FEDERAL COURT OF AUSTRALIA
Steel City Wholesale Pty Limited v Federal Commissioner of Taxation
[2003] FCA 441
Conti J
12 May 2003 - Sydney
Conti J.
| INDEX OF JUDGMENT |
|
Pages |
Paragraphs |
Headings |
|---|---|---|
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1-9 |
1-12 |
The context to the dispute |
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9-11 |
13-14 |
The case propounded by the Commissioner |
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11-14 |
15-17 |
Steel City's notice of objection |
|
14-20 |
18-21 |
The Commissioner's response to Steel City's notice of objection (including an amendment to the notice of objection which need not be reproduced) |
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20-23 |
22-25 |
The initial course of the hearing involving the tender of substantial affidavit evidence in chief of Mr Boskovski on behalf of Steel City (including documentary evidence attached thereto) |
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23-29 |
26-32 |
The Commissioner's affidavit evidence |
|
29-43 |
33-36 |
Late tender by Steel City of further affidavit evidence in chief (Swaiden and Murzevski) |
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43-48 |
37-48 |
Mr Boskovski's initial affidavit evidence in reply |
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48-54 |
49-58 |
Mr Boskovski's cross-examination |
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54-57 |
59 |
Mr Speranza's cross-examination |
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58-59 |
60 |
Mr Raya's cross-examination |
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60-65 |
61-64 |
The cross-examination of Messrs Murzevski and Swaiden on 21 February 2003 |
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65-80 |
65-95 |
Findings and conclusion |
The context of the dispute
The applicant, Steel City Wholesale Pty Limited (Steel City), has carried on business as a wholesaler of soft drinks, more technically known as carbonated non-alcoholic drinks, from about the time of its incorporation on 15 July 1998. Its directors have been at all material times, Llija Boskovski (Mr Boskovski) (more commonly known as Ian Boskovski) and his brother Lade Boskovski, each of whom holds 1 share of $1 nominal value. It is the taxpayer who is the subject of the present proceedings. The brother, Lade Boskovski, has apparently resided in Germany at all material times.
2 There was previously another company named Steel City Distributors Pty Limited (Steel City Distributors) incorporated on 17 June 1994, whereof Mr Boskovski was the sole director and shareholder. Mr Boskovski said that he sold his single share in that company to his godson Jim Ristenski, at or about the time of the establishment of Steel City's operations. The latter company was also a wholesaler of soft drinks, though apparently on a smaller scale than Steel City. It was de-registered on 10 May 2000.
3 According to Mr Boskovski's principal affidavit of 30 May 2001, "Steel City has carried on the business since about July 1988". Presumably that reference to "Steel City" was made originally in relation to a business name under which Mr Boskovski individually operated a similar business prior to the formation of Steel City Distributors, and subsequently to the formation of Steel City, as well as to the 2 companies in combination.
4 Virtually from the outset of the commencement of business by Steel City as a wholesaler of soft drinks, that is to say, in respect of the month of August 1998, it lodged monthly claims with the respondent (the Commissioner) for refunds of the sales tax component of the wholesale price of soft drink paid by Steel City to its suppliers who were major Australian soft drink manufacturers or suppliers. The refund claims were made by Steel City upon the Commissioner on the basis that the soft drink, the subject of such wholesale sales to Steel City, did not constitute the last wholesale transaction in respect thereof, Steel City claiming to have onsold that soft drink to other persons or entities who had quoted sales tax registration numbers to Steel City. In that regard, s 27(1) of the Sales Tax Assessment Act 1992 (Cth) (the STAA 1992) reads as follows:
27(1) A sale is not taxable if the purchaser quotes for the sale at or before the time of the sale.
5 The present dispute relates partly to refunds of sales tax which had been sought by Steel City from the Commissioner, and had been thereafter paid by the Commissioner to Steel City, and partly to refunds of sales tax which had been sought by Steel City from the Commissioner, but were declined by the Commissioner. The Commissioner originally calculated that when all adjustments are made in accordance with what the Commissioner contends should be the outcome of the litigation, Steel City was thereby indebted to the Commissioner in the sum of $440,337.81, as detailed on the first page of the document headed "Attachment" incorporated at the conclusion of these reasons for judgment. Subsequently, the Commissioner has modified the quantification of that claim to $427,580.30. However, Steel City has initiated the present proceedings for recovery of what it asserts to be outstanding sales tax credit entitlements on its part, which it has quantified in the sum of $160,607.14. This appears in the second page of the document headed "Attachment". Hence the reason why it is the applicant in the proceedings.
6 The Commissioner's case boils down to the contention that numerous quotations of sales tax numbers (upon the footing whereof the abovementioned refund claims have been made by Steel City upon the Commissioner), were contrived by Steel City in relation to non-existent or non-bona fide wholesale sales of soft drink on the part of Steel City, in order that Steel City could obtain refunds of sales tax previously included in the prices charged by large distributors for bulk supplies of soft drink to Steel City. The contentious resale of soft drink made by Steel City was acknowledged from the outset, by Steel City, to have been made in return for payment by the buyers in cash, or predominantly so. The reason for Steel City's practice in requiring payment in cash from its allegedly wholesale distributors was said by Mr Boskovski to be because of the bad debts which Steel City had experienced by way of dishonoured cheques given to Steel City by wholesale buyers of soft drink from Steel City. The nature of the factual issues arising, and the manner and sequence in which the written and oral evidence, particularly the latter, was presented by Steel City, involved a substantial amount of detail concerning Steel City's business operations and those of other operators conceivably connected on occasions with Steel City. It has been a complex task to present the evidence of relevance in a comprehensible sequence, bearing in mind that the Commissioner's case involved wide ranging allegations of fraud on the revenue.
7 At least by 25 August 1999, sales tax refunds were being periodically made by the Commissioner by way of cheque sent to Steel City accompanied by the following notification:
That practice of the Commissioner continued until at least March 2000. On 14 April 2000, the Commissioner notified Mr Boskovski by letter as follows:This refund has been approved based on the information you provided. If in the future it is found that you were not entitled to all or part of this refund, the amount will be recoverable under the law.
Mr Garrard was the Commissioner's officer in charge of the sales tax investigation into Steel City's affairs, which commenced on or about 13 December 1999 and concluded on or about 21 August 2000. A similar letter of notification was sent by the Commissioner to Mr Boskovski on the same day in relation to a Steel City customer Tyl Pty Ltd trading as Kellyville Drinks, which was said by the Commissioner to have been quoting to Steel City sales tax exemption number "3021387" in connection with the purchase of soft drinks for the period from July 1998 to October 1999. The letter additionally stated that although Tyl Pty Ltd was deregistered in September 1999 and was no longer trading, "the principle (sic) individual behind the operation of Tyl Pty Ltd, Mr Wilson Wu, has also been quoting another Sales Tax Exemption number 4207125 under the name Ek Suen Wu". As will later appear, refund claims by Steel City based upon alleged wholesale sales to Mr Raya and Mr Wu form part of those in controversy in the proceedings.It has come to the attention of this Office that a customer of Steel City Wholesale Pty Ltd called Mr Samer Moshen Raya trading as S.M.R. has purchased considerable quantities of soft drinks quoting Sales Tax Exemption number 3021387 last year.
You are hereby notified that the Sales Tax number quoted above was cancelled in August 1996 and can no longer be used to purchase any goods exempt from sales tax. Therefore if you continue to accept this exemption number in the future, liabilities could be raised against your company or prosecution action may be pursued under the Sales Tax Assessment Act 1992 (Cth).
Should you have any questions on this matter or require additional information please contact J Garrard of the Parramatta Office on 9354 3059.
8 Four days later on 18 April 2000, Mr Garrard and his assistant interviewed Mr Boskovski at certain premises in Dapto, in the presence of a person recorded as Steel City's accountant, presumably Mr Leckie who attended a subsequent meeting at the Commissioner's Parramatta Office. At that meeting, Mr Boskovski produced files containing purchase orders, quotations, sales invoices and copies of the refund applications made by Steel City for the period August 1998 to March 2000. Mr Boskovski was asked about the circumstances in which Steel City's customers had quoted sales tax registration numbers when purchasing soft drinks. A written record was made of the meeting of 18 April 2000, which was signed on behalf of both the Commissioner and by Mr Boskovski. Mr Boskovski was thereby recorded as saying, inter alia, as follows (without correction of spelling errors):
- (i) Steel City's soft drink purchases, (including implicitly those made from Abbas Distributions "… a long time ago perhaps this year or year before", were made very little ex tax but "usually tax inclusive";
- (ii) Sales were usually made by Steel City in cash because "[e]very time I take a cheque from customers they bounce but I prefer to use cash";
- (iii) " … I only sell to people who quote … they give me the documentation with date and details";
- (iv) "90% they pick up some I deliver; A & K I deliver, Cash & Carey I deliver D & D I deliver and I think Abbas";
- (v) "Most pay in cash but a few pay by cheque";
- (vi) Steel City no longer sold to Samer Raya, who "contacted me to do business". Raya had paid in cash for his supplies of soft drink from Steel City;
- (vii) Elias paid by cash for stock purchased, which he picked up;
- (viii) Kakoyratos traded as D & D Distributors; and
- (ix) Speranza traded as Trident Distributions.
9 On 5 July 2000, a further meeting took place at the Commissioner's Parramatta Office attended by Mr Boskovski and his sales tax consultant Mr Leckie, and 3 officers of the Taxation Department including Mr Garrard. Mr Boskovski had initiated the calling of the meeting. A written record of the meeting was signed by Mr Boskovski and those officers of the Department. At the commencement of the meeting, the following was stated by one of the officers, presumably Mr Garrard who conducted the meeting:
Mr Boskovski is recorded as having immediately responded with a declaration noted by Mr Garrard to the effect that there was "100% no fraud in his company".Mr Boskovski I understand you have suggested this meeting because you are concerned about the refund claims your company has lodged with the ATO which have not been approved. As you know this matter was discussed with your consultant Jack Leckie and he was advised that the refund claims are to be disallowed under section 56 of the Sales Tax Assessment Act 1992 (Cth). In addition, it is likely that we will be clawing back some sales tax that was refunded to you over the past three years and we will be issuing a section 76 notice to cover this area.
As we advised Mr Leckie we have been investigating the soft drink industry and have found evidence of fraud with false invoices and false quotations and other irregularities. Information supplied to us indicates that some of your customers have falsely quoted sales tax numbers and that Steel City was aware of these quotations. However, it is good that you are here because you will be able to provide answers to a number of questions concerning sales to customers. At this stage we have not quantified the amounts involved as we are still making enquiries. However, we expect to send Steel City a letter in the next few weeks advising them of the action we propose to take.
If it's agreeable we would like to record details of this meeting on our computer as an accurate record. We will give you a copy. We would also like you to sign and date each page of the record of meeting.
…
10 The above cited ss 56 and 76(1) of the STAA 1992 read as follows:
Amendments to those sections were assented to during the period of time involved in the proceedings, but did not take effect until after that period, except in the case of s 76, which involved the omission of subs (2).56. If the amount deducted by the claimant under section 53, or applied by the Commissioner under section 55, is more than the amount of the credit to which the claimant is properly entitled, the excess is to be treated as if it were tax that became payable, and due for payment, by the claimant at the time when it was deducted or applied, as the case may be.
…
76(1) The Commissioner must remit any tax that has not been paid within 3 years after the time when it became payable, unless:
- (a) within the period of 3 years, the Commissioner has required payment of the tax by a notice in writing served on the person liable to pay the tax; or
- (b) the Commissioner is satisfied that payment of the tax was avoided by fraud or evasion.
(2) Any payment made in part satisfaction of several amounts that became payable at different times is taken to have been applied in satisfaction of those amounts of tax in the order in which they became payable, unless the Commissioner determines a different order.
(3) In this section:
- "tax" includes penalty under Part 9 and late-payment penalty.
11 The written record of the interview of the 5 July 2000 meeting, further reveals that Mr Boskovski asserted that Steel City had not been trading for 3 or 4 weeks "… because no money coming from refund claims, stop until GST comes. Owe 40,000 to one guy". Further matters stated at the meeting by Mr Boskovski, in relation to his involvement in the selling of soft drinks, included the following:
- (i) From July 1999 to March 2000, Steel City sold "over $1.1 million soft drinks" to the abovementioned A & K Distributors, for which payment had been made in cash "except for approx $30,000 bounced cheques".
- (ii) Steel City sold over $826,000 worth of soft drinks to E & D Elias over the period July 1999 to March 2000, payment for which was made in cash and that "[e]verybody paid cash. A few people bounced cheques so everybody had to pay cash. For Elias some people would pick up but drivers would still pay cash. Mr Elias stopped doing business with me suddenly as soon as the ATO audited him … he said selling price plus tax too expensive".
- (iii) D & D Distributors Pty Ltd's "[c]heques bounced and I said no more cheques just cash, guy still owes me money …"; the amount of product sold by Steel City to that company was said to be "over $616,000", the "main contact" at D & D Distributors being said to be Steven Christodoulou and Peter Kakoyratos, and the period of supply was said to be from July 1999 to March 2000.
- (iv) Trident Distributions Pty Ltd paid for its supplies, over the period from December 1999 to March 2000, a sum "over $251,491 worth of soft drinks" in cash, except for "… maybe one or two cheques"; (a principal of that company was Mr Nick Speranza, who provided affidavit and viva voce evidence for the Commissioner as a witness in the proceedings).
- (v) Samer Moshen Raya (to whom reference has already been made) paid for its supplies during the period July 1999 to October 1999 a sum "over $187,000 worth of soft drinks" in cash; he also provided affidavit and viva voce evidence for the Commissioner in the proceedings.
- (vi) Tyl Pty Ltd paid for its supplies during the period July 1999 to October 1999 a sum "over $172,000 worth of soft drinks" in cash, after a "[c]ouple of bounced cheques in [the] beginning"; the person "in Tyl" was said to be Wilson Wu (to whom reference also has already been made in [7] above).
- (vii) Ali Chokr purchased over $90,000 worth of soft drinks in cash during the period from February 2000 to March 2000.
- (viii) Sabier Khan trading as Kohinoor Traders purchased over $19,000 worth of soft drinks in cash during March 2000.
- (ix) Steven Christodoulou trading as Direct Beverages purchased over $12,000 worth of soft drinks in cash during March 2000.
12 It follows that for about 5 months prior to the commencement of the present proceedings on 14 December 2000, Mr Boskovski was on notice that Steel City's transactions involving, inter alia, Messrs Wu, Raya, Elias, Chokr, Speranza, Christodoulou and Kakoyratos (being the persons whose statements and/or records of interview were the subject of my reasons for rulings on evidence of 22 November 2002 attached to these reasons for judgment) were being investigated by the Commissioner. Save as to 4 dishonoured cheques attached to Steel City's notice of objection summarised in [15] below (as to which see subpara (iv) thereof), which may or may not have comprised part of the 5 dishonoured cheques referred to in [11] above, no other dishonoured cheques appear to have been tendered on behalf of Steel City to the Commissioner, prior to the commencement of proceedings, nor have any bank statements been produced to negate possibilities of replacement cheques received thereafter, whether promptly or otherwise. In that regard, Mr Boskovski did not testify whether he received replacement funds from signatories to dishonoured cheques. Nor were any balance sheets and profit and loss accounts of Steel City, whether prepared and verified by an accountant, or verified by Mr Boskovski, produced by Steel City to the Commissioner prior to the commencement of the present proceedings. The only financial statements of Steel City tendered at the hearing of the present proceedings consisted of Steel City's income tax return for the year ended 30 June 1999 (exhibit R2), which disclosed a gross turnover of $5,069,845.00 and a net profit of $166,911.00 (for more detail of exhibit R2 see [48] below). Steel City did not tender any accounting records by way, for instance, of ledgers or journals, from which the financial information appearing in that income tax return was derived, and from which a more informative understanding could conceivably be gained of the incidence or impact upon Steel City's revenues of dishonoured cheques.
The case propounded by the Commissioner
13 By letter dated 21 August 2000, the Commissioner informed Steel City that of the sales tax refunds totalling $1,107,389.00 made by the Commissioner to Steel City over the period from August 1998 to February 2000 (excluding January 2000), $543,345.00 were in fact considered to have been not allowable, and further that out of the sales tax refunds subsequently sought by Steel City in respect of the months of January 2000, and of March 2000 to May 2000, totalling $252,139.00, it was proposed to allow $103,008.00 and to disallow the balance of $149,131.00. The Commissioner further outlined in that letter the factual basis of the claim the subject of the proceedings as follows:
In the events which happened, signed statements from purported customers of Steel City obtained by the Commissioner were sought to be tendered in evidence in the proceedings by the Commissioner, the same being the subject of my reasons for rulings on evidence of 22 November 2002 also attached to these reasons for judgment.… Steel City provided a summary of claim sheet, which listed customers and suppliers details. These details included the quantity of cases of soft drink purchased per invoice, the ex tax cost price and the sales tax. Each category is recorded in a separate column with the sales tax totalled to show the amount of the sales tax to be claimed for a particular month.
Information supplied to the ATO suggested there was concern in the soft drink industry about some taxpayers not paying sales tax when making wholesale sales of soft drinks. A number of strategies were developed by the ATO to counter the loss of sales tax revenue due to tax avoidance in the industry.
Extensive enquiries have been made of taxpayers in the industry including Steel City's suppliers and customers. Our enquiries reveal that over 50% of the quotations were invalid and that Steel City was aware of this. A number of signed statements have been received from some of your customers advising that some of the invoices issued to them by Steel City were false and that no soft drinks were actually sold to the parties noted on the invoices. Due to the secrecy provisions we are unable to name those customers who have made false quotations. We can, however, assure you we will be taking the appropriate action against those concerned.
