Commissioner of Taxation v Qantas Airways Limited [2012] HCATrans 131 (4 June 2012)

Last Updated: 5 June 2012

[2012] HCATrans 131

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S47 of 2012

B e t w e e n -

COMMISSIONER OF TAXATION

Appellant

and

QANTAS AIRWAYS LIMITED

Respondent

GUMMOW J
HAYNE J
HEYDON J
KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON MONDAY, 4 JUNE 2012, AT 2.15 PM

Copyright in the High Court of Australia

MR A.H. SLATER, QC: If your Honours please, I appear with my friends, MR J.O. HMELNITSKY and MS C.A. BURNETT, for the appellant. (instructed by Australian Government Solicitor)

MR R.C. CORDARA, SC: I appear on behalf of the respondent taxpayer with my learned friend, MR C.M. SIEVERS. (instructed by PricewaterhouseCoopers)

GUMMOW J: Yes, Mr Slater.

MR SLATER: Thank you, your Honour. Your Honours, the factual context of this appeal is that in the tax periods for which it was assessed Qantas received GST inclusive payments from customers on the occasion of their making reservations for flights on Qantas aircraft. Some of the customers did not make use of the reservations and did not take the flights which had been booked. Qantas claims on the one hand that it was not required to pay the GST component of those receipts from customers to the Commissioner, or in the events which happened that it is entitled to a refund of the amounts which it paid to the Commissioner, and on the other hand that it is entitled to retain the whole of the payments from customers, including the GST component.

The basis of that claim is that it is entitled to retain the fares paid, including so much of them as passes on its GST liability, but that it has done nothing to earn the fares, that it has made no supply and in consequence has made no taxable supply and that the receipts are simply a windfall, gain or gift.

GUMMOW J: Do we know the circumstances in which the payments were made - at what stage they were made and by what means?

MR SLATER: The evidence is somewhat exiguous, but it was taken at all stages in the proceedings below that the payments were made at the time that the reservations were made because that was the way the computer system worked - that is, one had to pay in order to make the booking, but there is no direct evidence on the actual process and I will come back to the facts a little later if I may.

Your Honours, we say that Qantas has made a supply to the passengers and supply is that of a right to be carried. It has assumed an obligation to provide carriage by air. It has made a reservation and set aside a seat on a flight, and we submit that it is because it has done those things that it is entitled to retain the fare which was forfeited or not reclaimed by the customer.

Your Honours, essentially the issue in this appeal, in our submission, is the same as that which came before this Court in Commissioner of Taxation v Reliance Carpet Co Pty Limited [2008] HCA 22; (2008) 236 CLR 342. It is the same in this respect, that a contract is made between a supplier and a customer. The purchaser or customer makes a payment under the contract. The vendor assumes obligations and creates correlative rights under the contract and the purchaser fails to complete the contract and the vendor is thereby entitled to keep the payment made to it. That description of events is equally applicable, in our submission, to Reliance Carpet and to the present case. The difference between the two cases is the absence from the present case of the “wait and see” rule, as it was described in this Court, in Division 99 of the GST legislation.

Your Honours, the structure of the submissions we will present to your Honours is this. We will begin by going to the statutory scheme: first, the subject matter of the appeal which is an objection against an assessment; second, how GST for tax periods is to be assessed; and third, the amount of liability for GST in a tax period. We will then go to the application of the statutory scheme to the facts of the present case, then to the errors in the judgment of the Full Court, and finally to an incompatibility, as we would have it, between the Full Court’s view and the structure of the legislation and to matters arising from our friend’s notice of contention.

Your Honours, if I could go first to the procedural context? The proceedings in this Court are an appeal from a decision of the Full Federal Court in exercise of this Court’s appellate jurisdiction. The Full Court heard what is called in the legislation an appeal under section 44 of the Administrative Appeals Tribunal Act. Although called an appeal it is in truth an exercise of that court’s original jurisdiction.

GUMMOW J: This is hardly news, Mr Slater.

MR SLATER: I am fully aware of that, your Honour, but I am somewhat labouring the point because of an application which was made by our friends. We are agreed between us that, subject to your Honour’s convenience, my friends should deal with that application at the commencement of his submissions. We take that course because - - -

GUMMOW J: Is this bound up with this affidavit that has been filed?

MR SLATER: Yes, your Honour.

GUMMOW J: I see.

MR SLATER: We propose that course because we think that our submissions will make it clear that the application is misdirected. I apologise for vexing your Honours with the background.

GUMMOW J: No, I understand.

MR SLATER: Your Honours, both the GST and the appeal rights are creations of statute, so it is appropriate, in our submission, to start with the statutes. I will not take your Honours to section 44. If I may briefly mention without spending any time on them the procedures for review by the Tribunal – review by the Tribunal is provided for by section 14ZZ. If your Honours have our written submissions, attached to the rear of them are extracts of the relevant parts of legislation, and although both sides have provided your Honours with copies of authorities, including extracts of the legislation, if your Honours will bear with me I will refer to what is attached to our submissions because it gathers them all together in one place?

I will just tell your Honours without going to it that section 14ZZ is set out on page 10 of the annexure to our materials - that is the last but four of those pages – and draw your Honours’ attention also to section 14ZZK which is on the next page and which imposes on the applicant the burden of proving that the assessment is excessive. Now, the reason for drawing that to your Honours’ attention is that the ultimate question in these proceedings is whether the assessments which were made of the respondent are excessive, and that requires one to inquire into how an assessment is made and what the amount of the assessment for a net period is.

So if I may I will take your Honours next to that. Assessments are provided for in section 105-5 in Schedule 1 to the Taxation Administration Act and your Honours will find that set out on page 11 of our annexure materials:

The Commissioner may at any time make an assessment of:

(a) your net amount, or any part of your net amount, for a tax period –

The concept of net amount, your Honours, is a term from the GST Act – perhaps before I go to that I should just draw your Honours’ attention to the provision at the foot of that page, section 105-40 which provides for an appeal under Part IVC of the Administration Act against an assessment. The assessment is one of a net amount for a tax period. The tax period is fixed by section 27-15 of the Act, which rejoices in the title of A New Tax System (Goods and Services Tax) Act. It is set out on page 6 of those materials, and in the present case, because of the level of revenue of the respondent, the tax period is one month under section 27-15(1)(a). The net amount for a tax period is fixed by section 17-5 which your Honours will find on page 4 of those materials, and your Honours will see there that:

The net amount for a tax period applying to you –

you, meaning a taxpayer –

is worked out using the following formula:

GST - Input tax credits

where:

GST is the sum of all of the GST for which you are liable on the taxable supplies that are attributable to the tax period.

It is not the taxable supplies which are made in the tax period, it is those which are attributable to the tax period, and one finds the content of that expression in section 29-5 which your Honours will find on page 6. There your Honours see that:

The GST payable by you on a taxable supply is attributable to:

(a) the tax period in which any of the consideration is received for the supply; or

(b) if, before any of the consideration is received, an invoice is issued relating to the supply – the tax period in which the invoice is issued.

I think all your Honours are now familiar with the drafting convention which has been adopted in fiscal statutes of endorsing an asterisk before some words - that indicates that they are defined in a dictionary. I do not need to trouble your Honours with the definition of words like invoice; it is not material to the issues in this case. Your Honours, in this case all the payments in issue were received when or before any invoice was issued, so that the relevant paragraph is section 29-5(1)((a). Pausing there, your Honours, the combined effect - - -

GUMMOW J: Just a minute - 29?

MR SLATER: Section 29-5(1)(a), your Honour, on page 6 of those materials. Your Honours, the combined effect of section 17-5 and section 29-5 is that the GST payable in a tax period is fixed by whether any of the consideration for the taxable supply on which the GST is payable is received in that period. It need not all be received in that period, although in this case it was. Or alternatively it is fixed by whether a tax invoice was issued in that period in advance of the receipt of any consideration. That is to say it is the issue of a tax invoice or the earlier receipt of any of the consideration which determines which tax period the GST is allocated to. It is not whether, in that period, any or all of the supplies in connection with which the consideration received or invoiced is made.

That avoids the complexities which might arise when the commencement of supply is indeterminate or concerning the extent to which supplies have been made where there are several supplies for a single consideration or the supply is made in stages over several tax periods. The question of quantification of GST, which I will come to shortly, and of timing is fixed by reference to the point at which the consideration is received or the invoice is issued.

Your Honours, I have used the word “consideration” on a number of occasions. It is a defined term and may I take your Honours next to that? Your Honours will find it in section 9-15, which is on page 2 of those materials and your Honours will see that it starts in subsection (1), with an inclusive definition:

Consideration includes:

(a) any payment, or any act or forbearance, in connection with a supply of anything –

Now, here there was a payment. It is a payment which would be consideration for a supply if it is one in connection with a supply of anything. Your Honours, the words “in connection with” have been said on many occasions to be a connector of wide import. I will not take your Honours to them, but if I can give your Honours two references. One is a decision of this Court in Brown v Rezitis [1970] HCA 56; (1970) 127 CLR 157 at 165 and the other is a decision of the Full Federal Court in Burswood Management Limited and Others v Attorney General (Cth) and Another [1990] FCA 203; (1990) 23 FCR 144. It is No 16 in our friend’s bundle of authorities, but as I said I will not take your Honours to it because the proposition is one which is well established.

