Tribunal finds taxpayer not entitled to input tax credits for the purchase of scrap gold

In Eastwin Trade Pty Ltd and Commissioner of Taxation [2017] AATA 140 the Tribunal found that the taxpayer did not discharge its onus of showing that it was entitled to input tax credits for the purchase of “scrap gold” from suppliers. The taxpayer held tax invoices that were said to record  the transactions, but the primary issue before the Tribunal was whether the asserted purchases of gold were real transactions and if so, what was purchased and from who – the Tribunal observing that reality was not sufficiently established by the invoices themselves or by the taxpayer’s accounting records.

The purchases and sales of gold by the taxpayer were said to operate as follows:

  • the seller would contact the taxpayer about a delivery of gold in “dore” (taxable) form and the taxpayer would contact potential buyers
  • the taxpayer would take delivery of the gold and would lock in the price when buyers came to pick up the gold
  • the taxpayer would remit payment to the supplier and would receive a purchase invoice from the supplier a few days later
  • the gold was delivered to the taxpayer at night, in car parks

The taxpayer relied on tax invoices dated 13 January 2014 to 25 September 2014 purportedly evidencing expenditure of $143.3m on the purchase of about three tonnes of gold dore and invoices dated 8 January 2014 to 26 September 2014 purportedly evidencing total sales of $143.9m of a similar quantity of gold dore.

The principle matters relied on by the Commissioner in the objection decision were as follows:

  • inconsistent supply information – during interviews with the taxpayer in July and August 2014 the taxpayer had identified one entity as its only supplier (first supplier), but only provided information about another supplier (second supplier) after being told that the initial supplier had been incorporated in April 2014.
  • incorrect or cancelled ABN – the ABN on invoices from the second supplier was that of an apparently unrelated entity, and that had been cancelled on 28 April 2014. The ABN of the first supplier was cancelled in September 2014 with effect from 1 April 2014.
  • no GST registration – neither of the suppliers were registered for GST
  • unrelated payments/absence of consideration – all payments contended to have been made by the taxpayer were to a bank account of a company with no demonstrable connection with either supplier
  • uncorroborated supply – the taxpayer could not provide any contact details for whether supplier – that inability, the “car park” mode of delivery for three tonnes of gold, and the payments to an unrelated recipient, led to an absence of satisfaction that any of the suppliers had in fact supplied the invoiced items to the taxpayer.
  • no basis to treat documents as a tax invoice – in the absence of satisfaction that a “creditable supply” had in fact occurred there was no basis to exercise the discretion conferred by s 29-70(1B) of the GST Act.

The Tribunal observed that there was objective evidence that the taxpayer had sold gold dore and that this fact was at least consistent with the taxpayer also having purchased gold dore. However, this in itself was not relevantly probative of dore purchases. The Commissioner also made the following contentions:

  • the taxpayer’s sales invoicing practices, with their precise statement of gold content, and absence of complaint from customers, indicated an actual gold content knowledge that could only have been possessed by someone who had created the dore bars from bullion;
  • there were practicable means, and a significant commercial incentive, for a person to engage in a practice of purchasing gold bullion and smelting it into dore;
  • the taxpayer’s dore bars had a physical appearance consistent with such an operation having been carried out; and
  • the taxpayer’s various transaction records tended to establish the likelihood that it had possession of the gold for long enough to have undertaken such a smelting process.

The Tribunal observed that the Commissioner’s hypothesis about the commercial motivation to purchase bullion – in a disguised transaction – and then convert it to dore, involved two main assumptions. The first assumption was that the dore is saleable at a GST inclusive price less than 110% of the “spot price” for fine gold. The second assumption was that the disguised transaction involved a bullion purchase being dishonestly presented as a taxable supply, and either the GST component of the sale not reported (by the vendor), or made the subject of a false claim for input tax credits (by the purchaser). Once that assumption was made, the Commissioner’s submissions explained how the smelting of bullion, and its subsequent sale as a taxable supply, could provide a significant commercial benefit to the seller.

The Tribunal noted that the Commissioner’s contention was a hypothesis and there was no direct evidence that the taxpayer carried out any bullion conversion activities and the Tribunal accepted that the taxpayer was right to emphasise the absence of evidence tending to establish its participation in the purchase, and subsequent “conversion”, of bullion. Nevertheless, the Tribunal found that the critical matter that the taxpayer had to establish was what it did in fact acquire.

The Tribunal concluded (at [92]) (after a detailed analysis of the oral and documentary evidence) that they taxpayer had failed to establish the identity and reality of any “supplier” entity. Given this finding, the Tribunal concluded as follows:

My view is that meaningful conclusions about the detailed “registration”, “enterprise” and “consideration” contentions could not be reached where the evidence merely points to the fact of some kind of acquisition, but is devoid of any credible details about the identity and reality of the “supplier” and that entity’s circumstances and activities.

Comment

The central issue in this case was whether the taxpayer actually made creditable acquisitions of gold dore – i.e., whether the transactions were real. The approach of the Tribunal to this issue was outlined at [24]:

Eastwin’s submissions accepted that the evidentiary onus imposed on it by TAA 53 s 14ZZK required it to establish, on the balance of probabilities, that its asserted purchases and sales of gold dore were real transactions. That reality is not sufficiently established either by the invoices themselves:- see Bayconnection Property Developments Pty Ltd and Commissioner of Taxation [2013] AATA 40;  (2013) 90 ATR 488 at  [86] and RV Investments (Aust) Pty Ltd as Trustee for the RV Unit Trust and Commissioner of Taxation  [2014] AATA 158;  (2014) 94 ATR 670 at  [72]; or by a taxpayer’s accounting records:- Richard Walter Pty Ltd v Commissioner of Taxation  (1996) 67 FCR 243 at 247 per Lockhart J. Nevertheless, invoices may provide part of the evidence establishing the reality of the underlying transaction, and Eastwin relied on them. This involved Eastwin in grappling with two main factual questions – (i) who was its supplier, and (ii) what was delivered to it.

In this case, the taxpayer actually did sell gold dore. A clear inference is that it must have also purchased gold. The difficulty for the taxpayer was that it could not positively show who it bought the gold from and what it actually bought – in particular whether it bought the gold in dore form (taxable) or as bullion (non-taxable).

 

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