Commissioner of Taxation v Evenfont [2008] NSWSC 1371 | Case summary

Commissioner of Taxation v Evenfont [2008] NSWSC 1371 | Case summary | Zoe

[17]

14 The Criminal Code 1995 (Cth) does not apply to the offences. The plaintiff must prove the intentional evasion of duty with respect to the offences under s 120(1)(iv). It is not sufficient to establish that Evenfont failed or omitted to pay an amount of duty that was payable by it: Wilson v Chambers [1926] HCA 15; (1925-1926) 38 CLR 131 per Knox CJ at 136. 15 In Ludwigs Canberra Bond Seller Pty Ltd v Sheen (1982) 65 FLR 347 at 354 Gallop J observed: In the context of considering the meaning of the word "evasion" in the Income Tax (Management) Act 1936 (N.S.W.) Dixon J said in Denver Chemical Manufacturing Co. v. Commissioner of Taxation (N.S.W.) (1949) 79 C.L.R. 296 at p. 313 that it was unwise to attempt to define the word. He then went on to say that some blameworthy act or omission on the part of the taxpayer is contemplated. He said an intention to withhold information lest the Commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede is conduct which, if the result is to avoid tax, would justify finding evasion. This meaning was adopted by Fullagar J. in Australasian Jam Co. Pty. Ltd. V. Federal Commissioner of Taxation (1953) 88 C.L.R. 23, at pp. 38-39. It is appropriate in my view to apply the meaning enunciated by Dixon J in the penal provisions now under consideration, namely, that the word "evade" means more than the intentional withholding of information or the mere furnishing of misleading information, but requires some blameworthy act or omission on the part of the appellants. I apply the like approach. 16 Section 120(1)(vi)(A) makes it an offence to knowingly or recklessly make a statement to an officer that is false or misleading in a material particular. Each charge under s 120(1)(A) is based on the statements in the Weekly Entry for the accounting week in which the particularised transactions occurred. It is the plaintiff's case that the statements were knowingly false at the time they were made.

[23]

22 The plaintiff pleads and avers the following material facts: [11] Between 18 June 1992 and the date of commencement of these proceedings Mr Pullinger and Mr Lucas were the directors of, and former shareholders in, Evenfont and were at all material times the directors of and, together with Glowbye Pty Ltd shareholders in, Truegain. [12] Mr Pullinger and Mr Lucas at all times managed the activities of Evenfont and Truegain, and whatever was done by Evenfont and Truegain was done by Mr Pullinger and Mr Lucas on behalf of Evenfont and Truegain or under the direction and control of Mr Pullinger and Mr Lucas. [13] Mr Pullinger and Mr Lucas, or one of them, compiled and signed each Entry for Home Consumption referred to and particularised in the claim, or gave direct instructions for the compiling and endorsement of each such Entry, and Mr Pullinger and Mr Lucas were aware of the existence of false particulars in each of the said Entries. [14] At all material times Evenfont's Rutherford premises had constructed on it the following storage tanks each of which was used for the storage of the product shown, and only the product shown: Tank Number Used for the Storage of Tank 100 Crude oil Tank 101 Crude oil Tank 102 Crude oil Tank 103 Waste oil Tank 104 Waste oil Tank 105 Waste oil Tank 109 Wax Tank 110 Wax Tank 111 Motor Spirit Tank 112 Motor Spirit Tank 113 Motor Sprit, as from approximately 25 March, 1997 Tank 120 Heating Oil Tank 121 Heating Oil Tank 122 Heating Oil Tank 123 Heating Oil Tank 124 Heating Oil Fuel tank Boiler Feed [15A] The product contained in tanks 111 and 112 (and tank 113 as from on or about 25 March, 1997) at Evenfont's premises at Rutherford (herein after referred to as "motor spirit") was alternatively referred to as motor spirit, white spirit, light, light heating oil, or simply, "W/S" or "LT" in the business records of Evenfont and by Evenfont, and was at all times a petroleum product identical to, and having all the properties of, gasoline, and dutiable accordingly. [15B] In the alternative, if at any time the product contained in tanks 111 and 112 (and, latterly, tank 113) was not motor spirit and not a petroleum product identical to, and having all the properties of, gasoline, but some other form of white spirit, it was dutiable nevertheless at no less than the rate herein after averred for motor spirit and gasoline, being manufactured by Evenfont for blending with leaded and unleaded patrols at the premises of Marina, a business owned and operated by Camile Trading Pty Ltd, and at other premises, and was at all times so blended after its manufacturer by Evenfont with leaded and unleaded petrols at such and thereafter sold as gasoline. [15C] In the alternative, the product contained in tanks 111 and 112 (and, latterly, tank 113) was, at all material times other petroleum having a flashpoint of less than 23 degrees Celsius when tested in an Abel Pensky closed test apparatus, and was dutiable as falling within Item 11(A) of the Schedule to the Excise Tariff Act 1921.

