Commissioner of Taxation of the Commonwealth of Australia v Secretary of the Department of Transport (Victoria) [2010] HCATrans 330 (10 December 2010)

Last Updated: 15 December 2010

[2010] HCATrans 330

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M104 of 2010

B e t w e e n -

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

SECRETARY OF THE DEPARTMENT OF TRANSPORT (VICTORIA)

Respondent

Application for special leave to appeal

FRENCH CJ
BELL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 10 DECEMBER 2010, AT 2.16 PM

Copyright in the High Court of Australia

MR T.P. MURPHY, SC: May it please the Court, I appear with my learned friend, MR J. GEALE, for the applicant. (instructed by Australian Taxation Office)

MS M. SLOSS, SC: If the Court pleases, I appear with my learned friend, MR M.Y. BEARMAN, on behalf of the respondent. (instructed by Department of Transport Legal)

FRENCH CJ: Yes, Mr Murphy.

MR MURPHY: Your Honours, this case concerns the application of the GST Act to a payment which was in effect a subsidy. That is how it was characterised by both the majority and the minority in the Federal Court. More particularly, it concerns the Department of Transport’s entitlement to an input tax credit in respect of the payments which it made to taxi operators under a program called the MPTP program.

As such, whilst it focuses on the concept of a creditable acquisition, which is to be found in Division 11 of the GST Act, it actually concerns two other basic provisions of the GST Act, namely, the concept of a taxable supply because this application concerns section 11-5(b), that is, whether there was a supply of a thing to the Department which was a “taxable supply”, and also the notion of consideration because it also concerns section 11-5(c) which was whether or not the Department provided or was liable to provide consideration for the supply.

Whilst this Court has had the opportunity most recently in Travelex to review aspects of the goods and services tax legislation, this is, so far as I can determine, the first time where it has really had to deal with the basic principles underlying the Goods and Services Tax - - -

FRENCH CJ: Well, this is the question. Are we really confronted with an issue of basic principle here, or are we just confronted with a characterisation of a particular transaction which was open – or which you would contest, of course, but how does the issue of principle emerge as distinct from a question of characterisation?

MR MURPHY: Well, your Honour, we say that the issue of principle emerges in two ways. The first way, your Honour, is whether in approaching a question such as this, or in approaching the application of the legislation generally or the basic principles generally to a factual circumstance, whether one adopts the approach of Justice Jessup in the Federal Court and looks solely to the underlying reality of the transaction. Bear in mind, your Honour, these are very difficult transactions because these are not - - -

FRENCH CJ: I always worry a bit about underlying reality, it is a bit elusive.

MR MURPHY: Well, that is right, your Honour, and this is a problem which has tested courts in other jurisdictions dealing with value-added taxation, and it has tested the courts, for example, the House of Lords in England and more recently the European Court of Justice, because we are dealing with a transaction which is not just a simple transaction where one person supplies something to another person who pays for that supply, but rather we are dealing with a transaction where one person we say supplies something to another person and a third person makes a payment, and the question becomes in this particular case whether the third person who makes a payment also is a recipient of a taxable supply.

Just to show the complexity, your Honour, if we just ignore all the other tripartite types of transactions such as the transactions which were considered in Redrow by the House of Lords and by the European Court of Justice recently in the Loyalty Management Case, we just think about subsidy cases, this case in fact provides three different types of subsidy, and the question is how is the legislation to be applied? The first type of subsidy is what the Commissioner would say is a simple subsidy, that is, where one person simply pays for a service to be provided to another person and this is what the Commissioner says that this case is.

FRENCH CJ: Now, just to help me understand it, looking at the diagram in Justice Gordon’s judgment, which appears I think at page 15 of the application book, so it might help us when you are talking about these complex subsidy arrangements you point to that.

MR MURPHY: Yes, your Honour. Well, if one takes that diagram, your Honour, and dealing just with the notion of a subsidy, that is the transaction between the DOT and the taxicab operator or the taxicab driver - for present purposes, your Honour, no distinction needs to be drawn between the two.

FRENCH CJ: Yes.

MR MURPHY: The way that Justice Jessup characterised this transaction was that it was just a simple subsidy. The way that the majority characterised the transaction was, well, it was not just a simple subsidy where one party makes a payment to another party for something to be provided for a third party, that is, that the Department of Transport made a payment to the operator for the operator to provide a service to the member. They said that in effect that the payment was made by the Department of Transport as if it were a passenger, as if it had actually contracted with the operator to provide a service to the MPTP member.

