Hematite Petroleum Pty Ltd v Victoria ("Pipelines case") [1983] HCA 23; (1983) 151 CLR 599 (5 August 1983)

HIGH COURT OF AUSTRALIA

HEMATITE PETROLEUM PTY. LTD. v. VICTORIA [1983] HCA 23; (1983) 151 CLR 599

Constitutional Law (Cth)

CATCHWORDS

HEARING

DEMURRER.

DECISION

The following written judgments were delivered:-

GIBBS C.J. This demurrer raises for consideration the question of the substituted for s. 35(2) of the Pipelines Act 1967 (Vict.) as amended, ("the Pipelines Act") seven new sub-sections (sub-ss. (2) to (8)) which, inter alia, fix the amount payable as pipeline operation fees under that Act. (at p611)

2. The facts which must be accepted as correct for the purposes of the demurrer may be summarized as follows. The plaintiffs, as joint venturers, carry on the business of the exploration for, recovery, production and processing of petroleum, and have since 1968 produced petroleum from wells located in Bass Strait more than three miles from the coast of Victoria. Their operations are now, and have at all material times been, carried on as follows. Hydrocarbons in the form of oil or gas derived from the wells in Bass Strait are carried from offshore production platforms to a gas processing and crude oil stabilization plant at Longford in Gippsland in Victoria. There the hydrocarbons are processed and separated into stabilized crude oil, liquefied petroleum gas and natural gas. The stabilized crude oil is conveyed by a pipeline ("the crude oil pipeline"), which is the subject of pipeline licences nos. 35 and 126, to a fractionation plant and crude oil tank farm at Long Island Point on Westernport Bay in Victoria. The liquefied petroleum gas is conveyed by another pipeline ("the gas liquids pipeline") the subject of pipeline licences nos. 27 and 34, to the plant at Long Island Point. The natural gas is conveyed by a third pipeline ("the Gas and Fuel Corporation pipeline"), the subject of pipeline licences nos. 75, 117, 120 and 135, to Melbourne. The plaintiffs are the co-owners of the crude oil pipeline and the gas liquids pipeline and the co-holders of licences nos. 27, 34, 35 and 126, which are issued under the Pipelines Act; they also hold the permits which under that Act must be held by a person to whom a licence is issued. They are the co-owners of the substances that pass through those two pipelines. All the petroleum recovered from the wells in Bass Strait is conveyed to the Longford plant and all of the products of the Longford plant (except the natural gas) are conveyed by the crude oil pipeline and the gas liquids pipeline to the Long Island Point plant. There is a continuous flow of crude oil and gas liquids respectively through those two pipelines, and no other substances have been conveyed by them. At the Long Island Point plant further processing occurs; the products are propane and butane (which are marketed as liquefied petroleum gas), ethane (which is marketed separately) and crude oil. Approximately 90 per cent of the propane and butane is exported by ship from Long Island Point and a substantial part of the crude oil, which is sold by the plaintiffs, is transported to its destination by sea. It does not appear from the statement of claim how the ethane is disposed of. There is no other practicable way of conveying the crude oil and the liquefied petroleum gas from Longford to Long Island Point other than by the pipelines. There is no port at Longford; Long Island Point is the nearest deep water port. The recovery of the petroleum from Bass Strait, its processing and production at Longford and Long Island Point and the delivery of the products transported by sea is virtually a continuous process and the transportation of the crude oil and liquefied petroleum gas through the crude oil pipeline and the gas products pipeline is an integral step in the production of the products sold by the plaintiffs. The natural gas produced at Longford is sold and delivered by the plaintiffs to the Gas and Fuel Corporation of Victoria at Longford, and is conveyed to Melbourne by the Gas and Fuel Corporation pipeline, which is owned by the Gas and Fuel Corporation of Victoria, which holds licences nos. 75, 117, 120 and 135. (at p612)

3. The plaintiffs seek a declaration that s. 2 of the Pipelines (Fees) Act 1981 is invalid and an order that the defendant repay to the plaintiffs $19,992,920 licence fees paid by them, as they alleged, involuntarily and under protest. (at p612)

"(1) A licensee shall not operate a pipeline unless -

(a) the Minister has informed him in writing that the pipeline is fit to

(b) the current pipeline operation fee has been paid in respect of that pipeline.

(2) The pipeline operation fee shall be payable annually from the date of the issuing of the licence."

The fees prescribed immediately before the amendment in respect of the four licences which relate to the crude oil pipeline and the gas liquids pipeline were $35 (or in one case $40) per kilometre, and the largest annual amount paid by way of pipeline operation fee in respect of any of those licences before the amendment was $7,080. Since the amendment, s. 35(2) has provided as follows:

"The pipeline operation fee shall be in the financial year 1981- 1982 -

(a) in the case of a trunk pipeline, the amount of $10,000,000;

(b) in the case of any other pipeline, an amount equal to $40 for every

Provision is made for the adjustment of the fees in subsequent years by reference to the consumer price index: s. 35(3). The licence fees are payable annually: s. 35(4). By s. 35(8) "trunk pipeline" is defined as follows:

"'Trunk pipeline' means -

(a) the pipeline to which pipeline licences Nos. 75, 117, 120 and 135

(b) the pipeline to which pipeline licences Nos. 27 and 34 relate; and

(c) the pipeline to which pipeline licences Nos. 35 and 126 relate."

5. The Pipelines Act gives rise to some difficulties of construction. It is not altogether clear what is the statutory purpose of requiring a person who wishes to carry something through a pipeline to obtain a licence as well as a permit, unless it is to dissociate the fee, which is payable for the licence, from the permit. It is made clear enough by ss. 25 and 26 that before any person may construct a pipeline he must hold a licence as well as a permit. The provisions of ss. 8-12 of the Pipelines Act, considered alone, suggest that once a pipeline has been constructed the holder of a permit such as those issued in the present case, viz. a permit to own and use a pipeline for the purpose of carrying hydrocarbons, can lawfully use the pipeline for that purpose. However, to operate the pipeline a licence as well as a permit is needed. The definition of "operation" in s. 3 includes maintenance, removal and alteration, but is not limited to those things, and the ordinary meanings of the word "operate" include "to cause or actuate the working of; to work (a machine, etc.)" (Shorter Oxford English Dictionary). It seems to follow that a licence is needed to work the pipeline and ss. 36-38 of the Pipelines Act support the view that it is the licensee who is concerned with the working of the pipeline. A licence is also necessary to maintain the pipeline and maintenance is of course necessary to enable the pipeline to be used. The licences actually issued in the present case contain specifications and conditions, inter alia, as to the thing to be carried (which is described as liquid hydrocarbons, usually with further details) and as to the maintenance of the pipelines. Notwithstanding the definition of "operation" in the Pipelines Act, it is doubtful whether those licences would permit the plaintiffs to remove or alter a pipeline, but there is in any case no suggestion that they intend to do so. The licences authorize the plaintiffs to work and to maintain, and therefore to use, the two pipelines. At the time of the enactment of the Pipelines (Fees) Act 1981 the crude oil pipeline and the gas liquids pipeline had been fully constructed and were in continuous use for the conveyance of the plaintiffs' liquid hydrocarbons from Longford to Long Island Point. It is common ground that the pipeline operation fee which the Pipelines (Fees) Act 1981 made payable in respect of those two pipelines was not a fee for services rendered, but was a tax. In the circumstances to which I have referred, the tax was in my opinion payable for the right to use those pipelines for the conveyance of the liquid hydrocarbons from Longford to Long Island Point. (at p614)

6. The first submission on behalf of the plaintiffs is that the pipeline operation fee is a duty of excise, or alternatively a duty of customs, and by virtue of s. 90 of the Constitution beyond the power of the legislature of Victoria to impose. (at p615)

7. Clearly the fees were not duties of customs. "Duties of customs under the Constitution are duties levied upon the importation or exportation of commodities into and out of the Commonwealth": The Commonwealth and Commonwealth Oil Refineries Ltd. v. South Australia [1926] HCA 47; (1926) 38 CLR 408, at p 438; also at p 435 . The hydrocarbons in the present case are imported, and some of the products into which they are converted are exported, but the tax is not levied either on the importation or the exportation; it is levied for the right to use the pipeline for the conveyance of the hydrocarbons between two places in Victoria. A much more difficult question is whether the fees are duties of excise. (at p615)

8. The meaning of the expression "duties of excise" in s. 90, the purpose of giving the Parliament exclusive power to impose duties of that kind and the way in which the section should be applied to particular statutory imposts are matters which have led to frequent divisions of opinion on this Court. I have already expressed my own views as to the meaning and effect of s. 90 in Dickenson's Arcade Pty. Ltd. v. Tasmania [1974] HCA 9; (1974) 130 CLR 177, at pp 217-226 , H.C. Sleigh Ltd. v. South Australia (1977) 136 CLR 475, at pp 491-494 and Logan Downs Pty. Ltd. v. Queensland [1977] HCA 3; (1977) 137 CLR 59, at pp 63-65 . It would serve no useful purpose were I to recapitulate my discussion of the authorities which has led me to accept two propositions as correct. First, a duty of excise is a tax directly related to goods imposed at some step in their production or distribution before they reach the hands of the consumer. This means that the person upon whom the tax is imposed is charged by reason of and by reference to the fact that he has taken such a step in relation to the goods: e.g. as manufacturer, producer, processor or seller. Secondly, the question whether a duty is one of excise must be determined by having regard to the legal effect of the taxing statute and its proper construction and it is not enough that the imposition produces the same economic and practical effect as that which a duty of excise would have produced. It seems to me that the first of these propositions is not in doubt, although difficulties sometimes arise in its application. The second proposition has been the subject of controversy; I shall return to it. (at p615)

9. Reference to duties of excise appears in ss. 55, 86, 87, 90 and 93 of the Constitution. In each of those sections the expression is used in conjunction with "duties of customs". If one thing is clear, it is that the framers of the Constitution regarded duties of customs and duties of excise as in some way closely connected. However, although the meaning of the words "duties of customs" is plain enough, the word "excise" "has never possessed, whether in popular, political or economic usage, any certain connotation and has never received any exact application": per Dixon J. in Matthews v. Chicory Marketing Board (Vict.) [1938] HCA 38; (1938) 60 CLR 263, at p 293 . We no longer need be concerned with the extended meaning that the word has been given in the English statutes which applied it to a miscellany of heterogeneous imposts (see Matthews v. Chicory Marketing Board (Vict.) (1938) 60 CLR, at pp 276, 296-297 ) since it has long been established that the word is not used in the Constitution in that extended sense. However, the meaning of the word in the sense in which it is used in the Constitution was left uncertain by the Constitution itself, and the intentions of the framers of the Constitution in including in s. 90 a reference to duties of excise remains to some extent obscure. (at p616)

10. The association in the Constitution of duties of excise with duties of customs suggests that the two forms of taxation were intended to perform related purposes. The reason for giving the Commonwealth exclusive power to impose duties of customs was clear enough. It was intended by the framers of the Constitution that there should be no interstate tariffs and that the taxation of imports into the Commonwealth should be exclusively within the province of the Commonwealth. Although the Commonwealth was given exclusive power to impose tariffs, it might still have been possible for the States, by imposing duties of excise, to prevent the accomplishment of a policy which the Parliament wished to effect by means of its tariff. For example, if the Commonwealth wished to protect local manufacturers, and accordingly imposed duty on certain imported goods, a State which believed in free trade might have imposed a corresponding excise duty on local manufacturers of the same kind. Whether such action would have been likely is another question. Similarly, if the Commonwealth had adopted a policy of free trade, a State might have obstructed that policy by giving bounties to local manufacturers. Section 90 of the Constitution, however, made exclusive the power of the Parliament to impose duties of customs and of excise, and to grant bounties on the production and export of goods. This conjunction of customs, excise and bounties suggests that it was intended by s. 90 to give the Commonwealth a real control of its tariff policy, but it is by no means evident from anything that appears in the Constitution that it was intended to go further, and "to give the Parliament a real control of the taxation of commodities", to use the words of Dixon J. in Parton v. Milk Board (Vict.) [1949] HCA 67; (1949) 80 CLR 229, at p 260 , and still less clear that it was intended to give the Parliament "the control of the national economy as a unity which knows no State boundaries": Western Australia v. Chamberlain Industries Pty. Ltd. [1970] HCA 5; (1970) 121 CLR 1, at p 17 . (at p617)

