Commissioner of Inland Revenue v Sea Hunter Fishing Limited CA142/01 [2001] NZCA 402; [2002] BCL 131; (2002) 20 NZTC 17,478 (13 December 2001)

Last Updated: 18 January 2019

IN THE COURT OF APPEAL OF NEW ZEALAND

CA142/01 CA196/01

	BETWEEN	COMMISSIONER OF INLAND REVENUE
		Appellant

	AND	SEA HUNTER FISHING LIMITED
		Respondent

Hearing:	26 November 2001
Coram:	Keith J Blanchard J Anderson J
Appearances:	A C Beck and M Deligiannis for Appellant P R Heath QC and M S Hinde for Respondent
Judgment:	13 December 2001

JUDGMENT OF THE COURT DELIVERED BY BLANCHARD J

The issues

[1] This appeal centres upon whether the Commissioner of Inland Revenue has fulfilled a statutory condition by which he “must give a request [to a GST registered taxpayer] for information concerning a [GST] return” within a period of 15 working days, if within that period a letter making the request has been posted to the taxpayer but has not yet been received in the ordinary course of post.
[2] The relevant statutory provisions are s46(1), (2), (4) and (5) of the Goods and Services Tax Act 1985 and s14 of the Tax Administration Act 1994 which read:

46 Commissioner's right to withhold payments

(1) Subject to this section, if the Commissioner is required to refund an amount to a registered person under section 19C(8) or section 20(5) of this Act, the Commissioner shall refund the amount—

(a) Except when paragraph (b) applies, not later than 15 working days following the day on which the registered person's return was received by the Commissioner; or

(b) The day after the working day on which the Commissioner—

(i) Determines the amount is refundable, after first having—

(A) Investigated the circumstances of the return in accordance with subsection (2); or

(B) Reviewed the information requested in accordance with subsection (2); and

(ii) Is satisfied that the registered person has complied with the person's tax obligations.

(2) If the Commissioner is not satisfied with a return made by a registered person, the Commissioner—

(a) May investigate the circumstances of the return:

(b) May request the registered person to provide further information concerning the return.

...

(4) The Commissioner must give a request for information concerning a return under subsection (2)—

(a) Within a period of 15 working days following the day on which the return is received by the Commissioner (in the case of an initial request for information); and

(b) Within a period of 15 working days following the date of receipt of any information previously requested by the Commissioner (for subsequent requests for information).

(5) The Commissioner must notify the registered person—

(a) Of the Commissioner's intention to investigate the circumstances of the return under subsection (2); and

(b) Of the Commissioner's intention to withhold payment under subsection (3)—

within 15 working days following the day on which the return is received by the Commissioner.

14 Giving of notices

(1) Any notice required by this Act or any other Act to be given by the Commissioner to any person may be—

(a) Given to the person personally; or

(b) Sent to the person by post addressed to the person at the person's usual or last known place of abode or business; or

(c) Given personally to any other person authorised to act on behalf of the person; or

(d) Sent to that other person by post addressed to that other person at that other person's usual or last known place of abode or business.

(2) Any notice sent by post to any person, or to any other person authorised to act on behalf of that person, shall be deemed to have been received by that person, or that other person, when in the normal course of post it would have been delivered.

[3] There is a consequential issue about the obligation of the Commissioner to pay interest in the circumstances of this case.

Facts

[4] The taxpayer is the respondent, Sea Hunter Fishing Ltd, which carries on business as a fishing vessel owner. At the relevant time it was registered for GST purposes. (It seems that the Commissioner may yet challenge the right of Sea Hunter to be so registered but, as he has not yet caused the registration to be retrospectively cancelled under s52 of the Act, it is not appropriate for us to have any regard to that possibility.)
[5] Sea Hunter claimed an input credit of $2,495,850 under s21(5) of the GST Act in respect of the purchase of a fishing vessel. The claim was received by the Commissioner on 19 January 1998. The last of the 15 working days under s46 was therefore 10 February 1998. On that day the Department wrote to Sea Hunter’s accountant and agent in terms which, it is accepted, amounted to a request for information under s46(4) and which arguably would have sufficed to give a notification under s46(5) of an intention to investigate the circumstances of the GST return. But it is now common ground that the letter was not received by Sea Hunter’s accountant during the 15 day working period. That did not prevent the Commissioner from continuing, as he did, with his investigation and subsequently taking the step of issuing a notice of adjustment and bringing into play the disputes procedures in Part IVA of the Tax Administration Act. Nor did it prevent him from later issuing an assessment which denied Sea Hunter the claimed input credit. Sea Hunter’s entitlement to that credit is still to be determined by the usual processes.
[6] In the meantime, however, unless the Commissioner had within the 15 working days given the request for information under s46(4), he ought to have made a refund under s20(5) of the GST Act:

20 Calculation of tax payable

(5) If, in relation to any taxable period and any registered person, the total amount that may be deducted under subsection (3) exceeds the aggregate amount of the output tax of that registered person attributable to that taxable period, the amount of the excess shall, subject to this Act, be refunded to that registered person by the Commissioner pursuant to section 46 of this Act.

