Attorney-General (NSW) v Homebush Flour Mills Ltd
56 CLR 390(Judgment by: LATHAM CJ)
Between: Attorney-General (NSW)
And: Homebush Flour Mills Ltd
Judges:
Latham CJRich J
Starke J
Dixon J
Evatt J
McTiernan J
Subject References:
Constitutional law
State statute
Validity
Conflict with Constitution (Cth)
Duty of excise
Compulsory acquisition of flour
Proceeds of sale received by Minister
Payment of compensation and administrative expenses
Balance for governmental purpose
Legislative References:
Constitution (Cth) - s 90
Flour Acquisition Act 1931 (NSW) No 10 - s 1(3); s 3(2); s 3(3); s 3(8); s 4(1); s (4); s (7); s 5(1); s 5(2); s 6
Judgment date: 1 May 1937
MELBOURNE (HEARD IN SYDNEY)
Judgment by:
LATHAM CJ
ON REMOVAL FROM THE SUPREME COURT OF NEW SOUTH WALES.
The following written judgments were delivered:
LATHAM C.J. This action raises a question of profound constitutional importance. The Commonwealth Parliament has exclusive power to impose duties of customs and excise (Constitution, s. 90). In any coherent system of indirect taxation duties of excise bear a definite relation to duties of customs. The effect of a customs duty upon a particular class of goods may be varied, from the fiscal or from the protective point of view, by the imposition of an internal excise duty upon the same goods. Thus, if customs duties are controlled by one parliament while excise duties can be imposed by another parliament, conflict and confusion are almost inevitable.
The question which arises in this case is whether the Parliament of New South Wales can validly legislate so as to raise money from and in direct relation to the internal production or sale of goods. This end is sought to be achieved by first vesting the goods in a Minister by statute at one price and then allowing the owner of the goods to buy them back at a higher price-with the option of being content to allow them to be taken at the lower price and to go out of business. The statute does not purport to impose a tax-it purports to operate by voluntary agreement with, it is true, unpleasant alternatives. On this occasion the procedure has been limited to flour, but it could readily be applied to all goods, so that the production or sale of any goods in any State could be made a source of revenue. The result would be that the State could secure all the effects of imposing excise duties, fiscally and commercially, though the power of imposing such duties is an exclusive Federal power. The question, as it comes before the court, is purely a question of law. The only objection to the State legislation is that it imposes an excise duty. If it does so, it is invalid. If it does not, it is valid.
The plaintiff, the Attorney-General of the State of New South Wales, sues the defendant, the Homebush Flour Mills Ltd for a sum of over PD8,000, being the difference, at a rate of PD1 10s. per ton, between the "fair and reasonable price" (PD8 10s. per ton) at which 5,652 tons 14 cwts. of flour were acquired by the Crown in New South Wales from the defendant and the "standard price" (PD10 per ton) at which the defendant repurchased or was deemed to have repurchased the flour from the Crown. The claim depends entirely upon the Flour Acquisition Act 1931 (N.S.W.) (amendments of the Act made subsequent to 1931 are not material for the decision of this case). The defendant demurred to the declaration, alleging that the Act was invalid. The demurrer was removed into the High Court under s. 40 of the Judiciary Act 1903-1934. The only question argued was whether the Act imposed a duty of excise contrary to s. 90 of the Commonwealth Constitution.