It is also established that the words “in connection with” involve some sort of significant relationship between the two subjects, which are said to be connected; in this case payment and supply. One thing that is clear from the definition of “consideration” in section 9-15 is that it is not limited to consideration binding at contract or to consideration which is relevant to such issues as total failure of consideration in the law of recovery. Your Honours can see that by looking at the language of section 9-15. I take your Honours first to subsection (1)(b):

any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

Both of those are concepts which go well beyond any contractual notion of consideration. Then in subsection (2):

It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

In subsection (2A):

It does not matter:

(a) whether the payment, act or forbearance was in compliance with an order of a court, or of a tribunal or other body that has the power to make orders; or

(b) whether the payment, act or forbearance was in compliance with a settlement relating to proceedings before a court, or before a tribunal -

In subsection (2B) it does not matter:

that the supplier is an entity of which the recipient of the supply is a member –

Your Honours, the point of drawing your Honours’ attention at some length to that is that the law of contract is not what determines whether something is consideration for the purposes of GST. All that is required is that there be a payment or an act or forbearance, which is in some material or relevant way connected with the supply. But the connection can be quite indirect so that in Reliance Carpet this Court was able to conclude that the payment of a deposit was sufficiently connected with the assumption of liabilities under a contract.

GUMMOW J: Now, the Full Court did set out this provision in 9-15 on page 2 to 6. Did it come back to it when it reached its critical reasoning at -it looks like page 244, paragraph 56 of the reasons?

MR SLATER: I do not think it came back to it except at paragraph 56, your Honour.

GUMMOW J: No.

MR SLATER: At paragraph 56 they adopted a different view of matters, a view which, in our submission, was incorrect and does not stand with the decision in this Court in Reliance. May I come back to paragraph 56 a little later, your Honour, unless your Honour wants to deal with it now?

GUMMOW J: That is what you have to grapple with, I suppose.

MR SLATER: I do have to grapple with that, your Honour, but I thought it more useful to the Court if it is convenient to you, to take you through the statute first and then grapple with the Court. Your Honours, another matter that I wanted to take your Honours to is that as it is used in section 29-5 – and just to remind your Honours that is on page 6 – consideration may relate to more than one supply. For any taxable supply in connection with which the amount is received, the GST on that supply is attributable to the tax period in which the consideration is first received or invoiced.

Now, I will come back to the questions of quantum in just a moment, if your Honours please, but before doing so may I take your Honours to the definition of “supply” in section 9-10, which is on page 2 of those materials? It is a definition, the terms of which are as wide as possible. Our friends suggest that it is so wide as to be meaningless. We dissent from that view of the matter, but it is defined to mean:

(1) A supply is any form of supply whatsoever.

Then without limitation to include a number of specific instances, three of which perhaps are relevant in the present case. One is paragraph (b) “a supply of services”, one is paragraph (e) “a creation, grant, transfer, assignment or surrender of any right” – in the present case “creation” seems to be the relevant word and paragraph (g):

an entry into, or release from, an obligation:

(i) to do anything; or

(ii) to refrain from an act; or

(iii) to tolerate an act or situation -

In our submission, your Honours, there are several supplies in the dealing between Qantas and a customer when a booking is made. I will come back to identifying those more fully when dealing with the facts, but in brief, in our submission, there is a supply of a reservation. There is a reservation for a seat on a flight, not necessarily a particular seat. There is a supply of rights under a contractual promise of carriage, in the present events, that is the events with which this appeal is concerned. That promise is not taken up.

There are, of course, other events in which the promise is taken up, but the GST on the cases where the flights are taken is not in issue, in the present appeal. Then there are ancillary rights conferred, such as to use best endeavours and to supply alternative flights, and in some cases to supply a refund.

Now, your Honours, although one of the supplies for the purpose of obtaining which the payment was made is not, in the event, made in the cases with which this appeal is concerned, that is the actual flight, because this appeal is concerned only with the fares which were forfeited when no flight was taken, in our submission, other supplies were made in those cases and the consideration, that is the fare which was paid by the customer, was received in connection with those other supplies as well as in connection with the promise of a flight.

As between itself and its customers Qantas asserts that it gave value for the fare received. It says that it held the seat available, subject to overbooking, in which case it promised to provide alternative carriage, and it promised to provide carriage if the customer appeared and claimed it. So Qantas asserts that it is entitled to retain the fare paid by the customer in a case where the customer does not attend to take the flight which has been reserved and it claims that it is entitled to retain that part of the fare which passes on the goods and services tax.

Your Honours, the effect of that is that in terms of the application for statute, in each tax period which has been assessed there was consideration paid to Qantas. The consideration was paid in connection with what we submit are supplies, including the promise of a supply of carriage by air, which in other cases, but not in the present cases was performed; the reservation of a seat for that purpose and ancillary supplies and the GST payable in respect of the supplies that were, in the cases with which this appeal is concerned, made by Qantas to the customer is attributable to the tax period in which the customer made payment to Qantas, which is the tax period for which Qantas has been assessed.

The GST went into the calculation of the section 17-5 net amount for that period and so the only remaining question is whether GST was payable on the supplies which Qantas, in fact, made in the case of customers who booked and paid for a flight but did not attend to take it and, if so, how much GST was payable?

Your Honours, if I could take the last point first - how much GST? The amount of GST on a supply is fixed by subdivision 9-C of the legislation and your Honours will find that on page 3 of those materials. One begins with section 9-70:

The amount of GST on a taxable supply is 10% of the value of the taxable supply.

Your Honours will see that “value” is a defined term and it is defined in section 9-75:

The value of a taxable supply is as follows:

Price x 10/11

where:

price is the sum of:

(a) so far as the consideration for the supply is consideration expressed as an amount of money –

that amount, and so far as it is not expressed in money, the market value – it is only paragraph (a) that we are concerned with. So that where, as here, there is a monetary consideration the price is the amount of that monetary consideration. That takes us back to consideration in section 9-15 and in respect of a supplier your Honours will recall consideration is the amount paid in connection with the supply.

Your Honours, I made the point earlier that one amount of consideration may be paid in connection with a number of supplies. By way of example there might be a contract for materials and labour and the materials might be supplied at the outset and the labour supplied in stages over a number of months. There might be a contract for goods and services, for example, supply of goods and in delivery and, again after that, assembly and so there are many other examples.

The relevant point, your Honours, is that there can be supplies in stages over several tax periods, but the GST is attributable to the first tax period in which the consideration is paid or, if it is invoiced beforehand, the tax period in which the invoice is issued. The GST is the GST on the taxable supplies for which that amount is consideration or to the taxable supplies in connection with which that consideration is received. There is only one taxing point and only one amount of tax, although there may be a number of supplies, each for the same amount of consideration.

In effect, your Honours, GST is payable only once on an amount of consideration, and it is payable in the first relevant tax period. Both the amount and the tax period of GST is based on the consideration in connection with the supply and it is calculated by reference to the value, and thus in turn by reference to the price or consideration. There is no requirement to value the supply or supplies in connection with which the consideration is received. The tax fixes on the amount of the consideration, not on the value of the supply. Nor is there any need to allocate the consideration or price among elements of what is supplied.

The tax period is that by reference to which the first invoice or receipt is made. There is no requirement to determine how much of an ongoing or continuous supply, or a supply of materials and labour, is effected in a given tax period. The obligations to make payment to the Commissioner on a monthly basis are ascertained in the same way. It is not directly an issue in this appeal because this appeal is concerned with an assessment, but if I could briefly draw your Honours’ attention to it, it is in the materials annexed to our submissions.

The payment of the net amount must be made, in the case of a monthly taxpayer such as Qantas, on the 21st day of the month following the tax period. Your Honours will see that in section 33-5 on page 8 of the attached material. A GST return must be made at the same time and your Honours will see that on the preceding page in sections 31-5 and 31-10.

Now, your Honours, turning from that somewhat breakneck summary of the provisions of the legislation to their application to Qantas, in our submission, in summary the position is this. Qantas received each of what in our written submissions we have called the “unused fare payments”, that is the fares which were either forfeited or, although refundable, not the subject of any claim for refund. It received each of them in the tax periods for which it was assessed and it received each of them in connection with a number of supplies.

At the time that they were made the connection was both with the obligations which Qantas assumed under the contract brought into being on the making of the reservation and also in connection with the flight which was to be supplied, as it was then anticipated, but it is sufficient for the purpose of this appeal which is concerned only with the cases where the flight was not supplied, so that all that was supplied was the contractual obligation, to say that the consideration was received in connection with a supply of the contractual obligations and the reservation and promise of a seat on a plane, which was supplied to the customer.

