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[1993] HCA 67
High Court of Australia
1993-04-01
McHugh JJ, Deane J, Brennan J, McHugh J
Original judgment source is linked above.
For the reasons stated, the case for a reconsideration of those decisions has not been made out.
It is convenient now to examine the legislation which is under challenge in the present case.
The Act establishes a licensing regime regulating the wholesaling and retailing of "X" videos. Under the regime it is an offence to wholesale an "X" video except in accordance with a wholesale licence (s. 24), or to retail an "X" video, except under and in accordance with a retail licence (s. 25).
Licence fees are payable on the making of an application for the initial grant of a licence, whether wholesale or retail, which is granted for one month, and on its renewal at the end of each month. The appropriate licence fee must accompany the application for grant or renewal (ss. 5(1), 9(2)), the fee being refunded if the application is refused (ss. 5(5), 9(5)). A licence fee consists of a "basic fee" calculated at a rate ($50) for each premises in relation to which the licence is to be held (ss. 4(1), 18), and either an "advance fee" (for the grant or first renewal of the licence) (s. 19) or a "franchise fee" (for subsequent renewals) (s. 20). For a wholesale licence, the advance fee and franchise fee are calculated by reference to the wholesale value of the "X" videos supplied by a wholesale licensee during the relevant period [53] . For a retail licence, these fees are calculated by reference to the wholesale value of the "X" videos offered for sale by a retail licensee during the relevant period that were not supplied by a wholesale licensee. The rate at which the advance fee and the franchise fee is imposed is 40 per cent of the total wholesale value of the relevant videos.
The following differences should be noted between (a) wholesale licences and retail licences; and (b) the advance fee and the franchise fee.
(a) A wholesale licence and a retail licence are calculated by reference to different "X" videos. The effect of this difference is to exclude "X" videos in relation to which a wholesale licence fee has been paid from the "X" videos in relation to which the fee payable by a retail licensee is calculated. A wholesale licensee pays a fee in relation to "X" videos that it supplies by wholesale in the relevant month (ss. 19(1), 20(1)); a retail licensee pays a fee in relation only to "X" videos that it offers for retail sale in the relevant month and which it manufactured or which were supplied to it otherwise than in accordance with a wholesale licence (ss. 19(2), 20(2)). Thus, in effect, any "X" video is included only in the calculation of one licence fee.
(b) The difference between the advance fee and the franchise fee is the period in relation to which the fee is calculated. The advance fee (payable only on initial grant or first renewal of the licence) is calculated by reference to the month for which the licence is granted or first renewed. The applicant must forward the estimated amount of this fee with the application for grant or renewal (ss. 5(1)(b), 9(2)(c)(i)), and this is taken to be a payment on account of the advance fee until it becomes due and payable at the end of the relevant month (s. 19(3), (4)). The franchise fee, on the other hand, is calculated by reference to the month which is two months prior to the month for which the renewal is sought (s. 20).
Section 21 is designed to prevent fees from being imposed more than once in relation to a particular video, either on the same licensee or on another person to whom the video has been supplied. It provides:
No advance fee or franchise fee is payable in relation to the supply or offer for retail sale of an "X" video where either such fee is payable in relation to any previous supply, or any previous offer for retail sale, of that video. For example, if a retail licensee manufactured and offered for sale an "X" video in one month but the video was not sold in that month and continued to be offered for sale in the following month, s. 21 would prevent the value of that video from being included in the figures for the following month from which the advance or franchise fee is calculated. Or, alternatively, if a wholesale licensee supplies a video to another wholesale licensee, the second licensee will not have to pay a fee in relation to the further supply of that video [54] . 1. The section would exclude liability on the part of a retail licensee to pay a fee in relation to a video supplied to it by a wholesale licensee. However, the statutory formula for the calculation of the advance fee or franchise fee for a retail licence independently excludes such a liability.
An ambiguity arises in relation to the operation of s. 21 of the Act as it stood in 1990 and the fees payable for the third and fourth months of a licence. The 1993 amendments to the legislation have clarified the position and it is unnecessary to consider the ambiguity for the purposes of this case.
The Act provides that an amount can be recovered from an unlicensed person who wholesales or retails "X" videos; the amount recoverable is equal to the fees that would have been payable if the person had held the appropriate licences for the relevant months (s. 27). This provision is additional to any criminal liability that such a person may incur under ss. 24 and 25.
In addition to the payment of licence fees, an applicant or licensee must satisfy certain conditions in order to hold or to continue to hold a wholesale or retail licence. Essentially, the Commissioner must be satisfied on reasonable grounds that the applicant is a fit and proper person to hold such a licence (ss. 5(2), 10(1)(g)). The Commissioner is to have regard to such circumstances as the bankruptcy or liquidation of the applicant or licensee, certain past convictions, and past contraventions of the Act, the Publications Control Act 1989 ACT, or the Taxation (Administration) Act 1987 ACT (ss. 5(3), 10(1)). The Commissioner is authorized to grant a licence "subject to such conditions as he or she thinks fit" (s. 5(2)), and can vary such conditions at any time (s. 7). If the licensee is a body corporate, it must notify the Commissioner of any changes in the directors, secretaries or officers of the licensee (s. 14).
The foregoing summary of the provisions of the Act reveals that the legislation cannot be described merely as a regulatory scheme in which the licensing fees are simply an element in an overall regime of controlling the distribution of "X" videos to the public. The principal elements of the legislation are directed to the raising of revenue rather than to the creation of a regulatory scheme designed to protect the public.
There is no restriction whatsoever in the Act on the class of videos which can be sold; any video, no matter how violent or pornographic, may be sold. Nor is there any restriction on the class of purchasers; the Act does not preclude the sale of any video to children. Likewise, there is no restriction on advertising or display. And the conditions to be satisfied by an applicant for a licence under s. 5 relate more obviously to the capacity of the applicant to pay the fees than to the protection of the public in connexion with the distribution of violent and pornographic videos. Accordingly, the Act falls outside the category of regulatory schemes affecting liquor and tobacco which Mason C.J. and Deane J. held in Philip Morris could support the exaction of a licence fee on the footing that it is not an excise.
Furthermore, the size of the fee (40 per cent) is larger than the fee exacted in the other franchise cases and clearly exceeds the cost of implementing the scheme. No endeavour was made to justify the size of the fee on that score. Indeed, the true nature of the exaction is to be discerned from s. 21 which refers to the fee being "payable in relation to the supply or offer for retail sale" of the videos [55] . Hence, the purpose of exacting the licensing fees is not simply regulatory but has a very substantial revenue purpose.
In the view of Brennan J. in Philip Morris, the fact that the legislative scheme is not regulatory and the substantial size of the fee are factors which are relevant in the characterization of the licence fee as an excise. In addition, the advance fee, being calculated by reference to sales made under the licence, plainly is an exaction made on a step in the process of distribution under the licence. And, though the franchise fee is calculated by reference to sales made in a past period, that period is no more than two months earlier than the licence period, each being for one month only. The proximity of the prior period to the period of the licence is a factor pointing in the direction of an excise because the transactions in the past period may well provide a reliable forecast of the transactions which will occur during the currency of the licence [56] . Thus, the exaction is imposed not merely on the taxpayer's past dealings with the goods but in circumstances in which the magnitude of the past dealings with the goods is a likely indicator of the measure of the taxpayer's dealings with the goods during the term of the licence. With the exception of the non-regulatory character of the licensing scheme, the same factors would, on the view of McHugh J. in Philip Morris [57] , lead to the view that the exactions in the present case are excise duties.
In the result, in the light of the reasoning of the members of the Court in Philip Morris, the conclusion is inevitable that certain licence fees imposed by the Act are an excise.
In that respect, as the basic licence fee imposed by s. 5(1)(a) and s. 18 is not calculated by reference to the quantity or value of goods supplied or offered for sale and it is not a substantial fee ($50), there is no basis for holding that it is an excise. However, for the reasons already given, the advance fee imposed by ss. 5(1)(b) and 19 and the franchise fee imposed by s. 20 are duties of excise. Notwithstanding that the plaintiffs did not seek a declaration that s. 9(2)(c) is invalid, it follows from these reasons that it, too, operates to impose a duty of excise.
Accordingly, we would answer the questions reserved as follows:
(1) Sections 5(1)(b), 9(2)(c), 19 and 20 of the Business Franchise (X Videos) Act 1990 ACT are invalid as imposing duties of excise.
In relation to question (3), full argument was not addressed to the Court on the issue of severance of other provisions of the Act if certain provisions were to be declared invalid. It would be appropriate for the parties to address argument on this point to the Court before any decision is reached as to severance of other provisions of the Act. Accordingly, we shall not deal with that issue now.
The defendants should pay the plaintiffs' costs of the questions reserved.
The Business Franchise (X Videos) Act 1990 ACT ("the "X" Videos Act") requires a person who wholesales "X" videos [58] to hold a wholesale licence or to be an employee or agent of a wholesale licensee. The "X" Videos Act requires a person who retails "X" videos to do so in accordance with a retail licence. Licences are issued for successive monthly periods and fees are charged which, after an initial period, amount to 40 per cent of the wholesale value of videos supplied in the month which occurred two months before the licence period. Retail licence fees are only payable in respect of videos manufactured by the licensee or supplied to the licensee otherwise than in accordance with a wholesale licence. Questions have been referred to the Court pursuant to s. 18 of the Judiciary Act 1903 Cth, the first one asking, in effect, whether the licence fees imposed by the "X" Videos Act amount to duties of excise. The Court has previously held, by a majority, that the power to impose duties of excise resides exclusively in the Commonwealth Parliament under s. 90 of the Constitution and that the Legislative Assembly of the Australian Capital Territory has no power to impose such a tax [59] .
