Kodak (Australasia) Pty. Ltd. v. The Commonwealth

Judges:
Lockhart J

Court:
Federal Court

Judgment date: 16 December 1988.

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Lockhart J.

Kodak (Australasia) Pty. Ltd. (``Kodak'') commenced two proceedings in this Court, the first on 21 March 1988 (G485 of 1988) and the second on 19 April 1988 (G845 of 1988), for orders that the Commonwealth of Australia pay to Kodak the amounts of sales tax which Kodak paid the Commissioner of Taxation, under protest, pursuant to sec. 12A of the Sales Tax Procedure Act 1934. In proceeding G485 of 1988 Kodak seeks an order for payment of the sum of $119,161.24 paid to the Commissioner on 22 September 1987. In proceeding G845 of 1988 Kodak seeks an order for payment of the sum of $145,046.04 paid to the Commissioner on 20 October 1987.

In each proceeding Kodak alleges that:

• • it was engaged in the business of a photo finishing laboratory and that, in the course of that business, it developed photographic film supplied to it by customers, produced photographic slides from photographic film supplied by customers and produced photographic prints;
• • in producing photographic prints, it used photographic film which had been supplied to it by customers and which it had processed (the processed photographic film is referred to as a ``negative'');
• • the Commissioner required Kodak to pay sales tax on negatives which Kodak had produced notwithstanding that the negatives are used by Kodak in the production of photographic prints;
• • Kodak paid under protest the amounts of sales tax to which reference has been made earlier in respect of the negatives produced by it;
• • Kodak is not liable to pay the sales tax on the grounds that (a) the negatives are goods which have gone into use or consumption in Australia prior to sale by Kodak or (b) the negatives are exempt from sales tax being ``aids to manufacture'' as defined in the Sales Tax (Exemptions and Classifications) Act 1935.

Kodak alleges that, at the relevant times, the definition of ``manufacture'' in Sales Tax Assessment Act (No. 1) 1930 (Cth) provided inter alia:

``Manufacture includes...

• (d) the processing or treatment of exposed photographic or cinematographic film to produce a negative transparency or film strip...''

In each proceeding the relief sought by Kodak is an order that the respondent pay to Kodak the amount of sales tax paid under protest; alternatively, a declaration that photographic negatives used by Kodak in the production of photographic prints are goods which have gone into use or consumption in Australia prior to sale by Kodak and accordingly are exempt from sales tax; and in the further alternative, a declaration that the photographic negatives used by Kodak in the production of photographic prints are ``aids to manufacture'' as defined in the Sales Tax (Exemptions and Classifications) Act and are accordingly exempt from sales tax.

The Commonwealth is sued by Kodak because it is the party referred to in subsec. 12A(2) of the Sales Tax Procedure Act as the party against whom an action for recovery of sales tax paid under protest may be brought.

The Commonwealth filed a notice of motion in each proceeding seeking orders that the application and statement of claim be struck out and that Kodak pay the Commonwealth's costs of the proceedings. The ground on which the Commonwealth moves for dismissal of the proceedings (although the notices of motion ask for the proceedings to be struck out, it is common ground that what is sought is dismissal) is that the proceedings are not within the jurisdiction of the Federal Court. The Commonwealth filed a conditional notice of appearance in each proceeding. It is these motions that are presently before the Court. It appears that if the notices of motion are successful Kodak will be out of time to commence proceedings in the Supreme Court of New South Wales.

I turn to the central question in the case, namely, whether the Federal Court has jurisdiction to hear these proceedings.

The Federal Court of Australia is a statutory court of original and appellate jurisdiction. It has such original jurisdiction as is vested in it by laws made by the Parliament of the Commonwealth (Federal Court of Australia Act 1976: sec. 19). A Full Court of this Court in
Thomas Borthwick & Sons (Pacific Holdings)

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ATC 4012

Ltd. & Ors v. Trade Practices Commission (1988) High Court & Fed. Court Practice ¶65-345 at p. 96,606; (1988) 79 A.L.R. 171 at p. 175, reviewed the statutory sources of the Court's jurisdiction, noting that the original jurisdiction exercised by the Federal Parliament including the Trade Practices Act 1974, the Bankruptcy Act 1966, the Administrative Decisions (Judicial Review) Act 1977 and certain other legislation.

