PUNIN v DFC of T & ANOR
Judges:Emmett J
Court:
Federal Court
MEDIA NEUTRAL CITATION:
[2000] FCA 568
Emmett J
From mid-1992 to 31 January 1995, the applicant was the owner of a retail lighting business operating from shop 1, 232 Oxford Street, Bondi Junction. In connection with that business, he falsely represented that he was a registered person for sales tax purposes. As a consequence, he acquired substantial quantities of goods from a number of suppliers in circumstances where sales tax should have been included in the price but was not. The applicant used two sales tax numbers. One was the registration number of a company previously controlled by him. The other was invalid in that it was not a number that had been allocated to any taxpayer.
2. During the night of 30/31 January 1995 a fire occurred in the applicant's Oxford Street shop. Except for a handful of water damaged invoices for goods sold to the applicant in connection with the business, the fire destroyed all the applicant's business records. It is likely that goods owned by the applicant were also destroyed in the fire. However, there was no admissible evidence as to the nature or the quantity of the goods destroyed.
3. In September 1995, the applicant received five documents purporting to be notices of assessment under the Sales Tax Assessment Act 1992 (Cth) (``the Assessment Act''). The documents were issued by the first respondent, the Deputy Commissioner of Taxation (``the Commissioner''). On 15 February 1996, the Commissioner issued two further documents to replace two of those issued on 22 September 1995. The replacements were issued to correct an error that had been made in the calculation of tax in the two replaced documents. The remaining three notices of 22 September 1995 and the two replacement notices (all five of which are together referred to as ``the Notices'') assert that the applicant is liable to pay sales tax totalling $176,793.65 and refer to assessments made by the Commissioner under sections 101 and 99 of the Assessment Act.
4. In 1997, the applicant commenced proceedings in the Commercial Division of the Supreme Court of New South Wales against the second respondent, AXA Insurance Australia Limited (``AXA''). In those proceedings, the applicant sought from AXA sums alleged to be owing to the applicant under a policy of insurance issued by AXA to the applicant. The applicant claimed to be entitled to indemnity in respect of goods destroyed in the fire.
5. On 24 September 1999, the Commissioner issued a notice under section 74 of the Assessment Act addressed to AXA, requiring AXA to pay to the Commissioner so much of any money that may become due to the applicant by AXA as is sufficient to pay the amount of $282,564.01.
6. On 10 October 1999, the applicant and AXA entered into terms of settlement in respect of the Supreme Court proceedings. Pursuant to those terms of settlement, judgment was to be entered for the applicant against AXA for the sum of $250,000 and AXA was to pay the applicant's costs of, and incidental to, the Supreme Court proceedings in an agreed amount of $50,000.
7. On 19 October 1999 the Commissioner obtained a judgment against the applicant in the District Court of New South Wales of Sydney in the sum of $282,564.01. That sum is the total of the amounts claimed in the Notices plus interest under the Assessment Act in respect of the amounts unpaid.
8. In the present proceeding the applicant seeks a declaration that the Notices are not notices of assessment for the purposes of the Assessment Act and an order quashing the decision of the Commissioner to issue them. The applicant also seeks orders quashing the decision of the Commissioner to issue the notice under section 74, requiring the Commissioner to withdraw that notice and restraining and prohibiting the Commissioner from issuing further notices under section 74 in respect of the same purported sales tax liability.
Relevant provisions of the Assessment Act
9. Section 16 of the Assessment Act provides as follows:
``SECTION 16 GENERAL RULES FOR TAXING ASSESSABLE DEALINGS
16(1) Table 1 sets out all the assessable dealings that can be subject to sales tax.
16(2) If the time of an assessable dealing (as specified in column 4 of the Table) is on or after the first taxing day, and no exemption applies under Division 2 of this Part, then:
- (a) the dealing is a taxable dealing;
- (b) the person specified in column 3 is the person liable to the tax;
- (c) the tax becomes payable at the time of the dealing, as specified in column 4;
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- (d) the tax is due for payment at the time that applies under Division 2 of Part 5.
16(3) To calculate the amount of the tax:
- (a) determine the taxable value of the dealing under Division 3 of this Part;
- (b) deduct any exempt part of the taxable value that applies under Division 4 of this Part;
- (c) multiply the result by the rate that applies under the Exemptions and Classifications Act.''
Thus, liability for sales tax arises where there is an assessable dealing. The assessable dealing asserted by the Commissioner in the present proceedings is that identified in Table 1 as AD2b being:
+----------------------------------------------------------------------------+
| [1] | [2] Assessable dealing | [3] Person | [4] Time of | [5] Normal |
| No. | | liable | dealing | taxable value |
|----------------------------------------------------------------------------|
| AD2b | retail sale by a person | seller | time of sale | the notional |
| | who is not the | | | wholesale |
| | manufacturer of the | | | selling price |
| | goods, but who obtained | | | |
| | the goods under quote; | | | |
| | excludes case covered | | | |
| | by AD2d | | | |
+----------------------------------------------------------------------------+
10. Section 15(2) of the Assessment Act provides as follows:
``A person purchases goods under quote if the person quotes on the purchase of the goods, and either:
- (a) the sale is an assessable dealing by the seller that is exempted from tax only because of the quote; or
- (b) on the basis of the quote, the seller agrees to exclude tax from the price of the goods.''
