DARRELL LEA CHOCOLATE SHOPS PTY LTD v FC of TJudges:
Full Federal Court
Spender, Burchett & Hill JJ
On 31 May 1991 the respondent Commissioner of Taxation issued to the appellant, Darrell Lea Chocolate Shops Pty Limited (``Darrell Lea'') four notices of assessment of sales tax. Each notice concerned transactions said to have occurred during the period 1 October 1987 to 31 January 1991 inclusive. Darrell Lea duly objected against each assessment. These objections were all disallowed and in due time Darrell Lea appealed by way of application to the Court against the Commissioner's decision to disallow each assessment.
Before the hearing of these applications, Darrell Lea moved the Court for orders that there be tried as preliminary questions the issue of the validity of the assessments. On 21 April 1995, Hill J acceded to this request. The questions reserved for separate decision were in the following terms:
- (1) the document annexed and marked `A' was a valid and definitive notice in writing of an assessment pursuant to s 25(3) of the Sales Tax Assessment Act (No 1) 1930.
- (2) the document annexed and marked `B' was a valid and definitive notice in writing of an assessment pursuant to s 10(3) of the Sales Tax Assessment Act (No 2) 1930.
- (3) the document annexed and marked `C' was a valid and definitive notice in writing of an assessment pursuant to s 10(3) of the Sales Tax Assessment Act (No 6) 1930.
- (4) the document annexed and marked `D' was a valid and definitive notice in writing of an assessment pursuant to s 10(3) of the Sales Tax Assessment Act (No 7) 1930.''
Hill J's reasons for reserving these questions for separate trial are to be found in the judgment in
Darrell Lea Chocolate Shops Pty Limited v FC of T 95 ATC 4301. The background as stated in that judgment and as adopted by the learned primary judge is as follows.
It seems that in the early months of 1991 the Commissioner conducted a review of Darrell Lea's sales tax affairs. Darrell Lea claimed that in the period to which the four assessments relate, it had appointed various third persons as agents or sub-agents for the purpose of making sales by retail on its behalf and accordingly that it had sold the goods by retail through these agents or sub-agents. The Commissioner took the view that the arrangements entered into did not give rise to a relationship of principal and agent or sub-agent; that being the basis upon which Darrell Lea had accounted for sales tax in its sales tax returns for the period.
The notification of the first assessment reads as follows:
``SALES TAX ASSESSMENT ACT (NO 1) 1930 (AS AMENDED)
You are hereby notified that Darrell Lea Chocolate Shops Pty Limited is liable to pay sales tax as shown hereunder in accordance with an assessment that has been made under the provisions of sub-section 25(1), or alternatively 25(2) or in the further alternative 25(2A) of Sales Tax Assessment Act (No 1) 1930 (as amended).
SALES TAX ASSESSMENT ACT (NO 1) 1930 (AS AMENDED)
In respect of confectionery, toys and gift items manufactured by you and sold or applied to your own use, during the period 1 October 1987 to 31 January 1991 (inclusive):
RATES TOTAL SALE AMOUNTS OF OF TAX VALUE TAX THEREON 10% $100,172,287 $9,106,571 20% $ 2,102,776 $ 350,462 ---------- Total $9,457,033 Less Tax Previously Paid $5,823,874 ---------- Amount of Tax Now Payable $3,633,159'' ----------
The second notification is headed: ``Sales Tax Assessment Act (No 2) 1930''. It notifies a liability to sales tax said to arise:
``... in accordance with an assessment that has been made under the provisions of subsection 10(1) or alternatively 10(2) or in the further alternative 10(2A) of Sales Tax Assessment Act (No 2) 1930 (as amended).''
The narration of the notice says that it is:
``In respect of confectionery, toys and gift items sold during the period 1 October 1987 to 31 January 1991 (inclusive).''
The figures for rates of tax, total sale value and amounts of tax thereon are identical to those contained in the first notice to which we have referred.
The third notice purports to be made under the Sales Tax Assessment Act (No 6) 1930 (as amended). It notifies what is said to have been an assessment of sales tax:
``... in accordance with an assessment that has been made under the provisions of subsection 10(1) or alternatively 10(2) or in the further alternative 10(2A) of Sales Tax Assessment Act (No 6) 1930 (as amended).''
The narration on the notice says that it is:
``In respect of confectionery, toys and gift items imported by the company and sold or applied to own use, during the period 1 October 1987 to 31 January 1991 (inclusive).''
The rates of tax, total sale value and amounts of tax are identical to those in the other two assessments.
