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Magna Stic Magnetic Signs Pty. Limited & Anor v. Federal Commissioner of Taxation

Judges:
Wilcox J

Court:
Federal Court

Judgment date: Judgment handed down 20 September 1989.

Wilcox J.

There are before the Court four separate proceedings, which raise questions as to the application of the Sales Tax Assessment Act (No. 1) 1930. By consent, the four proceedings have been heard together.

Two of the proceedings are references to the Court under sec. 41 of the Sales Tax Assessment Act (No. 1). One reference relates to a notice of assessment issued by the respondent, the Commissioner of Taxation, to Magna Stic Magnetic Signs Pty. Limited (``Signs''), the other to a notice of assessment issued to Magna Stic Products Pty. Limited (``Products''). The remaining two proceedings are actions commenced in the High Court of Australia, by Signs and Products respectively, in which those companies seek certain declaratory and injunctive relief. These actions have been remitted to this Court for determination. They raise questions similar to those arising under the references.

Mr A.F.M. Mould, who gave evidence, is a director of both Signs and Products. (In these reasons, I will refer to these two companies collectively as ``the taxpayers''.) It appears from Mr Mould's evidence that, amongst other items, Signs manufactures adhesive vinyl letters suitable for fixing to solid surfaces, such as those of buildings, notice boards, or vehicles, and capable of being formed into words, such as names, warnings or instructions. According to Mr Mould, the letters adhere strongly to any surface to which they are applied, so that they are not able to be removed without damage to that surface. Signs does not itself sell these letters to members of the public. It wholesales letters to Products, which makes them up into what Mr Mould calls ``legends'': single words or groups of words. These legends are sold by Products to the public, either directly or through agents. The central question in these proceedings is whether the vinyl letters are liable to sales tax.

Counsel for the taxpayers accept, as a general proposition, that the combination of the Sales Tax Act (No. 1) 1930 and the Sales Tax Assessment Act (No. 1) is effective to impose liability for sales tax upon Signs, but not Products. However, they submit that this prima facie position is reversed by the operation of two other statutes: the Sales Tax (Exemptions and Classifications) Act 1935 and the Sales Tax Procedure Act 1934.

In relation to Products, a separate problem arises. The respondent issued his notice of assessment under the Sales Tax Assessment Act (No. 1). He now concedes that this course was inappropriate, but he maintains that tax is payable under the Sales Tax Assessment Act (No. 2) and he seeks to support the assessment by reference to that Act.

The claim for exemption

Section 5 of the Sales Tax (Exemptions and Classifications) Act provides that, notwithstanding anything contained in any Sales Tax Assessment Act, ``Sales tax shall not... be payable upon the sale value of any goods covered by any item or sub-item in the first column of the First Schedule, under any Act specified in the second column of that Schedule opposite that item or sub-item''. Division XII of the First Schedule is entitled ``Building Materials''. It includes item 84(2) which reads as follows:

``(2) Builders' hardware (not including electrical fittings, accessories or equipment, duct work or channelling of a kind used in forced draught ventilating or air conditioning systems, or fittings, accessories or attachments for, components of, or goods designed to form of, such duct work or channelling, or goods covered by item 12, 14 or 14A in the Third Schedule), being goods of a kind used in the construction or repair of, and wrought into or attached to so to form part of, buildings or other fixtures, including -

  • Bolts, brackets, brads
  • Catches, ceiling ties, clips, clouts, corrugated fasteners
  • Decking spikes, door bells, door handles, door knockers, door sheaves and tracks, door stops and stoppers, door and cupboard catches, door and gate springs, drawer pulls, dryvins
  • Flush rings
  • Gate loops
  • Hasps, hinges, hooks, hooks and eyes, house numbers
  • Knobs
  • Latches, letter boxes, letter plates, locks, locksets and keys therefor, loxins
  • Metal frames for the support of wash basins

    ATC 5003

  • Nails, name plates, nuts
  • Padbolts, panel pins
  • Rivets
  • Staples, screws, scruins,
  • Washers''

(This is the current form of the sub-item. Some minor amendments were made during the period with which these cases are concerned, but it is agreed that they were not such as to affect the present questions.)

Opposite the sub-item, in the second column, appear the words and figures ``Nos. 1 to 9''. It follows that, if the vinyl letters fall within the description contained in item 84(2) they are exempt from sales tax, under any of the Sales Tax Acts from No. 1 to No. 9.

