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[1997] HCA 34
High Court of Australia
1997-08-05
Brennan CJ, Kirby JJ
Original judgment source is linked above.
High Court of Australia Brennan CJ Dawson, Toohey, Gaudron, McHugh, Gummow and Kirby JJ Ha v New South Wales (FC 97/029) [1997] HCA 34
ORDER The questions reserved are answered as follows:
Q(1) Whether, on the facts referred to above, the provisions of ss 36(1), 41(1), 41(3), 43, 45 and 47(1) of the Business Franchise Licences (Tobacco) Act 1987 NSW are invalid as imposing a duty or duties of excise within the meaning of s 90 of the Constitution.
Q(2) Whether, on the facts referred to above, the provisions of s 30(1) of the Act in so far as they apply to a retailer's licence are invalid in that the fee for a retailer's licence provided for by s 41(1) of the Act is a duty of excise within the meaning of s 90 of the Constitution.
Q(3) By whom should the costs of these questions reserved be paid?
Q. Whether, on the facts referred to above, the provisions of ss 28-30, 34, 36-41 and 45-48 of the Business Franchise Licences (Tobacco) Act 1987 NSW or any of them are invalid as imposing a duty or duties of excise within the meaning of s 90 of the Constitution.
A. All of the sections referred to in the question are invalid.
5 August 1997 Brennan CJ, McHugh, Gummow and Kirby JJ.
Each of the plaintiffs in the first action conducted a duty free store in suburban Sydney in 1994. In the course of carrying on their respective businesses they sold by retail tobacco products to members of the public. Neither of these plaintiffs held a retailer's licence under the Business Franchise Licences (Tobacco) Act 1987 NSW (the Act) at any material time. The plaintiff in the second action carried on the business of selling tobacco for resale in New South Wales in 1996. It appears to have held a wholesaler's licence at the relevant time. The second defendant in each action is the Chief Commissioner for Business Franchise Licences (Tobacco) holding office under s 21 of the Act. The third defendant in each action was, at the material time, the delegate of the Chief Commissioner, who issued to the respective plaintiffs notices of assessments demanding payment of moneys allegedly payable to the Commissioner under the Act.
Each of the plaintiffs was prohibited under penalty from selling tobacco (s 28), whether by wholesale (s 29) or retail (s 30), without a licence. Licences are issued on application (s 35), for periods of not more than a month, each month expiring on the twenty-seventh day of the month (s 39). The amount of the fee that would have been payable for a licence if either of the plaintiffs in the first action had held a retailer's licence in respect of the periods for which an assessment was raised would have been calculated pursuant to s 41(1)(c) which reads:
(c) for a retailer's licence - a fee of $10 together with an amount equal to [a specified] per cent of the value of tobacco sold by the applicant in the course of tobacco retailing during the relevant period, disregarding any such tobacco purchased from a licensee.
The amount of the fee that was payable for a wholesaler's licence by the plaintiff in the second action in respect of the periods for which an assessment was raised would have been calculated pursuant to s 41(1)(a) which reads:
(1) The fees to be paid for licences are as follows:
(a) for a wholesaler's licence - a fee of $10 together with an amount equal to [a specified] per cent of the value of tobacco sold by the applicant in the course of tobacco wholesaling during the relevant period, other than tobacco sold to the holder of a wholesaler's licence or a group wholesaler's licence.
The "relevant period" is defined (s 3) to mean "the month commencing 2 months before the commencement of the month in which the licence expires". Sub-section (1)(c) of s 41 is qualified by sub-s (3) which reads: For the purposes of subsection (1)(c) and (d), the value of tobacco purchased from the holder of a wholesaler's licence or a group wholesaler's licence is to be disregarded only if the holder of the licence has paid or is liable to pay a licence fee in respect of that tobacco. The percentage rate specified in pars (a) and (c) of s 41(1) were increased from time to time by legislative amendment, the rates being - until 28 August 1989 - 30 per cent; 28 August 1989 to 28 August 1991 - 35 per cent; 28 August 1991 to 28 July 1992 - 50 per cent; 28 July 1992 to 28 June 1995 - 75 per cent; 28 June 1995 until present - 100 per cent.
Assessments were raised by the Delegate of the Chief Commissioner claiming moneys allegedly payable to the Commissioner by the plaintiffs in the first action under s 47 of the Act and by the plaintiff in the second action under s 46. The material parts of s 47 read as follows:
(1) If a person was required by this Act to hold a licence in respect of any period but did not do so, the person shall pay to the Chief Commissioner:
(a) an amount equal to the fee that would have been payable for the licence, if the person had held one, and
(b) a further amount, by way of penalty, equal to twice the amount referred to in paragraph (a).
(4) The Chief Commissioner may, in a particular case, for reasons which the Chief Commissioner considers sufficient, remit the whole or part of any penalty payable under this section.
The material parts of s 46, which provides for a reassessment of fees assessed incorrectly contain similar provisions when the fee is increased on the reassessment. The amount claimed to be payable by the first plaintiff in the first action was $1,422,174.90; by the second plaintiff in the first action $927,548; and by the plaintiff in the second action $20,432,928.39.
The plaintiffs in both actions contend that the provisions of the Act which purport to impose liability to pay the amounts claimed by the third defendant and calculated in conformity with s 41 are duties of excise which the State was not empowered to impose. A case was stated in each action reserving for the opinion of the Full Court the question whether the provisions of the Act that purport to impose a liability to pay the licence fees prescribed by s 46 or a liability to pay the amounts prescribed by s 47 in lieu of licence fees are invalid as imposing a duty or duties of excise within the meaning of that term in s 90 of the Constitution. That section relevantly provides:
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.
On the imposition of uniform duties of customs all laws of the several States imposing duties of customs or of excise, or offering bounties on the production or export of goods, shall cease to have effect
The State of New South Wales and the second and third defendants, with the support of the Attorney-Generals of all other States, the Northern Territory and the Australian Capital Territory, submitted that the fees to be paid for licences and the amounts payable by those who sell tobacco without a licence are not duties of excise within the meaning of that term in s 90 of the Constitution for either of two reasons. The first is that the Act does not prescribe production or manufacture of tobacco within Australia to be a discrimen of liability; the second is that the imposts are merely fees for a licence to carry on the business of selling tobacco and are not a tax on the tobacco sold. These two propositions evoke a consideration of different matters and will be separately considered. They will be referred to as the defendants' submissions, encompassing the submissions of the interveners who support the defendants.
