HNMF v FC of T

Members:
FD O'Loughlin KC DP
RJ Olding SM

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2023] AATA 4067

Decision date: 30 November 2023

FD O'Loughlin KC (Deputy President) and RJ Olding (Senior Member)

WHAT ARE THESE REASONS ABOUT?

1. These reasons[1] Appendix 1 to these reasons is a table of defined terms and acronyms. concern whether a refiner of precious metal[2] Section 195-1(1) definitions of “refiner of precious metal” and “precious metal”. who acquired Refining Materials[3] Gold metal of any fineness that is not in investment form. from Division 165 Supplying Entities or Fraudulent Suppliers[4] Where considered appropriate, the term Division 165 Supplying Entities is adopted for consistency with the parties’ submissions and earlier decisions, and elsewhere Fraudulent Suppliers to avoid unnecessarily cluttering these reasons. They mean the same thing. The Division 165 Supplying Entities/Fraudulent Suppliers are identified in [57] below. in transactions that were taxable supplies[5] Sections 9-5, 78-50, 84-5 and 105-5 as affected by the provisions listed beneath the definition of “taxable supply” in s 9-5. to the refiner should be denied a GST benefit[6] A GST benefit within the meaning of s 165-10(1) of the GST Act. comprising ITCs[7] Input tax credits within the meaning of ss 195-1(1), 11-20 and 15-15. At times, the term “input tax credit” is used as an alternative. of $72,953,611[8] The Contested ITCs. in respect of those supplies under Division 165[9] Unless otherwise indicated, all references to legislation are references to the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (“GST Act”). having regard to the artificiality of some or all of the circumstances in which the Refining Materials were supplied to it in a missing trader or carousel fraud arrangement.

GOLD AND THE GST SYSTEM

2. In the ordinary course, the GST[10] Goods and Services Tax. system treats:

3. Three further features of Australia's GST system need to be appreciated:

4. It might be observed that there is a structural collection weakness in such a system that gives a refund or credit entitlement to one taxpayer on the basis that another taxpayer has GST obligations which may or may not be satisfied. Where that other taxpayer's obligations are not satisfied, after a GST-informed price has been paid for whatever has been supplied, the defaulting taxpayer in a sense is dipping into community financial resources indirectly without interface with community (ATO[16] Australian Taxation Office. ) systems that are designed to detect and prevent abuses necessarily occurring. And the community neither expects nor requires the recipient of a supply from a defaulting taxpayer to act as a GST system compliance agency to fill that gap.

5. In 2017, these features of the GST system were somewhat altered for taxable supplies of valuable metal.[17] GST Act, s 195-1, gold, silver or platinum; or any other substance specified for the purposes of paragraph (d) of the definition of “ precious metal” . Through a reverse charging process, the purchaser of these supplies, rather than the supplier, is now liable for GST on these supplies (and entitled to any applicable ITCs). This change was said to prevent "sellers of precious metals from phoenixing without remitting the GST owed".[18] The Hon Kelly O’Dwyer, ‘Strengthening the integrity of GST on precious metals’ (Media Release, 20 June 2017).

THE APPLICANT'S BUSINESS

6. The applicant's business involved acquiring Refining Materials; refining that material; and selling the refined gold in the form of hallmarked gold bullion bars to precious metal dealers. Consistent with [2(b)] above, the applicant's sales of hallmarked gold bullion bars, i.e., sales of gold in investment form to dealers, were GST-free. The applicant claimed ITCs on acquisitions of the Refining Materials. GST considerations aside, the applicant's profit came from the difference between the values at which it bought, and then after refinement sold, the gold metal component of its dealings (reduced by the costs borne in the refining process and overhead costs). Excluding GST considerations, the applicant bought the Refining Materials (or, as the applicant maintains, the gold

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metal component of the Refining Materials) at a small discount from the prevailing spot price for gold and sold refined bullion at or slightly above the spot price. Adding GST considerations, the price at which the applicant bought the Refining Materials/gold metal component was that discount to spot price plus 10% and the applicant claimed an ITC for that 10% amount. Adding GST considerations, the applicant's profit and the drivers of it were not altered. Table 1[19] Appendix 2, Statement of Agreed Facts [41]. Figures have been rounded. shows the Applicant's profitability as reported before any adjustments are made to accommodate what the Commissioner says is the proper GST effect on that business.


Table 1
Applicant's reported profitability
Financial Year Period of time Gross Income Profit Profit as % of gross income
FY12 1 Feb 2012 to 30 Jun 2012
(5 months)		 $63.7m $0.13m 0.2%
FY13 1 Jul 12 to 30 Jun 2013
(12 months)		 $594.3m $3.1m 0.5%
FY14 1 Jul 13 to 30 Jun 2014
(12 months)		 $745.8m $8.3m 1.1%
FY15 1 Jul 2014 to 30 Jun 2015
(12 months)		 $644.9m $0.4m 0.05%

7. A considerable proportion of the Refining Materials acquired by the applicant was already of 99.99% fineness. An unascertained proportion of this gold had once been in investment form but had been adulterated, for example by cutting or defacing the hallmark on a bullion bar or melting it down into a different form, with the effect that supplies of this gold to the applicant were taxable supplies. An unascertained proportion of the gold refined by the applicant found its way back to the applicant as Refining Materials sold to the applicant. The extent to which that occurred is unknown.

8. Among the suppliers of Refining Materials to the applicant were the Division 165 Supplying Entities. At least to some degree, the Division 165 Supplying Entities purchased gold in investment form and adulterated the bars so they were no longer in investment form, most commonly by melting them into a different form. To the extent they or their connected parties in a supply chain:

9. While these Division 165 Supplying Entities charged and collected a GST-informed price from the applicant, and thereby received or recovered from the applicant money with which their GST liabilities could be expected to have been met, they fraudulently failed to pay their GST liabilities to the ATO. In other words, the Division 165 Supplying Entities made a loss on the transactions but their failure to pay GST meant that in a cash flow sense they profited.

THE DISALLOWED ITCS

10. At the conclusion of an audit, the Commissioner denied the applicant's input tax credit claims to the extent of $122,112,065. After the First Tribunal decision and the Full Court ACN decision,[21] ACN 154 520 199 Pty Ltd (in liquidation) v Federal Commissioner of Taxation [2020] FCAFC 190 . what remains is to deal with Division 165, which was not determinative in the First Tribunal's decision, in an application presented differently to the present Tribunal. The remaining dispute

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concerns whether Division 165 operates to deny or cancel entitlements to ITCs of $72,953,611 for the Relevant Period[22] The period from 1 February 2012 to 30 June 2014. as set out in Table 2 that have been denied by the Commissioner in two declarations, each dated 8 April 2016.


Table 2
Declaration Tax Periods GST Benefit negated by Division 165 declaration
Start End
1 1/02/2012 29/02/2012 $293,746
1/03/2012 31/03/2012 $385,475
1/04/2012 30/04/2012 $531,365
1/05/2012 31/05/2012 $896,031
1/06/2012 30/06/2012 1,072,221
Declaration total $3,178,838 [23] The total recorded on the declaration 1 was $3,178,221, which is assumed to be an arithmetic error.
2 1/07/2012 31/07/2012 $1,114,245
1/08/2012 31/08/2012 $1,082,182
1/09/2012 30/09/2012 $1,189,275
1/10/2012 31/10/2012 $1,516,221
1/11/2012 30/11/2012 $1,341,743
1/12/2012 31/12/2012 $944,924
1/01/2013 31/01/2013 $1,190,118
1/02/2013 28/02/2013 $2,640,420
1/03/2013 31/03/2013 $3,521,274
1/04/2013 30/04/2013 $4,517,792
1/05/2013 31/05/2013 $5,929,819
1/06/2013 30/06/2013 $5,698,702
1/07/2013 31/07/2013 $7,090,995
1/08/2013 31/08/2013 $7,486,802
1/09/2013 30/09/2013 $8,092,945
1/10/2013 31/10/2013 $7,554,354
1/11/2013 30/11/2013 $1,569,240
1/12/2013 31/12/2013 $16,296
1/01/2014 31/01/2014 $127,414
1/02/2014 28/02/2014 $494,386
1/03/2014 31/03/2014 $845,142
1/04/2014 30/04/2014 $1,771,404
1/05/2014 31/05/2014 $1,858,846
1/06/2014 30/06/2014 $2,180,234
Declaration total $69,774,773
Aggregate $72,953,611

11. The Relevant Period spans three calendar years as noted above. A combination of:


Table 3
Tax Period GST Benefit negated by Division 165 declaration
Start End
1/02/2012 31/12/2012 First Period $10,367,428
1/01/2013 31/10/2013 Second Period $53,723,221
1/11/2013 31/12/2013 Third Period $1,585,536
1/01/2014 30/06/2014 Fourth Period $7,277,426
Aggregate $72,953,611

12. The particular taxable supplies to the applicant with which the in tax put credits making up the $72,953,611 are associated were made to the applicant by the Division 165 Supplying Entities. These supplies have not been identified and particularised in any of the Division 165 declarations, the assessments to the applicant, the objection decision under review, the Commissioner's submissions filed, the First Tribunal decision[26] ACN 154 520 199 Pty Ltd (In Liq) and Federal Commissioner of Taxation [2019] AATA 5981 . or the Full Court ACN decision. As a consequence, the actual supplies in respect of which the Commissioner has made his Division 165 declarations, the makers of each of those supplies and the particulars of both have not been individually identified in any formal document reflecting the decision that is under review.

13. The Applicant's GST general ledger is included in the materials before the Tribunal. The Commissioner's staff, or the lawyers assisting with the present application, have annotated a copy of that document by colour coding the applicant's records of gold materials purchased from the four groups of Division 165 Supplying Entities.

14. Table 4 sets out the totals of the GST amounts for the transactions identified by the colour coding of the GST ledger entries for each Division 165 Supplying Entity supply chain for each monthly period in the Relevant Period.


Table 4
Tax period Subtotal per GST Ledger per supply chain as identified by or on behalf of the Commissioner Total
MAK Majid IPJ Gold Buyers
Feb 2012 $0.00 $14,928.65 $279,435.33 $0.00 $294,363.98
Mar 2012 $0.00 $40,770.18 $345,559.12 $0.00 $386,329.30
Apr 2012 $0.00 $6,205.29 $523,619.36 $0.00 $529,824.65
May 2012 $0.00 $147,808.07 $754,096.13 $0.00 $901,904.20
Jun 2012 $0.00 $264,535.31 $815,374.40 $0.00 $1,079,909.71
Jul 2012 $0.00 $239,784.76 $874,633.68 $0.00 $1,114,418.44
Aug 2012 $0.00 $189,847.84 $897,833.18 $0.00 $1,087,681.02
Sep 2012 $0.00 $334,931.91 $857,372.00 $0.00 $1,192,303.91

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Oct 2012 $0.00 $451,690.01 $1,068,517.17 $0.00 $1,520,207.18
Nov 2012 $0.00 $461,201.89 $868,794.56 $0.00 $1,329,996.45
Dec 2012 $0.00 $339,014.10 $608,482.11 $0.00 $947,496.21
Jan 2013 $0.00 $377,966.96 $816,293.75 $0.00 $1,194,260.71
Feb 2013 $1,065,859.80 $423,424.90 $1,057,920.01 $14,843.00 $2,562,047.71
Mar 2013 $1,830,995.35 $497,459.17 $1,095,771.83 $107,271.93 $3,531,498.28
Apr 2013 $2,667,730.46 $486,380.47 $1,255,198.51 $121,742.38 $4,531,051.82
May 2013 $3,758,986.44 $621,347.42 $1,355,425.22 $211,673.31 $5,947,432.39
Jun 2013 $3,659,107.54 $589,083.00 $1,338,636.09 $128,985.43 $5,715,812.06
Jul 2013 $4,461,625.15 $794,862.23 $1,856,122.12 $0.00 $7,112,609.50
Aug 2013 $5,117,619.74 $811,916.77 $1,580,563.87 $183,142.40 $7,693,242.78
Sep 2013 $5,181,821.30 $1,066,624.10 $1,869,525.83 $0.00 $8,117,971.23
Oct 2013 $4,965,243.07 $909,644.29 $1,702,895.15 $0.00 $7,577,782.51
Nov 2013 $1,567,746.67 $6,693.46 $0.00 $0.00 $1,574,440.13
Dec 2013 $4,104.72 $12,254.02 $0.00 $0.00 $16,358.74
Jan 2014 $127,835.23 $0.00 $0.00 $0.00 $127,835.23
Feb 2014 $491,475.38 $4,550.27 $0.00 $0.00 $496,025.65
Mar 2014 $838,606.29 $9,340.61 $0.00 $0.00 $847,946.90
Apr 2014 $1,777,268.34 $0.00 $0.00 $0.00 $1,777,268.34
May 2014 $1,865,000.18 $0.00 $0.00 $0.00 $1,865,000.18
Jun 2014 $2,187,452.92 $0.00 $0.00 $0.00 $2,187,452.92

15. Table 5 shows the variances between the Table 4 totals and the Table 2 Division 165 Declaration amounts in absolute and percentage terms.


Table 5
Tax period GST Ledger total from Table 4 GST Benefit negated per Determination from Table 2 Variance: Table 2 amount (GST Benefit negated per Determination) less Table 4 amount (GST Ledger total)
$ %
Feb 2012 $294,363.98 $293,746.00 -$617.98 -0.21%
Mar 2012 $386,329.30 $385,475.00 -$854.30 -0.22%
Apr 2012 $529,824.65 $531,365.00 $1,540.35 0.29%
May 2012 $901,904.20 $896,031.00 -$5,873.20 -0.66%
Jun 2012 $1,079,909.71 $1,072,221.00 -$7,688.71 -0.72%
Jul 2012 $1,114,418.44 $1,114,245.00 -$173.44 -0.02%
Aug 2012 $1,087,681.02 $1,082,182.00 -$5,499.02 -0.51%

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Sep 2012 $1,192,303.91 $1,189,275.00 -$3,028.91 -0.25%
Oct 2012 $1,520,207.18 $1,516,221.00 -$3,986.18 -0.26%
Nov 2012 $1,329,996.45 $1,341,743.00 $11,746.55 0.88%
Dec 2012 $947,496.21 $944,924.00 -$2,572.21 -0.27%
Jan 2013 $1,194,260.71 $1,190,118.00 -$4,142.71 -0.35%
Feb 2013 $2,562,047.71 $2,640,420.00 $78,372.29 2.97%
Mar 2013 $3,531,498.28 $3,521,274.00 -$10,224.28 -0.29%
Apr 2013 $4,531,051.82 $4,517,792.00 -$13,259.82 -0.29%
May 2013 $5,947,432.39 $5,929,819.00 -$17,613.39 -0.30%
Jun 2013 $5,715,812.06 $5,698,702.00 -$17,110.06 -0.30%
Jul 2013 $7,112,609.50 $7,090,995.00 -$21,614.50 -0.30%
Aug 2013 $7,693,242.78 $7,486,802.00 -$206,440.78 -2.76%
Sep 2013 $8,117,971.23 $8,092,945.00 -$25,026.23 -0.31%
Oct 2013 $7,577,782.51 $7,554,354.00 -$23,428.51 -0.31%
Nov 2013 $1,574,440.13 $1,569,240.00 -$5,200.13 -0.33%
Dec 2013 $16,358.74 $16,296.00 -$62.74 -0.39%
Jan 2014 $127,835.23 $127,414.00 -$421.23 -0.33%
Feb 2014 $496,025.65 $494,386.00 -$1,639.65 -0.33%
Mar 2014 $847,946.90 $845,142.00 -$2,804.90 -0.33%
Apr 2014 $1,777,268.34 $1,771,404.00 -$5,864.34 -0.33%
May 2014 $1,865,000.18 $1,858,846.00 -$6,154.18 -0.33%
Jun 2014 $2,187,452.92 $2,180,234.00 -$7,218.92 -0.33%

16. The parties have been provided with an electronic file which extracts from the GST Ledger the particulars of the 5,926 transactions which inform the monthly totals in Table 4. It is not necessary to include those details in these reasons. The GST Ledger totals for the highlighted transactions reconcile closely, but not precisely, with the aggregate ITC amounts negated by the Commissioner's Division 165 declarations. It is clear that the highlighted transactions are a very close approximation of the supplies and ITCs in respect of which the Commissioner has made his declarations.

THE DISPUTE'S HISTORY

17. The First Tribunal determined the matter on the primary basis concerning whether the applicant's processes were refining as defined for GST purposes. Following the Full Court ACN decision, that question is no longer before the Tribunal.

18. What remains for the Tribunal is the alternative case that the Division 165 general anti-avoidance provisions would have the effect of negating ITCs amounting to $72,953,611. As are relevant to what remains in dispute, the following grounds of objection were advanced by the applicant:

19. The applicant's objection also addressed the assessments of administrative penalties. However, the parties agreed that consideration of this issue should await determination of whether Division 165 applies. In view of the conclusion reached that Division 165 does not apply, there is no tax shortfall and the penalty assessments will fall away.

HEARING AND DECIDING THE REMITTED MATTER

20. Whether Division 165 applies and, if so, the penalty assessments are the matters before the Tribunal. However, the Full Court did not provide any guidance on the nature of the hearing to be conducted by the Tribunal.

21. At an early case management directions hearing, to resolve a disagreement between the parties as to the process to be adopted for the remittal, the Tribunal directed the matter should be determined without further evidence being led and without further cross examination. Included in the evidence before the Tribunal were the affidavits and expert reports set out in Table 6.


Table 6
Affidavit/Expert report of Date/s
A Zafiriou 2 March 2018
G Nugent 27 February 2018
H Khraibt 8 March 2018
J McLean 23 February 2018
J Smith 5 March 2018
L Bell 12 December 2017
L Pemberton 8 December 2017, 17 May 2018
M Gray 27 February 2018
M Mahdi 21 February 2018
M Nahid 23 February 2018
M Qahtani 14 March 2018
N Khraibt 8 March 2018
P Cochineas 8 December 2017, 18 May 2018
S Lowden 13 December 2017
W Zamil 21 February 2018
S Lowden 13 December 2017
W Zamil 21 February 2018
D Wright 13 March 2018, 28 March 2018, 21 September 2018
S Murray 8 December 2017, 18 May 2018
N Kavalis 12 December 2017, 17 May 2018

22. After the present matter was reserved, the Full Federal Court gave its decision in Complete Success Solutions.[27] Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust [2023] FCAFC 19 . Because of the similarities between the issues raised in Complete Success Solutions and the present application as remitted, the Tribunal gave the parties an opportunity, if they wanted it, to provide further written submissions on the application of the Full Court's judgment. Both parties did so.

THE PRINCIPAL ISSUE TO BE DECIDED

23. The Tribunal's task is to determine whether the applicant has discharged the burden of proving[28] Taxation Administration Act 1953 (Cth), s 14ZZK. that, taking into account the matters described in s 165-15, it is not reasonable to conclude that:

THE SCHEME ALLEGED

24. The Commissioner reasserted the wider and narrower schemes as recorded in the First

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Tribunal's reasons.[29] At [237] and [238]. The wider scheme recorded there was a scheme comprising:

[237] … the following transactions and course of action:

  • (a) the supply by the applicant to ABC NSW and Ainslie[30] The First Tribunal was referring to Ainslie Bullion Company. According to the Commissioner’s Audit decision at T87, p1682, footnote 58, Ainslie Bullion Company was “[t]he trading name of Encum Pty Ltd at the relevant times.” (the Dealers ) of gold of 99.99% fineness in investment form for an amount roughly equivalent to the prevailing spot price for gold;
  • (b) the purchase by the Intermediaries [31] At footnote 217 to the First Tribunal’s reasons, the Intermediaries were identified in the following terms: Defined in the Commissioner’s Amended Statement of Facts Issues and Contentions dated 16 March 2018 to be the IPJ Group, Gold Buyers, the Majid Group, MAK and ABC(A), which in turn sold gold bars to USH, together with certain other persons to whom one or more of them sold gold, including Focus Metals, Gold Makers and Goldborough. from the Dealers and/or other sources of gold of 99.99% fineness in investment form;

    PARTICULARS

    This step consisted of the purchase of precious metal by:

    • (i) the IPJ Group entities from ABC NSW and/or other sources;
    • (ii) the Majid Group entities from Ceylon and/or other sources;
    • (iii) MAK from YPP, USH and/or other sources;
    • (iv) YPP from Ainslie and/or other sources;
    • (v) Australian Bullion Company (Aust) Pty Ltd ( ABC(A) ) from ABC NSW and/or other sources;
    • (vii) USH from ABC(A) and/or other sources.

  • (c) the scratching, melting or altering of the gold referred to in paragraph (b) above such that, while still of 99.99% fineness, the gold was no longer in investment form for the purposes of the definition of "precious metal" in s 195-1 of the GST Act;

    PARTICULARS

    This step consisted of the scratching, melting or altering of precious metal by the IPJ Group entities, the Majid Group entities (or Mr Faraj), Gold Buyers (or Mr Faraj), MAK, YPP/ Mr Bourke, USH/Mr Calabrese and/or ABC(A).

  • (d) the supply of the gold referred to in paragraph (c) by the Division 165 Supplying Entities to the applicant for an amount that was less than the prevailing spot price for gold, before the addition of GST; and

    PARTICULARS

    This step consisted of the sales to [the applicant] of non-precious metal by the IPJ Group entities, the Majid Group entities (by Mr Faraj purportedly on their behalf), Gold Buyers (to the extent they were made by Mr Faraj purportedly on their behalf) and MAK. In relation to MAK, the gold it sold to the applicant was obtained by it from YPP/Mr Bourke and USH/Mr Calabrese.

  • (e) the refining by the applicant of the gold referred to in paragraph (d) to produce 'precious metal' as defined.

    (Emphasis as in original)

and the narrower scheme recorded there was a scheme comprising:

[238] … the transactions and courses of action referred to in paragraphs (b), (c) and (d) of [237] above.

25. Notably, neither scheme articulated by the Commissioner identifies the fraud perpetrated by the Division 165 Supplying Entities upon which their profitability depended. Nothing turns on this, as that circumstance is undoubtedly a relevant consideration. The Commissioner did not submit otherwise. To the contrary, the Commissioner led significant evidence from one of his employees concerning the incorporation and compliance status of the Division 165 Supplying Entities and he has submitted that no inferences should be drawn concerning the legitimacy of transactions with other suppliers of gold of 99.99% purity just because the Commissioner has not invoked Division 165 in relation to the supplies made in those transactions.

26. The phrase and/or other sources in paragraph (b) of the scheme as defined above was added during the course of the dispute with the applicant in this matter after Ms Wright had been briefed and, given Ms Wright's conclusions, presumably after her evidence had been compiled in order to accommodate those conclusions.[32] Ms Wright’s briefing package of 2 February 2018 included the Commissioner’s Statement of Facts Issues and Contentions dated 5 May 2017 which did not include the phrase and/or other sources in paragraph (b) of the scheme definition. One explanation for the addition might be that upon compilation of her evidence, initial perceptions of what had occurred in the

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applicant's business and the transactions directly and indirectly related to it had changed.

THE PARTIES' POSITIONS IN SUMMARY

27. As noted above, the principal issue is whether it is reasonable to conclude that:

28. The applicant says the steps it undertook are wholly consistent with its day-to-day operations as a refiner and obtaining the ITCs was a normal and intended (by the GST law) incident of such a business. When all relevant circumstances are taken into account as required, the applicant says it would not be reasonable to conclude the dominant purpose of any entity entering into the scheme or a part of the scheme, or the principal effect of the scheme or any part of the scheme, was for the applicant to obtain the Contested ITCs. Going to the critical evidence led by the Commissioner, Ms Wright's conclusions, the applicant says that it does not dispute that the transactions recorded in the documents analysed by Ms Wright occurred, or the particulars as to parties and amounts in those transactions, but says Ms Wright was not asked to identify the gold that the applicant acquired and there are limits to the usefulness of her evidence. Further, the applicant says that so-called supply chains[34] See [68] below. were identified for Ms Wright and she was asked to identify the extent to which the accounting records and other records demonstrated transactions along those supply chains and the nature of possible connections between them.[35] Transcript of Remittal Hearing p 109-110.

29. Rather, and demonstrating why the conclusions above should be reached, the applicant says it would be concluded that the dominant purpose of the Division 165 Supplying Entities was to obtain and dishonestly retain for themselves the benefit of the GST payable on the prices paid to them by the applicant through collecting the GST-informed prices from the applicant but not paying their GST liabilities to the Commissioner. It was only on this basis that the participation of these entities in the transactions made commercial sense. Further, the applicant says the only rational conclusion is that its own purpose was to acquire Refining Materials for its business. Similarly, the applicant says that creating a taxable supply and the enhanced price paid for it and failing to remit it to the ATO was the principal effect of the scheme and that '… availability of an input tax credit was nothing more than an incidental consequence and far from the "principal effect" of the scheme'..

30. The Commissioner submitted that the objective purpose of the Division 165 Supplying Entities participating in the arrangements could not be explained as evading a liability that would not exist but for the scheme. Rather, the Commissioner says the scheme was directed at the applicant obtaining the Contested ITCs. Without the benefit of those ITCs, the applicant would not have paid a GST-informed price for its acquisitions. Unless that occurred, the transactions would make no commercial sense for the Division 165 Supplying Entities for the reasons already indicated - that is, they would have been operating at a loss. Thus, according to the Commissioner, it would be concluded that the applicant obtaining the ITCs was both the dominant purpose of the Division 165 Supplying Entities and the principal effect of the scheme or a part of the scheme.

31. Further, the Commissioner says the applicant's acquisitions occurred as part of co-ordinated transactions in which bullion was acquired, deliberately and uncommercially adulterated destroying value and on-sold to the applicant for the production and sale of bullion. That was not, the Commissioner says, ordinary commercial trading.

32. The Commissioner says the evidence establishes the transactions were co-ordinated and cohesive and the result of sophisticated planning and interaction between the participants, including the applicant. According to the Commissioner, the Tribunal should conclude that the applicant knew of, or at the very least, turned a blind eye to, the activities of

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the Division 165 Supplying Entities, including the adulteration of the bullion before its on-supply to the applicant.

33. At the outset, the Tribunal accepts without reservation that the Division 165 Supplying Entities' activities were not ordinary commercial dealings. Fraudulent activities rarely, if ever, are such dealings. And it is not surprising, possibly even to be expected, that non-ordinary steps are to be found in a sequence of events executing a fraud. Accordingly, identifying transactions as uncommercial does not assist greatly to determine the present matter. The Commissioner's proposition that the arrangements could not be explained as evading a liability that would not exist but for the scheme ignores another critical element of what would not have occurred but for the scheme: the Fraudulent Suppliers would not have received the cash referrable to the evaded liability but for the scheme.

34. Some of the contentions call for specific note.

35. The Commissioner contends that:

The evidence demonstrates that the acquisitions made by [the applicant] occurred as part of co-ordinated transactions in which bullion was acquired, deliberately adulterated and on-sold to [the applicant] for the production of bullion.

36. The evidence of the linkage of transactions which underlies the Commissioner's contention that coordination existed across the Relevant Period is significantly Ms Wright's expert report. That expert report addresses 12 of the 29 months in the Relevant Period. The Tribunal does not accept the proposition put by the Commissioner that the evidence demonstrates what he says it does for the whole of the Relevant Period or between all entities and all transactions in a supply chain. Further, the Commissioner has not explained why it is so that trends and observations from a 12-month period apply equally to the remaining 17 months of the Relevant Period. No evidence has been led of the statistical reliability of the trends and relationships observed in the sample examined being equally applicable to periods before and after Ms Wright's sample period. While a degree of confidence might at times be enjoyed in the statistical reliability of a sample of transactions within a period representing the whole period's transactions, the Tribunal is uninformed about the reliability of a sample of 100% of transactions within a window of 41% of the whole period. In the present circumstances six months of the Relevant Period in respect of which no correlation evidence has been led, namely the Fourth Period in Table 3 above, occurred after the AFP raids. In this period the volume of business transacted with the Fraudulent Suppliers had a cliff edge reduction, two groups permanently discontinuing, one group recommencing a short period later but on a dramatically reduced scale and the final group recommencing later on a negligible scale. Also in this period, the applicant provided to the Commissioner real-time information in relation to the transactions it was entering and trading partners with whom it was entering its transactions to acquire Refining Materials.

37. The Commissioner also contends that:

[the applicant] was party to a scheme that consisted of recurring transactions of increasing value and frequency involving the sale and acquisition of gold bullion; deliberate adulteration of the bullion; its on-supply as scrap gold; and refining of the scrap gold into bullion. The transactions were co-ordinated and cohesive and were the result of sophisticated planning and interaction between the various participants, including [the applicant].

38. The evidence reveals that there was an increase in the value of transactions entered into, at least in aggregate, and a frequency increase up to a point. The problematic transactions, according to the Commissioner, as identified by the transactions entered into by the applicant with the Fraudulent Suppliers, increased in value and frequency up to the point of the AFP raids in October 2013 and, as noted above, suffered a cliff edge drop off immediately thereafter with gradual and small (or smaller) scale resumption of transactions with two supplier groups thereafter. The Tribunal cannot accept the proposition as contended for if it is meant that the increases in

ATC 11757

value and frequency occurred across the entire Relevant Period.

39. Similarly, the second sentence in the proposition concerning coordination and cohesiveness, and sophisticated planning and interaction between the various participants, is ambiguous. There is clear evidence of coordination and planning between the applicant and ABC NSW, and potentially between the applicant and Ainslie, and of coordination and planning and potentially cohesiveness between ABC NSW and its customers, and potentially of planning, coordination and cohesiveness between the applicant and the customers that supplied Refining Materials to it. There is no express evidence of ongoing relevant planning, coordination, cohesiveness, and interaction between all parties in any completed circle of transactions. The Tribunal accepts that fragmented sections of any circle of transactions may have been the subject of sophisticated planning, interaction, coordination, and cohesiveness, but not to the extent of all parties and all transactions in any circular chain. Finally, the proposition that the applicant was a party to the scheme contended for is also ambiguous. The Tribunal does not accept that the evidence bears out that the applicant was a party to all steps and stages of the scheme, rather the evidence shows that it was a party to parts of the scheme.

40. The Commissioner contends that:

Further, [the applicant] did not call …. Mr Catanzariti, Mr Faraj or Mr Kukulka. No explanation was provided as to why they did not give evidence. The inference to be drawn is that their evidence would not assist [the applicant].

