4 Rights a supply that is made in relation to rights if:
(a) the rights are for use outside Australia; or
(b) the supply is to an entity that is not an *Australian
resident and is outside Australia when the thing
supplied is done.
5 It is common ground that the supply of foreign currency, in the circumstances, was not a supply of goods. The reasons of the primary judge at [22]-[35] explain why the parties have properly taken that position.
6 Hence, as the appellant identified, the question is whether the supply of the foreign currency, in the circumstances, was a "supply that is made in relation to rights … for use outside Australia" within the meaning of item 4 of s 38-190(1) of the GST Act.
7 That question is to be resolved having regard to the purpose of the legislation, and the legislative context of the particular provision together with its own text: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355.
8 Section 7-1 of the GST Act provides that GST is payable on taxable supplies. Section 9-10(1) says that a supply is any form of supply whatsoever, but without limiting that definition s 9-10(2) specifies particular forms of included supply. As the respondent sought to relate the exemption in s 38-190(1) item 4 to the supply specified in s 9-10(2)(e), and to contrast it with a supply specified in s 9-10(2)(f), it is helpful to set out s 9-10(2) in full. It provides that supply includes the following:
(a) a supply of goods;
(b) a supply of services;
(c) a provision of advice or information;
(d) a grant, assignment or surrender of real property;
(e) a creation, grant, transfer, assignment or surrender of any right;
(f) a financial supply;
(g) an entry into, or release from, an obligation:
(i) to do anything; or
(ii) to refrain from an act; or
(iii) to tolerate an act or situation;
(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).
9 As noted above, it is common ground that the supply of the foreign currency in this matter was a "financial supply" encompassed within s 9-10(2)(f). The reason why that is so is set out by the primary judge at [10]-[12] and [34] of his Honour's reasons.
10 Chapter 3 of the GST Act contains the exemptions to the imposition of the GST. Part 3.1 deals with supplies that are not taxable supplies. It has two divisions: Division 38 dealing with GST-free supplies and Division 40 dealing with Input taxed supplies. Part 3.2 deals with non-taxable importations.
11 Much of Division 38 exempts the supply of certain goods and services from being taxable supplies, even though they are supplied within Australia for consumption or use within Australia. They are supplies which, as a matter of policy, the legislature has exempted from the GST. Subdivision 38-E is concerned with "Exports and other supplies that are for consumption outside Australia". It exempts exports of goods, provided certain conditions of export are satisfied. Generally those conditions apparently ensure that the export promptly occurs and is a genuine one, so that the goods are not used within Australia: see s 38-185. It exempts the lease of goods for use outside Australia: s 38-187. It exempts tooling used by non-residents to manufacture goods for export: s 38-188. And s 38-190 exempts supplies of certain things, other than goods or real property, for consumption. A "thing" is defined in s 195-1 as meaning anything that can be supplied or imported.
12 Within s 38-190 there are five items and "topics" addressed: supply connected with property outside Australia; supply to a non-resident outside Australia; supplies used or enjoyed outside Australia; rights (the particular category said to be enlivened by the appellant); and, export of services used to repair etc imported goods. The table then has a column specifying in more detail when the supply which is referred to is GST-free. The broad genus is the supply of the particular thing which directly connects with goods or real property outside Australia, or is to be used or enjoyed outside Australia. The terms of subs 38-190(2), (2A), (3) and (4) appear to be intended to ensure that, if there is an Australian element to the supply of the thing, or its use or enjoyment, that supply will not be GST-free. The respondent has not suggested that any of subs 38-190(2), (2A) or (3) relevantly inform the construction of s 38-190(1) item 4 for present purposes. It is not necessary to address particular refinements in the expressions used, other than in item 4.
13 The purpose of Subdivision 38-E is consistent with the Explanatory Memorandum to the GST Bill, which states at page 6:
Broadly speaking, the GST is a tax on private consumption in Australia. The GST taxes the consumption of most goods, services and anything else in Australia, including things that are imported. Generally the GST will not apply to consumption outside Australia, which is why the GST does not apply to exports.
