Sales Tax Assessment Act 1992 - Ss 51

CCA Beverages (Sydney) Pty Ltd v Federal Commissioner of Taxation (1995) 133 ALR 755

CCA Beverages (Sydney) Pty Ltd v Federal Commissioner of Taxation (1997) 143 ALR 212

WT95/13-14 and Deputy Commissioner of Taxation (unreported, Decision No. 10766, 19 February, 1996)

1. on 10 September, 1997 to vary the summons issued to PC1 by deleting paragraphs 5, 7 and 8;

2. on 15 September, 1997 to refuse the applicant's application to:

(1) split the hearing so that the period from 6 October, 1997 to 24 October, 1997 be dedicated to the applicant's adducing evidence from the paper collectors; and

(2) adjourn the hearing of the remaining evidence to a date to be fixed in 1998.

The Tribunal amends its Reasons for Decision dated 18 September, 1997 by:

paragraph 30: omitting from the decision after the words "Since it lodged its application in January," the word "1995", and inserting in its place the word "1997".

On 21 February, 1997, the applicant applied for review of an objection decision made by a delegate of the respondent, the Commissioner of Taxation ("the Commissioner"). That objection decision, which was dated 28 November, 1996, had been to disallow the applicant's objection dated 31 January, 1996 against an earlier decision of the Commissioner. The earlier decision, dated 1 December, 1995 had been to disallow in full the applicant's claim made on 21 September, 1995 for a refund of sales tax paid by the applicant in the period from 1 January, 1993 to 30 June, 1995.

2. At two directions hearings, I have been concerned with summonses issued at the request of the applicant. On 10 September, 1997, I revoked a summons issued to a particular company and gave oral reasons. On 15 September, 1997, I refused an application for an adjournment of the hearing made by the applicant and also an application to divide the hearing into two sections. I have been asked for reasons for those decisions and now set them out.

3. The applicant manufactures paper products. In its manufacturing processes, it uses waste and scrap paper which it purchases from paper collectors. It paid, or was liable to pay, sales tax on assessable dealings with the paper products it manufactured. The applicant has claimed that it should be entitled to a refund of sales tax under the Sales Tax Assessment Act 1992 ("the Act"). It makes its claim under section 51 of the Act. That section provides that a person is entitled to a credit of sales tax in the situations set out in Table 3 of Schedule 1 to the Act. The applicant relies, in the main, on CR6 and CR7 of Table 3. It also has regard to CR1.

4. Without wishing in any way to pre-judge the nature and breadth of the issues in this case, it would seem from the documents lodged under section 37 of the AAT Act that the hearing will raise several issues including those and the material lodged to date which may be broadly summarised as:

1. whether the waste and scrap paper come within the description of "assessable goods" within the meaning of section 5 of the Act and, in particular, whether:

(a) the waste and scrap paper are not assessable goods because they are "Australian-used goods" within the meaning of section 5 and so excluded from the definition of "assessable goods" in section 5; and

(b) the waste and scrap paper are not Australian goods within the meaning of "assessable goods" on the basis that shredding and baling does not constitute "manufacture" of the goods.

1. whether the applicant has "borne tax" within the meaning of sections 5 and 11 of the Act and, in particular, whether:

(a) there has been an assessable dealing between the applicant and the paper collectors; and

(b) whether the applicant purchased paper at a price which included sales tax which, under the Act, another person had paid, or was liable to pay upon the taxable value of the goods.

5. Since it was lodged, the application has been listed for a number of hearings regarding procedural issues. I will summarise the directions which have been given at those hearings. On 11 March, 1997, Deputy President Breen directed that the parties file and serve statements of facts and contentions. The applicant was to do so by 15 April, 1997 and the respondent by 7 May, 1997. The parties met that time frame. On 13 May, 1997, Deputy President Breen set the application down for a hearing. That hearing is scheduled for three weeks to commence on 6 October, 1997.

6. The setting down was followed by a further direction by Mr Breen on 5 June, 1997. That direction related to the parties' filing and serving statements of evidence and reports of experts to be relied upon at the hearing. The applicant was to do so by 14 July, 1997 (later varied to 29 July, 1997 and then to 15 August, 1997) and the respondent by 25 August, 1997 (later varied to 9 September, 1997 and then to 26 September, 1997). The applicant, and consequently in this case, the Commissioner, has not complied with these time frames.

