Sonenco (No 87) P/L v Commissioner of Taxation
[1992] FCA 846
•20 NOVEMBER 1992
Re: SONENCO (NO. 87) PTY. LIMITED
And: COMMISSIONER OF TAXATION
No. N G768 of 1991
FED No. 846
Number of pages - 84
Sales Tax
(1992) Aust Sales Tax Cases 85-164
(1992) 111 ALR 131
(1992) 38 FCR 555
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beaumont(1), Foster(1) and Cooper(1) JJ.
CATCHWORDS
Sales Tax - liability to sales tax on motor vehicles - sales tax avoidance scheme - whether express or implied contract of sale - backdating of documents - conduit intermediaries - whether transactions shams - whether Factors (Mercantile Agents) Act NSW or Sale of Goods Act NSW relevant to passage of title at wholesale stage - whether British doctrine of fiscal nullity relevant to Australian sales tax legislation Sales Tax Assessment Acts Nos. 2, 3 and 7 1930, Factors (Mercantile Agents) Act 1923 (No. 2) NSW, Sale of Goods Act 1923 (No. 1) NSW.
Snook v London and West Riding Investments Ltd. (1967) 2 QB 786,
Gamer's Motor Centre (Newcastle) Pty. Ltd. v Natwest Wholesale
Australia Pty. Ltd. (1987) 163 CLR 236 applied.
W.T. Ramsay Ltd. v Inland Revenue Commissioners (1982) AC 300,
Furniss v Dawson (1984) AC 474, Craven v White (1989) AC 398, Ensign
Tankers (Leasing) Ltd. v Stokes (1992) 1 AC 655, John v F.C.T. (1989) 166 CLR 417 and F.C.T. v Ilbery (1981) 58 FLR 191, considered.
HEARING
SYDNEY
#DATE 20:11:1992
Counsel and Solicitors Mr A. Slater and Mr S. McMillan
for Applicant: instructed by J.W. Walker and
D.K.L. Raphael
Counsel and Solicitors Mr D. Bennett QC with
for Respondent: Dr H. Sorensen instructed by Australian
Government Solicitor
ORDER
THE COURT ORDERS THAT:
The appeal be dismissed, with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
Introduction
BEAUMONT, FOSTER AND COOPER JJ. The question in this appeal in a sales tax matter is whether the appellant, a motor vehicle dealer, is liable to pay sales tax assessed by the Commissioner in respect of the "sale value" of motor vehicles alleged to have been sold by wholesale by the dealer as a "wholesale merchant" in the period 1 February 1981 to 31 May 1982. It is common ground that the dealings now in question were entered into pursuant to a tax "minimisation" scheme. It was held in essence at first instance that the scheme was ineffective and that the appellant was liable for the tax assessed.
The appeal arises in the following legislative context. Generally speaking, Commonwealth sales tax legislation imposes tax upon the last wholesale sale of goods. The legislative scheme is that tax liability falls upon persons who are, or are liable to be, registered under the legislation, viz., manufacturers or wholesale merchants. Here we are concerned only with the position of a wholesale merchant. In particular, by s.3 of the Sales Tax Assessment Act (No. 3) 1930 ("Assessment Act (No. 3)") it is provided that sales tax is payable upon the sale value of goods manufactured in Australia and sold by a taxpayer, not being either the manufacturer of those goods or a purchaser of those goods from the manufacturer. By s.4(1) of that Act, it is further provided that the sale value of goods shall be the amount for which those goods are sold by a registered person, or a person required to be registered, not being either the manufacturer of those goods or a purchaser of those goods from the manufacturer, to an unregistered person or to a registered person who has not quoted his certificate in respect of the purchase of those goods. The Sales Tax Assessment Act (No. 2) 1930 ("Assessment Act (No. 2)") makes similar provision where the goods are sold by the taxpayer who purchased them from the manufacturer. The Sales Tax Assessment Act (No. 7) 1930 ("Assessment Act (No.7)") similarly provides for the payment of sales tax on the sale value of goods imported into Australia and sold by a taxpayer not being the importer of the goods.
The general policy of the legislation was described by Gibbs C.J., Mason, Wilson, Deane and Dawson JJ. in Brayson Motors Pty. Ltd. (In liq.) v Federal Commissioner of Taxation (1985) 156 CLR 651 (at 657):
"(The) general policy (of the sales tax legislation) was and is to levy a tax upon all goods after they are imported into or produced in Australia and before they reach the consumer. It was not intended that the retail price of goods should be increased by the incorporation in it of more than one amount of tax or that the retail sale itself should attract tax. It was, however, intended that they should be taxed at their full wholesale value. That being so, the policy of the legislation was and is that sales tax should, in the ordinary case, be a tax upon the last wholesale sale."
Their Honours went on to refer to certain aspects of the underlying legislative policy (at 657-8):
"The first is that sales tax was intended to be a tax upon all imported or locally manufactured goods. The second is that it should be levied upon the last wholesale sale and not upon sale by retail. ... Implicit in those two aspects of the underlying legislative policy is a third which warrants express mention. It is that, in the words of Dixon J., sales tax was to be 'a tax levied upon one only of the transactions which commonly take place in respect of goods before they reach the consumer after they are imported into or produced in Australia'."
THE ORDERS THE SUBJECT OF THE APPEAL
5. The appellant, Sonenco (No. 87) Pty. Ltd. (formerly known as McLeod Investments Pty. Ltd.), appeals from orders made by a Judge of the Court declaring that it was liable to pay the sales tax assessed by the Commissioner, which included a substantial sum of additional tax pursuant to s.29 of the Sales Tax Assessment Act (No. 1) 1930.
THE PROCEEDINGS AT FIRST INSTANCE
6. In order to understand the nature of the complex issues which arise on the appeal, it will be necessary to explain, in some detail, the course of proceedings at first instance.
THE CASE PLEADED BY THE APPELLANT
7. By its amended statement of claim, the appellant made the following allegations:
"2 Between 1 February 1981 and 31 May 1982 ('the relevant period') the (appellant) carried on a business inter alia of selling motor vehicles by wholesale. 3 During the relevant period the (appellant) sold a number of vehicles ('the subject vehicles') particularised hereunder.
Particulars
The subject vehicles comprise the vehicles referred to in the assessments particularised in Paragraph 7 hereof.
4. Each of the subject vehicles was purchased from the
(appellant) by Ronald James Hopkins...trading as 'Ron Hopkins Wholesale'.
5. (Hopkins) was the holder of a sales tax certificate no. 2 434 096 ('the certificate').
6. On the occasion of the sale of each of the subject vehicles (Hopkins) quoted to the (appellant) the sales tax certificate no 2 434 096 and represented that he was the holder of that certificate. 6A Alternatively the (appellant) neither purchased nor sold any of the subject vehicles.
7 The (Commissioner)
(a) has asserted that on the sale by the (appellant) of the subject vehicles the (appellant) became liable to pay to the (Commissioner) sales tax pursuant to Sales Tax Assessment Act (No 7) 1930
(b) Has issued to the (appellant) assessments ('the disputed assessments') of sales tax in respect of the subject vehicles.
