Sands & McDougall v Commissioner of Taxation [1998] VSCA 76

8. Sands & McDougall Wholesale (In Liq.) Pty. Ltd. ("SMW" or "the company") is a wholesale and retailing company within the Sands & McDougall Group. It was a printing and stationery group first in the Colony of Victoria and later the State. The group's existence dates back to the 1850s. On 20 June 1994, SMW was placed under voluntary administration and David James Lofthouse was appointed administrator. At a meeting of creditors held on 27 June 1994, the second appellant, Peter David Rodgers, was appointed administrator in place of Lofthouse. On 12 September 1994, by resolution of creditors held pursuant to s.439C of the Corporations Law, the company was placed into liquidation and Rodgers was appointed liquidator of the company.

11. In the six months preceding 20 June 1994, SMW had traded and incurred sales tax liabilities as follows:

21. SMW paid to the Deputy Commissioner of Taxation ("the Commissioner"), the respondent, a total of $878,293.10 in respect of these sales tax liabilities, the payments being made as follows:

21 January 1994 November 1993 sales tax $363,107.67

13 or 14 April 1994 December 1993 sales tax $ 50,000.00

20 or 22 April 1994 December 1993 sales tax $ 50,000.00

1 or 2 June 1994 December 1993 sales tax $168,687.00

31. SMW incurred trading losses in the years ended 30 June 1991, 30 June 1992, 30 June 1993 and 30 June 1994 and its balance sheets for the years ended 30 June 1991 and 30 June 1992 showed a net deficiency of assets as against liabilities. SMW's income tax return for the year ended 30 June 1991 showed a trading loss of $1,412,741 and a net deficiency of assets of $874,622. No income tax return was filed by SMW for the years ended 30 June 1992 or 30 June 1993. The balance sheet for 30 June 1993 showed a surplus of assets over liabilities of $650,417, brought about by the forgiveness in February 1994 (by a document dated 30 June 1993) of a debt of $5m. owing by the company to its holding company, Sands & McDougall Pty.Ltd. The surplus of assets over liabilities shown in the 30 June 1993 balance sheet was however dissipated by losses incurred in each of the months July to December 1993, so that by mid-October 1993 there was once again a net deficiency of assets.

35. The appellant Rodgers, as liquidator of SMW, alleged that the six payments made by SMW to the respondent in the period of six months preceding the date of the commencement of the winding up of the company (the s.513C day was 20 June 1994) were under the Corporations Law unfair preferences (s.588FA), and voidable transactions (ss.588FE and 588FF). At trial, the respondent alleged that -

(i) the payments, being on account of a sales tax liability of SMW to the respondent did not, by reason of their nature as payments of sales tax, amount to an undue preference within the meaning of s.588FA Corporations Law and therefore were not voidable transactions;

(ii) the company was not insolvent at the time of each of the payments;

(iii) in any event at the time at which the respondent received each payment it received the payment in good faith and had no reasonable grounds for suspecting that the company was insolvent or would become insolvent and that a reasonable person in the circumstances of the respondent would not have had those grounds;

(iv) no unfair preference had been given within the meaning of s.588FA because each payment formed part of a continuing business relationship between the company and the respondent (s.588FA(2)) and if treated as a single transaction did not in any event amount to a preference;

(v) even if the payments or any of them constituted a voidable transaction, the court had a discretion under s.588FF not to make one or more of the orders set out in s.588FF(1).

The learned judge found for the appellants on the question of insolvency, but otherwise found in favour of the respondent. His Honour's reasons are reported at (1996) 22 A.C.S.R. 383.

42. The learned judge's principal conclusion (at 397) was that sales tax remittances cannot be unfair preferences. His Honour considered (at 400-401) that SMW, the wholesaler obliged under the legislation to remit the sales tax, was to be characterized as a "tax gatherer", which merely had the function of collecting and passing on to the Commissioner sales tax which had only temporarily been in SMW's possession. His Honour said (at 400) that the sales tax never became the money of the taxpayer. Furthermore his Honour held that the liability of a vendor to remit sales tax to the Commissioner is not a debt and said (at 402) -

"I do not consider the remittance of tax of the Commissioner's own funds as being equivalent of or even in the nature of paying a debt. It is simply not of the same character as payroll tax ... which is an impost levied upon the employer, payment of which is the obligation of the employer, regardless of whether it sells goods or trades successfully or otherwise."

This conclusion is consistent with the decision to the same effect of Cox, J. in Castrisios v. McManus (1991) 9 A.C.L.C. 287, where his Honour had held that sales tax was not a debt within the meaning of s.556(1)(a) of the Companies Code. The learned trial judge also placed much reliance on the decision of Davies, J. in Casatex Australia Pty. Ltd. v. DCT (9 December 1994, Federal Court of Australia, unreported), a decision to which I shall turn later.

48. In this Court, three principal issues were argued -

(a) whether any of the payments of sales tax the subject of the appellant's claim were an unfair preference within the meaning of s.588FA(1) of the Corporations Law;

(b) whether the payments, the subject of the appellant's claim, were "for commercial purposes an integral part of a continuing business relationship between a company and a creditor of the company (including such a relationship to which other persons are parties)" within the meaning of s.588FA(3) of the Corporations Law;

(c) whether on the material before the court the learned judge should have been satisfied that as at the date of any of these payments,

(i) the Commissioner did not have reasonable grounds to suspect that SMW was insolvent;

(ii) a reasonable person in the circumstances of the Commissioner would not have had reasonable grounds to suspect that SMW was insolvent.

A subsidiary question argued was whether the court, having found a transaction to be a voidable transaction within s.588FF of the Corporations Law, has a discretion to decline to make an order in accordance with any of the paragraphs of sub-s.(1) of that section and, if such a discretion existed, whether the learned judge ought in the circumstances to have exercised such discretion in favour of the Commissioner.

56. Sales tax was first introduced in Australia in 1930, to meet budgetary difficulties resulting from the Great Depression. The tax is imposed on dealings with goods manufactured in Australia or imported into Australia for sale. "The general policy of the legislation is to levy this tax upon the last sale of the goods by wholesale, that is upon the sale to the retailer by the last wholesaler;" DCT v. Ellis & Clark Ltd. [1934] HCA 54; (1934) 52 C.L.R. 85 at 89, per Dixon, J., from a passage where the whole scheme of the sales tax legislation as then operating was described in detail.

59. Liability to pay sales tax arises under the Sales Tax Assessment Act 1992 ("the Sales Tax Act") when there is an assessable dealing (s.16, Schedule 1, Table 1). A person who manufactures or sells assessable goods in Australia is required to apply for registration (s.78(1)), and upon registration is given a registration number by the Commissioner. By s.82, this number may be quoted when a registered person deals with goods in various ways not intended to attract sales tax - as by selling goods by wholesale, or to any other registered person who quotes for the sale. Thus, a sale to a person who quotes his number is not the subject of tax, and, if there be successive sales to wholesalers, the goods do not incur tax until the last wholesaler sells them to the retailer.

62. SMW as a seller of goods both by wholesale and retail engaged in assessable dealings at the time of the sale of such goods and tax was levied upon the price at which the goods were sold. As a registered person, SMW was required to furnish monthly returns to the Australian Taxation Office ("the ATO") within 21 days after the end of each month (s.61). Section 34 provides for the general rules for working out the taxable value of goods, which are set out in Table 1 to the Sales Tax Act. Under s.63, tax payable by SMW became due for payment 21 days after the end of the month. By s.69, unpaid tax may be recovered by the Commissioner as a debt in any court of competent jurisdiction, but pursuant to ss.66 and 68 the Commissioner may extend the time for payment of tax, or allow it to be paid in instalments, or impose or remit a penalty for late payment. Section 51, Table 3, CR 21, provides for the Commissioner to give a credit to the taxpayer in respect of sales tax remitted, where the taxpayer has not been paid by the purchaser and the taxpayer writes-off the price (or part of it) as a bad debt.

65. Section 125 provides that a person who sells goods by wholesale at a price that includes tax that the person has or will become liable to pay on the goods must specify the amount of the tax on any invoice given to the purchaser, and a penalty is imposed for failing to do so. In the present case, as found by the learned trial judge (at 389) -

"It was SMW's custom to raise a 'picking slip' upon receipt of an order. This enabled the storeman to pick from the stores and inventories, the items listed. A document was prepared which recited the goods as selected, it noted in one column the wholesale price and in another, the sales tax. There followed a global sum. The sales tax was included, as it should be under the Act, as a discrete item. The picking slips also operated as invoices. The evidence discloses that the invoice was delivered with the goods. Therefore, all customers of SMW knew from the time they received the goods, what the sales tax in respect of them was. The customers were obliged to pay SMW the aggregate sum, unless of course special exemptions prevailed."

69. Section 123 of the Sales Tax Act deals with the obligations of a liquidator or receiver in relation to unpaid sales tax, and I shall return to this section later.

The priority of the Commonwealth in relation to sales tax.