It is not necessary at this point to deal with the legislation in any more detail. Clearly it was passed in reliance upon the franchise cases [60] which, speaking broadly, established that a licence or franchise fee, exacted for the privilege of carrying on a business of selling goods, does not constitute an excise duty where it is calculated by reference to the value of sales or purchases during a period preceding the period of the licence. There was no application to the Court to reopen those decisions [61] . Rather the Court was asked by the defendants to reconsider the meaning of the term "duties of excise" used in s. 90 and to return to the view expressed in Peterswald v Bartley [62] that it is limited to duties analogous to customs duties imposed upon goods in relation to their local manufacture or production. The Court departed from this view in Parton v Milk Board Vic [63] when it accepted that an excise duty for the purposes of s. 90 went beyond a tax upon the manufacture or production of goods and extended to a "tax upon a commodity at any point in the course of distribution before it reaches the consumer" [64] .
The exercise which the defendants seek to have the Court undertake is similar to that undertaken in Cole v Whitfield [65] in relation to s. 92 of the Constitution, which provides that on the imposition of uniform duties of customs, "trade, commerce, and intercourse among the States shall be absolutely free". Section 92, despite attempts at judicial exegesis over the years, had never yielded clarity of meaning or certainty of operation [66] . One of the major problems had been that the Court determined the validity of laws under s. 92 according to their legal operation and not their practical operation or economic consequences [67] . A satisfactory test of validity under s. 92 was therefore necessarily a test framed in terms of an economic objective rather than a legal formula. Having identified the objective of s. 92 as the elimination of protection, the Court held that laws which frustrate this objective for that very reason breach s. 92. Accordingly, s. 92 proscribes laws which impose discrimination of a protectionist kind.
Section 90 provides that "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". It has a history of interpretation as unsatisfactory as that of s. 92 before Cole v Whitfield . The new approach in Cole v Whitfield , which eliminated the artificiality involved in the application of a purely legal test to determine compliance with s. 92, must surely contain lessons for the proper interpretation of s. 90. In construing s. 90 it is consistent with the construction given to s. 92 to identify the object of the former section in order to ascertain the extent of the exclusive power assigned to the Commonwealth Parliament.
In Peterswald v Bartley [68] , Griffith C.J. in delivering the judgment of the Court said that the word "excise" when used in the Constitution "is intended to mean a duty analogous to a customs duty imposed upon goods either in relation to quantity or value when produced or manufactured, and not in the sense of a direct tax or personal tax". This definition did not, I think, draw upon the doctrine of reserved powers which was then current [69] . Not only can the definition stand independently of the doctrine, but the approach which it reflects was adopted in The Commonwealth and Commonwealth Oil Refineries Ltd. v South Australia by a majority of justices [70] , including Isaacs J., some of whom formed a majority in the Engineers' Case [71] . The latter case discarded the doctrine of reserved powers.
As I endeavoured to explain in Philip Morris Ltd. v Commissioner of Business Franchises Vic [72] , departure from the definition in Peterswald v Bartley in subsequent cases has been all but complete. But the most significant departure must surely have been the extension of the constitutional meaning of a duty of excise from a tax upon the manufacture or production of goods to a tax upon a commodity at any point in the course of distribution before it reaches the consumer. That departure meant that it was no longer possible to draw an analogy or to discern a correlation between customs duties and excise duties. As a consequence, the primary constitutional purpose of s. 90, which was to secure the customs union binding the States, was obscured. The justification for the departure was said to be that "a tax upon a commodity at any point in the course of distribution before it reaches the consumer produces the same effect as a tax upon its manufacture or production." [73] This justification is, I think, difficult to sustain. A tax upon the distribution of a commodity has a markedly different effect from a tax upon its production. Whereas a tax upon production affects the relative price of products produced locally and products produced overseas, a tax upon the distribution of both locally produced and imported goods does not. And, after all, this is the very difference with which those who framed the Constitution were concerned.
Moreover, the approach adopted in Parton v Milk Board Vic made it difficult to distinguish an excise duty from other taxes. In an effort to provide limits the Court in Bolton v Madsen [74] adopted a test formulated by Kitto J. in Dennis Hotels Pty. Ltd. v Victoria [75] which was as follows:
a tax is not a duty of excise unless the criterion of liability is the taking of a step in a process of bringing goods into existence or to a consumable state, or passing them down the line which reaches from the earliest stage in production to the point of receipt by the consumer. That test has not been found acceptable, the criticism of it being that, in concentrating on the statutory criterion of liability, it ignores substance in favour of form [76] . On the other hand, those in favour of substance have been unable to identify what they are looking for with any precision [77] . Although everyone is agreed that an excise duty is a tax upon goods, that is merely to state that there must be a relationship between the tax and goods. The formulation of what is a sufficient relationship to constitute a tax an excise duty has proved elusive. I have previously pointed out [78] that upon the authorities, not only is an excise duty no longer confined to a tax upon production or manufacture, but it need not be calculated by reference to the quantity or value of the goods involved. It must, it seems, be an indirect tax, although the only limitation which that imposes is to prevent it from being a tax upon consumption. That in turn introduces an illogicality since the effect of a tax upon consumption is as much upon manufacture or production as is the effect of a tax upon distribution. Furthermore, the distinction between direct and indirect taxes has been long since discredited as an economically justifiable basis for distinguishing between types of taxes [79] . The only discernible test to emerge from the more recent cases is that an excise duty must have some ultimate effect upon production or manufacture. This led Murphy J. to ask in Logan Downs Pty. Ltd. v Queensland [80] : If taxes are to be treated as duties of excise because they indirectly add to costs of production or manufacture of goods, are taxes on industrial land and payroll taxes to be treated as duties of excise? Similarly, I myself remarked in Gosford Meats Pty. Ltd. v New South Wales [81] : To depart from the test adopted in Bolton v Madsen would be to become lost in the wilderness once again or to accept an ever-widening conception of an excise duty which, extended to its logical limits, would subsume all taxes, the ultimate result of which, however indirect, could be shown to affect the production or manufacture of goods. Of course, in making that remark I considered myself to be bound by the view that excise duties might be imposed at any point in the distribution of goods before they reach the hands of the consumer. 1. (1963) 110 C.L.R. 264, at p. 273. 2. (1960) 104 C.L.R., at p. 559. 3. See Anderson's Pty. Ltd. v Victoria (1964), 111 C.L.R., at pp. 364-366; Western Australia v Chamberlain Industries Pty. Ltd. (1970), 121 C.L.R., at p. 15; Dickenson's Arcade Pty. Ltd. v Tasmania (1974), 130 C.L.R., at p. 241; H. C. Sleigh Ltd. v South Australia (1977), 136 C.L.R., at p. 499; Logan Downs Pty. Ltd. v Queensland (1977), 137 C.L.R. 59, at p. 76; Hematite Petroleum Pty. Ltd. v Victoria (1983), 151 C.L.R. 599, at pp. 629, 664-665; Philip Morris Ltd. v Commissioner of Business Franchises Vic (1989), 167 C.L.R., at pp. 432, 492. 4. See, e.g., Anderson's Pty. Ltd. v Victoria (1964), 111 C.L.R., at p. 365, per Barwick C.J.: "in arriving at the conclusion that the tax is a tax upon the relevant step, consideration of many factors is necessary, factors which may not be present in every case and which may have different weight or emphasis in different cases. The "indirectness" of the tax, its immediate entry into the cost of the goods, the proximity of the transaction it taxes to the manufacture or production or movement of the goods into consumption, the form and content of the legislation imposing the tax - all these are included in the relevant considerations." 5. Philip Morris Ltd. v Commissioner of Business Franchises Vic (1989), 167 C.L.R., at p. 473. 6. ibid., at pp. 470-472. 7. (1977) 137 C.L.R., at p. 84. 8. (1985) 155 C.L.R. 368, at p. 416.
That was not the view expressed in Peterswald v Bartley . Nor, indeed, is it a view which has been maintained consistently, even since Parton v Milk Board Vic . In Dennis Hotels Pty. Ltd. v Victoria Fullagar J. posed the question [82] : "What is the relation of taxpayer to goods which characterizes a "duty of excise" as that term is used in s. 90?" He continued:
The answer to this question given by the Court in Peterswald v Bartley was that the necessary relation is to be found in the manufacture or production of goods - that what characterizes a duty of excise is that the taxpayer is taxed by reason of, and by reference to, his production or manufacture of goods. After full consideration, and necessarily with the greatest respect for the contrary view, I am of opinion that the answer given in Peterswald v Bartley was right and should be applied in the present case. Both in Gosford Meats Pty. Ltd. v New South Wales [83] and in Philip Morris Pty. Ltd. v Commissioner of Business Franchises Vic [1] I observed that upon the authorities the view expressed by Fullagar J. was no longer tenable. In the latter case, however, I also remarked that the view had much to commend it and "should there ever be a review of the scope of s. 90 similar to that undertaken with respect to s. 92 in Cole v Whitfield , his view must command serious attention". 1. (1960) 104 C.L.R., at p. 555. 2. (1985) 155 C.L.R., at p. 414. 3. (1989) 167 C.L.R., at p. 472.