Particulars
Assessment under s 10(2A) of Sales Tax Assessment Act (No 3) in a total amount of tax and additional tax of $2,658,960 and assessment under s 10(2A) of Sales Tax Assessment Act (No 7) in a total amount of tax and additional tax of $74,126.82, each of which is dated 18 November 1982, and of each of which one half comprises additional tax under s 10(2B) of the relevant Act.
8 The (Commissioner) contends and the (appellant) denies that the (appellant) is liable for sales tax in the amounts specified in the disputed assessments by reason of the sale by the (appellant) of the subject vehicles."
The appellant sought the following relief: "1 A declaration that no sales tax is or was payable by the (appellant) in respect of the sale by the
(appellant) of the subject vehicles 2 A declaration that the (appellant) is not liable to pay the tax notified in the disputed assessments."
THE STATEMENT OF FACTS, ISSUES AND CONTENTIONS PRESENTED AT FIRST INSTANCE
8. Although both parties adduced other evidence, to be mentioned later dealing with the facts which were in dispute, a statement of facts, issues and contentions was presented by the parties to the primary Judge which was in these terms:
"REVISED AGREED STATEMENT OF FACTS, ISSUES AND CONTENTIONS
FACTS
1. Before February 1981 the (appellant) was a dormant company. At that time, the ordinary course of dealing in motor vehicles purchased by customers of McLeod Ford (Pty. Ltd.), another company controlled by Mr M.W. McLeod) was as follows:
1.1. The customer placed an order with or made an offer to McLeod Ford.
1.2 McLeod Ford (then or, in the case of stock vehicles, earlier) placed an order with Ford Motor Co.
1.3 Ford Motor Co sold vehicles to Citicorp Wholesale Pty Ltd ('Citicorp') under quotation of Citicorp's sales tax certificate. 1.4 Citicorp bailed the vehicles to McLeod Ford. 1.5 Immediately before the sale to the customer, Citicorp sold the vehicle (for the wholesale price plus sales tax) to Ford Sales Co. 1.6 McLeod Ford as agent for Ford Sales Co. sold the vehicle to the customer.
2. In February 1981 Mr McLeod (the controller of the appellant) on legal advice that it was permissible for him to do so, caused companies under his control to enter into a plan designed to reduce the incidence of sales tax upon the vehicles. The plan required participation by the (appellant) (activated for the purpose) and another McLeod company, Trad Pty Ltd, as well as McLeod Ford. The other party to the plan was Ron Hopkins Wholesale (an organisation which was at arms' length from the McLeod Group, hereafter 'Hopkins').
3. On 20 February 1981 (the appellant) and Citicorp entered into a bailment agreement (the terms of which are set out later in these reasons).
4. According to the design of the plan the course of dealing in motor vehicles purchased by customers of McLeod Ford was as follows:
4.1 The customer placed an order with or made an offer to McLeod Ford.
4.2 The (appellant) (then or, in the case of stock vehicles, earlier) placed an order with Ford Motor Co. for the vehicle.
4.3 Ford Motor Co. sold the vehicle to Citicorp under quotation of Citicorp's Sales Tax Certificate.
4.4 Citicorp bailed the vehicle to the (appellant). 4.5 The (appellant) purchased the vehicle from Citicorp a few days before delivery to the customer.
4.6 The (appellant) notified Hopkins of the proposed purchase by the customer.
4.7 The (appellant) borrowed from Trad 99% of the purchase price payable to Citicorp. Under the plan, the vehicle thereby became subject to a charge for that amount in favour of Trad. 4.8 Hopkins placed an order for the vehicle with the
(appellant), and quoted its sales tax certificate on the order.
4.9 The (appellant) sold the vehicle to Hopkins, subject to a charge and for a price of 1% of the wholesale price payable to Citicorp. 4.10 Hopkins sold the vehicle to McLeod Ford for a slightly lower price, plus sales tax on that price, and again subject to the charge. (Emphasis added)
4.11 McLeod Ford repaid the debt due to Trad and the vehicle was released from the charge. 4.12 McLeod Ford sold the vehicle to the customer for the retail price.
5. The (appellant) says (but the (Commissioner) does not admit) that Mr McLeod arranged with the promoters of the plan for documentation passing between the McLeod companies and Hopkins to be delivered daily. The documentation was in part prepared by the promoters, on the basis of information given to them by McLeod staff, and in part prepared by McLeod Ford staff.
6. Between February 1981 and May 1982 customers of McLeod Ford purchased (certain specified) vehicles ('the plan vehicles')... Citicorp was not notified of or paid in respect of the vehicles until some days had elapsed after each customer's purchase.
ISSUE
7. The issue between the parties is whether the plan vehicles were, as the (Commissioner) contends, sold by the (appellant) to McLeod Ford for the wholesale price paid to Citicorp.
CONTENTIONS
8. The (Commissioner) contends that:
8.1 The loans from Trad to the (appellant) and the supporting charges over the plan vehicles were shams.
8.2 The sales of plan vehicles by the (appellant) to Hopkins and by Hopkins to McLeod Ford were shams, either in their own right or consequentially on the preceding subparagraph. 8.3 The true nature of the relevant transactions was sales of the plan vehicles by the (appellant) to McLeod Ford.
8.4 Such sales were the last wholesale sales of the plan vehicles, thus creating a liability for sales tax in the (appellant). 8.5 Alternatively, if the transactions were real transactions such that the plan vehicles were sold by the (appellant) to Hopkins under quotation of a sales tax certificate, the loans involving Trad and the sales to and by Hopkins were void against the (Commissioner) by reason of the doctrine of fiscal nullity and their avoidance leaves exposed sales of the plan vehicles by the (appellant) to McLeod Ford for the wholesale price paid to Citicorp. 8.6 The conduct of the parties before February 1981 was such as to treat the transactions set out in paragraph 1 as sales rather than bailments so that there was, notwithstanding the documentation, a sale by Ford Motor Co. to McLeod Ford which itself sold to the customer. 8.7 The conduct of the parties after February 1981 in relation to the bailment plan of 20 February 1981 was such as to treat the transactions as sales rather than bailments so that there was, notwithstanding the documentation, a sale by Ford Motor Co to McLeod Investments which then sold the vehicles to McLeod Ford.
9. The (appellant) contends that -
9.1 Mr McLeod and the companies under his control, including the (appellant), intended that all the steps in the plan should be real transactions and that the plan (for the benefit of which they paid large sums of money to the promoters) should work according to its design; and accordingly contends that the plan and the steps therein were none of them shams. 9.2 The (appellant) made no sales of the plan vehicles except such if any sales as were made under quotation to Hopkins.
9.3 Alternatively if (as is denied by the
(appellant)) the steps taken by the McLeod companies under the plan were shams, the sham necessarily extended to the whole plan including the participation of the (appellant) and the acquisition and sale of vehicles by it. 9.4 There is no doctrine of fiscal nullity in Australian revenue law.
