Riccarton Construction v Commissioner of Inland Revenue HC Auckland CIV 2009-485-1930

[2010] NZHC 813

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2009-485-1930

BETWEEN  RICCARTON CONSTRUCTION LIMITED

Plaintiff

ANDCOMMISSIONER OF INLAND REVENUE

Defendant

Hearing:         4-5 March 2010

Counsel:         G Harley and R P Harley for Plaintiff

A Goosen and T Gillbanks for Defendant

Judgment:      20 April 2010

JUDGMENT OF SIMON FRANCE J

Table of Contents

Paragraph No. Introduction [1] Background facts  [3]

Contract one – the Academy Motor Lodge  [7]

Contract two – Grove Park  [22] The Academy Lodge Motel transaction

Issue one – whether the decision to investigate the

Academy Motor Lodge transaction and consequent

GST return was time barred  [30]

Issue two – the timeliness of the taxpayer’s NOPA

of 19 June 2009  [45]

RICCARTON CONSTRUCTION LIMITED V COMMISSIONER OF INLAND REVENUE HC WN CIV

2009-485-1930  20 April 2010

Issue three – the validity of the Commissioner’s

NOPA of 31 July  [48]

Conclusion on the Academy Lodge Motel

purchase, and the GST return of 30 September 2008  [58]

The Grove Park Lodge Contract

Issue – the validity of the taxpayer’s

NOPA of 6 August 2009  [59]

Relief in relation to Grove Road  [81] Other matters  [83] Conclusion  [87]

Introduction

[1]      This case concerns a dispute as to whether Riccarton Construction Limited should receive GST credits on two agreements for sale and purchase in which it was the purchaser.  It is brought as judicial review proceedings; the correctness of that choice of process will be addressed at the end.

[2]      In addition to the judicial review proceedings, there was a claim for unlawful interference with contractual relations.  That claim was abandoned following cross examination of a departmental officer, and is dismissed.

Background facts

[3]      The agreements for sale and purchase all concerned existing motels.  In broad terms the plan was to unit title them, refurbish them, and then on-sell them as individual units.  There is a dispute as to whether the plan also included first entering into a management agreement for the letting of the units, with the units then to be on-sold subject to that agreement.

[4]      Whilst the plan may seem orthodox, there were features of the agreements that caused the Commissioner concern:

a)       the  first  three  purchases,  entered  into  over  a  three  month  period, totalled  nearly  $19 million,  GST  inclusive.    The  fourth  purchase, signed five months later, was for a further $6.75 million;

b)all agreements were unconditional on signing, and all had delayed settlement of 11 months, or 11½ months (bringing them just within the Act’s definition of short term contracts);

c)       all  agreements  called  for  deposits  payable  either  immediately,  or within three months.  The total liability on Riccarton Construction as regards deposits was just under $1 million; however, of this sum, only

$100,000  was  paid,  some  months  out  of  time,  on  one  of  the agreements;

d)in some of the agreements the vendor accounted for GST on a cash basis thereby creating a mismatch with Riccarton Construction’s invoice basis.  In brief, Riccarton Construction would claim the GST refund straightaway on the basis of an invoice issued at the time the agreement was unconditional, which was the day it was signed; however, the vendor “recipient” of the GST, because it returned GST on a cash basis, would not have to account for the GST until it was actually paid to it when the agreement settled.  Thus there was a gap of around 12 months between the Commissioner crediting Riccarton Construction with the payment, and receiving from the vendor the equivalent receipt.

[5]      The general concerns of the Commissioner seem to be that the GST may be paid out but never recovered (if the agreement did not settle), and that in any event the mismatch meant that the tax system was taking the risk of the development.  The particular investigating officer also had concerns over whether the sale prices were true market prices.

[6]      Against  that  general  background  I  turn  to  the  specific  issues  arising  in relation to two of the contracts.

Contract one – the Academy Motor Lodge

[7]      The agreement for the purchase of the Academy Motor Lodge was signed on

23 September 2008 and was for the agreed sum of $8,437,500.  A GST return was filed by the plaintiff as purchaser for the period ending 30 September 2008.   The relevant details of the GST return were:

GST collected  $    8,983.46 (on other transactions)

GST paid$947,029.13, being the GST payable on the motel purchase

Difference owed to taxpayer            $938,045.67

[8]      As required, the vendor of the Academy Motor Lodge provided to Riccarton Construction a GST tax invoice.   It contained the standard relevant information required of an invoice but the vendor’s GST number was incorrectly recorded.  The invoice recorded an old, now cancelled, GST number and not the vendor’s current number.  The mistake was not deliberate.

[9]      The Commissioner responded to the plaintiff’s GST return by requesting more information,  namely:

a)        an up to date valuation;

b)        a copy of development plans;

c)        an explanation as to what was to happen to the motel business;

d)       an explanation of the reasons for the deferred settlement.

