Deputy Federal Commissioner of Taxation (SA) v Ellis & Clark Ltd [1934] HCA 54;

Deputy Federal Commissioner of Taxation (SA) v Ellis & Clark Ltd [1934] HCA 54; - HCA 1934 case summary — Zoe

[8]

The defendant is a dealer in second-hand electrical goods, which he resells: in some cases he first repairs them, in others he does not. The question is whether sales tax is payable upon the sales made by the defendant during the period from February 1931 to November 1932. It depends upon the construction of the Sales Tax Acts and the Sales Tax Assessment Acts 1930-1932. The Commissioner relied upon the general words in the Assessment Acts Nos. 3 and 7 of 1930-1932. The conditions of liability, according to his view, were simply the existence of manufactured or imported goods, and the sale of such goods by a person registered or required to be registered under the Acts to an unregistered person or to a registered person who had not quoted his certificate in respect of the purchase of those goods. (See Assessment Acts No. 3, No. 7, secs. 3 and 4.) The argument for the defendant established, I think, that the Commissioner's view is entirely opposed to the scope of the Acts and might work considerable hardship. But I shall not deal with the argument at length. The Acts emphasize that the tax is imposed upon the sale value of goods manufactured in or imported into Australia. Every person who is a manufacturer or a wholesale merchant must register under the Acts. The tax is not levied upon successive sales, but is one tax levied upon the wholesale value of goods. It is not a tax levied upon the retail value of goods. The scheme of the Acts lays a tax upon the sale value of goods preceding retail distribution. But if this is clear, as I think it is, then second-hand goods - that is goods which have already been distributed or gone into use - fall outside the scope of the tax. Indeed if this were not so, double taxation might result, which is clearly contrary to the provisions of the Acts. As goods manufactured in or imported into Australia, such secondhand articles would have already paid tax upon their wholesale value, and to levy it again in respect of their wholesale value as second-hand goods is not obviating double taxation, but imposing it. It is true that a refund might be claimed, but it could only be obtained by establishing that tax had already been paid in respect of the wholesale value of the goods, which would be difficult and in many cases wholly impossible.

[10]

Because of some apprehension as to the possible effect of sec. 55 of the Constitution on its validity, if the sales tax legislation were enacted in one assessment Act and one taxing Act, it was passed in the form of nine separate machinery statutes and nine separate taxing Acts. They constitute, however, a single legislative scheme to the complete operation of which all are necessary, and they should be construed together. Moreover, the legislation depends in a remarkable degree upon the regulations made under the power which it confers on the Executive. Without the regulations, not only is it unworkable, but the expression of legislative policy is so inadequate as almost to be unintelligible. Although the tax levied by the enactments is called a sales tax, it is not a tax upon all sales of commodities. It is a tax levied upon one only of the transactions which commonly take place in respect of goods before they reach the consumer after they are imported into or produced in Australia. It appears that it was not intended that the retail price of goods should be increased by the incorporation in it of more than one amount of tax. The general policy of the legislation is to levy this tax upon the last sale of the goods by wholesale, that is upon the sale to the retailer by the last wholesaler. To give effect to this policy, every person who engages, whether exclusively or not, in the sale of goods by wholesale is required to register. Upon registration, he becomes bound to keep proper books, make returns of his sales, and pay the tax. He receives a certificate bearing a number and this certificate he is bound to quote when he buys goods, unless, besides being a wholesale merchant, he is a retailer and he sells principally by retail. A sale to a person who quotes his certificate is not the subject of tax, and thus, if there be successive sales to wholesalers, the goods do not incur tax until the last wholesaler sells them to the retailer. Then an ad valorem duty is imposed on that sale, which presumably was considered likely to be at a price higher than the preceding sales. It was not the object of the legislation to levy the tax on sales by retail. But obviously the general policy of taxing the last sale by wholesale, the sale by a wholesaler to a retailer, did not admit of universal application. Manufacturers and importers might themselves sell by retail. Wholesale merchants, although they sold chiefly by wholesale and not principally by retail, owing to the exigencies of commerce might actually sell by retail goods which had been purchased with the intention of reselling them by wholesale. Manufacturers, importers, and wholesale merchants might take into their own consumption or use the goods they had acquired in the course of their businesses. Moreover, goods are introduced into Australia either by importation or manufacture, and until the tax is levied upon them, their course from that point towards consumption must be capable of check. Elaborate provisions are made in the Acts and regulations to deal with these matters.[1] Manufacturers must be registered and receive certificates. They must pay tax upon the first sale of manufactured goods, unless the buyer is himself registered and quotes his certificate. Manufacturers also must pay tax when they take their manufactured goods into use or consumption. The buyer from the manufacturer, if he is or ought to be registered, must pay tax when he sells, unless the buyer from him is registered and quotes his certificate, and he must pay tax if he takes into his own use or consumption the goods he has bought from the manufacturer. So with any subsequent buyer of goods manufactured in Australia, who resells the goods by wholesale, or who takes into his own use or consumption goods in respect of the purchase of which he quoted his certificate. The tax is levied on the actual sale price, if the sale be by wholesale. If it be by retail, a wholesale price ascertained by other means is adopted, and the tax is calculated upon that.

