What is an excise duty? Ha and Hammond v NSW
Max Spry
Law and Bills Digest Group
August 1997
On 5 August 1997 the High Court handed down a landmark decision on the
customs and excise power in the Constitution (section 90): Ha and Hammond
v NSW. Judicial discussion of the customs and excise power has had
a long, and as many would agree, an unsatisfactory history. Dawson J,
for example, said in Capital Duplicators Pty Ltd v Australian Capital
Territory (No 2) that the section 'has a history of interpretation
as unsatisfactory as that of s 92 before Cole v Whitfield.'
Section 90 provides in part:
On the imposition of uniform duties of customs the power of the Parliament
to impose duties of customs and excise, and to grant bounties on the
production or export of goods, shall become exclusive.
This Research Note offers an overview of some of the leading cases on
section 90 prior to the High Court's most recent decision. It then very
briefly examines the majority and minority decisions in Ha and Hammond
v NSW.
Background
Over the past ninety years the High Court has been divided in its approach
to the definition of 'duties of excise'. Initially such duties were confined
to taxes on the production or manufacture of goods. This definition was
gradually extended to include taxes on goods imposed at any point in the
distribution process. Over time the Court came to accept that exceptions
should be made for taxes on alcohol, tobacco and petrol, and hence the
States have been permitted to tax these goods.
In Peterswald v Bartley [(1904) 1 CLR 497] the High Court considered
whether a licence fee imposed by NSW on NSW brewers who manufactured beer
for sale was an excise. Griffith CJ stated that the term 'duties of excise'
means 'a duty analogous to a customs duty imposed upon goods either in
relation to quantity or value when produced or manufactured, and not in
the sense of a direct tax or personal tax' (p. 509). Here the licence
fee was not an excise, it did not relate to the quantity of beer produced.
It was merely the means adopted by NSW to regulate the beer industry.
Dixon J in Parton v Milk Board (Victoria) [(1949) 80 CLR 229]
stated the duties of excise included not only taxes upon manufacture and
production but also taxes upon a 'commodity at any point in the course
of distribution before it reaches the consumer' (p. 260).
In Dennis Hotels Pty Ltd v Victoria [(1959-1960) 104 CLR 529]
the High Court accepted in a 4:3 decision, that a licence fee calculated
by reference to the value of alcohol purchased for sale in the previous
year (the backdating device or the Dennis Hotels formula) was not
an excise. This backdating device has been upheld in Dickenson's Arcade
v Tasmania [(1974) 130 CLR 177], in relation to tobacco, and in HC
Sleigh Ltd v South Australia [(1977) 136 CLR 475], in relation to
petrol, and was at issue in Ha and Hammond.
In Capital Duplicators Pty Ltd v Australian Capital Territory (No
2) [(1993) 178 CLR 597] the High Court rejected the use of the backdating
device when applied to the sale of X rated videos.(1) The majority, however,
refused to reconsider Dennis Hotels and Dickenson's Arcade
stating:
In refusing to reconsider the franchise decisions relating to liquor
and tobacco, the Court recognised the fact that the States (and the
Territories) have relied upon the decisions in imposing licence fees
upon vendors of liquor and tobacco in order to finance the operations
of government (p. 593).
Ha and Hammond v NSW
The plaintiffs were charged under the Business Franchise Licences
(Tobacco) Act 1987 (NSW) with selling tobacco in NSW without a licence.
The Act provides for a licence fee, which includes a set amount, plus
an amount calculated by reference to the value of tobacco sold during
the 'relevant period'. The 'relevant period' is defined as 'the month
commencing 2 months before the commencement of the month in which the
licence expires'. The plaintiffs argued that the licence fee imposed by
the Act was an excise and hence invalid due to section 90 of the Constitution.
A majority of the High Court (Brennan CJ, McHugh, Gummow and Kirby JJ)
agreed.
Counsel for NSW submitted that the licence fees payable under the Act
were not duties of excise because:
- liability does not attach to the manufacture or production of tobacco
in Australia; and
- such fees are merely a licence to carry on the business of selling
tobacco, not a tax on tobacco itself.
The Majority
The majority dismissed both arguments put by counsel for NSW. An excise
is not confined to a tax on the local production or manufacture of goods.
Their Honours stated:
[D]uties of excise are taxes on the production, manufacture, sale or
distribution of goods, whether of foreign or domestic origin. Duties
of excise are inland taxes in contradistinction from duties of customs
which are taxes on the importation of goods. Both are taxes on goods,
that is to say, they are taxes on some step taken in dealing with goods.
Importantly, particularly for State revenues, the majority continued:
[I]t is unnecessary to consider whether a tax on the consumption of
goods would be classified as a duty of excise.
The majority also denied that the fee imposed by the NSW legislation
was merely a licence for carrying on a business: it is 'manifestly a revenue-raising
tax imposed on the sale of tobacco during the relevant period.' Their
Honours accepted that the earlier franchise cases that imposed only small
amounts might be classified as licence fees. However, in recent times
the States and the Territories have sought to return to the 'pre-Federation
tax bases of the Colonies' by use of the Dennis Hotels formula.
The majority stated they were aware of the implications of their decision
for the revenue base of the States and Territories. But, their Honours
said, given the increasing use by the States and Territories of the Dennis
Hotels formula, the Court is faced with two alternatives: 'to uphold
the validity of a State tax on the sale of goods provided it is imposed
in the form of licence fees or to hold invalid any such tax which, in
operation and effect, is not merely a fee for the privilege of selling
the goods.' Their choice, the majority said, is governed by section 90
of the Constitution:
So long as a State tax, albeit calculated on the value of quantity of
goods sold, was properly to be characterised as a mere licence fee this
Court upheld the legislative power of the States to impose it. But once
a State tax imposed on the seller of the goods and calculated on the value
of quantity of goods sold cannot be characterised as a mere licence fee,
the application of s 90 must result in a declaration of invalidity.
The Minority
The minority, consisting of Dawson, Toohey and Gaudron JJ, upheld the
validity of the NSW legislation, denying that the fee imposed by that
legislation amounted to a duty of excise. The minority approached the
definition of an excise quite differently from that of the majority. The
minority suggested a narrow approach and defined an excise as a tax upon
the manufacture or production of goods; it does not extend to a tax imposed
at any point in the distribution of the goods. The minority, therefore,
rejected the definition of excise adopted by the Court in Parton's
case.
Conclusion
As noted above, Ha and Hammond v NSW is a narrow 4:3 decision.
The majority decision removes, for the purposes of section 90, the special
status accorded to tobacco, alcohol and petrol. The majority accepted
the broad approach to duties of excise, adopted by the Court in earlier
decisions. The minority, however, sought to return to a narrow definition
of what is an excise. The decision, like those in the area of implied
rights, is likely to give rise to renewed calls for constitutional reform.
(1) For a more detailed discussion of this case, see: Brendan Bailey,
'Are State revenues safe or does confusion remain?' Current Issues
Brief No. 2 1993, Parliamentary Research Service, 7 December 1993. For
a discussion of Federal-State taxation arrangements see: Denis James,
'Federalism up in smoke? The High Court decision on State tobacco tax'
Current Issues Brief No. 1 1997-98, Information and Research Service,
14 August 1997.
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