9.5 Alternatively if there is an applicable doctrine of fiscal nullity it strikes down the whole of the plan including the acquisition and sale by the (appellant) of the plan vehicles."
THE BAILMENT AGREEMENT BETWEEN CITICORP AND McLEOD INVESTMENTS dated 20 February 1981
9. As has been noted, the bailment agreement made by Citicorp Wholesale Pty. Limited ('Citicorp') and the appellant (there described as "the bailee") was dated 20 February 1981. In this agreement, it was recited that Citicorp carried on the business of a wholesale merchant and might from time to time have goods available for sale of which it might permit the appellant to have custody with a view to their eventual purchase by "the retail distributor". Earlier in the agreement, the appellant was described as "a wholesale trader associated with Ford Sales Company of Australia Ltd. ('the retail distributor')."
By cl 2 of the agreement, it was provided that Citicorp might from time to time approve of the appellant ordering goods on its behalf under the agreement. Special provision was made for imported goods, but otherwise it was provided that the appellant was to take delivery of the goods "ex the premises of the supplier".
By cl 4, all goods ordered in accordance with the approval granted by Citicorp were to be purchased from the manufacturer or wholesale distributor in the name of, or on behalf of, Citicorp which was to quote its sales tax registration certificate as prescribed pursuant to the Sales Tax Assessment Acts and was to make payment of the price.
By cl 8, which is important for present purposes, it was relevantly provided as follows:
"(a) ...it is understood that the (appellant) may place any goods on the floor of the retail distributor which...may from time to time seek to obtain (but not as agent for (Citicorp) or the (appellant)) offers to purchase the goods... The (appellant) shall advise or arrange for the retail distributor to advise
(Citicorp) from time to time of receipt of any such offer. (Citicorp) may in its entire discretion sell the goods to the (appellant) by wholesale ex the premises of (Citicorp) and the (appellant) may quote in respect of his purchase of the goods his sales tax certificate. Nothing contained herein...shall imply that either the (appellant) or the retail distributor has any interest in or option over the goods which shall remain at all times the property of (Citicorp) (unless and until sold to the (appellant) as provided above) and the existence of any such interest or option is hereby denied and neither the (appellant) nor the retail distributor shall have any right or authority to sell dispose of or part with possession or custody of the goods or create or authorise the creation of any lien thereon...
(b) If the retail distributor in anticipation of the ultimate purchase of the goods by him from the
(appellant) obtains from a customer a sum equal to the retail purchase price or a hire purchase offer in respect of the goods, and delivers the goods to the customer, the title to the goods shall upon sale thereof by (Citicorp) to the (appellant) be deemed to have passed to the (appellant) immediately before but on the same day of such delivery PROVIDED THAT
(i) Nothing contained herein shall oblige (Citicorp) to sell to the (appellant) or oblige the Guarantor or any subsidiary to accept a hire purchase offer in respect of the goods;
(ii) in the absence of evidence to the contrary,
(Citicorp) may treat the date of registration of the goods...as conclusive evidence that the vehicle was delivered to the customer on that date."
THE FINDINGS OF FACT AT FIRST INSTANCE
13. The findings of fact made by the primary Judge may be summarised as follows:
(1) Originally, there were three companies involved in the distribution chain: (a) Ford Motor Co., the manufacturer or importer; (b) McLeod Ford as retail distributor; and (c) Citicorp. McLeod Ford ordered vehicles from Ford Motor Co. which were delivered to McLeod Ford. However, title passed from Ford Motor Co. to Citicorp and the vehicles were treated as bailed from Citicorp to McLeod Ford. Title passed from Citicorp at the time of the sale to the customer. Citicorp paid sales tax on the footing that there was a sale from it to McLeod Ford, being the last wholesale transaction.
(2) Mr McLeod arranged with Hopkins that, for an agreed percentage of sales tax saved, Hopkins would "install a tax avoidance structure" whereby Hopkins would acquire title to each vehicle, would subsequently transfer title to McLeod Ford and, on that transfer, would incur any sales tax liability. For the purposes of the scheme, two further companies controlled by Mr McLeod, the appellant and Trad Pty. Limited, were used as follows.
(3) On 20 February 1981, Citicorp entered into the bailment agreement with the appellant mentioned previously. The retail distributing business continued to be carried on by McLeod Ford, but the dealings with Citicorp were undertaken in the name of the appellant. When a vehicle was sold retail, the appellant paid Citicorp the wholesale price and quoted its sales tax certificate so that Citicorp was no longer liable to pay sales tax. The appellant and Trad agreed that, upon notice being given to it, Trad was to lend the appellant 99% of the price payable by the appellant in respect of each vehicle, on security of a charge over the vehicle. Hopkins was then to purchase the vehicle from the appellant, subject to the charge, at a price of 1% of its wholesale value. Hopkins then sold the vehicle to McLeod Ford, subject to the charge, at the price of 1% of wholesale value and paid sales tax on that figure.
(4) However, the conduct of the parties was not in accordance with their documentation. Notice was not given by the appellant to Trad as contemplated in the agreement for charge. When a retail customer ordered a vehicle, although a cheque was drawn by Trad in favour of the appellant for 99% of the wholesale price, the cheque was retained in a drawer. After payment had been received from the customer, the appellant drew a cheque in favour of Citicorp and McLeod Ford drew a cheque in favour of Trad for the same amount as the cheque drawn by Trad in favour of the appellant. The McLeod Ford cheque and the Trad cheque were always passed on the same day. Trad had no assets and no credit facility. McLeod Ford paid .6% of the wholesale price to Hopkins. The balance of .4% was included in a monthly statement which was presented by Hopkins to McLeod Ford for, inter alia, its percentage fee of the tax avoided.
THE CONCLUSIONS OF LAW AT FIRST INSTANCE
14. His Honour's conclusions of law were as follows:
(a) The appellant conceded that Trad did not obtain any security because the notice required by the agreement for charge was not given. Nor would equity assist Trad. Title passed instantaneously through a chain from Citicorp to the retail customer. Trad's cheque was not presented until well after the retail customer had obtained title to the goods and "was invariably countered" with a cheque in payment of Trad. "Everybody involved understood" that Citicorp was the owner of the vehicles until such time as title passed to a customer of McLeod Ford. The creation of a charge was a "figment of the imagination."
(b) Hopkins, which had its operational centre in Tweed Heads, was not capable of matching the quick transfer of title demanded by the fact that Citicorp held title. The learned Judge said:
"There had to be an instantaneous transfer through a chain of title from Citicorp to (the appellant) to, theoretically, (Hopkins) to McLeod Ford, whenever a customer obtained title to a vehicle. (Hopkins) organised a daily pickup of documents from McLeod Ford but (Hopkins) had its operational centre at Tweed Heads. Accordingly, documents had to be sent to (Hopkins), first to Brisbane and from Brisbane to Tweed Heads. There they were collected in bunches until they were processed. Employees of (Hopkins) Wholesale from time to time created documents, mainly backdated, purporting to show what had happened."
