Singh and Commissioner of Taxation (Taxation)

[2021] AATA 2125

Singh and Commissioner of Taxation (Taxation) [2021] AATA 2125 (15 June 2021)

ReviewNumber:       2019/6298

Division:SMALL BUSINESS TAX DIVISION

File Number(s):      2019/6298 and 6302

Re:Amandeep Singh

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Senior Member Dr N A Manetta

Date:15 June 2021

Place:Adelaide

The Tribunal sets aside the decision under review and remits the matter for reconsideration by the respondent in accordance with these reasons.

........................[SGND].............................

Senior Member Dr N A Manetta

TAXATION – A New Tax System (Goods and Services Tax) Act 1999 ­– road transport business – ITCs claimed – no supporting invoices or alternatively inadequate invoices – ITCs properly disallowed in these circumstances – business set up from the outset with no adequate record-keeping system – accountant making claims on the basis of inadequate documentation furnished to him – recklessness shown on the evidence before the Tribunal – penalties properly imposed

Legislation

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

Taxation Administration Act 1953

REASONS FOR DECISION

Senior Member Dr N A Manetta

1. This is an application by Mr Amandeep Singh[1] seeking a review of decisions taken by the respondent in respect of Mr Singh’s conduct of a freight transport business. In essence, the dispute concerns the disallowance by the respondent of certain amounts claimed by Mr Singh as input tax credits (or ITCs) in the conduct of the business.  The period under review begins in the quarter 1 July to 30 September 2014 and terminates in the quarter 1 July to 30 September 2017.  Input Tax Credits are a well-understood feature of the GST regime imposed under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).  Essentially, the ITCs represent the amount of GST said by Mr Singh to have been paid by him in the conduct of his business, which he is entitled to offset against GST he has collected from customers.

   [1] It was filed electronically on 3 October 2019.

2. A series of “shortfalls” was identified during an audit conducted by the respondent (totalling $206,509).  These shortfalls represent ITCs claimed by Mr Singh but not substantiated, in the respondent’s opinion, by appropriate documentation.  Total penalties amounting to $123,905.40 were initially imposed in respect of the shortfalls. At objection stage, Mr Singh was partially successful and the aggregate “shortfall” was reduced to $170,731, while the aggregate penalties were reduced to $68,021.  These shortfall and penalty amounts are summarised in Exhibit R5 as well as Annexure A to the respondent’s Statement of Facts Issues and Contentions. 

3. The objection decision and the detailed reasons for the decision appear at pp 8ff of Exhibit R1[2].  The ITCs that remained disallowed after the objection decision concern two types of payments Mr Singh has alleged he has made in the running of his business.  First, the ITCs concern alleged purchases by Mr Singh of capital items where invoices and receipts have not been kept and furnished to the respondent to substantiate them.  Secondly, the ITCs concern alleged payments to independent contractors who were engaged by Mr Singh as drivers to transport goods for him in connection with his business.  These drivers furnished documents in respect of their services that Mr Singh maintains are invoices, but they have been rejected by the respondent as inadequate.

   [2] Exhibit R1 comprises the so-called “T” documents required to be filed in the Tribunal by the respondent.

   ESSENCE OF DISPUTE

4. At base, therefore, the dispute between the parties concerns the adequacy of documentation maintained by Mr Singh in respect of the ITCs he has claimed.  The respondent’s position is that the documentation in question is either lacking entirely, or, where it exists, it is manifestly inadequate and does not meet prescribed statutory requirements. As a consequence, the respondent has disallowed a number of ITCs claimed by Mr Singh. The respondent has also imposed penalties in respect of the disallowed ITCs.  At the hearing before me, Mr Singh represented himself; Mr Toth appeared for the respondent.

   STATEMENT OF CONCLUSION

5. I accept the respondent’s contentions in this matter.  I shall, however, set aside the decision and remit the matter to the respondent for a final recalculation of the amounts owing by Mr Singh in accordance with these reasons. I was invited to take this course by Mr Toth, who indicated that the respondent was prepared to allow further sums in Mr Singh’s favour (as outlined at Exhibit R5) because the respondent was satisfied that certain further amounts claimed by Mr Singh as ITCs were in fact incurred by him, although there was inadequate supporting documentation. I am prepared to act on this concession by the respondent as it favours Mr Singh.

