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TOTALIZATOR AGENCY BOARD v FC of T

Judges:
Hill J
Tamberlin J
Sundberg J

Court:
Full Federal Court

Judgment date: Judgment handed down 19 August 1996

Hill J

The appellant, the Totalizator Agency Board (``the TAB'') appeals from the judgment of a judge of this Court which concluded that the TAB was not entitled to the benefit of the exemption from sales tax contained in Item 126 of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1992 (Cth) (``the Exemptions and Classifications Act'').

The procedural background

The TAB is a body corporate constituted under the Totalizator (Off-Course Betting) Act 1964 (NSW) (``the TAB Act''). In order to enable the question of its entitlement to exemption from sales tax to be determined, it requested the Commissioner of Taxation to make an assessment on a specified dealing which it had undertaken concerning an Austext Receiver which it had purchased. In the result an assessment issued to the TAB on 20 June 1994 in the sum of $147.50. It is agreed that the assessment was made on the basis that the purchase fell within AD3c of the First Schedule to the Sales Tax Assessment Act 1992 (Cth) (``the Assessment Act''), that is to say, that it involved the TAB applying to its own use goods which it had obtained under quotation of a certificate.

The TAB duly objected to the special assessment claiming that it was entitled to the benefit of the exemption from sales tax

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contained in Item 126(1)(a) or 126(1)(b) in the First Schedule to the Exemptions and Classifications Act. That objection was disallowed and the TAB appealed directly to this Court.

There seems to have been some misunderstanding when the matter was before the Court at first instance. The judge hearing the matter seems to have been under the impression that the liability for sales tax arose not under AD3c but some other item (for example, AD2a or AD2b) on the basis of there having been a wholesale sale which attracted liability for sales tax on the part of the vendor of the goods. Had this been the case, then clearly the TAB would not have been the taxpayer, it would have had no right to object and the Court would not have had jurisdiction to determine the matter.

The misunderstanding of the basis of the assessment was not confined to his Honour. After the hearing a further application was filed on behalf of the TAB without objection from the Commissioner, an application which assumed that the Court lacked jurisdiction to hear the matter under the Taxation Administration Act 1953 (Cth). The new application (which was, we were told, intended to be an additional application and not in substitution for the application to determine the objection) was made under s 39B of the Judiciary Act 1903 (Cth) and sought an order restraining the Commissioner from enforcing the assessment which had issued. In the judgment below his Honour expressed some reservations at this procedural course but proceeded to determine the merits of the case.

It seems clear, now that it is agreed that the assessment was based on AD3c, that no question of jurisdiction arises. The TAB is the taxpayer. No other person is liable to pay tax and the matter is properly before the Court as a result of an application made to the Court by way of appeal under s 14ZZ of the Taxation Administration Act 1953.

The learned trial judge may be excused any confusion. If the assessment was made on the basis that the TAB had applied property to its own use which it had purchased, it would seem to have been entitled to argue that the dealing was not liable to sales tax because s 4 of the Sales Tax Imposition (General) Act 1992 (``the Imposition Act'') excludes from the imposition of sales tax a tax which is on `` property of any kind belonging to a State ''. These words italicised have the same meaning as in s 114 of the Constitution . On this basis, and having regard to the decision of the High Court in
DFC of T v State Bank of New South Wales 92 ATC 4079 ; (1992) 174 CLR 219 , the TAB was entitled to object against the assessment on the basis that sales tax was not imposed upon it, having regard to the provisions of s 4 to which reference has already been made, because so to do would be to impose tax on property belonging to the State. This, however, it did not do.

Its grounds of objection are completely silent on the matter. Particularly, there is no ground of objection dealing with the fact that the Imposition Act does not operate to impose the tax upon the TAB in circumstances to which AD3c applied. Had such a ground been sought to be argued, it would seem that the TAB would, of necessity, have been successful. However, it has chosen to rely upon the grounds of objection which it initially filed. Unless it obtains dispensation from the Court, the TAB is limited to the grounds stated in that objection. It does not wish to seek such a dispensation. To the contrary, it wishes to argue the matter of principle which is raised in its objection, namely its entitlement to the benefit of the exemption contained in Item 126, irrespective of s 4 of the Imposition Act. This it is entitled to do and it is thus incumbent upon the Court to decide the objection by reference to the grounds put forward by the TAB. No objection was raised by the respondent Commissioner to this course.

