Robert Bosch (Australia) Pty Ltd and Secretary, Department of Innovation, Industry, Science and Research

[2008] AATA 313

ADMINISTRATIVE APPEALS TRIBUNAL          № V 200600478

GENERAL ADMINISTRATIVE DIVISION

Re:           ROBERT BOSCH (AUSTRALIA)   PTY LTD

Applicant

And:SECRETARY, DEPARTMENT OF INNOVATION, INDUSTRY, SCIENCE AND RESEARCH

Respondent

CORRIGENDUM [2008] AATA 313

Tribunal:       Mr Egon Fice, Member

Date:22 April 2008

Place:Melbourne

Member Fice made an Interim Decision in this application on 16 April 2008.

The Tribunal was advised that there were errors in the Interim Decision.

In accordance with s 43AA(1) of the Act, the Tribunal directs that the Registrar alter the text of the Reasons for the Interim Decision by:

1.        deleting the following words in paragraph 2:

Australian Competitiveness Investment Scheme

and replacing them with

Automotive Competitiveness Investment Scheme

2.deleting the words Mr Fleming and replacing them with Mr G. Uren wherever they appear in the decision.

3.deleting the appearances at the end of the Interim Decision and replacing them with the following appearances:

Senior Counsel for the Applicant:      Mr G. Uren QC

Junior Counsel for the Applicant:      Mr M. Fleming

Senior Counsel for the Respondent:  Mr P. Hanks QC

Junior Counsel for the Respondent:   Ms R. Orr

Solicitor for the Applicant:                Minter Ellison Lawyers

Solicitor for the Respondent:             Australian Government Solicitor

(sgd) Egon Fice
  Member

Administrative Appeals Tribunal

INTERIM DECISION AND REASONS FOR DECISION [2008] AATA 313

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No V 200600478

GENERAL  ADMINISTRATIVE  DIVISION		)
Re		ROBERT BOSCH (AUSTRALIA) PTY LTD

Applicant

And SECRETARY, DEPARTMENT OF INNOVATION, INDUSTRY, SCIENCE AND RESEARCH

Respondent

INTERIM DECISION

Tribunal Mr Egon Fice, Member

Date16 April 2008

PlaceMelbourne

Decision I propose that this matter be set down for a further Telephone Directions Hearing within two weeks after handing down this decision so that the parties can agree as how this matter will proceed and the Directions the Tribunal should make regarding the production of further documents. 

Mr Egon Fice

Member

ACIS Administration Act 1999 ss 94, 95

ACIS Administration Amendment (Unearned Credit Liability) Act 2007

Re Hella v Secretary, Department of Industry, Tourism and Resources [2006] AATA 1103

Secretary, Department of Industry, Tourism and Resources v Spicer Axle Structural Components Australia Pty Ltd [2007] FCAFC 158

REASONS FOR THE INTERIM DECISION

16 April 2008 Mr Egon Fice, Member      

1. On 10 May 2006 a delegate of the then Secretary of the Department of Industry, Tourism and Resources (DITR) made a determination under s 95 of the ACIS Administration Act 1999 (the ACIS Act) that Robert Bosch (Australia) Pty Ltd (Robert Bosch) was not entitled to certain duty credits issued in respect of investments claimed in its ACIS quarterly returns. This resulted in DITR debiting Robert Bosch’s ACIS ledger with a six million seven hundred and fifty thousand eight hundred and twenty-five dollar ($6,750,825) unearned duty credit liability. Robert Bosch seeks a review of the delegate’s decision of 10 May 2006 in accordance with s 114(j) of the ACIS Act.