41. There is an air of unreality associated with that proposition. These individuals were not "in the applicant's camp" and, to the contrary, may have been the architects of illegal behaviour exposing the applicant to the cost of their exploits. These individuals were involved with entities which, on the Commissioner's evidence and case, artificially adulterated gold bullion, entered into transactions that were taxable sales of gold, received GST-informed prices for the gold they sold, and did not pay the GST liabilities to the Commissioner. The entities with which these gentlemen were involved, on the Commissioner's case, created an environment that might be said to have induced payment of GST-informed prices, kept the value of the cash flow profit produced by the GST effect on those prices received without paying GST to the Commissioner and left the applicant who had paid dollar for dollar as part of the prices it paid matching its GST entitlements exposed to denial of ITC entitlements. These gentlemen cannot be said to be "in the applicant's camp" and it is inappropriate to draw any inference as to the absence of any evidence from them.

42. The Commissioner contends that:

[the applicant] contends that it is not in contest that it had no knowledge of the illegal conduct of the Division 165 Supplying Entities. That is incorrect. The Commissioner contends that the evidence demonstrates that [the applicant] knew of, or at the very least turned a blind eye to, the activities of those entities, including the acquisition of bullion; the adulteration of the bullion; and the on-supply of the adulterated bullion for a GST-inclusive price to [the applicant].12 In that regard, the Commissioner refers to the facts and evidence relating to the Division 165 Supplying Entities, which are as follows.

43. Assuming that the explanation of the incorrectness of the applicant's proposition is put at its highest and strongest, no example of illegal behaviour of which the applicant is said to be aware is given in what the evidence is said to demonstrate. If the contention to be accepted is that knowledge of illegal behaviour was possessed, either actually or constructively, and illustrative inclusions are listed, it could be expected that at least some illegal behaviour would be included in the list. As noted by the Full Court, the Commissioner does not allege "… that the applicant was a party to the fraud being perpetrated by the Division 165 Supplying Entities, namely, the tax evasion …. However, that statement was expressed in quite specific terms, referring to not alleging that the applicant was a party to the tax evasion."[36] Full Court reasons at [188] adopted and reiterated by the Commissioner by his reference to this paragraph at footnote 12 of his submissions.

44. One of the applicant's contentions as to factual matters also bears particular comment.

45.

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The applicant repeatedly contends that the Fraudulent Suppliers engaged in theft and/or stole money. In part these contentions appear to be based on a foundation proposition that the Fraudulent Suppliers received or dealt with GST money and that that GST money belonged to, presumably, the Commissioner or the revenue generally. Put in those terms the Tribunal does not accept the proposition as advanced. As noted above the GST system does not entail a levy of GST to or on a recipient of supplies who pays for those supplies. The GST levy is on the maker of the supplies, and the amount of GST to be included in periodical net amount calculations is 1/11th of the consideration for the supply. While commercial parlance might suggest that the price for taxable supplies is an amount plus GST, or an amount plus 10% which is implicitly the GST, and while regulation may prescribe that it is necessary to inform a recipient of the supply of the amount of GST associated with a supply, aside from the reverse charging process noted at [5] above, a recipient of a supply does not pay GST. The recipient simply pays a GST-informed (or inclusive) price. The maker of a taxable supply bears the GST liability and in commercial parlance receives a component of the purchase price consideration for those supplies which might be referable to the GST liability. However, the supplier receives nothing but the purchase price or consideration for the supply. In ordinary parlance the supplier beneficially owns the money that it receives.

46. The Tribunal can accept that activities of a kind that induce a customer of a taxable supply to pay GST-informed price for that supply when the GST liability is not paid to the Commonwealth might be described as a fraudulent scheme. The fraudulent scheme is the non-payment of liabilities to the Commonwealth, represented by the Commissioner, in circumstances where a GST-informed price has been induced and paid by the recipient of the supply.

47. The Fraudulent Suppliers did not engage in activities within the conventional understanding of the concept of theft or stealing. The applicant's submissions are understood to mean that the Fraudulent Suppliers, having received a GST-informed price, unlawfully did not pay their GST liabilities and kept the profit element produced by that GST-informed price.

EVIDENCE AND FINDINGS OF FACT

Agreed facts and contested inferences

48. After the majority of submissions had been made, the parties provided a Statement of Facts that are Agreed which is reproduced as Appendix 2 to these reasons. Much of the evidence to which the Tribunal was directed during the hearing supported findings of fact that ultimately were expressly agreed by the parties or otherwise not contested. The Tribunal is satisfied that the evidence supports those the facts as agreed and, accordingly, finds those facts. However, those facts as agreed do not reveal sufficient to understand the setting in which the issues to be determined arise.

49. In a similar vein, the Commissioner urged the Tribunal to make a series of findings of fact based on the evidence before the Tribunal that replicated the findings of the First Tribunal. These too, suffer the same limitation. Two observations are required though.

50. The facts required to dispose of the present matter need to be set out more expansively.

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The entities and transactions in summary

The recipients of the applicant's supplies

51. During the Relevant Period, the applicant produced hallmarked gold bars of 99.99% fineness which it sold as GST-free supplies, predominantly to ABC NSW and Ainslie, each of which was a "dealer in precious metal" as defined for GST purposes.:

52. The agreed facts provide a foundation for an inference the Tribunal draws that the majority of the applicant's sales of precious metal during the whole of the Relevant Period were to its related party, ABC NSW. In that regard, the applicant's GST ledger entries indicate that between 1 February 2012 and 21 October 2013 sales to ABC NSW accounted for 69.6% of the applicant's precious metal sales.[37] Appendix 2, Statement of Agreed Facts [9]. Sales to the unrelated party, Ainslie, for that period accounted for 28.1% of the applicant's precious metal sales.

The relationship between the applicant and ABC NSW

53. Mr Cochineas[38] Mr Phillip George Cochineas. and his brother Mr Andrew Cochineas directly or indirectly held 50% of the shares in the applicant. The other 50% of the shares were held, directly or indirectly, by Ms Jane Simpson and her father, Mr Francis Gregg.

54. The applicant's directors were Mr Cochineas, Mr Andrew Cochineas, Ms Simpson and Mr Gregg. Mr Cochineas was the managing director and responsible for the day-to-day management of the applicant. Mr Cochineas provided detailed evidence in the proceeding.

55. Ms Simpson and Mr Gregg were the directors of, and directly or indirectly held all of the shares in, ABC NSW. It is clear from the evidence that Ms Simpson was actively involved in the transactions between the applicant and ABC NSW and between ABC NSW and the Division 165 Supplying Entities.

The applicant's suppliers

56. The applicant's suppliers can be designated as Relevant Suppliers who supplied Refining Materials that were almost all (99.5%) of 99.99% gold purity and other suppliers who supplied Refining Materials that were predominantly (90.6%) gold of less than 99.99% purity. The Division 165 Supplying Entities are a subset of the Relevant Suppliers.

57. The Division 165 Supplying Entities are:

58. Other Relevant Suppliers were Goldborough,[43] Mr Rahman Butt trading as, Goldborough Mineralz. Focus[44] Focus Metals Pty Ltd. and GMA.[45] Gold Makers of Australia Pty Ltd.

Acquisition and price of Refining Materials

59. The applicant paid its suppliers of Refining Materials based on the precious metal content of the Refining Materials received. The applicant's submissions emphasised it was the precious metal content the applicant purchased not the scrap or other materials from which the gold was obtained. It is difficult to comprehend how it did not also purchase that scrap or other material as part of each purchase. As already noted, the price was the spot price of the gold content less an agreed discount plus 10% (referable to the GST liability of the supplier of the Refining Materials). There is no suggestion that this was other than an arm's length price.

60. The precious metal content of the Refining Materials purchased was determined through a rapid assay process. Industry terminology is that the assayed materials are "out-turned" at a particular level of metallic purity.

61. The applicant's calculations indicate that 78% of all Refining Material it received during the Relevant Period, including a relatively small proportion received for toll refining, was out-turned by the applicant at 99.99% purity. In other words, this material was already at 99.99% purity when it was purchased.

62. Almost all (99.5%) of the Refining Materials received from the Relevant Suppliers was out-turned by the applicant at 99.99% purity. By contrast, only 9.4% of Refining Materials obtained from other suppliers was out-turned at 99.99% purity.

63. Together, acquisitions from the Division 165 Supplying Entities accounted for 52.88% of Refining Materials acquired by the applicant.

64. The Commissioner contends that a range of facts found by the First Tribunal ought to be found on remittal. Subject to some adaptations, and recognising there are some immaterial

ATC 11760

variations in some of the amounts and values as found by the First Tribunal and the corresponding amounts and values agreed in the Statement of Agreed Facts reproduced as Appendix 2, some, but not all, of the facts previously found are adopted as appropriately found on the evidence led, and considered as informed by the Full Court ACN decision. They are as follows:[46] The relevant paragraph numbers are reproduced from the First Tribunal’s reasons.

The applicant

37. The applicant was registered as a company on 29 November 2011. At all material times, Jane Simpson and her father, Francis Gregg, were two of the four directors of the applicant. Ms Simpson and Mr Gregg controlled a company named Fraja Pty Ltd that owned 50% of the applicant. Ms Simpson and Mr Gregg were also directors of …ABC NSW… ABC NSW was a 'dealer in precious metal'… The trading name of ABC NSW was at all relevant times 'ABC Bullion'.

38. The other two directors of the applicant were the brothers Phillip Cochineas and Andrew Cochineas who, together with their associates, indirectly owned 50% of the applicant through interposed entities including Chryso Capital Pty Ltd. Mr Phillip Cochineas and his associates also owned and controlled Palloys Pty Ltd and its related entities ( Palloys ). The Palloys group was involved in jewellery production and included AGS Metals Pty Ltd ( AGS Metals ), which had a Brisbane office; and a Melbourne based business, PJ Williams and Associates ( PJ Williams ).

39. The applicant registered for GST on 1 December 2011 and accounted for GST on a monthly basis…

40. From February 2012, the applicant traded as '[the applicant] & Associates' and described its business to the Commissioner as involving the acquisition and refining of scrap and other metal in order to produce precious metal for sale to dealers.

The applicant's business and key personnel

41. Mr Phillip Cochineas was the managing director of the applicant's business from 29 November 2011 (the date of its incorporation) to 31 August 2015, when the applicant ceased trading.

…

43. Mr Cochineas has been employed in the gold industry for over 10 years and, more recently, he served on 'The Gold Industry Group' board of directors, a group which represents the interests of gold producers, explorers, prospectors and service providers in Australia. He holds a Bachelor of Commerce (Accounting) and Bachelor of Laws as well as a Masters of Business Administration. He was well positioned to recognise and capitalise on, along with his associates, a business opportunity in the gold industry. He said, in 2011, he and his associates saw the need for a new business that consolidated various stages of the production and marketing of precious metal. They hoped to establish a "fully vertically integrated refining and bullion dealing model" that brought together a refiner capable of processing large amounts of scrap metal and a recognised precious metal hallmark with which to stamp the bullion. They saw an opportunity to work with secondary refining material (that is, existing material such as scrap gold, consisting of jewellery and recycled gold from various users) as opposed to primary refining material (gold that was sourced directly from mines). Mr Cochineas explained there were many small players in the secondary refining sector of the market. ….

44. The applicant was formed as a joint venture between ABC NSW and Palloys to acquire an existing assaying, refining and precious metals' manufacturing business known as the 'JSPL Business'. Mr Cochineas explained that business had hitherto operated as a toll refinery. A toll refinery refines scrap metal for other businesses on contract. It charges a fee for its refining services. The toll refiner does not acquire the metal it refines, nor does it sell the output. It provides a service and delivers the refined product back to the owner. The JSPL Business was attractive to the applicant because it possessed:

  • • strong assay and analytical capability;
  • • significant capacity to refine silver and gold accompanied with relevant

    ATC 11761

    know-how (Mr Cochineas referred to its experience in two refining techniques as a particular asset);
  • • a history of providing assay and refining services to existing bullion dealers; and
  • • good brand recognition in the Australian scrap metals market.

45. Mr Cochineas and his associates proposed a different business model for the applicant. Their model combined the assets of the existing JSPL Business and elements of their other Palloys' businesses, together with their industry contacts, experience, access to capital and know-how.

46. The arrangement between ABC NSW and Palloys was contemplated as early as 20 May 2011, according to minutes of a meeting titled 'Project Goldfinger' held on that day ( the Goldfinger Minutes ). The meeting was attended by Ms Simpson, Mr Gregg and Messrs Andrew and Phillip Cochineas. The Goldfinger Minutes recorded that a special purpose company (ultimately the applicant), owned equally by ABC NSW and Palloys, would be incorporated to acquire the JSPL Business. ABC NSW would provide the applicant with an interest-bearing gold and silver loan, and Palloys would provide daily management services for a fee. According to the Goldfinger Minutes, the applicant would develop an advanced assaying laboratory with the industry's fastest turnaround. The plan contemplated ABC NSW and Palloys directing all their refining work to the applicant. It was also anticipated the applicant would exclusively produce ABC hallmarked bullion bars and own the intellectual property in the ABC hallmark. The applicant would focus on refining scrap of at least 18 karats (that is, metal with a fineness of at least 75%). It would send all other scrap metal with lesser fineness to different refiners. One of these refiners was Produits Artistiques Métaux Précieux ( PAMP ), which is a London Bullion Market Association ( LBMA ) accredited Swiss refiner. ABC NSW was at all relevant times the exclusive Australian distributor of PAMP bars.

47. The distinction between primary refining material and secondary refining material looms large in these proceedings. The joint venturers expected it would be easier to enter and disrupt, if not dominate, the secondary refining sector of the gold market given their business model, existing relationships with third parties who would become key suppliers of the refinery, and experience in the precious metal industry. Mr Cochineas said there were more significant barriers to entry into the sector of the market that dealt with primary refining material. He insisted it was always intended the applicant would move into that sector in due course, although it was unclear what steps were taken to that end by the applicant.

48. … [T]he 'Project Goldfinger Term Sheet' dated 1 September 2011 …, amongst other things, set out the services to be provided by the applicant after it was established. The … applicant was to develop a state-of-the-art assaying laboratory with the fastest turnaround in the industry, and was "to perform refining services in its own right and also for ABC and Palloys". It was also stated that, generally, "[the applicant] is to assay only and send all melted scrap to PAMP or other refinery" with ABC NSW to arrange preferential rates for the applicant. "Only 18ct+ scrap to be refined at [the applicant]", it explained.

53. … [T]he features of the GST Act were squarely in the mind of the joint venturers from the beginning. [In advice to ABC (NSW) from its legal advisor, ABC (NSW) was advised] "[a] significant motivation is to obtain the benefit of the current GST-free 'first supply from a refinery' exemption."

54. Mr Cochineas confirmed the investors in the new business were conscious from the outset of the importance of adhering to the requirements of the GST Act for the making of GST-free supplies. Mr Cochineas annexed a document to his first affidavit that was described as a 'Policy Document' prepared in early 2012 in conjunction with Ms Simpson, amongst others. The Policy Document explained the applicant's plans to ensure the new venture was

ATC 11762

able to be classified as a 'refiner' pursuant to the GST Act to be able to deliver GST-free supplies of bullion onto the market… [T]he Policy Document relevantly canvassed whether the applicant was a refiner under the GST Act by reference to the definition of the term 'refiner of precious metal' in s 195-1 of the GST Act and the meaning of 'precious metal', also defined in s 195-1. It also separately canvassed whether the applicant was "a recycler according to the [GST] Act"… The Policy Document recorded that the applicant acquired material which is "essentially unuseable by jewellers" (sic) and "reworks this material into useable form". It was not clear what the authors meant by that statement. In any event, the authors of the Policy Document reached the following conclusion:

…[the applicant] is therefore a recycler of precious metals, as well as a refiner in a technical, meticulous and literal way…

55. … [T]he applicant initially expected to source its material from local suppliers of scrap gold, even though there were many potential foreign suppliers of relatively pure secondary refining material, especially in Asia. Mr Cochineas explained offshore suppliers would be approached to "fulfil latent capacity and subject to funding"… [T]he Shareholders' Agreement between the joint venturers anticipated they would direct any of their individual refining needs (or those of their subsidiaries) to the applicant, and - to the extent the joint venturers were in the business of acquiring precious metal from a refiner - they would acquire that precious metal from the applicant. As already noted above, one of the joint venturers was ABC NSW, a dealer in precious metal.

56. Mr Cochineas said the applicant also invested heavily in the refining operations. He said the applicant acquired new plant and equipment and hired more staff with experience and expertise …[According to the applicant it] "became the largest private assaying and refining business in Australia, second only in output to the Perth Mint". The applicant was also accredited on 13 August 2014 by various industry bodies and aimed to comply with relevant Australian Standards for the analysis of gold, silver and their alloys.

The applicant's funding and payment arrangements

64. … [T]he joint venturers agreed in the Shareholders' Agreement to provide metal and general finance loans to assist the applicant to make acquisitions of scrap. The applicant also obtained an overdraft facility from a bank that initially provided $3 million in credit. The facility was extended to $10 million by June 2013. But the increase in turnover and the stable relationships with suppliers of scrap gold and dealers in precious metal also created a kind of … cycle. Mr Cochineas pointed out the applicant's ability to acquire scrap gold from a regular supplier and sell the finished product to a regular dealer almost simultaneously reduced the risk associated with volatility and "acted as a natural hedge against pricing risk inherent in precious metal trading". That innovation eliminated the need for costly external hedging facilities and improved cashflow.

65. …The essence of [the payment arrangements the applicant offered to suppliers] was described by Mr Cochineas as follows:

A key strategy to drive Refining Material to [the applicant] rather than its Australian competitors was to institute a system of fast payment to suppliers of Refining Material based upon preliminary testing of that Refining Material by [the applicant] or sometimes by the supplier itself. I was aware that this system was a common international industry practice but prior to the advent of [the applicant] I had formed the view based on my investigations of the Australian gold refining industry that it was not widely practised by Australian refiners.

66. Mr Cochineas said that strategy was essential to the applicant's success because it gave the refinery's clients "a significant cashflow advantage and a point of difference compared to doing business

ATC 11763

with [the applicant's] Australian competitors". He said the payment practices were common overseas, so he knew the plan was workable, but it was not common in Australia in 2012. Mr Cochineas explained the applicant's principal competitor at the time took up to three weeks to make financial settlement with its clients. The applicant, in contrast, paid a supplier once the scrap was in the physical possession of the applicant or in the physical possession of its supplier (also referred to as a client of the applicant). That practice was important because [some] suppliers (or clients) would not ship the scrap to the applicant until they were paid. The ongoing relationships between the applicant and various suppliers meant it was easier to adjust a supplier's account if there was variation between the results of the preliminary analysis and the results returned from the more detailed assay and laboratory testing.

The applicant's turnover

67. The applicant's turnover increased dramatically during the Relevant Period. In the last five months of the 2012 financial year when the applicant took over the JSPL Business, Mr Cochineas said the turnover was $63,278,865. In the 2013 financial year, turnover surged to $594,838,536, … [a] 392% increase on the previous financial year. In the 2014 financial year, turnover increased by a further 25% to $745,785,032… [G]rowth was affected by attention from the authorities during that period. Turnover decreased by 12% to $654,159,601 in the 2015 financial year.

The warrants, the audits and the assessments

68. … [T]he Australian Federal Police (AFP) executed search warrants at the applicant's premises as well as the premises of ABC NSW on 29 October 2013… Documents were seized from the applicant and the contents of some of its computer systems were also downloaded… [S]ome of the applicant's suppliers of scrap gold had their bank accounts frozen by the Commissioner. It became impossible [for the applicant] to continue dealing with those entities… [T]he applicant voluntarily ceased dealing with some suppliers that were unwilling or unable to supply declarations to the applicant confirming their compliance with the GST laws…

69. The Commissioner began to conduct more GST compliance activity in relation to the applicant's business… The Commissioner retained refunds claimed in the applicant's BASs for October and November 2013 for verification… [T]he Commissioner completed the audit of those particular BASs and paid a GST refund to the applicant on 13 December 2013, [but] further GST audits followed… [A] more detailed and extensive audit… [began on or about] 8 July 2014…

70. On 8 April 2016, the Commissioner issued notices of assessment and notices of amended assessment of net amount[s] disallowing certain input tax credits claimed by the applicant in its BASs in the Relevant Period totalling $122,112,065. The Commissioner also issued declarations… negating input tax credits claimed by the applicant in its BASs in the Relevant Period totalling $72,953,611. On the same day, the Commissioner also issued notices of assessment of administrative penalties totalling $58,059,829.75 in relation to the GST shortfall for the Relevant Period…

71. Mr Cochineas's evidence suggested he was puzzled by the Commissioner's decision to issue the abovementioned assessments given the behaviour of the ATO's audit team…

The supply of refinery material to the applicant

72. … [T]he applicant entered ongoing relationships with a few entities that regularly supplied large quantities of [Refining Materials]… [T]he applicant went through a process of due diligence and 'on-boarding' with each of the suppliers and negotiated terms on an individual basis… [S]ome of the suppliers had previously dealt with one of the joint venturers, but it was agreed amongst the joint venturers that those entities should be encouraged to deal with the applicant after 2012.

ATC 11764

73. … [Refining Material came to the applicant] in a number of different forms, including precious metal bars that were hallmarked and in investment form. Mr Cochineas said very few bars in the form of investment-grade bullion were acquired and, when they were, the applicant did not claim any input tax credits because the supplies to the applicant were not taxable supplies.

74. …[T]he applicant was supplied with a larger number of damaged or defaced precious metal bars. These bars bore a hallmark, but they were cut, melted or otherwise damaged in a way that made them untradeable as 'precious metal'. Some of the bars had been previously produced and hallmarked by the applicant, but many of them were hallmarked by somebody else, including PAMP… [T]hese bars were sold to the applicant by the third-party suppliers as taxable supplies on the basis they were not in investment form. That meant the applicant paid … [GST informed] prices for these acquisitions of scrap gold… [T]he applicant claimed input tax credits in the usual way, just as it did for other acquisitions of things acquired for carrying on its enterprise. The applicant took the same approach to claiming input tax credits when it acquired other scrap gold including:

  • • metal blobs or slugs;
  • • metal granules;
  • • jewellery, jewellery scrap and jewellery by-products; and
  • • metal industrial by-products.

78. … [T]he greater portion of the secondary refining material supplied during the Relevant Period, and the acquisitions to which the Commissioner's assessments related, were actually at least 99.99% fineness. According to the applicant's laboratory analyses, around 22% of the material supplied during the period was less than 99.99% fineness gold. That means on the applicant's calculations around 78% of the scrap it acquired was already refined to the level of metallic purity that was expected of precious metal…

79. Mr Cochineas said some of the suppliers might have melted down gold bars or other material that was 99.99% fineness using primitive equipment in uncontrolled conditions. That process could introduce non-metallic contaminants (like silicates and borates) into the melted product. Those non-metallic contaminants had to be eliminated by the applicant as part of its processes, even if the product already had a high level of metallic purity.

80. … [There is no apparent] dispute that 78% of the scrap gold was already at 99.99% fineness when it arrived in the applicant's refinery…

The applicant's refining processes

81. When material was delivered to the refinery, it was handled by the inventory team who completed a job sheet recording the weight and a basic description of the material and the name of the supplier. After October 2013, a photograph was taken of the material upon delivery as well. A preliminary analysis of the metallic content was done at that point using an XRF (x-ray fluorescence) gun, a hand-held device, and recorded on the job sheet. The XRF gun is designed to read the characteristic fluorescent x-rays emitted by particular metals. It is a quick and non-intrusive method for assessing the metallic content of the sample. The material would then be placed on a trolley which was wheeled to the vault with the job sheet attached to await the melting process.

82. Mr Cochineas insisted every piece of scrap gold received was melted down and subjected to the smelting and fluxing processes. He said that was the invariable practice, even where the scrap in question was defaced or damaged precious metal bars that bore a recognised hallmark confirming the bar was of 99.99% fineness. The motivation behind that practice was clear from the evidence. No refinery, and certainly not the applicant, was prepared to accept anybody else's word for the purity of the product it acquired. Every refinery was worried about fraud… [T]here were well known examples of apparently intact bullion bars being touted for sale that, when cut or melted, revealed less valuable substances like tungsten inside. Mr Cochineas also

ATC 11765

referred to an example of a bar that was hallmarked as being of 99.99% fineness but analysis showed it was, in fact, only at 99.98% fineness. He insisted nothing could be accepted at face value. The material received always had to be melted and analysed for quality control purposes.

83. Fraud was not the only risk… [A] number of the suppliers melted down material they had on hand into blobs in an effort to conceal the source of that material… Mr Cochineas [said] that suppliers were concerned that if they revealed the sources who supplied them, the refiner might approach those sources directly and cut the supplier out of the process. That attempt to cover tracks had consequences, however. The melting often occurred in uncontrolled conditions and introduced impurities into the blobs that were not present before. Mr Cochineas pointed out material which had been inexpertly melted might also include an amalgam of different metals that were not spread consistently throughout the sample. Smelting and fluxing ensured all of the material supplied in a particular batch could be reduced to a homogenous amalgam that could then be properly sampled for its metallic purity.

84. … [T]he primary objective of the initial smelting and fluxing process was to provide quality assurance. This aim was corroborated by Mr Williams. Having melted the material, there was an opportunity to eliminate any non-metallic impurities that might be present, like silicates, borates, carbides, sulphides and other compounds of these materials. The initial melt also permitted the refiner to identify and remove low-melting-point alloy metal like lead, zinc or tin. Mr Williams pointed out in his oral evidence that the very act of melting the gold in controlled circumstances in and of itself caused the gold to become purer. Every time gold was melted, it increased its metallic fineness as silver and other metals were volatilised. Mr Cochineas said the next steps taken beyond that point were determined by the nature of the material.

85. Mr Cochineas described a few common processes that the refinery was capable of undertaking to reduce or eliminate metallic impurities and to remove non-metallic contaminants. Apart from primary smelting and fluxing, these processes include oxidation, dross extraction, and silver drenching… [T]hese processes were carried out in a dedicated area of the refinery which was serviced by exhaust systems called scrubbers that collected fumes… [Q]uantities of volatilised gold and silver were collected by the scrubbers over time. That material was fed back into the refining process in due course.

86. While the metal was still in a molten state,… it was standard practice to collect a dip sample that could be analysed by the metallurgical laboratory attached to the refinery. The dip sample was collected using a small glass pipette… [T]he laboratory took four assays of every dip sample. The assay result was recorded in the laboratory and the dip samples were kept for three months. The assay result was also recorded on the job sheet, which could then be used to determine the final financial settlement with the supplier. This settlement was also known as the 'out-turn'.

87. …[A]t the time of out-turn, the applicant was taken to purchase the total number of grams of fine metal content of the material supplied (that is, the number of grams of 99.99% fineness gold or other investment-grade metal that existed within the batch of molten material). The purchase price was determined by the terms agreed with each supplier but was generally calculated with reference to the prevailing spot price for the metal, less a discount and less any fees payable to the applicant by the supplier under the terms. The price was recorded in a tax invoice created by the supplier in question or in a recipient-created tax invoice… In some cases,…the grams of gold were simply credited to the supplier's fine metal account with the applicant. In either event, the molten gold sitting in the refinery became the property of the applicant at that point.

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88. Once the metal had passed into the applicant's ownership, the applicant was free to subject the molten product to such other refining and manufacturing processes as it saw fit… Refinery employees were responsible for deciding what further refining processes should be used… [T]he options included further smelting and fluxing, aqua regia refining, chlorination refining, electrolytic refining, and electro-parting refining… It is not clear from the evidence which processes were actually undertaken in each case.

89. …The evidence of Mr Williams was that pyrometallurgical processes alone - that is, smelting and fluxing - were usually sufficient to increase the metallic fineness of gold by a few decimal points from, say, 99.8% or even 99.5% to at least 99.99%.

90. …Dr Stewart Murray, a metallurgist called by the applicant as an independent expert witness, made essentially this point during cross-examination. He explained smelting and fluxing were a more efficient way to achieve small increases in fineness if that was all that was required compared to alternative approaches, like aqua regia refining…

91. As the molten material was processed, the batches might be combined and subject to further assays and (if the batch included lower grade material) refining processes until the applicant was left with batches of 99.99% fineness gold. Once the laboratory gave its approval, the material was granulated and placed into 5kg bags. Those bags of fine granule stock were undifferentiated in the sense it was no longer possible to determine the original source of the material. When the applicant was ready, the fine granules were melted, poured into moulds and cast into bars that were inspected, hallmarked and readied for sale to dealers in precious metal.

92. During the relevant period, the applicant supplied most of its precious metal to two companies, ABC NSW and Ainslie ( Dealers ), each being a 'dealer in precious metal', as defined in s 195-1. In respect of the 2013 calendar year, approximately 63% of the applicant's customer receipts were from ABC NSW, with 30% of customer receipts from Ainslie. As noted above, ABC NSW was associated with the applicant as Ms Simpson and Mr Gregg were at all relevant times two of the applicant's directors and indirectly owned 50% of the applicant. Ainslie was not related to the applicant. All of the bullion sold by the applicant to the Dealers was on the basis it was GST-free… [T]he applicant did not charge… [a GST-informed price] to the Dealers and,… claimed to be entitled to its input tax credits for the GST [payable by]… the third party suppliers with respect to its acquisitions of [Refining Materials].

93. … [The applicant and ABC NSW] had interests in common. The applicant depended on ABC NSW to place orders for precious metal as it was one of very few dealers to which the applicant sold its precious metal. ABC NSW relied on the applicant to manufacture and supply it with investment-grade bullion so that ABC NSW could make supplies to its customers…

…

94. In summary, the evidence … discussed above comes to this: … the applicant was a refiner of precious metal and that it acquired a large volume of scrap gold from a relatively small pool of suppliers as part of a business strategy which targeted suppliers of secondary refining material. The applicant and or its joint venturers were familiar with many of the main suppliers. Some of the main suppliers were directed to the applicant by one of its founding investors, ABC NSW, secretive for reasons of their own [about their sources of gold]… [T]he applicant knew a few of its main suppliers were [acquiring gold bullion] from ABC NSW in particular, and that a proportion of the material delivered to the applicant was in the form of damaged bars or in other forms which were likely to have been comprised of gold that had [once] been in investment form…

95. … [The Commissioner's amended] assessments and objection decisions were… in respect of the 78% of the [Refining Material that the Commissioner believed was

ATC 11767

of] 99.99% fineness [when received by the applicant].

…

97. It is unclear how much of the scrap material identified as being of at least 99.99% fineness was subjected to additional refining processes (such as aqua regia refining) as opposed to merely processing the molten material into standardised batches that could be granulated and cast into precious metal bars.