(c) There was no effective sale by the appellant to Hopkins because (i) the documentation did not keep up with the transactions; and (ii) there was no basis for the equitable charge to Trad and there was "a fundamental mistake of fact which affected the arrangement" (between McLeod Ford and Hopkins). Thus, it was never agreed that the appellant would sell the totality of the interest in a vehicle to Hopkins for 1% of its wholesale value.
(d) Alternatively, even if there were a valid sale of a proposed 1% beneficial interest in a vehicle, such a transaction would not constitute a sale of goods for the purposes of sales tax legislation.
His Honour said:
"The...legislation is not concerned with particular interests in goods, but with the process from the manufacture or importation to the ultimate sale of goods to a consumer. And it is concerned to see that, however goods pass through that process, one or other of the Assessment Acts will apply and sales tax will be levied upon the final wholesale value of the goods."
He went on to say:
"...it would be wrong to treat the sale to (Hopkins) as the relevant sale when the plan proposed that Trad would take a 99% interest in the goods by virtue of an equitable charge and that that interest would merge with or form part of the total interest in the goods with which the retail distributor dealt. Title was to pass from (the appellant) in two steams to be reunited in McLeod Ford so that McLeod Ford could sell the vehicle to its customer. Neither the purported creation of the equitable charge nor the purported sale of the remaining interest in the goods to (Hopkins) were relevant wholesale dealings for the purposes of the Assessment Acts, even were they effective. They were, for sales tax purposes, merely conduits by which the title passed from (the appellant) to McLeod Ford, which was the relevant transaction for sales tax purposes."
His Honour further held that the price of the interest sold to Hopkins was not, for sales tax purposes, "the amount for which those goods are sold." He said:
"If the goods are sold by a wholesaler subject to a mortgage or a charge and the purchaser undertakes, in addition to paying the stipulated purchase price, to pay the sum due under the mortgage or charge, then the amount for which the goods are sold includes the amount of that part of the consideration."
His Honour concluded that the amount for which the appellant sold the goods -
"...was constituted by the price which it received from
(Hopkins) and the cheque which it received from Trad. Both
(Hopkins) and Trad were reimbursed by McLeod Ford for the whole of the sums which they paid to (the appellant). Accordingly, the amount for which the goods were sold by (the appellant) was the full wholesale price of the goods and that price was paid by McLeod Ford via the conduits of
(Hopkins) and Trad."
(e) The Judge further held, contrary to a submission made on behalf of the Commissioner, that the bailment plan was not a sham. The Commissioner had sought to rely upon the failure of the parties to observe the notification procedures contemplated by cl 8(a). His Honour, however, found that the provisions of cl 8(b) described "in substance, though somewhat inexactly, what the parties had in mind as a matter of practice." He said that he was satisfied that the parties proceeded on the footing that there would be a sale from Citicorp to the appellant and that the sale would take place "at the same time as but at the instant before" the transfer of title from McLeod Ford to the customer.
(f) His Honour also rejected an argument advanced on behalf of the appellant that, even if title might pass from McLeod Ford as a mercantile agent in possession (by virtue of the operation of s.5(1) of the Factors (Mercantile Agents) Act 1923 (N.S.W.)) it did not follow that this was a "sale" for sales tax purposes.
He said:
"Secondly, (counsel for the appellant) submitted that, whenever title passed by the operation of s.5(1) of the Factors (Mercantile Agents) Act 1923 (NSW), there was no sale for the purposes of the Sales Tax Assessment Acts, for sale is consensual while, under the Factors (Mercantile Agents) Act, title passes by the operation of the statutory provision. McLeod Ford was, of course, a mercantile agent and had possession of motor vehicles for the purpose of sale and authority to sell the goods. But even if the terms of the bailment plan with Citicorp were different from and inconsistent with s.5(1) of the Factors (Mercantile Agents) Act, so that from time to time title did pass to the customer under the operation of s.5(1), I would not regard that fact as establishing that there was no relevant transaction of sale for sales tax purposes. The relationship between Citicorp, McLeod Investments and McLeod Ford encompassed the operation of s.5(1) of the Factors (Mercantile Agents) Act. Indeed, the bailment plan into which McLeod Investments and Citicorp entered must be read in the light of the intent and operation of that section."
(g) Finally, his Honour referred to a practice, undertaken for warranty purposes, that on the retail sale of a motor vehicle, title in the vehicle passed from McLeod Ford to one of the Ford companies, Ford Sales Co. and from Ford Sales Co. to the customer who dealt with McLeod Ford. He said:
"The evidence does not make it clear whether this arrangement continued during the period with which we are concerned. I note that the Citicorp bailment plan named the retail distributor as Ford Sales Co., so perhaps the practice continued. It makes no difference to the issues with which we are concerned. I therefore intend my references above to 'McLeod Ford' to encompass any part which Ford Sales Co. may, for warranty purposes, have played in the distribution network."
THE APPELLANT'S GROUNDS OF APPEAL
20. By its notice of appeal, the appellant contends that his Honour erred in holding that it was liable to pay the sales tax. The following grounds of appeal are relied on:
"3. His Honour erred in not holding that there was no sale of the subject vehicles by the Appellant and should have held
(a) that the Appellant never obtained title to the subject vehicles;
(b) that the Appellant did not sell the subject vehicles;
(c) that title to the subject vehicles passed from
(Citicorp) to the retail customers (or to their financiers) pursuant to the operation of the Factors (Mercantile Agents) Act 1923 (NSW);
(d) in consequence there was no taxable sale by the Appellant in respect of the subject vehicles.
4. Alternatively his Honour erred in not holding that the subject vehicles were sold by the Appellant, if at all, only to (Hopkins) and were so sold subject to quotation by (Hopkins) of his sales tax certificate, so that the subject vehicles had, in relation to any sale by the Appellant, no sale value; and further his Honour erred in holding
(a) that there was a 'fundamental mistake of fact which affected the arrangement';
(b) that the dealing between the Appellant and
(Hopkins) was void;
(c) that 'it would be wrong to treat the sale to
(Hopkins) as the relevant sale';
(d) that 'title was to pass from (the Appellant) in two streams to be reunited in McLeod Ford';
(e) that 'the amount for which the goods were sold by (the Appellant) was the full wholesale price of the goods and that price was paid by McLeod Ford via the conduits of (Hopkins) and Trad';
(f) so far as his Honour so held, that documents prepared by (Hopkins) in respect of the subject vehicles were backdated."
THE COMMISSIONER'S NOTICE OF CONTENTION
21. The Commissioner gave notice that, on the appeal, he proposed to contend as follows:
"1. The loans from (Trad) to the Appellant and the supporting charges over the plan vehicles were shams.
2. The sales of plan vehicles by the Appellant to
(Hopkins) and by (Hopkins) to McLeod Ford were shams, either in their own right or consequentially on the preceding paragraph.
