Very Important Business Pty Ltd and Commissioner of Taxation (Taxation)

[2020] AATA 4698

Very Important Business Pty Ltd and Commissioner of Taxation (Taxation) [2020] AATA 4698 (25 November 2020)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2019/0129

Re:Very Important Business Pty Ltd

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Senior Member R J Olding

Date:25 November 2020

Place:Melbourne

The decisions under review are affirmed.

..........................[sgd]..............................................

Senior Member R J Olding

Catchwords

TAXATION – GOODS AND SERVICES TAX (GST) – gold industry – creditable acquisitions - whether purported acquisitions of scrap gold included input taxed supplies of precious metal – whether applicant’s supplies included input taxed supplies – meaning of “regularly converts or refines” precious metal – burden of proving what assessments should have been not discharged – decision affirmed

Legislation

A New Tax System (Goods and Services Tax) Act 1999 (Cth), ss 9-5, 9-30(2)(a), 11-5, 11-15(2)(a), 11-20, 29-70, 38-385, 40-100, 66-5(2)(a), 195-1
Taxation Administration Act 1953 (Cth), s 14ZZK; Sch 1, s 382-5.

Cases

Imperial Bottleshops Pty Ltd v Commissioner of Taxation (1991) 22 ATR 148
Very Important Business Pty Ltd and Commissioner of Taxation [2019] AATA 1120

Secondary materials

Cambridge English Dictionary: dictionary.cambridge.org
Macmillan Dictionary: macmillandictionary.com
Oxford Dictionary of English (3^rd edition, 2010)

REASONS FOR DECISION

Senior Member R J Olding

1. This is case is about the extent to which Very Important Business Pty Ltd (“VIB”) is entitled to GST input tax credits (“ITCs”) on gold or items containing gold it says it acquired from three suppliers.

2. At least from two of the suppliers, VIB received what it described as “a bag of jewellery and other items”[1] which it weighed, melted and assayed, in so doing producing a gold bar. VIB paid the supplier an agreed amount per gram of gold contained in the bar. VIB says it was charged GST by the suppliers and is entitled to full ITCs on the acquisitions. The gold so produced was then, it says, brought into investment form and sold, with VIB treating the sales as not subject to GST. 

   [1] Applicant’s Closing Submissions, paragraph 14.

3. The Commissioner of Taxation (the “Commissioner”) is not convinced that what VIB acquired from these suppliers did not include input taxed supplies of “precious metal”.[2] To the extent, if any, the acquisitions were of that kind, VIB would not be entitled to ITCs because the supply to VIB would not be a taxable supply. There is also an issue regarding whether VIB in fact made the acquisitions from one of the alleged suppliers.

   [2] As defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (“GST Act”), s 195-1. All legislative references are to this Act unless otherwise indicated.

4. Alternatively, the Commissioner says it is for VIB to establish that none of the items acquired were used in making input taxed supplies of precious metal. To the extent the acquisitions related to VIB making such supplies, again VIB would not be entitled to ITCs.

5. The dispute concerns VIB’s activity statements for June, July and August 2016. The Commissioner issued assessments disallowing a proportion of the ITCs claimed in respect of two of the suppliers and 100% of the ITCs claimed in respect of the purported acquisitions from the third. VIB objected to the assessments and the Commissioner disallowed the objections. It is VIB’s application for review of those objection decisions which fall for consideration by the Tribunal.

   THE LEGAL FRAMEWORK

   The GST provisions

6. A taxpayer is entitled to an ITC on an acquisition if it a “creditable acquisition”: GST Act, s 11-20. That expression is defined in s 11-5 in a way that, relevantly for the issue in this case, requires that:

   (a)“the supply of the thing to you is a taxable supply”; and

   (b)you acquire the thing solely or partly for a “creditable purpose”.

7. A supply is not a taxable supply to the extent that it is “GST-free” or “input taxed”: s 9-5. An acquisition is not for a creditable purpose “to the extent that . . . the acquisition relates to supplies that would be input taxed”: s 11-15(2)(a).

8. As other elements of these provisions are not in dispute, this case concerns only the extent to which the relevant transactions:

   (a)in the case of VIB’s acquisitions of jewellery and other items - were not acquisitions of taxable supplies, because they were acquisitions of input taxed supplies or from persons who were not registered for GST; or

   (b)in the case of VIB’s supplies of bullion produced from those acquisitions - were input taxed supplies.

9. If VIB’s acquisitions were to any extent acquisitions of input taxed supplies or supplies from persons not registered for GST,[3] it is not entitled to full ITCs as it claims. If its supplies of bullion that it produced from its acquisitions were to any extent input taxed, rather than GST-free, similarly it will not be entitled to full ITCs on the acquisitions.

   [3] Sections 9-5, 11-5.

10. “Precious metal” is relevantly defined as “gold (in investment form) of at least 99.5% fineness”: s 195-1. The Commissioner’s view, which VIB did not dispute, is that for gold to be “in investment form”, it must be in a physical form capable of being traded on the international market, such as a bar, wafer or coin, and bear a hallmark or other recognised mark guaranteeing its fineness.  The Commissioner did not dispute that VIB’s supplies of bullion satisfied this requirement.

