Professional Admin Service Centres Pty Ltd v Commissioner of Taxation

JUDGE: EDMONDS J DATE: 1 NOVEMBER 2013 PLACE: SYDNEY

INTRODUCTION 1 This is an application under Pt IVC of the Taxation Administration Act 1953 (Cth) ("Administration Act") by way of appeal against objection decisions of the respondent ("Commissioner") disallowing the applicant's objections against assessments of GST net amounts for each of the quarterly periods between 1 July 2004 and 31 December 2006 ("relevant periods"). 2 The following table, reproduced from para 3 of the Commissioner's opening submissions, shows the net amount claimed in the applicant's BAS for each relevant period, the assessed net amount and the resulting shortfall. Period Net Amount claimed in BAS Assessed Net Amount Shortfall 01/07/2004 - 30/09/2004 -133,747 -4,543 129,204 01/10/2004 - 31/12/2004 -38,970 1,280 40,250 01/01/2005 - 31/03/2005 -106,811 -20,923 85,888 01/04/2005 - 30/06/2005 -110,546 -28,898 81,648 01/07/2005 - 30/09/2005 -67,057 -12,855 54,202 01/10/2005 - 31/12/2005 -37,040 -13,989 23,051 01/01/2006 - 30/03/2006 -24,658 0 24,658 01/04/2006 - 30/06/2006 -47,939 -5,624 42,315 01/07/2006 - 30/09/2006 -26,227 -1,920 24,307 01/10/2006 - 30/12/2006 -93,042 -364 92,678

3 The Commissioner assessed the applicant to penalties in respect of the shortfall for each period at the rate of 50%. 4 In respect of the relevant period 1 July 2004 to 30 September 2004, the Commissioner assessed the applicant to a penalty pursuant to s 12-190 of Schedule 1 to the Administration Act for failure to withhold amounts from certain payments made to an entity known as Corporate Business Centres International Pty Ltd ("CBCI"). 5 One of the difficulties with this case, at least from the applicant's point of view, is the lack of evidence led by the applicant, not only in relation to matters relevant to the substantive issues in dispute, but also in relation to what I call quantitative issues. The evidence includes a large number of invoices, although there is no evidence as to whether and to what extent the invoices now in evidence were taken into account in preparing the applicant's business activity statements ("BAS") during the relevant periods. It seems there are significant duplications and other anomalies in the evidence. For example, spread sheets, tendered on behalf of the Commissioner by way of submission only, suggest that there were duplications of the order of $3,860,801.60 out of total invoice amounts (including GST) of $10,986,938.56 for the relevant periods. The existence of such duplications was not disputed by the applicant. 6 The Commissioner contended that the evidence, if taken at face value, is to the effect that the applicant made creditable acquisitions in each relevant period in the amount identified in col C in the table below. Column B states the amount of input tax credits actually claimed in the BAS during each relevant period: Period Column B Column C Input tax credits claimed in BAS GST in invoices in applicant's evidence 01/07/2004 - 30/09/2004 134,847 145,397.80 01/10/2004 - 31/12/2004 40,240 63,091.25 01/01/2005 - 31/03/2005 106,856 88,012.27 01/04/2005 - 30/06/2005 112,350 75,743.17 01/07/2005 - 30/09/2005 68,073 38,998.11 01/10/2005 - 31/12/2005 37,040 8,497.07 01/01/2006 - 30/03/2006 24,658 17,740.21 01/04/2006 - 30/06/2006 47,939 35,669.41 01/07/2006 - 30/09/2006 27,337 22,277.50 01/10/2006 - 30/12/2006 93,042 82,211.90 Total 692,382 577,638.69

7 Save for the first two, in each of the relevant periods, the input tax credit claimed in the relevant BAS (col B) is greater than the aggregate GST component in the invoices in evidence for the same relevant period (col C). The difficulty for the applicant is that in respect of each of those relevant periods it has not discharged the onus in respect of the excess claimed. Moreover, in respect of the first two relevant periods, a taxpayer will not succeed in demonstrating that an assessment of GST net amount for a period is excessive by showing that it made acquisitions which were not taken into account in preparing its BAS for that period. That is because those acquisitions (assuming them otherwise to be creditable acquisitions) are not attributable to that period: s 29-10(4) of the GST Act. 8 The consequence of this is that even if the applicant is successful on all of the grounds contested in these proceedings, it will only be entitled to the lesser of the amounts appearing in cols B and C in the table in [6] above for each of the relevant periods.

ISSUES 9 In broad terms there are three ultimate issues in the proceedings: (1) Is the applicant entitled to input tax credits in respect of its payment of invoices for the provision of legal services in Mr Michael Felson's defence of his criminal proceedings? This issue requires a number of anterior sub-issues to be addressed, specifically: (a) Did the applicant acquire legal services, and acquire them by way of a taxable supply to the applicant, as required by s 11-5(a) and s 11-5(b) of A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("GST Act")? (b) If so, did the applicant acquire those services in carrying on an enterprise such as, subject to the answer to (c) below, to be acquired for a creditable purpose, as required by s 11-5(a) and s 11-15(1) of the GST Act? (c) If so, does the acquisition relate to making supplies that would be input taxed such as to be denied being acquired for a creditable purpose, as provided by s 11-15(2)(a) of the GST Act? A negative answer to either question (a) or (b) will be fatal to the applicant's entitlement to input tax credits in respect of its payment of invoices for the provision of legal services in Mr Felson's defence of his criminal proceedings. Only if both (a) and (b) are answered in the affirmative, will it be necessary to address question (c). (2) Is the applicant entitled to input tax credits in respect of invoices rendered by Professional Administration Centres Pty Ltd ("PAC") during the relevant period 1 July 2004 to 30 September 2004? (3) Is the applicant liable to a penalty for failure to withhold pursuant to s 12-190 of Schedule 1 to the Administration Act in respect of payments made to CBCI in the relevant period 1 July 2004 to 30 September 2004?

