Wesfarmers Federation Insurance Ltd v Deputy Commissioner of Taxation [2003] FCA 119 (28 February 2003)

Last Updated: 28 February 2003

FEDERAL COURT OF AUSTRALIA

Wesfarmers Federation Insurance Ltd v Deputy Commissioner of Taxation [2003] FCA 119

TAXATION - claim for refund of sales tax - whether applicant had borne tax within s 11(3) of the Sales Tax Assessment Act 1992 (Cth) - whether the goods were exempt from sales tax pursuant to Item 194 of Schedule 1 of the Sales Tax (Exemptions and Classifications) Act 1992 (Cth) - whether the Commissioner of Taxation has a discretion to allow a tax credit in circumstances which fall outside the grounds provided in Table 3 of Schedule 1 of the Sales Tax Assessment Act 1992

Administrative Appeals Tribunal Act 1975 (Cth) s 44

Sales Tax (Exemptions and Classifications) Act 1992 (Cth) Item 194 of Schedule 1

Sales Tax Assessment Act 1992 (Cth) ss 11(3), 24, 51, 59, Table 3 of Schedule 1

Taxation Administration Act 1953 (Cth) s 14ZZ

Abebe v Commonwealth [1999] HCA 14; (1999) 197 CLR 510 cited

TNT Skypak International (Australia) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 cited

Brown & Davis Ltd v Galbraith [1972] 1 WLR 997 cited

Charnock v Liverpool Corporation [1968] 1 WLR 1498 cited

National Bus Co Ltd v Federal Commissioner of Taxation (1998) 38 ATR 211 cited

Otto Australia Pty Ltd v Commissioner of Taxation (1991) 28 FCR 477 cited

Chippendale Printing Co Pty Ltd v Commissioner of Taxation (1996) 62 FCR 347 cited

Giris Pty Ltd v Federal Commissioner of Taxation [1969] HCA 5; (1969) 119 CLR 365 cited

Sawer "The Separation of Powers in Australian Federalism" (1961) 35 ALJ 177

Jackman "Promissory Obligations in the Law of Restitution" (1995) 69 ALJ 614

WESFARMERS FEDERATION INSURANCE LTD v DEPUTY COMMISSIONER OF TAXATION

W407 of 2001

LEE J

28 FEBRUARY 2003

PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W407 OF 2001

BETWEEN:	WESFARMERS FEDERATION INSURANCE LTD APPLICANT
AND:	DEPUTY COMMISSIONER OF TAXATION RESPONDENT
JUDGE:	LEE J
DATE OF ORDER:	28 FEBRUARY 2003
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1. The "appeal" be dismissed.

2. The applicant pay the respondent's costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W407 OF 2001

BETWEEN:	WESFARMERS FEDERATION INSURANCE LTD APPLICANT
AND:	DEPUTY COMMISSIONER OF TAXATION RESPONDENT

JUDGE:	LEE J
DATE:	28 FEBRUARY 2003
PLACE:	PERTH

REASONS FOR JUDGMENT

LEE J:

1 This is an "appeal" pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ("the Act") from a decision of the Administrative Appeals Tribunal ("the Tribunal") which affirmed a decision of the respondent ("the Commissioner") disallowing the applicant's objection against the refusal of the Commissioner to allow the claim of the applicant to a refund of sales tax.

2 The applicant, by a document entitled "Rural Plan Policy Booklet" ("the Rural Plan"), offered policies of insurance to persons engaged in rural occupations or business. In particular the Rural Plan offered insurance against loss or damage to machinery or vehicles used in carrying on farming businesses. The Rural Plan consisted of a number of policies and according to the policy, or policies, selected by an intending insured, the applicant would issue a certificate, or certificates, of insurance to detail the insurance cover provided and the items insured.