73. Payment of sales tax in liquidations in the context of the priority inter se of the Commonwealth and the States has arisen for consideration on numerous occasions. In FCT v. Official Liquidator of E.O. Farley Ltd. (In Liquidation) [1940] HCA 13; (1940) 63 C.L.R. 278, the High Court in the context of the winding up of an insolvent company considered the claims of the Commonwealth in respect of income tax and telephone charges, as against the claims of the State of New South Wales in respect of income tax and unemployment relief tax, all such debts being debts due to the Crown. The Court held that all such debts, by virtue of the prerogative, had priority over debts due to the subject. But as between the debts due to the two governments, there were but co-existing rights standing on an equality in the absence of valid legislation disturbing that position. Then, in In Re Richard Foreman & Sons Pty. Ltd.; Uther v. FCT [1947] HCA 45; (1947) 74 C.L.R. 508, all members of the High Court, again in the context of a winding up, held that it was the intention of the New South Wales Parliament that the Crown in right of the Commonwealth should be bound by the provisions of the Companies Act 1936 (N.S.W.) relating to the priority of debts in the winding up of insolvent companies. Latham, C.J., Rich, Starke and Williams, JJ. (Dixon, J. dissenting) also held that it was within the constitutional competence of the New South Wales Parliament in legislation relating to the winding up of companies, to restrict or abolish the prerogative right of the Crown in right of the Commonwealth to payment of debts due to it in priority to all other debts of equal degree. The same four judges also held that the Sales Tax Assessment Act No. 1 (1930-1942) did not confer any statutory right of priority of payment of debts due for sales tax and payroll tax; and therefore that there was no inconsistency, under s.109 of the Constitution, between those Acts and the provisions of the Companies Act (N.S.W.) depriving the Crown in right of the Commonwealth of priority in the winding up of insolvent companies. Having regard to what had been decided in Farley's Case, counsel for the Commissioner did not argue that s.32 of the Sales Tax Assessment Act 1930-1942, (the predecessor of s.123 of the present Act) conferred any statutory priority on the Commissioner. In his dissent, Dixon, J. said that the Commonwealth's entitlement to priority as a prerogative right could be "relinquished or modified by and with the consent of the Parliament of the Commonwealth. But from its very nature it must be outside the power of the State to detract from it." Dixon, J. went on to make certain observations as to the interpretation of s.32. Then in Commonwealth v. Cigamatic Pty.Limited (In Liquidation) [1962] HCA 40; (1962) 108 C.L.R. 372, the High Court (Dixon, C.J., Kitto, Menzies, Windeyer and Owen, JJ., McTiernan and Taylor, JJ. dissenting) held that the Parliament of a State has no power to control or abolish the Commonwealth's fiscal right as a government to priority of payment of debts due to it when, in an administration of assets, those debts come into competition with debts of equal degree due to its subjects. In his dissenting judgment, Taylor, J. said, at 385-386, that, having regard to what had been said by Dixon, J. in Uther's Case, he entertained the view that "the substantial effect of s.32, as it stood at the time of that decision, was to require a liquidator, out of the assets of the company, to pay sales tax in priority to all debts other than those specified" in s.32(4). Dixon, C.J., Kitto, Menzies and Owen, JJ., however, held that there was no compelling reason for re-considering the views expressed in Uther's Case concerning the meaning and effect of s.32.

The Taxation Debts (Abolition of Crown Priority) Act 1980

77. In April 1977, the Senate appointed a Committee chaired by Senator Alan Missen to review the right of priority of the Crown over other creditors in matters of bankruptcy, corporate liquidations or other cases of impecunious persons or corporations. The Missen Committee reported (in June 1978) that the effect of the decision in Cigamatic was that the common law priority of the Commonwealth Crown in liquidations could only be cut down by legislative action of the Commonwealth itself, and that, although the Commonwealth had abolished its common law priority in bankruptcies (in respect of sales tax and income tax exceeding one year's assessment) this priority continued to exist in liquidations. But the Committee noted (at p.19) that, "In recent years the Commissioner of Taxation has not claimed priority of payment of sales tax, payroll tax and other tax debts as against preferential claims of employees for bona fide and reasonable payments of back-pay and leave entitlements." The Committee reported in conclusion (at p.70) -

"that the right of the Crown to be paid debts owing to it in priority to other creditors of an insolvent administration should be abrogated entirely."

The report noted (at pp.22, 71) that a number of statutory provisions listed (including s.32 of the then Sales Tax legislation) which appeared to place the Commonwealth in a preferential position as regards certain taxation debts, required amendment so as to prevent the intended beneficial effects of the abolition of priority being negated.

82. In 1980, the Commonwealth Parliament enacted the Taxation Debts (Abolition of Crown Priority) Act which, in Part 4, provided for amendments of the Sales Tax Assessment Act (No. 1) 1930. In particular s.32 was amended by omitting sub-ss.(2A) and (2B) and substituting new sub.s.(2A) -

(a) shall not, without the leave of the Commissioner, part with any of the assets of the company until the liquidator has been so notified;

(b) shall set aside, out of the assets available for payment of ordinary debts of the company, assets to the value of an amount that bears to the value of the assets available for payment of ordinary debts of the company the same proportion as the amount notified by the Commissioner under sub-section (2) bears to the sum of -

(i) the amount notified by the Commissioner under sub-section (2);

(ii) any amount of prescribed tax that the Commissioner is required to notify to the liquidator under an Act other than this Act and has so notified; and

(iii) the aggregate of the ordinary debts of the company (excluding any debt in respect of tax or prescribed tax);

(c) is, to the extent of the value of the assets that the liquidator is so required to set aside, liable as trustee to pay the tax."

93. In introducing the Bill, the Treasurer (the present Prime Minister) stated that the Government agreed generally with the Missen Committee that it was desirable that the Crown be placed, so far as possible, on an equal basis with creditors in the private sector, save in relation to "pay-as-you-earn" tax instalment deductions and withholding tax deductions from dividends and interest. The Treasurer said -

"In particular, the Bill will make clear that a liquidator or receiver will be able to part with the assets of a company at any time for the purposes of satisfying debts which are secured or which, under Commonwealth, State or Territory law, are to be accorded preference over ordinary debts of a company. For example, amounts that attract preference as being owed to employees of an insolvent company for unpaid wages or accrued leave and similar entitlements will come into this category. While these 'setting aside' provisions do not in themselves confer on the Commonwealth any right to payment, the Government accepts that the responsibility that they impose should not be inconsistent with the ordinary creditor status that tax debts are now to be given. Accordingly, the Bill will ensure that the requirements on liquidators or receivers to set aside assets for payment of tax are limited to the setting aside of a pro rata share of such assets as remain to pay ordinary creditors, that is, after secured and preferred debts and administration costs have been met."

97. In 1992, the existing sales tax legislation was consolidated by the Sales Tax Assessment Act 1992. The scheme of the legislation remained the same, and s.32 of the former legislation became s.123. By s.123(1)(a) a liquidator of a company is referred to as "the asset holder", and by sub-s.(2), the asset holder is required to give notice of the fact of becoming a liquidator to the Commissioner. The Commissioner must then, by sub-s.(3), notify the asset holder of the amount the Commissioner considers is enough to cover any sales tax that the company is or may become liable to pay. Save in relation to "debts of the company that are not ordinary debts", the asset holder is then, by sub-s.(4), required not to part with any of the company's assets, without the Commissioner's permission, before receiving notice from the Commissioner. Section 123(5) and (6) then provide -

"123(5) [Calculation of value of assets to be set aside] After receiving the Commissioner's notice, the asset holder must set aside, out of the assets available for paying the company's ordinary debts, assets with a value calculated using the following formula:

Total value of assets Notified sales tax amount

available to pay x Notified sales Notified other Sum of company's other

ordinary debts tax amount + taxes + ordinary debts

In the formula, "Notified other taxes" means the total of any amounts that the Commissioner has notified in relation to the company under a section of another Act that corresponds to this section.

123(6) [Asset holder is liable as trustee] The asset holder is liable as trustee to pay sales tax payable by the company, to the extent of the value of assets that the asset holder is required to set aside."

107. The relevant sections of the Corporations Law leading to the recovery of property for the benefit of the creditors of an insolvent company are set out in Part 5.7B of the Corporations Law. An "unfair preference" is defined by s.588FA in the following terms -

"(1) A transaction is an unfair preference given by a company to a creditor of the company if, and only if:

(a) the company and the creditor are parties to the transaction (even if someone else is also a party); and

(b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;

even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

(a) a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and

(b) in the course of the relationship, the level of the company's net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;

(c) sub-section (1) applies in relation to all the transactions forming part of the relationship as if together they constituted a single transaction; and

(d) the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of sub-section (1) as applying because of paragraph (c) of this sub-section, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference."

Section 588FC deals with "insolvent transactions" of a company. By that section -

"A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:

(a) any of the following happens at a time when the company is insolvent:

(ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or

(b) the company becomes insolvent because of, or because of matters including:

(ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction."

If a transaction is an insolvent transaction of the company, the transaction is voidable by reason of s.588FE(2) if -

"(b) it was entered into, or an act was done for the purpose of giving effect to it:

(i) during the six months ending on the relation-back day; or

(ii) after that day but on or before the day when the winding up began."

Section 588FF provides the jurisdiction for the court to make orders about voidable transactions including an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction. Defences are then provided by s.588FG, as follows -

"(2) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company and it is proved that:

(a) the person became a party to the transaction in good faith; and

(i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and

(ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and

(c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.