11. On any possible view of its effect, s. 90 itself confers on the Parliament only a very limited power to control the economy. There are many taxes which have a tendency to enter into the price of commodities but which are not excises, and which are accordingly within the power of the States to impose. Payroll tax is an obvious example. There are many other legislative measures which a State can take either to discourage or to encourage production and manufacture. On the one hand it can fix quotas on production or manufacture, or indeed forbid production or manufacture altogether; on the other hand it can, for example, favour producers and manufacturers by reducing their taxes and the charges made to them for power and freight, and by building ports and railways for their use and providing them with other assistance. Thus s. 90 does not go very far towards giving the Commonwealth exclusive control of or influence over the production or manufacture of goods. Moreover, s. 109 of the Constitution, which invalidates State laws to the extent to which they are inconsistent with laws of the Commonwealth, plays a major part in preventing any State law from frustrating Commonwealth legislative policy. The presence of s. 109 may well have rendered it unnecessary to include in s. 90 a reference to duties of excise for the purpose of invalidating a State excise duty which counteracted the effect of a Commonwealth tariff. (at p617)

12. The power conferred on the Commonwealth by s. 51(ii) to make laws with respect to taxation is unaffected by s. 90. The Parliament may impose a tax whether it is an excise or not. On the other hand, s. 90 seriously restricts the taxing power of the States; it narrows, artificially, the field of taxation open to them. The inability of the States to impose duties of excise has created greater difficulties for the States since the uniform tax arrangements have virtually prevented them from imposing income taxes. One view of experts in the field of public finance is that the wide extension made by this Court to the definition of "excise" is "one of the greatest impediments preventing the achievement of a rational and lasting division of financial powers in the Australian federal system": Mathews and Jay, Federal Finance (1972), p. 318. One result must surely tend to be that the States will impose some forms of taxation which, although constitutionally permissible, are less economically desirable than taxes now categorized as duties of excise. (at p617)

13. The conclusion that the grant to the Commonwealth of the exclusive power to impose duties of excise gravely hampers the States in the conduct of their financial affairs without conferring any corresponding benefit on the Commonwealth does not mean that the prohibition which s. 90 contains must be disregarded. It does however suggest that there is no good reason for giving a wide and loose construction to its provisions. It supports the view that there is no justification for deciding the question whether a tax is a duty of excise by considering whether the real or practical effect of the legislation is the same as that which would be produced by a duty of excise. As Walsh J. pointed out in Western Australia v. Chamberlain Industries Pty. Ltd. (1970) 121 CLR, at pp 37-38 , it does not assist the Court in deciding whether a tax is an excise to consider the economic consequences of the tax. And when it has been said that in deciding upon the validity of laws we must look to the substance rather than the form, that only means "that an examination must be made of the provisions of the Act to determine its legal effect, according to the proper construction of its operative provisions, whatever their form may be and whatever label may be attached by the Act to the duty which is imposed by it": Western Australia v. Chamberlain Industries Pty. Ltd. (1970) 121 CLR, at p 37 . With all respect to any who may take a different view, I can see no analogy with questions that arise under s. 92 of the Constitution. That section is expressed to be designed to achieve a result - that trade, commerce and intercourse among the States shall be absolutely free. It is understandable that an enactment which has the practical effect of detracting from the attainment of that result may be regarded as infringing the prohibition contained in the section. However, s. 90 makes exclusive to the Commonwealth a particular sort of tax. The question whether a State law infringes s. 90 can be answered only by determining whether it imposes that sort of tax. One must first define "excise", and then ask whether the tax imposed by the State statute comes within that definition. It is irrelevant that the State statute brings about the same practical result as a duty of excise, for s. 90 does not forbid the States to achieve any particular economic result; it forbids them to enact a particular form of taxation. The decision in Vacuum Oil Co. Pty. Ltd. v. Queensland [1934] HCA 5; (1934) 51 CLR 108 strongly supports this approach. In that case it was accepted that the scheme of the Act there challenged did bring about the same result as levying an excise on petrol, but that did not result in its invalidation (1934) 51 CLR, at pp 118, 124-125 . (at p618)

14. If one were to have regard to practicalities, the decisions of this Court would not inspire one with any firm conviction that the invalidation of State taxes on the ground that they are duties of excise has always either contributed to the effectuation of the policies of the Commonwealth Parliament or has had any other beneficial result of a practical kind. It is difficult to see what practical benefit (except to the taxpayer) ensured from the invalidation of a charge made by a marketing board to meet the expenses of its administration (Parton v. Milk Board (Vict.) [1949] HCA 67; (1949) 80 CLR 229 ), or a stamp duty on receipts of payments on sales (Western Australia v. Chamberlain Industries Pty. Ltd. [1970] HCA 5; (1970) 121 CLR 1 ) or a levy on stock imposed to provide a fund to be used in providing husbandry services (Logan Downs Pty. Ltd. v. Queensland [1977] HCA 3; (1977) 137 CLR 59 ). (at p619)

16. Browns Transport Pty. Ltd. v. Kropp and Bolton v. Madsen are entitled to be regarded as authoritative. In each case the decision, which was given by all available members of the Court, was unanimous, and the correctness of the actual results reached has, so far as I am aware, never been doubted. Those cases give strong support to the view that the question whether a tax is directly related to goods depends on the provisions of the legislation which imposes the tax, rather than on the practical effect of the tax. They also decide that a tax on the carriage of goods which is fixed by reference to the gross revenue of the carrier, or by reference to the carrying capacity of the vehicle and the distance travelled, is not sufficiently related to the goods carried. In Bolton v. Madsen the decision in Matthews v. Chicory Marketing Board (Vict.) was held to be "plainly distinguishable" (1963) 110 CLR, at p 272 ; in other words, it must have been held that the basis adopted for the tax in Bolton v. Madsen had neither a natural, nor a necessary, relation to the quantity of goods carried, within the test suggested in Matthews v. Chicory Marketing Board (Vict.) (1938) 60 CLR, at p 303 . Bolton v. Madsen also decided that the fact that the person taxed was a producer was not relevant when the tax was not imposed by reference to the fact that he was a producer. (at p621)

17. In three other cases, in which licence fees were quantified by reference to products bought or sold during a period preceding that in respect of which the licence was granted, it was held that the fees were not a tax on goods and therefore not an excise: Dennis Hotels Pty. Ltd. v. Victoria [1960] HCA 10; (1960) 104 CLR 529 ; Dickenson's Arcade Pty. Ltd. v. Tasmania [1974] HCA 9; (1974) 130 CLR 177 and H. C. Sleigh Ltd. v. South Australia (1977) 136 CLR 475 . Those three cases are consistent with the views that I have expressed. A fourth case of a similar kind, M. G. Kailis (1962) Pty. Ltd. v. Western Australia [1974] HCA 10; (1974) 130 CLR 245 , in which a different view was taken by the majority of the Court, is of limited authority, for the reasons which I gave in H. C. Sleigh Ltd. v. South Australia (1977) 136 CLR, at p 493 . However, the particular question that caused difficulties in those cases does not arise in the present case, and need not now be considered. (at p621)

18. On the other hand, in Swift Australian Co. (Pty.) Ltd. v. Boyd Parkinson [1962] HCA 41; (1962) 108 CLR 189 , a fee payable by the occupier of an abattoir, slaughterhouse or butcher shop for the purpose of defraying the expenses of inspection of meat for sale and of carrying the Act into effect, and charged, in the case of a carcass which had been broken up, at the rate of 1s. per 100lb. of beef, or portion thereof, was held to be an excise. Dixon C.J. said (1962) 108 CLR, at p 201 , that the fee "is a tax upon a step in the preparation of the commodity for the consumer and . . . its manifest tendency is to affect the price". Menzies J. said (1962) 108 CLR, at p 222 , that the exaction was "conditional upon the taking of a step in the process of putting meat in the form in which it will be sold for consumption (i.e. the breaking up of carcasses) and calculated upon the weight of the broken up meat". In that case the tax was imposed by reference to a step taken in production and was quantified by reference to the quantity produced, and, once it was held to be a tax rather than a fee for services, was clearly an excise. (at p622)

19. In the present case, as I have already said, the pipeline operation fee imposed by s. 35(2) in respect of the crude oil pipeline and the gas liquids pipeline is a tax paid for the right to use those pipelines for the conveyance of the liquid hydrocarbons from Longford to Long Island Point. The pipeline operation fee in respect of the Gas and Fuel Corporation pipeline is a tax paid for the right to use that pipeline for the conveyance of natural gas from Longford to Melbourne. The conveyance of the liquid hydrocarbons to Long Island Point is an integral step in the production of the products sold by the plaintiffs. It does not appear that the same is true of the conveyance of the natural gas to Melbourne. It was argued for the plaintiffs that the fees are in substance a tax upon a step in the production by the plaintiffs of the products derived from the hydrocarbons, but the same cannot be said of the fee payable by the Gas and Fuel Corporation. There is nothing in the Pipelines Act to suggest that any distinction is intended to be drawn between the fees payable in respect of the three trunk pipelines or that liability to the tax in any way depends on whether the things conveyed by the pipeline are to be subject to further processing. If for some reason production ceased at Long Island Point, and the plaintiffs sold the hydrocarbons on their arrival there, that would not affect the plaintiffs' liability for the fee. However, in the case of all three trunk pipelines, if the tax directly affects the goods conveyed it is imposed at a point in their production or distribution before they reach the hands of consumers. The question then is whether the tax directly affects the goods, or in other words whether the plaintiffs are taxed by reason of the fact that they transport the hydrocarbons and by reference to the transportation. (at p622)

20. "A pipeline operation fee is payable on the issue of a licence and on each anniversary of the day upon which the licence was issued but in the case of a trunk pipeline to which more than one licence relates the fee shall be payable only in respect of the licence the anniversary of which occurs latest in the financial year": s. 35(4). Unless the plaintiff holds the licence and has paid the fee it is forbidden to operate the pipeline: ss. 25(1), 35(1). Clearly the payment of the fee is a condition of the right to use the pipeline. The amount of the fee does not depend on the extent to which the pipeline is used. In fact the use has been continuous, although it does not appear whether or not that means that the pipelines have been operated under constant pressure and have carried a constant flow of hydrocarbons. However, for the purposes of the Pipelines Act, it is immaterial whether the pipelines carry any particular quantity of, or indeed any, hydrocarbons. If the Minister, acting under s. 37, limited the pressure at which the pipeline might be operated, or prohibited the use of the pipeline or part of it for a time, no rebate would be allowed in respect of any fee already paid. If it were known that in a forthcoming year the use of the pipeline would be prohibited for a time, the fee payable would not be affected. If, perhaps as the result of some disaster, no oil could be produced from Bass Strait, and the use of the pipeline stopped entirely, no part of the fee would be repayable. No doubt in those circumstances, as a matter of practicality, the plaintiffs might not wish to seek a renewal of the licence, but they could not recover the fee if already paid. If it appeared that in a particular year the plaintiffs would carry a greater (or lesser) amount of liquid hydrocarbons than in the previous licence period, that would be quite irrelevant to the amount of fee payable. (at p623)