…

The Division 165 Supplying Entities

The IPJ Group

142. [The IPJ Group comprised]: Italian Prestige Jewellery Pty Ltd ( IPJ ), Premium Metal Service Pty Ltd (PMS), Antel Metals Pty Ltd ( Antel ), 4 Nines Pty Ltd ( 4 Nines ), and A1 Metals Pty Ltd ( A1 Metals ). These entities were [controlled by Mr Adrian Catanzariti]. Mr Cochineas stated he understood the IPJ Group operated businesses involving jewellery wholesale, scrap dealing and bullion dealing (gold and silver).

143. IPJ, [was] incorporated in August 2005, [and] was one of the applicant's first major customers. Prior to IPJ selling scrap gold to the applicant, IPJ [had previously been] a customer of ABC NSW. IPJ had acquired approximately $30,000 worth of precious metal from ABC NSW in 2006 and approximately $21,000,000 worth of precious metal from ABC NSW in the period [from] July 2011 to January 2012…. Before that the IPJ Group had made only minor purchases.

144. On or about 30 January 2012, Mr Cochineas and Mr Catanzariti met to discuss their future business together. Mr Cochineas deposed he told Mr Catanzariti that, provided the applicant had the necessary funds and demand from its own bullion dealer clients, the applicant could take as much refining material as IPJ could send. Subsequently, on 7 February 2012, Mr Catanzariti sent an email to Mr Cochineas attaching "the templates as requested" which comprised a form for completion by companies for customer identification purposes, as well as a blank tax invoice showing the supply of "gold granules". Both documents were on IPJ letterhead but blank as to relevant details such as quantity and prices. No explanation was provided as to why the applicant was seeking guidance as to pro-forma basic documents from the IPJ Group.

145. … [N]ot long after that… meeting there was an arrangement made between the applicant and ABC NSW that ABC NSW would purchase the gold the applicant would acquire from IPJ and others. This was evident from an email sent on 9 February 2012 by Steve Lowden (the Chief Executive Officer of AGS Metals, a Palloys business) to Mr Cochineas and Ms Simpson, as well as others in the Palloys group. Mr Lowden set out the following in that email which contained the subject heading 'Process for Purchase from Italian Prestige & others':

  • 1. Delivery of goods to [the applicant]
  • 2. Refinery receipt given to client for goods received
  • 3. Material assessed by [the applicant] staff and assay of goods at [the applicant's] discretion
  • 4. After assessment and confirmation of purity, Tax invoice received from customer for sale of metal at spot gold price less 2% (not RCTI, unless signed by both parties)
  • 5. Spot gold price calculated based on Kitco Live US gold bid divided by Aussie Dollar as converted into AUD per gram less 2% (margin)
  • 6. [The applicant] raises Tax invoice to [ABC NSW] to sell metal at prevailing spot gold price
  • 7. Same day payment made by [ABC NSW] to [the applicant] for Invoiced Metal
  • 8. Metal is credited to [ABC NSW] metal account at [the applicant]
  • 9. [The applicant] transfer funds by same day EFT to client

146. On the same day, in a reply email to all, including Ms Simpson and Mr Lowden, Mr Cochineas relevantly stated it was his understanding the volumes will start low for

ATC 11768

IPJ but will ramp up to 20kg …. In a reply email from Ms Simpson to Mr Lowden and Mr Cochineas, amongst others, Ms Simpson replied "yes no probe - if it goes up to 250kg per day we may have to on sell some!" In a separate email addressed to Ms Simpson only with the same subject heading on 9 February 2012, Mr Cochineas stated "I also propose starting small with the first transaction … and going through the WHOLE process (even though the numbers will be small) then we can iron out all the bugs."

147. …[F]rom 14 February 2012, IPJ was acquiring precious metal from ABC NSW on an almost daily basis and the applicant also commenced acquiring [Refining Materials] from IPJ on an almost daily basis. As already noted in [143] above, IPJ was acquiring precious metal from ABC NSW, but now the applicant was also… receiving [Refining Materials] from IPJ.

148. During the Relevant Period, IPJ acquired $100,970,890 worth of precious metal from ABC NSW and made sales of [Refining Materials] to the applicant totalling $82,198,766. It was not in dispute that approximately 99.95% of the [Refining Material] the applicant acquired from IPJ was of 99.99% fineness but… was not in investment form.

149. … PMS, was incorporated on 2 November 2011 [and] commenced purchasing precious metal from ABC NSW on the same day IPJ commenced trading with the applicant (14 February 2012) and it commenced making sales [of Refining Materials] to the applicant two days later on 16 February 2012. Similar to IPJ, PMS proceeded to acquire precious metal from ABC NSW and make sales to the applicant on an almost daily basis throughout the Relevant Period. During the Relevant Period, PMS acquired $86,656,507 worth of precious metal from ABC NSW and made sales [of Refining Materials] to the applicant totalling $56,593,830. It was not in dispute that approximately 99.95% of the scrap gold the applicant acquired from PMS was of 99.99% fineness.

150. The position with the other IPJ Group entities, Antel, 4 Nines and A1 Metals, was similar, except they were incorporated later and, consequently, started delivering scrap gold to the applicant later. Antel began delivering scrap gold in July 2012. 4 Nines began delivering in August 2012 and A1 began delivering in February 2013. The evidence suggests Antel, 4 Nines and A1 Metals were established to purchase additional investment-grade bullion from ABC NSW and, like IPJ and PMS, also engaged in selling at least some of that precious metal to the applicant as scrap gold… [The evidence does not disclose] why different entities were introduced…

151. It was not in dispute that the gold acquired by the IPJ Group from ABC NSW was in precious metal form and the gold sold by the IPJ Group to the applicant was [not] even though it was at least 99.99% fineness…

152. An example of the… contemporaneous nature of …[the] transactions is… the applicant's first acquisition from A1 Metals on 19 February 2013. On that… day, A1 Metals acquired a 1kg ABC Bullion hallmarked bar from ABC NSW for $50,444.30 and sold 989.4g of fine gold granules as a taxable supply to the applicant for $53,825.87. The first significant activity on A1 Metal's bank account statement is a payment from the applicant of $53,825.87 on 19 February 2013 and a subsequent payment on the same day of $50,444.30 to ABC NSW. The bank account statement shows subsequent payments in from the applicant and payments out to ABC NSW on an almost daily basis. Those payments coincide with the purchases from A1 Metals. The bank account statement for A1 Metals also shows regular withdrawals of cash.

153. … [T]he applicant's GST detail reports and the statements of sales made by ABC NSW to Antel and 4 Nines shows similar patterns of trading. There were also email exchanges between Mr Cochineas and Ms Simpson which demonstrate the pattern of [acquisitions from the IPJ Group] and close communications between the applicant and ABC NSW about [those acquisitions] . For example,

ATC 11769

on 5 September 2012, Mr Cochineas wrote to Ms Simpson that the applicant was acquiring approximately 10kg of gold a day for four days of the week from the IPJ Group. By mid-2013, the applicant was regularly acquiring over $1 million a day of mostly fine gold granules (weighing approximately 20kg) from the IPJ Group entities for at least four days a week.

154. Over the Relevant Period, the IPJ Group acquired $295,682,857 in total worth of precious metal from ABC NSW and made sales to the applicant of scrap gold totalling $243,082,723. Sales made to other refiners by the IPJ Group are not relevant to these proceedings although referenced in the Wright First Report.

155. The following transactions on 14 June 2013 are an example of the transactions that occurred between [the applicant and] ABC NSW, [ABC NSW and] the IPJ Group and [the IPJ Group and] the applicant during the Relevant Period:

  • (a) At 9:18am, orders were placed by Mr Sandro Catanzariti with Ms Baker (Relationship Manager at ABC NSW) for various gold bars for each of the IPJ Group entities (30 orders in aggregate).
  • (b) Between 9:21am and 9:53am, ABC NSW issued invoices to each of the IPJ Group entities totalling $1,399,582.20.
  • (c) At some time before 12:14pm, the IPJ Group entities rendered invoices to the applicant for the supply of 29,427 grams of fine gold granules totalling $1,475,279.82.
  • (d) Between 12:14pm and 12:16pm, the applicant paid the invoices by electronic funds transfer.
  • (e) At 12:19pm, Mr Sandro Catanzariti (the brother of Mr Adrian Catanzariti) confirmed with ABC NSW that all stock had been paid.
  • (f) The bank accounts for each of the IPJ Group entities show a payment received from the applicant on 14 June 2013 (matching the invoice rendered by that entity) and a subsequent payment out to ABC NSW (matching the invoice rendered by ABC NSW).

157. Mr Cochineas deposed that he and, therefore, the applicant were aware the IPJ Group were acquiring investment-grade bullion from ABC NSW during the Relevant Period. He said this did not give him any cause for concern and he provided various explanations. Initially, he said it confirmed the business model of the IPJ Group explained to him by Mr Catanzariti at their first meeting, which was that the IPJ Group secured its supply of scrap gold by exchanging investment-grade bullion for the scrap gold of its clients. On another occasion, in a compulsory examination,… Mr Cochineas said it was generally his understanding that persons in the industry engaged in barter transactions because they were wary of carrying cash in the sums of $50,000 or $40,000 and a bullion bar which has the equivalent value is much more transportable. Mr Cochineas also said the IPJ Group were refining the scrap gold they acquired as part of the barter to gold of 99.99% fineness and delivering it in granule form to the applicant for further refining. When Mr Cochineas was asked about the refining capacity of the IPJ Group, he said they were doing some refining themselves (although he had never seen their refinery operations) and that they also used other people for refining and were possibly also buying the gold granules. When asked on one occasion in a compulsory examination why the IPJ Group would bother refining before presenting the material in granule form to the applicant for refining, Mr Cochineas stated he didn't know "the inner workings of their business". However, before us Mr Cochineas suggested the IPJ Group would do this to limit the refining fees paid to the applicant. Mr Cochineas suggested the way the IPJ Group make money is as follows: "obviously their business is to buy [the scrap gold] at a lower rate than the market place and not what they're going to sell it to me".

158. … [N]o evidence [has been led] of the IPJ Group having refinery operations at their premises or of barter transactions occurring with investment-grade bullion purchased from the Dealers being swapped for supplies of scrap jewellery… [To the contrary,] that the claimed

ATC 11770

arrangements of the IPJ Group with… third-party jewellers and scrap dealers [appear to have been] fabricated… [It is quite possible that this was done] to obscure what was otherwise a 'round robin' arrangement (at least in relation to some of the gold) between Dealers, including ABC NSW, the IPJ Group and the applicant, and to also conceal the IPJ Group's tax evasion. To be clear, the tax evasion that the IPJ Group was engaged in (and that was not in dispute before us) was the non-remittance by the IPJ Group to the Commissioner of the GST on its taxable supplies of scrap gold. The IPJ Group were in that sense the 'missing traders' in the supply chain…[T]he Commissioner issued the IPJ Group with assessments for GST net amounts. The total of the GST shortfalls for the IPJ Group was $21,703,185… [T]he IPJ Group [entities] have subsequently been wound up…

159. …Some specific examples of this obfuscation were provided in uncontested evidence adduced on behalf of the Commissioner… [A Mr] John Smith, a former refugee who had changed his name to assist in finding work in Australia, [said] that he met a man called 'Ahmad' who offered to assist him in obtaining a loan for his business. Ahmad persuaded Mr Smith to turn over his licence, Medicare card and tax file number and to sign a document which Mr Smith was unable to identify. A week later, Ahmad told Mr Smith he had encountered some problems and Mr Smith did not hear from him again. Subsequently, Mr Smith discovered he was recorded on ASIC records as the sole director and shareholder of Shaheen Jewellery Pty Ltd - a company registered on 4 December 2012. Documents were also created to give the appearance that transactions had taken place between Shaheen Jewellery Pty Ltd and 4 Nines involving the sale of scrap gold to 4 Nines. Mr Smith categorically denied having ever engaged in any transaction, agreement or having any contact with 4 Nines, Mr Adrian Catanzariti or his brother, Mr Sandro Catanzariti, in relation to the sale of scrap jewellery or receipt of gold bullion.

160. … [A Mr] Haider Khraibt and his twin brother, [Mr] Naji Khraibt, both jewellers by occupation… gave evidence that [Mr Haider Khraibt] was approached by a 'Mr Mark Mandwee' and offered $500 per week to establish a company and sign various documents. Mr Haidar Khraibt provided Mr Mandwee with his driver's licence and Medicare card. Two companies, Pearls Jewellers Pty Ltd and Emerald Wholesaler Jewellery Pty Ltd, were established with Mr Haidar Khraibt as sole director and shareholder. Further documents were signed by Mr Haidar Khraibt that gave the appearance that transactions had taken place between those companies and PMS involving the sale of scrap gold to PMS. Similar evidence was given by Mr Naji Khraibt, but in Mr Naji Khraibt's case, the companies established were Antique Jewellers Pty Ltd and Gallery Jewellery Pty Ltd. Further documents were signed by Mr Naji Khraibt that gave the appearance that transactions had taken place between those companies and PMS involving the sale of scrap gold to PMS. Both of the Khraibt brothers denied having ever spoken to Mr Sandro Catanzariti or Mr Adrian Catanzariti. Both denied any knowledge of PMS. Both of the Khraibt brothers also denied having sold any scrap jewellery to PMS or to the Catanzariti brothers and, additionally, stated they had never dealt with any gold bullion or bars…

161. … [The applicant's awareness of sales of gold bullion by] ABC NSW, [to] the IPJ Group… [is revealed in] numerous email exchanges about the IPJ Group… For example:

  • (a) on 9 August 2012, Ms Simpson sent Mr Cochineas an email stating IPJ were purchasing around 60kg of 1kg ABC bars a week from ABC NSW;
  • (b) on 26 April 2013, Ms Simpson sent Mr Cochineas a detailed breakdown of all of ABC NSW's 1kg gold bar sales by customer including to the IPJ Group;
  • (c) on 29 May 2013, Ms Simpson forwarded to Mr Cochineas an internal ABC NSW email stating Mr Catanzariti would like to order an additional 30kgs

    ATC 11771

    per week of ABC 1kg bars for the next three weeks starting from 3 June 2013 and which also stated "please ensure that [the applicant is] informed and we have sufficient bars to supply them";
  • (d) on 13 June 2013, Ms Camilla Baker (Relationship Manager at ABC NSW) emailed Mr Sandro Catanzariti stating "[w]e actually only have 24 bars here… You can either collect the remaining 6 tomorrow or collect from [the applicant]. Sorry for the inconvenience."
  • (e) on 13 June 2013, Mr Sandro Catanzariti emailed Mr Cochineas directly expressing a concern about the unavailability of bars to collect from ABC NSW;
  • (f) on 19 August 2013, Ms Ronaldson (Operations Manager at ABC NSW) sent an email to Mr Cochineas and Ms Simpson which relevantly stated "I've been reviewing the demand for both Pamp and ABC 1 kg bars … Below is a breakdown of the basic requirements - this does not take into account any other sales i.e. investment or retail clients …" The table in the email relevantly listed 'IPJ' and indicated IPJ Group required 28 bars per day, four days a week, 112 bars per week; and
  • (g) on 16 September 2013, Ms Ronaldson emailed Ms Terina Hooper who was responsible for inventory and despatch at ABC NSW stating "Ok, had a chat with Phil [Cochineas] and he says [IPJ] aren't sure how many they will need, will be UP to 40 per day but could be less, Can you make sure you order a minimum of 55 from [the applicant] daily and Phil [Cochineas] will try to cover the increase for us".

162. Nevertheless, the applicant's position was that it was ignorant of the IPJ Group's GST evasion. The applicant argued it was a complete stranger to the alleged round robin arrangements involving the IPJ Group. Mr Cochineas deposed that, during the Relevant Period, neither he, nor as far as he was aware, the applicant nor any of its management was aware of IPJ Group's source of the refining material. He claimed that at no time did Mr Catanzariti or anyone else from the IPJ Group inform him nor did he become aware of the identity of the suppliers to the IPJ Group. He also deposed that other than conducting the due diligence enquiries and seeking declarations from its clients, "[the applicant] (like any other refiner) was unable to guarantee with certainty either the original source of that Refining Material received by it or whether the supplier had correctly accounted for GST to the Commissioner". He specifically attempted to distance Ms Simpson and Mr Gregg from the applicant and to suggest to us that neither of them were involved in the executive management of the applicant and, therefore, could not have known about the applicant's purchases from the IPJ Group.

163. The proposition that Ms Simpson and Mr Gregg were unaware of the applicant's purchases from the IPJ Group [cannot be accepted. It] was contrary to various emails, including the one specifically outlining the 'Process for Purchase from IPJ and others' dated 9 February 2012 (see [145] above) which suggested there was some planning and co-ordination between the applicant and ABC NSW as regards purchases from IPJ and others, to the point where ABC NSW and the applicant had to synchronise their dealings in order to meet the "basic requirements" of the suppliers (see [161](f) and (g) above). Ms Simpson, it will be recalled, had said that ABC NSW would be able to purchase the precious metal produced by the applicant (following deliveries of scrap gold by the IPJ Group) provided it did not exceed 250kg per day….

164. In a compulsory examination on 20 November 2013, approximately a month after the … AFP search warrants were executed, Mr Cochineas told the examiner under oath that he was "shocked" and "concerned" his clients including IPJ were issued with massive tax assessments. He said his response when he was told the bank accounts controlled by Mr Catanzariti had been frozen was that he needed to catch up with him to understand what was going on and what the problems were. In a further compulsory examination on 13 March 2014,

ATC 11772

Mr Cochineas said he did not know the details of the trading relationship between ABC NSW and the IPJ Group and he was not suspicious (in August 2013) about the activities of the IPJ Group and any round robin arrangement. Mr Cochineas also attempted to explain the email referred to in [161(f)] above from Ms Ronaldson of ABC NSW to him listing the orders of ABC NSW's customers, including the number of bars required by IPJ, on the basis it was a "whinge" because the applicant was not able to supply the needs of ABC NSW. Mr Cochineas said he never ordinarily received this sort of detail from ABC NSW.

…

166. … [The applicant's] job sheets for the receipt of scrap gold from the IPJ Group tended to show minimal testing and, generally, the receipts for the scrap gold issued by the applicant showed the barest details, namely, the quantity of fine gold… [One inference open to be drawn is of] a confidence on the applicant's part that the scrap gold it was receiving from the IPJ Group was… of 99.99% fineness…. Mr Cochineas deposed he did not consider there to be anything unusual with the IPJ Group providing material that was of approximately 99.99% fineness because it confirmed Mr Catanzariti's claim that the IPJ Group had the capabilities to refine to that level.

167. One explanation for the applicant's relaxed approach to the IPJ Group was the… relationship between Mr Cochineas and Mr Catanzariti. Mr Cochineas confirmed under cross-examination he had a close working relationship with Mr Catanzariti. Mr Cochineas and his associates went to social functions with Mr Catanzariti and his associates including dinners in Sydney, as well as attending an itinerary of events in Macau and Hong Kong, around the time of them having separately arranged to attend the jewellery trade fair in Hong Kong. Mr Cochineas… stated in his emails to event organisers in Macau that he had "a VIP client from Australia"; he "wanted to go overboard on this trip" to impress them; and "[t]hese clients are very important and I want them to have whatever they want". The applicant had also given Mr Catanzariti business cards with his name and the applicant's name on them, as well as an email account with the applicant to permit Mr Catanzariti to represent himself as part of the applicant, at least in relation to ostensibly obtaining refining work from potential primary sources - which never came to fruition.

168. One of the… email exchanges in the hearing book which [lies at the heart of the remittal], is reproduced below. The first email was sent by Ms Camilla Baker to Ms Kim Ronaldson (the Operations Manager of ABC NSW) at 2.27pm on 27 July 2012. It is set out to provide the contextual background to the email that follows.

Hi Kim

Just letting you know I am really unhappy with the conversation we just had regarding Phil [Cochineas] and Frank.

Being the Relationship Manager, I regard my position as one of developing and growing the business, which I have significantly proved already.

My understanding was that part of that role involves me gleaning from clients the products they need in order to service them better, and hence increasing turnover for ABC. I am aware that there is a large amount of privacy involved, and I certainly disagree that my line of questioning was not appropriate. However, I have noted our discussion and will refrain from such conversations in future.

I feel like I have had a slap on the wrist for a conversation I had with a client which was both jovial, and professional.

I'm not asking anything from you, I'm just letting you know I am really upset about it.

Camilla

169. Ms Ronaldson replied, as follows, at 2.38pm on the same day and, afterwards, forwarded both emails to her boss, Ms Simpson, for her information.

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Hi Camilla

I appreciate that you are upset about it, however this is a part of the relationship with the clients that you have to learn to manage. In this case the client has felt that you have stepped over the line and I am just passing on this information to you. As I said, whilst you may have a more relaxed and friendly relationship with them you also need to understand that at the end of the day business is business. They have felt that you overstepped the mark and I have to relay this to you.

As I also said Adrian [Catanzariti] was very insistent that you give them excellent service and they have no complaint with the way you look after their orders. He did not want this blown out of proportion and was very insistent that it remained quiet. … You just need to know where the boundaries are and those types of questions are completely off bounds. When you start talking about GST loopholes etc and this gets passed onto our refining partner its not great for any of the relationships.

Just take it on the chin and learn from the experience. I did not hear the conversation at all and was not aware of it until Phil [Cochineas] called me, as such I have to follow it up and ensure that it is dealt with.

All staff will be briefed on this as we need to be clear that we cannot ask what clients do with their product unless they are forthcoming with the information - its got nothing to do with us and we don't need to know. We have done our checks and that's all that is required.

Please lets not blow this out of proportion, I expect you to continue to develop your relationship with them.

Let me know if you want to talk further.

Thanks

Kim

…

179. [The Tribunal notes that evidence was not led from Ms Ronaldson, Mr Baker, Ms Simpson and Mr Gregg. Nevertheless the Tribunal does not draw an inference from the email exchange in circumstances where it was not led in evidence with Mr Cochineas. The Tribunal does] not infer the uncalled witnesses would necessarily have given adverse evidence in this case, but the … failure to call those witnesses without an adequate explanation has consequences for the applicant even so. The applicant bears an evidentiary burden. It relies in particular on the evidence of Mr Cochineas. …. The applicant's failure to call the identified witnesses to corroborate his evidence and fill any gaps underlines those shortcomings, and prevents [the Tribunal] from being satisfied [to reach some of the knowledge conclusions sought by the applicant].

The Majid Group

180. … [T]he Majid Group [comprised] various entities on whose behalf Mr Majid Faraj purported to act. The Majid Group entities had the following trading names: Majid Jewellers ( Majid ), Najaf Jewellers ( Najaf ), Elmas Jewellers ( Elmas ), Menas Jewellery ( Menas ), KLM Jewellery ( KLM ), Blue Heaven Jewellery ( Blue Heaven ), Kais Jewellery ( Kais ), Mazin Jewellery, Sahara Jewellery ( Sahara ) and Mario B Jewellery ( Mario B ).

181. Mr Faraj purported to represent each of those entities in respect of its dealings with the applicant. The applicant's witnesses, including Mr Cochineas, considered Mr Faraj to be a "courier" for the Majid Group entities... The applicant produced 'Letters of Confirmation' on the applicant's letterhead which were apparently signed by Mr Faraj confirming he was authorised to act on behalf of some of the Majid Group, including [for] Menas, Najaf and Elmas…

182. …. Mr Cochineas gave evidence that, at or around the time when Mr Faraj delivered gold to the applicant, Mr Faraj generally spoke to Mr Cochineas to fix the price at which the applicant agreed to purchase gold from the relevant Majid Group entity… [T]he bulk of the material delivered to the applicant by Mr Faraj on behalf of the suburban jewellers comprised defaced or melted bullion bars of 99.99%

ATC 11774

fineness. Mr Cochineas said there were various explanations for defacing bars. Mr Cochineas [said] it "is quite common in the marketplace" and "where the provenance is unknown of the material, the easiest way of determining the ability for that metal not to have been tampered with in some way is to actually cut the bar". He also said the fact that the Majid Group was selling the applicant large volumes of defaced bars did not surprise him because he said it coincided with a volatile period of pricing of gold in Australian dollars, namely, a high of approximately AUD55,551 per kilogram on 2 October 2012 and a low of approximately AUD42,937 on 16 April 2013, closing in December 2013 at approximately AUD44,500 per kilogram. He said it was his experience in the industry that periods of high volatility in the gold price coincide with increases in volume of scrap gold trading as compared to less volatile periods…

183. During the Relevant Period, the applicant acquired $101,031,623 worth of precious metal from the Majid Group. From Elmas alone, the applicant purchased around $34,000,000 worth of fine metal. Mr Mohammad Qahtani, a sole trader in Victoria, operated Elmas with an email address that was a 'Gmail' account. His business description is "Design Jewellery and Wedding Band" and the details on the invoices were generally handwritten…Invoices for other Majid Group entities were also rudimentary. The invoices for Najaf, another jeweller in Victoria, from whom the applicant purchased approximately $34,200,000 worth of fine metal states "[w]e sell-buy repair-exchange" and the template provides for the supply of, among other things, rings, earrings, necklaces, chains, bangles and bracelets.

184. Mr Cochineas deposed that each Majid Group entity was subject to the account opening procedures described in [165] above, suggesting the Majid Group entities completed the refining application form. However, as with the IPJ Group, no such documents were produced by the applicant which contained declarations by the Majid Group in respect of the source of the refining material. Rather, the applicant produced only client trading account application forms for Menas, Najaf, Elmas, Kais, KLM and Majid. These forms contained only basic information in relation to the entities. Moreover, the public information available on the 'ABN Lookup' shows these entities had limited trading histories. For example, the ABN Lookup record for Najaf shows its sole proprietor was only registered for GST on 24 February 2012….

185. Ms Wright's First Report records the Majid Group entities mostly acquired the gold which they sold to the applicant from a third party known as Ceylon, a bullion dealer located in Western Sydney. In 2013, 84.5% of Ceylon's identified customer base comprised of the Majid Group. The data relied on by Ms Wright also reveals Ceylon's main supplier was ABC NSW. Payments made by Ceylon to ABC NSW represented 66.3% of all its identified supplier payments. Ms Wright accepted in cross-examination her reports were based on the records for the sources of gold provided to her by the Commissioner. The applicant pointed out one of the Majid Group entities, Mr Haqiqi trading as Najaf, had acquired approximately $264,000,000 worth of precious metal in 2013 from another dealer in precious metal. Mr Haqiqi had also sold scrap gold to an entity called Gold Merchants International Australia Pty Ltd. The applicant submitted this information was known to the Commissioner, because he had audited and issued GST assessments to Mr Haqigi, but was not provided by the Commissioner to Ms Wright. Ms Wright accepted, under cross-examination, that it was not possible for her to say whether the scrap gold sold by Najaf to the applicant during 2013 was sourced from Ceylon and ABC NSW, or whether it was from some other source. Notwithstanding,… Ms Wright's conclusion in her First Report that "the gold that flows via the Majid supply chain is likely to contain gold that originated from [the applicant] throughout" [is a reliable conclusion that can be accepted]… Ms Wright's conclusion is apt because she recognised in the

ATC 11775

First Report, in the immediately following sentences, as follows: "However, it is not the only source of gold, with other sources possibly being… There is a potential limitation to my analysis because the Majid Group bank accounts may be incomplete…"

186. Mr Cochineas deposed that,… the extent of his knowledge about Ceylon was, relevantly, that it was a bullion dealer located in Western Sydney which bought precious metal from ABC NSW, but that he was not aware of the exact volumes or values of such purchases because he did not have access to ABC NSW's computer system. Before us, he acknowledged that during the Relevant Period, he knew it was an important client - because it had a long and established reputation as one of the larger bullion dealers - but he said he did not know what proportion of business it represented for ABC NSW and he denied having any communications with representatives of Ceylon.

187. Mr Cochineas's… [explanations of] what he knew about Ceylon are [not consistent with] various emails between Ms Simpson and Mr Cochineas that concerned Ceylon. For example, an internal email from Ms Simpson dated 2 July 2013 at 1.09pm to her ABC NSW staff reveals that a representative from Ceylon had contacted Mr Cochineas to complain about the service provided by ABC NSW. Ms Simpson expressly state[d] "they [Ceylon] have told Phil [Cochineas] the service is poor at [ABC NSW] … Phil might be able to give you some more details". Ms Kim Ronaldson (Operations Manager at ABC NSW) emailed Ms Simpson and copied Mr Cochineas on 2 July 2013 at 1.28pm stating "I'm Intrigued … they order online (have placed 4 orders today) … I know they are pushing us more and more to deliver larger quantities … we have a limit on our insurance". Mr Cochineas noted in a response email on the same day at 1.30pm that "[Ceylon] have the potential to be a HUGE client, if we just can give them the service and volumes … Let's talk through options and I am sure we can sort it out". In another email Ms Ronaldson sent to Mr Cochineas and Ms Simpson dated 19 August 2013 listing a breakdown of how many bars were required (see [161(f)] above), Ceylon was also listed in the table. Ms Ronaldson noted Ceylon required 10 bars per day, five days a week, with a total of 50 bars per week… [and] described the orders in the table, including those of IPJ and Ceylon, as "basic requirements" which "does not take into account any other sales i.e. investment or retail clients". No evidence was provided to [the Tribunal] about the meaning of "basic requirements" and, in particular, why they were different to "any other sales ie investment or retail clients".

188. Mr Cochineas said that during the Relevant Period, he was not aware Ceylon sold precious metal to any entity in the Majid Group and he only became aware of this after the Relevant Period… [T]he financial records of ABC NSW and the applicant reveal a link between the applicant's payment of the Majid Group entities for the supply of refining material and the purchases of gold bullion by Ceylon from ABC NSW. For example, between 25 March 2013 and 28 March 2013, payments from Ceylon to ABC NSW were [in close proximity with] supplies of gold from the Majid Group entities to the applicant… [T]he evidence comprising those financial records consists of the following:

  • (a) invoices from ABC to Ceylon for the purchase of ABC 1kg bullion bars issued on dates between 25 and 28 March 2013, inclusive;
  • (b) Ceylon's Westpac bank account for 2013, as summarised by Ms Wright in her First Report showing purchases from ABC NSW and sales to the Majid Group entities;
  • (c) Majid Group entities' bank accounts, as summarised by Ms Wright, showing purchases by those entities from Ceylon and sales by those entities to the applicant; and
  • (d) Majid Group entities' receipts and Majid Group entities' bank accounts, as analysed by Ms Wright, which represented approximately 84.5% of the identified customer receipts of Ceylon.