14 The allegation by the Commissioner that Steel City had made substantial claims for sales tax refunds on a knowingly false basis was of course very serious in its implications to Steel City and to Mr Boskovski, he being Steel City's controlling mind and decision-maker, as Steel City's subsequent notice of objection explicitly recognised (infra). The principal investigating officer of the Australian Taxation Office (the ATO), identified in the Commissioner's above partly cited letter of 21 August 2000, as Mr Garrard (to whom reference has already been made), provided 3 affidavits in the proceedings. Counsel for Steel City did not cross-examine Mr Garrard, otherwise than in relation to an issue raised by Steel City as to Mr Garrard's assertion to be the decision-maker for the Commissioner in relation to Steel City's sales tax refund application (transcript pp 283-284), being an assertion which I find to have been established in his favour. The Commissioner next set out in that letter to Steel City of 21 August 2000, the statutory basis of the claim being advanced against Steel City, namely s 89 of the STAA 1992 reading as follows:
The Commissioner's letter explicitly asserted in conclusion, that the soft drink quotations of Steel City were false to Steel City's knowledge, inherently a grave allegation, whereof Steel City was thus given early and unequivocal notice. The Commissioner cited in that letter s 56 of the STAA 1992 (see [10] above) as the Commissioner's authority to claw back any credit sums already deducted by a claimant taxpayer, or refunded by the Commissioner, which were in excess of the credit or refund to which a claimant was properly entitled, by treating the excess credit as sales tax that became due and payable at the time when it was deducted or refunded. A separate notice in writing dated 22 August 2000, advising of the liability to pay sales tax in accordance with s 76(1) of the STAA 1992, and setting out precise details of the calculations thereof, was enclosed with the Commissioner's letter of 21 August 2000 to Steel City. The text of ss 56 and 76(1) of the STAA 1992 has already been extracted in [10] above.A quote is not effective, so far as it would have resulted in an exemption or a ground for a CR 8 credit, if at the time of the quote the person to whom the quote is made has reasonable grounds for believing that:
- (a) the quoter is not entitled to quote in the particular circumstances; or
- (b) the quote is not made in the form and manner required by subsection 86(1); or
- (c) the quote is false or misleading in a material particular (either because of something stated in the quote or something left out).
Steel City's notice of objection
15 Steel City's sales tax consultants lodged a notice of objection dated 19 September 2000 with the Commissioner pursuant to s 60(2) of the STAA 1992. This document was 10 pages in length and contained assertions, inter alia, as to the circumstances under which Steel City purchased its requirements of soft drink and subsequently resold the same. Steel City's grounds of objection may be summarised from Steel City's notice of objection as follows:
- (i) the statement in the Commissioner's letter of 19 September 2000 that "… over 50% of the quotations [of Steel City] were invalid and that Steel City was aware of this" was "nothing more or less than an assertion of fraud and is defamatory";
- (ii) the Commissioner's allegations that goods were invoiced but not delivered, and that the signed statements made by the then unnamed purchasing customers of Steel City were in fact false and unfounded, and further that Steel City would present evidence to support those contentions;
- (iii) the Commissioner's refusal to make further refunds of sales tax to Steel City, based upon Steel City's resales to purchasers who were claimed to have duly quoted sales tax numbers, "… meant that the liquidity of the business was damaged and Steel City was, as a consequence, unable to buy stock in sufficient quantity of flavours to satisfy the requirements of customers", and had the further consequence of "forc[ing] the virtual closure of the company's business", and causing "economic damage";
- (iv) the reason why Steel City received cash for its resales of soft drink, was that Steel City had received a "considerable number" of dishonoured cheques from its buyers; hence it became "company policy to only accept cash for payment", part of which Steel City retained in order to pay its creditors, and the remainder of which Steel City took to Steel City's bank and transferred into the bank accounts of suppliers. As I have already mentioned, 4 dishonoured cheques, claimed to be examples of those received by Steel City (and also 4 deposit slips, claimed to be examples of cash paid into a certain bank account designated "Ligon"), were attached to the letter of objection;
- (v) A
reconciliation of cases of soft drink purchased and sold, based on information
said to have been provided by Steel City to the Commissioner, was thereafter
set out as follows:
Total cases purchased 1.8.98 to 30.5.00 512,360.5 Total sold as per application for refunds of sales tax 480,403 Sold tax paid 28,026 Purchased and sold under quotation 3,654 512,083.0 Variance 277.5 The "[v]ariance" amounted to a ratio of only 0.06%. Those figures were said to "refute the claim that non-existent goods were invoiced" so that Steel City could claim refunds of sales tax in respect of so-called "ghost" sales. As will later appear, the Commissioner purported to establish in the proceedings, by means of certain written statements and oral testimony of alleged buyers of soft drink from Steel City, that Steel City's documentation of substantial segments of invoices said to have been given to purchasers of Steel City soft drink, were false and contrived, both as to the identity of buyers and of sales actually made.
16 The notice of objection of 19 September 2000 from Steel City's sales tax consultants addressed to the Commissioner, thereafter included the following further information of significance:
However, no such foreshadowed witnesses gave evidence in the proceedings on behalf of Steel City, apart from Mr Swaiden and a Mr Murzevski, the alleged driver for Steel City, both of whose affidavits filed in the present court proceedings and viva voce testimonies are later reproduced or summarised. Those 2 affidavits were not tendered in Steel City's case in chief, but by way of reply to the Commissioner's evidence in the proceedings. The reference to "Tyl" is to the company with which Mr Wu (whom I have earlier identified in [7] above), was associated.In the Record of Meeting held on 5 July 2000 at the Parramatta Tax Office Mr Boskovski answered a number of set questions relating to sales to certain people. It can be assumed therefore, that the statements were signed by one or more of those listed. From this record it can be seen that customers:
- • picked up their own goods
- • had goods delivered
- • a combination of both
Therefore, Mr Boskovski has witnesses also, who have either delivered goods to those named or helped load goods on trucks which arrived at the warehouse for stock. One customer always arrived in a rental vehicle to buy product and should be capable of being traced. Mr Boskovski will endeavour to find out the name of the hire company and will advise you of such.
Mr Ali Swaiden, a director and employee of A & K Distributors, has made a sworn statement to the effect that A & K Distributors had purchased goods from Steel City over a 2 year period and, through occupying the warehouse next door, he had witnessed people buying in bulk from Steel City and also witnessed an occasion when Mr Boskovski had told a client that because his cheques were no good he had to pay cash. (Please see copy attached).
A driver for Steel City also delivered to various customers and will make a sworn statement re delivering goods. However, he is on an overseas holiday and will not be back in Australia until just before Christmas. Nevertheless, he knows to which customers he delivered and will attest to this on his return.
It is also understood that one of the customers who Steel City was advised not to deal with (Tyl) purchased from Cash and Carry at Westmead and returned to deal with that supplier when Steel City refused to sell to them free of tax.
17 The content of that earlier affidavit of Ali Swaiden dated 8 September 2000 (attached to Steel City's notice of objection) read as follows (omitting formal parts):
The affidavit did not identify any of the Steel City clients referred to in the above extracted affidavit, including the "client" from whom Steel City required payment in cash. I should add for completeness that the Commissioner tendered in evidence, without objection, a joint statement earlier made by Mr Swaiden and Khaled Choker on 20 July 2000 at the Commissioner's Parramatta Office, which was exhibited to Mr Garrard's first affidavit later referred to, and further affidavits were subsequently made by Mr Swaiden on 18 June 2002 and 12 February 2003 for Steel City, which I will later summarise, along with Mr Swaiden's viva voce evidence.I Ali Swaiden of (A and K Distributors)
14 Katina St
Roselands
Do solemnly swear that I am a director and employee of A and K Distributors who operates a business at Unit 8 no 23 Garema Circuit Kingsgrove NSW 2208.
I swear that as an employee of the above named company I have had business dealings with Ian Boskovski of Steel City Wholesale Pty Ltd.
My employer A and K Distributors have purchased over a 2 year period soft drinks as a wholesaler for the re selling to both wholesalers and retailers.
I also swear that during this time I witnessed the clients of Steel City Wholesalers Pty Ltd purchase from that company bulk orders of soft drinks. I am aware of these sales as I occupied the warehouse next door. I witnessed an occasion when Ian told a client that because his cheque was no good that he required cash for any sales.
The Commissioner's response to Steel City's notice of objection (including an amendment to the notice of objection which need not be reproduced)
18 The Commissioner's detailed reasons for decision in relation to Steel City's notice of objection, dispatched to Steel City on 21 November 2000, so far as are presently material, are reproduced below:
The director of A & K Distributors above referred to was, as already indicated, Mr Swaiden, to whom reference has already been made in [8], [11], and [16-17] above. Steel City's truck driver referred to above, was presumably Mr Murzevski. Those persons, apart from Mr Boskovski, provided the only affidavit and viva voce testimony subsequently adduced by Steel City in the proceedings.…
Questions raised and our response:
We consider your objection raises particular question(s). These question(s) and our answer(s) to them are set out below.
Whether claimant entitled to a credit for sales tax under credit ground CRI of Table 3 of Schedule 1 of the Sales Tax Assessment Act 1992 (Cth).
Answer: No.
To the extent that the claimant was aware that quotes were invalid and that certain dealings were false, the quotes are not effective for the purposes of sections 82, 86, 87, 88 and 89 of the Sales Tax Assessment Act 1992 (Cth) and there is no entitlement to a credit.
Furthermore, to the extent that certain dealings were false the price for which those goods were sold included a component for the amount of sales tax included in the purchase price of those goods. In these circumstances the tax passed on in the price for which those goods were sold has not been refunded so as to satisfy the passing on provisions of the sales tax law.
Why we have made this decision:
An audit of the taxpayer's sales tax affairs for the period August 1998 to May 2000 revealed that the taxpayer knowingly accepted invalid quotes from persons to whom goods were sold and that certain people were coerced to complete false purchase orders.
A number of witness statements were obtained to support the audit findings.
The taxpayer's entitlement to credits was calculated by multiplying the total monthly credit claim by the percentage of cases sold representing valid dealings for the month. A schedule attached to the notification of refund decision dated 21 August 2000 details the quantum of the audit adjustment to each of the monthly refund claims.
On the basis of the audit findings it has been decided to maintain the disallowance of credits relating to false dealings. However, a number of arithmetic errors have been detected and these have now been corrected as detailed in the attached Summary of Credit Claim Adjustments. As a result, the net amount of tax owing in respect of disallowed credits for the period August 1998 to May 2000 is $427,580.30.
In an attempt to justify the claims for credit the taxpayer's objection provides an overview of its mode of operation, reasons for acquiring stock at tax inclusive prices and states that quoting is optional. In the circumstances of this case it is considered that factors such as these are of no real consequence.
Furthermore, it is considered that the fact that the taxpayer deals primarily in cash is consistent with the audit findings that certain dealings were false.
The taxpayer's objection also attempts to reconcile cases purchased with cases sold and there is a resultant variance of 277.5 cases which is stated to be insignificant (0.06%) and attributable in part to breakage. In compiling the reconciliation the taxpayer has adopted the figure of 480,403 for cases sold as per the ATO notification of 21 August 2000. However, a subsequent check of the refund applications shows that the correct total for cases sold per refund applications is 479,577.5. Using the figures provided in the taxpayer's letter of objection the reconciliation now appears as follows -
Total cases purchased 1.8.98 to 30.5.00 512,360.5 Total sold as per application for refunds of sales tax 479,577.5 Sold tax paid 28,026.0 Purchased and sold under quotation 3,654.0 511,275.5 511,257.5 Variance 1,103.5 A variance of over 1,103.5 cases (0.21%) is a significant quantity although the taxpayer may argue that it is not high in percentage terms. The reconciliation does not appear to account for any opening or closing stock and it also reflects the fact that the taxpayer does not properly account for items such as breakages. Yet, at page 10 of the objection the taxpayer states that it requires $180,000 to $190,000 of stock for operational needs. If the taxpayer has conducted its affairs in the manner suggested by the audit findings then it is most likely that a reconciliation of cases will result in a negligible variance but the above calculations show that the taxpayer's record keeping is somewhat deficient.
Copies of some of the purchase orders and invoices provided by the taxpayer show irregularities such as the quantity of goods ordered not equating the quantity sold and the name and address of the customer on the purchase order not the same as that appearing on the corresponding sales invoice.
In support of the objection the taxpayer has also provided a copy of an affidavit from a director of a company with which it had business dealings (A&K Distributors). However the affidavit lacks particulars and is therefore considered to be of no real value.
The objection also states that a driver employed by the taxpayer will make a sworn statement regarding delivery of goods to various customers but again no particulars are provided and it is stated that the driver is on an overseas holiday and will not return to Australia until just before Christmas (presumably Christmas 2000).
The taxpayer has requested that the objection be determined within the time frame permitted by the law and in the circumstances of this case it has been decided that the decision on objection is to accord with the audit findings but for arithmetic corrections.
…
We formed our view of the facts by relying on this information:
Applications for Refund of Sales Tax
Audit File and Audit Report
Witness Statements
Notice of Refund Decision - Section 60
Notice Under Section 76
Summary of claims, purchase orders and sales invoices provided by taxpayer Notice of Objection.
19 Steel City was thus placed formally on notice of allegations on the part of the Commissioner, that Steel City had undertaken sales tax refund claims in fraud of the revenue, and upon the basis of false record-keeping, and further that the proffered affidavit of Mr Swaiden of A & K Distributors of 8 September 2000 extracted in [17] above, was lacking in particularity and was considered to be of no assistance to the explanations advanced by Steel City as to its trading practices and procedures. The abovementioned "Summary of Credit Claim Adjustments" is attached to these reasons for judgment, from which it will be seen that the Commissioner reduced the previously alleged figure of $440,337.81 for "Tax Due and Payable" (see again [5] above) to $427,580.30 in conformity with the Commissioner's reasons for decision on Steel City's notice of objection.
20 Steel City appealed to the court against the Commissioner's appealable objection decision by way of application filed on 14 December 2000. The proceedings were allocated to my docket in March 2002, and the substantive hearing took place on 3, 4 and 5 June 2002, whereafter the hearing was adjourned to 20 August 2002, and the adducing of evidence at that stage was mutually treated as finalised. In the events which happened, further evidence was taken on 21 February 2003, at which further testimony in chief was adduced by Steel City, without objection from the Commissioner. The Commissioner's statement of facts, issues and contentions had been filed on 6 February 2001, and the same asserted that the Commissioner relied upon ss 14ZZO and 14ZZP of the Taxation Administration Act 1953 (Cth) (the TAA), which as then in force read as follows:
The Commissioner's statement thereafter posed, as the basic issue in the proceedings, whether Steel City is entitled to the credit for sales tax claimed by Steel City for the months of August 1998 to June 1999. In Vale Press Pty Ltd v FCT (1994) 53 FCR 92; 29 ATR 207; 94 ATC 4587, Hill J observed as follows in relation to the operation of s 14ZZO (at FCR 100; ATR 214; ATC 4593):14ZZO Grounds of objection and burden of proof
In proceedings on an appeal under section 14ZZ to the Federal Court against an appealable objection decision:
- (a) the appellant is, unless the court orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
- (b) the appellant has the burden of proving that:
- (i) if the taxation decision concerned is an assessment (other than a franking assessment) - the assessment is excessive; or
- (ii) if the taxation decision concerned is a franking assessment - the assessment is incorrect; or
- (iii) in any other case - the taxation decision should not have been made or should have been made differently.
14ZZP Order of Federal Court on appealable objection decision
Where the Federal Court hears an appeal against an appealable objection decision under section 14ZZ, the Court may make such order in relation to the decision as it thinks fit, including an order confirming or varying the decision.
See also FCT v Pacific Dunlop Ltd (1999) 87 FCR 253; 41 ATR 277; 99 ATC 4294 (at FCR 260-61; ATR 283-84; ATC 4310-11).The sales tax legislation differs from the income tax legislation in that the assessment is not prima facie evidence in a sales tax appeal; cf s 67 of the [Income Tax] Assessment Act. However, s 14ZZO applies not only to income tax appeals but also to sales tax appeals. In sales tax, as in income tax, therefore, the statutory issue will ultimately be the excessiveness of the assessment. Hence, although a sales tax assessment is not given any prima facie status when tendered in a sales tax appeal, it is clear that it is for the taxpayer in a sales tax matter to show the assessment to be excessive, just as it is for a taxpayer in an income tax matter to show the assessment to be excessive. A taxpayer will not, in my view, show the assessment to be excessive merely by showing that the assessment is one made by the Commissioner by applying some arbitrary percentage … Ultimately the taxpayer will not have shown thereby the assessment to be in excess of the actual substantive liability of the taxpayer.
21 In Steel City's statement of facts, issues and contentions filed on 6 April 2001, the following appears under the heading "Issues":
Steel City contended that issue 1 should be answered in the affirmative, and that the abovementioned issues 2, 3 and 4 should be answered in the negative. To my understanding, Steel City did not ultimately pursue issues 2 and 3 above, which clearly did not have substance in any event. Those letters are already referred to in [13-14] above. Credit ground CR2A above referred to, is in the following terms:
- 1. Whether the Respondent is entitled to a credit in terms of credit ground CR2A of Schedule 1 or otherwise for sales tax as claimed by it pursuant to the Sales Tax Assessment Act 1992 (Cth) ("the Act") with respect to the months of August, 1998 - June, 1999.
- 2. Whether the letter to the Applicant from the Respondent dated 21 August, 2000 ("the letter") is an effective notice for the purposes of s 56 of the Act, in particular whether the letter has the operation pursuant to the Act asserted by the Respondent therein.
- 3. Whether the letter to the Applicant from the Respondent dated 22 August, 2000 has the effect asserted by the Respondent and, in particular, whether the notice is an effective notice for the purpose of the section of the Act alleged therein.
- 4. Whether the Applicant has entered into improper or illegal arrangements with various persons for an improper or illegal purpose.
Of course, the Commissioner's contention is that Steel City was not entitled to quote exemption declarations within CR2A in relation to its transactions of sale the subject of the proceedings, because genuine quotations were not normally or usually made to Steel City.
[1] No.
[2] Summary of
ground
[3] Details of
ground
[4] Amount of
credit
[5] Time
credit arises
CR2A.
Claimant has borne tax, even though entitled to quote exemption declaration.
Claimant has borne tax on a tax-bearing dealing for which the claimant was entitled to quote an exemption declaration (whether or not the claimant quoted).
Claimant has not sold the goods. If claimant has applied the goods to own use, the AOU would not have been taxable assuming it were an assessable dealing.
The tax borne to the extent that the claimant has not passed it on.
Time of the tax-bearing dealing.
…
The initial course of the hearing involving the tender of substantial affidavit evidence in chief of Mr Boskovski on behalf of Steel City (including documentary evidence attached thereto)
22 Counsel for Steel City acknowledged that Steel City carried the statutory onus of establishing that the transactions impugned by the Commissioner were bona fide undertaken and implemented by Steel City, such as to have entitled Steel City to the refunds and credits of sales tax in issue. Three affidavits sworn by Mr Boskovski were tendered at the hearing on behalf of Steel City, the first being that of Mr Boskovski sworn on 31 May 2002. That affidavit largely constituted a summary of the essence of Steel City's contentions, and although it was the later of those 3 affidavits sworn by Mr Boskovski in point of time, it was the most appropriate for Steel City to initially read (as in fact occurred) in sequence, because it set out the essence of Steel City's case in general terms, after first explaining how Steel City succeeded de facto to the prior business of Steel City Distributors (see again [2-3] above). It is appropriate to set out below the affidavit of 31 May 2002 verbatim; I disallowed the Commissioner's objection to the bracketed words of the second sentence of para 6 thereof:
I observe that the persons referred to in [7] above, are those whose testimony in the form of written statements became the subject of substantial controversy at the hearing, in terms of admissibility into evidence, as appears from my reasons for rulings on evidence given on 22 November 2002.