The argument for the taxpayers is that the words ``being goods of a kind'', etc., limit the words ``builders' hardware'', so that it is immaterial whether the vinyl letters are ``builders' hardware'' in ordinary parlance. Counsel for the taxpayers point to evidence by Mr Mould that some vinyl letters are sold to signmakers, shopfitters and builders and they say that they are goods of ``a kind used'' in the construction of buildings; for example, for making direction and identification signs. They point to some of the items listed after the word ``including'' as an indication of the breadth of the word ``construction'' in this context. In particular they refer to door bells, door handles, door knockers, latches, letter boxes, letter plates and name plates.

In relation to the second requirement of the descriptive words, counsel refer to Mr Mould's evidence that, when the letters are attached to the building, they become part of the building, in the sense that they cannot be detached without occasioning damage to the surface to which they are attached. This, counsel say, is enough to bring the products within the description. Counsel make the important point that, in item 84(2), it is enough that the relevant goods be of the designated kind. There is no requirement that the goods be exclusively, principally or ordinarily used in the construction of buildings or even that they be intended for such use. Compare, for example, items 82A, 83 and 89 requiring exclusive or principal use, and items 84(1) and 95 regarding intended use. It follows, say counsel, that the exemption extends to all of the vinyl letters produced by Signs, whether or not those letters are actually used on buildings; their propensity for such use is the critical matter.

The argument for the taxpayers is attractively presented but I think that it encounters two substantial problems, one of them at the outset. I do not agree that the term ``builders' hardware'' is to be treated as no more than a compendious description of what follows, so that it is irrelevant whether particular goods are builders' hardware in ordinary parlance. If that had been the intention, there would have been no need to use the term at all. The description could have commenced with the words ``goods of a kind...''. It is not as if item 84(2) was a definition provision, the draftsman wanting a simple term to avoid lengthy repetition. It is noteworthy that item 84(2) not only appears in a Division of the Schedule headed ``Building Materials'' but is surrounded by other items used in the construction of buildings. In my opinion the intention of the draftsman was to exempt only items which fulfil three criteria: firstly, that they answer the description ``builders' hardware'' in ordinary parlance, secondly, that they are ``goods of a kind used in the construction or repair of... buildings or other fixtures'' and, thirdly, that they are goods wrought into or attached to buildings or other fixtures so as to form part thereof.

The view I have expressed is consistent with the approach taken by Kitto J. in the High Court of Australia, in an unreported decision,
D.F.C. of T. v. Academy Plastics Proprietary Limited (22 March 1956), the only authority on item 84(2) of which I am aware. In that case his Honour received and considered evidence from seven witnesses experienced in the hardware and building trades to the effect that the article then under consideration was not ``builders' hardware'', as they understood the term and as it was understood in those trades. Kitto J. summarised their view as being ``that the article was not one in which builders, or architects in preparing specifications for builders, would be interested, and that such demand for it as there might be would come from householders interested in adopting gadgets as kitchen accessories in the course of enjoying, rather than building, their houses''. His Honour went on:

``But whatever meaning might be given to the expression `Builders' hardware'

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standing by itself, in item 84(2) it is confined to `goods of a kind used in the construction or repair of, and wrought into or attached to so as to form part of, buildings or other fixtures'.''

I think that it is plain that Kitto J. thought it to be relevant to determine whether the article in question was an item of ``builders' hardware'', in the ordinary meaning of that term.

In anticipation of the possibility that this view might be taken, counsel for the taxpayers called their instructing solicitor, Mr D.K.L. Raphael, to prove the purchase by him of articles similar, but not identical, to the subject article from retailers. The first purchases were made at BBC Hardware, Parramatta. The purchased articles were displayed in a part of the shop where door knockers, door knobs, cupboards, openers for cupboards, nails, bolts, screws, other lettering and tools were also displayed. The second purchases were made in the hardware department of Grace Bros Limited at Parramatta, the surrounding items being described by Mr Raphael as ``much the same as those at BBC''. The third purchases were made in a hardware shop at Lindfield, where once again the goods were found in the company of similar items.