(3) For the purpose of paragraph (2)(c), if an amount has been paid or applied towards discharging to a particular extent a liability to pay tax the discharge is valuable consideration provided:

(b) under any transaction that consists of, or involves, the payment or application.

'Tax' means tax (however described) payable under a law of the Commonwealth ..., and includes, for example, a levy, a charge, and municipal or other rates."

The first issue: Do the payments to the Commissioner fall within the definition of a voidable transaction?

146. The appellants' case was that the primary liability for payment of sales tax lies with the wholesaler, and is not dependent on payment of any part of the tax by the purchaser. Indeed, a purchaser may default on paying the wholesale price in which case the Act provides for a refund of sales tax to the wholesaler. Mr. Nash, Q.C., who appeared in this Court with Mr. Gardiner for the appellants, submitted that unpaid sales tax is, by s.69 of the Act, a debt recoverable by the Commissioner from the wholesaler; and, of course, the Commissioner has no recourse against a defaulting purchaser. Furthermore, since sales tax is not a tax on anyone other than the wholesaler, it also could not be said that sales tax is a tax collected by the wholesaler on behalf of the Commissioner. According to this argument, in the sections referred to above the scheme of the Act demonstrates that the Commissioner has no proprietary interest in any part of the purchase price, and s.125 is a machinery provision which merely facilitates the computation by the Commissioner of the amount of sales tax owing, at the time of monthly audits. On this view s.125 could not be used as a basis for saying that this part of the purchase price has in any way been earmarked for the Commissioner, particularly in light of the provision (s.63) requiring the wholesaler to pay the sales tax, at the end of the 21st day after the month in which the sales tax obligation was incurred, regardless of whether the price has in fact been paid.

149. In response the Commissioner's argument was that in substance the impugned payments did not fall within the definition of a voidable transaction because there was no unfair benefit to the Commissioner resulting from them. The argument, which was both clever and well-made, was put in a variety of ways. In the first place Mrs. Crennan, Q.C., who appeared in this Court with Ms Davies on behalf of the Commissioner, submitted that regard must be had to the scheme of the Act. The money for sales tax, so the argument ran, did not come from the wholesaler's own resources, but ultimately from the purchaser, and the wholesaler, acting as a conduit, was simply required to pass on to the Commissioner, the money in effect collected as sales tax from the purchaser. Mrs. Crennan expressly disclaimed any argument that the money was, while in the wholesaler's hands, the property of the Commissioner, nor was it, she accepted, impressed with any trust. Emphasis was however placed on the fact that sales tax was, like customs and excise, an indirect, rather than a direct tax, which, by s.125, the wholesaler was required to identify. Mrs. Crennan submitted that the primary liability to pay sales tax was not, in fact, on the wholesaler, rather on the dealing or transaction which attracted the sales tax obligation.

152. Next Mrs. Crennan submitted that, having regard to the way in which the sales tax had been paid, it could not be said that the Commissioner received more than he would have, in a winding up. On this view there was no diminution in the company's assets involved in the six payments made to the Commissioner, rather they were "revenue neutral". No unfair preference was involved, because the moneys represented tax specifically charged to customers, which, when paid late was replenished by customers on average within 40 days after the obligation to meet the tax accrued. Accordingly, there was no unfair preference because the company's funds were not diminished by the payments. Although the Commissioner could not, Mrs. Crennan conceded, claim any charge or trust over these moneys, nonetheless the substantial contemporaneity between payment by customers with the wholesaler's obligation to the Commissioner, was relevant because, in effect, the company was not using its own funds in paying sales tax. Since the purchaser was in effect replenishing the company's funds, the net effect of these events was that there was no diminution in the company's funds, accordingly there was no preference. Put another way, in terms of economic effect, there was no unfair benefit to the Commissioner. Part of this argument was that, in considering the question whether there was any unfair benefit to the Commissioner and accordingly any unfair preference, it was necessary to look at the transaction as a whole, not simply in terms of the payment made by the company to the Commissioner. Mrs. Crennan's argument was that the "transaction" included the whole transaction from the original sale by the company to, say, a retailer, through to payment to the Commissioner.

155. Finally on this aspect, Mrs. Crennan's submission was that sales tax was an indirect, not a direct tax, and that the nature of sales tax as an indirect tax resulted in it being the purchaser's funds which ultimately went to the Commissioner. Consistently with the other arguments already set out, there could not be a preference unless the transaction depleted the assets of the company; and the economic effect of the transaction was not to give the Commissioner any preference over the general body of creditors.

158. It is convenient to turn first to the question whether sales tax payable under the Sales Tax Act is properly called a debt. The learned judge (at 400-401) held that it was not and that the wording of provisions such as ss.63 and 69 "does not convert the nature of the tax or its scheme of collection into the equivalent of a debt as between trading enterprises." In this respect, his Honour's conclusions were consistent with those to which Cox, J. came in Castrisios v. McManus (1991) 9 A.C.L.C. 287. In Castrisios, Cox, J. said, at 296, in relation to the sales tax legislation then in force that -

"the real question of construction here is whether or not a tax, even though for ease of recovery deemed to be a debt owing to the Crown once it is due and payable, is a debt within the meaning of the section, [Companies Code, s.556] and if so, whether it was incurred by the company. ..."

Cox, J. said that the Sales Tax Act "itself recognizes the difference between a tax and a debt, and does not provide that the amount levied shall take on the character of a debt until it is due and payable and remains unpaid." His Honour concluded that when sales tax remained unpaid it was not a debt incurred by the company, but was deemed to be a debt for ease of recovery in a court of competent jurisdiction.

163. In Commissioner of State Taxation (WA) v. Pollock, (1993) 12 A.C.S.R. 217, the Full Court of the Supreme Court of Western Australia, dealing with payroll tax, doubted the decision in Castrisios (Pidgeon, J. at 221, and Ipp, J., with whom Wallwork, J. agreed, at 227-228). Ipp, J. referred to a long line of authorities both in England and Australia (to which Cox, J. in Castrisios was evidently not referred), "to the effect that a tax is a debt in the ordinary sense of the word", and concluded that -

"These are but some of the authorities that establish that a liability to pay an amount owing in respect of tax is ordinarily regarded as a debt, and, I consider the view expressed by the learned Acting Master to the contrary (supported as it is by Castrisios v. McManus) is, with respect, incorrect."

167. In Sutherland v. Liquor Administration Board (1997) 24 A.C.S.R. 176, a case the facts of which bear considerable relevance to the present appeal, the question was whether the liquidator of the Balmain-Rozelle RSL Club Ltd., a registered club authorized to keep poker machines, was entitled to recover as unfair preferences, sums paid to the Liquor Administration Board. The club was liable to pay duty on the profits of these machines, the Board being the body authorized to administer Part 10 of the Registered Clubs Act 1976 (N.S.W.), which regulated the collection of the duty. The submission of counsel for the Board was that where a duty was payable to the Board, no actual debt arose, and that as each coin was placed into the poker machines, at that moment a percentage of the coin was due to the Board, and ultimately to the Crown, so that the club, and indeed the Board itself, were merely conduits. Young, J. said, at 179, of this line of reasoning that it sought to build on the decisions made in the context of sales tax law in Casatex Australia Pty. Ltd. v. D.C.T. (9 December 1994, Federal Court of Australia, Davies, J. unreported) and the learned judge's decision in the present case. His Honour also referred to the decision of Cox, J. in Castrisios. Young, J. held that the club's liability to pay duty was clearly a debt, following Pollock, considering however that a different situation to that set out in the sales tax legislation cases was involved.

170. In the present case the trial judge supported his view of the scheme of the Sales Tax Act (that the vendor was merely the collector of the tax for the Commissioner, and never became the owner of the sales tax so collected) by reference to the provisions of the legislation which enabled the Commissioner to remit any additional tax paid and to credit the vendor where the vendor has not been paid by its purchaser. Mrs. Crennan did not, as I understood her argument, place any reliance on these provisions in support of her argument that the liability to sales tax was not a debt owed by the company to the Commissioner, and I do not, for myself, see any basis for the view that a provision entitling the Commissioner to remit tax, or give credit where tax has been overpaid, has any bearing on the question whether the liability to pay sales tax constitutes a debt.

173. I turn then to Casatex, the case upon which the learned judge principally relied in his reasons, and which figured largely in Mrs. Crennan's argument also. The liquidator of Casatex sought to recover payments of sales tax made to the Commissioner at a time when the company was insolvent and within the six-month relation-back period (as in the present case) and the principal question was whether the payments made were unfair preferences. Davies, J., a judge of long experience in taxation matters, after observing that a payment will not be a preference unless the recipient of a payment is given a benefit or advantage over other creditors, made reference to Richardson v. Commonwealth Banking Company of Sydney [1952] HCA 8; (1952) 85 C.L.R. 110, and Queensland Bacon Pty. Ltd. v. Rees [1966] HCA 21; (1966) 115 C.L.R. 266. In the light of these cases his Honour said, at 13, that -

"A court would be unlikely to hold that the regular payment to the Deputy Commissioner of Taxation of sales tax due in accordance with the provisions of the Sales Tax Assessment Acts constituted the payment of a preference. This is because the Sales Tax Assessment Acts provide a means for the collection of sales tax. Save in the circumstance that the wholesaler applies the goods to its own use, the scheme intends that the wholesaler will add the sales tax to the price of the goods sold and will remit the tax to the Taxation Office."