FACTUAL BACKGROUND 10 In March 2000, Nikytas Nicholas Petroulias (now known as Michael Felson), a former First Assistant Commissioner of Taxation, was charged with conspiracy to defraud the Commonwealth. The resulting criminal proceedings were lengthy and involved several appeals, some of which remain ongoing. In order to pay his legal costs, Mr Felson entered into litigation funding agreements with a number of entities, including the applicant in these proceedings. 11 Mr Felson incurred significant costs in defending the charges laid against him. By the end of 2003, he had spent approximately $2.5 million on legal fees. On 20 November 2003, Mr Felson entered into a Litigation Funding Deed with PAC and Professional Administration Centres (NZ) Ltd ("PACNZ"). PAC was registered in Australia. PACNZ was registered in New Zealand. 12 PAC was incorporated by Mr Ian Daley on 12 April 2002, initially under the name Pre-Paid Legals Pty Ltd. Mr Daley was a director of PAC from 12 April 2002 to 19 January 2003. Mr Daley and his wife were also the company's sole registered shareholders, although he conceded in cross-examination that he did not hold those shares for his own benefit. Rather, he held them for the benefit of a Nevada limited liability company, Pre-Paid Professionals LLC ("PPP"). PPP was said to have conducted a business that involved the sale of pre-packaged legal and professional services in the form of vouchers, or "warrants". 13 PACNZ was incorporated on 4 March 2003 by Ms Denise Clark, who later changed her name to Dior Sabatini. PACNZ was owned by a Vanuatu corporation known as Pleroma Ltd ("Pleroma"). 14 PAC and PACNZ were listed as "Co-Funders" in the 20 November 2003 Litigation Funding Deed with Mr Felson. Mr Felson's legal bills were paid by PAC. PAC obtained funds in order to pay those bills by borrowing money from PACNZ or PPP. PACNZ and PPP were said to have obtained funds to pay those bills from Pleroma, PPP or an individual named John McCarthy; none of whom ever charged interest or demanded repayment from PAC. The total amount that was lent to PAC pursuant to these arrangements is unknown. 15 There is no evidence as to the manner in which PPP (or any director or shareholder of PPP) came to decide to lend funds to PAC to meet Mr Felson's legal expenses. The evidence was only that PPP specifically directed that the monies loaned to PAC be used to fund the defence of Mr Felson's criminal proceeding. 16 Mr Felson became a director of PAC on 22 July 2003. He was a director at the time that PAC entered into the 20 November 2003 Litigation Funding Deed. 17 PAC employed a number of administrative staff. It also engaged the services of several independent contractors. 18 As Mr Felson's legal fees continued to mount, PAC became heavily indebted to PPP. In or about mid-2004, the decision was made by Mr Daley and/or PPP to "replace" PAC with a new entity, the applicant. PAC went into administration a short time later. 19 The applicant was incorporated by Mr Daley on 12 May 2004. Its principal shareholder was PPP; the same entity that owned PAC. The original director of the applicant was Ms Sabatini, who served in that capacity until 20 April 2010. 20 The applicant continued to fund Mr Felson's litigation, according to Mr Daley in precisely the same manner as its predecessor, PAC; namely, by borrowing money to pay Mr Felson's legal bills. According to Mr Daley, the funds were lent to the applicant by Pleroma. Like PAC, the applicant was never charged interest on those supposed borrowings; nor was it ever issued with any demand for repayment. This particular factual matter is one of a number that are disputed. The applicant maintained in closing submissions that the applicant's funding by Pleroma to pay Mr Felson's legal bills was not by way of loan but by way of contribution of working capital to an unincorporated joint venture among the applicant and others as participants (see [71] below). 21 On 20 June 2004, the applicant entered into a Litigation Funding Deed with Mr Felson and Canlon International Ltd ("Canlon") on substantially the same terms as the 20 November 2003 agreement between PAC, PACNZ and Mr Felson. 22 The applicant, like PAC before it, engaged the services of several independent contractors, including Dr John Lamont. The applicant spent a total of $1,164,095.42 on consultants' fees in the 2004/2005 financial year. 23 Between 1 July 2004 and 26 August 2004, PAC issued a total of eight invoices to the applicant (the "PAC Invoices"). Each invoice was in an amount of $100,000 and was said to have been issued in respect of "management services". 24 The PAC Invoices appear to have been paid by the applicant. Payment was not, however, made to PAC. Rather, it was said that payment was made into a "trust" account held by an entity known as Atlas Corporate Trustees Ltd ("Atlas"). Atlas was owned by Pleroma, which was providing funds to the applicant and, before it, PAC. 25 The applicant has claimed input tax credits of $72,727 in respect of the PAC Invoices. 26 The applicant was also issued with four invoices totalling $351,000 for "management services" in July and August 2004 by CBCI ("CBCI Invoices"). The sole resident director and shareholder of CBCI was Ms Sabatini. 27 CBCI did not have an ABN. At the time CBCI issued invoices to the applicant and at the time the invoices were paid, the invoices did not contain an ABN. Subsequently, new versions of the CBCI invoices were created, and at that time were endorsed with the ABN of a different entity named Corporate International Business Centres Pty Ltd ("CIBC"). It was said that CIBC had engaged CBCI as its agent. The circumstances in which the CBCI invoices were issued and paid, and in which CIBC's ABN was applied to the CBCI Invoices, are factual matters in dispute. 28 Between August 2004 and the latter half of 2006, the applicant and various other parties (including Mr Felson) entered into the following litigation funding agreements on substantially similar terms to the 20 June 2004 deed: (1) Litigation Funding Deed dated 3 August 2004; (2) Litigation Funding Substitution Deed dated 5 August 2004; (3) Litigation Funding Deed dated July 2005; (4) Deed of Confirmation & Acknowledgement dated 2 August 2005; (5) Litigation Funding Substitution & Adherence Deed dated 2 December 2005; and (6) Further Litigation Funding Deed dated 15 September 2006. 29 In each case, the funders promised to fund the course of legal proceedings, including, in relation to those deeds to which Mr Felson was a party, his criminal defence. 30 Leaving aside some presently immaterial differences between particular deeds, Mr Felson promised that if he should succeed in the criminal proceedings and if he should successfully sue the Commonwealth for malicious prosecution (which action would also be funded by the funders), he would cause a share of his damages award to be paid to the funders. 31 There does not appear to be any evidence as to how the obligations of existing funders were accommodated when new deeds were entered into. For example, it is unclear how the rights of PAC as an existing funder were protected, if at all, when later deeds with the applicant were entered into which appear to have conferred the same rights on the applicant. It is therefore unclear how the applicant' s entitlement to recoup its outlays under the funding deeds was to rank against the interests of other funders from time to time. 32 The evidence, on one view, also suggests that the applicant entered into two additional agreements: a document titled "Heads of Agreement", which purports to have been executed on 14 May 2004 ("Heads of Agreement"), and a later agreement called the "Summary Points of Agreement", which was allegedly entered into on 20 June 2004 ("Summary Points of Agreement"). The Commissioner disputed that those agreements were in fact executed on the dates in question. The Commissioner also submitted that the evidence in relation to these documents should be given no weight in any event.

