Business Crisis Management Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia
[1997] FCA 772
•15 August 1997
FEDERAL COURT OF AUSTRALIA
ADMINISTRATIVE LAW - Appeal from decision of the Administrative Appeals Tribunal - Tribunal decided that sales tax had been passed on to pool purchasers - Whether no evidence that contracts were based on package prices which included sales tax
Swimming Pools Tax Refund Act 1992 (Cth)
Sales Tax Laws Amendment Act 1986 (Cth)
BUSINESS CRISIS MANAGEMENT PTY LTD v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
VG 636 of 1996
Before: NORTH J
Place: MELBOURNE
Date: 15 AUGUST 1997
IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG 636 of 1996 ) GENERAL DIVISION )
On appeal from the Taxation Appeals Division of the Administrative Appeals Tribunal constituted by Mr B. Forrest, Deputy President
BETWEEN: BUSINESS CRISIS MANAGEMENT PTY LTD
ApplicantAND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
JUDGE(S): NORTH J PLACE: MELBOURNE DATED: 15 AUGUST 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
The appeal is dismissed with costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG 636 of 1996 ) GENERAL DIVISION )
On appeal from the Taxation Appeals Division of the Administrative Appeals Tribunal constituted by Mr B. Forrest, Deputy President
BETWEEN: BUSINESS CRISIS MANAGEMENT PTY LTD
ApplicantAND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
JUDGE(S): NORTH J PLACE: MELBOURNE DATED: 15 AUGUST 1997
REASONS FOR JUDGMENT
This is an appeal by Business Crisis Management Pty Ltd, the applicant, against a decision of the Administrative Appeals Tribunal (the Tribunal) made on 18 September 1996. The Tribunal affirmed a decision of the Deputy Commissioner of Taxation, acting for the Commissioner of Taxation of the Commonwealth of Australia, the respondent, to allow two pool purchasers to make declarations under s 4(5) of the Swimming Pools Tax Refund Act 1992 (Cth) (the Refund Act). Section 4 of the Refund Act provides:
“4(1) Except as provided by this section, the Commonwealth is not liable to make any in situ pool tax refund payment.
4(2) If, before the commencement of this Act or within 2 years after its commencement, the pool builder in respect of an in situ pool tax payment has made a declaration to the Commissioner, in a form approved by the Commissioner for the purpose, of either or both of the following kinds:
(a)that a specified amount, being the whole or part of the in situ pool tax concerned, was not passed on to the pool purchaser in relation to the swimming pool concerned;
(b)that a specified amount, being the whole or part of any of the in situ pool tax concerned that was passed on to the pool purchaser in relation to the swimming pool concerned, has been refunded to the pool purchaser;
then the Commonwealth is only liable to make the in situ pool tax refund payment to the pool builder to the extent that it equals the sum of:
(c)the amount of the tax that was not passed on; and
(d)the amount of the tax that was refunded.
4(3) If, before the commencement of this Act or within 2 years after its commencement, the pool builder in respect of an in situ pool tax refund payment and the pool purchaser in relation to the swimming pool concerned have jointly made a declaration to the Commissioner, in a form approved by the Commissioner for the purpose, that a specified amount, being the whole or part of any of the in situ pool tax concerned that was passed on to the pool purchaser, has not been refunded to the pool purchaser, then subsection (4) applies.
4(4) If a declaration is made under subsection (3), the Commonwealth is liable to make so much of the in situ pool tax refund payment as equals the amount of the tax that was passed on to the pool purchaser and not refunded, but is liable to make the payment to the pool purchaser instead of to the pool builder.
4(5) Subject to subsection (6), if a declaration cannot reasonably be made under subsection (3) (because of the non-existence, death, incapacity or refusal of the pool builder, or for any other reason), the Commissioner must allow the pool purchaser, within the same period allowed under subsection (3), to make the declaration, but in a different form approved by the Commissioner for the purpose.
