CAPITAL DUPLICATORS PTY LIMITED & ANOR v AUSTRALIAN CAPITAL TERRITORY & ANOR (NO 2)

Judges:
Mason CJ
Brennan J
Deane J
Dawson J
Toohey J
Gaudron J
McHugh J

Court:
Full High Court

Judgment date: Judgment handed down 7 December 1993

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Mason CJ, Brennan, Deane and McHugh JJ

In its earlier decision ^[1] Capital Duplicators Pty. Ltd. v. Australian Capital Territory (1992) 177 C.L.R. 248 . in these proceedings, the Court held that Ch. IV of the Constitution precluded the Legislative Assembly of the Australian Capital Territory from imposing duties of excise within the meaning of s. 90 of the Constitution. Following that decision, the Chief Justice reserved for the consideration of the Full Court pursuant to s. 18 of the Judiciary Act 1903 (Cth) the following questions:

• (1) Are any, and if so which, of the provisions of the Business Franchise (``X'' Videos) Act 1990 (A.C.T.) invalid as imposing, in any respect, either a duty of excise or a duty of customs or both within the meaning of s. 90 of the Commonwealth Constitution?
• (2) Are any, and if so which, of the provisions of that Act invalid under the Australian Capital Territory (Self- Government) Act 1988 (Cth) as being a law with respect to a ``classification of materials for the purposes of censorship''?
• (3) If the answer to any part of questions (1) or (2) is ``yes'', are any, and if so which, further provisions of that Act incapable of being severed from those provisions and therefore invalid?

The plaintiffs' challenge is to the validity of the Business Franchise (``X'' Videos) Act 1990 (A.C.T.) (``the Act'') before it was amended on 1 April 1993. Before that date each of the plaintiffs went into liquidation and ceased to trade.

The arguments of the parties

The plaintiffs submit that the reasoning of the majority in Philip Morris Ltd. v. Commissioner of Business Franchises (Vict.) ^[2] Philip Morris Ltd v Commissioner of Business Franchises (Vict) (1989) 167 C.L.R. 399 . supports the conclusion that the licence fees imposed by the Act are duties of excise. In that case, the statutory provisions which imposed a licence fee upon the issue of a retail tobacconist's licence were held by a majority to be relevantly indistinguishable from the Tasmanian provisions held to be valid in Dickenson's Arcade Pty. Ltd. v. Tasmania ^[3] Dickenson's Arcade Pty Ltd v Tasmania (1973-1974) 130 C.L.R. 177 . where the Court followed its earlier decision in Dennis Hotels Pty. Ltd. v. Victoria ^[4] Dennis Hotels Pty Ltd v Victoria (1959-1960) 104 C.L.R. 529 (where the victualler's licence fee, calculated by reference to sales of liquor in a period anterior to the term of the licence, was held not to be an excise, whereas the temporary licence fee, calculated by reference to sales during the term of the licence, was held to be an excise). . In Philip Morris , the Court rejected, as it had done on earlier occasions, an argument that the decisions in Dennis Hotels , Dickenson's Arcade and H.C. Sleigh Ltd. v. South Australia ^[5] HC Sleigh Ltd v South Australia (1976-1977) 136 C.L.R. 475 . should be overruled. The reasons given by the members of the Court in their judgments for rejecting that argument were divergent and it will be necessary to refer to them later in these reasons. The plaintiffs' case is that, despite the

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difference in the reasoning in Philip Morris , there was a majority (Mason C.J. and Deane J., Brennan J. and McHugh J.) for acceptance of the proposition, based upon the unanimous decision in Bolton v. Madsen ^[6] Bolton v Madsen (1963) 110 C.L.R. 264 . , that a tax directly related to goods imposed at some step in their production or distribution before they reach consumers is an excise. Hence the plaintiffs rely upon the reasoning of four Justices in Philip Morris and oppose a reconsideration of Dennis Hotels and Dickenson's Arcade , having regard to the way in which, so the plaintiffs argue, those decisions were explained by those Justices in Philip Morris . The plaintiffs also contend that, if the Court were to hold that the licence fees in the present case are not an excise because the Act is regulatory in its nature by reason of seeking to exercise some control over the sale or use of pornographic and violent videos, then the Act is primarily concerned with censorship and must be characterized as a law ``with respect to... the classification of materials for the purposes of censorship'' and is, accordingly, beyond the legislative powers conferred upon the Legislative Assembly of the first defendant, the Australian Capital Territory (``the Territory''). Section 23 of the Australian Capital Territory (Self-Government) Act 1988 (Cth) excludes from the legislative competence of the Assembly:

``power to make laws with respect to:

• ...
• (g) the classification of materials for the purposes of censorship.''

The Territory, on the other hand, submits that the Court should reconsider not only the decisions in Dennis Hotels and Dickenson's Arcade , but also the interpretation of s. 90 generally and adopt a narrow definition of the expression ``duties of excise'' in that section. Such a definition, so the argument runs, should reflect the meaning of the expression as it was understood in Australia at the end of the nineteenth century. According to the Territory, that meaning was a duty imposed upon the producer or the manufacturer of goods in the jurisdiction in which the duty is imposed, such a duty being imposed by reason of, or by reference to, the production or manufacture of the goods. This definition is similar to that adopted by the Court in Peterswald v. Bartley <sup>[7]</sup> Peterswald v Bartley (1904) 1 C.L.R. 497 . , the first decision on s. 90. There the Court described an excise as <sup>[8]</sup> ibid., at p. 509; see also at p. 512 (where the Court referred to an excise as ``limited to taxes imposed upon goods in process of manufacture''). :

``a duty analogous to a customs duty imposed upon goods either in relation to quantity or value when produced or manufactured, and not in the sense of a direct tax or personal tax.''

