SWANBAT PTY LTD v FC of T

Members:
S Webb M

Tribunal:
Administrative Appeals Tribunal, Canberra

MEDIA NEUTRAL CITATION: [2013] AATA 891

Decision date: 13 December 2013

S. Webb (Member)

13 December 2013

1. In this case, Swanbat Pty Ltd (the Company) challenges an assessment of the Commissioner in respect of GST. The Company paid GST on supplies to an overseas entity on a quarterly basis. It sought and obtained a ruling that the supplies are GST-free. Encouraged by this, after more than four years, the Company lodged a revised GST return for the June 2008 quarter and the Commissioner promptly refunded an amount equivalent to the excess GST the Company had paid. Soon thereafter, however, the Commissioner issued an assessment counteracting the Company's revised GST return, applying the refund amount as GST for which the Company is liable.

2. The Company objected to the assessment, which was upheld in the objection decision that is the subject of the Company's application for review.

3. In the course of the proceedings, extensive written submissions were provided by the parties. These were ventilated and extended in oral argument at hearing, in the course of which additional written submissions were produced by the Company. Without time to thoroughly examine and prepare responses to each of the matters traversed therein, the Commissioner requested additional time to file further written submissions after the hearing. I acceded to this request, allowing fourteen days for the Commissioner and seven days thereafter for the Company to make any response.

4. I have had regard to the further written submissions lodged by each party. I am grateful for these submissions, setting out a canvas of argument and context which has been of assistance in clarifying the issues and crystallising the determinative points.

5. The key facts are not in dispute. These are set out in a Statement of Agreed Facts in Exhibit 1.

6. On 28 July 2008, the Company lodged a GST return in the form of a Business Activity Statement (BAS) for the quarterly tax period from 1 April 2008 to 30 June 2008 (the June 2008 quarter), reporting GST on sales of $32,098 in respect of its supply of services to a non-resident company - Fabrique National Herstal SA (Herstal SA).

7. After the passage of more than four years, on 24 August 2012, the Company sought and obtained a binding private ruling that the supply of those services is GST-free. On 28 October 2012, the Company lodged a revised BAS for the June 2008 quarter, reporting nil GST on sales.

8. On 2 November 2012, the amount of $32,098 was refunded into the Company's bank account by the Commissioner.

9. Soon thereafter, on 7 November 2012, the Commissioner wrote to the Company, notifying the Company that it was not entitled to the refund. On 13 November 2012, the Commissioner issued an amending assessment for the June 2008 quarter, in which the $32,098 refund was included as an integer in the calculation of the 'net amount' for the period, being recorded as GST on sales - the net amount in respect of GST was amended from $328Cr to $31,770Dr.

10. The Company objected to this assessment and an objection decision was subsequently made, prompting the Company to apply for review.

11. As the objection decision is in respect of the Company's objection to the assessment issued by the Commissioner on 13 November 2012, under s 14ZZK(b)(i) of the Taxation Administration Act 1953 (TAA) the Company bears the burden of proving that the assessment is excessive.

12. Three main issues were raised and agitated -

13. These issues were traversed in the Company's objection to the Commissioner's 13 November 2012 assessment[1] T11, folios114 to 116. and in the objection decision[2] T1, folios9 to 12. . That notwithstanding, it appears to me that issue (a) is not squarely before the Tribunal, although it is incidental to the central issue I must decide in respect of the 13 November 2012 assessment. For this reason and as much was said by the parties during the hearing about the Company's entitlement to a refund and the operation of s 105-55 of Schedule 1 to the TAA, I will address issues relating to the entitlement question first, before addressing the determinative points in respect of the assessment.

Is the Company entitled to a refund of GST paid in respect of the June 2008 quarter?

14. Even though the Company asserts that this is not a case in which it was claiming a refund, or to which s 105-55 of Schedule 1 to the TAA applies, it lodged a revised GST return on 28 October 2012, amending the original net amount it calculated for the June 2008 quarter more than four years previously. I assume that the purpose of doing so was to adjust the Company's GST liability for the period in order to obtain a refund or a credit.

15. That aside, the Company asserts that it is entitled to a refund under the terms of the legislation in force on and before 30 June 2008. This raises an issue as to the proper construction of amendments that came into effect on 1 July 2008 (the 2008 amendments issue). Furthermore, the Company maintains that subsequent amendments that came into effect on 1 July 2012 do not preclude, but support, the Company's entitlement to a refund (the 2012 amendments issue).

16. The Company argues that it is lawful, proper, reasonable and fair that the amount of GST paid on supplies that are GST-free - $32,098 - should be refunded. In the Company's submission the four year time limit under s 105-55 of Schedule 1 to the TAA prior to 1 July 2008 only applies in respect of a taxpayer's entitlement to a refund of a negative 'net amount' calculated under s 17-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). The consequence of this, so the argument goes, is that, firstly, there is no time limit on the Company's entitlement to a refund of overpayments of indirect tax where GST is paid on supplies that are not 'taxable supplies' (the entitlement question), and secondly, in any event, there is no time limit on the payment of a refund by the Commissioner (the payment issue).

17. Furthermore, the Company maintains that the private ruling issued by the Commissioner on 19 October 2012 confirms that GST was not payable on its supplies to Herstal SA from 1 July 2000. The revised BAS it lodged on 28 October 2012 simply gives effect to the ruling, which is binding on the Commissioner. The Company says that this required the Commissioner to refund the overpayment, which is what he did. This raises an issue about the effect of the Commissioner's private ruling and the revised BAS lodged by the Company (the private ruling issue).

18. The Commissioner says the Company is not entitled to a refund of GST paid in respect of the June 2008 quarter - as notice of the Company's entitlement to a refund was not given within four years of 30 June 2008, s 105-55 of Schedule 1 to the TAA operates with a preclusionary and substantive effect. The consequence of this, so the argument goes, is that even if the Company's correct GST liability for the period is $328Cr, as alleged, the difference between the net amount in the revised BAS for the June 2008 quarter (lodged by the Company on 28 October 2012) and the original net amount set out in the Company's BAS for the period (lodged on 28 July 2008), an amount of $32,098, is not refundable to the Company. The Commissioner's assessment on 13 November 2012 reflects this and restores the Company's net amount for the June 2008 quarter to the amount applied by the Company in its original GST return for the period.