4(6) Before the Commissioner allows the pool purchaser to make the declaration, the Commissioner must make reasonable efforts to contact the pool builder and obtain his or her views on the matter.
4(7) The pool builder or the pool purchaser may apply to the Administrative Appeals Tribunal for review of a decision of the Commissioner to allow, or not allow, the pool purchaser to make the declaration.
4(8) If the pool purchaser makes the declaration, subsection (4) applies as if it were made under subsection (3).
4(9) A person is not entitled to make more than one declaration for the purpose of each of subsections (2), (3) and (5) in respect of the same swimming pool.”
The background of the Refund Act is set out in the decision of the Tribunal. It is only necessary to say here that the purpose of the Refund Act was to provide a system for the refund of sales tax paid on swimming pools under the Sales Tax Laws Amendment Act 1986 (STAA Act) before the STAA Act was held to be unconstitutional by the High Court.
In the present case, the applicant is the assignee of the rights of the pool builder. It claimed the right to a refund of sales tax paid on pools built for Mr and Mrs O’Malley and Mr Andreacchio. The Deputy Commissioner of Taxation made a decision under s 4(5) that Mr and Mrs O’Malley and Mr Andreacchio be permitted to make a declaration under s 4(5) of the Refund Act. As a result of the making of such a declaration in this case, the purchasers would obtain the refund of sales tax from the Commonwealth and the applicant would not. The applicant sought a review by the Tribunal under s 4(7) of the Refund Act of the decision of the Deputy Commissioner of Taxation. The Tribunal stated the issue before it in the following terms:
“The scheme of the Refund Act requires the Commissioner to refund sales tax to the person who bore it, either the pool builder or the pool purchaser. To the extent to which the tax was passed on to the pool purchaser and not refunded the Commissioner is required to refund it to the pool purchaser.
Thus in determining whether the pool builder or pool purchaser is entitled to the refund the issue for the Tribunal is what amount (if any) of the payments to the Commissioner were passed on to the pool purchaser.
......
The task of the Tribunal is to decide whether in fact the in situ pool tax was passed on to Messrs O’M [O’Malley] and A [Andreacchio] pursuant to the standard contract each signed. In this regard, the Tribunal looks at the terms of the contract, the internal costing and other documentation used by LMP [the pool builder] in relation to these particular contracts and the evidence before the Tribunal.”
The Tribunal found that the sales tax was passed on to the purchasers and had not been refunded to them. It therefore affirmed the decision of the Deputy Commissioner of Taxation. The parties agreed that the Tribunal had properly posed the question before it. It is appropriate to consider the case on this basis without examining further the scope of s 4(7), which is not altogether clear. The parties also agreed that the Tribunal correctly stated the applicable law relating to the concept of “passing on” sales tax. The sole ground of appeal was that there was no evidence to support a critical finding of the Tribunal that the costing of the contract price included sales tax for the two contracts in question.
The STAA Act was introduced on 19 August 1986. At that time, Mr Michael Mayo was a computer programmer employed by the pool builder. He was called to give evidence before the Tribunal on behalf of the Commissioner of Taxation. Mr Mayo was employed in the accounts section of the pool builder and was responsible for costing contracts. The pool builder provided sales staff with package prices as the basis for contracts to be made with pool purchasers. After the introduction of the STAA Act, Mr Mayo recosted the packages to include sales tax. The Andreacchio contract was made on 3 March 1987 and the O’Malley contract on 25 November 1987. The applicant called Mr David Allison to give evidence before the Tribunal. He joined the pool builder as general manager in February 1987. His evidence was to the general effect that the sales tax was not passed on to pool purchasers. The Tribunal dealt with the issue in the following passage:
“It was Mr Michael’s [Mr Michael Mayo] evidence that he was responsible for preparing the packages both before and after the introduction of the STAA Act, and that the packages were recosted after August 1986 (Tr p 116) to include an estimate of sales tax and to maintain profit margin after the STAA was introduced. I accept this evidence. The applicant did not refute this evidence, although Mr David [Mr David Allison] who was not employed by LMP at the time said in evidence in chief:
‘Were the prices which were given to the salesmen, or as indicative prices, did they change when the sales tax was enacted?--- No, the prices didn’t change at all.
