SADIQ & SADIQ AS TRUSTEES OF THE AZURA FAMILY TRUST V THE COMMISSIONER OF INLAND REVENUE HC AK CIV 2008-404-004306

SADIQ & SADIQ AS TRUSTEES OF THE AZURA FAMILY TRUST V THE COMMISSIONER OF INLAND REVENUE HC AK CIV 2008-404-004306 17 December 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-004306BETWEEN MOHAMMED SADIQ AND SHAMINA BEGUM SADIQ AS TRUSTEES OF THE AZURA FAMILY TRUST Plaintiffs AND THE COMMISSIONER OF INLAND REVENUE Defendant Hearing: 12 December 2008 Appearances: J E Dorbu for Plaintiffs M Deligiannis & H Lee for Defendant Judgment: 17 December 2008RESERVED JUDGMENT OF RANDERSON JThis judgment was delivered by me on 17 December 2008 at 12.30 pm, pursuant to r 540(4) of the High Court Rules Registrar/Deputy Registrar Solicitors: Murdoch Price, PO Box 23-620, Hunters Corner, Manukau 2155 Crown Law, PO Box 2858, Wellington 6140 Counsel: J E Dorbu, PO Box 105-345, Auckland 1143Introduction[1] The plaintiffs are the trustees of a family trust which trades as a property developer. The Trust seeks summary judgment against the defendant Commissioner for $2,667,762.16. The Trust claims this sum is due as GST input credits arising from taxable supplies the Trust says it received between February and May 2005. In addition, interest for use of money is claimed in the sum of $567,399.14. [2] The Trust maintains that the input tax credits are due in terms of s 46 Goods and Services Tax Act 1985 ("the GST Act"). That section provides:46 Commissioner's right to withhold payments(1) Subject to this section, if the Commissioner is required to refund an amount to a registered person under section 19C(8) or section 20(5) of this Act, the Commissioner shall refund the amount— (a) Except when paragraph (b) applies, not later than 15 working days following the day on which the registered person's return was received by the Commissioner; or (b) The day after the working day on which the Commissioner— (i) Determines the amount is refundable, after first having— (A) Investigated the circumstances of the return in accordance with subsection (2); or (B) Reviewed the information requested in accordance with subsection (2); and (ii) Is satisfied that the registered person has complied with the person's tax obligations. (2) If the Commissioner is not satisfied with a return made by a registered person, the Commissioner— (a) May investigate the circumstances of the return: (b) May request the registered person to provide further information concerning the return. (3) If a registered person fails to provide a return for any taxable period as required by this Act, the Commissioner may withhold payment— (a) Of any tax otherwise refundable under this Act or the Tax Administration Act 1994; or(b) Of any interest payable under Part 7 of the Tax Administration Act 1994— until the registered person complies with the requirement. (4) The Commissioner must give a request for information concerning a return under subsection (2)— (a) Within a period of 15 working days following the day on which the return is received by the Commissioner (in the case of an initial request for information); and (b) Within a period of 15 working days following the date of receipt of any information previously requested by the Commissioner (for subsequent requests for information). (5) The Commissioner must notify the registered person— (a) Of the Commissioner's intention to investigate the circumstances of the return under subsection (2); and (b) Of the Commissioner's intention to withhold payment under subsection (3)— within 15 working days following the day on which the return is received by the Commissioner. (6) If, but for this subsection, a registered person would be entitled to an amount as a refund under section 19C(8) or 20(5) or 45 or under the Tax Administration Act 1994, or as a payment of interest under Part 7 of the Tax Administration Act 1994, the Commissioner may apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of a request in such order or manner as the Commissioner may determine, in payment of— (a) tax that is payable by the person: (b) an amount that is payable by the person under another Inland Revenue Act. (7) If, but for this subsection, a person who is a specified agent of an incapacitated person, as those terms are defined in section 58(1), would be allowed an amount as a deduction under section 20(3) by virtue of section 58(1C), the Commissioner may apply the amount in payment of— (a) tax that is payable by the incapacitated person: (b) an amount that is payable by the incapacitated person under another Inland Revenue Act.[3] The Commissioner raises a number of defences to the claim. Chief amongst these is a contention that within the period of 15 working days following the day on which the Trust's GST return was received, the Commissioner notified the Trustunder s 46(5) of the Commissioner's intention to investigate the circumstances of the return and his intention to withhold payment. The Commissioner also maintains that he gave the Trust a request for information under s 46(4) within the same 15 working day period. Whether notice was given and whether it was given in time are both disputed by the Trust. [4] The Commissioner also contends by way of defence that: a) There was no taxable supply as the Trust had never acquired any legal or equitable interest in the land said to constitute the taxable supply. b) None of the invoices provided constitutes a "time of supply" under s 9(1) of the GST Act. c) The Trust's claim is an