CASE 55/96
Members:BM Forrest DP
Tribunal:
Administrative Appeals Tribunal
BM Forrest (Deputy President)
This is an application for review of a decision of the Deputy Commissioner of Taxation to accept declarations made by in-ground pool purchasers pursuant to sub-s. 4(5) of the Swimming Pools Tax Refund Act 1992 (``the Refund Act''), in preference to declarations made by the applicant, for a refund of the in situ pool tax payment.
The pool builder LMP Pty Ltd (``LMP'') was placed in liquidation by order of the Supreme Court of Victoria on 8 March 1989. In a report to creditors (15 March 1989) the liquidator revealed that the liabilities of LMP included $286,000 to the Commissioner for sales tax. The liquidator notified the Commissioner in a letter dated 29 September 1993 that pursuant to an agreement made 25 June 1993 he assigned LMP's rights to claim refund of sales tax paid by LMP during its period of operation to the applicant company. In these proceedings it was accepted that the applicant, as assignee of LMP's rights to claim refunds of sales tax, was the ``pool builder'' for the purpose of the Refund Act.
Initially declarations under the Refund Act from seven pool purchasers in relation to pools built subsequent to 20 August 1986 by LMP were accepted by the Commissioner in preference to declarations lodged by the applicant. In doing so the Commissioner said in a letter to the applicant on 1 December 1994:
``The Commissioner of Taxation is unable to conclude that the whole or part of any in situ pool tax was not passed on to the pool purchaser in relation to the swimming pools concerned. In particular, it is noted that the company's computerised costing records which detail the components of swimming pools show a building allowance inclusive of sales tax.''
The applicant has sought a review of that decision pursuant to sub-s. 4(7) of the Refund Act which provides:
``4(7) The pool builder or the pool purchaser may apply to the Administrative Appeals Tribunal for review of a decision of the Commissioner to allow, or not allow, the pool purchaser to make the declaration.''
The seven pool purchasers were joined as parties to the application. Prior to the commencement of the hearing it was agreed by the parties that of the seven joined parties, four paid sales tax of $865.24, $726.50, $920.67 and $816.67 respectively and were entitled to the refund while in one instance it was accepted the applicant was entitled to the refund. In these five cases, the contracts were entered into prior to August 1986.
Only two declarations, one by a Mr and Mrs O'M jointly, the other by a Mr A remained in dispute. Both entered into contracts with LMP after the introduction of the Sales Tax Laws Amendment Act 1986 (``STAA Act''), from 19 August 1986 which amended the Sales Tax Assessment Act (No. 1) (1930) by inserting s. 3(1C) and 3(1D). The effect of the amendment was to impose sales tax on a manufacturer of swimming pools in respect of the shell of a concrete swimming pool manufactured ``in situ'' (that is, manufactured not as an independent product to be installed later, but constructed in the ground with no separate existence outside of the ground). Construction of the pool in situ was deemed to be manufacture for the purposes of sales tax.
The High Court decided in
Mutual Pools and Staff Pty Limited and Anor v FC of T 92 ATC 4016; (1991-1992) 173 CLR 450 that the amendment was invalid because it contravened s. 55 of the Constitution of the Commonwealth of Australia, by in effect imposing a tax not upon goods but upon land. The Refund Act was then enacted to allow persons who paid purported sales tax on swimming pools constructed in situ, subject to s. 4 of the Refund Act, to obtain a refund.
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It was not in dispute that sales tax amounting to $802.86 in the case of O'M and $750.86 in the case of A was paid by LMP to the Commissioner.
The scheme of the Refund Act requires the Commissioner to refund sales tax to the person who bore it, either the pool builder or the pool purchaser. To the extent to which the tax was passed on to the pool purchaser and not refunded the Commissioner is required to refund it to the pool purchaser.
Thus in determining whether the pool builder or pool purchaser is entitled to the refund the issue for the Tribunal is what amount (if any) of the payments to the Commissioner were passed on to the pool purchaser.
