New South Wales Court of Appeal Platypus Leasing Inc & Ors v Commissioner of Taxation [2005] NSWCA 399 CITATION: This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S): 3 November 2005 JUDGMENT DATE: 18 November 2005 JUDGMENT OF: Handley JA at 1; Tobias JA at 12; McClellan CJ at CL at 13 DECISION: 1. Leave to appeal refused; 2. Claimants to pay the Commissioner's costs of the summons for leave CATCHWORDS: TAXATION - declaration with respect to liability for goods and services tax - appeal - whether leave to appeal is required - whether following the tender of the assessments and declaration s 59 of the Taxation Administration Act 1953 precludes the Court from considering issues which relate to the amount shown in the assessment or declaration - whether it was correct to dismiss proceedings in the exercise of the Court's discretion A New Tax System (Goods and Services Tax) Act 1999 (Cth) Taxation Administration Act 1953 (Cth) LEGISLATION CITED: Supreme Court Act 1970 Income Tax Assessment Act 1936 (Cth) Bankruptcy Act 1966 (Cth) Autologic Holdings plc v Inland Revenue Commissioners [2005] 3 WLR 339 Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 Darrell Lea Chocolate Shops Pty Ltd v Commissioner of Taxation (1996) 72 FCR 175 David Jones Finance v Investments Pty Ltd v Federal Commissioner of Taxation (1991) 28 FCR 484 Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1994-1995) 183 CLR 168 Federal Commissioner of Taxation v Cappid Pty Ltd (1970-71) 127 CLR 140 Federal Commissioner of Taxation v Dalco (1989-1990) 168 CLR 614 Hall v Nominal Defendant (1966) 117 CLR 423 CASES CITED: Hunt v Allied Bakeries Ltd (1956) 3 All ER 513 Little v Victoria (1998) 4 VR 596 Oates v Federal Commissioner of Taxation (1990) 27 FCR 289 Oil Basins Ltd v The Commonwealth and the Commissioner of Taxation (1993) 178 CLR 643 Port of Melbourne Authority v Anshun Pty Ltd (No 1) (1980) 147 CLR 35 R v Hickman: ex parte Fox (1945) 70 CLR 598 TAB Limited v Commissioner of Taxation (2005) 59 ATR 430; [2005] NSWSC 552 W J and F Barnes Pty Limited v Commissioner of Taxation (Cth) (1957) 96 CLR 294 Wickstead v Browne (1992) 30 NSWLR 1 Platypus Leasing Inc (1A) International Lease Finance Corporation Inc (2A) PARTIES: Interlease Aircraft Trading Corporation Inc (3A) ILFC Australia Pty Limited (4A) Commissioner of Taxation (Resp) FILE NUMBER(S): CA 40472/05 F Harrison QC/M Robertson (Appls) COUNSEL: J Logan SC/J Needham SC (Resp) Ernst & Young Law (Appls) SOLICITORS: Australian Government Solicitor (Resp) LOWER COURT JURISDICTION: Supreme Court LOWER COURT FILE NUMBER(S): 5056/04 LOWER COURT JUDICIAL OFFICER: Gzell J IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40472/05 SC 5056/04 HANDLEY JA TOBIAS JA McCLELLAN CJ at CL FRIDAY 18 NOVEMBER 2005 PLATYPUS LEASING INC v COMMISSIONER OF TAXATION INTERNATIONAL LEASE FINANCE CORPORATION INC v COMMISSIONER OF TAXATION INTERLEASE AIRCRAFT TRADING CORPORATION INC v COMMISSIONER OF TAXATION ILFC AUSTRALIA PTY LIMITED v COMMISSIONER OF TAXATION Judgment 1 HANDLEY JA: In this matter I have had the benefit of reading the reasons for judgment of McClellan CJ at CL in draft. I agree with his reasons but wish to add additional reasons of my own. 2 The Supreme Courts of the States have undoubted jurisdiction to grant declaratory relief against the Commissioner of Taxation where this is appropriate and an assessment has not been made. The jurisdiction being exercised is Federal because the Commissioner is a person suing or being sued on behalf of the Commonwealth for the purposes of s 75(iii) of The Constitution. 3 The position changes once an assessment has been made. If declaratory relief is granted against the Commissioner before an assessment is made the declaration, unless set aside on appeal, would be binding on the Commissioner as a res judicata. An assessment inconsistent with the declaration would be liable to be set aside on appeal on that ground, and the declaration, as a res judicata, would also be binding on the Federal Court and the High Court. 4 Where the assessment is issued before declaratory relief is granted in the Supreme Court the position is radically different. The Commissioner was not bound by any res judicata when the assessment was made, and was free to act in accordance with his own views. The assessment will be valid, and can only be challenged on an appeal or application for review in accordance with the provisions of the Taxation Administration Act. 5 A declaration by a Supreme Court which post-dated the assessment could have no binding effect, and indeed no effect at all, unless the Commissioner chose to voluntarily amend his assessment or the Federal Court or Administrative Appeals Tribunal on appeal or review chose to follow it. The declaration would not be binding on the Federal Court or Tribunal as a precedent, and, as I will explain, it would not be binding as a res judicata. 6 The position in this regard in the United Kingdom, under a unitary system without the complications introduced by European law, has been clarified by the House of Lords in Autologic Holdings plc v Inland Revenue Commissioners [2005] 3 WLR 339. Lord Nicholls, who delivered the principal speech, said at 345: "Clearly the purpose intended to be achieved by this elaborate, long established statutory scheme would be defeated if it were open to a taxpayer to leave undisturbed an assessment with which he is dissatisfied and adopt the expedient of applying to the High Court for a declaration of how much tax he owes and, if he has already paid the tax, an order for repayment of the amount he claims was wrongly assessed. In substance, although not in form, that would be an appeal against an assessment. In such a case the affect of the relief sought in the High Court, if granted, would be to negative an assessment otherwise than in accordance