abuse of process since it is a disputed claim which falls for determination under Part 4A Tax Administration Act 1994 ("the TAA").Background[5] On 4 February 2005 the Trust entered an agreement for sale and purchase with a company named Westham Holdings Limited in terms of which the Trust agreed to buy land in Northland for $13 million. The agreement (as later varied) provided for a deposit of $20,000 with the balance due in instalments on various dates between June 2005 and February 2006. The vendor agreed to obtain at its own expense a resource consent for the subdivision of the land. [6] It is common ground that no money was ever paid by the Trust under the agreement and that Westham Holdings Limited did not hold the title to the land at any time. Westham Holdings did have an agreement dated 4 December 2004 to purchase the land from the then-owner but no deposit was paid under that agreement, which was cancelled on 8 June 2005. The validity of the cancellation was subsequently upheld by Associate Judge Faire in a judgment delivered on 7 March 2006.[7] It seems there may have been some additional agreements whereby Westham Holdings agreed to carry out certain construction work on the land for the Trust but there is evidence that no such work was ever carried out. [8] The Trust's statement of claim maintains that the input credits are due and payable pursuant to ss 19C(8), 20(5) and 46(1) GST Act. The particulars of the amounts allegedly due are: a) $1,625,000.00 for the period ending 28 February 2005. b) $597,343.66 for the period ending 31 March 2005. c) $227,231.00 for the period ending 30 April 2005. d) $218,187.50 for the period ending 31 May 2005. [9] Both the Trust and the Commissioner focused their affidavits and submissions on the first of these claims, that is the sum of $1,625,000 for the period ending 28 February 2005. This claim is in respect of the GST payable on the purchase price for the land of $13 million. A tax invoice from Westham Holdings to the Trust dated 4 February 2005 was produced. The GST return for this sum was received by the Commissioner on 22 March 2005. [10] The Commissioner maintains that a notice of intention to investigate the circumstances of the return was issued on 5 April 2005 and that a request for further information was sent by facsimile to one of the trustees of the Trust on 14 April 2005. This is disputed by the Trust and will be dealt with below. [11] The Trust has also produced three invoices from Westham Holdings supporting the GST claims for the periods ending 31 March, 30 April and 31 May 2005 but has not placed before the Court the GST returns relating to those periods. There is evidence however that the Commissioner objected to all the GST claims at issue and has since disallowed them. The Commissioner now maintains it is no longer open to the Trust to challenge the disallowance of the claims.Has the Trust established there is no defence to the claim for a GST refund for the period to 28 February 2005?The letter of 5 April 2005[12] The evidence on this point is not particularly clear. An investigating officer employed by the Commissioner (Ms C Su'a) has deposed that on 5 April 2005 the Commissioner "electronically generated" a letter to the plaintiffs' tax agent (a Mr Malcolm Mulligan) in response to the filing of the GST return for the period ended 28 February 2005. It is said that the letter was intended to apply to all subsequent claims for GST input credits relating to the land transaction. [13] Ms Su'a annexed to her affidavit the relevant "screen dump" relating to the letter. I was told that the Department does not keep any hard copy records of correspondence of this nature. The screen dump demonstrates that a letter was generated which was addressed to the trustees of the Azura Family Trust, C/- Box 70, Morrinsville. The letter was in the following terms:TRUSTEES IN THE AZURA FAMILY TRUST Our Reference: MNK/INV/PB We received your GST return for the period ended 28/02/2005 on 22/03/2005. Under the provisions of Section 46(1) of the Goods and Services Tax Act 1985, your refund will be delayed until we have reviewed the GST return and supporting documentation. If you have any questions regarding this matter please contact the writer on 2629011 ext 39075.[14] Further detail from the computer screen dump shows that the signatory to the letter was a P Borich who is described as a team leader. [15] In his reply affidavit on behalf of the Trust, Mr Sadiq denies that the letter of 5 April 2005 was issued or despatched. He also states that the letter does not conform to s 14 TAA.[16] It is difficult to place any weight on this letter even in the context of a summary judgment application. There is no direct evidence that the letter was sent nor is there any evidence from which an inference can be drawn that it was sent or when it was sent. One would have expected at the minimum to have some evidence as to how the system for the computer generation of letters operates. It may then have been possible to conclude that a disputed issue of fact had arisen over whether the letter was sent. As matters stand, I cannot reach that conclusion. For present purposes, I must conclude there is no evidence the letter was sent.The letter of 14 April 2008[17] The Commissioner's position in relation to the letter of 14 April 2005 is stronger. Ms Su'a's affidavit states that the letter was faxed on that date requesting further information. The letter is addressed to Mr M Sadiq, one