QUEENSLAND HARVESTERS PTY LTD v FC of T

Members:
PE Hack SC DP

Tribunal:
Administrative Appeals Tribunal, Brisbane (heard in Townsville)

MEDIA NEUTRAL CITATION: [2009] AATA 351

Decision date: 15 May 2009

PE Hack SC (Deputy President)

Introduction

1. During the year ending 30 June 2005 the applicant, Queensland Harvesters Pty Ltd (Harvesters), carried on business as the supplier of labour to primary producers in the Bowen and Gatton areas. It had both employees and sub-contractors.

2. The present case concerns the entitlement of Harvesters to claim "input tax credits" for payments said to have been made by it to some of its sub-contractors in the four quarters of that year. There are, as well, issues concerning the penalties imposed by the respondent, the Commissioner of Taxation, for what the Commissioner contends is the failure of Harvesters to comply with the requirements of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act) and the Taxation Administration Act 1953 (Cth) (the Administration Act).

An overview of the legislation

3. It is as well to start with an explanation of the GST legislation. It is a sufficient description of the overall operation of the GST Act to say that it makes an entity liable to pay goods and services tax (GST) when the entity makes a "taxable supply", an expression defined as including the supply of goods and the supply of services. An entity that makes "creditable acquisitions" is entitled to an "input tax credit" when it acquires goods or services for the purpose of carrying on its enterprise.

4. An entity that is "carrying on an enterprise" and whose turnover meets a prescribed threshold is required by s 23-5 of the

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GST Act to be registered under the GST Act. Upon registration, an entity is given an Australian Business Number (ABN). It must account to the Commissioner periodically for the difference between the amount of GST payable on taxable supplies and input tax credits. That accounting is done by a "GST return" generally known as a Business Activity Statement or BAS.

5. The particular issue that arises in this case is the requirement to hold a "tax invoice" at the time the entity provides a GST return to the Commissioner. That requirement is imposed by s 29-10(3) of the GST Act in these terms:

  • "(3) If you do not hold a *tax invoice for a *creditable acquisition when you give to the Commissioner a *GST return for the tax period to which the input tax credit (or any part of the input tax credit) on the acquisition would otherwise be attributable:
    • (a) the input tax credit (including any part of the input tax credit) is not attributable to that tax period; and
    • (b) the input tax credit (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that tax invoice.

    However, this subsection does not apply in circumstances of a kind determined in writing by the Commissioner to be circumstances in which the requirement for a tax invoice does not apply."

6. The requirements for a tax invoice are set out in s 29-70(1) of the GST Act as follows:

  • "(1) A tax invoice for a *taxable supply:
    • (a) must be issued by the supplier, unless it is a *recipient created tax invoice (in which case it must be issued by the *recipient); and
    • (b) must set out the *ABN of the entity that issues it; and
    • (c) must set out the *price for the supply; and
    • (d) must contain such other information as the regulations specify; and
    • (e) must be in the *approved form.

    However, the Commissioner may treat as a tax invoice a particular document that is not a tax invoice."

Where, as is the case with all invoices in issue here, the amount payable for the supply exceeds $1000, s 29-70.01(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 specifies the further information required for a tax invoice in these terms:

  • "(2) If the total amount, including GST, payable for the supply or supplies to which the tax invoice relates is $1 000 or more, the tax invoice must contain the following information:
    • (a) the words 'tax invoice' stated prominently;
    • (b) the date of issue of the tax invoice;
    • (c) the name of the supplier;
    • (d) the name of the recipient;
    • (e) the address or the ABN of the recipient;
    • (f) a brief description of each thing supplied;
    • (g) for each description, the quantity of the goods or the extent of the services supplied."

7. It is necessary to notice, as well, certain provisions of the Administration Act. Sub-section 12-190(1) of Schedule 1 to the Administration Act requires an entity proposing to pay an amount to another entity for a supply to withhold an amount from that payment unless one of the exceptions in ss 12-190(2) to (6) applies.