The definition for which the Territory argues differs from the Peterswald definition in that the latter insists on a relationship between the duty and the quantity or value of the goods; the former does not. On both the Territory definition and the Peterswald definition, a tax on a step in the course of distribution of goods after production is not an excise, so long as the liability to pay the tax does not depend upon the fact that the goods are locally produced.

South Australia, which is an intervener, supports the argument presented by the Territory, subject to the qualification that an excise is a tax on production or manufacture in Australia . The difference between the proposition contended for by South Australia and that put forward by the Territory is not significant for the purposes of this case. The primary argument of the other intervening States is that the Court should not reconsider Dennis Hotels and Dickenson's Arcade . This argument stems from an acceptance of the practical consequence of those decisions, namely, that the States can, consistently with s. 90, validly impose licence fees on the vendors of liquor and tobacco. The Commonwealth, too, supported the argument that the decisions in Dennis Hotels and Dickenson's Arcade should stand, but only as limited exceptions to the general rule that an excise is any tax which is, in substance, a tax on goods.

The case for reconsideration of the earlier decisions

The principal argument in favour of a reconsideration of the interpretation of s. 90 and Dennis Hotels and Dickenson's Arcade is that there is no judicial consensus as to the meaning or application of the expression ``duties of excise'' in s. 90. Moreover, there has been disagreement over the question whether the different outcomes in Dennis Hotels apply to producers as distinct from distributors <sup>[9]</sup> Gosford Meats Pty. Ltd. v. New South Wales (1984-1985) 155 C.L.R. 368 , per Gibbs C.J. at p. 380; Mason and Deane JJ. at pp. 384-385; Brennan J. at pp. 409-410 ; Philip Morris (1989) 167 C.L.R., per Brennan J. at pp. 455-458; Dawson J. at p. 475. . Furthermore, as the judgments in Philip Morris establish, the Court has experienced difficulty in reconciling the decisions in Dennis Hotels , Dickenson's Arcade and H.C. Sleigh (the so- called ``franchise cases'') with the fundamental proposition that was unanimously accepted in Bolton v. Madsen that ``taxes directly related to

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goods imposed at some step in their production or distribution before they reach the hands of consumers'' are duties of excise ^[10] (1963) 110 C.L.R., at p. 271. . That proposition was contrasted with ``a tax which has no closer connexion with production or distribution than that it is exacted for the privilege of engaging in the process at all'' ^[11] Dennis Hotels (1960) 104 C.L.R., per Kitto J. at p. 560; see Bolton v. Madsen (1963) 110 C.L.R., at p. 271. . The distinction between a duty of excise under the Bolton v. Madsen proposition and a licence fee which is no more than a fee charged for the privilege of engaging in the relevant activity is a question which has constantly arisen for decision. So, in the view of Kitto J., the imposition of a sales tax, such that a liability for the tax arises every time a sale of liquor is made under a licence, would be an excise because the exaction would not be in respect of the business generally but in respect of a particular act done in the course of the business ^[12] Dennis Hotels (1960) 104 C.L.R., at p. 563. . Conversely, in the view of Kitto J., where the licence fee is exacted only in respect of the business generally and not in respect of any particular acts done in the course of the business, the fee is not a duty of excise although it is calculated by reference to sales made during a period before the commencement of the licence.

In Bolton v. Madsen and Dennis Hotels the character of an impost on goods, whether a duty of excise or a licence fee exacted only in respect of the business generally, was determined by reference solely to the terms of the relevant legislation. By construing the legislation, the characteristic ``criterion of liability'' was identified. The criterion of liability was the means by which it was ascertained whether an exaction was a tax ``directly related to goods imposed at some step in their production or distribution before they reach the hands of consumers''.

Subsequent cases have rejected both this application of the criterion of liability ^[13] Anderson's Pty. Ltd. v. Victoria (1964) 111 C.L.R. 353 , at pp. 365-366 ; Western Australia v. Chamberlain Industries Pty. Ltd. (1969-1970) 121 C.L.R. 1 , at pp. 13-17 ; Victoria v. I.A.C. (Wholesale) Pty. Ltd. (1969-1970) 121 C.L.R. 1 ; Logan Downs Pty. Ltd. v. Queensland (1976-1977) 137 C.L.R. 59 , at pp. 76-77 ; H.C. Sleigh (1976-1977) 136 C.L.R., at p. 499; Hematite Petroleum Pty. Ltd. v. Victoria (1982-1983) 151 C.L.R. 599 , at pp. 633, 658-659, 663-664 ; Gosford Meats (1984-1985) 155 C.L.R., at pp. 383-384, 406. and, as McHugh J. explained in Philip Morris ^[14] (1989) 167 C.L.R., at pp. 491-492. , the proposition that it is the exclusive determinant of the question whether an exaction is an excise. Instead, in determining whether an exaction is or is not an excise, the Court has regard to matters of substance rather than form ^[15] ibid., per Mason C.J. and Deane J. at pp. 433-436; Brennan J. at pp. 449-450; McHugh J. at p. 492. . That approach, which looks to the practical or substantial operation of the statute as well as to its legal operation, requires that a variety of factors be taken into account ^[16] ``The `indirectness' of the tax, its immediate entry into the cost of the goods, the proximity of the transaction it taxes to the manufacture or production or movement of the goods into consumption, the form and content of the legislation imposing the tax — all these are included in the relevant considerations.'': Anderson's Pty. Ltd. v. Victoria (1964) 111 C.L.R., per Barwick C.J. at p. 365. . The rejection of the criterion of liability as an exclusive test has not disturbed general acceptance of the proposition that a tax in respect of goods at any step in the production or distribution to the point of consumption is an excise. That is the fundamental proposition for which Bolton v. Madsen stands as authority, subject only to the qualification that it speaks of taxes ``directly related to goods''.