I should say that I would have had considerable difficulty in accepting that the matter could have been decided relying upon s 39B of the Judiciary Act , particularly as the Court papers included the notice of assessment which, by force of s 116 of the Assessment Act is conclusive evidence of the due making of the assessment and that the amounts and other particulars of it are correct except in the event of an appeal brought under Part IVC of the Taxation Administration Act 1953. It hardly seems possible that a court could, in the light of s 116, grant an injunction once the notice of assessment was before it, even if it were correct that the exemption item had application.

I turn now to consider the matter which the parties desire to litigate, namely, the application

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of exemption Item 126 in Schedule 1 to the Exemptions and Classifications Act.

The competing submissions

Item 126 reads relevantly as follows:

``(1) Goods for use by:

  • (a) an Australian government; or
  • (b) an authority that is completely controlled by an Australian government, and whose expenditure is exclusively borne by that government; or
  • (c) an authority that is completely controlled by 2 or more Australian governments, and whose expenditure is exclusively borne by those governments...

(3) In this Item, `Australian government' means the Commonwealth, a State, the Australian Capital Territory or the Northern Territory.''

The TAB submits that it is an Australian government because it is the Crown in the right of the State of New South Wales. Alternatively, it submits that it is entitled to exemption from sales tax in respect of the goods because it falls within Item 126(1)(b).

For its part, the Commissioner concedes that the TAB is the Crown in the right of the State of New South Wales for the purposes of s 114 of the Constitution , but denies the relevance of that concession. The Commissioner also concedes that the TAB is an authority completely controlled by the State of New South Wales. It submits, however, that the expenditure of the TAB is not exclusively borne by that State.

The structure and activities of the TAB

The legal structure and activities of the TAB are sufficiently summarised in the judgment appealed against as follows:

``A totalizator is defined by s. 2 of the Totalizator Act 1916 (NSW) (`the 1916 Act') to mean:

`(a) a system used to enable persons to invest money on horse races or greyhound races with a view to successfully predicting specified outcomes of those races and to enable the money left after providing for the payment of commission to be divided and distributed among those persons who successfully predict those outcomes; and

(b) any instrument, machine or device through or by which the system is operated and, in particular, for showing the number of investments made on those races and the amounts of those investments.'

The 1916 Act legalised on-course totalizator betting in New South Wales. The TAB was established by the Totalizator (Off-course Betting) Act 1964 (NSW) (`the TAB Act') in order to provide an off-course betting service.

The TAB is constituted as a body corporate by the TAB Act, ss. 3(1), 5(1). The ten members of the TAB include Ministerial nominees and persons nominated by various racing clubs such as the Australian Jockey Club and the Sydney Turf Club. In the exercise of its powers and functions, the TAB is subject to the direction and control of the Minister: s. 3(1A). The evidence showed that Ministerial control is exercised in a range of matters. The Commissioner did not dispute that the TAB is `completely controlled' by the State of New South Wales for the purposes of Item 126(1)(b) of Schedule 1 to the Exemptions Act 1992.

The TAB is empowered to conduct `off- course totalizator betting on any event or contingency scheduled to be held on any racecourse within or outside Australia': ss. 12(1), 13. All bets made with the TAB in respect of any such event or contingency are received by the TAB as agent for the relevant racing club using a totalizator for that event or contingency and must be paid into that totalizator: s. 12(2). This is a reference to the conduct of on-course totalizators by racing clubs on racecourses on which they hold meetings, an activity authorised by s. 3A(1) of the 1916 Act.

The TAB has power, notwithstanding anything else in the TAB Act or the 1916 Act, to enter into arrangements or agreements with any authority conducting off-course totalizator betting in any place inside or outside Australia, for the purpose of enabling amounts received by that authority from `investors' to be paid into a totalizator used by the TAB: TAB Act, s. 12(5). With the approval of the Minister, the TAB also may conduct totalizator betting upon any event or contingency scheduled for

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decisions within or outside Australia, otherwise than at a race meeting: s 12A(1). In fact the TAB conducts totalizator betting on rugby league, rugby union, soccer and motor racing. All bets made with the TAB in respect of these events must be held separately from other money coming under its control, placed in a totalizator conducted by the TAB in respect of that event or contingency, and be available for distribution in accordance with the TAB Act: s. 12A(2). Where money is dealt with in accordance with s 12A(2), the TAB is required to deduct any amounts refundable to investors and distribute the balance by paying 75% as dividends or prize money; retaining 15% or such lower figure as is prescribed as commission; and paying the balance as commission to the Minister: s 13H(2).

