Brayson Motors Pty Ltd (In Liq) v Commissioner of Taxation

Order that the costs of and incidental to the stated case be taxed and paid by the defendant to the plaintiff.

The Court delivered the following written judgment: -

1985, March 26 Gibbs C.J., Mason, Wilson, Deane and Dawson JJ.

This is a case stated, pursuant to s. 18 of the Judiciary Act 1903 Cth, in proceedings brought in the original jurisdiction of the Court by Brayson Motors Pty. Ltd. ("the plaintiff") against the Commissioner of Taxation. The primary question which it raises is whether the plaintiff was prima facie liable to pay sales tax under the provisions of the Sales Tax Assessment Acts (Nos. 3 and 7) 1930 Cth upon the retail sales of motor vehicles which it made in the ordinary course of a business which it carried on in the Sydney suburb of Rockdale. If, and only if, that question be answered in the affirmative, there will arise the further question whether the plaintiff is, in the particular circumstances of the case, entitled to a refund or rebate of the whole or part of any sales tax pursuant to regs. 48 and 49 of the Sales Tax Regulations ("the Regulations").

At relevant times, the plaintiff's business comprised the retail sale of motor vehicles and the wholesale sale of motor vehicle spare parts. The retail business was a large one. The wholesale business represented but a small proportion of gross turnover: during the financial year ended 30 June 1982, for example, the wholesale sale of spare parts represented but $107,100.10 in a total turnover of $7,652,434.33. As required by the provisions of the sales tax legislation, the plaintiff was registered for sales tax purposes as a "wholesale merchant".

It is common ground between the parties that the plaintiff was liable to pay sales tax in respect of sales of spare parts made in the course of its wholesale business to other than a registered person who "quoted" his certificate of registration in respect of the purchase of the particular goods. It is also common ground that, were it not for the fact that the plaintiff, as a wholesaler of motor vehicle spare parts, was required to be and was registered under the sales tax legislation, it would not have been liable to pay tax on its retail sales of motor vehicles. That being so, the primary question in the case resolves itself into whether the fact that the plaintiff was registered as a "wholesale merchant" by reason of its business as a wholesaler of motor vehicle spare parts had the consequence that it was prima facie liable to pay sales tax in respect of all sales made in the course of its retail business as well as in respect of sales made in the course of its wholesale business.

The motor vehicles, in respect of whose retail sale the Commissioner seeks to assess sales tax, included both imported and locally manufactured models. The plaintiff was not the manufacturer or the importer of any of them. Nor was it the purchaser of any of them from the manufacturer. In those circumstances, the relevant pairs of Assessment and Taxing Acts are those numbered 3 and those numbered 7: Act No. 3 operates to impose a tax in respect of locally manufactured goods sold by a person not being either the manufacturer or a purchaser from the manufacturer while Act No. 7 imposes sales tax in respect of imported goods sold by a person other than the importer. Section 3 of each of those Taxing Acts imposes sales tax, at the rate specified in the particular Act, "upon the sale value" of goods of the relevant description sold by a person of the designated description. The provisions upon which the Commissioner primarily relies are to be found in ss. 4(1) and 5 of each of those Assessment Acts. Section 4(1) of each Assessment Act provides that, subject to certain other provisions to which it is unnecessary to refer, the "sale value" of goods which are sold "shall be the amount for which those goods are sold by a registered person, or a person required to be registered, not being" the manufacturer of those goods or a purchaser of those goods from the manufacturer (in the case of Assessment Act (No. 3)) or the importer of those goods (in the case of Assessment Act (No. 7)) "to an unregistered person or to a registered person who has not quoted his certificate in respect of the purchase of those goods". Section 5 of each Assessment Act designates the person liable to pay the sales tax. Apart from words identifying the context ("Where goods manufactured in Australia are sold" by a person "who was not the manufacturer of the goods and did not purchase the goods from the manufacturer of the goods" and "Where goods imported into Australia are sold by a person other than the importer of the goods"), the effect of the provisions is identical. In the specified context, each s. 5 provides, according to its terms, that sales tax shall be paid by the vendor of goods sold by a "registered person" or a "person required to be registered" to an unregistered person or to a registered person who has not quoted his certificate in respect of the particular purchase.