21. The conclusion appears to me inescapable that the fee is not imposed because the hydrocarbons are carried; it is imposed as a condition of the right to carry them. (at p623)

22. Moreover, there is neither a natural nor a necessary relationship between the fee fixed and the quantity or value of the hydrocarbons conveyed. Bolton v. Madsen seems to me decisive on this point. It would be mere speculation to suggest that there is any particular relationship between the amount of $10,000,000 and the quantity or value of the hydrocarbons carried in the pipelines. The fact that the fee increases in accordance with the consumer price index throws no light on the question whether any such relationship exists. It is common nowadays for all sorts of payments to be adjusted by reference to the consumer price index - salaries, pensions and rent provide examples - the fact that such an adjustment is made shows no more than that the index is regarded as a convenient if rough guide to the extent of inflation. (at p623)

23. The very size of the impost, the fact that it is exacted in respect of pipelines carrying the products of the Bass Strait oil wells and the comparison with the pipeline operation fee charged in respect of other pipelines naturally give rise to the suspicion that the fees charged for the licences for the trunk pipelines are designed to avoid the limitation which s. 90 imposes on the taxing power of the States. However, a tax is not an excise simply because it is large and discriminatory and aimed at companies which carry on a business thought to be lucrative enough to enable them to pay it. None of these circumstances show that there is any relationship between the fee and any step taken by the plaintiffs in respect of the goods. And for the reasons I have given a tax is not an excise because its practical effect appears to be similar to that of an excise. The pipeline operation fee is in my opinion not a tax upon or directly affecting goods; it is what it purports to be, a fee for a licence to use the pipeline. It is not a duty of excise. (at p624)

24. It was further argued on behalf of the plaintiffs that the provisions of s. 35(2)-(8) of the Pipelines Act are inconsistent with the Petroleum (Submerged Lands) Act 1967 (Cth) ("the Commonwealth Act"). It was submitted that there was a direct inconsistency between certain sections of the Commonwealth Act and s. 35 of the Pipelines Act, or alternatively that the Commonwealth legislation reveals a national legislative scheme for taxing the recovery of petroleum from Bass Strait and the product recovered, and thus reveals an intention to cover the field on to which s. 35 of the Pipelines Act intrudes. I have formed the clear opinion that these arguments cannot succeed. I have had the advantage of reading in draft what my brother Wilson has written in relation to this aspect of the matter. I agree with what he has said and could not usefully add anything to his judgment in this respect. (at p624)

25. I would allow the demurrer. (at p624)

MASON J. The plaintiffs in this case assert that the "pipeline operation fee" imposed by the Pipelines Act 1967 (Vict.), as amended, ("the Act") is a duty of excise and, consequently, beyond the legislative competence of the defendant, the State of Victoria, by virtue of s. 90 of the Constitution. By way of demurrer the defendant says that the pipeline operation fee, whilst it may be a tax, is not a duty of excise and does not contravene s. 90. The plaintiffs have paid to the defendant $19,992,920 pursuant to the Act and now claim a declaration that the provisions in the Act imposing the pipeline operation fee are invalid and an order that the amount of $19,992,920 be returned to them. (at p624)

2. According to their statement of claim, the plaintiffs carry on a joint venture for the exploration for, and recovery, production and processing of, hydrocarbons in their solid, liquid or gaseous state, which are sold as various petroleum products. The plaintiffs as joint venturers have been engaged in the exploration for and exploitation of the petroleum resources of submerged lands adjacent to the Australian coast near Gippsland. They produce and have produced since 1968 petroleum from wells located more than three seaward miles from the coastline near Gippsland, in the Bass Strait. (at p624)

3. From the wells in the Bass Strait the hydrocarbons are conveyed along pipelines, which either carry predominantly gas or predominantly oil, to the gas processing and crude oil stabilization plant at Longford. At Longford processing and purification of the hydrocarbons takes place and the hydrocarbons are thereby separated into liquefied petroleum gas (a mixture of ethane, propane and butane), stabilized crude oil and natural gas (primarily methane). In the course of the processing the heavy hydrocarbons are removed from the gas and passed into the oil processing system. The remaining "dry" natural gas is sold at Longford to the Gas and Fuel Corporation of Victoria and conveyed to Melbourne for industrial and commercial use along a pipeline which is referred to in the statement of claim as the Gas and Fuel Corporation pipeline, a pipeline owned by the Corporation. Light hydrocarbons are removed from the incoming crude oil and passed to the gas processing plants. The liquefied petroleum gas and ethane from the gas plants and the crude oil plant and the stabilized crude oil are conveyed from Longford to the fractionation plant and crude oil tank farm at Long Island Point along two pipelines owned by the plaintiffs. The pipelines are referred to in the statement of claim as the gas liquids pipeline and the crude oil pipeline. (at p625)

4. At Long Island Point fractionating, processing and purification takes place. The resulting liquefied petroleum gas, ethane and stabilized crude oil are marketed from Long Island Point, 90 per cent of the liquefied petroleum gas being exported by ship and a substantial part of the stabilized crude oil being transported to its ultimate destination by sea. (at p625)

5. The statement of claim alleges the crude oil pipeline and the gas liquids pipeline are the only practicable means of conveying hydrocarbons from Longford to Long Island Point, there being no deep water port adjacent to the plant at Longford. The consequence, according to the plaintiffs, is that the conveyance of hydrocarbons through those two pipelines is an integral step in the production of the products sold by the plaintiffs. (at p625)

6. It is common ground that the plaintiffs are the only operators in in the Bass Strait fields, that the entirety of the hydrocarbons recovered by the plaintiffs are conveyed to Longford, that these hydrocarbons are the only hydrocarbons received at Longford and that, other than the natural gas conveyed along the Gas and Fuel Corporation pipeline, all the products emerging from the Longford plant are conveyed by either the gas liquids pipeline or the crude oil pipeline to Long Island Point and that no other substances are conveyed by any of the three pipelines. It follows that the three pipelines convey between them the entirety of the hydrocarbons extracted from the Bass Strait fields and carry no other substances. (at p625)

7. The plaintiffs hold various pipeline licences and permits which have been issued pursuant to the provisions of the Act. The authority and effect of the licences and the permits require some examination of the statutory provisions. For the moment it is convenient to list the licences and to state that the plaintiffs hold corresponding permits to own and use a pipeline. In 1968 pipeline licence nos. 27 and 34 were issued in respect of the gas liquids pipeline, the former relating to 107.5 miles (or approximately 172 kilometres) of the 115 miles (or approximately 184 kilometres) of pipeline between Longford and Long Island Point and the latter relating to the remainder. Pipeline licence no. 35 was issued in 1969 and pipeline licence no. 126 was issued in 1980 and together they relate to the crude oil pipeline. Pipeline licence no. 35 originally related to the whole crude oil pipeline, but 87.5 kilometres of the pipeline became corroded and was replaced by pipeline in respect of which pipeline licence no. 126 was issued. The Gas and Fuel Corporation of Victoria hold permits and licences in respect of the Gas and Fuel Corporation pipeline. (at p626)

8. The statutory provisions relating to permits and licences are complex with the consequence that the relationship between the two forms of authority is somewhat obscure. Section 8 provides that "No person shall own or use a pipeline unless . . . (b) he holds a permit granted under this Part entitling him to own and use the pipeline." Section 3 defines "Own and use" to mean "in relation to a pipeline, the owning and being entitled to convey an authorized thing through the pipeline". Section 12 states that, on payment of the prescribed fee, the Minister may grant a permit for such period as the Minister determines and on such terms and conditions as are prescribed or as are stated in the permit. The permits held by the plaintiffs authorize them to own and use the gas liquids pipeline and the crude oil pipeline for the conveyance of the products which they carry. (at p626)

"The pipeline operation fee shall be in the financial year 1981- 1982 -

(a) in the case of a trunk pipeline, the amount of $10,000,000;

(b) in the case of any other pipeline, an amount equal to $40 for every

Sub-section (8) defines "Trunk pipeline" to mean:

"(a) the pipeline to which pipeline licences Nos. 75, 117, 120 and 135 relate;

(b) the pipeline to which pipeline licences Nos. 27 and 34 relate; and

(c) the pipeline to which pipeline licences Nos. 35 and 126 relate."

11. Section 35(3) provides a formula whereby the amounts levied by sub-s. (2) are indexed in accordance with the consumer price index. (at p627)

13. The licensing procedure, for which ss. 25 and 35 provide, seems to be a revenue raising measure. Otherwise it is difficult to account for the introduction of a requirement that a licence in addition to a permit for a licence can be issued only to a person who already holds a permit under s. 12. Indeed, the object of prohibiting the operation of a pipeline without a licence and until the pipeline operation fee is paid is to ensure payment of the fee. (at p628)

14. 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". (See Quick & Garran, Annotated Constitution of the Australian Commonwealth (1901), p. 837.) 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 [1904] HCA 21; (1904) 1 CLR 497 . 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 when produced or manufactured, and not in the sense of a direct tax or personal tax" (1904) 1 CLR, at p 509 . 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. (at p628)

15. Accordingly, the Court has rejected the narrow view of excise - that it is confined to taxes upon production and manufacture. Instead it has adopted the broader view that it extends to taxes upon commodities to the point of receipt by the consumer. However, the apparent breadth of this approach is somewhat illusory because the Court has from time to time insisted that there must be a strict relationship between the tax and the goods in order to constitute a tax upon goods. The continuing problem has been to define or describe that relationship accurately and instructively, especially with a view to distinguishing those taxes imposed at the point of sale or distribution which are an excise from those which are not. (at p628)

16. In Bolton v. Madsen [1963] HCA 16; (1963) 110 CLR 264, at pp 271-273 the Court enunciated a formula which was designed to overcome this problem. The Court said that the tax must be directly related to the goods and the criterion of liability must be a step in the production, manufacture, sale or distribution of the goods. There is a direct relationship between the tax and the goods if the tax is calculated by reference to the quantity or value of goods produced or dealt with in the relevant period. Conversely, it was said that to establish no more than that the imposition of the tax increased the cost of putting goods on the market by a calculable amount, e.g., because the tax was imposed in a fixed amount as the fee for a licence, falls short of establishing the requisite relationship between the tax and the goods. (at p629)

17. Though expressed in general terms the formula was primarily designed to identify those taxes affecting sale or distribution which constitute an excise from those which do not. The formula sought to achieve this object by emphasizing the need for a direct relationship between the tax and the goods, so that the amount of the tax inevitably formed a component of the price paid by the next person in line in the course of distribution from producer to consumer. Such a tax was a burden on home production and manufacture. By this means the Court sought to relate the expanded concept of excise back to the original notion expressed in Peterswald v. Bartley that an excise was a duty on production or manufacture. So, in Anderson's Pty. Ltd. v. Victoria [1964] HCA 77; (1964) 111 CLR 353, at p 374 , Kitto J. (with whom Taylor J. agreed), when applying the Bolton v. Madsen formula, was able to say "a duty of excise is, at bottom, a burden upon home production or manufacture". (at p629)

19. It is apparent, as I said in Logan Downs Pty. Ltd. v. Queensland [1977] HCA 3; (1977) 137 CLR 59, at p 77 , that the contemplated relationship between the tax and the goods "is more easily perceived" in cases where the tax is levied at a time when the goods are in the course of production than in cases where the tax is levied at a time when the goods are in the course of sale or distribution, after the process of production or manufacture has been completed. This is because the tax on its face appears to be an immediate burden on production or manufacture - it necessarily enters into the pricing of the goods, increasing the price which will be paid by purchasers down the line to the point of receipt by the consumer. A tax upon the sale or distribution of goods will apply to imported goods as well as to goods manufactured in Australia. If, in its application to imported goods, it constitutes a burden on home manufacture, it is because it lowers the demand for the goods generally by increasing the price of them. (at p630)