11. A supply of precious metal is input taxed if it does not satisfy the requirements for a GST-free supply: ss 9-30(2)(a), 40-100. Under s 38-385, the requirements for the supply to be GST-free are:

    (a)the supply is the first supply of the precious metal after its refining by, or on behalf of, the supplier; and

    (b)the entity that refined the precious metal is a “refiner of precious metal”, as defined in s 195-1; and

    (c)the recipient of the precious metal is a “dealer”, as defined in s 195-1, in precious metal, which requires that a principal part of carrying on its enterprise is the regular acquisition and supply of precious metal.

12. The s 195-1 definition of “refiner of precious metal” requires that the entity “regularly converts or refines” precious metal in carrying on its enterprise. The Commissioner, referencing the Oxford Dictionary of English (3^rd edition, 2010) definition of “regularly”, says the refining “must occur with a constant or definite pattern, recurring at short intervals of time, with some frequency”.[4]

    [4] Respondent’s Closing Submissions, paragraph 141.

13. In my view, this construction, to the extent it would require a constant or definite pattern of refining, is too restrictive. There are other meanings of “regularly”; for example, several dictionaries include “often” or “frequently” in their listed meanings.[5]  It would not, for example, be a strained use of language to say representatives of the Commissioner “regularly” appear at the Tribunal, even though they are neither constantly in appearance nor doing so according to a definite pattern. I can identify no policy reason or anything in the legislative context to require the Commissioner’s restricted meaning. Nor does the statutory definition seem to require a particular degree of scale provided the refining is carried out regularly.

    [5] Cambridge English Dictionary: dictionary.cambridge.org; Macmillan Dictionary: macmillandictionary.com.

    Burden of proof

14. VIB has the burden of proving the assessments are excessive and what the assessments should have been.[6]

    [6] Taxation Administration Act 1953 (Cth), s 14ZZK.

15. Thus, unless it proves all of the relevant acquisitions of jewellery and other items were of taxable supplies and none of the supplies of bullion produced from those acquisitions were input taxed, VIB cannot succeed in having the objection decision set aside and substituted with a decision allowing the objections in full. Nor can it succeed in having the objections allowed in part unless it proves the extent to which those acquisitions were taxable and the extent to which the subsequent supplies were GST-free.

    COMMISSIONER’S TREATMENT OF THE ACQUISITIONS

16. The disputed transactions are:

    (a)acquisitions from Syngold Investments Pty Ltd trading as Cash and Gold Exchange (“Cash and Gold Exchange”);

    (b)acquisitions from the trustee for the Margariti Family Trust trading as Gold N Pawn (“Gold N Pawn”); and

    (c)purported acquisitions from 888 Refining Australasia Pty Ltd (“888 Refining”).

17. In respect of the first two suppliers, the Commissioner considered some of the supplies to VIB were input taxed supplies of precious metal. If this is correct, VIB would not be entitled to ITCs on those acquisitions.

18. The practical difficulty facing the Commissioner was that, although VIB asserted that it did not receive precious metal from its suppliers, it did not keep a precise record of what it in fact received. The Commissioner obtained some information through inquiries he sought to make with persons from whom Cash and Gold Exchange and Gold N Pawn purchased the items those two entities sold to VIB. A significant proportion of the customers were not able to be contacted or did not provide responses that aligned with the suppliers’ GST treatment of their sales. On the basis of the information his officers did receive, the Commissioner was not satisfied that all of the purchases by Cash and Gold Exchange and Gold N Pawn and thus their sales to VIB were jewellery or the like rather than bullion bars or other precious metal in investment form.

19. From these inquiries, the Commissioner calculated the proportion of the acquisitions by these two companies he was satisfied were not gold or silver in investment form. Accepting only the percentages so determined for each company’s acquisitions, and applying them to VIB’s ITC claims, the Commissioner’s assessment reduced the ITCs claimed by VIB on purchases from Cash and Gold Exchange by 21% for each tax period and on purchases from Gold N Pawn by 90%, 95.7% and 87.8% for the June, July and August 2016 tax periods respectively.[7]

    [7] VIB’s submissions attacked this methodology. Even if the attack established the methodology was flawed and the assessments were excessive, this in itself would not discharge VIB’s burden of proof which, as noted, required that VIB prove what the assessments should have been.

20. The Commissioner also considered that VIB did not purchase from 888 Refining at all but rather from members of the public and that for reasons on which I elaborate below VIB was not entitled to ITCs under Division 66 of the GST Act.

21. In summary, the ITCs disallowed were as follows:

Tax period	Cash and Gold Exchange	Gold N Pawn	888 Refining	Total ITCs disallowed
June 2016	$1,341	$24,057	$1,427	$26,825
July 2016	$3,720	$35,397	$285	$35,397
August 2016	$1,045	$12, 267	$195	$12,267
Totals:	$6,106	$66,476	$ 1,907	$74,489

VIB’S CASE

1. Much of the evidence and particularly cross-examination in the case was directed to whether VIB could prove all of the items it received were not already precious metal, such that the supplies it received were not input taxed supplies. This included reference to photographs said to be of metal bowls of the jewellery and other items[8] received by VIB before they were melted down, and exploration of whether VIB’s witnesses could personally attest to the nature of the specific items received in each case.

   [8] Some of which appeared to include coins, which conceivably could have been precious metal.

2. VIB did not make a record of the specific items in the bags of jewellery and other items it received. Recipient Created Tax Invoices (“RCTIs”)[9] that VIB issued  described the items briefly, and only in generic terms – “Scrap Gold – Jewellery, Unrefined Bar” – which VIB’s director, Mr John Spiteri, conceded did not necessarily reflect with any precision the nature of the particular items in each case.[10] Further, they were not prepared when the bags of jewellery and other items were opened by reference to what was received but rather from assay reports prepared after the items were melted down to form a gold bar. [11]

   [9] Section 29-70(3).

