Specifix Fasteners Pty Ltd and Secretary, Department of Industry Tourism and Resources and Specifix Holdings Pty Ltd (Party Joined)
[2007] AATA 1247
•20 April 2007
CATCHWORDS – AUTOMOTIVE COMPETITIVENESS AND INVESTMENT SCHEME – unearned credit liability – whether persons other than participants entitled to duty credits – whether investment in assets transferred from one company to a related company in a corporate restructure can be regarded as an investment by the transferee company – whether taxation consequences of roll-over of assets relevant - decision affirmed.
PRACTICE & PROCEDURE – identifying the decision under review – identifying the corporate body that is the subject of the decision
ACIS Administration Act 1999 ss 3, 4, 6, 6A, 6B, 6C, 7, 9, 14A, 17, 21, 26, 28, 31, 34, 35, 37, 43, 44, 46, 47, 48, 50, 52, 55, 59, 60, 62, 63, 64, 65, 66, 68, 71, 74A, 75, 79‑89, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 109, 110 and 114
ACIS Administration Regulations 2000 rr 13C and 13E
Acts Interpretation Act 1901 ss 22 and 33
Administration (Determination of Eligible Investment) Guidelines 2001 Clause 4
Administrative Appeals Tribunal Act 1975 ss 26, 37, 42C and 42D
Corporations Act 2001 ss 9, 46 and 50
Income Tax Assessment Act 1997 ss 122-1, 112-15 and 122-20
Plant Variety Rights Act 1987 s 14
BHP Petroleum (Timor Sea) v Minister for Resources (1994) 121 ALR 280; 32 ALD 17
Brown v West (1990) 169 CLR 195; 91 ALR 197
Charles v Federal Commissioner of Taxation (1954) 90 CLR 598
Commissioner of Taxation v Salenger (1988) 19 FCR 378; 81 ALR 25
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60
Fitzgerald v Masters (1956) 95 CLR 420
Kelso v Forward (1995) 60 FCR 39
Lockwood v The Commonwealth (1954) 90 CLR 177
Mercantile Mutual Life Insurance Co v Australian Securities Commission (1993) 40 FCR 409; 112 ALR 463; 29 ALD 616
Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225
Nittan UK v Solvent Steel Fabrication (1981) 1 Ll L Rep 633
Re Becker and Minister for Immigration and Ethnic Affairs (1977) 1 ALD 158; 15 ALR 696
Re Spicer Axle and Secretary, Department of Industry, Tourism and Resources [2006] AATA 1004
Sun World Inc v Registrar, Plant Variety Rights (1997) 75 FCR 528; (1997) 148 ALR 447; (1997) 39 IPR 161; (1997) 25 AAR 414
Wilson v Minister for Aboriginal and Torres Strait Islander Affairs (1996) 189 CLR 1
DECISION AND REASONS FOR DECISION [2007] AATA 1247
ADMINISTRATIVE APPEALS TRIBUNAL )
) V2005/812
GENERAL ADMINISTRATIVE DIVISION )
Re SPECIFIX FASTENERS PTY LTD
Applicant
And SECRETARY, DEPARTMENT OF INDUSTRY TOURISM AND RESOURCES
Respondent
And SPECIFIX HOLDINGS PTY LTD
Party Joined
DECISION
Tribunal: Deputy President S A Forgie
Date: 20 April 2007
Place: Melbourne
Decision:The Tribunal affirms the decision made by a delegate of the respondent on 17 June 2005.
S A FORGIE
Deputy President
REASONS FOR DECISION
A delegate of the respondent, the Secretary of the Department of Industry, Tourism and Resources (Secretary), issued a total of 69,481 duty credits to the applicant, Specifix Holdings Pty Ltd (Specifix Holdings), in relation to Quarters 3 and 4 of 2003 and Quarter 1 of 2004. On 17 June 2005, a delegate of the Secretary decided that Specifix Holdings was not entitled to those 69,481 duty credits. The delegate did so under s 95 of the ACIS Administration Act 1999 (ACIS Act). I have decided that the Secretary’s decision should be affirmed.
BACKGROUND
Specifix Fasteners Pty Ltd (original SFPL) was established in Victoria in 1975 as a re-seller of cold form fasteners. Its Australian Company Number (ACN) was ACN 006 283 343. It was a trustee for the Specifix Fasteners Unit Trust (SFUT), which had previously been known as the Bennet Street Auto Auctions Unit Trust. It was given an Australian Business Number (ABN) of ABN 85 280 733 150 (ABN50). The assets of the business were held within SFUT. The original SFPL expanded its business in 1985 when it started to manufacture and supply a range of fasteners to the automotive, engineering and building industries. It expanded its operations and range of products through growth and acquisition as well as through exclusive licence agreements enabling it to use a wider variety of technology.
The original SFPL applied for registration as an Automotive Components Producer (ACP) on 18 June 2002. A delegate of the Secretary accepted the application with effect from 11 July 2002. He wrote advising that it could claim ACIS credits on approved investment activities occurring from 1 July 2002 and that it was required to lodge a quarterly return within 45 days of the end of the first ACIS quarter after the letter.[1] The original SFPL submitted quarterly returns for the third and fourth quarters of 2002 and the first and second quarters of 2003. Each of the returns was processed and duty credits were issued to the original SFPL. The original SFPL also submitted updated business plans and other information as requested by the Secretary and officers of AusIndustry visited its premises from time to time to review its business operations.
[1] Documents lodged under s 37, Administrative Appeals Tribunal Act 1975 (T documents), 13
On 8 May 2003, the original SFPL changed its name to Specifix Holdings Pty Ltd (Specifix Holdings) and retained its original ACN being ACN 006 283 343.[2] On the same day, Specifix Fasteners Pty Ltd (current SFPL) was incorporated and given the ACN of ACN 104 652 360.[3] Specifix Holdings became the registered holder of 100 ordinary shares in the current SFPL on 8 May 2003.[4] The current SFPL did not become a registered ACP immediately.[5]
[2] T documents, Appendix 2 to a letter from Pitcher Partners to Specifix Fasteners dated 24 September 2004
[3] T documents, Appendix 3 to a letter from Pitcher Partners to Specifix Fasteners dated 24 September 2004
[4] T documents, Appendix 6 to a letter from Pitcher Partners to Specifix Fasteners dated 24 September 2004
[5] see [77] below
On 1 July 2003, the assets owned by the original SFPL were transferred to the current SFPL as roll-over assets under Division 22 of the Income Tax Assessment Act 1997 (ITAA97). As I have noted, the original SFPL was now known as Specifix Holdings but I will continue to refer to it as the original SFPL. The original SFPL received 1,748,271 shares in the current SFPL by way of consideration. This represented the total issued capital in the current SFPL. The original SFPL held those shares as trustee for SFUT.
The original SFPL continued to lodge quarterly returns until the first quarter of 2004. In doing so, it described itself as “Specifix Fasteners Pty Ltd”. In relation to the third and fourth quarters of 2003, it cited ABN50 (the ABN for the original SFPL) but, in relation to the first quarter of 2004, it cited ABN 53 104 652 360 (ABN60). ABN60 is the ABN for the current SFPL. Each of the three quarterly returns stated that Specifix Fasteners Pty Ltd had produced automotive components to the value required by s 31(1)(a)(ii) of the ACIS Act. In each of the forms, it was asked: “Have you sold any approved plant and equipment in the specified quarter that was purchased within the previous relevant quarters and for which you claimed and received Type D ACIS credits?”[6] On each occasion, the box marked “No” had been ticked. The claims were “processed” and duty credits totalling approximately $70,000 were issued to the old SFPL.[7]
[6] T documents, 19, 41 and 54
[7] Statement of Agreed Facts, [10]
On or about 5 April 2004, an officer of AusIndustry conducting an audit noted that the original SFPL had changed its name to Specifix Holdings and that the company had advised that its correct ABN was ABN60. On 12 May 2002, the original SFPL submitted a form entitled “Request to Change Details Form”. When asked for details of the change, it wrote: “As advised by Specifix Fasteners Pty Ltd, due to a company restructure as at 1st July 2003 the Australian Business Number is:- ABN 53 104 652 360.”[8]
[8] T documents, 57
The current SFPL lodged its application to become registered on or about 28 June 2004. Among the documents that it sent to AusIndustry with its application were balance sheets and profit and loss statements for each quarter in 2003, a trading history for 2003 and a “… request for a Section 6C transfer of investments from Specifix Holdings to Specifix Fasteners Pty Ltd including a statement acknowledging employee status.”[9]
[9] Statement of Agreed Facts, Annexure A, 38
On 29 June 2004, an officer of AusIndustry wrote to Mr Stoddart, the ACIS – Product Manager with AusIndustry, recommending:
“… the transfer of investment in plant and equipment (P&E) and research and development (R&D) conducted by Specifix Holdings Pty Ltd (formerly known as Specifix Fasteners) as trustee for Specifix Unit Trust, to Specifix Fasteners Pty Ltd’s business plan under Section 6C of the ACIS Administration Act 1999 (the Act).”[10]
The officer explained in the body of the submission accompanying the recommendation that this would “… allow SFPL to continue to earn ACIS credits and for AusIndustry to complete the approval for Q2, 2004 Quarterly Return of SFPL as submitted.”[11]
[10] Statement of Agreed Facts, Annexure D, 47
[11] Statement of Agreed Facts, Annexure D, 48
The current SFPL’s application was approved with effect from 30 June 2004 and the current SFPL was given a unique ACIS Reference number.[12] An officer of AusIndustry advised the current SFPL of this in his letter dated 15 July 2004. He added that:
“You are now entitled to claim ACIS credits on approved investment activities that occur from 1 June 2004. To claim ACIS credits, you must lodge a quarterly return within 45 days of the end of the first ACIS quarter after this notice. …”[13]
[12] Statement of Agreed Facts, Annexure C, 50
[13] Statement of Agreed Facts, Annexure C, 50
The calculations of the current SFPL’s unmodulated duty credits take into account the original SFPL’s eligible investments to 30 June 2003 as if they were eligible investments by the current SFPL.
