The impact of this case on ATO policy is discussed in Decision Impact Statement: Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust (NSD 1089 of 2021 (Full Federal Court) 2019/1708 and 2020/2991 (Administrative Appeals Tribunal)).

FC of T v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust

Judges:
Moshinsky J
Thawley J
Hespe J

Court:
Federal Court of Australia, Full Court

MEDIA NEUTRAL CITATION: [2023] FCAFC 19

Judgment date: 23 February 2023

Moshinsky, Thawley and Hespe JJ

INTRODUCTION

1. The Commissioner of Taxation appeals from a decision of the Administrative Appeals Tribunal under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ( AAT Act ):
STNK and Commissioner of Taxation [2021] AATA 3399. The appeal is in the original jurisdiction of the Court and is limited to a question of a law. The respondent, Complete Success Solutions Pty Ltd as trustee for Complete Success Solutions Trust ( CSS ), has cross-appealed

2. At issue is the entitlement of CSS to input tax credits under the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act ) in two periods:

(1) First Period : The cross-appeal relates to the period 1 August 2016 to 30 November 2016. Over this period, CSS claims to have made GST-free supplies of precious metal (gold bullion) and to have an entitlement to input tax credits in respect of the scrap gold (gold that was not in investment form) which it had acquired and caused to be refined into gold bullion.
(2) Second Period : The appeal relates to the period 1 December 2016 to 31 January 2017. Over this period, CSS claims to have made GST-free export sales of scrap gold and to be entitled to input tax credits in respect of its acquisition of that scrap gold.

3. Before the Tribunal, the Commissioner contended that CSS had no entitlement to input tax credits in either period and, alternatively, that Div 165 of the GST Act applied to enable the Commissioner to make a declaration denying CSS a GST benefit, being the input tax credits related to the acquisition of scrap gold.

FACTUAL BACKGROUND

4. In 2015, Mr Chavan was living in India. He met Mr Gajjar through a work colleague. Mr Chavan understood that La Gajjar Pty Ltd, an entity controlled by Mr Gajjar, operated a gold business which involved buying scrap gold at just below spot price, paying a contract refiner to refine the gold and selling the resulting bullion to another entity. They discussed a number of potential business opportunities. Mr Chavan agreed to invest in La Gajjar's business.

5. After some time, Mr Gajjar approached Mr Chavan to increase Mr Chavan's investment in La Gajjar. Mr Chavan was not comfortable to do so but instead agreed with Mr Gajjar that:

• Mr Chavan would set up his own entity, which he ultimately did in the form of CSS;
• La Gajjar would provide consultancy and operational services to CSS;
• CSS would pay La Gajjar for those services;
• on CSS's behalf, La Gajjar would cause scrap gold to be delivered to a refiner;
• CSS would sell the resultant gold bullion to ABC Refinery (Australia) Pty Ltd ( ABCRA ) or La Gajjar without CSS ever having possession of the scrap gold or the bullion;
• La Gajjar would, in substance, conduct the transactions on behalf of CSS.

First Period

6. During the First Period, CSS claimed to carry on a business involving the acquisition of scrap gold and the refining of it to produce

ATC 26267

precious metal (gold bullion) for sale to dealers in precious metals.

7. A representative series of transactions was set out in Appendix A to the Tribunal's reasons and is reproduced as Annexure A to these reasons. The series of transactions can be summarised in the following way. An entity known as Manila Exchange acquired gold bullion under a GST-free supply. It defaced or adulterated the gold bullion such that it became scrap gold. It then sold the scrap gold to GB Refiners. This was a taxable supply. Although the scrap gold had a lower value than the bullion, the supply of scrap gold attracted GST. Manila Exchange was able to profit from its value-lowering operations only because of its fraud, constituted by charging and not remitting GST. The Commissioner did not and does not allege that CSS was aware of Manila Exchange's activities in this regard: Tribunal reasons (hereafter, " T ") at [5]. GB Refiners on-sold the scrap gold in a taxable supply to PM Melt Service Pty Ltd ( PMMS ). The scrap gold was then sold by PMMS to CSS (referred to as "STNK" in Annexure A), albeit not coming into CSS's possession.

8. CSS caused the scrap gold to be refined. Although the Commissioner accepted that ABCRA refined the gold, the Tribunal found that, in two instances, CSS caused scrap gold to be delivered to La Gajjar to carry out the refining of the scrap gold into bullion: at T [65(d)], [88].

9. CSS claimed it then sold the gold bullion to ABCRA and La Gajjar.

10. CSS treated its sales of gold bullion to ABCRA and La Gajjar as GST-free supplies and claimed input tax credits in relation to its acquisitions of scrap gold. CSS's business in the First Period was only cashflow positive because: (a) its sale of the bullion did not attract GST; and (b) it was refunded the input tax credits arising in respect of its purchase of the scrap gold.

Second Period

11. CSS's business during the First Period was not as profitable as Mr Chavan had hoped. Mr Chavan approached Emirates Gold with a view to exporting scrap gold to increase CSS's margins. The Second Period concerns seven acquisitions and export sales of scrap gold to Emirates Gold.

12. The case was determined on the basis that the series of transactions identified in Appendix B to the Tribunal's reasons was representative of each of the series of transactions. Appendix B is reproduced as Annexure B to these reasons. Each of the seven series of transactions occurred over the course of one or three days: 1 to 3 December 2016; 10 to 12 December 2016; 19 December 2016; 6 January 2017 (two series of transactions); and 12 January 2017.

13. The series of transactions on 12 January 2017 may be summarised as follows:

(1) Baird & Co, a bullion dealer in Singapore, sold gold bullion to QN Traders Pty Ltd ( QN Traders ). The sale was at 100.782% of the prevailing spot price.
(2) QN Traders sold the gold bullion to Manila Exchange at 101.026% of the prevailing spot price. This was a supply of precious metal and therefore not a taxable supply.
(3) Manila Exchange adulterated the gold bullion thereby producing scrap gold.
(4) Manila Exchange sold the scrap gold to GB Traders Pty Ltd ( GB Traders ) at 92.327% of the prevailing spot price. The supply of scrap gold by Manila Exchange was a taxable supply in respect of which GST was payable. The price charged to GB Traders was a GST-inclusive price. GB Traders claimed an input tax credit for the GST it paid. Manila Exchange did not remit the GST it collected but retained it.
(5) GB Traders sold the scrap gold to PMMS at 96.518% of the prevailing spot price. This was a taxable supply in respect of which GST was payable.
(6) PMMS sold the scrap gold to CSS (referred to as "STNK" in Annexure B) at 99.097% of the spot price. This was a taxable supply in respect of which GST was payable.
(7) CSS exported the scrap gold to Emirates Gold in Dubai at 98.996% of the spot price. The supply of scrap gold by CSS was GST-free.

14.

ATC 26268

As with the First Period, CSS never took possession of the scrap gold it acquired from PMMS. The Tribunal described PMMS as "arranging the export of scrap gold on behalf of and in the name of" CSS: at T [110]. The evidence before the Tribunal was that this was done by Mr Viceconte of PMMS. PMMS undertook the logistical arrangements for the export of the gold, taking care of customs and freight arrangements in the name of CSS: at T [92], [108], [111]. PMMS caused the scrap gold to be sent from Australia to Dubai: at T [99].

15. The Tribunal concluded that because "there [was] no allegation that the export and freight documentation in the name of [CSS] did not reflect their intended legal effect, it must be concluded that these actions were undertaken [by PMMS] as agent [for CSS]": at T [99].

16. The Tribunal concluded that title in the scrap gold had passed to CSS and that it exported the scrap gold. The Tribunal stated that CSS had only the "slightly stronger case on this point", but that this was "all that is required": at T [111].

17. PMMS was paid partly in advance and partly in arrears. CSS had granted access to PMMS as a signatory to CSS's bank account into which the proceeds of sale of scrap gold and the GST refunds were deposited: at T [107]. The evidence before the Tribunal was that Mr Viceconte was a signatory and authorised user of CSS's account, and that he negotiated the sale price with Emirates Gold and was otherwise conducting what was necessary in the export transactions.

18. Both PMMS and GB Traders made substantial profit though their respective purchases and on-sales of scrap gold. The profit in respect of the 12 January 2017 transaction was about $20,000 (PMMS) and $35,000 (GB Traders). CSS made a comparatively small gain of a little over $4,300.

19. CSS treated its sales of scrap gold as GST-free supplies and claimed input tax credits in relation to its acquisitions of scrap gold. Similarly to the position with respect to the First Period, CSS's business was only cashflow positive because: (a) its export sale of scrap gold did not attract GST; and (b) it was refunded the input tax credits arising in respect of its purchase of the scrap gold.