It was common ground and I accept that the burden of proof under s. 14ZZK of the Taxation Administration Act 1953 does not apply in these proceedings. The Refund Act which confers jurisdiction on the Tribunal in this matter does not contain a similar provision to s. 14ZZK. In reaching a decision under s. 4 of the Refund Act the Commissioner is required to act on the information before him. Similarly this Tribunal standing in the shoes of the decision maker is required to act on the material before it. There is nothing in the Refund Act nor in the Administrative Appeals Tribunal Act 1975 to suggest some kind of onus. As was pointed out in
McDonald v Director-General of Social Security (1984) 1 FCR 354 at 357 it will rarely be appropriate to speak of a burden of proof in an Administrative Tribunal forum.
That said, it must however be readily accepted that the applicant is required to establish the particular facts necessary to justify a decision in its favour. So much is I think evident from the nature of the decision the Commissioner and in turn the Tribunal is required to make under s. 4.
The Refund Act which commenced on 21 September 1992 relevantly provides:
``3 In this Act:
` in situ pool tax' means the tax referred to in the definition of `in situ pool tax provisions';
` in situ pool tax payment' means an amount paid to the Commissioner in purported compliance with the requirements of the law relating to sales tax, or under an agreement, to pay in situ pool tax;
` in situ pool tax provisions' means the provisions of the Sales Tax Assessment Act (No. 1) 1930 that, when incorporated and read as one with the Sales Tax Act (No. 1) 1930, would have had the effect of imposing a tax on a sale value of so much of a swimming pool as is constructed in situ, but which, in accordance with the judgement of the High Court of Australia in
Mutual Pools & Staff Pty Ltd v Federal Commissioner of Taxation (1992) 104 ALR 545, were of no effect;` in situ pool tax refund payment' means any payment that the Commonwealth is liable to make by way of refund of an in situ pool tax payment, whether the liability arose as a result of a refund agreement or otherwise;
...
4(1) Except as provided by this section, the Commonwealth is not liable to make any in situ pool tax refund payment.
4(2) If, before the commencement of this Act or within 2 years after its commencement, the pool builder in respect of an in situ pool tax payment has made a declaration to the Commissioner, in a form approved by the Commissioner for the purpose, of either or both of the following kinds:
- (a) that a specified amount, being the whole or part of the in situ pool tax concerned, was not passed on to the pool purchaser in relation to the swimming pool concerned;
- (b) that a specified amount, being the whole or part of any of the in situ pool tax concerned that was passed on to the pool purchaser in relation to the swimming pool concerned, has been refunded to the pool purchaser;
then the Commonwealth is only liable to make the in situ pool tax refund payment to the pool builder to the extent that it equals the sum of:
- (c) the amount of the tax that was not passed on; and
- (d) the amount of the tax that was refunded.
4(3) If, before the commencement of this Act or within 2 years after its commencement, the pool builder in respect
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of an in situ pool tax refund payment and the pool purchaser in relation to the swimming pool concerned have jointly made a declaration to the Commissioner, in a form approved by the Commissioner for the purpose, that a specified amount, being the whole or part of any of the in situ pool tax concerned that was passed on to the pool purchaser, has not been refunded to the pool purchaser, then subsection (4) applies.4(4) If a declaration is made under subsection (3), the Commonwealth is liable to make so much of the in situ pool tax refund payment as equals the amount of the tax that was passed on to the pool purchaser and not refunded, but is liable to make the payment to the pool purchaser instead of to the pool builder.
4(5) Subject to subsection (6), if a declaration cannot reasonably be made under subsection (3) (because of the non- existence, death, incapacity or refusal of the pool builder, or for any other reason), the Commissioner must allow the pool purchaser, within the same period allowed under subsection (3), to make the declaration, but in a different form approved by the Commissioner for the purpose.
...
4(8) If the pool purchaser makes the declaration, subsection (4) applies as if it were made under subsection (3).
4(9) A person is not entitled to make more than one declaration for the purpose of each of subsections (2), (3) and (5) in respect of the same swimming pool.''