- 1. I originally commenced to carry on business as a wholesaler of soft drink to shops, restaurants, clubs and schools. I did this as a director and shareholder of Steel City Distributors Pty Limited ("Distributors"). Only a small proportion, perhaps 20% of the goods was sold tax free to those who quoted their sales tax number. Eighty percent of this business was of taxable wholesale sales.
- 2. This business of Distributors, involved me carrying and delivering a substantial number of cartons of soft drink to retail shops and the like as set out in the preceding paragraph. Thus this required me to personally carry the boxes. Subsequently I engaged helpers to assist me. I sold this business (in the sense that Distributors sold) to my godson. I did this because I found the continual physical strain of carrying the boxes to so many locations just too much for me.
- 3. At about the time of Distributors selling its business I was receiving more and more orders from persons in Sydney and its suburbs who wished to buy in large quantities, that is to say by pallets. These can be lifted onto trucks by forklift and this saved me from the continual strain of heavy physical exertion. Importantly it made employees and other helpers simply unnecessary. I retained just one man as a driver. I thus acquired the issued capital of the Applicant and it commenced a business of selling soft drinks under quotation to various persons. It is in respect of that business that this dispute arises.
- 4. Coca Cola and other major distributors such as Davids Wholesalers Pty Limited ("Davids") would not sell goods to the Applicant (or me personally) tax exempt. For example Davids would not sell to me and to the best of my understanding that major distributor would only sell to a select few who, I believed, it had appointed as sub-agents.
- 5. It necessarily followed that I was obliged to and did deal with some one or more of those sub-agents. I could only buy from them on a tax inclusive basis and this is what I did and it is the reason why the applicant applied for sales tax refunds because it was selling those same goods to persons who quoted their sales tax numbers and who thus purchased them sales tax free.
- 6. It was unfortunate that I could not buy the soft drinks quoting my sales tax number as this, from a cash flow viewpoint, was not cost effective but that was the only way I was able to operate. The Applicant no longer carries on its business [because, without the refund which the Applicant claims, there is no money so to do]. The turnover of the applicant's business when the Applicant carried on its business was over $4,000,000 each year.
- 7. I believe that all the persons who are said to have given statements to the Respondent and which are attached to Mr Garrard's affidavits are either bankrupt or have disappeared or both.
23 The second affidavit tendered by Steel City, in sequence, was that earlier made by Mr Boskovski on 30 May 2001. The contents of that affidavit are summarised below:
| pages 1 to 4: | ASIC records in relation to Steel City; |
|---|---|
| pages 5-6: | minutes of Steel City directors' meeting of 21 November 2001, which authorised the conduct of the present proceedings; |
| pages 7 to 9: | ASIC details of Steel City Distributors Pty Ltd (see also in that regard [2-3] above); |
| pages 10 to 81: | monthly sales tax claims made by Steel City upon the Commissioner, prefaced by the Commissioner's initial summary thereof; |
| pages 82 to 89: | refund of sales tax notices from August to March 1998 sent by the Commissioner to Steel City; |
| pages 90 to 101: | extracts from Steel City's bank deposit book for the months August 1998 to December 1999 and February 2000 (except for November and December 1998 and March and April 1999 which were omitted); |
| pages 102 to 105: | communications between the Commissioner and Mr Boskovski, and Steel City's accountants, which directed that certain sales tax exemption numbers not be used (ie those relating to Mr Raya trading as SMR, Tyl Pty Ltd trading as Kellyville Drinks (Mr Wu), and Ali Chokr (misspelt Choker) trading as AMC Distributors; |
| pages 106 to 111: | signed record of meeting held on 5 July 2000 between the Commissioner's representatives and Mr Boskovski and his accountants; |
| pages 112 to 130: | the Commissioner's notification of disallowances of sales tax credit claims, Steel City's notice of objection, and the Commissioner's notification of partial allowance. |
24 Thereafter Mr Boskovski's second affidavit concluded as follows:
The abovementioned exhibit "LB1" contained a substantial quantity of purported business records of Steel City, the authenticity of which was challenged by objection to admissibility made on the part of the Commissioner. For instance, the handwritten documents from pp 10 to 81 of "LB1", purportedly comprising details of Steel City's sales of soft drink on a month by month basis recorded in sales claim forms, were not proved to comprise entries in any Steel City accounting records, such as cash books, ledgers and journals. No such records were tendered in evidence, as I have earlier mentioned. The contentious assertions set out in the above extracted paras 7.1 and 7.2 were pressed on behalf of Steel City upon the basis that the same constituted opinion evidence of Mr Boskovski, but were rejected by me on that basis of tender. I granted leave to Steel City to apply to re-tender the same, in the light of subsequent material that might be adduced in evidence. In Mr Boskovski's viva voce testimony given without objection on 4 June 2002, albeit in re-examination, purportedly authenticated both exhibits "LB1" and "LB2", and thereafter I treated the same as wholly admitted into evidence. I should add for completeness that he was cross-examined at length on that day, and was re-examined on 5 June 2002.
- 7.1 I say that each transaction of Steel City particularised in the copies of the monthly claims which appear at pages 9 to 32 of LB1 is a transaction, which was actually completed for the amount of money, and in respect of the goods described therein. I deny any suggestion, however made or implied, that any of those transactions were fraudulent or were a sham or did not take place in the ordinary course of the business of Steel City.
- 7.2 I say further that Steel City has never issued a false Invoice to any of its clients.
25 The third affidavit of Mr Boskovski read in sequence, was that sworn on 30 April 2002. It purported to address in particular, the content of the statements and records of interview which had been attached to Mr Garrard's affidavit of 23 July 2001, and which concerned most of the persons with whom Steel City claimed to have conducted the dealings in controversy in the proceedings (see [11] above). Perhaps for that reason, most of Mr Boskovski's third affidavit was more appropriate to be read in reply. Counsel for Steel City nevertheless read in chief para 7 thereof headed "Record of Interview with Mr Samer Moshen Raya …", comprising subparas 7.1 to 7.5, and "Record of Interview with Mr Elias Elias …", comprising subparas 8.1 to 8.35, and the concluding short para 9. In addition, Steel City tendered exhibit "LB2" to the affidavit of Mr Boskovski of 30 April 2002, which consisted mainly of orders purportedly made to Steel City for the supply of soft drink, said to have emanated from Tyl Pty Ltd (Mr Wu), AMC Distributors (Mr Chokr), Trident Pty Ltd (Mr Speranza), D & D Drink Distributors Pty Limited and Floka Holdings Pty Ltd (Mr Steven Christodoulou), Abba Distributions (Mr Raya) and E & D Elias (Mr Elias), and invoices from Steel City purportedly corresponding with those purported orders. I disallowed subpara 3.5 of this third affidavit of Mr Boskovski, but gave liberty to Steel City to adduce evidence orally in relation to the purported theme thereof. It is appropriate that I defer my summary of the remaining contents of Mr Boskovski's affidavit of 30 April 2002, until after my review below of the content of the Commissioner's affidavits.
The Commissioner's affidavit evidence
26 The reading of the Commissioner's principal affidavit, namely that of Mr Garrard sworn 23 July 2001, provoked a substantial amount of debate upon the admissibility of certain signed statements and records of interview attached thereto made by persons claimed by Steel City to have been involved in the merchandising of soft drink purchased from Steel City after quotation by them of sales tax numbers. Those persons have already been variously identified in [8] and [11-12] above. Mr Boskovski's last mentioned affidavit of 30 April 2002, had purportedly addressed each of those controversial statements or records of interview. As foreshadowed in [7-11] above, Mr Garrard had been the leading member of an audit team established in December 1999 within the ATO at Parramatta to investigate applications for refunds of sales tax by certain taxpayers, including Steel City, engaged in the selling of soft drink purportedly by wholesale to persons who had quoted sales tax registration numbers, being transactions suspected by the Commissioner of being non-existent and dishonestly contrived. The sales tax audit of Steel City commenced shortly before 13 December 1999 and concluded on or about 21 August 2000. It appears to have been conducted at the same time as another investigation into a soft drink distributor named "Abbas Distributors".
27 Mr Garrard stated in his principal affidavit in the proceedings (ie that sworn on 23 July 2001) that during the course of the Commissioner's audit of Steel City's affairs, he and other members of the audit team made enquiries of, and conducted interviews with, Mr Boskovski and a number of persons to whom Steel City claimed to have sold soft drink by wholesale, in circumstances where sales tax registration numbers had been allegedly quoted by those purchasers to Steel City. Those interviewees (including Mr Boskovski), and the dates of the interviews (all of which took place at the Commissioner's Parramatta office), were as follows (as listed in the sequence appearing in Mr Garrard's principal affidavit):
- (i) Wilson Wu of Tyl Pty Limited (13 December 1999);
- (ii) Samer Raya (16 March 2000);
- (iii) Elias Elias (22 March 2000);
- (iv) Mr Boskovski (18 April 2000);
- (v) Ali Hassan Chokr (of AMC Distributors) (18 May 2000);
- (vi) Nick Speranza (of Trident Pty Ltd) (19 June 2000);
- (vii) Steven Christodoulou (of D & D Drink Distributors Pty Ltd) (20 June 2000);
- (viii) Mr Boskovski for a second time, on this occasion in the company of his accountant (5 July 2000);
- (ix) Peter Kakoyratos (also of D & D Drink Distributors Pty Ltd) (7 July 2000);
- (x) Ali Swaiden and Khaled Choker (of A & K Distributors Pty Limited) (20 July 2000);
- (xi) Samer Moshen Raya (same person as in (ii) above) (25 July 2000);
- (xii) Elias Elias (trading as D & E Elias) (same person as in (iii) above) (7 August 2000).
28 Subsequent to the obtaining of those statements and records of interview referred to in (i), (ii), (iii), (v), (vi), (vii), (ix), (xi) and (xii) above, Mr Garrard made calculations of the amount of refunds of sales tax which he considered to have been disallowable, and which should have been earlier disallowed, comprising summary sheets identifying the number of soft drink cases supposedly sold, the customers to whom the sales were supposedly made, and the corresponding value of those supposed sales, for each month in question. Thereafter Mr Garrard prepared a spreadsheet of calculations of the amounts of sales tax which had been refunded to Steel City prior to the audit, and which he determined should not have been refunded by the Commissioner, and would not have been refunded were it not for Steel City's allegedly false refund claims not earlier identified by the ATO. Upon the basis of those calculations made by Mr Garrard, the Commissioner sent a notice dated 22 August 2000 to Steel City, pursuant to s 76 of the STAA 1992, which read as follows:
In our letter of 21/8/2000 you were notified, in accordance with subsection 60(1) of the STAA 1992, of the decision to disallow in part sales tax credit claims lodged by Steel City Wholesale Pty Ltd ("Steel City") covering the period August 1998 to February 2000.
A recent review of Steel City's records showed evidence of false quotations. Subsequent investigations have confirmed that a large percentage of quotations accepted by Steel City were false and that Steel City was aware of this. As a consequence there was no legal entitlement to claim sales tax credits in respect to these false quotations. The sales tax figure for these false quotations amounts to $543,345 which was previously claimed and refunded to Steel City over the period August 1998 to February 2000.
Additional refund applications from Steel City have been received for the months of January 2000, March 2000, April 2000 & May 2000 totalling $252,139. It is proposed to disallow $149,131 which leaves $103,008 to be applied against the disallowed credits of $543,345 resulting in tax owing of $440,338. This amount was paid to you, in accordance with paragraph (b) of section 55 of the Act or section 8AAZL of the Taxation Administration Act 1953 (Cth) (where applicable), [and] was an amount to which you were not legally entitled. Under section 56 of the Act, any amount of credit deducted by the claimant or refunded by the Commissioner in excess of the credit to which a claimant is properly entitled, is treated as tax that became payable, and due for payment, at the time it was deducted or refunded.
Section 76(1) of the Act requires the Commissioner of Taxation to remit any tax that has not been paid within 3 years after the time when it became payable, unless:
- (a) within the period of 3 years, the Commissioner has required payment of the tax by a notice in writing served on the person liable to pay the tax; or
- (b) the Commissioner is satisfied that payment of the tax was avoided by fraud or evasion.
For this reason, Steel City is hereby required to pay the sales tax of $440,338 which in terms of section 56 of the Act became due and payable on 21/8/2000.
29 The texts of the abovementioned ss 56 and 76(1) of the STAA 1992 have been earlier reproduced in these reasons for judgment. The allegation of false claims and false quotations was of course a serious allegation whereof Steel City was thereby given explicit notice. Steel City was thus confronted with the statutory onus of establishing such grounds of objection as Steel City might seek to raise and pursue.
30 A second affidavit was made by Mr Garrard on 28 September 2001, mainly in relation to endeavours on his part to secure the attendance at court of the abovementioned interviewees (except of course Messrs Swaiden and Chokr and Mr Boskovski himself) to give evidence in verification of their respective testimonies appearing in the statements and records of interview attached to Mr Garrard's first affidavit. Those endeavours may be summarised as follows:
- (i) Mr Wu attended a meeting at the Commissioner's Parramatta office on 17 August 2001 with Mr Garrard, and another officer of the ATO, and a solicitor employed by the Australian Government Solicitor, and at the close of the meeting, Mr Wu said that he would speak to his family and thereafter notify Mr Garrard as to whether he would give evidence for the Commissioner; he subsequently telephoned Mr Garrard and said that he would not do so.
- (ii) Mr Elias could not be located at any of the residential addresses which Mr Garrard had recorded;
- (iii) Mr Christodoulou attended a meeting with Mr Garrard at the Commissioner's Parramatta office on 17 September 2001, and said that he did not want to give evidence for the Commissioner;
- (iv) Mr Kakoyratos attended a meeting with Mr Garrard at the Commissioner's Parramatta office on 31 August 2001, and 17 days later notified Mr Garrard by telephone that he would not be giving evidence for the Commissioner;
- (v) Mr Speranza attended a meeting with Mr Garrard at the Commissioner's Parramatta office on 18 September 2001, and 6 days later notified Mr Garrard by telephone that he would not be a witness in the case;
- (vi) Mr Chokr did not respond to a letter sent to him by Mr Garrard, and Mr Garrard was unable to speak to him by telephone, or to locate an address or telephone number in order to communicate with him;
- (vii) Mr Garrard made a number of telephone calls, and attended personally at 5 residential addresses, the last attendance being made on 27 September 2001, in an endeavour to speak to Mr Khan, each time without success; and
- (viii) Mr Garrard spoke to Mr Raya at his residence on 5 September 2001, and arranged for him to attend at the Commissioner's Parramatta office on 10 September 2001; Mr Raya did not attend the meeting, and further attempts made by Mr Garrard to telephone him were unsuccessful; Mr Raya's sales tax number had been cancelled by the Commissioner earlier on 12 August 1996.
31 A third affidavit was made by Mr Garrard on 30 May 2002. He deposed to attending at Unit 2, 150 Queen Victoria Street Bexley and speaking to a woman who identified herself as the wife of Ali Chokr. She said that Mr Chokr was not in business at that time and was "on the dole"; Mr Garrard observed a van was parked outside the building. Mr Garrard was not cross-examined upon any of his 3 affidavits. I should add for completeness that in the course of a brief cross-examination of Mr Donohoe of the Australian Government Solicitor's Office on 5 June 2002, it emerged that Mr Wu had informed him earlier on that day that he was still in Queensland and that "he would be coming home sometime on Friday night".
32 Apart from the 3 affidavits made by Mr Garrard which were presented to the court, there was also presented to the court, at the commencement of the third day's hearing of the proceedings on 5 June 2002, 2 affidavits sworn earlier on that day by the abovementioned Messrs Raya and Speranza. It will be recalled that certain conduct of Mr Raya had triggered the Commissioner's enquiry into the sales tax affairs of Steel City in the first place (see the Commissioner's letter to Steel City extracted in [7] above). Mr Raya's affidavit purported to verify his initial brief statement bearing the date of 16 March 2000, and his answers to questions appearing in the written record of his interview at the behest of the Commissioner on 25 July 2000. Mr Speranza's affidavit purported to do likewise in relation to his statement of 19 June 2000, and in addition contained the following:
I will later refer to the cross-examination of Messrs Raya and Speranza by counsel for Steel City.
- 3. Sometime around Christmas 1999 I first recall buying soft drinks from Boskovski wholesale, whose business was Steel City Wholesalers. I bought a mixed range of soft drinks such as Coke, lemonades and carbonated water for example.
- 4. I was first approached by someone in the Australian Taxation Office in approximately, early June 2000. I don't know who spoke to me, but an employee of the Australian Taxation Office, said words to me to the effect that, "we want to see all the statements, invoices and purchase orders that you had in relation to Steel City, because we are concerned about some $50,000 that you owe in sales tax for drinks". I replied in words to the effect: "that's impossible, because I could not carry that amount of drinks, because I only had a one ton truck". I also said, "for that amount of drinks I would need a semi trailer to move it".
Late tender by Steel City of further affidavit evidence in chief (Swaiden and Murzevski)
33 After the apparent conclusion of the hearing of all viva voce testimony which took place on 3-5 June 2002, Steel City tendered further affidavit evidence to the court, with the consent of the Commissioner, from the following persons, being affidavit evidence which I reproduce below:
- (i) Ali
Swaiden's affidavit (sworn 18 June 2002) containing the following (he
is first referred to in these reasons for judgment in [8] above):
- 1. I, in conjunction with Khalid Choker ("my partner"), was the registered lessee of premises known as units 7 and 8/23 Garema Circuit Kingsgrove. From those premises I and my partner carried on business as wholesalers and retailers of soft drinks.
- 2. My partner and I purchased many pallets of soft drink from Steel City Wholesale Pty Limited ("Steel City").
- 3. On numerous occasions I was present at the warehouse operated at Garema Circuit by Steel City. Those premises adjoined ours. I was often present when Mr Speranza, who is well known to me, purchased quantities of soft drink from Steel City. I was often present when Mr Speranza purchased goods substantially in excess of the goods which his Toyota High Ace could carry.
- 4. Also on many occasions I saw a much larger truck which was owned by persons whom Mr Speranza had introduced to me as his partners, namely Jerry and David. I remember Mr Speranza saying to me from time to time "Jerry and David are my partners. We buy together so we can buy in bulk". Either Jerry or David or Mr Speranza took delivery of a substantial number of cases and pallets of soft drink.