Output Tax 33 By s 9-5 of the GST Act, you make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you carry on; and (c) the supply is *connected with Australia; and (d) you are registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

Credit for Input Tax 34 By s 11-5 of the GST Act, you make a creditable acquisition if: (a) you acquire anything solely or partly for a *creditable purpose; and (b) the supply of the thing to you is a *taxable supply; and (c) you provide or are liable to provide, *consideration for the supply; and (d) you are registered, or *required to be registered. 35 Section 11-15(1) provides that, subject to the exclusions in s 11-15(2)(a) and s 11-15(2)(b), a thing is acquired for a creditable purpose to the extent that it is acquired in carrying on an enterprise. 36 Section 11-15(2) provides that the acquisition of a thing will not be for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed (para (a)), or the acquisition is of a private or domestic nature (para (b)).

Concept of "Enterprise" 37 The concept of "enterprise" is central to the GST Act; the carrying on of an enterprise is the first requirement to trigger the obligation to register (s 23-5(a) of the GST Act); the second requirement to trigger output tax (s 9-5(b) of the GST Act); and a fundamental requirement to the entitlement to credit for input tax (s 11-15(1) of the GST Act). 38 The term "enterprise" is relevantly defined in s 9-20(1) as follows: An enterprise is an activity, or series of activities, done: (a) in the form of a *business; or (b) in the form of an adventure or concern in the nature of trade; … 39 The word "business" is defined in s 195-1 of the GST Act in an inclusive and non-inclusive way, but is of little or no assistance in the present context. Australian income tax law jurisprudence emphasises the existence of a profit-making purpose, repetition and regularity, the conduct of activities using business-like methods, the volume of activity and the existence of a significant commercial purpose as relevant indicia to a finding that the activity or activities constitute a business. But para (b) of s 9-20(1) makes it clear that an "enterprise" can include an isolated commercial venture in the nature of trade, which implies that it be entered into for a commercial purpose, including the purpose of profit-making: Edwards (Inspector of Taxes) v Barnstow [1956] AC 14; Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199; Thiel v Federal Commissioner of Taxation (1990) 171 CLR 338 at 344-345 per Mason CJ, Brennan and Gaudron JJ; at 351-352 per Dawson J; and at 360 per McHugh J.

Practical Consequences 40 The practical consequences of this statutory framework for the applicant is that the applicant will only be entitled to an input tax credit in respect of its payment of invoices for the provision of legal services in Mr Felson's defence of criminal proceedings if those services were acquired by the applicant by way of taxable supplies, and they were acquired by the applicant in carrying on an enterprise. The Commissioner's case is that the applicant has not established either requirement such as to entitle it to the input tax credits claimed; but if it has established both, the acquisition relates to making supplies that would be input taxed, namely, financial supplies: s 40-5(1) of the GST Act.

Issue 1: Whether the applicant is entitled to input tax credits in respect of its payment of invoices for the provision of legal services in Mr Felson's defence of his criminal proceedings?