In H. C. Sleigh Ltd. v South Australia [2] Murphy J. expressed the opinion that duties of excise for the purposes of s. 90 are taxes upon goods produced or manufactured within a State. In Logan Downs Pty. Ltd. v Queensland [3] , he said:
In general, taxes imposed without regard to the place of production or manufacture are neither duties of customs nor duties of excise. The essence of each duty is the tendency to discriminate between goods locally produced and other goods. 1. (1977) 136 C.L.R., at p. 527. 2. (1977) 137 C.L.R., at p. 84; see also Gosford Meats Pty. Ltd. v New South Wales (1985), 155 C.L.R., at p. 387; Hematite Petroleum Pty. Ltd. v Victoria (1983), 151 C.L.R., at p. 638.
And in Philip Morris Ltd. v Commissioner of Business Franchises Vic [4] , Toohey and Gaudron JJ. suggested that in its constitutional context s. 90 seems designed "to secure to the Commonwealth the power to effectuate economic policy with respect to Australian imports and exports". They point out that all that is necessary to secure that purpose is "to deny to each State the power to levy duties of customs on goods entering that State from overseas, the power to levy duties of excise on goods produced or manufactured in that State and the power to grant bounties on goods produced or manufactured in that State".
It is in Philip Morris Ltd. v Commissioner of Business Franchises Vic that lack of unanimity is most recently and clearly to be seen. In that case I was prepared to apply the criterion of liability test to find that the licence fee there in question was not an excise duty. Brennan and McHugh JJ. were not prepared to apply that test, at all events as an exclusive determinant, and found that the licence fee was an excise duty. Mason C.J. and Deane J. also rejected the criterion of liability test to the extent that it excluded consideration of the "practical or substantial operation" of the law, but they perceived a special category of franchise cases involving the sale of alcohol, tobacco and possibly petrol, where the franchise fees do not constitute excise duties because of the regulatory nature of the franchise. Upon this last ground, which was expressly rejected by Brennan J., they held that the tobacco merchant's licence fee in question was not an excise duty. Toohey and Gaudron JJ. also upheld the licence fee, but upon the ground that, although it constituted a tax, it did not affect the relevant goods in their character as articles of local manufacture or production.
The possibility of an exercise along the lines undertaken in Cole v Whitfield was adverted to in Philip Morris Ltd. v Commissioner of Business Franchises Vic [5] . Mason C.J. and Deane J. said:
The division of opinion which has thus arisen mirrors the similar controversy which arose in relation to the characterization of a law for the purpose of determining whether it infringed the freedom of interstate trade and commerce guaranteed by s. 92. That controversy was recently resolved by the unanimous judgment in Cole v Whitfield [6] , holding that a law is to be characterized by reference to its practical operation. Granted that s. 92 strikes down discriminatory protectionist laws, the conclusion reached in Cole v Whitfield does not dictate a similar answer in the context of s. 90. But it must be said that the characterization of a law by reference exclusively to its strict legal operation, without regard to its practical or substantial operation, is bound to yield, at least in some instances, highly artificial results. In the field of excise duties under s. 90, where the Constitution is concerned with substance not form, there is no reason at all for contemplating artificial results. And in the same case McHugh J. said [7] : No attempt was made by counsel for the parties or the interveners to challenge the correctness of any decision in or the ratio decidendi of any case except the franchise cases. Accordingly, it is against this background of the issues presented by the parties that the present case must be decided, no matter how tempting it may be to think that the overall state of authorities in this Court and the consequences for State revenues of an expanding notion of excise require a reconsideration of the whole law on excise as it has emerged since the landmark decision in Parton v Milk Board Vic . 1. (1989) 167 C.L.R., at p. 433; see also, pp. 450-451, per Brennan J.; p. 473, per Dawson J. 2. (1988) 165 C.L.R., at pp. 399-400. 3. (1989) 167 C.L.R., at p. 488.
The divergence of opinion upon the scope of an excise duty for constitutional purposes would, I think, in itself justify a review of the authorities. But, having regard to the preparedness of the Court in Cole v Whitfield to undertake such a review in order to settle a far from unrelated issue, it seems to me that it cannot now reject the call for it to do so in relation to s. 90. Not only is the issue a vexed one, but it is of high consequence to the States. As McHugh J. pointed out [8] , "Any extension of the scope of an excise duty inevitably affects the distribution of public revenue within the Australian federation since it narrows the revenue base of the States and reduces their financial autonomy." The effect of the decision in Parton v Milk Board Vic was to establish a conception of an excise duty which has the capacity to encompass all taxes on commodities. This potential for expansion was checked for a time by the application of the criterion of liability test. But that test no longer offers any practical constraint and even the franchise cases have been held by a majority to be artificially based and, on the view of some, to be at best justified as an historical anomaly.
Nor has the state of the authorities on s. 90 escaped critical attention. It has been observed [9] :
The action of successive High Courts, in extending the definition of excise taxes in such a way as apparently to preclude the States from imposing taxes on consumption, is not only illogical, at variance with the intention of the framers of the Constitution, and contrary to common English usage and the practice of other federal countries; it is also one of the greatest impediments preventing the achievement of a rational and lasting division of financial powers in the Australian federal system. 1. Mathews and Jay, Federal finance: intergovernmental financial relations in Australia since Federation (1972), pp. 317-318; see also Sawer, The future of State taxes: constitutional issues, in Mathews (ed.), Fiscal federalism: retrospect and prospect (1974), pp. 199-201; Howard, Australian Federal Constitutional Law, 3rd ed. (1985), p. 437; Constitutional Commission, Final Report (1988), vol. 1, pp. 820-829; Starke, Perpetuation of the constitutional debates over the meaning of excise, Australian Law Journal, vol. 64 (1990) 3; Hanks, Constitutional Law in Australia (1991), pp. 242-243; Coper, The economic framework of the Australian Federation: a question of balance in Craven (ed.), Australian Federation; towards the second century (1992), pp. 144-145.
To the extent that it is necessary to do so to determine the extent to which departure from Peterswald v Bartley has been justified, I would grant leave to reconsider the decided cases.
It is now trite that in general usage the word "excise" has never had any certain connotation [10] . Even in 1901 the word was used in England to describe a miscellany of heterogeneous taxes, not necessarily taxes upon goods, from which inland revenue was derived [11] . It is obvious, however, that the term "duties of excise" was used in a restricted sense in the Constitution and upon the assumption that it could and would be given a precise meaning. That meaning, or, to be more accurate, connotation, must be that which the term had at the time the Constitution took effect and that which it would have been understood to have by those who were responsible for its drafting [12] . For the purpose of ascertaining that meaning it is permissible to have reference to the history of s. 90 and the Convention Debates which led to its adoption. As was said in Cole v Whitfield in relation to s. 92 [13] :
Reference to the history of s. 92 may be made, not for the purpose of substituting for the meaning of the words used the scope and effect - if such could be established - which the founding fathers subjectively intended the section to have, but for the purpose of identifying the contemporary meaning of language used, the subject to which that language was directed and the nature and objectives of the movement towards federation from which the compact of the Constitution finally emerged. 1. See Matthews v Chicory Marketing Board Vic (1938), 60 C.L.R. 263, at p. 293, per Dixon J. 2. See Peterswald v Bartley (1904), 1 C.L.R., at pp. 506-507; The Commonwealth and Commonwealth Oil Refineries Ltd. v South Australia (1926), 38 C.L.R., at pp. 425-426; Dennis Hotels Pty. Ltd. v Victoria (1960), 104 C.L.R., at pp. 558-559. 3. See Ex parte Professional Engineers' Association (1959), 107 C.L.R. 208, at p. 267; King v Jones (1972), 128 C.L.R. 221, at pp. 229, 265, 268-269; Attorney-General Vic; (Ex rel. Black) v The Commonwealth (1981), 146 C.L.R. 559, at p. 578. 4. (1988) 165 C.L.R., at p. 385; see also New South Wales v The Commonwealth (1990), 169 C.L.R. 482, at p. 501.
The Convention Debates were held in an Australian setting in which duties of excise were confined in the various colonies to taxes on the manufacture and production of spirits, beer and tobacco, the amount of the tax being determined by the quantity or value manufactured or produced [14] . This was adverted to by Griffith C.J. in Peterswald v Bartley where he said in 1904 [15] :
With respect to the Australian use of the term [duties of excise], we are entitled to take notice of the sense in which it has been understood and used in the legislation of the various States. We know that in some of them there were in existence for many years "duties of excise," properly so called, imposed upon beer, spirits and tobacco. There were other charges which were never spoken of as excise duties, such as fees for publicans' licences, and for various other businesses, such as slaughtermen's, auctioneers', and so forth, but these were not commonly understood in Australia as included under the head of excise duties. It has been accepted in other judgments that the term "duties of excise" had in 1901 a special meaning in Australia [16] . 1. See Mills, Taxation in Australia (1925), pp. 54, 81-82, 108-111, 138, 156-157, 182-183. 2. (1904) 1 C.L.R., at p. 509. 3. See The Commonwealth and Commonwealth Oil Refineries Ltd. v South Australia (1926), 38 C.L.R., at pp. 420, 425-426, 436; Attorney-General NSW v Homebush Flour Mills Ltd. (1937), 56 C.L.R. 390, at p. 408; Matthews v Chicory Marketing Board Vic (1938), 60 C.L.R., at p. 277; Parton v Milk Board Vic (1949), 80 C.L.R., at p. 245; Browns Transport Pty. Ltd. v Kropp (1958), 100 C.L.R. 117, at pp. 128-129; Dennis Hotels Pty. Ltd. v Victoria (1960), 104 C.L.R., at pp. 550-551, 556, 558-559; Dickenson's Arcade Pty. Ltd. v Tasmania (1974), 130 C.L.R., at pp. 217-218; Hematite Petroleum Pty. Ltd. v Victoria (1983), 151 C.L.R., at pp. 616, 628; Philip Morris Ltd. v Commissioner of Business Franchises Vic (1989), 167 C.L.R., at p. 465.