GUMMOW J: That would be true also in cases where there was an eventual utilisation of the ticket.

MR SLATER: Yes, and the consequence of that will not be that GST is paid twice. It will be that it is paid once in respect of both the obligation and the performance of the obligation. There are cases, your Honour, in which it matters because the obligation falls into a different category for GST rating purposes from performance. One might instance, for example, the promise to supply an international flight absent any provision in the legislation other than relief for external supplies. The promise is made in Australia and the flight is to be supplied outside Australia.

The Act deals with that by expressly subsuming the promise into the performance, but the general principle which has been applied in applying GST to cases like that is that where there is performance the promise is subsumed into the performance. But this is a case where there was not performance, so one is left only with the promise. In our submission the promise is a supply in that situation and, indeed, it is the making of the promise and the making of the reservation and the holding of the reservation open which entitles Qantas to retain the fare when the customer does not turn up to take the seat which Qantas has held open.

BELL J: How does the analysis work in relation to those fares that are fully refunded where there is no such entitlement?

MR SLATER: Well, the thing about the fares that are fully refundable, your Honour, is that they are refundable if the customer asks for it. We are not concerned here, at all, with the cases where the customer asked for the refund.

BELL J: I am just wanting to understand the analysis. Your emphasis is on the entitlement of Qantas to retain the fare having regard to the contractual promise?

MR SLATER: The analysis is this, your Honour. The supply is the supply of the promise which is made by Qantas. That supply is not subsumed in the performance because there was no performance, so there is the supply. The fare is paid in the tax period for which it was assessed. That is the consideration that makes the taxable supply attributable to that period. In the circumstances with which we are concerned, there has not been a request for a refund. If there is a request for a refund in a later period then a different provision of the Act, which I will take your Honours to later, provides for an adjustment and Qantas is entitled to a refund of the GST in respect of the fares it has refunded, but not until the refund is made. Does that answer your Honour’s question?

BELL J: I think so.

MR SLATER: Thank you.

GUMMOW J: There is no distinction drawn between reservations for domestic and reservations for international flights, whether in each case the flight is not taken.

MR SLATER: There is no distinction of principle. There is a distinction in the legislation. Section 38-355 provides - which is not in the materials, I am sorry, your Honour, I am just telling your Honour - - -

GUMMOW J: These particular assessments, are they in relation to domestic flights not taken or domestic - - -

MR SLATER: Only in relation to domestic flights.

GUMMOW J: I see.

MR SLATER: The reason for that, your Honour, is that section 38-355, the last item in the table on that section provides that all supplies preparatory to or leading up to the provision of international carriage are themselves GST free.

GUMMOW J: Sorry, 330?

MR SLATER: Section 38-355, your Honour. In the 2012 edition of the CCH print it is on page 310. The relevant item is item 7 on page 312:

Arranging transport –

covered by any of the earlier items. The first item is the transport of a passenger from the last place of departure in Australia to a destination outside Australia. Those provisions are not at issue here, your Honour. These are only concerned with domestic travel.

HAYNE J: The proposition against you seems to treat the arrangement that in fact is made when you book an airline ticket as not relevantly different, for GST purposes, from the circumstances that would apply if there were a conductor on board the aircraft taking the fares as you settled into the seat.

MR SLATER: I think that is right, your Honour, yes. It treats it as if there was nothing before you get on the flight, and if you do not get on the flight then nothing happens at all. But if that were the case then our friends would be right because they would not have received anything. The thing is, they have received the fare and they have kept it.

GUMMOW J: Your opponents seem to place some significance to their operation of unearned revenue account in their internal accounting systems but you say that is not to the point.

MR SLATER: What they do in their internal accounting system cannot determine the consequences under the GST Act, your Honour. They castigate us for accounting, but I do not think that they can rely on their accounting. Your Honour asked me earlier about the facts. There was a paucity of evidence before the Tribunal but that was perhaps because there was no controversy between the parties over the facts. It is just that the applicant, before the Tribunal, seemed to think it unnecessary to tell the Tribunal what the facts were because it was some sort of general knowledge.

What we can infer from the materials is that the unused fares could fall into any of three categories, although there was no evidence as to how many in each category. One category was forfeit of fares, where if the customer did not take the flight all rights to a flight or refund were lost; one was re-bookable fares, where, on giving sufficient advance notice, the customer could book a later flight instead of a flight not taken. There appears to be no issue about later flights in the same tax period. We would take the view that, and we understand our friends would take the view that, if flights were taken later in the same tax period there is no consequence of the events which occur, but there is no evidence about that at all. Then, the third category is fully refundable fares, which are refundable if the flight is not taken. As I put it in answer to your Honour earlier, it seems to us that - - -

GUMMOW J: Refundable on application.

MR SLATER: On application, and these are cases where no application was made. Your Honours, the facts, as agreed or found, were as we set them out in our written submissions at paragraphs 10 to 15. I will not take your Honours to that, but briefly tell your Honours this: Qantas was the representative member of a GST group. I do not think I need bother your Honours with the GST grouping provisions, but the GST group included Jetstar. Each of Qantas and Jetstar entered into contracts with prospective passengers on the terms of two documents, written or electronic. One was the conditions of carriage and the other was the fare rules applicable to the particular ticket. The only evidence of the process of booking is that in the witness statement of Mr Owens, which begins at page 150 of the appeal book.

GUMMOW J: Well, before we go to that, looking at page 81, can one take it that that set of terms and conditions was in evidence before the Tribunal?

MR SLATER: Yes, your Honour. In fact there were a very large number of sets that were before the Tribunal, but the parties agree that this is a representative one.

GUMMOW J: Likewise the Jetstar at page 110.

MR SLATER: Page 158, your Honour.

GUMMOW J: Page 158.

MR SLATER: You will also find the fare rules for Qantas at pages 66 and following, and the fare rules for Jetstar at pages 107 and 108. I was about to take your Honours to some of those provisions, unless your Honours feel that that would be unnecessary. But before I do that, might I take your Honour to what Mr Owens said about the process? That begins at page 150 of the appeal book. Having said that, your Honours, I have given your Honour a wrong reference there. Mr Owens’ statement starts at page 144 and follows. At page 151 Mr Owens tells us that:

A booking on a Qantas scheduled domestic flight can be made through a number of distribution channels which includes:

1. On-line through the internet . . .
   
2. Through a travel agent . . .
   

100. Through Qantas sales offices at various airports;
     

4. By telephone, through the Qantas call centres;
   
5. Through a group travel organiser;
   
6. Through an inbound tour company;
   

Paragraph 27:

A booking on a Jetstar scheduled domestic flight can be made through similar channels.

For Qantas, once a booking is made and the applicable fare is paid, an electronic record is generated which operates as an itinerary receipt –

Then in the balance of that paragraph he tells us that paper tickets have gone out of fashion and very few of them are now issued, and they are mostly electronic. Paragraph 29:

Jetstar operates as a ticketless airline –

It only has electronic recording. At paragraph 31, at the foot of that page, he tells us about overbooking as a yield management practice so that when your Honours find that there is not a seat on a flight that you have booked you know why now. Over the page on page 152, we are told:

The seats in each aircraft operated by, or wetleased for, Qantas are sectioned according to fare category. The number of seats in each fare category are allocated to fare inventory. Once a booking is in place the inventory in the relevant fare inventory is reduced by one -

that is to say, a seat is set aside to match each booking. Then on paragraph 37:

For domestic flights, seats are not allocated until the passenger checks in for the flight. A passenger does not have a right to any specific seat, although requests for specific seats can be made.

There are similar statements in the material which was before the Tribunal in a submission which your Honours will find at page 43 of the appeal book. The submission is in support of the objection. It begins at page 37. I will draw your Honours’ attention to paragraph 35:

A flight booking may be made no more than 355 days in advance.

. . .

Payment of the fare for domestic air travel is generally in made in full at the time that the booking is confirmed for Economy class travel -

Paragraph 38:

Once a booking has been made and the applicable fare is paid, a ticket is issued to the intending passenger.

Paragraph 42 repeats pretty much verbatim what I read to your Honours from Mr Owens’ statement:

Once a booking is in place and a ticket is issued, the inventory in the relevant fare inventory is reduced by one.

Paragraph 43:

If there is a cancellation, a seat becomes free in the reservation system and the inventory is increased by one and becomes available for sale.

In relation to Jetstar, on page 45, paragraph 55, a similar account of events is given:

If a booking is made on-line it is possible for the customer to view a diagram of the aircraft which displays the available seating. The intending passenger may select a seat of their choice from those seats that have not been reserved by other passengers or set aside for special purposes by Jetstar. When an on-line booking is made for a particular seat, a reservation against that seat is made in the reservation system.

HEYDON J: Your account earlier on of the consideration that passes has to be shrunken down a bit, does it not? You said there was a supply – there were three things – supply of reservation, there is no reservation until you actually turn up; supply of rights under a contractual promise of carriage that is linked to a third right which is a right to use best endeavours to supply alternative flights. That is a very weak contractual promise of carriage.