As Mr Jackson Q.C. for the Territory points out, before the decision in Philip Morris , disagreement over the criterion of liability reflected the controversy which arose in relation to the characterization of a law for the purpose of determining whether it contravened s. 92 of the Constitution and, in resolving that controversy, the Court, in Cole v. Whitfield ^[17] Cole v Whitfield (1987-1988) 165 C.L.R. 360 . , decided that it would reconsider the interpretation of that contentious section. In the course of its reconsideration, the Court adopted an interpretation of the section, based partly on historical considerations, which gave effect to what was thought to be the intention of the framers of the Constitution. The defendants submit that the Court should now adopt a similar approach to the construction of s. 90 and embrace an interpretation of the expression ``duties of excise'' which gives effect to the meaning of that expression as it was understood when the Constitution was brought into existence.

Although the case for reopening the decisions in Dennis Hotels and Dickenson's Arcade is based very largely on the argument that the interpretation of the section should be reconsidered comprehensively with a view to returning to a narrow definition similar to the Peterswald definition of ``duties of excise'', it is convenient to deal with the two contentions separately.

Reconsideration of the wider interpretation of the section

The variety of views which have been expounded about the meaning of ``duties of excise'' since Peterswald and the shifts in judicial opinion with respect to s. 90 reflect the fact that the critical words of the section had no clearly established meaning when the Constitution was brought into existence ^[18] Quick and Garran, The Annotated Constitution of the Australian Commonwealth , (1901), pp. 837-838. See also Matthews v. Chicory Marketing Board (Vict.) (1938) 60 C.L.R. 263 , per Dixon J. at p. 293 ; Dickenson's Arcade (1973-1974) 130 C.L.R., per Stephen J. at p. 230; Philip Morris (1989) 167 C.L.R., per Mason C.J. and Deane J. at p. 425. . In an attempt to fill the void created by the absence of a clearly established meaning, judges have sought to find elucidation in the relationship of the section with other provisions of the Constitution and with the purpose which the section is thought to serve.

Thus, the Territory and South Australia assert that the immediate purpose of s. 90 was to

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prevent States from imposing duties on producers or granting bounties on the production or export of goods. The broader purpose was to give the Commonwealth control over tariff policy and to ensure equality of trade between the States. Control over tariff policy enables the Commonwealth to decide what differential, if any, there will be on the local as compared with the imported product. Support for this identification of the purpose of the section is said to be provided by the circumstance that certain sections of the Constitution indicate that excise duties are closely linked to customs duties and production of goods ^[19] ss. 51(iii), 55, 86, 87, 90, 91, 92, 93. . Thus, it is suggested that, just as duties of customs relate to duties imposed upon goods imported into the community, so duties of excise relate to goods produced or manufactured within that community.

Of the sections falling into this category, s. 93, with its reference to ``duties of excise paid on goods produced or manufactured in a State'', is consistent with the view that the necessary relation between the taxpayer and the goods is that ``the taxpayer is taxed by reason of, and by reference to, his production or manufacture of goods'' ^[20] Dennis Hotels (1959-1960) 104 C.L.R., per Fullagar J. at p. 555. .

On the other hand, ss. 90 and 92, taken together with the safeguards against Commonwealth discrimination in s. 51(ii) and (iii) and s. 88, created a Commonwealth economic union, not an association of States each with its own separate economy ^[21] Philip Morris (1989) 167 C.L.R., at p. 426. . Section 92 of the Constitution ensured that the domestic market of each State be opened equally to goods from interstate and goods of local production or manufacture ^[22] Cole v. Whitfield (1987-1988) 165 C.L.R., at p. 391. , but that would not have been sufficient by itself to create a Commonwealth economic union. Differential taxes on goods, if permitted, could have distorted local markets within the Commonwealth. That possibility was averted by ss. 51(ii) and (iii), 86, 88, 90 and 92 of the Constitution which created a single legislative authority to impose taxes on goods and to grant bounties and required those powers to be exercised uniformly. Sections 90 and 92 of the Constitution both came into operation when uniform duties of customs were imposed by the Commonwealth. The constitutional contemporaneity of those events together with the provisions of s. 51(ii) and (iii) show that the customs and excise imposts to be paid to government in respect of particular goods and the bounties to be paid by government on particular goods were to be uniform throughout the Commonwealth ^[23] As Deane J. observed in Hematite Petroleum (1982-1983) 151 C.L.R., at p. 660. . The purpose is not difficult to detect. It was to ensure that differential taxes on goods and differential bonuses on the production or export of goods should not divert trade or distort competition. Of course, trade and competition are affected by a variety of factors but the imposition of a tax on goods is a particular way by which a government may attract or discourage trade and distort competition. If taxes on the distribution of goods were excluded from the operation of s. 90, the purpose which uniformity of customs, excise and bounties was intended to achieve would be prejudiced and the Parliament would not have effective control over economic policy affecting the supply and price of goods throughout the Commonwealth. So it was that Dixon J. observed in Parton v. Milk Board (Vict.) that ^[24] Parton v Milk Board (Vict) (1949) 80 C.L.R. 229 , at p. 260 . :

``[s. 90] was intended to give the Parliament a real control of the taxation of commodities and to ensure that the execution of whatever policy it adopted should not be hampered or defeated by State action. A tax upon a commodity at any point in the course of distribution before it reaches the consumer produces the same effect as a tax upon its manufacture or production.''

