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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Toohey and Gaudron JJ

On 23 March 1993 the Chief Justice reserved certain questions ^[199] Question 1 is as amended during the course of the hearing. for the consideration of the Full Court:

• (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 principal question for determination is whether any of the provisions of the Business Franchise (``X'' Videos) Act 1990 (A.C.T.) (``the Act'') ^[200] The Act was amended by the Business Franchise (``X'' Videos) (Amendment) Act 1993 (A.C.T.) which came into operation on 1 April 1993 but these amendments do not arise for consideration in the present case; in relation to those amendments see Rainsong Holdings Pty. Ltd. v. ACT & Anor 93 ATC 5087 . imposes a duty of excise for the purposes of s. 90 of the Constitution.

The Act

The Act is concerned with the wholesaling and retailing of ``X'' videos. An ``X'' video is defined as a video classified as an ``X'' film under the Classification of Publications Ordinance 1983 (A.C.T.) <sup>[201]</sup> See s. 4(1) of the Act and s. 25(2) of the Ordinance. The Ordinance requires that a film answering the description in para. (a) or (b) of s. 25(2) be classified as an ``R'' film or an ``X'' film. The Ordinance provides no criteria for distinguishing an ``R'' film from an ``X'' film, save to the extent that a distinction can be drawn from the additional restrictions placed on the sale, delivery and display of the latter. .

A person shall not ``wholesale'' ``X'' videos, a term which is defined ^[202] s. 4(1). to include hiring to another person for the purpose of retail or wholesale trade and carrying on the business of wholesaling, unless he or she is the holder of a wholesale licence and wholesales ``X'' videos in accordance with that licence. A person shall not ``retail'' ``X'' videos, a term which is defined ^[203] s. 4(1). to include hiring to another person in the course of retail trade and carrying on the business of retailing, except in accordance with a retail licence.

Penalties are imposed on persons who wholesale ``X'' videos without a licence or who wholesale or retail ``X'' videos otherwise than in accordance with a licence. The sanctions are by way of fine or imprisonment ^[204] ss. 24, 25. .

The Act imposes a regime of licence fees on the holders of wholesale and retail licences, calculated by reference to the quantum of trade in ``X'' videos. Wholesalers pay tax on ``X'' videos supplied during the licence period and retailers pay tax on stock offered for sale in relation to which tax has not already been paid, either by a wholesaler or by the retailer in a previous licence period. It is the character of these licence fees that is at the centre of the dispute. The Legislative Assembly of the Australian Capital Territory is not empowered to impose a duty of excise ^[205] Capital Duplicators Pty. Ltd. v. Australian Capital Territory (1992) 177 C.L.R. 248. . The plaintiffs contended that the licence fees are duties of excise. The terminology ``Business Franchise'', employed in the title of the Act, has no doubt been borrowed from similar language used in State legislation. This terminology, however, gives ``franchise'' a rather different meaning to that which is generally understood.

It is necessary to say a little more about the way in which licence fees are assessed. An applicant for either a wholesale or a retail licence must pay a basic fee of $50 for each premises to which the licence relates ^[206] ss. 4(1), s. 18. . The applicant must also pay at the time of application an amount estimated as equal to the advance fee, which is calculated as 40% of the wholesale value of the relevant ``X'' videos in the initial month-long licence period ^[207] s. 19. . The advance fee itself is due and payable at the expiration of the licence period but the amount paid upon application is held on account of the advance fee. An application for the first renewal of a licence must also be accompanied by an estimate of the advance fee (calculated by reference to the second month of the licence); again it is payable in full at the expiration of that licence period ^[208] s. 19. .

For the second and subsequent renewals, the Act prescribes franchise fees referable to, in the

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case of a wholesale licence, 40% of the total wholesale value of the ``X'' videos supplied by wholesale in the month which is two months prior to the month for which the renewal is sought. In the case of a retail licence the fee is 40% of the total wholesale value of the ``X'' videos manufactured by the licensee and the ``X'' videos supplied to the licensee otherwise than in accordance with a wholesale licence, being videos offered for retail sale by the licensee in the month which is two months prior to the month for which the renewal is sought <sup>[209]</sup> s. 20. . It should be noted that no franchise fee is payable in relation to the supply or offer for retail sale of an ``X'' video where such a fee is payable in relation to any previous supply or offer for retail sale of that video ^[210] s. 21. .

The issues

It is not in issue that the licence fees made payable by the Act are taxes ^[211] Matthews v. Chicory Marketing Board (Vict.) (1938) 60 C.L.R. 263, at p. 276; Air Caledonie International v. The Commonwealth (1988) 165 C.L.R. 462 . ; the question is whether they are also duties of excise.

