Brayson Motors Pty. Ltd. v. Federal Commissioner of Taxation.

Brennan J

High Court

Judgment date: Judgment handed down 18 March 1983.

Brennan J. (orally)

The plaintiff is a company carrying on business in Rockdale, a Sydney suburb. Its principal business is that of selling motor vehicles by retail. It also sells, by way of wholesale, spare parts and motor accessories for vehicles, being vehicles which it sells by retail. Being a wholesale merchant within the meaning of that term in

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sec. 3 of the Sales Tax Assessment Act (No. 1) 1930 (Cth.) (``the No. 1 Act''), it became a ``registered person'' under that Act.

The certificate of registration issued to it in accordance with reg. 7 of the Sales Tax Regulations states that the plaintiff's occupation is ``wholesaler of motor vehicle spare parts'' and that it ``is registered as a wholesale merchant under the Sales Tax Assessment Acts (Nos. 1-9)''. The final links in the chain of distribution of the motor vehicles which the plaintiff sells (whether those vehicles are manufactured in Australia or are imported into Australia) are described in para. 13 of the affidavit filed in these proceedings by Mr. Bray, a director of the plaintiff. He deposes:

``The circumstances surrounding the acquisition of all motor vehicles acquired by the plaintiff in the period referred to in para. 10 of this my affidavit are as follows:

  • (a) Robinsons Motors Wholesale Pty. Limited (hereinafter called `Wholesale') purchased such motor vehicles from either the importer of the said motor vehicles, or a registered wholesale merchant, who had previously purchased such motor vehicles from an importer. And, in all cases, upon purchase, quoted its certificate of registration.
  • (b) Such goods, upon acquisition by Wholesale, were made subject to a charge in favour of the plaintiff, in consideration of the advance by the plaintiff to Wholesale of a sum equivalent to a large proportion of the value of the goods.
  • (c) Wholesale sold the goods subject to the said charge to Ronald James Hopkins, a registered wholesale merchant, who quoted his certificate of registration as a wholesale merchant in the purchase.
  • (d) Ronald James Hopkins sold the goods, the subject of the said charge, to the plaintiff. Upon purchase, the debt arising under the charge in respect of the goods between Wholesale and the plaintiff was extinguished.
  • (e) The plaintiff, not being a registered person, or a person entitled to be registered in respect of goods, being motor vehicles, did not quote its certificate of registration on acquisition of such goods, from Ronald James Hopkins.''

On 16 February 1983 the defendant caused a notice in writing of assessments to sales tax to be given to the plaintiff. The assessments were made in purported exercise of the powers conferred by sec. 10(2A) of the Sales Tax Assessment Act (No. 3) 1930 (``the No. 3 Act'') and under sec. 10(2A) of the Sales Tax Assessment Act (No. 7) 1930 (``the No. 7 Act''). The amount of tax specified in the notice as assessed under the No. 3 Act (including additional tax) is $1,031,030.90. The amount of tax assessed under the No. 7 Act is $897,944.38. The date specified in the notice for the purpose of subsec. (4) of sec. 10 in the respective Acts is 2 March 1983.

On 14 March the plaintiff commenced proceedings claiming declarations that the defendant Commissioner has not, in relation to the sale by the plaintiff of motor vehicles, made or caused to be made any assessment under the No. 3 Act or under the No. 7 Act and that the notice of assessment does not notify to the plaintiff the amount of any sales tax payable by it under or in pursuance of either the No. 3 or No. 7 Act.

On 3 March the defendant gave a number of notices in writing to persons whom it believed to be debtors of the plaintiff requiring those persons respectively to pay the amount of their respective debts to the defendant. The notices were given in purported reliance upon sec. 38 of the No. 1 Act as applied by the No. 3 Act and the No. 7 Act. Those notices had, and are having, grave effects upon the conduct of the plaintiff's business. One notice was sent to the plaintiff's bank. The bank cancelled the plaintiff's overdraft facility and has since dishonoured a number of cheques presented for payment. Another notice was sent to the finance company with which the plaintiff deals. The finance company has refused to release new motor vehicles to the plaintiff until it is satisfied that it will be paid. Another notice was sent to a company which supplies spare parts to the plaintiff. That company has restricted credit to the plaintiff

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so that the plaintiff's ability to carry out warranty work on the vehicles sold by it has been gravely impaired.

