Ha & Anor v NSW & Ors S45/1996 [1997] HCATrans 99 (13 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 THURSDAY, 13 MARCH 1997, AT 10.17 AM

(Continued from 12/3/97)

Copyright in the High Court of Australia

BRENNAN CJ: Yes, Mr Solicitor for Western Australia.

MR MEADOWS: May it please the Court. May I just address an issue which was raised by Justice Gummow late yesterday about the test to be proposed. Western Australia accepts the test proposed in paragraph 2 of the defendants' amended written submissions as the correct test for identifying a duty of excise for the purposes of section 90. In doing so we note that paragraph 4 of those submissions makes it clear that this question is to be answered as a matter of substance. Your Honours, I have spoken to my learned friends from the other States and Territories and I am in a position to advise that they all agree with this position. The effect of what we said in the second sentence in paragraph 2.2 of our submissions is simply that in most instances a tax may be identified as an excise where the tax discriminates against commodities produced or manufactured in Australia as against those commodities when imported.

TOOHEY J: I am not clear how those two definitions gel, Mr Solicitor. Are you speaking of paragraph 2 of the defendants' amended written submissions?

MR MEADOWS: Yes.

TOOHEY J: What is the definition that you extract from that paragraph?

MR MEADOWS: The ultimate point is that:

if the discrimen of their application includes their local origin.

And as it goes on to say:

A tax merely on dealing with goods in the course of distribution after production or manufacture is not an excise, so long as the ability to pay the tax does not depend upon the fact that the goods are locally produced.

TOOHEY J: Not so much a definition as a description, really.

MR MEADOWS: Yes, I suppose that is a better way to put it, your Honour.

BRENNAN CJ: So we can take it that it is a criterion of liability test?

MR MEADOWS: We would say not. It is a question of characterisation, your Honour.

BRENNAN CJ: It is exactly what criterion of liability is designed to do, to give a character of something. Is this a criterion of liability test or it is a substantive test?

MR MEADOWS: It is a substantive test, as we have pointed out. If one goes to paragraph 4 of the submissions one looks at it as a matter of substance.

BRENNAN CJ: If it is a question of a substantive test, how is it that it can be said in the last sentence of paragraph 2, that:

A tax merely on dealing with goods in the course of distribution -

et cetera. What if is a tax on the first sale?

MR MEADOWS: We would accept that that, in substance, could be an excise.

BRENNAN CJ: Any sale of goods produced in Australia.

MR MEADOWS: I am not quite sure I understand what your Honour is driving at.

BRENNAN CJ: I am looking at the last sentence in paragraph 2. If the proposition is that it will not be a duty of excise -

so long as the liability to pay the tax does not depend on the fact that the good are locally produced -

and the tax is imposed upon the sale of - - -

MR MEADOWS: What we are saying, your Honour, is that in substance it could be a tax which depends upon the fact that the goods are locally produced.

BRENNAN CJ: Yes, I see. I must confess, for myself I do not understand how it is that the discrimen of their application includes gels with the proposition that it is a test of substance.

MR MEADOWS: As my learned friend, Mr Spigelman, outlined it, we would say that that was quite apparent from his submission. May it please the Court.

BRENNAN CJ: Thank you, Mr Solicitor. Mr Solicitor for South Australia.

MR SELWAY: May it please the Court. We have produced and handed up to the Court two written submissions. The first of them had excerpts from the various materials which we have prepared, and the excerpts were in a small font. It occurred to us that that may have been difficult to read. We have produced another written submission, somewhat longer, which I hope your Honours have, where the excerpts are written in a larger font so that at least it can be easily read. I apologise if any of your Honours had attempted to read the first version with the small font.

McHUGH J: It is also helpful that you and Western Australia have prepared it in disks to the Court as well, for those of us who write judgments on computers.

MR SELWAY: Your Honour the Chief Justice mentioned that matter at one of the directions hearings. We have made some attempt to actually reduce all of our volumes to disk. We were unable to do so, but at least the parts that we would wish to specifically refer the Court to are now on disk.

On the questioning of reopening, we adopt the submissions of New South Wales, Western Australia and Victoria. In paragraph 1 of our written submissions, we analyse the differences between the majority and minority positions in Capital Duplicators and, in our submission, the differences relate to the different purpose ascribed to section 90, and to the different effect and consequence ascribed to the incidence of the tax upon goods.

Your Honours, on the question of purpose, we rely upon our written submissions, and we adopt the submissions made by New South Wales and Western Australia. In our submission, the purpose of the exclusive power in section 90 was to give to the Commonwealth the control over the relativity between the taxes upon the activity of importing goods as against the taxes upon the activity of production of goods. We say that that is what was meant at 1900, and is meant in the context of our submissions, by the terms "tariff policy" or "fiscal policy" - - -

KIRBY J: What do you say in respect of Justice Dixon's comment at 304 in Matthews that such a view "would expose the constitutional provision made by sec. 90 to evasion by easy subterfuges"?

MR SELWAY: We say, your Honour, with the greatest respect to Justice Dixon, that he was not addressing the right question.

KIRBY J: Sounds like a rather pertinent right question to me, given that the founders took the trouble to make an exclusive zone which, on your theory, can be so easily circumvented.

MR SELWAY: No, your Honour. It depends what the zone was. If your Honour assumes, as Justice Dixon did in Parton, that the purpose of the provision was to give the Commonwealth national control over the taxation of goods, if your Honours accept that that is the proposition then clearly Parton was not wrongly decided, and the submissions we put should be rejected.

The position we put is that his Honour has completely misunderstood the purpose of section 90. If the purpose of section 90 was, as we understand it, to give to the Commonwealth the control of the relativity between taxes upon production of goods and taxes upon importation of goods, then his Honour is wrong to say that you can avoid it by subterfuge. We are not trying to put a test that will avoid that purpose.

DAWSON J: But the difference is not as stark as that in Parton, is it, because Parton was directed to home production. What you gradually see in the cases then is a logical glide along the lines of, "Well, home production can be affected by taxes not directly imposed upon them". Then you get the concept of indirect taxes being introduced and then you get the idea that any tax really at any step along the stage before it reaches the consumer can affect home production. Then home production disappears entirely from the thing and we just start to talk about taxes on all commodities so that it is a gradual progression. But in Parton's Cas,e home production was very much to the forefront. Of course, now that the idea of a distinction between direct and indirect taxes for any relevant purpose is gone, a lot of the basis for the final conclusion is gone on one view.

MR SELWAY: Yes, your Honour. We certainly do not suggest that the analysis since Parton and the expansion, if you like, since Parton is not inherent in Justice Dixon's analysis in Parton. We would concede it is. The references by the majority of the Court in Capital Duplicators back to Justice Dixon in Parton was a proper reference, but what we say is that his Honour Justice Dixon in Parton was in error. That is the substance of our submission. If that is accepted, if one can show by reason of the mischief, the text, the purpose and the analysis that his Honour Justice Dixon engaged in that there is an error, then your Honour does not have to go to the conclusion that the test we are proposing can be easily avoided.

It can only be easily avoided if your Honour starts with the assumption that Justice Dixon did, that the test - that the purpose was to give the Commonwealth control of the taxation of commodities. Once your Honour accepts that that is not the purpose, then the analysis just does not lead there. Your Honour, I will come to this question in more detail on the issue of incidence, but what we do say for the moment is that if the relevant purpose is as we have stated it, then questions such as the total amount of Commonwealth tax revenue or even the amount of home production that might occur and how a tax might affect those issues are not relevant for this inquiry.

To that extent, your Honours, we would say, and join with my learned friend, Mr Solicitor for New South Wales, that paragraphs 2.17(c) and (d) and paragraphs 2.18 and following of the Commonwealth submissions simply do not address the submissions we have put; the 2.17(a) and (b) which are the examples, your Honours may recall, we need to deal with in more detail, but we say those paragraphs simply do not address the issue.

In our oral submissions, firstly, we propose to deal with two issues, the meaning of "excise" as at 1900 and the economic incidence of excise. Our researches suggest that there are three possible meanings of "excise" as at 1900. The first meaning, and the meaning that we say is relevant for the purpose of the Constitution, is that an excise is a duty on the activity of production or manufacture of goods. Your Honours, we say that that was the meaning that was adopted in economic literature in the late 19th century.

If I could perhaps - and I do not intend to take your Honours in any detail to these volumes, it is unnecessary - but if I could refer the Court to volume 4 of the South Australian materials at page 35. Those of your Honours who sat in Capital Duplicators may recall that these materials were prepared and handed up by New South Wales and I must apologise because some of the submissions I will make will give some of your Honours a feeling of deja vu and I apologise for that. It is a large report analysing a host of economic literature, but the conclusions are stated in paragraphs (a) and (b) on page 35:

A duty of excise was a tax on the production of commodities within a country. It did not extend to taxing sale or distribution.

(b) There was a distinction between "excise duty" and "excise revenue", the latter including a miscellaneous group of taxes, sometimes called licence duties, excises or excise licences or collected by "the Excise" but which were not themselves duties of excise.

And perhaps to refer to (c):

Revenue from licences was seen as conceptually different from revenue from duties of excise.

Your Honours, as I say, that is a large report. That is the conclusion which can be drawn from it.

Could I also, without taking your Honours to it, refer to another report within that volume set out at page 1, an article by Gordon, which seems to be an economic academic paper derived from the material in New South Wales' submissions. I assume that Mr Gordon either assisted with the research or something. But, I only point out that to your Honours because it may be a shorter way of getting to the large amount of material if your Honours see it necessary.

I say "if your Honours see it necessary" because the conclusion that is drawn from that material is, in fact, the same conclusion that Justice Dixon seemed to draw from the economic literature in Matthews at pages 297 to 299. Your Honours may recall my learned friend, the Solicitor for Queensland, took your Honours to that material yesterday where, at the end of that analysis of the economic material at page 299, his Honour Justice Dixon concluded that even so it was not binding on the meaning of excise. In any event, what we say is that is what the economic meaning was as at 1900. We also say, for reasons we will come to in a moment, that that was the meaning which was well understood in the Australian colonies at 1900. Your Honours, the second meaning is a more difficult meaning to establish that it existed at 1900. It is that an excise is an internal duty on goods.

GUMMOW J: That was the view taken by Justice Story in his commentaries on the Constitution of the United States, paragraph 950. He is construing "excise" as used in the United States Constitution. He said it was "an inland imposition paid sometimes upon consumption of a commodity, frequently upon the retail sale being the last stage before consumption." So, it was not mysterious; it was in the leading United States constitutional text. It has been there for 70 years.

MR SELWAY: Your Honour, but what we say is we cannot find it in an English or an Australian text as such, but we will take your Honours to one reference which seems to lead to the same conclusion.

That test, "inland duty imposed upon goods" is, in fact, the test that was adopted by the majority in Capital Duplicators, and your Honours have been taken through the analysis of how that test developed from Parton. If I could take your Honours back to volume 4 at page 32 from Stephen's Commentaries on the Laws of England, the relevant edition was published in 1914. At page 32 of our book there is reference to the meaning of "excise", and your Honours will see that:

This is directly opposite in its nature to the customs duties; for it is an inland imposition, paid sometimes on the consumption of the commodity, frequently upon the retail sale. Inasmuch as this duty is peculiarly liable to evasion,

and then it deals with the powers the officers have. The next paragraph says:

The relationship of excise to customs duties is always of great importance; though the views taken of it naturally vary with the fiscal policy followed by the country at any given time.

Then it deals with the relationships between customs and excise and protectionism. It then deals over the next page and onto page 33 of our book at about point 2 with the development of the concept and says at about line 5:

Since that period it has constantly formed part of the taxes of the nation, being, however, now limited to beer, spirits, chicory, coffee, glucose, and saccharin; though, under recent Acts of Parliament, many imposts, which are not properly in the nature of excise, have been classed, for greater convenience of collection, under this head -

and then deals with a number of licences. Your Honours, we can find no reference to that meaning in Australia as at 1900, but we will come back to that in a moment. Your Honours, the third meaning was a miscellany of taxes collected by the excise in England, including licence fees. An example of that can be seen in the Encyclopaedia Britannica and that is contained in volume 4 of our materials at page 180 where your Honours will see, at the bottom of the first column, there is a definition of excise to mean:

a term now well known in public finance, signifying a duty charged on home goods, either in the process of their manufacture, or before their sale to the home consumers.

I might say that part of the definition was cited by his Honour Justice Dixon in Matthews, but if your Honours go to the next page, page 180, which is still dealing with a definition of excise at about point 5, the middle of the line:

The other excise duties remaining are chiefly in the form of licences, such as to kill game and to use and carry guns, to sell gold and silver plate, to pursue the business of appraisers or auctioneers, hawkers or pedlars, pawnbrokers or patent-medicine vendors, to manufacture tobacco or snuff, to deal in sweets or in foreign wines, to make vinegar, to roast malt, or to use a still in chemistry or otherwise. It may be presumed that the policy of the licence duties was at first not so much to collect revenue, though in the aggregate they yielded large sum, as to guard the main sources of excise, and to place certain classes of dealers, by registration and an annual payment to the exchequer, under a direct legal responsibility.

Your Honours, what we say is that that definition of excise, notwithstanding the narrow form in which it is given in the first column, clearly includes within that definition this miscellany of licences which has been referred to in the cases.

BRENNAN CJ: Does that say anything about Dennis Hotels?

MR SELWAY: It may, your Honour, and I will come to that in a moment if I can. Perhaps for completeness we should refer your Honours to a fourth meaning which seems to be a more modern economic meaning. There is a reference to it in the materials, an article by Cnossen. It is in volume 4 at page 15. I do not need to take your Honours to it, but the effect of that definition is that a broad-based retail tax is not an excise, but a selective tax on goods is an excise. So that, for example, a tax on tobacco would be an excise but a tax on all retail sales of all goods would not be. Your Honours, that seems to be the definition as applied in the more recent economic literature. No one suggests that it was the definition as at 1900 but we merely refer the Court to that definition because, if your Honours are reading the economic literature, it may be confusing unless your Honours are aware that that may be the definition they are using.

KIRBY J: Given that the Constitution is to be interpreted not in a rigid or frozen way, and given the way under the jurisprudence of this Court the meaning has developed, given that this is the way economists now regard an excise, given the development of other heads of power under the Constitution beyond that which was contemplated in 1901, why should we ignore modern concepts of what an excise is?

MR SELWAY: We would say a couple of things, your Honour. Firstly, we would say that in interpreting the Constitution it is not in effect a subjective exercise over a course of time and that it does not depend upon the perceptions of a judge at a particular point in time. If that is so, then the Constitution must have a real meaning. If the Constitution has a real meaning, the proper place to find that meaning in the course of ordinary interpretation, not only of the Constitution but of any document, is its meaning and purpose as at the time it was made, 1900. Accepting that there has to be flexibility within that approach because one is dealing with the Constitution and not an ordinary statute, nevertheless - - -

KIRBY J: If that view had been taken of postal, telegraphic and other like services or of other provisions in the Constitution, the Constitution would have been frozen in time and it just would not have been able to respond to the situation upon which it had to govern. When one adds to that the relative inflexibility of the formal amendment mechanism, then we would really have been tied to the chariot wheels of the 1890s, and that really is not a very sound constitutional interpretive document, at least as I think.

MR SELWAY: With respect, your Honour, we say that any other interpretive doctrine of the Constitution necessarily leads into the subjective views of individual judges. But what we say is that the Court does have the capacity within that framework of developing the common law, of developing the denotation of words rather than the connotation, to identify how the Constitution should apply to better achieve its purpose and meaning in current times. No one is denying that.

What we are saying, though, your Honour, is that one cannot start - if we take section 92 - one cannot start with a view that current social policy would be better served by an "individual rights" theory of section 92, put that into the Constitution and change its meaning and effect. Now, in Cole v Whitfield, South Australia certainly, and others, argued that that is what had happened; that the court had got away from the meaning and effect of the words - admittedly words of imprecise meaning - and, on the basis of that, had constructed a meaning of the Constitution which could not be sustained in view of proper constitutional interpretation, looking at the meaning and effect.

That does not deny, as I say, that the Court can have a look at how the Constitution applies in current circumstances and can interpret the words in an appropriate manner to give effect to the purpose and meaning as at 1900. We are not denying that proposition. But to go from that to say that the Court can ignore that purpose and that meaning, we say, is a constitutional error.

KIRBY J: I am not suggesting that, but I just question the originalist concept of constitutional interpretation upon which a lot of these submissions appear to be founded.

MR SELWAY: Well, your Honour, and it may well be put against us that that is the approach. What we would say, though, is that the reference to convention debates in history has freed this Court from the problem that Justice Dixon had in Parton, where his Honour had to come up with a purpose for section 90. With respect to his Honour, you cannot find that purpose in the text, you cannot find it in the structure. His Honour assumed it. His Honour said he assumed it.

Now, what we say is the appropriate method, that was not then open to his Honour, was to go back to history and back to the convention debates and to see if one can ascertain what the purpose is. It may be that, at the end of the day, we have not convinced your Honours what the purpose is, and that is the risk we run. But if your Honours are convinced that the purpose is what we ascribe it as, and not what Justice Dixon ascribed it as in Parton, then the conclusion that his Honour drew from that purpose must be doubtful.

Your Honour, that does not involve an original intent analysis, that involves trying to work out what section 90 means. If one says, for example - leaving aside economists, because our position would be that the popular meaning of "excise" out in the business community in Australia today is the same as it was in 1900, an excise is a tax on production, and that for the simple reason that every excise imposed in this country has always been of that nature.

McHUGH J: I am not sure about that. You say a tax on production. Why not a tax on commodities that are individually enumerated as opposed to general taxes, such as a sales tax, which refer to any things, but if you have a tax on liquor or coats, why are they not excises?

MR SELWAY: What we would say is if your Honour is looking for the popular meaning of "excise" today, leaving aside dictionaries, effective as they are by constitutional interpretation and English meanings, but if your Honour is looking for a popular meaning, the businessman knows what an excise is is a tax on producers in respect of goods produced and a sales tax is a tax on wholesalers in respect of the wholesale sale. Those are the distinguishing features of those taxes.

McHUGH J: But you concede that an economist today do not see it in that light. If economists do not see it in that light, it is unlikely that business persons would see it in that light.

MR SELWAY: I am only making the point, your Honour, that that is what excises have always been in this country.

McHUGH J: Yes, but quite apart from authority, I would be very interested if you could demonstrate to my satisfaction that the true purpose of section 90 is to be found in the debates, because it seems to me you are seeking to read down what could be regarded as the ordinary meaning of the term "excise", or certainly one of the meanings of the term "excise", as it was understood in 1900, and you want to put a gloss on it.

MR SELWAY: I take your Honour's point. Could I deal with the matter this way? My part of the task is to deal with the meaning of "excise" in 1900. In dealing with that question, I have to touch on purposes I will go through, but we rely on our written submissions primarily for purpose, and I can refer your Honours to those where we identify what we say the purpose is to be ascertained and it is the same purpose that those of your Honours who sat in Cole v Whitfield saw in that case and in Cole v Whitfield we put that section 90 was one of the examples of the tariff policy and the equality of trade question, one of the issues.

McHUGH J: I mentioned yesterday a problem I have about interpreting the Constitution in terms of purpose. Whose purpose? Those who were at the convention debates, the English Parliament, the people? Whose purpose are we talking about?

MR SELWAY: What I can say to your Honour is two things. Firstly, it may be then that your Honour, at the end of the day, will not be convinced that a proper purpose has been identified, but we would say that it is appropriate to have a look at history and surrounding events and the history and surrounding events in respect of the Constitution. The convention debates are of importance, even if it is not put - - -

DAWSON J: You are really using "purpose" in the sense of mischief, are you not?

MR SELWAY: Yes, your Honour, to identify what the problem was and why they were addressing it and why section 90 was there for in the first place. If one is looking at that as an historical fact, the convention debates serve that purpose. The second thing we would say is that what we are faced with in Parton is an analysis of section 90 based upon an assumption of purpose by his Honour Justice Dixon and, clearly, the submissions for the intervening States and New South Wales have been addressed to that purpose and attacking that proposition. To the extent your Honour says, "Well, purpose is irrelevant", to the extent that it cannot be understood - - -

McHUGH J: No, no, I am not saying it is irrelevant but there is a real problem. I have said in I think Theophanous and maybe McGinty that one is entitled to look at the background facts because they are the sorts of things that are in the mind, perhaps unconsciously, in the minds of any author of an instrument. There is a problem about who the author of this Constitution is for interpretative purposes.

MR SELWAY: I take your Honour's point. At the end of the day if the reference we have made to these materials is not enough to satisfy your Honour that a relevant purpose for relevant purposes can be identified, then we take the risk that that is where your Honour will come out. We certainly do not say that the convention debates are the be all and end all and that the reference to Mr Carruthers saying something or other necessarily has some consequence on the interpretation of the Constitution. One cannot put that proposition.

McHUGH J: Could I just say one final thing. The tendency in my mind is to look at reader's meaning rather speaker's meaning in terms of constitutional interpretations.

BRENNAN CJ: Mr Solicitor, if there are a number of possible meanings of excise as at 1900, clearly enough the purpose or, as Justice Dawson put to you, the mischief which the term was intended to address would be of great assistance in determining the connotation of the term.

MR SELWAY: Yes, your Honour.

BRENNAN CJ: But if the evidence is equivocal as to what that mischief was, what does the Court then do?

MR SELWAY: Your Honour, that was a matter I was going to make later in the submissions but it is perhaps convenient to put it now. We have put the submissions and my learned friends have put submissions attempting to convince the Court of what the meaning is as derived from the text, from the historical materials, from the mischief and so forth. We have also analysed the reasoning in Parton and the cases around it and tried to identify errors. It seems to us there are three things the Court can do with that analysis. The first is the Court can accept it and overrule Parton. To do that we accept your Honours are going to have to be convinced of the rightness of the propositions we have put.

The second possibility is the Court can say that our submissions are wrong and can identify some error within them, in which case your Honours would confirm Parton and proceed to consider whether Dennis Hotels should be distinguished or overruled.

The third possibility is the one that your Honour the Chief Justice puts to me and your Honour Justice McHugh raised yesterday, where your Honours say, "Look, if we were sitting in Parton we might have decided it another way but we now have 50 years of authority and we are bound." What we say is that where your Honours reached that conclusion on the basis of uncertainty as to the meaning of excise, then it not only has consequences in respect of overruling Parton, it also has consequences in respect of Dennis Hotels. Dennis Hotels has stood for 40 years. South Australia has put the submission on overruling three times in the last 10 years.