of the two trustees of the Azura Family Trust. It was sent by Ms Su'a herself to a fax number corresponding to that of Mr Sadiq. The letter stated:Re: Azura Family Trust IRD No: 88-607-643We refer to the abovementioned entity's Goods and Services Tax return for the period ending 28/02/05. In order to continue with the GST refund check, we would require information (where relevant) on the following matters; Please provide the following documentation: 1. Copy of the certificate(s) of title if available; 2. Solicitors settlement statement confirming that final payment has been made; 3. Details of how the purchase was financed together with the relevant documents, including any loan agreements and a copy of the bank statement verifying the loan drawn down; 4. Provide a timeline for this development together with business plans; 5. Copy of the resource consent summary. I may be contacted on telephone (09) 262-9011 ext 39868 or by facsimile (09) 262-9035 should there be any queries or clarification required. This information should be sent to P O Box 76-198, Manukau or faxed to Ph 262-9035. Any refund for this entity will be held pending review of this information and Inland Revenue being satisfied with the GST claim. Cindy Su'a Investigations Officer[18] In his reply affidavit Mr Sadiq does not deny receiving the letter of 14 April 2005. He simply maintains that the letter was outside the 15 working day period provided by s 46 GST Act. [19] I am satisfied that the letter of 14 April 2005 was a request to the Trust to provide further information concerning the return for the period ending 28 February 2005 in terms of s 46(2) and (4) GST Act. Any such request must be made within a period of 15 working days following the day on which the return is received: s 46(4)(a). [20] Mr Dorbu's first argument was that the 15 day working period includes the date on which the return was received (22 March 2005). I do not accept this proposition. Section 46(4)(a) is explicit in stating that the 15 working day period is the period "following the day on which the return is received". I find that the 15 working day period commences on the first working day immediately after the day on which the return is received. [21] Mr Dorbu accepted that receipt of the faxed letter on 14 April 2005 on that date was within time if the 15 working day period ran from the day after the date of receipt of the return. That concession was properly made taking into account that Good Friday and Easter Monday fell during the period. Those days are excluded from the calculations since they are not working days. [22] Mr Dorbu's second argument was that in terms of s 14 of the TAA any notice to a taxpayer must be given either personally or posted to the taxpayer's usual or last known place of abode or business. During the hearing, I invited counsel to consider the effect of statutory amendments effected by the Income Tax Act 2004. By s YA2 of that Act a number of enactments were amended with effect from 1 April 2005. Section 14 of the TAA was amended from that date in a number of respects. Relevantly to the present case, the new s 14(7) provided:(7) The Commissioner may give the notice by an electronic means of communication to the addressee, if the Commissioner complies with the Electronic Transactions Act 2002.[23] Mr Dorbu submitted that, in accordance with normal principles and the Interpretation Act 1999, this amendment did not apply retrospectively to GST returns for periods prior to 1 April 2005. [24] It is unnecessary for the purpose of this application for summary judgment to determine the retrospectivity issue in a definitive way. It is sufficient to say that the argument raised on behalf of the Trust is weak. As noted in Bennion on Statutory Interpretation (5ed 2007) at 317:... the mere fact that a change is operative with regard to past events does not mean that it is objectionably retrospective. Changes relating to the past are objectionable only if they alter the legal nature of a past act or omission in itself. A change in the law is not objectionable merely because it takes note that a past event has happened, and bases new legal consequences upon it.[25] Here, Parliament has amended a purely procedural requirement which does not affect the substantive merits of the Trust's GST return filed for the period prior to the amendment on 1 April 2005. The 15 day working period began running prior to 1 April 2005 and continued until 15 April 2005. There was a continuing present state of affairs in respect of which the Commissioner was prima facie entitled to utilise the amending legislation. The Trust has not suggested it was in any way prejudiced as a result of the letter being sent by facsimile. [26] Mr Dorbu submitted next that, if service of the notice by facsimile were permitted then the Commissioner had not demonstrated compliance with the Electronic Transactions Act 2002. He referred first to the need for consent on behalf of the Trust in terms of s 16 Electronic Transactions Act. However, any such consent may be inferred from a person's conduct: s 16(2)(b). For present purposes, it is reasonable to infer that the Trust must have given its fax number to the Commissioner for the purpose of receiving communications. Mr Dorbu also relied on the legal requirements in s 20 and the retention provisions of ss 25 to 27 of the Electronic Transactions Act. I am satisfied that these are matters for the substantive hearing in due course. [27] In summary, I