   BACKGROUND FACTS AND REASONS

6. Below I set out the background facts and my reasons.  As I have said, Mr Singh was involved in a road transport business in the relevant period.   The business was conducted by Mr Singh personally (and also, as I understand matters, through a corporate entity known as Dasmesh Transport Pty Ltd).  The business relied on the services of independent drivers to fill orders received by Mr Singh for the transport of goods from members of the public. Mr Singh had also made a number of capital purchases on which he maintained he had paid GST and was entitled to an ITC. 

7. Mr Singh registered himself as a sole trader for GST purposes in July 2006.  He accounted on a cash basis, reporting quarterly. 

8. It is clear to me that Mr Singh set up the business from the outset with no reliable system of record-keeping.  No-one involved in the business, including Mr Singh himself, had any substantial business experience or an informed understanding of GST regulatory requirements; nor would it appear that basic record-keeping was undertaken.

   Capital purchases

9. So far as the disputed capital purchases are concerned, these were dealt with, at the objection stage at paragraphs [10], [15] and [16] of the objection decision (see Ex R1 at pp 11-12).  The respondent has not allowed an ITC where Mr Singh has been unable to provide to the respondent invoices to substantiate the claimed purchase.

10. My conclusion in respect of the disallowed capital purchases is that in the absence of an invoice and proof of payment, Mr Singh was not eligible to claim an ITC.  That evidence has not been provided to me by Mr Singh.  In my opinion, it ought to have been self-evident to Mr Singh from the outset that he needed to retain invoices and receipts to evidence substantial ITC claims.  Given the significant capital investment in the enterprise and the number of drivers engaged, it is surprising that Mr Singh did not ensure that he retained appropriate records in relation to all capital purchases to substantiate any ITC he wished to claim.

    Invoices from drivers 

11. So far as his engagement of independent contractors is concerned, Mr Singh, for the most part, hired Punjabi-Australian drivers, who, I infer, were working essentially as freelance contractors. I infer also that Mr Singh was able to communicate well with these drivers in their first language.  In order to claim an ITC in relation to the services provided by these drivers, Mr Singh needed to ensure that the drivers furnished him with proper invoices for their services.

12. I note that Mr Singh has chosen to operate his business by engaging independent contractors who would provide him with a taxable supply.  It was Mr Singh’s obligation to ensure that these drivers provided him with adequate documentation in respect of the provision of their services if he wished to claim an ITC.

13. Section 29–70(1) of the GST Act details the requirements that an invoice must meet in order to support a claim for an ITC. Amongst other things, such an invoice must give the supplier’s identity and the supplier’s Australian business number (or ABN). The invoice must also indicate what is supplied (including the price of what is supplied) and the extent to which the supply is taxable. The date of the document should be indicated, and the amount of GST payable in relation to the supply to which the document relates. It must also be clearly ascertainable from the document that it was intended to be a tax invoice.

14. I had in evidence before me copies of a large number of “invoices” provided by drivers to Mr Singh in respect of their services.  These were collected in Exhibit A2.  The first page of Exhibit A2 contains an example of a typed invoice rendered by a driver to Mr Singh. It is a typical document (although I note that some of the other typed invoices do quote an ABN).

15. This invoice is in the following terms:

    Date 10/04/2017 to 16/04/2017

    FROM  KULJEET SINGH RYAT  To

    Dasmesh Transport

HOURS 44 Total inc GST     968

This document is inadequate as a suitable invoice. It does not meet the minimum requirements I have set out above. There is no ABN quoted; the document itself does not appear on its face to be a taxable invoice; there is no indication of what service is supplied or the rate at which it has been supplied or of the amount of GST that has been charged. 