The purpose attributed to s. 90 by Dixon J. and the similarity in effect of a tax on manufacture or production and a tax on distribution which he identified undermined the Peterswald view that an excise was a tax on manufacture or production and did not include a tax on mere sale or distribution ^[25] Philip Morris (1989) 167 C.L.R., per McHugh J. at p. 489. . A tax on distribution, like a tax on production or manufacture, has a natural tendency to be passed on to purchasers down the line of distribution and thus to increase the price of, and to depress the demand for, the goods on which the tax is imposed. As Dixon J. noted ^[26] Parton (1949) 80 C.L.R., at p. 260. , if:

``the exclusive power of the Commonwealth with respect to excise did not go past manufacture and production it would with respect to many commodities have only a formal significance.''

In essence, his Honour's view of s. 90 rested on the proposition that the grant of exclusive power to the Commonwealth was intended to achieve a high constitutional purpose and that the prohibition against the exaction of excise

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duties by the States was not merely a formal prohibition lending itself ``to evasion by easy subterfuges and the adoption of unreal distinctions'' <sup>[27]</sup> Matthews v. Chicory Marketing Board (Vict.) (1938) 60 C.L.R., at p. 304. . In Capital Duplicators [ No. 1 ] <sup>[28]</sup> (1992) 177 C.L.R., at pp. 277-278. , Brennan, Deane and Toohey JJ. saw s. 90 as ``a necessary part of the constitutional mechanism for achieving an essential objective of the federal compact: the creation and maintenance of a free trade area throughout the Commonwealth and uniformity in duties of customs and excise and in bounties''. The exercise by the Parliament of exclusive power with respect to both customs and excise duties enables it to protect and stimulate home production by fixing appropriate levels of customs and excise duties or to lower the level of domestic prices of imported goods by decreasing the level of customs duties and, by so doing, to put pressure on Australian producers to become more competitive ^[29] Hematite Petroleum (1982-1983) 151 C.L.R., per Mason J. at p. 631. . No doubt the States could, by the exercise of some of their legislative powers (e.g., by fixing quotas for production) hinder the attainment of those objects. That possibility is no reason for denying that s. 90 serves a broad constitutional purpose.

In conformity with that view of s. 90, the Court decided in Parton that a purported levy on ``dairymen'' who were not dairy farmers who produced milk, calculated by reference to the quantity of milk sold or distributed, was a duty of excise. Parton is inconsistent with the interpretation for which the defendants and South Australia contend and it is a decision which has not been overruled or qualified by subsequent decisions. More importantly, ever since Parton , it has been accepted in the subsequent cases that the exaction of a tax, whether called a licence fee or not, on the sale or distribution of goods by a person other than the manufacturer of the goods will or may constitute an excise ^[30] Dennis Hotels (the decision on the temporary victualler's licence); Western Australia v. Chamberlain Industries Pty. Ltd. ; Victoria v. I.A.C. (Wholesale) Pty. Ltd. (1969-1970) 121 C.L.R., at pp. 43-44. . As mentioned earlier, in Bolton v. Madsen it was decided unanimously that a tax on the taking of a step in the process of the production or distribution of goods before they reach consumers is an excise. Acceptance of either of the interpretations put forward by the Territory and South Australia would require the Court to overrule no less than five previous decisions ^[31] Parton ; Dennis Hotels ; Dickenson's Arcade ; Western Australia v. Hamersley Iron Pty. Ltd. [No. 1] (1969) 120 C.L.R. 42 ; and Western Australia v. Chamberlain Industries Pty. Ltd. .

Indeed, since Parton , there has been little support for the view that an excise is confined to a tax on, or by reference to, the local production or manufacture of goods. In Dennis Hotels , Fullagar J. was alone in expressing that opinion ^[32] (1959-1960) 104 C.L.R., at pp. 555-556. . Murphy J. again was alone in stating a similar view in Logan Downs Pty. Ltd. v. Queensland ^[33] (1976-1977) 137 C.L.R., at pp. 84-85; see also H.C. Sleigh (1976-1977) 136 C.L.R., at pp. 526-527; Hematite Petroleum (1982-1983) 151 C.L.R., at p. 638; Gosford Meats (1984-1985) 155 C.L.R., at pp. 387-388. . And, more recently, Toohey and Gaudron JJ. expressed the same opinion in Philip Morris ^[34] (1989) 167 C.L.R., at pp. 478-480. . But that is the only support for the narrow view of ``duties of excise'' that has been expressed in all the cases since Parton .