Assessments and objections

First Period

20. The Commissioner issued notices of assessment of net amounts to CSS in respect of the First Period on the basis that:

(1) The supplies made by CSS to La Gajjar were taxable supplies and not either GST-free or input taxed supplies. CSS was allowed input tax credits in respect of its acquisition of scrap gold but was required to remit GST to the Commissioner on the supplies it had made to La Gajjar because those supplies were not supplies of precious metal to which s 38-385 of the GST Act applied.
(2) CSS was not entitled to input tax credits in respect of its acquisition of scrap gold used to make CSS's supplies to ABCRA on the basis that those supplies were:
- (a) not GST-free supplies but were input taxed supplies of precious metal; or
- (b) alternatively, CSS was not carrying on an enterprise (and therefore not entitled to claim input tax credits); or
- (c) in the further alternative, Div 165 applied to enable the Commissioner to negate the benefit of the input tax credits.

21. The Commissioner assessed CSS to an administrative penalty of 75% on the basis that CSS had intentionally disregarded the law. The Commissioner also assessed penalties on the alternative basis that it was not reasonably arguable that Div 165 did not apply.

Second Period

22. In respect of the Second Period, the Commissioner issued to CSS notices of assessment of net amounts on the basis that CSS was not entitled to input tax credits in respect of its acquisition of scrap gold for two alternative reasons:

(1) CSS was not carrying on an enterprise and was therefore not entitled to claim input tax credits at all; or
(2) Div 165 applied to enable the Commissioner to negate the benefit of the input tax credits.

23. The Commissioner assessed CSS to an administrative penalty at the rate of 50% on the basis of recklessness and alternatively on the

ATC 26269

basis that it was not reasonably arguable that Div 165 did not apply.

24. CSS objected to the assessments of net amounts and administrative penalties. The objections were disallowed. CSS applied to the Tribunal for review of the objection decisions. As recorded earlier, the Commissioner appeals from the Tribunal's decision on that review and CSS cross-appeals.

LEGISLATIVE BACKGROUND

25. GST is payable on "taxable supplies" and entitlements to input tax credits arise on "creditable acquisitions": s 7-1. The circumstances in which a taxable supply is made are set out in s 9-5. Relevantly, a supply is not a taxable supply to the extent that it is "GST-free" or "input taxed".

26. Section 9-30(1) provides that a supply is GST-free if it is GST-free under Div 38 or under a provision of another Act. Section 9-30(2) provides that a supply is input taxed if it is input taxed under Div 40 or under a provision of another Act. Section 9-30(3) addresses the situation where a supply would otherwise be considered to be both GST-free and input taxed.

27. Section 11-5 defines when a creditable acquisition is made. Relevantly, a creditable acquisition is made if the acquisition is for a "creditable purpose". A "creditable purpose" is defined in s 11-15, which relevantly provides:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.
(2) However, 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; or
- (b) the acquisition is of a private or domestic nature.

28. Accordingly, under the GST Act:

• if a supply is input taxed, no GST is payable on the supply, and there is no entitlement to an input tax credit for anything acquired or imported to make the supply;
• if a supply is GST-free, no GST is payable on the supply, but there is an entitlement to an input tax credit for anything acquired or imported to make the supply.

29. Section 38-185(1) relevantly provides:

38-185 Exports of goods

(1) The third column of this table sets out supplies that are GST-free:

GST-free exports of goods

Item Topic These supplies are GST-free …

1 Export of goods-general a supply of goods, but only if the supplier exports them from the indirect tax zone before, or within 60 days (or such further period as the Commissioner allows) after:
(a) the day on which the supplier receives any of the *consideration for the supply; or
(b) if, on an earlier day, the supplier gives an *invoice for the supply-the day on which the supplier gives the invoice.

30. Section 38-385 provides:

A supply of *precious metal is GST-free if:

(a) it is the first supply of that precious metal after its refining by, or on behalf of, the supplier; and

(b) the entity that refined the precious metal is a *refiner of precious metal; and

(c) the *recipient of the supply is a *dealer in precious metal.

Note: Any other supply of precious metal is input taxed under section 40-100.

31. The expression "precious metal" is defined in s 195-1 as follows:

precious metal means:

(a) gold (in an investment form) of at least 99.5% fineness; or

(b) silver (in an investment form) of at least 99.9% fineness; or

ATC 26270

(c) platinum (in an investment form) of at least 99% fineness; or

(d) any other substance (in an investment form) specified in the regulations of a particular fineness specified in the regulations.

32. The expression "investment form", is not defined in the GST Act. The Commissioner has articulated the following definition at [29] of GSTR 2003/10: Goods and Services Tax: What is 'precious metal' for the purposes of GST?:

[F]or gold, silver or platinum to be in an investment form for the purposes of the GST Act, it must be in a form that:

• is capable of being traded on the international bullion market, that is, it must be a bar, wafer or coin;

• bears a mark or characteristic accepted as identifying and guaranteeing its fineness and quality; and

• is usually traded at a price that is determined by reference to the spot price of the metal it contains.

33. A "refiner of precious metal" is defined in s 195-1 as "an entity that satisfies the Commissioner that it regularly converts or refines *precious metal in *carrying on its *enterprise".

34. A "dealer in precious metal" is defined in s 195-1 as "an entity that satisfies the Commissioner that a principal part of *carrying on its *enterprise is the regular supply and acquisition of *precious metal".

35. Section 40-100 provides:

A supply of *precious metal is input taxed .

Note: If the supply is the first supply of precious metal after refinement, the supply is GST-free under section 38-385.

36. The tension between s 38-385 and s 40-100 is resolved by s 9-30(3), the effect of which is that, if a supply of precious metal falls within s 38-385, it will be GST-free rather than input taxed.

37. Division 165 of the GST Act contains anti-avoidance provisions. The object of the Division is to deter schemes to give entities benefits by reducing GST, increasing refunds or altering the timing of payment of GST or refunds: s 165-1.

38. Section 165-5 relevantly provides:

165-5 When does this Division operate?

General rule

(1) This Division operates if:

(a) an entity (the avoider ) gets or got a *GST benefit from a *scheme; and

(b) the GST benefit is not attributable to the making, by any entity, of a choice, election, application or agreement that is expressly provided for by the *GST law, the *wine tax law or the *luxury car tax law; and

(c) taking account of the matters described in section 165-15, it is reasonable to conclude that either:

(i) an entity that (whether alone or with others) entered into or carried out the scheme, or part of the scheme, did so with the sole or dominant purpose of that entity or another entity getting a *GST benefit from the scheme; or

(ii) the principal effect of the scheme, or of part of the scheme, is that the avoider gets the GST benefit from the scheme directly or indirectly…

39. The expressions "GST benefit" and "scheme" are defined in s 165-10 as follows:

165-10 When does an entity get a GST benefit from a scheme?

(1) An entity gets a GST benefit from a *scheme if:

(a) an amount that is payable by the entity under this Act apart from this Division is, or could reasonably be expected to be, smaller than it would be apart from the scheme or a part of the scheme; or

(b) an amount that is payable to the entity under this Act apart from this Division is, or could reasonably be expected to be, larger than it would be apart from the scheme or a part of the scheme; or

(c) all or part of an amount that is payable by the entity under this Act apart from this Division is, or could reasonably

ATC 26271
be expected to be, payable later than it would have been apart from the scheme or a part of the scheme; or

(d) all or part of an amount that is payable to the entity under this Act apart from this Division is, or could reasonably be expected to be, payable earlier than it would have been apart from the scheme or a part of the scheme…

What is a scheme ?

(2) A scheme is:

(a) any arrangement, agreement, understanding, promise or undertaking:

(i) whether it is express or implied; and

(ii) whether or not it is, or is intended to be, enforceable by legal proceedings; or

(b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

GST benefit can arise even if no economic alternative

(3) An entity can get a *GST benefit from a *scheme even if the entity or entities that entered into or carried out the scheme, or a part of the scheme, could not have engaged economically in any activities:

(a) of the kind to which this Act applies; and

(b) that would produce an effect equivalent (except in terms of this Act) to the effect of the scheme or part of the scheme;

other than the activities involved in entering into or carrying out the scheme or part of the scheme.

