Ha & Anor v NSW & Ors S45/1996 [1997] HCATrans 95 (11 March 1997)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S45 of 1996

B e t w e e n -

NGO NGO HA

First Plaintiff

SOKHIENG LIM

Second Plaintiff

and

STATE OF NEW SOUTH WALES

First Defendant

BRUCE BUCHANAN

Second Defendant

R. G. SMITH

Third Defendant

Office of the Registry

Sydney No S165 of 1996

B e t w e e n -

WALTER HAMMOND & ASSOCIATES PTY LIMITED

Plaintiff

and

STATE OF NEW SOUTH WALES

First Defendant

BRUCE BUCHANAN

Second Defendant

I.P. SMITH

Third Defendant

Case Stated

BRENNAN CJ

DAWSON J

TOOHEY J

GAUDRON J

McHUGH J

GUMMOW J

KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 11 MARCH 1997, AT 10.16 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC: If your Honours please, I appear with my learned friend, MR B. GLENNON, for the plaintiffs in Ha and Lim v State of New South Wales (instructed by Doran Roberts & Co) and with my learned friends, MR S.J GAGELER and MR R.A. DICK, for the plaintiff in Walter Hammond and Associates Pty Ltd v New South Wales. (instructed by Glasheen & Quilty)

MR J.J. SPIGELMAN, QC, Acting Solicitor-General for the State of New South Wales: If your Honours please, I appear with my learned friends, MR B.W. WALKER, SC and MR M.J. LEEMING for the defendants in both matters. (instructed by the Crown Solicitor for New South Wales)

MR G. GRIFFITH, QC, Solicitor-General for the Commonwealth: Your Honours, I appear with MR H.C. BURMESTER and MS M.A. PERRY intervening on behalf of the Attorney-General for the Commonwealth. (instructed by the Australian Government Solicitor)

MR W.C. BALE, QC, Solicitor-General for the State of Tasmania: I appear with my learned friend, MS J.D. EWING, intervening on behalf of the Attorney-General for the State of Tasmania. (instructed by the Crown Solicitor for Tasmania)

MR P.A. KEANE, QC, Solicitor-General for the State of Queensland: If your Honours please, I appear with my learned friends, MR R.W. CAMPBELL and MR B.T. DUNPHY, intervening on behalf of the Attorney-General for the State of Queensland. (instructed by the Crown Solicitor for the State of Queensland)

MR D. GRAHAM, QC, Solicitor-General for the State of Victoria: If your Honours please, I appear with my learned friend, MS S.C. KENNY, QC, intervening on behalf of the Attorney-General for the State of Victoria. (instructed by the Victorian Government Solicitor)

MR R.J. MEADOWS, QC, Solicitor-General for the State of Western Australia: If the Court pleases, I appear with my learned friend, MR R.M. MITCHELL, intervening on behalf of the Attorney-General for the State of Western Australia. (instructed by the Crown Solicitor for Western Australia)

MR B.M. SELWAY, QC, Solicitor-General for the State of South Australia: If the Court pleases, I appear with my learned friend, MS G.L. EBBECK, intervening on behalf of the Attorney-General for the State of South Australia (instructed by the Crown Solicitor for South Australia) and with my learned friend, MS R.J. WEBB, intervening on behalf of the Attorney- General for the Northern Territory. (instructed by the Solicitor for the Northern Territory)

MR A. ROBERTSON, SC: If the Court pleases, I intervene on behalf of the Attorney-General for the Australian Capital Territory. (instructed by the ACT Government Solicitor)

MR JACKSON: Your Honour, there is an application for leave to intervene by some persons. I just wonder if your Honours might wish to deal with that before I commence.

BRENNAN CJ: Yes, Mr Jackson. Mr Roberts.

MR P. ROBERTS: Your Honours, I represent Messrs Eid and Mcheileh who are seeking to intervene in theWalter Hammond proceedings and present a submission in relation to the issue of prospective invalidity, a matter which has been raised by the State of New South Wales in its written submissions. It is only in respect of that aspect that leave is sought. (instructed by Horowitz & Bilinsky)

The basis upon which those persons whom I represent are seeking to intervene is set out in the affidavit of Mr Bilinsky of 3 March. Your Honours may see that Messrs Eid and Mcheileh have been charged with criminal offences relating to alleged infringements of the Business Franchise Licences (Tobacco) Act 1987 . Committal proceedings have been commenced in relation to those charges and the New South Wales Director of Public Prosecutions has sought an adjournment of those proceedings on the basis that it would be a waste of public moneys to commence those proceedings, which are anticipated to be lengthy, in the event that this Court finds the State laws to be invalid.

So, on that basis, we submit, we have a special interest in relation to the matters before the Court and an interest that raises, perhaps, a different aspect that has not been addressed by these submissions that have been presented to date on that issue, namely the effect on the criminal law in relation to the invalidity, if it be invalidity, of the State laws.

BRENNAN CJ: Yes, Mr Roberts.

MR ROBERTS: Yes, those are the submissions.

BRENNAN CJ: Are there any submissions to be made by the parties in respect of the application for leave to intervene made by Mr Roberts?

MR JACKSON: We do not oppose it, your Honour.

MR SPIGELMAN: We have no submissions, your Honour.

BRENNAN CJ: What have you to say, Mr Solicitor?

MR GRIFFITH: Your Honour, first we say we are a party by reason of our appearance under section 78A. We would desire to make submissions to assist the Court as to the appropriate principles to apply in this application, and we have filed short written submissions in the Court which has been distributed, making the legal submissions as to the relevant principle. We do draw at the conclusion of those submissions together a submission in paragraphs 9 and 10 of those short submissions to indicate, in our submission, by reference to those principles, this application is not one which should be granted by the Court, in our submission.

McHUGH J: But why not, Mr Solicitor? After all, the applicants for intervention are facing criminal proceedings and perhaps it throws light on this whole question. It may be one thing for this Court to uphold the franchise cases when they do no more than impose civil liability, but if governments are going to prosecute people criminally for doing that which, arguably, they have no power to do, it may be the franchise cases have to be looked at in a different light altogether and that may raise a question as to whether the Court can continue to maintain them.

MR GRIFFITH: Your Honour, firstly, on the aspect of prospective overruling, exhaustive submissions will be made and have already been filed in outline by the Commonwealth to argue issues answering the argument of prospective overruling in the circumstances. Secondly, your Honours, we say that the material on which the application is based gives no detail other than the bare reference to criminal proceedings.

Thirdly, we say, your Honours, that by reference to the principles as we outline in our submission, it is, in our submission, as we say in paragraph 10, to collapse the ordinary mechanisms of operation of judicial power, to say the parties who have an interest in the consequence of the result of litigation to be permitted to appear as a party. The application is not as amicus, your Honours, but as a party in this matter, which is sufficiently joined, we submit, by the numbers of counsel who are present as direct parties and also interveners as of right.

Your Honours, the function of our submissions is to point out to the Court the reference to the relevant principles, accepting it is a matter ultimately to the discretion of the Court but, generally, your Honour, we would say the experience of the last week or so shows the difficulties which arise when persons who merely have an interest when they say that their legal position may be affected as a consequence of a decision of this Court on a matter which has been pleaded are given the full rights of parties as interveners.

TOOHEY J: But those submissions would have more force, would they not, if the respective interveners sought to make submissions over the whole range of matters which the Court was called upon to consider. It really focuses on one aspect only which would only arise in the event of the decision going a particular way.

MR GRIFFITH: Our basic approach would be to say if the Court sees some use in the parties being available as needs be. The better course, in our submission, would be to deal with them as for the Press Council, let them remain and if there is a short point to be made as amicus, which the Court would wish to be assisted, well, then, the matter is within the discretion of the Court. The effect of granting leave to intervene is to make these persons parties in a matter before the Court when, in our submission, by reference to conventional analysis we make - - -

DAWSON J: They are not parties, are they?

MR GRIFFITH: An intervener is a party, your Honour. That is the whole point, your Honour. If it were down below they would have a right of appeal, so they are a full party.

TOOHEY J: It would be unusual to find someone in a position of an amicus arguing, as it were, in respect of their own interests, would it not?

MR GRIFFITH: Well, your Honour, they might - it seems to me that if it anything, it is no more than an amicus point to say prospective overruling raises an issue. Those who are raising it are dealing with the civil consequence, repayment of taxes. The Court should, as Justice McHugh pointed out, have regard to this additional criminal aspect but, quite possibly, Justice McHugh's articulation goes beyond that which is sought by the words of the application which seemed limited to the issue of prospective overruling, not the issue of maintaining the doctrine.

TOOHEY J: I mean, one aspect of the submissions of the proposed interveners that gives some force to what you are saying, I suppose, is their alternative suggestion that somehow they have been included in a declaration made by the Court.

MR GRIFFITH: Your Honours, we are only here to assist, and our short submissions are for that purpose.

BRENNAN CJ: Mr Solicitor, there are really two aspects, are there not, on an application for leave to intervene? One is the interest which the putative intervener is able to establish which shows some legal liability or right which will be affected indirectly by the judgment which is under consideration by the Court. The second is whether the submission which that putative intervener wishes to make is one which is distinct from and in addition to any submissions that are being made by other parties.

MR GRIFFITH: Your Honour, we would say on the first aspect it should be expressed with a very high bar of threshold, because otherwise, your Honour, all persons who are liable to pay these imposts throughout Australia would be in a position to satisfy the first test. We say, your Honours, that it is appropriate for the Court to be very cautious, exceptional or most unusual. Only on a few occasions this century can one see examples, a Gerhardy v Brown sort, if one likes, your Honour, the Wik Case, but very exceptional.

BRENNAN CJ: Yes, I do not doubt that the bar should be set high.

MR GRIFFITH: That is our point, your Honour.

BRENNAN CJ: The point in the present case is that the leave to intervene is sought on a very limited point, namely, the future overruling, and it is raised because of its impact upon pending criminal proceedings. That really is quite different from that of the ordinary person around Australia who, as you say, might be liable to pay the impost.

MR GRIFFITH: Your Honour, I accept that, but our concern is with the new procedures of the Court involving, as they do, a 60-day introduction period of written submissions or submissions in response, that it is to undermine the whole process and the process of having fixed times to which we must work very closely to present our argument, to have the possibility that parties who have no ultimate determination of their status can turn up on the day and throw in issues. We have a residual issue now from last week that arises in that way. We refer to those procedures of the Court, your Honour, as indicating a factor closely to be considered when the Court considers, as it does now, how to exercise the undoubted discretion that it has.

BRENNAN CJ: Yes.

MR GRIFFITH: We wish, your Honour, in our submissions, to point those matters out, accepting entirely that it is for the Court to say the extent to which it may be assisted. But, your Honour, we would submit that if it is sufficient to have a residual role of amicus, as the Press Council did in the previous case, the Court should go no further than that, if that is sufficient to allow the exceptional right of address. If the Court pleases.

BRENNAN CJ: Yes. We will hear you in reply, Mr Roberts.

MR ROBERTS: I did not wish to say anything, your Honour.

GUMMOW J: Mr Roberts, you are not seeking to be added as a party under Order 16, rule 4(2), are you? You want to be an intervener.

MR ROBERTS: An intervener, yes, your Honour.

GAUDRON J: And do you only want to tender written submissions?

MR ROBERTS: And possibly be available to answer questions unless any other matter arose, yes, your Honours.

BRENNAN CJ: Mr Roberts, your application is granted.

MR ROBERTS: Thank you, your Honour.

BRENNAN CJ: Mr Jackson.

MR JACKSON: Thank you, your Honours. Your Honours, may I just say one thing, not in relation to intervention by Mr Roberts but in relation to the position of other interveners. An issue may possibly arise, I suppose, about the status of the interveners in this case. We would not, with respect, accept the proposition that they become parties to the proceedings by reason of intervention and, in particular, your Honours, so in the Australian constitutional context, the case that seems to be relied upon is the Boilermakers' Case, and the fact that the Attorney-General for the Commonwealth appealed to the Privy Council. However, your Honours, when one looks at that case it is obvious enough why no point was taken about that because there were persons who were the members of the tribunal who also were appellants, and so they were parties anyway; so, an issue that, really, went by the by, as it were, your Honour.

May I move then to our submissions in relation to the case in substance. As is apparent from the written submissions, the proceedings turn on the resolution of three, perhaps four, issues. The first issue, and the issue which we would seek to agitate without the need to examine past decisions for the purpose of seeking to overrule them is whether, as the law presently stands, the provisions of the Business Franchise Licences (Tobacco) Act imposing what I have described in it as licence fees for wholesalers' and retailers' licences, in fact imposed duties of excise in terms of section 90 of the Constitution.

As we have suggested, the resolution of that issue does not involve overruling anything, it turns simply on whether the changes to that Act since the Court's decision in Coastace Pty Ltd v State of New South Wales [1989] HCA 37; 167 CLR 503 mean that the conclusion that the Act did not impose a duty of exercise is still appropriate. It would be, of course, sufficient for our purposes if the case were to be decided in our favour on that ground.

The second issue is whether, if the terms of the Act would otherwise satisfy the Dennis Hotels exception, the Court should allow reconsideration of the cases establishing that exception, fundamentally, Dennis Hotels and Dickenson's Arcade, and if it does so whether those cases should be overruled.

May we observe in passing that that issue was not argued in Capital Duplicators Pty Ltd v Australian Capital Territory [1993] HCA 67; 178 CLR 561, although it is right, however, to observe that the majority at pages 591 to 593 did, nonetheless, express a view on the issue. Could I take your Honours for just a moment to Capital Duplicators [No 2] [1993] HCA 67; 178 CLR 561, at page 591. All I want to go to for the moment is to take your Honours under the heading, "Reconsideration of Dennis Hotels and Dickenson's Arcade" to about point 8 on the page where their Honours say:

However, it was not argued on behalf of any party -

and your Honours will see that sentence. Then the Court went on to express a view, however, on that issue which went through to page 593 and the bottom of that page. Your Honours, I will come, of course, to what was said there in a little more detail later.

Your Honours, could I pause at this point to say that those two issues, those two areas, are the ones on which we wish to address submissions in-chief, as it were. The third issue, your Honours, is one that comes from New South Wales and is supported by the other States. That is the issue which was raised and rejected in Capital Duplicators [No 2], namely, that the duties of excise to which section 90 refers are taxes on production and manufacture in Australia and that the previous decisions which treat duties of excise as duties on production, manufacture, sale or distribution should be reopened and overruled.

Your Honours, there is then a fourth issue which arises if we succeed on the second issue, that is, the overruling of Dennis Hotels, and it is whether any such overruling should be prospective, if I could put it shortly, what that means and to what extent. So, your Honours, may I move immediately to the first of the two issues with which I propose to deal at this point. Your Honours, the essential features of the Act are set out in our written submissions and may I, in that regard, refer your Honours to our written submissions in Walter Hammond and, in particular, to paragraphs 3 to 15.

If your Honours would be good enough to keep those submissions open, as it were, together with a copy of the Act, may I deal with a number of aspects of it? Your Honours, the copy of the Act that I suspect your Honours have may be a 1996 reprint which would be different from the situation obtaining at the time of the events in question in these two cases. I understand my learned friend has a copy of the Act at the relevant time to give to your Honours.

BRENNAN CJ: That would be of assistance in that case.

MR SPIGELMAN: Could I hand up copies of the 1993 reprint and it has behind it a number of specific Amendment Acts that have not been consolidated and they predate some of the more substantial amendments that are included in the 1996 reprint. I do not believe the Amendment Acts are relevant other than on the question of rate, but that, of course, is a matter for my friend. I think your Honours would be primarily concerned with the 1993 reprint.

BRENNAN CJ: Thank you, Mr Spigelman.

MR JACKSON: And, your Honour, I do intend to refer to one of the other amendments of the provisions and I will come to that in due course. Your Honours will see, if I could take your Honours to the Act for just a moment, that there is a prohibition by section 28 upon the sale of tobacco without a licence. That prohibition is elaborated upon, if I could put it that way, by the prohibitions in sections 29 and 30 upon carrying on the business of tobacco wholesaling or retailing unless the person holds a licence of the appropriate kind.

The types of licences are provided for by section 34. Your Honours will see there are, in effect, four types of licences, two wholesalers, two retailers. In each case, there are provisions for the individual licence and the group licence and, your Honours, there are provisions for grouping in the provisions of the Act commencing at section 7.

KIRBY J: This is a different Act to the one that came under consideration in Coastace? That was the 1975 Act, is that correct?

MR JACKSON: No, your Honour, I am sorry. The 1975 Act and this Act in its then form were under consideration in Coastace.

KIRBY J: This is dated 1987, this Act. Was it a re-enactment of the 1975 Act, was it?

MR JACKSON: Similar, your Honour, but different.

KIRBY J: Has there been any analysis of the difference between the two statutes so that we can see what has exactly changed since 19 - - -

MR JACKSON: I am about to take your Honours to it. There are really two fundamental things, two matters really that are other relevant matters. May I come to those in just a moment, your Honours. Your Honours, I said the types of licences were provided for by section 34. They have, as your Honours will see from section 39, a very brief duration in the sense that they last for up to a month and they take effect until the 27th day of the month or, if it is issued in the last four days of the month, the 27th day of the following month. Your Honours, they have to be granted except in the circumstances referred to in section 36(2). Section 36(1) provides:

the Chief Commissioner shall:

on application.....

on receipt.....of the particulars mentioned in section 37; and

on payment.....of the fee

authorise that Director to grant the licence.

The circumstances in which there may be a refusal of the granting of the licence are if there has been an offence under:

section 59 of the Public Health Act 1991.

Your Honours, that is selling, perhaps, tobacco or cigarettes to someone under the age of 18 years. Your Honours, I will come back in a moment to the provisions of the Public Health Act 1987 , because your Honours will see that section 59 is the only provision of the Public Health Act which is referred to in this Act, but the Public Health Act, and this may be relevant to the question of regulation, is an Act which does contain some provisions regulating the trade in dealing in tobacco.

McHUGH J: Did you say 59, Mr Jackson?

MR JACKSON: Section 59, your Honour, yes.

McHUGH J: The Public Health Act, yes.

MR JACKSON: Now, your Honours, the licences are renewable, as one might expect, by section 40 and, in particular, your Honours, subsection (1) deals with that topic. Your Honours will see from the provisions to which I have just been referring that both the grant and the renewal of the licence are made conditional on payment of a fee. Now, the fee, your Honours, is dealt with by section 41. It consists of two parts. The first, a fixed fee of $10. That is so in the case of each of the licences. Then there is an amount in each case equal to a percentage of the value of tobacco sold by the wholesaler or the retailer during what is described as the relevant period.

KIRBY J: You do not contend that the fee of $10 is a duty of excise?

MR JACKSON: We do actually, your Honour.

KIRBY J: That was excised, was it not, in Duplicators [No 2]?

MR JACKSON: No one argued the contrary, your Honour. In the previous cases the $10 has not been in issue either under sections 92 or 90. I will not say much about it but I will come to it at the end, if I may.

KIRBY J: Take it in your own course. It is not vital it be dealt with now.

MR JACKSON: Your Honours, what I was going to say was this, that the amount of the fee is an amount equal to the percentage of the value of tobacco sold by the wholesaler or retailer during the relevant period. "Relevant period" is a term which is defined by section 3(1) which your Honours will see at page 2 and it means:

the month commencing 2 months before the commencement of the month in which the licence expires -

Your Honours, what that means in real terms is that the licence always expires on the 27th of the month - that is section 39. Thus, if one takes one example, the month of June is the relevant period for the licence commencing on 28 July. That is a period which is shorter, in the sense it has nipped off a few days, than the period of 30 days which was the time in Philip Morris. When I say 30 days, it was the month commencing two months before the month of the licence in that. Your Honours will see that in 167 CLR 423.

It is clear that the tax is payable once only by persons in the chain of distribution. In that regard could I take your Honours back to section 41. Your Honours will see that under section 41(1)(a) in the concluding two lines, the tobacco that is not taken into account is:

tobacco sold to the holder of a wholesaler's licence or a group wholesaler's licence -

A similar provision is made in the case of a group wholesaler's licence. Then when one comes to the retailer's licence in 41(1)(c), again in the last line, there is to be disregarded:

any such tobacco purchased from a licensee -

and a similar provision obtains in relation to a group retailer's licence. So what that means, of course, is that, if the tobacco has been purchased from a licensee, then it is not taken into account for the purpose of calculating the tax.