3 Of the 14 policies on offer in the Rural Plan, the only policy included in the papers before the Tribunal and, therefore, the only policy relevant to the issues before the Tribunal was the "Motor Vehicle Policy" ("the Policy"). Although in its reasons for decision the Tribunal also referred to farm machinery and equipment as insured items which, it may be assumed, were covered under the "Farm Machinery Policy" of the Rural Plan, it appears that no issues in respect of that policy were raised before the Tribunal.

4 Under the Policy the applicant agreed to insure motor vehicles "against accidental damage or theft together with the reasonable cost of protection and removal of the [vehicle] to the nearest repairer or place of safety if necessary as a result of accidental damage or theft".

5 The applicant further agreed that it would, at its option, repair, replace or pay to the insured the cost of repairs or the retail value of the (vehicle) at the time of accidental damage or theft. The Policy stipulated that the insured was not to authorise repairs to a vehicle without the consent of the applicant.

6 Further provisions, set out under the heading "General Section" in the Rural Plan, were made part of each policy issued by the applicant. Those provisions stated that the insured was not to carry out repairs until the applicant or a person authorised by the applicant had had the opportunity to inspect the damaged property; or to abandon or relinquish any property to the applicant whether the applicant had taken possession of it or not.

7 The "General Section" further provided that the applicant, without incurring any liability, may take possession of the insured property and deal with salvage in a reasonable manner and may elect to rebuild, replace, repair, restore or reinstate any property insured.

8 On 17 September 1997 the applicant lodged with the Commissioner an application for a refund of sales tax. The basis of the application was that sales tax had been paid by the applicant on goods that were exempt from sales tax pursuant to Item 194 of Schedule 1 of the Sales Tax (Exemptions and Classifications) Act 1992 (Cth) ("the Exemptions Act"). The amount claimed was $1,192,737.

9 Section 24 of the Sales Tax Assessment Act 1992 (Cth) ("the Assessment Act") and Item 194 of Schedule 1 of the Exemptions Act provided that the following goods were not taxable under an otherwise "assessable dealing":

"Goods for use by a person for supply to another person under a contract (other than a contract of sale) if:

(a) property in the goods is to pass to the other person under the contract; and

(b) the other person would have been entitled to quote for the purchase in

reliance on an exemption Item, if the other person had purchased the goods."

10 Section 51 of the Assessment Act provided that a person was entitled to claim a "credit" in the situations set out in Tables 3 and 3A of Schedule 1. The particular item of Table 3 relied upon by the applicant to ground its claim for a credit was Item CR2A, which read as follows:

"	Summary of ground	Details of ground	Amount of credit	Time credit arises
	Claimant has borne tax, even though entitled to quote exemption declaration	Claimant has borne tax on a tax-bearing dealing for which the claimant was entitled to quote an exemption declaration (whether or not the claimant quoted). Claimant has not sold the goods. If claimant has applied the goods to own use, the AOU would not have been taxable assuming it were an assessable dealing.	the tax borne, to the extent that the claimant has not passed it on	time of the tax-bearing dealing	"

11 On 7 May 1998 the Commissioner advised the applicant that its claim had been disallowed. On 3 July 1998 the applicant lodged a notice of objection against the decision to disallow the claim and on 23 September 1998 gave notice of an additional ground relied upon to support its objection. On 8 April 1999 the Commissioner gave notice that the objection had been disallowed. On 4 June 1999, pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth), the applicant referred the Commissioner's decision to disallow the objection to the Tribunal for review.

12 Under s 44 of the Act, the matter, the subject of "appeal" to this Court, is a controversy on a question of law. Therefore, unless an error of law is involved in a finding of fact made by the Tribunal, that finding will not become an issue in the "appeal". (See: Abebe v Commonwealth [1999] HCA 14; (1999) 197 CLR 510 per Gleeson CJ, McHugh J at [25]; TNT Skypak International (Australia) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 per Gummow J at 181).