The final notice is headed ``Sales Tax Assessment Act (No 7) 1930''. It purports to notify an assessment:
``... made under the provisions of subsection 10(1), or alternatively 10(2) or in the further
ATC 4043alternative 10(2A) of Sales Tax Assessment Act (No 7) 1930 (as amended).''
The narration on the document says that it is:
``In respect of confectionery, toys and gift items sold during the period 1 October 1987 to 31 January 1991 (inclusive).''
Again, the figures for rates of tax, total sale value and amounts of tax thereon are identical to those in the other three notices.
Accompanying the four assessments was a letter in the following terms:
``Enclosed are four notices of assessment based on the recent review of the company's sales tax affairs. The assessments are primarily based on the conclusion reached during that review that the company has sold goods to agents who in turn sell by retail to the public or by wholesale to sub-agents. The working papers which support the calculations for the assessments will be made available to the company or its representatives for inspection as soon as possible. Copies of the assessments have been forwarded to the company's solicitors with a covering letter concerning further matters relevant to sales tax. A copy of that letter is enclosed for your information.
While four notices of assessment have been issued, I wish to point out that the total amount of the company's liability based on the matters considered so far is $3,633,159. This single amount should be paid as set out in each notice of assessment.''
In the objections lodged by it, Darrell Lea put in issue, inter alia, the validity of the four assessments.
Apart from the notices of assessment and the letter, the only evidence adduced consisted of the tender of a request by Darrell Lea for particulars and the Commissioner's response to that request. Critical to the resolution of the present dispute between the parties are the following admissions made by the Commissioner in the response to particulars or from the bar table.
- 1. That in the case of the first assessment the sale value of the goods had been altered pursuant to s 18(3A) of the Sales Tax Assessment Act (No 1) 1930 (``the No 1 Assessment Act'').
- 2. That in respect of the assessment purporting to be made under the Sales Tax Assessment Act (No 2) 1930 (``the No 2 Assessment Act'') the sale value of the goods had been altered pursuant to s 4(1) of that Act.
- 3. That in respect of the assessment made under the Sales Tax Assessment Act (No 6) 1930 (``the No 6 Assessment Act'') the sale value of the goods had been altered pursuant to s 4(1) of that Act.
- 4. Finally, that in respect of the assessment made under the Sales Tax Assessment Act (No 7) 1930 (``the No 7 Assessment Act'') the sale value of the goods had been altered pursuant to s 4(1) of that Act.
- 5. That the goods referred to in each assessment were the same goods, being goods said to have been sold through Darrell Lea's own stores and through alleged agents and alleged sub-agents.
It may be noted that in the response to particulars the Commissioner adhered to what appeared on the face of the assessments, namely that they were made pursuant to the powers of assessment conferred upon the Commissioner under the sections nominated on the face of each assessment.
It was further conceded on behalf of the Commissioner, as indeed it had to be, that it was a consequence of the admissions made in the answer to particulars that at the time the assessments were made the Commissioner knew that none of the assessments he had made could be correct. The reasons why this is so will shortly emerge.
The background legislation
In a judgment in
Genex Corporation Pty Ltd & Ors v The Commonwealth of Australia & Anor 91 ATC 4564, with which Beaumont and Burchett JJ agreed, Hill J set out the general scheme of the sales tax legislation as it existed at or around the time with which the present facts are concerned. The legislation has now been repealed. That judgment was affirmed on appeal in
The Commonwealth of Australia & Anor v Genex Corporation Pty Ltd & Ors 92 ATC 4764; (1992) 176 CLR 277 by the unanimous judgment of Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ and substantially for the reasons Hill J had given. It is not therefore necessary to repeat in detail the general outline of the legislation. However, the following
ATC 4044propositions flow from that judgment and the cases discussed in it.
- 1. The twenty seven separate Acts and Regulations dealing with sales tax, together formed a statutory scheme:
DFC of T v Ellis & Clark Limited (1934) 3 ATD 98 at 100; (1934) 52 CLR 85 at 89; to which each was necessary.
- 2. The first eight Assessment Acts fell into two groups, which of necessity were mutually exclusive. Assessment Acts Nos 1-4 were concerned with goods which were manufactured in Australia. Assessment Acts Nos 5-8 were concerned with goods which had been imported into Australia.
- 3. The policy of the legislation was that goods were to attract one and only one amount of sales tax and, so far as possible, that should be a tax upon the last wholesale sale or, if there were none, on a wholesale sale value.