McHUGH J: That is one of the problems. There is a fourth - Mr Spigelman put a most powerful argument here in the last two days but so did Mr Doyle back in 1993, and powerful though Mr Doyle's argument was in 1993 it just did not carry me all the way, having regard to authority. What has changed, apart from the reference to `bounties", which I do not recollect being referred to in the argument in 1993?

MR SELWAY: It may be that for your Honour nothing has changed, and I certainly do not pretend that I can put the argument as well as my predecessor but, in the context of what the result of that is, we say if your Honour has reached the conclusion that the meaning is uncertain and consequently we will not depart from the settled meaning established in Parton, then what we say is: us too. What about Dennis Hotels? That stood for 40 years. What has happened in those 40 years, particularly since Hematite - and there is no surprise that we have four challenges to the tobacco franchise since Hematite - is that the authority of Dennis Hotels has been significantly reduced or diminished.

What we say is that if the Court takes the view that the reason for upholding Parton is the uncertainty as to the meaning of "excise", then the proper approach for the Court to take is not to attempt the analysis that the Court did for Philip Morris but rather to say we have a line of authority. Dennis Hotels stands for a proposition in that line of authority. It is not our task to diminish that authority; it is not our task to reduce it; it is not our task to try to explain it away. If Dennis Hotels stands, it stands for what it decided. If it stands for what it decided, then, with respect, that was explained by the Court in a unanimous judgment in Bolton v Madsen. The Court can properly say, "We're not going to apply a criterion of liability from now on", but that is the basis upon which Dennis Hotels is rightly decided. It is the basis upon which Dickenson's Arcade is properly decided.

What we say is that if the Court comes to the view that because of the uncertainty as to the meaning of "excise" the proper approach is to confirm Parton, then we say for the same reason the proper approach is to confirm Dennis Hotels and hold valid this tax instead of, as I say, in Philip Morris identifying the limits of the reasoning in Dennis Hotels inducing us to another two challenges subsequent to it. To a certain extent the majority took that position in Capital Duplicators. As we read Capital Duplicators, particularly at pages 592 and 593, the Court more or less confirmed that tobacco and liquor franchise fees were valid. The majority left open the question of petrol depending on the size of the fee, but there is no suggestion at page 593 that the size of the fee is then seen as relevant by the majority in Capital Duplicators for tobacco.

KIRBY J: Do you support or seek to sustain the separate treatment of alcohol and tobacco with all your knowledge of the history of the 1890s and of excise? It just seems completely unconceptual.

MR SELWAY: What we say, your Honour, is that we are caught on the horns here. We say if your Honours say Dennis Hotels cannot be justified within terms of the current test based on Parton, Dennis Hotels has stood for 40 years. Let us have a look at the Parton test. We say if your Honours are going to throw out Dennis Hotels, how can your Honours throw out Dennis Hotels which has stood for 40 years without saying, "Well, let's have a look at Parton and let's see which of the two reasonings which are possible is the best reasoning on the meaning of `excise'?" If on the other hand your Honours say, "The meaning of `excise' is uncertain; we - - -

BRENNAN CJ: Which two meanings are you speaking of there?

MR SELWAY: If you like, the Capital Duplicators majority meaning of an inland tax on goods and the meaning we put forward which is a tax on goods in respect of the activity of production.

BRENNAN CJ: Yes, I see.

MR SELWAY: We say if your Honours look at our analysis and compare it with the analysis in Parton, compare it with respect to the analysis put forward in this case by the Commonwealth, your Honours will come to the conclusion that the analysis we put forward is a preferable view. We say it is the right view. If your Honours say, "Well, we're not convinced about that even if we were in Parton we might agree with Chief Justice Latham", then we say that has consequences. The moment your Honours say, "The reason we're not interfering is because of the uncertainty of the meaning of `excise' and we are not convinced that we should overturn 50 years of authority", we say fine; do not be convinced you should overturn 40 years of authority either.

McHUGH J: Except there may not be much academic support from this Court's jurisprudence on excise, but at least there is a long string of cases which apply the Parton definition, but there is not too much support anywhere for the franchise cases.

MR SELWAY: With respect, your Honour, there is a host of authority of this Court.

McHUGH J: Except they have been followed as a matter of authority, but really in the last 20 years their supporters are fairly thin on the ground, are they not?

MR SELWAY: Your Honour, one can understand it if your Honour is applying Parton as understood in Hematite, and it is no surprise that since Hematite this is the fourth challenge. It is no surprise perhaps that since Hematite South Australia has been here three times saying, "Let us have another look." We do not deny that, but what we say is, if the premise upon which your Honours support Parton is not that your Honours are convinced Parton is right, but that your Honours are not sufficiently convinced we are, then that has consequences in the way your Honours deal with Dennis Hotels. What we would not wish the Court to misunderstand is that distinguishing Dennis Hotels has the same catastrophic effect on the States as overruling it.

DAWSON J: Have you finished what you want to say, Mr Solicitor?

MR SELWAY: I am sorry, your Honour, yes.

DAWSON J: You seem to assent to the proposition that there is a lot of support for Parton. I do not know whether by that you mean support in this Court or outside. Is there any outside commentator you would say that supports the present position in relation to Parton? Do you know of any?

McHUGH J: I think there is one. I think Mr Dennis Ray - - -

MR SELWAY: Yes, I was going to make mention of him, your Honour.

McHUGH J: I do not think anybody else does.

DAWSON J: And when you look at judicial support, of course, Bolton v Madsen is said to be the logical result of Parton, but that has been abandoned judicially.

MR SELWAY: Which is perhaps the reason we are here.

DAWSON J: Yes, and I do not know that you can say even that the support for the present position is support of Parton as such.

MR SELWAY: We would put it this way, your Honour. We acknowledge that there is a long running line of authority stretching from Parton to the majority position in Capital Duplicators, which can be analysed from, in effect, Justice Dixon's analysis in Parton. That can be done.

DAWSON J: The only time, I think - correct me if I am wrong - that a majority was clearly reached in favour of one test was in Bolton v Madsen and that has been abandoned. Is that not right?

MR SELWAY: It is right in those terms, your Honour, but one would say that unless the majority in Chamberlain adopted the Parton test, they could not have come to the result they came to compared to our test; unless the majority in Capital Duplicators adopted, if you like, the Parton test as interpreted in Capital Duplicators, they could not have come to the result that they did come to in Capital Duplicators. So to that extent, and leaving aside academic authority which, with all respect to academics, does not have the same weight as the judgments of this Court, we would not deny that there is a line of authority that we have to overturn. Consequently we seek leave to overrule. Anyway, that is the submission we put, your Honour, on the 50 years.

BRENNAN CJ: There is a step in it, though, which does require some consideration. If one starts from a proposition that the connotation of excise is uncertain, Parton gave it a particular meaning. Because of that there has been a development of the concept up to Capital Duplicators and that is a logical development of Parton. If we come then to the Dennis Hotels line of cases, one can approach it in one of two ways. One can say, "Because we were never certain about the reasoning in Parton, we will just leave everything stand," which is what I have understood you to be saying.

MR SELWAY: Yes, your Honour.

BRENNAN CJ: The other is to say, "Once Parton is accepted, there is a logical difficulty about Dennis Hotels and if there is a logical difficulty about Dennis Hotels, accepting the Parton line of authority, the authority of Dennis Hotels is to that extent eroded." Then the question of Dennis Hotels turns not on logical grounds, but turns upon the Evda Nominees grounds, which, of course, you have also mentioned, but from the Court's point of view one has to determine whether or not Parton is going to be accepted as authority or otherwise.

MR SELWAY: I understand what your Honour is saying, but what we put is that that analysis, which we understand, nevertheless requires the Court to give a preference, if you like, to Parton over Dennis Hotels. Dennis Hotels is also authority of this Court that stood, as I say, for 40 years, and the Court then has to say, "Instead of trying to put them together, we accept that they cannot stand together and we will prefer Parton."

BRENNAN CJ: Except that Dennis Hotels was expressed in a fashion which was intended to make it consistent with Parton.

MR SELWAY: I understand that, and Bolton v Madsen explained how and, subsequent to that the - - -

DAWSON J: Well, Bolton v Madsen came out of Dennis Hotels.

MR SELWAY: Yes, your Honour.

DAWSON J: It came from Justice Kitto's judgment in Dennis Hotels.

MR SELWAY: And one can see Bolton v Madsen, to a certain extent, as those Justices who sat in that case, who had, if you like, preferred the test we put forward, having moved their position to form a majority that could define the test. Clearly, that test and that arrangement - that agreement, if you like - as to what the law on excise should be has broken down. Consequently, we have got the challenges to these franchise fees.

BRENNAN CJ: Where do you say the breakdown took place?

MR SELWAY: It may be, your Honour, that the breakdown was always inevitable because of the tensions in - - -

BRENNAN CJ: But where do you say it is evidenced?

MR SELWAY: Hematite is the place where the breakdown became clear. Not so much the result of Hematite, which one may have been able to get to even by the criterion of liability test, but the reasoning in Hematite made it plain that the judgment in Bolton v Madsen about criterion of liability - the narrow test that you looked at the statute to find out what the criterion of liability was, rather than the substance - that that test was no longer going to be followed.

DAWSON J: So, it was the abandonment of Bolton v Madsen - the Bolton v Madsen test as the sole determinant which was the breakdown.

MR SELWAY: That is what we would say, because the moment that one is looking at effects, it becomes difficult - we do not say impossible, we support the submissions put by the Solicitor for Tasmania - but it becomes more difficult to justify the franchise fee cases. That is clear by what my learned friend, Mr Jackson, put.

BRENNAN CJ: Well, I can only say if that is the way in which you put the breakdown of Bolton v Madsen, for my part, you will have to explain away what I have said, both in Hematite and in Philip Morris.

MR SELWAY: Yes. Your Honours, we do not deny, as I say - what we understand your Honour said in those cases referred, in effect, to the inevitable tension, and the way that tension was resolved, and that criterion of liability, as your Honour understood it, was not, and never was, a limitation on looking at an Act, but always involved a substantive issue.

McHUGH J: Well, Homebush Mills would have suggested that.

MR SELWAY: Yes, your Honour. I am not suggesting that Bolton v Madsen can be interpreted consistent with some of the cases before and around Parton. Your Honours, if I could move from that back to the question of excises at 1900. I do not need to take a great deal of the Court's time with this, though the volumes - - -

GUMMOW J: Can I just take you back to page 12 of your volume, that is the Cnossen book?

MR SELWAY: Sorry, which book is that one, your Honour?

GUMMOW J: Excise Systems by Cnossen.

MR SELWAY: Yes. Sorry, your Honour.

GUMMOW J: Page 12. It is tab 11B. That does not seem to have footnotes reproduced. For example, footnote 4 on page 7, page 15 of the book, 7 of the text, it might be interesting to have. Mine does not have any of these footnotes. Is that possible?

MR SELWAY: Yes, I apologise, they should be there. We will get them and provide them to the Court.

GUMMOW J: Can they? Yes. I am just suspicious of reading texts without knowing - - -

MR SELWAY: Yes, I understand, your Honour. So am I. If I could then return to the meaning of "colonial taxes". We can be relatively quick about that because there is not actually, I do not think, any dispute between any of us in respect of it. As at 1900, the only colonial taxes described as excises were taxes on the production of goods, the amount being determined by the quantity or value of the goods produced or manufactured, and the goods on which those taxes were imposed were spirits, beer and tobacco. Your Honours, that point has been made by my learned friend, Mr Jackson.

KIRBY J: I thought there was a statement in the Commonwealth submission - I may have misunderstood it or misrecollected it - that there were others that you did not exhaust to categories that - - -

MR SELWAY: No, your Honour, they make a point about the logical result of that proposition, which I will come to in a moment, as I understand their submission.

I do not need to take your Honours to it, but if I could refer your Honours to it in case any of your Honours are actually interested, the proposition that we just made is set out in paragraphs 18 and 19 of our written submission. There is more detail on the taxes that were actually imposed in the colonies, which is contained in appendix 9 which is in volume 1 of our materials, and the more detailed material in turn refers to further detail which is contained in volume 2 of the materials. As well as that there is a selection of the relevant State statutes - colonial statutes which is contained in volume 3 of the materials. As I say there is a fair heap of stuff on it. I do not think your Honours are actually going to have to delve into it because, as I say, I do not think the propositions are contentious.

In paragraph 3.2 of the Commonwealth's submissions, the point is made - if I could refer the Court to page 19 of their submissions about line 3:

the historical background to the use of the term "excise" is more consistent -

I am sorry, your Honour, if I can refer to page 18 first and I will come to the bit on page 19 in due course. The Commonwealth makes the point that:

other forms of inland taxes on commodities were simply not in use and their classification did not arise.

Your Honour, we accept that as a logical proposition. The mere fact that a group of taxes are described as an excise does not necessarily have the consequence that taxes that were not imposed would not have been described as excise if they were. What the material does show, though, is that a tax on production where the amount of the tax was determined by quantity or value was an excise - it does show that. It also shows that the third possible meaning is excluded. Your Honours will recall the third possible meaning was a broad tax including a miscellany of licence fees. It shows that because the States in, the colonies in fact imposed such licences but did not describe them as excises.

If I could just give your Honours a very quick reference to show how that works. In volume 3 of our materials at page 7 there is the Tobacco Act (No 2) 1884 of New South Wales. Section 7 of that Act imposed a flat registration fee on tobacco sellers:

No person shall sell tobacco cigars or cigarettes unless -

he is registered. "The annual fee" for the licence is "five shillings". I think my learned friend, Mr Jackson, made the point as well: there were these flat fees. If I could just show your Honours how those flat fees were dealt with at the time. At volume 2 of our materials, page 32, are the financial statistics for New South Wales. Your Honours can see at about point 5:

Excise -

.....

Duty on Tobacco, Cigars, and Cigarettes -

and then the amount of the excise. If I could take your Honours to the bottom of the page, "Licences". Your Honours can see:

Licenses to sell Tobacco, Cigars, and Cigarettes

That is separately dealt with from excise. The same analysis can be done for Victoria and other States.

So what we say is that that material is helpful at least to show that in the colonies there was a distinction drawn between excise and this broader conception that appeared to exist in England of this miscellany of taxes. As we say, consistent with what my learned friend, Mr Jackson, put, flat fee licences were not described as excise.

BRENNAN CJ: Unless perhaps they are on a tobacco factory which, I would have thought, supported your argument.

MR SELWAY: I am sorry, your Honour, tobacco licence fee? Yes, your Honour. There is an explanation of how those work in volume 1 of our materials at page 18, and your Honours will see there is a general discussion there of all the fees and how they were worked in each of the colonies and how they were described. Your Honour can see that:

There were extra fees payable by a producer where the relevant amount was determined by the quantity of tobacco, cigars and cigarettes manufactured (see Appendix 9C).

Appendix 9C, your Honours, is in volume 2 at page 35, which is the tobacco factory licence fee regulations and I take your Honours to page 37, which is the fees payable for that licence. Your Honours will see that the amount of the fee varied depending on the amount of production.

McHUGH J: But this material only shows that the taxes were laid on a limited class of goods and at the point of manufacture. They are not conclusive, if they are any evidence at all, as to what the meaning of "excise" was in Australia in 1900.

MR SELWAY: Your Honour, what we say is accepting our first proposition, which was that there were three meanings at 1900, we say that that material and the matters we have taken your Honours to, exclude, if you like, the broad English meaning involving miscellany of licence fees. I do not think anyone argues for the contrary, but in terms of actually analysing it to show why that is true, we say that is the analysis; never been attempted before in the cases; that is how you get to that result.

It still leaves open the question of whether an excise can mean an internal tax on goods, which is the second test, and we accept that taking your Honours to that does not exclude that possibility. But as to that possibility, we say that the discussions in the convention debates do help to show that negative, because what they show is that nobody was in contemplation of confusion about that possible meaning. There was lots in the convention debates saying - - -

McHUGH J: This comes very close to trespassing on forbidden ground, does it not? You seem to be wanting to give the words the meaning by what those in the convention may understood the words in the Constitution to mean.

MR SELWAY: We are trying to do the opposite, your Honour. What we are trying to say is, "Here is a possible meaning which is suggested as the meaning of `excise'". We can take the Court to discussions at the time, 1900, a decade before - of discussions of the meaning of "excise", where this possible meaning is not alluded to but the other possible meanings are. We are trying to do the negative, if you like, your Honour. We are trying to say, "Here are the three possible meanings; this one is excluded by the historical material which shows that it was not used in that way."

If one goes to the Victorian report before the 1897 convention and the convention debates themselves, we can see confusion and concern about whether the meaning could be a tax on production or whether it could be one of these British miscellany of taxes including licence fees. No suggestion by anybody that there was any possibility it could be an inland tax. All we say from that is here is a bit of the debate, we are trying to prove a negative. If such a meaning was in contemplation, someone would have referred to it.

We cannot take the matter any further than that, but that is the proposition we put, that the end of the day, there is no evidence before the Court anywhere than anybody in Australia was aware of this meaning at 1900. I take your Honour's point.

DAWSON J: Which meaning?

MR SELWAY: The meaning of an inland tax on goods.

DAWSON J: Mr Isaacs was.

MR SELWAY: No, your Honour. His concern was not an inland tax on goods, his concern was a miscellany of taxes including licence fees.

DAWSON J: I see.

MR SELWAY: Those were the two possibilities. They were also the two possibilities considered in Peterswald v Bartley.

GUMMOW J: The only two.

MR SELWAY: The only two, yes, your Honour. What conclusion we draw we draw from that fact. Whether it is a permissible conclusion or not is another matter; but those are the facts and that is the conclusion we draw from it. Your Honours, if we could just refer the Court quickly - and I do not need to take the Court to it in any detail - volume 1 of our materials in appendix 10 at page 20 - we have set out what we understand to be the relevant parts of the convention debates in a general and descriptive way.

Your Honours, there really is very little discussion in the convention debates about the meaning of excise. One cannot get beyond it. At about 20 point 5 there is some of the discussion in the 1891 convention about it, and your Honours will see that what is described there is, if you like, confusion about whether it is a very broad meaning, including licences, or a tax on production. Just to give as an example, Gordon, at the bottom of the page:

"The dictionary definition of excise embraces a good deal more than the local Parliaments will give up. According to the English definition of the word it embraces licences; but the definition which I have no doubt every member of the Convention intends, is simply duties upon articles of home production, especially spirits"

I cannot rely upon the last bit, but what I do rely upon is the first; that is to say what he identifies as the broader meaning, if I can call the English meaning.

McHUGH J: Then you have a statement like Sir Thomas McIlwraith, who said at the 1891 convention, as your submissions point out, that excise duties are confined in all the colonies and only the three articles of beer, spirits and tobacco. That rather implies that the ordinary meaning of excise was understood in a much wider - - -

MR SELWAY: There is no doubt that it cannot be restricted to, on whatever view it is, it cannot be restricted to those three items. I do not think that can be doubted. Mr friend, Mr Jackson, properly draws from it how peculiar it is that of the three items two of them are now subject to the franchise fees. The other part of the debate that is relevant is the discussion involving the Victorian Treasury paper. My learned friend, the Solicitor for Western Australia, took the Court to that discussion yesterday, if your Honours will recall the discussion between Barton and Isaacs about the possible meaning.

If I could take the Court to the Victorian Treasury paper which led to that debate, that is contained in volume 2 of our materials. The relevant part is at page 91. Your Honours, the importance of that paper should not be limited. That paper and the financial statistics within it form the basis for the financial solution. Most of the relevant parts of this were read from in Mr Barton's speech which my learned friend read from yesterday, so I do not need to read it in detail. What we do say it stands for is it identifies two meanings of excise: a tax on home production; and this broader English meaning including a miscellany of taxes. It says, "It is possible that this broader English meaning could be adopted, therefore, we had better define it in a more limited sense." It also says that for the purposes of their analysis of all the financial statistics, what will be collected in customs and what will be collected in excise and how these need to be dealt with within the Constitution, for that purpose they have adopted that definition.

Your Honours will recall that that led to the debate between Isaacs and Barton, Isaacs saying, "We'd better amend", Barton saying, "There's no need", in effect. But again we point to the fact that there are only two meanings identified: the miscellany of taxes, including licence fees, and a tax on home production. Your Honours will recall that Quick and Garran identified those same two possible meanings and adopted the narrower one. That is set out in paragraph 21 of our written submissions.

DAWSON J: The relationship between duties of excise and customs is clearly set out at the top of page 92 of the report.

MR SELWAY: Yes, your Honour. What we put is that we cannot find any material which suggests that the meaning of "excise" as an internal tax on goods was used in that sense anywhere in Australia at 1900, yet that is the meaning we have ended up with. Of course, we also say that the mischief and the purpose and the constitutional text confirms the meaning we contend for: an excise is a tax on home production. The contrary argument is put by the Commonwealth in paragraph 3.2 of their written submissions at page 19, the bit that I almost took your Honours to earlier, where they say that:

the historical background to the use of the term "excise" is more consistent with the composite term "duties of customs and of excise" covering all taxes on commodities, as Dixon J demonstrated in Matthews v Chicory Marketing Board (Vic).

If I can put it this way: the Commonwealth does not go to the historical material; they go to his Honour Justice Dixon. My learned friend the Solicitor for Queensland took the Court to Matthews and I will not do so, except to make this proposition. The analysis of Justice Dixon in Matthews was subject to detailed analysis by South Australia in Capital Duplicators and it was submitted that that analysis relied primarily on the broader English meaning which included licence fees limited only by reference to the interpretation of indirect tax in Canada. What we submitted then and we submit now is that, once it is accepted that "excise" was understood in Australia in a narrower sense than it was understood in England, it is not obvious why English or Canadian analogies are of any significance whatever, even assuming that the analysis that was made was correct.

What we say is that where English analysis is not relied upon, then the judgments of the Court have been consistent as to what the meaning of "excise" was at 1900. If I could refer the Court quickly to Justice Mason in Hematite Petroleum v Victoria [1983] HCA 23; 151 CLR 599 at 628, where his Honour says:

At the outset of any discussion of "duties of ... excise" in s 90 three points need to be made. The first is that at its inception in England an excise duty was a tax imposing a burden on home production or manufacture. It was a tax on the production or manufacture of articles which could not be taxed through the customs house. However, it came subsequently to denote a tax on the licences of those who dealt in "excisable commodities".....The second point is that the close juxtaposition of the references to "duties of customs" and "duties of ... excise" in s 90 together with the reference in s 93 to duties of excise "paid on goods produced or manufactured in a State" impressed the Court in Peterswald v Bartley. This consideration more than any other led their Honours to the conclusion that the constitutional conception of an excise was narrower than the English notion, being limited to "... a duty analogous to a customs duty imposed upon goods either in relation to quantity or value.....The third point is that the broad effect of the later stream of authority has been to expand the concept of duties of excise and to extend it to taxes imposed upon the sale and distribution of commodities in some circumstances at least, after the process of production and manufacture has been completed.

