CASE 14/2009

J Block DP

Administrative Appeals Tribunal, Sydney


Decision date: 6 November 2009

J Block (Deputy President)

Part A - Preliminary and introduction

1. The objection decision under review is the disallowance by the Respondent of an objection dated 13 June 2008 by the Applicant against assessments of GST Net Amounts for the period from 1 June 2004 to 31 October 2007.

2. The Applicant was represented by Mr Mark Robertson of counsel, instructed by KPMG Tax Lawyers Pty Ltd, while the Respondent was represented by Mr Ben Kasep of counsel, instructed by the Australian Taxation Office (ATO) Legal Services Branch.

3. The Tribunal had before it the T-Documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) together with, and in respect of both parties, statements of facts and contentions and written submissions. The Tribunal also admitted as exhibits:

  • Exhibit A1: Statement dated 5 June 2009 by Mr Thomas, who is employed by the Applicant;
  • Exhibit A2: Statement dated 5 June 2009 by Mr Charles, who is employed by one of the retailers referred to later in these reasons;
  • Exhibit A3: Statement dated 5 June 2009 by Mr Green, who is one of the customers referred to later in these reasons;
  • Exhibit A4: Statement dated 24 August 2009 by Mr Steven who is employed by the Applicant;
  • Exhibit A5: Statement dated 4 June 2009 by Mr Henry, who is employed by the Applicant;
  • Exhibit A6: Further statement dated 25 August 2009 by Mr Henry;

4. In respect of the witnesses referred to in the preceding clause, Mr Henry only was required for cross-examination and his evidence is dealt with later in these reasons.

5. This matter was heard in confidence; all of the names set out in clause 3 above are pseudonyms.

6. The facts are largely, but not entirely, non-contentious. It is convenient in the first instance to draw on the Respondent's written submissions ("RS") and to include clauses 5, 6 and 7 as follows:

  • "5. [The Applicant] is an 'importer and wholesale supplier of consumer electrical goods in Australia': Statement of [Mr Henry], filed 5 June 2009, [5] ('Henry Statement'). It supplies its goods to various 'retail resellers' ('the retailers'): Applicant's Statement, p 5 [1]. The retailers in turn supply these goods to public consumers ('the consumers'). The Applicant is unable to control the price that the retailers charge for its goods: Henry Statement, [6].
  • 6. In the winter of 2004, 2005 and 2007, the Applicant undertook a 'cash back offer' promotion in relation to specific models of its specified items. The general workings of the cash back promotion can be summarised in the following manner:
    • (a) Information of the cash back offer promotion was forwarded to the retailers in advance of the promotion setting out the relevant terms and conditions: Henry Statement, [17]. In addition, representatives of the Applicant would meet with retailers in order to discuss the upcoming promotion: Statement of [Mr Thomas], dated 5 June 2009 (Thomas Statement, [17];

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      (b) The Applicant provided 'point of sale' advertising material for the promotion to the retailers and vouchers to be filed in by eligible customers to claim the cash back offer: Henry Statement, [18]. the Applicant additionally advertised the promotion through print and radio advertising: Respondent's Statement, [7];
    • (c) Once a customer ordered from a retailer and paid for a specified item specified to be part of the cash back promotion, the customer would be provided with a cash back voucher by which it could redeem from the Applicant its cash back: Henry Statement, [25];
    • (d) The customer would complete the voucher, attach the original tax invoice showing payment, and send the voucher directly to the Applicant: Henry Statement, [26];
    • (e) Provided the voucher met all the terms and conditions of the cash back promotion and was sent to the Applicant before 17 September 2004 (in relation to the 2004 promotion), 17 September 2005 (in relation to the 2005 promotion) and before 14 September 2007 (in relation to the 2007 promotion), the Applicant would send to the customer their original tax invoice together with a cheque for the relevant cash back amount: Henry Statement, [29].
  • 7. In its Business Activity Statements for the period June 2004 to October 2007, the Applicant claimed 1/10th of the aggregate amount of 'cash back' payments the Applicant made to customers as reducing its net amount: Respondent's Statement, [15]. It did so on two bases:
    • (a) For those cash back payments that were made by the Applicant in the same GST quarter as the supply of the relevant specified item by the Applicant to the retailer the Applicant treated the cash back payment as reducing the consideration for the supply of the specified item under s 9-5 of the GST Act 1999 (Cth);
    • (b) For those cash back payments that were made by the Applicant in a GST quarter different from that in which the relevant specified item was supplied to the retailer the Applicant treated the cash back payment as an 'adjustment event' within the meaning of s 19-10(b) of the GST Act 1999 (Cth)."

7. It should be noted that the extract from RS set out in the preceding clause has been edited so as to use the pseudonyms referred to in clause 3 and also to refer to the specific imported electrical goods to which the cash back promotions related, as the "specified items". It is relevant to note that the cash back promotions related only to certain models of the specified items and moreover, that the cash back promotions and pursuant to which customers could obtain cash back amounts from the Applicant were confined to customers who did not require the specified items for commercial purposes; there were other restrictions (of a comparatively minor nature) as to the ability of customers to obtain payment under their cash back vouchers but it is unnecessary for me to refer to them in detail.