The evidence provided by Mr Raphael is of interest, but I do not think that it carries the matter very far. In an age when many motor service stations sell goods ranging from soft drinks through newspapers to novelties such as beach balls and plastic toys, when most pharmacies stock a range of non-medical household items, most food supermarkets retail a large range of pharmaceuticals along with toys, small items of clothing and potted plants, and even hardware shops sell goods ranging from fabrics, curtains and blinds to dog collars and goldfish food, it must be concluded that traditional marketing divisions have broken down. Whatever its continuing value as a guide to the interpretation of legal documents, the maxim noscitur a sociis (known by its associates) is of dubious benefit in determining, from their location on retail shelves, whether particular goods fall within a particular general description, such as ``builders' hardware''. Such evidence is no substitute for evidence, such as that tendered to Kitto J. in Academy Plastics, as to the meaning in trade parlance of the relevant term.

In the present case there is no evidence as to the meaning in the relevant trades of the term ``builders' hardware''. I must do the best I can by resort to matters of general knowledge, of which I may take judicial notice, and by reference to any relevant dictionary definitions. Although in practice it might not matter much, one way or the other, I do not think that it is proper for me to rely upon the evidence given before Kitto J. which I have summarised above. That evidence was given 33 years ago. The meaning of the term may have changed in the meantime. More fundamentally, it is not legitimate to use a previous decision as a source of evidence, as distinct from legal elucidation. If the course which I must take has the effect of defining ``builders' hardware'' more narrowly than the meaning attributed to the term in relevant trades, this is unfortunate; but the taxpayers bear responsibility. The onus rests on them to satisfy the Court that the relevant article falls within item 84(2) and they have elected to call no evidence as to the trade meaning.

Counsel for the Commissioner refer me to a number of dictionary definitions of the word ``hardware''. Two of the references are to Australian publications. I prefer to confine myself to those references. It is conceivable that the word has some different connotation elsewhere, although I add that the taxpayers' argument would not be improved even if one took account of the foreign publications.

The Macquarie Dictionary relevantly defines ``hardware'' as ``building materials, tools, etc; ironmongery''. ``Ironmongery'' is defined as ``the goods, shop, or business of an ironmonger'' and an ``ironmonger'' is ``a dealer in metal ware, tools, cutlery, locks, etc''. The Australian Concise Oxford Dictionary relevantly defines ``hardware'' more narrowly, simply as ``ironmongers' goods''. ``Ironmonger'' is circularly defined as ``dealer in hardware, etc''.

I take the wider definition, which includes building materials and tools. This accords with my understanding of the word ``hardware'' in ordinary parlance. What is significant about that definition is its emphasis upon use in building. Of course, in the present case, this emphasis is reinforced by the circumstance that the item is described, not as ``hardware'' simpliciter, but as ``builders' hardware''. I think that the draftsman had in mind materials

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designed for use by builders, being materials, tools, etc.

While I accept that the subject letters are capable of being affixed to buildings or other structures, it is another matter to describe them as materials designed for use by builders. The evidence suggests that the letters have a multitude of applications, mostly in advertising. It cannot be said that the product is one designed for use by builders, as distinct from others. Nor does it appear that builders are the main users of the product. For what it is worth - there is no evidence as to whether or not the bundle is a fair sample of purchase orders - I note that a bundle of 20 purchase orders which was admitted into evidence contains only one invoice apparently directed to a builder. No evidence was put before the Court as to the proportion of letters sold to builders, although this information would presumably be available to Products.

In my opinion the case made by the taxpayers regarding item 84(2) fails on the simple basis that the letters are not builders' hardware.

Under the circumstances it is unnecessary to reach a final opinion about the second problem to which I have referred. But I comment that I have difficulty in accepting that these vinyl letters are ``goods of a kind used in the construction... of, buildings or other fixtures''. To the extent that they are used in buildings at all, they are things affixed to completed buildings for convenience in use; for example, indicating an exit from the building, or that a particular room is used for a particular purpose. The distinction between use in construction and use in furnishing and equipping the building was made by Kitto J. in Academy Plastics:

``Even if I had no assistance from evidence, I should think it sufficiently clear from an inspection of the article itself that it is not of a kind used in the construction or repair of a building. No one would ever think of such a thing, I am sure, except after the building was completed, and as a matter rather of furnishing and equipping the household than of adding to the building as a building.''