(a) Whether the applicant acquired anything by way of taxable supplies? 41 As noted in [34] above, s 11-5 of the GST Act provides that a taxpayer makes a creditable acquisition if: (a) the taxpayer acquires anything solely or partly for a creditable purpose; and (b) the supply of the thing to the taxpayer is a taxable supply; and (c) the taxpayer provides, or is liable to provide, consideration for the supply; and (d) the taxpayer is registered, or required to be registered. 42 The taxpayer here is the applicant. There can be no doubt or argument that the lawyers supplied legal services to Mr Felson and that he acquired those services under a taxable supply. But unless the applicant also acquired those services under a taxable supply from the lawyers concerned, it does not make a creditable acquisition and the applicant is not entitled to an input tax credit notwithstanding its payment of the relevant invoices. 43 Under the GST Act, it can be accepted that, in certain circumstances, one set of acts may constitute two or more different supplies of services and may give rise to two or more different acquisitions: Secretary, Department of Transport (Vic) v Commissioner of Taxation (2009) 261 ALR 39; on appeal, (2010) 188 FCR 167 ("DoT") is an example and in that case, each was a taxable supply - a supply made for consideration: s 9-5(a): 261 ALR at [59]. It is not possible, indeed it would be dangerous, to generalise the circumstances when this might occur, but in the present context, it would at least require an arrangement between the applicant and the lawyers whereby the lawyers were engaged by the applicant to provide legal services to Mr Felson and, by doing so, provided legal services to the applicant as well. I have great difficulty in comprehending how this might occur although I hasten to add that my difficulty in this regard is not to be taken as concluding that it could not occur. 44 However, on the evidence in the present case, I am unable to comprehend how the payments made by the applicant to Mr Felson's legal representatives were for the "acquisition" of anything by the applicant. Put another way, the lawyers engaged by Mr Felson made no supply to the applicant. The terms of the litigation funding deeds clearly state that Mr Felson's lawyers would be paid by the applicant but retained by the client. Mr Felson's evidence was that he engaged the lawyers. There is no evidence of any arrangement between the applicant and the lawyers pursuant to which legal services would be provided to the applicant. Those services were provided to Mr Felson alone. 45 The applicant has not suggested that it engaged lawyers or that it entered into fee agreements with them. Mr Daley agreed in cross-examination that Ms Sabatini had told him that any fee agreements in the applicant's possession were routinely destroyed; a matter about which Ms Sabatini said nothing. 46 The payments made by the applicant to Mr Felson's legal representatives were consideration for the legal services that were supplied to Mr Felson. The applicant had an administrative arrangement with Mr Felson to pay the invoices that were rendered by his lawyers. 47 The DoT case is readily distinguishable. In that case, a majority of the Full Court held that the supply of transport to disabled passengers by a taxi operator pursuant to Victoria's Multi Purpose Taxi Program ("MPTP") constituted a taxable supply to the Department of Transport. At [47], Kenny and Dodds-Streeton JJ relevantly said: In the ordinary case with which this appeal is concerned, when a MPTP Member was about to commence a taxi cab trip, the MPTP Member provided a Member MPTP Card to the taxi cab driver, who started the taxi meter and then inserted the Member MPTP Card into the EFTPOS terminal to authorise the trip. It was at this point that the system authenticated the Member MPTP Card and authorised the trip as an MPTP trip. Once the trip became an MPTP trip, the DOT assumed liability to make a MPTP Payment. As Senior Counsel for the DOT put it, every time a Member MPTP Card was inserted into the EFTPOS terminal and the trip authorised, it was as if the DOT was sitting in the taxi cab too, because the authorisation told the driver and the passenger that the DOT would pay the MPTP component of the fare. Equally, once the trip became an MPTP trip, the MPTP Member assumed liability to pay only the non-MPTP component of the fare. In this circumstance, the DOT acquired from the taxi cab operator a service, being the transport of the MPTP Member, which the DOT sought when the Member MPTP Card authorised the trip as a MPTP trip. 48 Their Honours explained at [56] that the taxi operator had made a taxable supply of transport of the MPTP passenger to the Department of Transport; firstly because the taxi operator was effectively doing what the Department had asked him to do when the Member MPTP card was validated and the MPTP trip was authorised, and secondly because the supply of the service of transporting the MPTP member to the Department enabled the Department to fulfil its objects under the Transport Act 1983 (Vic) and to perform its functions. 49 The facts of this case are different in several important respects. First, unlike the MPTP in DoT, there is no evidence in this case of any pre-existing framework between the applicant and the legal service providers under which the applicant was liable to make payments to the legal service providers as consideration for services provided to either the applicant or Mr Felson. 50 Secondly, as explained above, the funding agreements unambiguously provide that the solicitors were to be retained by Mr Felson alone. Unlike the Department of Transport in DoT, the applicant in this case did not acquire anything that would enable it to "go along for the ride". It simply agreed with Mr Felson to pay his legal bills. 51 Thirdly, there is an insufficient connection in this case between the legal services provided and the achievement of some purpose of the applicant akin to the statutory objects and functions of the Department of Transport. Applying the reasoning of the majority in DoT, the taxi operator provided the Department with an immediate and tangible benefit in line with its statutory objects; namely, the transportation of disabled passengers. In this case, the prospect of the applicant making a return was so remote that it had no meaningful nexus to the services that were supplied. 52 The applicant sought to support its argument by reference to the decision of the House of Lords in Customs and Excise Commissioners v Redrow Group plc [1997] 2 All ER 1. There are two things to be said about that decision. The first is that, as their Honours stated in DoT at [62], that case was decided in a different factual and legal context. Their Honours approved the primary judge's observation that "[u]ltimately, we are driven back to the words of the GST Act". 53 The second is that Redrow cannot be regarded as authority for the general proposition that a person who enters into a reimbursement obligation makes an acquisition of the supply, the cost of which is to be reimbursed. Redrow was recently considered in Her Majesty's Revenue and Customs v Aimia Coalition Loyalty UK Limited [2013] UKSC 15, a decision handed down on 13 March 2013. At [110], Hope LJ affirmed the correctness of Redrow on its facts but added: But I think that Lord Millett went too far [in Redrow at p 418] when he said that the question to be asked is whether the taxpayer obtained "anything - anything at all" used or to be used for the purposes of his business in return for that payment. Payment for the mere discharge of an obligation owed to a third party will not, as he may be taken to have suggested, give rise to the right to claim a deduction. A case where the taxpayer pays for a service which consists of the supply of goods or services to a third party requires a more careful and sensitive analysis, having regard to the economic realities of the transaction when looked at as a whole. It may lead to the conclusion that it was solely third party consideration, or it may not. 54 At [68], Lord Reed relevantly said: It is also important to bear in mind that decisions about the application of the VAT system are highly dependent upon the factual situations involved. A small modification of the facts can render the legal solution in one case inapplicable to another. I would therefore hesitate to treat the judgments in Redrow as laying down a universal rule which will necessarily determine the identity of the recipient of the supply in all cases. 55 Those observations are especially relevant here. The lawyers acting for Mr Felson made no supply to the applicant. The fact that they looked to the applicant for payment of their fees is not a basis to conclude that those lawyers made a supply of any kind to the applicant. 56 The applicant submitted that the relationship between the applicant and the lawyers was not explored in cross-examination. But the evidence in chief did not disclose the existence of any such relationship that might be forensically explored. The applicant's submission that there was evidence of the applicant having an active role of working with the lawyers in attending proceedings, preparing summaries, chronologies, engaging investigation agents to further inquiries as they arose and performing para-legal and administrative functions was so slight and lacking definition, that no weight can be attached to it. In any event, such matters suggest supplies by the applicant rather than acquisitions.

Conclusion 57 There was no acquisition of services by the applicant for the purposes of s 11-5(a) of the GST Act. Nor was there any taxable supply made to the applicant within the meaning of s 11-5(b).