   [10] Transcript, page 54, lines 31-45; page 55, lines 1-13.

   [11] Transcript, page 139, lines 24-25.

3. However, the primary case set out in VIB’s written submissions did not point to records or other evidence to prove the bags of jewellery and other items it received did not include items which were already precious metal. Rather, VIB asserted that, while the supplier provided a bag of jewellery and other items, “the ACTUAL item that it acquired from the supplier is a MELTED BAR”.[12]

   [12] Applicant’s Closing Submissions, paragraph 13.

4. VIB supported the contention with the following submissions:

   14. The Applicant maintains that it did not purchase the jewellery items. The applicant was provided with a “bag of jewellery and other items”. As a result it was not able to attribute specific details and values to each single item. Such a process is completely impractical and time consuming and would subject the Applicant to possible losses if forced to purchase these individual items. The Melt and Assay Report provides an accurate result and record of what was actually purchased by the Applicant.

   15. At the point of Melt and Assay the nature and item has been changed both in substance and form into a new different item. As such the Applicant believes that the correct information has been provided in the Tax Invoices to support its claim of what has been purchased.[13]

   16. If the Applicant had in fact purchased “Jewellery” then the Applicant would have the option to retain individual pieces and to then on-sell or have the ability to choose what to do with the items. The Applicant had no such option.

   17. The Supplier made the decision to conduct the Melt and Assay service which ensures that they obtain an accurate report of the quantum of gold contained in their items.

   18. The nature of the Suppliers items are problematic as items could be stamped with incorrect carats, items could be plated, items could be wax filled, items could contain different carats. All of these issues essentially force parties to conduct a Melt and Assay unless parties are willing to bear the relevant risks.[14]

   [13] A surprising contention, when it is recalled that the RCTIs include reference to “jewellery”.

   [14] Applicant’s Closing Submissions, paragraphs 14-18.

5. Without more, it is conceivable that the transactions between the suppliers and VIB could be characterised in one of at least two ways:

   (a)a sale and purchase of the bag of jewellery and other items, with the price determined by applying an agreed price per gram of gold to the weight of the gold bar as determined by the melt and assay process; or

   (b)as VIB now asserts, an arrangement under which VIB carried out a melt and assay service on the supplier’s materials, thus producing for the supplier a gold bar, which VIB then purchased from the supplier.

6. It is surprising that VIB’s characterisation of the transactions was not raised in any previous submissions by VIB – not in its notice of objection, nor in its Statement of Facts Issues and Contentions filed in this proceeding or an opening statement by VIB’s tax agent, Mr Leahy, who appeared for VIB at the hearing. Nor was it asserted in any witness statement filed on behalf of VIB before the hearing. The only reference to VIB purchasing the gold bar brought to my attention was by Mr Spiteri, in response to cross-examination.[15]

   [15] Transcript, page 53, lines 23-25, 46-47.

7. VIB’s submissions assert:

   . . .

   . . .

   d. The Supplier and the Applicant AFTER knowing the quantum of gold content within the melted bar are then in a position to negotiate the final terms of the purchase/sale. The parties finalise both the amount of gold being paid for as well as the price per gram for the gold being purchased.

   e. After this an “External Melt and Assay Report” is produced for the parties which includes all the details of the transaction including the amount of gold being sold, the price per gram being paid and the total purchase price of the melted Bar.[16]

   [16] Applicant’s Closing Submissions, paragraph 9.

8. At first blush, this seems to provide some support for VIB’s submission. If the price per gram was not determined until after the melt and assay was undertaken, it might be inferred that the supplier or VIB could decline to proceed to a sale if agreement could not be reached on price. That would support a view that it was the gold bar and not the jewellery and other items, whatever their character may have been, for which the price was paid.

9. This characterisation is also, again at first glance, supported by statements provided by Mr Spiteri and his daughter, Ms Whitbread, who worked in VIB’s office above the refinery, that the price is “locked in” after the melt and assay. However, on closer examination, while referred to as “locking in” the price, the evidence is that the price would always be a pre-agreed percentage of the then prevailing spot price of gold. Rather than communications with the supplier after the melt and assay being to, as Ms Whitbread said in her witness statement,  “lock in (agree on a price per gram), as Ms Whitbread explained under cross-examination there was no negotiation but rather the supplier was informed of the amount that would be paid based on the grams and the agreed percentage of the prevailing spot price of gold.[17]

   [17] Witness statement of Jade Whitbread dated 25 February 2020, page 1. Transcript, 134, lines 21-30. This is also consistent with responses in the transcript of the formal interview of Mr Sun of Cash and Gold Exchange with the Commissioner’s officers: T 30, page 822, lines 19-27; 848, lines 20-38.

10. It is not surprising that the basis for determining the price would be agreed in this way. Indeed, it would be surprising if the arrangements between the suppliers and VIB were such that VIB could incur time and operating expenses in carrying out the melt and assay, only to have the supplier decline to proceed and, one presumes, call for possession of the bar produced at VIB’s expense. There is no evidence of any agreement that VIB would be paid for a melt and assay service.

