• The impact of this case on ATO policy is discussed in Decision Impact Statement: AP Group Ltd v Commissioner of Taxation (Published 28 October 2014).

AP GROUP LIMITED v FC of T

Judges: Edmonds J
Jagot J

Bromberg J
Edmonds J [2nd]

Court:
Full Federal Court, Sydney

MEDIA NEUTRAL CITATION: [2013] FCAFC 105

Judgment date: 18 September 2013

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Bromberg J

56. For the reasons given by Edmonds and Jagot JJ, I concur with their conclusion that the appeal should be dismissed. I also agree that the Commissioner ' s cross-appeal and notice of contention should be dismissed but do so for different reasons. I gratefully adopt (without repeating here) the background facts, relevant statutory provisions and the summary of the Tribunal ' s reasoning provided in the reasons of Edmonds and Jagot JJ. The abbreviations there utilised are continued.

57. The questions raised by the Commissioner ' s cross-appeal are concerned with whether the Tribunal erred in rejecting the Commissioner ' s case that the ' retail target incentive ' payments paid by Ford and the ' wholesale target incentive ' payments paid by Subaru were consideration for supplies made by AP Group to those manufacturers. Additionally, by its notice of contention, the Commissioner raised related questions in which the Commissioner contended that the Tribunal erred in relation to the ' fleet rebate ' and ' run-out model support ' payments paid by Toyota to AP Group, by not accepting the Commissioner ' s case on the additional basis that the payments were consideration for supplies by AP Group to Toyota.

58. The alleged errors of law raised by each of those four issues were agitated by the Commissioner largely on the basis that the Tribunal misunderstood and thus failed to deal with the Commissioner ' s case and that therefore the Tribunal failed to take into account relevant considerations. The relevant considerations were identified as the undisputed evidence that supported a finding that the payments were consideration for things or acts done by AP Group for the manufacturers.

59. Relying upon the Tribunal ' s reference at [ 85 ] to the AP Group ' s " acceptance of the obligations or the making of the promises " , the Commissioner contended that the Tribunal misunderstood the Commissioner ' s case. That case was not that the supplies were constituted by the mere " acceptance " of obligations by AP Group but was put on the basis of AP Group " doing specific things in relation to specific programs " .

60. Read as a whole, the Tribunal ' s reasons do not disclose that the Tribunal misunderstood the case put by the Commissioner. At [ 79 ] the Tribunal described the " critical question " raised by the Commissioner ' s first argument as " whether, by performing (or agreeing to perform) the obligations imposed by the Dealer Agreements and the various sales bulletins and incentive flyers, the Applicant made a supply to the manufacturer " . At [ 86 ] , the Tribunal referred to " the performance of the obligations, or the compliance with the manufacturers ' various rules and policies " . These references suggest that the Tribunal understood that the Commissioner ' s argument relied upon the performance by AP Group of obligations imposed by both the dealer agreements and the various documents dealing with the specific programs under which the impugned payments were made.

61. Nor do I accept the Commissioner ' s contention that the Tribunal merely focused on the " essence or sole purpose " of the arrangements or that the Tribunal wrongly distinguished
Commissioner of Taxation v Secretary to the Department of Transport (Victoria) (2010) 188 FCR 167 by misconstruing the Commissioner ' s submissions in relation to the relevant supplies.

62. The Commissioner also contended that the Tribunal asked itself the wrong question. The Commissioner contended that given the breadth of the meaning of supply in s 9-10 of the GST Act, the Tribunal was wrong to conclude that the things or acts AP Group did for the manufacturers did not satisfy the statutory description of a " supply " .

63. The things or acts done by the AP Group and the obligations pursuant to which those acts were said to have been performed were generally described by the Commissioner in relation to each category of payment as:

• (i) For ' fleet rebates ' - acts or things done by AP Group for Toyota, in particular the act of selling motor vehicles to a particular class of customer in particular ways and at particular prices stipulated by Toyota. These acts were said by the Commissioner to constitute supplies made in performance of the obligations that AP Group assumed under the Toyota Dealer Agreement and the Toyota Fleet Plan.
• (ii) For ' run-out model support ' payments - acts or things done by AP Group for Toyota, in particular the act of selling specified models of motor vehicles in particular ways and on particular terms stipulated by Toyota, including a term that AP Group was obliged not to offer arrangements to customers less advantageous that those specified by Toyota in the rules and conditions for the ' run-out ' program. The Commissioner contended these acts constituted supplies made in performance of the obligations that AP Group assumed under the Toyota Dealer Agreement, the Incentive Programme Rules and Conditions, the Retail Sales Advice Policy, the sales bulletins and, when relevant, the Sales and Marketing Participation Form.
• (iii) For ' retail target incentive ' payments - acts or things done by AP Group with a view to achieving volume growth for Ford, thereby increasing its sales and market share. These acts or things included AP Group meeting specific sales targets, reporting sales in ways stipulated by Ford, promoting, marketing and advertising the sale of Ford ' s products in particular ways and ordering and estimating the requirements of vehicles in the form and on the date specified by Ford. The Commissioner contended that these acts constituted supplies that were made in performance of the obligations that AP Group assumed under the Ford Dealer Agreement and the ' Drive for Success ' dealer reward program.
• (iv) For ' wholesale target incentive ' payments - acts or things done by AP Group with a view to assisting Subaru ' s supply chain management program, thus contributing to Subaru ' s effective management of stock levels including the ordering and paying for stock in particular ways stipulated by Subaru, planning vehicle ordering requirements, reducing holdings of aged stock, actively selling off the incoming stock list and assisting Subaru in supply chain management and the forward ordering of vehicles. The Commissioner contended that the supplies were made in the performance of obligations AP Group assumed under the Subaru Satellite Dealer Agreement and, more specifically, the Vehicle Forwarding Ordering System (VFOS) wholesale target program.

64. The definition of supply provided by s 9-10 of the GST Act includes " any form of supply whatsoever " , such as the " supply of services " or an " entry into … an obligation … to do anything … " . The Commissioner ' s fundamental point before the Tribunal and on the appeal was that the acts or things done in performance of the obligations that AP Group assumed under the dealer agreements and various program documents was (in each case) a " supply " within the meaning of s 9-5 as defined in s 9-10 of the GST Act. In making its case, the Commissioner did not countenance the proposition that the broad language found in the s 9-10 definition of " supply " ought be read down.

65. The Tribunal perceived there to be " an air of unreality " (at [ 81 ] ) in an outcome based on a construction that the entry into an obligation to do anything was necessarily a " supply " . That was especially so, as the Tribunal saw it, given the broad concept of " consideration " provided by s 9-15 of the GST Act. The Tribunal was driven to conclude that there must be some limit to the intended reach of the concept of " supply " . It found a limit in the context of the facts before it. The Tribunal concluded that the AP Group ' s acceptance (and performance) of the obligations upon which the Commissioner relied were not supplies to the manufacturers because, as the Tribunal said at [ 85 ] , they were instead:

… part of the foundation underpinning the relationships [ between AP Group and each of the manufacturers ] , the background to the bargain the parties have made - in a sense, the rulebook by which the game is to be played.

66. Whilst I accept that the Tribunal was correct to assume that in the relations between a retailer and a wholesaler the performance of some obligations by the retailer may not constitute a " supply " , I have difficulty with the criteria adopted by the Tribunal to distinguish between those obligations that are beyond the statutory description and those that are not. The Tribunal ' s conclusion is based on the proposition that a " supply " does not extend to the entry into and performance of a ' foundational ' obligation which underpins a business relationship between a wholesaler and a retailer. However there is no textual support for reading down the meaning of " supply " by reference to ' foundational ' obligations. " Unreality " or impracticality may support a reading down, but why the line is to be drawn at ' foundational ' obligations is unclear. What constitutes a ' foundational ' obligation is also vague and uncertain. If the broad language of s 9-10 is to be read down, a more precise basis for doing so should be identified.

67. A basis for reading down the broad words in the definition of " supply " was referred to by AP Group by reference to the Commissioner ' s published position in Goods and Services Tax Ruling 2001/6 at [ 88 ] - [ 89 ] . That construction was not raised or relied upon by the Commissioner and was not the subject of submissions other than the passing reference made to it by AP Group.

68. The construction referred to is based upon the proposition that some obligations taken on by a person who is a recipient of a supply, essentially serve to define or describe the nature of what is supplied to the recipient by the supplier. A simple example is given in GST Ruling 2001/6 at [ 88 ] to illustrate the point. Goods supplied by a wholesaler may be supplied on condition that any re-sale by the retailer be confined to a specified geographical area. Such a condition imposes an obligation upon the retailer. However, in terms of the exchange between the wholesaler and the retailer, it is an obligation whose essential character is to define what the retailer receives from the wholesaler. It is principally a right retained by the wholesaler rather than a right conferred upon the wholesaler by the retailer. That, it is suggested, is not the kind of " obligation " contemplated by the statutory definition of " supply " . It is not a " supply " by the retailer to the wholesaler because it essentially serves to define the nature of what is being supplied by the wholesaler.

