The Commissioner of Taxation v Travelex Limited [2020] HCATrans 209 (2 December 2020)

Last Updated: 2 December 2020

[2020] HCATrans 209

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S116 of 2020

B e t w e e n -

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Appellant

and

TRAVELEX LIMITED

Respondent

KIEFEL CJ
GAGELER J
KEANE J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 2 DECEMBER 2020, AT 10.05 AM

Copyright in the High Court of Australia
KIEFEL CJ: In accordance with the current practice, I will state the appearances for the parties.

For the Commissioner of Taxation, MR N.J. WILLIAMS, SC appears with MR M.J. O’MEARA, SC and MR C.M. SIEVERS. (instructed by Balazs Lazanas & Welch LLP)

For Travelex, MR J.O. HMELNITSKY, SC together with MS L. McBRIDE and MR D.P. HUME appear. (instructed by MinterEllison)

KIEFEL CJ: Yes, Mr Williams.

MR WILLIAMS: Yes, thank you, your Honour. The defining feature of the Torrens system of land title is that it is a system of title by registration, not a system of registration of title. The question raised by this appeal is whether the running balance account system established by the Taxation Administration Act operates in the same or a similar way. Whether an entry, even as here a mistaken entry not reflecting any entitlement under taxation law in a running balance account, is determinative of the entity or the Commissioner’s liability to pay as the majority below concluded, or whether, as Justice Derrington in dissent concluded, the RBA system is a system for accounting for primary debts that exist through the operation of the substantive provisions of taxation law, a system that results in a debt that can be sued for but is supported only to the prima facie level by evidentiary provisions allowing a taxpayer to say, the $100,000 you are suing me for comes from a $10,000 assessment and the balance is not, in truth, a liability to the Commonwealth.

The facts can be shortly dealt with by reference to core appeal book 50 in the reasons of Justice Derrington. The return, in paragraph 13 on page 50 from about line 40, the return that Travelex lodged in December in respect of the November 2009 period is set out and it is convenient to say something briefly about the integers of that and what changed and what did not.

Item 1A did not change at all as a result of the High Court’s – of course, none of this changed, because there was no power to change it, but in terms of what the substantive entitlements were the amount in 1A was correct because before the High Court judgment the departure side supplies were treated as input tax financial supplies, after they were treated as GST‑free supplies, but no GST was payable on either, so the first item is the same. But for a GST‑free supply, the taxpayer could claim an input tax credit. It is convenient to refer, very briefly, to the key provisions, which are found in volume 2 of the joint appeal book, tab 5 from page 146.

KIEFEL CJ: Some of us are using pamphlets - could you just tell us the section, thank you.

MR WILLIAMS: I am sorry, yes, your Honour – section 11‑5. So a creditable acquisition:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose –

That is the key part. Section 11‑15, over the page, meaning of “creditable purpose”:

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise –

but there is then a carve‑out in subsection (2): y

you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be input taxed -

So, departure side before the High Court’s decision, the supplies would be input taxed, but afterward they were not.

So, 11‑30, acquisitions that are partly creditable, allows for apportionment, in effect. So, the effect of all of that is set out by Justice Derrington in paragraph 20 of the judgment on page 51 of the book. That is, that after the judgment there were unclaimed input tax credits in the amount of $149,000. Then, in paragraph 21, his Honour sets out the letter that KPMG on behalf of Travelex wrote in June 2012. It refers at the top of page 52 of the book to the “refund for under claimed input tax credits”, and it asks ‑ and this is from about line 10 ‑ that the Commissioner “please amend the BAS returns” for particular periods “in accordance with appendix A.

The Commissioner did that, of course, and the case before the primary judge was fought on the common basis that there was a power to do so, but the question was whether there was an obligation on Travelex to give a notification of that kind before it could be entitled. Justice Derrington in paragraph 22 from about line 20 refers to the fact that:

it was common ground . . . that Travelex did not . . . ask the Commissioner to undertake an assessment of its GST liabilities ‑

and that “the Commissioner did not [do so] on his own initiative”.

KIEFEL CJ: Might I just interrupt you at that point. The Court has been provided with the terms of an undertaking by the Commissioner that was provided this morning, I understand, which does not appear to have been a condition of the order for granting special leave, no doubt because that was done without oral hearing.

MR WILLIAMS: It was proffered in our application.

KIEFEL CJ: It was proffered in the application and it did not form part of the order itself ‑ ‑ ‑

MR WILLIAMS: I do not believe so, your Honour, no.

KIEFEL CJ: And the Commissioner undertook to allow Travelex to request an assessment for the relevant tax period. Is that undertaking extant?

MR WILLIAMS: We proffered it. The Court did not include it as a condition. We have provided it to the Court today so that there will be no uncertainty about it. I am instructed to give that undertaking.

KIEFEL CJ: What effect does that have, then, both on the notice of contention and the substantive appeal, Mr Williams?

MR WILLIAMS: None, your Honour. It is simply a question, if we succeed in relation to this, there is a discretion in the Commissioner to accept a request for an assessment at any time. We have given an undertaking that we will accept one. We proffered that as a condition of special leave.

KIEFEL CJ: If it had been taken up ‑ well, I do not know what would have happened to these proceedings.

MR WILLIAMS: The proceedings would in no sense be moot. There will be a series of further questions if it is taken up.

KIEFEL CJ: I see.

MR WILLIAMS: But the issues in the appeal remain live either way.

KIEFEL CJ: Thank you, Mr Williams.

MR WILLIAMS: So, it was indeed, and we are here at about 52 of the book, about line 20 ‑ 24, before the primary judge the taxpayer made the positive assertion that there was no assessment. We refer to that in our submissions.

KIEFEL CJ: And that is relevant to the notice of contention?

MR WILLIAMS: Paragraph 24 records the Commissioner’s allocation of the amount, and the effective date that the Commissioner gave to that. And paragraph 25 recites the agreed statement of facts and observes that it:

is one of mixed law and fact –

and that the Commissioner then departed from it at the appellate level following the recognition by the primary judge ‑ which we now accept ‑ that there was no power to amend the assessment.

GORDON J: You mean to amend the BAS ‑ ‑ ‑

MR WILLIAMS: I am sorry, to amend the return.

GORDON J: GST return.

MR WILLIAMS: Yes, amend the GST return ‑ I am sorry, your Honour. Travelex’s request, of course, was consistent with the Commissioner’s longstanding practice of adjusting GST liabilities by amending returns and allocating amounts but the practice was, as Justice Wigney and the Full Court unanimously found, and the Commissioner now accepts, unauthorised by the legislative scheme.

GORDON J: Is that at the time? It is now authorised, is it not?

MR WILLIAMS: Since July of 2012 there has been a quite different scheme.

GORDON J: This is in respect of the old scheme. So anything before 1 July 2012 is affected by this decision, but nothing after it?

MR WILLIAMS: That is so.

GORDON J: Thank you.

MR WILLIAMS: That still gives it considerable significance, as your Honour will appreciate. So, if I could then turn into the joint book of authorities, volume 2, and track through the key provisions. Volume 2, tab 5, from page 151.

KIEFEL CJ: Act and section, Mr Williams?

MR WILLIAMS: I am sorry, your Honour. 17‑5 in the GST Act. I am sorry.

GORDON J: Is this directed at a proposition that there were other mechanisms for bringing an amendment to the amount that is in issue under the Act, which were not utilised either by the Commissioner or by the taxpayer?

MR WILLIAMS: There was a mechanism in section 29-10(4), that I will address, and we say that is the primary mechanism that the Act contemplates. There was – prior to 2012 – the power in a taxpayer to request an assessment.

GORDON J: Put the assessment path aside, there were other mechanisms available, were there not, under the Act?

MR WILLIAMS: There were.

GORDON J: They were not utilised.

MR WILLIAMS: That is so. No other mechanism was utilised. No statutory mechanism was utilised.

GORDON J: That is right.

MR WILLIAMS: The non‑statutory mechanism alone was utilised. Section 17-5 deals with the concept of a net amount. It consists of the GST:

the sum of all of the GST for which you are liable –

Input tax credits:

is the sum of all the input tax credits to which you are entitled –

Skipping through then to 17‑15, section 17‑15(1) provides for:

an approved form –

and there is one and the return was lodged in an approved form. The second sentence of 17‑15(1) is, in effect, a deeming provision:

The amount so worked out is treated as your net amount –

That is reinforced by subsection (2) – the return prevails. If it is lodged in a return, it is the return that prevails. In partial answer to your Honour Justice Gordon the provision that follows 17‑20 is a mechanism that, in some circumstances, can be used:

The Commissioner may make a determination that, in the circumstances specified in the determination, a net amount for a tax period may be worked out . . . in the way specified in the determination.

But, in subsection (2):

The matters must relate to the correction of errors made in working out net amounts for the immediately preceding tax period.

So, it is a fairly confined provision. If I can go from there to page 162, to section 33‑5:

If the net amount for a tax period –

“net amount”, of course, picking‑up 17‑5, then 17‑15, for a tax period:

applying to you is greater than zero, you must pay the net amount to the Commissioner on or before the 21st day of the month following the end of that tax period.

So here, relevantly, the amount in the 16 December 2009 GST return. Going over then to 35‑5 – I will try to operate by reference to the numbers on page 164 – the “Entitlement to refund”:

If the net amount for a tax period is less than zero, the Commissioner must, on behalf of the Commonwealth, pay that amount (expressed as a positive amount) to you.

There is then subsection (2) which was added after the original enactment – which the majority in the Full Court made reference to. The effect of subsection (2), we say, is that if the taxpayer has received a refund or credit which exceeds the proper entitlement, the excess becomes, upon correction, an amount of GST due from the date paid or applied. The principal significance of that seems to be indicated by the note. It is about the general interest charged – the date from which that runs. If I could then turn to page 160 – sorry, to 29‑10.

GORDON J: Can I just ask you about 35‑10 while you are in that section, please, Mr Williams?

MR WILLIAMS: Yes.

GORDON J: That is the provision, is it, that gives you the entitlement to actually be paid the amount. In other words, it is on the lodging of the return that the entitlement to be paid, the amount arising under 35‑5 arises. Is that right?

MR WILLIAMS: Yes.

GORDON J: In other words, you can have the calculation carried out in terms of the entitlement under 35‑5 but to be paid that entitlement you must lodge the return.

MR WILLIAMS: That is so. Here, of course, the return that was lodged was a 33‑5 return that showed net tax greater than zero and triggered the obligation to pay that amount to the Commissioner which was done. There was, indeed, no 35‑5 return ever lodged but if it had been, that would have operated in the way your Honour Justice Gordon points out.

If I can then turn to 29‑10(4) at the top of page 160 of the print. Section 29‑10 deals with attributing input tax credits for creditable acquisitions. In subsection (4):

If the *GST return for a tax period states a *net amount that does not take into account an input tax credit attributable to that tax period:

(a) the input tax credit is not attributable to that tax period; and

(b) the input tax credit is attributable to the first tax period for which you give the Commissioner a GST return that does take it into account.

In other words, if an amount, an input tax credit is omitted from a return for a period, it ceases to be attributable to that period and it becomes attributable to a later period when it is returned in that later period. The provision as a whole emphasises the primacy of the return as lodged and the correction mechanism which is inclusion in a later return. So, the primary judge ‑ ‑ ‑

KIEFEL CJ: Mr Williams, how does the request for an assessment by the taxpayer or the Commissioner, undertaking an assessment of his own motion, how does that then work with the return as lodged?

MR WILLIAMS: The assessment provisions are in 105‑5 of Schedule 1 to the Taxation Administration Act:

The Commissioner may at any time make an assessment –

of a net amount, and:

The Commissioner may at any time make an assessment of the amount of *indirect tax payable by you on an importation goods.

And the comparable provision for fuel tax:

The Commissioner may make an assessment . . . even if he or she has already made an assessment for the *tax period, *fuel tax return period or importation concerned.

KIEFEL CJ: The assessment overrides the AS return.

MR WILLIAMS: Yes, there is a perhaps slightly curiously drafted provision in 105‑15, the liability:

do not depend on, and are not in any way affected by, the making of an assessment ‑

The scheme of the provisions seems tolerably clear that under the pre‑July 2012 regime, as with sales tax before, the provisions were self‑actuating, self‑operating and the return here where one was lodged using the form took primacy by 17‑15, 33‑5, 35‑5 but the assessment supersedes that.

GORDON J: Supersede it or does it bring about an amendment to the net amount, in effect, artificially in the return? Because you have got primacy to the GST return, does the amended assessment or the assessment itself bring about a change to that net amount in the return as if it is taken in that date?

MR WILLIAMS: There is no authority that I am aware of that deals with that, your Honour.

GORDON J: In a sense that then fits in with 35‑5 and 35‑10.

MR WILLIAMS: That would be one reading. It has not been explored in submissions at any level. If we are successful on this, it may become a topic of ongoing interest, if there is a request for an assessment and an assessment ‑ ‑ ‑

GORDON J: That is why I raise it, because it would then affect the interest calculation, would it not?

MR WILLIAMS: It might, depending on the outcome of the question your Honour raises, whether it operates back through the return or whether it is a self‑operating independent assessment. But there are no submissions directed to it, there are no cases that have considered it, and it was not addressed below.