with the statutory code. Thus in such a case the High Court proceedings will be struck out as an abuse of the court's process. The proceedings would be an abuse because the dispute presented to the court for decision would be a dispute Parliament has assigned for resolution exclusively to a specialist tribunal. The dissatisfied taxpayer should have recourse to the appeal procedure provided by Parliament. He should follow the statutory route. I question whether in this straightforward type of case the court has any real discretion to exercise. Rather, the conclusion that the proceedings are an abuse follows automatically once the court is satisfied the taxpayer's court claim is an indirect way of seeking to achieve the same result as it would be open to the taxpayer to achieve directly by appealing to the appeal commissioners. The taxpayer must use the remedies provided by the tax legislation." 7 Lord Walker, who with Lord Hope, dissented due to the effect of European law, were in agreement on the position under domestic law. Lord Walker said at 364: "I can discern no parliamentary intention to alter the general principle embodied in tax law … that any dispute with the revenue about an individual's liability to income tax or a company's liability to corporation tax is to be determined in the first instance by the general commissioners or the special commissioners … Judicial review in the High Court is not an appropriate remedy … where Parliament has provided a special appeal procedure for determining substantive questions as to tax liability." 8 The House of Lords thus held that the High Court had no jurisdiction to deal with the taxpayer's challenge once an assessment had been issued. See per Lord Nicholls at 346 [para 15] "the exclusive jurisdiction principle"; per Lord Hope at 355 [para 53] "the High Court has no jurisdiction to deal with them [the assessments]"; per Lord Millett at 357 [para 62] "the exclusive jurisdiction of the commissioners"; and per Lord Walker at 361 [para 76] "the courts cannot entertain it", at 362 [para 77] "the High Court cannot interfere with assessments", and at 363 [para 80] "The only way in which an assessment can be altered …". 9 The position in this case is, if possible, even clearer because the assessment issued under Federal law and in my judgment the provisions of that law conferring jurisdiction to hear appeals and reviews from such assessments cover the field and exclude any jurisdiction, including other Federal jurisdiction, inconsistent with those provisions. 10 In my judgment therefore once the assessments issued Gzell J no longer had jurisdiction to grant a declaration which challenged or called those assessments into question. It follows that a declaration made after an assessment issued would not be a res judicata because it would have been made without jurisdiction: Spencer Bower Turner & Handley "Res Judicata", 1996, Ch 4, and would not be final for that reason: ibid Ch 5. 11 I would therefore confirm the orders made orally on 3 November. 12 TOBIAS JA: I agree with the reasons of McClellan CJ at CL and with the additional reasons of Handley JA. 13 McCLELLAN CJ at CL: The claimants failed in proceedings before Gzell J in which they sought declarations with respect to their liability for goods and services tax ("GST") in respect of the leasing arrangements for various aircraft. The amount of tax in issue is in excess of $70 million and the opponent (who I shall refer to as "the Commissioner") also claims in excess of $40 million in penalties. 14 The proceedings were commenced by a summons in which thirteen declarations were sought. The first twelve declarations relate to transactions which have already been completed. The thirteenth declaration relates to a transaction which the claimants have in contemplation. It will replicate transactions which have already been completed. 15 The declarations sought were as follows: 1. A declaration that the first plaintiff "Platypus") was not required by A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("the GST Act") to deliver tax invoices to the third plaintiff ("IATC") for its sales of 4 leased aircraft to IATC in the tax periods ending 31 December 2001 and 31 May 2002. 2. A declaration that the second plaintiff ("ILFC") was not required by the GST Act, to deliver tax invoices to IATC for its sales of 7 leased aircraft to IATC in the tax periods ended 31 December 2001, 31 May 2002, 28 February 2003 and 31 March 2003. 3. A declaration that the sales referred to in paragraph 1 were not taxable supplied by Playtpus. 4. A declaration that the sales referred to in paragraph 2 were not taxable supplies by ILFC. 5. A declaration that IATC made creditable acquisitions by buying the 4 aircraft referred to in paragraph 1 from Platypus by the sales referred to in that paragraph. 6. A declaration that IATC made creditable acquisitions by buying the 7 aircraft referred to in paragraph 2 from ILFC by the sales referred to in that paragraph. 7. A declaration that IATC was required by the GST Act to deliver tax invoices to the fourth plaintiff ("ILFCA") for its sales of the 11 abovementioned aircraft to ILFCA in the tax period ended 31 December 2001, 31 May 2002, 28 February 2003, and 31 March 2003. 8. A declaration that the sales referred to in paragraph 7 were taxable supplies by IATC. 9. A declaration that ILFCA made creditable acquisitions by buying the 11 aircraft referred to in paragraph 7 from IATC by the sales referred to in that paragraph. 10. A declaration that under the GST Act, ILFCA's leasing those 11 aircraft to the original lessee by way of novation agreement between the original lessor (Platypus or ILFC), ILFCA and the original lessee gave rise to a liability to GST in the tax periods ended 31 December 2001, 31 May 2002, 28 February 2003 and 31 March 2003 and will continue to give rise to a liability to GST during the term of the leases. 