Liability fell to be attracted under the Sales Tax Assessment Act (No. 1) 1930 (``the No. 1 Assessment Act'') where the goods in question were manufactured in Australia and dealt with in one of a number of alternative ways by the manufacturer. The manufacturer might have sold the goods by wholesale. Provided that sale was not to a registered person who quoted a sales tax certificate, the No. 1 Assessment Act established a sale value of those goods being the amount for which those goods were sold. Except where the goods fell within the class of goods in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (``the Exemptions and Classifications Act''), sales tax would, in the result, have been exigible at one or other of the rates at which it was imposed by reference to that sale value.
The manufacturer might, however, have sold goods by retail. In such a case the sale value, as and from 23 August 1988, was the amount for which the goods could reasonably be expected to have been sold by the manufacturer by wholesale. It is not necessary for present purposes to explore the difference between that sale value and the sale value as established by s 18(1)(b) prior to its amendment by Act No 88 of 1988. Two other cases arose under the No. 1 Assessment Act which could attract a sale value and thus, subject to exemption, a liability for sales tax. The first was the case where a manufacturer treated the goods as stock for sale by retail. The remaining alternative was where the manufacturer applied the goods to his or her own use.
Notwithstanding the sale value established by s 18(1)(b) in the event that the manufacturer sold the goods by retail, s 18(3A) permitted the Commissioner in a case to which that sub- section applied to alter the sale value otherwise determined under s 18(1)(b) and to substitute an amount which he determined was the fair and reasonable wholesale value of the goods. Section 18(3A) provided as follows:
``Where, in the case of goods to which paragraph (b) of subsection (1) of this section applies or to which subsection (2) or subsection (3) of this section applies (not being goods to which either of the provisoes to sub-section (2) or the proviso to sub- section (3) applies)-
- (a) no sale value of the goods has been set forth in any return required to be furnished under this Act; or
- (b) the amount set forth in any return required to be furnished under this Act as the sale value of the goods is less than the amount which, in the opinion of the Commissioner, is a fair and reasonable wholesale value of the goods,
the Commissioner may, whether or not the goods are of a class sold by any other person by wholesale, determine the amount which, in his opinion, is a fair and reasonable wholesale value of the goods, and, if he does so, the Commissioner shall be deemed to have altered the sale value of the goods (whether a sale value was set forth in the return or not) to the amount so determined by him, and the value as so deemed to be altered shall, not withstanding sub-section (1), (2) or (3), as the case may be, be the sale value of those goods for the purposes of this Act.''
There were other sections of the No. 1 Assessment Act which also permitted the Commissioner to alter the sale value, such as, for example, s 18(4), a section which was enlivened where the manufacturer and purchaser were not dealing with each other at arm's length; and s 18A(6), operative where there were arrangements collateral to the sale contract entered into for a sales tax avoidance purpose.
Each of the remaining Assessment Acts dealt with a particular situation which could give rise
ATC 4045to a liability for sales tax. Save so far as each Act differed in the description of the transaction to which it related, the Acts were in identical terms. As will be noted, many sections in the No. 1 Assessment Act were incorporated by reference into each of the remaining Assessment Acts by force of s 12 of each of those Acts.
The Sales Tax Assessment Act (No. 2) 1930 (``the No. 2 Assessment Act'') operated where goods had been manufactured in Australia and were sold by a person who had purchased those goods from the manufacturer. Because the No. 1 Assessment Act applied only where the sale was by the manufacturer and the No. 2 Assessment Act only where the sale was effected by a person who had purchased from the manufacturer and not the manufacturer himself, it is obvious that Assessment Acts Nos. 1 and 2 covered mutually exclusive transactions.
The sale by the taxpayer assessable under the No. 2 Assessment Act might have been by wholesale in which case, as long as the sale was not to a registered person who had quoted a sales tax certificate, the sale value was the amount for which the goods were sold, that being the ordinary sale value in the last wholesale transaction. Where the sale was one by retail of goods which had been acquired tax- free, the sale value was the ``fair market value of those goods if sold... by wholesale'', unless the Commissioner formed the opinion that the amount set out in the sales tax return as the sale value was less than the amount which was the fair market value of the goods if sold by wholesale, when the Commissioner was directed to alter the sale value in accordance with the proviso to s 4(1) of the Act. Other sections in the No. 2 Assessment Act permitted the alteration of sale value and corresponded to the sections in the No. 1 Assessment Act, to which reference has already been made.
The Sales Tax Assessment Act (No. 3) 1930 (``the No. 3 Assessment Act'') was concerned with the sale of goods manufactured in Australia where the sale was neither by the manufacturer nor by the purchaser of the goods from the manufacturer. The transaction referred to in the No. 3 Assessment Act was thus exclusive both of the transaction described in the No. 1 Assessment Act, being a sale by a manufacturer, and the transaction referred to in the No. 2 Assessment Act being a sale by a person who purchased directly from the manufacturer. Other provisions of the No. 3 Assessment Act concerning sale value and alteration of sale value followed those in the No. 2 Assessment Act.