MR SLATER: I do not dispute that, your Honour. It is a very conditional contract. Qantas reserves to itself the right to switch you from one seat to another, to cancel a particular flight and postpone you to another one, all of those things. Nonetheless, that weak conditional contract is what the customer pays for and customers are willing to pay for it and do so at a great rate, more than $20 million a month.

I agree with what your Honour says. It is not an iron-clad contract, but that, in a sense, is the point we make. GST is not concerned with binding, precise, specifically enforceable contracts. It is concerned with supplies. A supply is a supply of anything at all, no matter how conditional and edged about the promise may be, it is still supply. Anything that is received in connection with it is consideration for the supply and the object of GST is to bring within the net of the GST a broad-based tax, as broadly based as possible, all those things which yield returns to businesses engaged in – I am sorry – the taxpayers engaged in business activity.

HEYDON J: But in the particular factual circumstances of this appeal, the government will get as much GST by concentrating on the moment when the passenger actually sinks into his seat.

MR SLATER: I am sorry, your Honour, I did not quite catch that?

HEYDON J: In the circumstances of this particular appeal, the government will get as much GST revenue under the system you are postulating as it will get under a system by which there is no supply of anything really until the customer sits down in that customer’s seat on the plane and straps a seatbelt.

MR SLATER: There is a very important difference, your Honour.

HEYDON J: Well, the money will be the same, though, over the median term, will it not?

MR SLATER: No, because what your Honour is putting to me is what Justice Hayne put to me before, the conductor on the bus. I agree with your Honour, for those customers who take flights it is the same, except for timing issues. If the fare is not paid until they get on the plane - - -

HEYDON J: That is why I said the median term.

MR SLATER: In the median term there is a permanent difference. In the long term there is a permanent difference, because we are not concerned here, in this appeal, with the customers who get on the plane. We are concerned with the customers who do not get on the plane. All those customers have is the weak, conditional promise, in your Honour’s terms, the supply of flight, maybe, but they have paid for it. If they do not get on the plane on the situation your Honour is postulating, if the GST liability does not accrue until they get on the plane, then all those customers who have paid but do not get on the plane will have paid an amount to Qantas on which it does not bear GST.

But it will have supplied them with the reservation, such as it is, not a reservation of a particular seat but it is a taking of a seat out of inventory. It is the promise of Qantas, “You pay me the fare, I will see you onto the plane or I will do the best I can, maybe, maybe I will not, but I will do the best I can” and by and large, that is what happens. Ninety nine point nine per cent of passengers get on the plane they want to get on. It is the fares of the customers who do not turn up that are the subject of this appeal, not the fares for the customers who do turn up.

HEYDON J: As between the government and Qantas, there may be a certain unfairness that Qantas keeps the GST component, if I can put it that way, but customers who have a contractual right to restoration of their position will - - -

MR SLATER: But they do not. They do not have a contractual right to restoration. They forfeit the fares.

HEYDON J: It depends on the contract, does it not?

MR SLATER: Yes, and I will take your Honours to the terms of the contract but in nearly all the cases with which this appeal is concerned, and it is only a very small proportion of Qantas’s total carriage, in all the cases with which this appeal is concerned, the customers do not have a right, they have forfeited their fares. Qantas has kept them. There is a proportion, the exact amount of which is indeterminate because no evidence was led about it. There is a proportion where the customers have a right to ask for a refund but have not done so. Your Honour might find this hard to believe but it appears from the context that there are a large number of customers who are entitled to a refund but never claim it. Those who are entitled to a refund and do claim it are not the subject of these proceedings.

HEYDON J: Do we know how much money is at stake in this appeal?

MR SLATER: Only to this extent, your Honour, the evidence on the amount at stake is comprised almost entirely in this document – I beg your Honours’ pardon, I thought I had it marked – page 112, your Honour.

HEYDON J: What do we get out of pages 112 and 113?

MR SLATER: Not very much, your Honour, but that is the amount of the claim. The figure at the bottom right-hand corner on page 113, $71 million, is the amount which is claimed to be refundable by the Commissioner to Qantas as GST. Now, not all of that amount is at issue in this appeal because for some of the period that is set out there the claim for a refund was out of time. There was a dispute which was eventually resolved by agreement about an extension of time to object. So the actual proceeding was only in respect of the period – sorry, your Honour, I will have to tell you what that was in a moment.

HEYDON J: I think I have taken you out of your path. It might be better if you return to your path and if there is anything further you want to raise about this, it can be done later.

MR SLATER: I think the point at which your Honour was taking me away from the path was saying that the contract is very vague and diffuse. We accept that it was vague and diffuse but it was enough to enable Qantas to retain the fare. It is the retained fares, the forfeited fares and the unrefunded fares that are in issue.

BELL J: Can I just come back to this, Mr Slater? In relation to the cases that are not the subject of this appeal involving fares that are fully refundable and that have been refunded, is the position that the Commissioner takes that at the time the GST was attributed to them it was rightly so, but that what has happened by reason of the no show and the claim of the refund which has been honoured by Qantas that there has been a relevant adjustment event?

MR SLATER: Yes, your Honour.

BELL J: That I am right in my understanding that from your position the analysis is the same, that is at the point that the GST is paid it is paid in respect of a taxable supply.

MR SLATER: Yes.

BELL J: Yes, I think I understand.

MR SLATER: We say it is a taxable supply in the period in which the consideration is received and that when it is refunded there is an adjustment event under section 29-5 which your Honours will find on page 6 of those attached materials.

BELL J: And whether Qantas refunds the fare as a PR gesture or because it is obliged to do so does not matter with that analysis?

MR SLATER: No. Your Honours, I was about to take your Honours to the conditions of carriage and, as your Honour Justice Gummow pointed out, they are at page 81 of the appeal book.

GUMMOW J: Where do we see the right to a refund here?

MR SLATER: In the fare rules – would your Honour prefer me to go to those first?

GUMMOW J: In either place under the terms and conditions or the fare rules where is there a right to recover to refund?

MR SLATER: If I take your Honour first to the Qantas fare rules. They are at page 66 and following. If your Honour will bear with me I will take you to the five categories to show your Honours the difference. On page 66 is what is called a “Red e-Deal” and on page 67 is what is called a “Super Saver”. The difference between those two is that the “Red e-Deal” is at a lower price and there are fewer of them available. So, you get in early, you get the lower price. If you do not get in early enough, you have to pay the “Super Saver” price. Your Honours will see that in both cases there is provision for booking changes, changes before the day of scheduled departure – this is the third dot point in that section headed “Booking Changes”:

Your original fare may be used as credit towards the payment of a new fare –

and next dot point:

you must pay –

a change fee and the last dot point in that heading under “Booking Changes”:

Changes on the day of scheduled departure:

Not permitted. Loss of fare.

The items on page 67 are materially the same. Next one is “Name Changes” - “Not permitted”. The next one, the question your Honour was asking about – “Cancellations (including no show)”:

Before the day of scheduled departure:

• . . . Ticket value can be used towards payment for a new booking . . . within 12 months . . .
  
• No refund.
  

On the day of scheduled departure:

• Not permitted. Loss of fare.
  

The same on page 67. Page 68 is what is called “Flexi Saver” and page 69 is “Fully Flexible” and, obviously, or not obviously but, in fact, Fully Flexible is more expensive than Flexi Saver and that, in turn, is more expensive than Super Saver. In Flexi Saver under the heading “Booking Changes” again, third dot point:

Your original fare may be used as credit towards the payment of a new fare –

At the bottom dot point:

Your new booking must be for travel anywhere on the Qantas network within 12 months –

On page 69 the provisions are the same. The third block there “Cancellations (including no show)”:

Before the scheduled departure time –

in the Flexi Saver you can rebook - see above. The last two lines in that block:

After the scheduled departure time (including no show):

• Not permitted. Loss of fare.
  

If your Honours go across to the corresponding block on page 69, your Honours will see that it is quite different:

Fare is fully refundable except if it is a Qantas Any Seat Award -

which your Honours need not be concerned about. That is a frequent flyer reward. So that says it is fully refundable. Then if your Honours go over to page 70 that is “Business” class fares, we are now into more familiar territory and booking changes “can be made online”, the “original fare may be used as credit”. The last dot point under “Booking Changes”:

Your new booking must be for travel anywhere on the Qantas network within 12 months –

and under “Cancellations (including no show)”:

Fare is fully refundable –

Now, your Honours, the provisions of the contract of carriage your Honours will find commencing at page 81 and the provisions dealing with refunds are at clause 13 commencing at the foot of page 99. Your Honours will see 13.1 “When a refund is Available”:

(a) Except where prohibited by restrictions on the fare type or value –

It is because of that paragraph that I took your Honours to the fare rules first. The prohibitions are in the provisions I have just taken your Honours to but, subject to that, if you:

• have a valid, partly or wholly unused ticket, and
  
• surrender all of that ticket to us
  

then on request -

and I emphasise the words “on request”:

we will provide a refund as set out in 13.2 –

and then there are additional circumstances in paragraph (b). There are eight of those various circumstances in which, if we are unable to carry you and you have a confirmed reservation or we delay your flight, et cetera, et cetera, then again on request, “we will provide an appropriate refund”.

