Hella Australia Pty Ltd and Secretary, Department of Industry, Tourism and Resources
[2006] AATA 1103
•1 December 2006
CATCHWORDS – AUTOMOTIVE COMPETITIVENESS INVESTMENT SCHEME – Unearned Credit Liability – whether received duty credit because information given to Secretary was inaccurate or incomplete – decision set aside.
ACIS Administration Act 1999 ss 3, 4, 6, 6A, 14A, 17, 26, 28, 31, 34, 35, 37, 46, 47, 52, 55, 59, 60, 62, 63, 64, 65, 66, 68, 70, 71, 74A, 75, 79-89, 93, 94, 95, 96, 102, 110 and 114
ACIS Regulations 2000 rr 13C, 13G, 13H and 13I
Administrative Appeals Tribunal Act 1975 ss 37 and 43(2A)
Green v R (2000) 133 NTR 1
Re Spicer Axle Structural Components Australia Pty Ltd Secretary, Department of Industry, Tourism and Resources [2006] AATA 1004
Toben v Jones (2003) 199 ALR 1; 74 ALD 321
DECISION AND REASONS FOR DECISION [2006] AATA 1103
ADMINISTRATIVE APPEALS TRIBUNAL )
) V2006/332
GENERAL ADMINISTRATIVE DIVISION )
Re HELLA AUSTRALIA PTY LTD
Applicant
AndSECRETARY, DEPARTMENT OF INDUSTRY, TOURISM AND RESOURCES
Respondent
DECISION
Tribunal: Deputy President S A Forgie
Date: 1 December 2006
Place: Melbourne
Decision:The Tribunal decided that:
1.the respondents’ decision under review that the applicant has an Unearned Credit Liability and that it is not entitled to 98,509 duty credits that were issued for investment claimed under the Automotive Competitiveness and Investment Scheme be set aside; and
2.there be substituted for that decision a decision that the applicant does not have an Unearned Credit Liability and that it is entitled to 98,509 duty credits that were issued for investment claimed under the Automotive Competitiveness and Investment Scheme.
S A FORGIE
Deputy President
ADMINISTRATIVE APPEALS TRIBUNAL )
) V2006/332
GENERAL ADMINISTRATIVE DIVISION )
Re HELLA AUSTRALIA PTY LTD
Applicant
AndSECRETARY, DEPARTMENT OF INDUSTRY, TOURISM AND RESOURCES
Respondent
Tribunal: Deputy President S A Forgie
Place: Melbourne
Date: 10 January 2007
CORRIGENDUM TO DECISION [2006] AATA 1103
The Tribunal amends its decision and reasons for decision published on 20 December 2006 as follows:
Catchwords
delete the word “Australian”
and replace with “Automotive”
Decision and reasons for decision
Paragraph 1, line 5
delete the word “Australian”
and replace with “Automotive”
S A FORGIE
Deputy President
REASONS FOR DECISION
The applicant, Hella Australia Pty Ltd (Hella) is a subsidiary of Hella KG Hueck & Co. It designs and manufactures automotive lighting equipment as well as plastic mouldings and accessories. Under the ACIS Administration Act 1999 (ACIS Act), it is registered as an Automotive Component Producer (ACP) and so is a participant in the Australian Competitiveness Investment Scheme (ACIS) established by that legislation. Under ACIS participants can receive duty credits which can be applied against customs duty payable, or paid, on certain eligible imports.
The respondent, the Secretary of the Department of Industry, Tourism and Resources (Secretary), has decided that Hella has an Unearned Credit Liability of 98,509 duty credits under s 94(1)(b) of the ACIS Act. Those duty credits relate to the period encompassing the second quarter of 2001 and extending to the third quarter of 2003.[1] They relate to investments which Hella claimed as Type E investments in offshore research and development. The Secretary does not regard those investments as meeting the criteria to enable them to be regarded as Type E investments. Consequently, he decided that Hella was not entitled to the duty credits issued to it in relation to those investments and was obliged to return them as an Unearned Credit Liability. To offset the liability entirely, AusIndustry debited 98,509 duty credits from Hella’s ledger account. It then issued a notice to Hella under s 102 of the ACIS Act.[2]
[1] Documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (T documents), 116
[2] T documents, 116
In response to an invitation by the Secretary, Hella agreed to be bound by any decision in separate proceedings in the Tribunal between Spicer Axle Structural Components Australia Pty Ltd (Spicer Axle) and the Secretary[3] in relation to what was described as “the s 94(1) issue”. That issue related to the Unearned Credit Liability notice that the Secretary issued to Hella as he had done to Spicer Axle. In both cases, the notice had been issued on the basis that information given to the Secretary or his delegate was inaccurate or incomplete but, in relation to Spicer Axle, the Secretary relied on ss 94(1)(a) and (c) [4] at the hearing rather than on s 94(1)(b).