The pecuniary liability (other than the fixed fee of $10) imposed by the Act on the sellers of tobacco is calculated on the value of tobacco sold whether or not the tobacco is of Australian production or manufacture. In fact, as the case stated shows, most tobacco sold in Australia is of local origin, only a small proportion of the value of total Australian sales being imported. But the defendants and the intervening Attorney-Generals submit that, so long as the tax is imposed on the sale of tobacco generally, it cannot be said to be a tax on the production or manufacture of tobacco in Australia and therefore it cannot be said to be a duty of excise since duties of excise are taxes on local (that is, Australian) production or manufacture. The same submission was firmly rejected by Dixon CJ in Dennis Hotels Pty Ltd v Victoria [1] :
[I]t would be ridiculous to say that a State inland tax upon goods of a description manufactured here as well as imported here was not met by s 90, excluding as that section does both duties of customs and duties of excise, because the duty was not confined to goods imported and so was not a duty of customs and was not confined to goods manufactured at home and so was not a duty of excise. Submissions which were not materially different from the defendants' submissions in the present cases were advanced and rejected in Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] [2] , the most recent of the line of authorities relating to excise. In Capital Duplicators [No 2] [3] , the majority of the Court (Mason CJ, Brennan, Deane and McHugh JJ) reviewed the authorities and said: The submissions advanced by the defendants and South Australia deny the proposition that "duties of customs and of excise" in s 90 exhaust the categories of taxes on goods. Those submissions accept that a tax which, in form or even in substance, imposes a duty on the importation of goods or on the local production or manufacture of goods would be within the scope of s 90. But a tax which does not fall within either of those categories but which imposes a duty indifferently on all goods (whether imported or locally produced or manufactured) is said to be outside the scope of s 90. These propositions were rejected expressly and, in our respectful opinion, rightly by Dixon CJ and Windeyer J in Dennis Hotels [4] . Moreover, they are inconsistent with the purpose which Dixon J attributed to s 90 in Parton [5] and which has been attributed to s 90 by subsequent judgments in this Court. Adhering to that view of the purpose of s 90, the term "duties of customs and of excise" in s 90 must be construed as exhausting the categories of taxes on goods. 1. (1960) 104 CLR 529 at 540. 2. (1993) 178 CLR 561. 3. (1993) 178 CLR 561 at 589-590. 4. (1960) 104 CLR 529 at 540, 600-601; cf Western Australia v Chamberlain Industries Pty Ltd (1970) 121 CLR 1 at 26 Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599 at 663-664 Gosford Meats Pty Ltd v New South Wales (1985) 155 CLR 368 at 383 5. Parton v Milk Board (Vic) (1949) 80 CLR 229
To avoid the weight of what might be thought to be overwhelming contrary authority, the defendants' submissions invited the Court to reopen the cases which had rejected the proposition that duties of excise in s 90 were confined to taxes imposed on goods of Australian production or manufacture. That proposition commanded some judicial support in Peterswald v Bartley [6] , The Commonwealth and Commonwealth Oil Refineries Ltd v South Australia [7] , John Fairfax & Sons Ltd and Smith's Newspapers Ltd v New South Wales [8] and in Attorney-General (NSW) v Homebush Flour Mills [9] , although the goods on which the impugned tax was imposed in those cases were goods produced or manufactured within the boundaries of the taxing State, not within the boundaries of the Commonwealth. Even so, Rich J consistently [10] rejected the view that duties of excise were restricted to taxes on the production or manufacture of goods. The submission now advanced by the defendants is inconsistent with the decision in Parton v Milk Board (Vic) [11] and with the cases that follow Parton . Leave was sought to argue the correctness of Parton and the cases that followed it. In the Capital Duplicators Case [No 2] [12] a similar submission was rejected. The majority judgment said [13] :
Parton is inconsistent with the interpretation for which the defendants and South Australia contend and it is a decision which has not been overruled or qualified by subsequent decisions. More importantly, ever since Parton , it has been accepted in the subsequent cases that the exaction of a tax, whether called a licence fee or not, on the sale or distribution of goods by a person other than the manufacturer of the goods will or may constitute an excise [14] . [I]n Bolton v Madsen [15] it was decided unanimously that a tax on the taking of a step in the process of the production or distribution of goods before they reach consumers is an excise. Acceptance of either of the interpretations put forward by the Territory and South Australia would require the Court to overrule no less than five previous decisions [16] .
Indeed, since Parton , there has been little support for the view that an excise is confined to a tax on, or by reference to, the local production or manufacture of goods.
After a further review of the cases, their Honours concluded that [17] : [O]nce it is accepted that duties of excise are not limited to duties on production or manufacture, we think that it should be accepted that the preferable view is to regard the distinction between duties of customs and duties of excise as dependent on the step which attracts the tax: importation or exportation in the case of customs duties; production, manufacture, sale or distribution - inland taxes - in the case of excise duties [18] .
The very limited support manifested since Parton and, more particularly, since Bolton v Madsen , for a return to the narrow concept of excise is a telling argument against reconsideration of the broader interpretation which has prevailed since Parton . What is more, the case for reconsideration invites a return to a narrow concept of excise similar to the Peterswald definition which, for reasons already discussed, was discarded over forty years ago.
The principle that an inland tax on a step in production, manufacture, sale or distribution of goods is a duty of excise has been long established. As a criterion of a duty of excise, it was expressed by Kitto J in Dennis Hotels [19] and adopted by a unanimous Court in Bolton v Madsen [20] . It can be traced back to the judgments in Parton [21] and, before that, to the judgment of Dixon J in Matthews v Chicory Marketing Board (Vic) [22] . As Brennan J said in Philip Morris Ltd v Commissioner of Business Franchises (Vic) [23] :
If there be any rock in the sea of uncertain principle, it is that a tax on a step in the production or distribution of goods to the point of receipt by the consumer is a duty of excise. The proposition that was not clearly established before Philip Morris was that the character of a tax required a consideration of the substantive operation as well as the text of the statute imposing the tax. 1. (1960) 104 CLR 529 at 559. 2. (1963) 110 CLR 264 at 273. 3. (1949) 80 CLR 229 at 252-253, 260, 261. 4. (1938) 60 CLR 263 at 291-304; see also at 277, per Latham CJ. 5. (1989) 167 CLR 399 at 445.
To support the overturning of such a long and consistent line of authority, the defendant's submissions needed to show a clear departure from the text of the Constitution. They submitted that Parton had departed without warrant from what they identified as the narrow view of "duties of excise" expressed by Griffith CJ, speaking for the Court in Peterswald v Bartley [24] . The defendants sought to show that departure by reference to the words of s 90 which identify "production or export of goods" as the only subjects of bounties, to s 55 which draws a sharp distinction between laws imposing duties of customs and laws imposing duties of excise, and to s 93 which specifically applies duties of customs to "goods imported into a State" and duties of excise to "goods produced or manufactured in a State".
To assess the validity of these arguments, it is necessary to see the provisions of ss 90 and 93 in the context of Ch IV of the Constitution and to understand the operation which Ch IV was designed to have at the time of Federation. Chapter IV deals with "Finance and Trade". While taxes can and do affect trade, their immediate effect is to raise revenue. While the intended effect of s 90 on trade has often been invoked to illuminate the meaning of the term "duties of excise" in s 90, it should not be forgotten that one of the chief purposes of Ch IV was to provide for the financial transition of the Colonies into the States of the Commonwealth and for the revenues required by the Commonwealth. Prior to Federation, colonial revenues were derived chiefly from duties of customs and (except in Western Australia and the Northern Territory of South Australia) duties of excise. On the imposition of uniform duties of customs by the Commonwealth at 4 pm on 8 October 1901 [25] , the power to impose such duties passed exclusively to the Commonwealth except in the case of Western Australia which, by s 95 of the Constitution, was permitted to levy customs duty on a reducing scale over a period of five years "on goods passing into that State and not originally imported from beyond the limits of the Commonwealth". The transitional scheme of finance was explained by Stephen Mills in Taxation in Australia [26] :
The scheme of finance of the Commonwealth was at first almost wholly based on the revenues to be derived from Customs and Excise duties. The Constitution required (Section 88) that "uniform duties shall be imposed within two years after the establishment of the Commonwealth." Meanwhile, the collection and control of duties of Customs and Excise was in the hands of the Commonwealth (Section 86), the State Tariffs remaining temporarily in operation. The Constitution also provided (Section 87) that for ten years "after the establishment of the Commonwealth, and thereafter until the Parliament otherwise provides," the Commonwealth should return to the States three-fourths of the net revenue from Customs and Excise, one-fourth only being available for Commonwealth expenditure.
A further provision was that for "five years after the imposition of uniform duties of Customs, and thereafter until the Parliament otherwise provides" (Section 93), each State should be credited, for the purposes of determining the payment to be made to the State, with the duties collected on the goods consumed in that State, although such duties might have been collected in another State. This provision necessitated an elaborate system of book-keeping, and the presentation of entries to the Customs, which was the cause of much complaint on the part of the commercial community. These restrictions disappeared in 1910.
In the economic sphere, the paramount object of Federation was inter-State free trade with a uniform Tariff in the importation of goods from overseas, and so the preparation of a Tariff became the most urgent task of the new Commonwealth Government.
Section 93 stated: During the first five years after the imposition of uniform duties of customs, and thereafter until the Parliament otherwise provides -
(i) The duties of customs chargeable on goods imported into a State and afterwards passing into another State for consumption, and the duties of excise paid on goods produced or manufactured in a State and afterwards passing into another State for consumption, shall be taken to have been collected not in the former but in the latter State:
(ii) Subject to the last subsection, the Commonwealth shall credit revenue, debit expenditure, and pay balances to the several States as prescribed for the period preceding the imposition of uniform duties of customs.
