Pantral Pty Limited v Commissioner of Taxation
[2002] FCA 636
•7 MAY 2002
FEDERAL COURT OF AUSTRALIA
Pantral Pty Limited v Commissioner of Taxation [2002] FCA 636
SALES TAX – wholesale of motor vehicles – statutory agreement made between Commissioner and wholesalers for statutory rate – issue subsequently arose as to taxability of instruction manuals provided by manufacturers for no separately invoiced cost – AAT finding that two assessable dealings existed being one for vehicle and one for manual and wholesaler entitled to credit deemed price to be calculated for manuals from combined price for vehicles and manuals – single judge on appeal sets aside AAT decision – remits to AAT determination of entitlement if any to refund of overpaid tax – Commissioner and taxpayer appeal to Full Court – prior to hearing of appeal Commissioner offered to industry to maintain concessional rates on motor vehicles in return for sales tax on manuals – industry representatives supported Commissioner but wholesaler representing many dealers sought to enjoin Commissioner proceeding further with notice and deed of settlement giving effect to offer and in any event relying upon deed of settlement if executed – whether purposes of Commissioner unauthorised by Sales Tax legislation.
Sales Tax Assessment Act 1992 (Cth) ss 43, 76, 111
Administrative Appeals Tribunal Act 1975 (Cth) s 44
Federal Court of Australia Act 1976 (Cth) Part IVA
Judiciary Act 1903 (Cth) subss 39B(1), 39(1A)(c)
Income Tax Assessment Act 1936 (Cth) s 190(a)
Sales Tax Assessment Act (No. 1) 1930 (Cth)
Taxation Administration Act 1953 (Cth)Case 1/2001 (2001) ATC 101 referred to
Federal Commissioner of Taxation v Pantral Pty Ltd (2001) ATC 4646 referred to
Lighthouse Philatelics Pty Ltd v Commissioner of Taxation (1991) 32 FCR 148 referred to
R v Commissioner of Taxation (WA); Ex parte Briggs (1986) 12 FCR 301 referred to
Darrell Lea Chocolate Shops Pty Ltd v Commissioner of Taxation (1996) 72 FCR 175 referred to
Industrial Equity Ltd v Deputy Commissioner of Taxation (1990) 170 CLR 649 applied
Young v Commissioner of Taxation (2001) 61 ALD 173 referred toPANTRAL PTY LIMITED v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
N 346 OF 2002
CONTI J
7 MAY 2002
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 346 OF 2002
BETWEEN:
PANTRAL PTY LIMITED ACN 002 793 348
APPLICANTAND:
THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
RESPONDENTJUDGE:
CONTI J
DATE OF ORDER:
7 MAY 2002
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The application be dismissed.
2.Liberty to either party to apply on the outstanding issue as to the costs of the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 346 OF 2002
BETWEEN:
PANTRAL PTY LIMITED ACN 002 793 348
APPLICANTAND:
THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
RESPONDENT
JUDGE:
CONTI J
DATE:
7 MAY 2002
PLACE:
SYDNEY
REASONS FOR JUDGMENT
Background circumstances
There has been a longstanding dispute involving the Applicant (“Pantral”) and the Respondent Commissioner as to sales tax issues concerning motor vehicle manuals which accompany the sale of new motor vehicles, and in relation to which no separate sale price has been raised. The Commissioner’s contention has been that a sum should be attributed to such printed matter by virtue of s 95 of the Sales Tax Assessment Act 1992 (Cth) (“the Act”). The nature and scope of the dispute is set out in the Reasons for Decision of the Administrative Appeals Tribunal furnished on 8 December 2000 (2000) ATC 101, in review proceedings whereby Pantral pursued a refund request for overpaid sales tax originally made on or about 29 September 1997.
The finding of the Tribunal on 8 December 2000 and the consequential orders which it made were as follows:
“33.On the basis of the whole of the material placed before it, the Tribunal is satisfied that there were two assessable dealings in which the Applicant and its holding company were involved, one the sale of the motor vehicle, the other the sale of the manual. The Tribunal finds that manuals were sold with vehicles and not given away with vehicles, this being implicit in the manual being regarded as an accessory within the meaning of the agreement.
34.The Tribunal is further satisfied that the Applicant was required to deduct from the one inclusive invoiced price, the price for which the manuals could reasonably have been expected to have been sold if they had been sold separately within the meaning of section 95 of the Act so as to arrive at the price for the sale of the motor vehicle only, the price on which the sales tax was payable. The Applicant is entitled to a credit consequent on an apportionment under section 95.
35.The Tribunal is not able to ascertain the price for which the relevant manuals could have been sold, if sold separate from the motor vehicles. The evidence before the Tribunal is that of replacement value and not the price for which the items could have been sold by a manufacturer. The matter is to be referred back to the Respondent and the Applicant in order that the price for which the manuals could have been sold may be ascertained.