The Sales Tax Assessment Act (No. 4) 1930 (``the No. 4 Assessment Act'') was concerned with the case where the relevant goods were manufactured in Australia, had been sold to a person who quoted a certificate and thus acquired them tax-free, and were then applied to his or her own use. In such a case the sale value was the amount that person paid to purchase the goods. However, again there were provisions permitting the Commissioner to alter the sale value along similar lines to those in the other Assessment Acts.
The Sales Tax Assessment Act (No. 5) 1930 (``the No. 5 Assessment Act'') was concerned with a liability to sales tax upon the importation of goods into Australia. It is not relevant to the present circumstances.
The Sales Tax Assessment Act (No. 6) 1930 (``the No. 6 Assessment Act'') was concerned with a liability to sales tax where goods were imported and sales tax was not paid at the time of entry of those goods into Australia under the No. 5 Assessment Act. Where those imported goods were thereafter sold by wholesale, the sale value prescribed by the No. 6 Assessment Act was the amount for which those goods were sold unless they were sold to a registered person who quoted a certificate. Where the goods were sold by retail, the sale value was expressed in terms similar to those in the No. 2 Assessment Act. Again there were provisions permitting the alteration of the sale value which corresponded with those in the other Assessment Acts.
The Sales Tax Assessment Act (No. 7) 1930 (``the No. 7 Assessment Act'') operated where goods were imported into Australia and were sold not by the importer but by a person who was not the importer. Since the No. 6 Assessment Act applied only to sales by the importer and the No. 7 Assessment Act to sales by a person other than an importer, the Nos. 6 and 7 Assessment Acts in respect of imported goods were mutually exclusive. Sales value was expressed in terms corresponding to those of the No. 3 Assessment Act in relation to manufactured goods. There were provisions for alteration of the ordinary sale value in terms corresponding with those to be found in the other Assessment Acts.
Finally, relevant to the present case, the Sales Tax Assessment Act (No. 8) 1930 (``the No. 8 Assessment Act'') was concerned with the case where imported goods were sold to the person who had acquired them tax-free and who then applied those goods to his or her own use. The provisions as to sale value and alteration of sale value were identical to those contained in the No. 4 Assessment Act.
Speaking generally, it may be said that the sales tax legislation in force at the relevant time was a self-assessing tax:
DFC of T v Hankin (1959) 11 ATD 503 at 505; (1958-1959) 100 CLR 566 at 574 and see
Warner Music Australia Pty Ltd v FC of T 96 ATC 5046 at 5055. A person having a liability to sales tax was required to lodge a return. Each of the Nos. 1-8 Assessment Acts specified the need to lodge a return under the particular Act: see, for example, s 21 of the No. 1 Assessment Act and s 7 of Nos. 2-8 Assessment Acts inclusive. If the specific requirements of each Assessment Act to lodge returns were observed, then the Commissioner would have been able clearly to differentiate transactions in goods manufactured in Australia and transactions in goods imported into Australia, as well as cases where the goods were sold by the manufacturer or importer as the case may be, or where the goods were sold not by the manufacturer or importer but by some person who had purchased those goods from the manufacturer or importer. Conversely, however, the obligation upon the taxpayer could be cumbersome where the taxpayer was involved in transactions attracting the provisions of more than one Assessment Act. For this reason s 5 of the Sales Tax Procedure Act 1934 (``the Procedure Act'') permitted the making of global returns, that is to say returns not specifying the Act or differentiating between the Acts (if more than one) pursuant to which sales tax was assessable on the goods. It was also provided by that section that a return so furnished under that section would be in lieu of a return required to be furnished under any of the Sales Tax Assessment Acts in respect of the goods in question.
The actual returns lodged by Darrell Lea in respect of the period were not in evidence before us. However, we were advised from the bar table that the returns as lodged were in the usual prescribed form as contemplated by s 5 of the Procedure Act and thus did not differentiate among the goods as to which of the Assessment Acts applied.
The Commissioner acting under s 22 of the No. 1 Assessment Act or s 8 of the Nos. 2-4 and 6-8 Assessment Acts was empowered to require further returns to be furnished. Under s 23 of the No. 1 Assessment Act, incorporated by reference into each of the other Assessment Acts, the Commissioner could require a taxpayer to attend and provide further information or evidence for the purposes of the legislation. Thus, ample power existed in the Commissioner under the legislation to ensure that the Commissioner could discover whether goods were manufactured in Australia or imported into Australia, as well as the circumstances of the sale so as to ensure that the Commissioner could determine, in respect of any particular transaction in goods, which Assessment Act applied and the relevant sale value arising.