Meetings took place between representatives of AusIndustry and of the original and current SFPL on 19 August 2004 and 23 September 2004. They discussed the details and purpose of the restructure and the status of the duty credits issued to the original SFPL after the restructure. The old and current SFPLs made a submission to AusIndustry on 18 November 2004.[14]
[14] T documents, T20
On 17 June 2005, a minute was prepared for consideration by the delegate of the Secretary. It recommended that he approve a variation to reduce Specifix Holdings’ investment in eligible plant and equipment (Type D) and research and development (Type E) by $294,109.00 and to raise an unearned credit liability (UCL) of 69,481 against the current SFPL in accordance with s 94(1)(b) of the ACIS Act. He did so on the basis that, between 1 July 2003 and 31 March 2004, Specifix Holdings had continued to submit quarterly returns claiming eligible ACIS investments for Quarters 3 and 4 of 2003 and Quarter 1 of 2004. It had done so despite having transferred the assets representing those investments to the current SFPL on 1 July 2003. AusIndustry paid ACIS credits to Specifix Holdings based on those returns but in June 2005, it had a nil credit in its ACIS ledger to cover the UCL. At the time, the current SFPL had 79,666 duty credits that it had not transferred from its ACIS ledger account. That amount was sufficient to cover the UCL and the Customer Service Manager recommended to the delegate that he approve the variations in the investment data resulting in the UCL in accordance with s 94(1)(b) of the ACIS Act. The delegate agreed with the recommendation on the same day; 17 June 2005.
On 21 June 2005, the Customer Service Manager of AusIndustry’s Victorian Office wrote to “Specifix Fasteners Pty Ltd” advising that:
“A compliance process has identified that Specifix Fasteners Pty Ltd has an Unearned Credit Liability. Consequently Specifix Fasteners Pty Ltd is not entitled to 9,862 duty credits that were issued for investment claimed under ACIS. As per s. 94(1)(b) of the Act, this over-entitlement occurred:
because information given to the Minister, the Secretary or a delegate of the Secretary was inaccurate or incomplete.
Specifix Fasteners Pty Ltd is therefore obliged to return to the Commonwealth the amount of 9,862 ACIS duty credits as an Unearned Credit Liability. To offset this liability entirely, Specifix Fasteners Pty Ltd should pay the outstanding unearned credit liability of 9,862 duty credits that the company is liable to pay under section 101 of the Act.”[15]
[15] T documents, T 21
On 17 August 2005, the Customer Service Manager wrote a second letter to “Specifix Holdings Pty Ltd” referring to his earlier letter. He said that:
“… The amount of duty credits that Specifix Fasteners Pty Ltd was not entitled to, referred to in my previous letter was incorrect. This error occurred as a result of an oversight in the calculation of the unearned credit liability …
The actual amount of duty credits that Specifix Fasteners Pty Ltd was not entitled to is 79,666 that were issued for investment claimed under ACIS. AS per s. 94(1)(b) of the Act, this over-entitlement occurred:
because information given to the Minister, the Secretary or a delegate of the Secretary was inaccurate or incomplete.”[16]
[16] T documents, T22
On 29 November 2005, the Customer Service Manager wrote to “Specifix Fasteners Pty Ltd”:
“This correspondence relates to the S.102 Notice issued on 18 October 2005 advising the value of the unearned credit liability (UCL) for investment claimed under ACIS found to be ineligible. The Notice detailed the value of the UCL as 79,666 duty credits which has been found to be incorrect. This has occurred due to an administrative error.
Please be advised that the actual amount of duty credits that Specifix Fasteners Pty Ltd is not entitled to 69,481 ACIS duty credits only.
The ACIS ledger has been adjusted by 10,185 duty credits, therefore, the outstanding liability is a total of 69,481 ACIS duty credits only.”[17]
[17] Statement of Agreed Facts, Annexure E
The letter of 29 November 2005 did not describe itself as a notice under s 102 of the ACIS Act but the Customer Service Manager said that it was so in his later letter to SHPL dated 10 February 2006. The Customer Service Manager said that:
“This letter is to confirm that the Secretary’s determination that there is an unearned credit liability of 69,481 duty credits is a determination in respect of the participant, namely Specifix Holdings Pty Ltd (ACN 006 283 343) in its capacity as trustee for the Specifix Fasteners Unit Trust (ABN 85 280 733 150). The Secretary has determined pursuant to s. 95 of the Act that the participant is not entitled to 69,481 duty credits because (per s. 94(1)(b) of the Act) information given to the Minister, the Secretary or a delegate of the Secretary was inaccurate or incomplete.
The participant is therefore obliged to return to the Commonwealth a total amount of 69,481 duty credits, or pay the equivalent amount in money, as an unearned credit liability. As at the present date, the entire amount of the unearned credit liability remains outstanding.”[18]
The reference in the letter to “Specifix Holdings Pty Ltd (ACN 006 283 343) in its capacity as trustee for the Specifix Fasteners Unit Trust (ABN 85 280 733 150)” is a reference to the original SFPL.
LEGISLATIVE BACKGROUND
[18] Statement of Agreed Facts, Annexure F
General outline
The Automotive Competitiveness and Investment Scheme (ACIS) was established by the ACIS Act with effect from 1 January 2001. Section 3 states that the purpose of the ACIS Act:
“… is to provide transitional assistance to encourage competitive investment and innovation in the Australian automotive industry in order to achieve sustainable growth, both in the Australian market and internationally, in the context of trade liberalisation.”
ACIS provides incentives in the form of “duty credits”. A “duty credit” is a “… modulated capped production credit, unmodulated uncapped production credit, modulated investment credit, or unmodulated type J investment credit … that has been entered in the ACIS ledger”.[19] Duty credits can be used to offset Customs duty payable on eligible imports or to obtain a rebate or refund in respect of duty already paid.[20] They are also transferable.[21]
[19] s 6(1)
[20] s 74A(1)(a) and (b)
[21] s 75
Registration
MVPs, ACPs, Automotive Machine Tool, Tooling Producers (AMTPs) and Automotive Service Providers (ASPs), who are known collectively as “participants” if they are registered under the Administration Act,[22] are able to claim duty credits according to the provisions of that legislation.[23] An application to be registered as an ACP must be made in accordance with Division 5 of Part 2 and conform to any specifications set out in the ACIS Administration Regulations 2000 (Regulations).[24] For the purposes of this case, I note that a person, who is a producer of automotive components, may be registered as an ACP if producing the number of automotive components or automotive components to the value specified in s 17 of the ACIS Act in the 12 months preceding the application for registration.[25] The Secretary must examine each application for registration and determine, within the period set by s 26(4), if he is satisfied of seven matters set out in s 26(2). Section 14A provides that the Secretary must not grant an application for registration unless satisfied that registration would further the purpose in s 3 of the ACIS Act. That is so even though the person applying for registration meets all of the relevant requirements for registration.[26] In the case of a person who is registered after the commencement of the ACIS Act, registration has effect on and from the date it is granted.[27]
[22] s 6(1)
[23] Part 2
[24] s 17(3)
[25] s 17(1)(a)
[26] s 14A(2). In the case of an ACP who is not a group of related companies, the “requirements for registration under ACIS” are those in ss 17(1)(a) or (b).
[27] s 28(3)
A reference to a “person registered as an … ACP … includes a reference to a group that is so registered in accordance with Division 4 of Part 2.”[28] Section 21(1) provides that:
[28] s 6(3)
“A group of related bodies corporate (within the meaning of sections 9 and 50 of the Corporations Act 2001) may apply to the Secretary for permission to seek registration as a participant as if the group were a single person.”
Section 9 of the Corporations Act 2001 provides that a “related body corporate, in relation to a body corporate, means a body corporate related to the first-mentioned body by virtue of section 50.” Section 50 of the same legislation provides that:
“Where a body corporate is:
(a)a holding company of another body corporate; or
(b)a subsidiary of another body corporate; or
(c)a subsidiary of a holding company of another body corporate;
the first mentioned body and the other body are related to each other.”
A “holding company, in relation to a body corporate, means a body corporate of which the first body corporate is a subsidiary.” A “subsidiary, in relation to a body corporate, means a body corporate that is a subsidiary of the first-mentioned body by virtue of Division 6.” Section 46 in Division 6 of Part 1.2 provides that:
“A body corporate (in this section called the first body) is a subsidiary of another body corporate if, and only if:
(a)the other body:
(i)controls the composition of the first body’s board; or
(ii)is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or
(iii)holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries nor right to participate beyond a specified amount in a distribution of either profits or capital); or
(b)the first body is a subsidiary of a subsidiary of the other body.”
