Downes J P

SE Frost SM

Administrative Appeals Tribunal, Sydney


Decision date: 6 December 2010

Downes J (President) and SE Frost (Senior Member).


1. Goods and services tax is payable on domestic airline travel. When a passenger undertakes an airline journey there is a supply of services which attracts the tax. The question in this case is, what is the position if the passenger books and pays for airline travel, but subsequently cancels the booking or does not turn up for the flight and does not receive a refund. We have decided that GST is payable.


2. These proceedings relate to the GST liability of Qantas Airways Limited with respect to the airline operations of Qantas and its wholly owned subsidiaries including Jetstar Airways Pty Limited. The issues arise with respect to a range of classes of travel, ticket conditions and travel circumstances. We do not think it will be necessary to describe all the alternative circumstances which arise, but it will be necessary to identify a sufficiently representative group of examples.

3. Reservations may be made through a travel agent or direct with the airline. The booking may be effected over the telephone, over the internet, or in person. In each case, however, the reservation is governed by terms and conditions of carriage. During the hearing, the parties referred primarily to the Qantas Conditions of Carriage. We will repeat that approach. The Qantas Conditions of Carriage as at September 2008 are quite long, but it is necessary to set out significant parts of them:

  • "1. Definitions of Expressions Used


    Conditions of Carriage means these General Conditions of Carriage and Includes the conditions of contract or terms and conditions of carriage set out in your Ticket


    Electronic Ticket means the electronic booking record made by us or an Authorised Agent, which is held in our database


    Flight Coupon means either that part of the Ticket that reads "good for passage", or, in the case of an electronic ticket, the record in our database that indicates the particular places between which you are entitled to be carried


    Passenger means any person with a Ticket who is carried or is to be carried on an aircraft, except members of the crew


    Ticket means either the document entitled "Passenger Ticket and Baggage Check" or the electronic ticket issued by us or an Authorised Agent on behalf of us and includes all printed terms, conditions and notices. It also includes any other tickets issued in conjunction with the first ticket which together constitute a single contract of carriage


  • 2. When These Conditions Of Carriage Apply


    • 2.3 Basis of Carriage

      The carriage of a Passenger on any flight by Qantas under the QF or AO Airline Designator Code is, without exception, subject to:

      • • these Conditions of Carriage
      • • any applicable Tariffs filed by us with regulatory bodies
      • • the Convention, Australian laws and/or New Zealand laws, as applicable, and any other applicable laws
      • • any specific directions given to a Passenger in writing, or orally by our staff, and
      • • the fare rules or Qantas Frequent Flyer Award redemption rules, as applicable



  • 4. Reservations
    • 4.1 When is a Reservation Made?

      A reservation for a flight is made when recorded as accepted and confirmed by us or an Authorised Agent. If you ask, we or our Authorised Agent will give you written confirmation of your reservation.

    • 4.2 Specified Reservation

      You will only be allowed to travel if you have a specified reservation, in a specified class of service and on a specified date and flight (subject to 10). If your ticket is open-dated you will need to make a reservation prior to being allowed to travel.

    • ...
    • 4.5 Changes to Reservations

      Some fare types may be restricted so that you:

      • • cannot change or cancel any reservation, or
      • • may request to change any reservation only to a limited extent, or
      • • may request to change any reservation only by paying the applicable additional service fee or change fee (note: Qantas may increase fees from time to time, by giving at least one month's notice of any such change by updating the applicable fare guide on


    • 4.6 If you are Late or Do Not Show Up for Your Flight

      If you are late (see 8.2 and 8.4) or for any other reason fail to use a seat for which a reservation has been made, and you do not notify us in advance, then unless the fare rules say otherwise, we may:

      • • require you to pay a service fee for our reasonably incurred administration costs of proceeding your reservation
      • • cancel any onward and return reservations, and
      • • allocate the seat for that reservation to someone else


      • • recalculate the fare and ask you to pay the fare for your actual transportation (or refund you any difference if your fare is refundable, less any applicable service fees).