[3] V2003/917; decision Re Spicer Axle Structural Components Australia Pty Ltd Secretary, Department of Industry, Tourism and Resources [2006] AATA 1004
[4] “A person who has or had duty credit is not entitled to the credit if the person received the credit for any of the following reasons:
(a)because of the making of an error in calculating the duty credit (including during the modulation process) or a mistake of fact;
(b)…
(c)because of a clerical error or mistake in the ledger;
(d)…”
At the hearing, I took into account the evidence in the T documents and had regard to a statement made on behalf of the Secretary, who did not consent to the decision I made but did not oppose it. I decided to set aside the Secretary’s decision and to substitute a decision that Hella does not have an Unearned Credit Liability of 98,509 duty credits and that it is entitled to those credits for investment claimed under the ACIS. As it is entitled to do under s 43(2A) of the Administrative Appeals Tribunal Act 1975 (AAT Act), Hella has asked for written reasons for my decision.
LEGISLATIVE BACKGROUND
General outline
The ACIS was established by the ACIS Act with effect from 1 January 2001. Section 3 states that the purpose of the ACIS Act:
“… is to provide transitional assistance to encourage competitive investment and innovation in the Australian automotive industry in order to achieve sustainable growth, both in the Australian market and internationally, in the context of trade liberalisation.”
ACIS provides incentives in the form of “duty credits”. A “duty credit” is a “… modulated capped production credit, unmodulated uncapped production credit, modulated investment credit, or unmodulated type J investment credit … that has been entered in the ACIS ledger”.[5] Duty credits can be used to offset customs duty payable on eligible imports or to obtain a rebate or refund in respect of duty already paid.[6] They are also transferable.[7]
[5] s 6(1)
[6] s 74A(1)(a) and (b)
[7] s 75
Registration
Motor Vehicle Producers (MVPs), ACPs, Automotive Machine Tool, Tooling Producers (AMTPs) and Automotive Service Providers (ASPs), who are known collectively as “participants” if they are registered under the ACIS Act,[8] are able to claim duty credits according to the provisions of that legislation.[9] An application to be registered as an ACP must be made in accordance with Division 5 of Part 2 and conform to any specifications set out in the ACIS Administration Regulations 2000 (Regulations).[10] A person, who is a producer of automotive components, as is Hella, may be registered as an ACP if producing the number of automotive components or automotive components to the value specified in s 17 in the 12 months preceding the application for registration.[11]
[8] s 6(1)
[9] Part 2
[10] s 17(3)
[11] s 17(1)(a)
The Secretary must examine each application for registration and determine, within the period set by s 26(4), if he is satisfied of seven matters set out in s 26(2). The Secretary must be satisfied that the applicant is eligible to apply for registration.[12] If satisfied that all seven matters have been met, he must, subject to s 14A, grant the application for registration.[13] Section 14A provides that the Secretary must not grant an application for registration unless satisfied that registration would further the purpose in s 3 of the ACIS Act. That is so even though the person applying for registration meets all of the relevant requirements for registration.[14] In the case of a person who is registered after the commencement of the ACIS Act, registration has effect on and from the date it is granted.[15]
[12] s 26(2)(a)
[13] s 26(2)
[14] s 14A(2). In the case of an ACP who is not a group of related companies, the “requirements for registration under ACIS” are those in ss 17(1)(a) or (b).
[15] s 28(3)
Once registered, there are ongoing requirements of registration that must be met by an ACP. In broad terms and in so far as they related to the circumstances of this case, those requirements reflect the production rate and value required for registration.[16] As Hella was registered as an ACP after the commencement of the ACIS, it must meet those ongoing requirements in each ACIS year following the ACIS year in which its registration takes effect.[17] If “the Secretary is satisfied that the participant is not likely, or has failed, to comply with the ongoing registration requirement in section … 31 …”, he may, at any time, deregister the participant or, in this case, the registered ACP.[18]
[16] s 31(1)
[17] s 34(3) An “ACIS year” is a year commencing on the ACIS Scheme commencement date: s 6(1).
[18] s 110(2)(a)
Quarterly returns
Once registered, each participant must provide a return to the Secretary in respect of each quarter that ends, in the case of Hella, after the date of its registration.[19] The contents of the return are governed by s 37:
[19] s 35(1)(d): this is the later of the scheme commencement date and the date of Spicer Axle’s registration.
“(1) An ACP’s quarterly return must set out:
(a)particulars of the expenditure on eligible investments undertaken by the ACP in that quarter; and
(c)particulars of the sales value by the ACP in that quarter of:
(i) automotive components, automotive machine tools and automotive tooling; and
(ii) automotive services; and
(e)particulars of any other Commonwealth assistance within the meaning of section 11 provided in respect of eligible investments referred to in paragraph (a) and, if paragraph (b) is applicable, paragraph (b); and
(f)any other particulars required by the form.
(2)A return under subsection (1) in respect of the last quarter of an ACIS year must include particulars of the production of automotive components produced by the ACP in that year. ”
What are eligible investments?
The expression “eligible investments” means, in relation to an ACP, “type D or type E investments by the ACP”.[20] A “type E investment” is an investment relating to research and development and is relevant in this case. A “type E investment”:
“… in relation to a quarter and to an ACP, means investment undertaken by the ACP in that quarter (whether or not that quarter preceded, or in part preceded, the ACP’s registration) in that part of the ACP’s approved research and development that is directed:
(a)at the production of the automotive components, automotive machine tools or automotive tooling; or
(ii)at facilitating the provision of automotive services.”[21]
[20] s 6(1)
[21] s 6(1)
The expression “approved research and development” is defined in s 6A.[22] It provides that there are two aspects to “approved research and development”. The first is that it must be “allowable research and development”.[23] The second is that allowable research and development is only allowed to a given value which is described as the “maximum claimable value in relation to… research and development”.[24] The two aspects are emphasised by the definition of “approved research and development” in s 6A(2) to mean “… allowable research and development of the maximum claimable value allowed”.
[22] s 6(1)
[23] s 6A(1)(a)
[24] s 6A(1)(b)
What is “allowable” research and development is research and development of a kind declared by the regulations to be allowable.[25] Regulations may provide for the kinds of research and development that are allowable research and development under the ACIS Act and, in respect of each kind, either the method of calculating the maximum claimable value of that kind or the amount that is to be the maximum claimable value in relation to that kind.[26]
[25] s 6A(2)
[26] s 6A(4)
Regulation 13G of the Regulations specifies the kind of research and development that is “allowable research and development” under the ACIS Act.[27] That kind of research and development is:
“research and development activities that are:
(a)directly related to the design, development, engineering or production of motor vehicles, engines, engine components, automotive components, automotive machine tools or automotive tooling; and
(b) undertaken for the purpose of:
(i)acquiring new knowledge; or
(ii) creating new or improved materials, products, devices, production processes or services.”[28]
[27] r 13G(1)
[28] r 13G(2)
Regulation 13G(4) excludes certain activities from the scope of those research and development activities while r 13G(3) specifies certain activities that are included within it. In some instances, research and development conducted by a person other than the participant may be taken into account for the purposes of r 13G(2). Of relevance in this case is r 13G(5), which provides, in so far as it is relevant:
“Also, for a participant, research and development of the kind mentioned in subregulation (2):
(a) …
(b) …
(c) includes offshore research and development conducted by the participant only if:
(i) the requirements mentioned in subregulation (6) are met; and
(ii) the participant is not required to conduct the research and development on behalf of:
(A) another person under a contract with the other person; or
(B) if the participant is an MVP — another participant under a contract with the other participant; and
(d) …”
For the purposes of r 13G(5)(c)(i), r 13G(6) provides that the requirements are:
“(a) the offshore research and development is necessary to tailor the participant’s Australian-based research and development to a particular market; or
(b)all of the following:
(i) the offshore research and development is necessary to lever the participant’s Australian-based research and development off an offshore research and development program;
(ii) the offshore research and development contributes directly to the offshore research and development program;
(iii)the participant contributes to the direction and management of the offshore research and development program, and has a proportionate share in any intellectual property resulting from the program.”
The “maximum claimable value” in relation to:
“… allowable research and development of a kind, means a value in respect of the … allowable research and development either:
(a)worked out using a particular method set out in the regulations in respect of that kind of … allowable research and development; or
(b)stated in the regulations in respect of that kind of … allowable research and development.”
Regulation 13H, in conjunction with r 13I, sets out various methods to work out the maximum claimable value for particular kinds of allowable research and development. The methods take account of matters such as the expenditure that has been recognised, in that quarter in the participant’s accounts, as an expense in accordance with normal accounting practices, the costs of such items as labour and plant and equipment required for the research and development and the cost of training personnel or the actual cost of obtaining services under contract.
Regulation 13C(3) provides that:
“An investment in research and development undertaken by a participant is taken to have occurred for the purposes of the Act:
(a)if the investment is by way of research and development conducted by the participant — every time an expenditure incurred in relation to the research and development is recognised, in the participant’s accounts, as an expense in accordance with normal accounting practices; or
(b) if the investment is by way of research and development conducted by another person (other than a Co-operative Research Centre) on behalf of the participant under a contract with the participant — every time a claim, enforceable by the other person against the participant, arises for any work done in relation to the research and development; or
(c) if the investment is by way of research and development conducted by a Co-operative Research Centre under a contract with the participant — every time the participant makes a contribution to the Centre in relation to the research and development.”