KIEFEL CJ: It is not an issue that needs to be addressed in this case?

MR WILLIAMS: No.

GAGELER J: The curiously worded provision that you referred to, 5‑15, has antecedents, does it not? I remember provisions of this nature in the old sales tax legislation.

MR WILLIAMS: Yes. It is sparking some distant synapses, your Honour, but that is the best I could say at this point.

GAGELER J: We are not concerned with an assessment here, but there may be some issues.

MR WILLIAMS: Indeed. So the taxpayer’s net amount remains in the return. At page 28 of the core appeal book, the primary judge dealt with the consequences of that, really from paragraph 97. I will emphasise only the parts of these passages in 97 and 98 that are still live. A deal of this was addressed to the question that was live before his Honour and in the Full Court but that we do not pursue. 97, from about line 40:

it may also be accepted that, if the Commissioner had not, in accordance with his administrative practice, treated the 8 June letter as if it was an amended BAS return, strictly speaking there may have been no overpayment. That is because Travelex’s net amount, and consequential liability under the GST Act, would have remained as reported or worked out in, relevantly, the November 2009 BAS.

His Honour then goes on to say:

The fact remains, however, that the Commissioner accepted that he was liable –

and dealt with it administratively, but:

It does not follow that Travelex was required –

to put in an amendment. Going then to 29 at about line 10:

Five points should perhaps be noticed or emphasised in this context: first, the letter dated 8 June 2012 was not stated to be a request by Travelex . . . for the Commissioner to make an assessment ‑

Dropping down to about line 20:

as events transpired, the Commissioner did not make an assessment, and Travelex did not request the Commissioner to make an assessment in relation to Travelex’s net amount for the November 2009 tax period; and fifth, had the Commissioner made an assessment . . . the position in relation to interest would undoubtedly have been different.

That appears to proceed from the assumption that the assessment operates of its own force. So the consequences were dealt with in turn by Justice Derrington at pages 66 and 67 of the book. Really, from the bottom of paragraph 83, his Honour says if Travelex had learned of its true position in time for the November return, it could have included it in the return. Then in 84, if it:

had become aware shortly after –

it could have used the mechanism in 29‑10(4) of the GST Act:

It is not in doubt in these proceedings that Travelex did not seek to do this, although it is clear that it could have done so.

In 85:

It is also not in doubt that Travelex did not, pursuant to 105‑10 . . . ask the Commissioner to make an assessment . . . Nor do any of the parties suggest that the Commissioner, of his own volition, made an assessment –

Then in 86:

The result of the above is that, unless the BAS has been validly amended, the November 2009 BAS remains the effective document which, by operation of s 33‑5 of the GST Act, establishes that for that tax period Travelex had a net amount of $37,751 and was obliged to pay that amount to the Commissioner. Travelex mounted no serious submission to the contrary.

So the November 2009 BAS remains effective. I will come back to deal with what his Honour says further down about the agreed facts, but could I take your Honours into the Taxation Administration Act. It is in volume 1 of the joint book of authorities - into the Taxation Administration Act at section 8AAZL(1)(b). It is at page 92 of the joint book of authorities. It appears to be page 29 of the 2012 reprint, if that assists those who are using the print. Section 8AAZL(1):

This Division sets out how the Commissioner must treat the following kinds of –

payments, the relevant one here, of course, is in (b):

a credit (including an excess non‑RBA credit) that an entity is entitled to under a taxation law –

Now we make a couple of points about this. First, it is not expressed as a satisfaction or opinion provision common in taxation legislation, an Avon Downs‑type provision, if you like, nor is it that kind of – particular kind of jurisdictional fact as Justice Gummow in Eshetu described section 65 of the Migration Act. If the Minister is satisfied that the person satisfies the criteria, he or she must grant the visa and if not so satisfied, must not. It is a provision that is in mandatory terms and operates by reference to the language of legal entitlement. In (b):

a credit . . . that an entity is entitled to under a taxation law –

Again, in subsection (2):

The Commissioner must treat each such amount –

again, not “if satisfied”:

using the method set out in section 8AAZLA or 8AAZLB (but not both).

Now, I will say as little as I possibly can about those two methods, but can I summarise them at a high level in this way. Method 1 starts with the running balance account, and then goes to the debt. So in 1:

The Commissioner may . . . allocate the amount to an RBA –

then in subsection (2):

must then also apply the amount –

to the debts. So method 1 starts with the RBA, then goes to the debt. In ZLB, in method 2, method 2 starts with the debt and then follows into the RBA:

The Commissioner may, in the manner he or she determines, apply the amount against a . . . debt –

and thereafter in (2) must then also, in the sump of subsection (2):

the Commissioner must then also allocate the amount –

So it starts with the debt and applying it to the debt and moves into allocation to the RBA. If I can then turn to the definitional provisions, they are in 8AAZA. They are on page 87 of the book, page 24 of the reprint, I think, or perhaps 23 of the reprint. “Credit” is a defined term - well, it is inclusively defined. It includes:

an amount that the Commissioner must pay to a taxpayer under a taxation law –

the language of legal obligation or entitlement, we would emphasise. “Primary tax debt” is defined:

any amount due to the Commonwealth –

We would say legally due:

directly under a taxation law –

Then those elements feed into – an RBA deficit debt is defined in similar ways to RBA surplus. “RBA deficit debt” in (b) has:

payments made . . . and credits to which the entity is entitled under a taxation law -

and then “RBA surplus” at the foot of the page:

in relation to an RBA of an entity, means a balance in favour of the entity, based on:

(a) primary tax debts –

That is a defined term - amounts due - we say legally due - that have been allocated to the RBA. Over the page, and this provision is critical, subparagraph (b) at the top of the page:

payments made in respect of current or anticipated primary tax debts of the entity -

We say there are two limbs here:

credits to which the entity is entitled under a taxation law, that have been allocated to the RBA.

There are two elements. Only the second limb depends on the Commissioner’s allocation decision. The first limb operates by force of law. “Credits to which the entity is entitled under a taxation law” raises an issue of law and to read this as merely descriptive of those that have in fact been allocated, as the majority did in the court below, reads out the first limb. It reads out the words to which the entity is entitled.

Now, Justice Derrington dealt with that point at page 59 of the core appeal book. I will go to that, I will turn to the majority in a moment. At page 59, paragraph 59:

The credits which may give rise [to] a surplus are those which have two characteristics. First, that they are credits to which the entity is “entitled under a taxation law”. Secondly, they have been allocated to the RBA . . . The words used are pellucid in excluding from an RBA surplus a credit to the RBA to which the entity was not entitled under a taxation law. That construction is fortified by the definition of “credit” in s 8AAZA . . . The words “must pay” characterises the credit as being one to which the entity is substantively and legitimately entitled. The terms of s 8AAZL further support that construction.

EDELMAN J: But would a credit to which an entity is entitled under a taxation law ever be the subject of a payment made if it had not been allocated to the RBA?

MR WILLIAMS: It may have independent operation. The credit – well, in the ordinary course it would operate through the allocation to the RBA in the – within the ATO. The credit may have an independent existence if there were litigation about the matter.

EDELMAN J: I am just wondering what on your submission the words “that have been allocated to the RBA” does?

MR WILLIAMS: That comes from the provisions I went to a moment ago, and the Commissioner’s duty to allocate in particular ways, so the – it must first be a credit to which the entity is entitled, so if the Commissioner allocates an entity where there is no entitlement – allocates a credit for which there is no legal entitlement, we say the provision will not be triggered, and that is substantive point of difference between the majority and the dissenting judge.

EDELMAN J: The second limb, as I understand your submission, the second limb is effectively just acknowledgement of an administrative practice or of an administrative practice with a statutory basis which is the running balance account.

MR WILLIAMS: Yes, but it is the allocation that brings it within the meaning of RBA surplus, and it is the RBA surplus which triggers the operative provisions through AAZL ‑ ‑ ‑

GAGELER J: There is a bit of “looping” going on, is there not? You will not get an RBA surplus unless you first got payments and credits that you apply either method 1 or method 2 to, which will get it into the RBA. That might give you an RBA surplus which you then have to re‑apply according to method 1 or method 2. Is that the way it works?

MR WILLIAMS: I think that is so, your Honour. I think that is so.

GORDON J: That is reinforced by the link between the language in the definition of paragraph (b) of RBA surplus and how it is analysed in 8AAZL, leading through to the methods in ZLA and ZLB.

MR WILLIAMS: Yes.

GORDON J: Which you took us to.

MR WILLIAMS: Yes, that is so.

GORDON J: Is that the point that Justice Derrington was making in 59 when he says the terms of 8AAZL further support that contention?

MR WILLIAMS: Indeed. So, if I can then turn to ZLF – 8AAZLF – which is on page 95 of the book and page 32 of the 2012 reprint:

The Commissioner must refund to an entity so much of:

(a) an RBA surplus –

We pause there and say, you have to read in conventional statutory construction terms, R v Kelly and Allianz Insurance and others. You must read in the definition and that is, credits to which the entity is entitled:

The Commissioner must refund to an entity so much of:

(a) an RBA surplus of the entity; or

(b) a credit . . . in the entity’s favour;

as the Commissioner does not allocate –

So, turning then, to the Overpayments Act – that is within this book at page 46. I will give the full title in just a moment. This is the Taxation (Interest on Overpayments and Early Payments) Act 1983 ‑ the TIOEP Act, I am told to the cognoscenti. Within 12AA of that Act, page 46 of this book, page 33 of the reprint, is the:

Entitlement to interest for RBA surpluses after notification of BAS amount

If:

(a) the Commissioner has allocated a BAS amount to an RBA of an entity –

This is a cumulative, each of these steps is required, and “12AB does not apply” – well, that is not relevant – and critically (c):

under subsection 8AAZLF(1) of the Taxation Administration Act 1953, the Commissioner is required to refund to the entity the whole or part of an RBA surplus for that RBA; and

(a) the refund takes place after the RBA interest day ‑

Mercifully, the court is spared an excursion to that, unlike your Honours’ brethren in the courts below:

then interest is payable by the Commissioner to the entity on the amount refunded.

So, the critical point here is that it is only amounts that the Commissioner is required to refund under 8AAZLF(1) that I went to just a moment ago that triggered the interest obligation.

So, if I could then with that background to the statutory scheme and the approach that Justice Derrington who, of course, wrote the primary judgment to which the majority referred, could I then turn to page 90 of the core appeal book where the reasons of the majority are set out, or the crucial passages of the reasons are set out. In paragraph 164 his Honour “reluctantly and respectfully” disagrees with Justice Derrington’s view that the surplus did not exist here because:

the credit was not one “to which the [taxpayer] was entitled –

and this is perhaps the critical point of difference. I prefer to read that language as descriptive of those credits which have, in fact, been allocated by the Commissioner. Your Honours will appreciate from what we have said earlier that construction gives the first limb no content. The reasoning then follows from 165:

it is not the case that an RBA surplus can only exist and be legally efficacious if the credit in fact allocated was one to which the taxpayer was entitled under a taxation law. In other words, what triggers the existence of an RBA surplus is the historical fact of the allocation of amounts, whether correctly or not, as debits and credits to an RBA by the Commissioner. That is because the scheme established under Div 3 of Pt 11B gives the balance recorded in an RBA legal efficacy, even though the balance may be mistaken. Any other conclusion would seriously undermine the effectiveness of the RBA system.

These passages are where we, with respect, identify error. So, it is only to the extent to which the running balance account is made up of things properly allocated that it has binding effect. It can be sued on, relying on prima facie evidence provisions, but it is open to the taxpayer to say you have got the wrong amount in the RBA, the amounts due or my entitlements to credit produce a different result.

Those provisions, the prima facie provisions, are set out from paragraph 169 on page 91. We would emphasise that they are not about prima facie evidence of the Commissioner of Taxation’s belief or satisfaction which emphasises that the provisions in question are about the operation of law rather than being satisfaction, opinion or belief provisions and the scheme focuses on the correctness of the underlying amounts and in each case in 8AAZI and in ZJ, the provisions are only prima facie evidence in contrast, of course, to the general scheme of taxation law in other respects. Then, in paragraph 170:

The foregoing provisions do not, of course, make production of the “Commissioner’s certificate” conclusive evidence of the correctness of the amounts recorded. But they again support the existence of a system whereby obligations to pay and to refund amounts are recorded in a taxpayer’s RBA. Until corrected, the Commissioner is entitled to rely upon its contents. In my view, so can an affected taxpayer. In that respect, there was no evidence before the Court that the Commissioner had here amended ‑

In our respectful submission, the paragraph raises more questions than it answers. If the balance has efficacy, even though it is wrong, can the Commissioner of Taxation now correct it. Could the Commissioner mistakenly insert next week as the date or a year from now as the date and rely on that having operative effect? In our submission, the prima facie status of the provisions emphasises the correctness of Justice Derrington’s analysis set out at page 61 of the book, page 61 in paragraph 64. These are merely facultative provisions and their existence points strongly against the suggestions that a liability arises merely because the Commissioner debits an amount. Can I turn then to ‑ ‑ ‑

GAGELER J: On the majority reasoning, a liability could arise because of a typographical error ‑ ‑ ‑

MR WILLIAMS: Yes, any kind of mistake.