      If you notify us in advance that you will not show up for the flight, we will not cancel your subsequent flight reservations.

    • ...
  • 6. Tickets
    • 6.1 Ticket Essential

      Your ticket is the main evidence of our contract with you, so even though you have a reservation for a flight, you may not board that flight without first obtaining a boarding pass by either:

      • • presenting at check-in a valid and intact ticket issued in your name and containing the flight coupon for that flight, all other unused flight coupons (including the Passenger Coupon) in that ticket and any photo or other identification requested, or
      • • where a valid electronic ticket has been issued in your name, checking-in and presenting photo identification (passport or Australian driving licence).

      A valid ticket/electronic ticket is one issued by us or an Authorised Agent and in respect of which the appropriate fare has been paid.

    • ...
    • 6.6 Ticket Validity


      Travel wholly within Australia or wholly within New Zealand - unless the ticket provides otherwise, a ticket for Domestic carriage within Australia or within New Zealand is valid for one year from the date of issue of the ticket.

  • ...
  • 9. Schedules, Late or Cancelled Flights
    • 9.1 Schedules
      • (a) The flight time shown on your ticket may change between the date of issue and your date of travel. We do not guarantee the flight times and they do not form part of your contract of carriage with us.
      • ...
      • (c) If, after you buy your ticket, we make a significant change to the scheduled departure time of your flight:
        • • and you find this change unacceptable; and
        • • we or our Authorised Agents cannot book you on another flight which you are prepared to accept

        Then, we will give you a fare refund (to the extent that the purchase price paid for the fare exceeds our reasonably incurred administration costs) or a credit for the non-refundable part of the fare for future travel with us.

    • 9.2 Late or Cancelled Flights (Except in Circumstances Beyond Our Control)

      We will take all reasonable measures necessary to carry you and your baggage and to avoid delay in doing so. In doing so and in order to prevent a flight cancellation, in exceptional circumstances we may arrange for a flight to be operated on our behalf by an alternative carrier and/or aircraft.


      • • as otherwise provided by the convention or other applicable laws, or
      • • in circumstances where the delay or cancellation is beyond our control (e.g. bad weather, runway closure, air traffic control issues)

        If we:

      • • cancel a flight
      • • fail to operate a flight reasonably according to the flight schedule
      • • fail to stop at your destination or stopover destination, or
      • • cause you to miss a connecting flight on your ticket on which you hold a confirmed reservation, you can choose one of the following three options:

      Option 1 - we will carry you at the earliest opportunity on another of our scheduled services on which space is available without additional charge and, where necessary, extend the validity period of your ticket.

      Option 2 - we will within a reasonable period of time re-route you to the destination shown on your ticket by our own services or those of another carrier, or by other mutually agreed means (e.g. by bus) and class of transportation, without additional charge. If the fare and charges for the revised routing are lower than what you have paid, we shall refund the difference, or

      Option 3 - we will make a refund in accordance with the provisions of 13.

      Subject to the provisions of 6.9 and 9.1 above, these shall be the only remedies available to you and we shall have no further liability to you unless otherwise specified by the convention or any applicable laws.

    • 9.3 Late or Cancelled Flights Due to Circumstances Beyond Our Control

      Where the delayed or cancelled flight is as a result of circumstances beyond our control, whether you have checked in or not, we will try to assist you to get to your destination or next stopover, but subject to the provisions of 6.9 will not otherwise be responsible for refunding a non-refundable airfare (see 3.3), or paying any costs or expenses you may incur as a result of the delay except as otherwise provided in the convention or any applicable laws.