It is against this background that the Convention Debates must be read. Although hardly conclusive, I think that they support the view that "duties of excise" were understood to be duties chargeable upon the local manufacture and production of commodities [1] . Little would be achieved by citing individual passages; it is sufficient to say that the debates tend to confirm the view expressed by Griffith C.J. in Peterswald v Bartley as follows [15] :
Bearing in mind that the Constitution was framed in Australia by Australians, and for the use of the Australian people, and that the word "excise" had a distinct meaning in the popular mind, and that there were in the States many laws in force dealing with the subject, and that when used in the Constitution it is used in connexion with the words "on goods produced or manufactured in the States," the conclusion is almost inevitable that, whenever it is used, it is intended to mean a duty analogous to a customs duty imposed upon goods either in relation to quantity or value when produced or manufactured, and not in the sense of a direct tax or personal tax. 1. See, e.g., Official Report of the National Australasian Convention Debates, Sydney, 1891, pp. 361-368; Adelaide, 1897, pp. 600-602, 845-849, 857-858; Official Record of the Debates of the Australasian Federal Convention, Sydney, 1897, pp. 1065-1068; Melbourne, 1898, pp. 910-912, 917-920, 923-924, 936-938, 975-980. See also Coper, The High Court and section 90 of the Constitution, Federal Law Review, vol. 7 (1976) 1, at pp. 21-25. 2. (1904) 1 C.L.R., at p. 509.
But it is, perhaps, instructive to advert to the fact that in the debates held in Sydney in 1897 Mr. Isaacs referred to the fact that the word "excise" could bear a meaning very much wider than was intended in the Constitution. He referred to a report by Victorian Treasury officers and continued [2] :
What we intend by excise would be covered by the definition in this report, "a duty chargeable on the manufacture and production of commodities." The word is variously defined in standard dictionaries. We should give attention to this matter, so as not to be carried further than we intend to go. In modern times, excise is used as a very wide term. In the event, no definition of "excise" appeared, although Mr. Barton remarked [3] : As far as the drafting matter is concerned, I think we may promise that we will see if there is any necessity to give any definition of the meaning of the word "excise". What is of significance is that, the matter having been raised, there appears to have been no disagreement with the proposition that the word "excise" was not intended to extend beyond a duty chargeable on the manufacture and production of commodities. 1. Convention Debates, Sydney, 1897, p. 1065. 2. ibid., p. 1067.
The view expressed by Griffith C.J. in Peterswald v Bartley is also confirmed by contemporary commentators, notably, Quick and Garran [4] . Those authors [5] describe the basic principle of excise duties as being that they were "taxes on the production and manufacture of articles which could not be taxed through the customs house" and refer to the expanded use of the term to cover licence fees of various kinds not necessarily related to the production or manufacture of goods. They continue:
Such was the primary meaning of "excise," and such the secondary and enlarged use of the term. The fundamental conception of the term is that of a tax on articles produced or manufactured in a country. In the taxation of such articles of luxury, as spirits, beer, tobacco, and cigars, it has been the practice to place a certain duty on the importation of these articles and a corresponding or reduced duty on similar articles produced or manufactured in the country; and this is the sense in which excise duties have been understood in the Australian colonies, and in which the expression was intended to be used in the Constitution of the Commonwealth. 1. The Annotated Constitution of the Australian Commonwealth (1901); see also Clark, Studies in Australian Constitutional Law, 2nd ed. (1905), p. 185. 2. ibid., p. 837.
Nor was it a matter of accident that the term "duties of excise" was chosen as an expression bearing a confined meaning. The particular problem confronting those responsible for the drafting of the relevant provisions arose from the desire to create a common external tariff which would bind the States together in a customs union while at the same time creating a free trade area amongst the States by the elimination of internal customs duties and other restrictions. The protectionist effect of a common external tariff, which was the necessary feature of a customs union, could be undermined by the imposition, State by State, of differing duties of excise upon locally produced goods. The imposition of excise duties would diminish or extinguish the protection which customs duties were intended to confer upon locally produced goods. Although there was no consensus at federation on the desirable level of protection, there was consensus that setting a level should be a federal matter [6] . For similar reasons, with certain limited exceptions, it was necessary to place within the exclusive province of the Commonwealth bounties on the production or export of goods. Thus, what I have called elsewhere [7] the twin objectives of a common tariff and interstate freedom of trade were to be served by ss. 90 and 92 operating in conjunction [8] .
The difference between excise duties and other taxes within the context of s. 90 is to be seen in the purpose served by that section. That purpose is to secure the customs union to which the States agreed in the Constitution by ensuring a uniform policy with respect to external tariffs, whether free trade or protectionist. A tax should be characterized as an excise duty if it imposes a different level of tax on goods produced overseas and home-produced goods. It is this difference which determines the extent of protection (if any) for local production and manufacture.
In Dickenson's Arcade Pty. Ltd. v Tasmania [9] Gibbs J. identified three different lines of thought which led to the conclusion finally reached in Parton v Milk Board Vic that the description of "excise duties" given in Peterswald v Bartley was too narrow and that a tax imposed upon the distribution of a commodity by a person who was not its producer or manufacturer could be an excise.
First, there was the theory, to which I have already referred, that a tax on the sale of goods can be regarded as a method of taxing their production or manufacture [10] . Most recently the same theory was given voice by Mason C.J. and Deane J. in Philip Morris Ltd. v Commissioner of Business Franchises Vic [11] :
In the end the reason why a tax upon any step in the production, manufacture, sale or distribution of goods is held to be a duty of excise is that such a tax has a general tendency to be passed on to persons down the line to the consumer and will prejudice the demand for the goods burdened by the imposition of the tax. One may, of course, comment upon this view that it should logically result in a consumption tax being an excise duty as well, the distinction between direct and indirect taxes now being recognized as of little or no assistance in the interpretation of s. 90 [12] . But there is a more fundamental objection than that. 1. See The Commonwealth and Commonwealth Oil Refineries Ltd. v South Australia (1926), 38 C.L.R., at p. 435, per Higgins J.; Matthews v Chicory Marketing Board Vic (1938), 60 C.L.R., at p. 277; Parton v Milk Board Vic (1949), 80 C.L.R., at p. 252. 2. (1989) 167 C.L.R., at p. 436; see also p. 493, per McHugh J. 3. See Dennis Hotels Pty. Ltd. v Victoria (1960), 104 C.L.R., at pp. 553-554; Gosford Meats Pty. Ltd. v New South Wales (1985), 155 C.L.R., at p. 413; Philip Morris Ltd. v Commissioner of Business Franchises Vic (1989), 167 C.L.R., at p. 435.
In truth, every tax paid by a producer or distributor of goods has a tendency to be passed on to the extent that market forces allow and to increase the price of the goods. The effective, or economic, incidence of a tax is seldom, if ever, the same as its legal incidence [13] . That may be said of taxes such as land tax, payroll tax and even income tax levied upon the producers or distributors of goods. The tendency of a tax to be passed on and to increase the price of goods does not, therefore, serve to differentiate between excise duties and other taxes [14] .
A different emphasis was placed on the matter by Dixon J. in Parton v Milk Board Vic and represents the second line of thought identified by Gibbs J. in Dickenson's Arcade Pty. Ltd. v Tasmania [15] . It is expressed as follows [16] :
In making the power of the Parliament of the Commonwealth to impose duties of customs and of excise exclusive it may be assumed that it was intended to give the Parliament a real control of the taxation of commodities and to ensure that the execution of whatever policy it adopted should not be hampered or defeated by State action. It may be observed, with the greatest of respect, that his Honour's assumption is not warranted by anything which appears in Ch. IV of the Constitution nor, for that matter, in any contemporary discussion of the subject. The relevant constitutional provisions are clearly designed to achieve a customs union coupled with an internal free trade area and those objectives reflect the desire of those framing the Constitution to overcome two besetting problems of the time, namely, lack of uniformity in external tariffs and internal barriers to trade and commerce. If those framing the Constitution had wished to place in the hands of the Commonwealth the exclusive power to control the taxation of commodities they could have done so, but they did not and it was unnecessary to do so for the achievement of the objectives which they had in mind. Nevertheless, the view expressed by Dixon J. attracted support both before and after the decision in Parton v Milk Board Vic [17] . 1. (1974) 130 C.L.R., at pp. 218-220. 2. (1949) 80 C.L.R., at p. 260. 3. See The Commonwealth and Commonwealth Oil Refineries Ltd. v South Australia (1926), 38 C.L.R., at p. 437; Attorney-General NSW v Homebush Flour Mills Ltd. (1937), 56 C.L.R., at p. 403; Dennis Hotels Pty. Ltd. v Victoria (1960), 104 C.L.R., at p. 547; Whitehouse v Queensland (1960), 104 C.L.R. 609, at p. 618; Western Australia v Chamberlain Industries Pty. Ltd. (1970), 121 C.L.R., at p. 17; Dickenson's Arcade Pty. Ltd. v Tasmania (1974), 130 C.L.R., at pp. 185, 238; M. G. Kailis (1962) Pty. Ltd. v Western Australia (1974), 130 C.L.R. 245, at pp. 251-252, 265; Hematite Petroleum Pty. Ltd. v Victoria (1983), 151 C.L.R., at p. 631; Philip Morris Ltd. v Commissioner of Business Franchises Vic (1989), 167 C.L.R., at p. 426.