FRENCH CJ: Well, what you have, as I understand it, the MPTP member gets into the cab, produces the card, the cab driver puts it into some sort of scanner - - -

MR MURPHY: Yes.

FRENCH CJ: - - - and a voucher goes off subsequently to DOT which then pays the cab driver half the fare and the MPTP member pays the other half.

MR MURPHY: Essentially, that is it, your Honour. That is when the system is working.

FRENCH CJ: The critical question seems to be whether in paying the cab driver the DOT is paying for a supply of the service that that cab driver gives to the MPTP member.

MR MURPHY: That is as the Commissioner would argue it, and the DOT would argue that it is actually a supply of a service to the DOT. That, your Honour, is where it becomes very difficult and this is what - - -

FRENCH CJ: Yes. Supplying a service to the DOT, being carrying the member.

MR MURPHY: The carriage of the member, yes, your Honour. That is why, your Honour, the matter becomes very difficult because it depends – and this may go to your question of characterisation – on how you look at the transaction. There could be at least three different types of subsidy on the facts of this case and the consequences could be very different.

FRENCH CJ: Well, what shining bright principle do you propound that would act as an unerring guide to the correct characterisation? The special leave principle, if I may put it that way?

MR MURPHY: One is always careful about shining bright. Your Honour, there are two. The first is – what we say is that one has to look at the analysis of Justice Jessup, what Justice Jessup said but in the context of a tripartite arrangement such as this, that one must look at the underlying reality of the transaction, not get caught up in very difficult jurisprudential arguments about legal rights and what not, but actually look at the underlying reality. The underlying reality of this transaction, as his Honour pointed out, was that an MPTP member would flag down a cab, the cab driver - - -

FRENCH CJ: Now, can you take us to the passage you are relying on here?

MR MURPHY: The passage, your Honour, is at paragraph 76, and it is on page 25. He says, halfway down:

In considering what these services were, in my view, the starting point must be that, on the assumed facts, a taxi was hired by the MPTP member. The service thus acquired by, and supplied to, him or her was the hire of the taxi. The Department came into the picture because of its policy to subsidise the relevant fare. The transaction as between the taxi operator and the Department does not require characterisation other than as the means by which such a subsidy was provided. That was, in my view, the underlying reality of what occurred.

FRENCH CJ: Now, where he differs from her Honour is that her Honour sees concurrent characterisations as possible.

MR MURPHY: That is correct, your Honour. What Justice Kenny and Justice Dodds-Streeton do in doing that is not actually to look at the underlying substance of what occurred, which they conceived, your Honour, was the provision of a subsidy for the taxi journey, but rather what they do is to create, or to create what we would say would be a false characterisation.

If I can take your Honours to paragraph 56 which is on page 19 and if one goes to about line 20. First, having regard to what we have said at 47 – and your Honours, I will take you back to paragraph 47 in a minute – the taxicab operator was doing what the DOT had in effect asked him to do when the member MPTP card was validated and the MPTP trip was authorised upon the basis that the DOT would make the MPT payment, ie that the DOT would pay the MPT component of the fare.

Secondly, the supply of a service of transporting a MPT member to the DOT enabled the DOT to fulfil its objects under the Transport Act and perform its functions. Your Honour, what they have said is that we are not going to characterise this arrangement as a simple payment, we are actually going to characterise it somewhat differently. It is as if the DOT had contracted with the taxi operator to carry the MPT member, and we say there lies one of the errors of the majority in the court below.

FRENCH CJ: Sorry, how do you formulate that error beyond the bottom line statement that it is wrong?

MR MURPHY: We say it is wrong because it looks not to what the actual circumstances were, but to a construct of those circumstances. The DOT was never in the back of the cab. The DOT at no time gave any instruction to the taxicab operator to pick up the MPT member, to take him to wherever the MPT member wanted to go, and then to collect the fare.

BELL J: This is running the unsuccessful argument before both the primary judge and the majority in the Court of Appeal, that is, as I read both the primary judge’s judgment and the majority in the Court of Appeal they are not characterising it as the DOT being the second person mythically seated in the back seat next to the MPTP member, but what they are saying is if you look at the primary judge, I think at application book 22 going over to 23, she speaks there of:

the payment of the MPTP subsidy by the DOT to the taxi-cab operator was a payment in the discharge of an obligation – but it was an obligation that did not arise until a service was supplied to the DOT.