20. The Bolton v. Madsen formula has one advantage. Its application will lead to certainty and predictability in the determination of what is an excise. Unfortunately the formula has a number of countervailing disadvantages. The criterion of liability which it expresses is very much a matter of form, not of substance. This would not matter if the constitutional conception of an excise was itself a matter of form. But there are powerful reasons for thinking that the grant of exclusive power to the Commonwealth to impose excise duties was not intended to be a mere matter of form. (at p630)

21. Applied literally, as the decision in Dennis Hotels Pty. Ltd. v. Victoria [1960] HCA 10; (1960) 104 CLR 529 convincingly demonstrates, the criterion of liability leads to the result that a licence fee charged on a step in production or distribution, calculated by reference to the quantity or value of goods produced or sold in the period for which the licence is held, is an excise, but not if the fee is calculated by reference to the quantity or value of the goods produced or sold in the previous licencing period. The distinction between the two licence fees just mentioned is a mere matter of form. It leaves the State free to levy licence fees and other duties in respect of the production, manufacture sale or distribution of goods in any form except that which is caught by the Bolton v. Madsen strict criterion of liability. (at p630)

22. What, one might ask, was the high constitutional purpose intended to be served by prohibiting the States from imposing a tax in this very limited form? To prohibit the States from imposing a tax having an arithmetical relationship with goods produced or sold during a licence period, while leaving the States free to impose any other form of tax in respect of goods produced or sold, achieves nothing. If this be the effect of s. 90 is certainly adds nothing to the Commonwealth's economic and financial powers. (at p631)

23. Yet it has been generally accepted that the grant of exclusive power to impose duties of excise in conjunction with a like power to impose customs duties, in a Constitution which frequently refers to the two duties - ss. 86, 87, 90 and 93 "was intended to give the Parliament a real control of the taxation of commodities and to ensure that the execution of whatever policy it adopted should not be hampered or defeated by State action" (Parton v. Milk Board (Vict.) [1949] HCA 67; (1949) 80 CLR 229, at p 260 , per Dixon J.; see also, per McTiernan J. (1949) 80 CLR, at pp 264-265 ; The Commonwealth and Commonwealth Oil Refineries Ltd. v. South Australia [1926] HCA 47; (1926) 38 CLR 408, at p 437 , per Rich J.; Whitehouse v. Queensland [1960] HCA 11; (1960) 104 CLR 609, at p 618 , per Dixon C.J.; Western Australia v. Chamberlain Industries Pty. Ltd. [1970] HCA 5; (1970) 121 CLR 1, at p 17 , per Barwick C.J.; Dickenson's Arcade (1974) 130 CLR, at p 238 , per Mason J.). Excise duties, like customs duties, are significant instruments for raising revenue. What is more important is that Parliament, possessing exclusive power to impose both forms of duties, can protect and stimulate home production by fixing appropriate levels of customs and excise duties. And it can lower the level of domestic prices by lowering customs and excise duties. By lowering customs duties alone it can put pressure on Australian producers and manufacturers to become more competitive. (at p631)

24. If the States had power to impose excise duties then the Commonwealth Parliament's power to protect and stimulate home production and influence domestic price levels might be compromised. It is possible that by an exercise of the taxation power the Commonwealth could effectively prevent the States from imposing excise duties. A law enacted under s. 51(ii) providing that no excise duties should be payable on designated goods would, by virtue of s. 109, prevail over any inconsistent State law. This is not a reason for denying that the object of granting exclusive power to the Commonwealth was as I have expressed it to be. The Commonwealth's control is stronger if it possesses exclusive power; then there is no potential for conflict between Commonwealth and State legislation. The possibility of the imposition of taxes on goods by the States in the period prior to the enactment of inconsistent legislation by the Commonwealth undermines the Commonwealth's real control of the taxation of commodities and provides a further reason for rejecting the existence of s. 109 as a basis for narrowing the ambit of the Commonwealth's exclusive power under s. 90. In any case, to make the power exclusive is to free its exercise from some of the political controversies and constraints which would inevitably surround any attempt by the Commonwealth Parliament to pass inconsistent legislation designed solely to override a State law. (at p632)

25. That s. 90 confers on the Commonwealth Parliament an exclusive power to grant bounties on the production or export of goods reinforces the proposition that the grant of an exclusive power to impose duties of customs and excise was intended to give the Parliament a real control over the taxation of commodities. It could not have been intended that the States should have the power to burden home production by imposing taxes upon goods, when the Commonwealth was given exclusive power to stimulate production by granting bounties. (at p632)

26. That the object of the power was to secure a real control over the taxation of commodities provides strong support for a broad view of what is an excise, one which embraces all taxes upon or in respect of a step in the production, manufacture, sale or distribution of goods, for any such tax places a burden on production. A tax on goods sold, like a tax on goods produced, is a burden on production, though less immediate and direct in its impact. It is a burden on production because it enters into the price of the goods - the person who is liable to pay it naturally seeks to recoup it from the next purchaser. As the tax increases the price of the goods to the ultimate consumer, and thereby diminishes or tends to diminish demand for the goods, it is a burden on production. (at p632)

28. The Bolton v. Madsen strict criterion of liability bears more than a haunting resemblance to the direct legal operation test formerly applied in s. 92 cases. The similarity of the criteria is apparently to be explained by the circumstance that the question in each instance is for a burden - in the one case on home production, in the other on interstate trade and commerce. The philosophy which underlies the two criteria is that in applying constitutional prohibitions or guarantees the Court should not look beyond the direct legal operation of the impugned law according to its terms. It is a philosophy with which I profoundly disagree. It is necessary to examine the practical operation of a law as well as its terms in order to ascertain whether it imposes an excise (see Matthews (1938) 60 CLR, at pp 303-304 ; Chamberlain (1970) 121 CLR, at p 15 ; Dickenson's Arcade (1974) 130 CLR, at p 241 ). Otherwise the constitutional prohibition is reduced to a formula which lends itself to evasion. It is not without significance that in the more recent s. 92 cases the Court has looked to the practical operation of the law which is alleged to contravene the section - see North Eastern Dairy Co. Ltd. v. Dairy Industry Authority of N.S.W. [1975] HCA 45; (1975) 134 CLR 559, at pp 588-589, 606-607, 622 and later cases. The criteria enunciated by Barwick C.J. in Anderson's (1964) 111 CLR, at p 365 are a more reliable guide to what constitutes an excise. (at p633)

30. There are many illustrations, notably in England, of fees charged for licences to carry on an occupation which have been regarded as an excise (W. Harrison Moore, The Constitution of the Commonwealth of Australia, 2nd ed. (1910), p. 515). This is because the fee was not merely a fee for the privilege of carrying on a business or activity; it was also a tax upon goods. Where the fee for a licence to sell a commodity is a lump sum that is small or relatively small in amount it is easier to conclude that it is a fee for a privilege or that, if it be a tax, it is not a tax on the commodity. Where, however, though the fee is expressed to be for a licence to produce or manufacture, the terms and practical operation of the law show that it is exacted in virtue of the quantity or value of units produced or manufactured, it is a tax upon goods. (at p634)

31. Here the significant features of the pipeline operation fee are: (1) that it is levied only upon a trunk pipeline, i.e., the gas and fuel Corporation pipeline, the Gas Liquids pipeline and the crude oil pipeline, through which flow the entirety of the hydrocarbons recovered from the Bass Strait fields; (2) that it is a fee payable for permission to operate a pipeline for which the plaintiffs otherwise hold a permit to own and use; (3) that the fee is a special fee which is extraordinarily large in amount, having no relationship at all to the amount of the fees payable for other pipeline operation licences - the fee payable for a trunk pipeline is $10,000,000 whereas the fee payable for any other pipeline is $40 per kilometre; and (4) that the fee is payable before an essential step in the production of refined spirit can take place - the transportation of the hydrocarbons from Longford to Long Island Point where the refinery is situated. (at p634)

32. The coexistence of these features indicates that the pipeline operation fee payable by the plaintiffs is not a mere fee for the privilege of carrying on an activity; it is a tax imposed on a step in the production of refined petroleum products which is so large that it will inevitably increase the price of the products in the course of distribution to the consumer. The fee is not an exaction imposed in respect of the plaintiffs' business generally; it is an exaction of such magnitude imposed in respect of a step in production in such circumstances that it is explicable only on the footing that it is imposed in virtue of the quantity and value of the hydrocarbons produced from the Bass Strait fields. To levy a tax on the operation of the pipelines is a convenient means of taxing what they convey for they are the only practicable method of conveying the hydrocarbons to the next processing point. (at p635)

33. Finally there is the fact that the Act itself discloses a relationship with the hydrocarbons conveyed by the trunk pipelines. I earlier set out the terms of the definition of "Trunk pipeline" in s. 35(8). That definition makes specific mention of the pipeline licence numbers issued in relation to each trunk pipeline. It is not possible to ignore those references and to say, as the defendant says, that the Act makes no mention of hydrocarbons. Section 35(8) incorporates by reference the terms of the pipeline licences mentioned therein. Paragraph (b) of the definition refers to pipeline licence nos. 27 and 34, which relate to the gas liquids pipeline. Condition II(A) in the former licence and II(C) in the latter say: "The substance to be conveyed in the pipeline shall be non corrosive liquid hydrocarbons consisting substantially of ethane, propane, butane and crude oil." The other licences contain similar conditions. (at p635)

34. There was some suggestion in the course of argument that the flow of the hydrocarbons through the pipelines could cease and that, for that reason, the tax could not be said to be imposed upon the hydrocarbons themselves. There are two answers to this. First, the facts in the statement of claim, which, for the purposes of a demurrer, we must take to be correct, state that there has been a continuous flow through the pipeline. Secondly, and more importantly, it matters not that the flow of hydrocarbons may cease. Barwick C.J. said in Chamberlain (1970) 121 CLR, at p 15 , that it is "fallacious" to say that "unless as tax by an Act is in all the circumstances to which the Act is intended to apply a duty of excise, it cannot be a duty of excise in any of those circumstances". If it is a duty of excise in any circumstances then it infringes the proscription contained in s. 90. In Matthews [1938] HCA 38; (1938) 60 CLR 263 the levy which was imposed per half acre of land planted with chicory was an excise notwithstanding that the chicory plantation may not actually have produced any chicory at all. See also Logan Downs (1977) 137 CLR, at p 78 . (at p635)

35. There was also a suggestion that, by virtue of s. 15, the right to convey the hydrocarbons through the pipelines is consequent upon the permit and that the fee imposed upon the licence is extraneous to the passage of hydrocarbons. Section 15 states that "A permittee shall not convey anything through a pipeline unless the pipeline is authorized for the conveyance of such thing." Also, as we have seen, s. 8 makes the right to "own or use" a pipeline conditional on the holding of a permit and s. 3 says that "Own and use" means owning the pipeline and "being entitled to convey an authorized thing through the pipeline". It is said that the licence only confers the right to "construct or operate" a pipeline (s. 25(1)) and that the definitions of those terms in s. 3 do not go beyond the placing of the pipeline or the maintenance, removal and alteration of the pipeline. Again, there are two answers to this argument. The definition of "Operation" is only an inclusive definition and the ordinary and natural meaning of "Operation" goes far beyond maintenance, removal and alteration and almost certainly extends to the use of the pipeline and the conveyance of hydrocarbons through it. In any case, it is impossible to accept, once one examines the practical effect of the statute, that the permit alone confers the right to convey the hydrocarbons through the pipelines whilst the licence, which attracts a fee of $10,000,000 per annum, confers the right only to do the things mentioned in the definitions of "Construct" and "Operation". The only reasonable conclusion is that the $10,000,000 fee is imposed on the conveyance of hydrocarbons through the pipelines. (at p636)

