Philip Morris Ltd v Commissioner of Business Franchises

Philip Morris Ltd v Commissioner of Business Franchises - [1989] HCA 38 - HCA 1987 case summary — Zoe

[10]

For ease of expression I shall refer to the current effect of the Act on the sales of the plaintiffs, but what follows applies equally to the past effect of the Act on the sales of the plaintiffs in so far as they are the subject of the present proceedings and irrespective of whether the tax was 25 per cent or 30 per cent. Upon the facts in the case stated, I think that s. 10 imposes a duty of excise on Philip Morris Ltd. ("P.M.L.") unless the legislation is indistinguishable from that considered in the franchise cases. I think that s. 10 imposes a duty of excise because it imposes a tax of 30 per cent on the estimated value of tobacco which P.M.L., as manufacturer, sells in any month for which it holds its licence. Quantification of a licence fee by reference to events in a past period of business will not prevent that fee from being characterized as a duty of excise: Gosford Meats. The fee for the month in the present case is calculated by reference to the sales for the last preceding month but one. The close proximity between the two periods shows that the purpose of the legislation is to tax the sale of tobacco by reference to the estimated value of what will be sold. If the fee were calculated by reference to the likely or projected sales for that month, the fee would be an excise: cf. Matthews . The Act does not, of course, select the likely or projected sales for the licence month as the criterion of liability. But by selecting the sales in the preceding month but one, it selects a period which, according to the ordinary course of business, is likely to give as accurate a guide to the likely sales during the month of the licence as can be practically achieved. The fee bears, therefore, "a natural, although not a necessary relation to the quantity of the commodity" sold during the month of the licence: cf. Matthews [86] . The relationship between the fee and the quantity of tobacco sold is even more direct than the relationships between the fees and the quantities of commodities produced in Hematite Petroleum and Logan Downs and which were held to be excises. Moreover, the calculation of the fee by reference to a percentage of actual sales in the preceding month but one, the size of the percentage, and the recurrent nature of the fee as a monthly outgoing lead to the conclusion that what is admitted to be a tax of 30 per cent was intended to be passed down the line to the consumer as part of the price of tobacco products sold by the licensee during the month of the licence. Demand for tobacco products seems to be relatively inelastic (i.e. relatively irresponsive to price change): see New South Wales Tax Task Force, Tax Reform and N.S.W. Economic Development: Review of the State Tax System, August 1988, p. 81. It is almost inevitable, therefore, that the incidence of the monthly licence fee will be shifted to the consumer. But whether or not the whole of the tax is passed onto the consumer, it is enough, according to the theory of this Court's decisions on excise, that the tax from its nature has "a tendency to enter into the price obtained": Parton [87] . Most of the monthly fee paid by P.M.L. is a direct tax on the sales made by a local manufacturer of its products (the balance is paid in respect of the sale of products which it does not manufacture). A tax payable by the producer of goods upon the first sale of goods produced by him is an excise: the Commonwealth Oil Refineries Case; John Fairfax & Sons.

[20]

In Dickenson's Arcade [1] however, the decision in Dennis Hotels was influential, if not decisive, in this Court's conclusion that Pt III of the Tobacco Act 1972 Tas. did not impose a duty of excise on the retail sale of tobacco. In Dickenson's Arcade the licence fee was calculated by reference to the average monthly value of tobacco "handled" at the premises over the period of twelve months ending six months before the commencement of the annual period in respect of which the licence was granted. The effect of Pt III was that the maximum fee payable was 2.5 per cent of the value of the tobacco handled in the relevant assessment period where the value was not less than $7,200.00. Barwick C.J. [2] , although doubting the correctness of the reasoning and the decision in Dennis Hotels, thought that the "statutory and factual situation in this case is so substantially similar to and not distinguishable from the statutory and factual situation" in that case that he should follow that decision. Mason J. [3] said that he also was unable to discern any difference between the two pieces of legislation. Menzies J. [4] concluded that the licence fee was a personal tax "for a franchise to sell tobacco in Tasmania". His Honour thought that Dennis Hotels was an authority "against treating the tax as a duty of excise" [5] . Gibbs J. [6] was of the opinion that Kitto J. was correct in Dennis Hotels in stating that the licence fee was an exaction "only in respect of the business generally, and not in respect of any particular act done in the course of the business". His Honour went on to conclude [7] that the reasoning for which Dennis Hotels was authority led to the conclusion that the fee was not a tax on any purchase or sale of tobacco. I have already pointed out, however, that Dennis Hotels is only an authority for the proposition that the Licensing Act did not impose a duty of excise. Stephen J. [8] said that it was clear that current dealings in tobacco played no part in determining the amount of the licence fee and that, quite apart from authority, he would not regard the fee as demonstrating that what was being taxed was the taking of a step in dealing with particular quantities of tobacco. His Honour thought that the view he took of the "significance of the basis upon which licence fees are to be calculated" was supported by Dennis Hotels. McTiernan J. dissented.

