FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v ACN 154 520 199 Pty Ltd (in liquidation) [2025] FCAFC 146

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    The decision of the Administrative Appeals Tribunal given on 30 November 2023 be set aside.

3.    The respondent’s application for review of the applicant’s objection decision in respect of the respondent’s objections to assessments issued to it of net amounts under A New Tax System (Goods and Services Tax) Act 1999 (Cth), declarations under Division 165 of the GST Act and assessments of administrative penalties be remitted to the Administrative Review Tribunal for determination according to law.

4.    The respondent pay the applicant’s costs of the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

DERRINGTON J:

1    I have had the advantage of considering the respective draft reasons of both Goodman and Feutrill JJ. I agree with the orders proposed by Feutrill J for the reasons which his Honour gives.

Associate:    

Dated:    24 October 2025

REASONS FOR JUDGMENT

GOODMAN J:

A.    INTRODUCTION

2    The underlying dispute between the applicant Federal Commissioner of Taxation and the respondent taxpayer concerns notices of assessment and amended assessment issued by the Commissioner negating the taxpayer’s claimed entitlement under the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) to input tax credits in an amount exceeding $72.95 million.

3    That dispute has a long history, which is described in Part C below, including a judgment of the Full Court of this Court (Perram, Moshinsky and Thawley JJ) in ACN 154 520 199 Pty Ltd (in liq) v Federal Commissioner of Taxation [2020] FCAFC 190; (2020) 282 FCR 455 (Full Court ACN), which upheld an earlier appeal from the taxpayer and remitted the matter for redetermination by the Administrative Appeals Tribunal.

4    The Tribunal subsequently found in favour of the taxpayer and the Commissioner now appeals pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) from that decision, the reasons for which were published as Re HNMF and Federal Commissioner of Taxation [2023] AATA 4067; (2023) 117 ATR 513 (Second Tribunal Decision, or, T). For the reasons set out below, the appeal should be dismissed.

B.     THE GST ACT CONTEXT

5    Before addressing the detail of the appeal, it is important to identify the statutory context in the GST Act. That context is conveniently described in Full Court ACN at 461 [16] to 466 [36] in terms which address the salient provisions during the relevant period, namely 1 February 2012 to 30 June 2014, and which is respectfully adopted and reproduced as follows:

16    The key relevant provision of the GST Act are as follows. The relevant version of the GST Act is that in force during the relevant period (1 February 2012 to 30 June 2014). It does not appear that there were any material amendments during that period. For ease of expression, we will refer to the provisions of the GST Act in present tense, even though we are referring to the provisions as they stood during the relevant period.

17    Under s 7-1(2) of the GST Act, entitlements to input tax credits relevantly arise on “creditable acquisitions”.

18    Section 9-30 is headed “Supplies that are GST-free or input taxed”. Section 9-30(1) provides that a supply is GST-free if (relevantly) it is GST-free under Div 38 or under a provision of another Act. Section 9-30(2) provides that a supply is input taxed if (relevantly) it is input taxed under Div 40 or under a provision of another Act. Under the GST Act, if a supply is input taxed, no GST is payable on the supply, and there is no entitlement to an input tax credit for anything acquired or imported to make the supply.

19    Section 9-30(3) addresses the situation where a supply would otherwise be considered to be both GST-free and input taxed. The subsection provides that, to the extent that a supply would, apart from the subsection, be both GST-free and input taxed:

(a)    the supply is GST-free and not input taxed, unless the provision under which it is input taxed requires the supplier to have chosen for its supplies of that kind to be input taxed; or

(b)    the supply is input taxed and not GST-free, if that provision requires the supplier to have so chosen.

20    Division 11 of the GST Act deals with creditable acquisitions. In s 11-1 it is explained that a taxpayer is entitled to input tax credits for the taxpayer’s creditable acquisitions. Section 11-5 defines a “creditable acquisition” as follows:

11-5 What is a creditable acquisition?

You make a creditable acquisition if:

(a)    you acquire anything solely or partly for a *creditable purpose; and

(b)    the supply of the thing to you is a *taxable supply; and

(c)    you provide, or are liable to provide, *consideration for the supply; and

(d)    you are *registered, or *required to be registered.

21    The expression “creditable purpose” is defined in s 11-5, which relevantly provides:

11-5 Meaning of creditable purpose

(1)    You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2)    However, you do not acquire the thing for a creditable purpose to the extent that:

(a)    the acquisition relates to making supplies that would be *input taxed; or

(b)    the acquisition is of a private or domestic nature.

    Thus, if an acquisition relates to making supplies that would be input taxed, the taxpayer does not acquire the thing for a creditable purpose.

22    Section 11-20 deals with who is entitled to input tax credits for creditable acquisitions. It provides that the taxpayer is entitled to the input tax credit for any creditable acquisition that the taxpayer makes.

23    Section 11-25 deals with the amount of the input tax credits for creditable acquisitions. Generally, the amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount of the input tax credit is reduced if the acquisition is only partly creditable.

24    Division 38 is headed “GST-free supplies”. It is explained in s 38-1 that, if a supply is GST-free: no GST is payable on the supply; and an entitlement to an input tax credit for anything acquired or imported to make the supply is not affected. Subdivision 38-L is headed “Precious metals” and comprises one section, s 38-385. That section provides:

38-385 Supplies of precious metals

A supply of *precious metal is GST-free if:

(a)    it is the first supply of that precious metal after its refining by, or on behalf of, the supplier; and

(b)    the entity that refined the precious metal is a *refiner of precious metal; and

(c)    the *recipient of the supply is a *dealer in precious metal.

Note: Any other supply of precious metal is input taxed under section 40-100.

25    The expression “precious metal” is defined in s 195-1 as follows:

precious metal means:

(a)    gold (in an investment form) of at least 99.5% fineness; or

(b)    silver (in an investment form) of at least 99.9% fineness; or

(c)    platinum (in an investment form) of at least 99% fineness; or

(d)    any other substance (in an investment form) specified in the regulations of a particular fineness specified in the regulations.

    It should be noted that, while para (a) of the definition of “precious metal” refers to gold in an investment form of at least 99.5% fineness, the present case generally concerns gold of at least 99.99% fineness (four nines gold).

26    A “refiner of precious metal” is defined in s 195-1 as “an entity that satisfies the Commissioner that it regularly converts or refines precious metal in carrying on its enterprise”.

27    A “dealer in precious metal” is defined in s 195-1 as “an entity that satisfies the Commissioner that a principal part of carrying on its enterprise is the regular supply and acquisition of precious metal”.

28    The expression “investment form”, which is used in the definition of “precious metal”, is not defined in the GST Act. As noted at [30] of the Tribunal’s reasons, the Commissioner articulated a definition in GSTR 2003/10: Goods and Services Tax: What is “precious metal” for the purposes of GST? That document stated at [29]:

… for gold, silver or platinum to be in an investment form for the purposes of the GST Act, it must be in a form that:

•    is capable of being traded on the international bullion market, that is, it must be a bar, wafer or coin;

•    bears a mark or characteristic accepted as identifying and guaranteeing its fineness and quality; and

•    is usually traded at a price that is determined by reference to the spot price of the metal it contains.

It was common ground before the Tribunal that the above view of what constitutes “investment form” was generally accepted; the parties also agreed that, absent a recognised mark and indication of fineness, a gold bar will not be “precious metal” irrespective of its degree of metallic purity: see the Tribunal’s reasons, [31].

29    Division 40 is headed “Input taxed supplies”. Subdivision 40-D is headed “Precious metals” and comprises only one section, s 40-100. That section provides:

40-100    Precious metals

A supply of *precious metal is input taxed.

Note:    If the supply is the first supply of precious metal after refinement, the supply is GST-free under section 38-385.

30    To the extent that there is inconsistency between s 38-385 and s 40-100, this is resolved by s 9-30(3), referred to above. The effect of that provision is that, if a supply of precious metal falls in s 38-385, it will be GST-free rather than input taxed.

31    Division 165 of the GST Act contains anti-avoidance provisions. As explained in s 165-1, the object of the Division is to deter schemes to give entities benefits by reducing GST, increasing refunds or altering the timing of payment of GST or refunds.

32    Section 165-5 deals with when Div 165 operates. It provides in part:

165-5    When does this Division operate?

General rule

(1)    This Division operates if:

(a)    an entity (the avoider) gets or got a *GST benefit from a *scheme; and

(b)    the GST benefit is not attributable to the making, by any entity, of a choice, election, application or agreement that is expressly provided for by the *GST law, the *wine tax law or the *luxury car tax law; and

(c)    taking account of the matters described in section 165-5, it is reasonable to conclude that either:

(i)    an entity that (whether alone or with others) entered into or carried out the scheme, or part of the scheme, did so with the sole or dominant purpose of that entity or another entity getting a *GST benefit from the scheme; or

(ii)    the principal effect of the scheme, or of part of the scheme, is that the avoider gets the GST benefit from the scheme directly or indirectly; and

(d)    the scheme:

(i)    is a scheme that has been or is entered into on or after 2 December 1998; or

(ii)    is a scheme that has been or is carried out or commenced on or after that day (other than a scheme that was entered into before that day).

33    The expressions “GST benefit” and “scheme” are defined in s 165-10 as follows:

165-10    When does an entity get a GST benefit from a scheme?

(1)    An entity gets a GST benefit from a *scheme if:

(a)    an amount that is payable by the entity under this Act apart from this Division is, or could reasonably be expected to be, smaller than it would be apart from the scheme or a part of the scheme; or

(b)    an amount that is payable to the entity under this Act apart from this Division is, or could reasonably be expected to be, larger than it would be apart from the scheme or a part of the scheme; or

(c)    all or part of an amount that is payable by the entity under this Act apart from this Division is, or could reasonably be expected to be, payable later than it would have been apart from the scheme or a part of the scheme; or

(d)    all or part of an amount that is payable to the entity under this Act apart from this Division is, or could reasonably be expected to be, payable earlier than it would have been apart from the scheme or a part of the scheme.

What is a scheme?

(2)    A scheme is:

(a)    any arrangement, agreement, understanding, promise or undertaking:

(i)    whether it is express or implied; and

(ii)    whether or not it is, or is intended to be, enforceable by legal proceedings; or

(b)    any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

GST benefit can arise even if no economic alternative

(3)    An entity can get a *GST benefit from a *scheme even if the entity or entities that entered into or carried out the scheme, or a part of the scheme, could not have engaged economically in any activities:

(a)    of the kind to which this Act applies; and

(b)    that would produce an effect equivalent (except in terms of this Act) to the effect of the scheme or part of the scheme;

other than the activities involved in entering into or carrying out the scheme or part of the scheme.

34    Section 165-15 sets out matters to be considered in determining purpose or effect:

165-15    Matters to be considered in determining purpose or effect

(1)    The following matters are to be taken into account under section 165-5 in considering an entity’s purpose in entering into or carrying out the *scheme from which the avoider got a *GST benefit, and the effect of the scheme:

(a)    the manner in which the scheme was entered into or carried out;

(b)    the form and substance of the scheme, including:

(i)    the legal rights and obligations involved in the scheme; and

(ii)    the economic and commercial substance of the scheme;

(c)    the purpose or object of this Act, the Customs Act 1901 (so far as it is relevant to this Act) and any relevant provision of this Act or that Act (whether the purpose or object is stated expressly or not);

(d)    the timing of the scheme;

(e)    the period over which the scheme was entered into and carried out;

(f)    the effect that this Act would have in relation to the scheme apart from this Division;

(g)    any change in the avoider’s financial position that has resulted, or may reasonably be expected to result, from the scheme;

(h)    any change that has resulted, or may reasonably be expected to result, from the scheme in the financial position of an entity (a connected entity) that has or had a connection or dealing with the avoider, whether the connection or dealing is or was of a family, business or other nature;

(i)    any other consequence for the avoider or a connected entity of the scheme having been entered into or carried out;

(j)    the nature of the connection between the avoider and a connected entity, including the question whether the dealing is or was at arm’s length;

(k)    the circumstances surrounding the scheme;

(l)    any other relevant circumstances.

(2)    Subsection (1) applies in relation to consideration of an entity’s purpose in entering into or carrying out a part of a *scheme from which the avoider gets or got a *GST benefit, and the effect of part of the scheme, as if the part were itself the *scheme from which the avoider gets or got the GST benefit.

35    Section 165-40(a) (s 165-40(1)(a) from 1 July 2012) provides that, for the purpose of negating a GST benefit, the Commissioner may make a declaration stating (relevantly) the amount that is (and has been at all times) the avoider’s net amount for a specified tax period that has ended.

36    Section 165-40(2) (which commenced on 1 July 2012) requires the Commissioner to take such action as he or she considers necessary to give effect to a declaration made under the section.

(emphasis in original)

6    To similar effect, see Commissioner of Taxation v Complete Success Solutions Pty Ltd [2023] FCAFC 19; (2023) 116 ATR 9 at 14 to 17 ([25] to [41]) (Moshinsky, Thawley and Hespe JJ).

C.     BACKGROUND

7    The background to the present appeal is set out below.

C.1    The taxpayer’s business dealings

8    During the relevant period, the taxpayer was a “refiner of precious metals” as defined by s 195-1 of the GST Act and was engaged in a business which included the following steps:

(1)    first, the acquisition of refining materials. In this regard:

(a)    the taxpayer acquired refining materials from various entities, including four groups of entities described in the Second Tribunal Decision interchangeably as the Division 165 Supplying Entities or the Fraudulent Suppliers. For convenience and consistent with the approach taken by the Full Court in Full Court ACN, the former expression will be adopted in these reasons for judgment;

(b)    to a large extent, the refining materials that the Division 165 Supplying Entities sold to the taxpayer had been acquired by the Division 165 Supplying Entities as gold satisfying the definition of “precious metal” in s 195-1 of the GST Act but subsequently adulterated (via processes such as melting, cutting or otherwise damaging the gold) by the Division 165 Supplying Entities so that the gold ceased to be “precious metal” (with a commensurate decrease in its value) before it was sold to the taxpayer;

(c)    the taxpayer paid to the suppliers of the refining materials (including the Division 165 Supplying Entities) a price that included a component for goods and services tax (GST). GST was payable because the gold was not “precious material”. Despite receiving the GST component, the Division 165 Supplying Entities failed to comply with their obligation to remit that component to the Commissioner. The retention by the Division 165 Supplying Entities of the GST component overcame the losses that those entities suffered by dint of their adulteration of the gold described in the previous sub-paragraph;

(d)    the taxpayer claimed input tax credits for the GST it had paid upon its acquisition of refining materials;

(2)    secondly, the refining of the refining materials that the taxpayer had acquired, so as to produce “precious metal” as defined by s 195-1 of the GST Act in the form of gold bars of 99.99 per cent fineness that were stamped with a hallmark; and

(3)    thirdly, the sale of such refined gold to entities each of which was a “dealer in precious metal” as defined in s 195-1 of the GST Act. The majority of such sales were to a related party. Such sales did not attract GST.

C.2     The notices of assessment and amended assessment, the objection and the objection decision

9    On 8 April 2016, and following an audit, the Commissioner made declarations under s 165-40 of the GST Act and issued notices of assessment and amended assessment to the taxpayer for the relevant period, negating input tax credits that had been claimed in an amount in the order of $122 million. The Commissioner’s primary position was that the relevant supplies of precious metals by the taxpayer to the dealers did not satisfy the requirements of s 38-385 of the GST Act and as such were input taxed supplies, with the consequence that the taxpayer was not entitled to claim the relevant input tax credits.

10    The Commissioner’s alternative position was based upon the application of Division 165 of the GST Act. The Commissioner contended that the taxpayer was not entitled to input tax credits totalling $72,953,611 because each of those credits was a “GST benefit” which the taxpayer had obtained from a “scheme” which had: (1) been entered into or carried out by one or more entities for the dominant purpose of giving the taxpayer such benefits; or (2) the principal effect of the taxpayer obtaining such benefits.

11    On 28 April 2016, the taxpayer lodged an objection against the notices of assessment and amended assessment and, on 21 September 2016, the Commissioner decided to disallow that objection (objection decision). On 18 November 2016, the taxpayer applied to the Tribunal for review of the objection decision.

C.3     The First Tribunal Decision

12    During September 2018, the Tribunal (First Tribunal) heard the review application. Before that Tribunal (and subsequently – see T[24]) the Commissioner relied upon the following schemes for the purposes of Division 165 of the GST Act:

(1)    a “wider” scheme, being:

… the following transactions and course of action:

(a)    the supply by [the taxpayer] to ABC NSW and Ainslie (the Dealers) of gold of 99.99% fineness in investment form for an amount roughly equivalent to the prevailing spot price for gold;

(b)    the purchase by the Intermediaries from the Dealers and/or other sources of gold of 99.99% fineness in investment form;

PARTICULARS

This step consisted of the purchase of precious metal by:

(i)    the IPJ Group entities from ABC NSW and/or other sources;

(ii)    the Majid Group entities from Ceylon and/or other sources;

(iii)    MAK from YPP, USH and/or other sources;

(iv)    YPP from Ainslie and/or other sources;

(v)    Australian Bullion Company (Aust) Pty Ltd (ABC(A)) from ABC NSW and/or other sources;

(vii)    USH from ABC(A) and/or other sources.

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

PARTICULARS

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

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

PARTICULARS

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

(e)    the refining by [the taxpayer] of the gold referred to in paragraph (d) to produce ‘precious metal’ as defined. ; and

(2)    a “narrower scheme” comprising the transactions and courses of action referred to in paragraphs (b), (c) and (d) above.

13    On 20 December 2019, the First Tribunal affirmed the objection decision and published its reasons for doing so as ACN 154 520 199 Pty Ltd (In Liq) and Commissioner of Taxation (Taxation) [2019] AATA 5981 (First Tribunal Decision). The First Tribunal accepted the Commissioner’s primary position, with the result that the taxpayer was not entitled to input tax credits in the order of $122 million. The First Tribunal went on to consider the Commissioner’s alternative position and also accepted that position, such that had it been necessary to do so, the First Tribunal would have found that the taxpayer was disentitled, by dint of the operation of Division 165 of the GST Act, to input tax credits to the extent of $72,953,611.

14    In the course of its consideration of the Commissioner’s alternative position under Division 165 of the GST Act, the First Tribunal relevantly:

(1)    relied upon two emails and a transcript of a compulsory examination in making findings as to the knowledge of Mr Cochineas, the taxpayer’s managing director and principal witness, who was cross-examined at length; and

(2)    explained at [266] to [268]:

266.    The [taxpayer’s] position was that it is not reasonable to conclude any participant in the alleged scheme (in either of its formulations) entered into or carried out the scheme, or part of the scheme, for the dominant purpose of the [taxpayer] getting a GST benefit. [The taxpayer] accepted, based on the evidence produced, that certain rogue suppliers altered gold to make taxable supplies to [the taxpayer], collected GST-inclusive prices from [the taxpayer] and then fraudulently retained that GST. However, [the taxpayer] distanced itself from that fraudulent conduct and argued its dominant purpose, having regard to the listed matters, was not to secure input tax credits but to acquire scrap gold it needed to produce precious metal. It said it is irrational to suggest the dominant purpose of a taxpayer acquiring a taxable supply of goods that are critical to its business is not to obtain the goods themselves but simply to obtain the input tax credits. In any event, [the taxpayer] argued the availability of input tax credits to [the taxpayer] was an expected and natural incident of the payment of GST-inclusive prices.

