Very Important Business Pty Ltd and Commissioner of Taxation (Taxation) [2019] AATA 1120 (4 June 2019)
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2016/6219
TAXATION AND COMMERCIAL DIVISION )Re: Very Important Business Pty Ltd
Applicant
And: Commissioner of Taxation
RespondentDIRECTION
TRIBUNAL: Deputy President Bernard J McCabe
Ms G Lazanas, Senior MemberDATE OF CORRIGENDUM: 11 June 2019
PLACE: Melbourne
The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, that the text of the decision in this application is to be altered such that the first sentence in paragraph 108 is to read as follows:
Significantly, quite apart from the issue of whether any gold and silver purchased by VIB from unregistered persons was “second-hand goods” as defined in s 195-1 (as we had insufficient information to confirm whether or not they were precious metal), we were not persuaded that such goods were acquired “for the purposes of sale or exchange (but not for manufacture) in the ordinary course of business”; nor were we satisfied whether the acquisition was to make “a supply of the goods that is not a taxable supply” (see s 66-5(1) and (2)(e)).
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Bernard J McCabe, Deputy President
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2016/6219
Re:Very Important Business Pty Ltd
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President Bernard J McCabe
Ms G Lazanas, Senior MemberDate:4 June 2019
Place:Melbourne
The Tribunal decides the decisions under review are affirmed.
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Deputy President Bernard J McCabe
CATCHWORDS
TAXATION – GST – input tax credits – creditable acquisition – gold industry – whether taxpayer a refiner of precious metal – whether taxpayer regularly converts or refines precious metal in carrying on its enterprise – whether consideration provided or taxpayer liable to provide consideration – whether second-hand goods rules apply – form of tax invoices – serious shortcomings in evidence – unreliable and incomplete documents – insufficient information in invoices – recklessness as to operation of taxation laws – objection decision re assessment of net amount affirmed – objection decision re imposition of penalty affirmed – decision not to remit penalty affirmed
LEGISLATION
A New Tax System (Goods and Services Tax) Act 1999 (Cth), ss 7- 1, 9-5, 9-20, 9-30, 11-5, 11-15, 11-20, 29-10, 29-70, 38-1, 38-385, 40-1, 40-100, 66-5, 66-17, 184-1, 195-1
Taxation Administration Act 1953 (Cth), s 14ZZK, Sch 1 ss 284-75, 284-90, 298-20, 382-5
CASES
BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347
HP Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126
McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284
Re Bayconnection Property Developments Pty Ltd and Commissioner of Taxation [2013] AATA 40
Trautwein v Federal Commissioner of Taxation (No 1) (1936) 56 CLR 63Warner v Hung (No 2) (2011) 297 ALR 56
SECONDARY MATERIALS
Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999
Oxford Dictionary of English (3rd ed, 2010)
REASONS FOR DECISION
Deputy President Bernard J McCabe
Ms G Lazanas, Senior Member4 June 2019
INTRODUCTION
This is a case about the GST affairs of a company that claims it operated a precious metal refinery in the last quarter of 2015. During that period, the company – Very Important Business Pty Ltd or VIB – claimed it was entitled to input tax credits with respect to purchases of scrap gold it made in the course of its business on the basis that it was a refiner of precious metal, as defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act). VIB also claimed its subsequent supplies of precious metal (that is, gold it had refined into bullion) to so-called dealers in precious metal were GST-free supplies. If the supplies were GST-free as VIB asserted, then it was under no obligation to remit GST on those dealings and it was entitled to claim full input tax credits on all its acquisitions, including the feedstock.
The Commissioner of Taxation disputed those propositions. The Commissioner had many concerns about VIB’s affairs. The Commissioner questioned whether many (or any) of the acquisitions of scrap gold occurred as claimed in the invoices and other records. This was in part due to the lack of independent evidence that VIB, a company with limited financial capacity, provided consideration or was liable to provide consideration for all acquisitions of scrap gold. The Commissioner also argued VIB’s record-keeping was seriously deficient. Consequently, on 11 March 2016, following verification activities conducted by the Commissioner in relation to VIB’s relevant GST return, the Commissioner withheld GST refunds that would otherwise have been paid to VIB. On 24 May 2016, the Commissioner issued an amended assessment of net amount of GST in which he disallowed the input tax credits. The Commissioner also assessed VIB for an administrative penalty on the basis of recklessness as to the operation of the taxation laws.
On 13 June 2016, VIB lodged an objection to the amended assessments citing several grounds, including (a) it had provided consideration in the form of cash for some of the acquisitions of the scrap gold and (b) the Commissioner had erred in relation to verifying those cash payments. According to VIB, the Commissioner had also erred in relation to his evaluation of the legal position regarding input tax credits claimed for purchases of scrap gold from unregistered suppliers. VIB also claimed to have correct tax invoices. On 16 November 2016, the Commissioner disallowed VIB’s objection in its entirety, including in relation to the penalty aspects.
VIB has come before the Tribunal seeking review of the objection decisions, including the Commissioner’s decision not to remit the penalty. The Commissioner says VIB cannot succeed for a variety of reasons. We are satisfied VIB has insuperable difficulties in the relevant quarterly period for one reason in particular: VIB did not persuade us that it had actually taken over the refinery business and was regularly refining prior to 31 December 2015. Additionally, there were serious shortcomings in VIB’s evidence and documentation regarding the alleged purchase transactions. Some of those supplies were supposedly made by the company that previously operated the refinery. In those circumstances, we cannot be satisfied VIB was a refiner of precious metal in the quarterly tax period ending 31 December 2015 (the Quarterly Tax Period). We accept that while VIB was not a refiner of precious metal in the Quarterly Tax Period, it was undertaking some activities so it was carrying on an enterprise for the purposes of the GST Act.
Accordingly, the objection decision in relation to the assessment of net amount is affirmed. The objection decision in relation to penalties is also affirmed. We explain our reasons below after first setting out the issues before the Tribunal and the relevant legislative provisions.
THE ISSUES BEFORE THE TRIBUNAL
The essential issue before the Tribunal is whether VIB is entitled to input tax credits in the sum of $55,153 for acquisitions of scrap metal totalling $606,702 that it claimed to have made in the Quarterly Tax Period. That depends on whether VIB made creditable acquisitions for the purposes of the GST Act.
In disallowing VIB’s objection, the Commissioner rejected the input tax credits for various reasons including that VIB had no evidence that it had provided, or was liable to provide, consideration for the purported acquisitions to satisfy the meaning of creditable acquisition in the GST Act. Alternatively, the Commissioner determined that if there was some evidence that VIB had provided consideration, VIB did not hold tax invoices in the Quarterly Tax Period and, therefore, could not attribute its input tax credits to that period pursuant to the relevant attribution rules in the GST Act. In relation to certain acquisitions of scrap gold supposedly made by VIB from unregistered suppliers, the Commissioner submitted that VIB was not entitled to claim input tax credits under the second-hand goods rules in the GST Act because it did not satisfy the requisite test.
The contention that VIB was not a refiner of precious metal and, therefore, not making GST-free supplies, emerged into clearer view during the hearing although we note the issue was raised in the Commissioner’s Statement of Facts Issues and Contentions dated 24 February 2017.
In its objection and throughout the hearing, VIB maintained that it was a refiner of precious metal and entitled to claim input tax credits on the basis that it made GST-free supplies of precious metal and a few taxable supplies of metal. The Commissioner submitted that if we were not satisfied that VIB was a refiner of precious metal during the Quarterly Tax Period, another potential issue for determination would be whether the supplies made by VIB – that were previously treated by VIB as GST-free – should be treated as input taxed supplies of precious metal or taxable supplies or in some other way. There were several possible GST scenarios canvassed by the Commissioner which potentially resulted in different net amounts of GST for VIB in respect of the Quarterly Tax Period. Some of these scenarios led to higher net amounts than the Commissioner had already assessed. The Commissioner urged us, if appropriate, to increase the GST and administrative penalty assessments issued to VIB.
Our conclusion that VIB was not a refiner of precious metal and, in any event, did not substantiate its creditable acquisitions means that it is unnecessary for us to canvass other interesting issues about the fiscal character of VIB’s supplies. Specifically, we have not canvassed whether supplies made by VIB (which it had incorrectly treated as GST-free supplies) were input taxed supplies of precious metal or taxable supplies of metal. In our view, VIB was not able to claim any input tax credits on any supplies of scrap gold, including purported acquisitions from unregistered suppliers in the Quarterly Tax Period, regardless of the nature of its supplies for GST purposes. In any event, the determination of those other permutations put to us by the Commissioner depends, in part, on the statutory interpretation of the expression precious metal in s 195-1 of the GST Act and should await a case where that issue is squarely raised by the parties. We also express no view on whether the activities that were conducted by VIB in the Quarterly Tax Period constituted refining in the sense intended by the legislation.
As noted above, there are issues with respect to the penalties that are also before the Tribunal for review, including both the imposition and the remission aspects arising under the Taxation Administration Act 1953 (Cth) (the TAA). VIB argued the penalties were unfair and unreasonable as it had sought to comply with the GST law.
THE ONUS OF PROOF
It is important to say something at the outset about the onus of proof in taxation litigation before we proceed to a more detailed discussion of the law and the facts. Any taxpayer that challenges an objection decision must reckon with s 14ZZK(b)(i) of the TAA, which says the taxpayer bears the onus of proof in review of objection decisions before the Tribunal. It has been described by Jacobs J in McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284 at 314 as “a rebuttable presumption of law that an assessment is not excessive”. In other words, the assessments made by the Commissioner are “prima facie right” and “remain right” until the taxpayer demonstrates they are “wrong” (Trautwein v Federal Commissioner of Taxation (No 1) (1936) 56 CLR 63 at 88). The onus of proof on a taxpayer is on the balance of probabilities. This requires VIB to actually persuade us of its position. It must show the assessments issued to it by the Commissioner are excessive or otherwise incorrect and articulate what it says are the correct (or more nearly correct) assessments. To that end, VIB must identify a coherent factual and legal position and persuade us it is correct (see Warner v Hung (No 2) (2011) 297 ALR 56 at 69).
Section 14ZZK(b)(i) looms large in a case like this given the chaotic state of the evidence. As we will explain:
·the witness statements were short on detail, particularly as to dates and the relevant entity;
·a number of the potential witnesses were either unavailable or unwilling to give evidence;
·there were anomalies and inconsistencies in some of the documents that were provided that could not be satisfactorily explained; and
·other documents that were potentially important were described but never produced.