2. Participants registered under the ACIS Act for the purposes of the Australian Competitiveness Investment Scheme (ACIS Scheme) are required to make quarterly returns (s 35 ACIS Act). Robert Bosch is the producer of automotive components and is registered as an ACP (automotive components producer) (s 17 of the ACIS Act). As such, the contents of its quarterly returns are prescribed by s 37 of the ACIS Act. On the basis of those returns, DITR awards duty credits which are entered in a ledger. Part 8 of the ACIS Act provides for an audit of participants. An audit was conducted by DITR in December 2004 and again in March 2005. The audit was conducted by selecting two representative quarters, March 2004 and June 2004, and examining the documentation relevant to the claims made in the returns for those quarters. The results of the audit of those two quarters were applied to all of the quarters between the first quarter of 2001 and the second quarter of 2005. The investments claimed by Robert Bosch were said to be type E investments, which are defined in s 6 of the ACIS Act. Type E investments are approved research and development that is directed:

(a)at the production of the automotive components, automotive machine tools or automotive tooling; or

(b)at facilitating the provision of automotive services.

The term automotive services means design, development, engineering or production services of a kind declared by the regulations to be automotive services for the purposes of this Act.

3.      Robert Bosch is a division of Robert Bosch GmbH (Robert Bosch Germany).  However, the two companies are discrete corporate entities.  DITR contends that in this matter, the research and development for which Robert Bosch received duty credits was conducted by Robert Bosch Germany on behalf of Robert Bosch under an agreement.  According to DITR, it was not conducted by Robert Bosch within the meaning of Regulation 13G(5) of the ACIS Administration Regulations 2000 (the ACIS Regulations) or the ACIS Administration Amendment Regulations 2001. (the ACIS Amended Regulations)

4.      The Tribunal first made Directions on 30 October 2006 regarding the conduct of this matter.  In part, those Directions required Robert Bosch to file and serve a summary of evidence from all witnesses it proposed to call at the hearing; all reports, records and any other documents on which it intended to rely at the hearing; and a Statement of Facts and Contentions on or before 1 December 2006.  DITR was directed to file and serve the same categories of documents on or before 28 February 2007.  Robert Bosch did not comply with those Directions but it did file a Statement of Facts and Contentions together with two witnesses’ statements on 20 December 2006.  While one of those witness statements (Stephen Evans) attached some documents, no further documents were filed with the Tribunal or served on representatives for DITR.  At a Directions Hearing held on 20 December 2006, Mr Patrick Noonan who appeared on behalf of Robert Bosch, indicated that there was one remaining document (a witness statement of the Financial Controller) to be filed with the Tribunal and served on DITR.  At Mr Noonan’s request, I amended the Directions of 30 October 2006 and allowed Robert Bosch until 12 January 2007 to file its remaining witness statement.

5.      After Robert Bosch failed to comply with my Direction dated 21 December 2006, the matter was set down for a further Directions Hearing on 8 March 2007.  However, on 5 March 2007 the Tribunal received the witness statement of Julie McCallum and therefore the Directions Hearing did not proceed. 

6.      On 5 April 2007 Mr Jeff Cranston, a senior executive lawyer with the Australian Government Solicitor, acting for DITR, filed a letter dated 5 April 2007 which had been written to Minter Ellison, solicitors for Robert Bosch.  In that letter, Mr Cranston set out a list of further documents which it requested be produced to enable DITR to complete its Statement of Facts and Contentions.  By letter dated 1 May 2007, Minter Ellison indicated it was seeking instructions regarding the request for further documents.  At a further Directions Hearing held on 22 May 2007, I directed that Robert Bosch file with the Tribunal and serve on DITR any further documents on which it intended to rely at the hearing on or before 19 June 2007. 

7.      In a letter dated 2 July 2007 from Mr Cranston to Minter Ellison, Mr Cranston acknowledged receipt of what was described as the Iveco MUX product brief.  According to Mr Cranston’s letter, Robert Bosch raised the possibility of using the Iveco MUX project as representative of all of the projects carried out during the audit period (first quarter 2001 to second quarter 2005 inclusive).  Apparently Robert Bosch explained that the volume of material relating to work done on all relevant projects carried out during the audit period was potentially huge.  Robert Bosch indicated that if the Iveco MUX project was treated as a representative project, the number of documents required to establish Robert Bosch’s claim would be significantly reduced. 