267.    Further, [the taxpayer] submitted it was not the principal effect of the scheme that [the taxpayer] received the GST benefit: it submitted the principal effect was to enable the rogue suppliers to sell scrap gold to third-party purchasers including [the taxpayer] as a taxable supply, thereby enabling those suppliers to recover GST-inclusive prices and fail to remit that GST to the Commissioner. [The taxpayer] says that is the step which cannot be explained other than by reference to tax evasion on the part of the Division 165 Supplying Entities, and the availability of input tax credits to [the taxpayer] was irrelevant to the purpose and effect of any scheme participant.

268.    [The taxpayer’s] arguments have a superficial appeal, but the reality is that the [taxpayer’s] entitlement to the input tax credits was more important to the operation of the scheme than the GST liabilities evaded by the Division 165 Supplying Entities. The input tax credits paid by the Commonwealth to [the taxpayer] funded the round-robin arrangements because, in simple terms, it was only economically feasible for [the taxpayer] to pay those GST-inclusive prices to the Division 165 Supplying Entities in the knowledge that [the taxpayer] would receive the input tax credits. Without the entitlement to the input tax credits, [the taxpayer] would not have paid those prices to the Division 165 Supplying Entities and, consequently, there would have been no acquisition of precious metal by the third-party suppliers (including the Division 165 Supplying Entities) from the Dealers. There would have been no defacing of that precious metal, no taxable supplies in altered form to [the taxpayer], no processing of the metal by [the taxpayer], and no sale of an equivalent amount of precious metal back into the market by [the taxpayer] to the Dealers, and so on. In other words, the round robin arrangements would have fallen over if [the taxpayer] had not been able to claim the input tax credits. It was the GST benefit in the form of the larger input tax credits payable by the Commonwealth to [the taxpayer], because of the Division 165 Supplying Entities making taxable supplies to [the taxpayer], that underpinned the scheme.

(emphasis added)

C.4     The Full Court ACN Decision

15    In January 2020, the taxpayer lodged an appeal to the Full Court of this Court pursuant to s 44 of the AAT Act.

16    On 6 November 2020, the Full Court made orders upholding the appeal and remitting the matter to the Tribunal. Relevantly, the Full Court in Full Court ACN held that:

(1)    the First Tribunal erred in its construction of s 38-385 of the GST Act and thus in accepting the Commissioner’s primary position at 461 [15(a)], 486 to 493 ([131] to [158]);

(2)    the First Tribunal, when considering the operation of Division 165 of the GST Act, failed to afford procedural fairness to the taxpayer when it relied upon the emails and transcript in making material findings as to the knowledge of Mr Cochineas, in circumstances where Mr Cochineas was not a party to the emails or cross-examined on the emails or transcript and those documents were not the subject of submissions by the taxpayer or the Commissioner (at 461 [15(b)], 494 to 503 ([165] to [188]); and

(3)    as a result, the matter ought be remitted for redetermination by the Tribunal, differently constituted.

17    The Full Court noted that its conclusion that there had been a failure by the First Tribunal to afford procedural fairness to the taxpayer was a sufficient basis from which to set aside the First Tribunal’s conclusion that Division 165 applied and to remit to the Tribunal the question of the operation of Division 165 for redetermination; and that it was strictly unnecessary to deal with the remainder of the notice of appeal (503 to 504 [189]). Nevertheless, the Full Court decided to do so briefly, for the sake of completeness.

18    In the course of doing so, the Full Court addressed a question numbered 7, which the Full Court described at 510 [213] as being in summary whether any entity had entered into the scheme, or part of the scheme, for the dominant purpose of the taxpayer getting a GST benefit (i.e. the input tax credits). One of the grounds relied upon by the taxpayer in support of question 7 was ground 25, which was that the First Tribunal’s finding at paragraph 268 of its reasons (reproduced at [14(2)] above) that “[the taxpayer’s] entitlement to the input tax credits was more important to the operation of the scheme than the GST liabilities evaded by the Division 165 Supplying Entities” was not open to the First Tribunal.

19    At 512 ([219] to [220]), the Full Court expressed the view that, procedural fairness considerations aside, the taxpayer had not established that the First Tribunal had adopted a wrong approach, or made an error of law, in its consideration of dominant purpose and principal effect for the purposes of s 165-5 of the GST Act; and that to a large extent, the taxpayer’s submissions took issue with the merits of the First Tribunal’s conclusions as to dominant purpose and principal effect rather than identifying a wrong approach or an error of law. The Full Court then addressed at 512 [221] the taxpayer’s submissions concerning question 7 and ground 25:

Insofar as [the taxpayer] contends that there was “no evidence” for the Tribunal’s finding (at [268]) that [the taxpayer’s] entitlement to the input tax credits was “more important to the operation of the scheme than the GST liabilities evaded by the Division 165 Supplying Entities”, this finding needs to be read in the context of the whole of [268] (see [123] above). As the Tribunal stated in that paragraph, without the entitlement to the input tax credits, [the taxpayer] would not have paid the prices that it did to the Division 165 Supplying Entities and, consequently, there would have been no acquisition of precious metal by the Division 165 Supplying Entities from the Dealers. Further, the Tribunal stated, there would have been no defacing of that precious metal, no taxable supplies in altered form to [the taxpayer], no processing of the metal by [the taxpayer], and no sale of an equivalent amount of precious metal back into the market by [the taxpayer] to the Dealers. Having regard to these matters, it was reasonably open to the Tribunal to make the finding.

(emphasis added)

20    At 513 to 514 ([224] to [226]), the Full Court stated:

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

225    Further, [the taxpayer’s] submission has echoes of the position rejected by the High Court in Spotless. In that case, as Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ noted at 414, the majority of the Full Federal Court held that Pt IVA of the Income Tax Assessment Act 1936 (Cth) (on which Div 165 of the GST Act is modelled, albeit there are some differences) did not apply to the scheme. The majority in the Full Federal Court decided that the “dominant purpose” of the taxpayers was to obtain the maximum return on the money invested after the payment of all applicable costs, including tax, and not to obtain a “tax benefit”. After setting out passages from the judgment of Cooper J (who formed part of the majority in the Full Federal Court), including a passage referring to a “rational commercial decision”, the plurality in the High Court stated (at 415):

The references in this passage on the one hand to a “rational commercial decision” and on the other to the obtaining of a tax benefit as “the dominant purpose of the taxpayers in making the investment” suggest the acceptance of a false dichotomy. … A person may enter into or carry out a scheme, within the meaning of Pt IVA, for the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit where that dominant purpose is consistent with the pursuit of commercial gain in the course of carrying on a business.

226    While the facts are very different, this passage nevertheless tends to indicate the flaw in [the taxpayer’s] submission. The fact that the Division 165 Supplying Entities were pursuing their own (dishonest) gain is not necessarily inconsistent with a conclusion that it would be reasonable to conclude that an entity that entered into or carried out the scheme did so with the dominant purpose of [the taxpayer] obtaining the input tax credits.

(bold emphasis added)

C.5     The Second Tribunal hearing

21    In accordance with the orders made by the Full Court, the matter was remitted and heard by the Tribunal as differently constituted (Second Tribunal). That hearing occurred in late May and early June 2022. Before the Second Tribunal, the taxpayer primarily contended that taking into account the matters set out in s 165-15 of the GST Act (s 165-15 factors):

(1)    no person entered into or carried out a scheme for the sole or dominant purpose of giving a GST benefit in the form of the input tax credits to the taxpayer; and

(2)    the principal effect of any scheme was not to give such a GST benefit to the taxpayer.

22    The hearing before the Second Tribunal proceeded on the basis of the evidence that was before the First Tribunal without further evidence being adduced or further cross-examination.

C.6    The Full Court decision in Complete Success Solutions

23    Subsequent to the hearing before the Second Tribunal and before delivery of the Second Tribunal Decision, the Full Court of this Court delivered judgment in Complete Success Solutions. That judgment also involved an appeal from a decision of the Tribunal concerning the operation of Division 165 of the GST Act upon a scheme with some similar features. The Tribunal’s reasons for that decision were published as Re STNK and Federal Commissioner of Taxation [2021] AATA 3399; (2021) 113 ATR 966. The company in the position of the present taxpayer and which had claimed input tax credits was referred to as “CSS”; and the company in the position of the Division 165 Supplying Entities and which received but failed to remit GST was referred to as “Manila Exchange”.

24    The Tribunal in STNK had relevantly decided that it could not reasonably be concluded that any entity had a dominant purpose of securing CSS’s entitlement to input tax credits, or that the principal effect of the scheme was the obtaining of such credits.

25    As the Full Court in Complete Success Solutions described at [61(5)] and [62], the Tribunal in STNK:

(1)    as part of its consideration of dominant purpose:

…rejected the Commissioner’s submission that the input tax credits were “the engine that drove the scheme”, namely, that “it was only because [CSS] was able to obtain [input tax credits] that [CSS] was able to pay a GST-inclusive price to PMMS which in turn funded the earlier transactions in the chain”: at T [165]. In this regard, the Tribunal distinguished what the Tribunal had stated in ACN 154 520 199 Pty Ltd (in liq) and Commissioner of Taxation [2019] AATA 5981 at [268], recorded in ACN 154 520 199 Pty Ltd (in liq) v Commissioner of Taxation [2020] FCAFC 190; (2020) 282 FCR 455 at 484–5 [123] (Perram, Moshinsky and Thawley JJ) (ACN FC); and

(emphasis in original)

(2)    expressed the following conclusion as to the principal effect of the scheme:

Similarly, the principal effect of the scheme is, in my view, the non-payment of GST and not [CSS] obtaining the [input tax credits]. It is true that [CSS] obtaining [input tax credits] is an effect of the scheme and I accept it is not an insignificant effect. But measured against the non-payment of GST by Manila Exchange, and seen [in] its proper context as effectively a GST-neutral return of GST embedded in the price of [CSS]’s business acquisitions, I am unable to accept that [CSS]’s [input tax credit] entitlement is the principal effect of the scheme. I am satisfied that it was not.

26    At the outset of its consideration of the Commissioner’s notice of appeal, the Full Court in Complete Success Solutions stated:

65    The Commissioner’s grounds of appeal largely take issue with the merits of the Tribunal’s conclusions as to dominant purpose and principal effect rather than identifying a wrong approach or an error of law.

66    In Commissioner of Taxation v Zoffanies Pty Ltd [2003] FCAFC 236; (2003) 132 FCR 523 at 541 [66] (see also Hely J at [92]–[94]), Hill J said in relation to Part IVA of the Income Tax Assessment Act 1936 (Cth):

Part IVA of the Act clearly requires a conclusion to be drawn by reference to the matters set out in s 177D(b). Those matters are factual and the conclusion required to be drawn is itself a conclusion of fact.

67    The task required by s 165-5(1)(c) is similar. The task requires the drawing of conclusions of fact and an ultimate conclusion about dominant purpose and principal effect, also being a conclusion of fact.

(emphasis added; the reference to Hely J should be to Gyles J)

27    This passage is addressed again at [56] to [61] below when considering whether the present appeal raises a question of law.

28    The Full Court in Complete Success Solutions allowed the appeal on the basis that the Tribunal had failed to complete its statutory task because it failed to: (1) separately examine each entity’s purpose; and (2) examine the principal effect of the various parts of the scheme (at [80]). At [82] to [93], the Full Court made the following observations which are of some relevance to the present appeal:

Manila Exchange

82    There is no question that Manila Exchange’s involvement in the scheme was an important aspect of the scheme as a whole. It participated in the scheme to benefit from receiving and not remitting GST. There is little doubt, therefore, that it was a central purpose of Manila Exchange to create a taxable supply by adulterating the bullion that it had purchased. That does not mean that other parties had that purpose or that the principal effect of various parts of the scheme could be put to one side.

83    For the scheme to enable Manila Exchange to commit its fraud, Manila Exchange needed to charge a GST-inclusive price. By adulterating the gold bullion it had acquired, Manila Exchange was able to on-sell what had become scrap gold in taxable supplies. Pursuant to s 9‑75 of the GST Act, the value of a taxable supply is 10/11th of the consideration received. The creation of a taxable supply had two interrelated consequences:

(1)    Manila Exchange became entitled to receive a price higher than the value of the goods it supplied. This was critical to Manila Exchange’s ability to profit from adulterating gold bullion because its action in adulterating the gold bullion destroyed value. Unlike normal business operations which add value in a supply chain, Manila Exchange’s operations involved lowering the value of goods it acquired. Manila Exchange was able to profit from value-lowering operations only because of its fraud on the Commissioner, constituted by charging but not remitting GST.

(2)    GST became embedded in the purchase price paid by subsequent purchasers of the scrap gold. If later purchasers acquired the scrap gold in the course of an enterprise involving the making of taxable supplies or GST‐free supplies, those purchasers became entitled to an input tax credit, subject to Div 165. For the scheme as a whole to work as it did, the last supply in the chain (that made by CSS) needed to be a GST‑free supply in order to provide CSS with a GST refund. This is particularly important to an analysis of that part of the scheme in which PMMS was most directly involved.

84    One of the questions of law raised by the Commissioner on appeal was:

Whether under s 165-5(1)(c) of the GST Act, there is a necessary dichotomy between the purpose and/or effect of an entity getting a GST benefit from the scheme, and the purpose and/or effect of another entity avoiding the payment of GST as a part of the scheme?

85    It would be an error to assume that, because Manila Exchange wanted to obtain (and not remit) the GST embedded in its supplies of scrap gold, it was not possible that its purpose, ascertained in accordance with Div 165, was to ensure that CSS could obtain input tax credits on a GST‑free sale. As the Full Court (Perram, Moshinsky and Thawley JJ) stated in ACN FC at 514 [226], the purpose of obtaining (and not remitting) GST “is not necessarily inconsistent with” a conclusion that the dominant purpose was obtaining the relevant input tax credits. Indeed, it would be open to conclude that the purpose of obtaining (and not remitting) GST and the purpose of obtaining input tax credits for CSS were one purpose if the facts showed them to be inextricably linked: ACN FC at 513 [224]. Such a conclusion might be open, for example, if it were concluded that it was important to Manila Exchange that the scheme end with a GST-free supply by an entity which would be refunded input tax credits, so that the scheme as a whole would work by being sufficiently funded. It is not clear that the Tribunal reached its factual conclusion about Manila Exchange’s dominant purpose by excluding the possibilities just mentioned.

The Tribunal’s distinguishing of ACN FC

86    The Tribunal distinguished the decision in ACN FC, concluding that the obtaining of input tax credits was not the “engine which drove the scheme” and that there was no imperative for any entity in the chain to secure CSS’s input tax credit entitlements: at T [165], [166].

87    The applicant in ACN, like CSS here, had argued that the principal effect of the scheme was not that the applicant receive the GST benefit, but that the “rogue suppliers” create taxable supplies so that they could charge GST which would not be remitted. The Full Court in ACN FC at 484–5 [123] referred to what the Tribunal had said at first instance in ACN at [267] and [268]:

...

88    The Tribunal in the present case set out the Tribunal’s decision in ACN at [268] but distinguished the case before it on the basis that ACN concerned a “surging” turnover of sales (see ACN at [225]; ACN FC at [97]) arising out of circular and repeated transactions: at T[155] and [157]. The Tribunal was correct to observe that the facts in ACN were different in various respects to those in the present case. At the core, however, the same essential elements existed:

(a)    the deliberate adulteration of gold bullion by a fraudulent party in order to supply scrap gold in transactions which attracted GST;

(b)    the non-remittal of the GST;

(c)    GST being embedded in subsequent supplies of the scrap gold; and

(d)    a GST-free transaction at the end of the series of transactions by an entity whose input tax credits for the acquisition of the scrap gold would be refunded out of consolidated revenue.

89    The different facts in ACN are not such as would distinguish the comments made by the Tribunal in ACN. In the present case, similarly to the position in ACN:

•    it was only economically feasible for CSS to pay GST inclusive prices for the scrap gold it acquired if it were to receive a refund of the input tax credits from the Commissioner; and

•    without an entitlement to a refund of input tax credits, CSS could not have paid the prices it did for the supply of scrap gold and this might call into question whether any of the preceding sales could or would have occurred.

The significance of the input tax credits

90    The Commissioner contended that CSS’s “profit was dependent upon the input tax credit entitlements that were created by the scheme and the resultant GST refund to [CSS]” and that “[w]ithout the refund there was no profit to [CSS]”.

91    As the Full Court explained in ACN FC at 508 [206], input tax credits merely reflect GST that has been paid to a supplier and the claiming of the input tax credits is therefore strictly neutral from a profit perspective. The profit that the Commissioner identified relied upon a false comparison, namely the difference between a GST‐free sale price and a GST inclusive purchase price. Under the GST scheme, the profit of a person carrying on an enterprise making GST‐free or taxable supplies is properly determined by examining the GST exclusive cost of inputs. Otherwise, generally, it might be said that the profit of any person carrying on an enterprise that, on a GST exclusive basis, generates a margin of less than 10% is attributable to the input tax credits claimed. Nevertheless, as the Full Court explained in ACN FC at 509 [206]:

That is not to say that ACN 154’s turnover, and its actual profit, did not increase as a result of the business model that it adopted and the transactions that it entered into; it is to say that there was no evidence for the proposition that it made its profit from the input tax credits that it claimed.

92    The importance of the input tax credits to CSS was as follows. Given its low margin business, and because CSS was selling on a GST‐free basis, it could not obtain a purchase price from its export customer which covered its GST inclusive purchase costs. Its sale price was insufficient to cover its GST inclusive purchase costs such that its business model only worked if it received a cash refund from the Commissioner. CSS needed a cash refund from the Commissioner to cover the purchase price of the scrap gold.

93    Notwithstanding the foregoing, it is important to emphasise that the mere fact that a taxpayer involved in making GST‐free supplies requires a refund of GST it pays on its inputs in order to remain viable does not of itself answer the question posited by s 165-5 of the GST Act. It is part of the legislative scheme that those involved in making GST‐free export sales are not to be disadvantaged in competing in the export market by reason of the fact that Australia imposes GST. The conclusion as to dominant purpose or principal effect must be reached after taking into account each of the matters described in s 165-5.

(bold emphasis added)

29    The taxpayer and the Commissioner each took the opportunity afforded to them by the Second Tribunal to provide further written submissions concerning the application of Complete Success Solutions.