40. Section 165-15 sets out matters to be considered in determining purpose or effect:

165-15 Matters to be considered in determining purpose or effect

(1) The following matters are to be taken into account under section 165-5 in considering an entity's purpose in entering into or carrying out the *scheme from which the avoider got a *GST benefit, and the effect of the scheme:

(a) the manner in which the scheme was entered into or carried out;

(b) the form and substance of the scheme, including:

(i) the legal rights and obligations involved in the scheme; and

(ii) the economic and commercial substance of the scheme;

(c) the purpose or object of this Act, the Customs Act 1901 (so far as it is relevant to this Act) and any relevant provision of this Act or that Act (whether the purpose or object is stated expressly or not);

(d) the timing of the scheme;

(e) the period over which the scheme was entered into and carried out;

(f) the effect that this Act would have in relation to the scheme apart from this Division;

(g) any change in the avoider's financial position that has resulted, or may reasonably be expected to result, from the scheme;

(h) any change that has resulted, or may reasonably be expected to result, from the scheme in the financial position of an entity (a connected entity ) that has or had a connection or dealing with the avoider, whether the connection or dealing is or was of a family, business or other nature;

(i) any other consequence for the avoider or a connected entity of the scheme having been entered into or carried out;

(j) the nature of the connection between the avoider and a connected entity, including the question whether the dealing is or was at arm's length;

(k) the circumstances surrounding the scheme;

(l) any other relevant circumstances.

(2) Subsection (1) applies in relation to consideration of an entity's purpose in entering into or carrying out a part of a *scheme from which the avoider gets or got a *GST benefit, and the effect of part of the scheme, as if the part were itself the *scheme from which the avoider gets or got the GST benefit.

41.

ATC 26272

Section 165-40(1)(a) provides that, for the purpose of negating a GST benefit, the Commissioner may make a declaration stating the amount that is (and has been at all times) the avoider's net amount for a specified tax period that has ended. Section 165-40(2) requires the Commissioner to take such action as he or she considers necessary to give effect to a declaration made under s 165-40.

CROSS-APPEAL: FIRST PERIOD

The Tribunal's decision

42. Before the Tribunal, the Commissioner abandoned a contention which had previously been made that CSS was not carrying on an enterprise. In summary, the issues relating to the First Period were ultimately:

(1) Whether CSS's supplies of gold were taxable supplies of scrap gold and not supplies of precious metal. If CSS's supplies were taxable, CSS was entitled to input tax credits in respect of its acquisition of the scrap gold and GST was payable on the value of scrap gold supplied by CSS.
(2) If CSS's supplies were of precious metal, whether those supplies were GST-free by reason of s 38-385 (and thus not input taxed). This issue concerned whether each of La Gajjar and ABCRA were "refiners of precious metal" and were "dealers in precious metals" as defined in s 195-1. If CSS's supplies were GST-free, CSS was entitled to input tax credits in respect of its acquisition of the scrap gold and GST was not payable on the value of precious metal supplied by CSS.
(3) If CSS's supplies to each of La Gajjar and ABCRA were GST-free supplies by reason of s 38-385, whether Div 165 applied to enable the Commissioner to make a declaration negating the GST benefit that CSS got (in the form of input tax credits on the acquisition of the scrap gold).
(4) Whether the penalties imposed by the Commissioner should be varied.

43. In summary, the Tribunal decided as follows:

(1) It was not necessary to determine whether CSS supplied scrap gold or gold in investment form.
(2) The requirements of s 38-385 were not met because the Tribunal was not satisfied that ABCRA and La Gajjar were "dealers in precious metals". Further, the Tribunal was not satisfied that La Gajjar was a "refiner of precious metals". Accordingly, the Tribunal concluded that the supplies by CSS were not GST-free.
(3) CSS was entitled to input tax credits on its acquisitions of scrap gold and liable for GST on the supplies it made.
(4) Having concluded that CSS had made taxable supplies, CSS did not obtain a GST benefit for the purposes of Div 165 and, accordingly, the Commissioner was not able to make a declaration under Div 165 in respect of the First Period.
(5) The penalty should be reduced from 75% (based on intentional disregard of the law) to 50% (based on recklessness). Based on the evidence before it, the Tribunal did not consider it open to find that CSS's tax agents had not been reckless. The Tribunal had no evidence to support a conclusion that it would be appropriate to remit the penalty.

Resolution of cross-appeal

44. The issues on the cross-appeal changed during the course of submissions. The principal issue was whether CSS was denied procedural fairness in respect of the finding that it had not discharged its burden of proving that each of ABCRA and La Gajjar was a dealer in precious metal within the meaning of the GST Act.

45. The principal contention advanced by CSS was that it had been denied procedural fairness because the Commissioner did not produce documents in his possession relevant to determining whether ABCRA and La Gajjar were each a dealer in precious metal. This failure was said to be contrary to s 37(1)(b) of the AAT Act.

46. Although the Commissioner did not accept that there was a denial of procedural fairness in relation to the Tribunal's findings, having reviewed the material before him, the Commissioner accepted on appeal that a principal part of ABCRA's enterprise was the regular supply and acquisition of precious metal and that, therefore, ABCRA was a dealer in precious metals. The Commissioner also accepted that the supplies by

ATC 26273

CSS to ABCRA were of precious metals. The Commissioner therefore conceded that the matter had to be remitted for reconsideration by the Tribunal.

47. It appears from the Commissioner's concession that the Tribunal miscarried in its statutory function because it was not provided with materials which were not only relevant but were, apparently, critical to the Tribunal's ability properly to conduct the review of the objection decision before it. The Court is satisfied that the matter ought to be remitted to the Tribunal for reconsideration of the issues concerning the First Period. CSS accepted in oral submissions that it was for the Tribunal to consider whether to issue a notice to the Commissioner under s 37(2) of the AAT Act.

48. The only issue in relation to ABCRA is the application of Div 165, because the Commissioner now accepts that CSS's supplies to ABCRA were GST-free.

49. Unlike his position with respect to ABCRA, the Commissioner did not concede that CSS's supplies to La Gajjar were GST-free. The Commissioner continues to rely on the following grounds in relation to La Gajjar:

(1) The supplies made by CSS to La Gajjar were supplies of scrap gold and not of precious metal and, accordingly, were taxable supplies in respect of which GST was payable.
(2) If the supplies made by CSS to La Gajjar were supplies of precious metal:
- (a) La Gajjar was not a "dealer in precious metal" as defined in s 195-1;
- (b) accordingly, the supplies by CSS to La Gajjar were not GST-free supplies under s 38-385, but were input taxed supplies under s 40-100;
- (c) accordingly, CSS was not entitled to input tax credits in respect of scrap gold acquired which related to the making of supplies of precious metals to La Gajjar.
(3) Alternatively, if the supplies to La Gajjar were GST-free, CSS got a GST benefit (in the form of input tax credits related to CSS's acquisition of scrap gold) from a scheme and the GST benefit was negated by a declaration made by the Commissioner under s 165-40.

50. At T [89] of its reasons, the Tribunal stated that neither party submitted that CSS's supplies were input taxed supplies. The Commissioner contended before the Tribunal that La Gajjar was not a dealer in precious metals. If that proposition is correct and the gold supplied by CSS to La Gajjar was in investment form, it necessarily follows that those supplies were input taxed supplies and CSS would not be entitled to input tax credits in respect of those supplies. On remittal, it will be necessary for the Tribunal to determine whether the supplies made by CSS to La Gajjar were supplies of gold bullion in investment form (and therefore input taxed supplies if La Gajjar was not a dealer in precious metals) or supplies of scrap gold (and therefore taxable supplies).

51. CSS also raised two contentions concerning penalties. CSS contended that the Tribunal made an error of law in concluding:

(1) at T [179], that there was "no evidentiary foundation from which to make a finding that CSS's agents exercised reasonable care or were not reckless"; and
(2) at T [180], that there was no evidentiary basis to remit any penalties in whole or in part when it had made the findings of fact recorded at T [114], [177] and [178].

52. Although denying that the Tribunal had made any errors in addressing the issue of penalties in relation to the First Period, the Commissioner accepted that, because the matter had to be remitted to the Tribunal for reconsideration of the assessments of net amounts and the issue of penalties was necessarily dependent upon the outcome of that reconsideration, it was appropriate for the penalties also to be remitted for reconsideration.

53. Because the matter is to be remitted, and penalties depend on the extent and reason for shortfall, it is not strictly necessary to address these aspects of the cross-appeal.