If I could then take your Honours down towards the bottom of the page, after just noting in passing the amount of the refund is notified in 13.2, who gets the refund in 13.3, stolen or lost tickets are dealt with in 13.4, taxes and charges in 13.5 and 13.7:

Unless an applicable law says otherwise, we may refuse to provide a refund if it is requested after the end of the Validity Period.

The validity period, I have to take your Honours back to page 82, the definitions, this is around the.....your Honours, I am sorry:

Validity Period means the period for which your ticket is valid –

as per clause 6.6. So I then take your Honours to page 89, “Ticket Validity”. The first heading is concerned with “International travel” and does not trouble your Honours in this appeal. The second heading “Travel wholly within Australia or wholly within New Zealand”:

unless the ticket provides otherwise, a ticket for Domestic carriage within Australia or within New Zealand is valid for one year from the date of issue of the ticket.

So the answer to your Honour’s question after that circumlocutious process is that a refund is available on fully flexible fares and business class fares but only within one year and only if requested. The cases with which this appeal is concerned – the refundable fares with which this appeal is concerned are those in which no refund has been requested.

GUMMOW J: But could have been.

MR SLATER: Could have been up to a year but has not been.

GUMMOW J: Yes.

MR SLATER: So Qantas has retained – we do not know because we do not know how many of them are still within the year, we do not know how many in the year has expired. All we know is that there are amounts called refundable fares. Your Honours, there were other provisions in the contracts of carriage that I wanted to draw your Honours’ attention to, if I may do so fairly briefly.

At page 85 – perhaps I should start at page 81 and just tell your Honours that there are definitions there. I am not going to weary your Honours by reading any of those to you but your Honours will see definitions of terms such as “conditions of carriage”, “electronic ticket”, “flight coupons” and “ticket”. Could I take your Honours to page 85 and draw your Honours’ attention to clause 4:

4.1 When is a Reservation Made?

A reservation for a flight is made when recorded as accepted and confirmed by us or an Authorised Agent. If you ask, we or our Authorised Agent will give you written confirmation of your reservation.

4.2 Specified Reservation

You will only be allowed to travel if you have a specified reservation, in a specified class of service and on a specified date and flight –

That is what is meant by “reservations”. It is a somewhat spongy entitlement but nonetheless an entitlement, sufficient for Qantas to be paid for it. Can I take your Honours then to page 87, clause 5.1:

5.1 What Your Fare Covers

Your fare covers the flight(s) for you and your Baggage Allowance:

• from the airport at the place of departure . . .
  
• to the airport at the place of destination . . .
  

. . .

5.5 Buying Your Ticket

To buy your ticket you or someone on your behalf must pay:

• the applicable fare
  
• any other applicable fees or charges . . .
  

Over on page 88, 6.1:

Your ticket is the main evidence of our contract with you –

As the Full Court observed it is difficult for Qantas to say that it was not a contractual obligation in the face of a clause like that and we do not understand them to make a claim that they are not bound by contract. On page 91 your Honours will see:

7.1 Baggage Allowance

You may carry some baggage free of charge provided you comply with our baggage requirements –

Your Honours are probably familiar with those from experience. At the foot of page 95, 8.4 deals with late arrivals.

If you arrive:

• late at check-in or the boarding gate . . . or –
  

at the top of the next page –

• without your ticket . . .
  

We may:

among other things –

• cancel your reservation
  
• refuse to carry you, and/or
  
• require you to pay a service fee –
  

Then further down that page, section 9 dealing with schedules, late or cancelled flights, can I draw your Honours’ attention to 9.2:

We will take all reasonable measures necessary to carry you and your baggage and to avoid delay in doing so.

Then in the next paragraph:

Except:

• as otherwise provided by the convention or other applicable laws, or
  
• in circumstances . . . beyond our control –
  

Then –

If we:

• cancel a flight
  
• fail to operate a flight . . .
  
• fail to stop . . .
  
• cause you to miss a connecting flight . . .
  

you can choose one of the following three options:

The first is –

we will carry you at the earliest opportunity on another of our scheduled services –

The second is –

we will . . . re-route you to the destination –

and the third is –

We will make a refund in accordance with the provisions of 13.

I have taken your Honours to clause 13 and I have taken your Honours to the fare rules. Can I tell your Honours that the conditions of carriage for Jetstar are very similar. They begin - - -

GUMMOW J: Just before you leave Qantas, I notice there is a reference in 9.2 to “the convention” and there is a further reference to it at page 102, paragraph (b). Is there any significant impact on these arrangements of the Civil Aviation (Carriers’ Liability) Act 1959?

MR SLATER: Not to our understanding. There is no reference to any impact and we do not understand there to be one. The term “convention” is defined at the foot of page 81.

GUMMOW J: Yes.

MR SLATER: But no, we do not understand there to be any impact. Certainly no evidence or submission is made or led in respect of any impact.

GUMMOW J: It is the Liability Act that sets out the convention, is it not, schedules the conventions?

MR SLATER: Sorry, your Honour?

GUMMOW J: The statute schedules the conventions. They do not apply of their own force.

MR SLATER: No. Your Honours, I was going to take your Honours to the conditions of carriage for Jetstar. I simply draw your Honours’ attention to them because they are materially similar. Although the Full Court set them out at length and seemed to think that the Tribunal had erred in not doing so, they are, with some variations, very much the same. They begin at page 158, if I can just draw your Honours’ attention to some corresponding provisions.

Clause 4 on page 162 deals with the making of what are there called “bookings” in terms very similar to Qantas terms. Clause 5 deals with “what your fare covers”, again in similar terms. Clause 6 deals with changes. One ought perhaps to note that Jetstar does not permit the holding of an open booking. Clause 9 on page 166 deals with schedules. It is in slightly different terms, rather more conditional than Qantas.

Jetstar does not guarantee it will be able to carry you and your Baggage –

Paragraph (b):

Before we accept your Booking, we or our Authorised Agents will tell you the scheduled departure time . . . and it will be shown on your Itinerary and Tax Invoice -

Clause 9.2:

Where a delay or cancellation is caused by circumstances beyond our control . . . Jetstar will try to assist you to get to your destination –

They are certainly not the most rigorous of obligations but nonetheless they are obligations of a conditional nature. The fare rules your Honours will see at page 107 of the appeal book and they are again in similar terms. There are three categories of fare rules. Jetsaver which is the bulk provides the “Booking is non-refundable”. This is on page 107 at line 22:

This Booking is non-refundable. Customers who do not check-in for their booked flight within the required time will forfeit their fare . . . limited changes can be made –

At the foot of the page:

International Starclass fare rules –

I do not think I need trouble your Honours with those as this case does not concern them. Over the page at 108 at about line 25:

JetFlex fare rules

1. This booking is refundable if your original booking was made as a JetFlex fare . . . A refund will not be applicable if you have upgraded . . . or if it is requested after the day of your original scheduled departure.

Your Honours, in applying the legislation to the facts as they appear from that material, in our submission, Qantas supplied services, the assumption of obligations and creation of rights and where, but only where, the passenger boarded the aircraft and travelled, a flight or carriage by air. But, of course, in the cases with which this appeal is concerned the passenger did not board the aircraft, no flight was supplied, but the other services, rights and obligations were supplied. I think I have taken your Honours to that sufficiently often not to need to do so again.

Your Honours, the Tribunal at page 205 of the appeal book at paragraph 24 made what I think can be described as a finding of fact. They said:

A way of describing what Qantas has done for such a passenger, and in return for the “fare” that the passenger has paid, is holding itself ready to carry the passenger in accordance with its Conditions of Carriage. It does not hold itself ready to carry on a particular flight at a particular time or in a particular seat, but it does hold itself ready “to take all reasonable measures necessary to carry you and your baggage and to avoid delay in doing so”. We see no reason why that holding ready is not itself the provision of a sufficient service –

The last sentence is perhaps a mixed fact in law finding. Our friends cavil with that finding and say it should not have been found. We say that the material to which I have taken your Honours so far is ample to support the Tribunal in making that finding. So in terms of the legislation, in our submission, there was a supply within the definition in section 9-10 of services and rights, comprising both the reservation, taking a seat on the booked flight out of inventory and holding it for the customer and in terms of supplying the promise and the obligations under the contract, albeit conditionally, to provide a flight.

We say it is the promise which matters in this case because this case is concerned with what in the instances which are the subject of the appeal did happen, not with what did not happen. That is, it is concerned with whether what Qantas did comprised a supply. It is not concerned with whether Qantas did not do comprised a supply.