8. One exception, created by s 12-190(2), arises if, at the time the payment is made, the recipient entity has given the payer an invoice that quotes or purports to quote the recipient's ABN number. The other exception relevant to this case is created by s 12-190(3) in these terms:

  • "(3) The payer need not withhold an amount under this section if, when the payment is made:
    • (a) the other entity has given the payer an *invoice that relates to the *supply and purports to *quote the other entity's *ABN, or the payer has some other document that relates to the supply and purports to *quote the other entity's ABN; and

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      (b) the other entity does not have an ABN, or the invoice or other document does not in fact quote the other entity's ABN; and
    • (c) the payer has no reasonable grounds to believe that the other entity does not have an ABN, or that the invoice or other document does not quote the other entity's ABN."

9. The withholding rate during the 2004/2005 year was 48.5%, prescribed by reg. 38 of the Taxation Administration Regulations 1976 (Cth).

Background

10. I did not understand what follows to be in dispute. Mr Brett Lu was, at all material times, the sole director and member of Harvesters. Mr Lu's father, Mr Ty Lu, is involved in the business of Harvesters and was described by Harvesters' accountants as:

"an employee labourer and the driver of the bus that takes people to and from work. He is the paddock supervisor and looks after the field work and also finds the staff when needed and advises them when there is no work."[1] Exhibit 1 at p. 212.

11. Harvesters has been registered under the GST Act since October 2002. It accounts for GST quarterly and on a cash basis. It accounts for tax instalments deducted from employee wages on a monthly basis. Mr Brett Lu maintains Harvesters basic accounting records using a popular accounting software package. Harvesters employed an external accountant, Mr Hugh Richardson, whose firm, Richardsons Taxation Services, is based in Bowen.

12. As I understood Mr Brett Lu's evidence, Mr Ty Lu operated, during the material times, in Bowen while Mr Brett Lu remained in Gatton. When Harvesters was required to pay a sub-contractor Mr Ty Lu would speak to Mr Brett Lu on the telephone and tell him the amount of the cheque to be drawn and the name of the sub-contractor to whom the money was to be paid. Mr Brett Lu drew a cheque in favour of cash, recorded the name of the sub-contractor on the cheque butt and posted the open cash cheque to Mr Ty Lu. As Mr Brett Lu explained the situation Mr Ty Lu then gave the cheque to the sub-contractor. Presumably the sub-contractor cashed the cheque and used part of the proceeds to pay the sub-contractor's employees.

13. Thereafter Mr Ty Lu would forward the supplier's invoice to Mr Brett Lu. Mr Brett Lu explained to me that he paid no heed to the invoices when they were received but when the time came to prepare the BAS he would enter information from cheque butts and invoices into the accounting programme. Mr Richardson's firm used this information to prepare and lodge the quarterly GST returns.

14. In late April 2005 members of the Commissioner's staff based in Toowoomba made arrangements to undertake an inspection of Harvesters records in which it was proposed "to validate … invoices for purchases and sales and assess … record keeping practices for the period 01 October, 2004 to 31 December, 2004."[2] Exhibit 1 at p. 74. This visit took place on 5 May 2005. According to Mr Brett Lu's statement[3] Exhibit 8. the officials "wrote down various ABN's which were not correct" and pointed out deficiencies in the invoices inspected. In both his statement and in his oral evidence Mr Brett Lu claimed that the officials told him that it was not up to him to check the details on invoices. His oral evidence about these conversations was quite vague and entirely unsatisfactory. I find it difficult to place any reliance upon his evidence.

15. On 19 May 2005 the Commissioner forwarded a letter to Harvesters advising that, based on the information reviewed, it was not proposed to revise the BAS for the examined period. The letter continued:

"If we need to re-open enquiries at some future time, we will write to you."

16. Subsequently in about June 2006 a more detailed audit of Harvesters' GST compliance was undertaken by other officials and invoices and other records for all four quarters of the 2004/2005 financial year were obtained and examined. That led the Commissioner to conclude that Harvesters had claimed input tax credits to which it was not entitled and had failed to withhold the amount required to be withheld in cases where the recipient had not quoted an ABN.

17.

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The result of the audit was that the Commissioner concluded:

18. On 16 May 2007 the Commissioner made assessments of GST liability payable for the four quarters based upon the audit. On 22 May 2007 assessments were made for tax shortfall penalty of $13,712.25 and failure to withhold penalty of $18,241.20.