Even after the proceedings concluded and closing submissions were received, we are not satisfied we have a clear picture of all that occurred. As we will explain, that was partly because of the free-wheeling style of Mr John Spiteri, the sole director of VIB. But there were also complications arising out of the way in which the case was run. VIB was represented by Mr Jeffrey Leahy who, at all relevant times, was a director of the company that ran the refinery that VIB ostensibly took over in the Quarterly Tax Period. Mr Leahy was also the director of the company that became VIB’s tax agent. Mr Leahy’s challenge, as VIB’s advocate, was not simply a logistical one or the product of inexperience. Mr Leahy was himself a player in all of this.
We will have more to say about the shortcomings in the evidence in due course. But we will next discuss the relevant provisions of the GST Act and some of the peculiarities of the gold industry.
THE APPLICATION OF THE GST LAW TO DEALINGS IN GOLD
The basic scheme of the GST Act is well known.[1] It imposes a liability to pay GST on a supplier making a taxable supply in the circumstances identified in Division 9 of the GST Act. Section 9-5 states as follows:
[1] The legislative references are in their form as at 31 December 2015.
You make a taxable supply if:
(a)you make the supply for *consideration; and
(b)the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(c)the supply is *connected with the indirect tax zone; and
(d)you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.
Section 9-5 sits at the heart of Division 9 in Chapter 2 of the GST Act, which sets out the basic rules. But other provisions are relevant as well, because the GST Act does not just have implications for suppliers. It also has implications for recipients because entitlements to claim input tax credits are a critical element of “the genius of … the GST”:HP Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126 at [13] per Hill J.
Broadly, where the acquisition of anything from a supplier qualifies as a creditable acquisition within the meaning of Division 11, the taxpayer which makes the acquisition (the recipient) will be entitled to claim an input tax credit which corresponds with the amount of the GST imposed on the supplier: ss 7-1(2) and 11-20 of the GST Act. The availability of input tax credits to the taxpayer that is the recipient in the supply chain is important because input tax credits are intended to offset the GST included in the price paid for acquisitions where the acquisitions are for use in the taxpayer’s enterprise. In other words, the credits allow the burden of the GST on the supply to be passed on down the supply chain and, in this way, avoid double taxing the supply. Generally, the end consumer who is not registered for GST and who is therefore unable to claim any input tax credits bears the burden of the GST on the supply. This is why the GST is commonly referred to as a value added tax on private final consumption.
Section 11-5 defines the expression creditable acquisition as follows:
You make a creditable acquisition if:
(a)you acquire anything solely or partly for a *creditable purpose; and
(b)the supply of the thing to you is a *taxable supply; and
(c)you provide, or are liable to provide, *consideration for the supply; and
(d)you are *registered, or *required to be registered.
Section 11-15 relevantly provides that the meaning of credible purpose is as follows:
(1)You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.
(2)However, you do not acquire the thing for a creditable purpose to the extent that:
(a)the acquisition relates to making supplies that would be *input taxed;
In most cases, a taxpayer that is entitled to claim input tax credits in connection with an acquisition would recover GST from its recipient when it makes a taxable supply. As a practical matter, the taxpayer would file a GST return also known as a Business Activity Statement or BAS following the relevant tax period which reports the net amount of GST owed to the Commissioner once any liability to pay GST on taxable supplies is offset against the amount of any input tax credits attributed to that period and claimed by the taxpayer. If the taxpayer was owed monies after that balancing exercise was completed, it would be entitled to a GST refund from the Commissioner with respect to that tax period. If the Commissioner was owed money, the taxpayer would remit that amount of GST to the Commissioner.
That is how things usually work, and these general rules applied to acquisitions of scrap gold by a refiner where the refiner processed the gold into granules that were then sold to dealers or end users. But special rules were introduced in the GST Act to deal with the refining and sale of precious metal (typically comprising bullion) for the reasons explained below. However, we will first set out the special GST rules regarding precious metal.
The GST Act provides that a supply of precious metal is:
(a)a GST-free supply if it is the first sale of the refined metal after its refining by, or on behalf of, the supplier to a dealer in precious metal, provided that the entity that refined the metal is a refiner of precious metal: s 38-385; or
(b)otherwise, an input taxed supply of precious metal: s 40-100.
Precious metal is defined in s 195-1 (the Dictionary in the GST Act) to mean:
(a)gold (in an investment form) of at least 99.5% fineness; or
(b)silver (in an investment form) of at least 99.9% fineness; or
(c)platinum (in an investment form) of at least 99% fineness; or
(d)any other substance (in an investment form) specified in the regulations of a particular fineness specified in the regulations
A dealer in precious metal is defined in s 195-1 to mean an entity that satisfies the Commissioner that a principal part of carrying on its enterprise is the regular supply and acquisition of precious metal.
A refiner of precious metal is defined in s 195-1 to mean an entity that satisfies the Commissioner that it regularly converts or refines precious metal in carrying on its enterprise. VIB’s case, as discussed below, depends in part on satisfying this definition.
Section 9-30(1) of the GST Act relevantly states that a supply is GST-free if it is GST-free under Division 38 of the GST Act, while s 9-30(2) relevantly states that a supply is input taxed if it is input taxed under Division 40 of the GST Act. That is, Divisions 38 and 40, respectively, deal with the various categories of GST-free and input taxed supplies. As noted above, s 38-385 deals with GST-free supplies of precious metals while s 40-100 deals with input taxed supplies of precious metals. For completeness, s 9-30(3) of the GST Act relevantly states that where supplies would be both GST-free and input taxed, then the supply is GST-free and not input taxed.
Section 38-1 explains that if a supply is GST-free, then no GST is payable on the supply and an entitlement to an input tax credit for anything acquired or imported to make the supply is not affected. This is as good as it gets in the GST world. Input taxed supplies are less attractive because, as explained in s 40-1, if a supply is input taxed, then no GST is payable on the supply and there is no entitlement to an input tax credit for anything acquired or imported to make the supply. The denial of input tax credits is sometimes referred to as involving “sticky GST” in the supply chain because there is a GST cost involved.
It follows that the combined effect of ss 9-5, 9-30(1), 9-30(3) and s 38-385 of the GST Act is that the first sale of precious metal by a refiner of precious metal to a dealer in precious metal will be GST-free. This special arrangement was established because gold refined in Australia is sold into what is effectively a world-wide market. Australia’s gold refiners would be at a commercial disadvantage if they had to pay GST to the Commissioner on the first sale of precious metal or were unable to claim input tax credits on their feedstock, in circumstances where their international rivals were able to sell without any GST cost. Our Parliament expressly acknowledged this in the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998, which became the GST Act, in the following terms:
Input taxing supplies of precious metals
5.125 Gold prices are internationally fixed. Gold dealers cannot pass on the GST charged on supplies of gold they make. Under the general rules there would be GST on the GST paid on the last supply. To avoid this, the first supply after the precious metal is refined is GST-free under the rules discussed below. This means that the refiner is entitled to input tax credits on the acquisitions that are used in refining the precious metal and does not charge GST on the supply of the precious metal. The result of this is that there is no GST embedded in the price of that supply. Subsequent supplies are input taxed – section 40-100. This means there is no entitlement to input tax credits on those acquisitions and no GST charged on the supply. There is no entitlement to input tax credits because there is no GST in the price of the acquisition. There is no GST on the supply so that the fixed price is not affected.
GST-free supplies of precious metals
5.126 The first supply of precious metals by a refiner after refining will be GST-free if the recipient of the supply is a dealer in precious metals. The dealer has to acquire the precious metal for investment purposes. Section 38-385. A ‘refiner’ is an entity that regularly converts or refines precious metals in carrying on its enterprise. A ‘dealer’ is an entity that regularly supplies and acquires precious metal for investment purposes as a principal part of carrying on its enterprise.
If VIB was a refiner of precious metal, it had no obligation to remit GST on the supply of newly-refined precious metal. At the same time, its entitlement to claim input tax credits on the raw materials used in the refining process remained unaffected. That is the result of making GST-free supplies.
We note VIB acknowledged that some of the supplies it made during the Quarterly Tax Period were supplies of scrap or gold granules. It necessarily accepts those supplies were taxable supplies that carried with them a liability to pay GST to the Commissioner without any implications for the potential claiming of input tax credits: ss 11-5 and 11-15. But the larger part of VIB’s business (at least according to VIB) was not concerned with simply buying and selling scrap gold or converting scrap gold into granules that were then sold. VIB claimed to be a refiner of precious metal that transformed the scrap gold it acquired into precious metal that was then sold to dealers in precious metal. It says it satisfied the various criteria that entitled it to make GST-free supplies of precious metal and claim input tax credits.
Stating the law in this way helps bring into focus a specific question that is central to the outcome of an important aspect of this case: was VIB a refiner of precious metal during the period under review? That question necessarily involves us considering whether VIB (as opposed to some other entity) regularly converted or refined precious metal in the course of carrying on its enterprise in the Quarterly Tax Period. This is because the GST law focuses on the entity that is making the supply (or the acquisition) as evident from the use of the word “you” in the expressions “[y]ou make a taxable supply …” and “[y]ou make a creditable acquisition…” in ss 9-5 and 11-5, respectively. “You” is defined at the end of
s 195-1 of the GST Act to mean “if a provision of this Act uses the expression you, it applies to entities generally, unless its expression is expressly limited”. Entity is separately defined in s 184-1 of the GST Act to mean, amongst other things, an individual and a body corporate.
For the sake of completeness, we should refer to a number of other provisions of the GST Act that are relevant to the application before us.
Section 9-20 defines the term enterprise. Relevantly, the definition provides that “[a]n enterprise is an activity, or series of activities, done: (a) in the form of a *business; …”
The word business is defined in s 195-1 as including “any profession, trade, employment, vocation or calling, but does not include occupation as an employee”. Further, carrying on an enterprise is defined in s 195-1 to include “doing anything in the course of the commencement or termination of the enterprise”.