  • 10. Refusal of Carriage/Denied Boarding
    • 10.1 Refusal of Carriage

      Even if you have a ticket and a confirmed reservation, we may refuse to carry you and your baggage if any of the following circumstances have occurred or we reasonably believe will occur:

      • • if carrying you or your baggage may put the safety of the aircraft or the safety or health or any person in the aircraft in danger or at risk
      • • if carrying you or your baggage may materially affect the comfort of any person in the aircraft

    • ...
    • 10.3 Overbooked Flights - Denied Boarding Compensation

      If you are denied boarding on an overbooked scheduled international flight for which you have both ... ticket and a confirmed reservation, and you have presented at check-in by the check-in deadline, then depending on the difference between your original scheduled arrival time and your actual arrival time, you may be eligible for compensation.

    • ...
  • 13. Refunds
    • 13.1 When a Refund is Available
      • (a) Except where prohibited by restrictions on the fare type or value, if you:
        • • have a valid, partly or wholly unused ticket, and
        • • surrender all of that ticket to us

        then on request, we will provide a refund as set out in 13.2 provided that the purchase price paid for the fare exceeds our reasonably incurred administration costs.

      • (b) Additionally, if we:
        • • are unable to carry you and you have a confirmed reservation
        • • delay your flight to the extent that you have to cancel your travel
        • • make a significant change to the scheduled flight time, which is not acceptable to you and we are unable to book you on an alternative flight which is acceptable to you
        • • downgrade you from the class paid for
        • • fail to stop at a stopover or the destination specified on your ticket
        • • cause you to miss a connecting Qantas flight on which you have a confirmed reservation
        • • cancel your flight, or
        • • the circumstances of 6.4 apply

        then on request, we will provide an appropriate refund,which shall, except as otherwise provided in these Conditions of Carriage, be the maximum extent of our liability.

    • ...
    • 13.7 Deadline for Refunds

      Unless an applicable law says otherwise, we may refuse to provide a refund if it is requested after the end of the Validity Period.


4. It is important to set out the Conditions of Carriage in detail because the issues in the present case involve both the question of whether the arrangements between Qantas and passengers prior to travel are contractual, and, if they are, what are the terms of the contract. The extent of the obligation, prior to check in and seat allocation, to actually carry each passenger, may be an important matter for consideration.

Goods and services tax act

5. The reason this matter may be significant is that the concept of supply, which forms the basis of GST liability, is defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) to include the creation of certain rights and the entry into of certain obligations. One question which we must consider is whether the arrangements recorded in the Conditions of Carriage fall within the definition.

6. Supply is defined in s 9-10 of the GST Act as follows:

  • "9-10 Meaning of supply
    • (1) A supply is any form of supply whatsoever.
    • (2) Without limiting subsection (1), supply includes any of these:
      • (a) a supply of goods;
      • (b) a supply of services;
      • (c) a provision of advice or information;
      • (d) a grant, assignment or surrender of real property;
      • (e) a creation, grant, transfer, assignment or surrender of any right;
      • (f) a financial supply;
      • (g) an entry into, or release from, an obligation:
        • (i) to do anything; or
        • (ii) to refrain from an act; or
        • (iii) to tolerate an act or situation;
      • (h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g)."

A supply is a taxable supply if, amongst other things, it is made for consideration (s 9-5).

The issues

7. In the absence of legislation creating rights and obligations relating to airline travel the question of whether the dealings between Qantas and passengers have that effect will be determined by the law of contract. A purported contract may, however, be illusory and, thus, no contract at all, if nothing is ultimately promised. The Conditions of Carriage do not promise a seat, a precise flight, or a time (cl 9.1(a); 9.1(c)); but they do appear to promise a destination (cl 1 "Flight Coupon"; 9). Although not conclusive, the Conditions of Carriage describe their operation as a contract (cl 1 "Ticket"; 6.1). Carriage can be refused, but only for good cause (cl 10.1). The highest statement of obligation to carry appears to be in cl 9.2: "We will take all reasonable measures necessary to carry you and your baggage and to avoid delay in doing so."

