Queensland Independent Wholesalers Ltd v Commissioner of Taxation

QUEENSLAND INDEPENDENT WHOLESALERS LIMITED
And: COMMISSIONER OF TAXATION
Nos. G161-2 of 1990
FED No. 292
Sales Tax
91 ATC 4492/22 ATR 45/100 ALR 215
29 FCR 312

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Davies(1), Lee(2) and Hill(3) JJ.

CATCHWORDS

Sales Tax - appellant cooperative carrying on business as wholesaler and distributor - agreement whereby customers of appellant holding shares in parent company eligible for a rebate - rebates paid by cash and by way partly of credits to members loan accounts with parent company not available for immediate withdrawal - whether rebate reduced "sale value" upon which sales tax to be calculated - whether rebate must flow from contract of purchase and sale to reduce sale value - meaning of "amount for which goods are sold" - whether rebate paid by way of credit to loan account reduces "the amount for which goods are sold"

Sales Tax Assessment Act (No.1) 1930 (Cth) s.21

Sales Tax Assessment Act (No.2) 1930 (Cth) ss.3, 4, 11(1)

Sales Tax Assessment Act (No.3) 1930 (Cth) ss.3, 4, 11(1)

Sales Tax Assessment Act (No.7) 1930 (Cth) ss.3, 4, 11(1)

HEARING

BRISBANE

#DATE 30:5:1991

Counsel and Solicitors P.A. Keane QC and P. O'Shea
for Appellant: instructed by Messrs Clarke and Kann

Counsel and Solicitors R. Gotterson QC and P. Hack instructed
for Respondent: by the Australian Government Solicitor

ORDER

The appeal in respect of the year ended 30 June 1986 be allowed in whole.

The appeal in respect of the year ended 30 June 1985 be allowed in part.

The judgment of Pincus J. be set aside and in lieu thereof it be ordered that:

(a) The appellant's appeal against the respondent's disallowance of its objection in respect of sales tax overpaid in the year ended 30 June 1986 be allowed.

(b) The appellant's appeal against the respondent's disallowance of its objection in respect of sales tax overpaid in the year ended 30 June 1985 be allowed to the extent of the sales tax applicable to the rebate paid in cash.

The respondent pay the appellant's costs of and incidental to this appeal and of the proceedings before Pincus J.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

I have had an opportunity to read the reasons for judgment prepared by my brother, Hill J., and agree with them. I agree with the orders which his Honour proposes.

JUDGE2

I agree with the reasons for judgment expressed by Hill J. and with the orders proposed therein.

JUDGE3

The appellant, Queensland Independent Wholesalers Limited, appeals from the judgment of a judge of this court, (Pincus J.) disallowing its appeals against the objection decisions of the respondent Commissioner of Taxation refusing to the appellant a refund of sales tax claimed by the appellant to have been overpaid by it in the financial years 1984-1985 and 1985-1986.