8. T-17 at p 123 of the T-Documents contains details in respect of the monthly tax statements to which this matter refers and being in respect of each month, the statement, the date to which it is lodged, the tax period, the original Net Amount, the Assessed Net Amount and the difference. The aggregate difference overall is an amount of $615,215.

9. Mr Robertson drew the Tribunal's attention to the fact that the GST system is essentially one of self-assessment and referable to the Business Activity Statements filed by a taxpayer. A taxpayer is entitled to ask for assessments. In this instance, the Applicant did not ask for assessments; they were however

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issued by the Respondent resulting in the objection and the application for review.

10. It is convenient to pose an example of what is involved in the transactions which figure in this matter. Assume that the Applicant sells a specified item to a retailer for $1,000. The GST-inclusive price will be $1,100, and including GST amounting to $100 and the retailer will be entitled to an input tax credit (ITC) of $100. The retailer then resells the specified item to the customer or end-user (and both terms are used in these reasons) for $2,000. The GST-inclusive price is $2,200; the GST actually payable is $200 less the ITC of $100 and so that the retailer must pay $100. The overall effect is that GST of $200 is paid. The end-user then utilises his coupon, furnished to him by the retailer, in order to obtain a payment of $200 from the Applicant.

11. The result, so the Applicant contends, is that regarded in economic terms and in aggregate GST will have been overpaid, and to that the Applicant is entitled to an appropriate credit. I refer also to the Applicant's written submissions ("AS"), where clause 11 reads as follows:

"It is this interdependence between the supply of goods and the cashback that the Respondent ruled rightly distinguishes the basic position he takes in the Addendum [fn: Issued on 17 December 2003] to GSTR 2000/19: the cash back amounts are not made 'independently' of the retailer. It is odd that GSTR 2000/19 is not mentioned in his submissions. The Tribunal should presume, however, that the Respondent is not retreating from his public ruling and, in particular, this critical distinguishing feature."

12. Clause 40 of GSTR 2000/19 ("the Ruling") reads as follows:

"An entity (such as a manufacturer) may offer to make a payment to a third party end user if the end user acquires a thing from another entity (such as a retailer). Typically, the manufacturer will make the payment directly to the end user independently of the retailer.F17A The payment is made pursuant to a separate agreement between the end user and the manufacturer but not involving the retailer. 17A A payment made in these circumstances cannot give rise to an adjustment event. It does not change the consideration received by the retailer for the supply by the retailer to the end user, nor does it change the consideration received by the manufacturer for the supply by the manufacturer to the retailer. A change in the consideration for these supplies cannot occur independently of the retailer."

13. It will be noted that clause 40 of the Ruling applies in its terms when a manufacturer makes payment directly to the end-user independently of the retailer. The Applicant contends that this is not a case where the payment is made independently of the retailer, although the answer to this question must depend on what is meant in this context by "independently". There are in fact two supplies; the first supply is made by the Applicant to the retailer and the second supply is made by the retailer to the customer. The cash back promotion is linked to an extent with both supplies (or in the case of the first supply some of them), but as to whether the last sentence of clause 40 of the Ruling applies is another matter entirely. There was evidence before the Tribunal that the Applicant allowed cash back coupons to be provided to customers who purchased specified items acquired by the retailer in point of time prior to the relevant promotion and so that at least in respect of those specified items the sales were not made by the Applicant to the retailer conditionally upon the existence of a cash back promotion. As to the second supply by the retailer to the customer, there was evidence before the Tribunal as to the fact that retailers were interested in the progress of promotions but that they were not concerned with information as to GST. At the end of the day, it is unnecessary for me to express a view as to the impact of clause 40 of the Ruling because this is not a case in which there was reliance on the Ruling.

14. There is nothing in the affidavit evidence to suggest that the Applicant relied on the Ruling and Mr Robertson made it clear that the Applicant does not seek to contend that there was such reliance. In respect of an indirect tax such as GST, a public ruling is binding only where reliance is established. Mr Robertson said that although the Applicant does not rely

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on the Ruling, it considers that the Ruling is relevant.

Part B - The evidence

15. The evidence in respect of which the witnesses were not required for cross-examination is accepted in accordance with its terms.

16. There were two witness statements by Mr Henry and being Exhibits A5 and A6. Mr Henry's examination-in-chief was confined to his confirmation of the contents of his witness statements. I include clauses 13 to 29 (sans annexures) of Exhibit A5 (edited as set out previously) as follows:

" Retail resellers and the cash back offers

  • 13. All retail resellers who sold [the Applicant]'s [specified items] participated in the cash back offers. In fact, some of the retail resellers approached the Applicant in advance of the winter 2005 and winter 2007 campaigns (typically in the preceding December) to enquire about whether the Applicant would be offering cash backs.
  • 14. I considered the promotion was successful, as (i) the Applicant's sales improved because the retail resellers placed orders in anticipation of the increased demand and (ii) the retail resellers also perceived that their onsales improved. They often advised me that cash back offers assisted them in securing a larger number of sales.
  • 15. Over time, this cash back technique has become more and more commonplace in the market in which the Applicant operates.
  • 16. Once the Applicant had decided to proceed with cash back offers for the winter 2005 and winter 2007 campaigns, the Applicant distributed information about the offers to retail resellers. Our retail resellers' participation was integral to the success of the promotion, as I set out below.
  • 17. Information sent to retail resellers included a letter to the retail reseller setting out the terms and conditions of the cash back offer and highlighting information that their staff should point out to customers who were interested in purchasing the products. Attached as Annexure 1 is a copy of the letters sent to retail resellers in respect of the winter 2005 and winter 2007 campaigns.
  • 18. The Applicant also provided the retailer resellers 'point of sale' advertising material including A4 and A1 posters, signage to display around their stores and vouchers to be filled in by purchasing customers to claim the cash back offer. Attached as Annexure 2 is a sample of the advertising material made available to retail resellers in respect of the winter 2005 and winter 2007 campaigns.
  • 19. All our retail resellers agreed to participate, expressly or by their conduct. Some of the retail resellers signed and returned to the Applicant a letter confirming that they would advertise and sell the Applicant's specified items covered by the cash back offer, whilst other retail resellers simply confirmed that they would participate in the cash back offer marketing by displaying the advertising and promoting the products.
  • 20. The Applicant's sales representatives also met with retail resellers face-to-face and provided them with further guidance as to how the cash back offers worked and particular conditions that should be emphasised to customers, such as the products covered by the offer, the time limit on claiming the cash back, the method of making the claim and the value of the cash back.
  • 21. The Applicant also provided retail resellers with information about advertising campaigns that were being run in major magazines and on radio to promote the cash back offers. Annexure 2 refers to advertising campaigns being undertaken by the Applicant, as well as a suggested script for use by retail resellers in radio advertising they arrange.
  • 22. In addition to the cash back offers, in some cases the Applicant contributed money towards the retail resellers' advertising costs so that the Applicant's specified items were either included in advertising material, or given prominence in advertising material, in the retail reseller's catalogues and other promotional material.

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    23. The cash back offer was directly linked to the actual order of each individual specified item that had been, or was to be, sold by the Applicant to the retailer reseller within the relevant time period for the offer. So, if a retailer had no stock on hand to sell to the customer and the customer placed an order within the period of the cash back offer, the Applicant would honour the cash back. In all cases the individual specified item sold by the Applicant to the retailer reseller would be identified with the specified item onsold to the customer. This was done by way of matching serial numbers for sales between the Applicant and the retailer reseller with the serial numbers for sales between the retailer resellers and their customers.
  • 24. If a customer received a faulty specified item sold under the cash back offer, the faulty product was simply replaced with a new specified item and this did not affect the payment of the cash back offer to the customer.

Processing the cash back offers

  • 25. Once a customer had ordered a specified item covered by the cash back offer, they would fill out a voucher containing the terms and conditions of the offer. The voucher had been provided by the Applicant to the retail reseller. Attached as Annexure 3 are copies of the 2005 and 2007 cash back vouchers to be completed by customers.
  • 26. The completed voucher, along with the customer's original tax invoice showing the payment made for the specified item, were to be sent by the customer directly to the Applicant or via the retailer reseller. Most were sent directly by the customer. I am aware that in a small number of cases (approximately 5% of all claims), the retail reseller would collect the vouchers from the customer and lodge them with the Applicant on the customer's behalf. Again, the Applicant would honour those cash back offers, even in cases where the retail reseller submitted the cash back vouchers outside the claim period, provided they could evidence that the customer had lodged the claim with the retail reseller within the claim period.
  • 27. For both the winter 2005 and winter 2007 offers, the cash back voucher only applied to residential homeowners, and only to certain models of specified items. Furthermore, customers could only claim up to a maximum of five specified items per person / per household / per claim. The reason why the Applicant limited the cash back offer in this way is that it wanted to ensure that orders by commercial businesses or other bulk orders were made directly to the Applicant at prices negotiated specifically with the Applicant, and not through the retail resellers.
  • 28. Customers had until 17 September 2005 and 14 September 2007 respectively, to send the voucher and original tax invoice to the Applicant to be eligible to receive the cash back offer.
  • 29. Once the Applicant received the voucher from the customer, it was checked to ensure the customer had complied with the terms and conditions of the offer and if so, the voucher was processed. The Applicant returned to the customer their original tax invoice for the purchase of the specified item along with a cheque for the amount of the cash back applicable to the customer within 60 days of receiving the voucher. In all cases the cash backs were no greater than $400 each."

17. I include a part only of Annexure 1 to Exhibit A5 and confined to its content under the paragraph commencing with the words "Please note" at the bottom of the page and reading (edited on the basis set out previously) as follows:

  • • The Cash Back payment represents a discount for the supply of the relevant specified item by the Applicant to participating retailers and subsequently a discount for the supply by the participating retailers to the customer that purchases the specified item.
  • • As the Cash Back (discount) flows through the participating stockist to the customer, there is no GST cost to the participating retailer.
  • • There is no additional administrative work required by the participating stockist in relation to Cash Back payments. The Applicant will receive all the vouchers from customers, as agent of the participating retailers.

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    • The Applicant will provide participating retailers with a summary of Cash Back payments we have made in relation to purchases that were made from their store/s at the end of the promotion period.

18. The remainder of this PART B relates to the cross-examination of Mr Henry.

19. Mr Henry agreed that at the time when the Applicant sold specified items to the retailer, neither knew whether any given customer would be eligible to take advantage of it, or would in fact take advantage of it.