The distribution of moneys derived by a racing club conducting a totalizator is dealt with by the 1916 Act. That Act provides that the racing club using the totalizator must first deduct from the total money paid into the totalizator any sums refundable to investors or transferable to another type of totalizator in accordance with the regulations: s. 8A(a). It then must distribute the balance in accordance with the Act: s. 8A(b). Where part of the balance is derived from bets made through the TAB, a percentage (which varies according to the kind of totalizator) is paid as commission to the Minister and a percentage (which varies from 7.5% to 8.5%) is paid to the TAB as commission: see Part 3, Divisions 1 and 2. The evidence shows that in the year ended 30 June 1994 about 84% of what was described as `total sales' was returned to investors.

Section 14(3) of the TAB Act prescribes how the Board is to apply its income:

`14(3) The Board shall apply amounts paid to the Board as commission under [ the 1916 Act], amounts retained by the Board as commission under [ the TAB Act] and, except as otherwise provided in this or any other Act, any other income of the Board:

  • (a) firstly in or towards paying the costs and expenses of the operations of the Board,
  • (b) secondly, with the approval of the Minister, in or towards payment of the expenses of or connected with or arising out of the carrying out of any of the matters referred to in section 10 in relation to the establishment of additional offices, branches or agencies or the making of additions to or extensions or improvements of existing offices, branches and agencies; and
  • (c) thirdly in annual or other periodical payments to the Greyhound Racing Control Board, the Harness Racing Authority of New South Wales, racing clubs approved by the Board and the Racecourse Development Fund in accordance with the financial scheme submitted to, and approved by, the Minister pursuant to section 14B and for the time being in force.'

Money held by the TAB pending payment pursuant to s 14(3)(c), to the Greyhound Racing Control Board, the Harness Racing Authority or approved racing clubs are to be held in trust for those bodies: s. 16.

The TAB Act provides for a `T.A.B. Adjustment Account': s. 14A. Where an error in calculation or determination of bets or dividends is made by the TAB and a `profit' results, it is paid into the Account: s. 14A(2)(a). If the error produces a `loss' an equivalent amount is paid from the Account to the TAB: s. 14A(2)(b). Any balance remaining in the Account on 1 June and 1 December in each year is paid into the Consolidated Fund: s. 14A(3). The Account is liable for a `loss' only to the extent of any balance available in the Account: s. 14A(4). The amounts payable to the Minister under the TAB Act are not to be affected by any error: s. 14A(5).

The TAB is authorised to invest moneys not required for the purposes of the TAB Act: s. 16A. In practice, investments are made through the New South Wales Treasury Corporation, the commercial arm of the Treasury. The TAB may also, with the approval of the Governor, use facilities or services not fully utilised in its betting operations for commercial undertakings: s. 16B.''

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Whether the TAB is the State of New South Wales

The starting point of the appellant's principal submission is s 114 of the Constitution . That section provides relevantly:

``A State shall not, without the consent of the Parliament of the Commonwealth,... impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State.''

The submission proceeds by acknowledging that since 1992, when the current legislation was introduced, Parliament has ensured that no sales tax is imposed in circumstances which otherwise would contravene s 114 (see s. 4 of the Imposition Act). The next step in the argument is that Item 126 is complementary to the protection conferred upon a State by s 114, or the exclusion from taxation contained in s 4 of the Imposition Act. So it is said that where the word ``State'' is used in Item 126(1), it has the same meaning as it has in s 114.

It is the last step in the argument which presents the difficulty. For it is neither supported by the language of Item 126 nor by the legislative history of the Item.

The historical background to Item 126 is largely sketched in my judgment in
FC of T v Bank of WA Ltd ; FC of T v State Bank of NSW Ltd 96 ATC 4009 ; (1995) 133 ALR 599 .

Prior to 1993 the sales tax legislation had its origin in legislation introduced in 1930. Initially there was no separate legislation granting exemption from the tax nor was there a need to have legislation classifying goods for the purposes of differential rates. Such exemptions from the tax as were originally enacted were to be found in s 20 of the Sales Tax Assessment Act (No 1) 1930 (Cth) (``the 1930 Assessment Act'') and incorporated by reference into the initial eight Assessment Acts which formed part of the then legislative scheme. There was initially no exemption for goods for use by the Commonwealth or State.