The claim of $1,928,975.28 for sales tax, now known to many persons with whom the plaintiff has business relations, is continuing to harm the plaintiff's business and reputation. If the plaintiff be liable for the amount specified in the notice of assessment it is manifestly insolvent. Its balance sheet at 31 December 1982 shows a surplus of assets over liabilities of only $64,530. Its trading account for the six months ended 31 December 1982 shows gross sales of $3,944,830 and a trading profit of $494,672, yielding an operating profit of $18,475.

The plaintiff now seeks interlocutory relief to restrain the defendant from taking any action or otherwise relying upon the notice of assessment, and a mandatory order that the defendant withdraw forthwith each of the sec. 38 notices. It seeks further a mandatory order that the defendant serve upon the persons to whom the sec. 38 notices were given formal notice that the defendant does not, pending further order by this Court, require compliance with the sec. 38 notices and, finally, an order restraining the defendant from issuing any further sec. 38 notices.

The plaintiff's arguments as to its liability are twofold, though the arguments are in truth alternatives. First, that there is no sale value under either the No. 3 or the No. 7 Act because the taxpayer is not a registered person in respect of new motor vehicles; and, secondly, that if the plaintiff be a registered person in the relevant sense it would nevertheless be entitled in any event to a full refund of the tax assessed by reason of the provisions of reg. 48.

Upon the first argument the plaintiff focuses attention upon that element in sec. 3 and 4 in each of the No. 3 and No. 7 Acts which is expressed thus:

``... the sale value of goods... sold... shall be the amount for which those goods are sold by a registered person... to an unregistered person or to a registered person who has not quoted his certificate in respect of the purchase of those goods...''

The plaintiff, though it be a registered person, submits that it is a registered person only in respect of that part of its business which is the selling by wholesale of motor vehicle spare parts. The plaintiff points to what are submitted to be statutory indications that registration may be in respect of a particular business or perhaps a particular part of a business and submits that it is not a registered person in respect of the sale by retail of motor vehicles. If it is not relevantly a registered person then it is not liable to tax. So much is common ground. It is not for me to decide finally the validity of the plaintiff's submission, but it is necessary nevertheless to form a view as to the substantiality of the argument.

The starting point is the definition of ``registered person''. Registered person means ``a manufacturer or wholesale merchant who is registered under this Act''. ``Wholesale merchant'' means, inter alia, ``a person who engages whether exclusively or not in the sale of goods by wholesale''. Though these definitions do not on their face suggest that the same person may at once be a registered person for some purposes and not for others, it is submitted that an analysis of the scheme of the Acts reveals an intention by the Legislature that registration may be limited to a particular aspect of the business carried on. Reliance is placed upon the judgments in
D.F.C. of T. (S.A.) v. Ellis & Clark Ltd. (1934) 52 C.L.R. 85. In that case the ground upon which the taxpayer succeeded in denying liability to tax in respect of sales of secondhand goods was that the character of the goods as secondhand articles took the sale of those goods outside the net of taxation. The business of the company in that case was as seller of electrical goods, selling them by retail as well as by wholesale. It bought and resold secondhand goods as part of its business, the goods consisting of electrical motors and other articles.

Dixon J., as he then was, explained the plan of the legislation at p. 92:

``The whole plan of the legislation suggests that it is concerned only with the course of commercial dealing in goods between the time they first appear in Australia, either as a result of manufacture or importation, and the time when they are retailed. It takes them at the point of importation and manufacture

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and provides a scheme for following them to that point at which, in the actual course of commerce in the particular articles, they go into the retail market, and then, as nearly as possible, tax is imposed either upon the antecedent sale by wholesale or upon the immediately antecedent wholesale value which they possessed.''