We would ask the Court to note in passing at this point the provisions of section 41(3). They are intended to ensure that the fee payable by the holder of a retailer's licence is not reduced by the disregarding words of (c) and (d) by reason of purchase from a licensed wholesaler unless a fee is actually paid or to be paid by the wholesaler "in respect of that tobacco." Perhaps the drafter's guard dropped because the provision makes it clear, in our submission, that the licence fee relates to the goods. Your Honours will see the words of 41(3):

has paid or is liable to pay a licence fee in respect of that tobacco.

That provision, your Honours, was not in the Act at the time of Coastace. It was introduced by Act No 86 of 1992.

I do not want to unduly burden the Court, but the document I am about to give to the Court simply shows the Acts which amended section 41 in the time since the Act first came in. If I could take your Honours to Act No 86 of 1992, which is at the page numbered 12 at the top right- hand corner, your Honours will see that that Act makes amendments to a number of enactments but in particular, commencing at page 15, to the Business Franchise Licences (Tobacco) Act. What your Honours will see at the page which is numbered 19 in handwriting at the top right-hand corner of the page, there is the amendment in the middle of the page and there is the explanatory note accompanying it which says that:

The amendments make it clear that a retailer is not liable to pay the licence fee in respect of tobacco purchased from a licensed wholesaler only if the wholesaler is liable to pay the licence fee in respect of that tobacco.

DAWSON J: The wholesaler is exempted from payment of licence fees somewhere if he sells to a licensed retailer.

MR JACKSON: I think what your Honour is thinking of is section 41(1)(a), where the wholesaler is exempted, in effect, if the tobacco is sold to another wholesaler.

DAWSON J: But the tax is not paid twice on the same tobacco, is it?

MR JACKSON: No, your Honour. I suppose it is possible in some circumstances that it could be; but obviously enough the scheme of the Act, your Honour, is that the wholesaler will sell to someone. If the wholesaler sells to another wholesaler, then the tax is not payable then. If the wholesaler, of course, sells to the retailer, or to some other person, the wholesaler will, in effect, pay the tax. The retailer will be in a situation where the retailer will not have to pay the tax because of the disregarding words at the end of (c) and (d), but, your Honour, that is subject to the qualification that has been added by paragraph (3).

TOOHEY J: The Act does not seem to concern itself, in one sense, with what happens to the sale by the wholesaler other than that it is sold to somebody holding a wholesaler's licence. That is enough, as it were, to exempt the first wholesaler from an obligation to pay the licence fee.

MR JACKSON: That will be because, your Honour, the wholesaler to whom it has been sold, when one is dealing, of course, in trade, is unlikely just to keep it but will turn it to effect, as it were, and will be selling either to a retailer or directly to the public. In those circumstances, the wholesaler will probably have to pay and the retailer would pay if the wholesaler had not paid.

TOOHEY J: But in theory you could have a chain of wholesalers, none of whom is responsible until it reached a point where one of the wholesalers dealt in a way that attracted the licence fee.

MR JACKSON: Yes, your Honour, yes.

DAWSON J: We are dealing with wholesalers here, are we?

MR JACKSON: In the case of Walter Hammond that is so. In the case of Mrs Ha and Mrs Lim that is not so, your Honour, they are retailers.

DAWSON J: They had to pay the tax because it - - -

MR JACKSON: I wish I could tell your Honour the answer to that in one word. May I endeavour to do so? The reason is this, your Honour, that their case stated indicates they purchased from manufacturers. The manufacturers would, Philip Morris so holds, themselves be persons who were wholesalers selling to person who were retailers and they should pay the duty. Your Honour, where the complication arises is this - and it comes from section 41(3) in a way - your Honours will see that the retailers are exempted, in effect, only if it has paid by the wholesalers. The wholesalers were not paying, in this case, because the sales were to persons who were conducting duty free shops, two separate ones. That takes one then to section 45. Section 45 allows the Minister to determine the value of tobacco, to put it shortly. Your Honours will see that there has been such a determination - which is in the case stated book and I will take you to it in a moment - but what it is believed to say, in effect, is that tobacco, so sold, has a value of nil.

DAWSON J: I see.

MR JACKSON: So that there would not be a payment which satisfied 41(3) so as to exempt them from that.

DAWSON J: I follow.

MR JACKSON: Now, your Honours, could I just say one further thing about section 41(3)? It appears to be, in substance, no different from section 21 of the legislation which was at issue in Capital Duplicators [No 2] 178 CLR, and if I could just take your Honours to that. Section 21 appears at page 595 in Capital Duplicators. It is quoted there. In the first new paragraph on the page, your Honours will see the object of it paraphrased in the first four lines, commencing, "Section 21 is designed to prevent", et cetera, and then the quotation of it. Now, the observation made by the members of the majority in relation to it appears at the bottom of page 596, where what was said - the last paragraph on the page, and the last three lines, after referring to the size of the fee your Honour said:

Indeed, the true nature of the exaction is to be discerned from s. 21 which refers to the fee being "payable in relation to the supply or offer for retail sale" of the videos.

Now, your Honours will see that the terms of section 21 there referred to have a similarity with the wording that one sees - a licence fee in respect of that tobacco in 41(3). Your Honours, could I say there are other provisions, to which I will come in a moment, which reinforce the view that we have submitted is to be derived from section 41(3). Your Honours, in addition to the insertion of section 41(3), since Coastace, the rate of the fee has risen. In 1987, at the time of Coastace, it was 30 per cent. It was increased to 35 per cent in 1989 by the Act, which is No 114 of 1989. That Act was to come into force on the day when the Act received the royal assent and, as soon as judgment was delivered in Philip Morris and Coastace, the assent increasing the rate by 5 per cent was procured. It was the very same day.

Your Honours, no doubt the result had been appreciated. There may not have been time to read the reasons. Your Honours, the rate then increased to 50 per cent, then 75 per cent, and then 100 per cent, and your Honours will see pages 11 and 12 of the case stated book where that is set out in paragraph 13, going to the end of that paragraph. Your Honours, the rate was 75 per cent at the time of the assessments in respect of Mrs Ha and Mrs Lim, 100 per cent at the time of Walter Hammond.

Your Honours, the question whether exactions of this kind are duties of excise has been discussed in now quite a few cases. For present purposes, however, there are, in our submission, three decisions of importance, namely, Philip Morris, Coastace and Capital Duplicators [No 2].

Your Honours, could I go first, and briefly, to Coastace 187 CLR 503? That case, I said a moment ago, concerned both the 1975 Act and also the 1987 Act in its original form. Your Honours will see at page 511 the answers, 1 and 2, in italics, to the stated case. Answer 1 related to the 1975 Act. Answer 2 related to the 1987 Act.

It seems unnecessary to take the Court to the detail of the decision or the reasons for judgment. Indeed, there is, of course, not much detail because the members of the Court all gave answers which reflected their views in Philip Morris and treated those views as applicable to the legislation there in question.

May I go next to Philip Morris for, I hope, not very long, because the observations made in it support, in our submission, the contention that the Act now provides for a duty of excise. Could I commence by saying in relation to Philip Morris that in that case there was not an attempt by the States, as there is in this case and, of course, as there was in Capital Duplicators, to contend that the concept of excise should be narrowed to taxes on production or manufacture. Your Honours, that that is so was noted by your Honour Justice Dawson at page 471 in Philip Morris.

KIRBY J: At that stage it was really very much a minority view of Justice Fullagar and Justice Murphy.

MR JACKSON: Yes, your Honour. Could I just say, however, your Honours will see at the bottom of page 471 and the top of page 472 that your Honour referred to the fact that the issue had not been raised, and although your Honour thought there might be much to commend it.

If I could stay with your Honour Justice Dawson's reasons for just a moment, your Honour's summary of what is the Dennis Hotels principle can be seen at page 472 about point 4 on the page where your Honour says:

I do not think that I would be expressing myself too loosely -

Then one goes on from there to the end of that sentence. Your Honour went on at page 474 about point 4 through to page 475 about point 3 to apply that test.

Now, what your Honour said, if I could just denote one thing, was, at the bottom of page 474, there was no relevant point of distinction which would justify a different result. Your Honour said, then, at the top of the next page:

And obviously the shorter the period..... the greater the possibility that it might properly be regarded as a tax upon a step in the distribution -

and then your Honour said:

that could only be because it would then be possible to discern a necessary relationship between sales or purchases during the proceeding period and sales during the period of the licence.

Your Honours, what may be seen, in our submission, in the particular case, or in this case, I should say, is that the Act does disclose that the fee is, in reality, a tax in respect of sales in the past period. In that regard, your Honours, I have already referred to section 41(3), but it has to be taken with three other provisions to which I would refer the Court. The first is section 42 and your Honours will see it is a provision in subsection (1) that deals with the position of the applicant for a licence having been, during the relevant period, a member of a group. Now, what it says then:

the reference in section 41(1)(a) to tobacco sold by the applicant shall be deemed to include a reference to tobacco sold by all members of the group; and

Then it concludes:

unless a fee for a licence has been paid to the Chief Commissioner, being a fee assessed in respect of sales of tobacco by the group during the relevant period.

Similar wording can be seen at the end of section 42(2), and if one then goes to section 44 it deals with circumstances where:

tobacco sold in New South Wales is subsequently resold -

elsewhere in Australia, and -

a person has paid a fee under a -

corresponding law, and then it says:

the Chief Commissioner shall refund, to the person who paid it, any fee paid to the Chief Commissioner under this Act in respect of the sale of the tobacco in New South Wales.

Now, those provisions are not definitive or decisive, of course, but if one looks at, for example, section 45 and looks, too, at section 41(3), what is apparent enough in our submission is that the licence fee is being paid in respect of tobacco that has been sold and there is a direct relationship between the two. Could I move then to what was said by your Honours Justices Toohey and Gaudron in Dennis Hotels and at page 481 - I am sorry, your Honours, I said Dennis Hotels - - -

TOOHEY J: Thank you, Mr Jackson.

MR JACKSON: Your Honours, Justice McTiernan still lives outside, but I would not wish that on your Honours. At page 481 of Philip Morris, your Honours said in the paragraph commencing halfway down the page:

There is much to be said for the view that Dennis Hotels should be regarded as an anomalous exception -

and your Honours developed that theme throughout that paragraph referring particularly to the conclusion that:

The unsatisfactoriness of that distinction has often been observed -

it being "an odd distinction to be found in a constitutional setting". The approach taken by your Honours, however, was to say that the tax was not a duty of excise for a different reason and that was because it did not affect the goods as items manufactured in Australia. That appears, your Honours, at page 484 in the paragraph commencing at the bottom of the page and going through to page 486 at the conclusion of your Honours' reasons.

The view which your Honours express particularly in relation to the facts of the case one sees in the last paragraph on page 485. Your Honours, what we would submit in the present case is that although the licence fee is not one which is expressed to be a tax upon production or manufacture in Australia, the material which your Honours will see in the case stated book at pages 12 and 13, commencing really at paragraph 14 and then going through to paragraph 16 and, in particular, paragraph 16, shows that there is a certain chauvinism in Australian smokers in that they smoke Australian made cigarettes. Your Honours will paragraph 16(b):

Approximately 98-99 per cent of all cigarettes purchased in Australia were manufactured in Australia.

A similar situation in relation to New South Wales. Then, your Honours, paragraph 16(d):

The total value.....was $5,389 million, of which imported -

I think that should be billion actually -

of which imported cigarettes, cigars, pipe and roll your own tobacco represented a small proportion, amounting in retail value to around 4 per cent of that total.

Your Honours will see also paragraph 18 that that was the situation in other relevant years. Your Honours will also see the course of trade referred to in paragraph 21 at the top of page 15. It is, your Honours, really exactly as one might expect. What we would seek to say, following from those matters, your Honours, is that although the tax or the licence fee is one which is not expressed to affect manufacture or production in Australia, of its very nature it is one which does have that effect because it affects 96 per cent of the trade, as it were, in cigarettes in Australia and, your Honours, the tax which strikes as a practical matter once only in the ordinary course of events, must indirectly add to the cost of manufacture, and so we would submit that - - -

KIRBY J: Do I have it right? Is it 99 per cent of cigarettes and 96 per cent of tobacco products? I am referring to paragraph 16 on page 13 at line - - -

MR JACKSON: Yes, your Honour, it is 98 to 99 per cent of cigarettes. If one is looking at tobacco products altogether, including some of the less attractive ones - - -

KIRBY J: Presumably the imported tobacco products that are levied are customs duty of some kind.

MR JACKSON: Yes. 96 per cent in total, your Honour, and there are some figures in the table, which it Table 1. Your Honours, if I could move then - - -

KIRBY J: How can we, as a Court, infer that it is passed on down the line to the consumer? Other theories have been put forward that it results in non-smoking, it discourages some people from smoking as the price goes up.

MR JACKSON: That really reflects the fact that it is passed down the line, your Honour, if that be right, because - - -

KIRBY J: Is there some material that shows that smoking has remained steady? I have a general impression that it is declining in Australia. You say, in any case, whatever it is it is very small and that the overwhelming inference to be drawn is that the number of manufacturers are small and limited and that it therefore, by inference, will be passed on to the consumer.

MR JACKSON: Yes, your Honour. If I could just say a couple of things about that. One is that the level of the tax, at 75 or 100 per cent, as the case might be, is such that it would be, one would think as a practical matter, impossible for a person who is a wholesaler, much less relatively small retailers, themselves to bear it as some kind of overhead cost. The second thing about it, your Honour, is that, if I could perhaps just refer to one thing, I mentioned earlier that there was a determination of the value of cigarettes or value of tobacco by the Minister. Your Honours will see that at page 28 of the case stated book. If I could just take your Honours to between lines 15 and 20 your Honours will see a paraphrase of section 45. Then your Honours will see the ruling that the Minister determine the value of tobacco to be wholesaler list prices for tobacco as published from time to time by the tobacco manufacturers and importers, excluding. Then a number of matters are listed and then, your Honour, one sees, for example, 2:

Rebates granted by wholesalers must not be deducted from the wholesaler list price of tobacco when calculating licence fees payable.

Your Honour, the wholesaler list price of a manufacturer, except in a case to which one of the subparagarphs of 1 would apply, would be a figure that must, one way or another, recoup to the manufacturer the amount of the tax that is being imposed, which is 100 per cent or 75 per cent of the amount, because it has to be paid in respect of, one way or another, the tobacco. Your Honours, could I say also just this, that whether - and no doubt this is an issue upon which minds might very well differ or differ at particular levels - there is some limit or some greater elasticity of demand the higher of price of tobacco and whether that is something that may in the end reduce the number of people who - whether in the end the number of people who smoke may ultimately be reduced by things such as increasing the price for cigarettes.

The fact of the matter is that no doubt a State has an interest in trying to secure the health of the people in the State but the States are not free entirely as to the manner in which they can achieve that. One things that the States cannot use to achieve it is something in relation to which there has been reserved - that is perhaps not the most apt word - but something where the legislative power in respect of the topic is one that only the Commonwealth possesses by section 90 and section 52. So, your Honours, it cannot do it by an excise, to put it shortly.

McHUGH J: Just before you do, could you explain to me something in the tables at pages 17 and 18, Mr Jackson. In table 1 at line 17 under the heading "Supply", (c), imported tobacco leaf and products, is 156.7 million. If you look at page 18 line 25, imports of tobacco leaf is 107, which is different from the 156 - - -

MR JACKSON: One is millions and one is thousands, your Honour.

McHUGH J: Yes, I see.

MR JACKSON: Line 35 on page 18 is the total, 156,689, which gives us the 156.7 at (c) on page 17.

McHUGH J: Yes, I see.

MR JACKSON: I should perhaps just mention in passing, at the bottom of page 13 between lines 37 and 50 there is some explanation of the table. I do not know that it affects what your Honour is saying.

McHUGH J: Yes.

MR JACKSON: Your Honours, could I move then to the joint reasons of Chief Justice Mason and Justice Deane. At page 430 at the bottom of the page, they set out the broad test, that is that it extends to taxes on distribution. Their Honours say that again at the top of page 431. Having said that, they then refer to what I could call the "no closer connexion" test. That is at about point 7 on page 431. Your Honours will see that immediately under the quotation from Bolton v Madsen, that is, it:

excludes "a tax which has no closer connexion.....than that it is exacted for the privilege of -

carrying on the business. After referring to the question of substance rather than form at page 433, they went on, at the bottom of page 433 at about point 9, to say:

One such artificial result has been the distinction between a licence fee based on a prior period (not an excise) and a licence fee based on a current period (an excise) -

Then at page 434 at about point 8 their Honours then set out their tests. They adopt what your Honour the Chief Justice said in Hematite and go on to say:

The fact that the tax is imposed upon such a step in the relevant process constitutes the necessary relation between the tax and the goods to give the tax the character of an excise.

Your Honours, that passage, if I could just say in passing, is perhaps the answer - and I do not mean that in any pejorative way - that those members in that case would give to a question that your Honour Justice Dawson posed, I think: if one is looking for substance, how do you find it except from looking at the Act, in effect, that imposes the tax, or words to that effect.

Your Honours, at page 435, at about point 6, their Honours say:

But there is no fundamental dichotomy between the category of licence fees and the category of excise duties.

And they go on to elaborate upon that throughout the remainder of that paragraph, referring to the fact that something can be both a licence fee and an excise duty.

Your Honours, at pages 435, about point 9, they commence to look at the relevant tests for distinguishing between the mere licence fee and a duty of excise. Your Honours, they then discuss, at page 436, about point 9, Dennis Hotels and Dickenson's Arcade - or commence to discuss it - reaching the conclusion, your Honours, that the presence or absence of the formula - when I say "the formula", I mean the licence fee being calculated by reference to sales in a prior period - is not of crucial significance in determining whether the fee is an excise. Your Honours will see that at page 437, at about point 8, where their Honours say:

In this situation Dennis Hotels is not authority for -

in effect, that proposition. They say it is authority:

for the proposition that the presence or absence of the formula is a relevant consideration -

Now, your Honours, they went on to hold that, although the Dennis Hotels reasoning did not, in effect, support a principle, it should not be overruled. Your Honours, that was done because of a suggested special position for alcohol and tobacco. Your Honours will see that at page 438, first of all. In the first new paragraph on the page, they refer to:

the fact that Dennis Hotels stands as authority for a result, rather than for any strand of reasoning -

and then their Honours went on to say, commencing, I suppose, your Honours, halfway down page 438 that:

the States have enacted laws imposing licence fees calculated upon trading in an antecedent period in businesses of liquor and tobacco retailing and sale of petroleum products.

Their Honours then say, at the bottom of the page, that:

Dennis Hotels and Dickenson's Arcade could be rationalized by reference to traditional considerations relating to the licensing of dealings in alcohol and tobacco and to the particular characteristics of those items of personal consumption.

Your Honours, that proposition is developed at pages 430, 439 and 440.

KIRBY J: That seems to have picked up a little support - not entire endorsement - in Capital Duplicators.

MR JACKSON: Your Honour, I am going to come to that in just a moment. Your Honours, could I say, in relation to what is at page 439 and page 440, your Honours will see, particularly at the bottom of page 439, that it is said that Dennis Hotels can:

be regarded as an example of a licensing fee -

et cetera, but the way in which it is put, your Honours, is then to say:

To say this is merely to add to the list of factors which must be taken into account when considering whether or not a given impost is an excise.

Your Honours will also see something to the same effect at the bottom of page 440. At page 440, in the passage commencing about point 3 on the page, your Honours will see the paragraph commencing:

The Court has refused to retreat -

and then, about a third of the way through that paragraph:

Attractive though that course may be to those who, like ourselves, disagree with the decisions in those cases.....we have come to the conclusion that we should not follow it.

Then your Honours will see two-thirds of the way through the paragraph "the preferable approach" being referred to, but also the qualification, halfway through that:

if it can properly be characterized as a fee for carrying on business --

Your Honours, could I return in a moment to the question of the appropriateness for relevant purposes of separating out alcohol and tobacco in that way but, your Honours, even on that analysis, in our submission, the size of the fee and its direct relationship to sales, militates against the conclusion that it is not an excise.

DAWSON J: Why the size of the fee, Mr Jackson? I know one recoils from the size of the fee, but why should the size of the fee indicate any particular difference?

MR JACKSON: Your Honour, what the size of the fee tends to indicate is that it cannot be in any way related to, for example, the costs of administering the Act or something that represents - - -

DAWSON J: No, but it can be, notwithstanding its size, a fee exacted for the privilege of carrying on a certain business, exact a high fee or a low fee.