20. Mr Henry said that he approved Annexure 1 to Exhibit A5, but when referred to its content under the head of "Please note", said that he was not the author of Annexure 1 and that Mr Thomas was its author. He agreed that he was aware of the content of the bullet points under "Please note".

21. As to the first bullet point (which refers to two separate discounts), Mr Henry was asked as to his understanding of its import. His answer was that he had reduced the price of the specified item. However, Mr Henry agreed that whether or not the cash back offer was taken up, the price paid by the retailer remained the same.

22. Mr Henry was then asked how in these circumstances and having regard to the two transactions referred to in the bullet point, it could be said that there was a discount to the retailer. He replied that he took it as a total and that he could not define the statement in Annexure 1. He accepted that there were two separate transactions: one between the Applicant and the retailer and then a second transaction between the retailer and the end-user.

23. Mr Henry was asked how, if there was a discount to the retailer, it flowed through to customers; his answer was that retailers advertised it to their customers.

24. Mr Henry said as regards the second bullet point that the retailer would be involved in the cash back; he agreed that there was no GST consequence to the retailer.

25. As to the third bullet point, Mr Henry agreed that the retailer was not involved in the administration of the cash back promotion. He said that the retailers received contributions to advertising and that although they received advertising material supplied by the Applicant, they could add to that advertising material.

26. Asked whether any retailer had any queries as to any of these aspects, he said that retailers did wish to know that they had no GST involvement. Retailers did not enquire as to the description of the arrangement as one of discount.

27. As to the fourth bullet point, Mr Henry said that summaries were provided but agreed that there was no mention of this aspect in his witness statements. Mr. Henry went on to say that statements to retailers were provided; asked why his witness statements were silent as to this aspect he answered "no particular reason." He said also that the Applicant did not provide GST information and that when the Applicant paid a cash back amount it did not issue an adjustment; he said that he did not know why this was so and that this aspect was outside his area.

28. Mr Henry was then asked whether, if a retailer had stocks of the specified item prior to the promotion, those stocks would qualify for a cash back promotion. He said that they would qualify and that the Applicant did not complain in relation to any specified item that the cash back did not apply because it was purchased by the retailer outside the promotion period and more particularly prior to its commencement.

29. Mr Henry was asked how the Applicant would know whether a particular specified item fitted the description. He replied that the Applicant had serial numbers that could be checked but that the Applicant was not concerned.

30. Mr Henry agreed that retailers could have significant inventory of specified items purchased outside the promotion period but that the cash back promotion would nevertheless apply, and he also agreed that it was for the Applicant to decide when a promotion would take place and that the retailer could not dictate any aspect of it.


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When asked whether any retailer had ever said that it would not purchase in the absence of a promotion, Mr Henry replied "not that I can recall".

32. Mr Henry said that the retailers provided the cash back vouchers to the customers and it was for the customer to decide whether he qualified for the cash back. If the customer mislaid the coupon, another could be obtained from the Applicant's website.

33. Mr Henry said that the Applicant did not put the vouchers in the boxes because the boxes, having been imported, would have then required opening and closing, and some of the stocks of specified items were contained in boxes and which were already in the possession of retailers, that stock having been purchased prior to the commencement of the promotion.

34. The evidence of Mr Henry indicates in clear terms that the promotions were instigated, and to a very large extent managed, by the Applicant.

Part C - Relevant statutory provisions

35. It is convenient to gather together in this PART C those provisions of A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("the GST Act") which are of particular relevance.

36. Section 9-5 of the GST Act reads as follows:

" Taxable supplies

You make a taxable supply if:

  • (a) you make the supply for consideration; and
  • (b) the supply is made in the course or furtherance of an enterprise that you carry on; and
  • (c) the supply is connected with Australia; and
  • (d) you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed."

37. "Consideration" is defined in s 195-1 as follows:

" 'consideration' , for a supply or acquisition, means any consideration, within the meaning given by section 9-15, in connection with the supply or acquisition.

Note: This meaning is affected by sections 75-12, 75-13, 75-14, 78-20, 78-35, 78-45, 78-50, 78-65, 78-70, 79-60, 79-65, 79-80, 80-15, 80-55, 81-5, 82-5, 82-10, 99-5, 100-5, 100-12 and 102-5."

38. Section 19-10 but confined to s 19-10(1) reads as follows:

" Adjustment events

  • (1) An adjustment event is any event which has the effect of:
    • (a) cancelling a supply or acquisition; or
    • (b) changing the *consideration for a supply or acquisition; or
    • (c) causing a supply or acquisition to become, or stop being, a *taxable supply or *creditable acquisition.

Example: If goods that are supplied for export are not exported within the time provided in section 38-185, the supply is likely to become a taxable supply after originally being a supply that was GST-free."

39. Section 21-10 reads as follows:

" Recovering amounts previously written off (taxable supplies)

You have an increasing adjustment if:

  • (a) you made a taxable supply in relation to which you had a decreasing adjustment under section 21-5 for a debt; and
  • (b) you recover the whole or a part of the amount written off, or the whole or a part of the amount that has been overdue for 12 months or more, as the case requires.

The amount of the increasing adjustment is 1/11 of the amount recovered."