11. Further, section 27 of the Assessment Act provides as follows:
``27(1) A sale is not taxable if the purchaser quotes for the sale at or before the time of the sale.
27(2) An AD4a delivery is not taxable if the customer quotes for the delivery at or before the time of the delivery.
27(3) Subsections (1) and (2) do not apply if the quote is not effective because of section 91S.''
12. Under section 88(b) of the Assessment Act, if a person quotes a registration number in circumstances in which the person is not entitled to quote, the quote is nevertheless effective for the purposes of sections 15 and 27. The effect is that where an unregistered person purports to quote a registration number then that person will nevertheless be regarded as obtaining the goods under quote. Consequently, the supplier will not be liable for sales tax but the purchaser will be liable as seller upon any subsequent sale of the goods.
13. Under section 34(1) of the Assessment Act, the general rules for calculating the taxable value of goods are as set out in Table 1. Item AD2b of Table 1 shows the ``Normal Taxable Value'' as the ``notional wholesale selling price''. The notes to Table 1 provide that ``notional wholesale selling price'' means the price for which the taxpayer could reasonably have been expected to sell the goods by wholesale under an arms length transaction.
14. The tax that is payable under the Assessment Act is imposed by section 3 of the Sales Tax Imposition (General) Act 1992 (Cth). Rates of tax are determined in accordance with the Sales Tax (Exemptions and Classifications) Act 1992 (Cth). The goods in question that were obtained by the applicant under quote were goods within item 1(1)(n) of Schedule 2 and goods within item 7 of Schedule 5 to that Act. Those items relate, respectively, to:
- • appliances for lights and light fittings;
- • clocks and goods marketed principally as movements, parts or keys.
15. Section 74 of the Assessment Act relevantly provides as follows:
``74(1) This section allows the Commissioner to collect money from a person who owes money to a taxpayer who has a sales tax debt.
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74(2) The Commissioner may direct a person ( `the third party' ) who owes, or may later owe, money ( `the available money' ) to the taxpayer to pay some or all of the available money to the Commissioner in accordance with the direction. The Commissioner must send a copy of the direction to the taxpayer to the last place of address known to the Commissioner.
74(3) The direction cannot require an amount to be paid to the Commissioner at a time before it becomes owing by the third party to the taxpayer.
74(4) The third party must comply with the direction, so far as the third party is able to do so.
Penalty: $2,000.
...
74(6) Any payment made by the third party under this section is taken to have been made with the authority of the taxpayer and of all other persons concerned, and the third party is indemnified for the payment.
74(7) If the whole of the sales tax debt of the taxpayer is discharged before any payment is made by the third party, the Commissioner must immediately give notice to the third party of that fact.
74(8) The third party is taken to owe money to the taxpayer if:
- (a) money is due or accruing by the third party to the taxpayer; or
- (b) the third party holds money for or on account of the taxpayer; or
- (c) the third party holds money on account of some other person for payment to the taxpayer; or
- (d) the third party has authority from some other person to pay money to the taxpayer;
whether or not the payment of the money to the taxpayer is dependent on a pre-condition that has not been fulfilled.
...
74(10) In this section:
- ...
- `person' includes:
- (a) the Commonwealth, a State or a Territory;
- (b) a public authority of the Commonwealth or of a State or Territory, whether or not the authority is incorporated;
- `sales tax debt' means any of the following amounts payable by a person (whether or not the amount has become due for payment):
- (a) sales tax;
- (aa) an amount payable under Part 7A;
- (b) penalty under Part 9 and late- payment penalty;
- (c) a judgment debt, or costs, for sales tax, penalty under Part 9 or late- payment penalty;
- (d) a fine, or costs, that a court has imposed for an offence against the sales tax law;
- (e) an amount that a court has ordered the person to pay to the Commissioner, following conviction of the person for an offence against the sales tax law.''
16. Sections 101 and 99 of the Assessment Act provide, respectively, as follows:
``101(1) The Commissioner may at any time make an assessment of tax payable by a person on an assessable dealing or assessable dealings (whether or not the Commissioner has previously made an assessment in relation to that dealing or any of those dealings).
101(2) This section does not apply to an amount payable because of the cancellation of a tax benefit under section 93A.''
``99(1) The Commissioner must make an assessment of penalty that is payable under this Part.
99(2) Notice of the assessment may be included in any other notice of assessment under this Act that relates to the same person.
99(3) Penalty under this Part becomes due for payment on the day specified in the notice of assessment. The day must be at least 14 days after the date of issue of the assessment.''