8.      Mr Cranston agreed that it was preferable that the matter proceed on the basis of a representative project or projects, as well as an agreed statement of facts.  However, Mr Cranston explained that because Robert Bosch had declined to provide the majority of documents which DITR had previously requested, it was not in a position to decide whether the Iveco MUX project might be properly treated as representative of all relevant projects for the purposes of this matter.  On 3 August 2007 Mr Cranston wrote to the Tribunal indicating that the parties had been unable to agree on an appropriate representative project and requested that the matter be fixed for a further Directions Hearing. 

9.      Although DITR continued to seek further documents, on 11 July 2007, it nevertheless filed its Statement of Facts and Contentions.  In that document DITR rejected the contentions of Robert Bosch that the research and development projects, the subject matter of this dispute, were set up by Robert Bosch and comprised a complex matrix of inter-related activities largely undertaken by Robert Bosch and managed by it in Australia. DITR contended that the activities performed in Europe by Robert Bosch Germany could not be regarded as Australian-based research and development for the purposes of Regulation 13G. Rather, it was Robert Bosch Germany which conducted the relevant research and development on behalf of Robert Bosch. Furthermore, DITR contended that s 94(1)(a) and s 94(1)(b) of the ACIS Act applied to Robert Bosch’s claim for duty credits.

10.     At a Directions Hearing held by Deputy President Forgie on 27 August 2007, substantial submissions were made by the representatives of both parties regarding how this matter should proceed.  In particular, Robert Bosch agreed to identify the Iveco MUX project so that DITR was able to consider whether it could agree to that project being treated as representative by the Tribunal.  This was to be followed by DITR serving a notice to produce on Robert Bosch regarding the documents it required to enable the matter to be fully argued at hearing. 

11.     Following the Directions Hearing on 27 August 2007, a number of letters passed between Mr Cranston and Minter Ellison.  It is not particularly helpful to examine in detail each piece of correspondence that passed between the parties following that Directions Hearing.  Suffice it to say that some further details of the Iveco MUX project were provided by Minter Ellison and Robert Bosch confirmed its claim that the product approval and certification work physically undertaken in Germany was allowable research and development pursuant to Regulation 13G.  Robert Bosch also sought clarification of DITR’S position regarding the reasons for not allowing the claimed research and development expenditure, although this is clearly explained in DITR’s letter to Robert Bosch dated 10 May 2006, which followed the audit.  In essence, DITR claimed this was because the research and development activities were not conducted directly by Robert Bosch nor was the research and development Australian-based. 

12.     As agreed between the parties regarding the provision of a notice to produce, Mr Cranston, by a letter dated 24 September 2007, requested the documentation that DITR required for the purposes of the hearing.  Minter Ellison responded on 5 October 2007 stating that Robert Bosch intended to file a further witness statement which would address the details of the Iveco MUX project.  That has not been done; nor has Minter Ellison provided the documents set out in Mr Cranston’s letter of 24 September 2007. 

13.     In a letter dated 5 October 2007, Mr Cranston set out grounds upon which DITR contended that the product approval and certification activities undertaken by Robert Bosch Germany were not allowable research and development for the purposes of the ACIS Regulations. He said that the activities claimed were not in the nature of research and development but rather occurred after development.  Alternatively, if the activities were research and development, they were not conducted by Robert Bosch. 

14.     On 30 November 2007 Minter Ellison wrote to Mr Cranston referring him to a decision which had recently been handed down by the Full Court of the Federal Court in Secretary, Department of Industry, Tourism and Resources v Spicer Axle Structural Components Australia Pty Ltd [2007] FCAFC 158 (Spicer Axle). The Full Court in that case was dealing with an Appeal from the decision of Deputy President Forgie. Minter Ellison said that DITR’s Statement of Facts and Contentions focussed on whether Robert Bosch’s offshore research and development constituted an eligible investment. That, according to Minter Ellison, is a question of law.