36. I therefore have no need to consider the plaintiffs' other two arguments, asserting inconsistency under s. 109 of the Constitution and asserting that the impost is a duty of customs infringing s. 90. (at p636)

37. In the result I would overrule the demurrer. (at p636)

MURPHY J. The Constitution places the general fiscal and economic arrangements of Australia within the legislative power of the Australian Parliament by giving it certain legislative powers and by denying certain legislative powers to the States. The Parliament is vested, in s. 51, with a battery of legislative powers to make laws for the peace, order and good government of the Commonwealth with respect to subjects of economic significance. Of these, par. (i) the commerce power, is a very wide power for regulation of trade and commerce with other countries and among the States, the terms on which it is carried on, including the terms on which persons participate in it, such as wages and conditions of employment. (at p636)

2. Section 51, par. (ii) empowers the Parliament to make laws for the peace, order and good government of the Commonwealth with respect to taxation, but so as not to discriminate between States or parts of States. In addition to the prohibition expressed in it, it is, along with the rest of s. 51, subject to the Constitution, and thus to s. 55 (laws imposing taxation shall deal with only one subject of taxation and not deal with any other matter), s. 99 (Commonwealth not to give preference to any State or part) and s. 114 (Commonwealth not to impose any tax on State property) and to any implication in favour of the continued existence of the States and of their capacity to function. Subject to such restrictions the power is as plenary as any other, and authorizes laws which apply to the States, including laws which exclude the States from particular tax fields. In this respect it is unlike the power in the Constitution of the United States of America, which grants Congress "Power to lay and collect Taxes, Duties, Imposts and Excises; to pay the Debts and provide for the common Defence and general Welfare of the United States" (Art. 1, s. 8, 1). Notwithstanding statements to the contrary such as those in Municipal Council of Sydney v. Commonwealth [1904] HCA 50; (1904) 1 CLR 208, at p 232 and Victoria v. The Commonwealth [1957] HCA 54; (1957) 99 CLR 575, at p 614 , the power of the Australian Parliament is to make laws for peace, order and good government with respect to taxation, not merely to make laws with respect to imposing and collecting taxes for the purposes of the Commonwealth. (at p637)

3. Other important economic legislative powers of the Parliament are those with respect to the following: par. (iii) bounties; par. (iv) borrowing money on the public credit of the Commonwealth; par. (xii) currency, coinage, and legal tender; par. (xiii) banking, other than State banking, also State banking extending beyond the State concerned, incorporation of banks, and the issue of paper money; par. (xiv) insurance, other than State insurance; also State insurance extending beyond the State concerned; par. (xvi) bills of exchange and promissory notes; par. (xvii) bankruptcy and insolvency; par. (xx) foreign corporations and trading or financial corporations; par. (xxiii) invalid and old-age pensions; par. (xxiiiA) various allowances, pensions and benefits and services; par. (xxix) external affairs; par. (xxxi) acquisition of property on just terms from any State or person; par. (xxxv) conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond any one State. (at p637)

4. Section 90 provides that, 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 (that is, of the power of the States). Section 91 provides exceptions to the prohibiton on State bounties and s. 92 guarantees that trade, commerce and intercourse among the States shall be absolutely free. Section 93 deals with payment of customs duties on goods imported into a State and excise duties on goods produced or manufactured in a State and afterwards passing into another State for consumption during the first five years after imposition of uniform customs and until Parliament otherwise provides. (at p638)

5. The group of sections, 90, 91 and 92, should be read narrowly, to avoid adverse consequences to the States which could not have been intended by the framers of the Constitution. In Seamen's Union of Australia v. Utah Development Co. [1978] HCA 46; (1978) 144 CLR 120 , Stephen J. (1978) 144 CLR, at p 141 , Mason J. (1978) 144 CLR, at pp 148-149 and Murphy J. (1978) 144 CLR, at p 159 referred to the crippling result which a wide reading of s. 91 would have on the States. The history of s. 92 shows how a wide reading of this section has had extremely adverse results on the States, particularly in the regulation of transport and has inhibited the Commonwealth from regulating the national economy. Section 90 should be read narrowly for similar reasons. This was the earliest view (see Peterswald v. Bartley [1904] HCA 21; (1904) 1 CLR 497 ) and has been stated since (for example see Latham C.J. and McTiernan J. in both Matthews v. Chicory Marketing Board (Vict.) [1938] HCA 38; (1938) 60 CLR 263 and Parton v. Milk Board (Vict.) [1949] HCA 67; (1949) 80 CLR 229 and Fullagar J. in Dennis Hotels v. Victoria [1960] HCA 10; (1960) 104 CLR 529, at pp 555-558 ; myself in Logan Downs Pty. Ltd. v. Queensland [1977] HCA 3; (1977) 137 CLR 59, at p 85 ), but it has not prevailed. (at p638)

6. In the Australian Constitution an excise is a tax on production (including manufacture). State excise is a tax on production within the State. State customs duty is a tax on goods produced outside and them imported into the State. Section 90 prohibits State taxation which discriminates between goods produced in the State and those produced outside the State, and prohibits State bounties on production (or export). The constitutional concept of excise forbidden to the States is limited to taxes on production within the State; it does not extend to taxes on distribution or consumption unless these are in substance taxes on production within the State. In general, a tax on wholesale or retail sale which does not discriminate between goods on the basis of their production within or without the State, is neither customs nor excise. In general a sales tax applied indiscriminately on all goods or on a class or classes of goods, wherever produced, would not contravene s. 90 as an excise or a customs duty. I say in general, because a tax may in reality be a tax on production, even if expressed to be a sales tax. For example, a sales tax restricted to a particular commodity produced only or substantially only in the State, might be in substance, though not in form, a tax on the production of that commodity in the State. (at p638)

7. If the concept of excise is narrow, so that the States have more freedom in the choice of taxing, this does not impair, but enhances, the capacity of the Australian Parliament to manage the economy. This is because the Parliament may allow the State tax to operate, or may legislate to exclude it by operation of s. 109 of the Constitution. Such a federal law must however conform with the Constitution; it must not, for example, offend s. 51(ii) by discriminating between States or parts of States, or offend s. 99 by giving preference to one State or part over another State or part. (at p639)

8. As I observed in Logan Downs (1977) 137 CLR, at pp 84-85 , the constitutional concept of excise was expanded too widely in the earlier cases such as Dennis Hotels v. Victoria and Dickenson's Arcade Pty. Ltd. v. Tasmania [1974] HCA 9; (1974) 130 CLR 177 . The artificial taxation arrangements which these decisions have driven the States to adopt are inefficient and have no logical basis. Where transactions continue over a number of years an impost has no different character whether it is imposed in respect of transactions of the current year or those of a past year. Yet the cases treat a State tax imposed in respect of a past year as valid, and one in respect of the current year as an invalid excise. These cases are a blot on our constitutional jurisprudence and are overdue for reconsideration. In my opinion Logan Downs was incorrectly decided, apart from the question of principle involved. The Court was evenly divided, the decision of a justice of the High Court or of a Supreme Court was not called in question by appeal or otherwise, so the decision was given in accordance with the Judiciary Act 1903 (Cth), which provides that in such a case, the opinion of the Chief Justice or if he is absent the senior justice present, shall prevail (s. 23(2)). For the reasons I gave in Federal Commissioner of Taxation v. St. Helens Farm [1981] HCA 4; (1981) 146 CLR 336, at p 387 the Parliament cannot require a case to be so decided, and apart from form, the substantial result should have been that the challenge to the validity of the Stock Acts 1915-1965 (Q.) failed. (at p639)

9. The Gas and Fuel Corporation pipeline is used to supply methane or natural gas, sold and delivered by the plaintiffs at Longford, to Melbourne for industrial and commercial purposes. This seems more a step in the distribution than the production process. Unless the tax on this trunk pipeline is shown to be in substance a tax on production, it is not an excise. However that tax is not the subject of these proceedings. The challenged imposts are those on the crude oil and liquefied petroleum gas pipelines which run from one part of the plaintiffs' plant (the gas processing and crude oil stabilization plant at Longford) to another (the fractionation plant and crude oil tank farm at Long Island). There is no practical possibility these pipelines can be used other than for the transportation of hydrocarbons. Transportation by pipeline is thus an integral step in the production process. The tax on the pipeline operation, imposed by the insertion into the Pipelines Act 1967 (Vict.) of s. 35(2)-(8) by the Pipelines (Fees) Act 1981 (Vict.), is a tax on production in the State. It is very substantial, amounting to $10,000,000 for a trunk pipeline in 1981- 1982 (s. 35(2)(a)). It is not a fee for service. (at p640)

10. A tax such as this fixed annual fee may still be an excise even if it is not assessed according to the quantity or value of the production (see Dixon J. in Matthews v. Chicory Marketing Board (Vict.) (1938) 60 CLR, p 304 ; Western Australia v. Hamersley Iron Pty. Ltd. (No. 1) [1969] HCA 42; (1969) 120 CLR 42, at p 64 ; M.G. Kailis (1962) Pty. Ltd. v. Western Australia [1974] HCA 10; (1974) 130 CLR 245 ). (at p640)

11. The tax in its application to the plaintiffs' pipelines is an excise imposed by the State contrary to s. 90 and therefore invalid. (at p640)

12. The demurrer should be overruled. (at p640)

WILSON J. Since 1968 the plaintiffs, as joint venturers, have engaged in the exploration for and exploitation of petroleum resources in Bass Strait, off the Victorian coast near Gippsland. The petroleum produced from the plaintiffs' offshore production platforms is transported by separate sea pipelines, which carry either predominantly oil or predominantly gas, to the gas processing and crude oil stabilization plant at Longford in Victoria. At the Longford plant the oil and gas are subject to processing and purification and then separated into stabilized crude oil, liquefied petroleum gas and natural gas. (at p640)

2. The natural gas is sold at Longford to the Gas and Fuel Corporation of Victoria and conveyed by its pipeline ("the Gas and Fuel Corporation pipeline") direct to Melbourne. The stabilized crude oil and liquefied petroleum gas are transported from the Longford plant by individual pipelines ("the crude oil pipeline" and "the gas liquids pipeline" respectively) to a fractionation plant and crude oil tank farm located at Long Island Point in Westernport Bay, Victoria. At the Long Island Point plant further processing and purification of the products take place with a substantial part of the resulting crude oil and approximately 90 per cent of the liquefied petroleum gas (propane and butane) being exported from Long Island Point by ship. (at p640)

3. By s. 8 of the Pipelines Act 1967 (Vict.), as amended, ("the Act") no person shall own or use a pipeline unless: "(b) he holds a permit granted under this Part entitling him to own and use the pipeline." (at p641)

6. In 1968 the plaintiffs were issued licences nos. 27 and 34 with corresponding permits for the gas liquids pipeline. That pipeline is, in total, 190 kilometres in length and was licensed to convey non-corrosive liquid hydrocarbons consisting substantially of ethane, propane, butane and crude oil. At all material times there has been a continuous flow of gas liquids through the pipeline. The plaintiffs own both the gas liquids pipeline and the substances which pass through it as tenants in common in equal shares. (at p641)

7. The crude oil pipeline is 186 kilometres in length and the plaintiffs were issued with licence no. 35 and a corresponding permit for it in 1968. In 1980, licence no. 126 and a corresponding permit were issued for a new pipeline 87.5 kilometres in length which was constructed as a replacement for part of the original pipeline which had become corroded. Again there has been a continuous flow of crude oil through the pipeline and the plaintiffs own both the pipeline and the substances passing through it as tenants in common in equal shares. The licences specify that only liquid hydrocarbons may be conveyed in the crude oil pipeline. (at p641)

8. The Gas and Fuel Corporation is the holder of licences nos. 75, 117, 120, and 135 in respect of the Gas and Fuel Corporation pipeline. That pipeline has been used for the transportation of natural gas which is sold and delivered by the plaintiffs to the Gas and Fuel Corporation at Longford. (at p641)

9. Prior to 1981, pursuant to s. 35(2) and the regulations made under the Act, annual pipeline operation licence fees per kilometre or portion of kilometre of pipeline were levied in respect of the Gas and Fuel Corporation pipeline, the gas liquids pipeline and the crude oil pipeline. In 1980 the plaintiffs paid $5,765 in fees with respect to the gas liquids pipeline licences and $8,190 for the crude oil pipeline licences. (at p641)

"(1) A licensee shall not operate a pipeline unless -

(a) the Minister has informed him in writing that the pipeline is fit to

(b) the current pipeline operation fee has been paid in respect of that pipeline.