MR JACKSON: Yes, your Honour, one could more readily see that if the Act contained some provisions which made it, in some way, an indication that there was a privilege, a privilege which carried something with it, apart from something that is just given to any person who is prepared to pay the fee. Your Honour, it is possible to say, of course, that the amount of the fee is something that can vary from time to time and - - -

DAWSON J: Given that you can charge something for the privilege of carrying on business and not be imposing an excise, it does not seem to be that the size of the fee matters at all. You can charge an extortionate fee for the privilege of carrying on a business and it still remains, that is the only thing on the cases, the cost of the privilege.

MR JACKSON: Your Honour, the difficulty with that too is that the higher the fee becomes, the more it is likely, in the case of a business that involves a dealing in goods, to be something which is to be treated as a tax on a step in the carrying of business.

DAWSON J: Why? I see the logicality of Dennis Hotels and so on, but on the reasoning there, what relevance does the size of the fee have?

MR JACKSON: Your Honour, what it does demonstrate, if one put it this way is, first of all, that the amount of the fee which is charged by reference to the transactions in the goods is an amount which, in the ordinary course of events, is something that is likely to be passed on to the person who is a consumer of the goods. The issue may not arise, of course - - -

McHUGH J: But it is a question as to whether or not it is a general overhead or a tax, is it not, and if, for example, it was regarded as a niche business with a high profitability, why should not that not be a very high licence fee?

MR JACKSON: Your Honour, put in the abstract, that is correct but, could I just say, however, that the State does not have a freedom to impose any kind of licence fee. The question is whether something that it does impose the licence fee is yet something that is a duty of excise.

DAWSON J: Yes, but the point you are making is that in some way which you have not yet explained, the size of the licence fee demonstrates that it is a tax on goods and not a tax for the privilege of carrying on a business. I do not see it.

MR JACKSON: Your Honour, it is a question of adding together a number of things, one of them being the fact that the way in which the high fee is calculated is not simply by saying that, for example, in a niche market or in a particular type of market, the fee charged will be a substantial sum, for example, a lump sum, or an amount which is the same in respect of any person who seeks to carry on that business. What it is, is, and is expressly calculated to be, or expressly required to be, a fee which is calculated by reference to each of the sales.

Your Honours, it is possible, if one is dealing with a low fee, to say that that fee is something which, in the ordinary course of events, would be taken into account, in, for example, the overheads of the business, and you would not identify it as being something that you can say is a tax on a step in the production or distribution of goods, but where, in respect of each of the transactions of sale in the chain you have to pay a fee which is a fee that is directly related to the sums of money involved and is very high, then that inevitably must be something that is directly related to the goods.

DAWSON J: Why? I mean, after all, one could realistically say, "The bigger the business the bigger the fee has to be, and we will look at past sales in order to see the size of the business. We see it is a very big business and we impose a big fee".

MR JACKSON: In relation to imposing the big fee it may simply mean that the amount that qualifies as the duty of excise is higher.

DAWSON J: All I am saying to you is that I do not see that the size of the fee alters the picture so far as determining whether it is an excise or not. No doubt it alters the picture very much in other ways.

MR JACKSON: Your Honour, it does, of course. It is a factor that has been relied upon in a number of cases, not just, of course, Philip Morris, by some of the members of the Court. In Hematite, for example, one sees the size of the fee being regarded - albeit a lump sum, in effect, as being something that was regarded as significant by a majority of the Court.

Your Honours, what I was going to say was this, and I think your Honours I had got to your Honour Justice Brennan in that case - was to say that your Honour dealt with the issue by reference to a number of propositions which commence at page 443 at the bottom of the page. Your Honour deals with there having to be a tax on a step and we would note just in passing that your Honour concludes that discussion at page 445 by saying:

If there be any rock in the sea of uncertain principle, it is that a tax on a step in the production or distribution of goods to the point of receipt by the consumer is a duty of excise.

Your Honours, that, of course, was before Capital Duplicators [No 2]. Your Honour then moved to the "no closer connection" test in proposition - - -

BRENNAN CJ: Do you suggest that Capital Duplicators undermines the rock?

MR JACKSON: No, your Honour. More of the island has projected above the water since then and it creates some shoals around it, in our submission, and notwithstanding the pellucid submissions which the then Solicitor-General for South Australia and I thought we made in that Capital Duplicators. Your Honours, proposition 2, the closer connection of a no "closer connexion" test your Honours refer to at page 445 to page 446. At page 446, going on to page 451, your Honour deals with the substance, not a criterion of liability, issue, and then your Honours goes on at page 451 to say, under the heading of:

Proposition 4: Fee calculated on a Dennis Hotels formula may yet have "closer connexion" -

even though it is expressed as a licence fee. Now, your Honour's conclusion was reached at page 453 where your Honour said, if I could start at about point 4 on the page:

So far as Dennis Hotels stands as authority for a proposition -

and, your Honours, one goes through that paragraph with your Honour saying, in effect, two things. The first being that:

it is clear that the choice requires the evaluation of all indicia -

and, secondly -

Dennis Hotels never was an authority for the proposition that a licence fee calculated under a Dennis Hotels formula cannot be a duty of excise.

Your Honour then deals with Dickenson's Arcade and says at page 454, point 7:

The ratio of Dickenson's Arcade is simply that the fees in the two cases were not materially distinguishable.

Once again your Honour states the test at page 458, about point 2, the sentence commencing:

In the light of the existing cases.....the calculation of that fee on a Dennis Hotels formula is a relevant but not conclusive factor for consideration.

The application of the test adopted by your Honour follows that immediately and your Honour referred to a number of considerations. At page 458, about point 5, your Honour said:

The first, when the proximity of the two periods is such that the transactions -

et cetera. Then your Honour said:

And second, when, in a particular context, the licence fee is in substance a tax upon steps taken in the earlier period, the payment of which is a condition of the grant of a licence for the later period.

Your Honour referred to another relevant aspect being the formula - your Honour referred there to what was said by Justice Stephen in Dickenson's Arcade. Then your Honour dealt with the question whether liquor and tobacco could be treated as being in a separate category and your Honour said at page 459 that there were three reasons why that could not be so. Your Honours, we would, with respect, adopt those three reasons to which your Honour has there referred, the first being the absence of distinction in the Constitution:

among commodities for excise purposes.

Of course, the Constitution does refer specifically to liquor in one of its provisions. Your Honours will see that in section 113, but not in any context of excise. It says nothing, of course, about tobacco.

Your Honours, the second feature is that if one looks at the material which is in volume 3 of the South Australian materials which sets out the legislation of the colonies as at Federation it is manifest that liquor and tobacco were the prime excisable commodities, to use your Honour's observation. Could I just give your Honours a note in which we say something about the colonial excise legislation and about a point that is sought to be made about it.

BRENNAN CJ: Is that second observation accurate in respect of England? I am thinking in terms of tobacco. Is tobacco excisable in England?

MR JACKSON: Your Honour, I think the answer is yes. Could I check on that?

BRENNAN CJ: Yes.

MR JACKSON: A number of other commodities were dealt with or described as excise. We would just seek to say, Your Honours, about this, that if one looks at volume 3 of the materials one sees that it is right to say, as South Australia, in effect, seeks to say, and the other States, that licence fees were treated separately from duties of excise. Having said that, what does appear is what we have in paragraphs 2, 3 and 4, the first being that the licence fees were, in effect, small, flat rate annual fees, but the relevant Acts had provision also for duties of excise and the duties of excise were typically levied on the manufacture of tobacco and alcohol products.

What has happened, of course, in the legislation presently in question is that the two groups of provisions have been treated as the licence fee. Instead of there being simply the licence fee being, for example, [sterling]100 a year plus an excise being charged, what ones sees is that the two things, formerly the excise and formerly the licence fee, are put together as the licence fee. So one is not really comparing like with like to say, as some of the materials seek to say, that licence fees and excise duties were treated separately in, for example, colonial accounts. So they were. The licence fees one is talking about in this case are licence fees which sweep up both the excise duty and also the licence fee.

GUMMOW J: Looking at this document you have just handed up and looking at paragraph 5, the New South Wales Liquor Act 1991 of 1898, which is the one under consideration in Peterswald v Bartley, as I understand it, in respect of brewing, had the characteristics in your paragraph 5(a) - - -

MR JACKSON: Paragraph 8, your Honour, we deal with that, I think.

GUMMOW J: - - - and (b) but not (c).

MR JACKSON: We refer to it as being the exception, your Honour, in paragraph 8. The provision that was in - it is atypical, if I can put it that way. The general provisions are, as we say, in the - - -

GUMMOW J: But the submission was, which was rejected in Peterswald v Bartley, as I understand it, looking particularly at the Supreme Court decision before it got to the this Court, the submission in Peterswald v Bartley was it was enough to amount to an excise to display the characteristics in 5(a) and 5(b). In other words, a flat rate to carry on the business was said to be enough, and that was rejected.

MR JACKSON: It was rejected, yes, your Honour. We would seek to use what is in the document for really two purposes. The first is to say that it does demonstrate what has been referred to in a number of cases, that the tobacco and liquor were the substances in relation to which excises were commonly charged, but the second thing, at Federation - and really, if I may say so with respect, it seems a rather curious result to arrive at a situation where the two substances which were in effect the heartland of excise at the time of Federation, where one would expect there to be a denial to the States of the ability to charge excises in respect to them, yet become the substances in relation to which the States can charge fees which do exactly the same as was done before but are not excises.

KIRBY J: Is Philip Morris the first case in this series where the suggestion was made that there was a special class of tobacco and alcohol?

MR JACKSON: Your Honour, the first case in which it is articulated in that way. I do not really think that your Honour will find - and perhaps I can be corrected if I am wrong - anything to that effect at an earlier point.

KIRBY J: It is rather difficult conceptually to put particular products in a particular category. I mean, there may be practical reasons in the light of the way things have developed, but it is rather unconceptual.

MR JACKSON: Yes, your Honour.

KIRBY J: That is the point that Justice Brennan was making.

MR JACKSON: If it be that they somehow are thought to be substances which bring about addiction or they are in some way deleterious, in Capital Duplicators the Court declined to extend that to pornographic videos. So it is, with respect, a curious conception. Your Honour asked me about the position of tobacco in England. It is referred to in Matthews v Chicory Marketing Board 60 CLR 294 by Sir Owen Dixon where, in the paragraph commencing halfway down the page, the Excise Bill introduced by Walpole in 1733:

related to tobacco and in its second part was to have included wine.

Then the history of it is discussed from there, your Honour. It is a Bill of course that is being referred to.

Your Honours, what I was going to say was this: it is correct to say, as we submitted a moment ago, that the licence fees were treated differently in the colonial accounts but they were lump sum fees in effect. Could I come back to your Honour the Chief Justice in Philip Morris. Your Honour at page 460, commencing at the top of the page and going down really to the bottom of the page, first of all said at about point 2 on the page:

Once it is accepted that a licence fee -

of the kind in question -

may be a duty of excise.....the franchise cases cannot stand as a source of inconsistent principle.

Your Honour discussed that throughout the page and at the bottom of the page said that:

Dickenson's Arcade and H.C. Sleigh must be seen simply as particular instances of taxes which had "no closer connexion".

Your Honour then, at the top of page 461, referred to the fact that even minor differences may be sufficient to distinguish the franchise cases from other particular cases. Your Honour then went on to say that there were several distinguishing factors which your Honour summarised at page 463, about point 9, and they amounted to a number of things. It did not purport to be regulatory, the incidence was variable, meaning by that it might hit, in effect, the wholesaler or the retailer, the rate of the tax and the proximity of the relevant period. Your Honours, those are discussed on the several preceding pages, including the reference to the rate of the tax at page 462 about halfway down the page.

Your Honour Justice McHugh dealt with the issue at pages 492 and following, and if I could just go then, your Honours, to page 493, at about point 3 on the page, where your Honour referred to a number of factors including the recurrent nature of the fee, its level, then 30 per cent, and its tendency to pass into the price. On the next page, about point 2, your Honour referred to the fact that it was a once- only fee in the sense of being either a wholesaler or a retailer. Your Honour then arrived at about point 9 on page 494 at the preliminary conclusion, as it were, that the licence fee was an excise unless the franchise cases required a contrary conclusion.

Your Honour then discussed those cases and summarised them at page 500, about point 2, and then your Honour proceeded to say, at page 500 at about bpoint 3 to page 501 point 7 that there were substantial differences between the two legislation and the franchise cases and Philip Morris, the nature of which your Honour had already referred to. Your Honours, it seems apparent enough from the passages to which I have referred that if it had not been for the view of the then Chief Justice and Justice Deane in relation to alcohol and tobacco, that the fee would be likely to have been held to be an excise in that course.

Of course, the case involved a number of different streams arriving at a different conclusion but, your Honours, the question which had not been agitated in that case, namely, the true nature of excise, was dealt with in Capital Duplicators 178 CLR at page 561. If I could just move to that, your Honours. In that case, the ambit of the concept of excise was, in our submission, fully raised. At page 583, about point 4 on the page, your Honours refer to the fact that:

Subsequent cases have rejected both this application of the criterion of liability -

and adopted what Justice McHugh had said in Philip Morris -

the proposition that it is the exclusive determinant of the question whether an exaction is an exercise.

And a little further down the page, that the approach:

requires that a variety of factors be taken into account.

Now, your Honours, having rejected the notion that the narrower view of excise should be adopted, the majority then referred to Dennis Hotels and to Dickenson's Arcade. I referred your Honours to page 591, about point 7, where there was a note that no one had argued that the cases should be reopened, although, of course, if the narrower view of excise had prevailed those cases would have been rendered otiose.

Your Honours, in dealing with the application of the existing test, what your Honours will see, at page 596 to page 597, is that, in our submission, what was said by members of the majority was equally apposite to the present case. Your Honours will see, at page 596, under the heading, "Validity of the Act", it was said that:

the legislation cannot be described merely as a regulatory scheme in which the licensing fees are simply an element of an overall regime -

There was a reference to the fact it was:

directed to the raising of revenue -

There was a reference to the fact there was no restriction in the Act on the class if videos which could be sold, or on the class of purchasers and so on. And your Honours will see then, at the bottom of the page, that the size of the fee was referred to. It:

clearly exceeds the cost of implementing the scheme.

There was reference, your Honours, to section 21, to which I referred earlier. And then, your Honours, at page 597, the extracts from what your Honour the Chief Justice said in Philip Morris, they are not regulatory and the substantial size of the fee. Then, your Honours, a little further down the page that:

the franchise fee is calculated by reference to sales made in a past period, that period is no more than two months earlier than the licence period, each being for one month only.

Well, your Honours, similar observations would apply here. The proximity of the prior period was referred to. And, your Honours, one sees also, towards the end of that paragraph:

in circumstances in which the magnitude of the past dealings with the goods is a likely indicator of the measure of the taxpayer's dealings with the goods during the term of the licence.

Now, your Honours, in that case, in our submission, the factors that were referred to are factors that would, in our submission, lead to the adoption of a similar conclusion in the present case, and the two factors to which I have referred - the size of the fee and the provisions that are now implemented by and in relation to section 41(3) - are provisions which would lead to a similar result.

Could I just say one thing, your Honours, in relation to the question of regulation? I referred your Honours, a moment ago, to the Public Health Act provision, which deals with juveniles smoking, which is the only provision of the Public Health Act which is picked up by the Business Licence Franchises Act. Could I give your Honours copies of the Public Health Act in which that appears, and the provisions we are giving your Honours, apart from the index, are the provisions that deal with tobacco.

Your Honours will see from the index, or the contents, that the Act is divided up into a number of parts, and Part 6 is tobacco products. Your Honours will see in Part 6 that Division 3, which is at page numbered 51 is the juvenile smoking section. Section 59 is the provision that is picked up by the Business Franchise Act. What your Honours will also see, of course, is that if one goes to section 54 it does make provision for tobacco to be in a package, then the packing - section 55 - has to have a health warning. That is an offence is that is not the case - section 56; and various words are prohibited in section 57.

What one notes is that if one is looking to see if there is any regulatory purpose in the Franchise Act, what one sees is that the provisions of the Public Health Act 1963 which do have some regulatory aspect to them are not picked up by the Franchise Act except one of them dealing with the suppression of juvenile smoking.

KIRBY J: It would, of course, have been easy as a matter of legislative techniques simply to have slipped that division into the Franchise Act. Would that have damaged your case? Would you have then had to say it is not really a very big regulatory aspect, it is just a tiny bit and the true characterisation of the Act is an Act for raising tax?

MR JACKSON: We would, your Honour. We also, if I may say so, with respect, would really take issue - and this perhaps is the next aspect of our submissions - with the proposition that if one calls it regulatory, therefore it is not an excise. What we would seek to say is an Act may be regulatory but if it is an excise as well, then the result of that is that it is not a means that can be adopted by the State.

KIRBY J: Is the task of the Court one of characterisation? Is our obligation to look at the whole Act and then say, "What is the true character of the Act; is it tax raising or is it regulation or is there some other task that is before us?"

MR JACKSON: Your Honour, that puts, really, into a number of questions - there can only be one question, really, and the question is, is the fee, tax, whatever it is, a duty of excise within the terms of section 90. If it is then it does not matter what else it might be because it is within the exclusive legislative power of the Commonwealth. I suppose the case has some analogies, though perhaps not much, in that regard to Allders, one is dealing with exclusive Commonwealth power.

GUMMOW J: Why is regulation seen as something in opposition to taxation? That is one of the uses of taxation, is to encourage or discourage conduct.

MR JACKSON: Your Honour, I am happy to adopt that. That is what I am seeking to say, in a sense, that one sees, of course, taxation used not just to regulate adversely but to promote sometimes. The promotion of films is an obvious example.

GUMMOW J: Yes.

MR JACKSON: Your Honours, I was going to say if one looks at what is at pages 596 and 597 the application of similar tests, in our submission, should result in the tax in the present case being held to be invalid.

Could I take your Honours then to our summary of argument on this issue in Walter Hammond?

BRENNAN CJ: Just before you leave that and going back to the questions Justice Gummow just asked you, if the fee can be regarded as a reasonable pre-estimate or, at least, not too far away from the costs of instituting a regulatory scheme, then, as I understand it, that would not be characterised as an excise. If that were to be the approach to be taken, would the effect of your argument be to strike with invalidity those amending Acts which increased the rate above a certain percentage?

MR JACKSON: The broad proposition your Honour puts to me, in a sense, I think, reflects the issue on which there was a difference of view in Logan Downs. The consequence, your Honour, would be this - and it is a little complicated by the presence of Coastace. If the situation is that one leaves Coastace to the side completely, in our submission, the result would be that there would be a finding, we would submit, that the Act did impose a duty of excise. The question would then be whether part of the Act could be sustained, in effect, notwithstanding that other parts did impose a duty of excise. That then would become a question, your Honour, of whether it is possible to make any such apportionment, as it were, and that would be a really unconventional way of reading down, your Honour, in our submission.

BRENNAN CJ: That was not really the question I was putting to you. If the rate of tax - I will call it a tax - is to be, say, 1 per cent and for some reason or other a regulatory scheme, licensing those who are vendors of tobacco is desirable, then one would not think that a 1 per cent tax on sales would necessarily be characterised as an excise.

MR JACKSON: It would not necessarily, your Honour, yes.

BRENNAN CJ: It would not necessarily. On the other hand, if one then sees that the rate of tax having survived, as it were, the 1 per cent challenge is then increased to 50 per cent, one might see that the purpose of the increase was to accumulate revenue rather than to assist in regulatory provisions. Would the amending Act which adds that 49 per cent be that which is sterilised by section 90?

MR JACKSON: In the particular case, yes, your Honour.

BRENNAN CJ: Has that any application to this legislation where the rate has been increased now to 100 per cent?

MR JACKSON: The difficulty, your Honour - - -

BRENNAN CJ: You might wish to peg it right back, of course, but all I am saying is that if it has survived a certain percentage, are we concerned rather with the increases?

MR JACKSON: Could I deal with it, your Honour, in two ways? First of all by saying, if one looks at the case absent the decision in Coastace, there is simply no material which would demonstrate what is the cost of anything, as it were, there is just nothing, your Honour, in that regard, and there is nothing which one could rely on in order to say that, at some point, the tax exceeded the cost of administration of whatever scheme it might be. So far as the Court is concerned, the decision in Coastace is a decision that, at that time, the Act in its then form was an Act which did not impose a duty of excise.