The GST attribution rules in the GST Act are also relevant to the issues raised. Broadly, the attribution rules set out in Division 29 of the GST Act refer to the tax periods to which an entity attributes the GST payable on its taxable supplies and the input tax credits on its creditable acquisitions. Section 29-10(2) relevantly states in relation to attributing input tax credits for creditable acquisitions for a taxpayer that accounts on a cash basis:
(2)However, if you *account on a cash basis, then:
(a)if, in a tax period, you provide all of the*consideration for a *creditable acquisition--the input tax credit for the acquisition is attributable to that tax period; or
(b)if, in a tax period, you provide part of the consideration--the input tax credit for the acquisition is attributable to that tax period, but only to the extent that you provided the consideration in that tax period; or
(c)if, in a tax period, none of the consideration is provided--none of the input tax credit for the acquisition is attributable to that tax period.
There are additional rules regarding the attribution of input tax credits in ss 29-10(3) and (4), as follows, which are important:
(3)If you do not hold a *tax invoice for a *creditable acquisition when you give to the Commissioner a *GST return for the tax period to which the input tax credit (or any part of the input tax credit) on the acquisition would otherwise be attributable:
(a)the input tax credit (including any part of the input tax credit) is not attributable to that tax period; and
(b)the input tax credit (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that tax invoice.
However, this subsection does not apply in circumstances of a kind determined in writing by the Commissioner to be circumstances in which the requirement for a tax invoice does not apply.
For the giving of GST returns to the Commissioner, see Division 31.
(4)If the *GST return for a tax period does not take into account an input tax credit attributable to that tax period:
(a)the input tax credit is not attributable to that tax period; and
(b)the input tax credit is attributable to the first tax period for which you give the Commissioner a GST return that does take it into account.
With respect to the form of tax invoices, the following provisions of the GST Act are relevant.
Section 195-1 Dictionary
tax invoice has the meaning given by subsections 29-70(1) and 48-57(1), and includes a document that the Commissioner treats as a tax invoice under subsection 29-70(1B). However, it does not include a document that does not comply with the requirements of section 54-50 (if applicable).
Section 29-70 Tax Invoices
(1)A tax invoice is a document that complies with the following requirements:
(a)it is issued by the supplier of the supply or supplies to which the document relates, unless it is a *recipient created tax invoice (in which case it is issued by the *recipient);
(b)it is in the *approved form;
(c)it contains enough information to enable the following to be clearly ascertained:
(i) the supplier’s identity and the supplier’s *ABN;
(ii) if the total *price of the supply or supplies is at least $1,000 or such higher amount as the regulations specify, or if the document was issued by the recipient--the recipient’s identity or the recipient’s ABN;
(iii) what is supplied, including the quantity (if applicable) and the price of what is supplied;
(iv) the extent to which each supply to which the document relates is a*taxable supply;
(v) the date the document is issued;
(vi) the amount of GST (if any) payable in relation to each supply to which the document relates;
(vii) if the document was issued by the recipient and GST is payable in relation to any supply--that the GST is payable by the supplier;
(viii) such other matters as the regulations specify;
(d)it can be clearly ascertained from the document that the document was intended to be a tax invoice or, if it was issued by the recipient, a recipient created tax invoice.
Note: If the recipient is a member of a GST group, section 48-57 may relax the requirements relating to the recipient’s identity or the recipient’s ABN.
(1A) A document issued by an entity to another entity may be treated by the other entity as a *tax invoice for the purposes of this Act if:
(a)it would comply with the requirements for a tax invoice but for the fact that it does not contain certain information; and
(b)all of that information can be clearly ascertained from other documents given by the entity to the other entity.
Note: The requirements for a tax invoices are primarily contained in subsection (1), but can be affected by sections 48-57 and 54-50.
(1B) However, the Commissioner may treat as a *tax invoice a particular document that would not, apart from this subsection, be a tax invoice.
(2)The supplier of a *taxable supply must, within 28 days after the*recipient of the supply requests it, give to the recipient a*tax invoice for the supply, unless it is a *recipient created tax invoice.
(3)A recipient created tax invoice is a *tax invoice belonging to a class of tax invoices that the Commissioner has determined in writing may be issued by the *recipient of a *taxable supply.
Those provisions establish rules about the form and content of tax invoices that are relevant given VIB’s record-keeping and documents were the subject of extensive criticism by the Commissioner. There are consequences for VIB if the records are inadequate: the existence of a valid tax invoice is required when determining when the input tax credit should be attributed to a particular tax period. We note, however, that under s 29-70(1B) the Commissioner (or the Tribunal standing in the shoes of the Commissioner) may treat a document as a tax invoice even if it would not otherwise satisfy the technical requirements. We will have more to say about the appropriateness of that course below.
Section 382-5 of Schedule 1 to the TAA is an additional record-keeping requirement in relation to GST dealings which relevantly provides, as follows:
(1)Records of transactions
You must:
(a)keep records that record and explain all transactions and other acts you engage in that are relevant to a *supply, importation, acquisition, dealing, manufacture or entitlement to which this subsection applies; and
(b)retain those records for the longest of:
(i) 5 years after the completion of the transactions or acts to which they relate; and
(ii) the *period of review for any assessment of an *assessable amount to which those records, transactions or acts relate; and
(iii) if such an assessment has been amended under Subdivision 155-B--the period of 4 years mentioned in paragraph 155-70(2)(a) (which provides for a refreshed period of review) that applies to the latest such amendment.
(2)Subsection (1) applies to:
(a)a *taxable supply, *taxable importation,*creditable acquisition or *creditable importation made by you; or
(b)a *supply made by you that is *GST-free or *input taxed;
….
Division 66 of the GST Act sets out special rules allowing a taxpayer to claim input tax credits for acquisitions of second-hand goods, even though GST was not payable on the supply of the goods. This Division is relevant as VIB claimed to have made some purchases of scrap gold from unregistered suppliers who did not charge GST. Section 66-5 of the GST Act relevantly provides:
(1)If you acquire *second-hand goods for the purposes of sale or exchange (but not for manufacture) in the ordinary course of*business, the fact that the supply of the goods to you is not a*taxable supply does not stop the acquisition being a*creditable acquisition.
(2)However, this section does not apply, and is taken never to have applied, to the acquisition if:
(a)the supply of the goods to you was a *taxable supply, or was*GST-free; or
(b)you *imported the goods; or
(c)the supply of the goods to you was a supply by way of hire; or
(d)Subdivision 66-B applies to the acquisition; or
(e)you make a supply of the goods that is not a taxable supply.
(3)This section has effect despite section 11-5 (which is about what is a creditable acquisition).
Section 66-17 of the GST Act which prescribes record-keeping requirements for acquisitions of second-hand goods is potentially relevant. It states, as follows:
(1)If you make a *creditable acquisition of second-hand goods and the supply of the goods to you was not a *taxable supply:
(a)subsection 29-10(3) applies to the acquisition as if references to a*tax invoice were references to a record you prepared that complies with this section; and
(b)subsection 29-20(3) applies to an adjustment event relating to the acquisition as if references to an *adjustment note were references to a record you prepared that complies with this section.
(2)To comply with this section, the record must:
(a)set out the name and address of the entity that supplied the goods to you; and
(b)describe the goods (including their quantity); and
(c)set out the date of, and the *consideration for, the acquisition.
(2A)Subsection 29-10(3) does not apply to a *creditable acquisition of*second-hand goods if:
(a)the supply to which the acquisition relates is not a *taxable supply; and
(b)the amount that would have been the *value of the supply (if it had been a *taxable supply) does not exceed $50, or such higher amount as the regulations made for the purposes of subsection 29-80(1) specify.
(2B)Subsection 29-20(3) does not apply to a *decreasing adjustment relating to a *creditable acquisition of *second-hand goods if:
(a)the supply to which the acquisition relates is not a *taxable supply; and
(b)the amount of the adjustment does not exceed $50, or such higher amount as the regulations made for the purposes of subsection 29-80(2) specify.
(3)This section has effect despite section 29-10 (which is about attributing the input tax credits for creditable acquisitions) and section 29-20 (which is about attributing decreasing adjustments).
The following definition of “second-hand goods” in s 195-1 of the GST Act is also potentially relevant:
second-hand goods does not include:
(a)*precious metal; or
(b)goods to the extent that they consist of gold, silver, platinum, or any other substance which, if it were of the required fineness, would be precious metal; or
(c)animals or plants.
The provisions relevant to the issue of administrative penalties are referenced further below.
THE FACTUAL BACKGROUND
The findings below are based on the respective Statements of Facts, Issues and Contentions lodged by VIB and the Commissioner, the evidence produced by VIB including the written statements of various people who worked at the refinery or had dealings with it and the oral evidence of Mr Spiteri, Ms Jade Spiteri, Mr Leahy and others at the hearing. We also reviewed a vast number of documents including photos, melt and assay reports and tax invoices produced by VIB, as well as various spreadsheet analyses of these documents. The latter were prepared by the Commissioner in an attempt to reconcile the transactions.
The refinery
There was a precious metal refinery in the suburbs of Melbourne that had been operating since at least 2012. It was apparently still in operation until, at least, sometime in 2018.
During the course of its life, the refinery processed scrap gold and extracted other precious metal from feedstock that was acquired from various suppliers. We were told the refinery turned the scrap gold into bullion which was sold to dealers, although it appears some of the metals being processed were sold in other forms.
Throughout most of the period 2012-2015, the refinery was owned and operated by 888 Refining Australasia Pty Ltd (888 Refining), a company of which Mr Jeffrey Leahy was the director. However, the business of the refinery was managed on a day-to-day basis by Mr John Spiteri. Mr Spiteri was an employee of 888 Refining until at least sometime in late 2015.
Mr Spiteri is a self-taught man with over 40 years’ experience in refining precious metals and base metals.[2] This colourful individual developed a range of bespoke processes that extracted precious metal from some unusual sources. He managed, for example, to extract silver from discarded x-ray film. 888 Refining permitted Mr Spiteri to run some of those processes on his own behalf in the refinery even as Mr Spiteri managed other extraction, processing and refining tasks on his employer’s behalf. Mr Spiteri explained at the hearing that he had a verbal agreement under which he was permitted to access the refinery and use the facilities for his own purposes[3] and that he was always free to “do his own thing” in the refinery.[4]
[2] Exhibit 7 – Letter of John Spiteri dated 2 April 2017.
[3] Transcript p 115.
[4] Transcript p 100.