Ranged against these expressions favouring a return to a narrow definition of excise is the very substantial weight of judicial opinion since Parton . It would be a tedious and unproductive exercise to refer to all the cases. It will be enough to mention what has been said in the three most recent cases in which the question has been discussed. In Hematite Petroleum , only Murphy J. supported the Peterswald definition ^[35] (1982-1983) 151 C.L.R., at p. 638. . Gibbs C.J ^[36] ibid., at p. 615. . accepted the proposition that a duty of excise ``is a tax directly related to goods imposed at some step in their production or distribution before they reach the hands of the consumer''. Wilson J. also accepted the Bolton v. Madsen formula, although both Gibbs C.J. and Wilson J. <sup>[37]</sup> ibid., per Gibbs C.J. at pp. 620-622; Wilson J. at pp. 644-646. adhered to the criterion of liability approach enunciated in that case. Mason and Deane JJ. <sup>[38]</sup> ibid., per Mason J. at p. 631 (referring to the judgment of Dixon J. in Parton ); Deane J. at pp. 664-665 (referring to the judgment of Dixon J. in Matthews v. Chicory Marketing Board (Vict.) ). expressed their agreement with the approach taken by Dixon J., the approach which was later followed by Barwick C.J. in Western Australia v. Chamberlain Industries Pty. Ltd. <sup>[39]</sup> (1969-1970) 121 C.L.R., at p. 17. Brennan J. <sup>[40]</sup> (1982-1983) 151 C.L.R., at p. 657. considered that a tax is a duty of excise if it is a tax, however calculated, upon a step in the process of production, manufacture or distribution . Likewise, in Gosford Meats Pty. Ltd. v. New South Wales <sup>[41]</sup> (1984-1985) 155 C.L.R., at pp. 387-388. , Murphy J. was once more alone in adhering to the Peterswald definition. Gibbs C.J. <sup>[42]</sup> ibid., at pp. 377-378. perceived an almost unanimous line of authority (Murphy J. excepted) for the conclusion that an impost ``cannot be an excise unless it is a tax upon, or in respect of, a step in the production, manufacture, sale or distribution of goods''. Mason and Deane JJ. ^[43] ibid., at pp. 384-385. reiterated the view that they had expressed in Hematite Petroleum . Wilson J. ^[44] ibid., at p. 399. noted that it had ``never been suggested that an essential element in the diagnosis of an excise is the perception that an impost imposed upon the sale of a commodity thereby burdens the manufacture of that commodity''. Brennan J. <sup>[45]</sup> ibid., at pp. 404, 407. took the view that he had earlier taken in Hematite Petroleum . Dawson J. <sup>[46]</sup> ibid., at p. 416. accepted that a duty of excise must be a ``tax imposed upon the taking of some step in the production, manufacture or distribution

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of goods''. However, Gibbs C.J. and Wilson J. continued to subscribe to the criterion of liability ^[47] ibid, per Gibbs C.J. at pp. 377-378, though Wilson J., for the purposes of the argument, was prepared to approach the question on the basis of the criterion of liability ``viewed as a matter of substance'': at p. 400. , an approach in which Dawson J. joined ^[48] ibid., at pp. 415-416. .

In Philip Morris , Toohey and Gaudron JJ. stated their preference for a narrow definition confining the prohibition in s. 90 to the imposition of duties by a State (or Territory) on goods produced or manufactured in that State (or Territory), although they concluded, on the weight of authority, that s. 90 prohibited the imposition by a State (or Territory) of duties on goods manufactured or produced in Australia ^[49] (1989) 167 C.L.R., at pp. 479-480. . However, their Honours omitted the Peterswald requirement that there should be a relationship between the duty and the quantity or value of the goods manufactured or produced ^[50] ibid., at p. 479. . No other member of the Court shared their Honours' limited view of an excise duty. Dawson J. was alone in continuing to subscribe to the criterion of liability as an exclusive determinant of what is or is not an excise, though his passing reference to the Peterswald definition suggested that he might embrace it if he were not constrained by authority from so doing ^[51] ibid., at pp. 473-474. . His Honour did not express agreement with the qualification of that definition stated by Toohey and Gaudron JJ. Mason C.J. and Deane J. held to the broad view of excise duty ^[52] ibid., at pp. 429-431. . Brennan J. likewise supported the broad view that a tax is an excise if it is a tax on a step in the production or distribution of goods to the point of receipt by the consumer ^[53] ibid., at p. 445. and McHugh J. accepted that a tax upon the sale of goods is an excise even though the seller is not a producer or manufacturer ^[54] ibid., at p. 489. .

The submissions advanced by the defendants and South Australia deny the proposition that ``duties of customs and of excise'' in s. 90 exhaust the categories of taxes on goods. Those submissions accept that a tax which, in form or even in substance, imposes a duty on the importation of goods or on the local production or manufacture of goods would be within the scope of s. 90. But a tax which does not fall within either of those categories but which imposes a duty indifferently on all goods (whether imported or locally produced or manufactured) is said to be outside the scope of s. 90. These propositions were rejected expressly and, in our respectful opinion, rightly by Dixon C.J. and Windeyer J. in Dennis Hotels <sup>[55]</sup> (1959-1960) 104 C.L.R., at pp. 540, 600-601; cf. Western Australia v. Chamberlain Industries Pty. Ltd. (1969-1970) 121 C.L.R., at p. 26; Hematite Petroleum (1982-1983) 151 C.L.R., at pp. 663-664; Gosford Meats (1984-1985) 155 C.L.R., at p. 383. . Moreover, they are inconsistent with the purpose which Dixon J. attributed to s. 90 in Parton and which has been attributed to s. 90 by subsequent judgments in this Court. Adhering to that view of the purpose of s. 90, the term ``duties of customs and of excise'' in s. 90 must be construed as exhausting the categories of taxes on goods. That leaves the question whether a tax on goods should be classified as a duty of customs to the extent to which it applies to imported goods and a duty of excise to the extent to which it applies to goods of local production or manufacture ^[56] The question is irrelevant for the purposes of s. 90 ( Dennis Hotels (1959-1960) 104 C.L.R., at p. 601; H.C. Sleigh (1976-1977) 136 C.L.R., at p. 515), but perhaps relevant for the purposes of s. 55 of the Constitution. . Some support can be found for this distinction ^[57] See the cases in fn. 55. . However, once it is accepted that duties of excise are not limited to duties on production or manufacture, we think that it should be accepted that the preferable view is to regard the distinction between duties of customs and duties of excise as dependent on the step which attracts the tax: importation or exportation in the case of customs duties; production, manufacture, sale or distribution - inland taxes - in the case of excise duties ^[58] This was the view of Rich J. in The Commonwealth and Commonwealth Oil Refineries Ltd. v. South Australia (1926) 38 C.L.R. 408 , at p. 437 ; John Fairfax & Sons Ltd. and Smith's Newspapers Ltd. v. New South Wales (1927) 39 C.L.R. 139 , at pp. 146-147 ; and perhaps the preferred view of Dixon J. in Matthews v. Chicory Marketing Board (Vict.) (1938) 60 C.L.R., at pp. 297-300; Parton (1949) 80 C.L.R., at pp. 259-261; Dennis Hotels (1959-1960) 104 C.L.R., at pp. 540-541. . It is unnecessary in this case to consider taxes on the consumption of goods.