Once registered, there are ongoing requirements of registration that must be met by an ACP. In broad terms, those requirements reflect the production rate and value required for registration.[29] In the case of the ACP in this case, be it the original or current SFPL, the production value of the automotive components it produced in Australia in each ACIS year[30] as original equipment must be at least $500,000 and comprise at least 50% of the production value of all automotive components it produced.[31] As Specifix Holdings was registered as an ACP after the commencement of ACIS it must meet those ongoing requirements in each ACIS year following the ACIS year in which its registration takes effect.[32]
[29] s 31(1)
[30] An “ACIS year” is a year commencing on the ACIS Scheme commencement date: s 6(1).
[31] s 31(1)(a)(ii)
[32] s 34(3)
The Secretary may deregister a participant in certain circumstances. If “the Secretary is satisfied that the participant is not likely, or has failed, to comply with the ongoing registration requirement in section … 31 …”, he may, at any time, deregister the participant or, in this case, the registered ACP.[33] A second ground on which the Secretary may deregister a participant arises on an ACP’s failing to comply with the requirement in s 109 to provide an update of any business plan provided in relation to the application for registration as an ACP.[34] The third ground on which the Secretary may deregister a participant may occur if the participant is registered on the basis of its expected production in the 12 months following the application for registration. If the Secretary is satisfied at any time during the 12 months following the application that it is unlikely that a registered ACP is unlikely to be able to meet the production specified in ss 17(1)(b)(i) and (ii), he may deregister the ACP. The fourth ground arises if the Secretary determines that registration does not further the purpose of the ACIS Act.[35]
[33] s 110(2)(b)
[34] s 110(4)
[35] s 110(5)(c)
Once registered, each participant must provide a return to the Secretary in respect of each quarter that ends, in the circumstances of this case, after the date of its registration.[36] The contents of the return are governed by s 37:
[36] s 35(1)(d): this is the later of the scheme commencement date and the date of Spicer Axle’s registration.
“(1) An ACP’s quarterly return must set out:
(a)particulars of the expenditure on eligible investments undertaken by the ACP in that quarter; and
(c)particulars of the sales value by the ACP in that quarter of:
(i) automotive components, automotive machine tools and automotive tooling; and
(ii) automotive services; and
(e)particulars of any other Commonwealth assistance within the meaning of section 11 provided in respect of eligible investments referred to in paragraph (a) and, if paragraph (b) is applicable, paragraph (b); and
(f)any other particulars required by the form.
(2)A return under subsection (1) in respect of the last quarter of an ACIS year must include particulars of the production of automotive components produced by the ACP in that year. ”
Working out the unmodulated investment credit for the ACP for a quarter
As soon as practicable after an ACP provides a quarterly return to the Secretary in respect of a quarter, the Secretary must work out the unmodulated investment credit in relation to type D investment and type E investment. The formula to determine each type was different. In the case of type D investment the Secretary was required to do so:
“… in accordance with the formula:
[] – CA
where:
CA is the total amount of other Commonwealth assistance (if any) received by the ACP in relation to the type D investment referred to in component K of the formula and to the type D investment referred to in component L of the formula.
K is the amount of type D investment by that ACP in the quarter concerned.
L is the total of the type D investment by that ACP in all relevant quarters preceding that quarter.
RQ is the total number of relevant quarters in relation to that quarter.”[37]
[37] s 46
In the case of a type E investment, the Secretary did so:
“… in accordance with the formula:
[] – CA
where:
CA is the total amount of other Commonwealth assistance (if any) received by the ACP in relation to the type E investment referred to in component N of the formula and to the type E investment referred to in component P of the formula.
N is the amount of type E investment by that ACP in the quarter concerned.
P is the total of the type E investment by that ACP in all relevant quarters preceding that quarter.
RQ is the total number of relevant quarters in relation to that quarter.”[38]
[38] s 47
A “relevant quarter”, referred to in “L” or “P” of the respective formulae, is defined in s 6(1). It varies according to whether the participant is providing a return for a particular quarter that is the registration quarter or one, two or more quarters following the registration quarter.[39] A “registration quarter” means the quarter in which the registration took effect, or is taken to have taken effect, under s 28.[40]
[39] s 6(1)
[40] s 6(1) Where an application for registration was made after the ACIS Scheme commenced, registration generally has effect from the day on which it was granted: s 28(2).
The effect of the definition of a “relevant quarter”, when read with the formula, is that, in addition to the investment made in the particular quarter for which the return is made, regard is had also to the total type D investment, or type E investment as the case might be, by the ACP in a period that is determined by the definition. That period begins with an initial period of two years preceding its registration when the participant provides a return for its registration quarter and increases by steps to 2¾ years after its registration. That longer period arises when it provides a return for any quarter that is more than two quarters after its registration quarter. That is the effect of the sliding scale used in defining the expression “relevant quarter”:
“relevant quarter, in relation to a participant who provides a return for a particular quarter such as a participant under section 35, means each of the quarters included within the period comprising:
(a)if that particular quarter is the registration quarter for that participant – the 8 quarters preceding that registration quarter; and
(b)if that particular quarter is the first quarter following the registration quarter for that participant – the 9 quarters preceding that particular quarter; and
(c)if that particular quarter is the second quarter following the registration quarter for that participant – the 10 quarters preceding that particular quarter; and
(d)if that particular quarter is any later quarter following the registration quarter for that participant – the 11 quarters preceding that particular quarter.”[41]
[41] s 6(1)
By having regard to more than one quarter in the formula and by having regard to past quarters on more than one occasion, the formula ensures an “averaging” of the figure calculated as the unmodulated investment credit for an ACP for any particular quarter.
Modulation of unmodulated credits
Most unmodulated credits are modulated in accordance with Part 5 of the ACIS Act. Caps are set on the ACIS Scheme and for each participant and those caps are taken into account in the modulation process.[42] The Minister must make modulation guidelines.[43] Division 5 of Part 5 provides for the modulation process in relation to ACPs. When the Secretary has worked out the unmodulated investment credit in relation to each ACP and a particular quarter in an ACIS Stage[44] in respect of eligible investments, the Secretary must modulate each unmodulated investment credit to be issued to the ACP.[45] That must be done in accordance with the guidelines made by the Minister under s 55.[46]
[42] s 52(2) and see Division 2 of Part 5
[43] s 52(3) and Division 3 of Part 5
[44] There are three ACIS Stages with the first commencing on the commencement of the ACIS Scheme, the second on 1 January 2006 and the third on 1 January 2011 and finishing on 31 December 2015: s 4(1A).
[45] s 59
[46] s 60
What are eligible investments?
The expression “eligible investments” means, in relation to an ACP, “type D or type E investments by the ACP”.[47] A “type E investment” is an investment relating to research and development. A “type D investment”:
“… in relation to a quarter and an ACP, means investment undertaken by the ACP in that quarter (whether or not that quarter preceded, or in part preceded, the ACP’s registration) in that part of the ACP’s approved plant and equipment that:
(a)is used to produce automotive components, automotive machine tools or automotive tooling; or
(ii)is used to facilitate the provision of automotive services.”[48]
[47] s 6(1)
[48] s 6(1)
A type E investment:
“… in relation to a quarter and an ACP, means investment undertaken by the ACP in that quarter (whether or not that quarter preceded, or in part preceded, the ACP’s registration) in that part of the ACP’s approved research and development that is directed:
(a)at the production of the automotive components, automotive machine tools or automotive tooling; or
(ii)at facilitating the provision of automotive services.”[49]
[49] s 6(1)
Types D and E investments: what is an investment undertaken by an ACP?
The definition of a “type D investment” includes expressions that are themselves defined. I have already noted that a “participant” includes an ACP. Therefore, the expression “investment undertaken by the ACP” equates with the expression “investment undertaken by a participant”. That latter expression, s 6(1) provides:
“… has a meaning affected by:
(a)regulations, if regulations have been made under subsection (5); and
(b)section 6C and any regulations made under section 6C.”[50]
[50] s 6(1)
Section 6(5) provides that the Regulations may state:
“(a) at what point in time, and in what circumstances, particular investment undertaken by a participant is taken to have occurred for the purposes of this Act; and
(b)at what point in time investment determined under section 6C to be investment undertaken by a participant is taken to have occurred.”
Regulation 13C provides that:
“(1) For paragraph 6(5)(a) of the Act, an investment in plant and equipment undertaken by a participant is taken to have occurred for the purposes of the Act:
(a)if the investment is by way of acquiring the plant and equipment by purchase or under a finance lease (other than under a sale and leaseback arrangement):
(i) at the time when the plant and equipment is recognised, in the participant’s accounts, as an asset in accordance with normal accounting practices; or
(ii) if at the time referred to in subparagraph (i) the plant and equipment is not in Australia – at the time when the plant and equipment is imported into Australia; or
(b)if the investment is by way of acquiring the plant and equipment under an operating lease:
(i) every time rent is paid under the lease; or
(ii) if at a time referred to in subparagraph (i) the plant and equipment is not in Australia – at the time when the plant and equipment is imported into Australia and every time rent is paid under the lease after the plant and equipment has been so imported; or
(c)if the investment is by way of building or making the plant and equipment:
(i) at the time when the plant and equipment is recognised, in the participant’s accounts, as an asset in accordance with normal accounting practices, or at the time when the plant or equipment is recorded in the participant’s register of assets, whichever is earlier; or
(ii) if the plant and equipment (the new plant and equipment) is part of an existing plant and equipment – at the time when the building or making of the new plant and equipment is recognised, in the participant’s accounts, as an increase in asset value in accordance with normal accounting practices, or at the time when the building or making of the new plant or equipment is recorded in the participant’s register of assets, whichever is the earlier.