[28]

After the close of evidence Mr RM Goot SC, who with Mr RB Wilson appeared for the plaintiff, drew attention to a typographical error in the reprint of the Schedule to the Excise Tariff Act; the conjunction "or" in cl 11(A) had been, wrongly, replaced by the preposition "of". The error appeared in Reprint No 1, which was published on 1 July 1987 and had been repeated in later reprints. It was accepted Item 11(A) of the Schedule at the material time was as set out at [9] above. 28 The plaintiff was given leave to amend the pleading to include the averment in par 15C. 29 It had at all times been the plaintiff's case that one of the products manufactured at the Rutherford plant and variously described as "motor spirit", "white spirit", "white shit", "W/S", "light" or "LGT" was dutiable under Item 11(A) as "gasoline" in that it had a flashpoint of less than 23º C. One plank of the defendants' case was that "gasoline" is a substance having characteristics in addition to a flashpoint of less than 23ºC and that the Rutherford plant was not capable of producing "gasoline". The defendants acknowledged that on occasions they had declared product produced at the Rutherford plant as "motor spirit" dutiable at the Item 11(A) rate but asserted that this had been done because they understood, wrongly, that petroleum product which was to be blended by the purchaser and sold as petrol was subject to the higher rate of duty. 30 Professor Batts gave evidence of the characteristics of gasoline as the term is understood within the petroleum industry. He explained that many petroleum products have a flashpoint of less than 23ºC and yet are not gasoline. Gasoline is a fuel that is able to work efficiently in an internal combustion engine. In the petroleum industry in the period 1996 - 1997 gasoline was understood to be a substance with the characteristics specified in Australian Standard AS 1876. It was required to possess an octane rating within specified parameters. The Rutherford plant did not have the facilities necessary for the downstream processing of motor spirit to produce gasoline having the characteristics specified in AS 1876. I accept Professor Batts' evidence in these respects.

[31]

35 Mr Lucas described the production process at the Rutherford plant. His description was consistent with the account given by Professor Batts who inspected the plant in 2003 and again in 2007. The plant was not operational on either of these occasions but the distillation columns and other facilities were as they had been in 1996-1997, save that the sidedraw tray attached to column 2 had been removed. Mr G Coombes, a Customs officer inspected the plant in June 1997 at the time of the Customs audit. His description of the plant, which is contained in a Minute annexed to his affidavit is consistent with the account of Mr Lucas and Professor Batts. In light of the issues that remained live following the amendment that is reflected in the 2FASOC, it is sufficient to describe the operation of the Rutherford plant in general terms. 36 The Rutherford refinery had two distillation columns. Crude oil was drawn through a reactor vessel into the Stage 1 column. The material in the crude oil with a boiling point of up to approximately 140ºC to 145ºC vaporised and was drawn through the top of the column into a condenser, from where it condensed and drained into a receiving vessel. This product is described as Stage 1 overheads. The Stage 1 overheads were pumped from the receiving vessel into storage tanks. Stage 1 overheads were a clear fluid. 37 The remaining product in the Stage 1 column was pumped through to a heat exchanger and its temperature was raised. From the exchanger it was pumped into the Stage 2 column. The Stage 2 column was fitted with a re-boiler, which heated the material causing the lighter fractions to vaporise and come over the top of the column into a condenser, from which they would condense and drain into a receiving vessel. The product of the Stage 2 column is referred to as Stage 2 overheads. Stage 2 overheads were pumped to storage tanks from the receiving vessel. The Stage 2 overheads varied in colour from a light beer colour to a golden colour with green tinges.

[34]

40 Critical to the plaintiff's case are the entries that are contained in a red bound foolscap Universal account book (Exhibit A) (the red book), which was seized by Customs officers in the course of executing a search warrant at the Rutherford plant on 22 September 1997. The red book includes details of the product that was transported from the plant. In some instances the storage tank from which the product was loaded is stated. The plaintiff avers that the red book accurately sets out (except where indicated to the contrary in the 2FASOC) the identity and amount of petroleum goods manufactured at the Rutherford premises and the date and destination of outbound petroleum goods. 41 Entries in the red book were made by Andrew Carter the manager of the Rutherford plant and by the shift supervisors; Mark Chapman, Mark Bonomini, Terry Brown and Rodney Rinkin. It has the appearance of being a daily log of events recording incoming and outgoing product and incidents occurring during the manufacturing process. The product loaded at the plant is described with the use of abbreviations that include "w/s"; "Lt"; "W/S"; "light" and "Lgt" and "light H.O". It is the plaintiff's case that these references are to Stage 1 overheads that were dutiable at the rate prescribed in Item 11(A). Other entries refer to "H/O" and "heavy HO", which the plaintiff contends are references to the Stage 2 overheads, which it is accepted were dutiable at the rate prescribed in the Schedule for heating oil. Where the red book records product loaded from tanks 111, 112 and (after 25 March 1997) 113 it is the plaintiff's case that the product was Stage 1 overheads which were dutiable at the Item 11(A) rate. 42 Mr Lucas and Mr Pullinger both gave evidence of being unaware of the existence of the red book until after the execution of the search warrant. Mr Goot submitted that I would reject this evidence because it was inherently implausible. In my view it was not. Mr Pullinger was based at the Seven Hills head office. His role was principally concerned with finance, strategy and sales. Mr Lucas was a "hands on" director who was present at the Rutherford refinery four days a week for significant periods on each day. Mr Lucas gave directions concerning the manufacture and loading of the product. He did not have a designated office at the plant but he made use of the office that was next to Mr Carter's office. The red book was located in the top drawer of a four-drawer cabinet in Mr Carter's office. Among the other entries in the red book there are instructions for the shift supervisors. There is not a single entry in Mr Lucas' handwriting in the red book. The plaintiff contends that Mr Lucas was engaged throughout the period covered by the red book in the regular evasion of duty, if this were so it may be thought surprising that he would sanction the maintenance of a log accurately recording details of the movement of dutiable product which were inconsistent with the elaborate paperwork trail that was presented to Customs.

