LWB233 Murray McCarthy
Week 8
EXCISE DUTIES
s.90. 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.
- s.90 makes exclusive to the Cth Parl (denying State and Territory Parls) the power to impose tax on goods whether by way of an excise duty or a customs duty.
- s.90 cases are mostly brought by individuals from whom a State or State instrumentality has sought to exact money in connection with the handling of goods.
ELEMENT 1: Tax
- It has always been accepted, as it was accepted in Peterswald (the 1st s.90 case), that an excise is a particular form or category of tax” - Philip Morris Ltd. V. Cmr of Business Franchises (1989)
- Philip Morris adopted the definition of tax from Matthews v. Chicory Marketing Board - “a compulsory exaction of money by a public authority for public purposes, enforceable at law, and is not a payment for services rendered”.
Therefore, must look to three elements of a tax to determine excise:
- Compulsory exaction
Look for some phrase in the State law such as, a fee “is imposed”, or the owner is “liable” to pay a fee or “shall” pay, etc.
- A public authority
- For public purposes
Marketing levies are compulsory exactions of money by a public authority but are not for public purposes - they are associated with services, dissociated from goods.
**look to taxation power s.51(ii) to determine these elements.
Harper v. State of Victoria
-The Marketing of Primary Products Act established an Egg and Egg Pulp Marketing Board.
-The Board was required to estimate the expenditure incurred by it and fix a fee accordingly. (The fee was related to the estimated expenditure of the services to be provided and not to the no. of goods handled).
-The egg levy was exacted from those who took advantage of the Board’s facilities and was not paid into the CRF but rather into a special purposes fund to be disbursed for the Board’s expenses.
HELD:
-The egg levy was a fee for services rendered and not a tax and therefore was NOT struck down by s.90.
Parton v. Milk Board
-The Milk Board Acts established a Milk Board which generally controlled the Milk Industry in Melbourne.
-The Board fixed prices, licensed dairies, compensated de-licensed dairy proprietors, promoted milk etc.
-The Board was authorised to exact a milk levy from dairymen (not the producers but the sellers and distributors of milk) for these operations.
-The levy must not exceed ¼ of a penny per gallon of milk sold or distributed.
-The Board in fact determined the milk levy at 1/8 and later 1/10 of a penny per gallon…Here the fee was related to the amount of goods handled (to the milk sold or distributed). This money went into a special purposes fund.
HELD:
-HC declared the milk levy was an excise duty.
-Dixon J. said that the Milk Board was performing “no particular services for the dairymen (the actual taxpayer)…for which his contribution (might) be considered as a fee or recompense”.
-It was not a payment for services rendered, but a tax, indeed a tax on goods or a duty of excise; and it was struck down under s.90.
- Note the difference:
-The amount of the levy in Harper was assessed by reference to the estimated expenditure for the services provided; and these services were peculiar to the chargees.
-In Parton there was a special purposes fund too, but the amount of the milk levy was fixed by reference to the amount of milk sold or distributed; and the services provided benefited the industry generally, not just the chargees.
ELEMENT 2: Is the Tax an Excise Duty?
A plaintiff who wishes to expose an excise duty must not only establish that an exaction is a tax, but also go on to establish that the exaction is a tax ON GOODS.
- “Goods” “in the context of ss.55 and 90…must be understood in the widest sense…(such as) commodities produced as well as…manufactured articles”…”articles of commerce”: Mutual Pools & Staff v. Commissioner of Tax
Tax NOT On Goods
A road tax based on the bare carrying capacity of hauliers’ trucks is not a tax on goods
A tax on services, e.g. hotel accommodation or travel agencies
A land tax is not a tax on goods
Tax on tourist coach companies in respect of carrying of passengers
DEFINITION OF EXCISE
EARLY VIEW:
“ An excise duty is a fee imposed upon goods either in relation to quantity or value when produced or manufactured: Peterswald v Bartley
- Thus, a tax openly imposed on sale of goods is an excise:
CthOil Refineries v. SA
-SA Act imposed a tax of 3p/gallon on the first sale of petrol in the state.
HELD:
-This Act was an excise duty as it was calculated by reference to a quantity and it was immaterial that the point of time taken to measure that quantity was at the point of sale, the object of manufacturing petrol was to sell it.
LATER VIEW:
First qualification: Direct Relationship to the Goods Irrelevant
- There is NO need for a “direct relationship with quantity or value” of the goods
Matthews v Chicory Marketing Board
-State Act set up a Cane Marketing Board which imposed a levy on producers of $1 for every half an acre of cane planted in a given year.
-The levy appeared to be related to the planting rather than the goods themselves and to the acreage planted rather than the quantity or value of the cane produced.
-Thus, in the first place, the tax was not directly related to goods, the cane; it was directly related to an activity, the planting.
-In the second place, the tax was not directly related to the quantity or value of the cane; it was directly related to the acreage planted.
-Is this an excise?
Held:
-This is an excise.