3. Alternatively, if the transactions were real transactions such that the plan vehicles were sold by the Appellant to (Hopkins) under quotation of a sales tax certificate, the loans involving Trad and the sales to and by (Hopkins) were void against the Respondent by reason of the doctrine of fiscal nullity and their avoidance leaves exposed sales of the plan vehicles by the Appellant to McLeod Ford for the wholesale price paid to (Citicorp)."
THE EVIDENCE AT FIRST INSTANCE
22. By reason of the complexity and nature of the arguments advanced on the appeal and in lengthy written submissions made by counsel, it will be necessary to refer, at length, to the details of the material evidence given at the trial.
(1) The evidence called by the appellant
(a) The evidence of Maxwell William McLeod
(i) Mr McLeod's affidavit sworn 25 May 1987
By his affidavit sworn 25 May 1987, Mr McLeod, a director of the appellant, Lemdopa Pty. Limited (formerly known as McLeod Ford Pty. Limited) and of Trad, gave the following evidence.
(A) In February 1980, Kenneth John Gordon (apparently representing Hopkins) advised Mr McLeod that his organisation had "an arrangement whereby motor dealers are able to legally minimise sales tax payable on motor vehicles". However, the matter proceeded no further at that stage.
(B) The matter was further discussed by Mr Gordon and Mr McLeod in December 1980 and in January and February 1981. In the course of these discussions, Mr Gordon said that if McLeod Ford were to purchase vehicles from Hopkins at a reduced price, "to take into account that the vehicles are subject to an encumbrance, sales tax will be legally levied on this lower price". Mr Gordon provided a diagram illustrating the proposed arrangements. The diagram mentioned an entity using the name "Mensara", being a reference to a company proposed by Mr Gordon as the "McLeod Group Wholesale Company". Mr Gordon said that each time Mensara wished to purchase a car, Trad would lend to Mensara 99% of the purchase price of the car. That loan would be secured by a charge over the car. Mensara would then pay out the floor plan agreement to Citicorp and obtain title to the car. Mensara would then sell the car (subject to the charge to Trad) to Hopkins who would quote his sales tax certificate. The sale would take place when Hopkins gave Mensara his order for the car and received Mensara's invoice. No sales tax would be payable in respect of that sale. Hopkins would then sell the car (still subject to the charge) to McLeod Ford who would pay out the encumbrance. Sales tax would be paid in respect of this sale. The car would then be sold by McLeod Ford to a customer.
(C) Mr Gordon also said that his organisation would telephone the appellant daily to get details, so that Trad could make its loan to Mensara and Hopkins could sell to McLeod Ford who could then pay Trad the following day before the car would be delivered to the customer on the third day. Mr Gordon's organisation would have a courier service to collect the appellant's documents each morning and give the appellant his organisation's documents at the same time. They could "sort out" the cash movements once a month.
(D) In February 1981, Mr McLeod, having taken professional advice, informed Mr Gordon that his group was prepared to proceed with the arrangements proposed. Dealings commenced shortly after.
(E) Mr McLeod described the procedures adopted as follows:
(1) The appellant did not sell by retail but only by wholesale. Retail sales were made by McLeod Ford. When a customer of McLeod Ford ordered a car there was invariably a delay between the customer's order and delivery, the extent of the delay depending on the specification ordered and the availability of the stock held by the appellant. If the car ordered was a particular car in the showroom or on the appellant's lot, the delay was only for three days while the vehicle received pre-delivery servicing; but if the customer required the fitting of accessories or ordered a car not in stock, the delay was longer, depending on the time it took Ford Motor Co to provide a car as ordered. It was the practice of McLeod Ford to obtain from the customer a signed order before taking any further steps toward meeting the order.
(2) When a signed order from the customer was obtained the staff of the appellant either: (if the vehicle was in stock) prepared a job card on which to record the costs associated with fitting accessories and pre-delivery costs; or (if the vehicle was not in stock) prepared an order to Ford Motor Co directing delivery to the appellant and invoicing to Citicorp. In the latter case a job card was prepared when the vehicle was received at the appellant's premises.
(3) All new vehicles were held by the appellant under a floor plan arrangement. During the period from 24 February 1981 to 30 May 1982 the terms of the floor plan arrangement were those set out in the bailment agreement dated 20 February 1981.
(4) When a customer's order had been received and the vehicle ordered was to become available in stock, the appellant's staff filled out a settlement sheet between the appellant and Citicorp concerning the vehicle. This settlement sheet recorded a description of the car, its identification (SIDO) number, the wholesale amount payable to Citicorp, and a transaction reference number. All vehicles to be acquired by the appellant from Citicorp on a particular day were recorded on the sheet and a cheque for the total amount payable by the appellant to Citicorp was then drawn. The settlement sheet and associated cheque were set aside for collection by Citicorp. Citicorp staff attended the appellant's premises two or three times weekly to collect settlement statements and cheques.
(5) Once the settlement statement was filled out concerning a vehicle, it was the appellant's practice to treat that vehicle as available for delivery and sale to the purchaser from the appellant. Before and after the relevant period, and during that period in respect of tax exempt vehicles, the purchaser from the appellant was McLeod Ford, but during that period other vehicles were sold and invoiced to Hopkins.
(6) The appellant received, by courier from Hopkins, order forms in respect of the vehicles identified. Invoices from the appellant to Hopkins for the same vehicles were prepared by Mr McLeod or Mr David Hughes, another official employed by the McLeod Group, and were handed to the courier for return to Hopkins.
(7) Mr Gordon met at approximately monthly intervals with the appellant's staff to settle the debts arising from the sales by the appellant to Hopkins and by Hopkins to McLeod Ford. On each occasion a list of transactions was prepared and the amounts payable between the parties calculated. A cheque was then drawn by Hopkins and delivered to the appellant in satisfaction of the purchase moneys, and that cheque was deposited to the appellant's account.
(F) Mr McLeod went on to describe a series of transactions involving several vehicles including, for illustration, a Ford Falcon station wagon, identification No. 334901, as follows:
(i) On 10 February 1981, Kentia Pty. limited placed an order in
writing for a Falcon wagon.
(ii) On the same day (10 February 1981) the appellant requested
the Ford Motor Co. to supply a vehicle to the required specification.
(iii) On 20 February 1981, Ford Motor Co. and Ford Sales Co.
shipped the vehicle to the appellant and invoiced Citicorp.
(iv) The appellant paid out the Citicorp floor plan arrangement
on this vehicle in the sum of $7,369.60.
(v) Trad advanced to the appellant $7,295.60 (99% of $7,369.60).
(vi) The appellant received, by courier from Hopkins, order No.
0482, for a Falcon wagon, identification No. 334901.
(vii) The appellant delivered by courier to Hopkins an invoice for
three vehicles (including vehicle No. 334901) for the sum of $224.00, which included $74.00 applicable to vehicle No. 334901 (1% of $7,369.60).