(2)For paragraph 6(5)(a) of the Act, an investment in plant and equipment undertaken by a participant by way of acquiring the plant and equipment under a sale and leaseback arrangement is taken to have occurred at the time when the previous investment would, apart from section 6B of the Act, have been taken to have occurred under these Regulations and the Act.
(3)…”
Section 6C of the ACIS Act provides for an investment undertaken by one person to be treated as an investment undertaken by another person who is a participant:
“(1) This section allows the Secretary, in limited circumstances, to treat investment undertaken by a person who may or may not be a participant (the original investor) as eligible investment undertaken by another person who is a participant (the participant). For investment to be treated in this way:
(a)the participant must apply, in an approved form, to the Secretary; and
(b)the Secretary must make a determination under subsection (3) that the circumstances of the relationship between the original investor and the participant fall within the kinds of circumstances set out in guidelines made under subsection (2); and
(c)the Secretary must make a determination of a kind referred to in subsection (4) or (5) in respect of the investment.
(2)The Minister may make guidelines setting out the circumstances in which the relationship between 2 persons are circumstances in which the Secretary may make a determination under subsection (3).
(3)The Secretary must examine the circumstances of the relationship between the original investor and the participant. If, after examining the circumstances, the Secretary is satisfied that the circumstances fall within the circumstances set out in the guidelines made under subsection (2), the Secretary may make a determination to that effect. Only after making that determination may the Secretary make a determination under subsection (4) or (5), as appropriate.
(4)If:
(a)the original investor was a participant at the time that the investment was undertaken; and
(b)the investment was eligible investment of a particular type; and
(c)the Secretary is satisfied that it is reasonable in all of the circumstances to allow the investment to be treated as eligible investment of that type undertaken by the participant;
the Secretary may determine in writing that the eligible investment is taken to be eligible investment of that type undertaken by the participant. The determination has effect accordingly.
(5) If;
(a)the original investor was not a participant at the time the investment was undertaken; and
(b)the Secretary is satisfied that:
(i)if the investment had been undertaken by a participant, the investment would be eligible investment of a type specified by the Secretary; and
(ii)it is reasonable in all of the circumstances to allow the investment by the original investor to be treated as eligible investment undertaken by the participant;
the Secretary may determine in writing that the investment is:
(c)eligible investment of a type specified by the Secretary; and
(d)taken to be investment of that type undertaken by the participant. The determination has effect accordingly.
(6)The Minister may determine guidelines that are to be taken into account by the Secretary in making a decision under subsection (4) or (5).
(7)Guidelines made under subsections (2) and (6) are disallowable instruments within the meaning of section 46A of the Acts Interpretation Act 1901.
The Secretary has chosen to make Guidelines under s 6C(2) for the purposes of making a determination under s 6C(3). They are included in the ACIS Administration (Determination of Eligible Investment) Guidelines 2001 (Guidelines). Clause 4 provides:
“For subsection 6C(2) of the Act, the circumstances of the relationship between an original investor and a participant in which the Secretary may make a determination under subsection 6C(3) of the Act are as follows:
(a)the participant is a group of related bodies corporate of which the original investor becomes a member after the investment undertaken by the original investor has occurred;
(b)the participant has taken over the entire business operation from the original investor, other than by acquiring shares in the original investor;
(c)the participant has taken over the part of that business operation for which the investment was undertaken.”
Types D and E investments: what happens if approved plant and equipment is sold by an ACP?
If approved plant and equipment is sold by, or on behalf of, an ACP, s 6B of the ACIS Act provides that:
“… the investment in that plant and equipment is to be treated, for the purposes of the operation of sections 43, 44, 46, 48 and 50, with effect from the start of the quarter in which that sale took place, as if the investment had never occurred.”
Only s 46 is relevant. It relates to the Secretary’s working out the unmodulated investment credit for an ACP for that quarter in relation to a type D investment.[51]
[51] see [24] above
Types D and E investments: what is “approved plant and equipment”?
The expression, “approved plant and equipment”, is defined in s 6A.[52] The expression “approved plant and equipment” has two aspects.[53] First, it must be “… allowable plant and equipment …”.[54] If it is allowable plant and equipment, the second aspect is that it is allowable only to a given value.[55] The maximum claimable value is either specified in the Regulations or calculated according to the method set out in the Regulations.[56]
[52] s 6(1)
[53] s 6A(1) and see also the definition of “approved plant and equipment” in s 6A(2).
[54] s 6A(1)(a) and see also the definition of “allowable” in s 6A(2).
[55] s 6A(1)(b)
[56] s 6A(2)
In order to meet the description of “allowable” as required by the first aspect, plant and equipment must first be of a kind declared by the Regulations to be allowable.[57] Regulations may provide for the kinds of plant and equipment that are “allowable plant and equipment”[58] and in fact do so. Plant and equipment that is allowable plant and equipment is specified in r 13E(2).[59] Of relevance in this case is:
“plant and equipment for the manufacture, assembly, design, development or engineering of motor vehicles, engines, engine components, automotive components, automotive machine tools or automotive tooling”.[60]
[57] ss 6 and 6A(1)(a) and (2)
[58] s 6A(3)(a)
[59] r 13E(1)
[60] r 13E(2)(a)
Type D and E investments: what is an automotive component?
The expression “automotive component” is defined to mean “… any component (whether its construction or assembly has been completed or not) … that is for use in any type of vehicle that, if imported, would be classified to Chapter 87 of Schedule 3 to the Tariff; or that has the essential character …” of such a component unless declared not to be so by regulations made under the ACIS Act.[61]
[61] s 6(1)
Type D and E investment: “produce automotive components”
The word “produce” is not defined but the word “production” is defined in s 6(1). That section provides that the word has the meaning set out in s 7. For the purposes of the ACIS Act, s 7(2) provides that “… a person is taken to produce a thing only at the time when the person sells the thing produced.” Also for the purposes of the ACIS Act, s 7(1) provides that:
“… a person is taken to produce a thing even if the process of production consists entirely of assembling the thing from component parts and the person does not produce any of those component parts.”
Subject to both ss 7(1) and (2), s 7(6) provides that:
“… an automotive component, an automotive machine tool or automotive tooling is taken to have been produced in Australia if:
(a)at least one substantial process in the manufacture of the automotive component, automotive machine tool or automotive tooling is carried out in Australia; and
(b)the automotive component, automotive machine tool or automotive tooling, as the case requires, has passed final quality control at the end of the production line in Australia.”
The ACIS ledger
Once the Secretary has worked out the modulated credit, he enters it in a ledger known as the ACIS ledger.[62] The ACIS ledger is the record of the modulated credit, among others, that a person owns either because the credit was issued to that person or transferred to that person.[63] The Secretary must enter in the ACIS ledger the modulated investment credit to be issued to an ACP and the ACIS Stage concerned.[64] Once a modulated credit is entered in the ACIS ledger in respect of a participant, be it an ACP or otherwise, the credit is issued to the participant as duty credit.[65]
[62] s 62
[63] s 63
[64] s 64(3)
[65] s 65
Section 66 is concerned with the circumstances in which the Secretary must amend the ledger: He must do so:
“in respect of a person and the person’s duty credit in the following circumstances:
(a)when the person applies duty credit in respect of the importation of eligible imports;
(aa)when the person applies duty credit in accordance with subsection 74A(1) against an earlier payment of duty on the importation of eligible imports;
(b)when the Secretary applies duty credit under Part 9 to offset an unearned credit liability that the person has;
(c)when the person transfers duty credit to another person;
(d)to give effect to a decision of the Administrative Appeals Tribunal or of a court concerning the person.
(2)If the Secretary determines under section 68 that there has been an error in the ACIS ledger that would require an increase in the duty credit entered in respect of a participant and an ACIS Stage, the Secretary must amend the ledger to fix the error if and only if:
(a)the cap for the stage has not been reached (section 53); and
(b)the personal limit for the participant for the ACIS year in which the error was entered in the ledger has not been reached (see section 54).
(3)If the Secretary determines that there is an error in the ledger that would require a decrease in the duty credit entered in respect of a participant, the Secretary must amend the ledger to fix the error.
(4)This section operates subject to section 71.”
The effect of s 71 is that the Secretary can only amend the ACIS ledger in respect of an ACIS Stage during that stage and during the six calendar years following that stage.