[10]     It is common ground this request was made within the 15 day period allowed to the Commissioner by s 46 of the Goods and Services Tax Act 1985.

[11]     The taxpayer replied to the Commissioner’s request on 30 October.   The taxpayer:

a)        advised there was no valuation; but

b)        provided answers to the other three requests.

[12]     On 4 November the Commissioner replied saying that the return had now been selected for investigation.

[13]     At this point the factual narrative can be interrupted to identify the first legal dispute between the parties.   It concerns whether it was permissible for the Commissioner to write on 4 November indicating he had decided to investigate.  The taxpayer  says  that  the  scheme  prescribed  by  s 46  of  the  Act  requires  the Commissioner to decide to investigate within 15 days of the return being filed.  The fact that the Commissioner was at the same time seeking further information does not impact on the time period concerning the power to investigate.   That decision also had to be made within 15 days of the return being filed and so the decision to investigate was out of time.  That in turn meant that the GST return was deemed to be accepted and the Commissioner had to pay out on it.

[14]     Returning  to  the  factual  narrative,  in  December 2008  the  Commissioner obtained  his  own  valuation  of  the  Academy  Motor  Lodge,  which  was  for

$5.1 million.  This led to an on-going exchange of views between the parties and in March 2009 a compromise was reached.   The Commissioner agreed to a partial refund based on his own $5.1 million valuation.   In return, the taxpayer agreed to provide its own registered valuation to support the purchase price of $8.43 million, that being the figure on which the GST return was based.

[15]     There was a hiccup with the agreed partial payment which was withheld until other returns were filed.   However on 22 May 2009 a partial payment of around

$550,000 was made.

[16]     On  19 June 2009  the  taxpayer  issued  a  Notice  of  Proposed  Adjustment

(NOPA) in respect of its September 2009 GST  return  (i.e. the  Academy Lodge

claim).    The  NOPA  claimed  the  unpaid  balance  of  the  GST  return  (namely

$382,000).   The legal issue identified by the taxpayer in the NOPA was that the Commissioner’s decision to investigate was time barred because it was outside the limits prescribed by s 46 of the Goods and Services Taxation Act 1985.

[17]     The  Commissioner  responded  with  a  Notice  of  Response  (NOR).    The Response described the input claim as being based on a “purported” tax invoice.  It further stated that the taxpayer’s NOPA was outside the permitted four month time period which the Commissioner said ran from the date of the GST return, namely

30 September 2008.    The  Commissioner  indicated  that  he  apprehended  that  the taxpayer was treating correspondence of 16 March 2009 as a disputable decision that had had the effect of starting the four month period afresh, but the Commissioner disputed this was so.

[18]     It can be noted that the first point in the Commissioner’s NOR was to refer to a “purported” tax invoice.  This was a reference to the fact that the original invoice provided by the vendors to Riccarton Construction did not have the vendor’s correct GST  number.    No  replacement  invoice  had  been  provided  by  the  time  of  the exchange of NOPA and NOR.

[19]     In addition to issuing his NOR in response to the taxpayer’s NOPA, the Commissioner issued his own adjustment notice.  Thus he simultaneously responded to the taxpayer’s initiative and issued a reassessment of his own.    The Commissioner’s own NOPA rejected the entire 30 September GST claim on the basis that there was no valid invoice.  It also imposed penalties.  The Commissioner analysed the matter this way:

a)        there was no valid invoice supporting the 30 September GST claim.

Therefore the taxpayer was not entitled at that point in time to claim the input;

b)        the payment (which the Commissioner had only just learned about) by

Riccarton Construction to the vendor of the motel of a deposit of

$100,000 on 27 May 2009 was an event that triggered the taxpayer’s

liability to make a GST return on the agreement for sale and purchase. This  should  have  happened  on  31 May 2009,  and  did  not,  so  the taxpayer was in default.   Thus the Commissioner’s stance was that there should not have been a GST return on the agreement in September 2008 because there was no valid invoice, and still wasn’t. However, the payment of a deposit was a separate act that triggered GST liability and thus, notwithstanding there was still no invoice, a GST return for the relevant two month period was at that point required.

[20]     Thus far, therefore, there is a taxpayer NOPA and a Commissioner’s response (a NOR).   There is also a Commissioner’s NOPA which, not unsurprisingly, then provoked a taxpayer’s response (on 4 August 2009).  That response supplied a new invoice for the Academy Motor Lodge purchase, but the invoice was dated not with the date of the sale and purchase agreement (i.e. 27 September 2008) but rather with the date of its date of issue, being 4 August 2009.