11. A declaration that ILFCA's statements in its Business Activity Statements for the tax periods ended 31 December 2001, 31 May 2002, 28 February 2003 and 31 March 2003 to the effect that it was entitled to input tax credits for the acquisitions of 11 aircraft were neither false nor misleading within sections 8K and 8N of the Taxation Administration Act 1953. 12. A declaration that ILFCA was required by the GST Act to deliver a tax invoice to IATC for the sale of 1 aircraft by it in the tax period ended 30 September 2002. 13. A declaration as to the manner of application of the GST Act to the plaintiffs to future sales by ILFC to IATC and then from IATC to ILFCA of aircraft presently leased to a lessee carrying on business in Australia. 16 The Commissioner met the summons with a notice of motion seeking that it be summarily dismissed or stayed. 17 On 19 November 2004 Gzell J declined to make the orders sought by the Commissioner and upon being informed that the Commissioner was in the course of carrying out an investigation of relevant transactions stood the matter over until 25 February 2005. On that day the Commissioner sought a further adjournment which was granted. At a hearing before Gzell J on 8 April 2005 the Commissioner led evidence that assessments under s 22 of the Taxation Administration Act 1953 (Cth) ("Administration Act") and declarations under s 165-40 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("GST Act") of net amounts of tax would soon be made against Interlease Aircraft Trading Corporation Inc ("IATC") and ILFC Australia Pty Ltd ("ILFCA"). Having heard argument on the opponent's motion for dismissal of the summons Gzell J reserved his decision. 18 On 22 April the Commissioner notified assessments in respect of ILFCA and IATC and a s 165-40 declaration against ILFCA. No declaration was made against IATC. No assessment or declarations were made against Platypus Leasing Inc ("Platypus") or International Lease Finance Corporation ("ILFC"). The assessment issued to ILFCA shows a liability for GST in the relevant period of $71,650,031. The declaration negates the benefit of a GST scheme by the same amount. IATC is assessed for tax in the sum of $71,953,049. 19 The Commissioner applied for leave to reopen the case and tender copies of the assessments and declarations. Gzell J acceded to that application and on 17 May 2005 determined that the summons should be dismissed on the ground that the Court was precluded by s 59 of the Administration Act from granting the relief which the applicants sought with respect to the first twelve declarations. His Honour exercised his discretion to dismiss the summons in relation to the thirteenth declaration. His Honour also indicated that if he was in error as to s 59 he would nevertheless, in the exercise of his discretion, dismiss the whole summons. Gzell J ordered each party to bear its own costs. 20 The proceedings were dismissed on 18 May 2005. An appeal to this Court was filed on 10 June 2005. However, the Commissioner took the position that because Gzell J's judgment was not a final order leave to appeal was required. The claimants then filed an application for leave. 21 Before this Court the parties were first invited to address the question of whether leave was required. The Court determined that leave was required and proceeded to hear that application. At the conclusion of the hearing the Court announced that it was unanimously of the view that leave should be refused but that its reasons would be published later. This course, which is unusual, was taken so that the claimants could proceed to arrange their affairs without further delay. 22 These are my reasons for joining in the unanimous decision of the Court. Is leave required? 23 Section 101(2)(d) of the Supreme Court Act 1970 provides that an appeal shall not lie to the Court of Appeal from an interlocutory judgment or order except by leave. 24 The question whether a judgment or order is final or interlocutory has caused difficulty in many cases: see the discussion in Ritchie's Uniform Civil Procedure [SCA s 101.75] p 15,717. In New South Wales the approach which has been taken is that unless the order which has been made finally disposes of the rights of the parties it will be interlocutory. Of course this is a different question to whether the order finally disposes of the instant proceedings. 25 The relevant principle was expressed by Taylor J in Hall v Nominal Defendant (1966) 117 CLR 423 in the following terms: "An order made in the course of an action or suit which does not conclude the rights of the parties inter se, though it may, of course, conclude the fate of the particular application in which it is made, is interlocutory only. On this basis an order staying proceedings against one of several defendants on the ground that they are scandalous, vexatious and an abuse of the process of the court has been treated as interlocutory: Hind v Marquis of Hartington (1890) 6 TLR 267. The same view was taken of an order striking out a plaintiff's statement of claim on the ground that it disclosed no reasonable cause of action: Jones v Insole (1890) 64 LT 703, and of an order dismissing an action as frivolous and vexatious in Re Page [1910] 1 Ch 489." (at p 440) 26 (See also the discussion by Windeyer J at 442-444). 27 Accordingly, an order striking out proceedings because they do not disclose a cause of action is interlocutory (see also Little v Victoria (1998) 4 VR 596; Hunt v Allied Bakeries Ltd (1956) 3 All ER 513). An order for summary dismissal is also interlocutory (see also Wickstead v Browne (1992) 30 NSWLR 1). 28 However, if the order made in proceedings creates a res judicata, the order will be final: Port of Melbourne Authority v Anshun Pty Ltd (No 1) (1980) 147 CLR 35. 