So the position, your Honour, that one has is that that law is one of course which has now been changed, those provisions having been repealed and replaced by an Act which, itself, is different in form to a degree. That being so, your Honour, we would submit that one should be looking at the Act as a whole in its present form, or in the form in which the exactions were sought to be implemented, because the Act in relevant respects did not ever apply at relevant time to the persons who are the plaintiffs in the proceedings, because your Honour will appreciate that the relevant times are ones when the Act was in a particular form, there is no claim in respect of earlier periods, and the Act in an earlier form had no application to them in any relevant respect. So it is very difficult, your Honour, to say that one should look, in relation to them, at an Act which did not ever apply.

DAWSON J: In any event, Mr Jackson, why should not a franchise be both regulatory and taxing?

MR JACKSON: It may be, your Honour.

DAWSON J: Yes. It really does not matter what the size of the fee is.

MR JACKSON: It may be both regulatory and taxing. Your Honour, if, however, it is something that is an excise, then it is not something - - -

DAWSON J: If it is a tax on goods in the relevant sense, that is another thing, but if it is a real franchise fee, it does not matter how high the fee is or it does not matter that the franchise fee is exact to regulate the industry.

MR JACKSON: If I could take your Honours to our summary of argument in Walter Hammond, page 5, paragraph 16, the submissions which we have made orally already deal, I think, with what is in paragraphs 16 to 20. Your Honours, in paragraph 22 we set out what was the level of licence fees in the earlier cases and could I just mention the size of the fee was treated really as a decisive consideration in Hematite [1983] HCA 23; 151 CLR 599. Could I just give your Honours the references to that: Justice Mason at page 634 point 5, Justice Murphy at page 650 about point 1, your Honour the Chief Justice agreed with the reasoning of Justice Mason at page 659 point 9, and Justice Deane at page 668 point 5.

DAWSON J: Could you just refresh my memory. There was no reference to its past period in Hematite, was there?

MR JACKSON: I think that is so, your Honour.

DAWSON J: Yes. That is a very big difference.

MR JACKSON: Well, your Honour, no doubt there are differences but I simply indicate - - -

DAWSON J: No, it is a very big difference in relation to the size of the fee because the fee is directly charged then upon the step and it is obviously not related to any costs or anything else. It is merely a taxing because of the size of the fee and, because it is on a step, then you distinguish it from the Dennis Hotels principle.

MR JACKSON: Well, your Honour, no doubt it is possible to say that.

DAWSON J: It is not only possible, it is right.

MR JACKSON: Well, your Honour, the question ultimately, no doubt, is whether the fee is something that is, in effect, in - - -

DAWSON J: The point is, Mr Jackson, rightly or wrongly - and most people think it is wrongly now - the way in which you get around it in Dennis Hotels is to say because you are looking at a past period this is not a tax upon a step in the distribution of goods. Now, that being so, it is a franchise fee and it does not matter what size it is, but here you have got a tax, or it is contended to be a tax, on a step in the production or distribution of goods, and, of course, the size of the fee there is very relevant to show that it is a tax, not a licence fee.

MR JACKSON: That is why we seek to say if one looks at the terms of the Act in contemplation in this case one sees provisions like section 41(3), to which I referred earlier, which make it apparent enough, in our submission, that the fee is one payable in - - -

DAWSON J: That may be so but it is not because of the size of the fee. It is because of something else.

MR JACKSON: Your Honour, the two things then go together, of course.

DAWSON J: Well, yes, they can, once you have established that it is not a franchise. Then, of course, the size of the fee may be relevant.

MR JACKSON: Your Honour, could I just seek to say that whether it be in respect of a past or a present period, if the situation is that one sees the fee being something that is based on the actual trade, the sales of the goods, and one also sees that the fee is a high fee related only to that trade, then, in our submission, that is something that indicates that it is simply a tax being imposed. It may be also, if one describes it as the fee for a licence, but it does not mean it is not an excise.

DAWSON J: It is not an excise if it is a fee for the privilege of carrying on a business. That is what Dennis Hotels says.

MR JACKSON: Your Honour, that is, what we would submit - it does not quite say that, with respect. If all the factors have to be taken into account, then one is entitled to take into account the factors that the majority took into account in Capital Duplicators, including, your Honours, in that case, at page 593 and 596 to 597, the size of the fee.

Could I refer also, your Honours, to our written submissions in that case? Paragraphs 27 to 29, your Honours, I think I have dealt with already. Could I move then, your Honours, to the question of reopening Dennis Hotels? Your Honours, turning to the second issue, the question of reopening Dennis Hotels and Dickenson's Arcade: we appreciate, of course, that that issue has been before the Court more than once, and was most recently considered in Capital Duplicators in the passage at pages 592 to 593; although, if I may say so with respect, the issue was not one that was argued in that case.

Your Honours, if I could go, again, to our written submissions, again in Walter Hammond, at page 11, paragraph 33 and, dealing with the question of the matters germane to the reopening, if I could ask your Honours at the same time to have pages 592 and 593 of Capital Duplicators to hand. Your Honours will see, at page 593, a reference to the fact, about point 4 on the page, that:

In refusing to reconsider the franchise decisions relating to liquor and tobacco, the Court has recognized the fact that the States (and the Territories) have relied upon the decisions in imposing licence fees -

et cetera. Now, your Honours, we would say that financial arrangements may well have been made on the faith of those decisions, and one could understand that the Court might be reluctant to deal simply with a rerun of Coastace, but, your Honours, as we submit in paragraph 33 of our submissions, the States have not just based themselves on the faith of the decisions, they have really treated them as a charter for ever-increasing rates of tax to be imposed. Your Honours will see that in paragraph 33(a), for example.

If I could move then also to paragraph 33(b) of our submissions, what we would seek to add to that is something I submitted earlier, and that is that no doubt States can enact laws which are regulatory but they cannot do it, in our submission, by the means of imposing duties of excise because that is something exclusive to the Commonwealth. Your Honours will see the further submissions that we make in subparagraphs (c) and (d) which I will not elaborate on more, but could I just say this, your Honours, that one of the features that is referred to at page 593 of Capital Duplicators at about point 6 on the page is that:

If the decisions were to be overruled, the States and the Territories would be confronted with claims by -

persons who had paid and who sought to get the money back. But the proposition that they may have difficulty in relation to that has been much mitigated by the legislation to which we have referred in our submissions in reply in the other case - that is in Ha and Lim - in the fourth page of that. Your Honours will see on the last page of those submissions in reply in Ha and Lim that most of the States now have legislation which seeks to deny recovery of licence fees already paid.

The various amending Acts are there referred to. Could I give your Honours a copy of the amended Act as it is in New South Wales. It is the Recovery of Imposts Act. One starts in a sense with section 3 which defines non-legislative change in the law. Your Honours will then see that subsection (2) says:

Money paid by way of tax or purported tax is not recoverable on any of the grounds referred to in subsection (3), if:

(a) the ground came into existence because of a non-legislative change of the law; and

(b) the money was paid before the change.

The grounds are then set out in subsection (3), grounds (a), (b) and (c). It seems pretty much to cover the field.

KIRBY J: Is this a non-legislative change of the law or on the theory of things simply a declaration of what the law has always been but has been misunderstood?

MR JACKSON: Your Honour, the definition in section 3(1) may involve a factual analysis in some case of what has been generally perceived to be the state of the law or of legal principles. In addition to, I do not - - -

KIRBY J: May this not be an attempt by a State legislation, in effect, to say, assuming that your arguments are accepted, "This is a duty of excise, but notwithstanding that, we are going to keep it"?

MR JACKSON: Your Honour, in the crude form, yes, of course.

KIRBY J: But is that not in sharp contradiction to the requirements of the Constitution that if this Court were to hold that it were duty of excise that it simply cannot be levied? I am not trying to be difficult. I realise you are drawing this to our notice as a practical argument and the issue that I raise is not before the Court, but I just signal a little concern about the Act.

MR JACKSON: Could I just say, I referred first to section 3 because section 3 makes the largest claim, as it were. After section 3, one then goes on to slightly more sophisticated versions of trying to arrive at the same economic result. No doubt, the various versions are there because of an appreciation of the possibility of the correctness of what your Honour has been putting to me.

McHUGH J: Why would it survive the challenge in Barton's Case where they brought in the barring Act to bar recovery of fees paid before Hughes & Vale?

MR JACKSON: Yes.

McHUGH J: That failed.

MR JACKSON: Your Honour, I am not disputing the point.

McHUGH J: If you succeed in this case you would be - that this is used against you, you no doubt be arguing this is invalid.

MR JACKSON: We have not paid, so interest is a matter of scholarship. Can I say, your Honours, I started with section 3 because section 3 is the ambit claim. It may well be - - -

GUMMOW J: Section 4 is the important one, is it not?

MR JACKSON: Yes, your Honour. Section 4 says that you can only recover, in effect, if you satisfy the court that you have not passed the fee on, or will not pass the fee on. Your Honours will appreciate that in the case of wholesalers and retailers, one of the steps, or a possible step on the way to saying it is a duty of excise is to say it is something that is passed on in the ordinary course of events. One can see that in cases of this kind that may well apply. Section 2 is the one that limits the time for starting proceedings to a period "of twelve months after the date of payment", or a shorter period in respect of a payment before the commencement of the Act. That is section (2)(1)(b) and then section 2(1)(a).

Your Honours, those provisions, in our submission, militate against the proposition that the States and the Territories would be confronted with enormous claims, something in favour of reopening. I do not think there is anything I can add to our written submissions on the question. Those are our submissions on those two issues.

BRENNAN CJ: Thank you, Mr Jackson. Mr Spigelman.

MR SPIGELMAN: Your Honours, since 1949 the majority of the Court has favoured the delineation of a test which extends beyond production or manufacture to include steps taken in the course of distribution, including sale, but stopping short at the act of consumption. Our first and most basic submission in this case is that in every decision in which that test has been adopted and applied, the reasoning of the Court has failed to give attention to an essential aspect of the text.

Could I take your Honours to section 90 itself to make that proposition good. If one looks at the section it includes reference to two quite distinct acts. The first is to impose duties of customs of excise, namely:

On the imposition of uniform duties of customs -

which delineates the time at which the section has effect -

the power of the Parliament.....shall become exclusive.

What power? Two aspects: to impose duties of customs and of excise, that is one; the other, and the most significant one for purposes of construction, is the second:

to grant bounties on the production or export of goods -

Your Honours, in the authorities from Parton down to and including Capital Duplicators, this central mirror image in the particular provision is not highlighted. Our basic submission is that the relationship between bounties on the one hand and duties on the other is the critical aspect for purposes of construction, namely, the entire provision is structured on one assumption: a bounty has an equal but an opposite effect to a duty. One can encourage or discourage by either taxing or granting bounties. The important thing about this central mirror image as the key to the text is the States are not prohibited in any way from giving bounties on distribution, from giving bounties on sale or from giving bounties on consumption.

In terms of the two purposes, as the issue seems to have resolved, of section 90 which are reflected in the two sets of judgments in Capital Duplicators, one has to grapple with a purpose which permits the States to give bounties on distribution or on sale or on consumption. Any purpose of the restriction on excise which is not capable of explaining the fact that the States are permitted to give such bounties draws the purpose of section 90 too broadly.

McHUGH J: But why? It all depends what is embraced by excise. It may have seemed only too clear to the framers of the Constitution that excise would cover all taxes on distribution.

MR SPIGELMAN: Your Honour, the reason why is that if the States are free to grant bounties on distribution, sale or consumption - and the Court has never gone as far as consumption - then whatever the purpose to be deduced from the restriction on excise, that purpose can be undermined. What I am trying to do is to identify that the purpose must be more narrow than distribution and sale.

McHUGH J: I know, but I must say that the limitation about consumption may be something that has got to be re-examined.

MR SPIGELMAN: And your Honour has indicated that. That is another aspect on which we rely and I will come to that in a moment, but I do - - -

BRENNAN CJ: The freedom of the States to grant a bounty on distribution must surely be understandable having regard to, first of all, the widespread geographical areas of some States, notably Western Australia and Queensland, and the control of State railways.

MR SPIGELMAN: It is, your Honour, and there are specific provisions for railway rates later in the Constitution.

BRENNAN CJ: There are, but none which would affect this proposition, are there?

MR SPIGELMAN: No, but what we submit, your Honour, is that unless what your Honour puts is of equal force or the other side of the coin, namely, the differences may be just as explicable in terms of taxation on commodities as they are on bounty, taxation on distribution or sale. We are dealing here, we submit, with two sides of the same coin, mirror images. The purpose of restricting bounties is the same as the purpose of restricting taxation, because they have the same economic effect.

BRENNAN CJ: That is the assertion, but putting it in the context of both the Australia of the day and, indeed, the geographical distribution of Australia at any time, it seems to me that the first hypothesis on which you rely needs to be established, namely, that there is a mirror image.

DAWSON J: What you say is: Well, look, this demonstrates that there was no intention to confine the taxation of commodities generally to the States. It cannot have been because a bounty can counteract a tax and if that is so, then had the founding fathers intended to confine the question of taxation of commodities to the Commonwealth, they would have extended, or at least excluded, the area of bounties on at least a distribution of goods and so on, that is, within the whole area of the taxation of commodities, and they did not do so.

MR SPIGELMAN: Yes, and we say whatever the purpose of section 90, that purpose will not be achieved if the State can grant a bounty in circumstances in which it is prevented from imposing a tax.

GUMMOW J: What you are really saying, Mr Spigelman, is that section 51(iii) would have had to - - -

MR SPIGELMAN: Yes, section 51(iii) similarly limited. Section 51(iii) confirms our proposition.

GUMMOW J: One starts with 51(iii) which tells you what the Commonwealth's power is.

MR SPIGELMAN: The Commonwealth can impose bounties on the production or export. The phrase is the same. Can we then go ahead, and this is a provision which is referred to in the judgments which I am seeking to have the Court overrule, and that is section 93. It is referred to by saying that this is an indication to the contrary but in none of the judgments, particularly those in Philip Morris and Capital Duplicators with which I am primarily concerned, is the reason for dismissing the weight in section 93 ever given. Section 93 draws expressly the inference which I say is available from section 90 itself. It talks about:

duties of excise paid on goods produced or manufactured in a State.

Now, your Honours, the authorities of the Court do direct attention to that phrase "duties of excise paid on goods produced or manufactured" and accept - both those judgments in Philip Morris and the joint judgment in Capital Duplicators accept that is an indication to the contrary. But, in the end that textual indication to the contrary is not given, we say, appropriate weight. Because what we say is that that textual indication simply confirms what is in section 90 itself, in either dots in the form in section 93(i) as a qualification on excise the very words that are used as a qualification for bounties in section 90 itself.

It is, and I will be forever indebted to the Solicitor for Queensland, what we have here is what, in grammar, is called a chiasmus, namely, the reference back to exports in reference to bounties, namely, "bounties for the export of goods" is meant to be a reference back to duties of customs. Namely, it is the other side of the coin, the mirror image of duties of customs and the reference to "production of goods" is the other side of the coin, the mirror image of excise.

McHUGH J: It depends what the purpose of it is. Take this industry. Supposing the federal government, wanting to encourage local cigarette production, imposes customs duty on imported cigarettes but the States impose a tax on the sale of tobacco leaf. That affects the local production and defeats the purpose of the imposition of the customs - - -

MR SPIGELMAN: I will obviously have to deal with that sort of structure. There are a series of such examples given in the Commonwealth's submissions. They purport to be five or six examples of a different character. They are all one example and they are all dealing with a situation in which one product is an input into another product. That is the example your Honour has just given me. Our proposition is that you can have a tax on production - sometimes referred to as "manufacture" but I will just use the one word - even though the incidence of the tax is at some later point, namely, in substance it is a tax on production. We accept that proposition and we do not argue to the contrary.

The other proposition that we accept is that one can have a tax on production if it is on a step in production, and it may very well be that the proper analysis is that a tax on tobacco leaf is a tax on either the production of tobacco leaf, or the import of it, but it may be that a tax on tobacco leaf is a tax on cigarette production. We accept that you can be a tax on production if you are a tax on a step in production.

GUMMOW J: So, you accept Hematite is correct.

MR SPIGELMAN: Hematite may be correct, because - and contrary to what my friend said, that Hematite turned on the size of the fee, we say Hematite turned on the fact that, at the end of the pipeline, there were a lot of things going on; namely, after the pipeline tax - there were two pipelines, as I remember. In one, all one did was take out a lot of water and, in the other one, there was further processing to occur. And Hematite may be correct, and it may even be that Hamersley Iron is correct, because of the relationship - I am not saying it is, but it may be.

DAWSON J: I do not think any of those that have been in the minority in the cases lately have said that Hematite is incorrect.

MR SPIGELMAN: Yes. As I recall, that has been so. Now, what we say here is, your Honour, that if one is taxing a step in the course of production, it may be that one is looking at the good on which the tax falls, or one, if for an import, is looking at the good into which it is an import, and it is a tax on the production of that commodity. That is possible.

McHUGH J: What about substitute goods? Take canned tomatoes. The federal government imposes customs duties on canned tomatoes to encourage local production of tomatoes. But you then get a general tax on tomatoes generally - you might have imported tomatoes and locally- grown tomatoes - people go back to buying canned tomatoes.

MR SPIGELMAN: Your Honour, we say that the purpose is not encouraging industry, it is a question of encouraging industry vis-a- vis imports; not saying, "We like tomatoes, but we do not like some other kind of fruit." We say that the purpose of section 90 is a tariff policy purpose; not, if I might use the other more general term, the economic union purpose that emerges from the Capital Duplicators reasoning. We appreciate that there are the two purposes, and we totally accept that those of your Honours who were in the joint judgment in Capital Duplicators addressed this question.

McHUGH J: There is only two of us left.

MR SPIGELMAN: Yes, your Honour.

DAWSON J: But, Mr Spigelman, as a matter of history, there was the question of free trade or protectionism, but one thing that was apparent in Federation was that if there were to be customs duties, they were to be uniform around the coast of Australia.

MR SPIGELMAN: Absolutely.

DAWSON J: That was the sole objective really apart from internal trade barriers but, when you look at uniform customs duties, of course, they can nullified by one State deciding they will impose an excise to nullify the effect of the customs, but that is all.

MR SPIGELMAN: That is our submission as appears from our written submissions, but what I do want to - - -

DAWSON J: The majority judgment in Capital Duplicators simply asserts that - what it does is to say that what was achieved was a customs union and then it asserts that was an economic union and from that it asserts that it was the purpose of that union to secure control over commodities and the taxing of commodities to the Commonwealth, but it is a perfect example of top down reasoning that we have been talking of before. A customs union is not an integrated economy.

MR SPIGELMAN: No. May I say there are those two choices in the lines of authority before the Court. What one might say is: is the purpose Commonwealth control of tariff policy or is the purpose Commonwealth control of taxation on goods? That is the choice. We say that those of your Honours who have dealt with the latter formulation and adopted the latter formulation have never dealt with the bounties point we have just put to the Court, namely - - -

DAWSON J: That is just another - I know it is your big point because it is a new one, or some of the new ones - but it is just another indication of the same thing, of which there are plenty of others.

MR SPIGELMAN: May I say, just in case there is any doubt about it, we would adopt every single thing your Honour says in Capital Duplicators. In addition to that, we would wish to direct attention to - - -

McHUGH J: But is it new? I have not read Professor Coper's article for a long time, but I have the recollection he reversed the question of bounties as being the mirror image or - - -

MR SPIGELMAN: Sorry, that is not one of the judgments I have to deal with here. There is a reference of this character in the judgment of Justice Menzies in Dennis Hotels itself, but other than that reference - - -

DAWSON J: I think I mentioned it but made no great point of it.

MR SPIGELMAN: We highlight it because it is text-based as distinct from top-down reasoning et cetera; it is very text-based, and it is in the very provision we are talking about. It is not section 93, which is outside the provision, although part of the same structure, it is in the very provision in the very words we are dealing with. We say that you cannot say that the Commonwealth Constitution gives the Commonwealth control of bounties on commodities. It gives them only exclusive powers with respect to bounties on production. That is the equivalent.

GUMMOW J: That is because of what section 51 says.

MR SPIGELMAN: Section 51(iii) says that, but what makes it exclusive is section 51(iii) imposes a restriction, otherwise it would not be necessary because it would have been picked up by section 52, but for the restriction. But, it is what section 90 says in terms of exclusivity; it says you have exclusive power over bounties on production or export. It is not the case that it says you have exclusive power of bounties on commodities. If our premises - - -

GUMMOW J: It could not have said that.