[21]     That is where matters rest.  In addition to the legal issue already identified – namely, whether the decision to investigate was out of time – other legal issues which are raised are:

a)      whether the correspondence culminating in a letter from the Commissioner  on  16 March 2009  started  time  running  such  as  to make the taxpayer’s NOPA of 19 June 2009 within time;

b)        whether either or both of the two invoices are valid;

c)       whether the Commissioner is prevented from issuing a NOPA which rejects the 30 September 2008 GST return when he has already made a partial payment on that return;

d)whether  these  arguments  are  properly brought  by way of  judicial review.

Contract two – Grove Park

[22]     This contract was the fourth and last purchase in the sequence.  It was signed on 21 May 2009.  The purchase price was $6.75 million, GST inclusive.

[23]     Riccarton  Construction  duly  filed  a  GST  return  for  the  period  ending

31 May 2009.  The claimed input was $736,763.72.  I am unsure why that was the amount put on the GST return, because the invoice issued by the vendor of the motel recorded the GST component as being $750,000.   Riccarton Construction having been involved in no other relevant activity over the period, a total refund was sought. The GST return was immediately subjected to investigation.  This decision provoked a response from the principal of Riccarton Construction who, on 6 August, filed a NOPA in relation to this transaction.   Recalling that the original GST return was incorrectly for $737,763, the terms of the taxpayer’s NOPA were:

Adjustment     $750,000

Description     Section 46(1) requires the Commissioner to refund overpaid

GST after investigation of the return.  The return was made on

28 June 2009.    All  information  was  provided  on  that  date, including the agreement for sale and purchase of Grove Park Motor Lodge and the tax invoice.

The investigation is unlawful.   The Commissioner is not investigating but using s 46(2) to delay and frustrate Riccarton Construction in the carrying out of its business as he did in respect of the Academy Motor Lodge.

[24]     The investigating officer received the NOPA.   His evidence filed for these proceedings indicates that he was unsure as to the best way to respond.  He saw his options as being either sending a letter rejecting that it was a NOPA at all, or issuing a formal NOR.  He drafted both and took internal legal advice.  To shorten the story the investigating officer went on leave, the file was left with someone else to send the response, and the relevant date for issuing a NOR was missed.

[25]     The taxpayer says that the effect of not filing a response to its NOPA is that the Commissioner must pay out on the claim as per the taxpayer’s NOPA.   The

Commissioner says it was not a proper NOPA so it did not trigger the deeming provisions of the Act which require response or payment.

[26]     It is accepted by the Commissioner that judicial review is the only route available for the taxpayer to test this point since the Commissioner has issued neither a NOR nor his own NOPA in relation to the GST return.

[27]     To explain the lack of action, the Commissioner advises that a tax avoidance evaluation is now complete and it is intended shortly to issue assessments in relation to all four contracts alleging tax avoidance.

[28]     Concerning judicial review, I observe that the vendors of Grove Road also return GST on a cash basis.  Further, the contract has been cancelled so the taxpayer seeks relief from the Court that would have the effect of requiring the Commissioner to pay out $750,000 on a cancelled sale, it being indisputable that the money would have to be returned because the contract is cancelled.

[29]     Against that background I turn to the specific issues.

The Academy Lodge Motel transaction

Issue  one  –  whether  the  decision  to  investigate  the  Academy  Motor  Lodge transaction and consequent GST return was time barred

[30]     Section 46 of the Goods and Services Tax Act 1985 provides:

46       Commissioner's right to withhold payments

(1)Subject to this section, if the Commissioner is required to refund an amount to a registered person under section 19C(8) or section 20(5) of this Act, the Commissioner shall refund the amount—

(a)Except  when  paragraph  (b)  applies,  not  later  than  15 working days following the day on which the registered person's return was received by the Commissioner; or

(b)      The    day    after    the    working    day    on    which    the

Commissioner—

(i)       Determines  the  amount  is  refundable,  after  first having—

(A)      Investigated the circumstances of the return in accordance with subsection (2); or

(B)      Reviewed   the   information   requested   in accordance with subsection (2); and

(ii)      Is satisfied that the registered person has complied with the person's tax obligations.

(2)       If  the  Commissioner  is  not  satisfied  with  a  return  made  by  a registered person, the Commissioner—

(a)      May investigate the circumstances of the return:

(b)May   request   the   registered   person   to   provide   further information concerning the return.

(3)If a registered person fails to provide a return for any taxable period as required by this Act, the Commissioner may withhold payment—

(a)      Of any tax otherwise refundable under this Act or the Tax

Administration Act 1994; or

(b)      Of   any   interest   payable   under   Part   7   of   the   Tax

Administration Act 1994—

until the registered person complies with the requirement.

(4)       The Commissioner must give a request for information concerning a return under subsection (2)—

(a)Within a period of 15 working days following the day on which the return is received by the Commissioner (in the case of an initial request for information); and

(b)Within a period of 15 working days following the date of receipt of any information previously requested by the Commissioner (for subsequent requests for information).

