DFC of T v STATE BANK of NEW SOUTH WALESJudges:
Full High Court
Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ
In an action in this Court the plaintiff, the Deputy Commissioner of Taxation, sues to recover from the defendant, the State Bank of New South Wales (``the State Bank''), the sum of $23,636.94 alleged to be due and payable under two assessments for sales tax made on or about 18 July 1983 and 4 November 1983 respectively, together with additional tax. The plaintiff claims that each assessment was made under s. 25(2A) of the Sales Tax Assessment Act (No. 1) 1930 (Cth) (``the Assessment Act'') and relates to sales tax said to be payable by the State Bank in respect of printed matter manufactured in Australia by the State Bank and applied to its own use. The first assessment relates to the period from 1 May 1983 to 31 May 1983, the second to the period from 1 June 1983 to 31 August 1983.
The State Bank has filed a defence to the plaintiff's statement of claim. By para. 10 of the defence the State Bank asserts (a) that it is the State of New South Wales, and (b) that if, and in so far as, the tax imposed by the Sales Tax Act (No. 1) 1930 (Cth) is capable of having application in respect of the printed matter or any of it, that Act is a law imposing tax on property belonging to a State in contravention of s. 114 of the Constitution and is invalid. The plaintiff has demurred to para. 10 of the defence on the grounds that (1) the State Bank is not ``a State'' for the purposes of s. 114, and (2) the sales tax is not a tax on property and hence does not contravene s. 114.
The parties have agreed upon a statement of facts which may be shortly stated. The State Bank is, and at all material times was, the State of New South Wales for the purposes of s. 38(d) of the Judiciary Act 1903 (Cth). However, as will appear, the plaintiff contends that the State Bank is not the State of New South Wales for the purposes of s. 114 of the Constitution. The State Bank is constituted a corporation pursuant to the State Bank Act 1981 (N.S.W.). It carries on the business of banking in New South Wales and elsewhere. For use in its banking business the State Bank has, for approximately thirty-five years and at all material times, printed various documents, forms and material required for the purposes of its business (``the printed matter''). The printed matter was, after coming into existence, used at all material times by the State Bank in the course of and for the purpose of its business and remained its property. At no time during the relevant periods was any of the printed matter sold to any person, nor did title to it pass to anyone except in so far as some of the printed matter was supplied to the State Building Society Limited and some State Government instrumentalities. The assessments were made on the basis that the printed matter was ``goods'', that the printing of the matter by the State Bank constituted ``manufacture'' and that the ``goods'' so ``manufactured'' were applied by the State Bank to its own use within the meaning and for the purposes of s. 17 of the Assessment Act.
Section 17(1) of the Assessment Act provides:
``Subject to, and in accordance with, the provisions of this Act, the sales tax imposed by the Sales Tax Act (No. 1) 1930 shall be levied and paid upon the sale value of goods manufactured in Australia by a taxpayer and sale by retail or applied to his own use.''
Section 3 of the Sales Tax Act (No. 1) imposes sales tax upon ``the sale value of goods manufactured in Australia by a taxpayer and... sold by the taxpayer or treated by the taxpayer as stock for sale by retail or applied to the taxpayer's own use''.
``Manufacturer'' is defined by s. 3(1) of the Assessment Act to mean, unless the contrary intention appears:
``a person who engages, whether exclusively or not, in the manufacture of goods, and includes a printer...''
Under s. 17(1), a manufacturer's application to his or her own use of goods manufactured in Australia is one of three ways in which goods manufactured in Australia attract liability to sales tax on the part of a taxpayer, the other ways being a manufacturer's sale of the goods or treatment of the goods as stock for sale by retail. In the context of s. 17(1), the expression ``applied to his own use'' is one of broad import and is equivalent in meaning to ``employed for his own purposes''.
