CATCHHORDS Administrative law - application for review of Deputy Commissioner of Taxation - sales tax - metnod of valuation of qoods liable to tax - decision - whether decision leading up to assessment 18 calculation cf gales tax - objection to competency of applicaticn - objection upheld. Administrative Decisions (Judicial Review) Act 1977, clause (e) of Schedule 1 Sales Tax Assessment Act (No. 7) 1930. 3. 4(2), 7, 8. 9, 10 EENNETT HONDA FTY. LIMITED v COMMISSIONER FOR TASATION, SYDNEY No. G 364 of 1984 Morling J. 21 December 1984 Do" IN THE FEDERAL COURT OF AUSTRALIA wee ww NEW SOUTH WALES DISTRICT REGISTRY No. G 264 of 1984 GENERAL DIVISION BETWEEN : BENNETT HONDA PTY. LIMITED Applicant AND: THE DEPUTY COMMISSTONER FOR TAXATION, SYDNEY Respondent ORDER JUDGE MAKING ORDER : Morling J. DATE OF ORDER : 21 December 1984 WHERE MADE : Svdney THE COURT ORDERS AS FOLLOWS: l. Obiecticn to competency upheld. 2. Application dismissed. 3. Applicant to pay respondent's costs. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. Q ty fe _ a a a iva fee > GENERAL DIVISION BETWEEN : BENNETT HONDA ETY. LIMITED Applicant AND: THE DEPUTY COMMISSIONER EOR TASATION. SYDNEY Respondent MORLING J. 21 December 13384 REASONS FOR JUDGMENT Thi3z i3 the hearing of an cbiecticn to the ccmpetancy of an application made by Bennett Honda Pt. Limited (Bennett Honda) for an order of review of a decision made by the respondent that certain commercial arrangements mads retween Bennett Honda and Bora Warner Acceartance Corporation (Australia) Limited (Bora Warner) are such as bring into a operation the provisions of 3.4(2) of the Sales Tax Assessment Act (No. 7) 1320, as amended (the Sales Tax Assessment Act). The respcndent contends that the decisicn wnich 12 the zubfect or Bennett Honda'3 applicatisn 138 one which comes within para. (e) of Schedule 1 of the Administrative Dec t4 c1lons (Judicial Paview) Act 1377 'the Judicial Faview Act.. my, tne decision is one of a kind falling within that paragraph this Court has no jurisdiction to review it - see 3.2(1) of the Act which provides. inter alia. that the words "decision tc wnich this Act applies" means a decision of an administrative character made under an enactment, other than a decision included in any cf the classes of decisions set cut in Schedule 1 to the Act. One of the classes of decisions that are excluded from the Judicial Review Act is described in the following terms in para. (@) of Schedule lL: ""(e) decisions making, or forming part of the process of making, or leading up to the makina of, assessments or calculations of tax or duty, or decisions disallowing objections to assessments or calcul- ations of tax or duty, or decisicns amending. or refusing to amend, assess- ments or calculations of tax or duty, under any of the followina Acts: Sales Tax Asgsezsment Act (No. 7) The background to the applicaticn appears from correspondence which has passed between the respondent and Eorg Warner. It seems to be ccmmon ground between the parties tnat insofar as zale3 tax 15 payable, it will be pavarle u ti ia] bad Q Warner. However. the applicant claims to be aagrieved by the Trem Ecra Warner and mw decision because it purchases moter cycle conseauentivy anv increase in sal it w tax payable by Eory larner (t tuy az a resuit cf any asc2ssment being raised consequent on tne decision souqaht to be reviewed will result in Bennett Honda paying a hicgher price for motor cycles purchased from Borg Warner. I think it is a question whether the applicant 13 aggrieved by the decision it seeks to have reviewed. Eut for tne purposes of disposing of the present application I shali assume that it is aqarieved by the decision and that it isa competent applicant for an order of revicw under the cudicial Review Act. Borg Warner provides Bennett Honda with afcrm of wholesale financing known as floor plan financing in order to facilitate the distribution by Eennett Honda of Japanese motor cycles. This form of wholesale financing operates in the following fashion. Bennett Honda (bholesale) Pty. Limited import3 motor cycles into Australia and thereafter sells tnen to Bora Warner. In turn. Bora Warner bails the coods to Bennett Honda under a bailment agreement. Bennett Honda in turn sub-bails the machines tc dealers for sale to the xsublic. Immediately prior to the time at which a retail sale taxes place. a sale takes place between Borg Warner and Pennett Hon fa fa at the price at which Borg Warner acquired the acods,. plug sale3z tax. In consequence. the title in the motor cycler passes to Eennett Honda. The deaier than sells tc the retail purchaser as an agent sf Bennett Honda. The aealer. cr sub-bailes, then repays the amount owed by Bennett Honaa to Eorg Warner at Bennett Hcnda = direction. 