36.Accordingly the objection decision under review is set aside, the objection allowed and the matter remitted to the Respondent in order that the credit to which the Applicant is entitled may be calculated. Liberty to apply is reserved.”
The dispute between the parties giving rise to the Tribunal proceedings concerned the interpretation and effect of an informal arrangement entered into by the Commissioner in 1974 with representatives of wholesalers of motor vehicles, and an agreement in writing subsequently entered into on 5 September 1997 between the Commissioner with each of The Federal Chamber of Automotive Industries, The Motor Traders Association of Australia and The Australian Finance Committee, each acting on behalf of its members (Pantral being privy to the agreement by virtue of a signed authority given to the Motor Traders Association of Australia). The agreement was made pursuant to s 43 of the Act, which formalised and replaced the informal arrangement, and was expressed to operate from 1 July 1997 to 30 June 2002. Section 43 of the Act provides as follows:
“43(1) The Commissioner may enter into an agreement with a taxpayer about calculating the taxable values of particular taxable dealings.
(2)So far as the agreement is inconsistent with this Act, the agreement prevails.”
The s 43 agreement was the subject of Sales Tax Determination STD 98/1 issued by the Commissioner on 28 January 1998 relating to “Taxable value of new motor vehicles with a gross vehicle mass of less than 7.5 tonnes”. This s 43 agreement made no reference to motor vehicle manuals. Pantral and certain other motor vehicle wholesalers have each made application to the Commissioner for refunds in relation to motor vehicle manuals in the wake of the Tribunal decision, whilst other wholesalers are said to have been awaiting the ultimate outcome of the Pantral proceedings in this Court before deciding what course they should take in relation to motor vehicle manuals.
On 5 January 2001, the Commissioner filed in this Court notice of appeal from the Tribunal’s decision, pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth), which provides for appeals from any decision of the Tribunal to be made “on a question of law”. On 21 November 2001, Lindgren J ordered that the Tribunal’s decision be set aside, and that the case be remitted to the Tribunal to be heard and decided again, with the hearing of further evidence, in accordance with law, and with the following direction, to determine Pantral’s entitlement, if any, to a refund of any overpaid sales tax:
“In respect of each composite sale of vehicle and instruction manual by [Pantral] in the period 1 October 1994 to 30 September 1997 the Tribunal shall determine whether [Pantral] paid an amount as sales tax that was not legally payable, and if so, the amount overpaid to the extent that [Pantral] did not pass it on.”
In the course of his reasons for judgment, his Honour said as follows at [49]:
“…If the parties had intended the s 43 Agreement to provide that the agreed taxable value for which it provided should be referable to the vehicle alone, I would have expected them to say so expressly… The Commissioner points out that the s 43 Agreement purported to be an agreement under s 43 of the [Act] and that the ordinary meaning of “new motor vehicles” does not include accompanying instruction manuals. But there are considerations pointing in the other direction.”
Pantral has appealed from the decision of Lindgren J, which is reported at (2001) ATC 4646, and the Commissioner cross-appealed against the decision, and the appeal and cross-appeal are to be heard by a Full Court commencing on 9 May 2002.
The circumstances giving rise to the present proceedings related to what I would describe as the conduct of the Commissioner undertaken with the objective of producing a compromise of the respective stances of the Commissioner and industry participants which might be taken up upon the expiration of the s 43 agreement on 30 June 2002. Many such industry participants, including apparently Pantral and other participants linked in the dispute informally to Pantral, mainly represented by two firms of professional consultants, being participants amounting altogether to about 250 in number, have given written notice to the Commissioner of claims for refunds of sales tax assessed in respect of motor vehicle manuals. I will later record certain recent events which have taken place at the initiative of the Commissioner, based upon the respective affidavits filed on behalf of each party.
Pantral contends that the Commissioner’s conduct, following upon the judgment of Lindgren J, has been unlawful and beyond power, and in breach of ss 76 and 111 of the Act, which respectively read as follows:
“76(1) The Commissioner must remit any tax that has not been paid within 3 years after the time when it became payable, unless:
(a)within the period of 3 years, the Commissioner has required payment of the tax by a notice in writing served on the person liable to pay the tax; or
(b)the Commissioner is satisfied that payment of the tax was avoided by fraud or evasion.
(2)Any payment made in part satisfaction of several amounts that became payable at different times is taken to have been applied in satisfaction of those amounts of tax in the order in which they became payable, unless the Commissioner determines a different order.
(3)In this section:
“tax” includes penalty under Part 9 and late-payment penalty.
111.The Commissioner has the general administration of the sales tax law.”
Declaratory relief sought by Pantral, for itself and the motor vehicle wholesalers it has been appointed to represent in the proceedings presently before me, is as follows:
“(1)A declaration that the notice purporting to be issued to the group member pursuant to section 76 of the Sales Tax Assessment Act is void.