In a case such as the present, where the tax is imposed not in respect of sale or distribution but in respect of the application by a manufacturer of the goods to its own use, different considerations arise. In this class of case it is not expected that the liability for payment of sales tax imposed upon the manufacturer will be passed on to a purchaser or consumer. On the contrary, it is intended that the manufacturer will satisfy the liability without indemnifying itself. However, the tax imposed is none the less a tax upon the goods on this score. The imposition of the tax in this situation merely ensures that the tax is more comprehensive in its application to goods manufactured in Australia and extends to goods which, though they are not sold by the manufacturer, are used by the manufacturer. Of necessity in this situation the manufacturer itself, which is also the end user, must bear the burden of the liability to tax.
To conclude that the imposition of sales tax under s. 17(1) upon a manufacturer's application of goods manufactured in Australia to its own use is a tax upon the goods in the sense described above may provide some support for the view that the sales tax is a tax upon property within the meaning of s. 114 of the Constitution. But the conclusion cannot be decisive of that question. It is necessary to examine rather more precisely the relationship between the imposition of the tax in the present case and the property in the goods to which it relates.
It may be that in some circumstances liability to sales tax on the part of manufacturers will arise when they apply to their own use goods manufactured in Australia which they do not own. It is unnecessary now to determine that question. However, ordinarily one would expect that a manufacturer which applies to its own use goods manufactured in Australia is the owner of those goods. That appears to be the primary focus of the relevant part of s. 17(1). It looks to a situation in which the manufacturer, being the owner of the goods by reason of having brought them into existence, applies them to its own use. Certainly liability to the tax will arise whenever a manufacturer of goods owns them and applies them to its own use. In that situation the tax is imposed by reference to a use made by an owner of its goods. It is the owner's use for its purposes of goods in which it has title or property which attracts the liability to tax.
The prohibition in s. 114 of the Constitution against the imposition of ``any tax on property of any kind belonging to a State'' protects the property of a State from a tax on the ownership or holding of property. But it does not protect the State from a tax on transactions which affect its property, unless the tax can be truly characterised as a tax on the ownership or holding of property.
ATC 4082were otherwise, the constitutional immunity would be little more than an empty shell, easily circumvented by framing the tax as a tax on transactions, though upon analysis the tax is tantamount to a tax upon the ownership or holding of property.
What we have just said lies at the very core of the reasoning in The First Fringe Benefits Tax Case.
In passing, we should acknowledge that there was a difference in the approach taken to the interpretation of the section by Gibbs C.J. in The First Fringe Benefits Tax Case on the one hand and by the rest of the Court on the other hand. Gibbs C.J. considered that a tax on property for the purposes of s. 114 is not confined to a tax on the ownership or holding of property and that the immunity extends to a tax on the use of State property. The other members of the Court considered that the constitutional immunity attaches to ownership or holding of property by a State but that this immunity will be infringed by a tax on the use by a State of its property. This difference may be put to one side, for the different routes traversed in The First Fringe Benefits Tax Case
The proposition that a tax on the use of property may, in appropriate circumstances, be tantamount to a tax on property for the purposes of the section finds support in The Municipal Council of Sydney v. The Commonwealth
The plaintiff submits that the tax imposed by s. 17(1) is not imposed on the use of property as such but is imposed on application to use. According to the argument, the distinction is important because application to use is a transitory or momentary activity or event which stands in high contrast with ownership or use of property over a long period. The short answer to this submission is that a tax on application to use of property is not the less a tax on the use of property because it attaches to a momentary activity rather than to use or ownership over a period. The tax attaches to use, that being the exercise of a right central to the concept of ownership, and that is enough to bring the tax within the ambit of the constitutional prohibition.
The Solicitor-General for New South Wales makes the further point, with which we agree, that it is legitimate to look at the entirety of s. 17(1) in determining whether it imposes a tax on property. Viewed in its entirety, the sub- section imposes a sales tax on three ways in which an owner exercises rights of ownership with respect to property. Once it is appreciated that liability to pay the tax is attracted either by an owner's sale or by use of his or her property, the conclusion becomes inevitable that the tax is relevantly a tax on property.