19. In order to address these issues it is necessary to carefully consider interlaced provisions of the GST Act and the TAA, in particular the 'central provisions'[3] Sections 7-1, 7-5, 7-10 and 7-15 of the GST Act. , ss 17-5 and 35-5 of the GST Act and ss 8AAZLF, 8AAZN and Schedule 1 subdivisions 105-A and 105-C of the TAA. In so doing, the several enactments that constitute the GST legislative scheme must be construed together in conjunction with the TAA, and with appropriate reference to definitional linkages with other tax legislation, particularly the Income Tax Assessment Act 1997 (the Assessment Act), noting that s 3AA(1A) of the TAA confines definitional elements of Schedule 1 to the Schedule.

The 2008 amendments issue

20. Under the GST legislation in effect prior to 1 July 2008, for an entity such as the Company at the time, liability to pay GST arose on the calculation of a 'net amount' for a tax period, offsetting the gross amount of GST with input tax credits.

21. There are three things to say about this. Firstly, the GST component of the net amount calculation refers to the GST liability of the taxpayer in respect of 'taxable supplies' under s 9-5 of the GST Act. Secondly, so long as the net amount is calculated by the taxpayer in the way specified in an approved form under s 17-15 of the GST Act, a BAS in this case, the amount worked out is treated as the net amount for the period. Thirdly, in respect of an entity registered for GST purposes, determination of the net amount for a tax period in this manner gives rise to an obligation to pay the net amount. If the net amount for a quarterly tax period is a positive value, the obligation to pay is on the taxpayer, in this case under s 33-3 of the GST Act. Whereas if the net amount is a negative value, the obligation to pay is on the Commissioner under s 35-5 of the GST Act whereby, under s 35-10, the obligation arises on the date the particular GST return, or BAS, is lodged.

22. Prior to 1 July 2008, entitlement to a refund of an 'assessed net amount' under s 35-5 of the GST Act is limited to four years from the end of the relevant tax period by operation of s 105-55 of Schedule 1 to the TAA. There is a question whether the time limit applied to any other kind of refund - for reasons explained in
Russell v Commissioner of Taxation in respect of s 105-50, it appears that it may not[4] [2009] FCA 1224 at [254] – [255] . Further discretionary restrictions on refunds applied under s 105-65, but this section does not set out a time limit and whether it is subject to the limit imposed by s 105-55 is moot. For present purposes, it is not necessary to decide these matters.

23. The amendments that came into effect on 1 July 2008 clarified uncertainties about the scope of the time limit applying to refunds, particularly with regard to indirect tax paid on GST-free supplies. Any doubt about application of the four year limit on entitlement to a refund of an excess payment of indirect tax under the GST legislative scheme was removed.

24. New paragraph 2(aa) was inserted into s 105-55 with effect from 1 July 2008. It is germane to consider the full text of the section, as amended -

105-55 Time limit on refunds etc. from the Commissioner

  • (1) You are not entitled to a refund, other payment or credit to which this subsection applies in respect of a *tax period or importation unless:
    • (a) within 4 years after:
      • (i) the end of the tax period; or
      • (ii) the importation;

      as the case requires, you notify the Commissioner (in a *GST return or otherwise) that you are entitled to the refund, other payment or credit; or

    • (b) within that period the Commissioner notifies you (in a notice of assessment or otherwise) that you are entitled to the refund, other payment or credit; or
    • (c) in the case of a credit - the credit is taken into account in working out:
      • (i) a *net amount or *net fuel amount that the Commissioner may recover from you only because of subparagraph 105-50(3)(b)(i); or
      • (ii) an amount of excess referred to in subsection 105-50(2) that the Commissioner may recover from you only because of subparagraph 105-50(3)(b)(ii).
  • (2) Subsection (1) applies to:
    • (a) a refund in relation to a *net amount or *net fuel amount in respect of a particular *tax period; or
    • (aa) another payment that represents some or all of an amount:
      • (i) that you paid as an amount of *indirect tax payable by you in respect of a particular tax period; and
      • (ii) that exceeded the amount (if any) of such tax that you were liable to pay in respect of that tax period; or
    • (b) an *input tax credit or *fuel tax credit that is attributable to a particular tax period; or
    • (c) a *wine tax credit the amount of which could have been included in a reduction of your *net amount for a tax period under section 21-15 of the *Wine Tax Act; or
    • (d) a refund of an amount of *indirect tax relating to an importation.

      Fuel tax - non-business taxpayers

  • (3) …

[Emphasis added. Notes omitted.]

'Indirect tax' is defined by s 2 of the TAA and s 995-1 of the Assessment Act -

indirect tax means any of the following:

  • (a) *GST;
  • (b) *wine tax;
  • (c) *luxury car tax.

25. 'GST' is defined in s 195-1 of the GST Act in the following way -

GST means tax that is payable under the *GST law and imposed as goods and services tax by any of these:

  • (a) the A New Tax System (Goods and Services Tax Imposition - General) Act 1999; or
  • (b) the A New Tax System (Goods and Services Tax Imposition - Customs) Act 1999; or
  • (c) the A New Tax System (Goods and Services Tax Imposition - Excise) Act 1999; or
  • (d) the A New Tax System (Goods and Services Tax Imposition (Recipients) - General) Act 2005; or
  • (e) the A New Tax System (Goods and Services Tax Imposition (Recipients) - Customs) Act 2005; or
  • (f) the A New Tax System (Goods and Services Tax Imposition (Recipients) - Excise) Act 2005.