- 5. On numerous occasions Mr Speranza said to Mr Boskovski of Steel City in my presence "I am buying some of these soft drinks for my partners". I saw him on numerous occasions fill out order forms for goods which he loaded on his truck or on the other larger truck and which cases of soft drink were well in excess of the carrying capacity of his High Ace truck. On many occasions, I also saw a truck driven by either David or Jerry collect stock well in excess of the carrying capacity of the High Ace Truck referred to earlier.
- 6 I remember Mr Speranza saying to me on numerous occasions "This buying from Ian is good because we are buying by bulk and we get a very good wholesale price".
It will be recalled that Mr Swaiden had provided a joint statement with Khaled Choker to the Commissioner on 20 July 2000, in the circumstances set out in [27(x)] above, and subsequently an affidavit of 8 September 2000 attached to Steel City's notice of objection (see [17] above).
- (ii) Mile
Murzevski's affidavit (sworn 18 June 2002) containing the following:
- 1. I am currently employed by Duren Family Holdings Pty Limited of Port Kembla. I have met Sam Raya and I have recognized him over a period. This period was between April, 1999 and April, 2000 inclusive. At that time my occupation was to drive a truck for Ian Boskovski of Steel City Wholesale Pty Limited ("Steel City").
- 2. During the period aforesaid I also occasionally had the day to day conduct of the business of Steel City. This occurred whenever Mr Boskovski was absent.
- 3. During the period aforesaid I recall having loaded a truck for Mr Sam Raya. He to my knowledge, purchased, from time to time, goods from Steel City. I recall on two occasions him saying to me words to the effect "I have telephoned Ian I have organized to pick up a delivery of drinks". I said to him "Well that's fine, I shall give you the drinks you have ordered".
- 4. Prior to such conversations via the telephone with Mr Raya I had received telephone calls from Mr Boskovski whose words to me on each occasion were to the effect "Sam Raya will be in touch with you. I have arranged an order for him. Give him the drinks he needs".
- 5. I loaded trucks for Mr Raya on at least two occasions. I remember him saying to me on one occasion "I owe Ian money, where is he? I need to pay him". I remember on at least one occasion him showing me a bundle of notes at the time that he had said to me "I owe Ian money". I remember him then going to Ian's office at Hoxton Park Road with the cash in his hand.
Contents of statements of traders ruled to be admissible
34 Returning to the controversial objections made to the admissibility into evidence of the written statements and records of interview identified in [27] above, as I have already foreshadowed, I made final determinations in respect thereof in my reasons for rulings on evidence published to the parties on 22 November 2002. These reasons are attached to the present reasons for judgment for ease of reference. Those objections raised some complex issues of law which required consideration in the context of the substantial affidavit evidence which I have earlier reviewed. I had earlier suggested that my rulings on that evidence might be given in my reasons for judgment, since the parties had seemingly by then tendered all affidavit evidence upon which they purportedly relied. I decided subsequently to give reasons for rulings in advance of any reasons for judgment, in case Steel City might seek to call further evidence in the light of those rulings. I should record that as appears in [37] below, Mr Boskovski had already provided comprehensive affidavit evidence of 30 April 2002 in response to those written statements and records of interview.
35 That course of seeking to call further evidence was subsequently taken by Steel City, as indicated in [33] above. As appears from my reasons for rulings on evidence of 22 November 2002, I ruled to be admissible the controversial statements and records of interview which I have substantially reproduced below. I have refrained from correcting the spelling or punctuation errors in the original texts of those documents:
- (i) The
signed short statement of Samer Raya dated 16 March 2000, which comprised
the following:
I Samer Raya never authorised the use of my tax file number for the purchase of goods. And I have nothing to do with sales of soft drink to ABBAS DISTRIBUTORS or to STEEL CITY WHOLESALERS, and I did not authorise them to use my sales tax number without my knowledge. I cancelled my tax file number three years ago, and I have not used it since
- (ii) The
record of interview of Samer Moshen Raya conducted on 25 July 2000, which
included the following (adopting the precise text with all errors):
…
Do you operate a business?
No.
Did you operate a business?
No.
…
What was your means of income over the last two years?
On the dole, except about 18 months ago was in a security job and some casual work at Flemington. Also worked for FMR for a whole
…
Did you have a sales tax number 3021387 Mr Raya?
Yes. Before, a long time ago.
What was the reason for having this sales tax number?
When I worked for Ali Chokr I wanted to make my own business. I got a sales tax number but I never used it. My accountant Jamila Alam got it for me.
Who suggested you go to the accountant?
Ali Chokr suggested that I go to any accountant.
…
Did you ever use this sales tax number to purchase any goods?
No. I gave my sales tax number to Campbells Cash and Carry at Roselands, but I never bought anything from them.
Look, Each one is a different signature. And they are absolutely not my signature. Even the name is spelt OR.
I will now show you a Periodic quotation presented to Abbas Distributions PL which quotes the sales tax number 3021387 is the signature on this periodic yours?
No. At that time I did not live at 21-334 Woodstock Ave Mt Druitt. It was a long time ago when I lived there. For the whole of the time I was living there my sales number was cancelled.
If you deny that the above documents were not signed by you who else would have used your sales tax number and forged your signature?
Could be anyone from these guys.
Could you provide any name of any person who you think could have done it?
These (sic) were two brothers as I told you before I dropped my sales tax number details at Abbas's place. Mohammed called me on the mobile later, said come down and pick up some of your papers, and the sales tax document was with them. Do you know Ian Boskovski?
Yes I know him because I used to work with Abbas Distributions at Marrickville.
- (iii) The
record of interview of Mr Speranza of 19 June 2000, which included the
following:
How did you find out about Ian Boskovski?
Someone told me about him and I arranged to meet him at Strathfield.
Did you at any stage mention to Ian about the sales tax number?
He asked me if I had a Tax number and then he said he would need Purchase order.
Did he (Ian) tell you how to produce a Purchase orders.
He would give me a list of orders to put on the Purchase order it was a computer generated list of soft drinks. He would put data in biro and another column put OO on its own.
What did he give you for making the Purchase order?
20 cents per carton.
This stock on the Purchase order did you ever receive it?
No.
Have you any idea what happened to the stock on the Purchase Ord
Stock was sold to small vendors according to what Ian told me. I would never receive it.
Did you see this stock being sold.
Yes Vendors would come and pick up soft drinks He would collate all information and give invoices to vendors.
Was Ian Boskovski charging full price to the vendors?
He would charge them the same price as he would sell to us.(Trident)
What was the advantage for having your Sale Tax number quoted.
He said he needed it for clearing it with Sales Tax.
You said at one point you changed your signature why did you do this?
I became suspicious about what Ian was doing. Ian noticed this and said I should sign correctly.
The address at Garema Circuit was it the address of Steel City Wholesale
It was a business address of Steel City Wholesale. As far as I was concerned Ian was always there running it.
So you were not selling that stock on the orders. You did not receive them nor pay any money for them?
Yes Ian would just pay me 20 cents per carton for writing them out.
- (iv) The
signed statement of Mr Speranza, also bearing date 19 June 2000, stated
as follows (again adopting literally the precise text with all errors):
This is how it happened dealing with Steel City Distributors:
About mid December I approached Steel City, looked after by a man Called Ian. I was seeking to buy soft drinks for resale to school canteens for me and Partners. I was told I needed a Purchase order to cover the paper work with sale tax, I agreed to supply one when it was needed. I am not well experienced with paper work. He showed me an invoice which was printed by a printer for me to copy the amounts of boxes supplied. All seemed to be in order at the time when I inspected the invoices. He asked if I would like to make some extra money by adding extra cartons of drinks to the purchase order and he would give me 20 cents per carton in stock. The extra cartons were to cover other small vendors for sales tax. At the time of this event I was struggling to make ends meet financially, and the offer looked good, and I thought it was legal as he had a few more years experience than I did in selling goods to shops.
The prices for goods were as good as that you would buy truckloads from manufactures the reason why the paper work looked good to me. Small vendors would earn about $1.50 per carton when sold. We were picking up the goods from Garema cct Lakemba at the time.
The amount of cartons was increasing towards the end of march as easter was approaching, it started to bother me a little, not knowing what was going. Till he told me that the books were checked and I should write out the invoices to an other party to make it above board. I agreed and wrote out the invoices with which I received a Purchase Note. At that time I stoped all activities with him for fear of the unknown. He assured me that the sales tax people rarely inspected the books of distributors.
I kept going for a visit to see how things were, and at one stage I was met by aggressive behaviour and threatening words about someone not paying their bills. That scared the hell out of me. That is why I gave a different story the first time I was interviewed. I don't like to be a dead hero for the tax department. I may be paying a very high price for being honest.
My view to all this is, I think the tax department should have done more checking of the operations of the bigger distributors, to stop any wrong doings, if there has been any. I also do not agree with manufactures for pushing prices up for the distributors and giving big discounts to large supermarkets forcing the distributors to get desperate to make a profit.
Most of us small operators always seem to cop the rough end of the stick in business and we are the ones who seem to be doing all the hard work for little reward and sometimes it can cost us more than we earn.
For the last few months things for me have gone bad to worse. My earnings are almost non existent, my health is deteriorating and my family is losing their trust in me. My biggest fears are My family's safety, and losing my home from bankruptcy. Though other people's mistakes.
For all those handling this case, I urge you to have consideration and not to punish me for being honest. If you decide to do so, then I may lose my family and my home. I have no job, no money and my family and I are suffering from depression. Thank you.
- (v) Record of interview
of Mr Elias dated 7 August 2000 (ie the later Elias document annexed to
Mr Garrard's affidavit of 5 July 2001), which included the following (again
as literally appears with errors):
…
What was your business address?
23 South Parade Campsie it my parents address and I move from different rented premises so I prefer to have my mail go to one address.
…
For how long have you been a wholesaler of soft drinks?
I had a retail shop at Narwee about 1972 to 1973 so I had a few more shops after this but would make wholesale sales in between. I stopped wholesaling when I had retail shops. I did some taxi driving and from about 1984 to 1992 was in bankruptcy and I did no business then. But wholesaling soft drink not before 94 something like that.
Would you wholesale drink to retailers?
Yes I did.
Did you do a lot of that?
No.
Who were your suppliers over the years?
Its only been Abbas and Steel City that's all.
…
When did you start purchasing from Steel City Distributors?
Two or three years ago.
Who introduced you to Steel City Distributors?
Well, I don't actually remember.
When did you start purchasing from Steel City Wholesale?
Well as I say I could not remember the exact date. A few years back I am sorry I don't want to be in trouble if I don't give you exact answer.
Did you deal with the same person for both companies?
Yes he actually told me it was his company.
Who was the man you dealt with?
Ian.
Did you quote your sales tax number for all your purchases from Steel City?
Yes.
For Steel City were the soft drinks delivered or picked up by you?
Well Ah it wasn't picked up as I told you I only pick up small deliveries, he would deliver or have picked up all large amounts.
We have information that the drinks you ordered were picked up by you, or by trucks that you had arranged, and at that time you paid cash. Is this true?
It's not true at all I never have cash I wish I did. As I said before I would pick and pay for small orders $400 to $700.
…
If you picked up the drinks did you pick them up in your own vehicle?
Yes only small amounts, very small.
For Steel City who delivers the soft drinks to you?
I never receive them.
…
For Steel City what are the terms of delivery?
I don't know they are not delivered to me.
…
Do you accept that you have purchased $826,744 worth of soft drinks from Steel City for the period 1/7/99 to the 11/3/2000?
Same question I will tell you exactly the same I don't know my order books were stolen and my signature were already on them. I did buy from him.
Is it true that your customers, as you communicated at an early interview, pay your suppliers direct and the supplier then pays you a commission in cash on what is sold?
Yes that is correct.
How did this arrangement begin?
When I have tax exemption form for one year I take the orders by phone from the customers and tell them where to pick up the drinks and pay for them. When they have done that I get my commission from Abbas or Steel City.
…
Did you sell soft drinks to Abbas Distribution?
I don't think so.
Did you sell soft drinks to Wilson Wu, or to Kellyville Drinks, or to Tyl Pty Ltd?
Wilson the Chinese fellow yes …
Did you deliver drinks to Wilson Wu or did he pick them up?
No I never delivered them myself.
…
Did you ever pick up soft drinks from Steel City Distributors or Abbas Distributors? Note that there were annotations on Steel City invoices which refer to purchase orders nos 21 of 14.1.99 and 23.1.99 comprising "Elias pict up" (sic!).
Small orders only, never picked up those orders which you have showed me. How could I pick them up as I told you how could I pay him.
…
Do you your customers pay you or your suppliers for the soft drinks purchased?
They pay the suppliers.
Have you ever sold to Clancy's Campsie?
Yes.
What quantities?
Well two or three pallets I bought from Steel City and they delivered to my customer. I have sold coffee and soft drinks from Woolworths I sell to Clanceys.
Were you paid on a commission basis by your suppliers?
Yes it was five cents to ten cents per box depending on the quantity.
Do any of your customers owe you money?
No.
Do you owe money to any of your suppliers?
I don't owe money to Abbas or Steel City no.
- (vi) The
record of interview of Mr Christodoulou (a director of D & D Distributors
Pty Ltd) held on 20 June 2000, which included the following:
…
Why did you contact Ian Boskovski?
Because he was a big player in the game and we shopped around for good soft drink wholesalers.
What was the arrangement for buying from Ian Boskovski of Steel City Wholesale?
He gave us a good line of credit when we were in trouble we were in debt.
So you are saying you did not need to pay him cash?
No.
So are you telling us you would pick the stock up without paying for it and after you have sold it you would then pay him?
Yes.
So this was the arrangement right from the beginning?
Yes.
When you say we who is the other person you are talking about?
Peter Kakaratos
…
Where did you pick up the soft drink from Steel City?
He would send it to us by truck at our warehouse at Belfield.
What about the last purchases you have made?
At an address at Hoxton Park on Hoxton Park Rd.
What about paper work how was that arranged?
Ian Boskovski would give it to us after we signed them. But this would be a long time after the stock was sold.
What did Ian Boskovski charge you for the stock(soft drinks)?
Well there are different products so it is hard to differentiate.
How much would you make on an average from sales?
About a dollar a box.
Did you buy from anyone else?
Most of the soft drink was from Ian Boskovski of Steel City but we also bought from A & K Dist.
…
You said you purchased the stock on credit from Steel City Do you still owe money to them?
As myself no.
What about D&D?
We both took on large debts and I could not say if they have been paid or not.
How much was your debt?
About $180,000 how much I borrowed.
How did you pay Ian Boskovski of Steel City back?
I paid him cash or other times Ian would use your sales tax number.
He would get you to fill out invoicing for other people?
Yes We were desperate we would be forced into it by Ian. Ian was very aggressive about getting his money back.
How long was this going on for?
I really couldn't put a time to it but it was a long time.
Would you say a lot of the invoices were done this way?
Yes I would write the detail on the invoices and give them to Ian I did a few invoices like this for Direct Beverages.
Do you recall other people doing this also?
There were rumours other people were doing it. I did not personally see it. But everyone knew this was how Ian operated.
…
- (vii) The
record of interview of Mr Kakoyratos, a so-called "equal
director" of D&D Drinks Distributors Pty Ltd, held on 7 July
2000, which included the following:
…
When D&D Distributors PL operated, how did you pay for this soft drink by cheque or cash?
Some paid by cheque some by cash, some we could not pay.
…
How did you begin purchasing soft drinks from Steel City Wholesale PL?
Ian approached Steve offering stock and first consignment of stock on credit. He first supplied a semi-trailer of drink on credit. From then on we had to pay cash. Probably current debt from that time.
…
Steel City Wholesale PL sold over $616,000 worth of soft drinks to D & D Distributors Pl over the period July 99 to March 2000 do you accept this figure?
A semi-trailer load is valued at about $25,000.00. Concerning the $616,000 that period was at the time I was trying to run the business by myself. There was no way in the world that I could have purchased that amount of stock from him in that time. In the first week during this period with just myself in business, I sold $7,000 worth of drink, which after three months rose to $15,000 a week. I had a base of about 60 active customers a fortnight when I began by myself. Originally, with Steve, I had 400 active customers, but with our problems these dropped down, when I began, to 60.
I will now show you a purchase order, is that your signature on it?
Yes. That is definitely my signature. I was asked by Ian to sign purchase orders where the stock was never actually delivered to D and D Distributors. I queried with Ian the fact that it would look as if I was making large sales and if I did this other people would think that I had more money from these sales than I had.
Did Ian offer you any money to sign these purchase orders?
He would take 30c per box off my debt for each order I signed. I was scared after about 6 months and stopped signing, and that is when he started to demand the rest of the money. I was giving him cheques from the New Company but the cheques from the new company were not for stock but to reduce my earlier debt. The cheques were for $500.00 or more. I gave him 6 or 7 cheques totalling about $3-4,000, and then he took my van two weeks ago. He now want the balance of the money, $5,500, and wants to return the van.
Where is the paper work to substantiate the purchases from Steel City Wholesale and other soft drink suppliers?
Most of the paperwork was with Steve, but he was not a good record keeper, and lost it even more when his wife left him. The paperwork was all upside down and this was the biggest problem between me and him, money was always missing, could not trace what we owed, could not trace what we may have been owed.
How was the paper work done with Steel City Wholesale PL?
He was (sic) just tell me what to write on the purchase invoices e.g. 50 boxes. He would just call out to me what I had to write from paper he had, and I would write it down, and I would be paid the 30c a carton off what I owed him. The main thing was that if I did this he did not press for his debt. I tried to avoid him, he would chase me to where I was doing deliveries with the truck and get me to sign the orders for him.
Are you aware of anyone else repaying their debts by signing these orders.
I think everybody did it. I think that with the prices that Ian charged that the only way anyone would make any money was by his not charging sales tax. As an example 600ml coke where the cost price of $25 per case with sales tax added would be over $30 and there was no way anyone could compete as the going rate to retailers was $29.30 per case.
36 Steel City did not contend that insofar as any of those statements and records of interview, wholly or partly extracted above, might be found by me to be admissible in principle, in the sense of admissible in the light of relevant provisions of the Evidence Act 1995 (Cth), nonetheless some part or parts thereof were inadmissible in form. In any event, those aspects of the statements and records of interview which I have extracted, at least generally speaking, would tend to qualify for admissibility in form, speaking as they do of engagement or absence of engagement on the part of the makers in various business practices and procedures, and their observations of and experiences with Steel City's business practices which they encountered. Each of the statements contain material bearing directly or indirectly upon the issues arising in the proceedings. The weight that I should give to the admissible material which I have extracted, is of course another matter.