D.    THE SECOND TRIBUNAL DECISION

30    On 30 November 2023, the Second Tribunal set aside the objection decision and allowed the taxpayer’s objections. The Second Tribunal Decision, which sets out the Second Tribunal’s reasons for making such orders, is detailed and lengthy occupying 147 pages, including 108 pages of primary reasoning and three appendices. For present purposes, the following summary of the salient aspects of the Second Tribunal Decision suffices, noting that the impugned aspects of the Second Tribunal Decision are described in greater detail in Part E below when the questions and grounds of appeal set out in the supplementary notice of appeal are addressed.

31    The Second Tribunal identified that the primary matter for determination was whether Division 165 applied (T[1], [18], [23], [27] and [146]). At T[23], the Second Tribunal recorded that:

The Tribunal’s task is to determine whether [the taxpayer] has discharged the burden of proving that, taking into account the matters described in s 165-15, it is not reasonable to conclude that:

(a)    an entity that entered into or carried out a scheme or part of the scheme did so with the sole or dominant purpose of [the taxpayer] getting a GST benefit - the Contested ITCs - from the scheme; or

(b)    the principal effect of the scheme, or of part of the scheme, was that [the taxpayer] got a GST benefit, being the Contested ITCs, from the scheme directly or indirectly.

32    The Second Tribunal then identified at T[24] the schemes asserted by the Commissioner, as set out at [12] above.

33    After summarising the competing positions of the taxpayer and the Commissioner at T[28] to [47], the Second Tribunal turned to “Evidence and Findings of Fact”. At T[48], the Second Tribunal recorded that the parties had provided a “Statement of Facts that are Agreed” (which was reproduced as Appendix 2 to the Second Tribunal Decision). The Second Tribunal indicated that it was satisfied that the evidence supported those facts as agreed, and treated those facts as found.

34    The Second Tribunal expressed the view that the agreed facts did not provide a sufficient basis from which to understand the setting in which the issues to be determined arose. It then set out in considerable detail what it described at T[50] as a more expansive exposition of the facts needed to determine the issues requiring determination. Those facts included, at T[64], the adoption of some, but not all, of the facts as found by the First Tribunal.

35    After dealing with some forensic accounting evidence (T[65] to [93]), the Second Tribunal made a series of observations concerning whether, and if so what, findings should be made as to the knowledge of the taxpayer concerning the arrangements constituting the schemes (T[94] to [96]).

36    The Second Tribunal next considered other factual matters (T[110] to [139]), before addressing “[t]he legislative scheme in which Division 165 sits”. The Second Tribunal noted that the general legislative scheme within the GST Act is varied by Division 165 of that Act where it applies (T[142]), and provided the following overview of Division 165:

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

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

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

(a)    an entity (the avoider) gets or got a *GST benefit from a *scheme; and

(b)    the GST benefit is not attributable to the making, by any entity, of a choice, election, application or agreement that is expressly provided for by the *GST law, the *wine tax law or the *luxury car tax law; and

(c)    taking account of the matters described in section 165-15, it is reasonable to conclude that either:

(i)    an entity that (whether alone or with others) entered into or carried out the scheme, or part of the scheme, did so with the sole or dominant purpose of that entity or another entity getting a *GST benefit from the scheme; or

(ii)    the principal effect of the scheme, or of part of the scheme, is that the avoider gets the GST benefit from the scheme directly or indirectly; and

(d)    the scheme:

(i)    is a scheme that has been or is entered into on or after 2 December 1998; or

(ii)    is a scheme that has been or is carried out or commenced on or after that day (other than a scheme that was entered into before that day).

(Emphasis as in original)

146.    The present task, having regard to these matters, is to answer the question posed by s 165-5(1)(c). The parties have largely conducted the dispute on the footing that the battle ground lies in whether the requisite dominant purpose or principal effect ought to be found. That said, it is still necessary to identify the relevant scheme and GST benefit because without them any test of purpose or effect cannot be undertaken in the required way.

37    The Second Tribunal then returned to the schemes described at T[24] and set out at [12] above. It noted at T[147] to [148] that the taxpayer did not contend that the schemes propounded by the Commissioner were not schemes against which the purpose and effect tests could be considered.

38    After making some observations concerning the input tax credits and noting that there was no apparent challenge from the taxpayer to the proposition that the input tax credits were each a “GST benefit” (T[149] to [152]) the Second Tribunal turned to “the purpose or effect of the scheme”. At T[153] and [154], the Second Tribunal identified that:

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

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

39    The Second Tribunal then noted (at T[155]) that the “Part IVA authorities”, and more recently the “Division 165 authorities”, inform the “correct purpose and effect analysis”. The Second Tribunal addressed Division 165 of the GST Act and those authorities in some detail at T[156] to [163] and noted, of particular relevance, that:

(1)    the inquiry as to purpose required consideration of the objective purposes of each person that entered into or carried out the scheme or part of the scheme (T[157]);

(2)    following the decisions of the Full Court of this Court in Full Court ACN and Complete Success Solutions, a matter for consideration was whether the Division 165 Supplying Entities’ purposes of: (a) obtaining and not remitting GST (non-remittance of GST purpose); and (b) ensuring, by selling refining materials to the taxpayer, that the taxpayer was in a position to obtain input tax credits (input tax credits purpose) (together, the two purposes), should be found to be a single composite purpose (T[158] to [161]);

(3)    in an appropriate case the two purposes might be regarded as a composite purpose. However, this did not exclude the possibility of the non-remittance of GST purpose being the dominant purpose (T[161]); and

(4)    it considered that the Full Court in Complete Success Solutions at [85] contemplated the possibility of finding of such a single composite purpose, but did not mandate that such a finding be made (T[162]).

40    The Second Tribunal next considered both the purpose and effect limbs of s 165-5(1)(c) of the GST Act by addressing each of the s 165-15 factors (T[164] to [206]). The Second Tribunal then made a series of further observations under the heading “Purpose or effect-further observations” in which it considered whether the two purposes of the Division 165 Supplying Entities should be considered as a single composite purpose, and reasoned that they should not (T[207] to [211]).

41    At T[215] to [219], the Second Tribunal returned to the question whether the taxpayer knew of (or turned a blind eye to) the activities of the Division 165 Supplying Entities. In doing so, the Second Tribunal expressed the following views:

(1)    it was reasonable to conclude that the non-remittance of GST purpose was the Division 165 Supplying Entities’ dominant purpose (T[218]);

(2)    it was not reasonable to conclude that the dominant purpose of any entity was the input tax credits purpose (T[218]);

(3)    that conclusion would not change even if the taxpayer was an informed participant in co-ordinated arrangements because even if there was informed participation by the taxpayer, the requisite conclusion would still be that the dominant purpose of the Division 165 Supplying Entities was the non-remittance of GST purpose and the dominant purpose of the taxpayer remained securing its refining profit (T[219]); and

(4)    informed participation by the taxpayer could not change the principal effect of either scheme or a part thereof (T[219]).

42    The Second Tribunal expressed its ultimate conclusions as follows:

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

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

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

43    In summary, the Second Tribunal was not satisfied that it would be reasonable to conclude that:

(1)    any entity entered into or carried out either scheme (or part thereof) with the sole or dominant purpose of the taxpayer obtaining the income tax credits, because:

(a)    the Division 165 Supplying Entities had the non-remittance of GST purpose, which was their dominant purpose;

(b)    the taxpayer had a purpose of securing a profit from refining, which was its dominant purpose; or

(2)    the principal effect of either scheme (or part thereof) was that the taxpayer became entitled to receive the input tax credits, because the principal effect of the schemes was the transformation and change of ownership of the gold.

E.    THE APPEAL

E.1     Introduction

44    At the outset of the hearing of the present appeal, senior counsel for the Commissioner sought, and was granted, leave to file a supplementary notice of appeal, pursuant to which the Commissioner abandoned the questions numbered 7 to 8, and 10 to 11 and the grounds of appeal numbered 4, 7, 9 to 12 and 15 to 16 in the Commissioner’s original notice of appeal.

45    The extant questions and grounds of appeal challenge the following four aspects of the Second Tribunal Decision:

(1)    the Second Tribunal’s conclusion, for the purposes of s 165-5(1)(c)(i) of the GST Act, that it would not be reasonable to conclude that any entity entered into or carried out either scheme or part of either scheme with the sole or dominant purpose of the taxpayer receiving the income tax credits (questions 1 to 4; grounds 1 to 3 and 5);

(2)    the Second Tribunal’s conclusion, for the purposes of s 165-5(1)(c)(ii) of the GST Act, that it would not be reasonable to conclude that the principal effect of either scheme or part of either scheme was that the taxpayer became entitled to receive the input tax credits (question 5 and ground 6);

(3)    the Second Tribunal’s treatment of s 165-15(1)(c) which requires that account be taken, when considering questions of purpose and effect under s 165-5(1)(c) of the GST Act, of the purpose and object of that Act (question 6 and ground 8); and

(4)    whether the Second Tribunal’s finding that it was not reasonable to conclude that the taxpayer had the requisite purpose under s 165-5(1)(c)(i) of the GST Act was available in circumstances where the taxpayer did not establish that it was not an informed participant in the arrangements constituting the schemes (question 9; grounds 13 and 14).

46    A central issue on the appeal is the extent to which the Commissioner’s supplementary notice of appeal raises any questions of law (as the Commissioner contended) or merely takes issue with the merits of the Second Tribunal’s conclusions as to purpose and effect (as the taxpayer contended). Thus, before considering the questions described in that notice, it is appropriate to address some principles relevant to the identification of questions of law.

E.2     Identification of questions of law

47    This appeal, under s 44 of the AAT Act, is an application in the original jurisdiction of the Court for judicial review of the lawfulness of the Tribunal’s decision: Wills v Chief Executive Officer of the Australian Skills Quality Authority [2022] FCAFC 10; (2022) 289 FCR 175 at 178 [7] (Perry J; Griffiths and Logan JJ agreeing); Equality Australia Ltd v Commissioner of the Australian Charities and Not-for-profits Commission [2024] FCAFC 115; (2024) 305 FCR 189 at 191 [6] (Wheelahan, Hespe and Kennett JJ); Manikantan v Secretary, Department of Employment and Workplace Relations [2024] FCAFC 116 at [39] (Collier, Raper and Shariff JJ).

48    Section 44 of the AAT Act provided that a party to a proceeding before the Tribunal may appeal to this Court on a “question of law” from the Tribunal’s decision in that proceeding. This Court’s jurisdiction depends upon the existence of a question or questions of law and the ambit of the appeal is limited to the determination of such a question or questions: Brown v The Repatriation Commission [1985] FCA 236; (1985) 7 FCR 302 at 304 (Bowen CJ, Fisher and Lockhart JJ); Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; (2015) 233 FCR 315 at 348 to 349 [85] (Allsop CJ, Kenny, Besanko, Robertson and Mortimer JJ).

49    In Haritos, the Full Court explained at 384 [194]:

We restate that the subject matter of an appeal under s 44 is a question or questions of law. We also restate that the appeal is not by way of rehearing; it is the exercise of original jurisdiction. Neither is it sufficient that the appeal merely involves a question of law. The correct approach, in our opinion, is to ask directly the question whether the appeal is on a question of law, without being diverted by whether or not the appeal raises a mixed question of fact and law. As the High Court said in Owens, the purpose of limiting an appeal to a question of law is to ensure that the merits of the case are dealt with not by the Federal Court but by the Tribunal. This distribution of function is critical to the correct operation of the administrative review process. See also O’Brien at 430 where Gibbs CJ, Wilson and Dawson JJ said that on an appeal under s 44 the appellate body should not usurp the fact-finding function of the Tribunal. But such fact finding is an entirely different exercise from the evaluation of the fact-finding process of the Tribunal (as fact-finder) to decide upon its legality.

50    Relevant to the determination of this appeal are the following well-established propositions concerning the identification of questions of law.

51    The first is that although there is no error of law in making a wrong finding of fact, a finding of fact can be erroneous in law if it is reached through the application of a wrong legal test: Federal Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd [2010] FCAFC 94; (2010) 186 FCR 410 at 415 [13] (Dowsett and Gordon JJ; Edmonds J agreeing); Sharp Corporation of Australia Pty Ltd v Collector of Customs [1995] FCA 707; (1995) 59 FCR 6 at 12 to 13 (Davies and Beazley JJ; Hill J agreeing) ; Haritos at 360 to 361 [126]; Comptroller-General of Customs v Pharm-A-Care Laboratories Pty Ltd [2020] HCA 2; (2020) 270 CLR 494 at 514 [44] (Kiefel CJ, Bell, Gageler, Keane and Gordon JJ).

52    The second is that the question whether material facts, as found, satisfy a particular statutory provision is generally a question of law. In Hayes v Federal Commissioner of Taxation [1956] HCA 21; (1956) 96 CLR 47, Fullagar J explained at 51:

There are decisions in taxation cases, including decisions of the House of Lords, which, to my mind, create serious difficulty in relation to the distinction, which often has to be drawn, between “ questions of fact “ and “ questions of law “. For present purposes, however, I think it sufficient to refer to what was said by Lord Parker of Waddington in Farmer v. Cotton’s Trustees, in a passage quoted by Latham C.J. in Commissioner of Taxation v. Miller. His Lordship said :- “The views from time to time expressed in this House have been far from unanimous, but in my humble judgment where all the material facts are fully found, and the only question is whether the facts are such as to bring the case within the provisions properly construed of some statutory enactment, the question is one of law only”. With the greatest respect, this seems to me to be the only reasonable view. The distinction between the two classes of question is, I think, greatly simplified, if we bear in mind the distinction, so clearly drawn by Wigmore, between the factum probandum (the ultimate fact in issue) and facta probantia (the facts adduced to prove or disprove that ultimate fact). The “facts” referred to by Lord Parker in the passage quoted are the facta probantia. Where the factum probandum involves a term used in a statute, the question whether accepted facta probantia establish that factum probandum will generally – so far as I can see, always – be a question of law.

(citations omitted)

53    The third proposition operates as a qualification to the second. If the statutory provision uses words according to their ordinary meaning, then the question whether the material facts as found satisfy the statutory provision is a question of fact. In Hope v The Council of the City of Bathurst [1980] HCA 16; (1980) 144 CLR 1 at 7 to 8, Mason J (with whom Gibbs and Stephen JJ, Murphy J and Aickin J agreed) explained:

Many authorities can be found to sustain the proposition that the question whether facts fully found fall within the provisions of a statutory enactment properly construed is a question of law. One example is the judgment of Fullagar J. in Hayes v. Federal Commissioner of Taxation, ...

However, special considerations apply when we are confronted with a statute which on examination is found to use words according to their common understanding and the question is whether the facts as found fall within these words. Brutus v. Cozens was just such a case. The only question raised was whether the appellant’s behaviour was “insulting”. As it was not unreasonable to hold that his behaviour was insulting, the question was one of fact.

(citations omitted)

54    The approach taken in Hope has been applied subsequently: see, e.g., Collector of Customs v Pozzolanic Enterprises Pty Ltd [1993] FCA 456; (1993) 43 FCR 280 at 287 to 288 (Neaves, French and Cooper JJ); Pharm-A-Care at 513 [41]; Equality Australia at 194 [20] and 195 ([25] to [26]); and was confirmed by the High Court of Australia in Vetter v Lake Macquarie City Council [2001] HCA 12; (2001) 202 CLR 439 at 450 [25] (Gleeson CJ, Gummow and Callinan JJ) as stating the law on this topic in this country.

55    The fourth well-established proposition is that where the facts as found are necessarily within or necessarily outside the description of a word or phrase used in a statute (itself a question of law), then the Court may infer that any other conclusion is the product of an error of law, but where the facts as found are capable of falling either within or outside the description used in the statute then the question as to which side of that line they fall is a question of fact not law: see, e.g., The Australian Gas Light Company v The Valuer-General (1940) SR (NSW) 126 at 138 (Jordan CJ); N.S.W. Associated Blue-Metal Quarries Limited v Federal Commissioner of Taxation [1956] HCA 80; (1956) 94 CLR 509 at 512 (Kitto J); Hope at 8 (Mason J); TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation [1988] FCA 198; (1988) 19 ATR 1067 at 1073 (Gummow J); Commissioner of Taxation v Cooper (1991) 29 FCR 177 at 194 to 195 (Hill J); Sharp at 12 to 13; Vetter at 450 to 451 ([24] to [27]) per Gleeson CJ, Gummow and Callinan JJ and 477 to 478([107] to [108]) per Hayne J; and Haritos at 360 to 362 ([126] to [128]), 376 to 378 ([172] to [174]) and 384 to 385 ([195] to [201]).

56    There are two judgments of the Full Court of this Court of particular relevance to the identification of questions of law for the purposes of s 44 of the AAT Act, in the context of Division 165 of the GST Act.

57    The first is Commissioner of Taxation v Zoffanies Pty Ltd [2003] FCAFC 236; (2003) 132 FCR 523, which involved an appeal from a decision of the Tribunal as to the applicability of the provisions of Pt IVA of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936). Section 177D, within Part IVA, is an analogue of s 165-5 of the GST Act (when read with s 165-15). Section 177D requires consideration of the matters set out in s 177D(b) of the ITAA 1936 and of whether having regard to those matters “it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of enabling the relevant taxpayer to obtain a tax benefit in connection with the scheme or of enabling the relevant taxpayer and another taxpayer or other taxpayers each to obtain a tax benefit in connection with the scheme ...”. In that case, Hill J (with whom Hely and Gyles JJ relevantly agreed) decided that the Commissioner’s appeal ought be upheld. However, Hill J rejected an invitation from senior counsel for the Commissioner to affirm the underlying assessment and instead decided that the matter should be remitted to the Tribunal for redetermination. In doing so, his Honour observed at 541 [66] that the case before the Full Court was not one which permitted only one outcome and that Part IVA of the ITAA 1936 requires the relevant conclusion to be drawn by reference to the matters set out in s 177D(b) of that Act. His Honour then observed that “[t]hose matters are factual and the conclusion required to be drawn is itself a conclusion of fact”.

58    The second Full Court judgment of particular relevance is Complete Success Solutions. The salient passage from that judgment is reproduced at [26] above. The Full Court cited at [66] the observations of Hill J in Zoffanies and explained at [67] that the task required by s 165-5(1)(c) is similar to that required under Part IVA of the ITAA 1936 and “requires the drawing of conclusions of fact and an ultimate conclusion about dominant purpose and principal effect, also being a conclusion of fact”.

59    The Commissioner in his written submissions in chief did not cavil with the views expressed by the Full Courts in Zoffanies and in Complete Success Solutions, and deployed paragraph [67] of Complete Success Solutions in those submissions. This may explain the lack of notice of intention to challenge the correctness of those decisions, as is required by paragraph 6 of the Practice Note APP 1: Case Management of Full Court and Appellate Matters. However, in his written submissions in reply and in his oral submissions the Commissioner submitted that the statement of the Full Court in Complete Success Solutions that the conclusion about dominant purpose in s 165-5(1)(c) is one of fact needs to be qualified by the following statement of Gummow J in Jackson v Federal Commissioner of Taxation [1989] FCA 170; (1989) 20 ATR 611 at 618:

Section 177F(1) vests power in the Commissioner to make certain determinations. The power is conditional in that it may be exercised only if certain circumstances exist. These are:

(i)    a taxpayer has obtained a "tax benefit" or would obtain such a benefit but for s 177F, and

(ii)    the tax benefit has been obtained or would be obtained by the taxpayer "in connection with a scheme" to which Pt IVA applies.