8. If these provisions create an obligation in Qantas as carrier there are other provisions in the Conditions which create corresponding rights. They include the right to retain payments made for reservations in certain circumstances (cl 4.5; 4.6; 13).

9. The correct view of the Conditions of Carriage seems to us to be that they give rise to a contract enforceable at law between Qantas and each passenger. The contract, in turn, creates rights (s 9-10(2)(e)) and involves entering into obligations "to do anything" (s 9-10(2)(g)). There is, accordingly, an argument that at the time of the creation of the rights and the entering into of the obligations, which will generally be at the time, or shortly after, a reservation is made, there is a supply. Certainly it will be no later than the time of payment. The mutual promises or the payment will provide consideration.

10. The circumstance which dominates this case is, however, that none of the passengers ever undertook their journey. In its non-statutory general meaning, there never was a supply of the service represented by the actual carriage of the passenger, although that was obviously the purpose of each reservation.

11. We must ask ourselves whether the absence of the actual carriage affects the operation of s 9-10(2)(e) and (g)? Does the fact that the executory contract, creating the rights and obligations, was never executed, affect its prima facie inclusion in the statutory definition of supply?

12. There is a second question which may also arise. It is whether, on the ordinary meaning of "supply", apart from the definition in s 9-10(2), there is a supply when a passenger makes a reservation even though the object of the reservation is not fulfilled.

Statutory definition of supply

13. The United Kingdom Value Added Tax (VAT) legislation does not define a supply of services to include an obligation to provide them or a right to have them. Accordingly, the United Kingdom cases are concerned more with the ordinary meaning of supply. In a UK context, it is the second question (para [12]) which will determine the issue. However, in Australia, it seems appropriate first to address a precise statutory provision (para [11]).

14. We can see no reason why, in the present case, the arrangements made with passengers do not fall within both s 9-10(2)(e) and (g). We do not understand Qantas to have argued that there was no contract. Such an argument, would, of course, impact on the asserted right of Qantas to claim cancellation fees and, in some cases, the forfeiture of the whole fare. Nor do we understand Qantas to have argued that there was no "right" or "obligation" within s 9-10.

15. In approaching the question of whether there was a supply by referring to s 9-10(2) (e) and (g) we have acted consistently with the approach taken by the High Court in
Federal Commissioner of Taxation v Reliance Carpet Co Pty Ltd 2008 ATC 20-028, (2008) 236 CLR 342 at 346, 347 and 355. We make this observation because neither party in the proceedings before us placed emphasis on s 9-10(2)(e) or (g).

16. It is important to distinguish the circumstances before the High Court of Australia in
MacRobertson Miller Airline Services v Commissioner of State Taxation (1975) 133 CLR 125 from the facts of this case. The conditions of carriage in that case reserved to the airline the right "to cancel the ticket or booking of any passenger" without reason, with a full refund. A finding that conditions of carriage, containing provisions like these, did not give rise to contractual rights or obligations is much easier than in the present case. We do not think that the fact that the High Court found, on those facts, that there was no agreement liable to be stamped under the Stamp Act 1921 (WA), affects this case. Rather, the contrast between the conditions in that case, and those we have set out above, serves to emphasise that the present Conditions of Carriage do give rise to relevant rights and obligations.

17. The GST Act makes provision for adjustments to GST (Part 2-1). "Adjustment events" include cancelling a supply. However, Qantas does not claim that the events giving rise to these proceedings are affected by the adjustment provisions of the Act. As we understand it, Qantas makes GST adjustments when cancelled reservations are accompanied by a refund of the fare. We are dealing with cases in which there has been either a cancellation or the passenger has simply failed to board the aircraft and a refund has not been made and probably not requested.

18. When one takes into account the provisions of the GST Act which permit the making of an adjustment and, where necessary, a refund of GST, in the case of cancelled supplies accompanied by refunds, it is not easy to see why the making of an airline reservation, should give rise to a right in the carrier to a refund of GST where nothing is repaid to the passenger. We cannot find any reason not to give s 9-10(2)(e) and (g) their ordinary meaning. We can see no reason to qualify the words of the definition so that they do not have effect unless the obligation is performed or the right exercised.