54. Nevertheless, the following observations should be made concerning the two issues raised by CSS and set out at [51] above:

(1) The better reading of the Tribunal's reasons is that it considered CSS had failed to discharge its onus of establishing that its tax agents had exercised reasonable care or were not reckless. The tax agents had given no evidence. The Tribunal did not

ATC 26274
have evidence before it of what the tax agents had or had not done. The Tribunal's conclusion at T [179] was open to it and CSS has not shown it involved an error of law.
(2) The Tribunal stated that it had no evidentiary basis "to consider whether remission to any extent would be appropriate in the circumstances": at T [180]. It emphasised that "there is no evidence that [CSS] through [its director] or its tax agents engaged at all with the statutory requirements for GST-free supplies of bullion". The power in s 298-20 of Sch 1 to the Taxation Administration Act 1953 (Cth) to remit a penalty is constrained only by the purposes and object for which the power is conferred:
Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483 at 521 [193] (Greenwood J). In determining whether to remit a penalty, the Tribunal is not confined only to considering the circumstances surrounding the failure on the part of the taxpayer or its agent to exercise reasonable care or to not act recklessly in making the statement to the Commissioner that might explain the conduct the subject of the penalty. It is also relevant to consider what circumstances, on the evidence, ought to be taken into account in determining, as a matter of discretion, that, notwithstanding the imposition of a penalty on the taxpayer on the basis of a failure to take reasonable care or acting recklessly in making the statement, the penalty ought nevertheless be reduced either in whole or in part: Sanctuary Lakes at 524 [209] (Greenwood J).

APPEAL: SECOND PERIOD

The Tribunal's decision

55. Before the Tribunal, the Commissioner abandoned the contention that CSS was not carrying on an enterprise. In summary, the issues relating to the Second Period became:

(1) Whether CSS exported scrap gold. The Commissioner contended that CSS was not the exporter of the scrap gold because CSS had not established that it had acquired title to the gold at the time it purported to make the supplies to Emirates Gold.
(2) Whether CSS's supplies were GST-free and whether it was entitled to input tax credits.
(3) If CSS's supplies were GST-free export supplies by reason of s 38-185(1), whether Div 165 applied to enable the Commissioner to make a declaration negating the GST benefit (the input tax credits on the acquisition of the scrap gold) that CSS got.
(4) Whether the penalties imposed by the Commissioner should be varied.

56. In summary, the Tribunal decided as follows:

(1) CSS made export sales of scrap gold.
(2) CSS was entitled to input tax credits on its acquisitions of scrap gold and not liable for GST on its export supplies of scrap gold.
(3) In relation to Div 165:
- (a) The series of transactions by which CSS came to acquire and sell scrap gold to Emirates Gold constituted a scheme.
- (b) CSS obtained a GST benefit in the form of input tax credits on its purchases of scrap gold in circumstances where it had no GST liability on its export sales.
- (c) It would not be concluded that any entity had a dominant purpose of securing CSS's entitlement to input tax credits. Further, the principal effect of the scheme was the non-payment of GST by Manila Exchange and not CSS obtaining input tax credits. Accordingly, the Commissioner was not able to make a declaration under Div 165 in respect of the Second Period.
(4) Because there was no shortfall in respect of the Second Period and Div 165 did not apply, no penalty arose.

57. The Tribunal's reasons in relation to the operation of Div 165 were heavily focussed on what it considered to be the "real mischief", namely Manila Exchange's failure to remit the GST which it has received in respect of its supplies of scrap gold.

58. The Tribunal's analysis in relation to Div 165 commenced with the following observations at T [113] and [114]:

[113] The real mischief in this case is the non-payment of GST by Manila Exchange. That

ATC 26275
was the dominant if not sole purpose of the adulteration of the bullion - to allow the bullion to be sold at a GST-inclusive price. That in turn allowed Manila Exchange to retain the GST component of the price it obtained from GB Traders and profit by failing to pay its GST liability to the Commissioner.

[114] In those circumstances, accepting the Commissioner's submission would visit punishment of that fraudulent endeavour not upon its perpetrator but instead upon [CSS], an unconnected entity that received no substantial net benefit from, and had no knowledge of, the scheme. However, I must, and do, put aside that unfortunate prospect and determine whether Division 165 applies solely by reference to the statutory criteria.

59. The Tribunal's focus on Manila Exchange's fraud is evident in what was said at T [126], [127], [129], [130] and [160]. Thus, at T [126] and [127], the Tribunal stated:

[126] The telling element of substance is that Manila Exchange acquired bullion, adulterated it and sold the adulterated scrap gold at a lower price before GST than it paid for the bullion. And did not pay GST on those sales.

[127] However, that to me suggests Manila Exchange was intent upon perpetrating a fraud on the Commonwealth rather than securing [CSS]'s entitlement to [input tax credits]. And its actions, and those of any other entities that joined in the fraud, do not, in my view, point to a principal effect of the scheme being the securing of [CSS's input tax credits].

60. The Tribunal recorded at T [120] that CSS emphasised "that it had no knowledge of or dealings with the entities (or their controllers) in the series of transactions other than PMMS and Emirates Gold". The Tribunal recorded at T [121] that the Commissioner submitted it was irrelevant whether CSS knew of the scheme or its participants. The Tribunal then stated that what was required was an objective consideration of the factors described in s 165-15 (at T [122]), to which it then turned from T [123] to [159]. More will be said about aspects of this analysis later in these reasons.

61. The Tribunal's conclusions were set out from T [160] to [169]. In relation to dominant purpose, the findings may be summarised as follows:

(1) As to Manila Exchange, it was plain that its conduct was of an artificial nature designed to obtain an advantage from the GST system. There was no other rational explanation for adulteration of the gold bullion, such that it was no longer precious metal, with a resultant reduction in value: at T [160].
(2) Other entities in the "chain of transactions" may have been involved in Manila Exchange's "nefarious activities": at T [160]. The Tribunal had earlier implied that other entities may have "joined in the fraud", but made no positive findings in that respect: at T [127].
(3) There was no evidence that CSS or its director "were aware of or had dealings with any of the entities in the chain of transactions or their controllers, other than PMMS and Emirates Gold": at T [161]. This did not necessarily mean that Div 165 could not apply: at T [162].
(4) There was no evidence that CSS profited from the scheme and it could not be concluded that it had a dominant purpose of obtaining input tax credits: at T [163], [164].
(5) The Tribunal rejected the Commissioner's submission that the input tax credits were "the engine that drove the scheme", namely, that "it was only because [CSS] was able to obtain [input tax credits] that [CSS] was able to pay a GST-inclusive price to PMMS which in turn funded the earlier transactions in the chain": at T [165]. In this regard, the Tribunal distinguished what the Tribunal had stated in
ACN 154 520 199 Pty Ltd (in liq) and Commissioner of Taxation [2019] AATA 5981 at [268], recorded in
ACN 154 520 199 Pty Ltd (in liq) v Commissioner of Taxation [2020] FCAFC 190; (2020) 282 FCR 455 at 484-5 [123] (Perram, Moshinsky and Thawley JJ) ( ACN FC ).
(6) The "same GST-neutral outcome would have been achieved by PMMS selling the scrap gold to an arm's length purchaser, a refinery or an overseas customer" and

ATC 26276
"there was no particular imperative for any entity in the chain to secure [CSS's input tax credit] entitlements": at T [166].
(7) Therefore, CSS had "discharged the burden of proving that it would not be concluded that any entity had a dominant purpose of securing the CSS's input tax credit entitlements": at T [167].

62. In relation to the principal effect of the scheme, the Tribunal's conclusion was expressed in one paragraph, namely, T [168]:

Similarly, the principal effect of the scheme is, in my view, the non-payment of GST and not [CSS] obtaining the [input tax credits]. It is true that [CSS] obtaining [input tax credits] is an effect of the scheme and I accept it is not an insignificant effect. But measured against the non-payment of GST by Manila Exchange, and seen [in] its proper context as effectively a GST-neutral return of GST embedded in the price of [CSS]'s business acquisitions, I am unable to accept that [CSS]'s [input tax credit] entitlement is the principal effect of the scheme. I am satisfied that it was not.

63. The Tribunal did not state a conclusion about the principal effect of parts of the scheme.

The appeal

The notice of appeal

64. By his notice of appeal, the Commissioner raised seven purported questions of law and nineteen grounds of appeal in respect of the Tribunal's conclusions in respect of the Second Period. It is unnecessary to set out each of the questions and grounds relied upon.

65. The Commissioner's grounds of appeal largely take issue with the merits of the Tribunal's conclusions as to dominant purpose and principal effect rather than identifying a wrong approach or an error of law.

66. In
Commissioner of Taxation v Zoffanies Pty Ltd [2003] FCAFC 236; (2003) 132 FCR 523 at 541 [66] (see also Hely J at [92]-[94]), Hill J said in relation to Part IVA of the Income Tax Assessment Act 1936 (Cth):

Part IVA of the Act clearly requires a conclusion to be drawn by reference to the matters set out in s 177D(b). Those matters are factual and the conclusion required to be drawn is itself a conclusion of fact.

67. The task required by s 165-5(1)(c) is similar. The task requires the drawing of conclusions of fact and an ultimate conclusion about dominant purpose and principal effect, also being a conclusion of fact.