(viii) Hopkins invoiced McLeod Ford in respect of the sale of one
Falcon Wagon, identification No. 334901. The amount of the invoice was $30.00 plus $4.50 sales tax.
(ix) On 5 April 1981, Mr Gordon met with a representative of the appellant and the following payments were then made: (a) McLeod Ford paid to Hopkins an amount of $2,113.25 by cheque (being in respect of purchases in March); and (b) Hopkins paid the appellant an amount of $4,836.00 in respect of purchases of vehicles during the month of March.
(x) Prior to this, on 4 March 1981, McLeod Ford registered the vehicle, identification No. 334901, on behalf of Kentia, which took delivery of the vehicle on 10 March 1981.
(It will have been noted that, in some respects, the date upon which some of these dealings took place has not been stated. In fact, these dates did appear in the affidavit, but when Mr McLeod's affidavit was read, counsel for the Commissioner successfully objected to parts of the foregoing evidence on the basis that it purported to attribute precise dates to each of the procedures described in the affidavit. There was, however, other evidence, in documentary form, of these matters. Some of this material was referred to, inter alia, in a further affidavit by Mr McLeod sworn 3 May 1990.)
(ii) Mr McLeod's affidavit sworn 22 July 1991
25. Another affidavit by Mr McLeod, sworn 22 July 1991, was also read. In it he said that, before February 1981, neither the appellant nor Trad was actively engaged in the business of the McLeod group. Until February 1981, the business was conducted by McLeod Ford, a company incorporated in about 1966 and then jointly owned by Mr McLeod's family and Ford Australia. In about 1970, his family acquired Ford's interest. McLeod Ford then sold cars as agent for Ford Sales Co. but held cars on display under a floor plan arrangement with Citicorp, by which Citicorp bought cars for sale through McLeod Ford from Ford Motor Co. and, immediately before their sale to retail purchasers, sold them to Ford Sales Co.
Mr McLeod said that the business "was chronically short of cash". The principal sources of funds were a bank overdraft (with a limit of $100,000), together with a capital loan of $400,000 and a floor plan facility of $1,600,000, both provided by Citicorp. Mr McLeod said:
"7. To maintain cash flow, it was the usual practice in the management of the business to defer paying creditors for as long as possible. Although Citicorp was supposed to (be) paid within 48 hours of the retail sale of a vehicle, there were special arrangements in relation to government orders and company fleet purchasers. For those orders, which were an important part of the market for Ford motor cars, longer terms (28 days) were allowed. Any transaction of McLeod Ford that could arguably be treated as falling within the 28 day arrangement was so treated, because doing so improved the cash flow of the business: the purchaser had paid McLeod Ford for the vehicle and McLeod Ford had the use of the money until it had to be paid over to Citicorp. ...
9. The main operating account of the business was that of McLeod Ford. Cheques which were drawn by Trad in favour of (the appellant), and by McLeod Ford in favour of Trad, in the manner indicated in my affidavit of 25 May 1987 and in the affidavit of David Hughes of 6 June 1990 (referred to later in these reasons) were generally not banked until it was necessary to put the (appellant's) account in funds to meet cheques drawn by (the appellant) in favour of Citicorp. The cheques from (the appellant) to Citicorp, from Trad to (the appellant) and from McLeod Ford to Trad were drawn on the date they bore but were held, with the associated documents, in the office of (the appellant) until it became necessary to hand the relevant (appellant's) cheque and dealer settlement sheet over to Citicorp. At that time the McLeod Ford and Trad cheques were banked so that there would be funds in the (appellant's) account to meet the cheque in favour of Citicorp."
Mr McLeod described a discussion with Mr Gordon, shortly before his proposal was put into effect, as follows:
"Mr Gordon said to me,
'The basis upon which we normally operate is that we have a monthly settlement'.
I said to him -
'That is no good to me. My advice is that if the plan is to work everything has to be done at the right time and in the right order. I want the documents to be prepared and delivered on a daily basis as each thing happens'.
He said to me -
'Well that will be all right, but you are going to have to bear the courier costs'.
I said -
'That's OK'".
In this affidavit, Mr McLeod referred to a Deed dated 13 February 1981 made between the appellant and Hopkins with recitals and operative provisions as follows:
"WHEREAS
(a) The (appellant) conducts a wholesale business
(b) (Hopkins) may from time to time purchase goods from the (appellant).
(c) The (appellant) has negotiated certain advances in accordance with the terms of a Deed of which a copy is annexed hereto (hereinafter called the 'Loan Agreement')
(d) To secure such advances as are made the (appellant) has agreed to grant an equitable charge over each good acquired.
(3) The parties have agreed to enter into this Deed to record and govern the terms upon which (Hopkins) shall purchase goods from the (appellant). NOW THIS DEED WITNESSETH as follows:
1. Unless otherwise notified by the (appellant) to
(Hopkins) any good sold by the (appellant) to
(Hopkins) shall be subject to an equitable charge created in accordance with the terms of the Loan Agreement AND (Hopkins) shall accept title to each subject to such charge.
2. The purchase price of a good sold by the (appellant) to (Hopkins) shall be calculated having regard to the existence of that equitable charge AND it is expressly provided that (Hopkins) shall have no right of indemnity or contribution in respect of that charge or the liability secured by that charge and (Hopkins) shall have no right of recourse whatsoever against the
(appellant) by reason of any exercise of any power of sale or other remedy by the holder of the charge.
3. (Hopkins) shall not have any obligation to make any repayment of amounts secured by such equitable charge and the (appellant) shall have no right of indemnity from (Hopkins) in respect of its obligation to repay amounts secured by such charge."
The "Loan Agreement" between the appellant and Trad, referred to in the deed between the appellant and Hopkins, was as follows:
"WHEREAS
(a) The (appellant) conducts a wholesale business.
(b) The (appellant) has requested (Trad) to make certain advances to enable the (appellant) to acquire goods.
(c) To secure such advances as are made the (appellant) has agreed to grant an equitable charge over each of the goods acquired.
(d) The parties have agreed to enter into this Deed to record and govern the terms of such advances and equitable charges.
NOW THIS DEED WITNESSETH as follows:
1. The (appellant) shall apply for each advance by delivering to the (Trad) a list which
(a) Specifies or describes goods which the
(appellant) has purchased, has agreed to purchase or intends to purchase AND
(b) Specifies prices at which each good in that list has or will be purchased by the (appellant) (which prices are hereinafter referred to as the wholesale prices)
2. For the purpose of Clause 1 delivery of an invoice addressed to the (appellant) from a supplier of goods to the (appellant) shall be deemed to be delivery of a list.
3. (Trad) may at its option reject or accept any application for advance.
4. Where (Trad) accepts an application for an advance it shall advance to the (appellant) forthwith an amount calculated by multiplying the total wholesale price by the prescribed percentage. For the purpose of this clause the 'total wholesale price' shall be the sum of the wholesale prices on the list delivered in respect of that application and the 'prescribed percentage' shall be the percentage specified in schedule 1.