Working out the unmodulated investment credit for the ACP for a quarter
As soon as practicable after an ACP provides a quarterly return to the Secretary in respect of a quarter, the Secretary must work out the unmodulated investment credit for the ACP in relation to type D investment[29] and type E investment[30] according to prescribed formula. In the case of type E investment, he must:
“… work out the unmodulated investment credit for the ACP for that quarter in relation to type E investment in accordance with the formula:
[] – CA
where:
CA is the total amount of other Commonwealth assistance (if any) received by the ACP in relation to the type E investment referred to in component N of the formula and to the type E investment referred to in component P of the formula.
N is the amount of type E investment by that ACP in the quarter concerned.
P is the total of the type E investment by that ACP in all relevant quarters preceding that quarter.
RQ is the total number of relevant quarters in relation to that quarter.”[31]
[29] s 46
[30] s 47
[31] s 47
The “relevant quarters”, referred to in “P” in the formula, are defined in s 6(1). What is a “relevant quarter” varies according to whether the participant is providing a return for a particular quarter that is the registration quarter or one, two or more quarters following the registration quarter.[32] A “registration quarter” means the quarter in which the registration took effect, or is taken to have taken effect, under s 28.[33]
[32] s 6(1)
[33] s 6(1) Where an application for registration was made after the ACIS Scheme commenced, registration generally has effect from the day on which it was granted: s 28(2).
The effect of the definition of a “relevant quarter”, when read with the formula, is that, in addition to the investment made in the particular quarter for which the return is made, regard is had also to the total type E investment by the ACP in a period that is determined by the definition. That period begins with an initial period of two years preceding its registration when the participant provides a return for its registration quarter and increases by steps to 2¾ years after its registration. That longer period arises when it provides a return for any quarter that is more than two quarters after its registration quarter. That is the effect of the sliding scale used in defining the expression “relevant quarter”:
“relevant quarter, in relation to a participant who provides a return for a particular quarter such as a participant under section 35, means each of the quarters included within the period comprising:
(a)if that particular quarter is the registration quarter for that participant – the 8 quarters preceding that registration quarter; and
(b)if that particular quarter is the first quarter following the registration quarter for that participant – the 9 quarters preceding that particular quarter; and
(c)if that particular quarter is the second quarter following the registration quarter for that participant – the 10 quarters preceding that particular quarter; and
(d)if that particular quarter is any later quarter following the registration quarter for that participant – the 11 quarters preceding that particular quarter.”[34]
[34] s 6(1)
By having regard to more than one quarter in the formula and by having regard to past quarters on more than one occasion, the formula ensures an “averaging” of the figure calculated as the unmodulated investment credit for an ACP for any particular quarter.
Modulation of unmodulated credits
Most unmodulated credits are modulated in accordance with Part 5 of the ACIS Act. Caps are set on the ACIS for each participant and those caps are taken into account in the modulation process.[35] The Minister must make modulation guidelines.[36] Division 5 of Part 5 provides for the modulation process in relation to ACPs. When the Secretary has worked out the unmodulated investment credit in relation to each ACP and a particular quarter in an ACIS Stage[37] in respect of eligible investments, the Secretary must modulate each unmodulated investment credit to be issued to the ACP.[38] That must be done in accordance with the guidelines made by the Minister under s 55.[39]
[35] s 52(2) and see Division 2 of Part 5
[36] s 52(3) and Division 3 of Part 5
[37] There are three ACIS Stages with the first commencing on the commencement of the ACIS Scheme, the second on 1 January 2006 and the third on 1 January 2011 and finishing on 31 December 2015: s 4(1A).
[38] s 59
[39] s 60
The ACIS ledger
Once the Secretary has worked out the modulated credit, he enters it in a ledger known as the ACIS ledger.[40] The ACIS ledger is the record of the modulated credit, among others, that a person owns either because the credit was issued to that person or transferred to that person.[41] The Secretary must enter in the ACIS ledger the modulated investment credit to be issued to an ACP and the ACIS Stage concerned.[42] Once a modulated credit is entered in the ACIS ledger in respect of a participant, be it an ACP or otherwise, the credit is issued to the participant as duty credit.[43]
[40] s 62
[41] s 63
[42] s 64(3)
[43] s 65
Section 66 is concerned with the circumstances in which the Secretary must amend the ledger: He must do so:
“… in respect of a person and the person’s duty credit in the following circumstances:
(a)when the person applies duty credit in respect of the importation of eligible imports;
(aa)when the person applies duty credit in accordance with subsection 74A(1) against an earlier payment of duty on the importation of eligible imports;
(b)when the Secretary applies duty credit under Part 9 to offset an unearned credit liability that the person has;
(c)when the person transfers duty credit to another person;
(d)to give effect to a decision of the Administrative Appeals Tribunal or of a court concerning the person.
