The impact of this case on ATO policy is discussed in Decision Impact Statement: ATS Pacific Pty Ltd v Commissioner of Taxation (NSD 1730 of 2010; NSD 235 of 2011).

ATS PACIFIC PTY LTD & ANOR v FC of T

Judges:
Bennett J

Court:
Federal Court, Sydney

MEDIA NEUTRAL CITATION: [2013] FCA 341

Judgment date: 15 April 2013

Bennett J

1. This is an appeal under Part IVC of the Taxation Administration Act 1953 (Cth) ( TA Act ) pursuant to s 14ZZ(1)(a)(ii) of the TA Act. The applicants in each proceeding appeal from the objection decisions of the Commissioner of Taxation (the Commissioner ) in respect of assessments for GST paid by the applicants.

2. The applicants seek the refund of the GST which they claim was overpaid in respect of supplies made by ATS Pacific Pty Ltd ( ATS ) and Travelscene Tickets Pty Ltd ( Travelscene ). ATS carried on the relevant enterprise for all relevant tax periods until 30 June 2008. The enterprise was thereafter continued by Travelscene.

3. For the tax periods commencing 1 July 2007 and ending 30 June 2009, Stella Travel Services (Australia) Pty Ltd ( Stella ) was the head of a GST group that included ATS and Travelscene. Stella necessarily participates as an applicant in relation to those tax periods. NSD1730/2010 (the ATS Proceeding ) relates to objection decisions for the tax periods 1 November 2004 to 30 June 2007. NSD235/2011 (the Stella Proceeding ) relates to objection decisions for the tax periods 1 July 2007 to 30 June 2009.

ATC 14738

The parties have used "ATS" to denote the relevant taxpayer for all tax periods, and I will adopt the same terminology.

5. In these reasons:

• " NR Travel Agent " refers to non-resident travel agent/s with which ATS contracted in the course of its business;
• " NR Tourist " refers to non-resident tourist/s who travelled to Australia and ultimately consumed the products provided by Australian Providers;
• " Australian Provider " refers to the Australian based provider/s of products such as hotels, transport companies and tour/theme park operators that ultimately provided the products to NR Tourists; and
• the term " Product " refers to the following products and services which were provided by Australian Providers for consumption by the NR Tourists:
- ○ accommodation in hotels and serviced apartments; and
- ○ transfers, car hire, tours, guides, meals and similar products and services.

6. In essence, the relevant enterprise carried out by ATS was contracting for and making supplies to NR Travel Agents in relation to Products, which were then provided to NR Tourists by Australian Providers. The NR Travel Agents generally selected these Products through a website and software operated by ATS called Tourplan, and then compiled an itinerary for their NR Tourist clients that included the selected Products. Once the selection was made by the NR Travel Agent using Tourplan, ATS would book the requested Product with the Australian Provider, and charge the NR Travel Agent a fee that included the cost of the Product and a margin (the margin ). ATS then paid the Australian Provider for the Product. The Product would be supplied by the Australian Provider to, and consumed by, the NR Tourist.

THE ISSUES

7. The principal issue is the nature and characterisation of the relevant "supply" made by ATS to the NR Travel Agents for the purposes of s 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ( GST Act ):

• If, as ATS contends, the supply to the NR Travel Agent was only the provision of the service of booking/arranging services, then it appears to be common ground between the parties that ATS' supplies are GST-free.
• If, as the Commissioner contends, ATS supplied accommodation, goods and services, or the rights thereto to the NR Travel Agents, then it is common ground between the parties that ATS' supplies are not GST-free.
• Should the principal issue be decided in the Commissioner's favour, ATS contends in the alternative that, in addition to the supply of Products or rights thereto, it provided the service of booking/arranging services and charged the margin for that service and that the margin is GST-free.

8. The parties have also agreed that if the service provided by ATS is GST-free, ATS is entitled to input tax credits referrable to the bookings it made with the Australian Providers. This was previously disputed, but is no longer an issue in these proceedings.

9. ATS also claims an entitlement to a refund of overpaid tax. This issue arises only if the Court determines that ATS is successful, such that ATS has overpaid GST during the relevant tax periods. This depends on the application of s 106-65 of Schedule 1 of the TA Act prior to 30 June 2008. ATS contends that, prior to 30 June 2008, s 105-65 in Schedule 1 of the TA Act did not apply in the circumstances of this case and that, as there was no "supply" by ATS for GST purposes, the Commissioner did not have a discretion to deny ATS Pacific a refund of overpaid tax. ATS accepts that in the period from 1 July 2008, a discretion did exist in s 105-65. The Commissioner contends that s 105-65 contained the discretion prior to 30 June 2008. The parties agree that whether s 105-65 contained a discretion at either or both of the relevant time periods, this aspect should be remitted to the Commissioner for the exercise of the discretion.

10. ATS had previously contended that it was entitled to ask for a refund in respect of the tax period 1 December 2004 to 31 March 2005. There was a dispute as to whether ATS had given the requisite notice under s 36 of the TA Act in respect of this period and ATS no longer

ATC 14739

presses for recovery of GST prior to 1 April 2005. The Commissioner accepts that ATS is entitled to ask for a refund from 1 April 2005.

11. The parties have agreed upon the quantum of the tax refund referable to the tax period 1 April 2005 to 30 June 2007 if ATS' appeal is successful and the supplies made by ATS are GST-free in their entirety.

12. There is no present agreement on the quantum of the tax refund that is owed to ATS if the appeal is partially successful and the margin is GST-free.

BACKGROUND

Agreed facts

13. The parties have filed a statement of agreed facts for each proceeding, relevantly set out in [14] to [28] and [33] to [52] below.

14. ATS carried on its business as an inbound tour operator under the name "ATS Pacific" from 1 July 2007 (and prior) until 30 June 2008. After that date, Travelscene carried on the inbound tour operator business, also trading under the name "ATS Pacific".

15. At all relevant times, ATS was a company incorporated in Australia, was an Australian resident taxpayer, was registered for GST, accounted for GST on a non-cash basis and reported monthly, and conducted an enterprise in Australia.

16. From 1 July 2007 ATS was approved as a member of a GST group. The GST group representative member was Stella. At all relevant times, Stella was a company incorporated as a proprietary limited corporation, was an Australian resident taxpayer, was registered for GST, accounted for GST on a non-cash basis and reported monthly and, in its capacity as representative member of the GST group, reported the supplies and acquisitions made by ATS from 1 July 2007. Stella has identified:

1. 435 NR Travel Agents with whom ATS contracted during the relevant period;
2. 734 NR Travel Agents with whom ATS contracted during the period 30 June 2005 to 30 June 2009; and
3. 536 NR Travel Agents with whom ATS contracted in the year ended 30 June 2009.

17. The business conducted by ATS relevantly included:

(a) contracting with and making supplies to NR Travel Agents in relation to Products to be provided to NR Tourists; and
(b) contracting with Australian Providers, who were able to provide Products to NR Tourists.

DETAIL OF ARRANGEMENTS AND DEALINGS BETWEEN ATS AND NR TRAVEL AGENT CLIENTS

18. The dealings and arrangements between ATS and its NR Travel Agent clients primarily occurred by electronic means, being;

(a) via the ATS website (www.atspacific.com.au) which was driven by a software program called "Tourplan";
(b) XML link, between Tourplan and the NR Travel Agent's booking system; or
(c) email, where the NR Travel Agent elected not to use Tourplan, where Tourplan did not allow for particular requests to be inputted, or where amendments to existing bookings were required.

Website

19. ATS issued a unique user ID and password to its NR Travel Agent clients to allow them secure access to the "Agent" area of the website.

20. The Agent area of the ATS website contained online tariff information and online booking facilities.

21. The Agent area of the ATS website allowed NR Travel Agent clients to:

(a) access a list of the names of Australian Providers and the Products they provided and to review the products potentially available for booking by ATS;
(b) access a variety of advertised packages suggesting particular Australian Providers and Products;
(c) access lists of approximate tariffs (subject to confirmation) for all Products that ATS could book. These tariffs were inclusive of ATS' fees;
(d) ascertain the availability of all Products that ATS could book at the approximate tariffs;
(e) obtain a quotation of updated tariffs of all Products that ATS could book for the use of NR Tourists;

ATC 14740
(f) obtain information as required for bookings of all Products available;
(g) request that ATS book selected Australian Providers and the Products they provided at agreed tariffs for specified NR Tourists;
(h) build a tour package as the NR Travel Agent desired for a NR Tourist by selecting particular Australian Providers and their Products;
(i) obtain a quote of the total cost to the NR Travel Agent of the Products it selected;
(j) in cases where ATS had been informed by certain Australian Providers that their Products would be allocated for booking on certain dates at certain prices and in certain amounts, obtain instant confirmation that ATS was able to book the Australian Providers and Products selected; and
(k) request that ATS make a booking for Products where ATS did not have an available allocation from the relevant Australian Provider.

22. The Agent area of the ATS website contained a link to a web-page which included the following terms and conditions ( Terms and Conditions) :

TERMS AND CONDITIONS

RATES

All services quoted are in Australian dollars NETT including GST and are non-commissionable. Rates include the cost of services and our fee for arranging those services on your behalf.

DEPOSIT

A deposit will be required in some cases, particularly for New Year's Eve bookings and for accommodation during special events. The deposit due date will be advised at the time we confirm the booking.

MINIMUM BOOKING

In order to cover the cost of communications, bookings with a net value of less than $500.00 will attract a minimum booking fee of $50.00.

ALTERATIONS

To participating numbers or itinerary content should be advised to us as early as possible. Last minute changes could result in suitable services not being available thus incurring higher costs and/or amendment fees.

CANCELLATION FEES

Will be kept to a minimum. Any cancellation fee levied by hotels and/or our subcontractors will be passed on. Cancellation fees will apply for any bookings cancelled within 72 hours of travel. Cancellation terms and conditions outside 72 hours will be advised at the time of booking.

PAYMENT

Full payment is required prior to passengers arrival unless credit arrangements have been negotiated.

Payment can be made by telegraphic transfer (see details below) or by bank cheque. If payment is by bank cheque, we require payment in Australian dollars, drawn on an Australian bank.

23. After confirmation of a booking, passenger information documentation was prepared by ATS or the NR Travel Agent to be given to the NR Tourist before commencing his or her Australian tour. The Agent area of the ATS website listed the details that were required to be included on passenger information documentation. This documentation did not include any transferable vouchers or other documents issued by an Australian Provider that could be redeemed for the Products and none were otherwise provided. Rather, the NR Tourist was to be provided with a unique booking identification number that was to be quoted to the Australian Provider in order, inter alia, to assist in confirming his or her identity as the person to be provided with the Products. If the documentation was lost, the NR Tourist could obtain that reference number from ATS or from the NR Travel Agent.

24. Approximately three weeks before the scheduled date for provision of any Product by an Australian Provider, an ATS representative would confirm all bookings it had made with the relevant Australian Provider by email.

XML link

25. For some NR Travel Agent clients, ATS established an XML link between the ATS website interface with Tourplan and the NR

ATC 14741

Travel Agent's own booking system. This allowed the NR Travel Agent to perform the functions set out in [21] directly through the NR Travel Agent's own booking system without the need to use the ATS website.