His Honour explained the means by which the plan is put into effect by the legislation at pp. 89-90 of his judgment:

``Although the tax levied by the enactments is called a sales tax, it is not a tax upon all sales of commodities. It is a tax levied upon one only of the transactions which commonly take place in respect of goods before they reach the consumer after they are imported into or produced in Australia. It appears that it was not intended that the retail price of goods should be increased by the incorporation in it of more than one amount of tax. 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. To give effect to this policy, every person who engages, whether exclusively or not, in the sale of goods by wholesale is required to register. Upon registration, he becomes bound to keep proper books, make returns of his sales, and pay the tax. He receives a certificate bearing a number and this certificate he is bound to quote when he buys goods, unless, besides being a wholesale merchant, he is a retailer and he sells principally by retail. A sale to a person who quotes his certificate is not the subject of tax, and thus, if there be successive sales to wholesalers, the goods do not incur tax until the last wholesaler sells them to the retailer. Then an ad valorem duty is imposed on that sale, which presumably was considered likely to be at a price higher than the preceding sales. It was not the object of the legislation to levy the tax on sales by retail.''

And at p. 91, his Honour continued:

``To carry out the scheme for placing the tax as nearly as may be upon the sale of goods which immediately precedes retail distribution, for collecting and for avoiding double taxation, it is necessary that certificates shall always be quoted by registered persons on purchases which are not intended to bear tax, and never on transactions which are intended to bear tax. Accordingly, the Acts require that a registered person shall quote his certificate under the circumstances prescribed and not otherwise. The regulations, in prescribing those circumstances, proceed upon the basal principle that no one shall quote his certificate in respect of the purchase or importation of goods which are specifically intended to be sold by him by retail or immediately taken into stock for sale by retail, and no one who sells principally by retail shall quote his certificate in respect of the purchase or importation of goods by him, unless the goods are specifically intended to be sold by him by wholesale or treated immediately as stock for sale by wholesale, or for sale, as occasion requires, by wholesale or by retail...''

However, where the first retail purchaser is a registered person, and he resells by retail, his sale falls literally within sec. 3 and 4 of the No. 3 and No. 7 Acts being a sale by a registered person. In the scheme of the Acts, of course, that sale would not attract a tax if it were not for what his Honour called a fortuitous circumstance, namely, that the person who bought the goods for the purposes of resale happened also to be a manufacturer or wholesale merchant and therefore registered under the Acts. However, as his Honour said (at p. 93).

``If they do happen to be so registered, the exact words appear to apply in which tax is levied, in the case of goods manufactured in Australia, upon sales by persons other than the manufacturer or the purchaser from him, and, in the case of goods imported, upon sales by persons other than the importer.''

And so, at p. 94 of his judgment, his Honour observed that:

``The discrimination between taxable sales of secondhand goods and sales free of tax would depend not at all upon the character of the transaction, but upon the circumstances that the vendor happened to carry on another business or kind of

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transactions which necessitated his registration. In the scheme of the legislation, this is a purely accidental circumstance.''

What is significant for present purposes is that his Honour nowhere suggests that a sale by a registered person falling literally within sec. 3 and 4 does not attract prima facie a liability to tax.

Conformably with the scheme of the Acts, an immunity from double taxation where the sale of goods has earlier attracted a liability to tax is avoided by the provisions of sec. 26 of the No. 1 Act and reg. 48 and 49 relating to refunds. I do not perceive any indication in the judgments in Ellis & Clark or in the several Acts that liability to double taxation in respect of the sale of goods by retail by a registered person to a non-registered person is avoided by exempting those sales which are made in carrying on a business or a part of a business which is not the business or part that necessitated registration.

The plaintiff says, however, that even if this be so, it is entitled to a refund of tax under reg. 48, for the primary tax liability imposed by the Act was imposed upon the person who sold the goods to it - he being the person who, being a registered person, sold to the plaintiff and the plaintiff did not quote his certificate. That person is Mr. Ronald James Hopkins.