4. Floor plan financing is a maior part of Borg Warner's business. and it enters into similar arrangements with many other importers and distributors of motor cycles in Australia. There is no common shareholding between Bord Warner and Bennett Honda. or Bennett Honda (Wholesale) Pty. Limited. The Borg Harner and Bennett Honda companies claim that they deal at arm's lenath and that there is no connection between them. other than that which arises from the aqreements to which I have referred. However the price at which the goods are sold by Borg Warner to Bennett Honda is not acceptable to the respondent. The decision that the applicant seexs to have reviewed under the Judicial Review Act is described in the arplication as "the decision of the respondent made on or before and as evidenced in a letter dated 3rd October 1984 addressed ts Sorg Harner Acceptance Corporation (Australia) Limited (Borg Warner') that the commercial arrangements between the arplicant and Eora Warner and the circumztances surrounding 'chose arrangements are such as would bring into operation fection 4(2) of the Sales Tax Assessment Act (flo. 7) 1320." The letter of ird October 1984 from the responasnt to Bora Warner in which the decision souqht to be reviewed arpears is in the following terms: Section 4/2) of the Sales Tax Azcessment Act Nr. 7 erovia ac where imported gocaz are scclad bv a is n y than the importer and the vindis ans purchaser are not dealing with each other at arm's lenath in relation to the transaction. the Commissioner is empowered to alter the sales value of the relevant aqoods. In consideration of the above provisions the sale value of motor cycles purchased by your company from importers and covered by bailment agreements with retailers associated with those importers and by s3ub-bailment agreements with their agents has been reviewed. The review has shown that the sale value currently adopted by your company is not satisfactory. With effect from 8 October 1984 the sale value cf motor cycles covered by the arrangements menticned above should be an amount equal to Landed into Store Cost of the motor cycles plus 15% of that amount, except in circumstances where the mctor cycles are sold by the importer to your company at a price exceeding Landed into Store Cost plus 15% when the sale value will be the actual selling price. You are advised that Landed into Store Cost includes all charges incurred in bringing the motor cycles into store or warehouse such as purchase Frice, insurance and freight. wharfaqe, customs duty, storage on wharf. delivery to store. sortind and/or stacking and any other related charges. It is cour understanding that vou purchase motor cycles from Kawasaki Motors Ftv Limited. Nerm Fraser Importers Pty Limited. Bennett Honda Fty Limited and LNC 1stribution Pty Limited for subs2quent sale under bailment/sub-baliment agreements. These suppliers nave been advised of this increased sale value. It is also mentioned that other goods ararct from motor cycles are subject to similar trading arrangements and the sale value of these goods 15 presently bezina reviewed. When the review has been completed you will be advised cf the decision." This letter was preceded by a longa course cf agaling between Borg Warner and the respondent. For many v2ars erisr t2 Tamaticn Gffic2 return Uctober 1534 ta Bora Warner had ezubmitted to ths Australi tor sales tax purposes. There had been a . correspondence between the respondent and Borg Warner over the vears. As early as 13 September 1972 Borg Warner's accountants had forwarded to the respondent the e¢raft cf a sub-bailment agreement and sought the respondent's views on it. The respondent advised Borg Warner that the agreement was "acceptable insofar as it bears on sales tax". On 2 October 1980 Borg Warner wrote to the respondent seeking to achieve clarification of 1ts sales tax responsibilities in relation to sub-bailment transactions. The respondent took a considerable time to consider this letter, and did not reply until 17 May 1984. On that date, he wrote a letter to Borg Warner