GAGELER J: ‑ ‑ ‑ is the point.

MR WILLIAMS: Rather like the Torrens title, it is a title by registration. It is determined by the amount that is in fact written in, even if they are mistaken.

GORDON J: Can I ask one question about that? There were subsequent amendments passed that made provisions which seemed to address that question, which are not in issue here, are they?

MR WILLIAMS: No. The scheme, from ‑ ‑ ‑

GORDON J: Why were they added later, then? To give power to do what is now complained about, is that why?

MR WILLIAMS: Well, the scheme from 1 July 2012 was radically altered. It was shifted from being a self‑actuating scheme of the old sales tax kind, and the kind that existed to that date, that we have reviewed here, to one which is quite closely aligned with the Income Tax Assessment Act provisions, in which there is a regime for self‑assessment and deemed assessment coming from self‑assessment, and for amendment of assessments of a conventional kind. So given the radical nature, we do not see much assistance in the rewriting of the provisions. If it had been a tweaking of the system, there might be some inference to be drawn about what it was thought to mean before.

So if I could then turn to the question of whether leave is required, I will address this only briefly because I am not sure of the extent to which it is.....The ground that we run here is the ground that we were given special leave to run. Neither party asserted before the primary judge that there was no power to amend the return. And the submission that we put is recorded at page 21 of the book in paragraph 63, correctly, with respect, at the top of page 21, about line 10:

the Commissioner’s submission, that notification was required . . . to revise or amend the BAS . . . The Commissioner contended that, without the notification, there would have been no overpayment, no RBA surplus, and Travelex would not have been entitled to a refund . . . That was because the net amount would have remained the amount initially reported or worked out by Travelex –

So that is the case we put.

GORDON J: Which paragraph is that, Mr Williams?

MR WILLIAMS: It is at the top of page 21 of the book, about line 10. The paragraph starts 63, down at the foot of the page.

GORDON J: Thank you.

MR WILLIAMS: It is just above paragraph 64. It is the sentence immediately above 64. And so that, of course, is consistent with what we put today, with the recognition, of course, that we have lost on the preceding points as to whether a notification was required, and that we do not pursue them. In the notice of appeal, which is in the book at page 39, the notice of appeal to the Full Court, we did pursue these points squarely.

In ground 2, paragraph (b), we directly pointed to the consequence that would follow. And in ground 8, we took the point that:

Having concluded that there was no provision that required, or allowed for, an amendment of the GST return, the primary judge:

a. erred in not rejecting . . . the Statement of Agreed Facts ‑

and should not have acted consistently with that agreed statement of the position. Justice Derrington deals with this at page 67 of the book. From paragraphs 87 through to 89 he sets out the statements in the agreed facts, then in 88:

As is discussed above, to the extent to which those agreed statements of fact and law suggest that Travelex was entitled to be paid an amount . . . they are in error. No RBA surplus arose –

His Honour then quotes from Damberg v Damberg:

the courts are averse to pronouncing judgments on hypotheses which are not correct. To do so is tantamount to giving advisory opinions –

. . .

Here the parties apparently agreed that, as a result of the Commissioner’s purported amendment . . . Travelex became entitled . . . That was an error as to the legal operation of the GST Act. No criticism can be made of the primary judge for proceeding on –

that. To the Damberg v Damberg reference could be added Holdway v Arcuri, that is in volume 5 of the joint book of authorities, it is at page 845, behind tab 29, Holdway v Arcuri Lawyers [2008] QCA 2018 reported in 2 Qd R 18, and from page 845 of the joint bundle of authorities, page 45 of the print, your Honour Justice Keane made observations from about line 10 quoting from Justice Glass in Grey v Australian Motorists Case, but then at 20 saying:

If this absolutist view is rejected, and the admission of a matter of law or of mixed fact and law is accorded probative value, its probative value may vary: it may or may not be sufficient to support a conclusion . . . whether it is sufficient will depend on the circumstances of the case.

Then in [65]:

Subject to the requirements of natural justice, if evidence admitted without objection demonstrates that an admission of mixed fact and law is erroneous, then the admission will not be decisive against the party making it.

And then, at the foot between 35 and 40:

It is clear, though, that his Honour treated the admission as decisive. In this regard, his Honour erred in that he had come to the conclusion, applying the law to the facts as he found them to be, that, in truth, the two pieces of land had not been distributed –

So, your Honour, Travelex, of course, dealt with the point substantively in the Full Court and raised no objection orally to it being dealt with. There was an objection to ground 5 below, but that was not pursued after they had heard the narrow way in which the Commissioner put ground 5, and no other point was taken. The grounds were squarely dealt with and formed
the focus of oral argument on the appeal and there is no further basis which we require further leave.

Now, your Honours, we have dealt with the notice of contention points in our submissions in‑chief, and we will follow the same procedure here, if that is convenient to the Court. In that respect, I will ask Mr O’Meara to deal with the notice of contention points. Just give me a moment. May it please the Court.

KIEFEL CJ: Yes, Mr O’Meara.

MR O’MEARA: May it please the Court. May I ask your Honours to take up the amended notice of contention, and in particular to go to ground 1 of that amended notice of contention. Your Honours will observe that the ground asserts that:

The Court erred in failing to find that the Commissioner had, on or around 28 June 2012, made an assessment . . . for the November 2009 tax period –

to the effect that the net amount was negative $111,269. Your Honours will find the findings of fact as to what the Commissioner did on 28 June 2012 at paragraph 25 of the primary judge’s judgment, which is on page 14 of the core appeal book. Your Honours will see there that what the Commissioner did on 28 June 2012 was:

allocated the amount of $149,020 to Travelex’s ICA –

that is, its running balance account. And that action was explained by the further finding in paragraph 28 of the primary judge’s judgment, referring to a document dated 3 July 2012, which was entitled “Confirmation of revised activity statement”, stating to the effect that:

the activity statement –

for November 2009:

had been changed from $37,751Dr to $111,269Cr and that this had resulted in a credit adjustment of $149,020 –

Your Honours will find that document at page 31 of the applicant’s further materials and your Honours will see that it is entitled:

Confirmation of revised activity statement

for the period 01/11/2009 to 30/11/2009 –

and states – informs the taxpayer that:

The total amount of your activity statement has been changed from $37751Dr to $111269Cr.

So, those matters explain the primary judge’s finding at paragraph 71 on page 22 of the core appeal book that:

the Commissioner administratively processed the [purported] refund in respect of the November 2009 tax period on the basis that it was an amendment to the BAS –

Then, a further similar finding is made by the primary judge at paragraph 86 of his Honour’s judgment where his Honour refers to the:

long‑standing administrative practice of allowing entities to lodge documents purporting to be amended or revised GST returns . . . and an equally long‑standing administrative practice of “processing” such documents as if they amended the net amounts reported in the GST returns –

and observes that that:

was common ground that that is what occurred here.

That finding was referred to in the Full Court by his Honour Justice Derrington at paragraph 100.

So, what your Honours will observe was that the current findings of the primary judge and the Full Court reflect that what the Commissioner did on 28 June 2012 was to purportedly exercise the power in Part IIB of the Taxation Administration Act to allocate a credit to Travelex’s running balance account and that was done pursuant to the implementation of the long‑standing but unauthorised administrative practice of amending or revising Travelex’s November 2009 GST return to change its net amount for that tax period.

The consequence of that as well is that the further concurrent findings of both the primary judge and the Full Court are that no assessment was made for the November 2009 period. Your Honours have been taken to a number of those findings by Mr Williams. I would also direct your Honours to the finding of Justice Derrington at paragraph 85 on page 66, the further finding of his Honour at paragraph 111 and the observation by his Honour Justice Steward at paragraph 160 on page 89 of the core appeal book where his Honour observes that:

What occurred here was that without the receipt of a return or the issuance of an assessment, the Commissioner made actual allocations to the taxpayer’s RBA.

Now, notwithstanding those findings, Travelex asked this Court to find that the courts below erred in not finding that the Commissioner did not make an assessment on 28 June 2012. But, in our submission, those findings which reflected, as your Honours will have observed, the common position of the parties below demonstrate that that argument really fails at the threshold. As a matter of fact, what the Commissioner did, in this case, was purport to exercise a power he did not have, amending or revising a BAS to change the net amount, and on the basis of its assumed legal efficacy, purported to allocate a credit to Travelex’s running balance account under Part IIB of the Administration Act.

EDELMAN J: How would one tell the difference between purporting to allocate a credit and issuance of an assessment?

MR O’MEARA: The allocation of the credit is something which follows, would necessarily follow, in this case the issuance of the assessment. The assessment was in this case the matter which was necessary to create the entitlement.

GAGELER J: Could I ask you about that? .....create an entitlement arising from an assessment? I should say, what provision of what Act?

MR O’MEARA: The effect of the assessment is, as the Full Court pointed out in Multiflex, to supersede the net amount in the GST return. So it is the force of the assessment which, as the Full Court put it, supersedes the GST return, makes the net amount in the assessment the relevant net amount for the purposes of the GST Act, and then the GST Act, section 35‑5 and section 35‑10, operating on the net amount as stated in the assessment creates the entitlement which then engages Part IIB of the Administration Act. I hope I have answered your Honour’s question.

GAGELER J: Thank you.

MR O’MEARA: So, in our submission, those ineffective Acts cannot be treated as something which, in fact, they were not, according to the concurrent findings, in an attempt to breathe life into them and give them a legal efficacy which on their own terms they do not enjoy. In paragraph 13 of our outline we have referred to the observations of Justice Kitto, in Federal Commissioner of Taxation v Wade, which is 84 CLR at page 105.

We have handed that up in the material that we handed your Honours this morning, but Justice Kitto there observed, referring to some observations of Chief Justice Latham and Chief Justice Starke in Danmark v Federal Commissioner of Taxation, that where the Commissioner made an assessment in exercise only the power in one section, that cannot be supported as effective under another. And so much more we say, that where the Commissioner purports to exercise a power which is not a power of assessment, and which does not in fact exist, that cannot be supported as an exercise of a power of assessment?

EDELMAN J: I am still struggling to see why, on its objective construction, irrespective of what might have been going on in the Commissioner’s head, or in the relevant delegate’s head, the particular Acts could not be characterised as an assessment.

MR O’MEARA: Can I address that now, your Honour, by asking the Court to go to joint book of authorities, volume 1, tab 4, which contains the relevant power of assessment.

GORDON J: What is this – what are we being taken to?

MR O’MEARA: I am so sorry, it is section 105‑5 of Schedule 1 of the Administration Act, it is on page 121 of volume 1 of the joint book of authorities. It is 263 ‑ ‑ ‑

GORDON J: Is this the contention that there is no assessment of Travelex’s net amount for a tax period?

MR O’MEARA: Yes, that is right.

GORDON J: So, can I just pick that up and ask you to go to the applicant’s further materials and, in particular, go to page 33, read with page 34. I think the questions that Justice Edelman was asking you ‑ if you start at 31, you have got taxpayer’s name and ABN. You have got an identified period. Then, if you look at the calculations on 33 and 34, you have a net amount identified for that period in respect of that taxpayer.

MR O’MEARA: Yes. Your Honour’s observation is that Commissioner is, in effect, making calculations and doing so in a manner which would reflect what he would do if he were making an assessment.

GORDON J: There is the amounts you owe the ATO and the amounts the ATO owes you and it tells you that the ATO owes Travelex an amount.

MR O’MEARA: Yes. So, the Commissioner has made – on the basis of the materials supplied by Travelex calculations, and arrived at an amount.

EDELMAN J: If there were a big word “Assessment” on the top, would that be enough?

MR O’MEARA: If this was styled as a notice of assessment, it would reflect that what the Commissioner had, in fact, engaged in was a process of an assessment – he had made an assessment.

EDELMAN J: But your submission is, effectively, that what is missing is a heading which says, “Notice of Assessment”.

MR O’MEARA: It is a little bit more than that, your Honour. What the Commissioner has done – although it is a process of calculation which reflects, in many ways, what he would do if he were making an assessment – was not, in fact, an assessment but was a pursuit of an administrative practice which was, in the event, unauthorised.

KIEFEL CJ: But, as I understand it, your principal argument is that it is necessary that, if there be an assessment, it be notified as such because the notification of an assessment has legal consequences.

MR O’MEARA: That is correct, your Honour, yes.

KIEFEL CJ: What legal consequences would have followed if this had been notified to the taxpayer as an assessment?

MR O’MEARA: Two legal consequences, your Honour. One, the effect of the net amount then would be taken as – the net amount would be taken as the net amount for that period and would supersede what was in the GST return and the notice would then engage the conclusive evidence provision which then appeared in section 105‑100 of the Taxation Administration Act.

KIEFEL CJ: What would have been the effect in relation to interest?

MR O’MEARA: That is a matter that the primary judge observed at paragraph 98 of his Honour’s judgment where his Honour – and Mr Williams took you to this morning – said that if:

the Commissioner [had] made an assessment . . . the position in relation to interest would undoubtedly have been different.

KIEFEL CJ: How different? Can you explain that?

MR O’MEARA: His Honour did not say, but what his Honour may have had in mind was that the effect of the assessment would be that the entitlement would accrue from the date of the assessment was made, and thus interest would accrue on that date as well. That is one interpretation of what his Honour was referring to in that statement.