However, reg. 48(1)(b), the provision upon which the plaintiff here relies, is not shown by the affidavit to be applicable. Regulation 48(1)(b) provides that:

``(1) Subject to this Part, refunds or payments to prevent double taxation, as the case may be, may be made to a person -

  • ...
  • (b) who, in respect of some act, operation or transaction in relation to any goods, becomes liable to pay tax on a sale value of those goods and who has purchased those goods at a price which includes tax which some other person has paid or is liable to pay, upon a sale value of those goods, in respect of some prior act, operation or transaction in relation to those goods;''

The affidavit fails to disclose that the plaintiff purchased the goods ``at a price which includes tax which some other person has paid or is liable to pay''. Although counsel for the Commissioner drew attention to this requirement no attempt was made to supplement the affidavit to show that Mr. Hopkins had paid the relevant tax or to show that the price on the sale from him to the plaintiff included the tax which Mr. Hopkins had paid or is liable to pay. If the price at which the plaintiff bought these vehicles did not include the tax which Mr. Hopkins either paid or is liable to pay, then no tax has been paid on any of the sales of motor vehicles in the chain described in para. 13 of Mr. Bray's affidavit.

Of course these questions are not presently to be finally determined. It is sufficient for the plaintiff's purposes if he can show a sufficient case on the merits to warrant the grant of the interim relief which he seeks. That relief, however, involves the intervention by the Court to sterilise powers which Parliament has chosen to repose in the Commissioner for the recovery of tax due.

A factor which is material to this question is the prospect of the Commissioner recovering the tax which is due if, in the result, the Court should hold in his favour. In Peter Williamson Pty. Ltd. v. National Bank of Australasia Ltd. & F.C. of T., the position of the Commissioner was in part secured by an undertaking by a director of the company, together with an undertaking of the company itself, to pay to the Commissioner any damages which the Commissioner might sustain by reason of the injunction therein granted, and which the Court or a Justice thereafter might think in the circumstances to be just. In the present case, the plaintiff is prepared to give the usual undertaking as to damages, and Mr. Bray, a director of the company, is prepared to undertake as follows:

``(1) That he will not cause the company to take any action other than in the ordinary course of business that would cause the net tangible assets to be reduced below those prevailing at the date hereof.

(2) That no amount due to the plaintiff the subject of notices presently issued will be called up unless the plaintiff first gives 14 days' notice to the defendant.

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(3) That if any payment be made pursuant to such notices to the plaintiff such payment will be made directly by the plaintiff to the Commissioner.''

The company is also prepared to give an undertaking in the terms of the third paragraph. Those undertakings are not acceptable to the Commissioner. In my view they are insufficient in the present circumstances to warrant intervention by this Court.

If the Commissioner is entitled to the amounts claimed in the notice of assessment, the prospect of the company meeting its liabilities to the Commissioner are small indeed. Mr. Bray's undertaking to preserve the status quo when the company's commercial activities are liable to be affected by knowledge of the claim made by the Commissioner is insufficient to preserve the prospects of the Commissioner's recovery. To intervene necessarily involves exposing the Commissioner to a loss of such benefit as he may obtain under the sec. 38 notices. The prospect of his loss, of course, is substantial. Equally, it may be said that the prospect of non-intervention exposes the company to severe losses.

In this case, the rights which the plaintiff seeks to assert are its immunity from the liability sought to be imposed and, consequently, its ability to continue to carry on business.

The rights which the Commissioner seeks to assert are the rights to recover by sec. 38 procedure a proportion of the alleged tax liability of the plaintiff. To refuse injunctive relief, in practical terms, spells the end of the plaintiff's business. To grant injunctive relief, in practical terms, diminishes the prospect of recovery by the Commissioner.

In this situation, the strength of the case made by the plaintiff on this application is the chief factor for consideration, for that determines which claim to legal rights is more likely to be unjustly defeated - either by refusing or by granting the injunction, as the case may be.

In my view, the plaintiff has failed to show a case of sufficient strength to warrant intervention. I therefore dismiss the application.

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