[36]

48 Mr Pullinger and Mr Lucas each gave evidence and the evidence of each was challenged. Mr Pullinger's visits to the Rutherford plant were infrequent. He had limited knowledge of the production side of the business. The plaintiff submitted that Mr Pullinger's evidence relating to the storage of product at Rutherford was unconvincing. There was nothing about Mr Pullinger's demeanour or the content of his responses on this or other topics that I found to be unconvincing. The principal challenge to Mr Pullinger's evidence was the credibility of his account that he had given instructions to Andrew Carter that if the heating oil was dark other product should be added to it to lighten it. (T'cpt 250.48-50) It is true that Mr Pullinger did not refer to his instruction to Mr Carter in his affidavit that was sworn on 25 May 2007. However, in that affidavit he set out the terms of his conversation with Mr Fletcher of Camile, which included his assertion that he had offered to arrange for Evenfont to add larger quantities of light heating oil to the product in order to lighten it. He stated that he told Mr Fletcher that he would tell Mr Carter to direct the supervisors to have a sample of blended product to show to the drivers after it had been leaded. (Pullinger affidavit 25 May 2007 at [9]) The instruction is recorded in the red book. The omission of the instruction to Mr Carter in the affidavit was not in the circumstances a matter which I considered adversely affected Mr Pullinger's credit. 49 Mr Lucas had made a careful review of the red book and of the various documents seized by Customs at the time of the execution of the warrants. He had a thorough understanding of the production process at the Rutherford plant. He was criticised for resisting propositions which were said to clearly arise from a "common sense" reading of the red book. This criticism assumes that there was a common sense meaning of the entries in question. One criticism was of Mr Lucas' evidence that the reference to "w/s" in the instruction dated 26/9/96 (red book p 12) was to waste slops. (T'cpt 401.40 - 402.36) The evidence did not enable me to conclude that self evidently Mr Lucas' insistence in this respect was contrary to common sense. Mr Lucas was criticised for his refusal to comment on the purpose for which employees made entries in the red book. (T'cpt 417.46) Mr Lucas was a precise witness. I did not take from his manner of giving evidence on this topic that his unwillingness to agree to broad propositions put to him by the cross-examiner made him uncreditworthy. I did consider that Mr Lucas' evidence concerning the entry in the red book for 17 October 1996 which reads, "loaded tanker with w.s. emptied T111, balance from T112", was unconvincing. I make the same observation about Mr Lucas' answers to questions concerning the entry in the red book for 31 October 1996, "switched tanks T112 (87.45%) to T 111 (7.84%)". (T'cpt 444.45-57) There were other occasions in the course of a long cross-examination when I was left with the impression that Mr Lucas was unwilling to make what I considered to be appropriate concessions. 50 A number of former Evenfont employees gave evidence. Mr Carter evinced a reluctance to give evidence and was generally unimpressive in his presentation. His inability to recall matters did not impress as genuine. He was a witness in whose evidence I placed no reliance. 51 Mr Chapman, Mr Bonomini, Mr Brown and Mr Rinkin had all worked at the Rutherford plant at the time of these events. Each appeared to be doing his best to give truthful and accurate evidence. Mr Handcock was a driver for Camile. He, too, impressed as a witness doing his best to give truthful and accurate evidence.