11. Indeed, no evidence at all was drawn to my attention in support of the way VIB sought to characterise the transactions in its closing submissions. As already noted, Mr Spiteri did state for the first time under cross-examination that VIB was purchasing gold bars from these suppliers. However, that is a statement of a conclusion regarding the character of the transaction rather than evidence upon which to base a conclusion.

12. Finally in this regard, I note the RCTIs, with their references to both “jewellery” and “unrefined bar”, are unhelpful. The RCTIs certainly do not provide unequivocal support for VIB’s submission that it only purchased the resulting gold bar, since they explicitly refer to jewellery.

13. Given the absence of any direct evidence of the existence of an agreement for the provision of an unpaid melt and assay service followed by an agreement for the sale and purchase of the resulting gold bar, as belatedly asserted by VIB, or of facts from which an inference of such an agreement might be drawn, and having regard to the discussion above, I am not persuaded VIB purchased gold bars rather than whatever may have been the contents of the bags of jewellery and other items.

14. Accordingly, VIB has not discharged the burden of proving the assessments are excessive in the way it has chosen to argue its case in its closing submissions: that it acquired only gold bars (which were not “precious metals” as defined for GST purposes) from the suppliers.

    DOES THE EVIDENCE OTHERWISE DISCHARGE VIB’S BURDEN OF PROOF?

15. Although I am not satisfied VIB has discharged the burden of proving the assessments are excessive in the way it put its case, VIB’s submissions also referenced records and other evidence relevant to whether the bags of jewellery and other items it received contained precious metal, and other issues.

1. The discussion which immediately follows concerns whether the evidence relied upon by VIB is sufficient to discharge its burden of proving:

   (a)VIB’s acquisitions from Cash and Gold Exchange and Gold N Pawn did not include precious metal;

   (b)VIB made the alleged acquisitions of taxable supplies from 888 Refinery; and

   (c)even if (a) and/or (b) are established, that VIB was entitled to full ITCs on the acquisitions or, if not, what proportion of the acquisitions were for a creditable purpose (“the ITCs quantum issue”).

   (a)  Acquisitions from Cash and Gold Exchange and Gold N Pawn

2. Rather than endeavouring to adduce evidence from these suppliers, VIB sought to rely on the evidence of Mr Spiteri and Ms Whitbread. A difficulty with that evidence was that it did not establish that they personally observed what was contained in the bags of jewellery and other items acquired from the supplier in respect of each of the disputed transactions. Ms Whitbread was not involved in opening and weighing the contents of the bags or the melt and assay process and, despite some assertions to that effect, the evidence did not establish that Mr Spiteri was present on each occasion a bag of jewellery and other items was received.[18] Nor did Mr Spiteri or Ms Whitbread or anyone else make any record of what was contained in each bag, other than a photograph as discussed further below.

   [18] To the extent there is inconsistency between evidence of Mr Spiteri and Ms Whitbread, I prefer the evidence of Ms Whitbread. Mr Spiteri’s evidence contained a number of inconsistencies and suggested a reluctance to acknowledge facts against VIB’s position, whereas my impression was that Ms Whitbread did her best to answer questions accurately, to the extent she could in respect of procedures carried out some years previously.

3. It is not surprising Mr Spiteri could not recall specific transactions some years later. However, the evidence establishes that certain Ghanaian trainees, in Australia under temporary visa arrangements sponsored by 888 Refining but apparently by 2016 employed by VIB, at least on some occasions emptied the bags of jewellery and other items. Contrary to assertions in witness statements, Ms Whitbread under cross-examination confirmed it was not necessarily her father who opened the bags and could have been any of the trainees.[19] Indeed, it seems it was more commonly the trainees who received the bags of jewellery and other items.[20]

   [19] Transcript, page 135, lines 30-44 (Ms Whitbread).

   [20] Transcript, page 31, lines 40-45 (Mr Spiteri).

4. No attempt was made to call the Ghanaian trainees because, Mr Spiteri said, they had returned to Ghana.[21] One wonders how VIB could now be assured that the trainees carried out their duties faithfully in any case, since Ms Whitbread gave evidence that they had stolen a substantial value of gold from VIB. At the least, that they were able to do so casts doubt on Mr Spiteri’s insistence that he supervised their work.[22]

   [21] Transcript, page 32, lines 4-8.

   [22] Transcript, page 154, lines 35-37.

5. VIB’s submissions refer to a long list of categories of records such as RCTIs, assay reports, batch sheets and delivery dockets.[23] The difficulty for VIB is that, with two exceptions, these records do not purport to be a record of the issue relevant to this part of the case: the nature of the items received from the suppliers. The two exceptions are the RCTIs and the photographs.

   [23] Applicant’s Closing Submissions, paragraph 24.

6. The RCTIs, as I have already observed, are unhelpful as they do not describe the contents of the bags of jewellery and other items in any detail.  Mr Spiteri agreed that the generic description was a catch-all designed to cover every possibility rather than a precise description. The most that could be said is that they do not include any reference to precious metal by, for example, stating the degree of fineness, but nor do they include other items Mr Spiteri stated might be part of the acquisitions.[24]

   [24] Transcript, page 53, lines 9-15.

7. The photographs are said to have been taken each time a bag of jewellery and other items was received and poured into a bowl for weighing and melting. They are also not particularly persuasive as there is no evidence, such as a statement by the person who took the photograph in each case, directly linking the photographs to particular transactions, although they are marked with reference numbers for the transactions. Further, as the Commissioner observed in his written submissions, it is impossible to see from the photographs what may be under the jewellery, coins etc that are visible on the top of the bowl.

