REVLON MANUFACTURING LTD v FC of T

Judges: Beaumont J
Wilcox J

Tamberlin J

Court:
Full Federal Court

Judgment date: Judgment handed down 14 December 1995

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Tamberlin J

I agree with the reasons, conclusions and orders proposed by Wilcox J.

At paragraphs 52 to 54 of the Reasons for Decision of the Administrative Appeals Tribunal (``the AAT''), the Deputy President considered the question as to how much the goods could reasonably be expected to have been sold for, if the agreement between the applicant and its two subsidiaries had not been entered into, and if the agreements between Revlon Services Pty Limited (the wholly owned subsidiary of the applicant which arranged insurance, freight and administration) and the various retail purchasers, had not existed.

In paragraph 52 the Deputy President proceeded on the basis that the appropriate approach was to allow the applicant a deduction from the gross price of an amount paid to the cartage contractors by the subsidiary. He described that approach as the ``mathematical basis'' upon which the assessment was made.

In paragraph 54 he concluded:

``It follows that in my view the Commissioner was justified in fixing the sale value in the way he did namely, by taking the gross amount paid by the retail purchasers and reducing that by the amount paid by or on behalf of Services Pty Limited to the freight contractors. No other deduction is appropriate.''

(Emphasis added)

In my opinion, there are two errors of law disclosed in these paragraphs.

The first is that the Deputy President asked the wrong question. He asked whether the Commissioner was ``justified'' in fixing the sale value in the way he did.

In reaching an affirmative conclusion, the Deputy President, in substance confirmed that the Commissioner had adopted an appropriate method to arrive at the sale price. He did not decide for himself, on the evidence before him, what was the amount in question. Accordingly, the Tribunal did not perform the task which the statute assigned to it. The task of the Tribunal on an appeal is to determine the amount for

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ATC 4054

itself. The appeal is a de novo appeal on the merits. It is a rehearing wherein the Tribunal is placed in the same position as the Commissioner.

The relevant principle is that set out by the Full Federal Court in Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 at 589, where Bowen CJ and Deane J said:

``The question for the determination of the Tribunal is not whether the decision which the decision-maker made was the correct or preferable one on the material before him. The question for the determination of the Tribunal is whether that decision was the correct or preferable one on the material before the Tribunal.''

and Smithers J said at 599:

``The duty of the Tribunal is to satisfy itself whether a decision in respect of which an application for review is duly instituted is a decision which in its view, was objectively, the right one to be made. Merely to examine whether the administrator acted reasonably in relation to the facts, either as accepted by him or as found by the Tribunal may not reveal this .''

(Emphasis added).

See also Copperart Pty Limited v FC of T 94 ATC 4259 at 4265; (1994) 50 FCR 345 at 352 (Full Federal Court).

In Copperart at first instance, 93 ATC 4779, Hill J observed at 4795:

``The Tribunal must consider all the facts before it and, if it reaches the relevant state of satisfaction, will itself determine to alter the sale value, that is to say, the taxpayer will lose and the Commissioner will succeed.''

His Honour cautioned against ignoring ``the role of the Tribunal as an administrative organ'' and equating ``the task of the Tribunal to that of the Court''. In the present case, the Tribunal approached the question as if it were a matter of judicial rather than administrative review.

The term ``justified'' is defined in the Shorter O.E.D. 3rd edition, as:

``Just, right, righteous; warranted; having good cause or reason, correct; supported by evidence;...''

The word ``justify'' is defined, among other meanings, as:

``Show adequate grounds for (doing the thing with which one is charged).

Show or maintain the justice or reasonableness of an action claim etc; defend as right or proper, or reasonable; give adequate grounds for, warrant.''

The word ``justified'' is frequently used in relation to complaints where a question is raised whether a complaint is ``justified'' in the sense that the issue is whether there are reasonable grounds or a reasonable basis on which it can be made. See
Ah Toy v Registrar of Companies (1986) 72 ALR 107 where the Full Court considered whether complaints against a liquidator were ``justified'' on the ground that legal advice had been obtained. The dispute turned on whether more detailed advice should have been obtained from counsel.

The second error is that discussed in the reasons of Beaumont J. It appears from paragraphs 52 and 54 that the Deputy President considered it correct to determine the question on a ``mathematical basis''. The approach approved was not the correct approach. The exercise required by s 18A(4) of the Sales Tax Assessment Act (No 1) (1930), call for the exercise of judgment and appraisal rather than the application of an arithmetic formula whereby deductions are made from the gross price paid. It does not follow that the deduction of freight cost or any other specified cost from the gross price will establish how much the goods could reasonably have been expected to have been sold for if the agreements had not been entered into. A buyer, for example, may not be prepared to pay an amount so arrived at in every case. The section requires an estimation of what price would be paid in the market for the goods if the agreements did not exist. This will often involve a process of negotiation and bargaining based on many and varied considerations. Market price does not automatically reflect costs incurred by the seller. Furthermore, some cost components may not be capable of precise mathematical calculation and an allowance or estimate may need to be made of such components.

For these two reasons the matter should, in my opinion, be remitted to the Tribunal for determination in accordance with law.

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The cross-appeal be dismissed.

3. The decision of the Administrative Appeals Tribunal given on 31 March 1995 be

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ATC 4055

set aside, except so far as it deals with s. 12B of the Sales Tax Procedure Act 1934.

4. The matter be remitted to the Administrative Appeals Tribunal for further hearing and determination according to law.

5. There be no order for the costs of the appeal or of the cross-appeal.