Email communications

26. Some NR Travel Agents sent booking requests for the Products set out on the ATS website to ATS using email instead of through the use of the website booking system.

27. These requests could be made in a number of different circumstances including where:

(a) the NR Travel Agent sought group reservations;
(b) the NR Travel Agent sought amendments to bookings as offered on the website; or
(c) the NR Travel Agent sought a booking for which ATS did not have, or had ceased to have, an allocation from an Australian Provider.

28. Upon receipt of such a request, ATS sent a quote to the NR Travel Agent client setting out the total cost of the Products selected. Where the NR Travel Agent advised ATS that it accepted the quote, ATS made the relevant bookings with the relevant Australian Providers.

Umbrella agreements with some NR Travel Agents

29. The GST in dispute concerns only transactions with those NR Travel Agents which did not have specific written contracts with ATS. In the ATS Pacific Proceeding, ATS has identified seven NR Travel Agents which had specific written contracts with ATS during the relevant period: Kuoni Travel Limited, American Express Limited, American Express Europe Limited, Bales Worldwide Limited, BTI Nordic AB, HRG Nordic and Riksja Online. In the Stella Proceeding, Stella has identified seven NR Travel Agents with which ATS entered into written agreements during the relevant period. Those NR Travel Agents were Riksja Online, Kuoni Travel Limited, HRG Nordic, Bales Worldwide Ltd, American Express Limited, American Express Europe Limited and Audley Travel Group Ltd. Those agreements are referred to as umbrella agreements .

30. ATS submits that the umbrella agreements are irrelevant to the proceeding and seeks no refund in relation to any GST paid on any transactions under those contracts. The Commissioner seeks to rely on extracts from the umbrella agreements to characterise the subject matter of the arrangements between ATS and those NR Travel Agents.

31. The evidence and agreed facts do not suggest that ATS' activities differed based on whether an umbrella agreement was in place. The umbrella agreements are relevant to the issues in the proceeding in assisting the understanding of the nature of the supply provided by ATS. However, the characterisation of the supply is not determined by the umbrella agreements.

32. A number of the umbrella agreements were contained in an Appendix to the agreed facts. By way of example, one of these, the ATS and Riksja Online Travel Agreement dated 25 August 2006, contained the following clauses:

Obligations of the supplier [ATS]

The supplier will take full responsibility for the accommodation, transport, tours and other services to Riksja online [sic], whether they are offered by the supplier or third parties contracted by the supplier (hotels, transport companies, guides, subagents, or other parties involved in providing services as a result of this contract)…

Delivery of services

Throughout the duration of the contract the supplier guarantees availability and provision of accommodation, meals, services and facilities as per contract specifications (after confirmation). If the supplier fails to deliver as stated in or resulting from this contract, Riksja online [sic] will have rights to:

(a) sue the supplier to perform the contract…

DEALINGS AND ARRANGEMENTS BETWEEN ATS AND AUSTRALIAN PROVIDERS

33. Once agreement had been reached between the NR Travel Agent and ATS as to the details of which Products would be booked by ATS, ATS entered into contracts with the

ATC 14742

relevant Australian Providers, whereby these Australian Providers provided Products to the NR Tourist.

34. In relation to the dealings between ATS and Australian Providers:

(a) ATS transacted with the Australian Providers as principal, not as agent for the NR Travel Agent;
(b) ATS informed the Australian Providers of the identity of each NR Tourist and of the unique booking identification number that the NR Tourist would quote to identify himself or herself;
(c) The Australian Providers issued tax invoices to, and in the name of, ATS in respect of the provision of the selected Products;
(d) The GST-registered Australian Providers issued tax invoices to ATS once the Australian Provider had provided the selected Products to the NR Tourist, showing GST charged by the Australian Providers;
(e) ATS was obliged to pay the Australian Providers under its contracts with them; and
(f) ATS paid the Australian Providers, usually upon receiving confirmation that the Products had been provided to the NR Tourist.

35. When subsequently completing Business Activity Statements, ATS claimed input tax credits for the GST component of amounts it paid the Australian Providers.

ATS INVOICES TO NR TRAVEL AGENTS

36. ATS issued tax invoices to the NR Travel Agents in respect of the Products booked and arranged by it under its contracts with the NR Travel Agents. The tax invoices were for a total amount that represented the amount that ATS would be required to pay to the Australian Providers upon their provision of the selected Products to the NR Tourists, plus the margin. The margin was calculated as a percentage of the amounts ATS was liable to pay the Australian Providers. The tax invoices generally stated:

This invoice covers the cost of supplying the goods and services listed above and our services in arranging these supplies on your behalf.

37. ATS generally required the NR Travel Agent to pay to it the invoiced amount before the time that ATS was required to pay Australian Providers. In limited circumstances, ATS paid the Australian Providers before receiving any payment from its NR Travel Agent client.

SAMPLE/REPRESENTATIVE DEALINGS BETWEEN ATS AND NR TRAVEL AGENT

Mr and Mrs V

38. On a date prior to 7 December 2006, ATS was requested by an NR Travel Agent, Virgin Holidays Limited ( Virgin ), to make the following arrangements for an NR Tourist client of Virgin, Mr M and Mrs V:

(a) accommodation in a Garden Room in the Sheraton Mirage Gold Coast for the period 23 December 2006 to 13 January 2007; and
(b) coach transport between Brisbane International Airport and the Gold Coast provided by Coachtrans Australia to Mr and Mrs V on 23 December 2006 and 13 January 2007.

These arrangements were confirmed on 7 December 2006.

39. On 7 December 2006, ATS issued an invoice to Virgin in relation to the arrangements described above. The invoice was for an amount of $22,062 (including GST), comprising $21,790 relating to the Sheraton accommodation component and $272 relating to the Coachtrans non-accommodation component. A copy of the invoice was an attachment to the agreed facts. The invoice states:

This invoice covers the cost of supplying the goods and services listed above and our services in arranging these supplies on your behalf.

PAYMENT: AS PER AGREED TERMS & CONDITIONS

40. On 13 January 2007 Sheraton Mirage issued an invoice to ATS for $20,370 (including GST) in relation to the accommodation provided by Sheraton Mirage to Mr and Mrs V. This amount was paid by ATS to Sheraton Mirage on 6 March 2007.

41. On 5 January 2007 Coachtrans issued an invoice to ATS for $11,446.33 (including GST) which included $222.60 in relation to the coach

ATC 14743

transport provided to Mr and Mrs Verrechia. This amount was paid by ATS to Coachtrans on 2 March 2007.

42. The amount of $22,062 was paid by Virgin to ATS on 12 March 2007.

Mr and Mrs H

43. On a date prior to 28 February 2006, ATS was requested by an NR Travel Agent, Best at Travel, to make the following arrangements for an NR Tourist client of Best at Travel, Mr and Mrs H:

accommodation in a double room, without breakfast, at the Holiday Inn Darling Harbour for 3 nights (21 December 2006 to 23 December 2006 inclusive)

44. On a date prior to 28 February 2006, Best at Travel requested that ATS amend the booking so that:

(a) breakfast at the Holiday Inn Darling Harbour was included in the booking; and
(b) accommodation was also booked on those nights in a twin room, with breakfast, at the Holiday Inn Darling Harbour for Mr and Mrs H's two sons.

45. On 28 February 2006, ATS sent an email to the Holiday Inn Darling Harbour confirming the above amendments to the booking request.

46. On 22 November 2006, Best at Travel issued a document entitled "Accommodation Voucher" to Mr and Mrs H which provided details of the accommodation and breakfast booked at the Holiday Inn Darling Harbour, and set out their unique booking identification number.

47. On 5 December 2006, ATS issued an invoice to Best at Travel in relation to the supply made to Best at Travel relating to the bookings it had made. The invoice was for an amount of $1,248 (including GST).

48. On 24 December 2006, Holiday Inn Darling Harbour issued:

(a) an invoice to ATS for $552 (including GST) in relation to the accommodation and breakfast provided by Holiday Inn Darling Harbour to Mr and Mrs H. This amount was paid by ATS to Holiday Inn Darling Harbour on 2 February 2007; and
(b) an invoice to ATS for $552 (including GST) in relation to the accommodation and breakfast provided by Holiday Inn Darling Harbour to Mr and Mrs H's two sons. This amount was paid by ATS to Holiday Inn Darling Harbour on 2 February 2007.

49. The amount of $1,248 was paid by Best at Travel to ATS on 8 January 2007.

ATS TREATMENT OF SUPPLIES TO NR TRAVEL AGENTS FOR GST PURPOSES DURING THE RELEVANT PERIOD

Agreed facts in ATS Pacific Proceeding

50. For the tax periods 1 July 2000 to 31 March 2005 ATS, in reliance on the Commissioner's then version of the publication "Issue 44 - Tourism and Hospitality" (subsequently replaced on 28 November 2003 and later reissued as "Issue 5 - Land product supplied to non-residents (as principal)"), "Inbound Tour Operators: Guidance for BAS (Nov 2003 to Jan 2004)" and "Inbound Tour Operators: Date of Implementation":

(a) did not account for GST on the margin component of its supplies to NR Travel Agents because it treated such supplies as being GST-free;
(b) treated amounts equivalent to the amounts payable by it to the Australian Providers that it received from NR Travel Agents as consideration for taxable supplies and remitted GST in relation to those amounts; and
(c) claimed an input tax credit equal to 1/11th of the expenditure it incurred on all Products in respect of which it had received tax invoices from Australian Providers.

51. For the relevant tax periods 1 April 2005 to 30 June 2007, ATS, in reliance on the Commissioner's publications, "Finalised Issues - Issue 44 of the Tourism and Hospitality Industry Partnership Register", "Inbound Tour Operators: Guidance for BAS (Nov 2003 to Jan 2004)" and "Inbound Tour Operators: Date of Implementation", altered its GST treatment and paid GST on the consideration (including the margin) received for all its supplies to its NR Travel Agent clients, other than supplies in respect of what the Commissioner's publication asserted to be accommodation booked in serviced apartments, which ATS treated as input taxed supplies.

Agreed facts in Stella Proceeding

52. During the relevant tax periods, Stella recorded, and reported in its monthly BAS

ATC 14744

statements, supplies in respect of the accommodation and non-accommodation components of tours as taxable supplies excluding supplies in respect of what the Commissioner's publication asserted to be accommodation booked in serviced apartments, which ATS treated as input taxed supplies.

ASSESSMENT, OBJECTION AND APPEAL

53. There is no issue in relation to the assessment, objection and appeal processes. These are summarised in the respective Appeal Statements.

54. The parties have noted in the agreed facts that the Commissioner issued assessments of GST net amounts for the relevant monthly periods, increasing the net amounts of GST payable as set out in ATS' Business Activity Statements by way of reducing the claimed input tax credits to the extent that the Commissioner claimed that they related to input taxed supplies of serviced apartments.