The liability to sales tax existed without the need for assessment under s 24 of the No. 1 Assessment Act and s 9 together with s 5 of the other Assessment Acts. The tax was payable twenty-one days after the close of the month in which the relevant transaction occurred which gave rise to a liability to the tax. Thus in the ordinary case it was contemplated that a taxpayer would return details of the transactions undertaken by him or her in respect of taxable goods in the month, enclosing with the return his or her remittance for sales tax. There would thus be no need for an assessment to be made.
However, each of the Assessment Acts conferred upon the Commissioner power to make assessments in certain circumstances. The No. 1 Assessment Act will be dealt with first and the comparable sections in the other Assessment Acts then indicated.
Section 25(1) authorised the Commissioner, where he found that sales tax or further sales tax was payable by a person, to make an assessment in relation to that person. Section 25(1) was thus the general assessing power and was facultative only. It did not require the making of an assessment. Section 25(2), however, provided:
``Where, under sub-section 18(3A) or (4) or 18A(5) or (6), the sale value of any goods has been altered, the Commissioner shall make an assessment in relation to those goods.''
Counsel for Darrell Lea argued that s 25(2) was an independent assessing power from that contained in s 25(1). That is not necessarily the case, although it is unnecessary to determine the question. While it is arguable that s 25(2) conferred upon the Commissioner an assessment power independent of that conferred in s 25(1), which independent power had to be exercised where the sale value was altered under one of the nominated sections, it is a possible construction that the actual assessment power was that contained in s 25(1) which was but facultative, and that all s 25(2) did was to require the exercise of the power under s 25(1) where the sale value was altered.
Section 25(2A) of the No. 1 Assessment Act was concerned with the making of default assessments. The power under s 25(2A) arose where there was a default in furnishing a return; the Commissioner was not satisfied with the return; or the Commissioner had reason to believe or suspect that a person was liable to pay sales tax. But the assessment under s 25(2A), like the default assessment for income tax under s 167 of the Income Tax Assessment Act 1936, differed from the ordinary assessment in that it involved an exercise of discretion on the part of the Commissioner to determine in a case of sales tax the amount upon which, in his opinion, sales tax should be paid. It is unnecessary to determine in this case the relationship between the power to assess under s 25(1) and the power to assess under s 25(2A). It may well, however, have been the case, just as it is with ss 166 and 167 of the Income Tax Assessment Act 1936, that the power to make a default assessment was epexegetical to the power to make an ordinary assessment:
FC of T v Dalco 90 ATC 4088; (1989-1990) 168 CLR 614, per Toohey J at ATC 4096; CLR 630, citing
George v FC of T (1952) 10 ATD 65 at 68; (1952) 86 CLR 183 at 203-204.
There was a power in s 25AA of the No. 1 Assessment Act in a taxpayer to request the making of a special assessment. The section was inserted in 1986 to permit a taxpayer to require an assessment so that an appeal could be instituted to determine the taxpayer's liability in respect of a particular transaction. It has never been suggested that Darrell Lea requested the Commissioner to issue an assessment under s 25AA.
Under s 25(3) the Commissioner was required to notify in writing the assessment to the person liable to pay the relevant tax, however, the omission to give such a notice did not operate to invalidate the assessment: s 25(5).
The Nos. 2-4 and 6-8 Assessment Acts were for present purposes identical in so far as they dealt with the Commissioner's power to make assessments. The general assessing power equivalent to s 25(1) was to be found in s 10(1). Section 10(2) was the equivalent to s 25(2) requiring an assessment to be made where the sale value had been altered under any of sub-ss 4(1), 4(4), 4A(5) or 4(6), as the case may be. Section 10(2A) was the default assessing power equivalent to s 25(2A), and s 10(3) and s 10(5) were the respective equivalents of s 25(3) and s 25(5). Section 10A conferring the power to make special assessments was the equivalent of s 25AA of the No. 1 Assessment Act.
Ultimately nothing turns here upon whether the Commissioner was in error in nominating more than one section conferring the power of assessment. Counsel for Darrell Lea accepted that reference to the wrong, as well as to the correct section (if that was the case), would be mere surplusage, not invalidating the assessment.