[23]

Finally, I turn to consider H.C. Sleigh [9] where the plaintiff alleged that the Business Franchise (Petroleum) Act 1974 S.A., which made it unlawful to carry on the business of selling petroleum products on and from 24 March 1975 unless a person was a holder of a licence, imposed a duty of excise. During the currency of the Act there were two licence periods. The first commenced on 24 March 1975 and ended on 23 September 1975. The second commenced on 24 September 1975 and ended on 23 December 1975. The fee payable for a licence comprised a fixed sum of money and a further amount which with one exception was "the prescribed percentage of the value of the quantity of petroleum products sold by the applicant during the relevant period reduced by the quantity of any petroleum products non-accountable in respect of that period". The relevant period for the first licence period was the financial year ending 30 June 1974 and for the second licence period the financial year ending 30 June 1975. Barwick C.J. [10] held that the case was governed by the decision in Dickenson's Arcade. Gibbs J. [11] was also of the opinion that the case was governed by Dickenson's Arcade. His Honour said [11] that the Act did not "impose a tax on goods, because the fee for a licence to carry on the business of selling petroleum products is quantified by reference to the value of the quantity of petroleum products sold during a period preceding that in respect of which the licence is granted". Stephen J. [12] also held that the legislation in all relevant respects was indistinguishable from that considered in Dickenson's Arcade. He also rejected the notion that there was anything artificial in distinguishing between current and past sales. Mason J. [13] said there was nothing to distinguish the licence fee from that which was dealt with in Dickenson's Arcade. His Honour said that although "some attempt was made to suggest that the plaintiff was engaged in manufacturing operations in that it included one or more additives in the petroleum products which it obtained from refiners, the prohibition is against carrying on the business of selling petroleum products without a licence, that is against selling, not against manufacturing". Murphy J. [14] was of the opinion that the licence fees imposed no excise because "duties of excise for the purposes of Ch. IV of the Constitution are taxes on goods produced or manufactured in the State". Jacobs J. dissented.

[26]

It was also suggested in argument that H.C. Sleigh expressly decided that legislation requiring a producer to pay a licence fee is not an excise when the fee is calculated by reference to past sales of the producer. I cannot accept that submission. As I have pointed out, I do not think that H.C. Sleigh decided anything more than that the legislation in that case did not impose a duty of excise. It is true that in H.C. Sleigh the plaintiff sought to allege that it was a producer and fell within the authority of the decision in M.G. Kailis where a levy upon a producer was held to be an excise. But I think that the judgments in H.C. Sleigh show that the Court treated the plaintiff as a seller only and not as a producer who was a seller. Accordingly, I do not think that the decision can be taken as assimilating the position of a producer who is required to pay a licence fee quantified by reference to past sales with that of a retailer. Moreover, it would be astonishing if Mason J. was intending, sub silentio, to overrule the distinction which he made in M.G. Kailis between the position of a manufacturer or producer and a seller of goods. Indeed, in H.C. Sleigh, his Honour expressly referred to M.G. Kailis and pointed out [15] that "although I accepted Dennis Hotels as an authoritative decision in relation to a licence fee having similar characteristics, I did not regard the majority judgments as expressing a principle that would necessarily govern all cases, in particular cases where a licence similarly calculated was imposed on the manufacture or production of goods". No doubt it is true that in M.G. Kailis the licence fee was calculated by reference to a step in production or manufacture and not by reference to the sales of the producer. But it would be absurd to suppose that there is any constitutional difference between the licence fee of a producer quantified by reference to a step in production (say the value of goods produced) and the licence fee of a producer quantified by reference to his sales. In Gosford Meats [16] , Mason and Deane JJ. said that, although Dennis Hotels had been allowed to stand as an authoritative decision on its own facts, "it would fly in the face of both principle and authority to accept it as establishing a general proposition that can be applied to a tax made payable, in the form of a licence fee, by a manufacturer or producer of goods". The same comment can be made in respect of H.C. Sleigh.

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Judgment (35 paragraphs)

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