Mr Boskovski's initial affidavit evidence in reply
37 There remains to be recorded below those aspects of Mr Boskovski's affidavit of 30 April 2002, already identified and partly summarised in [25] above, which purported to respond to the controversial written statements and records of interview attached to Mr Garrard's first affidavit, and which were the subject of my reasons for rulings on evidence of 22 November 2002 attached to these reasons for judgment. Those responses of Mr Boskovski contained in that affidavit, were lengthy.
38 As to the contents of Mr Raya's short statement in writing dated 16 March 2000 and the record of his interview at the Commissioner's office signed by Mr Raya on 25 July 2000, extracted respectively in [35(i) and (ii)] above, Mr Boskovski stated somewhat briefly to the effect that Mr Raya signed most of the purchase orders which he gave to Steel City in Mr Boskovski's presence, Mr Raya being said to have been well known to Mr Boskovski for "several years", and further that all of the soft drink quantities which Mr Raya was claimed by Mr Boskovski to have purchased by Mr Raya from Steel City were collected by Mr Raya at Steel City's premises in Hoxton Park.
39 As to the contents of Mr Speranza's record of interview at the Commissioner's office on 19 June 2000, extracted in [35(iii)] above, Mr Boskovski stated that Mr Speranza placed his first order with Steel City on 11 December 1999, and further that Mr Speranza told him that there were 3 people associated with Mr Speranza's company Trident Pty Ltd, namely himself and persons called Gerry and Tom. Mr Boskovski maintained that all orders, asserted by Steel City as having been lodged by Mr Speranza with Steel City, comprising pp 100 to 139 of exhibit "LB2" to this third Boskovski affidavit, had been in fact made by Mr Speranza in his own handwriting, and he added that "[s]ometimes Tom or Gerry would come individually, or sometimes 2 of them together, to place orders and take delivery of stock".
40 Mr Boskovski denied "everything alleged by him" (ie by Mr Speranza), and in particular, he denied paying to Mr Speranza "20 cents per carton of the goods described in the orders", and maintained that all goods ordered by Mr Speranza were delivered by Steel City to him at Steel City's premises at Kingsgrove, and further that "[f]or the most part", Mr Speranza or his company paid for those goods in cash, though "… there were occasions when Steel City was paid by cheque". Mr Boskovski denied that "there was any discussion at any time in relation to a change of his signature". Mr Boskovski recalled that "on one or 2 occasions", he miswrote his sales tax exemption number by omitting one digit, and that "[o]n each of those occasions, I subsequently noticed the error, whilst entering the same in Steel City's records, and on Mr Speranza's next attendance at the office, I requested that he give a correct order form with the full sales tax exemption number thereon". After a certain experience with another customer, Mr Boskovski explained that he became "… alert for any mistake or error in relation to sales tax exemption numbers on order forms". In further response to Mr Speranza's affidavit testimony, Mr Boskovski said that he arranged with A & K Distributors (to whom he referred as "an old client of mine") to put Steel City surplus stock in one of A & K Distributors warehouses at Kingsgrove for the period of time only from July 1999 to April 2000, and he denied that Steel City leased those premises. As I have earlier indicated, Mr Ali Swaiden, who gave evidence for Steel City, and Mr Khaled Choker were the principals of A & K Distributors. Mr Boskovski further asserted that Steel City ceased to do business with Trident Pty Limited on or about 1 May 2000, when he received a note from Trident Pty Limited saying that its sales tax number had been cancelled. That note was in the following terms:
The sales tax exemption number for Trident Distributors has been cancelled from the 1st of May 2000. A copy of this certificate has been forward (sic) to the Sales Tax office in Parramatta. Jerry Privitera Director.
41 As to Mr Steven Christodoulou's record of interview, Mr Boskovski explained by his affidavit of 30 April 2002 that he first met him in late 1996 or 1997 when Mr Christodoulou and Mr Kakoyratos jointly owned or controlled D & D Drink Distributors Pty Limited; after Messrs Christodoulou and Kakoyratos were said by him to have had a dispute in about December 1998, Mr Boskovski's affidavit evidence stated that he dealt with the former of the two between February and April 2000. Mr Boskovski's affidavit evidence continued to the effect that the course of dealings between Steel City and Mr Christodoulou was that Mr Christodoulou would telephone and tell Mr Boskovski that he was coming to Steel City's premises. Mr Christodoulou would then arrive with his truck, and thereafter "[t]he paperwork would be fixed up, including obtaining an order and written quotation from him, and he would take the stock having paid for it". Mr Boskovski also said that he kept his computer in his "home office", where Steel City's invoices were prepared, and further that Mr Christodoulou would pick up the invoice when he next came to buy stock from Steel City.
42 As to the practice of D & D Drink Distributors and Mr Christodoulou concerning payment to Steel City for stock, Mr Boskovski continued in his affidavit of 30 April 2002 to the effect that initially, Steel City would accept payment either by cash or cheque, but that often "[a] number of cheques which were given to Steel City were dishonoured", and it became the practice that Steel City would only deliver upon payment in cash. Mr Boskovski referred in that context to the following cheques at pages 159 and 160 of exhibit "LB2" to his 30 April 2002 affidavit, each drawn in favour of Steel City:
- • Cheque dated 19 May 2000 for $1000 drawn by MPV Distributors;
- • Cheque dated 30 June 1998 for $9912 drawn by D & D Drink Distributors Pty Ltd;
- • Cheque dated 23 November 1998 for $2230 drawn by Floka Holdings Pty Ltd;
- • Cheque dated 22 October 1998 for $3900 drawn by D & D Drink Distributors Pty Ltd; and
- • Cheque dated 8 September 1998 for $4000 drawn by D & D Drink Distributors Pty Ltd
43 Further as to the dealings between Steel City and D & D Drink Distributors Pty Ltd, Mr Boskovski said that "[t]he most that was ever owed to Steel City was $20,000.00", and that whilst as at 5 July 2000, about $5500 was owed by D & D Drink Distributors Pty Ltd to Steel City, Mr Kakoyratos subsequently made payment thereof to Steel City. It will be recalled that Mr Kakoyratos and Mr Christodoulou were associated together in D & D Drink Distributors. Moreover after "cheques had been previously dishonoured on presentation", Mr Boskovski asserted that Mr Christodoulou paid Steel City in cash, Steel City's invoices being "only ever created by computer". No cheques of D & D Distributors Pty Ltd, additional to the 3 reproduced at pp 159 and 160 of exhibit "LB2", which were the same as those described in the preceding [42] above, were tendered in evidence by Steel City. Generally speaking, Mr Boskovski denied without qualification or explanation the potentially critical aspects of Mr Christodoulou's record of interview.
44 Addressing next the record of interview conducted by the Commissioner with Mr Kakoyratos, Mr Boskovski accepted that as therein appears, he did ask Mr Kakoyratos to "reduce his debt to Steel City, which was then about $15,000.00 by $500.00 per week", but that "Mr Kakoyratos gave me cheques, some of which were dishonoured on presentation to the Bank". Presumably, that was a reference to the 3 dishonoured cheques which I have identified in [40] above. Mr Boskovski also denied Mr Kakoyratos' statement that Mr Boskovski approached Mr Christodoulou "offering stock and a first consignment of stock on credit" (see [34(vii)] above), and gave a different version of the oral arrangement which they had reached for the purpose of doing business. The D & D Distributors purchase orders and the Steel City invoices were said by Mr Boskovski's third affidavit to be reproduced within 245 pp of exhibit "LB2" (ie pp 161 to 346 thereof), and receipts for goods that Steel City sold to D & D Distributors were said to also appear within those pages. However Mr Boskovski did not specifically identify the same by page number.
45 Mr Boskovski denied having ever asked Mr Kakoyratos to sign any purchase orders for stock which was not delivered to, or picked up, by him or on his behalf, and asserted that Mr Kakoyratos took possession of all of the trading stock referred to in the documents appearing on those pages 161 to 346 of the said exhibit "LB2" said to relate to, Mr Kakoyratos' transactions. Mr Boskovski also denied the existence of any arrangement with Mr Kakoyratos to take 30 cents per box off Mr Kakoyratos' debt for each order which he had signed, and maintained that all goods Mr Kakoyratos purportedly ordered from Steel City were received by D & D Distributors. Mr Boskovski further asserted that after D & D Distributors ceased buying from Steel City in about March 2000, Mr Kakoyratos still owed Steel City "a substantial amount which [he] was repaying at $500.00 per week", and which was said to have been repaid to Steel City by about July 2000, in circumstances which need not be narrated. No documentary evidence was identified or seemingly reproduced in that regard. Mr Boskovski claimed to have "always asked for money from Mr Kakoyratos whenever I met him, whilst money was still owing to Steel City". He accepted that he did not "chase Mr Kakoyratos, or get him to sign orders other than orders for goods, which had actually been picked up by his drivers", asserting in that context that "[w]henever Mr Kakoyratos picked up his goods, he signed the purchase order at the time of pick up". He further maintained that he had "no idea at what prices Mr Kakoyratos onsold the goods he purchased from me or for that matter to whom he sold those goods".
46 As to the record of interview of Mr Elias, Mr Boskovski commenced the account of his affidavit of 30 April 2002 on that topic to the effect that Mr Elias started to purchase soft drink goods from Steel City in about 1997, and continued to do so in 1998. He said that Mr Elias quoted his sales tax number to Steel City, and asserted that "I would not have sold to him tax free, had he not done so", and further that "… normally Mr Elias picked up small orders. Large orders were delivered by us to destinations nominated by Mr Elias". Mr Boskovski further agreed that Mr Elias paid cash for small orders that he picked up at Steel City's premises, but asserted that "[o]n other occasions when Steel City delivered, I insisted that cash for the goods so delivered be available at the point of delivery, otherwise I would not leave the goods". He continued that "[o]n some occasions, I delivered, on other occasions deliveries were made by Steel City's driver", and that "[o]n all occasions, cash was received", and that "[t]here was no occasion on which goods were returned to the stock because cash was not available as per Steel City's invoice". Mr Boskovski further said that he never paid a commission to Mr Elias, and that Steel City delivered goods "as per purchase orders to the delivery destination designated by Mr Elias and [was] paid for the goods … so delivered". No documentation in relation to those transactions was distilled from "LB1" and "LB2".
47 One specific aspect of Mr Boskovski's affidavit of 30 April 2002, tends to exemplify what I would describe as the "broad brush" characteristic of his responses therein contained to the potentially grave allegations encapsulated in the statements and records of interviews of Steel City's former customers tendered in evidence by Mr Garrard's affidavit of 23 July 2001. I have already referred to certain information given by Mr Elias in relation to Clancy's of Campsie (see the passages close to the end of [35(v)] above). Mr Boskovski purported in his third affidavit to address that testimony of Mr Elias as follows:
However, no reference appears to Clancy's at Campsie at pp 482 to 696 of exhibit "LB2" to Mr Boskovski's affidavit. The copy invoices/statements contained in "LB2" and addressed by Steel City to E & D Elias are each endorsed "Deliver To: E & D Elias 23 South Parade Campsie". As I have earlier indicated, the address No 23 South Parade Campsie was identified by Mr Elias in his record of interview as "my parents address".
- 8.28 As to Mr Elias' answer to question 59 on page 6 of the record of interview, I say that Steel City delivered to Clancy's at Campsie on Mr Elias' instructions.
- 8.29 As to Mr Elias' answer to question 6 on page 6 of the record of interview, I say that on each occasion Steel City delivered to Clancy's at Campsie on Mr Elias' instructions, the delivery was at least 10 pallets. Copies of invoices showing delivery destinations made at Clancy's at Campsie are included amongst the documents appearing at pages 482-696 of LB2 …
48 I should further refer to Mr Boskovski's denial, by para 8.31 of his affidavit of 30 April 2002, that Mr Elias was ever paid a commission of five cents (5c), or ten cents (10c), or any amount "per box", and his further denial of Mr Elias' assertion that "[g]oods were sold to Mr Elias on his purchase orders and all delivered to a delivery destination nominated by him and paid for on delivery", and of Mr Elias' further assertion that "… no money is owing to [Steel City] by Mr Elias, mainly because I insisted on payment for every delivery". Presumably, that insistence of Mr Boskovski extended to his asserted delivery on each occasion of "at least 10 pallets" to Clancy's at Campsie in the circumstances recorded in [45] above. I should also mention in the present context that there is evidence within those large Steel City folders comprising the exhibit "LB2" of an apparent Steel City practice of recording on its invoices the fact of deliveries of product made otherwise than to the invoiced address of the purported customer (see for instance pp 402 and 404 of exhibit "LB2", which purportedly related to deliveries made to Mr Raya).
Mr Boskovski's cross-examination
49 Mr Boskovski gave brief testimony in chief at the commencement of the hearing on 4 June 2002, prior to his cross-examination by counsel for the Commissioner throughout the remainder of that day. That testimony in chief was essentially to the effect that after he had been notified by the Commissioner in "late 2000" (in fact as appears in [8] above, the Commissioner's relevant letter of notification was 28 April 2000) that Steel City was not to accept further quotations based on sales tax exemption number 8154311 used by Ali Chokr trading as AMC Distributions, Steel City stopped doing so. In the immediate context of that answer, Mr Boskovski took the opportunity of advocating the thrust of Steel City's case, in summary as follows:
I had provided over three years to the Commissioner every month all my paperwork …, who was my buyers, the tax numbers, where they lived and everything else, so that if there is anything else I don't know.
50 Initial cross-examination of Mr Boskovski focused upon the financial implications of Steel City's commencement of business operations. I have addressed the evidence on that topic in [1-4] above. To that material I would first set out Steel City's purported trading results, as appear in its income tax return submitted to the Commissioner for the fiscal year ended 30 June 1999, which was prepared by Bosco Accounting Co (Australia) Pty Ltd:
| Gross Income | $5,069,845 | |
|---|---|---|
| Cost of Sales | 4,568,366 | |
| Employee Superannuation | 5,251 | |
| Legal expenses within Australia | 61,584 | |
| Rent expenses | 33,430 | |
| Motor vehicle expenses | 61,567 | |
| Repairs and maintenance | 1,825 | |
| All other expenses | 170,971 | |
| Total expenses | 4,902,994 | |
| Operating profit | 166,911 | |
| Total profit | $166,911 |
51 No sum was specifically allocated to wages by the above accounts, though elsewhere specific reference was made to total salary and wage expenses of $89,615.00. Presumably, the latter formed part of the above figure for "all other expenses". Mr Boskovski said that his own wages for the financial year amounted to $31,461, and those of his wife amounted to "about $60,000" per annum. Mr Boskovski also said that Steel City's initial trading stock was worth some $200,000, which had been acquired from Steel City's business predecessor Steel City Distributors. No reference thereto is apparent from the financial statement for taxation purposes set out above, nor to trading stock on hand at the end of the accounting period. Nor is reference made to the semi-trailer and fork lift which Mr Boskovski brought into Steel City's business at the outset from Steel City Distributors. The circumstances otherwise as to Steel City's takeover of its precursor's business, as outlined in [1-3] above, may be described, at best, as unusual. No Steel City ledgers or journals were tendered in evidence, which might have demonstrated the nature and methodology of business practices which were in fact implemented. In circumstances where virtually all sales of trading stock were said to have taken place in cash from an early point in time in Steel City's operations, the absence of the usual books of account relating, inter alia, to the purchase and sale of trading stock is not without significance to the veracity of Mr Boskovski's description of the scope and rationale of Steel City's trading operations undertaken, after some unspecified date, mainly or essentially in cash.
52 Other matters concerning Steel City's business practices, that emerged from Mr Boskovski's oral testimony, were as follows (transcript page numbers are given for ease of reference):
- (i) Mr Boskovski corrected downwards his estimate of the amount of Steel City's cash sales from 90% to 80% (T 147); no documentary material was provided to demonstrate that assertion;
- (ii) Steel City delivered goods to about 20% of its customers (T 147);
- (iii) The remaining 80% would place orders by telephone and would arrive at Steel City's warehouse by truck and "[t]hey will bring the money and they will bring the purchase order [and] that's the same as what they told me on the phone and then I say to them okay, because I have no computer there, I got the pay, I got the purchase order, tomorrow when you come I'll give you my invoice and my receipt for your money and that's what I was doing" (T 148 and T 151-152); Mr Boskovski took are to ensure that purchase orders were properly completed and signed (T 155);
- (iv) "Sometimes" his wife did the "paper work" (T 148);
- (v) "… always I had stock on the floor. Not waiting for my stock to come in to sell to people"; except for a "small percentage"; buyers would fill out their orders on arrival at Steel City's warehouse; the vast majority of buyers signed their orders physically in front of Mr Boskovski (T 148-149 and T 152-153);
- (vi) In answer to the question "So almost invariably they'd fill out the purchase order at your premises?" Mr Boskovski responded affirmatively for the reason that buyers wished to view the stock available for sale (T 156);
- (vii) Specifically in relation to Mr Raya, whose statement and record of interview appear at [34(i) and (ii)] above, he was said to be a regular customer who "came all the time he did sign", and "many times twice a day" (T 154 and T 166); specifically, in relation to Mr Speranza, Mr Boskovski said that he came to Steel City's warehouse "twice a day" and, similarly "twice a day the other two [partners of Mr Speranza]";
- (viii) There may be 56, 60, 100 or 112 cases of softdrink provided by Steel City to its customers per pallet; some customers could "stick seven pallets in a two ton truck" (T 158); the transportation of "relatively small amounts like 300 pallets" (the cross-examiner's description) "would not necessarily involve a semi-trailer, but a truck probably over 16 ton" (T 159); and
- (ix) Regardless of whether orders were delivered by Steel City or picked up by customers, payment in cash was required to be made at the time of delivery or collection (T 148 and T 167).
53 Specifically as to certain sales tax refund claims made by Steel City upon the Commissioner in respect of sales of product alleged by Steel City to have been made to Samer Raya (which appeared on p 31 of the annexures to Mr Boskovski's affidavit of 30 May 2001), namely:
Mr Boskovski's answers in cross-examination in relation thereto commencing on p 164 of the transcript of the second day's hearing were evasive and unconvincing. On the face of the document, the numbering of purchase orders in the relevant Steel City records suggested that the same might have been clumsily contrived, in that the same were out of chronological sequence with the purported dates of sale. In support of the asserted viability of those contentious transactions, he did not address the apparent inconsistencies within the above records, other than to assert that "… I seen people that have more than one book". He conceded that a 2 truck purchase order was necessarily involved for accommodating the 2 segments of the 19 February 1999 quantities described in the refund claims extracted above, for instance, per medium of his 6 wheeler 9 tonne truck. As I have already recorded, Mr Boskovski claimed that Mr Raya was a regular customer who "… came many times twice a day". That evidence was given in response to the Commissioner's challenge to the credibility of those refund of sales tax claims made by Steel City, in relation to Mr Raya's alleged purchases, upon the ATO.
