Seraphim (Consulting) Pty Ltd and Commissioner of Taxation (Taxation)

[2015] AATA 540

Seraphim (Consulting) Pty Ltd and Commissioner of Taxation (Taxation) [2015] AATA 540 (22 July 2015)

Division	TAXATION & COMMERCIAL DIVISION
File Numbers	2013/6137
Re	Seraphim (Consulting) Pty Ltd
APPLICANT
And	Commissioner of Taxation
RESPONDENT

File Numbers	2013/6138
Re	Southern Cross Partnership
APPLICANT
And	Commissioner of Taxation
RESPONDENT

File Numbers	2013/6139
Re	Carawatha Partnership
APPLICANT
And	Commissioner of Taxation
RESPONDENT

DECISION

Tribunal	Deputy President PE Hack SC
Date	22 July 2015
Date of written reasons	23 July 2015
Place	Brisbane

Each application is dismissed pursuant to s 42A(5) of the Administrative Appeals Tribunal Act 1975 (Cth).

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Deputy President PE Hack SC

CATCHWORDS

PRACTICE AND PROCEDURE – application for adjournment – inadequate reasons given  – adjournment refused – failure to comply with directions – failure to attend resumed hearing – whether proceedings ought be dismissed – applications dismissed.

LEGISLATION

A New Tax System (Goods and Services Tax) Act 1999 (Cth)

Administrative Appeals Tribunal Act 1975 (Cth), s 42A(5)

REASONS FOR DECISION (revised from the transcript)

Deputy President PE Hack SC

23 July 2015

1. There are before the Tribunal applications by Seraphim (Consulting) Pty Ltd (Seraphim), Southern Cross Partnership (Southern Cross) and Carawatha Partnership (Carawatha).  The link between the three applicants is Mr John Mudge – he was and is the sole member and director of Seraphim and, if Southern Cross and Carawatha are, in fact, partnerships (a proposition disputed by the Commissioner), he was a member of those partnerships during the periods in issue in these applications.

2. It is a sufficient explanation of the proceedings for present purposes to say that the main issue in each application is whether the particular applicant was "carrying on an enterprise" as that term is used in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act) – carrying on an enterprise at all in the case of Southern Cross and Carawatha and carrying on a primary production enterprise in the case of Seraphim.

3. The history of the proceedings needs to be briefly recited. The respondent, Commissioner of Taxation commenced an audit of these entities in early 2013. Each of the entities had a demonstrated history of lodging activity statements which reported no sales and thus no GST, but significant credible acquisitions. Thus input tax credits were claimed with the result that for a number of periods these entities obtained refunds from the Commissioner. That pattern no doubt prompted the Commissioner’s audit which commenced in about February 2013 in relation to Carawatha and shortly thereafter in relation to the other two entities.

4. What was sought by the Commissioner from each entity was a detailed transaction listing of the sales and acquisitions for the period 1 October to 31 December 2012, tax invoices to support the six highest-value acquisitions in that period, bank statements and other documents as proof of payment of credible acquisitions and documentary evidence of the carrying on of an enterprises for tax purposes. Thereafter, and the detail is set out in ridiculous length in the section 37 documents, Mr Mudge came up with a series of quite extraordinary reasons why he was unable to respond to that relatively simple request, including undertaking the solemn task of pretending that he had an accountant who indeed was Mr Mudge trading under the name Austax.

5. Mr Mudge ignored repeated requests to provide the documents giving more and more fanciful reasons for his inability to do so. Ultimately, and understandably, the Commissioner lost patience and around the middle of 2013 the assessments and amended assessments, that are in issue in these proceedings, were made. It is sufficient to say, that the effect of the Commissioner’s assessments was to deny input tax credits and fuel tax credits, which also had been claimed on the footing the entities were carrying on an enterprise.