MR SPIGELMAN: Why not, your Honour?

GUMMOW J: Because of the limited terms of section 51.

MR SPIGELMAN: No, with respect, your Honour, it is the other way around. Section 51(iii) gives the - I am sorry. May I say that read the two together and the proposition is still correct, that all the Commonwealth gets is an exclusive power over bounties on production.

GUMMOW J: Yes.

MR SPIGELMAN: It gets a power of bounties on production, an exclusive power by reason of section 90. Section 51(iii) should be seen as a restriction on the power that the Commonwealth would otherwise get by reason of 52. 52 says the Commonwealth has powers on anything it is said to exclusive powers with respect to, ie section 90. The purpose of 51(iii) are the last words, saying you cannot discriminate. That is why 51(iii) is necessary, otherwise it would all be picked up by 52(iii). It does, so you cannot discriminate and it restricts the power that would otherwise be given.

Whether one looks at the two provisions side by side or in the sequence I have suggested to your Honours, the facts are that the Commonwealth does not have a monopoly or exclusive power over bounties on commodities. That is the equivalent to what we trace back to the wording in Parton, namely, the assumption that his Honour referred to, that there was supposed to be an effective control of taxation on commodities. If our basic proposition is right, that bounties are simply equal but opposite to duties or taxes, if that basic proposition be right, then one has to have a purpose for the restriction on excise which accommodates the fact that the States can give bounties on distribution, on sale and on consumption.

BRENNAN CJ: Two questions arise first. I understand that you seek leave to reopen the cases from Parton onwards.

MR SPIGELMAN: Yes, your Honour.

BRENNAN CJ: Does that include Capital Duplicators [No. 1]?

MR SPIGELMAN: No, your Honour.

BRENNAN CJ: Then how is it that your present theory can live with Capital Duplicators [No 1]?

MR SPIGELMAN: As I understand it, and I would have to refresh my memory, Capital Duplicators [No 1] simply says that section 90 extends to the States.

DAWSON J: Territories.

MR SPIGELMAN: The Territories, I am sorry.

BRENNAN CJ: Yes, but for the reason that they were to be incorporated within the free trade area.

MR SPIGELMAN: Yes, and we are not saying that section 90 does not extend for purposes of that free trade area. We do not see anything inconsistent with a free trade area in any proposition we put or inconsistent with an economic union as such. What we are saying is, what aspects of State conduct or Territory conduct is to be restricted to serve what purpose? Now, even taken to the extent that I have taken it, namely, tariff policy, it serves the purpose of economic union. It may not be perfect in that respect, but it serves that purpose and performs a function of that character. Now, it may not go as far as perhaps some persons would require, but we say there is no qualitative difference.

BRENNAN CJ: The second question is, what is the textual basis for the proposition that bounties are the mirror image of excise and customs?

MR SPIGELMAN: Section 90 suggests that itself, but the other basis is if one looks at section 86, what transfers immediately on the establishment of the Commonwealth is control of payments of customs and excise and of bounties. I mean, I cannot use that for purposes of my basic point, but it shows bounties and excise going together as well as section 90, but our basic proposition here is that we accept that what one is dealing with here is an economic provision. It is in Chapter IV, Finance and Trade, and we say as a matter - - -

GUMMOW J: Section 86 rather assumes that the concept of bounty was really connected with production and export and no more.

MR SPIGELMAN: We accept that that is an assumption but, obviously what we seek to deduce from that is that it infects the concept of excise as well, not expressly in section 86, of course.

DAWSON J: You can explain it in economic terms, can you not?

MR SPIGELMAN: That is what I was about to do, your Honour, namely, in the finance and trade it is simply the fact that the effect of a tax is equal but opposite to a bounty in terms of encouraging or discouraging any aspect of finance or trade, which is what Chapter IV is about, given that they are interlocked, they are mirror images of each other, having the opposite effects in an economic sense and on that basis we say that this is an essential aspect of the text in section 90 itself, that the restriction on bounties in that section is of such a character as to be entitled to determinative weight in answering the question, "What is an excise?"

McHUGH J: Does not the logic of your argument lead to the conclusion that the Commonwealth has only exclusive power to impose excise in respect of goods which are the subject of customs duties?

MR SPIGELMAN: No. Well, when you say "exclusive power", obviously, the Commonwealth can impose whatever taxes it likes. It is a question of what the States are prevented from taxing.

McHUGH J: Yes.

MR SPIGELMAN: We say that it may not be - the answer to your question, your Honour, must be yes in this sense. If we impose a tax which is equal with respect to imported goods and local goods, then that tax is valid so long as it cannot, on its proper construction as a matter of substance in the circumstances, and circumstances may differ, be identified as a tax on production.

DAWSON J: The other answer is that all goods, if customs duties are charged and there is not free trade, are either subject to customs or not. There is a tariff policy in relation to that.

MR SPIGELMAN: That is so. There is no aspect of tariff policy, namely, the relativities between the imports and the domestic goods that is affected, and the question that your Honour puts, I think, consistently with the question your Honour asked me a moment ago; does section 90 protect the Commonwealth's ability to encourage production per se irrespective of imports or exports?

McHUGH J: No. I think what I was trying to understand, and I am not clear in my own mind at the moment of this, is the logic of your argument of taking the mirror image as the premise that the Commonwealth's exclusive power in respect of excise is limited to goods the subject of customs duty?

MR SPIGELMAN: Yes.

McHUGH J: It is?

MR SPIGELMAN: Yes. When you say, your Honour, "exclusive", if I may just rephrase your Honour's question, the "exclusive power" means the States cannot do it to the extent, obviously, the Commonwealth can do it. The Commonwealth could impose an excise when it does not have a customs duty.

McHUGH J: But was not that the very addition to that clause, or its predecessor, which was rejected? Was there not an amendment?

MR SPIGELMAN: No, we now say this. I am not going to take the Court to questions of the extrinsic material, including the convention debates. The Solicitors for Queensland and Western Australia will do that in detail. But as I apprehend, the answer to your Honour's question is this: there was a precise form of words of the character your Honour identified at an earlier occasion, and the amendment was made in a context where, if one looks at the convention debates, no one thought that the substance was being changed by the deletion of those words, and I think Barton said that expressly.

McHUGH J: Somebody, Parkes or Barton or Deakin, somebody, I cannot remember.

MR SPIGELMAN: Barton said expressly that, "We are changing the formulation that had been adopted at the previous convention", by deletion of words of the character your Honour identified, "and we do not believe that that changes the substance." If your Honours please, is that a convenient time?

BRENNAN CJ: The Court will adjourn until a quarter past two.

AT 12.46 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.16 PM:

BRENNAN CJ: Yes, Mr Spigelman.

MR SPIGELMAN: You Honours, at the outset could I correct something I said in answer to Justice McHugh. His Honour suggested that perhaps the force of my submissions was to the effect that a State is only prevented from taxing goods if there is also at that point a duty of customs. I think I indicated assent to that proposition. I wish to withdraw that, in this sense. It may be that the tariff policy of the Commonwealth is reflected in a nil custom, namely, the duty may be nil and that may be a deliberate matter of policy that it be nil. In that respect we would seek to say no more than exactly what we have said in the submissions, namely, that the States are prevented from imposing a tax on production or a step in production irrespective of the existence of a customs duty or not and for the reason that I have just mentioned, that it may be the absence of the custom duty itself is a policy.

The other matter that your Honour suggested in the course of argument was that it may have been clear to the founders that excise extended to all taxes on all goods, namely, whether they were imported or not and we say that, when one looks at the convention debate, is not so. Particularly could we direct attention to those debates that we have referred to in paragraph 5 of our written submissions where, in the context of what became section 55, there was just a clear line between imported goods and domestic production. There was no suggestion in those debates that excise extended to imported goods.

Your Honours, one matter that needs to be addressed in terms of the leave we seek to reopen the line of authorities, commencing with Parton, is whether or not anything has changed since that time that justifies that leave. I should make it clear at the outset that we do not make a submission which we believe has any effect on the Commonwealth's capacity to, loosely speaking, control the economy. We accept that by under section 109 the Commonwealth can pass laws which have certain consequences on State laws, including State taxation laws. What has happened since Parton which justifies reviewing it is the fact that, by reasons of decision of this Court, by reason of development in the country, there is no doubt now of the Commonwealth's capacity to control the economy and to develop industry policy and it is not necessray to perfect that to give section 90 a broad interpretation.

Plainly, there are two decisions of this Court that are quite dramatic in that respect. Cole v Whitfield, by reducing the scope of section 92 has substantially expanded the scope of 51(i). Similarly, Concrete Pipes and the other cases have expanded the scope of the corporations power. What we have now got to, we submit, is a complete disproportion in the federal system, that is, the area of restriction of the States that the present interpretation of section 90 imposes is so much larger than anything that the Commonwealth could conceivably need that it is time to review that balance.

GUMMOW J: But a lot of the so-called disproportion flows from the unwillingness of the States to exercise to the full their concurrent powers with respect to taxation.

MR SPIGELMAN: When you say that, in terms of direct taxation?

GUMMOW J: There are many people living who can remember two systems of income tax. I can remember two systems of death duty.

MR SPIGELMAN: There are other forms of taxation open to the States that they do not presently exploit. The disproportion is not simply an argument - - -

GUMMOW J: Disproportion flows from what each particular component in the corporation, in the federation, perceives as its political advantage at a particular time, not necessarily from the framework of the Constitution.

MR SPIGELMAN: I am looking at the areas of restrictions as a matter of law. As a matter of law the area of restriction section 90 imposes on the States is such as is disproportionate, not in terms of a vertical fiscal imbalance - and I was not addressing the use of the term "disproportion" in the submissions I just made to your Honours, I was not comparing the vertical fiscal imbalance and saying, "We're subject to restraints that we shouldn't be." I am looking at the proportion between what policy of the Commonwealth is to be served by the restriction on the States with respect to excise alone, not to taxation in the whole, and what the extent of that restriction is upon the States.

DAWSON J: I do not understand what relevance this has to the interpretation of section 90. I can see that you can say, "Well, there are those who said that we must interpret section 90 this way, wrongly, but this way because we cannot conceive of a situation where the Commonwealth didn't have control of the taxation of commodities." That really no more helps in the interpretation in the section than the proposition that you are putting because it is a top down argument. They say there is economic union and it must be an economic union of that sort. So, if you put it as a counter to that argument I can understand what you are saying, but they are both irrelevant to the interpretation of section 90.

MR SPIGELMAN: What I am particularly addressing is why the Court should give leave to reopen the line of decisions beginning with Parton and identifying elements in the Constitution - - -

DAWSON J: But there are those who said this was a justification for their interpretation of section 90. It no longer is a justification. I understand that.

MR SPIGELMAN: Yes, and not least because the Commonwealth has the capacity to effect the policies which are said to be served by that interpretation of section 90 in other ways. It is important, I think, for the States to concede in this context that section 109 is capable of having some application. Could I give your Honours the reference to the line of cases. They are summarised in Zines Fourth Edition at pages 341 to 9. There are a line of cases there to the extent to which section 109 can impinge on a State tax, and we accept that that is a possible effect of a proper exercise of powers, but the main reason for - - -

GUMMOW J: But you still cling, if that is the word, surely to the second Uniform Tax Case?

MR SPIGELMAN: Yes, we do, your Honour, but, in a number of respects, may I say that 51(ii) is not such a power and that is the relevant one for present purposes.

GUMMOW J: I am thinking about competition, priorities.

MR SPIGELMAN: Yes, that is a different issue.

GUMMOW J: But very important.

MR SPIGELMAN: It is an important issue, but it is - - -

GUMMOW J: It only becomes crucial when people cannot afford to pay.

MR SPIGELMAN: The question that I am addressing here is what happens when the Commonwealth has a policy with respect to an industry, because whatever section 90 does - the two competing views of section 90 are, the Commonwealth policy is limited to tariff policy, or it is some sort of economic union more general applied policy. When the areas of competition, as your Honour put it, come into play, we are talking about competitive revenue raising. What I am comparing is revenue raising with an economic policy that is said to lie behind the more broad notion of section 90.

I am saying that section 51(ii) apart, because we do not concede that that is a power, that a law with respect to taxation has got anything to do other than with Commonwealth taxation, or taxation by the Commonwealth, but there are other laws which enable the Commonwealth to effect an industry policy if the true policy behind section 90 is somewhat broader - the true policy of the whole group of provisions that are relied upon in the joint judgment in Capital Duplicators. That entire group of provisions which were relied upon, if that policy is somewhat wider than tariff policy, then a broad construction of section 90 is no longer necessary. One of the reasons why it is no longer necessary is developments in other constitutional doctrines in this Court.

Issues of consistency between a Commonwealth policy and a State policy or taxation - whatever it is - are, we say, best determined by section 109? The Court should be very slow to conclude that the Constitution has for all time resolved issues of consistency. Now, that is particularly so in an area which is central to the existence of the States as polities; namely, their capacity to tax. What we say is that the Court should not maintain the rigidity in terms of that inconsistency policy which it has hitherto said the Constitution requires. It should be left to the Commonwealth Parliament to determine when the States have gone too far. We say that there is no constitutional purpose to be served - - -

McHUGH J: But there are some problems about that argument, are there not? I mean, the tax is imposed and gone before the Commonwealth Parliament could ever enact any legislation to query what - - -

MR SPIGELMAN: Could I come to that in a moment, because Justice Mason said that in Hematite. I was intending to take the Court to that argument in that context. Could I just conclude what I was saying. What we are submitting is that the States should not be restrained as a matter of constitutional presumption, as it were, beyond the sphere of what the Commonwealth wishes to control.

In this case, for example, there is no suggestion - the Commonwealth has made submissions, but there is no suggestion that the taxes that we are now concerned with, including specifically the tobacco tax, impinge in any way on any Commonwealth policy. No one is saying this, that there is an area of Commonwealth policy that is adversely affected. What is being said is that these taxes should be struck down because some other State tax may conceivably impinge on Commonwealth policy. We say if that happens, then the Commonwealth can fix it, and that is a particularly significant distinction.

McHUGH J: How would they fix it, Mr Solicitor?

MR SPIGELMAN: By passing legislation.

McHUGH J: But under what head of power?

MR SPIGELMAN: Under 51(i) or 51(xx), which would cover most areas, as presently - 51(i), since it has been expanded by reason of the reinterpretation of section 92. The arguments against this are put in Hematite by Justice Mason. Could I take your Honours to 151 CLR.

DAWSON J: While we are doing that, you must be saying - I know why you are putting this argument, but you must really have the forefront of your argument, however, this, that it is the meaning of the word "excise" that we are concerned with, and some preconceived notion based upon a desire for the Commonwealth to have a certain amount of economic power really can have no effect on the meaning of that word which can be ascertained otherwise.

MR SPIGELMAN: In accordance with the decisions of this Court, it has had such an effect.

DAWSON J: Yes, but you would attack that on two bases. Not only is it wrong because it is no longer necessary now, but the primary attack must be that it is a preconceived notion in someone's head of what "economic union" means. There is nothing in the Constitution whatsoever to suggest that that preconceived notion is correct.

MR SPIGELMAN: No, that is one way. The other way is to say - - -

DAWSON J: It is the right way, is it not, to look at it?

MR SPIGELMAN: Yes, we adopt that, your Honour, but in addition we say there are two views open. One, the economic union has a broader content than the primary submission we make. If those two views are reasonably open, in choosing those views the Court will take into account - - -

DAWSON J: When you say there are two views open, the only view which is open is the economic union which is affected by the Constitution. It is not something you draw from outside.

MR SPIGELMAN: No, but some other members of the Court have joined in a joint judgment which takes a broader view.

DAWSON J: You must say that is wrong, do you not?

MR SPIGELMAN: Yes. Our primary submission is that the - - -

DAWSON J: Well, there are not two views open on your point of view - - -

MR SPIGELMAN: There must be two views open because four Judges of this Court, two of whom are still there, said so.

BRENNAN CJ: Let us come back to the question of two views of the preconceptions. If the word "excise" is not a word which is self- defining, then the definition of "excise" must look to something else. You would take us to the structure of section 90 and 93 and you would say, well then, you look for the opposite of excise and you find it in the bounty provision.

MR SPIGELMAN: Not only that, your Honour, but that is what I highlighted.

BRENNAN CJ: That is what you highlighted, yes.

MR SPIGELMAN: For reasons - - -

BRENNAN CJ: There may be other factors and the textual argument has considerable force. Now the other factors that might be looked at is what was it that the Constitution was intended to produce. In a way you can say that can only be discovered by a reference to text of the Constitution. It was discovered when looking at Cole v Whitfield that that was not the only source. Certainly there are the questions of the debates, but also there must be in this context, that is, in the context of the Chapter in which section 90 and 92 appear, some concept of what the economic objective was of the entirety of that Chapter.

MR SPIGELMAN: Yes, we accept that.

BRENNAN CJ: Now is it not from that entirety that the view that you attack has been derived.

MR SPIGELMAN: The entirety of this Chapter, a series of provisions that are identified, and I am at the stage where I accept that that is an open interpretation. My submission at this stage is to say that your Honours who have taken that view should equally accept that the other view is an open interpretation, namely, that not every section in that group of sections is designed to serve the overall object with perfection, that the cumulative effect is intended to serve that object.

So when one looks at section 90 and says, is that on its own to be construed as if it, on its own, were serving the broader object or some component part of it, in making that choice one ought to weigh the comparison between, in a federal system, an intrusion on something that is essential to the separate existence as polities and the object to be served, namely, the economic union, if I could use that shorthand. That is a balancing process that obviously different of your Honours would weigh in a different way. One of the ways it has been done was by Justice Mason in Hematite. I hope I had answered your Honour's question.

BRENNAN CJ: Yes, you have answered the question. I was going to say you will at some stage deal with the construction, or the relevance to the construction of the Constitution of long- established lines of authority.

MR SPIGELMAN: Yes, your Honour. May I say - I mean the issues are clear in the written submissions - are very similar - and I overlap with all the cases that your Honours were taken to at length last week. I was not proposing to do that again but I will make reference to it.

TOOHEY J: Mr Solicitor, there is just one aspect of your answer to the Chief Justice that puzzles me a little. You answered him as if the two approaches, one based on economic union and one based on the text of the Constitution, were somehow mutually exclusive. One could have a view of economic union which was not inconsistent with the view of excise that you contend.

MR SPIGELMAN: I am sorry, if I gave that impression I did not intend to. It was clear, before lunch, that we accept that section 90 serves a high Commonwealth constitutional purpose in terms of achieving economic union by means of the effectuation of Commonwealth tariff policy. It is the further step of saying, "That also means that there will no economic differences between the States," which we say is not part of the idea of economic union.

TOOHEY J: Yes, I follow that, thank you.

MR SPIGELMAN: May I say, we have dealt, now that we have all had dealings with Part IV of the Trade Practices Act, and one of the issues there is market. One of the issues in market is all markets have two dimensions, a geographic dimension and a product dimension. To say that there are local markets says nothing to detract from an economic union. There are local markets, and retail markets are quintessential such. That is what we are really dealing with here. That final step, or the penultimate step to the consumer is a local market.

McHUGH J: That is why I was querying relying on 51(i) or, for that matter, 51(xx).

MR SPIGELMAN: Section 51(xx), as the Trade Practices Act itself shows, carries one into all these local geographic markets, which it does do.

McHUGH J: Sometimes.

MR SPIGELMAN: Yes, not always, that is so. To say that there can be local markets, and therefore differences in taxation which are associated with that, is not inconsistent, we submit, with an overall economic union, because it is the nature of many markets, of which retail markets are the most distinctive, to be local markets. One can run into problems of the border, obviously, but subject to that, that general proposition applies. Coming back to Hematite [1983] HCA 23; 151 CLR 599, the passage is at 631. It is in the passage beginning in the middle of the page:

If the States had power to impose excise duties then the Commonwealth Parliament's power to protect and stimulate home production and influence domestic price levels might be compromised. It is possible that by an exercise of the taxation power the Commonwealth could effectively prevent the States form imposing excise duties. A law enacted 51(ii) providing that no excise duties should be payable on designated goods would, by virtue of section 109, prevail over any inconsistent State law.