The Commissioner's rulings

The view I have formed about the application of item 84(2) makes it necessary for me to turn to the second matter raised by counsel for the taxpayers: the application of sec. 12D of the Sales Tax Procedure Act. From time to time the Commissioner issues rulings as to liability for sales tax. No doubt people act on those rulings. Where a ruling is to the effect that sales tax is not payable an affected person may sell the relevant goods at a price which makes no allowance for sales tax. The ruling may be incorrect and subsequently altered, but Parliament has taken the view that, even if the tax is legally payable, it may be unfair to require payment. Section 12D provides:

``12D(1) Where the Commissioner alters a ruling previously given, then notwithstanding anything contained in any Sales Tax Assessment Act, if the Commissioner is satisfied -

  • (a) that any person has acted in accordance with that prior ruling and that, by reason of so acting, that person has, in respect of any transaction, act or operation effected or done by that person between the date upon which the prior ruling was given and the date upon which the Commissioner alters the prior ruling -
    • (i) not paid sales tax; or
    • (ii) paid a less amount of sales tax than he would have paid if the ruling as altered had been given at the time of the prior ruling and he had acted in accordance with the ruling as altered; and
  • (b) that that person did not contribute to the giving or to the continuing in force of the prior ruling by any mis-statement or by any suppression of material fact,

the Commissioner may remit the amount of tax so unpaid.

(2) The Commissioner shall be deemed to alter a ruling where the Commissioner, a Second Commissioner or a Deputy Commissioner gives any further ruling which expressly or by necessary implication withdraws, amends, modifies or qualifies so much, if any, of any prior ruling as has not been withdrawn, amended, modified or qualified by any intervening ruling:...

(3)...

(4)In this section `ruling' means any written ruling, decision or advice either given to a

ATC 5006

particular person or published for general information by the Commissioner, Second Commissioner or a Deputy Commissioner with respect to any law relating to the imposition, assessment or collection of Sales Tax and whether in relation to a particular case or in relation to any matter or class of matter.''

A number of rulings have been given by the Commissioner, over the years, in respect of the application of item 84(2). Most of them are vaguely worded. Some appear to express the exemption far too widely and there is a measure of inconsistency between them. I confess to strong doubts as to the wisdom of issuing so many rulings; even the wisdom of issuing rulings at all. The sales tax legislation is extremely complex; the complexity being greatly increased by the multitude of narrowly defined exemptions. It must be difficult enough for those who have to administer or to comply with the legislation to become, and to remain, aware of the legislation itself. To require them also to master a multitude of rulings is extremely onerous. If items are so obscurely worded as to require further elucidation, perhaps their wording should be revised. In issuing rulings which, in effect, rephrase the wording of exemptions the Commissioner may create a rod for his own back. This is illustrated by a ruling issued by the Commissioner in 1984, which was clearly incorrect. The ruling stated that goods not subject to sales tax include ``individual letters (made of plywood, metal, polystyrene, etc) of kinds sold to builders or shopfitters''. As a synopsis of item 84(2) the ruling was far too wide. But the ruling was seen by the taxpayers; and the Commissioner concedes that he ought not to require payment of sales tax on the vinyl letters between the date of that ruling and its withdrawal in 1986.

However, the taxpayers are not content with that concession. They point to a document issued by the Commissioner which collects rulings in respect of individual items. Included in this lengthy list, and apparently dating from 1960, is the following item:

``Plastic letters or plastic signs of a kind affixed to buildings (e.g., shopfronts), with the intention of remaining permanently in position as part of the building, but not including letters or signs of an advertising character or which contain advertising features...''

It will be recalled that sec. 12D(1) empowers the Commissioner to remit tax where he is satisfied of the matters set out in para. (a) and (b) of that subsection. In the present case the Commissioner has not been asked to remit the sales tax, or any part of it, under sec. 12D(1). This is not a case of a challenge to a decision upon an application to remit, or to conduct in connection with such a decision; as, for example, under the Administrative Decisions (Judicial Review) Act 1977. The contention for the taxpayers is that the objective facts are such that the Commissioner must, on any application to him, be satisfied as to the matters referred to in para. (a) and (b); that the words ``may remit'' should be read as imposing a duty, not merely a discretion, to remit; and, therefore, that the taxpayers have a legal entitlement to a remission which the Court ought immediately recognise by granting appropriate declaratory and injunctive relief.