19. Harvesters lodged a notice of objection to these assessments in June 2007. The objection was determined on 9 November 2007. The objection, insofar as it related to the assessment of GST liability, the imposition of tax shortfall penalty and the remission of tax shortfall penalty, was disallowed. The objection was allowed to the extent of reducing the penalty for failure to withhold by $8,911.23[4] The basis of this reduction is discussed in paragraph [44] below. . Thereafter, Harvesters lodged an application in the Tribunal[5] Application 2008/0011. on 2 January 2008.

20. On 7 March 2008 the Commissioner made amended assessments of the GST net amount. The overall liability for the 2004/2005 year remained unchanged but adjustments were made to each of the quarterly assessments. It seems likely that the Commissioner made these amendments without regard to the terms of s 26 of the Administrative Appeals Tribunal Act 1975 (Cth). In the course of the hearing, and with the agreement of the parties, I gave consent nunc pro tunc to alter the original decisions in the way reflected by the amended assessments in order to overcome any procedural irregularity.

21. Harvesters objected to the assessments[6] The notice of objection objected, unnecessarily, to all of the Commissioner’s assessments, even those that had not been altered by the amended assessments. by notice dated 3 April 2008. That objection was disallowed on 3 June 2008 and that decision is the subject of Application 2008/2780, lodged in the Tribunal on 24 June 2008.

The invoices

22. Harvester's payment register showed that during the 2004/2005 year 42 payments were made to sub-contractors totalling $246,914. Input tax credits of $18,283 were claimed during this period. Thirty-six invoices, apparently from five separate entities, were provided by Harvesters to the Commissioner however Harvesters claimed input tax credits in respect of only 27 of these invoices. The five suppliers, as described on the documents, were "Jung Sei Hung", "Khanh Fruit Picking", "F & T Harvesting", "Tuan & Huyen" and "Minh". The parties have agreed[7] Exhibit 2. that none of Jung Sei Hung, Khanh Fruit Picking, Tuan & Huyen or Minh were registered under the GST Act. There is no agreement in relation to the other supplier, F & T Harvesting, however the unchallenged evidence of Mr Edwin Dover, an employee of the Commissioner, satisfies me that that entity was not registered at any material time.

23. All of the invoices supplied are hand-written in the carbonised invoice or docket books available at newsagents or stationers. Curiously, the invoices from two seemingly separate suppliers, Jung Sei Hung and Khanh Fruit Picking, appear to have originated from the same book and handwritten details on them have been completed in the same hand.

24. For a variety of reasons, none of the invoices comply with the requirements of a valid tax invoice. The defects are as follows:

Entitlement to an input tax credits

25. Logically, the first issue is whether Harvesters was entitled to input tax credits in the amount of $18,283 claimed during the 2004/2005 year. I should first deal with an argument raised by the Commissioner at the hearing. It concerned the turnover, or likely turnover, of the five suppliers. It arises in this way. One of the requirements of a "creditable acquisition" and thus the entitlement to claim an input tax credit is that the supply to the recipient is "a taxable supply"[9] See s 11-5, GST Act. . Only a supplier who is registered, or required to be registered, under the GST Act can make a taxable supply[10] See s 9-5, GST Act. . None of the suppliers in issue in this case are registered. They would be required to be registered if, amongst other things, they had an annual turnover of $50,000.

26. By reference to what is known of the suppliers the Commissioner submits that it is open to me to conclude that none of the suppliers were required to be registered with the result, it is said, that Harvesters is not entitled to claim an input tax credit on any of the goods or services supplied by these suppliers. I do not find it necessary to decide the point. I accept that Harvesters has the onus of proving that the assessments are excessive and I accept as well that the Commissioner's Statement of Facts and Contentions put in issue whether these five suppliers were required to be registered. That being so, it was for Harvesters to demonstrate that each of the suppliers were required to be registered if it sought to demonstrate the first requirement for claiming an input tax credit, the Commissioner having put the matter in issue[11] See Exhibit 17, paragraph 49. .