We, as I have already indicated, do not accept that. It is inconsistent with a line of authority in the Court which is summarised in Zines Fourth Edition at 346 to 349. The cases in particular are Municipal Council of Sydney v Commonwealth [1904] HCA 50; 1 CLR 208 at 232; the first Uniform Tax Case [1942] HCA 14; 65 CLR 373 at 416, 442, 449, 452; the second Uniform Tax Case [1957] HCA 54; 99 CLR 575 at 614. However, accepting that there are other powers in section 51 that can have consequences under section 109, I then go back to what Justice Mason was saying:

This is not a reason for denying that the object of granting exclusive power to the Commonwealth was as I have expressed it to be. The Commonwealth's control is stronger if it possesses exclusive power; then there is no potential for conflict between Commonwealth and State legislation. The possibility of the imposition of taxes on goods by the States in the period prior to the enactment of inconsistent legislation -

I think that is the point that your Honour Justice McHugh mentioned to me a moment ago. We say this potential for conflict, possibility of the imposition, is introducing a rigidity in the Constitution, that questions of inconsistency between the Commonwealth and the States in a Federation should not have. To go back to the text:

the period prior to the enactment of inconsistent legislation by the Commonwealth undermines the Commonwealth's real control of the taxation of commodities -

that is harking back to Parton -

and provides a further reason for rejecting the existence of s. 109 as a basis for narrowing the ambit of the Commonwealth's exclusive power under s. 90. In any case, to make the power exclusive is to free its exercise from some of the political controversies and constraints which would inevitably surround any attempt by the Commonwealth Parliament to pass inconsistent legislation designed solely to override a State law.

We say that is not a material consideration to be taken into account when deciding what the Constitution requires as a matter of constitutional dictate should be the sphere of a consistency between Commonwealth and State legislation. It is much better in a developing federation to allow the Parliament to determine, admittedly in the context of political controversies, to use his Honour's phrase, and constraints, admittedly in that context to allow the Commonwealth to decide what is inconsistent with its policy as that policy may change from time to time.

One thing that was clear at the time of Federation was that whether the Commonwealth would follow a free trade power or a protectionist power was something that had to be left to the Commonwealth Parliament because it could not be decided by the representatives at the conventions and, of course, what we have discovered is that the Commonwealth has, at different times, followed both paths; protectionist for most of its life, increasingly a free trade path in the last decade or so. Your Honour, that change is precisely the kind of change for which the Constitution would have made provision, because it was exactly that choice which, self-consciously, the protectionists and the free traders decided to leave to the Commonwealth Parliament.

We say that to the extent to which rigidity is introduced in terms of an assumption that the Commonwealth will have a tariff policy of a protectionist character, and thereby increasing the chances of interference with that policy, that is something that should not be written into the Constitution by means of an interpretation of section 90. It should be left to the Commonwealth Parliament to tell us from time to time what its policy is and override, in the powers that it has, such contrary and inconsistent State legislation.

Could we take, apart from one other part of the text, if I could continue in that, on the construction we urge on the Court. Section 55 has not been relied upon, we do not believe, in the earlier cases, and we are thinking in particular about the last part of section 55, and we have included in our written submissions some submissions on this. It is a provision which makes it clear that the Parliament must be able to distinguish between what is a law with respect to customs and what is a law with respect to excise. That must be a bright line distinction, I think is the phrase used in our written submissions, because this is the Parliament deciding whether or not duties of customs are involved or duties of excise alone are involved, because the one thing it says is you cannot have an Act which has both - you must have either customs or excise.

A number of decisions in this Court suggest that one can look at - sorry, I withdraw that - we say that whatever excise means in section 90 it means the same thing in section 55. A number of decisions of this Court have emphasised that one determines questions of whether something is an excise or not by a list of factors, a list of considerations, of which one, and one only, is whether it refers to a previous period in terms of computation. The references I would give in that respect in particular - my friend took your Honours to them, obviously with different emphasis this morning - in Philip Morris 169 CLR 439, 440 in the joint judgment of Justices Mason and Deane, and at page 458 in your Honour the present Chief Justice's judgment.

Whilst that list of factors may look appropriate when one is dealing with section 90, it looks less appropriate when one puts the same list in the context of section 55; namely, one needs a bright line to be able to just tell the Parliament whether what it is dealing with is customs or excise or some other kind of taxation. A list of factors is not, we submit, the appropriate way in which one would assume that the draftsman would approach matters of this character for purposes of placing legislation before Parliament.

The next matter that we believe has not been put in previous argument about the line of authority originating with Parton is perhaps applicable even if the tax on a step approach of Parton is acceptable but, primarily we use it to attack Parton. We now all believe that we deal with substance and not form and that is the contemporary jurisprudence of the Court. The question, however, is that the existing authorities identify a tax on consumption as something that differs from an excise. Now, there are other views on that and your Honour Justice McHugh indicated that to me earlier just before lunch. If I could accept for a moment the tax on consumption is not an excise then what I would wish to submit is that that is a question of substance and not form, too.

Questions of substance do not always work in favour of the Commonwealth and is this, or is this not, in substance a tax on consumption is a real question. One can contrast it with the question we say ought to be asked, namely, is it a tax on production or, alternatively, one can contrast it with the Parton question which is, "Is this a tax on a step in the course of production or distribution?" Even so, if one is dealing with questions of substance and not form, then one may say that even thought the incidence of attacks falls on a step in distribution it is in substance a tax on consumption. We say this tobacco tax and alcohol tax, and, we would say, petrol tax, all have that characteristic because in each case there are two important characteristics of those commodities that are relevant to answering the question, "Is this, in substance, a tax on consumption or not?"

The first is that there are perfectly reasonable bases for saying that in each case there would be a policy of seeking to discourage consumption. That is, of course, one of the steps put against me. Well, that can only happen if it is passed on, and if it is passed on it means less will be produced. All that is true. But if one accepts the tax on consumption is allowed out of - is not an excise, then we say that the fact that the policy is to discourage consumption is itself a basis for saying that in substance and not form this is a tax on consumption even if it is levied on a step in the course of distribution. The second reason for this being so of the three commodities I have identified, is that each of them have social costs which are not reflected in the pricing mechanism of the free market, but, most importantly, those social costs have effects on public expenditure by the States, particularly in the form of health.

McHUGH J: Particularly in the form of what?

MR SPIGELMAN: Health expenditure. Each of them, whether it be - we have got road accidents, et cetera, for petrol, air pollution. In alcohol and tobacco it is clear. Now, we say that those two factors, namely, that there is the question of discouraging consumption, and there are the social costs and, thirdly, perhaps, the public expenditure associated with the consumption of each of these three commodities, or kinds of commodities - - -

McHUGH J: Yes. But on recent theories, a lot of products have social costs: butter, milk.

MR SPIGELMAN: That may be so, your Honour, but we will deal with them one at a time. At the moment, we have these three areas in which the State - we are attempting, I must say, to establish some principles here, and this principle, we say, strikes at the Parton line, but it is also consistent with the Parton line as explained in Dickenson's Arcade. Now, the result in Dickenson's Arcade was to make a tax on consumption an irrelevance to the States, because the fact that its incidence was on the retail sale, that the person who collected it was in the course of the distribution, meant that that part of the regulations - what happened in Dickenson's was that the actual imposition of a tax was upheld, but the fact that you got the retailer to collect it for you meant that the regulations were struck down and, so, the only way you collected was the individual consumer.

Now, that may have been, we submit, one of the last remnants of the criterion of liability approach, because it was looking at the form. The substance of it was that it was a tax on consumption, but the form was that it was collected by a retailer.

BRENNAN CJ: What do you mean by "consumption"?

MR SPIGELMAN: Namely, that when the persons who use the commodity, consume the commodity in some way - driving a car, or drinking it, or smoking it - are the persons to whom the tax is sought to be directed. I have not expressed that well, because intention is not the only element in it. But as a matter of objective construction of the Act, that is where it is going. That is its intention in that broad sense, rather than any subjective intention.

BRENNAN CJ: But that raises the question of whether "consumption" in this context means a liability which is incurred by reason of consumption.

MR SPIGELMAN: No, it is not that.

BRENNAN CJ: Well, that is what you say.

MR SPIGELMAN: "Liability" is not the word. It is not so much a liability but a cost that is paid. What I am saying in effect is that in this respect the fact that it is passed on to the consumer works in my favour.

BRENNAN CJ: What you are saying is that if it is passed on to the consumer, it is a tax on consumption.

MR SPIGELMAN: Yes, and that is in my favour.

BRENNAN CJ: That seems to be inconsistent with all the cases that have dealt with the notion of "excise" which you are attacking.

MR SPIGELMAN: It is inconsistent with one step in the reasoning, namely, the effect is the same, but it is not inconsistent with that part of the reasoning which draws the line at consumption.

BRENNAN CJ: That is where I think the difficulty arises about the definition of what is meant by "consumption".

MR SPIGELMAN: Both of those propositions, for example, exist in the relevant passage in Parton and there may be a tension between them, and this is perhaps the tension that your Honour Justice McHugh was directing my attention to in saying, "Why stop at consumption? Consumption has the same effect". It may do, except the Court has hitherto stopped the consumption. It has done so in such a way as to make any tax irrelevant. I mean, it is just uncollectable.

BRENNAN CJ: Perhaps you can assist me, because I have always understood "consumption" to mean a liability which is incurred by reason of consumption. If there is any passage which is contrary to that, I would be grateful to have my attention drawn to it.

MR SPIGELMAN: No, your Honour, I do not think there is a passage that is contrary to that, but of course, when one looks at the form of the tax as imposed in Dickenson, it was in fact on the act of consumption, but then the regulations made it collectable.

BRENNAN CJ: On the act of smoking?

MR SPIGELMAN: I am sorry, I am not sure about that. I think it was, your Honour. I think it was one step beyond purchase.

McHUGH J: Yes, it was. There was the graphic illustration of the retiree sitting against the wall doing something to his pipe.

MR SPIGELMAN: Yes, and having a tax collector turn up and say, "Give me my 10 cents". May I say, whilst the line was drawn in a particular way, the States have taken a view on this occasion, and which only the ACT and South Australia did on the last occasion, that the current doctrine is forcing us into a form of taxation which is increasing the uncollectable. The far extreme of uncollectability is what Dickenson has permitted. What I am seeking to do now is to say that if we are in favour of substance and not form, then one ought to look at the tax in this case and see it as in substance a tax on consumption in whatever sense, including the narrow sense that your Honour the Chief Justice has put to me, namely, it is a liability in fact paid for and intended to be paid for by the consumer with a view to doing the two things that taxes most readily do. One is to discourage the use of that commodity; and two, make the people who use that commodity pay some of the social costs, including the public revenue costs, of their consumption.

May I say this, that whilst hitherto there has been the sharp line in accordance with the Parton test from the course of distribution down to the point after the purchase, we submit that, if one is looking at the question of a tax on production as distinct from a tax on consumption, if that is a material difference, then the further one goes down the line of distribution, down the chain of distribution, the more likely it is that the true substance of the tax is to be a tax on consumption - namely, forward looking - than it is backward looking to the act of production.

McHUGH J: Do you concede that a tax on the first sale by a producer is an excise?

MR SPIGELMAN: In most cases that must be so and Commonwealth Oil Refineries is not one of the cases that we seek to be struck down. We think that at that point, namely, the first sale - and it is a tax which is not only the first sale as a matter of fact but is computed by the value of that sale.

McHUGH J: Yes, I know.

MR SPIGELMAN: The difference in this case is although there is a sale by a manufacturer, it is computed in terms of the sales by the wholesaler or a retailer.

McHUGH J: I have got to say that the one problem I have always had about the minority view in Capital Duplicators - when I am talking about the minority view, I am talking about back for many years - is once you concede that the sale by the producer is or may well be in most cases a tax, if the tax is imposed on the sale, why as a matter of substance does it make any difference if the tax is put down at the next level?

MR SPIGELMAN: As a matter of substance one is just closer to the consumer. It is perfectly true that if people consume less, that has an affect on production.

McHUGH J: But both taxes have the same economic effect, do they not?

MR SPIGELMAN: They have a similar economic effect in the sense that they can both affect consumption and therefore come back to the quantum of production but that is a different thing from saying they have the same economic effect as an incidence of taxation. That is what we are dealing with here. We have no difficulty with the general proposition that a tax which is in substance a tax on production, is within the exclusive power of the Commonwealth. The question of what is in substance a tax on production, is something which has not been worked out in the cases because for the last 50 years the line has been drawn at a level which we say is too close to consumption. It would be perfectly possible to say - - -

McHUGH J: When you talk about production, are you talking about Australian production only?

MR SPIGELMAN: Yes. We are talking about production in Australia and that at a tax which is indifferent - I mean, this is the policy we say is served by the Act - a tax which indifferently applies to Australian production and exports - there may be some exceptions to this but none are relevant for present purposes - which applies indifferently to Australian productions and imports - I said "exports" a moment ago, I meant imports - does not serve the policy meaning that I have referred to as the "tariff policy" of section 90 which section 90 is designed to protect. That is a significant restriction on what has been the doctrine of this Court for the last 50 years.

McHUGH J: It may. Take the case where the government reduces tariffs because they want to increase competition in this country. Take books. Supposing, for example, they drop customs charges in relation to books on the basis to reduce the price of books, a State tax on books may well have the effect of causing problems.

MR SPIGELMAN: If the State tax applies in the same way to imports and local books, then it has no effect on competition.

McHUGH J: It may not have any effect on competition, it may have effect on consumption and demand.

MR SPIGELMAN: Yes. There are two areas of such consumption. One is - - -

McHUGH J: The government may want to increase reading. They may want to reduce the cost of legal textbooks, for example, and more people will read them.

MR SPIGELMAN: There are a number of routes by which the Commonwealth can impose a policy of that character if it wishes to, not least - I mentioned, obviously, 51, but your Honours will recollect in our written submissions, we refer to section 96 as well, conditions on grants. Books are more likely to be in the context of that educational grants than anything else. If the Commonwealth has such a policy objective then, we submit, it has ample power to do so. I have not mentioned the foreign affairs power, but that is obviously also an area where, in a recent decade or so, there has been a significant expansion of Commonwealth authority.

Whatever the sources of that authority may be, all we are saying is that when one looks up the cumulative effect of the decisions of this Court on Commonwealth authority the Commonwealth will be able to achieve the sorts of policies your Honour is referring to without the Constitution mandating a result. It will be able to do so by its own legislative act, in one way or another. That is one of the reasons why Parton should be looked at again, because what has happened in the 50 years since Parton in terms of Commonwealth power is a matter of significance, we say, to the construction of section 90 as affecting the States in the way it does. I will come in due course, obviously, to the alternative way we put the case, namely, if Parton is not reopened, then we say it is within the franchise - - -

McHUGH J: You probably say this is irrelevant, I suppose, but it hardly improves the relationship between States and the federal Parliament if the federal Parliament was enacting statutes, striking down State taxes - one only has to look at the recent debate about euthanasia.

MR SPIGELMAN: May I say that in terms of whether the Commonwealth would exercise those powers is probably, and for good reason, a point which indicates a reason why the Court should not assume that this is inconsistent with some Commonwealth policy. That is what the present construction of section 90 says - we are to assume that there is forever more an inconsistency between a Commonwealth purpose in terms of the economic union or something like that, and any State purpose of revenue raising or whatever.

McHUGH J: But could you imagine the outcry if we upheld your general submission and the States imposed these taxes and for some reason or other the Commonwealth said we are going to deprive the States of imposing these particular taxes.

MR SPIGELMAN: May I say if the Commonwealth Parliament is not prepared to act in that way then it cannot have a policy of a character to which it is committed. That may be something that is decided from time to time as a difference of political balance, or social balance or economic balance, and all we are asking for, by changing the hitherto accepted doctrine, is that that balance can be restruck from time to time in accordance with the parliamentary processes in this country and not be frozen by means of an interpretation of the Constitution. In that respect, we submit that there is good reason for looking at Parton again in the light of the change in the authority of the Commonwealth Parliament to effectuate an economic union in this country or policies associated with such a union.

DAWSON J: To effectuate an economic union - what do you mean by an economic union? There are lots of sorts of economic union. There is a European economic union; there is the Australian economic union; there is a United States economic union. They are all different.

MR SPIGELMAN: I think the answer to the question is the economic union for which the Constitution provides, and there are different views about that.

DAWSON J: Yes; and that takes you back to the text of section 90 and its context.

MR SPIGELMAN: That takes us back to the text and its context, yes. Some of your Honour's colleagues would stress aspects of the context perhaps in a way that your Honour would not stress. We say you go back to the text and if you are using economic - - -

DAWSON J: If it had been designed to give the Commonwealth power to tax commodities, it would have been said.

MR SPIGELMAN: Yes.

DAWSON J: It was not said.

MR SPIGELMAN: And that has been put, yes, your Honour. Could I just come back to my final submission? Perhaps I will come back to the issue of whether one can distinguish or not the franchise cases, but I do want to spend a little time, if I may, on Parton itself. That is to be found in 80 CLR, and this is the fons et origo of this area of the Court's doctrine. It is a passage that your Honours are familiar with, but I do wish to take your Honours to it with particular emphasis. It is at page 258 through to the top of page 261. At page 258 in the middle of the page he begins by saying it is a compulsory exaction and not a charge for services, and that is fine - and that is his first point - and that makes it a tax. Then at the first full paragraph on page 259 he says:

In the next place the tax is a tax upon goods.

What does this mean, "a tax upon goods", and why is it relevant? In Capital Duplicators, your Honours in the majority said excise and customs exhaust the area of taxes upon goods. That is the matter of construction. His Honour at the origin of this line of authority does not in fact say anything like that. He just says it is "a tax upon goods". There is an undistributed middle problem here in this sense: if one says an excise is a tax upon goods - the tax in question in this case is a tax upon goods - therefore, this tax is an excise, one has committed the fallacy of undistributed middle. It is only if you are major premise is, all taxes on goods are either customs or excise duties. One has to have a major premise like that. His Honour did not actually have that, although that is the - - -

BRENNAN CJ: That is if you stop at that part of the judgment. If you read on the judgment, you see what the nature of the major premise is.

MR SPIGELMAN: It may be, but I was not proposing to stop here, your Honour, but I am just going ahead. That is the essential step, because unless one says that customs and excise exhaust the sphere of taxes upon goods, one has to say, "Well, it's either an excise or a customs. It doesn't matter much which for purposes of looking at the State power", but of course it does matter which if one is looking at the Commonwealth power because section 55 says - and the same words must bear the same meaning - you have got to know which is a customs and which is an excise. He goes on to say one of the things is that one passes on - he refers to the indirect tax concept and says:

"The leading characteristic of an indirect tax is that it is susceptible of being passed on" -

and goes on to say, "Well, there's a tendency in this case to enter into the price of the milk." We say that is true of all taxes, they are all susceptible of being passed on including direct taxes, and all taxes must be recouped as operating costs from either the client, from profit or from your inputs. Where and how will be dependent upon the elasticity of supply and demand.

He then goes on to say:

it being a matter of indifference which of the parties ultimately bears the burden -

In a sense, all taxes which are imposed for revenue purposes involve the same indifference. Is the test one of legislative intent in this respect, in which case we pass it? He then goes on to refer to this proposition:

It is a sales tax and as I understand it that is generally regarded as an excise.

Now, there is no explanation, there is no reference, and there is no discussion of prior authority, including, for example, Peterswald v Bartley, at this point. Not mentioned. We say, no, sales taxes are distinct from excises, and always have been. That is, in fact, suggested in the very next dictionary definition. He refers to the Britannica and then, as quoted in the Oxford English Dictionary, and it is still there:

signifying a duty charged on home goods, either in the process of their manufacture or before their sale to the home consumers.

Now, what this definition says is that sales tax is okay; it is before their sale. Now, what has happened - the next step, if one looks at it, your Honours, is, if one goes over the page to 260, in that first paragraph, he says:

I cannot adopt the view that this is an essential feature -

and I will come to what that "essential feature" was, and his Honour goes on:

What probably is essential is that it should be a tax upon goods before they reach the consumer.

That is a phrase which is repeated at about point 5 in this paragraph:

A tax upon a commodity -

and this is the crucial words -

A tax upon a commodity at any point in the course of distribution before it reaches the consumer produces the same effect -

Now, "before it reaches the consumer" is ambiguous as to whether or not that is before or after the sale. Is the act of sale included within that? It is not exactly clear. "Before it reaches" - what does "reach" mean? The dictionary definition on the previous page makes it clear it only applies up to, but not including the point of sale.