I disagree with the first step in this argument. I am not satisfied, as a matter of fact, that either of the taxpayers was acting in accordance with any prior ruling when it failed to pay sales tax. There is evidence of a discussion in early 1982 between Mr Mount, Mr D.R. Vos of Deloitte, Haskins & Sells, the taxpayers' external accountants, and Mr Michel, an internal accountant, about liability to sales tax. In the course of this discussion, according to Mr Mould, reference was made to a loose-leaf volume of sales tax rulings, including the document referred to above. Mr Michel is now dead. Mr Vos, although available, was not called. So the only evidence about this conversation came from Mr Mould. Not surprisingly, given the time which has since elapsed and his lack of familiarity with the subtleties of sales tax, Mr Mould was rather vague about the discussion. However, I am prepared to accept that, at about this time, the view was expressed by one or both of the accountants that the item which I have quoted might have the effect of exempting vinyl letters from sales tax. If the evidence showed that the taxpayers, or either of them, had acted upon that view by ceasing to pay tax, sec. 12D might have some application. But it does not. On the contrary, it was admitted by Mr Mould that, after the discussion with the accountants and apparently in about March 1982, he had a discussion with an officer of the sales tax section of the Australian Taxation Office, Mr

ATC 5007

A. Richardson. During that discussion Mr Richardson worked through a list of the items manufactured by Signs, expressing a view about the liability arising in relation to each. He made clear to Mr Mould his opinion that the vinyl signs were taxable.

On 31 March 1982 a letter was sent by the Deputy Commissioner to Signs. This letter read:

``The current investigation of your sales tax returns has disclosed underpayment of sales tax. For this reason, you are hereby required to furnish further or fuller returns and pay tax upon the sale value of signs manufactured by you and sold during the period 1 March 1979 to 28 February 1982. This should now be done.

It is pointed out that the Sales Tax Assessment Acts require a taxpayer to furnish a return and pay the tax payable under those Acts within twenty one days of the close of any month in which taxable transactions occur. For the purpose of this adjustment it will be satisfactory, however, if one return covering these transactions is furnished. A form marked `supplementary' is enclosed.''

Deloitte Haskins & Sells responded to this letter on behalf of Signs on 23 April 1982. The letter, which bore Mr Vos' initials, read:

``Your Mr A. Richardson, Sales Tax Investigation Officer, recently obtained, for lodgement, outstanding sales tax returns covering the months of May and June 1980 and the period November 1980 to February 1982. A supplementary return for tax determined to have been underpaid was also lodged. The total tax payable on the returns is understood to amount to $92,858.79.

Attached is a statement of assets and liabilities which reveals the current state of insolvency of the company. Bearing in mind the company's state of insolvency and its lack of ability, at present time, to meet the outstanding sales tax commitment we seek your approval for our client to pay off the outstanding sales tax over the next twelve months. Mr A. Mould, Managing Director of Magna-Stic Products Pty. Ltd. has agreed to guarantee the payment of the tax outstanding on the proposed basis.

In anticipation of your approval, we attach a cheque for $9,858.79 and seek your permission to remit the remaining amount in ten instalments of $8,000 and one instalment of $3,000. The remittances will accompany sales tax returns for the months of April 1982 (due 21 May 1982) to February 1983. This request is made on the understanding that the current tax will be paid as and when it falls due.

We are advised that the outstanding returns were not lodged by the due date because of the company's lack of ability at the time to pay the sales tax involved. In view of its state of insolvency we also respectfully request that you exercise your discretion under the provisions of section 29, Sales Tax Assessment Act (No. 1) and section 8, Sales Tax Procedure Act to remit any penalties imposable.

We will be writing to you as soon as possible concerning a further amount of sales tax of approximately $14,000 which your office claims is owing in regard to artwork sold by our client. We request that this matter be left in abeyance pending receipt of our further representations on the matter.

We look forward to receiving your approval in respect of this application. Should you require further information in respect of the above matters please do not hesitate to contact David Vos or Warren Hosking from this office.''

The enclosed document showed assets of $197,803 and liabilities of $229,434. The liabilities included $92,858 for sales tax.

By a letter dated 25 June 1982 the Deputy Commissioner agreed to reduce the amount of additional tax, leaving a balance of $89,000. The Deputy Commissioner indicated his readiness to accept payment of this sum by specified instalments over nine months, commencing on 21 July 1982.

At the same time there was correspondence between Mr Vos and the Deputy Commissioner regarding some aspects of the calculation of the sale value of some items. No suggestion was made that the vinyl letters were not taxable.

During the period which elapsed between the Mould-Richardson conversation and October 1982, sales tax returns were lodged each

ATC 5008

month. Under the heading ``details of taxable goods'' the description ``signs of all descriptions'' was written. The person who completed the returns, Ms Alice Gillard, was not called. However, as far as I can make out, the signs referred to included the vinyl letters. Certainly, there is no evidence to suggest otherwise.