The claim to a refund arises under the provisions of s.11(1) of the Sales Tax Assessment Act (No. 2) 1930, (the "No. 2 Assessment Act"), or the Sales Tax Assessment Act (No. 3) 1930, (the "No. 3 Assessment Act"), or the Sales Tax Assessment Act (No. 7) 1930, (the "No 7 Assessment Act), depending upon whether the goods sold by the appellant were manufactured in Australia, or were imported goods. It is not relevant for the purposes of this case to distinguish between these Acts, as each contains a refund provision in terms, so far as presently material, which are identical. It is not in dispute that if the appellant in the relevant periods in fact overpaid sales tax, then it was entitled to a refund. In particular, it is agreed by the parties for the purposes of the case that the provisions of s.11(1A) of each of the relevant Acts do not operate to preclude the refund. We are thus relieved of having to determine whether the overpaid sales tax has been passed on: cf Otto Australia Pty Limited v The Commissioner of Taxation (1991) 91 ATC 4305.
There is no dispute as to the facts. The appellant has at all relevant times carried on a business as an independent (that is to say unconnected with one of the larger retail chains) wholesaler, distributor of groceries, foodstuffs, tobacco products and variety merchandise. Its principal customers have been proprietors of small, independently owned grocery and smallgoods stores throughout Queensland and northern New South Wales.
Purchasers from manufacturers, or importers, or wholesalers who purchase in large quantities are able to obtain volume discounts from their suppliers. Such volume discounts are unavailable to the small retailer, whose purchases are insufficient in volume to attract such discounts. In the relevant periods the appellant acted as what it described as a "co-operative buyer for its customers". By so doing it was able to place with suppliers very large orders and thus obtain volume discounts which, subject to the deduction of costs for the maintenance by the appellant of accounting, managerial, warehousing, merchandising and delivery services it could pass on to such of its customers who were "members" in the form of what it called "rebates".
The structure, and operations of the appellant differed somewhat in each of the years in question.
In the year ending 30 June 1985, no customer of the appellant was able to receive a rebate unless that customer, being a store owner or operator, was a signatory to a rebate agreement which bore the heading "Loyalty Rebate Scheme" and held at least two hundred "Z" class ordinary shares in the capital of Retail Stores Development Finance Limited ("RSDF"). RSDF was the controlling shareholder of the appellant.
The agreement recited, inter alia, that:

"The company has established a rebate scheme for the purpose of granting to its customers subject to certain conditions a rebate on certain goods merchandise and commodities purchased from time to time by the customer from the Company and the customer being desirous of selling goods merchandise and commodities to members of the public has accepted the Company's offer to participate in the said rebate scheme."

The operative part of the agreement provided as follows:

"1. So long as the customer shall be the shareholder of at least TWO HUNDRED (200) "Z" class ordinary shares of ONE DOLLAR ($1.00) each in R.S.D.F. the Company without obligation to do so may grant to the customer a rebate on the Company's normal wholesale selling price of such goods merchandise and commodities as the Company may from time to time determine and which shall be from time to time purchased by the customer from the Company being goods merchandise and commodities delivered out of the Rocklea warehouse owned and operated by the Company or delivered out of such other warehouse or warehouses of the Company as the Board of Directors of the Company may from time to time determine. The goods merchandise and commodities in respect of which such rebate is granted are hereinafter collectively referred to as "the merchandise".

2. The rebate shall be calculated on purchases of the merchandise made by the customer through the warehouse or warehouses operated by the Company during the Company's rebate period being the period from the month of June in any year to the month of May in the immediately following year and shall be such percentage of the Company's normal wholesale selling price of the merchandise purchased by the customer during the rebate period as the Company shall from time to time determine."

Had the scheme stopped at that point, the issues in the present appeal would have been relatively simple of determination. However, the agreement was concerned with another, albeit related matter. Recital (h) of the agreement provided as follows:

"The customer has agreed to lend to R.S.D.F. a proportion of any rebate granted by the Company to the customer on goods merchandise and commodities purchased by the customer from the Company such loans to be made from time to time until the customer ceases to carry on his business as a retailer or as otherwise determined by R.S.D.F. and until repayment thereof such loan to be credited to a special rotating levy fund account in the name of the customer."

Clause 3 of the agreement thus provided:

"3. As soon as practicable after the end of each rebate period the Company shall notify the customer of the amount of rebate which the Company has determined shall be granted to the customer in respect of the rebate period then ended and with such notice the Company shall forward to the Customer a cheque for an amount equivalent to such proportion as the Company may determine from time to time of such rebate. As soon as practicable thereafter the Company shall pay the remainder of such rebate on behalf of the customer to the credit of the customer's special rotating levy fund account with R.S.D.F. as the customer does hereby authorise. The receipt by R.S.D.F. of the remainder of the amount of such rebate shall be a good and sufficient discharge to the Company and upon payment of such remainder by the Company to R.S.D.F. the Company shall not be under any further obligation or liability to pay or account to the customer for the same."