What has happened since then is, in Bolton v Madsen, at 271, the phrase "before they reach the consumer" has become "before they reach the hands of the consumer", which is perhaps continuing the same ambiguity. Do you get it in your hands before or after the sale? But then, in Dickenson's Arcade, Justice Mason referred to a formula which has often been used since, at 234, it is after they have passed into the hands of the consumer. There has been a subtle change, we submit, in the formula, which started with a dictionary definition which we say makes it clear that sale was not included - that final act of sale was not included.

McHUGH J: But when his Honour spoke about sales tax on 259, he was probably referring to sale tax as understood under sales tax No 1 and sales tax No 2, which are taxes on manufacture.

MR SPIGELMAN: I must say he may have been, your Honours, but he seemed to be referring to it in a more general way. It is a sales tax and, therefore, an excise. I am not sure if he was referring to Commonwealth practice in that respect but the very dictionary definition he uses suggested that the sale, the final sale to the consumer, is not within the concept of excise. The formulation he uses later, before they reach the consumer, leaves that a little ambiguous but the final position in this Court is that the sale is included and it is only after it is in the consumer's hands and the act of consumption is going on that one take it outside the realms of excise. There has been a shift here over the years and it is not a shift that at any stage has been signposted.

BRENNAN CJ: What do you say about the sentence at page 260 point 4:

A tax upon a commodity at any point -

et cetera?

MR SPIGELMAN: I am coming to that, obviously. I was going through this entire passage and could I just do that in a moment. Going back to the bottom of page 259, one has this proposition:

Only if the conception of what is an excise is limited by the condition that the tax must be levied on the manufacturer, that is to say upon the goods while they are still in his hands, can I see any escape -

We say that is a very narrow criterion of liability approach, "While in his hands". One can still be on production even though it is as a matter of substance and not form on a later step, perhaps the first sale, to which your Honour Justice McHugh talked to me a moment ago. His Honour then goes to the crucial passage:

In making the power of the Parliament of the Commonwealth to impose duties of customs and of excise exclusive it may be assumed -

Now, that is an important part of the analysis because there is no reference and no analysis as to why that assumption is being made.

DAWSON J: No authority.

MR SPIGELMAN: And no authority.

DAWSON J: No economic reason.

MR SPIGELMAN: It is an assumption. I have to admit that your Honours in Capital Duplicators in the joint judgment provided an analysis of a different character; maybe went beyond the question of assumption but when your Honours did that your Honours were dealing with a line of authority which began here. We say this is of significance that it started off as an assumption and it then says this: "What is the assumption?"

it may be assumed that it was intended to give the Parliament a real control of the taxation of commodities.

Well, it intended to give the Parliament a real control of something, but the reference of taxation and commodities assumes what has to be proven, namely the analysis is circular. The tax on commodities means that without reference is encompassed within the words "customs and excise". Now, we do not quibble with the question of real control but we do say that it was intended to do anything with respect to taxation of commodities in the broad as distinct from identifying the question of tariff policy to which I have referred at the outset. Then there is the next passage:

A tax upon a commodity at any point in the course of distribution before it reaches the consumer produces the same effect as a tax upon its manufacture or production.

Perhaps so, but what is the effect that matters. Why is it - - -

DAWSON J: But not to have so, it is wrong.

MR SPIGELMAN: I am sorry, your Honour.

DAWSON J: It is not to have so, it is wrong in terms of tariff policy.

MR SPIGELMAN: In terms of tariff policy it would not. It would not have that effect.

DAWSON J: It is the exact opposite. If it is a tax upon production it affects the tariff policy, that is the customs duty. If it is a tax on goods generally, it does not.

MR SPIGELMAN: No, it does not have that affect on - - -

DAWSON J: It is just quite wrong.

MR SPIGELMAN: If your Honour pleases. And in addition to that we have the question that that assumes elasticity of demand - accepting his Honour's particular analysis that it has an affect on price and therefore consumption, and if you consume less then you produce less, that may or may not be the case. You may import less. But whatever it is, one of the other effects are capable of occurring depending upon elasticity of demand and elasticity of supply.

DAWSON J: But one thing is clear. Here you are at least in the area of tariff policy and tax upon goods before it reaches the consumer, irrespective of whether the goods are imported or are produced, is a very different thing from a tax upon production. One has a direct effect on tariff policy, the other has none.

MR SPIGELMAN: Yes, your Honour. If I could just express that proposition in a way that may address their Honours who have not adopted that view is that once again - - -

DAWSON J: They have not addressed that. That have not addressed that at all. It is not that they have not adopted it.

MR SPIGELMAN: May I say it this way. Once again this assumes what has to be proven. Namely, it assumes that the relevant affect one is looking at is on demand for the goods whereas, if the relevant effect is on relativities, if that is the effect that the Constitution makes provision for, then this consequence does not follow. If it is relativities, if it is the tariff policy, as your Honour put it, if that is what the relevant constitutional effect is, then this does not follow. It only has the same effect on a later stage if one assumes that one is dealing with protection or taxes on goods rather than if one is looking at relativities or tariff policies. Because if one is looking at relativities or tariff policies, as your Honour Justice Dawson properly says, it does not have the same effect.

McHUGH J: But this is - after all, section 90 appears in Chapter IV which is headed "Finance and Trade" and it devotes 25 sections to dealing with the finance and trade and it is looking at these matters generally.

MR SPIGELMAN: Yes. May I say it is in that context. That does not mean that the words in the context have to be given a definite - each of the provisions has to be given a definition which covers the entire area of finance and trade. If it is a plain policy to effect a tariff policy, and that is the purpose of section 90, then particularly when one is dealing with the heart of the existence of the States as polities, one ought to be slow to see the Constitution purpose as broader than is necessary.

Now, I am not saying for a moment that one cannot take into account the entire context in the construction as your Honours have done. What I am seeking to dissuade your Honours from is - at this point of my submissions - is to dissuade your Honours from the force of the reasoning in this passage which has hitherto been accepted in this Court. We say that the force of this reasoning is that it assumes what it has to prove and it is circular. Of course, it is not without relevance to point out that Sir Owen Dixon gave evidence about this matter in the 1929 Royal Commission and the evidence he gave was that the Constitution had to be amended so that section 90 covered this area. But by the time of Matthews v Chicory Marketing Board that was, in his view, done by construction and in this case he exempted consumption. Originally he included consumption but in this case he withdrew consumption on the basis of this Privy Council decision.

McHUGH J: O'Connell's Case.

MR SPIGELMAN: Yes, and that is what he said it was riding on but he withdrew consumption, originally having included it. But we say that the thrust of this reasoning is that it assumes what has to be proven, and that is why it is not entitled to the persuasive force that it has had in this Court for many years. Finally, your Honours, in this passage he talks about formal significance. He says:

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

What does "many commodities" mean? One thing one cannot say about this Constitution is that matters associated with tariff policy can be dismissed as merely formal significance. By 1949 that argument was over but in the 1890s and up to 1900 the question of tariff policy and effectuating the Commonwealth tariff policy was the major dividing line in Australian politics as reflected in the convention debates and as reflected in the Constitution. If it is designed to effectuate Commonwealth tariff policy and is limited by such a purpose, the one thing one cannot say about this Constitution is that such a limitation reduces the restriction to formal significance. That significance in terms of affecting Commonwealth tariff policy was far more than formal and was one of the central items in the Constitution as originally founded.

The other thing that is the matter with this judgment - and it highlights, we say, the defect - is my first point, namely, bounties as a mirror image of duties, namely, equal and opposite. If one goes through this judgment it ought to stand up by writing the words "bounties on production or manufacture" wherever the word "excise" appears. If one tries to do that, it will not work.

McHUGH J: I know you place great reliance on the juxtaposition of bounties with excise in section 90, but I noticed in Peterswald v Bartley that none of the three Justices, all of whom were at the convention - I am sorry, no, Sir Samuel Griffith was not - none of them placed any emphasis at all on the term "bounties", did they?

MR SPIGELMAN: No, because they knew that the term "excise" was limited to production and manufacture, and said so.

GUMMOW J: No, that was not the question in Peterswald v Bartley at all. They did not have to get into that.

MR SPIGELMAN: But they did in the sense - in their reasoning they said that. I am answering his Honour's - they did not also refer to bounties but they did not have to.

McHUGH J: Production and manufacture were really down - they really relied on the difference between direct and indirect taxes, between taxes on quantity or value, even a bit of argument about reserve powers as well.

MR SPIGELMAN: There is no doubt that there are such aspects of the judgment which have long since gone, but there is nothing in that judgment which suggests that an excise goes any way beyond manufacture or production, because that was, we submit to the Court, the assumption underlying the consideration of the conventions. May I say I am not addressing that aspect of - - -

GUMMOW J: The question they had to decide was whether this flat fee on the carrying on of the train was an excise. That was seriously argued. It seems ridiculous now but it was not ridiculous then.

MR SPIGELMAN: Peterswald v Bartley, whether it - - -

GUMMOW J: They said, "No, where is the relation of the fee to the goods, as to any goods?"

MR SPIGELMAN: Whether or not Peterswald v Bartley is direct authority any longer, or has been since 1949, it was never overruled and maybe for the reason your Honour has mentioned it never needed to be. If one reads the judgments we submit that that is what comes out of the reasoning as the belief at that time as to the scope of the field of excise. It may not have been necessary for the decision of the case to determine it at that time and obviously I am not here to say, "You should not follow Parton because it failed to give proper weight to Peterswald v Bartley. It is too late for that proposition."

We submit that if one looks at the construction of the assumption as to what excise meant, it was of the character for which we contend. If it was as obvious as we say at that time, it is not necessary to say, "By the way, look, bounties are similarly confined," because the common assumption was that they were so confined. Could I just look at some of the words - I will not go through all of these - and try and write into - - -

GUMMOW J: What do you say about the other judgment in Parton, the other majority judgment in Parton, has that got undistributed middles and other terrible - - -

MR SPIGELMAN: No, we say it adopted this. His Honour had already outlined the views in Matthews v Chicory but this was the case in which it became the views of the Court. May I say the passage I am directing attention to is the passage relied upon in later judgments of the Court.

BRENNAN CJ: Is that not the point? A lot of what you have taken us to so far was harking back to what had already been said in Matthews v Chicory Marketing Board.

MR SPIGELMAN: There are such references, yes.

BRENNAN CJ: The point that was reached at 260 of Parton was that:

A tax upon a commodity at any point in the course of distribution before it reaches the consumer produces the same effect as a tax upon its manufacture or production.

MR SPIGELMAN: Yes.

BRENNAN CJ: I can understand that you might challenge that, but for the time of Matthews the financial structure of the Constitution has been conceived of in that way.

MR SPIGELMAN: But not from Matthews. In Matthews, his Honour was not yet in the majority. It became such from here.

BRENNAN CJ: No, but certainly the notions which found expression in Parton are to be found in their first adumbration at least in Matthews. From the time of Parton onwards the Matthews/Parton combination has been regarded as the basis.

DAWSON J: By some; but consistently throughout the cases there have been people who have not accepted it.

BRENNAN CJ: But those, if I understand it correctly - and I do not want to join issue with his Honour - but those have been in the minority.

MR SPIGELMAN: We do not submit to the contrary.

BRENNAN CJ: The accepted doctrine from that point onwards has been as Justice Dixon expressed it in Parton. I can understand that you might want to go back behind it but if the course of authority, for that length of time, is so constantly in that direction, are you not really seeking now to reinvent the wheel and go back as far at least as Matthews?

MR SPIGELMAN: May I say this? We are seeking to go back, there is no doubt about that, and I think that has been plain. What we propose is a considerably less radical treatment prior authority than occurred in Cole v Whitfield, because not only was there a dominant view for many of the years that section 92 bore its prior construction, there was no minority view. There was not even the period in which perhaps Justices Fullagar and Murphy were alone and the fact that they too could agree in dissent is itself, we submit, adds to the force of the submission.

BRENNAN CJ: But that may well be right. In Cole v Whitfield, the authorities had got to the point where there was no view.

MR SPIGELMAN: That only happened in Miller v TCN Nine.

BRENNAN CJ: Whenever it happened, it happened - - -

MR SPIGELMAN: The immediately preceding case.

BRENNAN CJ: Yes, but it had happened.

MR SPIGELMAN: May I say there were a number of judgments which asserted that there was no view and I think only two, that of Justices Mason and Deane, but I am not sure that other members of the Court who did not address that question would have agreed with it at that time that there was no view.

DAWSON J: I would have thought you would have adopted the same attitude towards excise, but what is being pointed to here is the underlying reason for an interpretation which is found to be meaningless in the end. If you ask what is an excise, on the majority's view, no answer can be given save that the tax must find its way into the price of goods, and that is a description of practically every tax exists. That is why I wondered why you were concentrating on policy reasons rather than to point to the fact that like section 92, and even worse than section 92, section 90 has reached a point where no answer can be given to the question, "What is an excise?", save for a reference to a variety of circumstances.

MR SPIGELMAN: This must be right, and may I say, Philip Morris is the equivalent of TCN Channel Nine, it being a section 92 case - - -

McHUGH J: But why do say that, because ever since Parton, in a whole series of cases, when the criterion of liability was regarded as of most importance, "excise" was defined as being a tax upon a commodity at any point in the course of distribution before it reaches the consumer.

MR SPIGELMAN: And it was, and it was restricted at that time by the criterion of liability - - -

McHUGH J: That is a different argument, but the definition of "excise" has held solid since 1949.

DAWSON J: As I understand it, "is not the criterion of liability been abandoned" is the test which gives you the answer, and we are now directed to this diverse series of considerations, and with the criterion of liability test going, you have nothing - - -

MR SPIGELMAN: That would be our submission, that there is no restriction on it and it is hard to find, and in Philip Morris - and this is reflected in that part of Capital Duplicators when it comes to applying it to the statute in the case, and I will take your Honours to that in a moment, but - - -

McHUGH J: What has happened is that in substitution for the criterion of liability, there has been a substance test. It asks you to look at some factors, but you are always asking yourself the question, "Is this a tax upon a commodity?", at some point in the course of distribution before it reaches the consumer, and there is case after case in this Court.

MR SPIGELMAN: There is no doubt whatsoever that there is a line of authority and that is the majority view. There has always been a minority view, and in contrast with section 92, wherefore a decade or so ago there was no minority view.

DAWSON J: But you have to refer to a few other considerations, the fact that you - the Court has abandoned reference to volume, for instance. So that you have nothing to go on other than that the tax reflects itself in price. Any sort of tax does that. Payroll tax; land tax.

MR SPIGELMAN: Yes, we submitted that, and, of course, by adopting your Honours views in Capital Duplicator - your Honour said that by adopting your Honour's expression of those, we adopted that passage of it too. Could I add to that the force of that, in the very passage we are talking about, writing the words "bounty on production". If one was to - looking at this crucial passage: "It was intended to give the Parliament a real control of the taxation of commodities". If one writes into those words, "It was intended to give the Parliament a real control of bounties on commodities", that is wrong, because the bounties that are given, and if they are mirror images as we say, real control of are limited to production and export bounties. Similarly, if one goes on to the next passage - "a bounty upon production" - let us read out the words and write in "bounty upon production" where "tax" appears. "A bounty upon production:

at any point in the course of distribution before it reaches the consumer produces the same effect as a -

bounty -

upon its manufacture or production.

If one writes the word "bounties" in as they are, it becomes circular, as one should. If one writes the actual words of the Constitution with respect to bounties in substitution for the reference to excise or tax the proposition becomes circular. I will read that sentence, the crucial sentence, again. "A bounty upon production:

at any point in the course of distribution before it reaches the consumer produces the same effect as a -

bounty -

upon its manufacture or production.

That highlights, we submit the circularity of the reasoning involved in this same effect. It assumes what it has to prove. It assumes that what one is concerned with is taxes upon all commodities, not simply taxes upon production or manufacture.

McHUGH J: But, Mr Spigelman, what it comes back to is this: first of all, the term itself is ambiguous and you do not get much out of context in the Constitution. History gives you practically no guidance; the delegates at the convention seemed to think that they were restricting the Commonwealth's excise power. If you look at the draft Bills; if you look at the l891 Bill and the deletion in 1897 you will get the impression that there was an attempt to increase Commonwealth power. We have had an almost uniformed judicial definition of the term "excise" since 1949, with the exception of Justice Fullagar and Justice Murphy up until Morris's Case, so why should not we stick to the authorities, particularly after the fact that this matter was argued only a couple of years ago by Mr Doyle.

MR SPIGELMAN: Yes, and Mr Jackson. But at that stage the other States took a different view.

DAWSON J: Well, you say that is so, Mr Spigelman. I would context that, both in terms of context, in terms of history, and in terms of uniformity of approach.

MR SPIGELMAN: Well, we submit there are certain matters to which we are giving greater emphasis now than - even if they were mentioned, and they may have been. But obviously the point was argued in general terms, so when I say that - not being critical - most of what I say has been said before, although perhaps not all of it, and we submit that not all of it has been.

DAWSON J: No, you have concentrated on bounties.

MR SPIGELMAN: I have put greater emphasis on that. I am not saying that that was not put, but it was not considered in the joint judgment and, most importantly, it has not been considered in any of the judgments that took the definition that your Honour has put to me. May I say, your Honour Justice McHugh indicated there has been an agreement on the definition and let us forget about everything else. One cannot forget about everything else. That definition emerged from time to time, and the point of time shifted from - as I attempted to show - whether it encompassed sale or not. It was up to sale, then it was a bit hazy as to whether or not it encompassed sale and then, later, it became quite clear it was after sale, in the hands of the consumer.

Now, along that way there were other strands in the reasoning of the Court in Bolton v Madsen, which is the clearest adoption of the definition that your Honour has put, including the question of criterion of liability. We submit you cannot take that bit of Bolton v Madsen and not the other. We say they are interrelated, and the reason why they are interrelated is because they go to the heart of what is the policy, or the purpose of this provision. It goes to the heart of this issue as to whether or not it is tariff policy or something broader. It also goes right to the heart of the position of the States and their freedom to do what independent polities should be able to do, and that is determine their own tax policy.

That tax policy must give way to a higher Commonwealth policy - we do not doubt that - if there is such a higher policy. But the area of restriction of the States now is much broader than the area in which the Commonwealth has ever wanted to operate in terms of policy, and what has happened is that the - - -

GAUDRON J: Well, how do we establish that, though?

MR SPIGELMAN: When the Commonwealth passes some legislation and we can look at them and see if they are inconsistent. If the Commonwealth was able to say in this case, "We have a policy on tobacco and these taxes are undermining our policy on tobacco", it would say so. But it has none, and that is true - - -

GAUDRON J: What, by a law under 51(xx)?

MR SPIGELMAN: That is how it could give it overriding effect. But if it had any kind of policy - and your Honours are not short of extrinsic materials - your Honours would have references to such extrinsic materials. Now, if it wanted to give it overriding effect or whatever, it could do so. Not under 51(ii), but 51(i), 51(xx), whichever, and there may be others.

Your Honours, what we submit is that the basic constitutional question is, is this a tax on production and what the - there is a line of authority, beginning with Parton - has done is to change that constitutional question and substitute another; namely, is this a tax on a step in production or distribution, down to the point of reaching the hands of the consumer, et cetera.

BRENNAN CJ: That was the passage to which I take it Justice Dixon was referring at page 260 ?

MR SPIGELMAN: It was, and he quoted two parts of it in reverse order without the "but if in fact unconnected with". We say that that is right and that line of authority is a line of authority with which we have no difficulty. Could I take your Honours to Capital Duplicators 178 CLR in the majority judgment. The whole of the passage from pages 584 to 591 was referred to by Mr Jackson. The crucial step, we submit, occurs towards the end of the reasoning at page 590 at about point 2:

Adhering to that view of the purpose of s 90 -

namely, the view just referred to -

the term "duties of customs and of excise" in s 90 must be construed as exhausting the categories of taxes on goods.

That is what stops the undistributed middle problem in this area of discourse.

That leaves the question whether a tax on goods should be classified as a duty of customs to the extent to which it applies to imported goods.....Some support can be found for this distinction. However, once it is accepted that duties of excise are not limited to duties on production or manufacture, we think that it should be accepted that the preferable view is to regard the distinction between duties of customs and duties of excise as dependent on the step which attracts the tax: importation or.....inland taxes -

That was the view of Justice Rich many years ago. We say that when one looks at the convention debates that is not permissible, that is a view which everyone rejected. They all understood that there was a distinction between importation and excise being a tax on production. As I said, Mr Selway and Mr Meadows will take your Honours to some of that material.