In
Parsons v. Martin (1984) 58 A.L.R. 395, a Full Court of this Court had to consider the power of a Court of Petty Sessions to issue letters of request to certain foreign judicial authorities. The Court observed that ``a court exercising jurisdiction conferred by statute has powers expressly or by implication conferred by the legislation which governs it'', while such a court ``has in addition such powers as are incidental and necessary to the exercise of the jurisdiction or the powers so conferred'' (at p. 401). In
Edwards Hot Water Systems v. S.W. Hart & Co. Pty. Ltd. (1986) AIPC ¶90-284; (1985) 63 A.L.R. 314, that test was applied by Toohey J. in determining whether the Federal Court had power to set aside an order made after a hearing on appeal (at AIPC pp. 36,660-36,661; A.L.R. p. 319). While the Federal Court of Australia Act establishes the mechanism for the Court's exercise of jurisdiction, the source of that jurisdiction must be sought either in other Commonwealth legislation, or in the Court's jurisdiction over matters associated with a matter within jurisdiction or in the Court's inherent, or, more correctly implied, jurisdiction.

The question arises whether either the Sales Tax Assessment Acts or the Sales Tax Procedure Act invest the Court with an express or implied jurisdiction with respect to proceedings for the recovery of sales tax paid under protest. Subsection 12A(2) of the Sales Tax Procedure Act provides:

``Where any amount has been or is paid as specified in the last preceding sub-section by any person, and that person has paid or pays the amount under protest, as provided in the next succeeding sub-section, upon a prescribed ground as defined in that section, that person may, within six months after the date on which the amount was paid, bring an action upon that ground against the Commonwealth, in any Commonwealth or State Court of competent jurisdiction, for the recovery of the amount so paid.''

Subsection 12A(3) provides for the manner in which payment under protest must be made. The combined effect of subsec. 12A(2) and (3) of the Sales Tax Procedure Act is to confine a protest against the payment of sales tax to the grounds prescribed in subsec. 12A(4), and to limit recovery to payments made within six months before the date on which the action was brought:
Re The Totalisator Administration Board of Queensland 88 ATC 4178 per McPherson J. at p. 4179. It was common ground in argument that no provision other than subsec. 12A(2) of the Sales Tax Procedure Act and that no provision of the Sales Tax Assessment Act was apt to invest the Federal Court with jurisdiction.

The operation of sec. 12A of the Sales Tax Procedure Act 1934-1935 was considered by the High Court in
Werrin v. The Commonwealth (1937-1938) 59 C.L.R. 150, where the plaintiff sought to recover from the Commonwealth money paid as sales tax on the sale of certain secondhand goods. Latham C.J. and McTiernan J. held that the money had been paid voluntarily and under a mistake of law and was not recoverable at common law. Rich, Starke and Dixon JJ. held that the plaintiff's action was barred by sec. 12A in the form in which it then stood, which provided for the recovery of sales tax only where the amount was paid after 13 December 1934.

In
Jax Tyres Pty. Ltd. v. F.C. of T. 86 ATC 4534, the taxpayer claimed a refund of sales tax of worn tyre cases. The Supreme Court of New South Wales (David Hunt J.) observed that sec. 12A did not itself establish the taxpayer's entitlement to recover an amount paid as or for sales tax, but that sec. 12A ``assumes the existence of a right to have such payments refunded when made as or for sales tax when in truth no tax was payable''. His Honour noted that the source of the plaintiff's entitlement to recovery of sales tax was an action for money had and received by the defendant, where taxes had been wrongly exacted and paid under compulsion (at p. 4,537). His Honour's reasoning finds support in the decision of the High Court in
Mason v. The State of New South Wales (1958-1959) 102 C.L.R. 108, where the Court recognised the right of a plaintiff to recover as moneys had and received payments

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ATC 4013

which had been made for permits under State legislation where that legislation was invalid in its application to interstate carriage. I note that in Jax Tyres (supra) proceedings for the recovery of the sales tax paid under protest were initiated in the Supreme Court, although the taxpayer relied upon declaratory relief obtained from a single Judge of the Federal Court (reported in 84 ATC 4768; (1984) 3 F.C.R. 252) and upheld on appeal to the Full Court (85 ATC 4001; (1984) 5 F.C.R. 257) in order to establish his right to recover the moneys paid. The proceedings before the Federal Court were, however, originally instituted in the High Court and then remitted to the Federal Court.