[49]

70 Rodney Rinkin was employed by Evenfont at the Rutherford premises between 1996 and 1998 as a supervisor. He reported to Mr Carter. He had no recall of an instruction that tanker drivers leaving Rutherford with product were to go to the Seven Hills plant before delivering the load to Camile, which was located at Albion Park. He never gave an instruction on these lines. He understood that Rutherford was a bonded area for Customs. 71 Mr Bonomini commenced working at the Rutherford plant around February 1996. After the refinery commenced operations he worked as a supervisor reporting to Mr Carter. He had no recall of an instruction that tanker drivers were to convey their loads to the Seven Hills plant before delivering the product to the customer. 72 Mr Chapman was also a supervisor at the Rutherford plant. He did not give any instruction for tankers leaving Rutherford to go to Seven Hills on their way to the Camile premises at Albion Park. Mr Chapman had not known that during the commissioning phase the Rutherford plant did not have a "licence for the production of product". (T'cpt 679.51-54) He had no recall of instructing tanker drivers to go to Albion Park (the Camile premises) via the Seven Hills plant. (T'cpt 675.10-13) 73 I put to one side that Mr Carter had no recall of giving any instruction that tanker drivers were to take their loads via Seven Hills during the commissioning phase. I take into account that none of the three supervisors recalled giving such an instruction and it is to be expected that if it happened they would have been responsible for giving the direction. However, Mr Handcock's evidence provided support for the acceptance of Mr Lucas' account that in the commissioning phase tankers were directed to take loads from Rutherford to Seven Hills. The fact that Mr Chapman and Mr Rinkin did not recall that the Rutherford plant was not the subject of Evenfont's manufacturers' licence in the initial period may suggest that their memory of events after a number of years is imperfect. Mr Handcock recalled the instruction because he had to make the detour via the Seven Hills plant, which was unexplained oddity. Mr Handcock said that his tanker had not been re-dipped. While it is true that he may have been resting during this downtime at Seven Hills I would have expected him to remember handing over his load sheet so that the load could be re-dipped. 74 I accept that tankers taking loads from the Rutherford plant were for an initial period directed to stop at the Seven Hills plant before delivering the load to the purchaser. Since it is not suggested that many loads were on re-dipping found to differ in quantity from the measurement taken at the Rutherford plant it is open to consider that Mr Handcock's tanker could have been re-dipped and because no alteration was made to the load sheet he has no recall of the matter. Mr Handcock's evidence is consistent with the acceptance of Mr Lucas' evidence in this respect. 75 In my view the re-dipping issue assumed an importance that it did not warrant. The differences between the quantity described in the red book and the quantity of the load in the statement of operations (being a load not recorded in the red book in the relevant period) is in relation to transaction nos. 2, 3, 5, 6, 12,13, 19, 20, 21, 23, 26 & 27, 28 & 29, and 38 too great to be explicable as the result of a variation detected on re-dipping by reason of the load cooling or otherwise. Mr Axiak did not suggest that he had ever found a discrepancy of more than a few litres on re-dipping. Mr Lucas offered re-dipping as one possibility based on his knowledge of the procedures that were in place during the initial phase of operations of the Rutherford plant. He did not say that he had recall of any occasion when a substantial discrepancy was reported as the result of re-dipping. Indeed, assuming that all loads in the period 10 September 1996 to 27 January 1997 were re-dipped at the Seven Hills plant it is noteworthy that in the great majority of cases the measurements were identical. 76 The difference between the size of the loads recorded in the red book and the size of loads recorded in the outgoing tankers' schedule and the statement of operations is not explained by the evidence of re-dipping at the Seven Hills plant.

[54]

My attention was not directed to the evidence relied on in the latter respect. 84 The transactions that are alleged to have involved the evasion of duty by the failure to declare loads of motor spirit or heating oil and which the plaintiff did not abandon at the hearing are transactions nos. 2, 3, 4, 5, 6, 10, 12, 13, 17, 16, 19, 20, 21, 23, 38, 41, 42, 43, 49, 53, 54, 63, 64, 67, 70, 76, 77, 86, 87, and 100. 85 PL 1 is an exhibit to Mr Lucas' first affidavit. Tab 1 of PL1 is a table prepared by Mr Lucas which records the red book entry in respect of each load of manufactured product that the plaintiff alleges Evenfont failed to declare. In the adjacent column of Tab 1 to PL1 Mr Lucas records details taken from the outgoing tankers schedule and the statement of operations recording a load of manufactured product which was declared to Customs in the accounting week and for which there is no entry in the red book. The discrepancies in the size of the loads are significant in the sense that they are, generally, more than a few litres and are not explicable on the basis of re-dipping. However in many instances they involve differences of less than 1,000 litres. The plaintiff's case in relation to each charge of evasion of the payment of duty particularises the whole of the load recorded in the red book as the amount of duty evaded. This is based upon demonstrating that a load identical to the load described in the red book does not appear in the statement of operations. It overlooks that a load more or less the size of the load recorded in the red book does appear in the statement of operations and is not recorded in the red book. 86 In the course of oral submissions, I raised with Mr Goot whether the plaintiff relied on any evidence that the loads recorded in the statement of operations and outgoing tankers schedule, but not recorded in the red book, related to production from Seven Hills. (T'cpt 713.22-34) It was not submitted that there was any evidence of unaccounted for product manufactured at the Seven Hills plant.