The integers comprising conditions (i) and (ii) are defined in some detail in those provisions of Pt IVA which precede s 177F. Whether these conditions are satisfied in any given case will be something to be ascertained by the application of objective criteria, comprising mixed law and fact. By way of illustration, counsel for the respondent pointed to the manner in which s 177D is cast and to the expression "where ... having regard to [eight enumerated matters] it would be concluded" that there had been the necessary purpose. In proceedings in this court by way of "appeal" against a decision by the Commissioner on an objection, it will be open to the taxpayer to establish that, in truth, neither condition (i) nor condition (ii), as I have identified them, relevantly applied to him, with the result that s 177F had no operation, and it was not open to the Commissioner to make any determinations under s 177F(1).

The conditions are "self-operating" or "self-executing" in the sense that their fulfilment in a particular case is not dependent upon the Commissioner having a particular satisfaction or holding a particular opinion. Nevertheless, the process of assessment requires the application of the Act (including the conditions) to the facts as known to and accepted by the Commissioner, and as part of that process the Commissioner must adopt a view of the facts.

(Commissioner’s emphasis)

60    The Commissioner also submitted that:

(1)    the purpose referred to in s 165-5(1)(c) is not an actual purpose which can be identified solely as a matter of fact and is instead a “statutory purpose attributed to a person” according to an objective standard of reasonableness. Similarly, the term “principal effect” takes its meaning from the context in which it appears, being an anti-avoidance provision concerned with fiscal outcomes, and which overrides the ordinary operation of the Act. Each of purpose and effect must be examined having regard to certain prescribed matters; and

(2)    it follows that s 165-5(1)(c) lays down a legal test. The words “it is reasonable to conclude” make it sufficient if the statutory purpose or principal effect can be found as a reasonable inference. A failure correctly to decide whether the facts found fall within the provision is an error of law.

61    The statement of the Full Court in Complete Success Solutions that the conclusion about dominant purpose in s 165-5(1)(c) is one of fact – and thus, the statement of the Full Court in Zoffanies which was adopted in Complete Success Solutions – should not be qualified in the manner suggested by the Commissioner. There is no suggestion that the words used in s 165(1)(c) – and in particular “reasonable to conclude”, “dominant” and “principal” – are used in any sense other than their normal meaning, from which it follows that the question whether the material facts as found in considering the s 165-15 factors satisfy s 165-5(1)(c) is one of fact: see [53] to [58] above. Respectfully, the approach taken by the Full Courts in Zoffanies and Complete Success Solutions – both of which involved appeals under s 44 of the AAT Act – was orthodox and correct (and not plainly wrong). In any event, absent a direct challenge to the correctness of the views expressed in Zoffanies and Complete Success Solutions, those decisions should be followed.

62    Against that background, I turn now to the extant questions and the attendant grounds of appeal set out in the supplementary notice of appeal.

E.3    The first four questions – purpose

63    It is convenient to adopt the course taken by the parties of addressing the first four questions together. Those questions and the first to third and fifth grounds of appeal concern the Second Tribunal’s conclusions as to the purposes of participants in the schemes.

E.3.1    The Second Tribunal’s consideration of s 165-5(1)(c)(i) of the GST Act

64    As the Second Tribunal noted (at T[23] and [27]), its task under s 165-5(1)(c)(i) of the GST Act was to determine whether the taxpayer had proven, taking into account the s 165-15 factors, that it was not reasonable to conclude that any entity that entered into or carried out either scheme did so with the sole or dominant purpose of the taxpayer obtaining the input tax credits.

65    The Second Tribunal addressed this task as follows.

66    First, it noted the competing positions of the parties at T[28] to [47].

67    Secondly, it noted at T[153] to [154] and [157(b)] that the s 165-15 factors are to be taken into account in assessing whether any of the persons who entered into the schemes or any part thereof did so with the specified purpose.

68    Thirdly, at T[156] to [157] the Second Tribunal made the following observations:

Division 165 and commercial transactions

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

Whose purpose?

157.    The question posed by s 165-5 in conjunction with s 165-15 is whether, having regard to all of the twelve factors to be considered, it is reasonable to conclude that any of the persons who entered into or carried out the scheme or any part of the scheme did so for the sole or dominant purpose of enabling the relevant taxpayer to obtain the GST benefit. In this regard:

(a)    the focus of the enquiry is on the purpose of the persons who entered into or carried out the scheme. It is not an enquiry into any purpose of the scheme;

(b)    the actual subjective purpose of those persons is irrelevant. There are twelve objective matters to be addressed listed in s165-15(1) from which conclusions as to dominant purpose (and principal effect – addressed later) are to be drawn and they do not require or even permit enquiries concerning subjective motives of taxpayers or their associates or advisors. The question is whether, having regard only to the twelve listed factors, “it is reasonable to conclude” that one of the persons had the necessary sole or dominant purpose. The tests are objective tests;

(c)    the objective tests must be undertaken by reference to the time of entering into or carrying out the scheme or the part of the scheme; and

(d)    the inquiry into purpose must be directed to each entity that entered into or carried out the scheme or part of the scheme.

69    Fourthly, at T[158] to [163], the Second Tribunal addressed the question whether the two purposes of the Division 165 Supplying Entities could be regarded as a single composite purpose:

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

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

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

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

160.    The cited passage from Ludekens included:

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

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

Indeed, it would be open to conclude that the purpose of obtaining (and not remitting) GST and the purpose of obtaining input tax credits for CSS were one purpose if the facts showed them to be inextricably linked: ACN FC at 513 [224]. Such a conclusion might be open, for example, if it were concluded that it was important to Manila Exchange that the scheme end with a GST-free supply by an entity that would be refunded input tax credits, so that the scheme as a whole would work by being sufficiently funded.

(Emphasis added.)

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

163.    Recognising the analysis is focused on a different statutory setting and test, Gageler J’s comments in Mills regarding the standing of facilitative steps toward an ulterior and ultimate goal inform the characterisation of steps in a linked chain of events. There his Honour said:

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

(Emphasis added)

…

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

(emphasis in original)

70    Fifthly, at T[165] to [206], the Second Tribunal considered each of the s 165-15 factors. In the course of doing so, the Second Tribunal made the following observations relevant to the determination as to purpose required by s 165-5(1)(c)(i) of the GST Act:

(1)    as to the manner in which the scheme was carried out (s 165-15(1)(a)):

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

166.    Absent adulteration of gold bullion, in many respects the relevant transactions were carried out in the way of ordinary transactions. The steps taken were largely as would be expected in arm’s length sales of Refining Materials and gold bullion. Indeed, aside from the one respect noted immediately below, but for the non-payment of GST by the suppliers the transactions would likely have been regarded as unremarkable from a fiscal perspective.

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

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

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

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

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

(bold emphasis added) ;

(2)    as to the form and substance of the scheme (s 165-15(1)(b)):

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

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

(emphasis added) ;

(3)    as to the purpose or object of the GST Act (s 165-15(1)(c)):

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

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

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

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

(bold emphasis added) ;

(4)    as to the timing of the scheme and the period over which it was entered into and carried out (ss 165-15(1)(d) and (e)):

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

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

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

186.    Its continuation after the AFP raids suggests that [the taxpayer’s] purposes were not pursuit of taxation goals or effects.

(bold emphasis added) ;

(5)    as to the effect that the GST Act would have in relation to the scheme apart from Division 165 (s 165-15(1)(f)):

188.    The conventional analysis is that this test necessarily reveals that, absent the operation of Division 165, less GST would be payable, or a bigger refund would ensue. Just because a transaction has an effect of lowering tax liability or increasing a credit does not necessarily attract an inference that the parties to the transaction entered into it or carried it out for the sole or dominant purpose of obtaining that tax consequence. This is particularly so when other benefits and taxation liabilities are also produced by the scheme identified. Under this conventional analysis, little weight would be attached to this factor. This is so because the mere fact of a GST benefit cannot lead to the result that the dominant purpose of the relevant scheme was to secure that benefit. If it did there would be no need for the other factors to be assessed.

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

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

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

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

(bold emphasis added) ;

(6)    as to any change in the taxpayer’s financial position that has resulted, or may reasonably be expected to result, from the scheme (s 165-15(1)(g)):

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

(a)    ITC entitlements arose in respect of all of its inputs to that process that were taxable supplies to it including all of the contested Division 165 transactions;

(b)    for each of the contested transactions it paid a price that was informed by the fact that they were taxable supplies and that exceeded the price that would have been payable had the supplies not been taxable, and that excess equalled the ITC entitlement mentioned in (a);

(c)    [the taxpayer] enjoyed enhanced turnover from its participation in the scheme and resultant trading profits from that enhanced turnover.

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

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

(7)    as to any change that has resulted, or may reasonably be expected to result from the scheme in the financial position of any entity connected to the taxpayer (s 165-15(1)(h)):

197.    There is no question that the Fraudulent Suppliers were financially disadvantaged by the scheme if the non-payment of GST, which does not form part of either of the Commissioner’s articulated schemes, is ignored. That is because their sales prices for the Refining Materials were less than they paid for bullion in investment form.

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

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

200.    There are no identifiable financial changes for any other entity that could conceivably be regarded as supporting a conclusion that an entity had a dominant purpose of [the taxpayer] obtaining the Contested ITCs. It may be the case, but it is not established on the evidence, that ABC NSW enjoyed an enhanced turnover and profitability from the scheme, but that came with its own risks as evidence of Ms Simpson’s concerns with going long on gold payments indicated.

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

(emphasis added) ;

(8)    as to other consequences for the taxpayer or a connected entity of the scheme having been entered into or carried out, and the nature of the connection between the taxpayer and the connected entity including whether the dealing is or was at arm’s length (ss 165-15(1)(i) and (j)):

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

204.    This factor does not support a conclusion that any entity entered into the scheme or a part of the scheme with the dominant purpose of ... [the taxpayer] obtaining the Contested ITCs.

(emphasis added) ; and

(9)    as to the circumstances surrounding the scheme and any other relevant circumstances (ss 165-15(1)(k) and (1)):

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

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

(emphasis added)

71    Sixthly, at T[207] to [211] the Second Tribunal made the following further observations concerning whether the two purposes of the Division 165 Supplying Entities should be regarded as a single composite purpose:

Purpose or effect – further observations

207.    Some further observations are called for.

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

208.    The passages from Ludekens and Complete Success Solutions extracted above indicate that a single purpose may appropriately be found in some circumstances. They did not go on and consider whether those purposes were facilitative of an ultimate purpose in the sense contemplated by Gageler J in Mills also noted above. The Mills analysis is apposite in the present circumstances for two reasons: first, creating taxable supplies that also produced GST-informed prices being paid and ITC entitlements to arise, was a necessary preliminary to an ulterior and ultimate goal as contemplated by His Honour’s analysis, and second because His Honour suggests that the text of the Explanatory Memorandum under discussion confirmed the ordinary meaning of language and natural reading of statutory text. Thus, the hierarchy of incidental and dominant purposes to which His Honour refers can and should have wider application. This analysis informs how facilitative steps in a wider design ought to be characterised. Viewed through this lens, any purpose of obtaining ITCs in the present circumstances, assuming there was one, was a purpose properly regarded as central to the design of a scheme directed to achieving an ulterior and ultimate purpose, and therefore any purpose of obtaining ITCs was incidental and not dominant.

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

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

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

(emphasis in original)

72    Seventhly, at T[215] to [219], the Second Tribunal expressed the following views:

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

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

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

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

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

(emphasis added)

73    Finally, at T[226], the Second Tribunal expressed the conclusion that, for the reasons indicated in its consideration of the s 165-15 factors, it would not be reasonable to conclude that any entity entered into either scheme or part of either scheme with the sole or dominant purpose of the taxpayer obtaining the income tax credits.

E.3.2    The Commissioner’s challenge

74    The first four questions described in the supplementary notice of appeal are (as written):

1.    Whether the Tribunal correctly applied the test required by s 165-5(1)(c) of the GST Act?

2.    Whether in taking account of the matters described in s 165-15, and determining whether it was reasonable to conclude under s 165(1)(c) that one or more of the entities that entered into or carried out each scheme, or part of each scheme, did so with the sole or dominant purpose of the Respondent getting a GST benefit from the scheme, the Tribunal correctly applied Mills v Commissioner of Taxation (2012) 250 CLR 171 and distinguished ACN 154 520 199 Pty Ltd (in liquidation) v Federal Commissioner of Taxation [2020] FCAFC 190; (2020) 282 FCR 455 and Federal Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Solutions Trust [2023] FCAFC 19?

3.    Whether, on the authority of ACN 154 520 199 Pty Ltd (in liquidation) v Federal Commissioner of Taxation [2020] FCAFC 190; (2020) 282 FCR 455 and Federal Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Solutions Trust [2023] FCAFC 19, the Tribunal erred in concluding (at [208]-[211]) that the purpose of making taxable supplies and creating entitlements to input tax credits in the Respondent was separate from and preliminary to an ulterior and ultimate purpose of the Fraudulent Suppliers not paying GST?

4.    Whether the Tribunal correctly took account of the matters described in s 165-15, as required by s 165-5(1)(c)?

75    The Commissioner relies upon the following grounds of appeal in support of the above questions (as written):

1.    The Tribunal erred in concluding at [208]-[211] that the purpose of making taxable supplies and creating entitlements to input tax credits in the Respondent was separate from and preliminary to an ulterior and ultimate purpose of the Fraudulent Suppliers not paying GST.

2.    In concluding that the purpose of making taxable supplies and creating entitlements to input tax credits in the Respondent was separate from and preliminary to an ulterior and ultimate purpose of the Fraudulent Suppliers not paying GST the Tribunal misapplied ACN 154 520 199 Pty Ltd (in liquidation) v Federal Commissioner of Taxation [2020] FCAFC 190; (2020) 282 FCR 455, Federal Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Solutions Trust [2023] FCAFC 19 and Mills v Commissioner of Taxation (2012) 250 CLR 171.

3.    On the authority of ACN 154 520 199 Pty Ltd (in liquidation) v Federal Commissioner of Taxation [2020] FCAFC 190; (2020) 282 FCR 455, Federal Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Solutions Trust [2023] FCAFC 19, the Tribunal ought to have found that the Fraudulent Suppliers’ purpose of obtaining (and not remitting) GST was not inconsistent with the conclusion that the dominant purpose was obtaining the relevant input tax credits for the Respondent and that the purpose of obtaining (and not remitting) GST and the purpose of obtaining input tax credits for the Respondent were one purpose.

...

5.    Further or in the alternative, the Tribunal failed properly to address s 165-(1)(c) by:

(a)    failing to consider whether the purpose of obtaining (and not remitting) GST and the purpose of obtaining input tax credits for the Respondent were inextricably linked, as required by Federal Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Solutions Trust [2023] FCAFC 19;

(b)    distinguishing between the pursuit of a dishonest end and the pursuit of a GST benefit as the relevant comparison at [165];

E.3.3    Consideration

76    As is plain, the questions and grounds set out above address the Second Tribunal’s findings as to the purposes of the Division 165 Supplying Entities; and do not address the Second Tribunal’s findings as to the purposes of the taxpayer.

77    There are several strands to the Commissioner’s submissions on the above-mentioned questions and grounds. The first strand is a submission to the effect that the Second Tribunal erred by disregarding the reasoning in the judgments of the Full Court in Full Court ACN (at 512 [221] and 514 [226]) and Complete Success Solutions (at [85] to [89]).

78    That submission must be rejected. It is not supported by either Full Court ACN or Complete Success Solutions. Those judgments did not, and did not purport to, set out any legal test to be applied by the Tribunal (such that a failure to apply such a test could be considered an error of law). Rather, the observations made by those Full Courts related to the availability to the Tribunal of particular findings on the facts of the individual cases.

79    The Full Court in Full Court ACN:

(1)    at 512 [221] rejected a submission by the taxpayer that the First Tribunal erred by making a finding, without evidence, that the taxpayer’s entitlement to the input tax credits was more important to the operation of the scheme than the evasion of the GST liability. In the course of doing so, the Full Court noted various features of the scheme which meant that the First Tribunal’s finding was “reasonably open” on the facts before it (see [19] above);

(2)    at 513 [224] noted that it was “open” to the First Tribunal to view the two purposes of the Division 165 Supplying Entities as comprising one purpose (see [20] above); and

(3)    at 514 [226] noted that the fact that the Division 165 Supplying Entities had the non-remittance of GST purpose was “not necessarily inconsistent with” a conclusion that it would be reasonable to conclude that an entity that entered into or carried out the scheme did so with the dominant purpose of the taxpayer obtaining the input tax credits (see [20] above).

80    The Full Court in Complete Success Solutions:

(1)    at [85] referred to the comments of the Full Court in Full Court ACN at 514 [226] that the existence of the non-remittance of GST purpose was “not necessarily inconsistent with” a conclusion that the dominant purpose was to obtain the input tax credits and expressed the view that it would be “open” to conclude, if particular circumstances existed, that the two purposes in that case were inextricably linked. Their Honours also noted that it was not clear that the Tribunal in STNK had reached its factual conclusion as to the dominant purpose of Manila Exchange by excluding particular possibilities (see [28] above). Contrary to the Commissioner’s submissions, the Full Court in Complete Success Solutions was not suggesting that a conclusion as to the two purposes being inextricably linked inexorably follows; nor was it suggesting that the relevant decision-maker must reason to a determination as to purpose using a process requiring the exclusion of particular possibilities; and

(2)    then observed at [86] to [89] that the facts of that case were not so different to the facts as found by the First Tribunal as to distinguish comments made by the First Tribunal that the input tax credits were more important than the wrongful retention of GST was to the operation of scheme (see [28] above). However, it does not follow that the Second Tribunal was bound to find that the two purposes of the Division 165 Supplying Entities were “inextricably linked”, and the Full Court in Complete Success Solutions did not suggest that the Tribunal in that case, much less in any other case, was bound to reach such a conclusion. So much is plain from the observations of the Full Court in Complete Success Solutions at [93] (see [28] above).

81    The observations made by each of the Full Courts, and the remittal in each case of the matter to the Tribunal for redetermination, demonstrate that more than one conclusion as to purpose was available and that the determination of that conclusion, a factual question, was one for the Tribunal (cf [55] above).

82    The Second Tribunal resolved the factual question as to purpose in a manner which included a finding that the Division 165 Supplying Entities’ two purposes were not inextricably linked and that the non-remittance of GST purpose was their dominant purpose (T[208] to [211] and [218]). That conclusion was open to the Second Tribunal and within its “zone of discretion”: see Corporation of the City of Enfield v Development Assessment Commission [2000] HCA 5; (2000) 199 CLR 135 at 152 to 153 [43] (Gleeson CJ, Gummow, Kirby and Hayne JJ) and Haritos at 384 to 385 [201].