The very limited support manifested since Parton and, more particularly, since Bolton v. Madsen , for a return to the narrow concept of excise is a telling argument against reconsideration of the broader interpretation which has prevailed since Parton . What is more, the case for reconsideration invites a return to a narrow concept of excise similar to the Peterswald definition which, for reasons already discussed, was discarded over forty years ago.

In that time, federal financial arrangements have been designed and implemented on the basis of the interpretation given by this Court to s. 90. To desert that interpretation now would have widespread practical ramifications and generate extraordinary confusion. That argument against reconsideration would not prevail if it were clear that the interpretation for which the Territory and South Australia contend is correct. However, that is certainly not the case. Indeed, as we have indicated, we consider that that interpretation is fundamentally mistaken and involves a denial of what has, since Dixon J.'s judgment in Parton , been generally and (in our view) correctly accepted as the essential nature of a duty of excise for the purposes of our Constitution. In that regard, it must be stressed that, putting to one side the judgments of

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Murphy J. and Toohey and Gaudron JJ. to which we have referred, recent disagreement within the Court about duties of excise has not been about whether the nature of a duty of excise was correctly identified by Dixon J. in Parton . It has been about whether, in determining whether a particular statutory impost is a duty of excise for the purposes of s. 90, one should have regard to ``the substance of the operation of the statute, rather than merely its form'' ^[59] Dickenson's Arcade (1973-1974) 130 C.L.R., per Barwick C.J. at p. 186. .

Reconsideration of Dennis Hotels and Dickenson's Arcade

Rejection of the case for a return to a narrow concept of excise entails a rejection of the argument that Dennis Hotels and Dickenson's Arcade should be reconsidered in order to define more narrowly the nature of a duty of excise and thereby cut back the operation of s. 90 of the Constitution. It should be apparent from what has been said above that we see more theoretical force in an argument that Dennis Hotels and Dickenson's Arcade should be reopened for the purpose of enabling reconsideration of the question whether, as a matter of the substance of the operation of the relevant statutory provisions rather than of mere form, the challenged licence fees in those cases should be characterized as duties of excise. However, it was not argued on behalf of any party or intervener in the present case that, even if the Court was not prepared to adopt a narrower view of the nature of a duty of excise, Dennis Hotels and Dickenson's Arcade should nonetheless be reopened and overruled. Nor, on balance, do we think that they should be. For one thing, there are some grounds for treating tobacco and alcohol products as constituting a special category of goods for the purpose of considering whether what purports to be a licensing fee under a regulatory regime ^[60] See Dennis Hotels (1959-1960) 104 C.L.R., per Taylor J. at p. 576. should be characterized as a duty of excise. For another, there are very strong practical reasons why the rule of stare decisis should be observed in relation to those decisions. Not only was the authority of Dennis Hotels acknowledged in Bolton v. Madsen , but also that decision was itself followed in the unanimous decision in Anderson's Pty. Ltd. v. Victoria . Later, in Dickenson's Arcade , the Court refused to depart from Dennis Hotels and, subsequently, in H.C. Sleigh , the Court followed and applied the two earlier decisions. Since then, the Court has twice refused to reconsider the correctness of Dennis Hotels and Dickenson's Arcade ^[61] Evda Nominees Pty. Ltd. v. Victoria (1984) 154 C.L.R. 311 ; Philip Morris . .

In Philip Morris , the most recent instance in which there was a refusal to reconsider the two decisions ^[62] The Court also refused to reconsider the decision in H.C. Sleigh : see Philip Morris (1989) 167 C.L.R., at p. 409. , the Court refused to do so by a majority of six Justices to one ^[63] Mason C.J., Brennan, Dawson, Toohey, Gaudron and McHugh JJ.; contra Deane J. . After refusing to reconsider the correctness of the earlier decisions, the Court heard other arguments as to the effect of those decisions. In disposing of those arguments, the members of the Court gave different reasons for supporting the two earlier decisions. Mason C.J. and Deane J. considered that the licensing of liquor and tobacco was essentially regulatory in character and that in both cases the imposition of the licensing fee was an element in the regulatory legislation controlling the sale and distribution of the relevant commodity, the regulatory regime being designed to protect the public interest in the light of the characteristics of the relevant commodity ^[64] Philip Morris (1989) 167 C.L.R., at pp. 438-440. . Brennan J. thought that Dennis Hotels , Dickenson's Arcade and H.C. Sleigh were simply instances of taxes which had ``no closer connexion'' with production or distribution than that they were exacted for the privilege of engaging in the relevant activity <sup>[65]</sup> ibid., at pp. 460-461. . In distinguishing the exactions in Philip Morris , his Honour considered that three considerations were relevant: (1) the licensing scheme in Philip Morris did not purport to be regulatory; (2) the incidence of tax on sellers in the chain of distribution was variable; and (3) the rate of tax was substantial <sup>[66]</sup> ibid., at pp. 461-462. . Dawson J., as already mentioned, accepted the application of the criterion of liability and supported the three decisions just mentioned on that footing <sup>[67]</sup> ibid., at pp. 474-475. , while McHugh J. regarded the three decisions as authority for no more than the facts on which they were decided, namely, that the legislation in question did not impose an excise <sup>[68]</sup> ibid., at pp. 496-499. . His Honour distinguished the three decisions on the ground that, in those cases, the length of the licence period, the smallness of the fee, and the length of time between the commencement of the licence period and the end of the period by which the licence fee was calculated gave rise to a ``respectable'' argument that the licence fees were for the privilege of carrying on the business ^[69] ibid., at p. 500. . The diversity in the reasons given for not disturbing the earlier decisions is not an adequate ground for now disregarding the significance of the Court's repeated refusal to depart from Dennis Hotels and Dickenson's Arcade . It is true that those reasons do not