GORDON J: The other is not, is it, that it affects and changes it from the date upon which the GST return lodges, which is the argument I put to Mr Williams. That is the alternative argument.

MR O’MEARA: That is an alternative view.

GORDON J: Yes. And that would give rise to a different date for interest, arguably.

MR O’MEARA: Arguably, your Honour, yes.

GORDON J: Yes.

MR O’MEARA: So can I invite your Honours’ attention to section 105‑5, and your Honours will observe that the power of the Commissioner is a power to make an assessment. What is referred to there by the word “assessment”, in our submission, is an object or an outcome or a thing, and the Commissioner’s power is what appears to make that object, outcome or thing. It is not a power to assess; it is not a power to make calculations, although that is necessarily a part of the outcome, object or thing which the section refers to.

So while your Honours will see that there is no asterisk next to the word “assessment” in section 105‑5, and while there was a definition of “assessment” in section 995‑1 of the Income Tax Assessment Act 1997 at the time – and we have given that to your Honours this morning – your Honours will see that it is not relevant for this power here, and it did not refer to it.

But nevertheless, in our submission, the relevant nature of an assessment for this power is still that described by his Honour Justice Kitto in Batagol, and your Honours will see Batagol in volume 3 of the joint book of authorities, behind tab 15. In the passage appearing on page 257 of volume 3, at 252 of the report, his Honour Justice Kitto refers in a well‑known passage to an assessment, being at about point 4:

the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case.

And then over the page on 258, 235 of the report, at about point 8, line 40, his Honour refers to assessment being:

the whole process which comes to a head in the service of a notice of assessment and thereby becomes, as a whole, an act in the law.

And consequently, in our submission, the word “assessment” in section 105‑5 of Schedule 1 should be understood to be the completion of a process by which the provisions of the GST Act, in this case, are given concrete application in a particular case, with the consequence that a specified amount of money becomes the taxpayer’s net amount, and comes to a head in the service of a notice of assessment, and thereby becomes an act in the law.

The consequence of all this, as your Honours will have observed, is that there is nothing, we say, which could answer the description of a notice of assessment which represents the culmination of that process which Justice Kitto referred to.

GAGELER J: What do we make of the second sentence of section 105‑20(1)?

MR O’MEARA: Yes. Your Honour, in our submission, to be understood ‑ the failure which is referred to in there is to be understood as a failure to give the assessment as soon as practicable, not to give a notice of assessment at all. It does not, in our submission, contemplate unnotified assessments.

GAGELER J: It does suggest, does it not, that an assessment can be made but not notified?

MR O’MEARA: It suggests, in my respectful submission, that an assessment can be made but not notified as soon as practicable. There might be a delay in the assessment notification. But it does not, in our submission, contemplate wholly unnotified silent assessments, as it were. This might be observed by comparing the second sentence of section 105‑20(1) to subsection (2) of the Income Tax Assessment Act 1922, which Justice Kitto referred to in Batagol. Your Honours will find that in volume 2 of the joint book of authorities, behind tab 9.

GORDON J: Sorry, where are we being taken to?

MR O’MEARA: This is the Income Tax Assessment Act 1922, your Honour, section 40(2). Your Honours will see that section 40(1) was an obligation on the Commissioner:

As soon as conveniently may be after an assessment is made –

give notice of it:

to the person liable to pay the income tax.

Then, subsection (2) referred to an:

omission to give any such notice shall not invalidate the assessment.

So that is, in our submission, in very different terms from the second sentence of subsection 105‑20. If the Parliament had, in subsection 105‑20, Schedule 1, contemplated unnotified assessments, they could have followed the model in subsection (2) of the Income Tax Assessment Act 1922 but their omission to do so is significant.

GORDON J: What about 105‑15 in that context, then?

MR O’MEARA: That, in our submission, is referring to the earlier stage where the obligations or entitlements arise from the GST return, not from a position where they are being superseded, as the Full Court in Multiflex put it, by a notice of assessment or an assessment.

KIEFEL CJ: That might be a convenient time for the morning break, Mr O’Meara.

MR O’MEARA: If your Honours please.

AT 11:18 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.33 AM:

KIEFEL CJ: Yes, Mr O’Meara.

MR O’MEARA: If it please the Court. Before the morning tea adjournment, I was submitting to your Honours that there was nothing in this case which can be characterised as a notice of assessment of net amount for Travelex for the November 2009 tax period which represents the culmination of the process of assessment and as Justice Kitto said is an act in the law or the thing or the object of the outcome for which section 105‑5 gives the Commissioner power to make.

Can I ask your Honours to go to volume 3, tab 19 of the joint book of authorities which is the decision of this Court in Federal Commissioner of Taxation v Prestige Motors [1994] HCA 39; 181 CLR 1 and, in particular, at page 14 of the report, which is 418 of the book, the Court stated that one of the requirements of a notice of assessment was it:

should bring to the attention of the person on whom it is served that the assessment to which it relates is an assessment of that person to tax.

In our submission, one of the reasons why a notice of assessment has to have that quality of telling the person on whom it is served that it is an assessment or it relates to an assessment of that person to tax is that the fact of the assessment is something that, as your Honour the Chief Justice observed before, has consequences. I adverted to the engagement of the conclusive evidence provisions as one of those. Of course, another of those is the engagement of the objection and appeal rights under Part IVC of the Taxation Administration Act.

GORDON J: And interest charges?

MR O’MEARA: Yes, your Honour. So that is of relevance, in my submission, when we come to consider whether there was a notice of assessment in this case representing the culmination of that process. Certainly, in our submission, the acts of the Commissioner on 28 June 2012 allocating amounts to the running balance account cannot be any such notice of assessment nor, in our submission, can the confirmatory letter of 3 July 2012, which is at page 31 of the appellant’s further materials.

As was observed earlier this morning that does not speak of an assessment at all but of a confirmation of a revised activity statement which is, of course, unsurprising because this was the power which the Commissioner was attempting to exercise.

So, in our submission, the Court would be cautious in treating a document which is not stated to be an assessment, does not contain the indicia of an assessment as having the legal consequences under the Act which an assessment has, including engaging.....rights, engaging the objection and appeal process and the time limit and your Honour Justice Gordon referred to matters of interest, et cetera.

They are my submissions in respect of paragraph 1 of the amended notice of contention except to observe one further matter which, I think, emerged from the exchange between your Honour Justice Gordon and myself earlier this morning. If your Honours form the view that there was an assessment for the November 2009 tax period, that does not conclude the interest issue having regard to his Honour the primary judge’s observations at paragraph 98 and it will probably have to go back to his Honour.

Can I now turn to paragraph 2 of the notice of contention and your Honours will see that that is a contention to the effect that:

The Court erred in failing to find that, in respect of the November 2009 tax period, Travelex had a credit in an amount of $149,020.

A contention to the same effect was put to the Full Court and considered by his Honour Justice Derrington at paragraphs 105 to 107, which your Honours will find at page 72 - starting on the foot at 71 and over the page to 72 of the core appeal book. His Honour has two extracts from the transcript of argument before the Full Court, which puts in substance the same contention which is now put to your Honours, that is paragraph 2 of the amended notice of contention and, in our submission, it is erroneous essentially for the reasons given by his Honour on which point the Full Court was united, as I will show to your Honours.

But the first point that his Honour Justice Derrington observed is that the only consequence of this Court’s decision in Travelex (No 1) was that the sale of foreign currency by Travelex on the departure side of the Customs barrier at Sydney Airport was GST‑free, and this is clear from the first two paragraphs of the judgment of Chief Justice French and Justice Hayne in Travelex, which your Honours will find at the joint book of authorities volume 4, tab 24.

Your Honours will see in paragraph 1 at page 656 of the book, the Chief Justice and Justice Hayne identify the issue as whether the sales of foreign currency on the departure side of the Customs barrier at Sydney Airport were GST‑free, and then they observe in the second sentence at paragraph 2:

It is necessary to ask whether the supply is “GST-free” because Travelex submitted that, if the supply is GST‑free, it could claim associated input tax credits which it could not claim if the supply is input taxed.

Then, parenthetically, their Honours observed:

(The validity of this submission was not in issue in the appeal.)

So, as Justice Derrington pointed out at paragraph 106, this Court, of course:

did not decide that Travelex was entitled to a credit –

in November 2009:

of $149,020 or –

any other amount. At most, the application of this Court’s decision by Travelex to the November 2009 tax period exposed the capacity to claim additional input tax credits for tax periods including November 2009. But, as his Honour Justice Derrington further observed, in paragraph 106, those input tax credits only had significance in the event and to the extent they were taken up in the calculation of a net amount under the GST Act. It is the net amount which is the determinant of the obligation to pay an amount to the Commissioner, or to receive a refund.

Your Honours will see this on provisions of the GST Act, some of which Mr Williams took you to this morning, so I can be briefer in relation to them. But at volume 2 of the joint book of authorities, behind tab 5, you find the GST Act. In particular, Mr Williams took you to section 7‑5 and 7‑15 this morning and your Honours will see that the significance of a net amount in those provisions is revealed in section 7-15 as feeding in – the significance, I am sorry, of an input tax credit is that it feeds into a net amount, and it is that amount that the entity must pay to the Commissioner or the Commonwealth must refund to the entity in respect to the period.

Then that is further made plain at section 35-5 of the GST Act, which appears on page 164 of the book and in particular at note 1, where it refers to the provisions in Part IIB of the Taxation Administration Act.

EDELMAN J: Sorry, note 1 to what?

MR O’MEARA: Note 1 to section 35-5(1), your Honours. So this argument, as Justice Derrington correctly observed at paragraph 106, rests on a conflation of input tax credits, which have the significance of an amount which can be included to form a net amount, and credits to which an entity is entitled under a taxation law for the purpose of Part IIB of the Taxation Administration Act.

It is the effect of the Full Court’s decision in Multiflex, in particular at paragraph 25, that it is the net amount for a period for a taxpayer. For the purposes of section 35-5 of the GST Act, that is the amount either stated in the GST return or in any superseding assessment.

GORDON J: Is your short point that one could not make such a finding because you would have to work through offsets against other tax liabilities, and in effect what I call the cascading set of provisions, in order to work out where the amount ultimately came out?

MR O’MEARA: Yes, and it is only once it comes out in a net amount which takes effect in one of the ways the Act makes provision for ‑ - -

GORDON J: That is Part IIB in terms of offsetting against other tax liabilities, potentially.

MR O’MEARA: No, we have not quite ‑ - -

GORDON J: Section 8AAZL.

MR O’MEARA: Your Honour, that is the next step. So what we have got to do is to ‑ - -

GORDON J: I am assuming you have got to the amount. I assume that you have identified the amount. Then, even then it is not an entitlement because one has to go on to work out calculation and allocation in respect of set‑offs against other tax liabilities, 8AAZA in terms of ‑ - -

MR O’MEARA: Yes. Precisely so, your Honour. Now, I observed before that this was a point on which the Full Court was united, and that is clear from the observation of his Honour Justice Steward at paragraph 157 on page 88 of the core appeal book, where his Honour observes that he agreed with Justice Derrington that the scheme of the GST Act is that a claim for refund is activated by the giving of a return or the making of an assessment and it is that and only that that will trigger the allocation to an RBA of an entity for the purposes of Division 3, Part IIB of the Taxation Administration Act. Then as your Honour Justice Gordon correctly observed, that has to be worked through to obtain an RBA surplus which engages the refund, and then interest provisions.

Now, importantly, as the Full Court pointed out in Multiflex, particularly at paragraph 26, a net amount in the GST return is the net amount, and remains the net amount for the purposes of section 35-5 of the GST Act – even if it is wrong, unless and until it is superseded by an assessment. Your Honours will see that if you go to Multiflex, which is in volume 5 of the joint book of authorities behind tab 28. Your Honours will see in paragraph 26, which is on page 813 of the book, the Full Court states that:

The answer which the legislation provides to the Commissioner’s disquiet as to being obliged to make a refund based on a claimed net amount in a business activity statement which he knows to be wrong is straightforward. In such circumstances, he is entitled at any time to make an assessment -

So even if the amount in the GST return is wrong, unless and until it is superseded it is the net amount for the purposes of the GST Act, and it is that amount which is relevant for the purposes of the engagement of the running balance provisions in the Administration Act.

The consequence of that, in our submission, your Honours, is that the Full Court, in particular in paragraphs 105 to 107 of the reasons of his Honour Justice Derrington, correctly rejected the contention that independently of any assessment or change to the net amount in the GST return, Travelex was entitled to the November 2009 tax period of a credit of $149,020 and your Honours should likewise reject paragraph 2 of the amended notice of contention.

KIEFEL CJ: Thank you, Mr O’Meara. Yes, Mr Hmelnitsky.

MR HMELNITSKY: Thank you, your Honour. Just before I come to the substance of the argument, may I respond briefly to a few matters that were raised in the course of the argument this morning and deal with them briefly. The first, your Honours, is that insofar as leave is required, without wishing to diminish the force of what we put in writing, I was not proposing to address that and I say no more about it than this, save for one matter that was raised as to the basis on which the proceedings at first instance and in the Full Court were conducted.