The line between Mr Spiteri’s work on his own account and the work of his employer, 888 Refining, was blurred. The line became even more blurred in the last quarter of 2015 when 888 Refining and some of its associated entities, which had an interest in the refinery, became mired in a GST dispute with the Commissioner. That dispute also related to entitlements to claim input tax credits. In or about November 2015, the Commissioner commenced a GST audit of 888 Refining questioning whether it was entitled to input tax credits it had claimed on the acquisition of scrap gold that was said to have been later refined into precious metal under Mr Spiteri’s supervision in the refinery. The Commissioner had also withheld GST refunds from 888 Refining, and subsequently issued amended assessments denying input tax credits claimed in earlier tax periods. The Commissioner’s intervention sounded the death knell for a refinery business that appeared to be unsustainable in any event. We were told its business was significantly diminished from its peak of some 250 clients and 20 employees in prior years.
But all was not lost, at least as far as the refinery was concerned. Mr Leahy, 888 Refining and other business associates, as well as Mr Spiteri, hatched a plan to keep the refinery operating. Mr Spiteri was central to this plan as he was the only person with the skills and experience required to operate the refinery. It was agreed Mr Spiteri’s family company, VIB, would take over operation of the refinery and continue servicing the suppliers of scrap gold that had previously dealt with 888 Refining. On this plan, Mr Spiteri would at last be able to run the refinery business as if it were his own. VIB would presumably become entitled to claim input tax credits on purchases of scrap metal that VIB made. To this end, 888 Refining and Mr Spiteri executed a document on 1 December 2015 that purported to license the refinery assets to VIB on what appeared to be exceptionally favourable terms. We will explore the detail of the agreement below.
The refinery continued in operation throughout the final quarter of 2015 with Mr Spiteri at the helm, overseeing operations as he had always done. While Mr Spiteri was supposedly made redundant by 888 Refining at some point during the quarter, there was no break in the continuity of Mr Spiteri’s role at the helm of the refinery. He agreed in cross-examination that he continued to provide services to 888 Refining until the end of the quarter.[5] Scrap gold continued to be acquired by VIB from virtually all the same suppliers on what appeared to be the same terms and VIB was funded by some of the same business associates for most of the period under review, as well as some new funders. At first, the scrap gold was acquired by 888 Refining which supposedly then on-sold the feedstock to VIB. According to Mr Spiteri’s witness statement, “888 Refining retained its clients and on-sold scrap metal until such time as the licence agreement was finalised.”[6] VIB claims it subsequently dealt with 888 Refining’s suppliers, or at least some of them, directly but on the same terms and, curiously, for a time using the letterhead belonging to 888 Refining.
[5] Transcript p 200.
[6] Exhibit 7.
The production processes remained the same and the refined bullion was apparently sold to the same customers. Mr Leahy apparently continued to be involved in VIB’s operation. Mr Leahy was also a director of a company that started to act as the tax agent for VIB and that lodged the first BAS for VIB which is the subject of these proceedings.
VIB
VIB’s case assumes it had effectively taken control of the refining business during the period in question. VIB relied on the licence agreement it struck with 888 Refining and a course of conduct which it says establishes VIB was conducting the refining business in question at the relevant time. But we were not persuaded that is what occurred. While VIB was undoubtedly carrying on an enterprise – indeed, it appeared to have been involved in several diverse businesses – the evidence does not establish VIB had taken control of the refinery from 888 Refining in the last quarter of 2015.
VIB is, and has been at all relevant times, a company registered under the Corporations Act 2001 (Cth). It had registered for GST from 25 November 2010 at which time it traded under the business name, ‘Visitor Information Boards of Aust’. At all relevant times, VIB accounted for GST on a cash basis and had quarterly tax periods. VIB registered the business name ‘VIB Gold’ from 23 October 2015, then ‘Refining Services’ from 13 December 2015. From 17 December 2015, VIB settled on the business name ‘VIB Refining Services’ which is the only name that appeared on VIB’s documents. Curiously, the last of these business names was used by VIB on tax invoices and other documents as early as 29 October 2015, even though it had not been registered until mid-December 2015.
Another registration anomaly was revealed with respect to VIB’s second-hand dealers’ and pawn brokers’ registration. Mr Spiteri had stated in his witness statement dated 2 April 2017 that “my business is a registered second-hand dealer/pawn broking business”.[7] He later pointed out in correspondence dated 12 June 2017 that this was incorrect, but without any explanation as to the position, other than he “recalled signing the document when [he] started as it is a requirement”.[8] VIB only appears to have registered as a second-hand dealer on 7 July 2017.[9]
[7] Exhibit 7.
[8] Exhibit 9 – Letter of John Spiteri dated 12 June 2017.
[9] Exhibit 10 – Second Hand Dealers and Pawnbrokers Registration, attached to Respondent’s Submissions dated 9 April 2019.
Mr Spiteri has been the sole director and secretary of VIB since 13 August 2012. Mr Spiteri received no salary or wages from VIB during the financial year ended 30 June 2016. He did, however, report salary and wages paid to him by 888 Refining in that financial year.
The principal place of business of 888 Refining was (until 2018) the address of the refinery. The principal place of business of VIB, on the other hand, was at all relevant times another Melbourne suburb which we were told was the address of an earlier printing business of VIB.
Mr Leahy of Amarc Business Solutions Pty Ltd became the tax agent for VIB in late December 2015. As noted above, Mr Leahy was a director of 888 Refining at all relevant times. Mr Leahy claims 888 Refining “ceased trading” during the period from September to December 2015 due to the Commissioner retaining its GST refunds. He described this as constituting “essentially an insolvency event”.[10] However, it is unclear whether 888 Refining ceased operating as alleged. The evidence does not provide definitive answers on this question. For example, Mr Leahy conceded in VIB’s written closing submissions that “there is no exact date and time that can be pinpointed” for 888 Refining ceasing and VIB commencing operations at the refinery.[11] That is a problem because – as we have explained – VIB needs to demonstrate it became a refiner of precious metal during the period under review. While Mr Leahy insisted VIB commenced refining operations at the refinery at some point prior to the end of December 2015, we are not satisfied there is clear evidence of that occurring. We analyse below various aspects ranging from the licence agreement entered into by 888 Refining and VIB, as well as its staff, funding and documentation.
[10] Exhibit 1 – Section 37 T-Documents - at ST17, p 452.
[11] Applicant’s Closing Submissions dated 4 June 2018 at [12].
VIB’s refining operations?
Mr Leahy explained in his statement that VIB had begun acquiring scrap gold from 888 Refining as early as 29 October 2015.[12] But a careful reading of that statement suggests VIB was merely being inserted into a supply chain as a short-term response to the dispute between 888 Refining and the Commissioner over 888 Refining’s entitlement to input tax credits. Furthermore, Mr Leahy said 888 Refining expected its GST dispute would be resolved and it would thereafter resume business as usual. Whatever VIB’s role in the supply transactions, the statement does not support VIB undertaking refining operations on a regular basis at that early point. As discussed further below, it also appears VIB did not pay for any purported acquisitions of scrap gold from 888 Refining.
[12] Exhibit 1, p 28.
Quite apart from Mr Leahy’s statement, we are not satisfied the evidence establishes VIB took active steps to assume control of the refinery at that early stage. At most, it appears VIB might have taken steps in October and November 2015 that were preparatory to commencing a refining operation. While there is doubt over the extent of any refining operations during October and November 2015 given the problems between 888 Refining and the Commissioner, it seems Mr Spiteri continued to oversee whatever refining was done in his capacity as an employee of 888 Refining in much the same way he had done in the past. We accept he also continued to undertake his own special projects using the refinery facilities, just as he had in the past. We take that view in particular because VIB was unable to establish when Mr Spiteri’s employment with 888 Refining was terminated. There was no employment termination letter in evidence, and the payroll records of 888 Refining were inconclusive. Mr Spiteri said in cross-examination that he thought he was terminated (albeit without any severance pay or the payment of other entitlements, which is odd) in November 2015 but he acknowledged he continued to undertake work for 888 Refining throughout the Quarterly Tax Period. At another point he suggested he might have ceased being an employee of 888 Refining once it was agreed VIB would have rights under the licence agreement.
We note that evidence produced by VIB to support its refining activities during the Quarterly Tax Period did not assist because there was a lack of specificity as to which entity (namely, 888 Refining, VIB, or any other entity) was undertaking any refining activities during the relevant time. That evidence included:
·Mr Spiteri’s claim that he worked in different capacities at the refinery (including for himself). He said “the refinery conducts refining operations at the refinery location”, without identifying the entity that controlled the refinery or the relevant time period;[13]
·The account of Ms Jade Spiteri, Mr Spiteri’s daughter and the only VIB employee (according to VIB’s records), who described her role as “the accounts manager and the office manager of the refinery”. She was imprecise in her answers during cross-examination, including as to when she started working for VIB;[14]
·Ms Agnes Anku, a trainee, glibly stated in her witness statement dated 7 April 2017, “I work in the refinery... I work as a refinery assistant”[15] without being specific as to who she worked for;
·Mr Carlo Margariti, who was involved in a business known as ‘Gold ‘N’ Pawn’, said in his written statement dated 10 April 2017, “I have conducted business with both of the above companies” referring to VIB and 888 Refining, but he did not suggest any dates or the relevant entity when it came to discrete matters, such as payments.[16]
[13] Exhibit 7.
[14] Exhibit 12 - Statement of Jade Spiteri dated 7 April 2017.
[15] Exhibit 11 – Statement of Agnes Anku dated 7 April 2017.
[16] Exhibit 13 – Statement of Carlo Margariti dated 10 April 2017.
On the other hand, Ms Katherine Prosser, who worked for Australian Coin Exchange Pty Ltd and was previously employed by 888 Refining, provided some specific information in her witness statement about having invoiced “for scrap gold sold to [VIB]” in two invoices.[17] One of these invoices was dated 8 December 2015 for an amount of $23,161.13 and the second one was dated 17 December 2015 for an amount of $97,457.38. Ms Prosser also stated “VIB is a refiner of precious metals as [she had] attended the refinery and watched the process of refining”.[18] Furthermore, she stated that “the agreement to sell the scrap gold was only determined upon the melt and assay of the goods so as to confirm the amount of gold being sold”.[19] A problem with Ms Prosser’s evidence was that the assay reports relating to those acquisitions were produced by 888 Refining, not VIB.[20] Another problem was that Ms Prosser could not recall the visits she claimed to have made to the refinery in respect of the supplies of scrap metal to VIB in December 2015.[21] She could also not readily distinguish between the activities performed by VIB as compared to 888 Refining, her former employer.