MR MURPHY: That is that she presumed by reference to the payment that a service was provided to the DOT.

BELL J: Yes. Well, that is a matter of characterisation, and whether you say she did not look to the underlying nature of the transaction or not does not seem to me to resolve the question of differing characterisation as between the three judges who took one view and the one judge who took another view.

MR MURPHY: That is also, your Honour, probably what his Honour Justice Jessup was referring to as the silent proposition at paragraph 82 on page 27:

It seems that the position for which the Department contends starts from the silent proposition that, having undertaken an obligation to make a payment, it most likely paid for something.

The question is whether that something was a supply made to the Department of Supply, or whether it was a supply, as the Commissioner would argue, made to the MPTP member.

FRENCH CJ: Now, the legal framework of this scheme is by way of licence conditions, is that right?

MR MURPHY: Yes, your Honour, it is.

FRENCH CJ: Am I right that all taxi drivers are required to participate or is there a subset of - - -

MR MURPHY: No, all taxi drivers are required to participate.

FRENCH CJ: So it is a condition that they have to – subject to little wrinkles that – it is a condition that basically if there is a working car proffered to them they have to accept it, and so forth?

MR MURPHY: Yes, your Honour. There is no question that the MPTP program enabled the Department of Transport to fulfil part of its statutory obligations; there is no issue about that at all. That, of course, is not the correct question and that also highlights the second error that the majority made, although it is a little bit difficult to define that area.

You see, Justice Gordon approached the problem and approached the construction of 11-5(b) from the perspective of the acquirer of the services. The majority said, well, we substantially agree with her Honour, but then they also said that 11-5(b) is to be approached from the perspective of the supplier. Then what they did, and as appears from paragraph 56, and also from paragraph 47, they actually approached the matter from the perspective of the acquirer, and they did that – if I can take you to paragraph 47?

In paragraph 47 what the court was doing was considering whether or not there had been a – that the requirements of paragraph (a) had satisfied, that is, had the Department of Transport acquired anything wholly or partly for a credible purpose? So it looked at the acquisition, and it is by reference to the acquisition that it then goes on to say, from that perspective we will judge whether the supply of the thing, that is, the transport of the MPT member, was a taxable supply.

So we say that there is an inconsistency, not only between what Justice Gordon said and what the majority said as the principle, but also between what the majority said as the principle and what the majority actually did. We say that that error is, if you like, a second error. Let us assume that the proper analysis of Division 11 and section 11-5 is this perspective analysis. The Full Court’s decision does not tell us how that perspective analysis should be applied. So not only do we say that there is a fundamental error in that what the Full Court has done, or at least what the majority in the Full Court has done, is to apply a perspective analysis to a re-characterisation of what actually occurred, but in applying that perspective analysis they have not set out a consistent basis for doing it.

BELL J: Your consistent basis is?

MR MURPHY: Well, your Honour, what we say is firstly one does not even get to that question. Firstly one starts at the analysis of Justice Jessup. In a tripartite circumstance one looks at the reality of the transaction, the pith and substance - - -

BELL J: Beyond repeating that mantra, what is the principle that you are identifying that we find in Justice Jessup’s reasons that can be applied in other cases?

MR MURPHY: I can only state it in those terms. I can use other terms such as were used in Travelex by, say, Justice Heydon. He said you must have regard to the pith and the substance. In the European cases in the Court of Justice they talk about the economic reality. The question is, your Honours, when one is applying these provisions to a given set of circumstances, whether one takes what we would say technical jurisprudential analysis, or whether – and we find supplies and acquisitions everywhere – or whether one just looks to the heart of what actually happened, in this case what actually happened was the Department had no involvement whatsoever in the procuration of the supply of the taxi trip in the sense it was not involved in the hailing of the taxi, setting the destination and what not. All it did was simply pay for it. So the reality of that transaction was it simply paid for something which was supplied to somebody else.

The reality of other transactions, for example, the transactions involving loyalty bonus points which were considered by the European Court of Justice, were that payments which were made for prizes to be – or not prizes – goods to be provided to people who had accumulated certain customer points, the reality of that transaction was that there was an acquisition by the – or a payment by the person called a redeemer to the person who made the prize for the benefit of somebody else, so there was not any supply made back to the person who made the supply.