The Flour Acquisition Act 1931 (N.S.W.) is plainly an attempt to evade the constitutional provision which prevents a State Parliament from imposing any duties of excise. It provides for raising money from persons who manufacture or are in possession of flour-the Government of the State receives the money, and the Government spends it as directed by the Act. When the Commonwealth Parliament passed the Flour Tax Assessment Act and the Flour Tax Act in 1933 the State Act imposing an excise duty on flour ceased to operate. While the State Act was in force a miller could not carry on his business without paying money to the State Government. After the State Act ceased to be in force and when the Commonwealth Act was in operation, a miller could not carry on his business without paying money to the Commonwealth Government. The commercial and economic effect of the State legislation is precisely the same in character as that of the Commonwealth legislation. But the provisions of the State Act are entirely different from those of the Commonwealth Act. Under the State Act flour is acquired by the State (ss. 3 and 4) at one price called the fair and reasonable price (s. 5) and the miller or other owner is entitled to buy it back at another price called the standard price (s. 6 (2), (4)). The miller is deemed to have repurchased his flour from the State if he deals in the flour by selling it to anyone (s. 6 (3)). He has the option of not carrying on his business at all-when he has to store the flour at his own risk and to take ultimately no more than the "fair and reasonable price" with deductions for deterioration (ss. 3 (8), 4 (7)). If he buys flour inter-State, the Government may acquire it and bring it within the Act (s. 4). But the miller avoids all trouble if he simply pays to the State the difference between the reasonable and the standard price. He then carries on business in an ordinary way. The fund created by millers' payments to the State is to be used for the relief of necessitous wheat farmers (s. 6 (7)). After the Commonwealth entered the field the miller simply paid a direct excise tax, as in the case of tobacco and intoxicating liquor, and under other legislation the Commonwealth paid to the States money for the relief of distressed and other wheat farmers. The question is whether this State legislation is valid or whether it is invalid as imposing an excise duty.
The Constitution provides, in s. 90, that after "the imposition of uniform duties of customs the power of the Parliament to impose duties of customs and of excise, and to grant bounties on the production or export of goods, shall become exclusive" in the Commonwealth Parliament. The Constitution does not provide that a State Parliament shall not, by any form of legislation, bring about the same results as would be accomplished by the imposition of an excise duty. If the Constitution did so provide, there would be no doubt about the decision in this case. It is transparently clear, upon the face of the State Act, that the State Parliament was using powers, which it believed or assumed itself to possess, for the very purpose of evading the constitutional prohibition. But the existence of this objective does not establish that the State legislation is invalid. The validity of what is done is determined not by its actual practical result, but by its legal character. In this case the validity of the State Act must be determined by what the legislation does as viewed by a lawyer and not by its results, effects or consequences as viewed by a miller. The commercial and fiscal results and consequences of the Act are the same as would follow from an excise duty upon flour. But the State Parliament is not prohibited by the federal Constitution from producing certain consequences-it is prohibited only (so far as this case is concerned) from imposing duties of excise. The only question therefore is: Does the Flour Acquisition Act 1931 impose a duty of excise?
It is contended that each part of the Act is within the power of the State Parliament. In the first place the Parliament has power to pass a statute acquiring property (New South Wales v The Commonwealth (The Wheat Case); [F1] James v Cowan, [F2] at pp. 396, 397; Peanut Board v Rockhampton Harbour Board; [F3] Crothers v Sheil [F4] ). Then, it is said, the State can sell the property which it has acquired and, if a profit is made, can receive and spend the money. By these steps in reasoning the whole Act is said to be justifiable in law.
This analysis, however, leaves out of account some very important elements. It is an analysis which, like the dissection of a living thing, may destroy reality in professing to exhibit it.
It is true that a State Parliament can legislate for the purpose of acquiring property. But this power is subject to constitutional limitations. One of these constitutional limitations is to be found in s. 92. If the real object of the legislation authorizing the acquisition of property is to make it possible to impose restrictions upon inter-State commerce contrary to s. 92, then the legislation is invalid (James v Cowan; [F5] Peanut Board v Rockhampton Harbour Board [F6] ). Similarly, it must be held that, if the real object of the acquisition of flour under the Flour Acquisition Act 1931 is to make it possible to impose taxation, and that taxation is an excise duty, the legislation is invalid.
But it is objected that the Act does not involve any imposition of taxation because a miller has an option of not paying money to the Government. If a miller does not repurchase his flour from the Crown-or if he is not "deemed" so to have done by dealing in it-he does not pay the difference between the "fair and reasonable price" and the "standard price." In that event the Government receives no money, and it cannot be said that any tax is exacted. An examination of the Act, however, shows that the option is quite illusory. A miller cannot sell his flour without being deemed to repurchase it (s. 6 (3)). Accordingly, if he does not repurchase it, so as to become liable for the difference in the two prices, he must go out of business. Even if he obtained other flour than that which he gristed the Minister could acquire that flour under s. 4. If he does not repurchase his flour he can recover only the fair and reasonable price or the amount actually realized, whichever is the lesser amount (s. 6 (6)) at such future time as the Minister may select for disposing of the flour (s. 6 (6)) subject to deductions for loss or deterioration, and in the meantime he must store the flour for nothing (ss. 3 (8) and 4 (7)). It is obvious that it would not be practicable to conduct any flour mill upon such a basis. Further, the Act shows that it is intended that there shall be a difference between a lower "fair and reasonable price" and a higher "standard price" which shall produce a fund to be used for the relief of farmers (s. 6 (7)). Thus the apparent option is quite unreal and is obviously intended to be unreal.