83    It also follows that the Commissioner’s submissions that the Second Tribunal did not explain why it did not follow Full Court ACN and Complete Success Solutions are misconceived.

84    The second strand to the Commissioner’s submissions is the somewhat surprising submission that the Second Tribunal did not consider whether or not the Division 165 Supplying Entities’ two purposes were “inextricably linked” in the sense referred to in Full Court ACN and Complete Success Solutions. That submission is directly contrary to the consideration of this issue by the Second Tribunal at T[158] to [162], [165] to [206], [208] to [211] and [218] (see [69] to [72] above).

85    The third strand to the Commissioner’s submissions is the contention that the Second Tribunal erred at T[163] and [208] in applying the reasoning of Gageler J in Mills v Commissioner of Taxation of the Commonwealth of Australia [2012] HCA 51; (2012) 250 CLR 171 at 202 to 203 ([64] to [65]) (see [69] and [71] above). In this regard, the Commissioner submitted that Mills was not a case concerning the test for determining for the purposes of s 165-5 whether the obtaining (by a refiner) of the input tax credits and the obtaining (by the supplying entities) of the GST comprise one purpose or separate purposes, and instead concerned the operation of s 177EA of ITAA 1936 where the issue before the Court was whether a purpose was “an incidental purpose”. The Commissioner also submitted that the High Court of Australia held that on the facts that purpose was incidental to another purpose; and there was no contest in that case that the purposes were separate and discrete.

86    When the Second Tribunal’s reasons are read fairly as a whole, they disclose no error of law on the part of the Second Tribunal, for the following reasons.

87    First, it is trite that the reasons of the Second Tribunal are to be read fairly as a whole, and not construed minutely and finely with an eye keenly attuned to the perception of error: see, e.g., Pozzolanic at 287; Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259 at 271 to 272 (Brennan CJ, Toohey, McHugh and Gummow JJ); Plaintiff M1/2021 v Minister for Home Affairs [2022] HCA 17; (2022) 275 CLR 582 at 604 [38] (Kiefel CJ, Keane, Gordon and Steward JJ); Plaintiff S22/2025 v Minister for Immigration and Multicultural Affairs [2025] HCA 36 at [16] (Gageler, Edelman and Jagot JJ). A Court should not assume that a decision-maker did not apply the correct test unless that appears clearly from the decision-maker’s reasons: Le v Minister for Immigration and Citizenship [2025] HCASJ 33 at [23] (Steward J), citing Selliah v Minister for Immigration and Multicultural Affairs [1999] FCA 615 at [39] (Emmett J).

88    The correct approach was recently summarised by a Full Court of this Court (Perry, Sarah C Derrington and Abraham JJ) in RCLN v Minister for Immigration and Citizenship [2025] FCAFC 113 at [27]:

The starting point in considering the grounds of appeal is, as the Minister submitted, that the Tribunal’s reasons must be read fairly and as a whole: Plaintiff M64/2015 v Minister for Immigration and Border Protection [2015] HCA 50; (2015) 258 CLR 173 at [59]–[60]. Thus, it is well established that the reasons of an administrative decision-maker “are not to be construed minutely and finely with an eye keenly attuned to the perception of error”: Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 271–2 (Brennan CJ, Toohey, McHugh and Gummow JJ (quoting with approval Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287)). As such, “a commonsense and realistic approach should be taken to understanding the reasons as a whole to see what it was that the Tribunal was saying”: Fang Wang v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCA 1044 at [14]–[15] (Allsop J (as his Honour then was)).

89    Secondly, it is plain from the Second Tribunal’s reasons – at T[23], [27], [144] to [146], [153] to [154], [157] – that the Second Tribunal understood that its task was to determine whether the taxpayer had proven, taking into account the s 165-15 factors, that it was not reasonable to conclude that:

(1)    an entity that entered into or carried out a scheme or part of the scheme did so with the sole or dominant purpose of the taxpayer getting a GST benefit in the form of input tax credits from the scheme; or

(2)    the principal effect of the scheme, or of part of the scheme, was that the taxpayer received such a GST benefit from the scheme.

90    Thirdly, the reasons of the Second Tribunal demonstrate that it carried out that task. It considered each of the s 165-15 factors in some detail and their impact upon the prescribed task.

91    Fourthly, as the analysis at [70] above demonstrates, in the course of doing so, the Second Tribunal reached the views that:

(1)    most of the s 165-15 factors did not support a conclusion that any entity entered into the scheme with the dominant purpose of the taxpayer obtaining input tax credits (see T[171], [174], [177], [183], [185], [200], [201], [204], [206] and [226]); and

(2)    some of the factors – namely s 165-15(1)(f), (k) and (l) – supported a conclusion that the non-remittance of GST purpose, and not the input tax credits purpose, was the dominant purpose of the Division 165 Supplying Entities (see T[192] and [206]). See also the expression of this conclusion at T[217] to [219].

92    The Tribunal did not find that any of the s 165-15 factors supported a conclusion that any entity entered into the scheme with the dominant purpose of the taxpayer obtaining the input tax credits.

93    Thus, the Second Tribunal, having considered all of the mandatory s 165-15 factors, concluded that those factors did not support a conclusion that any entity entered into the scheme with the dominant purpose of the taxpayer obtaining input tax credits. It also concluded that the dominant purpose of the Division 165 Supplying Entities was the non-remittance of GST purpose rather than the input tax credits purpose.

94    Fifthly, the Second Tribunal at T[163] expressly acknowledged that Mills concerned a different statutory setting and test.

95    Finally, in the context of the above matters, the Second Tribunal’s references to Mills and the analysis of purpose by reference to the cited paragraphs from that decision are properly to be regarded as the Second Tribunal illustrating, by reference to the reasoning process in Mills, the conclusion that it had reached that the non-remittance of GST purpose was the dominant purpose of the Division 165 Supplying Entities and that the input tax credits purpose was non-dominant (whether it be described as ancillary or incidental or otherwise). In other words, on a fair reading of the Second Tribunal Decision, the conclusion as to dominant purpose was not reached by reference to Mills, but rather through the Second Tribunal’s thorough and detailed consideration of the s 165-15 factors.

96    The fourth strand to the Commissioner’s submissions is that the Tribunal erred when at T[165] (see [70(1)] above) it referred to the relevant comparison being between the “pursuit of commercial ends and pursuit of a GST benefit”. The Commissioner submitted that if the Second Tribunal had applied the law as set out at T[156] (see [68] above) then it would have concluded that the dominant purpose of the Division 165 Supplying Entities in carrying out the schemes was for the taxpayer to receive the income tax credits.

97    The reference to the law as set out at T[156] is a reference to the Second Tribunal’s recognition of the observations of the plurality of the High Court of Australia (Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ) in Commissioner of Taxation of the Commonwealth of Australia v Spotless Services Ltd [1996] HCA 34; (1996) 186 CLR 404 at 416, where the plurality noted that a particular course of action may be both “tax driven” and be commercially rational, but the presence of the latter does not determine the question of dominant purpose; and to similar observations in Commissioner of Taxation of the Commonwealth of Australia v Hart [2004] HCA 26; (2004) 217 CLR 216. In other words, the presence of a commercial purpose does not prevent a finding that the tax driven purpose was dominant, or as the Full Court in Full Court ACN put it at [226], the fact of a pursuit of a (dishonest) commercial gain is “not necessarily inconsistent” with a conclusion that it would be reasonable to conclude that an entity that entered into or carried out the particular scheme did so with the dominant purpose of the taxpayer obtaining a GST benefit.

98    The suggestion in the Commissioner’s submissions that the Second Tribunal stated at T[165] that the relevant comparison was between the “pursuit of commercial ends and pursuit of a GST benefit” is not a fair reading of T[165]. As the next sentence of that paragraph indicates, the Second Tribunal instead considered the relevant comparison to be between “the pursuit of a dishonest end and the pursuit of a GST benefit”. The “dishonest end” was the non-remittance of GST purpose (rather than some broader commercial objective). In other words, the Second Tribunal did not find an overarching commercial or non-fiscal purpose on the part of the Division 165 Supplying Entities (cf. Spotless at 414.8 to 415.8). Rather, it identified that the scheme facilitated:

(1)    a GST benefit to the Division 165 Supplying Entities, by dint of their non-payment of GST (the non-payment of taxation being a “GST benefit” within the definition of that term in s 165-10(1)(a) of the GST Act; see also Spotless at 413.1); and

(2)    a GST benefit to the taxpayer in the form of the income tax credits.

99    In any event, the concept of a comparison of purposes is at the kernel of the statutory directive to identify which purpose is dominant where more than one purpose has been identified, and is not contrary to Spotless. As the plurality went on to say in Spotless at 416, “[m]uch turns on the identification, among various purposes, of that which is ‘dominant’”. As is plain from the Second Tribunal Decision, the Second Tribunal by the application of the s 165-15 factors, determined that the dominant purpose of the Division 165 Supplying Entities was to obtain the GST benefit which benefitted them, rather than the GST benefit which benefitted the taxpayer. A conclusion that the Division 165 Supplying Entities had a primary purpose consistent with self-interest is unremarkable.

100    Senior counsel for the Commissioner emphasised that the schemes as framed by the Commissioner did not include the step of non-payment of the GST by the Division 165 Supplying Entities. However, this is of no moment when, as senior counsel for the Commissioner correctly acknowledged during argument, the fact of non-payment of the GST is nevertheless a matter that may be taken into account – as a circumstance surrounding the scheme (s 165-15(1)(k)) or as another relevant circumstance (s 165-15(1)(l)). This was recognised by the Second Tribunal at T[25], where the Second Tribunal noted that neither scheme identified the fraud perpetrated by the Division 165 Supplying Entities, but nothing turned on this, because that circumstance was “undoubtedly a relevant consideration”. As is clear from the Second Tribunal’s consideration of the s 165-15 factors (see [70] above, and in particular [70(9)]), the Second Tribunal took into account the failure of the Division 165 Supplying Entities to remit the GST component to the Commissioner. This conclusion of relevance reached by the Second Tribunal and its subsequent consideration of the non-payment of the GST were not challenged in the supplementary notice of appeal.

101    The final strand to the Commissioner’s submissions involved the submission that the accepted facts before the Second Tribunal established that the Division 165 Supplying Entities’ two purposes were inextricably linked.

102    That submission, which asks this Court to reach a factual conclusion different to that reached by the Second Tribunal, does not raise a question of law; rather it impermissibly invites merits review of the Second Tribunal Decision and must be rejected. The Commissioner did not contend on this appeal that the Second Tribunal erred in law because the facts as found necessarily satisfied the wording of s 165-15(1)(c)(i): cf [55] above. In any event, such a contention would have been unsustainable. In this regard, the Commissioner’s contention that the schemes were “funded” by the income tax credits cannot be accepted in the absence of a finding to this effect by the Second Tribunal.

E.4    The fifth question – principal effect

103    The fifth question and the sixth ground of appeal described in the supplementary notice of appeal concern the Second Tribunal’s conclusions as to the principal effect of the schemes.

E.4.1    The Second Tribunal’s consideration of s 165-5(1)(c)(ii) of the GST Act

104    As the Second Tribunal noted, its task under s 165-5(1)(c)(ii) of the GST Act was to determine whether the taxpayer had proven, taking into account the s 165-15 factors, that it was not reasonable to conclude that the principal effect of either scheme (or of part of either scheme) was that the taxpayer became entitled to receive the input tax credits.

105    The Second Tribunal addressed this task in conjunction with its task under s 165-5(1)(c)(i) of the GST Act which is discussed at E.3.1 above. Hence, there is some overlap in the analyses in these reasons for judgment.

106    After noting the competing positions of the parties and the need to consider the s 165-15 factors in assessing the principal effect of the schemes (or part thereof), the Second Tribunal considered each of those factors. In the course of doing so, the Second Tribunal made the following observations relevant to the determination required by s 165-15(1)(c)(ii) of the GST Act:

(1)    as to the manner in which the scheme was carried out (s 165-15(1)(a)):

166.    Absent adulteration of gold bullion, in many respects the relevant transactions were carried out in the way of ordinary transactions. The steps taken were largely as would be expected in arm’s length sales of Refining Materials and gold bullion. Indeed, aside from the one respect noted immediately below, but for the non-payment of GST by the suppliers the transactions would likely have been regarded as unremarkable from a fiscal perspective.

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

...

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

(bold emphasis added) ;

(2)    as to the form and substance of the scheme (s 165-15(1)(b)):

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

…

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

176.    The system of levying GST on dealings in gold substances is very much form driven. Metal in substance, i.e. chemically and atomically, identical, may be treated differently depending on its presentation or its form. Producing something that is in form different to its substance and transacting in it, as has happened here, transformed the character and transferred the ownership of the highly valuable commodity. This was the principal effect to be recognised.

(bold emphasis added) ;

(3)    as to the purpose or object of the GST Act (s 165-15(1)(c)):

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

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

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

…

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

(4)    as to the timing of the scheme and the period over which it was entered into and carried out (ss 165-15(1)(d) and (e)):

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

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

...

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

(5)    as to the effect that the GST Act would have in relation to the scheme apart from Division 165 (s 165-15(1)(f)):

192.    It is true that if one considers only the part of the scheme that is the defacing of bullion before its sale to [the taxpayer], that part of the scheme causes a change in the GST status of the commodity and its subsequent sale. But that is a change that causes GST to become payable where it would not otherwise have been payable. And, more importantly, the economic impact is neutral because of [the taxpayer’s] entitlement to ITCs. ... It does not support a conclusion that the principal effect of the scheme or a part of the scheme was for [the taxpayer] to obtain ITCs. ;

(6)    as to any change in the taxpayer’s financial position that has resulted, or may reasonably be expected to result, from the scheme (s 165-15(1)(g)):

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

(a)    ITC entitlements arose in respect of all of its inputs to that process that were taxable supplies to it including all of the contested Division 165 transactions;

(b)    for each of the contested transactions it paid a price that was informed by the fact that they were taxable supplies and that exceeded the price that would have been payable had the supplies not been taxable, and that excess equalled the ITC entitlement mentioned in (a);

(c)    [the taxpayer] enjoyed enhanced turnover from its participation in the scheme and resultant trading profits from that enhanced turnover.

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

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

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

(emphasis added) ;

(7)    as to any change that has resulted, or may reasonably be expected to result from the scheme in the financial position of an entity connected to the taxpayer (s 165-15(1)(h)):

197.    There is no question that the Fraudulent Suppliers were financially disadvantaged by the scheme if the non-payment of GST, which does not form part of either of the Commissioner’s articulated schemes, is ignored. That is because their sales prices for the Refining Materials were less than they paid for bullion in investment form.

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

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

...

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

(emphasis added) ;

(8)    as to other consequences for the taxpayer or a connected entity of the scheme having been entered into or carried out, and the nature of the connection between the taxpayer and the connected entity including whether the dealing is or was at arm’s length (ss 165-15(1)(i) and (j)):

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

204.    This factor does not support a conclusion ... that the principal effect of the scheme or any part of the scheme was,. [the taxpayer] obtaining the Contested ITCs. ;

(9)    as to the circumstances surrounding the scheme and any other relevant circumstances (ss 165-15(1)(k) and (l)):

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

206.    That circumstance ... does not support a conclusion ... that the principal effect of the scheme or any part of the scheme was, [the taxpayer] obtaining the Contested ITCs.

107    The Second Tribunal next set out at T[207] to [211] and [215] to [219] some further observations relevant to, inter alia, the principal effect of the schemes. Those observations have been reproduced at [71] and [72] above.

108    At T[226], the Second Tribunal expressed the conclusion that, for the reasons indicated in its consideration of the s 165-15 factors, it would not be reasonable to conclude that the principal effect of either scheme or any part of either scheme was the taxpayer obtaining the input tax credits.

E.4.2    The Commissioner’s challenge

109    The fifth question described in the supplementary notice of appeal is:

Whether under s 165-5(1)(c)(ii) the Tribunal correctly applied the meaning of the principal effect of the scheme, or part of the scheme

110    That question is supported by the sixth ground, as follows:

Further or in the alternative, in concluding at [172] and [176] that the principal effects of the scheme were to transform the character of the gold, to transfer the ownership of it and after that the fraud on the Commissioner, the Tribunal failed to apply correctly the meaning of the principal effect of the scheme, or part of the scheme under s 165-5(1)(c)(ii).

E.4.3    Consideration

111    The Commissioner’s first submission was that the Second Tribunal erred in failing to recognise that the transformation of the character of the gold and the transfer of its ownership to the taxpayer was not inconsistent with the creation of income tax credits for the taxpayer on its purchase of the adulterated gold.

112    The proposition that the Second Tribunal did not recognise that the transformation and transfer of ownership of the gold was not inconsistent with the creation of the income tax credits is a conclusion, for which the Commissioner has not provided any basis. Such a conclusion would not readily be reached as a matter of inference, particularly in view of the comprehensive nature of the Second Tribunal Decision: see Applicant WAEE v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCAFC 184; (2003) 236 FCR 593 at 604 to 605 [47] (French, Sackville and Hely JJ). Such a conclusion should not be drawn in the present case. It is unnecessary to consider whether such a conclusion, if drawn, would reveal an error of law.

113    The Commissioner’s second submission was that the Second Tribunal erred in not undertaking an assessment of the importance of the creation of the input tax credits to the scheme and each part of it as “required” by Complete Success Solutions.

114    That submission is not accepted. The Second Tribunal did not fail to recognise the creation of entitlements in the taxpayer to input tax credits. The Second Tribunal expressly considered this aspect of the schemes, but was not persuaded that such entitlements were the principal effect of the schemes, deciding instead that the principal effect was the change of ownership of very high values of gold and subsequently the fraud on the Commissioner (T[172] and [176]). These findings of fact were well open to the Second Tribunal and the weight to be given to the entitlement to input tax credits when considering the principal effects of the schemes was a matter for the Second Tribunal.

115    The Commissioner’s third submission was that on the facts, the creation of the input tax credits for the taxpayer upon the adulteration of the gold and the transfer of that gold to the taxpayer was the chief and critical effect of the schemes, and in particular the part of the schemes that consisted of the adulteration of gold by the Division 165 Supplying Entities and the transfer of that gold by them to the taxpayer for a GST inclusive price.

116    That submission does not raise a question of law, and is another invitation to this Court to engage with the merits of the Second Tribunal’s decision. Again, such an invitation must be declined.

E.5     The sixth question – treatment of the object and purpose of the GST Act

117    The sixth question and the eighth ground of appeal described in the supplementary notice of appeal concern the Second Tribunal’s treatment of one of the s 165-15 factors, namely s 165-15(1)(c). That sub-section relevantly provides that when considering an entity’s purpose in entering into or carrying out a scheme and the effect of a scheme under s 165-5, account must be taken of the purpose or object of the GST Act and any relevant provision of that Act (whether the purpose or object is stated expressly or not).