(2)If the Secretary determines under section 68 that there has been an error in the ACIS ledger that would require an increase in the duty credit entered in respect of a participant and an ACIS Stage, the Secretary must amend the ledger to fix the error if and only if:
(a)the cap for the stage has not been reached (section 53); and
(b)the personal limit for the participant for the ACIS year in which the error was entered in the ledger has not been reached (see section 54).
(3)If the Secretary determines that there is an error in the ledger that would require a decrease in the duty credit entered in respect of a participant, the Secretary must amend the ledger to fix the error.
(4)This section operates subject to section 71.”
The effect of s 71 is that the Secretary can only amend the ACIS ledger in respect of an ACIS Stage during that stage and during the six calendar years following that stage.
Section 68 permits a person to apply to the Secretary to amend the ACIS ledger if that person “… believes that there is an error in the ACIS ledger in respect of themselves and an ACIS Stage …”.[44] The person must make an application in accordance with s 68(2) and, in doing so, must “specify the entry that the person believes contains an error”[45] and the reasons for that person’s belief.[46] The application must be made during the ACIS Stage concerned or within a calendar year of it.[47] The Secretary must determine whether there is an error when he receives an application[48] but he may also determine if there is an error on his own initiative.[49]
[44] s 68(1)
[45] s 68(2)(b)
[46] s 68(2)(c)
[47] s 68(2)(e)
[48] s 68(4)
[49] s 68(5)
Audits and unearned duty credits
Part 8 of the ACIS Act provides a regime for the audit of the affairs of participants in so far as they relate to ACIS. So, for example, the Secretary may appoint authorised officers to enter premises to check information provided under ACIS or the ACIS Act and to ask questions .[50]
[50] ss 79-89
Part 9 is entitled “Unearned duty credit”. In the overview of the Part provided in s 93, it is said that “This Part provides for duty credit to which a person is not entitled to be recovered.”[51] Section 95 provides:
“If the Secretary determines that, because of a situation set out in section 94, a person is not entitled to certain duty credit, the person is liable to pay to the Commonwealth an unearned credit liability.”
The amount of that Unearned Credit Liability is said by s 96 to be “… an amount equal to the amount of duty credit to which the person is not entitled.”
[51] s 93(1)
Section 94, in so far as it is relevant, provides:
“A person who has or had duty credit is not entitled to the credit if the person received the credit for any of the following reasons:
(a)because of the making of an error in calculating the duty credit (including during the modulation process) or a mistake of fact;
(b)because information given to the Minister, the Secretary or a delegate of the Secretary was inaccurate or incomplete;
(c)because of a clerical error or mistake in the ledger;
(d)because the credit:
(i)was entered in respect of a transaction to which the person was a party that was not at arm’s length within the meaning of section 9; and
(ii)is referrable to a production value, sales value or investment to which the transaction relates that has not been determined as if the parties were at arm’s length.”[52]
[52] s 94(1)
The effect of ss 94 and 95 is that a decision must first be made as to whether Hella received the duty credits because of one of the situations arising in s 94(1). Section 114(j) of the ACIS Act provides that an application may be made to the Tribunal for review of “… a decision by the Secretary under section 95 that a person has an unearned credit liability.” The Secretary may only make that decision if first satisfied that “because of a situation” in s 95, a person is not entitled to certain duty credit. The plain meaning of the section is that the situation said to exist under s 94 must be identified precisely. That is because the Secretary’s power under s 95 only arises if that situation fits precisely within the scope of s 94. Furthermore, the situation must be identified precisely so that the duty credits credited, because of that situation, and no others, may be recovered.
FACTUAL BACKGROUND
On 2 January 2001, Hella applied for registration as an ACP under the ACIS Act.[53] Its application was accepted and it was registered as an ACP with effect from 25 January 2001.[54] On behalf of the Secretary, a Deputy Regional Director of AusIndustry advised Hella that it was then entitled to claim ACIS credits as an ACP on approved investment activities. In order to claim those credits, it was required to lodge a quarterly return within 45 days of the end of the first ACIS quarter after 25 January 2001.
[53] Documents lodged under s 37(1) of the Administrative Appeals Tribunal Act 1975 (T documents), 14-25
[54] T documents, 26
The T documents contain copies of computer print outs of the quarterly returns lodged by Hella for the second ACIS quarter of 2001 and extending to the third quarter of 2003. Hella included details of the production value and production volume of automotive components as specified in the return and as required by the ACIS Act. The return also included two headings: “Type D Investment Claim” and “Type E Investment Claim”.[55] Under each claim, the return required Hella to enter details of “Claimable Value – Excluding Contracted and Overseas R & D”, “Claimable Value – Australian Based Contracted R & D”, “Claimable Value – Overseas R & D” and “Commonwealth Assistance”. In relation to each heading, Hella entered monetary values or left them blank.
