CPG Group Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia
[2019] VSC 146
•8 March 2019 (revised 20 March 2019)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2018 01741
| CPG GROUP PTY LTD (ACN 164 269 023) | Plaintiff |
| v | |
| DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA | Defendant |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 August 2018 |
DATE OF JUDGMENT: | 8 March 2019 (revised 20 March 2019) |
CASE MAY BE CITED AS: | CPG Group Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia |
MEDIUM NEUTRAL CITATION: | [2019] VSC 146 |
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CORPORATIONS – Application to set aside statutory demand pursuant to s 459G of the Corporations Act 2001 (Cth) on the basis of ‘some other reason’ within the meaning of s 459J(1)(b) – Plaintiff contended that the defendant’s conduct in relation to the plaintiff was such that the court should exercise the discretion to set aside the demand – Finding that the defendant’s conduct did not constitute some other reason to set aside the demand – Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Evans QC | Madgwicks |
| For the Defendant | Ms C M Pierce | Australian Government Solicitor |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
CPG’s Evidence.................................................................................................................................. 2
The retention of the GST refunds................................................................................................ 3
The Income Tax Debt.................................................................................................................. 10
Other events relied upon by CPG............................................................................................ 12
The DCT’s evidence........................................................................................................................ 17
CPG’s submissions.......................................................................................................................... 17
Features of the Commissioner’s conduct which CPG contends attract the jurisdiction to exercise the discretion under s 459J(1)(b)............................................................................................ 22
Reliance on technical point of practice and procedure............................................... 22
Failure to respond to FOI Application........................................................................... 23
Refusal to allow CPG to have chosen lawyer attend interview................................. 24
Failure to engage with and respond to correspondence............................................. 25
Refusal to offset the Income Tax Debt with withheld GST refunds........................... 27
The delay in providing the objection decision............................................................. 28
The inappropriate exercise of power by the DCT in determining to issue the statutory demand.................................................................................................................................. 29
The DCT’s submissions in opposition to the application........................................................ 31
Mr Evans’ submissions in reply.................................................................................................... 42
Consideration.................................................................................................................................... 42
HIS HONOUR:
On 19 April 2018 the plaintiff, CPG Group Pty Ltd (‘CPG’) was served with a creditor’s statutory demand for payment of debt issued (‘the demand’) by the defendant, the Deputy Commissioner of Taxation of the Commonwealth of Australia (‘the DCT’).[1] The demand was accompanied and verified by an affidavit in compliance with s 459E(3) of the Corporations Act 2001 (Cth) (‘Corporations Act’) of David John Buckley, an employee in the Australian Taxation Office, (‘ATO’) sworn 18 April 2018.
[1]While the demand was issued by the DCT, the Commissioner of Taxation (‘the Commissioner’) maintained the financial records in respect of CPG’s account and the communications between the parties were conducted between the Commissioner and CPG and its representatives.
On 10 May 2018, CPG made application by originating process under s 459G of the Corporations Act to set aside the demand. The application was supported by an affidavit of Michil Salib (‘Mr Salib’) sworn on 10 May 2018. Mr Salib is the sole director of CPG.
The DCT relies on affidavits of an employee of the ATO, Mr Yi Deng (‘Mr Deng’), sworn 20 June 2018, 6 August and 14 August 2018.
The application has been made within the time prescribed by s 459G of the Corporations Act.
Introduction
CPG seeks to set aside the demand on the basis of the Court exercising the discretion conferred by s 459J(1)(b) of the Corporations Act which permits the Court to set aside the demand if there is ‘some other reason’ why this course should be followed. For the reasons which follow, I am of the view that the application should be dismissed.
The demand claims that CPG is indebted to the DCT for $8,453,717.24. Of that sum, $8,240,739.29 is said to be owing in relation to a Running Balance Account (‘RBA’) deficit debt as at 18 April 2018 (‘the RBA Debt’). The balance, $196,604.30, is for income tax liability for the year ended 30 June 2016 and $16,394.30 for General Interest Charge (‘GIC’) calculated up to and including 17 April 2018 less payments and credits of $20.65.
The RBA Debt has its origins in a total debt of approximately $14,000,000 owed to the DCT as a result of Notices of Amended Assessments issued by the DCT on 5 December 2017 (‘Amended Notices’). The Amended Notices gave effect to the DCT’s decision to disallow GST refunds claimed by CPG during the period 1 August 2016 to 30 November 2016 and to impose administrative penalties.
The Commissioner established an RBA in respect of primary tax debts due by CPG by operation of the Business Activity Statements (‘BAS’) provisions as defined in sub-s 995‑1(1) of the Income Tax Assessment Act 1997 (‘ITAA 1997’), and on account of administrative penalties under Part 4-25 of sch 1 of the Taxation Administration Act 1953 (Cth) (‘TAA’), including penalties for failure to lodge activity statements on time (‘the Primary Tax Debts’).
Pursuant to s 8AAZD of the TAA , the Commissioner allocated the Primary Tax Debts and any applicable payments and other credits to the RBA pursuant to Division 3 of Part IIB of the TAA. From time to time the balance of the RBA was in favour of the Commissioner. As a result, an ‘RBA deficit debt’ as defined by s 8AAZA of the TAA arose.
CPG’s Evidence
In his affidavit, Mr Salib sets out in considerable detail the dealings which CPG had with the Commissioner. Because the conduct detailed in the affidavit forms the basis of the contentions as to why the jurisdiction conferred by s 459J(1)(b) should be invoked it is appropriate to summarise it in some detail.
Between September 2016 and December 2016, CPG lodged BAS with the Commissioner for the monthly tax periods ending 31 August 2016, 30 September 2016, 31 October 2016 and 30 November 2016. The BAS were lodged on time and contained the requisite information. CPG claimed input tax credits during these tax periods for the creditable acquisitions of scrap Non-Investment Grade Precious Metal gold[2] (‘NIGPM’) in the course of its business.
[2]Section 38-385 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) (‘the GST Act’) provides for when a supply of precious metal is GST free.
The retention of the GST refunds
The Commissioner notified CPG on 22 September, 28 October, 1 December and 22 December 2016 respectively that it was retaining the GST refunds for the identified periods as follows:
Tax Period Refund Amounts ($) 1 August to 31 August 2016 $4,061,744 1 September to 30 September 2016 $2,589,721 1 October to 31 October 2016 $176,051 1 November to 30 November 2016 $48,859
At the same time as the Commissioner was retaining the GST refunds, the Commissioner also made a number of requests for further information for the relevant tax periods.[3] Mr Salib states that he ensured CPG was responsive to these requests given the retention of the GST refunds was negatively impacting CPG.
[3]Salib Affidavit, [21] - [22].
In March and April 2017, CPG’s accountant, Ms Tatiana Bourke (‘Ms Bourke’), lodged Notices of Objections to the Commissioner’s decision to retain the August and September 2016 refunds. In June 2017, Notices of Objection were lodged in regard to the Commissioner’s retention of the October and November 2016 GST refunds.
On 14 June 2017, on Mr Salib’s instruction, Ms Bourke wrote to the Commissioner complaining that the Commissioner had had ‘more than reasonable amounts of time’ to verify the information available and provide the reasons for his decisions to retain the GST refunds. It was stated that the ‘delay thus far is not acceptable, especially considering the quantum’.[4]
[4]Salib Affidavit, [27], Exhibit MS-06.
Mr Salib states that no response to this letter was received from the Commissioner.
On 27 June 2017, the Commissioner wrote to CPG, advising it that further documents were being reviewed and that certain documents still remained to be reviewed.[5] Mr Salib states that the Commissioner did not identify what documents were being reviewed and why the documents relating to tax periods ending 21 October and 30 November 2016 were yet to be reviewed, given that they were provided in March 2017.
[5]Salib Affidavit, [30], Exhibit MS-07.
Mr Salib states that by this time the Commissioner had been retaining in excess of $6,000,000 in GST credits for nearly nine months without providing any reasons as to why. This was causing him considerable stress and he was having serious financial difficulty running his business. He states that he was forced to terminate the employment of a number of staff, borrow money from the bank, mortgage his home and apply those funds to run the business to meet his taxation obligations.
Also on 27 June 2017, Ms Bourke wrote to the Commissioner. In that letter, Ms Bourke relevantly stated:[6]
From the dynamic of the Audit process, which we’ve been observing over the course of the whole audit starting with ATO letter, issued to CPG Group Pty Ltd on 22th September 2016, it looks to us that ATO has exhausted all possible avenues of questioning. We haven’t got any requests for additional information from your Audit team for 3 months, interview with ATO, initially scheduled for 28th June 2017 was cancelled by ATO and Objection team doesn’t need any additional information as well. You had more than sufficient time to analyze the information already submitted, however still there is no indication from ATO that you are completing the audit and will be releasing GST Refunds. Please explain the reasons for hold off.
…
We have numerously brought to your attention what the devastating effect do those lengthy audit proceedings to my client’s business and Mr. Salib personally.
…
We are requesting from you the immediate attention to our letter with your responses addressing all issues and all questions we are raising within. We trust that this matter can be resolved before its 12 month anniversary.
[6]Salib Affidavit, [34], Exhibit MS-08.
Mr Salib states that no response to this letter was received from the Commissioner.
On 7 July 2017, Mr Salib lodged a complaint with the Inspector General of Taxation, regarding the delay by the Commissioner to deal with the GST refunds.
Mr Salib states that he began to suspect that the Commissioner was purposefully ignoring CPG’s correspondence and so he engaged Madgwicks Lawyers (‘Madgwicks’) to assist. In September 2017, on the instructions of Mr Salib, Madgwicks served on the Commissioner notice under s 14ZYA(1)(b) (‘14ZYA Notice’) of the TAA seeking to compel the Commissioner to make a decision on the Notices of Objections which had been lodged in March, April and June 2017 concerning the retention of GST refunds.
In early October 2017, Madgwicks recommended that CPG make a further request for formal written reasons which explained and justified the Commissioner’s initial decision to retain the GST refunds pursuant to s 13(1) of the Administrative Decisions(Judicial Review) Act 1977 (‘ADJR Act’). A letter was sent to the ATO to this effect on 2 October 2017.[7]
[7]Salib Affidavit, [42], Exhibit MS-10.
On around 3 October 2017, CPG received the Commissioner’s Objection Decision of 25 September 2017 (‘Objection Decision’).[8] The Commissioner stated that he had correctly exercised his decision to retain the GST refunds for, amongst other things the following reasons:[9]
[8]Salib Affidavit, [43], Exhibit MS-11.
[9]Salib Affidavit, [46].
(a) that the information provided by CPG in relation to a small portion of its acquisitions required further verification as to its accuracy;
(b) the BAS were lodged by CPG in light of ‘known issues in the industry’ and gave rise to a likelihood that the information was affected by fraud or evasion, intentional disregard or recklessness;
(c) the retention did not materially impact on CPG’s financial position;
(d) the extended period of time which the GST refunds were retained must be considered in the light of the complexity of verifying the information; and
(e) that the Commissioner had insufficient information to make an assessment.
Mr Salib asserts that the Objection Decision was vague, lacked detail and could have been provided at an earlier stage. Mr Salib deposes that had the Objection Decision been provided sooner he could have progressed the matter through the AAT more expeditiously, which could have resulted in the matter being resolved by now and his former employees could have preserved their jobs. [10]
[10]Salib Affidavit, [47].
Mr Salib strongly disagrees with the Commissioner’s Objection Decision and in particular points out that it is not clear why ‘further verification’ was necessary after 12 months of investigations. He states it was also unclear what was meant by ‘known issues in the industry’ and why the Commissioner’s unspecified industry concerns were relevant to CPG’s business activity statements.
Mr Salib states that ‘although the s 14ZYA(1)(b) request [sic] was made on 2 October 2017’,[11] the Commissioner appeared to be ignoring the fact that CPG had issued the Notices of Objections in March, April and June 2017. Further, the Commissioner did not elaborate as to why he formed the view that ‘we do not consider that any subsequent consideration in terms of s 8AAZLGA(5) of the TAA constitutes a decision to which the ADJR Act applies’.[12]
[11]The Salib Affidavit states in [52] that the ‘Section 14ZYA(1)(b) request was made on 2 October 2017’, when in fact it was the request for written reasons pursuant to s 13(1) of the ADJR Act that was sent on 2 October 2017. Mr Salib states in [38] that he authorised Madgwicks to serve the 14ZYA Notice on 13 September 2017.
[12]Salib Affidavit, [53], Exhibit MS-12.
On 9 October 2017, the Commissioner wrote to CPG in response to the letter of 2 October 2017 stating that CPG’s request for the Commissioner’s decision to retain and continue to retain the GST refunds pursuant to s 13(1) of the ADJR Act was refused because it was made out of the prescribed time. The Commissioner detailed the periods of the alleged delay.[13]
[13]Salib Affidavit, [51], Exhibit MS-12.
Also on 9 October 2017, Madgwicks filed an application for review of the Objection Decision with the Administrative Appeals Tribunal (‘AAT’).
On 5 December 2017, the Commissioner issued CPG with the Amended Notices for the periods ending 31 August, 30 September, 31 October and 30 November 2016, the effect of which was to disallow the GST refunds claimed in the BAS for those periods. Mr Salib states that at the time the Amended Notices were issued, it had been eight months since the Commissioner had last requested further information. He states that the effect of the Amended Notices is that CPG owed a debt to the Commissioner of a sum in excess of $14,000,000 for amended net amounts as well as administrative penalties.
The Commissioner also provided a document titled ‘Reasons for our decision’ (‘Reasons’) which contained the Commissioner’s reasons for issuing the Amended Notices. Mr Salib states that in the Reasons, one of the arguments the Commissioner makes is that the scrap gold CPG received from one of its suppliers was produced by ‘adulterating precious metal through the addition of impurities’ and that s 38-385 of the GST Act did not apply to gold supplies which were not the ‘first supply’ (‘First Supply Argument’). He states that in essence, the Commissioner’s argument is that CPG’s gold had previously been refined, was not the ‘first supply’ of that metal and therefore not GST-free.
Mr Salib states that the First Supply Argument is currently the subject of litigation and contends that the Commissioner has received advice which indicates his interpretation of the ‘first supply’ may be incorrect. He states that he has become aware of a decision of the AAT in which the Commissioner was ordered to produce internal legal advice. [14] Mr Salib states that if the AAT decides that if the First Supply Argument has no basis then the Commissioner will have inappropriately applied administrative penalties against CPG. Mr Salib asserts that one of the reasons the Commissioner is pursuing CPG so vigorously rather than allowing the AAT matter to proceed or the proceeding involving the First Supply Agreement to be determined is because the Commissioner has concerns about the validity of his position.
[14]Mr Salib exhibits as MS-22 a copy of the decision of ACN 154 520 199 Pty Ltd and Commissioner of Taxation (Taxation) [2018] AATA 33 (17 January 2018) to his affidavit.
On 13 December 2017, the Commissioner sent a letter to Madgwicks stating that as a result of the Amended Notices being issued on 5 December 2017, there was no longer any utility in continuing with the AAT application. Mr Salib states that upon advice from Madgwicks and Counsel he agreed not to continue with the application, and on 22 March 2018 CPG’s application to the AAT filed on 9 October 2017 to review the Objection Decision was dismissed.
Mr Salib states that on 22 December 2017, CPG lodged a Notice of Objection to the Amended Notices in which CPG states that it was entitled to input tax credits for all acquisitions made from suppliers. In the Notice of Objection, CPG claimed that the amended assessment net amount should be increased and that the shortfall penalties should be reduced to nil.[15] CPG contends that if its objection succeeds in full, the RBA Debt would cease to exist. Mr Salib states that he believes CPG and its agents took reasonable care to comply with the taxation law and for that reason should not be liable to a penalty.
[15]Salib Affidavit, Exhibit MS-23.
Since the DCT first retained GST refunds then payable to CPG on 22 September 2016, CPG contends that it has complied with and assisted the DCT in carrying out his investigation in relation to CPG’s affairs.
Mr Salib deposes that on around 20 February 2018, more than 60 days after the Notice of Objection to the Amended Notices was made, which he contends was on 22 December 2017, he was informed by Madgwicks that the Commissioner had not provided his objection decision (‘Second Objection Decision’). He therefore instructed Madgwicks to make a formal demand on the Commissioner for the Second Objection Decision (‘Second 14ZYA Notice’). The Second 14ZYA Notice was sent by email on 21 February 2018.
In this regard, Mr Salib deposes that his understanding is that the provisions of the TAA operate such that the Commissioner has 60 days from the date he receives a Notice of Objection to make an objection decision (‘1st period’); if the Commissioner does not make a decision after 60 days, the taxpayer may serve a further notice, pursuant to s 14ZYA, compelling the Commissioner to make an Objection Decision (‘2nd period’). If, however, during the 1st Period the Commissioner makes a request for further information from the taxpayer, the calculations of time for the 1st Period resets and does not begin lapsing until the information requested is provided. He states that with this in mind, Madgwicks took great care to ensure all milestones were met without delay.
Mr Salib states that on 26 February 2018 the Commissioner wrote to CPG referring to the Notice of Objection, which Mr Salib contends was lodged on 22 December 2017, stating that he needed more information to ‘make an informed and fair decision’ on the objection and stated, for the first time, that the Second 14ZYA Notice sent on 21 February 2018 was sent before the requisite 60 day period had elapsed. In the Commissioner’s letter of 26 February 2018 the Commissioner relevantly stated:[16]
Your objections were sent to an ATO email address after close of business on Friday 22 December 2017. Accordingly, the objections were not lodged on that day but are taken to be given to the Commissioner on the next business day, noting that this office was closed for business until Tuesday 2 January 2018.
In the circumstances, a notice under subsection 14ZYA(2) of the TAA could not be lodged on 21 February 2018 as the requisite 60 day period in subsection 14ZYA(1) of the TAA had not elapsed. Consequently, subsection 14ZYA(3) of the TAA has not been engaged.
[16]Salib Affidavit, Exhibit MS-26.
In this regard Mr Salib disagrees that the 60 day period began on 2 January 2018, being the day the offices of the Commissioner reopened for 2018, as he is advised that s 14ZYA of the TAA refers to ‘days’ rather than ‘business days’ and does not factor in Christmas closure periods. He states that for that same reason the Commissioner’s request for further information was out of time. He states that he instructed Madgwicks not to respond to the Commissioner’s request for further information.
Mr Salib states that on 18 April 2018, Madgwicks received an email from the Commissioner requesting a response to the request for further information. He states that he instructed Madgwicks to send a letter on 27 April 2018 disputing that the Second 14ZYA Notice was issued prematurely and disputing the Commissioner’s interpretation of the word ‘day’. He states that he also instructed Madgwicks to file an application in the AAT, for a review of the Commissioner’s decision to issue the Amended Notices on 5 December 2017 and this application was filed on 27 April 2018.
The Income Tax Debt
The demand also claims an amount owing for income tax liability for the year ended 30 June 2016. On 15 May 2017, CPG lodged its income tax return for the income year ended 30 June 2016. That income tax return reported income which resulted in tax payable by CPG of $196,604.30 for the year ended 30 June 2016.
By operation of s 166A(3) of the Income Tax Assessment Act 1936 (‘ITAA 1936’), the Commissioner is taken to have made an assessment of CPG's taxable income and of the tax payable on that income in the amount of $196,604.30 (‘the Income Tax Debt’). That assessment is taken to have been made on the day CPG' s income tax return was lodged, 15 May 2017, and the return is deemed to constitute a notice of assessment under the hand of the Commissioner and served on CPG the same day.
On 24 May 2017, the Commissioner issued Notices of Overdue Payments directed to CPG and a related entity, Galaxy Coins Pty Ltd. As against CPG it claimed an overdue Income Tax Debt of $196,604.30. Mr Salib observes that by that point, the Commissioner had retained CPG’s GST refunds for approximately eight months, had not provided his reasons for the retention of the refunds nor had the Commissioner provided an indication as to when those reasons would be provided.
On 9 June 2017, Ms Bourke, requested that the Commissioner withhold from seeking payment of the Income Tax Debt or imposing GIC until such time that the GST refunds were dealt with.
On 3 July 2017, the Commissioner wrote to Ms Bourke confirming that he refused the request to hold off on recovery action in respect of the Income Tax Debt and to waive the GIC. Mr Salib states that he understands the reason that the Commissioner refused the request to hold off on recovery action was because he had concerns that CPG and Galaxy could not pay the amounts outstanding if the GST refund was not refunded.[17] CPG then instructed Ms Bourke to make a payment proposal for the Income Tax Debts to the Commissioner and such a proposal was made to the Commissioner on 14 July 2017. The proposal involved:
a)payment of 50% of the Income Tax Debts be ‘frozen’ until completion of the order with respect to the retention of the GST refund;
b)50% of the Income Tax Debt for both CPG and Galaxy Coins be paid by way of monthly instalments of $10,000; and
c)upon the GST refunds being paid to CPG, that both CPG and Galaxy would increase their monthly repayments to $20,000 until the Income Tax Debts were paid in full.
[17]It is assumed from the context of his affidavit that Mr Salib intended to state that the Commissioner had concerns that CPG and Galaxy could not pay the amounts outstanding if the GST was refunded and subsequently found to be payable.
Mr Salib states that the Commissioner did not respond to CPG’s proposal to enter into a payment arrangement. Ms Bourke again wrote to the Commissioner on 23 August 2017, copying the earlier email containing the proposal. On 1 September 2017, the Commissioner rejected the payment arrangement. Mr Salib understands that the Commissioner refused the payment arrangement because the Income Tax Debts were not disputed and that a ‘50/50 payment arrangement’ was not available.
On 18 September 2017, Madgwicks , on behalf of CPG, wrote to the Commissioner, stating that Part IIB of Division 3 of the TAA requires that where there is an RBA, the Commissioner must apply certain amounts of money of which it is in possession of and reduce any tax debts owed to the Commissioner. The Commissioner was asked to:
...reconsider his decision and offset the Income Tax Account with the GST Refund, or, failing which, provide written reasons as to why Part IIB Division 3 of the [TAA] does not apply.
Mr Salib states that no response to this letter was received from the Commissioner.
Other events relied upon by CPG
Mr Salib deposes that on 15 February 2018, the Commissioner issued a Creditor’s Statutory Demand (‘February Demand’) on CPG claiming a debt of $8,317,317.17. He states that he disputed the debt and instructed Madgwicks to apply to set aside the February Demand.
On 5 March 2018, the Commissioner wrote to CPG stating that the February Demand had been withdrawn. The Commissioner did not provide reasons for the withdrawal of the February Demand. Mr Salib states that he has compared the demand the subject of this application with the February Demand and notes the only significant difference is that the description of the debt at paragraph (a) of the February Demand was calculated as at February 2018, whereas the demand the subject of this application calculates the debt as at 18 April 2018.
Mr Salib deposes that on 13 March 2018, CPG issued the Commissioner with a Freedom of Information request (‘FOI Application’) on the Commissioner seeking production of, amongst other things, the documents relating to the decision of the Commissioner to issue and then withdraw the February Demand.
On 24 April 2018, the Commissioner forwarded correspondence stating that the categories of documents sought would require in excess of 100 weeks to process and was therefore an inefficient use of the Commissioner’s resources.[18] The Commissioner requested a revision of the documents sought pursuant to the FOI Application.
[18]See exhibit MS-32 to Mr Salib’s Affidavit wherein the DCT states the total of 3025 hours or approximately 100 staff weeks would be required to complete the request.
On 7 May 2018, Madgwicks notified the Commissioner that CPG was agreeable to a slight revision of the FOI Application. Mr Salib states that as at the date of his affidavit, the Commissioner was yet to provide any documents in relation to the FOI Application. At the hearing of the application Mr Evans, Senior Counsel for CPG stated that CPG had received one tranche of documents which is said to constitute about one sixth of the documents sought.
On 6 July 2017, the Commissioner served a notice pursuant to s 353-10 of sch 1 of the TAA requiring that Mr Salib attend an interview with the Commissioner and give evidence.[19] In the letter, the Commissioner relevantly stated:
You may choose to have an adviser with you at the interview. However, Mr Sazz Nasimi is specifically excluded from attending as an adviser with you at the interview.
No reasons were provided by the Commissioner explaining why this stance was taken. Mr Salib states he was advised by Mr Nasimi that this was out of the ordinary and that the Commissioner was not entitled to decide who he may have as his legal adviser at the interview. Mr Salib states that although he disagreed with the exclusion of Mr Nasimi, as he did not wish to ‘make things difficult’ he organised for another lawyer from Madgwicks to attend.
[19]Salib Affidavit, Exhibit MS-34.
Mr Salib deposes that on the morning appointed for the interview, he was feeling unwell and called an ambulance. He was admitted to hospital and stayed under observation for one night. He states that his belief was that this was brought on by stress arising from the dispute with the DCT. Mr Salib was unable to attend the interview and it was rescheduled.
On 22 August 2017, the Commissioner served a second notice requiring Mr Salib to attend an interview and give evidence on 18 September 2017.[20] Again, the letter stated that Mr Nasimi was ‘specifically excluded’ from attending, and again, no reasons as to why Mr Nasimi was excluded were provided. He therefore arranged for another lawyer at Madgwicks to attend with him on the day.
[20]Salib Affidavit, Exhibit MS-35.
Mr Salib deposes that during the interview, the Commissioner questioned him about CPG’s dealings with Golden Touch International Pty Ltd and Golden Angel Australia Pty Ltd (‘Golden Angel’). He states that specifically, the Commissioner asked him about the courier that was used by Golden Angel to supply the scrap gold to CPG. He therefore gained the impression that the Commissioner was investigating Golden Angel and did not believe the courier existed or that the supplies to CPG took place. He states that he recalls telling the interviewer that they needed to make contact with the Melbourne courier, who the interviewer identified as ‘Ottoman Concepts’. Mr Salib states that as far as he is aware, the Commissioner has not made contact with the courier to verify dates and times of delivery and that if the Commissioner had made enquiries, the information he had provided would have been verified.
Mr Salib states in addition to his dealings with the Commissioner, he has been informed that the Commissioner is now demanding documents involving CPG from other entities. He states that on 23 April 2018, the Commissioner issued a Notice pursuant to section 353-10 of sch 1 of the TAA (‘Section 353 Notice’) to Danico Pty Ltd (‘Danico’), a company of which his daughter, Daniella Salib, is the sole director. He asserts that having read the Section 353 Notice, he considers it is not a genuine request for information from Danico but is instead a means to obtain information on CPG, as the vast majority of the information sought appears to relate solely to the legal advice obtained in entering into transactions with CPG and the commerciality of those transactions. Mr Salib states that it appears the Commissioner is demanding non-taxation related information so that he can dispute a Contract of Sale of Chattels dated 2 November 2017, and the Loan Agreement between Nashwa Salib and Danico.
The Commissioner’s alleged abuse of powers and process is summarised by Mr Salib as follows:
(a) since September 2016, the Commissioner has engaged in conduct which has had the effect of preventing CPG from accessing GST refunds whilst also allowing the Commissioner to pursue CPG for debts allegedly owing;
(b) CPG has incurred significant costs and has been forced to take steps to force the Commissioner to provide reasons for his decision to retain the GST refunds;
(c) on almost all occasions the Commissioner:
(i) allowed the entirety of time allowances that it had to elapse before responding thereby maximising the delay and hardship caused to CPG; and or
(ii) did not take any action it could have taken or ought to have taken unless it was compelled to do so; and
(iii) unnecessarily caused CPG to incur wasted costs in the form of AAT applications which could have been avoided and had to eventually be withdrawn.
(d) the fact that an assessment was raised so quickly after the AAT application was made is evidence of the Commissioner’s attitude towards CPG with the result that costs incurred in the making of the AAT application were thrown away and all time limits and time allowances that were in favour of the ATO were reset;
(e) the Commissioner without adequate reason prevented him from having his chosen representation at the compulsory interview held pursuant to s 353-10;
(f) the Commissioner advocated a legal position which was incorrect, for example the letter exhibited as MS-28, that he would have accepted but for obtaining legal advice and which would have resulted in a claim for misleading and deceptive conduct if the ATO were not protected from such claims;
(g) the Commissioner, in its practise statements state it seeks cooperation from the tax payer and strives to resolve matters as informally as possible, but has in the present circumstances been overly technical;
(h) despite the protracted delay between the retention of the GST and the assessment being made, the ATO has carried out only a high level investigation and has failed to speak with individuals who could have verified information more expeditiously as set out in paragraphs 141–143;
(i) the Commissioner continues to press the interpretation of the Act that it knows or may know not the be the case, despite the Model Litigant obligations imposed upon him; and
(j) the Commissioner has taken advantage of the ‘pay now argue later’ regime by deliberately frustrating CPG’s ability to commence the argument and had the Commissioner acted in timely, diligent and ethical manner, the current controversies would have either been settled, resolved or substantially progressed. However, as it presently stands, CPG’s AAT application has only been recently filed in circumstances where the Commissioner was attempting to cause further delays by debating the meaning of the word ‘day’.
Mr Salib states that for the above reasons, he is of the view that the Commissioner has engaged in conduct which is not in good faith in serving the demand. He contends that there is a very real prospect that should the demand not be set aside, steps will be put in motion by the Commissioner which could result in CPG being placed in liquidation, on a debt which is factually disputed (even if the debt is legally incontestable, presently). It is submitted that, in light of the unsatisfactory manner in which this dispute has been conducted by the Commissioner, it would cause substantial injustice should the Commissioner’s actions operate so as to stultify CPG’s ability to contest the underlying tax liability and associated penalties. As Mr Salib deposed:[21]
If CPG was to be placed in liquidation by virtue of non-compliance with a statutory demand, there would be no inquisition into the Commissioner’s actions and no scrutiny of their actions.
[21]Salib Affidavit, [84].
The DCT’s evidence
The three affidavits of Mr Deng relied upon by the DCT adduce formal evidence of the existence of the debt claimed in the demand. The affidavits do not take issue with the evidence raised by Mr Salib in respect to the events occurring before the issue of the demand which are detailed above.
CPG’s submissions
CPG contends that if the demand is not set aside and an application to wind up CPG is subsequently made, it will have the effect of stifling CPG’s ability to challenge the underlying assessments and, because of the manner in which the DCT has conducted his investigation, such an outcome would give rise to substantial injustice to CPG.
CPG accepts that the effect of the decision of the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd[22] is that this Court may not set aside the demand pursuant to s 459H of the Corporations Act. CPG contends however that the Court is empowered to set aside the demand by s 459J(1)(b) of the Corporations Act and that the circumstances of this case are such as to give rise to ‘some other reason’ for the exercise of the Court’s discretion under s 459J(1)(b) in CPG’s favour.
[22](2008) 237 CLR 473 (‘Broadbeach’).
The conduct relied upon by CPG to attract the jurisdiction to set aside the demand under s 459J(1)(b) in Mr Salib’s affidavit was summarised by Mr Evans in his comprehensive written submissions. Some of those matters were accorded less prominence than others. Mr Evans submitted that when considered collectively, the Commissioner’s conduct satisfies one or more of the criteria of unconscionability, abuse of process or that which gives rise to substantial injustice on an application of the principles which will be referred to below and, as such, warrants the Court exercising a discretion to set aside the demand.
Alternatively, Mr Evans submitted, the conduct described nonetheless satisfies the lower threshold[23] which is conduct that does not give rise to substantial injustice, is not unconscionable and not unfair but still warrants the discretion being exercised.[24] He contended that while there has been little judicial guidance on what conduct would satisfy that lower threshold, the relevant conduct would include conduct that is unreasonable in the all the circumstances.
[23]CPG’s outline of submissions dated 8 August 2018, [20.2].
[24]CPG’s outline of submissions dated 8 August 2018, [16], [17],[20.2].
Section 459J of the Corporations Act provides:
(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
(2)Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.
Mr Evans contended that s 459J(1)(b) is expressed in general and unconfined terms and grants the Court a broad discretion which is not of a kind that should be ‘hedged about by implied limitations’.[25] In this regard he referred to the decision of the High Court in Owners of Ship, Shin Kobe Maru v Empire Shipping Co Inc[26] where the Court stated:
It is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words.
[25]See Campbell v Backoffice Investments Pty Ltd (2009) 257 ALR 610, 655 [178] (Gummow, Hayne, Heydon and Kiefel JJ). Note that this statement was made with reference to s 233(1)(d) of the Corporations Act.
[26](1994) 181 CLR 404, 421.
He also referred to the decision of Rares J in MNWA Pty Ltd and Another v Deputy Commissioner of Taxation (‘MNWA’) in regard to the interpretation of s 459J(1)(b):
Section 459J(1)(b) gives the Court a discretion, that must be exercised judicially, to set aside a statutory demand if it is satisfied that there is some other reason, than on the basis of s 459H or s 459J(1)(a), to do so. The discretion is unconfined except by reference to the subject matter, scope and purpose of Pt 5.4 in the more general context of the Corporations Act: R v Australian Broadcasting Tribunal; Ex parte 2HD Pty Ltd (1979) 144 CLR 45 at 50 per Stephen, Mason, Murphy, Aickin and Wilson JJ …[27]
[27](2016) 250 FCR 381, 409 [124] (‘MNWA’).
In R v Australian Broadcasting Tribunal; Ex parte 2HD Pty Ltd, the High Court stated:[28]
The general rule is that a discretion expressed without any qualification is unconfined except in so far as it is affected by limitations to be derived from the context and scope and purpose of the statute.
[28](1979) 144 CLR 45, 50.
Mr Evans observed that the Full Court of the Federal Court observed in Hoare Bros Pty Ltd v Commissioner of Taxation[29] (‘Hoare’) that when considering the operation of s 459J(1)(b) in the taxation context that whilst it would be ‘unwise to attempt to mark out the limits of the discretion’, it may be exercised where it is ‘shown that the Commissioner’s conduct was unconscionable, was an abuse of process, or had given rise to substantial injustice’.[30]
[29](1996) 62 FCR 302, 317-18 (Black CJ, Einfeld and Sackville JJ).
[30]Ibid.
In this regard, Mr Evans submitted conduct may be unconscionable in the context of s 459J(1)(b) where a statutory demand is used in a manner which is unjust or unconscientious, or for a collateral purpose.[31] In other contexts, it has been said that ‘notions of justice and fairness are central’ to the concept.[32]
[31]Willaire Pty Ltd v Equititrust Ltd (2010) 81 ACSR 200, 208 [39]-[41] (Muir JA, McMurdo P and McMeekin J agreeing); MNWA Pty Ltd v Deputy Commissioner of Taxation (No 2) (2015) 109 ACSR 265, 285 [118] (Griffiths J).
[32]Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90, [41] (Allsop CJ, Jacobson and Gordon JJ).
For conduct to give rise to an abuse of process in the context of s 459J(1)(b), it has been said that the concept ‘is concerned predominantly with propriety of purpose’. That issue must be judged according to the legitimate objectives of the particular process.[33] A challenge under s 459J(1)(b) on the grounds of abuse of process would pay attention to the objectives properly pursued by service of a statutory demand.[34] A statutory demand may be an abuse of process if it is issued for ‘an improper’ or ‘collateral purpose’.[35] Mr Evans referred to the decision of Mibor Investments Pty Ltd v Commonwealth Bank of Australia[36] where Hayne J observed that considerations similar to those that have been developed in connection with the abuse of the processes of the courts may also be relevant;[37] proceedings may be stayed for abuse of process in circumstances where the processes and procedures of the court may be ‘converted into instruments of injustice or unfairness’.[38]
[33]CPG’s outline of submissions dated 8 August 2018, [15.2].
[34]TS Recoveries Pty Ltd v Sea-Slip Marinas(Aust) Pty Ltd [2007] NSWSC 1074, [17]–[20] (Barrett J).
[35]Createc Pty Ltd (ACN 094 263 537) v Design Signs Pty Ltd (2009) 71 ACSR 602, 610-11, [47]–[49] (Martin CJ, Owen and Miller JJA agreeing).
[36]Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290.
[37]Ibid 297 (Hayne J).
[38]Walton v Gardiner (1993) 177 CLR 378, 393 (Mason CJ, Deane and Dawson JJ).
For conduct to give rise to substantial injustice, it has been said in the context of s 459J(1)(a) (which arises in the context of defects in a demand) that the conduct must ‘have some significant effect or ramification upon the recipients of the demand’ or be ‘causative of significant and considerable unfairness’.[39] Whether in any given case acts of a party have given rise to substantial injustice must be considered in the ‘totality of the circumstances of the particular case’.[40]
[39]Randall Pty Ltd v Chepan Pty Ltd (2009) 73 ACSR 267, 271 [14] (White J).
[40]Randall Pty Ltd v Chepan Pty Ltd [2009] NSWSC 848, [15] (Barrett J).
Mr Evans submitted that the discretion to set aside a demand under s 459J(1)(b) may also be exercised in circumstances where the relevant conduct does not satisfy any of the three criteria identified in Hoare. In Hoare, the Court observed that the ‘discretion may be exercised in favour of a company, even without showing that substantial injustice would otherwise be caused’.[41] More recently, Murphy J in the Federal Court of Australia observed in HC Legal Pty Ltd v Deputy Commissioner of Taxation (‘HC Legal’), after considering the comments of the Court in Hoare:[42]
The discretion is of broad compass … and I do not consider that the court in Hoare Bros was seeking to exhaustively set out the situations it comprehends.
HC Legal contends, and I accept, that the discretion may be exercised in favour of a company even without showing substantial injustice would otherwise be caused.
[41]Hoare (n 29) 317 (Black CJ, Einfeld and Sackville JJ).
[42](2013) 87 ATR 379, 389 [44]-[45].
In HC Legal, Murphy J also referred to the observation of Keane JA in Neutral Bay Pty Ltd v Deputy Commissioner of Taxation (‘Neutral Bay’) that it is open to a court to conclude that there is reason to set aside a statutory demand without finding unconscionable conduct or unfairness on the part of the Commissioner.[43] This was subject to the comments of the High Court in Broadbeach, in which the Court allowed an appeal from Neutral Bay and relevantly observed that in considering whether to exercise the s 459J(1)(b) discretion in the taxation context, the ‘”material considerations” which are to be taken into account … must include the legislative policy … respecting the recovery of tax debts notwithstanding the pendency of Pt IVC proceedings’.[44]
[43]Ibid [45] citing Neutral Bay (2007) 68 ATR 886, 909 [83] (Keane JA, Holmes and Muir JJA agreeing), see also [84].
[44]Broadbeach (n 22) [61] (Gummow ACJ, Heydon, Crennan and Kiefel JJ).
Mr Evans contended that the facts of HC Legal illustrate that the particular conduct of the Commissioner in any given case may warrant the exercise of the s 459J(1)(b) discretion, notwithstanding the need to take into account the legislative policy concerning the recovery of tax debts. In HC Legal, Murphy J considered whether certain actions taken by the Commissioner warranted the exercise of the s 459J(1)(b) discretion in the taxpayer’s favour. In that case, the actions included the freezing of bank accounts, an alleged breach of undertakings, a refusal to agree to defer recovery of the relevant tax debts, the issuing of a garnishee notice and conduct allegedly undertaken in bad faith.[45]
[45]HC Legal (n 42) [55]-[70].
Mr Evans submitted that while Murphy J considered that the evidence in that case did not warrant the exercise of the discretion, he made it clear that in an appropriate instance the conduct of the Commissioner may do so. Mr Evans contended it is accordingly necessary to consider whether ‘in all the circumstances’ the conduct of the Commissioner in this case warrants the exercise of the discretion.[46] He submitted that on an application of the above analysis, the type of conduct which may enliven the discretion in the context of taxation matters includes:
[46]Ibid [67]. This is a separate inquiry from whether a taxpayer has a ‘reasonably arguable case’ as to the underlying tax liability, which Murphy J found not to be a relevant consideration in determining to exercise the s 459J(1)(b) discretion: see [52]-[54], and see also the comments of Farrell and Davies JJ in MNWA (2016) 250 FCR 381, [192], where their Honours found that an ‘arguable basis’ for disputing the Commissioner’s right to take recovery action does not warrant exercising the s 459 (1)(b) discretion.
(iv) conduct which is unconscionable, an abuse of process or gives rise to substantial injustice; and
(v) conduct which does not give rise to substantial injustice, is not unconscionable and is not unfair, but still warrants the discretion being exercised.
Features of the Commissioner’s conduct which CPG contends attract the jurisdiction to exercise the discretion under s 459J(1)(b)
Mr Evans emphasised the following matters in regard to the Commissioner’s conduct.
Reliance on technical point of practice and procedure
Reliance was placed by CPG on the raising by the Commissioner of technical points of practice and procedure in particular by contending that the Second 14ZYA Notice was lodged out of time by CPG.[47] Mr Evans’ written submissions focussed on the issue of whether the requisite 60 day period in sub-s 14ZYA(1) of the TAA had in fact elapsed so as to enable sub-s 14ZYA(3) of the TAA to be engaged.
[47]Salib Affidavit, [101]-[102] wherein Mr Salib states that the Commissioner contended that the Notice of Objection was received on 2 January 2018 and not 22 December 2017.
Because of various concessions subsequently made by the Commissioner after the commencement of this application, the substantive controversy in respect of the efficacy of the Second 14ZYA Notice was not pressed by CPG at the hearing of this matter. Mr Evans contended that the approach adopted by the Commissioner to the issue concerning the efficacy of the Second 14ZYA Notice formed part of the course of conduct of the matter by the Commissioner which attracts and warrants the exercise of the discretion to set aside the demand.
Mr Evans contended that as a model litigant, the DCT should not rely on technical defences or take purely technical points of practice and procedure. Further, he submitted, that such a technical point was relied upon and applied incorrectly. When CPG’s solicitors wrote to the DCT contending that his application of s 14ZYA was mistaken, the DCT did not respond. It was submitted that the DCT’s conduct has caused significant and considerable unfairness to CPG which comes within one of the criteria set out at paragraph 77 (i) and (ii) above and forms part of the conduct relied upon to attract the s 459J(1)(b) discretion.
Failure to respond to FOI Application
CPG relied upon conduct constituted by the failure by the Commissioner to provide documents in response to the FOI Application relating to the decision to issue and then withdraw the February Demand.[48]
[48]The FOI Application in fact requested documents in respect of five other categories as well, see exhibit MS-31 to the Salib Affidavit.
CPG makes two submissions in regard to the FOI Application. First, it is argued that the six week period taken by the Commissioner to determine that he was not going to comply with the FOI Application was unreasonably long. It is said that this is particularly so in circumstances where the February Demand issued by the Commissioner (which requires compliance within 21 days) was outstanding and the documents sought in the FOI Application were of direct relevance to planning a reaction to the demand.[49] Further, in the course of that six week period, only one staff day was spent searching for the relevant documents.[50] In CPG’s submission, the Commissioner’s conduct amounts to causing unwarranted delay in handling claims and litigation.[51]
[49]CPG does not understand it to be the case that the documents supporting the demand are materially different to the documents supporting the February Demand.
[50]Salib Affidavit, Exhibit MS-32.
[51]Kenny v South Australia (1987) 46 SASR 268, 273 (King CJ); see also the Model Litigant Obligations, cl 2(a), which provides that the Commonwealth must deal ‘with claims promptly’ and not cause ‘unnecessary delay in the handling of claims and litigation’.
Secondly, CPG contends that the fact that the Commissioner has still not as of the date of the hearing of this application provided the totality of requested documents, having only provided one sixth of the total documents to be delivered to CPG, creates substantial unfairness for CPG because it prevents CPG from reviewing the necessary documents to determine whether there is an argument to be made that the Commissioner acted improperly in serving the demand. It was contended that this impeded CPG’s ability to effectively contest the demand. Mr Evans contrasted this with the position of the plaintiff in HC Legal. Murphy J relevantly observed:[52]
Mr Cahill deposes that HC Legal suspects that the assessments were tainted by bad faith. HC Legal made several requests under the Freedom of Information Act 1982 (Cth) for the Commissioner’s documents relating to the freezing of accounts and the audit, and received documents in response. HC Legal stated that it reviewed the documents. Although taken to a raft of correspondence between the parties, I was not taken to any document which evidenced any bad faith on the part of the Commissioner. I infer that no such documents were found by HC Legal.
[52](2013) 87 ATR 379, [65].
Mr Evans stated that, in contrast to the position of the plaintiff in HC Legal, CPG has not as at the date of the hearing of this matter received all of the documents in response to the FOI Application. It is submitted that this has accordingly prevented CPG from undertaking a proper review of the documents in the manner in which HC Legal did, for the purpose of either determining that the Commissioner did not act improperly, or determining that a targeted submission should be made that the Commissioner’s decision to issue the demand was improperly made. Similarly, the Court is prevented from reviewing the relevant documents and undertaking an analysis similar to that undertaken by Murphy J. It is contended that this has serious ramifications on CPG’s ability to effectively dispute the demand and is unfair in all the circumstances. Accordingly, it was contended, this conduct satisfies one or more of the criteria set out at paragraph 77 (i) and (ii) above, attracting the exercise of the s 459J(1)(b) discretion.
Refusal to allow CPG to have chosen lawyer attend interview
The next feature of the Commissioner’s conduct pointed to was the alleged refusal to allow Mr Salib to have his chosen lawyer attend an interview conducted pursuant to s 353-10 of sch 1 of the TAA. Mr Evans indicated that this was not a ‘preeminent’ ground relied upon but nonetheless formed part of the Commissioner’s conduct of the matter.
Mr Evans stated that whilst CPG accepts that the Commissioner is entitled to exclude certain representatives from accompanying a person being interviewed pursuant to the s 353-10 procedure, it submits that this should not occur in the absence of a stated basis. In this regard he referred to a document published by the Commissioner, ‘Our approach to information gathering’, it is stated that:
We may decide to exclude your choice of representative from the interview in limited circumstances. For example, if your representative participated in the transactions of interest (other than as an adviser) and their attendance at your interview could prejudice our investigation. In these circumstances, they may be subject to a separate interview in relation to the transactions.
Mr Evans submitted that in the event that relevant ‘limited circumstances’ warranting the exclusion of a person’s choice of representative do exist, it is not reasonable for the Commissioner to provide no explanation of what those circumstances are and this is particularly so in the case of a person’s lawyer who has conduct of his case.
It was submitted that as such the Commissioner has not acted reasonably and his conduct is captured by the lower threshold described at paragraph 77(ii) above which attracts the exercise of the s 459J(1)(b) discretion. It is submitted that the Commissioner’s conduct also goes towards the ‘totality of the circumstances’ that this Court should take into account in determining whether to exercise the s 459J(1)(b) discretion.[53]
[53]CPG’s outline of submissions dated 8 August 2018, [15].
Failure to engage with and respond to correspondence
The next category of the Commissioner’s conduct to which reliance is placed is said to have been constituted by the failure to engage with and respond to pertinent correspondence with CPG and its representatives.
Mr Evans submitted that throughout the dispute, CPG has cooperated with the Commissioner and has taken reasonable steps to resolve matters that arose as promptly as possible. The Commissioner first retained GST refunds on 22 September 2016.[54] On that date, the Commissioner also made the first of six requests for information. In each instance, as acknowledged by the Commissioner, CPG responded promptly to the request for information.[55] By contrast, it was submitted that at a number of stages of the dispute the Commissioner has not dealt with the relevant claims promptly and has caused unnecessary delay.
[54]Salib Affidavit, [16].
[55]Salib Affidavit, [22].
It was said that each of the pieces of correspondence directed to the Commissioner by CPG was clear and reasonably required a response. This is said to be particularly so in light of the Commissioner’s Model Litigant obligations, which require him to conscientiously comply with procedures designed to minimise ‘delay’, and act with the ‘highest standards’, with the result that ‘what might be accepted from others would not be seen as in full accord with the principles of equity and good conscience to be expected in the case of the Crown’.[56] Mr Evans contended that arguably, the obligations imposed on the Commissioner as a model litigant include similar matters to those addressed in the Civil Procedure Act 2010 (Vic), including the duty in s 20 to ‘cooperate with the parties’. In failing to respond to the correspondence and engage with the issues raised by CPG, the Commissioner has acted unreasonably, and his conduct satisfies the lower threshold described at paragraph 77(ii) which attracts the exercise of the s 459J(1)(b) discretion. Again, it was also submitted that the conduct also goes towards the ‘totality of the circumstances’ that this Court should take into account in determining whether to exercise the s 459J(1)(b) discretion.[57]
[56]Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537, 558-59 (Mahoney JA); see also the Model Litigant Obligations, cl 2(a), note 2, which provides that the Commonwealth must ‘deal with claims promptly’, ‘act with complete propriety, fairly and in accordance with the highest professional standards’ and ‘may require more than merely acting honestly and in accordance with the law and court rules’.
[57]CPG’s outline of submissions dated 8 August 2018, [15], [54].
Refusal to offset the Income Tax Debt with withheld GST refunds
The next ground of the Commissioner’s conduct relied upon was the refusal by the Commissioner to offset the Income Tax Debt with the withheld GST refunds. As has been noted above, a self-assessed liability arose in respect of the Income Tax Debt of $196,604.30 on 15 May 2017.
On around 24 May 2017, the Commissioner issued a notice to CPG claiming the overdue Income Tax Debt. At that point, the Commissioner had retained CPG's GST refunds for approximately eight months (and not determined whether or not to raise a fresh assessment in respect of them during that time). Mr Salib deposed the Commissioner was pursuing CPG for unpaid Income Tax Debt in the amount of $196,604.30 whilst at the same time, withholding a GST refund amount of $6,876,375.00.[58]
[58]Salib Affidavit, [60].
Ms Bourke accordingly requested that the Commissioner refrain from seeking payment of the Income Tax Debt or imposing GIC until the issue concerning the GST refunds had been resolved, stating:[59]
No doubt you will agree that the Commissioner’s position in withholding $6,651,000 in GST refunds on the one hand and seeking payment of $196,604.30 on the other, gives rise to an apprehension of miss-use of power and process.
[59]Salib Affidavit, [61], Exhibit MS-15.
The ATO rejected CPG’s request.[60] Mr Evan submits that the ATO acted unreasonably in doing so, and in particular, acted unreasonably in continuing to impose the GIC during the period in which the GST refunds had been retained prior to the decision to disallow those refunds. It was also submitted that this conduct is captured within the lower threshold described at paragraph 77(ii) above and is capable of enlivening the exercise of the s 459J(l)(b) discretion. It was submitted that the conduct also goes towards the ‘totality of the circumstances’ that this Court should take into account in determining whether to exercise the s 459J(1)(b) discretion.[61]
[60]Salib Affidavit, Exhibit MS-16.
[61]CPG’s outline of submissions dated 8 August 2018, [15].
The delay in providing the objection decision
It was contended that the unreasonable delay in providing the Objection Decision constituted conduct which should result in the exercise of the discretion under s 459J(l)(b).
On around 3 October 2017, CPG received the Commissioner’s Objection Decision dated 25 September 2017.[62] This was over one year after the Commissioner first retained GST refunds on 22 September 2016. The Commissioner acknowledged ‘that the Commissioner has retained the refunds for a significant amount of time’, but considered in light of various factors the duration was reasonable in the circumstances.[63]
[62]Salib Affidavit, [43], Exhibit MS-11.
[63]Salib Affidavit, Exhibit MS-11.
In CPG’s submission, notwithstanding these factors, the duration taken to provide the Objection Decision was unreasonably long. Reference was made to the decision of the High Court in Re Federal Commissioner of Taxation; Ex parte Australena Investments Pty Ltd:[64] ‘The first question is whether the Commissioner has a public duty to allow or disallow within a reasonable time ... Where time limits have not been specified in other sections of the Act a reasonable time has been implied ... Without a time limit any duty would be illusory’.
[64](1983) 50 ALR 577, 578 (Murphy J, sitting alone).
Mr Evans again contended that the fact that the Commissioner took an unreasonably long time to provide the Objection Decision supports the exercise of the s 459J(l)(b) discretion as it is conduct which satisfies the lower threshold described at paragraph 77(ii) above. It was also submitted the conduct also goes towards the ‘totality of the circumstances’ that this Court should take into account in determining whether to exercise the s 459J(1)(b) discretion.[65]
[65]CPG's outline of submissions dated 8 August 2018, [15].
The inappropriate exercise of power by the DCT in determining to issue the statutory demand
Mr Evans then contended that the Commissioner’s conduct constituted by the decision to issue the demand was conduct which gave rise to the exercise of the discretion to set aside the demand.
In this regard, he submitted that when the Commissioner issues a statutory demand, he has the benefit of the conclusive evidence provisions of the TAA, which have the effect that a notice of assessment is conclusive evidence that the amounts and particulars of that notice of assessment are correct[66] and that the options for a taxpayer to challenge the statutory demand are extremely limited. Reference was made to the decision of the High Court in Clyne v Deputy Commissioner of Taxation (Cth) where Mason ACJ observed that these provisions can operate ‘oppressively and unfairly’ to a taxpayer when a statutory demand is issued in reliance on them.[67]
[66]TAA, s 350-10.
[67](1982) 13 ATR 481, 483 (his Honour the Chief Justice sat alone).
Mr Evans accepted that it is settled law that the Commissioner may properly issue a statutory demand with the benefit of the conclusive evidence provisions in appropriate circumstances, even when proceedings challenging the underlying tax liability are pending and the mere act of the Commissioner issuing a statutory demand is not, in and of itself, objectionable. However, here, Mr Evans submitted, the evidence discloses that the demand has been issued in the context of the Commissioner’s conduct having the result that CPG has been prevented from effectively contesting its right to a GST refund for a period of nearly two years. The relevant conduct of the Commissioner was summarised in this regard as follows:
(a) On 22 September 2016, the Commissioner first notified CPG that it was retaining GST refunds.[68]
[68]Salib Affidavit, [16].
(b) In March 2017, CPG first objected to the Commissioner’s decision to retain these refunds.[69] Over the coming months, CPG wrote to the Commissioner repeatedly requesting that the he furnish reasons for his decision to retain the GST refunds, and served a notice on the Commissioner under s 14ZYA(l)(b) of the TAA.[70]
[69]Salib Affidavit, [25].
[70]Salib Affidavit, [27], [34], [38], Exhibit MS-06, Exhibit MS-08.
(c) On 3 October 2017, CPG received the Commissioner’s objection decision dated 25 September 2017.[71]
[71]Salib Affidavit, [43], Exhibit MS-11.
(d) On 9 October 2017, CPG filed an application with the AAT for review of the Commissioner’s objection decision.[72]
[72]Salib Affidavit, [54], Exhibit MS-13
(e) On 5 December 2017, over two months since the Commissioner’s objection decision was issued and nearly two months since CPG filed an application with the AAT, the Commissioner issued CPG with the Amended Notices. As the Commissioner pointed out a little over a week later, this meant that there was no longer any point in CPG continuing with its AAT application, with the result that CPG was denied the opportunity to challenge the underlying tax liability at that point.[73]
[73]Salib Affidavit, [89] – [91], Exhibit MS-24.
(f) On 15 February 2018, the Commissioner issued the February Demand.[74]
[74]Salib Affidavit, [110] – [112].
(g) On 26 February 2018, in a letter the Commissioner relied on ‘incorrect technical arguments’:
(vi) to argue that CPG had not satisfied s 14ZYA(3) of the TAA; and
(vii) in turn, prevent CPG from challenging the Commissioner’s objection decision in the AAT.
(h) On 5 March 2018, the Commissioner withdrew the February Demand.[75]
(i) On 19 April 2018, the Commissioner issued the demand the subject of this application, with payment required within 21 days.
[75]Salib Affidavit, [113] – [115], Exhibit MS-30.
CPG submits that the Commissioner’s conduct has meant that despite CPG first being notified that GST refunds were being retained on 22 September 2016, it has been prevented from effectively challenging the underlying tax liability and asserting its right to a GST refund, until it filed an application to the AAT on 27 April 2018 for a review of the Commissioner’s decision to issue the Amended Notices on 5 December 2017. Even now, on the Commissioner’s logic, CPG’s application to the AAT is seemingly invalid and it would accordingly follow that in his view, CPG is still not entitled to challenge the underlying tax liability.
Mr Evans also stated that the Commissioner’s conduct has also meant that should CPG ultimately succeed in its claim concerning the underlying tax liability, CPG would have been denied access to the relevant GST refunds for a period of over two years. This disadvantageous state of affairs can be contrasted with the position of the plaintiff in HC Legal, who retained ‘the benefit of money paid’ during the course of those proceedings.
Mr Evans submitted that the Commissioner’s conduct expressly contradicts the ATO’s own stated policy and has repeatedly frustrated and delayed CPG in its reasonable and proper attempts to challenge the underlying liability and assert its right for a GST refund and that this conduct accordingly satisfies one or more of the criteria set out in paragraph 77 (i) and (ii) above and warrants this Court exercising its discretion under s 459J(l)(b) to set aside the demand.
The DCT’s submissions in opposition to the application
Ms Pierce, counsel for the DCT, contended that CPG’s application should be dismissed and commenced by contending that, as at the date of the demand, CPG was indebted to the Commissioner on a Running Balance Account deficit debt, Income Tax Debt and GIC in the sum of $8,453,717.24 and that sum remained due and payable. The Commissioner’s evidence as to notices of assessment of income tax and GST net amount in Mr Deng’s first affidavit are conclusive of the correctness of those amounts and the particulars of those assessments.
Ms Pierce made a reference to Mr Deng’s first affidavit which contained what I might describe as the usual and conventional type of evidence used by the DCT in recovery actions to establish the existence of the debt claimed. Ms Pierce also made reference to the provisions of ss 8AAZA, 8AAZF and 8AAZG in supporting her contention that, pursuant to s 8AAZI of the TAA, the production of the RBA statement is prima facie evidence that the RBA was duly kept and that the amounts and particulars in the statement are correct. I do not understand Mr Evans to cavil with that submission.
She contended that the provisions of the revenue laws creating these debts and providing for their recovery cannot be circumvented by an application to set aside a statutory demand made under s 459G of the Corporations Act and referred to the decision of the High Court in Broadbeach in that regard. As I have said, Mr Evans does not contend otherwise, at least in respect of the ability of CPG to raise a genuine dispute.
In addition to the assessments to which reference has been made, Ms Pierce also referred to the evidentiary certificates exhibited to Mr Deng’s first affidavit which were generated pursuant to s 255-45 of sch 1 of the TAA, each dated 20 June 2018 which are prima facie evidence of the amounts due and payable. In light of the legislative policy which is manifested in s 14ZZM and 14ZZR of the TAA which favours protection of the revenue, the Court should exercise its discretion to dismiss CPG’s application.
Ms Pierce then moved to address the argument made by Mr Evans that the demand should be set aside under s 459J(1)(b), submitting that Mr Salib’s evidence disclosed no ‘other reason’ why the statutory demand should be set aside under that provision.
In this regard she referred to Broadbeach[76] noting that the High Court had observed that the provisions of Part 5.4 of the Corporations Act (which contain the provisions dealing with statutory demands) were formed with an eye to the provisions of the taxation legislation. At paragraph 49 the Court stated:
It is true that s 459G provides for curial decisions to set aside statutory demands and that grants of jurisdiction to superior courts such as the Federal Court and the Supreme Courts are not to be construed with limitations without sufficient reason to do so. The many authorities to this effect were collected by Kirby J in Aussie Vic Plant Hire. But the provisions of the taxation legislation, with an eye to which the statutory demand provisions clearly were drawn, and, in particular, the antecedents in what was s 201 of the Assessment Act and now s 14ZZM (as to pending AAT reviews) and s 14ZZR (as to pending Federal Court “appeals”), supply sufficient reason for construing the statutory demand provisions as the Commissioner contends. (emphasis added)
[76]Broadbeach (n 22) 493 [49].
In Broadbeach, the Commissioner had submitted in respect of the application of s 459J that the existence of a Part IVC proceeding, even if reasonably arguable for the taxpayer, is not a proper basis or alternatively not a sufficient basis for the exercise of the power to set aside a statutory demand under s 459J(1)(b) for ‘some other reason’. The statutory demands under consideration by the High Court in Broadbeach were originally set aside by the Court of Appeal and the primary judge because they were satisfied that although there were no defects in the demands, there was ‘some other reason’ to set them aside.
Keane JA had expressed disapproval of what had been said in regard to the application of s 459J(1)(b) by Olney J in Kalis Nominees Pty Ltd v Deputy Commissioner of Taxation.[77] Keane JA held that the scope of the discretion should be determined by the subject and purposes of the Corporations Act to the exclusion of the tax law[78]. The High Court disagreeing with that view, stated:[79]
… But, as remarked earlier in these reasons, Pt 5.4 contemplates that the “debts” in respect of which statutory demands may issue will include “tax debts” in the sense given to that expression in these reasons. The “material considerations” which are to be taken into account, on an application to set aside a statutory demand, when determining the existence of the necessary satisfaction for par (b) of s 459J(1) must include the legislative policy, manifested in s 14ZZM and s 14ZZR of the [TAA], respecting the recovery of tax debts notwithstanding the pendency of Pt IVC proceedings.
The result is that the exercise of discretion by the primary judge under s 459J(1)(b) miscarried, and the Court of Appeal erred in upholding and supplementing it. Against the possibility of this Court so concluding, the respondents submitted that the matter should be remitted to the Supreme Court for re‑exercise of the discretion under that provision. However, no fresh ground upon which the respondents might then succeed was suggested beyond reference to the time which has elapsed and the progression of the Pt IVC proceedings towards determination. But such a consideration, if it were supported by evidence of the state of progression of the Pt IVC proceedings, would be relevant in the operation of Pt 5.4 of the Corporations Act, if at all, at the later stage of the hearing of any winding up application. There should be no re‑exercise of the discretion conferred by s 459J(1)(b). (emphasis added)
[77][1995] 31 ATR 188,193; Broadbeach (n 22) 496 [61].
[78]Broadbeach (n 22) 496 [61].
[79]Broadbeach (n 22) 496-7 [61]; 497 [62].
Ms Pierce addressed Mr Salib’s evidence and CPG’s submissions in regard to the retention by the Commissioner pursuant to s 8AAZLGA(1) of the TAA of the GST refunds totalling $6,876,375 which were otherwise payable to CPG for the periods August to November 2016 inclusive. Section 8AAZLGA(1), (2) and (5) of the TAA provide as follows:
Retaining refunds while Commissioner verifies information
Commissioner may retain an amount
(1)The Commissioner may retain an amount that he or she otherwise would have to refund to an entity under section 8AAZLF, if the entity has given the Commissioner a notification that affects or may affect the amount that the Commissioner refunds to the entity, and:
(a)it would be reasonable to require verification of information (the notified information ) that:
(i) is contained in the notification; and
(ii)relates to the amount that the Commissioner would have to refund; or
(b)the entity has requested the Commissioner to retain the amount for verification of the notified information, and the request has not been withdrawn.
(2)In deciding whether to retain the amount under this section, the Commissioner must, as far as the information available to the Commissioner at the time of making the decision reasonably allows, have regard to the following:
(a) the likely accuracy of the notified information;
(b) the likelihood that the notified information was affected by:
(i) fraud or evasion; or
(ii) intentional disregard of a taxation law; or
(iii) recklessness as to the operation of a taxation law;
(c)the impact of retaining the amount on the entity's financial position;
(d)whether retaining the amount is necessary for the protection of the revenue, including the likelihood that the Commissioner could recover any of the amount if the notified information were found to be incorrect after the amount had been refunded;
(e)any complexity that would be involved in verifying the notified information;
(f)the time for which the Commissioner has already retained the amount;
(g)what the Commissioner has already done to verify the notified information;
(h)whether the Commissioner has enough information to make an assessment relating to the amount (including information obtained from making further requests for information);
(i)the extent to which the notified information is consistent with information that the entity previously provided;
(j) any other relevant matter.
…
(5) The Commissioner may retain the amount under this section only until:
(a)if paragraph (1)(a) applies--it would no longer be reasonable to require verification of the information; or
(b)if the Commissioner fails to inform the entity, in accordance with subsection (3), that he or she has retained the amount under this section--the end of the day after the time by which, under that subsection, the Commissioner is required to inform the entity; or
(c)in any case--there is a change to how much the Commissioner is required to refund, as a result of:
(i)the Commissioner amending an assessment relating to the amount; or
(ii)the Commissioner making or amending an assessment, under Division 105 in Schedule 1, relating to the amount;
whichever happens first.
Ms Pierce referred to sub-s (2) of s 8AAZLGA of the TAA, which it will be seen lists ten matters which the Commissioner is obliged to take into account when considering whether or not to retain or continue to retain GST refunds. Subsection (5) of s 8AAZLGA of the TAA provides that the Commissioner may retain an amount of a GST refund only until it would be no longer reasonable to require verification of the information or where there is a change to how much the Commissioner is required to refund as a result of, inter alia, the Commissioner producing an amended assessment.
Ms Pierce submitted that whatever Mr Salib’s suspicions or beliefs were in respect of the Commissioner’s motivations or conduct in retaining the GST refunds, the Commissioner’s entitlement to do so was overtaken on 5 December 2017 when the Commissioner issued the Amended Notices for GST of $9,457,634 and for shortfall penalty of $5,371,390 for the quarterly periods from 1 July 2016 to 30 November 2016. When the Amended Notices were issued, s 8AAZLGA(5)(c)(i) operated such that the Commissioner’s retention of the refunds claimed by CPG ceased and were replaced by a liability to pay the amounts identified in the Amended Notices.
Further, by reason of the issue of the Amended Notices on 5 December 2017, there was no longer any utility to CPG’s appeal to the AAT, and CPG ceased to have standing to seek an order that the GST refunds be paid to it.
Ms Pierce, referring to the decision of Re Sanctuary Australasia Pty Ltd v Federal Commissioner of Taxation,[80] submitted that the decision by CPG to discontinue its application to the AAT merely reflected the reality that the application would be dismissed.
[80](2013) 92 ATR 207 (‘Sanctuary’).
Ms Pierce referred to the reasons of Deputy President Forgie in Sanctuary, which concerned very similar circumstances to those confronting CPG here. In Sanctuary, the taxpayer was a supplier and installer of solar panels. It lodged a quarterly BAS and disclosed a GST debt of $16,000 for that quarter. It subsequently lodged a revised BAS in which it claimed a GST refund of a greater sum for the period. The Commissioner notified the taxpayer that an audit was being undertaken of its BAS and a decision had been made to retain the refund amount while the audit was being undertaken. The taxpayer lodged an objection to the Commissioner’s decision to retain the refund amount and that objection was disallowed. The taxpayer lodged an application for review of that objection decision in the AAT. However, before the objection decision was lodged, the Commissioner issued an amended assessment of the net amount for the period the subject of the BAS and amended BAS, reducing the net amount to nil.
Deputy President Forgie determined that as soon as the Commissioner issued the amended assessment, the taxpayer was no longer ‘a person … dissatisfied’ with the Commissioner’s objection decision relating to the retention of the refund amount and that it was therefore not entitled to apply for a review of what is a reviewable objection decision under s 14ZZ1(a)(i) of the TAA.[81] In her reasons, the Deputy President elaborated on the refund retention regime. Because it is on all fours with the circumstances being considered here, I will set out her reasons concerning this issue. Deputy President Forgie stated at paragraphs 35 to 37:[82]
In Attachment A, I have set out a brief summary of the GST Act and of the assessment of assessable amounts and of the retention provisions under the TAA. Together, the GST Act and the TAA make a scheme for the imposition, collection and refund of GST. It is clear from that scheme that an entity’s power to object to the Commissioner’s decision to retain an amount under s 8AAZLGA while he verifies information as described in s 8AAZLGA(1), comes to an end as soon as one of the events listed in s 8AAZLGA(5) occurs. Those are events that include matters relating to the information itself that would no longer be reasonable to verify and the Commissioner’s failure to notify of the retention as required by s 8AAZLGA(3). They are events that also include a change in the amount that the Commissioner is required to refund as a result of his making an assessment relating to that amount or amending such an assessment. The issuing of the assessment or of the amended assessment fixes an entity’s liability to pay or entitlement to a refund. Section 105-40 gives an entity dissatisfied with the assessment or amended assessment a right to object to it and, in turn, Part IVC gives such an entity a right to apply to the Tribunal for review of the decision made on that objection.
In this scheme, the decision to retain an amount while information is verified is merely a holding decision, as it were. It is not a decision relating to an entity’s substantive liabilities or entitlements. The decision enables the Commissioner to hold the money but only for so long as s 8AAZLGA(5) permits. An entity may object to the Commissioner’s retention decision but only for so long as there is no change of the sort mentioned in s 8AAZLGA(5)(c) i.e. there has been no assessment or amended assessment relating to how much the Commissioner must refund in relation to the amount. That is the effect of s 14W(1)(aad) [sic] of the TAA. It is clear that the right to object to the decision to retain an amount must come to an end at that time because the amount, if any, that the Commissioner must refund to the entity is not then determined under s 8AAZLGA(5)(a) or (b) but by the assessment or amended assessment. That is the decision to which the entity must object and which determines its liability to pay or entitlement to receive a refund.
In this case, SAPL had already objected to the retention decision and the Commissioner had made an objection decision disallowing the objection when he went on to issue an amended assessment. The change in the order of events, though, does not put SAPL in a different position from that of the entity which finds its right to object to a retention decision is ended by the Commissioner’s issuing an assessment or amended assessment. Even if it were to be decided on review in the Tribunal that the Commissioner should not have made the decision to retain the amount under s 8AAZLGA or that it did not follow all of the procedures that it should have, there would be no outcome in fact or in law that would change SAPL’s position. SAPL would not be paid the amount originally retained for the effect of the amended assessment is that there is no longer a credit on the Running Balance Account in SAPL’s favour. The Commissioner no longer has any obligation to pay an amount to it under s 8AAZLF. The review of the objection decision relating to the retention decision would not touch on substantive issues relating to SAPL’s entitlements and obligations for they are not issues of the sort to which reference is made in s 8AAZLGA(2) or that would be relevant on review. Substantive issues relating to liabilities and entitlements are the province of the review of the amended assessment and I understand that it is pursuing its review rights in relation to that.
[emphasis added]
[81]Ibid 210, [4].
[82]Ibid 219-20, [35]–[37].
Ms Pierce contended that, like the taxpayer in Sanctuary, if CPG is not satisfied with an assessment such as one for GST and the exaction of the shortfall penalty, CPG is required to have recourse to the procedure provided in Part IVC of the TAA and indeed it has adopted that course in lodging an objection to the Amended Notices. Ms Pierce contended that the substantive complaints such as Mr Salib’s contention as to the applicability of GST to previously processed gold mentioned his affidavit are matters properly the subject of the pending Part IVC proceedings commenced by CPG on 27 April 2018 in relation to the 5 December 2017 Amended Notices; indeed, Ms Pierce contended all of the matters deposed to by Mr Salib in his affidavit relating to the Amended Notices are appropriate to be raised only in those Part IVC proceedings.
As such, Ms Pierce submitted, having regard to the legislative policy manifest in ss 14ZZM and 14ZZR of the TAA, and made explicit in s 8AAZLA(2D) of the TAA, the Commissioner’s retention of GST refunds otherwise payable to CPG does not constitute ‘some other reason’ for the Court to exercise its discretion to set aside the demand. Ms Pierce observed that had those refunds been issued to CPG the only consequence would be that CPG’s liability would have been even greater.
Ms Pierce addressed the several categories of conduct relied upon by CPG to warrant the attraction of the exercise of the discretion to set aside the statutory demand under s 459J(1)(b).
As to the submission that the Commissioner has inappropriately relied on technical points of practice and procedure, she submitted that there was no evidence at all that there was some wilfulness or improper motive for taking such a position. The Commissioner had revisited the position and, approximately a month before the hearing of this matter, had conceded that CPG’s understanding of the position as to lodgement dates was correct. Further, there is no evidence that the taking by the Commissioner of this position resulted in any material prejudice. Ms Pierce submitted that beyond Mr Salib’s understandable frustration with the situation, there was no evidence of any material prejudice.
Ms Pierce then addressed the issue of the FOI Application. Mr Evans had drawn attention in his oral submissions to the six categories of documents that were sought which, rather than being confined to documents concerning the decision to withdraw the February Demand as CPG’s written submissions would suggest, also requested several other categories of documents. Ms Pierce drew attention to the scope of CPG’s FOI Application[83] and its breadth, the effect of which was to require the Commissioner to hand over every document which might pertain to the Commissioner’s consideration of the ten factors mentioned in taking into account whether a retention of the GST refund under s 8AAZLGA(2) of the TAA was justified.
[83]Salib Affidavit, Exhibit MS-31.
As regards the FOI Application for documents which explained the Commissioner’s withdrawal of the February Demand, Ms Pierce contended that such an exercise amounted to ‘fishing’ and its potential relevance to the statutory demand issued in April 2018 is not explained by CPG. In this regard the only significant difference between the two demands is the description of the debt. The February Demand calculated the debt as at February 2018, and the demand the subject of this application as at April 2018, indeed this is the subject of observation made by Mr Salib in his affidavit.[84]
[84]Salib affidavit, [115].
The fifth category of documents requested in the FOI Application related to the decision to issue and then withdraw the February demand. The letter of 24 April 2018 from the ATO to CPG notified CPG that it intended to issue a s 24 Notice under the Freedom of Information Act 1982 (Cth), by which the ATO contended that to comply with the request would mean the resources of the relevant government entity would be unreasonably and substantially diverted. The letter then described the basis of this contention, including a description of the voluminous material required to be considered. Ms Pierce submitted that the ATO had in any event already provided CPG with detailed reasons for the disallowance of the input tax credits which gave rise to the Amended Notices. Further, the categories of documents sought relate to the Part IVC proceeding commenced by CPG. The Commissioner will be obliged in the Part IVC proceeding to make available every document that the Commissioner relied upon in making the decision for which review is sought.
In correspondence with CPG in response to the FOI Application, the Commissioner had contended that there were approximately 3,500 files and an additional 480 pages of separate documentation which the author estimates would take approximately 500 staff days to process. Ms Pierce stated that the FOI Application issue must be considered in light of the enormity of the request which would have involved diversion of substantial resources from a specialist technical area within the ATO. For this reason, CPG was invited to revisit its FOI Application. Further, certain of the matters which are enquired of and the subject of the FOI Application were the subject of the elaborate reasons provided by the ATO when raising the Amended Notices.
Ms Pierce submitted that in any event the documents relating to the decision in respect of the issuing of the February Demand amount to a ‘fishing expedition’ and it has not been established what the relevance of that class of document is to the issues between the parties.
As to the contention by CPG that the Commissioner failed to engage with pertinent correspondence and the accompanying assertion of unnecessary delay, Ms Pierce referred to the ten factors required to be taken into account by the Commissioner in deciding to retain the claimed GST refunds under s 8AAZLGA(2). The application of those factors give rise to considerable complexity and the assertion of delay on the Commissioner’s part must be considered in that context. Again, Ms Pierce contended there is no evidence of any material prejudice suffered by CPG or Mr Salib aside from perhaps understandable frustration. There was also, she said, no evidence other than assertion that Mr Salib has had to discharge employees because of the delay.
CPG complained of the Commissioner’s conduct by his refusal to offset Income Tax Debts with the claimed GST refunds. In this regard Ms Pierce submitted that once the Commissioner raised the Amended Notices, any credit that might have been applied to extinguish the Income Tax debt liability would have been reversed on 5 December 2017 when the Amended Notices were issued, so even if there had previously been a credit applied, that credit would have been reversed upon issue of the Amended Notices. Again, Ms Pierce submitted there is no evidence of any prejudice of a material kind flowing from the refusal to offset the GST refunds.
In relation to the submission by CPG that a factor to be considered is the unreasonably long delay on the Commissioner’s part in dealing with this matter, said to amount to almost two years, Ms Pierce contended that such a submission is flawed. CPG had no right to the claimed GST refunds because of the provisions of s 8AAZLGA of the TAA for as long as the Commissioner had the right to retain the claimed refunds, which was for as long as it was reasonable for him to do so to verify the information notified in the four BAS. Ultimately, CPG applied to the AAT to review the Commissioner’s decision to retain the claimed GST refunds but the situation was overtaken by the issue of the Amended Notices.
Ms Pierce then moved to the subject of the exclusion of Mr Nasimi, CPG’s lawyer, in the interview conducted by the Commissioner of Mr Salib. She submitted that CPG itself in its written submissions had accepted that the Commissioner is entitled to exclude certain representatives from accompanying a person being interviewed under the formal interview procedure. Another lawyer from Madgwicks was able to attend the interview with Mr Nasimi when it ultimately proceeded. If there was any delay which might be occasioned with that episode, it was as a result of Mr Salib’s illness and inability to attend the first interview and no evidence of any prejudice associated with the exclusion of Mr Salib is identified by CPG.
Mr Evans’ submissions in reply
In his submissions in reply, Mr Evans emphasised that the Commissioner in the three affidavits filed on its behalf has not put on any evidence seeking to justify the Commissioner’s conduct as alleged in Mr Salib’s affidavit. Rather, the Commissioner’s contentions were based on the notion that the matter is of sufficient complexity that the Court ought to infer that the Commissioner was justified in taking as long as he did in dealing with this matter. He then critiqued the Commissioner’s submissions in respect of the time involved in complying with the FOI Application and contended that in all the circumstances the Commissioner has not met the FOI Application in a timely fashion.
Consideration
In my view, the conduct of the Commissioner described in Mr Salib’s affidavit does not warrant the exercise of the discretion to set aside the demand under s 459J(1)(b). It seems clear that there exists a jurisdiction to set aside a demand if the circumstances warrant it, but I do not consider that the Commissioner’s conduct in its dealings with CPG attract the exercise of the discretion.
As will appear from the chronology emerging from Mr Salib’s affidavit, the matter has been a protracted one but in my view, the several categories of conduct identified by Mr Salib in his affidavit and Mr Evans in his submissions are not of a character or degree which should result in the demand being set aside by reason of being unconscionable, an abuse of process or giving rise to substantial injustice. Nor do I consider that it is conduct which meets the second category described by Mr Evans which does not give rise to substantial injustice is not unconscionable and is not unfair but still attracts the exercise of the discretion.
In my view if one analyses the various events in the timeline of this matter emerging from the chronology, what has occurred in my view is an application by the Commissioner of the various provisions available to him to protect and collect revenue. Mr Evans did not suggest that the Commissioner was acting unlawfully or in bad faith at any juncture.
In this regard, one starts with the provisions to which the Commissioner had recourse after the lodgement of the several BAS. Those provisions, contained in s 8AAZLGA, enable the Commissioner in certain circumstances to retain the GST refunds which are otherwise payable under a BAS. The sums involved in these circumstances are very substantial. Under the provisions of s 8AAZLGA(2), the Commissioner was obliged to have regard to ten identified matters in making the decision to retain the GST refunds claimed by CPG. The retention of the refunds became protracted and CPG initiated a process to redress that retention of refunds. That process became otiose upon the issue by the Commissioner of the Amended Notices which transformed CPG’s position into being a debtor to the Commissioner for the amounts mentioned in the Amended Notices, which were conclusive as to CPG’s liability. As is well known, the provisions available to the Commissioner in the taxation legislation can be said on occasion to work with asperity but in these circumstances the Commissioner has done no more than use the statutory regime available to him in dealing with this matter.
CPG was then required to embark on the process of lodging objections and subsequent to that, commencement of Part IVC proceedings, which is where the matter now stands. The High Court in Broadbeach has, however, made it clear that the existence of Part IVC proceedings cannot give rise to the basis for the contention that there is a genuine dispute in respect of taxation assessments. As has been observed, the Court also considered that in the context of s 459J(1)(b) the Court considering an application for the exercise for a discretion under that sub-s must have regard to the legislative policy manifested in s 14ZZM and s 14ZZR of the TAA respecting the recovery of tax debts, notwithstanding the pendency of Part IVC proceedings.
The question remaining is whether the conduct of the Commissioner described in Mr Salib’s affidavit is such, when considered individually or collectively, of a degree or character which would otherwise attract the exercise of the discretion. In this regard, my view of the seven categories identified by Mr Evans in his submissions is as follows:
(a) As to the reliance on and an incorrect application of technical points of practice and procedure, this element has little merit in my view and is in any event spent by reason of subsequent events. While the Commissioner adopted an incorrect approach and interpretation of the legislation concerned, such a position was withdrawn several weeks before the hearing of this matter and at the end of the day it was relatively faintly pressed by Mr Evans. There was no material prejudice on CPG’s part identified in respect of this ground of conduct;
(b) As to the position in respect of the FOI Application, there were several categories of documents for which access was sought, including the request for documents relating to the issuing of the February Demand and its withdrawal. I am attracted by the submission of Ms Pierce who contended that in respect of the documents sought in respect of the statutory demand that this was something of a fishing exercise and the relevance of the documents sought was not to my mind established in any event. Further, by way of analogy, parties in a statutory demand proceeding are not entitled, except in exceptional circumstances, to seek discovery or issue subpoenas.[85] The criticism of the Commissioner for the protraction in meeting the FOI Application was in large part explained by the volume of the documents sought and the time required to meet the request and the diversion of resources involved. Many of the documents sought will be required to be made available by the Commissioner to CPG in the context of the Part IVC proceedings which, as the High Court has explained in Broadbeach, because of the architecture and policy underlying the taxation legislation, CPG is left to resort to;
[85]Farid Assaf, Statutory Demands and Winding Up In Insolvency (LexisNexis Butterworths Australia, 2nd ed, 2012), [4.77].
(c) As to the exclusion by the Commissioner of Mr Nasimi from the formal interview conducted with Mr Salib by the Commissioner, this matter was accorded little weight by Mr Evans. Another lawyer from Madgwicks was able to be present at the interview and there is no evidence that the exclusion of Mr Nasimi resulted in any prejudice to CPG or Mr Salib;
(d) As to the failure to engage with and respond to pertinent correspondence, no doubt this gave rise to considerable frustration and perhaps anxiety on the part of Mr Salib but at the end of the day, no prejudice of a material kind is identified by CPG if indeed there was such a failure to engage. The protraction and failure to engage does not of itself, in my view, give rise to a factor which should enliven the exercise of the discretion in the absence of material prejudice being demonstrated.
(e) As to the refusal to offset the Income Tax Debt with the withheld GST refunds, I am attracted by Ms Pierce’s submissions in this regard. If the Commissioner had offset the Income Tax Debt prior to the issue of the Amended Notices, this would have merely resulted in a reversal of that transaction when the Amended Notices were issued. Again, no material prejudice is identified.
(f) As to the submission concerning the alleged unreasonably long delay on the Commissioner’s part in dealing with the matter, again the difficulty which CPG confronts is the scheme of and policy underlying the taxation legislation. As has been said, this case illustrates the asperity with which the relevant provisions of the taxation legislation applies to taxpayers in CPG’s position.
(g) Concerning the alleged inappropriate exercise of power of the Commissioner in determining to issue the demand, CPG accepts that the Commissioner was entitled to serve a statutory demand and rely on the conclusive evidence provisions of the TAA but says that the decision to do so in the circumstances here was unconscionable. I do not agree with that submission. The Commissioner was entitled to resort to the statutory scheme in the Corporations Act and to the relevant provisions of the TAA and it was not suggested that he deviated from its obligations and entitlements provided for by that scheme. As the Full Court of the Federal Court observed in MNWA:[86]
[86]MNWA (n 27) [192].
The submission also ignores the statutory scheme that applies to the collection and recovery of tax liabilities. Under that statutory scheme, a tax liability that is due and payable is a debt due to the Commonwealth and recoverable by the Commissioner if the liability remains unpaid after it has become due and payable: s 255-5 of Sch 1 to the Taxation Administration Act. Thus, a tax debt that is due and payable is recoverable by the Commissioner by operation of law. The “significance of the taxation legislation” in this context is that the Commissioner is entitled by force of law to recover unpaid tax and “the use by the Commissioner of the statutory demand procedure in aid of a winding up application is in the course of recovery of the relevant indebtedness to the Commonwealth by a permissible legal avenue”: DCT v Broadbeach at [40]-[50], [58]. DCT v Broadbeach establishes that in considering whether there is “some other reason” within the terms of s 459J(1)(b) of the Act the “material considerations” which are to be taken into account will include the statutory scheme that applies to the collection and recovery of tax liabilities. Given the statutory scheme for collection and recovery of tax, an arguable basis for disputing the Commissioner’s right to take recovery action is insufficient to constitute “some other reason” within the terms of s 459J(1)(b) and does not support an exercise of power to set aside the statutory demands under that section.
In my view there was no impediment in these circumstances to the service of the demand. Again, CPG’s predicament is an illustration of how the application of the underlying policy of the statutory scheme can be regarded by some as working stringently in circumstances such as these.
In my view, the proceeding should be dismissed. I will ask the parties to submit orders in compliance with these reasons by 4.00pm on Friday 15 March 2019. The normal order is that costs should follow the event but if the parties wish to contend otherwise they should file and exchange a short submission not exceeding 3 pages by that time.