Your Honours, we say that is a correct description of how things have occurred and to go back now and make an analysis of "excise" based upon the English meaning serves no useful purpose.

The last Judge of this Court who made that sort of analysis was Justice Windeyer in Dennis Hotels [1960] HCA 10; 104 CLR 529 at 592 to 593. We say none of the Judges in Capital Duplicators relied upon that sort of analysis and they were correct not to do so.

KIRBY J: Do you challenge the legitimacy of the third point?

MR SELWAY: Certainly that has been the effect of the decisions since Peterswald and there is no doubt about that.

KIRBY J: This is quite important for me that you really want to have a frozen concept of the word and I just find that very difficult to reconcile with a Constitution.

MR SELWAY: Your Honour, we will come in due course, hopefully shortly, to what we say our test is and hopefully that should satisfy your Honour that we are not talking about a frozen concept, but we are saying that excise has a definite meaning. It may be a meaning that is hard to discern but once discerned it is definite, and if that is true then we see nothing inappropriate in saying to the Court that it should apply that meaning.

Your Honours, the next issue we wish to address is the economic incidence of the tax upon goods. In Parton v Milk Board [1949] HCA 67; 80 CLR 229 at 252 point 4, their Honours Justices Rich and Williams assumed that an excise was a tax upon production or manufacture but proceeded to say that:

the production or manufacture of an article will be taxed whenever a tax is imposed in respect of some dealing with the article by way of sale or distribution at any stage of its existence, provided that it is expected and intended that the taxpayer will not bear the ultimate incidence of the tax himself but will indemnify himself by passing it on to the purchaser or consumer.

Your Honours may recall a similar comment was referred to yesterday by Justice Kitto in Anderson's Case. The approach of Justice Dixon in Parton at page 260 point 3 seems to be the same effect, although his Honour probably would not have conceded that an excise was a tax on production. That analysis based upon economic incidence has been adopted in a number of cases. They are set out on page 23 of our written submissions, including by the majority in Capital Duplicators at 586.

Your Honours, we say two things about that sort of analysis. The first is that it falls into the sort of error about which the Solicitor-General for New South Wales commented. Even assuming that that economic effect exists, it is only relevant if the meaning of "excise" is to prevent burdens on producers. We say that is not the test. It does not actually matter on our view whether the burden falls on consumers, on producers, on labour, on the factors of production or whatever. We say that the relevant issue is the relativity of the tax on production to the tax on importation. If it is understood that the purpose is directed to relativity, then the issue of whether the burden falls on the producer or not is not a relevant inquiry.

McHUGH J: I do not think the judgment should be read as meaning that the tax is passed on in whole, and that seemed to be the burden of one or more of the submissions. Different Justices have referred to the tendency of it to be passed on. So it does not necessarily - - -

MR SELWAY: Yes, I take your Honour's point. That leads to our second proposition which is that, in fact, that analysis is in error in fact. Again, it does not appear that this is a matter of any particular dispute in the economic literature. So far as we can see, that literature is entirely consistent and we draw two conclusions from it. The first is that it is simply not true that all taxes on goods are passed on to consumers, and we say that depends upon the relevant elasticities of demand which will determine whether the ultimate burden of the tax is borne by the consumer, by the producer or by the factors of production such as employees.

McHUGH J: I must say I would be surprised if the economic literature demonstrated that no part of these taxes were passed - - -

MR SELWAY: We will come to it in a moment, your Honour. It is probably true to say that in respect of tobacco and liquor at least, maybe also petrol, they almost always are passed on, but what we say is, this is used as a test, as we understand it, for excise. What we say is to the extent that it is a test for excise, it is not true. It may be a test for particular excises and it may be true of particular excises, tobacco is an example, but it is not true generally. What we say is - - -

McHUGH J: But are there any examples in the economic literature of taxes being backward shifting or affecting the factors of production in the sense that no part of the tax is passed on?

MR SELWAY: Your Honour, I will come and deal with tobacco in a moment and hopefully show that some part of that may now be being backward shifted. It is not particularly conclusive, but at least to show at the current levels, some of it may be flowing back because people are giving up smoking, and once it is having that effect, the effect of the tax is no longer falling on the consumer because they are not buying it. It is falling on the producer.

McHUGH J: In any industry or trade where competition exists, there is a very real chance that any impost will be backward shifted and result in reduction of profit.

MR SELWAY: Yes. One then gets the analysis of markets and analysis of elasticities of demand and what we are looking at here in respect of tobacco is a product where there is addiction. The other thing we would say is that the ultimate burden may change over time. So that whilst, at one point in time, it may be forward shifted, at another point in time it may be backward shifted, given changing and economic circumstances.

BRENNAN CJ: There are two different concepts here, are there not? One is a tax on production; the other is a tax on goods of home production. The two do not necessarily fit together.

MR SELWAY: No. In fact, they are different.

BRENNAN CJ: And which are you contending for?

MR SELWAY: Tax on production. More to the point, we say that there is - for the point I will come to in a moment - absolutely no advantage in constitutional purposes or otherwise in distinguishing a tax on home production, that is to say, a tax on a category of goods. That serves no useful purpose, in our submission, whether it be the broader purpose identified by Justice Dixon or the purpose we identify. If I could just refer the Court - - -

BRENNAN CJ: How is it that a tax which is passed on to the consumer is a tax on production?

MR SELWAY: The analysis that was made by Justices Rich and Williams was that the ultimate intent of the producer is to sell his produce into the market and to tax the produce and consequently burden the consumer has an effect then on the producer's business.

DAWSON J: Produces the demand.

MR SELWAY: Yes. I am not suggesting for a moment, your Honour - in fact our submission is exactly the opposite - that that analysis is actually an appropriate economic analysis of burdens and how they fall within the economy. We say it is not, it is wrong. What it is though is the sort of analysis that had to be made under the British North America Act in respect of indirect taxes if you adopt Mills' definition of indirect taxes, and the confusion that that has caused in Canada is well known because the test does not work and they are stuck with it.

The problem we have is that that seems to be the test, or part of the test that has been adopted in Australia, and we say it does not work. If we come then to the second point, which perhaps is more important for the point your Honour the Chief Justice puts to me. We say that it is not true that the ultimate incidence of the tax provides any appropriate basis for distinguishing one tax from another. The economic literature is clear that a tax on labour, a tax on land, an income tax and a tax on goods will all be treated the same way depending upon the elasticities of supply and demand. The payroll tax on the tobacco producer also goes up the chain if the excise does. Payroll tax on the retail of tobacco goes up the chain if the excise does.

McHUGH J: I appreciate all those points, but has this argument got any relevance, because what we are dealing with is a tax on goods, not a tax on the number of persons on the payroll. Is not the real question, on one view, whether or not a tax on goods, at in any point of production or distribution of those goods, a tax on production?

MR SELWAY: What we say, your Honour, is that to an extent that is relevant. The reason you get to that result is purpose and what we say is economic incidence, which is what Justice Dixon did in Parton and what we say the majority did in Capital Duplicators. The economic incidence is for a reason. It is to support that purpose. What we say is that once it is understood that that economic incidence analysis does not distinguish between this tax and any other in respect of the purpose, then the economic incidence analysis serves no useful function, and perhaps comes back to the first point we made, that we are asking the wrong question. What we say is that the economic literature is absolutely clear: you cannot distinguish between taxes on the question of incidence. If that is true, economic incidence can play no part in determining the issue of whether this tax is an excise or not.

McHUGH J: What about in determining whether or not it burdens a step in the production? That is the point, is it not?

MR SELWAY: But, again, we would say a payroll tax and a land tax have the same effect as an excise. If that is true, they are each burdening a step in production. The conclusion one draws from it is not that all taxes are excises, the conclusion one draws from it is that you cannot say - if a tax is a tax on home production, you cannot say, "Any retail tax is a tax on home production."

McHUGH J: I know, but in the Bolton formulation the words are "direct tax", are they not?

MR SELWAY: Yes, your Honour. We are not putting that test, and to this extent we would perhaps draw issue with your Honour the Chief Justice talking about criterion of liability. The test we put forward has a criterion of liability in the broad sense but there are criteria we identify to distinguish an excise from some other tax. On our view, there has to be a criteria, because economic incidence will not give you the answer, cannot give you the answer. You have to identify something about the tax. What we do not say is that it is merely a matter of form. We say it includes issues of form and if you put a tax on of the COR type, taxing the first sale after production and the first sale after importation, the fact you have identified a step in production and an importation makes it both a customs and an excise, so form is not irrelevant. What we also say is that substance also has a part to play.

The test we put correlates excise with customs. With customs, for some reason, it is easier to perceive that a customs duty is a tax on the activity of importation of goods. So one would say, for example, that if South Australia imposed a tax of $1 per jar on marmite, being, as we understand it, an English product, on its importation into Australia, that would be a customs unequivocally.

We would say that if we impose a tax on a retailer of $1 per jar of marmite imported into Australia, those terms being in the Act, it would clearly be a customs. But we also say that if there are other products on the marked, like vegemite, which compete with marmite, and South Australia imposes a tax at the retail level of $1 a jar on marmite, leaving vegemite untaxed, the conclusion may well be reached by the Court, as a matter of substance, that what we have imposed is a customs, even though the tax does not fall on the act of importation, and even though it does not specify, on the face of the Act, that the tax is a tax on importation. We say, as a matter of substance, the Court may conclude that what we have taxed is that marmite by reason of its importation into Australia. That is where we say the test is one of substance.

BRENNAN CJ: Why do you say, in that instance, by reason of its importation?

MR SELWAY: Only that if one looks at the market, the competitive products, if you like, the substitutes for marmite, or the main substitute for marmite, as we understand it, would be vegemite, an Australian product. The Court is then faced with the question of whether, in substance, we have imposed a tax on importation or not, and all we say is the Court may conclude, having a look at a tax which discriminates, if you like, against an imported product, that it is a customs duty.

BRENNAN CJ: So, discrimination then becomes a basis of classification.

MR SELWAY: The test is one of substance, whether, as a matter of substance, we have imposed a tax on importation. If the tax discriminates between local and imported goods, that will identify, or help to identify that, as a matter of substance, the tax is a tax on importation, or production.

McHUGH J: But Mr Solicitor, your argument seems to require a very close economic analysis of markets and market operations, which is a difficult area, but which can no doubt be carried out by courts. But it does seem to me to pose problems for section 55 of the Constitution.

MR SELWAY: Can we perhaps put it this way, your Honour? The test we propose, if - - -

McHUGH J: But you accept your test does require a fairly sophisticated economic analysis of market operation?

MR SELWAY: Can do, your Honour. Can do, and no doubt about that. When you get into the grey areas, the "in substance" test, that is the problem you have got. We would say that the current test involves the same sort of analysis. It may be the Court has not got into it very much, but if one is looking at an "in substance" test of any nature in respect of tax, you really have to work out what, in substance, is happening. We say the test is no more difficult than the section 92 test, and the matters that one looks at are broadly the same sorts of matters. The test is different, but the sort of things one would look at are broadly the same.

But what we would say is, when the Court adopted that section 92 test, there were some who expressed the view that the test was going to be terribly complicated, the Court did not have the expertise to deal with it, we need to have the interstate commission back to deal with these issues and whatever. But in actual fact, since Cole v Whitfield, there have been two cases where the Court has had to deal with these issues; the Beverage Container Case from South Australia, and the Barley Marketing Case. The Court has not had any terrible difficulty coming to the results it did in those two cases but - - -

McHUGH J: Maybe the Bar is not sophisticated enough at this stage to mount challenges based on - - -

MR SELWAY: The point I was coming to, your Honour, is that the other thing that has happened is that once the test and its clear parameters are outlined, what has happened is that section 92 has gone away. We just do not have a host of section 92 cases. Instead of spending one's life advising on section 92, it is simply not an issue. If the Court says this is the test for excise - the test we put forward - it is not as if the States are going to be imposing taxes on marmite. It is a nonsense.

What is going to happen is that our tobacco tax will be valid; our liquor tax will be valid; our petrol tax is probably valid - we might have to make some minor alterations to that - but, in general terms our existing taxes are valid. That is what the States are here for.

McHUGH J: You will not be increasing your tax base?

MR SELWAY: I have no idea, your Honour, but what I would say is that your Honours have seen the numbers; no one could suggest that South Australia is living in the lap of luxury in the public sector. It is not as if there is a surfeit of money, at least in South Australia. I suspect the same is true of the Northern Territory. One cannot make the sort of judgments of saying your tax is too high or too low unless one looks at one's overall tax effort and what is available to tax.

McHUGH J: There is no doubt that Western Australia, South Australia, Tasmania and the Northern Territory seem to rely more heavily than the eastern States on these three taxes, but I suppose it is offset by grants, is it?

MR SELWAY: The smaller the State the smaller your economy; the less head offices you have the less stamp duty revenue you have. There is no particular surprise that some of those States are faring worse out of the unhappy economic days we are now in than others. It is true that the impact of the case will be perhaps more severely felt on my clients than on some others.

BRENNAN CJ: Mr Solicitor, take your marmite example: what would the State statute say in imposing this tax on marmite?

MR SELWAY: What I am suggesting as an in substance test would be a tax upon a retailer of $1 per sale of marmite.

BRENNAN CJ: How would that appear, or be understood to be a customs duty?

MR SELWAY: It would require economic analysis. On the face of it, it is not a customs duty. But, a person who was arguing that it was in substance a customs duty could come to a court and say, This is the market", if you like, "for vegetable extracts to be used at breakfast. This is the market, this is the comparison we make between these various products on the market and, as a result, the only rational reason why one has picked marmite appears to be that it is an imported product." I am not suggesting the test is the only rational reason. The test is, in substance, is this a tax upon the importation of the product? Clearly that needs further work to produce. What we say is, in principle, you do not avoid the consequence by leaving out the words "imported goods".

BRENNAN CJ: The argument would be, too much spoils the flavour.

MR SELWAY: Yes, your Honour. It is completely unnecessary, I am sure. Vegemite can survive all by its own, and that may be the defence. But, what we say is that sort of analysis is open. We do not preclude it.

We say that it is probably a matter of common sense, these days at least, that the ultimate effect of a tax would depend upon market conditions and other facts. We refer to our appendix 12 I and paragraph 28. It may be easier just to refer the Court to paragraph 28 of our written submissions where we set out at the end of that an excerpt from the first report of the board to inquire into the effect of the fiscal system in Victoria where they were analysing what was clearly an excise on beer in Victoria and where that incidence fell. They came to the conclusion that it probably fell on the retailer, but then went on to say that they thought the quality of beer had fallen. So, to that extent, it may have fed back to the persons who were providing hops or whatever.

Your Honours, at least in respect of tobacco, it is probably true that a duty will be passed on to the consumer, whether the duty is imposed on the grower, on the manufacturer, on the distributor or the retailer, and that appears from the material we set out at paragraph 29 of our submission, in particular that the addictives are ones where normally the tax is passed on, and your Honours may recall the New South Wales Tax Task Force, which some of your Honours referred to in Capital Duplicators, assumed that 100 per cent of the tobacco franchise fee was passed on to the consumer. We say that is not a relevant issue, but as a matter of fact that appears to be what occurred.

McHUGH J: I do not think I did. I may have in Philip Morris. I think I referred to the fact. I am sorry, I probably did because I referred to the fact that the demand for tobacco was relatively inelastic.

MR SELWAY: Yes, that is certainly true, your Honour, but even in respect of tobacco we would make two points, that once the tobacco tax is sufficiently high then two things happen. The first is that consumers give up smoking and to that extent the tax then - its real imposition falls back on to the producer, who is selling less cigarettes, but the second thing is that it actually changes the marketplace and that can be seen in the excerpt in paragraph 29 at page 18 from Winstanley & Ors "Tobacco in Australia" where they make the point that one of the consequences of the high excise regimes in Australia has been to drive people into different tobacco packaging and products, so that instead of buying a packet of 20 premium cigarettes, one buys a packet of 50 relatively cheaper cigarettes.

McHUGH J: Yes, I notice in that report there has been an 11 per cent real increase in the cost of cigarettes, notwithstanding the - - -

MR SELWAY: Yes, your Honour. So what we say in that context is that at least in respect of tobacco some of the tax may be feeding back. Your Honours, we note that paragraph 2.9 of the Commonwealth's written submissions is broadly consistent with that submission, but we agree that it makes no difference where the tax is imposed as to where the burden ultimately falls, but the point we would make about the comment made by the Commonwealth at paragraph 2.9 of its submissions is that Parton does not stand for that proposition, even though it is cited for it in note 26.

The Judges in Parton who relied upon incidence did so on the basis that the tax would be borne by the consumer and that was the critical point of their analysis because their analysis was based upon indirect tax analysis. The other point we make is that the proposition holds true for all State taxes, not just State taxes on goods. If the argument has any validity then all State taxes are excises, not just taxes on goods. With those qualifications, we do not understand the Commonwealth's submission to be factually in conflict with ours.

Your Honours, could I just give the Court an up-to-date reference to the case on page 19 of our written submissions, Ontario Home Builders' Association v York Board of Education (1996) 137 DLR (4th) 449 and the relevant part is at 476 and following, but, your Honours, there is also Justice La Forest, who is perhaps the expert on indirect taxes, who is in dissent at pages 522 to 528. We do not need to take your Honours to that, except to make the general point that an analysis of indirect taxes is ultimately not to the point.

Your Honours, at paragraphs 31 to 42 we set out what we submit is the correct test and, as we understand it, that test is the one accepted by your Honours Justices Dawson, Toohey and Gaudron in Capital Duplicators. Your Honours, at paragraph 38 we make the point that where the event or fact giving rise to the tax is characteristically associated with Australian production, then the tax is upon production and we say this as a matter of substance. So, for example, we would say that a tax upon first sale by a producer is a tax upon production.

We do not say that a tax on all sales is a tax on production and the reason for that is perhaps best seen by looking at the inputs rather than the outputs, because we also concede that a tax on an input introduction may be a tax on production and if we use Logan Downs v Queensland as an example, in that case the tax fell on the ownership of stock where most of the stock that was identified could have been used for production of wool, even though they need not have been used.

In our submission, the issue is whether the selection of the stock considered in light of the facts relating to them indicates that what has been selected as the discrimen for the tax is in fact production. The conclusion in Logan Downs that the tax was an excise is, in our submission, sustainable. It seems to us to be an appropriate conclusion that the stock were selected as items of tax because they were themselves goods in production or because they were inputs into production.

The same point can be made even more obviously in respect of Matthews v Chicory Marketing Board. But on the other hand, we say that if there were a tax of $1 per animal on the ownership of all animals, domestic, commercial and so forth, then the tax would not look like a tax on production even if the tax did in fact fall in some of its applications upon goods that were in the course of production. We say an equivalent example can be given in respect of land tax. We do not see this as an anomalous result, and it is suggested that it is an anomalous result in paragraph 2.19 of the Commonwealth's submissions. Your Honour the Chief Justice has sort of put that as an anomalous result; so have my learned friends.

We say it necessarily flows from the fact that the discrimen of the tax that we have identified is the activity of production. If it is not a tax upon the activity of production, it is not an excise. Similarly, we say where the tax falls only on a locally produced product and not on an imported substitute or competitor, this may suggest that the real discrimen is local production. I have given the example of marmite. The converse example would be a tax upon vegemite.

BRENNAN CJ: But if you put a tax on both marmite and vegemite, what is the situation then? It is neither a customs nor an excise.

MR SELWAY: It depends to an extent where the tax falls. If it is on a step in production like first sale - - -

BRENNAN CJ: The proposition is that, instead of saying on the sale of a jar of marmite, $1, you say on the sale of a jar of extract, $1.

MR SELWAY: Yes. What we say is that if a tax falls on a step in production, it does not make any difference whether it is discriminatory or not. If the tax falls on a first sale, it makes no difference whether there is an equal tax upon first sale after importation. First sale forms part of the process of production. But where the tax falls past that and production is complete, the test is an "in substance" test. If the tax lists, if you like, all of the market substitutes by name but all of them are there, we would say it is not in substance either an excise or a customs. But if it leaves some out, then in substance the Court would be put on inquiry.

McHUGH J: But it does lead to what seems a strange result. If you have a tax on Italian tomatoes, it is a customs. If you have a tax on SPC canned tomatoes, it is an excise. If you have a tax on both, it is neither a customs nor an excise.

MR SELWAY: No, your Honour, that is true, but that is the necessary result where the discrimen of the tax is whether it is the activity.

DAWSON J: Yes, you say that. It is not anomalous because the whole purpose is to find out whether the relativity between imported goods and home-produced goods is disturbed. It is not anomalous.

MR SELWAY: The other point we would make, your Honour, is that it is easier seen if one looks at customs rather than excise because we have 90 years of worrying about excise. But, if you look at customs, a tax on the retail sale of all fruit, one would not describe that as a customs. It would not occur to a person to describe it as a customs, and one has to make a very strained definition of customs - I might say one that would probably have the result that Steel Rails was wrongly decided - to end up with a meaning of "customs" whereby a tax at the retail end which fell as a matter of fact on goods which had been imported was a customs. At the moment the accepted position, both in common meaning and by this Court, is that a customs is a tax upon an activity or a transaction. All we say is that the same is true of excise.

Your Honours, it is unnecessary in this case to finally resolve the question about how the "in substance" test works. The tobacco that is taxed is taxed on its way to consumption and in its final form. It is not taxed as an input into production, and whilst we accept that other issues may arise in respect of petrol, I think the discussion with my learned friend the Solicitor for New South Wales about tyres identifies the extent of the issue that needs to be considered there.

Whilst that issue may be true, it is not true of tobacco and, consequently, we say that on the test we propose the tobacco franchise fee is clearly valid. If it please the Court, those are our submissions.

BRENNAN CJ: Thank you, Mr Solicitor. Mr Robertson.

MR ROBERTSON: May it please the Court, the ACT adopts the submissions made by the defendants and by the Solicitors-General for the States and does not wish to add anything. If the Court pleases.

BRENNAN CJ: Thank you, Mr Robertson. Mr Solicitor for the Commonwealth.