The idea of an exemption for goods for use by a State or Commonwealth government arose in July 1931 with the announcement by the then Treasurer of an intention to ``grant exemption from sales tax in respect of purchases by State governments and government departments to the official use of those departments''. The budget speech, the relevant passage of which is set out in the judgment in the Bank of Western Australia case, makes it clear that the exemption was to apply to governments of the Commonwealth or State. As enacted the exemption, which was initially paragraph (aa) of s 20 of the Sales Tax Assessment Act (No 1) 1930 (Cth), read as follows:

``Goods sold to the Government of the Commonwealth or the Government of a State where the Commissioner is satisfied that the goods are for the official use of a Government Department, or of an authority which is completely controlled by, and the expenditure of which is exclusively borne by, the Government and are not for resale, and, in the case of goods sold to a Government of a State, an arrangement has been made between the Governor-General and the Governor in Council of the State for the collection and payment by the State of sales tax upon the sale value of all goods sold by the Government of the State and by every such Authority established under the law of the State, in the conduct of an enterprise which, in the opinion of the Commissioner, is a trading enterprise.''

In 1935 there was enacted the Sales Tax (Exemptions and Classifications) Act 1935 (Cth). That Act replaced the exemptions which had theretofore been contained in s 20 and in a series of schedules contained lists of items relevant to the diverse rates of sales tax which were applied.

Item 74 in the First Schedule to the 1935 Act was the precursor to Item 126 of the 1992 legislation. It differed slightly from the exemption contained in s 20(aa) of the 1930 Assessment Act in that while the 1931 exemption required the goods actually to be sold to the relevant government, whether State or Federal, Item 74 did not so require. It was sufficient that the goods were for the official use of a relevant department or authority. Item 74 thus read as follows:

``Goods for official use (whether as goods or in some other form), and not for sale, by a department of the Government of the Commonwealth, a State, the Northern Territory or the Australian Capital Territory, or an authority which is completely controlled by, and the expenditure of which is exclusively borne by , the Government of the Commonwealth, a State , the Northern Territory or the Australian

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Capital Territory, as the case may be, provided that, in the case of goods for the use of a department or an authority of the Government of a State, the Northern Territory or the Australian Capital Territory, an arrangement has been made between the Governor-General and the Governor-in- Council of the State, the Administrator-in- Council of the Northern Territory or the Chief Minister of the Australian Capital Territory, as the case may be, for the collection and payment by the State, the Northern Territory or the Australian Capital Territory, as the case may be, of sales tax upon the sale value of goods sold by the Government of the State, the Northern Territory or the Australian Capital Territory, as the case may be, and by every such authority established under the law of the State, the Northern Territory or the Australian Capital Territory, as the case may be, in the conduct of an enterprise which, in the opinion of the Commissioner, is a trading enterprise.

In this item, `authority' does not include an authority as defined by subsection 20A(1) of the Sales Tax Assessment Act (No 1) 1930 .''

[ Emphasis added]

Essentially, sales tax was a tax imposed upon the sale of goods by wholesale in the last wholesale sale:
DFC of T v Ellis & Clark Ltd (1934) 3 ATD 98 ; (1934) 52 CLR 85 , see at ATD 100; CLR 89ff . Since ordinarily the government of the Commonwealth or a State would not be selling goods by retail, purchases by the Commonwealth or a State of goods would ordinarily occur in a retail sale. That is to say, in accordance with the general scheme of the sales tax legislation, the taxing point would arise at a stage earlier than the purchase by the relevant government when there was a sale of the relevant goods to a retailer.

However, to ensure against a leakage of sales tax, if the tax was imposed only on wholesale sales, sales tax was also applicable in certain circumstances where a manufacturer or wholesale merchant made sales by retail of goods which they had purchased tax free on quotation of a certificate or where such persons applied goods, which had not borne sales tax in a previous wholesale sale, to their own use.

On the view of the legislation which appealed to the Full Court of this Court in
FC of T v Nimrod Theatre Company Ltd 85 ATC 4092 ; (1985) 5 FCR 269 it would have been a rare case where a government of a State or the Commonwealth could have been liable to sales tax by virtue of having applied goods to its own use. In the view of the Full Court, such a case would only arise where the government of the State was a person who carried on the business of manufacturing goods.