The agreement then continued by the customer applying for the issue of 1800 additional "Z" class ordinary shares and authorising the payment out of the customer's special rotating levy fund account of the application moneys in multiples of $10.00. The funds in the rotating levy fund account were to constitute a loan to the appellant by the customer, and were repayable (subject to their being used to pay for the "Z" class ordinary shares applied for) at whichever was the later of 5 years from the time the amount was credited or five years from the last day on which the additional "Z" class shares were issued to the customer. Interest in the meantime was payable at such rate as the appellant's Board determined. Defaults in the payment for goods could be deducted from the account, but a failure on the part of the customer to pay all moneys owing to the appellant had the consequence, while such failure continued, that the customer was not entitled to "repayment" of any rebate on the merchandise purchased by the customer.
In the 1985 financial year the appellant resolved that there be a rebate:

"at the rate of 1% on Grocery, Confectionery, Cigarettes and Tobacco, Retail FSD and 1.2% on Refrigerated Foods amounting to a total rebate of $1,969,148.05 and that this rebate be distributed to eligible customers on a basis of 50% cash from Queensland Independent Wholesalers and 50% credited to the Rotating Levy Funds Accounts with Retail Stores Development Finance Ltd. Cash portions only to be paid to the Department of Community Services and Island Industry Board."

It was found as a fact that the cash payment was made and the amounts credited in accordance with the resolution.
In the 1986 financial year a restructuring took place. During that year the appellant, which had been controlled by RSDF, became a wholly owned subsidiary of a company called QIW Retailer Limited, ("Retailers"). Customers of the appellant subscribed then for shares in the parent company, Retailers. The rebate scheme in operation in the 1986 year was termed the "QIW Retailers Rebate Scheme". The formal steps by which the restructuring was implemented involved a formal takeover offer by Retailers on 21 November 1985 to holders of the "Z" class shares in RSDF to acquire all such shares. Thereafter, on 21 December 1985, Retailer wrote to the persons from whom they had acquired shares that in order to obtain rebates on purchases, "members" would be required to subscribe for ordinary shares in Retailers, the number of shares each member was required to take was determined by a formula based upon the member's purchases from the warehouse in 1984/85. However, a member could contribute up to a maximum of 2% of the total shares in issue. Payment for the shares was permitted to be deducted from the amount standing to the credit of the customer's revolving contribution account as well as from the amount due under the takeover offer for the purchase of the "Z" class shares.
The articles of association of Retailers contained provisions concerning the "QIW Retailers Rebate Scheme" in the following terms:

"29.01 The Company shall procure QIW to implement a rebate scheme to be known as "The QIW Retailers Rebate Scheme".

29.02 The QIW Retailers Rebate Scheme will provide rebates on Gross Purchases by Scheme Members from QIW. 29.03 Participation in the QIW Retailers Rebate Scheme will be available to Scheme Members only. 29.04 There shall be established and maintained by QIW for each Scheme Member an account to be known as the "Retailers Rebate Account". 29.05 Each Scheme Member shall be entitled to a rebate of part of the moneys paid by him to QIW in respect of Gross Purchases. Such rebates shall be deemed for all purposes to be discounts on Gross Purchases made and shall be calculated as a percentage rebate of the Gross Purchases. The percentage rebate so payable shall be such percentage as is determined from time to time by the directors of QIW.

29.06 Subject to any lien or other claim by either QIW or the Company against the amounts standing to the credit in the Scheme Members' Retailers Rebate Account whether arising pursuant to these Articles or otherwise, the amount standing to the credit in each Scheme Members' Retailers Rebate Account on June 30 in each year shall be paid to each Scheme Member on or before November 30 in that year.

It might have been expected that the rebate scheme would have been reflected as well in the articles of association of the appellant. Those articles in the 1986 year did deal with what was termed "Retailers Rebate Account" but the provisions related to the entitlement of a rebate on purchases by independent retailers who were holders of ordinary shares in the appellant. Since the only shareholder of the appellant was Retailers, the provision has no application to the present appeal. It may well be that the reference to persons holding ordinary shares in the appellant was a drafting error, but the case proceeded below, and before us, on the basis of the articles of association of the appellant as they stood. It was not suggested that the articles should be treated as if they had been rectified.
An information booklet was furnished to customers at some time during the 1986 year. It stated that all of the "Z" class ordinary shares in the appellant had been acquired by Retailers and relevant to the rebate scheme provided as follows:

"...with the formation of the new Company, the way is now clear to enable you to purchase New Shares and to benefit by way of Rebates paid annually on your purchases...

