Chippendale Printing Co Pty Ltd v Deputy Commission of Taxation
[1995] FCA 725
•12 Sep 1995
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )
GENERAL DIVISION
NO NG 3388 OF 1994
BETWEEN:
CHIPPENDALE PRINTING CO PTY LTD
Applicant
AND:
DEPUTY COMMISSION OF TAXATION
Respondent
NO NG 147 OF 1995
BETWEEN:
CHIPPENDALE PRINTING CO PTY LTD
ApplicantAND:
THE COMMONWEALTH OF AUSTRALIA
First RespondentAND:
COMMISSIONER OF TAXATION
Second Respondent.
CORAM: SACKVILLE J.
PLACE: SYDNEY
DATE: 12 SEPTEMBER 1995.
MINUTES OF ORDER
THE COURT ORDERS THAT:
The time for compliance with the Commissioner's statutory demand dated 19 July 1994 in the sum of $185,992.93 (as varied by the orders of Lindgren J. on 4 August 1995), be extended up to and including 26 September 1995.
The amended notice of motion filed by the applicant on 11 September 1995 be otherwise dismissed.
The applicant pay the respondents' costs.
NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )
GENERAL DIVISION
NO NG 3388 OF 1994
BETWEEN:
CHIPPENDALE PRINTING CO PTY LTD
Applicant
AND:
DEPUTY COMMISSION OF TAXATION
Respondent
NO NG 147 OF 1995
BETWEEN:
CHIPPENDALE PRINTING CO PTY LTD
ApplicantAND:
THE COMMONWEALTH OF AUSTRALIA
First RespondentAND:
COMMISSIONER OF TAXATION
Second Respondent.
CORAM: SACKVILLE J.
PLACE: SYDNEY
DATE: 12 SEPTEMBER 1995.
REASONS FOR JUDGMENT
The Motion
The applicant ("Chippendale") has filed a notice of motion in proceedings NG 3388 of 1994 seeking orders:
staying the execution of a judgment of Lindgren J. of 4 August 1995, which was given in proceedings NG 3388 of 1994, and proceedings NG 147 of 1995; and
that the respondent ("the Commissioner") be restrained from commencing winding up proceedings against Chippendale until the appeals in both proceedings have been finally determined.
As will be seen, Mr Svehla, who appeared for Chippendale, abandoned these claims and substituted a claim under s.459F(2) of the Corporations Law ("the Law") for an extension of the period for compliance with a statutory demand served by the Commissioner on Chippendale. Leave was given to file an amended notice of motion embodying this claim.
The Principal Proceedings
In proceedings No. NG 3388 of 1994 ("the statutory demand proceedings") Chippendale sought an order under s.459H of the Law, or, alternatively, under s.459J of the Law, setting aside the Commissioner's statutory demand for the payment of debt. The statutory demand was dated 19 July 1994, and was served on Chippendale on 21 July 1994. The demand was in the sum of $194,472.68. This sum was made up of additional tax for late payment of sales tax totalling $92,090.70, and penalties for late remission of amounts of group tax, totalling $102,381.98. Chippendale's case mainly rested on a claim that it had paid substantially more sales tax than the amounts for which it was liable and that it was entitled to recover from the Commissioner the amounts of the overpayments, which totalled more than the amount of the statutory demand.
Lindgren J. heard the statutory demand proceedings on 1 December 1994, and published his reasons for judgment on 3 February 1995: see Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 95 ATC 4037; 13 ACLC 229. Lindgren J., in a subsequent judgment of 5 May 1995, summarised the effect of his reasons as follows:
"In summary, I held that but for the passing on provisions of the sales tax legislation, Chippendale would have had a "genuine claim" to a refund of sales tax allegedly overpaid, in the sense of a claim deserving of a hearing. I held in favour of the Commissioner on what was commercially the most significant issue in the case, namely whether Chippendale had an offsetting claim, namely a genuine claim for a refund of sales tax overpaid. The amount of the claim propounded was either $423,383 or $480,929 (according to which of two methods of calculation should be used). Clearly, this amount far exceeded the amount of the statutory demand. However, I held that there was a genuine dispute as to part of the Commissioner's claim to recover presently unpaid additional tax for late payment of sales tax. The evidence did not permit me to calculate at that stage the amount of the additional tax to which that genuine dispute extended."
Following publication of Lindgren J.'s reasons, Chippendale made supplementary submissions, based partly on the principles relating to recovery of amounts paid under mistake of law, expounded in Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51. These further submissions were considered in a judgment delivered by his Honour on 4 August 1995. In that judgment, his Honour also dealt with the claims by Chippendale for relief in proceedings No. NG 147 of 1995 ("the recovery proceedings"). In those proceedings Chippendale sought to recover the amount of sales tax which it
claimed it had overpaid to the Commissioner.