(2) The pipeline operation fee shall be in the financial year 1981- 82 -

(a) in the case of a trunk pipeline, the amount of $10,000,000;

(b) in the case of any other pipeline, an amount equal to $40 for every

. . .

(8) In this section -

. . .

'Trunk pipeline' means -

(a) the pipeline to which pipeline licences Nos. 75, 117, 120 and 135

(b) the pipeline to which pipeline licences Nos. 27 and 34 relate; and

(c) the pipeline to which pipeline licences Nos. 35 and 126 relate."

12. The resolution of the problem which is put forward for decision requires the Court to wrestle again with the meaning of the term "duties of excise" in s. 90 of the Constitution. (at p643)

13. The tax here is imposed upon trunk pipelines identified by reference to the numbers of the licences which authorize, subject to s. 35(1), their operation. On the proper construction of the legislation, I conclude that what is taxed is the activity of operating the pipeline in question. Furthermore, it is clear on the facts asserted in the statement of claim that the activity includes the use of the pipelines by the plaintiffs for the transportation of hydrocarbons in the course of the refining process and by the Gas and Fuel Corporation for the transportation of natural gas in the course of its business. This is not to say that the impost is a tax imposed on a step taken in the course of production or distribution of the hydrocarbons. It is payable before any petroleum product is conveyed through the pipeline. It might accurately be described as a direct or personal tax, a fee payable by the owner of a pipeline for the privilege of operating it. At the same time, it bears a close relation to the transportation of the product through the pipeline and I am prepared, for the sake of argument, to proceed on the basis of an acceptance of the plaintiffs' argument that it is properly described as a tax on a step taken in the course of production or distribution. Even so, on the basis of received doctrine, such a conclusion is not of itself sufficient to constitute the tax a duty of excise. It must be directly related to the product which passes through the pipelines. The question is whether there is such a relationship. The tax imposed on each pipeline is a fixed annual fee which is in no way dependent upon the volume of hydrocarbons which pass along the pipeline. It remains constant regardless of the capacity or length of the pipeline and the rate at which the petroleum is pumped through it. It will be payable during periods when because of maintenance or other work referred to in the interpretation in s. 3 of the word "operation" no material is being passed along it. (at p643)

15. However, Mr. Gleeson, for the plaintiffs, advances two submissions to meet the difficulties posed by the principles so clearly expounded in Bolton v. Madsen. In the first place, he argues that there is a natural relationship to quantity or value established by the direct imposition of a tax on the operation of a particular pipeline and draws an analogy with the tax measured by the area planted with chicory which was determined to be a duty of excise in Matthews v. Chicory Marketing Board (Vict.) [1938] HCA 38; (1938) 60 CLR 263 . But on examination the supposed analogy breaks down. In that case the tax varied with the extent of the area that was planted. In the course of argument in the present case much reliance was placed on the words of Dixon J. in Matthews (1938) 60 CLR, at p 303 that "the basis adopted for the levy has a natural, although not a necessary, relation to the quantity of the commodity produced". That statement must not be taken out of its context and relied upon to characterize any tax which may be seen to have some effect, however indirect, on the cost of producing goods as a tax directly affecting commodities. In Bolton v. Madsen the Court was confronted with precisely the same argument based on Matthews. It was rejected. The Court, as appears from the passage which I have already cited, answered the contention by observing that in Matthews Dixon J., after referring to the area planted as providing a natural though not a necessary relation to the quantity of the commodity produced, made it plain that he considered such a tax as a tax on "the production of the commodity as effectually as if it had selected, for instance, the weight of the chicory gathered in its raw state, the quantity treated or the gross returns". Dixon J. then proceeded, in a sentence of critical importance, to assign a reason for that conclusion (27): "For it has placed upon an essential step in production, namely, planting, an impost computed quantitatively." (at p647)

16. In the second place, Mr. Gleeson argues in the alternative that even though there may be no relation in this case in terms of quantity or value between the tax and the goods, the very size of the impost, its discriminatory character and the directness of its application to a step in production are sufficient to establish it as a duty of excise. (at p647)

17. The argument is a formidable one. There is nothing of general application about this tax. It is an enormous impost laid directly by the legislature on three specified pipelines, each of which is associated with the transportation of Bass Strait oil and gas. It may be fairly described, so it seems to me, as a tax on the business of refining or of distributing that oil and gas. But is such a tax properly described as a duty of excise? Underlying the submission is the premise that the requirement of a relationship to the quantity or value of goods has been no more than an aid in identifying a duty of excise. I find it impossible to accept such a premise. The element of a relation to quantity or value, accepting the broader application of that term in the sense discussed by Dixon J. in Matthews, is essential to distinguish a tax imposed directly upon goods or directly affecting commodities from a tax which does not satisfy that description even though, like any other general cost of running a business, it may be expected to enter into the price at which the goods are sold. A relationship to quantity or value has always been insisted upon as an essential feature of a duty of excise. In Peterswald v. Bartley (1904) 1 CLR, at p 509 Griffith C.J., expressing the view of the Court, said that the term "is intended to mean a duty analogous to a customs duty imposed upon goods either in relation to quantity or value when produced or manufactured". In Matthews, Dixon J. while rejecting the necessity of a calculation based strictly on the quantity or value of the goods described the basal conception of an excise as a tax "directly affecting commodities" (1938) 60 CLR, at p 303 and spoke of it being "levied" upon goods (1938) 60 CLR, at p 304 (my emphasis). As I have noted, his Honour found a quantitative relation to exist between the area planted with chicory and the product harvested. (at p647)

18. In any event, the specific features upon which Mr. Gleeson relies do not carry the plaintiffs very far. The size of the impost, however disturbing a feature of the case it may be, does not assist in its characterization apart from requiring its rejection as a fee for services and its characterization as a tax. It does no more than reflect the legislature's assessment of the value of the right to carry on the business in respect of which it is imposed. If it does not directly affect the goods then however serious its indirect effect may be it will not satisfy the test. Similarly, the discriminatory character of the tax is not determinative of its character. If in its nature the tax is the price exacted by the legislature for the privilege of carrying on a business then it cannot matter that one particular business is singled out as the enterprise chosen to bear it. Indeed, the very directness of the application of this tax to numbered pipelines and its fixed lump sum character may tend to indicate that it is a direct or personal tax imposed on the owners of the pipelines. Such taxes are not duties of excise. They directly affect people rather than goods. As Dixon J. remarked in Matthews (1938) 60 CLR, at p 300 : "A tax imposed upon a person filling a particular description or engaged in a given pursuit does not amount to an excise." The reason is that such a tax does not directly affect commodities. Finally, I have already endeavoured to show, by reference to the principles enunciated in Bolton v. Madsen that even if the impost be taken to tax a step in production that characteristic is not sufficient of itself to constitute it an excise. (at p648)

20. Mr. Gleeson described the purpose of s. 90 as intended to prevent State fiscal activity from undermining what he described as the constitutional objective of securing national control over the exploitation and production of natural resources. References have been made from time to time in the judgments of members of this Court to the question of constitutional purpose lying behind s. 90: cf. Dixon J. in Parton v. Milk Board (Vict.) [1949] HCA 67; (1949) 80 CLR 229, at p 260 ; Barwick C.J. in Chamberlain (1970) 121 CLR, at p 17 . Speaking for myself, however, and with all respect, I find little assistance, when required to apply s. 90, in resort to questions of assumed constitutional purpose. The difficulty is that there is no certain guide to the purpose of s. 90 save that which is to be gleaned from the words of the section. The power to impose duties of customs and of excise, and to grant bounties on the production or export of goods, is denied to the States. Therein lies a constitutional distinction in terms of legislative power which it is the duty of this Court to preserve. That section alone defines the limits of exclusive legislative power in this respect. In provides no authority to the Court to assume the responsibility of determining larger questions of fiscal responsibility within the federation; nor, of course, is the Court equipped to undertake such a task. Those larger questions must be determined, consistently with the Constitution, in the political arena. It is there that the resources available in the community to cope with economic conditions of increasing complexity may be appropriately discovered and utilized. (at p649)

22. In the course of argument the plaintiffs sought to draw support from the decisions of this Court in Swift Australian Co. (Pty.) Ltd. v. Boyd Parkinson [1962] HCA 41; (1962) 108 CLR 189 and M.G. Kailis (1962) Pty. Ltd. v. Western Australia (1974) 130 CLR 245 . However, reference to the facts in each of those cases serves only to demonstrate the distinction that exists between those cases and the present case. In both Swift and Kailis the tax was calculated on the volume of the product that was put through the processing establishment: in Swift it was by reference to the weight of meat broken up, and in Kailis by reference to the value of fish caught or purchased for processing. Leaving aside the distinctive feature in Kailis which occasioned a difference of opinion between the members of the Court, it can be seen that in each case the tax was imposed directly upon the product. It is that feature which is conspicuously lacking in the present case. As I have endeavoured to show, it is no answer to say that the tax, imposed by reference not to the hydrocarbons the subject of production but to the operation of a piece of capital equipment used in the transportation of the product has substantially the same effect as if it taxed the product itself. If every tax which could be seen to increase the cost of producing or distributing goods was to be classed as a duty of excise it is difficult to see why that classification would not extend to a host of taxes such as land tax, payroll tax, and licence fees imposed as the price of the privilege of carrying on a business. Yet it has never been suggested that s. 90 has or should have the effect of placing these imposts beyond the power of a State legislature. Nor can I perceive any warrant for so construing s. 90 as to set at nought the long and arduous course of definition which is reflected in the past decisions of this Court. (at p651)

24. It remains to consider the submission that the provisions of s.35(2) of the Act are invalid for the reason that they are inconsistent, within the meaning of s. 109 of the Constitution, with the Petroleum (Submerged Lands) Act. In my opinion the submission must fail. The challenged provisions tax the operation of a pipeline in Victoria; I can find nothing in the Commonwealth legislation which is directly inconsistent with such a tax, nor an intention to cover a field which would include such a tax. (at p651)