(5)      The Commissioner must notify the registered person—

(a)       Of   the   Commissioner's   intention   to   investigate   the circumstances of the return under subsection (2); and

(b)Of the Commissioner's intention to withhold payment under subsection (3)—

within 15 working days following the day on which the return is received by the Commissioner.

[[(6)     If, but for this subsection, a registered person would be entitled to an amount as a refund under section 19C(8) or 20(5) or 45 or under the Tax Administration Act 1994, or as a payment of interest under Part

7 of the Tax Administration Act 1994, the Commissioner may apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of a request in such order or manner as the Commissioner may determine, in payment of—

(a)       tax that is payable by the person:

(b)       an amount that is payable by the person under another Inland

Revenue Act.]]

[[(7)     If, but for this subsection, a person who is a specified agent of an incapacitated person, as those terms are defined in section 58(1), would be allowed an amount as a deduction under section 20(3) by virtue of section 58(1C), the Commissioner may apply the amount in payment of—

(a)       tax that is payable by the incapacitated person:

(b)an amount that is payable by the incapacitated person under another Inland Revenue Act.]]

[31]     The taxpayer’s position is that the option to investigate under s 46(2) had to be initiated within 15 days of the GST return being filed, as set out in s 46(5)(a).  It is submitted that the request for further information under s 46(2)(b), which the Commissioner exercised within the 15 days allowed by s 46(4), did not defer the time by which an investigation had to be notified.

[32]     At  first  blush  the  recent  decision  in  CIR  v  Contract  Pacific  Ltd  [2009] NZCA 5681 would appear to be against the taxpayer. There the Commissioner had invoked the duty to investigate in a timely way. The Commissioner then in the course of investigating sought further information from the taxpayer, who unsuccessfully argued that the request for further information, like the decision to investigate, had to be made within 15 days. Here Riccarton Construction argue that

the reverse is not true – whilst a decision to investigate may be overarching and allow subsequent repeated requests for information as part of the investigation, a request for information is preparatory, and the decision to investigate must still occur within the 15 day timeframe set out in the Act.

1Leave to appeal to the Supreme Court has been given.  Mr Harley accepts that this Court is bound by the decision as it stands.

[33]     Whilst I see the distinction advanced, the practicalities of the provision tell against such an interpretation.  Since there is no obligation on the taxpayer to supply the requested information within the 15 day period, the Commissioner would be forced to decide whether to investigate without having the advantage of the further information.   That would be a poor scheme, since it could lead to unnecessary investigations which would have been avoided if the Commissioner had the ability to defer the investigation decision until receiving the requested information.

[34]     If the Commissioner is right that once there is a request for information the other timeframes are suspended, there is then no express time by which the decision to investigate must be made.   The Act provides that further information must be requested   within   15 days   of   receiving   the   originally   requested   information (s 46(4)(b)), but no adjusted timeframe for deciding to investigate is named.   It would not be a stretch to read the Act as requiring that, once all information is received, the investigation decision under s 46(2) must be made within 15 days just as a decision to require more information must be.   That could be argued to be a reasonable time given the statutory scheme and its obvious intent of keeping the process moving, but it is not necessary to determine the issue at this point.   The present investigation decision, if not controlled by the GST return filing date of

30 September 2009, was otherwise notified in a timely way regardless of the method used to determine “timely”.   It was notified within four days of receiving the information from the taxpayer, and that would meet any test except the taxpayer’s test of 15 days from when the return was filed.

[35]     The timing issues aside, there is in my view a more fundamental answer to the taxpayer’s arguments.  The purpose of s 46 is to set the time by when a taxpayer is to receive its GST refund.  The basic rule is 15 days after the return.  However, if the Commissioner has extended the process either by requiring further information, or by deciding to investigate, s 46(1)(b) governs the situation.  It says the refund is payable:

the day after the working day on which the Commissioner:

–determines the amount is refundable after first having investigated or reviewed the information received; and

–        is satisfied that the person has complied with his tax obligations.

[36]     Mr Goosen  focussed  on  the  second  requirement  of  compliance  with  tax obligations.  He submitted that the Commissioner was not satisfied as to compliance with tax obligations, so the refund could not be payable.  Ms Harley responded that the Commissioner was reading the term tax obligations too widely, and that it only meant issues such as those which had held up the partial payments, namely ensuring the taxpayer is up to date with returns and payments.   On this aspect I prefer the taxpayer’s submission.  Tax obligation is defined with circularity in s 4A(1)(a) of the Tax Administration Act but elsewhere in the Act the nature of the specific tax obligation is clearly spelt out – it  may be to file a return, or to provide a form, or to pay an amount of tax.  In my view the natural reading of s 46(1)(b)(ii) is that it refers not to the particular dispute but to a taxpayer’s other obligations under the Act.