Part D - Contentions and case law

40. The Applicant referred at some length to the judgment of Her Honour Stone J in
TT-Line Company Pty Limited v FC of T (2009) 72 ATR 982; 2009 ATC 20-110. That judgment is, so I was informed, on appeal but in respect of an issue which does not bear on the decision in this matter. In that case, Mr Egan booked a return crossing of Bass Strait on the Spirit of Tasmania. His booking was for two adults and included a motor vehicle. It was common cause that Mr Egan was an eligible passenger and that the taxpayer was a Service Operator under the

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Bass Strait Passenger Vehicle Equalisation Scheme. Mr Egan paid an amount, which was rebated, and in accordance with the Scheme, the taxpayer became entitled to reimbursement of the rebate by the Commonwealth Government. Stone J held that the reimbursement amount constituted consideration for a supply and thus attracted GST. The fact that in respect of the supply, the supplier received consideration otherwise than from the actual recipient of that supply does not have the effect that the third party consideration is not also consideration for the supply.

41. The Applicant contends that if in relation to a supply third party consideration attracts GST, the reverse must apply and so that where in relation to a supply, the supplier must refund part of the consideration, and even though that refund is made otherwise than to the recipient of that supply, the supplier is entitled to a credit. The Applicant's contentions as set out in the preceding clause inevitably had the effect that the principle of "fiscal neutrality" became relevant. The principle of fiscal neutrality has developed under the value added tax (VAT) system in Europe. In Europe, the principle of neutrality is an implication drawn for the description of VAT as a "general tax on consumption, in what was Article I of the First European Community Directive.

42. As I understood Mr Robertson, the Applicant seeks to draw support from the principle, more particularly having regard to the judgment of His Honour Gzell J in
TAB Ltd v Commissioner of Taxation (2005) 59 ATR 430 at 441; 2005 ATC 4512 at 4521-2; 223 ALR 309 at 321 [S3]. Paragraph [83] of the judgment in TAB Ltd reads as follows:

"It would be an odd result if total amounts wagered were to be determined on an accruals basis, while total monetary prizes were to be determined on a cash basis. That would create a disunity or, would offend what has been called the principle of neutrality in jurisdictions that have a developed value added tax jurisprudence (
Elida Gibbs Ltd v Commissioners of Customs and Excise [1996] EUECJ C-317/94, 24 October 1996 at [20])."

43. It would seem that the reference by Gzell J to the principle was made in passing. It cannot, in my view, be said to be an authoritative pronouncement that the principle is a part of Australian law.

44. In
HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 453; 60 ATR 106; 2005 ATC 4571, Hill J, delivering the judgment of the Full Federal Court, said at paragraph [13]:

"The genus of a system of value added taxation, of which the GST is an example, is that while tax is generally payable at each stage of commercial dealings (supplies) with goods, services or other 'things', there is allowed to an entity which acquires those goods, services or other things as a result of a taxable supply made to it, a credit for the tax borne by that entity by reference to the output tax payable as a result of the taxable supply. That credit, known as an input tax credit, will be available, generally speaking, so long as the acquirer and the supply to it (assuming it was a 'taxable supply') satisfied certain conditions, the most important of which, for present purposes, is that the acquirer make the acquisition in the course of carrying on an enterprise and thus, not as a consumer. The system of input tax credits thus ensures that while GST is a multi-stage tax, there will ordinarily be no cascading of tax. It ensures also that the tax will be payable, by each supplier in a chain, only upon the value added by that supplier."

45. And in HP Mercantile Hill J noted that the GST Act must be interpreted so as to give effect to its legislative purpose. See paragraph [44] of the judgment as follows:

" The legislative policy

  • 44. It is clear, both having regard to the modern principles of interpretation as enunciated by the High Court in cases such as
    CIC Insurance Limited v Bankstown Football Club Limited; (1997) 187 CLR 384 and s 15AA of the Acts Interpretation Act 1901 (Cth) that the Court will prefer an interpretation of a statute which would give effect to the legislative purpose, as opposed to one that would not. This requires the Court to identify that purpose, both by reference to the language of the statute itself and also any extrinsic material which the Court is authorised to take into account."


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Elida Gibbs Ltd v Customs and Excise Commissioners (C-317/94) was decided by the Court of Justice of the European Communities in 1998. It is of particular interest in that the decision was not (unusually) in accord with the opinion of the Advocate-General. The court found in favour of the taxpayer; paragraphs [28] and [31] of the judgment read as follows:
  • "28. At the hearing, the Commission responded to this submission by stating that art 20(1)(b), as part of the article devoted to 'Adjustments of deductions', expressly provides for the case where a deduction occurs after the return has been made. This is wholly unconvincing. It is quite natural that provision is made for such deductions in so far as they arise in accordance with art 11C(1). However, the mere requirement imposed on member states to put in place an adjustment mechanism does not, in my opinion, warrant an interpretation of art 11C(1) which flies in the face of art 11A. A valid right to have a price reduction taken into account can only arise where it is the supplier who subsequently allows the relevant price reduction in favour of its customer (see para 24 above).
  • ...
  • 31. In respect of the first approach, the Company relies in particular on Boots. While it accepts that the court's judgment in Boots was concerned with a discount scheme operated by a retailer in favour of its customers, the Company contends that the same reasoning may be applied to discounts offered by manufacturers to retail customers. In this respect, it refers the court to the reasoning of the French Conseil d'État in Berthier-Savéco (1974) (Case No 85.681). The Commission supports the second approach. It contends that if a manufacturer operating a discount scheme such as that of the Company were to be assessed, as the commissioners have done, on the full amount of the original supply, this would be equivalent to employing an 'open-market value' contrary to art 11A(1)(a) as interpreted by the court. In its view, the nominal value of redeemed coupons must be deducted from the original price under art 11C(1)."