[17] Exhibit 3 – Statement of Katherine Prosser dated 8 June 2017.
[18] Exhibit 3.
[19] Exhibit 3.
[20] Documents filed by the Applicant on 20 January 2017 marked ‘C.14’ pp 25-28 and ‘C.18’.
[21] Transcript p 64.
One of the matters of significance in VIB’s case was whether it made payments to suppliers which is relevant to the issue of whether it provided consideration or was liable to provide consideration, one of the criteria for a creditable acquisition: see [19] above. The dates of payment are also relevant for the purposes of attribution of input tax credits for a cash basis taxpayer: see [36] above. Mr Margariti referred to having been “paid in cash by the Refinery”. [22] Presumably, this statement was offered in support of VIB’s claim that VIB had paid consideration for its acquisitions of scrap gold, but it critically failed to identify both when the payment was made and by whom, rendering it (of itself) totally unreliable. In another statement dated 10 April 2017, Ms Nataile Ablahd, the Millennium Chain manager, stated that Millennium Chain had been “dealing with Very Important Business for few years now”. She also stated “we buy granules from VIB for our business as we are gold chain manufactures (sic). Occasionally we give scrap gold to be refined for us and given back as granules.”[23] These general statements did not advance VIB’s position that it was the entity that was doing the refining during the Quarterly Tax Period.
[22] Exhibit 13.
[23] Exhibit 2 – Statement of Natalie Ablahd dated 10 April 2017.
The licence agreement
It seems likely the earliest point at which VIB could be said to have commenced its own refinery operations was when the licence agreement was executed on 1 December 2015. A copy of the licence agreement was reproduced in exhibit 1.[24] The document was signed by Mr Spiteri as the director of VIB and Mr Leahy as the director of 888 Refining. Clause 10 of the document states the agreement came into effect on that date.
[24] Exhibit 1, T8.1, pp 44-46.
The substance of the agreement is contained in clauses 1 and 2. Clause 1 purports to grant VIB “an exclusive, non-transferable Licence to use any equipment, facility, premises, documentation and referrals in accordance with the terms of this Licence”. Clause 2 goes on to specify the licence extended to the use of the refinery and its equipment, the use of any 888 Refining documentation and the use of any stamps, intellectual property or marks “in the use of operating the premises [sic]”.
Clause 8(b) says the licence agreement contains the entire agreement between the parties and supersedes any previous understanding or agreement. On their face, clauses 8(b) and 10 suggest the parties intended VIB to commence its refining operations in December 2015, and that anything which passed between them before that time was, at most, preparatory to the enterprise that would commence on that date.
The clear terms of that agreement are inconsistent with Mr Leahy’s claim that VIB’s refining was progressively introduced from the start of the relevant quarter. We think the understanding reflected in the agreement ought to be accepted to the extent of any inconsistency.
While the agreement is presumably a more accurate guide to the intentions of VIB and 888 Refining when it was signed, the written agreement is a less reliable guide to what happened after it was signed. There is reason to believe the parties intended the agreement to commence on that date – which weighs heavily in favour of us finding the matters contemplated in the agreement did not begin at an earlier date – but we still have doubts about whether the agreement did in fact come into operation on 1 December 2015. The evidence of the behaviour of the parties to the agreement during December 2015 suggests the agreement was still, at best, aspirational prior to the end of the quarter.
Two examples of ways in which the licence agreement diverged from what subsequently occurred will help illustrate the point. First, there is the behaviour of the parties with respect to the licence fee. Clause 3 of the licence agreement said the licence was granted in consideration of VIB agreeing to pay a (very favourable) licence fee of $1 per week. The Commissioner pointed out there was no evidence that VIB ever paid the $1 weekly licence fee. Mr Leahy was unable to point to any records of the payment but insisted the fee was paid in the form of a credit given against debts that VIB owed to 888 Refining.[25] Mr Leahy did not explain what those debts were or how they arose, and he was unable to point to evidence of a specific amount being credited in respect of the licence fee. There is an obvious explanation for the absence of evidence about payment of the licence fee. If the agreement had not in fact commenced on 1 December 2015, because the transition to VIB had not occurred prior to the end of the quarterly period, there would be no reason to pay the fee during that period.
[25] Transcript pp 79, 116.
Second, there is the clear evidence that 888 Refining continued to be involved in the operation of the refinery throughout the Quarterly Tax Period. That is, at a minimum, inconsistent with the clause granting VIB an exclusive licence over the refinery. It may be that the parties did not regard themselves as being bound by that clause. The more obvious answer – assuming we credit the agreement as being genuine – is that the parties were still getting around to launching VIB as a refiner during the period under review. We think that obvious explanation is consistent with the facts on the ground and while we accept that VIB was carrying on an enterprise for GST purposes, adopting the extended meaning of carrying on (which includes doing anything in the course of commencing an enterprise), we reject VIB’s assertion that it was engaged in regular refining during the Quarterly Tax Period.
We agree with the view expressed by the Commissioner that the word “regularly” in the definition of refiner of precious metal requires the converting and refining of precious metal to be occurring in the relevant tax period in which the entity claims to be a refiner. Furthermore, refining is not “regular” unless the activity occurs with a constant or definite pattern, recurring at short intervals of time, with some frequency.[26] It follows that even if VIB had commenced carrying on an enterprise by early December 2015 after the licence agreement commenced (about which we have some doubts as expressed above), we are not satisfied it was regularly refining precious metal before 31 December 2015. In reaching that conclusion, we do not need to reach a concluded view on the more difficult question of precisely what constitutes refining activity, since we are satisfied that whatever activities were undertaken were not undertaken regularly.
[26] Respondent’s Closing Submissions dated 3 May 2018, [14]. See also the definition of “regular” in the Oxford Dictionary of English (3rd ed, 2010).
Mr Spiteri’s employment with 888 Refining
We have already said it is not clear when Mr Spiteri’s employment with 888 Refining was terminated. Mr Spiteri suggested in his written statement that he was terminated in advance of the licence agreement being negotiated.[27] We have noted there was no formal documentation in evidence on this point, and we were told the payroll records of 888 Refining did not provide a reliable guide. Yet Mr Spiteri agreed in cross-examination that he continued to undertake refining work for 888 Refining up until the end of December 2015, even as he said he carried on refining activities on behalf of VIB.[28] While he denied he was doing that work for 888 Refining as an employee after 1 December 2015, the nature of his relationship with that company and its associated entities was unclear. If he was still working for 888 Refining throughout the Quarterly Tax Period, questions arise over the nature and extent of the work he might have been doing for VIB.
[27] Exhibit 7.
[28] Transcript p 187.
Mr Leahy attempted to square that circle in cross-examination by suggesting Mr Spiteri was working for both 888 Refining and VIB at the same time throughout the Quarterly Tax Period. He argued confusingly that both VIB and 888 Refining were independent refiners operating in the same refinery but collectively providing a single, undifferentiated service.[29] That troubled us because the premise for VIB’s involvement was a response to 888 Refining’s dispute with the Commissioner with respect to the withheld GST refunds. We also note the submission is inconsistent with the terms of the licence agreement providing VIB with exclusive access to the refinery.
[29] Transcript at pp 83 – 84.
It should be said Mr Leahy was not the only witness who did not have a clear picture of the way in which individuals and entities interacted within the refinery. Mr Spiteri suggested in cross-examination that he did not distinguish between work he did for 888 Refining and its associated companies and work he did for VIB.[30] Mr Spiteri also continued to undertake refining activities on his own behalf as he had been doing sporadically for some time pursuant to an understanding with his employer. Mr Spiteri’s daughter, Ms Spiteri, gave evidence that tended to elide the operations of VIB and 888 Refining. As noted above, she was the only employee of VIB and worked in the office at the refinery where she carried out administrative and accounting tasks. She initially insisted in her oral evidence that she did not recall 888 Refining undertaking any refining activities during the period under review. In cross-examination, she accepted she performed tasks as directed by her father and conceded she did not inquire into whether she was working for 888 Refining or VIB (or Mr Spiteri in his personal capacity, for that matter) in relation to particular jobs – the implication being that Mr Spiteri may have been working for both entities in the refinery.[31]
[30] Transcript at p 187.
[31] Transcript at pp 251 – 253.
Mr Spiteri’s role with VIB
The argument that Mr Spiteri was working for both entities concurrently comes up short because it is not clear Mr Spiteri was actually working for VIB. He was a director of VIB, to be sure, but there is no record of VIB employing him as a refinery manager or paying him wages. Mr Spiteri said in his evidence that he was the only individual in the refinery that knew anything about refining. That evidence was consistent with the evidence of Mr Leahy and Ms Spiteri; there was no suggestion of anyone else leading the refining efforts or that the refinery was able to operate without Mr Spiteri. As discussed further below, there was another problem with Mr Spiteri physically doing the refining work, as he had suffered a workplace injury.
The foreign trainees working at the refinery
Mr Spiteri may have been in charge but he was not alone in the refinery. He was assisted in his work by four foreign trainees originating from Ghana who held visas that permitted them to obtain work experience in Australia. Those trainees required supervision which only Mr Spiteri could provide. The trainees were not employees of VIB. They were associated with another company related to 888 Refining that sponsored their visas. Mr Spiteri said VIB was in the process of being substituted for that other company for visa purposes, but that had not occurred during the period under review.
Ms Anku, one of the trainees, gave evidence at the hearing by telephone. She agreed that VIB was to become the sponsor for migration purposes, but she was unable to say when that was going to occur. Ms Anku also said in her oral evidence she worked “in the refinery” at the direction of Mr Spiteri and Mr Leahy.[32] As already noted above, she did not clearly describe a relationship with VIB, as opposed to a supervisory relationship with Mr Spiteri.
[32] Transcript p 186.
The other trainees who provided written statements also did not confirm they worked for VIB, merely indicating they worked at the refinery. We acknowledge the trainees did receive some payments from VIB after 1 December 2015. Those payments are described as ‘training expenses’. Ms Anku confirmed the trainees were not paid wages but they did receive some money for rent and utilities[33] – presumably the ‘trainee expenses’ referred to by VIB.
[33] Transcript p 185.
