ALMOND PROPERTIES LIMITED AND OTHERS V THE COMMISSIONER OF INLAND REVENUE CA CA246/02

ALMOND PROPERTIES LIMITED AND OTHERS V THE COMMISSIONER OF INLAND REVENUE CA CA246/02 22 September 2003IN THE COURT OF APPEAL OF NEW ZEALAND CA246/02BETWEEN ALMOND PROPERTIES LIMITED AND OTHERS Appellants AND THE COMMISSIONER OF INLAND REVENUE Respondent Hearing: 15 September 2003 Coram: Keith J Laurenson J Salmon J Appearances: M Hinde for Appellants A C Beck and S F Wellik for Respondent Judgment: 22 September 2003JUDGMENT OF THE COURT DELIVERED BY SALMON J[1] This appeal is concerned with the circumstances in which a taxpayer is entitled to a GST refund in terms of ss20(5) and 46 of the Goods and Services Tax Act 1985.Background[2] The appellant companies were all incorporated on the same day and carry on business as property traders. In 1997 each of the appellants purchased an apartment in a Hobson Street development from the developer. Two days later the appellants on-sold the apartments to one of three companies.[3] The three purchasers paid deposits to the appellants. The appellants used those funds to account to the respondent for output tax on the deposits they received and to pay the deposits they themselves owed to the developer. The three purchasers in turn claimed substantial input credits in respect of the purchase price of the units. The CIR disallowed the GST claims by the three purchasers. They had no assets and were placed in liquidation. As a result the appellant companies, who had been relying on funds from the three purchasers to complete their purchases from the developer were unable to complete. The developer cancelled the contracts with the appellants and the deposits they had paid were forfeited. Some eight months later the appellants purported to cancel the contracts between themselves and the three purchasers and to forfeit the deposits paid by those purchasers. [4] In July 2001 the appellants filed GST returns claiming a refund in respect of the GST they had paid in 1997 on the deposits received from the three purchasers. The respondent sent two letters on subsequent days, each referring to a particular group of GST claimants. The first letter advised that:Under the provision of s46(1)(b) of the Goods and Services Tax Act 1985 your refund will be delayed until Inland Revenue has reviewed the GST returns and their supporting documentation.The second letter was worded slightly differently, but was to similar effect in terms of its advice. [5] The letters sought information and written answers to questions. The appellants responded promptly to the letters on 24 July 2001. There was a further response from the respondent dated 30 July 2001 and further letters from the appellants dated 16 August and 12 December 2001 complaining of the failure to refund. [6] The appellants issued proceedings and sought summary judgment for the amount of the GST claimed by them. Summary judgment was refused by Master Sargisson. [7] The respondent has issued notices of proposed adjustment which commenced the dispute resolution procedure under Part A of the Tax Administration Act 1994.The appellants, however, claim that the respondent has a statutory duty to repay the claimed amount and has unlawfully delayed payment. It is that contention which was rejected by Master Sargisson in the High Court. The arguments in that Court and on appeal centre on the interpretation of s46.The relevant statutory provisions[8] The starting point is s20(5) of the Act which provides:(5) If, in relation to any taxable period and any registered person, the total amount that may be deducted under subsection (3) [ ] exceeds the aggregate amount of the output tax of that registered person attributable to that taxable period, the amount of the excess shall, subject to this Act, be refunded to that registered person by the Commissioner pursuant to section 46 of this Act.[9] The relevant portions of s46 provide: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) (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.The appellants' arguments[10] There were three principal issues argued in this Court. The first was that subs(2) of s46 requires the Commissioner to apply his mind to a particular GST return and then, solely on the material contained in the return, to determine whether or not he is satisfied with that return. [11] The respondent complained that this issue was not raised in the statement of claim. It is true there is no pleading that the Commissioner failed to apply his mind to the returns. However, the allegation was argued before the Master so that the respondent has had ample notice of the appellants' position. [12] The Master held that the Commissioner's discretion as to absence of satisfaction was a broad one and the fact that a letter was sent out requesting information was sufficient evidence of such lack.