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support H.C. Sleigh with the same cogency as they support Dennis Hotels and Dickenson's Arcade . All that means, however, is that, if a fee imposed in purported conformity with H.C. Sleigh were of sufficient magnitude to deny a regulatory character to the law which imposes it, the validity of the fee would require close consideration.

In refusing to reconsider the franchise decisions relating to liquor and tobacco, the Court has recognized the fact that the States (and the Territories) have relied upon the decisions in imposing licence fees upon vendors of liquor and tobacco in order to finance the operations of government. Financial arrangements of great importance to the governments of the States have been made for a long time on the faith of these decisions ^[70] Evda Nominees ; Philip Morris (1989) 167 C.L.R., at pp. 438, 443, 489-490. . If the decisions were to be overruled, the States and the Territories would be confronted with claims by the vendors of liquor and tobacco for the recoupment of licence fees already paid. That would certainly be the case if the Court were to hold that such licence fees could not properly be characterized as no more than the imposition of a licence fee for the privilege of engaging in the relevant activity. Hence, considerations of certainty and the ability of legislatures and governments to make arrangements on the faith of the Court's interpretation of the Constitution are formidable arguments against a reconsideration of Dennis Hotels and Dickenson's Arcade .

For the reasons stated, the case for a reconsideration of those decisions has not been made out.

It is convenient now to examine the legislation which is under challenge in the present case.

The Act

The Act establishes a licensing regime regulating the wholesaling and retailing of ``X'' videos. Under the regime it is an offence to wholesale an ``X'' video except in accordance with a wholesale licence ^[71] s. 24. , or to retail an ``X'' video, except under and in accordance with a retail licence ^[72] s. 25. .

Licence fees are payable on the making of an application for the initial grant of a licence, whether wholesale or retail, which is granted for one month, and on its renewal at the end of each month. The appropriate licence fee must accompany the application for grant or renewal ^[73] ss. 5(1), 9(2). , the fee being refunded if the application is refused ^[74] ss. 5(5), 9(5). . A licence fee consists of a ``basic fee'' calculated at a rate ($50) for each premises in relation to which the licence is to be held <sup>[75]</sup> ss. 4(1), 18. , and either an ``advance fee'' (for the grant or first renewal of the licence) ^[76] s. 19. or a ``franchise fee'' (for subsequent renewals) <sup>[77]</sup> s. 20. . For a wholesale licence, the advance fee and franchise fee are calculated by reference to the wholesale value of the ``X'' videos supplied by a wholesale licensee during the relevant period ^[78] See below, at (a) and (b). . For a retail licence, these fees are calculated by reference to the wholesale value of the ``X'' videos offered for sale by a retail licensee during the relevant period that were not supplied by a wholesale licensee. The rate at which the advance fee and the franchise fee is imposed is 40 per cent of the total wholesale value of the relevant videos.

The following differences should be noted between (a) wholesale licences and retail licences; and (b) the advance fee and the franchise fee.

• (a) A wholesale licence and a retail licence are calculated by reference to different ``X'' videos. The effect of this difference is to exclude ``X'' videos in relation to which a wholesale licence fee has been paid from the ``X'' videos in relation to which the fee payable by a retail licensee is calculated. A wholesale licensee pays a fee in relation to ``X'' videos that it supplies by wholesale in the relevant month ^[79] ss. 19(1), 20(1). ; a retail licensee pays a fee in relation only to ``X'' videos that it offers for retail sale in the relevant month and which it manufactured or which were supplied to it otherwise than in accordance with a wholesale licence <sup>[80]</sup> ss. 19(2), 20(2). . Thus, in effect, any ``X'' video is included only in the calculation of one licence fee.
• (b) The difference between the advance fee and the franchise fee is the period in relation to which the fee is calculated. The advance fee (payable only on initial grant or first renewal of the licence) is calculated by reference to the month for which the licence is granted or first renewed. The applicant must forward the estimated amount of this fee with the application for grant or renewal ^[81] ss. 5(1)(b), 9(2)(c)(i). , and this is taken to be a payment on account of the advance fee until it becomes due and payable at the end of the relevant month ^[82] s. 19(3), (4). . The franchise fee, on the other hand, is calculated by reference to the

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  ATC 5062

  month which is two months prior to the month for which the renewal is sought ^[83] s. 20. .

Section 21 is designed to prevent fees from being imposed more than once in relation to a particular video, either on the same licensee or on another person to whom the video has been supplied. It provides:

``No advance fee or franchise fee is payable in relation to the supply or offer for retail sale of an `X' video where either such fee is payable in relation to any previous supply, or any previous offer for retail sale, of that video.''

For example, if a retail licensee manufactured and offered for sale an ``X'' video in one month but the video was not sold in that month and continued to be offered for sale in the following month, s. 21 would prevent the value of that video from being included in the figures for the following month from which the advance or franchise fee is calculated. Or, alternatively, if a wholesale licensee supplies a video to another wholesale licensee, the second licensee will not have to pay a fee in relation to the further supply of that video ^[84] The section would exclude liability on the part of a retail licensee to pay a fee in relation to a video supplied to it by a wholesale licensee. However, the statutory formula for the calculation of the advance fee or franchise fee for a retail licence independently excludes such a liability. .