The evidence in relation to the trainees points to at least two alternative conclusions. On the one hand, 888 Refining or a related entity sponsored the trainees’ visas, and the trainees commenced work in the refinery before any suggestion of a VIB takeover. We were told moves were afoot to formally change those arrangements but there is no evidence that the change was effected in the Quarterly Tax Period. The trainees appeared to take direction from Mr Spiteri and Mr Leahy. That evidence clearly suggests the trainee workforce continued to be engaged by 888 Refining, not VIB, as Mr Leahy was a director of 888 Refining. This is consistent with the Commissioner’s contention that VIB was not conducting any refining enterprise at that point.
On other hand, there is some evidence suggesting VIB was taking a measure of responsibility for the trainees by meeting some of their expenses from December 2015. Mr Spiteri confirmed in cross-examination that he did not recall VIB paying the trainees at an earlier point in the quarter.[34] That evidence is consistent with VIB’s claim it was making use of the trainee workforce, but there are other potential explanations. For example, there is evidence that some of the trainees helped Mr Spiteri on some of his private jobs, like extracting metals from x-ray film. It is also possible VIB took over the obligation of paying the trainees in anticipation of the licence agreement coming into effect in due course. We note that Ms Anku was unable, when asked in cross-examination, to pinpoint when VIB took control; her best guess was “roughly two years ago” which is well after the Quarterly Tax Period.[35] On balance, we think the most likely explanation is the one that is apparent from the paperwork: the trainees were engaged by 888 Refining or its related entity and they assisted Mr Spiteri to undertake work for 888 Refining.
[34] Transcript p 122.
[35] Transcript p 184.
It follows we accept VIB did not employ any other skilled staff during the Quarterly Tax Period and the licence agreement did not authorise it to use any staff employed by 888 Refining. If VIB did not have skilled staff, it is difficult to see how VIB could be said to have engaged in any regular refining activity during the period in question. The obvious explanation is that 888 Refining remained in control throughout the Quarterly Tax Period and that Mr Spiteri managed the refinery on behalf of 888 Refining, albeit that he may also have undertaken some private refining work on his own behalf or in the process of slowly commencing VIB’s refining operations.
VIB’s financial capacity
The evidence also raises questions about VIB’s capacity to commence refining operations given the parlous state of its finances at the relevant time. VIB had few financial resources at its disposal with only $12 paid up share capital. Bank records confirm VIB had only about $540 in its bank account at the start of the Quarterly Tax Period. By all accounts, it did not possess the working capital that would be required to fund the acquisition of scrap gold – a notoriously expensive exercise. Mr Spiteri explained the company had access to capital from its sales and from external funders including family and friends based on trust relationships. But the evidence in relation to those funding arrangements raised as many questions as it answered.
By way of example, Mr Spiteri was asked about an individual named Mr Abdul Osman, who was the only named funder in VIB’s “cash sheets”. Mr Spiteri said Mr Osman was a wealthy man who dealt in various kinds of scrap gold. Mr Osman was apparently keen to become more involved in the gold industry. He agreed to provide cash to fund the acquisition of scrap gold which would be refined into bullion. The records in relation to that transaction are unclear, as is much else about Mr Osman. The only documentation produced was a ‘Loan Repayment Agreement’ dated 23 November 2015 purportedly signed by Mr Spiteri and Mr Osman, which referenced an amount of $100,000 having been loaned to Mr Spiteri, not VIB, on 20 November 2015 and “an agreement that the above loan” was paid back.[36] Mr Spiteri, when pressed, was unable to identify Mr Osman’s company or provide other information that one would expect if Mr Osman and VIB had gone into business together, even if only for a single transaction. Mr Osman was also unavailable to give evidence at the hearing.
[36] Exhibit 8 – Loan repayment agreement between Mr Osman and Mr Spiteri.
In the absence of any independent corroboration of the alleged loans, we do not accept Mr Spiteri’s evidence about Mr Osman and the various purported cash loans given the shortcomings in Mr Spiteri’s evidence identified above. That conclusion also goes to the heart of what the Commissioner had said from the outset, namely, VIB was unable to explain how it could fund all the acquisitions it claimed to have made during the Quarterly Tax Period. Accordingly, VIB failed to satisfy us it had provided consideration for all of its purported acquisitions in the Quarterly Tax Period, although we accept it appears to have made some payments as evident from its bank statement – see [95] and [98] further below. Nor were we satisfied VIB was liable to provide consideration for all of its purported acquisitions. There was no evidence of any financial accommodation made for payment to be made to suppliers where no payment had in fact been made.
The documentation
We turn now to the documentation that was produced. As we have already noted, the Commissioner had concerns about the quality of VIB’s records. The Commissioner says those concerns call into question VIB’s entitlement to claim input tax credits, even if it were otherwise regularly refining precious metal. We have also noted the Commissioner had doubts over whether some of the transactions occurred as described, or if they occurred at all. There are also questions over some of the supplies supposedly made by unregistered suppliers to VIB as that documentation was also incomplete and VIB itself did not have a second-hand dealer’s licence until 7 July 2017.
First, we note there is no contemporaneous independent documentary evidence that conclusively establishes VIB was a refiner of precious metal in October and November 2015; at best, there is some evidence that VIB had started taking over refining activities in December 2015. We are not persuaded that VIB was refining regularly at that time (assuming that some refining was occurring). Other than the purported tax invoices (including recipient created tax invoices) for supplies claimed to have been made to VIB which we address separately, VIB produced three categories of internal documents – gold refining batch job sheets, melt and assay reports and dockets recording receipt of acquisitions – that it claims show that VIB was undertaking refining activities during the Quarterly Tax Period and which also support its claims for input tax credits. We make some brief observations below about these.
Mr Leahy and Mr Spiteri both gave oral evidence that when VIB acquired any metal it conducted testing of the metal and the client was provided with a testing sheet or an external melt and assay report, which also served as the receipt for the metal.[37] This was also consistent with the evidence of Ms Prosser, referred to at [63] above. A difficulty with the assay reports in evidence was that VIB’s name only appeared on three reports produced during the relevant period. The earliest of those three reports was produced on 15 December 2015. The other two reports with VIB’s name were dated 23 December 2015 and 31 December 2015, which was contrary to Mr Spiteri’s evidence that the refinery closed on or about 19 December 2015 for the Christmas shutdown period.[38] A number of other assay reports from earlier in the Quarterly Tax Period included 888 Refining’s name.[39] The interchangeable production of assay reports by both 888 Refining and VIB is consistent with our conclusion that the transfer of the refinery operations to VIB had not been completed during the period under review.
[37] Transcript pp 23-24,103, 243.
[38] Transcript p 207.
[39] Respondent’s Closing Submissions dated 30 April 2018 at [59]; Documents filed by the Applicant on 20 January 2017 marked ‘C.17’ and ‘C.18’
The gold refining batch sheets do not clearly identify the entity which was operating the refinery.[40] In fact, Mr Leahy had earlier conceded the batch sheets for October and November 2015 (which we were told had been provided to the Commissioner as part of the GST verification of 888 Refining’s activities) were from 888 Refining’s records.[41]
[40] See Exhibit 1 at T8.3, pp 116 – 160.
[41] Exhibit 1 at T8, p 43.
It is also unclear from the documents recording deliveries of gold which particular deliveries were actually received by VIB. We further note the dockets recording the receipt of gold in October and November 2015 again refer to 888 Refining, not VIB.
In summary, the internal paperwork, such as it is, does not support VIB’s case on its face. It is confusing and does not paint a clear picture of VIB engaging in regular refining or, for that matter, any other regular activities during the quarterly period. VIB did attempt to explain why we should look behind the paperwork. For example, Mr Leahy, and Mr Spiteri suggested in their oral evidence that VIB was simply using up existing stocks of stationery that bore the name of 888 Refining before VIB ordered its own stationery.[42] That is not a particularly persuasive explanation – especially when assay reports were still being produced under the 888 Refining name as late as 17 December 2015, even though an assay report bearing VIB’s name had been produced on 15 December 2015.
[42] Transcript pp 25, 155 – 162.
There was little else in the way of contemporary documentation that was produced by VIB or that referred to VIB. Significantly, Ms Spiteri was questioned about the despatch of letters supposedly sent by VIB to the suppliers of 888 Refining who VIB was going to “take over”. She recalled the letter informing the suppliers of VIB’s new role was dated 1 December 2015 and appeared to be prepared in connection with the licence agreement. (That timing is consistent with the evidence of Mr Spiteri who said there was no overt contact with 888 Refining’s suppliers before that point because he was awaiting finalisation of the agreement in December 2015.) But Ms Spiteri said the letters were not posted immediately. She conceded in cross-examination that the letters were sent out slowly over the course of December 2015 and acknowledged some suppliers might not have been contacted until mid-January 2016.[43] That evidence – assuming we accept such a letter was sent by VIB to 888 Refining’s suppliers as a copy of it was elusive – is consistent with the proposition that the transition to VIB contemplated in the licence agreement had not been completed before the end of the Quarterly Tax Period.
[43] Transcript pp 250 – 251.
Ms Spiteri’s evidence lends credence to the Commissioner’s concerns about the quality and integrity of VIB’s record-keeping. Ms Spiteri said the delay in posting the letters to 888 Refining’s suppliers notifying them about the changeover to VIB was attributable to the work practices of the trainee who worked in the office. She said he was very slow and made lots of mistakes. While she mentioned the trainee’s haphazard approach to record-keeping as an explanation for some of the anomalies in the invoices and other records, Ms Spiteri’s evidence reflects on the integrity of VIB’s record-keeping more generally – including the records which have been offered in support of VIB’s case.
Ms Spiteri also gave evidence that VIB was in the business of purchasing scrap gold through a stall it operated at the Laverton market. She pointed out VIB was in the business of buying and selling scrap gold, that is, making taxable supplies, although she said the company also analysed and refined metals. In cross-examination, she conceded there were very few acquisitions – perhaps only two – made at the markets during the quarterly period under review, and certainly no large acquisitions. Indeed, the evidence about acquisitions VIB claimed to have made as a second-hand dealer from unregistered persons was lacking in detail.
The tax invoices
The contemporaneous documentary material before the Tribunal with respect to the acquisitions that VIB purported to make during the Quarterly Tax Period were the documents that were provided by VIB to the Commissioner during the GST verification check, in mid-February 2016.[44] They include VIB’s bank statement, purported tax invoices and purported recipient created tax invoices. VIB also prepared a record of GST paid and payable showing the input tax credits claimed in the Quarterly Tax Period in respect of the following acquisitions, among others:[45]
[44] Exhibit 1, T8.4, 161 – 163.