27. But, that said, it seemed to me to be plain at the hearing that Harvesters and those who advised it simply had not come to grips with the notion that it was required to demonstrate that the suppliers were required to be registered under the GST Act. That deficiency was sought to be remedied by the provision of a submission made on behalf of Harvesters after the conclusion of the hearing. The matters contained in the submission ought to have been part of the evidence of Mr Brett Lu at the hearing. No attempt was sought to elicit this evidence from him. It is quite unsatisfactory to seek to demonstrate these matters post-hearing. Moreover I entertain considerable doubt whether the asserted facts, even if properly proved, demonstrate that any of the suppliers were required to be registered. Ultimately I need not decide the point. I propose, instead, to dispose of the matter on the basis of the

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argument presented by Harvesters at the hearing.

28. As has been seen, the legislation gives the Commissioner (and thus the Tribunal in his place) discretion to treat as a tax invoice a document that is not a tax invoice. Given that none of the invoices in issue satisfy the statutory requirements Harvesters submits that that discretion ought be exercised favourably to it. I am unable to agree.

29. Understandably, the Commissioner has developed policy guidelines for the exercise of this discretion. The relevant policy document is GST Ruling 2000/17. It deals with the exercise of the discretion in s 29-70(1) in these terms:

  • "39. There may be other special circumstances that arise for which the Commissioner will treat a document as a tax invoice that does not satisfy all the requirements. For example, you may claim an input tax credit without knowing that the tax invoice for the acquisition does not fully satisfy the requirements of subsection 29-70(1). For example, the ABN shown may not be the correct number.
  • 40. The Commissioner may treat this document as a tax invoice if you claimed the input tax credit while exercising reasonable care and acting in good faith. Reasonable care requires that you exercise the care that a reasonable, ordinary person would exercise to fulfil that person's tax obligations. A person exercising reasonable care may make an honest mistake based on reasonable grounds."

30. I doubt that "special circumstances" need be shown as the Commissioner's Ruling suggests. Nothing in the legislation suggests that that ought be so[12] Cf. Dixon v Federal Commissioner of Taxation 2008 ATC ¶20-015 ; (2008) 167 FCR 287 at 21. . Nonetheless it seems to me to be consistent with the legislation to exercise the discretion favourably to a person exercising reasonable care and acting in good faith. But I am unable to conclude that Mr Brett Lu, as the controlling mind of Harvesters, exercised reasonable care. I need not decide whether he acted in good faith.

31. The starting point is that none of the 36 invoices satisfied the requirements of the legislation. The discretion might be more readily exercised in the case of isolated instances however the fact that none of the invoices comply with the requirements suggests that Mr Brett Lu simply took no care at all. His evidence confirms that that was the case. He drew a cheque in payment of the invoice on the basis of a phone call from his father and without having seen the invoice. When the invoices arrived from his father he did not examine them but put them aside until the time came to prepare the quarterly GST return. He cannot possibly have given the invoices any scrutiny that might have amounted to taking reasonable care because even the most perfunctory scrutiny of these invoices would have demonstrated the flaws in them. As Ms Tonel, for the Commissioner, points out, the form of invoice that Harvesters uses for its transactions demonstrates an awareness of the requirements of the legislation.

32. Mr Richardson, the accountant for Harvesters, argued that it was not the fault of Harvesters that some of these suppliers used fraudulent ABN's. As a general proposition that might be right but these invoices were handwritten and completely devoid of any real detail identifying the supplier of the goods or services and were provided in the context of an industry where tax evasion is notorious. Mr Brett Lu's evidence amply demonstrated that he did not exercise any care at all, he was recklessly indifferent to the requirements of the legislation. I would not exercise the discretion to treat the invoices as tax invoices in these circumstances.

33. Mr Richardson also made much of the fact that the initial examination of the second quarter invoices led to the Commissioner determining to take no further action. Whatever may have been said it cannot possibly have had any bearing upon the present case. The Commissioner's visit in May 2005 and the letter of 19 May 2005 post-dated all of the invoices here so it cannot be suggested that Mr Brett Lu accepted any of these invoices on the basis of any representation by the Commissioner as to the requirements of a valid tax invoice. Mr Brett Lu does not make that suggestion, instead the contention is that it is "not fair" for the Commissioner to take a different view following a more detailed examination. The letter of 19 May 2005 made it plain that the Commissioner might "re-open enquiries" if the need arose in the future. The

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argument for Harvesters cannot be accepted. It does not provide any basis for the exercise of the discretion in s 29-70(1) of the GST Act.