19. We accordingly find that the statutory definition of supply in s 9-10 has the consequence of attracting GST on an airline reservation and that the GST is not refundable where the passenger is not carried as the result of a cancellation or the passenger not attending to travel, assuming that no refund is made to the passenger.

20. It seems to us that this conclusion is sufficient to deal with the application before us. However, analysing the situation as if the question is whether there was a supply, apart from the definition in s 9-10(2)(e) and (g), will throw more light on the nature of the arrangement.

Ordinary meaning of supply

21. The simple case put on behalf of Qantas is that airline reservations are made for one purpose only, namely to travel, and that when there is no travel there is no supply. The creation of records, the sending of communications and the supply of preliminary services, such as lounge services, are not capable of being regarded as separate services attracting GST, because they never would be sought except as ancillary services to the only true service, namely travel.

22. The Commissioner submits that upon the making of a reservation there is a part supply of services sufficient to attract GST although further acts forming part of the whole service are yet to come.

23. Plainly, the acts of recording the reservation and processing it towards preparedness for check in and seat allocation involve the provision of services. We accept, however, that they would never be provided except as part of the passenger's desire, at the time of reservation, to travel. Nevertheless, there will be travellers who make reservations expecting that these preliminary services will be supplied, but who know, at the time, that they may cancel the reservation before travel. Many business travellers must be in this category. They are people who seek the provision of preliminary services without having determined actually to travel. They have made what is sometimes called a tentative booking, knowing that they may not proceed. It remains true, however, that the reservation is only made for the purpose of travel even though that may not be certain at the time of reservation.

24. A way of describing what Qantas has done for such a passenger, and in return for the "fare" that the passenger has paid, is holding itself ready to carry the passenger in accordance with its Conditions of Carriage. It does not hold itself ready to carry on a particular flight at a particular time or in a particular seat, but it does hold itself ready "to take all reasonable measures necessary to carry you and your baggage and to avoid delay in doing so". We see no reason why that holding ready is not itself the provision of a sufficient service to give rise to the imposition of GST.

25. This conclusion is similar to the conclusion of Popplewell J in
Customs and Excise Commissioners v Bass plc. [1993] BVC 34. That case did not involve travel, but it did involve the analogous situation of a hotel taking a reservation for a room. Popplewell J said this:

"In the instant case it seems to me that what the company are charging the customer for is the use of a room whether it is occupied or not. Making available a room, even if not a specified room, seems to me to constitute a supply."

There are differences in the facts of that case. For example, the case primarily dealt with guaranteed reservations under which, for payment of one night's accommodation, the hotel would hold a room available after 10:00 pm until 1:00 pm the following day. This would equate, in the case of airline travel, with a seat actually being kept vacant for the passenger during the flight. For late cancellations or no shows this may be the practical consequence with airline travel. In addition, the payment is never refundable. However, we do not think that these slight changes in circumstances change the nature of the supply. Just as the hotel makes available the room, the airline holds itself ready to carry.


26. The preferable basis upon which to dispose of this case seems to us to be that there is, in the case of the Qantas Conditions of Carriage, the supply of a service under s 9-10(b)(2)(e) and (g) in the circumstances analysed. Alternatively, there seems to us to be a supply of services within s 9-10(2)(b).

27. The parties do not seek to distinguish different kinds of reservation with Qantas. Nor do they seek to distinguish the position of Qantas from its subsidiaries, including Jetstar. We have read the fare rules for different kinds of fares with Qantas and we have read the Conditions of Carriage and different kinds of fare rules for Jetstar. We have read the staff travel policies and conditions. Nothing in these documents would lead us to treat different conditions differently.

28. The Commissioner's decision will be affirmed.

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