Other evidence - the ATS Pacific website

55. Apart from the agreed facts, there is evidence from the ATS website. The home page of the ATS website contained a link to an "About Us" section, to which an NR Travel Agent could login. Once an NR Travel Agent had logged in, the agent could access further aspects of the ATS website, including the Terms and Conditions under which the arrangements between ATS and the NR Travel Agent would be undertaken.

RELEVANT LEGISLATIVE FRAMEWORK

56. A person who is dissatisfied with the Commissioner's objection decision may appeal to the Federal Court against the decision pursuant to s 14ZZ(1)(a)(ii) of the TA Act. The appellant has the burden of proving that, if the taxation decision concerned is an assessment, the assessment is excessive: s 14ZZO(b)(i) of the TA Act.

57. Section 9-5 of the GST Act provides:

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.

58. "Supply" is defined in s 9-10 of the GST Act to mean, relevantly:

(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;
- …
- (d) a grant, assignment or surrender of *real property;
- (e) a creation, grant, transfer, assignment or surrender of any right;
- …
- (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).

59. Section 9-25 provides for supplies connected to Australia; relevantly:

Supplies of goods wholly within Australia

(1) A supply of goods is connected with Australia if the goods are delivered, or made available, in Australia to the *recipient of the supply.
Supplies of goods from Australia

(2) A supply of goods that involves the goods being removed from Australia is connected with Australia .
Supplies of goods to Australia

(3) A supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either:

(a) imports the goods into Australia; or

(b) installs or assembles the goods in Australia.

ATC 14745

Supplies of real property

(4) A supply of *real property is connected with Australia if the real property, or the land to which the real property relates, is in Australia.
Supplies of anything else

(5) A supply of anything other than goods or *real property is connected with Australia if:

(a) the thing is done in Australia; or

(b) the supplier makes the supply through an *enterprise that the supplier *carries on in Australia; or

(c) all of the following apply:

(i) neither paragraph (a) nor (b) applies in respect of the thing;

(ii) the thing is a right or option to acquire another thing;

(iii) the supply of the other thing would be connected with Australia.

Example: A holiday package for Australia that is supplied overseas might be connected with Australia under paragraph (5)(c)

60. "Goods" is defined in s 195-1 to mean 'any form of tangible personal property'.

61. "Real property" is defined in s 195-1 to include:

(a) any interest in or right over land; or
(b) a personal right to call for or be granted any interest in or right over land; or
(c) a licence to occupy land or any other contractual right exercisable over or in relation to land.

62. Section 9-15 concerns "consideration" and relevantly provides:

(1) Consideration includes:
- (a) any payment, or any act or forbearance, in connection with a supply of anything; and
- (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.
(2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

63. "Recipient" is defined in s 195-1 to mean the entity to which the supply was made. Section 9-30(1) provides:

… a supply is GST-free if:

(a) it is GST-free under Division 38 or under a provision of another Act; or

(b) it is a supply of a right to receive a supply that would be GST-free under paragraph (a).

64. The relevant section under which ATS contends that any supplies made by it are GST-free is s 38-190, which provides (relevantly):

Supplies of things, other than goods or real property, for consumption outside Australia

(1) The third column of this table sets out supplies that are GST-free (except to the extent that they are supplies of goods or ^* real property):

Supplies of things, other than goods or real property, for consumption outside Australia

Item Topic These supplies are GST-free (except to the extent that they are supplies of goods or * real property)

1 Supply connected with property outside Australia a supply that is directly connected with goods or real property situated outside Australia.

ATC 14746
2 Supply to*non-resident outside Australia a supply that is made to a * non-resident who is not in Australia when the thing supplied is done, and:

(a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with * real property situated in Australia; or

(b) the * non-resident acquires the thing in *carrying on the non-resident's *enterprise, but is not *registered or *required to be registered.

3 Supplies used or enjoyed outside Australia a supply:

(a) that is made to a *recipient who is not in Australia when the thing supplied is done; and

(b) the effective use or enjoyment of which takes place outside Australia;

other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia.

4 Rights a supply that is made in relation to rights if:

(a) the rights are for use outside Australia; or

(b) the supply is to an entity that is not an * Australian resident and is outside Australia when the thing supplied is done.

5 Export of services used to repair etc. imported goods a supply that is constituted by the repair, renovation, modification or treatment of goods from outside Australia whose destination is outside Australia.

(2) However, a supply covered by any of items 1 to 5 in the table in subsection (1) is not GST-free if it is the supply of a right or option to acquire something the supply of which would be * connected with Australia and would not be * GST-free.

(2A) A supply covered by any of items 2 to 4 in the table in subsection (1) is not * GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of * real property situated in Australia that would be, wholly or partly, * input taxed under Subdivision 40-B or 40-C.

Note: Subdivision 40-B deals with the supply of premises (including a berth at a marina) by way of lease, hire or licence. Subdivision 40-C deals with the sale of residential premises and the supply of residential premises by way of long-term lease.

(3) Without limiting subsection (2) or (2A), a supply covered by item 2 in that table is not GST-free if:

(a) it is a supply under an agreement entered into, whether directly or indirectly, with a ^* non-resident; and

(b) the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

65.

ATC 14747

At issue is whether s 38-190 applies to the supplies so that they are GST-free and whether there is a distinction between accommodation and non-accommodation products.

THE CHARACTERISATION ISSUE

66. It is common ground that ATS made a supply to the NR Travel Agents. The primary issue is the characterisation of that supply. Both parties accept that "supply" is defined widely and have made submissions as to the essential nature of the transaction or dealing.

67. There is no dispute that ATS carries the onus of proving that the supplies by it to the NR Travel Agents were GST-free: s 14ZZO(b)(i) of the TA Act. Accordingly, it is not for the Commissioner to adduce positive evidence to support his construction of the contractual arrangements. The question is whether the supply, characterised on the basis of the available evidence, was:

• the supply of the booking and arranging of Products;
• the supply of the Products;
• the supply of a promise of performance; or
• an assignment of rights.

68. ATS' position is straightforward. It says that it only supplied booking and arranging services, that were not consumed in Australia, to the NR Travel Agent clients. It submits that it did not also supply rights to services or real property, or supply additional promises to the NR Travel Agents to ensure that the Products were provided to the NR Tourists.

69. ATS says that it agreed to engage or book the Australian Providers, as expressly chosen by its NR Travel Agent clients, to provide Products to NR Tourists. The consideration that ATS was paid, described as its "rates", included 'the cost of the services and our fee for arranging those services on your behalf'. If ATS' characterisation of its activities as supplying only such an arranging service is correct, then it is not controversial that the supply is GST-free by reason of s 38-190(1) item 2 of the GST Act.

ATS' supply to NR Travel Agents

70. The Commissioner's primary submission is that ATS promised the NR Travel Agents that the Products would be provided by Australian Providers. An alternative characterisation put forward by the Commissioner is that ATS itself acquired the rights to acquire the Products from Australian Providers and assigned them to the NR Travel Agents or, in the alternative, on-sold those rights.

71. It is not in dispute that it is necessary to look at the position of the taxpayer and the nature of the enterprise that it conducts in order to understand the application of the relevant provisions of the GST Act (
Commissioner of Taxation v Secretary to the Department of Transport (Victoria) (2010) 188 FCR 167 at [40] per Kenny and Dodds-Streeton JJ). ATS emphasises the importance of the contracts in determining the legal substance of the relationship between ATS and NR Travel Agents. However, it is not disputed that the proper characterisation of the supply, for the purposes of the TA Act, is not always answered by a mere contractual analysis and must be addressed having regard to the substance, purpose and commercial reality of the transactions:
Saga Holidays Ltd v Commissioner of Taxation (2005) 149 FCR 41 ( Saga First Instance );
Saga Holidays Ltd v Commissioner of Taxation (2006) 152 FCR 461 ( Saga Full Court );
Travelex v Commissioner of Taxation (2010) 241 CLR 510.

The contract between ATS and the NR Travel Agents

72. ATS relies on the Terms and Conditions as representing the terms of the contract between ATS and the NR Travel Agents. The Commissioner submits that the Terms and Conditions do not contain all of the terms of the contract, either express or implied.

The arrangements between ATS and the NR Travel Agents

73. It is helpful to repeat some aspects of the way in which arrangements were made between ATS and the NR Travel Agents, as taken from the agreed facts:

• The NR Travel Agents communicated with ATS electronically by means which may or may not have involved use of ATS' Tourplan program. Accordingly, not all of the NR Travel Agents would necessarily have accessed the Terms and Conditions.
• The Products listed on the ATS website as provided by the Australian Providers were

ATC 14748
selected by the NR Travel Agents for their clients, the NR Tourists.
• The NR Travel Agents requested ATS to book the selected Australian Providers and Products for specified NR Tourists.
• The NR Travel Agents paid ATS for the specified Products prior to arrival in Australia of the NR Tourists. It follows that payment was made to ATS before the Products were provided.
• In the umbrella agreements, ATS guaranteed availability and provision of Products.
• ATS entered into contracts with the Australian Providers as principal, whereby the Australian Providers provided Products to the NR Tourists and ATS was obliged to pay the Australian Providers.
• ATS provided each NR Tourist with a unique booking identification number which the tourist would quote to identify himself or herself to the Australian Provider.
• ATS generally issued invoices to the NR Travel Agents before the time that it was obliged to pay the Australian Providers.
• ATS issued invoices to the NR Travel Agents for a total amount which represented the amount that ATS was obliged to pay the Australian Provider plus the margin, which was a percentage of the total cost of the Products.
• The Terms and Conditions did not contain terms or conditions as to performance by ATS or by the Australian Providers.

ATS' characterisation of the express terms of the contract

74. ATS relies on the Terms and Conditions in the Tourplan contracts and on the Tourplan website which, it says, were incorporated into the dealing with the NR Travel Agents. The fees ATS charged were stated to be for the cost of the Products of the Australian Provider, plus an amount for its services in booking the Products. ATS emphasises that its service fees were not commensurate with the risk it would be undertaking if it assumed the responsibility for providing or ensuring the supply of those Products to the NR Tourists.

75. ATS contends that:

• Each invoice sent by it to a NR Travel Agent stated that the contracts were made pursuant to the Terms and Conditions and that no other set of terms and conditions has been identified.
• The initial page on the website, once a NR Travel Agent has logged in, showed the heading "Terms and Conditions". This act of bringing the terms and conditions to the NR Travel Agents' attention was sufficient notice to incorporate those terms and conditions into the contract (
Balmain New Ferry Co Ltd v Robertson (1906) 4 CLR 379 at 386). It is irrelevant that the NR Travel Agents may have ignored, and not ever read or agreed to, the Terms and Conditions, particularly as the NR Travel Agents may have been dealing with ATS for some years.
• As the Products were offered on the ATS website together with the Terms and Conditions, those terms were incorporated by conduct when the NR Travel Agent used email to request that ATS perform the service offered on its website.
• Where a NR Travel Agent wished ATS to assume the risk, the Tourplan standard contracts could be varied, as in the umbrella agreements.

76. ATS emphasises that the first step is to see what was in fact promised and that something that was not promised cannot be characterised as a supply. ATS says that the consideration in its contract with the NR Travel Agents is properly characterised as a rate which included the cost of the Products and the fee for arranging the Products on behalf of the NR Travel Agents. The business arrangement was consistent with that approach, says ATS, in that the documents that it prepared were information documents which were not vouchers and, in some instances, such documents were not prepared by ATS.