It should be noted that it was common ground in the proceedings that Chippendale had passed on to its customers the full amount of the sales tax said to have been overpaid. As the Royal Insurance Case shows, this is not necessarily a bar to the recovery of moneys paid under a mistake of law. However, the argument before Lindgren J., among other issues, addressed whether the sales tax legislation constituted a code, permitting refund of overpaid sales tax only in the circumstances specified in the legislation. One such circumstance is that the claimant has not passed on the overpaid sales tax to its customers.
Orders of 4 August 1995
The orders made by Lindgren J. on 4 August 1995 were as follows:
"NG 3388 OF 1994
Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation
ORDERS that the respondent's statutory demand dated 19 July 1994 in the sum of $194,472.48 be varied by substitution of the figure of $185,992.93 for $194.472.48 wherever that figure appears, and by alteration if page 2 of the demand in conformity with the schedule to these orders, and that time for compliance with the demand as so varied by extended to 21 August 1995.
DECLARES that the said demand had effect, as varied by Order 1 and the schedule to these orders, as from the date when the demand was served on the applicant.
ORDERS that the application otherwise be dismissed.
ORDERS that the applicant pay the respondent's costs.
NG 147 OF 1995
Chippendale Printing Co Pty Ltd v The Commonwealth of Australia & Anor.
ORDERS that the order made on 5 May 1995 that certain questions be decided separately from any other question in the proceedings be set aside.
ORDERS that on the facts in paras (a), (b), (d), (e), (f) and (g) below ("the Agreed Facts") being agreed to by the parties, questions 1 and 2 below be decided separately from any other question in the proceedings on the assumption that the facts alleged by the applicant and referred to in para (c) below are true ("the Assumption"):
(a)The applicant was during the period 1 July 1991 to 31 December 1992 ("the first period") and during the period 1 January 1993 to 30 June 1994 ("the second period") a manufacturer of goods ("the subject goods") which it sold by retail.
(b)In respect of the sales of the subject goods made during each of the first period and the second period the applicant paid sales tax to the second respondent.
(c)The applicant alleges that by reason of a mistake on its part the applicant paid to the second respondent in each of the first period and the second period an amount of sales tax which, by an amount ("the overpaid sales tax"), was in excess of the amount which under applicable sales tax legislation it was required to pay in respect of its sales of the subject goods.
(d)The sales tax so paid by the applicant to the second respondent (including the allegedly overpaid sales tax) was passed on by the applicant to the purchasers of the subject goods and has not been refunded by the applicant to the purchasers to whom it was passed on.
(e)The basis upon which the applicant calculated its sales tax liability in respect of the subject goods was not at the time of payment disclosed or known to the second respondent.
(f)The applicant has made an application to the second respondent under the sales tax legislation applicable during each of the first period and the second period for a refund of the overpaid sales tax.
(g)The applicant has tendered to the Court the undertaking comprised in the affidavit of 1 March 1995 of Edwin Murrell Gardiner and in paragraph 35 of his affidavit of 30 November 1994, copies of which are attached.
1.On the basis of the Agreed Facts and the Assumption, do the provisions of the sales tax legislation applicable to sales of the subject goods during the first period deny to the applicant any entitlement it may have to a refund or to recovery from the respondents or either of them of the overpaid sales tax paid in respect of the subject goods sold by the applicant in the first period?
2.On the basis of the Agreed Facts and the Assumption, do the provisions of the sales tax legislation applicable to sales of the subject goods during the second period deny to the applicant any entitlement it may have to a refund or to recover from the respondents or either of them of the overpaid sales tax paid in respect of the subject goods sold by the applicant in the second period?
ORDERS that question 1 above be answered "yes".
ORDERS that question 2 above be answered "yes".
ORDERS that the application be dismissed.
ORDERS that the applicant pay the respondents' costs of the proceedings."
Ms Henderson, who appeared for the Commissioner, informed me that the substituted figure of $185,992.93 was the amount of additional tax payable by Chippendale in respect of late payment of sales tax and penalties for late remission of group tax, calculated on the assumptions most favourable to Chippendale. Mr Svehla accepted that this was so. Mr Svehla also accepted that, subject to any right of set-off available to Chippendale in respect of the overpaid sales tax, it was obliged to pay the sum of $185,992.93 to the Commissioner.
The Undertaking
In his judgment of 4 August 1995, Lindgren J. noted that Chippendale had proffered an undertaking to the Court in the following terms:
"If either the Deputy Commissioner of Taxation or the Court finds that Chippendale Printing Co Pty Limited ('Chippendale') has over paid sales tax for some or all of the 1992, 1993 and 1994 income years and determines the amount, but a pre-condition of Chippendale receiving a refund is that it has first refunded the amounts which it has passed on to its customers, Chippendale undertakes to refund such amounts of its customers before it receives the refund from the Commissioner."