8. Mr Spiteri said the suppliers would not sell bullion to VIB at less than spot price – for example, 96% of spot price plus GST as VIB was paying at one point for the acquisitions - because they could sell it elsewhere at a higher price net of GST. The Commissioner submitted the transactions were uncommercial without the ITCs because VIB in fact paid more than the spot price of gold “inclusive of GST”; for example, 96% of spot price plus GST or approximately 106% of spot price.  I do not accept the Commissioner’s submission in this regard. Spot price is an international market price which it is not customary to quote as a price inclusive of GST in the subject jurisdiction. It is because the price of gold is set in this way that in Australia, as elsewhere, gold bullion of at least the requisite degree of fineness is not subject to GST. If the suppliers were correct in treating their supplies as taxable, their net position would have been that they were receiving less than spot price – that is, 96% of spot price - after paying GST.

9. In the end, I am left with this:

   (a)VIB failed keep a proper record of what was supplied to it by the two suppliers.

   (b)The Commissioner’s inquiries indicated their doubts regarding the character of the items received.

   (c)Notwithstanding that VIB was on notice of (b) from early in the proceedings, and indeed before they commenced, no attempt was made by VIB to obtain evidence from either supplier, and nor was any substantive explanation for not doing so provided.

   (d)Although Mr Spiteri may have been present when some of the bags of jewellery and other items were opened and melted down, he was not always present and could not give evidence of what occurred with each disputed transaction. Nor could Ms Whitbread.

   (e)No attempt was made to obtain a statement or other evidence from the Ghanaian trainees regarding their work; in particular, what items they observed when they opened the bags of jewellery and other items; whether they contained gold bullion; and, if so, what would become of it. I accept that it may not have been practicable to do so, but there was no evidence of any attempt or reason offered for not making an attempt other than their return to Ghana, which may have been an insurmountable barrier, but again there was no evidence either way.

10. As these factors indicate, there is no reliable direct evidence of the precise nature of what was received on each and every occasion during the subject tax periods when VIB received the bags of jewellery and other items.  Additionally, RCTIs for part of the period contained this curious statement:

    “The parties have agreed that the payment for the goods has been made and received via Electronic Funds Transfer.

    The GST has been made in cash ad the parties agree that Very Important Business Pty Ltd has agreed and remitted the GST component to the Australian Taxation Office.

    As such you will need to ensure that in your BAS that you have recorded the sale and acquisition as normal inclusive of GST.”[25]

    [25] For example, RCTI dated 12 August 2016 issued to Gold N Pawn, Applicant’s Materials, 3.11.

11. There is no obvious reason why VIB, the recipient of the supply, would be remitting GST nor any evidence that it did so. These statements, and Mr Spiteri’s inability to explain them, and other irregularities, do not engender confidence in the veracity of VIB’s records.[26]

    [26] Other unexplained irregularities included duplicated RCTI agreements and tax invoices issued by one of the suppliers who had undertaken in the RCTI agreement not to do so, and incorrect ABNs in documents.

12. On the other hand, I have had the benefit of hearing from Mr Spiteri regarding the nature of the business and systems in place at VIB. Although self-serving, I do not regard Mr Spiteri’s evidence as prima facie unreliable but must treat it with care.[27] Mr Spiteri’s evidence was, as the Commissioner submitted, in some respects inconsistent and not as clear as it could have been. And I accept, as the Commissioner submitted, there was no sound evidentiary foundation on which to conclude Mr Spiteri supervised the opening of each of the bags of jewellery and other items from Cash and Gold Exchange and Gold N Pawn. Ms Whitbread certainly did not as she acknowledged.

    [27] Imperial Bottleshops Pty Ltd v Commissioner of Taxation (1991) 22 ATR 148, 155.

13. However, I do not accept the Commissioner’s submission that I should give the entirety of Mr Spiteri’s evidence no weight at all.  It is important, in my view, to consider evidence of a kind given by Mr Spiteri in its context. Mr Spiteri is highly experienced in his field but did not present as a witness with a particularly sophisticated or precise mode of communication. Viewed in that light, as he described the nature of the melt and assay process, my impression was that Mr Spiteri in his own way gave an honest account of the basic processes in place. For these reasons, I accept Mr Spiteri’s essential account of the process: that VIB received bags of jewellery and other items; weighed and melted the scrap items to produce a bar; and paid the two suppliers based on the weight of the gold and the prevailing spot price.

14. I do not think it would be essential in the context of this matter that I have direct evidence of the precise contents of the bags for each and every transaction to be satisfied they did not include precious metal. While it is for VIB to prove its case, the Commissioner did not suggest the acquisitions were not made at all; the focus was on the contents of the bags of jewellery and other items, not whether they were in fact acquired by VIB.

15. The absence of a proper record of the contents of the bags of jewellery and other items is unfortunate. However, I do not think that alone would necessarily be fatal when considered in context. A proper record would have required a list of each and every item in each bag. The records that were kept would not satisfy the record keeping requirements of tax legislation. But in the context of a small business with few staff and, apparently limited understanding of the intricacies of the GST law in respect of precious metals, I should not rush to a conclusion that VIB has not shown the bags did not contain precious metal on the basis of this shortcoming alone.[28]

    [28] These comments should not be taken to condone VIB’s failure to maintain proper records, which as observed later was contrary to its statutory obligations and its own interests in being able to substantiate its ITC claims.