That is really, your Honours, the question which is critical in 11-5(b), the supply to you – you in this case being the Department of Transport – is a taxable supply. Not only must the supply be a taxable supply, but it must be provided to you, you being the person who in 11-5(c) pays the consideration. So the Commissioner’s case is that you have essentially two broad errors of law in an area where courts, not just in Australia but also courts in other countries, have had very great difficulty in dealing with these tripartite and quadripartite or multipartite arrangements elsewhere.

FRENCH CJ: I think your time is up, Mr Murphy.

MR MURPHY: The light has just gone on, your Honour. Thank you, your Honour.

FRENCH CJ: Yes, thanks. Yes, Ms Sloss.

MS SLOSS: If the Court pleases. Your Honours, there is no question of general principle involved in this case at all. As your Honour the Chief Justice has already indicated, the whole case turns on the characterisation of the anterior facts. Our learned friends have not even challenged that anterior characterisation in their draft notice of appeal, and all of their special leave grounds are predicated on your Honours first of all finding that there is no supply to the Department.

Perhaps if I could take your Honours to that in the first instance? If we go to the application first, which appears at application book page 62, your Honours will see that they contend that the majority judges:

erred in finding that the respondent was entitled to input tax credits . . . in respect of the payments (“the payments”) it made to the taxi-cab operators under the Multi Purpose Taxi Program (“the MPTP”).

So that is challenging the finding that was made that the Department was entitled to input tax credits. Then the errors that they go on to articulate are in paragraph 3, that:

The Majority erred in finding that the [DOT] had made creditable acquisitions under section 11-5 –

Then they say the errors are that they erred –

1. in finding that taxi-cab operators made taxable supplies to the respondent of the service of transporting members -
   

Now, you can only make a finding of taxable supply under the Act if you first of all address the anterior question, which is the characterisation of the scheme in its ordinary mode of operation, and their Honours in the majority and her Honour at first instance spent a lot of time analysing the basic concepts involved in the primary transaction, which was a transaction designed to facilitate transport being available to members of the community who were disabled and were not able to access ordinary means of transport like buses and trains.

So the scheme was devised long before the GST Act came into being as one where a member of the scheme, a person who was disabled, could buy a card which would enable them to produce that card to a taxicab driver and know that once the cab driver put the card in the machine they were only liable for half of the fare. So that card was a guarantee that that person would only ever pay half the fare.

Now, when we talk about the word “subsidy”, subsidy can be devised in many forms, but this was a transaction which subsidised transport. It facilitated transport to members of the community who could not otherwise access conventional transport. That is why there was always a supply made to the Department.

FRENCH CJ: I wonder whether the word “subsidy” might not sort of misdirect us into a rather diffuse sort of taxonomy.

MS SLOSS: Exactly, your Honour, that is precisely what it does, because our learned friends call in aid cases like the TT-Line Case, which is another decision of the Federal Court, and say that there is now difficulty in reconciling these two decisions; there is no difficulty, they both turn on the individual facts. The taxi driver in this case would be akin to the ferry operator in TT-Line.

If you wanted to ask the same question in the TT-Line Case that is in issue in this case you would have to say, is the Commonwealth entitled to input tax credits on the payment it makes to the individual that is then reimbursed to the ferry operator, and that was not the question in that case. In that case, of course, they only identified one supply because they were looking at a different aspect of the transaction.

There is no point of principle that needs to be reconciled between the TT-Line Case or this case, and this case turns entirely on the characterisation of that anterior fact question. It does not give rise to any question of general principle, and that is exactly the way their Honours in the majority approached the issue. They looked first at the way the MPTP scheme operates in its ordinary mode of operation. That commences at application book page 35. They went through very carefully the way the MPTP scheme operates. You will see at the bottom of page 35 in paragraph 12 of their judgment:

Broadly speaking, the MPTP operates as follows:

1. Every Victorian taxi-cab licence requires the taxi-cab operator to fit out the taxi-cab to facilitate the implementation of the MPTP and requires the taxi-cab to be operated in accordance with the terms of the MPTP.
   