47. It must be remembered in relation to Elida Gibbs that there is no equivalent of the First European Community Directive in the GST Act.

48. In
TSC 2000 Pty Ltd v FC of T (2007) 66 ATR 945 at 956-7; 2007 ATC 2409 at 2418, Deputy President Hack said at [54]:

"As it seems to me, the principle of fiscal neutrality is of limited application in the present case. There are at least three reasons why that is so. First, the principle is an aid to construction where it is necessary to determine which of competing constructions is to be preferred; it does not operate to modify the plain operation of the statute. If there is a supply from a practical and business point of view of the ordinary meaning of 'supply' then recourse to the principle of fiscal neutrality is unnecessary and unwarranted. As has been said recently [in
WR Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation [2007] FCAFC 103; 161 FCR 1, 8 [29] (Heerey, Stone and Edmonds JJ]:

'... what lies behind the enactment of a taxing provision as a matter of public policy or economic theory is not the same thing as the elements or criteria of tax liability which Parliament has laid down.' "

49. In Brysland G, "GST Cases to the End of 2007 - Pt 2" (2007) 7 Australian GST Journal 129 at 134, the author expanded on what was expressed in TSC:

"GST may be a tax on private consumption from an economic point of view, but it is imposed on something called a 'supply', which is closely defined by legal characteristics. Broad statements of purpose are less reliable pointers to interpretation when they stray from core legal concepts embedded in the legislation into areas of diminishing justiciability. Such a position, therefore, makes it harder to argue for 'implied design' outcomes, whether by analogy with benchmarks in other VAT systems or by reference to 'private consumption' statements generally. Some may say that this is inherently against a system of interpretation which has regard to context/purpose in the widest sense and at

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the outset of the exercise. However, there is also a certain inevitability in denying determinative effect to statements in purely political or economic terms when courts have traditionally regarded these areas essentially as no-go zones."

50. The High Court in
Commissioner of Taxation v Reliance Carpet Co Pty Limited (2008) 236 FCR 342; 68 ATR 158; 2008 ATC 20-028 made it clear that the system in Europe may be contrasted with the Australian system: see paragraphs [3], [4] and [5] as follows:

  • "[3] Provision respecting the assessment and payment of the GST is made by the statute styled A New Tax System (Goods and Services Tax) Act 1999 Cth (the Act). An important point respecting the nature of the GST was made as follows by the Full Court of the Federal Court in
    Sterling Guardian Pty Ltd v Federal Commissioner of Taxation [[12] (2006) 149 FCR 255 at 258]:

    'In economic terms it may be correct to call the GST a consumption tax, because the effective burden falls on the ultimate consumer. But as a matter of legal analysis what is taxed, that is to say what generates the tax liability (and the obligations of recording and reporting), is not consumption but a particular form of transaction, namely supply ...'

  • By way of contrast to the Australian system, counsel for the Commissioner referred to Art 2(1) of the first Council directive [[13] Directive 67/227] on the harmonisation of legislation of member states of the European Community concerning turnover taxes; this indicates that VAT is a general tax on the consumption of goods and services.
  • [4] Section 7-1 of the Act relevantly states that GST is payable on '*taxable supplies' [[14] The use of the asterisk is a device to alert the reader to the presence of a definition in the Dictionary to the Act]. Section 9-5 answers a question 'what are taxable supplies?', posed by a hypothetical taxpayer, by stating that 'you make a taxable supply' if, among other criteria not presently relevant, 'you make the supply for *consideration'.
  • [5] The composite expression 'a taxable supply' is of critical importance for the creation of liability to GST. In the facts and circumstances of a given case there may be disclosed consecutive acts each of which answers the statutory description of 'supply', but upon examination it may appear that there is no more than one 'taxable supply'."

51. Having regard to what Deputy President Hack said in TSC, the Tribunal does not consider that it is here concerned with competing interpretations; the Tribunal agrees moreover with Deputy President Hack's statement that in any event the principle cannot modify the plain operation of the statute.

52. It is thus my view that the principle of fiscal neutrality is not a part of Australian law and the judgment in Elida Gibbs is not relevant for the purposes of this matter.

53. The Applicant referred to
Queensland Independent Wholesalers v Federal Commissioner of Taxation (1991) 29 FCR 312; 2 ATR 45; 91 ATC 4492 in respect of which the Respondent, at paragraph 39 of RS, commented:

"... However, that case deals with the expression 'the sale value of goods shall be the amount for which the goods are sold' in s 4 of the Sales Tax Assessment Act 1930 (Cth) and is accordingly of limited assistance. Moreover, it deals with a rebate provided to the purchaser of goods, not the situation in the present case involving a payment to a third party."

The Tribunal does not consider that this decision is relevant, more particularly having regard to the fact that it is concerned with different legislation.

