DANDENONG MOTORS UNIT TRUST v FC of T

Members:
FD O'Loughlin SM

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2012] AATA 920

Decision date: 24 December 2012

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FD O'Loughlin (Senior Member)

REASONS

1. Between 1987 and June 2003 the Applicant conducted a motor car dealership. As a part of its business, the Applicant received hold-back payments^[1] Payments of a nature and made in the circumstances described in KAP Motors Pty Ltd v Commissioner of Taxation (2008) 168 FCR 319 . made by parties from whom it bought motor vehicles.

2. Upon the introduction of GST^[2] Goods and Services Tax in Australia, the Applicant registered for and began paying GST on a monthly basis. The Applicant included the hold-back payments in its GST net amount calculations in its Business Activity Statements.

3. Following the KAP Motors decision, and more than four years after the period to which the claims relate, the Applicant sought refunds of GST referrable to the hold-back payments. The Commissioner obliged in part only, resisting the full refunds claimed by operation of s 105-55 of Schedule 1 to the Administration Act.^[3] Taxation Administration Act 1953 (Cth)

4. The hold-back payment transactions were business to business transactions. The hold-back payments were the subject of agreements that included recognition that they were subject to GST. It can be assumed that the quantum of the hold-back payments had regard both for that fact and that those who made the hold-back payments would claim input tax credits for the GST thought to be associated with their making. While no evidence was led that the makers of the payments actually claimed associated input tax credits, the necessary implication from the Applicant's submissions, that the payers lobbied recipients not to claim refunds, is that the payers did so. These assumptions do not impact on the outcome in this matter, as the outcome does not turn on s 105-65 of Schedule 1 to the Administration Act.

THE ISSUE FOR DETERMINATION

5. The present dispute involves whether s 105-55 precludes any entitlement to a payment of amounts the Applicant would have been entitled to, had it not included the hold-back payments in its Business Activity Statements.

FACTS

6. There is no dispute concerning whether the refund requests were made more than 4 years after the end of the period to which they related. They were.

7. The following facts, taken from the Respondent's Submissions, were agreed between the parties.

• (a) The Applicant carried on the business of selling motor vehicles under the name 'Dandenong Motors' from September 1987 until the sale of the business in June 2003. The Applicant was registered under the GST Act^[4] A Tax New System (Goods and Services Tax) Act 1999 (Cth) from 1 July 2000 to 30 June 2003.
• (b) Between 1 July 2000 and 30 June 2003 the Applicant lodged monthly Business Activity Statements, being GST Returns for the purposes of Division 31 of the GST Act. For each tax period, GST was calculated and, if payable, paid by the Applicant on all vehicles sold for that month.
• (c) Manufacturers/importers of motor vehicles usually paid hold-back payments to the Applicant on all vehicles the Applicant purchased. The Applicant accounted for GST in respect of those payments in its GST Returns. Having regard to the KAP Motors decision, the effect of doing so varied. For some months there was a:
  • (i) positive GST net amount reported and the amount of GST payable exceeded the GST referrable to the hold-back payments. Without the hold-back payments, there would have been a lower positive GST net amount and a lower amount payable by the Applicant;
  • (ii) positive GST net amount reported but that amount was less than the GST referrable to the hold-back payments. Without the hold-back payments there would have been a negative GST net amount and an amount payable to the Applicant; and
  • (iii) negative GST net amount reported after including the GST referrable to the hold-back payments. Without the hold-back payments there would have been a larger negative GST net amount and a larger amount payable to the Applicant.
• (d) Following the KAP Motors decision, on 18 June 2008 the Applicant lodged a notification of entitlement to GST refund for the tax periods from 1 July 2000 to 30 June 2003 on the basis that Pursuant to the recent decision in the KAP Motors Pty Ltd case, the relevant GST paid to the ATO will be refundable ….
• (e) The total refund claimed by the Applicant for the tax periods between 1 July 2000 and 30 June 2003 was $218,125.
• (f) In response the Commissioner:
  • (i) paid to the Applicant a complete refund for 23 of the tax periods - those referred to at [7(c)(i)] above. For each of these tax periods the Applicant's GST Return had reported a positive net amount in excess of the refund claim;
  • (ii) paid to the Applicant a partial refund for 3 of the tax periods - those referred to at [7(c)(ii)] above. For each of these tax periods a refund was paid only to the extent that the Applicant's GST Return had reported a positive net amount. Of the total amount claimed of $24,530, the Respondent refunded $9,179. The amounts for each period are set out below.