1. Some other invoices in Exhibit A2 are handwritten only and are even more rudimentary. A typical example of a handwritten invoice is as follows:

   08-06-2017

   H S BRAR

   Night work

   GST $750

2. This document is, self-evidently, inadequate as a taxable invoice,.

3. Mr Singh ought to have taken advice, in my opinion, as to the documentation he needed the drivers to supply to him so that he could validly claim an ITC in relation to their services.  It would have been open to him, if he wished, to provide to each of the drivers a pro forma that set out clearly, under headings, the types of information that were required.  He could have required the drivers to fill in their documentation accurately as a condition of receiving their contracted remuneration. From their so-called “invoices”, to which I have referred above, I infer that the drivers may well have been unaware of what the law required of them; or alternatively, if they were aware, they were choosing to ignore the law. 

4. In respect of the conduct of the business, I would also note certain other factors arising from the evidence before me. I accept that Mr Singh lost a very close friend to suicide in 2013.  At that point in time, his parents were concerned that he had fallen into a severe depression and was not coping with the running of his business.

5. Mr Singh’s estranged wife, Ms Sumita Singh, gave evidence before me.  She indicated that she was prevailed upon by Mr Singh’s parents to help out at this time, that is in about 2013 or 2014. I accept this evidence.  She had no business experience, however. She began to run the driver-payment side of the business without any knowledge or practical experience of Australian regulatory requirements in a road-transport business.  As indicated in her statement (Exhibit A4), Ms Singh was “unaware of any contract signed between Company” (that is, Mr Singh’s company) “and its Subcontractors”.  She says further in her statement that she would ensure the invoice-paperwork was received from drivers and retained, but her evidence to me at the hearing confirms that she was not responsible for ensuring the paperwork was adequate in the first place.  In other words, she was “helping out” in an existing business operation given Mr Singh’s mental-health concerns: she was not engaged to advise on or improve existing systems.    

6. I accept Ms Singh’s evidence that she liaised regularly with Mr Singh’s accountant, a Mr Gandhi.  I accept on the evidence before me that Mr Gandhi was responsible for submitting business activity statements in relation to Mr Singh’s enterprise during the relevant period.  I also accept that Mr Gandhi worked from the so-called “invoices” provided to him by Mr Singh’s ex-wife when he prepared the necessary business activity statements (in which the ITCs in question were claimed). I am prepared to assume that Mr Gandhi did not indicate to Mr Singh or Ms Singh that the records that were being provided to him were defective.  I did not hear evidence from Mr Gandhi, but the evidence given by Ms Singh in this regard was not challenged in cross-examination, and I am prepared to act on the assumption that, rather surprisingly, Mr Gandhi did not warn Mr Singh or Ms Singh of the inadequacy of the documentation he regularly received from Ms Singh.

7. Mr Singh submitted to me that he has honestly conducted his affairs and that all ITCs he has claimed were genuine.  The contrary has not been put to me by the respondent.  Mr Singh’s submission misses, however, a fundamental point; namely, that, when claiming an ITC, he had not merely to be honest but had also to comply with regulatory requirements necessary to substantiate his claims.  These requirements are imposed so that claims for ITCs may be readily verified by the respondent’s officers as appropriate. 

8. The evidence before me indicates that the business did not operate in accordance with normal and prudent systems of management from the outset, namely, 2006.  I accept the evidence before me that Mr Singh took his friend’s suicide in 2013 very hard and became depressed.  It is important to bear in mind, however, that when Ms Singh took over the driver-payment side of the business function in these circumstances, she did not downgrade any existing system.  The difficulties in the system, such as it was, were already present.  Ms Singh ensured that the system continued, but she was not engaged to ensure its conformity with regulatory requirements and did not have this expertise in any event.  She was merely helping out, and was asked to do so by Mr Singh’s parents.  The decision to run the business without adequate records was made by Mr Singh at the outset.

9. Mr Singh maintains that some of the tax invoices were valid because they were recipient-created tax invoices (RTCIs). Mr Toth submitted that Mr Singh was not eligible in law to issue any such invoices.  I accept that submission.  The circumstances in which road-transport operators are entitled to issue RCTIs are limited.   Furthermore, I do not accept that any of the invoices I have seen meet the specified criteria for recipient-issued invoices.  I do not need to take this aspect of the matter further.

