Multiflex Pty Ltd v The Commissioner of Taxation

REASONS FOR JUDGMENT 1 On 13 July 2011, I ordered that: 1. The applicant file and serve its application and amended statement of claim by 19 July 2011. 2. The respondent file and serve a defence to the applicant's amended statement of claim by 26 July 2011. 3. The applicant file and serve any further affidavit upon which it intends to rely at the trial on or before 13 July 2011. 4. The respondent file and serve any affidavit upon which he intends to rely at the trial on or before 1 August 2011. 5. The applicant file and serve any affidavit in reply upon which it intends to rely at the trial on or before 8 August 2011. 6. The applicant file and serve an outline of submissions on or before 8 August 2011. 7. The respondent file and serve an outline of submissions on or before 15 August 2011. 8. The proceeding be listed for hearing on 19 August 2011 on a one day estimate. 9. The costs of the scheduling conference be costs in the appeal. 2 My reasons for making those orders are set out below. 3 The applicant, Multiflex Pty Ltd ("Multiflex"), by a notice of motion dated 14 June 2011, sought orders for an expedited hearing as follows: 1. The proceeding be expedited such that the scheduling conference currently listed to be conducted before the Honourable Justice Gordon be conducted within 7 days of the date of this order on a date to be notified; 2. The proceeding be listed at the scheduling conference for hearing within 21 days with an estimate of 1 to 2 days. 3. Costs be reserved. 4 The application was supported by the affidavit of Tanu Ghosh sworn 24 June 2011. 5 On 6 July 2011, I made orders by consent that the scheduling conference be conducted within seven days and that the determination of orders 2 and 3 of the notice of motion be heard on the same date. The matter was listed for a scheduling conference on 13 July 2011. 6 The proceeding was not yet set down for hearing. 7 As appeared from the affidavit of Mr Ghosh and the statement of claim and application dated 24 May 2011, Multiflex is a buyer and seller of information and communication technology products, such as mobile phones and iPads. It operates on small margins between the purchase and sale price, and has a small profit margin. In 2010, the cost of its purchase of products was $18.8 million, and the proceeds of sale was $19.9 million. 8 Multiflex alleged that in about August 2010, it had accumulated GST input tax credits, and the Commissioner of Taxation ("COT"), although obliged to refund the GST amounts, advised that Multiflex would be audited and the GST amounts withheld. Subsequently, in December 2010, the refund was made. 9 Multiflex alleged, however, that as at May 2011, it was now entitled to a further $835,000 in refunds relating to tax periods outside the advised audit period, which the COT was not entitled to withhold, even if the audit period were extended. 10 Multiflex alleged that the COT's refusal to pay the GST refund is a decision under s 3 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("ADJR Act") and Multiflex is a person aggrieved. It alleged that the decision to withhold the refund was an improper exercise of power, without a proper basis, ultra vires and contrary to law. Multiflex was accordingly entitled to relief under s 39B of the Judiciary Act 1903 (Cth), a review under the ADJR Act, an order that the decision be quashed, and relief in debt and damages. 11 The COT, by a Notice of Objection to Competency dated 8 June 2011, alleged that the decision was not one to which the ADJR Act applied. 12 Mr Ghosh, the sole director and CEO of Multiflex, deposed to its high volume but low margin business, which involved the export of products to Singapore. Its sales were GST free, but its purchases were creditable acquisitions. 13 Mr Ghosh deposed that Multiflex was now entitled to $835,000 in refundable GST for the January-March 2011 period. 14 He deposed that the Australian Tax Office ("ATO") initially advised Multiflex of an audit for the periods July and August 2010 but subsequently advised that the audit would be expanded to the period May 2009 to November 2010, and was now expected to be completed by 4 August 2011. The ATO initially withheld GST refunds but then released them with an apology, affirming that it would process its future BAS on a normal basis. 15 Mr Ghosh deposed that in late February 2011, however, the ATO again ceased releasing Multiflex's GST refunds and advised that the situation would remain in place until the audit and investigations of Multiflex were completed. Although the standard time for paying GST refunds was 14 days, the Multiflex refunds had now been withheld for much longer. The ATO had not clearly stated the reasons for withholding the refunds or given a legitimate explanation for so doing. 16 Mr Ghosh deposed that due to the continuing withholding of the refunds, the solvency of the Multiflex business was in jeopardy and its essential working capital and ability to operate as a going concern were crippled. It received delivery of products only on the basis of advance payments and owed $US2.2 million to a related company, Mercantile Pacific Asia Pte Ltd ("MPA"). Stock would not be delivered unless the advance payments were made. Multiflex's sourcing agreement would be terminated and it would be forced into liquidation. In the circumstances, Multiflex could barely meet its legal fees, salaries and other expenses. It relied on a high volume of stock in order to be profitable, and without receiving the GST refund in a timely manner, would not be able to trade for longer than two months without an immediate release of funds. 17 Mr Ghosh deposed that in April 2011, the ATO refused Multiflex's proposal to release the GST refunds in relation to Multiflex's acquisitions from its largest suppliers. In March 2011, the ATO advised that Multiflex's GST refunds would be withheld until Mr Narula, the controller of MPA, attended for interview from Singapore. Further, the audit had been expanded. Multiflex therefore sought an expeditious hearing, as its financial future was at stake.