[55] T documents, 27
In a letter dated 13 August 2001, the Product Manager – ACIS advised Hella of a summary of the credits issued to it for the second ACIS quarter of 2001.[56] Hella was also given a notice under s 70 of the ACIS Act giving details of all entries made in the ACIS Ledger account in its name.[57] The returns and notices for the remaining quarters take a similar form. The Secretary gave Hella the notice under s 70 in a letter dated 19 November 2003.[58]
[56] T documents, 29
[57] T documents, 30
[58] T documents, 62-63
From time to time, AusIndustry arranged a “Customer Service Management Visit” (CSM) to Hella. There was one such visit on 18 March 2004 and another 7 July 2004. A note dated 12 July 2004 by an AusIndustry officer recorded that the earlier CSM visit had detected that an eight week representative study used to verify a portion of Hella’s research and development investment was out of date. The officer continued:
“… It was also detected that Hella had a different interpretation of overseas R&D and that ineligible overseas R&D may have been claimed. This came to notice as a result of a self-assessed $10,000 reduction in overseas R&D investment.
Hella had been requested to conduct the 8 week sample and prepare a summary of the process for the meeting. It was also requested to provide a summary of overseas R&D amounts claimed and the outstanding invoice for the $10,000 self-assessed reduction in type E investment …”[59]
[59] T documents, 64
AusIndustry asked Hella for additional information in a series of correspondence between them. The results of its enquiries and its consideration were included in a Minute dated 15 March 2006. Part of that Minute reads:
“AusIndustry determined that Hella had a different interpretation of overseas R&D and that ineligible overseas R&D may have been claimed. Hella provided information regarding overseas R&D amounts claimed. A review of these documents found that the overseas R&D expenditure claimed by Hella is not eligible as all overseas R&D activities were carried out by Hella’s German parent, Hella KG Heuck & Co … Overseas contracted R&D is not allowed under Regulation 13G(5)(a) or Regulation 13G(5)(c).
At a meeting with Hella on 6 December 2005 the company confirmed that all overseas R&D claimed by Hella was for R&D activities performed by Hella KG Hueck & Co. AusIndustry was informed at the meeting that Hella has stopped claiming overseas R&D.
Hella was informed that a UCL will be raised for all overseas R&D claimed. A summary of our reasoning was presented to Hella on 11 January 2006. Hella accepted AusIndustry’s finding on that issue.”[60]
Hella wrote to AusIndustry on 27 March 2006 and set out its view that all of the activities in relation to which it had claimed investments were eligible investments.[61]
[60] T documents, 109
[61] T documents, 112-113
In a Minute dated 31 March 2006, an officer of AusIndustry made a recommendation to the Assistant State Manager that he approve a reduction of Hella’s investment in Type E investment in overseas research and development by $340,000 and approve the Unearned Credit Liability in accordance with s 94(1)(b) of the ACIS Act.[62] She repeated the earlier statement to the effect that Hella had a different interpretation of overseas research and development and that ineligible overseas research and development might have been claimed.[63] The Assistant State Manager approved the officer’s recommendation on 31 March 2006.[64] The notice under s 102 was issued on 3 April 2003 to notify Hella that it had an Unearned Credit Liability of 98,509 duty credits.[65]
[62] T documents, 114
[63] T documents, 114
[64] T documents, 114
[65] T documents, 116
In response to Hella’s request for clarification, Mr Stoddart, the National Automotive Manager – ACIS wrote to it on 28 April 2006. He wrote, in part:
“Regulation 13G of the ACIS Administration Regulations 2000 defines allowable R&D under the Act. In particular, regulation 13G(5) clarifies the basis in which certain R&D activities are allowable under ACIS. The practice of contracting R&D activities to overseas companies fails to satisfy the requirements of regulation 13G(5)(c) which states that offshore R&D must be conducted by the participant. In addition, and importantly, regulation 13G(5)(a) states that ACIS allowable R&D may only be contracted out to another party if the R&D activities are undertaken in Australia.
Finally, section 94(1)(b) of the Act states that a person is not entitled to duty credits if information given to the Minister, the Secretary of a delegate of the Secretary was inaccurate or incomplete. ACIS is administered as a self assessment scheme and as such AusIndustry expects that information contained in quarterly returns is accurate and does not include ‘non allowable’ investment claims. In this matter it was determined that the investment in offshore R&D claimed by Hella Australia Pty Ltd was not allowable R&D under regulation 13G, and it follows that the self assessed claims made in the quarterly returns were inaccurate. Therefore, Hella Australia Pty Ltd has received ACIS duty credits that it was not entitled to.”[66]
[66] T documents, 118
RESPONDENT’S STATEMENT
At the outset of the hearing, Mr Gray of counsel read a statement dated 1 December 2006 on behalf of the Secretary. It was subsequently lodged with the Tribunal and I reproduce it in full:
“1. On 18 July 2006 in response to an invitation by the Secretary, the Applicant through its solicitors stated that whilst this matter remained adjourned the Applicant agreed to be bound by any decision in matter V2003/917 on what was described as ‘the section 94(1) issue’ insofar as it related to the ACIS Administration Act unearned credit liability notice issued to the Applicant.