On the other hand, the opposite view is to be found, cogently expressed, in the cases. In Dennis Hotels Pty. Ltd. v Victoria Menzies J. said [18] :
I cannot find in the Constitution any indication that duties of customs and of excise were grouped together as a comprehensive description of any taxation in respect of goods so as to exclude the States altogether from that field. The import, export, and production of goods seem to me to constitute such a cohesive subject matter that considerations of policy as well as of revenue might well be thought to warrant a grant of exclusive taxing power to the Commonwealth with regard thereto without going further to extend that grant to cover taxation in respect of all dealings in goods. In Dickenson's Arcade Pty. Ltd. v Tasmania [19] Menzies J. reiterated his view and added that the power to grant bounties made exclusive by s. 90 is likely to be coextensive with the exclusive power to impose duties of customs and excise and the former power is limited to "bounties on the production or export of goods". These, he said, together with imports are the matters to which s. 90 relates, not indirect taxation or control of the economy of Australia [20] . 1. (1960) 104 C.L.R., at pp. 582-583. 2. (1974) 130 C.L.R., at pp. 212-213. 3. And see also ibid., at p. 222, per Gibbs J.
In Hematite Petroleum Pty. Ltd. v Victoria [21] Gibbs C.J. pointed out that upon any view s. 90 confers upon the Commonwealth Parliament only a very limited power to control the economy. Clearly within the province of the States are various taxes, such as payroll tax, or controls, such as quotas on production, which can affect the production or manufacture of goods. Moreover, there are measures available to the States, such as tax concessions, reduced freight charges or assistance in the provision of infrastructure, to encourage production.
In Philip Morris Ltd. v Commissioner of Business Franchises Vic , Mason C.J. and Deane J. extended the dictum of Dixon J. concerning Commonwealth control of the taxation of commodities [22] . In their view ss. 51(ii), 51(iii), 88, 90 and 92:
ordain that the Commonwealth be an economic union, not an association of States each with its own domestic economy Customs duties, excise duties and bounties are measures which are designed to affect domestic production and manufacture of goods and the supply of goods to the domestic market. The Commonwealth having exclusive power over these aspects of fiscal policy, the sources of State revenue in relation to commerce in goods are correspondingly confined. But it does not appear that the Commonwealth was intended to have exclusive power over domestic production and manufacture of goods and the supply of goods to the domestic market, any more than it has exclusive control over taxes which affect the production and manufacture of goods. Not only is production affected by the matters I have just described, but the supply of goods may be affected by the regulation of transport, health and safety, and a number of other matters within the province of State legislatures, some of which are beyond Commonwealth legislative power. 1. (1989) 167 C.L.R., at p. 426.
I might add that it has never been suggested, nor could it be, that the aim of federation was to create economic unity within the Commonwealth. As Stephen J. said in Seamen's Union of Australia v Utah Development Co. [23] :
It was no part of the federal compact that this vital function of colonial governments, the development of the economies of their respective communities, should pass, on federation, to the Commonwealth. Accordingly, the Commonwealth was granted no express head of power to legislate on this subject matter. That Australia as a whole should be an area of free trade was, no doubt, one great aim of federation: hence the Commonwealth's exclusive power over customs, excise and (subject to s. 91) bounties. But the promotion of free trade between the States did not also require that the States should surrender their function of encouraging otherwise than by direct pecuniary bounties, the production and export of goods. State policies which legitimately affect resource allocation inevitably give rise to economic distortions. An economic distortion may be defined as "any policy which interferes with the resource allocation functions of the market" [24] . That means that it is not possible to eliminate all economic distortions in a federation. Necessarily, there is a tension between the advantages of complete economic integration and the political values which led the people of Australia to seek a federal rather than a unitary system of government [25] . The problem in interpreting s. 90, as with s. 92, is to identify those distortions which the section proscribes and those which it does not. 1. (1978) 144 C.L.R. 120, at pp. 140-141; see also p. 133, per Gibbs J.; pp. 148-149, per Mason J. 2. See Prichard & Benedickson, Securing the Canadian economic union: federalism and internal barriers to trade, in Trebilcock et al. (eds), Federalism and the Canadian economic union (1983), p. 8. 3. The situation in Canada is similar: Canada, Royal Commission on the economic union and development prospects for Canada, Report , (1985), vol. 3, pp. 131-133.
In interpreting s. 90, it is not to the point that the Constitution was designed to achieve an "economic union" [26] . An economic union by definition is not a unitary state and involves distortions between state economies [27] . An economic union which involves partial integration between state economies may well yield most of the benefits of economic integration even though its members' economies remain separate and distinct [28] . Indeed, many federations and federal systems have state-based taxes upon the distribution of goods [29] , these being regarded as less significant barriers to free trade than some matters within the competence of the Australian States [30] .
Indeed, the wider view of excise duties has in fact produced economically undesirable results. Gibbs C.J. refers with approval [31] to the view that the extension of the definition of "excise" made in the cases since Peterswald v Bartley has impeded the achievement of a rational and lasting division of financial powers in the Australian federal system and has led the States to impose some forms of taxation which "although constitutionally permissible, are less economically desirable than taxes now categorized as duties of excise" [32] . Wilson J. adopted a similar approach [33] and in Gosford Meats Pty. Ltd. v New South Wales [34] warned against looking beyond the Constitution in order to mould the concept of an excise duty to fit "subjective understandings of desirable contemporary economic or political goals". In Philip Morris Ltd. v Commissioner of Business Franchises Vic [35] , I expressed my agreement with these views.
The third reason for departing from Peterswald v Bartley was said to be that the expression "duties of excise" could not be confined to taxes on production and manufacture [36] . There is, I think, no need to dwell upon that reason here. Whilst it is true that the expression can be given a wide meaning and was initially treated by Dixon J. in Matthews v Chicory Marketing Board Vic [37] as not only a tax upon the production, manufacture or sale of goods but also a tax upon consumption, he later modified that view, in deference to the decision of the Privy Council in Atlantic Smoke Shops Ltd. v Conlon [38] , to exclude a tax upon consumption [39] . Since Parton v Milk Board Vic it has been accepted that an excise duty does not extend to a tax upon consumption. Indeed, the criterion of liability test adopted in Bolton v Madsen [40] expressly stopped short at "the point of receipt by the consumer" in its definition of an excise duty. Once it is accepted that s. 90 must be confined, the only safe guide to its true meaning is the purpose which lies behind s. 90. That purpose is indicated by the history of the section, its context and even by the express words of s. 93 which, in speaking of duties of excise, restrict them to "duties of excise paid on goods produced or manufactured in a State".
I have already referred briefly to the view expressed by Murphy J. but it is necessary to return to it in more detail because, although it departs from authority, it reflects, in my opinion, a correct interpretation of s. 90. In Hematite Petroleum Pty. Ltd. v Victoria he said [41] :
In the Australian Constitution an excise is a tax on production (including manufacture). State excise is a tax on production within the State. State customs duty is a tax on goods produced outside and [then] imported into the State. Section 90 prohibits State taxation which discriminates between goods produced in the State and those produced outside the State, and prohibits State bounties on production (or export). The constitutional concept of excise forbidden to the States is limited to taxes on production within the State; it does not extend to taxes on distribution or consumption unless these are in substance taxes on production within the State. In general, a tax on wholesale or retail sale which does not discriminate between goods on the basis of their production within or without the State, is neither customs nor excise. In general a sales tax applied indiscriminately on all goods or on a class or classes of goods, wherever produced, would not contravene s. 90 as an excise or a customs duty. I say in general, because a tax may in reality be a tax on production, even if expressed to be a sales tax. For example, a sales tax restricted to a particular commodity produced only or substantially only in the State, might be in substance, though not in form, a tax on the production of that commodity in the State. That view conforms, I think, with the decision in Peterswald v Bartley , acknowledging that, in the light of subsequent cases, particularly Matthews v Chicory Marketing Board Vic and Hematite Petroleum Pty. Ltd. v Victoria , it can no longer be said that an excise duty must be imposed in relation to the quantity or value of goods. Of course, the fact that a tax is so imposed may serve to indicate that it is a tax upon goods. Nor is it any longer necessary to rely upon any distinction between direct and indirect taxes. In any event, it may well be that Griffith C.J. himself did not suggest that the distinction was a necessary one when defining an excise duty. As Fullagar J. pointed out in Dennis Hotels Pty. Ltd. v Victoria [42] , Griffith C.J.'s concluding words "and not in the sense of a direct or personal tax" were not intended "to add anything by way of definition to what he had already said, but merely to give an example, by way of contra-distinction, of something which would not be a duty of excise". 1. (1983) 151 C.L.R., at p. 638. 2. (1960) 104 C.L.R., at p. 553.