29 In the present case dismissal of the summons brought the proceedings to an end. However, it did not determine or dispose of any right of the parties. Indeed, his Honour dismissed the summons with respect to the first twelve declarations on the ground that it was the statute which provided the exclusive mechanism for the determination of the issues between the parties. 30 It follows that the order made by Gzell J dismissing the summons was interlocutory and leave to appeal was required. The essential elements of the transactions 31 The first and second claimants, both non-residents, each owned a number of aircraft which were leased to an Australian airline. They sold the aircraft to IATC, a foreign company registered in Australia, which sold them to ILFCA, an Australian company. The first and second claimants, ILFCA, and the Australian airline then novated the leases so that ILFCA became the lessor to the Australian airline. Later, when the lease of one aircraft expired, ILFCA sold that aircraft to IATC. 32 The claimants propose to carry out further transactions with the same structure. 33 A short summary of the claimants' analysis of these transactions for the purpose of GST is as follows: (i) the first and second claimants were and are not required to be registered under the GST Act, did not make taxable supplies to IATC, and did not have to issue tax invoices to IATC; (ii) IATC was and is required to be registered under the GST Act, made creditable acquisitions of each aircraft from the first and second claimants calculated on the purchase price, made taxable supplies by way of sale to ILFCA in the same tax period, and had to issue tax invoices to ILFCA; (iii) ILFCA was and is required to be registered under the GST Act, made creditable acquisitions of each aircraft from IATC, and was and is liable for GST on the supply of each aircraft to the Australian airline by way of lease (calculated on the lease payments it receives from its lessee); (iv) ILFCA made a taxable supply of the aircraft it sold back to IATC, and had to issue a tax invoice to IATC for that sale. 34 With respect to the proposed transactions, the subject of the thirteenth claim for a declaration, the claimants maintain the position will be as provided in paragraphs (i), (ii) and (iii) above. 35 ILFCA made statements to the opponent that it was entitled to input tax credits as a result of its acquisitions, and claimed and received refunds of tax as a result of making those statements. 36 The Commissioner does not accept that the analysis by the claimants is correct, nor does he accept that the statements by ILFCA were correct. The legislative provisions 37 Liability for GST is imposed by the GST Act which provides that GST is payable if a taxable supply has been made. Any liability in respect of taxable supplies is adjusted by the amount of any tax credits in respect of creditable acquisitions (s 7-5). Many difficult issues can arise before the net liability for tax is determined. 38 Section 24 of the Administration Act provides that any liability to pay GST is not dependent upon the Commissioner issuing an assessment. That liability arises from the operation of the GST Act under which taxpayers must file a return and at the same time make payment of any identified liability. This is different to income tax for which a taxpayer is liable only when assessed (s 204 of the Income Tax Assessment Act 1936 (Cth)). 39 Provision is made in Part VI of Division 2 of the Administration Act for the Commissioner to issue a notice of assessment of GST (s 22). In this event s 59 of the Administration Act will apply if the assessment is tendered in legal proceedings. 40 Section 59 is in the following terms: "The production of a notice of assessment under this Part or of a declaration under section 165-40 or subsection 165-45(3) of the GST Act is conclusive evidence: (a) that the assessment or declaration was properly made; and (b) except in proceedings under Part IVC on a review or appeal relating to the assessment or declaration—that the amounts and particulars in the assessment or declaration are correct." 41 The GST Act contains its own anti-avoidance provisions. They are found in Division 165 of the Act which provides that in relevant circumstances a taxpayer (who for this purpose is defined as "an avoider") may lose the benefit of any "scheme". In general terms the Division has the effect of establishing the liability of a person or corporation to GST at the appropriate amount, but for the scheme. The Commissioner is able to negate an avoider's benefit from a scheme by making a declaration pursuant to s 165-40 of the Act. 42 Section 59 of the Administration Act gives to a declaration the same conclusive evidentiary effect as it gives to an assessment. 43 A primary question raised by the claimants is the effect of s 59 on the present proceedings. Review of the Commissioner's decision 44 Part IVC of the Administration Act provides the procedure for objection review and appeal when a person is dissatisfied with an assessment, determination or decision of the Commissioner. Objection can be made to the Commissioner followed by, depending on the circumstances, review by the Administrative Appeals Tribunal and/or appeal to the Federal Court. The process of objection and appeal is available to the claimants in relation to both assessments and declarations. 