Finally, reference should be made to s 67(1) of the No. 1 Assessment Act incorporated by reference into each of the other Assessment Acts by s 12 of those Acts. Section 67(1) provided:
``The mere production of-
- (a) a notice of an assessment or of the making of a refund decision; or
- (b) a document signed by the Commissioner, a Second Commissioner or a Deputy Commissioner and purporting to be a copy of a notice of an assessment or of the making of a refund decision,
is conclusive evidence-
- (c) of the due making of the assessment or the refund decision;
- (d) in the case of a notice of an assessment - except in proceedings under Part VII on a review or an appeal relating to the assessment, that the amounts and all of the particulars of the assessment are correct; and
- (e) in the case of a notice of a refund decision - except in proceedings under
ATC 4048Part VII on a review or appeal relating to the decision, that the decision is correct.''
The judgment appealed against
The learned primary judge was of the view that each of the four assessments was valid. In so holding, his Honour relied upon the decision of the High Court in
DFC of T v Richard Walter Pty Ltd 95 ATC 4067; (1994-1995) 183 CLR 168 as establishing both that an assessment of the kind before his Honour was not tentative and that s 67 of the No. 1 Assessment Act, or as incorporated in the other Assessment Acts as the case may be, precluded an argument that the assessments were void. This was so, in his Honour's view, notwithstanding that there were multiple assessments of sales tax purporting to render Darrell Lea liable to tax in respect of the sale of the same goods, pursuant to different statutory provisions which were mutually exclusive. His Honour referred to the judgment in
Stokes v FC of T 96 ATC 4393, in which Davies J at first instance had held that multiple assessments of a taxpayer in respect of the same year of income in different amounts were invalid, but found the facts in the present case to be distinguishable from those in Stokes. The judgment of Davies J in Stokes has been upheld on appeal in a judgment delivered concurrently with the present reasons.
It might here be remarked that in the course of the learned primary judge's judgment in the present case his Honour said:
``The facts which would enable the Commissioner to make assessments of sales tax reflecting the actual amount of the applicant's liability under the four separate Assessment Acts are peculiarly within the knowledge of the applicant, but the facts known to the Commissioner are such that he is unable to determine which of the sales attracting liability to tax are caught by each particular Assessment Act and he has adopted the view that there is a substantial possibility that all of the sales are caught by one or other Act. The several assessments have not been made for the purpose of double recovery of tax. To adopt, with respect, the language of Brennan J, it may well be said that if uncertainty as to the particular Act under which sales of goods are assessable to sales tax were to sterilise the Commissioner's power to make an assessment or if the power could be exercised only when the Commissioner is satisfied on the balance of probabilities that sales are taxable under one Act rather than another or others, the uncertainties which are the inevitable companions of complex commercial transactions would substantially erode the Commissioner's ability to recover sales tax and would, contrary to the intent of s 67(1) of the No 1 Act as it applies in respect of all four Acts presently in question, open the way to litigating liability to tax outside the objection, review and appeal procedures.''
To the extent that his Honour in the passage just quoted purported to find as a fact that the Commissioner did not have sufficient information to determine which of the relevant Acts applied, there was no material before his Honour, one way or the other, to permit such a finding to be made. It was asserted by counsel for the Commissioner, and denied by counsel for Darrell Lea, that the Commissioner had insufficient information.
From this decision with leave, Darrell Lea appealed to this Court.
Wheather section 67 rendered each assessment immune from attack as to validity
On its face, s 67 of the No. 1 Assessment Act as incorporated by reference into the other Assessment Acts, precluded a taxpayer, even in proceedings by way of appeal from an objection decision, from challenging the validity of an assessment. The section provided that the mere production of a notice of an assessment will be conclusive evidence of the due making of it. Once s 67 has done its work all that is left in an appeal from an objection decision is to determine the correctness of the amounts and other particulars of the assessment.
Part III of the Constitution of the Commonwealth investing as it does in the High Court jurisdiction to review the conduct of administrative officers of the Commonwealth, compels the conclusion that Parliament can not enact a law rendering such conduct immune from scrutiny, at least by the High Court. Where a section might be construed so to do, it must be construed in such a way as to ensure that it does not conflict with the conferring of jurisdiction upon the High Court under the Constitution.
This principle of construction is set out in the judgment of Dixon J in
The King v Hickman;
ATC 4049Ex parte Fox and Clinton (1945) 70 CLR 598 at 614. The decision of the High Court in Richard Walter confirms that the Hickman principle of construction applies equally to the privative provisions of s 167 and it must follow would equally apply to the provisions of s 67 of the No. 1 Assessment Act.