Davies, J. then noted that a purchasing retailer would understand that included in the price is an amount representing the sales tax imposed at the wholesale level and continued, at 13-14 -

"Thus, in the present case, it may be assumed that Casatex invoiced its customers for the ten per cent tax payable on its goods. I could not conclude that the regular remittance of this tax to the Deputy Commissioner of Taxation would constitute a preference priority or advantage to the Deputy Commissioner of Taxation over other creditors. Although the amount added to the price for sales tax, when received by Casatex, would not have been trust moneys, nevertheless the moneys represented tax that was specifically charged as such to the customer or was incorporated into the price as sales tax. It would have given other creditors a preference priority or advantage if the sales tax, when received by Casatex, was not remitted to the Deputy Commissioner of Taxation but was applied for their benefit. Sales tax is imposed as a tax and the wholesaler is the instrument of collection."

179. It will be seen that Davies, J. expressly rejected the view that the amount added to the price for sales tax, when received by Casatex, constituted trust moneys; nor, it seems to me, was his Honour saying that these moneys were the property of the Commissioner. Since the obligation imposed on the wholesaler by s.63 is to pay sales tax 21 days after the month in which the sale transaction took place, regardless of whether the purchaser has actually paid the wholesaler, it would be difficult indeed to see how it could be otherwise. The language used by Davies, J. ("the moneys represented tax that was specifically charged as such to the customer") suggests some form of charge or lien. But there would seem to be no justification in the wording of the legislation for imposing any sort of charge on the moneys, again because of the presence of s.63, which is, it seems to me, a central component of the scheme of the Act. Davies, J., I think, considered that although remittances made by the wholesaler were not of "trust moneys" or the Commissioner's own property (an argument also disclaimed in this Court by Mrs. Crennan), these remittances were nonetheless in substance money paid by the retailer - i.e. that it was the purchasers who "really" bore the tax, which was being collected by the wholesaler as the Commissioner's agent. It was on an implicit assertion that there was reasonable contemporaneity between payment by the purchaser and the remittance by the wholesaler to the Commissioner, that Mrs. Crennan submitted to this Court that the wholesaler is merely an agent who collects the tax and, acting as a conduit, transmits it to the Commissioner. The difficulty I have with these propositions is that, in my view, they are not to be found expressly stated in any provision of the Sales Tax Act, and it is no easy matter to discover upon what principle Davies, J. arrived at his conclusions. In this context it is to be noted that in Smith v. Deputy Commissioner of Taxation (1997) 23 A.C.S.R. 611, a case which was heard several months after the decision of the trial judge in the present case was handed down, the Commissioner expressly informed the court through counsel that he did not, despite the judge's reasoning in the present case, submit "that the effect of recovery of sales tax can never be a preference because the remitted sales tax was never the company's money" (see 23 A.C.S.R. at 617). Mrs. Crennan in this Court, as I have said, put her argument in like manner to the Commissioner's counsel in Smith.

182. The question then arises whether the decision of Davies, J. in Casatex, or the trial judge in the present case, can be explained because of the undoubted character of sales tax as an indirect tax, or otherwise by reference to the purpose of the legislation. Mrs. Crennan relied on what was said by Dixon, J. in Matthews v. Chicory Marketing Board (Victoria) [1938] HCA 38; (1938) 60 C.L.R. 263, especially at 300-301, and in particular on the reference taken from Lord Haldane in Attorney-General for Manitoba v. Attorney-General for Canada [1925] A.C. 561, at 566, that "An indirect tax is that which is demanded from one person in the expectation and with the intention that he shall indemnify himself at the expense of another." It must be remembered, however, that s.90 of the Commonwealth Constitution, together with s.92, created a Commonwealth economic union, not an association of States each with its own separate economy. The purpose of s.90, according to Mason, C.J., Brennan, Deane and McHugh, JJ. in Capital Duplicators Pty. Ltd. v. Australian Capital Territory [No. 2] [1993] HCA 67; (1993) 178 C.L.R. 561, at 585-586 was -

"to ensure that differential taxes on goods and differential bonuses on the production or export of goods should not divert trade or distort competition ... If taxes on the distribution of goods were excluded from the operation of section 90, the purpose which uniformity of customs, excise and bounties was intended to achieve would be prejudiced and Parliament would not have effective control over economic policy affecting the supply and price of goods throughout the Commonwealth."

Their Honours went on to quote the observation of Dixon, J. in Parton v. Milk Board (Vic) [1949] HCA 67; (1949) 80 C.L.R. 229, at 260 that -

"[Section 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. 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."

188. The natural tendency of an excise is therefore to be passed on down the line of distribution to the ultimate consumer. Even though sales tax therefore is "imposed in respect of the commodities" wholesaled (Matthews v. Chicory Marketing Board, per Dixon, J. at 300) the person at whose expense the wholesaler is to be indemnified, if anyone, is, I should have thought, the consumer rather than the retailer. Nor, it seems to me, is there anything in the nature of sales tax as an excise or indirect tax which, in effect, attaches the tax to the goods so as to charge the goods with the tax, in such a way as to make the wholesaler a mere conduit, or the agent for (or instrument of) the Commissioner.

191. In support of the argument based on s.125, Mrs. Crennan relied on Otto Australia Pty. Ltd. v. FCT (1991) 28 F.L.R. 477; and Chippendale Printing Co. Pty. Ltd. v. Commonwealth of Australia (1996) 135 A.L.R. 471. The learned judge (at 389) relied on these cases, together with s.125, for the view that the Sales Tax Act imposes the burden of the tax upon the vendor of the goods, as a result of the transaction whereby the vendor becomes the collector of the tax from its customer, and must account to the Commissioner for it. Both of these cases were actions seeking repayment of overpaid sales tax. In Otto Australia, the reasoning of which was applied in Chippendale Printing, the question was whether the Commissioner was required by s.11 of the existing sales tax legislation to refund the amount of the overpayment. By s.11(1A) the Commissioner was not required to refund "unless the Commissioner is satisfied that the tax has not been passed on by the person to another person". Lockhart, J. held that the tax had been "passed on", and, on appeal, Sheppard, J. (with whom Burchett, J. agreed) said, at 480-1, that -

"Once it is conceded ... that the charge for each bin was computed by reference to costs which included sales tax, that cost was passed on. The fact that sales tax was not passed on in an identifiable form is not in my opinion of relevance. In those circumstances, the Commissioner could not have been satisfied that the tax had not been passed on, with the consequence that s.11(1) could not have any application."

195. I would not myself regard these cases as supporting the conclusion drawn by the learned judge, or Mrs. Crennan's argument. Rather the reasoning suggests that sales tax is passed on, not in any identifiable form at all, but simply by reference to an assessment which would ordinarily be made largely by reference to the price at which the goods were on-sold. Section 125, on the other hand, is explicable as a machinery provision, included to enable the Commissioner to check both the quantity of sales tax involved in each transaction and the accuracy of the calculation which led to that sum, as well as providing information to the purchaser, both that sales tax is included in the price, together with the amount of tax, as well as, in effect, an assurance that sales tax has been provided for.

198. Insofar as reference is made to the purpose or object of the Sales Tax Act, by virtue of either s.15AA or 15AB of the Acts Interpretation Act 1901 (Cth), the inclusion of s.123, with the Treasurer's stated intention in 1980 that liquidators should be required to set aside for payment of tax, assets sufficient to ensure that only a pro rata share was paid to the Commissioner, would seem positively inconsistent with the position for which the Commissioner now contends. Whatever the position may have been before 1980, there can be no doubt as to Parliament's intentions at the time the 1992 consolidating sales tax legislation was introduced. It seems to me that s.123 shows clearly enough that the Commissioner was not intended to have any preferred position in relation to unpaid sales tax (and that the receivers have only such additional protection as is conferred by that section). It would be quite inconsistent with such an intention to give the Commissioner the preferential status for which Mrs. Crennan in substance contended.

201. This leaves the questions whether the Commissioner's position is advanced by regarding the "transaction" as including all the steps suggested by Mrs. Crennan or whether it can be said that there was no unfair benefit to the Commissioner from the making of these impugned payments. In the light of what has already been said, I do not think that the arguments for the Commissioner are supported by treating the transaction as including everything from the original sale by the company to a retailer through to payment by the wholesaler to the Commissioner. As to the argument that it could not be said that there was any unfair benefit to the Commissioner, or that the Commissioner received no more than he would have in a winding-up, that argument also in my view must fail since, in a winding-up, the effect of s.123 is that the Commissioner would not have received the impugned payments in full, but, instead, merely a pro rata share of these payments. To the extent of the difference, the Commissioner has benefited by receiving these payments.

205. In my view, the liability of the company as wholesaler to pay sales tax to the Commissioner is clearly to be characterized as a debt, and the reasoning to this effect in Pollock and Sutherland is applicable. I therefore disagree, with respect, with what has been said in this regard in Castrisios, and with the conclusion of the learned judge (at 401) in the present case, that the liability in respect of unpaid sales tax to the Commissioner is not a debt.