45 There is authority supporting the bringing of proceedings for a declaration to resolve disputes between the Commissioner of Taxation and a taxpayer: Oil Basins Ltd v The Commonwealth and the Commissioner of Taxation (1993) 178 CLR 643, 652 ff. The approach sanctioned by the High Court has been followed in this Court in TAB Limited v Commissioner of Taxation (2005) 59 ATR 430; [2005] NSWSC 552. The practice has utility in some cases but whether it should be followed in circumstances where taxpaying parties merely have transactions in contemplation may require careful consideration. The primary question in the present case was whether following the tender of the assessments and declarations, s 59 precluded the Court from considering issues which related to the amount shown in the assessment or declaration. A secondary question was whether Gzell J was correct to dismiss the proceedings in the exercise of his discretion. Should leave be granted? 46 The claimants' fundamental submission is that the trial judge misunderstood the second limb of s 59. It is submitted that the proceedings do not raise any question as to the correctness of the amounts and particulars shown in the assessment or declaration. No order altering anything on the face of the documents is sought. The argument is that if a declaration is made it will bind the Commissioner, who will be obliged to deal with any objection in a manner consistent with the decision of this Court. The effect will be that if the claimants succeed in this Court the assessments and declarations may be altered through the Part IVC process which will follow. 47 Support for the claimants' position is arguably available from the decision of the Federal Court in Oates v Federal Commissioner of Taxation (1990) 27 FCR 289. The case concerned s 177 of the Income Tax Assessment Act which is relevantly in the same terms as s 59 of the Administration Act. The taxpayer who had been declared bankrupt, but whose bankruptcy was later annulled, sought to claim the benefit in the year of assessment of tax losses incurred by him in previous years, being years for which an income tax assessment had already issued. The trial judge held that the operation of the relevant provision of the Bankruptcy Act 1966 (Cth) had the effect that the relevant debts had not been released and a claim could be sustained. The Commissioner responded by submitting that s 177(1) had the effect that an assessment having issued for the previous year, which showed a taxable income, the fact that in that year the taxpayer may have had allowable deductions greater than his assessable income could not be proved in the proceedings with respect to the taxpayer's liability for tax in the later year. 48 Hill J rejected the submission and, with respect, was correct in so doing. In the penultimate paragraph of his reasons (at 309) his Honour determined that s 177(1) only operates to make the notice of assessment conclusive of the particulars in it in the year of income to which the assessment relates. This must be so. Accordingly, when considering the position with respect to the tax due in any later year any assessment issued for a previous year will not operate to preclude consideration of the true position, including any debts incurred in previous years, which may be relevant to the liability of the taxpayer in the later years. 49 However, there is a difficulty in his Honour's reasons. In a passage which was not essential to the decision, his Honour says (at 308-309): "The Commissioner's submission assumes that tender of the notice or copy is conclusive evidence of the assessable income and the allowable deductions of that year, these being the 'particulars' to which s 177(1) refers. However, in my opinion, when s 177 speaks of the particulars of the assessment, it speaks of that which, on its face, is contained on the face of the notice, normally the taxable income and tax payable thereon. It does not encompass the ingredients which go to making up that taxable income. I was referred to the several decisions of the High Court on s 177, and in particular to the well known cases of F J Bloemen Pty Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 360; McAndrew v Commissioner of Taxation (Cth) (1956) 98 CLR 263; and Commissioner of Taxation (Cth) v Dalco (1990) 168 CLR 614 which explain the legislative purpose and legal effect of a tender under s 177. It is unnecessary to repeat what has been said in those cases which does not really touch upon the issue before me. More apposite for present purposes is the decision of the High Court in Commissioner of Taxation (Cth) v Cappid Pty Ltd (1971) 127 CLR 140. In that case the Commissioner has made an assessment of ordinary income tax for the year ended 30 June 1966. The assessment, as would have been clear on the face of the notice of assessment, was made at the rate appropriate to private companies, there being then a different rate of tax applicable to private and public companies. The Commissioner contended before Menzies J that the taxpayer was precluded from arguing in respect of an assessment issued under the then Div 7 of Pt III of the Act that the company was, in respect of the same year, a public company because of the notice of assessment. Menzies J held that it was not. It should be noted, however, that the decision does not make it clear whether the Commissioner relied upon s 177, although it may be assumed that he did, for it is difficult to see how the argument could otherwise have been put. So too in W J & F Barnes Pty Ltd v Commissioner of Taxation (Cth) (1957) 96 CLR 294 an assessment of primary tax did not preclude the court from considering the correctness of a Div 7 Assessment. That s 177 was relied upon by the Commissioner appears from the note of argument of Mr Aickin of counsel, as his Honour then was, at 298-299." 50 A question arises as to whether these obiter remarks are correct. 51 In F J Bloemen to which his Honour refers, the High Court considered the position of a taxpayer who had submitted a tax return showing a net loss. After consideration of the return the Commissioner disallowed various losses which were claimed and issued an assessment which assessed the taxpayer as having a taxable income. The taxpayer objected and when the objection was disallowed brought proceedings in the Supreme Court seeking declaratory relief. 