F B DUVALL LIMITED V THE COMMISSIONER OF INLAND REVENUE CA CA53/05

F B DUVALL LIMITED V THE COMMISSIONER OF INLAND REVENUE CA CA53/05 7 April 2006IN THE COURT OF APPEAL OF NEW ZEALAND CA53/05BETWEEN F B DUVALL LIMITED Appellant AND THE COMMISSIONER OF INLAND REVENUE Respondent Hearing: 22 March 2006 Court: William Young P, Glazebrook and Robertson JJ Counsel: G J Judd QC for Appellant A C Beck and R Wallace for Crown Judgment: 7 April 2006JUDGMENT OF THE COURT The appeal is dismissed. Costs of $6,000 plus usual disbursements are awarded to the Commissioner.____________________________________________________________________REASONS(Given by Glazebrook J)Introduction[1] This is an appeal from a decision of Priestley J of 8 March 2005. He decided that the Taxation Review Authority (TRA) had no jurisdiction to consider the late objections of F B Duvall Limited (Duvall) to GST assessments because the Commissioner had never agreed to accept those objections.Procedural history[2] The relevant GST returns in this case were filed by Duvall between 1990 and 1994. Duvall was originally assessed with regard to those returns by the Commissioner without objection. In 1998 Duvall purported to file "amended returns" in respect of these taxable periods. At that stage, there were proceedings before the courts with regard to earlier GST periods and the "amended returns" were compiled on the same basis as those at issue in the earlier GST periods. [3] On 6 September 1999, Mr O'Dea, on behalf of the Commissioner, wrote to Mr Russell, who was acting as agent for Duvall, in the following terms:In relation to the amended GST returns filed on 18 March 1998 and the amended GST return for the period ended 30 June 1995 there will be some delay before any action is taken thereon. The issues being raised in the High Court on behalf of F.B. Duvall Ltd by yourself and Mr Grierson are such that it is appropriate to await a final decision of that court before attending to any other GST periods. It may be, in view of your appeal to the High Court decision, it will be necessary to await the decision of the Court of Appeal. Thus, all issues having been resolved, amended GST assessments can be made on a basis with which you will be in agreement.[4] This Court's judgment on the earlier return periods was released on 17 May 2000 – see F B Duvall Ltd v CIR (2000) 19 NZTC 15, 658. Duvall then asked the Commissioner to make amended assessments in accordance with that decision. The Commissioner did not do so. Duvall asked that the objections be referred to the TRA. [5] The Commissioner duly stated a case on 20 February 2001 but, as a preliminary issue, said that Duvall was unable to request a case to be stated as the objection, if any, made by Duvall had not yet been determined by the Commissioner. The questions for determination in the case stated thus included:18.1 Whether the Objector has made timely and competent objections to the assessments made by the Commissioner; 18.2 If the answer to 18.1 is "no", whether the Objector was able to make a late objection to the periods in question;18.3 Whether the Objector, in the absence of a determination regarding the alleged objections, is able to request a case stated.[6] The TRA directed that a preliminary hearing be held on the questions of jurisdiction and res judicata or issue estoppel. It issued an interim decision on 27 February 2002, reported as Case V18 (2002) 20 NZTC 10, 207, and a final decision on 5 September 2003, reported as Case W25 (2003) 21 NZTC 11, 251. The outcome, in brief, was that the TRA held that it had jurisdiction to remedy any shortcomings regarding assessments, including curing the Commissioner's procedural defects. The TRA took the view that the Commissioner was obliged to reassess in accordance with this Court's decision referred to at [4] above. On this basis, the TRA held that Duvall was not liable for output tax but that there was no jurisdictional basis to embark on a consideration of whether it was entitled to the corresponding input tax credits.The High Court decision[7] At the request of the Commissioner, the TRA stated a case to the High Court. This was heard by Priestley J. The questions for the Court were as follows:Question 1Was the Objector properly able to request a case stated before the Authority in the circumstances of this case?Question 2Did the Authority have jurisdiction to hear the case?Question 3Did the Authority have jurisdiction to issue a "curative assessment" of the Objector's tax liability? If so, could that power be exercised without evidence of the facts underlying the returns.Question 4Did the Court of Appeal decision in F B Duvall Ltd v CIR compel the Authority to conclude that output tax should be refunded to the Objector?Question 5Did the Court of Appeal decision in F B Duvall Ltd v CIR confine the Commissioner to a particular position?Question 6Was the question of input tax properly before the Authority?Question 7Was the curative assessment issued by the Authority a correct assessment of the Objector's tax liability for the periods in question?