77. ATS contracted with the Australian Providers so that those providers would supply the relevant Products to the NR Tourist, not to the NR Travel Agents who were ATS' clients. ATS submits that the correct analysis is that when it booked an Australian Provider to supply Products, it did not itself supply those Products to its clients, the NR Travel Agents, or to the NR Tourist. The service that ATS

ATC 14749

provided was, it says, to arrange with and be liable to pay an Australian Provider nominated by the NR Travel Agent for provision by the Australian Provider of Products to the individual NR Tourist, as nominated by the NR Travel Agent. Clearly, ATS says, the only services described either in the Terms and Conditions or in the invoices were the services of arranging for someone else's Products, such as hotels and buses. This is not, ATS says, the language of 'our fee for supplying those services' or 'our fee for promising that someone else will honour the supply of those [Products]' or 'assign or on-sell'. Rather, ATS says, it is the service of arranging.

78. Why, ATS asks rhetorically, would it assume and expose itself to the risk of non-performance by a third party when it did not expressly say that it will and when the only fee charged, as so identified, was a fee for arranging for the provision of the Products?

The Commissioner's characterisation of the express terms of the contract

79. The Commissioner contends that the correct characterisation of ATS' supplies to the NT Travel Agents is the supply of the Products themselves, and that the contract between ATS and the NR Travel Agents contained an express term as to the provision of the Products by the Australian Providers and a promise by ATS as to such provision. The Commissioner also makes further submissions as to whether the Terms and Conditions represent the contractual relationship between ATS and the NR Travel Agents. I address these submissions below at [86] to [88].

80. There was no such term in the Terms and Conditions. It is not in dispute that the Tourplan contracts did not provide expressly that ATS would itself provide the Products or that ATS would ensure that they were provided by the Australian Providers.

81. There is no sufficient basis to conclude that such an express term was contained in the contract between ATS and the NR Travel Agent.

Was there an implied term in the contract?

82. The Commissioner submits that the contract between ATS and the NR Travel Agent contained the implied term that ATS promised that the Australian Provider would perform its obligations to the benefit of the NR Tourist and that ATS assumed an obligation, for example, that an adequate room would be provided, or a room of a particular kind, or that a car would be available.

83. ATS contends that there was no such implied term.

84. The test set out in
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283 for a term to be implied into a contract is not disputed. BP Refinery states that, for a term to be implied, the following factors must all be made out:

(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

85. ATS submits that these factors are not made out in regards to its contracts with the NR Travel Agents, as:

• Exposing ATS to responsibility for the default of Australian Providers cannot be said to be reasonable. An uncommercial windfall to ATS in the unusual circumstances of a Provider's default is not a permissible basis for implying a term;
• Imposing a positive obligation on ATS to ensure that the facilities were provided is neither reasonable nor equitable, as ATS did not have a means of ensuring that the Australian Provider supplied the Products to the Tourists as promised;
• Implying such a term is not necessary to give business efficacy to the contract. The express terms of the Tourplan contract itself protected the NR Travel Agents. Furthermore, the charging of a cost when there was no cost incurred could be recovered on ordinary principles (
Roxborough v Rothmans (2001) 208 CLR 516).
• ATS would have exposed itself to substantially greater risk if it had assumed the obligation of guaranteeing the provision of the Products by the Australian Providers. As a result, it cannot be assumed automatically, or for reasons of business

ATC 14750
efficacy, that ATS had taken on this obligation. ATS points to the absence of evidence that the fee charged by it was one that reflected the risk of assuming the warranting of the provision of the Products.
• The proposed implied term does not extend to 'lesser kinds of default', such as the provision of goods of a lesser standard than those booked - such as a standard, rather than deluxe, room. There is no commercial basis for suggesting that ATS had taken on the risk of the Australian Provider defaulting in this way rather than defaulting entirely.
• Any implied term would, at most, provide that, in the event of an Australian Provider's default, ATS would refund to the NR Travel Agent any pre-payment which was refunded by the Australian Provider or, alternatively, that ATS might take steps to recover that prepayment. Such implied terms fall 'far short' of implying the assumption of the obligation envisaged by the Commissioner. It is by no means 'so obvious that it "goes without saying"' that ATS would make such a promise and thus be liable in damages if the services were not provided by the Australian Provider.

86. The Commissioner submits that the Tourplan Terms and Conditions do not represent the contracts between ATS and the NR Travel Agent as, even if the Terms and Conditions were validly incorporated, they were not the only terms and conditions governing the contractual relationship between ATS and the NR Travel Agents. The Commissioner points to an absence of evidence suggesting that the NR Travel Agents either saw or agreed to the Terms and Conditions on ATS' website, as bookings could be made without visiting the page on which those terms were found. Further, even if NR Travel Agents making bookings through the ATS website saw the Terms and Conditions when doing so, at least half of the NR Travel Agents did not make their bookings in this way, but either made bookings via email or an XML link between their own software and ATS' website. The Commissioner submits that the evidence does not establish, and there is no evidence to suggest, that the Terms and Conditions were incorporated into such bookings.

87. The Commissioner argues that the terms of the contractual relationship between ATS and the NR Travel Agents should instead be inferred from the way in which transactions were carried out, in combination with the Terms and Conditions. The Commissioner submits, and ATS does not dispute, that the parol evidence rule does not apply where the determination is of the terms of the contract rather than the meaning of those terms (
State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191 per McHugh JA).

88. It is apparent that the Terms and Conditions do not represent the totality of the contract between ATS and the NR Travel Agents. For example, there is no reference in the Terms and Conditions to performance. Accordingly, the contract is not effective if limited to the Terms and Conditions. Similarly, it is so obvious that it 'goes without saying' that the NR Travel Agents would not have entered into a contractual relationship with ATS, and paid for the Products in advance of their provision to their clients, the NR Tourists, unless operating on a belief that they were being supplied with a promise that the Products would be provided to the NR Tourists.

89. In my view, a term was implied into the contract between ATS and the NR Travel Agents that ATS provided or ensured provision of the Products to the NR Tourists. Such a term fulfils each of the requirements as set out in BP Refinery and reflects the way in which the contracts were performed. It also reflects the "Obligations of the Supplier" term found in the umbrella agreements between ATS and certain NR Travel Agents. A more detailed basis for the finding of an implied term is set out below in the analysis of the nature of the transaction between ATS and the NR Travel Agents.

Acquiring and on-selling rights

90. In the alternative to establishing the existence of an express or implied promise, the Commissioner contends that there had been an assignment or on-supply of rights by ATS to the NR Travel Agents.

91.

ATC 14751

ATS contends that this is without any factual foundation, as there is no evidence of any such assignment, or of any notice of such an assignment being given to the Australian Providers. ATS' invoices do not identify any charge for the assignment of rights, and there is no suggestion that the NR Travel Agents sought to obtain, or did obtain, the promise of an assignment of rights from ATS. ATS submits further that there is no evidence to suggest that ATS either offers, or has been requested to secure rights for assignment to the NR Travel Agents. ATS further submits that the contention is inconsistent with the facts. Specifically, ATS points out that there is no evidence that the NR Travel Agent was prepared to take the risks that would be connected with an assignment of rights. The fact that only ATS can enforce contractual rights against the Australian Providers also demonstrates, ATS says, that it has not on-sold or assigned those rights.

92. The Commissioner submits that unless the NR Travel Agents obtained a promise from ATS that they would be supplied with the Products or the rights thereto they would have no 'comfort' that they could supply the Products to their clients, the NR Tourists.

93. I do not accept that ATS assigned or on-sold its rights as against the Australian Providers or in respect of the Products to the NR Travel Agents. There is no evidence to support it. It is inconsistent with the contract between ATS and the NR Travel Agents and there is no evidence of it in the contract between ATS and the Australian Provider. It is also inconsistent with ATS' role in receiving payment for the Products and making that payment after the Products have been provided to the NR Tourists. It is also inconsistent with the role played by ATS in some circumstances in relation to the delivery of Products, such as theme park tickets, to the NR Tourists. Commercially, it also makes some sense for ATS to retain those rights rather than to transfer them to non-resident parties.

An alternative basis for the characterisation of the supply

94. The Commissioner, perhaps recognising that the contract between ATS and the NR Travel Agents does not contain the additional express term, and contending that the characterisation of the supply is not always answered by a mere contractual analysis, submits that the "substance, purpose and commercial reality of the transactions" was that ATS promised the NR Travel Agents that the NR Tourists would be provided with the Products by the Australian Providers in accordance with the bookings made by ATS. On this basis, if there was a default by the Australian Provider, the NR Tourist would have rights against the NR Travel Agent, which would have rights against ATS, which would have rights against the Australian Provider. In this way, the NR Travel Agent could gain some comfort that they would be able to supply to the NR Tourists the actual products themselves, or the rights thereto.

The Commissioner's characterisation of the supply

95. It is clear, says the Commissioner, when one looks at the four parties involved and the nature and circumstances of the dealing that, for example in the case of Mr and Mrs V, ATS was either making a promise that would ensure that Mr and Mrs V were provided with the hotel room they had requested, or alternatively ATS was itself supplying the right to said hotel room through the supply chain and with regard to the flow of consideration.

96. The Commissioner points out that it is not in dispute that ATS contracted with Australian Providers in relation to the provision of Products to the NR Tourists, the clients of the NR Travel Agents. The Commissioner asks rhetorically: why would ATS contract with the Australian Providers and make itself liable to pay, and in due course actually pay, if it did not promise to the NR Travel Agents that it would, for example, ensure that the hotel provide the specified accommodation to the NR Tourists, or on-supply the rights that it had acquired? Why would ATS go to the lengths of entering into a contract with the Australian Provider under which it became liable for payment, if all that it did was make a booking?

97. The Commissioner illustrates these steps in a diagram of the supply chain. The Commissioner characterises the arrangements as imposing an obligation on ATS to ensure that the NR Tourists were provided with the

ATC 14752

Products by the Australian Providers in accordance with the bookings made by ATS.

98. The Commissioner submits that the relevant arrangements were as follows:

• a NR Tourist contracted with a NR Travel Agent to supply it with certain Products comprising a holiday in Australia;
• in order to fulfil its obligations to the NR Tourist, the NR Travel Agent contracted with ATS as a result of which:
- (i) ATS supplied a contractual right or promise to the NR Travel Agent that the Australian Providers would provide those things to the NR Tourist; or
- (ii) alternatively, ATS supplied those things, or the rights thereto, to the NR Travel Agent; and
- (iii) ATS issued a tax invoice to the NR Travel Agent prior to the NR Tourist embarking upon their trip to Australia.
• ATS contracted with Australian Providers who:
- (i) supplied a contractual right or promise to ATS that they would provide the Products to the NR Tourist; or
- (ii) alternatively, supplied the Products, or the rights thereto, to ATS;
- (iii) issued tax invoices to ATS after the NR Tourist had consumed and enjoyed the benefit of the Products, which ATS paid; and
- (iv) ultimately the Australian Providers provided the Products to the NR Tourists in accordance with their contracts with ATS.

