issue 5 - is the commissioner's demand under s 60 valid?
149 I now turn to the Commissioner's alternative basis for Caltex's liability under the s 60 demand. The Commissioner relied on both ss 60(1)(a) and (b) in the demand. The demand stated:
[Caltex] owes the Excise Collector of the Australian Taxation Office … the amount of $48,676,126.13, being the amount of the debt described in the Schedule.
150 The Schedule then described the debt as:
the liability of [Caltex] under subsection 60(1) of the Excise Act 1901. The Collector's Determination under subsection 60(1) and Statement of Reasons are annexed to this Statutory Demand.
151 The "Collector's Determination" was in part as follows:
In accordance with the Statement of Facts and Reasons below, the Collector has determined the following:
…
(2) [Caltex] failed to keep [the] excisable goods safely as required by paragraph 60(1)(a); and/or
(3) when so requested by a Collector in accordance with paragraph 60(1)(b), [Caltex] failed to account for those excisable goods to the satisfaction of the Collector …
152 Caltex has sought to have the demand set aside for invalidity, on the following grounds:
(a) The residual oils are not "excisable goods" and s 60 has no application to them.
(b) Section 60 applies only to excisable goods that are "subject to the [Commissioner's] control". If as the Commissioner contended the residual oils were delivered for home consumption, then they were thereupon no longer subject to the Commissioner's control and s 60 does not apply.
(c) Caltex did not "fail to keep [the residual oils] safely". The safety with which s 60(1)(a) is concerned is that the goods do not find their way into home consumption without the payment of duty. It is not directed at the protection of goods from damage or destruction (relying on Southern Shipping 107 CLR at 296 (Taylor J) and 299 (Menzies J)). As the residual oils were "destroyed" by Caltex and did not - and were never intended to - find their way into home consumption, there was no failure to keep them safely for the purposes of s 60(1)(a).
(d) The Commissioner was not entitled to make a request pursuant to s 60(1)(b) nor to rely on that paragraph in the demand as a basis for liability. Section 60(1)(b) may only be invoked when there is doubt about the whereabouts of goods or doubt as to whether they have been kept safely (relying on Sidebottom v Giuliano (2000) 98 FCR 579 (Sidebottom)). There was no doubt as to whether Caltex had failed to keep the residual oils safely. The Commissioner was aware that the residual oils had been burnt at Caltex's refineries. In particular, he acknowledged that the residual oils had been "used to generate energy within Caltex's refineries" in the purported request he made under s 60(1)(b).
(e) Even if the Commissioner was entitled to make the s 60(1)(b) request, Caltex properly accounted for the residual oils by explaining that they had been used to generate heat, which thereby demonstrated they had not gone into home consumption.
(f) The demand is invalid because it claimed payment of a "debt". Liability under s 60(1) only arises upon the due making of a valid demand. Accordingly Caltex could not have owed the amount demanded prior to the making of the demand and its description as a debt renders the demand invalid.
153 As to (a), I have already held that the residual oils are not "excisable goods" and on that basis alone the demand must be set aside. However, in case I am wrong I will consider the remaining grounds.
154 In relation to (b), Caltex's submission has the effect that s 60 could only operate where excisable goods have not in fact been delivered for home consumption. The Commissioner submitted that s 60 applies whether or not goods have been delivered for home consumption. He emphasised that the purpose of the Commissioner's control over excisable goods is to ensure that duty is properly paid (relying on Lyon 3 CLR 770 and Southern Shipping 107 CLR 279) and the obligations imposed by s 60 are designed to ensure that the goods do not find their way into home consumption without proper payment (relying on Sidebottom 98 FCR 579). More particularly the Commissioner said that s 60 is aimed directly at the unauthorised relinquishment of possession, which would include delivering goods for home consumption in a manner that was not authorised, principally where there is no payment of duty.
155 It is clear that the Commissioner's control over excisable goods ceases upon the goods being delivered for home consumption (see s 61). In this case the residual oils were subject to control from the time of their manufacture or production up until they were delivered for home consumption. If I am correct in finding that they were delivered, then the Commissioner's control ceased at the time they were delivered (i.e. when dedicated as refinery fuel oil). However it is not correct to say that s 60 has no application in respect of goods over which the Commissioner's control has come to an end. The section applies where (1) a person has or has had possession of excisable goods, (2) the goods are subject to the Commissioner's control (i.e. have not been delivered) and (3) there is a failure to keep them safely or a failure to account for them. It seems to me that the requirement (2) for the goods to be subject to control is concerned with and referable to the period during which they are in the possession of the relevant person rather than the time at which the Commissioner relies on the section. The very thing the section is concerned with is the loss of goods (for example, their disappearance without adequate explanation) or the movement of goods into home consumption while subject to control and without the payment of duty. Section 60 it seems to me has no less an application to excisable goods that have ceased to be subject to control, where the cessation of that control is a result of the manufacturer delivering the goods into home consumption in an unauthorised manner.
