Case analysis – Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142

Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142

CASE ANALYSIS

Summary

In Multiflex Pty Ltd v Commissioner of Taxation [2011] FCA 112, Jessup J ordered a writ of mandamus directing the Commissioner to comply with s 35-5 of the A New Tax System (Goods and Services Tax) Act 1999 and s 8AAZLF of the Taxation Administration Act 1953 by forthwith paying to the applicant the net amount notified in the GST return for each of the relevant tax periods.

The Full Court has dismissed the appeal by the Commissioner and upheld the application for a writ of mandamus forcing the Commissioner to pay the refund.  In dismissing the appeal, the Full Court rejected the Commissioner’s argument that the Commissioner had an implied right under the GST Act to withhold refunds while it conducted an investigation into the BAS statement filed by a taxpayer.

Facts

Multiflex reported monthly for GST purposes.  It conducted the business of buying and selling IP products, including mobile phones and iPads.  It operated on small margins and the GST refund was said to be essential to its continued solvency.  It was common ground that if the position was as disclosed in the GST returns, that the GST refund was properly payable.

The Commissioner refused to pay the refund because it had a suspicion that the claims for input credits were wholly or substantially fraudulent.  The Commissioner was not in a position to confirm those suspicions until an investigation had been completed, which was likely not to be done until late 2011.

Consideration

The role of the court in statutory interpretation

The judgement of Stone, Edmonds and Logan JJ starts with an extract from a paper by Hill J on “Interpreting the GST Law’.  The extract is lengthy, but it reflects the view of particular judges of the Federal Court that it is not the role of the Court to remedy defects (or contended to be defects) in legislation such as the GST Act.  This is reflected by the last three sentences of the extract which are set out below:

In some cases, the courts may be able to resolve difficulties by applying a purposive construction but in the Australian constitutional context where there is a sharp separation of the legislative and judicial powers there is limit to what one can expect of the courts.  Ultimately the courts cannot act as legislators.  Parliament cannot stand by and then blame the courts if a decision is one that does not favour the revenue when the problem lies not in how the legislation is to be interpreted in a common sense way, but in how it is written.

It is also noteworthy that the very same extract appears in the judgment of the Full Federal Court (albeit overturned by the High Court on appeal) in Reliance Carpet Co Pty Ltd v Commissioner of Taxation [2007] FCAFC 99 at [27] where the bench included Stone and Edmonds JJ.

One can also see a similar approach adopted by Logan J in Deputy Commissioner of Taxation v PM Developments Pty Ltd [2008] FCA 1886  where his Honour found that Division 147 failed to impose a liability for GST on liquidators, notwithstanding that the words of the Explanatory Memorandum clearly expressed such an intention.  In coming to that view, his Honour stated as follows (at [47]):

It is the duty of the courts to construe enactments, not to make them.  If, truly, the language of an enactment does not translate into law a meaning and effect that might apprehend from secondary materials was intended it is for the Parliament to rectify that by further legislative provision.

The Court applied this reasoning in rejecting the Commissioner’s contention that he had an implied right under the statute to withhold refunds “for a reasonable time” in order to investigate the matter, and relevantly stated as follows (at [1]):

…even construing that provision in context and giving full voice to a preference for a purposive construction of the scheme of taxation revealed, materially, by the GST and the TAA, this is a case where no such implication can be drawn.  If that be a defect in the scheme of taxation, the defect is one for Parliament to address.

Contentions by the Commissioner 

The Commissioner contended that the primary judge erred by concluding that the “net amount” worked out under s 17-5 became the amount which the Commissioner was obliged to refund under s 35-5 (as a negative net amount).  This is because the primary judge gave insufficient weight to the wider context of the audit, assessment and review provisions in the TAA.  The Commissioner said that he is only obliged to refund the amount which “actually” constitutes the net amount and he is not obliged to refund an amount if he knows it to be wrong.

The Full Court rejected this contention because the operation of s 17-5 operates independently of an assessment being made.  Further, and critically, the Full Court found (at [26]) that the answer provided by the legislation to the Commissioner’s “disquiet” as to being obliged to make a refund was the entitlement to make an assessment of net amount at any time: s 105-5 of Schedule 1 to the TAA.  Even today, one would think that making an assessment would be an option open to the Commissioner.

The Commissioner referred the Court to a UK decision of R v Commissioners of Customs and Excise; ex part Stragewood Ltd (1987) 3 BVC 60; [1987] STC 502.  In that case, the Court accepted that the proper construction of a provision in the Value Added Tax Act 1983 (which was broadly analogous to s 35-5 of the GST Act) entitled the Commissioner to only pay a refund if they were satisfied if there was an excess of credits over tax.  This case was not put before the primary judge, and the Full Court found that unfortunate.  Nevetherless, the Full Court found that the case did not provide a basis for disturbing the decision of the primary judge that such an implication should be draft from the GST Act.  This is because the respective statutes operated in different legislative contexts.  This is yet another example of the danger in relying on overseas authority in GST cases.

The Full Court found (at [38]) that against the background of the operation of the GST in a business environment, the importance of a prompt refund, as calculated by the entity, being made by the Commissioner is evident from the consideration of the GST Act.  In doing so, the Full Court considered the similar position in the New Zealand legislation which was accepted by the Supreme Court in Contract Pacific Ltd v Commissioner of Inland Revenue [2010] NZSC 136[2011] 1 NZLR 302 (in the New Zealand Act the Commissioner has a period of 15 days to pay the refund, unless a notice is given postponing the refund pending an investigation).

With regards to the writ of mandamus, the Full Court (at [42]) adopted the words of the primary judge that it would be “antagonistic to the terms, object or purposes of the sections under which the obligation arises” to refuse the mandamus on the basis of the Commissioner’s suspicions.  Further, respect for the rule of law by officers of the Commonwealth dictates that, though the remedy is discretionary, it should ordinarily be granted where an officer of the Commonwealth is refusing or neglecting to comply with an obligation to which he is subject: referring to Re Refugee Review Tribunal; Ex parte Aala [2000] HCA 57; (2000) 204 CLR 82 at [55].

The author understands that the Commissioner will be seeking an urgent application for special leave to appeal to the High Court.

13 November 2011

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