The last return was submitted in October 1982, being for the month of September 1982. Thereafter no sales tax was paid by either company on any of its products. No evidence was given as to why they stopped lodging returns or paying sales tax. But there is no suggestion that all of Signs' products were non-taxable, so the obvious inference is that the companies ceased to lodge returns because of their financial situation. There is no evidence that their failure to lodge returns, and so to pay tax, had anything to do with the conversation between Mr Mould, Mr Vos and Mr Michel early in the year. A considerable volume of water had passed under the bridge since then.

Counsel for the Commissioner did not dispute their opponents' second submission; that is, that if the facts referred to in para. (a) and (b) of sec. 12D(1) were established, to the Commissioner's satisfaction, he had no discretion but to allow the exemption. In the light of cases such as
Finance Facilities Pty. Limited v. F.C. of T. 71 ATC 4225; (1971) 127 C.L.R. 106 this concession was apt. See especially the discussion by Windeyer J. at ATC pp. 4229-4230; C.L.R. pp. 134-135, noting the similarity of the structure of the subsection there under discussion to that of sec. 12D(1) of the Sales Tax Procedure Act.

However, notwithstanding my acceptance of the proposition that, if the appropriate facts were established to his satisfaction, the Commissioner would have a duty to remit the tax paid, I doubt the correctness of the third step in the taxpayers' argument. Because of my view that the necessary factual basis is not established it is not necessary to reach a final conclusion on the matter. But it seems to me that the Court is not entitled to substitute its own opinion on the matter of satisfaction for that of the Commissioner. It is for the Commissioner to find the facts and, if he finds that they satisfy para. (a) and (b), to remit the tax. The Commissioner's decision on any application for a remission is open to review, under either the Administrative Decisions (Judicial Review) Act or sec. 39B of the Judiciary Act 1903. But the Commissioner must be allowed to make a decision.

The view just expressed is consistent with the approach of Davies J. in
Re Hains; Barnsdall v. F.C. of T. 88 ATC 4565; (1988) 81 A.L.R. 173. That case involved the exercise of a discretion by the Commissioner under the Income Tax Assessment Act 1936. During the course of appeals against assessments to tax a question arose as to the relevance of certain evidence adduced to the Court, which had not been before the Commissioner when he made his decision. Davies J. held that the material was irrelevant. He said, at ATC p. 4570; A.L.R. p. 179:

``The subject issue concerns a discretionary decision made by a delegate of the Commissioner. The principles applicable to the review of such a decision are those of judicial review in the strict sense. In brief, the decision was one for the Commissioner or his delegate, not for this court, and the decision ought not to be set aside unless there has been a breach of the rules of natural justice or an error of law is disclosed having regard to the material that was or ought to have been before the decision maker and taken into account.

...

These principles apply notwithstanding that a taxation appeal is not an appeal in the strict sense but an appeal by way of rehearing. The only relaxation of the ordinary principles of judicial review is that seen in
Kolotex Hosiery (Australia) Pty. Ltd. v. F.C. of T. 75 ATC 4028; (1975) 132 C.L.R. 535, namely that, once the court has found error in the discretionary decision, it may in an appropriate case exercise the discretion for itself.''

It follows that, even if the evidence placed before this Court showed that the conditions set out in para. (a) and (b) of sec. 12D(1) had been fulfilled, the Court should not act upon that material at this stage.

The case made by the taxpayers pursuant to the Sales Tax Procedure Act fails. There is no general answer to the claim made by the Commissioner.

ATC 5009

The assessment against Products

Two matters remain outstanding: the notice of assessment made against Products and the desire of the two taxpayers to check the detail of the claims made against them to ascertain whether there are any particular sales which do not attract tax. The Sales Tax (Exemptions and Classifications) Act exempts from tax goods sold to various specified persons and organisations. Some of the subject goods may have been so sold. There may be other matters of detail in computing the proper amount of the tax. The parties ask that, if the Court rejects the taxpayers' two principal arguments, the proceedings should be adjourned for a period so as to allow the parties to check these matters of detail. I will take that course. It is likely that agreement will be reached as to the precise figures owing for tax. If there is disagreement on any point, the Court will have to rule upon it.

A notice of assessment was issued to Products on 18 February 1987, in the sum of $299,615.06. The notice was in the form of a letter headed ``Sales Tax Assessment Act (No. 1) 1930, as amended''. The letter opened:

``You are hereby notified that you are liable to pay sales tax as shown hereunder in accordance with an assessment that has been made under the provisions of sub-section 25(2A) of Sales Tax Assessment Act (No. 1) 1930, as amended.''