The assessments
17. Each of the Notices refers to an assessment under section 101 of the Assessment
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+-------------------------------------------------------------------------------------------------+
| Date of | Period for | Type of | Taxable | Tax | Penalty | Total |
| Notice of | which | Goods | Value | Payable | Sec. 99 | of |
| Assessment | assessed | | | | | Assessments |
|-------------------------------------------------------------------------------------------------|
| 22/9/95 | 1/7/95 to | Item 1(1)(n) of | $42,443.00 | $5,093.16 | $5,347.82 | $10,440.98 |
| | 31/7/95 | Schedule 2 | | @ 12% | | |
|-------------------------------------------------------------------------------------------------|
| 22/9/95 | 18/8/93 to | Item 1(1)(n) of | $473,352.00 | $52,068.72 | $54,672.16 | $106,740.88 |
| | 30/6/95 | Schedule 2 | | @ 11% | | |
|-------------------------------------------------------------------------------------------------|
| 22/9/95 | 1/1/93 to | Item 1(1)(n) of | $57,241.00 | $5,724.10 | $6,010.31 | $11,734.41 |
| | 17/8/93 | Schedule 2 | | @ 10% | | |
|-------------------------------------------------------------------------------------------------|
| 15/2/96 | 18/8/93 to | Item 7 of | $67,784.00 | $21,013.04 | $22,063.65 | $43,076.69 |
| | 30/6/95 | Schedule 5 | | @ 31% | | |
|-------------------------------------------------------------------------------------------------|
| 15/2/96 | 1/1/93 to | Item 7 of | $7,806.00 | $2,341.80 | $2,458.89 | $4,800.69 |
| | 17/8/93 | Schedule 5 | | @ 30% | | |
+-------------------------------------------------------------------------------------------------+
18. The relevant part of each of the Notices is identical, except for the figures, periods and rates. For example, one of the Notices dated 22 September 1995 provides as follows:
``ASSESSMENT UNDER SECTION 101 OF SALES TAX ASSESSMENT ACT 1992[cfn]
In respect of goods purchased tax free incorrectly during the period from
1 July 1995 to 31 July 1995 (both dates inclusive)--
Total Taxable Value (as per attached Schedule) $42,443.00
Total amount of tax thereon at 12.00% $5,093.16
Less tax previously paid $.00
----
Amount of tax now payable $5,093.16
Assessment of penalty under section 99 of Sales Tax
Assessment Act 1992 $5,347.82
(The amount imposable under Section 97 of Sales Tax Assessment
Act 1992 has been reduced pursuant to section 100 of Sales Tax
Assessment Act 1992)
Total Amount due under this assessment $10,440.98
The total amount due under this assessment is $10,440.98. The tax payable
of $5,093.16 should be paid forthwith. The amount of $5,347.82 penalty
becomes due for payment on 12 October 1995.''
19. The calculations of sales tax referred to in the Notices appear to have been made on the basis that all of the goods purchased by the applicant under quote were subsequently sold by him. Those sales, by the operation of section 16 and item AD2b, would be assessable dealings. The Commissioner calculated sales tax on the basis that the notional wholesale selling price in respect of the goods was the price paid for those goods. In preparing the Notices and calculating the total taxable value as shown in the above table, the Commissioner had recourse to a report prepared by Mr Alexander Penklis, a forensic accountant. Mr Penklis purported to calculate the total purchase price paid by the applicant in connection with the purchase of goods under quote.
20. The applicant contends that the assessments purportedly made under section
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101 of the Assessment Act are defective for several reasons as follows:- • the Commissioner assessed tax on purchases by the applicant rather than sales by the applicant;
- • the Commissioner made an arbitrary assumption that all goods sold by the applicant were obtained under quote incorrectly;
- • the Commissioner failed to take account of the effect of the fire;
- • the Commissioner failed to make any assessment of the quantities of goods sold or the time of sale in relation to any assessable dealing.
21. The applicant also contends that the preconditions for the imposition of penalties under section 97 were not satisfied and, accordingly, the assessment of penalties was defective.
22. I shall deal separately with each basis advanced by the applicant for impugning the assessments.
Assessment on purchases not sales
23. The applicant contends that, on the true construction of the Notices and the evidence relating to the process of assessment undertaken by the Commissioner, the Commissioner assessed sales tax on the purchases of the goods by the applicant rather than on any sale of the goods by the applicant. In particular, the applicant contends that the Commissioner made no attempt to assess the time when any sake of the goods occurred. The applicant relies on a number of matters as follows.
24. First, the Notices are expressed to be assessments ``in respect of goods purchased tax free incorrectly''. No mention is made in the Notices of any sale by the applicant. Accordingly, so it is said, the Notices demonstrate that the Commissioner assessed tax on the purchase of goods by the applicant.
25. However, the language of the Notices is equivocal. They refer to neither purchases nor to sales. In other words, they do not refer to any dealing at all. Rather, they identify goods by reference to the circumstances in which the goods were purchased. That is to say, they describe goods that were purchased under quote.