7. On 17 July, 1997, the applicant was given a copy of a bundle of documents marked "H" which had been delivered to the tribunal by the Commissioner. Access to those documents is restricted subject to certain undertakings given by the applicant, its representatives and its expert witnesses. A report prepared by Mr John Barassi has been given to the Commissioner.

8. Summonses have been issued pursuant to section 40 of the Administrative Appeals Tribunal Act 1975 ("the AAT Act"). Summonses directed to three companies, whom I will describe as PC1, PC2 and PC3, were issued on 26 June, 1997 for return on 8 July, 1997. Those summonses sought:

1. all original records and documentation relating to the supply of ... goods to ... [the applicant] between 1 January 1993 and 30 June 1995;

2. all documentation relating to the registration of ... [PC1, PC2 or PC3] pursuant to the Sales Tax Amendment Act 1992 for the period including 1 January 1993 and 30 June 1995; and

3. any copies of documents, handwritten notes or other written documents relating to the survey prepared by the Australian Taxation Office dated 31 October 1995."

9. On 29 August, 1997, the applicant sought to issue further summonses against twelve paper collectors. On the same day, I refused to authorise the Deputy Registrar to issue those summonses on the basis that they were too wide and beyond the compass of the issues which have so far been identified for exploration. A slightly amended version of the summons was lodged together with a statement by Professor Robert Graham Walker, who is a Professor of Accounting at the University of New South Wales, made on 2 September, 1997 and an affidavit of Mr David Van Homrigh who is a partner in KPMG. Professor Walker signed a later but undated statement which was given to me at the directions hearing on 15 September, 1997. As that was not available to me when I made my decisions in relation to the summons issued to PC1, I have not referred to it in preparing these reasons.

10. Professor Walker stated that he had been consulted to give an opinion as to whether the documentation identified in the summons would be sufficient to determine the price paid for the goods included a component for sales tax, whether there had been any unnecessary duplication and whether any documentation was missing. He was aware that the applicant had received some information as to the tonnage of goods purchased from, among others, PC1 for the relevant period but that it did not enable a determination of whether the price paid by the applicant included a component for sales tax.

"6. I reviewed clauses 1 to 16 of the draft summons and recommended that certain amendments be made. Now shown to me and marked RGW-2 is a true copy of the amended summons, which reflects my recommended amendments. My recommendations were designed to make the request for information less onerous, and less repetitive. As originally drafted, the draft summons would have required copies of orders, delivery records, invoices, periodic financial statements, details of payments, and copies of entries in the suppliers' general ledgers. Further, the original request related to the entire business activities of the paper collectors, whereas the intention was to obtain information relating only to the acquisition and processing of materials for sale to ... in the form of bales of shredded paper. From my knowledge of the printing industry I was aware that paper stock comes in different weights and finishes, and that only certain forms of scrap paper were likely to be suitable for recycling by .... Moreover, I was aware that scrap paper obtained from (for example) government departments was likely to have been originally purchased by those agencies free of sales tax, so that in my opinion it would be necessary for the purpose at hand to seek information about the extent to which baled and shredded paper purchased by ... came from different sources. My recommended amendments were designed to reduce the information to be sought from individual paper collectors to that which I considered would be sufficient to identify the structure of the paper suppliers' costs in processing scrap paper, the sources of the paper suppliers' purchases of unprocessed scrap paper, and to enable estimates to be made of the extent to which the price paid for goods by ... may have included a component for sales tax.

1. I gave careful attention to the possibility that there were elements of duplication in the way the first draft summons sought (for example) documents establishing pricing policies, documents setting out methods to establish prices, and copies of quotation sheets. However the accounting methods and business practices used by the paper collectors are unknown. It may be that some paper collectors maintained only a selection of these records - while other papers collectors may have maintained a different selection. There is also the possibility that (for example) a firm's pricing policy was not always followed during the period under review. Accordingly I formed the view that the specification of all of the documents identified in the revised summons would be necessary to establish that sales tax was a component of the price paid for goods, and to estimate the dollar value of that component."

"5. As the size and sophistication of the recipients of the summons is unknown and the nature and form of their internal documentation is similarly unknown, the documentation requested in the summons will be necessary in order to determine whether sales tax has been incorporated into a price paid for goods.

1. In particular I mentioned that Item 7 were of great importance, and in the absence of Management Accounts, in perhaps smaller companies, then the end of year annual accounts (requested in Item 8) should also be produced. These accounts are of importance as they should identify the accounting treatment of the sales tax in the management or statutory accounts.

2. It is my opinion that the documents requested in the summons are necessary in order for a to determine whether the price paid for the goods included a component for sales tax."