That is fairly plain. When my learned friends talk about it as though the DOT is in the cab, it is because once the driver starts the shift, at the start of that driver’s employment shift, they put the driver’s MPTP card into the EFTPOS machine in the cab and then when the MPTP passenger presents the second card goes into the machine. At all times while that trip is underway the DOT is paying half of that fare, there is no doubt about it. Those terms and conditions at the top of page 36 – we have the EFTPOS terminal, we have the Victorian taxicab driver with a unique smart card, we have the members being issued with the smart card - - -

FRENCH CJ: Incidentally, all of this is done within the framework of the very general objects under the Transport Act, is that - - -

MS SLOSS: This is done within the framework of the licence conditions, your Honour.

FRENCH CJ: Yes, I know, but in terms of the authority to impose such conditions there is no specific statutory objective in terms of providing services to the disabled or - - -

MS SLOSS: If you look back at paragraph 7 of their Honours’ judgment at the bottom of page 34 you will see there that it refers to:

Taxi-cab licences are granted under s 143 . . . the licensing authority (i.e., the DOT) may “in its discretion” attach other licensing conditions –

and those are all in furtherance of the requirements that the Department of Transport provide a public transport system which is available to members of the community, and that comes under sections 4 - - -

FRENCH CJ: I think all I was getting to was that the objects are public interest objects expressed with a degree of generality. There is no specific - - -

MS SLOSS: Yes, they are, your Honour, and I think it is section 144(2)(g) that makes that very clear that it is a public interest objective.

FRENCH CJ: Yes, okay.

MS SLOSS: So, your Honour, we say that the whole scheme is designed to achieve this outcome where a passenger producing the MPTP card to the driver knows that they are only going to be liable for half of the fare, so it is not a reimbursement to the member. The member is only ever liable for half the payment, so I say when we talk about a subsidy we need to be clear about what the word “subsidy” is relating to. It is the transport that is being facilitated by the operation of the MPTP program, and the member is not being subsidised on the fare. The subsidy goes directly, under the scheme, to the taxicab driver through the mechanism that is established under the licence conditions.

FRENCH CJ: When the MPTP member gets into the vehicle there is a contract created, I suppose, between the MPTP member and the taxi driver, and you would say presumably that under that contract and by virtue of the operation of the conditions of the licence, the taxi driver is offering to carry that person for half the normal fare?

MS SLOSS: Yes, your Honour, it is - - -

FRENCH CJ: As between himself or herself and that person?

MS SLOSS: Well, I do not need to go so far as to call it a contract. There would be a contract engaged by the person hiring the cab, but once that member produces their MPTP card that then invokes the licence conditions which means that the taxicab driver, upon inserting that card in the machine in the cab, is obliged to take that passenger on their trip according to the terms of the MPTP scheme, and can only look to the taxicab passenger for half of the fare.

FRENCH CJ: Obliged in the sense that if the taxi driver does not do it then the taxi driver is in breach of the condition of the licence.

MS SLOSS: They would be in breach of their licence conditions, yes.

BELL J: There is some wrinkle involving the scheme only applying to fares up to a certain limit.

MS SLOSS: That is correct, your Honour, there are some minor adjustments. For example, there is a wheelchair fee that the Department pays, but things like CityLink tolls are not susceptible to being within that calculation. There is an annual maximum and there is a trip maximum, but subject to that, that is the ordinary operation of the scheme. So in the ordinary mode of operation there is no reimbursing of the passenger. It is a payment direct to the taxicab driver through the operator.

We say there is in this case very clearly a supply, as both her Honour at first instance, Justice Gordon, found, and as their Honours, Justices Kenny and Dodds-Streeton, found, two supplies – a supply to the passenger of the transport and a supply also to the Department of the transport of that member. That is in paragraph 56 on appeal book page 51.

We say that is the anterior supply. That is the characterisation of the program, and once you identify that thing you can then start to apply the provisions of the GST Act, but until you have identified what that thing is you cannot apply section 11 which looks at a credible acquisition. You cannot say has the Department made a credible acquisition until you have first identified what is the thing that the Department has acquired.

So three of their Honours have identified that thing as being the supply of the transport to the DOT of the MPTP member, that is the supply, and then it is that supply that is looked at when you come to ask under section 11-5, did the Department make a creditable acquisition? They first of all have to acquire something under subsection (a) solely or partly for a creditable purpose, and their Honours found that was demonstrated because it was part of the enterprise conducted by the entity which was the DOT.

The second criterion was that the supply of the thing to you, and you there is the DOT, so the supply of the thing, the transport of the MPTP member, to the Department is a taxable supply, and that then sends you back to section 9-5 which tells you what a taxable supply is, and then you have to demonstrate or ascertain whether the Department was liable to provide consideration for the supply.