[67]

107 In assessing the explanations that Mr Lucas offered in respect the three unexplained undeclared loads I note the following matters. After the grant of leave to amend the pleading to aver the matter in par 15C, the defendants were given leave to adduce further evidence. This included a copy of a letter from the investigation section of Customs to Ms Wheat, of Price Waterhouse, who was at the time acting on Evenfont's behalf. The letter refers to the investigation then being carried out by Customs into "a company that your client supplies with product". The letter is dated 20 December 1996. Taken with certain of the documents annexed to Mr Coombes' affidavit, it is reasonable to infer that the reference to the company that was the subject of investigation was to Camile. I accept that it is unlikely that at a time when Mr Lucas and Mr Pullinger were aware that the company to which they were supplying product was the subject of investigation by Customs they would knowingly submit false records to Customs in respect of product supplied to Camile. 108 The offences charged in pars 87 - 99 of the 2FASOC each alleged the failure to declare manufactured fuel oil to Customs. It was the plaintiff's allegation that this had occurred on 25 occasions. PL2, a folder of documents, contains a schedule setting out each delivery of fuel oil that was the subject of these charges and copies of the source documents relating to each delivery of fuel oil from which Mr Lucas had traced each delivery from sale to its declaration to Customs. In his first affidavit he stated that he was able to show on all 25 occasions that the delivery of fuel oil had been declared. This was not challenged. 109 The charges alleged in pars 100 - 141 of the 2FASOC contended that the defendants had failed to declare crude oil that had been received to Customs. There is in evidence two pages from the crude oil register kept by Evenfont and the source documents that trace each delivery of crude oil that was the subject of charge and its receipt by Evenfont. Mr Lucas said that he had been able to show the receipt and uptake in Evenfont's books of the deliveries of crude oil on all 17 occasions. This was not challenged. 110 Evenfont's lease of the Seven Hills premises finished around May 1998. Thereafter Evenfont rented premises at Kemps Creek, which were used as its head office. Workshop and laboratory equipment from the Seven Hills plant was taken to Kemps Creek, together with the office equipment and files. On 16 November 1998 there was a break-in at the Kemps Creek premises. Mr Lucas states that tools, small pumps, a fax machine, along with many of Evenfont's and Truegain's items were taken. Missing property included invoices and delivery docket books. Exhibit 1 is the report of the break-in created by the investigating police attached to the Green Valley Police Station. The door of the premises appeared to have been jemmied open and some vulgar writing was placed on a whiteboard. Mr Pullinger reported that company papers, including invoices, appeared to be missing. There was no challenge to the evidence concerning the break-in at the Kemps Creek premises. Mr Lucas asserts that he would have had a better chance of explaining transaction ID 77, 86 and 87 had he had the delivery docket books and receiving docket books covering the period as well as the relevant ledgers and invoices. 111 As I have stated the plaintiff's case that the defendants evaded the payment of duty on 66,940 litres of heating oil in the accounting week ending 17 March 1997 being the combined amount of transactions 76 and 77 cannot be established. At most the evidence would point to a failure to declare 10,970 litres of heating oil. However, I am not satisfied beyond reasonable doubt that this has been established, since it is reasonably possible that the record of the load collected by Newlands on 15 March 1997 contained in the red book is wrong. The record of two loads being collected by Newlands on 15/3/97 within 75 minutes of one another when the inference is fairly open that only one Newlands tanker was at the Rutherford plant on that day does leave open the inference that the red book entry is unreliable in the record of this transaction.

[69]

113 The plaintiff's case with respect to each charge which particularises one or more loads as having been not declared to Customs is that there was a deliberate failure to declare the load carried out with the intention of evading the payment of duty and that the Weekly Entry contained a knowlngly false statement in the omission of reference to the load. I am satisfied of the accuracy of the summary that is set out in the Table that is contained in Tab 1 of PL1. I am not satisfied beyond reasonable doubt that the defendants evaded the payment of duty or made knowingly false statements in respect of transaction nos. 2, 4, 5, 6, 10, 12, 13, 17, 16, 19, 20, 21, 23, 24, 26, 27, 28, 29, 30, 36, 38, 40, 41, 42, 43, 49, 53, 54, 63, 64, 67, 70, 76, 99 and 100, because in each instance there is a load that was declared to Customs and which is not contained in the red book. This leaves open that the entry in the red book refers to the load that was declared. The differences in the amounts of the loads, may be the product of human error or which are otherwise unexplained, do not support a finding beyond reasonable doubt that there was an intentional evasion of duty (or a knowingly false statement made in the Weekly Entry) in any given case. The circumstance that on some occasions the difference between the amount of the load recorded in the red book and the amount of the load declared to Customs favoured Customs is an added reason to reject the plaintiff's case with respect to the "undeclared loads". 114 I do not find established beyond reasonable doubt that any of the transactions which the plaintiff particularises as instances of the evasion of duty by the failure to declare loads of product manufactured at Rutherford and entered into home consumption. It follows that I am not satisfied that any statement in any Weekly Entry submitted by Evenfont contained a statement made knowingly (or recklessly) falsely with respect to the transactions relating to loads that are particularised as being not declared to Customs.

