Re Boxvale Holdings Pty Limited v the Commissioner of Taxation [1989] FCA 329; 530 Taxation 89 Atc 4927 (21 August 1989)

FEDERAL COURT OF AUSTRALIA

Re: BOXVALE HOLDINGS PTY LIMITED
And: THE COMMISSIONER OF TAXATION
No. NG1197 of 1988
FED No. 530
Taxation
89 ATC 4927

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilcox J.(1)

CATCHWORDS

Taxation - Sales tax - Goods sold by manufacturer by retail - Printing work delivered by printer to ultimate user - Statutory formula for determination of sale value of goods required reference to the amount for which the printer could reasonably be expected to have purchased identical goods from another printer for sale of goods by wholesale - Alleged impossibility of determining value by this means - Argument that statutory provision for determination of sale value ineffective, so that no tax is payable.

Sales Tax Assessment Act (No.1) 1930 s.18(1)

HEARING

SYDNEY
21:8:1989

Counsel for the Plaintiff: Mr B R Pape

Solicitors for the Plaintiff: Rowlandson Byrne & Co

Counsel for the Defendant: Mr T M Jucovic QC with

Mr S W Gibb

Solicitors for the Defendant: Australian Government Solicitor

ORDER

The Application be dismissed.

The plaintiff pay to the defendant his costs of the proceeding.

Note: Settlement and entry of orders is dealt with in Order
36 of the Federal Court Rules. (See also Order 37 rule 2(3)).

DECISION

This case represents a bold, but I think misguided, attempt to obtain from the Court a declaration that work produced by contract printers is not subject to sales tax.

2. The matter comes before the Court in the following way. On 11 September 1986 a Writ of Summons was filed in the High Court of Australia in which the plaintiff, Boxvale Holdings Pty Limited, named as the defendant the Commissioner of Taxation of the Commonwealth of Australia. The Statement of Claim sought the following relief:

(a) an order declaring that ss.18(1)(b)(ii)
and 18(3A) of the Sales Tax Assessment
Act (No.1) 1930 are invalid;
(b) an order declaring that the plaintiff was
not required to furnish returns of the
sales value ascertained in accordance
with s.18(1)(b)(ii) of the Sales Tax
Assessment Act (No.1) 1930 for the period
1 August 1983 to 30 June 1986;
(c) an order declaring that the plaintiff was
not liable to sales tax pursuant to s.19
of the Sales Tax Assessment Act (No.1)
1930 from 1 August 1983 to 30 June 1986;
and
(d) an order that the defendant pay the
plaintiff's costs.

3. In due course the matter was remitted for hearing in this Court. When the hearing commenced this morning an application was made on behalf of the plaintiff for leave to amend the orders sought. The relevant amendments were the substitution of the word "ineffective" for "invalid" in order (a) and the substitution of the period "1 December 1981 to 30 June 1985" for the period "1 August 1983 to 30 June 1986" where appearing in each of orders (b) and (c). There was no opposition to these amendments and leave was granted.

4. Following the remittal of the matter to this Court a Cross-Claim was filed by the Commissioner seeking to recover sales tax alleged to be due and unpaid, but this Cross-Claim was not pressed at the hearing. Leave to discontinue was granted and the Cross-Claim was in fact discontinued.

5. Consequently, I am only concerned with the claim made by the plaintiff. As to that claim it is agreed that the essence of the matter is whether any liability is cast upon the plaintiff having regard to the terms of s.18(1)(b) of the Sales Tax Assessment Act (No.1) 1930 as it stood prior to its amendment on 23 August 1988 pursuant to the Sales Tax (Exemptions and Classifications) Amendment Act 1988. Section 18(1) at that time read as follows:

"18. (1) Subject to sub-sections (1B), (1C)
and (4A), where goods (other than goods treated by
a manufacturer as stock for sale by retail) have
been sold by the manufacturer to an unregistered
person or to a registered person who has not quoted
his certificate in respect of the sale, the sale
value of the goods, for the purposes of this Act,
is--
(a) if the goods were sold by wholesale--the
amount for which the goods were sold; or
(b) if the goods were sold by retail--
(i) if the goods are of a class which
the manufacturer himself sells by
wholesale--the amount for which the
goods could reasonably be expected
to have been sold by the
manufacturer by wholesale; or
(ii) in any other case--the amount for
which the manufacturer could
reasonably be expected to have
purchased identical goods from
another manufacturer if the other
manufacturer had, in the ordinary
course of his business, manufactured
the identical goods for sale and had
sold them to the first-mentioned
manufacturer by wholesale."

6. The relevant facts are within a narrow ambit. Stanley George Blackwood has been in the printing trade since 1948. He served an apprenticeship and was thereafter employed by a number of employers until to 1980. In 1980 Mr Blackwood, together with his wife, purchased an existing printing business in the Sydney suburb of Manly Vale, which was known as "Vale Press". Mr and Mrs Blackwood carried on the business in partnership from March 1980 until 30 November 1981. On 1 December 1981 the plaintiff, Boxvale Holdings Pty Limited, was incorporated. Shortly thereafter, that company took over the business of Vale Press. It continued to conduct that business until 30 June 1985, when the business was sold to another company associated with Mr and Mrs Blackwood, namely Vale Press Pty Limited.