It was submitted that it had been common cause at all points that the Commissioner had a power to amend a BAS, and that was the common basis upon which the litigation had been conducted. Your Honours, that is not so. Indeed, the very heart of the dispute before the primary judge and in the Full Court was as to whether or not such a power existed. That is apparent from the terms of the primary judge’s reasons which appear particularly starting at page 23 of the core appeal book.

At about line 15, your Honours see the principal issue in dispute and the way the primary judge dealt with it. That issue was whether or not there was a statutory basis for an amended BAS. It was Travelex’s submission at all points that the Commissioner had no such statutory basis. That reflects of course the submissions that were put - the Court does not have all of those, but the Court does have in the appellant’s book of further materials, behind tab 12, the ‑ ‑ ‑

GORDON J: What page is that, please, Mr Hmelnitsky?

MR HMELNITSKY: I am sorry, your Honour. The submissions start at around page 75.

GORDON J: Thank you.

MR HMELNITSKY: This is just the written reply submission of Travelex before the primary judge, but your Honours get a sense of the stance taken by Travelex on this issue before the primary judge from, for example, paragraph 5(d) that appears at about line 40 of page 76 of this book of further materials where the submission is put that:

The premise that a net amount can be “superseded” by “an amended GST return” . . . is wrong; there is no statutory basis for it.

I will not identify all of the propositions put there contrary to what is said to have been the common basis, but I do draw attention to what is said in paragraph 9 towards the top at about line 10 of paragraph 79 of the book:

That there is no provision permitting, or as presently relevant imposing a requirement to effect an amendment to a GST return –

Now, your Honours, I say that only in support of what has already been put in writing in relation to the question of leave, that point being that the point now raised is not a matter that was somehow assumed by the parties at first instance and was shown to be wrong by the finding of the primary judge.

GAGELER J: Mr Hmelnitsky, is there any precedent in this Court in a case where special leave has been granted to raise a question of law of the Court taking the view that some additional leave is necessary for the party granted special leave to exercise that special leave?

MR HMELNITSKY: No, your Honour, but the question is not just a question of leave to argue the point. The question is also leave to argue the point in the face of a pleading that, as it stands, does not allow the point to be raised. On the defence as it stands, the Commissioner’s argument is not open because on his pleading, as it stands, despite the grant of special leave, he pleads the existence of an RBA surplus.

GORDON J: It begs the question, does it not?

MR HMELNITSKY: Yes, your Honour, but as I say, I say no more about it than that, but I do wish to clarify the position that was taken at first instance in that particular respect.

KIEFEL CJ: I take it you accept as is asserted that it was Travelex’s position before the primary judge that no assessment was made?

MR HMELNITSKY: It was, it was, but again as we pointed out in the written submissions, that was not in issue. There was no issue to be determined in that regard because of the common agreement between the parties and the position taken by the Commissioner that there did, in fact, exist an RBA surplus. So, there was no occasion to raise that.

The second matter that I wanted to raise, your Honours, just before coming to the substance of the argument was as to a submission that was put as to what alternative remedy may have been available to Travelex in the circumstances that it found itself in following the judgment of this Court in the earlier proceedings.

What was submitted was that the primary mechanism that Travelex ought to have availed itself of was to claim the now available input tax credits in a later GST period and reference was made to something that Justice Derrington had said in that regard at about paragraph 84 in his Honour’s reasons. May I take the Court just very briefly to that paragraph.

GORDON J: Do you accept that you could have done it by an assessment.

MR HMELNITSKY: By assessment, yes, your Honour, we do.

GORDON J: And did not?

MR HMELNITSKY: No, we did not. But, your Honour, what is said at paragraph 84 is to this effect – and it is this that we apprehend the Commissioner has now seized upon to advance the submission that there was a primary mechanism – an alternative primary mechanism that could and, perhaps, should have been availed of, the reference in paragraph 84 to a possibility said to be left open by:

s 29‑10(4) of the GST Act –

to claim these disputed input tax credits in a later period. There are a couple of difficulties with that proposition. One is we do not see that it can, in any way, bear on any of the questions of construction with which the Court is concerned now. But, in any event, it was, of course, agreed – and it seems to us to be still agreed – that the net amount – if the input tax credits are taken into account for the November 2009 period – that the disputed surplus actually did arise. In other words, the Commissioner accepts – and we understand the Commissioner always to have accepted – that these disputed credits were, in fact, attributable to the November 2009 period.

To the extent that Justice Derrington is suggesting something more than was suggested to him by either party, namely, that there was an alternative mechanism – namely, an ability to claim the credits in later periods – his Honour, it seems to us, has had regard to the state of section 29‑4(4) as it stood after about the middle of 2010 and not to the form in which it applied to the November 2009 period.

The form of section 29‑4 – sorry, section 29‑10(4), that we apprehend his Honour was referring to, is to be found in volume 1 of the joint book of authorities. My apologies, your Honours. The reference to section 29‑4 of the GST Act which appears in volume 2 of the joint book of authorities, in the joint book, it appears at page 159, and it is page 66 of the reprint.

Subsection (4) – which appears in this reprint at the top of the following page – applied to the relevant tax period would make good the proposition that Justice Derrington put and that my learned friend puts. But the Act only took that form after Act No 21 of 2010 came into effect for tax periods on or after 1 July 2010. Prior to that time, there was no such provision. Your Honours, can I come then to ‑ ‑ ‑

GORDON J: Just so I am clear with this submission, is the submission that the only alternative routes for the adjustment was an assessment? I thought there was also some suggestion by Mr Williams that there was an adjustment possible under either Division 17 or Division 19.

MR HMELNITSKY: If there had been adjustments to the net amount – if an adjustment event had occurred – then that would be so. But it is not suggested by either party that the fact of the High Court deciding the earlier proceedings was an adjustment event within..... So that really leaves assessment.

GAGELER J: Or it could have still been taken, in anticipation of the.....that Travelex asserted before the High Court.....

MR HMELNITSKY: I am sorry, your Honour, the route of?

GAGELER J: Of amending the GST return.

MR HMELNITSKY: But that is the very thing that both the primary judge and the Full Federal Court has found has no statutory basis.

GAGELER J: I see.

MR HMELNITSKY: It is what was done, and it was done on the basis that it was the Commissioner’s administrative practice ‑ ‑ ‑

GAGELER J: I am sorry, I did not mean amending the return, I meant claiming an input tax credit for a previous period.

MR HMELNITSKY: Yes, but that is what was done, and I will come to that, your Honour. That is precisely what was done, in terms. Can I come then to the substance of the issue that is raised on the notice of appeal. In our written submissions the Court will have seen that we advance the proposition that Part IIB of the Administration Act attaches consequences to the fact of the existence of an RBA surplus based on allocations that actually have been made by the Commissioner.

May I attempt to tease that point out just a little further by reference to the text and the overall structure of Part IIB. The part appears behind tab 4 in the first volume of the joint book of authorities. The part relevantly works in this way. Uncontroversially, in Division 2 in section 8AAZC there is power given to the Commissioner to:

establish one or more systems of accounts . . .

Each account is to be known as a Running Balance Account –

One sees that in subsection (2), and they may be established by the Commissioner:

on any basis that the Commissioner determines -

as appears in subsection (4). But the way that that account comes to have amounts of debts and amounts of credits allocated to it is dealt with separately in these provisions and in the following way. Insofar as the Act deals with the Commissioner’s power to allocate debts to the running balance account, the power appears in section 8AAZD. The Commissioner, by that provision, has a power to:

allocate a primary tax debt to an RBA –

Insofar as payments, credits and other surpluses are concerned the Act deals with the matter quite differently and it does so in Division 3, which appears at the top of page 92 of the book, or page 29 of the reprint. The Court has already been taken to this, but our submission, your Honours, is that it works in the following way. First, the provision provides that:

the Commissioner must treat the following kinds of amount –

in a particular way. We note that the provision is directed to the Commissioner, and it confers a power on the Commissioner and a duty and most relevantly, it confers a duty on the Commissioner. That duty works, we say, in the following way, that where the Commissioner is of the view that, for example, a payment has been made in a particular amount in relation to a particular liability, he is then, in respect of that, under a duty to allocate it or apply it in one of the ways provided in the balance of the division, that is, either under method 1, under ZLA, or under method 2 in ZLB, and I will come back and say a little more about each of those methods shortly but, in our submission, whether or not any particular amount of a payment or credit or, indeed, surplus is one that the Commissioner is required to treat with in the way that 8AAZL provides is, in the first instance, a matter for the Commissioner.

It is only after there has been that administrative step, if I can call it that neutrally, undertaken by the Commissioner that one comes to consider what the Act then assigns to the resulting balance, namely the consequences that the Act assigns to the resulting balance on the account, and that appears in the definitions provision in section 8AAZA, most relevantly in the definition of “RBA deficit debt” on the one hand and “RBA surplus” on the other.

The consequences that flow from the existence of an RBA deficit debt and the existence of an RBA surplus are spelt out in the balance of the part. Where there is in fact a balance on the account that meets the description of “RBA deficit debt”, that amount is made a liability – it is made a debt due and payable to the Commonwealth quite separately from the liability that exists in relation to the underlying debt. That appears from 8AAZD and, indeed, 8AAZH.

The consequence of that is that where the state of the account is such that on a particular day there is a balance as a result of the Commissioner’s allocation that meets the description of an “RBA deficit debt”, then there is a debt in that amount creating a new liability that was not there previously to pay an amount to the Commissioner.

In the case of RBA surplus, again, we say, that what the Act attaches significance to in this context is the state of the account as it appears at the end of any particular day with the result that where the balance of the account as created and maintained by the Commissioner has a surplus balance meeting the description of “RBA surplus” in 8AAZA, there is then a further duty upon the Commissioner that is set out in 8AAZLF to refund the amount of that surplus and, again, that is a liability or rather that is a duty that is the creature of this particular part of the Administration Act.

In each of those cases, your Honours, in our submission, what the Act is attaching significance to and the thing to which the Act assigns the consequences that I have just described is the state of the account at a particular time and the state of the account, in our submission, is necessarily the product of those things done by the Commissioner including, we submit, the necessary step of forming the view that he is dealing with a payment that requires him to allocate an amount or he is dealing with a credit that is in fact - and the subsequent allocation of that amount to a running balance account.

In our submission, on that construction, the particular provision on which the Commissioner hangs his hat insofar as this construction is concerned, or this construction issue is concerned, is not to – that provision is not to be understood as creating, as it were, an objective requirement that conditions the allocation to the account or conditions the state of the account at any particular point in time. What conditions the state of the account is the administrative action taken by the Commissioner including forming that view that he is dealing with something that needs to be dealt with in his accounting system in this way.

Your Honours, in support of that construction, we have, in our written submissions, identified what we contend to be the overall purpose of these provisions and we have done so in part by reference to considerations of statutory history and by reference to some of the secondary material which I will not take the Court to.

But may I add a couple of additional observations in relation to the overall statutory purpose here? The first, your Honours, is that it is clear – both from the secondary material but also from the terms of Part IIB – that the Act is intended to create what we have submitted to be a parallel system – a parallel system for determining the rights and the liabilities respectively of taxpayers on the one hand and the Commissioner on the other.

GORDON J: Is that right? I thought it was described as an accounting framework. I thought it was one in which – it was not in a sense – it was auxiliary.

MR HMELNITSKY: Yes.

GORDON J: It sat alongside of. It was not intended to deal with rights and obligations. It was to deal with collection questions.

MR HMELNITSKY: Indeed, your Honour, but, in our submission ‑ ‑ ‑

GORDON J: How does that sit with your submission?

MR HMELNITSKY: Because, your Honour, it does that by creating that separate liability and giving rise to refund obligations independently of the rights and liabilities that govern taxpayer and the Commissioner other than under the RBA provisions. That is how this part delivers certainty in utility to the collection process. It does so by creating a separate system that starts with accounting but, on the basis of that accounting, creates separate obligations enforceable in relation to – and we emphasise this – the state of the account. So, it becomes the state of the account from time to time based on allocations to the account.

EDELMAN J: How, in your submission, does the Commissioner recover amounts that are erroneously distributed in the accounts?

MR HMELNITSKY: The Commissioner, in our submission, always has a power to revoke an erroneous allocation. So we say that presents no particular difficulty for the Commissioner.

EDELMAN J: If a payment has been made under that allocation, it is 8AAZN, is it?

MR HMELNITSKY: If a payment has been made on the basis of a mistaken allocation?

EDELMAN J: Yes.

MR HMELNITSKY: Then we would not dispute that he has the power to recover.

EDELMAN J: Where does that power come from? Is it 8AAZN?

MR HMELNITSKY: I will just find the reference, your Honour. If your Honour will just bear with me for a moment. In section 8AAZN – I think this is the section that your Honour referred me to just now – yes, there is provision there for ‑ ‑ ‑

EDELMAN J: How would that work. because on your construction it would not be an overpayment. It would be a payment that was required to have been made under the RBA.

MR HMELNITSKY: The question would arise as to whether or not, in those circumstances, the payment did meet the description of an administrative overpayment.

EDELMAN J: But how to put it on your ‑ ‑ ‑

MR HMELNITSKY: Because if it could be demonstrated – as the Commissioner no doubt would attempt to demonstrate here – that the surplus was the product of a mistaken allocation, then it would seem to us that he would have probably the better side of the argument – that there had been an administrative overpayment.