An ambiguity arises in relation to the operation of s. 21 of the Act as it stood in 1990 and the fees payable for the third and fourth months of a licence. The 1993 amendments to the legislation have clarified the position and it is unnecessary to consider the ambiguity for the purposes of this case.

The Act provides that an amount can be recovered from an unlicensed person who wholesales or retails ``X'' videos; the amount recoverable is equal to the fees that would have been payable if the person had held the appropriate licences for the relevant months ^[85] s. 27. . This provision is additional to any criminal liability that such a person may incur under ss. 24 and 25.

In addition to the payment of licence fees, an applicant or licensee must satisfy certain conditions in order to hold or to continue to hold a wholesale or retail licence. Essentially, the Commissioner must be satisfied on reasonable grounds that the applicant is a fit and proper person to hold such a licence ^[86] ss. 5(2), 10(1)(g). . The Commissioner is to have regard to such circumstances as the bankruptcy or liquidation of the applicant or licensee, certain past convictions, and past contraventions of the Act, the Publications Control Act 1989 (Cth), or the Taxation (Administration) Act 1987 (Cth) ^[87] ss. 5(3), 10(1). . The Commissioner is authorized to grant a licence ``subject to such conditions as he or she thinks fit'' ^[88] s. 5(2). , and can vary such conditions at any time ^[89] s. 7. . If the licensee is a body corporate, it must notify the Commissioner of any changes in the directors, secretaries or officers of the licensee ^[90] s. 14. .

Validity of the Act

The foregoing summary of the provisions of the Act reveals that the legislation cannot be described merely as a regulatory scheme in which the licensing fees are simply an element in an overall regime of controlling the distribution of ``X'' videos to the public. The principal elements of the legislation are directed to the raising of revenue rather than to the creation of a regulatory scheme designed to protect the public.

There is no restriction whatsoever in the Act on the class of videos which can be sold; any video, no matter how violent or pornographic, may be sold. Nor is there any restriction on the class of purchasers; the Act does not preclude the sale of any video to children. Likewise, there is no restriction on advertising or display. And the conditions to be satisfied by an applicant for a licence under s. 5 relate more obviously to the capacity of the applicant to pay the fees than to the protection of the public in connection with the distribution of violent and pornographic videos. Accordingly, the Act falls outside the category of regulatory schemes affecting liquor and tobacco which Mason C.J. and Deane J. held in Philip Morris could support the exaction of a licence fee on the footing that it is not an excise.

Furthermore, the size of the fee (40 per cent) is larger than the fee exacted in the other franchise cases and clearly exceeds the cost of implementing the scheme. No endeavour was made to justify the size of the fee on that score. Indeed, the true nature of the exaction is to be discerned from s. 21 which refers to the fee being ``payable in relation to the supply or offer for retail sale'' of the videos ^[91] See also s. 9(6). . Hence, the purpose of exacting the licensing fees is not simply regulatory but has a very substantial revenue purpose.

In the view of Brennan J. in Philip Morris , the fact that the legislative scheme is not regulatory and the substantial size of the fee are factors which are relevant in the characterization of the licence fee as an excise.

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ATC 5063

In addition, the advance fee, being calculated by reference to sales made under the licence, plainly is an exaction made on a step in the process of distribution under the licence. And, though the franchise fee is calculated by reference to sales made in a past period, that period is no more than two months earlier than the licence period, each being for one month only. The proximity of the prior period to the period of the licence is a factor pointing in the direction of an excise because the transactions in the past period may well provide a reliable forecast of the transactions which will occur during the currency of the licence ^[92] Philip Morris (1989) 167 C.L.R., per Brennan J. at p. 458. . Thus, the exaction is imposed not merely on the taxpayer's past dealings with the goods but in circumstances in which the magnitude of the past dealings with the goods is a likely indicator of the measure of the taxpayer's dealings with the goods during the term of the licence. With the exception of the non-regulatory character of the licensing scheme, the same factors would, on the view of McHugh J. in Philip Morris ^[93] ibid., at p. 493. , lead to the view that the exactions in the present case are excise duties.

In the result, in the light of the reasoning of the members of the Court in Philip Morris , the conclusion is inevitable that certain licence fees imposed by the Act are an excise.

In that respect, as the basic licence fee imposed by s. 5(1)(a) and s. 18 is not calculated by reference to the quantity or value of goods supplied or offered for sale and it is not a substantial fee ($50), there is no basis for holding that it is an excise. However, for the reasons already given, the advance fee imposed by ss. 5(1)(b) and 19 and the franchise fee imposed by s. 20 are duties of excise. Notwithstanding that the plaintiffs did not seek a declaration that s. 9(2)(c) is invalid, it follows from these reasons that it, too, operates to impose a duty of excise.

Accordingly, we would answer the questions reserved as follows:

• (1) Sections 5(1)(b), 9(2)(c), 19 and 20 of the Business Franchise (``X'' Videos) Act 1990 (A.C.T.) are invalid as imposing duties of excise.
• (2) Does not arise.

In relation to question (3), full argument was not addressed to the Court on the issue of severance of other provisions of the Act if certain provisions were to be declared invalid. It would be appropriate for the parties to address argument on this point to the Court before any decision is reached as to severance of other provisions of the Act. Accordingly, we shall not deal with that issue now.

The defendants should pay the plaintiffs' costs of the questions reserved.