13 Before the Tribunal the applicant claimed a refund of sales tax paid between 1 April 1994 and 30 June 1997 on goods used for the repair of vehicles insured by the applicant and owned by persons carrying on business as primary producers. The applicant claimed that parts used by vehicle repairers in the repair of such vehicles had been supplied to the insured pursuant to the contract contained in the Policy and that the insured would have been eligible, as primary producers, to claim sales tax exemption in respect of the proposed use of those parts if the insured had purchased the parts from a wholesaler directly.

14 The manner in which the parties conducted the review before the Tribunal raised the question whether the "appeal" to this Court was premature to the extent that the Tribunal has not been required to make conclusive findings on relevant facts. The parties did not submit to the Tribunal an agreed statement of facts. The Court was informed that the hearing before the Tribunal "was effectively confined to three (preliminary) issues". The "three preliminary issues" were said to be:

i) whether the applicant had borne tax within s 11(3) of the Assessment Act;

ii) whether the elements of Item 194 (apart from paragraph (b)) had been satisfied; and

iii) whether the Commissioner had a discretion to enter into an agreement with the applicant under s 59 of the Assessment Act.

15 Section 11(3) provided as follows in respect of the bearing of sales tax:

"A person is taken to have borne tax on goods if the person purchased the goods for a price that included tax. However, the amount of tax borne is to be reduced by any amount of the tax included in that price that has been refunded or credited to the person."

16 It was said that the determination of the first two issues "necessarily involved determining the proper construction of the contractual arrangements between the parties".

17 The Tribunal was asked by the parties to assume that claims were made under the Policy in respect of the repair of motor vehicles used by an insured for the purpose of carrying on a business of primary production. The Tribunal was not required to make a finding of fact that each insured was a primary producer nor to make findings of fact necessary for any conclusions as to the terms of, and parties to, contracts made between the applicant, the insured or the repairer.

18 Pursuant to the request of the parties that the facts of each claim not be examined or determined and that assumptions be made in respect thereof, the Tribunal purported to find that there were "two separate contractual relationships between the three parties involved - firstly, the contract of insurance indemnity between the applicant and the [insured]; and second, the contract to repair [the insured's property] between the applicant and the repairer".

19 The material before the Tribunal suggested that in most cases where damage had been caused to an insured vehicle, the insured brought the vehicle to the premises of a repairer and asked for a quotation for the cost of repair. It does not appear that at any time the applicant elected to exercise its right under the Policy to repair the vehicle on its own account, thereby excluding the insured from any contractual relationship with the repairer. In some circumstances the insured instructed a repairer, to whom the insured had delivered the vehicle with a request that a quotation for repairs be provided, to repair the vehicle subject to the applicant approving the repairer's quotation for the cost of repair and to the applicant exercising any rights it may have under the Policy to direct the repairer, on behalf of the insured, as to the manner of repair and as to the parts or materials to be used in the repair. Upon the applicant informing the insured, or the repairer, that it consented to the repairer carrying out the repairs to the vehicle as instructed by the insured, it could be concluded that the parties to the contract for repair became the insured and the repairer.

20 However, in other circumstances the applicant may have dealt directly with the repairer, settling the manner and cost of repair and undertaking to pay to the repairer such part of the cost of repair as constituted the sum the applicant was otherwise required to pay to the insured under the Policy by way of indemnity. In those cases, which appeared to be the most common circumstance put before the Tribunal, it could be said that there was a tripartite contract between the applicant, the insured, and the repairer. The applicant, in consideration for the repairer's agreement not to demand payment from the insured of the amount the applicant had agreed to pay to the repairer, agreed, subject to the insured accepting that repairs had been carried out to its satisfaction, to pay to the repairer such sum as the applicant was bound to pay to the insured to indemnify the insured, and the insured agreed to pay to the repairer the balance of the cost of repair (pursuant to its liability under the Policy to pay any "excess" or to pay specified charges or to pay part of the cost of replaced items), it being a term of the contract between the insured and the repairer that the repairer would carry out the work with due skill and diligence. (See: Charnock v Liverpool Corporation [1968] 1 WLR 1498; Brown & Davis Ltd v Galbraith [1972] 1 WLR 997; Jackman "Promissory Obligations in the Law of Restitution" (1995) 69 ALJ 614, 615).