26. The only respect in which the alternative aspect of the inconsistency argument can avail the plaintiffs is if the Commonwealth offshore scheme evinces an intention so to cover the field of recovery of offshore petroleum as to exclude any State law, operative wholly within a State, from taxing an activity associated with that petroleum after it arrives in the State. If the State law imposed a duty of excise, it would be invalid in any event, so the argument must proceed on the basis that while not a direct tax on the petroleum it nevertheless enters a field which the Commonwealth has reserved to itself. In my opinion, the Commonwealth legislation does not evince any intention to deal with activities associated with the petroleum which is recovered offshore once it has entered the territory of a State. It must have been recognized that on entry into a State all the laws of that State relevant to activities associated with the product would apply to it. The discriminatory nature of the present tax is a distinctive feature of the circumstances of this case but there is no indication of an intention to exclude any State law, whether discriminatory or not, attracted by the activity of transporting the petroleum intrastate. It is perhaps not without significance that the learned Solicitor-General of the Commonwealth, although making an appearance in order to argue the excise point in support of the plaintiffs, did not offer any submissions on the question of inconsistency. (at p653)

27. I would allow the demurrer. (at p653)

BRENNAN J. The plaintiffs who are the co-holders of pipeline licences under the Pipelines Act 1967 (Vict.) seek a declaration that s. 2 of the Pipelines (Fees) Act 1981 (Vict.) which inserted sub-ss. (2) to (8) in s. 35 of the Pipelines Act is invalid. The principal ground advanced in their statement of claim is that the inserted sub-sections impose a tax which is a duty of excise and which is, by virtue of s. 90 of the Constitution, beyond the power of the Victorian Parliament to impose. The defendant State of Victoria demurs to that allegation - not on the ground that the inserted sub-sections do not impose a tax, but on the ground that the tax thereby imposed "is not and does not purport to be a duty of excise . . . contrary to s. 90 of the Constitution". (at p653)

2. The tax is called a "pipeline operation fee". For the financial year 1981-1982, the fee was $10,000,000 in the case of each of three trunk pipelines identified as such for the purposes of s. 35. Pipeline operation fees are payable annually. In the years after the financial year 1981-1982 the amount of the pipeline operation fees is subject to adjustment according to variations in the consumer price index for Melbourne. Section 35 (8) identifies the three trunk pipelines by reference to the pipeline licences that relate to each of them. The pipeline licences relating to two of them (known as the gas liquids pipeline and the crude oil pipeline) are held by the plaintiffs; the pipeline licences relating to the third of them are held by the Gas and Fuel Corporation of Victoria. In the case of a pipeline which is not a trunk pipeline, the fee for the financial year 1981-1982 was fixed at the rate of $40 per complete kilometre. (at p653)

3. The statement of claim describes the trunk pipelines and their operation. The plaintiffs recover petroleum from submerged lands adjacent to the Australian coast near Gippsland in Victoria and bring it ashore from production platforms in Bass Strait to a gas processing and crude oil stabilization plant at Longford in Victoria. At that plant the petroleum is processed and purified and separated into three products which enter and are carried by the respective trunk pipelines. The gas liquids pipeline carries liquid petroleum gas (being a mixture of ethane, propane and butane) from the Longford plant to a fractionation plant and crude oil tank farm located at Long Island Point in Victoria, the deep water port that is closest to Longford. The crude oil pipeline carries stabilized crude oil from the Longford plant to the Long Island Point plant. The plaintiffs own these two trunk pipelines and the products which they carry. The Gas and Fuel Corporation's pipeline carries natural gas, primarily methane, from the Longford plant to Melbourne. The plaintiffs sell and deliver this natural gas to the Gas and Fuel Corporation at Longford. (at p654)

"A licensee shall not operate a pipeline unless -

(a) . . .

(b) the current pipeline operation fee has been paid in respect of that

The plaintiffs submit, in the light of this provision, that sub-ss. (2) to (8) of s. 35 impose a tax upon the plaintiffs' operation of the pipelines, that the plaintiffs' operation of the pipelines is a step in the production, manufacture or distribution of the petroleum products that they sell from the Long Island Point plant and that the tax is a duty of excise as that term is understood for the purposes of s. 90 of the Constitution. (at p655)

7. The facts of the present case do not call for an exploration of the extremities of the line either backward to the earliest stage of production or forward to the point of receipt by the consumer. The movement of gas liquids and crude oil through their respective pipelines is an integral part of the process of converting the petroleum brought ashore from the Bass Strait field into the products sold from the Long Island Point plant, and lies, so to speak, somewhere in the middle of the process of production. (at p655)

8. If the tax imposed by s. 35 is a duty of excise, it is because it taxes the taking of a step in the production of those goods which are sold from the Long Island Point plant. There is no other class of excise duty into which that tax might fall. But a tax upon the taking of a step in a process of producing or distributing goods is a tax which must be distinguished from "a tax which has no closer connexion with production or distribution than that it is exacted for the privilege of engaging in the process at all" (per Kitto J. in Dennis Hotels (1960) 104 CLR, at p 560 ). The distinction between a tax upon the taking of a step in the process of producing, manufacturing or distributing goods and a tax that is no more than an exaction for the privilege of being allowed to engage in the process is not always easy to perceive. (at p656)

9. A fee exacted for a licence to carry on a business has been held to be a duty of excise in cases where the amount of the fee varies according to the quantity or value of goods produced, manufactured or distributed during the period to which the licence relates (the second tax considered in Dennis Hotels [1960] HCA 10; (1960) 104 CLR 529 ) or during the period preceding the period covered by the licence (M. G. Kailis (1962) Pty. Ltd. v. Western Australia (1974) 130 CLR 245 ). However the question upon which the Court was divided in those cases, namely, whether the calculation of the tax upon the value of goods produced or distributed in a preceding period is indicative of a duty of excise or is inconsistent with a tax having that character, does not arise directly in the present case. In the present case, the question is whether the tax which is imposed is merely a fee for a licence to carry on a business generally: see per Gibbs J. in Dickenson's Arcade Pty. Ltd. v. Tasmania [1974] HCA 9; (1974) 130 CLR 177, at pp 224-225 where his Honour agreed with Kitto J. (in Dennis Hotels (1960) 104 CLR, at p 563 ) that "(t)he fact which makes a licence fee not a duty of excise is not that the exaction is for the licence; it is that the exaction is only in respect of the business generally, and not in respect of any particular act done in the course of the business". (at p656)

10. Where the amount of a licence fee is fixed, unaffected by the quantity or value of goods produced, manufactured or distributed, the fee lacks the proportionate relationship with the quantity or value that is an expected concomitant of a tax imposed upon or in respect of goods. It is true that there is no proportionate relationship between the amount of the tax imposed by s. 35 and the quantity or value of the goods which are said to be subject to a duty of excise in the present case, i.e., the gas liquids and crude oil that pass through the respective trunk pipelines. The annual pipeline operation fee is fixed by a formula that takes no account of the quantities of gas liquids and crude oil that will flow through those pipelines in the period to which the fee relates. The statement of claim does not allege that the gas liquids and crude oil flow through or can be predicted to flow through the respective trunk pipelines at a rate which is constant from year to year or which bears any known relationship to the rate of flow during an earlier period. Distributing the cost of meeting the tax over the goods transported in the pipelines from year to year, the unit cost will reflect both the movements in the consumer price index affecting the total tax and changes in the quantities of gas liquids and crude oil transported in the pipelines. (at p657)

14. In the present case, it is argued that the approach of Kitto J. is to be preferred and that s. 35 on its face does not impose a burden on a step in the production, manufacture or distribution of goods. If that approach is preferred, it is nevertheless necessary to identify precisely what the statute selects as the criterion of liability. The impugned taxes that are imposed by s. 35 are selective and discriminatory. Section 35 selects the gas liquids, crude oil and Gas and Fuel Corporation pipelines as against all other pipelines in Victoria and imposes a tax upon the licensees of each of those pipelines in respect of the operation of each of those pipelines. Apart from s. 35 the respective licensees would be authorized to operate those pipelines without payment of the tax; by virtue of s. 35 the respective licensees may operate their pipelines only if they have first paid the tax or an instalment of the tax to cover the period of proposed operation. (at p659)

15. The approach favoured by Kitto J. does not, I think, preclude an examination of the statutory criterion of liability in order to ascertain whether that criterion is in its nature a step in the production, manufacture or distribution of goods. An examination of the operation of the trunk pipelines, being the criterion of the tax liability imposed by s. 35 upon the trunk pipeline licensees, determines the character of the taxes which s. 35 imposes. Neither the operation of the gas liquids pipeline nor the operation of the crude oil pipeline is anything but a step in the production, manufacture and distribution of the products sold by the plaintiffs. The circumstances that the plaintiffs could not demand a refund if they ceased production during a year in respect of which the pipeline operation fee had been paid is not inconsistent with the taxes imposed by s. 35 being an impost upon a step in the production, manufacture or distribution of goods. That circumstance simply means that the statutory criterion is not a criterion that establishes a proportionate relationship between the tax imposed and the goods in respect of which it is imposed. Adopting the approach favoured by Kitto J., the tax is a duty of excise upon such goods as are moved through the pipeline in the period to which the payment relates. (at p659)

16. However, for the reasons expressed by Mason J., I prefer the broader approach. It leads to no different conclusion, for it invites consideration of the same determinative fact, namely, that the tax is imposed upon the operation of the pipelines. As the operation of each pipeline is a step in the production of the goods sold by the plaintiffs from the Long Island Point plant, the taxes imposed upon the plaintiffs' operation of those respective pipelines are duties of excise. (at p659)

17. I would overrule the demurrer. It is unnecessary to consider the supplementary grounds of demurrer that were argued. (at p659)

DEANE J. The compact between the people of the Australian colonies which is embodied in the Constitution was for unity in "one indissoluble Federal Commonwealth". To achieve and preserve that Commonwealth, the Constitution contains provisions, in both negative and positive form, designed to ensure that colonial boundaries, while remaining as lines of demarcation between States, did not continue as barriers in the path towards economic and national unity. Thus, the grant of a general taxation power to the Commonwealth Parliament was limited to exclude any power to discriminate between States or parts of States (s. 51(ii)) and the power to grant bounties was limited by a requirement of uniformity throughout the Commonwealth (s. 52(iii)). In addition, the Commonwealth was prohibited from giving preference, by any law or regulation of trade, commerce or revenue, to one State or any part thereof over another State or any part thereof (s. 99). For their part, the States were deprived, by s. 90, both of the power to impose duties of customs or excise and, subject to limited exception (s. 91), of the power to grant bounties on the production or export of goods. Both Commonwealth and States were subjected to the requirement of s. 92 that trade, commerce and intercourse among the States be absolutely free. It was directed that uniform duties of customs be imposed within two years after the establishment of the Commonwealth (s. 88). In combination, these provisions effectively deprived the people of any State of the protection of tariff barriers or preferential bounties against interstate competition. At the same time, they represented constitutional guarantees in the form of limitations of or restraints on the legislative powers which the Constitution conferred or preserved. The people of a State were not to be disadvantaged, in relation to the people of any other State, by the burden of higher customs or excise duties, by less favourable treatment as regards bounties on production or export of goods, or by restriction upon access, for themselves, their goods and their legitimate commercial endeavours, to the territory and markets of other States. (at p660)

2. The scheme embodied in these provisions lay at the heart of the Federation. The freedom of interstate trade and intercourse and the exclusivity of a federal parliament's powers to impose customs duties had comprised two of the four federal "principles" formulated by Sir Henry Parkes in resolutions moved at the commencement of the 1891 Convention. Those two "principles" were accepted in the 1891 draft Bill which introduced the provision that the Commonwealth's powers to impose excise duties and to grant bounties upon production and export should also be exclusive (see Ch. IV, ss. 4 and 8). Thereafter, it was generally accepted that, subject to transitional provisions, duties of customs and excise were to lie exclusively within the Commonwealth domain and that, subject to the effect of inconsistency provisions, the States would retain concurrent powers to raise money by all other forms of taxation. The grouping of duties of customs and duties of excise in the 1891 draft Bill (see, e.g., Ch. I, Pt V, s. 52(2); Ch. IV, ss. 4, 7 and 9) reflected the interrelation of those two types of tax. This grouping was carried forward into the Constitution (see ss. 55, 86, 87, 90, 93 and Peterswald v. Bartley [1904] HCA 21; (1904) 1 CLR 497, at p 506 ). (at p661)