(b) Whether the applicant's enterprise encompassed its litigation funding activities? 58 As noted in [35] above, s 11-15(1) of the GST Act provides that, subject to the exclusions in s 11-15(2)(a) and s 11-15(2)(b), a thing is acquired for a creditable purpose to the extent that it is acquired in carrying on an enterprise. 59 The Commissioner did not dispute that the applicant was engaged in carrying on some form of enterprise, merely that the nature and extent of that enterprise did not extend to include its litigation funding activities. For its part, the applicant appears to contend that the funding deeds themselves evince an enterprise-like activity carried on for profit; alternatively or additionally, that the litigation funding was carried on as part of or as some adjunct to another enterprise being conducted by the applicant during the relevant periods. 60 As indicated in [39] above, Australian income tax law jurisprudence has emphasised the existence of a profit-making purpose as a necessary indicia to a finding that activities amount to a business, although the plurality in Commissioner of Taxation v Stone (2005) 222 CLR 289 at [55] thought that: "If a taxpayer's motives are idealistic rather than mercenary, the conclusion that the taxpayer is engaged in a business may still be reached". Similarly, the para (b) limb of the definition of "enterprise" in s 9-20(1) to the effect that it encompasses an activity, or series of activities, done in the form of an adventure or concern in the nature of trade, contemplates the existence of a profit-making purpose or motive attending the conduct of the activity or activities. 61 In many if not most cases the conclusion that a company is engaged in an enterprise (more specifically, a business) will readily be drawn from a "wide survey and exact scrutiny" of the company's activities, but the applicant's litigation funding activities in the present case do not allow such a conclusion to be so readily drawn, if it is to be drawn at all. There are a number of reasons for this, most of which are advanced by the Commissioner in his closing submissions, based on a forensic examination and analysis of the evidence. 62 First, the prospect of a return to the applicant from its litigation funding of Mr Felson's defence of his criminal proceeding is unusually remote on the face of the funding deeds and made even more remote by the circumstances in which they were entered into. That is, of course, not to say that some person could not have the prospect of profit in mind in deciding to enter into them. However, only a person who considered that Mr Felson's prospects of success in the criminal proceedings were sufficient to recoup the unrecovered solicitor/client costs of that litigation and to recoup the costs of the whole of the criminal proceedings (some $6 million over the relevant periods alone) and to pay out prior funders (here, PAC and PACNZ) could be said to have entered into the deeds in the course of business. Precisely how a person would come to that view would vary from person to person, depending on their appetite for risk and their confidence in Mr Felson's claim. 63 Here there is no such evidence. Clearly, those controlling Pleroma decided to wager many millions of dollars on Mr Felson's criminal defence against the enormous risk that Mr Felson would not ultimately succeed in his defence, and then recover in excess of $6 million (plus the other outgoings) from the Commonwealth in an action for malicious prosecution. However, whether they had a view as to whether those risks were outweighed by the prospect for profit (a matter that might easily have been proved) is a matter as to which the evidence is completely silent. No-one representing Pleroma or any of the applicant's other owners came forward to give evidence about their rationale for funding Mr Felson's criminal defence. One can only infer that their evidence would not have assisted the applicant's case. 64 It is important in this regard to note that the applicant itself engaged in no business­ like activity at all in connection with the funding but instead entered into funding arrangements at the direction of its owner (who was also the source of funds). There are no contemporaneous records of any kind, such as resolutions, that might suggest the reason why a company in the applicant's position (that is, with no ready source of income) would commit to enormous expenditure against a remote risk of profit. On the applicant's case, the decision to enter the funding deeds was that of the ultimate shareholders, not the applicant. 65 The evidence on this issue is unequivocal. None of the witnesses called by the applicant deposed to having applied their own independent or commercial judgment to form a view about the profitability of funding Mr Felson's criminal proceedings. Rather, each went out of their way to sheet home that responsibility to the applicant's shareholders. Ms Sabatini, the sole director of PASC, identified Pleroma, the Bayoud family and John McCarthy as "the ones that were wanting to support Mr Petroulias in his criminal trial". She confirmed it was the shareholders' desire that the applicant enter into the funding deeds with Mr Felson. Even in the case of a proposed funding arrangement with Noble Capital, an arrangement that had (it seems) nothing to do with Mr Felson, her evidence was that she would only cause the applicant to enter into it if she believed it was in accordance with the shareholders' wishes. 66 Mr Daley was a director of the applicant's predecessor, PAC, and was a director of the applicant's ultimate shareholder, PPP. His evidence on this issue was that the applicant simply carried out the instructions of its ultimate shareholder. Mr Felson, for his part, understood that it had in fact been Pleroma's desire that it would fund his criminal defence. 67 The applicant's case, it is to be remembered, is that it was funding Mr Felson's defence as a business. Yet no witness (including Ms Sabatini who was its director at the relevant time and Mr Daley who represented its shareholder at the relevant time and who is its current director), gave any evidence whatsoever as to how or why the applicant decided to fund Mr Felson's defence, save to say that they understood it to be the desire of the "ultimate shareholder". 68 Second, the applicant's witnesses also had virtually nothing to say about a most basic aspect of the litigation funding enterprise they allege to have been carrying on; namely, how the applicant was put in funds in order to pay for Mr Felson's legal expenses. Ms Sabatini bridled at the suggestion that the funds had been borrowed by the applicant, insisting she "would have been very concerned [about] being a director of a company taking out big loans" and "wouldn't have been taking loans" (T 211/6-11), but could not otherwise explain how the funds were obtained beyond the quizzical assertion that advancements were provided by Pleroma because it was "their wish to do it" (T 210/47). The monies do not appear to have been capital, since Ms Sabatini accepted that PASC had not raised any additional capital during the relevant financial year. Her evidence was that she did no more than "do up budgets and provide them" (T 208/38) to somebody after which cash deposits would appear from time to time in the applicant's various bank accounts. She claimed to have no idea where the deposits came from. 69 In contrast to Ms Sabatini, both Dr Lamont and Mr Daley had a recollection that the applicant and PAC had borrowed funds in order to pay Mr Felson's legal bills. Beyond such generalities, however, their evidence was silent as to how the funds were made available to PAC and PASC, and on what terms. There are no documents in evidence such as loan agreements or contemporaneous financial records that might shed light on how the putative "enterprise" of funding Mr Felson's legal bills operated. 70 In addition, none of the applicant's witnesses could offer any insight into how the loans were recorded (if at all) in their companies' financial statements. This was despite the fact that one witness, Dr Lamont, had been responsible for preparing the applicant's accounts between 2004 and 2006. Regrettably, the applicant has not placed financial statements for those years before the Court that would permit conclusions to be drawn as to how the applicant obtained funds to conduct the purported enterprise. 71 Before leaving this second aspect of how the applicant was put in funds in order to pay for Mr Felson's legal expenses, I need to refer to and address the oral submission that was put on behalf of the applicant on the last day of the hearing that in undertaking its litigation funding activities the applicant was acting for a consortium of parties as an unincorporated venture, including itself as operator/manager, and that the funds it received for expenditure on Mr Felson's defence of his criminal proceedings were working capital contributions, not loans, to such expenditure by the members of the consortium. While it was not put in such express terms, I inferred that what was being put was that the applicant's entitlement to an input tax credit for a creditable acquisition of the joint venture was sourced, inter alia, in s 51-35 of the GST Act. If that inference is correct, then there are at least two difficulties with the submission. First, there is no evidence of this joint venture, or the identity of the joint venture parties (other than the shadowy figures standing behind the applicant) or their joint purpose (other than funding Mr Felson's defence of his criminal proceedings). Second, even if there was such evidence, the joint venture was not approved by the Commissioner pursuant to s 51-5 of the GST Act, such as to constitute a GST joint venture for the purposes of the GST Act. Section 51-35 was therefore not available to the applicant in respect of the joint venture's creditable acquisitions. It is unnecessary to take this submission any further. 72 In the end, there was no reliable evidence before the Court as to what arrangements were put in place to ensure that the applicant had sufficient resources to fund Mr Felson's litigation. This is an additional reason to conclude that the applicant was not conducting litigation funding activity as part of any "enterprise".