Section 67 will therefore operate to preclude a court from examining the validity of an assessment once a notice of assessment is tendered, provided always:
- 1. that there has been a bona fide attempt to exercise the power of assessment;
- 2. that that attempt to exercise the power of assessment relates to the subject matter of the legislation, in the present case the sales tax legislation; and
- 3. that the exercise of the power of assessment is reasonably capable of reference to the power given to the Commissioner.
The fact that an assessment may be wrong could never enliven the Hickman principle. Provided that in making the assessment the Commissioner made a bona fide attempt to assess the relevant tax or (in the case of sales tax having regard to the definition of ``assessment'' in s 3(1) of the No. 1 Assessment Act) to ascertain the sale value of relevant goods and the sales tax payable on that sale value, that notice of assessment will be immune from attack.
Richard Walter makes it clear that the mere fact that two assessments are issued against different taxpayers including the same amount in the assessable income of each in the same income tax year, will not attract the Hickman principle. In such a case, each assessment will be entitled to the protection arising from s 177 of the Income Tax Assessment Act together with s 175 of that Act, which latter section has no corresponding provision in the sales tax legislation. In such a case there will have been a bona fide attempt by the Commissioner to exercise the assessment power, and that attempt will relate to the subject matter of the Act and be reasonably capable of reference to the power conferred upon the Commissioner. Likewise, the mere existence of two assessments on different taxpayers will not demonstrate a tentativeness in the sense referred to in
FC of T v S Hoffnung & Co Ltd (1928) 1 ATD 310; (1928) 42 CLR 39. But it was critical in Richard Walter that at the time the Commissioner made each of the two assessments he was bona fide able to form the view that each could be correct. While it is true that both could not stand together, it was equally true that one or other of them could be completely correct. Which one, if either was completely correct, of course, was not at that stage known by the Commissioner.
The present case is different. Because each of the Assessment Acts was concerned with a transaction which was mutually exclusive of the transaction referred to in each other Assessment Act, an assessment of sale value and sales tax in respect of the same transaction and in respect of the same goods under multiple and inconsistent Sales Tax Acts, no one of which could in fact apply to all of the goods, necessarily involved the conclusion that each one of the assessments at the time it was made had to be wrong and had to be known to the Commissioner to be wrong. Once it is accepted, as it is, for example that some of the goods sold by Darrell Lea were manufactured in Australia and some were imported into Australia by it, an assessment on the basis that all of the goods were imported must clearly be wrong. An assessment on the basis that all of the goods were manufactured by it would likewise be wrong.
Bailey & Ors v FC of T 77 ATC 4096 at 4098; (1977) 136 CLR 214 at 217, Barwick CJ, in a passage which although referring to assessment under the Income Tax Assessment Act is equally applicable to assessment under the sales tax legislation, said:
``... the process of assessment requires the application of the Act to the facts as known to and accepted by the Commissioner. He must of necessity, as part of that process, adopt a view of the relevant facts.''
There will of course be cases where there will be uncertainty as to the facts. But that uncertainty will not invalidate a bona fide attempt to assess. What the Act does not contemplate is that the Commissioner will seek to apply the provisions of the Act to facts which he knows to be untrue. That could never amount to an assessment in the relevant sense for it could not amount to a bona fide process of ascertaining or determining the real sale value and sales tax payable on the relevant transaction. It would be an attempt at determining the sale value and sales tax payable in respect of some hypothetical transaction
ATC 4050which did not occur and which the Commissioner knew did not occur.
This point was taken up by Brennan J in Richard Walter where (at ATC 4082; CLR 200-201) his Honour indicated agreement with the comment made by Barwick CJ, subject to comments which his Honour then made as follows:
``It must be remembered that the Commissioner's function is administrative, not judicial. The power to assess is, as s 167 shows, not limited to cases where the Commissioner has enough information on which to make a positive finding of fact. The Commissioner is not required to determine on the balance of probabilities that one person rather than another is the person subject to the tax liability in respect of the particular income. Where the facts known to the Commissioner are such that he is unable to determine which of two or more persons is liable to tax on the same item of income in the same year, he may adopt the view in the case of any or all of those persons that there is a substantial possibility that the item of income is assessable income of that person. If that view is adopted in respect of two or more of those persons, he may validly assess each of them to tax.''
Conversely it may be said that once the Commissioner forms the view that there is no substantial possibility that the item of income is assessable income of a person, it could not be a bona fide exercise of the assessing power to assess that person to tax in respect of that income. Likewise here where it is conceded that there is no possibility at all that the assessments made were correct, there can be no assessment.