ATC 11776

189. That evidence demonstrates the following supply chain payment circle which was not disputed by the applicant:
  • (a) the applicant made payments to Majid Group entities for supplies of gold [at GST-informed prices as they were taxable supplies of scrap gold];
  • (b) the Majid Group entities made payments to Ceylon for supplies of gold bullion which were exempt from GST as they were input taxed supplies; and
  • (c) Ceylon made payments to ABC NSW for gold bullion which were exempt from GST as they were input taxed supplies.

190. Payments from the applicant to the Majid Group entities and payments by the Majid Group entities to Ceylon occurred on an almost daily basis and were, in most cases, the main activity on each Majid Group entity's bank account. An example of regular, similar and substantially matching supplies to the applicant and acquisitions from Ceylon via a Majid Group entity is shown in the bank statement of Najaf covering the period from 15 March 2013 to 20 April 2013, when read together with tax invoices prepared by Najaf and bank statements of the applicant. Those documents record for 25 March 2013 the following transactions:

  • (a) a tax invoice of Najaf addressed to the applicant for $102,572.83;
  • (b) a transfer of $102,572.83 by the applicant to Najaf's account;
  • (c) a credit to Najaf's account in the amount of $102,572.83, which amount was paid by the applicant;
  • (c) a withdrawal from Najaf's account in the amount of $96,012.00; and
  • (d) a deposit to the Ceylon account in the amount of $96,012.00.

191. … [There were] similar examples for Najaf for other days, as well as… examples for other Majid Group entities… [T]he patterns were relevantly the same. That is, they involved regular, substantially matching (at least as to value and quantity), supplies of scrap gold to the applicant and acquisitions from Ceylon, via a Majid Group entity, recorded in the same kinds of documentary records…

192. … [The Commissioner] submitted that the invoicing by the Majid Group entities… did not match the receipt of the gold as recorded in the applicant's job sheets and its metal movement account… [The] discrepancies between the applicant's invoices for, and its records of receipts of, metal from the Majid Group entities, include[ed] the following:

  • (a) all of the invoices rendered by Elmas in the week beginning 5 August 2013 total exactly 15,000 grams;
  • (b) all of the invoices rendered by Menas in the week beginning 5 August 2013 total exactly 9,000 grams;
  • (c) all the invoices for Najaf in the week beginning 5 August 2013 total exactly 15,000 grams;
  • (d) the three invoices rendered by Elmas, Menas and Najaf on 7 August 2013 total exactly 9,000 grams of gold;
  • (e) in contrast, the applicant's job sheet for the same date (7 August 2013) does not record separate weights for each of the Majid Group entities; and
  • (f) the same pattern of individual Majid Group entities' deliveries adding to round totals occurred on each day set out in the aide mémoire.

193. Ms Wright observed in the First Report that invoices for the purchases from the Majid Group entities did not comprise weights in round numbers, but there were instances where invoices from the Majid Group entities dated with consecutive days are grouped together, and the grouped total weights are in round number quantities. Ms Wright stated:

  • (a) this occurred across 309 invoices (totalling 812,000 grams);
  • (b) when considered in 'groups of days' (consecutive or up to four days), there are 72 occasions where the total across all entities equates to round number volumes. For example, five transactions with Elmas between 23 September and 27 September 2013 are for amounts of gold between 3,003.90 and

    ATC 11777

    4,001.60 grams, but when considered together, the total gold sold to the applicant in this period is 17,000 grams.

194. Mr Laurence Bell, an accountant with more than 40 years' experience, who was the inventory manager of the applicant from 1 November 2012, gave evidence on behalf of the applicant about how he dealt with deliveries of metal. He said his responsibilities during the Relevant Period included receiving all incoming metal and giving it a description, weighing the metal, recording the weights on the refining job sheet and maintaining the register of incoming jobs and pure metal stock after refining. However, Mr Bell was unable to explain under cross-examination the discrepancies (and coincidences) in the tax invoices issued by the Majid Group entities as regards the deliveries of refining material to the applicant. For example, Mr Bell was unable to… explain why the invoices across the Majid Group entities for a single day added up to a round number, and the invoices for a single Majid Group entity across a week also added up to a round number.

195. Mr Bell's evidence of his procedure for measuring deliveries of gold from the Majid Group entities was additionally somewhat confusing… In his affidavit, he said that although the jobs came from different companies, he would often only record only one of the companies rather than writing out the name of every company. It was unclear… how he was then able to separately weigh and record the weights of gold delivered by each of the entities making up the Majid Group. Mr Bell then said any "split" of the materials delivered by the Majid Group entities was not his responsibility but that of the applicant's accounts department. Mr Bell also said he recorded the weights of gold deliveries on handwritten sheets but none were produced by the applicant in relation to the Majid Group. Additionally, no-one from the applicant's accounts department who might have been responsible for paying the invoices gave evidence to explain the anomalies or to explain the processes which occurred after Mr Bell had taken receipt of the metal. Mr Bell's explanation that he accumulated material received from various Majid Group entities before processing them as a single job also failed to clarify the situation…

196. The following evidence given on behalf of the Commissioner by persons trading as the Majid group entities, including Mrs Wafa Zamil, Mr Mazin Mahdi and Mr Mithaq Nahid as to the supply chain and payment cycle was unchallenged (except generally as to its relevance) and provides some insights as to the machinations of Mr Faraj and the Majid Group entities:

  • (a) at Mr Faraj's direction Mrs Zamil, a co-owner of the business trading as Blue Heaven, transferred money which had been transferred into Blue Heaven's account into another account;
  • (b) Mr Faraj then required Mrs Zamil to sign and stamp with the name "Blue Heaven" blank tax invoices which contained no details of the date of the invoice, the addressee of the invoice; or the description of the goods the subject of the invoice;
  • (c) Blue Heaven never purchased gold bullion bars from Ceylon (although it occasionally purchased amounts of gold not exceeding 100g), despite the existence of receipts issued by Ceylon to Blue Heaven for the exchange of Australian dollars in gold;
  • (d) neither Mrs Zamil nor her husband, Mr Mahdi, the other co-owner of Blue Heaven, has met any person from the applicant, nor have they bought from or sold gold to the applicant;
  • (e) Mr Nahid, the owner of the business trading as Sahara Jewellery, was offered an opportunity by Mr Faraj to retain an amount of between $3,000 and $3,500 per transfer of money from the account of Sahara to an account as directed by Mr Faraj;
  • (f) on three occasions, Mr Faraj asked Mr Nahid to deposit moneys into an account number which he wrote on a piece of

    ATC 11778

    paper for Mr Nahid, and which was that of Ceylon;
  • (g) despite the existence of invoices purporting to show supplies of gold bullion bars by Ceylon to Sahara, Mr Nahid did not purchase or receive any deliveries of such bars from Ceylon; and
  • (h) Mr Faraj required Mr Nahid to sign and stamp the name "Sahara Jewellery" on blank tax invoices which he told Mr Nahid he would fill out later.

197. The evidence outlined above leads… to the conclusion [that] Mr Faraj was taking delivery of investment-grade bullion from Ceylon, then altering or defacing the bullion and on-selling it to the applicant, on behalf of the Majid Group, as scrap gold. The interposition of the Majid Group was a façade to conceal [steps that might reveal gold flows] between ABC NSW, Ceylon, and the applicant…[T]he Majid Group did not remit GST to the Commissioner in respect of the taxable supplies of scrap gold made to the applicant and so were 'missing traders' in the… [flow of gold]… [F]ollowing the execution of the abovementioned AFP search warrants, various entities in the Majid Group were assessed for GST net amounts in respect of transactions during the Relevant Period. The total of the GST shortfalls for the Majid Group was $32,273,306. Mr Cochineas specifically deals with the Blue Heaven business in his affidavit and said that when the applicant became aware Blue Heaven's proprietors (which included Mrs Zamil) were not registered for GST, the applicant procured the return of the GST component of the price… Mrs Zamil's evidence is still relevant as it explains the related arrangements, especially the fact of Mr Faraj being the conduit between jewellers and the applicant…

…

199. … [The evidence shows that] precious metal had been deliberately damaged or defaced so as to be supplied (at least to some extent) by the Majid Group as taxable supplies of scrap gold to the applicant for refining. The applicant then sold the precious metal to ABC NSW which, in turn, sold precious metal to Ceylon. The same gold, or at least some of it, after being altered was passed through the various Majid Group entities via Mr Faraj, to the applicant to be recycled.

200. … [T]he Commissioner issued most of the Majid Group entities with assessments for GST net amounts in respect of transactions they entered into during the Relevant Period and some had been issued with assessments for transactions entered into after the Relevant Period. Furthermore, most of the corporate entities in the Majid Group were placed into liquidation and some of the individuals were bankrupted.

201. Although Mr Cochineas acknowledged having spoken to Mr Faraj about the proceedings, [without explanation] the applicant did not call Mr Faraj to give evidence… The unexplained omission,… prevents [the Tribunal from making the positive finding sought by the applicant that it was unaware of activities of entities that supplied it with Refining Materials.].

Gold Buyers

202. … Australian Gold Buyers International Pty Ltd ( Gold Buyers ) which, according to Mr Cochineas, was a company operated by Rami Askary, a bullion and scrap dealer based in New South Wales. Mr Cochineas stated that Gold Buyers utilised the services of Mr Faraj, who played a similar role to the one he played on behalf of the Majid Group entities. Mr Faraj negotiated prices on behalf of Gold Buyers with Mr Cochineas and delivered scrap gold on behalf of Gold Buyers to the applicant for refining.

203. Mr Cochineas deposed that during the Relevant Period neither he nor the applicant or any of its management was aware of the source of scrap gold presented by Mr Faraj on behalf of Gold Buyers. He said he was aware Gold Buyers bought precious metal from ABC NSW but this did not surprise him because as a bullion dealer Gold Buyers bought precious metal to resell to its customers.

204. Mr Cochineas deposed that during the Relevant Period, he was not aware of the

ATC 11779

exact volume or value of purchases of precious metal acquired from ABC NSW because, amongst other things, he did not have access to ABC NSW's computer system. He also said that given Gold Buyers had advised ABC NSW it was both a bullion dealer and a scrap metal dealer, the fact ABC NSW had referred Gold Buyers to the applicant as a refining client did not strike him as unusual. The introduction is referenced in an email which Ms Kim Ronaldson sent to Mr Cochineas and Ms Simpson dated 15 July 2013 where she states "I am going to need as much as I can get from [the applicant] to supply IPJ, Ceylon and Gold Buyers. Actually Rami (Gold Buyers) called today and asked for your contact details - they will be taking up to 25 bars per day." In a separate internal email dated 9 August 2013, Ms Ronaldson advised "Rami [Askary] has also advised us and Phil [Cochineas] that he is going to be ramping up his orders in September, potentially an additional 100kgs per week there too". These email exchanges show that… Mr Cochineas [had some knowledge of prospective demand for] investment-grade bullion acquired [from] Gold Buyers from ABC NSW… [and that] Gold Buyers was an important client of ABC NSW, along with the IPJ Group and Ceylon…

205. The evidence reveals a pattern of trading between Gold Buyers and the applicant and Gold Buyers and Ceylon according to which, on the same day, the applicant acquired metal from Gold Buyers and Ceylon made a sale to Gold Buyers. The pattern is evident in the bank statement of Gold Buyers covering the period from 28 February 2013 to 28 March 2013 when read together with receipts created by Ceylon, and with bank statements of Ceylon. For example, those categories of documents record the following occurring on 25 March 2013:

  • (a) a tax invoice of Gold Buyers was addressed to the applicant for $106,675.75;
  • (b) a transfer of $106,675.75 was made by the applicant to Gold Buyers' bank account;
  • (c) a payment was made by Gold Buyers to Ceylon in the amount of $99,852.00; and
  • (d) a receipt was created by Ceylon to Gold Buyers for the sale of gold in the amount of $99,852.00.

207. The Commissioner had issued Gold Buyers with assessments for GST net amounts in respect of transactions it entered into during the Relevant Period. It had been placed into liquidation in June 2013 even though documents record it was still making sales in August 2013.

208. … [T]he applicant did not ask Mr Faraj to give evidence or explain why his evidence was unavailable… The same observation can be made about the applicant's failure to call Mr Askary…

MAK

209. [MAK was the] largest supplier to the applicant during the Relevant Period… [MAK] had been incorporated in January 2013. MAK was a bullion dealer and scrap metal dealer with offices in Melbourne and Brisbane. MAK's sole director and shareholder was Mr Michael Kukulka. Prior to the incorporation of MAK, Mr Kukulka traded under the name "Cash for Old Gold". [In the Relevant Period] MAK supplied the applicant with approximately 30% of its scrap gold, equivalent to $459,357,055 worth of scrap gold.

210. … Mr Kukulka, through MAK, acted as an intermediary between the applicant and the late Robert Bourke (or his company, Your Privacy Policy Pty Ltd - YPP) and Rocco Calabrese (or his company, United Soul Holdings Pty Ltd - USH).

211. Mr Cochineas was aware [of two sources of Refining Materials]… referred to as 'the golden goose['] because the blobs of gold resembled goose eggs… [and] 'Rocco jobs', [the former being sourced from Mr Bourke and the latter Mr Calabrese.]… Mr Cochineas asserted that he did not know the identity of Mr Bourke because Mr Kukulka did not want to be "cut out of a deal". That explanation [does not reconcile with] where Mr Cochineas [being] aware Mr Kukulka was dealing with Mr Calabrese (whom Mr Cochineas had met during

ATC 11780

the Relevant Period), yet Mr Cochineas did not seek to cut Mr Kukulka out of his dealings with him… Mr Cochineas acknowledged he knew Mr Calabrese had a criminal record.

212. … Mr Kukulka and his company, MAK, acted as an intermediary or conduit between Mr Bourke/YPP and the applicant and Mr Calabrese/USH and the applicant… Mr Kukulka inserted himself and his company, MAK, into the supply chains and that this suited all parties to the arrangement… [T]he applicant paid MAK what MAK paid to each of Mr Bourke/YPP and Mr Calabrese/USH plus a margin of $1,000 per kilogram of fine gold. MAK would issue a separate invoice for the $1,000 per kilogram supplied to the applicant. Additionally, the applicant had agreed favourable trading terms with MAK, such that it generally paid advances to MAK for the scrap material when the material was in the possession of the applicant or MAK, enabling the large volume of acquisitions to occur. This enabled the arrangements to run more efficiently as Mr Kukulka/MAK had the financial backing of the applicant to make the acquisitions of scrap gold.

213. Mr Bourke/YPP, based in Brisbane, was the main source of refining material to MAK. Mr Cochineas confirmed the products received from Mr Bourke (i.e. the goose eggs) looked like they had been melted in an uncontrolled environment as they were contaminated with large amounts of non-metallic impurities. Mr Cochineas also confirmed 'the Rocco jobs', being the scrap gold sourced from Mr Calabrese, based in Melbourne, consisted of melted bars or defaced or sweated or cut precious metal. Mr Cochineas did not offer any explanation as to his understanding of the source of the scrap acquired via Mr Kukulka or MAK… However, Mr Cochineas knew the applicant supplied Ainslie with approximately 60% of its precious metal requirements. Mr Cochineas maintained that during the Relevant Period, he was not aware Mr Bourke and/or YPP bought precious metal from Ainslie because Ainslie was and remains a company wholly unrelated to the applicant or any of its associates.

214. … [T]he unchallenged affidavit evidence of Glenn Nugent and Malcolm Gray, two jewellers who provided affidavit evidence on behalf of the Commissioner, is that they melted pure gold hallmarked bars (including Ainslie bars) into blobs weighing 1kg each for Mr Bourke. At first, they delivered the gold back to Mr Bourke but, from around July 2013, they started making deliveries directly to MAK's premises. The deliveries started out at around 40kg at a time and grew to between 50kg and 80kg by November 2013. About 10% to 20% of gold in any delivery was made of melted bars and the remainder consisted of unmelted 1kg bullion bars. This evidence is consistent with that of Jacqueline McLean who was formerly employed by MAK in its office.

215. Ms McLean gave affidavit evidence on behalf of the Commissioner as well as oral evidence at the hearing about deliveries she received from Mr Bourke consisting of blobs and 1kg bullion bars that were occasionally not melted, cut or defaced. Ms McLean deposed that representatives of the applicant would then collect the material in that form… [This evidence does not align perfectly with] that of Libby Pemberton (a former employee of AGS Metals) who gave both affidavit and oral evidence on behalf of the applicant insisting, in the first instance, that the bars were always cut. Ms Pemberton later clarified to us that by "cut" she meant "maybe a wee bit of a corner taken or shaved at the side, not always cut down the middle" and, in her second affidavit, she also stated "the bars were damaged in some way, including but not limited to cuts and torch marks". [No criticism is made] of Ms Pemberton because, on her own admission, when asked questions by counsel for the Commissioner about particular documents in cross-examination, she acknowledged she could not remember whether the documents were complete, as it was "a long time ago"…

216. Nikos Kavalis, a director and co-founder of a precious metals consultancy firm based in London, provided an expert

ATC 11781

report on behalf of the applicant in relation to the global market for gold with a particular focus on the market for secondary materials… [I]n summary, [that evidence] was that refineries play an essential role in the secondary market. They aggregated the secondary material, assayed its purity, upgraded it where necessary, and provide participants in the industry with gold of confirmed metallic purity in a recognisable form. Mr Kavalis also gave oral evidence about cut bars and… confirmed… that altering investment-grade bullion, such as virgin bars, does not make any commercial sense and immediately reduces their value because they can only be sold at 'spot minus' rather than 'spot plus a premium'…

217. As already noted, Mr Cochineas deposed that "all clients" of the applicant were subject to the applicant's account opening procedures described in [165] above, suggesting MAK completed the refining application form which contains declarations in respect of the source of the material supplied. None of these documents were produced by the applicant. Rather, the applicant produced a client trading account application form and a recipient created tax invoice agreement for MAK, each of which contained only basic information about the entity… Also, the applicant did not produce any due diligence records relating to Mr Kukulka when he initially traded under the business name 'Cash for Old Gold' before MAK was incorporated.

219. The Commissioner submitted the following set of transactions that occurred on 25 and 26 February 2013 are an example of what occurred during the Relevant Period:

  • (a) on 25 February 2013, Ainslie sold Mr Bourke seven 1-kilo bars and, on a separate receipt, three 1-kilo bars, five 20-ounce bars, and five 10-ounce bars;
  • (b) on 26 February 2013, YPP sold 14,666.44 grams of gold of 99.99% fineness to MAK. (That weight is identical to the weight of what is recorded as having been sold by Ainslie to Mr Bourke);
  • (c) on 26 February 2013, AGS Metals, as agent for [the applicant], received gold bars in precisely the same weights and quantities identified above;
  • (d) on 28 February 2013, the applicant issued a recipient created tax invoice for the acquisition of 14,664.97 grams from MAK. The amount of 14,665.97 grams equals 99.99 per cent of what AGS Metals recorded as having received. Mr Cochineas agreed the likely reason for the difference between the amount received and the amount recorded in the recipient created tax invoice of 14,664.97 grams is that the applicant acquired from MAK 99.99 per cent of the gold it had received. The invoice records the acquisition of "Melted Bars".

220. The purchases made by the applicant from MAK on 26 February 2013 total approximately [$1,600,000]. . That total is characteristic of the large purchases made by the applicant from MAK on a regular basis. For example, a purchase exceeding $3,500,000 was made on 27 June 2013 and a purchase of $5.3 million was made on 28 June 2013. Although Mr Cochineas would not concede such volumes of trading were typical between MAK and the applicant, Mr Cochineas agreed MAK was the applicant's largest supplier. Furthermore, Ms Wright's First Report confirmed that virtually all of the gold the applicant acquired from MAK was of 99.99% fineness…[Ms Wright's Third Report concluded that 91.08% of gold purchased from MAK was confirmed to be in Fine Gold form and possibly 99.43% of gold purchased from MAK was possibly in Fine Gold form]. A review of the applicant's GST detail ledgers discloses the [large sums paid to MAK from which it can be inferred that the applicant acquired] enormous quantities of material ... from MAK …[at times on sequential days] up until the abovementioned execution of the search warrants on 29 October 2013. Mr Cochineas deposed that following the execution of the abovementioned warrants, the applicant sought a written declaration from MAK that it was GST compliant. MAK duly

ATC 11782

signed that declaration and the applicant continued to do business with MAK.

221. Subsequently, the Commissioner assessed MAK for GST net amounts in respect of transactions it entered into during the Relevant Period. The total of the GST shortfalls for MAK was $17,735,043 and, on 2 December 2016, MAK was placed into liquidation. Additionally, the Commissioner relevantly issued assessments to YPP and to USH for GST shortfalls in the amounts of $16,380,652 and $9,221,483 respectively, and neither of those entities lodged objections to those assessments.

222. There were…irregularities in the documents concerning the acquisitions made by the applicant from MAK. For example,… recipient created tax invoices created by the applicant for the acquisitions of gold from MAK record a 'weight received' and a 'weight after sampling' that exceed the weight received as recorded on the applicant's job sheets for the same transactions. Neither Mr Lowden nor Mr Bell, whose responsibilities included receiving, weighing and recording metal received on the job sheets, could explain how this discrepancy arose. Separately,… recipient created tax invoices created by the applicant do not reconcile with the records of the material the applicant received from MAK. For example, none refers to the supply of "blobs", rather they generally refer to "bars" or "melted bars". The Commissioner invited the Tribunal to infer the representations in the recipient created tax invoices as to what was supplied had been fabricated and that, in issuing the recipient created tax invoices to MAK, the applicant had co-operated with MAK in generating a paper trail that disguised the nature of the material MAK was supplying…

223. … [The evidence suggests that] Mr Bourke/YPP and Mr Calabrese/USH were acquiring investment-grade bullion which they or Mr Kukulka melted, cut or defaced in order that, through MAK, some of it could be sold to the applicant as taxable supplies of Refining Materials]…

Further Findings regarding Division 165 Supplying Entities

224. …[T]he applicant was aware these suppliers were acquiring investment-grade bullion from… its related entity, ABC NSW…

(Emphasis in extracts reflects use in the First Tribunal Decision)

Ms Wright's evidence and findings related to that evidence

65. The Commissioner relies significantly on an expert forensic analysis of vast quantities of financial and business records undertaken under the supervision and direction of Ms Dawna Wright. Ms Wright is an established forensic accounting expert who was provided with the background to the present dispute[47] Report of Dawna Wright dated 13 March 2018 (“Wright Report”), [1.3.1]. by the AGS[48] Australian Government Solicitor. and was instructed to "…conduct a forensic analysis of various transactions and other documents related to the 2013 calendar year…" (which she described as the Relevant Period for the purposes of her report[49] Wright Report, [1.3.6] and Appendix 1. ). Ms Wright was aware that the ATO had disallowed certain ITCs that the Applicant claimed for supplies of Refining Materials during the Relevant Period from 1 February 2012 to 30 June 2014 which she described as the Relevant Tax Periods.[50] Wright Report, [1.3.5]. As noted by the First Tribunal:

136. Ms Wright produced three expert reports dated 13 March 2018, 28 March 2018, and 21 September 2018. Amongst other matters, Ms Wright was initially instructed by the Commissioner to comment on the volume of fine gold (gold with at least 99.99% fineness) received by the applicant during the 2013 calendar year and to identify the quantity of gold received from certain entities which she referred to as Intermediaries and Supplying Intermediaries and which, relevantly for the proceedings, included the Division 165 Supplying Entities. Ms Wright was specifically asked to review the documents and identify sources of gold supplied to the applicant by reference to the various supply chains involving the Intermediaries and the Supplying Intermediaries, of which the Division 165 Supplying Entities were a subset.

ATC 11783

137. Ms Wright was provided with approximately 44,000 documents including bank statements, invoices, job sheets recording the receipt of refining material by the applicant, GST ledgers and other records of the applicant as well as some records of other entities…

66. In a general assessment of her evidence, the First Tribunal said of Ms Wright:

138. Ms Wright was extensively cross-examined … Ms Wright's reports [can be accepted as] reliable, comprehensive and based on careful analysis… Ms Wright['s evidence and report reveal that she undertook] objective and detailed forensic analysis of the data, [and reached] conclusions based on the empirical data. She expressly refrained from adopting any views about the transactions or opinions about compliance with the GST Act. She also made appropriate concessions, including when cross-examined about her observations regarding the very high correlation between sales in certain supply chains. She accepted she had not sought to identify any correlation for purchases from different entities besides the applicant and, further, that the correlations reveal only that the volumes are moving in the same direction, but that the correlations say nothing about the actual volumes sold or whether the same gold was sold [in a later transaction]. Ms Wright also readily conceded there were gaps and inconsistencies in the documents she was required to review which, of course, made her task more difficult….

67. Those comments and that assessment are adopted.

68. A significant part of the work asked of Ms Wright concerned an analysis of sales of gold products through what are described as six supply chains, namely:[51] The descriptions of the supply chains adopted in these reasons is more stepped out than the descriptions in the instructions to Ms Wright, and in descriptions elsewhere. This approach has been adopted because it conforms to what the evidence reveals with less ambiguity than the descriptions in Ms Wright’s instructions.

69. Ms Wright was asked:

33 We request that you review the documents provided to you and prepare a report answering the following questions.

  • (a) What volume of fine gold was received by [the applicant] during the 2013 calendar year? When answering this question, please
    • (i) identify the quantity of gold received from any of the Intermediaries and Supplying Intermediaries identified above; and
    • (ii) exclude from your analysis any entities identified as national jewellery retailers in market data, such as IBIS World market research reports and analysis, and any entities with names containing references to "jewel" or "jeweller" but which are not identified by the Commissioner as Intermediaries, Supplying Intermediaries or as being associated with [the applicant].
  • (b) What (if any) features, trends or discrepancies are observable from the documents recording the supply to [the applicant] of gold by the Intermediaries and Supplying Intermediaries identified above?
  • (c) What (if any) features, trends or discrepancies are observable from bank statements reflecting payments made for the gold supplied to [the applicant] by the Intermediaries and Supplying Intermediaries identified above?
  • (d) Did any of the Refining Job Sheets with-which you have been provided record the receipt of branded gold bullion bars? If so, please identify those receipts by the supplier of the bars, and by NOS or ATO document number.
  • (e) To what extent (if at all) do the documents listed in Appendix 3 evidence, record or suggest the sale of gold between the following entities:
    • (i) [the applicant] to Ainslie to YPP to MAK to [the applicant] (Ainslie/MAK Supply Chain);
    • (ii) [the applicant] to ABC (NSW) to Ceylon to Majid Group to [the applicant] (Majid Supply Chain)

      ATC 11784

    • (iii) [the applicant] to ABC (NSW) to ABC (A) to United Soul to MAK to [the applicant] (USH/MAK Supply Chain);
    • (iv) [the applicant] to ABC (NSW) to IPJ Group to [the applicant] (IPJ Group Supply Chain);
    • (v) [the applicant] to ABC (NSW) to Gold Buyers to [the applicant] (Gold Buyers Supply Chain);
    • (vi) [the applicant] to ABC (NSW) to Ceylon to Gold Buyers (Ceylon/Gold Buyers Supply Chain).
  • (f) What (if any) common features or trends are observable in relation to any supplies of gold and/or payments of cash between the entities referred to in question (e)?
  • (g) Please comment on any aspect of each of the affidavits comprising Appendix 4 to this letter which you consider to be relevant to any of the questions we have asked you to answer.

70. In two supplementary instructions, Ms Wright was asked:

71. Ms Wright was instructed that according to records available to the Commissioner there appeared to be a number of gold supply chains and an alleged flow of gold that she depicted in the form of Diagram 1 below:

ATC 11785


72. Ms Wright described the supply chains individually in similar terms. By way of example, she describes the Ainslie/MAK supply chain as the flow of gold between the following companies:


73.

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The Tribunal understands these descriptions to mean gold movements between the named companies. Ms Wright accepts that her report does not identify whether gold movements between various entities were movements of the same gold and if they were to what extent.

74. To undertake her analysis Ms Wright had regard to:

75. Ms Wright acknowledged that she did not have access to "general ledgers or other accounting information of the Supply Chain Parties to analyse the nature of purchases, or the proportion of any purchases made from other Supply Chain Parties",[61] Wright Report, [8.4.9]. and she acknowledged the limitations[62] Wright Report, [8.5.1]. in her report in the following terms:

76. In addressing the first question asked of her, the quantity of fine gold received by the applicant, Ms Wright was of the opinion "that there [was] insufficient and incomplete information… to rely only on the assays recorded [by the applicant] to quantify fine gold received by [the applicant] in 2013. As a result, [Ms Wright] assessed the quantity of fine gold received by [the applicant] by analysing each transaction to identify the presence of certain product attributes… indicative of the receipt of fine gold by [the applicant]."[63] Wright Report, [2.2.8]. Ms Wright concluded that there were three categories of acquisitions, namely gold purchased in fine gold form, gold purchased possibly in fine gold form, and gold content purchased in non-fine gold form.[64] Wright Report, [2.2.9].

77. In preparing her first report Ms Wright assumed[65] Wright Report, [3.7.2 (a)] and Third Wright Report, [3.1.3].

that assays recorded in Outturn Records, Refining Job Sheets and Invoices reflect the fineness of gold purchased by [the applicant].

following which Ms Wright was instructed[66] Third Wright Report, [3.1.4]. that

the tax invoices evidence quantities of fine gold purchased, they do not necessarily, by themselves, evidence the fine gold content of what was received … [and to] … recalculate tables 1 and 2 of [her] First Report on the basis that, whilst the invoices evidence what was purchased, they do not, by themselves, evidence what was received.

78. After the instruction that her assumption was incorrect, Ms Wright revisited her

ATC 11787

conclusions and revised them. Her revised conclusions as to estimates of the applicant's gold receipts were that:

79. The Intermediaries and Supplying Intermediaries group included the Division 165 Supplying Entities.

80. Mr Cochineas's own calculations show 99.5% of the Refining Material received by the applicant from the Relevant Suppliers, which included the Division 165 Supplying Entities, was of 99.99% fineness.

81. Ms Wright tabulated the results of her analysis as set out in tables 7 and 8.[68] Third Wright Report, p 8, Recalculated Tables 1 and 2. The 19,159,397 grams received from Intermediaries and Supplying Intermediaries, referred to in (d) is as found by Ms Wright. The Tribunal assumes this is an error.


Table 7
Volume of gold received by the applicant during 2013
Intermediary Total Non-Intermediary Total Total
1. Gold received in Fine Gold form
9999 15,363,078 239,263 15,602,342
FG Granules 310,994 1,475 312,469
FG in receipts 1,607,222 135,626 1,742,848
Round numbers 124,700 217,000 341,700
Total gold received in Fine Gold form 17,405,994 593,365 17,999,359
% of total gold purchased in Fine Gold form of total grams 90.86% 29.31% 84.97%
2. Grams of gold received, possibly in Fine Gold form
FG Granules - invoice only 272,982 - 272,982
To stock 126,433 6,436 132,869
Expected FG (Job Sheets) 116,048 295,310 411,358
Expected FG (Refining Receipt) 189,433 35,091 224,525
Bars 965,874 293,200 1,259,074
Total grams of gold received, possible in Fine Gold form 1,670,770 630,037 2,300,807
Subtotal of all Fine Gold form 19,076,765 1,223,402 20,300,166

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% Fine Gold received of total grams		 99.58% 60.42% 95.84%
3. Gold content received in non-Fine Gold form
Less than 9999 15,948 639,930 655,878
Remaining ... 64,688 161,427 226,115
 
Total gold content received in non-Fine Gold form 80,635 801,358 881,993
% gold content received in non-Fine Gold form 0.42% 39.58% 4.16%
Total grams of gold received 19,157,400 2,024,759 21,182,159

ATC 11789


Table 8
Volume of gold received by the applicant during 2013
MAK Goldb'gh IPJ Group Focus Majid Group Gold Buyers GMA Intermediary Total
1. Gold received in Fine Gold form
9999 6,641,501 4,178,445 2,338,016 1,330,931 677,193 52,006 144,986 15,363,078
FG Granules - - - 310,994 - - - 310,994
FG in receipts 456,410 457,098 215,601 - 458,127 9,985 10,000 1,607,222
Round numbers - 1,700 - - 91,000 - 32,000 124,700
Total gold received in Fine Gold form 7,097,911 4,637,243 2,553,618 1,641,925 1,226,320 61,991 186,986 17,405,994
% of total gold purchased in Fine Gold form of total grams 91.08% 87.26% 96.69% 91.73% 99.49% 31.07% 100.00% 90.86%
2. Grams of gold received, possibly in Fine Gold form
FG Granules - invoice only - - - 148,000 - 124,982 - 272,982
To stock 48,353 69,698 - - - 8,382 - 126,433
Expected FG (Job Sheets) 46,209 16,729 53,111 - - - - 116,048
Expected FG (Refining Receipt) 35,495 151,763   - - 2,175 - 189,433
Bars 520,916 429,831 12,829 122 2,176 - - 965,874
Total grams of gold received, possible in Fine Gold form 650,973 668,021 65,939 148,122 2,176 135,539 0 1,670,770
Subtotal of all Fine Gold form 7,748,884 5,305,264 2,619,557 1,790,047 1,228,496 197,530 186,986 19,076,765

ATC 11790

% Fine Gold received of total grams		 99.43% 99.83% 99.19% 100.00% 99.66% 99.00% 100.00% 99.58%
3. Gold content received in non-Fine Gold form
Less than 9999 3,905 4,744 3,144 - 4,155 - - 15,948
Remaining … 40,173 4,172 18,346 - - 1,997 - 64,688
                 
Total gold content received in non-Fine Gold form 44,078 8,916 21,490 0 4,155 1,997 0 80,635
% gold content received in non-Fine Gold form 0.57% 0.17% 0.81% 0.00% 0.34% 1.00% 0.00% 0.42%
Total grams of gold received 7,792,962 5,314,180 2,641,047 1,790,047 1,232,651 199,527 186,986 19,157,400

82.

ATC 11791

Notable conclusions reached by Ms Wright were that:

IPJ Group

83. For the IPJ Group Ms Wright concluded that for the 2013 calendar year:

Gold Buyers

84. Gold Buyers had at least two acquisition pathways reflected in the diagram at [71] above, namely ABC NSW and Ceylon. In the 2013 calendar year, Gold Buyers:

85. The amounts paid to ABC NSW and Ceylon were small proportions of the amounts paid by Ceylon to ABC NSW and by ABC NSW to the applicant for gold purchases.[83] Wright Report, [14.5.3] Figure 57 and [13.5.4] Figure 51. Ceylon was also a supplier to Majid and Ms Wright estimates in her analyses of both the Gold Buyers and Majid supply chains that Ceylon paid $41m to ABC NSW for gold purchases.[84] Wright Report, [11.5.2] Figure 41 and [14.5.3] Figure 57. The Tribunal understands that each of the references to $41m paid by Ceylon to ABC NSW is to the same total paid by Ceylon to ABC NSW for all transactions, and that Ceylon did not pay $82m to ABC NSW.

86.

ATC 11792

For the Gold Buyers chain, Ms Wright concluded that for the 2013 calendar year:

Ceylon/Gold Buyers

87. For the Ceylon/Gold Buyers chain, Ms Wright concluded that for the 2013 calendar year:

MAK

88. For the dealings between MAK and the applicant, Ms Wright acknowledged that the records she examined were likely to be incomplete as there were material differences between bank record receipts by MAK from the applicant and bank records of payments by the applicant to MAK.[94] Wright Report, [9.6.2(b)]. Ms Wright observed $273m of receipts from the applicant in 2013, but identified approximately $383m payments to MAK in the applicant’s bank accounts. Nevertheless, she concluded that for the 2013 calendar year:

89. For the USH/MAK chain, Ms Wright concluded that for the 2013 calendar year:

90. For the Ainslie/MAK supply chain, Ms Wright recognised records deficiencies and gaps, namely that:

Majid

91. For the Majid chain Ms Wright acknowledged a weakness or limitation in her analysis due to a mismatch in bank records with Majid Group bank accounts showing $57m of receipts from the applicant in 2013 whereas the applicant's bank accounts showed approximately $74m of payments to the Majid Group,[118] Wright Report [11.6.2]. yet concluded that for the 2013 calendar year:

92. Whether the conclusion in [91(h)] can be endorsed requires a linkage between Ceylon and ABC NSW. As noted at [91 (b) and (c)] it can be accepted that there was a strong correlation between supplies of Refining Materials to the applicant and Majid group entities purchasing gold from Ceylon. However, Ms Wright's conclusion also requires a corresponding link between Ceylon and ABC NSW and the volumes as noted at [91(b)] above mean that Ceylon sourced only 50.4% of its gold from ABC NSW. It is clear that the gold Majid entities sold to the applicant must have contained some gold originally refined by the applicant but the extent of it is not known. What is known is that it could not have all been so sourced.

93. In her second report, Ms Wright plotted the correlation between gold price and the applicant's acquisitions of Refining Materials in a table reproduced below.


94. Two significant but related issues emerged from the parties' submissions concerning factual findings.

95. As the Full Court indicated,[131] ACN 154 520 199 Pty Ltd (in liquidation) v Federal Commissioner of Taxation [2020] FCAFC 190 , [204]. there is no necessary inconsistency between a finding of sophisticated co-ordination and lack of knowledge of the fraud. The Commissioner

ATC 11795

came to express the matter in terms that the issue raised is whether and to what extent the applicant was an informed participant in arrangements that included sale of gold to the applicant that had been deliberately de-valued by adulteration of bullions bars. Such facts, if they were found, would not supplant the tests to be applied which are addressed below. For the reasons which follow, the Tribunal does not consider that findings on these matters are determinative of the issue before the Tribunal.

Was the applicant an informed participant in arrangements that included sale of deliberately-defaced bullion to the applicant?

96. In summary, on the basis of the evidence before it, the Tribunal is not prepared to make positive findings that the applicant:

97. Aside from considering it to be unnecessary for the reasons discussed below, there are several reasons for not making a positive finding that the applicant was an informed participant. Mainly, these involve consideration of the context of various factors to which the Commissioner points in support of that contention.

98. For example, the volumes of gold passing through the applicant's business were objectively substantial, which in isolation might raise the possibility of an inference that the applicant must have known the suppliers were defacing bullion to be able to supply such volumes. However, expert evidence places this consideration in the context of a huge secondary market for gold in Australia thus putting this consideration in a different light.

99. The extent to which there were in fact circular transactions involving the applicant was also unclear. The evidence on which a specific finding in that regard could be made is neither conclusive nor sufficient to draw that conclusion or make that inference.

100. Additionally, there were transactions and interactions to which the Commissioner drew attention which were said to evidence co-ordination of the activities of the suppliers, the applicant and ABC NSW. However, Mr Cochineas did not deny that he knew ABC NSW was dealing with, for example, the IPJ Group. In any case, these were individual transactions or series of transactions rather than evidence of wholesale co-operation across the Relevant Period.

101. Further, and importantly, although the Commissioner submitted to the contrary, the Tribunal considers that it was never squarely put to Mr Cochineas that the applicant was an informed participant in co-ordination of the arrangements entered into by the Division 165 Supplying Entities across the period under review. The Commissioner produced table of transcript extracts of Mr Cochineas's cross-examination which he submitted amounted to putting this assertion to Mr Cochineas.[132] As set out in Appendix 3. As discussed further below, the Tribunal does not regard these cross-examination exchanges as puttage.

102. Finally, the change in the applicant's modus operandi after the AFP raids and real-time disclosures to the Commissioner is not behaviour consistent with being an informed participant in the deceptions.

103. On the other hand, as indicated, the Tribunal is not persuaded it should make a positive finding that the applicant was not an informed participant, nor turned a blind eye, to the activities of the Division 165 Supplying Entities. The main reason for so concluding is the failure of the applicant to call Ms Simpson to give evidence. To be clear, an adverse inference is not drawn from the failure to call Ms Simpson. Rather, it is simply not possible to be satisfied there was not informed co-ordination of the kind the Commissioner alleges without hearing from Ms Simpson.

104. It will be recalled that Ms Simpson and her father owned ABC NSW and they had a half interest (indirectly) in the applicant, and that Ms Simpson was actively involved in the transactions between the applicant and ABC NSW and between ABC NSW and the Division

ATC 11796

165 Supplying Entities. It may be inferred that her evidence may have thrown light on the nature of any participation of the applicant in co-ordination of the activities of the Division 165 Supplying Entities.

105. Through her ownership interest, Ms Simpson had a clear and substantial financial interest in the activities of the applicant. She was also a director of both the applicant and ABC NSW. In the context of a dispute involving a primary tax liability of over $120m and very substantial penalties and interest, and a hearing that ran for some weeks, it is curious that the applicant did not call Ms Simpson.

106. Examination of the scale of the transactions with the IPJ group provides further context for this view regarding the failure to call Ms Simpson. In the relevant period, the IPJ Group purchased gold in precious metal form to a value of $295,682,857 from ABC NSW and sold Refining Materials to a value of $243,083,723 to the applicant. Of the acquisitions made by the applicant from the Relevant Suppliers, including IPJ Group, 99.5% of the material was out-turned by the applicant at 99.99% purity, i.e. was of 99.99% purity when purchased. This compared to a mere 9.4% of materials acquired from other suppliers turning out at that level of purity. From her dealings with the IPJ Group, Ms Simpson may have been able to shed light on the background to the extremely large value of gold passing between ABC NSW, IPJ Group and the applicant, or at least deny that was occurring in a co-ordinated way with knowledge of any bullion defacing activities within the IPJ Group and have that denial tested in cross-examination. The Tribunal did not have the benefit of her evidence in that regard.

107. It is not a complete answer, or not a sufficient answer, to this state of evidence for the applicant to point to Mr Cochineas as the person responsible for the applicant's day-to-day affairs. Ms Simpson was, after all, the link between the applicant's Relevant Suppliers, the applicant and ABC NSW. She was a director of the applicant. The relevant transactions were not merely day-to-day operational matters; they were fundamental to the applicant's operations, cashflow and profitability. They are matters a director might take an interest in, at least at a high level, and not merely defer to the managing director.

108. Nor does the absence of a specific allegation of informed participation and co-ordination by the Commissioner before the hearing improve that state of evidence. Once Division 165, including the ss 165-15(1)(a) and (b) tests, had been invoked, the need for evidence regarding the nature of the interactions between the parties to the purchases and sales of gold would have been appreciable, particularly if a positive finding is sought that there was no informed participation and co-ordination. Mr Cochineas provided detailed evidence but there were limits to his involvement with entities to whom gold in investment form was sold. Ms Simpson did not have the same limits to her involvement with those entities. Ms Simpson was well placed, perhaps best placed, to assist in that regard given her involvement in sales to the Division 165 Supplying Entities and purchases from the applicant.

109. Findings of fact are made on evidence led, and that process needs to consider the evidence led through the lens of what was, or could be expected to be, capable of being led. The positive finding sought by the applicant cannot be made given the extent of the evidence it has led.

Extent of circularity of transactions

110. A key feature to which the Commissioner points is the apparent circularity or, as the Commissioner puts, the "round robin" nature of the transactions.

111. This refers to the feature that:

112. The applicant accepts that some circular transactions of this kind probably occurred. Given the volumes acquired from the Division 165 Supplying Entities, it is possible and perhaps likely that the transaction numbers and volumes where this occurred were significant. Again, reference to the example of the IPJ Group transactions across the period, set out above, may give rise to this inference.

113. However, the applicant sold not insignificant volumes of bullion to other purchasers, especially Ainslie, and ABC NSW sold to various purchasers. The Division 165 Supplying Entities did not sell only to the applicant. Further, only 52.88% of the Refining Materials the applicant acquired during the relevant period was sourced from the Division 165 Supplying Entities.

114. The evidence does not trace particular gold through the transactions. Hence, it is not possible to determine the proportion of the applicant's gold that followed a circular path with any precision. Although the Commissioner appeared at one stage to present the case as one of "round robin" transactions, it is certainly not possible to conclude that all of the materials the applicant received from the Division 165 Supplying Entities had its origin in bullion produced by the applicant. The Tribunal understands the Commissioner to concede as much.

Significance of volume of transactions

115. The Commissioner's submissions made much of the very substantial volumes of gold acquired by the applicant from the Division 165 Supplying Entities as a basis for a submission that it was risible for the applicant to suggest it had not turned a blind eye to those entities defacing bullion. In other words, that the applicant must have at least suspected the suppliers were defacing bullion to be able to supply such large quantities of Refining Materials regularly.

116. The volumes are very substantial indeed. For example, the IPJ Group made gold sales to the applicant in the relevant period (two years and five months) totalling $243,083,723. The corresponding amounts from the Majid Group and MAK were $101,031,623 and $459,357,055 respectively.

117. However, those volumes need to be considered in context. Relevantly, unchallenged expert evidence indicated that:

118. Having regard to those and other factors, as the expert evidence confirmed, refiners play an essential role in the secondary gold market in providing peace of mind to investors. Considered in that light, the volumes acquired by the applicant are not as extraordinary as the Commissioner submits.

119. Further, the applicants' increasing turnover, and hence profits, are consistent with the applicant's strategy in entering into the joint venture with ABC NSW of moving from toll refining to a general refiner and challenging the near monopoly of the Perth Mint, and unlike the Perth Mint access Refining Materials predominantly from the secondary gold market. Similarly, co-ordination with ABC NSW with the metal account credit facility does not, in the Tribunal's view, indicate "informed participation" by the applicant in a scheme to obtain GST benefits. ABC NSW was the applicant's principal customer. The facility indicates informed participation and close co-ordination between the applicant and ABC NSW, but, without more, not in arrangements between ABC NSW and its customers.

Puttage

120. The Commissioner's Amended Statement of Facts Issues and

ATC 11798

Contentions, dated and filed 16 March 2018, did not allege that the applicant was an informed participant in arrangements co-ordinated with the Division 165 Supplying Entities. The applicant contends that this was first raised in the Commissioner's closing submissions at the First Tribunal hearing.

121. The Commissioner maintains that this was effectively put to Mr Cochineas and in that regard provided the Tribunal with a table, reproduced as Appendix 3 to these reasons, setting out transcript extracts of cross-examination questions and propositions that he says put these issues to Mr Cochineas. As the content of the table indicates, there were various occasions on which Mr Cochineas was asked whether he was surprised or whether it struck him as odd that particular transactions were occurring. However, it was never put to Mr Cochineas directly that he or the applicant were, or must have been, aware the Division 165 Supplying Entities were defacing bullion before selling it to the applicant as Refining Materials or that he knowingly participated in co-ordination of the transactions. In that regard, the reference in Appendix 3 to T154.12 includes comments to the effect that "you must have known something was going on" and the like. However, these comments were made in exchanges between the Tribunal and Counsel, importantly, in the absence of Mr Cochineas. The Tribunal finds it difficult to understand how these comments can be seen as having been put to Mr Cochineas.

Nature of the Refining Materials

122. It should not be understood that the applicant was always receiving bullion bars from the Fraudulent Suppliers that had clearly been defaced by, for example, cutting or scratching through the hallmark.

123. Mr Cochineas gave evidence that less than 3% of the applicant's acquisitions of secondary gold were in that form. Overwhelmingly, the Refining Materials received by the applicant were in the form of melted bars or blobs, rough bars or granules. Mr Cochineas gave evidence that it was common industry practice for scrap gold to be provided in this form.[135] Affidavit of Phillip George Cochineas dated 8 December 2017, [76].

124. Mr Cochineas's evidence that the majority of acquisitions were in the form of melted bars is consistent with the analysis of the applicant's records by the Commissioner's expert, Ms Dawna Wright,[136] Wright Report. For example, the analysis of MAK transactions at [6.3.4]. and the evidence already mentioned regarding the counterfeiting issues.

125. Additionally, expert evidence indicated that refining bars that purport to have a pre-existing 99.5% or 99.9% purity is to some extent a normal part of trading in and refining of gold.[137] Expert Report of Stewart Murray dated 8 December 2017, [25]-[30].

Absence of documentary evidence of the applicant's compliance checks of suppliers

126. Mr Cochineas gave evidence that the applicant required its suppliers to provide certain compliance documentation as a condition of those entities becoming suppliers to the applicant. Some of that documentation required by the applicant was not required by any regulation or regulatory authority either to be obtained or retained by the applicant.

127. The Commissioner was critical of the applicant for not producing this documentation before the Tribunal.

128. That criticism is levelled in a context where it is not in contest that the documentation was not a requirement of the system and that the supplies to the applicant by the Division 165 Supplying Entities were taxable supplies in a practical business tax system where tax invoices or recipient created tax invoices are significant. Once it is established that a supply to an entity is a taxable supply, and where, as here, a tax invoice is supplied or a recipient created tax invoice is created, there is no part of the GST law that makes the recipient's entitlement to an ITC dependent upon the activities of the supplier.

129. No adverse inference should be drawn from the applicant failing to produce documentation that it was not required by law to collect as a condition of its entitlement to ITCs. To require this would seem to skate close to suggesting a shortcoming on the part of a taxpayer for, in effect, not conducting an audit of its suppliers' affairs. The GST system, said to be a "a practical business tax" - "one that is designed, where practical, to quarantine business from the ultimate burden of the tax"[138] Saga Holidays Limited v Federal Commissioner of Taxation (2006) 156 FCR 256 , 264 [29]-[30]. - would break down if that were a burden placed on taxpayers.

Trading after the raids

130. On 13 October 2013, AFP officers accompanied by the Commissioner's officers executed a search warrant at the applicant's premises. That warrant did not concern the activities of the applicant but rather of unrelated third parties.

ATC 11799

131. The applicant continued trading after the execution of the warrant, but with a relevant change to its procedures. Thereafter, the applicant required each of its suppliers to declare that they were GST compliant. If they failed to do so, the applicant no longer dealt with them.

132. Further, and significantly, the applicant commenced providing detailed records to the Commissioner, effectively in real time in parallel with lodgment of its activity statements. That does not strike the Tribunal as conduct of a taxpayer either being involved in or aware of nefarious conduct and/or seeking to hide or disguise that involvement or awareness.

133. That the applicant was able to continue to trade at substantial levels after the Division 165 Supplying Entities ceased supplying the applicant casts doubt upon the Commissioner's assertion that the applicant's business model was dependent upon and only carried out because of the artificial market created by the scheme.

134. To the extent that continued trading depended upon the other Relevant Suppliers the Tribunal was left in an unfortunate position. The Commissioner did not provide relevant evidence in relation to all of these suppliers but emphasised in oral submissions that "nothing should be taken from the fact that [Division] 165 was applied to some of the suppliers and that there were other suppliers that are not the subject of [Division] 165 determinations".[139] Transcript of Remittal Hearing, P-386, lines 15-19 and repeated on the same page at P-386, lines 1-18.

The timing of allegations of actual or implied knowledge

135. The allegation of the applicant's implied or actual knowledge (through the agency of Mr Cochineas) was first made in closing submissions and might have some support in Ms Wright's conclusions following her forensic analysis. And its lateness may be the natural product of what informed it. The Commissioner also referred to evidence in Ms Wright's report at [6.7.15] to the effect that acquisitions from the Majid Group aggregated to round numbers. So far as it might be suggested this indicated knowledge or turning a blind eye by the applicant, the Tribunal gives little weight to this evidence. This feature was not, after all, identified by the ATO but only after detailed expert analysis; it would not be surprising if it were not identified by the applicant's staff.

136. It is one thing for a forensic expert who is:

137. It is quite another to say that people involved in the business in the moment, not tasked with looking for connections and not presented with records of transactions, should be expected to do the same. It ought not be forgotten that the Commissioner's articulation of the relevant scheme constitutes a necessary change in perception, appropriately made having regard to the expert evidence produced. That change is an example of perceptions not matching realities in relation to the very subject matter under review.

Dealing with a convicted criminal

138. As part of his attack on Mr Cochineas's credibility, and to support his assertion that the applicant was a knowing participant in the scheme, the Commissioner referred to Mr Cochineas being aware that MAK sourced gold from a person who had a criminal record. Again, at first blush that might

ATC 11800

raise a metaphorical eyebrow, but upon closer examination is more benign.

139. Mr Cochineas gave unchallenged evidence that the Australian Securities and Investments Commission has and had accepted that that person with a criminal record was a fit and proper person to be a director from 2009.[140] Transcript of First Tribunal Hearing, 3 September 2018, P-214 (Remittal Hearing Book, Volume 14, 215). In those circumstances, the Tribunal draws no adverse inference from Mr Cochineas's knowledge of the criminal record of the person connected with supplies to the applicant.

THE LEGISLATIVE SCHEME IN WHICH DIVISION 165 SITS

140. The general scheme of the GST Act is that a supply is taxable if, relevantly, it is made for consideration in the course of an enterprise carried on by a person who is registered, or is required to be registered, for GST and the supply is neither GST-free nor input taxed.[141] Section 9-5. The supplier is entitled to claim ITCs equal to the amount of GST liability that arises for the supplier in respect of taxable supplies by others to it that are creditable acquisitions.[142] Division 11. To be a creditable acquisition, the supply must be a taxable supply.[143] Section 11-5.

141. The GST system is said to be a practical business tax.[144] Saga Holidays Ltd v Federal Commissioner of Taxation (2006) 156 FCR 256 , [30]. Among other things, much reliance is placed on the provision of a tax invoice. Importantly, provided the supply is a taxable supply, the system does not call for or require a party intending to claim ITCs in calculating its periodical net amount to undertake any investigation of the legitimacy of its suppliers. While Australian taxation systems have outsourced assessment processes to the taxpaying community through self-assessment systems, they have not, at least to date, outsourced audit or investigation functions. The Commissioner's contentions directed to this topic are of little moment.

142. The general scheme is varied by Division 165 where it applies.

DIVISION 165

143. It is readily apparent that the scheme of the GST anti-avoidance provisions is very similar to the scheme of the anti-avoidance provisions in Part IVA of the 1936 Assessment Act.[145] Income Tax Assessment Act 1936 (Cth). Neither party disputes that the principles from the Part IVA authorities inform the construction of Division 165.

144. Division 165, in particular s 165-40, allows the Commissioner to make a declaration negating the benefits obtained from a scheme where the Division operates. For Division 165 to operate, it is necessary that there be a scheme, that there be a GST benefit from the scheme and that either the sole or dominant purpose of a person who entered into or carried out the scheme, or part of it, was to get or obtain the GST benefit or the principal effect of the scheme, or part of it, was that the avoider got or obtained the GST benefit.

145. The Division operates where each of the four matters specified in s 165-5(1) are satisfied. They are:

146. The present task, having regard to these matters, is to answer the question posed by s 165-5(1)(c). The parties have largely conducted the dispute on the footing that the battle ground lies in whether the requisite dominant purpose or principal effect ought to be found. That said, it is still necessary to identify the relevant

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scheme and GST benefit because without them any test of purpose or effect cannot be undertaken in the required way.

Scheme

147. The applicant does not contend that the scheme particularised at [24] above is not a scheme against which the purpose and effect tests can be considered. The applicant does say that having regard to the scheme as particularised following the Commissioner's evidence:

… it is relevant to note that the metal acquired by the Applicant was not the product of a circular flow of the "same" gold produced by the Applicant, as paragraphs (c) and (d) in the scheme recognise. Once gold from sources outside the "parties" to the "scheme" was introduced - as the Respondent's own expert evidence concedes it was - then the point can be put no higher than this: that some of the gold which the Applicant acquired may once have been gold which had once been in the form of Precious Metal sold by the Applicant or innumerable other suppliers of Precious Metal.

148. The applicant does contend that the lack of connectedness of the scheme steps assists in showing the requisite purpose or effect conclusions ought not be reached.

The GST benefit

149. Section 165-10(1) sets out the circumstances in which an entity gets a GST benefit from a scheme. Only paragraph (b) is relevant, and it is in the following terms:

(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;

150. Without apparent challenge to the existence of a GST benefit, the applicant says:

65 … it is to be noted that the Respondent does not state what, on his hypothesis, the Applicant could reasonably be expected to have done apart from the scheme, save to say that it would have not have been entitled to the input tax credits. That statement might or might not be true, depending on what might reasonably be expected to have happened if the scheme had not been entered into or carried out.

66. The Respondent's real complaint seems to be that the Applicant refined the gold from rogue suppliers at all; not that it did anything different than it usually did in refining and selling gold; nor, specifically, that it did anything to produce a different GST outcome in doing so.

151. The Tribunal does not understand these remarks are intended to be understood as a challenge to the contention that there were GST benefits.

152. Some observations are made at [223] to [226] below concerning the existence of a GST benefit, particularly in relation to the fourth part of the Relevant Period. The Tribunal's analysis of the s 165-15(1) matters to be addressed to determine relevant purposes and effects which follows has been undertaken adopting an assumption that there were GST benefits as contended for by the Commissioner for all monthly tax periods in the Relevant Period.

The purpose or effect of the scheme

153. There are two limbs to the test, one of which, at least, must be satisfied before Division 165 can apply; the sole or dominant purpose limb (s 165-5(1)(c)(i)) and the principal effect limb (s 165-5(1)(c)(ii)).

154. The matters to be taken into account in determining purpose or effect are set out in s 165-15(1) of the GST Act in the following terms:

155. The Part IVA authorities, and more recently Division 165 authorities, inform the correct purpose and effect analysis. As relevant to the present setting, they are as follows.

Division 165 and commercial transactions

156. The sales of Refining Materials by the Division 165 Supplying Entities to the applicant were transactions which changed ownership of very valuable commodities and at least in that sense can be regarded as commercial transactions. However, even if a transaction might be described as a commercial transaction, that fact, assuming it can be made out, does not, of itself, put the transaction beyond the reach of Division 165.[146] See Federal Commissioner of Taxation v Spotless Services (1996) 186 CLR 404 . Accordingly, even if the ultimate objective of the transaction is not a tax objective or the transaction producing the GST benefit also delivers a desired non-tax outcome, Division 165 may still operate. Adopting and adapting reasoning from the High Court decision in Hart, Division 165 might apply if there is enough in the way in which a transaction is entered into or carried out, viewed through the prism of the matters listed in s 165-15(1), that it would reasonably be concluded that the purpose of obtaining the GST tax benefit is properly regarded as dominant. Similar conclusions can be drawn if the way the transaction has been entered has "no explanation other than … fiscal consequences … contrived by the particular form of the … transaction"[147] Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 at [18] , per Gleeson CJ and McHugh J. .

Whose purpose?

157. The question posed by s 165-5 in conjunction with s 165-15 is whether, having regard to all[148] Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 at [70] , per Gummow & Hayne JJ. of the twelve factors to be considered, it is reasonable to conclude that any of the persons who entered into or carried out the scheme or any part of the scheme did so for the sole or dominant purpose of enabling the relevant taxpayer to obtain the GST benefit. In this regard:

A single composite purpose or non-dominant incidental purposes facilitating a dominant purpose?

158. Following the Full Court ACN and Complete Success Solutions decisions, it is necessary to address whether purposes of a supplier creating a taxable supply and therefore creating (or creating and not paying) a GST liability and for the recipient of the supply of a corresponding ITC entitlement are effectively different sides of the one coin, so to speak, such that they could be regarded as a single composite purpose. Both decisions involved Division 165 declarations negating ITCs where taxable supplies of gold materials were made after defacing gold bullion and the suppliers failed to pay the GST on those supplies.

159. The Full Court ACN decision expressed the principle in this way:

Insofar as ACN 154 submits that the dominant purpose of the scheme was for the Division 165 Supplying Entities to obtain the GST (which they would fail to remit to the Commissioner), rather than for ACN 154 to obtain input tax credits, this submission seems to go to the merits of the Tribunal's conclusion. In any event, we consider that it was open to the Tribunal to view the obtaining (by ACN 154) of the input tax credits and the obtaining (by the supplying entities) of the GST as comprising one purpose, in circumstances where the two were inextricably linked: cf
Federal Commissioner of Taxation v Ludekens (2013) 214 FCR 149 at [243].[152] ACN 154 520 199 Pty Ltd (in liquidation) v Federal Commissioner of Taxation [2020] FCAFC 190 , [224].

160. The cited passage from Ludekens included:

In assessing the purpose and evaluating its importance, and whether it is dominant, one must appreciate that it is the scheme in question to which the enquiry is directed, not a general state of affairs other than the scheme. Persons engaged in trade and commerce do so for personal gain. The purpose of all commercial arrangements is, in a broad sense, the making of profit . . . Here the respondents undoubtedly wished to make profits from the purchase of woodlots and from running a foreign exchange business. They chose the Plan to effect that. Integral to the Plan was that the entities acquiring woodlots on 30 June 2007 . . . would obtain scheme benefits from the GST refunds from the purchase of the woodlots and that the Secondary Investors would obtain scheme benefits from tax deductions and tax refunds from their participation. Those are not two purposes: they comprise one purpose - that scheme benefits in terms of lowered tax-related liabilities and increased amounts that the Commissioner must pay or credit (s 284-50(1)(a) and (b)) would flow to them and others. Those two streams of funding, together with the commission from Gunns, were to be used to prop up the foreign exchange business . . .