The plaintiffs took the decision of the Court in Philip Morris Ltd. v. Commissioner of Business Franchises (Vict.) ^[212] (1989) 167 C.L.R. 399. as a starting point in their argument that the licence fees imposed by the Act are duties of excise. It was held in that case that a monthly licence fee imposed on the sale of tobacco, calculated by reference to the value of tobacco sold in the last preceding month but one, was not a duty of excise under s. 90 of the Constitution. Although the reasons which led the members of the majority (Mason C.J., Deane, Dawson, Toohey and Gaudron JJ.) to that conclusion diverged, the plaintiffs submitted that the tests adopted by Mason C.J. and Deane J. (jointly), who were part of the majority, and by Brennan J. and McHugh J. (constituting the minority) combined to render the licence fees in the present case an excise. Perforce, the plaintiffs argued that the test which we applied in Philip Morris should not be followed.

The plaintiffs further argued that if the fees were held to be regulatory within the ``exception'' formulated by Mason C.J. and Deane J. in Philip Morris , it would follow that the Act was concerned with censorship and hence beyond the powers conferred upon the first defendant, the Australian Capital Territory. Underlying this submission is s. 23(1) of the Australian Capital Territory (Self-Government) Act 1988 (Cth) which provides that the Legislative Assembly for the Australian Capital Territory " has no power to make laws with respect to:

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

The meaning of excise

It is necessary for the Court to look yet again at s. 90 of the Constitution, the opening paragraph of which reads:

``On the imposition of uniform duties of customs the power of the Parliament to impose duties of customs and of excise, and to grant bounties on the production or export of goods, shall become exclusive.''

In Peterswald v. Bartley , Griffith C.J., delivering the judgment of the Court, said of ``excise'' ^[213] (1904) 1 C.L.R. 497, at p. 508. :

``The fundamental conception of the term is that of a tax on articles produced or manufactured in a country.''

Griffith C.J. amplified this view later in the judgment when he said ^[214] ibid., at p. 509. :

``[T]he conclusion is almost inevitable that, whenever [excise] is used, it is intended to mean 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 meaning of excise: history

The decisions touching s. 90 necessarily concern the meaning to be attached to excise. The Court was furnished with a great deal of material relating to the use of the term ``excise'' in the Australian colonies before 1901. It is apparent from that material, which includes statutory provisions and financial statistics, that excise was a term applied to taxes on the local production of goods. As the Solicitor-General for South Australia observed in the course of his argument, there appears to be no instance of the term being applied to a tax imposed on later steps in the process of distribution. This understanding is reflected in the Convention Debates to which Dawson J. has referred in his judgment.

In England a wider meaning was attributed to the term ``excise'' but it was the Australian context which led Griffith C.J. to identify excise in the way he did in Peterswald v. Bartley , saying of the term <sup>[215]</sup> ibid. : ``we are entitled to take notice of the sense in which it has been

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understood and used in the legislation of the various States''. There can be no doubt as to the general understanding at the time of federation. If further support be needed, it can be found in the comment of Quick and Garran ^[216] The Annotated Constitution of the Australian Commonwealth (1901), p. 837. that ``[t]he basic principle of excise duties was that they were taxes on the production and manufacture of articles which could not be taxed through the customs house''.

The meaning of excise: authority

At the forefront of the debate in the present case is whether, as the defendants contended, the Court should return to the meaning attached to ``excise'' in Peterswald v. Bartley and thereby reject the departures from that approach that have taken place, particularly the decision in Parton v. Milk Board (Vict.) <sup>[217]</sup> (1949) 80 C.L.R. 229. . That decision broadened the concept of excise to include any tax upon a commodity at any point in the course of manufacture and distribution before it reaches the consumer. This broad definition has been called upon regularly in the numerous cases since Parton was decided. However, another view, more akin to the approach in Peterswald v. Bartley , has maintained a voice in the Court. Furthermore, the broad definition has been the subject of differing applications. One approach was to apply that definition in a manner which focused on the ``criterion of liability'' by which the tax was levied ^[218] See Dennis Hotels Pty. Ltd. v. Victoria (1959-1960) 104 C.L.R. 529, per Kitto J. at p. 559; Bolton v. Madsen (1963) 110 C.L.R. 264, at p. 271. . The interpretation of s. 90 since Parton , therefore, has been a tussle between three strands of authority:

• - the view of excise duties which denies to the States only those taxes imposed on local production or locally produced goods;
• - the view which denies to the States all taxes imposed on the goods at any stage of their production and distribution; and
• - the view which adopts the broad definition but applies the test in such a way that only those taxes which are directly imposed on goods infringe s. 90 of the Constitution.