-DIXON: an excise is a tax directly on or affecting commodities. To be an excise the tax must be levied “upon goods” but these words are flexible. The goods must bear a close relation to the production or manufacture, the sale or the consumption of goods and must be of such a nature as to affect them as the subjects of manufacture or production or as articles of commerce.
-Majority: excise duty as imposed upon producers re: their production and was calculated by reference to an essential step in the process of production. Ie planting to produce a crop.
-Minority: not an excise duty as calculated by reference to the planting of acreage and not in reference to the quantity of chicory produced.
Second qualification: Distribution and Sale
- There was an extension of the definition beyond a tax on production or manufacture to embrace taxes upon distribution and sale.
Parton v. Milk Board
-Held that a tax imposed upon persons other than the producers of milk (i.e. a sale of the milk to a dairyman) was nevertheless an excise.
-Dixon J. stated that an excise could be constituted by a “tax upon a commodity at any point in the course of distribution before it reaches the consumer”.
Subsequent decisions have accepted the broader definition deriving from Parton – that an excise is a tax directly related to goods and imposed upon them at some step in their production, manufacture, distribution or sale before they reach the consumer: Capital Duplicators; Ha v NSW;
APPLICATION OF THE DEFINITION
Criterion of Liability
- Look to the legal effect or operation of the law. Ie the form and not the substance of State Laws
Dennis Hotels v Victoria:
-This case concerned the validity of 2 liquor licence fees. One was an Annual fee and the other was a temporary licensing fees.
-The Annual fee to conduct a retail liquor business was calculated as a percentage (6%) of the value of all liquor sold in the previous 12 month by reference to the amount of liquor purchased for sale during the preceding year.
-The temporary licence imposed a 6% charge on daily sales.
Held:
-4:3 Majority held that the 1st fee was not an excise but a fee for carrying on the business of a liquor retailer.
-KITTO – To constitute a duty of excise, the tax must be “the taking of a step in the process of bringing goods into existence or passing them down the line to the point of receipt of the consumer.
-The second fee was held to be an excise because it was calculated by reference to volume of liquor purchased for sale under the licence.
Bolton v Madsen:
-QLD Act required persons using QLD roads to be licensed with the licence fee being calculated by the carrying capacity of the vehicle (3p/tonne/mile).
-The legislation was challenged on the basis that the fee was sufficiently related to the quantity of goods to warrant the characterisation of the law as an excise.
Held:
-This was not an excise duty.
-The criterion of liability related to the vehicle and not the goods. Duties of excise are taxes directly related to goods imposed at some step in their production or distribution before they reach consumers.
WA v Hammersley Iron:
-WA Stamp Act imposed a stamp duty on receipts of $10 or more calculated by reference to the amount paid
Held:
-Kitto and Menzies: that the stamp duty was valid, criterion of liability was the production of money not the supply or production of goods.
-Barwick, Windeyer, Owen: was invalid as in substance this was a tax on the first sale of goods calculated by reference to price paid.
Anderson v Victoria:
-Victorian Stamps Act imposed a stamp duty at 2% of the purchase price but calculated re price left unpaid when the transaction was entered into.
Held:
-Not an excise duty. Also the criterion of liability is not the sole approach and in the end the tax must be in substance a tax upon the relevant step.
- Dickinson Arcade: Gibbs, Menzies, and Stephen: supported this approach.
Franchise Fee Cases
- The criterion of liability approach to characterisation enabled the State to evade s.90 by using the backdating device which broke down the connection between the levy and the sale of goods.
Dennis Hotels v Victoria:
-Despite the differing reasons among the majority justices, established that a fee for a retailing licence calculated by reference to the value of purchases in a time period previous to the period to the period is NOT an excise.
-Backdating device was held to be valid
- The States had grown to rely on the revenue supplied by the schemes upheld in the franchise cases especially in areas of Tobaco petrol and alcohol. This caused members of the court concern and delayed the rejection of the criterion of liability approach.
Dickenson’s Arcade v. State of Tasmania (1974)
-Parts III & IV of the Tobacco Act (Tas) dealt with a tobacco retailer’s business franchise or licence fee.
-The sale of tobacco by retail was prohibited unless the business was licensed.
-The amount of the fee was determined by reference to the tobacco “handled” (probably meaning purchased and sold) during “the relevant assessment period”.
-This period was a 12 month period that had ended 6 months before the annual licence period commenced.
-This case resorted to the backdating device used in Dennis Hotels.
HELD:
-The HC, with reluctance, followed Dennis Hotels and allowed the licence fee against a s.90 challenge.
Gosford Meats v. State of NSW (1985)
-The Meat Industry Act 1978 (NSW) dealt with the licensing, inspection and standards of abattoirs, inter alia.
-A pro rata licence fee was exacted on the annual renewal of a licence in September. The fee was referable to each animal and type of animal slaughtered during a past 12 month period.
HELD:
-The Ct found an excise duty.