26. The transitional provisions set out in Schedule 2 to the Tax Laws Amendment (2008 Measures No. 3) Act 2008 (the 2008 Amendment Act) provide that the amendments to s 105-55 apply in respect of an entitlement to a refund, other payment or credit before the commencement day on 1 July 2008, unless prior written notice of the entitlement had been given -

16 Application

  • …
  • (2) The amendments made to section 105-55 of Schedule 1 to the Taxation Administration Act 1953 by this Schedule apply in relation to a refund, other payment or credit:
    • (a) that is of a kind referred to in subsection 105-55(1) or (3) of Schedule 1 to that Act as amended by this Schedule; and
    • (b ) to which you became entitled before the commencement of this Schedule;

    unless, before that commencement, you notified the Commissioner in writing, or the Commissioner notified you in writing, that you were entitled to the refund, other payment or credit.

  • (3) To avoid doubt, this item does not prevent amendments made by this Schedule from applying to amounts that become payable, or entitlements that arise, on or after the commencement of this Schedule.

[Emphasis added]

27. Insofar as the Company asserts an accrued right under s 7(2) of the Acts Interpretation Act 1901 in respect of determination of an entitlement to a refund for the June 2008 quarter, applying the legislation in force prior to 1 July 2008, this must be considered having close regard to the form and content of the amending legislation[5] IOOF Holdings Limited v Commissioner of Taxation [2013] FCA 1189 at [33] to [35]. . As can be seen, s 16(2) of Schedule 2 to the 2008 Amendment Act clearly preserves the rights of a person where written notice of an entitlement to a refund, other payment or credit was given prior to the commencing day. But, otherwise, in respect of a person pressing for a refund in respect of a tax period prior to 1 July 2008, where notice of an entitlement of the requisite kind has not been given, the amending legislation expresses a contrary intention to the preservation of rights. This effectively overrides an accrued right, if such a right exists, in circumstances where notice of entitlement to a refund, other payment or credit had not been given prior to the amendments coming into effect on 1 July 2008.

28. The Company's assertion that s 105-65 of Schedule 1 to the TAA is the relevant limitation section, and not s 105-55, misapprehends the operation and purposes of s 105-65, and it is not correct.

29. Section 105-65 confers discretion on the Commissioner to reject a refund of GST paid in respect of a supply that is not a 'taxable supply' in certain circumstances. It does not impose a limit of time on the exercise of discretion if enlivened and, if it is not enlivened, it does not limit the period in which the Commissioner may be obligated to pay a refund, or in which a taxpayer may have an entitlement to a refund. The terms of the section before and after 1 July 2008 clearly accommodate supplies that are GST-free and, therefore, may be subject to the discretion it confers on the Commissioner and to the operation of the GST Act and related legislation[6] Re National Jet Systems Pty Ltd and Commissioner of Taxation [2011] AATA 766 at [65]. .

30. The Company referred to the Explanatory Memorandum to the 2008 Amendment Act in support of its argument that the amended s 105-65 only applies in respect of tax periods on or after 1 July 2008. It is not necessary to refer to the extrinsic materials as the Company is plainly correct on this point. The amendments to s 105-65 restrict the Commissioner's discretion not to provide a refund in certain circumstances to tax periods on and after the commencing day -

31. This does not afford the relief sought.

32. Even though the Commissioner's discretion not to pay a refund to an entity under the amended terms of s 105-65 is confined to tax periods from 1 July 2008, the entity's entitlement to a refund of a net amount, or of an excess amount of indirect tax, in respect of a tax period before that date, and the applicability of s 105-55 as it stood prior to 1 July 2008, is preserved only if prior written notice of the entitlement had been given before that date. No such notice was given in the Company's case.

33. The important point is that even if s 105-65 is applied in terms prior to 1 July 2008, the Company's entitlement to a refund in respect of a net amount or an amount of indirect tax paid in excess of its liability for the June 2008 quarter is subject to the amended terms of s 105-55 that commenced on 1 July 2008.

34. It follows that the Company's entitlement to a refund of the excess GST it paid in respect of the June 2008 quarter is subject to the operation of s 105-55, as amended from 1 July 2008.

35. To the extent that the Company relies on Re Dandenong Motors Unit Trust and Commissioner of Taxation[7] [2012] AATA 920 . , that case is distinguished as it dealt with the terms and operation of s 105-55 of Schedule 1 to the TAA prior to 1 July 2008 in respect of overpayments made prior to and during 2003. The terms of s 105-55 prior to 1 July 2008 are not presently applicable or determinative.

The 2012 amendments issue

36. The amendments that came into effect on 1 July 2012 introduced an assessment regime in respect of the 'net amount' calculated under s 17-5 or 17-15 of the GST Act. These amendments also render ss 105-50, 105-55 and 105-65, and the time limits and restrictions they impose, subject to sunsetting provisions, confining application of each section to tax periods, liabilities and entitlements arising prior to 1 July 2012. These sections are slated for repeal on 1 January 2017 under Part 2 of Schedule 1 to the Indirect Tax Laws Amendment (Assessment) Act 2012 (the 2012 Amendment Act).

37. The revised BAS the Company lodged on 28 October 2012, setting out an amended net amount for the June 2008 quarter, was out of time - more than four years had elapsed from the end of the tax period.

38. That aside, by operation of ss 7-5, 7-15 and 17-15 of the GST Act and s 155-15 of Schedule 1 to the TAA, the amended net amount set out in the revised BAS the Company lodged on 28 October 2012 is treated as an assessment given by the Commissioner of the Company's net amount for the June 2008 quarter. Previously, the net amount was determined by the Company in the GST return for the tax period it lodged on 28 July 2008.

39. Pausing at this point, it is important to note the consequence of the Company's revised BAS being treated as an assessment by the Commissioner. If the assessment is for a net amount less than zero (albeit expressed as a positive amount), ss 17-15, 35-5 and 35-10 of the GST Act operate to require the Commissioner to pay a refund to the Company. Furthermore, as the Company paid $32,098 in GST for the June 2008 quarter on supplies that are GST-free, s 8AAZLF of the TAA may operate to require the Commissioner to refund a 'credit' to the Company -

8AAZLF Commissioner must refund RBA surpluses and credits

  • (1) The Commissioner must refund to an entity so much of:
    • (a) an RBA surplus of the entity; or
    • (b) a credit (including an excess non-RBA credit) in the entity's favour;

      as the Commissioner does not allocate or apply under Division 3.