69. The construction has some attraction but, in the absence of full argument, my view about it should be regarded as no more than tentative. Arguably, the construction provides a more justifiable and precise basis for reading down the broad words of the statutory definition. On that construction, a wide range of conditions which regulate the manner in which a retailer may on-sell or otherwise deal with goods or services supplied to it will not of themselves be a " supply " .

70. There may of course be some overlap between a ' definitional ' obligation and what the Tribunal had in mind as a ' foundational ' obligation. The AP Group ' s submissions sought to justify the Tribunal ' s approach to ' foundational ' obligations by reference to the construction outlined above. However, the asserted justification was unsupported by the Tribunal ' s reasoning and I do not accept that the Tribunal took that approach. Nevertheless, the analysis that AP Group pointed to served to undermine the broad and unqualified meaning of " supply " for which the Commissioner contended.

71. It is evident then, that whilst I have concerns about the approach to construction adopted by the Tribunal, I do not disagree with the Tribunal ' s conclusion on any basis contended for by the Commissioner. That circumstance does not provide a basis for upholding the Commissioner ' s claims for relief.

72. Assuming that it may be wrong on the question of whether there was a " supply " , the Tribunal then turned to consider whether, if AP Group did make supplies to the manufacturers, those supplies were nevertheless not taxable supplies because they were not made for consideration.

73. As Kenny and Dodds-Streeton JJ said in Secretary of the Department of Transport (Victoria) at [ 59 ] :

The terms of s 9-5 show that whether or not there is a taxable supply for the purposes of the provision is to be determined from the perspective of the entity making the supply …

74. Accordingly, the question posed by s 9-5(a) is whether AP Group made the supplies for consideration. The analysis of Edmonds and Jagot JJ as to the proper construction of s 9-5(a) at [ 32 ] - [ 33 ] above (which I have respectfully adopted) requires that in determining whether the supplies were made for consideration, it is necessary to ask whether AP Group made each relevant supply in order to obtain a payment in connection with the supply.

75. That was not the question which the Tribunal asked at [ 86 ] (as reproduced at [ 23 ] above). Whilst the Tribunal asked whether a " nexus " existed between the payment made to AP Group and the performance of the obligations by AP Group, for the reasons expressed by Edmonds and Jagot JJ, the Tribunal was not unaware of the " for " requirement in s 9-5(a). However, the question which the Tribunal seems to have asked was whether the payments were made for the activities in which AP Group engaged. In doing so it seems to me that the Tribunal may have adopted the wrong perspective. The Tribunal seems to have concluded that the payments made to AP Group were not for the activities engaged in by AP Group because those activities would have been engaged in anyway as part of the running of AP Group ' s business. The proper question was whether the supply made by AP Group to the manufacturer was for a prospective payment later received.

76. Conduct which constitutes a " supply " may be conduct which has a range of other characteristics:
Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 at [ 28 ] and [ 36 ] (Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ). The same conduct may be directed to a number of purposes or objectives or it may provide a service or benefit to more than one person. In that context it is essential to bear in mind that the relevant question is not whether the conduct was for consideration but whether the particular supply which arose from the conduct was for consideration.

77. On the facts of this case, it may be correct to say that the conduct of the AP Group upon which the Commissioner relied, was of mutual benefit to AP Group as well as a manufacturer (although I am not convinced that in each case AP Group would have acted in the same way in the absence of an offer of payment). That a mutually beneficial outcome flowed from the same conduct to both the AP Group and to a manufacturer, does not deny the possibility that insofar as a benefit flowed to a manufacturer, the payment offered by the manufacturer actuated the flow of that benefit.

78. If the supply to a manufacturer was the fortuitous and coincidental result of conduct directed only to providing a benefit to AP Group, then it could not be said the supply to the manufacturer was made by AP Group in order to obtain any payment from the manufacturer. But on the facts of this case, the conduct of AP Group relevant to the ' fleet rebates ' , ' run-out model support ' , ' retail target incentive ' and ' wholesale target incentive ' programs occurred in the knowledge of the existence of those programs, in circumstances where AP Group actively participated in those programs and in the knowledge that the conduct pursued by AP Group may, if specified parameters were satisfied, result in a pre-determined payment from a manufacturer.

79. It may be that the Tribunal did not give proper consideration to those matters. That may well have been because it adopted the wrong perspective.

80. The Commissioner did not challenge the Tribunal ' s approach on the basis that it addressed the facts from the wrong perspective. The Commissioner ' s grounds relevantly asserted that the Tribunal erred because it should have found that the payments constituted consideration " because the payments were made " in connection with or in response to AP Groups various activities. The Commissioner ' s challenge focussed upon why the payments were made, rather than the proper question of whether the supplies were made for the payments.

81. It is for those reasons that I agree that the Commissioner ' s cross-appeal and notice of contention should be dismissed.