As their Honours noted in this case, the invoices that were generated at the end of the trip showed if the fare was $66, $33 would be charged to the member of which $3 was referable to the GST on the transaction, and $33 would be charged to the Department, of which $3 was referable to GST. So in those circumstances the Department seeks input tax credits for the $3 of GST that it pays in respect of that fare, and that fare, of course, is paid as part of the Department conducting its enterprise. There was no issue in this case about section 11-5(d) which was the Department was registered or required to be registered - - -

FRENCH CJ: What was the nature of the supply? I know that has been covered in 9-10, the supply of services?

MS SLOSS: Section 9-10 was the taxable supply, so then you go back and you say, well, was a taxable supply made - - -

FRENCH CJ: Yes, but what kind of supply?

MS SLOSS: What kind of supply? The supply is the supply to the DOT of the transport of the MPTP member.

FRENCH CJ: Yes, I am just looking at it within 9-10(2).

MS SLOSS: Yes, in 9-10(2), it is 9-10(2)(b), “a supply of services”. The service was the supply of the transport of the MPTP member.

FRENCH CJ: Or it might be (g), I suppose.

MS SLOSS: It could be (g) also, yes - - -

FRENCH CJ: Subsection (g) might fit a bit - - -

MS SLOSS: Any supply whatsoever. It could be under (1).

FRENCH CJ: How did the Full Court treat it?

MS SLOSS: The Full Court treated it as supply under 9-10(2)(b), and there really was not very much argument about that. Those sorts of issues tended to arise on the notice of contention, which is not in issue for your Honours, but 9-10(1):

A supply is any form of supply whatsoever.

You cannot imagine wider words. The Act is looking to try and tax every kind of transaction that involves an identifiable supply, but until you identify the supply there is nothing for the Act to fix on or operate on. We say here that supply was clearly identified, and having been identified you could then say, was that supply of the thing to the Department? Yes. It was a supply for consideration? Yes. The Department – it was for a creditable purpose and the Department was registered. So the Department made a creditable acquisition. Having made a creditable acquisition it was then entitled to seek input tax credits for one-eleventh of the cost of the supply.

Your Honours, as I say, the notice of appeal and the application that our learned friends raised does not attack this anterior finding but it is interesting to go back and look at their notice of appeal to the Full Court which appears at appeal book page 28. You will see there that before the Full Court their first ground of appeal was that:

1. The Primary Judge erred in finding that:

1. the respondent acquired from the taxi cab operator who carried a MPTP member the service of carriage of the MPTP member -
   

That is what I call the anterior characterisation. They challenged that before the Full Court and they were unsuccessful. That categorisation does not appear in either their application here or their draft notice of appeal. The question that they state as the questions that arise for consideration as special leave questions, for example, at page 75 of the application book, they say in paragraph 19 of their outline:

The case concerns the application of the GST Act to a tripartite arrangement under which one entity (here the respondent) pays for a supply made by another entity (here the taxi operator) to a third entity (here the member).

Immediately they have eliminated the second supply, which is the supply that is made by the taxicab operator to the Department. Now, if you do not have a supply to the Department there is nothing for the Act to operate on and there is no prospect of the Department getting any kind of input tax credit. That is what we say, the whole case hangs off the initial characterisation of there being a thing which is susceptible to being characterised as a taxable supply, so all of the questions that they have articulated as special leave questions do not arise because the prospect of the case being decided in our favour is eliminated before we even start.

The second ground they advanced, the need to reconcile this decision of the Full Court with the decision in TT-Line, as I have already adumbrated, is an incorrect characterisation of that case, and we have dealt with that at some length in our written submissions. I do not think I need to go over that ground again. They have made reference to the decisions in the ECJ and the UK concerning royalty bonus schemes. We say each case – and those are very good examples of it – demonstrate that you have to look first of all at the fundamental transaction and what is in play in that transaction, and until you characterise that underlying transaction you cannot apply any legislation to it, whether it is tax or otherwise.

We say Justice Jessup’s approach is not one that the Court should endorse. Looking at the underlying reality in the face of an Act which talks about supplies, taxable supplies, creditable acquisitions, input tax credits, is not a very helpful way to demonstrate how you would apply the Act to other transactions. We say that is an approach that this Court should not endorse by a grant of special leave. If the Court pleases, those are our submissions.