156 Alternatively, if the residual oils were not delivered for home consumption, then they were at all relevant times subject to the Commissioner's control and Caltex's submission at (b) becomes irrelevant.
157 In relation to the failure to keep safely point at (c), the Commissioner relied on the decision of Finkelstein J in Sidebottom 98 FCR 579 and his Honour's discussion of the purposes of s 60 as explained by the High Court in Southern Shipping 107 CLR 279. What is clear from each of those cases is that s 60 imposes an essentially absolute duty to keep goods safely and to ensure they do not find their way into home consumption without the payment of duty. Where that does occur, the goods will have found their way into home consumption "irregularly", that is, in a manner not authorised by the Excise Act, and s 60 will apply in order that the revenue might be protected. The Commissioner said that the residual oils found their way into home consumption irregularly when Caltex consumed them without duty having been paid. I agree. As I said earlier, Caltex's consumption of the residual oils at its refineries amounted to "home consumption". It follows that Caltex's dedication of the residual oils as refinery fuel oil, without paying excise duty, and subsequent consumption of them by burning them, means that they found their way into home consumption irregularly. Caltex's consumption of the residual oils in this manner (by burning and thus using them up or "destroying" them) was therefore a failure to keep them safely within s 60(1)(a). As Dixon CJ said in Southern Shipping 107 CLR at 287, the safe keeping comprehended by s 60(1)(a) is the keeping safe from loss or destruction, because "the provision is pointed at the loss of goods involving the loss of excise duty". Caltex relied on the judgments of Taylor J (at 296) and Menzies J (at 299) in Southern Shipping 107 CLR 279 and their Honours' references to damage or destruction. However, their observations were directed not to a case such as the present (where the "destruction" is the consumption of the residual oils as a fuel) but to a rejection of the proposition that the section imposes a duty of care not to permit goods to be damaged or destroyed.
158 I now turn to Caltex's submission at (d). The Commissioner acknowledged that it was entitled to request an account only where the safety of the relevant goods is something less than an "undoubted" fact: see Southern Shipping 107 CLR at 305 (Owen J); Sidebottom 98 FCR 579 at [14] (Finkelstein J). It said that the section was directed to an account that shows either:
· an unauthorised relinquishment of possession;
· despite an unauthorised loss of possession, that the goods have not gone into home consumption without payment of duty; or
· despite a failure to keep them safely, the Commissioner's control over the goods is still effective (see Southern Shipping 107 CLR at 299 (Menzies J))
159 If it were an undoubted fact that Caltex had failed to keep the residual oils safely because it burnt them, then s 60(1)(b) would not be available to the Commissioner: Sidebottom 98 FCR 579. Conversely, if the position with respect to the residual oils was something less than an undoubted fact, it was open to the Commissioner to invoke s 60(1)(b).
160 It seems to me that it was common ground from the outset that Caltex had consumed all of the residual oils and that no duty had been paid in respect of them. The premise of the Commissioner's conclusion in the Advice that the residual oils had been delivered for home consumption and had not been accounted for (the latter of which, curiously, was not based on any request to account at that stage), was that the residual oils had been burnt by Caltex as a fuel oil. Moreover, in the Commissioner's request under s 60(1)(b) itself, he acknowledged that the residual oils had already been burnt. The only thing that could possibly have remained in any doubt was whether Caltex had paid duty, but that was not the case. The Commissioner had already stated in the Advice that "the [residual oil] that you are manufacturing is no longer present within the licensed premises and duty has not been paid".
161 In my view there was no doubt about the whereabouts of the residual oils or whether they had been, at least on the Commissioner's construction of s 60(1)(a), kept safely. This is not a case where the location of the goods (and therefore whether they had gone into home consumption) was unknown (cf. Moama 115 FCR 205), or a case where the Commissioner only had "evidence which might lead him to form the opinion that excisable goods were not kept safely" (see Sidebottom 98 FCR 579 at [16]). The facts here were clear - the residual oils had been consumed by Caltex at its premises without the payment of any duty.
162 Accordingly I do not consider that the Commissioner was entitled to make the request pursuant to s 60(1)(b): see Sidebottom 98 FCR 579 at [14].
163 If I am wrong in that conclusion, I would reject Caltex's submission at (e) above that it had accounted for the residual oils. Its statement that residual oils were used as fuel in generating the required heat for the refineries was an accounting for their consumption, not an accounting "for the goods". It did not demonstrate that the residual oils had been dealt with in a manner authorised by the Excise Act or that, despite an unauthorised relinquishment of possession, the goods had not got into home consumption without duty being paid, or that despite a failure to keep them safely, the Commissioner's control was still effective over the residual oils: see Southern Shipping 107 CLR at 299 (Menzies J). The purported account simply recited the facts, which showed that the residual oils had not been kept safely within the meaning of s 60(1)(a). It was therefore reasonable for the Commissioner not to be satisfied that the goods had been accounted for.