MR GRIFFITH: Your Honour, the Commonwealth would be assisted if it could hear the submissions from the other intervener first so we would know whether there is anything for us to deal with arising from that.

BRENNAN CJ: Yes, thank you, Mr Solicitor. Mr Roberts.

MR ROBERTS: If your Honours please. I rely on my written submissions and I have nothing to add to them, if the Court pleases.

BRENNAN CJ: Yes, thank you.

MR GRIFFITH: Your Honours, we are assisted perfectly by that. Your Honours, our submission is that an excise is an impost on goods in Australia. We say that this is the meaning of "excise" and, in our submission, long settled for 50 years past if not 70 or so. Our submission is that it has been confirmed in each of the five decades since Parton to the present day and the ink is barely dry on the last confrontations in Capital Duplicators [No 1] and [No 2].

DAWSON J: But there is no settled line of authority.

MR GRIFFITH: Your Honour, we were much attracted to the reference to the "lion at the gate" in the reference to Sir Robert Garran in my learned friend Mr Meadows' materials at tab 1, page 6.

DAWSON J: "The lion in the path".

MR GRIFFITH: "The lion in the path", your Honour, and what we say, your Honour, is that, in effect, the lion is at the path of those who seek to argue for a rework meaning of "excise". We take an uncomplicated position. We are arguing for the status quo. That much having been said, your Honour, if I could address remarks to your Honour Justice Dawson. One could put it another way and say; if this Court is revisiting the issue of construction, then there are issues obviously to be considered because they have been considered by the Court over the last two days.

As to that, your Honour, we seek to be the lion in the path to that consideration which the States seek to make. I do not want to the overdo the lion, your Honour, but I appreciate - - -

DAWSON J: The lion in the path was protectionism as against free trade.

MR GRIFFITH: Yes. Your Honour, there are a lot of lions about and it might be put that many of your Honour's comments from the Bench are a lion in our path, and we appreciate that, your Honour, having been here for the last two days. Your Honour, what we do say is that there is no call for this Court to do again what it did to exhaustion setting the path in Capital Duplicators [No. 1], but particularly in Capital Duplicators [No. 2]. The States have pointed to nothing new; they seek to reargue yet again that which they argued fully and exhaustively in Capital Duplicators [No. 2] and, indeed, it seems they wish to confront also Capital Duplicators [No. 1]. It is all supported by the same materials which were referred to then. There are some minor changes; perhaps they are significant. Mr Jackson has changed sides; the States have got a new champion to replace Mr Doyle - - -

DAWSON J: That is simplistic, Mr Solicitor.

MR GRIFFITH: Your Honour, it is not entirely simplistic.

DAWSON J: Let me explain why I say it is: because you are confronted with the franchise cases and they have got to be supported, from the States' point of view, and if they cannot be supported on a view which stems from Parton's Case, then there is another method of supporting them which is available, which to some is the right method.

MR GRIFFITH: Your Honour, the franchise cases were referred to and dealt with in Capital Duplicators [No. 2]. When I referred to status quo I referred to the result, including the Court's consideration of the franchise cases, in Capital Duplicators [No. 2].

DAWSON J: If I might say so, those who upheld the franchise cases, on the basis of some sort of reasoning stemming from Parton and going through Bolton v Madsen, did not really have much attraction for them, did they?

MR GRIFFITH: Your Honour, they said what they said in pages 591 to 593. The Commonwealth in its submissions has nothing to add to that. It leaves it for the States to champion any other arguments they may make to support.

DAWSON J: All I am saying to you, or suggesting to you, is that to say that there is a settled line of authority and it is to be followed for a long time and now we should continue to follow it, is to rather paint a different picture from that which really exists.

MR GRIFFITH: Your Honour, we were in a firm position after Capital Duplicators [No. 2]. The franchise cases had been not merely upheld without reconsideration of whether they should be upheld but, indeed, upheld by this Court, albeit, your Honour, with the Court having some diffidence as to some of the supporting arguments. I think, your Honour, I am starting being enthusiastically in agreement with you, but, your Honour, it is a question where we are.

I did refer to Mr Jackson because my learned friend, Mr Spigelman, really to adopt a practice perhaps that was initiated by the present Chief Justice in one of the State courts, opened up in his submissions with a matter that was not opened up at all in the two versions of the written submissions, the aspect of producing the bounty with mirrors. In our submission, your Honours, we have already had the bounty. My learned friend is reflecting a mirror back on the argument which my learned friend, Mr Jackson, made to the Court in 178 CLR, and summarised at page 568. Not even the bounty argument is new.

KIRBY J: Would you give me that page again.

MR GRIFFITH: 568. It does not matter who put the argument - it was Mr Jackson - but we say it was there. So that one cannot seek - my learned friend considerately did not use the, perhaps, Latin expression inappropriate, but something along the lines of per incuriam on this issue, no one had seen the bounty point. It was there too as well. Nothing relevant was overlooked. So, your Honours, we only have one reason - and it is a fairly obvious one - why this case should be sought to be run again four years further on.

GUMMOW J: There is now a party actively seeking to overthrow Dennis Hotels.

MR GRIFFITH: Your Honours, that has happened before, of course, in Evda Nominees.

GUMMOW J: It had not happened in Capital Duplicators [No 2].

MR GRIFFITH: No, your Honour, but it has happened often enough before, particularly Evda, and it is interesting that this case has proceeded without having the sort of application which was regarded as "the issue" first before the Court in which disposed of Evda.

BRENNAN CJ: It was necessarily involved in the exercise, Mr Solicitor. I mean, the proposition is that we should reconsider it and Evda is a relevant factor.

MR GRIFFITH: Your Honour, what will follow from the next six or seven hours, I am afraid, is that is exactly what the Commonwealth will engage in its submission, but this is my first point. If I can put, myself, the lion in a path of the first point, but I do not want to dwell on it but just move on, but to deal with the point that my learned friend, Mr Spigelman, says he is fresh with a new acting commission, he has a new insight. In our submission, he has not; he is revolving a mirror and insight we had last time, if I can put it there without being too blunt about it.

Can I refer to the Commonwealth's view on Dennis Hotels, and that is merely it desires to make the submission as made in its written submissions, pages 2 to 3 paragraphs 1.6, 1.7. We support the status quo. We leave it to the States to enlarge on that with the parties with particular interest. Why I refer to our written submissions which run merely over 23 pages, no small 10 point print, with one annexure, could I indicate that we adopt each and every point, paragraph and word of those submissions as part of our submission before the Court today.

GUMMOW J: But paragraphs 1.6 and 1.7, I do not think, covers the field of possibilities, does it not? What would one do if one did reconsider Parton's Case and decided it was correct?

MR GRIFFITH: Your Honour, what we say is, if one looks at excise we - - -

GUMMOW J: Not some.....just a minute, is it correct.

MR GRIFFITH: If it was correct?

GUMMOW J: Yes.

MR GRIFFITH: Your Honour, one comes to the - - -

GUMMOW J: Where does that put Dennis Hotels?

MR GRIFFITH: Your Honour, one comes to the Evda issue, should it be reconsidered by the Court.

GUMMOW J: Yes.

MR GRIFFITH: And we make a formal submission it should not, but leave it to the States to carry the argument on that, though, of course - - -

GUMMOW J: Sorry?

MR GRIFFITH: Leave it to the States to carry the argument on that, but our submission is that is part of the status quo of fiscal arrangements as referred to by the then Chief Justice in Hematite. We then would submit, your Honour - - -

GAUDRON J: We allow them to stand on the basis that the Constitution has been perverted and it should remain so.

MR GRIFFITH: Your Honour, we do not wish to get engaged in this beyond saying that these were issues considered by the majority in Capital Duplicators; the result was express; we concur with that.

GAUDRON J: But you say notwithstanding that it is a perversion of the Constitution?

MR GRIFFITH: I did not use the word "perversion", your Honour.

GAUDRON J: No, but it is. If Parton is correct - - -

MR GRIFFITH: Your Honour, there comes a view where the Court may regard - - -

GAUDRON J: It is not a question about which minds might differ if Parton is correct, is it?

MR GRIFFITH: Your Honour, in our submission, it is not just an issue, is Parton correct or is it not, it is whether the result which we now see in Capital Duplicators - I put the franchise cases on one side - is correct or not. We say that is absolutely correct.

GAUDRON J: But Capital Duplicators - sorry, I misheard you.

MR GRIFFITH: We say Capital Duplicators [No1] and [No 2] are correct, and that is where we are.

GAUDRON J: So, the ratio is that it is not an excise on beer and tobacco. It is like the old folk song, you know.

MR GRIFFITH: What is not an excise on beer and tobacco, your Honour?

GAUDRON J: Well, if it is a tax on the sale of beer and tobacco, it is not an excise. If it is a tax on the sale of jams, marmite, vegemite, it is.

MR GRIFFITH: Your Honour is referring to the issue of the franchise cases?

GAUDRON J: Yes.

MR GRIFFITH: Your Honour, we say the principle is clear, apart from the franchise cases. That is our first position, your Honour. We say we have the franchise cases, and our formal submission is to support them merely because they are there, and we leave - - -

GAUDRON J: Yes, notwithstanding that they are, if Parton is correct, a perversion of the Constitution.

MR GRIFFITH: Your Honour, various members of this Court have considered the difficulty arising with the franchise cases as one has reached the principal expression of the view of excise as it does apply from Capital Duplicators [No 2], apart from the franchise cases. Even then, your Honours, the majority in Capital Duplicators were able to express a view that the franchise cases could be accepted as remaining. That is a stated authority of this Court which we accept. We do not desire to make argument that, in the circumstance your Honour puts out, if your Honour would regard that as a perversion, the Court should nonetheless go on to discharge its constitutional - - -

GAUDRON J: Well, I find some difficulty in the conceptual basis of your argument, that is all.

MR GRIFFITH: Well, your Honour, the conceptual basis is that the status quo exists so far as the financial relationships and the imposition of imposts by way of indirect taxes on goods in Australia.

GAUDRON J: But this is the people's Constitution.

MR GRIFFITH: Of course, your Honour.

GAUDRON J: It is not a Constitution to be fought over between the Commonwealth and the States alone.

MR GRIFFITH: Well, your Honours, this exception - the franchise exception is not one which enures for the benefit of the Commonwealth and, your Honour, our submissions do not propose to say anything further in support of them, other than making the formal submission that, to this point, the Court has accepted they should be maintained because they are there. With respect to your Honour - - -

GAUDRON J: To my mind, it does cast doubt on your submissions entirely once you start off on that footing.

MR GRIFFITH: Well, your Honour, I am not starting off. I am getting it out of the way, your Honour. It should, your Honour, create a sense of angst in my learned friends from the States and Territories as reminding them of the risk of their high-risk strategy. Your Honour, though perhaps they are not assisted by the fact that the Commonwealth comes along and says, "We will go along with it on the franchise case. We are not going to go along with it on the question of what is the true meaning of excise."

But, your Honours, those are the instructions from which, on behalf of the Attorney, I am instructed to give, and, of course, just as for Mr Jackson, no doubt, as counsel, or any counsel, would have the capacity to make the alternative argument. But, your Honour, my instructions are to make that one. So, your Honour, if I could perhaps disengage your Honour from the view that that casts a blight upon our submissions on the substance of the matter, because our submissions which follow are entirely removed from the issue of the excise cases. They are entirely directed to the issue of, say - we say, in effect, is the result which one sees in Capital Duplicators [No 1] and [No 2] correct, or is it something which now should be entirely reworked from the point of view of saying that it has been wrong since Matthews, it has been wrong since Parton, whether Parton is wrong and that destroys the whole substructure of the successive decisions of the Court since.

In our submission, there is not much assistance to be derived from the Court at the moment parsing and reparsing what Justice Dixon said in Parton. One can parse and reparse what he said in Dennis Hotels. You can go back to Chicory.

DAWSON J: But no one is doing that. What is said against you is that what he said was wrong as a matter of history, as a matter of economics, as a matter of textual analysis.

MR GRIFFITH: Your Honour, can we say that we root ourselves, we could say, completely on textual analysis and we are happy to stop there and say, "That is it, it is established." However, because of the case that we have met from six States that have submitted and spoken and two Territories which have associated themselves with them, your Honours, it is necessary for us to look at what they seek to scour from the convention debates, from pre-1900 economic literature and from other sources to say that should affect and modify that which we say is made abundantly plain from the Constitution.

We deal with that. We wish to deal with it only to the extent that it is necessary to answer, but because it is a significant issue concerning aspects of Commonwealth State power, we must answer that exhaustively, we say, to demonstrate absolutely that these considerations external to the words of the Constitution do not dictate a result other than that which has already been vindicated by the decisions of this Court, in our submission. But we do say that one is able to glean something from the historical situation at 1900, if one required to have it confirmed, to make it abundantly clear what it is in the constitutional structure dealt with in the Constitution dealing with issues pertaining to imposts on goods, whether at the time of entry into Australia or goods whether they are imported or manufactured here at the time of disposition in the chain leading to the sale to the final consumer within Australia.

So, your Honour, as often as the case underneath your Honour, I would agreed with what your Honour puts to me. It comes back to saying: what is the constitutional meaning, and that is where our principal submissions seek to find the answer. We hope we have done that with clarify in our written submissions, but it is - - -

GAUDRON J: And the answer extends so far, does it, as not including a sales tax, a non-discriminatory sales tax on alcohol and tobacco?

MR GRIFFITH: Your Honour, apart from the franchise cases, excise would include any impost on alcohol and tobacco when sold in Australia. Your Honour, the franchise cases would dictate, on the present authority of the Court, that if they meet the narrow expression of the exception - we call the Dennis Hotels exception - then, by decision of this Court, they are upheld. We have no submission other than that fact to make to support that aspect of the impost by the States being valid. Does that sufficiently answer your Honour? It is there because it is there, but until this Court overrules it, your Honour, we can say nothing more than the Court has said that. We cannot say anything to support the reason why it should be there and we say it is for the States to maintain their position.

GAUDRON J: But why do you not say, "Well, if they are correct, if they're to stand, excise must be defined to accommodate them"? They are as much there as Parton.

MR GRIFFITH: Your Honour, we appear with more than usual deference to the authority of decisions of this Court, in our submission. We are not the one doing anything radical. We are saying status quo down the line and that is all we seek to do, your Honour. We do not have to justify any decision of this Court. We submit the Court - - -

McHUGH J: Well, you say that they are justifiable on the basis that the Court rules that the fees were licence fees and they were not taxes on goods. I mean, Justice Taylor for one in Dennis Hotels accepted the authority of Parton and he recognised it as being some extension, but nevertheless he applied it.

MR GRIFFITH: Yes. Your Honours, it is on result. If these are authorities on result, then the two issues would seem to be, is this legislation directly analogous and does the quantum make any difference? As to that, that is something for my learned friend, Mr Spigelman, to make out. One can see a logic in an argument that if he is right on the first point, quantum should not make any difference, but that is for him. We have nothing to say about that, but, your Honours, I do not wish to infect our principal submissions by being in a position of saying you are entirely internally inconsistent because, if you say that, you must be driven to say that impost by the Dennis Hotels franchise mechanisms on liquor and tobacco are not an excise. Of course I say they are not an excise if the Dennis Hotels exceptions go. It is in the heart of what will constitute an excise.

Your Honours, what we submit here is that the States are proceeding in an inverted manner of what should be the logical order of the case which they seek to raise. We submit, your Honours, logically the case should be considered on the basis that the Court should only disturb that which was necessary to be disturbed, so that a minimalist approach would be to consider this issue as whether or not this scheme is indistinguishable from the Dennis Hotels franchise exception, whether or not the issue of quantum makes all the difference, and it would be not necessary for the Court to consider any further the issues of fundamental definition of excise unless the States were unsuccessful on that point and then wish to advance further.

In the event that the States were successful to that point, then matter would not advance further unless my learned friend, Mr Jackson, sought to reargue the franchise cases and that would be a matter of an Evda Nominees situation, but admittedly we adopt the style as, say, in Cole v Whitfield, we were taking these issues "in our stride", as it were, I think, to use an expression that appeared in the transcript, and we seem to dealing with it all wrapped up together but, we submit, your Honours, that it does create a problem for the States because they have this mutual inconsistency of wanting to proceed to adapt the words of Chief Justice Gibbs as if the pages of the Commonwealth Law Reports were blank so far as what they address as the first issue is concerned and only if they get into heavy weather on that do they then wish to go to conventional doctrine and say, "We have Dennis Hotels in our pocket."

It does not take much imagination to see that is why in the past, in cases such as Philip Morris, or even Capital Duplicators, where my then learned friend Mr Doyle was prepared to open up the wider issue, he was in a rather lonely minority of two, I think, on that issue, because the other States were quite happy just to stand or fall on Dennis Hotels because of these dangers. That is internal inconsistencies that the States have to deal with, but it does make it difficult for them, in our submission, as they approach the Court, as it were, coming down as if there is no lion in the path and at the same time wishing to keep that guardian lion as a point of, if all else fails, we wish to salvage what we have.

In that context, your Honours, our submission is that this case is not being put on the general issue of excise. I wish now to put the franchise issue entirely on one side and treat it as a case about what is the meaning of "excise". We are not talking about whether or not it is possible for a State to pass a tax imposing an impost of $1 on a jar of marmite or $1 on a jar of vegemite or $1 on any extract, whether it be meat or vegetable. What we are concerned about is a bid to redefine "excise" so as to enable States completely to impose a mechanism of taxation of goods when sold within Australia, limited only what we submit is the most unlikely form of limitation to exclude States which are limited in their operation to production or manufacture in a particular State. I say at once that we see, of course, the submissions made against us are not so limited because they seek to say the only limitation is State taxes which are directed on manufacture or production within Australia.

Part of our submission is that that submission is wholly untenable. If the Constitution does have an alternative meaning as to excise, which we wholly deny, limiting it to the case of production or manufacture, in our submission, it must be the case that the limit, as Justice Murphy pointed out in his earlier judgments and as has been discussed by some of your Honours, Justice Dawson particularly and Justices Toohey and Gaudron, the obvious limit which must be the case is that by reference to production within that State.

We admit that some consideration in this Court has gone a bit further and it would be our submission that it is an impermissible slide to say, in the context of Federation of the Commonwealth, what would have been articulated as a restriction limited to the reasons Justice Murphy said - and I think your Honour Justice Dawson has referred to them - to the State, in our submission, it is impermissible to then glide and say the same principle would apply throughout the Commonwealth. Of course, the reason why that should be so is obvious. It is because of the fact that it is not a Commonwealth-wide imposition. An imposition of production or manufacture throughout the Commonwealth by the Australian Government would be an excise. There is no problem about it because it is valid. There is a specific constitutional power under section 51 and also section 90 and it is an exclusive power of the Commonwealth.

So far as the States are concerned in this analysis, they remain separate States of taxation just as they were separate colonies before Federation. If one is considering the effect of an impost on goods manufactured and produced by reference to a State taxation law, it must be limited to the reach of that State's legislative power, namely, production and manufacture within the State.

I will enlarge on this, but the point we wish to make is that if a State expresses a law which will apply to manufacture in Australia throughout Australia, within that State if there is manufacture of that good, the law operates, in our submission, as an excise. That much is conceded. If it operates on goods manufactured elsewhere in Australia, when those goods come into the State, the effect is that that law will operate as a customs duty. Your Honours, I say "customs duty" advisedly because that is the precise expression used in section 95 of the Constitution.

May I take your Honours to section 95. That is one of the many transitional provisions dealing with the - there has been references to it in exchanges in argument, the fact that the States did have disparate economies at Federation - suggest that they still do - that they had disparate requirements as to the mechanisms of transition but, of course, it was not until after Federation that Western Australia became a member of the Commonwealth, that it was necessary by proclamation after the formation of the Commonwealth for Western Australia to join the Federation. But, in deference to the Western Australian position, there was a special exclusionary provision made in section 95 which said that if it does come in - it did - it may for:

five years after the imposition of uniform duties of customs -

I think my learned friend, Mr Graham, said 6 October 1901 - it got another five years. What did it get another five years to do? It could, on a pro rata reducing basis, continue to impose what are there referred to as duties of customs on goods coming into that State which were manufactured or produced in the other States - see the exclusion. It does not include all goods coming into the State because goods which are imported from overseas which, of course, from Federation would be under the exclusive control of the Commonwealth's impost under the exclusive power to impose duty of customs, are not within this exception.

What Western Australia is told is on a declining basis for a transition for five years you can impose what the Constitution refers to as "duties of customs" on goods which are manufactured elsewhere in Australia coming into the State. Now, in our submission, what is the essence of the States' proposals in saying that it is quite permissible for a State to impose a uniform impost on goods, whether or not they be produced in Australia, as goods in commerce, not as goods produced or manufactured, but if we could pick it up as goods which are in commerce, that the effect of such a State law is to say, well, on goods produced in the State then that is an excise on goods.

So far as goods coming into the State are concerned, well, if the goods are produced elsewhere in Australia, that impost has no effect at all. The State law can have no operation as a taxing law unless and until those goods come into the State. It is not possible, we submit, for a State to tax production and manufacture in other States of the Commonwealth, unless they have some particular taxing mechanism which would be beyond the ordinary reach of power by reference to taxing a particular entity in the State, but so far as the taxing on goods is concerned, in our submission, a State law does not attach to goods manufactured throughout Australia until those goods come into the State.

On that, section 95 makes it quite clear that the structure of the Constitution - I will not say what the framers sought; let us just see what they wrote - the framers made it quite clear that they regarded that as a prohibited impost because they created a special and reducing exception to the particular position of Western Australia to deal with that.

Now, we can, of course, talk about the use of the expression "duties of customs". We would submit that when one looked at situations now, you would say that there would be a duty of excise imposed on a good which was manufactured in another State and brought into the State, and the time of impost would be when it is brought in to the State for the purpose of sale. If the tax operates, for example, on the wholesale sale for goods produced in the State, then it is a duty of excise undoubtedly, if it is on a good produced and manufactured in Australia and there is that wholesale sale.

So far as goods produced outside of the State is concerned, such a State law has no reach whatsoever until the goods are brought into the State and, in our submission, then to impose duties after those goods are brought in and to bring it on - to impose it at the point of wholesale sale. Even if the law is expressed to apply to all goods without discrimination, one is, as one can pick up, we say, from section 95, clearly within the forbidden area. It is not section 95 which does it but, in our submission, that would go to confirm what we say is the direct and plain meaning of the entire constitutional provisions and the structure which was intended to support them.