7. Shortly after Mr and Mrs Blackwood commenced to carry on the business, they became registered as manufacturers under the Sales Tax Assessment Acts (Nos.1 and 9) and a certificate was issued to them. The Commissioner of Taxation was not notified of the transfer of the business to Boxvale Holdings. Returns continued to be submitted under the name Vale Press; but this was not wrong as Boxvale Holdings traded under that name, as a registered business name.

8. The evidence does not establish the extent to which sales tax was paid during the period from December 1981 to June 1985. It appears that some sales tax was paid; but the Commissioner was dissatisfied with the amount that was paid and an investigation took place. The matter came to a head in August 1986 when a demand was made for the submission of further returns. At that time Mr Blackwood took the position that the company was not bound to pay sales tax and returns were not submitted. Shortly thereafter the present proceeding was commenced.

9. The Sales Tax Assessment Act (No.1) contains, in s.3, a definition of the word "manufacturer". This definition reads as follows:

"'Manufacturer' means a person who engages,
whether exclusively or not, in the
manufacture of goods, and includes a
printer, publisher, lithographer or
engraver, and a person (not being an
employee) who manufactures goods,
whether or not the materials out of
which the goods are manufactured are
owned by him, ..."

The term "manufacture" is also defined as including production. Section 11 of the Act provides a general obligation on any person who is a manufacturer to be registered. That obligation is subject to some exceptions which are not presently relevant. It follows that a person who is a printer, and thus a manufacturer within the definition of s.3, has an obligation to be registered under the Act.

10. Sections 17 and 19 of the Act impose sales tax. Section 17(1) provides:

"17. (1) Subject to, and in accordance with,
the provisions of this Act, the sales tax imposed
by the Sales Tax Act (No.1) 1930 shall be levied
and paid upon the sale value of goods manufactured
in Australia by a taxpayer and sold by him or
treated by him as stock for sale by retail or
applied to his own use."

The remaining subsections of that section deal with particular situations which are not presently relevant. Section 19 provides:

"19. Sales tax shall be paid by the
manufacturer of goods manufactured in Australia
and--
(a) sold by the manufacturer to an
unregistered person or to a registered
person who has not quoted his certificate
in respect of the sale;
(b) treated by the manufacturer as stock for
sale by retail; or
(c) applied by the manufacturer to his own use."

11. It is conceded on behalf of the plaintiff that, at relevant times, the plaintiff sold goods manufactured by it -- that is to say, printed materials -- to either unregistered persons or to registered persons who did not quote their certificate in respect of the sale. In other words, the situation falls within the literal wording of ss.17(1) and 19.

12. Notwithstanding this position, the plaintiff contends that it is not bound to pay any sales tax. The reason for this contention is the unworkability, as against a printer, of s.18(1)(b). It is common ground in the present case that the printing work which is delivered to clients by the plaintiff is a sale by retail rather than by wholesale. Consequently, and this is also common ground, para.(b) of s.18(1) is the provision in that subsection which applies to the present case. It is further common ground that the relevant subparagraph is subpara.(ii), that is to say this is not a case where the manufacturer himself sells by wholesale.

13. Notwithstanding the reference to s.18(3A) in the orders sought by the plaintiff, no submission is put in relation to that subsection. Neither is there any issue before me as to the quantum of tax, if any, which is payable by the plaintiff to the defendant.

14. Section 18(1)(b)(ii) requires the question to be asked: what is "the amount for which the manufacturer could reasonably be expected to have purchased identical goods from another manufacturer if the other manufacturer had, in the ordinary course of his business, manufactured the identical goods for sale and had sold them to the first-mentioned manufacturer by wholesale"?

15. The proposition which is put on behalf of the plaintiff is that this provision is ineffective because compliance is impossible. It is said that the law does not compel the doing of the impossible and that, in any case where a particular act is impossible -- in the sense of it not being reasonably practicable -- then the relevant provision is ineffective. Alternatively, counsel says that the result of the application of s.18(1)(b)(ii) to the present case would be that his client's returns would always properly show a sale value of nil.

16. In support of his basic proposition, counsel refers to a decision in the Full Supreme Court of South Australia, Hinton Demolitions Pty Ltd v Lower (No.2) (1971) 1 SASR 512, and, in particular, to a passage from the judgment of Wells J at p 528, as follows:

"The answer to these contentions, in my
opinion, is that an Act of Parliament must be
construed ut res valeat quam pereat, and that
no legislation should be read as imposing a
duty impossible of performance -- more
especially if non-performance vitiates the
entire operation of the Act -- unless the
language cannot be given any other meaning.
It seems to me that the Act must be read as if
controlled, wherever necessary, by the phrase
'so far as is reasonably practicable'. It is
only in that way that the Act can take effect
at all, and it is not to be supposed that the
legislature intended to enact a brutum fulmen."