34. On either or both of these bases I would affirm so much of the Commissioner's objection decision that disallowed the objection to the assessment of GST liability on the basis that Harvesters was not entitled to input tax credits of $18,283.

Tax shortfall penalty

35. Tax shortfall penalty is governed by Division 284 of Schedule 1 to the Administration Act. It is enough to note that liability to penalty arises when a taxpayer or an agent for a taxpayer makes a statement to the Commissioner which is false or misleading in a material particular and there is a shortfall amount as a result of the statement. Here there were false or misleading statements because in each GST return Harvesters claimed input tax credits to which it was not entitled. That resulted in a tax shortfall, that is, Harvesters' tax liability for the periods was less than it would have been had the statements not been false and misleading.

36. None of this is in contest. There are two issues that arise from the arguments of Harvesters. The first is the level at which penalties ought be imposed, that is, the base penalty amount. The other is whether there ought be a reduction of the base penalty amount because of "voluntary disclosure".

37. The base penalty amount is determined by characterising the cause of the shortfall. The task is performed by s 284-90(1) of Schedule 1 to the Administration Act which, so far as is presently relevant, imposes penalty of 75% of the shortfall if the shortfall resulted from intentional disregard of taxation law and a penalty of 50% where the shortfall resulted from recklessness on the part of the taxpayer or taxpayer's agent.

38. Once that determination is made the Administration Act prescribes factors that warrant an increase or decrease in the base penalty amount. The only factor suggested as having any relevance is that in s 284-225 of Schedule 1 to the Administration Act which allows for a reduction in the base penalty amount by 20% if:

  • "(a) the Commissioner tells you that a *tax audit is to be conducted of your financial affairs for that period or a period that includes that period; and
  • (b) after that time, you voluntarily tell the Commissioner, in the *approved form, about the shortfall or the part of it; and
  • (c) telling the Commissioner can reasonably be estimated to have saved the Commissioner a significant amount of time or significant resources in the audit."

39. In the present case the Commissioner determined during the assessment process that there had been intentional disregard on the part of Harvesters and thus a shortfall penalty of 75% was imposed. That stance was softened at the hearing and the Commissioner now contends only that Harvesters' shortfall resulted from recklessness on its part.

40. I entirely agree. Mr Brett Lu made no effort to determine whether the invoices provided to Harvesters complied with the statutory requirements. He was presented with documents claiming quite considerable sums of money yet exhibiting an extraordinary degree of informality. The circumstances of the transactions are such that he ought reasonably been on notice of the need to ensure that the documents complied with the requirements of the statute. His own evidence and the level of deficiencies in the documents demonstrate that he simply did not care. The circumstances amply demonstrate that Harvesters shortfall resulted from recklessness on the part of Mr Brett Lu.

41. On the issue of voluntary disclosure the evidence of Ms Kim Dance, an employee in Mr Richardson's office, demonstrates that when the Commissioner's officers arrived to undertake the audit visit she had isolated the suppliers' invoices with irregularities and pointed out the irregularities to the auditors. However I doubt that that amounted to telling the Commissioner "about the shortfall". More importantly, I am not satisfied that Ms Dance's work saved the Commissioner a significant amount of time or resources. Given that the irregularities were evident on the face of the documents I would consider that Ms Dance's work in isolating the invoices saved a few minutes of the auditor's time at best. I do not regard what was done as

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satisfying s 284-225(1)(c) of Schedule 1 to the Administration Act and thus I am not satisfied that any reduction of base penalty amount is warranted.

42. Nevertheless, and given the Commissioner's concession regarding the base penalty amount, I would set aside that part of the objection decision of 9 November 2007 that disallowed the objection to the assessment of administrative penalty and remit the matter to the Commissioner to determine administrative penalty on the basis that the shortfall resulted from recklessness.

Failure to withhold penalty

43. By virtue of s 12-190(1) of Schedule 1 to the Administration Act Harvesters was obliged to withhold an amount from amounts paid to other entities if the payment was for a supply made in the course of an enterprise carried on by the other entity unless one of the exceptions in s 12-190 applied.