208. The decision in Casatex is not precisely in point, since it was decided upon the previous sales tax legislation as it stood before the 1992 consolidation came into operation. Mrs. Crennan submitted that the decision was correct and should still be followed, on the basis that there was no relevant difference in the legislation. Insofar as the legislation now remains in very much the same form as before 1992, I should say, with the greatest of respect, that I would not follow the decision in Casatex. In my view the conclusions of the trial judge in this case that the sales tax liability was not a debt, that the company was merely a conduit for the Commissioner, that the sales tax upon goods for which the purchasers had made payments was the property of the Commissioner and that sales tax remittances cannot be unfair preferences, were, with respect, all in error.

The second issue: Continuing business relationship or running account

212. The next question is whether a continuing business relationship existed between the Commissioner and the company, a fact which, if established, would entitle the Commissioner to rely on s.588FA of the Corporations Law. The learned judge held (at 409-410) that a continuing business relationship did exist between the Commissioner and the company and that there was a running account operating between them. This last conclusion might be thought somewhat surprising given that on several (at least four) occasions during argument the learned judge informed Mr. Nash that he was in his favour on the running account - business relationship question, and asked him therefore not to press the argument further. The appellants' argument was that there was simply no evidence to establish a continuing business relationship between the company and the Commissioner. Furthermore in no sense of the term did the dealings between the two constitute a running account, since each payment was separate and distinct, each liability was assessed separately, and payment of part of the company's indebtedness to the Commissioner never involved any express or implicit agreement to provide anything to the company.

215. Mrs. Crennan submitted that the Commissioner and the company were in a continuing business relationship, and that it was also in the nature of a running account. A "business relationship" was, she submitted, a concept which should be interpreted widely rather than narrowly. In the present case the indicia of the existence of a business relationship were, first, that a tax was imposed on sales which of itself gave the appearance of a commercial relationship; secondly, the relationship which arose under statute was an incident of the taxpayer's business; and thirdly, the company was required to keep business records for tax purposes. In Mrs. Crennan's submission, the existence of a running account was established because moneys were regularly paid out to the Commissioner by the company, each month the account was increased by the addition of an amount representing the last month's sales, there was always a balance outstanding recorded in the books of account of the company, and the Commissioner gave value through the power to extend time for payment, together with the ability to enter into arrangements for late payment. In this fashion, Mrs. Crennan submitted, the Commissioner allowed the company to continue trading without necessarily having paid tax. Accordingly, a running account was established, notwithstanding that the evidence showed that on a number of occasions the company made payments of sales tax, appropriating them to the liability for sales tax relating to a particular month, and the Commissioner accepted that appropriation.

218. The "running account" or "continuing business relationship" defence embodied in s.588FA(3) was introduced into the Corporations Law by the Corporate Law Reform Act 1992. No definition is given of either phrase, but the explanatory memorandum said of the provision that it was aimed at embodying in legislation the principles reflected in Queensland Bacon Pty. Ltd. v. Rees and Petagna Nominees Pty. Ltd. & Anor v. A.E. Ledger (1989) 1 A.C.S.R. 547. The explanatory memorandum continued that -

"The effect of these principles is that it is implicit in the circumstances in which payments are made to reduce the outstanding balance in a running account between purchaser and supplier that there is a mutual assumption that the relationship of purchaser and supplier would continue as would the relationship of debtor and creditor. The net effect, therefore, is such that payments 'in' are so integrally connected with payments 'out' that the ultimate effect of the course of dealings should be considered to determine whether the payments are preferences."

222. In Richardson v. Commercial Banking Co. of Sydney, Dixon, Williams and Fullagar, JJ. said, at 133, that -

"A running account of any debtor who has reached insolvency must present difficulties under section 95. A debtor who pays something off his grocer's account in order to induce the shopkeeper to give him further supplies of groceries can hardly be held, as it seems to us, to give the grocer a preference, if that was the clear basis of the payment. If the grocer credited the money as a payment for the future deliveries instead of the past deliveries of groceries he would in the end be in exactly the same position and yet he could not be attacked as having received a preference. But without stating any principle with an application beyond the facts of this case, it is enough to decide that the payments into the office account possessed in point of fact a business purpose common to both parties which so connected them with the subsequent debits to the account as to make it impossible to pause at any payment into the account and treat it as having produced an immediate effect to be considered independently of what followed and so to be adjudged a preference."

226. This passage was quoted by Barwick, C.J. in Queensland Bacon Pty. Ltd. v. Rees. His Honour had said earlier, at 283, that -

"In general, to pay one of a number of creditors, and neither paying, securing nor arranging with the others, is to prefer the creditor who is paid. But it seems to me that it is one thing to pay a sum of money in the liquidation of an indebtedness, so as to end the relationship of debtor and creditor and, that it may be quite another to make a payment on account of a 'running' indebtedness, the payment not in anywise intended or understood to end the relationship of the debtor and creditor, but rather to ensure its continuance."

"it is enough if, on the facts of any case, the court can feel confident that implicit in the circumstances in which the payment is made is a mutual assumption by the parties that there will be a continuance of the relationship of buyer and seller with resultant continuance of the relation of debtor and creditor in the running account so that, to use the expressions employed in Richardson's Case, 'It is impossible' - I interpolate, in a business sense - 'to pause at any payment into the account and treat it as having produced an immediate effect to be considered independently of what followed...."

232. From these remarks, on the assumption that this is what the author of the explanatory memorandum intended (which is by no means certain, since there was no uniformity in view between the three judges (Barwick, C.J. Kitto and Menzies, JJ.) who decided Queensland Bacon v. Rees), a continuing business relationship involving a running account would ordinarily be expected to involve at least two parties linked by contract, one supplying goods or services to the other on a credit basis, the other paying on a continuing basis, both to reduce or extinguish past liability and to ensure continuance of supply.

235. These questions were further considered in Airservices Australia v. Ferrier (1996) 185 C.L.R. 483, a case upon which counsel for both parties placed substantial reliance. The Civil Aviation Authority provided air navigation services to Compass Airlines Pty. Ltd. until the commencement of its winding-up. The liquidators commenced proceedings to recover $10.35m. which the company had paid to the Authority by nine payments during the six-month period before the commencement of the winding-up, as preferential payments. Despite these payments, Compass's indebtedness on its account with the Authority increased by $8.18m. during that period. Compass and the Authority both realized that the provision of further services depended upon its making payments to reduce its growing debt. In holding that only the last payment made was a preference, Dawson, Gaudron and McHugh, JJ. said, at 503, that in the application of s.122 of the Bankruptcy Act 1966 (Cth) -

"The court looks to the business effect of the parties' dealings which almost invariably proceed on the understanding, sometimes express but more often assumed, that the creditor will continue to supply goods or services to the debtor on a credit basis as long as the debtor substantially adheres to their credit arrangements."

Their Honours then dealt, at 504-505, with the concept of the "running account" as follows -

"Since the decision of this court in Richardson v. Commercial Banking Co. of Sydney Ltd., the term 'running account' has achieved almost talismanic significance in determining when the ultimate, rather than the immediate and isolated, effect of a payment is to be examined for the purpose of a determination under s.122 of the Bankruptcy Act. However, the significance of a running account lies in the inferences that can be drawn from the facts that answer the description of a 'running account' rather than the label itself. A running account between traders is merely another name for an active account running from day to day, as opposed to an account where further debits are not contemplated. The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded. Ordinarily, a payment, although often matching an earlier debit, is credited against the balance owing in the account. Thus, a running account is contrasted with an account where the expectation is that the next entry will be a credit entry that will close the account by recording the payment of the debt or by transferring the debt to the Bad or Doubtful Debt A/c.

If the record of the dealings of the parties fits the description of a 'running account' that record will usually provide a solid ground for concluding that they conducted their dealings on the basis that they had a continuing business relationship and that goods and services would be provided and paid for on the credit terms ordinarily applicable in the creditor's business. When that is so, a court will usually be able to conclude that the parties mutually assumed that from a business point of view each particular payment was connected with the subsequent provision of goods or services in that account."

242. In the present case, November 1993 sales tax was paid by the company some 17 days late. Thereafter, the cheque for December was drawn but not paid until 21 January 1994. The sales tax return for December 1993 was duly filed, but no cheque accompanied the return because the company did not have available funds. Thereafter there were various contacts between officers of the ATO and officers of the company, in which excuses or explanations for non-payment of tax were offered, and sums were paid from time to time (e.g. $20,000 on 22 March 1994 and $50,000 on 13 April 1994). Mr. Quinn, the senior compliance officer at the ATO, said that he first looked at the company's outstanding sales tax on 22 March 1994, tried to contact one Mandy Bourke at the company, and although he did not hear from her before April 1994 took no action because of the company's excellent compliance record and because changes in the ATO computer system made it difficult to access up-to-date processed information.

245. In my judgment, this situation discloses neither a "running account" nor a "continuing business relationship" within the meaning of s.588FA(3). No contract existed between the Commissioner and the company. On no view could they be described as trading partners. The ATO supplied neither goods nor services to the company, nor were the impugned payments made by the company in connection with any subsequent provision of goods or services. The company did indeed seek time to meet its tax obligations, but all the Commissioner gave in return was a willingness not to move immediately to wind up the company or pursue legal remedies for immediate payment of the sales tax debt.