In order to obtain rebates on purchases, members will be required to subscribe for ordinary shares. Each member's `minimum requirement for shares is determined by that member's purchases from the warehouse over a period of one full year's trading..."

On 24 June 1986, the Board of the Appellant resolved to adopt a management recommendation of:

"paying a rebate on purchases for the twelve months ended May 1986 of 1.1% on purchases of grocery, confectionery, tobacco, retail food services, refrigerated products and a 1% on chargebacks for the month of May 1986..."

The reference to "chargebacks" relates, so it would appear from the customer booklet referred to above, to goods delivered directly from suppliers to customers, but invoiced by the appellant to the customer.
In dispute between the parties is the calculation of the "sale value" upon which sales tax is to be calculated having regard to the rebates paid or credited in the two years.
The liability of the appellant to sales tax in the relevant periods arose under one or more of the No. 2 Assessment Act, the No. 3 Assessment Act or the No. 7 Assessment Act, the appellant not being, so the evidence would suggest, either the manufacturer of the goods it sold or the importer of them. Nothing, however, turns upon the identification of the relevant Act in the present case, since for relevant purposes each is in identical terms. Each provides for sales tax to be levied and paid upon "the sale value" of the relevant goods, be they manufactured in Australia or imported: s.3 of each Act. Each provides, relevantly in s.4, subject to exceptions not presently material that:

"the sale value of goods shall be the amount for which those goods are sold..."

Accordingly, the question for decision is whether in the circumstances that existed in the 1985 and 1986 financial years, the amount for which the appellant sold goods to those customers to whom rebates were paid or credited should be calculated by reference only to the initially invoiced price of those goods to the customers, as the Commissioner submits, or by reference to those prices less the rebates paid or credited to the customers who purchased the goods.
The Decision appealed against
The learned judge below was of the view that the appellant had not overpaid sales tax when that tax was paid by reference to the invoiced price of the goods without deduction of the rebates. In his Honour's view a rebate on the price of goods could only operate to reduce the sale value of those goods where the purchaser had a contractual entitlement to the rebate. His Honour was of the opinion that the rebates in question in each year were purely voluntary and did not flow from any obligation of the appellant under the contracts of sale with customers. It followed in his Honour's opinion that:

"...the price initially paid was and remains, `the amount for which those goods are sold' within the meaning of s 4(1) of Act No. 2; this is so because a unilateral decision, not as a result of any obligation, to refund part of the purchaser's money does not, in my opinion, alter `the amount for which those goods are sold'. It is not, in truth, an alteration of the sale price."