But the purpose of my coming to this passage - and I submit it is the crucial passage - is that, whilst it may be true that the term "duties of customs and excise" exhausts the categories of taxes on - when I say "whilst it may be true", whilst it could be construed that way - obviously we say it does not exhaust the categories. If I am correct about my two sides of the coin or, to mix the metaphor, mirror image point about bounties, that sentence cannot apply to bounties. It cannot be said that the reference to "bounties on production or export" exhausts the category of bounties on goods. That is back to my first point but we say that is an important matter to review when one is looking at whether or not this line of cases should be reopened, including the most recent one.

GUMMOW J: Are you saying one could have a bounty just on sale?

MR SPIGELMAN: Yes, the State could have a bounty on sale or a step in the course of distribution including sale or a bounty on consumption.

GUMMOW J: Although the Commonwealth could not.

MR SPIGELMAN: The Commonwealth could not under 51(iii). It can do most things under section 96. It may be the Australian Assistance Plan Scheme cases and what can the Commonwealth spend money on is not subject to restrictions that one finds in 51 in that way. It may be that the proper inference from 51(iii) is that that is meant to exhaust the Commonwealth power with respect to giving moneys for anything to do with consumption or treatment of commodities. I am not sure, your Honour. That is not this case. It may be that the kinds of considerations which allow the Australian Assistance Plan and other forms of Commonwealth expenditure to go ahead as such that that 51(iii) would not be read down in that way or it would not be read as exhaustive.

GUMMOW J: This basal conception of bounty is concerned with assisting production, is it not?

MR SPIGELMAN: A bounty may assist production but we say a bounty may also be given for other steps in the chain. You might want to support the transport system, for example, as an area of economic discourse, or, for that matter, you might want to - there are commodities - - -

GUMMOW J: There are all sorts of subsidies you can give.

MR SPIGELMAN: Including for consumption.

GUMMOW J: I thought bounties were subsets of subsidies.

MR SPIGELMAN: I an not sure it is a subset. We would submit that if the purpose of restricting the ability - I withdraw that. It does not make sense. We say the word "bounty" means any kind of subsidy of a kind that can be coupled with a tax, namely, it is the opposite of a tax. In this respect we say that if section 90 does not exhaust all bounties, and bounties are equal and opposite to excise and customs, then this passage of the joint judgment in a recent case which talks about this step - and we say it is an essential step - is open to review for that reason, that there is an element of the text in the very section we are concerned with. An element which is reinforced by section 93. The way their Honours refer to section 93 was much earlier in the judgment, namely, at page 585 in the first full paragraph on that page:

Of the sections falling into this category -

namely, this group of sections -

section 93, with its reference to "duties of excise paid on goods produced or manufactured in a State", is consistent with the view that the necessary relation between the taxpayer and the goods is that "the taxpayer is taxed by reason of, and by reference to, his production or manufacture of goods".

That is the reference to section 93. It is an acknowledgment that, as it were, it is a textual indication on the other side of the record. It is not, I do not believe, otherwise dealt with other than by the force of the reasoning following indicating that other considerations should override that. But if, as a textual indication, that is added as it must be, we submit, to the similar reference to bounties in section 90 itself, then we submit it is entitled to a much more force than the joint judgment gave.

Could I just take your Honours to why we say Capital Duplicators is not determinative. My friend referred the Court to pages 592 to 593 and we would seek to do so as well. I am sorry, I have written down the wrong page; it is no doubt my writing. It is 596 to 597. Where the Court was dealing under the heading "Validity of the Act", my friend began referring to the bottom paragraph of 592: "furthermore, the size of the fee". But if one looks at the previous paragraph one sees this, the last sentence:

Accordingly, the Act falls outside the category of regulatory schemes affecting liquor and tobacco which Mason CJ and Deane J held in Philip Morris could support the exaction -

So basically the structure of this part of the Act, looking at part of the judgment, looking at the Act there in question was, "You cannot win because of what the then Chief Justice and Justice Deane said." It then goes on to say that, "Justice Brennan in that same case reviewed the authorities and you cannot win because of what he said." Then it looks at what Justice McHugh, in the middle of page 597 said, "and you cannot win because of what he said." So:

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

Basically what this did, we submit, this case reflected the differences of views in Philip Morris and did not resolve them in this respect. The views of Justices Mason and Deane in Philip Morris are at page 438 to 440, where they refer to the regulatory effect because of the special characteristics of alcohol and tobacco. The views of Justice Brennan - and I think my friend did take your Honours to this at 460 to 461 - that the licence scheme did not purport to be regulation by reason of matters such as the limited area of regulation, the rate of tax was substantial and the matters my friend took your Honours to. Similarly, Justice McHugh at 496 to 497, your Honours referred to whether or not in prior cases there was a respectable argument about the privilege of carrying on a business, et cetera.

What Capital Duplicators did is far from seeking to resolve the differences of view in Philip Morris, it said, "Look, there is a majority in Philip Morris and you add it together this way and you must lose. We are the same majority and we are telling you no matter which of us was right on that occasion, you are going to lose here." It does not resolve which are the issues. It does not say, for example, that there is no special treatment afforded to liquor and tobacco, because two members of the majority thought there were and the other two members of this joint judgment did not. Similarly, we submit, the question of size of the fee and the like.

KIRBY J: It is true, Mr Spigelman, that it does not identify what the central principle is but in a sense it tenders it to you and says, "Whichever of these two, whether you take the view that alcohol and tobacco are a special class - - -

MR SPIGELMAN: X-rated videos are not in that class.

KIRBY J: Yes, that for the purposes of securing the view of the majority did not matter.

MR SPIGELMAN: No, not in the case of X-rated videos. For our present purposes, of course, it does. We are back to tobacco on this occasion. The crucial part of this joint judgment is of course the part where one deals with what I have been referring to as the Parton test, and the analysis there particularly commences at page 584 and the central part of it is at pages 585 to 586. As I understand what the joint judgment was directed to, it was really elaborating on - there is no difference in the sense that if you affect consumers, it will be passed on to consumers. It will be passed on in the form of lower consumption, and that will have an effect on production.

Could I just look at the way that analysis occurred in the passage beginning at 585? Sections 90 and 92, together with other provisions, created an:

economic union, not an association of States each with its own separate economy.

That may be so but, as the trade practices concept of market shows us, there are local markets. Markets have a geographic dimension as I indicated earlier and - - -

DAWSON J: You seem to be shrinking back. That cannot be right. They do have their own separate economies.

MR SPIGELMAN: In some respects they do, but there is also a union of some character.

DAWSON J: Yes, that is right, there is partial integration, but partial integration leaves you with separate economies in some respects. That statement denies it.

MR SPIGELMAN: Yes, your Honour, we do not shrink from that, but we say, for present purposes, when I was looking at taxes on goods, it is sufficient to look at markets rather than economies, and markets are local markets.

KIRBY J: I think you have to read the phrase in its context. In its context, it is essential saying, as I read it, that you do not have association of States which are entirely divorced. They have to interrelate with the Commonwealth.

MR SPIGELMAN: No question of that, and our basic proposition is that the Constitution does that in many ways. Section 92 obviously does it; section 90 does it with respect to tariff policy.

DAWSON J: But as I read that passage, economic union is synonymous with economic unity, which is just not so.

MR SPIGELMAN: If that was intended, no, your Honour, but there is an economic union and there is no doubt - - -

DAWSON J: That is the only way you can read it because it says there are no separate economies.

MR SPIGELMAN: And there is no doubt that it develops two things. It develops a common external policy and also a free trade area within the Commonwealth, and those two matters we say are the true objectives of this group of sections and our construction of section 90 is consistent with them, both elements, a common external tariff policy and a free trade area within. We say it is consistent with them. For example, if a State was to impose a duty of excise on something other than production with respect to a commodity which was entirely produced in some other State, something of that character, then one may find section 92 having an effect.

BRENNAN CJ: Why?

MR SPIGELMAN: Because it would be discriminatory against that State in accordance with the doctrine of the Court in Cole v Whitfield.

BRENNAN CJ: But it would not be protectionist if it was not produced in that State.

MR SPIGELMAN: It could be protectionist because, if one did it - I should say there are substitutes for that commodity of some character.

BRENNAN CJ: Let us take the present case. If South Australia placed a tax upon tobacco in some way that you would say is not a tax upon production and manufacture, what would happen then to the Australian market for tobacco?

MR SPIGELMAN: No, there would be - it would not protect any local - because there is no local substitute.

BRENNAN CJ: That is right.

MR SPIGELMAN: If there were a local substitute - and that was the part that was missing from my earlier proposition.

BRENNAN CJ: That is why I chose South Australia.

MR SPIGELMAN: Because it does not manufacture cigarettes. But if, for example, cigarettes and cigars were, in some way, reasonably substitutable - - -

BRENNAN CJ: Yes. But I am putting to you the proposition that South Australia does not have any of that. Now, what happens to the economic union, however you define it, once South Australia places an additional tax on tobacco?

MR SPIGELMAN: If it is not discriminatory, there is an economic union. It is a tax on its consumers.

DAWSON J: It just means cigarettes and tobacco are more expensive in South Australia.

MR SPIGELMAN: Yes. And it is a tax, in substance, we submit, on its consumers. It is not protecting any local production by some character. One could think of other commodities where issues of that kind would arise with greater difficulty. And, of course, they do in section 92 cases and this Court - South Australia's "return of bottles" legislation posed very much that issue for the Court, and was resolved in a way - it was not easy to resolve, but it was resolved.

Your Honours, coming back to this passage, there are several references to distortion or diversion of trade, for example, at about point 4:

could have distorted local markets -

and there is no doubt there is references to bounties here as well. In this part of the reasoning, section 90 is set out in full. And then, later, it says at about point 8 or 9:

It was to ensure that differential taxes on goods and differential bonuses on the production or export of goods should not divert trade or distort competition.

Now, once again, if one had a differential bonus on some other step - namely, sale or consumption - it may also divert trade or distort competition. We say that that is a significant - I know I have made this point ad nauseam, but I am making it in the context of this judgment. We say that the concept of distortion or diverting here is not within the purpose of section 90; that if the Commonwealth is concerned about distortion of competition - and competition would only exist if there are substitutes for the commodity - if one has, as we say here, a tax or an excise which applies indifferently to imports or local production, then it does not distort competition, it does not divert trade in any relevant sense. It may, in the area of substitutes, have an effect on substitutability between, say, alcohol and other kinds of beverage, but that is not the kind of diversion of trade with which the Constitution was concerned.

DAWSON J: There are plenty of distortions that are available. That is why they are separate economies because each State is able to distort the uniformity in ways which are available to it. It can compose quotas on production, it can contribute to infrastructure, it can impose differential freight charges, it can impose a variety of means of encouraging or discouraging production. That is why it is a separate economy and that is why an economic union does not, and cannot, deny that.

MR SPIGELMAN: Yes, namely, diverting trade or changing the patterns of trade is something that can be effected by all sort of taxes.

DAWSON J: Yes. The question is what distortions do the Constitution allow and what does it disallow. In section 92 it disallows some and section 90 disallows some.

MR SPIGELMAN: This is our basic proposition that is consistent with your Honours' judgments and what your Honour puts to me, and the only distortion or diverting with which the section 90 is concerned is if there is a differential in the relativities, if that distortion or diversion creates a differential in the relativities between one source of product and another. That is the distortion or diversion with which section 90 was concerned. It was not concerned to prevent all kinds of changes. May I put it another way. There was nothing more significant to anyone who lived through the 1890s than banking. Now, the States can impose taxes of what would then have been regarded as the lifeblood of commerce. Now, if one is talking about distorting or diverting trade in any way then what the Constitution would have made provision for was that, "By the way and you can't propose any taxes on banking." There is no such reference.

McHUGH J: It would have been unthinkable.

MR SPIGELMAN: To have a tax on banking?

McHUGH J: Yes.

MR SPIGELMAN: Stamp duties were in existence and they are in flow-on a tax on banking. But the facts are that, if one was concerned with this broader picture of trade, one would have had a provision restricting States' involvement in banking. It can be prevented obviously. Under the banking power the Commonwealth could ensure that any such tax would not interfere with its banking policy but, if one wishes to draw this general economic union or any diverting or distorting of trade implication out of this section of provisions, the one thing that everyone who lived through the recession of the 1890s would know is that banking was the lifeblood of all industry and commerce and they would have stopped the States imposing anything of a character, even stamp duties, which could affect banking transactions. It is the absence of such a provision which is worth weighing in the balance as to whether or not this general inference of the economic union approach applies.

Could I take your Honours to the Commonwealth's submissions and in particular - I have made reference to these - pages 10 to 11, in particular paragraph 2.17. Your Honours will recollect that what I submitted is that all of these are concerned with inputs. We are happy that our formulation is that States are restricted from either a tax on production or a step in production. When one has commodities which are inputs into other commodities, then in an appropriate case - and a tax on the input even at the point of sale may be a tax on the commodity next in line.

Obviously tea bags are used in the BHP steel works but that does not mean that tea bags are an input into steel making. However, coal is an input into steel making and, as was found in Hematite, there was a step in production involved there, namely the gas was not in its final form. The Commonwealth - and this is not the first time the Commonwealth has put its collective mind to coming up with a list of what is wrong with the State position in this case - and the collective Commonwealth list of examples is to be found in 2.17:

Taxes which do not differentiate between imported and local goods, may change the relative costs and prices.....discourage trade or distort competition -

then:

(a) The Commonwealth imposes -

first example:

a customs duty on a finished product.....to protect the Australian.....State sales tax on a component part (such as a tyre) will raise the cost of those parts -

this is an input point. And that is the only place it gets its force from. The same with:

(b) The Commonwealth imposes a customs duty on a particular type of product (eg, olive oil) in order to protect the Australian industry which produces similar products that are substitutes.....State tax on all vegetable oils except olive oil would offset the effect of the customs duty -

we say similarly this is because it is an input.

(c) The Commonwealth, in order to encourage consumers to purchase the local product, imposes a custom duty on the imported product which, although more expensive, has some qualitative advantage.....non-ad valorem State tax on both the imported.....both in absolute terms and relative to the imported product, to such a level that consumers may choose not to purchase the product at all, or switch to the imported product.

We say this may also be a step in production if that be a material distortion.

McHUGH J: But why? But why do you say that about (b) and (c). Supposing I want to buy imported materials for my suits and there is a customs tariff of 20 per cent which makes me think, well, I will buy Australian produced fabrics, but then the States impose 25 per cent across the board tax. That distorts the values of the two products so I want to go back to buying the imported goods because I think even with the 20 per cent and the 25 per cent the imported product is better than the 25 per cent on - - -

MR SPIGELMAN: The State tax would apply the 25 per cent to both.

McHUGH J: Yes, I know it would, but it may have a graver economic effect. It may make the local product much less valuable from my point of view. In other words, 20 per cent on top of the foreign product may have less effect on my buying than the 20 per cent on the State product or the local product.

MR SPIGELMAN: It should not, unless there is some material difference between the two products.

McHUGH J: Well, I am assuming that there are, but I may be prepared to pay more for the overseas product, and I may even be prepared to pay more when the local State government increases the 20 per cent. It is a question of relative values.

MR SPIGELMAN: Well, with respect, we would submit that if there are such relative values then an ad valorem tax on each would not distort the comparison between the two.

McHUGH J: Well, let me make it more concrete. Suppose I am prepared to pay $400 for a pair of overseas shoes and there is a 25 per cent customs tariff on them. I say, "Well, I've got to pay $500 now, I prefer to buy the local product for $150." Then there is a 25 per cent or a 20 per cent value put on it and I say, "I've got to pay $180 for this now. I'd rather not pay $180 for these. I'd rather pay it for the local product even though I have got to pay $600." I mean, it is a question of weighing up the comparative values.

MR SPIGELMAN: We would submit that those same forces - - -

McHUGH J: I think that is what the Commonwealth is driving at in (c).

MR SPIGELMAN: We would submit that the same forces were at work when your Honour came to the original decision as to balance, namely, before the 25 per cent increase those same forces were at work and saying, "Which will I chose?", and that that sort of increase does not affect that balance. With respect, just returning to this, "raw material" in (b) is clearly an input point - - -

BRENNAN CJ: Can I take you back to paragraph (a) of the examples. There is a State tax on tyres and I take it then there would have to be an exemption in respect of the tyres that were going to be used by manufacturers of cars in Australia?

MR SPIGELMAN: No, your Honour, not necessarily. What it meant is that with respect to imported tyres there would be a tax of the same character as on domestically produced tyres, but there would not have to be an exemption. It may be that this tax is impermissible to the States because it is in fact a tax on the course of production of the next step, namely, we are in fact imposing a tax - if we tax tyres because of the relationship between - as a matter of fact one is in fact taxing cars.

DAWSON J: That would not be so - - -

MR SPIGELMAN: Not necessarily, but it could be so.

DAWSON J: Only if they were only locally produced.

MR SPIGELMAN: It is a question of drawing the line between, namely, if , for example, in the old days one used coal for all sorts of purposes but now basically coal is in input for other goods. It may be that a tax on coal or, taking Hamersley Iron, a tax on iron ore is to be seen as a tax on production or a step in production because no one actually uses iron ore. The other end of the scale, a tax on tea bags that may also be used in the course of production is not a tax on a step in production. Where tyres fit in will depend on the facts of that case.

BRENNAN CJ: Let us assume that there is some question of whether there should be some encouragement given or discouragement given to the import of vehicles either in a broken-down state or in a fully made-up state and there is a State tax on things which, if sold to a person who assembles motor vehicles, will bear a tax. What does one say then?

MR SPIGELMAN: That may be a tax on a step in production.

BRENNAN CJ: And then?

MR SPIGELMAN: And that is invalid to us.

BRENNAN CJ: Invalid. So that, therefore, a State tax would have to exclude taxes on goods which are going to be used for the purposes of manufacture.

MR SPIGELMAN: And that may make balance of the tax a valid tax because it is not a tax on a step in production.

DAWSON J: I do not follow that.

BRENNAN CJ: Given that situation, is that likely to occasion any difficulty with regard to the situation of the sale of tyres in the instance we have taken? In other words, would there be some advantage in having the tyres bought by an assembler of motor vehicles rather than by customers? Of course, tyres, obviously, have to go on a car, that is perhaps not a good example, but let us say some optional extra such as a CD player or something of that sort?

MR SPIGELMAN: The question would be at each point whether or not the relevant State tax, whether it is on a CD player or anything, is properly characterised as a whole as a tax on a step in production, or on production itself.

BRENNAN CJ: Yes.

MR SPIGELMAN: Now, it may be that if it was so characterised by reason - not having the relevant exemption, then it would be struck down.

DAWSON J: But when you are talking about "a commodity" which someone purchases for the purpose of putting onto another commodity, you do not reach that point. If there are tyres that are imported and tyres that are produced locally, as there are, and a tax is imposed upon both, without reference to where they come from - a sales tax - then it does not matter whether the tyres are used in producing something else. There is no tax on production there.

MR SPIGELMAN: There may not be a tax on production, unless - - -

DAWSON J: Well, it would be - - -

MR SPIGELMAN: This is the example in (a), that if the tax is fed into - if the commodity is fed in as an input of some significance into another good then - - -

DAWSON J: It does not matter.

MR SPIGELMAN: May I say that, whilst we are dealing with substance and form, one would have to concede that there would be circumstances in which, as a matter of substance, one can see that as being a tax on the production on the second good; the good into which the input goes.

DAWSON J: Well, that is not a good example, is it?

MR SPIGELMAN: It is an example. It is the example the Commonwealth gives. We say that is not a problem, on our formula.

DAWSON J: The fact is, the States could increase the price of goods in a variety of ways. They can impose a differential payroll tax, for instance, and that is not an excise.

MR SPIGELMAN: Not only differential payroll tax. Different goods have different components of wages costs and, so, by having any payroll tax one is creating what one might call a distortion in the trade; namely, different goods will have different proportions of payroll tax paid. If your Honours please, is that a convenient time?

BRENNAN CJ: Yes, it is, Mr Spigelman.

MR SPIGELMAN: May I indicate to your Honours that I am not far from completion, and that would indicate that we are well ahead of schedule.

BRENNAN CJ: I see. And I take it that arrangements are in hand in relation to the distribution of time between yourself and the other State interveners?

MR SPIGELMAN: Yes, that had already been done.

BRENNAN CJ: Thank you, Mr Spigelman.

AT 4.15 PM THE MATTER WAS ADJOURNED

UNTIL WEDNESDAY, 12 MARCH 1997