The three strands of authority are categories only but they demonstrate the diversity of opinion which has persisted within the Court since Parton was decided.

The prime example of the differing approaches is to be found in Dennis Hotels Pty. Ltd. v. Victoria ^[219] (1959-1960) 104 C.L.R. 529. which involved a scheme of retrospective licence fees imposed on sellers of alcohol. The form of the scheme was much the same as that of the impugned legislation in Philip Morris and indeed in the present case. In Dennis Hotels , Dixon C.J. ^[220] ibid., at p. 540. , McTiernan J. ^[221] ibid., at p. 549. and Windeyer J. ^[222] ibid., at p. 592. applied the broad definition and would have struck down the scheme as a tax on goods. Fullagar J. ^[223] ibid., at pp. 554-555. and Menzies J. ^[224] ibid., at p. 582. applied the approach taken in Peterswald v. Bartley and would have upheld the legislation because it was not a tax on local production or manufacture. Kitto J. ^[225] ibid., at pp. 559, 563. and Taylor J. ^[226] ibid., at p. 575. adopted the broad definition of excise but held the scheme valid as the holding of a licence rather than the goods was the criterion of liability ^[227] The division of opinion in Philip Morris is reminiscent of the debate in Dennis Hotels : Mason C.J., Brennan, Deane and McHugh JJ. applied the broad definition although Mason C.J. and Deane J. declined to strike down the licence fee on tobacco. Dawson J. applied the criterion of liability approach. We applied the view taken in Peterswald v. Bartley . . Therefore the decision in Dennis Hotels reflected two different strands of authority agreeing in the result. Notwithstanding this conglomerate ratio in Dennis Hotels , the decision has stood as authority for the validity of retrospective licence fees and was the first of the so-called trilogy of cases which upheld the constitutional validity of the taxes in relation to alcohol, tobacco ^[228] Dickenson's Arcade Pty. Ltd. v. Tasmania (1973-1974) 130 C.L.R. 177. and petrol ^[229] H.C. Sleigh Ltd. v. South Australia (1976-1977) 136 C.L.R. 475. upon which a substantial proportion of State revenue is now based.

The Court was not invited by the plaintiffs to reconsider these cases, but the defendants argued that Dennis Hotels and Dickenson's Arcade Pty. Ltd. v. Tasmania ^[230] (1973-1974) 130 C.L.R. 177. should be reconsidered as falling within the concept of excise for which they contended. For the most part the interveners opposed any reconsideration of these decisions.

Having acknowledged that in a number of decisions the Court has moved away from the meaning attached to excise in Peterswald v. Bartley , there is no point in discussing further those decisions which, in any event, are canvassed in the various judgments in Philip Morris . Furthermore, the matter is not resolved merely by a tally of the judgments delivered in those cases. In the light of the arguments now presented to the Court, the essential question is whether the move away from the view of s. 90 taken in Peterswald v. Bartley truly reflects the operation of s. 90. Further it must be considered whether the reasoning underlying that move is consistent with what the Court said in Cole v. Whitfield ^[231] (1987-1988) 165 C.L.R. 360. .

The meaning of excise: principle and purpose

The constitutional discussion has also been on a wider plane, namely, the place of s. 90 within the political and economic framework of the Constitution. Section 90 does confer a

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power on the Parliament ^[232] Parton (1949) 80 C.L.R., at p. 260. but it is a power with a purpose, namely, the power to effectuate economic policy with respect to Australian exports and imports. To secure that purpose it is necessary only to deny to each State the power to levy duties of customs on goods entering that State from overseas, the power to levy duties of excise on goods locally produced or manufactured and the power to grant bounties on goods produced or manufactured in that State. To deny the States (and the Territories) those powers ensures a uniform policy in regard to external tariffs.

The point was made by Murphy J. in Logan Downs Pty. Ltd. v. Queensland ^[233] (1976-1977) 137 C.L.R. 59, at p. 84. that taxes imposed without regard to the place of production or manufacture are neither duties of customs nor duties of excise for they do not discriminate between commodities locally produced and other commodities.