161. It is, perhaps, not difficult to contemplate purposes of creation of a taxable supply, a GST liability and a corresponding ITC entitlement, in appropriate circumstances, being regarded as a single purpose. But that, of course, would not exclude the possibility of non-payment of the GST liability and retaining the relevant cash being the dominant purpose. The first three events, so to speak, might be seen as a means to an end. However, Complete Success Solutions takes the matter a little further:

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 that would be refunded input tax credits, so that the scheme as a whole would work by being sufficiently funded.

(Emphasis added.)

162. There, the Full Court contemplates the possibility of the obtaining and not remitting amounts referrable to GST and the obtaining of ITCs being collectively a single purpose. The Court did not mandate that there was such a purpose.

163. Recognising the analysis is focused on a different statutory setting and test, Gageler J's comments in Mills[153] Mills v Commissioner of Taxation (2012) 250 CLR 171 at p 202-203 Gageler J regarding the standing of facilitative steps toward an ulterior and ultimate

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goal inform the characterisation of steps in a linked chain of events. There his Honour said:

64 There is, in the Explanatory Memorandum for s 177EA as originally inserted into the ITAA 1936 in 1998, already quoted, a very clear statement that "[a] purpose is an incidental purpose when it occurs fortuitously or in subordinate conjunction with another purpose, or merely follows another purpose as its natural incident." The statement, repeated in the Supplementary Explanatory Memorandum, employed the word "or" disjunctively because a purpose may be in subordinate conjunction with another purpose or may do no more than follow another purpose as the natural incident of that other purpose without necessarily being fortuitous. The statement accords with standard definitions of the word "incidental" to be found in mainstream dictionaries and with a natural reading of the statutory text, "an incidental purpose", in the context of s 177EA(3)(e). The adoption of the meaning conveyed by the statement as the proper construction of the statutory text produces the result that a purpose of a person, in entering into or carrying out the scheme for the disposition of equity interests, of enabling a holder to obtain a franking credit is "an incidental purpose" outside the scope of s 177EA(3)(e) if that purpose does no more than further some other purpose or follow from some other purpose. ….(Emphasis added)

…

66 [A] purpose can be incidental even where it is central to the design of a scheme if that design is directed to the achievement of another purpose. Indeed, the centrality of a purpose to the design of a scheme directed to the achievement of another purpose may be the very thing that gives it a quality of subsidiarity and therefore incidentality. That is not impermissibly to confine the scope of s 177EA(3)(e) to a dominant purpose: the categories of "dominant" and "incidental" are not exhaustive. The parenthesised words in s 177EA(3)(e) make clear that a dominant purpose of enabling a holder to obtain a franking credit is sufficient but not necessary for the requisite jurisdictional fact to exist, but it does not follow that a purpose which does no more than further or follow from some dominant purpose is incidental. Second, counterfactual analysis is not antithetical to the statutory inquiry mandated by s 177EA(3)(e). Purpose is a matter for inference and incidentality is a matter of degree. Consideration of possible alternatives may well assist the drawing of a conclusion in a particular case that a [requisite] purpose … does or does not exist and, if such a purpose exists, that the purpose is or is not incidental to some other purpose.

The s 165-15(1) factors

164. The matters relevant to the tests to be addressed and their analysis are set out below. References to the scheme are to mean either the primary or alternative scheme articulated by the Commissioner. References to a "part" of a scheme focus in particular on those parts of the scheme comprising the Fraudulent Suppliers defacing bullion and then selling it as Refining Materials to the applicant. If the requisite purpose and effect cannot be made out in relation to these parts of the scheme as posited, the Tribunal cannot see how the requisite purpose or effect can be shown in relation to any other parts of that scheme.

165. In a case where the relevant competition or comparison is between pursuit of commercial ends and pursuit of a GST benefit, the existence of steps that are uncommercial or extraordinary in the manner or execution of the scheme might suggest pursuit of the GST benefit is dominant. However, where the relevant comparison is between pursuit of a dishonest end and pursuit of a GST benefit, extraordinary, or irrational or uncommercial steps might be expected in the sequence of events. In that setting such steps might more appropriately indicate, as part of the analysis of the manner of execution of a scheme, that that other goal was either the sole or dominant purpose of a participant in the scheme.

166. Absent adulteration of gold bullion, in many respects the relevant transactions were carried out in the way of ordinary transactions. The steps taken were largely as would be

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expected in arm's length sales of Refining Materials and gold bullion. Indeed, aside from the one respect noted immediately below, but for the non-payment of GST by the suppliers the transactions would likely have been regarded as unremarkable from a fiscal perspective.

167. It was extraordinary that the Fraudulent Suppliers adulterated bullion, destroyed some of its value and then, ignoring GST effects, sold what had become Refining Materials at prices that were less than their acquisition costs. But those prices at which they transacted were not remarkable as a bargain struck between the suppliers and the applicant for Refining Materials.

168. The applicant paying dollar for dollar amounts as components of GST-informed purchase prices, in a setting where for the applicant, only refining profits were generated, suggests the manner of execution test does not point to a dominant purpose of the applicant or any other participant in entering into or carrying out the scheme that the applicant obtain ITC entitlements.

169. The pricing issue is, of course, linked to the adulteration of bullion which is certainly out of the usual. However, in the Tribunal's view that part of the scheme is explicable by the Fraudulent Suppliers' purpose of securing a GST-informed amount of money and non-payment of GST. It does not suggest a separate dominant purpose of the applicant obtaining ITCs.

170. After the AFP raids, the manner of execution of the scheme included internal steps directed to the legitimacy of suppliers. That fact, while it says nothing of the purposes of the Fraudulent Suppliers, reflects on the purposes to be attributed to the applicant.

171. For these reasons, the manner in which the scheme was entered into or carried out does not support a conclusion that any entity entered into the scheme or any part of the scheme with the dominant purpose of the applicant obtaining the Contested ITCs. Even if, contrary to the conclusion above, the applicant was an informed participant in the scheme, the manner in which it was carried out would still support a conclusion that the Fraudulent Suppliers had a dominant if not sole purpose of defrauding the Commonwealth. It would not support a conclusion that the applicant, ABC NSW or any other entity had a dominant purpose of the applicant obtaining the Contested ITCs. The applicant would still have obtained refining profits only.

172. Similarly, the Tribunal does not identify any aspect of the manner in which the scheme was entered into or carried out that supports a conclusion that the principal effect of the scheme or any part of the scheme was the applicant obtaining ITCs. The principal effects of the scheme as a whole were the change of ownership of very high values of gold and after that the fraud on the Commissioner. The principal effect of the adulteration aspect of the manner of execution was to transform the character of the relevant gold and to devalue it.

173. The legal form of the transactions was not consistent with the economic and commercial substance. What was precious metal in investment form was not altered so much in terms of chemical composition but its appearance so that it no longer conformed to the "in investment form" standard. It was an appearance alteration that facilitated a different attribute in the marketplace that attracted a different trading price structure which in turn facilitated a receipt of money that the Fraudulent Suppliers would keep. Where an actual purpose is to effectuate a fraud, it can be expected that trickery or facades may be involved and that form and substance might differ.

174. The Tribunal does not consider the form and substance of the scheme support a conclusion that any entity entered into or carried out the scheme or a part of the scheme with the dominant purpose of the applicant obtaining ITCs.

175. Similarly, the Tribunal does not consider that the difference between the form and substance of the scheme leads to a conclusion that the principal effect of the scheme or any part of the scheme was for the applicant to obtain ITCs.

176. The system of levying GST on dealings in gold substances is very much form driven. Metal in substance, i.e. chemically and atomically, identical, may be treated differently

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depending on its presentation or its form. Producing something that is in form different to its substance and transacting in it, as has happened here, transformed the character and transferred the ownership of the highly valuable commodity. This was the principal effect to be recognised.

177. So far as the applicant obtained the Contested ITCs on the acquisition of taxable supplies in the course of its enterprise, that is an unremarkable outcome under the GST Act. It is well-known that, with limited exceptions, GST on acquisitions is intended to have a neutral impact on a GST-registered taxpayer's costs. That is a fundamental feature of value-added taxation systems throughout the world. It does not support a conclusion that any entity entered into the scheme or a part of the scheme with the dominant purpose of the applicant obtaining ITCs.

178. The artificial creation of a GST liability, and corresponding ITC entitlement, by defacing bullion may be seen as not an object of the GST Act. However, a liability arising on a taxable supply is an intended outcome under GST law regardless of the circumstances giving rise to the liability. Even illegal supplies may be taxable supplies.[154] Section 9-10(3). Once the gold was no longer precious metal its subsequent supply being taxable was unremarkable and an intended outcome under the GST Act.

179. The purpose or object of the GST Act includes, fundamentally, to create a liability for GST on taxable supplies. That is what occurred here. It is the failure to pay the GST that departs from the object of the GST Act, not the allowance of ITCs on business-to-business acquisitions which is the standard and intended object of value-added taxation.

180. This factor does not suggest a conclusion that producing the GST benefit was the dominant purpose of the scheme for these supplies.

181. Nor is there anything in the object of the GST Act that suggests the principal effect of the scheme or a part of the scheme was for the applicant to obtain ITCs.

182. The two tests can be considered together.

183. There does not appear to be any timing aspect of the scheme that suggests a dominant purpose or principal effect of securing the ITCs for the applicant. If anything, the timing aspects suggest the contrary. The scheme continued after the time when the AFP raids occurred and with a different manner of execution after that time. Continuing the applicant's activities after the AFP raids on a similar footing to before the raids points against the requisite purpose or effect for Division 165 to apply.

184. To the extent it happened, the round robin nature of the movement of the same gold from the applicant to and through the Fraudulent Suppliers and back to the applicant and the timing of those steps suggest that the scheme was structured to be, to the extent of this circularity, self-contained and possibly self-perpetuating. The timing of the circular steps suggests, if anything, pursuit of the fraudulent purpose.

185. These factors do not suggest a conclusion that producing the GST benefit was the dominant purpose of any entity entering to or carrying out the scheme or any part of the scheme.

186. Its continuation after the AFP raids suggests that the applicant's purposes were not pursuit of taxation goals or effects.

187. The Tribunal is unable to identify any basis on which timing matters could support a conclusion that the principal effect of the scheme or a part of the scheme was the applicant obtaining ITCs.

188. The conventional analysis is that this test necessarily reveals that, absent the operation of Division 165, less GST would be payable, or a bigger refund would ensue. Just because a transaction has an effect of lowering tax liability or increasing a credit does not necessarily attract an inference that the parties to the transaction entered into it or carried it out for the sole or dominant purpose of obtaining that tax consequence.[155] Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 at [15] per Gleeson CJ & McHugh J; [65] per Gummow & Hayne JJ. This is particularly so when other benefits and taxation liabilities are also produced by the scheme identified. Under this conventional analysis, little weight would

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be attached to this factor. This is so because the mere fact of a GST benefit cannot lead to the result that the dominant purpose of the relevant scheme was to secure that benefit. If it did there would be no need for the other factors to be assessed.

189. An alternative approach rests on a premise that any test ought be capable of pointing in either a positive or negative way in the analysis required and should be capable of supporting or contradicting the requisite conclusion in different settings. There seems little point in having a test factor which can only point in one direction. Under the alternative approach, it is necessary to look to whether the outcome of the scheme transactions absent Division 165 applying is consistent with the operation as intended by the GST Act.

190. Here, the GST Act intends to allow an ITC to an entity carrying on an enterprise that has paid for an acquisition, and paid dollar for dollar for it, in a business-to-business transaction under a practical business tax system that places great reliance on the use and acceptance of tax invoices. On that footing, absent the operation of Division 165, the outcome in the present circumstances is entirely consistent with an intended outcome of the GST Act. This factor, analysed this way, suggests that the dominant purpose of participants in the scheme was not to secure a GST benefit. This is not a case where, by some artifice on the part of the taxpayer, a GST benefit ensues without the full cost of securing it having been paid.

191. The Tribunal considers that either little weight ought to be given to this factor, or it should suggest a non-GST benefit purpose.

192. It is true that if one considers only the part of the scheme that is the defacing of bullion before its sale to the applicant, that part of the scheme causes a change in the GST status of the commodity and its subsequent sale. But that is a change that causes GST to become payable where it would not otherwise have been payable. And, more importantly, the economic impact is neutral because of the applicant's entitlement to ITCs. That supports a conclusion that the dominant purpose of the Fraudulent Suppliers was to secure for themselves money and to evade payment of GST rather than for any entity to obtain ITCs. It does not support a conclusion that the principal effect of the scheme or a part of the scheme was for the applicant to obtain ITCs.

193. From the applicant's perspective, namely an enterprise that produced precious metal and sold it thus making GST-free supplies:

194. Viewed globally, the only potentially measurable financial benefit was enhanced profitability from enhanced trading.

195. The Commissioner's submissions to the contrary, namely that the applicant profited by the refund of the GST and without that refund the transactions made no sense, must be rejected. The Full Court ACN decision made clear that availability of ITCs has a neutral effect on profit[156] At [206]. which is determined net of GST considerations. Mere availability of ITCs cannot be regarded as a source of profit.

196. The Tribunal also considers this factor does not support a conclusion that the principal effect of the scheme or a part of the scheme was the applicant obtaining the Contested ITCs. The obtaining of the ITCs had a neutral impact on the applicant since it was matched by the obligation, which it met, to pay a price for the Refining Materials that was informed by a corresponding GST amount.

197. There is no question that the Fraudulent Suppliers were financially disadvantaged by the scheme if the non-payment of GST, which does

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not form part of either of the Commissioner's articulated schemes, is ignored. That is because their sales prices for the Refining Materials were less than they paid for bullion in investment form.

198. However, it would be artificial to ignore the non-payment of GST. It is objectively clear that without that non-payment their participation in the scheme would have made no sense and would not have happened. The artificiality in ignoring the non-payment by the Fraudulent Suppliers probably explains the extensive evidence led by the Commissioner[157] For example, the Zafiriou affidavits. of the financial affairs of the intermediaries and their GST compliance, or lack thereof.

199. The Fraudulent Suppliers were, if outstanding liabilities are not taken into account, enriched in a cash sense by not paying the GST they were liable to pay. That enrichment swamped the spot price differential between what they paid for bullion and what they sold the Refining Materials for. That suggests those entities had a dominant purpose of enriching themselves by collecting but not paying GST - that was the sole source of their enrichment.

200. There are no identifiable financial changes for any other entity that could conceivably be regarded as supporting a conclusion that an entity had a dominant purpose of the applicant obtaining the Contested ITCs. It may be the case, but it is not established on the evidence, that ABC NSW enjoyed an enhanced turnover and profitability from the scheme, but that came with its own risks as evidence of Ms Simpson's concerns with going long on gold payments indicated.[158] Email from Ms Simpson to Mr Cochineas dated 8 July 2013, Remittal Hearing Book Vol 8 Item 278, 6756.

201. Accordingly, the Tribunal concludes that any changes in the financial position of the other parties would not support a conclusion that any entity entered into or carried out the scheme or a part of it with the dominant purpose of the applicant obtaining the ITCs.

202. Similarly, this factor does not support a conclusion that the availability of the ITCs was the principal effect of the scheme or a part of the scheme. A financial effect of ITCs would be illusory when, as here, matched by a liability to pay a price that includes a corresponding amount of GST.

203. There is no suggestion that the dealings between the Division 165 Supplying Entities and the applicant and/or ABC NSW were other than at arm's length in both the relationship sense and in the sense that commercial prices were paid for the relevant supplies. The latter is not surprising since there is no common ownership between the Division 165 Supplying Entities and the applicant or ABC NSW.

204. This factor does not support a conclusion that any entity entered into the scheme or a part of the scheme with the dominant purpose of, or that the principal effect of the scheme or any part of the scheme was, the applicant obtaining the Contested ITCs.

205. One such circumstance, excluded by the Commissioner from his articulated schemes, is the fraudulent non-payment of the Fraudulent Suppliers' GST liabilities.

206. That circumstance points in favour of a conclusion that the dominant purpose of the Division 165 Supplying Entities participating in the scheme or a part of the scheme was those suppliers enriching themselves by defrauding the Commonwealth. It does not support a conclusion that any entity entered into the scheme or a part of the scheme with the dominant purpose of, or that the principal effect of the scheme or any part of the scheme was, the applicant obtaining the Contested ITCs.

Purpose or effect - further observations

207. Some further observations are called for.

A single composite purpose or non-dominant incidental purposes facilitating a dominant purpose?

208. The passages from Ludekens and Complete Success Solutions extracted above indicate that a single purpose may appropriately be found in some circumstances. They did not go on and consider whether those purposes were facilitative of an ultimate purpose in the sense contemplated by Gageler J in Mills also

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noted above. The Mills analysis is apposite in the present circumstances for two reasons: first, creating taxable supplies that also produced GST-informed prices being paid and ITC entitlements to arise, was a necessary preliminary to an ulterior and ultimate goal as contemplated by His Honour's analysis, and second because His Honour suggests that the text of the Explanatory Memorandum under discussion confirmed the ordinary meaning of language and natural reading of statutory text. Thus, the hierarchy of incidental and dominant purposes to which His Honour refers can and should have wider application. This analysis informs how facilitative steps in a wider design ought to be characterised. Viewed through this lens, any purpose of obtaining ITCs in the present circumstances, assuming there was one, was a purpose properly regarded as central to the design of a scheme directed to achieving an ulterior and ultimate purpose, and therefore any purpose of obtaining ITCs was incidental and not dominant.

209. In the present case, what was essential for the scheme to operate was the creation of a product that the marketplace traded at a GST-informed price, and the Fraudulent Suppliers receiving that price and not paying the GST to the Commissioner, or more fundamentally, for the Fraudulent Suppliers not to pay their GST liability having received a market driven price that assumed they would. As already noted, without that feature there would not have been ongoing sales by the suppliers, as they would have traded at a loss. The availability of the ITCs was an ordinary incident of a purchase of a taxable commodity on commercial terms by a GST-registered entity in the course of its enterprise.

210. In those circumstances, the non-payment of amounts referrable to GST stands aside from the creation of the GST liability and the entitlement to corresponding ITCs. Even if the transactions were conducted in a co-ordinated way with the knowledge of the applicant (which the Tribunal has not found) it would remain the case that the non-payment of GST is the central feature upon which the viability of the suppliers' unlawful endeavours rested. The applicant's entitlement to ITCs was not dependent on that action, only upon the acquisition of gold in a taxable supply for which it paid a full commercial price for what it acquired.

211. In short, even if it would be correct to view the making of taxable supplies and obtaining of ITCs as a single purpose, that single purpose was a step in a wider process. The Tribunal sees the Fraudulent Suppliers' non-payment of GST as a separate and ulterior and ultimate purpose to any purpose of making taxable supplies and the applicant obtaining ITCs.

Collection failures

212. The Commissioner seeks to uphold an assessment disallowing ITCs of nearly $73m, and a penalty of over $30m, in circumstances where:

213. The Commissioner would not be seeking to deny the Contested ITCs if he had been able to recover the unpaid GST from the suppliers.[160] Transcript of Remittal Hearing, P-198, lines 41-44. There is nothing in the text of Division 165, or extraneous materials, or in the jurisprudence relating to Division 165 or Part IVA of the1936 Assessment Act upon which it was plainly modelled, to indicate Division 165 was intended to be invoked, where it would not

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otherwise be applied, as an alternative to recovery of liabilities owed by other entities.

214. These observations are, of course, not part of the Tribunal's task in determining whether Division 165 applies which must be approached according to the terms in which the Division is cast. And they have not been treated as if they are. However, these observations suggest careful and close scrutiny of the statutory considerations relevant to whether Division 165 applies is required. That is especially so in a case where the result of applying Division 165 strikes the Tribunal as both surprising, in terms of visiting extraordinarily severe consequences on the applicant, who did not participate in the fraud, rather than the Fraudulent Suppliers who were the perpetrators that benefited directly from their fraud, and out of all proportion to any benefit that, on any view, could have been enjoyed by the applicant from participation in the scheme.

Knowledge or blind eye

215. Much of the remittal hearing was taken up with whether the applicant knew or turned a blind eye to the activities of the Fraudulent Suppliers, or participated in co-ordination of the transactions. However, ultimately what must be confronted is this: the Fraudulent Suppliers entered into the arrangements to profit, and did profit in precisely the way they intended to profit, by failing to pay GST on the taxable sales they made to the applicant. In this regard, the term profit is used in a cash flow profit sense only. Properly calculated, they made no profit from their scheme because profit ought be determined net of the impact of GST.[161] An alternative profit calculation would recognise both the GST effect on the sales price received and the liability to the ATO producing the same effect. To make their profit, the Fraudulent Suppliers needed to create or procure a system or process where they outlaid less money than they received. In the present setting that entailed two steps: first, they needed to acquire the goods they sold at a price not informed by GST, and, second, they needed to sell those goods at GST-informed prices. It can be accepted that the applicant would not rationally have paid GST-informed priced for the Refining Materials in question had there not been an entitlement to ITCs. In those circumstances, is it reasonable to conclude that the dominant purpose of any entity entering into the scheme or a part of the scheme, or the principal effect of the scheme or part of the scheme, was for the applicant to obtain, or that the applicant did obtain, the Contested ITCs?

216. While a search for an alternative purpose is not the Division 165 test, the existence of such a purpose throws light on whether the requisite GST benefit purpose conclusion should be reached. When looking at a scheme, or a part thereof, if there is an alternative dominant purpose of any participant, or an alternative principal effect, then it is unlikely that the dominant purpose test will be satisfied in respect of that participant or that the principal effect test will be satisfied. If that alternative dominant purpose of a participant in, or alternative principal effect of, a scheme or a part thereof was that the Fraudulent Suppliers benefit from their fraud, or to place an inflated, GST-informed, price or amount of money into the hands of the Fraudulent Suppliers so as to set up the possibility of the fraud being executed profitably, it is unlikely that it would be reasonable to conclude that that participant had the requisite dominant purpose or that the scheme had the requisite principal effect.

217. In summary, in the Tribunal's view, the proper conclusion is that the dominant purpose of the Fraudulent Suppliers was to execute their fraud by first obtaining and then retaining the GST-informed prices they charged the applicant. Their participation in the transactions made no sense unless they committed that fraud.

218. Even if the creation of the taxable supplies to the applicant and the applicant's entitlement to ITCs are viewed as a single purpose, that would, in itself, achieve no benefit for either the applicant or the Fraudulent Suppliers. As already noted, for the Fraudulent Suppliers, it would achieve a loss because they were selling gold at a price (before GST considerations) that was less than they paid for it. It was only by failing to pay their GST liabilities that the Fraudulent Suppliers were able to profit in any way that explains the scheme. While it is not the statutory question to be addressed, an alternative purpose suggested by the weighing of the requisite factors assists the requisite process. In the present circumstances there is an alternative

ATC 11811

purpose suggested by the requisite factors. It is reasonable to conclude that defrauding of the Commonwealth was the Fraudulent Suppliers' dominant purpose. Taking into account the required factors, it is not reasonable to conclude that the dominant purpose of any entity was for the applicant to obtain the Contested ITCs.

219. The conclusion would not change even if the applicant was, as the Commissioner asserts, an informed participant in co-ordinated arrangements. Little if anything concerning purpose conclusions changes by assuming the applicant had relevant knowledge. In the Tribunal's view, it would still not be reasonable to conclude that the dominant purpose of the Fraudulent Suppliers was for the applicant to obtain ITCs. Even if there was informed participation and co-ordination by the applicant, the requisite conclusion would still be that the dominant purpose of those suppliers was to receive but not pay amounts referable to their GST liabilities. The taxable supplies and connected ITCs were merely steps in an ultimate plan that would remain the same. The applicant paid dollar for dollar for the ITCs it became entitled to. That remains the same. The dominant purpose of the applicant remains securing its refining profit. Informed coordination could not change the principal effect of the scheme or a part of the scheme.

GST benefit?

220. As noted above the Tribunal acknowledges that the parties have principally advanced their cases on the footing that the requisite purpose and/or effect of the scheme to produce GST benefits is made out (on the Commissioner's case) or not made out (on the applicant's case). The Tribunal has addressed the purpose and/or effect arguments and reached conclusions as set out above.

221. The Tribunal notes the grounds of objection insofar as they relate to Division 165 are as extracted at [18]-[19] above. They include a denial of any GST benefit.

222. The Tribunal is content to deal with the competing propositions in relation to purpose and effect, but in doing so, in the circumstances, should not be taken to have accepted that beyond the 2013 calendar year, the Commissioner has established that there was a GST benefit attributable to the scheme as alleged.

223. At the Commissioner's choice, the first and fourth parts of the Relevant Period do not have the type of analytical evidence that was led in relation to the second. For the first and fourth parts of the Relevant Period the Commissioner has not led evidence out of which a connection between supplies of gold bullion by the applicant to ABC NSW and/or Ainslie and any further transactions between what are described as supply chain entities back to the applicant in the form of Refining Materials might be inferred. The Tribunal is not afforded material on which inferences might be made concerning connectedness of supply chain entities' transactions as has been done for the second and third parts of the Relevant Period by Ms Wright. It will be recalled that there is no direct evidence of the same metal being transacted from the applicant through the chain back to the applicant. Nor is there any direct evidence of adulteration of bullion at any point in that process. It will also be recalled that at least to some degree the supply of the same metal through that chain and the adulteration of bullion are conclusions reached as a consequence of a number of attributes associated with the vast number of transactions reviewed by Ms Wright. That same information is not available for the first and third parts of the Relevant Period and the Tribunal has not been provided with any basis upon which it might be concluded that the findings in relation to the second and third parts of the Relevant Period are equally applicable to the first and fourth. More specifically, the Tribunal has not been provided with any evidentiary material of a statistical analysis nature that gives insights into the probability of the sample referable to the 2013 calendar year being equally applicable to the periods before and after that year.

224. In relation to the fourth part of the Relevant Period, a further, and more significant, factor needs to be borne in mind. The applicant's method of operation altered upon the AFP raids, and declarations of GST compliance were sought and real-time information was provided to the ATO. Two of the supply chains discontinued operations with the applicant. The other two resumed operations shortly after the AFP raids but not on the

ATC 11812

same scale. The reduced scale of operation, in itself, is cause to give thought and at least ask as to the appropriateness of applying the conclusions that arose out of the connectedness of transactions for the second and third parts of the Relevant Period beyond the end of that period.

225. The necessary consequence that follows from this is that it should not be assumed that the Tribunal is satisfied that the scheme as defined actually occurred or that there was a GST benefit associated with that scheme for the fourth part of the Relevant Period. These matters were not argued before the Tribunal. If the circumstances were such that the outcome might turn on them, it would be appropriate to hear from the parties in relation to them. However, as the matter does not turn upon this outcome the Tribunal sees it as appropriate to note this additional feature of the circumstances in the matter that arises because of the Commissioner's instruction to Ms Wright to evaluate the transactions in only the 2013 calendar year.

CONCLUSION AND DISPOSITION

226. For the reasons indicated in the foregoing consideration of the s 165-15 factors, it would not be reasonable to conclude any entity entered into either scheme or a part of either scheme identified by the Commissioner with the sole or dominant purpose of, or that the principal effect of either scheme or any part of either scheme was, the applicant obtaining the Contested ITCs.

227. It follows that the power to make the declarations under s 165-40 negating the GST benefit being the Contested ITCs is not enlivened and the assessments of net amount are excessive.

228. The objection decision relating to the assessments of net amount, the declarations and the assessments of administrative penalty must therefore be set aside and a decision substituted allowing the objections in full.