10. I do not accept Mr Singh’s submission to me that the respondent’s officers had an obligation to warn Mr Singh of the inadequacy of his business records after they had earlier audited his business. There is no evidence before me that Mr Singh sought proper advice from competent professionals, or from the respondent, as to the requirements he would have to meet in respect of the conduct of his business when he set it up. In my opinion, it was incumbent on Mr Singh, when he set up such a substantial enterprise, to ensure that he met all regulatory requirements (including requirements imposed by federal taxation laws such as the GST Act). He did not take advice in relation to that matter. I must say that in any event the retention of records as a fundamental aspect of the conduct of his business should have been evident to Mr Singh, and the inadequacy of the “invoices” furnished by the drivers ought also to have been evident to him.

11. I further accept Ms Toth’s submission that, as a matter of law, an applicant in this Tribunal is required to prove his or her case that an assessment is wrong: see 14ZZK of the Taxation Administration Act, 1953.  This statutory burden has not been met by Mr Singh in my opinion.

12. I decide, therefore, that Mr Singh has failed to persuade me that the amounts disallowed by the respondent because they could not be supported by valid documentation (that is by documentation that met prescribed statutory standards) were wrongly disallowed at objection stage.

    Penalties

13. The next questions for me are whether the penalties that have been imposed are appropriate or whether they ought to be remitted in whole or in part.  On the evidence before me, I am satisfied that Mr Singh failed to exercise reasonable care from the outset in the establishment of his business enterprise.  On the evidence before me, it appears that Mr Singh’s accountant, Mr Gandhi, who would work from the invoices that were delivered to him by Ms Singh, did not warn Mr or Ms Singh that the invoices did not meet regulatory requirements.  That is the assumption I am prepared to make, not having heard from Mr Gandhi personally.  On that assumption, my conclusion is that Mr Gandhi’s preparation of the business activity statements based on the invoices was reckless, and not a mere failure to exercise due care.  He ought not to have regularly claimed ITCs on the basis of the invoices that he was given by Ms Singh.  On no reasonable view of the matter could Mr Ghandi have been satisfied as to the adequacy of the invoices that the drivers were providing to Ms Singh.  

14. In addition, Mr Gandhi ought not to have claimed an ITC in respect of any item where no invoice had been provided to him. 

15. As I have said, I am prepared to assume that Mr Gandhi did not warn Mr Singh or Ms Singh of the inadequacy of the documentation provide to him. Mr Singh remains liable, however, to be penalised where his agent has acted recklessly, and not merely carelessly: see s 284-75(6) of the Taxation Administration Act 1953.  Of course, if, contrary to the assumption I have made in Mr Singh’s favour, Mr Gandhi did advise Mr Singh or Ms Singh that the documentation he had been given was inadequate, then, of course, Mr Singh cannot advance ignorance of the regulatory requirements as a reason for reducing the penalties that have been imposed in this matter.

16. Given these findings, I accept the respondent’s contentions in respect of the imposition of the penalties on Mr Singh as set out in its Statement of Facts Issues and Contentions. 

    FORMAL DECISION

17. The respondent has asked me, however, not to affirm the decision under review, but, rather, to set it aside as the respondent is prepared to make a further adjustment in Mr Singh’s favour notwithstanding the absence of supporting documentation.  The amount of the further adjustment, which is substantial, is outlined in Exhibit R5.  I understand it may require final confirmation.  I am prepared to act on this concession in Mr Singh’s favour. 

18. My formal decision, therefore, will be to set aside the decision under review and to remit the matter to the respondent so that it can make further adjustments in Mr Singh’s favour as indicated in paragraph [32] above.  I shall give effect to this in my formal decision by requiring the respondent to reconsider the matter “in accordance with these reasons”.

34.     I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for the decision herein of Senior Member Dr N A Manetta

..................[SGND].......................

Associate

Dated: 15 June 2021

Dates of hearing:	11 March 2021, 22 March 2021 and 29 March 2021
Applicant:	Self-represented
Advocate for the Respondent:	Ingrid Toth, Australian Taxation Office