68. At the hearing of the appeal, the purpose of entities other than CSS in entering into or carrying out the scheme or parts of the scheme was the subject of discussion, as was the principal effect of parts of the scheme. After hearing the appeal, the Court invited further submissions from the parties on the following question of law:

Whether the Tribunal failed properly to address the whole of what was required by s 165-5(1)(c) in failing properly to consider whether:

(a) the sole or dominant purpose of each participant in the scheme, or part of the scheme, engaged s 165-5(1)(c)(i); and

(b) for the purposes of s 165-5(1)(c)(ii), the principal effect of the scheme, or of part of the scheme, was that CSS would get the GST benefit from the scheme directly or indirectly.

69. The Court invited and received submissions as to: (a) whether the question of law was covered by the notice of appeal; (b) whether the Court could consider the question of law; and (c) the substance of the question of law.

70. The Commissioner contended that, as a matter of substance, his notice of appeal covered the question of law and that, if it did not, he should be granted leave to amend. The Commissioner contended that the Tribunal erred in the ways foreshadowed by the question.

71. CSS contended that the question was not covered by the notice of appeal and that leave to amend should be refused on the basis that the Commissioner had relied on a "wider" scheme in relation to the Second Period and had not relied on any narrower alternative scheme. CSS contended that, in any event, the Tribunal did not err in the way identified in the question of law. CSS also contended it would suffer prejudice if the Commissioner were granted leave to amend on the basis that it would have

ATC 26277

run its case differently if the Commissioner had relied upon a narrower alternative scheme.

72. CSS's contention that the Commissioner relied on a wide scheme is not to the point. It was not necessary for the Commissioner to identify more than one scheme. The Tribunal had to consider the scheme identified and the several parts of that scheme. The Commissioner did not confine his case only to the whole scheme or abandon reliance on any particular part of the scheme.

73. Before the Tribunal, the parties acknowledged that the purpose of each entity was relevant and the Tribunal raised with the parties, during the hearing and by correspondence, questions about the purpose of entities other than CSS in entering into or carrying out the scheme or parts of the scheme. The Commissioner did not abandon reliance on the purpose of entities other than CSS.

74. The question of law identified by the Court is not clearly raised by the Commissioner's notice of appeal, albeit some of the grounds can be seen as relevant to that question. CSS would not suffer any relevant prejudice if leave to amend were granted. Leave is granted to amend the notice of appeal by inclusion of the question of law identified at [68] above.

Overview

75. Relevantly for present purposes, Div 165 of the GST Act applies if:

(1) CSS got a GST benefit from a scheme: s 165-5(1)(a); and
(2) taking account of the matters described in s 165-15, it is reasonable to conclude that either:
- (i) an entity that (whether alone or with others) entered into or carried out the scheme, or part of the scheme, did so with the sole or dominant purpose of that entity or another entity getting a GST benefit from the scheme: s 165-5(1)(c)(i); or
- (ii) the principal effect of the scheme, or part of the scheme is that the avoider gets the GST benefit from the scheme directly or indirectly: s 165-5(1)(c)(ii).

76. As to (1) above, the Tribunal held that there was no doubt that the "series of back-to-back transactions constitutes a 'scheme' as defined": at T [117]. It also held that CSS obtained a "GST benefit", being the input tax credits arising on its acquisition - and refunded in relation to its export of - the scrap gold: at T [118]. It was not disputed that these conclusions were correct.

77. As to (2) above, the Tribunal was not satisfied that either the "dominant purpose test" in s 165(1)(c)(i) was satisfied (at T [164]) or that the "principal effect test" in s 165(1)(c)(ii) was satisfied (at T [168]).

78. The relevant provisions in Div 165 have been set out above. The following observations should be made about the statutory scheme:

(1) In determining dominant purpose under s 165-5(c)(i):
- (a) it is the purpose of each entity that must be analysed. Different entities may, and often will, have different dominant purposes;
- (b) further, s 165-15(1) applies in relation to the consideration of each entity's purpose in entering into a part of the scheme as if that part were the scheme itself: s 165-15(2).
(2) In determining principal effect under s 165-5(c)(ii):
- (a) it is not only the principal effect of the scheme as a whole which will engage the operation of Div 165. If the principal effect of part of the scheme is that the avoider gets the GST benefit from the scheme directly or indirectly, then Div 165 is engaged. Different parts of the scheme may, and often will, have different principal effects.
- (b) s 165-15(1) applies in relation to the consideration of the effect of part of the scheme as if the part of the scheme were the scheme itself: s 165-15(2).

79. As discussed below, the Tribunal's analysis of the dominant purpose of GB Traders and PMMS was limited. The Tribunal's analysis of principal effect was limited to what it considered to be the principal effect of the scheme as a whole. It did not consider the principal effect of parts of the scheme. As a matter of substance, this was because the Tribunal considered that Manila

ATC 26278

Exchange not remitting GST was: (a) the dominant purpose of one of the parties to the scheme (Manila Exchange) which for some reason was considered to predominate the purposes of other parties to the scheme; and (b) the predominating or principal effect of the scheme as a whole.

80. On a fair reading of the Tribunal's reasons it did not complete the statutory task. A failure fully to undertake the statutory task raises an error of law for the purposes of s 44 of the AAT Act:
Haritos v Commissioner of Taxation [2015] FCAFC 92; (2015) 233 FCR 315 at 385 [202]. The Tribunal did not address the whole of what was required by s 165-5(1)(c) because it did not:

(1) separately examine each entity's purpose whether focussing on its participation in the scheme as a whole or in relation to particular parts of the scheme; or
(2) examine the principal effect of the various parts of the scheme.

81. Before turning to these errors, something should be said about the following three matters:

(a) the Tribunal's focus on Manila Exchange's involvement in parts of the scheme;
(b) the significance of the decision in ACN FC; and
(c) the Commissioner's argument that CSS's profit was dependent on the refund of input tax credits.

Manila Exchange

82. There is no question that Manila Exchange's involvement in the scheme was an important aspect of the scheme as a whole. It participated in the scheme to benefit from receiving and not remitting GST. There is little doubt, therefore, that it was a central purpose of Manila Exchange to create a taxable supply by adulterating the bullion that it had purchased. That does not mean that other parties had that purpose or that the principal effect of various parts of the scheme could be put to one side.

83. For the scheme to enable Manila Exchange to commit its fraud, Manila Exchange needed to charge a GST-inclusive price. By adulterating the gold bullion it had acquired, Manila Exchange was able to on-sell what had become scrap gold in taxable supplies. Pursuant to s 9-75 of the GST Act, the value of a taxable supply is 10/11^th of the consideration received. The creation of a taxable supply had two interrelated consequences:

(1) Manila Exchange became entitled to receive a price higher than the value of the goods it supplied. This was critical to Manila Exchange's ability to profit from adulterating gold bullion because its action in adulterating the gold bullion destroyed value. Unlike normal business operations which add value in a supply chain, Manila Exchange's operations involved lowering the value of goods it acquired. Manila Exchange was able to profit from value-lowering operations only because of its fraud on the Commissioner, constituted by charging but not remitting GST.
(2) GST became embedded in the purchase price paid by subsequent purchasers of the scrap gold. If later purchasers acquired the scrap gold in the course of an enterprise involving the making of taxable supplies or GST-free supplies, those purchasers became entitled to an input tax credit, subject to Div 165. For the scheme as a whole to work as it did, the last supply in the chain (that made by CSS) needed to be a GST-free supply in order to provide CSS with a GST refund. This is particularly important to an analysis of that part of the scheme in which PMMS was most directly involved.

84. One of the questions of law raised by the Commissioner on appeal was:

Whether under s 165-5(1)(c) of the GST Act, there is a necessary dichotomy between the purpose and/or effect of an entity getting a GST benefit from the scheme, and the purpose and/or effect of another entity avoiding the payment of GST as a part of the scheme?

85. It would be an error to assume that, because Manila Exchange wanted to obtain (and not remit) the GST embedded in its supplies of scrap gold, it was not possible that its purpose, ascertained in accordance with Div 165, was to ensure that CSS could obtain input tax credits on a GST-free sale. As the Full Court (Perram, Moshinsky and Thawley JJ) stated in ACN FC at 514 [226], the purpose of

ATC 26279

obtaining (and not remitting) GST "is not necessarily inconsistent with" a conclusion that the dominant purpose was obtaining the relevant input tax credits. Indeed, it would be open to conclude that the purpose of obtaining (and not remitting) GST and the purpose of obtaining input tax credits for CSS were one purpose if the facts showed them to be inextricably linked: ACN FC at 513 [224]. Such a conclusion might be open, for example, if it were concluded that it was important to Manila Exchange that the scheme end with a GST-free supply by an entity which would be refunded input tax credits, so that the scheme as a whole would work by being sufficiently funded. It is not clear that the Tribunal reached its factual conclusion about Manila Exchange's dominant purpose by excluding the possibilities just mentioned.