E.5.1    The Second Tribunal’s consideration of s 165-15(1)(c) of the GST Act

118    At T[166], as noted above, the Second Tribunal stated:

Absent adulteration of gold bullion, in many respects the relevant transactions were carried out in the way of ordinary transactions. The steps taken were largely as would be expected in arm’s length sales of Refining Materials and gold bullion. Indeed, aside from the one respect noted immediately below, but for the non-payment of GST by the suppliers the transactions would likely have been regarded as unremarkable from a fiscal perspective.

119    The Second Tribunal addressed s 165-15(1)(c) at T[177] to [181]:

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

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

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

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

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

E.5.2    The Commissioner’s challenge

120    The sixth question described in the supplementary notice of appeal is:

Whether under s 165-15(1)(c) the Tribunal was correct in its determination and consideration of the purpose or object of the GST Act and any relevant provision of the GST Act?

121    It is supported by the eighth ground of appeal, as follows:

Further or in the alternative, in determining and considering the purpose and object of the GST Act, the Tribunal erred by failing to take into account the purpose and object of Division 165 of the GST Act (being to deter schemes to give entities benefits by reducing GST, increasing refunds or altering the timing of payment of GST or refunds) and by failing to consider that object and purpose having regard to the matters set out in s 165-15(1)(c).

E.5.3    Consideration

122    This ground of appeal is framed as failure to take into account the purpose and object of the GST Act. For the reasons set out at [112] above and from a reading of the Second Tribunal Decision (and in particular T[177] to [181] reproduced at [119] above), no conclusion that the Second Tribunal failed to take into account the purpose and object of the GST Act should be drawn.

123    The Commissioner submitted that:

(1)    in Complete Success Solutions at [103], the Full Court stated that “it is not consistent with the object or policy of the Act for GST to become embedded in a supply of goods that has been deliberately devalued”; and

(2)    contrary to Complete Success Solutions, the Second Tribunal at T[178] and [179] found that the allowance of input tax credits on the supply of gold that had been deliberately defaced was an intended outcome and object of the Act, and erred in doing so.

124    This submission cannot be accepted for the following reasons:

(1)    in Complete Success Solutions at [103], the Full Court stated:

In considering the objects of the GST Act (s 165-15(1)(c)), the Tribunal correctly observed at T [128] that, generally, a purpose of the GST Act is to relieve GST-registered businesses involved in making taxable or GST-free supplies of GST costs on their inputs through the mechanism of input tax credits. The Commissioner is also correct to observe that it is not consistent with the policy or object of the GST Act for GST to become embedded in a supply of goods which have been deliberately devalued. ;

(2)    thus, the Full Court in Complete Success Solutions accepted as correct the following two propositions:

(a)    generally, a purpose of the GST Act is to provide relief by way of input tax credits to GST-registered businesses involved in making taxable or GST-free supplies; and

(b)    it is not consistent with the policy or object of the GST Act for GST to become embedded in a supply of goods which have been deliberately devalued;

(3)    the Second Tribunal, at T[178] and [179], on any fair reading, agreed with both of these propositions and took them into account. The Second Tribunal also noted that there had been a departure from the object of the GST Act by dint of the failure of the Division 165 Supplying Entities to remit to the Commissioner the GST they had collected; and

(4)    on no fair reading of T[178] and [179] could it be concluded that the Second Tribunal made a finding that the allowance of input tax credits on the supply of gold that had been deliberately defaced was an intended outcome and object of the GST Act.

E.6    The ninth question – whether a taxpayer can prove that s 165-5(1)(c)(i) is not satisfied absent proof that the taxpayer was not an informed participant in the arrangements constituting each scheme

125    The ninth question described in the supplementary notice of appeal is whether the Second Tribunal erred in finding that it was not reasonable to conclude that the taxpayer had the requisite purpose under Division 165 of the GST Act in circumstances where the taxpayer failed to establish that it was not an informed participant in the arrangements constituting each scheme.

E.6.1    The Second Tribunal’s consideration of the question of the taxpayer’s informed participation

126    The Second Tribunal addressed the question of the taxpayer’s knowledge of arrangements that included the sale of deliberately adulterated gold to the taxpayer and the interaction of the answer to that question with the tasks required by s 165-5(1)(c) at various places in the Second Tribunal Decision.

127    First, at T[94] to [96] the Second Tribunal made the following observations:

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

(a)    The first relates to whether, and if so what, knowledge findings the Tribunal should make. A knowledge finding of the First Tribunal was at the core of the matter being remitted. As already noted, the Commissioner does not allege [the taxpayer] participated in the fraud on the Commonwealth perpetrated by the Fraudulent Suppliers. However, the Commissioner does maintain [the taxpayer] knew of, or was at the very least wilfully blind to, the activities of those entities, in particular the deliberate adulteration of bullion before its sale to [the taxpayer]. The Commissioner ultimately submitted that it is not necessary for the Tribunal to determine whether [the taxpayer] had such knowledge in order for Division 165 to apply. But if [the taxpayer] maintained that it neither knew, nor ought to have known, of those activities, the Commissioner would contest that assertion.

(b)    The second is whether, and to what extent, the transactions that gave rise to the Contested ITCs were co-ordinated between the various participants including [the taxpayer].

95.    As the Full Court indicated, there is no necessary inconsistency between a finding of sophisticated co-ordination and lack of knowledge of the fraud. The Commissioner came to express the matter in terms that the issue raised is whether and to what extent [the taxpayer] was an informed participant in arrangements that included sale of gold to [the taxpayer] that had been deliberately de-valued by adulteration of bullions bars. Such facts, if they were found, would not supplant the tests to be applied which are addressed below. For the reasons which follow, the Tribunal does not consider that findings on these matters are determinative of the issue before the Tribunal.

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

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

(a)    was an informed participant that knew of, or ought to have known of and turned a blind eye to, the activities of the Division 165 Supplying Entities. As indicated, the Commissioner said that for his case to succeed it was not necessary to make such a knowledge finding; or

(b)    was not such an informed participant in the arrangements. As discussed below, even if such a finding were appropriate, it would not change the outcome of this matter.

(bold emphasis added)

128    Secondly, at T[109] the Second Tribunal observed:

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

129    Thirdly, at T[171] the Second Tribunal noted:

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

(emphasis added)

130    Finally, at T[215] to [219] and under the heading “Knowledge or blind eye”, the Tribunal stated the views which are reproduced at [72] above. Of particular relevance is T[219] which is reproduced again for ease of reference :

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

E.6.2    The Commissioner’s challenge to the Second Tribunal’s findings

131    The ninth question described in the supplementary notice of appeal is:

Whether the Second Tribunal erred in finding that it was not reasonable to conclude that [the taxpayer] had the requisite purpose under Division 165 of the GST Act in circumstances where [the taxpayer] failed to establish that it was not an informed participant in the arrangements constituting each scheme?

132    That question is supported by grounds 13 and 14, as follows:

13.    Further or in the alternative, the Second Tribunal erred in holding at [219], despite its reasons at [96(b)], that Division 165 of the GST Act would not apply to the scheme even if [the taxpayer] failed to establish that it was not an informed participant in the arrangements constituting the scheme.

14.    The Tribunal ought to have held that, because [the taxpayer] failed to establish that it was not an informed participant in the arrangements constituting the scheme (see [96(b)]), it could not be concluded that it did not have the requisite purpose for the purposes of s 165-5(1)(c)(i) of the GST Act.

E.6.3    Consideration

133    The Commissioner’s first submission was that the Second Tribunal erred in holding at T[219] that Division 165 of the GST Act would not apply to the scheme irrespective of the taxpayer’s failure to establish that it was not an informed participant in it because objective evidence which reflects a participant’s actual or constructive knowledge about the effects and characteristics of the wider scheme in which it is a participant could be evidence relevant to the evaluation of its purpose, citing Minerva Financial Group v Commissioner of Taxation [2022] FCA 1092 at [270] (O’Callaghan J) and the authorities there cited.

134    Implicit in the Commissioner’s submission is the proposition that the taxpayer could not succeed unless it established that it was not an informed participant in the arrangements constituting the schemes. That proposition is unsound, as: (1) it has no basis in the GST Act or otherwise; and (2) assuming for present purposes that the informed participation of a participant in a scheme may be relevant to the tasks mandated by s 165-5(c)(i) and (ii), mere potential relevance is insufficient.

135    The Commissioner’s second submission was that such error also involved a reversal of the onus of proof imposed by s 14ZZK of the Taxation Administration Act 1953 (Cth).The Commissioner submitted that the Second Tribunal erred in focussing its attention on the Commissioner’s inability to persuade it to make a positive finding (T[97] to [102]), when it was not for the Commissioner to prove the taxpayer’s knowing participation; it was for the taxpayer to disprove it, which it could not ([96(b)]).

136    There was no reversal of the onus of proof. The Second Tribunal found, as it was able to, that the taxpayer discharged its onus of proof without proving that it was not an informed participant. Further, the Second Tribunal did not focus its attention solely on the Commissioner’s case concerning the knowledge of the taxpayer. It also considered whether to make the finding sought by the taxpayer that it was not an informed participant in the arrangements and expressly declined to do so. The Second Tribunal also considered, as it was entitled to do, that such a finding, even if made, would not have been a matter of any moment in the light of other factual findings that it had made (T[96(b)]). Such reasoning is orthodox and discloses no error of law.

F.    CONCLUSION

137    The appeal should be dismissed.

Associate:

Dated:    24 October 2025

REASONS FOR JUDGMENT

FEUTRILL J:

INTRODUCTION

138    Division 165 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) contained certain general anti-avoidance provisions aimed at negating the fiscal consequences of artificial or contrived schemes that reduce the GST tax base. Division 165 operated if an entity (avoider) got a GST benefit from a scheme and, taking into account certain mandatory matters, it was reasonable to conclude that either: (1) an entity that entered into or carried out the scheme did so with the dominant purpose of that entity or another entity getting a GST benefit from the scheme; or (2) the principal effect of the scheme was that the avoider got the GST benefit from the scheme: s 165-5(1)(c). If Div 165 applied, the applicant (Commissioner) had power to make a declaration that had the effect of negating a GST benefit of the avoider: s 165-40. The Commissioner also had power to make assessments or amended assessments of the amount payable by or to the avoider under certain provisions contained in Sch 1 to the Taxation Administration Act 1953 (Cth).

139    The Commissioner exercised the declaratory and assessment powers by which refunds in the total amount of $72,953,611 which the respondent (taxpayer) had received were negated. The Commissioner exercised the power on the ground, amongst others, that the taxpayer had obtained refunds for input tax credits under a gold refining scheme entered into or carried out by a number of entities (referred to as the Division 165 Supplying Entities) which had supplied scrap gold to the taxpayer. The taxpayer objected to the assessments under the provisions of Pt IVC of the Taxation Administration Act. The Commissioner disallowed the objection and the taxpayer sought review of the objection decision in the Administrative Appeals Tribunal.

140    The tribunal (First Tribunal) made a decision largely affirming the assessments. The taxpayer appealed to this Court and that appeal was allowed and the matter remitted to the tribunal for determination according to law. The tribunal on remitter (Second Tribunal) made a decision to the effect that it was not reasonable to conclude that an entity had the s 165-5(1)(c)(i) ‘dominant purpose’ or the scheme had the s 165-5(1)(c)(ii) ‘principal effect’. The Commissioner commenced an appeal from that decision under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth). The AAT Act has since been repealed and the Administrative Review Tribunal Act 2024 (Cth) enacted. The Administrative Appeals Tribunal has been abolished and replaced by the Administrative Review Tribunal. Under certain transitional provisions this appeal continues as if it were an appeal under s 44 of the AAT Act and, if the Second Tribunal decision is set aside, the matter may be remitted to the Administrative Review Tribunal.

141    As ultimately pursued, the notice of appeal identifies seven questions of law and eight grounds in support of asserted errors of law. The overall question of law posed in the notice of appeal is whether the Second Tribunal correctly applied the legal test mandated in s 165-5(1)(c) of the GST Act and, thereby, correctly concluded that it was not reasonable to conclude that an entity had the statutory ‘dominant purpose’ or the scheme had the statutory ‘principal effect’ (Question 1). The answer to that question essentially turns on the answers to each of the other questions posed. The aspects of the tribunal’s decision challenged and the issues raised in the appeal may be summarised as follows.

(1)    The Commissioner challenges the conclusion, for the purposes of s 165-5(1)(c)(i), that it was not reasonable to conclude that the Division 165 Supplying Entities entered into or carried out the scheme or part of the scheme with the dominant purpose of getting the taxpayer a GST benefit from the scheme. There were a number of strands to the Commissioner’s contentions, but these largely boil down to two main issues. First, whether in the application of a facilitative purpose of an ultimate purpose analysis drawn from Mills v Federal Commissioner of Taxation [2012] HCA 51; 250 CLR 171 the tribunal disregarded the statements of principle applicable to consideration of composite purposes in ACN 154 520 199 Pty Ltd (in liq) v Federal Commissioner of Taxation [2020] FCAFC 190; 282 FCR 455 and Commissioner of Taxation v Complete Success Solutions Pty Ltd [2023] FCAFC 19; (2023) 116 ATR 9 and, thereby, misconstrued and misapplied the s 165-5(1)(c)(i) ‘dominant purpose’ test. Second, whether there was a failure to consider the importance of the taxpayer getting input tax credits to the economic feasibility of the scheme and, thereby, the tribunal failed to exclude that potential importance in its consideration of which of the competing purposes was dominant (Questions 1 – 4, Grounds 1 – 3, 5).

(2)    The Commissioner challenges the conclusion, for the purposes of s 165-5(1)(c)(ii), that it was not reasonable to conclude that the principal effect of the scheme or part of the scheme was that the taxpayer got the GST benefit. Here, there are also two issues. First, whether there was a misconstruction and misapplication of the s 165-5(1)(c)(ii) ‘principal effect’ test because the tribunal incorrectly focussed on the general non-fiscal effects of the change in ownership and form of gold and the (dishonest) non-payment of GST liabilities rather than on the fiscal effect of the particular scheme or part of the scheme. Second, as with dominant purpose, whether there was a failure to consider the importance of the taxpayer getting input tax credits to the economic feasibility of the scheme and, thereby, the tribunal failed to exclude that potential importance in its consideration of the effect of the scheme, in particular, that part of the scheme in which the taxpayer participated (Question 5, Ground 6).

(3)    The Commissioner challenges the manner in which the matter described in s 165-15(1)(c), the purpose or object of the GST Act or any provision of that Act, was taken into account in considering the statutory questions posed in s 165-5(1)(c). The relevant issue is whether the purpose or object of Div 165 to deter artificial or contrived schemes was a mandatory matter to be taken into account and that matter was disregarded in considering the statutory questions (Question 6, Ground 8).

(4)    The Commissioner challenges the conclusion, for the purposes of s 165-5(1)(c)(i), that it was not reasonable to conclude that the taxpayer entered into or carried out the scheme or part of the scheme with the dominant purpose of the taxpayer getting a GST benefit from the scheme. Here, again there are two issues. First, whether informed participation of the taxpayer in the arrangements constituting the scheme was a ‘circumstance’ to be taken into account in considering the statutory questions posed in s 165-5(1)(c)(i). Second, whether it should have been found that the taxpayer was unable to discharge its onus of proving that it was not reasonable to conclude that the taxpayer had the s 165-5(1)(c)(i) dominant purpose because the taxpayer failed to positively prove that it was not an informed participant (Question 9, Grounds 13 and 14).

142    I have had the advantage of reading the reasons of Goodman J in draft. His Honour has set out the statutory context, background and Second Tribunal’s decision and consideration of the applicable provisions in terms with which I agree. None of these matters need be restated except as is necessary to explain my reasons and, otherwise, I gratefully adopt his Honour’s explanation of them and the expressions and terms his Honour has described or defined in his reasons. However, on the principal issues in the appeal, regrettably and with due respect to his Honour’s reasons, I have largely reached different conclusions.

143    For the reasons that follow, I am of the view that the Second Tribunal misconstrued and misapplied s 165-5(1)(c)(i) in adopting and applying a facilitative purpose analysis in its consideration of the ‘dominant purpose’ statutory inquiry mandated in Div 165. That conclusion renders it unnecessary to address the other issues raised in the appeal, but as these were fully argued, I have also expressed my views on them. In short, the tribunal misconstrued and misapplied the s 165-5(c)(ii) ‘principal effect’ inquiry by failing to focus on the fiscal effect of the scheme. Further, the tribunal misconstrued and misapplied s 165-5(1)(c) by disregarding that a purpose or object of Div 165 is to deter artificial or contrived schemes. Otherwise, I do not accept that any of the other matters the Commissioner raised involve errors of law. The Second Tribunal’s decision should be set aside for errors of law and the matter remitted to the Administrative Review Tribunal for determination according to law.

STATUTORY CONTEXT

GST Act

144    It is convenient to commence with an overview of the general provisions of the GST Act and the specific provisions of Div 165 of that Act.

145    The GST Act provided that GST is payable on ‘taxable supplies’ and entitlements to ‘input tax credits’ arise on ‘creditable acquisitions’: s 7-1. Amounts of GST and amounts of input tax credits are set off against each other to produce a ‘net amount’ for a tax period: s 7-5. The amount assessed as being the ‘net amount’ for a tax period is the amount that the entity must pay to the Commonwealth or the Commonwealth must refund to the entity in respect of the period: s 7-15. A person must pay GST on any taxable supply made by that person: s 9-40. A person is entitled to input tax credits on any creditable acquisition made by that person: s 11-20. The amount of the GST liability is 10% of the value of the taxable supply or one eleventh of the consideration for the taxable supply.

146    Relevantly, a taxable supply is made if the supply is for consideration, made in the course or furtherance of an enterprise the taxpayer carries on, and the taxpayer is registered or required to be registered. However, the supply is not a taxable supply to the extent that it is ‘GST-free’ or ‘input taxed’: s 9-5. A ‘creditable acquisition’ is made if anything is acquired solely or partly for a creditable purpose, the supply of the thing is a taxable supply, consideration is provided for the supply, and the acquirer is registered or required to be registered: s 11-5. A thing is acquired for a ‘creditable purpose’ to the extent that it is acquired in carrying on the acquirer’s enterprise: s 11-15. An ‘enterprise’ is an activity or series of activities, done in the form of a business or in the form of an adventure or concern in the nature of trade: s 9-20(1). A person is required to be registered under the GST Act if the person is carrying on an enterprise and the person’s GST turnover meets the registration turnover threshold: s 23-5.

147    Broadly, the GST Act assumes that a GST liability will be included in the consideration for a taxable supply and where the thing acquired is used in the course or furtherance of an enterprise the notional GST liability embedded in the consideration will be refunded through an entitlement to an input tax credit. Through this system of setting off GST liability against input tax credit and assessment and payment or refund of the ‘net amount’, the burden of the tax is borne by the ultimate consumer of goods and services.

148    There are special rules relating to certain supplies that are ‘GST-free’ or ‘input taxed’: Div 38, Div 40. These rules include certain supplies of ‘precious metal’. The expression ‘precious metal’ is defined to mean gold, silver or platinum in investment form of at least 99.5%, 99.9 or 99% fineness or any other substance in investment form of particular fineness specified in regulations: s 195-1.