Purchase
Order No
Sales
Tax No
Description
Date Sold
Qty
329100 30221382 Soft drinks 4.2.99 1022 49 '' '' 19.2.99 1056 329099 '' '' 19.2.99 874
54 Similarly in relation to the following sales tax refund claims made by Steel City upon the ATO in respect of further alleged sales of product to Samer Raya appearing at p 37 of the annexures to Mr Boskovski's affidavit of 30 May 2001, namely:
and the evident chronological inconsistencies there apparent upon the assumption that Mr Raya had used only one order book for the time being, Mr Boskovski responded in cross-examination at T 167 confusingly as follows:
Purchase
Order No
Sales
Tax No
Description
Date Sold
Qty
997538 3021382 Soft drinks 13.4.99 670 992514 '' '' 15.4.99 768 992509 '' '' 2.4.99 798 992516 '' '' 25.4.99 308 992517 '' '' 25.4.99 288
Mr Boskovski agreed nevertheless in that context, that Mr Raya "used to turn up at [his] premises with his invoice book", and that he saw Mr Raya "sign the invoice", albeit "not always". He claimed in any event unfamiliarity with that kind of detail, because most of the refund claim applications were filled out by his former wife, their marital relationship having ceased "only just a few months ago" (ie a few months prior to 4 June 2002, when he was cross-examined).You ask Mr Raya for that. I've got purchase orders from him. I got the money from him and I give him … and I give him receipt for his payment. I can follow these numbers here which you follow now … I never looked at them. I looked at the sales tax number but not this.
55 Thereafter, Mr Boskovski was confronted with what purported to be apparent inconsistencies involved in a number of purchase orders for quantities of soft drink purportedly given to Steel City by "SMR" (ie Mr Raya) upon "SCW" (ie Steel City) in the year 1999, comprising in sequence of cross-examination, pp 478, 476, 411, 409, 404, 395 and 392 of the exhibit "LB2" to his affidavit of 30 April 2002. Counsel for the Commissioner drew Mr Boskovski's attention to apparent discrepancies in the purported authentication of those purchase orders claimed by Mr Boskovski to have been provided by Mr Samer Raya (or by signatories involving varying spellings of Samer Raya). Mr Boskovski maintained that all such "SMR" orders for softdrinks from Steel City were authentic, and that in any event "you won't see them (ie the discrepancies) when you are busy selling $100,000 stock in a week" (T 172).
56 Mr Boskovski was also cross-examined as to the allegations contained in the contentious records of interview of Mr Wu, Mr Chokr, Mr Speranza, Mr Christodoulou and Mr Kakoyratos obtained at the Parramatta office of the Commissioner, being allegations which Mr Boskovski addressed in his affidavit of 30 April 2002 which I have earlier summarised. Mr Boskovski denied that Steel City sold softdrink goods to persons who did not provide Steel City with quotation certificates for sales tax purposes. He asserted derogatively, at least of Messrs Wu, Chokr, Speranza, Christodoulou and Kakoyratos that "[t]he way I see all these interviews they've done, they are all [in] bankruptcy, they are all on the dole, they never pay any taxes and I pay $65,000 each year …" (T 198). The latter sum apparently referred to the taxation on Steel City's profit inherently involved in its profit and loss account extracted in [50] above. Moreover, he denied that the practice of Steel City had been, inter alia, to sell soft drinks to A & K Distributors (Swaiden and Choker), E & E Elias, AMC Distributors (Mr Chokr), Steckramer, Tyl Pty Ltd (ie Mr Wu), Abbas Distribution and Central Coast Refreshment, in circumstances where Steel City had not been provided by those customers with purchase orders, nor quotation of sales tax registration numbers.
57 In re-examination, Mr Boskovski testified further as follows:
- (i) Steel City's invoices were prepared in his home in Wollongong, mostly by himself;
- (ii) Mr Speranza came to Steel City's premises "a few times twice a day but most of the time every day and…they were picking up…most of it every day";
- (iii) The 2 bundles of documents comprising "LB1" and "LB2" to his affidavit of 30 April 2002 were authentic.
58 As I have earlier recorded, of the persons who claimed to have had business dealings with Steel City, and who provided statements in writing to the Commissioner, or who participated in interviews at the Commissioner's Parramatta office and signed records of those interviews, only 2 of them, namely Mr Speranza and Mr Raya, provided affidavit evidence to the Commissioner and attended at court for cross-examination thereon. The Commissioner's unsuccessful efforts to secure the attendance at court of any of the remainder to give oral testimony has already been summarised in my reasons for rulings on evidence of 22 November 2002, attached hereto.
Mr Speranza's cross-examination
59 Mr Speranza gave the following viva voce testimony of relevance or potential relevance, in the course of his cross-examination upon his affidavit of 5 June 2002 (see [32] above) by counsel for Steel City:
- (i) After he and 2 other persons had been retrenched, albeit as sub-contractors, by Sunburst Fruit Juices, they associated together from about February 1998 as a composite buying group; whilst operating essentially as individuals, the 3 of them used the company called Trident (ante) for buying purposes, which obtained a sales tax number for quotation purposes.
- (ii) Although each of them would quote that sales tax number when buying, for instance, from Steel City and when buying from small operators, they did not always do so, and in those latter circumstances when they did not quote their sales tax number, "we would buy the same as a retailer would pay".
- (iii) Trident made no profit during the "two or three months of the fiscal year when it first started to trade", namely the year ended 30 June 1998, and made no profit during the year ended 30 June 1999.
- (iv) Australian Taxation officers informed Mr Speranza, prior to the meeting at the Commissioner's office on 19 June 2000, that he owed taxation to the Commissioner of Taxation of "50 odd thousand", and that he had bought $251,000 worth of stock; they explained to him that he had "bought everything from Steel City - all that amount of goods"; his reaction was that "… I nearly had a heart attack because that'd be too much. I could never handle it", that dialogue having occurred prior to the meeting at the ATO when he made his statement in writing which has been admitted into evidence.
- (v) He thought that Trident was purchasing soft drink from Steel City free of sales tax, until the Commissioner informed him otherwise.
- (vi) His
recall of what in fact occurred on Steel City's part, in the context
of Trident placing orders for soft drink with Steel City, was as follows:
If I were there, I would write him a purchase order okay and he would nominate how much to put on the purchase order. And then I would sign it with my tax number, okay, so that was needed for his own benefit which was I presume a collection of all the small vendors like myself that bought stock maybe 20, 30 cartons each, and it would have been a collation that went on this purchase order. That is what I understood how it all happened.
- (vii) By
way of elaboration of that asserted understanding of what in fact occurred
on Steel City's part, Mr Speranza added the following:
The stock I thought they "they" referring to the departmental officers, including Mr Garrard, engaged in the interview of Mr Speranza) were referring to is the stock in the warehouse on (sic) a whole because he would have all sorts of stock in the warehouse, so if vendors came in, the thing is that the purchase order that I gave him it wasn't collected. The stock wasn't put on pallets, if that's what you mean(s). I mean they didn't put it on a pallet and say this is the purchase order you gave me.
- (viii) Mr
Boskovski told him that Steel City needed the sales tax number so that
Steel City could "collate all the small vendors …". The
following ensuing passage of cross-examination further elucidated
what Mr Speranza, at the time of his dealings with Steel City, considered
to be the implications of Trident's dealings with Steel City:
When you bought goods from Ian you quoted your sales tax number, that is correct and the price which you paid for those goods did not include sales tax did it? - - - Yes it did.
So are you saying, are you telling this court that when you bought goods for yourself to sell and you quoted your sales tax number you thought you were buying goods that had been upon which tax had been paid? - - - Yes.
So that you would not have to add sales tax when you sold? - - - That's right.
Why then did you quote your number? - - - Because he said he needed it to present to the sales tax office and what that did, the sales tax would make everything right with the sales tax office because he said he used to get audited every so often and he needed a number so he could collate all the small business people. So in theory I thought if he is selling me the product I have paid the sales tax to him and then he was doing whatever paperwork he was doing with his accountant because I was not buying presales tax.
And further in the same context of the cross-examination of Mr Speranza, his evidence continued as follows:
If you thought you were buying for your own use, goods upon which sales tax had been paid why did you quote your number, this is for your own purchases? - - - Because he said he needed the sales tax number so he could collate all the small vendors and that is why I gave him the sales tax number.
But when you bought from him quoting the number made it sales tax free didn't it? - - - No, he needed the number for the small people who were buying not the big.
- (ix) Specifically, as to 2 purchase orders made by Trident to Steel City reproduced at p 105 of "LB2", and as to an invoice from Steel City to Trident for soft drink to be delivered to Trident reproduced at p 106 of "LB2", the latter bearing the endorsement "sales tax nil", Mr Speranza said that he did not receive the goods the subject of that invoice; similar testimony was given by Mr Speranza in relation to the goods the subject of purchase orders 108 and 111 of "LB2", in the course of which he asserted that "… I would only buy 30, 40 cartons at the maximum every time I went there … these are purchase orders for the collation that he did with all the small vendors and shopkeepers that came in".
- (x) As to the purchase orders reproduced at p 123 of "LB2", Mr Speranza explained that the change in his 2 signatures there apparent was because "… I thought there was something fishy about it all … I decided to change my signature and then he wanted - well fixed - and that's when I stopped buying from him … when he discovered this was not my signature, he asked me to resign it again, and that's when I thought there was something funny going on … that was six days apart from those two orders and if you count all those cartons you'd need a semitrailer to move them. The only thing I drove around [was] a 1 tonne van".
- (xi) Mr Speranza denied
that he thought he was engaged in anything illegal, because of Steel City's
payment to him of 20 cents per carton appearing at least on some of those
orders he was placing with Steel City for the purchase of cartons he was
not actually obtaining. His explanation was expressed (for instance) as
follows:
… he said he needed the number for the tax purpose … as far as I could see, if the product was coming in at whatever dollars and he put his product on it, he was paying the sales tax for everybody else, because he had to … be getting the product from somewhere because he was moving a lot of it. And I thought I was paying sales tax there and then. I was assisting him because he needed the number to collate these purchase orders. And he said, "Oh, well, every so often I'll give you 20 cents a carton for your troubles". As far as I was concerned I thought that … he was legitimate doing that …
- (xii) To the extent that Steel City did reward Trident (if not more precisely Mr Speranza personally) at the rate of 20 cents per carton appearing on Steel City invoices addressed to Trident, Mr Speranza did not receive cash in hand but trading stock equivalent to what Mr Boskovski arbitrarily determined from time to time.
Mr Raya's cross-examination
60 As foreshadowed in [58] above, the only other sub-distributor of soft drink who gave oral testimony for the Commissioner was Samer Moshen Raya; he had provided to the Commissioner the short statement in writing dated 16 March 2000, and the signed record of interview of 25 July 2000, respectively identified in [27] above. His oral testimony in chief and under cross-examination included the following:
- (i) The name and signature "SAMIR" appearing on the purchase order on p 392 of exhibit "LB2" was not placed there by him;
- (ii) The purported name and signature appearing on the purchase order on p 476 of exhibit "LB2", which Mr Raya had difficulty in deciphering beyond perhaps the letters "SAUR", was not placed there by him;
- (iii) His signature as deponent to his affidavit of 4 June 2002 was "not different" to his signature purportedly appearing on the abovementioned short statement of 16 March 2000 (annexure "A" to the affidavit); that testimony was given in response to cross-examination to the effect of signatures being susceptible to variation;
- (iv) His 2 signatures appearing on the abovementioned record of interview (annexure "B" to the affidavit) were not different in style or appearance;
- (v) The purported signatures appearing on pp 470, 472 and 474 of exhibit "LB2" were not his (those original pages became exhibits 4, 5 and 6 in the proceedings);
- (vi) He never engaged in the business of buying or selling soft drink;
- (vii) He had never given his sales tax number to any other person or used his sales tax number;
- (viii) In response to the
question "so why then did you get a sales tax number?", he
replied:
Okay, I got the sales tax number because I want to start a little business and one of my accountant (sic), you know, friends, is saying that I pay a lot of tax and you need big money to start up the business so I work it out and I don't have that much money to start up with, plus like I am going to pay a lot of tax, so I decided to cancel the number.
- (ix) That cancellation had taken place about 2 years earlier at the "Penrith taxation";
- (x) He never sold soft drink to, or purchased soft drink from, Abbas Distribution or Steel City, nor had any business dealings generally with either company;
- (xi) He
gave (nevertheless) his sale tax number to Campbells Cash & Carry
in the following (exceptional) circumstances:
When I got my sales tax number I went [there] because I always have friend his name Ali Chokr he used to deal with Campbells Cash & Carry so he said the best way to go doing business was Campbells Cash & Carry so I went there, I gave them the number, because I want to start to do business and then when I cancelled the number I never buy any goods from Campbell Cash & Carry. I gave them the number because you need to fill a form to start doing business before you are allowed like to buy any goods from them.
- (xii) His sales
tax number also came into the possession of Abbas Distributors in the
following (also exceptional) circumstances:
Now you say you dropped a piece of paper with your sales tax number on it at the office of Abbas. Is that correct? Yes.
When did you realise you had left it at Abbas office? I didn't realise.
So he called you? He called me and he said come to the office I have got some paper from you to pick up and I asked him which papers and he said you dropped some papers so can you come over and pick them up but I didn't realise … I dropped the papers. He called me and he said you got some papers with me here, come and pick it up.
- (xiii) His testimony in the proceedings adversely to Steel City was not motivated to avoid liability on his own part to pay sales tax.
- (xiv) His acquaintance with Mr Boskovski arose out of the circumstance that whilst he was working at Abbas Distributors, he "used to see Ian come down to the warehouse and load … many times I saw Ian and his driver, [it] was big truck, they bring coke you know to the firm, so I used to load the truck sometimes and I do my delivery run … that is how I know [Mr Boskovski]"; he added however that he never had a conversation with Mr Boskovski.
The cross-examination of Messrs Murzevski and Swaiden on 21 February 2003
61 Mr Murzevski provided a further affidavit of 13 February 2003, by reason of the rulings which I had provided on 22 November 2002 (ie the Reasons for Rulings on Evidence attached). I allowed Mr Murzevski's further evidence to be admitted against the Commissioner's objection. His earlier affidavit of 18 June 2002, upon which no cross-examination occurred, has been reproduced at [33(ii)] above. The essence of that further affidavit was as follows:
- (i) He met Mr Wu (identified in [27(i)] above and in my reasons for rulings on evidence attached) frequently at Steel City's Kingsgrove and Hoxton Park premises; Mr Wu would arrive in a "creamy white van", which "was capable of carrying at least 2 pallets and up to 3 could be squeezed into it". On each occasion that he saw Mr Wu pick up drinks at Kingsgrove and at Hoxton Park, his van "was filled to the brim" when he left.
- (ii) He saw Mr Elias regularly at both the Steel City Kingsgrove and Hoxton Park premises; in the case of the Kingsgrove premises, he saw Mr Elias "[a]lmost every time I was at Kingsgrove, about 3 times a week on average … picking up soft drinks, usually in the morning"; he also delivered drinks to Mr Elias, "on a couple of occasions to premises at Marrickville and later at Belfield"; he said that he also delivered drinks for Mr Elias, "on a couple of occasions at Marrickville and later to Mr Elias at Belfield"; he further said that he delivered "every 2 days or so to Belfield, usually by a semi-trailer, capable of carrying some 22 pallets on the floor and more if stacked above".
- (iii) He recalled the name Ali Chokr, but was not otherwise familiar with him.
- (iv) He was familiar with Messrs Kakoyratos and Christodoulou, having delivered "to … their Greenacre warehouse regularly", being about "once a month at least", and came to know them "quite well"; Mr Kakoyratos "was regularly in the office [at] Greenacre when I delivered and I counted money with him"; "[i]f the order was big enough for a semi-load I would deliver to the Greenacre warehouse otherwise Mr Christodoulou would come to pick up in a … dyna van truck, or similar which I think was white"; he saw Mr Christodoulou at Hoxton Park "every week or so"; the truck was white; he remembered counting money with Mr Kakoyratos, and added that "[a] semi-load was usually in the vicinity of $15,000.00 to $20,000.00"; he also delivered to the Greenacre warehouse about once a month at least.
62 The following matters of potential significance emerged during the cross-examination of Mr Murzevski:
- (i) He was employed primarily as a truck driver for Steel City for about one year from April 1999 to April 2000.
- (ii) His duties "at times" including collecting money from customers, which he would sit down and count with Mr Boskovski on his return trip.
- (iii) Orders for soft drink were not placed with him personally but with Mr Boskovski, though sometimes Mr Boskovski would ring him and place an order.
- (iv) "[Mr Boskovski] would tell me what I had to give them or whatever they needed and I would write it down and physically count … [I] left all the paperwork to Mr Boskovski".
- (v) At some point in time, "… there was no gate so someone could walk from Mr Swaiden's warehouse directly into Steel City's warehouse".
- (vi) A & K Distributors bought a lot of soft drink from Steel City and "they sold it to other people … whether they were wholesalers or not I don't know".
- (vii) Customers did not drive a truck, van or station wagon into Steel City's warehouse at Kingsgrove or Hoxton Park, in order to have it loaded; stock purchased would be taken outside and loaded into a van or station wagon outside; Mr Swaiden assisted in that loading process for Steel City from Mr Swaiden's own warehouse at Kingsgrove.
- (viii) At times he saw Mr Boskovski loading stock at Kingsgrove but he (Mr Murzevski) only loaded stock at Hoxton Park.
- (ix) Mr Boskovski would have attended at Hoxton Park once a day; the time to travel by car from Kingsgrove to Hoxton Park varied from 30 to 45 minutes, depending on the traffic.
- (x) Some customers would collect stock in station wagons, others in trucks; the former could carry at least a pallet; some customers would buy 3 or 4 cases.
- (xi) Mr Swaiden loaded goods into trucks, vans and station wagons from A & K Distributors warehouse premises at Kingsgrove; Mr Swaiden sometimes came to Hoxton Park to meet with Mr Boskovski.
- (xii) Mr Murzevski was not involved in the "paperwork"; Mr Boskovski "looked after" the cash proceeds from the sale of trading stock.
- (xiii) When Mr Murzevski travelled to Kingsgrove to deliver goods, he had to close down the Hoxton Park premises; the Hoxton Park premises were larger than those at Kingsgrove, and stock would be moved from Hoxton Park to Kingsgrove to be sold.
- (xiv) Mr Murzevski was not involved in the "internal stock keeping" of the operation.
- (xv) Mr Swaiden would give the money (cash) to Mr Murzevski for the stock he had sold, which Mr Murzevski would count and acknowledge in writing; there was never an occasion when he kept cash overnight.