[7] A temporary account halt had been activated in the Department’s electronic database to prevent the processing of any credit adjustment claim for GST. But someone slipped up and the account halt expired on 18 February 1998. The computer generated a cheque for $2,510,414.82 in favour of Sea Hunter. This sum included interest from 22 January 1998 to 18 February 1998. The cheque was posted and was received by Sea Hunter’s accountant on 26 February 1998. It was banked the next day. But, as a result of a stop payment request to the Department’s bank, the cheque was not paid.
[8] On 8 September 2000 Sea Hunter issued this proceeding claiming judgment for the amount of the cheque plus interest at the Judicature Act rate of 11% per annum from 27 February 1998. It sought summary judgment. The Commissioner sought the striking out of the proceeding.

The High Court judgments

[9] In an interim judgment delivered on 8 May 2001, reported at (2001) 20 NZTC 17,206, Master Faire recorded that both counsel had agreed that the Commissioner was required in this case to make a refund pursuant to s20(5). The disagreement was about the application of s46. The Master considered, first, whether there was any significance in the different language used in the opening parts of subs(5) and (4), the former requiring the Commissioner to notify the registered person. The Master said that notification in that sense required receipt of the notice by the registered person. Quite rightly, that is not a view which has been disputed in this Court. The Master said also that, despite subs(4) using the words “must give a request for information”, the object of both subsections was the same. In his view, if neither the subs(5) notification nor, alternatively, the subs(4) request was received before 11 February, which has subsequently been admitted on behalf of the Commissioner, there would be “a debt owed by the Commissioner to this taxpayer as at that date”. That debt might well be modified at some time in the future on the Commissioner issuing an assessment, but he said that step had not then occurred.
[10] The Master said that s27 of the Bills of Exchange Act 1908 provides that an antecedent debt or liability constitutes valuable consideration for a bill of exchange. If the notice or the request, as the case might be, had not been received by the accountant by 10 February, then clearly there was valuable consideration for the cheque. The Commissioner was obliged to honour the cheque.
[11] In a second interim judgment delivered on 23 May 2001, reported at (2001) 20 NZTC 17,216, having received affidavit evidence, the Master was in a position to make a finding that the Department’s letter of request for information had not been received by the accountant within the 15 working days. Master Faire concluded that because it had been within the Commissioner’s power entirely to defer the statutory obligation to make the refund “simply by issuing an assessment, or alternatively, as might have been the case, to proceed in accordance with s46”, it was not appropriate to refuse to exercise the statutory discretion to enter summary judgment. He therefore entered judgment in favour of Sea Hunter for $2,510,414.82, reserving for further consideration his determination relating to interest.
[12] It appears that Master Faire may not have been made aware that in fact the Commissioner had issued an assessment denying the input tax credit on 2 May 2001. The due date for payment of the tax specified in the notice of assessment (i.e. the non-deferrable tax) was 2 July 2001 (s138I of the Tax Administration Act). If, therefore, the Department’s cheque had been honoured, Sea Hunter would have been obliged to pay half the tax in dispute to the Commissioner on that date.
[13] In a third and final judgment delivered on 17 July 2001, reported at (2001) 20 NZTC 17,278, Master Faire considered Sea Hunter’s claim for interest pursuant to s57(a)(ii) of the Bills of Exchange Act 1908 at 11% per annum from 27 February 1998. The amount claimed was $891,988.07. On the other hand, the Master’s calculation of interest in accordance with the Tax Administration Act was $414,780.66.
[14] The Master considered that if a cheque had not been issued and if the Department had simply failed to make payment, the interest due to Sea Hunter would be fixed in accordance with the Tax Administration Act. There had been no specific evidence placed before him concerning an appropriate commercial rate and the Master could see no justification for departing in this case from the rate prescribed in that Act. He accordingly entered judgment for interest as at 23 May 2001 in the sum of $414,780.66. The Master said that the judgment debt itself would carry interest from that date until satisfied pursuant to r538 of the High Court Rules. He did not advert, it seems, to the fact that r538 provides for post-judgment interest to be at the Judicature Act rate or at such lower rate as shall be fixed by the Court. Unless a lower rate is fixed the present Judicature Act rate of 11% therefore would apply.