16. As Mr Spiteri said in his evidence, it would not make commercial sense for the suppliers to sell gold in investment form to VIB at a price less than the prevailing spot price of gold when they could obtain a higher price elsewhere. Nor would there be anything to be gained by VIB, having paid a GST-inclusive price and claimed an ITC, melting down gold already in investment form to include it in other gold to be produced in that form, rather than selling it directly as VIB did with other bullion it purchased and resold.

17. I can identify no manipulation of the GST system in what is said to have occurred. It is true that if, as the Commissioner thinks, some of the items received were precious metal, VIB would not be entitled to ITCs. But nor would the suppliers be liable for GST. If that were the case, they would not be able to justify a price inclusive of GST that exceeded the spot price and it would be irrational for VIB to pay such a price. There would be no overall net loss or gain if the supplies to VIB were erroneously but consistently treated as subject to GST by each party.

18. The Commissioner did not allege and there is no evidence drawn to my attention to suggest a conspiracy to evade GST. I appreciate it is not necessary for such evidence to be brought for the Commissioner to succeed. I merely make the point that Mr Spiteri’s description of the business model and process engaged in by VIB is plausible and rational. The alternative hypothesis – that the parties were unnecessarily treating gold in investment form as subject to GST when there is nothing to be gained under the GST Act from doing so – is not, assuming there was no other mischief afoot on the part of the suppliers or VIB.

19. For these reasons, in my view VIB’s case is not as hopeless in this regard as the Commissioner’s submissions suggest. However, as already alluded to, the matter comes down to this: The Commissioner’s inquiries put VIB on notice that there were reasons to believe what the two suppliers received and sold on to VIB included gold in investment form. Contrary to its statutory obligation, VIB did not maintain proper contemporaneous records of what was received nor could either of its witnesses provide direct evidence in that regard. VIB could have, but did not, seek to have the suppliers or anyone else verify what they sold to VIB, and provided no substantive reason for not doing so. Additionally, some documents contained inexplicable references to the GST treatment of the transactions, on which Mr Spiteri was unable to cast any light. With some hesitation in view of the countervailing factors I have mentioned, I conclude VIB has not established that the bags did not contain any gold in investment form.

20. However, even if I were to decide in favour of VIB that all of its acquisitions from these two suppliers were of taxable supplies, it would not change the outcome of the case. That is because it would not follow that VIB has proved its entitlement to ITCs on its acquisitions from these suppliers. It would still be necessary for VIB to establish either that there was no blocking of ITCs on account of its supplies of the precious metal produced being input taxed or at least quantify the extent to which ITCs were allowable, in order to prove what the assessments should have been. For the reasons set out below, VIB has not established either. But first, I turn to consider the purported acquisitions from 888 Refining.

    (b)  Purported acquisitions from 888 Refining

21. At relevant times, Mr Leahy was the sole director of 888 Refining, which formerly operated a refinery but from late 2015 licensed VIB to do so.[29] 888 Refining also held a second-hand dealer’s licence (“SHDL”).

    [29] T3 pages 28-29, licence agreement dated 1 December 2015.

22. VIB did not obtain a SHDL until 2017 but Mr Spiteri says VIB “used” 888 Refining’s SHDL to acquire scrap jewellery from members of the public.[30] VIB says it could not acquire and sell the items directly without a licence as that would have been a breach of state legislation regulating dealers in second-hand goods.

    [30] Witness Statement of John Spiteri dated 3 March 2020, page 2.

23. It is not clear nor was it explained how one entity may “use” another entity’s SHDL. VIB’s submissions suggest this was one of various options open to it in undertaking these transactions but offer no further explanation.[31] However, it is apparent VIB maintains 888 Refining acquired jewellery and other items from various persons and VIB in turn acquired gold from 888 Refining which it refined and on-sold, treating the subsequent sales as not subject to GST.

    [31] Applicant’s Closing Submissions, paragraph 39.

24. For the same reasons I have outlined in respect of the Cash and Gold Exchange and Gold N Pawn, I am not satisfied VIB acquired gold bars produced from a melt and assay process from 888 Refining.

25. In respect of whether VIB has established that it made the acquisitions from 888 Refining, VIB faces a number of hurdles:

    (a)It is not clear how 888 Refining could have made the acquisitions. Mr Spiteri seemed to indicate that a JoJo, one of the trainees, made the acquisitions on behalf 888 Refining. However, the trainees were by then being trained by VIB, not 888 Refining.[32] Mr Spiteri asserting the trainees carried out the transactions on behalf of 888 Refining does not establish that they did so. Mr Spiteri was not a director of 888 Refining at the relevant time and thus had no authority to engage the trainees on 888 Refining’s behalf.

    (b)There is no suggestion that 888 Refining by this time had any other employees or contractors who could have made acquisitions on its behalf. In fact, Mr Spiteri had confirmed that it was not operating.[33] This is consistent with the record of an earlier interview conducted by the Commissioner’s officers in which Mr Leahy stated that 888 Refinery’s employees were dismissed by mid-December 2015 and the company was dormant.[34] Nor is there any suggestion that its sole director, Mr Leahy, made the acquisitions on behalf of 888 Refining.

    (c)Additionally, the purchase receipts for acquisitions from members of the public were made out in a way that indicated VIB not 888 Refining was the purchaser.[35] This is not a case where 888 Refining used VIB’s standard documents, and may have, for example, mistakenly failed to change the name to 888 Refining: “VIB Refining Services” appears in handwriting on the receipts, indicating VIB was specifically inserted as the name of the purchaser, not 888 Refining.