APPENDIX 1

GLOSSARY OF DEFINED TERMS AND NAMES


Term Paragraph where first used and/or where footnoted Definition
ABC (A) [68(c)] In the instructions to Ms Wright Australian Bullion Company (Australia) Pty Ltd
ABC NSW [8(a)] Australian Bullion Company (NSW) Pty Ltd
AFP [11(b)] Australian Federal Police
AGS [65] Australian Government Solicitor
AGS Metals [64] First Tribunal reasons [38] AGS Metals Pty Ltd
Ainslie [24] First Tribunal reasons [237] Ainslie Bullion Company. According to the Commissioner's Audit decision at T87, p1682, footnote 58, "The trading name of Encum Pty Ltd at the relevant times."
Ainslie/MAK Supply Chain [68(a)] Sales of gold by the applicant to Ainslie, by Ainslie to YPP, by YPP to MAK, and by MAK to the applicant

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ATO [4] Australian Taxation Office
BAS [63] First Tribunal reasons [69] Business Activity Statement
Ceylon [24] First Tribunal reasons [237(b)(ii)] Ceylon Exchange Pty Ltd
Ceylon/Gold Buyers Supply Chain [68(f)] Sales of gold by the applicant to ABC NSW, by ABC NSW to Ceylon, by Ceylon to Gold Buyers, and by Gold Buyers to the applicant
Contested ITCs [1] Input tax credits of $72,953,611
Dealers [24] First Tribunal reasons [237(a)] ABC (NSW) and Ainslie
Dealer in precious metal [2(b)] A "dealer in precious metal" as defined in s 195-1(1) of the GST Act
Division 165 Supplying Entities [1] The entities as identified in [54]. Used interchangeably with "Fraudulent Suppliers"
Fine Gold [64] First Tribunal reasons [152] Gold with at least 99.99% fineness (or gold content purity). At [136] of the First Tribunal's reasons (which are not reproduced in these reasons) the term was explained as "(gold with at least 99.99% fineness)"
Focus [24] referring to First Tribunal reasons footnote 217 Focus Metals Pty Ltd
Fraudulent Suppliers [1] and [57] The entities identified in [57]. Used interchangeably with "Division 165 Supplying Entities"
Gold Buyers [14] (Table 4) and [57(d)] Australian Gold Buyers International Pty Ltd
Gold Buyers Supply Chain [68(e)] Sales of gold by the applicant to ABC NSW, by ABC NSW to Gold Buyers, and by Gold Buyers to the applicant
GMA [58] Gold Makers of Australia Pty Ltd
Goldborough [24] referring to First Tribunal reasons footnote 217 Mr Rahman Butt trading as, Goldborough Mineralz
GST [2] Goods and Services Tax
GST benefit [1] A GST benefit within the meaning of s 165-10(1) of the GST Act
Intermediaries [24] First Tribunal reasons [237(b)] the Supplying Intermediaries (IPJ Group, Gold Buyers, Majid Group, MAK, Focus, GMA and Goldborough), Ceylon, YPP, ABC (A) and USH

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Investment form [2(a)] Investment form within the meaning of that term as used in the definition of precious metal in s 195-1(1).
IPJ Group [14] (Table 4), [24] First Tribunal reasons [237(b)(i)] Comprised of the five companies: Italian Prestige Jewellery Pty Ltd (IPJ), Premium Metal Service Pty Ltd (PMS), A1 Metals Pty Ltd (A1 Metals), Antel Metals Pty Ltd (Ante l ) and 4 Nines Pty Ltd (4 Nines)
IPJ Group Supply Chain [68(d)] Sales of gold by the applicant to ABC NSW, by ABC NSW to IPJ Group, and by IPJ Group to the applicant
ITC and Input Tax Credit [1] Input tax credits within the meaning of ss 195-1(1), 11-20 and 15-15.
LBMA [64] First Tribunal reasons [46] London Bullion Market Association
Majid Group [14] (Table 4), [24] First Tribunal reasons [237(b)(ii)] Comprised of entities: Majid Jewellers, Najaf Jewellers (Najaf), Elmas Jewellers (Elmas), Menas Jewellery (Menas), KLM Jewellery (KLM), Blue Heaven Jewellery (Blue Heaven), Mario B Jewellery (Mario B), Kais Jewellery (Kais), Mazin Jewellery (Mazin) and Sahara Jewellery (Sahara).
Majid Supply Chain [64] First Tribunal reasons [185] Sales of gold by the applicant to ABC (NSW), by ABC NSW to Ceylon, by Ceylon to Majid Group, and by Majid Group to the applicant
MAK [14] (Table 4), [24] First Tribunal reasons [237(b)(iii)] MAK Precious Metals Pty Ltd
Mr Cochineas [53] Mr Phillip George Cochineas
Palloys [64] First Tribunal reasons [38] Palloys Pty Ltd and its related entities, AGS Metals and PJ Williams and Associates
PAMP [64] First Tribunal reasons [46] Produits Artistiques Métaux Précieux
PJ Williams [64] First Tribunal reasons [38] PJ Williams and Associates
Precious Metal [1] Precious metal within the meaning of the s 195-1(1) definition of that term
RCTI [64] First Tribunal reasons [145] Recipient created tax invoice
Refiner of precious metal [1] See [1] above, a refiner of precious metal within the meaning of the s 195-1(1) definition of that term

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Refining Job Sheet [64] First Tribunal reasons [194] A document created by the applicant to record metal received by it.
Refining Material [1] Gold metal of any fineness that is not in investment form.
Refining Receipt [81] (Table 7) A receipt provided by the applicant to customers in relation to the receipt of gold or other metals.
Relevant Period [10] The period from 1 February 2012 to 30 June 2014.
2013 calendar year for the purposes of Ms Wright's reports.
Supply Chains [28] and [68] Dealers or Intermediaries that sell gold to each other, comprising:
• MAK Supply Chain
• Majid Supply Chain
• USH/MAK Supply Chain
• IPJ Group Supply Chain
• Gold Buyers Supply Chain
• Ceylon/Gold Buyers Supply Chain
Relevant Suppliers [56] Suppliers who supplied Refining Materials that were almost all (99.5%) of 99.99% gold purity
Supply Chain Parties [74] (and [68] footnotes 52 to 57) The entities that form part of each Supply Chain
Supplying Intermediaries [65] First Tribunal reasons [136] IPJ Group, Gold Buyers, Majid Group, MAK, Focus, GMA and Goldborough
USH [24] First Tribunal reasons [237(b)(iii)] United Soul Holdings Pty Ltd
USH/MAK Supply Chain [68(c)] Sales of gold by the applicant to ABC NSW, by ABC NSW to ABC (A), by ABC (A) to USH, by USH to MAK, and by MAK to the applicant
YPP [24] First Tribunal reasons [237(b)(iii)] Your Privacy Policy Pty Ltd
APPENDIX 2

Statement of Facts that are Agreed

Facts with an * are agreed but not admitted to be relevant by the Applicant.

Facts with a double ** are agreed but not admitted to be relevant by the Respondent.

The status of the Applicant and other parties

1. The Applicant was incorporated on 29 November 2011.

2. During the period 1 February 2012 to 30 June 2014 ( Relevant Period ) the Applicant was registered for GST purposes and carrying on an enterprise.

3.

ATC 11816

The Applicant was, during the Relevant Period, a "refiner of precious metals" as defined by s 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act ).

4. Mr Phillip George Cochineas ( Mr Cochineas ) was the Applicant's managing director from his appointment on 29 November 2011 to 31 August 2015 when the Applicant ceased trading, and was responsible for the Applicant's day-to-day management.

5. Mr Cochineas was familiar with all aspects of the Applicant's business.

6. During the Relevant Period, the Applicant produced "precious metal" as defined by s 195-1 of the GST Act ( Precious Metal ).

7. During the Relevant Period, the Applicant produced Precious Metal in the form of gold bars of a 99.99% fineness that were stamped with a hallmark and which the Applicant predominately sold to the following entities, each of which was a "dealer in precious metal" as defined by s 195-1 of the GST Act:

8. Mr Cochineas understood from his discussions with Mr Engeman, an Ainslie director, that:

9. The Applicant's GST ledger entries for its Precious Metal sales between 1 February 2012 and 21 October 2013 recorded that the Applicant sold 97.7% of its Precious Metal to ABC NSW and Ainslie during this time, with supplies to ABC NSW accounting for 69.6% of the Applicant's GST-free Precious Metal sales, and supplies to Ainslie accounting for 28.1% of the Applicant's GST-free Precious Metal sales.

10. The two directors of ABC NSW during the Relevant Period were Ms Jane Simpson and her father Mr Francis Gregg.

11. Ms Simpson and Mr Gregg were also directors of the Applicant during the Relevant Period.

12. Ms Simpson and Mr Gregg directly or indirectly held all of the shares in ABC NSW and directly or indirectly held 50% of the shares in the Applicant.

The Applicant's business structure

13. On 20 May 2011 a meeting was held, attended by Mr Cochineas, his brother and fellow director in the Applicant, Mr Andrew Cochineas, Ms Simpson and Mr Gregg.

14. *The "Project Goldfinger" minutes taken for that meeting recorded that a special purpose company (which was to become the Applicant) would be incorporated to acquire the business of Jim Short & Associates Pty Ltd (JSPL).

15. The minutes specified that the special purpose company would focus on refining scrap gold (scrap) of at least 18 karats (that is, gold with a fineness of at least 75%). It would send all other scrap to different refiners.

16. One of those refiners was Produits Artistiques Métaux Précieux (PAMP), which at all material times, was a London Bullion Market Association (LBMA) accredited Swiss refinery.

17. During the Relevant Period, ABC NSW was the exclusive Australian distributor of PAMP branded Precious Metal bars of 99.99% fineness.

18. An email from ABC NSW's lawyer to Ms Simpson of 17 October 2011 states, inter alia, that "You and Palloys (in partnership, on a 50/50 basis) wish to acquire the Business and have already established "Newco" to conduct the Business. A significant motivation is to obtain the benefit of the current GST-free 'first supply from a refinery' exemption. In other words, you will be able to have gold refined and barred by Newco with the "ABC Refining" mark. Those bars (I assume) will then be marketed by you and/or your network of distributers under your standard distribution agreement. Similarly, Palloys will channel all its assaying/refining/barring business through Newco. The commonality of your (that is, ABC and Palloys) mutual interest in the [the applicant] business lies in ensuring

ATC 11817

that the Business is a profitable assaying/refining/barring business. The cornerstone of that profit will be the business you and Palloys channel through it".

19. In response to a query from the lawyer concerning proposed loans of gold from ABC NSW to the Applicant, Ms Simpson stated: "Newco [the Applicant] has to have the use of gold to conduct the refinery - that is the whole basis for the business model we are proposing. In most instances, Newco [the Applicant] will only be assaying gold - the actual refining will be occurring in Switzerland at PAMP. What will happen is that Newco [the Applicant] will assay a client's gold and then pay out on the basis of the assay i.e. Newco [the Applicant] will not wait for the actual refining to have taken place. In this regard, the gold provided as the gold loan will be used to pay out the customer."

20. Sometime prior to 4 April 2012, Mr Cochineas prepared a policy document in conjunction with Mr Andrew Cochineas, Ms Simpson and their respective finance teams, which addressed plans to ensure the Applicant's new venture was able to be classified as a "refiner of precious metal" under the GST Act.

21. On 1 December 2011 the Applicant registered for GST and accounted for GST on a monthly basis.

22. The turnover of a "toll-refining" business is the value of the refining fees it charges for the refining it undertakes.

23. The turnover of the JSPL business was historically very low in Precious Metal terms.

24. In respect of the 2011 financial year, the total sales of the JSPL business excluding GST were approximately $15 million.

25. Mr Cochineas considered that the JSPL business possessed:

26. The turnover of a "general refining" business is the value of the gold it sells.

27. Upon acquiring the JSPL business at the start of 2012, the Applicant did not have the plant and equipment available to refine all low metallic grade material it received, some of which it diverted to PAMP.

28. After acquiring the JSPL business, the Applicant acquired new plant and equipment and hired more staff with expertise and experience. The annual gold refining capacity of the Applicant during the Relevant Period did not increase markedly as a result of these improvements, remaining largely static at approximately 30 tonnes of fine gold per annum.

29. **As of 2022, Mr Cochineas, has been employed in the gold industry for over 15 years and, from 2015 to 2021, he served on 'The Gold Industry Group' board of directors, a group which represents the interests of gold producers, explorers, prospectors and service providers in Australia. He holds a Bachelor of Commerce (Accounting) and Bachelor of Laws as well as a Master of Business Administration.

30. Apart from any capital required to effect process improvements by hiring staff and acquiring and upgrading plant and equipment, the Applicant needed working capital to fund its trading.

31. The Applicant's shareholders agreed to provide metal and general finance loans to assist the Applicant to make acquisitions of scrap. The Applicant also obtained an overdraft facility from a bank that initially provided $3 million in credit. The facility was extended to $10 million by June 2013.

The Applicant's Market Strategy

32. The Applicant instituted a system of fast payment to suppliers of Refining Material based upon preliminary testing of that refining material by the Applicant or sometimes by the supplier itself ("fast payments system").

33. Mr Cochineas had formed the view based on his own investigations, that the fast payments system was not widely practised by Australian refiners at the time of the Applicant's incorporation in 2012.

34. Mr Cochineas considered that the Applicant's principal competitor at the time was the Perth Mint, and understood that the Perth Mint took up to three weeks to make

ATC 11818

financial settlement with its clients. The Applicant, in contrast, paid a supplier once the scrap was in the physical possession of the Applicant or in the physical possession of its supplier.

The Applicant's Income

35. During the Relevant Period, the Applicant's gross margin was between 1% and 2.5%.

36. The Applicant's gross margin in respect of its refining business was primarily derived from the difference between the GST exclusive price at which it bought the fine metal content in scrap from its suppliers and the price at which it sold the finished product as precious metal, namely, investment-grade Precious Metal, to dealers in precious metals.

37. With the inclusion of GST, the GST inclusive price at which the Applicant bought the fine metal content in the scrap it acquired from its suppliers, exceeded the price at which it sold the finished product as Precious Metal to dealers in Precious Metal. During the Relevant Period the Applicant was always in a net GST refund position when it submitted its BAS to the ATO.

38. The Applicant also earned some fees from refining, assaying and barring.

39. During the Relevant Period, the Applicant recorded sales it classified as GST-free exports of gold in its ledger, which totalled $977,580.81 for the year ending 30 June 2014 and $2,819.71 for the year ended 30 June 2013.

40. The Applicant did not have other income sources, and it did not make a significant amount from toll refining.

41. The Applicant's gross turnover and net profit disclosed in its income tax returns for the years of income ended 30 June 2012 to 2015 were as follows:


Financial Year Turnover Profit Profit as % of turnover Income tax paid
1 February 2012 to 30 June 2012 $63,659,783 $129,728 0.2% $72,349.50
30 June 2013 $594,317,992 $3,140,941 0.5% $924,780
30 June 2014 $745,785,571 $8,296,856 1.1% $2,629,987
30 June 2015 $644,880,018 $386,655 0.05% Nil.

The Applicant's acquisitions of gold during the Relevant Period

42. During the Relevant Period, the Applicant prepared job sheets to record its receipt of scrap from suppliers.

43. The Applicant paid for all acquisitions of gold via bank transfer.

44. On the Applicant's calculations, 78% of all the material that it received during the Relevant Period was gold that was of a 99.99% fineness at the time of acquisition. That 78% included material that the Applicant received for toll refining which did not involve the Applicant acquiring the material.

45. Of the acquisitions made by the Applicant from the Relevant Suppliers[162] The “Relevant Suppliers” were defined in the First Cochineas Affidavit at [161] to including the IPJ Group, the Majid Group, Gold Buyers, MAK, Goldborough, Focus and GMA. during the Relevant Period, 99.5% of the material was out-turned by the Applicant at 99.99% metallic purity.[163] The parties remain in dispute about the extent of testing undertaken by the applicant to confirm the fineness of the gold it acquired during the relevant period.

46. Of the acquisitions made by the Applicant from other suppliers during the Relevant Period, 9.4% of the material was out-turned by the Applicant at 99.99% metallic purity.

47. A subset of the Relevant Suppliers was the IPJ Group, the Majid Group, Gold Buyers and MAK, being the entities the Respondent refers to as the Division 165 Supplying Entities.

48. The Division 165 Supplying Entities together represented 52.88% of all metal purchased by the Applicant during the Relevant Period.

49. Over the Relevant Period, the gold price varied between a high of approximately AUD$55,551 per kilo on 2 October 2013 to a low of approximately AUD$42,937.00 per kilo on 16 April 2013.

50.

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The prices charged by the Applicant to its customers for the sale of precious metal was generally at the global gold spot price and were GST-free.

51. The prices charged for the sale of precious metal by ABC NSW and Ainslie to their customers were generally at a premium to the global gold spot price and were not subject to GST, as the sales were input taxed supplies under s 40-100 of the GST Act.

The IPJ Group

52. The IPJ Group refers to the group of companies comprised of Italian Prestige Jewellery Pty Ltd (IPJ), Premium Metal Services Pty Ltd (PMS), 4 Nines Pty Ltd (4 Nines), A1 Metals Pty Ltd (A1 Metals) and Antel Metals Pty Ltd (Antel).

IPJ

53. IPJ was incorporated on 31 August 2005.

54. IPJ had acquired $29,406.00 worth of Precious Metal from ABC NSW in 2006.

55. IPJ made no further Precious Metal acquisitions from ABC NSW until 18 July 2011.

56. Between 18 July 2011 and 31 January 2012, IPJ acquired $20,808,902.58 worth of Precious Metal from ABC NSW.

57. On or about 30 January 2012, Mr Cochineas met with IPJ's director, Mr Adrian Catanzariti (Mr Catanzariti) to discuss doing business together.

58. *On 7 February 2012, Mr Catanzariti sent an email to Mr Cochineas attaching "the templates as requested" which comprised a form for completion by companies for customer identification purposes, as well as a blank tax invoice showing the supply of "gold granules". Both documents were on IPJ letterhead but blank as to quantity and prices.

59. On 9 February 2012, Mr Steve Lowden, who worked for a company related to Palloys, AGS Metals Pty Ltd (AGS Metals), and assisted the Applicant with its operations during the Relevant Period, sent an email to Mr Cochineas, Ms Simpson and others setting out the following process for the Applicant's transactions with "IPJ and others":

60. During the Relevant Period, IPJ acquired $100,970,890.47 worth of Precious Metal from ABC NSW and made gold sales to the Applicant totalling $82,198,766.

61. *During the Relevant Period, the Applicant arranged for Mr Catanzariti to receive business cards with his name and the Applicant's name on them.

62. *During the Relevant Period, the Applicant created an email account for Mr Catanzariti at the Applicant's email address.

63. *The Applicant's arrangement of the business cards and creation of the email account was for the purpose of obtaining refining work from a large primary producer which did not ultimately become a client of the Applicant.

PMS

64. PMS was incorporated on 2 November 2011.

65. From 14 February 2012, PMS commenced purchasing Precious Metal from ABC NSW.

66. On 16 February 2012, PMS commenced selling gold to the Applicant.

67. During the Relevant Period, PMS acquired $86,856,507.00 worth of Precious Metal from ABC NSW and made gold sales to the Applicant totalling $56,593,830.00.

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Antel, 4 Nines and A1 Metals

68. Antel was incorporated on 7 May 2012.

69. 4 Nines was incorporated on 9 August 2012.

70. A1 Metals was incorporated on 4 February 2013.

71. A1 Metals made its first acquisition of Precious Metal from ABC NSW on 19 February 2013.

72. The Applicant made its first acquisition of gold from A1 Metals on 19 February 2013.

Trading with the IPJ Group

73. Over the Relevant Period, the IPJ Group acquired $295,682,857.00 worth of Precious Metal from ABC NSW and made gold sales to the Applicant totalling $243,083,723.00.

74. Approximately 70% of the Precious Metal that the IPJ Group acquired from ABC NSW in the Relevant Period was in the form of ABC NSW branded bars of 99.99% fineness that were produced by the Applicant, and 30% was in the form of PAMP branded bars of 99.99% fineness.

75. Mr Cochineas knew that ABC NSW was supplying Precious Metal to the IPJ Group during the Relevant Period.

76. Approximately 99.5% of the gold that the Applicant acquired from the Relevant Suppliers, which included the IPJ Group, during the Relevant Period was of 99.99% fineness.

77. The tax invoices from the IPJ Group to the Applicant described the gold supplied as fine gold granules.

78. The Applicant's job sheets described the material it received from the IPJ Group as scrap and scrap jewellery.

79. The IPJ Group's Precious Metal acquisitions from ABC (NSW), and the Applicant's gold acquisitions from the IPJ Group increased until the Australian Federal Police (AFP) executed search warrants at premises including those of the Applicant and ABC NSW on 29 October 2013.

80. None of the IPJ Group entities acquired Precious Metal from ABC NSW or supplied gold to the Applicant after the warrants were executed.

GST assessments issued to the IPJ Group

81. On 29 October 2013, the IPJ Group entities were each assessed for GST net amounts in respect of transactions they entered into during the Relevant Period.

82. The total of the GST shortfalls for the IPJ Group was assessed to be $21,703,185.00.

83. On 23 July 2015, the IPJ Group entities were placed into voluntary liquidation.

MAK

84. MAK was incorporated on 18 January 2013.

85. MAK's sole director and shareholder during the Relevant Period was Mr Michael Kukulka.

86. Prior to the incorporation of MAK, Mr Kukulka traded under the name "Cash for Old Gold".

87. Over the Relevant Period, the Applicant acquired $459,357,055 worth of gold from MAK.

88. MAK was the Applicant's largest supplier during the Relevant Period.

Examples of trading between the Applicant and MAK

89. On 26 February 2013, the Applicant acquired approximately $1.6 million of scrap from MAK.

90. On 26 February 2013, the Applicant raised a recipient created tax invoice (RCTI) for the acquisition of 14,664.97 grams of gold from MAK.

91. The RCTI raised by the Applicant recorded the material received was "melted bars".

92. On 27 June 2013, the Applicant made gold purchases from MAK exceeding $3.5 million.

93. On 28 June 2013, the Applicant made gold purchases from MAK exceeding $5.3 million.

The Golden Goose

94. During the Relevant Period, Mr Cochineas knew that MAK sourced gold in Queensland from someone which he and Mr Kukulka of MAK referred to as the "golden goose".

Rocco jobs

ATC 11821

95. During the Relevant Period, Mr Cochineas knew that MAK sourced highly pure melted gold bars from Mr Rocco Calabrese, the director of USH.

96. During the Relevant Period, ABC (Australia) ( ABC(A) ) (an entity unrelated to the Applicant and ABC NSW) made 81% of its supplier and unidentified payments to ABC NSW from which it acquired Precious Metal, and 19% of its supplier and unidentified payments to other parties.

97. During the Relevant Period, Mr Cochineas and Mr Kukulka of MAK referred to the Applicant's acquisition of these gold bars from MAK as "Rocco jobs".

98. *During the Relevant Period, Mr Cochineas had met Mr Calabrese.

Advances

99. During the Relevant Period, the Applicant paid MAK in advance for acquiring gold. The Applicant paid those advances when the gold was in the possession of AGS Metals, MAK or the Applicant.

GST assessments of MAK, YPP & USH

100. On 13 May 2016 MAK was assessed for GST net amounts in respect of transactions it entered into during the Relevant Period.

101. The total of the GST shortfalls for MAK was assessed to be $17,735,043.00.

102. On 21 May 2015 YPP and on 12 December 2014 USH were also assessed to GST net amounts in respect of transactions they entered into during the Relevant Period.

Winding up of MAK and YPP & deregistration of USH

103. On 2 December 2016, MAK was placed into voluntary liquidation.

104. YPP was placed into voluntary liquidation on 8 April 2014.

105. USH was deregistered on 1 August 2015.

The Majid Group

106. The Majid Group entities were:

107. The following Majid Group entities were incorporated as companies, registered for GST or re-registered for GST between 1 June 2011 and 3 May 2013:

108. The Applicant produced three "Letters of Confirmation" on its letterhead, variously dated 15 May 2012, 2 July 2012 and 30 September 2012, which stated that Mr Faraj was authorised to act on behalf of Menas, Najaf and Elmas respectively.

109. At or around the time when Mr Faraj delivered gold to the Applicant, he generally spoke to Mr Cochineas to fix the price at which the Applicant agreed to purchase gold from the relevant Majid Group entities.

110. A large proportion of the material delivered to the Applicant by Mr Faraj was scrap gold of 99.99% fineness.3

111. During the Relevant Period, the Applicant acquired $101,031,623 worth of gold from the Majid Group.

Invoices and job sheets for the Applicant's gold acquisitions from the Majid Group

112. Mr Faraj provided the Applicant with tax invoices from the Majid Group entities (and

ATC 11822

Gold Buyers) when he dropped off gold at the Applicant's premises.

113. The invoices described the material supplied by the Majid Group and Gold Buyers to the Applicant as fine gold granules or words to that effect.

114. The Applicant's job sheets described the material it received from the Majid Group as melted bars, 1kg bars or scrap, which was mainly of a 99.99% fineness.

115. These job sheets included job sheets and accompanying handwritten notes that described some of the material as ABC, PAMP, Emirates, Metalor or Perth Mint bars.

116. The weight of the gold recorded in all of the multiple tax invoices rendered by Elmas to the Applicant within the week beginning 5 August 2013 totalled exactly 15,000 grams.

117. The weight of the gold recorded in all of the multiple tax invoices rendered by Menas to the Applicant within the week beginning 5 August 2013 totalled exactly 9000 grams.

118. The weight of the gold recorded in all of the multiple tax invoices rendered by Najaf to the Applicant within the week beginning 5 August 2013 totalled exactly 15,000 grams.

119. The weight of the gold in the three tax invoices rendered by Elmas, Menas and Najaf to the Applicant on 7 August 2013 totalled exactly 9000 grams of gold.

120. The Applicant's job sheet for 7 August 2013 does not record separate weights for its acquisitions from each of the Majid Group entities.

Ceylon

121. During the Relevant Period, ABC NSW supplied Ceylon bars of ABC NSW branded Precious Metal with a 99.99% fineness produced by the Applicant, and bars of PAMP branded Precious Metal of 99.99% fineness.

122. During the Relevant Period, Mr Cochineas knew that ABC NSW supplied Precious Metal to Ceylon.

Supplies from Ceylon to Najaf and by Najaf to the Applicant

123. On 25 March 2013:

124. On 26 March 2013:

125. On 27 March 2013:

Supplies from Ceylon to Elmas and by Elmas to the Applicant

126. On 25 March 2013:

127. On 26 March 2013:

128. On 23 May 2012:

Supplies from Ceylon to Menas and by Menas to the Applicant

129. On 26 March 2013:

Supplies by Blue Heaven to the Applicant

130. When the Applicant became that aware Blue Heaven's proprietors were not

ATC 11823

registered for GST, the Applicant procured the return of the GST component of the price it had paid for acquiring the gold that was delivered to it.

Winding up and bankruptcy of Majid Group entities

131. A number of the Majid Group entities were assessed for GST net amounts in respect of transactions during the Relevant Period on various dates after the Relevant Period:

132. The total of the GST shortfalls for the Majid Group was assessed to be $32,273,306.

133. Of the sole traders included in the Majid Group:

134. Of the companies included in the Majid Group:

Gold Buyers

135. Gold Buyers was incorporated on 7 February 2012.

136. Mr Faraj purported to represent and deliver gold for Gold Buyers, and negotiated prices with Mr Cochineas for its sale of gold to the Applicant.

137. On 25 March 2013:

138. On 27 March 2013:

139. On 24 June 2013, Gold Buyers was placed into voluntary liquidation.

Events from late 2013

140. After 29 October 2013, the IPJ Group and the Majid Group entities, except for Mr Faraj's own business, Majid Jewellers, ceased trading with the Applicant.

141. On 8 July 2014, the Applicant was notified of the commencement of an audit into its GST affairs.

142. *On 1 September 2015, the Applicant transferred its business to ABC Refinery (Australia) Pty Ltd (ABCRA). ABCRA had the same premises, directors and underlying owners as the Applicant at that time, and is now known as ACN 607 537 548 Pty Ltd (in liquidation).

143. *On 23 December 2015, Ms Simpson and Mr Gregg ceased in their roles as directors of the Applicant.

144. On 24 December 2015, the Applicant was renamed ACN 154 520 199 Pty Ltd.

145. On 8 April 2016, the audit was finalised and the Applicant was issued with GST assessments for the Relevant Period that gave effect to declarations made under s 165-40 of the GST Act.

146. The declarations disallowed $72,953,611.00 in input tax credits the Applicant claimed for acquiring scrap from the entities referred to by the Respondent as the Division 165 Supplying Entities (i.e. the IPJ Group, MAK, the Majid Group and Gold Buyers).

147. On 28 April 2016, the Applicant lodged an objection against the assessments issued on 8 April 2016.

148. By letter dated 21 September 2016, the Respondent disallowed the objection.

149.

ATC 11824

On 22 September 2016, the Applicant was placed into voluntary liquidation.

The Applicant's relevant claims for GST input tax credits

150. To claim an input tax credit in respect of the payment of a GST inclusive price for the acquisition of gold by the Applicant, the Applicant would:

151. The input tax credits to which the Applicant was entitled but for any operation of Division 165 of the GST Act were equal to the amounts already paid by the Applicant as part of the consideration for the taxable supply of gold by its suppliers, being $72,953,611.

APPENDIX 3

PUTTAGE TABLE[164] Table of Transcript extracts relied on by the Commissioner showing contended for assertions put to Mr Cochineas by the Commissioner


Assertion Transcript reference
Submission paragraph 22: [the applicant] says that it was not suggested to Mr Cochineas in cross- examination that he was aware of the exact volume of material sold to IPJ as had access to ABC NSW's computer system or that Ms Simpson had access to [the applicant]' day-to-day information. T 124 - T125.12 [concerning Ms Simpson's knowledge]
T 147-148: re 16 September email from Sandro Catanzariti See, esp., T 148.9
  But is it consistent with your recollection that in or around September or thereafter in 2013, IPJ was purchasing around 40 bars per day from ABC?
T 148.43 - 149.4 (Deputy President)
  But as the managing director of the show, even if you weren't aware of the specifics of the particular transactions because that was delegated to various officers?
  You were nonetheless aware of what was going on, the general trends, the capacity of the organisation, the ability to - of some of these orders to test that capacity. ---
Reply paragraph 1 : [the applicant] says it was never put to Mr Cochineas or any other witness that they suspected, much less knew, that the rogue suppliers were deliberately defacing precious metal to create taxable supplies and then deceiving the Commissioner in relation to their resulting liabilities. T 87.16
But the reality is, is it not, that the fine gold that IPJ was providing to [the applicant] was fine gold that it had bought from ABC which in turn had acquired from you?
 

ATC 11825

T 87.30-40
But what I'm putting to you … is that the gold that, the fine gold, in whatever form, the fine gold that IPJ supplied to [the applicant] was fine gold that it had acquired from ABC NSW.
  T 115.29-116.27
The obvious inference, is it not, that on 19 February A1 acquired product from ABC which then sold it back to the applicant in a form that meant it was not precious metal?
  T145.16
Did it not strike you as odd … that a process of refining to four nines gold seemed to have been undertaken by IPJ in a way that resulted in either the addition or retention of non-metallic impurities?
  T 146.5
So did it not strike you as odd that four-nines gold you were receiving from IPJ whilst being a four-nines fineness had some metallic impurities?
  T 151.6
But the volume of - from the IPJ entities the fact that it's coming in from them, doesn't that surprise you?
  T 153-157
  T 154.12
DEPUTY PRESIDENT: Correct me if I'm wrong. As I understand it, Mr Davies, what you are trying to do here, to use the vernacular, is you're saying, "You must have known this was dodgy"?
MR DAVIES: Yes.

MR HMELNITSKY: Well, of course, and - - -
DEPUTY PRESIDENT: So you want to put it to him and say, "Well, there are all these transactions going on. You knew there was something going on, didn't you?" That is your point?
MR DAVIES: That is my point.
MR HMELNITSKY: I understand that, and of course that has been put…
  T 155.18
It was the fact, was it not, that during the relevant - let's take August 2013 - that IPJ could not possibly have been able to exchange precious metal for the sufficient quantity of scrap gold to produce the sales of, and in the vicinity of a million dollars that it was making to [the applicant] on an almost-daily basis?
  T 155.41
It's not possible, is it, that IPJ was obtaining the feedstock for that to produce gold granules of that value [half a million to in excess of a million] by swapping bullion for scrap gold?
  T 156.4
And how was it that it was evident from the outputs that you were receiving from IPJ that they had been refined by IPJ from scrap metal?
 