[13] The appellants argue that there is no evidence of the Commissioner not being satisfied. We do not agree. We consider that the threshold for such a lack of satisfaction is a low one and that the very fact that the letters were sent out advising that the refund would be delayed until the returns were reviewed, is sufficient evidence that the Commissioner was not satisfied with the returns. [14] The second issue raised was that the request for information did not comply with the requirements of the section. Mrs Hinde submitted that the inclusion of the phrase " under subs(2) " in s46(4) and again in s46(5)(a) is a clear requirement that the Commissioner must state his authority for seeking to withhold payment of a refund. Again there is a complaint that this issue was not pleaded, but again we consider that it was sufficiently raised at the hearing in the High Court. [15] The Master held that there was nothing in the Act that required an explicit reference to s46(2) and she rejected the argument as having no substance. [16] Mrs Hinde argued in this Court that the reference to the subsection has no purpose if it was not intended that that reference be included in the communication to the registered person. She submitted that the purpose of inclusion of the operative subsection in the communication informed the person to whom it was sent, of the Commissioner's authority for not paying the refund within the 15 days. She submitted that the potential impact on a registered person of not receiving a budgeted refund is too serious to allow the Commissioner any latitude as to how he complies with his statutory obligations. [17] We agree with the Master. The letter from the Commissioner makes it clear that payment of the refund is being delayed under subs(1)(b). The letter makes it clear that the returns are to be reviewed, and that further information is required. In our view, that is sufficient notice to the registered person in terms of s46. [18] The third issue, and the one on which the appellants principally relied, was the claim that the Commissioner had chosen to follow the narrow approach of requesting further information and that his consequential right to withhold payment required regular timely refreshment. Reliance was placed upon the provisions ofsubs(4) and on the decision of this Court in CIR v Seahunter Fishing Ltd [2000] 20 NZTC 17,478 at 17,484 and in particular that passage from paragraph 17 which reads:There would be little point in imposing the 15 working days period upon the Commissioner under subss(1), (4) and (5) (he "shall refund" and "must" give a request or notify within the period) if the Commissioner could nevertheless defer making a refund of the amount in question without giving a request for information or notifying an intention to investigate during that period.[19] It was argued on behalf of the Commissioner that the letter constituted both a request for information and a notice of intention to investigate. Mrs Hinde argued that it was solely a request for information, but acknowledged that if it was also a notice of intention to investigate, there was no requirement for on-going refreshment and no further time limits set by the section. [20] Mrs Hinde's argument in effect, was that where subs(4) applies, payment must be made following the receipt of requested information unless further information is requested pursuant to paragraph (b) of subs(4). Mrs Hinde's reliance upon the Seahunter Fishing case is misconceived. The point being made by the Court in that judgment was that a refund could not be withheld unless the procedures referred to in subss(2), (4) and/or (5) were instigated. In this case they were. Notice was given within the 15 day period of intention to review the returns and further information was required. [21] We have concluded that it is not necessary to determine the issue raised on behalf of the Commissioner as to whether the letter to the appellants was both a request for information and a notice of intention to investigate, or whether it was simply a request for information. In our view, the result is the same which ever view is taken of the content of the letter. [22] The time limit in paragraph (b) of subs(4) only applies if the Commissioner wants further information subsequent to his first request. He did not do so in this case. That being so the section places no further time limit upon the Commissioner.[23] As with an intention to investigate, once the notice is given payment may be deferred until, in terms of subs(1)(b)(ii) the Commissioner is satisfied that the registered person has complied with the person's tax obligations. [24] No doubt in cases of inordinate delay a taxpayer would have a remedy by way of application for review. In the circumstances of the present case, however, the Commissioner having given a timely request in terms of subs(4) and not yet being satisfied with the returns, is under no obligation to refund the GST.Result[25] The Master was right to dismiss the application for summary judgment. For the above reasons the appeal is dismissed. The respondent is entitled to costs, which we fix at $6,000 together with disbursements to be fixed, if necessary by the Registrar.Solicitors:Peter E Newfield, Auckland for Appellants Crown Law Office, Wellington for Respondent