The view expressed by Murphy J. is also in accordance with the view expressed by McTiernan J. in Parton v Milk Board Vic [43] and by Fullagar J. in Dennis Hotels Pty. Ltd. v Victoria . In the latter case Fullagar J. said [44] :
The duties of customs and duties of excise contemplated by the Constitution are, I think, alike duties which are imposed as a condition of the entry of particular goods into general circulation in the community - of their introduction into the mass of vendible commodities in a State. When once they have passed into that general mass, they cease, I think, to be proper subject-matter for either duties of customs or duties of excise. 1. (1949) 80 C.L.R., at pp. 264-267. 2. (1960) 104 C.L.R., at p. 556; see also The Commonwealth and Commonwealth Oil Refineries Ltd. v South Australia (1926), 38 C.L.R., at pp. 419-420, 426, 439.
The criterion of liability test having been abandoned by other members of the Court as the determinant of an excise duty and the so-called substance of an excise duty - otherwise than as a tax tending to find its way into the price of a commodity - remaining unidentified, I would now accept the view expressed by Murphy J. in the passage which I have just cited. In my opinion it represents a return to the true purpose of s. 90 having regard to its origin and the function which it was intended to perform.
I would, however, query whether an excise duty is confined to a tax upon production within the relevant State. Of course, following upon Capital Duplicators Pty. Ltd. v Australian Capital Territory [No. 1] [45] , the imposition of excise duties is denied to a Territory and I can see no reason, questions of power and the application of s. 92 aside, why a State tax upon the local production of goods, albeit production outside the State, should not constitute a duty of excise. Such a tax may interfere with the intended effect of an external tariff on goods of the same kind no less than a tax upon goods produced within the State and so be within the aim of s. 90. But it is a question which is not, practically speaking, likely to arise and may be left for another day.
For constitutional purposes an excise duty is a tax which falls selectively upon the local production or manufacture of goods. Where the tax is imposed by reference to a step taken in the production or manufacture of goods, its character as an excise duty will ordinarily be clear even if the duty is not payable until after the step has been taken. But a tax may be expressed to be imposed upon a step subsequent to production or manufacture and yet in substance be a tax upon production or manufacture and so be an excise duty. For example, a tax upon sale by a producer or upon the first sale after production may be an excise duty if it selects only sales by the local producer or sales which are linked to local production so that the basis of the selection is local production. On the other hand, a tax upon all sales does not tax production or manufacture and for that reason is not an excise duty. This approach is to be seen in the judgments of the majority in The Commonwealth and Commonwealth Oil Refineries Ltd. v South Australia [46] . For example, the following passage appears in the judgment of Isaacs J. [47] :
Licences to sell liquor or other articles may well come within an excise duty law, if they are so connected with the production of the article sold or are otherwise so imposed as in effect to be a method of taxing the production of the article. But if in fact unconnected with production and imposed merely with respect to the sale of the goods as existing articles of trade and commerce, independently of the fact of their local production, a licence or tax on the sale appears to me to fall into a classification of governmental power outside the true content of the words "excise duties" as used in the Constitution. It may be added that a tax on all sales of a particular class of goods cannot impair the tariff policy behind the imposition of customs duties upon articles within the class because, to the extent that it does have an effect upon the price to the consumer, it does so indiscriminately without regard to whether the articles were imported or produced locally. 1. (1926) 38 C.L.R. 408. 2. ibid., at p. 426.
The actual decisions of the Court since Dennis Hotels Pty. Ltd. v Victoria would, interestingly enough, have been little different if the scope of an excise duty for constitutional purposes were confined as in my view, freed from the authority of Parton v Milk Board Vic , it ought to be [48] . True it is that Western Australia v Chamberlain Industries Pty. Ltd. [49] could not stand. In that case, the relevant Western Australian legislation required a receipt to be issued for all moneys received and to be stamped with duty at a specific rate. Clearly that tax, even when the receipt was in respect of the sale of goods, would not constitute an excise duty upon the view which I have expressed. And in Dennis Hotels Pty. Ltd. v Victoria [50] the fee for a temporary victualler's licence, as well as the fee for an annual victualler's licence, would not amount to an excise duty upon my view because, seen as a tax, it was a tax upon all sales and not a tax upon local production or manufacture.
On the other hand, the levy in Logan Downs Pty. Ltd. v Queensland [51] , the licence fee in M. G. Kailis (1962) Pty. Ltd. v Western Australia [52] and the licence fee in Gosford Meats Pty. Ltd. v New South Wales [53] were considered by the majority in each case to be a tax upon the local production or manufacture of goods (and not upon imported goods) and would be regarded as excise duties even upon the more confined view. Similarly, the pipeline fee in Hematite Petroleum Pty. Ltd. v Victoria [54] was regarded by the majority as a tax upon a step in the local production of refined petroleum products. On the other hand, the stamp duty on hire-purchase agreements which was held in Anderson's Pty. Ltd. v Victoria [55] not to be an excise duty was clearly not a tax upon production or manufacture and would not be an excise duty upon the narrower view. I note by contrast that in Cole v Whitfield the Court overruled an interpretation of s. 92 which had been applied by the Court with more or less enthusiasm in a large number of cases between the Bank Nationalisation Case [56] and Miller v TCN Channel Nine Pty. Ltd. [57] .
The first of the questions reserved for the consideration of the Court is: "Are any, and if so which, of the provisions of the Business Franchise (X Videos) Act 1990 ACT invalid as imposing, in any respect, either a duty of excise or a duty of customs or both within the meaning of s. 90 of the Commonwealth Constitution?" Upon the assumption that the fees charged by the "X" Videos Act for a licence to wholesale or retail "X" videos are taxes upon goods, they are taxes upon sale or hire (both wholesale and retail include hiring by definition) and apply whether the goods sold or hired are locally manufactured or produced or imported. For that reason, the tax is a tax upon "the sale of the goods as existing articles of trade and commerce, independently of the fact of their local production" [58] and is not an excise duty. In fact, it does not appear whether the "X" videos sold or hired in the Australian Capital Territory are wholly produced or manufactured locally or whether they include imported items. However, that is of no consequence because the legislation does not impose the tax, either in substance or in form, upon local manufacture or production. Similarly, the tax is not a customs duty because it is not imposed upon goods in their character as articles of overseas production. I would answer the first question in the negative.
The second question is: "Are any, and if so which, of the provisions of [the Act] invalid under the Australian Capital Territory (Self-Government) Act 1988 Cth as being a law with respect to a "classification of materials for the purposes of censorship"?"
Under the Australian Capital Territory (Self-Government) Act 1988 Cth, s. 23(1)(g), the Legislative Assembly of the Australian Capital Territory has no power to make laws with respect to "the classification of materials for the purposes of censorship". Under s. 37, the Executive has the responsibility of governing the Territory with respect to those matters specified in Sch. 4. Schedule 4 includes "Territorial censorship, except classification of materials". The plaintiffs contend that s. 4(1) of the X Videos Act, which attaches consequences to material classified as an "X" film under the Classification of Publications Ordinance 1983 ACT ("the Classification Ordinance"), is a law with respect to the classification of materials for the purposes of censorship and for that reason is beyond the power of the Australian Capital Territory legislature.
It may not be immediately apparent that the purposes of the "X" Videos Act include censorship, but that question may be put to one side. The primary meaning of "classification" is the act of arranging or distributing in classes according to common characteristics or affinities [59] . Section 25 of the Classification Ordinance prescribes classes for films, one of which is "X", the others being "G" (suitable for general exhibition), "PG" (parental guidance recommended for persons under the age of fifteen years), "M" (not recommended for viewing by persons under the age of fifteen years) and "R" (likely to cause offence to a reasonable adult person, or unsuitable for a minor). The Classification Ordinance remains in force in the Territory after self-government, but may not be amended by the Legislative Assembly [60] . The classification of films under the Classification Ordinance is adopted for the purposes of the States and the Northern Territory under an agreement between them and the Commonwealth [61] , although the consequences attaching to the classification may vary under State or Territory legislation [62] . The inability of the Legislative Assembly of the Australian Capital Territory to amend the Classification Ordinance would suggest an intention to perpetuate a uniform system of classification throughout Australia.
The adoption by the "X" Videos Act of the classification of "X" films under the Classification Ordinance does not mean that the "X" Videos Act is a law with respect to the classification of materials. To attach consequences to an existing classification of materials is not to classify them - to arrange or distribute them into classes. The classification takes place under the Classification Ordinance which provides the method or system for doing so. The "X" Videos Act does not move films which are assigned an "X" classification under the Classification Ordinance to or from that classification, nor does it attempt any subdivision of that classification. In my view the "X" Videos Act is not a law with respect to the classification of materials and does not lie beyond the power of the Legislative Assembly. I would answer the second question in the negative. It is unnecessary to answer the third question.