2.On 24 November 2006 the Tribunal (DP Forgie) handed down its decision in Spicer Axle Structural Components Australia Pty Ltd and Sec, DITR V 2003/917.
3.In Spicer Axle (as in this case) the Secretary’s decision that the participant was not entitled to certain duty credit was made by reference to s 94(1)(b) of the ACIS Administration Act, i.e. on the basis that the participant was not entitled to credit because information (in the form of statements in returns that certain expenditure on eligible investment has been made) given to the Secretary was inaccurate or incomplete in circumstances where the expenditure was not properly to be regarded as on eligible investment within the meaning of the ACIS Administration Act.
4.In the review proceedings in Spicer Axle, according to the Tribunal’s reasons, instead of relying on paragraph 94(1)(b), the Secretary contended that either of paragraph 94(1)(a) or (c) could apply in a situation in which the participant had stated in returns that certain expenditure on eligible investment had occurred where the expenditure was not properly to be regarded as on eligible investment within the meaning of the Act.
5.DP Forgie decided that neither of paragraphs 94(1)(a) or (c) applied.
6.DP Forgie did not express any conclusion about paragraph 94(1)(b).
7.DP Forgie found that the relevant provisions of the Act imposed an obligation on the Secretary to determine the amount of eligible investment of a participant in a quarter, and that the Act is not one of self assessment by the participants (at [145]-[147]).
8.The Secretary is giving consideration to an appeal to the Federal Court from the Tribunal’s decision in Spicer Axle.
9.The Tribunal’s decision in Spicer Axle does not have precedential effect on other cases in any strict sense, however by reason of the undertaking invited by the Secretary and given by the Applicant, the Secretary considers that it applies to this case.
10.While it is possible that the Secretary will appeal from, and may succeed in having set aside, the decision in Spicer Axle, there is no real prospect of final determination of any such appeal occurring before the expiration of ACIS Stage 1 credits on 31 December 2006.
11.There remain (by a narrow margin) sufficient ACIS Stage 1 credits to implement a decision of the Tribunal if made in this matter in favour of the Applicant (i.e. by the re-crediting of 98,509 credits).
12.Such a decision could not be implemented after 31 December 2006.
13.ACIS Stage 1 credits may decline in marketable value as 31 December 2006 approaches, and at midnight on 31 December 2006 they will expire.
14.Thus delay in the making of a decision on this review application is capable of causing irreparable prejudice to the Applicant.
15.The quantum of the credits concerned is relatively small and finalisation of the issue is justified.
16.For these reasons, if the Tribunal were invited by the Applicant to make a decision on the review setting aside the decision, the Secretary would not oppose that course.
17.The Secretary’s indication in this matter is case-specific and should not be taken by any person to indicate that the approach will be adopted in any other case.”
CONSIDERATION
Mr Stents submitted that, in view of my decision in Spicer Axle, I should set aside the Secretary’s decision and substitute a decision that Hella did not have an Unearned Credit Liability and that it is entitled to the 98,5869 duty credits that were issued to it for investment claimed under ACIS. As is apparent from the Secretary’s statement, Mr Gray did not advance any submission that I should either affirm or set aside his decision.
The decision in this case revolved around the proper interpretation of s 94 and, in particular, of s 94(1)(b). That is so because the effect of ss 94 and 95 of the ACIS Act is that a decision must first be made as to whether Hella received duty credits because of one of the situations in s 94(1). In this case, the Secretary relied on the situation specified in s 94(1)(b) in making his decision. That is not a provision that I considered in my reasons for decision in Spicer Axle as the Secretary did not rely upon it in that case. There is, however, one matter that I considered in that case and that is also relevant to my consideration in this case and I will return to it.
I will begin with the words “inaccurate” and “incomplete”. Their meanings are:
“inaccurate”: “… containing errors; not correct or accurate …”[67]
“incomplete”: “… not complete or finished …”[68]
In the context of s 94 and the ACIS Act as a whole, these seem to be the meanings that should be attributed to the words. That is to say, a person is not entitled to a duty credit if that duty credit was received by that person because information given to the Minister, Secretary of delegate contained errors, was not correct, was inaccurate, was not complete or was not finished. As s 94(1)(b) is expressed in the passive voice, its scope appears not to be limited to inaccurate or incomplete information given by the participant claiming the duty credits.
[67] Chambers 21st Century Dictionary, revised edition 1999, reprinted 2004, Chambers (Chambers).
[68] Chambers
In this case, however, the only information given to the delegate of the Secretary was given by Hella. For the purposes of the hearing, there seemed to be an implicit acceptance by Hella of the Secretary’s view that its expenditure was not on allowable research and development within the meaning of r 13G(5). Whether it would have adopted that position had there been a contested hearing, I am not to know. On the same footing, there seemed to be an implicit acceptance on behalf of the Secretary that Hella had spent the amounts it showed as “claimable value” in its quarterly return.
