(2). Here, Camile Trading, on the evidence, was blending significantly more than the specified quantities in subsection (2). It could not therefore rely upon that exemption. The second circumstance arises where the petroleum products, which are blended, have been declared exempt under the regulations. 15 The defendants' application turns upon the construction of the Regulations. In written submissions, the following was said: "7. On the evidence in this case, it is submitted that the plaintiff cannot show either: (i) that the products in question are not declared by the regulations to be exempt petroleum products, or (ii) that the defendants are 'statutory blenders' by reason of their being engaged in the production of blended petroleum products which are not declared by the regulations (r.176) to be exempt petroleum products." 16 Let me then turn to the excise regulations which, likewise, commenced on 1 April 1994. They were amended to insert the following: "PART 10 - BLENDED PETROLEUM PRODUCTS" 17 Regulation 175 provided that expressions used in the regulations had the same meaning as in Part VIIB of the Act. Under the heading, "Exempt blended petroleum products", a definition was provided of "waste oil" as follows: "176(1) In this regulation, 'waste oil' means a petroleum product that, because of use or degradation from storage, is no longer useable by itself without reprocessing: (a) for any purpose; or (b) for any purpose except as burner fuel; ..." 18 Regulation 176(2) was introduced by the following words: "176(2) For the purposes of paragraph 77J(1)(b) of the Act, the following blended petroleum products are exempt blended petroleum products:" 19 Paragraphs (a) to (e) dealt with a blend of waste oil and various petroleum products. Paragraph (f) dealt with two stroke gasoline. The regulations which were the subject of particular comment by the defendants, and indeed the plaintiff in argument, were as follows: "176(2)(h) a blend of gasoline with a product used to enhance its octane rating where duty has been paid on the gasoline at the rate specified in subparagraph 11(A)(3)(b) or (c) of the Schedule to the Excise Tariff Act 1921; (i) a blend of a petroleum product with prepared additives that: (i) enhance the performance of an internal combustion engine; or (ii) assist in its maintenance; after duty on the petroleum product has been paid at the rate specified in subparagraph 11(A)(3)(b) or (c), or paragraph 11E(2) of the Schedule to the Excise Tariff Act 1921; (j) a blend of any petroleum product with ethanol after the petroleum product has been cleared from Customs control;" 20 Reference was also made to regulation 176(2)(m): "(m) a blend of a petroleum product with another substance after the petroleum product has been cleared from Customs control where the blended petroleum product is not suitable for use as a fuel;" 21 Whereas the regulations to this point speak of "a blend of a petroleum product" (singular) with some other substance, in regulations 176(2)(p) and (q) they refer to "a blended petroleum product". Regulations 176(2)(p) and (q) are as follows: "(p) a blended petroleum product produced in the course of refining crude oil being a product that is not suitable for use as a fuel; (q) a blended petroleum product produced in a warehouse licensed under section 79 of the Customs Act 1901 if it is entered for home consumption in terms of item 11 of the Schedule to the Excise Tariff Act 1921;" 22 Regulations 176(2)(t) and (u) are important. Both are introduced by the expression "Blends of petroleum products ..." (plural). The regulations are as follows: "(t) blends of petroleum products not containing goods specified under paragraph 11(A)(3) of the Schedule to the Excise Tariff Act 1921, where duty has been paid on all the constituents of the blend at the rate specified in paragraph 11(E)(2) of the Schedule to the Excise Tariff Act 1921; and (u) blends of petroleum products containing goods specified under paragraph 11(A)(3) of the Schedule to the Excise Tariff Act 1921, where duty has been paid on all the constituents of the blend at the rate specified in subparagraph 11(A)(3)(b) of the Schedule to the Excise Tariff Act 1921." The Competing Arguments. 23 The defendants drew attention to regulation 176(2)(i). It exempted "a blend of a petroleum product with a prepared additive" that enhanced the performance of an internal combustion engine. Toluene was such an additive. It was used by Camile Trading in the blend of petroleum product. Similarly, in the case of regulation 176(2)(j) ethanol was used with a blend of petroleum product. In written submissions made on behalf of the first and second defendants, the following was said: "10. In this case petroleum products such as unleaded petrol, super (leaded) petrol and diesel were purchased from companies who were regarded as 'major' suppliers. Reference has been made to Mobil and Caltex. It is standard industry practice for excise duty on petrol and diesel to be paid by 'major' suppliers at the time of manufacture. When these products are supplied by the 'majors' to wholesale suppliers such as the first and second defendants, these are products which have been 'cleared from Customs control' (r 176(j), r 176(m)) or upon which 'duty has been paid' (r 176(h), r 176(i), r 176(o)). It is submitted that the evidence raises these matters as issues and it is accordingly necessary for the plaintiff to demonstrate that the products with which the defendants were dealing do not fall within the relevant description qualifying them as exempt blended petroleum products." 