[37]     This point becomes clear if one focuses on the first requirement of s 46(1)(b). Paragraph (i) says the refund is not payable until the Commissioner:

“determines the amount is refundable”.

[38]     Thus, the refund is payable when the Commissioner determines it is.  Two things flow from this.  First, tax obligations obviously refers to other matters because the prior requirement for the Commissioner to determine the refund is payable shows tax obligations is not about the particular GST return.  Second, and more important, plainly here the Commissioner has not so determined, and accordingly the refund is not payable.  Indeed, not only has the Commissioner not determined it is payable, he has decided the opposite.

[39]     Therefore on this aspect I hold that the notice to investigate was not out of time.  The 15 day time period was suspended once the request for information was made in a timely way.   Additionally, once a request for information is made, the refund becomes payable under s 46 when the Commissioner has determined it is, a condition not met here.

[40]     For completeness I note the Commissioner argues that in any event his notice of investigation was not given under s 46, so the time provisions of that section did not apply.   It is certainly correct the letter does not cite s 46, although it can be observed  that  throughout  the  many  subsequent  exchanges  that  have  occurred between taxpayer and Commissioner, there were obvious times where this point could have been taken and was not.

[41]     If the decision to investigate was not a decision taken under s 46(2)(a), then it follows that the decision to investigate could not thereby suspend any obligation to refund that otherwise arises under s 46.  If it is not a s 46 notice, the Commissioner becomes solely reliant on the argument I have accepted that s 46(1)(b), by virtue of the request for information, governs when he has to pay.

[42]     The final argument to be addressed is one advanced by the Commissioner.  It is that the taxpayer has not provided a valuation as originally required so the Commissioner’s request for information remains alive and unmet.  I do not consider this point can succeed.  I am very doubtful that the s 46 power to request information can be read as a power to oblige the taxpayer to create information.  However, the proposition need not be stated so broadly.   I agree with Ms Harley that since the taxpayer here did not obtain a registered valuation before purchasing the property, s 46 cannot be used by the Commissioner to oblige the taxpayer to obtain such a valuation  after  the  contract  is  signed.    Therefore,  the  taxpayer’s  response  of

30 October   that   there   was   no   valuation   was   an   adequate   response   to   the

Commissioner’s request.

[43]     I emphasise that this is not to say that the Commissioner cannot have regard to the absence of a valuation as being significant.   Likewise, faced with such a request a taxpayer may choose just to get a valuation as being the best way to settle the issue.  The limit of my finding is that s 46 does not authorise the Commissioner to require the taxpayer to obtain a registered valuation when the taxpayer purchased the property without one.

[44]     To summarise the various points:

a)        the request to provide information was made within time;

b)        the    taxpayer’s    response     of    30 October    complied    with    the

Commissioner’s request;

c)       the   Commissioner’s   decision   to   investigate,   if   it   was   a   s 46 investigation, was not out of time when notified on 4 November 2008. This  is  because  the  earlier  request  for  information  suspended  the

15 day time period otherwise applicable under s 46(5) to the decision to investigate;

d)if the decision to investigate was not made under s 46, then the last s 46 step was the taxpayer’s adequate response of 30 October.  When a refund thereafter becomes payable is governed by s 46(1)(b), and in my view the requirements of that provision are not met here because the Commissioner has not reached the view that the refund is payable.

Issue two – the timeliness of the taxpayer’s NOPA of 19 June 2009

[45]     Riccarton Construction’s NOPA of 19 June 2009 was clearly out of time if the filing date of the GST return (30 September 2008) remained the operative point from which time ran.   The taxpayer accepts this, and so points to an exchange of correspondence, and particularly a letter of the Commissioner of 16 March 2009, as being a fresh disputable decision supporting the timing of the NOPA.

[46]     The Commissioner’s letter in question was itself a letter written in reply to one received from the taxpayer’s counsel.   Counsel’s letter had recorded the taxpayer’s view that the Commissioner’s decision to investigate was out of time.  On

16 March, the Commissioner replied that it was not.

[47]     I prefer the Commissioner’s submission on this issue.  The taxpayer’s letter of 10 March and the Commissioner’s response of 16 March are just an exchange of

views, and do not amount to a disputable decision.  The Commissioner’s letter was no more a decision than was the taxpayer’s letter that triggered it.  The NOPA was out of time.

Issue three – the validity of the Commissioner’s NOPA of 31 July

[48]     On 31 July 2009 the Commissioner issued a NOPA rejecting the whole of the

30 September 2008 claim, and imposing penalties.   As a consequence the partial payment of $550,000 would also have to be refunded.

[49]     The Commissioner’s NOPA is challenged by the taxpayer on the basis that the Commissioner had:

•    unlawfully rejected the initial GST invoice;

•    unlawfully rejected the reissued (second) GST invoice;

•    the Commissioner is estopped from claiming invalidity because of the partial refund.