GUMMOW J: Now, suppose Mr Spigelman's proposition in paragraph 2 was limited to taxes on goods imposed on their production and manufacture in the State in question, what would - - -

MR GRIFFITH: Your Honour, so far as that is concerned, we answered that with the entirety of our submissions. What we have sought to indicate, and I was intending to enlarge on it, but we sought to indicate to your Honour that the constitutional choice, if there be one, is between imposition on goods manufactured within the State and the view that we say is upheld in Capital Duplicators [No 2] an impost on goods in Australia. Your Honour, having identified that as a territory of difference, we seek, in various ways - one, by reference to the concept of the external tariff barrier, the other, which we say is just as strong and can stand on its own and is explicit in the Constitution, in our submission, the internal free trade requirement.

GUMMOW J: But that would leave, would it, the Commonwealth with an exclusive power in respect of the criterion of liability being manufacture anywhere in Australia?

MR GRIFFITH: Your Honour, perhaps we do not have to worry about criteria of liability because we go to substance for excise as far as that is concerned. So, although we accept Bolton v Madsen was a unanimous decision of the Court upholding Parton, we accept the other aspect of Bolton v Madsen that it has not survived on criteria of liability. So that I think it is one point where it seems the States and Territories and the Commonwealth are in agreement that it is all a substantive test now. Does that answer your Honour's question?

GUMMOW J: No, not really. You have a situation - and I am thinking about these unfortunate citizens - whereby the Commonwealth would impose an excise, you would say generally - - -

MR GRIFFITH: It has to be throughout Australia, your Honour, because the Commonwealth cannot discriminate.

GUMMOW J: Exactly, and irregardless of the place of production or manufacture.

MR GRIFFITH: Yes, your Honour. Your Honour, it is quite possible to have a Commonwealth impost of the Gosford Meats sort, but as long as it is throughout Australia, then the people of Australia are treated equally. That is why we say the Commonwealth has the exclusive power with a rider it must be exercised without discrimination. That is the constitutional mandate which we say would be subverted by acceptance of the State submissions.

GUMMOW J: A State power limited to production in the State inevitably of its character must postulate some discrimination as between various goods circulating in the State.

MR GRIFFITH: It must, your Honour, yes. Yet, your Honour, it is that form of taxation which was identified by Justice Murphy - and I hope it is fair to say Justice Dawson thought it had in principle basis rather than referring to it throughout Australia as being the sort of impost which was referred to as being an excise. Our submission as to that, your Honour, is that that is just the sort of impost which one would expect a State rarely, if ever, to want to impose, because what it has it would put, in the case of an industry that operates throughout Australia or production throughout Australia, it would put that State's industry at a competitive disadvantage to other States.

Initially as we prepared our submissions we though there is no example of such a tax which could apply. In fact, that is not so because one can think of the odd example - I think Gosford Meats is one - but they are very rare examples because they are not the sort of taxes which any State would seek to impose, either for a revenue raising reason, which is the reason nowadays in the deregulated economy why most taxes are imposed. They are not imposed for the point of view, as bounties might have been in the past or taxes might have been in the past, for tariff protection to encourage/discourage economic activity, they are basically, as the taxes under example here, there to raise money. There is no doubt about that. The second thing is, as well as not being the sort of tax that a State could be expected to regard as an efficient way to raise money, they also discriminate adversely to State industry and production.

In our submission, if one marks out that prohibited area, one could not more perfectly accept that a prohibited area being the sort that the State would less want to go to. Why would any State pass a tax limited to production in the State? Why would it not apply it to all goods, whether produced or manufactured in that State, in the other Territories and the States, or imported, an my learned friends say, "That turns vice into virtue as long as we do not limit it to " - I keep, in my examples, coming back to production in the State because I intend to satisfy the Court that it is that or nothing; it cannot be production in Australia. Why would any State seek to limit it when they are going for the whole hog. What the States here, in essence, are seeking to do is to have a capacity completely to impose a sales tax, GST/VAT system, by imposing an imposition on the sales of all goods. It is not a case of, as Mr Selway points out, "We would still have our taxes on tobacco and liquor and we might be all right if we rejigged it on petrol". What the States' submissions are, is inviting the Court, when we have had 97 years of very restricted State impost on goods, other than the unsatisfactory franchise exceptions, really nothing at all, we say, they are seeking to have that just wiped clean by their submissions saying, "You should identify excise as a little corner that we would not logically seek to impose an impost in, and otherwise give us clear and equal opportunity with the Commonwealth to impose indirect taxes on the sale of goods".

DAWSON J: That is a rather coloured way of putting it - - -

MR GRIFFITH: Descriptive, your Honour.

DAWSON J: - - - in seeking to say that that is what is Constitution entitles you to do.

MR GRIFFITH: Yes, your Honour. If that is coloured - they say the Constitution says that. We, in our submission, flatly deny that. We say, your Honours, by reason that once one has goods in Australia, by reference to the requirement that there be internal free trade and that is the issue upon which we seek to enlarge our submissions. I think it is important that point to be made so the Court can see what - - -

DAWSON J: I mean, that takes you to what an excise is because when you talk about internal free trade, there is not internal free trade in the sense that State taxes, State imposts, cannot affect the price of goods. Clearly they can.

MR GRIFFITH: Yes, your Honour.

DAWSON J: Goods can be more expensive in South Australia than they are in Victoria by reason of the policy of the government there. Now, no one has suggested that is offending against the principle of free trade. So you have to say what an excise is and why it affects free trade.

MR GRIFFITH: Your Honour, we will say that, but our basic outline of what we say is free trade is secured in two ways, in the context that at the time of Constitution trade was principally in goods and not in services and now we are having reverse economy where the principal trades are in services and not in goods. So that we admit, firstly, your Honour, so far as service is concerned, which might be now the major part of the economy, there is nothing whatsoever to prevent a State imposing a VAT, GST on services in Australia just as there is nothing to prevent them imposing an income tax or imposing a State premium.

DAWSON J: And you say that does not offend section 92?

MR GRIFFITH: Because it is concerned with goods. Section 90 is concerned with goods, your Honour, on excise. Section 92 - - -

DAWSON J: The question is how it is concerned with goods.

MR GRIFFITH: Precisely, your Honour, but what we wish to say is your Honour's point is a valid one. Indeed, it probably has more force when one considers - - -

DAWSON J: I see it is almost lunchtime. Can I ask you what you say an excise is?

MR GRIFFITH: Your Honour, I have already said, it is an impost on goods in Australia.

DAWSON J: You cannot say that.

MR GRIFFITH: I have said it, your Honour.

DAWSON J: You can say it. I will not go over the adjournment time, but the fact is that there are many types of imposts on goods as has been pointed out. This is what you have to meet, that any tax on a producer of goods is, in result, an impost on goods.

MR GRIFFITH: Your Honour, we have got no problem with that. We say you just apply the substantive test and that gives you the answer.

DAWSON J: That is the substantive test. If the substantive test means that the price of goods is affected ultimately, or the price of goods ultimately affects production, then you are taken back to home base. You have got to draw the line somewhere.

MR GRIFFITH: No, your Honour, the Court has already done its substantive test, in our submission.

DAWSON J: You ask, "What is the substance you're looking for?"

MR GRIFFITH: Your Honour, the Court have already told us to whether or not - your Honour, I do intend fully to engage your Honour on that but I know your Honour says that taxes do not pay goods.

DAWSON J: May I leave you with this question. What is the substance that you are looking for?

MR GRIFFITH: Your Honour, it comes back to impost on goods, but I will enlarge on that after lunch.

DAWSON J: That is circular. That really is circular, Mr Solicitor.

MR GRIFFITH: No, your Honour, not the way we put it, we hope.

DAWSON J: You will have to develop it then.

MR GRIFFITH: We hope your Honour understands our submissions even if it remains your Honour is not convinced with them, but that is how we put it, your Honour.

BRENNAN CJ: That will be a task for this afternoon. Adjourn until 2.15.

AT 12.46 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.17 PM:

BRENNAN CJ: Yes, Mr Solicitor for the Commonwealth.

MR GRIFFITH: If your Honour pleases. Whilst caught into making reference to the Commonwealth's position on the franchise case issue, your Honours, I made it clear that my submissions were based on instructions as indeed they always are but, your Honours, could I add one further matter of information which I give on instruction, and that is to pick up the reference made by the plaintiffs' submissions in reply, at the foot of the third page, over to the top of the next page, where it is referred to:

the Commonwealth government is likely to step in and collect the excise on the States and Territories behalf, as was announced by the Commonwealth Solicitor-General during the hearing of Capital Duplicators.

Your Honour, as to that suggestion my instructions are in the event that the Court follows Parton v Milk Board but overrules Dennis Hotels line of cases, on behalf of the Commonwealth I can give no indication that the Commonwealth would support legislation to reimburse the States and Territories for loss of revenue such as legislation to collect business franchise fees on behalf of the States and Territories. Nothing should be assumed. If the Court pleases.

Your Honour Justice Dawson, I will deal directly with the matter which your Honour - - -

DAWSON J: Only if you want to.

MR GRIFFITH: I will but may I do it at a point? There will be more than one point, your Honour, but it is certainly not one to escape our anxious attention. Your Honours, the point I was making as we broke for the luncheon adjournment is that we say that the States seeks to underplay the fundamental nature of the changes which are a rejection of the settled construction of section 90 which they embrace and would seek the Court to embrace, would affect.

We say it is wrong to say, as more than one State has referred to, overruling a few cases. A list was supplied, I think by Victoria, which orally had Duplicators [No 2] added to it as an afterthought. In the context of that, as I indicate, we are happy to stand or fall so far as the offending doctrine is concerned on Duplicators [Nos 1] and [No2]. What we do submit, your Honours, is that what is sought here is that there is a position sought to be obtained which reverses the whole structure of the imposts of goods on goods in Australia as it has been established both, we say, by the Constitution and has been articulated by decisions of this Court.

One reason why it might be put that there are only a few cases to overrule, on our count, there are only but 19 decisions of this Court on excise and, of that, at least five are franchise cases. So that when one looks at the course of interpretation of section 90 in the excise provisions, one sees areas of difficulty falling far short, we would submit, of those which arise, for example, in respect of the reconsideration of section 92 engaged in in Cole v Whitfield, where some 137, I think, cases at that time fell for reconsideration of which, on our calculation, some 67 fell to be overruled either directly or by inference from the decision of the Court.

The cases since Federation primarily concerned areas on the periphery where one might have a subterfuge, an effort to avoid the limitations of section 90. They are sometimes difficult, for example, Hematite, because they are at the periphery as the States have sought to evade what we say is the essential constitutional prohibition, but even at Hematite, it is seen the line is clear enough. No State in its submissions to the Court have said that Hematite is wrong.

In our submission, when one looks at the history of excise in this Court, if I may, always in my submission I have indicated, exclude reference to the issue of the franchise cases, in our submission, there is a continuity of approach. Of course, it is admittedly one of evolution, but the nature of excise is that that is an evolutionary concept. At the time of Federation, it has been made abundantly clear to the Court and the Court, of course, has stated in its judgments, impost on goods were limited to the traditional categories of liquor, beer and tobacco.

One has had a development from that. Since Federation, one has a situation where, by and large, imposts on goods are not on the production or manufacture, as was the case for those imposts on tobacco or liquor at Federation, but the impost came to be at the taking of a step in the distribution and the Court's doctrine developed to deal with those situations.

Later, of course, one has a situation where the Court found that the criteria of operation test was not sufficiently vindicating what was mandated by what we say correctly saw as the constitutional prohibition, and adopt the test by reference to the substance of the provisions. But all the decisions, in our submission, show the Court dealing with the vindication of constitutional meaning to vindicate the constitutional purpose in the context of evolving systems for the making of imposts on goods within Australia.

There has not been a problem with respect to the issue of imports into Australia because there one, by and large, can readily see that the impost is one which occurs on the act of entry. I will say something, in due course, about the submissions by Mr Selway seeking to embrace the concept of an impost by a State being able to be categorised as a duty of customs when made within the States. But, your Honours, we say it is not a case, as the States may say, as they have submitted, that there is a few cases to overrule, and that there has been little reliance, or organisation of affairs by others in reliance upon the decisions of this Court.

We are not merely dealing here, as I think Justice Gummow said in interjection before lunch, the issue of relationships between the Commonwealth government and the States and Territories where, by and large, the position is obtained that the operation of the constitutional prohibitions and the jurisprudence of this Court has, with the franchise exception, secured the result that the States have been generally unable to impose imposts on goods within Australia. We are talking about the people of Australia who have operated their affairs, conducted their businesses, we say, in the context of a situation which is mandated by the Constitution; namely, the high constitutional purpose of maintaining internal free trade in one market.

Now, that is a matter which we need go no further than the decision of this Court in Capital Duplicators [No 1] to say is an established high constitutional purpose for the provisions with respect to excise. Now, Mr Meadows in his citation to the convention debates has really done nothing more but spell out this essential message. Page after page of his extract of selected parts makes reference to the essential aspects of the establishment of internal free trade within that external ring which the delegates at that stage did not know whether it would be one of protection or free trade so far as the rest of the world was concerned and, of course, Sir Henry Parkes aspired to one thing, the majority of delegates no doubt aspired to the other.

The States and Territories now wish to establish not one market, one internal free trade market within Australia - and I will enlarge upon why we say that is established by the constitutional provisions and not merely by section 92. They seek to have a definition of "excise" adopted which would enable the establishment of eight markets with respect to the trade of goods.. In other words, they submit that the constitutional compact, in our submission, should be revoked.

DAWSON J: But there are eight markets because - well, there are the six State markets in any event.

MR GRIFFITH: Yes. Your Honour, we say there is only one market of internal free trade is our submission and that is Australia.

DAWSON J: There is free trade within Australia, but there are six markets because there are six Parliaments.

MR GRIFFITH: Your Honour, we say there cannot be six plus two markets of internal free trade in Australia.

DAWSON J: But there can be. I mean, what you have got is not a unified economic system in Australia. You have a union of economies and there is no doubt that the State economies operate separately. They must. They operate under different legislation having differing effects.

MR GRIFFITH: Your Honour, there is one restriction that we say is universal. With respect to trade in goods, we submit that the Constitution does mandate and is maintained, internal free trade.

DAWSON J: Freedom at the border, yes, but that is only one small part of the picture.

MR GRIFFITH: Your Honour, with respect to when one considers what the States have postulated as a text for excise, it is a complete reversal of the picture with respect to trade imports to embrace the State submissions.

DAWSON J: No, it is not. You can have goods which are more expensive in one State than another; not because of any barrier at the border, but simply because of policies of the particular State.

MR GRIFFITH: Your Honour, I did intend to say something in detail about these various ways in which a State may affect the market within the State, and may I deal with that in order, accepting your Honour's point.

DAWSON J: There is no doubt that individual State policies can cause distortions in the economy, and that was intended. That is something you put up with in a Federation as a collection of unions.

MR GRIFFITH: Entirely agreed, your Honour.

DAWSON J: It is just a question of what distortions the Constitution prohibits and what it does not.

MR GRIFFITH: Your Honour, we say it absolutely prohibits the distortion of having an impost on goods coming into the State.

DAWSON J: Yes, that is your contention, but what I was contesting at the moment was that there was one economic unit. There is not.

MR GRIFFITH: Your Honour, we say there is one internal free trade market for goods in Australia.

DAWSON J: There is section 92, yes.

MR GRIFFITH: No, your Honour, we say section 80 and the allied sections as well - the whole part of the Constitution, with respect.

We summarise our approach in paragraph 8 on page 9 of our written submissions, but I did intend to enlarge on that, and I will not take the Court to that now because it is a significant point to be made.

Your Honours, we say that what the States, in effect, seek to do is to revoke this internal free market in goods, apparently on the basis, it seems, that they need the money. That seems to be the effect of the tables which have been produced from the Bar table. We entirely accept that it is possible for the States to distort the market within the State in some ways, but we wholly deny that that can be done in respect of impost on goods.

In this context, it is our submission that it is not just a matter of policies of governments and Commonwealth-State relationships that have proceeded for 97 years to the point of development where we are, which, as we submit, is the correct constitutional mandate. It is a case of taxes have been imposed on the strength of those authorities; the fiscal system of Australia, particularly with respect to indirect taxation, is wholly based on these authorities.

The States may, it is admitted, impose tax on services; they may impose payroll tax, land tax; they may provide incentives for some industries to come and remain within the State but, in our submission, what they cannot do is impose an impost on goods. We submit - and this is the narrow view I referred to - they cannot impose an impost on goods produced and manufactured in the State and that, on any view, seems to be conceded. We say they cannot impose an impost on any goods produced and manufactured within Australia, which would seem to be conceded by the States in their submissions. We say also, your Honours, they cannot, merely by seeking to embrace in the terms of the impost a provision which applies indiscriminately to imported goods and goods produced and manufactured either in the State or in some other part of Australia not in that State, avoid what we submit is the constitutional prohibition.

Your Honours, that really goes to the heart of the submissions which we seek to make in answer to the States. It is submitted - and we do make the point that there are not all that many cases where there has been a problem - that there may be some areas where there is a number of uncertainties. If I could just have as a standing acceptance of the fact that the franchise cases stand perhaps not grey but black in this area, but leaving them on one side and use perhaps the Hematite example as a case of a grey area, we submit that that is not at all surprising. If all we have had since Federation, apart from the franchise cases, is some 14 opportunities for this Court to consider the issue of excise, it does not seem, with respect, that there has been any great constitutional difficulty.

As we refer to, it seems that, in a way, the evolution of the Court's dealing with these issues has kept pace with the evolution of the developments of the mechanisms for the passing of laws for the imposts on goods within Australia. By and large - and it still remains for the purpose of federal law, I mention it in due course in my submissions - it remains the case that, except for imposts on tobacco and matters related to alcohol and liquor and wine and petroleum and coal, that the complete mechanisms in Australia for the imposition of imposts on goods is entirely on a step other than production and manufacture. It is not the mechanism for imposts on goods in Australia.

The traditional subject matters of the Constitution, if we add energy as an allied matter, are still subject to some imposts by reference to manufacture or production in Australia, but after that the mechanism is to pick up for the most part some step in the distribution process, normally upon sale, and without particular reference to first sale by the manufacturer, to sale in the course of distribution, to the point of reaching the final consumer, is the action points where imposts attach. So it is not surprising that the Court has had to consider its approach to these issues and we say, as in Capital Duplicators, adopted a definition of "excise" which regards it as a tax on goods in the sense that it is a tax on a stage in the life of a commodity upon a dealing with the good.

That has worked, we submit, perfectly satisfactory as the Court has moved away from the criteria of liability test into the issue of substantive operation. Although there might be an area of uncertainty in the operation that test, in our submission, it has no more uncertainty than the concept of what might be regarded as discriminatory for the purpose of the restriction in the articulation of section - or, rather, protectionist purpose, for example, for the operation of section 92 as articulated in Cole v Whitfield. So we do accept that the distinction between duties of customs and customs of excise depends upon the step which attracts a tax. In the case of a duty of customs it is easy, it is the act of entry, and we say that is it.

So we reject the submissions of Mr Selway to suggest that there might be further inquiry by reference to economic evidence and economic fact as to whether or not marmite is imported or has an elastic or inelastic substitute. So far as duties of excise are concerned, in our submission, the inquiry is straightforward enough. The inquiry is, is it an impost on goods? One makes that inquiry but rarely by relation to production or manufacture. Mostly when one makes that inquiry when there is a dealing of the goods in the stage of distribution leading to the consumer and consumption. We say that the Court has indicated that by adopting the test of having regard to the substance of the law, a perfectly adequate means, which by and large can operate satisfactorily is as confirmed by the fact of there being so few cases where the Court has to come back and consider the issue.

So that, in our submission, it is perhaps a slight overstatement to say that the substantive test is a bright line but, in our submission, it is a line clear enough. You look for an impost on goods. That is why you have no difficulty, for example, in saying an ordinary payroll tax or an ordinary land tax which is not related to production of the land would be regarded as passing on the other side of the line, as would a tax on a lease of commercial premises or something of the sort.

DAWSON J: That is the simple criterion of liability test. Tax on a step in relation to the goods from the stage of production until, we would say, on that test, to the consumer, perhaps.

MR GRIFFITH: Your Honour, I must make it clear, I do not intend to submit that. What I say is that one has the good; that the mechanism for imposing impost on goods in Australia is to impose that impost where the good is passing up to a point of consumption. The inquiry of the Court is to consider when the impost is applied, whether that constitutes an impost on goods. When the Court engages in that inquiry, your Honours, it is clear from the authority of this Court that is a matter of substance, not merely a matter of - - -

DAWSON J: Are you going to tell me what the substance is at some time?

MR GRIFFITH: Your Honour, the Court have already told us, in effect. What we say is that the Court has supplied the test and we say, your Honour - - -

DAWSON J: It must be something more than the fact that it is a tax on goods.

MR GRIFFITH: Your Honour, that remains the ultimate inquiry.

DAWSON J: Then that is the criterion of liability test.

MR GRIFFITH: Your Honour, in our submission, one can answer that question. It might be - and as the elements of the substantive test show - that it is not possible to have a short phrase of articulation as to what that means but, in our submission, looking at it from the other side, the average taxpayer, the average government and the average High Court Justice in the street, if there is such a thing, all have no real difficulty when construing a particular impost and saying, "Is it an impost on the goods or is it not?" Hematite is an example of that. It is at the edge, but the Court took a view.

DAWSON J: I have difficulty, just on that simple test, because what is it that makes it a tax on the goods?

MR GRIFFITH: Your Honour, we submit that 97 years has shown us that very rarely is it a difficult - - -

DAWSON J: What 97 years has shown is that it was originally thought it was a tax on the goods because it found its way back to production or manufacture. You now resile from that, so you have to show what it is that you put in its place.

MR GRIFFITH: Yes. Your Honour, we say the basic inquiry, is this a tax on goods?

GAUDRON J: Let me give you an example. A tax of 5 per cent on purchases with a credit card.

MR GRIFFITH: Is that a financial transactions duty or is it a tax on goods? Your Honour, on the face of things, it would seem it would be regarded as a tax on financial services, not on goods. So I would say it is not an excise, it is not a tax on goods.

GAUDRON J: Yes, I understand that. But a receipts duty on all receipts, you say, is.

MR GRIFFITH: Your Honour, on all receipts, by everyone - your Honour, not necessarily so. I would say not.

GAUDRON J: Well, what about Chamberlain?