That view, however, did not ultimately prevail in the High Court which in
FC of T v Totalizator Administration Board of Queensland 90 ATC 5041 ; (1990) 170 CLR 508 , took a contrary view and held that a person was a manufacturer if that person manufactured goods irrespective of whether it did so as a matter of business. On this view of the law, governments which brought goods into existence for their own purposes became liable to pay sales tax upon them unless otherwise exempted. It was no doubt this apparent widening of the sales tax net which gave rise to the constitutional challenge to the legislation as contravening s 114 of the Constitution in
DFC of T v State Bank of New South Wales 92 ATC 4079 ; (1992) 174 CLR 219 . That case held that the Commonwealth had no power to tax the State Bank of New South Wales upon goods which it brought into existence for its own purposes as so to do would impose a tax upon the property of the bank which, for the purposes of s 114 of the Constitution , was to be equated to the State.

It would follow from the State Bank case that where the legislation imposed a liability for sales tax upon a body which was the State within the meaning of s 114, on the basis that that body had applied goods to its own use, the legislation was invalid.

In 1992 the original 1930 legislation, as amended from time to time, was repealed and replaced by a new series of Acts referred to by the Commissioner of Taxation in publications as ``the streamline sales tax law''. It is not quite true to say that the 1992 legislation effected no change of the law. Although one of the aims of the 1992 legislation was to simplify the legislative scheme and rewrite the legislation in language thought to be simpler to understand, the opportunity was taken at the same time to deal with certain matters of policy. It is, however, fair to say that in general terms the legislation after 1992 continued to operate along the same lines as had applied since 1930, namely that sales tax was payable on the last

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wholesale sale and on a wholesale sale value with the tax becoming payable in certain circumstances on retail sales or applications to own use.

The Explanatory Memorandum accompanying the Sales Tax (Exemptions and Classifications) Bill 1992 made it clear that, subject to certain areas of change, the intention was to preserve as nearly as possible the scope of the existing exemptions and classifications for sales tax purposes. The only matter referred to as involving a matter of change relevant to the present context is expressed as follows:

``Goods for use by the State governments

Change: It will not be a requirement that State and Territory governments enter into agreements to pay tax on goods sold by their trading enterprises, before they can claim exemption on goods for their own use.

Existing law: There is a provision that requires State and Territory governments to enter into agreements to pay tax on goods sold by their trading enterprises before they can claim exemptions on goods for use by them. However, there is no evidence that these agreements have ever been entered into.

Finance impact: Nil.''

Under the specific heading relating to Item 126, the Explanatory Memorandum indicates that the exemption has been ``substantially re- worked to make it easier to read''. Nothing in the commentary to the Item suggests any substantial change relevant to the matter presently in issue.

I have set out these historical matters in some detail to illustrate that there is nothing in the legislative history to Item 126 to suggest that the exemption in that Item was intended to be complementary to s 114 of the Constitution or to suggest that the exemption, whether in the initial 1935 Act or the 1992 Act, was intended to be construed so that the word ``State'' had the same meaning as in s 114 of the Constitution .

There is no principle of interpretation that a word used in one statute necessarily must have the same meaning as the same word used in some other statute. Indeed, the same word used in the same statute or even in the same section may be given a different meaning if that is what the context requires: cf
Clyne & Anor v DFC of T 81 ATC 4429 at 4433; (1981) 150 CLR 1 at 10 per Gibbs CJ. It is necessary therefore in evaluating the appellant's argument to consider and compare the contexts in which the word ``State'' is used in s 114 of the Constitution on the one hand, and Item 126(1) on the other.

The Commonwealth Constitution was concerned with the terms upon which the various former colonies were prepared to come together and to form one political organisation under the name of The Commonwealth, and with the division of powers and authorities between the States and the central government. As Dixon J said in
Bank of New South Wales v The Commonwealth (1948) 76 CLR 1 at 363 :

``The Constitution sweeps aside the difficulties which might be thought to arise in a federation from the traditional distinction between, on the one hand the position of the Sovereign as the representative of the State in a monarchy, and the other hand the State as a legal person in other forms of government... and goes directly to the conceptions of ordinary life. From beginning to end it treats the Commonwealth and the States as organizations or institutions of government possessing distinct individualities. Formally they may not be juristic persons, but they are conceived as politically organized bodies having mutual legal relations and amenable to the jurisdiction of courts upon which the responsibility of enforcing the Constitution rests....''