The Tribunal's distinguishing of ACN FC

86. The Tribunal distinguished the decision in ACN FC, concluding that the obtaining of input tax credits was not the "engine which drove the scheme" and that there was no imperative for any entity in the chain to secure CSS's input tax credit entitlements: at T [165], [166].

87. The applicant in ACN, like CSS here, had argued that the principal effect of the scheme was not that the applicant receive the GST benefit, but that the "rogue suppliers" create taxable supplies so that they could charge GST which would not be remitted. The Full Court in ACN FC at 484-5 [123] referred to what the Tribunal had said at first instance in ACN at [267] and [268]:

[267] Further, the applicant submitted it was not the principal effect of the scheme that the applicant received the GST benefit: it submitted the principal effect was to enable the rogue suppliers to sell scrap gold to third-party purchasers including the applicant as a taxable supply, thereby enabling those suppliers to recover GST-inclusive prices and fail to remit that GST to the Commissioner. The applicant says that is the step which cannot be explained other than by reference to tax evasion on the part of the Division 165 Supplying Entities, and the availability of input tax credits to the applicant was irrelevant to the purpose and effect of any scheme participant.

[268] The applicant's arguments have a superficial appeal, but the reality is that the applicant's entitlement to the input tax credits was more important to the operation of the scheme than the GST liabilities evaded by the Division 165 Supplying Entities. The input tax credits paid by the Commonwealth to the applicant funded the round-robin arrangements because, in simple terms, it was only economically feasible for the applicant to pay those GST-inclusive prices to the Division 165 Supplying Entities in the knowledge that the applicant would receive the input tax credits. Without the entitlement to the input tax credits, the applicant would not have paid those prices to the Division 165 Supplying Entities and, consequently, there would have been no acquisition of precious metal by the third-party suppliers (including the Division 165 Supplying Entities) from the Dealers. There would have been no defacing of that precious metal, no taxable supplies in altered form to the applicant, no processing of the metal by the applicant, and no sale of an equivalent amount of precious metal back into the market by the applicant to the Dealers, and so on. In other words, the round robin arrangements would have fallen over if the applicant had not been able to claim the input tax credits. It was the GST benefit in the form of the larger input tax credits payable by the Commonwealth to the applicant, because of the Division 165 Supplying Entities making taxable supplies to the applicant, that underpinned the scheme.

88. The Tribunal in the present case set out the Tribunal's decision in ACN at [268] but distinguished the case before it on the basis that ACN concerned a "surging" turnover of sales (see ACN at [225]; ACN FC at [97]) arising out of circular and repeated transactions: at T [155] and [157]. The Tribunal was correct to observe that the facts in ACN were different in various respects to those in the present case. At the core, however, the same essential elements existed:

ATC 26280
(a) the deliberate adulteration of gold bullion by a fraudulent party in order to supply scrap gold in transactions which attracted GST;
(b) the non-remittal of the GST;
(c) GST being embedded in subsequent supplies of the scrap gold; and
(d) a GST-free transaction at the end of the series of transactions by an entity whose input tax credits for the acquisition of the scrap gold would be refunded out of consolidated revenue.

89. The different facts in ACN are not such as would distinguish the comments made by the Tribunal in ACN. In the present case, similarly to the position in ACN:

• it was only economically feasible for CSS to pay GST inclusive prices for the scrap gold it acquired if it were to receive a refund of the input tax credits from the Commissioner; and
• without an entitlement to a refund of input tax credits, CSS could not have paid the prices it did for the supply of scrap gold and this might call into question whether any of the preceding sales could or would have occurred.

The significance of the input tax credits

90. The Commissioner contended that CSS's "profit was dependent upon the input tax credit entitlements that were created by the scheme and the resultant GST refund to [CSS]" and that "[w]ithout the refund there was no profit to [CSS]".

91. As the Full Court explained in ACN FC at 508 [206], input tax credits merely reflect GST that has been paid to a supplier and the claiming of the input tax credits is therefore strictly neutral from a profit perspective. The profit that the Commissioner identified relied upon a false comparison, namely the difference between a GST-free sale price and a GST inclusive purchase price. Under the GST scheme, the profit of a person carrying on an enterprise making GST-free or taxable supplies is properly determined by examining the GST exclusive cost of inputs. Otherwise, generally, it might be said that the profit of any person carrying on an enterprise that, on a GST exclusive basis, generates a margin of less than 10% is attributable to the input tax credits claimed. Nevertheless, as the Full Court explained in ACN FC at 509 [206]:

That is not to say that ACN 154's turnover, and its actual profit, did not increase as a result of the business model that it adopted and the transactions that it entered into; it is to say that there was no evidence for the proposition that it made its profit from the input tax credits that it claimed.

92. The importance of the input tax credits to CSS was as follows. Given its low margin business, and because CSS was selling on a GST-free basis, it could not obtain a purchase price from its export customer which covered its GST inclusive purchase costs. Its sale price was insufficient to cover its GST inclusive purchase costs such that its business model only worked if it received a cash refund from the Commissioner. CSS needed a cash refund from the Commissioner to cover the purchase price of the scrap gold.

93. Notwithstanding the foregoing, it is important to emphasise that the mere fact that a taxpayer involved in making GST-free supplies requires a refund of GST it pays on its inputs in order to remain viable does not of itself answer the question posited by s 165-5 of the GST Act. It is part of the legislative scheme that those involved in making GST-free export sales are not to be disadvantaged in competing in the export market by reason of the fact that Australia imposes GST. The conclusion as to dominant purpose or principal effect must be reached after taking into account each of the matters described in s 165-15.

First error - failing properly to address s 165-5(1)(c)(i)

94. The analysis by the Tribunal of the dominant purpose of GB Traders and PMMS was limited. Its analysis of, and findings in relation to, the particular transactions in which those entities were directly involved was also limited. As will be noted in relation to the second error, there was no separate analysis of the principal effect of those parts of the scheme in which those entities were directly involved.

95. It is not known whether and, if so, which of the parties involved in entering into or carrying out the scheme as a whole, or various parts of it, were related. Leaving aside

ATC 26281

CSS's position, it is unclear whether any of the parties acted in concert or with knowledge of Manila Exchange's adulteration of bullion or non-remittal of GST. This is surprising given the Commissioner's focus on aspects of the transactions which suggested that they were connected and co-ordinated. Apart from the heavy involvement of Mr Viceconte and PMMS in CSS's activities, it is significant that the transactions, from import of bullion, through adulteration into scrap gold, through subsequent negotiations and sales, to export of the scrap gold, occurred over a very short period of time on several occasions on the one day.

96. Reading the reasons as a whole, it is clear that the Tribunal did not reach a conclusion about the dominant purpose of GB Traders or PMMS in entering into or carrying out the scheme, or parts of the scheme, by considering, in relation to those entities, each of the matters identified in s 165-15. Each of the matters identified in s 165-15 must be considered in respect of each of the participants in the scheme and in relation to the various parts of the scheme. Particularly in a case where there is no express or clear finding that the parties acted in concert or were commonly controlled, it cannot be assumed that every entity participating in the scheme had the same dominant purpose.

97. The Tribunal referred to the involvement of PMMS on several occasions, but its consideration of that involvement was often undertaken by way of its relative significance to Manila Exchange's dominant purpose rather than as being capable itself of engaging Div 165.

98. In considering the "manner in which the scheme was entered into or carried out" (s 165-15(1)(a)), the Tribunal noted the heavy involvement of PMMS in CSS's transactions which it described as "unusual". It said, at T [124]:

In respect of the dealings between [PMMS, CSS and Emirates Gold], the heavy involvement of PMMS in [CSS]'s transactions is certainly unusual. This weighs in favour of a conclusion that PMMS had a purpose of ensuring [CSS] carried out the transactions which would generate an entitlement to [input tax credits] on [CSS]'s acquisitions of scrap gold. I do not see how it could support a conclusion that the principal effect of the scheme was to secure a GST refund for [CSS].

99. This is one of several occasions on which the Tribunal reached a conclusion that a particular factor in s 165-15(1) supported a conclusion that PMMS had the requisite dominant purpose. As is discussed below, to the extent the Tribunal's reasons for putting these findings aside are exposed, they involve error.