Mr and Mrs O'M entered into a contract dated 25 November 1987 with LMP (Ex. A) for the construction of a swimming pool at their property. The contract price was $13,420 payable by a deposit of $1,342 and the balance by four progress instalments, on the occurrence of a particular event during the course of construction. The contract was in a printed form titled ``The Australian Swimming Pool Buyers Contract''. There was no amount shown in the contract for sales tax. Under the heading ``Items not included in Contract Price'', the printed form lists twenty-three items. Sales tax was not listed as one of the excluded items.
In his evidence Mr O'M said that sales tax was not discussed with the pool salesman. He negotiated the contract price including particular features to be included as detailed in the contract, but the discussion did not extend to sales tax. Mr O'M acknowledged that he did not know if the sales tax had been included in the price but he assumed that it had because it was not among the list of items not included in the price. There was no variation of the contract price. In a declaration dated 21 August 1994 Mr O'M declared that he believed that sales tax, (amount unspecified in the declaration) was passed on to him.
The other pool purchaser Mr A entered into a contract dated 3 March 1987 with LMP (Ex. B) to construct a swimming pool at his property. Construction was completed on 25 November 1987. The contract price was $11,380 payable by a deposit of $1,600 and the balance by four progress instalments during construction.
In addition to the standard contract (similar to the form of the O'M contract), a variation schedule for extras amounting to $3,341 dated 14 May 1987, (Ex. C) was agreed to. Sales tax is not mentioned in the list of items contained in the variation schedule.
Mr A gave evidence that in discussions with the LMP salesman prior to signing the contract, he was concerned to ensure that he had a total price. Sales tax was not mentioned in discussions. Mr A, like Mr O'M assumed in the absence of any mention of sales tax that it was passed on to him as purchaser.
I accept both Mr O'M and Mr A as witnesses of truth. I accept their evidence that sales tax was not mentioned at any stage in contract negotiations. Both gave the impression in evidence of a cautious approach to their dealings with LMP.
Ms McL, now general manager of another pool company commenced work for LMP in September 1986, as a project co-ordinator.
During her evidence she was shown a copy of an internal memo dated 29 September 1986 from Mr S, the operations manager of LMP, addressed to other named employees including her (Ex. 1). Attached to the memo was a draft letter, ``to be forwarded to clients where the payment of Sales Tax is relevant''. The letter notified purchasers of an increase in the contract price for the sales tax component. The memo stated a policy to be adopted in the calculation of sales tax for contracts entered into and where construction had not
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commenced prior to 19 August 1986. The memo also contained the following information:``4. A computerised programe [sic] is available which details the taxable content of the pool and the actual tax payable.
5. The actual amount payable is to be entered onto the job card along with the date payment is received and a variation is to be raised, entered and processed for internal purposes only.
Obviously the monitoring of which clients are to pay the tax can be readily determined by your cash collection personnel, however I would advise a degree of discretion be applied especially if construction has been delayed through no fault of the client (delays in permit, drafting etc).
Where a contract has been sold and the sales tax included within the contract price, the attached letter or the above procedures is not applicable.''
Ms McL could not recall receiving the memo, nor was she able to recall if the policy stated therein was implemented. Accordingly, her evidence was of little assistance.
The witnesses Mr O'M, Mr A and Ms McL were called by the Commissioner. For convenience they gave their evidence first. Oral evidence was given on behalf of the applicant by a director, hereafter referred to as Mr David. He had previously been general manager of LMP a position he held from the time he joined LMP in February 1987 until it was placed in liquidation in March 1989.
In evidence, Mr David said that during his time with LMP sales staff were provided with a number of ``pool packages'' listed on a sheet, which had a base purchase price to cover direct costs and another list for other items and accessories which were separately priced and for which sales tax was added, being calculated as at the date of acquisition of the item. LMP relied on ``volume'' selling of pools. It would then attempt to ``upsell'' over the package price with the extras. Profit was determined by the items not included in the contract price but in a variation sheet. There was, he said, no sales tax on the shell of the pool charged in the packages unless varied by a variation notice nor was there any policy by LMP pursuant to its standard contract to pass on sales tax to pool purchasers.
According to Mr David, it was not possible for the company to calculate sales tax on the signing of the contract, because of the variations that could occur with the packages and in construction. Only after the fourth payment could the sales tax be calculated, he said. Sales tax was a company overhead and treated as such, he claimed.