FRENCH CJ: Thank you, Ms Sloss. Yes, Mr Murphy.

MR MURPHY: Your Honours, the first point is that there is no question between the parties that there was a taxable supply. The question between the parties is to whom was the taxable supply made. That is the question which, your Honours, is picked up in the notice of appeal from the decision of her Honour Justice Gordon. It is in paragraph 1c:

The Primary Judge erred in finding that:

. . .

100. the taxable supply to the Respondent is the carriage of the MPTP member and that is what it acquired.
     

It is also picked up in 3(a) of the draft notice of appeal. Second, your Honour, is that in relation to the TT-Line Case, that case concerned a different provision. The only way that the Commissioner relies on that case is the characterisation of the transaction, and that is the passage from Justice Edmonds’ decision which we have extracted, and that is consistent with an underlying reality. You must apply these provisions to the actual facts.

BELL J: In Travelex, both sides were furiously in agreement over the need to construe the legislation in a practical business sense.

MR MURPHY: Yes, your Honour.

BELL J: Where do these things get one?

MR MURPHY: Travelex becomes an interesting case in that regard. It is somewhat difficult when faced with a majority. One is here in the minority, but you were concerned there with the question as to whether there was a supply in relation to rights. So you had to start with the statute and your Honour and Justice Crennan - - -

BELL J: I do not want to take you off your course. All I am getting at is both sides were in agreement on that particular formulation which did not seem plainly enough to be of assistance to anyone resolving the issue because there were two different contentions in play, but the same formula being applied, and it is, with respect - - -

FRENCH CJ: I think that is the problem with underlying reality, is it not?

BELL J: Yes.

MR MURPHY: That is correct. Underlying reality arguably does have some difficulties, but what it does do is to direct the court’s attention to the transaction itself, and not to some sort of characterisation of the transaction. It goes back to what your Honour was saying earlier on. Even if there has been, and we would say here, a mischaracterisation, the issue still before this Court that where the uncertainty lies is that the way that the majority in the Federal Court has approached the matter, that is, they say do you characterise a transaction from the perspective of the acquirer and then the way they have actually gone about that characterisation – sorry, you characterise a transaction from the perspective of the supplier – this is in 11-5(b), but they actually characterise from the perspective of the acquirer – and this was, as my learned friend has just repeated a minute ago, apparent

by their reference to the reasons why they were trying to implement this scheme. It was a public interest scheme, but that is not from the perspective of the supplier, the taxi operator. That is the perspective of the acquirer.

Your Honours, in relation to this question of scheme to which we referred, I said earlier that there were, in fact, three different types of schemes contemplated within this case. The third of those, your Honours, was contemplated by the Full Court or mentioned by the majority in the Full Court at paragraph 13 because they had to deal with a slightly different circumstance. They noted that:

The present appeal is not concerned with the exceptional case in which a MPTP member is obliged to pay the whole of the fare in respect of what would otherwise have been a MPTP trip (for example, where the system fails) and subsequently claims reimbursement from the DOT. The DOT disclaimed any entitlement to a creditable acquisition in this circumstance.

So even under the MPTP arrangement, even on my learned friend’s case, there were two different types of subsidies possible, to one of which the DOT would have been entitled to an input tax credit and the other of which they would not. See, that is the difficulty because we need some principles, even if one accepts the perspective argument, to tell us how we apply the perspective argument given the great range of transactions that can occur. If your Honours please, those are our submissions.

FRENCH CJ: Thank you, Mr Murphy.

This application concerns the entitlement of the respondent to input tax credits under the A New Tax System (Goods and Services Tax) Act 1999 in respect of certain payments made by the respondent to operators of taxis. By majority the Full Court of the Federal Court, Justices Kenny and Dodds-Streeton, with Justice Jessup dissenting, dismissed an appeal from a decision of Justice Gordon in the Federal Court. Justice Gordon had found that the respondent was entitled to input tax credits in respect of payments made by the respondent to taxicab operators pursuant to a program administered by the respondent which provides a 50 per cent subsidy of metered taxicab fares up to certain levels for people with disabilities.

The application involves challenging concurrent findings about the application of the GST Act to particular facts. We are not satisfied that the application, bearing as it does upon matters of characterisation, raises for consideration any general principle of public importance such as would warrant the grant of special leave. Accordingly, special leave to appeal is refused with costs.

AT 3.00 PM THE MATTER WAS CONCLUDED