In Philip Morris we sought, as did Dawson J., to point out that once excise is regarded as embracing not only a tax upon manufacture or production but also a tax upon a commodity at any point before it reaches the consumer, the correlation between duties of customs and duties of excise is lost, a correlation which the Constitution demands. The argument is advanced that a tax upon a commodity at any point before it reaches the consumer produces the same effect as a tax upon its manufacture or production ^[234] Parton (1949) 80 C.L.R., per Dixon J. at p. 260; Philip Morris (1989) 167 C.L.R., per Mason C.J. and Deane J. at p. 436. . But it is apparent that a tax upon the distribution of goods may have different consequences from a tax upon their production. For example, a tax upon production has an impact only on goods produced locally, thereby affecting the price of those goods as compared with goods produced overseas; a tax on the sale of goods impacts on both and, if non- discriminatory, on both equally.

In Parton Dixon J., having spoken of the perceived intention of s. 90 ``to give the Parliament a real control of the taxation of commodities'', added ^[235] (1949) 80 C.L.R., at p. 260. :

``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. 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.''

But, as we observed in Philip Morris ^[236] (1989) 167 C.L.R., at p. 480. :

``On this view it is difficult to see any basis for distinction between taxes imposed during the course of production or manufacture and those imposed at any subsequent point, including the point of consumption.''

The point had been made earlier by Gibbs J. in Dickenson's Arcade ^[237] (1973-1974) 130 C.L.R., at p. 218. .

Further, if an excise is regarded as an impost on goods by virtue of their local production rather than an impost on the local production itself, the apparent difficulty is avoided.

Once again, to borrow from our judgment in Philip Morris ^[238] (1989) 167 C.L.R., at pp. 478-479. :

``If the relevant goods include both goods produced or manufactured in Australia and goods produced or manufactured overseas then the significance of a reference to production or manufacture lies only in its serving to restrict the concept of duties of excise to articles of commerce. In that event the relevant connexion might well be constituted by any relationship affecting the goods as articles of commerce. On the other hand, if the relevant goods are goods produced or manufactured in Australia, there is no self-evident reason why the relevant connexion should extend beyond a relationship affecting those goods as items of Australian production or manufacture.''

The treatment of particular commodities

There are of course judgments in the Court which have attributed particular qualities or characteristics to certain commodities, alcohol and tobacco in particular. The characteristics are said to invoke the need for their regulation, with the consequence that those commodities do not in any event fall within the operation of excise. There are, we suggest, considerable difficulties in that approach, particularly if a distinction is to be made on the basis of their harmfulness.

In terms of the harm that a particular commodity may cause, a distinction between alcohol and tobacco on the one hand and ``X'' videos on the other would be very tenuous indeed. And to draw such a distinction, whether by reference only to physical harm or otherwise, would be to make a value judgment which the Court is not equipped to make on the basis of any material presented in this case. It is true that the absence, in the subject legislation, of controls over the sale of ``X'' videos does

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support an argument that the legislation is not concerned with the protection of the public. But the argument can go no further; videos are already subject to registration, censorship and control in all States and Territories ^[239] Classification of Publications Ordinance 1983 (A.C.T.); Film and Video Tape Classification Act 1984 (N.S.W.); Classification of Publications and Films Act 1985 (N.T.); Classification of Publications Act 1991 (Q.); Classification of Publications Act 1974 (S.A.); Classification of Publications Act 1984 (Tas.); Classification of Films and Publications Act 1990 (Vic.); Censorship of Films Act 1947 (W.A.). See generally Australian Law Reform Commission, Report No. 55, Censorship Procedure , (1991). . The point is simply that the commodity to which the legislation relates, that is ``X'' videos, affords no basis for distinguishing it from alcohol or tobacco. In truth, any such distinction has no surer foundation than the special position attributed to the latter in Dennis Hotels and Dickenson's Arcade .

Reconsideration of Dennis Hotels and Dickenson's Arcade

So far as those two decisions are concerned, we have considered the arguments for and against their reconsideration. For the reasons we gave in Philip Morris ^[240] (1989) 167 C.L.R., at pp. 481-485. , these decisions should be treated as anomalous exceptions to the concept of excise duties. It is unnecessary to repeat those reasons. In any event, our approach to s. 90 would have upheld the validity of the legislation considered in those cases.

Discrimination

Before the decision of the Court in Cole v. Whitfield , Murphy J. had adopted a concept of discrimination in relation to s. 90. In Logan Downs , his Honour said ^[241] (1976-1977) 137 C.L.R., at p. 84. :

``In general, taxes imposed without regard to the place of production or manufacture are neither duties of customs nor duties of excise. The essence of each duty is the tendency to discriminate between goods locally produced and other goods.''