248. The argument that no running account was involved in this situation is, in my view, supported by the decision of Young, J. in Sutherland v. Liquor Administration Board. The Board, which also relied on s.588FA(3), was in a stronger position to do so than the Commissioner is here, since the Board in a sense provided "services" to the Balmain-Rozelle RSL Club, by superintending the installation and use of the poker machines. The argument for the Board was that it permitted the club to trade and to generate moneys, and not only could the Board have sued for the moneys due, but it could also have used its statutory powers to withdraw the poker machine licences and cut off the club's revenue. This, it was argued, was very much akin to the supplier who continually trades with the retailer. Young, J. rejected these arguments, saying, at 182, that he found it "difficult to contemplate a situation where a taxing authority is carrying out a running account with a taxpayer". I share his Honour's difficulty. In holding that there was no running account, his Honour concluded that the mere fact that the Board could have closed the company's operation down was not sufficient.

251. So also in Olifent v. WorkCover Corporation of South Australia (1996) 15 A.C.L.C. 47, a company became insolvent owing moneys to the Workers' Rehabilitation and Compensation Corporation. An agreement was reached that the Corporation would allow the company to pay its arrears over 12 months. The company was later wound up, having made a number of such payments. Debelle, J. held the payments were preferences. After referring to Airservices Australia v. Ferrier, his Honour said, at 55 that -

"The payment of levies to the corporation were not part of a running account or part of a wider transaction which requires regard to be had to the whole transaction. Although there was a continuing relationship ... in the sense that [the company] was a registered employer, the levy payable for each month constituted a separate transaction."

See also Australian & Overseas Telecommunications Corporation Ltd.(t/as Telecom Australia) v. Russell Kumar & Sons Pty. Ltd. (Receivers and Managers appointed)(In Liq) (1992) 10 A.C.S.R. 24, per O'Bryan, J. at 29-30.

256. The example of a business relationship given in para. (a) of s.588FA(3), the running account, together with the requirement in para. (b) that the level of the company's net indebtedness (i.e. to the Commissioner) be increased and reduced from time to time as a result of a series of transactions forming part of the relationship, suggests that a fluctuating balance, as a result of entries on both sides of the ledger, is in contemplation. The liability of a taxpayer to pay sales tax to the Commissioner does not in my view lead either to a running account or to the situation contemplated by s.588FA(3)(b), nor do I think one could draw the conclusion that the parties conducted their relationship on the basis that any sort of service would be provided and paid for on credit terms ordinarily applicable, leading to the mutual assumption that each payment was connected with the subsequent provision of such services (see Airservices Australia v. Ferrier at 505). What in fact occurred was that 21 days after the end of each month in which wholesale transactions were made, a debt for the amount of sales tax arose and should have been discharged. In the event that the wholesaler was unable or unwilling to pay, or claimed an entitlement to credit, the Commissioner had a variety of means for giving time or credit at his disposal, at least one of which involved credit being given, not to the wholesaler, but to the retailer (Sales Tax Act, Appendix A, Example 3). The fact that the company on two occasions earmarked payments of sales tax to the debt owing for a particular month, and that the Commissioner accepted this appropriation is, I think, a further significant factor quite inconsistent with the nature of a running account.

259. For all these reasons, I would conclude that the company did not have a continuing business relationship with the Commissioner, nor was there a running account in existence between them, and accordingly that, with respect, the learned trial judge was again in error in arriving at his contrary conclusions in this regard.

The third issue: Did the Commissioner prove that he had no reasonable grounds for suspecting the company was insolvent?

263. The third major line of defence upon which the Commissioner relied was based on s.588FG(2) of the Corporations Law. The Commissioner was required to establish that he had no reasonable grounds for suspecting that the company was insolvent, and that a reasonable person in his circumstances would have no such grounds for so suspecting at the time each impugned payment was made. Mrs. Crennan accepted that the opening paragraph of s.588FG(2) placed the burden on the Commissioner to establish these facts, a concession which was clearly properly made: see, e.g., Levi v. Guerlini (1997) 24 A.C.S.R. 159 per Malcolm, C.J. (with whom Murray and Heenan, JJ. agreed) at 170.

266. In Downey v. Aira Pty. Ltd. (1996) 14 A.C.L.C. 1068 Ashley, J. said, at 1076, of this provision that the "creditor must prove both the subjective and objective elements of what were the old section 122(2) and (4)" [of the Bankruptcy Act 1966] but found it "difficult to see how a different result could obtain from the operation of sub-paragraphs (b)(i) and (ii)" of s.588FG(2). His Honour thought that an objective consideration of the circumstances was required and, if that be so, "sub-para.(b)(ii), expressed conjunctively, would seem to be otiose".

269. A different view was taken by the Full Court of South Australia in Sims v. Celcast (unreported, 5 May 1998) where Williams, J., with whom Cox and Mullighan, JJ, agreed said, at 2-3, that the state of mind of the creditor's officers and the reasons they advanced for their individual assessment of the debtor's position were crucial when a party's good faith was being considered under sub-par. (a) and when sub-par. (b) (i) [of s.588FG(2)] was being applied; but -

"the provisions of sub-par.(b)(ii) require the Court to look at the position through the eyes of a hypothetical person. In that last-mentioned situation the evidence of the creditor's knowledge and business qualifications may be used in a limited way for establishing 'the person's circumstances' which are to be brought to account in applying the test contained in sub-par.(b)(ii). Otherwise however, in applying sub-par.(b)(ii) the creditor's subjective appreciation of the facts will not be relevant unless that appreciation reflects that which would be expected by the 'reasonable person'."

273. Williams, J. said, at 3, that sub-par. (b)(ii) did have work to do independently of (b)(i) and that a "reasonable person in the circumstances of Celcast (sub-par.(b)(ii)) is not necessarily to be equated with Celcast acting reasonably in its perception of events under sub-par.(b)(i)". His Honour then, at 4, posed the difficulty raised by sub-par.(b)(ii) in the following terms -

"The fact that a creditor has in good faith lulled itself by its own deductive processes to a position which (with the benefit of hindsight) can afterwards be shown to be flawed will not avail that creditor by reliance on sub-par.(b)(i) if a reasonable person should have read the signs differently; sub-par.(b)(ii) will still remain as a hurdle for that creditor. The circumstances of the present appeal may be an example of this last-mentioned situation. The signs were there for a reasonable person to read. The respondent's officers misread the signs. The trial judge must have read the signs only through the eyes of the respondent's officers rather than also through the eyes of the reasonable person (in the circumstances of the respondent or its responsible officers). The respondent's officers may have been overly generous in their assessment of a customer of good standing; alternatively they may have been blind to the facts which were staring at them."

277. Before turning to the facts of the present case, I should record that the learned judge said as to the witnesses called on both sides that none had embroidered or distorted the truth and he accepted all the evidence-in-chief given by the witnesses, subject only to one minor matter of imperfect recall in relation to the evidence given by Faye Patterson, a witness called on behalf of the company; and, as I have said, the trial judge found in favour of the Commissioner on this aspect also. Mr. Nash, however, submitted in this Court that the appropriate test was whether the Commissioner had established that he had no reasonable grounds for suspecting that the company was insolvent at relevant times, whereas the very extensive examination of the facts made by the learned judge showed clearly that his Honour had treated the question as being whether there was reason to believe that the company was insolvent (see his Honour's reasons at 406-409), rather than whether the Commissioner had no grounds for a reasonable suspicion.

280. The difference between suspicion and belief was considered at some length in George v. Rockett [1990] HCA 26; (1990) 170 C.L.R. 104 in a joint judgment of the whole court, which quoted, at 115-116, what Kitto, J. had had to say on the subject in Queensland Bacon v. Rees. It may be as well to quote the passage in full -

"Suspicion, as Lord Devlin said in Hussein v. Chong Fook Kam [[1970] A.C. 942 at 948], 'in its ordinary meaning is a state of conjecture or surmise where proof is lacking: "I suspect but I cannot prove."'

The facts which can reasonably ground a suspicion may be quite insufficient reasonably to ground a belief, yet some factual basis for suspicion must be shown. In Queensland Bacon Pty. Ltd. v. Rees, a question was raised as to whether a payee had reason to suspect that the payer, a debtor, 'was unable to pay [its] debts as they became due' as that phrase was used in s.95(4) of the Bankruptcy Act 1924 (Cth). Kitto, J. said:

'A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual misapprehension and mistrust, amounting to "a slight opinion, but without sufficient evidence", as Chambers's Dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. The notion which "reason to suspect" expresses in sub-section (4) is, I think, of something which in all the circumstances would create in the mind of a reasonable person in the position of the payee an actual misapprehension or fear that the situation of the payer is in actual fact that which the sub-section describes - a mistrust of the payer's ability to pay his debts as they become due and of the effect which acceptance of the payment would have as between the payee and the other creditors.'

The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof. Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture."