12. I subsequently authorised the issue of the summonses. They were expressed in the following terms:

"1. all original or copy documentation relating to the registration of ... pursuant to the Sales Tax Assessment Act 1992 between 1 January 1993 and 30 June 1995;

1. all original or copy records and documentation relating to the supply of paper to [the applicant] between 1 January 1993 and 30 June 1995;

2. all original or copy financial records and documentation relating to the purchase or acquisition of paper for baling and shredding to create 'Grade A' bales between 1 January 1993 and 30 June 1995;

3. all original or copy documentation evidencing:

(a) the suppliers of paper used to create Grade A bales, during 1 January 1993 to 30 June 1995;

(b) the proportion of unused or printer's waste purchased or acquired during 1 January 1993 to 30 June 1995;

all original or copy management accounts or other records providing information regarding aggregate costs for materials, labour and all other costs on a monthly or six monthly or annual basis, and information relating to the total number of bales or aggregate weight of shredded papers supplied to [the applicant] during the period 1 January 1993 to 30 June 1995;

all original or copy quotation sheets prepared for filling orders for the period between 1 January 1993 and 30 June 1995;

all original or copy management accounts for the period between 1 January 1993 and 30 June 1995;

all original or copy end of year annual accounts for the period between 1 January 1993 and 30 June 1995;

all original or copy documentation relating to the methods of overhead allocation for the period between 1 January 1993 and 30 June 1995;

all original or copy documentation to evidence how any common costs were allocated between the activities of collecting, sorting, shredding and baling paper and delivery of those bales to customers and the activities of collecting, sorting processing and delivering any other products produced by the company;

all original or copy documentation relating to the calculation of costs of sales for the period between 1 January 1993 and 30 June 1995;

all original or copy costing records including records to calculate the cost of sales tax figure for the period between 1 January 1993 and 30 June 1995;

all original or copy accountancy records of the company as evidence or record (for the period between 1 January 1993 and 30 June 1995);

(b) any method adopted by the company in respect of establishment of pricing;

all original or copy information supplied to purchasers in relation to sales tax obligations;

all original or copy price lists for the period between 1 January 1993 and 30 June 1995;

all original or copy documentation that evidences the methodology or 'pricing policies' used to determine the selling price of the baled and shredded paper;

all original or copy financial records relating to the calculation of profit and loss, expenses associated with the baling and shredding of paper and computation of prices to recoup those expenses for the period between 1 January 1993 and 30 June 1995;

all original or copy advertising literature for the period between 1 January 1993 and 30 June 1995;

all photographs, plans or documentation relating to the machinery or process undertaken by ... to bale and shred paper;

all photographs, plans or documentation relating to any changes or modifications that have been made to the machinery or process undertaken by ... to bale and shred paper, since 30 June 1995;

all training manuals used by ... for the operation of the machinery to bale and shred paper; and

all original or copy production statistics for the period 1 January 1993 to 30 June 1995."

13. Most of the summonses were returnable on 10 September, 1997 with some being returnable on 15 September, 1997. Some were adjourned to 15 September, 1997 on the basis that the applicant would outline to the paper collectors or their representatives the nature of the issues raised by its application. Various levels of response, ranging from complete compliance to blanket objection, were received from the paper collectors.

14. I am concerned only with the response from the paper collector to whom I will refer as PC1. It appeared at the directions hearing for the return of the summons held on 10 September, 1997 by its counsel, Mr AM Warnick. He was instructed to object to the summons. On the same day, Mr Batch SC represented the applicant and the Commissioner was represented by its counsel, Mr Logan.

15. Mr Warnick submitted two affidavits but only one is relevant to this aspect. It is that sworn by a director of PC1 on 9 September, 1997. He said that PC1 had already complied with the earlier summons. As a consequence, it had complied with paragraph 1 of the summons by complying with paragraph 2 of the earlier summons. It had also complied with paragraph 2 by complying with paragraph 1 of the earlier summons. Mr Alroe continued that PC1 was unable to produce documents in relation to paragraphs 3 and 4, paragraph 6 and paragraphs 9-20. His reasons may be summarised by stating that PC1 did not have records and documents of the type described either because they had never existed or, in the case of production statistics referred to in paragraph 20, were not retained beyond short term use.