We turn now to the question whether the tax is imposed on property belonging to the State. The plaintiff argues in favour of a restricted meaning of ``State'' for the purposes of s. 114, contending that a constitutional prohibition should be construed strictly rather than broadly.
ATC 4083identifiable mischief. But in this respect to give a strict construction to s. 114 would 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 imposition of taxation by each other in the interests of their respective financial integrity.
In any event, there is no room here for the principle of construction for which the plaintiff contends. The question is whether the State Bank is a State for the purposes of the section, and there can be no doubt that s. 114 refers to the polity which is a State within the Australian federation. The constitutional conception of ``a State'' was explained by Dixon J. in this way:
``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 [the Constitution] 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 his Honour made these comments in the context of elucidating s. 75(iii) and (iv) of the Constitution, they apply with equal force to s. 114.
That exposition of the constitutional conception of ``a State'' is inconsistent with the plaintiff's submission that, in order to establish that the printed matter is property of the State, the State Bank must show that it is the Crown ``in right of'' the State, to adopt the words of Stephen J. in Superannuation Fund Investment Trust v. Commr of Stamps (S.A.).
The plaintiff submits, alternatively, that the question is to be determined by asking whether the State Bank is entitled to ``the privileges and immunities of the Crown'' in accordance with the approach adopted in Townsville Hospitals Board v. Townsville City Council.
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. Railways are a notable example. As early as 1906, in The Federated Amalgamated Government Railway and Tramway Service Association v. The New South Wales Railway Traffic Employés Association
ATC 4084(``the Railway Servants Case''),
The plaintiff submits that nonetheless the carrying on of ordinary banking business is not a function of the executive government of either the Commonwealth or a State. In this respect the plaintiff points to the comments of Griffith C.J. in Heiner v. Scott.
``It may be conceded that the Commonwealth Parliament may for the more convenient exercise of any of the executive functions of government set up a corporation for the purposes of acting as an agent or instrumentality of government...''
However, his Honour went on to say:
``In my opinion the carrying on of ordinary banking business is not a function of the executive Government of the Common- wealth conferred by the Constitution.''
The other Justices did not express an opinion upon this point. The Chief Justice's view obviously reflects the distinction, then current, between traditional and inalienable functions of government on the one hand and business, commercial and trading functions undertaken by government on the other hand. That distinction has since been discarded. And it can have no place in the interpretation of s. 114, which must take account of the historical circumstance that colonial governments in Australia carried on a wide range of governmental functions which were not traditional and inalienable.
Subsequent decisions of this Court establish not only that the Parliament may set up a corporation to carry out any of the executive functions of government on the footing that it is an agency or instrumentality of government but also that the Commonwealth Trading Bank is the Commonwealth notwithstanding that it is a body corporate. To the extent that the course of decisions turns on the provisions of s. 75(iii) of the Constitution, there is the complication arising from the reference in that provision to ``or a person suing or being sued on behalf of the Commonwealth''. No doubt these words were included in order to ensure that the jurisdiction conferred extended to cases in which the Commonwealth itself was not the nominal plaintiff or defendant. But that circumstance cannot operate as a reason for reading the references to the Commonwealth in the Constitution in a restricted sense. Still less can it operate as a reason for reading the references to ``a State'' in that way.
In Inglis v. Commonwealth Trading Bank of Australia
Both s. 98 and s. 102 of the Constitution recognise that the State railways are property of the States, s. 98 explicitly so. The recognition is significant for the purposes of this case because,
ATC 4085at the time of federation as now, State railways were carried on by authorities on behalf of the States.
There is no reason for drawing a distinction between the reference to ``a State'' in s. 75(iv) and similar references elsewhere in the Constitution where the reference is to a State as a polity and not as a geographical area.
The question then is whether the State Bank is discharging governmental functions for the State or, to put it another way, is the State carrying on banking through its statutory corporation, the State Bank. The unanimous decision in State Bank of N.S.W. v. Commonwealth Savings Bank of Australia
In the result we would overrule the plaintiff's demurrer, give judgment in the demurrer for the defendant with costs and give judgment for the defendant in the action with costs.
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