ATS' characterisation of the supply

99. ATS submits that the following principles are applicable to the identification of the relevant "supply":

• As discussed above (at [71]), the starting point in applying the relevant provisions of the GST Act should be the position of the taxpayer and the nature of the enterprise that it conducts (Department of Transport at [40] per Kenny and Dodds-Streeton JJ).
• The Court should first look at the contract to identify the relevant supply.

ATC 14753
• There can be no difference between a contractual analysis and a characterisation of a supply when the supply is entirely contractual. In this proceeding, there is no factual basis for characterisation of the supply other than the contract. The Court cannot identify the supply as having a characteristic other than one which is determined by looking at whether or not the promise exists in the contract.
• The only way to characterise the "substance, purpose and commercial reality" of the transactions is to examine the promises contained in the contracts made.
• Although in
Travelex Ltd v Federal Commissioner of Taxation (2010) 241 CLR 510 at 524 Heydon J spoke of the 'pith and substance of the transaction', there is nothing in that decision that suggests that a transaction can be given a legal characterisation which does not otherwise exist.

100. ATS summarises the service that it provided as follows:

• ATS set out and maintained on its website a comprehensive list of Australian Providers and the services they offered that ATS believed would be attractive to its NR Travel Agent clients.
• ATS nominated the rates it charged should bookings be made. Specifically, its terms provided that 'Rates include the cost of services and our fee for arranging those services on your behalf'. The fee charged by ATS was calculated to cover its costs in contracting with the nominated Australian Provider and to provide it with what it considered to be an acceptable margin for making that arrangement.
• ATS invited NR Travel Agents to make offers for it to book specified services for the specified rates through its website.
• Upon receiving an enquiry, ATS sought confirmation of availability (where necessary) from the Australian Provider, totalled the prices and put together a quote for the NR Travel Agents' clients' consideration.
• After confirmation of all details from the NR Travel Agents, ATS accepted the NR Travel Agents clients' offers. ATS charged the NR Travel Agents the sum of the individual rates for each of the Products that it undertook to book.
• ATS supplied its services to its NR Travel Agent clients immediately, by making the requested bookings with the respective Australian Providers. It liaised with the NR Tourists to ensure that all details were provided as required by the Australian Providers.
• ATS was paid its fees prior to the provision of any Products, unless credit terms were agreed. Where an Australian Provider required the payment of a deposit from ATS, ATS would seek its deposit from the NR Travel Agent.
• Once ATS had received confirmation that the Australian Provider had provided the Products to the NR Tourists, ATS paid the Australian Provider. ATS contends that this was the service that the Australian Providers provided to ATS.

101. Diagrammatically, ATS set out the arrangements as follows:

ATC 14754

102. ATS contends that the nature of its enterprise was not to supply the Products, nor to ensure that the NR Tourist clients of NR Travel Agents were provided with the Products. Rather, ATS contends, the nature of its enterprise was to check availability and price, and then book the requested Products with Australian Providers.

103. ATS submits that the proper analysis of its enterprise and the relevant supply is as follows:

• ATS allowed the NR Travel Agents to put together their own tour package as they saw fit from the Tourplan website.
• ATS supplied booking/arranging services to its NR Travel Agent clients for the fee charged. That supply was taxable unless GST-free under s 38-190 of the GST Act.
• The NR Travel Agents then asked ATS to make the necessary bookings. That is, ATS' NR Travel Agent clients acquired booking/arranging services from ATS.
• Neither the NR Travel Agents nor the NR Tourists were in substance interested in ATS. They were interested in the Australian Providers set out on ATS' website.
• ATS was not itself equipped to provide the Products, nor did it have any rights to supervise the provision of the Products by the Australian Providers. Moreover, ATS had no discretion and thus no ability to reduce its risk by selecting its own Providers.
• ATS says that it was engaged to book the Products, not to provide them and that it did not charge its clients for what was, in effect, an additional performance guarantee. Further, ATS contends, the promise to ensure performance would be an additional supply without consideration by the Australian Providers. Rather, it points out, the Terms and Conditions stated that the 'rates include the cost of services and our fee for arranging those services on your behalf'. This, ATS says, identifies the service provided and merely recites the fact that the cost was included. The invoices drew a similar distinction. ATS says that the recitation of the cost was a convenient and essential bookkeeping record.
• The NR Travel Agents' object was to have the Australian Providers that they, rather than ATS, selected, booked by ATS. ATS

ATC 14755
provided a convenient service to facilitate this object, just as the NR Travel Agents might have provided a similar service in their own countries.
• The NR Travel Agent clients made separate supplies to the NR Tourists in accordance with their specific packages of Products put together by the NR Travel Agents with the assistance of ATS' booking/arranging services.
• Those NR Travel Agent clients were not required to be registered for GST (following amendments to the GST Act, referred to by Stone J in Saga Full Court at [7]).
• The Australian Providers made two separate supplies:
- (i) The supply of services (for example, a balloon ride or a hire car) to the NR Tourist for no consideration and for which no tax invoice was given; and
- (ii) The supply of services to ATS, being the service of the providing (or promising to provide) services to the NR Tourist, for consideration and for which a tax invoice was given to ATS as the recipient of the supply.
• The bulk of ATS' fee was to be passed on to the Australian Providers, leaving it a margin hardly commensurate with the additional risks that such a promise would involve.

104. While the contractual terms are an important part of the characterisation of supply under the GST Act, regard must also be had to the substance, purpose and commercial reality of the transactions, including such aspects of the transactions that are necessary to understand them, as to which the contract is silent. Both parties refer to Saga First Instance and Saga Full Court. Saga, a travel agent in the United Kingdom, contracted with an Australian enterprise AOT Group Pty Ltd ( AOT ). AOT entered into agreements with Australian providers for the provision of accommodation to Saga's clients. AOT was invoiced by the Australian providers and paid for the accommodation. Justice Conti found that under the contracts Saga agreed to provide accommodation in nominated hotels on nominated dates. Referencing UK authority, his Honour stated (at [113]) that 'a distinction may have to be drawn between the supply of a product or service for instance by a sub-contractor, and the arrangement of the supply of that product or service by the principal, albeit per medium of a third party or parties'. Justice Conti held that 'what falls ultimately to be appraised… [is] a distinct statutory notion of supply', which must be determined in a substantive sense. His Honour commented further that the notion of supply in a statutory GST context 'is conceptually broad, looking at what is to be ultimately supplied to a person exercising the role or function of a consumer of the subject matter of the supply'. His Honour concluded that what was supplied was 'a holiday, an essential part of which included the supply of a right of occupation exercisable over hotel rooms allocated to those same customers during the course of the tour': Saga First Instance at [113]. The Commissioner draws an analogy between the position of AOT and that of ATS and contends that Conti J's reasoning applies to the supply by ATS to the NR Travel Agents.

105. On appeal, Stone J (with whom Gyles and Young JJ agreed) observed (at [29]) that the Court adopts a purposive approach to the interpretation of the GST Act, rejecting strict grammatical analyses in favour of a consideration not only of the syntax but also of the policy and the surrounding legislative context of the relevant provision, and stated that GST is appropriately described as a "practical business tax", as liability to pay the tax arises at various stages of the supply chain. However that does not mean, her Honour said (at [30]), that there is some special canon of construction that should be applied when interpreting the GST Act.

106. Both parties rely upon Stone J's reasoning in Saga Full Court. Her Honour said (at [34]):

The contract between Saga and a tourist was one whereby Saga promised to provide the tourist with certain accommodation. Had the tourist not been supplied with the promised accommodation Saga would have been in breach of this contract. This is true irrespective of the fact that Saga was not in a position to provide the accommodation itself and was relying on its arrangements

ATC 14756
with AOT to enable it to fulfil its contractual obligations to the tourists. It is also irrelevant to this analysis that the accommodation had not been appropriated to the contract (even by AOT) at the time the contract was made and that, had Saga breached the contract, specific performance would not have been an available remedy. The question remains, was there a supply of real property under the contract?

107. In answering this question, her Honour held that there had been a supply of real property (as defined in the GST Act) which was relevantly connected with Australia because the right to the property, the subject of that right, was situated in Australia. Justice Stone said (at [38]) that the contract between Saga and the tourist could accurately be described as including 'a contractual right exercisable … in relation to land' and that the promise of accommodation in the named hotels gave the tourists a right exercisable 'in relation to land'. Her Honour said that it was not necessary that Saga itself had rights in relation to the relevant land and that the contractually binding promise was sufficient. Her Honour concluded that to the extent that the provision of the actual accommodation by the relevant hotel was a supply by the hotel, it was not a taxable supply because it was made without consideration.

108. Justice Young, who delivered additional reasons, said (at [65]) that the contractual obligation that Saga assumed in making a contractual promise to its tour customers for valuable consideration was that it would provide hotel accommodation in Australia as an integral part of a package tour. His Honour stated that the corresponding contractual right that Saga conferred on its customers fell squarely within s 9-10(2)(d) and (g) as a 'supply' for the purposes of the GST Act. Further, the customer's contractual right fell within paragraph (c) of the definition of "real property" in s 195-1. His Honour also emphasised the broad and flexible language of the GST Act which, together with the nature, policy and surrounding legislative context, indicate that the Court should construe the GST Act in a practical and commonsense way. This does not, his Honour said, conflict with the proposition that the nature of the supply by Saga needed to be 'carefully characterised in order to determine whether it was connected with Australia within the meaning' of the GST Act. This in turn necessitated a careful examination of the contract between Saga and its customers and between Saga and AOT.

109. The present case is also analogous, ATS contends, with the facts in Department of Transport, concerning the operation of the Multi Purpose Taxi Program ( MPTP ), which provided a 50% subsidy in respect of the metered cab fare for disabled passengers. Participation in the MPTP was a condition attached to the grant of a taxi licence, and taxi-cab operators were obliged to provide transport to MPTP Members in consideration for the 50% fare subsidy paid by the Department of Transport ( DOT ). The majority of the Full Court found that there were two supplies, being the supply of transport to the MPTP Member and the supply to the DOT of the transport to the MPTP Member. ATS says that it is notable that the Full Court did not find that the taxi-cab operator provided transport to the DOT but that the operator instead provided DOT with the service of transporting the MPTP Member. ATS contends that, similarly, when ATS booked an Australian Provider, ATS did not itself supply those Products to the NR Travel Agent but supplied the service of booking.

110. There are a number of difficulties with ATS' characterisation.

111. ATS says that it was the NR Travel Agents who promised the NR Tourists that the Products would be provided. However, the NR Travel Agents had no contractual or other rights as against the Australian Providers. Such rights were held by ATS, which gave the instructions and made the payments to those Providers. The same logic as set out by Stone J (Saga Full Court at [34]) applies to a promise by ATS to the NR Travel Agent concerning the provision of accommodation to the NR Tourist. By analogy, the NR Travel Agent can promise the NR Tourist that he or she will be provided with accommodation, even if the NR Travel Agent could not itself provide that accommodation.