6. The earlier pattern of delay demonstrated to that point continued once Mr Mudge had lodged objections to the various assessments on 3 June 2013. The objections are quite extraordinary. Each starts with “Sincerest apologies” for the delay in responding to earlier correspondence and proffers further excuses for the delay. The three of them have remarkable similarities, and suggest the expenditure was incurred in pursuing a similar enterprise although in the case of Seraphim there was an extraordinary reference to some business undertaking concerning its efforts to broker the sale of what was said to be the “largest known private collection of over 2000 extraordinary, one-of-a-kind and rare, (Soviet-era and post-Soviet era) original fine art paintings”. Incidentally there was no evidence of that enterprise given in the course of the hearing. The notable feature of the objections was that no attempt was made to provide the documents sought by the Commissioner, save and except that partnership agreements were later provided but no original invoices or bank statements or such like were provided. On 4 July 2013 the Commissioner wrote to each of the entities requesting the provision of further information by 25 July 2015. In each case each applicant was asked to provide a transaction listing for sales and acquisitions for the periods in issue together with nominated categories of invoices. Again that request was met by an excuse on Mr Mudge’s part based on this occasion on various medical issues within his family.

7. There was a reminder on 31 July 2013 that ultimately led to a further unsatisfactory response on 20 August 2013 where some information about livestock and fuel usage was provided but ultimately no documents were provided. On 26 September 2013 the Commissioner made the decisions in issue in these proceedings, the decisions to disallow the various objections to the Commissioner’s assessment. Mr Mudge responded to the Commissioner’s correspondence to that effect by letters of 7 October 2013 again offering his “sincerest apology” to the Commissioner, and explaining that he had intended to post “the remaining information” to the Commissioner, but, having received the letters disallowing the various objections,

   … the Director [Mr Mudge] decided not to post the remaining information requested by you.

8. At least in the case of Carawatha, Mr Mudge was told on 31 October 2013 that the decision would be reviewed if he provided by 28 November 2013 the documents that had been received. Nothing further was provided. The proceedings were commenced on 25 November 2013.

9. The matter was made subject of directions requiring first the Commissioner to lodge a Statement of Facts, Issues and Contentions by 2 May and then requiring the applicants within six weeks of receiving the Commissioner’s Statement of Facts, Issues and Contentions to lodge any witness and other evidence on which it intended to rely on at hearing together with Statement of Facts, Issues and Contentions. The direction in relation to the applicant’s material was not met and further time was granted.

10. The matter came on for hearing on 15 September 2014, at which stage, the matter was adjourned on the footing that Mr Mudge had lodged a vast number of documents which the Commissioner had not, at that time, had an opportunity to consider. The matter was adjourned for a resumed hearing on 15 December 2014. The hearing proper commenced then Mr Mudge gave evidence and was cross-examined. The hearing was adjourned for the following day. After lunch on the second day of hearing, that is 16 December 2014, Mr Mudge did not return to the hearing, having sent an email to the Registry complaining of having eaten something that had caused him to be sick at lunch and, in a somewhat high-handed manner, declaring he was unable to return and asked for the matter to be adjourned.

11. The matter was then listed for further hearing on 27 and 28 April 2015. At the conclusion of the hearing, directions were made that the Commissioner lodge and serve an outline of submissions by 4pm on 1 June 2015, that the applicants lodge and serve an outline of submissions by 4pm on 10 July 2015, the respondent lodge and serve submissions in reply by 20 July 2015 and the matter be listed for a resumed hearing today.

12. The Commissioner’s submissions were lodged as directed but nothing was received from Mr Mudge until 11:36pm yesterday evening when Mr Mudge sent to the registry what he described as “Preliminary Comments”. The document provided does not, by any stretch of the imagination, answer the description of submissions. It takes up a theme regarding the structural separation between the appeals and review section and the audit function within the Commissioner’s office. Whatever may be the merits of that, and it has been the subject of some comment by the Inspector General and by a Parliamentary Committee, it has absolutely nothing to do with the issues of this case. After four paragraphs devoted to such matters and the role of policy, Mr Mudge’s submissions continue under the heading, “Other Issues in the [Respondent Commissioner’s Final Submissions]”:

    Because of other competing commitments and the lack of resources, the Applicants did not have time to consider the other issues referred to in the respondent’s final submissions.