164 As I have found the Commissioner was not entitled to make a request under s 60(1)(b), a question is raised as to the effect of this on the Commissioner's demand. In the demand, the Commissioner relied on Caltex's failure to keep the goods safely "and/or" its failure to account upon request. For the reasons I have given, it was not open to the Commissioner to rely on a failure to account under s 60(1)(b) to support the demand. Neither party made any submissions as to where this left the demand.
165 A similar situation arose in Moama 115 FCR 205. The Commissioner in that case issued a demand on the basis of s 60(1)(b) only, but sought at the hearing, as an alternative, to validate the demand in reliance on s 60(1)(a). After referring to Revlon Manufacturing Limited v Commissioner of Taxation (1995) 63 FCR 535 and Federal Commissioner of Taxation v Wade (1951) 84 CLR 105, Ryan J found that the demand could be justified on the basis of s 60(1)(a), even if s 60(1)(b) had not been available. His Honour stated at [40]:
In my view, the amenability of Moama to the issue of a demand under s 60(1) did not depend on the exercise of any power by Customs (other than the issuing of the demand itself). It arose, as Wilcox J said in Revlon out of the operation of the Act itself. There was, accordingly, no scope for Moama to be under any misapprehension as to the basis upon which it was asked to pay duty on the subject fuel.
166 I agree with Ryan J's analysis of s 60(1). This is not a case where the Commissioner would seek to justify a demand by reference to some different, previously unraised, provision (cf. Danmark Pty Ltd v Commissioner of Taxation (Cth) (1944) 7 ATD 333; Magna Stic Magnetic Signs Pty Ltd v Commissioner of Taxation (Cth) (1989) 20 ATR 1237). This is a case where the Commissioner has relied, albeit erroneously in part, on two grounds under the same provision. The taxpayer was not under any misapprehension as to the alleged basis for its liability and in my view the demand was valid to the extent that it relied on s 60(1)(a) as a basis for Caltex's liability.
167 Finally, as to Caltex's submission at (f), I do not consider that the demand was invalid because it claimed payment of a "debt". The reference by the Commissioner to a "debt" was not a reference to an antecedently existing obligation. It was a clear reference to the obligation on Caltex under s 60(1) to pay "an amount equal to the amount of the Excise duty which would have been payable on [the residual oils] if they had been entered for home consumption" on the day of the demand. The "demand" consists of the formal demand itself, a schedule, a determination, a statement of reasons and an "Attachment A", which sets out Caltex's options and time limits. When read as a whole these documents make it abundantly clear that Caltex's liability under the demand is that arising under s 60(1) of the Excise Act. For example, par 11 of the statement of reasons states:
As a result of the company's failure to keep the relevant goods safely as required by paragraph 60(1)(a), and/or the company's failure to account for those goods to the satisfaction of the Collector, as required by paragraph 60(1)(b), the company is liable, pursuant to subsection 60(1), to pay to the Commonwealth, in accordance with the enclosed Statutory Demand, an amount equal to the amount of the excise duty which would have been payable on those goods.
(Emphasis added.)
168 Accordingly the word "debt" in pars 1 and 2 of the demand, as well as the Schedule, is no more than a shorthand way of describing the amount payable by Caltex under s 60(1), namely the relevant "amount equal to the amount of the Excise duty which would have been payable …".
169 Further, s 60(2) provides that "[a]n amount payable under subsection (1) … shall be a debt due to the Commonwealth and may be sued for and recovered in a court of competent jurisdiction …". There is nothing in ss 60(1) or (2) that prevents the making of a demand itself giving rise to a debt. The subsections do not comprehend two steps - the making of a demand followed by the crystallisation of a debt. The proper reading of the subsections is that the making of the demand gives rise to a debt uno flatu. On that basis the description of the amount owed as a "debt" at the time the debt arises does not assert an obligation existing before the demand.
170 In any event, even if there is a choice to be made between a construction that gives effect to the demand and one which renders it invalid, I consider that the former should be chosen. Where two constructions of an instrument are equally plausible, upon one of which the instrument is valid, and upon another of which it is invalid, the court should lean towards that construction which validates the instrument: see Langston v Langston (1834) 2 Cl & Fin 194; 6 ER 1128 at 1147; In Re Solomon; Solomon v Solomon [1946] VLR 115 at120-121; Multiplex Constructions (UK) Limited v Honeywell Control Systems Limited (No. 2) [2007] EWHC 447 at [57].
171 Further, it seems to me doubtful that invalidity would necessarily follow if Caltex's construction of the demand were adopted. By analogy with the approach taken in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [93], I would ask whether it was a purpose of s 60(1) that to wrongly describe "an amount equal to the amount of the Excise duty which would have been payable …" as a debt, when it is quite clear what is being demanded and why, should result in invalidity. Caltex did not advance any argument as to why such an error should result in invalidity, whether on a Project Blue Sky approach or otherwise.