[50]     In oral argument the last of these issues was not really pursued by Ms Harley. With respect I consider that is correct and refer to the Court of Appeal’s observations in CIR v Lemmington Holdings Ltd (1982) 5 NZTC 61, 268 and the more recent decision  in  Westpac  Banking  Corporation  v  Commissioner  of  Inland  Revenue [2009] NZCA 24, [2009] 3 NZLR 99. The Commissioner is obligated to enforce the tax law and that may involve taking a different view. Here the taxpayer has not suffered prejudice because it has had the benefit of a partial return to which, in the Commissioner’s view, it was not entitled. Further it can be observed the contract for sale and purchase is now cancelled so there is no liability to pay GST.

[51]     The issue of the validity of the invoices can be shortly dealt with.  The first invoice was invalid.  It did not provide the correct GST number of the person issuing it, namely the vendor under the agreement for sale and purchase.   The taxpayer disputes that this makes the invoice invalid on the basis that:

•    an incorrect GST number is only a particular that does not mean it is not a proper invoice; or

•    the Commissioner had elsewhere the necessary information and could have treated the invoice as valid.

[52]     The last point is correct to the extent that the information was all in the Commissioner’s system.   However, he was not obligated to himself remedy the deficit.  The taxpayers had the easy capacity to fix the situation, and did not.  The obligation to file a proper invoice is with the taxpayer and the invoice was, after all, the only basis on which the taxpayer was entitled to claim a refund.

[53]     Section 24 of the Goods and Services Tax Act 1985 establishes the necessity for an invoice.  Section 24(3) sets out the requirements for an invoice “except as the Commissioner may otherwise allow”.  One of the requirements for a GST invoice is the GST number of the supplier.

[54]     The discretion available to the Commissioner on which the taxpayer relies is found in s 24(6) which provides:

24       Tax invoices

…

(6)Where  the  Commissioner  is  satisfied  that  there  are  or  will  be sufficient records available to establish the particulars of any supply or class of supplies, and that it would be impractical to require that a tax invoice be issued pursuant to this section, the Commissioner may   determine   that[,   subject   to   any   conditions   that   the Commissioner may consider necessary,]—

(a)Any one or more of the particulars specified in subsection (3) or subsection (4) of this section shall not be contained on a tax invoice; or

(b)      A tax invoice is not required to be issued.

[(6A)   Any tax invoice issued pursuant to subsection (6)(a) of this section shall contain the words “modified tax invoice-IRD approved” in a prominent place.] (emphasis added)

[55]     Mr Goosen submits, and I accept, that there is no basis to say that it was impractical for the taxpayer to issue a compliant invoice.  Accordingly, s 24(6) does not avail Riccarton Construction.

[56]     Concerning the second invoice provided on 4 August 2009, it was dated with the date of issue, namely 4 August.  It could not support a 30 September 2008 return when dated in that way.   In any event the invoice was by then irrelevant for GST purposes, as the payment of the deposit in late May became the triggering event that determined when GST should be returned.

[57]     This is one of those situations that, with hindsight, should not have arisen. No doubt when a situation of dispute exists people dig their toes in, but in reality it is, frankly, all rather silly and unnecessary.   Technically, however, I consider the Commissioner is correct about the invoices.

Conclusion  on  the  Academy  Lodge  Motel  purchase,  and  the  GST  return  of

30 September 2008

[58]     On  the  specific  challenges  within  the  process,  the  taxpayer  has  not established a right to the refund.   I record that because the contract is cancelled I would not as a matter of discretion have made decisions that had the effect of requiring the Commissioner to act on the returns so as to pay across money.

The Grove Park Lodge Contract

Issue – the validity of the taxpayer’s NOPA of 6 August 2009

[59]     It is common ground that the Commissioner missed the date by which he had to file a NOR in response to the taxpayer’s NOPA.   The taxpayer consequently wants a declaration that the deemed acceptance provisions of the Act apply.  Such a declaration would mean that the Commissioner is obligated to pay Riccarton Construction $750,000, although he could then begin processes to recover it.

[60]     The taxpayer relies on CIR v Alam and Begum [2009] 2 NZCA 273.  In that case  the  Commissioner  had  issued  a  NOPA.    The  taxpayer  replied  within  two months, as required, with what purported to be a NOR.  The Commissioner was of the view that the taxpayer’s NOR was non-compliant with the statutory requirements

of such  a document.    So he chose to ignore  it and instead  apply the “deemed acceptance” provisions of the Act, just as the taxpayer wants to happen here.

[61]     The Court of Appeal held that the Commissioner did not have the power to himself  determine  that  the  NOR  was  invalid.     He  can  take  the  view  it  is non-compliant and issue a default assessment, but cannot just ignore it.