GORDON J: The contrary argument, of course, is that if you take the way Mr Williams put it.....RBA surplus act to the definition in 8AAZA as being credits to which an entity is entitled under a taxation law, there is none of that debate. There is a certainty and it is a question and process available in order to determine ‑ ‑ ‑

MR HMELNITSKY: Yes. Well, there are two things about that, your Honour. One is that really is the question of construction, is it to be seen as an objective criterion that operates in the way that the Commissioner..... The difficulty with that, in our submission, is that it is difficult to reconcile with the balance of the provision and, indeed, the stated object of the provisions, namely, as intending to create separate liabilities. On the Commissioner’s construction there can never be any divide between, on the one hand, the amount of the underlying liabilities and the amount of an RBA surplus ‑ ‑ ‑

GORDON J: In the end that is the difference between - use that as the intended separate ‑ ‑ ‑

MR HMELNITSKY: Yes, that is exactly so.

GORDON J: ‑ ‑ ‑ separate existing liabilities, Mr Williams says no ‑ ‑ ‑

MR HMELNITSKY: Yes.

GORDON J: ‑ ‑ ‑ it is a liability which must work on an RBA surplus defined to mean credits to which an entity is entitled under taxation law.

MR HMELNITSKY: Exactly so, exactly so, and that is what we see to be the real issue between us. But it does have this consequence that if the Commissioner is right then it is, with great respect, very difficult to see what utility these provisions serve because at any point at which the Commissioner tenders, for example, a statement of account identifying, for example, an RBA deficit debt, it will always be a matter for the court, not to determine the correctness of the account, that will not count for anything - what will matter and what will be in issue will be the state of the underlying rights and liabilities of the parties.

GAGELER J: Is that not what section 8AAZI of the Taxation Administration Act is directed to?

MR HMELNITSKY: In part, your Honour, but all that demonstrates is that – may I answer your Honour’s question this way? What 8AAZI contemplates is that the RBA and the statement of the RBA is intended to have some legal effect and ought in some respect be the subject of proof. Now, one asks to what end, on the Commissioner’s construction, to what end?

GORDON J: Recovery of the debt.

MR HMELNITSKY: But, your Honour, if the Commissioner is seeking to recover as a debt the debt that is made due and payable by ZLH, the Commissioner, on the Commissioner’s construction, no issue arises as to the correctness of the RBA statement. What determines the outcome of those proceedings is the state of the rights and liabilities quite apart from the RBA system.

Now, there is more to be said about this, your Honours, because in these two methods for allocating amounts to the running balance account in the first place - they are methods 1 and methods 2 set out in, if I can abbreviate, ZLA and ZLB, it is apparent from those provisions that what Parliament has in mind is that the creation of the account and the allocations to it and the applications to other debts is to proceed on the basis, we say the explicit basis, that an alteration to the state of the running balance account is not an alteration to the underlying rights and liabilities of the parties.

The two methods, broadly, are these, that where the Commissioner has a payment that has been received, for example, under 8AAZL, is under a duty to do one of two things, and only one of two things. He may apply method 1, and if he applies method 1, he is required in those circumstances, to allocate that credit to the running balance account of the entity, but the duty does not stop there because quite separately from the alteration to the balance of the running balance account that is worked by 8AAZLA(1), he is under a separate and distinct duty to apply the credit against the underlying liabilities of the entity, such as they are.

Similarly, if the Commissioner, having received that credit, that payment, chooses to apply method 2, then duty is different, but it again reflects an explicit, we say, assumption that the Commissioner is dealing with two quite separate bases of liability.

If he chooses to apply that payment to a non‑RBA debt, that is a debt that is not on an RBA, he is then under a separate duty which arises in slightly narrower circumstances, to then allocate to an RBA of section 2 again, a separate power, a separate duty in relation to how he deals with a particular payment or credit that has been received. That reflects what we say is the overall design of these provisions which is that the RBA should create a separate regime for not just providing information about the rights and liabilities of the parties but actually stating them with authority.

GAGELER J: Could we go back to Division 2 for a moment? You pointed out that section 8AAZH can create a freestanding liability. If you just have a very simple case where a primary tax debt is mis‑recorded, sort of overstated in the RBA, on your submission that creates a distinct liability to pay the overstated amount. What can the taxpayer do to challenge that under the provisions of this Act?

MR HMELNITSKY: It is not asserted here, your Honour, that there has been any jurisdictional error in anything that has occurred, but a question will always arise as to whether or not the decision of the Commissioner in doing what he did did amount to a jurisdictional error. In any event, the taxpayer will always have the ability to assert his or her rights in relation to that underlying liability.

GORDON J: But where are the rights, and how?

MR HMELNITSKY: In relation to whatever underlying liability has caused the Commissioner to form the view in the first place that there was an amount to be debited to the running balance account. All of those rights are preserved including rights of appeal and review.

GAGELER J: Accepting all that, you say there is a distinct liability that arises from 8AAZH which can be presumably sued upon by the Commissioner and.....the underlying liability.

MR HMELNITSKY: Separately from any underlying liability but that is not to say that whatever rights and liabilities the taxpayer has cannot be asserted in relation to that underlying liability and the provisions ‑ ‑ ‑

GAGELER J: Yes, but what about this liability? How is that dealt with?

MR HMELNITSKY: I am sorry?

GAGELER J: How is this distinct liability that you say exists dealt with in the scheme of the Act?

MR HMELNITSKY: It is made due and payable. It is a separate - if I am not mistaken, a separate tax‑related liability under the general provision of the Administration Act. It can be sued for by the Commissioner and the Commissioner is entitled, in those proceedings, to tender the statement of the RBA account as prima facie evidence that the RBA was duly kept.

KIEFEL CJ: Would the taxpayer establish the taxpayer’s position by requesting an assessment?

MR HMELNITSKY: The taxpayer could always do that, your Honour, yes.

KIEFEL CJ: That would establish the rights and liabilities?

MR HMELNITSKY: That would also, yes.

KIEFEL CJ: Does that not somewhat tend against your argument that this establishes a system with a parallel universe?

MR HMELNITSKY: Save that many of the entries on a running balance account may not be assessed liabilities. Provisions do not only apply to liabilities that are capable of being assessed. We do put the proposition that the part does set out to create an auxiliary system in the sense that it produces a form of accounting, the balance of which has the consequences identified by Justice Steward and for which ‑ ‑ ‑

KEANE J: If that were right, would one not expect to find something the equivalent of ZH on the other side of the record, as it were?

MR HMELNITSKY: In the case of surpluses?

KEANE J: Yes.

MR HMELNITSKY: In the case of surpluses, your Honour, there is a distinct duty that is created to refund.

KEANE J: Yes, but this process of reasoning whereby one says that until corrected the Commissioner is entitled to rely on its contents, in my view so can an affected taxpayer, that is just not right, is it? There is just not the equivalent supply of remedies and rights on each side of the record.

MR HMELNITSKY: That is, in a sense, the very issue that was decided by the Full Court of the Federal Court in Multiflex because the question which there arose was whether or not the Commissioner was under a hard and fast duty to refund on the basis only that there was a negative amount appearing in a GST return, giving rise to a surplus that he was obliged to refund.

GORDON J: The problem about that ‑ the response to that is that.....appellant is that there is a whole regime provided for in relation to surpluses which requires, upon request being made for a refund for example, that there are questions about allocation to other tax debts and then there is a cascading set of provisions to which the Commissioner must work before any liability arises to repay.

MR HMELNITSKY: Not here, your Honour.

GORDON J: Not here, but to answer Justice Keane’s question, where there is intended to be this sort of arrangement there is a set of provisions provided.

MR HMELNITSKY: Yes. The obligation to pay the refund is subject to the constraints that appear in ZLF and that have since been expanded following the decision of the Full Court in Multiflex, but they are not matters that bear on the question of whether or not ZLF is intended to create a duty in relation to what appears on the balance of the account. Indeed, the supposition behind those various constraints is that the balance of the account does create a separate obligation to refund.

GORDON J: I still do not understand how that sits with ZLF(1).

MR HMELNITSKY: May I put it this way, your Honour. A matter arose this morning as to the effect of a surplus appearing on the basis of some mistake and what the Commissioner’s obligations were in relation to that, should it have occurred. Your Honour Justice Gordon asked a question as to whether or not there had not been at some point some amendments dealing with that particular issue.

My learned friend answered that by reference to, as I understood it, Division 155 of the Taxation Administration Act, which is the regime that came in in 2012 making GST now an assessed liability like income tax. But, if I may say so, the more particular answer to your Honour’s question is to be seen in provisions that do not appear here but which were introduced as a result of the Full Court’s decision in Multiflex which ‑ ‑ ‑

GORDON J: So, the amendments of 2014?

MR HMELNITSKY: Introducing ZLGA, and those provisions contain a number of – if I can call them limitations – on the Commissioner’s obligation to refund precisely because, prima facie, as I am submitting, the existence of a surplus as it appears on the account, does give rise to the hard and fast duty to refund of the kind that was described in Multiflex.

Your Honours, that is what I was proposing to – the bit in relation to the Commissioner’s appeal. May I move then to the first of the grounds of contention, which is the contention that there was in fact an assessment on the facts of this case. May I make three short observations about the facts before I come to the substance of the argument, really just to identify the key facts on which the argument turns? The first, your Honours, is that on 8 June 2012 following the decision of this Court in Travelex the taxpayer told the Commissioner that it believed it was entitled to additional input tax credits attributable to the November 2009 period. That appears behind tab 4 of the appellant’s book of further materials at page 21 of that bundle.

What is relevant to note is what appears in the appendix on page 23 of the bundle, where one sees that Travelex has notified to the Commissioner its claim for a GST refund on the basis that there has been an increase in its 1B amount, namely the amount of GST on purchases. At about line 45 of that page your Honours see that in relation to the November 09 period, the refund that is claimed is $149,020. No mention there of what the net amount might be. It is simply notifying the Commissioner of the fact that there was additional GST on purchases giving rise to import tax credits attributable to the November 09 period.

The next thing that occurred, relevantly, was that on 28 June 2012 the Commissioner processed that request in the way that appears behind tab 5, particularly at page 28 of this volume. What one sees there towards the top of the page, down to about line 12, is the Commissioner reflecting that claim in the running balance account by crediting that account in the amount of the additional GST that had been paid for that period in the amount of $149,020. The third point we make is that the Court should notice what appears behind tab 6 – this is a document that the Court has already been taken to. This is the letter of 3 July 2012 stating it is a:

Confirmation of revised activity statement

for the period 01/11/2009 to 30/11/2009

What we particularly draw attention to here is that it communicates to the taxpayer a calculation of the Commissioner’s own doing, namely, a revised net amount for the taxpayer for that period. That appears at about line 29 of page 31 where the Commissioner identifies that he calls it “The total amount of your activity statement” but that figure of $111,269 credit is the revised net amount. It is a credit amount because it is credit to the taxpayer.

Then, on page 34, the Court has already seen this, in the balance of this document, one sees the Commissioner communicating the new net amount, the amount that I have already showed the Court, about 45 of that page. Now, the question that arises is, on those facts, ought the Court conclude that the Commissioner had made an assessment of the taxpayer’s net amount for the November 2009 period in the amount of $111,269 and, in our submission, is the conclusion that the Court.....

We do rely on the passage from Batagol that the appellant took the Court to, although we do caution that what Justice Kitto and the other members of the Court were dealing with in that case was the expression “assessment”, which was a defined expression used in the Income Tax Assessment Act, and I will say a little more about that in a moment, but what we particularly rely on is the proposition that the word “assessment” means the completion of the process by which the provisions of the Act relating to liability are given concrete application in a particular case, with the consequence that a specified amount of money will become due and payable as the proper tax in that case.

Now, here, we say, that is precisely what happened. The Commissioner was told of a claim for input tax credits, he accepted that claim, he altered the net amount, that gave rise to an RBA credit, sent the letter that I have taken the Court to, notifying his calculation of the new net amount, and, insofar as giving concrete effect to that position is concerned, he did more, he paid out the surplus. In our submission, all of that suggests that the Commissioner did give concrete effect to the process of determining how the GST Act applied to the taxpayer in respect of the November 2009 period, and it meets the description of an assessment.

GAGELER J: Is there a notice of assessment?

MR HMELNITSKY: We say that the 3 July letter is a notice of assessment, it meets the description, there is no form that is prescribed. We say nothing turns on the fact that it did not style itself a notice of assessment. We think the Commissioner accepts as much, that a notice of assessment need not say it is a notice of assessment, but all of the integers that one could ever expect to find in a notice of assessment are there.

KIEFEL CJ: Does that mean, though, that the system of taxation in Australia in this regard will now function on the basis of whether or not factually one can define from the circumstances something which amounts to an assessment and a notice of assessment?

MR HMELNITSKY: Certainly not in the income tax sphere, your Honour, because the provisions are quite different ‑ ‑ ‑

KIEFEL CJ: No, in this sphere. It is a question of fact for the courts to ‑ ‑ ‑

MR HMELNITSKY: It has always been a question of fact as to whether or not an assessment has been made, hence the utility ‑ ‑ ‑

KIEFEL CJ: There are arguments about whether an assessment has been properly made.