Section 37(1)(a) of the ACIS Act required Hella to set out “particulars of the expenditure on eligible investments” it had made in the quarter. The quarterly return it was required to submit referred to “claimable value”. This is not a term that is used in the ACIS Act although it is used as part of the term “maximum claimable value”. That second term is said in s 6(1) to be defined in s 6A in relation to allowable research and development. In view of the provisions of s 6A(2) and rr 13H and 13I, to which I have referred above,[69] it seems to me that there is a difference between supplying particulars of expenditure on eligible investments, as Hella was required to do under s 35(2), and its giving details of the claimable value as the quarterly return required of it. Certainly, s 37 requires an ACP’s quarterly return to set out any other particulars required by the form[70] but none of the returns included in the T documents required Hella to state its expenditure as opposed to the claimable value.
[69] see [16] above
[70] s 37(1)(f)
On the limited material that I have, I am satisfied that the information Hella provided was neither inaccurate nor incomplete. It had expended the money it showed as the “claimable value” on what it believed to be allowable research and development. The information provided was all that was asked for and so was not incomplete. It was not inaccurate, as it did not purport to warrant that the expenditure was actually a type E investment but that the expenditure it included as the claimable value was the amount it claimed in relation to a type E investment. That must follow from the heading to the section in which it provided the information: “Type E Investment Claim”. As the information was neither inaccurate nor incomplete, the situation described in s 94(1)(b) does not arise. Therefore, Hella is not liable to pay an Unearned Credit Liability under s 95.
What if, contrary to my conclusion, the information was incomplete or inaccurate? I would then be required to consider whether, “because of” the information’s being inaccurate or incomplete, Hella received the duty credits in question. The expression “because of” has been said to “import cause and effect”.[71] Carr J also considered the expression in Toben v Jones.[72] He did so in the context of s 18C(1)(b) of the Racial Discrimination Act 1985 which provides that it “… is unlawful for a person to do an act, otherwise than in private, if … the act is done because of the race, colour or national or ethnic origin of the other person or of some of all of the people in the group”. Carr J said:
“ In my view, as a general proposition, the words ‘because of’ form the first part of a response to the question ‘why?’ The questions in the present context were – why did the appellant publish the document?; was one reason for such publication the ethnic origin of the groups … or some of the people in those groups?”[73]
[71] Green v R (2000) 133 NTR 1 at 15 per Angel J and see also Mildren J at 46
[72] (2003) 199 ALR 1; 74 ALD 321
[73] (2003) 199 ALR 1; 74 ALD 321 at 330; 340. See also Allsop J at 38
Both meanings seem appropriate in the context of s 94(1)(b). The question can be posed by asking whether the inaccurate or incomplete material was the cause of Hella’s receiving the duty credits. Equally, whether the situation described in s 94(1)(b) exists can be ascertained by asking: Why did Hella receive the duty credits? Was the reason it did so the fact that inaccurate or incomplete information was given to the Secretary? In this case, I do not need consider that it was the reason. The reason was that, as I decided in Spicer Axle,[74] the Secretary regarded the ACIS as a self assessment scheme. His delegate or delegates accepted the information that was submitted by Hella without query before taking the steps to enter the modulated investment credit in the ACIS ledger and so enabling Hella to receive the duty credits. In other words, Hella received the duty credits because its claim for duty credits was treated by the Secretary effectively as an assessment of its expenditure on eligible investments and so of its type E investment. His accepting the information without question led then to its being given the duty credits. It mattered not whether the information in the quarterly report was accurate or complete as the duty credits would be given to Hella regardless of either when ACIS was treated as a self-assessment scheme. Therefore, the situation set out in s 94(1)(b) does not exist and so s 95 cannot be relied upon to determine that Hella has an Unearned Credit Liability.
[74] [2006] AATA 1004 at [145]-[147]
For the reasons I have given, I decided that
1.the respondents’ decision under review that the applicant has an Unearned Credit Liability and that it is not entitled to 98,509 duty credits that were issued for investment claimed under the Automotive Competitiveness and Investment Scheme be set aside; and
2.there be substituted for that decision a decision that the applicant does not have an Unearned Credit Liability and that it is entitled to 98,509 duty credits that were issued for investment claimed under the Automotive Competitiveness and Investment Scheme.
I certify that the forty-six preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,
Signed: ...............................................................
Jayne Rathjen Associate
Date of Directions Hearing 1 December 2006
Date of Decision 1 December 2006
Date of Written Reasons 20 December 2006Solicitor for the Applicant Mr E Stents
Hunt & Hunt
Counsel for the Respondent Mr P Gray
Solicitor for the Respondent Australian Government Solicitor
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