So there was no change in terms of the packages the salesmen had?--- There was no change in the terms of the packages that went out with these salesmen. One of our selling points was that we absorbed that in our costs.
Did the company attempt to recover any sales tax when the sales tax legislation was enacted?--- Yes, it did. The policy that they had was they went out to every client that had signed the contract and the legislation stated that the sales tax was imposed effective from a certain date, I think September, August/September whatever it was - - -’.
(Tr p 56)
During an exchange with the Tribunal Mr David, when asked that if the absorption by LMP of sales tax was a selling point why were purchasers not told, replied:
‘- - - our pricing on everything that was given to our customers was well under anybody elses on the market. I didn’t need to do that, I didn’t need that as a selling aid.’
(Tr p 89)
Further on:
‘You said one of our selling points is that we will absorb the sales tax and that was a selling point with your salesmen. That was your evidence?--- Was it, I’m sorry, I can’t recall.
Well, do you wish to retract that now?--- If I made that comment then that certainly wasn’t correct. I can’t recall making that comment. That was one of our selling aides [sic].’
(Tr p 90)
While it is clear that each contract was internally costed after it had been signed, and that the exact amount of sales tax for each pool was not known exactly for some time, this does not exclude the probability, as I find, that an estimate of sales tax was included in the package prices, and was a component in the calculation of the eventual purchase price. It was therefore ‘passed on’ to the purchasers within the principle enunciated in Case 45/95 even though it was not itemised in the contract or the precise amount may not have been known at the time the contract was signed.
LMP did not adopt a policy of absorbing sales tax immediately after the introduction of the STAA Act and that the policy continued is I think a correct inference to be drawn from all the evidence which did not reveal a change of policy on Mr David’s appointment as general manager. Mr David’s claim to the contrary was in my view inherently improbable and I reject it. The documentary evidence examined in the light of all the evidence is persuasive that the relevant sales tax was not absorbed in the contracts in question (which were both based on package prices) but in fact was ‘passed on’ to the purchasers.”
Mr Hanks, who appeared as counsel for the applicant, contended that there was no basis for the Tribunal to conclude that the two contracts in question were costed in accordance with the package costings done by Mr Mayo. He relied on the following cross-examination of Mr Mayo:
“Is it not true also - well, in regard to Mr Andreacchio’s contract, when that was entered into you had nothing to do with that contract, I put it to you. Is that not correct?--- I can’t remember that specific contract as to whether I costed it or not.”
“I put it to you you are not in a position to dispute the evidence of Mr Allison that this - that the sales tax was borne by the company, Leisure Mutual, and never passed on to the pool purchasers, is that not correct?--- I don’t agree with that but you are saying that.”
“You are not in - Mr Allison has said that the - his evidence is that the sales tax in regard to those two contracts was paid and borne by the company, Leisure Mutual Pools, and not passed on to the pool purchasers. You are not in a position to contradict that evidence, is that not correct?--- That is correct.”
Mr Hanks argued that, in the first exchange, Mr Mayo conceded that he could not say how the Andreacchio contract was costed and, in the third exchange, he conceded that he could not say whether sales tax had been borne by the pool builder. Mr Hanks further argued that, as Mr Mayo was not employed at the time of the O’Malley contract, he could not say how it was costed. Mr Hanks then pointed to the evidence of Mr Allison as follows:
“Is there any other item recovered from Mr Andreacchio in relation to sales tax?--- No, there was not.
Did you pass on in any of those prices, a component for sales tax on the shell?--- No, we did not.”
“All right. Now, we are concerned here not with sales tax on accessories but sales tax on the shell. Was there anything included as sales tax for the shell?--- Never.”