52 A number of issues not presently relevant were debated both in this Court and the High Court. The issue of present relevance was the effect of s 177(1) and whether it operated so that an assessment is "conclusive evidence that an assessment has been duly made or is it conclusive evidence of the due making of an assessment that has been made" (at 371). Mason and Wilson JJ adopted the approach to the section which appealed to Taylor J in McAndrew at p 281-282. Their Honours said (at 374-377): "His Honour was considering a case in which the Commissioner had assessed the taxpayer to additional tax, applying s 7 of the amending Act of 1924 which had no application to the income year in question. The application was relevant to the taxpayer's substantive liability. It may also be observed that both in Kellow-Falkiner [1928] ALR 276 and Hoffnung (1928) 42 CLR 39 the document which was said to be a notice of an assessment bore evidence, if not on its face then in the supporting documentation, which denied it that character. Visual inspection alone was sufficient to compel the conclusion that the document was not a notice of assessment for the purpose of the relevant Act An explicit and, in our view, correct statement of the effect of s 177 (1) was made by Taylor J in McAndrew (1956) 98 CLR at pp 281-282. For the reasons there expressed his Honour concluded that "s 177 (1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground". He conceded that the word "excessive" in s 190 (b) was inappropriate. However, he considered that an assessment "made in purported but not justifiable exercise of a statutory power" could properly be described as "excessive" (1956) 98 CLR at p 282. This interpretation gives expression to the policy which underlies, and is manifest in, the statutory provisions. The effect of this policy is that, once the Commissioner takes advantage of s 177(1) by producing an appropriate document, the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Pt V. Although s 190(b) places the onus on a taxpayer upon a reference or appeal of proving that the assessment is excessive, it enables him to contest his substantive liability to tax. Of course, the appellants argue that this view of the operation of the Act does not offer sufficient protection to the taxpayer in the event of an abuse by the Commissioner of his powers. They point to the fact that notwithstanding that the assessment may be under review or appeal pursuant to Pt V the tax assessed is payable and the Commissioner has access to the extensive powers prescribed in Pt VI, including the garnishee power in s 218. It is true that Pt VI contains large powers to enable the recovery of tax; powers the exercise of which may make life uncomfortable both for the taxpayer and perhaps others who owe money to the taxpayer. So much may be conceded, but the Act does not proceed upon the hypothesis that the Commissioner will be motivated in the exercise of his powers by improper or collateral purposes. As Isaacs ACJ observed in Federal Commissioner of Taxation v Clarke, after stating that s 39 of the Income Tax Assessment Act 1922-1925 (a provision analogous to s 177 of the Act) made the assessment unchallengeable: "The Act so far trusts the Commissioner and does not contemplate, in my opinion, a curial diving into the many official and confidential channels of information to which the Commissioner may have recourse to protect the Treasury." It does not necessarily follow from what we have said that the Act excludes the general jurisdiction of the Supreme Court. Section 177 (1) specifically operates by compelling a court, for example the Supreme Court, in the exercise of its jurisdiction to treat a notice of assessment on its production as conclusive evidence that the assessment has been duly made and thereby foreclosing that issue. In theory s 177 leaves the Supreme Court with jurisdiction to decide whether an assessment has been duly made in a case in which an appropriate document is not produced. However, the rights of review given to the taxpayer by Pt V are comprehensive. Quite evidently it was contemplated that the Commissioner would in every case take advantage of s 177 (1) and foreclose the exercise of jurisdiction to decide whether an assessment has been duly made. The general tenor of the statutory provisions suggests that a taxpayer wishing to challenge a notice of assessment served upon him will be effectively confined to the Pt V procedures. Novel consequences will arise if the appellants' construction of s 177 (1) be correct. If the actual making of an assessment be not comprehended by the expression "due making" then s 177 (1) gives the Commissioner no evidentiary advantage in proceedings for recovery of tax. He would be obliged to prove that an assessment was made by calling an assessor. So much was ultimately conceded by the appellants' counsel. It is not to be supposed that Parliament intended that s 177 (1) should have no application to the actual making of the assessment, thereby compelling proof by oral evidence in recovery proceedings that an assessment had been made. The consequence is so radical as to make the argument quite unacceptable. The appellants also turn to s 185 in an attempt to find support for their contention. This section provides that any taxpayer "dissatisfied with any assessment" may within sixty days after service of the notice of assessment, post to or lodge with the Commissioner "an objection in writing against the assessment", stating the ground on which he relies. How, it is asked, can a taxpayer bring himself within this section when his objection is that there has been no assessment at all? The answer to this question is again to be discovered in s 177 (1) and the legislative policy on which it proceeds. Although the sub-section is evidentiary and begins to operate when an appropriate document is produced in a court or board of review, and not before, its effect is to put the making of an assessment beyond challenge. In the nature of things the Commissioner will always rely on production of the notice of assessment or a copy of it. Section 185 proceeds on this assumption and on the footing that, once a notice of assessment is served, no question will arise as to the making of the assessment by reason of the Commissioner's reliance on s 177 (1)." 