which read, in part. as follows: "Where qoods. which have been the subject of conventional bailment/sub-bailment arrangements. are sold to retailer bailees/sub-bailees the taxable sale value would normally be the price charged by the batlor/finance company to that retailer. However, the sales tax legislation also ccntains provisions for a sale value to be altered where tne goods in question have been sold for less than an arm's lenath price. Thus any concern that this office has in relation to the qoods dealt with bv sub-bailment arrangements 1s not with the arrande- ments as such but centres on whether aosds dealt with under those arrangements, when they reach a taxing point, are being taxed on a sale value that is provided for in the sales tax law. A number of bailment arrandements have recently been examined. in particular some involving whcie- saler and retailers selling goods through unrelated finance companzes. These arrangements usually involve a wholesaler importing goods free cf tax and selling them at cost or virtual cost to the unrelated finance company. The finance ccmpany in turn sells the goods at the same price to the wnole- saler's related retail company. In this situaticn, as anplained earlier, the goods in gquesticn roach tnelr taxing point when they are sold by wnslesals by the finance company and it is that company uron which the sales tax law imposes a liability for sales tax. In cases where the value upon which tax is paid is less than that prescribed in the law it is the fanance company that 1s liable, under the sales tax law. for the payment of any further tax. The question ot whether a sale value or landed cost or virtual landed cost 13 a sale value provided for in this law has been considered and the conclusion that has now been reached is that such a sale value does not meet the requirements of the law. As a consequence of this. and because this incorrect sale value is not always adopted. each bailment arranzvement need3 to be considered on its own facts. The Deputy Commissioner of Taxation in Sydney has therefore been asked to institute enquiries into this aspect so that the question of the alteration of the sale vaiue of particular previously sub-bailed qoods can be determined. Officers from the Deputy Commissioner's Office will be in touch with you shortly in this reqard." On 29 June 1984 the respondent wrote to Borg Warner advising of a review which he had undertaken concerning bailment arrangements. The letter stated, in fart: "Tt has been ncted that in some instances. imported qoods have been s0ld by wholesale, by the importer, to an unrelated wholesale finance comeany at landed cost or virtual landed cost. This office does not accept a sale value of landed cost or virtual landed cost as being in accordance with the sale values provided for in the sales tax legislaticn. Based cn a review of the pricing structure of your company you are advised that a sale value which 15 acceptable to this cffice should be no less than tne landed cost of motor cycles plus 25% of that amount. Landed cost is to be calculated by reference to t value for dutv, duty, (sic) freight, insuranc wharftace and any other costs incurred in importi tne motor cycles to Australia. This sale value is effective from 2 July 1984 and cancels any sale value which may have been agreed to by this office." The respondent contends that 1t appears from the above correspondence that the decision the applicant wishes to nave reviewed is a decision forming part of the process of making, or leading up to the makina of an assessment of sales tax an is therefore a decision cf the kind referred to in para. (e) of Schedule l. According to the respondent. if Borg Warner is dissatisfied with the decision it should exercise the richts given to it under the provisions of Part VII of the Sales Tax Assessment Act (No. 1) 1930 as made applicable by s.12 of the Sales Tax Assessment Act (No. 7). Provision 1s made in Part VII for, inter alia, cbiections to sales tax assessments and to the reference toa Board of Review of an objection disallowed by the Commissioner. It was submitted on behalf of the applicant that ths decision was in the nature of an income tax ruling such as micght be aiven by the r2zpondent in answer to a request for nis opinion on a question of liability to income tax. It was also arqued that the decision was no more than a statement that the respondent proposed to take a certain ccurse of action in the future. It was not a decision, s0 1t was argued. Irom which an assessment or calculatisn of duty inevitably followed and it was thererore not a decisicn which had the necessary causal ccnnecsticn with an assessment cr calculation of duty. ani hance was mot witnin para. (3s). 