100. The Tribunal's reasons in respect of "form and substance" (s 165-15(1)(b)) were:

[125] The form of the scheme is that scrap gold was sold by Manila Exchange to GB Traders. GB Traders and PMMS each on-sold the gold at a profit, with [CSS] exporting the scrap gold. I do not see any real difference between the form and substance of these transactions, other than in respect of the export sales by [CSS] where, as already noted, the transactions were significantly facilitated by PMMS.

[126] The telling element of substance is that Manila Exchange acquired bullion, adulterated it and sold the adulterated scrap gold at a lower price before GST than it paid for the bullion. And did not pay GST on those sales.

[127] However, that to me suggests Manila Exchange was intent upon perpetrating a fraud on the Commonwealth rather than securing [CSS]'s entitlement to [input tax credits]. And its actions, and those of any other entities that joined in the fraud, do not, in my view, point to a principal effect of the scheme being the securing of [CSS's input tax credits].

101. This reasoning, particularly the last sentence of T [125] read with [126], suggests that the Tribunal subordinated PMMS's purpose to that of Manila Exchange. The last sentence of T [125] suggests that the Tribunal considered that:

• the substance of that part of the scheme in which PMMS was involved was to facilitate a GST-free export sale of scrap gold which it had acquired; and

ATC 26282
• the form of the transaction was the purchase by PMMS of scrap gold and a taxable supply of that scrap gold to CSS but with PMMS having immediate and direct access to the GST refund to be paid to CSS.

102. The Tribunal may have been suggesting that, so far as PMMS's purpose was concerned, the form and substance of the transaction supported a conclusion that the dominant purpose of PMMS was to enable CSS to obtain a GST benefit. Such a conclusion was certainly open on the evidence. It is no answer to PMMS's dominant purpose that Manila Exchange may have had a different purpose or one considered to be more significant than PMMS's purpose, as appears to be the Tribunal's conclusion at T [126]. The statute requires analysis of the purposes of each participant in the scheme and the statute does not require the identification of which of several different purposes of several different participants is the more significant.

103. In considering the objects of the GST Act (s 165-15(1)(c)), the Tribunal correctly observed at T [128] that, generally, a purpose of the GST Act is to relieve GST-registered businesses involved in making taxable or GST-free supplies of GST costs on their inputs through the mechanism of input tax credits. The Commissioner is also correct to observe that it is not consistent with the policy or object of the GST Act for GST to become embedded in a supply of goods which have been deliberately devalued.

104. As explained above, the mere fact that CSS is entitled to obtain an input tax credit on its acquisition of adulterated gold is not necessarily inconsistent with the object or purpose of the GST Act in circumstances where CSS was not a party to, and had no involvement with or knowledge of, the deliberate adulteration of the gold and the fraud perpetuated by Manila Exchange. However, CSS's entitlement to an input tax credit may not be consistent with the object and purpose of the GST Act if its supplier and the arranger of CSS's export sales - namely, PMMS - was a party to, had knowledge of or was wilfully blind to that deliberate adulteration and fraud.

105. As mentioned earlier, the Tribunal made no clear findings as to whether the sale by PMMS to CSS was a part of a co-ordinated, connected series of transactions which included the adulteration of the gold by Manila Exchange or whether PMMS was a party to Manila Exchange's fraud or knew or should be taken to have known of it. This is surprising in light of the material before the Tribunal and the involvement of PMMS in CSS's activities.

106. Further, although generally it may be consistent with the object and purpose of the GST Act for refunds referable to input tax credits to be payable in respect of GST-free exports, the exports by CSS were facilitated and controlled by PMMS. It is not necessarily consistent with the object and purpose of the GST Act to enable PMMS to obtain the cash benefit of input tax credits paid to CSS if PMMS's primary customer was CSS and PMMS's primary source of supply was gold adulterated by Manila Exchange. The Tribunal made no findings about the nature of PMMS's business and the connection of that business with GB Traders or Manila Exchange.

107. The Tribunal's analysis of the timing of the scheme (s 165-15(1)(d)) focussed primarily on Manila Exchange. It made no findings about the nature of the businesses of GB Traders or PMMS. In so far as PMMS was concerned, it acquired and on-sold scrap gold to CSS, apparently on the same day, in circumstances where PMMS was facilitating and co-ordinating CSS's export sales. The Tribunal did not clearly state a conclusion about how PMMS intended to generate its profit through its business activities. As explained above, and as the Tribunal appears to have accepted at T [135], the generation and payment of GST refunds to CSS were critical to PMMS being able to benefit from the scheme.

108. The Tribunal stated at T [135]:

It is true that PMMS and the earlier entities in the chain stand to benefit from [CSS] purchasing scrap gold from PMMS. That funded PMMS's purchases from GB Traders which in turn funded GB Traders' purchases from Manila Exchange. But GB Traders and PMMS only benefitted from the scheme to the extent of their profit on each of the series of transactions. That profit could have been achieved by direct sale to a refiner or export customer. Sales to [CSS] were not

ATC 26283
required to achieve that outcome, nor BG Traders' or PMMS's entitlement to [input tax credits].

109. The reasoning that GB Traders and PMMS could have made the same profit or obtained the same benefit by selling to a refiner or export customer rather than CSS is not sound. Division 165 does not cease to apply because the same scheme might have been entered into with another entity. Section 165-5 requires a conclusion to be drawn in respect of the actual participants in the scheme and s 165-15 requires an examination of factors that relate to the scheme that was in fact entered into or carried out. Whether the same benefit might have been obtained by entering into a different scheme is not a matter to be considered under s 165-15.

110. As to the effect the GST Act would have in relation to the scheme apart from the operation of Div 165 (s 165-15(1)(f)), the Tribunal stated:

[137] The Commissioner points out that but for Division 165 [CSS] would be entitled to [input tax credits] of $503,084 in respect of the Second Period.

[138] It is true that, but for the scheme, [CSS] would not be entitled to those [input tax credits], but nor would it have outlaid the purchase price of the scrap gold or received the selling price. An exporter receiving [input tax credits] on goods purchased for and in fact exported is an entirely orthodox and common application of the GST law. It is consistent with the scheme of the GST law.

[139] Seen in that context, the mere fact that [CSS] became entitled to the [input tax credits] in my view does not, in itself, strongly support a conclusion that an entity had a dominant purpose of [CSS] obtaining the [input tax credits].

111. This factor, generally, merely demonstrates that a GST benefit was obtained. For this reason, it is not a powerful consideration viewed in isolation. The Tribunal correctly observed that the mere fact that CSS became entitled to input tax credits for GST it paid to PMMS does not of itself point to a conclusion that the dominant purpose of a party to the scheme was to enable CSS to obtain those refunds. As with each factor, this factor had to be considered in the context of the scheme as a whole and from the perspective of each party to the scheme and in relation to parts of the scheme. It is not clear that the Tribunal did so.

112. It would have been open to conclude that the refunds were important in providing CSS with the funding it required to meet its obligation to PMMS to pay a GST inclusive price in circumstances where CSS was making GST-free supplies. The importance of that funding benefit was objectively demonstrated by PMMS seeking to become, and in fact becoming, a signatory to CSS's bank account into which the refunds were paid.

113. These considerations were also absent from the Tribunal's analysis of changes to CSS's financial position as a result of the scheme (s 165-15(1)(g)), suggesting that this factor was not taken into account in considering PMMS's dominant purpose for entering into the scheme or a part of it.

114. A second finding relevant to PMMS having the requisite purpose is found in the Tribunal's consideration of changes in the financial position of a connected entity as a result of the scheme (s 165-15(1)(h)), where the Tribunal stated at T [147]:

In relation to PMMS, the Commissioner notes that but for the GST refunds obtained by [CSS] it would not have been in a position to pay PMMS a GST-inclusive price for the scrap gold. That may be so, but again GST on acquisitions is intended to be creditable to a business purchaser in the usual course. Nevertheless, I accept that this weighs in favour of a conclusion that PMMS had an interest in, and therefore one might say a purpose of, [CSS] securing its [input tax credit] entitlement.

115. A third example is afforded at T [150]. In considering the connection between CSS and any connected entity (s 165-15(1)(j)), the Tribunal stated:

I accept that the close involvement in PMMS in [CSS's] transactions is relevant to this factor. It weighs in favour of a conclusion that PMMS had a purpose of assisting [CSS] in its business which

ATC 26284
necessarily included obtaining the benefit of the [input tax credits].

116. The Tribunal expressed its conclusions about the dominant purpose from T [160] to [167]. It concluded that Manila Exchange engaged in artificial activity designed to obtain an advantage from the GST system: at T [160]. It stated that there was no evidence that Mr Chavan or CSS "were aware of or had dealings with any of the entities in the chain of transactions or their controllers, other than PMMS and Emirates Gold": at T [161]. It thought it important that CSS did not profit from the scheme except through modest margins: at T [163]. It concluded that CSS therefore did not have a dominant purpose of obtaining the input tax credits: at T [164].