      …

40. In that context, s 8AAZA defines 'credit' in the following inclusive and relevant terms -

credit includes:

  • (a) an amount that the Commissioner must pay to a taxpayer under a taxation law (other than the Product Grants and Benefits Administration Act 2000, the Tax Bonus for Working Australians Act (No. 2) 2009 or Division 18 (refunds) of the A New Tax System (Luxury Car Tax) Act 1999), whether or not described as a credit; and
  • (b) …

The 'taxation law' is defined in s s 2(1) of the TAA, s 195-1 of the GST Act and s 995-1 of the Assessment Act, relevantly -

taxation law means:

  • (a) an Act of which the Commissioner has the general administration (including a part of an Act to the extent to which the Commissioner has the general administration of the Act); or
  • (b) legislative instruments made under such an Act (including such a part of an Act); or
  • (c) …

41. As the Commissioner has general administration of the GST Act and the TAA, it follows that the revised BAS the Company lodged on 28 October 2012 for the June 2008 quarter, in which the GST component is reduced to zero, gives rise to an obligation on the Commissioner to pay a refund to the Company under s 35-5 of the GST or s 8AAZLF of the TAA, subject to pre-conditioning factors being satisfied.

42. Even if a refund or credit arises under these sections, the taxpayer's entitlement to the refund or credit is affected by s 105-55 of Schedule 1 to the TAA and, where notice has not been given of the entitlement within four years, the entitlement comes to an end.

43. The assessment regime that came into effect on 1 July 2012 does not interrupt the scope or the operation of time limits under ss 105-50 or 105-55 of Schedule 1 to the TAA on the recovery or the refund of amounts in respect of tax periods prior to 1 July 2012. Lodging a revised BAS for the June 2008 quarter more than four years after 30 June 2008 does not stop or reset the clock in respect of the four year time limit on entitlement to a refund. The 2012 amendments do not assist the Company.

The entitlement question

44. As can be seen from the foregoing, the Company's entitlement to a refund of the net amount and the GST it paid in respect of the June 2008 quarter is affected by s 105-55 in Schedule 1 to the TAA. The four year limit on entitlement under that section applies in respect of the net amount and the excess amount of indirect tax the Company paid, subject only to provision of notice within that period.

45. Arguing that the GST paid by the Company was never payable does not advance the matter. When the Company lodged its BAS for the June 2008 quarter on 28 July 2008, the four year time limit on its entitlement to a refund extended to payments exceeding indirect tax liabilities, including payment of GST on supplies that are GST-free.

46. As the Tribunal has observed in previous cases[8] See Re Australian Leisure Marine Pty Ltd and Commissioner of Taxation [2010] AATA 620 at [16] and [17], and Re Dandenong Motors Unit Trust and Commissioner for Taxation [2012] AATA 920 at [25], for example. , the time limit imposed by this section is not simply a procedural nicety. It has a substantive effect, curtailing the rights of a taxpayer to a refund or payment within four years from the end of the relevant tax period[9] See Re Clontarf Development Pty Ltd and Commissioner of Taxation [2010] AATA 1065 at [29]. - in this case 30 June 2008. The time limit does not apply if s 105-55(1) (a), (b) or (c) is satisfied, namely the provision of notice by the Company, or by the Commissioner, within the mandatory four year period, or the existence of fraud or evasion. Those factors aside, there is no discretion to extend the four year period.

47. The materials before me do not establish that the Commissioner made or was asked to make an assessment of the Company's net amount for the June 2008 quarter within the four year limit, using power under s 105-5 or s 105-25 of Schedule 1 to the TAA prior to 1 July 2012. Nor is it established that the Company amended the net amount set out in its initial GST return for the period, or that it (or the Commissioner) gave notice of an entitlement to a refund of GST, within the four year limit. Without s 105-55(1) (a), (b) or (c) being satisfied, the four year time limit applies with a preclusionary effect.

48. That being so, it appears that the Company's entitlement to a refund of the net amount or the excess indirect tax it paid in respect of the June 2008 quarter was curtailed by operation of s 105-55 when the four year limit was reached without notice.

The payment issue

49. As to the Company's submission that there is no time limit on the Commissioner's obligation to refund GST paid in respect of the June 2008 quarter on supplies that were not 'taxable supplies' under s 9-5 of the GST Act, even if this is correct, it does not assist.

50. As with the entitlement issue, the issue of payment of a refund is not squarely before the Tribunal. It is not determinative of the issues I must decide. For completeness, I will address submissions made by the Company, but briefly.

51. If the amended net amount set out in the Company's revised BAS lodged on 28 October 2012 gave rise to an obligation on the Commissioner to pay a refund, the obligation crystallised on the date the revised BAS was lodged. Arguments as to the timing of a payment of this kind were ventilated and resolved against the Commissioner in
Federal Commissioner of Taxation v Multiflex Pty Ltd[10] (2011) 197 FCR 580 . - albeit addressing the legislation in effect prior to 1 July 2012, the Full Court determined that a prompt refund is required. In all likelihood, that is what occurred in the Company's case on 2 November 2012.

52. It is important to notice that s 105-15(2) of Schedule 1 to the TAA provides that a taxpayer's liability to pay indirect tax, or a net amount, and the Commissioner's obligation to pay a refund, or a net amount, and the timing of such payments, "do not depend on, and are not in any way affected by, the making of an assessment under this Subdivision", being Subdivision 105-A. This Sub-division (which is scheduled for repeal on 1 January 2017) expressly applies to tax periods prior to 1 July 2012, when the legislation in force at the time did not require an 'assessment' of a net amount - prior to 1 July 2012, the Commissioner's obligation arises in respect of the net amount established, at first instance, by the taxpayer in a properly formed GST return.

53. Nonetheless, while the timing of a payment by the Commissioner under s 35-5 of the GST Act or s 8AAZLF of the TAA is not subject to or affected by an assessment under Sub-division 105-A of Schedule 1 to the TAA, Sub-division 105-C imposes restrictions on credits, refunds and recoveries, such that s 105-55 imposes a time limit on the entitlement of a taxpayer to a refund. Where, as presently, the time limit is exceeded, there is no entitlement to a refund.