(2)A declaration that the settlement proposed in the deed of settlement is void or unenforceable for the reason that it is inconsistent with the scheme of the Sales Tax Assessment Act and the Taxation Administration Act 1953 (Cth).
(3)A declaration that the respondent is obliged to remit any tax falling within the scope of the notice under section 77 of the Sales Tax Assessment Act.”
The injunctive relief sought by Pantral on behalf of itself and each group member is as follows:
“(4) An injunction restraining the respondent from:
(a)giving effect to the notice;
(b)executing the deed of settlement in the form accompanying the notice; or
(c)relying upon or otherwise giving effect to the deed of settlement if executed.”
The abovementioned “notice” and “deed of settlement” shall shortly be referred to.
There is no dispute as to the valid constitution of the present proceedings brought by Pantral as a representative action pursuant to Part IVA of the Federal Court of Australia Act 1976 (Cth). The proceedings are otherwise brought under subss 39B(1) and (1A)(c) of the Judiciary Act 1903 (Cth). Because of the nature of the relief sought, it is necessary that Pantral’s claim for injunctive relief be determined forthwith.
The notice given by the Commissioner to Pantral on 12 April 2002, purportedly pursuant to s 76(1)(a) of the Act, was in the following terms:
“In the matter of the Commissioner of Taxation v Pantral Pty Limited reported at 2001 ATC 4646, the Federal Court held that the agreement entered into by the Commissioner of Taxation and Pantral Pty Ltd pursuant to section 43 of the Sales Tax Assessment Act 1992 (“the Act”) was invalid. It was the Court’s view that section 43 authorises no more than an agreement with respect to dealings with goods which are subject to tax. The Court found that the agreement purported to extend to dealings with motor vehicles which were subject to sales tax, and to dealings with the owner’s manuals which were exempt from sales tax. The Court held that where an agreement was entered into purportedly pursuant to section 43, but without its authority, then the taxable value of a relevant dealing is to be calculated in accordance with the Act and not in accordance with the purported agreement.
As you have entered into an agreement with the Commissioner purportedly pursuant to section 43 of the Act regarding the taxable value of motor vehicles, and taking into account the above court decision, this office considers that the amount of sales tax which you have paid on the basis of taxable values determined in accordance with the agreement is incorrect. The purported section 43 agreement provided for the calculation of a concessional non-arm’s length figure for taxable value on relevant dealings. You have therefore underpaid sales tax on taxable dealings with motor vehicles that were covered by the purported agreement.
I hereby give you notice, pursuant to section 76 of the Act, that you are required to pay sales tax on taxable values of motor vehicles calculated in accordance with assessable dealings which are applicable to your circumstances, stipulated in Attachment 1 to this notice.
Where the assessable dealing is a non-arm’s length transaction, section 94 of the Act applies. The bases of taxable values for your non-arm’s length transactions are also contained in Attachment 1.
The period of this notice relates to sales tax which became payable between the period 15 April 1999 to 30 June 2000 (both dates inclusive).
Copies of section 76 and section 94 of the Act are also attached for your information (see Attachment 2).”
The draft deed of settlement attached to the s 76 Notice recited the giving of the s 76 notice, and then the following proposed agreement:
“The parties have agreed to enter into a new formal agreement under s 43 of the STAA in respect of the relevant period in the form of the agreement annexed in Schedule 1 (“the replacement s 43 agreement”) and to resolve and settle all issues regarding:
(a)the amount of sales tax that has been paid by PANTRAL calculated in accordance with the UTV arrangement or the purported s 43 agreement, including any claimed credit entitlements; and
(b)the amount of sales tax payable by PANTRAL on the taxable dealings with the new motor vehicles during the relevant period
on the terms set out in this deed.”