On 23 March 1993 the Chief Justice reserved certain questions [63] for the consideration of the Full Court:
(1) Are any, and if so which, of the provisions of the Business Franchise (X Videos) Act 1990 ACT invalid as imposing, in any respect, either a duty of excise or a duty of customs or both within the meaning of s. 90 of the Commonwealth Constitution?
(2) Are any, and if so which, of the provisions of that Act invalid under the Australian Capital Territory (Self-Government) Act 1988 Cth as being a law with respect to a "classification of materials for the purposes of censorship"?
(3) If the answer to any part of questions (1) or (2) is "yes", are any, and if so which, further provisions of that Act incapable of being severed from those provisions and therefore invalid?
The principal question for determination is whether any of the provisions of the Business Franchise (X Videos) Act 1990 ACT ("the Act") [64] imposes a duty of excise for the purposes of s. 90 of the Constitution.
The Act is concerned with the wholesaling and retailing of "X" videos. An "X" video is defined as a video classified as an "X" film under the Classification of Publications Ordinance 1983 ACT [65] .
A person shall not "wholesale" "X" videos, a term which is defined (s. 4(1)) to include hiring to another person for the purpose of retail or wholesale trade and carrying on the business of wholesaling, unless he or she is the holder of a wholesale licence and wholesales "X" videos in accordance with that licence. A person shall not "retail" "X" videos, a term which is defined (s. 4(1)) to include hiring to another person in the course of retail trade and carrying on the business of retailing, except in accordance with a retail licence.
Penalties are imposed on persons who wholesale "X" videos without a licence or who wholesale or retail "X" videos otherwise than in accordance with a licence. The sanctions are by way of fine or imprisonment (ss. 24, 25).
The Act imposes a regime of licence fees on the holders of wholesale and retail licences, calculated by reference to the quantum of trade in "X" videos. Wholesalers pay tax on "X" videos supplied during the licence period and retailers pay tax on stock offered for sale in relation to which tax has not already been paid, either by a wholesaler or by the retailer in a previous licence period. It is the character of these licence fees that is at the centre of the dispute. The Legislative Assembly of the Australian Capital Territory is not empowered to impose a duty of excise [66] . The plaintiffs contended that the licence fees are duties of excise. The terminology "Business Franchise", employed in the title of the Act, has no doubt been borrowed from similar language used in State legislation. This terminology, however, gives "franchise" a rather different meaning to that which is generally understood.
It is necessary to say a little more about the way in which licence fees are assessed. An applicant for either a wholesale or a retail licence must pay a basic fee of $50 for each premises to which the licence relates (ss. 4(1), s. 18). The applicant must also pay at the time of application an amount estimated as equal to the advance fee, which is calculated as 40 per cent of the wholesale value of the relevant "X" videos in the initial month-long licence period (s. 19). The advance fee itself is due and payable at the expiration of the licence period but the amount paid upon application is held on account of the advance fee. An application for the first renewal of a licence must also be accompanied by an estimate of the advance fee (calculated by reference to the second month of the licence); again it is payable in full at the expiration of that licence period (s. 19).
For the second and subsequent renewals, the Act prescribes franchise fees referable to, in the case of a wholesale licence, 40 per cent of the total wholesale value of the "X" videos supplied by wholesale in the month which is two months prior to the month for which the renewal is sought. In the case of a retail licence the fee is 40 per cent of the total wholesale value of the "X" videos manufactured by the licensee and the "X" videos supplied to the licensee otherwise than in accordance with a wholesale licence, being videos offered for retail sale by the licensee in the month which is two months prior to the month for which the renewal is sought (s. 20). It should be noted that no franchise fee is payable in relation to the supply or offer for retail sale of an "X" video where such a fee is payable in relation to any previous supply or offer for retail sale of that video (s. 21).
It is not in issue that the licence fees made payable by the Act are taxes [67] ; the question is whether they are also duties of excise.
The plaintiffs took the decision of the Court in Philip Morris Ltd. v Commissioner of Business Franchises Vic [68] as a starting point in their argument that the licence fees imposed by the Act are duties of excise. It was held in that case that a monthly licence fee imposed on the sale of tobacco, calculated by reference to the value of tobacco sold in the last preceding month but one, was not a duty of excise under s. 90 of the Constitution. Although the reasons which led the members of the majority (Mason C.J., Deane, Dawson, Toohey and Gaudron JJ.) to that conclusion diverged, the plaintiffs submitted that the tests adopted by Mason C.J. and Deane J. (jointly), who were part of the majority, and by Brennan J. and McHugh J. (constituting the minority) combined to render the licence fees in the present case an excise. Perforce, the plaintiffs argued that the test which we applied in Philip Morris should not be followed.
The plaintiffs further argued that if the fees were held to be regulatory within the "exception" formulated by Mason C.J. and Deane J. in Philip Morris, it would follow that the Act was concerned with censorship and hence beyond the powers conferred upon the first defendant, the Australian Capital Territory. Underlying this submission is s. 23(1) of the Australian Capital Territory (Self-Government) Act 1988 Cth which provides that the Legislative Assembly for the Australian Capital Territory "has no power to make laws with respect to: (g) the classification of materials for the purposes of censorship."
It is necessary for the Court to look yet again at s. 90 of the Constitution, the opening paragraph of which reads:
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.
In Peterswald v Bartley , Griffith C.J., delivering the judgment of the Court, said of "excise" [69] :
The fundamental conception of the term is that of a tax on articles produced or manufactured in a country. Griffith C.J. amplified this view later in the judgment when he said [70] : [T]he conclusion is almost inevitable that, whenever [excise] is used, it is intended to mean a duty analogous to a customs duty imposed upon goods either in relation to quantity or value when produced or manufactured, and not in the sense of a direct tax or personal tax. 1. (1904) 1 C.L.R. 497, at p. 508. 2. ibid., at p. 509.
The decisions touching s. 90 necessarily concern the meaning to be attached to excise. The Court was furnished with a great deal of material relating to the use of the term "excise" in the Australian colonies before 1901. It is apparent from that material, which includes statutory provisions and financial statistics, that excise was a term applied to taxes on the local production of goods. As the Solicitor-General for South Australia observed in the course of his argument, there appears to be no instance of the term being applied to a tax imposed on later steps in the process of distribution. This understanding is reflected in the Convention Debates to which Dawson J. has referred in his judgment.
In England a wider meaning was attributed to the term "excise" but it was the Australian context which led Griffith C.J. to identify excise in the way he did in Peterswald v Bartley , saying of the term [70] : "we are entitled to take notice of the sense in which it has been understood and used in the legislation of the various States." There can be no doubt as to the general understanding at the time of federation. If further support be needed, it can be found in the comment of Quick and Garran [71] that "[t]he basic principle of excise duties was that they were taxes on the production and manufacture of articles which could not be taxed through the customs house".
At the forefront of the debate in the present case is whether, as the defendants contended, the Court should return to the meaning attached to "excise" in Peterswald v Bartley and thereby reject the departures from that approach that have taken place, particularly the decision in Parton v Milk Board Vic [72] . That decision broadened the concept of excise to include any tax upon a commodity at any point in the course of manufacture and distribution before it reaches the consumer. This broad definition has been called upon regularly in the numerous cases since Parton was decided. However, another view, more akin to the approach in Peterswald v Bartley , has maintained a voice in the Court. Furthermore, the broad definition has been the subject of differing applications. One approach was to apply that definition in a manner which focused on the "criterion of liability" by which the tax was levied [73] . The interpretation of s. 90 since Parton , therefore, has been a tussle between three strands of authority:
The three strands of authority are categories only but they demonstrate the diversity of opinion which has persisted within the Court since Parton was decided. 1. (1949) 80 C.L.R. 229. 2. See Dennis Hotels Pty. Ltd. v Victoria (1960), 104 C.L.R. 529, at p. 559, per Kitto J.; Bolton v Madsen (1963), 110 C.L.R. 264, at p. 271.
The prime example of the differing approaches is to be found in Dennis Hotels Pty. Ltd. v Victoria [74] which involved a scheme of retrospective licence fees imposed on sellers of alcohol. The form of the scheme was much the same as that of the impugned legislation in Philip Morris and indeed in the present case. In Dennis Hotels, Dixon C.J. [75] , McTiernan J. [76] and Windeyer J. [77] applied the broad definition and would have struck down the scheme as a tax on goods. Fullagar J. [78] and Menzies J. [79] applied the approach taken in Peterswald v Bartley and would have upheld the legislation because it was not a tax on local production or manufacture. Kitto J. [80] and Taylor J. [81] adopted the broad definition of excise but held the scheme valid as the holding of a licence rather than the goods was the criterion of liability [82] . Therefore the decision in Dennis Hotels reflected two different strands of authority agreeing in the result. Notwithstanding this conglomerate ratio in Dennis Hotels, the decision has stood as authority for the validity of retrospective licence fees and was the first of the so called trilogy of cases which upheld the constitutional validity of the taxes in relation to alcohol, tobacco [83] and petrol [1] upon which a substantial proportion of State revenue is now based.
The Court was not invited by the plaintiffs to reconsider these cases, but the defendants argued that Dennis Hotels and Dickenson's Arcade Pty. Ltd. v Tasmania should be reconsidered as falling within the concept of excise for which they contended. For the most part the interveners opposed any reconsideration of these decisions.