21 Where the applicant approved a quotation for the cost of repairs presented to the insurer by a repairer selected by the applicant, or by a repairer other than the repairer to whom the insured had taken the vehicle, it may be said that the repair of the vehicle by the repairer was carried out on similar terms, the contract between the repairer and the insured being made by the applicant as agent of the insured.

22 After the applicant, in completion of its contract with the repairer and in discharge of its obligation to indemnify the insured, had paid the invoice rendered to the applicant by the repairer, any issue that may arise thereafter as to lack of skill or care in the work done by the repairer would be an issue arising under the contract made between the repairer and the insured and not under the contract made between the applicant and the repairer.

23 Before the Tribunal the applicant submitted that the repairer acted as the agent of the applicant in purchasing parts from wholesalers for use in the repair of the vehicle of an insured. It was contended that upon purchase such parts were the property of the applicant and became the property of the insured under the contract of insurance when the repairer used the parts to repair the insured's vehicle on behalf of the applicant.

24 The Tribunal rejected that submission. On the "appeal" the applicant accepted the finding of the Tribunal that the applicant had made a contract with the repairer in respect of the repair of a vehicle and sought to put forward a new case, namely, that the contract between the applicant and the repairer was "for work and labour with the parts supplied [to the insured] incidentally". The applicant submitted that the Tribunal erred in failing to find that property in the parts passed to the insured pursuant to the terms of that contract between the insurer and the repairer.

25 Putting to one side whether the applicant should be permitted to present such a case on "appeal", it may be thought that the due application of the law to the "assumed" facts before the Tribunal obliged the Tribunal to find that contractual relationships arose as a tripartite contract, or dual contracts, pursuant to which the repairer agreed with the insured to carry out work for the insured with due care and skill, and the applicant agreed with the repairer to pay so much of the cost of that repair as the applicant would otherwise be required under the Policy to pay to the insured, the repairer agreeing to accept payment from the applicant in lieu of its right to seek payment from the insured.

26 It would follow that insofar as parts purchased by the repairer became integrated in the vehicle by such repair, property in the parts passed to the insured upon incorporation of the parts in the insured's vehicle as part of the work done pursuant to the contract made between the insured and the repairer. Otherwise property in the parts passed to the insured upon delivery of the vehicle to the insured, the repairer thereby surrendering its lien and accepting that the parts had become the property of the insured. (See: National Bus Co Ltd v Federal Commissioner of Taxation (1998) 38 ATR 211 at 216-218).

27 Pursuant to Item 194 of Schedule 1 of the Exemptions Act, the parts supplied to the insured by the repairer would have been goods supplied in exempt circumstances if the insured had purchased the goods and would have been entitled to quote a registration number, relying on Item 2 or 3 of Schedule 1 of the Exemptions Act (relating to goods used by a person mainly in carrying out activities in a business of primary production or agricultural industry). That is to say, if the insured had quoted a registration number to the repairer, the repairer would have been obliged to supply the parts incorporated in the insured's vehicle free of sales tax. The repairer would then have had a right to claim a credit pursuant to Item CR5A in Table 3 of Schedule 1 of the Assessment Act.