44. During the 2004/2005 year Harvesters made payments to suppliers totalling $50,147.76 on invoices that did not include the suppliers ABN. Those invoices are:

When, in November 2007, the Commissioner considered Harvesters' objection he was persuaded that in the case of the invoices from Tuan & Huyen the exception in s 12-190(3) of Schedule 1 to the Administration Act applied. That sub-section is extracted in paragraph [8] above. Materially, it provides an exemption from the obligation to withhold if, when the payment is made, the payer has some other document that relates to the supply and purports to quote the payee's ABN. The Commissioner's reasoning, extracted in the reasons for decision from 9 November 2007, was as follows:

"You maintain that you were not required to make withholdings from 3 invoices numbered 1, 3 & 5 issued by Tuan and Huyen totalling $24,498.22 in the tax period ended 31 March 2005. You contend that although there was no ABN quoted on these invoices, additional invoices numbered 6, 7 & 10 issued by the supplier later in the same quarter did quote an ABN. Therefore, you had obtained an ABN for invoices numbered 1, 3 & 5 before the due date of lodgement for the activity statement and were not required to withhold.

You made payments in relation to invoices 1, 3 & 5 around the same time you paid invoice 6 which included an ABN. It is reasonable to assume that you would have had invoice 6 in your possession by the time you had paid invoices 1, 3 & 5.

In this case, we have accepted your contention. We consider that you satisfy the exception at paragraph 12-190(3)(a) of Schedule 1 to the [Administration Act] and obtained 'some other document' for invoices 1, 3 & 5 that purported to quote the entity's ABN before you paid the invoices. Therefore we will reduce the amount on which the withholding rate is applied by $24,498.22."

45. These matters were not the subject of any attention in the course of the hearing however, following the hearing, it appeared to me that the Commissioner's reasoning in relation to the Tuan & Huyen invoices might not be correct and that the objection decision might, on this account, be wrong. On the face of it, all cheques in payment of the invoices in issue had been drawn and negotiated prior to 11

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March 2005, the date shown on invoice 6. It was, thus, not apparent how it could be concluded that Harvesters had invoice 6 in its possession by the time it had paid invoices 1, 3 and 5. Moreover the reference to Harvesters having obtained an ABN for invoices 1, 3 and 5 before the BAS had been lodged seemed to suggest the application of an incorrect test.

46. By letter dated 15 April 2009, those apparent difficulties were drawn to the attention of the parties and further submissions were sought from the parties on these questions:

  • "1. Is the concession made by the Commissioner correct and, if so, why is it correct?
  • 2. If the concession is not correct why should the Tribunal not give effect to the correct view of the law and the facts?
  • 3. Does either party wish to provide further evidence touching upon this issue?"

47. Submissions have since been received from both parties. Neither party suggested that the Commissioner's concession was correct. Mr Richardson, for Harvesters, did not address the point directly and the submissions on behalf of the Commissioner explicitly accepted that the concession was not correct and that there had been a misapplication of the law by the Commissioner. Similarly, neither party sought to provide any further evidence on the point.

48. Both parties submitted, in different terms, that the Tribunal ought not give effect to the correct view of the law. Harvesters' submission was in these terms:

"We would like to request that considering the time delay, the fact that this was no longer in dispute between the Australian Taxation Office and ourselves and the [fact] that neither ourselves nor the Commissioner asked you to consider this matter that this be left as previously agreed between the parties."

The Commissioner's submission was as follows:

"Taking into consideration the factors listed below, the Commissioner does not ask the Tribunal to determine this aspect of the matter which is not in dispute between the parties.

Factors considered by the Commissioner in forming his position:

  • • The applicant did not mislead the Commissioner;
  • • The error was a misapplication of the law made by the Commissioner;
  • • The error is in the applicant's favour;
  • • The misapplication of the law is limited to the penalty for failure to withhold only."

49. I need first to deal with the underlying question which is whether the Commissioner's concession was correct. I am unable to accept either the factual or legal basis that underlies the Commissioner's concession.

50. Reference to the cheques and to Harvesters' bank statements shows that:

Prima facie, all of these cheques were drawn and negotiated before invoice 6 came into existence.