14 More particularly, the Explanatory Memorandum at par 5.73 says that GST is a tax on consumption in Australia.
15 The primary judge appears to have accepted the respondent's contention that the phrase "supply in relation to rights" in item 4 of s 38-190(1) should be construed as meaning a "supply of rights", so that item 4 of s 38-190(1) can apply only if the particular supply falls within s 9-10(2)(e), namely the creation, grant, transfer, assignment or surrender of any right. The appellant did not contend that the issue of the foreign currency in this matter came within that provision. As his Honour noted at [46], the rights which the appellant identified, for the purpose of its supply of the foreign currency being "in relation to" rights, were not themselves created, granted, transferred, assigned or surrendered by the appellant. The rights identified by the appellant were the rights to have any debt incurred in Fiji, payable in Fiji, discharged by payment of the Fijian foreign currency, as it was legal tender in Fiji under the Reserve Bank of Fiji Act 1983 (Fiji).
16 His Honour said at [46] that those "rights" were simply incidents of being the holder of bank notes issued by the Reserve Bank of Fiji. He continued at [46] and [47]:
As the owner of a chattel, such as a book, a person is entitled to handle, read and deal with the book, something that the person, if not the owner, could not do without the consent or licence of the owner. A supply of a book would not be a supply that was made in relation to the right to handle or read the book. It would be a supply of goods. A supply in relation to rights must be something more than the supply of goods the ownership of which has incidents that might in some senses be described as rights. An incident that is the consequence of a supply, whether or not that incident can fairly be characterised as a right, is not something in relation to which the supply is made.
There is no sufficient connection or association between the supply constituted by the Fijian Currency Transaction within the meaning of the GST Act and the incidents of being the owner or holder of bank notes. The incidents of being the owner or holder of bank notes issued by the Reserve Bank of Fiji are not rights in relation to which a supply of the bank notes is made within the meaning of Item 4.
[original emphasis].
17 In taking that step, his Honour observed at [45] that the drafting technique in the GST Act, including by setting things out in tables, results in the use of abbreviations and the absence of finite sentences.
18 The primary judge, by further explanation of his reasons, appears to have taken the further step of accepting the contention of the respondent referred to in [15] above. At [49], his Honour said:
Item 4 only applies to a supply if the essential character or substance of the supply, or of a separately identifiable part of the supply, is one of rights. Item 4 does not apply where the supply of rights is merely integral, ancillary or incidental to another dominant part of the supply, the supply being characterised by the dominant part. Before a supply can be said to be made in relation to a right within Item 4, the right must bind the parties in some way. The word right has a very broad meaning under the general law and might fairly be described as a benefit or claim entitling a person to be treated in a certain way. A supply that does not bind the parties in some way is not a supply that is made in relation to rights. A supply that is made in relation to rights in Item 4 in the table in s 38-190(1) means a supply of the rights by way of the creation, grant, transfer or assignment of the rights or a supply by way of the surrender of the rights.
[original emphasis].
That view also reflects the respondent's Ruling of 30 April 2003, GSTR 2003/8 Goods and Services Tax: Supply of Rights for use outside Australia - subsection 38-190(1), item 4, paragraph (a) and subsection 38-190(2), paragraphs [20] and [76] to [80]. Paragraph [20] of that Ruling also used the test of the "essential character or substance" of the supply being one "of rights".
19 In my respectful opinion, there is no reason to relate the supply referred to in s 9-10(2)(e) to the topic in item 4 of s 38-190(1) in that way. I have referred to the general purpose of the GST Act above. There is no reason, consistent with that purpose, to construe s 38-190(1) in any restrictive way. Nor, in particular, is there any reason to read down the words of item 4 in the way contended for by the respondent. As to the general context of s 38-190(1), I do not consider it supports equating the scope of item 4 with the scope of supply in s 9-10(2)(e). The five topics in Subdivision 38-E are not drawn so as to correspond with sequential subparagraphs of s 9-10(2). The only obvious correspondence is between s 9-10(2)(a) and s 38-185. Nor are the five items and topics in s 38-190(1) drawn so as to correspond with sequential subparagraphs of s 9-10(2). They are referred to in [15] above. In my view, as it is not apparent that the matters addressed in Subdivision 38-E, or in s 38-190(1), do not correspond in any reasonably precise way with the matters addressed in s 9-10(2), it is neither necessary nor appropriate to confine the scope of item 4 in s 38-190(1) to the scope of s 9-10(1)(e) unless, by clear wording, there is an intention to do so. Apart from the matters to which I have referred, I do not discern from the drafting technique generally used in the GST Act a contextual reason for doing so. In the case of items 1, 2, 3 and 5 of s 38-190(1), the drafting does not indicate a laconic abbreviated style of expression but a carefully drawn and detailed expression of the legislative intention.
