TAXATION RULING NO. ST 2256
ST 2256
SALES TAX : JURISDICTION OF A COURT TO REVIEW DISPUTES IN ACTIONS FOR THE RECOVERY OF SALES TAX WHERE A DEFAULT ASSESSMENT HAS ISSUED
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FOI status:
May be releasedFOI number: I 1209455PREAMBLE
In Cordoba Cellars Pty Ltd v F C of T, 86 ATC 4124; 17 ATR 351, Pincus J had cause to consider the meaning of sub-section 10(2A) of Sales Tax Assessment Acts (No. 2), (No. 3) and (No. 7). Those sub-sections, which are identical in terms and are also identical to sub-section 25(2A) of Sales Tax Assessment Act (No. 1), provide that where certain conditions are met, the Commissioner may cause an assessment to be made ... "of the amount upon which, in his judgment, sales tax ought to be levied, and the person shall be liable to sales tax thereon, excepting so far as he establishes on objection that the assessment is excessive". His Honour found that, in the matter before him which concerned assessments made pursuant to sub-section 10(2A), there could be no challenge to the assessment in the Federal Court ... "with respect to the amount or value of goods sold" (86 ATC at 4128, 17 ATR at 355).
FACTS
2. Cordoba Cellars Pty Ltd ("Cordoba") was subject to certain investigations concerning its liability for sales tax. It was found to have understated its sales and default assessments pursuant to sub-sections 10(2A) of Sales Tax Assessment Acts (No.2), (No.3) and (No.7) were raised in January 1986. At the same time, notices pursuant to section 38 of Sales Tax Assessment Act (No.1), were served on a number of Cordoba's debtors requiring them to pay to the Commissioner any monies due to the taxpayer.
3. Some days later, Cordoba served on the Commissioner an application for an interlocutory injunction, issued in the Federal Court. Cordoba sought to restrain the Commissioner from issuing further notices pursuant to section 38 and to require the withdrawal of notices already given. It also sought declarations that the assessments were excessive, erroneous and wrong. It was argued that the Commissioner had issued notices pursuant to section 38 before Cordoba could carry out its intention of lodging objections and before those objections could be determined. The dispute between Cordoba and the Commissioner was as to quantum only ie, whether it had sold as great a value of taxable goods as contended by the Commissioner.
4. Cordoba's application was heard by the Federal Court on 5 February 1986. The Court dismissed the application for relief and refused to grant the orders sought.
5. Counsel for the Commissioner put two submissions to the Court. First, he submitted that the Court had no jurisdiction to grant a declaration that the applicant is not liable to pay the tax assessed. Secondly, he submitted that, having regard to the terms of sub-section 10(2A), the Court cannot go behind the assessments.
6. His Honour dealt with the second submission first. He distinguished the decision of the High Court in D.F.C. of T v Hankin (1958 - 1959) 100 CLR 566 on the basis that that decision related to an assessment made pursuant to Sales Tax Assessment Act (No. 5) which has never had a default assessment provision similar to sub-section 10(2A). It should be mentioned that in Hankin's case Dixon CJ, Fullagar, Kitto and Windeyer JJ said in their joint judgment at p 578 :
"The result is that a taxpayer, who is dissatisfied with an assessment of the Commissioner, may refuse to pay the amount assessed, and, when he is sued by the Commissioner, may take any objection to the assessment other than the objection that some required formality has not been observed. No liability to pay tax is 'incontestably' imposed."
7. Pincus J then went on to examine the probable meaning of the closing words used in sub-section 10(2A) and commented (at 86 ATC at p 4127, 17 ATR at p 354) that those words were likely intended to interlock with the objection provisions in Sales Tax Assessment Act (No. 1). His Honour observed at 86 ATC at p 4127, 17 ATR at p 354/5 that :
"It may well be that the liability mentioned in sec.10(2A) was intended to be coextensive with the jurisdiction of the Board to determine objections to assessments under that subsection. That is, the scheme appears to be that, in cases in which an objection might be made to a Board of Review ... that is the only means whereby the liability created by sec.10(2A) can be displaced, given an assessment made in circumstances falling within one of the three categories in the subsection."
8. His Honour concluded, at 86 ATC at p 4128, 17 ATR at p 355, that, in the matter before him where the dispute was as to quantum only, being whether Cordoba had sold as great a value of taxable goods as contended by the Commissioner, then "...no challenge [could be made] to the assessment in this Court with respect to the amount or value of goods sold."
9. Having decided for the Commissioner on his second submission, Pincus J did not express any view on the correctness of the first submission, that is, whether the Court has jurisdiction to grant a declaration of non-liability for sales tax.
10. Cordoba did appeal to the Full Federal Court against the decision of Pincus J but withdrew its appeal before the matter was heard.
RULING
11. The decision of Pincus J has a very narrow application. It should be seen to apply only where a default assessment has issued to a taxpayer pursuant to sub-section 25(2A) of Sales Tax Assessment Act (No. 1) or sub-section 10(2A) of the Sales Tax Assessment Acts (No. 2), (No. 3), (No. 6) or (No. 7), and the sole dispute between the taxpayer and the Commissioner relates to the quantum of goods included in such assessments. The decision should not be seen as applying to other types of dispute for example, the appropriate classification of goods for sales tax purposes, whether a sales taxpayer is a manufacturer or a wholesale merchant or whether a sales taxpayer is a registered person.
12. Enactment of the Taxation Boards of Review (Transfer of Jurisdiction) Bill 1986 will have the effect of further confining the Cordoba Cellars decision. Under that legislation, which is to take effect from 1 July 1986, new procedures for resolving sales tax disputes will apply. Broadly, the new provisions bring the objection and appeal provisions into line with comparable income tax provisions.
COMMISSIONER OF TAXATION
17 June 1986
References
ATO references:
NO 86/2678-2
Date of effect:
Immediate
Subject References:
DEFAULT ASSESSMENTS -
RECOVERY OF TAX
Legislative References:
STAA (NO. 1) s.25(2A)
STAA (NO.2) s.10(2A)
STAA (NO. 3) s.10(2A)
STAA (NO. 7) s.10(2A)
Case References:
- Cordoba Cellars Pty Ltd v F C of T
86 ATC 4124
17 ATR 351
- D.F.C. of T v Hankin
(1958-1959) 100 CLR 566