ATC 11826

T 156.12:
… the circumstances in which Mr Catanzariti was acquiring vast volumes of bullion from ABC New South Wales, did it not occur to you that the feedstock that IPJ was applying to whatever processes that applied was bullion that it had acquired from ABC?
  T 183.3-15
Do you deny then that you knew that the Majid entities were acquiring the material that they were selling to you from Ceylon? … And do you deny that the payments made by [the applicant] to the Majid Group entities impacted upon the timing of purchases by Ceylon from ABC?...
Did you not understand that the ability of ABC to provide bullion to Ceylon pursuant to orders by Ceylon turned upon the acquisition by [the applicant] of material from the Majid group for the purposes of refining and the payment by [the applicant] pursuant to those purchases?
Reply paragraph 5: [the applicant] says that Mr Cochineas' evidence about his belief that IPJ was refining was unchallenged. T145.16
Did it not strike you as odd … that a process of refining to four nines gold seemed to have been undertaken by IPJ in a way that resulted in either the addition or retention of non-metallic impurities?
  T 146.5
So did it not strike you as odd that four-nines gold you were receiving from IPJ whilst being a four-nines fineness had some metallic impurities?
  T 146.15 (Deputy President)
So why did they bother refining at all, then? …
If you have a bag of scrap bits of gold why would go through the - through a refining process? Why wouldn't they just bring it straight to you and save themselves the cost, the expense and the hassle?
  T 146.26 (Deputy President)
But why? What's the advantage for them in upgrading it to four-nines before giving it to you?
  T 155.4-23
Did you yourself ever visit Mr Catanzariti's refinery? …
So you never satisfied yourself about the particular refining plant that Mr Catanzariti was utilising to refine scrap jewellery to four nines jewellery? …
It was the fact, was it not, that during the relevant - let's take August 2013 - that IPJ could not possibly have been able to exchange precious metal for sufficient quantity of scrap gold to produce the sales in the vicinity of a million dollars that it was making to [the applicant] on an almost daily basis?
  T 157.1:
Did it not occur to you at the time that it was odd that IPJ was exchanging bullion for scrap and then refining itself, and then selling to you?
Reply paragraph 5 , regarding Catanzariti's explanation of swapping scrap for bullion and Cochineas' evidence that this was a common practice in the industry, [the applicant] says: "[e]ven if it is accepted that Mr Catanzariti misled Mr Cochineas, Mr Cochineas was not challenged on his evidence." T 87.16
But the reality is, is it not, that the fine gold that IPJ was providing to [the applicant] was fine gold that it had bought from ABC which in turn had acquired from you?
 

ATC 11827

T 151.6
But the volume of - from the IPJ entities the fact that it's coming in from them, doesn't that surprise you?
  T 155.4-23
Did you yourself ever visit Mr Catanzariti's refinery? …
So you never satisfied yourself about the particular refining plant that Mr Catanzariti was utilising to refine scrap jewellery to four nines jewellery? …
It was the fact, was it not, that during the relevant - let's take August 2013 - that IPJ could not possibly have been able to exchange precious metal for sufficient quantity of scrap gold to produce the sales in the vicinity of a million dollars that it was making to [the applicant] on an almost daily basis?
  T 155.18
It was the fact, was it not, that during the relevant - let's take August 2013 - that IPJ could not possibly have been able to exchange precious metal for the sufficient quantity of scrap gold to produce the sales of, and in the vicinity of a million dollars that it was making to [the applicant] on an almost-daily basis?
  T 155.41
It's not possible, is it, that IPJ was obtaining the feedstock for that to produce gold granules of that value [half a million to in excess of a million] by swapping bullion for scrap gold?
  T 156.4
And how was it that it was evident from the outputs that you were receiving from IPJ that they had been refined by IPJ from scrap metal?
  T 156.12:
… the circumstances in which Mr Catanzariti was acquiring vast volumes of bullion from ABC New South Wales, did it not occur to you that the feedstock that IPJ was applying to whatever processes that applied was bullion that it had acquired from ABC?
  T 156.31:
So why, Mr Cochineas, did it not occur to you as odd that IPJ was purchasing large volumes of bullion from ABC?
Reply paragraph 7: [the applicant] says that Mr Cochineas' evidence that due diligence was conducted on all clients and provided the unchallenged explanation that all the relevant documentation had been provided to the Commissioner (of which he provided examples) was never disputed. T 162.40
You say at 212 that each group entity was subject to the standard account opening procedures described in paragraph 92 to 102, and you maintain that position do you?
 

ATC 11828

T 163.1
You say that the due diligence policy of [the applicant] required all clients to complete a refining application and a pro-forma of that application is set out at PGC1-354?
  T 163.17-40
That application asked for information in boxes to be filled in … which asks for some information about the source of the refining material to be refined by the [the applicant] refinery, its origin, the type of material to be supplied, and so on.
Reply paragraph 10: it was never put to Mr Cochineas that there was something suspicious about these matters. T 155.18
It was the fact, was it not, that during the relevant - let's take August 2013 - that IPJ could not possibly have been able to exchange precious metal for the sufficient quantity of scrap gold to produce the sales of, and in the vicinity of a million dollars that it was making to [the applicant] on an almost-daily basis?
  T 155.41
It's not possible, is it, that IPJ was obtaining the feedstock for that to produce gold granules of that value [half a million to in excess of a million] by swapping bullion for scrap gold?
  T 168.1
The Majid group entities that you were dealing with were all small jewellers, were they not?
  T 168.12-25
So Najaf jewellers from whom you purchase material of [34 million] was the trading name of Mr Haqiqi; is that correct?... And the trading name was registered on 24 February 2012? … It was registered for goods and services tax on 24 February 2012?
… Did it not strike you as odd that Mr Haqiqi had access to diffused [ must be mis- transcription of "defaced" ] bullion, or melted down?
  T 169.1-10
… it appears that [Mr Qahtani] was registered for GST purposes on 1 June 2011? … Well registered earlier and cancelled for a period and then registered again on 1 June 2011? … You were able to purchase from that person material over the relevant period to the value of about $34 million?
  T 169.39
Did it not occur to you to wonder how it was that Mr [Qahtani] was able to provide [the applicant] with material valued at $34 million?
  T 236.29
So what that sequence of transactions involved was the sale by ABC to the five IPJ entities of 30 1-kilogram bars, the sale of what are described as fine gold granules by the five IPJ entities to [the applicant], and then the sale by [the applicant] of 30 gold bars to ABC occurring on the one day, and payments also occurring in respect of the transactions occurring on the one day.
 

ATC 11829

T 256-57
… the sales on that day by MAK to [the applicant] exceeded $3 million… significantly above $3 million. … Does it accord with your recollection that that sort of trading with MAK was typical during the relevant period, with MAK?
… So what I'm putting to you is that Mr Kukulka on behalf of MAK was able to provide you with material on an almost daily basis for the relevant period that meant that your organisation was out-turning amounts of around $2 million or greater on an almost daily basis?
Reply paragraph 14: [the applicant] says that Cochineas' explanation of the reason why there might be a link between the volume of purchases and sales of gold in the secondary market was undisputed. T 172.5-175.21
  T 183.3-15
Do you deny then that you knew that the Majid entities were acquiring the material that they were selling to you from Ceylon? … And do you deny that the payments made by [the applicant] to the Majid Group entities impacted upon the timing of purchases by Ceylon from ABC?...
Did you not understand that the ability of ABC to provide bullion to Ceylon pursuant to orders by Ceylon turned upon the acquisition by [the applicant] of material from the Majid group for the purposes of refining and the payment by [the applicant] pursuant to those purchases?
Reply paragraph 14: [the applicant] says that it was not put to Cochineas that any ABC NSW staff member might have thought that [the applicant] and Ceylon were working together. T 173.35
… there was a link between your not paying everyone, being the suppliers, and the fact that Ceylon only purchased eight one-kilograms that day?
  T 174.41 (Deputy President)
It's a smoothly operating relationship, is that right?
  T 174.43 (Deputy President)
Between you and ABC, effectively?
  T 174.47 (Deputy President)
…there was an established pathway that everyone understood…
 

ATC 11830

T 175.1-21 (Deputy President)
So the two businesses are very sensitive to each other; would that be right? … Similarly there's a sensitivity to the various important, significant suppliers that you have. There's an expectation that they're going to behave in particular ways; is that right?
  T 180.4-11
Concerning a chain of emails including Mr Cochineas, Ms Simpson and Ms Kim Ronaldson (Operations Manager at ABC NSW) about a complaint Ceylon made to Mr Cochineas about ABC NSW's service (HB vol 8 p 6706):
Why was it that you thought that Ceylon had the potential to be a huge client?---
  T 183.3-15
Do you deny then that you knew that the Majid entities were acquiring the material that they were selling to you from Ceylon? … And do you deny that the payments made by [the applicant] to the Majid Group entities impacted upon the timing of purchases by Ceylon from ABC?...
Did you not understand that the ability of ABC to provide bullion to Ceylon pursuant to orders by Ceylon turned upon the acquisition by [the applicant] of material from the Majid group for the purposes of refining and the payment by [the applicant] pursuant to those purchases?
Reply paragraph 15: the fact of invoices adding to round numbers was put to Mr Lawrence Bell (inventory manager) See T 495- T 500
Reply paragraphs 25 and 43: [the applicant] says that the allegation of [the applicant]' implicit cooperation with Mr Catanzariti, Mr Faraj and Mr Kukulka to effect creditable acquisition of adulterated bullion was never put to any of [the applicant]' witnesses. T 169.1-10
… it appears that [Mr Qahtani] was registered for GST purposes on 1 June 2011? … Well registered earlier and cancelled for a period and then registered again on 1 June 2011? … You were able to purchase from that person material over the relevant period to the value of about $34 million? …
  T 169.39
Did it not occur to you to wonder how it was that Mr [Qahtani] was able to provide [the applicant] with material valued at $34 million?
  T 183.3-15
Do you deny then that you knew that the Majid entities were acquiring the material that they were selling to you from Ceylon? … And do you deny that the payments made by [the applicant] to the Majid Group entities impacted upon the timing of purchases by Ceylon from ABC?...
Did you not understand that the ability of ABC to provide bullion to Ceylon pursuant to orders by Ceylon turned upon the acquisition by [the applicant] of material from the Majid group for the purposes of refining and the payment by [the applicant] pursuant to those purchases?
  T 183.3-15
Do you deny then that you knew that the Majid entities were acquiring the material that they were selling to you from Ceylon? … And do you deny that the payments made by [the applicant] to the Majid Group entities impacted upon the timing of purchases by Ceylon from ABC?...
Did you not understand that the ability of ABC to provide bullion to Ceylon pursuant to orders by Ceylon turned upon the acquisition by [the applicant] of material from the Majid group for the purposes of refining and the payment by [the applicant] pursuant to those purchases?
  T 184.4
You're aware aren't you that there are jewellers within the Majid Group who deny ever having traded with your company?
 

ATC 11831

T 184.18
It is your understanding, is it not, that they say that they were misled by Mr Faraj?
  T 208.46 - T 209.41
You were aware, were you not, that MAK obtained its material, its supplies, from two sources, one source being Mr Bourke, who I think traded through the company [YPP]?
…. You were told by Mr Kukulka that he was sourcing gold from Mr Bourke or Mr Bourke's company, [YPP]? … You were told by Mr Kukulka that his major supplier was somebody called the Golden Goose? …
And are you saying that you did not enquire of Mr Kukulka who the Golden Goose was?
  T 214.14-26
Did you have a good working relationship with Mr Kukulka? … You were told by him, were you not, that he sourced some of his material from a man called Rocco Calabrese?
… Mr Calabrese had a poor reputation? He had a criminal reputation, didn't he.
  T 216.11
For such 24-carat jewellery to then take the form of the golden egg provided by Mr Bourke, it must have been melted in an uncontrolled environment or something similar done to it in an uncontrolled environment?
  T 234.30-T235.10
[14 June 2013 transactions involving IPJ group entities]
  T 236.29
So what that sequence of transactions involved was the sale by ABC to the five IPJ entities of 30 1-kilogram bars, the sale of what are described as fine gold granules by the five IPJ entities to [the applicant], and then the sale by [the applicant] of 30 gold bars to ABC occurring on the one day, and payments also occurring in respect of the transactions occurring on the one day.
  T 256-57
… the sales on that day by MAK to [the applicant] exceeded $3 million… significantly above $3 million. … Does it accord with your recollection that that sort of trading with MAK was typical during the relevant period, with MAK?
… So what I'm putting to you is that Mr Kukulka on behalf of MAK was able to provide you with material on an almost daily basis for the relevant period that meant that your organisation was out-turning amounts of around $2 million or greater on an almost daily basis?

ATC 11832

Reply paragraph 19: [the applicant] says that it was not put to Mr Cochineas that there was some collusion or coordination between [the applicant] and the rogues directed towards disguising their illegal activities.		 T 115
The obvious inference, is it not, that on 19 February A1 [Metals] acquired product from ABC which then sold it back to the applicant in a form that meant it was not precious metal?
  T 168.12-25
So Najaf jewellers from whom you purchase material of [34 million] was the trading name of Mr Haqiqi; is that correct?... And the trading name was registered on 24 February 2012? … It was registered for goods and services tax on 24 February 2012?
… Did it not strike you as odd that Mr Haqiqi had access to diffused [ must be mis- transcription of "defaced" ] bullion, or melted down?
  T 169.1-10
… it appears that [Mr Qahtani] was registered for GST purposes on 1 June 2011? … Well registered earlier and cancelled for a period and then registered again on 1 June 2011? … You were able to purchase from that person material over the relevant period to the value of about $34 million?
  T 169.39
Did it not occur to you to wonder how it was that Mr [Qahtani] was able to provide [the applicant] with material valued at $34 million?
  T 184.4
You're aware aren't you that there are jewellers within the Majid Group who deny ever having traded with your company?
  T 184.18
It is your understanding, is it not, that they say that they were misled by Mr Faraj?
  T 234.30-T235.10
[14 June 2013 transactions involving IPJ group entities]
 

ATC 11833

T 236.29
So what that sequence of transactions involved was the sale by ABC to the five IPJ entities of 30 1-kilogram bars, the sale of what are described as fine gold granules by the five IPJ entities to [the applicant], and then the sale by [the applicant] of 30 gold bars to ABC occurring on the one day, and payments also occurring in respect of the transactions occurring on the one day.
Reply paragraphs 28 and 44: [the applicant] says that the submission about an artificial market in gold was never put to Mr Cochineas. T 156.12:
… the circumstances in which Mr Catanzariti was acquiring vast volumes of bullion from ABC New South Wales, did it not occur to you that the feedstock that IPJ was applying to whatever processes that applied was bullion that it had acquired from ABC?
  T 156.31:
So why, Mr Cochineas, did it not occur to you as odd that IPJ was purchasing large volumes of bullion from ABC?
  T 183.3-15
Do you deny then that you knew that the Majid entities were acquiring the material that they were selling to you from Ceylon? … And do you deny that the payments made by [the applicant] to the Majid Group entities impacted upon the timing of purchases by Ceylon from ABC?...
Did you not understand that the ability of ABC to provide bullion to Ceylon pursuant to orders by Ceylon turned upon the acquisition by [the applicant] of material from the Majid group for the purposes of refining and the payment by [the applicant] pursuant to those purchases?
  T 256-57
… the sales on that day by MAK to [the applicant] exceeded $3 million… significantly above $3 million. … Does it accord with your recollection that that sort of trading with MAK was typical during the relevant period, with MAK?
… So what I'm putting to you is that Mr Kukulka on behalf of MAK was able to provide you with material on an almost daily basis for the relevant period that meant that your organisation was out-turning amounts of around $2 million or greater on an almost daily basis?
Reply paragraph 33: [the applicant] says that there was no cross-examination about an allegation that [the applicant]' and ABC NSW's business models were set up in a way to "facilitate the transactions" and that [the applicant] knew of the transactions or were wilfully blind to them. T 102.1-47 [concerning the 9 February 2012 email from Steve Lowden] …
[At lines 19-20] So that's an arrangement is it for ABC - HNMF - for ABC to buy the metal that has been delivered by Italian Prestige and others - - -?
[At line 29] So it contemplates payment by ABC and payment by [the applicant] the same day?
  T 148.43 (Deputy President)
But as the managing director of the show, even if you weren't aware of the specifics of the particular transactions because that was delegated to various officers?
You were nonetheless aware of what was going on, the general trends, the capacity of the organisation, the ability to - of some of these orders to test that capacity.
  T 151.6
But the volume of - from the IPJ entities the fact that it's coming in from them, doesn't that surprise you?
  T 208.46 - T 209.41
You were aware, were you not, that MAK obtained its material, its supplies, from two sources, one source being Mr Bourke, who I think traded through the company [YPP]?
…. You were told by Mr Kukulka that he was sourcing gold from Mr Bourke or Mr Bourke's company, [YPP]? … You were told by Mr Kukulka that his major supplier was somebody called the Golden Goose? …
And are you saying that you did not enquire of Mr Kukulka who the Golden Goose was?
  T 214.14-26
Did you have a good working relationship with Mr Kukulka? … You were told by him, were you not, that he sourced some of his material from a man called Rocco Calabrese?
… Mr Calabrese had a poor reputation? He had a criminal reputation, didn't he?
 

ATC 11834

T 216.11
For such 24-carat jewellery to then take the form of the golden egg provided by Mr Bourke, it must have been melted in an uncontrolled environment or something similar done to it in an uncontrolled environment?
  T 256-57
… the sales on that day by MAK to [the applicant] exceeded $3 million… significantly above $3 million. … Does it accord with your recollection that that sort of trading with MAK was typical during the relevant period, with MAK?
… So what I'm putting to you is that Mr Kukulka on behalf of MAK was able to provide you with material on an almost daily basis for the relevant period that meant that your organisation was out-turning amounts of around $2 million or greater on an almost daily basis?

Footnotes

[1] Appendix 1 to these reasons is a table of defined terms and acronyms.
[2] Section 195-1(1) definitions of “refiner of precious metal” and “precious metal”.
[3] Gold metal of any fineness that is not in investment form.
[4] Where considered appropriate, the term Division 165 Supplying Entities is adopted for consistency with the parties’ submissions and earlier decisions, and elsewhere Fraudulent Suppliers to avoid unnecessarily cluttering these reasons. They mean the same thing. The Division 165 Supplying Entities/Fraudulent Suppliers are identified in [57] below.
[5] Sections 9-5, 78-50, 84-5 and 105-5 as affected by the provisions listed beneath the definition of “taxable supply” in s 9-5.
[6] A GST benefit within the meaning of s 165-10(1) of the GST Act.
[7] Input tax credits within the meaning of ss 195-1(1), 11-20 and 15-15. At times, the term “input tax credit” is used as an alternative.
[8] The Contested ITCs.
[9] Unless otherwise indicated, all references to legislation are references to the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (“GST Act”).
[10] Goods and Services Tax.
[11] Investment form within the meaning of that term as used in the definition of precious metal in s 195-1(1).
[12] Section 195-1(1), definition of precious metal.
[13] Sections 9-30, 38-385; s 195-1(1) definitions of “precious metal” and “dealer in precious metal”.
[14] Sections 9-30, 40-100.
[15] Section 9-5.
[16] Australian Taxation Office.
[17] GST Act, s 195-1, gold, silver or platinum; or any other substance specified for the purposes of paragraph (d) of the definition of “ precious metal” .
[18] The Hon Kelly O’Dwyer, ‘Strengthening the integrity of GST on precious metals’ (Media Release, 20 June 2017).
[19] Appendix 2, Statement of Agreed Facts [41]. Figures have been rounded.
[20] ABC Bullion Company (NSW) Pty Ltd.
[21] ACN 154 520 199 Pty Ltd (in liquidation) v Federal Commissioner of Taxation [2020] FCAFC 190 .
[22] The period from 1 February 2012 to 30 June 2014.
[23] The total recorded on the declaration 1 was $3,178,221, which is assumed to be an arithmetic error.
[24] Ms Wright uses the term “relevant period” in her report. It is not the same period. The relevant period Ms Wright refers to is the 2013 calendar year.
[25] Australian Federal Police.
[26] ACN 154 520 199 Pty Ltd (In Liq) and Federal Commissioner of Taxation [2019] AATA 5981 .
[27] Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust [2023] FCAFC 19 .
[28] Taxation Administration Act 1953 (Cth), s 14ZZK.
[29] At [237] and [238].
[30] The First Tribunal was referring to Ainslie Bullion Company. According to the Commissioner’s Audit decision at T87, p1682, footnote 58, Ainslie Bullion Company was “[t]he trading name of Encum Pty Ltd at the relevant times.”
[31] At footnote 217 to the First Tribunal’s reasons, the Intermediaries were identified in the following terms: Defined in the Commissioner’s Amended Statement of Facts Issues and Contentions dated 16 March 2018 to be the IPJ Group, Gold Buyers, the Majid Group, MAK and ABC(A), which in turn sold gold bars to USH, together with certain other persons to whom one or more of them sold gold, including Focus Metals, Gold Makers and Goldborough.
[32] Ms Wright’s briefing package of 2 February 2018 included the Commissioner’s Statement of Facts Issues and Contentions dated 5 May 2017 which did not include the phrase and/or other sources in paragraph (b) of the scheme definition.
[33] To avoid repetition, references to the scheme should be taken to include the alternative scheme unless otherwise indicated.
[34] See [68] below.
[35] Transcript of Remittal Hearing p 109-110.
[36] Full Court reasons at [188] adopted and reiterated by the Commissioner by his reference to this paragraph at footnote 12 of his submissions.
[37] Appendix 2, Statement of Agreed Facts [9].
[38] Mr Phillip George Cochineas.
[39] Appendix 2, Statement of Agreed Facts [52]. The IPJ Group is comprised of Italian Prestige Jewellery Pty Ltd (IPJ), Premium Metal Services Pty Ltd (PMS), 4 Nines Pty Ltd (4 Nines), A1 Metals Pty Ltd (A1 Metals) and Antel Metals Pty Ltd (Antel).
[40] Appendix 2, Statement of Agreed Facts [106]. The Majid Group was comprised of Majid Jewellers, Najaf Jewellers (Najaf), Elmas Jewellers (Elmas), Menas Jewellery (Menas), KLM Jewellery Group Pty Ltd (KLM Jewellery), Blue Heaven Jewellery (Blue Heaven), Kais Jewellery (Kais), Mazin Jewellery Group Pty Ltd (Mazin), Sahara Jewellery (Sahara) and Mario B Jewellery (Mario B).
[41] M.A.K. Precious Metals Pty Ltd.
[42] Australian Gold Buyers International Pty Ltd.
[43] Mr Rahman Butt trading as, Goldborough Mineralz.
[44] Focus Metals Pty Ltd.
[45] Gold Makers of Australia Pty Ltd.
[46] The relevant paragraph numbers are reproduced from the First Tribunal’s reasons.
[47] Report of Dawna Wright dated 13 March 2018 (“Wright Report”), [1.3.1].
[48] Australian Government Solicitor.
[49] Wright Report, [1.3.6] and Appendix 1.
[50] Wright Report, [1.3.5].
[51] The descriptions of the supply chains adopted in these reasons is more stepped out than the descriptions in the instructions to Ms Wright, and in descriptions elsewhere. This approach has been adopted because it conforms to what the evidence reveals with less ambiguity than the descriptions in Ms Wright’s instructions.
[52] Sales of gold by the applicant to Ainslie, by Ainslie to YPP, by YPP to MAK, and by MAK to the applicant.
[53] Sales of gold by the applicant to ABC (NSW), by ABC NSW to Ceylon, by Ceylon to Majid Group, and by Majid Group to the applicant.
[54] Sales of gold by the applicant to ABC NSW, by ABC NSW to ABC (A), by ABC (A) to USH, by USH to MAK, and by MAK to the applicant.
[55] Sales of gold by the applicant to ABC NSW, by ABC NSW to IPJ Group, and by IPJ Group to the applicant.
[56] Sales of gold by the applicant to ABC NSW, by ABC NSW to Gold Buyers, and by Gold Buyers to the applicant.
[57] Sales of gold by the applicant to ABC NSW, by ABC NSW to Ceylon, by Ceylon to Gold Buyers, and by Gold Buyers to the applicant.
[58] Second Wright report [1.1.4] Annexure A.
[59] Third Wright report, [1.1.5], Annexure A.
[60] Wright Report, [8.2.1].
[61] Wright Report, [8.4.9].
[62] Wright Report, [8.5.1].
[63] Wright Report, [2.2.8].
[64] Wright Report, [2.2.9].
[65] Wright Report, [3.7.2 (a)] and Third Wright Report, [3.1.3].
[66] Third Wright Report, [3.1.4].
[67] Third Wright Report, [3.5.3].
[68] Third Wright Report, p 8, Recalculated Tables 1 and 2. The 19,159,397 grams received from Intermediaries and Supplying Intermediaries, referred to in (d) is as found by Ms Wright. The Tribunal assumes this is an error.
[69] Wright Report, [8.6.1], Table 52.
[70] Wright Report, [8.6.3].
[71] Wright Report, [8.6.5] and [8.7.6].
[72] Wright Report, [7.10.5(b)].
[73] Wright Report, [7.10.5(c)].
[74] Wright Report, [12.6.1(b)]. Table 74.
[75] Wright Report, [12.6.1(e)].
[76] Wright Report, [7.10.5(d)] and [12.2.6(c)].
[77] Wright Report, [7.10.5(g)] and [12.6.1(f)].
[78] Wright Report, [12.3.6].
[79] Wright Report, [12.6.1(g)].
[80] Wright Report, [14.5.3] Figure 57 and [13.5.4] Figure 52. The $8.6m is the aggregate of all sales by Gold Buyers at the conclusion of the Gold Buyers and Ceylon/Gold Buyers Supply Chains.
[81] Wright Report, [13.5.4] Figure 52. These purchases were through the Gold Buyers Supply Chain.
[82] Wright Report, [14.5.3] Figure 57. These purchases were through the Ceylon/Gold Buyers Supply Chain.
[83] Wright Report, [14.5.3] Figure 57 and [13.5.4] Figure 51.
[84] Wright Report, [11.5.2] Figure 41 and [14.5.3] Figure 57.
[85] Wright Report, [13.6.1(b)]
[86] Wright Report, [13.6.1(d)]
[87] Wright Report, [13.6.1(e)]
[88] Wright Report, [13.6.2].
[89] Wright Report, [14.6.1(b)].
[90] Wright Report, [14.6.1(c)].
[91] Wright Report, [14.6.1(c)].
[92] Wright Report, [14.6.1(c)].
[93] Wright Report, [14.6.2].
[94] Wright Report, [9.6.2(b)]. Ms Wright observed $273m of receipts from the applicant in 2013, but identified approximately $383m payments to MAK in the applicant’s bank accounts.
[95] Third Wright Report, [3.5.1] Table 2.
[96] Wright Report, [7.12.14]-[7.12.15].
[97] Wright Report, [7.12.6(c)].
[98] Wright Report, [7.12.6(d)].
[99] Wright Report, [10.6.1(c)].
[100] Wright Report, [10.6.1(e)].
[101] Wright Report, [10.6.1(f)].
[102] Wright Report, [9.6.2(a)].
[103] Wright Report, [9.6.1(b) and (i)].
[104] Wright Report, [9.6.1(b)].
[105] Wright Report, [7.6.5(c)].
[106] Wright Report, [9.6.1(e) and (j)].
[107] Wright Report, [7.12.6(b)].
[108] Wright Report, [7.12.6(b)] Figure 18.
[109] Wright Report, [9.6.1(j)].
[110] Wright Report, [9.6.1(c)].
[111] Wright Report, [9.6.1(e)].
[112] Wright Report, [9.6.1(f)].
[113] Wright Report, [9.6.1(j)].
[114] Wright Report, [9.6.2].
[115] Wright Report, [9.6.1(k)].
[116] Wright Report, [9.6.1(l)].
[117] Wright Report, [9.6.1(g)].
[118] Wright Report [11.6.2].
[119] Wright Report, [11.1.2] Figure 38 and [11.6.1(a)].
[120] Wright Report, [11.6.1(b)].
[121] Wright Report, [11.1.2] Figure 38.
[122] Wright Report, [11.1.2] Figure 38.
[123] Wright Report, [11.6.1(b)].
[124] Wright Report, [11.1.2] Figure 38.
[125] Wright Report, [11.6.1(c)].
[126] Wright Report, [11.6.1(d)].
[127] Wright Report, [11.6.1(d)].
[128] Wright Report, [11.6.1(e)].
[129] Wright Report, [11.6.1(f)].
[130] Transcript of Remittal Hearing, P-203, line 41 to P-204, line 3.
[131] ACN 154 520 199 Pty Ltd (in liquidation) v Federal Commissioner of Taxation [2020] FCAFC 190 , [204].
[132] As set out in Appendix 3.
[133] Export Report of Nikos Kavalis dated 12 February 2017, Remittal Hearing Book Vol 4 p 3205, [38].
[134] Ibid, [7]-[25].
[135] Affidavit of Phillip George Cochineas dated 8 December 2017, [76].
[136] Wright Report. For example, the analysis of MAK transactions at [6.3.4].
[137] Expert Report of Stewart Murray dated 8 December 2017, [25]-[30].
[138] Saga Holidays Limited v Federal Commissioner of Taxation (2006) 156 FCR 256 , 264 [29]-[30].
[139] Transcript of Remittal Hearing, P-386, lines 15-19 and repeated on the same page at P-386, lines 1-18.
[140] Transcript of First Tribunal Hearing, 3 September 2018, P-214 (Remittal Hearing Book, Volume 14, 215).
[141] Section 9-5.
[142] Division 11.
[143] Section 11-5.
[144] Saga Holidays Ltd v Federal Commissioner of Taxation (2006) 156 FCR 256 , [30].
[145] Income Tax Assessment Act 1936 (Cth).
[146] See Federal Commissioner of Taxation v Spotless Services (1996) 186 CLR 404 .
[147] Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 at [18] , per Gleeson CJ and McHugh J.
[148] Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 at [70] , per Gummow & Hayne JJ.
[149] Federal Commissioner of Taxation v Spotless Services (1996) 186 CLR 404 at 423 ; Hart at [63] per Gummow & Hayne JJ.
[150] Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 at [65] per Gummow and Hayne JJ.
[151] Federal Commissioner of Taxation v Mochkin (2003) 127 FCR 185 at [45] ; Vincent v Federal Commissioner of Taxation (2002) 124 FCR 350 at 372-373 ; CPH Property Pty Ltd v Federal Commissioner of Taxation (1998) 88 FCR 21 at 42 .
[152] ACN 154 520 199 Pty Ltd (in liquidation) v Federal Commissioner of Taxation [2020] FCAFC 190 , [224].
[153] Mills v Commissioner of Taxation (2012) 250 CLR 171 at p 202-203 Gageler J
[154] Section 9-10(3).
[155] Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 at [15] per Gleeson CJ & McHugh J; [65] per Gummow & Hayne JJ.
[156] At [206].
[157] For example, the Zafiriou affidavits.
[158] Email from Ms Simpson to Mr Cochineas dated 8 July 2013, Remittal Hearing Book Vol 8 Item 278, 6756.
[159] Appendix 2, [41].
[160] Transcript of Remittal Hearing, P-198, lines 41-44.
[161] An alternative profit calculation would recognise both the GST effect on the sales price received and the liability to the ATO producing the same effect.
[162] The “Relevant Suppliers” were defined in the First Cochineas Affidavit at [161] to including the IPJ Group, the Majid Group, Gold Buyers, MAK, Goldborough, Focus and GMA.
[163] The parties remain in dispute about the extent of testing undertaken by the applicant to confirm the fineness of the gold it acquired during the relevant period.
[164] Table of Transcript extracts relied on by the Commissioner showing contended for assertions put to Mr Cochineas by the Commissioner

 

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