CASE Y46

Members:
HE Hallowes

Tribunal:
Administrative Appeals Tribunal

Decision date: 11 September 1991

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HE Hallowes (Senior Member)

This is an application for review of a decision by the respondent on an objection by the taxpayer which was considered and disallowed.

2. On 9 April 1987 the respondent made Taxation Ruling No. ST 2331 which provides:

``Ruling

7. The assembly of trophies is not manufacture within the normal meaning of the term or within the expanded definition in sub-sec. 3(1) of Sales Tax Assessment Act (No. 1). It does not bring into existence an article or substance which is commercially distinct from the component parts. Even if it can be said to bring into existence a commercially distinct article the article results from a combination that is customarily undertaken by the final user.

8. Retailers engaged in the assembly of trophies are not required to be registered for sales tax on account of that activity.

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ATC 432

Generally component parts of trophies are taxable at the rate of 20%. Retailers will satisfy their sales tax liability by payment of tax to suppliers of trophies and trophy components at time of purchase.''

3. As a result of the ruling the applicant sought a refund of sales tax on 29 October 1987 with respect to sales tax paid on ``sports trophies''. He advised that he had overpaid sales tax for several years ``by calculating each month, the amount of tax from actual retail selling prices - excluding engraving''.

4. On 17 February 1988 the applicant was advised that his application for a refund of sales tax had been disallowed in full. The taxpayer was advised:

``It is noted that the tax involved in the refund application has been passed on to the consumer and not refunded.

Furthermore, the view is taken that the tax claimed to be overpaid has been voluntarily paid under a mistake of law and is not refundable, refer for example to Werrin v. The Commonwealth of Australia and Another (1938) 59 C.L.R. 150.''

5. The taxpayer lodged an objection against the decision. It was his contention that the sales tax overpaid had not been passed on and that no refund to any other person other than the taxpayer had been required. He further contended:

``3. The overpayments occurred as arithmetical calculations incorrectly made, of the appropriate amount of sales tax due for payment each month.

4. The taxpayer marketed standardized products based on the competitive price lists in competitive circumstances at all material times and during the relevant period did not increase industry prices by any amount to pass on the amount of tax subsequently calculated and overpaid.''

6. The Tribunal had before it the documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 together with further material lodged by both parties.

7. The applicant gave oral evidence to the Tribunal. Evidence was also given on the applicant's behalf by another independent retailer of trophies. Evidence was also given by an officer of the respondent.

8. The relevant legislation is the Sales Tax Assessment Act (No. 1) 1930 (``the Act''). Section 26 so far as relevant, provides:

``26(1) Subject to sub-section (1A), where the Commissioner finds in any case that tax has been overpaid by a person, the Commissioner shall -

• (a) refund the amount of any tax overpaid; or
• (b)...

26(1A) Sub-section (1) does not apply in relation to any tax paid by a person unless the Commissioner is satisfied that the tax has not been passed on by the person to another person, or, if passed on to another person, has been refunded to the other person.

...''

9. The parties agree that the applicant has paid too much sales tax. The issue is whether or not he can get it back. When he started in business 14 years ago he was aware that there was a responsibility on him to pay sales tax. He made inquiries of the taxation office and implemented their advice as he understood it. He obtained a sales taxation number, calculated the tax payable on the end product and sent a cheque to the respondent each month. He was visited by an officer of the respondent on two occasions and there was no indication that he was doing other than the right thing. The applicant later became aware that he had been incorrectly calculating the amount of sales tax payable, as he was calculating the amount on the end price rather than on the components at the time he purchased them.

10. In applying sub-section 26(1A) of the Act, the issue for the Tribunal to decide is whether the tax has been passed on to the applicant's customers when they purchased the trophies. Copies of invoices from the relevant period have a notation on them indicating that sales tax at the rate of 20 per centum was included in the calculation of the price. Thus it was the respondent's contention that the applicant had been collecting the sales tax from his customers on behalf of the respondent.

11. Following Taxation Ruling No. ST 2331, it was agreed that the applicant is not a

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ATC 433

manufacturer under sub-section 3(1) of the Act. The applicant became aware through a friend that he was paying more sales tax than his competitors.

12. By way of explanation of the notations on the invoices placed before the Tribunal, the applicant said that the notations, many of which were not made by him, represented internal working figures and advice to customers that they had no further liability as sales tax had been paid on the components. The applicant said he did not accept that he was ``passing on'' the sales tax to his customers. The applicant said that he calculated his prices to customers by obtaining price lists and under-cutting his competitors and that his price did not include a sales tax component passed on to his customers. Market forces dictated his price and he accepted very low margins. He set prices in the hope that he could pay the sales tax and make a profit.

13. The applicant's income taxation returns were prepared by an accountant who included the sales tax as a cost of sales in the profit and loss statement for the financial years ending 30 June 1986 and 30 June 1987. The applicant agreed that he did not intend to refund any sales tax to any person. The Tribunal had before it an invoice provided by the applicant to an exempt institution which lends support to the proposition that sales tax was included despite the applicant's oral evidence that it ``wasn't tacked on to the normal selling price''. There is a notation ``amount of sales tax exempt $75.32'' which was deducted from the ``gross''.

14. It is a question of fact for the Tribunal to decide whether the applicant added the sales tax as an additional item on the top of the price or whether he set his price and then parted with too much of it to the respondent. The respondent has had a windfall. Did the windfall come from the purchasers or from the taxpayer? Having considered all the evidence the Tribunal is more persuaded by the documentary evidence prepared at the time than the oral evidence of the applicant as to his intention at that time. The Tribunal therefore has regretfully come to the conclusion that the objection decision under review must be affirmed. I am satisfied that the applicant did pass on the sales tax in dispute to his customers who have borne the burden. The burden ultimately fell on the applicant because he so cut his margins to remain competitive that he ended up making a loss during part of the relevant period in order to remain in business.