26. Secondly, when the Notices were originally sent to the applicant, the schedule referred to in each of the Notices was not attached. A copy of the schedule was sent with the Commissioner's letter of 27 October 1995 written to the applicant's solicitors. The schedule was as follows:
+------------------------------------------------------------------------+
| VENEZIA DESIGN LIGHTING |
|------------------------------------------------------------------------+
| PURCHASES | JAN 93-JUNE 93 | JUL 93-JUN 94 | JULY 94-JAN 95 |
|------------------------------------------------------------------------|
| 57241 @ 10% | 5724-00 | | |
|------------------------------------------------------------------------|
| 7,806 @ 30% | 2341-00 | | |
|------------------------------------------------------------------------|
| 195,490 @ 11% | | 21,504 | |
|------------------------------------------------------------------------|
| 40,040 @ 30% | | 12,412 | |
|------------------------------------------------------------------------|
| 157,213 @ 11% | | | 17293 |
|------------------------------------------------------------------------|
| 27744 @ 31% | | | 8601 |
|------------------------------------------------------------------------|
| FEB 95-JUNE 95 | | | |
|------------------------------------------------------------------------|
| 120,649 @ 11% | 13,271 | | |
|------------------------------------------------------------------------|
| Jul 95 | | | |
|------------------------------------------------------------------------|
| 42,443 @ 12% | 5,093 | | |
|------------------------------------------------------------------------|
| SUMMARY | | | |
|------------------------------------------------------------------------|
| 57,241 @ 10% | $5,724 | | |
|------------------------------------------------------------------------|
| 473352 @ 11% | $52,068 | | |
|------------------------------------------------------------------------|
| 42,443 @ 12% | $5,093 | | |
|------------------------------------------------------------------------|
| 42381 @ 30% | $12,714 | | |
|------------------------------------------------------------------------|
| 27744 @ 31% | $8,600 | | |
|------------------------------------------------------------------------|
| TOTAL | $84,199 | | |
+------------------------------------------------------------------------+
The figure of $42,443 shown in the schedule as well as in the Notice referred to above is derived from figures calculated by Mr Penklis from sales records of suppliers of goods to the applicant.
27/ In the letter of 27 October 1995 the Commissioner, inter alia, said:
``The assessments are based on the purchases made by Venezia Design Lighting during the period 1 January 1993 to 31 July 1995.''
The applicant contends that that statement, coupled with the terms of the schedule, indicates that the Commissioner made the assessment in respect of the purchases of the goods referred to in the Notices rather than any sale of the goods.
28. However, while the statement is infelicitous, it is equivocal. Having regard to the method of assessment adopted by the Commissioner, it is correct to say that the assessments are ``based on'' the purchases made by the applicant during the relevant periods. They were based on those purchases in the sense that the purchases were used as the basis for calculating the notional wholesale price of the goods sold during the period. Neither the schedule nor the letter of 27 October 1995 indicates that the Commissioner assessed tax on purchases by the applicant.
29. Thirdly, on 21 November 1995, the applicant objected to the assessments notified by the Notices dated 22 September 1995. The grounds included the following:
``(2) The taxpayer claims that conditions for the imposition of tax did not exist.''
The applicant contends that that ground is sufficiently wide to include the contention that there was no assessable dealing within the meaning of section 16 that formed the basis for the assessments.
30. Two of the five assessments made by the Commissioner contained an arithmetical error. The Commissioner issued amended assessments dated 15 February 1996 in relation to those two assessments. In the Commissioner's notice of objection decision of 6 February 1996 the Commissioner said, by way of explaining in part why the objections were otherwise disallowed:
``The assessments were based on purchases made.''
That statement by the Commissioner is said to be a further confirmation that the assessments were made in respect of purchases rather than sales.
31. However, once again, the phrase employed by the Commissioner, while infelicitous, is equivocal. In other words, it is correct to say that the assessment was based on purchases, to the extent that it was based on the price paid for the purchase of the goods.
32. Fourthly, the applicant also relies on a document described as ``The Objection Decision Report'' dated 6 February 1996. The precise character of the document is not entirely clear although, on its face, it appears to be the Commissioner's reasons for the objection decision. The applicant relies on the following statement, which is contained under the heading ``STATE FINDINGS ON MATERIAL QUESTIONS OF FACT'':
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``These assessments were based on total purchases included in the trading accounts of Venezia Design Lighting.''
However, before that statement the following appears:
``7. Mr Punin, trading as Venezia Design Lighting, incurred a liability for sales tax by way of assessable dealing AD2b, when he sold goods by retail to Meriton Apartments and to other customers.
8. No sales tax has been paid on the goods that Mr Punin has sold through Venezia Design Lighting.''
(Emphasis added)
Thus, it is clear that the decision maker was mindful of the item in Table 1 that describes the relevant assessable dealings, being sales rather than purchases. That is confirmed in the part of the reasons that appears under the heading:
``STATE REASONS FOR THE DECISION INCLUDING A SPECIFIC RESPONSE TO EACH OF THE GROUNDS OF OBJECTION STATED ABOVE.''
In relation to ground 2, the reasons say:
``If an unregistered person purports to quote a registration number then that person will nevertheless be regarded as obtaining the goods under quote. Consequently that person will be liable on any subsequent sale of the goods .
Mr Punin, trading as Venezia Design Lighting, incurred a liability for sales tax by way of assessable dealing AD2b, when he sold goods by retail to Mereton Apartments and to other customers.
No sales tax has been paid on the goods that Mr Punin has sold through Venezia Design Lighting.''
(Emphasis added)
That is an unequivocal response to ground 2, indicating that the assessment was made in respect of sales by the applicant.
33. Fifthly, the applicant relies on the following paragraphs in Mr Penklis's report:
- ``59. In order to calculate the sales tax liability of the Insured, detailed analysis of his purchases are required to be carried out, including dissection of all purchases by item of product, ie lighting and other items.