    
    

    Period	Claimed	Refunded	Not Paid
    August 2000	$ 8,130	$ 3,156	$ 4,974
    November 2000	$ 8,700	$ 947	$ 7,753
    May 2001	$ 7,700	$ 5,076	$ 2,624
    	$ 24,530	$ 9,719	$ 15,351

    and

  • (iii) did not pay any refund to the Applicant for 10 tax periods - those referred to at [7(c)(iii)] above. For each of these tax periods the Applicant's GST Return had reported a net amount less than zero. The total amount claimed was $63,284. The amounts for each period are set out below.
    

    Period	Claimed	Refunded	Not Paid
    July 2000	$ 10,258	0	$ 10,258
    October 2000	$ 7,920	0	$ 7,920
    February 2001	$ 9,100	0	$ 9,100
    April 2001	$ 6,650	0	$ 6,650
    September 2001	$, 912	0	$ 4,912
    October 2001	$ 5,436	0	$ 5,436
    November 2001	$ 5,878	0	$ 5,878
    October 2002	$ 4,963	0	$ 4,963
    January 2003	$ 3,791	0	$ 3,791
    March 2003	$ 4,376	0	$ 4,376
    	$ 63,284	$ 0	$ 63,284

• (g) Pursuant to a request by the Applicant, on 31 March 2011 the Commissioner issued notices of assessment of net amounts for those tax periods where full refunds were not paid. However, he has not made the additional refunds sought by the Applicant. Those assessments provide the foundation for objections, objection decisions and the present application to the Tribunal.

8. The nature of the hold-back payments was agreed to be the same as in KAP Motors. There is no evidence of the relationship between the Applicant and the motor vehicle suppliers beyond that already mentioned. Had facts not been agreed between the parties, it is difficult to proceed on the basis that the hold-back payments were not consideration for a supply. Without any evidence, they were accepted as voluntary payments:

• (a) between arm's length parties with whom the Applicant had entered into dealership agreements; and
• (b) which had been agreed to have included an amount in respect of GST, such that any GST refund could be a windfall to the Applicant.

9. While the Tribunal is not bound by rules of evidence and can inform itself in such manner as it thinks appropriate in the circumstances,^[5] See Administrative Appeals Tribunal Act 1975 (Cth); s 33(1)(c) and parties can choose the representation they want, the Tribunal regularly applies the rules of evidence. There is good reason for doing so. The rules of evidence have been developed over a long period with a view to regulating litigious processes and providing a sound and reliable foundation for conclusions necessary to resolve disputes between parties. Applying the rules of evidence, but for the Commissioner's acceptance of facts at the hearing the Applicant would not have been able to establish the threshold facts upon which its case depended on the evidence led.

CONTENTIONS

10. The Commissioner accepts that:

• (a) in the tax periods between July 2000 and June 2003 the Applicant overpaid the amount of $218,125 on account of GST referrable to hold-back payments;
• (b) those payments did not constitute consideration for a supply made by the Applicant;
• (c) the Applicant did not make a taxable supply for the purposes of s 9-5 of the GST Act; and
• (d) as the overpayments were made in circumstances where the Applicant did not make a supply;
  • (i) s 105-65 of Schedule 1 to the Administration Act does not preclude a refund of the overpaid amounts;^[6] KAP Motors and
  • (ii) to the extent that the Applicant reported a positive net amount in its monthly GST returns, the Applicant was entitled to a refund of the overpaid amounts notwithstanding that a notification for the refund was not made within four years of the end of the tax periods. Those refunds have been paid.

11. The Commissioner contends that before 1 July 2008 the GST system did not deal with refunds of GST uniformly. More specifically, by a combination of the relationships between s 35-5 of the GST Act and s 105-55 of Schedule 1 to the Administration Act and what transpired to be a limitation^[7] KAP Motors on the discretion in s 105-65 of Schedule 1 to the Administration Act:

• (a) payments of negative net amounts within the meaning of s 35-5 could only be made if they were claimed within four years of the period to which they related;
• (b) returns, or refunds, of amounts paid pursuant to s 33-5 of the GST Act in excess of the correct amount payable were not addressed by s 105-55;
• (c) refunds of GST overpaid, or input tax credits under-claimed, in respect of supplies could be denied by exercise of a discretion if circumstances were such that, in effect, windfall gains would otherwise arise; and
• (d) refunds of GST overpaid not connected with any supply could not be denied by exercise of any discretion.