[62]     Here it is common ground the Commissioner did not intend to ignore the taxpayer’s NOPA; he just missed the response date.  However, he refuses to issue an assessment based on the deemed acceptance provisions, arguing they have not been triggered because it is not a proper NOPA.

[63]     The  Commissioner  accepts  that  on  this  aspect  it  is  appropriate  for  the taxpayer to bring judicial review proceedings as there is no route within the Act by which the issue could be brought into the disputes process.   However, he submits that on a judicial review application by the taxpayer, Alam and Begum does not prevent him from resisting relief on the basis that the document was not a NOPA within the meaning of the Act.

[64]     That is a difficult point to make.  The intent of Alam and Begum seems to be to say that the parties are to press on with the tax administration dispute processes. The points of invalidity can be taken before the appropriate decision-maker, but in the interim  the form  of  the document  governs  the process.    Applying that,  the position must be that the Commissioner is out of time and the Act’s processes should apply.

[65]     However, on judicial review is the Court obligated to make a declaration to that effect without itself assessing whether the Act’s deeming provisions were indeed triggered by the document purporting to be a NOPA?  I do not consider the Court can be so limited and accept the Commissioner’s submission it is open to me to consider if it is a NOPA.

[66]     Section 89A authorises a taxpayer to issue a notice of proposed adjustment in respect of its own assessment if the Commissioner has not yet issued an assessment. This is what the taxpayer purported to do.

[67]     Recalling the factual narrative, on 28 June 2009 the plaintiff filed a GST return for the period ending 30 May 2009.   There was a single entry being a GST input claim for $736,763.72.   On 3 July the Commissioner notified that the return had been selected for investigation.   On 20 July, Riccarton Construction’s counsel responded, and then on 6 August Riccarton Construction filed its NOPA.

[68]     The amount claimed in the NOPA was for $750,000.  Under the heading of the NOPA which reads “Description of Proposed Adjustment”, the following was written:

Section 46(1)  requires  the  Commissioner  to  refund  overpaid  GST  after investigation of the return.   The return was made on 28 June 2009.   All information was provided on that date, including the Agreement for Sale and Purchase of Grove Park Motor Lodge and the tax invoice.

The investigation is unlawful.   The Commissioner is not investigating but using s 46(2) to delay and frustrate Riccarton Construction in the carrying out of its business as he did in respect of the purchase of the Academy Motor Lodge.

The Commissioner has failed to use his best endeavours to protect the integrity of the tax system: s 6 of the Tax Administration Act 1994.

[69]     Under the section of the NOPA allocated for facts, the following was written:

1.By an Agreement for Sale and Purchase between Coljon Limited and Riccarton   Construction   Limited   dated   24 May 2009,   Riccarton Construction purchased Grove Park Motor Lodge at 81 Grove Road, Blenheim for $6.75 m inclusive of GST.

2.        Also on 24 May 2009, the vendor issued its GST tax invoice.

3.On 28 June 2009, Riccarton Construction filed its return for the GST period  ended  31 May 2009  and  provided  the  Agreement  and  the GST tax invoice.

4.On   3 July 2009,   the   Commissioner   advised   he   intended   to investigate the circumstances of the return.

5.        The Commissioner has carried out an investigation.

6.The    Commissioner    is    delaying    and    frustrating    Riccarton Construction in the carrying out of its business, as he has done in respect of Riccarton Construction’s purchase of the Academy Motor Lodge on 23 September 2008.

[70]     Under legal issues, it was said:

Whether the Commissioner is in breach of s 6 of the Tax Administration Act 1994  when  he  “investigates”  a  return  which  is  properly  made  and supported.

[71]     Under “propositions of law”, it was said:

1.        The time of supply was the date of the GST tax invoice.

2.        The claim was properly made.

3.        All relevant documents were provided to the Commissioner.

4.The “investigation” is unlawful because it is for the purposes of delay and frustration.

[72]     On 13 August the investigating officer wrote to counsel about other matters. The letter concluded by acknowledging, without comment, the NOPA.

[73]     On 20 August the Commissioner wrote again. Amongst other matters, the NOPA was addressed.   It was observed by the Commissioner that it was unclear whether the NOPA was intended to restate the original return, which was for a slightly different sum, or was a genuine adjustment.   If the latter, it was noted no supporting information was provided, nor reasons for a change.  It was indicated the Commissioner would issue a NOR challenging the NOPA on the basis that it sought to amend the original return without providing any supporting material.

[74]     By letter dated 21 August Riccarton Construction’s counsel replied that the NOPA referred to the original return, and the tax invoice of 24 May 2009 (which was for $750,000).   The Commissioner was asked to deal with it on that basis.   I observe that therefore counsel was indicating it was an adjusted sum, which now brought the GST return into line with the supporting invoice.