The above reference to “UTV” is to Uniform Taxable Value, being a concept subject to an administrative arrangement made between the Commissioner and participants in the motor vehicle industry. Thereafter the draft deed provided for the following obligations to be undertaken respectively by Pantral and the Commissioner:
“OBLIGATIONS OF PANTRAL
In consideration of the Commissioner’s obligations under this Deed, subject to the observance of his obligations provided for in clause 3, PANTRAL agrees:
(i)to accept and does hereby accept that the amount of sales tax that it has paid calculated in accordance with the UTV arrangement or the purported s 43 agreement is correct and that there has been no overpayment of sales tax calculated on that basis;
(ii)that, for parts or accessories that accompanied the motor vehicle, it is not entitled to any credit for an amount of sales tax that has been paid in respect of such parts or accessories that are covered by an exemption item under Schedule 1 of the Sales Tax (Exemptions and Classifications) Act 1992 (such as but not limited to owner/instruction manuals), and/or in respect of such parts or accessories that are exempt parts of taxable value (such as but no limited to tax-advantaged computer programs);
(iii)to withdraw forthwith any applications for refund of allegedly overpaid sales tax, any objections and/or requests for extension of time and/or review to the AAT and/or appeal to the Federal Court or any other proceeding in relation to the amount of sales tax paid by PANTRAL in accordance with the UTV arrangement or the purported s 43 agreement;
(iv)to execute forthwith the replacement s 43 agreement;
(v)at no time to make or bring any other application, claim, demand or proceeding (whether to the Commissioner or in any court or Tribunal) in respect of:
(a)any amounts alleged to have been paid as, and for, sales tax in accordance with the UTV arrangement or the purported s 43 agreement;
(b)sales tax paid or payable under the provisions of the replacement s 43 agreement; and
(c)any amount of interest in respect of the amount referred to in sub-clauses (a) and (b);
(vi)not to seek administrative review of the issues forming the subject matter of this deed whether under the Administrative Decisions (Judicial Review) Act 1977 or administrative law generally save that this does not preclude any appropriate review by the Ombudsman.
OBLIGATIONS OF THE COMMISSIONER
In consideration of the obligations of PANTRAL under this Deed, subject to the observance by PANTRAL of its obligations under clause 2, the Commissioner agrees:
(i)to withdraw the s 76 notice;
(ii)to accept that the amount of sales tax that PANTRAL has paid calculated in accordance with the UTV arrangement, or the purported s 43 agreement is correct and that there has been no under payment of sales tax calculated on that basis; and
(iii)to execute forthwith the replacement s 43 agreement.”
Attached to the draft deed of settlement as Schedule 2 was a pro forma of a so-called “Agreement On The Taxable Value Of New Motor Vehicles” to be entered into between the Commissioner and Pantral pursuant to s 43 of the Act, and an explanatory document headed “Why have we sent you the accompanying section 76 notice, deed of settlement and agreement?”, which commenced with the following explanations:
“WHY HAVE WE SENT YOU THE ACCOMPANYING SECTION 76 NOTICE, DEED OF SETTLEMENT AND AGREEMENT?
YOU MAY HAVE A LIABILITY FOR EXTRA SALES TAX ON TAXABLE DEALINGS WITH MOTOR VEHICLES BETWEEN 15 APRIL 1999 AND 30 JUNE 2000
YOU MAY HAVE CLAIMED SALES TAX REFUNDS FOR TAX ADVANTAGED COMPUTER PROGRAMS (‘TACPS’) EMBODIED IN MOTOR VEHICLES, INSTRUCTION MANUALS OR OTHER GOODS THAT ACCOMPANY MOTOR VEHICLES
What has happened to cause a problem?
The Federal Court held that an agreement negotiated between the AFC, FCAI, MTAA and the ATO for a simple basis of calculating sales tax on motor vehicles that gives a very concessional rate of sales tax, is ineffective if other sales tax exempt goods (such as instruction manuals) accompany the vehicle. An appeal by the taxpayer and a cross-appeal by the ATO is to be heard in the Full Federal Court on 9 May 2002.
What are the possible outcomes of this litigation and how will it affect you?
There are three possible outcomes from this litigation:
Outcome 1: If the ATO’s appeal is upheld the agreement may be held to be effective but no refund will be allowed for the manual. If this happens, you will have correctly calculated your sales tax on taxable dealings with motor vehicles but there will be no refund entitlements for manuals etc.
Outcome 2: If the taxpayer’s appeal is upheld the agreement may be held to be effective and a refund is allowed for the manual. If this happens, you will have correctly calculated sales tax on the vehicles and, where you have lodged a refund claim, you may be entitled to a refund for manuals.
Outcome 3: If the Federal Court’s decision is upheld the agreement may be held to be ineffective and a refund may be allowed for the manual. If this happens, for taxable dealings with motor vehicles between 15 April 1999 and 30 June 2000, you will have to pay extra sales tax based on the price you would sell the motor vehicle to an arm’s length purchaser. For an average six cylinder family motor vehicle, the extra sales tax is estimated to be $600 per vehicle. If you have lodged a refund claim for manuals, this refund would not exceed $3.30 per vehicle unless you can show otherwise.”
After explaining its view of the consequences of the decision of Lindgren J being upheld by a Full Federal Court, this explanatory document concluded as follows:
“What are your choices?
If you sign the Deed of Settlement – there will be no further dealings required with the ATO for these motor vehicles. Your sales tax liability will be settled.
If you do not sign the Deed of Settlement –
· Under outcome 1 there is no risk. There will be no additional tax to pay and no entitlement to refunds.
· Under outcome 2 you may be entitled to some small sales tax refunds if you have lodged refund claims.
· Under outcome 3 you will have a significantly increased sales tax liability.”
