Commissioner of Inland Revenue v Motorcorp Holdings Ltd and Ors

[2005] NZCA 33
CA17/04

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(Decision by: William Young J)

Between: Commissioner of Inland Revenue - Appellant
And: Motorcorp Holdings Ltd - First Respondent
        BMW New Zealand Ltd - Second Respondent
        Continental Vehicle Distributors Ltd - Third Respondent
        German Motor Distributors Ltd - Fourth Respondent
        Daimler Chrysler New Zealand Ltd - Fifth Respondent
        European Motor Distributors New Zealand Ltd - Sixth Respondent
        Schofield and Co Ltd - Seventh Respondent
        Hyundai Automotive New Zealand Ltd - Eighth Respondent
        Scandinavian Vehicle Distributors Ltd - Ninth Respondent

Court:

Judges: McGrath J
Hammond J

William Young J

Hearing date: 15 February 2005
Judgment date: 7 March 2005

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Decision by:
William Young J

[78] I see the s 5(13) issue as a red herring.

[79] It is agreed on both sides that the subsection does not literally apply; albeit that this is for different reasons. The Commissioner maintains that the subsection does not apply as the warranty arrangements are not by way of insurance or guarantee. The car companies maintain that the subsection does not apply because the circumstances are covered by the proviso to s 5(13).

[80] In those circumstances, s 5 should be applied as if 5(13) did not exist.

[81] With s 5(13) out of play, the key question is whether there is a supply for the purpose of s 5(1). This issue depends upon whether the payments (or credits) as between the manufacturers and the car companies are to be categorised as:

(a)

Compensation for loss (being the discharge of obligations to indemnify in relation to the underlying warranties); or

(b)

Payment for taxable supplies made by the car companies.

[82] The arrangements in the present case are sufficiently similar to those considered in Suzuki for it to follow that the car companies must be regarded as having made taxable supplies to the manufacturers. Mr Fardell, for BMW New Zealand Limited, accepted that, in the absence of the s 5(13) argument, Suzuki was indistinguishable. This was not accepted by the other respondents but Mr Morten's attempts to distinguish the arrangements affecting his clients from those which were involved in Suzuki were unpersuasive.

[83] In those circumstances, I am satisfied that the appeal must be allowed.

[84] I recognise that this approach is not in accordance with the way in which the issues in the case were identified by the parties, see [10] above. Those issues were predicated on the assumption that if the key arrangements between the manufacturers and car companies were in the nature of contracts of insurance, this was decisive of the case in favour of the car companies. That is certainly the way in which Venning J addressed the case in his judgment. However, in this Court Mr Coleman for the Commissioner advanced the argument which I have accepted. Although counsel for the car companies were understandably troubled by the raising of a new argument on appeal, they did not seek to argue that the way in which the issues were identified in the High Court precluded consideration of the argument. Nor were they able to point to the sort of prejudice which would justify us declining to hear a new legal argument.

[85] Underpinning the arguments advanced in support of the cross-appeal is the contention that GST is not payable on replacement parts imported into New Zealand. Mr Coleman said that this contention is not based on any provision in the Act but rather on the practice of the Customs authorities. I am not sure that this is right. My impression is that the "transaction value" of such a part, assessed in accordance with the Second Schedule to the Customs and Excise Act 1996 would be zero dollars. I say that this is only my impression because the Second Schedule was not discussed in any detail in front of us and, in the absence of detailed discussion, it would not be right to express a concluded view.

[86] Both the arguments advanced in support of the cross-appeal seem to me to fail on the facts. The car companies and their downstream distributors did not separately identify "replacement parts" either as and when they were imported into New Zealand or in their spare parts inventories. Rather, as I understand it, customs GST was paid on the FOB value of the parts as they were imported. This means that the argument rests on ideas of economic equivalence. The car companies say that the transactions which take place when the manufacturers honour warranty claims made by the car companies should be treated notionally as the manufacturers supplying replacement parts and should thus be treated as non-taxable. But, this argument - despite its repackaging - seems to me to be fundamentally the same as that which was rejected by this Court in Suzuki.

[87] I am by no means unsympathetic to the position of the car companies. There is a real sense in which there is a double impost of GST on the chains of transaction which ultimately produce what in substance is a single supply to the end-user of a car which works over the period covered by the warranty in question. The reality, however, is that the issues of principle which determine this case were settled by Suzuki. The correctness of Suzuki was not directly in issue before us and given the subsequent legislative changes, it is hardly a prime candidate for reconsideration in this Court.

[88] Accordingly I would dismiss the cross-appeal.

Counsel: J H Coleman and G R Withers for Appellant

M P Reed QC and P Morten for First, Third, Fourth, Fifth, Sixth, Seventh and Eight Respondents

J R F Fardell QC and J Long for Second Respondent