- (xvi) His description in chief of the occasions when Mr Wu picked up occurred "… near the end when I'd finished up and that's when I remember him. It wasn't when I first started working, it was near when I finished".
- (xvii) As to his affidavit testimony concerning counting money with Mr Kakoyratos inferentially in payment for semi-trailer loads in the vicinity of $15,000 to $20,000, Mr Murzevski said that he would then go back to Hoxton Park (a journey taking "a good half hour") carrying that amount of cash in a bag and give it to Mr Boskovski.
- (xviii) Mr Boskovski in person brought to him Mr Murzevski's affidavit of 13 February 2003 for swearing.
63 Mr Swaiden provided an additional affidavit of 12 February 2003, also in the light of the rulings which I made on 22 November 2002, and in relation to which no cross-examination occurred. I also allowed Mr Swaiden's further evidence to be given against the Commissioner's objections. The essence of that further testimony given on 21 February 2003 was as follows:
- (i) When Mr Wu (with whom he had earlier dealt and who is identified in [27(i)] above), came to Steel City's Kingsgrove premises, which adjoined Mr Swaiden's warehouse, he arrived in a white van capable of carrying 2 to 21/2 palettes or about 300 cases; other times he came in a rented truck which could hold 3 to 4 palettes; the vehicles were "usually just about full" when Mr Wu left; Mr Wu also came to the Kingsgrove premises 3 or 4 times over a 5 to 6 month period. Once again, I would point out there was marginal utility in that evidence, given that Mr Wu's statement was not admitted into evidence in the proceedings;
- (ii) He was familiar with Mr Elias, and overheard "[o]n occasions" Mr Elias say to Mr Boskovski "Ian I need a truck load of drinks at Clancy"s"; he recalled Mr Elias on at least 3 occasions give instructions to Mr Boskovski to deliver 10 or more palettes to Clancy"s, for which Mr Elias said he needed a truck;
- (iii) He had known Mr Chokr for many years as a close family friend, and had been present at Steel City's Hoxton Park premises on at least 5 or 6 occasions when Mr Chokr had gone there to pick up drinks; Mr Chokr's van was a red and white Nissan capable of carrying 200 to 300 cases and 4 or 5 palettes;
- (iv) He was familiar with Mr Christodoulou, having met him when he came to pick up soft drink from Steel City at both its Kingsgrove and Hoxton Park premises, and when Mr Swaiden helped him do so; he said that Mr Christodoulou usually made his collections in a white Toyota 31/2 tonne truck; he was also present when Mr Christodoulou wrote out purchase orders for Mr Boskovski;
- (v) He was also familiar with Mr Kakoyatos, having been introduced to him by Mr Boskovski; he was present when Mr Kakoyatos picked up drinks from both the Kingsgrove and Hoxton Park premises of Steel City; on those occasions he would pick up as many as 3 or 4 palettes; and
- (vi) He recalled in particular Mr Kakoyatos giving instructions to Mr Boskovski to the effect "I need a full truck to go to my warehouse in Greenacre"; he also recalled that the orders varied from sometimes 4 to sometimes 10 palettes and sometimes 15 palettes, and that the destination was always Mr Kakoyratos' Greenacre warehouse.
64 The following matters emerged during the cross-examination of Mr Swaiden:
- (i) His company A & K Distributors Pty Ltd (A & K) had ceased trading near to the end of 2001, the Commissioner having placed the company in liquidation in relation to a monetary claim of about $650,000.00 to $7000,000.00;
- (ii) A & K commenced trading in 1993 or 1994, initially from premises at Kingsgrove;
- (iii) He had first met Mr Boskovski "[m]ay be before 1997"; he said that "… we started working together. He used to bring me stock, I buy stock off him. We used to operate in Wollongong";
- (iv) An archway was created in the wall between the respective premises of A & K and Steel City such that a forklift with pallets could pass between their respective Kingsgrove units; Steel City became A & K's sole suppliers of soft drink;
- (v) From time to time, A & K would owe Steel City up to $60,000.00 or $70,000.00, or more, for soft drink supplied;
- (vi) While A & K and Steel City each had their own respective customers, and were both wholesalers ("we sell wholesale too"), A & K would generally mark up cases of soft drink by up to 50 cents per case over the price A & K paid Steel City, and A & K would always quote its sales tax number when it purchased from Steel City;
- (vii) A & K would buy stock from Steel City for A & K's warehouse at Kingsgrove from Steel City's warehouse at Hoxton Park, because A & K bought in palettes - "He can't hold that stock in the Kingsgrove … warehouse so the big bulk he leave it in Hoxton Park …"; Steel City thus trucked A & K's ordered supplies from Hoxton Park;
- (viii) A & K
would send cash in the custody of its driver to the Kingsgrove premises
for the payment of stock bought from Steel City; when asked why A & K
did not simply take the cash from its Kingsgrove premises to Steel City's
Kingsgrove premises, Mr Swaiden gave this answer:
Well sometimes even Mr Boskovski has to go [and] pick up some stock and he need the money to pay in the morning. So we have to send the money with driver from him, like when he asks for it. Sometime he said hold it until when I come down, not a problem.
- (ix) Thereafter
followed the following cross-examination:
Now if Mr Boskovski was at Kingsgrove everyday, why is it that you would send cash with the driver, you didn"t have any arrangements where you"d bank it on behalf of Steel City? - - - No.
So it was always cash? - - - When he asked me, now for some time I give him cheque. When he asked me for the cash before one night like if he told me, send me some money with the driver when he come, I send the money with the driver. We count the money, we make the driver sign the paper and we send the money. If he doesn't need them in the morning, so when he come pick up the money and he count it.
What sort of sums are we talking about here, are we talking about $10,000, $15,000? - - - 15, 20, 25 sometimes.
- (x) A & K's 2 biggest customers were AUB Wholesalers and Kohino Traders; they represented "something like 90% or 92% of A & K's sales"; he was not aware that they quoted false sales tax quotations at the time, but he subsequently became aware of that situation;
- (xi) Steel City and A & K both closed down their respective warehouse operations at Kingsgrove at the same time;
- (xii) Ali Chokr (not his A & K partner Choker) and he were second or third cousins.
Findings and conclusions
65 I have reproduced in whole or in part the text of the many affidavits and witness statements in evidence in these reasons for judgment, in the sequence in which the same were brought into existence. I have taken that course, because particularly in the context of litigation involving issues of fact with implications as to fraud on the revenue, and also involving disputes between various witnesses, for me to have merely described the effect of conflicting testimonies would have been inadequate. Moreover, an appreciation of the sequence in which the written evidence was tendered in the events which happened over a protracted period of time since the proceedings were commenced, is assisted by a more lengthy documentary outline than might otherwise have been necessary. The importance of literal reproduction of much of the witness testimonies has I think become apparent.
66 The essence of the submissions of Steel City is that Steel City's business records, comprising in part segments of exhibit "LB1" to the affidavit of Mr Boskovski sworn on 30 May 2001, and of more critical importance, the whole of the large exhibit "LB2" to his affidavit subsequently sworn on 30 April 2002 (see again [24-25] above), reflected genuine and authentic commercial transactions, involving the sale of soft drink by Steel City to persons or entities who are asserted to have quoted to Steel City their respective sales tax numbers at the point of sale.
67 Conversely, the essence of the submissions of the Commissioner was that Steel City had not discharged the statutory burden, pursuant to s 14ZZO of the TAA, of proving that its alleged transactions, the subject of Steel City's referred applications for the months of January, March, April and May, were genuine and authentic. In relation to what Steel City was required to establish by reference to the terms of s 89 of the Tax Act extracted in [14] above, the Commissioner submitted that Steel City failed to establish, on the balance of probabilities, that the sales tax quotes which it allegedly received from buyers of its soft drink, and which should have resulted in entitlements to CR8 credits, were in fact genuine. That was because, so the Commissioner further contended, Steel City had not shown, in relation to the evidence tendered in the proceedings; that at the time of the quotes of sales tax numbers allegedly made to it, Steel City had reasonable grounds for believing that the "quoters" were entitled to quote the sales tax numbers which they provided, or for believing that the quotes were otherwise than false and misleading. Hence the Commissioner submitted that there was non-fulfilment of s 89 of the STAA 1992 on Steel City's part, by reference to components (a) and (c) thereof.
68 Steel City did not isolate for consideration merely the sales said to be involved in relation to the abovementioned sum of $252,139.33, that is to say, those alleged sales relating to the months of January and of March to May 2000. Steel City perceived the reality of its need to address in chief the Commissioner's allegations of fraudulent sales tax refund claims, made from the time of establishment of Steel City's business operations in about August 1998 through to May 2000, as detailed in the Attachment to these reasons for judgment. Its case was that all of its claims for sales tax refunds made from August 1998 had been genuinely and honestly made. Clearly enough, evidence of conduct constituting fraud on the revenue prior to January 2000 would have had a bearing upon Steel City's entitlement to sales tax refunds as and from January 2000. Indeed, the nature of the evidence adduced by both parties, particularly that of Steel City, did not allow for any convenient excision of sales the subject of refund claims in respect of any particular monthly period. As counsel for the Commissioner rightly submitted without contradiction, Steel City sought to establish an "all or nothing" case in relation to its fiscal conduct from the time of its commencement of business operations in about July 1998.
69 Steel City was only required to establish that the Commissioner's refusal of sales tax refund applications was wrong on the balance of probabilities (see Raffaele v DCT (1994) 29 ATR 390 at 394; 94 ATC 4746 at 4749 per Davies J, in the analogous revenue context of income tax litigation). That principle was adopted on appeal by Beaumont J, with whom Foster and Moore JJ agreed in Raffaele v DCT (1995) 31 ATR 275 at 279; 95 ATC 4650 at 4654. Earlier in his reasons for judgment in Raffaele, Davies J cited the following dictum of Brennan J in FCT v Dalco (1990) 168 CLR 614 at 624-25; 20 ATR 1370 at 1375; 90 ATC 4088 at 4093:
As I have already explained, there was no such "confining of issues for determination" sought in the present case.The manner in which a taxpayer can discharge that burden varies with the circumstances. If the Commissioner and a taxpayer agree to confine an appeal to a specific point of law or fact on which the amount of the assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point. Absent such a confining of the issues for determination, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment, though the taxpayer is limited to the grounds of his objection. In Gauci v FCT (1975) 135 CLR 81 at p 89 Mason J said:
The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.
That view, expressed in a dissenting judgment, now prevails: Macmine Pty Ltd v FCT (1979) 53 ALJR 362 at 366, 371, 381; McCormack v FCT (1979) 143 CLR at 303, 306, 323.
70 There are evidentiary shortcomings involved in the presentation of Steel City's case which are material to the issue as to whether Steel City has discharged the statutory onus in the circumstances of the case. In Pascoe v FCT (1956-1957) 6 AITR 315 at 323; 11 ATD 108 at 114, Fullagar J framed the issue of a taxpayer's onus of proof under the fiscal legislation there involved, as follows:
Am I convinced, not beyond reasonable doubt, but as a matter of belief, that the partners, in making the acquisition, were not actuated by a dominant purpose of profit-making by sale?
71 One such shortcoming was the absence of any supporting testimony for Steel City's case forthcoming from Mrs Boskovski, notwithstanding Mr Boskovski's evidence that she sometimes "did the paper work" for Steel City (see [52(iv)]), for which she was not insignificantly remunerated (see [51] above). Mr Boskovski spoke of the presence of his wife in Steel City's premises in the course of her employment, which I inferred to have been reasonably frequent, although much of the "paper work" was also undertaken at home. The only explanation given by Mr Boskovski for her absence of testimony, namely his assertion as to the recent breakdown of their marriage, evidenced by her application for dissolution of marriage filed on 15 April 2002, was I think inadequate, given the availability of the subpoena process.
72 Another significant shortcoming in the presentation of Steel City's case was the absence of production of the accounting records of Steel City relating to the relevant periods of time, such as ledgers and journals, which presumably would have recorded its transactions of purchase and resale of soft drink, being records required to be maintained for the purposes stipulated by s 289 of the Corporations Law (as then in force). Nor were any bank statements covering the relevant period of time produced, irrespective of the circumstances of Steel City's cash receipts, which were nevertheless said by Mr Boskovski to have been banked. The production of those records would be likely to have thrown light on the authenticity or otherwise of the transactions of Steel City, and in particular the transactions of sale of trading stock (ie soft drink in relatively large quantities), said by Mr Boskovski to have been undertaken at least mainly upon the basis of payment in cash by reason of Steel City's experience of dishonoured cheques. Such records, if properly kept according to law, would be expected to have recorded all cash transactions, and conceivably therefore to have thrown light upon the authenticity of the many contentious purchase orders and invoices contained in exhibit "LB2" to Mr Boskovski's affidavit of 30 May 2001, and thus the correctness or otherwise of Steel City's monthly claim forms lodged with the ATO contained within exhibit "LB1" to his affidavit of 30 May 2001. The absence of production of such statutory records by Steel City implies that the same would not have assisted Steel City's case. The income tax return of Steel City for the 1988-1989 year, was not of course a statutory record, and the entries therein raised other difficulties earlier mentioned (see [50-51] above.
73 A matter of dominating concern to me, in relation to the credibility of Steel City's case, was indeed its practice of requiring the majority of payments for the purchase of Steel City stock to be made in cash. This methodology of payment, originally estimated by Mr Boskovski to be in the order of 90%, was later reduced by him to an estimate of 80% (see [52(i)] above), without nevertheless any production of data at any time to verify those estimates. As appears from Steel City's first income tax return (that is for the 1998-1999 fiscal year extracted in [50] above), the gross income disclosed was said to be $5,069,845.00. However, the gross income of Steel City for the ensuing financial year was not disclosed, for instance by production of an income tax return for the 1999-2000 fiscal year, or otherwise. Yet the implication to be drawn from the Attachment to these reasons for judgment is that the trend of gross turnover of Steel City increased significantly in the course of the financial year ended 30 June 2000 (no refund application appears to have been lodged for the concluding month of June 2000). The largest monthly refund sought and obtained, according to the Attachment, was $92,916.86 in respect of the month of October 1999. The documentary evidence, as to the extent of Steel City's experience of dishonoured cheques, needs to be evaluated in that context, given Mr Boskovski's evidence tendered early in the hearing, to the effect that because of Steel City's experience with dishonoured cheques, "everybody had to pay cash" (see [11(ii)] above). The dishonoured cheques in evidence are detailed in [42] above, from which it will be seen that the same varied to some extent in time of presentation throughout Steel City's period of trading disclosed in the Attachment to these reasons. Moreover, the amounts involved in dishonoured cheques were relatively insignificant to the gross turnover disclosed in the 1998-1999 income tax return, being a turnover which, as I have already pointed out, appeared to increase. Those incidents were not in my opinion so significant as to justify the radical restructure of Steel City's large business operations, whenever that in fact precisely occurred (which was not disclosed), to systems involving the substantial majority of all payments for stock being made in cash, notwithstanding the size of many of those cash transactions. Mr Swaiden spoke at [64(ix)] above, of daily cash transactions between A & K Distributors and Steel City ranging sometimes from $15,000 to $25,000. It was not explained by Steel City why a practice of requiring payment by bank cheque for trading stock could not have been implemented at least for relatively large amounts of money, rather than subject its buyers to the inconvenience and risk attaching to large cash transactions. The absence of that explanation tends to further render incredible the reason given for Steel City's practice of requiring payment in cash. On the other hand, payment in cash meant that the identity of buyers without sales tax quotation registrations could be dissembled or concealed, which in fact happened, at least if the testimonies of Messrs Raya and Speranza are to be accepted, which for reasons later given, I think should be the case.
74 Perhaps the most significant hurdle which Steel City found itself obliged to address consisted of the respective testimonies of Messrs Raya and Speranza, because if accepted by the court, the same conflicted radically with Mr Boskoski's evidence and therefore affected adversely the credibility of Steel City's case. The evidence of Messrs Raya and Speranza, if accepted, was destructive of the crux of Steel City's case, namely its asserted rationale for its modus operandi of dealing mainly in cash, and of the credibility of Mr Boskovski's evidence given on behalf of Steel City of having dealt with purchasers of soft drink who he believed to have genuinely quoted sales tax numbers.
75 As to Mr Raya's evidence, his signed statement originally provided to the Commissioner, prior to the commencement of the proceedings is extracted at [35(i)] above, and the greater part of his record of interview by Mr Garrard made shortly thereafter is extracted at [35(ii)] above. In the case of Mr Speranza, the greater part of his record of interview by Mr Garrard, and subsequent statement, is extracted at [34(iii)] and [34(iv)] above. Steel City was afforded reasonable time to address the dramatic significance of those statements and those records of interview, the same having been attached to Mr Garrard's affidavit of 23 July 2001.
76 Mr Raya's cross-examination is summarised in [60] above. The essence of his evidence may be summarised as follows. He became registered for sales tax purposes because he wanted to start a small business, and for that purpose he provided his sales tax registration number to Campbell's Cash and Carry on a form prepared by that company in contemplation that he would buy goods from it. However he ultimately decided not to enter upon the operation of that business, and he cancelled his sales tax registration, about 3 years prior to signing his statement reproduced at [35(i)]. He never quoted his sales tax number to any seller of goods, and in particular, he never bought or sold any goods from or to Steel City. He denied the authenticity of his signature purportedly appearing on certain purchase orders addressed to Steel City (in particular exhibits 4, 5 and 6). Mr Raya said that he had been employed at the beginning of 1999 as a driver by Abbas Distributors (earlier referred to by Mr Boskovski as a seller of product to Steel City), and that he had seen Mr Boskovski at the Abbas warehouse in Marrickville at times when Mr Boskovski went there to load stock onto Steel City's vehicle, but that he had never spoken to him, much less sold soft drink to him. As I have earlier recorded, the Commissioner was making contemporaneous allegations against Abbas Distributors of false claims for sales tax refunds, which were not dissimilar to those made against Steel City. It had been the alleged falsity of purchase orders purportedly placed by Mr Raya trading as SMR with Steel City that was the subject of the Commissioner's first communication with Steel City of 14 April 2000 (see [7] above). In the course of his first record of interview by Mr Garrard of the ATO on 18 April 2000, Mr Boskovski said that he no longer sold soft drinks to Mr Raya, but that Mr Raya had paid cash to Steel City for his earlier supplies of product (see [8(vi)] above). At his second record of interview on 5 July 2000, Mr Boskovski said that Mr Raya had purchased over $187,000.00 worth of soft drink from Steel City from July 1999 to October 1999 (see [11(v)] above. Hence the basis for the radical conflict between the respective testimonies of Mr Raya and Mr Boskovski, and the implications to Steel City's case if Mr Boskovski's testimony is to be rejected, along with Mr Murzevski's purported corroborative evidence thereof to the extent appearing in [33(ii)] above.