Mr Hanks submitted that these exchanges demonstrated that there was no evidence to link the two contracts with the packages prepared by Mr Mayo. Consequently, there was no evidence to support the finding that the contracts were based on the package prices. And, he submitted, as this was a critical finding, the decision of the Tribunal could not stand. I do not accept these submissions for a number of reasons.
First, the finding that the contracts were based on the package prices was not critical to the decision. It was but one element which led the Tribunal to conclude that sales tax had been passed on. The Tribunal also relied upon documentary evidence which showed, or tended to show, that sales tax was borne by the purchasers. The contract itself contained a term allowing for the pool builder to charge for increases in sales tax, and, hence, assumed that sales tax was payable by the pool purchaser. There was also evidence, which the Tribunal was entitled to accept, that the pool builder circulated an internal memorandum after the sales tax was imposed in August 1986 to the effect that purchasers were to be charged for the increase in contract price resulting from the imposition of sales tax. The Tribunal was entitled to find that this memorandum reflected a policy to pass on the sales tax to the purchaser. There was also evidence that, in about December 1987, the pool builder’s accounting system had a sales tax debtors ledger in which the pool purchasers were shown as debtors to the pool builder in respect of sales tax. This document was capable of supporting the conclusion that the purchasers of pools were liable to the pool builder for sales tax. Also, there was evidence of an internal costing report for the O’Malley contract which showed sales tax as an item. Mr Mayo gave evidence that these reports were for the purpose of transferring the cost items into the computerised accounting system. This evidence was capable of being viewed by the Tribunal as supporting an inference that the purchaser was held responsible for sales tax by the pool builder.
Second, Mr Hanks contended that the cross-examination of Mr Mayo, set out earlier in these reasons, amounted to evidence that the two contracts in question were not based on the package price. In my view, all that can fairly be derived from this cross-examination is the concession that Mr Mayo did not recall individually costing the Andreacchio contract. The second response maintained the theme of his evidence as a whole, that sales tax was passed on to all pool purchasers. In the particular cross-examination, Mr Mayo did not say that the two contracts were not based on package prices. He was addressing his knowledge of the particular contracts. If he had been asked whether the contracts were based on package prices, it is clear from the totality of his evidence that he would have replied that they probably were based on package prices, because that was the way the pool builder did business. The main area of contest before the Tribunal between Mr Mayo and Mr Allison was not their knowledge of the two particular contracts, but whether sales tax was included in the package price. Mr Mayo calculated the price of those packages and said that the price contained sales tax. Mr Allison, who joined the pool builder after Mr Mayo had included sales tax in the packages, said that the packages did not include sales tax. It was not in issue that the two pools involved were sold according to the procedure of the pool builder in giving its sales people packages which formed the basis of the pool contracts. For instance, Mr Allison gave evidence as follows:
“Now, this case obviously deals with the manner in which pools were sold, and the circumstances of the salesmen selling them. Could you outline the general process which was adopted in order to sell a pool?--- The salesmen were given a sheet which had packages on the sheet.”
Mr Mayo gave evidence as follows:
“Now evidences [sic] has been given that the salesmen had a package which they would go out and sell. Would you like to just try to describe to the Tribunal what that package was?--- The package would have been a base pool size, and perhaps the edition [sic] of solar heating or an underwater light or a spa, the packages would have varied according to the market and according to what the company was trying to achieve at the time.
Now, what information were the sales reps given in relation to those packages?--- They would have had a price list.
Okay. And the price list would be a price for each package?--- Yes.”
In the context of the evidence as a whole, and in particular the evidence as to the way in which the pool builder did business by reference to package prices, the Tribunal was entitled to infer that the two contracts in question were based on package prices.
In the result, the appeal is dismissed with costs.
I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice North
Associate:
Dated: 15 August 1997
Counsel for the Applicant: Mr P J Hanks Solicitor for the Applicant: Mowbray Counsel for the Respondent: Mr T P Murphy & Mrs J J Batrouney Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 29 May 1995 Date of Judgment: 15 August 1997
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