The eighteen separate Acts which introduced sales tax to Australia in 1930 constituted the "single legislative scheme" which Dixon J. examined in his judgment in Deputy Federal Commissioner of Taxation (S.A.) v. Ellis & Clark Ltd. [1] . They have since been much amended and have grown to twenty. The amendments and increase in number have, however, evidenced no intention whatever to abandon or substantially to vary the general legislative policy which Dixon J. discerned or the means of effecting it which he explained. That general policy was and is to levy a tax upon all goods after they are imported into or produced in Australia and before they reach the consumer. It was not intended that the retail price of goods should be increased by the incorporation in it of more than one amount of tax or that the retail sale itself should attract tax. It was, however, intended that they should be taxed at their full wholesale value. That being so, the policy of the legislation was and is that sales tax should, in the ordinary case, be a tax upon the last wholesale sale.

Dixon J.'s detailed explanation of the underlying legislative policy and the means adopted in the Sales Tax Acts and the Regulations to effect it was, like the actual decision in Ellis & Clark Ltd., subjected to some contemporary ministerial criticism. It has, however, been accepted both by the Parliament and in this Court as the authoritative starting point for understanding the inter-relation between the various Acts and Regulations which constitute the sales tax legislation: see, e.g., Federal Commissioner of Taxation v. Jack Zinader Pty. Ltd. [2] ; Max Factor & Co. Inc. v. Federal Commissioner of Taxation [3] . Two aspects of the underlying legislative policy, as explained by Dixon J., are of particular relevance for present purposes. They have already been mentioned. The first is that sales tax was intended to be a tax upon all imported or locally manufactured goods. The second is that it should be levied upon the last wholesale sale and not upon sale by retail. Those two aspects of the underlying legislative policy were not always reconcilable and it was necessary, in the actual legislation, to impose sales tax upon the use of goods in manufacture or upon their importation or retail sale in some circumstances in which they would otherwise have passed from importation or manufacture into consumption by a path which would avoid the imposition of sales tax altogether: cf. per Windeyer J., Deputy Federal Commissioner of Taxation v. Taubmans (N.S.W.) Pty. Ltd. [4] . As will be seen however, one finds that, in those cases where the legislation expressly directs attention to sales tax being imposed upon the "sale value" of goods sold by retail, special provision is made to ensure that the "sale value" is not the price at which the goods are actually sold by retail but an actual or notional "wholesale" sale value of the relevant goods. Implicit in those two aspects of the underlying legislative policy is a third which warrants express mention. It is that, in the words of Dixon J., sales tax was to be "a tax levied upon one only of the transactions which commonly take place in respect of goods before they reach the consumer after they are imported into or produced in Australia" [5] .

1. (1949) 78 C.L.R. 336, at pp. 346, 348. 2. (1971) 124 C.L.R. 353, at p. 360. 3. (1966) 115 C.L.R. 570, at p. 572. 4. (1934) 52 C.L.R., at p. 89.

As a matter of language, the wording of ss. 4(1) and 5 of each of the Sales Tax Assessment Acts (Nos. 3 and 7) is apposite to attract sales tax to any retail sale at all made in the specified context by a person who is or is required to be registered by reason of the fact that he engages, on occasion, in the sale by wholesale or the manufacture of other goods, either as part of the one inseverable business or in separate parts of an overall business or in some completely unconnected business. When combined with the corresponding provisions of ss. 4(1) and 5 of the Sales Tax Assessment Act (No. 2), which applies where the sale is by a purchaser from the manufacturer, the result would be that the ordinary retailer was prima facie liable to pay sales tax in respect of his retail sales if he happened to be registered or to be required to be registered by reason of some unconnected manufacturing or wholesaling activity and regardless of the fact that sales tax had been attracted by the prior wholesale sale to him. The national retail chain, the department store, the general store in a country town and every other retail outlet, whose proprietor engaged in any place in the sale by wholesale of any goods or in any of the wide range of activities included in the definition of "manufacture" (Assessment Act (No. 1), s. 3(1)) and was thereby required to be registered, would be required to keep records and submit returns in respect of all retail sales of other goods at that or any other place and, unless it could be established that the sale of particular goods came within an exception or attracted a rebate under the Act or Regulations, to pay sales tax in respect of such retail sales. Since, in the ordinary case, the retailer would have purchased the relevant goods intending to sell them by retail, there would be no provision in the Act or Regulations which would enable the sales tax to be "imposed" upon, or quantified by reference to, some antecedent or notional wholesale value with the result that the amount of tax would be calculated by reference to the price at which they were sold, that is to say, the retail price: Assessment Acts (Nos. 2, 3 and 7), s. 4(1). It is possibly not to the point that such a situation would not accord with the general understanding and administration of the legislation since it was introduced. What is to the point is that such a situation would lie ill indeed with the underlying policy which is to be discerned in the sales tax legislation itself. That policy was described by Dixon J. in Deputy Federal Commissioner of Taxation (S.A.) v. Ellis & Clark Ltd. [6] in words which bear repetition:

The whole plan of the legislation suggests that it is concerned only with the course of commercial dealing in goods between the time they first appear in Australia, either as a result of manufacture or importation, and the time when they are retailed. It takes them at the point of importation and manufacture and provides a scheme for following them to that point at which, in the actual course of commerce in the particular articles, they go into the retail market, and then, as nearly as possible, tax is imposed either upon the antecedent sale by wholesale or upon the immediately antecedent wholesale value which they possessed. 1. (1934) 52 C.L.R., at p. 92.

As has been said, it was found unavoidable in the framing of the sales tax legislation that sales tax should be imposed in respect of some retail sales to provide for circumstances in which goods would otherwise avoid the net of sales tax in their passage to retail distribution. Those circumstances are, however, exceptional and readily identifiable. One example where a tax on retail sales was obviously necessary was where the retail sale was by the manufacturer or importer himself. In those cases, Assessment Acts (Nos. 1 and 6) expressly impose sales tax on retail sales. The sales value for the purpose of calculating the tax however is not the retail price but a notional wholesale value. Another obvious example was where a person, who carried on a business in which he sold the same type of goods both wholesale and retail, purchased goods in circumstances where he was entitled to quote his certificate by reason of an intention to resell them by wholesale (see reg. 12(1)(e)) but subsequently changed his mind and sold them by retail. The proviso to s. 4 in each of the relevant Assessment Acts (Nos. 2, 3 and 7) makes clear that, in those circumstances, sales tax is payable in respect of the retail sale but is to be assessed on the "wholesale" sale value of the relevant goods. On the other hand, if the Commissioner's construction of the provisions of s. 5 in Assessment Acts (Nos. 2, 3 and 7) were to be accepted, the registered merchant who purchased for retail sale, in that he purchased for sale in a retail business which was distinct from the wholesale business by virtue of which he was required to be registered, would be liable to pay sales tax upon the higher retail sale value of the goods purchased for his retail business since he would not have been entitled to quote his certificate in purchasing the goods and the case would not come within the proviso in s. 4(1) of the relevant Assessment Act. It is scarcely conceivable that it could have been the legislative intent that the merchant who changes his mind should be rewarded by being required to pay less tax than the merchant who correctly forecast the nature of his ultimate resale or who, because of the nature of his business, had no opportunity of purchasing for wholesale sale.

The effect of the actual decision in Deputy Federal Commissioner of Taxation (S.A.) v. Ellis & Clark Ltd. was that the provisions of Assessment Acts (Nos. 3 and 7) should be read down, by reference to the overall plan of the sales tax legislation, to exclude second-hand goods. There are, in our view, equally powerful considerations which require that those provisions should be read down to exclude sales of goods which are distinct from the particular business or activities by reason of which the vendor is or is required to be registered under the sales tax legislation. The main and more obvious consideration has already been mentioned. It is that to construe the sections as having the effect that a retailer would be liable to pay sales tax upon the retail sale value of all the goods he sells if he happens to be registered or required to be registered by reason of some other activity would be contrary to fundamental features of the "whole plan" of the legislation, namely, (i) that sales tax should ordinarily be payable in respect of but one sale before the goods passed into consumption; (ii) that sales tax should ordinarily not be imposed in respect of retail sales, and (iii) that, in the exceptional case where it is so imposed, it should be imposed on the "immediately antecedent wholesale value" (per Dixon J., Ellis & Clark Ltd. [7] ) of the goods and not on their retail sale price. There are two other less obvious but important considerations to which particular reference should be made.