54. The definition of consideration is cast in wide terms, having regard to its use of the words "in connection with the supply or acquisition". These words undoubtedly have a wide operation; however see
Hatfield v Health Insurance Commission (1987) 15 FCR 487 where Davies J said, at 491:

"Expressions such as 'relating to', 'in relation to', 'in connection with' and 'in respect of' are commonly found in legislation but invariably raise problems of statutory interpretation. They are terms which fluctuate in operation from statute to

ATC 260

statute. As was said by Blackburn, Gallop & Neaves JJ in
Butler v Johnston (1984) 4 FCR 83 at 87:

'It is clear that the words "in respect of" can convey a meaning of wide import, but their exact width will depend upon the context in which they appear. Reference to individual cases on different statutes is of little assistance in determining their particular meaning. The court has to construe the meaning of the words with reference to the purpose or object underlying the legislation in which they appear (s 15AA of the Acts Interpretation Act 1901 (Cth)).'

The terms may have a very wide operation but they do not usually carry the widest possible ambit, for they are subject to the context in which they are used, to the words with which they are associated and to the object or purpose of the statutory provision in which they appear. In
Ausfield Pty Ltd v Leyland Motor Corporation of Australia Ltd (No 2) (1977) 30 FLR 477 it was said at 480 by Bowen CJ, with whom Northrop J agreed, that the words 'in relation to' in s 51(2)(a) of the Trade Practices Act 1974 (Cth) require a direct relationship and by Deane J at 483 that the words require a relationship which is direct and immediate. In
Perlman v Perlman (1984) 155 CLR 474 at 484 Gibbs CJ said of the words 'in relation to' in the definition of 'matrimonial cause' in s 4 of the Family Law Act 1975 (Cth):

'The words "in relation to" import the existence of a connection or association between the two proceedings, or, in other words, that the proceedings in question must bear an appropriate relationship to completed proceedings of the requisite kind: see
R v Ross-Jones;
Ex parte Beaumont (1979) 141 CLR 504 at 510. An appropriate relationship may exist if the order sought in the proceedings in question is consequential on or incidental to a decree made in the completed proceedings ...' "

55. In respect of the question of ambiguity and in the interest of completeness, I refer to
Gloxinia Investments Limited as trustee for Gloxinia Unit Trust v Federal Commissioner of Taxation (2009) 72 ATR 975; 2009 ATC 20-108 and in particular to the judgment of Emmett J at [23] as follows:

"The Commissioner contends that the construction contended for by Gloxinia does not preserve the essential characteristics of GST as a value added tax. He says that a construction that preserves the character of GST as a value added tax ought to be preferred over a construction that seeks to avoid the object and purpose of GST. The Commissioner's approach may be appropriate where there is some ambiguity in the language of a provision of the GST Act. However, there is no ambiguity in the language of s 40-75(1)(a). It may be that the consequence contended for by Gloxinia was not foreseen by the drafter of s 40-75(1)(a). Such an inference may possibly be drawn from the subsequent provisions of s 40-75(1). Be that as it may, however, that is not a basis for reading the words of s 40-75(1)(a) in a way that is different from the way in which they would clearly be understood as a matter of ordinary English. At the time of an assignment the relevant residential premises will have been the subject of a long term lease, namely, the relevant Strata Lot Lease granted by the Council to Gloxinia in respect of the relevant unit or apartment. It is not to the point, as the Commissioner contends, to say that the construction contended for by Gloxinia is divorced from the economical reality of the transaction between it and the Council. Either the transaction falls within the provisions or it does not."

56. Mr Kasep referred to Tribunal to GSTR 2000/11; see in particular clauses 71 and 79, reading as follows:

  • "71. It will not be sufficient for there to be supply and consideration. GST is not payable on supplies unless they are made for consideration [F55 Paragraph 9-5(a)], and the other tests in section 9-5 are satisfied [F56 The tests for what is a taxable supply are discussed in paragraphs 11 to 12 of this ruling]. There must be some nexus between supply and consideration. In
    C of IR v New Zealand Refining Co Ltd (1997) 18 NZTC 13187, at 13193 Blanchard J commented:

    'It can be seen that ... a linkage between supply and consideration is requisite to the imposition of the tax ... There is a practical necessity for a sufficient connection between the payment and the supply. The mechanics of the legislation will otherwise make it impossible to collect the GST.'

  • ATC 261

  • 79. In determining whether a payment is in connection with the supply of an obligation, we consider that the test is whether there is a link or nexus that provides a substantial relation between the substance of the obligation and the grant. This test may establish a link between consideration and supply in a broader range of cases than the 'direct link' test which applies in the European Community and in Canada. While caution needs to be exercised in applying decisions on connective terms in other contexts, the term 'in connection with' has been held to be broader in scope than 'for' [F69 For example, in the High Court decision in
    Berry v FC of T (1953) 89 CLR 653,
    Kitto J considered the meaning of consideration 'for or in connection with' in the context of former section 84 of the Income Tax Assessment Act 1936, a provision which included consideration for or in connection with goodwill in a lease premium. Kitto J held that 'in connection with' was a broader test than 'for'. At p 659 he commented that consideration will be in connection with property where 'the receipt of the payment has a substantial relation, in a practical business sense, to that property'.]. The meaning given to the term 'in connection with' in Berry's Case is similar to that which was described by the Court of Appeal in New Zealand Refining [F70
    (1997) 18 NZTC 13187, at 13193-13194
    per Blanchard J], but needs to be applied with regard to the structure of the definition of supply in the GST Act."