Section 68 permits a person to apply to the Secretary to amend the ACIS ledger if that person “… believes that there is an error in the ACIS ledger in respect of themselves and an ACIS Stage …”.[66] The person must make an application in accordance with s 68(2) and, in doing so, must “specify the entry that the person believes contains an error”[67] and the reasons for that person’s belief.[68] The application must be made during the ACIS Stage concerned or within a calendar year of it.[69] The Secretary must determine whether there is an error when he receives an application[70] but he may also determine if there is an error on his own initiative.[71]
[66] s 68(1)
[67] s 68(2)(b)
[68] s 68(2)(c)
[69] s 68(2)(e)
[70] s 68(4)
[71] s 68(5)
Audits and unearned duty credits
Part 8 of the ACIS Act provides a regime for the audit of the affairs of participants in so far as they relate to ACIS. So, for example, the Secretary may appoint authorised officers to enter premises to check information provided under ACIS or the ACIS Act and to ask questions .[72]
[72] ss 79-89
Part 9 is entitled “Unearned duty credit”. In the overview of the Part provided in s 93, it is said that “This Part provides for duty credit to which a person is not entitled to be recovered.”[73] Section 95 provides:
“If the Secretary determines that, because of a situation set out in section 94, a person is not entitled to certain duty credit, the person is liable to pay to the Commonwealth an unearned credit liability.”
The amount of that unearned credit liability (UCL) is said by s 96 to be “… an amount equal to the amount of duty credit to which the person is not entitled.”
[73] s 93(1)
Section 94, in so far as it is relevant, provides:
“A person who has or had duty credit is not entitled to the credit if the person received the credit for any of the following reasons:
(a)because of the making of an error in calculating the duty credit (including during the modulation process) or a mistake of fact;
(b)because information given to the Minister, the Secretary or a delegate of the Secretary was inaccurate or incomplete;
(c)because of a clerical error or mistake in the ledger;
(d)because the credit:
(i)was entered in respect of a transaction to which the person was a party that was not at arm’s length within the meaning of section 9; and
(ii)is referrable to a production value, sales value or investment to which the transaction relates that has not been determined as if the parties were at arm’s length.”[74]
[74] s 94(1)
The effect of ss 94 and 95 is that a decision must first be made as to whether Specifix Fasteners received the duty credits because of one of the situations arising in s 94(1). Section 114(j) of the ACIS Act provides that an application may be made to the Tribunal for review of “… a decision by the secretary under section 95 that a person has an unearned credit liability.” The Secretary may only make that decision if first satisfied that “because of a situation” in s 94, a person is not entitled to certain duty credit. The plain meaning of the section is that the situation said to exist under s 94 must be identified precisely. That is because the Secretary’s power under s 95 only arises if that situation fits precisely within the scope of s 94. Furthermore, the situation must be identified precisely so that the duty credits credited because of that situation, and no others, may be recovered.
Notice that there is an unearned credit liability
Section 102 provides for the Secretary to give a person a notice of a UCL in respect of that person:
“If the Secretary determines that there is an unearned credit liability in respect of a person, the Secretary must give the person a notice in writing setting out the following matters:
(a)the amount of the person’s unearned credit liability;
(b)if any duty credit of the person has been offset against the liability – the amount and kind of credit offset;
(c)the unearned credit liability outstanding under section 101 (if any) that the participant is liable to pay.”
Relevant provisions of the Income Tax Assessment Act 1997
Section 122-1 of the ITAA97 states that a roll-over can delay the making of a capital gain or loss in circumstances that it went on to specify. Among them is the disposition of “… a CGT asset, or all the assets of a business, to a company in which you own all the shares …”. Section 122-15 develops the concept. It provides that:
“If you are an individual or a trustee, you can choose to obtain a roll-over if one of the CGT events (the trigger event) specified in this table happens involving you and a company in the circumstances set out in sections 122-20 to 122-35. …”
The table describes the trigger event as Event No. A1 under the heading “Relevant CGT events”. It is: “Dispose of a CGT asset, or all the assets of a business, to the company”. This is described as a “disposal case”.[75]
[75] s 122-20(1)(b)
Section 122-20 qualifies the nature of the trigger event. The qualifications in relation to a disposal case limit the nature of the consideration that can be received for the disposal of the CGT asset or all the assets of the business to:
(1)shares in the company and the company’s undertaking to discharge one or more liabilities in respect of the asset or assets of the business, as the case might be.[76]
The shares cannot be redeemable shares.[77] Their market value must conform with s 122-20(3). In so far as it is relevant in this case, that section provides:
“The market value of the shares you receive for the trigger event happening must be substantially the same as:
(a)for a disposal case – the market value of the asset or assets you disposed of, less any liabilities the company undertakes to discharge in respect of the asset or assets (as appropriate)”.[78]
If the market value of the shares is different from what it would otherwise be only because of the possibility of liabilities attaching to the asset or assets, that difference is to be disregarded in working out the requirements of s 122-20(3)(a).[79]
[76] s 122-20(1)
[77] s 122-20(2)
[78] s 122-20(3)
[79] s 122-20(4)
IDENTIFYING THE SUBJECT OF THE DECISION
As for the entity to which the Secretary had sent the notice and amended notices, Mr Slonim said that, if there was any overpayment of duty credits, that overpayment was made to the original SFPL and not to the current SFPL. The current SFPL had not received any duty credit for any of Quarters 3 and 4 of 2003 and the Quarter 1 of 2004. It did not have a UCL and so, Mr Slonim submitted, the decision under review should have been set aside.
On behalf of the Secretary, Mr Gray submitted that the subject of the decision was the original SFPL. As the current SFPL had not been registered in any quarter prior to the second quarter of 2004, there would have been no lawful basis for the current SFPL to be issued with duty credits for Quarters 3 and 4 of 2003 and Quarter 1 of 2004. Those credits were issued to the original SFPL. A delegate of the Secretary had decided on 17 June 2005 that the original SFPL was not entitled to those duty credits as it had sold all of its assets and undertakings prior to those quarters.
Mr Gray submitted that the decision should be taken to have been made in relation to the original SFPL rather than the current SFPL. He based his submission on two grounds. The first was that the contents of the letters made it clear that reference was to the original SFPL rather than the current SFPL. The letters referred to the ACIS registration number belonging to the original SFPL and only the original SFPL could have incurred a UCL. Despite the change in the companies’ names and in the corporate structure, the controlling interests remained the same. Mr Justin Murphy is a director of those controlling interests and he is shown as the Engineering Manager. [80] He had prior communications with AusIndustry and so would have been aware of these facts. The mistake was obvious and could have been corrected: Fitzgerald v Masters.[81] Furthermore, there is a general rule that “… an erroneous description of a person or thing does not vitiate an instrument, if there be sufficient certainty expressed as to object”: BHP Petroleum (Timor Sea) v Minister for Resources.[82]In the context of an insurance policy in which the wrong company had been described, Lord Denning said in Nittan UK v Solvent Steel Fabrication:[83]
“… how would a reasonable person receiving the document take it? If, in all the circumstances of the case and looking at the document as a whole, he would say to himself: ‘Of course it must mean me, but they have got my name wrong’, then there is a case of mere misnomer.”[84]
[80] AusIndustry Minute dated 13 January 2004: T documents, 32 and see also T documents, 69, 77, 79 and 101.
[81] (1956) 95 CLR 420 at 426-427 per Dixon CJ and Fullagar J
[82] (1994) 121 ALR 280; 32 ALD 17 at 297; 32 per Beaumont J
[83] (1981) 1 Ll L Rep 633
[84] (1981) 1 Ll L Rep 633 at 635 per Lord Denning M.R
Even if the notice required under s 102 of the ACIS Act were given to the wrong entity, the underlying decision made under s 95 would be unaffected. It seems to me that the notice is no more than a notice and not a step that perfects the decision. The decision is found in the recommendation approved by the delegate on 17 June 2005. That decision refers to the original SFPL by its current name as well as by its ACIS registration numbers. There can be no doubt that the decision was made with reference to the original SFPL and not to the current SFPL. That was the decision I made on 9 June 2006.
IDENTIFYING THE DECISION UNDER REVIEW
On behalf of both SFPLs, Mr Slonim had submitted at a preliminary hearing that the decision under review was recorded in the letter written by the Customer Service Manager on 21 June 2005 advising that “Specifix Fasteners Pty Ltd” had a UCL of 9,862 duty credits.[85] That letter was a notice under s 102 of the ACIS Act. Despite the Secretary’s subsequently sending two amended notices, he cannot amend such a notice. In any event, the second notice was issued after the proceedings in the Tribunal had begun.
[85] T documents, 128
At the hearing, Mr Slonim pointed to three letters written by the Customer Service Manager of AusIndustry to Specifix Fasteners Pty Ltd. They were dated 21 June 2005, 17 August 2005 and 29 June 2005 and were notices under s 102 of the ACIS Act. He noted that the second letter purported to correct the amount shown as the UCL in the first letter and the third purported to correct the amount shown in the second letter. No explanation was given as to why there was a need to correct the amount or as to why the amount was altered. The ACIS Act does not contemplate the withdrawal of a notice and so the status of the second letter must be questioned. Even if that is not the case, the third letter is ultra vires as it was issued after Specifix Holdings’ application to the Tribunal. Section 26 of the Administrative Appeals Tribunal Act 1975 (AAT Act) does not permit the decision to be altered after the application.