The cross-appeal application

[15] The Commissioner has appealed to this Court against the summary judgments for both the amount of the cheque and the interest. Sea Hunter has sought leave to cross-appeal out of time against the interest judgment in order to be able to contend that the Master erred in failing to calculate interest at a commercial rate rather than what is said to be the lower rate or rates prescribed from time to time under the Tax Administration Act. During the course of the hearing we indicated that we did not propose to grant leave for the cross-appeal as we accepted Mr Beck’s submission, for the Commissioner, that it had been incumbent on Sea Hunter to include all relevant matters within its summary judgment application and, as the Master himself had noted, evidence had not been given concerning an appropriate commercial rate. That would require further affidavits and possibly an amendment to the pleadings.
[16] We dismiss the application for leave to cross-appeal out of time.

The Commissioner’s appeal

[17] We turn now to the appeal proper. Notwithstanding Mr Beck’s careful submissions, we are not persuaded that the Master took the wrong view of s46. Mr Beck argued that it was “not necessary” to read s46(2) as being subject to s46(4) or s46(5) which, he argued, were simply designed to give taxpayers notice of the Commissioner’s intention to investigate and to set a date for interest to start running under the Tax Administration Act (s120C(1), definition of “date interest starts”). Mr Beck submitted that subs(4) and (5) were not conditions precedent to an investigation. However, whilst we accept, as we have already indicated, that the Commissioner is not precluded from commencing an investigation and making a request for information after the expiry of the 15 working days period, for there is no time limit applicable to subs(2), it is plain to us that subs(1) has to be read subject to subs(4) and (5). Subsection (1) obliges the Commissioner to refund an amount under s19C(8) or s20(5) not later than 15 working days following the day on which the return was received by the Commissioner, unless para (b) applies. Section 46(1)(b) applies where the Commissioner has determined that the amount is refundable after an investigation or a review of information in accordance with subs(2). In those circumstances the Commissioner must make the refund on the day after the working day on which he determines that the amount is refundable and is satisfied that the registered person has complied with the person’s tax obligations. But para (b) necessarily presupposes that the Commissioner has complied with subs(4) or subs(5) by giving a request for information, or a notification of intention to investigate the circumstances of the return, within the 15 working days. There would be little point in imposing the 15 working days period upon the Commissioner under subs(1), (4) and (5) (he “shall refund” and “must” give a request or notify within the period) if the Commissioner could nevertheless defer making a refund of the amount in question without giving a request for information or notifying an intention to investigate during that period.
[18] Mr Beck submitted that the period was so short that in a regime where many GST returns have to be considered every working day the Revenue was exposed to the risk of inadvertence on the part of officials. That may be so, but the GST Act also has to operate in a business environment where undue delay in the making of tax refunds may have very considerable adverse effects on taxpayers. Parliament has deliberately chosen a short period for the Commissioner to make up his mind whether he needs further information or wishes to investigate the circumstances of the return. If he does not do so in due time, he is not precluded from taking the matter further but, in the meantime, must promptly make the claimed refund.
[19] That brings us to the point upon which this appeal really turns, namely whether the Commissioner can be taken to have given a request for information by posting to the taxpayer a request which did not reach the taxpayer until after the 15^th working day and would not have been delivered in the normal course of post within that period.
[20] It was Mr Beck’s argument that s14(1) of the Tax Administration Act, which applies to a Commissioner’s “notice” under “any other Act”, indicates that it can be given by sending it to the taxpayer, or another person authorised to act on behalf of the taxpayer, addressed to the usual or last known place of abode or business. Counsel’s submission was that the notice was “given” by the act of sending the letter.
[21] We reject this argument. It is plain from the context that s14 contemplates that a notice is given when it is received or deemed to be received in accordance with subs(2). “Given” in subs(1)(a) and (c) of s14 obviously refers to the point at which the person concerned personally receives the notice. There is a contrast with sending by post, to which subs(2) applies. Then the notice is deemed to have been received when in the normal course of post it would have been delivered. If the notice actually arrives faster than the normal course of post it would be given upon arrival. Otherwise, the deeming provision, which is based on an estimate of when delivery would normally be expected, is to apply. None of this provides any support for the suggestion that merely putting the letter in the mail is the equivalent of delivery or other receipt. To the contrary, if the legislature had intended notification to be complete upon despatch rather than upon actual or deemed receipt, there would have been no need to enact subs(2).
[22] It might be arguable that s14 does not apply to the giving of a request for information under s46(4), in contrast to a notification under subs(5). We would, however, prefer to regard it as a form of notice within s14. We think it very unlikely indeed that the legislature would have intended that different rules, and different results, would apply to such a request, in contrast to a notification (notice). There would be no good reason for drawing such a distinction.
[23] In our view, therefore, under s46(4) a request is not given by the Commissioner until it actually reaches the taxpayer or the taxpayer’s agent or is deemed to have been received within s14(2).
[24] The next question concerns the effect of the Commissioner’s assessment. Mr Beck drew attention to s29 of the GST Act:

29 Assessments deemed correct except in proceedings on objection

Except in proceedings under Part 8A of the Tax Administration Act 1994, no assessment made by the Commissioner shall be disputed in any Court or in any proceedings (including proceedings before a Taxation Review Authority) either on the ground that the person so assessed is not a registered person or on any other grounds; and, except as aforesaid, every such assessment and all the particulars thereof shall be conclusively deemed and taken to be correct, and the liability of the person so assessed shall be determined accordingly.

[25] Counsel for the Commissioner argued that because of this section the Commissioner has no liability to Sea Hunter and that there was therefore no underlying obligation to support the cheque. He also submitted that to allow the claim would subvert the dispute resolution process provided by the Tax Administration Act. We do not accept these arguments. When s46 is applied to the circumstances of this case, it is clear that the cheque was issued at a time when the Commissioner was obliged to make a refund of the input credit of $2,495,850. Interest was also due to the taxpayer. Whether characterised as debts or liabilities, the Commissioner’s obligations were “valuable consideration” for the cheque in terms of s27(1)(b) of the Bills of Exchange Act 1908. The taxpayer was therefore entitled to seek judgment in the amount of the cheque.
[26] There has subsequently been the assessment. Consequently, as Mr Heath readily conceded, the Commissioner has, as from 2 July 2001, become entitled to offset against his liability on the cheque, the amount due for non-deferrable tax. But in our view, subject to that offsetting amount and to the question of interest, the judgment on the cheque must stand. To sue on the cheque for an amount the Commissioner was obliged to refund under s46 does not amount to challenging the assessment, the correctness of which will be determined in due course under Part 8A of the Tax Administration Act. The statutory resolution process is not affected.

Interest

[27] Mr Heath sought, in addition to judgment for half of the input credit (namely $1,247,925), judgment for interest on the full amount of the input credit at the Commissioner’s paying rate as fixed from time to time under s120H of the Tax Administration Act until the date of the interest summary judgment (17 July 2001). He also sought post judgment interest on $1,247,925 at the Judicature Act rate.
[28] The fixing of interest in the circumstances of this case, where the outcome of the disputes procedure relating to the assessment has yet to be determined, seems to us to be a matter of some difficulty. On one point we are quite clear: it is not appropriate where there is a statutory regime for the fixing of an interest rate that a different rate should apply after a judgment has been given.
[29] We have decided that all other questions of liability for interest on either side should be deferred until the result of the objection to the assessment is known. It is not appropriate, we think, that the Commissioner be required to pay interest on an interim basis and possibly then have to recover it, as well as making his own claim for interest if Sea Hunter’s challenge to the assessment is unsuccessful. In that circumstance there might possibly be an argument that, because the GST claim related to a tax credit, there was no “unpaid tax” for which the taxpayer was liable. We are not saying that such an argument would necessarily succeed. We have not heard submissions on the point. Indeed counsel may not have turned their minds to it or to other issues which may arise in the unusual circumstances of this case. But we consider that it is prudent to leave questions of interest liability to await a final determination on the assessment.

Result

[30] The appeal is accordingly allowed to the extent of setting aside the judgment for Sea Hunter in the sum of $2,510,414.82. There will instead be judgment for Sea Hunter in the sum of $1,247,925 and an order reserving and adjourning sine die in the High Court the fixing of post-judgment interest.
[31] Because Sea Hunter remains entitled to summary judgment for a reduced sum, it is appropriate that it should have costs, but on a reduced basis. The costs order made in the High Court is set aside. Sea Hunter is now to have costs of $7,500 covering proceedings in both Courts, together with the disbursements fixed in the High Court of $394.70 and its reasonable disbursements incurred in relation to this appeal, including any travel and accommodation costs of its leading counsel, to be fixed if necessary by the Registrar of this Court.

Solicitors:
Crown Law Office, Wellington
D H McIlraith, Hamilton for Respondent