AJJJ's Emporium Pty Ltd and Commissioner of Taxation
[2013] AATA 501
•16 July 2013
[2013] AATA 501
Division TAXATION APPEALS DIVISION File Number
2012/5106
Re
AJJJ's Emporium Pty Ltd
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Dr Gordon Hughes, Member
Date 16 July 2013 Place Melbourne Tribunal affirms the decision under review.
..............[sgd]..........................................................
Dr Gordon Hughes, Member
TAXATION – administrative penalty – recklessness – applicant incorrectly claimed input tax credits in respect of goods not yet manufactured or delivered – mitigation not warranted on the facts
Legislation
Taxation Administration Act 1953 sections 284-75(1), 284-80(1), 284-90(1) and 298-20 of Schedule 1
A New Tax System (Goods and Services Tax) Act 1999 section 33-15(1)(a)Cases
BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347
Dixon v Commissioner of Taxation (2008) 167 FCR 287
Hart v Commissioner of Taxation (2003) 131 FCR 203Secondary Materials
Goods and Services Tax Ruling GST R2000/34 - Goods and services tax: what is an invoice for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 ("GST Act")?
Miscellaneous Taxation Ruling – Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard MT 2008/1Practice Statement Law Administration: Administration of penalties for making false or misleading statements that result in shortfall amounts PS LA 2012/5
REASONS FOR DECISION
Dr Gordon Hughes, Member
16 July 2013
BACKGROUND
The applicant, AJJJ’s Emporium Pty Ltd, was an importer of construction goods. On 16 July 2012, it lodged a Business Activity Statement (BAS) claiming input tax credits (ITC) for the Goods and Services Tax (GST) payable in relation to the importation of 50,000 LED lights from Hong Kong.
The applicant was represented at all relevant times by Jaison Deo. Mr Deo was the effective operator of the applicant's business although his wife, Loretta Deo, was the sole director.
The applicant was subject to a GST audit in July 2012, which determined that it was not entitled to ITCs claimed in respect of the period 1 April to 30 June 2012. The ITCs were reduced by $72,317 to $2,512, resulting in a shortfall amount of $72,317. In addition, the respondent imposed an administrative penalty of $36,158.50.
The administrative penalty represented 50 per cent of the shortfall, being determined by the respondent under section 284-90(1) of Schedule 1 to the Taxation Administration Act 1953 (Administration Act) on the basis that the applicant had displayed recklessness as to the operation of the taxation law.
On 22 August 2012, Mr Deo, on behalf of the applicant, objected to the penalty amount. On 6 September 2012 the respondent disallowed the objection in full and provided written reasons for disallowing, of the same date. On 8 November 2012 the applicant applied to the Administrative Appeals Tribunal seeking review of the respondent’s decision dated 6 September 2012.
The Tribunal was required to determine whether an administrative penalty of 50 per cent of a shortfall amount, assessed pursuant to section 284-90(1) of Schedule 1 to the Administration Act, had been correctly determined in respect of the applicant.
LEGISLATION
Section 284-75 (1) of Schedule 1 to the Administration Act provides:
(1) You are liable to an administrative penalty if:
(a)you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law (other than the *Excise Acts); and
(b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
…
Section 284-80 (1) of Schedule 1 to the Administration Act provides:
(1) You have a shortfall amount if an item in this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been.
Shortfall amounts Item You have a shortfall amount in this situation: 1
…
A *tax-related liability of yours for an accounting period, or for a *taxable importation, or under the Superannuation (Unclaimed Money and Lost Members) Act 1999, worked out on the basis of the statement is less than it would be if the statement were not false or misleading
Section 284-90 (1) of Schedule 1 to the Administration Act provides:
(1) The base penalty amount under this Subdivision is worked out using this table and section 284-224 if relevant:
Base penalty amount Item In this situation: The base penalty amount is: …
2
…
You have a * shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a * taxation law (other than the * Excise Acts)
50% of your * shortfall amount or part
Section 298-20 of Schedule 1 to the Administration Act provides that the Commissioner may remit all or a part of the penalty.