[79]

128 Mr Lucas' evidence that the colour of the heating oil manufactured at the Rutherford plant was important was a detail that none of the staff recalled. Entries in the red book tend to confirm Mr Lucas' evidence in this respect. On 31 December 1996 the red book records: We need to watch the colour of our HO and vary our product tank accordingly The following is to be adopted. 1) samples of Stage 2 product to be taken hourly and compared to those in plant (3 jars labelled DARK, OKAY, GOOD). Anything darker than the OK sample is to be directed to storage tank T121, this tank is currently interlinked with tanks T120 and T123, all tanks will fill equally and the level transmitter for tank T121 is being used to indicate level in all three tanks Anything that is = to OK in colour or lighter is to be directed to tanks T122, T124 When loading Marina we must check whether we need to load DARK or GOOD HO, and thus use the appropriate tank. 129 On 2/1/97 there was the request from Mr Pullinger, to which I have referred. 130 On 22/1/97 there is a notation: Note to Shift Supervisors * Please ensure, when loading tankers (Marina), that a sample is taken during loading (first compartment) and that the driver is shown what is being loaded This applies to both light & heavy. Heavy sample to be labelled and left in my office. [This notation appears to be signed by Mr Carter.] 131 On 1 February 1997 a notation records: Changed to T124 @ 0400. Colour OK and improving. Colour in 122 is equal to dark sample, but as only 19.3% in 122 if product is put back to this tank when colour reaches start up shade by 50% should be acceptable, by 75% will definitely be correct shade. 132 Contrary to the plaintiff's case there are entries in the red book which do provide support for Mr Lucas' evidence that at least on occasions blending of Stage 1 and Stage 2 overheads occurred: s On 15 November 1996 there is an entry that records the loading of 31,410 litres of heating oil from tank T111. It will be recalled that the plaintiff avers that the red book accurately sets out the identity and quantum of petroleum goods manufactured at the Rutherford premises except where indicated to the contrary. As I understand it, the plaintiff's case is that the entry for 15/11/96 is an instance in which the entry in the red book is an error. s On 19 December 1996 the red book contains an entry that records the loading of 31,480 litres of heating oil from T111. On the plaintiff's case this would appear to be a further error in the red book. s On 29 December 1996 the red book records the switching of the Stage 1 H/O tanks from T111 to T 112. Again, this on the plaintiff's case is said to be a further error. s On 1 January 1997 the redbook records that 31,790 litres of H/O were loaded from T112. Later on the same day it is recorded that 1 load (35,000 litres) of H/O from tanks T111 and T112 were loaded for Marina. Whoever made this entry drew a line through the word "light" and substituted H/O as a description of the product that was drawn from T111 and T112. This is strongly suggestive that on 1/1/97 the product stored in T111 and T112 was understood by the writer to be heating oil. On the same day Mr Chapman recorded that the last 4.74% had been pumped out of T124 and into T121 of dark and that T124 "is now on line for light H/O". s On 6 January 1997 the red book records two loads for Marina: 30,000 litres of light HO from T124 and a load of light from T111/T112. s On 3 February 1997 the red book records a load of 33,060 litres of light H/O drawn from T121/T120 and T123 for Marina. s On 21 February 1997 the red book records that 21,170 litres of light from T111 was loaded with 13,980 litres of light from T122 for Marina. s On 26 March 1997 the red book records that 13,180 litres of w/s were loaded from T112 and 17,990 litres of H/O from T124 for Marina. 133 In a Minute prepared at the time of the 1997 Customs audit Mr Coombes described the production process at the Rutherford plant. His account was based on his inspection of the plant and the account of its operation which was given to him by Mr Lucas. He noted that there were separate delivery meters for Stage 1 product and for Stage 2 product and that loads could be blended at this point or delivered pure from either Stage 1 or Stage 2. It was Mr Coombes' understanding that an integral part of the Evenfont production process at Rutherford involved the blending of petroleum products in order to bring the end product to within certain specifications.

[80]