5. Where (Trad) accepts an application pursuant to clause 4 the (appellant) shall purchase goods satisfying the specification or description of goods in the list delivered in respect of that application PROVIDED THAT where the (appellant) has already purchased goods satisfying that specification or description and retains unencumbered ownership of those goods at the time of acceptance of the application those goods shall be deemed purchased in pursuance of this clause.
6. The (appellant) HEREBY SEPARATELY CHARGES his interest in each good purchased or deemed purchased pursuant to clause 5 with repayment to (Trad) of an amount equal to the prescribed percentage of the wholesale price for which the (appellant) purchased the particular good which amount shall be treated as loan separately and independently repayable and recoverable. It is expressly provided that each charge hereby granted shall operate as an equitable charge only and that ownership of each good shall remain vested in the (appellant) who may at any time secure release of the charge in respect of any particular good by repaying to (Trad) an amount equal to the prescribed percentage of the wholesale prices for which the (appellant) purchased that particular good and the advance resulting in a charge upon that good shall be deemed repaid to the extent of the sum secured on that good.
7. The (appellant( may at any time sell or dispose of any good hereby charged but subject to such charge PROVIDED THAT the (appellant) shall remain primarily and solely liable for repayment of the sum secured thereon. In the event of default of repayment of a sum secured on a good sold or disposed of pursuant to this clause (Trad) shall exercise its powers pursuant to clause 9 before instituting any proceedings against the (appellant) for recovery of sums secured on that good.
8. The (appellant) covenants to repay the amount of each advance within 60 days of the making of such advance together with interest thereon at the rate per centum per annum specified in schedule 2 WHEREUPON each good purchased or deemed purchased pursuant to clause 5 shall be released from any charge created hereby.
9. In the event of default in repayment of an advance as provided by clause 8 (Trad) shall have power to sell the goods charged as a result of that advance AND the
(appellant) hereby irrevocably appoints (Trad) the Attorney of the (appellant) in his name or otherwise to sell dispose of and give effectual discharge upon sale of the goods subject to this power of sale.
10. The (appellant) covenants that it will at all times and from time to time hereafter at the request of
(Trad) do and execute or cause to be done and executed all such acts and deeds for further and more effectually charging the goods hereby charged or expressed or intended to be charged and for enabling
(Trad) to recover amounts advanced hereunder."
Schedules 1 and 2 were as follows:
"SCHEDULE 1 PRESCRIBED PERCENTAGE NINETY NINE PERCENT (99%) SCHEDULE 2 RATE OF INTEREST TEN"
(iii) Mr McLeod's oral evidence
31. In his evidence in chief, Mr McLeod was shown the documentation of one of the transactions in question. He identified some of the writing on a document headed "Citicorp Dealers Settlement Sheet" as that of David Hughes, the General Manager of McLeod Ford. Mr McLeod said that there was no other communication with Citicorp with respect to the sale of the vehicle there described. Several of Citicorp's "dealer settlement sheets" were in evidence. These documents were on a printed form. The name of Citicorp was printed on the form. Beside the printed word "Dealer" the name of the appellant was typed in. Under the general heading, "Wholesale", the following sub-headings appeared: "Date sold", "Unit description", "Identification number" "O/s bal. excl tax" "O/s bal. incl tax". Below these details appeared the following words (apparently impressed by a rubber stamp):
"I certify that (the appellant) is the holder of N.S.W. Sales Tax Registration No. 008 856",
together with a certifying signature, apparently of an officer of the appellant.
Below this was a space for the insertion of the total amount of the outstanding balance due to or from Citicorp.
There was also printed at the bottom of the form the following:
"I/We certify that all other vehicles on bailment with you remain unsold and on my/our floorplan at this date"
A space for a signature was provided.
Mr McLeod also said, in his evidence in chief, that the name of McLeod Ford appeared on the showroom premises and no mention was there made of the name of the appellant.
In cross-examination, Mr McLeod said that the appellant had its registered office in the showroom premises and shared its staff with McLeod Ford.
Mr McLeod was also cross-examined about a monthly settlement sheet, prepared by Hopkins, which was as follows:
"CLIENT McLeod Ford MONTH May 1982 $
1. Amount invoiced to (Hopkins)
9738.00 Less amount invoiced by
(Hopkins) 3700.00 6038.00 + Sales Tax @ 17-1/2% 1056.65 SHORTFALL $7094.65
2. Fee Calculation:
Sales Tax as per Schedule 149586.94 Less Tax Charged 1704.15 Tax Saved 147882.79 Fee based on 25% 36970.70 + SHORTFALL 7094.65 + COURIER 20 DAYS @ $5.00 100.00 $44165.35
3. Cheques Required
(a) (Hopkins) to
Client Wholesale Co. $9736.00
(b) Client Retail Co. to
(i) (Hopkins) 3700.00 + Sales Tax @ 17-1/2% 647.50 $4347.50
(ii) Corporate Management
Pty. Ltd. $44165.00
4. NET SAVING FOR MONTH $110912 TOTAL NET SAVING TO DATE $1,101,594"
(As appears below, in his evidence, Mr McLeod said that Corporate Management Pty. Ltd. "introduced" the subject of the tax scheme to the McLeod Group.)
Mr McLeod said that the settlement normally took place in the month after the transaction was made. He went on to give this evidence:
"And would you go to the section 2 headed, 'fee calculation.' Do you see that?---Yes.
Now, I suggest to you the first figure, 'sales tax as per schedule' is the sales tax that would have been payable on the wholesale price of these vehicles had there been no arrangements?---Yes.
The tax charged is the sales tax paid by (Hopkins)?---Yes. And then the one is subtracted from the other to produce a figure called, 'tax saved.'?---Yes.
And that indicates that in the subject month (Hopkins) saved you about $147,000 worth of sales tax?---Yes. There's then a fee based on 25 per cent?---Yes. That is because you had agreed with (Hopkins) that he would be paid 25 per cent of whatever he saved for you?---Yes. Then there is a figure called, 'shortfall.' That, I suggest to you, is the difference in price between the 1 per cent paid by Hopkins to (the appellant) and the 0.4 per cent paid by McLeod Ford to Hopkins?---Yes, I understand that, yes. In other words, (Hopkins) has made a small loss buying at 1 per cent and selling at .4 per cent and this was a recoupment of his loss?---Yes.
In Comptroller of Stamps (Victoria) v Ashwick (Vic.) No. 4 Pty Ltd (1987) 163 CLR 640, a stamp duty case, Mason C.J., Wilson, Dawson, Toohey and Gaudron JJ. (at 654) did "not find it necessary to decide how far, if at all, the Ramsay principle is part of the law governing the judicial process in Australia."
Although Ramsay was relied on by the Commissioner in a sales tax context in Brayson Motors Pty. Ltd. (in Liq.) v Federal Commissioner of Taxation (1985) 156 CLR 651 (at 653), it was not necessary in that case to decide whether the doctrine applied. See also Bayford Wholesale Pty. Ltd. v Federal Commissioner of Taxation (1984) 2 FCR 427 at 436-7.