[18]

It might be expected that once goods had gone into distribution in Australia they could not find their way back into the course of dealing with which the Act so deals. In general this is clearly true. When the owner of articles, which have been in his use in Australia, sells them, he does not in doing so, engage in the sale of goods by wholesale. The transaction is not that of a wholesale merchant. The buyer does not resell them by wholesale. The tax is not a tax on retailing. It is true that if an importer or manufacturer himself retails, he must pay tax, but the tax is levied on the wholesale value. In principle and policy it is a tax on sale by wholesale. In general, therefore, dealing in second-hand goods must fall outside the operation of the legislation, and but for what might be considered fortuitous circumstances sales of second-hand goods would never be included in the tax. Those circumstances are that persons who buy second-hand goods for the purpose of resale, may, because they happen also to be manufacturers or wholesale merchants, be registered under the Sales Tax Assessment Acts. If they do happen to be so registered, the exact words appear to apply in which tax is levied, in the case of goods manufactured in Australia, upon sales by persons other than the manufacturer or the purchaser from him, and, in the case of goods imported, upon sales by persons other than the importer. In the first case, sec. 3 of the Sales Tax Assessment Act (No. 3) 1930-1933 provides that sales tax shall be levied upon the sale value of goods manufactured in Australia and sold by a taxpayer, not being either the manufacturer of those goods or a purchaser from the manufacturer; and sec. 4 provides that the sale value shall be the amount for which the goods are sold by a registered person, or a person required to be registered, not being either the manufacturer of those goods, or a purchaser of those goods from the manufacturer, to an unregistered person or a person who has not quoted his certificate in respect of the purchase of those goods.

[20]

Now the question in the case is whether the general words of these respective sections, 3 and 4, should be treated as applying to goods which have already been retailed in Australia and gone into use. In my opinion, they should not be so treated. To understand them as applying to such sales of second-hand goods merely because they are "goods" is to ignore the whole scheme of legislation. It gives no effect to the evident intention of dealing with the course of commerce between the first appearance of the goods in Australia and the retail disposal of them, and of imposing one tax only upon them. It is impossible to know in many cases whether second-hand goods are imported or are manufactured in Australia. The discrimination between taxable sales of second-hand goods and sales free of tax would depend not at all upon the character of the transaction, but upon the circumstances that the vendor happened to carry on another business or kind of transactions which necessitated his registration. In the scheme of the legislation, this is a purely accidental circumstance. The provision for levying the tax upon the wholesale value is quite inapplicable. There is no wholesale value for second-hand goods. Moreover, the buyer of second-hand goods could never quote his certificate on the purchase and thus come within the provisoes to the sections 4, because he would never be in practice a person who did not principally sell by retail or who bought for sale by wholesale and did not intend specifically to sell by retail. On the other hand, it could seldom or never be established that the goods had borne tax in some anterior transaction so that a rebate or immunity under regs. 46 and 47 could be obtained. Further, the frame of these regulations is quite inappropriate to second-hand goods. A condition imposed by the regulations is that the goods which have borne tax are bought at a price which includes tax. This condition could scarcely be fulfilled on a purchase of second-hand goods. Yet the plan of the legislation is to impose one tax upon the goods and to impose it on a wholesale value. Further, it is apparent that the plan of the Acts is to affect trade in goods uniformly and not differentially. The Acts deal separately with imported and locally manufactured goods, and in the exemptions make some slight differences in favour of the latter. The legislation attempts to trace the goods from commercial source to commercial destination by means of certificates. It attempts to avoid double taxation by a complete system of rebates and dispensations from a second tax. In all these respects it would fail of its purpose in respect of second-hand goods.

At a glance

Court

Decision date

Before

Source

Judgment (37 paragraphs)

Deputy Federal Commissioner of Taxation (SA) v Ellis & Clark Ltd [1934] HCA 54; (1934) 52 CLR 85 (13 December 1934)

Parties

Legislation Cited (2)

Cases Cited (1)