Much of the argument before us was concerned with the question whether the grant of the rebate was truly voluntary, as the Commissioner submitted, or whether, while the appellant could not have been compelled to grant a rebate of any particular amount, or at all, it was required to consider whether a rebate should be granted, such that payment of the rebate could not be said to be purely voluntary. There was also much discussion as to whether the provisions, whether of the Loyalty Agreement or of the QIW Retailers Rebate Scheme, as incorporated into contracts between the appellant and its customers, were illusory: cf Godecke v Kirwan (1973) 129 CLR 629 at 640-641 per Walsh J. and 647 per Gibbs J.; Secured Income Real Estate (Australia) v St Martins Investments Pty Limited (1979) 144 CLR 596 at 607 per Mason J.; Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 at 356-7 per Kitto J, and 359-60 per Taylor and Owen JJ.; Meehan v Jones (1982) 149 CLR 571 at 581 per Gibbs C.J., 589-90 per Mason J., 597-8 per Wilson J.; and Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 135 per Kirby P., and 150-1 per McHugh J.A.
In my view it is not necessary to resolve these issues. I am content to proceed upon the basis that a member of each relevant scheme could not succeed in legal proceedings against the appellant for a rebate, at least prior to a determination being made by the Board to pay or credit it, and could not compel the Board of the appellant to decide whether a rebate should be given. In other words, I am content to proceed, without deciding the issue, upon the basis adopted by Pincus J. that the payment of the rebate was in a legal sense voluntary, at least up to the point of time that there was a resolution to pay or credit the rebate.
Must a rebate flow from the contract of purchase and sale to reduce sale value?
Customers of the appellant, who were members of the relevant schemes had, at the very least, a strong commercial expectation that the Directors would, in accordance with the Loyalty Rebate Agreement in the 1985 year and in accordance with the articles of association of Retailers of which company they were members in the 1986 year (at least once they had acquired shares in Retailers) consider the question of rebates and would, subject to a satisfactory financial position, pay or credit rebates. There is little reason to doubt that the course of trading between the appellant and its customers necessitated the inclusion of a term, whether or not legally binding need not be considered, to this effect. That course of trading, and the granting of rebates in the preceding years pursuant to the Loyalty Rebate Agreement, together with the customer booklet referring to the rebates along with the other normal trading terms of the appellant in the 1986 year, necessitates such a conclusion; cf Brogden v Metropolitan Railway Coy (1877) 2 AC 666 at 682, 686 per Lord Hatherley, 691 and 693 per Lord Blackburn. It is, contrary to the respondent's submission, irrelevant that a document dealing with credit terms made no reference to the rebate scheme.

In the ordinary case, the words "the amount for which the goods are sold" will be the sale price of the goods. So much was made clear in the joint judgment of Dixon and McTiernan JJ., in Commonwealth Quarries (Footscray) Pty Limited v Federal Commissioner of Taxation (1938) 59 CLR 111. That case dealt with a quite different subject matter to the present. It was concerned with the question, whether in determining the sale value of goods sold by wholesale or retail, it was permissible to deduct from the contract price the cost of delivery where the contractual arrangements included the obligation of the vendor of the goods to deliver them to the premises of the purchaser. In this context, their Honours said (at 121):

"And we think there is no ambiguity in the chief or leading provision declaring what shall be the standard of sale value. The material part of that provision simply says that, where the goods are sold by wholesale, the sale value shall be the amount for which those goods are sold. To us these words appear necessarily to mean the contract price."

Thus, where the contract of sale provided for delivery to the customer, and the contract price so fixed included delivery, there was no scope for reducing the contract price by the amount of the cost of the delivery. Their Honours, however, made it clear that a different result would follow if the parties had provided for property passing on appropriation to the contract and there had then been a separate charge for delivery.
That the words "the amount for which the goods are sold" cannot be confined to the contract price was made plain, however, by Windeyer J. in EMI (Australia) Limited v Commissioner of Taxation (1971) 45 ALJR 349. In that case the appellant sold records, which it had manufactured, at a price to the World Record Club. Under an arrangement to which both vendor and purchaser were parties, together with a related United Kingdom company which owned the copyright in the artistic works the subject of the records, World Record Club agreed to pay to the United Kingdom company royalties being five per cent of the retail selling price of records sold by World Record Club. Unless the royalty agreement had been entered into the manufacturer would have infringed the copyright of the United Kingdom company. An issue in the appeal was whether these royalties were to be included in the sale value of the records sold by the appellant.
In deciding that the royalty payment was to be included in the sale value, Windeyer J. said (at 353):

"The word `amount' of itself connotes a sum total to which items amount up. I hesitate to use here either of the words `consideration' or `price', because recently there has been some new academic analysis of the juristic concepts they express. It is enough to say that, as used in the Assessment Act, `the amount' for which a thing is sold means I consider the sum total of all moneys that the buyer promises, expressly or tacitly, to pay to, or for, the seller in order that he, the buyer, may get a good title to the goods that he has agreed to buy."

After referring to the passage in Consolidated Quarries to which I have referred, his Honour continued:

"It may be that in some agreements for sale the buyer agrees to meet some incidental charges that are not in a strict sense part of the contract price. But the judgments in the case to which I have referred support, I think, my view of the content of the word `amount'".