54. Without clear legislative direction, to my mind, lack of present entitlement to a refund exhausts the Commissioner's obligation to pay the refund.

The private ruling issue

55. Before moving on, also for completeness, it is desirable to make some observations about submissions raised in respect of the private ruling issued by the Commissioner on 19 October 2012 that the Company's supply of services to Herstal SA is GST-free[11] T8, folio92. , and about the revised BAS the Company lodged on 28 October 2012.

56. The Company's application for a private ruling from the Commissioner in respect of tax years commencing on 1 July 2000[12] T5, folio34. may be sufficient to serve as notice of an entitlement to a refund for the purposes of s 105-55 of Schedule 1 to the TAA. Even if it is sufficient notice, it was lodged outside the four year limit on the Company's entitlement to a refund in respect of the June 2008 quarter.

57. The Commissioner's private ruling does not specify a start date and it does not specify the tax periods to which it applies. That being so, under s 359-25 of Schedule 1 to the TAA, the ruling applies from the date it was issued. Even if the ruling affects the Company's liability to pay GST on services it supplied to Herstal SA from 1 July 2000, it does not follow that the Company is automatically entitled to a refund of amounts of GST it paid on the supply of such services in respect of previous tax periods.

58. In the present circumstances, entitlement to a refund by the Commissioner in respect of a tax period requires revision of the net amount set out in the GST return lodged by the taxpayer for the period, or an assessment by the Commissioner amending the net amount, or, at the minimum, notice of the taxpayer's entitlement to the refund, payment or credit within the mandatory four year limit thereafter. In the Company's case, these preconditioning factors are not presently made out in respect of the June 2008 quarter.

59. Provision is made in s 155-50 of Schedule 1 to the TAA presently in force for the Commissioner to 'amend an assessment of an assessable amount at any time' to give effect to a private ruling. But this only applies where the request for the private ruling is made within the four year review period. This does not assist the Company as it requested a private ruling more than four years after the end of the June 2008 quarter and, when the ruling was issued, no 'assessment' of the net amount for that period had been made - it was simply set out in the Company's GST return lodged on 28 July 2008.

60. Lodgement by the Company of a revised BAS for the June 2008 quarter on 28 October 2012, giving effect to the Commissioner's private ruling and reporting a GST net amount of $328Cr (excluding the previously reported amount of $32,098 GST on sales) and an overall net amount of $145,069 owing to the Commissioner, does not assist. The revised BAS was lodged after the four year limit on entitlement to a refund had elapsed.

Is the Commissioner's 13 November 2012 assessment valid?

61. The Company asserts that the Commissioner's assessment is not valid, as an assessment cannot be used to impose GST in respect of supplies that are GST-free, and it cannot be used to recover an administrative overpayment. In its written submissions after the hearing the Company clarified this point, asserting that the challenge is not to the legal validity of the assessment, but rather to the correctness of its method and its content.

62. Notice of an assessment under Sub-division 105-A or Sub-division 155-A may, subject to challenge under Part IVC, be conclusive evidence in respect of a net amount, but it does not establish liability, so the argument goes, as liability flows from the imposition of GST under the applicable legislation. The Company says the Commissioner's assessment on 13 November 2012 purports to impose an amount of GST without authority and without a proper legislative basis - for this reason it lacks strength and, to that extent, it is invalid.

63. In the Company's submission, the notice perpetrates a fiction in two parts - firstly, that the refunded amount of $32,098 is GST on sales in the June 2008 quarter, when this is plainly not so; and secondly, that GST is payable on the Company supplies to Herstal SA in the June 2008 quarter, when the binding private ruling establishes that the supply of those services is GST-free. The Company says it is not correct for the Commissioner to attempt to claw back the amount paid to the Company on 2 November 2012 in an assessment of the net amount for the June 2008 quarter, treating it as GST on supplies, when those supplies are GST-free. For this reason, the Company asserts that the Commissioner's notice of assessment on 13 November 2012 is not correct.

64. The Commissioner says that the validity of an assessment is not capable of review under Part IVC of the TAA.

65. Behind these submissions are two distinct issues that should not be confused. The validity of the assessment is one thing, but determining whether the assessment is incorrect or excessive is entirely another.

66. As regards the issue of validity, the Commissioner is correct.

67. It appears this is not a matter of controversy.

68. Part IVC of the TAA permits review of an assessment. It proceeds in respect of a valid assessment and it does not allow for testing of the validity of the assessment in terms of jurisdictional error or the proper making of the assessment[13] Gashi v Commissioner of Taxation [2013] FCAFC 30 at [41] to [43]. . Under s 350-10(2)(a) of Schedule 1 to the TAA, if the Commissioner issues a notice of assessment in respect of an assessable amount, it is conclusive evidence in proceedings under Part IVC of the TAA of the due making of the assessment.

69. Questions, if there are any, about the validity of the Commissioner's assessment on 13 November 2012 can go no further in these proceedings. If there is an issue of substance behind the Company's assertions of maladministration or bad faith in the making of the assessment, the appropriate challenge to the assessment may lie under the s 39B of the Judiciary Act. Presently, the Tribunal has jurisdiction under Part IVC as the subject assessment to which the Company objected purports to have been made by the Commissioner exercising power under the TAA. As the Full Court observed in
Kennedy v Administrative Appeals Tribunal[14] [2008] FCAFC 124 . at [22], "Whether or not the assessments were, as a matter of law, validly made does not attenuate this finding".

70. In any event, the Commissioner has discretionary power under s 105-5 of Schedule 1 to the TAA to make an assessment of the net amount or any part of the net amount payable in respect of a tax period prior to 1 July 2012, superseding an earlier assessment arising from a GST return lodged by the taxpayer. That is what was purportedly done on 13 November 2012. That being so, it appears that the only issue is whether the assessment is excessive.

Is the Commissioner's 13 November 2012 assessment excessive?