112. ATS says that it provided its booking/arranging service to the NR Travel Agent immediately after receiving notification from the NR Travel Agent regarding what Products were desired. It says further that its service was

ATC 14757

to book the specified Product with the Australian Provider for provision to the NR Tourist and that it was 'promised by the Australian Provider' that the Product would be provided to the NR Tourist as specified. ATS was paid by the NR Travel Agent once it had made the specified bookings. However, it only paid the Australian Provider once the Products were provided to the NR Tourist. ATS submits that this involved the Australian Provider fulfilling its promise to ATS and thereby providing its Product to ATS. This characterisation does not, in my view, address the reality of the situation whereby, so far as the Australian Provider was concerned, the Products were provided on ATS' instruction, for the person nominated by ATS and, upon delivery of the Product and notification of that fact to ATS, ATS paid for the Product. All the Australian Providers' dealings were with ATS. While, as ATS emphasises, the Tourplan contract does not provide expressly that ATS would itself provide the Products, or would ensure that they were provided by the Australian Providers, the fact is that the only party able to ensure that provision was ATS.

113. ATS points out that the margin that it charged over the cost of the services was not commensurate with the risk to which it would be exposed if it provided or ensured the supply of the Products. However, it provided no evidence as to the commercial viability (or lack thereof) of a system where ATS only charged a margin on the cost of the Products but was liable for the provision of the booked Products, or as to such matters as frequency of default, or the relationship between ATS and the Australian Providers.

114. Furthermore, although ATS argues that it would be commercially vulnerable if held to have promised to supply the Products, under its characterisation of supply the NR Travel Agent would have received nothing more than an arranging service, which would leave that party in a highly vulnerable commercial position. If there were any failure of consideration or a mistake in the provision of the service, the NR Travel Agent would have no right of action against ATS because ATS had done everything that it was obliged to do under the terms of the contract. The NR Tourist would have a right of action against the NR Travel Agent, which would then have no recourse to ATS if ATS had properly completed the booking. ATS points out that it played no part in the choice of Products, as that was in the hands of the NR Tourist and the NR Travel Agent. ATS also contends that it had no control over the Products which were listed by the Australian Providers, and 'was not equipped to ensure that the Products would be provided at all, or to a particular quality… [and that it has] no discretion… [and] no ability to reduce its risk by selecting its own Providers'. However, this would mean that the NR Travel Agent assumed the risk if there was a default by the Australian Provider, with no recourse other than for a refund by ATS for the cost of the Products not supplied at all, or for a refund of ATS' margin if ATS had failed to arrange for the Products to be made available to the NR Tourist. If there was a complete or partial default by the Australian Provider and the NR Tourist sued the NR Travel Agent, that travel agent would have no recourse against ATS and ATS would be entitled to keep its "booking" fee, the margin. As discussed further below at [116], ATS says that, in such circumstances, the cost component would be zero, as it did not pay for Products until they were supplied, so that component would be refunded. However, neither the Tourplan contract nor the ATS website make specific provision for such refund so, in ATS' case, it is necessary to go beyond the express terms of the contract. Further, the contract's express terms do not extend to situations where there was partial or inadequate supply.

115. As the Commissioner submits, if ATS' characterisation of the transaction were correct, ATS was entitled to retain the margin and cost of the Product in the event that the Australian Provider defaulted. On ATS' construction, neither the NR Tourist nor the NR Travel Agent could recover from ATS. ATS says that the unusual circumstance of a windfall advantage to it where it was paid for Products which were not supplied or inadequately supplied is not sufficient to expose it to the responsibility for default. It is, ATS says, neither reasonable nor necessary for business efficacy and it is not obvious that ATS would be liable in damages for Products arranged for and not provided. ATS says that if the Products were not provided

ATC 14758

at all, the cost component would be refunded. This also served to minimise risk to ATS.

116. ATS says that in the event of a non-supply of services by the Australian Provider, ATS would be obliged to refund the cost component to the NR Travel Agent, as the "cost" component actually incurred would be nil. ATS would either not have paid the Australian Provider, or would recover from the Australian Provider. ATS draws an analogy with
Roxborough v Rothmans (2001) 208 CLR 516 which, while distinguishable on the facts, considered a tax component, calculated by reference to the value of tobacco which had been supplied. Chief Justice Gleeson, with whom Gaudron and Hayne JJ agreed, said (at [17]):

… there are cases, of which the present is an example, where it is possible, both to identify that part of the final agreed sum which is attributable to a cost component, and to conclude that an alteration in circumstances, perhaps involving a failure to incur an expense, has resulted in a failure of a severable part of the consideration. Here, the buyers, the retailers, were required to bear, as a component of the total cost to them of the tobacco products, a part of the licence fees which the seller, the wholesaler, was expected to incur at a future time, and which was referrable to the products being sold. It was in the common interests of the parties that the fees, when so incurred, would be paid to the revenue authorities by the seller, and it was the common intention of the parties (and the revenue authorities) that the cost of the goods would include the fees. In the events that happened, the anticipated licence fees were not incurred by the seller. The state of affairs, which was within the contemplation of the parties as the basis of their dealings, concerning tax liability, altered. And it did so in circumstances which permitted, and required, severance of part of the total amount paid for the goods.

That is, Roxborough suggests that the cost component and the charge for ATS' booking services were severable.

117. However, ATS acknowledges that, under its construction of the contract, it would not be liable for a partial failure of performance by the Australian Providers - that is to say, a situation where the Product supplied to the NR Tourist was of a lower standard or content than the one booked. It was entitled to retain the cost and the margin in the event of default by the Australian Provider. If the "cost" component changed, for example if the hotel provided a cheaper room at a cheaper cost, ATS would have to refund the difference but if a hotel were not provided to the promised standard but the "cost" component remained the same, ATS would not have to compensate the NR Travel Agent or NR Tourist. ATS says that it is not the case that it had somehow promised that the NR Tourist would actually get the room that had been booked and that it had not promised that it would ensure that the Australian Provider provided the correct Product. ATS says that all that it had promised to do was to book or reserve the Product and, provided that no mistake was made in that booking, ATS had performed its function.

118. On neither the construction contended for by ATS nor the construction contended for by the Commissioner would the NR Tourist have contractual rights against the Australian Provider in this situation, although the NR Tourist would have had an action against the NR Travel Agent. A question that arises in the consideration of the nature of the supply by ATS is the consequence of a failure on the part of the Australian Provider to provide the Products, in whole or in part. If the NR Travel Agent could establish negligence in the booking itself against ATS, it would have rights against ATS on either characterisation of the contract. If there was no supply of Products, the NR Travel Agent would only have rights against ATS.

119. ATS acknowledges, and indeed relies on, the fact that there is no evidence of any assignment by ATS to the NR Travel Agents of any licences or contractual rights under ATS' contracts with the Australian Providers, or any promises that ATS would provide any of the Products. It asserts that the NR Travel Agents never acquired any contractual rights against the Australian Providers. At the least, it says, as the NR Travel Agents remained out of Australia, any on-sold rights regarding non-accommodation services would be GST-free.

ATC 14759

On ATS' analysis, the NR Travel Agent would not have any rights over the Products and, accordingly, would not have a right that could be the subject of a contract between that travel agent and the NR Tourist.

120. In my view, it is not a sufficient answer to say that in the circumstances of a Provider's default or provision of a lower quality Product, ATS could or would refund the cost of the Product. ATS says that it only arranged services and made no promises, express or implied, to the NR Tourists under the Tourplan contracts. This was the case, ATS says, whether or not the NR Travel Agents were making supplies to their clients of personal contractual rights, exercisable against only those NR Travel Agents and whether or not such personal rights extended to what ATS seems to concede were contractual rights exercisable over or in relation to land.

121. ATS' characterisation is, in my view, less realistic than the alternative proposed by the Commissioner. The "neutral" role ATS asserts that it occupied is not necessarily to be inferred. ATS was both the route by which the Products were secured, and the only party with contractual rights against the Australian Provider. It is not realistic that a NR Travel Agent would have been left without recourse where the Product was inadequate, although it remained liable to the NR Tourist.

Supply of 'a promise'

122. There was no promise or express condition that ATS would ensure that Products were provided to tourists when they came to Australia. Equally there is no explicit support for the obligation of arranging a Product. However, when all of the relevant facts and circumstances are considered, the inference is that there was a promise, relevantly, that ATS would ensure that when the NR Tourists came to Australia and, for example, arrived at a hotel, they would be provided with a room which they believed that they had paid for in advance.

123. Accordingly, I accept the Commissioner's submission that in order to fulfil its obligations, ATS supplied the NR Travel Agent with a contractual right or promise that the Australian Providers would provide the Products to the NR Tourist. The critical supply was the supply made by ATS to the NR Travel Agent, which was a component of a packaged tour or a right thereto, which also included a contractual promise to the NR Travel Agent that ATS would ensure that the Products were supplied to the tourists.

124. Thus, from the entirety of the arrangements, the commercial reality of the transactions between the parties as to the supply of, for example, a hotel room can be characterised in context are as follows:

• ATS contracted with the Australia Provider and essentially obtained the right to occupy the hotel room for a period of X days.
• ATS incurred a contractual liability to pay for the room.
• When ATS then confirmed the availability of the room to the NR Travel Agent at the quoted price, it was essentially promising, having paid for and acquired that right, that when the NR Tourist arrived at the hotel, that tourist would be able to stay in that room and that it had already been paid for.
• ATS was liable to pay the Australian Provider and the NR Travel Agent paid ATS Pacific in a single figure which represented ATS' cost of securing the accommodation plus a margin which is expressed as being the fees or costs associated in arranging the accommodation.

125. Matters that support a characterisation of the relevant supply as the supply of a promise that ATS would ensure the provision of the Products include:

• The ATS Website states: 'Rates include the cost of services [ie. accommodation and non-accommodation Products] and our fee for arranging these services on your behalf" and on the invoices, '[t]his invoice covers the cost of supplying goods and services listed above and our services in arranging these supplies on your behalf. This promise may amount to a covenant that ATS would supply the actual Products, or the rights thereto, to the NR Travel Agents.
• The NR Travel Agents promised the NR Tourists that they would supply the Products. The only rights that the NR Travel Agents had were those secured by ATS from the Australian Providers. The NR Travel Agents promised the NR Tourists that they

ATC 14760
would supply the Products. As the Commissioner asks rhetorically, 'how … could the NR Travel Agents have made such a supply unless they themselves acquired those rights?'. The only rights that the NR Travel Agents had were those secured by ATS from the Australian Providers.
• The NR Travel Agent agreed to pay consideration that comprised of the cost of the Products plus a margin; the margin was the "cost of services".
• The invoice provided one figure for the consideration payable. It did not provide separate figures for the Products and the Margin.
• The terms and conditions on the ATS website provided for cancellation fees. These would have been unnecessary if ATS was simply providing a "booking" or arranging service and was entitled to its fee immediately after making the arrangements, regardless of whether the Australian Providers were ultimately required to provide the Products.
• ATS confirmed booking arrangements with the Australian Provider three weeks before the NR Tourist travelled to Australia. It is not clear why ATS would have taken this further step if it had not promised that the Australian Providers would provide the Products to the tourists.
• The "travel vouchers", providing tangible documentation to the NR Tourists of their Australian itineraries:
- ○ were issued by ATS or NR Travel Agents. ATS would not have issued these vouchers unless it had made a promise that the Products would be supplied and the NR Travel Agent would not have issued the vouchers unless it had received the same promise;
- ○ identified ATS as the "local agent" in Australia for the NR Travel Agent, to be contacted with any "errors and problems" in relation to the Products while the NR Tourists were in Australia; and
- ○ where vouchers were for "entry fee bookings", they were essential to gain admission to an attraction, such as Dreamworld, suggesting that the admission rights were therefore assigned to the NR Tourist. Therefore, ATS promised that, upon presentation of the voucher, the Australian Provider would provide the Product.
• Invoices were issued shortly prior to the NR Tourists embarking on their travel, rather than invoices being issued by ATS upon the making of a booking.
• Australian Providers were only paid by ATS upon consumption of the Products by NR Tourists.
• ATS contends that "one cannot see" the promise it allegedly made to the NR Travel Agents to ensure that the products were provided. However, nowhere in the Tourplan contract does it state that all that ATS supplied was an "arranging service". Instead, the ATS website's Terms and Conditions do state that ATS' rates "include the cost of services and our fee for arranging those services on your behalf."
• Where umbrella agreements were entered into by ATS and certain NR Travel Agents, they included covenants that the Australian Providers would provide the Products to NR Tourists. For example, in the Riksja Online Agreement (which was extracted above at [32]), ATS took 'full responsibility' for the Products and guaranteed the availability and provision of the products. If the Products were not supplied, Riksja Online could sue ATS.

126. These factors are consistent with a promise made by ATS to the NR Travel Agents that the Australian Providers would provide the Products to the NR Tourists.

Policy considerations

127. As discussed above, the GST Act should be interpreted by this Court in light of the policy and surrounding legislative context of the relevant provisions (Saga Full Court at [29] per Stone J). The Commissioner contends that his characterisation is consistent with the policy of the GST Act as a tax on private consumption of goods and services within Australia. He says that if ATS' construction were preferred, no GST would be collected on any of the accommodation, goods and services consumed in Australia by NR Tourists but the GST imposed by the Providers when they

ATC 14761

invoiced ATS would be recovered by ATS by way of input tax credits. The Commissioner contends that this cannot be a result contemplated by the Australian legislature.

128. In response to these submissions, ATS argues that this represents an a priori, not purposive, approach to construction and that the Court should not infer that Parliament intended to achieve what it has not expressed. Moreover, ATS submits that Parliament has, since 2005, effectively provided some NR Travel Agents with a choice as to whether they register for GST through amendments allowing their taxable supplies of Australian holiday packages to be disregarded from the turnover threshold for GST registration: s 188-15(3)(b) of the GST Act. The Supplementary Explanatory Memorandum that introduced this provision states that it was designed to allow entities to refrain from registering for GST remittal (or deregister if already registered) in regards to the supply of Australian holiday packages: Tax Laws Amendment (2005 Measures No. 1) Bill 2005, Supplementary Explanatory Memorandum at 7. Therefore, ATS submits, if the NR Travel Agent chose to register or was otherwise required to register for GST, GST was collected on the Australian holiday packages enjoyed by NR Tourists. GST would only not have been collected in respect of these packages if the NR Travel Agents were not otherwise required to register for GST remittal because of low turnover. ATS contends that this was expressly intended by Parliament.

129. There is some merit to ATS' submission that the Commissioner's submissions reflect an a priori, rather than purposive approach to construction. However, ATS' contentions are equally susceptible to the argument that the Court should not infer that Parliament has intended to achieve what it has not expressed. The Supplementary Explanatory Memorandum states that the relevant amendments will achieve the desired outcome by ensuring that supplies of 'rights or options to use accommodation in Australia, where the supply is not made in Australia and is made through an enterprise the supplier does not carry on in Australia are not taken into account in working out if the entity is required to be registered for GST purposes'. The amended provision provides the example of a supply of a holiday package for Australia supplied overseas, such as the supply of holiday packages by the NR Travel Agent to the NR Tourists: GST Act, s 9-25(5). Neither the Supplementary Explanatory Memorandum nor the amended provisions evince sufficient legislative intention to deal with the supply of rights or options when such supply is made in Australia, such as that made through an Australian company like ATS.

130. Accordingly, I do not consider the policy considerations advanced by either the Commissioner or ATS sufficiently persuasive to argue against the characterisation adopted.

IS THE SUPPLY BY ATS GST-FREE BY REASON OF S 38-190 OF THE GST ACT?

131. ATS contends that its supply of arranging services to NR Travel Agents falls within item 2 of s 38-190(1) of the GST Act (the s 38-190 exemption ) and is therefore GST-free. The s 38-190 exemption provides that a supply will be GST-free where made to a non-resident who is not in Australia when the thing supplied is done, providing that the supply is:

(a) … neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or
(b) the non-resident acquires the thing in carrying on the non-resident's enterprise but is not registered [for GST] or required to be registered.

132. There are a number of exclusions to the s 38-190 exemption. Relevantly, the introductory text to the table in s 38-190(1) states that it sets out supplies that are GST-free 'except to the extent that they are supplies of goods or real property'. Additionally, s 38-190(2) provides that a supply covered by this exemption will not be GST-free 'if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free'. Furthermore, without limiting s 38-190(2), s 38-190(3) provides that a supply covered by the exemption will not be GST-free if:

(a) it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident; and

ATC 14762
(b) the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

133. ATS contends that its services fell within the s 38-190 exemption as:

• it only supplied booking and arranging services to non-residents - the NR Travel Agents - and those services were not consumed in Australia; and
• the Products consumed in Australia were supplied by other parties.

134. The s 38-190 exemption applies, ATS contends, even if it acquires and on-sells its rights to the NR Travel Agents.

Supply of real property

135. As established above, ATS supplied not only a booking/arranging service but also the promise that it would ensure that Australian Providers provided Products, including rooms, to NR Tourists. ATS submits that even if it made this promise, it does not amount to a supply of "real property" within the scope of being excluded from the operation of the s 38-190 exemption. Accordingly, it submits, if it made no supply of "real property", it is not necessary to consider whether its service is or is not a supply directly connected with real property situated in Australia, as ATS supplied services to non-residents and the s 38-190 exemption is satisfied.

136. This submission should be rejected. The supply of such a promise in regard to accommodation facilities situated in Australia amounts to the supply of real property connected with Australia within the definitions of "supply of real property" and "real property" in ss 9-10(4) and 195-1 of the GST Act. The latter definition includes, but is not necessarily restricted to, relevantly, 'any contractual right exercisable over or in relation to land'. In considering similar facts, Stone J in Saga Full Court found that the promise of accommodation in named hotels gave tourists a right exercisable 'in relation to land' (at [38]). In this case, the NR Tourist has been supplied by ATS with a right exercisable over the booked accommodation. This supply does not fall within the scope of the s 38-190 exemption and is accordingly not GST-free.

Supply of non-accommodation services

137. ATS contends further, and in the alternative, that its supplies relating to non-accommodation services were GST-free. It contends that the supply of non-accommodation services cannot be said to either be a supply of "real property" or subject to any relevant exclusion from the s 38-190 exemption. ATS says that, whatever may be the position with respect to the provision of accommodation, the provision of its services in relation to non-accommodation facilities was GST-free, as such supplies are not subject to any relevant exclusion from the s 38-190 exemption.

138. This submission is not accepted. Section 38-190(1) provides that the s 38-190 exemption does not apply to 'supplies of goods'. Accordingly, non-accommodation components of the Products that are appropriately characterised as the supply of goods (such as car hire or meals) are not GST-free.

139. The supply of non-accommodation components of the Products properly characterised as the supply of services (such as a tour, or land transport) are also not GST-free. The supply of such services by ATS Pacific amounts to a supply under an agreement with a non-resident (the NR Travel Agent) in circumstances where the supply is provided, or the agreement requires it be provided to another entity (the NR Tourist) in Australia: s 38-190(3). Accordingly, the supply of these services does not fall within the scope of the s 38-190 exemption.

Supply of a promise

140. ATS says that if there were a supply by ATS of a promise that a third party, the Australian Provider, would provide Products to the NR Tourists, such supply is GST-free and does not fall within the exclusions to the application of the s 38-190 exemption, as:

• Both of the alternative conditions in the s 38-190 exemption are satisfied. The service was neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property in Australia, and the NR Travel Agent acquired the service in carrying out the NR Travel

ATC 14763
Agents' enterprise but was not registered or required to be registered.
• It is not the supply of goods or real property: s 38-190(1).
• It does not fall within the exclusion in s 38-190(2), as it is not the supply of a right or option to acquire something, the supply of which is connected to Australia and would not be GST-free.
• It does not fall within s 38-190(3) because while it is a supply under an agreement entered into with a non-resident, the supply is not provided or required to be provided to another entity in Australia. Rather the supply is the promise to the NR Travel Agent that the Australian Provider would perform.

Accordingly, says ATS, it falls within the s 38-190 exemption and is not affected by any of the exclusions to the operation of this exemption.

141. It is not necessary, ATS contends, to decide whether the arranging services are connected with real property in Australia, because the second alternative condition in the s 38-190 exemption is satisfied - that is to say that the supply was made to the NR Travel Agents in the course of their enterprise, and the NR Travel Agents are not registered or required to be registered for GST. ATS contends that this analysis applies to both accommodation and non-accommodation services. This is so even if ATS acquires and on-sells rights to its clients. Additionally, ATS contends that the outcome is "sensible", as the nature of the service to be provided to the NR Tourist is of indifference to ATS.

142. In response, the Commissioner says that s 38-190 would be excluded from operation by the operation of s 38-190(2). The Commissioner submits that s 38-190(2) is enlivened by the fact that there was a supply of a right to acquire the Products, the supply of which would be connected with Australia and is not be GST-free. The Commissioner contends that the word 'acquire' in this context has its ordinary meaning of "obtain", or "get one's own", such that ATS supplies a right for an NR Tourist to obtain, for example, accommodation or a coach transfer (
Lock v Commissioner of Taxation (2003) 129 FCR 1 at 18;
Allina Pty Ltd v Respondent of Taxation (1991) 28 FCR 203 at 209). The Commissioner submits that the supply of Products is within the definition of "connected with Australia" in s 9-25(1), (4) and (5) of the GST Act as the Products comprise:

• goods delivered or made available in Australia such as car hire;
• the supply of real property such as accommodation in a hotel where the land to which the real property relates is situated in Australia; or
• the supply of services (such as a tour) in circumstances where that service is performed in Australia.

143. The Products were consumed in Australia by NR Tourists. That provides a sufficient connection with Australia for the purpose of s 38-190(2) of the GST Act. It is incorrect to characterise the on-sold supplies as not having any connection with Australia. This is said to be because the NR Travel Agents were out of Australia when they acquired those rights. This, as the Commissioner says, "misses the point". Section 38-190(2) operates to make the supply taxable because it is a supply of a right or option to acquire something (ie. Products to be consumed in Australia) which would be connected with Australia. Thus, because the Products would be consumed within Australia, there is a sufficient connection with Australia.