Mr Gray submitted that it is the decision recorded in the minute approved by the Secretary’s delegate on 17 June 2005. That was the decision taken under s 95. The notices issued under s 102 could not be taken to be the decisions. Even if they were, they would not be reviewable by the Tribunal which is limited, in a case such as this, to reviewing decisions under s 95 by virtue of s 114(j) of the ACIS Act. In any event, notices can be revoked, amended and re-issued.[86] In this case, the first two letters that were dated 21 June 2005 and 17 August 2005 purported to give notice under s 102 did not do so. They did not do so as they did not give notice of the decision that was actually taken on 17 June 2005 under s 95. Even though the minute recording the decision does not refer to s 95, it does refer to ss 94(1)(a) and (b). The fact that it does not identify the source of power to make the decision does not deprive the decision of its true character as a decision under s 95: Brown v West,[87] Lockwood v The Commonwealth[88] and Mercantile Mutual Life Insurance Co v Australian Securities Commission.[89]
[86] Acts Interpretation Act 1901, ss 33(1) and 33(3)
[87] (1990) 169 CLR 195; 91 ALR 197 at 203; 202
[88] (1954) 90 CLR 177 at 194
[89] (1993) 40 FCR 409; 112 ALR 463; 29 ALD 616
At the preliminary hearing held on 9 June 2006, I decided that the decision under review was that made on 17 June 2005. It was the decision that was made by a delegate of the Secretary. Although it did not refer to the Secretary’s power to make it under s 95, it was clearly a decision made under that section. The effect of the delegate’s decision was that “… because of a situation set out in section 94, a person is not entitled to certain duty credit … the person is liable to pay to the Commonwealth an unearned credit liability.” He had clearly made a decision under s 95.
The letter dated 17 August 2005 clearly indicates in its subject line that it is a notice under s 102 of the ACIS Act. Its text reads as if it is and it sets out the information required under s 102. Certainly, it refers to s 95 as well as to s 102 but it does so in the context of explaining the recipient’s review rights. The letter dated 29 November 2005 does not refer to s 102 but it is clearly simply correcting an error made in the first notice. It does not hold itself out in any way as being another decision about the existence or size of a UCL.
There is a difference between a decision under s 95 and a notice under s 102. A notice under s 102 gives the person notice of a decision “If the Secretary determines that there is an unearned credit liability …”. That is to say, the obligation imposed by s 102 is predicated upon there being such a determination but it does not authorise its being made. The authority to make it is given by s 95. Apart from the letters of 17 August 2005 and 19 November 2005 not presenting themselves as decisions under s 95, they cannot be decisions of that kind.
It follows that the decision under review in this case is the decision made by the delegate under s 95 on 17 June 2005. What was that decision? It has two aspects. The first is that it decided that the original SFPL had a UCL for a reason in s 94(1)(a) of the ACIS Act. The size of that UCL was 69,481 duty credits. The first aspect of the decision is one that the Tribunal can review as s 114(j) gives it power to do so. The second aspect related to the recovery of those duty credits.
The recommendation approved by the delegate calculated the duty credits that had been issued to the original SFPL because of an error in calculating them or because of a mistake of fact within the meaning of ss 94(1)(a) and (b). It then went straight to s 103 stating that it required recovery within 30 days from the date of the issue of the notice detailing the UCL. It referred to the state of the ACIS ledger accounts of both the original SFPL and the current SFPL and stated that the current SFPL had sufficient duty credits to cover the UCL. The recommendation made no reference to s 101 or to ss 98 and 99 but it is inherent in its reasoning that it must have had regard to them.
That comes about because of the structure of the recovery provisions. Section 103 provides that:
“An amount of unearned credit liability that is outstanding under section 101 is payable to the Commonwealth within 30 days after the issue of the Secretary’s notice under section 102.”
It is clear from s 103 that there must be a calculation of what UCL is “outstanding under section 101”. Section 101 provides:
“So much of the person’s liability that has not been offset under sections 98 and 99 is the amount of unearned credit liability outstanding under this section.”
Section 98 provides that:
“If:
(a)a person is liable to pay to the Commonwealth an unearned credit liability in respect of duty credit of a particular kind; and
(b)the person has a balance of duty credit of the same kind as the liability;
the balance is to be offset against the liability.”
A liability to pay a UCL in respect of duty credit of a particular kind may be offset against other kinds of duty credits. That is the subject of s 99:
“If:
(a)a person is liable to pay to the Commonwealth an unearned credit liability, or a part of such a liability, in respect of duty credit of a particular kind; and
(b)the person:
(i)does not have any duty credit of that kind; or
(ii)does not have sufficient duty credit of that kind to fully offset the liability; but
(c)the person has a balance duty credit of a different kind;
the balance is to be offset against the liability in the order set out in section 100.”
A decision must be taken under s 101, then, before s 103 operates to impose the liability to pay the outstanding amount of UCL within 30 days of the issue of the notice under s 102. That is a decision that is reviewable by the Tribunal[90] even though the obligation imposed by s 103 to pay within 30 days of receiving a notice under s 102 is not.
[90] ACIS Act, s 114(k)
At the preliminary hearing, I also canvassed the possibility that the decision related to 9,862 duty credits. That was the figure given in AusIndustry’s letter to Mr Murphy dated 21 June 2005.[91] That figure was, however, corrected in a subsequent letter dated 17 August 2005 to 79,666 duty credits.[92] The Statement of Reasons given on behalf of the Secretary on 20 October 2005 states that the UCL is not 79,666 but 69,481 duty credits.[93] The Statement of Reasons, though, is not the decision but merely a reference to it. The decision is found in the minute of 17 June 2005. It records that 69,481 duty credits were issued to the original SFPL on the basis of the calculations under s 46 of the ACIS Act. When the Secretary decided that the original SFPL was not entitled to that duty credit, the effect of s 95 was that it was liable to pay the Commonwealth a UCL. The decision that the original SFPL was not entitled to 69,481 duty credits is the decision under review.
[91] T documents, 127
[92] T documents, 128
[93] T documents, 7-11
The decision under review, is not the decision to attempt to offset the original SFPL’s duty credits against those of the current SFPL. The reference to 79,666 duty credits comes from that part of the recommendation and decision that contemplated offsetting the original SFPL’s UCL. At the time, the current SFPL had 79,666 of duty credits available to it in its ACIS ledger. The current SFPL’s duty credits were referred to because there appears to have been an assumption that duty credits credited to the current SFPL could be used to offset the original SFPL’s UCL of 69,481 duty credits. There is a very real question whether the Secretary could take that course. Sections 97-102 speak of a person’s liability in respect of duty credit of a particular kind and of offsetting that liability against “that” person’s duty credit. They do not speak of a person’s liability and offsetting it against another person’s duty credit. Despite their common names and their operating the identical business, the original SFPL and the current SFPL are different companies and so different “persons” as that term is to be understood.[94] As it turned out, the Secretary did not attempt to offset the original SFPL’s UCL against the current SFPL’s duty credits. Had he been able to do so, he would not have needed to attempt to recover any UCL under s 103 as those duty credits held by the current SFPL were greater than the original SFPL’s UCL.
[94] Acts Interpretation Act 1901, s22(1)(a)
Before I leave this issue, I should return to Mr Slonim’s submission that the Secretary was prevented from altering his decision. I agree that is generally so because neither of the situations referred to in s 26 of the AAT Act has arisen. The ACIS Act does not expressly permit it to be altered and the parties have not consented to its being altered. This is not a case in which the Tribunal has remitted the decision to the Secretary under s 42D of the AAT Act for reconsideration so that the reconsidered decision becomes the decision under review.
That conclusion does not mean, however, that the Secretary must defend the precise terms of the decision that he has made when his decision is reviewed. Clearly, he cannot walk away from his decision that there is a UCL if the proceeding is to continue in the Tribunal. If he were to concede that there were no UCL, presumably the matter would end with a consent decision under s 42C of the AAT Act. If he does not concede that there is no UCL but contends that the amount of the UCL is greater or lesser than that originally decided, he may do so. The decision under review remains the same but, as a model litigant,[95] he has a duty to assist the Tribunal to carry out its duty to conduct a de novo review of the decision.[96] It must satisfy itself that the decision it reaches on that review is objectively the right one to be made on the facts of the case and according to the law.[97] If more than one decision is open to it, it is required to reach the preferable decision of those decisions that may correctly be made.[98] It could not fulfil these functions were it to limit itself to the decision made by, in this case, a delegate of the Secretary, and determine whether it is the correct decision. It can only do that if it is prepared to consider all of the issues that are raised by the relevant legislation and does not limit itself to issues defined by the parties or by one of them.[99] The Tribunal takes the views of the decision-maker into account but is not bound by them.[100]
[95] A reference to being a model litigant is a reference to the “… old-fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with subjects, … [which is] elementary …”. It is equally applicable to courts and public administrators who share a concern in securing good administration and so in maintaining public confidence in the integrity of administrative government: Kelso v Forward (1995) 60 FCR 39 at 66 per Finn J. They are reflected also in the Legal Services Directions (Directions) issued on 1 September 1999 by the Attorney-General and applying generally to legal work or to Commonwealth legal work being performed, or to be performed, in a particular manner.
[96] See also s 33(1AA) requiring the decision-maker to use “… best endeavours to assist the Tribunal to make its decision in relation to the proceeding.”
[97] Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60 at 599; 77 per Smithers J
[98] (1979) 24 ALR 577; 2 ALD 60 at 589; 68, per Bowen CJ and Deane J
[99] Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225 at 347-348, 19, 242 [73] per McHugh, Gummow and Hayne JJ.