71. The central thrust of the Company's challenge is that the assessment seeks to impose tax without authority such that it is not correct, and it is excessive. This arises, so the argument goes, because the Commissioner's assessment erroneously includes the refund paid to the Company in an attempt to claw it back. Whether or not the refund is within the meaning of an 'administrative overpayment', the Company says it is not permissible to include this amount when assessing the correct 'net amount' for the tax period.

72. The proposition that the imposition of tax requires proper authority and legislative force is clearly correct.

73. The Commissioner asserts that the onus of proving the assessment is excessive falls on the Company, and that it has failed in this regard.

74. This is correct - the TAA does not place any onus on the Commissioner to show that the assessment was correctly made.

75. Nonetheless, the Commissioner's explanation to the Company in the "Activity statement review" on 7 November 2012 is illuminating -

"… you cannot claim a refund by lodging an activity statement, or claim an input tax credit by revising an activity statement, for a tax period that ended more than four years ago unless you have notified the Commissioner and subsequently received consent to do so.

The four year period for your 1 April 2008 - 30 June 2008 activity statement ended on 30 June 2012. As you did not notify the Commissioner in writing of your entitlement within the four years from the end of the tax period, you are not entitled to the input tax credits and a refund on this revised activity statement.

We have issued a GST assessment to correct the activity statement. The assessment reflects your previously lodged activity statement."[15] ST1-122.

76. Making the assessment of the Company's net amount for the June 2008 quarter, the Commissioner (and presently this Tribunal) must apply the formulation in s17-5 of the GST Act -


GST - Input tax credits

where:

GST is the sum of all of the GST for which you are liable on the *taxable supplies that are attributable to the tax period.

input tax credits is the sum of all of the input tax credits to which you are entitled for the *creditable acquisitions and *creditable importations that are attributable to the tax period.

77. In the circumstances, the assessment of the Company's net amount for the June 2008 quarter cannot properly ignore or step around the binding private ruling issued on 19 October 2012 that the Company's supply of services to Herstal SA are GST-free from 1 July 2000. An assessment of the actual net amount under s 17-5 is required.

78. Thus, the amount of $32,098 paid to the Company on 2 November 2012 cannot be treated as 'GST on sales' for the June 2008 quarter, when the relevant Company supplies are GST-free. As was the case in Re The Private Tutor and Commission of Taxation[16] [2013] AATA 126 at [18]-[19]. , it is not permissible to adopt an entity's assessment of GST at first instance when this is known to be wrong. For this reason, the 'GST on sales' figure reported by the Company in its 28 July 2008 GST return cannot be applied as an integer when calculating the net amount under s 17-5 of the GST Act on 13 November 2013, as it is quite clear that the original net amount is not correct and the actual GST on supplies for the period is zero.

79. It follows that the GST component of the Company's assessed net amount for the June 2008 quarter should be zero. The inclusion of $32,098 as GST on supplies is not correct.

80. But that is not the end of the matter. There is a further question whether the refund paid to the Company on 2 November 2012 can be included in a legitimate 'assessment' as a net amount under s35-5 of the GST Act (the net amount issue) or as an administrative overpayment under s 8AAZN of the TAA (the administrative overpayment issue).

The net amount issue

81. For the purposes of the GST Act, the word 'assessment' is given meaning by s 195-1 of the GST Act in reference to s 995(1) of the Assessment Act, relevantly -

995-1 Definitions

…

assessment:

  • (a) of an *assessable amount, means an ascertainment of the assessable amount; and
  • (b) in relation to a *tax-related liability not covered by paragraph (a), has the meaning given by a *taxation law that provides for the assessment of the amount of the liability.

82. The term 'assessable amount' is given meaning by s 155-5(2) of Schedule 1 to the TAA. It includes a 'net amount' and "an amount of *indirect tax not included in an amount covered by another paragraph of this subsection", being tax imposed under the GST legislation. Section 195-1 of the GST Act defines 'net amount' by reference to s 17-5 of that Act.

83. The assessment of a net amount, as defined, is affected by the operation of s 35-5(2) of the GST Act -

35-5 Entitlement to refund

  • (1) If the *assessed net amount for a tax period is less than zero, the Commissioner must, on behalf of the Commonwealth, pay that amount (expressed as a positive amount) to you.

    Note 1: See Division 3A of Part IIB of, and section 105-65 in Schedule 1 to, the Taxation Administration Act 1953 for the rules about how the Commissioner must pay you. Division 3 of Part IIB allows the Commissioner to apply the amount owing as a credit against tax debts that you owe to the Commonwealth.

    Note 2: Interest is payable under the Taxation (Interest on Overpayments and Early Payments) Act 1983 if the Commissioner is late in refunding the amount.

  • (2) However, if:
    • (a) the Commissioner amends the *assessment of your *net amount; and
    • (b) your *assessed net amount before the amendment was less than zero; and
    • (c) the amount that, because of the assessment, was:
      • (i) paid; or
      • (ii) applied under the Taxation Administration Act 1953;

      exceeded the amount (including a nil amount) that would have been payable or applicable had your assessed net amount always been the later assessed net amount;

      the amount of the excess is to be treated as if:

    • (d) the excess were an assessed net amount for the tax period; and
    • (e) that assessed net amount were an amount greater than zero and equal to the amount of the excess; and
    • (f) despite Division 33, that assessed net amount became payable, and due for payment, by you at the time when the amount was paid or applied.

      Note: Treating the excess as if it were an assessed net amount has the effect of applying the collection and recovery rules in Part 3-10 in Schedule 1 to the Taxation Administration Act 1953, such as a liability to pay the general interest charge under section 105-80 in that Schedule.

84. As can be seen, s 35-5(2) directs that where an amount that is paid under s 35-5(1) exceeds what is payable under an amending assessment of the net amount by the Commissioner, the excess amount is to be treated as if it were an 'assessed net amount' of GST.

85. Thus, if this is how the Commissioner's 13 November 2012 assessment was calculated in the present circumstances (although it is not presently established that this is what was done), s 35-5 might be said to operate in the following manner -

86. The important and obvious flaw in this analysis in the present circumstances is that, following the private ruling, it is quite clear that the original net amount calculated by the Company is wrong. The Commissioner's amending assessment cannot proceed, deliberately or otherwise, on the erroneous assumptions of the Company in the past.