An action to recover sales tax paid under protest, relying upon sec. 12A of the Sales Tax Procedure Act and founded upon the action for moneys had and received, is within the jurisdiction of the Supreme Court of New South Wales. Whether that jurisdiction derives from subsec. 39(2) of the Judiciary Act 1903 (Cth) will be considered below. Such an action might also be commenced in the original jurisdiction of the High Court, where the Commonwealth or the Commissioner of Taxation is the respondent in the action, relying upon sec. 75(iii) of the Constitution which confers jurisdiction on the High Court in relation to any matter in which the Commonwealth or a person being sued on behalf of the Commonwealth is a party. The High Court's original jurisdiction extends to actions against the Commonwealth acting through its executive departments: see D.C. Pearce, Commonwealth Administrative Law 1986, p. 164. Actions relying upon sec. 75(iii) may not be commenced in the Federal Court, but may be remitted by the High Court to the Federal Court under subsec. 44(2A) of the Judiciary Act 1903 (Cth):
State Bank of New South Wales v. Commonwealth Savings Bank of Australia (1984) 154 C.L.R. 579 per Gibbs C.J. at pp. 583-584.

Kodak in these proceedings neither brought its action for recovery in the Supreme Court, nor in the High Court so as to secure remittal to this Court.

The critical question in these proceedings is whether the reference to ``any Commonwealth or State Court of competent jurisdiction'' in subsec. 12A(2) of the Sales Tax Procedure Act itself confers jurisdiction upon the Federal Court. The phrase ``competent jurisdiction'' with reference to Courts is one that has been widely used in statutes, although its precise effect depends upon its particular statutory context. The phrase occurs, for example, in subsec. 273(5) of the Bankruptcy Act 1966 (Cth), which deals with the trial of offences. In
The Queen v. Ward (1978) 140 C.L.R. 584, the High Court in a judgment of the Court observed that the expression ``court of competent jurisdiction'' in the context of subsec. 273(5) of the Bankruptcy Act was not coincident with the courts specified in sec. 27 of the Bankruptcy Act, but was ``apt to signify a court which is otherwise endowed with jurisdiction, as, for example, by the provisions of the Judiciary Act'' (at pp. 588-589).

Subsection 56(1) of the Judiciary Act 1903 (Cth) also uses the phrase, providing that a claim against the Commonwealth, whether in contract or in tort, may be brought in the Supreme Court of a State or Territory or in ``any other court of competent jurisdiction of that State or Territory'' where the claim arose in a State or Territory. In that context, Jacobs J. observed in
Johnstone v. The Commonwealth (1979) High Court & Fed. Court Practice ¶60-040 at p. 95,283; (1978-1979) 143 C.L.R. 398 at p. 404 that the words ``court of competent jurisdiction'' referred to competency in respect of the amount and subject matter of the proceedings and the legal personality of the plaintiff.

Again, the phrase ``court of competent jurisdiction'' is used in sec. 74B-74G of the Trade Practices Act 1974 (Cth). In
Stack v. Coast Securities (No. 9) Pty. Ltd. (1983) ATPR ¶40-397; (1983) 154 C.L.R. 261, Gibbs C.J. observed that the expression was not synonymous with the Federal Court, but referred to or included State courts invested with jurisdiction under subsec. 39(2) of the Judiciary Act (at ATPR p. 44,645; C.L.R. p. 276).

In my opinion the use of the term ``Commonwealth or State Court of competent jurisdiction'' in subsec. 12A(2) of the Sales Tax Procedure Act recognises the jurisdiction which might be invested in the Federal Court from any other statutory source, but is not itself an independent source of jurisdiction. Thus, the Federal Court would, for example, have jurisdiction to entertain proceedings for the recovery of an amount of sales tax paid under protest where those proceedings were

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ATC 4014

commenced in the High Court and remitted to the Federal Court under subsec. 44(2A) of the Judiciary Act, and for that purpose would be a court of competent jurisdiction.

Clearly, in some circumstances this Court will have jurisdiction under sec. 32 of the Federal Court of Australia Act, where a matter not otherwise within its jurisdiction is associated with matters in which the jurisdiction of the Court is properly invoked: see
Philip Morris Inc. v. Adain P. Brown Male Fashions Pty. Ltd. (1981) ATPR ¶40-197; (1980-1981) 148 C.L.R. 457;
Fencott v. Muller (1983) ATPR ¶40-350; (1982-1983) 152 C.L.R. 570; Stack v. Coast Securities (No. 9) Pty. Ltd. (1983) ATPR ¶40-397; (1983) 154 C.L.R. 261 per Gibbs C.J. at ATPR pp. 44,646-44,647; C.L.R. p. 278. That section can have no operation in the present proceeding, where there is no other matter before the Court on which jurisdiction might be based other than the claim for recovery of sales tax under sec. 12A of the Sales Tax Procedure Act.