There is no doubt that Qantas did not supply a flight but that is not the issue. The issue is whether it made a supply in return for the forfeited or retained fare, and our submission is that it did make a supply in connection with that fare and the fare is properly included in the calculation of the GST for the tax period for which it has been assessed.

GUMMOW J: Now, at paragraph 13 of your opponent’s submissions – paragraph 13, there seems to be an acceptance that we are not in the realm of considerations understood in the law of contract:

‘Taxable supply’ . . . simply seeks to capture reciprocity of performance . . . such that there is an evident exchange of value for supply.

Then that is said not to be found here. How do you dispute that?

MR SLATER: First, your Honour, as to the concept of reciprocity, this is not a complete answer but it is something to bear in mind. The implication of reciprocity used in that fashion is that somehow the law of contract is imported. That is the subtext of the use of that expression, and we say it is quite clear from the statute the law of contract is not imported and we draw that in particular from the language of section 9-15 to which I took your Honours earlier, that is, consideration is not limited to that which is contractual consideration. It extends to something which is done in response to a supply, but it would be past consideration in contractual terms. It is done for something which is merely the inducement. It extends to something which was done by somebody else. It extends to something which is done under compulsion.

HAYNE J: But the proposition “reciprocity of performance” invites the question performance of what? What performance?

MR SLATER: The second part, your Honour, is that the performance here is the performance of those things which we have endeavoured to draw your Honours’ attention to – that is the making of the promise to supply carriage by air, the assuming of the obligations to do so, albeit as Justice Hayne has put to me, that they are very much hedged about with conditions and options out. Nonetheless, they are promises for which the customers were prepared to pay. The making of a reservation, the taking of a seat out of inventory, those are all things which are done reciprocally for the payment of the fare. That is what the fare is paid for.

Now, in the cases with which we are concerned, that is all that the fare was paid for. In other cases where a passenger turns up, gets on the flight and is taken from Sydney to Brisbane it may be said that all of those things become subsumed in a single supply of flight and ancillary services, but that is not the case with which we are concerned. The case with which we are concerned is simply the case where all that Qantas does is to make the promises involved in its contract when the fare is booked and to reserve the seat, hold it available for the passenger so that if the passenger turns up when the flight is called and checks in and goes through and onto the aircraft, Qantas performs the obligation which is assumed.

But, up to that point, Qantas has assumed obligations to keep the seat available for the passenger, albeit conditional obligations. There is the reciprocity that our friends speak of. What our friends are seeking to do is to say Qantas promises to do two things. It promises to make a reservation and to carry you by air. If you are not carried by air, therefore it does nothing. That is not correct. It does not carry you by air but it still assumes the obligations, makes the reservation, holds the seat available and is entitled to retain a fare. If the contract was completely vitiated, if the passenger rang Qantas and said, “I abandon it, I want my fare back” and Qantas gave them the fare back, then there would be no supply because the contract would be discharged during the tax period.

GUMMOW J: Well, the Full Court may have picked up the second branch you are just putting to us when it looked at paragraph 56 to the essence and sole purpose of the transaction.

MR SLATER: That, with respect, is where the Full Court has gone astray because the language it uses in paragraph 56 is not language to be found in the statute. The statute does not say you must first identify a supplier, which is the essence and sole purpose of the transaction, and then link everything to that. The statute starts at the other end. It says, “Did you receive consideration? If you received consideration during a tax period, then was that consideration consideration in respect of a taxable supply?” The amount which is assessed – and this is an appeal against an assessment – is the net amount for a period.

So the first question in an assessment objection appeal is, is the net amount excessive? We work out what the net amount is by looking at how much consideration has been taken into account in working out the net amount. If there is consideration received in the period and it is consideration for a taxable supply then, unless the taxable supply has already been allocated to an earlier period, that taxable supply is attributable to the period in which the consideration or invoice is received or delivered and the supply is a supply which is attributable to that period and the assessment is not excessive. I have rather gone around in circles a little bit there, your Honours, I apologise for that.

I think that is the point of error in the Full Court’s decision. The Full Court is trying to add a gloss to the language which is not there. Any supply will do if it is a supply which is a taxable supply in relation to the consideration received in the attributable tax period but the receipt of consideration is not taxed more than once. It is only taxed once in the first period to which it is attributable.

BELL J: Mr Slater, can I come back to adjustment events?

MR SLATER: Yes, your Honour.

BELL J: In the event that a person has purchased a fully-refundable fare and has sought and obtained a refund, is that treated by your client as an adjustment event because there has been a cancellation of a supply under section 19-10(1)(a)?

MR SLATER: No, it is an adjustment to the consideration under paragraph (b), your Honour – adjusting the consideration to nil.

GUMMOW J: You had better explain that again, Mr Slater.

MR SLATER: I was asked, your Honour, if, when a refund is made - - -

GUMMOW J: Yes.

MR SLATER: - - - there is an adjustment event. My answer to that is yes. I was asked which adjustment event it is and my answer is it is an adjustment to the consideration reducing the consideration to nil.

GUMMOW J: By reference to?

MR SLATER: To section 19 – page 5 of the attachments to our written submissions. Your Honours will see that:

An adjustment event is any event which has the effect of:

(a) cancelling a supply or acquisition; or

(b) changing the consideration for a supply or acquisition; or

(c) causing a supply or acquisition to become, or stop being, a taxable supply - - -

GUMMOW J: You fixed upon (b)?

MR SLATER: Yes, your Honour.

GUMMOW J: Thank you.

MR SLATER: Your Honours will see there is an example given in the statute of paragraph (c). Your Honours asked me about the decision of the Full Court. Can I take your Honours to the Full Court decision? Can I briefly go to the reasons of the Court before going to what, in our submission, are the errors in it? It occurs to me, your Honours, that I had intended, at an earlier point, to take your Honours to the reasons of the Tribunal sector. Perhaps, I should do that first because they are the first in the sequence. They are at page 195.

The Tribunal identified the question at the beginning. Paragraph 3 his Honour, Justice Downes, and Mr Frost found that reservations can be made in particular ways. That is based on the evidence of Mr Owens that I read to your Honours earlier. Then there is set out at some length extracts from the Qantas conditions of carriage, which I have taken your Honours to. They say at paragraph 4 that the issues in the case before them involve the question whether the arrangements were “contractual”. There was an issue before the Tribunal as to whether the conditions of carriage and the fare rules amounted to a contract. That issue appears to have been abandoned in this Court and the Tribunal concluded at paragraph 9 that there were contractual rights.

At paragraph 13, the Tribunal dealt with the approach which is adopted in other jurisdictions. The Full Court criticised them for doing that, but somewhat unfairly. The Tribunal took that course because, in what my learned friend candidly described as a long run up to the wicket in the Tribunal, the Tribunal was taken at some length to the decision of the House of Lords in Card Protection Plan [2001] UKHL 4; [2002] 1 AC 202 - it is on my friend’s list of authorities - and also to the British Airways Case which is also in my friend’s list of authorities. It was because of that that the Tribunal referred to the English authorities.

They reached a conclusion at paragraph 14 that the arrangements that they were presented with fell within paragraphs (e) and (g) of section 9-10(2) and they then went on to deal more generally with section 9-10 because, as they observed at the end of paragraph 15 in the middle of page 203, the parties have not “placed emphasis” on the paragraphs which seemed significant to the Tribunal. Paragraph 19, they found that the:

definition of supply . . . has the consequence of attracting GST on an airline reservation and that the GST is not refundable where the passenger is not carried –

I have taken your Honours to paragraph 24 – I should, perhaps, draw your Honour’s attention to paragraph 23 where, at the beginning, his Honour says:

the acts of recording the reservation and processing it towards preparedness for check in and seat allocation involve the provision of services.

That seems to be a finding of fact although, perhaps again, it is a matter of characterisation of fact for legal purposes. Then the Tribunal in paragraph 25 drew an analogy with an English case involving the reservation of a hotel room and referred to what Justice Popplewell had said in that case and your Honours see that there.

Your Honours, the Full Court reasons begin at page 221 of the appeal book and in paragraph 1, in our submission, correctly state the contest between the parties. Paragraphs 3 to 9 refer to the decision of the Tribunal. I have attempted to defend the Tribunal from the comment in paragraph 5. In paragraph 10, there begins what, in our submission, is the Full Court’s journey into error where they recite what they describe as being a part of Qantas’ case:

the simple proposition that the air journey was the supply in contemplation -

The trouble with the qualification “in contemplation” is that it finds no place in the language of the Act. The Act is simply concerned with whether there is a supply and whether it is for consideration. It is not concerned with whether there is the supply in contemplation, nor is it concerned with whether there is the relevant supply. There is no specification of a relevant supply in the legislation.

HAYNE J: Well, do you take issue with the singularity of the expression of what, I would understand you to be saying, is a complex transaction? You have here the Full Court saying “the supply” and attributing that to one aspect of what I had understood you to be saying was a rather more complex transaction.