15. The Full Court in Spicer Axle ruled that the absence of legal entitlement to duty credits is not a valid basis for determination of liability under s94 of the ACIS Act. The Court said, at 269:

… The only mistake (if there was one) was as to the legal entitlement of Spicer Axle to receive the credits. The 2007 amendment which introduced s 94(1A) supports the view that the Act, at the relevant time, did not mean that an absence of legal entitlement to a credit entailed a liability to make a payment to the Commonwealth under s 95 of the ACIS Act: …

16.     At the relevant time, prior to the commencement of the ACIS Administration Amendment (Unearned Credit Liability) Act 2007 (the ACIS Administration Amendment Act) the relevant sections provided as follows:

Section 95 unearned credit liability (UCL).

if the Secretary determines that, because of the situation set out in s94, a person is not entitled to certain duty credit, the person is liable to pay the Commonwealth an unearned credit liability

Section 94 Person not entitled to certain duty credit:

(1) 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; …

17.       The Full Court noted that a new subsection (1A) was added to s 94 as follows:

(1A)A person who has or had duty credit is not entitled to the credit if the credit was issued in respect of an investment that was not an eligible investment.

Section 95 of the ACIS Act was repealed and replaced by a new section which provided:

95 Unearned credit liability

If:

(a)a person has received duty credit; and

(b)the person is not entitled to the credit (for a reason set out in section 94 or any other reason);

the person is liable to pay to the Commonwealth an unearned credit liability.

18.     The Full Court said that Division 2 of Part 9 constituted a code dealing with the circumstances in which duty credits can be received (sic) [recovered].  The Court noted that duty credits could not be recovered except in the circumstances set out in s 94 and that none of those circumstances applied to Spicer Axle. 

19. Finally, the Full Court explained that because Deputy President Forgie correctly determined that Spicer Axle did not have an unearned credit liability within s95, it was not necessary to consider her finding that the relevant investment was not taken to have occurred for the purposes of the ACIS Act.

20.       Minter Ellison also referred to Deputy President Forgie’s decision in Re Hella v Secretary, Department of Industry, Tourism and Resources [2006] AATA 1103, stating that this decision confirmed what the Full Court had said in Spicer Axle. Minter Ellison therefore invited Mr Cranston to amend DITR’s material to properly identify the issues in dispute and to remove from issue any matters that had been settled by the Spicer Axle decision.

21.     Mr Cranston responded to the Minter Ellison letter on 9 January 2008, disagreeing with Minter Ellison’s view that DITR’s case was unable to be sustained.  Furthermore, Mr Cranston explained that DITR’s case was not put merely on the basis that Robert Bosch received the duty credits in question by reason of a mistaken view as to its legal entitlement to the credits.  He pointed out that in its Statement of Facts and Contentions, DITR contended that the credits were granted due to, inter alia, a mistake of fact or the provision of factually inaccurate or incomplete information.  DITR’s Statement of Facts and Contentions claims:

(a)it had erred in calculating the duty credit for each relevant quarter;

(b)that in allowing credits for the quarters in question, it had made a mistake of fact; and

(c)………….

(d)……….

(e)in allowing the credits, it did so on the basis of inaccurate or incomplete information provided by Robert Bosch. 

Mr Cranston also made it clear that DITR could not rule out the possibility of amending its statement of facts after it had received all relevant material from Robert Bosch.

22.     At the Directions Hearing on 18 March 2008, Mr Fleming of counsel, who appeared on behalf of Robert Bosch, urged the Tribunal to proceed by way of deciding, as a preliminary issue, questions arising from ss 94 and 95.  The ss 94 and 95 issues were put this way:

(a)the factual circumstances in this matter were such that they could not, as a matter of law, amount to a situation set out in any of (a), (b) or (c) of s 94(1) of the ACIS Administration Act; and

(b)in any event, the Secretary, when his delegate made a determination under s 95 that Robert Bosch had an unearned credit liability (UCL), did not make a determination because of a situation set out in set out in s 94.

23.     According to Mr Fleming, if the contentions advanced by Robert Bosch regarding ss 94 and 95 are determined in its favour, it will necessarily lead to the entire review proceeding being finally determined. 