17. Counsel's proposition is that, if the Act cannot be made to apply, then the provision must be regarded as ineffective for its desired purpose. If this leaves a gap in the legislative scheme, say counsel, that is a matter for Parliament.

18. I accept the correctness of the statement made by Wells J in the passage which I have just quoted, but I do not think that it controls the present case. In Estee Lauder Pty Limited v Federal Commissioner of Taxation (1988) 88 ATC 4412 at p 4414, Burchett J pointed out that the application of s.18(2)(b) of the Act -- a provision very similar to s.18(1)(b) -- will not always be an easy matter. His Honour there said:

"If one pauses to reflect that businesses
conducted by manufacturers who sell by
wholesale are not monolithically set in a
single form, but are organised in various ways
with various and widely differing cost
structures, it will be apparent that para.(b)
of sec.18(2) will not always yield an easy and
obvious answer in particular circumstances."

19. Notwithstanding those observations, his Honour did go on to consider the application of that paragraph in the particular case which was before him. He concluded, at p 4421:

"The fundamental purpose of the provision,
plainly enough, is to provide a measure for an
appropriate wholesale price for goods sold
only by retail. If the measure is based on a
cost structure radically different from that
which applies to the goods actually made, it
can only be appropriate by accident. In my
opinion, sec.18(2)(b) should be construed as
looking, at least in a case where there is no
wholesaler of identical goods as defined, to a
hypothetical manufacturer and wholesaler
manufacturing the goods under conditions
similar to those which apply to the taxpayer.
It may be, though I do not have to decide the
point and do not express any opinion upon it,
that in a case where identical goods are in
fact manufactured by another wholesaler on
some such basis as that on which Kolmar
manufactures goods, the position would be
governed by that reality. If so, this would
be because of the principle that the Act takes
transactions as it finds them (cf Magna Alloys
and Research Pty Ltd v F C of T [1980] FCA 150; 80 ATC 4542
at p 4549; [1980] FCA 150; (1980) 33 ALR 213 at p 222). But
where it finds none, and has to construct a
hypothetical transaction, there is no reason
to think the Act intends to construct it by a
less than appropriate means."

20. In the present case the difficulties do not seem to be as great as those which confronted Burchett J in the Estee Lauder Case. Evidence was given by Mr Blackwood that, in pricing a job, he has regard to his own costs and the margin which he regards as appropriate to add on to those costs. In fixing a figure he considers what will be acceptable to the prospective client. He does not go to his competitors for information as to how much that competitor would charge for the same job. None of this is surprising. Nor is the reason which Mr Blackwood gives; namely, that he would not wish to give to his competitors an opportunity to compete for the job.

21. Notwithstanding these matters, the evidence revealed that it is quite common in the printing industry for jobs to be subcontracted from one printer to another. Indeed, it appears that there is a species of participants in the printing industry known as "printing brokers", whose function it is to obtain contracts -- either from the ultimate recipient of the printing work or from persons who already have taken on printing contracts which they cannot handle -- and then to find printers who will do some or all of the relevant work.

22. I gather from Mr Blackwood's evidence that, at least during part of the relevant years, a significant proportion of his company's business was the printing of documents for the ultimate use of Westpac Banking Corporation, but upon the instructions of a printing broker, a Mr Townsend. Apparently Mr Townsend had some arrangement with Westpac. He, being a broker, was unable to do the work himself; and he arranged with Boxvale to carry out part of the necessary work. In turn, Boxvale used other printing brokers to arrange for part of the work to be done. Mr Blackwood was not even able to say who had actually printed the documents. The pages, as printed, came back to his company, where they were collated, stapled, packed, labelled and delivered to Mr Townsend for ultimate delivery to Westpac. On other occasions when Mr. Blackwood has found his company's resources too fully committed he has contracted out the total job to a printer. In the light of this evidence it seems that there is a good deal of experience in the trade as to prices charged between people who are actively engaged in the trade as distinct from prices charged by a person in the trade to an ultimate recipient.

23. None of this is to say that the fixing of an amount under s.18(1)(b)(ii) will always be free of difficulty. One can imagine that disputes occur from time to time between taxpayers and the Commissioner. It may sometimes be necessary for these to be ruled upon by some third party, such as the Administrative Appeals Tribunal. But the fact that a particular statutory provision is not easy of application, or that it admits of disputes in its application to the facts of particular cases, is not a reason for saying that it is so unworkable that it should be, in effect, disregarded.

24. It is interesting to note that this appears to be the first occasion upon which the proposition has been put to a Court that s.18(1)(b)(ii) is ineffective because of the impossibility of its application. This is so, notwithstanding that the subparagraph took the form set out above for a period of 56 years from the making of the 1932 amendment to the Act until the recent amendment in August 1988. If there was a real problem, it is surprising that there was such a long delay in it becoming apparent to any taxpayer.

25. The point that is put on behalf of the taxpayer must be rejected. As I have said, it is the only point in the case. It is accepted that, if that point fails, the action must be dismissed. Accordingly, I dismiss the proceeding, and I order that the plaintiff pay the costs of the defendant.