Section 33-15(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides:
Amounts of *assessed GST on *taxable importations are to be paid by the importer to the Commonwealth:
(a)at the same time, at the same place, and in the same manner, as *customs duty is payable on the goods in question (or would be payable if the goods were subject to customs duty);…
DISCUSSION
The BAS claimed total ITCs of $74,829, comprising:
(a)$68,250 for GST payable to customers on purchases valued at $682,500;
(b)$522.40 for GST payable on freight forwarding fees for the importation;
(c)$3,545 in various unaccounted credits; and
(d)$2,512 in various credits which had been properly accounted for.
The respondent accepted that the applicant was entitled to claim ITCs for item (d). However, the respondent alleged that the applicant had falsely claimed ITCs for items (a), (b), and (c) for the balance of $72,317.
CONTENTIONS
It was not in dispute that the major component of the ITCs claimed – item (a) for $68,250 in respect of a creditable importation – was incorrectly claimed. Pursuant to paragraph 33-15(1)(a) of the GST Act, GST on a taxable importation is paid by the importer at the time that customs duty is payable on the goods in question. In this case, however, the goods had not left the country of origin – and indeed had not been manufactured – and hence there was no taxable importation for GST purposes.
In respect of item (b), the amount of $522.44 claimed as a creditable acquisition in respect of the applicant's freight forwarding charge, the applicant produced a document from a freight forwarder, Intramar Pty Ltd (Intramar), titled Tax Invoice. In fact, this was not an invoice but a quote. The label given to the document is not decisive of its true character. No amount was payable to Intramar because no freight had been forwarded and accordingly there was not, for the purposes of paragraphs 17 to 32 of the Goods and Services Tax Ruling GSTR 2000/34 - Goods and services tax: what is an invoice for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 ("GST Act")? (GSTR 2000/34), a legal relationship between two persons, such that one person's right entails the other person's duty.
In support of the above conclusion, the respondent tabled an internal note to the effect that it had contacted Intramar on 3 September 2012 and had been advised by Mr Dean Stephens that the document in question was a quote only.
With respect to item (c), the amount of $3,545 in various credits unaccounted for, no evidence was produced by the applicant in support of the claim, or of relevance to the imposition of a penalty in respect of the claim.
As there was no dispute as to the existence of a shortfall amount, the only issue before the Tribunal was whether the applicant had acted recklessly by claiming ITCs to which it was not entitled, thereby attracting an administrative penalty of 50 per cent of the shortfall amount.
The respondent referred to the Practice Statement Law Administration – Administration of penalties for making false or misleading statements that result in shortfall amounts (PS LA 2012/5) which states, in relation to reckless behaviour:
107. Recklessness is behaviour which falls significantly short of the standard of care expected of a reasonable person in the same circumstances as the entity. It is gross carelessness.
108. Recklessness assumes that the behaviour in question shows a disregard of the risk, or indifference to the potential consequences of taking the risk, that are foreseeable by a reasonable person. However, the entity or agent does not need to actually realise the likelihood of the risk for it to be reckless.
The respondent also referred to Miscellaneous Taxation Ruling – Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard (MT 2008/1) which states:
101.Behaviour will indicate recklessness where it falls significantly short of the standard of care expected of a reasonable person in the same circumstances as the entity. Although the test for determining whether recklessness is shown is the same as that applied for testing a want of reasonable care, it is the extent or degree to which the conduct of the entity falls below that required of a reasonable person that underscores a finding of recklessness.
The respondent based its characterisation of reckless behaviour on the fact that the applicant had claimed ITCs when it did not hold a tax invoice and had provided no evidence to suggest it had ever held invoices for the expenditure in question. The Tribunal notes that the applicant's director, Mrs Deo, had previously claimed GST credits to which she was not entitled.
The respondent referred the Tribunal to the discussion by Hill and Healy JJ in Hart v Commissioner of Taxation (2003) 131 FCR 203 at [43] to [45], which referred to the following passage in BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347 at 364 per Cooper J:
Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood the proscribed conduct is more than mere negligence and must amount to gross carelessness.
The Tribunal agrees with the respondent's assessment that the applicant's conduct was reckless within the meaning of section 284-90(1) of Schedule 1 to the Administration Act The recklessness was exhibited by the applicant in filing a manifestly inaccurate BAS, completed by the applicant's agent Mr Deo. A reasonable person in Mr Deo's position would have identified a real risk that the content of the BAS was incorrect in claiming the existence of a creditable importation.