12. The Applicant contends that the KAP Motors decision is to the effect that limitations on refunds set out in s 105-55 are restricted to GST on supplies, and that those limitations do not extend to GST paid on or in respect of arrangements that are not supplies within the meaning of the GST Act (which the Applicant refers to as out of scope supplies). The Applicant supports this contention with the proposition that ss 105-55 and 105-65 were both amended in 2008 to bring refunds of GST paid on out of scope supplies within the limited refund entitlement rules.

13. In 2008 ss. 105-55 and 105-65 were amended. What those amendments were designed to achieve and the explanation those amendments give to the scope of the pre-existing regulation of GST refunds are disputed.

THE LAW

14. With effect from 1 July 2006, ss 105-55 and 105-65 were inserted into Schedule 1 of the Administration Act. To operate for the period up to and including 30 June 2008, those provisions provided as follows:

105-55 Time limit on refunds and credits

• (1) You are not entitled to a refund or credit to which this subsection applies in respect of a *tax period or importation unless:
  • (a) within 4 years after:
    • (i) the end of the tax period; or
    • (ii) the importation;

    as the case requires, you notify the Commissioner (in a *GST return or otherwise) that you are entitled to the refund or credit; or

  • (b) within that period the Commissioner notifies you (in a notice of assessment or otherwise) that you are entitled to the refund or credit; or
  • (c) in the case of a credit - the credit is taken into account in working out a *net amount or *net fuel amount that the Commissioner may recover from you only because of paragraph 105-50(b).
• (2) Subsection (1) applies to:
  • (a) a refund under section 35-5 of the *GST Act or section 61-5 of the Fuel Tax Act 2006 in respect of a particular *tax period; or
  • (b) an *input tax credit or *fuel tax credit that is attributable to a particular tax period; or
  • (c) a *wine tax credit the amount of which could have been included in a reduction of your *net amount for a tax period under section 21-15 of the *Wine Tax Act; or
  • (d) a refund of an amount of *indirect tax relating to an importation.

    ….

105-65 Restriction on refunds

• (1) The Commissioner need not give you a refund to which this section applies, or apply an amount under Division 3 or 3A of Part IIB to which this section applies, if:
  • (a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply to any extent; and
  • (b) the supply is not a taxable supply to that extent (for example, because it is *GST-free); and
  • (c) one of the following applies:
    • (i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply;
    • (ii) the recipient is *registered or *required to be registered.

  Note: Divisions 3 and 3A of Part IIB deal with payments, credits and RBA surpluses.

• (2) This section applies to:
  • (a) so much of any *net amount or amount of *indirect tax as you have overpaid; or
  • (b) so much of any net amount that is payable to you under section 35-5 of the *GST Act as the Commissioner has not paid to you or applied under Division 3 of Part IIB of this Act.

  Note: Division 3 of Part IIB deals with payments, credits and RBA surpluses.

15. Sections 17-5 and 35-5 of the GST Act also bear upon the proper outcome. They provide:

SECT 17-5

Net amounts

• (1) The net amount for a tax period applying to you is worked out using the following formula:

  GST - Input tax credits

  where:

  "GST" is the sum of all of the GST for which you are liable on the * taxable supplies that are attributable to the tax period .

  "input tax credits" is the sum of all of the input tax credits to which you are entitled for the * creditable acquisitions and * creditable importations that are attributable to the tax period .

  For the basic rules on what is attributable to a particular period, see Division 29.

• (2) However, the * net amount for the tax period may be increased or decreased if you have any * adjustments for the tax period :

  and

  35-5 Entitlement to refund

  If the * net amount for a tax period is less than zero, the Commissioner must, on behalf of the Commonwealth, pay that amount (expressed as a positive amount) to you.

16. While limited assistance can be gained by examining amendments to the legislation to throw light on the proper construction of the pre-amended law, the proposition advanced by the Applicant, that the amendments to ss 105-55 and 105-65 in 2008 demonstrate that the Applicant is entitled to the refunds or payments it claims because they relate to out of scope supplies, is based on a misunderstanding of what the amendments were designed to do.

