Contract Pacific Ltd v Commissioner of Inland Revenue

• Jurisdiction: New Zealand
• Judge: Elias CJ,Tipping,McGrath,William Young JJ,William Young J,Blanchard J
• Judgment Date: 16 November 2010
• Neutral Citation: [2010] NZSC 136
• Docket Number: SC 114/2009
• Court: Supreme Court
• Date: 16 November 2010

Between

Contract Pacific Limited

Appellant

and

Commissioner of Inland Revenue

Respondent

[2010] NZSC 136

Court:

Elias CJ, Blanchard, Tipping, McGrath and William Young JJ

SC 114/2009

IN THE SUPREME COURT OF NEW ZEALAND

Appeal against a Court of Appeal decision which held that the Commissioner of Inland Revenue was not obliged under s46 Goods and Services Tax Act 1985 (Commissioner's right to withhold payments) to issue the appellant with a GST refund — appellant had filed a return — the Commissioner gave notice of an intention to investigate — cheque was mistakenly sent to the appellant for the amount but was cancelled before it was presented — whether a further request for information made by the Commissioner outside the 15 day time limit prescribed by s46 had the effect of making the refund payable — whether the issuing of the cheque amounted to the payment of a refund.

Counsel:

R B Stewart QC and G J Harley for Appellant

M S R Palmer and M Deligiannis for Respondent

JUDGMENT OF THE COURT

A The appeal is dismissed.

B The appellant is to pay the respondent costs of $15,000 together with reasonable disbursements.

REASONS

Elias CJ, Tipping, McGrath and William Young JJ	[1]
Blanchard J	[36]

Elias CJ, Tipping, McGrath AND William Young JJ

(Given by William Young J)

The case in a nutshell

1 The appeal turns on whether the Commissioner of Inland Revenue (the Commissioner) was obliged by s 46 of the Goods and Services Tax Act 1985 (GST Act) to refund GST of $7,542,295.51 to Contract Pacific Ltd (Contract Pacific) as at 5 February 2001. Under s 46(1)(a) of the Act, the Commissioner must pay to the taxpayer GST refundable under s 20 within 15 working days of receiving a return, unless within that time he is not satisfied with the return and requests further information about it or gives notice that he intends to investigate the circumstances of the return. Contract Pacific's return was received by the Commissioner on 26 June 2000. On 10 July, within 15 working days, the Commissioner gave notice of intention to investigate the return. The effect of s 46(1)(b) is that once such notice is given within the specified time, there is no obligation to refund GST until the Commissioner has both determined that the amount is refundable and is also satisfied that the registered person has complied with the person's tax obligations (a conclusion on wider tax liability than may be entailed in assessing whether the GST is refundable).

2 Contract Pacific argues that a further request for information by the Commissioner, made in January 2001, was not authorised by the Act and had the effect of making the refund payable. We do not accept that the request for information lay outside of the investigation process contemplated by s 46. But more importantly, since the Commissioner in the present case gave notice of investigation within 15 days of the receipt of Contract Pacific's return on 26 June 2000, the s 46(1)(a) obligation to make the refund within 15 days was overtaken by the exception in s 46(1)(b). The requirement to make a refund could not revive unless and until the Commissioner subsequently determined that the GST was refundable and that Contract Pacific had complied with its tax obligations. Since the Commissioner never so determined, the refund claimed never became payable.

Background

3 Contract Pacific is an inbound tour operator (ITO). It sells New Zealand holiday packages to overseas wholesalers who on-sell them (via retailers) to tourists who enjoy the benefit of the holiday packages in New Zealand. Between July 1993 and April 1999, Contract Pacific charged GST on its supplies to customers (ie the overseas wholesalers) and accounted for the GST in its returns to the Commissioner. But other ITOs did not add GST to their charges and filed GST returns on the basis that supplies made to overseas wholesalers were “charged at the rate of zero percent” under the (former) s 11(2)(e) of the GST Act.

4 A law change made it clear that with effect from May 1999, GST at the standard rate was payable on supplies made by ITOs to overseas wholesalers. 1 This amendment, however, did not address the correctness of Contract Pacific's earlier tax treatment of its supplies to overseas wholesalers.

5 On 26 June 2000, Contract Pacific filed a GST return seeking a reassessment and refund of GST paid from July 1993 to April 1999. The core GST for this period was $7,353,396.94, but with adjustments for transactions within the relevant tax period and interest, the total amount for which a refund was sought came to $7,542,295.51.

6 On 10 July 2000, the Commissioner wrote to Contract Pacific advising that it was withholding payment of the refund pending an investigation into the claim. A halt was placed on Contract Pacific's account in the Commissioner's computer system. The Commissioner then commenced an investigation. There was correspondence in October 2000. On 19 January 2001 the parties had a meeting at which the Commissioner requested further information about the claim. Contract Pacific provided the information in a letter dated 24 January 2001.

7 On 5 February 2001, the halt on the account automatically expired. The computer system generated and issued Contract Pacific with a notice of assessment and refund cheque for $7,542,295.51. The Commissioner realised the error and stopped payment on the cheque before it was presented for payment by Contract Pacific.

8 Parliament then amended the GST Act retrospectively. The result was to provide that from 1 October 1986, supplies by ITOs to overseas wholesalers were subject to GST at the standard rate, 2 unless the Commissioner had, on or before 14 May 2001, paid a refund in relation to such a supply. 3

9 In the High Court proceedings, Contract Pacific sued the Commissioner on the cheque (with a reduction of $873,233.77 to allow for an agreed adjustment). In order to establish consideration for the cheque, Contract Pacific had to show that the amount of the cheque was refundable under ss 20(5) and 46 of the GST Act. 4 We will shortly refer in detail to these sections. As well, as a consequence of the operation of the retrospective amendments to the GST Act already referred to, Contract Pacific could succeed in its claim only if the sending to it of the cheque amounted to the payment of a refund.

10 In the High Court, Duffy J found in favour of Contract Pacific and entered judgment against the Commissioner for $6,669,061.74. 5 The Court of Appeal set aside that judgment 6 and Contract Pacific now appeals to this Court.

Issues

11 It follows from what we have said that the appeal raises two issues and that Contract Pacific must succeed on both if the appeal is to be allowed. Those issues are:

As is apparent we have resolved the first of these issues against Contract Pacific, with the result that there is no need to address the second issue.

• (a) as at 5 February 2001, was $7,542,295.51 refundable to Contract Pacific under ss 20(5) and 46 of the GST Act? And, if so,

• (b) did the issuing of the cheque amount to the payment of a refund?

The legislative provisions as to the Commissioner's obligation to refund tax

12 Section 20(5) of the GST Act provides that where the total amount that may be deducted as input tax is greater than the aggregate output tax for the relevant taxable period, the Commissioner shall refund the excess pursuant to s 46.

13 Section 46 of the GST Act 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.

• …

• (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. (emphasis added)

  • …

14 It will be noted that in s 46(1)(b) there are two references to the state of mind of the Commissioner (“determines the amount is refundable …” and “is satisfied …”). We will refer to both elements as involving the Commissioner being “relevantly satisfied”.

The competing positions of the parties

15 For Contract Pacific, Mr Harley submitted that s 46 provides for the Commissioner to take three possible approaches under s 46(1)(b): to investigate, to request information, or to do both. 7 But the Commissioner can take a particular approach only if the appropriate...