In our view this approach to s. 90 is correct. We would add that in this, as in other areas, discrimination is a matter of substance and effect not simply a matter of form.

Later, in Hematite Petroleum Pty. Ltd. v. Victoria ^[242] (1982-1983) 151 C.L.R. 599. Murphy J. spoke of s. 90 as prohibiting State taxation which discriminates between goods produced in the State and those produced outside. His Honour added ^[243] ibid., at p. 638. :

``The constitutional concept of excise forbidden to the States is limited to taxes on production within the State; it does not extend to taxes on distribution or consumption unless these are in substance taxes on production within the State.''

We said in Philip Morris ^[244] (1989) 167 C.L.R., at p. 479. :

``There is much to be said for the view that the text of the Constitution favours the identification of goods which are the subject of duties of excise forbidden to a State by s. 90 as goods produced or manufactured in that State.''

However, we acknowledged ^[245] ibid., at p. 480. that ``the overwhelming weight of authority favours the identification of the relevant goods caught up in the prohibition as goods produced or manufactured in Australia''.

This debate as to whether s. 90 prohibits taxes which discriminate against goods produced in a State or goods produced in Australia warrants further consideration. The approach taken by Murphy J., which is reflected also in his Honour's judgments in H.C. Sleigh Ltd. v. South Australia ^[246] (1976-1977) 136 C.L.R. 475. and in Gosford Meats Pty. Ltd. v. New South Wales ^[247] (1984-1985) 155 C.L.R. 368. , results from what his Honour saw as jurisdictional constraints. In particular, as Murphy J. saw it, a State is not competent to legislate outside its jurisdiction and cannot therefore legislate regarding the production of goods in another State. Furthermore, a tax on goods entering a State would discriminate against their production outside the State and therefore ``be a duty of customs prohibited by s. 92'' ^[248] H.C. Sleigh (1976-1977) 136 C.L.R., at p. 527. of the Constitution.

There are difficulties with this approach. The first is that it assumes that an excise is a tax on the production of a commodity rather than on a commodity. In Philip Morris ^[249] (1989) 167 C.L.R., at p. 482. we referred to the dictum of Dixon J. in Matthews ^[250] (1938) 60 C.L.R., at p. 304. that for a tax to constitute a duty of excise it ``must bear a close relation to the production or manufacture, the sale or the consumption of goods and must be of such a nature as to affect them as the subjects of manufacture or production or as articles of commerce'' <sup>[251]</sup> The reference to ``consumption'' must be seen in the light of Dixon J.'s later revision in Parton (1949) 80 C.L.R., at p. 261. . The dictum identifies an excise as a tax on goods, imposed within jurisdiction, the goods themselves being identified by their place of production or manufacture. It is not a tax on the process of production or manufacture itself and therefore the place of production or manufacture raises no jurisdictional issues. On the view taken by Murphy J., a State tax on goods produced outside the State could not infringe s. 90 of the Constitution. But, on the view we express, such a tax may infringe s. 90. If this were not the case, one or more States could combine to destroy federal governmental policy by imposing a sales or consumption tax which would frustrate Commonwealth tariffs. For example, a State tax on automotive parts of

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Australian manufacture (regardless of State of origin) in an amount equivalent to the customs duty imposed on imported automotive parts would negate Commonwealth policy, a result the founders of the Constitution were at pains to avoid.

The second difficulty inherent in the approach of Murphy J. is that it denies the possibility of overlap, duplication and reinforcement in the Constitution. There is nothing in the Constitution that dictates that Commonwealth or State legislation may infringe only one constitutional principle at a time. It is clearly possible that a State tax may infringe both s. 90 and s. 92, and possibly other constitutional restraints as well. Sections 90 and 92 have related purposes but those purposes may, in one case, overlap and, in another, diverge.

The approach we have taken to the meaning and operation of excise is consistent with the approach taken in Cole v. Whitfield , namely, to identify the purpose of the section which, in the case of s. 92, is to strike down laws which impose discrimination of a protectionist nature. Likewise, s. 90 strikes down such laws in relation to Australian exports and imports, that is, State taxation measures which discriminate against goods manufactured or produced in Australia.

The licence fees imposed by the Act are taxes upon commodities but they are imposed whether the videos sold or hired are manufactured locally or whether they are imported. There is therefore no discrimination involved and the tax does not constitute a duty of excise. The first question should therefore be answered in the negative.

As to the question whether any of the provisions of the Act is invalid as being a law with respect to a ``classification of materials for the purpose of censorship'', we agree with the judgment of Dawson J. in answering that question also in the negative.

It is unnecessary to answer the third question.