Although the comments made by Sir Owen Dixon are concerned with s 75(iii) of the Constitution , the same is true when one turns to s 114. Given the nature of the compact between the States as enshrined in the Constitution , one must expect that the word ``State'' in s 114 is to be given a wide meaning. There is no reason to suppose that the intention was to concentrate on form to the exclusion of substance. So, for example, it was ultimately held in
DFC of T v State Bank of New South Wales 92 ATC 4079 ; (1992) 174 CLR 219 that, for the purposes of the section, it was not relevant that the property taxed belonged to an incorporated entity. To hold otherwise would, as the Full High Court observed (at ATC 4083; CLR 229):

``... be more likely to frustrate than to achieve the attainment of its object, namely, the protection of the property of the Commonwealth and the States from the

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imposition of taxation by each other in the interests of their respective financial integrity.''

In the same case, their Honours said (at ATC 4083; CLR 230-231):

``Once it is accepted that the Constitution refers to the Commonwealth and the States as organisations or institutions of government in accordance with the conceptions of ordinary life, it must follow that these references are wide enough to denote a corporation which is an agency or instrumentality of the Commonwealth or a State as the case may be. The activities of government are carried on not only through the departments of government but also through corporations which are agencies or instrumentalities of government. Such activities have, since the nineteenth century, included the supply on commercial terms of certain types of goods and services by government owned and controlled instrumentalities with independent corporate personalities.''

In the words that follow their Honours use as illustrations railway and banking undertakings now carried on through statutory corporations.

Item 74 distinguished between goods for official use by a department of the government of the Commonwealth or State on the one hand, and by an authority on the other. An incorporated body could hardly be seen to be a department of a Commonwealth or State government. On the other hand there was nothing to stop an incorporated body being an authority, provided, in fact, it came within the meaning of those words, a matter discussed in the Bank of Western Australia case by the Full Federal Court.

With respect, I agree with the comments made by Heerey J in
GIO (NSW) v FC of T 92 ATC 4178 at 4180; (1992) 35 FCR 247 at 251 , where his Honour said:

``In my opinion the term `department' in the context of item 74 and especially in light of the distinction drawn there between departments and authorities, means a part of the public service of the Commonwealth or a State organised for the carrying out of particular governmental functions and for which a Minister of the Crown is responsible.''

Hence the situation before 1992 would seem to have been that governmental departments (that is to say the Commonwealth or State itself) were exempt, but entities not being a department of State were only entitled to exemptions from sales tax if they qualified as fully funded authorities. It is relevant to note that the word ``authority'' is not used synonymously with ``entity'' so that not all entities fully controlled and funded by a State or Federal government would have been entitled to exemption under the legislation. Thus at least the submission made by the appellant would have been untenable under the 1935 legislation applicable until 1992.

The 1992 legislation eliminated reference to a ``department of... Government'' and substituted for it the simple expression ``an Australian government'' defined in Item 126(3). It retained the dichotomy between the Australian government on the one hand and a fully controlled and funded authority on the other, which had characterised the exemption in Item 74 of the 1935 Act. To construe the words ``an Australian government'' as encompassing all bodies which may be recognisable as the Crown in the right of the Commonwealth or State as the case may be for the purposes of s 114, is to give no effect at all to the dichotomy. Every (or if not every, substantially every) authority completely controlled and funded by a Commonwealth or State government would seem to fall within the words ``Australian government'', if the argument be correct.

It is not necessary to consider whether any exceptions may be found to this general rule. What is more important is that Item 126 represents a dichotomy between an Australian government on the one hand, and an authority controlled by an Australian government on the other. That dichotomy suggests that the words ``an Australian government'' are used in the context of the political entity which is the Commonwealth or the State, as the case may be, rather than in the sense used in s 114 encompassing bodies however they may be constituted if they are properly to be regarded as the Crown in the right of the Commonwealth or State as the case may be.

I am therefore in agreement with the judgment appealed from that the TAB is not entitled to exemption by force of Item 126(1) as being the State of New South Wales. It has a separate legal standing from the State conferred

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upon it by the TAB Act and is thus not the State of New South Wales. If it is to be exempt from sales tax it must bring itself within Item 126(1)(b).