51. In my opinion the Commissioner's legal conclusions are flawed. It is not sufficient to subsequently receive another document that quotes, or purports to quote, the supplier's ABN. The effect of the exception in s 12-190(2) of Schedule 1 to the Administration Act is that the obligation to withhold, imposed by s 12-190(1) of Schedule 1 to that Act, does not arise if, "when the payment is made", the payer has been given some other document "that relates to the supply". Neither of these conditions were satisfied. Absent some evidence that invoice 6 dated 11 March 2005 was received earlier than the date it bore, Harvesters could not have been in possession of it at the time that payments were made on 17 February 2005, 2 March 2005 and 10 March 2005. There is no evidence that suggests that it was received earlier than 11 March 2005 even though it appears that cheque 000427, drawn in

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payment of that invoice, was drawn and negotiated on 10 March 2005. Moreover invoice 6 did not "relate to the supply" that was the subject matter of invoices 1, 3 or 5, it related to the supply evidenced by invoice 6.

52. The terms of the Commissioner's objection decision rather suggest that the decision-maker confused the requirement in s 29-10(3) of the GST Act to hold a tax invoice at the time of lodging a GST return with the requirement of s 12-190(2) of Schedule 1 to the Administration Act that focuses upon the time when the payment is made.

53. It follows that in my view the Commissioner's conclusion in the objection decision that Harvesters had "satisfied the exception at paragraph 12-190(3)(a) of Schedule 1 of the [Administration Act]" was wrong. In circumstances where Harvesters was obliged to withhold $24,321.66 (that is, 48.5%of $50,147.76) from the suppliers listed in paragraph 43 but did not do so, it became liable, by virtue of s 16-30 of Schedule 1 to the Administration Act, to pay a penalty equal to the amount not withheld. In the circumstances the Commissioner's original decision to make an assessment of liability on the basis of a penalty of $24,322 was correct.

54. The correct conclusion, and the decision that the Commissioner should have made, was that that part of the objection that dealt with the penalty imposed on Harvesters' for its failure to withhold from payments made to Tuan & Huyen ought have been disallowed.

55. It remains to consider whether the Tribunal ought give effect to that conclusion or give effect to the Commissioner's erroneous concession.

56. At an early point in the Tribunal's history it was authoritatively determined that the task of the Tribunal is to determine whether the decision was the correct or preferable one on the material before the Tribunal[15] Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409 at 419 per Bowen CJ & Deane J. See also Shi v Migration Agents’ Registration Authority (2008) 235 CLR 286 . . The correct decision here is that the Commissioner's objection decision is incorrect. I do not regard the attitude of the parties, in particular that of the Commissioner, as detracting from the obligation to make the correct decision. It seems to me not to matter that the error made by the Commissioner in considering the objection was entirely that of the Commissioner's officers and that Harvesters did not contribute to that error. As was said in
Peacock v Repatriation Commission[16] [2007] 161 FCR 256 at 261-262 per Downes, Lander and Buchanan JJ :

"…even a concession does not permit the Tribunal to avoid its duty as an administrative decision-maker to make the correct or preferable decision…on all relevant aspects of the matter before it."

57. A different aspect of the same principle has been expressed thus[17] Calderaro v Secretary, Department of Social Security (1991) 33 FCR 244 at 249 per Grey J :

"It is clear that the obligation of the Administrative Appeals Tribunal to satisfy itself as to the facts is a real one. It is also clear that, like a court, the Tribunal is not bound to accept evidence merely because it is uncontradicted; it must be persuaded as to the truth of that evidence."

58. It is plain that the Tribunal is not bound to accept concessions made by parties but rather has an overriding duty to consider the evidence so as to come to the correct or preferable decision. As Kirby J expressed the matter recently in
Shi v Migration Agents' Registration Authority[18] (2008) 235 CLR 286 at [51]. :

"Moreover, to the extent that the essential function of the Tribunal is to provide a review 'on the merits', conducting such a review on the basis of the most up to date evidence available is conformable with the basic objectives of the AAT Act."