After the STAA came into force the prices of the LMP packages did not change, he asserted. Sales tax was absorbed by LMP on contracts signed after that date. This was because LMP wanted to keep its competitive prices and its market share.
When Mr David joined LMP in February 1987, sales tax had not been paid, he said. Following a taxation office audit by a taxation officer Mr Blake:
``He went through our contracts, we then agreed on the way it was to be done and that was subsequently put in place and we then did the first reconciliation of sales tax which was, as I said, February, early March.''
(Tr. p. 57)
In a letter to the Commissioner dated 24 January 1994 Mr David in his then capacity as a director of the applicant wrote:
``In all contracts dated after the 31st August 1986 sales tax was paid by [LMP].''
Mr David claimed that LMP did not pass on to Mr and Mrs O'M or to Mr A any of the amount of sales tax ultimately paid.
Mr David said that the purpose of the internal costing report was to enable LMP to know the costs associated with a construction contract. There was a sales tax estimate included in the report, but this could not be confirmed until after the fourth payment was made pursuant to the contract. The total sales tax payable on the O'M contract of $802.86 was not known until 26 May 1988, six months after the report was made and sales tax estimated at $765.43 (see Ex. E).
Sales tax was not mentioned in the job card of Mr A's contract. The amounts shown on the job card coincided with package cost and the variation (Ex. C).
When shown the internal memo referred to earlier (Ex. 1), Mr David stated that he had never seen this document before. To the best of his knowledge, the contents of the memo were wrong. The two job cards (Ex. D and Ex. F) do not, he said, reflect the policy indicated in the
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memo. He was not aware of any computer programme mentioned in the memo, nor could he see how such a programme was available given his assertion that it was impossible to calculate the tax prior to completion.Asked to comment on the document headed ``Sales Tax (Debtors) Current Month'' dated 31 December 1987 (T28), identified as the document used to calculate sales tax, he said that he did not know if there was a debit account for sales tax. It was not his understanding that customers for whom sales tax was owed, were considered debtors.
The Commissioner also called a former director/shareholder of LMP, hereafter referred to as Mr Michael who was employed by LMP from August 1979 to June 1987. Mr Michael was a computer programmer for LMP and responsible for the costing of contracts in the accounting section.
He had the task of calculating the prices of the standard packages, about eight in total, which were given to sales representatives, work which he did both before and after the commencement of the STAA Act. After sales tax was introduced some recostings were done to the price of the packages to reflect the sales tax and to maintain the aim of thirty per cent gross profit. He explained that the function of the cost sheet, (see Ex. E and Ex. 2), was to transfer into the computerised accounting system the figures relating to the costs involved in each contract. Each contract was costed within 24-48 hours after arriving at LMP's office. Each contract had a ``cost centre'' in the computer program for calculating sales tax - item 1190.
In regard to the internal memo (Ex. 1), Mr Michael said that he recalled this document being created following discussions with its author and other directors of LMP.
Mr Michael said he was not involved with the actual payment of sales tax and had no direct knowledge of the two contracts in question.
One submission on behalf of the applicant relies on the terms of the agreement between both pool owners. That it, that ``nowhere in the agreement is it provided that the liability to sales tax is to be passed on to the client by the Company''. Another argument was that there can ``only be a passing on of a liability where both parties to the transaction recognise that a particular liability is being borne by the purchaser'' and ``therefore by agreement the vendor can be said to have `passed on' the liability to the purchaser''. (T 29.5) This argument receives support from the oral evidence, where both pool owners agreed that there was no express agreement as to liability for sales tax.
The applicant also argued that as the sales tax liability did not arise until the pool was handed over to the owner, the final instalment which is due at this time is always less than the sales tax liability. Therefore, ``even if the parties intention was to pass on the liability, the clients did not pay sufficient amounts to meet the relevant liability''. (T29.6)
A number of cases have considered the concept of ``passed on'' in sales tax legislation.