In John v Federal Commissioner of Taxation (1989) 166 CLR 417, an income tax case, Mason C.J., Wilson, Dawson, Toohey and Gaudron JJ. referred to the description of Ramsay by Lord Goff in Craven as "essentially a principle arising from the construction of the statute" and said (at 434-5):
"If any such or similar principle is to be applied in relation to the Act, it is one that must be capable of implication consonant with the general rules of statutory construction. One such general rule, expressed in the maxim expressum facit cessare tacitum, is that where there is specific statutory provision on a topic there is no room for implication of any further matter on that same topic. The Act, in s.260 and now in Pt IVA, makes specific provision on the topic of what may be called tax minimization arrangements and thereby excludes any implication of a further limitation upon that which a taxpayer may or may not do for the purpose of obtaining a taxation advantage. We would respectfully adopt as correct that which was said by Gibbs J. in Patcorp...:
'The presence of s.260 makes it impossible to place upon other provisions of the Act a qualification which they do not express, for the purpose of inhibiting tax avoidance.'
See also Oakey Abattoir Pty. Ltd. v Federal Commissioner of Taxation...; W. and J. Investments Ltd. v Federal Commissioner of Taxation..."
On behalf of the Commissioner, it is now said that the "fiscal nullity" principle applies so as to "render fiscally ineffective the scheme transactions (so as to) ascertain for sales tax purposes the true underlying transactions." It is contended, for the Commissioner, that the "steps inserted" (to use Lord Brightman's phrase) were: (a) the loans from Trad to the appellant and the supporting charges over the plan vehicles; and (b) the sales of plan vehicles by the appellant to Hopkins and by Hopkins to McLeod Ford. Then, the argument runs, sales of the plan vehicles by the appellant to McLeod Ford for the wholesale price paid to Citicorp are left exposed.
An alternative and narrower submission put on behalf of the Commissioner, is that Ramsay establishes that where a taxing statute makes liability depend upon the existence of a circumstance defined in terms of a legal concept (for instance, "sale" or "loss") and where the sole purpose of a pre-ordained series of transactions is to cause that circumstance to occur for a taxation purpose, the scheme fails because the "true" definition of that circumstance in a taxing statute excludes a circumstance created for such a sole purpose.
Although it may be accepted that there is no specific anti-avoidance provision in the sales tax legislation of the kind relied on in John, we have difficulty in accepting either of the Commissioner's submissions.
In our opinion, the resolution of the present matter must depend upon the effect of the sales tax legislation upon the transactions actually entered into by the parties to those dealings. First, this will call for the application of the ordinary rules of statutory construction. The legislation so construed will pick up the transactions as the statutes find them, that is, subject to the general law in all its relevant aspects (see Stewart Dawson and Co. (Vict.) Pty. Ltd. v Federal Commissioner of Taxation (1933) 48 CLR 683 per Dixon J. at 691 and MacFarlane v. Commissioner of Taxation (1986) 13 FCR 356 at 367).
Relevantly, there are no special rules applicable here. If, properly construed, it is a necessary ingredient of liability for sales tax that a "sale" be established, then in the absence of a special statutory definition, a sale for the purposes of the general law will need to be demonstrated. Likewise, if it be alleged that certain transactions were, in truth, interdependent, then it will be a question of fact for determination by the Court whether this was the actual intention of the parties (see, e.g. Boydell v James (1936) SR (NSW) 620 per Jordan C.J. at 625-7). Again, this calls for nothing more than the application of ordinary legal principles.
If it be the case (and the position in the United Kingdom is not clear) that the Ramsay principle stands for a special rule of statutory interpretation in certain circumstances then, in our view, that rule does not extend to the sales tax legislation now in question. There is no provision, explicit or implicit, in that legislation which dispenses with the requirement that a "sale" must have taken place in order that there be liability for tax in the present context. As has been said, the sale need not be express. It can, as in the present circumstances, be implied from the circumstances. But this result is arrived at by the application of the ordinary rules of statutory interpretation to the transaction which in fact took place, and not by virtue of any special doctrine of revenue law.
On behalf of the Commissioner, reliance is placed upon some observations on Ramsay made by Northrop and Sheppard JJ. in Federal Commissioner of Taxation v Ilbery (1981) 58 FLR 191. Their Honours said (at 193-4):
"It is our opinion that what their Lordships have said is as apt for the Australian legislation as it is for that in force in the United Kingdom. It follows that if, contrary to our opinion, the expenditure was incurred in gaining or producing assessable income, the arrangement pursuant to which it was incurred should be treated as fiscally a nullity, and thus not resulting in an expenditure incurred in gaining or producing the taxpayer's assessable income. We make it clear that what we have said is said in the context of a factual situation such as arises for consideration in this case. We do not intend it to apply otherwise than to cases of this or the Ramsay kind where there are, in the words of Lord Wilberforce, 'closely integrated situations'. We express no opinion as to whether the principles expounded in Ramsay's case may have some wider application.
We also make it clear that the legislation with which we have been concerned is that in force at the time of the transactions here in question. We have not considered what effect, if any, the provisions of Pt IVA of the Act may have upon the application of Ramsay's case in Australia. Part IVA of the Act was inserted by Act No. 110 of 1981 which came into force on 24th June, 1981. It applies to schemes (as therein defined) which have been or are entered into after 27th May, 1981. It could be that a full consideration of its provisions would lead to the conclusion that in relation to such schemes there is no room in Australia for the operation of the doctrine espoused in Ramsay's case. That is a matter upon which we express no opinion."
Toohey J., in a judgment agreed in by their Honours said (at 205):
"But for the reasons already given, I am of the opinion that the sum of $14,000 represented by the prepayment of interest was not an outgoing incurred in the course of gaining or producing the taxpayer's assessable income and that the Commissioner was right in refusing to treat it as an allowable deduction. It follows that the appeal should be upheld, the judgment of the Supreme Court set aside and the assessment confirmed.
These reasons make it unnecessary to examine a submission made on behalf of the Commissioner based upon the decision of the House of Lords in W.T. Ramsay Ltd. v. Inland Revenue Commissioners ... In brief their Lordships held that when analysing a transaction and its implications for revenue purposes a court is not 'bound to consider individually each separate step in a composite transaction intended to be carried through as a whole' (per Lord Wilberforce...) The court may view the transaction as a whole, in determining for instance whether there has been a gain or a loss. The authority of the judgments is of course unquestioned; their application to s.51 of the Income Tax Assessment Act and to the facts of this appeal are matters that do not have to be considered."
It is plain that their Honours' observations were made obiter. Moreover, in John, the High Court has decided to the contrary and, in so doing, approved the decision of the Full Federal Court in both Oakey Abbattoir (1984) 55 ALR 291 at 298-9 and in W and J Investments (1987) 16 FCR 314 at 320-1, 322 and 323.
RESULT OF THE APPEAL
125. In the result, we dismiss the appeal, with costs.
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