It has not been suggested that the explanatory document was in any way misleading.
Prior to the dispatch of the s 76 Notice and its accompanying documents, the Commissioner had convened a meeting on 3 April 2002 with persons described as representatives of the peak bodies in the industry, namely the Federal Chamber of Automotive Industries, the Motor Traders Association of Australia and the Australian Finance Conference, those bodies having been signatories to the s 43 agreement of 5 September 1997, and in addition the Trucks Industries Council. Evidence was given in the proceedings to the effect that each of such bodies supported the Commissioner’s approach to the resolution of the issues arising from the reasons for judgment of Lindgren J, upon the footing that taxpayers would alternatively be taxable other than at the concessional rates of sales tax the subject of the s 43 agreement, once it expired on 30 June 2002.
Subsequent to the meeting, a further document headed “Draft Advice to Members” was generated by the Assistant Commissioner of Taxation involved in the industry discussion process outlined above, pursuant to a request of the representatives of one of the industry bodies to produce such a document “…so that all bodies could give a consistent message”. The text of that document was as follows:
“ADVICE TO MEMBERS
POSSIBLE LIABILITY FOR EXTRA SALES TAX ON MOTOR VEHICLES SOLD BETWEEN APRIL 1999 AND 30 JUNE 2000
SALES TAX REFUNDS FOR INSTRUCTION MANUALS, TAX ADVANTAGED COMPUTER PROGRAMS (TACP) AND OTHER GOODS THAT ACCOMPANY MOTOR VEHICLES
What has happened to cause a problem?
The Federal Court held that an agreement negotiated between the AFC, FCAI, MTAA and the ATO for a simple basis of calculating sales tax on motor vehicles that gives a very concessional rate of sales tax, is ineffective if other sales tax exempt goods (such as instruction manuals or TACPs) accompany the vehicle. An appeal is to be heard in the Full Federal Court on 9 May 2002.What are the possible outcomes of this litigation and how will it affect me?
There are three possible outcomes from this litigation:Outcome 1: The agreement may be held to be effective but no refund will be allowed for the manual (this is what the ATO is arguing for). If this happens, you will have correctly calculated your sales tax on vehicles you sold or applied to your own use but there will be no refund entitlements for manuals etc.
Outcome 2: The agreement may be held to be effective and a refund is allowed for the manual (this is what the taxpayer is arguing for). If this happens, you will have correctly calculated sales tax on the vehicles and, where you have lodged a refund claim, you will be entitled to a refund for manuals.
Outcome 3: The agreement may be held to be ineffective and a refund is allowed for the manual (this is the current decision of the Federal Court). If this happens, for vehicles you sold or applied to your own use between April 1999 and 30 June 2000, you will have to pay extra sales tax based on the price you would sell the vehicle to an arm’s length purchaser. For an average six cylinder family vehicle, the extra sales tax is estimated to be $600 per vehicle. If you have lodged a refund claim for manuals, this refund would not exceed $3.30 per vehicle.
What if I haven’t lodged a refund claim for manuals, TACPs or other goods?
Whether or not you have lodged a refund claim, you will have to pay extra sales tax if outcome 3 occurs.Is there another option?
To avoid massive disruption to the motor vehicle industry if the ATO is required by the Federal Court to implement outcome 3, and noting that the agreement negotiated with the ATO was meant to arrive at a final value upon which sales tax was to be paid, regardless of any exemptions or exclusions that might otherwise be available in relation to goods accompanying the vehicle:(a)Within the next week the ATO will send you a notice under section 76 of the Sales Tax Assessment Act 1992. This is not a notice of assessment but it does protect the ATO’s right to raise an assessment for sales tax for motor vehicles sold between April 1999 and 30 June 2000 if the litigation results in outcome 3;
(b)Either with that notice, or shortly afterwards, the ATO will send you another document which is likely to be called a ‘Deed of Settlement’. If you are prepared to sign that document, the ATO will accept that sales tax is payable on exactly the same value set out in the current agreement (that is there would be no extra sales tax to pay), provided you agree to withdraw any sales tax refund claims you have lodged for manuals, TACPs or other goods accompanying motor vehicles and you agree not to lodge any sales tax refund claims for such goods in the future.
The document must be signed and sent back to the ATO by 1 May 2002. This timing is based on the court hearing set down for 9 May 2002.
What are my choices?
You have a decision to make based on your assessment of the risks associated with each of the three possible outcomes from the litigation. You may want to seek professional advice before acting.
If you sign the Deed of Settlement – there will be no further dealings required with the ATO for these motor vehicles. Your sales tax liability will be settled.
If you do not sign the Deed of Settlement –
· Under outcome 1 there is no risk. There will be no additional tax to pay and no entitlement to refunds.
· Under outcome 2 you will be entitled to some small sales tax refunds if you have lodged refund claims.