MR HMELNITSKY: Indeed, but hence the utility of being able to tender a notice of assessment is conclusive evidence of the fact that there was.

KIEFEL CJ: Do you say those provisions for conclusivity would simply apply to the letter and the attachment?

MR HMELNITSKY: .....question were to arise about that, we would say that.

GORDON J: Not very certain for the taxpayer, is it?

MR HMELNITSKY: No, your Honour, but the taxpayer’s position here is certain in the sense that they have been refunded cash.

GORDON J: Putting aside this – we have got to write a judgment that is going to have wider ramifications, what the Chief Justice is asking you is faced with a piece of paper which on its face has what you would describe as indicia of an assessment, it does not have the word assessment, you say that does not matter because it is a calculation of a tax period for a taxpayer referrable to a tax Act which identifies the amount giving rise to a calculation and an obligation that there be payment to you, but which you then say, well, it picks up the provisions on conclusivity, you can go along and just sue for it in the reverse position and produce it.

MR HMELNITSKY: But, your Honour, this ‑ ‑ ‑

GORDON J: What are banks supposed to do when they – how do they know, looking at it in terms of a taxpayer’s affairs?

MR HMELNITSKY: Because, your Honour, this regime has not existed since 2012. So, the question ‑ ‑ ‑

GORDON J: .....Mr Williams in response to a question from me that is still highly significant.

MR HMELNITSKY: We do not see that, your Honour. We do not see that because there is – I am sorry, I think I spoke across your Honour.

KIEFEL CJ: No, you had not finished.

MR HMELNITSKY: There is now a regime, there has been a regime since 2012 that treats the submission of a GST return as giving rise to a deemed assessment.

GORDON J: I accept that. We are talking about the provision before – the position before those amendments came in with effect from 1 July 2012 in respect of, as I understand it, the 2012 tax periods.

MR HMELNITSKY: Yes, your Honour, but it is difficult to see what utility there can be in resolving this question beyond this. There was evidence at the special leave stage as to the debit side of the register but none as to the credit side so it is difficult to know what more can be made of that.

KIEFEL CJ: Then the problem is circumscribed. But it would follow, though, as a matter of principle from your argument, would it not, that the letter and the calculations of the Commissioner would be a notice – would be an assessment and a notice of assessment for some purposes but not all in relation to the statutory provisions.

MR HMELNITSKY: We would not say that it was an assessment for some but not all, your Honour. Our contention is that this is an assessment. There was an assessment here within the meaning of section 105‑5.

KIEFEL CJ: Put another way, some of the statutory provisions relating to an assessment and a notice of assessment would attach but some would not.

MR HMELNITSKY: If anything attached to the fact of service of a notice in this area that did not also attach to the making of an assessment, then the question could arise.

EDELMAN J: Your submission is that it would work in exactly the same way if the letter on 3 July had said that the total amount had been changed from a credit to a debit.

MR HMELNITSKY: There is difficulty in taking that a lot further, if the assumption is that the facts might be different from here, because it really is, on the particular facts of this case, where we see that the Commissioner has identified a net amount, which we know, as he agrees, is the true net amount, that allows us to put with the force that we do the proposition that this is an assessment of the net amount. There was some dispute about what that net amount was, then – but here there is not. We are all in dispute that the amount for that period, aside from the fact that a GST return had earlier been ‑ is in the amount that is identified in this document.

EDELMAN J: Do you say that the absence of the word, the title, “assessment”, is irrelevant, or that it is one indicia which is not conclusive?

MR HMELNITSKY: The latter, your Honour. I certainly do not go so far as to say that it is not relevant. But nor do we put the proposition that in every case the Court will conclude that an alteration to a running balance account giving rise to a surplus.....amounts to an assessment, it does just depend on the particulars.

GORDON J: Could I ask you another question related to that. If we are against you on the first argument about the effect of the running balance account in itself based with this piece of paper which is called an assessment, how do you meet the criticism made by the appellants by reference to Justice Kitto’s judgment and the two powers?

MR HMELNITSKY: Yes, and that is exactly what I am coming to just now, your Honour.

GORDON J: Sorry, I apologise.

MR HMELNITSKY: No, not at all, your Honour. As the Court appreciates, we do put the proposition that that 3 July letter is a notice of assessment. But what I need to deal with is the circumstance that the Court is of the view that that is not the notice of assessment. What the Commissioner submits in this regard is that, having regard to what Justice Kitto said in Batagol, it is an essential element of the making of an assessment that there be a notice of assessment. That is the substance of what the Court found in Batagol.

GORDON J: .....by reference to the decision in Wade.

MR HMELNITSKY: Yes. Yes, your Honour, and I will come back to that. The submission that is put is that – and your Honours, I am just dealing here with the proposition that there has been no assessment here because this is not a notice of assessment and if there is no notice of assessment then there cannot be an assessment. That is the proposition that is drawn from Batagol. But, your Honours, we make the following observations about Batagol.

The first is that the Court in Batagol was dealing with the expression “assessment” as it was defined in the 1936 Act and it was dealing with that expression in the context of an Act that said that there was no liability to tax until a set time after the notice of assessment had been served. That was provided for in section 204 of the Income Tax Assessment Act. So, there could be no liability to tax as a result of an assessment under the 1936 Act unless and until that had occurred. That is a point that is made by Justice Owen at page 255 of the CLR at about line 45. The giving of a notice in the income tax context is an essential precondition to a liability arising. That is not the case in relation to the Taxation Administration Act as it applied to GST liabilities prior to 2012.

Secondly, your Honours, it was a point of distinction drawn by Justice Kitto in Batagol with the earlier Act, the 1922 Act, that whereas the 1922 Act had contained a provision providing that the failure to serve a notice of assessment did not effect the validity of the assessment, his Honour noted, bottom of page 252 of the CLR and towards the top of page 253, pages 257 and 258 of the appeal book, that no such provision was to be found in the 1936 Act.

Here, as has already been observed, section 105‑20(1) provides, in terms, that the failure to provide a notice of assessment does not affect the validity of the assessment. Now, that reflects the fact that at the time, that is, prior to 2012, your liability to.....did not depend on the notice of assessment, or indeed the making of the assessment.

GAGELER J: If what is said at Multiflex, paragraph 26, about an assessment.....

MR HMELNITSKY: We accept what is said in Multiflex insofar as it is authority for the proposition that where an assessment is made it brings about a change in the net amount much in the way that my learned friend, Mr O’Meara, described. We do not dispute that. Where we do perhaps cavil somewhat with what was said in Multiflex was as to the effect of providing a GST return and whether or not that is conclusive in the way that the Court in Multiflex held. But insofar as the effect of the assessment is concerned, that would be the effect here.

The consequence of that would be, if we are right, that there was an assessment, that there was a net amount in $111,000‑odd for the November 2009 period, then the result of these proceedings would be that there was an RBA surplus by reason of the fact that there had been an assessment; that would be the end of it. Your Honours, that leaves me with the second contention point.

KIEFEL CJ: How long will you be?

MR HMELNITSKY: I will not be more than 10 minutes or so, I do not imagine, your Honour.

KIEFEL CJ: Then we have a reply so I think we will adjourn at this point to 2.15.

MR HMELNITSKY: If the Court pleases.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

KIEFEL CJ: Yes, Mr Hmelnitsky.

MR HMELNITSKY: Thank you, your Honour. Just before I turn to that second contention point, I am conscious that I overlooked answering a question that your Honour Justice Gordon put to me about a submission that was made this morning about Wade.

GORDON J: About Wade – yes, please.

MR HMELNITSKY: The short point, your Honour, is the point we make at paragraph 72 of our written submissions, that is where we have dealt in terms with the submission that is put, but really the short point is that we do not read Wade, and the Court would not read Wade as saying that an exercise of the power is ineffective unless the decision‑maker thinks he or she is exercising it. That is not the proposition for which it stands. To the extent it stands for any proposition, it is saying no more than that, if the Commissioner actually has two bases upon which he can assess, and actually assesses on one basis, the Commissioner cannot then seek to support that assessment on some ‑ ‑ ‑

GORDON J: Alternative basis.

MR HMELNITSKY: It goes no further than that. May I then move to the second ground of contention. I am conscious that I do need leave to rely on that ground of contention, I do not want to overlook that formality.

KIEFEL CJ: You can proceed, we will deal with that matter in reasons.

MR HMELNITSKY: Thank you, your Honour. The contention here, ultimately, is a short one, and it is purely a contention of law. The short point that we make is that the RBA surplus here was composed of or did.....a credit that the respondent was entitled to under a taxation law in the sense in which that expression is viewed, on the Commissioner’s submissions, that is, we say that there was a credit.

We do not simply say, as paragraph 16 of the Commissioner’s reply submissions suggest, that Travelex was entitled to input tax credits. We do not put the case on that narrow basis. We say that there were input tax credits to which Travelex was entitled. They were attributable to the November 2009 tax period and in consequence of that the net amount for the November 2009 period was negative $111,269.

Our point, your Honours, is that the net amount, as that expression is defined in the Act, was that amount that I have just mentioned, and it was not the amount of positive $37,751 as had originally been reported in December 2009. Your Honours, the point here is that the net amount, for GST purposes, is a statutory concept.....a function in the first instance of the core provisions of the GST Act - the Court has been taken to those, but they are to be found in volume 2 of ‑ ‑ ‑

GORDON J: Is that any different to there being an assessment? I must be missing something, Mr Hmelnitsky.

MR HMELNITSKY: As to the utility of this contention?

GORDON J: No, just the basis for it.

MR HMELNITSKY: It is different, your Honour, in that the argument or the contention in relation to the existence of an assessment depends upon a conclusion that the Commissioner actually had exercised that power to assess. Here we say, quite apart from what the Commissioner did, even if he failed to assess, the net amount, as that expression is used.....the Act, was the amount of negative $111,000 ‑ ‑ ‑

GORDON J: So I will ask my question differently then. Does that mean that the same facts give rise to two alternative paths, on your argument?

MR HMELNITSKY: It is an alternative path, your Honour.

GORDON J: On the same facts?

MR HMELNITSKY: Yes, but the facts do not really come into it because what the Commissioner did, by way of what we say was assessment, do not really come into it. Our point is that your net amount for a tax period is what the Act says it is.

GORDON J: Absent any step being taken by the Commissioner?

MR HMELNITSKY: Yes, your Honour. It is for this reason – it is for this reason, your Honour. Your net amount for a tax period is a function of the core provisions of the Act – most particularly, Part 2‑1 and Part 2‑4. Part 2‑1 – the central provisions of the Act – this is at page 143 of the second volume of the joint book of authorities, section 7‑5, tells you that:

Amounts of GST and amounts of input tax credits are set off against each other to produce a net amount for a tax period (which may be altered to take account of adjustments).

Section 7‑15, tells you that:

The net amount for a tax period is the amount that the entity must pay to the Commonwealth, or the Commonwealth must refund to the entity, in respect of the period.

There are further rules in relation to the calculation of a net amount – most particularly, in Part 2‑4. Section 17‑5 tells you – consistently with what is said in those central provisions – that:

The net amount for a tax period . . . is worked out using the following formula -

That, in our submission, is consistent with the central provisions in as much as it provides for the automatic setting‑off of amounts of GST paid and input tax credits. The net amount so produced by that automatic set‑off is the amount – subject to a matter to which I will return – but it is that net amount that the Commissioner is obliged to pay you where it is a negative net amount by reason of Division 35 and it is that net amount which you have an obligation to pay the Commissioner where it is a positive net amount. That is by reason of Division 33.

The scheme of it, your Honours – certainly prior to 2012 – was that your liability to pay the Commissioner and the Commissioner’s liability to pay you was a function of your net amount and your net amount was a function of that automatic statutory set‑off to which I have referred by reference to sections 7‑5 and 17‑5.

GAGELER J: At this point you say Multiflex was wrong.

MR HMELNITSKY: In this respect, yes, we do, your Honour, and it is for this reason. One can understand the submission that is put in relation to section 17‑15 if all that is submitted is that the effect of relying on the Commissioner’s form to work out your net amount is that that will, in some sense, be treated as prima facie evidence of what your net amount is. That is what we say 17‑15 does. May I invite the Court back to that. It is at page 151 of the joint book and page 38 of the print.

GORDON J: That is the deeming provision.

MR HMELNITSKY: Well, yes, and the question that arises here is what is the extent of the deeming. On the Commissioner’s construction, the deeming in 17‑15 applies for all purposes of the Act and it applies notwithstanding that, for example, the Commissioner is of the view that the amount in your GST return is wrong. That is his view here. His case is that if you submit a GST return it is erroneous, but he sues you on it. It is not open to the court in resolving that dispute to determine for itself what your net amount is.

GORDON J: That is because you, as the taxpayer, have mechanisms available to you to deal with that question.

MR HMELNITSKY: That may be so, your Honour, but that depends upon asking the Commissioner to assess. The question of construction that arises is, is it intended that the GST – that the net amount for GST that is disclosed in your return ought be deemed for all purposes of the Act to be your net amount despite error, indeed, despite agreed error.