The focus of Mr Deo’s evidence was that the applicant had in fact sought, and relied upon, advice from the Australian Taxation Office (ATO), and that this contributed to the BAS error. Specifically, Mr Deo told the Tribunal that, in completing the BAS, he had relied upon telephone advice from the ATO to the effect that the applicant could claim ITCs for the GST for a creditable importation in the circumstances described. He referred in particular to discussions with ATO representatives, via its telephone helpline, on 25 July and 27 July 2012.
REASONING
The Tribunal does not accept that the applicant suffered a disadvantage by relying upon any telephone advice provided by the respondent to Mr Deo, for two reasons. Firstly, the discussions post-dated the filing of the BAS and accordingly any advice received at that time could not have influenced the making of a false or misleading statement. Secondly, even assuming the applicant (through its representative Mr Deo) provided accurate and complete background information when raising its telephone enquiry, it does not follow that it was entitled to rely upon general and essentially theoretical advice obtained under such circumstances. A private taxation ruling, or at least informed professional advice, could and should have been sought, given the relatively sizable amount of the applicant's claim.
Mr Deo told the Tribunal that there had also been an earlier discussion with the respondent, pre-dating the filing of the BAS. He recalled that this was some time between 29 June and 4 July. The Tribunal does not consider, however, that the applicant has discharged its burden of proof on this point. Mr Deo’s oral evidence is inconsistent with his email to the respondent dated 27 July 2012 in which he referred to discussions with two ATO staff only and which, in context, was clearly a reference to the two discussions on 25 and 27 July 2012.
The Tribunal is also unpersuaded by Mr Deo's evidence that, when visited by ATO representatives on 26 July 2012, he was told that the respondent was uncertain as to the applicant's GST liability and that they would have to make further enquiries. This is inconsistent with an internal memorandum of the respondent relating to the meeting with Mr and Mrs Deo.
The extent to which the applicant may be entitled to some form of relief due to inaccurate advice provided by the respondent is in any event relevant to the question of remission, not the assessment of the penalty itself.
With respect to the remission of penalties pursuant to section 298-20 of Schedule 1 of the Administration Act, PS LA 2012/5 paragraph 156 outlines relevant considerations when exercising a discretion to remit, including the circumstances of the situation, the purpose of the penalty regime and the objective of the penalty regime:
Tax officers must consider the question of remission in each case based on all of the relevant facts and circumstances and having regard to the purpose of the provision. Relevant matters to consider in approaching the issue of remission of penalty include:
· that the purpose of the penalty regime is to encourage entities to take reasonable care in complying with their tax obligations. Where the entity has made a genuine attempt to report correctly, it will generally be the case that no penalty applies because of the exercise of reasonable care, safe harbour or because the law was applied in the accepted way.
· remission decisions need to consider that a major objective of the penalty regime is to promote consistent treatment by reference to specified rates of penalty. That objective would be compromised if the penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course.
The respondent referred the Tribunal to Dixon v Commissioner of Taxation (2008) 167 FCR 287 which emphasised the requirement that a penalty must be harsh in the context of the taxpayer's circumstances in order to justify mitigation.
In this instance, the penalty is not harsh. The objective of the penalty is to discourage a failure to take reasonable care in complying with tax obligations. There is no evidence that the applicant, or Mr Deo, exercised the requisite degree of reasonable care. It might be contended on the applicant's behalf that Mr Deo's inquiries of the respondent on 25 and 27 July 2012 were evidence of an intention to confirm the accuracy of the BAS previously filed. Against this, however, is the fact that the discrepancy had already been uncovered on audit and, perhaps more significantly, there is evidence that in any event the respondent advised Mr Deo on 26 July 2012 that the applicant had claimed the creditable importation incorrectly. At no relevant stage did Mr Deo, or the applicant, acknowledge this deficiency in the applicant's BAS.
The Tribunal does not consider it would be appropriate for the penalty to be remitted in this instance.
For the above reasons, the Tribunal affirms the decision under review.
I certify that the preceding 33 (thirty -three) paragraphs are a true copy of the reasons for the decision herein of Dr Gordon Hughes, Member. ............[sgd]............................................................
S Herath, Associate
Dated 16 July 2013
Date of hearing 1 July 2013 Advocate for the Applicant Rahamat Ali, Texol Accounting Services Counsel for the Respondent N A Kotros Solicitors for the Respondent Vikki King, Australian Taxation Office Legal Services Branch
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