MR GRIFFITH: Your Honour, Chamberlain was a specific situation. But, your Honour, one cannot generalise and say therefore - - -

DAWSON J: But, you see, you have got to take it further. You have got to say more than that. Why is not the tax, taken at a step in the distribution of goods, a tax on the distributor?

MR GRIFFITH: On the distributor?

DAWSON J: Yes.

MR GRIFFITH: Your Honour, that is not the inquiry. The inquiry is where there is a tax on the goods.

DAWSON J: I know. But you say it is a tax on goods merely because it is imposed at that point. Why? Why is it not a tax on the person?

MR GRIFFITH: Your Honour, because it becomes a matter of characterisation as to whether one says, having regard to the qualification that there is no constitutional power in the States to impose an excise - - -

DAWSON J: But that is not an answer. I say to you it is a tax on the person who has to pay the tax, you say, no, it is a tax on goods. I ask why. The goods do not pay the tax.

MR GRIFFITH: Your Honour, because one says "in substance".

DAWSON J: What is the substance you are looking for?

MR GRIFFITH: The substance is that there is an impost on the goods.

DAWSON J: But you are going around in circles.

MR GRIFFITH: I do not intend to, your Honour.

DAWSON J: Well, you are, with respect.

MR GRIFFITH: Perhaps not enough to say no less than the Court, your Honour.

DAWSON J: I can understand when it was said, as it was said, and, indeed, that was where it started, it is a tax on goods and not upon the person upon whom the tax is imposed, because you can see a relationship between the tax and production and manufacture, because it is in the nature of an indirect tax which finds its way back. That now is not acceptable. What is it you put in its place?

MR GRIFFITH: Your Honour, if one has a criterion of liability operation of an impost, your Honour, if one adopts that approach, in most cases one gets a quick result.

DAWSON J: You get a quick result, but you do not get a right one.

MR GRIFFITH: Well, your Honour, you may well get the right one. You probably will get the right one.

DAWSON J: You may or may not.

MR GRIFFITH: Well, you mostly will, your Honour. But what the Court has held is that that is not enough. You have to have a wider view of "substance", just as you do for the operation of section 92.

DAWSON J: I cannot understand what we are talking about as a matter of substance unless it can be identified.

MR GRIFFITH: Yes. Your Honour, can I return to this also because we wish to make the same comment that your Honour makes with respect to our postulation to that postulation now proposed by picking up paragraph 2 of New South Wales submissions.

DAWSON J: Yes, I am sorry. I am probably taking you out of turn again.

MR GRIFFITH: So I hope I do not hold too much promise, your Honour, but we are very aware of your Honour's view and we hope, your Honour, whilst not aspiring to - - -

DAWSON J: Convince me.

MR GRIFFITH: - - - convince you, your Honour, nonetheless to say whatever we can about them.

McHUGH J: Do you get any help to answer Justice Dawson by saying that the tax is imposed on goods when the person upon whom the tax is imposed is charged by reason of and by reference to the fact that that person has taken a step in relation to the goods somewhere between production down to distribution?

MR GRIFFITH: Yes, your Honour, I had hoped that I had said that, but I perhaps did not say it with the clarity that your Honour, for example, said that at page 80 of the transcript and we thought, your Honour, that expression does express the concept that we are searching for and I think the point that we seek to make is that your Honour says once you depart, as we understand it, from the criteria of liability, well, then you have no answer because there is no reference - - -

DAWSON J: And what was just put to you is nothing more than criterion of liability.

MR GRIFFITH: Your Honour, we say it is not that. We say, your Honour, that what you are articulating is in a few words the essence of the substance test. You are always asking yourself, "Is this a tax upon the commodity at some point in the course of distribution before it reaches the consumer?" Your Honour, our submission is that that is the appropriate inquiry and it is one which we say by and large is readily answered.

DAWSON J: But you see, it is the franchise cases that are your difficulty because there, as a matter of form, the tax is not upon a step taken with the goods. That is what was in the minds, I imagine, of the majority who said, "We no longer can accept the criterion of a liability test as a sole test because it leads to these artificial results; something more is what we are looking for". All I am asking is: what is the something more?

McHUGH J: A relationship to quantity or value is usually one.

DAWSON J: And that has been abandoned as a test.

McHUGH J: Not necessarily. There are a lot of tests. There are a lot of factors.

MR GRIFFITH: Your Honours, we say that - we are talking about the 13 cases, or even less, where this has been in issue since Federation, and one can get involved with the other five on the franchise cases. But, by and large, we submit, your Honour, that it really is self-evident.

DAWSON J: There has been a lot of words wasted if that is so.

MR GRIFFITH: Your Honour, it is still only 13 cases plus five, so it is not so bad given some of the other sections. Your Honour, the States' complaint is not so much the want of clarity; it is the result.

DAWSON J: No, it is not. It is the fact that if what you say cannot be sustained, one has to look for something which can, and theirs is a coherent explanation of the meaning of the term.

MR GRIFFITH: Your Honour, I think we have identified the point where we each stopped the exchange because we submit that once you have left the criterionof liability, the substantive test does still give the answer, accepting there may be an exceptional case - Hematite might be an example or it might not because it seems agreed it is clear - where it gets a little bit uncertain. But, in our submission, your Honour, it has been shown possible to answer the question whether or not there is an impost on goods in Australia as distinct from on the act of importation.

Your Honours, we will have something to say that whatever view you take about that - I apologise to your Honours that I seem to be addressing remarks to just - - -

DAWSON J: It is my fault, I think.

MR GRIFFITH: Not your fault, your Honour. It is just an exchange.

BRENNAN CJ: Could I just have some clarity about what is meant by criterion of liability? I had understood it as being the criterion which was statutorily expressed.

MR GRIFFITH: Yes, your Honour.

BRENNAN CJ: As distinct from that which has an affect. But I have not understood that the substantive test - the substantive approach adopts the notion of a criterion of liability in the general sense of being a tax upon goods, if you like to put it that way, or a tax upon a step on the production or distribution of goods up to the point of consumption.

MR GRIFFITH: You had not understood that.

BRENNAN CJ: I had not understood it to be anything different from that.

MR GRIFFITH: Exactly, your Honour.

BRENNAN CJ: So criterion of liability you do embrace on that footing but the question of how you come to answer the criterion of liability test is not limited to the statutory text.

MR GRIFFITH: Your Honour, I am not using sufficient words in just saying substantive tests. I was embracing that articulation.

McHUGH J: And Sir Garfield Barwick pointed that out at page 365 in Anderson's Case in 111 CLR, that consideration of many factors is necessary, factors which may not be present in every case: the indirectness of the tax; its immediate entry into the cost of the goods.;the proximity of the transactions of taxes to manufacture. He gives a number of illustrations. But you look at it as a matter of substance in determining whether or not it is a tax upon the relevant step.

MR GRIFFITH: Your Honour, I wish to make it clear, though, that it is looking at- in the exceptional case that has to come to this Court. We say by and large, when one thinks of all the imposts - - -

DAWSON J: But to look at it as a matter of substance is merely saying we have to be, in substance, an excise tax. What you are saying when you say, look, criterion of liability is not abandoned entirely, of course, that is so. But you are looking at cases where you cannot apply the criterion of liability, where you nevertheless come to the conclusion that there is an excise as a matter of substance. What is the matter of substance?

MR GRIFFITH: We come back to your Honour and say at the end of the day the Court must make a characterisation: is it an impost on goods?

DAWSON J: Without knowing what it is looking for?

MR GRIFFITH: Your Honour, we say that it is a lot easier than committees drawing a camel and going looking for one. An impost is easy enough to see when you have one.

DAWSON J: That is the last resort, I think, of people who have not got any clear idea of what they are talking about.

MR GRIFFITH: I do not want to go to the refuge of scoundrels, your Honour, but we submit it is a question that the decisions of the Court have shown can be answered and have been answered. I must exclude again the franchise cases and leave that for the States. Your Honours, I submitted, perhaps somewhat boldly for some of the Bench, that the present line is a sufficient line, if not extraordinarily bright, in the number of uncertainty part. What we submit, your Honour, is what was presented - and now we have an articulation because we re told that all States and Territories agree to what is said in paragraph 2 of the amended defendants' written submissions even if their oral submissions before the Court seemed to detract somewhat to their adherence from that view, if I could say in comment, is the meaning. Whatever that is, your Honour, admittedly that is not presented to the Court as the new bright line.

The States say they do not seek to revive the criterion of liability test, notwithstanding that it might be put on one view it is difficult to understand the test they produce if that is not an integral part of it. Mr Spigelman yesterday conceded in the transcript, 105 to107, that once you get into the questions of substance there will not always be a bright line. Your Honours, if it is the case that a few of the most difficult cases have come before the Court on present approach, there can be no doubt whatsoever that what the States suggest would involve the Court establishing a monthly list of excise cases, where we would - I do not want to get lost in meat extracts and vegetable extracts, but, your Honours, how can one possibly postulate a test that depends on evidence on whether or not there is elasticity of substitution, the views of markets, whether on particular evidence the impost will be characterised as a customs duty, a duty of customs at the level of the shopkeeper?

I do intend to say more about this, but out there, there are the people of Australia, in our submission, and they are entitled to know what is the indirect tax system which affects them. In our submission, by and large to this point, in March 1997, they do know, even those who are selling liquor and tobacco.

In our submission, your Honours, what the States are postulating is an ambulatory position where no potential taxpayer who might be exposed to criminal liability would know their position, even the man in the shop selling the $1 jar of marmite or liable to imposts of $1. He would really have to come along to this Court before he sold it to get a declaration as to whether or not the impost was valid or invalid as a customs duty, valid or invalid as a duty of excise. So the point we here desire to make is that, firstly, the test that has been proposed, in our submission, is palpably inappropriate and incapable of operation and it is one that, even if it could be regarded as having content, on no submission could be presented as being that which faithfully represents the constitutional prohibition as is provided for under the Constitution.

The one thing we do get from the convention debates - I do not want to get much from them, but it is quite clear that it was understood that there was to be a sacrifice by each of the colonies, they were to accept that almost all their revenue of customs and excise - and I should indicate to your Honours that in exception to our practice over many recent cases, our submissions here are confined to this one slim volume with only one annexure, the last page.

If I could take the Court to that, that is an indication of the percentage of revenue of the States in 1896/97 - nothing new here either. The Court saw that in Capital Duplicators [No 2]. But what is quite clear there is that the matters that the delegates in the extracts referred to by my learned friend Mr Meadows, and included in his extract bundle, were all quite clear that the States were, as the price of avoiding this line, having to agree to give up substantially all their revenue - certainly most of it - to this new Commonwealth body.

Of course, customs was the primary tariff because, in the protectionist society that the colonies were, apart from New South Wales, that was their principal source of revenue and, of course, it was always absolutely clear that that duty of customs would be a matter of power going exclusively to the Commonwealth, but as clear, we say - and we say it is co-equally the fundamental position - that as part of the requirement that there be one market in goods, a free market in goods throughout what formerly were, as regards each other, foreign countries. It was true, both geographically from the point of communications in 1900, the colonies, by and large, had a closer connection to the United Kingdom government than they did to the adjacent or more distant of the colonies.

Indeed, I might say as an aside, when negotiating the Australia Acts with the States, one could suspect that the same view was still in some of the corridors of the States, but be that as it may, it is quite clear that when one has reference to free trade in the extracts of the convention debates, the delegates knew exactly what they were talking about. They were contemplating that these revenues of excise, historically limited to the production of liquor, beer, spirits and tobacco, contemplated that on Federation, the price paid for Federation, to obtain the exterior customs barrier on a uniform basis, to establish the internal trade in goods on a uniform basis, was that the State revenues would no longer be revenues of the State, they would become revenues of the Commonwealth.

I will say more about the constitutional provisions to deal with that contemplation, but they were quite clear about this. The States recognised that these previous imposts, whether one describes excise by reference to the narrow range of the time or a wider range - we have the various definitions running through Blackstone, Stephen referred to by Justice Isaacs in the convention debates, referred to in more detail by Justice Dixon in his judgment in Parton and Dennis Hotels, but whatever is to be regarded as a definition of excise, what is clear is that it was intended by the constitutional compact that the power to impose imposts by way of excise was to become the exclusive province of the Commonwealth.

In our submission, whatever is involved in the State submission, it is a submission to reverse that fundamental fiscal structure which was established by the Constitution which was, if one puts defence on one side, the constituting circumstance for the constitutional compact. Your Honours, going to the States' submissions, in our submission, putting them at their highest, they go no further - indeed, they could not even get to the point of saying that, put as an alternative view, as is said by Mr Spigelman at page 58 of the transcript.

If we accept that submission at face value and say this is put as an alternative view, we say that this application is not the type of case where one can say as one argued in the Free Speech Cases over the last week or so where it can be said that the previous law was wrong, that there has been erroneous constitutional doctrine, if one likes, top down reasoning. Your Honour, I am going to talk as to why we say it is not top down here and we say this is not the top down case, but we say all that is sought to argue is a construction that the provisions as vindicated by decisions of this Court to date should be abandoned in favour of those which involve a fundamental alteration or reversal not merely of the fiscal relationship between the Commonwealth and States, not merely to reverse what is regarded obviously by the States and Territories as an unhappy fiscal imbalance in a situation where they choose not to exercise other of their fiscal powers, but the whole content of the aspect of the imposition of indirect taxes on goods in Australia is sure to be reconstituted.

Now, if that is the States' submission at its highest, in our submission, even if it be assumed there is an alternative view, the Court should not do that which with I suppose an unusual flourish Justice Gibbs referred to in Queensland v The Commonwealth 139 CLR as a case of saying you should approach as though the pages of the Law Reports were blank. We do not have to go to that expression of the appropriate principle. What we say is that it is quite inappropriate for this Court to consider substituting what it might regard as a current preference for this long-established authority.

This is the sort of case - it is the case, the aspects of fiscal relationships under the Constitution, not just between the governments, between the people and those who are taxed, for the Court to be very loath - but even putting it at a lower level, in our submission, the submissions made for review of this Court do not get through the threshold. There is another gate and perhaps I am a lion on a path on that. I do not know, but what we submit is that the States have not, in our submission, approached the threshold for reconsideration.

Now, your Honours, having established that basic situation, it is our submission that the essential concept of the constitutional union was to provide for a customs and fiscal union within Australia with respect to commodities. I have already commented on the fact that that might be regarded as somewhat unbalanced given that modern economies also may have a coextensive or greater economic activity in respect of services and not in commodities.

But the mechanisms - the provisions on duty of customs and excise through, principally, excise, section 90, but also we would refer to sections 89, 91 to 95, 51, 52, 53 and, of course, on free trade, sections 92 and 99. So far as customs duty is concerned, it seems that we have no real difficulty still, subject to Mr Selway's propositions as to the marmite. It seems clear that it is the act of importation into Australia, the entry, rather than the provenance of goods which define a duty of custom. There has been some suggestion in the submissions made that both in the inquiry as to customs, particularly as to imposts of excise, the provenance is relevant. Now, in our submission it is not.

In respect of imposts on goods, once they are in Australia we say, with the occasional exception - perhaps Gosford Meats is an example - the only current example we refer to in respect of imposts on manufacture are those few categories under Commonwealth law of alcohol, wine, tobacco and energy and, so far as the Dennis Hotels exception is concerned, one has those few categories which apply not by reason of manufacture in those narrow, traditional areas, but by reason of the operation of the franchise. I will call it the "franchise exception", if I can use a neutral term.

So that, we do have a position that if one regards, as one must, the franchise cases as being a case with - whilst they remain, they do not concern an excise on goods, one has a situation that imposts on goods in Australia occur not on manufacture or production, but on taking a step in the distributive process to consumption. Now, imported goods, of course, have the characterisation of being imported goods on their entry under the terms of the Customs Act 1890 , and we say imposts on entries are duties of customs. That is sufficient definition.

Once entered, it is our submission that the provenance of the goods is irrelevant to the characterisation of a fiscal impost upon them, and we say the long-standing authority of this Court is that whether a good is manufactured or produced in Australia or imported, a tax on that good, in the process leading to final sale and consumption to the consumer, is a duty of excise.

In making that distinction, we see the essence of the constitutional compact was to provide firstly, for the uniform fiscal regime for the entry of goods into Australia by duties of customs. This is particularly provided by sections 89, 90, 92, and 95, whether that would emerge as protectionist or free trade. Initially it was very protectionist; now we are moving very strongly to free trade concepts and ones which are in force not only by philosophy but by binding obligations of the GATT and the successive world trade authorities. That is one element and this element, of course, is one consideration to which our examples - I think on page 27, paragraph 2.17, deal with examples that deal merely with that establishment of the area of tariff policy so far as that aspect is concerned.

The second aspect which we have referred to is the establishment of the free trade area within Australia, we say - and that is something which the Constitution established to operate, with respect, to all goods within Australia as they may pass from State to State and after Capital Duplicators [No 1] we now know it was such a principal matter that it also should apply so far as goods passing between the Territories and the Territories and the States.

That internal market, we submit, is mandated by section 92 together with section 50, 52 and 53, and by section 90. Imposts on goods within Australia, in our submission, must be uniform to ensure and preserve this mandate of the free trade area. The necessary uniformity is secured by the constitutional requirement that the power to impose imposts on goods is exclusive to the Commonwealth and, of course, further, by the fact that that Commonwealth power is required to be one to operate without discrimination and without preference.

BRENNAN CJ: Is there anything in the convention debates dealing with the non-discrimination injunction in 51(ii) which throws any light on the meaning of section 90?

MR GRIFFITH: Your Honour, that is a particular question as to debates where our pleading is not to rely upon the debates but we will answer your Honour's question by looking further at it. I have picked up some references to that aspect but I do not wish to make a disclaimer, but our basic position is that convention debates are merely confirmatory so that we have not gone looking hard.

BRENNAN CJ: Yes, I understand that, but having had some of the panoply of the debates it may be desirable to have the entirety if it is relevant.

MR GRIFFITH: Your Honour, on this we had distributed - I do not know whether transcript of what a Justice has said in argument is authority but I am happy to adopt - it is not? If I could adopt what is said as my own, and your Honours have had this distributed, Justice Deane, in dealing with Mr Doyle's submissions in Capital Duplicators on 21 April 1993 at page 158 of the transcript when issues had got to this sort of point. Perhaps it is easier if I can read it to your Honours because it really makes our point about the debates:

I will stop interrupting you after this, but is not this resort to the Federation Debates getting quite out of control? I mean, the people of this country did not know what was said in the heat of debate in those Convention Debates. They knew what the history before Federation was. But the way we are beginning to parse and analyse these passing comments, some of which do little credit to the people who made them on any appraisal, really is beginning to reduce this Court, or divert this Court, I would think, from its proper function of ascertaining what the people of the country meant when they adopted the Constitution.

Then, when Mr Doyle disclaims that he could answer it in this way, Justice Deane answered it for him and said:

I mean, we go through pages and pages as each counsel looks for the odd passing sentence, often obviously uttered without any forethought, which supports his view, and of course, gently skips all the unpleasant and racist overtones in some of the speeches. It really seems to me to be getting quite out of control.

Your Honours, we will, because of the particular reliance which has been made in the submissions, have to make more than a passing reference to the convention debates, but, your Honour - - -

McHUGH J: One of the problems about the debates is that although some of the delegates manifest an awareness that section 90 was intended to prevent Commonwealth tariff policy being frustrated, when you look at the debates their central concern was to avoid any limitation on the powers of the Federal Government. That seems to have been the real concern. They did not seem to understand, really, what they were about.

MR GRIFFITH: Yes, your Honour. Even my learned friend Mr Meadow's comments, there is something in it for everyone - page 12, I am not quite sure what tab, because my tabs are missing - but Mr Donaldson refers to the possibility of putting an excise on sugar, which is a matter that was raised this morning, whether there is any suggestion that excise could pass beyond the traditional liquor. That is a good example for me, I am going to use it in my arguments.

When one turns to the very last extract of this extract it is Mr Barton, and people tend to prefer to say, "Mr Barton must know about this because he became Prime Minister and was Chief Justice." He might, but as Justice Gummow pointed out yesterday, he did not know all about American law at the time. He there makes an interjection about bounties on production, which we find quite useful to answer on the bounty point. It is our submission, your Honours, that this is really thematic only, and the one thing that we get out of this is that it is clear that coextensive with the requirement for the external uniform custom barrier was the absolute requirement, whatever sacrifice it took for the colonies to lose most of their revenue, there was to be internal free trade. Your Honour, I have gone a long way from answering your questions. We will try and answer the direct question whilst disclaiming its forensic effect.

BRENNAN CJ: The problem is this, is it not, that the meaning of excise has been developed in this Court in part by reference to the concept of the free trade area.

MR GRIFFITH: Yes, your Honour.

BRENNAN CJ: The issue has been joined as to whether that was the mischief necessarily that section 90 was directed at.

MR GRIFFITH: Yes.

BRENNAN CJ: For that reason, it would be helpful to know whether there is anything in the debates which would help to assist in discovering what the mischief was that was being aimed at, and 51(ii) seems to offer some possible clue about it.

MR GRIFFITH: It does, your Honour. We would hope sufficiently to answer that question by saying the extracts produced by the States, as being their own best bets, establishes this free trade aspect, which I should indicate, your Honour, that our general approach to our oral submissions is on the external tariff issue. We, by and large, stand on our submissions, although I will make some comments on Mr Spigelman's comments on our examples.

We say, your Honour, on the free trade aspect, the more one looks at it, it just gets stronger and stronger. It is explicit in the Constitution and we say, your Honour, it is quite clear from - your Honour, to put it bluntly, I thought when my friend was making citations, he was going out of his way to make references to the free trade aspect - they seem to come on every page - and that is sufficient for our purposes; but we did not produce them because we feel it is not necessary to go for corroboration on that issue to something which is just inherent in the history of Australia, your Honour. That is what the constitutional compact was about, was to establish the external customs union and internal free trade. Apart from defence, your Honour, the colonies did not come together because they liked each very much or, indeed, that they agreed on very much.

What they required, your Honours, was the uniform external ring and the uniform internal market and, as we say, at that time, history had it that was dealing with goods because economies then had not advanced to be economies based on services. So that the totality of exclusive vesting in the Commonwealth is now a lot less than what it was at the time. In essence, your Honours, it is clear that, looking at the point of view of economics at the turn of the century, trade and wealth were seen in the term of goods and that is what the Constitution dealt with. It did not essentially deal with the qualities that one might expect now would be mandated although, of course, section 92 is able to do quite a lot of work and has effectively operated in this area.