THE MARGIN

144. As previously stated, ATS charged NR Clients a fee that included the amount ATS would be required to pay to Australian Providers, plus a margin. The margin was calculated as a percentage of the total amount. This much is not in dispute.

145. ATS put forward an alternative argument in the event that the Court agreed with the Commissioner that the relevant "supply" was of accommodation, goods and services, or rights thereto. That is that the margin that was charged by ATS for its arranging services, considered separately, is GST-free. This contention rests on the characterisation of the margin as separate consideration for, or in connection with, the supply of those arranging services and not consideration for, or in connection with, any

ATC 14764

supply of real property or a component of a holiday package.

146. It is common ground that the supply of booking services is GST-free pursuant to item 2 of the table in s 38-190 of the GST Act.

147. ATS submits that there are two supplies encompassed by its contract with the NR Travel Agent. One is the supply of the promise to ensure that the Australian Provider provides Products, and the other is the booking and arrangement of that service. The fee that is charged represents the totality: the cost which has to be met and a charge for the service of booking.

148. As to a separation of the elements of the payment, the Commissioner points out that the invoice given to the NR Travel Agent contained a single figure. Although the Commissioner does not dispute that an additional figure was added on to the direct cost of the provision of the Products, he argues that the additional figure does not represent a separate supply. The Commissioner characterises the margin as one similar to that which applies to any other retail product that is sold: a margin charged by the retailer over the cost price. The Commissioner submits that the "separate fee" is not separate at all but simply a margin or a mark-up on the provision of the supply, or the provision of the right to occupy the room that is on-sold or, alternatively, 'it's a mark-up on the promise, the cost of the promise, that ATS makes' that the hotel provide the accommodation. He likens the fee to a "mark-up", analogous to the one experienced when purchasing a watch from a store, and submits that the margin is simply a subsidiary or ancillary fee and should not be regarded as a distinct or separate service. Furthermore, even if it is a separate service, the Commissioner contends that it is simply subsidiary or ancillary to the primary component of the supply, and should not be regarded as a separate supply. The Commissioner contends that it is inseparable from the provision of the Products.

149. I reject the Commissioner's submissions as to the characterisation of the margin. The contract with the NR Travel Agents makes a distinction between the Products supplied and ATS' fee for arranging for that supply. As such, there were two separate supplies: the Products and the supply of ATS' arranging services. The consideration for the latter was the margin. That fee was not consideration for the supply of the Products. It is clear that ATS charged an independent percentage margin for arranging for the Products. If the Products were not supplied by the Australian Provider, ATS refunded the cost of the Products. It did not refund the margin.

150. The arranging service supplied by ATS was not merely ancillary or incidental to the supply of the Products. The NR Travel Agents contracted expressly with ATS on the basis that they were obtaining the arranging services supplied by ATS in addition to the Products supplied to their clients. The arranging service constituted an object for the NR Travel Agents and a service for its own sake. It does not contribute to the proper performance of the Products.

151. Here, the service of booking the Products with the Australian Providers was a service sought for its own sake, rather than as 'a means of better enjoying the principal service' (
Customs and Excise Commissioners v Madgett & Anor (t/a Howden Court Hotel) [1998] BTC 5,441 at [24]).

152. The parties have not separately identified the amount of GST which is attributable to the margin. The parties agree that if ATS is not successful on its primary submission on the totality of the GST for each supply but is successful in establishing a separate cost of providing a service as part of the total remuneration received from the NR Travel Agent, the parties be given an opportunity to agree upon a figure or that it be referred to the Commissioner for the determination of that amount.

THE REFUND ISSUE

153. The final issue in these proceedings concerns ATS' potential entitlement to a refund of the GST it paid for the relevant tax periods. This issue only arises if the first or the second issues are determined in favour of ATS and ATS has therefore overpaid GST during the relevant tax periods. If ATS is found to have overpaid GST, then, apart from the application of s 105-65 in Schedule 1 of the TA Act, it is common ground that the Commissioner must refund the excessive payments to ATS.

154.

ATC 14765

ATS does not seek recovery of GST paid by it prior to 1 April 2005.

Tax periods prior to 30 June 2008

155. The dispute between the parties concerns the operation of s 105-65 in Schedule 1 of the TA Act in the tax periods prior to 30 June 2008. At that time, s 105-65 provided:

(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.

156. If s 105-65 applies to the tax periods prior to 30 June 2008, it provides the Commissioner with a discretion to refuse to refund GST to ATS. ATS accepts that such a discretion exists under s 105-65, but contends that for the periods up to 30 June 2008, s 105-65 did not confer a discretion on the Commissioner to deny ATS a refund of overpaid GST in the circumstances of this case.

ATS' submissions

157. ATS contends that it mistakenly remitted GST to the Commissioner. On the basis, which I have not accepted, that ATS did not make a supply of the promise to ensure that the Australian Providers perform what they are meant to perform, or make a supply of an assignment or an on-sale of those rights, ATS overpaid GST on the premise that such a supply had occurred. For the relevant tax periods, ATS had mistakenly considered that for GST purposes, it was acquiring rights to accommodation and rights to non-accommodation services and on-supplying those rights to its NR Travel Agent clients. This was based upon ATS' reliance upon the ATO's published view to that effect.

158. ATS contends that it mistook that it was making a supply of rights to accommodation and non-accommodation services, rather than a mistake as to the GST treatment of supplies made by ATS. ATS contends that s 105-65 is not applicable where there is in fact no supply by ATS and no acquisition by the NR Travel Agent of real property or other facility, but ATS wrongly assumed that there was. This faulty assumption was made in reliance on publications of the Commissioner as to whether the services provided by ATS were taxable supplies.

159. Section 105-65, according to ATS, did not apply to a supply that was treated as a taxable supply. The section only applied to an actual taxable supply. As a result, if ATS were correct as to the characterisation of its "supply" to the NR Travel Agents, then there was no taxable supply and s 105-65 did not enliven a discretion to refuse to refund an overpaid amount. If there was a promise made then ATS accepts that it is not entitled to a refund.

160. For this construction of s 105-65, ATS relies on the decision of Emmett J in
KAP Motors Pty Ltd v Commissioner of Taxation (2008) 168 FCR 319, where his Honour considered s 105-65 in the relevant form. In particular, ATS relies on his Honour's statement (at [35]) that this provision was 'limited to circumstances where there is a supply that is not a taxable supply. It does not in its terms extend to some transaction that does not involve a supply within the meaning of the GST Act'.

161. The Commissioner contends that for s 105-65 to apply, it is sufficient if the taxpayer treats a GST-free supply as a taxable supply and pays GST for the tax period accordingly. Section 105-65, the Commissioner contends, draws a distinction in (a) and (b) between "a supply", being a defined term, and a supply that is a taxable supply. "A supply", as defined in section 9-5 of the GST Act, includes supplies that are not taxable supplies, namely GST-free or input taxed supplies. The Commissioner contends that s 105-65 will govern the

ATC 14766

provision of a refund where the taxpayer treats a supply as taxable, whatever the reason.

162. KAP Motors does not, according to the Commissioner, exclude the operation of s 105-65 in the particular circumstances of this case. The Commissioner submits that this case can be distinguished on its facts. The relevant transaction in KAP Motors was the payment of a rebate or "holdback payment" by a motor vehicle distributor upon the sale of each new motor vehicle to a retail dealer. These holdback payments formed no part of either the dealership agreements or the "floor plan agreements" under which a vehicle distributor would sell the motor vehicles, as ordered by the retail dealer, to a finance company who would then bail the vehicles to a retail dealer until such time as the vehicle was sold to the dealer and then on-sold to the customer. The dealers had mistakenly believed that these payments constituted consideration for taxable supplies, and remitted GST to the Commissioner. The Commissioner subsequently ruled that these payments did not constitute consideration, but refused to provide the dealers with a refund of the mistakenly remitted GST, contending s 105-65 should be interpreted as including 'purported suppl[ies]' (see KAP Motors at [29]). The Commissioner submits that, critically, in KAP Motors, Emmett J was (at [27]) 'invited to proceed on the assumption that there has been no supply within the meaning of the GST Act'.

163. It is common ground in this case that that ATS did make a supply to the NR Travel Agents. I accept the Commissioner's submission that KAP Motors should be distinguished, as it is the nature of ATS' supply, rather than its existence, that is presently in dispute. The Commissioner did have a discretion under s 105-65 to deny ATS a refund of overpaid GST before 30 June 2008.

Tax periods from 1 July 2008

164. For the periods from 1 July 2008, it is common ground that the amended version of s 105-65 in Schedule 1 of the TA Act conferred a discretion on the Commissioner to deny a refund to ATS. The amended version of s 105-65(1)(a) provides:

… you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply, or an *arrangement was treated as giving rise to a taxable supply, to any extent; …

165. ATS and the Commissioner had previously disagreed as to whether the Commissioner had exercised the discretion provided under s 105-65. ATS contends that the Commissioner had exercised the discretion to decline to refund the overpaid tax, and that this discretion had miscarried. The Commissioner contends that since he did not consider there to be an overpayment, the issue did not arise and the discretion had not been exercised. The parties agree that if a discretion on the part of the Commissioner were enlivened, the appropriate course would be to remit the matter to the Commissioner to consider whether to exercise the discretion under s 105-65 of Schedule 1 of the TA Act.

CONCLUSION

166. The contract between ATS and the NR Travel Agents contains no express term as to the provision of the Products by the Australian Providers. However, the characterisation of supplies for the purposes of that Act cannot always be answered by a mere contractual analysis and must consider the substance, purpose and commercial reality of the transactions. The analysis of the entirety of the relationship between ATS and the NR Travel Agents makes it clear that in order to fulfil its obligations, ATS supplied the NR Travel Agents with a contractual right or promise that the Products would be provided to the NR Tourists.

167. There was also an implied term to the effect that ATS supplied a promise to the NR Travel Agents that the Australian Providers would provide the Products to the NR Tourists was implied into the contract between ATS and the NR Travel Agents.

168. The supply of this promise that the Products would be provided does not fall within the scope of the s 38-190 exemption and accordingly is subject to GST.

169. The arranging/booking service provided by ATS was not merely ancillary or incidental to its supply of a contractual right to the provision of the Products. It was a service sought for its own sake. Accordingly, it was

ATC 14767

GST free pursuant to item 2 of the s 38-190 exemption.

170. For the tax periods between 1 April 2005 and 30 June 2008, s 106-65 of Schedule 1 of the TA Act conferred discretion on the Commissioner to refuse to refund GST. For the periods from 1 July 2008, it was common ground that the amended version of this provision conferred this discretion.

Orders

171. The parties should provide proposed consent short minutes of order giving effect to these reasons, and including orders regarding costs, within fourteen [14] days. If there is no consent, then each party should provide proposed short minutes of order giving effect to the reasons within fourteen [14] days, as well as written submissions in support. These submissions should not exceed two [2] pages in length.

This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.

Individuals online services

Business online services

Agents online services

Non-residents online services

Foreign Investor