3. Before considering these submissions 1t is necessarv to reter to the relevant sales tax leqislation. The Sales Taz Asses3ment Act provides. in etfect, for a system of self-assessment of tax by the taxpayer, with an overridinad right in the respondent to assess the taxpayer to further tax in the circumstances referred to in the Act. Section 3 provides that sales tax imposed by the Act shall be levied and paid upon the sale value of aqcods imported into Australia and sold by a taxpayer not being the importer of the qoods. Sub-section 4(1) provides that for the purposes of the Act the sale value of goods which are sold on or after lst Auaqust 1930 shall be the amount for which those qoods are so0ld by a reaqistered person, not being the importer of the gocds, toa reqistered person. By sub-s. 4(2) where the Commissioner is gatisfied of the matters referred to in the sub-section, he 1s required to alter the sale value or the relevant goods. Where the Commissioner alters the sale value of the acods pursuant to sub-s. 4(2), the sale value so altered 1s to be the sale value of the goods for the purposes of the Act (sub-s. 4(3)), Section 5S providez that where aoods imported into Australia are sold by a person other than the importer ci the qoods (being a reqistered parscn) to an unregistered person sales tax shall be paid by the vendor of tne gcecds. By s.7. every person who during any month makes any of the sales specified in the section shall. within 21 days after the clcse cr that month, furnizth to ths Commissioner a return cr those tu wu 10. sales in the prescribed form. The Commissioner may require any person to furnish him with an additional return within a specified time - vide 2.8. Every person liable to pay tax under s.5 upon the sale value of any goods solid by him during any month shall. within 21 days after the close of that month, pay sales tax upon that sale value (s.9). Where the Commissioner finds in any case that tax or further tax 15 payable by any person. he may assess the sale value upon which tax should be or should have been paid and calculate the tax or further tax which is payable - 3.10. Where, under sup-s. 1 or 2 of 3.4 the sale value of any goods has been altered, the Commissioner i3 required to calculate the further tax (if anv) pavable in consequence of that alteration - sub-s. 10(2). I turn now to consider the nature of the decisicn that the applicant seeks to have reviewed. The letter of 3 October 1984 must be read in the light of the correspondence that preceded ait and against the background of the Act. The letter conveys the respondent's decision that assessments cri sales tax on agocds sold by Borg Warner are to be calculuted cn the basis referred to in the letter. The letter 15 tantamount + to a direction to the taxpaver that the sales tax by Bs ot ayabl 'S bai ct pursuant to 3.3 must be paid upon the sale value cof th ood o Q wu as determined by tne respondent and specified in the letter. I do not think that the decisicn can fairly be a a scribed as being mersiv a statement br the resrondent of the ll. attitude he proposes to take to future assessments of tax. it may be that in the correspondence which preceded the letter of + Uctcber statements were made conveying decisions not falli la z within para. (e) of Schedule l. But by the time the letter of 4 October 1984 was written the stage had been reached where the respondent was dealina specifically with Borg fiarner's liability to tax and the manner in which its tax ilability wa a to be calculated. The letter was not merely a statement of the attitude the respondent intended to adopt in dealing with future assessments of tax. It 13 true that the statement in the letter that "with effect from 3 October 1984 the sale value cF motor cycles covered by the arrangements mentioned above should be an amount equal to Landed into Store Cost ..." miant, on one interpretation of 1t. be taken as referring only toa future events. But the words "should be" ain this sentence ac not reter only to erospective situaticns which may arise. in my opinion, what is conveved by the werds "shculd be" ac that the respondent hac dccidad that tax rayablo by Ecra fiarner on current and Tutur2 sales will ce calculated on values determined in accordance with the formula ratcrred to ain the letter. The letter must be read in the context cf the respondent's right under the Act to aszess the taxrarer to turtner tax ir he thinks the taxpayer's "self-assessment" 15 incorrect. tax. The decision as to the value of goods is a decision which leads up to. and is a necessary prerequisite of, the calculation of duty payable. This being so, I think there 1s no escape from the conclusion that the decision 1s a decision makina, or forming part of the processes of makina, or leading up to the making of, an assessment or calculation of tax or duty. It is thus a decision within para. (e) of Scheaule 1 and hence is not reviewable under the Judicial Review Act. The cases which have been decided on the meaning of para. (e@) of Schedule 1 support the conclusion which I have reached. In Toohevs v Minister for Business and Consumer Affairs (1981) 36 A.L.R. 64. Ellicott J., after referring to the statement by Kitto J. in Batazol v Federal Commissioner of Taxaticn (1963) 109 C.L.R. 243 at 252. that "... the definiticn of 'assessment' means. in my opinion, the completion cf the process by which the provisions cf the Act relatird to liability to tax are qiven concrete application in a particular caze with the consequence that a specified amount sof money will become due and payable as the proper tax in that case." said, at p.77: "In my cpinion it is to this process that para. (2) 25 directed. Under each of tne Acts manticned it is necessary to assess or calculate what 1:5 tne liability of the subjfect 1n a particular case. [In arriving at that assessment or calculation decisicns may have to be made abcut matters which lead to tne making of 1t or which ar2 part of the process of making it. The calculation of customs duty. in a particular case. involves identifving the applicable rate of duty and the value of the qocds." As I have attempted to show. the calculation cf sales tax in the present case involves. inter alia, identifving the value of the goods and the decision which the applicant seeks to have reviewed is a decision as to the value cf the asods subiect to tax. It is thus a decision involved in the calculation of the tax. Ellicott J. also said in Toohey's Caze that the words "leading up to making" are intended to point to decisions which have to be made. or. in the circumstances, it 15 appropriate to make. before the actual process of assessment or calculation can beqin. A decision as to the value of goods subject to ta: is a decision which hag to be made before the actual process cf calculation can bedqin. Tech2v'2 Uase was affirmed on appeal (42 A.L.P. 260). It was also referred to with approval by Smithers J. ain Intervast Corporation v Commissioner of Taxaticn (1934) 34 A.T.C. 4744. In Deputy Federal Commigs3icner of Tazaticn v Clarke & Kann (1904) 84 A.T.C. 4273 at 4276. the Full Court of the Federal Court said: "Barzause vara, .3) elantnly intéenes tc encrlude Ircm review some decisions which are mace rrior ts 14. assessment. it must be taken to refer not only to assessments which have been made but to those which will be made. It 1s inappropriate to attempt to define the boundary between those decisions wnich are and these decisions which are not 'decisions leading us to' the making of an assessment. However, a decision does not lead to the making of an assessment merely because it precedes the makina of an assessment or pPesause its purpose ig to enable or facilitate the making of any assessment which may be made. A decision is not a decision leading up to the making of an assessment unless the makina of an assessment has followed or will follow from the decision." Having regard to the course of dealing disclosed in the correspondence and the terms of the decision which is sought to be reviewed I think there is not only a sufficient, but also a close, relationship between the decision and the making of an assessment or assessments of sales tax. For these reascns I am of the opinion that the decision scuaht to be reviewed is not one which 13 reviewable under the Judiczal Peview Act and that therefcre tne cbhrecticn to competency should be upheld. The application must therefore be dismissed with costs. col ave edi ow hig Ucnour Jlrs Borba Associate de Ube Ee oe Hee