VALE PRESS PTY LIMITED v DFC of T

Judges:
Jenkinson J
Wilcox J
von Doussa J

Court:
Full Federal Court

Judgment date: Judgment handed down 19 February 1992

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Jenkinson, Wilcox and von Doussa JJ

This appeal questions the constitutional validity of s. 18(1)(b) of the Sales Tax Assessment Act (No. 1) 1930. The matter comes before the Court by way of an application under the Administrative Decisions (Judicial Review) Act 1977.

Arguing that s. 18(1)(b) was invalid, the appellant, Vale Press Pty Limited, requested the respondent, the Deputy Commissioner of Taxation, to dispense with a requirement for its registration under s. 11 of the Act. The respondent refused, whereupon the appellant sought review. The matter came before Gummow J who held that s. 18(1)(b) was valid. He dismissed the application.

We agree with the decision of Gummow J and with his reasons. We do not think that it is necessary to repeat, or even to summarise, those reasons. The observations which follow arise

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ATC 4108

out of the argument before us. They are not inconsistent with his Honour's expressed views.

Section 18(1)(b), as amended in 1988, reads:

``18(1) Subject to sub-sections (1B), (1C) and (4A), where goods (other than goods treated by a manufacturer as stock for sale by retail) have been sold by the manufacturer to an unregistered person or to a registered person who has not quoted his certificate in respect of the sale, the sale value of the goods, for the purposes of this Act, is-

• (a) if the goods were sold by wholesale - the amount for which the goods were sold; or
• (b) if the goods were sold by retail - the amount for which the goods could reasonably be expected to have been sold by the manufacturer by wholesale.''

It will be seen that para. (b) requires the making of an estimate. Although the paragraph applies only to goods in fact sold by a manufacturer by retail, sales tax is to be calculated by reference to ``the amount for which the goods could reasonably be expected to have been sold by the manufacturer by wholesale''. The contention of the appellant is that the paragraph postulates a hypothetical situation under which a figure must be selected which is necessarily not based on facts, so that the result is nothing more than a guess. Counsel say that the paragraph involves the creation of a ``statutory fiction'', namely that there was a wholesale sale, and that this is an impermissible basis for a tax.

We do not think that it is correct to say that the paragraph imposes the fiction of a wholesale sale. On the contrary, the paragraph recognises that the relevant goods were in fact sold by retail; but it requires the estimation of the amount for which they might reasonably be expected to have been sold, if sold by wholesale.

To be valid, a tax must not be arbitrary or incontestable. This was made clear by Gibbs CJ, Wilson, Deane and Dawson JJ in
MacCormick v FC of T 84 ATC 4230 at p. 4237; (1983-1984) 158 CLR 622 at pp. 640-641:

``For an impost to satisfy the description of a tax it must be possible to differentiate it from an arbitrary exaction and this can only be done by reference to the criteria by which liability to pay the tax is imposed. Not only must it be possible to point to the criteria themselves, but it must be possible to show that the way in which they are applied does not involve the imposition of liability in an arbitrary or capricious manner. In
Giris Pty. Ltd. v. F.C. of T. 69 ATC 4015 at pp. 4021-4022; (1969) 119 C.L.R. 365 at pp. 378-379, Kitto J. pointed out that the expression `incontestable tax' in the sense in which it is used in Hankin and Brown:

`... refers to a tax provided for by a law which, while making the taxpayer's liability depend upon specified criteria, purports to deny him all right to resist an assessment by proving in the Courts that the criteria of liability were not satisfied in his case.'

The purported tax is thereby converted to an impost which is made payable regardless of whether the circumstances of the case satisfy the criteria relied upon for characterization of the impost as a tax and for characterization of the law which imposes it as a law with respect to taxation. Such an incontestable impost is not a tax in the constitutional sense and a law imposing such an impost is not a law with respect to taxation within sec. 51(ii). It is in this sense that an incontestable tax is invalid.''

The majority Justices in MacCormick used the word ``arbitrary'' to describe a tax which failed to meet the requirement that ``(l)iability is imposed by reference to criteria which are sufficiently general in their application and which mark out the objects and subject-matter of the tax''. Even a tax which depends upon the formation of an opinion, is not to be condemned as arbitrary, provided that the opinion is made to depend upon statutory criteria: see
Giris Pty Limited v FC of T 69 ATC 4015; (1969) 15 A.T.D. 235; (1968-1969) 119 CLR 365. Nor is ``arbitrary'' synonymous, in this context, with ``harsh'' or ``unreasonable''. In
DFC of T v Truhold Benefit Pty Ltd 85 ATC 4298; (1985) 158 CLR 678 Gibbs CJ, Mason, Wilson, Deane and Dawson JJ said at ATC 4301; CLR 684:

``In MacCormick... it was held that the recoupment tax, for which the Act provides, answers the usual description of a tax. Amongst the characteristics which were said by the majority to bring it within that description was the fact that the tax is not arbitrary. See ATC pp. 4235-4236; A.L.J.R.

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ATC 4109

p. 273; A.L.R. p. 63. This was, as the relevant passage shows, a reference to the fact that liability can only be imposed by reference to ascertainable criteria with a sufficiently general application and that the tax cannot lawfully be imposed as a result of some administrative decision based upon individual preference unrelated to any test laid down by the legislation. To say that a tax may not be arbitrary in that sense does not, of course, preclude the pejorative description of a tax as arbitrary in the sense that the criteria which are laid down for its application give it a harsh or unreasonable incidence with regard to either its subject- matter or objects. To describe a tax as arbitrary in the latter sense is to do so in a manner which does not go to its validity.''

Contrary to the appellant's submission, the exercise required by s. 18(1)(b) is not the making of a mere guess. It is the making of an estimate as to the amount at which particular goods might have been sold by wholesale, as at the date of the retail sale. It is true that, ex hypothesi, the goods were not in fact sold by wholesale. But that does not mean that there are no facts by reference to which an estimate may be made. Like goods may have been wholesaled at about the same time, in which case their prices may afford assistance. It may be expected that information will be available as to the costs of manufacturing and selling the goods and the wholesale profit usually sought in the relevant industry.

We do not doubt that differences will sometimes arise between taxpayers and the Commissioner as to amounts which should be determined for the purposes of para. (b); see the comments made by single members of this Court in relation to analogous challenges to other provisions of the Sales Tax Assessment Act (No. 1) in
Estee Lauder Pty Limited v FC of T 88 ATC 4412 at 4414 and
Boxvale Holdings Pty Limited v FC of T 89 ATC 4927 at 4930-4931. But the fact that a particular estimate is open to dispute does not mean that it is ``arbitrary'' in the relevant sense. It remains a figure to be fixed by reference to ascertainable criteria. It is not dependent upon unspecified subjective factors.

During the course of their submissions, counsel for the appellant complained that the Commissioner had approached s. 18(1)(b) by publishing a ruling setting out two possible methods of carrying out the task it required. The proper course, counsel claimed, was for a regulation to be made under s. 18(5A) covering the relevant goods (printed goods). This was the course taken in relation to clothing and certain photographs: see reg. 26.

This complaint has nothing to do with the issue before us, but we comment that it seems a strange one for a taxpayer to make. If a regulation was made fixing a wholesale value, relevant taxpayers would be bound by that value, however unrealistic it might be. In the manner in which the matter has in fact been approached, taxpayers have the benefit of the Commissioner's thinking as to the methods by which the calculation may be made; but, as the ruling has no statutory force, they remain free to contest before the Administrative Appeals Tribunal both the appropriateness of those methods and their manner of application in the particular case.

The appeal should be dismissed with costs.

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant pay to the respondent his costs of the appeal.