287. The learned judge found that the company was insolvent at least from December 1993. The facts which led his Honour to this conclusion are set out in great detail in the reasons for judgment and may be summarized in the following way. As from 1991 the company had begun to experience financial difficulties, which worsened afterwards on a continuous basis. The company's income tax return for the year 30 June 1991 showed a trading loss of $1,412,751 and a net deficiency of assets of $874,622. The company's income tax return for the financial year ending 30 June 1992 was due to be filed on 21 December 1992, but was never in fact filed. The company's banker on 31 July 1993 reduced the company's only overdraft facility from $400,000 to $200,000. The company's bookkeeping practices were found by the learned judge to be "both curious and primitive". Unpresented cheques were kept in a shoe-box and other accounts for payment stored in another box. By September 1993, unpresented cheques (that is cheques which the company had drawn but not forwarded to its creditors) amounted to $2.7m. The learned judge found as a fact that this system was adopted because the company itself appreciated that had the cheques been presented, immediate dishonour would have followed which it was appreciated could have led to the company's winding-up. In October 1993, the company had a net deficiency of assets in that if the company's assets had been sold at book value they would not have realized sufficient funds to meet all its liabilities. In the following month, the company's credit financier, "Bridge Wholesale", cancelled its floor plan, thus heightening the company's liquidity problems. By November 1993 unpresented cheques then totalled $3,354,000. By 21 December 1993, when sales tax of $363,000 for goods sold in the month of November became due and payable, the company then lodged its return but did not append any cheque for payment. By the end of December unpresented cheques had risen in value to $4.24m. The company's income tax return for the year ended 30 June 1993 was due to be filed in December 1993 but was never filed. On 21 January 1994, the company filed its sales tax return for the month of December 1993 which recorded its liability to pay sales tax in the sum of $289,000 but no payment accompanied the return. On the same day however, the November sales tax was paid, one month late. On 25 January 1994 Sharp Corporation, one of the company's main suppliers, brought to the company's attention the fact that it had not been paid for goods supplied in December 1993, and the following day stopped the supply of goods on credit until the company met, at least in part, some of its outstanding indebtedness. On 27 January 1994 the company entered into a deed with its parent, forgiving a loan from the parent of $5m. as from June 1993. The effect of this transaction, as found by the learned judge, was to bring about an apparent improvement in the financial health of the company, at the expense of another within the same group (although there was no evidence that the Commissioner was ever made aware of this post-dated transaction) but the artificial surplus created by this transaction had already been extinguished by October 1993. The company's overall position was set out by the learned judge in the following passage, at 404, which amply demonstrates the correctness of his Honour's conclusion as to the company's insolvency -

"There are further factors which reveal the company's insolvency throughout the relevant period. There is the deficiency of assets over liability in each of the financial years 1991 to 1993, and this is so despite the massaging of the 1993 balance sheet by the post-dated transaction whereby a debt of $5m. to its parent was forgiven. In my view the artificial surplus created by that transaction was consumed by further trading losses which occurred thereafter and its benefit had been consumed by October 1993. If this were not enough the company operated at a loss from 1991 until the last record available as at June 1993. Thereafter it had operating losses from July through to December 1993. It was simply continuing to trade in an ever-worsening situation with its losses accumulating, whether measured against its trading position or asset position. An injection of $5m., albeit by way of book entry, failed to staunch the flow. In my view the company was fatally wounded during the years 1991 to 1993, its anaemia incapable of resuscitation by December 1993. Further I have referred to the unpresented cheques which by March 1994 totalled almost $2m. The company's inability to meet its debts was further diminished by the withdrawal of its credit facility with Bridge and the reduction, at least temporarily, of its overdraft accommodation from Westpac."

291. The case made for the company on this point was a simple one. Before any of the impugned payments was made, the Commissioner had knowledge of at least the following pieces of information: the company's 1991 tax return had been filed, showing a serious trading loss and a net deficiency of assets; the company had filed no tax returns for 1992 or 1993; the company's November group tax was paid late, causing a penalty of $8,000 to be imposed; sales tax payable on 21 December 1993 was not paid then but one month later; Ms Patterson told ATO officers at some time between 21-24 December 1993 that the company was not able to pay its November 1993 sales tax, but that the tax would be paid in priority to all other creditors; sales tax due for December 1993 was not paid on 21 January 1994 and December group tax due in January 1994 was paid five days late. Mr. Nash's argument was that all these matters were known to the Commissioner and were quite sufficient together to have caused a reasonable person to suspect that the company was insolvent, and/or a reasonable person in the Commissioner's circumstances to have had reasonable grounds to suspect insolvency.

294. Thereafter, so the argument ran, to the knowledge of the Commissioner the company's financial situation only deteriorated. Before the second impugned payment, the company was 17 days late in February 1994 in paying its group tax for December; January sales tax, due in February, was not paid; February sales tax due in March was also not paid, by which time the amount due by the company to the Commissioner was $856,515.01. On 22 March 1994 a sales tax return was filed in respect of sales tax due for February 1994 trading, noting a liability to pay $291,177.95, but was accompanied only by a cheque for $20,000, being the first payment made in respect of the December sales tax debt of $288,687.

297. Of these matters, the only one in contest was the evidence of Ms Patterson, as to which his Honour had stated that there was "a minor matter of imperfect recall". Ms Patterson held a very senior position with the company, being National Credit Manager and later National Credit and Administration Manager. Mrs. Crennan accepted that Ms Patterson spoke to somebody at the ATO in Dandenong in December 1993, but submitted that the version Ms Patterson had given of the December 1993 conversation in her first affidavit of 3 October 1995 had been substantially diluted by what was said in her second affidavit of 11 October 1996, taken with what was said in cross-examination. Mrs. Crennan put it that Ms Patterson should be regarded as saying no more than that the Commissioner would be given first priority after Christmas in payment of outstanding sales tax, rather than that other creditors would not be paid. Mrs. Crennan did not challenge that part of the conversation of December 1993 in which Ms Patterson said that she told the ATO officer who had rung the company to enquire about unpaid sales tax that "at the moment we have got insufficient moneys to pay that instalment" (being the November instalment of sales tax). Ms. Patterson, however, also gave evidence that she had a second conversation with an ATO officer, shortly after she returned from her Christmas holiday in the second week of January 1994. In her second affidavit, Ms Patterson said she was then asked about the arrears of sales tax and replied -

"We do have a severe cashflow problem. You will be paid in priority to other creditors as soon as we have sufficient funds. I will just check that for you."

Then, after reviewing the company's records, she returned to continue the telephone conversation in the following terms -

"We still have a problem. We do have some money but I do not think that we can pay the whole of the outstanding instalment. You will be the first creditor paid as soon as we get sufficient funds. We can make a part-payment."

Ms Patterson was not challenged at all as to this conversation in cross-examination. The learned judge said as to all this (at 406) that he found "the evidence of Ms Patterson confusing on this point and it does not overbear the cogency of the Commissioner's witnesses."

304. Mrs. Crennan placed substantial weight on the fact that the Commissioner's witnesses said they relied on SMW's excellent compliance record and that it had been paying sales tax for two decades without difficulty. Furthermore a meeting took place at the Dandenong office of the ATO on 18 May 1994 attended by Messrs Quinn and Balancy on behalf of ATO and Lipson and Richtman for SMW. Mr. Quinn was the Sales Tax Compliance Manager of the ATO at Dandenong, and Mr. Balancy was the team leader of the debt collection section at the same office. At this meeting, Messrs Richtman and Lipson said that the company was faced with a temporary cashflow problem which it would shortly overcome and would continue trading in such a way as to acquit the sales tax commitment in a relatively short period. The learned judge found that Richtman and Lipson were honest in these assurances and that the Commissioner's officers could not be expected to be more knowledgeable than the company's officers when they themselves did not believe the company was insolvent.

307. Mr. Richtman, it must be remembered, had only become SMW's financial controller during April 1994. By 21 April the company's sales tax liability had grown to $1,044,953. When Mr. Quinn called Mr. Richtman on 13 May, he told him that the company's sales tax liability then stood at that figure. At that time SMW's unpresented cheques, presumably in the shoe-box, totalled $2,929,000. Mr. Lipson was the company's external accountant, he only having personally become involved with the company in November 1993.

310. Although the learned judge accepted that Messrs Richtman and Lipson were honest in the evidence they give, it is inconceivable that the company's senior executives were not aware of the shoe-box system of payment of accounts. Some of the cheques which in May 1994 remained shoe-boxed had been drawn before November 1993. By May 1994, the company had not been paying its debts as they fell due and payable for at least six months, as the previously-quoted findings of the learned judge indicate. In these circumstances, only the most ill-informed sense of optimism could have led the company's own officers not to believe that it was insolvent, or to have regarded its difficulties as only temporary.

313. The learned judge said that whether tested objectively or subjectively, neither the Commissioner nor anyone else in the Commissioner's position would have had reasonable grounds, or any grounds at all, for suspecting that the company was insolvent. His Honour said that late payment of sales tax had caused the Commissioner to be alerted to the company's problems by March 1994, but excused the inaction in the ATO at Dandenong between mid-March and mid-May 1994 as resulting from the person in control having for a substantial time taken leave, and the system having slowed due to its computer programming. His Honour described the situation as regrettable but, viewed from the Commissioner's viewpoint, wholly reasonable. The learned judge placed great weight on the meeting of 18 May 1994, and the acceptance of the assurances of Messrs Lipson and Richtman. His Honour said in effect that the Commissioner acted reasonably and was entitled to be assuaged by the valid and bona fide protestations of the company that its difficulties were merely temporary.