87. The alternative argument is that, once four years elapsed, the Company is precluded from amending the net amount in respect of the June 2008 quarter. As the Company attempted to amend its original GST return by lodging a revised BAS for that period outside the allowable time, giving rise to a deemed assessment by the Commissioner, the Commissioner acted to correct the error by issuing an amended assessment to reinstate the original position.

88. The same obvious flaw arises in this argument - the Commissioner cannot issue an assessment that is contrary to known facts. Even if the Company's action lodging a revised BAS for the June 2008 quarter was out of time, the action gives rise to a deemed assessment that cannot be overcome by the Commissioner issuing an amending assessment to reinstate the net amount originally calculated by the Company on the basis of assumptions in the past that are not correct. An assessment of this kind is not within the terms of s 35-5 of the GST Act.

89. It follows that s 35-5 does not allow the inclusion of $32,098 as an integer in the calculation of the Company's net amount in the assessment on 13 November 2012.

The administrative overpayment issue

90. The remaining possibility is that the amount might be included in the assessment as an administrative overpayment under s 8AAZN of the TAA.

91. The Company says it cannot and presses two points. Firstly, the refund paid to the Company on 2 November 2012 is not within the meaning of an 'administrative overpayment' for the purposes of s 8AAZN of the TAA - it is not the result of a 'mistake' within the meaning of s 8AAZN(3). Secondly, an administrative overpayment is not an assessable tax liability that arises under legislation for the imposition of tax - "Without an imposition act there is no tax liability"[17] Supplementary Submissions by Applicant, 4 November 2013, p8. . The TAA, so the argument goes, is not an Act for the imposition of taxation. For this reason, in the Company's submission, the assessment purporting to impose GST in the amount of $32,098 lacks legislative authority and must fail.

92. The existence of an administrative overpayment under s 8AAZN is not squarely before the Tribunal, and it is not presently for determination. Nonetheless, I will address the submissions made insofar as it is relevant to do so.

Mistake

93. As to the first point that the refund of GST is not an 'administrative overpayment' for the purposes of s 8AAZN of the TAA, the Company asserts that there is no evidence that the refund was subjectively or objectively a 'mistake', applying the ordinary meaning of that word. It can only be a mistake, so the argument goes, if the assessment of GST is incorrect - as no GST is payable in respect of the Company's supplies to Herstal SA from 1 July 2000, in accordance with the binding private ruling, there is no mistake. Additionally, as the Company paid GST on GST-free supplies, under s 105-55 of Schedule 1 to the TAA there is no time limit on the Commissioner's obligation to repay the Company. This is what the Commissioner did, without any mistake being made.

94. Clearly enough, the existence of a mistake is an essential precondition to the occurrence of an 'administrative overpayment' for the purposes of s 8AAZN of the TAA -

8AAZN Overpayments made by the Commissioner under taxation laws

  • (1) An administrative overpayment (the overpaid amount ):
    • (a) is a debt due to the Commonwealth by the person to whom the overpayment was made (the recipient ); and
    • (b) is payable to the Commissioner; and
    • (c) may be recovered in a court of competent jurisdiction by the Commissioner, or by a Deputy Commissioner, suing in his or her official name.
  • (2) If:
    • (a) the Commissioner has given a notice to the recipient in respect of the overpaid amount, specifying a due date for payment that is at least 30 days after the notice is given; and
    • (b) any of the overpaid amount remains unpaid at the end of that due date;

      then the recipient is liable to pay the general interest charge on the unpaid amount for each day in the period that:

    • (c) started at the beginning of that due date; and
    • (d) finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid:
      • (i) the overpaid amount;
      • (ii) general interest charge on any of the overpaid amount.
  • (3) In this section:

    administrative overpayment means an amount that the Commissioner has paid to a person by mistake, being an amount to which the person is not entitled.

    [Original emphasis]

95. The word 'mistake' in s 8AAZN(3) is given no special meaning. I see no reason why the ordinary meaning of the word should not apply. In submissions, the Company leaned heavily on what the majority said in
Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd in respect of RBA deficit debts specified in statutory demand notices -

"37. As to (iii), the administrative overpayments represent amounts paid by the Commissioner to Neutral Bay and Howard Racing as input tax credits. The Commissioner treats as debts due by the taxpayers and payable under the Administration Act moneys being in respect of amounts paid by the Commissioner by mistake (s 8AAZN(3)). The mistaken nature of the payments depends upon the correctness of the GST assessments and declarations."[18] [2008] HCA 41 .

96. Relying on this passage, the Company asserts that the Commissioner's payment of a refund cannot be characterised as a mistake, as it recognises that the correct GST assessment for the June 2008 quarter is zero.

97. The flaw in this argument is that the Company was not entitled to the payment.

98. It may be assumed, contrary to the Company's submission, that the purpose of lodging a revised GST return was to obtain a refund. In that regard it was apparently successful. It is probable that the 2 November 2012 payment of $32,098 was made under s 35-5(1) of the GST Act or s 8AAZLF of the TAA. The Commissioner maintains that s 93-5 of the GST Act is not applicable in the circumstances. I agree. Entitlement to a refund under these sections is subject to a four year time limit by operation of s 105-55 of Schedule 1 to the TAA. If the Commissioner's payment was in excess of the Company's entitlement under that section, it would follow, objectively, that payment of an amount over the Company's entitlement might be a mistake.

99. The Company additionally asserts that s 8AAZN(3) cannot be construed relative to the limit of entitlement imposed by s 105-55 of Schedule 1 to the TAA.

100. The word 'entitled' in s 105-55 is not defined or given particular meaning. It refers to a taxpayer's entitlement to a refund in respect of a net amount or an amount of indirect tax paid in excess of liability for a tax period. The same word is used negatively - 'not entitled' - in the definition of an administrative overpayment under s 8AAZN(3) of the TAA. Once again, it is not defined or given particular meaning. In this context, it is probable that the word refers to a taxpayer's entitlement to an 'overpaid amount' by the Commissioner. It is not correct to say that lack of entitlement under s 105-55 is not relevant to the test of entitlement in respect of an administrative overpayment for the purposes of s 8AAZN. Arguing that the definitional limit imposed by s 3AA of the TAA on Schedule 1, such that definitions in Schedule 1 do not apply to the rest of the Act, does not assist.