The decision of Windeyer J. in EMI was subsequently distinguished in RCA Limited v The Commissioner of Taxation (1977) 137 CLR 583, where the royalty agreement was directly between the purchaser of records and the copyright holder, and was not contained in a contract to which the vendor of the records was a party. In the result, the royalty was held not to form part of the price or value of the records sold by the taxpayer to the purchaser. The resulting loophole in the legislation was ultimately cured by legislation. Nothing in the RCA Case throws doubt on what was said by Windeyer J. in EMI.
The Sales Tax legislation is directed at businessmen who are persons who manufacture, wholesale or import goods. The legislation uses terms which are in common use, such as "manufacture" and "production" cf Adams v Rau (1931) 46 CLR 572; Irving v Munro and Sons Ltd (1931) 46 CLR 279; and Federal Commissioner of Taxation v Rochester (1934) 50 CLR 225; Commissioner of Taxation v Brambles Holdings Limited (1991) 91 ATC 4285 at 4289 per Sheppard J., at 4294 per Beaumont J. It is self assessing. A person liable to the payment of the duty is obliged within 21 days of the close of a month in which a taxable transaction occurs to lodge a return setting out the sale value of goods upon which a liability arises and the tax payable and to pay that tax: s.21 of the Sales Tax Assessment Act (No.1) 1930. The liability does not, as in the case of income tax, depend upon the making of an assessment, although the legislation does contain provisions which empower the Commissioner to make assessments in certain cases.
The amount for which goods are sold will be a question of fact to be determined in each case. As I have already said, it will usually be the contractual purchase price arrived at between seller and buyer. However, this will not invariably be so. Let it be assumed that a prospective purchaser of goods enquires of the vendor the price and is told by the salesman that it is a certain sum, but that the proprietor may be prepared to reduce that price. The parties agree on a purchase at the price quoted, but the purchaser is given an assurance that if the proprietor is agreeable, any reduction of the price will be refunded to him. The purchaser has no legal right to a refund. But if the refund is, subsequent to the sale, given, then neither of the parties would be in any doubt that the amount for which the goods were sold was not the original invoice price, but that price reduced by the amount of the refund. The trading accounts of the vendor would properly reflect this transaction by treating the net figure as the gross sale price, and the trading accounts of the purchaser, if a trader, would bring into inventory the goods purchased at the net figure. The reduction, although voluntary, in the sense that it did not arise out of a contractual obligation to grant it, nevertheless operated to reduce the amount for which the goods were in fact sold. If sales tax had been paid on the invoice price, the vendor would in such a case be entitled to a refund, subject to compliance with the preconditions to such a refund.
The converse situation may also be imagined. Suppose that a customer contracted to purchase goods for a certain price. The goods were delivered and invoiced, and the price was paid. Suppose further that the vendor, who had a continuing business relationship with the purchaser, discovered that the price charged was below the normal trading price and the purchaser, without obligation to so do under the contract of sale agreed to pay the difference. It could hardly be said that the vendor would escape a liability to sale tax on the amount of the difference, purely because the purchaser had no contractual obligation to pay it.
It must be emphasised at this point that there is no suggestion that the arrangements between the appellant and its customers were, in the present case, other than at arm's length or that the rebate was other than what it purported to be, a reduction in the invoiced sales price by the granting of a rebate at the end of each financial year. The rebate was not motivated by an element of benefaction, nor was it suggested that the rebates constituted dividends to shareholders. It was a purely commercial arrangement. There are provisions in the Acts which permit the Commissioner to alter the sale value of goods in cases where the vendor and purchaser do not deal at arm's length in relation to the transaction of purchase and sale: cf s.4A of the No. 2 Assessment Act and the corresponding provisions of the No. 3 and No. 7 Assessment Acts. Those provisions were not invoked in the present case.
There is nothing in the respect Acts to preclude the "amount for which ... goods are sold" being determined by the vendor and purchaser on a deferred calculation chosen to reflect market values.
The object of the appellant's rebate scheme was to increase or maintain sales to member retailers against competition from other wholesalers. The rebates offered reflected market imperatives to be obeyed by the appellant if it wished to retain or expand its custom.