[75]     On  1 September 2009  a  Commissioner’s  NOR  was  again  promised.    As earlier noted, it was however never sent.

•   the original GST return was plainly wrong.   I do not know what the claimed figure represents, but the supporting invoice was for $750,000;

•   the NOPA was not a genuine effort to adjust the return.  All the reasons given by the taxpayer reflect a frustration with the decision to investigate and an intention to just restate the original claim;

•   in fact, however, the NOPA did represent an adjustment and indeed it was a proper adjustment because it is now for the correct invoice amount;

•   no  relevant  reasons  were  given  to  support  the  proposed  adjustment although they existed.

[77]     The “message” I take from Alam and Begum is that the statutory disputes process is to be given primacy, and the disputants are to take their points of dispute through the process.  Given that, one should be hesitant to say that a defective form is not a form at all.

[78]     Here  the  defect  in  the  NOPA  is  a  total  failure  to  support  the  proposed adjustment with any reasons that explain the adjustment.  Rather the reasons given by the taxpayer reflect an apparent belief that the NOPA makes no adjustment at all. It is only when the Commissioner writes pointing out the change that the taxpayer adopts the new adjusted figure.

[79]     Had the NOPA restated the sum claimed in the original GST return I would have agreed with the Commissioner that it was not a NOPA at all.   By chance, however, the sum claimed in the NOPA is not only an adjustment, but it is a valid one.  In these circumstances I do not accept the Commissioner’s submission it is not a NOPA at all.

[80]     That means it was sufficient to trigger the processes.   The Commissioner inadvertently failed to respond in time, and so the deemed acceptance processes of the Act were triggered.

[81]     I turn then to the question of relief.  The applicant seeks a declaration:

directing the Commissioner to reconsider his refusal to give the plaintiff a Notice of Assessment taking account of the adjustment proposed by the plaintiff in its NOPA.

[82]     After reflection I decline to make a declaration.  I am conscious that the Act has its processes and the declaration would be consistent with them.   Normally it should be made without any attempt to look into what might follow in terms of attempts by the Commissioner to reassess.  However, here the basis for the original GST return has gone.  The contract to which it related has been cancelled.  There is no obligation on the plaintiff to pay GST and it has not done so.   Nor can any obligation subsequently arise.   I am not willing to make a declaration which is intended to have the effect of requiring the Commissioner to pay across $750,000 in circumstances where it is accepted the taxpayer no longer has any obligation to pay GST because the agreement for sale and purchase has been cancelled.

Other matters

[83]     The claim for interference with contractual relations was abandoned.   Its presence led to various pleadings, and evidence, as to the motivations of the Commissioner’s officers in inquiring into the taxpayer’s affairs.  I record that in my view the structure and timing of the agreements for sale and purchase provided a proper basis for inquiry, and for delay in accepting the taxpayer’s claims.  This is not a comment on what the outcome of those inquiries should be – just that there was a reasonable basis for looking into it.

[84]     As  for  the  form  of  the  proceedings,  the  Commissioner  accepts  that  the challenge concerning the Grove Road  NOPA  could only be brought as judicial review proceedings.  For myself, I would have thought there was an argument to be had that judicial review proceedings are premature given the Commissioner is still to issue assessments which will trigger the disputes process.  However, I will accept the Commissioner’s concession.

[85]     The taxpayer’s view was that since the Grove Road GST return dispute was properly the  subject  of  judicial  review  proceedings,  it  was  correct  to  bring  the Academy Motor Lodge issues within its purview at the same time.   Again I have strong reservations about that, but accept there would inevitably be some reference to the Academy Lodge issues.

[86]     In the circumstances, although I have reservations, I have concluded it is not a proper case for comment about the process.

Conclusion

[87]     All relief is declined.  Concerning the Academy Motor Lodge transaction, I accept the submission of the Commissioner and conclude that nothing has occurred that   would  trigger   an   obligation   in   the  Commissioner   to  pay  out   on   the

30 September 2008 GST return.   Concerning the Grove Road transaction, I accept that there was a valid NOPA filed by the taxpayer, and that there was no response from the Commissioner within the required time.   Although under the statutory scheme  the  default  provisions  deeming  the  Commissioner  to  accept  the  NOPA would normally thereby be engaged, I decline any relief that formally acknowledges that effect.  Concerning the claim of interference with contractual relations, this was abandoned during the hearing and is dismissed.

[88]     The parties may file costs memoranda if agreement cannot be reached.   I observe that I consider a matter to be factored into any discussion between the parties is that both contracts which are the subject of judicial review in relation to

GST claims were, by the time of the hearing, cancelled.

Simon France J

Solicitors:

G J Harley, Barrister, Wellington, email:  [email protected]

R P Harley, Barrister, Wellington, email: [email protected]
A Goosen and T Gillbanks, Crown Law Office, PO Box 2858, Wellington