Section 93 prescribed the basis of accounting to the respective States for the duties which were collected by the Commonwealth. Consumption of goods within a State was prescribed to be the event which entitled that State to a credit for the amount of customs and excise duty collected on those goods by the Commonwealth. Goods to which s 93 applied that were consumed in a State were either imported into another State or locally produced or manufactured in another State. That dichotomy served, for practical purposes, as the basis for identifying the revenues for which the Commonwealth was required to account to the State in which those goods were consumed. Section 93 was not concerned with duties of excise imposed otherwise than on production or manufacture in another State since, in practice, the agreed allocation of revenue was in respect only of customs duties or duties of excise on production or manufacture collected in the other State. It may be that there were no other inland taxes on goods that were of any significance at that time [27] . However that may be, s 93 throws no light on the connotation of the term "duties of excise" in s 90. In particular, s 93 does not imply that to be a duty of excise, an impost must be a tax on goods the discrimen of liability to which is their production or manufacture in Australia. 1. Section 4 of the Customs Tariff Act 1902 Cth provided: "The time of the imposition of uniform Duties of Customs is the eighth day of October One thousand nine hundred and one at four o'clock in the afternoon reckoned according to the standard time in force in the State of Victoria and this Act shall be deemed to have come into operation at that time." 2. (1925), pp 200-201. 3. In Peterswald v Bartley (1904) 1 CLR 497it was held that "duties of excise" did not include fees for a licence to carry on a business although some such fees were called "duties of excise" in English statutes.
Although duties of excise were in practice levied on goods of local production or manufacture in the Australian Colonies, the review of the history of the word "excise" by Dixon J in Matthews v Chicory Marketing Board (Vic) [28] "does not disclose any very solid ground for saying that, according to any established English meaning, an essential part of its connotation is, or at any time was, that the duty called by that name should be confined to goods of domestic manufacture or production". His Honour noted that in Tasmania in 1829 duties of excise were levied indifferently on spirits of Tasmanian origin and on spirits imported from New South Wales [29] . Blackstone [30] identified an excise duty as "an inland imposition, paid sometimes upon the consumption of the commodity, or frequently upon the retail sale, which is the last stage before the consumption." In the United States, this was adopted in construing the power given by Art 1, s 8 of the United States Constitution to Congress "[t]o lay and collect Taxes, Duties, Imposts and Excises" [31] . There is no common use of the term "excise" in the Convention Debates which might illuminate its meaning, save that it does not include the fees for a licence to carry on a business which, in England, were sometimes called excise licences. What is apparent, with respect to the financial position of the Colonies, is that it was understood at the time that in becoming States what had been their principal sources of revenue would be withdrawn [32] .
The withdrawal of "duties of excise" from the States was, in practice, a withdrawal of the taxes the Colonies had imposed on the production or manufacture of beer, spirits and tobacco within the Colony. No Colony had possessed or, at least, no Colony had exercised any power to impose a tax on the production or manufacture of goods in another Australian Colony. In the cases after Peterswald v Bartley , State taxes were impugned on the ground that they were in truth taxes on the production of the goods within the boundaries of the taxing State, albeit the tax was imposed at the point of sale. In each case [33] , the tax was held to be either a tax upon production of the commodity within the taxing State or a tax upon importation of the commodity into the taxing State [34] or a tax that failed by reason of s 92 if it did not fall under s 90 [35] . The dicta in any of these cases relating to the meaning of "duties of excise" were not the basis of decision of the case. It was not disputed nor was it open to dispute that a tax imposed by a State on the production or manufacture of goods within its boundaries answered the description of a duty of excise.
It is clear that an objective of the movement to Federation was "inter-colonial free trade on the basis of a uniform tariff" as this Court pointed out in Cole v Whitfield [36] . That objective could not have been achieved if the States had retained the power to place a tax on goods within their borders. If goods that attracted a State tax were imported into the State from outside the Commonwealth, Commonwealth tariff policy would have been compromised by the imposition of a State tax. The second paragraph of s 92 [37] and the third paragraph of s 95 [38] (by limiting the period of its operation) show that such a tax was alien to the scheme of Ch IV. If a State tax were imposed on goods brought into the State having been produced or manufactured elsewhere in the Commonwealth, the tax would affect the freedom of trade in those goods [39] and might be a duty of customs on the entry of the goods into the taxing State [40] . If a State tax were imposed on goods of local production or manufacture within the State, it would be a duty of excise on any view of the term. As State power to tax goods whatever their place of production or manufacture was given up to the Commonwealth, Dixon J was surely right to say in Parton [41] :
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. 1. (1988) 165 CLR 360 at 386, citing the 1891 Report of the South Australian Royal Commission on Inter-Colonial Free Trade, p vi. 2. This states: "But notwithstanding anything in this Constitution, goods imported before the imposition of uniform duties of customs into any State, or into any Colony which, whilst the goods remain therein, becomes a State, shall, on thence passing into another State within two years after the imposition of such duties, be liable to any duty chargeable on the importation of such goods into the Commonwealth, less any duty paid in respect of the goods on their importation." 3. This states: "If at any time during the five years the duty on any goods under this section is higher than the duty imposed by the Commonwealth on the importation of the like goods, then such higher duty shall be collected on the goods when imported into Western Australia from beyond the limits of the Commonwealth." 4. Bath v Alston Holdings Pty Ltd (1988) 165 CLR 411 5. Section 95 par 1 and see The Commonwealth and Commonwealth Oil Refineries Ltd v South Australia (1926) 38 CLR 408 at 430, per Isaacs J; at 435, per Higgins J. 6. (1949) 80 CLR 229 at 260.
The defendants' submission is that the exclusivity of the Commonwealth power to impose duties of excise has a more modest purpose and is designed merely to protect the integrity of the tariff policy of the Commonwealth. The history of s 90 denies that hypothesis although that was the original purpose in mind during the 1891 Convention. The level of protection given to local production or manufacture depended at the time of Federation - and, indeed, before and since that time - on the disparity between duties of customs on imported goods and duties of excise on goods of local production or manufacture. When the matter was debated at the 1891 Convention, the resolution tied duties of excise to goods of the same kind as those subject to duties of customs. The resolution agreed to at that Convention read as follows:
That in order to establish and secure an enduring foundation for the structure of a federal government, the principles embodied in the resolutions following be agreed to:
(3) That the trade and intercourse between the federated colonies, whether by means of land carriage or coastal navigation, shall be absolutely free.
(4) That the power and authority to impose customs duties and duties of excise upon goods the subject of customs duties and to offer bounties shall be exclusively lodged in the federal government and parliament, subject to such disposal of the revenues thence derived as shall be agreed upon.
So long as the objective of the Convention was limited to prescribing the powers needed to create a disparity between the tax on imported goods and the tax on goods of local production or manufacture [42] , the insertion of the words "upon goods the subject of customs duties" was appropriate. But at the Adelaide Convention in 1897, Sir George Turner moved an amendment to omit the qualifying phrase in order to enlarge the power of the Commonwealth Parliament. Although Mr McMillan had advocated the retention of the phrase in 1891, in 1897 he accepted that "it would be as well not to do anything that would restrict the power of the Federal Parliament" [43] . The amendment was agreed so that, both by intention and by expression, the exclusive power to impose duties of excise was conferred on the Parliament as a free-standing power. It was capable of exercise in conjunction with the exclusive power to impose customs duties in order to further either protectionism or external free trade but the exercise of the power was not to be confined to the fulfilment of either purpose. The history of s 90 denies any necessary linkage between the exclusivity of the power to impose duties of excise and Commonwealth tariff policy. 1. Thus Mr Deakin at the 1898 Melbourne Convention said that - "The fiscal policy of a Government is established by the difference, if any, between the duties of customs and the duties of excise on certain articles": Official Records of the Debates of the Australasian Federal Convention (Melbourne), 15 February 1898, p 941. 2. Convention Debates (Adelaide 1897), pp 835-836.
The dichotomy between laws imposing duties of customs and laws imposing duties of excise in s 55 of the Constitution is satisfied by the dichotomy between laws imposing a tax on the importation of goods and laws imposing an inland tax on some dealing with goods. The defendants' submissions propound a different dichotomy - between laws imposing taxes on goods of foreign production or manufacture and laws imposing taxes on goods of local (that is, Australian) production or manufacture. It is accepted that an inland tax imposed on sale or distribution of particular goods could burden the production or manufacture of those goods but such a tax would answer the description of a duty of excise only by reason of its burdening production or manufacture [44] . The dichotomy propounded by the defendants offers no clear criterion for the application of s 55 of the Constitution. If a Bill for an Act to impose a tax did not disclose on its face that local production or manufacture was to be a criterion of liability but the Act in practice operated to impose a tax on local production or manufacture, a challenge to the validity of the Act would require the Court to assess the practical operation of the law although the Parliament had not done so. Section 55 does call for a classification of taxing laws by reference to the criteria of liability that they express. The criterion of inland taxes on goods serves to identify clearly duties of excise for the purposes of s 55.