am satisfied there is an arguable defence to the claim on the basis that the Commissioner's letter sent by facsimile on 15 April 2005 had theconsequence that he was not obliged to make the refund to the Trust in terms of s 46 GST Act. It follows in terms of r 136 of the High Court Rules that the Trust has not established the Commissioner has no defence to the claim in respect of the GST period to 28 February 2005. [28] Since the claim for the period to 28 February 2005 must be rejected for the reasons given, it is unnecessary to consider the further defences raised by the Commissioner.The returns for the periods ending 31 March, 30 April and 31 May 2005[29] The factual position in relation to subsequent GST periods is less clear. There seems to have been an assumption on the part of both parties that the outcome of the summary judgment application depended upon the view taken by the Court in relation to the return for the period ending 28 February 2005. The plaintiff has not exhibited the GST returns for the later periods nor any evidence as to any agreements relating to construction work or the land. The current status of those agreements and whether money was paid under them is unclear. Neither side has adduced any evidence as to when the returns were received or whether any notices have been issued by the Commissioner under s 46 in respect of the later periods. [30] Since the onus of establishing there is no defence is cast on the plaintiff (Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA)), it is at least arguable that it is incumbent on the Trust to establish that no letters were sent which would have had the effect of delaying the obligation to provide the refund of input tax in terms of s 46. The section clearly provides a specific statutory exception where the appropriate statutory notices are given and the receipt or otherwise of any such notices is a matter within the knowledge of the Trust. [31] Mr Dorbu submitted that it was appropriate for the summary judgment application to be adjourned so that evidence could be provided in relation to these matters. Ms Deligiannis for the Commissioner informed me that other developments have occurred since the affidavits had been filed. In particular, she advised that the Commissioner had made a revised assessment on 21 November 2008 disallowingany claim to a refund of the input tax at issue. The Commissioner says that the Trust has failed to take the required statutory steps and that, in terms of ss 89M(7) and 138B of the TAA, it is no longer open for the Trust to challenge the assessment. Ms Deligiannis sought leave, if necessary, to place further evidence before the Court on this issue as well as leave to file an amended notice of opposition. This would plead a set-off for the total amount of the input tax which the Commissioner says would be payable to him should the Court uphold the Trust's claim for summary judgment. [32] Time is not generally allowed to adduce evidence in summary judgment proceedings since they are intended to be a swift and effective means of disposing of cases where it is shown there is no defence. Ordinarily, the parties should adduce relevant evidence from the outset to avoid delay. However, I accept that there have been developments which have arisen in this case since the filing of affidavits which should be the subject of evidence before this matter is concluded. I therefore propose to permit the filing of further affidavits and an amended notice of opposition by the Commissioner in relation to the claims for the later GST periods. [33] Before making the necessary formal orders I observe that if the Commissioner is correct in asserting that the Trust is no longer able to challenge the Commissioner's most recent assessment then, even if the Trust were entitled to succeed on its claim under s 46, the Commissioner would have a strong case for a set-off in terms of the principles established by the Court of Appeal in Commissioner of Inland Revenue v Sea Hunter Fishing Ltd (2002) 20 NZTC 17,478. Even if there were only an arguable case for a set-off, the Trust would not have established there is no defence to its claims under r 136 High Court Rules. If it proves to be the case that any agreements to carry out construction work on the land did not exist or are no longer operative and that no money has actually been paid by the Trust for the work allegedly carried out, then it is difficult to see that the Trust's claim could have any merit.Result[34] The plaintiffs have not established there is no defence to the claim for a refund of input tax for the GST period ending 28 February 2005 and, to that extent, the application for summary judgment is dismissed. [35] The application for summary judgment in respect of the GST periods ending 31 March, 30 April and 31 May 2005 is adjourned for a further half-day fixture before me at a date to be allocated by the Registrar as soon as convenient after the time for filing further affidavits has expired. [36] The defendant has leave to file and serve a further affidavit by Friday 17 January 2009 in relation to the three subsequent GST periods and to cover developments since the Commissioner's last affidavit. The defendant also has leave to file and serve an amended notice of opposition by the same date. [37] The plaintiffs have leave to file and serve an affidavit in reply by Thursday 5 February 2009. [38] Costs are reserved. ______________________________ A P Randerson J Chief High Court Judge