The fact that rebates were deferred and were discretionary would not prevent them being taken into account in determining the amount for which goods were sold provided that the nature and manner of payment of the rebate remained sufficiently proximate to and connected with the sale transactions to allow them to be accounted for in that way.
It follows that, with respect, I do not agree with the approach taken by his Honour that merely because the payments in question were voluntary and did not flow from a legally binding obligation to make them that they were irrelevant in determining the issue of fact upon which the appellant's right to a refund depended, namely what was the amount for which the appellant in the years in question sold goods to members of the rebate scheme. It is thus necessary to consider further whether, on the facts of the present case, the rebates credited or paid resulted in a reduction of the amount for which the appellant sold the relevant goods.
Conclusions in respect of the 1985 year.
Had the rebate been paid wholly in cash in the 1985 year, I would have had no doubt that the rebate was such as to alter the amount for which the relevant goods were sold. The complication in this year is that half of the rebate was credited to the customer's revolving credit account, where, as the Loyalty Rebate Agreement makes clear it provided a fund out of which payments of capital subscriptions on additional "Z" class shares was to be made, as well as a security to the appellant that there would be no default on goods sold on credit. The amount could be retained in the account and it was in the discretion of the appellant what interest if any be paid on it.
The parties had agreed, prior to the hearing below, that no question of valuation arose in respect of the part of the rebate credited. It is obvious, of course, from the terms of the agreement that the value of the amount credited to customers in their revolving credit account would be considerably less than the face value. While this agreement no doubt had the consequence that assuming the whole of the rebate amount was in truth such as to reduce the amount at which the goods were sold, the whole of the sales tax was overpaid, it had no consequence should it be decided that only the cash amount of the rebate operated to reduce the sale value.
While in my view it is not necessary that the amount of a rebate be given contractually to reduce the amount at which the goods are sold, it is clear that the factual circumstances must be such that it is apparent that the rebate does effect a reduction in the sale price as a matter of commercial reality and that it is not directed at some other end. The cash component of the 1985 rebate clearly enough satisfies such a test. However, I think that other considerations arise when one considers that part of the rebate, which was credited and provided a mechanism for ensuring an additional capital injection for RSDF, should it be needed. The rebate, while it could be said in one sense to reduce the sale price of the goods, went far beyond that. It was not a mere rebate against the price of the goods, but rather was directed at another end. In those circumstances the non-cash component did not operate to reduce the amount for which the goods were sold to customers.
Conclusions in respect of the 1986 year:
A separate difficulty arises in the 1986 year. In that year it will be recalled that the rebate scheme only came into operation sometime around April 1987, albeit that the resolution determining upon the rebate was clearly intended to operate retrospectively to all purchases from the preceding 1 July. I doubt that it would be correct as a matter of fact to characterise a rebate of the present kind as reducing the purchase price unless at the time the purchase was made the purchaser was aware that there was a commercial likelihood of a rebate of some amount being made, notwithstanding that the quantum of the proposed rebate was unknown and that it might turn out that no rebate at all was forthcoming.
However, the evidence makes it clear that one hundred percent of the persons who originally were members of the Loyalty Rebate Scheme and held shares in RSDF accepted the takeover offer for their shares. It would seem that not all, however, took up the new shares in Retailers. However, when at the end of the year of income a rebate was declared, that rebate was an effectuation of the promised rebate under both schemes, at least in respect of those members who took up the new shares in Retailers.
Accordingly, I am of the view that the appeal should be allowed, the orders made by Pincus J. set aside and there be substituted therefor orders that the objection decision of the Commissioner should be set aside, the objection allowed in whole in respect of the 1986 year and allowed in part in respect of the 1985 year, to the extent of the sales tax applicable to one half of the total rebate. The matter should be remitted to the Commissioner to calculate the amount of the sales tax refundable as a result of the decision of the court.
As the appellant has been substantially successful in the appeal the Commissioner should pay the costs of the appeal and the costs of the proceedings below.

[1991] FCA 292

30 MAY 1991