In
Otto Australia Pty Ltd v FC of T 90 ATC 4604, a matter dealing with s. 11(1A) of the Sales Tax Assessment Act (No. 5) 1930, Lockhart J. said at 4609:
```Passed on' in the context of sec. 11(1A) must be given a sensible and practical meaning to cover the wide variety of circumstances which may arise in practice in sales tax legislation. It is plain from the facts of the present case that the applicant did in fact `pass on' the sales tax to councils concerned in that, when calculating the contract price for the tender with the councils, the applicant included a component, though not shown separately in the contract documents with the councils, of sales tax paid by it on importation of the Otto carts. In other words the applicant bore the burden of the sales tax and passed it on in the price which it charged the councils for the performance of its contractual obligations.''
The question was again considered when the matter went on appeal to the Full Federal Court (
Otto Australia Pty Ltd v FC of T 91 ATC 4305) per Sheppard J. (at 4307):
``Once it is conceded... that the charge for each bin was computed by reference to costs which included sales tax, that cost was passed on. The fact that the sales tax was not passed on in an identifiable form is not in my opinion of relevance.''
The matter of sales tax being ``borne'' by the purchaser of goods was briefly discussed by the Full Federal Court in
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FC of T v Bank of Western
``That expenditure may be `borne' by a person even although that expenditure is not required to be paid directly by the person emerges from the use of the word in many contexts... Sales Tax is borne by the end purchaser of goods by being included in the calculation of the purchase price, although the actual liability is a liability of some earlier vendor.''
The Tribunal considered the meaning of ``passed on'' in the context of sales tax in Case 45/95,
95 ATC 395, (Mr Trowse, Member) at 398:
``It is my view that the term `passed on' is descriptive of a process whereby the person carrying a liability takes the decision to shift the burden of that liability to some other person and then gives effect to that decision. In short, it refers to the act which provides the relief that stems from the removal of that financial responsibility. The passing on may be in the form of either the handing of the respective account to the other person for his settlement or by way of reimbursement.''
and commented (at 399):
``The decisions in Otto and Chippendale make it abundantly clear that sales tax has been passed on where the tax has been brought to account in the calculation of the contract price, and if it has, the fact that the amount of the tax has not been shown separately on the documents of sale is of no consequence.''
The task of the Tribunal is to decide whether in fact the in situ pool tax was passed on to Messrs O'M and A pursuant to the standard contract each signed. In this regard, the Tribunal looks at the terms of the contract, the internal costing and other documentation used by LMP in relation to these particular contracts and the evidence before the Tribunal.
The applicant relies almost exclusively on the evidence of Mr David. While much of his evidence is uncontradicted that does not make it conclusive. In
Calderaro v Secretary, Department of Social Security (1991) 33 FCR 244 at 249; 14 AAR 421 at 426 Gray J. commented on the duty of the Tribunal:
``It is clear that the obligation of the Administrative Appeals Tribunal to satisfy itself as to the facts is a real one. It is also clear that, like a court, the Tribunal is not bound to accept evidence merely because it is uncontradicted; it must be persuaded as to the truth of that evidence.''
The documents tendered in evidence do not support Mr David's evidence that LMP decided not to pass on sales tax to purchasers and in some crucial respects his evidence conflicts with that of Mr Michael.
The two contracts (Ex. A and Ex. B) which are almost identical in form do not include a separate component for sales tax. However, this is not the end of the question. See Otto 91 ATC 4305 at 4307 and Case 45/95 at 399. These cases make it clear that sales tax can be passed on if it was a cost included in calculating the contract price. On its face, the contract does not provide much assistance in determining whether or not sales tax was taken into account as the contract does not separately identify the components of the purchase price. Certain items are excluded in calculating price but sales tax is not one of them.
Clause 5 of the Terms and Conditions of the standard contract (as entered into by Mr and Mrs O'M and Mr A), (which was not altered after the introduction of the STAA Act) reads:
``The contract price may, subject to this clause, be increased by the amount of any increase in sales tax or duty which is imposed after the date of this contract and which affects the actual materials to be used in constructing the pool or affects the actual equipment or accessories which the contractor has agreed to supply under this contract. The contractor shall give to the customer notice in writing of the amount by which the contract price will increase as a result of such increase in sales tax or duty.''
The language of this clause appears to assume that sales tax is included in the contract price at the rates applicable as at the date of the contract. The clause allows a corresponding increase in the contract price if sales tax is increased after the date of the contract, affecting the construction materials, equipment or accessories.
The material put before the Tribunal by the Commissioner suggests that the question of sales tax was considered by LMP, at least, in the calculation of profit and loss for each pool. This was conceded by Mr David. It is
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evidenced by costing sheets, which included sales tax after August 1986, and internal pool costing reports included a sales tax component - item 1190. Sales tax was also included in the sales tax debtors list referred to earlier. Mr David's attempt to explain away the debtors list was unconvincing. The internal memo (Ex. 1) indicates that the issue of sales tax was considered after the introduction of the STAA Act, at least where the contract was signed prior to that legislation coming into force but construction had not commenced. The final sentence in the memo:``Where a contract has been sold and the sales tax included within the contract price, the attached letter or the above procedures is not applicable.''
gives an indication that sales tax was included in contracts. The documentary evidence lends support to Mr Michael's evidence. Mr David denied any knowledge of the memo or the policy it enunciated yet was aware that LMP attempted to recover sales tax from pool purchasers after the STAA Act was introduced. His awareness of the policy was consistent with Mr Michael's evidence that the policy to recover sales tax from purchasers was implemented.
It was Mr Michael's evidence that he was responsible for preparing the packages both before and after the introduction of the STAA Act, and that the packages were recosted after August 1986 (Tr. p. 116) to include an estimate of sales tax and to maintain profit margin after the STAA was introduced. I accept this evidence. The applicant did not refute this evidence, although Mr David who was not employed by LMP at the time said in evidence in chief:
``Were the prices which were given to the salesmen, or as indicative prices, did they change when the sales tax was enacted? - No, the prices didn't change at all.
So there was no change in terms of the packages the salesmen had? - There was no change in the terms of the packages that went out with these salesmen. One of our selling points was that we absorbed that in our costs.
Did the company attempt to recover any sales tax when the sales tax legislation was enacted? - Yes, it did. The policy that they had was they went out to every client that had signed the contract and the legislation stated that the sales tax was imposed effective from a certain date, I think September, August/September whatever it was -''
(Tr. p. 56)
During an exchange with the Tribunal Mr David, when asked that if the absorption by LMP of sales tax was a selling point why were purchasers not told, replied:
``- our pricing on everything that was given to our customers was well under anybody elses on the market. I didn't need to do that, I didn't need that as a selling aid.''
(Tr. p. 89)
Further on:
``You said one of our selling points is that we will absorb the sales tax and that was a selling point with your salesmen. That was your evidence? - Was it, I'm sorry, I can't recall.
Well, do you wish to retract that now? - If I made that comment then that certainly wasn't correct. I can't recall making that comment. That was one of our selling aides.''
(Tr. p. 90)
While it is clear that each contract was internally costed after it had been signed, and that the exact amount of sales tax for each pool was not known exactly for some time, this does not exclude the probability, as I find, that an estimate of sales tax was included in the package prices, and was a component in the calculation of the eventual purchase price. It was therefore ``passed on'' to the purchasers within the principle enunciated in Case 45/95 even though it was not itemised in the contract or the precise amount may not have been known at the time the contract was signed.
LMP did not adopt a policy of absorbing sales tax immediately after the introduction of the STAA Act and that the policy continued is I think a correct inference to be drawn from all the evidence which did not reveal a change of policy on Mr David's appointment as general manager. Mr David's claim to the contrary was in my view inherently improbable and I reject it. The documentary evidence examined in the light of all of the evidence is persuasive that the relevant sales tax was not absorbed in the contracts in question (which were both based on package prices) but in fact was ``passed on'' to the purchasers.
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After the hearing of oral evidence in April 1996 the matter was adjourned to enable the parties to make written submissions. The submissions which were received in August have been taken into account.
For these reasons the decision of the Commissioner in relation to the declarations of both Mr and Mrs O'M and Mr A is affirmed.
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