Then it is said that the first subject of bounty in s 90, namely production, corresponds with the subject of duties of excise so that s 90 has the purpose of ensuring Commonwealth fiscal control over foreign trade in goods (imports and exports) and domestic production, but not over inland sale and distribution. So far as it goes, it can be accepted that a purpose of s 90 is to give the Commonwealth fiscal control over imports, domestic production and exports. But free trade within the Commonwealth would not have been ensured by exclusive federal fiscal control of imports, domestic production and exports. As earlier noted, the imposition of State taxes upon other inland dealings with goods as integers of commerce, even if those taxes were not protectionist, would have created impediments to free trade throughout the Commonwealth. Why should s 90 be construed so as to subvert an objective which Federation was designed to achieve [45] ? It is immaterial that the States retain taxing and other powers the exercise of which might affect the overall costs of production, sale or distribution of goods and ultimately be shared by consumers [46] ; what is material is that the States yielded up and the Commonwealth acquired to the exclusion of the States the powers to impose taxes upon goods which, if applied differentially from State to State, would necessarily impair the free trade in those goods throughout the Commonwealth [47] . Section 51(ii) ensured that such taxes when imposed by the Parliament would be imposed uniformly throughout the Commonwealth.
The defendants' submissions now seek to reclaim the taxing powers ceded to the Commonwealth by a simple device in legislative drafting. So long as a State taxing statute taxes the sale or distribution of imported goods and goods of local production or manufacture indifferently and equally, the statute, it is said, cannot be characterised as a law imposing duties of excise. This submission proceeds on the footing that a criterion of liability must be local production or manufacture and that a statute which imposes a tax indifferently on goods irrespective of their origin does not impose a duty of excise. If this submission were accepted, the State power of taxation would extend in effect to the taxation of any commodity provided the taxing statute is not expressed to tax solely goods of local production or manufacture. The importation of an insignificant quantity of the commodity would permit State taxation of the commodity provided it applied indifferently to the imported quantity and the quantity that is locally produced. In the present case, for example, even if the substantive effect of the tax were found to burden Australian production or manufacture of tobacco, the importation of a small percentage of the tobacco sold in Australia would permit the imposition of the tax under a State law. If accepted, the submission would frustrate whatever purpose might be attributed to s 90. That approach to the characterisation of laws impugned for contravention of s 90 was rejected as far back as Peterswald v Bartley [48] itself:
In considering the validity of laws of this kind we must look at the substance and not the form. In the Commonwealth Oil Refineries Case [49] Isaacs J said: The prohibitions of ss 90 and 92 of the Constitution may be transgressed not merely by a direct and avowed contravention. They are transgressed also by a statute - whatever its ultimate purpose may be, and however its provisions are disguised by verbiage or characterisation, or by numerous and varied operations lengthening the connective chain, or by otherwise paying titular homage to the supreme law of the Constitution - if it operates in the end by its own force so as to do substantially the same thing as a direct contravention would do, either in attaining a forbidden result or in using forbidden means. The relevant constitutional prohibitions include both means and results. It is no justification for using forbidden means that permissible results are sought, nor for securing forbidden results that lawful means are employed. 1. (1904) 1 CLR 497 at 511. 2. (1926) 38 CLR 408 at 423.
When a constitutional limitation or restriction on power is relied on to invalidate a law, the effect of the law in and upon the facts and circumstances to which it relates - its practical operation - must be examined as well as its terms in order to ensure that the limitation or restriction is not circumvented by mere drafting devices. In recent cases, this Court has insisted on an examination of the practical operation (or substance) of a law impugned for contravention of a constitutional limitation or restriction on power [50] . On that approach, even if the narrower view of "duties of excise" were accepted, the question whether the imposts on the sellers of tobacco under the Act burden Australian-produced tobacco products would have to be answered. However, for reasons stated above, the question is whether the imposts are an inland tax on a step in the distribution of tobacco products.
If it were not for the factors to which reference will be made in considering what have been known as the franchise cases [51] , the defendants' submissions could and would have been dismissed by reference simply to the line of authority following Parton and culminating in the Capital Duplicators Case [No 2]. No further analysis of the arguments supporting those submissions would have been called for. The repetition on this occasion does nothing to enhance their cogency, despite the care and vigour with which they were presented. Evda Nominees Pty Ltd v Victoria [52] and the Capital Duplicators Case [No 2] [53] show that mere repetition of arguments does not require the Court to reopen settled authority to reconsider the arguments, at least where "the States have organised their financial affairs in reliance on them" [54] . In the present case, however, the States, fully appreciating that the attack on the doctrine based on Parton , if successful, would destroy the reasoning in the franchise cases and conscious of the factors on which the plaintiffs rely to limit the protection which the franchise cases give to the States' tax base, chose to invite the Court to re-examine the Parton doctrine which has been accepted for nearly half a century.
Perhaps the States and Territories were conscious of the risk that the taxes in question in this case might be held to fall outside the protection offered by the franchise cases. However that might be, as the present case requires a declaration of the limits of the protection offered by the franchise cases so as to accord with the Parton doctrine, it seems right to accede to the defendants' application to reopen the Parton line of cases. But the correctness of the doctrine they establish must now be affirmed. Therefore we reaffirm that duties of excise are taxes on the production, manufacture, sale or distribution of goods, whether of foreign or domestic origin. Duties of excise are inland taxes in contradistinction from duties of customs which are taxes on the importation of goods. Both are taxes on goods, that is to say, they are taxes on some step taken in dealing with goods. In this case, as in Capital Duplicators Case [No 2] [55] , it is unnecessary to consider whether a tax on the consumption of goods would be classified as a duty of excise. In the light of this doctrine, the second major proposition in the defendants' submissions falls for consideration.
This is substantially the same question as that which arose in Coastace Pty Ltd v New South Wales [56] in which imposts under the legislation as it stood between 28 January and 27 July 1987 [57] were held to be valid. Since 1987, as we have seen, the variable component of licence fees calculated under s 41 of the Act have been increased by increasing the specified rate from 30 per cent of the value of tobacco sold in a relevant period to 100 per cent.
The imposts in Coastace were held to be valid by a majority whose opinions were markedly dissimilar. In particular, Mason CJ and Deane J upheld the imposts for reasons which their Honours had stated more extensively in their judgment in Philip Morris. In that case, their Honours expressed the view that liquor and tobacco were commodities that invite regulatory control and, that being so, they were prepared to accept the correctness of Dennis Hotels and Dickenson's Arcade on a special basis. They said [58] :
The preferable approach is to accept Dennis Hotels and Dickenson's Arcade as authority for the proposition that, in the special fields of licences to sell alcohol and tobacco, a licence fee which would otherwise be regarded as a duty of excise will not be so regarded if it can properly be characterised as a fee for carrying on business and if it is calculated by reference to sales made during a period other than the period of the licence. In Philip Morris, Brennan J in dissent declined to accept that approach, saying [59] : The point is whether licence fees for dealing in liquor or tobacco are to be sequestered from the operation of general principles by which the character of fees for licences to deal in other commodities is ascertained. There are, in my opinion, three reasons why a negative answer must be given to that question. First, the Constitution makes no distinction among commodities for excise purposes. Second, if the nature of the commodity were relevant to the character of a tax related to dealings in it, liquor and tobacco are historically the prime excisable commodities. Third, if liquor and tobacco had been thought to be commodities to which special principles applied, the decisions in Dennis Hotels and Dickenson's Arcade would have been distinguished on that ground in H C Sleigh. Thus, respectfully, I am in agreement with Stephen J in H C Sleigh [60] on this point and in disagreement with the contrary view expressed by Mason CJ and Deane J. I would hold that liquor or tobacco are in no special category which denies to a tax on any step in their production or distribution the character of a duty of excise. However, the nature of these commodities is such that licensing schemes which affect them may be truly regulatory (as Taylor J held in Dennis Hotels) and that feature of a licensing scheme is relevant to the character of a fee exacted for a licence. We are respectfully unable to accept the basis on which Mason CJ and Deane J accepted Dennis Hotels and Dickenson's Arcade [61] . Were it not for that basis, Mason CJ and Deane J would have joined Brennan and McHugh JJ in holding the imposts in Philip Morris and Coastace to be duties of excise and, on that account, invalid. The concordance in their Honours' views was manifested in their joint judgment in the Capital Duplicators Case [No 2]. 1. Philip Morris (1989) 167 CLR 399 at 440. 2. Philip Morris (1989) 167 CLR 399 at 459. 3. (1977) 136 CLR 475 at 496. 4. Prior to Federation, beer, spirits and tobacco were the chief and perhaps the only subjects of Colonial excise duties: Convention Debates, (Sydney 1891), at pp 349(2), 366(1).