    (d)There were tax invoices between 888 Refining and VIB in evidence. However, Mr Spiteri was not able to state whether or not they were produced at some later time, after it was discovered that VIB did not have a SHDL, merely saying “I don’t know” when that proposition was put to him.[36]

    (e)The apparent inconsistency between the statements that 888 Refining was not operating and had no funds on the one hand, and being said to have been conducting an enterprise of buying and selling scrap gold in mid-2016 on the other, was drawn to attention in the Commissioner’s objection decision and Statement of Facts Issues and Contentions; in cross-examination; and in the Commissioner’s closing submissions. No explanation was forthcoming, only the assertion that 888 Refining was purchasing from the public because VIB could not do so without a SHDL.

    (f)Mr Leahy as the sole director of 888 Refining could, one presumes, have provided evidence on behalf of 888 Refining explaining the transactions, but was not called to give evidence and did not provide a witness statement.

    (g)VIB advertised during this period that it, VIB, would purchase from the public. Mr Spiteri was not able to explain this other than his assertion that VIB was hoping to get a SHDL.[37] There is no evidence of 888 Refining advertising in this way.

    [32] Transcript, page 77, lines 14-21.

    [33] Transcript, page 75, lines 13-14.

    [34] T4, page 80.

    [35] For example, Receipt of Goods dated 14 June 2016, Applicant’s Materials, 6.33.

    [36] Transcript, page 75, lines 32-37.

    [37] Transcript, page 77, lines 1-4.

26. Having regard to the documentation that was and was not in evidence; the evidence that 888 Refining had ceased operating and had no funds or employees; and the unexplained absence of evidence from the one person who, as its director, could have given evidence on behalf of 888 Refining, I cannot be satisfied that VIB purchased anything from 888 Refining in the relevant periods. Essentially, Mr Spiteri asserted that the acquisitions were made by 888 Refining but did not explain how a company without funds or employees could engage in these transactions.

27. For completeness, I note that if, contrary to VIB’s contention, VIB purchased directly from members of the public who were not registered for GST, it would not have been entitled to ITCs on these acquisitions. While Division 66 allows for ITCs on acquisitions of second-hand goods from unregistered persons, this only applies for such acquisitions “for the purposes of sale or exchange (but not manufacture)”: s 66-5(2). Purchasing scrap gold for the purpose of refining it into precious metal would not satisfy that requirement.

    (c) ITC quantum issue

1. Even if it were accepted that VIB acquired all of the jewellery and other items from Cash and Gold Exchange and Gold N Pawn by way of taxable supplies, VIB would still need to establish the extent to which its subsequent supplies of gold were GST-free. If, instead, they were to any extent input taxed, then to that extent s 11-15(2)(a) would deny ITCs on the acquisitions.

2. In that regard, the Commissioner submitted that VIB has not proved that its supplies were GST-free s 38-385, and in particular has not established as required by that section that:

   (h)VIB was a “refiner of precious metals” as defined; in particular, that VIB regularly converted or refined precious metals;

   (i)each of its relevant supplies were the first supply of precious metal after refining by VIB;

   (j)VIB’s supplies were in each case to a “dealer in precious metals” as defined.

3. Adopting the meaning of “regularly” identified at paragraph [13] above, and noting the Commissioner’s own submissions acknowledge VIB’s refining batch sheets indicate VIB refined on average every few days[38] - occasionally on successive days but ordinarily on occasions no more than a few days to a week apart - I accept VIB was regularly refining in the course of its enterprise. On that basis, I would accept that to the extent that VIB sold gold in investment form, which it had itself refined, to dealers, those sales would be GST-free.

   [38] Respondent’s Closing Submissions, paragraph 14.

4. Of course, it is not necessary for VIB to prove all its supplies were GST-free, in order to be entitled to ITCs on the contested acquisitions, only the extent to which gold created from the contested acquisitions was sold or to be sold in a GST-free supply and not an input taxed supply. 

5. However, an insurmountable difficulty for VIB is that there is no basis in the evidence before the Tribunal which has been drawn to my attention that would allow whatever entitlement to ITCs there may be to be determined. At least some of VIB’s recurring bullion supplies were to a customer, Bulk Bullion, which the Commissioner accepts is a dealer. There are other recurring supplies to a customer, Millennium Chain, which appears to be a manufacturing jeweller, and which VIB treated as subject to GST. Additionally, there are cash sales treated as not subject to GST; it seems unlikely, and certainly is not proved, that these sales were to dealers.[39]

   [39] GST Reports, T7.5, pages 376-378, 396-398.

6. More significantly, there is nothing in the evidence VIB brought to my attention or in its submissions which would allow me to determine what proportion, if any, of VIB’s acquisitions from Cash and Gold Exchange and Gold N Pawn were inputs into bullion VIB sold to dealers. Although this issue was explicitly flagged in his submissions by the Commissioner, VIB’s submissions reveal no basis for tracing the jewellery and other items received to sales of bullion produced from each batch of those items.

7. Nor do VIB’s submissions suggest any way of calculating the extent to which gold produced from scrap acquired from Cash and Gold Exchange and Gold N Pawn found its way into precious metal sold to dealers on the one hand or to jewellers or other customers on the other. Mr Spiteri, although initially maintaining that VIB’s records did record such tracking, although he could not recall how, ultimately seemed to concede that they did not permit tracking of what was acquired and on-sold.[40]

   [40] Transcript, page 104, lines 14-16.