16. Objection was taken to paragraphs 5,7 and 8 on the basis of relevance, oppression and the breadth of the summons. Mr Alroe gave his reasons for his objection in the following terms:

(1) The production of these accounts necessarily involves production of other and private information which is unrelated to the Company's dealings with .... If it is the true intention of the Summons to obtain information relating only to the acquisition and processing of materials for sale to ... as is stated in the Affidavits supporting the Summons then the production of our management and statutory accounts goes much further than this stated intention and is greatly to the Company's detriment.

(2) I have noted in the material that production of this information is necessary in order to determine whether sales tax has been incorporated into a price for goods sold to the Applicant.

(3) I state that at no time has the Company either calculated, added, deducted, or remitted anything to the Australian Tax Office or any other party during the relevant period with respect to sales tax on waste paper sold to ... and hence there was no need to prepare or submit sales tax returns during this period. Accordingly the accounts of the Company can not be of any assistance in identifying the accounting treatment of sales tax. Indeed, the Company has no documentation in its possession with respect to the apportionment of costs which one might expect if sales tax was being calculated. As a result, the private management and statutory accounts of the Company are simply not relevant to the issues under review because they can not assist the Applicant or the Tribunal.

(1) ... conducts the same business as the Company and presently has a waste paper collection service in direct competition with the Company. Hence, it is a grave intrusion of the Company's commercial privacy that it be commanded to produce its management and statutory accounts as this inevitably exposes its most private information to a competitor and opens the possibility of a potential leakage or misuse of the information in the market place with a real risk of consequential damage to the Company's commercial operations.

(2) Given that ... maintains a similar business to that of the Company, ... is in as good a position as the Company to extract the information which it seeks from its own records.

(1) Whilst the Summons clearly seeks to extract information with respect to sales tax records, it requests the production of all management accounts which would include the assets, liabilities, profits, losses and even shareholders drawings. If the intention of the Applicant is to ascertain information with respect to sales tax, the request for such information could be substantially narrowed.

4. In any event, as the Company does not possess any accounting information relating to sales tax which is relevant to the Applicant and its dealings with the Company, I object to producing the Company's financial records."

17. Mr Batch submitted that Mr Alroe was a lawyer and a company director and not an expert. Therefore, he cannot give accounting evidence. Mr Batch relied on a line from the judgement of Lehane J in CCA Beverages (Sydney) Pty Ltd v Federal Commissioner of Taxation (1997) 143 ALR 212 when he said, in relation to the quotation of a registration number under the Act,

"... it does not matter whether CCA was or was not entitled to quote; what matters is that in fact it did not do so." (page 214)

In relying on these words, I understand Mr Batch to mean that it matters not whether the director considers that PC1 possesses any accounting records relating to sales tax and relevant to the applicant, the issue is whether it in fact does so.

18. PC1 is a competitor of the applicant as well as being a supplier. This is, of course, of great concern to all of the paper collectors. Some limitations have been negotiated to protect some of their interests. That they have this concern is understandable. It is also understandable that the concern will remain for some despite Mr Batch's reassurances that it has no such interest in their affairs.

19. The breadth of the summons is such that it seeks access to records that extend far beyond those that may be relevant to the resolution of the issues which appear to be raised by the application for review of the Commissioner's decision. So, for example, paragraph 3 relates to documentation relating to the purchase and acquisition of paper for baling and shredding to create Grade A bales. It is not limited to paper supplied to the applicant. Paragraph 4 mirrors paragraph 3.

20. Paragraph 5 of the summons would require PC1 to produce a very wide range of documents. In doing so, it would inevitably produce material which was commercially sensitive. On the basis of the director's affidavit, it appears that it would also lead to the production of the relevant documents relating to the production of all of its shredded paper. There would appear to be no separate records relating solely to the production of the shredded paper supplied to the applicant.

21. Having looked at the summons, the statements of facts and contentions of both parties and the statement of Professor Walker and the affidavit of Mr Van Homrigh, it still has not become clear to me just how the documents sought would assist the applicant to address the issues which seem to be raised by its application. At this stage of the proceedings, its relevance is not apparent to me.

22. The lack of apparent relevance, together with the width of the material sought and the invasion of PC1's commercial sensitivities lead me to conclude that paragraph 5 of the summons should not stand. For the same reasons, paragraphs 7 and 8 cannot stand.

23. At the hearing, I indicated that the summons would be set aside or revoked. On looking at it again as well as at the director's affidavit, it appears to me that revocation of the whole summons is not the appropriate course. PC1 had responded to all paragraphs other than 5,7 and 8. It had done so through its director who stated that it did not have documents of the type specified in those paragraphs. Setting aside a summons to which the company has already responded seems inappropriate. I have, therefore, directed that the summons be varied by deleting paragraphs 5, 7 and 8. I have done so by virtue of the powers given in section 40 of the AAT Act to issue a summons when read with sub-section 33(3) of the Acts Interpretation Act 1901 (see also WT95/13-14 and Deputy Commissioner of Taxation (unreported, AAT No. 10766, 19 February, 1996, Deputy President Barnett).