Briggs v DFC of T & Ors; Ex parte Briggs 86 ATC 4748; (1986) 12 FCR 301, it was conceded by the Commissioner on agreed facts that there was no material having any rational or logical probative force to justify the issue of the notice of amended assessment under consideration by the Court. In those circumstances the Full Court of this Court comprising Bowen CJ, Sheppard and Beaumont JJ were of the view that there was no assessment which could attract the protection of s 177. As their Honours said (at ATC 4755; FCR 308):
``... The respondents have thus elected to proceed upon a footing different from that contemplated by the Act, for the statute proceeds upon the hypothesis that the Commissioner will not be motivated in the exercise of his powers by improper or collateral purposes (see Bloemen, per Mason and Wilson JJ at ATC p 4288; CLR p 375). But, to adopt the language of Isaacs J in Clarke [Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246 at 276], the present case does not involve a `curial diving' into `confidential channels of information'. Rather it is a case, no doubt unusual, of the respondents' asserting that they have abused their powers....
A genuine attempt to ascertain the taxable income of a taxpayer, even if carried out cursorily or imperfectly, is one thing. But when regard is had to the whole of the facts and surrounding circumstances of the present case and it appears that the respondents never intended to embark and did not in fact embark, upon the process of ascertaining the taxpayer's income, no `assessment' is involved. So much is really conceded by the respondents in the agreed facts and that consideration takes the case beyond what was decided in Bloemen. It must follow that sec 177(1) can have no operation.''
If anything the present case is more extreme. Not only did the Commissioner not make any genuine attempt to ascertain the sale value of particular goods under each of the relevant Assessment Acts, but he also determined a sale value and purported to create a liability for sales tax upon facts which he knew were wrong. This would inevitably produce a sale value and sales tax payable under each assessment which were likewise wrong, so that the purported liability created had to be in excess of Darrell Lea's actual liability under each Sales Tax Assessment Act.
When one has regard to the role which s 67 played in protecting an assessment from all judicial scrutiny, it is axiomatic that that protection assumed that the Commissioner would make a bona fide effort to ascertain the liability of a taxpayer to tax by reference to facts which he believed at least could be true. When in
Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246 at 276 Isaacs ACJ spoke of the Act trusting the Commissioner, his Honour clearly did not intend to convey that this trust extended to a case where the
ATC 4051Commissioner acted in such a way as to betray that trust. The extensive powers conferred upon the Commissioner in connection with the assessment and collection of sales tax, or for that matter any other tax, must be so exercised as to deal fairly with each taxpayer:
Inland Revenue Commissioners v National Federation of Self-Employed and Small Businesses Ltd  AC 617 and
Edelsten v Wilcox & Anor 88 ATC 4484; (1988) 83 ALR 99. An assessment on facts known by the Commissioner to be untrue is of its nature unfair and oppressive. But equally as important, it involves no process of ascertainment or calculation.
Once it is determined that there was no bona fide exercise of the power of assessment and that s 67(1) afforded no protection to the document tendered, it must be concluded that each of the questions reserved for the Court's consideration must be answered in the negative.
An argument that a decision for Darrell Lea in the present case will create administrative difficulties for the Commissioner, may be answered in a number of different ways. First, it will hopefully be a rare case where the Commissioner will, as he concedes he did in the present case, purport to assess knowing that the assessment must be wrong. Provided that there is a bona fide attempt at assessing in respect of facts either known or at least possibly correct, the assessment will be immune from attack. Secondly, the sales tax legislation was framed deliberately to deal severally with different factual circumstances so as to preclude the argument that each of the Acts imposing sales tax dealt with more than one subject matter of taxation: s 52 of the Commonwealth Constitution. So the Commissioner was required to determine the taxpayer's liability for sales tax under each Sales Tax Act (cf
Magna Stic Magnetic Signs Pty Ltd v FC of T 89 ATC 5000). It may be noted that the present ``streamlined'' sales tax legislation substantially reduced the number of Acts imposing sales tax and correspondingly the potentiality of the present difficulty arising.
Finally, it must be said that the Commissioner had power not only to attend at premises and inspect books and records (s 12E of the Procedure Act) but also to require persons to attend upon him and answer questions or give evidence: s 23 of the No. 1 Assessment Act. The powers conferred upon him were intrusive and wide reaching. Parliament contemplated that if necessary they would be exercised. Such exercise would likely have obviated the present problem.
THE COURT ORDERS THAT:
1. Appeal be allowed.
2. Orders made by Olney J be set aside and in lieu thereof it be ordered:
- (1) that each of the separate questions referred to in the order of Justice Hill made on 21 April 1995 be answered in the negative.
- (2) that the respondent Commissioner pay the applicant's costs of the appeal and of the trial of the separate questions, including any reserved costs.