CONSIDERATION

24. In the Spicer Axle case, the Full Court was only concerned with the meaning to be attributed to the first limb of s 94(1)(a). In other words, it was only concerned to determine whether the Tribunal had correctly interpreted the meaning of the phrase the making of an error in calculating the duty credit. The Full Court noted that the Tribunal was not invited to find that a delegate of the Secretary’s decision was supported on the grounds set out in s 94(1)(b). It made its decision solely of the basis that the only mistake made was one as to the legal entitlement of Spicer Axle to receive duty credits. Therefore, the Court found it unnecessary to determine whether the relevant investment undertaken by Spicer Axle was taken to have occurred for the purposes of the ACIS Act.

25. The Hella decision did require the Deputy President to interpret s 94(1)(b). After considering the meanings to be attributed to the words inaccurate and incomplete, Deputy President Forgie noted that because of s 94(1)(b) is expressed in the passive voice, its scope appeared not to be limited to inaccurate or incomplete information given by the participant claiming the duty credits. In other words, the scope of those words was to be considered in the broader context of all information received by the delegate of the Secretary that fell within the description in s 94(1)(b). Deputy President Forgie also noted that s 37(1)(a) of the ACIS Act required Hella to set out particulars of the expenditure on eligible investments that it had made for each quarter. She distinguished between a requirement to give details of the claimable value of a claim and the particulars of expenditure on eligible investments. However, after examining the limited material with which she was provided, the Deputy President was satisfied that the information Hella provided was neither inaccurate nor incomplete. On that basis Deputy President Forgie found that the situation described in s 94(1)(b) did not arise. However, she then considered the situation on the assumption that her conclusion was incorrect. The Deputy President examined the meaning of the expression because of as that expression appears in s95 of the ACIS Act. After examining the authorities which have judicially interpreted the expression, she agreed that it could input cause and effect or form the first part of a response to the question why. However, as the parties had agreed to be bound by the Deputy President’s decision on the s94(1) issue in Spicer Axle, she simply referred to her findings in that case that the Secretary accepted the information given by Spicer Axle without question, and that was the reason why duty credits were allotted. It was on that basis that the Deputy President found that the situation set out in s 94(1)(b) did not exist.

26. In the matter before me, Mr Fleming submitted that the questions raised by ss 94 and 95 of the ASIC Act will be determined by reference to a limited set of facts and documents, all of which are either presently before the Tribunal or, in the case of the relevant quarterly returns, documents which can be tendered by consent. I do not agree.

27.     Although I do not have the quarterly returns in this matter before me, I have taken the opportunity to examine the format of quarterly returns by referring to those on file in the Spicer Axle matter.  The quarterly returns appear to be pro-forma documents which simply require a participant under the ACIS Scheme to enter on that document the value of type E investments for a particular quarter.  This could be either under the heading Total type E investment (excluding contracted and overseas R and D) or Overseas Research and Development.  There is nothing further in the quarterly return which assists in determining how the various values set out in that return have been arrived at. No particulars of expenditure on eligible research and development appear to have been provided. 

28.     It is apparent from the audit report dealing with research and development that Robert Bosch returned, in the quarters which were examined, overseas research and development.  The audit report disclosed that the supporting documents provided to DITR’s delegate appeared to confirm that the offshore research and development claims related to costs associated with activities undertaken by the staff at Robert Bosch Germany.  The audit report also explained that the practice of contracting research and development activities to overseas companies failed to satisfy the requirements of Regulation 13G(5)(c) of the ACIS Regulations.  The report noted that offshore research and development must be conducted by the participant, that is, Robert Bosch.  It also indicated that the claims relating to overseas research and development appeared to be systemic.

29.     Following the audit, DITR’s ACIS Product Manager wrote to Robert Bosch on 10 May 2006.  In that letter, the ACIS Product Manager explained that, amongst other things, the audit established that Robert Bosch contracted certain research and development activities to Robert Bosch Germany.  As a result, DITR was of the view that those activities were not conducted directly by Robert Bosch.  Further, DITR’s delegate noted that the activities, which appeared to have been contracted to Robert Bosch Germany, could only be claimed if they satisfied the requirements set out under Regulation 13G(5)(a) of the ACIS Regulations.  In order to establish the matters set out under Regulation 13G(5)(a), it is necessary to determine whether:

(a)the research and development is Australian-based research and development;

(b)the participant (Robert Bosch) contributed to the direction and management of the research and development;

(c)Robert Bosch had a proportionate share in any intellectual property resulting from the research and development; and

(d)Robert Bosch was not required to conduct the research and development on behalf of another person under a contract with the other person.