MR SLATER: Yes, we do, your Honour. We say that to limit the operation of the Act to the supply in contemplation is not to accord with the language of the statute which is only concerned with whether there is a taxable supply.

KIEFEL J: What the Full Court are referring to when they say “supply in contemplation” might be described as the object or end result of what the contracting parties seek to achieve.

MR SLATER: That is the sort of language that their Honours use in paragraph 56 and, in our submission - - -

KIEFEL J: Differs from the statute.

MR SLATER: - - - the limitation imported by that language is not one which finds support in the statute. Your Honours, I apologise for questioning you – there is a bit of an echo behind your Honours and I sometimes find it difficult to hear your Honours. Your Honours, at paragraph 16 and following they set out a broad statement to the background facts; paragraph 22 and following, the legislative framework; paragraph 27 and following, the Commissioner’s case on appeal. In paragraph 29, their Honours say:

the Commissioner submitted that while there may have been other supplies, there was only a single supply for consideration at the time when payments were made, and that was the supply of the reservation.

That is a strictly accurate statement, but it is expressly or impliedly taken later in the reasons to apply both to the cases which were in contest before the court, and to the cases where a passenger turns up and takes his seat. The statement is only applicable to a case where the passenger does not turn up, and then what is supplied can be described as the supply of the reservation. It is the supply of all those things which Qantas is obliged to do under the contract made on the making of the reservation. The statement there made is repeated later at paragraph 41 of their Honours’ reasons, and I will come back to that in a moment. Then, your Honours, at paragraph 32 and following - - -

GUMMOW J: Now, just before you leave paragraph 18:

incorrectly paid . . . i.e. pre-paid fares for travel where the passenger failed to board, or where the passenger cancelled their booking and was not entitled to or failed to claim –

There seems to be some telescoping going on there.

MR SLATER: Perhaps if the word “either” was inserted between “and” and “was”.

GUMMOW J: Sorry, say that again?

MR SLATER: Perhaps if it were to read:

The passenger cancelled their booking and either was not entitled to or failed to claim a refund of the pre-paid fare.

It is postulated - - -

HAYNE J: Is there not a telescoping of time masked in that statement? “Incorrectly paid”, that is, at the time of payment, it can be observed that this was an incorrect payment seems to be the inference and yet the cancellation, the no show, whatever the event may be, may occur what, three months hence? Is there not, in that sense, telescoping?

MR SLATER: Yes, your Honour. The no show could occur at any time. Some fares are booked days ahead, and some months ahead.

GUMMOW J: It could occur without a cancellation. They simply do not turn up.

MR SLATER: Yes.

GUMMOW J: They do not ring up and say, “I am not coming”. They just do not come.

MR SLATER: Yes.

GUMMOW J: Well, that is not encompassed by paragraph 18. That is what I - - -

MR SLATER: I think that their Honours are encompassing that situation in the line immediately above, your Honours - “for travel where the passenger failed to board”.

GUMMOW J: “Failed to board”. Well, “failed to board” - - -

MR SLATER: I am not defending the decision, your Honour, but I think that in fairness, that is, their Honours did cover the situation your Honour is referring to.

GUMMOW J: So the “and” -“either” is attached to “failure to board” and to “cancellation”, is it?

MR SLATER: Yes. It is a very condensed way of putting it, your Honour.

GUMMOW J: Condensed? It is more than condensed; it is dehydrated.

MR SLATER: I think Qantas’ complaint is that it should not have been required to pay GST.

GUMMOW J: Well, we have to be quite clear as to just what are the categories of circumstances we are dealing with, and I am not at the moment, because I thought you said earlier that we were dealing with people who are entitled to a refund but who had elected not to seek it and that was the class - - -

MR SLATER: No, your Honour, I am sorry if I gave that impression. I was responding to questions I was asked by Justice Bell. The categories are these. They all begin with people who have booked and paid for a fare. In all of the cases with which we are concerned, the passengers did not board the aircraft. In some cases, they did not board because they simply did not turn up. In some cases, they contacted the airline and said, “We are not going to turn up”.

In either of those categories, there are some who are not entitled to any refund. In the fare conditions, it says, “Not entitled. Loss of fare”. In either of those categories, there are some who are entitled to apply the fare to later journeys but have not done so and there are those who are entitled to a refund but have not at all, or have not yet made a claim for the refund. Some of those who have not made a claim for the refund will have lost their entitlement, although there is a hint in the materials that as a matter of goodwill, Qantas does not enforce that one-year limit, but according to the terms of contract, there is a one-year limit.

So it is those whose fares have been forfeited and those whose fares, although refundable, have not been claimed back that we are concerned with. But all of those are people who did not board the aircraft. If I did not make that clear earlier, I apologise.

GUMMOW J: Well, it is clearer than paragraph 18.

MR SLATER: I think the trouble with paragraph 18, your Honour, is like the trouble with this case – among those at the Bar table we are so familiar with it that we tend to lose sight of the particularities and condense things into simple expressions. If I have done that in my submissions, I apologise in advance.

I have taken your Honours to the references to the fare rules. I do not need to take your Honours back to that. Their Honours then draw some conclusions beginning at paragraph 37 on page 236. There is a distinction drawn in subparagraph (2) at the top of page 237 which, in our respectful submission, is a distinction which is not in point in this case. In all of the cases that are referred to in that paragraph, the passenger pays an amount to Qantas and the amount paid to Qantas is consideration and in paragraph (3), their Honours say:

The fare covers the flight for the person –

That is a true statement, but it is an incomplete statement, in our submission. It does more than that. Then over the page on page 238 - - -

KIEFEL J: Just before you go to 238, with respect to what their Honours later say, it appears to be of some importance that they say at the end of paragraph 38 that these factors indicate that the fare has a:

‘linkage’ . . . with the flight rather than with the entry into the contract –

That seems to be tied with the view later expressed that the purpose that they are interested in is the taking of the actual flight, the achievement of that purpose.

MR SLATER: Underlying the whole of the Full Court’s reason is the premise that the fare is paid for the flight, nothing more and nothing less. That premise informs almost everything they say about it.

KIEFEL J: But the Full Court referred to clause 9.2 of the terms and conditions which, I think, as the Tribunal pointed out was probably the high-water mark of the obligations undertaken by Qantas to use, in effect, best endeavours.

MR SLATER: It is set out at the top of page 232, your Honour.

KIEFEL J: It is not referred to in the reasoning at all.

MR SLATER: Beyond that, not that I can see and that is because, in our submission, the Full Court approached this case on the premise that it should be taken as an a priori proposition that the only supply was of the flight and that everything else should be either subsumed into or disregarded. They did that in disregarding the circumstance that the only cases before them were cases in which the flight was not taken, that is to say that they disregarded that as unfair because the essence of their reasoning is that the flight was not taken and therefore there was no supply at all but the premise is that the flight is, in the language that their Honours used earlier at paragraph 10, “the supply in contemplation” in the language that their Honours use at paragraph 56 “what each customer pays for”, “the essence, and the sole purpose, of the transaction”, “the relevant supply”, nothing more and nothing less.

All of those expressions are manifestations of the one underlying premise which is an assumed premise as if it were something which was irrefutable but there is only one supply and the supply, the relevant supply, the true supply is the flight and it is that proposition that we contest. That begins at paragraph 40.

Their Honours refer between paragraph 40 and paragraph 45 to the decision of this Court in in Reliance Carpet. May I come back to their treatment of that in a moment and simply note that it is there but at paragraph 40 just note this. Their Honours quote from what was said in Reliance Carpet and conclude the quote with the expression:

upon examination it may appear that there is no more than one “taxable supply”.

Their Honours in effect proceed on the assumption, in the reasoning which follows, that the word “may” there means must or does or always.....it was that there is not one of several alternatives, it may appear but that it is the case that there is no more than one taxable supply.

Your Honours, in our submission there are two fundamental errors in the reasoning of the Full Court. The first is that the Court did not address the issue posed by the statute on the making of the objection. That issue is whether the assessment of the net amount of the tax period was excessive. Instead, they addressed themselves to a question which, in our submission, does not arise in resolving the statutory issue. The question to which they addressed themselves was whether flights were supplied in the cases in contest. There is no contest between us and our friends that flights were not supplied in those cases. The contest is as to what was supplied.

The second is, as I have said to your Honours, that they have imported into the statute a limitation not found in its language. The words of limitation in paragraph 10 and paragraph 56 are not words which find any echo in the language of the Act. The third error their Honours made is, in our submission, to have misconstrued and misapplied the decision of this Court in Reliance Carpet.

Your Honours, we have addressed on the statutory question. I will not repeat that but can I take your Honours to paragraph 56. I draw your Honours’ attention to the repeated use of specific qualifiers: “what each customer pays for”, “the essence”, the “sole purpose”, the “relevant supply” and so forth. None of those terms, in our submission, appear in the Act. The Act simply says:

A supply is any form of supply whatsoever.

That is section 9-10.