Lindgren J., in the course of his judgment, pointed to a number of difficulties associated with what his Honour described as "the conditional undertaking": see p.17. The difficulties included the absence of proof that the identity of the proposed recipients was known to Chippendale and the consequent likelihood that they could not be identified. Mr Svehla, however, in the proceedings before me, made it quite clear that Chippendale's position was that it intended to refund to those customers who had borne the burden of overpaid sales tax the whole of any amounts of sales tax found to have been overpaid. The substance of Chippendale's position, therefore, is that it does not intend to retain for its own benefit any portion of sales tax that ultimately might be found to have been overpaid. It nonetheless wishes to use its entitlement to offset the amount of any overpaid sales tax against its undisputed liability to pay additional tax and penalties.
The Relief Sought Under s.459F(2)
The effect of Lindgren J.'s orders, made on 4 August 1995, was that Chippendale's application to set aside the statutory demand failed, although the amount specified in the demand was varied in the manner to which I have already referred. Chippendale's claim to recover sales tax in the recovery proceedings also failed. Mr Svehla recognised that there was no utility in a motion to stay Lindgren J.'s orders, and accordingly did not seek to rely upon paragraph 1 of the notice of motion.
In the course of argument, Mr Svehla also stated that he no longer sought the relief specified in paragraph 2 of the notice of motion. Rather, he sought an order under s.459F(2)(a) of the Law, extending the period for compliance with the statutory demand served by the Commissioner until the final determination of the appeals in the two proceedings. Section 459F(2)(a), insofar as relevant, provides as follows:
"(2) The period for compliance with a statutory demand is
(a)if the company applies in accordance with section 459G for an order setting aside the demand:
(i)if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand - the period specified in the order, or in the last such order, as the case requires, as the period for such compliance...."
I was told that the likelihood is that the appeals will be heard in November 1995, although it is possible that they will not be heard until early 1996, depending on the state of the lists for the Full Court.
Chippendale's Arguments
In support of Chippendale's application, Mr Svehla relied on three arguments. First, if Chippendale's appeal succeeded, not only would the statutory demand be set aside, but Chippendale would be entitled to recover from the Commissioner something over $400,000. Although Mr Svehla acknowledged that Chippendale's position was that the whole of any amounts to which it was entitled from the Commissioner would be refunded to customers, it was entitled to set off its claim against the sum of $185,992.93 due in respect of additional tax and penalties. So much flowed from the Sales Tax Assessment Act 1992 (Cth), s.55, which provides as follows:
"55. If the claimant has claimed a credit to which the claimant is entitled, the Commissioner must apply the credit as follows (so far as the claimant has not already deducted the credit under section 53):
(a)the Commissioner may apply the credit against any liability that the claimant has under the sales tax law or under any other Act of which the Commissioner has the general administration;
(b)the Commissioner must refund any excess to the claimant."
Secondly, Mr Svehla proffered a further undertaking to the Court on behalf of Chippendale. The undertaking was not reduced to writing, but the substance of it was that Chippendale would undertake to provide to the Commissioner a bank guarantee to pay the sum of $185,922.93 if and when the appeals were determined in the Commissioner's favour. The existence of the undertaking, according to Mr Svehla, protected the Commissioner and justified extension of the time for compliance with the statutory demand.
Thirdly, Mr Svehla pointed to the onerous consequences of the institution of winding up proceedings by the Commissioner, based upon failure to comply with the statutory demands. Chippendale would suffer adverse consequences in the market place if it were known that such proceedings were under way. This was so particularly because the Law requires the Court to presume that a company is insolvent if, within three months of the winding up application, the company has failed to comply with the statutory demand: s.459C(2).
The Discretion
Neither Mr Svehla nor Ms Henderson devoted attention to the principles upon which I should exercise the discretion conferred by s.459F(2)(a) of the Law. This was no doubt due to Chippendale's change of position in relation to the relief sought. However, Mr Svehla referred to the application as being intended to preserve Chippendale's position, pending determination of its appeals to the Full Court. Although not formally a stay application, the principles applicable to such an application are helpful in determining whether the period for compliance with the statutory demand should be extended in the circumstances of the present case. Accordingly, I would regard Chippendale as having to show some reason or appropriate case to warrant the exercise of discretion in its favour, although I do not think it needs to show special or exceptional circumstances: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685, at 694, McBride v Sandland (No.2) (1918) 25 CLR 369, at 374; compare Commissioner of Taxation v Myer Emporium Ltd [No.1] (1986) 160 CLR 220. The matters to be taken into account are set out in Alexander v Cambridge Credit, at 694-695. One important factor is whether the failure to grant relief will cause serious or irreparable damage to the applicant and thereby lead to the loss of valuable rights.