20 The wording of item 4 is itself not reflective of the wording of s 9-10(1)(e). It would have been easy for the legislature to mirror the wording of s 9-10(1)(e) in item 4 of s 38-190(1) had it been intended that item 4 should operate only in respect of a supply which is the creation, grant, transfer, assignment or surrender of any right. But it does not do so. It does not do so either in the "topic" column of item 4 or in the column describing the supplies which are GST-free within item 4. It may distract from the proper question, in those circumstances, to introduce a test such as the essential character or substance of the supply in determining whether the particular supply is in relation to rights, when such words are not used in the provision itself. Instead it says that a supply that is made in relation to rights, in certain circumstances, is GST-free.
21 It is then necessary to consider whether the supply of foreign currency is, in the circumstances, a supply made in relation to rights, the rights being for use outside Australia.
22 It is common ground that the GST Act must be approached from a "practical and business point of view". I shall not repeat the observations of Stone J on that topic. I respectfully agree with them. Such an approach, however, as her Honour has pointed out, is not necessarily a path to a clear answer in every circumstance. That is illustrated both by the competing submissions of the appellant and of the respondent relying on that approach, and by the fact that I have reached a different view as to the outcome of the appeal from that of Stone and Edmonds JJ.
23 In my judgment, the supply of Fijian bank notes was a supply in relation to rights for use outside Australia, within the meaning of item 4 of s 38-190(1) of the GST Act. As noted, it was a supply of a thing and it was clearly for use outside Australia. There is no element of "consumption" within Australia of those bank notes. The supply of that thing is capable of falling within the description in s 38-190(1). If the bank notes were "goods", so as to come within s 38-185(1), they would have been GST exempt, being exported immediately upon their issue and not re-imported: s 38-185(2). One may ask rhetorically what would be the legislative policy behind a supply of bank notes in the circumstances not being GST-free, when exported goods and services generally are GST-free. None is apparent to me. None was put forward by the respondent.
24 I do not think that analysis of the terms of item 4 by reference to the supply of a different thing, such as a book, provides much guidance to resolving the particular issue. That is simply because a book is goods. It is not permitted to disaggregate the rights which the purchase of a book gives so as to attract item 4 of s 38-190(1) because the introductory words of that provision say that it does not apply to goods. Nor would it be necessary to do so, as the GST-free status of a book would be determined under s 38-185. In the case of a supply that is a financial supply, or more generally of a supply that is of things other than goods or real property, s 38-190(1) comes into play. The supply of Fijian currency is not a supply of goods or real property. It is the supply of Fijian bank notes which, as pieces of paper, have no especial value. Their value derives from the use to which they may be put in Fiji, that is the use as legal tender in Fiji. They were purchased for that purpose (and, on the findings, were intended for use and applied for that purpose). That purpose, in a practical and business sense, was the right to use the Fijian bank notes as legal tender in Fiji. It was not simply because of the pieces of paper or the design or colour or appearance of them. As bank notes which were legal tender in Fiji, they carried that right with them of being used in that manner.
25 In HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553, Hill J said at 563, [35]:
It was common ground that the words "relates to" are wide words signifying some connection between two subject matters. The connection or association signified by the words may be direct or indirect, substantial or real. It must be relevant and usually a remote connection would not suffice. The sufficiency of the connection or association will be a matter for judgment which will depend, among other things, upon the subject matter of the enquiry, the legislative history, and the facts of the case. Put simply, the degree of relationship implied by the necessity to find a relationship will depend upon the context in which the words are found.
26 Having regard to the purpose of the GST Act, on the present facts, I consider that the relationship between the rights to use the Fijian bank notes as legal tender in Fiji and the supply of the Fijian bank notes is sufficient to conclude that there was a supply of a thing (the Fijian bank notes) which was made in relation to rights which were for use outside Australia. Consequently, as I have said, I consider that that supply was GST-free because it falls within item 4(a) of s 38-190(1).
27 I would allow the appeal and set aside the orders made at first instance. I would also declare that the sale by the appellant of 400 Fijian dollars to Geoffrey Urquhart on 25 November 2007 on the departures side of the Customs barrier at Sydney International Airport was a GST-free supply by reason of item 4(a) of s 38-190(1) of the GST Act. It would also follow that I would order the respondent to pay the costs of the appeal and of the proceedings at first instance.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield