Federal Commissioner of Taxation v York Motors Pty Ltd [1946] HCA 64;

Federal Commissioner of Taxation v York Motors Pty Ltd [1946] HCA 64; - HCA 1946 case summary — Zoe

[25]

All the members of the Board of Review were of opinion that a physical separation of the stock was not required by s. 17. But the chairman appears to have thought that all that the company had done was to treat the stock in its books, and that this had no effect upon the actual treatment of the vehicles as part of a common stock. He said that it was a necessary inference from the evidence that no differentiation between the wholesale and retail stock was ever made by way of written or other direction given to the sales staff, and that there was no room for doubt that, until the matter became an issue with the Commissioner, the only employees of the company who had any information as to the vehicles which had been selected were the accountant and his subordinates so that as between the company, its sales staff, and customers the vehicles continued to be treated as part of a common stock for wholesale or retail. As I have said the question of the knowledge of the sales staff was not investigated before the Board by either side, and Mr. Smith's subsequent evidence shows that it was erroneous to draw such inferences. The other members of the Board appear to have based their joint decision upon the view "that the treatment implied by the section is something clearly provable or necessary to be inferred from the company's conduct irrespective of any expression of intention on the part of the company's directors or officers." This places too high a burden of proof on the company. Section 39 (1) makes the assessment prima-facie evidence of the correctness of any calculations upon which the liability is ascertained. The onus of proof is therefore on the taxpayer, but he need only give sufficient evidence to weigh down the scales in his favour. These members thought that if the company had at once notified the Commissioner before the increased tax operated its position would have been unassailable. But s. 21 only requires a manufacturer who during any month treats any goods as stock for sale by him by retail to furnish a return within twenty-one days after the close of that month. I cannot agree with them that the company was in an equivocal position immediately prior to the commencement of the higher rate. It had already reached and given effect to a definite decision and it had bound itself to return the stock as stock treated for sale by retail whether the rates were increased or not.

[32]

The business of the company was importing chassis for engines of cars and trucks from the United States of America and Great Britain and adding wheels, tyres, batteries, &c. which were made in Australia, and assembling the constituents into complete cars and trucks which were then sold. Only five per cent of the vehicles were sold wholesale; ninety-five per cent were sold retail. The imported part of each vehicle was entered in the books of the company under a number and the books of the company recorded the history of the vehicle up to the time of its sale. The chairman of directors and the general manager of the company consulted with the taxation expert and the accountant of the company and resolved to try to take advantage of the provision which imposed tax at the statutory rate as and when goods were treated as stock for sale by retail. The accountant and the book-keeper then made entries in the books. Certain cars were selected and full particulars of the cars were written on several folios in the stock book. At the head of the first of these folios the following was written in pencil: "All the foregoing unsold stock as at 30/4/40 has been transferred to stock for sale by retail with the exception of the following." Then followed the list of cars which were, by reason of the words written in the stock book, reserved from the otherwise general transference of unsold stock to stock for sale by retail. The result of these entries was that certain vehicles which were ready for sale were reserved for sale by wholesale and uncompleted vehicles which were not ready for sale were withheld from the transfer to stock for sale by retail. Thus all the other vehicles were recorded in the stock book as transferred to stock for sale by retail. These things were done before 3rd May, which was the date upon which the rate of sales tax was increased from six per cent to eight and one-third per cent. At a later date the pencil notation was written over in ink and words were added to it so that in its final form it read as follows: - "All the foregoing unsold stock as at 30/4/40 has been transferred to stock for sale by retail with the exception of the following units reserved for wholesale sale and incomplete units. The particular stock number coming under the heading of stock for sale by retail can be identified with the stock list as at 30/4/40." On 21st June 1940 the company made a return under the Act for May and paid tax on sales up to and including 2nd May at six per cent and on later sales at eight and one-third per cent. But with respect to the vehicles, four hundred and seventy-one in number, which had been transferred in the books, it made a return describing them as goods manufactured by the taxpayer and treated as stock for sale by retail on 1st May 1940 and paid the amount of £8,536 2s. 1d. as tax at the rate of six per cent.

[40]

The Sales Tax Act (No. 1) 1930-1941 imposes a tax upon the sale value of goods manufactured in Australia and (1) sold by the manufacturer or (2) treated by him as stock for sale by retail or (3) applied to his own use. The rate of tax is that applicable at the time when the event happens which attracts the tax. In the present case this appeal is concerned with the treatment of the goods as stock for sale by retail. This treatment and the application to the manufacturer's use are in effect deemed by the Act and the Sales Tax Assessment Act (No. 1) 1930-1940 to be sales for the purposes of the Acts. The facts of the case have been so fully and clearly set out by the members of the Board of Review as to need no repetition. I shall only refer to such facts as are necessary for the purposes of my judgment. The respondent company is a manufacturer within the meaning of the relevant Acts whose business consists, inter alia, of the manufacture and sale of motor cars and trucks chiefly by retail. The rate of tax varied from time to time and in the present case there were two increases in the rates - that from 3rd May 1940 and the other from 22nd November 1940. The respondent made a return as prescribed by s. 21 of the Sales Tax Assessment Act and paid tax at the rate in force before 3rd May 1940 and 22nd November 1940. The Commissioner, however, assessed the goods at the increased rates from those dates. On objection by the respondent the matter was referred to the Board of Review who gave a decision in favour of the Commissioner. On appeal my brother Williams reversed this decision. Hence this appeal to us. And the question for our determination is whether the respondent company "treated" the goods assessed as part of its stock for sale by retail before those respective dates. It appears that towards the end of April the trade heard a rumour of the proposed increase and Mr. R. L. Smith, the accountant of the respondent, reported the information to its management. After consultation it was determined to transfer part of the respondent's stock to stock for sale by retail. It was not contended by the Board of Review that this determination and the acts which followed in furtherance of this decision were not bona fide but the Board considered that the decision should have been translated into action in a more open and manifest manner short of physical segregation. For the purpose of the returns prescribed by s. 21 of the Sales Tax Assessment Act (No. 1) 1930-1940 an option is given to the manufacturer as to the manner in which he shall proceed. When he chooses the event the tax attaches however he may afterwards deal with the goods. In this sense only is the decision, if duly evidenced, final vis-a-vis the Commissioner. The event chosen may be "treatment" followed by actual sale but the tax attaches the rate applicable to the former event and not that applicable to the sale. Dual liability is not imposed. I shall not attempt to give an exhaustive definition of the word "treat" because its meaning depends upon the collocation in which it is set and the facts of the particular case. An artificial meaning is given by the Act to the word in the phrase "goods ... treated ... as stock for sale by retail" and one must not give to the interpretation of the Act any wider meaning than the purpose of the artificial meaning requires: Cf. Leitch v. Emmott [11]; International Hotel Ltd. v. McNally [12]. I do not think that the decision and policy of the respondent were aoristic or impermanent and I agree that the entries and records made in the books by the respondent are sufficiently definitive of the treatment of the goods for the purposes of the Act. On the facts found by my brother Williams I think that the conclusion arrived at by him is right and that the appeal should be dismissed.

[53]

The issue in the case is whether the taxpayer, who is the respondent on this appeal, did, by treating the goods as stock for sale by retail, incur sales tax at the lower rate so that sales tax was not incurred at the higher rate when the goods were afterwards sold in the later period to which a higher rate applied. In respect of some of the goods the question is whether they were treated before 3rd May 1940 as stock for sale by retail; in respect of other of the goods it is whether they were so treated before 22nd November 1940. The taxpayer learned shortly before 3rd May 1940 of the impending rise in the sales tax and took measures at once to incur the tax at the lower rate. The goods with which the taxpayer dealt were motor cars, and it is not easy to take any physical steps with respect to a large number of motor cars which will show that they are treated as stock for sale by retail. The taxpayer therefore contented itself with making entries in its ledger designed to take into its retail stock all the complete cars on hand except certain specified cars needed for its much more limited wholesale trade. The entries affecting the first period were made hastily upon 30th April and 1st and 2nd May 1940 under the direction of the chairman of directors, the general manager and the accountant of the taxpayer company. That the entries were made before 3rd May 1940 and made pursuant to a resolve of the management of the company has been found as a fact by Williams J. and the honesty of the testimony describing the steps taken to incur liability for sales tax is not impugned. I have had some misgiving whether before 3rd May the entries made were definitive or only provisional because the most material of them at that date were still in pencil writing. But notwithstanding some uneasiness on this score, I think that we should act upon the finding that the entries were complete and perfected before that date, a finding in all other respects amply supported by the evidence.

[62]

In order to make it plain that the Board did not misapprehend what is the legislative intention expressed by the above-mentioned phrase in the context where it is to be found, I quote some passages from the reasons of the Chairman of the Board with whom the other members were in agreement - "Of the meanings given to the verb "treat" in the Oxford English Dictionary only one is possibly relevant in this case and that is "to consider or regard in a particular aspect and deal with accordingly."" "The two elements are necessary to constitute a treating but it would seem that the really important thing is that the action taken for that is the only evidence of the mental attitude or intention. The company must show that it regarded and actually dealt with the cars in question as "stock for sale by retail." The quoted words place the matter upon a solid basis of fact. "Stock," of course, means "stock-in-trade" or "the goods kept on sale by a dealer, &c." (Oxford English Dictionary); "for" denotes purpose and, for the purposes of the Act, "sale by retail" cannot extend beyond sale to a user or consumer. Hence, it must be shown that the cars themselves were so regarded and dealt with (whatever the manner of dealing with them might be) that they in fact became goods kept for sale by retail - that they were stock to be sold by retail. It is obvious that there is an infinite variety of ways (depending on the nature of the goods or the business or the particular circumstances at the relevant time) in which goods may be so dealt with, and I do not think the Board should attempt to bring the matter within the scope of a definition. One thing which is certain, however, is that goods cannot become stock actually held for sale by retail by virtue of a notion or intention which has not been consummated by action; some act must be done which, if or when disclosed, is sufficient to establish that the goods are in fact held as stock for sale by retail." "There appear to be no reasonable grounds for holding that an oral or written direction by a responsible executive of a taxpayer that specified goods in stock are to be sold by retail, is not an effective treatment of those goods as stock for sale by retail. The difference between doing that and physically segregating or otherwise handling goods as stock for sale by retail is a matter which concerns, not the effectiveness of the treatment, but the nature of the proof of the treatment."

[65]

The Board of Review did not decide that the entries and notations in the stock book and the evidence of the policy laid down by the management when it got wind of the impending increase of the rate of tax, in pursuance of which the entries and notations were made, could not support the affirmative of the issue. The description "stock for sale by retail" in the stock book is evidence of an intention to treat the motor vehicles to which it refers as stock for sale by retail and the making of the entries and notations in the book manifests that intention. But, as the Chairman said, it was not "unassailable" evidence of such an intention. The Chairman referred in detail to the evidence which throws doubt on the inference which the company claims to draw from the entries and notations in the stock book. I adopt the Chairman's digest of that evidence. "There was no direction that the cars dealt with in the books as stock for sale by retail were to be sold by retail. The selection of the cars to be so dealt with - and evidently the extent to which cars were to be selected for that purpose - was left entirely to the accountant, and there is hardly any room for doubt that, until the matter became an issue with the Commissioner, the only employees of the company who had information as to the cars which had been selected were the accountant and his subordinates. At the times when they were dealt with in the books as retail stock the selected cars, being completed but unsold, had already been actually treated as stock for sale by wholesale or by retail as occasion might require, and, as between the company and its sales staff and customers they continued to be so treated until sold. In fact they were treated for the purposes of sale in precisely the same way as all cars had been treated by the company from its inception." However, before Williams J. a document dated 25th June 1940 was put in evidence which to some extent is such a direction as that mentioned at the beginning of the last citation. The company's claim was that it treated the stock in question as stock for sale by retail before 3rd May 1940.

At a glance

Court

Decision date

Before

Source

Judgment (84 paragraphs)

Federal Commissioner of Taxation v York Motors Pty Ltd [1946] HCA 64; (1946) 73 CLR 459 (17 December 1946)

Parties

Legislation Cited (1)

Cases Cited (1)