17. The decision in KAP Motors, to the effect that s. 105-65 only applied to limit refunds of GST in respect of supplies, led to changes in the reach of s 105-65. After the amendment, the section affords a discretion to decline to refund amounts of GST that were paid in the absence of any supply. At the same time s 105-55 was amended. Before the amendments, s 105-55 was restricted to refunds of net amounts, and if the refund or payment entitlement was not of a net amount then the four year time limit did not apply. After the amendments, the four year time limit applies to refunds of other payments representing amounts paid as indirect tax (including GST).^[8] See s 105-55(2)(aa). See also the Explanatory Memorandum to Taxation Laws Amendment (2008 Measures No 3) Bill at [2.21] These amendments were not directed to cure perceived problems with what the Applicant calls out of scope supplies. As such, the s 105-55 amendments do not throw light on the principles that apply to resolve the present matter.

18. At all times relevant to the present claims, s 105-55 limited the right to refunds of negative net amounts. These amounts could only be paid if the Commissioner was notified of the entitlement within four years of the period to which the entitlement related. If the Applicant's claim is for a payment or refund of a net amount, either wholly or in part, then the claim is affected by s 105-55.

19. Against this backdrop, to determine whether the Applicant's claims are affected by s 105-55 it is necessary to consider closely the nature of the entitlements that are claimed.

20. Adopting the assumption that the Applicant's hold-back payments were of the same kind as the hold-back payments under review in Kap Motors, which the Commissioner accepts, the impact of the Kap Motors decision on the GST properly payable for the categories of GST periods set out in [7(c)] above is that:

• (a) for those periods where there was a positive GST net amount reported that was greater than the GST referrable to the Applicants' hold-back payments, [7(c)(i)] above, GST in excess of that properly payable was paid (the "Excess GST Paid") but GST would still have been payable;
• (b) for those periods where there was a positive GST net amount reported that was less than the GST referrable to the hold-back payments, [7(c)(ii)] above, GST was paid in error (the "Erroneous GST Paid"), and there should have been negative GST net amounts and refunds of those amounts ("Negative Net Amount Refund Amounts"); and
• (c) for those periods where there was a negative GST net amount reported after including the GST referrable to hold-back payments, [7(c)(iii)] above, GST was included in the GST net amount calculation in error and the proper negative GST net amount refund entitlement was greater than the amount refunded ("Extra Negative Net Amount Refund Amounts").

21. The refunds claimed have two components:

• (a) the GST actually paid in excess of what might be described as the proper GST net amount. These amounts represent the Excess GST Paid referred to in [20(a)] above and the Erroneous GST Paid in [20(b)] above; and
• (b) the amount of the negative GST net amount that the Commissioner accepts would be refundable if claimed within four years of the periods to which they relate. These amounts represent the Negative Net Amount Refund Amounts referred to in [20(b)] above, and the Extra Negative Net Amount Refund Amounts referred to in [20(c)] above.

22. The amounts of Excess GST Paid referred to in [20(a)] above and the Erroneous GST Paid in [20(b)] above are amounts that have been paid pursuant to a mistaken apprehension of the law. The legislation did not impose a time limitation on claims for refunds.

23. The Negative Net Amount Refund Amounts referred to in [20(b)] above, and the Extra Negative Net Amount Refund Amounts referred to in [20(c)] above are not payments that have been made by the Applicant. They are amounts that meet the terms of s 35-5 of the GST Act, being the balances after offsetting input tax credits against GST payable on taxable supplies that were not, as it transpired, calculated properly in Business Activity Statements when lodged.

24. The making of assessments for the periods in which these entitlements are claimed does not change the nature of the amounts net amounts so assessed. They remain net amounts for the purposes of both s 17-15 and s 35-5 of the GST Act. The assessments supersede whatever amounts were previously worked out in a Business Activity Statement and on conclusion of any objection and subsequent processes will be the Applicant's net amounts.^[9] F. C. of T. v Multiflex Pty Ltd (2011) 197 FCR 580 at [26] per Stone, Edmonds and Logan JJ

25. Because the Negative Net Amount Refund Amounts referred to in [20(b)] above and the Extra Negative Net Amount Refund Amounts referred to in [20(c)] above are amounts that meet the terms of s 17-15 and s 35-5 of the GST Act, they are amounts meeting the terms of s 105-55(2)(a) and are amounts affected by s 105-55(1), a provision of substantive effect to deny refund entitlements.^[10] Australian Leisure Marine Pty Ltd and Commissioner of Taxation [2010] AATA 620 at [17] per Dr P McDermott.

26. Therefore, the Tribunal affirms the objection decisions.