It remains to refer to the effect of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (N.S.W.) (``the N.S.W. Act'') as a possible source of jurisdiction in the Federal Court where jurisdiction would have been available to the Supreme Court of New South Wales had proceedings under sec. 12A of the Sales Tax Procedure Act been commenced in that Court. Counsel for Kodak conceded, correctly in my opinion, in argument that the cross-vesting legislation had no application in the present case. Brief reference to the cross-vesting legislation is nevertheless desirable. Subsection 4(1) of the N.S.W. Act provides that the Federal Court has and may exercise original and appellate jurisdiction with respect to State matters. The term ``State matter'' is defined as a matter in which the Supreme Court has jurisdiction otherwise than by reason of a law of the Commonwealth or of another State (my emphasis).

An action taken under subsec. 12A(2) of the Sales Tax Procedure Act, although in the nature of an action for moneys had and received, is within the original jurisdiction of the High Court under sec. 75(iii) of the Constitution. Subsection 39(1) of the Judiciary Act 1903 (Cth) provides that the jurisdiction of the High Court, so far as it is not exclusive of the jurisdiction of State courts under sec. 38, is exclusive of the jurisdiction of the State courts subject to sec. 39. Subsection 39(2) of the Judiciary Act invests the several courts of the States with federal jurisdiction in all matters in which the High Court has original jurisdiction, within the limits of the State Courts' jurisdictions as to locality, subject and matter, or otherwise. Support for the proposition that the source of the Supreme Court's jurisdiction under sec. 12A of the Sales Tax Procedure Act is subsec. 39(2) of the Judiciary Act is found in
Goward v. The Commonwealth (1957) 97 C.L.R. 355. In that case the High Court was concerned with sec. 20 of the Commonwealth Employees Compensation Act 1930 (Cth), which provided a right of appeal to a county court against a determination of a stipendiary magistrate exercising an authority arising under that section. The majority in the High Court (Dixon C.J., Williams, Webb, Kitto JJ.) referred to the purposes of sec. 39 of the Judiciary Act and to its ``basal character in matters concerning the federal jurisdiction of State courts'', and concluded that sec. 20 should be interpreted in connection with sec. 39 of the Judiciary Act and should be understood as enabling State courts to grant relief ``on the implied assumption that they will exercise federal jurisdiction as under sec. 39'' (at p. 361). Subsection 12A(2) of the Sales Tax Procedure Act assumes the existence of courts of competent jurisdiction, the Supreme Court being such a court of competent jurisdiction given the combined effect of sec. 75(iii) of the Constitution and subsec. 39(2) of the Judiciary Act. The Federal Court does not have this jurisdiction since subsec. 39(2) does not invest it with federal jurisdiction in all matters in which the High Court has original jurisdiction.

The Supreme Court therefore exercises jurisdiction by reason of a law of the Commonwealth, namely, subsec. 39(2) of the Judiciary Act. Hence, an action under subsec. 12A(2) of the Sales Tax Procedure Act is a matter in which the Supreme Court has jurisdiction by reason of a law of the Commonwealth and therefore is not a ``State matter'' within the meaning of that expression in subsec. 4(1) of the N.S.W. Act. The N.S.W. Act is therefore not a possible source of jurisdiction of the Federal Court to hear the present proceeding.

I would that the N.S.W. Act, so far as presently relevant, did not commence until 1

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ATC 4015

July 1988, after the proceedings had commenced in this Court and after the expiration of the period of six months mentioned in subsec. 12A(2) of the Sales Tax Procedure Act. This circumstance provides a further ground supporting the conclusion that the N.S.W. Act does not confer jurisdiction on the Federal Court in the present proceeding and the conclusion that this Court should not, even if it could, transfer the proceeding to the Supreme Court pursuant to sec. 5 of the N.S.W. Act.

If my judgment discloses a lacuna in the legislative schemes designed to avoid jurisdictional gaps as between Federal and State Courts, and prejudice to parties resulting where actions are commenced in a court lacking jurisdiction to determine the matter, then it is for the Commonwealth to remove that lacuna by legislation.

The motions succeed. The two proceedings are dismissed. The applicant must pay the respondent's costs of the motions and of the proceedings.