117. The reasoning about dominant purpose in relation to the remaining entities is at T [165] to [167]:

[165] The Commissioner submitted that [CSS's input tax credits] were the engine that drove the scheme. That it was only because [CSS] was able to obtain [input tax credits] that [CSS] was able to pay a GST-inclusive price to PMMS which in turn funded the earlier transactions in the chain. In so submitting, the Commissioner sought to draw an analogy with the ACN case. For the reasons indicated above, I respectfully reject the Commissioner's submissions that the ACN case assists the Commissioner in that regard.

[166] Further, the same GST-neutral outcome would have been achieved by PMMS selling the scrap gold to an arm's length purchaser, a refinery or an overseas customer. In all three cases, the seller would have been entitled to [input tax credits] on purchase of the scrap gold. In the first two cases the purchaser could be expected to pay a GST-inclusive price as it would be entitled to claim an [input tax credit], and in the third the sale would be GST-free as an export. The seller would, after deducting [input tax credits], effectively have paid GST on only its value added in the first two cases. In those circumstances, there was no particular imperative for any entity in the chain to secure [CSS's input tax credit] entitlements. The various other scenarios would similarly have funded the purchasing by the entities in the chain.

[167] Having regard to these aspects of the operation of the GST law, and looking at the whole of the circumstances surrounding the scheme, including the factors discussed above, I am persuaded [CSS] has discharged the burden of proving that it would not be concluded that any entity had a dominant purpose of securing [CSS's input tax credit] entitlements.

118. For the reasons given earlier, the Tribunal's distinguishing at T [165] of what was said in ACN FC was not well-founded.

119. As to what was said at T [166], as was said earlier, it was erroneous to analyse dominant purpose by reference to a different scheme, involving a sale by PMMS to a refiner or exporter. It was also erroneous to analyse purpose by reference to a hypothesised sale by PMMS to an arm's length purchaser of scrap gold, without making findings about how such a transaction could have occurred. As has been said earlier, the evidence suggested that such a transaction could only have occurred if there was a later GST-free supply such that the whole series of transactions were funded by refunds of input tax credits.

120. The conclusion at T [167] is a conclusion about "the scheme" as a whole and does not include any conclusion about PMMS's purpose in the part of the scheme in which it was found to have been involved. The Tribunal apparently put to one side its findings that a number of factors favoured PMMS's purpose as being one of obtaining input tax credit refunds for CSS. To the extent it did so because of the reasoning at T [165] and [166], this involves erroneous reasoning.

121. Assessing the Tribunal's reasons as a whole, the Commissioner has established that the Tribunal failed to reach a conclusion about dominant purpose in accordance with the statute, by failing fully to undertake the statutory task.

122. If the Tribunal had considered, in the manner contemplated by Div 165, the purpose of PMMS in entering into the scheme or parts of it, it may have concluded that PMMS had the requisite purpose. The evidence indicated that PMMS arranged not only its sales to CSS, but

ATC 26285

also CSS's exports. CSS never sighted or took physical possession of the gold it exported but relied upon its predominant supplier, PMMS, to facilitate its exports. The evidence indicated that access to CSS's input tax refunds was important to PMMS. An officer of PMMS was a signatory to CSS's bank account, ensuring PMMS had direct and immediate access to CSS's GST refunds upon their payment to CSS. It was open to conclude that PMMS would not have been able to sell the scrap gold to CSS without PMMS's participation in part of the scheme.

Second error - failing properly to address s 165-5(1)(c)(ii)

123. The Tribunal's conclusion about the principal effect of the scheme was expressed in the following way at T [168]:

[T]he principal effect of the scheme is, in my view, the non-payment of GST and not [CSS] obtaining the [input tax credits]. It is true that [CSS] obtaining [input tax credits] is an effect of the scheme and I accept it is not an insignificant effect. But measured against the non-payment of GST by Manila Exchange, and seen [in] its proper context as effectively a GST-neutral return of GST embedded in the price of [CSS]'s business acquisitions, I am unable to accept that [CSS's input tax credit] entitlement is the principal effect of the scheme. I am satisfied that it was not.

124. The Tribunal's second error lies in its failure to consider the principal effect of parts of the scheme. That it did not do so is clear from the passage set out above and also in what it said when considering the manner in which the scheme was entered into. As noted earlier, at T [124], the Tribunal stated:

In respect of the dealings between [PMMS, CSS and Emirates Gold], the heavy involvement of PMMS in [CSS]'s transactions is certainly unusual. This weighs in favour of a conclusion that PMMS had a purpose of ensuring [CSS] carried out the transactions which would generate an entitlement to [input tax credits] on [CSS]'s acquisitions of scrap gold. I do not see how it could support a conclusion that the principal effect of the scheme was to secure a GST refund for [CSS].

125. For the reasons given earlier, if the Tribunal had considered the principal effect of that part of the scheme in which PMMS was involved, it may have concluded that the principal effect of part of the scheme was to secure input tax credits for CSS.

CONCLUSION

126. For these reasons, the appeal and cross-appeal should be allowed and the matter remitted to the Tribunal for reconsideration according to law.

127. CSS sought an order for costs at the hearing, at least in relation to that part of the cross-appeal on which it was successful. The Commissioner resisted any order for costs on the basis that such an order was unnecessary, the Commissioner having agreed to an extension of the small business litigation funding program pursuant to which the Commissioner offered to fund CSS's reasonable legal costs capped at the amounts set out in the Federal Court Rules 2011 (Cth). CSS accepted that offer and various costs have been paid pursuant to the agreement.

128. The agreement by the Commissioner is to meet the reasonable legal costs of the appeal and of the cross-appeal. Those reasonable legal costs are framed by reference to the Rules and there is a provision for resolution of any disagreement should one arise under the agreement.

129. CSS stated at the hearing that there was a dispute between the Commissioner and CSS as to whether certain claims for costs were properly payable under the agreement between the Commissioner and CSS.

130. Yesterday evening, the solicitors for CSS sent an email to the Court requesting an opportunity to be heard (again) in respect of costs, stating that the Commissioner was refusing to pay certain costs for reasons apparently given by the Commissioner's costs consultant. The dispute between CSS and the Commissioner was not different in principle to what it had been at the time of the hearing. The parties were heard on the question of whether a costs order should be made. As the Court stated during argument at the hearing, and as Counsel for CSS agreed, the issue between the Commissioner and CSS is one of construction and enforcement of the contractual

ATC 26286

agreement between them. The Commissioner has agreed to pay CSS's reasonable legal costs of the appeal and cross-appeal, with reasonable costs being framed by reference to the Rules. It is evident from yesterday's email from CSS's solicitor that the dispute between CSS and the Commissioner is confined to questions about whether particular costs are recoverable under the agreement, which is essentially the same question as whether those costs would be recoverable under a formal order for costs. The question of whether particular costs are or are not properly recoverable is not an issue which is before the Court or which should be before the Court on this appeal. If costs are properly recoverable by CSS under the agreement and the Commissioner refuses to pay, CSS's remedy lies elsewhere. There should be no order as to costs in circumstances where the parties have agreed without reservation to the regime which they have.

THE COURT ORDERS THAT:

1. The Commissioner have leave to amend the notice of appeal to add the question of law set out at [68] of the Court's reasons for judgment and a corresponding ground in substantially the same terms.
2. The notice of appeal be taken as so amended.
3. Within seven days, the Commissioner file and serve an amended notice of appeal with the amendments contemplated by Order 1.
4. The appeal be allowed.
5. The cross-appeal be allowed.
6. The proceedings be remitted to the Administrative Appeals Tribunal for determination according to law.
7. There be no order as to costs in relation to the appeal or cross-appeal.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ANNEXURE A

ATC 26287

ANNEXURE B

This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.

Individuals online services

Business online services

Agents online services

Non-residents online services

Foreign Investor

FC of T v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust

First Period

Second Period

Assessments and objections

The Tribunal's decision

Resolution of cross-appeal

The Tribunal's decision

The appeal

Tools

Tax information for

Help and support

GST-free exports of goods
Item	Topic	These supplies are GST-free …
1	Export of goods-general	a supply of goods, but only if the supplier exports them from the indirect tax zone before, or within 60 days (or such further period as the Commissioner allows) after: (a) the day on which the supplier receives any of the consideration for the supply; or (b) if, on an earlier day, the supplier gives an invoice for the supply-the day on which the supplier gives the invoice.