[8] Priestley J held that the TRA had no jurisdiction to decide the case. This was because, although the Commissioner had resolved to treat the amended returns as late objections, he had not decided whether or not to accept those objections. Priestley J said that, although Mr O'Dea's 6 September 1999 letter could be criticised as being equivocal, it did state that there will be "some delay before any action is taken" in respect of the amended returns. The Judge also pointed to Mr O'Dea's unchallenged evidence, in his affidavit filed for the TRA hearing, that the Commissioner had "at no stage accepted a late objection from the objector in relation to the assessments". [9] Priestley J did not consider that the jurisdictional difficulty could be side-stepped by the Authority claiming "curative" powers or functions. [10] Accordingly, Priestley J held that the first three questions in the case stated had to be answered in the negative. As this was the case, it was not necessary to answer the remaining questions.The legislation[11] At the relevant time, s 33(2) of the Goods and Services Tax Act 1985 (the GST Act) provided:(2) No notice of objection given after the time specified in the notice of assessment, or after such extended time as the Commissioner may allow under subsection (1) of this section, shall be of any force or effect unless the Commissioner, in the Commissioner's discretion, accepts the same and gives notice to the objector accordingly.[12] The right to request a case stated to the TRA was dealt with in s 34(2), which provided as follows:(2) If an objection is not wholly allowed by the Commissioner, the objector may, within 2 months after the date on which notice of the disallowance is given to the objector by or on behalf of the Commissioner, by notice in writing to the Commissioner require that the objection be heard and determined by a Taxation Review Authority, and in that event the objection shall be heard and determined by an Authority, and the provisions of the Taxation Review Authorities Act 1994 shall apply in respect of the institution, hearing, and determination of the proceedings on the objection.Duvall's submissions[13] The first point made by Mr Judd QC on behalf of Duvall was that Mr O'Dea's letter, when construed objectively in the light of the circumstances, indicates that the late objections had been accepted and would be dealt with when this Court had made its decision on the earlier returns. It was submitted that this interpretation is reinforced by Duvall's right under the New Zealand Bill of Rights Act 1990 (BORA) to apply for judicial review of the assessment. This interpretation is also, in Mr Judd's submission, backed up by the Commissioner's responsibility under s 6 of the Tax Administration Act 1994 to use his best endeavours to protect the integrity of the tax system. [14] Alternatively, it was submitted that Mr O'Dea's letter, coupled with subsequent conduct (including the Commissioner stating a case), raised an estoppel preventing the Commissioner from contending that the late objections had not been accepted and/or created a legitimate expectation that the late objections had been accepted. Mr Judd submitted that, while no estoppel can arise in respect of the operation of the statute, there is no reason why the Commissioner should not be estopped from resiling from a position he has given the impression of having taken in relation to a matter where he had a discretion. [15] In answer to the Commissioner's assertion that the estoppel point cannot now be raised in this Court (see at [21] below), Mr Judd noted that the estoppel point was argued before the TRA. He submitted that, as the point arises naturally from the Commissioner's challenge to jurisdiction, it did not need to be raised specifically in the case stated.[16] The second point made by Mr Judd was that s 34(2) of the GST Act permits reference to the TRA if an objection is not wholly allowed by the Commissioner. In Mr Judd's submission, it is not necessary that the objection be formally disallowed. It was submitted that two interpretations of s 34(2) are open. The first is that notice of disallowance must be given to the objector before the objection can be heard by the TRA. The second is that all the notice of disallowance does is to start time running. The right to refer the matter to the TRA exists when the objection has not been wholly allowed, independently of that notice. In Mr Judd's submission, the second interpretation is the correct one. [17] The third point made in the written submissions (but not developed orally) was that the very act of the Commissioner stating a case gave the TRA jurisdiction and that the Commissioner is estopped from asserting that the stating of the case was void ab initio. [18] The fourth point (again not developed orally) was that the TRA did not purport to exercise the Commissioner's discretion to accept a late objection but (rightly) took the view that the Commissioner had agreed not merely to treat the amended returns as late objections but also to accept them. He submitted, however, that, as the act of stating a case gave the TRA jurisdiction, it would have been open to the TRA to accept the objections and deal with them. Mr Judd submitted that this argument is in harmony with the primacy of the objection procedure. [19] Finally, Duvall submitted that, as the Commissioner did not cross-appeal against the High Court's decision not to answer the remaining questions, if Duvall's appeal is allowed the TRA's decision on these matters should stand.Commissioner's submissions[20] Mr Beck, for the Commissioner, submitted that the text of Mr O'Dea's letter is clearly not a statement that the Commissioner has exercised his discretion to accept a late objection. It is a statement that no action will be taken at the present time. Mr O'Dea stated in his evidence before the Authority that the Commissioner had not accepted a late objection and that evidence was unchallenged. It was thusopen to Priestley J to accept his evidence. It was submitted that BORA and the Tax Administration Act do not take the matter any further. [21] As to the issue of estoppel by conduct Mr Beck submitted that, as this was not raised by Duvall for inclusion in the case stated to the High Court or in its points of objection, it is not open to Duvall to pursue this point at this stage. [22] As to Mr Judd's second