Before turning to Item 126(1)(b), I wish to deal briefly with a question raised in argument by the appellant, namely whether there is a principle of construction which requires the items of exemptions in Schedule 1 to the Exemptions and Classifications Act to be given a liberal interpretation.

The view that such a principle of construction exists derives support from some comments made by French J in
Diethelm Manufacturing Pty Ltd v FC of T 93 ATC 4703 ; (1993) 44 FCR 450 . The comments were not endorsed by the other members of the Court, although that does not necessarily mean that they were not held by them.

In Diethelm , French J enunciated some ``broad general principles'', the first of which was expressed in the following terms (at ATC 4714; FCR 464):

``1. Classifications of goods attracting exemptions or beneficial rates should be liberally construed unless the text or context requires a narrow construction.

...''

It may well be that in enunciating this principle his Honour had in mind comments made in cases such as
FC of T v Top of the Cross Pty Ltd and Travel Holdings (Aust) Pty Ltd 81 ATC 4563 at 4571; (1981) 37 ALR 623 at 633 (per Bowen CJ and Ellicott J), as referred to in
Jetmaster Fireplaces Pty Ltd v FC of T 89 ATC 4464 at 4468 ; and see
Penrith Rugby League Club Ltd v Commr of Land Tax (NSW) 83 ATC 4709 ;
FC of T v Reynolds Australia Alumina Ltd & Ors 87 ATC 5018 at 5022; (1987) 77 ALR 543 at 549 per Beaumont J and at ATC 5032; ALR 560 per Burchett J; and
Plessey Australia Pty Ltd v FC of T 89 ATC 5163 at 5168; (1989) 89 ALR 395 at 400 .

Not all of the cases referred to can necessarily be taken as endorsing the proposition. For example, in Jetmaster Einfeld J merely repeated a submission without indicating whether or not the submission had his Honour's approval. But be that as it may, the passages cited all stand for the following unexceptionable proposition. Where parliament has enacted legislation to encourage a particular activity, for example legislation which gives particular concessions to the mining industry, the legislation must be construed so as to promote parliament's purpose and not so as to detract from that purpose.

Some items contained in Schedule 1 to the Exemptions and Classifications Act may fall within this rule in that the government has granted exemptions from sales tax in the course of seeking to encourage a specific industry. The Reynolds Alumina case is an example of that. But it can hardly be said that an item such as Item 126 is there to encourage any particular activity so that a construction should be given to it consonant with its purpose to promote that activity. Item 126 merely confers exemptions upon a particular kind of body, namely an Australian government or a statutory authority meeting certain tests. Parliament's purpose was to exempt from sales tax goods for use by these bodies. But parliament's purpose is promoted by construing the exemption item in accordance with its ordinary meaning, not by seeking to give it a particular meaning favourable to the government or authority referred to in it. In my view, there is no general principle of construction that requires items in the Exemptions and Classifications Act to be given a benevolent interpretation in favour of persons or bodies referred to in the Schedule. Rather, each of the items is to be given its ordinary meaning in accordance with ordinary principles of interpretation, save where it is clear that the purpose of the government providing an exemption was to afford encouragement to a particular industry or activity.

French J in Diethelm in fact recognised the significance of the purpose of the relevant exempting item in applying this principle. Thus his Honour said (at ATC 4708; FCR 457):

``... On the other hand an exemption which exists for the purpose of encouraging, rewarding or protecting some class of activity is not to be given a narrow application. The liberal construction of provisions of Customs and Excise legislation allowing rebates on duties and excise payable in respect of fuel used in mining operations is one application of that general proposition - Collector of Customs v Cliffs Robe River Iron Associates (1985) 7 FCR 271 at 275.''

Exemption under Item 126(2)

As already noted, it is conceded by the Commissioner that the TAB is an authority and

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further that it is completely controlled by the government of New South Wales. The only matter at issue between the parties is whether its expenditure is within the meaning of Item 126(2) ``exclusively borne by'' the government of New South Wales.

For the TAB it was submitted that the question should be decided as a matter of substance rather than form. It was said that the legislative scheme of the TAB Act was the equivalent of the moneys received by the TAB being paid to it and thence into consolidated revenue and then appropriated by way of payment out or ``application'' under s 14(3) of the TAB Act, specifically in accordance with the financial scheme submitted to and approved by the Minister pursuant to s 14B of that Act. It submitted further that the Court should determine whether in substance, if not in form, the expenditure of the TAB was really borne by the State government which controls it. So looked at it was submitted that the expenditure of the TAB was borne exclusively by the State.

The Commissioner's preferred position was the narrow one rejected by the Full Court of this Court in the Bank of Western Australia case. According to this narrow view, every item of expenditure of an authority must emanate from consolidated revenue before the exemption item is satisfied so that if any item of expenditure was borne out of revenue of the authority the benefit of the exemption would be lost. As an alternative to this narrow but preferred position, the Commissioner submitted that the view taken by Lindgren J at first instance in the Bank of Western Australia case was to be preferred to that taken by the Full Court.

Lindgren J had expressed the view that the test of whether expenditure was exclusively borne was whether the expenditure gave rise to a commensurate financial burden shouldered by the State. This test is not necessarily inconsistent with that adopted by the Full Court on appeal where it was held that the fact that liabilities of the authority were guaranteed by the State led to the conclusion that those liabilities were borne by the State.

Finally, it was suggested that in any event even if the view of the Full Court were correct, the present was not a case where the expenditure could properly be seen to have been borne by the State.

It must be said that the view adopted by the Full Court in the Bank of Western Australia case was dicta, albeit considered and reasoned. It is, however, not binding upon this Court. In that case, in a judgment with which Wilcox and Drummond JJ agreed, I indicated that it was my view that the Commissioner's preferred view in that case (being the preferred view in the present case) was too narrow. I said (at ATC 4029; ALR 621):

``... To limit the exemption to those authorities whose every item of expenditure is required to be appropriated from consolidated revenue is neither warranted as a matter of language nor could it reflect a sensible policy. In my view expenditure of an authority will be exclusively borne by a government where the government is liable for funding any loss which may arise after there is deducted from the income of that authority the actual payments which the authority is required to meet....

On the Commissioner's view, once an authority had any income at all it would of necessity cease to be an authority exclusively funded by the relevant government for its expenditure would in part be funded out of income.''

I pointed out that expenditure could be borne by a person even though that person was not required to pay the amount directly. An obligation to reimburse a payment surely involves the person obliged to reimburse bearing the ultimate item of expenditure. Because sales tax is payable by the end purchaser of goods, it is right to say that the end purchaser bears the sales tax although the tax is not paid.

In my view, expenditure can properly be said to be borne by a government where the expenditure is required to be paid by the government, where, though not required to be paid by the government, it is in fact paid by it or where, from a practical point of view, the government becomes liable to have the expenditure deducted out of some dividend or other amount payable to it or, as in the Bank of Western Australia case, where the government bears the ultimate responsibility or liability for losses arising from the making of that expenditure. It is not necessary, however, in this case to go so far. It suffices to say that what the item is concerned with is the bearing of the expenditure, not the making of it. If the facts demonstrate that in this sense the expenditure is borne by the relevant State or Commonwealth

ATC 4793

government and the expenditure is not borne by other persons, then the exemption item will apply. However, in my view, in determining whether the expenditure is borne ``exclusively'' by the relevant government, one disregards the payment of the expenditure by the authority itself. That is because the section looks not to the payment of the expenditure but to the bearing of it.

In the present case it is not possible to say that the TAB bears exclusively the expenditure which it makes. There is much to be said for the view that its expenditure is borne, at least in part, by the entities referred to in s 14(3) of the TAB Act. In the present case if an item of expenditure is incurred by the TAB there is no obligation on the part of the government to pay that expenditure; there is no obligation on the part of the government to reimburse the authority for the expenditure nor to indemnify it against any loss it may incur as a result of incurring the expenditure. On no view of the matter can it be said that the expenditure of the TAB is borne by the State government.

Counsel for the TAB sought to support his submissions by reference to the provisions of the Public Finance and Audit Act 1983 (NSW) which, inter alia , impose requirements on the TAB and have the effect that the assets and liabilities of the TAB are taken up in the New South Wales public sector annual consolidated financial statements. With respect, while this legislation may make it clear that the TAB is an authority of the State and controlled by it, it tells nothing about whether its expenditure is exclusively borne by the State.

I would dismiss the appeal and order the appellant to pay the Commissioner's costs of it.


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