    Then at 5:56am today a further email was sent by Mr Mudge, to the Registry. It reads, after misspelling my associate’s name:

    Welcome to Wednesday (22/07/2015).

    We hope you are having a great one. J

    We had a call late last night that my 90 year old mother in Sydney has had a turn and is not well.

    As a matter of urgency, we are travelling to Sydney this morning to be with her and accordingly respectfully request, if possible, to reschedule the (AAT) Hearing to next week or the week after if this is more suitable to the AAT.

    Any inconvenience caused is sincerely regretted.

    Thanking you for your consideration of our request and your much valued time and effort.

    All the best for a great day. J

    For reasons that escape me, Mr Mudge has signed it with his name, his wife’s name and an affectionate patronym for his child.

13. Unsurprisingly, the Commissioner opposes the adjournment, on the footing that the matter has already been much delayed and on the footing that Mr Mudge has had every opportunity to put before the Tribunal any submissions he wishes. I entirely agree that the matter should not be adjourned; no adequate reason is given to adjourn the hearing which has been set down now for some months. The claimed reason, travelling to Sydney to be with Mr Mudge’s ill mother, is not sufficient reason when one assumes Mr Mudge could just have easily have attended to the illness of his aged mother in Sydney at the conclusion of the hearing today. Moreover, and as I will explain, I regard the underlying application as entirely lacking in merit. Accordingly, I refuse the application for an adjournment.

14. The position then is that Mr Mudge has failed to attend; he has, as well in my view, failed to comply with the direction to lodge submissions. The document that was lodged was not lodged within the time directed, it does not amount to submissions going to the merits; indeed, it concedes that more submissions might have been made if Mr Mudge had more time and further opportunity. As it seems to me, Mr Mudge and the various applicants have failed within a reasonable time to proceed with the applications and have failed to comply with a direction. In those circumstances, I propose to dismiss the applications under section 42A(5) of the Administrative Appeals Tribunal Act 1975 (Cth).

15. I do it informed by the view I already have as to the underlying merits. As I said in the course of discussion with Counsel for the Commissioner, Ms Wheatley, the task originally set for Mr Mudge was relatively straight forward. Now, in excess of two years after he was first requested, and, after the conclusion of four days of evidence, he still has not produced any of the source documents that were originally sought nor the most basic documents that one would expect a partnership or a company, a fortiori, one operated by someone who claims to be a certified public accountant, a registered tax agent, with a Bachelor of Business, diplomas in corporate governance, applied corporations law, financial planning and law.

16. Fundamentally, there is a complete and abject failure in the hearing to produce any of the evidence that would demonstrate the incurring of expense in acquiring a creditable acquisition. Beyond that, the evidence demonstrating that the two partnerships were carrying on business was entirely unconvincing and, if I may say, Mr Mudge was, at its kindest, a most unimpressive witness. He constantly prevaricated, he constantly answered questions other than those asked of him, he constantly changed the subject when asked the numerous hard questions that needed to be asked of him. Had I been of the view that there was any discernible merit in the underlying applications, I may have been minded to grant the request for adjournment or allow further time to put in submissions. In circumstances where I have a clear view on the complete lack of merit in the underlying application and a very adverse view of the credibility of Mr Mudge, it seems to me it would be wrong to adjourn the matter or to allow further time, and appropriate in those circumstances to dismiss the proceedings, as I say under s 42A(5), rather than take up further time in explaining in greater detail why the proceedings lack merit.

I certify that the preceding 16 (sixteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President PE Hack SC

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Associate

Dated 23 July 2015

Dates of hearing	15 September 2014, 15-16 December 2014, 27-28 April 2015, 22 July 2015
Applicants	In person
Counsel for the Respondent	Ms A Wheatley
Solicitors for the Respondent	ATO Review and Dispute Resolution