24 In the case of regulation 176(2)(m), there was also a body of evidence, according to the defendants, which suggested that the products associated with Camile Trading were "not suitable as a fuel". The written submissions contained the following: "12. It is submitted that there is a need for precision in the identification of the various substances and petroleum products that are referred to in this case to ensure that they do not fall within the apparently very broad definition of 'exempt blended petroleum product' and that they therefore in turn do fall within the definition of 'excisable blended petroleum product'. It is submitted that there is no evidence upon which the conclusion can be based that the products in question are not exempt blended petroleum products and that they are therefore excisable blended petroleum products." 25 The defendants submitted that the legislation was penal legislation, to be strictly construed and in favour of the person upon whom any burden may potentially fall. 26 The plaintiff responded to these arguments by emphasising the clear legislative purpose. The purpose was to ensure that all blended petroleum products were subject to excise duty at the maximum rate, subject to a number of narrow exceptions. The exceptions permitted blending on a very small scale and provided certain exemptions. The construction suggested by the defendants, where the addition to any petroleum mix of some additive such as toluene or ethanol would render the petroleum product an "exempt blended petroleum product" for the purposes of s77J(i), would entirely frustrate that objective. 27 However, the regulations, according to the plaintiff, had been carefully drawn with the legislative objective in mind. A contrast is made in the subparagraphs of regulation 176(2) between "a blend of a petroleum product" (singular) (or, in the case of paragraph (h), "a blend of gasoline") with subparagraphs (t) and (u) which speak of "blends of petroleum products" (plural). There is a further expression "a blended petroleum product" (singular) used in particular circumstances in subparagraphs (p) and (q), which have no application here. However, where the regulations use the singular, that is the expression "a blend of petroleum product", they do so quite deliberately. Subparagraphs (i), (j) and (m) for instance, contemplate a single petroleum product (such as leaded or unleaded petrol) on which duty at the maximum rate has been paid, with an additional substance, such as performance enhancing additives (176(2)(i)), or ethanol (176(2)(j)) or methanol (176(2)(k)). 28 Here, according to the plaintiff, the products blended by the first defendant were, rather, "blended petroleum products", since a number of petroleum products had been used in the mix. Regulations which speak of "a petroleum product" (singular), therefore, have no application. Moreover, according to the plaintiff, regulation 176(2)(t) and (u), which create certain exemptions in respect of "blends of petroleum products" (plural), do not apply. Duty at the maximum rate had not been paid on all the constituents of the blend. That was the point of the blending undertaken by Camile Trading, namely, to capture the savings in excise by the use of exempt products or products with a lower excise rate than the maximum. Blending was, in terms of organisation and execution, an exacting and time consuming process. It would not be undertaken, absent a financial advantage. 29 I accept the construction suggested by the plaintiff. The petroleum products of Camile Trading were not exempt under the regulations. Camile Trading was not a statutory blender. On the evidence thus far, it blended large quantities of petroleum products which were not exempt. It follows that, for the purposes of s77J(1), the products associated with Camile Trading were not "exempt blended petroleum products". Rather, they were "excisable blended petroleum products". The application under Pt 29 is therefore dismissed. 30 I should deal with certain arguments advanced by Mr Horowitz, counsel for the third and fourth defendants. Mr Horowitz submitted that particular products supplied to Camile Trading by Evenfont were either exempt from duty, or full duty had been paid. The submission was based upon only some of the vast documentary material relied upon by the plaintiff (relating to particular products supplied to Camile Trading). It also depended upon a detailed examination of the evidence. It is conceivable, when the minutia of the documentary and oral evidence is examined, and the facts are found, that some petroleum products supplied by Evenfont to Camile Trading may be "exempt blended petroleum products" for the purposes of the regulations and s77J(1) of the Act, either because no duty was payable or full duty had been paid. I do not intend, by this judgment, to close off that possibility. There has not been, on this application, an examination of the evidence, documentary or oral. No doubt, that examination will take place at the end of the hearing. Order. 31 I therefore make the following orders: 1. The application for judgment for want of evidence is dismissed. 2. The costs should be the plaintiff's costs in the cause. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.