point (see at [16] above), in Mr Beck's submission s 34(2) of the GST Act requires a notice of disallowance to be given by the Commissioner before a case can be stated. This had not been done and therefore on this basis too the TRA had no jurisdiction. [23] It was further submitted that the TRA could not assume jurisdiction by virtue of the fact that a case had been stated when jurisdiction was expressly disputed in that case. In addition, it was not the TRA's function to usurp the Commissioner's role in accepting a late objection. [24] As to Duvall's contention that the Commissioner should have cross-appealed with regard to the failure to answer the remaining questions, it was submitted that any consideration of those questions could only have been obiter dicta by the High Court and not subject to appeal. Therefore, should the Court allow this appeal, the appropriate course of action would be to refer the matter back to the High Court for decision on the remaining questions.Discussion[25] We do not consider that Mr O'Dea's letter can be read as accepting Duvall's late objections. Indeed, as pointed out by Priestley J, the letter expressly states that there will be delay before any action is taken, probably until after this Court's decision on the earlier GST periods. It is true that there is a reference to amended GST assessments being made and an assumption that these will accord with this Court's decision on the earlier periods, but we read this as referring to the Commissioner's power to issue amended assessments even without any objection (subject of course to the time bar) and not as a promise to accept the late objections.[26] We also note that, although treated as late objections, the amended returns filed by Duvall were not in the form of objections and there is no evidence that the Commissioner's decision to treat them as such pre-dated the Mr O'Dea's letter or, if it did, that it was communicated to Duvall prior to Mr O'Dea's letter. What Priestley J called the "equivocal" nature of Mr O'Dea's letter must be considered against that background. [27] We do not see the estoppel argument as taking Duvall's case any further, even if it is able now to be raised. We have held that Mr O'Dea's letter was not, on its proper interpretation, an acceptance of the late objections. It is therefore difficult logically to hold at the same time that it created the impression that it was an acceptance of the late objections. The later action of the Commissioner in filing the case cannot have created that impression either as this was filed on the basis that the Commissioner expressly challenged jurisdiction. [28] The late objection not having been accepted, there can have been no allowance or disallowance of that objection. We accept the Commissioner's submission that, under ss 33(2) and 34(2), a late objection must have been accepted and then that objection either allowed in part only or disallowed before the taxpayer can require the Commissioner to state a case. In our view, this is the natural meaning of the statutory wording. [29] It also follows from the scheme of the legislation. We cannot see how a meaningful case can be stated if the Commissioner's position on the objection cannot be set out in the case because no decision on the objection has been made. Mr Judd sought to overcome this difficulty by saying that the Commissioner would be obliged to come to a view before stating the case. There is, however, no time limit set by the legislation for the consideration of objections by the Commissioner. The effect of allowing a case to be stated before the Commissioner has made a decision on the objection would be to impose a de facto time limit on the Commissioner's consideration of the objection. Time limits for filing a case were set under the Taxation Review Authority Regulations of 1974, 1994 and 1998, subject to extension by the TRA. It is not part of the legislative scheme for a taxpayer to be able to set a de facto time limit on the Commissioner for the consideration of anobjection by requiring a case to be stated when there is no time limit in the primary legislation. [30] As to Duvall's third point, while the case was stated, this was expressly subject to the jurisdictional challenge. The act of filing a case cannot therefore be construed as accepting the late objection and disallowing it. Neither, in such circumstances, can the act of filing a case give the TRA jurisdiction to usurp the Commissioner's functions in that regard (which meets Duvall's fourth point). [31] We do not see BORA and the Tax Administration Act as aiding Duvall's argument on any of the points. The scheme of the GST legislation is that there are pre-requisites to the jurisdiction of the TRA (or the High Court where the case stated is to the High Court). Where an objection is late that must first be accepted by the Commissioner. If accepted, it must then be considered and a decision made. If the decision is to disallow the objection or to allow it in part then and only then can the taxpayer require a case to be stated. [32] There are no specific time limits on the Commissioner for the consideration of the objection but the taxpayer is not deprived of remedy where unreasonable delay occurs. As Priestley J pointed out, judicial review is available and, in the absence of the TRA having jurisdiction, that would have been the proper course to follow in this case if Duvall considered the delay to have been unreasonable.Result and costs[33] For the reasons given, the appeal is dismissed. Costs of $6,000 plus usual disbursements are awarded to the Commissioner.Solicitors: Warburton Solicitors, Auckland for Appellant Crown Law Office, Wellington Inland Revenue Department, Wellington for Respondent