It is therefore unnecessary to canvass again the question whether the decisions in the franchise cases can be reconciled with the doctrine based on Parton . That exercise was undertaken by Brennan J in Philip Morris [62] and we agree with the analysis and conclusions in his Honour's judgment. In Philip Morris, McHugh J was also in dissent. His Honour rejected the authority of the earlier franchise cases as support for any proposition save the validity of the imposts upheld in those cases [63] . We do not apprehend that, in the result, there is any dissimilarity in the approach taken by the two Justices in dissent. Both Brennan J [64] and McHugh J [65] pointed to the proximity of the relevant period to the licence period, the shortness of the licence period, the size of the tax imposed ad valorem and the fact that it is to be borne only once in the course of distribution as indicia that were inconsistent with the tax being merely a licence fee having - to use the test stated by Kitto J in Dennis Hotels [66] - "no closer connection with production or distribution than that it is exacted for the privilege of engaging in the process at all". Brennan J added a reference [67] to "the revenue raising and non-regulatory purpose of the scheme".
Those factors are present and relevant to the character of the licence fees and the amounts payable under the Act in this case. Moreover, an amount equal to 75 or 100 per cent of the value of tobacco sold during a relevant period is levied by the Act. That amount could not conceivably be regarded as a mere fee for a licence required as an element in a scheme for regulatory control of businesses selling tobacco. The Act contains minimal provisions controlling businesses selling tobacco, chiefly those contained in s 36(2) which authorises the refusal of a licence to a person who has been convicted of an offence under s 59 of the Public Health Act 1991 NSW or, pursuant to s 36(2AA), if the Chief Commissioner is satisfied that "the issue of a licence would be contrary to the public interest". Subject to these provisions, renewal of a licence requires merely the due payment of the fees exacted. The licence fee is manifestly a revenue-raising tax imposed on the sale of tobacco during the relevant period. The licensing system is but "an adjunct to a revenue statute" [68] .
The case stated shows that the revenue collected by New South Wales from tobacco licence fees in the decade 1986 to 1996 was as follows: 1986/87 $157.0m 1987/88 $170.5m 1988/89 $203.8m 1989/90 $282.4m 1990/91 $297.0m 1991/92 $393.0m 1992/93 $594.6m 1993/94 $633.1m 1994/95 $646.8m 1995/96 $852.0m (estimated) The revenue to be derived from inland taxes on goods was ceded by the States to the Commonwealth under the Constitution. Although the early franchise cases admitted that ad valorem imposts of small amounts might properly be classified merely as licence fees having "no closer connection" with duties of excise, the States and latterly the Territories have sought to re-establish the pre-Federation tax bases of the Colonies by once more placing taxes on goods under a formula known as the Dennis Hotels formula.
If the theory on which the States and Territories acted was that a "fee for a licence to carry on the business quantified by reference to the value of the quantity of [the commodity] sold during a period preceding that in respect of which the licence is granted" [69] (the Dennis Hotels formula) denied any impost the character of a duty of excise, the theory was misunderstood. Such a proposition fails to take account of the important qualification which Kitto J himself expressed in Dennis Hotels [70] , namely, that the exaction is "not in respect of any particular act done in the course of the business". The proposition that a tax imposed in accordance with the Dennis Hotels formula was necessarily cloaked with immunity from an attack under s 90 was rejected in Philip Morris [71] by six members of the Court. It cannot be prayed in aid to support the imposts challenged in this case.
The maintenance of constitutional principle evokes a declaration that the Dennis Hotels formula cannot support what is, on any realistic view of form and of "substantial result" [72] , a revenue-raising inland tax on goods. The States and Territories have far overreached their entitlement to exact what might properly be characterised as fees for licences to carry on businesses. The imposts which the Act purports to levy are manifestly duties of excise on the tobacco sold during the relevant periods. The challenged provisions of the Act are beyond power.
We are conscious that this judgment has the most serious implications for the revenues of the States and Territories. But, in the light of the significantly increasing tax rates imposed by State and Territory laws under the insubstantial cloak of the Dennis Hotels formula, the Court is faced with stark alternatives: either to uphold the validity of a State tax on the sale of goods provided it is imposed in the form of licence fees or to hold invalid any such tax which, in operation and effect, is not merely a fee for the privilege of selling the goods. Section 90 of the Constitution, by prescribing the exclusivity of the Commonwealth's power to impose duties of excise, resolves the question. So long as a State tax, albeit calculated on the value or quantity of goods sold, was properly to be characterised as a mere licence fee this Court upheld the legislative power of the States to impose it [73] . But once a State tax imposed on the seller of goods and calculated on the value or quantity of goods sold cannot be characterised as a mere licence fee, the application of s 90 must result in a declaration of its invalidity.
The Court was invited, if it should come to that conclusion, to overrule the franchise cases prospectively, leaving the authority of those cases unaffected for a period of twelve months. This Court has no power to overrule cases prospectively. A hallmark of the judicial process has long been the making of binding declarations of rights and obligations arising from the operation of the law upon past events or conduct [74] . The adjudication of existing rights and obligations as distinct from the creation of rights and obligations distinguishes the judicial power from non-judicial power [75] . Prospective overruling is thus inconsistent with judicial power on the simple ground that the new regime that would be ushered in when the overruling took effect would alter existing rights and obligations. If an earlier case is erroneous and it is necessary to overrule it, it would be a perversion of judicial power to maintain in force that which is acknowledged not to be the law. This would be especially so where, as here, non-compliance with a properly impugned statute exposes a person to criminal prosecution.
In any event, the decision of this Court is not to overrule Dennis Hotels or Dickenson's Arcade. They may stand as authorities for the validity of the imposts therein considered. Properly understood, the test of "no closer connection" as stated by Kitto J in Dennis Hotels and explained by Brennan J in Philip Morris [76] is maintained. It is not necessary now to reconsider H C Sleigh, though the reservation expressed as to that case in the Capital Duplicators Case [No 2] [77] will not have passed unnoticed. However, the consequence of rejecting the view that alcohol and tobacco are commodities that are in a special category for s 90 purposes means that Philip Morris and Coastace were wrongly decided.
In the result, the questions reserved in the first case must be answered:
Q(1) Whether, on the facts referred to above, the provisions of ss 36(1), 41(1), 41(3), 43, 45 and 47(1) of the Business Franchise Licences (Tobacco) Act 1987 NSW are invalid as imposing a duty or duties of excise within the meaning of s 90 of the Constitution.
Q(2) Whether, on the facts referred to above, the provisions of s 30(1) of the Act in so far as they apply to a retailer's licence are invalid in that the fee for a retailer's licence provided for by s 41(1) of the Act is a duty of excise within the meaning of s 90 of the Constitution.
Q(3) By whom should the costs of these questions reserved be paid?
And, in the second case, the question reserved must be answered:
Q Whether, on the facts referred to above, the provisions of ss 28-30, 34, 36-41 and 45-48 of the Business Franchise Licences (Tobacco) Act 1987 NSW or any of them are invalid as imposing a duty or duties of excise within the meaning of s 90 of the Constitution.
A All of the sections referred to in the question are invalid.
The costs of the question reserved should be paid by the defendants.
Section 90 of the Constitution makes exclusive the power of the Commonwealth Parliament to impose duties of excise. Whilst this Court has experienced difficulty in arriving at a settled meaning for the term "duties of excise", at least one thing is clear. It is that the term is used in the Constitution in a restricted sense and that it does not extend to that range of imposts which, in another context, it might embrace. The difficulty has been in identifying where the restriction lies. That difficulty was not experienced initially, for in the early cases it was generally accepted that the answer was provided by the meaning which the term bore in Australia at the time of federation, a meaning which was confirmed by its constitutional context. Thus in Peterswald v Bartley [78] Griffith CJ, speaking for the Court, said:
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 connection 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. Reading the Constitution alone, that seems to be the proper construction to be put upon the term. The reference in that passage to the words "on goods produced or manufactured in the States" appears to be a reference to s 93, which is a transitional provision providing that duties of excise collected in one State upon goods passing into another State for consumption shall be taken to have been collected not in the former but in the latter State. The words used are "duties of excise paid on goods produced or manufactured in a State and afterwards passing into another State for consumption" and there is no reason to suppose that those words are used to differentiate one type of excise duty from another. On the contrary, they are plainly intended to be descriptive of what is meant by the term "duties of excise" as it is used in the Constitution [79] . Otherwise, the use of the restricted expression would be by way of exception which it would be impossible to explain [80] . 1. (1904) 1 CLR 497 at 509. And see Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561 at 606-609, per Dawson J; at 624-625, per Toohey and Gaudron JJ. 2. Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529 at 555And see the Capital Duplicators Case [No 2] (1993) 178 CLR 561 at 585. 3. See Philip Morris Ltd v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399 at 466
Not only does s 93 give the clearest indication that duties of excise are restricted to duties upon goods produced or manufactured in a State, but there is a compelling explanation for that restriction which is to be found in the circumstances which gave birth to s 90 itself. Two of the principal objectives of federation were, on the one hand, the creation of a common external tariff which would bind the States together in a customs union and, on the other, the creation of a free trade area internally by the elimination of customs duties at State borders and other restrictions upon the freedom of interstate trade. The degree, if any, to which the common external tariff would be protectionist was not a matter of consensus but it was agreed that it should be a matter for the Commonwealth Parliament. To the extent that it might be protectionist it would be undermined by the imposition, State by State, of excise duties on 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. For similar reasons, subject to s 91, it was necessary to exclude the States from the granting of bounties upon the production or export of goods. Section 90 was central to the achievement of a common external tariff. Section 92 was the chief means by which an internal free trade area was to be achieved.
The correlation between customs duties and excise duties is made manifest by s 90. It was only upon the imposition by the Commonwealth of uniform customs duties that the power of the Parliament to impose customs and excise duties and to grant bounties became exclusive. It was only then that State laws imposing customs or excise duties or offering bounties ceased to have effect. The same correlation is to be seen throughout the Constitution - nowhere is excise mentioned in the text without an adjacent reference to customs (see ss 55, 69, 86, 93).
Once it is accepted, as it is, that the term "duties of excise" is used in s 90 in a confined sense, the confines must be found in the purpose of that section [81] . The purpose was not to confer power to impose duties of customs and excise. The power to make laws with respect to taxation was already given to the Commonwealth Parliament by s 51(ii). The purpose was to confer exclusivity in the exercise of the power. Exclusivity was necessary lest the policies lying behind the common external tariff be impaired. So far as excise duties were concerned, it was unnecessary to extend the exclusivity beyond duties imposed upon goods when produced or manufactured, because a tax imposed upon some later step which fell indiscriminately upon locally produced and imported goods - a step in the distribution of the goods, for example - would not operate to impair any policy of protection to be found in an external tariff in respect of those goods.
Nevertheless, in Parton v Milk Board (Vic) [82] this Court, by a majority, extended the meaning of duties of excise in s 90 to include not only a tax upon the production or manufacture of goods, but also a tax upon any step in the distribution of goods before they reach the hands of the ultimate consumer. This was to widen the exclusivity of the Commonwealth's power to impose a tax upon goods beyond the purpose of s 90 and it is therefore not surprising that the justification for the extension was not sought in that section. The justification advanced involved two strands of reasoning.
They are both to be found in the following passage in the judgment of Dixon J [83] :
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. 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. The two propositions contained in that passage are, first, that s 90 was intended to give the Commonwealth Parliament control of the taxation of goods and, secondly, that a tax upon a step in the distribution of goods produces the same effect as a tax upon its manufacture or production. Both of those propositions have been questioned in subsequent cases (not to mention academic commentary [84] ) with such force that they cannot now, in our view, be accepted. 1. Parton (1949) 80 CLR 229 at 260 2. For recent examples, see McLeod, State Taxation: Unrequited Revenue and the Shadow of Section 90, Federal Law Review, vol 22 (1994) 476, at pp 484-492; Mathews and Grewal, The Public Sector in Jeopardy - Australian Fiscal Federalism from Whitlam to Keating (1997), pp 508-512, 782.
In the first place, there is no basis for the assumption that s 90 was intended to confer an exclusive power to impose duties of customs and excise for the purpose of giving the Commonwealth real control of the taxation of commodities and thereby power to effectuate its economic policies. If it had been intended to confer upon the Commonwealth exclusive power to tax commodities it would not have been difficult to frame a provision to that effect. But s 90 is not such a provision and in confining the exclusivity for which it provides to the imposition of duties of customs and excise it is apparent that it is part of a constitutional framework designed to achieve the objectives of a customs union. So much is suggested by the Convention Debates [85] and by colonial legislation as it stood in the lead up to federation [86] . Thus, a number of judgments have accepted that the term "duties of excise" had a special meaning in Australia at 1901 [87] .
Moreover, even taking the wider view of s 90, it could afford the Commonwealth only a limited power to implement economic policy with respect to the production and manufacture of goods. The States retain substantial power to affect the production and manufacture of goods within their borders by various means including taxation (other than customs or excise duties but including the taxation of services), the regulation of such matters as transport, health and safety or even the imposition of quotas. In so far as the Commonwealth has power to intrude upon those areas to the exclusion of the States, it is to be found principally in s 51(i), (ii) and (iii) of the Constitution, coupled with the operation of s 109, not in the exclusivity conferred by s 90.
Secondly, it is plainly incorrect to assert that a tax upon a commodity at any point in the course of distribution before it reaches the consumer has the same effect as a tax upon its manufacture or production. Not only is it an incorrect assertion but it fails to comprehend that the purpose of making the power to impose excise duties exclusive to the Commonwealth was to prevent impairment by the States of the common external tariff. A tax upon the manufacture or production of goods increases the cost of those goods without effecting a corresponding increase in the cost of imported goods of the same kind. Any protection afforded by customs duties imposed upon the imported goods is thereby reduced. But a tax imposed upon a step in the distribution of goods which falls indiscriminately upon locally produced and imported goods does not have that effect.
No doubt in saying that a tax imposed on production or manufacture and a tax imposed upon a step in the distribution of goods had the same effect, Dixon J had in mind the early classification of duties of excise as indirect taxes. An indirect tax was said to be one that has a tendency to be passed on in the price of goods whereas a direct tax was said to be one that tends to be borne by the person upon whom it is imposed. The distinction between indirect and direct taxes is now recognised as being economically unsound because market forces determine whether a tax will be passed on or not and there is nothing inherent in a particular tax which enables it to be classified as direct or indirect. Thus all taxes, even income tax, will be passed on to a greater or lesser extent depending upon market forces and the dichotomy between direct and indirect taxes is no longer seen as a satisfactory means of distinguishing between excise duties and other taxes [88] . Nevertheless, the distinction lingers in the notion to be seen in the cases that an excise duty is at bottom a tax upon the production or manufacture of goods because the price to the consumer has an ultimate effect upon the demand for the goods and hence upon their production or manufacture. However, just as it is not possible to draw any practical distinction between direct and indirect taxes, so it is not possible to discern any direct or necessary connection between the ultimate price of goods and their cost of production or manufacture. Again, market forces will determine the effect of price upon demand and hence upon production or manufacture. For that reason it is not possible to say that a tax upon a step in the distribution of goods is in effect a tax upon their production or manufacture. And, of course, a tax which falls upon a step in the distribution of imported and locally produced goods alike can hardly be regarded as a tax upon the production of the imported goods.
Once the reasons given in Parton [89] for extending the meaning of duties of excise are recognised as unsound, the extension is without any justification in economic or constitutional terms. In particular, it disregards the correlation between duties of customs and duties of excise which reveals the true purpose of s 90 and which identifies the limits placed by the Constitution upon the term "duties of excise".
The expansion of the concept of "duties of excise" in Parton made it difficult to distinguish excise duties from other taxes. This is exemplified by the franchise cases [90] which, speaking broadly, established that a licence or franchise fee, exacted for the privilege of carrying on a business of selling goods, did not, even though a tax, constitute an excise duty where it was calculated by reference to the value of sales during a period preceding the period of the licence. The licence or franchise fee was, of course, not a tax upon the manufacture or production of the goods but that had been abandoned as the test of an excise duty. Instead, what emerged as supporting the franchise cases was a test known as the "criterion of liability" test. The test was formulated by Kitto J in Dennis Hotels Pty Ltd v Victoria [91] and adopted by a unanimous Court in Bolton v Madsen [92] . It was as follows [93] :
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. This was thought for a time to be sufficient to support the franchise cases, because the legislation imposing the tax chose as the criterion of liability, not the taking of a step in the distribution of goods, but the carrying on of a business. However, the criterion of liability test came to be criticised upon the basis that it seized upon the statutory form of the tax and ignored substance. Eventually, the test was abandoned as the exclusive determinant of an excise duty [94] , although the later cases have failed to reveal the nature of the substance which was sought. Excise duties were no longer confined to taxes upon local manufacture or production. They no longer needed to be calculated by reference to the quantity or value of the goods involved. The distinction between direct and indirect taxes was recognised as unsustainable, but the notion persisted that duties of excise must somehow affect production or manufacture and the exception of a tax upon consumption was, somewhat illogically, continued. What remained was that an excise duty must be a tax upon goods but that provided no distinguishing feature because not all taxes upon goods - a tax upon ownership, for example - would, even on the broadest view of the term, constitute excise duties. 1. See Dennis Hotels (1960) 104 CLR 529; Dickenson's Arcade (1974) 130 CLR 177; H C Sleigh Ltd v South Australia (1977) 136 CLR 475 Philip Morris (1989) 167 CLR 399; Coastace Pty Ltd v New South Wales (1989) 167 CLR 503 2. (1960) 104 CLR 529 at 559. 3. (1963) 110 CLR 264 at 273. 4. Dennis Hotels (1960) 104 CLR 529 at 559. 5. See Philip Morris (1989) 167 CLR 399 at 446-451, per Brennan J.
Whilst the notion lingered that excise duties are at bottom taxes upon local manufacture or production, it became increasingly difficult to apply. Not only was the distinction between direct and indirect taxes discredited, but the expansion of the meaning of excise duties to encompass a tax upon the sale or distribution of goods removed any distinction between locally manufactured goods and imported goods. A tax imposed upon locally manufactured goods and imported goods alike did not operate to discriminate against locally manufactured goods and rendered irrelevant the distinction between local manufacture and importation for the purpose of determining whether a tax constituted a duty of excise. As a result, increasing emphasis came to be placed upon the assumption of Dixon J in Parton [95] that s 90 "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". Of course, were that assumption correct, then the search for the meaning of the term "duties of excise" in s 90 would cease, for the exclusivity of Commonwealth power to impose duties of customs and excise would extend to all taxes upon goods and all taxes upon goods which were not customs duties would be excise duties. But, as we have said, no justification for the assumption is to be found either in s 90 or elsewhere in the Constitution, or in history, and it has not gained in force by its conversion from an assumption to an assertion.
Nevertheless, the assertion has been taken up and built upon in recent judgments. For example, in Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] [96] , Mason CJ, Brennan, Deane and McHugh JJ expressed the view that "ss 90 and 92, taken together with the safeguards against Commonwealth discrimination in s 51(ii) and (iii) and s 88, created a Commonwealth economic union, not an association of States each with its own separate economy". However, the union which s 90 was designed to achieve was a customs union, not an economic union if what is meant by that term is a single economy. Clearly the States were to retain considerable power to influence the economy within their boundaries. It is a feature of the federation that State policies may legitimately affect resource allocation. The purpose of a customs union is to ensure a uniform policy with respect to external tariffs, whether free trade or protectionist. That was the purpose of s 90. Freedom of trade internally was to be achieved, not by common external tariffs, but by ensuring the free movement of people, goods and communications across State boundaries. That was the purpose of s 92. As was recognised in Cole v Whitfield [97] , the enemies of internal free trade are border taxes, discrimination and preferences. Neither s 92 nor s 51(ii) and (iii) nor s 88 sought to achieve an integration of the Australian economy such that conditions of trading were uniform throughout the country. As Stephen J observed in Seamen's Union of Australia v Utah Development Co [98] :
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. The States could not engage in discrimination of a protectionist kind against interstate goods, but otherwise they were left free to encourage or discourage trade within their boundaries, including trade in commodities, by such means as they saw fit provided that they did not do so by infringing the Commonwealth's exclusive power to impose duties of customs and excise and to grant bounties on the production or export of goods. That exclusivity was conferred to protect the common external tariff, not as part of a plan to create a single economy. Plainly it was inadequate for that purpose, either on its own or in combination with other sections of the Constitution, and could not have been intended to perform that function. 1. (1993) 178 CLR 561 at 585. See also Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599 at 660-661 Philip Morris (1989) 167 CLR 399 at 426. 2. (1988) 165 CLR 360 at 391. 3. (1978) 144 CLR 120 at 140.
A State tax which fell selectively upon imported goods would, of course, be a customs duty and be prohibited by s 90. A State tax which fell selectively upon goods manufactured or produced in that State would be an excise duty and be prohibited by s 90. A State tax which discriminated against interstate goods in a protectionist way would offend s 92 and be invalid. But those three instances do not exhaust the categories of taxes upon goods and do not support, as a legal conclusion, the proposition that the Commonwealth was intended to have an exclusive power to tax commodities. That is a suggestion which appears to be made in this case, but clearly a State tax - a tax upon sale, for example - which does not fall selectively upon imported goods or locally produced or manufactured goods and does not discriminate against interstate goods, offends against none of the prohibitions imposed by the Constitution. In particular, such a tax would not affect freedom of interstate trade because all goods would compete in the State on the same footing: there would be no discrimination of a protectionist kind.
Notwithstanding the decision in Parton , which has itself "been the subject of differing applications", the approach adopted in Peterswald v Bartley has "maintained a voice in the Court" [99] . In Dennis Hotels [100] , Fullagar J expressed the view that:
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. In H C Sleigh Ltd v South Australia [101] , Murphy J was of the opinion that duties of excise within the meaning of s 90 are taxes upon goods produced or manufactured within a State. In Logan Downs Pty Ltd v Queensland [102] 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. He adhered to this view in Hematite Petroleum Pty Ltd v Victoria [103] where he said: 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 Philip Morris Ltd v Commissioner of Business Franchises (Vic) [104] and the Capital Duplicators Case [No 2] [105] , Toohey and Gaudron JJ questioned the view taken by Murphy J that excise duties are confined to State taxes on production within the State and preferred the view that they may extend to State taxes imposed on goods produced in Australia. It is unnecessary for present purposes to pursue that matter. Putting it to one side, their Honours accepted in both cases that s 90 strikes down State taxation measures which discriminate against goods locally manufactured or produced [106] . Finally, in the Capital Duplicators Case [No 2] [107] Dawson J expressed the view that: 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 characterised 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. 1. Capital Duplicators Case [No 2] (1993) 178 CLR 561 at 625, per Toohey and Gaudron JJ. 2. (1960) 104 CLR 529 at 556. 3. (1977) 136 CLR 475 at 526-527. 4. (1977) 137 CLR 59 at 84. 5. (1983) 151 CLR 599 at 638. 6. (1989) 167 CLR 399 at 479-480. 7. (1993) 178 CLR 561 at 630-631. 8. See Philip Morris (1989) 167 CLR 399 at 483; Capital Duplicators Case [No 2] (1993) 178 CLR 561 at 629-631. 9. (1993) 178 CLR 561 at 609.
Whether a tax which falls upon locally produced goods discriminates against those goods in favour of imported goods is a question of substance, not form. It is the answer to that question which, upon the correct view of duties of excise, determines whether the tax is an excise duty. The clearest case is, of course, where a customs duty exists so as to afford a measure of protection to the home product and a selective tax upon a product of that kind extinguishes or substantially diminishes the protection. But there would be discrimination with a selective tax even where there was no relevant customs duty. The tariff policy in that case must be that imported goods of the relevant kind compete with locally produced goods upon an equal footing in the home market and a tax imposed selectively upon the local production of those goods would burden them in relation to imported goods and so impair the policy.
Moreover, it is not of significance that a non-selective tax falls upon locally produced goods or substantially upon locally produced goods because there are no imported goods or substantially no imported goods of the relevant kind. In that situation there would be no impairment of the tariff policy. The tax would remain a non-selective tax and the mere absence of imported goods would not render it discriminatory in relation to the home product.
These considerations make it apparent why an amendment made at the 1897 Adelaide Convention to the draft of the clause which was to become s 90 was necessary. The draft confined Commonwealth exclusivity over the power to impose duties of excise to duties of excise upon "goods for the time being the subject of customs duties". The amendment removed those words. Notwithstanding that in debate some delegates confused the exclusivity of Commonwealth power to impose excise duties with the power itself and thought that the words removed had the effect of limiting Commonwealth power, the amendment was required to ensure the preservation of Commonwealth tariff policy even where no relevant customs duty was imposed. This was the real reason for the amendment and it is apparent from the debate [108] . The absence of a customs duty upon particular goods is as much an aspect of Commonwealth tariff policy as is the presence of a customs duty and even in the absence of a customs duty, tariff policy is liable to be impaired by the imposition by a State of an excise duty upon the same goods locally produced. Thus the amendment at the Adelaide Convention, far from severing the linkage between the exclusivity of Commonwealth power to impose duties of excise and its external tariff policy, served to emphasise it.
In these cases the defendants invite the Court to re-examine the decision in Parton with a view to establishing that the validity of the fees imposed in the franchise cases is to be supported upon the basis that an excise duty is a tax which falls selectively upon the local production or manufacture of goods. In our view that contention is correct and we would accede to the re-opening of Parton . In the Capital Duplicators Case [No 2] [109] , Dawson J said:
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 [110] , "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. Those remarks, in our view, remain valid in the present cases and we have already explained why, in our opinion, Parton cannot be allowed to stand. No question arises whether the overruling of that decision should be merely prospective, but in view of the submission made by the defendants that any overruling of the franchise cases should be prospective only, we should express our agreement with Brennan CJ, McHugh, Gummow and Kirby JJ that this Court has no power to adopt such a course. 1. (1993) 178 CLR 561 at 605. 2. Philip Morris (1989) 167 CLR 399 at 489.
Turning to the present cases, the two plaintiffs in the first matter each conducted a duty free store in suburban Sydney in 1994 and each sold by retail tobacco products to the public during the course of carrying on their respective businesses. The plaintiff in the second matter carried on the business of selling tobacco for resale in New South Wales in 1996. Pursuant to the Business Franchise Licences (Tobacco) Act 1987 NSW (the Act), each plaintiff was prohibited under penalty from selling tobacco (see s 28), whether by retail (see s 30) or wholesale (see s 29), without a licence. Such licences are issued on application (see ss 35, 36) for periods of not more than a month (see s 39). The amount payable for a retailer's licence is calculated according to s 41(1)(c) and in the case of each plaintiff in the first matter would have been a fee of $10 together with an amount equal to 75 per cent of the value of the tobacco sold by each of them in the course of tobacco retailing during the "relevant period", disregarding any tobacco purchased from a licensee. The amount payable for a wholesaler's licence is calculated according to s 41(1)(a) and in the case of the plaintiff in the second matter would have been a fee of $10 together with an amount equal to 100 per cent of the value of the tobacco sold by it in the course of tobacco wholesaling during the "relevant period", other than tobacco sold to the holder of a wholesaler's licence. The "relevant period" is, under s 3(1) of the Act, "the month commencing 2 months before the commencement of the month in which the licence expires".
Neither of the plaintiffs in the first matter held a licence at the relevant time. The third defendant in the first matter, who was a delegate of the second defendant, the Chief Commissioner for Business Franchise Licences (Tobacco) for New South Wales (the Commissioner), issued assessments claiming moneys said to be payable by each plaintiff to the Commissioner under s 47 of the Act. Under s 47(1), subject to any remittance under s 47(4), a person who failed to hold a licence in respect of any period as required by the Act shall pay an amount equal to the amount that would have been payable for the licence had the person held one, plus a further sum by way of penalty of twice that amount.
The plaintiff in the second matter appears to have held a licence at the relevant time. However, the third defendant in the second matter, also a delegate of the Commissioner, issued assessments claiming moneys payable by the plaintiff to the Commissioner under s 46 of the Act. Pursuant to that section, if it appears that the fee assessed in respect of a licence was assessed incorrectly, the Commissioner may reassess the fee. If, on reassessment, the fee is increased, then under s 46(3), subject to any remittance under s 46(5), the additional amount assessed is payable along with a further sum by way of penalty of twice that additional amount.
The amount claimed to be payable by the first plaintiff in the first matter was $1,422,174.90; by the second plaintiff in the first matter $927,548; and by the plaintiff in the second matter $20,432,928.39.
It was not contested that these amounts or, at all events, the licence fees calculated pursuant to s 41 of the Act, were taxes. But the defendants contended, by reference to the franchise cases, that they were not taxes upon goods or, if they were, that they were not duties of excise within the meaning of s 90 because they did not tax goods by reason of their local production or manufacture. For our purposes it is unnecessary to determine whether the taxes were taxes upon goods, but it is obvious that the judgments in Philip Morris [111] and Coastace Pty Ltd v New South Wales [112] provide only a shaky foundation for the view that they were not. In those cases taxes similar to those in the present cases were held not to be duties of excise, but Brennan and McHugh JJ dissented and Mason CJ and Deane J so held only upon the basis that alcohol and tobacco were in a special category of goods inviting regulatory control by licence fees. Otherwise Mason CJ and Deane J would have held the fees to be excise duties.
However, in those two cases Toohey and Gaudron JJ held that the licence fees were not duties of excise because, even if they were taxes upon goods, they did not fall upon tobacco products as articles of local manufacture or production but rather fell upon them generally as articles of commerce irrespective of their origin. Theirs was a view which, upon the authorities, Dawson J felt unable to accept at that time but which he subsequently adopted in the Capital Duplicators Case [No 2] [113] when invited to reconsider the authorities.
In the present cases, the licence fees, regarded as taxes upon goods, fall indiscriminately upon tobacco products regardless of whether they are locally manufactured or produced or are imported. In 1994, approximately 60 per cent of Australian tobacco was grown in Queensland, 37 per cent in Victoria and 3 per cent in New South Wales. There were three domestic manufacturers of tobacco products, two of which had their factories in New South Wales and one of which had its factory in Victoria. It was not suggested, and could not be suggested, that free trade among the States was affected by the fees imposed under the Act. The imposition of those fees operated in a manner which did not discriminate against interstate tobacco products, nor did it protect New South Wales tobacco products.
The total value of domestic consumption in terms of retail sales of tobacco products in 1994 was $5,389 million, of which imported tobacco products represented in retail value about 4 per cent. Thus imported tobacco products represented only a very small percentage of the tobacco market. It was suggested in argument that this was a reason for concluding that form would triumph over substance if the licence fees were held not to constitute duties of excise.
It would seem that the argument proceeded on the footing that, had New South Wales chosen to impose a tax on the production or manufacture of tobacco or tobacco products, it would have raised almost the same amount of revenue from practically the same sources as it did by the imposition of the licence fees. To approach the matter in that way is, however, to mistake the purpose of s 90. The purpose of that section was not to restrict the revenue raising capacity of the States. Equally, its purpose was not to secure to the Commonwealth a revenue base: that is the function of s 51(ii). Rather, the purpose of s 90 was to preclude State imposts on goods which would undermine the common external tariff regardless of the revenue which the States would be compelled to forgo by reason of the prohibition. Thus, in these cases it is the nature of the impost and not the revenue involved which is important and it is the fact that the impost falls upon domestic and imported goods alike which is the substance of the matter. It is not to the point that only a small amount of tobacco products sold in New South Wales, or in Australia generally, is imported. Whatever the proportion, the level of protection, if any, which the Commonwealth has chosen to give tobacco products produced or manufactured in Australia remains unaffected.
For these reasons, the answers to the questions reserved in the first case stated should be: (1) No; (2) No; (3) The plaintiffs. And the answer to the question reserved in the second case stated should be (1) No.
Ha
New South Wales
(1960) 104 CLR 529
(1993) 178 CLR 561
(1970) 121 CLR 1
(1983) 151 CLR 599
(1985) 155 CLR 368
(1949) 80 CLR 229
(1904) 1 CLR 497
(1926) 38 CLR 408
(1927) 39 CLR 139
(1937) 56 CLR 390
(1963) 110 CLR 264
(1974) 130 CLR 177
(1969) 120 CLR 42
(1938) 60 CLR 263
(1989) 167 CLR 399
(1988) 165 CLR 360
(1988) 165 CLR 411
(1992) 177 CLR 248
(1958) 100 CLR 117
(1989) 168 CLR 461
(1990) 169 CLR 436
(1990) 171 CLR 182
(1977) 136 CLR 475
(1989) 167 CLR 503
(1984) 154 CLR 311
(1989) 167 CLR 339
(1991) 173 CLR 167
(1944) 69 CLR 185
(1977) 137 CLR 59
(1978) 144 CLR 120