But, it is further argued that, when the miller agrees to repurchase his flour (or is deemed so to agree), and accordingly becomes bound to pay the difference between the two prices, it is by virtue of his agreement that the liability arises, and, it is said, a sum paid under an agreement cannot be regarded as a tax. This argument has at least the merit of an ancient and hoary lineage. "Voluntary loans" and "gracious offerings" and "forced benevolences" are not unknown in our history. When such transactions amount to the exaction of money by a government in obedience to what is really a compulsive demand, the money paid is paid as a tax (Attorney General v Wilts United Dairies Ltd; [F7] Commonwealth v Colonial Combing, Spinning and Weaving Co Ltd [F8] ). Thus, in my opinion, the difference between the two prices is something which the miller is in practice compelled to pay to the Government and amounts to a tax.
The only question remaining is whether the tax is a duty of excise. In so far as it is paid in respect of flour produced or manufactured in New South Wales it is plainly an excise duty within the narrowest definition of that term (Peterswald v Bartley [F9] ). The flour in question in this case was gristed in New South Wales from wheat grown in New South Wales. But though the flour is acquired upon production (s. 3 (2)) the difference between the two prices becomes payable by the miller only upon resale of the flour to him by the Government (ss. 6 (3) and 6 (5)). But a tax payable on the occasion of the sale of goods is also an internal revenue duty by way of indirect taxation amounting to an excise duty (The Commonwealth and Commonwealth Oil Refineries Ltd v South Australia [F10] ). Isaacs J. [F11] it is true, was of opinion that a tax "in fact unconnected with production and imposed merely with respect to the sale of the goods as existing articles of trade and commerce, independently of the fact of their local production" would not be an excise duty. But the negative proposition was not essential to his judgment in that case. Higgins J. [F12] analyses the nature of the two forms of indirect taxation-customs and excise-saying "customs duty is a duty on the importation or exportation whether by land or by sea; whereas excise duty means a duty on the manufacture, production, etc., in the country itself; and it matters not whether the duty is imposed at the moment of actual sale or not, or sale and delivery, or consumption." Rich J. [F13] and Starke J. [F14] take a similar view, holding that a duty on goods collected in respect of the sale of the goods may properly be described as an excise duty. In John Fairfax & Sons Ltd and Smith's Newspapers Ltd v New South Wales [F15] a State Act imposed a tax of one halfpenny upon each copy of a newspaper issued for sale and actually sold in New South Wales. The tax was payable, not upon production merely, but upon sale. It was held that the tax was an excise duty and that the Act was invalid. These authorities justify the conclusion that, if there is an imposition of a tax in this case (as in my opinion there is) this tax is an excise duty.
I entirely agree that the decision of this question should depend upon the legal effect or character of the legislation in question and not upon the results which it may happen to produce (See Vacuum Oil Co Pty Ltd v Queensland, [F16] per Dixon J.). If a person can discover a lawful method of avoiding the application of a statute he is entitled to do so: what he does must be judged in a court of law by its legal effect and not by reference to the circumstance that he has found a means of disappointing what may be assumed to be the intention of a legislature (Inland Revenue Commissioners v Duke of Westminster [F17] ). A similar principle applies in the case of a parliament which is constitutionally limited as to its powers. Such a parliament may discover a lawful means of avoiding, from a practical point of view, a particular restriction upon its powers. I do not accept any argument which, ignoring the form of the statute now under consideration, contends that it is invalid because "in substance" it imposes an excise duty for the reason that the practical effect of the legislation is the same as that which would follow from a statute avowedly imposing an excise duty. My conclusion against the validity of this Act is based upon the propositions that the Act does impose a tax and that that tax is a duty of excise which cannot validly be imposed by a State parliament.
Judgment should be given for the defendant upon the demurrer.