53 Section 177(1) was again considered by the High Court in Federal Commissioner of Taxation v Dalco (1989-1990) 168 CLR 614 which was concerned with the question of whether a taxpayer who challenges his liability for income tax discharges the burden of proving that the assessment is excessive where (a) he does not prove that the amount assessed as his taxable income in fact exceeds his taxable income, but (b) he shows that the Commissioner formed a judgment as to the amount of his taxable income on a wrong basis. The answer to the question depended upon the correct construction of provisions in the statute which are not relevant for present purposes. However, during the course of analysing those provisions Brennan J, with whom Mason CJ and Deane and Dawson JJ agreed, said (at 620): "In a case arising under s 167(b), there are two functions for the Commissioner or his delegate to perform: first, he must decide whether he is satisfied with the return furnished, and, if he is not, he must form a judgment of the amount on which tax ought to be levied. In George's Case (1952) 86 CLR at pp 206-207 it was held that the former function was a procedural step and was thus part of the making of the assessment, the due making of which is conclusively proved by the production of a notice of assessment: s 177(1). By contrast, in proceedings on appeal against an assessment the function of forming a judgment of the amount on which tax ought to be levied is not conclusively proved by the production of a notice of assessment. That is because s 177 distinguishes "between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment": George's Case ; McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 at 271; and see FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 at 373." 54 The High Court again considered s 177(1) in Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1994-1995) 183 CLR 168. The proceedings raised the question as to whether the section operated to deprive the Federal Court of the jurisdiction conferred by s 39B(1) of the Judiciary Act 1903. A majority of the Court held that it did not and disapproved of the decision to the contrary by the Full Federal Court in David Jones Finance v Investments Pty Ltd v Federal Commissioner of Taxation (1991) 28 FCR 484. 55 In his reasons (at 187) Mason CJ referred to the statement in the joint judgment of himself and Wilson J in F J Bloemen (at 376) (with which Stephen and Aicken JJ agreed) where they had said: "The general tenor of the statutory provisions suggested that a taxpayer wishing to challenge a notice of assessment served upon him will be effectively confined to the Pt V procedures." 56 His Honour concluded (at 186) that subject only to the principle in R v Hickman: ex parte Fox (1945) 70 CLR 598, the effect of s 177(1) is to "condition the exercise of jurisdiction upon production of the notice of assessment or a copy of it so that it is treated as valid, otherwise than in Pt IVC proceedings." 57 In his reasons in Richard Walter Brennan J said (at 204): "Although the Federal Court has jurisdiction to review a purported exercise of power that does not satisfy the Hickman principle, once the Richard Walter notices of assessment in respect of the 1981-1984 years have been produced in the s 39B proceeding, the Court is bound to conclude that the assessments (including the antecedent determinations) were duly made and that the amounts and all particulars thereof are correct." 58 McHugh J considered the policy of the legislation and concluded (at 240) that "assessments of tax are not challengeable in ordinary legal proceedings" (see also Dawson J at 220 and Toohey J at 233). 59 In Oates, Hill J relied upon the decisions in Federal Commissioner of Taxation v Cappid Pty Ltd (1970-71) 127 CLR 140 and W J and F Barnes Pty Limited v Commissioner of Taxation (Cth) (1957) 96 CLR 294 preferring them to the later decisions of the High Court. As his Honour points out there is no suggestion that s 177 was considered in Cappid and although referred to in submissions, it is not referred to in the judgment in Barnes. In these circumstances, in my opinion the later and clear statements of the High Court as to the effect of s 177(1) should guide this Court with respect to the operation of s 59. 60 Accordingly, I am of the opinion that, once the assessments and declarations were tendered in the proceedings, s 59 of the Administration Act operated with the consequence that the taxpayer cannot go behind them other than in proceedings pursuant to Part IVC of the Act or in the circumstances provided in Hickman. 61 The claimants nevertheless contend that the Commissioner should not have issued the assessments while the present proceedings were on foot. It is further submitted that the notices of assessments were tendered "for a purpose foreign to the proper administration of the Taxation Administration Act and the GST Act and, accordingly, should not have been received by the Court." It is submitted that the purpose of the tender was for the sole or substantial reason that the Commissioner did not want the Supreme Court to hear the summons, notwithstanding that the proceedings were properly commenced before the creation of the assessments. 