The PPP business 73 The applicant sought to characterise its activities as a litigation funding enterprise by reference to the so-called PPP business, which involved the sale of pre-paid "warrants" for professional and legal services. The business model is conveniently summarised by Hill J in Lamont v Federal Commissioner of Taxation (2005) 144 FCR 312. The evidence reveals little about how the PPP business actually worked in practice. The applicant led no evidence of the warrants that were said to have been sold. Nor was there any meaningful evidence of who was to provide the legal services covered by the warrants. The document titled Summary Points of Agreement refers to "the provision of services by Petroulias and his firm to warrant holders under the PPP business model" (cl 3). Mr Felson did not, however, give evidence regarding who or what was meant by "his firm". When questioned by the Court on this issue, Dr Lamont said he could not name the firm but believed it was "a solicitor in his own right trading as himself" (T 186/12). What is known is that the applicant was never paid for legal services by PPP. 74 There is, moreover, no meaningful correlation between the applicant's involvement in the PPP business and any activities relating to litigation funding. There is no suggestion that the applicant was responsible for, or engaged in, the sale of PPP warrants to anybody in Australia. Nor does the evidence demonstrate a connection between the sale of warrants and the funding of litigation in the applicant's name, using funds that were borrowed from a different source. 75 Put simply, whatever the precise nature of the applicant's role within the PPP model, it had nothing to do with litigation funding.

The litigation funding deeds 76 Finally, the proof of some business-like activity in connection with the applicant's claimed litigation funding enterprise is further undermined by the difficulty of reconciling the various litigation funding deeds with each other. None of the applicant's witnesses were put forward to explain why many of the agreements make no reference to earlier deeds or purport to alter retrospectively the legal status and effect of previous incarnations (some having been executed only days or weeks beforehand). 77 Instead, the applicant sought to rely upon the Heads of Agreement and Summary Points of Agreement as providing the overall framework for the funding arrangements that were put in place. Mr Felson described the Heads of Agreement as an "umbrella agreement" (T 92-93). The agreements purport to cover important aspects of the applicant's litigation funding activities and commercial relationship with the PPP business - they are, for example, the only documents in evidence that purport to describe how the applicant was to be remunerated for its services. 78 There are two things to be said in relation to the claim that the applicant was to be paid for services performed in connection with some wider enterprise. 79 First and foremost, it is important to distinguish between funding litigation, on the one hand, and being paid to provide services, on the other. Even if it could be accepted that the applicant was conducting an enterprise in which it would be paid to conduct litigation or to provide services to those who had decided to finance litigation through the issue of warrants (a proposition that goes further than the evidence in any event), it does not follow that its decision to fund litigation was an activity undertaken in the course of "carrying on" that enterprise such as to fall within s 9-20(1)(a) and s 9-20(1)(b) of the GST Act. 80 Secondly, the evidence that the applicant was to be rewarded for its services is unreliable in any event. To the extent the applicant's case in this regard depends upon the Heads of Agreement or the Summary Points of Agreement, it should be rejected for the following reasons. 81 First, the applicant was granted leave to lead evidence of the Heads of Agreement on the condition that it provide full discovery of the original document and correspondence referring to the agreement. Discovery was not given. In fact, Mr Daley confirmed in cross-examination that he had not even seen a copy of the Heads of Agreement before swearing an affidavit of further discovery in March 2013. There was no mention of the agreement in the sworn list of documents annexed to Mr Daley's affidavit. 82 Secondly, each of Mr Felson, Mr Daley and Dr Lamont accepted that they have never referred to either the Heads of Agreement or Summary Points of Agreement in any of their affidavits sworn in these proceedings. Ms Sabatini confirmed that the Heads of Agreement had been in her possession "all along" and was "surprised" that she did not mention it in her previous affidavit sworn in July 2011. It is most unlikely that these witnesses would have known all along about the existence of these agreements and yet would choose not to refer to them in any of their sworn descriptions of the applicant's litigation funding arrangements or its role within the PPP business. 83 Thirdly, there is no mention of either the Heads of Agreement or Summary Points of Agreement in any of the litigation funding deeds entered into between the applicant and Mr Felson, which undermines the applicant's assertion that the funding deeds were ultimately governed by the umbrella agreements. 84 Fourthly, the key witnesses on this issue, Mr Felson and Ms Sabatini, were both unimpressive witnesses. Mr Felson gave non-responsive and argumentative answers about aspects of the Commissioner's alleged motives and prior conduct that have no relevance to the issues in these proceedings. 85 Ms Sabatini was similarly unimpressive. She was frequently evasive and refused to accept plainly evident truths regarding matters about which she ought to have been very familiar in her capacity as a director of both the applicant and CBCI. 86 For these reasons, I agree with the Commissioner's submission that it is likely that the Heads of Agreement and Summary Points of Agreement were not entered into on the dates denoted in each document. In any event, I would not afford either document any weight in the process of finding whether the applicant was in fact carrying on a litigation funding enterprise.

Conclusion 87 For the reasons canvassed in [62] - [86] above, I have reached the conclusion, without any hesitation or doubt, that the activities of the applicant in funding Mr Felson's defence of his criminal proceedings do not constitute an "enterprise' as defined in s 9-20(1)(a) and s 9-20(1)(b) of the GST Act, nor do they form part of, or an adjunct to, a "wider enterprise", so defined, whether that wider enterprise, properly characterised, is confined to litigation funding or encompasses other activities as well. 88 In the face of the conclusions reached at [57] and [87] above, it is not necessary to address the third anterior sub-issue to Issue 1, namely, if the applicant acquired legal services by way of taxable supplies in carrying on an enterprise, whether the acquisitions relate to making supplies that would be input taxed by reason of being financial supplies. Irrespective of the answer to that issue, the applicant is not entitled to input tax credits in respect of its payment of invoices for the provision of legal services in Mr Felson's defence of his criminal proceedings.