134 The red book does not record any instance of the marrying of any of tanks T111 - T113 with any of T120 - T124. This and the evidence of Mr Bonomini, Mr Rinkin and Mr Brown suggests that blending of Stage 1 and Stage 2 product at the Rutherford refinery in the tanks did not occur with the frequency that Mr Lucas recalled. In particular the evidence is against a finding that Stage 1 overheads were blended with Stage 2 overheads in T111 - T113 on other than rare occasions. However, the plaintiff's contention that there was no blending of Stage 1 and Stage 2 product at the Rutherford cannot be sustained. The red book entries referred to above are against the finding, as is Mr Coombes' Minute and my acceptance of the evidence of Mr Chapman. 135 As I have stated, the plaintiff's case is dependent in relation to each transaction that is particularised on acceptance of the accuracy of the red book entry and that is so notwithstanding Mr Goot's acknowledgement that there are errors in certain of the entries contained in it. The difficulty of proving a case to the criminal standard in such a circumstance is apparent. The point is illustrated by transaction 18 which is relied upon as one of two transactions in support of the three related charges pleaded in par 36 of the 2FASOC, which relate to the week ending 23 December 1996. Transaction 18 alleges that the defendants misdescribed 31,480 litres of motor spirit manufactured at the Rutherford plant on or about 19 December 1996 as heating oil in the Weekly Entry. The red book records this entry as "loaded 31,480 Lt of H/O from T111 for Marina". 136 The outgoing tankers schedule records that on 19/12/96 tanker SLM610 was loaded with 31,480 litres of heating oil (the adjusted figure came to 31,260 litres) (docket 11562) being a product with a specific gravity of 0.808. 137 Evenfont's invoice no. 1559 dated 19/12/96 records the sale of 31,480 litres of heating oil to Camile (docket 11562) at a unit price of 0.485. The evidence is consistent with this being the unit price for heating oil. A copy of delivery docket 11562 is in evidence: it records the product as 31,380 ltrs of H.O and the registration no of the tanker as SLM 610. 138 The plaintiff submits that I would be satisfied beyond reasonable doubt that the product loaded was motor spirit notwithstanding that the supporting documentation is consistent with it being heating oil as Mr Chapman's entry in the red book records, because it was drawn from tank T111. As later appears, there is an entry in the red book recording an occasion when residuals were stored in T111. I am unable to accept the plaintiff's submission.

[93]

165 Entries in the red book show a product described as HO being drawn from tanks T111/113 on occasions. An entry on 14 March 1997, records that at 9.30am "changed resids from fuel tank to T111". This appears to be an occasion when residuals were stored in tank T111. Mr Goot submitted that it was inconceivable that Stage 2 product would have been stored in a Stage 1 tank on any occasion because it would have adulterated the tank. As the defendants submitted, no evidence was led to support that proposition and the 14/3/97 entry, if correct, does not support it. If the 14/3/97 entry is incorrect it undermines the accuracy of the red book. 166 On 7 January 1997 the red book records that 29,940 litres of H/O were loaded from tanks T124 & T122. It is to be noted that the outgoing tanker's document records that on 7/1/97 tanker SLM608 (docket number 11598) collected a load of 29,940 litres of product described as motor spirit, which after adjustment yielded 29,641 litres. Its specific gravity is recorded as 0.730. The inference to be drawn is that the product referred to in the red book as "H/O" was motor spirit and not heating oil. The defendants instance this transaction as an occasion when motor spirit was being stored in T124 and T122. Another view is that the entry contains errors, both in referring to the product as "HO" and in describing the tanks from which it came. Again, the point to be made is that a case constructed entirely on the reliability of the red book is weakened by every instance suggestive of error. 167 One further matter that is relied upon by the defendants as casting doubt on the claim that the red book is a complete record of all incoming and outgoing product, relates to the delivery of crude oil to the Rutherford refinery. In his affidavit sworn 6 June 2007 Mr Lucas refers to the register in the "green book" (copies of which appear behind tab 4 of PL3) which records all the deliveries of crude oil to Rutherford and to Seven Hills. The Rutherford deliveries are able to be distinguished from the deliveries to Seven Hills. By reference to that register Mr Lucas calculates that 1.32 million litres of crude oil were brought into the Rutherford refinery in the period 16 September 1996 to 14 April 1997, which are not recorded in the red book. This evidence was not challenged and I accept it.

[104]