59. As is apparent, I am not persuaded that, at the time of payment of invoices 1, 3 and 5, Harvesters had obtained "some other document" that related to those supplies and that purported to quote the ABN of Tuan & Huyen. I will therefore give effect to the conclusions expressed above and set aside so much of the objection decision of 9 November 2007 that allowed the objection to the extent of reducing the failure to withhold penalty and substitute a decision that that part of the objection be disallowed. It will be for the Commissioner to determine whether the revenue ought be recovered or waived.

The residual discretions

60. It remains to consider the residual discretion to remit penalty conferred by ss 16-45 and 298-20 of Schedule 1 to the Administration Act. Each section gives an unfettered discretion to remit all or part of a

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penalty imposed in the case of s 16-45 by s 16-30 of Schedule 1 to the Administration Act and, in the latter case, by "another Division" within Part 4-25 of Schedule 1 to the Administration Act.

61. The penalty imposed by s 16-30 is an amount equal to the amount that ought to have been, but was not, withheld from the supplier that did not quote an ABN. In the course of the audit a decision was made by the Commissioner to remit 25% of this penalty on the basis of maintaining consistency with other tax penalties. Despite the Commissioner's concession that reduces the shortfall penalty from 75% to 50% I do not consider that a similar reduction in the s 16-30 penalties is warranted.

62. Mr Brett Lu had earlier experience with the requirements of the legislation when his affairs in the 2001/2002 year were the subject of audit and considerable penalties were imposed. He was, at that time, involved in a scheme that Mr Richardson described in these terms:

"When he first started his business he was not aware that you could apply for a safety net letter once you made your application for an ABN therefore owing to the fact that he had been taught by others that being non tax compliant was smart, issued tax invoices using a false ABN as it is not possible to pay the wages of his staff if the payer took 48½% in tax."

In later correspondence Mr Richardson said of Mr Brett Lu that;

"He is now aware of the rules and is now complying with the rules in his current entity."

The "new entity" was Harvesters.

63. In circumstances where Mr Brett Lu paid the suppliers even before receiving an invoice he was, despite his earlier experiences, recklessly indifferent to the requirements of the GST legislation. He is, in my view, fortunate that the Commissioner has earlier agreed to remit 25% of the penalty imposed under s 16-30. I certainly do not consider that any further reduction is warranted.

64. I reach the same conclusion in relation to remission under s 298-20 of Schedule 1 to the Administration Act. Mr Brett Lu's indifference to the requirements of the legislation is aggravated by his earlier experiences and Mr Richardson's protestations, now demonstrated to have been unreliable, that he was "now complying with the rules". It was, perhaps, unfortunate that the deficiencies in Harvesters records were not detected in the first investigation however the letter to Harvesters arising from that investigation made it clear that the matter might be reopened in the future. There is no objective "unfairness" to Harvesters from the fact, or consequences, of the second audit. It was not suggested that the penalty would operate harshly in Harvesters' circumstances.

65. I would then affirm that part of the Commissioner's decisions that determined that no remission, or no further remission, of penalty was warranted.

Footnotes

[1] Exhibit 1 at p. 212.
[2] Exhibit 1 at p. 74.
[3] Exhibit 8.
[4] The basis of this reduction is discussed in paragraph [44] below.
[5] Application 2008/0011.
[6] The notice of objection objected, unnecessarily, to all of the Commissioner’s assessments, even those that had not been altered by the amended assessments.
[7] Exhibit 2.
[8] The documents are nowhere described as invoices or tax invoices. They have been written in a book that does not contain any pre-printed description of the document.
[9] See s 11-5, GST Act.
[10] See s 9-5, GST Act.
[11] See Exhibit 17, paragraph 49.
[12] Cf. Dixon v Federal Commissioner of Taxation 2008 ATC ¶20-015 ; (2008) 167 FCR 287 at 21.
[13] It seems likely that the date has been recorded erroneously and that this cheque ought be dated 17 February 2005.
[14] No copy of this cheque is available.
[15] Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409 at 419 per Bowen CJ & Deane J. See also Shi v Migration Agents’ Registration Authority (2008) 235 CLR 286 .
[16] [2007] 161 FCR 256 at 261-262 per Downes, Lander and Buchanan JJ
[17] Calderaro v Secretary, Department of Social Security (1991) 33 FCR 244 at 249 per Grey J
[18] (2008) 235 CLR 286 at [51].

 

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