[100] Re Becker and Minister for Immigration and Ethnic Affairs (1977) 1 ALD 158; 15 ALR 696 at 161; 699 per Brennan J, President, quoted with approval in Wilson v Minister for Aboriginal and Torres Strait Islander Affairs (1996) 189 CLR 1 at 18 per Brennan CJ, Dawson, Toohey, McHugh and Gummow JJ
THE APPLICANT’S SUBMISSIONS
The issue in the case, Mr Slonim submitted, is deceptively simple. The family behind the original and current SFPL have been manufacturers of automotive components for many years. There is no dispute as to what they make. They have always operated the business through a trustee company and hold units in that trustee company. When ACIS was introduced, the company applied for registration and was registered. There was never any question as to its bona fides. It has been a model ACIS citizen and has grown as the business expanded.
All that happened on 1 July 2003 was that there was an internal corporate restructure. The assets held by a unit trust were transferred to a new company. There was an insertion of a new entity to operate the business on a day to day basis. Nothing at all had changed. Despite the change of a name from Specifix Fasteners Pty Ltd to Specifix Holdings, the business was the same and the automotive components that it made were the same. The original company was still the trustee holding the units in the unit trust. The investment remained unchanged. The assets are now held by another company but the original SFPL holds shares in the current SFPL. In essence, the only change that occurred was that the assets changed to another company downstream and the old company holds shares in the new company. There was no commercial sale of the assets.
Mr Slonim said that the emphasis of the ACIS Act was upon investment and not upon ownership. Under s 6B, where a company is an investment company, it is entitled to duty credits. The original SFPL has an investment in the sense that it retained ownership of all of the units in the SFUT. There has been no real change.
Initially, Mr Slonim had contended that the asset transfer between the original SFPL and the current SFPL fell within the ambit of s 6C of the ACIS Act. Therefore, the Secretary should have determined that the investment by the current SFPL was an eligible investment of a specified type and taken to be an investment by the original SFPL. Although Mr Slonim said that these contentions were abandoned at the hearing, his submissions could be read as maintaining them.
CONSIDERATION
The circumstances in which a person is not entitled to a duty credit
The ACIS Act is a little different from many other pieces of legislation when it deals with the Commonwealth’s recovering that which a person has received but to which that person was not entitled had the legislation been properly applied in the circumstances. Generally, if a person is not entitled, that person is liable to repay or return what the Commonwealth has given. In the case of the ACIS Act, a person who has received duty credits is only liable to pay the Commonwealth a UCL if the person was not entitled to a certain duty credit because of a situation set out in s 94. There are five situations set out in that section and not one of them is cast in terms of the person’s not being entitled to duty credits in the first place. Rather, s 94 focuses on the way in which the person came to receive the incorrect number of duty credits rather than the fact of their having been credited at all.
How should the Tribunal approach its task in reviewing a decision under s 95? It could be argued that there is no point in deciding whether the person was entitled to receive duty credits in any event. After all, even if a person was entitled to them in theory, it could be argued that the person would not be entitled to them if that person had originally received the duty credits because, for example, the information given to the Secretary as inaccurate or incomplete but recalculation on the correct information led to the person’s being entitled to the same number of duty credits. That would not be a sensible outcome and I do not think that ss 94 and 95 are intended to be read in that way. Reading the two together, it seems to me that they should be read as first requiring a decision to whether the person was entitled to receive the duty credits in any event. If the person was not entitled to them the person is only liable to pay the Commonwealth a UCL if the person received them because of one of the five situations set out in s 94.
Which SFPL lodged the Quarterly Returns?
It is clear from the scheme of the ACIS Act that only participants are entitled to duty credits. It is also clear that it is participants who are required to lodge quarterly returns and not simply those who have made an investment of the relevant type. They are required to lodge them because only participants are entitled to duty credits.
During the relevant period relating to Quarters 3 and 4 of 2003 and Quarter 1 of 2004, the person registered as the ACP, and so the participant, was the original SFPL. It was not the current SFPL as it was not registered until 30 June 2004. I have already found that the original SFPL lodged quarterly returns in relation to Quarters 3 and 4 of 2003, the original SFPL, which was the participant and which lodged the quarterly returns but that, in relation to Quarter 1 of 2004, it was the current SFPL. That finding is based on the reference in the quarterly return to the ABN for the current SFPL, ABN60 in the Quarterly Return, and not the ABN for the original SFPL, ABN50.
Are persons other than participants entitled to duty credits?
Putting aside ss 6B and 6C for the moment as Mr Slonim made particular submissions about them, are persons other than participants entitled to claim duty credits? The answer to that has to be that they are not. The whole scheme of the ACIS Act is predicated upon persons’ receiving duty credits that they can apply against customs duty payable, or paid, on certain eligible imports in return for their investing in production and innovation in the Australian automotive industry. There is a careful scheme to ensure that the duty credits match the investments and that they are credited to those who made the investments. The ACIS Act requires, therefore, that persons are registered according to the category of the automotive industry in which they are engaged. It requires that participants be registered and that they maintain, in the case of an ACP, production of automotive components at the production levels set out in s 31. Participants are required to submit quarterly returns to show not only the investments in relation to which they claim duty credits but their production figures. The Secretary uses the information in the quarterly returns to go through the various steps required of him under the ACIS Act to calculate the duty credits.
It follows from this outline and from the more detailed analysis I undertook earlier in these reasons that the only persons entitled to a duty credit are participants. Those who are not participants are not entitled. As the current SFPL was not registered as a participant during the quarters under consideration, it is not entitled to duty credits. That is despite its having lodged the quarterly return for Quarter 1 of 2004 using ABN60 rather than the original SFPL’s of ABN50.
Does the asset transfer between the original SFPL and the current SFPL come within s 6C?
Mr Slonim touched upon a number of arguments that could be thought to raise s 6C even though he submitted that he was abandoning it. For that reason, I will consider it.
Consistent with the scheme of the ACIS Act, s 6C is concerned with circumstances in which an investment undertaken by a person may be treated as an investment undertaken by another person who is the participant and who is relying on that investment as eligible investment of a particular type. In this case, it was the current SFPL that made the investments under consideration in Quarters 3 and 4 of 2003 and Quarter 1 of 2004 and the original SFPL that was the participant. I note that s 6C(1) requires that the participant, the original SFPL, would have had to apply in the approved form to the Secretary to have investment undertaken by the current SFPL treated as its investment. On the material that I have, there is nothing to indicate that such an application was made but its absence or presence is of no consequence in view of the conclusions I have come to.
Section 6C is structured so that I must make an initial decision before I can decide whether I may make a determination under ss 6C(4) or (5)[101] that an investment is taken to be an eligible investment of a type undertaken by the participant. That initial decision is whether the circumstances of the relationship between the original SFPL and the current SFPL come within the guidelines made by the Minister under s 6C(2). There are three circumstances specified in the guidelines that would have to apply in the relevant period under consideration i.e. Quarter 3 of 2003 and Quarters 1 and 4 of 2004. I will consider each.
[101] Section 6C(5) is not relevant in the circumstances of this case as it requires that the original investor not be a participant at the time the investment was undertaken whereas the original SFPL was a participant at that time.
The first is set out in cl 4(a) and requires that the participant is a group of related bodies corporate of which the original investor becomes a member after the investment undertaken by the original investor has occurred. In the relevant period, the “participant”, and so the person registered as the ACP, was not a group of related bodies corporate but a single corporate body being the original SFPL. Therefore, the circumstance in cl 4(a) is not applicable.
The second and third circumstances set out in cll 4(b) and (c) require that the participant has taken over the entire business operation from the original investor, other than by acquiring shares in the original investor, or taken over part of the business operation. In each circumstance, the focus is upon the participant and whether the participant has taken over the business operation from the original investor. It follows that, as the original SFPL was registered as an ACP and so was the participant, the focus must be upon the activities of the original SFPL and not upon those of the current SFPL. As set out in s 6C, the original investor is the person who undertook the investment. That was the original SFPL. The original SFPL has not taken over any business operation from itself as the original investor or that part of the business operation for which it had made the original investment. Certainly, the current SFPL had taken over the entire business operation of the original SFPL but it was not the participant in the relevant period. Therefore, this is not a case in which it can be said that the participant, the original SFPL, has taken over the entire business, or that part of it for which the investment was undertaken, from the original investor; namely itself.
As none of the circumstances set out in the guidelines exists in this case, a determination cannot be made under s 6C(3). As there can be no such determination, there can be no determination under either ss 6C(4) or (5).
The effect of the transfer of assets from the original SFPL to the current SFPL under s 6B
The assets owned by the original SFPL were transferred to the current SFPL with effect from 1 July 2003. They were transferred as roll-over assets under Division 122 of the ITAA97. Mr Slonim submitted, the effect of transferring the assets as set out in Division 122 was that no tax was imposed. My reading of the provisions is that a roll-over can defer the making of a capital gain or the incurring of a loss in the prescribed circumstances. Either way, I do not consider that the provisions of the ITAA97 can affect the interpretation of s 6B of the ACIS Act. The former is directed to the collection of tax and the latter to the provision of assistance to encourage competitive investment and innovation in the Australian automotive industry. This is not a situation involving the interpretation of a word used in two statutory contexts that are dealing with similar subject matter or even with aspects of similar subject matter so that their words may be accorded meanings that are consistent and coherent across the two.[102] Therefore, the fact that a capital gain or loss can be deferred under the provisions of the ITAA97 cannot affect the interpretation of s 6B of the ACIS Act.