Your Honours, we say that having deliberately - and it is not just once, your Honour, it is an exclusive power to the Commonwealth which, in several provisions and going on to section 99 as sheeted in, the Commonwealth must exercise these fiscal powers on a uniform basis without discrimination and preference. One can see that those colonies anxiously coming together would insist on that, but they could not have a capacity with the larger States controlling the smaller States in favouritism from within, even if no one picks in the convention debates a reference to the fact that as long as the Senate remains a State House, there can be some control on the issue, for example, whether a protectionist or free trade debate will prevail on the substantive preliminary issue which had to be addressed upon the imposition of uniform duties of customs.

Your Honours, we say the corollary is that States, as equally, are excluded from the area of imposing discriminatory imposts on goods, and that is not done by a prohibition saying, "States shall not impose discriminatory imposts on goods". It is imposed at a higher level by a prohibition as part of the structure to say, "States will not impose imposts on goods"; so one did not have to go any further, that is it, it is a prohibition, it is an exclusive power of the Commonwealth. It is one of the most exclusive of exclusive powers that could be vested in the Commonwealth. It is done specifically; it is withdrawn from the States; section 52 takes over the departments entirely; the departments were left with nothing.

So even though at Federation, for example, a licensed factory might be regarded by the State provisions as we saw this morning in one of the extracts as the licence fee might be regarded as a fee of excise, and possibly one could regard a licence fee of a factory is not. In fact, at the turn of the century, it was regarded as an excise, but that does not matter very much, but what is clear from the Constitution is that all control of excise on goods pass to the Commonwealth on a basis that it will be exclusive and that it be non-discriminatory. The reflection - this is where the mirrors come, it does not come in bounties, in our submission. The mirrors come on the issue that to ensure that free trade area, the States are wholly excluded. So that there will no longer be persons on the - - -

DAWSON J: How would the imposition of a tax on goods affect free trade?

MR GRIFFITH: Your Honour, it means at the border, as goods come into the State they will become liable to pay an impost.

DAWSON J: Not at the border, in the State, alike with goods in the State already.

MR GRIFFITH: Your Honour, goods outside the State will not be liable until they come in the State.

DAWSON J: Yes, that is right, so that that those goods are more expensive in one State than another.

MR GRIFFITH: Yes.

DAWSON J: That is something which happens in a variety of ways.

MR GRIFFITH: It can, your Honour, but it is prohibited if it arises by the impost of an excise by the State, in our submission.

DAWSON J: Well, that is circular again. You say it is because it is an excise, but the fact is that section 92, which is the section you look to to protect internal free trade, does not prevent that and it happens and, therefore, it is not prohibited.

MR GRIFFITH: Your Honour, section 92 protects a discrimination of a protectionist kind.

DAWSON J: Yes.

MR GRIFFITH: That does not go far enough for the - - -

DAWSON J: And that is what free trade is about, protectionism.

MR GRIFFITH: Your Honour, in respect of the Commonwealth as a single market, free trade is also about - - -

DAWSON J: The Commonwealth is not a single market.

MR GRIFFITH: Your Honour, we say that the requirement that there be free trade within Australia - - -

DAWSON J: Look, test it this way: is it a fact or is it not a fact that in a particular State the price of goods can be affected by policies which can be implemented in the State?

MR GRIFFITH: The price of goods may be, but to a limited extent, your Honour.

DAWSON J: You say not by excise, but the fact is that by laws passed by the State it can ensure that the price of particular goods in that State is higher than in other States.

MR GRIFFITH: Your Honour, it cannot act in a way - - -

DAWSON J: Well, is that a possibility under the Constitution?

MR GRIFFITH: Your Honour, it is possible.

DAWSON J: Yes, and it is possible without there being any invalidity.

MR GRIFFITH: In an area that does not involve an impost on goods, yes.

DAWSON J: Yes, so that what you are saying does not carry you anywhere.

MR GRIFFITH: Your Honour, we suggest it carries us a long way because what it does - - -

DAWSON J: It is not a matter of free trade amongst the States. There is no protectionism in ensuring and requiring a price for goods which is higher than the price charged in another State.

MR GRIFFITH: Your Honour, it is to ensure that goods have free - - -

DAWSON J: They are perfectly free to pass across the boundaries. It is just that if they come into a particular State, they may cost more.

MR GRIFFITH: Your Honour, we say with respect to impost by way of a tax, goods in Australia, whether they are imported or not, may bear an impost imposed by a Commonwealth law without discrimination, but the Constitution prohibits such imposts on goods by State law.

DAWSON J: Well, I know you say that, but it cannot be because the imposition of an excise duty, according to your definition, offends free trade within the Commonwealth because if it were, then any law that had that effect would offend free trade.

MR GRIFFITH: No, your Honour, it must be an impost on goods. We are referring to the Constitution.

DAWSON J: You can have various ways of increasing the price of goods. For instance, you can impose various taxes - we have been through all this - with payroll tax and so on.

MR GRIFFITH: Your Honour, paragraph 8 of our submissions admits all that. We admit all that, but what we say is that is not what is prohibited.

DAWSON J: I know, but you are saying what is prohibited is prohibited because it is necessary to do so in order to preserve free trade and I am saying that cannot be the reason.

MR GRIFFITH: Your Honour, we say it is directly prohibited by the Constitution.

DAWSON J: Yes, but not by section 92, by section 90.

MR GRIFFITH: By 90, that is what we say, yes, your Honour. It is not by 92. 90.

DAWSON J: Then we come back again to the same point.

MR GRIFFITH: It is always a matter of regret, your Honour, that in Cole v Whitfield, the plaintiff's original claim, based on section 92, as well as 90, was abandoned, because it might have been a useful case to fix up both at once. But, in our submission, they both deal with the same issues, and the same part of the Constitution dealing with the establishment of a situation - we put it - and your Honour, I think including Justice Dawson, understands how we put it - dealing with the establishment of a uniform, open, we say free market within Australia, accepting the capacity of States to do the sort of things that we say in paragraph 8 and your Honour puts to me.

We say nonetheless there is a basal requirement that all goods in Australia, and those trading in goods, are entitled to take their goods from State to State without having a discriminatory impost on those goods. The only impost on those goods of those traders is one, we say, to be imposed by Commonwealth law on a non-discriminatory basis.

DAWSON J: You say that an excise offends section 92?

MR GRIFFITH: No, your Honour, because section 92 has an additional requirement of a protectionist kind, and that might happen to a Castlemaine Breweries Case or something like that. That is the additional aspect. Section 92 will not do enough. It might do quite a lot, your Honour, but it does not do enough. Your Honour, I am going to get to further examples. I am going to come back to sugar and cars and things to make the point that we want to make about that.

I mean, by an large, an impost on goods by a State law, which are not goods which are produced or manufactured in that State, or operate around that State, has a duty of customs. One will never get to the point of having it as a protectionist kind because there is nothing to protect But, in our submission, your Honour, section 92 has no relevance. Section 90 will. So, your Honours, our dichotomy is that taxes on commodities are either duties of customs when imposed on importation, or duties of excise as a tax imposed on goods, whether imported or not, at a stage of their production, sale, or distribution within Australia.

We submit, your Honours, that the whole constitutional purpose of section 90 and the allied provisions of the Constitution would be abrogated if the meaning of "excise" were limited to the fiscally unimportant criteria of tax imposed on the act of manufacture or production only, whether it is limited to State or Territory, as our argument is it must be if there is anything in that theory, or whether it is extended to the whole of Australia.

Now, your Honours, if I may say a brief word about consumption? We say that it is unnecessary in this case - and, if nothing else, we are here for the status quo - to revisit the issue of imposts on consumption. Consumption taxes are not part of the Australia fiscal structure, although I did understand from Mr Doyle - I do not know whether it is still the case - that the South Australia tobacco franchise law has provisions to enable persons to take out a licence as a licensed tobacco consumer and, thereby, they can buy their tobacco tax free, but they have to account for it as a consumer. But when I last inquired, I gather that the cost of the licence was something like $176. Only one has ever been sold, and he was a tourist.

But, apart from that example, Australia does not have consumption taxes, so that one can go along with - there is no need to put it any higher - what might read now as a somewhat deferential action of Justice Dixon in Parton, at page 261, when he abandoned the broadened view he took in Matthews 60 CLR, at page 304, in favour of the limitation of the judicial committee in Conlon's Case. It did not seem a very noble thing to do, but that is the view his Honour took, and it seems to have threaded on through the consideration of the Court since then.

KIRBY J: Would you help me on this? Is it in Parton or Matthews that Justice Dixon said that there would, as he was thinking at that time, be no barrier to the States imposing a consumption tax?

MR GRIFFITH: In Matthews he regarded consumption as included in the concept of excise. In Parton he retreated to say there is no barrier for the States but merely by reference to Conlon's Case - and it is not all that convincing - but what we submit, your Honours, is that whatever that be the case, the States cannot erect an argument from that qualification in the expression of principle by the Court to say, well, if we tax consumption, there is no reason in principle why we cannot come up the line. What we say is that they should, in effect, appreciate the fact that authority of this Court seemed to be deferential at the least to a British view on the issue of excise. A little bit inconsistent when the main principles from the State seemed to be that we should not have regard to British authorities on excise, although I cannot resist making the comment that, having had that submission made, I think, by all the States, Mr Meadows relied upon the Oxford English Dictionary of the definition of "bounty" because it was stronger for his purposes than the Australian Macquarie one. I will deal with bounties in due course but, your Honour, this case, as Justice Higgins said in Commonwealth Oil Refineries Case 38 CLR 434, 435:

It appears to me these express provisions of the Constitution itself, this express reference to existing States' customs and excise duties, lift the question of the meaning of sec. 90 out of the quagmire of dictionary meanings.

We go along with that, even if we do not go along with the rest of what Justice Higgins said on that page.

GUMMOW J: The particular recantation, if that is the word, from Matthews in Parton was 80 CLR 261.

MR GRIFFITH: Did I give you the wrong reference, your Honour.

GUMMOW J: I am not sure that you gave any.

MR GRIFFITH: I thought I said 261, your Honour. It is just the recantation. Your Honours, we say nothing here turns on consumption. The States should appreciate they have got it in their pocket if they can think of a way to apply such a tax. But they cannot, we say, manufacture an argument up the line, building on the fact that that seems, on present authority of the Court, to be conceded. Your Honour, I should note that this is a difference from the submissions of the Attorney in this case from Capital Duplicators. In Capital Duplicators I went for consumption as well, but it is nice and square to just come and say status quo and that is what we are doing this time.

Your Honours, I have indicated that it is our desire in our oral submissions to emphasise our submissions on this free trade aspect. Your Honours, we do develop this in our written submissions but we submit to your Honours that, particularly in paragraphs 2.1 to 2.21 of our submissions, that whether one begins from the premise that section 90 is intended to give Parliament effective control over taxation of goods to secure the free trade area of Australia, or whether you give it a more limited purpose of safeguarding Commonwealth tariff or overseas trade policies, you get to the same result. We do wish to emphasise that the examples on which my learned friend, Mr Spigelman, visited and then revisited the next morning are merely examples of the second aspect of safeguarding Commonwealth tariff for overseas trade policy.

They are not given as examples directed to the issue of the maintenance of control of taxation over goods to secure the free trade area, even though some of Mr Spigelman's comments seemed to treat them more as if that was the point that was being made. They are being made for the limited point, the customs tariff point. Your Honours, it must be admitted that now, as the protectionist free trade debate so far as overseas trade is concerned is moving so quickly to the view of a deregulated basic international free trade with the imposition of restrictions that are certainly those which Australia as a nation is obliged to comply with as a matter of international obligation, that this whole issue of the tariff policy is one which changes quite distinctly from how it was regarded in the protectionist free trade debate.

There is very little scope for the Australian Government to implement any tariff policy by either the application of protective tariffs or by the application and payment of bounties. The likelihood is that any policy initiatives in that area would be regarded as the matters either as being breach of Australia's international obligations or would invite such retaliatory action that it would not make much difference what the international or legal obligation was. So that when my learned friend, Mr Spigelman, says you can impose a tariff and one State counteracts that by imposing a tax, then the Commonwealth can double the tariff, that is not the agenda any more. Basically, so far as the Commonwealth tariff policy is concerned, there is very limited capacity for the Australian Government to pass laws applying tariff barriers, as distinct from what might be regarded as mere revenue non-discriminatory customs laws.

Our text when we approach this issue, as I have indicated, suffices to say that the Court determined all this with sufficient finality both to ensure the operation of this uniform tariff policy for goods leaving and entering the country and we say to ensure the free circulation of goods throughout the Commonwealth in Capital Duplicators [No 1] and [No 2]. We would say - and we hope that it is a fair reading - that the views of your Honours Justice Dawson, Justice Toohey and Justice Gaudron, both in Philip Morris and the two Capital Duplicators Cases, did not completely embrace this view which we submit for a mandated free trade within Australia.

I qualify that because Justice Toohey, of course, was a member of the majority in Capital Duplicators [No 1], and we do rely upon the entirely of what appears in 177 CLR 276 to 279, where with your Honour's judgment which was given with the present Chief Justice and Justice Deane. We say the argument as to why it must be that the Territory was embraced within the mandates of section 80, in our submission, completely vindicates the principle which we submit exists, namely, the requirement for the benefit of all the people of Australia, whether they be in a State or whether they be in a Territory, to have the advantage of firstly being able to carry on their business and affairs within a part of Australia whereby the mandated internal free trade operates, and secondly - - -

TOOHEY J: The judgment of which you speak, Mr Solicitor, seeks to distil from the Constitution a philosophical approach.

MR GRIFFITH: Yes.

TOOHEY J: It does not purport to answer what is meant by free trade and, in particular, does not purport to answer what is meant by excise. It just picks up those expressions.

MR GRIFFITH: That is entirely accepted. Your Honour, I am on the distillation phase now, and say that the majority were quite correct in that, and then we moved to, in effect, to Duplicators [No 2] in the application phase, but I was seeking to make it clear that - - -

DAWSON J: You seem to mean by free trade, free from taxes.

MR GRIFFITH: Free from taxes; free from imposts on goods.

DAWSON J: But to an impost of tax.

MR GRIFFITH: That goes to [No 2], your Honour, but we are on [No 1] at the moment.

DAWSON J: I was just noticing the way you were using the word "free trade". Do you mean free from impost, free from State imposts?

MR GRIFFITH: Your Honour, in this context I mean from State impost on goods.

DAWSON J: Yes; whether discriminatory or not. Well, then I understand what you mean by free trade, but that is not what section 90...... But, there you are, that is what you mean.

MR GRIFFITH: Your Honour, section 90 was a case -Capital Duplicators is a case about section 90.

DAWSON J: No; you mean by free trade in the sense in which you are using it now, free from State imposts.

MR GRIFFITH: On goods.

DAWSON J: On goods.

MR GRIFFITH: Yes.

DAWSON J: Whether discriminatory or not?

MR GRIFFITH: Yes.

DAWSON J: Whether protectionist or not?

MR GRIFFITH: Yes.

DAWSON J: I see.

MR GRIFFITH: Impost on goods, full stop, your Honour, yes. Capital Duplicators [No 1] was a case about section 90 and it did distil this aspect of free trade as Justice Toohey put it, without giving it its particular content, because we needed [No 2] to do that, but we do embrace that part of the judgment of the majority which I refer to at page 276 to 279, and say that what was here distilled was the view that in place of intercolonial border duties, indiscriminately burdens and preferences, and economic union was seen as being created guaranteeing the people of the new Commonwealth from the time of imposition of uniform duties of customs - that was the time in which it attached - the quality, we say, in the imposition of duties in customs, of customs - that is the first leg, and there is no doubt about that - and we say also a quality in the imposition of duties of excise and granting of bounties. We say these are each matters which are expressed by the constitutional provisions.

They are confirmed by the constitutional structure and we would stop there, but it is a bit difficult to because of the material referred to against us, but if initial confirmation is needed, we say that all this is confirmed by the historical materials to which the Court referred to in Cole v Whitfield, 165 CLR in particular, 385 to 392. But, we do read these parts of your Honours' joint judgment as establishing with clarity the position of the essential maintenance of a free trade area throughout the Commonwealth as being seen mandated by section 90 to the extent that it applied even to Territories who were certainly not States, and certainly not in existence at the time of Federation.

In our submission, then, it is not just the creation of a uniform barrier of customs as crucial as the creation and maintenance of a free trade area through the Commonwealth. Your Honours, if we could refer to what the same majority said in 177 CLR 279, in a different context, where we pick up the phrase, we say:

it would be a Trojan horse available to destroy a central objective of the federal compact -

That is the quote. We add the expression, "to enable differential State taxes to be imposed on goods within Australia." May I particularly refer to what your Honours say at page 279, at about point 6, where the judgment is:

The exclusivity provision of section 90 was incorporated in the Constitution not for the protection of the Parliament but for the protection of the people of the Commonwealth, including those who resided in an area of a State which was subsequently to become an internal Territory, They, no less than the other people of the Commonwealth, were and remain entitled to the maintenance of the free trade area throughout the Commonwealth which, in the context of other provisions of the Constitution to which reference has been made, the exclusivity provision of section 90 of the Constitution was intended to ensure.

That might have been the reference your Honour Justice Gummow made before lunch to me as to the aspect of the interest of the people.

GUMMOW J: There is one in Hematite as well.

MR GRIFFITH: Yes, your Honour, but this is the most recent and most fluent and we would accept it.

GUMMOW J: That is right.

MR GRIFFITH: This union which is recognised, we say, as an aspect of Federation, was implemented by a detailed constitutional scheme. Our submissions refer to the - I think there are 22 provisions of the Constitution directed to achieving this goal. No other single subject of the Constitution was given greater attention; it was the lion in the path. The concept of an association of States each with its own separate economy - and, your Honour, can I say excepting your Honour's observations, as we do, as to what is meant by economy - we say was antithetical to the achievement of this goal.

In paragraph 2.6 we summarised, in our submissions, the most important parts of that scheme. There is nothing original in the summary because we see it summarised, with authority, in the judgment of the majority Justices I have referred to in Capital Duplicators [No 1] 177 CLR 276. We say that the reasoning of your Honours underlies that of the majority. The first requirement is that interstate trade and commerce be immune from discriminatory burdens of a protectionist nature - section 92 plainly sets that out - to ensure that the domestic markets of the various States are opened equally to local and interstate goods.

We see section 92 as being complemented by section 99 and section 102, prohibiting preferences. Then exclusive control of excise, customs, bounties is invested by section 90 in the Commonwealth, and sections 86, 88, 90 and 91 are also relevant. The Departments of Customs and Excise in each State were transferred on Federation by section 69, whereafter the Commonwealth Executive became responsible for the collection and control of duties of customs and excise under section 86. Then exclusive power, of course, with respect to those departments is vested in the Federal Parliament by section 52(ii).

The final aspect of the scheme that we submit is entrenched is that the Commonwealth's legislative powers are required to be exercised uniformly in a non-discriminatory manner by sections 51(ii), (iii) and by section 99. Of course, this reflecting prohibition on the Commonwealth, we say, is very significant to make the point we seek to make.

Now, your Honours, apart from express exceptions, including, of course, if one can properly describe them bounties other than on production or export and bounties on mining under section 91, the scheme is complete. Now, I will say something shortly about - I will say something short, but perhaps not shortly, about bounties in due course, but our submission is that one can read "bounties" in section 90 as intending that the constitutional word of the provision there is meant to confine the meaning to bounty as being bounties on production and excise, but if one takes a wider view and calls an impost on some aspect further down the line of distribution after manufacture or something like a transport subsidy or something of the sort, a bounty rather than what it might be otherwise called, as a support fee or a subsidy or something of the sort, in our submission, nonetheless the constitutional scheme is complete and what the States wish to do, we submit, is to ask the Court to effectively read down section 90 so in a practical way to eliminate this requirement for internal free trade with respect to certainly the impost of goods in Australia and the additional requirements of section 92, of course, would continue.

Now, looking at that relationship, I have already in answer to your Honour Justice Dawson referred to our paragraph 8 on page 9 of our submissions whereby we admit, as indeed is the case as your Honour puts to me, that we are not saying that the purpose of Federation or its capacity was to eliminate all economic distortions which might exist in a federation to create a completely integrated single economic union. That was not going to be possible in a federation and the various provisions of the Constitution dealing with railways and other matters, the introduction provisions for Western Australia, the obvious facts of geography.

I mean, for example, what year did the Court cease going on circuit to Perth by ship? It is not all that long ago. After the war Justices of this Court still went to Perth by ship. I do not know how long they took, but they were away for some time. Your Honour, it is the case that there were separate colonies that barely communicated with each other. I think the railway did not go between Sydney and Melbourne until 1883. It did not go to Western Australia until some time in the 1920s or so and the colonies were separate entities. The effect of the Commonwealth was to transmogrify them into States and to bring them into this one union, we say, under a unified external tariff barrier and, we say, under a unified internal tariff mechanism if imposts on goods by way of excise may be regarded as a tariff.

Your Honour, it is as if your Honours partly settled this paragraph. Your Honour can see that we agree with many of the points which your Honour makes to us, and we say your Honour is right to say that there is plenty of distortions available, mechanisms for a State, but a State can distort this uniformity in ways which are available to it. It can contribute to infrastructure, impose differential freight charges, pose a variety of means of mechanisms for encouraging or discouraging or even preferring economic activity in its State.

But what we say it cannot do is to act to protect its own economy or to create a separate economy by imposing taxes on goods whether they are manufactured outside Australia or in other States as they come into the State from other States to bear an impost, no more than we say a State can impose a tax on goods manufactured in that State. When one looks at the arguments presented by the States, it is common ground, as we have said often enough, that a State cannot pass an impost which is a tax on goods manufactured in that State, and it seems conceded that that includes a tax which is passed, certainly at the time of first sale which, I think in exchange with Mr Spigelman and your Honour Justice McHugh at page 66 of the transcript, established - and your Honour made the obvious point, "Well, at first sale, where do you stop", but certainly it seems it is the States' position put to the Court that it is agreed that a State cannot impose an impost on goods, whatever that means, manufactured in the State.

It is seen that the States also would agree - indeed this is their primary submission - that by way of limitation they cannot impose an impost on goods manufactured in the other States and Territories, and I have made the point that any such impost expressed could only attach at some time at or after the goods come into that State or Territory because, otherwise, they would have no force at all. What the States seek to say is that, by using merely, if you like, a formula of expression so that it can be said that, ex facie, the law applies without discrimination to goods whether they be imported into Australia and indirectly brought into the State or on goods which are manufactured in other States are brought into the State, as long as they are treated on the face of the law in no way different from any goods manufactured in the State, then it is put, if you use that formula, it is not an excise.