Having acknowledged that in a number of decisions the Court has moved away from the meaning attached to excise in Peterswald v Bartley , there is no point in discussing further those decisions which, in any event, are canvassed in the various judgments in Philip Morris. Furthermore, the matter is not resolved merely by a tally of the judgments delivered in those cases. In the light of the arguments now presented to the Court, the essential question is whether the move away from the view of s. 90 taken in Peterswald v Bartley truly reflects the operation of s. 90. Further it must be considered whether the reasoning underlying that move is consistent with what the Court said in Cole v Whitfield [2] .
The constitutional discussion has also been on a wider plane, namely, the place of s. 90 within the political and economic framework of the Constitution. Section 90 does confer a power on the Parliament [3] but it is a power with a purpose, namely, the power to effectuate economic policy with respect to Australian exports and imports. To secure that purpose it is necessary only to deny to each State the power to levy duties of customs on goods entering that State from overseas, the power to levy duties of excise on goods locally produced or manufactured and the power to grant bounties on goods produced or manufactured in that State. To deny the States (and the Territories) those powers ensures a uniform policy in regard to external tariffs.
The point was made by Murphy J. in Logan Downs Pty. Ltd. v Queensland [4] that taxes imposed without regard to the place of production or manufacture are neither duties of customs nor duties of excise for they do not discriminate between commodities locally produced and other commodities.
In Philip Morris we sought, as did Dawson J., to point out that once excise is regarded as embracing not only a tax upon manufacture or production but also a tax upon a commodity at any point before it reaches the consumer, the correlation between duties of customs and duties of excise is lost, a correlation which the Constitution demands. The argument is advanced that a tax upon a commodity at any point before it reaches the consumer produces the same effect as a tax upon its manufacture or production [5] . But it is apparent that a tax upon the distribution of goods may have different consequences from a tax upon their production. For example, a tax upon production has an impact only on goods produced locally, thereby affecting the price of those goods as compared with goods produced overseas; a tax on the sale of goods impacts on both and, if non-discriminatory, on both equally.
In Parton Dixon J., having spoken of the perceived intention of s. 90 "to give the Parliament a real control of the taxation of commodities", added [6] :
A tax upon a commodity at any point in the course of distribution before it reaches the consumer produces the same effect as a tax upon its manufacture or production. If the exclusive power of the Commonwealth with respect to excise did not go past manufacture and production it would with respect to many commodities have only a formal significance. But, as we observed in Philip Morris [7] : On this view it is difficult to see any basis for distinction between taxes imposed during the course of production or manufacture and those imposed at any subsequent point, including the point of consumption. The point had been made earlier by Gibbs J. in Dickenson's Arcade [8] . 1. (1949) 80 C.L.R., at p. 260. 2. (1989) 167 C.L.R., at p. 480. 3. (1974) 130 C.L.R., at p. 218.
Further, if an excise is regarded as an impost on goods by virtue of their local production rather than an impost on the local production itself, the apparent difficulty is avoided.
Once again, to borrow from our judgment in Philip Morris [9] :
If the relevant goods include both goods produced or manufactured in Australia and goods produced or manufactured overseas then the significance of a reference to production or manufacture lies only in its serving to restrict the concept of duties of excise to articles of commerce. In that event the relevant connexion might well be constituted by any relationship affecting the goods as articles of commerce. On the other hand, if the relevant goods are goods produced or manufactured in Australia, there is no self-evident reason why the relevant connexion should extend beyond a relationship affecting those goods as items of Australian production or manufacture. 1. (1989) 167 C.L.R., at pp. 478-479.
There are of course judgments in the Court which have attributed particular qualities or characteristics to certain commodities, alcohol and tobacco in particular. The characteristics are said to invoke the need for their regulation, with the consequence that those commodities do not in any event fall within the operation of excise. There are, we suggest, considerable difficulties in that approach, particularly if a distinction is to be made on the basis of their harmfulness.
In terms of the harm that a particular commodity may cause, a distinction between alcohol and tobacco on the one hand and "X" videos on the other would be very tenuous indeed. And to draw such a distinction, whether by reference only to physical harm or otherwise, would be to make a value judgment which the Court is not equipped to make on the basis of any material presented in this case. It is true that the absence, in the subject legislation, of controls over the sale of "X" videos does support an argument that the legislation is not concerned with the protection of the public. But the argument can go no further; videos are already subject to registration, censorship and control in all States and Territories [10] . The point is simply that the commodity to which the legislation relates, that is "X" videos, affords no basis for distinguishing it from alcohol or tobacco. In truth, any such distinction has no surer foundation than the special position attributed to the latter in Dennis Hotels and Dickenson's Arcade.
Reconsideration of Dennis Hotels and Dickenson's Arcade
So far as those two decisions are concerned, we have considered the arguments for and against their reconsideration. For the reasons we gave in Philip Morris [11] , these decisions should be treated as anomalous exceptions to the concept of excise duties. It is unnecessary to repeat those reasons. In any event, our approach to s. 90 would have upheld the validity of the legislation considered in those cases.
Before the decision of the Court in Cole v Whitfield , Murphy J. had adopted a concept of discrimination in relation to s. 90. In Logan Downs, his Honour said [12] :
In general, taxes imposed without regard to the place of production or manufacture are neither duties of customs nor duties of excise. The essence of each duty is the tendency to discriminate between goods locally produced and other goods. In our view this approach to s. 90 is correct. We would add that in this, as in other areas, discrimination is a matter of substance and effect not simply a matter of form. 1. (1977) 137 C.L.R., at p. 84.
Later, in Hematite Petroleum Pty. Ltd. v Victoria [13] Murphy J. spoke of s. 90 as prohibiting State taxation which discriminates between goods produced in the State and those produced outside. His Honour added [14] :
The constitutional concept of excise forbidden to the States is limited to taxes on production within the State; it does not extend to taxes on distribution or consumption unless these are in substance taxes on production within the State. 1. (1983) 151 C.L.R. 599. 2. ibid., at p. 638.
There is much to be said for the view that the text of the Constitution favours the identification of goods which are the subject of duties of excise forbidden to a State by s. 90 as goods produced or manufactured in that State. However, we acknowledged [16] that "the overwhelming weight of authority favours the identification of the relevant goods caught up in the prohibition as goods produced or manufactured in Australia". 1. (1989) 167 C.L.R., at p. 479. 2. ibid., at p. 480.
This debate as to whether s. 90 prohibits taxes which discriminate against goods produced in a State or goods produced in Australia warrants further consideration. The approach taken by Murphy J., which is reflected also in his Honour's judgments in H. C. Sleigh Ltd. v South Australia [1] and in Gosford Meats Pty. Ltd. v New South Wales [2] , results from what his Honour saw as jurisdictional constraints. In particular, as Murphy J. saw it, a State is not competent to legislate outside its jurisdiction and cannot therefore legislate regarding the production of goods in another State. Furthermore, a tax on goods entering a State would discriminate against their production outside the State and therefore "be a duty of customs prohibited by s. 92" [3] of the Constitution.
There are difficulties with this approach. The first is that it assumes that an excise is a tax on the production of a commodity rather than on a commodity. In Philip Morris [4] we referred to the dictum of Dixon J. in Matthews [5] that for a tax to constitute a duty of excise it "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" [6] . The dictum identifies an excise as a tax on goods, imposed within jurisdiction, the goods themselves being identified by their place of production or manufacture. It is not a tax on the process of production or manufacture itself and therefore the place of production or manufacture raises no jurisdictional issues. On the view taken by Murphy J., a State tax on goods produced outside the State could not infringe s. 90 of the Constitution. But, on the view we express, such a tax may infringe s. 90. If this were not the case, one or more States could combine to destroy federal governmental policy by imposing a sales or consumption tax which would frustrate Commonwealth tariffs. For example, a State tax on automotive parts of Australian manufacture (regardless of State of origin) in an amount equivalent to the customs duty imposed on imported automotive parts would negate Commonwealth policy, a result the founders of the Constitution were at pains to avoid.
The second difficulty inherent in the approach of Murphy J. is that it denies the possibility of overlap, duplication and reinforcement in the Constitution. There is nothing in the Constitution that dictates that Commonwealth or State legislation may infringe only one constitutional principle at a time. It is clearly possible that a State tax may infringe both s. 90 and s. 92, and possibly other constitutional restraints as well. Sections 90 and 92 have related purposes but those purposes may, in one case, overlap and, in another, diverge.
The approach we have taken to the meaning and operation of excise is consistent with the approach taken in Cole v Whitfield , namely, to identify the purpose of the section which, in the case of s. 92, is to strike down laws which impose discrimination of a protectionist nature. Likewise, s. 90 strikes down such laws in relation to Australian exports and imports, that is, State taxation measures which discriminate against goods manufactured or produced in Australia.
The licence fees imposed by the Act are taxes upon commodities but they are imposed whether the videos sold or hired are manufactured locally or whether they are imported. There is therefore no discrimination involved and the tax does not constitute a duty of excise. The first question should therefore be answered in the negative.
As to the question whether any of the provisions of the Act is invalid as being a law with respect to a "classification of materials for the purpose of censorship", we agree with the judgment of Dawson J. in answering that question also in the negative.
Capital Duplicators Pty Ltd
Australian Capital Territory
High Court of Australia Mason C.J. Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ. Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] [1993] HCA 67