Issue 2: Whether the applicant is entitled to input tax credits in respect of invoices raised by PAC during the relevant period 1 July 2004 to 30 September 2004? 89 The applicant claimed input tax credits in respect of invoices raised by PAC during the relevant period 1 July 2004 to 30 September 2004. The input tax credits aggregated $72,727.28. The relevant invoices, eight in all, were all in evidence and, apart from the date of the invoice and the invoice number, were identical: they were dated and numbered 1/07/2004 (#744); 8/07/2004 (#745); 22/07/2004 (#747); 29/07/2004 (#748); 5/08/2004 (#749); 12/08/2004 (#750); 19/08/2004 (#751); and 26/08/2004 (#746). They were all described to be for "Management Services" of $90,909.09, GST of $9,090.91 and each for a total of $100,000. 90 Mr Ian Daley's evidence in chief on this subject is contained in paras 6, 7 and 8 of his affidavit sworn 2 April 2013 (Ex 1). 6. I caused to be incorporated in April 2002 and was the original director of a company then named "Pre-Paid Legals Pty Ltd" which changed its name to Professional Administration Centre Pty Ltd ("PAC"). Now produced and shown to me and marked with letters "IXL 3" is a true copy of the historic ASIC search for PAC. PAC was established by its sole shareholder PPP, to conduct the administration services associated with the business model promoted by PPP called "Pre-Paid Professionals". It did so by way of joint service arrangements with Corporate Business Centres International Pty Ltd "CBCI". PAC was instructed to and did enter into litigation funding and support services with Mr Nick Petroulias. 7. The PPP model had a difficult history with the respondent and these are reflected in the decisions of Corporate Business Centres International v Commissioner of Taxation [2004] FCA 458 and Lamont v. Commissioner of Taxation [2005] FCA 513. Now produced and shown to me and marked with the letters "IXL 4" is a true copy of these decisions. During the period of difficulty with the Respondent, there were significant expenses, particularly legal, with little income. However, the PPP model was successful in that it had some 300 business agents signing up to sell the warrants by June 2005. 8. During the period of difficulty, PAC became indebted to PPP to an extent to which I considered was commercially feasible for the applicant [to] be incorporated and take on certain business functions of PAC (especially litigation funding, co-ordination and management) and specialise in them. Arrangements were entered into by which PAC would provide it's "know how and show how" by way of management services … Owing to concern in relation to debt levels, the arrangement was funded through the trust account established with Atlas Corporate Trustees Ltd and was … specifically designed to fund the management fees alone. PPP was not otherwise intending to extend credit indefinitely and generally. The debt owed by PAC became so large that PAC … was placed into voluntary administration in August 2004. 91 Dr Lamont's evidence in chief on the subject is contained in paras 23, 24 and 27 of his affidavit sworn 30 January 2011 (Ex 6): 23. Professional Administration Centres Pty Ltd ("PAC") assumed the role previous [sic] played by CBCI when the Respondent's adverse action in refusing rulings of clients; denying refunds of clients; issuing "caution" letters threatening penalties and adverse public statements, had the effect of dispersing its clients and rendering CBCI insolvent. The history is … explained in the correspondence with the Respondent in the exhibits to this affidavit and I do not repeat these again. I was involved in the provision of services by PAC to the applicant for which the invoices relate and in respect of which payment was made as stated by the Respondent in para 36 of its appeal statement through the applicant's trust account held with Atlas Corporate Trustees Ltd. 24. The services to which these invoices relate were in fact performed by PAC pursuant to the arrangements between PAC and the applicant. I was personally involved in the transfer of knowledge, skill, marketing, systems set up, procurement of suppliers, training, customer service and all facets in the business of administration for professional and corporate clients as developed by PAC which were quite a complex and sophisticated series of international affiliations which Australian clients of [the] applicant would be able to exploit. ... 27. The context to the management services is that PAC had developed, during 2003 and 2004, in particular in excess of $3 million in debt from its shareholder Pre-Paid Professionals LLC ('PPP'). It was widely communicated by PAC in continual meetings it held with the participants in the Pre-Paid Professionals business model, that these expenses were unforeseen and arose in dealing with the adverse action by the respondent in refusing its statutory duty to issue rulings that lead to the CBCI and Lamont litigation. A way to mitigate the exposure to debt and potential insolvency of PAC that was frequently discussed at the time in those meetings was the arrangement put into place with the applicant. 92 In cross-examination, Mr Daley could not recall seeing the invoices at the time; he could not say he gave instructions "for them to be done"; he could not recall whether there was a written arrangement between the parties; he was not involved in performing any services he described as "know how and show how"; he could not recall there being a record of what "know how and show how" was provided by PAC to the applicant; the only person he could recall providing "know how and show how" was a Peter Wright, a solicitor employed by PAC; there was no set agreement on when the money would change hands, it would just depend on what was being done; he believed and hoped the invoices were paid by the applicant to PAC; the invoices were not paid by any movement of money but by way of book entry through accounts maintained by Atlas Corporate Trustees Limited ("Atlas"); but he could not remember whether PAC had any account with Atlas; and he had no recollection of how PAC paid for the services of the people who provided the "know how and show how" at the time. 93 In cross-examination, Dr Lamont conceded that he did not know how the PAC invoices were satisfied. 94 In cross-examination, Ms Sabatini accepted that she had no contemporaneous record of what "know how and show how" was acquired from PAC in July and August 2004. 95 There was little or no evidence forthcoming from Mr Daley, Dr Lamont or Ms Sabatini as to the terms of the arrangements claimed to have existed between PAC and the applicant in relation to the alleged provision of management services from PAC to the applicant described in the invoices referred to in [89] above, and such as there was, was so infected with either lack of knowledge or inability to recall on each of their parts, as to render that evidence totally useless; and if that is too harsh a finding, certainly no weight could be given to anything they had to say on the subject. The same comment is applicable, with equal force, in respect of their evidence on the following aspects of these arrangements: (1) The nature and extent of the management services, if any, provided; (2) which of PAC's personnel provided them - Mr Daley could only recall the name of one person; (3) the basis upon which the fees were calculated and charged, both in the aggregate ($800,000) and in each of the eight invoices ($100,000); (4) how the invoices were satisfied - neither the book entries nor the accounts of Atlas were in evidence; and (5) how the personnel of PAC who provided the alleged management services to the applicant were themselves remunerated by PAC. 96 My review and assessment of all the evidence on this subject has led me to the following conclusions: (1) That no management services were supplied by PAC to the applicant; (2) that no management or any other services were acquired by the applicant from PAC; and (3) no payment of the invoices was made by the applicant to PAC, either direct or to any other entity for the account of PAC. 97 Based on these conclusions, the invoices are a sham in the terms described by Diplock LJ in Snook v London & West Riding Investments Ltd [1967] 2 QB 786 at 802: I apprehended that, if it has any meaning in law, it means acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities … that for acts or documents to be a "sham", with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. (Emphasis added.) 98 In Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449, Lockhart J, at 454, after referring to this passage from Snook and after referring to a number of Australian authorities which had considered the word "sham", said: A "sham" is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive. 99 The only qualification that might be made to what his Honour there said is to be found in what Hill J said, relevantly so far as the present case is concerned, in Richard Walter Pty Limited v Commissioner of Taxation (1996) 67 FCR 243 at 257G-258B: I have set out the quotation from Snook having regard to a submission made by counsel for Richard Walter that a transaction could not be a sham unless there was shown to be some other real transaction for which the sham transaction was a disguise. While that will ordinarily be the case it is not invariably so. A transaction may, as the passage cited from Snook recognises, be found to be a sham where there is no real underlying transaction at all. Without in any way derogating from the views expressed by Lockhart J in Sharrment, I would prefer to define a transaction as being a sham transaction where it involves: A common intention between the parties to the apparent transaction that it be a disguise for some other and real transaction or for no transaction at all. In so doing I give effect to the words emphasised in the passage from Diplock LJ. For example, parties might bring into existence a document described as a mortgage which records an advance by a lender to a borrower of a sum of money and the obligation of the borrower to repay it. The document may be a disguise in the sense that while on its face it appears to be a mortgage securing an obligation to repay, there is no real transaction at all behind it for which the document will be a disguise. Such would commonly be the case where the so called mortgage is brought into existence as part of a "money-laundering" exercise to enable a fraudulent explanation to be given as to how certain funds came into the hands of the person described as the mortgagor. In the present case, the invoices are a sham in the latter sense referred to by Hill J in Richard Walter - a common intention between PAC and the applicant that the invoices be a disguise for no transaction at all.