57. Mr Robertson contended that there is an analogy to be drawn with the situation which applies where a debt is written off. I do not agree; the GST Act provides for debt write-offs in Division 21, whereas the Tribunal is here concerned with Division 19.

58. In TT-Line, Stone J held that the payment by the Commonwealth Government was paid in consideration of the supply and even though the payment was made by someone other than the recipient. Stone J in TT Lines was concerned with one supply only. This case is concerned with two supplies. The first supply is that by the Applicant to the retailer and that is never altered or adjusted. The retailer in our example pays $1,100 (GST-inclusive) and he is never obliged to pay anything back. The second supply is by the retailer to the customer and that too is a transaction which is never altered.

59. However wide the words "in connection with" may be, they must be construed by reference to a supply and moreover a supply which is made for consideration. Put in other words, the GST Act applies in the context of a supply for a consideration and thus not to any supply that is not for consideration. When the customer claims the amount of his cash back entitlement and payment is made by the Applicant, that payment is not made in connection with either of the two supplies, each of which remains unaltered. There is, it might be said, a link between the payment of the cash back and the transactions which preceded it, but it is not made in consideration of either of them. In some cases, there will be no link with the first transaction and this is the case where the specified item was in stock with the retailer prior to the commencement of the relevant promotion. I do not consider that TT-Line operates, so to speak in reverse, in favour of the Applicant. Section 19-10(1)(b) of the GST Act operates where there is a change in the consideration for a supply or acquisition; in this case there is no such change.

60. It is of marginal interest to compare the Australian legislation as regards "consideration" with that of other countries. In this context:

  • (a) The definition of "consideration" contained in s 2 of the New Zealand equivalent (Goods and Services Tax Act 1985) reads as follows:

    " Consideration , in relation to the supply of goods and services to any person, includes any payment made or any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of any goods and services, whether by that person or by any other person; but does not include any payment made by any person as an unconditional gift to any non-profit body."

  • ATC 262

    (b) The Canadian equivalent (Excise Tax Act 1985) reads as follows:

    "Value of consideration

    • 123 'consideration' includes any amount that is payable for a supply by operation of law;
    • 153. (1) Subject to this Division, the value of the consideration, or any part thereof, for a supply shall, for the purposes of this Part, be deemed to be equal to:
      • (a) where the consideration or that part is expressed in money, the amount of the money; and
      • (b) where the consideration or that part is other than money, the fair market value of the consideration or that part at the time the supply was made.
    • 165. (1) Subject to this Part, every recipient of a taxable supply made in Canada shall pay to her Majesty in right of Canada tax in respect of the supply calculated at the rate of 5% on the value of the consideration for the supply."

  • (c) The European VAT Directive equivalent (Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 347, 11.12.2006, p 1-118)) reads as follows:

    " Article 73

    In respect of the supply of good or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply."

61. Canada has a special rule for a situation such as this; s 181.1 of its legislation reads as follows:


  • (a) A registrant makes a taxable supply in Canada of property or a service (other than a zero-rated supply),
  • (b) A particular person acquires the property or service, either from the registrant or from another person,
  • (c) The registrant pays, at any time, a rebate in respect of the property or service to the particular person and therewith provides written indication that a portion of the rebate is an amount on account of tax, and
  • (d) Subsection 232(3) does not apply to the rebate,
  • the following rules apply:
  • (e) The registrant may claim an input tax credit for the reporting period of the registrant that includes that time equal to the product obtained when the amount of the rebate is multiplied by the fraction (in this section referred to as the 'tax fraction in respect of the rebate')
  • where
  • A is
    • (i) if tax under subsection 165(2) was payable in respect of the supply of the property or service to the particular person, the total of the rate set out in subsection 165(1) and the tax rate of the participating province in which that supply was made, and
    • (ii) in any other case, the rate set out in subsection 165(1), and
  • B is the total of 100% and the percentage determined for A, and
  • (f) where the particular person is a registrant who was entitled to claim an input tax credit, or a rebate under Division VI, in respect of the acquisition of the property or service, the particular person shall be deemed, for the purposes of this Part, to have made a taxable supply and to have collected, at that time, tax in respect of the supply equal to the amount determined by the formula
    A × (B/C) × D

    ATC 263

  • Where
  • A is the tax fraction in respect of the rebate,
  • B is the input tax credit or rebate under Division VI that the particular person was entitled to claim in respect of the acquisition of the property or service,
  • C is the tax payable by the particular person in respect of the acquisition of the property or service, and
  • D is the amount of the rebate paid to the particular person by the registrant.

Part E - Conclusion

62. If the principle of fiscal neutrality applied, as it does in Europe, a finding in favour of the Applicant would be proper. It does not.

63. In any event, it must always be remembered that the GST Act is a transaction tax in that it exacts a tax on transactions or supplies and that we are here concerned with two successive transactions, neither of which is altered or adjusted by the payment of the cash back amount.

64. In this matter, the legislation is worded in such manner that the cash back payments to customers do not give rise to any credit in favour of the Applicant and accordingly, the objection decision under review must be affirmed.

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