-Mason, Brennan and Deane JJ. distinguished Dennis Hotels as cases on past purchases or sales, whereas here was a case on past production or manufacture.
-Mason and Deane JJ read a lesson on “substance, not form” in reviewing s.90 cases; and the formal criterion of liability test was criticised.
Philip Morris v. Commissioner of Business Franchises (1989)
-A licence fee, imposed on a group-wholesale tobacco merchant, was successfully exacted from Philip Morris.
-It was a fee for a monthly licence, of 30% of the value of the tobacco sold in the previous but one month for which the licence was currency..
-Usually the wholesaler paid, if not, the retailer.
HELD:
-The Court announced it would NOT reconsider the correctness of Dennis Hotels.
-The court went on to see IF the facts could be distinguished from those in the franchise cases.
-Mason and Deane JJ did not like “Criterion of Liability Test”; Dennis Hotels and Dicksons were about special products – tobacco and alcohol. A backdating device impacting on these special products would never be an excise.
-They wanted to confine the Dennis Hotels formula to the categories of liqour and tobacco and doubted any application to petroleum.
-Dawson J used the criterion of liability approach - the law attached to the running of a tobacco business generally - it was not attached to a particular step in the distribution of the tobacco.
-Toohey and Gaudron JJ. argued that an excise duty fell on goods manufactured or produced in Australia, whereas here the fee fell on tobacco (wherever manufactured) as an article of commerce in Victoria.
-For these various reasons, the Business Franchise (Tobacco) Act 1974 (Vic) survived.
Capital Duplicators v. ACT (No.2)
-In issue was an ACT licence fee to sell X-rated videos based on a back-dating device.
HELD:
-The majority again refused to reconsider Dennis Hotels
-Mason CJ, Brennan, Deane, McHugh JJ formed a majority in this case and combined the approaches that they each took in Phillip Morris ie asked if there were any distinguishing factors from Denis Hotels eg size of fee, proximity to licence period AND if in special area of regulation.
-Fee was invalid as an excise.
Summary
- Evada Nominees: Court effectively said that the Dennis Hotels case should be confined.
- Gosford Meats v NSW: court effectively said that the Dennis Hotels formula should only be applied re: retail sales and should not be extended to production and manufacture.
- Phillip Morris: Mason and Deane wanted to confine the Dennis Hotels formula to the categories of liqour and tobacco and doubted any application to petroleum.
- Capital Duplicators: General reluctance to apply Dennis generally
- Ha v NSW: in this case the court said that Dennis Hotels formula would only be applicable re: the same law as is found in Dennis Hotels.
- Even though Dennis Hotels has never been overruled the courts will adopt an economic effects approach.
Substance Approach - now favoured and established!!!!!
- Look at the practical operation of the law, look at its operation in substance, or the operation in reality approach.
- Dickinson Arcade: Barwick and Mason supported this approach
Hematite Petroleum v Vic:
-A $10,000 per annum pipeline levy imposed upon a licence to operate 2 particular pipelines in Victoria.
-Previously, the fee had been a flat $35 per km of pipeline. The fee for other types of pipeline was $40 per kilometre of pipeline.
-The Act defined a trunk pipeline such that only 3 pipelines fell within the description . Hematite and Esso who owned trunk pipelines used the crude oil pipeline to carry crude oil from Longfod to a plant at Long Island Point. The gas liquids pipeline carried liquefied petro;eum gas on the same route.
Held:
-In substance this was a tax on the production of goods and not a fee for engaging in business,
-The tax on pipelines was a means of taxing what they conveyed, therefore this is the economic effects approach. This was therefore a duty of excise
-DISSENTING JUDGES Gibbs, Wilson: criterion of liability test - fee was one for a license to use the pipeline.
- Phillip Morris v Commissioner: all but Dawson supported the economic effects approach.
- Capital Duplicators
- Ha: also supported the economic effects approach.
Dennis Hotels v victoria:
-Dixon: Economic Effect: the act ensured that all liquor sold in Victoria bore a tax of 6% of its wholesale price before it reached the consumer and therefore was an excise duty.
The Ha Case
Ha v. NSW (1997)
-This case concerned franchise licence fees upon wholesale and retail sale of tobacco.
-The licence was a monthly licence and the relevant period for the backdating device was defined as the month commencing 2 months before the commencement of the licence (similar to previous cases).
-The rate of the fees concerned were up to 100% of the value of tobacco sold in the previous period.
Issues
-Are duties of excise confined to local production and manufacture?
-Was the amounts payable fees to carry on a business or duties of excise?
HELD:
MAJORITY JUDGEMENT- Brennan CJ, McHugh, Gummow and Kirby JJ
Are duties of excise confined to local production and manufacture?
-Held that these franchise licence fees were duties of excise.
-The majority dismissed the contention that such fees were merely fees for a licence to carry on a business; in reality, the fees were revenue-raising taxes imposed on the sale of tobacco. They applied the dissenting judges (Brennan and McHugh JJ) from Philip Morris.