- ...
- 62. Sales tax application to other goods being sold by the Insured appear to be 31%...
- 63. Detailed calculations of the Insured's sales tax liability accrued is on Appendix 5.3 and is further summarised below:
Period Sales Tax Ended Liability 30 June 1993 26,038 30 June 1994 33,916 31 January 1995 25,894 ------- $85,848'' =======
The applicant relies on those paragraphs as indicating that the information relied on by the Commissioner was limited to information concerning purchases by the applicant and not sales by the applicant. However, for the reasons indicated above, the material quoted relates to the calculation of a notional wholesale selling price to be applied to the sales assumed to have been made in respect of the goods purchased under quote.
34. Sixthly, the applicant relies on the following further paragraphs of Mr Penklis's report:
``Sales Trend
33. From the documentation provided we have calculated the Insured's monthly sales over the period 1 July 1992 to 31 January 1995 and attach as Appendices 3 and 4 our calculations of monthly and other periodic sales trends.
34. You will note from Appendix 3 that there was a 13.45% positive trend in sales over the 7 months July 1993 to January 1994 compared to the same period in the previous year and 9.37% positive trend when the 1994 financial year is compared to the 1993 financial year.
35. The details on Appendix 4 calculate 0.26% positive trend over the 12 months February 1994 to January 1995 compared to the previous year.
36. However, there was a 0.14% negative trend over the 7 months preceding the fire.
37. We draw your attention to the sales in January 1994 ($6,248) which appears to be abnormally low in comparison with the Insured's sales in other months.
38. These lower sales in January 1994 are unexplained and require clarification.''
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35. The appendices referred to in those paragraphs are not in evidence. Nevertheless, the paragraphs are inconsistent with the applicant's contentions. They demonstrate that attention was given to sales made by the applicant.
36. I do not consider that any of the above matters leads to the conclusion that the Commissioner made assessments in respect of purchases rather than in respect of sales.
Whether all goods obtained under quote
37. Another basis advanced by the applicant for impugning the assessments and the calculation of sales tax referred to in the Notices is that the Commissioner made an arbitrary assumption that all goods sold by the applicant were incorrectly obtained under quote. The applicant relies on the fact that he was convicted of the offence of purchasing goods under an invalid sales tax quote. The sales tax that would have been payable on the goods that were the subject of the transactions that gave rise to the convictions totalled approximately $7,500. On the other hand, as appears above, the sales tax allegedly payable under the Notices is far in excess of that sum. The applicant contended that there was no information before the Commissioner from which a conclusion could be drawn that all of the goods that were the subject of the dealings that are the subject of the assessments referred to in the Notices were obtained under an invalid quote.
38. However, there is an inference available to be drawn from all of the material before the Commissioner that the applicant at no time had a valid sales tax number. Nevertheless, he acquired goods during the periods identified in the notices. Mr Penklis's report establishes the total purchase price paid by the applicant to obtain those goods. It is a fair inference that all of the goods were obtained under an invalid quote.
Significance of the fire
39. There is evidence that the applicant in fact sold fire damaged goods for $20,000. A question may arise as to whether that was a sale by retail. Whatever it was, it was a sale that was an assessable dealing. Sales tax would be payable on the notional wholesale sale price of the goods, irrespective of the price at which they were actually sold.
40. The applicant contends however that there must be a possibility that some goods obtained under quote were destroyed in the fire and that, accordingly, they were not sold. Nevertheless, it is at least arguable that goods destroyed in the fire were goods applied for own use by the applicant within item AD3c in Table 1. That item is in the following terms:
+--------------------------------------------------------------------------------------+
| [1] | [2] Assessable dealing | [3] Person | [4] Time of | [5] Normal taxable |
| No. | | liable | dealing | value |
|--------------------------------------------------------------------------------------|
| AD3c | AOU by a person who is | applier | time of AOU | (a) the purchase price |
| | not the manufacturer of | | | price, if the goods |
| | the goods, but who | | | were purchased under |
| | obtained the goods | | | quote; |
| | under quote | | | (b) in the other cases, |
| | | | | the notional wholesale |
| | | | | selling price |
+--------------------------------------------------------------------------------------+
41. The normal taxable value would then be as follows:
- • the purchase price, if the goods were purchased under quote;
- • in other cases, the notional wholesale selling price.
Thus, the amounts would be the same if liability for tax arose under AD3c. Alternatively, if the goods were sold as salvage, either AD2b or AD3c would be applicable. Either way, the liability for tax would be the same, albeit the assessments have been made under a wrong head.
42. It may be that the facts will ultimately be demonstrated to be that the goods in question were actually sold by retail by the applicant. Whichever the case, so the Commissioner contends, it does not matter, because the same liability for sales tax would arise in relation to the transactions. There has been no suggestion in the evidence that the goods purchased during the periods in question are still owned by the
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applicant. I am not satisfied that the loss of goods in the fire necessarily leads to the conclusion that the assessments are excessive.Time of sale
43. The applicant also contends that the assessments are defective in so far as the Commissioner failed to make any determination of the quantities of goods that were said to be the subject of the assessable dealings relied on by the Commissioner. No attempt appears to have been made to assess the time of sale, being the time at which sales tax becomes payable under section 16(2)(c) and item AD2b in Table 1. So much is said to be clear from paragraphs 33 to 38 of Mr Penklis's report. That is not a mere technical objection. The rate of tax in respect of the relevant goods varied over time. That is the reason for the plurality of notices of assessment.