Under the sales tax legislation (Assessment Act (No. 1), s. 11(1)), a person who becomes a "manufacturer" or "wholesale merchant" must, "within 28 days" thereafter, become registered. A "manufacturer" is defined (Assessment Act (No. 1), s. 3(1)) as "a person who engages, whether exclusively or not, in the manufacture of goods ". A "wholesale merchant" is defined in the same sub-section as "a person who engages, whether exclusively or not, in the sale of goods by wholesale ". The sales tax legislation is framed on the basis that the relevant manufacturing or wholesaling activities can be identified as a "business". Thus, the penalty for a failure to become registered (Assessment Act (No. 1), s. 13) is imposed upon a "person carrying on business as a manufacturer or as a wholesale merchant". Even more in point, the legislation is framed on the basis that registration relates to a particular manufacturing or wholesale business. In particular, s. 16 of Assessment Act (No. 1), which provides for cancellation of a certificate of registration, is limited to the case where the manufacturer or wholesale merchant "ceases to carry on the business to which the certificate [of registration] relates". In that legislative context, the reference to sale by a registered person or by a person required to be registered in ss. 4(1) and 5 of the relevant Assessment Acts can readily be read as connoting a sale in the course of the particular business from the carrying on of which the obligation to become registered arises and to which, when he is registered, the certificate of registration "relates". If it be relevant, the Regulations appear to go further and to assume that a distinction can, at least for the purposes of registration, be drawn between parts of one business carried on in different States: see, e.g., regs. Pt II and reg. 12(1)(e).

The other additional consideration is to be found in the proviso to s. 4(1) of each of Assessment Acts (Nos. 2, 3 and 7). Reference has already been made to that proviso. It is in identical terms in each of those Acts and would seem to have been intended to cover the ordinary case where sales tax may be payable, pursuant to the relevant Assessment and Taxing Acts, in respect of a retail sale by a person other than the manufacturer or importer. It is aimed at ensuring that, in such a case, sales tax is payable on the "wholesale" sale value and not on the actual retail price. It is, however, limited to the case "where goods are sold by retail by a registered person who has quoted his certificate when purchasing the goods". This limitation, in the context of the overall legislative scheme, supports the conclusion that the reference to a sale by a registered person or by a person required to be registered in ss. 4(1) and 5 of the relevant Assessment Acts should be read as a reference to a sale in the course of the particular "business" to which the certificate of registration relates or by reason of which the vendor is required to be registered since it is only in respect of purchase for the purposes of that "business" that the vendor would have been entitled to "quote" a certificate of registration when purchasing the goods sold.

The consequence of the foregoing is that sales tax was payable on the sale value of the motor vehicles in the present case only if the retail sale of them was by the plaintiff in the course of the particular business in respect of which the plaintiff was registered and to which, in the words of the legislation, its certificate of registration related. There will, no doubt, be circumstances in which it would be impossible to divide an overall business into a number of components and to relate registration under the sales tax legislation to one or more of those components as distinct from to the business as a whole. In such circumstances, anomalies would still arise in the case of retail sale by a merchant who did not quote his certificate at the time of purchase unless the view be taken that, in the context of the proviso in s. 4(1), both ss. 4(1) and 5 should be read as applying only to the case where the vendor had quoted (or, perhaps, was or, where "required to be registered", would have been entitled to quote) a certificate at the time of purchasing the relevant goods. It is not, however, necessary to pursue that further question here since the material in the stated case indicates that, in the present case, a clear distinction can be drawn between the plaintiff's business as a wholesaler of motor vehicle spare parts and its business as a retailer of motor vehicles. Indeed we did not understand the contrary to be suggested on behalf of the Commissioner. The case stated draws a distinction between the plaintiff's wholesale business in one type of goods and its retail business in another. Its certificate of registration is limited to registration as a "wholesale merchant" and refers in terms to the plaintiff's occupation as a "wholesaler of motor vehicle spare parts". The clear inference is that the business in respect of which the plaintiff was registered and was required to be registered was its business as a wholesale merchant of motor vehicle spare parts. The motor vehicles which it sold by retail were not sold in the course of that business. That being so, sales tax was not payable by the plaintiff in respect of those sales of motor vehicles.

Question 1 of the case stated should be answered: "No". It is common ground that, that being so, it is unnecessary to answer question 2. The plaintiff's success on the general issue raised by question 1 should not, of course, be seen as involving any indication of a view that the intricate and artificial arrangements which were adopted to frustrate the ordinary operation of the sales tax legislation were wholly or partially successful in avoiding the imposition of sales tax. It has simply not been necessary, for the purposes of this judgment, to consider the question whether sales tax on the full wholesale value of the goods was attracted by a sale other than the ultimate retail sale to the consumer or, for that matter, the question whether the basis upon which the case stated was framed and argued, namely that the ultimate retail sale to the consumer was a sale by the plaintiff as principal, is a sound one.