It is only after examination of the nature of the activities the subject of the research and development claim, and identification of the parties who conducted those activities, that the Tribunal can determine, as a matter of law, whether those activities fall within Regulation 13G such that they can be described as allowable research and development.  An examination of the nature of the relevant activities will clearly involve making findings of fact. 

30. If a mistake of fact, inaccurate or incomplete information lead DITR to accept that the claimed research and development expenditure satisfied the requirements of Regulation 13G, in my view, that could establish the causal nexus required for the application of ss94 and 95 of the ACIS Act.

31. It is also clear from Robert Bosch’s Statement of Facts and Contentions filed on 20 December 2006 that it joins issue with DITR’s finding that the relevant research and development activities were conducted in Germany by Robert Bosch Germany. Clearly that finding is a finding of fact. If the Tribunal were to determine that fact in favour of DITR, it is at least arguable that Robert Bosch received the relevant duty credits for one of the reasons set out under s 94(1)(a) or s94(1)(b). That factual error may have led the Secretary to believe that the overseas research and development was in fact allowable research and development because it satisfied Regulation 13G. That much seems to be agreed between the parties for the reason that at paragraph 24 of its Statement of Facts and Contentions, Robert Bosch has stated:

It is clear that the contested issue identified above involves a mixed matter of fact and law.  In part, that requires sufficient identification of the factual matrix.  Once that has occurred, the appropriate facts must be applied to the statutory criterion, properly construed. …

That seems to be an accurate statement of the present position.  In fact, in paragraph 25 of its Statement of Facts and Contentions, Robert Bosch states that: First, the ‘activities’ constituting the relevant research and development must be identified.  It then states that: the respective roles and responsibilities of Robert Bosch and Robert Bosch Germany in undertaking of those activities must be properly understood.  That, in my view, is clearly correct. 

32. It should be apparent from the analysis set out above that I cannot accept the submissions of Robert Bosch that this matter should proceed by way of determining the questions which arise out of ss 94 and 95 of the ACIS Act by reference to a limited set of facts and documents, all of which are either presently before the Tribunal or, in the case of Robert Bosch’s relevant quarterly returns, by tendering those to the Tribunal. An investigation of the facts must be first undertaken and that can only be completed by examination of all relevant documents relating to the activities of Robert Bosch and Robert Bosch Germany for which duty credits have been claimed. If it is accepted by Robert Bosch that research and development was conducted by Robert Bosch Germany, then the facts which underpin reliance on Regulation 13G(5) must be clearly disclosed. That is, any documents relating to those activities must be disclosed to determine whether any provision of s 94(1) is enlivened.

33.     The parties have discussed the possibility of conducting this hearing on the basis of a representative project, the Iveco MUX project being suggested as an appropriate example.  At this stage, DITR has declined to do so on the basis that it has insufficient information to ascertain whether that project is indeed representative.  It is not for the Tribunal to determine whether that is correct.  It seems to me that the parties must either agree on conducting this matter by close examination of an agreed representative project, or the matter should go forward on the basis of determining all of the projects which were the subject of duty credit claims which have since been rejected by DITR. 

34.     I propose that this matter be set down for a further Telephone Directions Hearing within two weeks after handing down this decision so that the parties can agree as how this matter will proceed and the Directions the Tribunal should make regarding the production of further documents. 

I certify that the thirty-four [34] preceding paragraphs are a true copy of the reasons for the decision herein of

Mr Egon Fice,  Member

(sgd) Mara Putnis

Associate

Date of Directions Hearing          18 March 2008
Date of Decision  16 April 2008
Counsel for the Applicant            Mr M. Fleming
Counsel for the Respondent        Mr P. Hanks, QC
Solicitor for the Applicant             Minter Ellison Lawyers

Solicitor for the Respondent        Australian Government Solicitor