44. It is clear that the Notices fail to identify the time of the alleged assessable dealings. The Notices identified goods by reference to the period during which they were purchased and referred to the rate applicable to sales made during that period. There is no evidence before me to indicate that the Commissioner determined the quantities of the goods obtained under quote that were sold during any relevant period. Rather, the Commissioner appears to have proceeded on the assumption that all goods purchased during the periods specified in the Notices were sold during the same period.
45. The applicant asserts that there is no substantial possibility that that assumption is correct. However, there has been no detailed examination of the circumstances concerning the sales or the manner in which the applicant conducted its business. Indeed, there is some evidence that the applicant supplied the goods to builders for installation in new buildings in the course of construction. It is possible that goods supplied by the applicant to builders in those circumstances were delivered direct by the supplier to the builder. In such circumstances, it may well be possible to conclude that the sales by the applicant to his customers, the builders, occurred at the same time as the purchase from the supplier. Accordingly, the assumption that appears to have been made by the Commissioner may be justified. That is a question that can be investigated fully on the hearing of any review of the Commissioner's objection decision.
Penalties
46. The applicant also contends that penalties purportedly imposed under the assessments referred to in the Notices are not properly payable. Penalties are payable under section 97, which provides as follows:
``SECTION 97 PENALTY FOR MAKING FALSE STATEMENTS ETC.
97(1) A person is liable to a penalty if:
- (a) the person:
- (i) makes a false statement to a taxation officer; or
- (ii) makes a false statement to someone who is not a taxation officer, for a purpose in connection with the operation of the sales tax law;
- (whether or not the person making the statement knows that it is a false statement); and
- (b) the tax properly payable by the person making the statement, or by the person to whom the statement is made, exceeds the tax that would have been calculated on the assumption that the statement was not a false statement.
97(2) The amount of the penalty is double the excess specified in paragraph (1)(b).
97(3) In this section:
- `false statement' means a statement (whether made orally, in a document or in any other way) that:
- (a) is false or misleading in a material particular; or
- (b) omits any matter or thing without which the statement is misleading in a material particular;
- but does not include a statement made in a document produced under paragraph 108(1)(c);
- `taxation officer' means a person who is exercising powers, or performing functions, under or in connection with the sales tax law.''
47. The argument concerning penalty raises a question of law. It is accepted that false statements were made for the purposes of section 97(1)(a). It is therefore necessary to make a comparison between the amount of tax properly payable by:
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- • the applicant; or
- • the supplier of the goods to the applicant;
on the one hand, and the tax that would have been calculated if the false statements had not been false statements. The applicant places reliance on the circumstance that section 97(1)(b) does not refer to the tax that would be calculated if the false statement had not been made. Rather it refers to the tax that would be calculated if the false statement were not a false statement.
48. The applicant contends that the tax properly payable by the supplier to the applicant was nil because of the operation of section 88 of the Assessment Act. That is because the statement that the applicant was a registered person is deemed to be true for the purposes of section 27 of the Assessment Act. Accordingly, the supplier had no liability and no tax was properly payable by the supplier.
49. On the other hand, since the applicant was not a registered person, the tax properly payable by the applicant, on the present hypothesis, is the amount assessed by the Commissioner. That is because the applicant is not a registered person and, therefore, tax would not be payable on the wholesale sale by the seller to the applicant but on the retail sale by the applicant.
50. The tax that would have been calculated on the assumption that the statement was not a false statement, namely if the applicant was a registered person, is the amount assessed by the Commissioner. Thus, the amount properly payable either by the applicant or by the supplier did not exceed the amount calculated on the assumption that the statement was not a false statement.
51. However, such an approach gives no effect to the word ``properly'' where it appears in section 97(1)(b). That word signifies that the inquiry relates to the amount payable by the applicant or by the supplier to the applicant, assuming propriety. The word ``properly'' is used in the context of section 97(1)(a), which refers to a person making a false statement. Accordingly, the expression ``the tax properly payable'' must be construed as being the tax that would be payable if there had been no impropriety consisting of the false statement upon which the question is predicated.
52. Thus, there are two scenarios that require consideration, on the assumption that there had been no impropriety and the false statement in question had not been made. The supplier to the applicant would have had a liability under item AD1b of Table 1 in respect of ``a wholesale sale by a person who is not the manufacturer of the goods''. That is the tax properly payable by the supplier in the present circumstances. Since there would be no sales tax number quoted, the normal taxable value would be ``the price (excluding sales tax) for which the goods were sold''. That is in fact the value attributed by the Commissioner to the assessable dealings as the notional wholesale selling price.
53. That figure is to be compared with the tax that would have been calculated on the assumption that the false statement was not a false statement, namely, that it was a truthful statement. The tax that would have been calculated in respect of the assessable dealings, being the sale by the supplier to the applicant, was nil. That is to say, if the statement that the applicant was registered was not a false statement, no tax would have been payable by the supplier. Thus, the tax properly payable by the supplier exceeds the tax that would have been calculated on the assumption that the false statement was not a false statement. Under section 97(2) the amount of the penalty is double that excess.