149    Without special rules, dealers in precious metal would not be able to ‘pass on’ a liability incurred to pay GST on an otherwise taxable supply of a precious metal because the consideration for the supply of the precious metal would be fixed by the international price for that precious metal. To avoid that outcome, the first supply of precious metals after it is refined is ‘GST-free’ if the entity that refined the precious metal is a ‘refiner of precious metal’ and the recipient of the supply is a ‘dealer in precious metal’: s 38-385. Likewise, subsequent transactions involving precious metal where the consideration is also fixed internationally are ‘input taxed’: s 40-100. To the extent that a supply is both ‘GST-free” and ‘input taxed’, in general, the supply is GST-free and not input taxed for the purposes of the GST Act: s 9-30(3). See, also, Explanatory Memorandum to A New Tax System (Goods and Services) Tax Bill 1998 (Cth), paras 5.125 – 5.127.

Division 165

150    Like any taxation legislation, the GST Act is open to abuse. Therefore, Div 165 contains general anti-avoidance provisions that are in similar terms and operate in a similar way to other general anti-avoidance provisions in Commonwealth taxation legislation.

151    During the relevant period, s 165-5 and s 165-10 of the GST Act provided:

165-5    When does this Division operate?

General rule

(1)    This Division operates if:

(a)    an entity (the avoider) gets or got a *GST benefit from a *scheme;

…

(c)    taking account of the matters described in section 165-15, it is reasonable to conclude that either:

(i)    an entity that (whether alone or with others) entered into or carried out the scheme, or part of the scheme, did so with the sole or dominant purpose of that entity or another entity getting a *GST benefit from the scheme; or

(ii)    the principal effect of the scheme, or of part of the scheme, is that the avoider gets the GST benefit from the scheme directly or indirectly; …

…

165-10    When does an entity get a GST benefit from a scheme?

(1)    An entity gets a GST benefit from a *scheme if:

(a)    an amount that is payable by the entity under this Act apart from this Division is, or could reasonably be expected to be, smaller than it would be apart from the scheme or a part of the scheme; or

(b)    an amount that is payable to the entity under this Act apart from this Division is, or could reasonably be expected to be, larger than it would be apart from the scheme or a part of the scheme;

…

What is a scheme?

…

(3)    An entity can get a *GST benefit from a *scheme even if the entity or entities that entered into or carried out the scheme, or a part of the scheme, could not have engaged economically in any activities:

(a)    of the kind to which this Act applies; and

(b)    that would produce an effect equivalent (except in terms of this Act) to the effect of the scheme or part of the scheme;

other than the activities involved in entering into or carrying out the scheme or part of the scheme.

152    Section 165-10(2) described the meaning of ‘scheme’ broadly to be any arrangement, agreement, understanding, promise or undertaking, or any scheme, plan, proposal action, course of action, or course of conduct. Section 165-15 described 12 matters that were to be taken into account in considering an entity’s purpose in entering into and carrying out the scheme from which the avoider got a GST benefit and the effect of the scheme.

153    If Div 165 operated, the Commissioner had a discretion to negate a GST benefit by making a declaration about the avoider’s net amount for a specified tax period under s 165-40. Schedule 1 of the Taxation Administration Act contained provisions by which the Commissioner could make assessments and amended assessments based on the ‘net amount’ for a tax period.

THE SCHEME AND GST BENEFIT

154    In substance, the Second Tribunal made findings of fact from which it was reasonable to conclude that the Division 165 Supplying Entities entered into or carried out the essential elements of the scheme the Commissioner articulated for most of the relevant period. The tribunal also accepted that the taxpayer got a GST benefit from the scheme for most of the relevant period.

155    The essential elements of the scheme were as follows:

(a)    The taxpayer supplying a related party (ABC NSW) and an unrelated party (Ainslie) with gold metal of 99.99% fineness in investment form for an amount roughly equivalent to the prevailing spot price for gold. (ABC NSW and Ainslie are referred to as the Dealers.)

(b)    Certain of the Division 165 Supplying Entities (Intermediaries) purchasing gold metal of 99.99% fineness in investment form from the Dealers and (or) other sources.

(c)    Certain of the Division 165 Supplying Entities scratching, melting or altering of the gold metal referred to in paragraph (b) above such that, while still of 99.99% fineness, the gold was no longer in investment form for the purposes of the definition of ‘precious metal’ in s 195-1 of the GST Act.

(d)    Certain of the Division 165 Supplying Entities supplying of the gold metal referred to in paragraph (c) (scrap gold) to the taxpayer for an amount that was less than the prevailing spot price for gold, before the addition of GST.

(e)    The taxpayer refining the scrap gold referred to in paragraph (d) to produce ‘precious metal’ as defined.

156    The Commissioner also asserted and relied on a scheme described as the ‘narrower scheme’ which consisted of the transactions and course of action referred to in paras (b), (c) and (d) of the ‘wider scheme’.

157    The supply of scrap gold referred to in para (d) was notionally a ‘taxable supply’ within the meaning of the GST Act. As a consequence, the Division 165 Supplying Entities incurred a liability to the Commonwealth to pay GST calculated as one eleventh of the consideration for the supply. At the same time, the acquisition of the scrap gold was notionally a ‘creditable acquisition’ within the meaning of the GST Act. As a consequence, the taxpayer was entitled to input tax credits calculated as one eleventh of the consideration for the taxable supply.

158    Although not part of the scheme (wide or narrow) as articulated, the Division 165 Supplying Entities failed to pay the GST liabilities incurred on the notional taxable supplies. The Commissioner made assessments of net amounts and penalties for most of those entities. The assessments were not paid and all the Division 165 Supplying Entities went into administration for insolvency. The Second Tribunal described this ‘wider design’ (i.e., the whole design including the step of non-payment of GST liabilities) as dishonest or fraudulent and as a ‘missing trader or carousel fraud arrangement’.

159    The taxpayer lodged GST returns with the Commissioner by which it received refunds for net amounts based on the entitlements to input tax credits resulting from the creditable acquisitions of scrap gold. The Commissioner made declarations under s 165-40 of the GST Act and assessments and amended assessments by which refunds of $72,953,611 were disallowed. The Second Tribunal accepted that most of these refunds were GST benefits within the meaning of the GST Act.

160    If the notional effects of the GST Act are ignored, the Division 165 Supplying Entities made notional gains on the acquisition of gold in investment form as the consideration paid was based on the value of gold metal in investment form and it was supplied to the taxpayer for consideration that included a 10% markup on the value of gold metal in scrap gold. The taxpayer made notional losses because it acquired the scrap gold based on its value plus a 10% markup, refined it into investment form and then supplied it for consideration based on the value of the gold metal in investment form.

161    If the notional effects of the GST Act are taken into account the opposite is the case. The Division 165 Supplying Entities must make losses if their GST liabilities are discharged and the taxpayer may make gains (depending on the movement in international value of gold metal) after refining the gold because the 10% markup included in the consideration paid for the scrap gold would be refunded to the taxpayer through input tax credits.

162    It is self-evident that no commercially rational refiner of precious metal would acquire scrap gold at a 10% markup to the value of the gold metal unless it believed it would recover the whole consideration as part of its enterprise. Therefore, the assumption the taxpayer would be entitled to input tax credits, objectively, was an inducement for the taxpayer to pay the Division 165 Supplying Entities the consideration it paid for the scrap gold.

163    It is equally self-evident that no commercially rational dealer of precious metal would acquire gold metal in investment form, change its form into scrap gold and thereby devalue the gold content and supply it to a refiner of precious metal at a loss. Therefore, objectively, the Division 165 Supplying Entities intended to supply the scrap gold for the value of the gold metal plus a 10% markup, but not discharge any GST liability they incurred.

THE SECOND TRIBUNAL DECISION

164    The proceeding before the Second Tribunal was a review of the Commissioner’s decision not to allow the taxpayer’s objection under s 14ZZ(1)(a)(i) of the Taxation Administration Act. In that proceeding the taxpayer was limited to the grounds stated in its taxation objection and had the burden of proving that the Commissioner’s assessment was excessive or otherwise incorrect and what the assessment should have been: s 14ZZK. The taxpayer’s grounds of objection included that an entity did not have the s 165-5(1)(c)(i) ‘dominant purpose’ or that the scheme did not have the s 165-5(1)(c)(ii) ‘principal effect’.

165    Relevantly, the Second Tribunal was required to decide if, taking into account the matters described in s 165-15, it was not reasonable to conclude that either: the Division 165 Supplying Entities (or the taxpayer) entered into or carried out the scheme or part of the scheme with the sole or dominant purpose of the taxpayer getting a GST benefit from the scheme; or the principal effect of the scheme or part of the scheme was that the taxpayer got the GST benefit from the scheme directly or indirectly.

166    In essence, the objective consequence of the steps described in paras (b) and (c) of the scheme were as follows.

(1)    To change the form of the gold metal from investment form into scrap gold. That step changed the way a supply of the gold metal would be treated under the GST Act and placed the Division 165 Supplying Entities in a position in which they could obtain consideration from the taxpayer based on the value of the scrap gold plus a 10% markup.

(2)    To supply scrap gold to the taxpayer. That step involved a notional ‘taxable supply’ of the scrap gold.

(3)    The Division 165 Supplying Entities became liable to pay a GST liability of 10% of the value of the scrap gold and the taxpayer became entitled to an input tax credit of 10% of the value of the scrap gold.

167    It is self-evident that an intended consequence of that part of the scheme was for the Division 165 Supplying Entities to secure consideration for the supply of scrap gold that included a 10% markup on the value of the gold metal. The GST Act or fiscal consequence was to ‘create’ a notional ‘taxable supply’ of gold metal. That, in turn, had the fiscal consequences of the Division 165 Supplying Entities incurring a GST liability and the taxpayer becoming entitled to input tax credits. It is also self-evident that without creating a notional ‘taxable supply’ the taxpayer would not have paid consideration that included a 10% markup on the value of the scrap gold and the Division 165 Supplying Entities would not have secured that consideration and the scheme would have been loss-making. It was within that factual and legal context that the Second Tribunal was called upon to address the statutory questions posed in s 165-5(1)(c).

168    In the proceeding before the Second Tribunal the parties conducted the dispute on the footing that the battleground lay in whether the requisite dominant purpose or principal effect ought to be found. The taxpayer contended that the dominant purpose of the Division 165 Supplying Entities was to obtain and dishonestly retain the benefit of the GST payable on the prices the taxpayer paid them for the scrap gold through collecting GST-informed consideration but not paying the GST liabilities to the Commonwealth. The Commissioner contended that the objective purpose of the Division 165 Supplying Entities could not be explained as evading a GST liability that would not exist but for the scheme. Rather, the scheme was directed at the taxpayer obtaining input tax credits without which it would not have paid GST-informed consideration for the scrap gold.

169    The Second Tribunal identified one of the issues that it had to address to answer the statutory questions as ‘whether purposes of a supplier creating a taxable supply and therefore creating (or creating and not paying) a GST liability and for the recipient of the supply of a corresponding [input tax credit] entitlement are effectively different sides of the one coin, so to speak, such that they could not be regarded as a single composite purpose’: T [158]. The Second Tribunal cited relevant passages from Full Court ACN, Federal Commissioner of Taxation v Ludekens [2013] FCAFC 100; 214 FCR 149 and Complete Success Solutions that set out the applicable ‘composite purpose’ principles. It also said that the comments in Mills ‘regarding the standing of facilitative steps towards an ulterior and ultimate goal inform the characterisation of steps in a linked chain of events’ and cited certain passages from Mills in support of that proposition: T [159]-[163]. After addressing each of the matters described in s 165-15 the Second Tribunal returned to the question of composite purpose and, in effect, concluded on the facts as found that the composite purpose analysis was inapplicable to the circumstances of the case before it: T [208]-[211].

170    While it acknowledged that Ludekens and Complete Success Solutions stood for the proposition that ‘a single purpose may be appropriately found in some circumstances’, it considered that the analysis in Mills of a facilitative purpose of an ultimate purpose was more apposite to the circumstances of the case before it. Applying the Mills analysis to the facts as found it considered that ‘creating taxable supplies that also produced GST-informed prices being paid and [input tax credit] entitlements to arise, was a necessary preliminary to an ulterior and ultimate goal’ and concluded that ‘any purpose in obtaining [input tax credits] in the present circumstances, assuming there was one, was a purpose properly regarded as central to the design of a scheme directed to achieving an ulterior and ultimate purpose, and therefore any purpose of obtaining [input tax credits] was incidental and not dominant’: T [208]. Ultimately, the tribunal concluded that the dominant purpose of the Division 165 Supplying Entities was to execute ‘their fraud’ by obtaining and retaining GST-informed consideration: T [217].

171    The Second Tribunal’s conclusions relating to principal effect are interspersed with its consideration of dominant purpose and the matters described in s 165-15. The tribunal expressed the view, in substance, that the principal effect of the scheme was to change the form of the gold metal, transfer it to the taxpayer and place the Division 165 Supplying Entities in the position in which they could retain the whole consideration and avoid paying GST liabilities: T [172], [176], [216].

172    In the course of addressing the matters described in s 165-15 the Second Tribunal dealt with the purpose or object of the GST Act and expressed the view that the GST Act had its intended effect on the arrangements that constituted the scheme and that it was the non-payment of GST liabilities that departed from the object of the GST Act: T [178]-[179].

173    The Second Tribunal was not prepared to make a positive finding that the taxpayer was an informed participant in the arrangements that constituted the scheme. But, it was also not prepared to make a positive finding that the taxpayer was not an informed participant: T [96]-[109]. The tribunal concluded that even if the taxpayer was an informed participant it would not have made any difference to the conclusions that the tribunal made regarding dominant purpose: T [219].

174    Ultimately, the Second Tribunal concluded that it would not be reasonable to conclude that any entity entered into the scheme or part of the scheme (wider or narrow) with the sole or dominant purpose of, or the principal effect of the scheme or part of the scheme (wide or narrow) was, the taxpayer obtaining input tax credits: T [226].

THE APPEAL

175    The four aspects of the Second Tribunal’s decision that are challenged are set out and summarised earlier in these reasons.

176    As to the challenge to the conclusion that it was not reasonable to conclude that the Division 165 Supplying Entities had the s 165-5(1)(c)(i) dominant purpose, the core of the Commissioner’s contentions in the appeal centres on the manner in which the Second Tribunal disregarded the observations about composite purpose in Full Court ACN, citing Ludekens, and Complete Success Solutions and applied a facilitative of ultimate purpose analysis drawn from Mills.

177    The Commissioner contends that the Second Tribunal disregarded Full Court ACN and Complete Success Solutions without explanation. And, explanation was necessary given that the observations in Full Court ACN were made on virtually the same facts and the observations in Complete Success Solutions were made on facts involving the same core elements. Further, in disregarding Full Court ACN and Complete Success Solutions the Second Tribunal gave no consideration as to whether the purpose of obtaining (or obtaining and not paying) GST and the purpose of obtaining input tax credits for the taxpayer were inextricably linked. The tribunal’s finding that the purpose of obtaining input tax credits was incidental to the purpose of non-payment of GST liabilities was made without excluding the possibility it was important to the Division 165 Supplying Entities that the scheme end with a GST-free supply by an entity which would be refunded by input tax credits so that the scheme as a whole would work by being sufficiently funded.

178    The Commissioner also contends that the Second Tribunal failed to characterise ‘purpose’ in the manner that s 165-5(1)(c)(i) requires. In substance, the Commissioner contends that the tribunal focussed on the remote and fiscally irrelevant (dishonest) purpose of non-payment of notional GST liabilities whereas it was required to focus on the fiscal purpose of getting the taxpayer input tax credits from the scheme. In so doing, the tribunal failed to appreciate that the remote and fiscally irrelevant purpose was not necessarily inconsistent with a dominant purpose of getting the taxpayer input tax credits. The tribunal expressed no rationale for concluding that the (dishonest) purpose was separate, discrete and dominant over the input tax credit purpose. The Commissioner contends that the asserted errors in failing to consider if the purposes were inextricably linked and failing to distinguish between the purposes also affected the tribunal’s consideration of the matters described in s 165-15(1)(a) and s 165-15(1)(b).

179    As to the challenge to the conclusion that it was not reasonable to conclude that the effect of the scheme or part of the scheme was the s 165-5(1)(c)(ii) ‘principal effect’, the Commissioner contends that the Second Tribunal failed to correctly apply the statutory test. In this respect, the Commissioner submits that the tribunal failed to recognise the effect of change of form and ownership of the gold metal was not inconsistent with the effect of creation of a taxable supply and corresponding GST liabilities and entitlements to input tax credits. Further, as with dominant purpose, the tribunal did not undertake an assessment of the importance of the refunds to the scheme and each part of the scheme.

180    As to the treatment of the matters described in s 165-15(1)(c), the Commissioner contends that the object or purpose of Div 165 was a mandatory matter to be taken into account in the consideration of the statutory questions under s 165-5(1)(c). The Commissioner contends that the Second Tribunal disregarded that mandatory matter in error of law because it failed to take into account that a purpose or object of Div 165 is to deter artificial or contrived schemes.

181    As to the last aspect of the Second Tribunal’s decision the Commissioner challenges, in accordance with s 14ZZK of the Taxation Administration Act the taxpayer had the onus of positively proving that it was not reasonable to conclude that it had the s 165-5(1)(c)(i) ‘dominant purpose’. The Commissioner contends that the Second Tribunal was wrong to conclude that the outcome would not have changed if the taxpayer were an informed participant and that involves misconstruction of s 165-5(1)(c)(i) and s 165-15 of the GST Act. Further, the Commissioner contends that because the taxpayer failed to prove that it was not an informed participant, the tribunal was bound to conclude that the taxpayer had failed to prove that it was not reasonable to conclude that the taxpayer had the s 165-5(1)(c)(i) dominant purpose. That involves misconstruction and misapplication of s 14ZZK.

QUESTIONS OF LAW

182    The taxpayer contends that the supplementary notice of appeal fails to raise a question of law. The taxpayer submits that all the grounds of appeal pressed are complaints about findings of fact and do not identify any error in the Second Tribunal’s understanding of the applicable legal principles or its application of those principles to the facts as found. Nonetheless, it was common ground that if the Second Tribunal were found to have applied the wrong legal test in answering the statutory questions in s 165-5(1)(c) that would amount to an error of law. It may also be accepted that it would be an error of law if the tribunal disregarded a material matter that the statute obliges the tribunal to take into account in the exercise of its review function: e.g., Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; 162 CLR 24 at 39-40 (Mason J).

183    It is fair to observe that, before the Commissioner abandoned certain of the questions and grounds of appeal in the notice of appeal, there was a significant degree of entanglement in the Commissioner’s notice of appeal and written submissions between questions of law and fact finding that tended to obscure the legal questions raised in the appeal. Nonetheless, it emerged during the course of the appeal that the principal question of law raised in the appeal is whether, in applying the facilitative purpose analysis drawn from Mills, the Second Tribunal misunderstood and misapplied the s 165-5(1)(c) ‘dominant purpose’ and ‘principal effect’ tests. Many of the other questions of law and grounds of appeal involve the Second Tribunal’s application of the facilitative purpose analysis to the facts as found which the Commissioner contends are demonstrative of an erroneous application of the applicable legal tests.