316. Mr. Nash submitted that in these circumstances the learned judge's conclusions on this aspect were at the outset invalidated by a large number of errors of fact. Some of these errors were conceded by Mrs. Crennan, but her submission was that in the overall picture they were of small consequence. A more important matter for present purposes, however, is whether his Honour focussed on the correct question, namely whether the Commissioner had established that he had no reasonable grounds to suspect the company was insolvent, or whether, on the other hand his Honour treated the question as being whether the Commissioner had reason to believe the company was insolvent.

319. The first impugned payment was made to the Commissioner on 21 January 1994. In my view para. (b)(i) of s.588FG(2) required the learned judge to look first at the evidence to see whether the Commissioner had established that he had no reasonable grounds then to suspect that SMW was insolvent. Mr. Nash submitted, I think correctly, that the weight of the evidence in the Commissioner's possession at that time not only made it impossible for the Commissioner to establish this proposition, but positively showed that he had reasonable grounds to suspect that the company was insolvent in that it was unable to pay its debts as they fell due and payable. Thereafter, the situation worsened in the manner for which Mr. Nash contended. On the version of Ms Patterson's December 1993 conversation submitted by Mrs. Crennan, and on the other evidence which remained unchallenged, the Commissioner had further ground for concern in that the amount of sales tax which remained unpaid thereafter increased rather than reduced. The concerns of the ATO in Dandenong had actually been alerted by January 1994, and remained unresolved in March. The meeting of 18 May 1994, and the assurances then given, upon which Mrs. Crennan relied, were in my view plainly inadequate to remove the doubts which should already have been formed as to the ability of the company to pay its debts. These assurances were precisely of the kind that would be given by a debtor in serious financial straits hoping to fend off its most pressing and powerful creditor. They were not accompanied by any concrete evidence of the ability of the company to make payments then owing and, indeed, were very much like those offered by Ms Patterson in January, and which, four months later, remained unfulfilled.

322. In the light of all this uncontested evidence, I am persuaded that the Commissioner did not establish on the evidence at trial the position required by sub-par. (i) of s.588FG(2)(b), namely that he had no reasonable grounds to suspect that the company was insolvent at any time in the period from January to 20 June 1994, when SMW was placed into voluntary administration. This conclusion would inevitably lead to the like result in relation to sub-par. (ii) of s.588FG(2)(b). It follows that I think, again with respect, that the learned judge was in error in this regard also, and that the issue addressed by his Honour was not the issue posed by either sub-par. (i) or (ii) of s.588FG(2)(b).

326. The learned judge held that s.588FF(1) of the Corporations Law invests the Court with a wide discretion whether to make any, and if so what, order, in the event that it had been established that the impugned payments were avoidable transactions. The other conclusions to which his Honour had come made it unnecessary strictly to consider the exercise of discretion, but his Honour dealt with the question as follows -

"I do find much attraction in the Commissioner's contention that, if the amount of sales tax remitted during the relevant period is off-set against that which was properly incurred, then the Commissioner has not received more, as a percentage than other creditors will receive in the event of a finalized liquidation. Assuming for the purposes of this argument that there is an imbalance and the Commissioner might be seen to have received more than it would, in the event of a liquidation I would have exercised my discretion not to require it to refund any tax as arising out of a 'voidable' transaction. I would have exercised my discretion in this manner because the tax paid arose out of sales to its company's customers and it would not be fair to put them in the position of not having paid sales tax whereas others would have done so. Furthermore, funds which should have been forwarded to the Commissioner, were probably retained and utilized by the company during the relevant period. As a matter of fairness it should not prosper from this recalcitrance.

The distortions to the general marketplace resulting from a refund would be grossly unfair and amount to treating the company's customers unequally. Furthermore, the perverse position would obtain that by virtue of refunding the tax, the company would increase its assets for not doing what it should have done, it would be put in a position of advantage and in my view disequilibrium vis-à-vis its trading competitors. More significantly, the pool of creditors should not prosper at the expense of the public."

331. Mrs. Crennan submitted that the learned judge correctly found that the court has a discretion not to make orders and that his Honour correctly exercised his discretion not to order the repayment of any of the sales tax for the reasons I have quoted. It was not submitted by the Commissioner, at trial or in this Court, that any of the grounds usually advanced against the making of a discretionary order (such as delay or the conduct of the party seeking an order) was relevant or could have justified the learned judge declining to make an order under s.588FF(1).

334. Mr. Nash submitted that the court, once satisfied that a transaction is voidable pursuant to the provisions of s.588FE, has no discretion to dismiss the application, and that the only discretion in the court related to deciding which of the orders set out in s.588FF(1) should be made; see McDougall v. Patterson (1851) 11 C.B. 766, 138 E.R. 677, per Jervis, C.J. at 773 [138 E.R. at 679]; Finance Facilities Pty. Ltd. v. FCT (1970-1971) 127 C.L.R. 107, per Windeyer, J. at 134-135; Pegulan Floor Coverings Pty. Ltd. v. Carter (1997) 24 A.C.S.R. 651, per Doyle, C.J. at 658-659. Mr. Nash further submitted that all the reasons given by his Honour were totally irrelevant to the purposes of s.588FF, and in any event misconceived the facts.

337. Mrs. Crennan, I think, conceded that the first reason given by his Honour for not exercising the discretion was incorrect on the facts (there is a substantial deficiency in funds available to meet creditors' claims, and all creditors will receive only a pro rata share of debts owing from the company). But it is, I think, unnecessary to express any opinion on the question whether s.588FF does give the court a discretion to refuse relief to an applicant who has established that a transaction is voidable, since I have a clear view that none of the reasons mentioned by the learned judge would, with respect, have provided any legitimate basis for refusing to exercise such discretion, if it existed. In my view the appellants were, in all the circumstances, entitled to an order under s.588FF(1).

341. Accordingly, I would allow the appeal, and set aside the order dismissing the appellants' motion. I would order the Commissioner to repay each of the impugned payments under s.588FF(1)(a) together with interest from 13 September 1994 (the date demand was made of the Commissioner for repayment) pursuant to s.2(1) of the Penalty Interests Rates Act 1983, at the rates appropriate thereto.

346. I have had the benefit of reading in draft the reasons for judgment of Charles, J.A. I agree that the appeal should be allowed and that the order proposed by his Honour made. Subject to what follows, I do so for the reasons his Honour gives.

349. I desire to make some brief observations with respect only to the first issue raised on the appeal, namely, whether any payment of sales tax impugned by the appellants was an unfair preference within the meaning of s.588FA(1) of the Corporations Law. As the respondent submitted, sales tax is commonly described as an indirect tax because it is intended that the economic incidence of the tax be passed along the line of production and distribution to the point of receipt by the consumer. Whilst this may very well describe an economic attribute of the tax, it by no means follows that the liability to pay the tax cast upon a taxpayer by the Sales Tax Assessment Act 1992 (Cth.) is properly characterised as borne by the taxpayer as "collector" for the Commissioner or as "a conduit for the payments of sales tax collected from the purchasers". As the last wholesaler along the line, SMW was liable to pay the tax (s.16(2)(b)) and was required to pay it at the 21st day of the month following the month of sale, whether or not the purchaser had paid SMW at that date (s.63(1)). Unpaid sales tax was recoverable by the Commissioner as a debt (s.69). I agree with Charles, J.A. that s.123 of the Act confirms that we should accept the appellants' first submission, that the effect of each payment in contest in this case was that the Commissioner received in respect of a debt or part thereof more than he would have received from SMW if the payment were set aside and he were to prove in the winding up. Each payment of sales tax impugned by the appellants was, therefore, an unfair preference within the meaning of s.588FA(1) of the Corporations Law.

352. I also agree with Charles, J.A. that this conclusion cannot be avoided by characterising the relevant transaction, for the purposes of s.588FA(1), as not limited to the actual payments of sales tax by SMW but as extending to the sales of goods to the purchasers. Even on this basis, I would not accept the respondent's submission that the ultimate effect of "the transaction" was not to deplete SMW's assets since, in a winding up, s.123 would not entitle the Commissioner to receive the whole of each impugned payment but only a pro rata share.

355. In Casatex Australia Pty. Ltd. v. Deputy Commissioner of Taxation (9 December 1994, Federal Court of Australia, unreported) Davies, J. was called upon to consider a number of questions, including whether certain payments of sales tax made within six months of a winding up amounted to a "preference, priority or advantage over other creditors" within the meaning of s.122(1) of the Bankruptcy Act 1966 (Cth), as it then stood: see Corporations Law_,_ s.565, as it then stood. His Honour held that, in the circumstances of that case, he could not so conclude. Amongst other things, his Honour noted that "[t]here is no reason to assume that ... the remittances to the Deputy Commissioner of Taxation were not made reasonably contemporaneously with the collections" (p.14). It seems to me that Casatex is, upon analysis, distinguishable from the present case: not only did that case concern different statutory provisions but it was decided on relevantly different facts. Moreover, I doubt that in saying, as he did, that "the moneys represented tax that was specifically charged as such to the customer", his Honour was referring to any charge or lien. In using the word "charge", I understand his Honour to have meant merely that the tax was claimed by Casatex as part of the price to be paid by the retailer. I agree with Charles, J.A. that there would seem to be no justification in the legislation for a charge of any kind and I do not understand Davies, J. to have thought otherwise.