· Under outcome 3 you will have a significantly increased sales tax liability.
Who do I talk to in the ATO about this?
If you want to talk to the ATO about this matter, telephone (03) 9275 4134.”
The Assistant Commissioner testified that he considered that the Act and related legislation would apply to transactions to which the purported s 43 agreement referred to in [3] above had previously applied, though no longer at the concessional rates the subject of the s 43 agreement, apart from any taxable value attributable to motor vehicle manuals, and that the basis of the settlement being proposed by the Commissioner, in the context of the reasons for judgment of Lindgren J, was in substance the preservation of the position generally understood to be the scope of operation of that original s 43 agreement, apart from the assessability of the manuals. Upon that basis, so the Assistant Commissioner testified, the Commissioner had forwarded to taxpayers the documentary material described in [10-12] above, including the s 76 notice. He explained that such material was sent only to taxpayers having a liability to sales tax in respect of the period from 15 April 1999 to 30 June 2000. The time for acceptance of the Commissioner’s offer was subsequently extended to 8 May 2002. By 3 May 2002, the Commissioner had received purportedly executed Deeds of Settlement in the form summarised in [11] above from 145 taxpayers, whereof 17 were in fact incorrectly executed and therefore returned for correction. A further 14 taxpayers were said to have executed the Deed, but in returning the same to the Commissioner, had also asserted their belief of having been “forced into signing the deed of settlement”, or words of similar protest.
Pantral’s contentions and my responses
Pantral’s first submission is that the purpose of s 76 of the Act, sub-section (1) whereof is extracted in [7] above, is to assist the Commissioner in his task of ensuring that the correct amount of sales tax is paid, whereas the evidence disclosed that the Commissioner did not issue the s 76 notice extracted in [10] above with that purpose. The submission proceeded as follows:
“The section 76 notice was issued at the same time as a proposal by the Commissioner to accept a payment by the taxpayer of no tax at all. It will be recalled that the Commissioner was dealing with the refund claims of $3.30 per vehicle and met that with a “claim” to an average of an extra sales tax of $600 per vehicle. Yet the Commissioner stated his preparedness to forego his claim if the refund claim were abandoned. The contemporaneity of the documents and the disparity in the amounts show that the purpose of the issue of the section 76 notices was not to collect the tax but to effect a compromise of the proceedings.”
Pantral placed reliance upon dicta of a Full Court (Lockhart, Burchett and Hill JJ) in Lighthouse Philatelics Pty Ltd v Commissioner of Taxation (1991) 32 FCR 148 at 155, where the following passage appears:
“…[The Commissioner] has an obligation to administer the Act, and may determine to allow the objection for grounds totally unrelated to those raised by the taxpayer, if that be the correct course, just as he could form the view, based on a reconsideration of the matter, that the assessment should be confirmed for reasons which he had not previously considered. His task is to ensure that the correct amount is paid, ‘not a penny more, not a penny less’.”
The issue arising in that case related to the Commissioner’s power to amend an income tax assessment under the former s 190(a) of the Income Tax Assessment Act 1936 (Cth).
Pantral also placed reliance upon dicta of an earlier Full Court (Bowen CJ, Sheppard and Beaumont JJ) in R v Commissioner of Taxation (WA); Ex parte Briggs (1986) 12 FCR 301 at 308, where the following passage appears:
“A genuine attempt to ascertain the taxable income of a taxpayer, even if carried out cursorily or imperfectly, is one thing. But when regard is had to the whole of the facts and surrounding circumstances of the present case and it appears that the respondents never intended to embark and did not in fact embark, upon the process of ascertaining the taxpayer’s income, no ‘assessment’ is involved.”
Their Honours (also at 308) described the course taken by the Commissioner in the circumstances of that case as an abuse of power. The foregoing dicta in Briggs was applied more recently by another Full Court (Spender, Burchett and Hill JJ), this time in a sales tax context, in Darrell Lea Chocolate Shops Pty Ltd v Commissioner of Taxation (1996) 72 FCR 175 at 187-188, which concerned the purported reliance by the Commissioner on the “conclusive evidence” provisions of subs 67(1) of the Sales Tax Assessment Act (No. 1) 1930 (Cth), in the following circumstances which I cite below from the judgment of the Court at 188:
“If anything the present case is more extreme. Not only did the Commissioner not make any genuine attempt to ascertain the sale value of particular goods under each of the relevant Assessment Acts, but he also determined a sale value and purported to create a liability for sales tax upon facts which he knew were wrong. This would inevitably produce a sale value and sales tax payable under each assessment which were likewise wrong, so that the purported liability created had to be in excess of Darrell Lea’s actual liability under each Sales Tax Assessment Act.
When one has regard to the role which s 67 played in protecting an assessment from all judicial scrutiny, it is axiomatic that that protection assumed that the Commissioner would make a bona fide effort to ascertain the liability of a taxpayer to tax by reference to facts which he believed at least could be true… The extensive powers conferred upon the Commissioner in connection with the assessment and collection of sales tax, or for that matter any other tax, must be so exercised as to deal fairly with each taxpayer… An assessment on facts known by the Commissioner to be untrue is of its nature unfair and oppressive. But equally as important, it involves no process of ascertainment or calculation.”
It is more however than a long bow for Pantral to bend by equating a failure of the Commissioner to exercise a statutory obligation, or to fulfil a statutory duty, to bona fide ascertain and assess taxation correctly, as illustrated in the foregoing authorities, with an endeavour by the Commissioner to compromise an amount of taxation considered by the Commissioner bona fide to be payable by a taxpayer as a quid pro quo for acceptance of liability by the same taxpayer for tax referrable to a related but arguably different subject of taxation liability, for reasons associated for instance with bona fide settlement of legally controversial issues awaiting resolution by judgment of a court at first instance or on appeal. That is how I would describe the reality and substance of the circumstances giving rise to the present claim for injunctive relief. In that kind of situation, the Commissioner thereby exercises the statutory power of general administration, in the case of sales tax conferred by s 111 of the Act (extracted in [7] above). In my opinion, Pantral’s purported reliance upon the three authoritative dicta which I have reproduced above is therefore misconceived. The Commissioner’s power and authority to bona fide compromise controversial assessments or claims of tax, whether income tax or sales tax, and indeed to make bona fide estimates thereof for instance in circumstances of an absence of full and true disclosure by a taxpayer, has never been doubted, and has been exercised on occasions too numerous to estimate. The following consequences stated in the joint judgment of the High Court in Industrial Equity Ltd v Deputy Commissioner of Taxation (1990) 170 CLR 649 at 663 (Mason CJ, Brennan, Deane, Dawson, Toohey and McHugh JJ) must here inevitably follow:
“Once the view is reached that the challenged decisions were within the scope of and were made for the purposes of the Act, the conclusion is inevitable that they did not constitute an improper exercise of power as made for a purpose other than a purpose for which the powers conferred by… were conferred… Nor can it be said that they were not authorised by Act”.
The circumstances of the compromise here proposed by the Commissioner, in the context of a judgment of Lindgren J at first instance from which both parties have appealed, take the form of an offer to taxpayers engaged in the new motor vehicle merchandising industry to maintain and renew the status quo of concessional rates of sales tax in respect of motor vehicles, in return for acceptance of the contentious claim of the Commissioner to impose sale tax on motor vehicles manuals. The bona fides of the compromise is testified by the favourable reaction thus far of certain leading representative bodies in the industry (see [13] above), an understandable reaction in the light of the respective financial consequences illustrated in the Commissioner’s explanatory document extracted in [12] above, on one view at least being highly favourable to the members of those representative bodies.
I am unable to accept the substantial accuracy of Pantral’s description of the Commissioner’s conduct as constituting an exercise of power under s 76, not for the purpose of requiring payment of sales tax by a notice in writing served on the person liable to pay the tax, but as part of a package designed to pressure Pantral’s Group Members into entering into the Deed of Settlement before the decision of the Full Court in the appeal from the decision of Lindgren J. Nor am I able to accept, on the basis of the evidentiary material, that it was the Commissioner’s intention, as supposedly apparent from the terms of the proposed Deed of Settlement, to impose his own terms without concession, and at the same time to deny to each Group Member the benefit of the objection and appeal processes relating to the issue of taxability of motor vehicle manuals for which the Act, and the Taxation Administration Act 1953 (Cth) duly provide. Nor am I able to accept the substantial accuracy of Pantral’s description of the purpose of the Commissioner as a denial to Group Members of the benefit of a favourable decision of the Full Court on appeal from the judgment of Lindgren J, based on the limited time within which the Deed of Settlement was required to be executed and returned to the Commissioner, and thus of Pantral’s characterisation of the conduct of the Commissioner as not acting in good faith to collect from each Group Member the correct amount of sales tax.
A more accurate description of the conduct of the Commissioner the subject of the Court’s focus in the present proceedings would be that of affording to each of the industry participants individually the option of foregoing the benefit of a possibly favourable result from a Full Court decision on the pending appeal of Pantral from the decision of Lindgren J, in return for the continuance of the status quo of the substantially larger financial benefit of the existing consensual taxing arrangements in relation to motor vehicles, albeit to be thereafter maintained explicitly without regard to the taxability of motor vehicle manuals. Pantral’s description of the Commissioner’s conduct overlooks that which must reasonably enter any fair description of the present context, namely the absence of obligation of the Commissioner to maintain on foot after 1 July 2002 the existing concessional arrangement relating to motor vehicles per se. The fact that the evidence of the Deputy Commissioner, given both in affidavit and viva voce, demonstrated so much industry support for the Commissioner’s compromise proposal, speaks eloquently in favour of the potential value to individual industry participants of that compromise.
I am unclear as to whether Pantral advanced additionally a case of bad faith on the part of the Commissioner in advancing the settlement offer which it did, such as was pleaded against the Commissioner in the income tax context of Young v Commissioner of Taxation (2001) 61 ALD 173, an authority cited by Pantral, but if I am mistaken in that regard, my conclusion from the evidence in the proceedings is that there could be no basis for concluding that the Commissioner did not genuinely believe that there were no reasonable prospects of his succeeding on the pending appeal to the Full Court, to the exclusion of Pantral.
The concluding submission of Pantral was expressed in terms which I would prefer to set out verbatim:
“One obvious matter which the Commissioner has decided will not be a matter for his consideration is the position of a taxpayer who, in reliance on a ruling, has underpaid tax within the meaning of section 77. The relevant ruling, STD 98/1, is reproduced at pages 23 to 30 of the affidavit of Michael Proud. There is no suggestion in the judgment of Lindgren J that the public ruling is in any was invalid. It deals with the taxable values that applied to new motor vehicles covered by the Motor Vehicle Industry Agreement. Each taxpayer who has underpaid tax in reliance on that ruling obtains the benefit of section 77(2) by which the Commissioner must remit the underpaid tax. There can be no suggestion of a misstatement or suppression of a material fact by the taxpayer. Indeed the agreement itself was a written decision given by the Commissioner to particular taxpayers and thus a “ruling” within the meaning of section 77(4). As such, even if “invalid” for the purposes of section 43, it remained operative for the purposes of section 77.
It is clear that the Commissioner had been well aware that if the current decision of the Federal Court was maintained he would still have a decision to make as to whether or not to pursue any extra sales tax from the taxpayers in the industry. Nevertheless he decided as part of the package to go forward on the basis that that discretion would be exercised in a particular way in every case and without regard to the merits, including entitlement under section 77.”
I set out below the full text of s 77 of the Act:
“Remission if tax underpaid in reliance on Commissioner’s interpretation of the sales tax law
77. (1) This section applies to a taxpayer if:
(a)the Commissioner alters a previous ruling that applied to the taxpayer; and
(b)in reliance on the previous ruling, the taxpayer has underpaid tax on a dealing that happened before the alteration.
(2)The Commissioner must remit the underpaid tax unless the Commissioner is satisfied that the taxpayer contributed to the giving, or continuing in force, of the earlier ruling by a mis-statement or suppression of a material fact.”
(3)The following rules apply in deciding whether a ruling applies to a particular taxpayer, or whether a ruling has been altered:
(a)a private ruling applies only to the person to whom it was given;
(b)so far as a private ruling conflicts with an earlier public ruling the private ruling prevails;
(c)so far as a public ruling conflicts with an earlier private ruling, the public ruling prevails;
(d)an alteration that a later ruling makes to an earlier ruling is disregarded so far as the alteration results from a change in the law that same into operation (or was taken to have come into operation) after the time when the earlier ruling was given.
(4)In this section:
“private ruling” means a ruling given to a particular person;
“public ruling” means a ruling other than a private ruling;
“ruling” means any written ruling decision, advice or assessment given or published by the Commissioner, including one that has been previously altered.
I do not understand the Commissioner to have put in issue what has been put forward in the first segment of the foregoing submission. The Commissioner’s position is simply that all references to “new motor vehicles” in Sales Tax Determination 98/1, as a matter of interpretation, implicitly exclude motor vehicle manuals as a matter of the ordinary meaning of a motor vehicle. No issue arises as to invalidity of the Agreement of 5 September 1997, so far as it purportedly extends, and which will shortly expire. The circumstance that the Commissioner would maintain his stance as to the discrete and additional assessability of motor vehicle manuals does not to my mind beg any question as to whether by so doing, he would thereby alter SD98/1. Motor vehicle manuals are hardly to be compared for instance with the wheels of motor vehicles, to give one example. The Commissioner’s pursuit of establishment of liability of motor vehicle manuals to sales tax does not therefore seem to me relevantly to bear upon the operation of SD98/1. No issue arises in my opinion in the circumstances of this case, correctly analysed, as to the supposed exercise of a discretion in a particular way in every case, and without regard to the merits, including any entitlement of a wholesaler under s 77 of the Act.
I would dismiss the application, and give liberty to apply on the question of costs.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti. Associate:
Dated: 17 May 2002
Counsel for the Applicant: S Gageler SC and M A Robinson Solicitor for the Applicant: Robert Richards & Associates Counsel for the Respondent: C M Maxwell QC and P Sest Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 6 May 2002 Date of Judgment: 7 May 2002
0
4
0