GORDON J: That may overstate it a bit. I mean, we must understand that this was a tax which was set up so that the collection was not done by the Commissioner but done by the taxpayer. This was the scheme in order to make sure that they were notified of what tax you had collected on their behalf and were obliged to pay to the Commissioner. That is why it is there.

MR HMELNITSKY: I accept that, and I embrace that, your Honour, yes, but it does not follow from that that an erroneous business activity statement should be treated conclusively subject only to assessment as giving rise to the liability that it states notwithstanding the parties are agreed that it is wrong.

GORDON J: I think we are back to where we started very early in your submission and that is that there are options available to taxpayers even before 2012. I am going to put aside all the amendments subsequent which have, in effect, broadened the available mechanisms to taxpayers.

MR HMELNITSKY: The one mechanism that was available to the taxpayer here in circumstances where it is agreed that these input tax credits are attributable to the 2009 period was to ask the Commissioner to assess. But, as we understand the Commissioner to be submitting now, if that were to be done and the Commissioner were to assess then the assessment would have the effect that Travelex is not entitled to interest.

GORDON J: That might be right, and it might be wrong and that – I think I raised that with Mr Williams. There may be different ways in which one reads the provisions dealing with the amendment of the return. Is the assessment biting and amending the net amount in the return because the return represents the amount in the entitlement or does one look at it another way? But as the Chief Justice put to Mr Williams, that is not before us.

MR HMELNITSKY: No, indeed, that is so, your Honour. But there would be a fight about that. In any event, I think your Honours have my
submission in relation to the second ground of contention and I will say no more about it. If the Court pleases, those are our submissions.

KIEFEL CJ: Thank you. There is a question for Mr Hmelnitsky.

GAGELER J: You accept that you need leave to raise the second ground.....contention because you are out of time.

MR HMELNITSKY: I do.

GAGELER J: Do you need leave consistently with your submissions in writing to ‑ ‑ ‑

MR HMELNITSKY: Yes, save that it is purely a question of construction. There is no ‑ ‑ ‑

GAGELER J: I am sorry, the first ground of your contention. Do you need leave to raise the first ground of your contention?

MR HMELNITSKY: Your Honour, in my submission not for the reason that if that – it is really responsive to an argument that arises only to the extent that the.....has leave to raise his point about the existence of an RBA surplus, but if I am wrong about that then we do seek that leave. If the Court pleases.

MR WILLIAMS: Mr O’Meara will take the reply, your Honours.

KIEFEL CJ: Yes, Mr O’Meara.

MR O’MEARA: If your Honours please. In reply can I deal directly and immediately with the submissions in relation to the second ground of the notice of contention and I think, as my friend accepted, the submission necessarily requires a conclusion that the decision of the Full Court in Multiflex was wrong, and not wrong in any limited or qualified sense, but essentially and fundamentally wrong because the core of that decision is that the amount stated in the GST return is the net amount for the purposes of section 35-5 of the GST Act, and that is the source of the credit.

That is the central holding of Multiflex and that is the proposition. The contrary to that is what my learned friend, Mr Hmelnitsky, puts to your Honours. We say for the reasons given by the Full Court in Multiflex that the Full Court’s construction was correct. It has stood since 2011 and in our submission your Honours will not see any need to disturb it.

Can I return to the first matter for reply which is the question about it being common ground below that there was a power to amend the question of the GST return and can I just ask your Honours to notice again the letter at page 22 of the appellant’s further materials which is the letter of 8 June 2012. It is the letter that begins at page 21. That was of course the letter which kicked all this off. Your Honours will see on page 22, in the penultimate paragraph, there was a request by Travelex to:

please amend the BAS returns for the period 1 January 2008 to 31 December 2009 in accordance with appendix A.

So, the power which they sought the Commissioner to exercise was the power of amending the BAS returns. Now, it seems clear by the time the respondents’ reply submissions before the primary judge came along, the respondents had retreated from an attempt to engage that power and that was in their forensic interests because the Commissioner’s proposition before the primary judge was that the amendment of the BAS was necessary and a notification to amend the BAS was necessary and it was the time of notification from which interest ran. So it was in their forensic interests to adopt that position.

The Commissioner’s position remained as described by the primary judge at paragraph 63, that is to say without the amendment of the GST return there was no relevant credit which could be the subject of an allocation under the RBA provisions. Now, the difficulty for Travelex, both in the Full Court and really in this Court, lies in explaining how, without the amendment of the BAS returns, it became entitled to the credit which was the subject of the application of the RBA provisions. That is really what they have sought to address by the notice of contention in the ways in which I have addressed.

Can I turn to the question of section 29-10(4). I think it was put to your Honours that section 29-10(4) did not exist in the GST Act as at 2009 – I may have misunderstood that - in that form. I will come to that. Just so your Honours have the legislative history ‑ and I think your Honours have been provided with a copy of the Act which introduced section 29‑10(4) into the GST Act over the luncheon adjournment – that was Act No 156 of 2000. Your Honours will find – I hope your Honours have it – about three or four pages in, the form of the section as it was then. When your Honours compare that to the form which was extant as at 2012, which is in the books, your Honours will see immaterial amendments.

So the substance of the position was that, from the whole of the relevant period from 2009 to 2012, the procedure to take advantage of the input tax credits revealed by the decision of this Court in Travelex (No 1) under section 29 ‑10(4), by including it in a subsequent BAS return was available and the operation of subsection (4) was that those input tax credits were not attributable to November 2009 but they were attributable to the tax period in which they were taken up in the GST return.

I think your Honours also have been given the 2010 amendments where your Honours can see the effect of – the last page. Mr Williams helpfully points out that it is in Schedule 2 of Act No 21 of 2010, which indicates the very minor amendments which were made to section 29-10(4).

Can I come now to the main question of construction in relation to the RBA provision and Travelex’s submission was to the effect that what the Act attaches significance to was the state of the account. It may, of course, be accepted that the state of the account under the RBA provisions has legal consequences, but it is only if that account – and this is our core submission – is made up of those things which can probably be integers in the account and in this case relevantly credits to which an entity is entitled under a taxation law.

That is why, in our submission, the RBA provisions are correctly described as a parallel system of rights and liabilities, or an administrative framework, or auxiliary liabilities. But the burden of Travelex’s argument is that it is not so much a parallel system, or set of auxiliary liabilities, but wholly independent and potentially divergent liabilities. We say that that is not supported by the text and it would be a surprising result for provisions in what is, in the end, the Taxation Administration Act.

Now, my learned friend, Mr Hmelnitsky, asked rhetorically, if the RBA provisions do not create wholly independent liabilities such as the RBA deficit debt or the RBA surplus, what is the point of them? Of course, the answer to that is that they create, as your Honour Justice Gordon observed, an administrative framework and that is for the administrative convenience and efficiency, so the Commissioner can sue for a single net amount and not a series of separate underlying taxation debts, and he has powers of set‑off. So he can apply credits arising under taxation law, or payments, which he has received, to existing taxation liabilities.

None of that involves any proposition that the Act must necessarily create wholly independent and divergent taxation rights and liabilities. In fact, the object of having an administrative framework is rather defeated if it does not align with the underlying taxation rights and liabilities whose administration it is meant to be perfecting.

KIEFEL CJ: When you say they can be sued for by the Commissioner, what is the cause of action? What kind of debt is it?

MR O’MEARA: The debt is the RBA deficit debt.

KIEFEL CJ: What the Act calls it – it is moneys which have to be accounted for to the Commissioner as the Commissioner’s money?

MR O’MEARA: It is the Commissioner’s money. It is a debt owing to – it is receivable by the Commissioner, but it is made up of other receivables.

KIEFEL CJ: Yes. So if the Commissioner – if an assessment is required or the Commissioner decides to assess, it becomes a debt of a different kind?

MR O’MEARA: There is the underlying debt pursuant to the assessment and then that is taken up into the RBA provisions and then allocated or applied as necessary under the RBA provisions and will produce an RBA deficit debt which will reflect that underlying debt together with such other allocations and adjustments which have been made pursuant to the operation of those provisions.

KIEFEL CJ: Yes, I see. Thank you.

GAGELER J: Can that earlier debt, once allocated, be sued upon?

MR O’MEARA: That is a nice question, your Honour. I do not – my immediate response is I do not think there is anything in the provision which provides for a merger or consequences of that kind, but to the extent to which, say, the Commissioner had allocated credits against it.....operation of the RBA provisions, it would be surprising if he could sue under the underlying debt.....not so reduced.

GAGELER J: On one view, what this scheme is providing for is a statutory form of set‑off.

MR O’MEARA: That is one of its consequences, indeed.

GAGELER J: On one view a debt, once allocated, ceases to have an independent existence and it is what comes out the other end as an RBA deficit debt or credit, as the case may be, that is ‑ ‑ ‑

MR O’MEARA: That is one possible outcome. Certainly if it has been the subject of credits being applied to it or other set‑offs, one would not expect the Commissioner could go back and sue under the underlying debt, at least not so reduced. If your Honour pleases.

EDELMAN J: That would then also preclude the Commissioner from suing upon any other underlying debt or the taxpayer suing on any other underlying debt against which a set‑off had been made.

MR O’MEARA: Or suing to recover the underlying credit, yes, quite. If the Commissioner has applied it to reduce debts the taxpayer could not independently sue for that credit.

EDELMAN J: But the scheme is operating more than just an administrative framework. It is having real substantive effect even on your submission.

MR O’MEARA: It has substantive effect, your Honour, but only to give effect - to give a further administrative effect to the underlying rights and liabilities.

EDELMAN J: It offers substantive.

MR O’MEARA: It is not divergent. It should not create a result which is different from the application of the underlying rights and liabilities.

GORDON J: One of the reasons why I had thought - I cannot find my provision at the moment – that you could have different RBAs for different tax debts for one particular taxpayer ‑ ‑ ‑

MR O’MEARA: You can, your Honour, yes.

GORDON J: So, more complicated, I think, than just one account sometimes.

MR O’MEARA: No, indeed, and there can be separate accounts for separate taxpayers, for separate types of debts and there is, I think ‑ ‑ ‑

GORDON J: Given for different businesses, are there not, within certain entities as well?

MR O’MEARA: Yes, and there are RBA groups where, within the group, the Commissioner has a power to apply debts, to apply tax debts or credits of one member of the group against another member of the group. I think – the Commissioner’s position is that the underlying debt and the RBA deficit co‑exist and the payment of one will be coterminously a payment of both. So there is not a merger of either, and both may be sued on. That is the Commissioner’s position.

Can I turn now to the question of assessment, and I have taken your Honours to the letter of 8 June 2012 and I have observed that that did not ask for an assessment. Your Honours have seen the letter of 28 June 2012, which of course does not say that the Commissioner has made an assessment and says he has done something very different.

Now, the argument of Mr Hmelnitsky really is that the Commissioner made all the calculations he would have made if he had exercised the power to make an assessment, but as your Honours will have observed from Batagol, the mere making of calculations is not an assessment, and to say that the Commissioner made the calculations he would have made if he had made an assessment is really to expose that he did not make an assessment and, of course, that is what the primary judge and the Full Court found.

Can I say some things about the potential significance of a conclusion that a letter in the form of that of 3 July 2012 could be a notice of assessment, I think your Honour the Chief Justice put to my learned friend, Mr Hmelnitsky, that this was potentially a circumscribed issue.
In our submission, there is really no reason to think it is potentially circumscribed. In fact, there is every reason to think that it is of a wide‑ranging significance.

Your Honours will have observed that the primary judge stated that the purported amendment of GST returns was a longstanding administrative practice, as was the adjustment of net amounts pursuant to that purported amendment of the GST returns. Of course, that will go both ways. In some cases, as here, it would be a credit amount and in some cases it would be a debit amount. Therefore, there would be every reason to expect and to assume that there would be many millions of letters just like the one at page 31. Some of them would be in credit and some of them would be debit amounts.

In fact, there was some evidence on the special leave application that there were around 3.3 million GST returns which had been amended – around 2 million of which were credit amendments of the kind we have here and 1.3 million of which were increases in net amount and debits. It is in the affidavit of Ms Clarke on the special leave application at paragraph 8. So, a conclusion that a letter of this form was a notice of assessment – engaging the relevant consequences under the Taxation Administration Act – would be a very wide‑ranging one which would have potential consequences across many cases.

In relation to the proposition that there does not need to be a notice of assessment to constitute the Act in the law which is an assessment, your Honour Justice Gageler drew attention of my learned friend to paragraph 26 of the Full Court’s decision in Multiflex, and your Honour was no doubt drawing attention to the fact that in that paragraph the Full Court says that the effect of an amendment, one of the main effects of – I am sorry, on assessment, will be the supersession of the net amount in the GST return, which is of course a document and that being generally the main operation of an assessment of net amount made under these provisions.

One, in our submission, would naturally expect that supersession to be equally manifested in a notice of assessment and that is what section 105-20(1) requires. In our submission there is every reason to conclude that the notice of assessment is an essential element of an assessment made under section 105-5 of Schedule 1 of the Administration Act, as it is in every other area of taxation law. If your Honours please, those are the submissions in reply.

KIEFEL CJ: Thank you. The Court reserves its decision in this matter and adjourns to 9.30 am tomorrow for pronouncement of orders, and otherwise to 10.00 am.

AT 2.46 PM THE MATTER WAS ADJOURNED