Conclusion 100 The applicant is not entitled to input tax credits of $72,727.28 in respect of the invoices raised by PAC on the applicant in the relevant period 1 July to 30 September 2004.

Issue 3: Is the applicant liable to a penalty for failure to withhold pursuant to s 12-190 of Sch 1 to the Administration Act in respect of payments made to CBCI in the relevant period 1 July to 30 September 2004? 101 On this issue, the parties assume opposite positions to those that they took in relation to the PAC invoices under Issue 2. Under Issue 2, the applicant contended that the underlying transaction took effect according to the terms of the invoices, while the Commissioner's position was that the invoices were a mere cloak or disguise for some other transaction not identified, or no transaction at all. Here the Commissioner's position is that the services described in the invoices were supplied to the applicant by CBCI and were paid for by the applicant. The Commissioner has to say that in order to sustain his contention that there has been a failure by the applicant to withhold an amount from the payment in accordance with s 12-190(1) of Sch 1 to the Administration Act. The applicant's position is more difficult to pin down. It does not contend that the services were not supplied to it nor does it contend that it did not pay for the services. There seems to be a suggestion, I put it no higher than that, that payment was not made against the relevant invoices upon which the Commissioner relies and which came into existence as Ex B, but against invoices issued in replacement or substitution for the Ex B invoices. The difficulty with that suggestion for the applicant is that the Ex B invoices bear what appears to be a contemporaneous endorsement of having been paid. 102 There were four invoices raised by CBCI on the applicant. The first dated 1 July 2004 for $100,000; the second dated 21 July 2004 for $100,000; the third dated 2 August 2004 for $100,000; and the fourth dated 9 August 2004 for $51,000. They are all described as being in respect of "management services" and all are endorsed with the instruction: "Please make cheques payable to Atlas Corporate Trustees Limited - CBCI Account"; with stamp markings: "Entered" and "Paid", in the latter case, bearing a date and the letters "TT" in the cheque number box. The "Paid' endorsements on each indicate that all of the invoices were paid in the period 12 August to 20 August, presumably 2004. There was no evidence to the contrary as to the dates of payment. As I have already noted, the invoices were admitted into evidence as Ex B. 103 Section 12-190 of Sch 1 to the Administration Act relevantly provides: (1) An entity (the payer) must withhold an amount from a payment it makes to another entity if: (a) the payment is for a *supply that the other entity has made, or proposes to make, to the payer in the course or furtherance of an *enterprise *carried on in Australia by the other entity; and (b) none of the exceptions in this section applies. 104 The first exception in s 12-190 is that contained in subs (2) which relevantly provides: The payer need not withhold an amount under this section if, when the payment is made: (a) the other entity has given the payer an *invoice that relates to the *supply and *quotes the other entity's *ABN; or… 105 It is common ground that the invoices constituting Ex B did not quote CBCI's ABN and no other exception in s 12-190 applies. 106 Section 16-5 of Sch 1 to the Administration Act provides: If Division 12 requires an entity to withhold an amount from a payment, the entity must do so when making the payment. 107 It is common ground that no amount was withheld at the time of payment of the invoices by the applicant. 108 Section 16-25 relevantly provides: (1) An entity must not fail to withhold an amount as required by Division 12. Penalty: 10 penalty units. 109 The Commissioner, understandably, relied on the endorsements on the Ex B invoices to contend that they were paid in that form and, equally understandably, did not explore, in cross-examination, how they were paid. Moreover, the applicant led no evidence that, despite the endorsements, the invoices were not paid nor, if they were paid, how they were paid. Such evidence could have been important because of the following: (1) The instruction on the invoices to make the cheques payable to Atlas - CBIC Account. If that is how the invoices were paid, it might be argued that such is not a payment to CBCI. If, in the circumstances, that argument succeeded then again, arguably, s 12-190 has no application because that provision only applies where the payer (the applicant) makes a payment to the entity that has made, or proposes to make, a supply (CBIC), not some other entity (Atlas). (2) The position would be even stronger if the evidence was, as in the case of the PAC invoices, payment was purported to be effected by book entry in the accounts of Atlas. It is well settled that the making of a mere entry in the books of a company without the assent of the alleged payee does not establish a payment to that person: Manzi v Smith (1975) 132 CLR 671 at 674. But having regard to the state of the evidence, these possibilities can be put to one side. 110 The only substantive contemporaneous evidence was the "Paid' endorsement on each of the invoices. There was no substantive evidence as to how the invoices were paid although the "Paid" endorsement on each with the letters "TT" might suggest telegraphic transfer. I find, on the balance of probabilities, that the invoices were paid by the applicant to CBCI in the form that they were raised by CBCI (that is, without an ABN quotation) and that, in those circumstances, it is irrelevant how they were paid. The applicant has failed to withhold in accordance with its obligations under s 12-190 of Sch 1 to the Administration Act and is liable to the penalty imposed.

Conclusion 111 The applicant is liable to a penalty for its failure to withhold pursuant to s 12-190 of Sch 1 to the Administration Act in respect of payments made to CBCI in the relevant period 1 July to 30 September 2004.

CONCLUSION 112 The applicant did not submit that the shortfall penalties were incorrectly imposed if, as I have found, the applicant had no entitlement to the input credits it claimed in relation to the activities and transactions considered under Issues 1 and 2, nor did it offer any reason why such penalties should be remitted in whole or in part. 113 The application must be dismissed with costs. I certify that the preceding one hundred and thirteen (113) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.