54. Under section 99(1) the Commissioner must make an assessment of penalty that is payable under Part 9. Part 9 is concerned with ``PENALTIES FOR NON COMPLIANCE''. Under section 99(2) notice of the assessment may be included in any other notice of assessment that relates to the same person. The penalty becomes due for payment on the day specified in the notice of assessment.
55. In addition to section 97, sections 96 and 98 also deal with penalties. Under section 96, a person who fails to provide a return that the person is required to provide is liable to a penalty equal to double the tax payable by the applicant on any assessable dealing with the goods. A clear inference can be drawn on the material before me that the applicant failed to provide a return.
56. Accordingly, section 96 could well support an assessment. On the Commissioner's findings, that penalty would be the same as that arising under section 97. The Commissioner contended that, notwithstanding the express terms of the notices of assessment, referring to section 97, the assessments could be capable of
ATC 4300
support under section 96. That is to say, even if the Commissioner's contention as to the true construction of section 97 were rejected, the applicant may yet fail to establish that the assessment was excessive because it could be supported under section 96.Section 116 of the Assessment Act
57. The Commissioner's primary answer to the applicant's claims is that section 116 of the Assessment Act precludes the applicant from relying on any deficiency in the assessments made under section 101 or section 99. Section 116(1) provides as follows:
``SECTION 116 EVIDENTIARY EFFECT OF NOTICE OF ASSESSMENT ETC.
116(1) The production of:
- (a) a notice of assessment; or
- (b) a document that is signed by the Commissioner and appears to be a copy of a notice of assessment;
is conclusive evidence that the assessment was duly made and that the amounts and other particulars in the assessment are correct. This subsection does not apply in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment.''
58. However, the applicant contends that section 116 will preclude a court from examining the validity of an assessment only if:
- • there has been a bona fide attempt to exercise the powers of assessment conferred by the Assessment Act;
- • the purported assessment relates to the subject matter of the Assessment Act; and
- • the purported assessment is reasonably capable of reference to the powers of assessment conferred by the Assessment Act.
The applicant relies on principles said to be found in
DFC of T v Richard Walter Pty Ltd 95 ATC 4067; (1995) 183 CLR 168,
Darrell Lea Chocolate Shops Pty Ltd v FC of T 97 ATC 4040 at 4048-4049; (1996) 34 ATR 491 at 501 and
FC of T v Stokes 97 ATC 4001 at 4011-4012; (1996) 34 ATR 478 at 489.
59. In particular, the applicant relies on the following passage in the judgment of the Full Court in Darrell Lea Chocolate Shops Pty Ltd v FC of T (above) at ATC 4050; ATR 502:
``Conversely it may be said that once the Commissioner forms the view that there is no substantial possibility that the item of income is assessable income of a person, it could not be a bona fide exercise of the assessing power to assess that person to tax in respect of that income. Likewise here where it is conceded that there is no possibility at all that the assessments made were correct, there can be no assessment.''
It is significant that that passage refers to the Commissioner's view rather than the fact. In other words, if the Commissioner forms the view that there is no substantial possibility that there is a liability for tax, it could not be a bona fide exercise of the assessing power under section 101 to make an assessment.
60. The Commissioner accepts that an assessment shown to be based on facts that are now acknowledged to be wrong is susceptible to being set aside, notwithstanding section 116. For example, if the Commissioner did in fact purport to assess the sales tax payable by the applicant on the basis that the relevant assessable dealings were the purchases of goods by the applicant, rather than sales, that could well be a basis for impugning the assessments, notwithstanding section 116.
61. However, an error of law on the part of the Commissioner in making an assessment would not be sufficient to avoid the operation of section 116. In particular, an error in the interpretation of section 97 concerning penalties would not of itself be sufficient to impugn the assessments, unless the error was of such a character that the assessment was unarguably bad. Further, it is not sufficient in order to impugn the assessments to demonstrate that there may be a different conclusion reached concerning the factual matters relied on by the Commissioner. If the Commissioner's conclusions are at least open on the material before the Commissioner, there is no basis for impugning the assessments based on those conclusions.
62. The Commissioner maintains the position that the assessments have been properly made. For the reasons that I have set out above, I consider that there are good grounds for concluding that the Commissioner's assessments can be supported against the complaints made by the applicant. Accordingly, this is not a case where it can be said that there
ATC 4301
is no possibility at all that the assessments were correct.63. The position may be different where a concession is made by the Commissioner that there is no substantial possibility that the assessments made were correct. However, that is not the present case for the reasons just indicated. I do not consider that any of the matters relied on by the applicant leads to a conclusion:
- • that there has not been a bona fide attempt to exercise the powers of assessment conferred by the Assessment Act;
- • that the assessments did not relate to the subject matter of the Assessment Act; or
- • that the assessments were not reasonably capable of reference to the powers of assessment conferred by the Assessment Act.
Accordingly, I consider that the Notices are notices of assessment within the meaning of the Assessment Act. Section 116 precludes the applicant from impugning in this proceeding any of the assessments referred to in the Notices.