[102] See generally Statutory Interpretation in Australia, DC Pearce and RS Geddes, 6th edition, 2006 at [3.36]-[3.37]
The outcome set out in s 6B comes about if approved plant and equipment is “sold by, or on behalf of” a participant. The outcome is that the investment in that approved plant and equipment is to be treated from the start of the quarter in which the sale was made and so for the purposes of ss 43, 44, 46, 48 and 50 and so for the purposes of working out unmodulated credit, as having never occurred. The definition of the word “sale” is that it “has a meaning affected by s 6(2)”.[103] Section 6(2) provides that the Regulations may specify the circumstances in which a sale of goods or services is taken, or not taken, to have occurred. Goods or services are treated by the ACIS Act as separate from plant and equipment. Regard need be had only to the their separate treatment in, for example, in s 9 which is concerned with arm’s length transactions.
[103] s 6(1)
That takes me back to the ordinary meaning of the word “sold”. It is a derivative of the transitive verb “sell’ which has been considered in a number of cases. One is that of Commissioner of Taxation v Salenger,[104] in which French J said that it imported:
[104] (1988) 19 FCR 378; 81 ALR 25
“… if not the concept of voluntariness, then at least the notion that it is something done by the seller. This is borne out by the relevant parts of the definition of ‘sell’ in the Shorter Oxford English Dictionary as: ‘to give up or hand over (something) to another person for money (or something that is reckoned as money); esp to dispose of (merchandise, possessions etc) to a buyer for a price; to vend.’ …
A common law definition of ‘sale’ in relation to property is found in JP Benjamin, Law of the Sale of Personal Property (8th ed, 1950), p 2:-
‘By the common law a sale of personal property was usually termed a “bargain and sale of goods”. It may be defined to be a transfer of the absolute or general property in a thing for a price in money. Hence it follows that, to constitute a valid sale, there must be a concurrence of the following elements viz:-
(1)parties competent to contract;
(2)mutual assent;
(3)a thing the absolute or general property in which it is transferred from the seller to the buyer; and
(4)a price in money paid or promised.
…
The word ‘sale’ used in statutory settings has been given a more extensive application than its ordinary meaning would permit, when context of statutory policy demands. …”[105]
[105] (1988) 19 FCR 378; 81 ALR 25 at 381-382; 28-29
French J also considered the meaning of the word “sale’ in Sun World Inc v Registrar, Plant Variety Rights.[106]Section 14 of the Plant Variety Rights Act 1987 provides that plant variety rights shall not be granted if, among other matters, there has been a sale of a plant, or reproductive material of a plant, of that variety by or with the consent of the breeder. His Honour had to consider whether the term “sale” meant a transfer of property for real monetary consideration only. After canvassing earlier authorities along the lines of those he canvassed in the earlier case, he canvassed the legislative purpose or policy to be served by s 14. That purpose, he found was to enable plant breeders to apply for and to receive proprietary rights for new varieties of plants they develop. Within that framework, s 14 is intended to ensure a minimum level of commercial novelty in plant varieties for which protection is sought.
[106] (1997) 75 FCR 528; (1997) 148 ALR 447; (1997) 39 IPR 161; (1997) 25 AAR 414
With those purposes in mind, French J decided that the disposition of plant and reproductive material which was an element of an assignment of a right to make an application for plant variety rights is not a sale for the purposes of s 14. The transaction was properly characterised as an assignment of rights and the disposition of the plant and reproductive material was an incident of that assignment.
French J also considered whether disposition of reproductive material accompanied by a restrictive covenant could be regarded as a sale. Given that the word “sale” was defined to extend to hiring, he concluded that the word “sale” was not limited to the absolute or general transfer of property but extended to transfers for money subject to a restrictive covenant regarding resale.
It is clear from both cases that the word “sold” or “sale” will take it precise meaning from its context. Given the context and policy of the ACIS Act, it would seem that s 6B is seeking to exclude from the scheme the investment that a participant has made in plant and equipment when that participant has divested itself of that plant and equipment for consideration. There is nothing to suggest that the consideration is limited to money and may not take the form of something else that is described or regarded by the parties as providing consideration. The setting of the ACIS Act is that of the automotive industry and it is to be expected that transactions may take many forms and may not be limited to money in a commercial setting.
In this case, the original SFPL divested itself of its assets, including plant and equipment, on 1 July 2003 when it transferred them to the current SFPL. It received shares in the current SFPL by way of consideration. The upshot is that property in the plant and equipment passed to the current SFPL and the original SFPL received consideration in exchange. This was a situation in which the original SFPL sold its plant and equipment to the current SFPL. Therefore, the effect of s 6B is that, with effect from the beginning of Quarter 3 in 2003, it is as if the original SFPL had never made the investment.
Although I have disregarded the provisions of the ITAA97 deferring a capital gain or loss, Mr Gray correctly, in my view, submitted that the fact that a roll-over is recognised as a disposal of relevant assets and so as a CGT event under ITAA97 is consistent with the conclusion I have reached. It recognises that any capital gain is made or capital loss is incurred at that time but defers their taxation implications. In order for there to be such a capital gain or loss, there must have been a disposal by sale or otherwise.
It was implicit in Mr Slonim’s submissions that the assets were only notionally acquired by the current SFPL and were retained by the original SFPL. If this submission is based on the original SFPL’s holding shares in the current SFPL, I do not accept it. The original SFPL held the assets as trustee for the SFUT. On 1 July 2003, the original SFPL transferred the assets to the current SFPL in return for shares representing the total issued capital in the current SFPL. The original SFPL held those shares as trustee for SFUT. The essence of Mr Slonim’s submission is that, for all practical purposes, nothing has changed. The original SFPL once owned all the assets and now it owns all of the shares in the company, and so controls the company, that owns the assets.
The problem that I have with this submission is that owning shares in a company does not equate with owning that company’s assets, including any plant and equipment. Each company is a separate legal entity and the shares issued in that company represent property. Ownership of a share is ownership of that property. It is not ownership of anything beyond that and, in particular, it is not ownership of the assets of the company in which the shares are held.[107] Therefore, once the original SFPL had disposed of its plant and equipment in the roll-over arrangement, it had disposed of any interest it had in that plant and equipment despite the fact that it then held shares in the company, the current SFPL, to which it had made the disposition.
Did the original SFPL receive duty credits because of a mistake of fact or because information given to the Secretary was inaccurate or incomplete?
[107] Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 at 609 per Dixon CJ, Kitto & Taylor JJ
Although I have decided that the original SFPL was not entitled to receive duty credits in the first place, it will only be liable to pay the Commonwealth a UCL in respect of those duty credits if it received them because one of the situations in s 94. There are two relevant situations. The first in s 94(1)(a). It requires me to ask whether it received the duty credits because of a mistake of fact. The second is that in s 94(1)(b) which requires me to enquire whether the original SFPL receive duty credits because information given to the Secretary was inaccurate or incomplete?
Taking s 94(1)(a) first, I decided in Re Spicer Axle and Secretary, Department of Industry, Tourism and Resources[108] that “Given its context in the ACIS Act as well as its well known use in contra distinction to a mistake of law, that expression must be understood in its technical sense.” One explanation of its technical sense is that a:
“Mistake of fact is a mistake not caused by the neglect of a legal duty on the part of the person making the mistake, and consisting in (1) an unconscious ignorance or forgetfulness of a fact, past or present, material to the contract; or (2) belief in the present existence of a thing material to the contract which does not exist, or in the past existence of such a thing which has not existed.”[109]
[108] [2006] AATA 1004 at [165]
[109] Black’s Law Dictionary, 6th edition, 1990, West Publishing Co
In this case, it is apparent that the Secretary calculated the duty credits on the basis of an understanding that the original SFPL had not sold its plant and equipment in Quarters 3 and 4 of 2003. It was led to have that understanding by the information given in the quarterly returns lodged by the original SFPL in respect of those quarters. That was information that was also inaccurate within the meaning of s 94(1)(b).
In relation to Quarter 1 of 2004, the quarterly return was made in the name of the current SFPL but it was not a participant. In issuing duty credits to the original SFPL in respect of that quarter, the Secretary made a mistake of fact in thinking that the current SFPL, which lodged the quarterly return, was the original SFPL and that the original SFPL had retained the plant and equipment.
It follows that, because of the situations set out in ss 94(1)(a) and (b), the original SFPL was not entitled to the 69,481 duty credits it received. By virtue of s 95, it is liable to pay the Commonwealth the UCL.
I note that if, contrary to what I have decided, the decision were in relation to the current SFPL, it would not be entitled to duty credits because it was never registered as a participant. It would have received duty credits because of a mistake that it was a participant and so because of a mistake of fact within the meaning of s 94(1)(a).
For the reasons I have given, I affirm the decision made by a delegate of the respondent on 17 June 2005.
I certify that the one hundred and three preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President S A Forgie
Signed: ...............................................................
J Rathjen Associate
Date of Hearing 21 August 2006
Date of Decision 20 April 2007Counsel for the Applicant and
Party Joined Mr J SlonimSolicitor for the Applicant and
Party Joined Mr P WatsonCounsel for the Respondent Mr P Gray
Solicitor for the Respondent Ms E Nance
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