180 The charges are pleaded as follows: [142] During the period 6 October, 1996 to 23 November, 1996 the First Defendant evaded payment of duty of Excise which was payable on the production of heating oil manufactured at the First Defendant's premises at Rutherford and documented as an intra-company transfer to the First Defendant's premises at Seven Hills, and the Plaintiff charges hereinbelow that the First Defendant committed an offence in those terms against the Act, being an offence under section 120(1)(iv) of the Act. [143] By reason of the matters pleaded and averred in this Statement of Claim, the Second, Third and Fourth Defendants aided, abetted, counselled or procured or by act or omission were directly or indirectly knowingly concerned in, or party to, the commission of that offence against the Act by the First Defendant, namely an offence under section 120(1)(iv) of the Act. [144] In the alternative to paragraph 142, the First Defendant breached section 120(1)(iv) of the Act on each of the 5 occasions during the said period from 6 November, 1996 to 23 November, 1996 that it failed to declare to Customs, and to pay duty on, the production of heating oil manufactured at the First Defendant's premises at Rutherford and documented as an intra-company transfer to the First Defendant's premises at Seven Hills. [145] In the alternative to paragraph 143, the Second, Third and Fourth Defendants aided, abetted, counselled or procured, or by act or omission were directly or indirectly knowingly concerned in, or party to, the commission of those 5 offences by the First Defendant during the said period. [146] In respect of all and each of the offences in paragraphs 142 and 143 or, in the alternative, paragraphs 144 and 145, the Plaintiff further avers and particularises as follows 181 The particulars that are pleaded in support of these charges relevantly relate to 35,900 litres of heating oil manufactured at the Rutherford plant on 23 November 1996. The plaintiff avers that, "the product was loaded at the Rutherford premises and delivered from that premises" on or about 23 November, 1996. It is further averred that in the Weekly Entry for the week ending 26 November 1996 (1W63318004P) and in the supporting documentation, being the statement of operations and the outgoing tankers schedule, and in the red book there was no reference to this excisable product either as "normal manufacture" or as an inter-company transfer. The plaintiff pleads that duty was payable at the heating oil rate and that it was not paid. 182 The pleading of the offence charged in par 142 is deficient. The plaintiff charges that duty was evaded in respect of the manufacture of product that was documented as an inter-company loan. The plaintiff does not plead that the product was entered for home consumption, when duty became payable. The same defect attends the pleading of the offence in par 144. For the reasons that I explain below, I am not in any event satisfied beyond reasonable doubt that the plaintiff has established what I take to be the factual basis of the charge relating to the fifth Lewington's load. 183 On 26 November 1996 Evenfont submitted the Weekly Entry for the week ending 25 November 1996 (1W63318004P). The Entry stated that Evenfont had manufactured 506,865 litres of heating oil in the previous week. The statement of operations and the outgoing tankers schedule did not record the load. The Weekly Entry did not declare it as product that had been entered for home consumption in the previous week. The red book did not refer to the load. 184 The Lewington's delivery docket for 23 November 1996 shows that the load was collected "from Maitland" and delivered to "Seven Hills". 185 It is the defendants' case that the load was an inter-company transfer of product. Since it was not delivered into home consumption in the week ending 25 November 1996, the product was not dutiable. As I understood Mr Lucas' evidence, it was his belief that the entry in the redbook on p 37 for 22/11/96 recording a load of "35,900 litres ex T122" is a reference to the fifth Lewington's load. He suggested that the amount of the load recorded in the redbook (and on the Lewington's docket) was wrong and that it was a load of 32,400 litres of heating oil which during the commissioning phase of the Rutherford plant had been transferred to Seven Hills for treatment. The internal statement of operations for the Rutherford plant records the transfer of 32,400 litres of heating oil on 22/11/96 as an inter-company transfer (Tab 2, PL1 p 35). The statement of operations supplied to Customs for the week ending 25/11/96 records 32,400 litres of heating oil as an inter-company transfer. 186 It is to be noted that an internal statement of operations for the week ending 25/11/96 recorded 32,400 as an inter-company transfer of crude oil. Mr Lucas said that this was an error in the paper work. He said that the crude oil receipts book did not show an entry for this amount of crude oil. 187 Each of the allegations which were particularised in support of the charges in pars 142 and 144 occurred in November at a time when I accept the Rutherford plant was still in the commissioning phase. Mr Lucas says that in the commissioning phase product was transferred from the Rutherford plant to the Seven Hills plant for reasons including bleaching and filtering of the product. 188 The statement of operations records an inter-company transfer of 32,400 litres of heating oil. It is reasonably possible that the amount of the load recorded at the Rutherford plant was wrongly stated in the redbook and the accompanying Lewington's docket. The Rutherford internal statement of operations and the statement of operations supplied to Customs are consistent with 32,400 litres of heating oil being transferred to Seven Hills as an inter-company transfer. Mr Lucas said that the crude oil receipts book did not have a corresponding entry for the receipt of 32,400 litres of crude oil. It is reasonable to assume that the plaintiff had access to the crude oil receipt book as the result of the execution of the search warrants. I accept that the crude receipts book did not record receipt of 32,400 litres of crude oil in the relevant period. I am not persuaded beyond reasonable doubt that the load of heating oil collected by Lewington's on or about 23 November 1996 was not one and the same as the quantity of heating oil recorded as an inter-company transfer in the statement of operations for the week ending 25/11/96. 189 For these reasons I have concluded that the plaintiff has failed to establish beyond reasonable doubt that Evenfont evaded the payment of excise duty that was payable on any of the occasions that are particularised in pars 18 - 67 and pars 142 and 144 of the pleading. The plaintiff has failed to establish beyond reasonable doubt that on any of the occasions particularised in the pleading of pars 18 - 67 Evenfont knowingly or recklessly made a statement to an officer that was false or misleading in a material particular. Finally the plaintiff has failed to establish beyond reasonable doubt that on any of the occasions particularised in pars 18 - 67 Evenfont moved, altered or interfered with excisable goods except as authorised by the Act. The prosecution against Evenfont as principal and each of the other defendants in respect of their asserted accessorial liability fails.

Commissioner of Taxation v Evenfont

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (106 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (6)

Cited By (1)