77 Under cross-examination, Mr Boskovski affirmed the substance of his answers given in his records of interview with Mr Garrard, insofar as the same related to Mr Raya (see [52(vii)] above). He was later confronted by counsel for the Commissioner with 2 sets of entries in sales tax refund application forms lodged by Steel City with the Commissioner (see [53-54] above), purportedly containing details of sales made by Steel City of soft drink, each being prima facie evidence of sales purportedly made by Steel City in the relevant month of claim, yet being apparently affected out of sequence in the numbered pages of Mr Raya's stock orders book (see [53-54] above under the heading "Purchase Order No"). Mr Boskovski's response was to the effect that the irregular sequence of the purchase order numbers was explicable on the basis that Mr Raya would have used more than one order book, a response which I thought to be at best speculative, and ultimately unconvincing. That explanation does not appear to have been put to Mr Raya in the course of his evidence (which was given subsequently to that of Mr Boskovski).
78 In my opinion Mr Raya gave his viva voce evidence in a manner and to an extent which persuaded me of his frankness and credibility. That finding creates serious implications for the integrity of Steel City's case, depending as it is conversely upon the credibility of Mr Boskovski. The submission of counsel for Steel City, as to an absence of credibility of Mr Raya's testimony, was that "[o]n his own evidence this man was married with a wife and children and on the dole when periodically on low paid jobs. It seems very conceivable that a person in that position would take the opportunity to start-up his own business and deal in cash in conducting the same". I would reject that somewhat speculative submission. I would prefer Mr Raya's account to that of Mr Boskovski to the extent of the conflicts which I have outlined.
79 Mr Speranza's record of interview by Mr Garrard, and his subsequent statement provided to the Commissioner, are extracted respectively at [35(iii) and 35(iv)] above, being also made prior to the commencement of the proceedings, was in summary to the effect that he obtained a sales tax number for his company Trident Distributions Pty Ltd, which was formed as a purchasing vehicle for a soft drink venture proposed to be undertaken by himself and 2 other former fellow employees of Sunburst Fruit Juices. All 3 of them had been retrenched at about the same time. In the events which happened, each of them undertook trading activities to an apparently insignificant extent, purportedly under the umbrella of the Trident name, but in reality on each one's own account. Mr Speranza said that he quoted Trident's sales tax registration number in relation to some initial purchases of product which he made from Steel City. He further said that it subsequently became his practice to fill out purchase orders for goods in favour of Steel City in excess of the quantity that he was actually acquiring from Steel City, by arrangement however with Mr Boskovski, so that, according to what Mr Boskovski explained to him, Steel City could thereafter "collate" orders from "small vendors" under the umbrella of Trident's sales tax number which Steel City would use for those purposes. Mr Speranza was to receive a commission from Steel City as part of that arrangement, calculated at the rate of 20 cents per carton on the "excess stock" included in such purchase orders (ie the "collated" orders), being not picked-up physically by Mr Speranza, which commission was "paid" by way of quantities of stock in specie purportedly equating to the financial equivalence of the commission for resale so earnt by Mr Speranza, in the course of what was a fledging, but apparently unsuccessful business operation. Mr Speranza said that he was aware that he was paying the same price for soft drink as other shopkeepers and small vendors who attended Steel City's warehouse to make purchases, and further that he was under the impression that he was thereby purchasing stock at a tax inclusive price, upon the basis of Steel City "taking care of the sales tax". In the course of further cross-examination on the part of counsel for Steel City, Mr Speranza said that shopkeepers and other small vendors, who Mr Speranza believed not to possess sales tax registration numbers at all, regularly purchased goods at Steel City's premises. Inconsistently with that viva voce testimony of Mr Speranza, Mr Boskovski had said earlier at his second interview at the Parramatta Tax Office on 5 July 2000 that Trident paid over $251,491 to Steel City for soft drinks in cash, except possibly by 1 or 2 occasions by cheque (see [11(iv)] above). The quantities of soft drink which Trident actually received were substantially below that sum, in terms of aggregate value, if Mr Speranza's testimony is to be accepted. It is readily apparent, from my account of the evidence relating to Mr Speranza to date, that he never possessed financial means of anything even remotely approaching that sum of money.
80 Steel City attacked the credibility of that evidence of Mr Speranza on several grounds. One ground was that Mr Speranza allegedly owed the Commissioner $50,000.00 at some point in time for unpaid sales tax (for which there was no documentary material in evidence), and that "[t]here is no evidence that he met his own liabilities indeed the converse is the case". Another ground related to Trident's omission to charge sales tax to its retail customers, and account to the ATO accordingly. That attack was made largely by reference to what Mr Speranza had described as the arrangement he had entered into on behalf of Trident with Steel City with the encouragement of Mr Boskovski, to which I have earlier referred (see again his record of interview and subsequent statement at [34(iii)-(iv)] above). The following questions on my part directed to Mr Speranza, and his answers thereto, relating to the complex "collation" arrangement pursuant to which Trident allegedly bought some product from Steel City, exemplifies the essential theme of Mr Speranza's evidence:
HIS HONOUR: Did you think that he (referring thereby to Mr Boskovski) was doing anything which might be illegal? - - - No, not really, because he had been in business a long time. People would, you know, buy - and he was selling me the same price he was selling to everybody else, so I couldn't see anything wrong. He was carrying by semi-tailer and all that. I couldn't see anything wrong.
Did you think that you might be assisting him to do anything illegal? - - - No, because he said he needed the number for the tax purpose. Right? And I mean, as far as I could see, if the product was coming in at whatever dollars and he put his product on it, he was paying the sales tax for everybody else, because he had to get - be getting the product from somewhere because he was moving a lot of it. And I thought I was paying sales tax there and then. I was assisting him because he needed the number to collate these purchase orders. And he said, "Oh, well, every so often I'll give you 20 cents a carton for your troubles". As far as I was concerned I thought that he was - he was legitimate.
81 I am similarly left in no real doubt as to the credibility of Mr Speranza's evidence, and thus not only with the truth of his responses in his signed record of interview, and in his signed statement thereafter furnished to the Commissioner during the course of its pre-litigation investigations, and consequently with the content of his brief affidavit sworn on 5 June 2002 in the proceedings (see [32] above). I was impressed with the sincerity of his responses under cross-examination. I accept his account of the circumstances in which he became involved with Steel City, of the reasons why he extricated himself from that involvement, and of the incidents of that involvement in the meantime. I accept in particular, as Mr Speranza testified, that he became genuinely concerned with the prospect that he might have engaged in illegal conduct by continuing with the arrangements which he made with Steel City, the design of which he attributed to Mr Boskovski. Those arrangements were of pecuniary advantage to Steel City, since they provided Steel City with the opportunity to use Trident's sales tax number on sales of soft drink to customers of Steel City who did not have a sales tax number. Mr Speranza was I think genuinely troubled with the implications of having compromised himself in relation to his participation in the arrangements which were implemented by Steel City involving its virtually unfettered use of his sales tax number. It was doubtless Mr Garrard's similar conclusions in relation to Mr Speranza that contributed to the Commissioner's refusal of Steel City's refund applications of January, March, April and May 2000.
82 It follows necessarily from my acceptance of the credibility of both Mr Raya and Mr Speranza in relation to their respective testimonies tendered to the court, both written and oral, that I do not accept the credibility of the written and oral testimonies of Mr Swaiden and Mr Murzevski subsequently given purportedly in response or reply thereto, to the extent of any inconsistency with the thrust of the Raya and Speranza evidentiary accounts. Mr Swaiden's affidavit of 18 June 2002 was devoted to observations of alleged conduct of Mr Speranza, and alleged conversations with him, (see [33(i)] above), and Mr Murzevski's contemporaneous affidavit related to observations of certain conduct of Mr Raya, and alleged conversations with him (see [33(ii)] above). I will say more about the credibility of the evidence of Mr Swaiden and Mr Murzevski shortly.
83 In concluding affirmatively as I have upon the credibility of Mr Raya and Mr Speranza, I have taken into account the evidence before the court both of Mr Swaiden and Mr Murzevski. Mr Swaiden and Mr Murzevski respectively made affidavits sworn on 18 June 2002 for presentation to the court, following the apparent conclusion on 5 June 2002 of all viva voce evidence in the proceedings (these are extracted in [33] above). Although I gave leave for that late presentation of the evidence of Messrs Swaiden and Murzevski, I should record that no explanation was furnished on behalf of Steel City as applicant as to why testimony from Mr Swaiden and Mr Murzevski was not tendered prior to the apparent culmination of the oral evidence on 5 June 2002, particularly given that their evidentiary assistance to Steel City was foreshadowed in and by Steel City's notice of objection to assessment of 19 September 2000 (see [16-17] above).
84 Addressing the content of Mr Swaiden's affidavit of 18 June 2002, which has been wholly reproduced in [33(i)] above, it will be seen that the content thereof was lacking in identification of any precise or even approximate times of the occasions related therein, and yet purportedly recalled statements volunteered by Mr Speranza concerning his business affairs having no conceivable concern to Mr Swaiden, the content of which had not of course been put to Mr Speranza in the course of his cross-examination.
85 As I have earlier recorded, Mr Swaiden had made a short and broadly framed affidavit which accompanied Steel City's notice of objection (extracted at [17] above), which merely verified his statement and record of interview earlier given to Mr Garrard. Mr Swaiden for his part had been interviewed at the Commissioner's Parramatta Office on 20 July 2000, contemporaneously with his so-called "equal partner" in A & K Distributors Mr Choker. I have not found it necessary to reproduce in these reasons the content of that record of interview, which, as I earlier related, was annexed to Mr Garrard's primary affidavit of 23 July 2001. As may be inferred from what I have recorded in [64(i)] below, Mr Swaiden had experienced his own adverse encounter with the Commissioner towards the end of 2001, in that according to Mr Swaiden, A & K Distributors had been wound-up at the instance of the Commissioner in relation to a taxation debt of about $650,000.00 to $700,000.00. Mr Swaiden's affidavit of 18 June 2002 is characterised by an absence of reference to even an estimate of the "many" and "numerous" occasions when the conversations therein related were said by him to have occurred, much less why it was that he had reason to recall those purportedly casual conversations, which purportedly concerned Mr Speranza's private business arrangements, and did not relate of course to any purportedly involving A & K Distributors.
86 As I further related in [63] above, Mr Swaiden subsequently provided an additional affidavit of 12 February 2003, which did not address the oral testimonies of Mr Speranza, or for that matter of Mr Raya, given to the court on 5 June 2002. Nor as a consequence, as appears from [64] above, were matters directly involving the substance of those testimonies raised by the Commissioner in cross-examination. That later affidavit addressed however the statements and records of interview of other traders which were attached to Mr Garrard's first affidavit of 23 July 2001, which I had found to be admissible.
87 I think that Mr Swaiden was prepared to say virtually anything, orally or in writing, which he thought might assist Steel City's case, and to do so with an evidence confidence that no business records were likely to be available to contradict his evidence. Why he would do so remains something of a mystery, since the nature and extent of his relationship with Mr Boskovski has been disclosed to the extent only of generalities. I would infer, from what I have summarised of his evidence in [63-64], that Mr Swaiden had extensive business dealings and relationships with Mr Boskovski, the nature and implications whereof are impossible to discern. Mr Swaiden said that his company A & K Distributors at times owed Steel City more than $70,000.00, and at the time of its liquidation, the indebtedness was approximately $30,000.00. The existence of that indebtedness was presumably because soft drink was supplied by Steel City to A & K Distributors upon the basis that A & K Distributors was not required to make payment until after the sale of A & K Distributors' unpaid stocks of soft drink had been effected. As in the case of Steel City, I would infer that the transactions of A & K Distributors were conducted predominantly if not wholly in cash, with similar implications as to sales tax exposure (see again [64(i)] above). His purported capacity to recall conversations of advantage to Steel City's case, albeit without assigning even approximate dates in relation thereto, being conversations involving not just Mr Raya, but other persons engaged in the soft drink business whose statements were attached to Mr Garrard's affidavit of 23 July 2001 (see [63] above), was in my opinion beyond credibility. Moreover the partisan manner in which he gave his evidence in the witness box, and his demeanour in the course of so doing, left me without confidence in the veracity of his assertions and responses on any matters material to the resolution of the issues, including evidentiary issues, arising in the proceedings.
88 I move then to Mr Murzevski's evidence, written and oral, given in the proceedings. He said that he had been employed by Steel City as a driver from April 1999 to April 2000. He did not therefore have the same opportunity as, for instance, Mrs Boskovski (who as I have already indicated gave no evidence in the proceedings), to acquire any detailed knowledge of Steel City's transactions. His potential assistance to Steel City's case had been foreshadowed to the Commissioner in Steel City's notice of objection extracted in [16] above.
89 Mr Murzevski's first affidavit filed in the proceedings, made on 18 June 2002, and set out in [33] above, was directed to alleged sales by Steel City to Mr Raya of soft drink. For Steel City to have extended credit to Mr Raya in any such context, in the light of Steel City's avowed practice of requiring payment in cash on delivery, produces at the outset a significant credibility issue in relation to the content of that brief affidavit. Moreover the credibility of the evidence the subject of that affidavit is at once put further in doubt by the absence of any indication of approximate dates, or at least any indication of proximity to independently verifiable events. The identification of approximate dates in relation to his alleged encounters with Mr Raya was important to the reliability of Mr Murzevski's evidence, given the relatively limited duration of his employment by Steel City (see [62(i)] above) (for which incidentally no documentary evidence was provided).
90 My conclusion is that I should place no reliance upon the testimony of Mr Murzevski concerning Mr Raya, particularly where that testimony was directly or indirectly inconsistent with that of Mr Raya. My observation was that he had at best a vague recall of the detail of his day to day involvement with Steel City. My finding is that Mr Murzevski largely reconstructed his supposed experiences involving Mr Raya. There is substance in the Commissioner's submission that the occasions he purportedly described would seem to have been more related to circumstances when Mr Raya had already become a full time employee of FMR. Having observed both of them carefully in the course of giving evidence orally in the witness box, I have no hesitation in preferring the evidence of Mr Raya. Whilst I would not be as emphatic on the lack of reliability of Mr Murzevski's testimony as that of Mr Swaiden, or for that matter of Mr Boskovski, I gained the clear impression that Mr Murzevski was prepared to give evidence which perceptibly would assist Steel City's case, irrespective of the accuracy of his recollection (if any) on a given subject.
91 Mr Murzevski's second affidavit, summarised in [61-62] above, related partly to circumstances involving Messrs Wu, Elias, Chokr, Christodoulou and Kakoyrates, and partly to the operations of Steel City. He disavowed any function or role of receiving orders, or any handling of cash proceeds of sales, or any involvement in (or even seeing) any "paperwork". He said that Mr Boskovski "looked after" the cash. My observation of his demeanour in the witness box, and his answers to questions, was that of an apprehensive young man who for some reason or another was concerned to give accounts of past instances that would at least not displease Mr Boskovski, who was present in court throughout the duration of his cross-examination (as well as that of Mr Swaiden). That is not to say of course that Mr Boskovski was not strictly entitled to be present in court throughout the entire hearing. To the extent that any of Mr Murzevski's evidence, oral or in writing, might have a measure of inconsistency with that of Mr Raya on any material matter, or for that matter of that of Mr Speranza as well, I would prefer without hesitation, the frankness and independence of the testimony of Messrs Raya and Speranza.
92 The findings which I have now recorded lead inevitably to the conclusion that I am not satisfied with the credibility of Steel City's case for recovery of its monetary claims made against the Commissioner. Steel City has failed in my opinion to discharge or satisfy the burden of proof placed upon it by s 14ZZO of the TAA. The crux of Steel City's case was that the nature and incidents of its business, involving as it did in its first financial year of operations ended 30 June 1999, revenues disclosed for income tax purposes in excess of $5 million dollars, rendered it necessary or expedient to require at least the greater percentage of it revenues to be paid in cash. That percentage was originally estimated by Mr Boskovski to be 90%, which he subsequently reduced to 80% (see [52(i)] above), in circumstances where there was not the remotest possibility of establishing the true situation without production of statutory records and bank statements, duly kept and maintained. The evidence of Mr Boskovski was to the effect that virtually from the outset, at least a very high percentage of all payments due to Steel City for the supply of soft drink were required to be made in cash, being a practice not inconsistent with at least a significant degree of falsity of the records the subject of exhibit "LB2". The inference open to be drawn from the implementation of Steel City's practice of requiring payment in cash was not, in my opinion, because of Steel City's experience with bank cheques, but rather to dissemble Steel City's practice of effecting at least the substantial proportion of its sales of soft drink in circumstances of absence of bona fide quotes by the true purchasers of sale tax numbers. It was readily acknowledged by Steel City, in the course of presentation of its evidence, that the viability of its business in the very competitive market in which it engaged, depended upon obtaining sales tax refunds from the ATO in respect of virtually all of its sales.
93 Once a finding involving such grave implications to the bona fides of Steel City's business practices is reached, it follows that I cannot be convinced, at least on the balance of probabilities, of the existence of viability in Steel City's cause of action for recovery of sales tax refunds not yet made for the 4 monthly periods the subject of the application to the court. That is because I am not satisfied that there has been demonstrated by Steel City satisfaction of the statutory burden of proof, on the balance of probabilities, as to the whole or any part or aspect of the total sum claimed by Steel City of $160,607.14. In my opinion, the grave circumstances I have recorded, involving as they do a radical lack of integrity on Mr Boskovski's part in the conduct of Steel City's business operations, lead to the conclusion that I am unable to be satisfied as to any entitlement on Steel City's part to any component of that sum of $160,607.14.
94 It follows that it becomes unnecessary for me to make additional findings upon the further footing of the statements and records of interview of Messrs Elias, Christodoulou and Kakoyratos the subject of my reasons for rulings on evidence of 22 November 2002. I would merely observe that the content of those statements are not inconsistent with any of my findings already made adversely to Steel City and the reasons therefor. As will have been seen for instance from [35(vi) and (vii)] above, the records of interview of Messrs Christodoulou and Kakoyratos contained assertions to the effect that in the context of their respective indebtedness to Steel City for soft drink supplied, each of them allowed Mr Boskovski to quote, for Steel City's benefit, their sales tax numbers. I might also add that although both Messrs Christodoulou and Kakoyratos declined to give evidence at the hearing (see [2(vi) and (vii)] of my reasons for rulings on evidence of 22 November 2002 attached), Mr Swaiden said that he had seen and spoken to each of them in Sydney within a month or so prior to his giving evidence to the court.
95 In the result, the application of Steel City must be dismissed with costs.
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