[45] The table has been reproduced from the Commissioner’s Closing Submissions at [95].
Date
ID#
Supplier name
Purchase value ($)
GST ($)
Debit to bank account
Purported invoice/record
18.11.2015
23
888 Refining
25,000
2,273.73
T8.6-167
T8.2-84
18.11.2015
3076
888 Refining
25,000
2,273.73
-
20.11.2015
14
888 Refining
54,768.26
4,978.93
-
T5-30;
T8.2-8520.11.2015
15
888 Refining
42,869.89
3,897.26
-
T8.2-86
20.11.2015
16
888 Refining
34,464.05
3,133.10
-
T8.2-87
25.11.2015
32
SHD
25,032.65
2,275.70
-
T8.2-82
26.11.2015
3021
888 Refining
60,539.04
5,503.55
T8.6-167
T5-31;
T8.2-8327.11.2015
17
888 Refining
1,144.07
104.01
-
T8.2-91
27.11.2015
18
888 Refining
410.89
37.35
-
T8.2-92
27.11.2015
19
888 Refining
24,249.27
2,204.48
-
T8.2-89
27.11.2015
36
888 Refining
6,101.15
554.65
-
T8.2-88
02.12.2015
20
888 Refining
16,599.80
1,509.07
-
T8.2-90
02.12.2015
28
SHD
3,000
272.73
-
T8.2-76 to 77
07.12.2015
21
888 Refining
19,171.90
1,742.90
-
T8.2-93
07.12.2015
22
888 Refining
438.15
39.83
-
T8.2-94
08.12.2015
3042
Australian Coin Ex
23,161.13
2,105.56
T8.6-168
T8.2-113
09.12.2015
3022
888 Refining
18,236.62
1,657.87
T8.6-168
T8.2-95
14.12.2015
1
SHD
183.55
16.69
-
T8.2-68 to 69
14.12.2015
11
Gold N Pawn
20,000
1,818.18
-
Invoice for $35,244.80 at T8.2-72
16.12.2015
3025
Gold N Pawn
15,224.81
1,384.08
T8.6-168
16.12.2015
2
Cash and Gold Ex
21,648.22
1,968.02
T8.6-170
T8.2-73
18.12.2015
40
Australian Coin Ex
97,457.38
8,859.76
T8.6-169
T5-34;
T8.2-11418.12.2015
41
Gold Couriers
2,503.68
227.61
T8.6-168
T8.2-115
21.12.2015
2
SHD
3,833.56
348.51
−
T8.2−70 to
71
30.12.2015
4
Cash and Gold Ex
20,000
1,818.18
T8.6−170
Invoice for
$38,173.42 at T8.2-7530.12.2015
4
Cash and Gold Ex
18,173.42
1,652.13
T8.6−170
As evident from the above table, there were several purported acquisitions from about mid-November to early December 2015 by VIB from 888 Refining and “SHD”. We were told the latter was shorthand for “second hand dealer”. VIB acknowledged during the GST audit that the reference to “SHD” was a reference to unregistered suppliers in respect of which VIB claimed to be making acquisitions under the second-hand goods rules in the GST Act.
Turning firstly to the evidence before the Tribunal with respect to the taxable supplies allegedly made by 888 Refining to VIB, we had difficulty accepting the legitimacy of the tax invoices issued by 888 Refining recording these taxable supplies. This is because we were uncertain as to whether 888 Refining had actually ceased its refinery operations during the Quarterly Tax Period and, more importantly, whether VIB’s refinery operations had commenced in the Quarterly Tax Period. We are satisfied 888 Refining was still engaged in the refinery operations due to the ongoing role of Mr Spiteri and the trainees, as referred to above, whereas VIB did not have the financial resources to undertake refining. Even if we accept the evidence of Mr Leahy as to the grand plan, namely, that the refinery operations were to be transitioned to VIB because of 888 Refining’s hardship caused by the Commissioner withholding the GST refunds, we cannot be satisfied that plan was sufficiently advanced by the end of the Quarterly Tax Period.
We are reinforced in our view based on the fact that VIB’s bank statements confirm VIB only paid for a few of these purchases: see the column headed ‘Debit to bank account’ in the table at [95] above. We note Mr Leahy earlier told the Commissioner that VIB did not pay 888 Refining because it did not have a bank account[46], but this was plainly incorrect.[47] We were also told the transactions were recorded in so-called “cash sheets” prepared by VIB; whatever else they might be, they are not independently verifiable records of consideration having been paid or a record of a liability to pay consideration, particularly as they do not appear to be contemporaneous documents.[48] Nor were the “cash sheets” provided to the Commissioner prior to these proceedings. VIB, as noted above, had limited financial means to make the kinds of acquisitions associated with a refinery operation and it was unable to prove it had any loans (see [83] – [85] above).
[46] Exhibit 1, T15, p 217.
[47] Transcript pp 81-82.
[48] Documents filed by the Applicant on 20 January 2017 marked ‘A.1’ and ‘A.2’.
Our conclusion is that even if VIB did make any creditable acquisitions in the course of carrying on its enterprise, it was nevertheless unable to attribute its input tax credits in respect of those acquisitions to the Quarterly Tax Period. This is because, as a cash basis taxpayer, VIB had not paid the consideration in the Quarterly Tax Period. Furthermore, it did not hold valid tax invoices in the relevant period as required under s 29-70 and for attribution purposes under ss 29-10(2), which we discuss further below.
The acquisitions from 888 Refining and various other suppliers, including Australian Coin Exchange, Gold N Pawn, Cash and Gold Exchange and Gold Couriers, also raise issues about the validity of the tax invoices. In some cases, recipient created tax invoices (“RCTIs”) were issued by VIB and adduced as evidence of the creditable acquisitions. There was a pattern in those RCTIs issued by VIB and in the tax invoices issued by the suppliers, including 888 Refining. We noted all tax invoices were very general as to the goods supplied, mostly referencing just “Scrap Gold” under the “Description” heading.[49] We are not satisfied they contained enough information to identify the things supplied, including the quantity: see s 29-70(1)(c)(iii). We would have expected to have seen a description of the kind of the scrap gold said to have been supplied - for example, whether it was jewellery or granules, as well as the quantity and the price per weight - as these are important attributes in this industry.
[49] For example, see: Exhibit 1, T5.1, pp 30, 31, 68, 72, 73, 74, 75.
Moreover, we are not prepared under the authority of s 29-70(1B) (see [38] and [39] above), to treat as tax invoices documents which failed to adhere to the statutory requirements as we were not satisfied that VIB made creditable acquisitions. We were not addressing a situation involving honest and minor mistakes in the form of the tax invoices. The documents were unreliable and incomplete and, together with the lack of direct evidence about the transactions, supported the Commissioner’s suspicions as to whether the transactions occurred at all. VIB also failed to satisfy the record-keeping requirements set out in s 382-5 of Schedule 1 to the TAA (see [40] above). We were not satisfied that VIB’s records recorded and explained all transactions relevant to its supplies and acquisitions.
There were also problems with the tax invoices that VIB produced in respect of its purported GST-free supplies made during the Quarterly Tax Period under the trading name, ‘VIB Refining Services’ – the name that was not registered until 17 December 2015. For example, the earliest of those “tax invoices” was dated 29 October 2015 for a purported GST-free supply of 1,000g of gold billed and shipped to a business trading as GB Refiners in the sum of $52,000.[50] It seemed to match another GST-free precious metal acquisition by VIB that allegedly occurred on the same day for approximately the same price. Specifically, we refer to a 1kg gold bullion bar acquired from Mango Reef Pty Ltd on 29 October 2015 for the price of $51,000.[51] We were perplexed as to how such transactions occurred in circumstances where VIB had scarce financial resources. We note the Commissioner surmised that it was possibly the same gold being bought and sold without VIB actually undertaking any refining activity.
[50] Exhibit 1, T8.2, pp 111 – 112.
[51] See also Exhibit 1, T8.4, pp 161-163.
We agree with the Tribunal’s views in ReBayconnection Property Developments Pty Ltd and Commissioner of Taxation [2013] AATA 40 at [86] that “documents that are so called “tax invoices” cannot substantiate a creditable acquisition if in fact there was no supply or acquisition”. There is no doubt that documents which masquerade as tax invoices can be evidence: they are, at least potentially, evidence of fraud.
CONCLUSION ON ENITLEMENT TO CLAIM INPUT TAX CREDITS
We have already concluded VIB had not taken control or otherwise established itself in any refinery operations within the Quarterly Tax Period. But even if VIB did manage to undertake some refining activities – perhaps at the very end of the quarterly period – we are not satisfied its activities qualified it to be considered as a refiner of precious metal within the meaning of s 195-1 of the GST Act.
Our conclusion is supported by the evidence about Mr Spiteri’s fitness for work – whether as an employee of 888 Refining, VIB or on his own account – during the quarterly period in question. It turns out Mr Spiteri experienced a workplace injury to his shoulder during an earlier period while he was still an employee of 888 Refining. He made a workers’ compensation claim on the basis he was unable to work full-time following the incident. He was in receipt of workers’ compensation payments during the period under review. Mr Spiteri said in cross-examination he might have only been present in the refinery for as little as an hour a day.[52] Ms Spiteri confirmed in her evidence that Mr Spiteri did not attend work regularly during the last quarter in 2015, and she said he could not do any heavy work as a consequence of his shoulder injury. She added that Mr Spiteri was “in and out” and was not always attending the refinery to do work during this period.[53] Her evidence, in summary, suggests Mr Spiteri did not attend the refinery every day, much less work full-time in the business. We also note Mr Spiteri confirmed in cross-examination that the refinery was closed for the Christmas break from 19 December 2015.[54] Even if VIB had commenced refining operations sometime during December, there was only a limited opportunity for it to do anything before the Christmas shutdown.
[52] Transcript pp 203 – 204.
[53] Transcript p 247.
[54] Transcript p 207.
That evidence is a problem for VIB in circumstances where a refiner of precious metal must, by definition, regularly refine or convert metal. If Mr Spiteri was integral to the refining operations, and he was not attending and overseeing the refinery on a regular basis, and the refinery closed down for the Christmas break on 19 December 2015, there must be a serious question over whether any entity for which he worked would qualify as a refiner of precious metal. In the absence of clear evidence of refining occurring on a regular basis, we are not satisfied VIB was a refiner of precious metal during the Quarterly Tax Period.