24. I note that the applicant is at liberty to ask the tribunal to issue another summons should it so wish. I indicated to Mr Batch that he might consider narrowing its compass and take that course.

APPLICATION TO SPLIT HEARING OF EVIDENCE AND TO ADJOURN HEARING

25. At the directions hearing on 15 September, 1997, the applicant asked that the hearing be split so

"2 That at the hearing of these applications set down to commence on Monday 6 October 1997, for up to three weeks to Friday 24 October 1997, the applicant adduce evidence pursuant to summonses to be issued to the 'paper collectors' herein;

1. That the hearing of other evidence be adjourned to a date to be fixed, in 1998."

26. I refused the application for the case to be split in this manner. Both parties have been aware since May that the case has been set down for a three week period. It has become quite apparent this month that the applicant has experienced grave difficulties in assembling the evidence for its case. Those difficulties were beginning to suggest themselves in August.

27. On 26 August, 1997, the applicant sought a splitting of the issues between those concerning whether there are assessable goods and those concerning whether they were tax borne goods. The application was opposed on behalf of the Commissioner.

28. I refused the application on the basis that the issues could not properly be divided. Evidence would be needed from the paper collectors on both aspects and they would need to be called twice if the case were split. Unless the applicant is successful on all aspects of its case, it cannot be successful at all. This is not a case where a determination on one issue will determine the way in which the parties should present their cases on the other issues. The most that can be said is that determination of the first issue may lead one party or the other to "abandon" the other issue. Equally, resolution of the first issue may lead the parties to lodge an appeal to the Federal Court. There may be several ways in which such an appeal may be resolved. On at least one scenario, the fact that only one issue has initially been determined may lead to a multiplicity of hearings both at the Federal Court and in this tribunal.

29. The applicant's current application to split the case is not a split of the issues but of the preparation and presentation of the case. Both it and the Commissioner should have a reasonable opportunity to present their cases. Regard is had to those needs in setting hearing dates and in adjusting them from time to time.

30. In considering whether the applicant has had a reasonable opportunity to present its case, I have had regard not only to the undoubted difficulties which it has experienced since at least August, 1997 but also to the progress of the application generally. Since it lodged its application in January, 1995, the applicant has been entitled to issue summonses under section 40. Such a summons may be returnable at a directions hearing (sub-section 40(1B)) and there was no need for the applicant to wait for hearing dates to be set. It was aware of the course it wished to follow and, from the documentation it lodged with the Commissioner in support of its claim, appears to have been so aware since September, 1995.

31. It is not only to the applicant's concerns that I must have regard. The Commissioner has opposed the application. He has a legitimate interest in having the decision reviewed and, subject to any appeals, the matter finally resolved in a reasonable time. That interest exists quite apart from any right he may have to take action to recover the amount of tax assessed to be payable.

32. Taking all of these matters into account, I decided to refuse the application both to split the hearing of the evidentiary matters and to adjourn the hearing.

33. This is not to say that the hearing could not be split at all. At the last directions hearing, I raised with the parties whether the case could proceed on the basis of the evidence of one or more of the paper collectors rather than all twelve. The applicant has had good co-operation from a handful of them. It would seem that splitting in this manner was adopted by the Federal Court in the CCA Beverages case at first instance (CCA Beverages (Sydney) Pty Ltd v Federal Commissioner of Taxation (1995) 133 ALR 755). It was clear from Mr Logan's submissions that the Commissioner had already given some thought to this manner of proceeding and might not oppose it in some circumstances. I invited Mr Batch to consider it.

1. on 10 September, 1997 to vary the summons issued to PC1 by deleting paragraphs 5, 7 and 8;

2. on 15 September, 1997 to refuse the applicant's application to:

(1) split the hearing so that the period from 6 October, 1997 to 24 October, 1997 be dedicated to the applicant's adducing evidence from the paper collectors; and

(2) adjourn the hearing of the remaining evidence to a date to be fixed in 1998.

I certify that this and the seventeen preceding pages are a true copy of the decision and reasons for decision herein of Miss S A Forgie, Deputy President

Solicitor for Applicant Ms H Meggiorin, Minter Ellison