8. The issue is compounded by the fact that, despite Mr Spiteri stating that VIB’s acquisitions of gold bullion were “minimal”,[41] the evidence establishes that at least on some occasions VIB made substantial acquisitions of gold bullion from other suppliers.[42] VIB does not explain how it could be determined whether bullion sold to dealers was sourced from those external suppliers or from VIB’s own refining. Again, notwithstanding this issue being explicitly raised in the Commissioner’s submissions, VIB failed to confront the issue at all.

   [41] Transcript, page 93, line 28.

   [42] For example: Invoice no. 110007 dated 29 August 2016 from AGC Refiners Pty Ltd for 6 x 1 kg investment grade gold bars in the total amount of $337,135 (Applicant’s Materials, page 6.230).

9. This tends to reinforce the inference available from Mr Spiteri’s and Ms Whitbread’s replies in cross-examination that VIB simply treated its supplies of bullion as not subject to GST and had no focus upon, and made no attempt to determine whether, those supplies were input taxed or GST-free. In cross-examination, Mr Spiteri and Ms Whitbread appeared to be unaware of the distinction between input taxed and GST-free supplies or its significance for VIB’s record-keeping and GST compliance.[43]

   [43] Transcript, page 87, line 36 and following (Mr Spiteri); page 159, lines 13-24.

10. The upshot is that on the evidence before the Tribunal it is not possible to be satisfied VIB’s sales of precious metal refined from items acquired from Cash and Gold Exchange and Gold N Pawn did not include input taxed supplies to customers who were not dealers. That being so, I am unable to be satisfied that VIB was not at least to some extent properly denied ITCs on acquisitions from those entities because the acquisitions related to making input taxed supplies. VIB simply maintained that it was entitled to ITCs on these acquisitions and, despite prompting by the Commissioner’s submissions, did not submit any basis on which I might be able to calculate any proportional entitlement to ITCs if indeed there would have been any such entitlement.

    CONCLUSION

11. On the basis of the findings I have made regarding the purported acquisitions from 888 Refining, it is clear VIB is not entitled to ITCs in the amounts it has claimed. For the reasons set out above, I cannot determine whether VIB had any entitlement to the other contested ITCs and certainly cannot quantify any entitlement on the evidence and submissions before the Tribunal.

12. This case, like so many tax cases, underlines the importance of full compliance with the record-keeping requirements of the taxation laws. VIB was required to keep records that record and explain all relevant transactions such as to enable its entitlements to be “readily ascertained”[44] and to produce RCTIs that contained enough information for “what is supplied” to it “to be clearly ascertained”.[45] Especially in a context where entitlements to ITCs notoriously turn upon the nature of the acquisitions and subsequent supplies, VIB not only had statutory obligations but a strong self-interest in retaining proper records of the things it acquired and supplied.

    [44] Taxation Administration Act 1953 (Cth), Schedule 1, s 382-5.

    [45] GST Act, s 29-70(1)(c)(iii).

13. The case also underlines the importance of applicants in tax cases understanding the imperative, if they are to discharge their burden of proof, of providing evidence not only that the Commissioner’s assessment is excessive but also as to the correct amount of the assessment or at least a basis on which the correct amount might be determined. This information and, if proper records are kept, supporting evidence, are peculiarly within the knowledge and possession of the applicant.

14. Neither VIB nor Mr Leahy is a stranger to administrative review before the Tribunal which, in its decision in an earlier case in which Mr Leahy represented VIB, set out at some length the implications of the applicant bearing the burden of proof in taxation cases.[46] Further, the Commissioner reiterated those requirements in his Statement of Facts Issues and Contentions filed and served in the current proceeding. At the conclusion of the hearing, I made directions allowing the parties time to file written submissions referring to the evidence and reminded Mr Leahy that his client needed to prove its case, not merely seek to pick holes in the Commissioner’s.

    [46] Very Important Business Pty Ltd and Commissioner of Taxation [2019] AATA 1120, [12]-[14].

15. It was also agreed, and I directed that, exceptionally, the Commissioner would file and serve his closing submissions first, so that VIB would have a full opportunity to address the legal and evidentiary issues addressed in the Commissioner’s closing submissions. At the request of Mr Leahy, I allowed considerably more than the usual amount of time for VIB to file its submissions. The Commissioner’s closing submissions set out the statutory and evidentiary basis of his case at length, including the potentially, and as matters transpired, ultimately fatal failure to establish the GST classification of VIB’s supplies and the link between the contested acquisitions and those supplies.

16. Accordingly, I am satisfied that every reasonable effort has been made to facilitate VIB proving its case. In the end, it is for the taxpayer to maintain proper records and put forward evidence and a coherent basis on which to prove its case. VIB has not done so.

17. It follows that I cannot be satisfied the assessments are excessive, let alone what net amounts should have been assessed. That being so, I must affirm the objection decisions.
    
    

I certify that the preceding eighty (80) paragraphs are a true copy of the reasons for the decision herein of Senior Member R J Olding

.................................[sgd]......................................

Associate

Dated: 25 November 2020

Dates of hearing:

Date final submissions received:

23-24 June 2020

14 September 2020

Applicant’s representative:

J Leahy, Armac Business Solutions Pty Ltd

Counsel for the Respondent:

M Baker

Solicitors for the Respondent:

Australian Government Solicitor