Discretion
64. The applicant has commenced proceedings in the Administrative Appeals Tribunal (``the Tribunal'') under Part IVC of the Taxation Administration Act 1953 (Cth) (``the Administration Act''). Part IVC of the Administration Act is concerned with taxation objections, reviews and appeals and permits an application to the Tribunal for review of an objection decision by the Commissioner. Section 14ZL(1) of the Administration Act provides that Part IVC applies if a provision of an Act provides that a person who is dissatisfied with an assessment determination notice or decision may object against it in the manner set out in Part IVC. Section 107 of the Assessment Act provides that a taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Administration Act.
65. The review by the Tribunal of the Commissioner's objection decision in relation to the assessments will entail a consideration on the merits of all of the questions raised by the applicant in this proceeding. Thus, in the course of that review, the applicant will be able to have investigated the question of whether the Commissioner assumed that all goods purchased during the periods that are the subject of the Notices were sold during those same periods. The question of whether that is an assumption that is justified and the consequences of any incorrect assumption will also be subject to review in those proceedings. Further, the question of the correct approach to the question of penalty arising under section 97 will also be capable of investigation in the course of the proceeding before the Tribunal.
66. In those circumstances, it is undesirable for the Court to embark on a consideration of those questions with a view to reaching a final conclusion. The evidence before the Tribunal is likely to be much more extensive than that which is presently available to the Court. While the matters have been the subject of extensive argument before me, it would be undesirable for me to pre-empt the Tribunal's decision. On the other hand, if either party is dissatisfied with the Tribunal's decision when made, and appeals are brought to this Court pursuant to section 44 of the Administrative Appeals Tribunal Act on any question of law, it may be convenient for the appeal to be dealt with by me, having regard to my familiarity with the circumstances.
67. It is unfortunate that this proceeding has come to the Court prior to the matter being dealt with by the Tribunal. The Tribunal has deferred dealing with the matter pending the outcome of this proceeding. It would have been desirable for the matters raised before the Tribunal to have been dealt with at the same time as the current proceeding. However, the Part IVC proceedings were already under way prior to the commencement of this proceeding. Once the applicant had made the election to seek review in the Tribunal, it was no longer open to raise the merits of the Commissioner's assessments before the Court by way of appeal from the objection decisions.
68. Under section 14ZZK of the Administration Act on an application for review by the Tribunal of a reviewable objection decision:
- • the applicant is, unless the Tribunal otherwise, limited to the grounds stated in the taxation objection;
- • the applicant has the burden of proving that the assessment is excessive.
69. The grounds stated in the applicant's notice of objection include the following:
ATC 4302
``(4) The Taxpayer claims that the conditions for imposition of penalty tax did not exist.''
Accordingly, it is clearly open to the applicant to raise before the Tribunal the validity of the assessments by the Commissioner, including the assessment of the penalty under section 97. As a matter of discretion, therefore, I would not intervene in relation to the validity of the assessments at this stage. The applicant has an adequate forum before the Tribunal to test the validity of all of the assessments referred to in the Notices.
Section 74 notice
70. The applicant contends that the decision to issue the section 74 notice should be set aside because the decision to issue it was based on an erroneous view of section 97. For the reasons indicated above, I consider that the better view is that preconditions of section 97 are satisfied in the present case. In any event, because the Commissioner has obtained judgment against the applicant, the notice under section 74 can be supported by paragraph (c) of the definition of ``sales tax debt'' in section 74(10). Accordingly, no basis has been established for setting aside the notice.
Other issues
71. If the Applicant were able to establish that the principles stated in Darrell Lea Chocolate Shops Pty Ltd v FC of T (above) were satisfied in the present case, the Commissioner relies on two further matters in answer to the applicant's claim for relief in the present proceeding. First it is contended that the proceedings in the District Court resulted in a determination such that the doctrine of res judicata would preclude the applicant from raising the validity of the assessments in further proceedings such as this proceeding. In addition, the Commissioner contends that the Court's jurisdiction under section 39B(1) of the Judiciary Act 1903 (Cth), which is relied on by the applicant, is curtailed by section 116 of the Assessment Act, the latter provision having been passed after section 39B(1) of the Judiciary Act. Reliance was placed on
San Remo Macaroni Company Pty Ltd v FC of T 99 ATC 5138 at 5149.
72. Both parties accept that there are difficult questions raised by both contentions, which would not arise if the applicant fails in his contentions concerning the principles in Darrell Lea Chocolate Shops Pty Ltd v FC of T (above), or the Commissioner otherwise succeeds on discretionary grounds. The parties therefore did not develop all of their arguments in relation to these matters. I indicated that I would consider the matters argued in full thus far and that, if I accepted the Commissioner's contentions on those matters, I would not deal with the questions of res judicata and jurisdiction since it would not be necessary to decide those questions. In the result, I have concluded that the Commissioner's contentions should prevail. Accordingly, I have not considered the res judicata question or the jurisdiction question.
Conclusion
73. It follows from the above that the application should be dismissed with costs.
THE COURT ORDERS THAT:
1. The application be dismissed.
2. The applicant pay the respondent's costs.
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