4. In the context of the foregoing, the provision of s. 90 of the Constitution that the power of the Commonwealth Parliament to impose duties of excise shall be exclusive cannot properly be seen as part of a merely arbitrary division of legislative powers between the Commonwealth and the States. To the contrary, that provision - or some other means of ensuring uniformity of excise duties throughout Australia - was a necessary ingredient of any acceptable scheme for achieving the abolition of internal customs barriers which was an essential objective of the Federation and for ensuring that the people of the Commonwealth were guaranteed equality as regards the customs and excise duties which they were required to bear and the bounties which they were entitled to receive. (at p662)

7. The Constitution contains no definition of "excise" or "duties of excise". In England, the original excise duties were taxes levied on the manufacture, purchase or sale of specified commodities. They were collected through the Excise Office and, in time, "excise duty" came to be applied to a wide variety of inland taxes collected through that office including such imposts as the fee for a dog licence and an auctioneer's licence fee. In the United States, excise duties, in their original sense, were "something cut off from the price paid on a sale of goods as a contribution to the support of government" (see 71 Am. Jur. 2d, State and Local Taxation, s. 28 and the cases there cited). It may be that references to "cut off" were the result of solecism since, etymologically, the word "excise", when used to denote a tax, would appear to be derived from the Dutch "excijs" from the Latin "accensare" (to tax) and not from the Latin "excisus" (cut out or cut off) to which the verb "excise" can be traced. As in England, "excise" came to be applied in the United States to a very wide variety of taxes: "any tax which does not fall within the classification of a poll tax or a property tax, and which embraces every form of burden not laid directly upon persons or property" (ibid). In the Australian colonies, "excise" and "duty of excise" were, it would seem, generally understood as having a meaning corresponding to their primary meaning in England, namely, "a tax on articles produced or manufactured in a country. In the taxation of such articles of luxury, as spirits, beer, tobacco, and cigars, it (had) been the practice to place a certain duty on the importation of these articles and a corresponding or reduced duty on similar articles produced or manufactured in the country" (Quick and Garran, Annotated Constitution of the Australian Commonwealth (1901), p. 837). Since Peterswald v. Bartley (1904) 1 CLR, at pp 507-509 , it has been settled that the combination of colonial usage and context leads to the conclusion that the term "duties of excise" is used in the Constitution in that narrower sense of a tax upon internally produced or manufactured goods. The subsequent cases in this Court on s. 90 have been largely concerned with the closer identification of the nature of that particular type of tax. (at p664)

9. There are statements in the joint judgment of the six justices who constituted the Court in Bolton v. Madsen [1963] HCA 16; (1963) 110 CLR 264 which support the view that their Honours intended to make a considered formulation of an exhaustive and definitive test to be applied in determining whether or not a tax is a duty of excise. The formula enunciated in that case has not, however, been generally accepted as such a test in subsequent cases in this Court. In that regard, it appears to me that the dissenting judgment of Walsh J. in Western Australia v. Chamberlain Industries Pty. Ltd. [1970] HCA 5; (1970) 121 CLR 1 demonstrates that the actual decision in Chamberlain Industries was inconsistent with the formula in Bolton v. Madsen being so accepted (but cf. per Barwick C.J., Chamberlain Industries (1963) 121 CLR, at p 15 ). It also appears to me that at least four justices (Barwick C.J., Mason, Jacobs and Murphy JJ.) in Logan Downs Pty. Ltd. v. Queensland [1977] HCA 3; (1977) 137 CLR 59 declined to accept that formula as constituting such a test. While the judgment in Bolton v. Madsen plainly provides important guidance in formulating the indicia of a duty of excise, it does not, in the light of these subsequent cases, compel acceptance of the proposition that, in the interests of desirable certainty in the law of the Constitution, the question whether a tax is a duty of excise is to be answered conformably with whether the legal effect of the impugned legislative provisions is such as to satisfy the formal requirements of some formularized criterion of liability. For myself, I decline, in the absence of compelling authority, to accept any such proposition. (at p665)

10. In substance, a duty of excise, as that expression is used in the Constitution, is a tax upon the manufacture or production of goods. In its most obvious form, it is a tax which is imposed upon either the general process of manufacture or production of goods or upon the taking of a particular step in such manufacture or production and which is calculated by reference to the quantity or value of goods manufactured or produced. It is, however, established by the cases that a tax on goods which is imposed at a point which is either preliminary or subsequent to actual manufacture or production, including a step in the acquisition of raw materials and a step in the distribution of the finished product, may be a duty of excise. It is also established that a tax may be a duty of excise notwithstanding that it is not calculated by reference to the quantity or value of the goods manufactured or produced (see Matthews v. Chicory Marketing Board (Vict.) (1938) 60 CLR, at p 304 ; Western Australia v. Hamersley Iron Pty. Ltd. (No. 1) [1969] HCA 42; (1969) 120 CLR 42, at p 64 ; M. G. Kailis (1962) Pty. Ltd. v. Western Australia (1974) 130 CLR 245 ). (at p665)

12. The annual "trunk pipeline" licence fees which the plaintiffs challenge in the present case are plainly taxes in that they are compulsorily exacted by the State for public purposes and do not represent charges for services rendered (see Matthews v. Chicory Marketing Board (Vict.) (1938) 60 CLR, at p 276 ; Logan Downs Pty. Ltd. v. Queensland (1977) 137 CLR, at p 63 ). Each annual fee is payable by the plaintiffs as the holders of licences to operate one or other of the two pipelines which connect their Longford and Long Island Point plants. Unless it is paid, the plaintiffs are prohibited from operating the relevant pipeline. The fee, in the amount of $10,000,000 "in the case of" each pipeline for the 1981-1982 financial year and an adjusted amount to reflect variations in the consumer price index for subsequent years, is imposed by the Act as the result of specific identification of each pipeline by reference to licence numbers. The only other "trunk pipeline" operation fee is imposed "in the case of" a pipeline operated by the Gas and Fuel Corporation of Victoria for the transportation from the Longford plant of natural gas purchased by that corporation from the plaintiffs. (at p667)

13. In the result, one has a legislative scheme which selects, from all the pipelines in Victoria, three designated pipelines in respect of each of which an annual tax calculated on a base rate of $10,000,000 per year is imposed. The amount of that annual tax is to be contrasted with a licence fee of $40 for every complete kilometre of pipeline which is imposed in respect of all other relevant pipelines and which, if applied to the plaintiffs' two pipelines, would involve an annual fee of something less than $8,000 in respect of each. By identifying the three "trunk pipelines" by reference to licence numbers, the Act avoids any need to indicate expressly what it is that singles out the plaintiffs' and the Gas and Fuel Corporation's pipelines so that their "operation" should attract a tax of some one thousand times the fee imposed in respect of the "operation" of other pipelines. What that is appears, however, clearly enough from the assumed facts including the terms of the licences to which the Act expressly refers. The three "trunk pipelines" carry - and only carry - the whole of the hydrocarbons extracted from the Bass Strait fields. In the case of the plaintiffs' two pipelines, the transportation of the hydrocarbons is between stages in processing, purification or fractionation and is itself a step in the overall process of manufacture or production. In the case of the Gas and Fuel Corporation's pipeline, the transportation is at a stage prior to distribution into consumption. The question arises whether, in these circumstances, the tax imposed in respect of the operation of the plaintiffs' two pipelines is in substance a tax upon the manufacture or production of the goods which the plaintiffs distribute from Long Island Point. In my view, it is. (at p667)

14. The tax imposed in respect of the plaintiffs' two pipelines cannot, at least as a matter of substance, be seen as a general tax imposed upon the operation of pipelines generally. It is a particular tax imposed upon the operation of each of the specifically identified pipelines. There was some discussion in argument as to whether the inclusive definition of "operation" in s. 3 of the Act had the restrictive effect of confining the meaning of the word to "maintenance removal and alteration of the pipeline" as distinct from the actual operation of the pipeline for the transportation of goods. In my view, the definition should be regarded as expansive and "operation" and "operate", as used in the relevant provision of the Act, include the actual use of a pipeline. Even if that be not so and, for relevant purposes, the words should be given the limited meaning of maintenance, removal and alteration, the "operation" of the plaintiffs' two pipelines would remain an essential concomitant of an essential step (transportation) in the course of production or manufacture. Either way, the "operation" of the plaintiffs' two pipelines is part of the overall process of manufacture or production and the tax upon that operation is a tax which must be paid before that essential step can lawfully be taken. The magnitude of the tax and its recurrent nature as a revenue outgoing make inevitable the conclusion that the tax is an indirect one in the sense that it will be, and is intended to be, regarded as a component of the costs and expenses of manufacture or production which will, subject to the vagaries of market conditions, be passed down the line to the consumer. (at p668)

15. The main factor which militates against a conclusion that the tax is, in substance, a tax upon the manufacture or production of the hydrocarbons carried in the relevant pipeline is that the amount of the tax does not bear any disclosed relationship to the quantity or value of the goods manufactured or produced: as a matter of form, the tax is payable regardless of whether production of hydrocarbons ceases or whether no product is transported. The absence of such a relationship is not however, as has been said, necessarily decisive. Its importance will vary according to the circumstances of the actual case; in particular, it is of comparatively less importance in a case where the tax is imposed at the stage of manufacture or production of goods than in a case where what is claimed to be an excise upon the manufacture or production of particular goods is imposed at a stage where production or manufacture has been completed (see per Mason J., Logan Downs Pty. Ltd. v. Queensland (1977) 137 CLR, at p 77 ). The importance of the theoretical possibility that the tax could be payable notwithstanding the cessation of the manufacture or production of hydrocarbons or of their transportation through the pipeline needs to be assessed against both the assumed fact that the flow of hydrocarbons through the pipelines is and has been continuous and the improbability that the plaintiffs would continue to operate a pipeline and thereby attract a tax of some $10,000,000 per year in the event that production or transportation were to cease other than temporarily. In the circumstances of the present case, the absence of a disclosed relationship between the tax and the quantity or value of the goods manufactured or produced is outweighed by the combination of a number of other factors, namely, the magnitude of the tax, its nature as an indirect tax, the fact that it is imposed at the stage of manufacture and production of goods and the fact that it must be paid before an essential step in the actual process of manufacture or production of those goods can be lawfully taken. In my view, the annual tax imposed in respect of each of the plaintiffs' two pipelines is a tax upon the manufacture or production of the goods which are distributed from Long Island Point after transportation, in the course of such manufacture or production, through the relevant pipeline. It is a duty of excise for the purposes of s. 90. It is unnecessary to consider whether, if it were critical that there exist a discernible relationship between the tax and the quantity or value of the relevant goods, it could properly be assumed that the amount of $10,000,000 per annuan in respect of each pipeline was not selected as the result of some arbitrary whim but by reason of some relationship to either the anticipated quantity or value of goods which were to be transported through the pipeline or the anticipated quantity or value of hydrocarbons which will be produced from the Bass Strait fields. (at p669)

16. The demurrer should be overruled. (at p669)

ORDER

Declare that s. 2 of the Pipelines (Fees) Act 1981 is invalid.

Remit the action to a single justice of this Court for further consideration.