28 The Tribunal found, correctly, that property in the parts purchased by the repairer remained with the repairer until the parts were supplied to the insured by incorporation in the vehicle or by delivery of the vehicle to the insured. Notwithstanding that the Tribunal may have held, incorrectly, that property in the parts used in the repair passed to the insured pursuant to the terms of the Policy and not pursuant to a contract for repair made between the repairer and the insured, for the reasons set out above the conclusion of the Tribunal that the applicant had not established any basis for its claim to a refund of sales tax remained correct. The applicant's submission that property in the parts passed from the repairer to the insured under a contract made between the applicant and the repairer did not alter that position. The applicant had not borne tax on a tax-bearing dealing for the purpose of Item CR2A relied upon by the applicant. As the Tribunal found, the applicant did not purchase any goods. Therefore, no issue arose under s 11(3) of the Assessment Act as to whether the applicant paid a price for the purchase of the goods that included tax. Even if it could be said that the tax borne by the repairer was "passed on" by the repairer, in part or in whole, to the applicant in the amount paid by the applicant to the repairer as part of the cost of repair paid by the applicant in lieu of the insured, (see: Otto Australia Pty Ltd v Commissioner of Taxation (1991) 28 FCR 477 at  480), that sum was not part of a price charged to the applicant as purchaser of the goods. Accordingly, the applicant did not bear tax "on a tax-bearing dealing" for the purpose of Item CR2A.

29 It is unnecessary to consider the question whether the applicant had an entitlement to quote an "exemption declaration" for the tax-bearing dealing in which the repairer had borne sales tax. It is also unnecessary to consider what right of subrogation the applicant may have exercised if the insured had been entitled to quote a registration number to the repairer. It may be assumed that the cost of repairs paid by the applicant would have been reduced accordingly.

30 Finally, the applicant submitted that the Tribunal erred in law by misconstruing the terms of s 59 of the Assessment Act which read as follows:

"59(1) The Commissioner may enter into an agreement with a person regarding the circumstances in which the person is to be entitled to credits and the manner of calculating and claiming such credits.

59(2) So far as the agreement is inconsistent with this Act, the agreement prevails."

31 The applicant's submissions on this ground were put forward as an alternative to the foregoing grounds relied upon. The applicant contended that the Tribunal erred by failing to apply to s 59 an operation that provided for calculation by the Commissioner of credit entitlements on grounds other than the grounds provided in Table 3 of Schedule 1. It was submitted that s 59 provided the Commissioner with a discretion to allow a credit "where the circumstances of the particular case fall within the legislative policy evinced by one or more of the six broad categories of credit grounds [in Table 3] even though the taxpayer is unable to satisfy the precise terms of one of the grounds". In Chippendale Printing Co Pty Ltd v Commissioner of Taxation (1996) 62 FCR 347 it was held that the provisions of Part 4 of the Assessment Act, in particular s 51 and Table 3 of Schedule 1, were exhaustive and excluded any right under the general law to recover over-paid tax. That view of the operation of Part 4 of the Assessment Act, in which s 59 appears, would tend to support the view that s 59 provided no scope for the Commissioner to agree that a claimant was entitled to a credit that was not based upon a credit ground set out in Table 3. The use of the word "credits" in s 59, being the governing word in Part 4, and the absence of any general words referring to refunds of tax or release from liability for tax otherwise incurred, supports that view. It may be said to be a strange result if, in effect, s 59 provided the Commissioner with a broad and undefined power not controlled by the Act to authorise refunds of tax or to release a party from a liability to pay tax. (See: Giris Pty Ltd v Federal Commissioner of Taxation [1969] HCA 5; (1969) 119 CLR 365 per Kitto J at 379; Sawer "The Separation of Powers in Australian Federalism" (1961) 35 ALJ 177, 186-187).

32 In its terms s 59 empowers the Commissioner to enter agreements which settle or accept facts in consequence of which it is acknowledged that a person has an entitlement to a credit under s 51 of the Assessment Act, the agreements proceeding to provide for the manner of calculating and claiming those credits accordingly. The Tribunal did not err in its conclusion in that regard.

33 The application must be dismissed with costs.

I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.

Associate:

Dated: 26 February 2003

Counsel for the Applicant:	M J Buss QC, J A Thomson
Solicitor for the Applicant:	Julian Lentzner
Counsel for the Respondent:	E M Corboy
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	31 July 2002
Date of Further Submissions:	7, 14 August 2002
Date of Judgment:	28 February 2003