101. For these reasons, even though it is not for me to decide, the payment of a refund to the Company on 2 November 2012 may well be a mistake and within the meaning of an 'administrative overpayment', as defined in s 8AAZN(3) of the TAA.

Assessable tax liability

102. As to the second issue of liability, the question is whether an administrative overpayment or, more specifically, the refund paid to the Company on 2 November 2012, is an assessable tax liability.

103. The word 'assessment' is defined under s 195-1 of the GST Act and s 995-1 of the Assessment Act to include a 'tax related liability'. Under s 255-1 of Schedule 1 to the TAA, a tax-related liability is 'a pecuniary liability to the Commonwealth arising directly under a *taxation law' - a statute administered by the Commissioner that provides for assessment of the liability. An index of tax-related liabilities and the specific legislation for each liability, specifying when each is due and payable, is set out in s 250-10 of Schedule 1 to the TAA. As can be seen, it includes, at item 5, an assessed net amount under s 35-5(2) of the GST Act and, at item 90, an administrative overpayment by the Commissioner under s 8AAZN of the TAA.

104. Thus it appears that an assessment for the purposes of the GST Act may include a tax related liability in the form of an administrative overpayment if s 8AAZN is construed to provide for the assessment of the liability. But, even if the section is construed in that way, it does not follow that an overpayment of this kind can properly be applied as an integer in the assessment of an entity's net amount of GST for a tax period. As was said in Deputy Commissioner of Taxation and Price[19] [2010] QSC 196 at [19] – [25]. , an administrative overpayment under s 8AAZN(1) of the TAA is a primary tax debt that may be allocated to a running balance account (RBA), although as DCJ Shaw observed in
Deputy Commissioner of Taxation v DeAngelis[20] [2008] SADC 103 at [139] – [145]. , notice of the overpayment under s 8AAZN(2) is required before the general interest charge accrues and, arguably, before recovery by allocation to an RBA.

105. An administrative overpayment under s 8AAZN does not necessarily form part of an 'assessment' for the purposes of the GST Act. There are two reasons for this. Firstly, the payment to the Company on 2 November 2013 is ancillary to or a consequence of a deemed assessment, but it does not form part of the process of assessment. If there is a mistake, it is not in the calculation of the assessment, which appears to be correct on the known facts, but in the payment of a refund to an entity without entitlement to receive it.

106. Secondly, s 8AAZN of the TAA establishes an administrative overpayment as a debt to the Commonwealth, recoverable in a competent court for which the recipient of the payment is liable, and it provides for notice to be given before accrual of the general interest charge. It is a liability provision that does not expressly provide for the 'assessment of the amount of the liability', such that review rights under Part IVC would apply.

107. The legislative basis on which assessments are made should not passed over lightly. Clearly enough, the conclusive evidence provisions in respect of assessments, set out in Schedule 1 to the TAA, facilitate recovery of assessed tax liabilities in a court of competent jurisdiction, subject to review under Part IVC of the TAA. Without express provision for an assessment to be made under s 8AAZN of a person's liability in respect of an administrative overpayment, the requirement for notice under s 8AAZN(2) assumes some importance. This is an essential precondition to the commencement of the general interest charge after a set period. Including an administrative overpayment in an assessment of the kind issued by the Commissioner on 13 November 2012 would render s 8AAZN(2) with no utility or work to do. A construction of this kind is not preferred when the purposes and objects of the section and the TAA are considered.

108. The correct approach would be to issue a notice, as provided for by s 8AAZN(2) of the TAA, on which the timetable for commencement of the general interest charge is predicated.

109. I do not accept that the Commissioner's 13 November 2012 assessment is effective notice for the purposes of s 8AAZN(2) of the TAA as it does not specify a due date for payment at least 30 days after the notice is given.

110. It follows that the administrative overpayment of $32,098 cannot properly be applied as GST when calculating the Company's net amount for the June 2008 period and it cannot properly be included in the Commissioner's 13 November 2012 assessment as an administrative overpayment, if such an overpayment exists.

111. For these reasons, I am satisfied that the Commissioner's 13 November 2012 assessment is excessive and it must be set aside.

Conclusion and decision

112. The Commissioner's assessment on 13 November 2012 is defective insofar as it records $32,098 as GST on sales, when this is not correct.

113. For these reasons the assessment is excessive. The correct GST amount for the purpose of assessment of the Company's net amount for the June 2008 quarter is zero.

114. The objection decision is set aside.

Footnotes

[1] T11, folios114 to 116.
[2] T1, folios9 to 12.
[3] Sections 7-1, 7-5, 7-10 and 7-15 of the GST Act.
[4] [2009] FCA 1224 at [254] – [255]
[5] IOOF Holdings Limited v Commissioner of Taxation [2013] FCA 1189 at [33] to [35].
[6] Re National Jet Systems Pty Ltd and Commissioner of Taxation [2011] AATA 766 at [65].
[7] [2012] AATA 920 .
[8] See Re Australian Leisure Marine Pty Ltd and Commissioner of Taxation [2010] AATA 620 at [16] and [17], and Re Dandenong Motors Unit Trust and Commissioner for Taxation [2012] AATA 920 at [25], for example.
[9] See Re Clontarf Development Pty Ltd and Commissioner of Taxation [2010] AATA 1065 at [29].
[10] (2011) 197 FCR 580 .
[11] T8, folio92.
[12] T5, folio34.
[13] Gashi v Commissioner of Taxation [2013] FCAFC 30 at [41] to [43].
[14] [2008] FCAFC 124 .
[15] ST1-122.
[16] [2013] AATA 126 at [18]-[19].
[17] Supplementary Submissions by Applicant, 4 November 2013, p8.
[18] [2008] HCA 41 .
[19] [2010] QSC 196 at [19] – [25].
[20] [2008] SADC 103 at [139] – [145].

 

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