The assessment then followed. It read:

``ASSESSMENT UNDER SUB-SECTION 25(2A) OF SALES TAX ASSESSMENT ACT (NO. 1) 1930, AS AMENDED

In respect of self adhesive vinyl letters and numerals manufactured by you and sold or applied to your own use during the period 1 March 1982 to 31 October 1986 (both dates inclusive): -''

Details of the calculation were then set out. The letter concluded with a demand for payment of the sum of $299,615.06. A footnote drew attention to the taxpayer's right of objection within 60 days. Products did object and the decision of the Commissioner to disallow that objection is one of the four matters now before the Court.

As I have already indicated, the Commissioner concedes that Products is not liable to pay tax under the Sales Tax Assessment Act (No. 1). Once that concession is made it seems to me to be beyond argument that the notice of assessment is invalid. I say this because of the terms of sec. 24 and 25 of that Act, which are relevantly as follow:

``24(1) A person liable under this Act to pay sales tax upon the sale value of any goods -

  • (a) sold by him;
  • (b) treated by him as stock for sale by retail; or
  • (c) applied by him to his own use,

during a month shall, within 21 days after the close of that month, pay sales tax upon the sale value of the goods.

(2) Subject to sections 27 and 28, sales tax is due and payable at the end of the period of 21 days referred to in sub-section (1) of this section.

25(1) Where the Commissioner finds in any case that tax or further tax is payable by a person, the Commissioner may make an assessment in relation to the person.

(2)...

(2A) Where -

  • (a) a person makes default in furnishing a return;
  • (b) the Commissioner is not satisfied with a return furnished by a person; or
  • (c) the Commissioner has reason to believe or suspect that a person (although not having furnished a return) is liable to pay sales tax,

the Commissioner may determine an amount to be the amount upon which, in the opinion of the Commissioner, sales tax should be paid and may make an assessment in relation to the person.

(2B)...

(3) As soon as conveniently may be after an assessment has been made, the Commissioner shall cause notice in writing of the assessment to be served on the person liable to pay the text or further tax.

(4) The amount of tax or further tax specified in the notice shall be payable on or before the date specified in the notice together with any other amount which may

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be payable in accordance with any other provisions of this Act.

(5) The omission to give any such notice shall not invalidate the assessment made by the Commissioner.''

It will be noted that the duty to pay tax, which is imposed by sec. 24, applies to a ``person liable under this Act to pay sales tax''. Section 24 imposes no obligation in respect of liability under one of the other Assessment Acts. This is consistent with the general scheme of the sales tax legislation, which imposes similar but separate obligations under each Assessment Act in respect of the sales tax imposed by the Taxing Act bearing the same number.

The opening words of sec. 25 do not specifically state a requirement that the Commissioner find that tax or further tax is payable under the Sales Tax Assessment Act (No. 1); but this limitation is implied by the context. The subject matter of sec. 25 is the assessment of the tax or further tax which is payable under that Act.

The statutory framework is so compelling that it is scarcely necessary to go to authority to support the contention that the notice of assessment is bad. But there is such authority, in the field of income tax: see
Danmark Pty. Limited v. F.C. of T. (1944) 7 A.T.D. 333 and
F.C. of T. v. Wade (1951) 84 C.L.R. 105. In the latter case, at p. 116, Kitto J. said:

``where there are two provisions of an assessment Act, each giving the commissioner a power to make an assessment, and each creating a liability to tax in the event of the power it confers being exercised, an assessment made in exercise only of the power given by one of those sections cannot be supported as effective under the other.''