Of course, if the imported goods are brought directly into the State and not imported from other States, then the impost, in our submission, could not be made because it would be a duty of customs. My learned friend Mr Selway, as we understand it, seeks to get around that difficulty by adopting an extended meaning of customs that no one, as I understand, has ever pleaded for in this Court, to say that you can still categorise the State impost as a duty of customs at the level of the shopkeeper selling a jar of marmite.

We deny that that is a possible characterisation but, in our submission, it is just wholly untenable to suggest that by using the formula one can thereby wholly avoid what is an absolutely strict constitutional prohibition by merely making sure that your imposts will apply with all generality to all goods, whether manufactured in the State or not, whether manufactured in the other States or Territories or not and whether imported or not, as we add, as it must be with the exclusion that it would seem that this could not apply very easily to goods which are imported directly into the State, because it certainly could not apply on the moment of importation.

Your Honours, in our submission, that is to seek to adopt a criterion of form which wholly negates the constitutional prohibition and is one which, when one tests by examples with the States, of course is entirely incapable of any precise operation. I will say more about that also but, your Honours, most of the States seem to come up with examples whereby, whatever they postulate as an excise, they could not postulate a State law which ex facie could be considered to say whether or not it is valid or not, because it depended on the facts. It depended whether there was manufacture in other States than the State imposing the impost, whether or not there were other imported goods, whether or not there were substitutes, whether or not there was elasticity of demand between the substitutes.

Think of one or two of the examples: the Queensland example of the brown coal, the kangaroos. I did not like to say my friend was caught on the hop, your Honours, but where are you with this postulation which says, "Okay, we can't impose an impost on kangaroos because that's wholly on the basis of them being manufactured in Australia", then you bring in two cans from New Guinea and it becomes perfectly all right. That cannot be the definition of "excise". It might be put that is the absurd example, but what the States in effect are saying is that you require a case-by-case analysis, the sort of thing that you might have in a trade practices case, the sort that Mr Spigelman referred us to, before the shopkeeper knows whether or not, with the sanction of a criminal offence, that person is obliged to pay an impost on his jar of marmite. That is the sort of test that is being postulated.

We do not rely upon this aspect of imprecision and absurdity in itself. That is really a counter check to say what sort of a test is it. It is rather hard to even get to that point because it is rather difficult to say what is the final version of the test as one reads it in paragraph 2 now endorsed from the amended defendants' written submissions. I hope, your Honour Justice Dawson, I have sufficiently made the distinction we seek to make by saying accepting entirely all the points your Honours make to identify nonetheless the constitutional prohibition as the one that prevents the impost on goods. Your Honour would say, "Whatever that means".

GAUDRON J: Yes. It is strange, though, that the Constitution did not simply say it.

MR GRIFFITH: Well, your Honour, we say it does.

GAUDRON J: It says it in a somewhat more complicated way, does it not? It would have been much easier to say to impose, or to put imposts on goods is exclusive to the Commonwealth.

MR GRIFFITH: I thought section 90 had done that, your Honour, with the other section.

GAUDRON J: It does not say it in those words, that is the point. I mean, you are giving them a meaning which would have been much easier put into words than those that were, in fact, used.

MR GRIFFITH: Your Honour, can I say I have given them the same meaning that the authority of this Court has given them, and merely agreeing with it. And can I say also, your Honour - - -

GAUDRON J: Yes, I appreciate where it comes from. I am not accusing you of originality in this regard.

MR GRIFFITH: I will never been accused of that, your Honour. Your Honour, can I also say that we are prepared to engage on the alternatives, and the alternatives put are tax on goods manufactured or produced in a State, and our submission is that were there an alternative, that could be the only one. We say, your Honour, the other alternative put by the States, prohibition of goods manufactured or produced within Australia, we say is not available and we give the structure argument why we say that is so.

GAUDRON J: But if they are manufactured in a State, they are manufactured in Australia.

MR GRIFFITH: Your Honour, we say that is not good enough; that the only justified limitation of the sort that Justice Murphy embraced, we say, must be limited to the State imposing imposts, but I will enlarge on that. So, your Honour, not only do we just say this is the view which has the authority of the Court, we try to cut off what has been suggested as the alternatives.

DAWSON J: When you say "the authority", the most recent authority of this Court.

MR GRIFFITH: Well, your Honour, it comes back - there is only 14 cases, if I put franchise away.

DAWSON J: And out of that, the original cases took a quite different view. And those who decided those cases, after all, were those that were there at the time that the words were devised.

MR GRIFFITH: Well, your Honour, you can put it two ways. I mean, Justice Isaacs was there as a bit of baggage, to put it bluntly. He was rolled at the convention debates and he still had the capacity to vindicate himself. Justice - - -

DAWSON J: You cannot say that about the Chief Justice.

MR GRIFFITH: I was going to say the Chief Justice, your Honour, was one to say you should not look at the convention debates and come to views about this.

DAWSON J: Very hard for him - well, he might not look at the convention debates, but it would be very hard for him to put out of his mind the drafting of the Constitution.

MR GRIFFITH: Yes, your Honour. But he was only dealing with these imposts which are the traditional ones.

DAWSON J: I know, but these are arguments. But you say "the authority of this Court", but it has not been one way.

MR GRIFFITH: Well, your Honour, as recent as - or last is best, in a way, your Honour. I mean, it can be put that there is really two Justices up to the present three, as it were, that have held out for a contrary view, if one took a - that is one analysis one can make of it, your Honour. I was going to say, well, Justice Fullagar held out, and, your Honour, it depends how one analyses the authorities. But, your Honour, we say the balance is the balance where it now is.

DAWSON J: All I am saying is, it is not uniform and unanimous by any means.

MR GRIFFITH: Well, no, your Honour. Well, Evans Deakin went one way, your Honour, and one day I would like to submit that the dissenting view was correct so, it is entirely accepted, your Honour, that that is the case. But, your Honour, we do have this very argument complete four years ago before the Court, mostly the same cast, entirely the same argument, and we say, your Honour, that does bear a certain meaning. But we are seeking now is to confirm it from the constitutional structure.

Your Honours, perhaps referring to Chief Justice Griffith, I am reminded in paragraph 5 - no, it is not paragraph 5, no, I was going to come to rather, your Honour. In Peterswald v Bartley 1 CLR 509, your Honours, the Chief Justice was concerned to rebut the suggestion that the miscellany of taxes described in the United Kingdom as duty of excise did not equate to the concept of an excise duty in Australia. That is what he was referring to and we say, your Honour, he was not concerned with the question of whether a tax on sales was a duty of excise because, of course, there were not such things at that time and the impost on goods was very unsophisticated.

The first Commonwealth sales tax was 1930 and I think some 15 of them were passed because the Commonwealth was unsure what was a duty of excise and what was not, so just to be safe it passed 15 of them and it is still pretty unsure about it and tends to pass a few extra Acts nowadays just to make sure of compliance with section 55 and so, your Honours, we do understand what your Honour said in Capital Duplicators [No 2] at page 607.

GUMMOW J: We know Peterswald v Bartley has not been borne out at least as to what is said as to 509 where the Chief Justice said imposed "in relation to quantity or value". That certainly has not come to pass.

MR GRIFFITH: 509, your Honour?

GUMMOW J: Yes, about point 7:

imposed upon goods either in relation to quantity or value when produced or manufactured - - -

MR GRIFFITH: Yes. Your Honours, it does not mean our submission that the whole concept of impost on goods has evolved has since 1900 and, your Honours, one point that can be made from this is to say that logically the States should submit that a duty of excise is limited to an impost, from an Australian point of view, on the production of beer and spirits and tobacco because that was the limit of the practice in Australia. Now, from that, your Honours, it is articulated, no, that is not what was meant by excise; what is meant is that excise was regarded as an impost on the manufacture or production of goods in the State, in the colony.

Your Honours, we say that there is no logical reason to stop there. Of course, this is a case where the denotation has evolved. We made the point that one has now economies where the provision of service is more important than the provision of goods but one has a sophisticated fiscal regime whereby no longer do governments rely upon an impost on the manufacture of two or three commodities for their indirect or substantial part, as we see from our table, for a majority of their entire revenue. Firstly governments rely on income tax. The Australian Government does. The States could. Secondly, so far as - - -

GUMMOW J: When did the States first impose income tax?

MR GRIFFITH: Can I take that on notice, your Honour.

GUMMOW J: Yes.

MR GRIFFITH: I can tell you when they stopped, your Honour. But, your Honours, the point I wish to make is to say, when you look at the issue of taxation on goods, indirect taxation if you like as distinct from direct taxation on incomes or on land, it is clear that there has been an extension of the denotation, firstly to provide that the ordinary mechanism is to have a tax on sales rather than manufacture and production with the limited exceptions I have referred to. And also now, of course, the current philosophical debate that there should be a GST or VAT taxation regime imposing a uniform tax indiscriminately on services and on goods.

That may be something which, if it happened in Australia, the Courts would have to consider the relationship of that taxation regime to Australia. One thing is quite certain, if the Commonwealth were to introduce a GST on goods and services indiscriminately, it would be required by the constitutional mandate to do that without any discrimination or preference so far as the States were concerned.

We would say that conceding, as we do, that there is no constitutional inhibition upon the States presently imposing a GST on services - and perhaps you could have an argument, if it was imposed on a meal in a restaurant whether that is on services, whether it is on goods, but whatever the characterisation, let us assume it is on services, such law would be valid. It would be the sort of law your Honour Justice Dawson refers to. It would make restaurant meals more expensive in one State than another, but that is within State power.

Our submission is that a GST by the States imposing indiscriminately on goods and services must be an excise in as much as it is imposed on goods, for the reasons we have stated. Perhaps another shorthand way of testing this proposition: we submit the effect of the States' submissions is that that is exactly the sort of impost that they would say that they could impose without any inhibition from the Constitution were their submissions made in this case upheld.

I referred to section 95 before lunch and it is our submission that in the ultimate analysis there is no effective difference between imposition of sales taxes by a State and the imposition of various varying customs duties between the former colonies. Before Federation, you had to put on six shirts to get your dray across the Murray at Mildura to avoid the imposition on the import of shirts into Victoria.

DAWSON J: There is all the difference in the world, Mr Solicitor, because it means that if it is a customs duty the goods that are being brought in come in and compete on unequal terms with goods in the State. If goods in the State and the goods coming in are subjected to the same tax, there is not that inequality.

MR GRIFFITH: Your Honour, I intend to enlarge on this.

DAWSON J: Very well.

MR GRIFFITH: We have identified the point, your Honour, but we say that if you have a State sales tax that will apply to goods imported from another State on crossing the border. This perhaps gets back to the State economy issue, your Honour, where we seem to have - - -

DAWSON J: If it is a tax which is imposed only on the imported goods, then it is a customs duty.

MR GRIFFITH: Your Honour, if it is a tax imposed on all shirts in Victoria, in our submission, your Honour, it is an excise. So far as goods made in Victoria and sold in Victoria are concerned, your Honour, if it were expressly limited to that, it would be invalid as an excise. If it is expressed to apply to all goods, your Honour, the liability to bear that impost comes not when the shirt is manufactured somewhere else in Australia but when it is brought into the State and sold.

Our point, your Honour, is that is the equivalent of the duty of customs of Western Australia. It was only permitted to impose as against the other colonies for goods manufactured in the other colonies. It was limited to goods manufactured within Australia or produced within Australia which was there for the purpose of the permission called a duty of customs. But we would say, your Honours, that the impost is to be regarded after Federation, apart from section 95, as an impost of excise.

So, your Honour, perhaps we are getting back to the point which is made clearly enough by my learned friend Mr Selway, that he took issue with the Commonwealth's written submissions pointing out that the State submissions would mean that if you had one State law directed to shirts manufactured within that State and another State law referring to shirts manufactured outside the State, then both laws would be invalid, whereas if you had one State law referring to all shirts, they are valid. We say that goes to underline the difference. Your Honour Justice Dawson may say that goes to underline what is permitted.

DAWSON J: It just demonstrates the truth of the point that is made.

MR GRIFFITH: Your Honour, we claim in truth because we say that that proves our point and your Honour sees it as confirming yours. Your Honours, so we say that it is clear enough that the States, if they have a power to impose imposts on goods which cannot be imposed any earlier than when they come into the State, your Honour, that gives them the capacity to erect a tariff wall between the States, so in place of an economic union you would have this six separate economies, which your Honour postulates, and we say, your Honour, that postulation would go to negate the constitutional guarantee, in our submission.

Now, can I return to the sugar example? I mentioned that it was referred to in the convention debates but not taken very far. What if, for example, you had a State such as Victoria that manufactures no sugar? What if it chose to tax all sugar at the rate of say 50 cents a kilo? Now, in that case, your Honours, given that basically no sugar is imported into Australia - I am not sure whether the statutory prohibition on imports has been lifted or not, but let us assume it has not - the State tax would be a tax directed at sugar produced in New South Wales and Queensland in fact and all sugar coming into Victoria would have to bear the impost. Now, it might be, your Honours, that the effect of the impost was so high that the - - -

GAUDRON J: But what if it were a percentage? What if it were, say, 1 per cent of the value of all grocery products?

MR GRIFFITH: Of goods coming in? Your Honour, because of our definition there is no problem. It is an excise in every case.

GAUDRON J: No.

MR GRIFFITH: But we are talking about these specific examples just to test what has been put and what we say is, your Honour, that it is just contrary to the federal compact for the New South Wales and the Queensland sugar industry to be capable of being held hostage by a State such as Victoria, who might wish to prohibit, by prohibitory we say excise impost, to deter persons who might otherwise use sugar to use other substitutes, saccharin, something artificial, and we say, your Honour, that that is not something which the Constitution permits in that within Australia, we say as for all industries, the sugar industry is one industry which is entitled to sell its goods throughout Australia, bearing only imposts which are imposed on them by Commonwealth law, being imposts on goods.

Can I give another example, and that is in respect of cars. What if a non-manufacturing State such as New South Wales took the view that it did not like Victoria and South Australia very much, that the Australian car industry is based in those States, to wage an industrial war on their industries, it imposed a tax of $20,000 on every six-cylinder car sold in New South Wales. That would be quite non-discriminatory. One can assume the fact that most imported cars are four-cylinder cars but the impost is imposed on all cars sold when sold; when you register them, you pay it, $20,000.

The effect of that might be to not just ravage but entirely destroy the Australian car industry. In our submission, that is impermissible not because it is bad politics, but because the imposition of a tax indiscriminately of whether the cars were manufactured in New South Wales, any other State or Territory, or imported, would be an excise. We say it can be nothing else. The fact that I can postulate that example, in our submission, does corroborate absolutely our submission that such imposts - - -

GAUDRON J: I do not know that it would necessarily survive.

MR GRIFFITH: Survive what, your Honour?

GAUDRON J: The States' proposed definition of excise. I do not think that would survive it.

MR GRIFFITH: Why not, your Honour?

GAUDRON J: Because, if most of the imported cars are four- cylinder cars, its operation would be discriminatory. It would operate in a discriminatory fashion against cars that came from South Australia and Victoria and therefore fail.

MR GRIFFITH: By section 92?

GAUDRON J: It might fail section 92 too, but it would also fail section 90 on paragraph 2 of Mr Spigelman's submissions.

MR GRIFFITH: Your Honour, it would survive Mr Bales' two pounds of kangaroo meat. Perhaps the States can come back to that one and try and explain it, your Honour, but our point is that it is just an obvious demonstration of a point we make, that manufacturers of goods in Australia, importers of goods into Australia are entitled to take their goods to all other parts of Australia and to sell them without paying an impost which is an impost on the goods as they go to those other States and Territories. They may be affected by other aspects, such as the cost of taking their product to Western Australia, by payroll tax, by some other impost that arises from trading in a State, but we say they cannot constitutionally be affected by an impost on the goods which is imposed merely because a State law applies only, whether indiscriminately within the State or not, to those goods.

By definition, it is accepted by those who postulate a new test that the States cannot pass a law which is limited to production or manufacture throughout Australia. They accept that limitation. In our submission, there is an equal limitation of equal force arising directly by the provisions of the Constitution which apply to such a law merely because it happens to be more broadly expressed indiscriminatory of whether the goods are first imported to another State or Territory before they come into the State which imposes the impost.

Perhaps to give another example, your Honour, if States can impose sales taxes, there is nothing to stop one State imposing a sales tax of 100 per cent, another none at all. We say, your Honour, that could have a corrupting influence on trade within Australia.

DAWSON J: It is a consequence which has been accepted without any dire results in America. I do not know about Canada. There are State sales taxes. It does not seem to have made the economy collapse.

McHUGH J: I think Dr Patterson pointed out in his dissenting trade report in the constitutional commission that United States and European experience is not a good guide, because there are massive subsidies to industries over the - - -

MR GRIFFITH: Your Honours, I could call an expert witness. I was talking to my daughter last night who lives in Brooklyn and she is managing a cafe and I said I am working very hard. She said, "What are you doing?" I said, "I'm arguing a case about whether States can impose sales taxes". "Oh", she said, "they shouldn't be able to do that; it hasn't worked here".

DAWSON J: That is only because it is very irritating, but - - -

MR GRIFFITH: Your Honour, I said I might pass that on to the Court as a view from America. A further suggestion was, "Well, perhaps you should limit it to tax on funerals", but I do not know why she said that.

McHUGH J: It does distort trade within the United States. In January, New York had a free week from sales tax because business was going to New Jersey where there was a different rate of tax, a lower rate of tax.

DAWSON J: No one suggests it is not a distortion. The question is, is it a distortion which is allowed or disallowed by the Constitution.

MR GRIFFITH: Well, our submission is that the Constitution prohibits it, your Honour.

DAWSON J: Yes. Well, we are going back, and round and round.

MR GRIFFITH: I hate to pick up an example out of the franchise cases, but we see here from the blanks on the schedules that Queensland does not impose a franchise fee on tobacco, or on petrol. One sees, firstly, the disproportionate difference in gross revenue arising because of that, but obviously the result is one can expect then a distortion at the border of - one can expect unhealthy activity, such as smuggling and these sort of activities, which just should not arise between States. There should not be smuggling between States, because it should be, in our submission - well, no, not a matter of "should", but we say mandated by the Constitution.

DAWSON J: Well, you could avoid all of this by a fully integrated economy. But that we do not have. There are certain sacrifices to be made for Federation.

MR GRIFFITH: Your Honour, but we say the colonies did make the sacrifice to establish Federation with respect to imposts on goods.

DAWSON J: If they had been told at that time that they were entering into an integrated economy, we would not have Federation now.

MR GRIFFITH: Your Honour, what they did know is that they were handing over the majority of the revenue to the Commonwealth and what we enlarge in our submissions, your Honour, is that that was done with perfect knowledge of the consequence. This whole question of losing control of your revenue base was known and the way it was dealt with was by the specific provisions of the Constitution providing for a return of the surplus, optimistic that there would be one, and for continuing arrangements on the basis that the Commonwealth would not need all these moneys for Commonwealth purposes and would return it to the States.

We say, your Honour, that it was - this is why we have the whole point about the lion in the path. The States - the last thing they wanted to do was to lose their revenue, but they had to pay that prices, they had to settle the differences on protection against free trade and leave that for the new Parliament to get the union which they desired and they regarded the price as being worth the result and, indeed, it is unthinkable now, almost 100 years further on, that the colonies could have maintained a status of being, in effect, independent body politics as they were then. Our submission is that this was something directly and specifically done and that the same group of constitutional provisions we refer to make what those who drew the Constitution intended as appropriate provision to deal with the consequences of what they did.

Perhaps it is dangerous ground for me, bearing in mind our formal submissions on the franchise cases, but it is quite clear that after 6 October 1991 none of the States could have imposed any of the imposts on liquor, spirits, beer or tobacco which were operative up to that time.

DAWSON J: Can you tell me were there income taxes at the time of Federation, Mr Solicitor?

MR GRIFFITH: Your Honour, Harrison Moore, 2nd Edition, footnote 2 on page 336 would indicate there is a Victorian Income Tax Act; New South Wales Land and Income Tax Assessment Act 1895 ; Queensland Dividend Duty Act. That seems to be the three citations. I do not know what the rates were.

DAWSON J: Yes, thank you.

MR GRIFFITH: But they were known. Your Honours, so our point, by our examples, is to apply section 90 in the manner which is sought by the States and Territories would be to re-erect the boundaries which this Court unanimously in Cole v Whitfield found, as indeed was the case, were to be permanently dismantled at Federation. We say it is fundamentally inconsistent with the Constitution and we say a position flatly denied by the decision in Capital Duplicators [No 1] and [No 2].

We have already made the point that section 92 alone would not eliminate those trade barriers because of their discriminatory laws point, and I do not think there is any need for me to enlarge on that. Your Honour, could I say something about time now?

BRENNAN CJ: Yes.

MR GRIFFITH: Your Honour, I appreciate that for the purpose of division of time we are regarded as appearing in common interest with Mr Jackson. We do not, your Honour, because he is here on a Dennis Hotels Case and we are not. Your Honour, in the division of time, by my calculations, your Honour, on the present division, we have about nine hours each, if one splits down the middle.

BRENNAN CJ: Ten and a quarter on my calculations.

MR GRIFFITH: How many, your Honour?

BRENNAN CJ: Ten and a quarter. That is if we ran into the full - - -

MR GRIFFITH: That is after taking out the half day that was originally there, your Honour. I must defer to Mr Jackson, because he is a party and we are an intervener, your Honour, and he took two hours rather than three and a half in-chief, but he tells me he wishes to have two hours in reply, your Honour, and I must not - - -

BRENNAN CJ: How long do you expect that the rest of your submission will take?

MR GRIFFITH: Your Honour, I would hope to finish on Tuesday.

BRENNAN CJ: Any time on Tuesday?

MR GRIFFITH: I would hopefully be finished on Tuesday, your Honour. Which means that we would meet the finish by lunchtime Wednesday, your Honour, but I am sorry I am not able to promise more than that. It is an important case for the Commonwealth, your Honour.

BRENNAN CJ: Mr Jackson, your estimate is two hours?

MR JACKSON: Yes, your Honour.

BRENNAN CJ: Mr Spigelman?

MR SPIGELMAN: Still the 45 minutes, your Honour, which I think I was allocated.

BRENNAN CJ: Yes. This matter will stand adjourned until Tuesday next.

AT 4.17 PM THE MATTER WAS ADJOURNED

UNTIL TUESDAY, 18 MARCH 1997