Consideration includes:

(a) any payment, or any act or forbearance, in connection with a supply of anything –

not in connection with the relevant supply or the essence and sole purpose supply but “a supply of anything”. A taxable supply is one you make “for consideration”. That is section 9-5 which I should have taken your Honours to earlier but did not. Your Honours will see it on the first page of the materials we have attached to our written submissions:

You make a taxable supply if -

not the taxable supply or not the relevant taxable supply:

(a) you make the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is connected with Australia; and

(d) you are registered, or required to be registered.

In our submission, your Honours, the last sentence of paragraph 56 of the judgment rests on a false premise where their Honours said that the Tribunal erred because:

even if the identified ‘acts’ were capable of meeting the definition of supply, they were not ‘acts’ for which the consideration was provided.

Their Honours are proceeding there on the false premise that for the purpose of the Act an amount of consideration can only be given in respect of a single supply. In our submission, that is a false premise. Clearly an act can be given in connection with a number of supplies. I have given your Honours instances - a supply of goods and services, a supply of materials and labour, a supply over an extended period. An amount which is given as consideration with all of those supplies, a single amount given as consideration in respect of a number supplies will make all of the supplies taxable supplies, provided that section 9-5 is otherwise met.

Your Honours, before I come back to Reliance can I take your Honours briefly to what the Full Court says about other cases. At the beginning of paragraph 56 their Honours say, “Using the criteria in the cases to which we have referred” – now, the cases that they are identifying there are the cases which begin at the top of page 240 of the appeal book in paragraph 47 and effectively go through to paragraph 57 because there is another authority which is in the same line.

The cases to which the Full Court has referred in that passage are in our respectful submission not in point in the present appeal. The issue in the present appeal is not what sort of supply was made but whether a taxable supply was made. The issue in the present appeal is whether there was any supply for which the forfeited or unrefunded fares was consideration received in the tax periods assessed.

Now, one starts by observing that these are cases in which the flight, the carriage by air, was not supplied and that is not in contest. So one then asks was there anything else supplied and the answer we give, as I have put to your Honours somewhat repeatedly, is that what was supplied was the obligations assumed, the rights conferred by the contract, including the reservation of a seat on a plane.

The issue in the cases which are cited by the Full Court was not whether there was a supply but whether the undisputed supply was of a particular character attracting particular consequences under the Act. If one takes that to the present case, if it were the case that the flight and the flight alone was GST free then there would be a good case for applying these characterisation rules for the decisions that the Full Court cites to the characterisation of the supply made by Qantas.

So if the provision which I took your Honour the Presiding Judge to earlier in sections 38-355 were absent and there was a contract to supply an international flight and in due course performance of that contract then we would say that the supply of rights in relation to the international flight was subsumed into the provision of the international flight for the purpose of characterising it and it would therefore not give rise to a taxable supply, but that is not this case.

Indeed, the circumstance that the legislature thought fit specifically to provide for that case in item 7, which I took your Honours to earlier, indicates that the underlying design is that the provision of rights is itself capable of being a supply in the same way as this Court found it to be in Reliance Carpet.

If I could take your Honours to the four cases that are relied upon by the Full Court briefly, the first of them is the decision of this Court in Travelex Ltd v Federal Commissioner of Taxation [2010] HCA 33; (2010) 241 CLR 510. It is under tab 9 of our bundle of authorities. A point at issue in that appeal was whether a supply of banknotes was a supply in relation to the rights attaching to the notes. It did not matter that it was also a supply of the physical objects comprising the banknotes or, in the language which was used by the Court, the tokens.

In those proceedings the Federal Court, both at first instance and – the decision at first instance is summarised at paragraph 28 of this Court’s judgment – and on appeal – and the decision on appeal is summarised at paragraphs 22 and 23 of this Court’s judgment – had regard to the “substance of the supply” of banknotes “from a practical and business point of view”. Your Honours will see those expressions used at paragraphs 28 and 23.

That is a very similar approach to the essence or purpose approach which the Full Court adopted here. This Court rejected that approach and concluded that a supply in relation to rights is not a supply of rights. Your Honours drew that distinction at paragraphs 30 and 32. Paragraph 30 is at the foot of page 520 of the report. Responding to a conclusion of the trial judge about supplies which bind the parties, your Honours said if such a distinction is to be drawn:

much turns upon what is meant in this context by saying that a supply “binds” the parties. The consequence of the distinction would appear to be that there could be a supply “in relation to” rights only where the supplier can, and does, transfer the rights in question to the acquirer. It is a distinction that might be made more readily if the requirement was that there be a supply “of” rights, as distinct from a supply “in relation to” rights.

Then passing down to paragraph 32:

Observing that rights attach to currency, and pass upon negotiation of the currency by delivery, does not constitute any “juristic disaggregation and classification of rights” –

The expression which had been used in the Full Court –

that fails to reflect “the practical reality of what is in fact supplied”. On the contrary, recognising that a sale of foreign currency transfers to the purchaser the rights that attach to the notes does no more than recognise the evident purpose of the transaction.

I am sorry, I have ascribed this to your Honours generally. It is actually – I am reading from the judgment of the Chief Justice and Justice Hayne and not from the.....judgment of Justice Heydon.

What the Act requires is that there be a supply “in relation to” rights; the operation of the Act does not call for attention to be given to particular contents of the rights.

What the Full Court does in the case before your Honours now is to quote a phrase from paragraph 32 but, in our submission, the last sentence of paragraph 32 is contrary to the decision of the Full Court in this case.

Justice Heydon noted that the issue in the appeal was one of characterisation - that appears on page 524 at paragraph 46 - and characterised the transaction as a supply of legal tender rights and not as a supply of..... – this is at paragraph 47. The minority, Justices Bell and Crennan, referred to the jurisprudence concerning rights which are locked up in documents and the language which had been used by Sir Roy Goode of “documentary intangibles” - that appears in paragraph 86 on page 532 – and concluded that the rights were incidents of owning the notes at paragraph 102 on page 536 and, finally, that the supplying of the notes was not supply in relation to the incident of the rights at paragraph 105. That is, in effect, the point on which the minority dissented in that case.

Now, your Honours, that is a decision about what character is to be ascribed to a supply. It is not a decision which assists in determining whether there has been, as we submit in this case, a supply of rights. The same thing can be said of the decision of the Full Court in the matter of Saga Holidays which is referred to by the Full Court below at paragraph 50 through to 52 on pages 240 and 241.

The issue in that case was not whether there was a supply but rather whether the character of the supply, the making of which was not in contest, was that of a supply of real property and, in our submission, that question does not assist in resolving the issue before the Court in this appeal. Your Honours, I notice the time. I was proposing very briefly to refer to the other two cases of characterisation, if it is convenient to do that tonight?

GUMMOW J: Yes, you should do that.

MR SLATER: The other two cases, your Honours, are the decision of the Full Court in Westley Nominees v Coles [2006] FCAFC 115; (2006) 152 FCR 461, which is cited at paragraph 57 on page 244. That decision is under tab 7 of our materials. The second issue in the appeal in that case which appears at page 468, above paragraph 24, said that there was “a review opportunity” and that turned on whether contributions to outgoings were a part of the consideration for a single supply, being the assumption of obligations of lessor under the lease, or consideration for a second supply, being the provision of services by the successor landlord.

That in turn determined whether there was a review opportunity under transitional provisions which are set out on page 474 of 152 FCR in paragraph 46, section 13 of the Transition Act. What the Full Court held at paragraph 59 on page 477 was that having regard to the language of the lease there was, in that case, a single supply, not a separate supply of the provision of the land, in effect, the obligations of the lessor under the lease and of the services which the lessor was bound to provide under the lease.

The present case, your Honours, is the converse. The question is, from a practical and business viewpoint, is the sum paid by the customer consideration for all of the obligations assumed by Qantas? If it is, then the supply of all of those obligations comprises in each case a taxable supply and, in our submission, that is the correct analysis of the present case.

The last citation, your Honours, is a reasonably lengthy extract by the Full Court from an earlier decision of Justice Downes sitting as President of the Tribunal in the AGR Joint Venture Case. Your Honours will see that set out at pages 241 through to 244 of the appeal book. The facts and reasons are largely set out there. The issue in that case, your Honours will see at paragraph 5 of the Tribunal’s reasons at page 242.

The contest was whether there was a supply of precious metal or simply a supply of coin blanks and the Tribunal concluded on the facts, which your Honours will see covered in the decision of the Full Court, that

the only supply made was one of the coin blanks, and the reasons for that are set out by the Tribunal in paragraph 40 of its reasons at the foot of page 243 of the appeal book. In our submission, they do not assist in resolving the present issue. Your Honours, I was about to come to Reliance Carpet, so if that is a convenient time.

GUMMOW J: Yes, thank you. We will adjourn until 10.15 tomorrow morning.

AT 4.17 PM THE MATTER WAS ADJOURNED
UNTIL TUESDAY, 5 JUNE 2012