These decisions may be regarded as mere examples of a wider principle, considered in
Australian Broadcasting Tribunal v. Saatchi and Saatchi Compton (Vic.) Pty. Ltd. (1985) 10 F.C.R. 1. In that case the Full Court of this Court had to determine whether a rule which the Tribunal had imposed as a ``standard'', under one power given to it by the Broadcasting and Television Act 1942, was supportable as a ``condition'' under another power. In his reasons for judgment at p. 9 Bowen C.J. referred to the dictum of Fullagar J. in
Lockwood v. Commonwealth of Australia (1954) 90 C.L.R. 177 at p. 184: ``It is, I think, a settled principle that an act purporting to be done under one statutory power may be supported under another statutory power...'' However, drawing on American authority, Bowen C.J. added a significant qualification to that principle. At p. 10 he expressed the opinion that, where an administrative body which states that it is exercising a particular power in laying down a rule lacks that power but could have laid down the rule validly under another head of power, ``it would generally be wrong for a court to uphold the rule as if it had been made under the unstated head of power, particularly where the consequences for the citizen of each exercise of power are different''. See also Fox J. at p. 17. In my reasons, I took a more restrictive view of the exception from the principle referred to by Fullagar J. But, at p. 23, I did except ``the case where the exercise of the alternative power depends upon the fulfilment of some condition precedent, such as the formation by the statutory authority of a particular opinion, and that event has not yet occurred''. That is the present case. There is here an alternative power. Sections 9 and 10 of the Sales Tax Assessment Act (No. 2) 1930 are similar, but not identical, to sec. 24 and 25 of the Assessment Act No. 1. But sec. 10 of the Assessment Act No. 2 predicates the Commissioner's power to make an assessment upon him finding in the particular case that tax or further tax is payable under that Act. The Commissioner has not so found. Consequently, the assessment cannot be supported under the Sales Tax Assessment Act (No. 2). The objection must be allowed and the notice of assessment set aside.

Counsel for the taxpayers submit that, if this stage should be reached, the Court ought do no more than set aside the notice of assessment, leaving it to the parties to take such consequential action as they may see fit. I do not agree. The proceeding instituted by Products raises issues as to the existence and extent of the liability of that company to furnish sales tax returns and to pay sales tax. The Court is obliged to deal with those issues. In cases to which it applies, the Sales Tax Assessment Act (No. 2) imposes liability to furnish returns and to pay tax independently of the making by the

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Commissioner of an assessment. Section 3 provides:

``3. Subject to, and in accordance with, the provisions of this Act, the sales tax imposed by the Sales Tax Act (No. 2) 1930 shall be levied and paid upon the sale value of goods manufactured in Australia and sold by a taxpayer who purchased them from the manufacturer.''

Sections 4 and 4A deal with the ascertainment of the sale value of goods. Section 5 provides:

``5. Where a person (being a registered person or a person required to be registered) who has purchased goods manufactured in Australia from the manufacturer of the goods sells the goods to an unregistered person or to a registered person who has not quoted his certificate in respect of that purchase, sales tax shall be paid by the first-mentioned person.''

The obligation to furnish returns applies to persons who, during any month, make any of the sales specified in sec. 4 or 4A: see sec. 7. Section 9 imposes an obligation to pay tax:

``9(1) Every person liable to pay tax under section 5 upon the sale value of any goods sold by him during any month shall, within twenty one days after the close of that month, pay sales tax upon that sale value.

(2) Subject to this Act, sales tax is due and payable at the end of the period of 21 days referred to in sub-section (1).''

Section 10, which authorises the making of assessments, is simply a machinery measure to enable quantification of any outstanding tax claimed to be payable. The objection and appeal procedure enables any dispute on that matter to be resolved.

It follows from the above analysis that the setting aside of the notice of assessment issued to Products does not affect the obligation of that company to pay such tax as is properly payable and outstanding under the Sales Tax Assessment Act (No. 2). It merely means that the extent of this obligation is left unquantified. As the extent of that obligation is an issue raised in the remitted proceedings the Court should deal with it.

Counsel for the taxpayers contend that it would be unfair for the Court to take a course permitting the determination in the present proceedings of the actual liability of Products. I do not see any unfairness. The course which I propose to take will allow Products the opportunity to check the claim made against it by the Commissioner and, failing agreement, to raise any matter in response. If necessary, further evidence may be adduced. I think that it is the duty of the Court, seised of a dispute between parties, to take steps, consistent with fairness, to resolve that dispute; not to take a course which leaves the dispute unresolved and likely to be the subject of further litigation.

Orders

When final orders are made, I will make an order setting aside the notice of assessment issued to Products. I reserve the question of what other relief should be granted. It may be appropriate for declarations to be made reflecting my conclusions about item 84(2) and the operation of sec. 12D of the Sales Tax Procedure Act. But I prefer to postpone consideration of that question until I have had the benefit of submissions from counsel, made in the light of these reasons. If declarations are to be made, they probably should extend to the specification of the exact liability (if any) of the respective taxpayers.

In respect of costs, I indicate no view at this stage. I invite submissions from counsel in due course upon that matter.

The only order that I make today is that I adjourn each of the four proceedings for mention at 9.30 a.m. on Thursday, 16 November 1989.


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