62 There is no substance in these submissions. Section 59 has been included in the Administration Act for the purpose of facilitating the administration of the taxation legislation. Giving binding force to a notice of assessment or declaration does not exclude a challenge to the Commissioner's determination but confines that challenge to proceedings under Part IVC. There can be no illegitimate purpose in the Commissioner making an assessment or declaration which activates s 59, even if this renders collateral proceedings futile. 63 The claimants commenced proceedings in this Court when they were aware that the Commissioner was conducting an investigation of the relevant transactions and with the knowledge that it was open to the Commissioner and, indeed inevitable, that assessments and declarations would be issued. The Commissioner never undertook to refrain from taking this step until the proceedings had been concluded. The assessment and declarations having been made, in my opinion an obligation fell upon the Commissioner to inform the Court of the position, with the inevitable consequence that the summons would be dismissed. 64 As I have indicated, the Commissioner has issued an assessment for ILFCA which shows a liability for GST in the relevant period of $71,650,031. He has also, by his delegate, issued a declaration in respect of ILFCA negating the benefit of a GST scheme by the sum of $71,650,031. In these circumstances, it is submitted that the Commissioner has issued inconsistent determinations which were not made bona fide and both the assessment and the declaration are a nullity. 65 As I understand the argument it is submitted that the assessment which excluded the relevant GST amount is inconsistent with the declaration, which could only be made if a liability to GST existed. Accordingly, it is submitted that the principle in Hickman operated and s 59 would not exclude a challenge. 66 The submission was founded upon the decision in Darrell Lea Chocolate Shops Pty Ltd v Commissioner of Taxation (1996) 72 FCR 175 which was concerned with the now repealed sales tax legislation. In that case the taxpayer successfully challenged notices of assessment which the Commissioner had issued which were wrong because they treated all the goods assessed for sales tax as imported when some were manufactured locally. Critical to the Court's decision that the assessments should be set aside was the fact that, when the Commissioner made each assessment, he actually knew them to be wrong. The Full Court distinguished the position where the Commissioner is uncertain as to the facts, in which event, even if multiple assessments are issued which are inconsistent, they will not be struck down as mala fide (see the discussion in the joint judgment of Spender, Burchett and Hill JJ at p 186). 67 In Richard Walter Brennan J said at 200-201: "It must be remembered that the Commissioner's function is administrative, not judicial. The power to assess is, as s 167 shows, not limited to cases where the Commissioner has enough information on which to make a positive finding of fact. The Commissioner is not required to determine on the balance of probabilities that one person rather than another is the person subject to the tax liability in respect of the particular income. Where the facts known to the Commissioner are such that he is unable to determine which of two or more persons is liable to tax on the same item of income in the same year, he may adopt the view in the case of any or all of those persons that there is a substantial possibility that the item of income is assessable income of that person. If that view is adopted in respect of two or more of those persons, he may validly assess each of them to tax." (emphasis added). 68 There can be no suggestion in the present case that the Commissioner has not bona fide exercised his powers. It may be the case that both the assessment and the declaration with respect to ILFC cannot be sustained but that is a matter to be determined pursuant to the statutory mechanisms for review. There is nothing to suggest that the Commissioner had issued either the assessment or the declaration knowing they were wrong. In any event the suggested problem does not apply to IATC which received an assessment but no declaration. Discretion 69 The final matter which requires consideration is whether Gzell J was correct to dismiss the balance of the summons (declaration 13), in the exercise of his discretion. Although I can understand the utility which a declaration as to the tax liability of a taxpayer contemplating a future transaction may have, it is unnecessary to determine in these proceedings whether the Court should make a declaration and the principles which should be applied in so doing (there is a discussion of the problem in Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at 355 ff). In the present case, resolution of the issues which arise in relation to declaration 13 would require a determination of the same issues which are precluded from consideration by s 59 in relation to the already completed transactions. As those issues must be determined by the process of objection and review under Part IVC of the Administration Act, the Supreme Court should not entertain proceedings which, inter alia, could give rise to factual findings or determinations which may be inconsistent with those made in the course of the statutory review process. 70 Gzell J was therefore correct to dismiss the summons with respect to declaration 13 in the exercise of his discretion. Orders 71 In my opinion leave to appeal should be refused. The claimants should pay the Commissioner's costs of the summons for leave. ********** 29/11/2005 - - Paragraph(s) 29/11/2005 - - Paragraph(s) 29/11/2005 - - Paragraph(s) 29/11/2005 - - Paragraph(s) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.