Reasoning
I accept that Mr Svehla is correct when he says that, if Chippendale succeeds on the appeal, it would have an entitlement under s.55 of the Sales Tax Assessment Act 1992 to require the Commissioner to refund the amount of overpaid sales tax, less the amount due by way of additional tax and penalties as specified in the statutory demand. However, the commercial reality is that Chippendale has already passed on to its customers the full amount of the sales tax which it claims to have overpaid. It has also stated that it will pay the full amount of overpaid sales tax to its customers, should it succeed on its claim to a refund from the Commissioner. On Chippendale's own approach, the best commercial result it can hope for from the appeal (assuming it acts in accordance with its stated intentions) is that it will:
pay to its customers an amount equivalent to the overpaid sales tax recoverable from the Commissioner; and
be liable to pay the amount of $185,993.92 to the Commissioner in respect of additional tax and penalties.
It is true that, as between the Commissioner and Chippendale, the
legal position is not dependant upon any obligation undertaken by Chippendale to refund amounts equivalent to overpaid sales tax to its customers. Nevertheless, in exercising the power conferred by s.459F(2)(a) of the law, it is material to take into account the fact the Chippendale's off-setting claim is, in substance, being mounted so as to enable it to make refunds to its customers, who bore the burden of the overpaid sales tax in the first place. In the light of that circumstance, it is difficult to see how Chippendale will suffer serious damage or irremediable loss should it ultimately succeed on its appeal and should the period for compliance with the statutory demand not be extended.
A further relevant factor, in my opinion, is that, if Chippendale succeeds on the appeals, the statutory demand will be set aside. Both Mr Svehla and Ms Henderson agreed that, if this occurred, any proceedings for the winding up of Chippendale, to the extent that they were based solely upon the statutory demand, would necessarily fail. It is true that, in the intervening period, Chippendale would suffer the commercial disadvantage of winding up proceedings having been commenced against it, based upon a statutory demand. However, Chippendale can avoid this disadvantage, if it chooses to do so, by paying the sum that is the subject of the statutory demand and is admittedly payable to the Commissioner (subject to the right of set off claimed by Chippendale). The evidence of Mr Hanks, a director of the applicant, is that Chippendale is solvent, is able to pay its debts as and when they fall due, and has shareholders' funds
amounting to nearly $2,000,000. Mr Svehla, in his submissions, did not suggest that any hardship or prejudice, let alone irremediable harm, would be inflicted on Chippendale if it had to pay the amounts specified in the statutory demand (as amended by the orders of Lindgren J.), as distinct from providing a bank guarantee in an equivalent amount.
Chippendale's offer to provide a bank guarantee, even though made belatedly, must be taken into account. However, in the circumstances of the present case, this does not seem to be sufficient to justify a further substantial extension of the period for compliance with the statutory demand. That period has already been extended for some twelve months, in order to allow Chippendale the opportunity to pursue its arguments (unsuccessfully) before Lindgren J. The undertaking would still require the Commissioner to await the outcome of the appeals before recovering the moneys due in respect of additional tax and penalties and, in effect, prevent any action in respect of the statutory demand in the meantime.
Conclusion
At the conclusion of the argument, I indicated that I was not disposed to make any order extending the period for compliance with the bankruptcy notice at that stage. However, I indicated that I would publish my reasons as soon as possible, and that I would then indicate my final view of the application at that stage.
It seems to me that the appropriate course is to extend the period for compliance with the statutory demand to a date, being fourteen days from the date of delivery of this judgment. This will enable Chippendale, should it be so advised, to pay the amount specified in the statutory demand, without being taken to have failed to comply with the demand. (The orders made by Lindgren J. on 4 August 1995 extended the period for compliance with the statutory demand until 21 August 1995.) Ms Henderson did suggest, somewhat faintly, that s.459F(2)(a) did not allow an order for extension of the period for compliance to be made after that period had expired. However, I think s.459F(2)(a) is sufficiently broad to enable the power to be exercised even after the time for compliance has expired. The period of fourteen days will also provide an opportunity for Chippendale to consider its position more generally, should it desire to do so.
Accordingly, I order that the time for compliance with the Commissioner's statutory demand dated 19 July 1994 in the sum of $185,992.93 (as varied by the orders of Lindgren J. on 4 August 1995), be extended up to and including 26 September 1995. Subject to any argument on the question of costs, Chippendale should pay the Commissioner's costs of the application.
I certify that this and the preceding 13 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville.
Associate:
Dated:12 September, 1995
Heard:11 September, 1995
Place: Sydney
Decision:12 September, 1995
Appearances: Mr J. Svehla, instructed by Cowley Hearne, Solicitors, appeared for the applicant.
Ms R. Henderson, instructed by the Australian Government Solicitor, appeared for the respondents.
5
0