As it was not a refiner of precious metal, it was not able to make GST-free supplies of precious metal. As VIB also did not satisfy us it had financial capacity to make the acquisitions of scrap metal, and additionally, did not hold valid tax invoices, it is not entitled to claim any input tax credits on scrap gold that was allegedly acquired. We accept it is possible VIB bought small amounts of scrap gold from time to time during the period – at the Laverton markets, for example – but it is impossible to be sure about the extent of those transactions. Mr Spiteri was not across the accounts and other records of transactions, and Ms Spiteri made clear that the trainee responsible for preparing invoices and keeping the books was not very good at his job. In those circumstances, it is difficult to be sure which of the transactions that have been recorded were valid.
Significantly, quite apart from the issue of whether any gold and silver purchased by VIB from unregistered persons was “second-hand goods” as defined in s 195-1 (as we had insufficient information to confirm whether or not they were precious metal). We were not persuaded that such goods were acquired “for the purposes of sale or exchange (but not for manufacture) in the ordinary course of business”; nor were we satisfied whether the acquisition was to make “a supply of the goods that is not a taxable supply” (see s 66-5(1) and (2)(e)). We simply did not have sufficient information as to the use of any second-hand goods acquired. Accordingly, we are not satisfied about VIB’s entitlement to claim notional input tax credits pursuant to s 66-5(1) of the GST Act. Even if the scrap metal was second-hand goods, VIB also did not adhere to the specific record-keeping requirements set out in s 66-17 (see [42] above). The records in evidence in respect of only a few purported transactions regarding acquisitions by VIB of metal from unregistered vendors in the Quarterly Tax Period were mysteriously incomplete. In particular, we note the suppliers’ names and addresses and the quantity of goods were missing.[55]
[55] Exhibit 1, T 8.2, pp 68 – 69; 70 – 71; 76 – 77; 82.
We leave open the question of whether VIB was a refiner of precious metal at a later point. For now, it is enough that we conclude the evidence does not persuade us that the transition contemplated in the licence agreement was completed before the end of December 2015 and that it did not provide consideration and hold valid tax invoices, to support its entitlement to claim input tax credits in the Quarterly Tax Period: ss 11-5, 29-10(3) and (4) of the GST Act. Accordingly, it is not entitled to claim its input tax credits in that quarterly period.
PENALTIES
Section 284-75(1) of Schedule 1 to the TAA permits the Commissioner to impose administrative penalties where a taxpayer makes a statement – in the BAS, for example – that is false or misleading in a material particular and that statement results in a tax shortfall. In this case, the Commissioner decided the penalty should be imposed at a rate of 50%. A 50% penalty is appropriate where the shortfall was the product of reckless behaviour on the part of the taxpayer or its agent with respect to the operation of a taxation law: 284-90(1) Item 2. Liability under s 284-75 may be avoided if a taxpayer has used the services of a tax agent and provided that agent with all relevant information and the tax agent did not make the false statement deliberately or recklessly: s 284-75(6) of Schedule 1 to the TAA.
VIB cannot avail itself of s 284-75(6) because, in our view, VIB and its agent were reckless in all the circumstances. They did not have a proper basis for asserting VIB had taken control of the refinery and commenced operations as a refiner of precious metal when both Mr Spiteri and Mr Leahy knew that was not the case. Additionally, VIB was not entitled to claim input tax credits for the acquisitions in the Quarterly Tax Period as it did not satisfy us that it provided consideration for all of the supplies and held valid tax invoices. Nor did it persuade us that it made acquisitions of scrap gold from unregistered persons. VIB’s record-keeping was in disarray. Any reasonable person in the position of VIB or its agent would have paused before lodging the BAS given the chaos and confusion that attended the taxpayer’s supposed takeover of the refinery.
Both VIB and its tax agent were keenly aware of the Commissioner’s interest in the refinery’s operations by virtue of the fact the GST refund to 888 Refining for prior tax periods was under scrutiny. They were also aware that the Commissioner was concerned about the workings of the gold industry more generally, including alleged artificial arrangements exploiting the GST rules regarding precious metal, such that any reasonable person would have taken appropriate steps to ensure their records were complete and accurate. In those circumstances, a reasonable taxpayer would have obtained independent advice from somebody other than Mr Leahy and his firm. VIB’s tax agent was, after all, playing an integral role in VIB’s affairs, as well as those of 888 Refining in relation to the refining operations said to be taking place at the same address under the same refinery manager. It was not an arms’ length relationship. In all the circumstances, it was more than gross carelessness for VIB and its tax agent to proceed on the basis that VIB had commenced operations as a refiner of precious metal during the Quarterly Tax Period and entitled to claim input tax credits in circumstances where it had not provided consideration for all acquisitions and did not hold valid tax invoices. Accordingly, we do not accept VIB was excused from its liability at the rate of 50% penalty imposed on the basis of recklessness: see BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347 per Cooper J at 364. VIB should have known there were problems with relying on Mr Leahy and his firm in those circumstances.
VIB has not provided us with any arguments or evidence suggesting it would be appropriate to remit any part of the penalty under s 298-20 of Schedule 1 to the TAA. In those circumstances and, in particular, having regard to the fact that we had some reservations as to whether all the transactions took place as asserted, the penalty decision should be affirmed.
CONCLUSION
The Commissioner’s decision in respect of the objection to the assessment of net amount is affirmed. The Commissioner’s decisions with respect to the imposition of penalty and the non-remission of penalty are also affirmed.
I certify that the preceding 114 (one hundred and fourteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe and Ms G Lazanas, Senior Member.
............................[SGD]............................................
Associate
Dated: 4 June 2019
Date(s) of hearing: 9 – 12 April 2018 Date final submissions received: 4 June 2018 Advocate for the Applicant: Mr J Leahy Counsel for the Respondent: Ms M Baker Solicitors for the Respondent: Australian Government Solicitor
- AGLC
- Very Important Business Pty Ltd and Commissioner of Taxation (Taxation) [2019] AATA 1120
- Case
- [2019] AATA 1120
- Decision Date
CaseChat Overview and Summary
The court was required to determine whether VIB was a refiner of precious metal for the purposes of the GST Act, and consequently, whether its acquisitions of scrap gold constituted creditable acquisitions. This involved assessing whether VIB regularly converted or refined precious metal in carrying on its enterprise, whether consideration was provided for the acquisitions, and whether the second-hand goods rules applied. Furthermore, the court had to consider the validity and sufficiency of the tax invoices provided by VIB and whether VIB's conduct demonstrated recklessness regarding the operation of taxation laws, which would justify the imposition of a penalty.
The court found that VIB had not provided sufficient evidence to establish that it had taken control of the refinery operations or commenced refining activities on a regular basis during the relevant period. The evidence regarding the extent of Mr Spiteri's involvement in the refining process was also found to be problematic, particularly given his reported shoulder injury and limited attendance at the refinery, as well as the refinery's closure for the Christmas break. Consequently, the court was not satisfied that VIB qualified as a refiner of precious metal. As VIB did not meet this threshold, it could not make GST-free supplies of precious metal. Moreover, VIB failed to demonstrate it had the financial capacity to make the acquisitions, nor did it hold valid tax invoices, thus disentitling it from claiming input tax credits. The court also affirmed the Commissioner's decisions regarding the imposition of a penalty due to serious shortcomings in VIB's evidence and its unreliable and incomplete documentation, finding that VIB had acted with recklessness.
Orders
Orders of the court
Full text does not contain this section.
Background
Background to the litigation
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
Mr Leahy of Amarc Business Solutions Pty Ltd became the tax agent for VIB in late December 2015. As noted above, Mr Leahy was a director of 888 Refining at all relevant times. Mr Leahy claims 888 Refining “ceased trading” during the period from September to December 2015 due to the Commissioner retaining its GST refunds. He described this as constituting “essentially an insolvency event”.[10] However, it is unclear whether 888 Refining ceased operating as alleged. The evidence does not provide definitive answers on this question. For example, Mr Leahy conceded in VIB’s written closing submissions that “there is no exact date and time that can be pinpointed” for 888 Refining ceasing and VIB commencing operations at the refinery.[11] That is a problem because – as we have explained – VIB needs to demonstrate it became a refiner of precious metal during the period under review. While Mr Leahy insisted VIB commenced refining operations at the refinery at some point prior to the end of December 2015, we are not satisfied there is clear evidence of that occurring. We analyse below various aspects ranging from the licence agreement entered into by 888 Refining and VIB, as well as its staff, funding and documentation. [10] Exhibit 1 – Section 37 T-Documents - at ST17, p 452.[11] Applicant’s Closing Submissions dated 4 June 2018 at [12].VIB’s refining operations? Mr Leahy explained in his statement that VIB had begun acquiring scrap gold from 888 Refining as early as 29 October 2015.[12] But a careful reading of that statement suggests VIB was merely being inserted into a supply chain as a short-term response to the dispute between 888 Refining and the Commissioner over 888 Refining’s entitlement to input tax credits. Furthermore, Mr Leahy said 888 Refining expected its GST dispute would be resolved and it would thereafter resume business as usual. Whatever VIB’s role in the supply transactions, the statement does not support VIB undertaking refining operations on a regular basis at that early point. As discussed further below, it also appears VIB did not pay for any purported acquisitions of scrap gold from 888 Refining. [12] Exhibit 1, p 28. Quite apart from Mr Leahy’s statement, we are not satisfied the evidence establishes VIB took active steps to assume control of the refinery at that early stage. At most, it appears VIB might have taken steps in October and November 2015 that were preparatory to commencing a refining operation. While there is doubt over the extent of any refining operations during October and November 2015 given the problems between 888 Refining and the Commissioner, it seems Mr Spiteri continued to oversee whatever refining was done in his capacity as an employee of 888 Refining in much the same way he had done in the past. We accept he also continued to undertake his own special projects using the refinery facilities, just as he had in the past. We take that view in particular because VIB was unable to establish when Mr Spiteri’s employment with 888 Refining was terminated. There was no employment termination letter in evidence, and the payroll records of 888 Refining were inconclusive. Mr Spiteri said in cross-examination that he thought he was terminated (albeit without any severance pay or the payment of other entitlements, which is odd) in November 2015 but he acknowledged he continued to undertake work for 888 Refining throughout the Quarterly Tax Period. At another point he suggested he might have ceased being an employee of 888 Refining once it was agreed VIB would have rights under the licence agreement.