184    In fairness to both the Commissioner and the taxpayer, where, as here, it is asserted that a decision-maker has misconstrued the relevant statute thereby misconceiving the nature of the function which the decision-maker performed, drawing the line between error in the application of the law to the facts as found and mere error in fact finding can be particularly difficult to discern. A similar problem arises in the context of judicial review in discerning jurisdictional error and mere error in the exercise of jurisdiction: e.g., Craig v South Australia [1995] HCA 58; 184 CLR 163 at 178 (Brennan, Deane, Toohey, Gaudron and McHugh JJ). It requires careful consideration of the reasons for decision, acknowledging that they should be read as a whole and fairly, and may require inference to be drawn from the reasons about the manner in which the decision-maker has performed the relevant statutory function: e.g., Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; 185 CLR 259 at 271-2 (Brennan CJ, Toohey, McHugh and Gummow JJ). For the reasons given later, in my view, misconstruction of s 165-5(1)(c) is discernible from the Second Tribunal’s reasons for decision and, therefore, the appeal is ‘on a question of law’. Disregard of mandatory relevant considerations is also evident.

185    Otherwise, Goodman J has set out the principles applicable to the identification of errors of law in fact finding. With the exception of characterisation of the statutory question of whether ‘it is reasonable to conclude’ posed in s 165-5(1)(c) as one of fact and that the words ‘dominant’ and ‘principal’ where used in that subsection have their normal meaning, I agree with his Honour’s summary. On the view I take of the questions raised in the appeal, it is unnecessary to resolve this point of difference because the Second Tribunal applied the wrong legal test in reaching its conclusions on the s 165-5(1)(c) statutory questions. Nonetheless, it is necessary to explain the reasons for my not fully embracing his Honour’s construction of s 165-5(1)(c).

186    Satisfaction of the requirements in s 165-5(1)(a) and s 165-5(1)(c) are necessary preconditions to the application of Div 165 and to the exercise of the Commissioner’s powers under that division, including the power to negate a GST benefit under s 165-40. These preconditions are appropriately characterised as ‘jurisdictional facts’: see, e.g., Mills at [60]. Moreover, there is nothing to suggest that the question of whether ‘it is reasonable to conclude’ in s 165-5(1)(c) is founded on the Commissioner’s opinion or state of satisfaction such that the relevant ‘jurisdictional fact’ is the Commissioner’s state of mind.

187    Although the expression ‘jurisdictional fact’ is used to describe necessary preconditions to the jurisdiction or power of a decision-maker, the applicable statutory criteria need not only involve facts to answer the description of a jurisdictional fact. It is frequently the case that ‘jurisdictional facts’ involve ‘a complex of elements’: Enfield City Corporation v Development Assessment Commission [2000] HCA 5; 199 CLR 135 at [28] (Gleeson CJ, Gummow, Kirby and Hayne JJ). Jurisdictional facts may also be purely factual in content. But, whatever the content, ‘jurisdictional fact review proceeds on the basis that it is a jurisdictional error of law for someone to exercise public power in the absence of a jurisdictional fact’: Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 [2003] HCA 30; 198 ALR 59 at [54], [59] (McHugh and Gummow JJ). In the context of jurisdictional fact review, a court is entitled to determine the facts for itself and receive evidence even if that evidence was not before the original decision-maker, and the court can give such weight to the original decision as to the existence of the jurisdictional fact the court sees fit: EHF17 v Minister for Immigration and Border Protection [2019] FCA 1681; 272 FCR 409 at [64] (Derrington J) and the authorities there cited.

188    In Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; 233 FCR 315 (at [202]) the Court observed that ‘one of the functions of s 44 is to ensure that the tribunal stays within its jurisdiction. An appeal that raises jurisdictional error is an appeal on a question of law under s 44.’. Given that in circumstances of judicial review for jurisdictional error the Court may determine for itself the existence or non-existence of a jurisdictional fact, it may be that the Court is not deprived of authority to determine the existence or non-existence of a jurisdictional fact, as an appeal on a question of law, for the purposes of s 44 of the AAT Act: see, e.g., Rana v Repatriation Commission [2011] FCAFC 124; 126 ALD 1 at [20].

189    In this appeal the Court was not invited to determine for itself on the facts as found or on the evidence if ‘it was reasonable to conclude’ that there was either the s 165-5(1)(c) ‘dominant purpose’ or ‘principal effect’. Therefore, the question of whether it has authority to do so in an appeal under s 44 from a decision of the tribunal under Pt IVC of the Taxation Administration Act does not directly arise for determination. However, I do not the regard the Full Court’s observation in Complete Success Solutions (at [66]-[67]), citing Commissioner of Taxation v Zoffanies [2003] FCAFC 236; 132 FCR 523 (at [66], [92]-[94]), to the effect that the statutory task under s 165-5(1)(c) and s 165-15 ‘requires the drawing of conclusions of fact and an ultimate conclusion about dominant purpose and principal effect, also being a conclusion of fact’ as inconsistent with characterisation of the ultimate conclusion of fact as a ‘jurisdictional fact’.

190    In any event, whatever were the nature of the matters described in s 177D(b) of the 1936 Income Tax Assessment Act, the matters described in s 165-15 are not all necessarily pure questions of fact. The purpose or object of the GST Act or any relevant provision of that Act and the effect that the GST Act would have in relation to the scheme apart from Div 165 are both matters that invoke questions of law: s 165-15(1)(c), s 165(1)(f). Section 165-15(1)(b) requires consideration of the form and substance of the scheme including the legal rights and obligations involved in the scheme. Depending on the circumstances, the manner in which the scheme was entered into or carried out, changes in financial positions, consequences for the avoider or any connected entity, the nature of the connection between the avoider and any connected entity, the circumstances surrounding the scheme and other relevant circumstances could also involve consideration of legal rights and obligations. Therefore, the jurisdictional fact described in s 165-5(1)(c) is a complex of elements rendering the description of the ultimate conclusion the section calls for a conclusion of ‘fact’ something of a misnomer.

191    For the foregoing reasons, I prefer not to express a definitive view on the extent to which the statement of the Full Court in Complete Success Solutions at [66] should be qualified in the manner the Commissioner submits. However, in whatever manner the statutory question posed in s 165-5(1)(c) is characterised, the meaning of the provision is a question of law and I do not consider that the expressions ‘it is reasonable to conclude’ or ‘dominant purpose’ or ‘principal effect’ are used according to their common understanding such that the ‘special considerations’ referred to in Vetter v Lake Macquarie City Council [2001] HCA 12; 202 CLR 439 apply. That is, I do not accept that both the meaning of these expressions and the application of them are questions of fact: Vetter at [24]-[27] (Gleeson CJ, Gummow and Callinan JJ) and the authorities there cited.

192    As explained shortly, the ordinary meaning of ‘dominant purpose’ and ‘principal effect’ is affected by the statutory context and object and purpose of the GST Act and Div 165. Although ‘dominant’ and ‘principal’ are used according to the ordinary meaning of those words, they are not separate or individual ‘facts’ as components of the statutory inquiry. The words operate to qualify ‘purpose’ and ‘effect’ each of which are not used according to the ordinary meaning of the words but have particular meanings of statutory significance for the statutory questions posed in s 165-5(1)(c).

DIVISION 165 ANALYSIS

Context, purpose or object

193    While the analysis of the meaning of a provision in a statute or legislation starts and ends with the text, the text must be considered in context and having regard to the legislative purpose: Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 250 CLR 503 at [39] (French CJ, Hayne, Crennan, Bell and Gageler JJ). Where different interpretations are open, the interpretation that would best achieve the purpose or object of the Act is to be preferred to each other interpretation: s 15AA of the Acts Interpretation Act 1901 (Cth). To that end, material not forming part of the Act that is capable of assisting in the ascertainment of the meaning of the provision to be considered may be taken into account, either to confirm the ordinary meaning or determine the meaning in cases where meaning is ambiguous, obscure, absurd or unreasonable: s 15AB. Nonetheless, the ‘modern approach’ to statutory interpretation insists that context, including purpose or object, be considered in the first instance: CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; 187 CLR 384 at 408 (Brennan CJ, Dawson, Toohey and Gummow JJ).

GST Act

194    The general provisions and operation of the GST Act provide context to the application and operation of Div 165. The relevant provisions and operation are summarised earlier in these reasons and are set out and explained more extensively in the reasons of Goodman J. Nonetheless, it is useful to make three further observations about the general provisions that provide additional context in which to construe the provisions of Div 165.

195    First, a person registered or required to be registered must give the Commissioner a GST return for each tax period: s 31-5. The GST return is required to be given in the approved form identifying the entity’s net amount (amount of GST liabilities less amount of input tax credits) and must be given at a particular time after the end of each period: s 31-8, 31-10, 31-15 and s 17-5 of the GST Act. Lodgement of a GST return results in an assessment of the net amount for a tax period: s 155-5 and s 155-15 of Sch 1 of the Taxation Administration Act. The liability of an entity to pay the net amount falls due and payable on specific prescribed dates dependent upon which quarterly tax period applies: s 33-3 and s 33-5 of the GST Act. Conversely, the entitlement to receive a refund for the net amount arises following the lodgement of the GST return: s 35-5 and s 35-10 of the GST Act. In general, an input tax credit cannot be claimed in a GST return for a tax period unless the taxpayer holds a tax invoice for the creditable acquisition at the time the GST return is given to the Commissioner: s 29-10.

196    Second, in point of detail, a supplier neither ‘charges’ nor ‘collects’ GST on a taxable supply and an acquirer does not pay GST on a creditable acquisition. As supplier, a taxpayer receives consideration for a taxable supply and, as acquirer, a taxpayer pays consideration for a creditable acquisition. A liability to pay GST or an entitlement to receive an input tax credit depends upon the individual circumstances of the relevant taxpayer. However, insofar as an entitlement to receive an input tax credit is concerned, there is interdependence between the circumstances of the supplier and the circumstances of the acquirer. To be entitled to receive an input tax credit the supply must meet the requirements of a taxable supply and, therefore, be a supply by which the supplier is liable to pay GST. Further, to attribute an input tax credit to a tax period the acquirer must have received a tax invoice from the supplier.

197    In the context of the issues raised in this appeal, these observations have particular significance because there is a direct relationship between the creation of a taxable supply and incurring a GST liability on the one hand and creation of a taxable supply and entitlement to input tax credit on the other. In general, a taxpayer cannot ‘claim’ an input tax credit without receiving a tax invoice from the supplier. Therefore, a ‘claim’ for an input tax credit is not merely based on an assumption that there was a taxable supply it is founded, in effect, on a ‘representation’ by an entity registered for GST that it was a taxable supply and, in effect, a liability to pay GST was incurred by the supplier. Thus, there is a direct legal nexus between the existence of a GST liability and an entitlement to set-off input tax credits in the calculation of the net amount.

198    Third, another relevant feature of the general provisions of the GST Act is that a taxable supply is made in the course or furtherance of an enterprise the supplier carries on. Relevantly, an ‘enterprise’ is defined to mean an activity, or series of activities done in the form of a business or adventure or concern in the nature of trade: s 9-20 of the GST Act. In general, a business or adventure or concern in the nature of trade is carried on with a view to profit or gain: see, e.g., Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123; 94 ATR 445 at [39] (Edmonds J); Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18; 163 CLR 199 at 209-210 (Mason ACJ, Wilson, Brennan, Deane and Dawson JJ). For example, in the case of an individual, an ‘enterprise’ does not include an activity or series of activities done without a reasonable expectation of profit or gain: s 9-20(2)(c). Put another way, relevantly and in general, the purpose or object of the GST Act is not to make GST payable on supplies made in the course or furtherance of a hobby or a non-genuine business, adventure or concern in the nature of trade. That is not to say that a supply of a thing that is unlawful cannot be a taxable supply for the purposes of the GST Act: s 9-10(3). Unlawful supplies may well be made in the course or furtherance of an ‘enterprise’ involving a genuine, albeit illegal, business or trade. However, activities that are loss-making and are structured in such a manner that there is no reasonable expectation that the activities will ever produce profits or gains may not meet the description of an ‘enterprise’ for the purposes of the GST Act.

Anti-avoidance provisions

199    Division 165 is, of course, as much a part of the GST Act, under which assessments of liability to pay a net amount or entitlement to refund of a net amount arises, as any other provision of that Act and is to be construed according to it terms: Federal Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34; 186 CLR 404 at 414.

200    The purpose or object of Div 165 is to deter schemes that are intended to give or have the effect of giving an entity (avoider) GST benefits by taking advantage of the GST Act in circumstances other than in those consistent with the purpose or object of the GST Act. The provisions of Div 165 are in similar terms to other general anti-avoidance provisions in taxation legislation. Insofar as the GST Act is concerned, Div 165 is a key component in maintaining the integrity of the GST base: Explanatory Memorandum, para 6.307. Genuine supplies and acquisitions are not the target of Div 165: Explanatory Memorandum, para 6.316.

201    The headings to the Chapters, Parts, Divisions and Subdivisions and explanatory sections of the GST Act all form part of that Act: s 182-1 of the GST Act. An explanatory section may be considered, amongst other things, in the interpretation of an operative provision to determine the purpose or object underlying that provision: s 182-10(2).

202    The heading to Div 165 is ‘Anti-avoidance’. Section 165-1 (the explanatory section for Div 165) provides, relevantly, that the object of the Division is to deter schemes to give entities benefits by increasing refunds and that the Division is ‘aimed at artificial or contrived schemes’. Broadly, the object of Div 165 is to deter artificial or contrived schemes that result in a reduction of the GST tax base.

203    Due to certain observations that the Second Tribunal made regarding the operation of Div 165 and its approach to the purpose and object of the GST Act in its consideration of the matter described in s 165-15(1)(c) it is useful to emphasise that Div 165 operates according to its terms and it matters not that an avoider is unaware of the scheme or part of the scheme in which the avoider is a participant. It also does not matter that where the GST benefit involves input tax credits another entity has incurred a corresponding GST liability or vice versa. In any circumstance in which there is a GST benefit there will be ‘another side to the coin’.

204    Under the heading ‘Collection failures’ the Second Tribunal observed that the Commissioner was seeking to uphold assessments disallowing input tax credits of nearly $73 million in circumstances in which the Division 165 Supplying Entities, and not the taxpayer, had (dishonestly) profited, the taxpayer was unrelated to those entities. The Commissioner had not alleged that the taxpayer participated in the dishonesty. The taxpayer’s profits on the relevant transactions were less than $12 million. Disallowing the input tax credits would not reverse the ‘huge financial gain’ of the Division 165 Supplying Entities but would drastically effect the taxpayer which did not enjoy the benefit of the dishonest profits. Further, the Commissioner would not be seeking to disallow the input tax credits if the unpaid GST had been recovered from the Division 165 Supplying Entities: T [212]-[213]. The Tribunal then said:

213.    … There is nothing in the text of Division 165, or extraneous materials, or in the jurisprudence relating to Division 165 or Part IVA of the 1936 Assessment Act upon which it was plainly modelled, to indicate Division 165 was intended to be invoked, where it would not otherwise be applied, as an alternative to recovery of liabilities owed by other entities.

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

205    The apparent concern expressed about the ‘extraordinarily severe consequences’ visited upon an innocent participant in a (dishonest) scheme is not a reason for considering that Div 165 was not intended to operate in those circumstances. Division 165 operates based upon the objective dominant purpose of an entity that entered into or carried out the scheme. As already mentioned, the requirements of s 165-5(1) are preconditions to the exercise of the Commissioner’s power to negate a GST benefit under s 165-40. If the preconditions exist the Commissioner may, but need not, exercise the power. If the Commissioner negates a GST benefit, the Commissioner also has power to negate or reduce any GST disadvantage that an entity obtained from a scheme: s 165-45. A GST disadvantage includes GST liabilities that were larger than they would have been apart from the scheme. Therefore, where an entity obtains a GST benefit that is negated, it is contemplated and within the power of the Commissioner to also negate the corresponding GST liability of the supplier. Put another way, there is a mechanism by which the Commissioner is able to avoid the Commonwealth receiving GST from one entity with respect to a taxable supply and negating the corresponding input tax credit of another entity in circumstances in which that outcome would not be consistent with the purpose or object of the GST Act. Thus, an inability to recover corresponding GST liabilities is not a reason for considering that Div 165 is not intended to apply in such circumstances. Moreover, if and to the extent that the avoider is truly innocent (and is able to demonstrate that to be the case) the Commissioner may, in the exercise of his discretion, choose not to exercise the power under s 165-40.

Dominant purpose

206    A purpose is a consequence intended by a person to result from some action. A person will often intend that a single action have multiple consequences. Thus, it is the relationship between multiple intended consequences that the word ‘dominant’ in s 165-5(1)(c)(i) is directed: Mills at [63] (Gageler J). ‘In its ordinary meaning, dominant indicates that purpose [intended consequence] which was the ruling, prevailing, or most influential purpose.’: Spotless Services at 416. The relevant purpose is that of an entity (whether alone or with others) that ‘entered into or carried out the scheme, or part of the scheme’. It is not necessary that the entity in question gets a GST benefit from the scheme to meet the requirement in s 165-5(1)(c)(i).

207    Where there are multiple intended consequences arising from a scheme or part of a scheme, s 165-5(1) presents the question of whether, taking into account the matters described in s 165-15, posited as objective facts, it is reasonable to conclude (or a reasonable person would conclude) that an entity that entered into or carried out the scheme or part of the scheme did so for the dominant purpose of that entity or another entity getting a GST benefit: Spotless Services at 424 (Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ). The twelve matters described in s 165-15 may be taken into account in forming ‘a global assessment of purpose’ or effect: Commissioner of Taxation v Consolidated Press Holdings Ltd [2001] HCA 32; 207 CLR 235 at [94].

208    Purposes are the purposes of a person, whether that person be a natural person, an artificial person (such a corporation) or some form of construct (such as a reasonable person). The purpose is ‘subjective’ in the sense that it belongs to the subject whether that purpose be the actual purpose of a person or, like s 165-5(1)(c)(i), a constructive objective purpose in the sense of an object that an act or circumstance is ‘apt to achieve’. In the context of a statutory inquiry about fiscal consequences of action, it is necessary to distinguish between purpose, motive and means. A person’s purpose is usually the ultimate end, object or goal that the person seeks to achieve. A person’s motive is the reason that the person seeks to achieve that purpose or end. A person’s means is the way in which the purpose is to be achieved. A person’s means to achieving their ultimate object could also be characterised as a purpose, but it is only an intermediate or proximate end. It may also be possible to characterise a person’s motive for certain action, such as to make a profit or gain or increase wealth, as a purpose, but that purpose or motive may be too remote from the fiscal consequences of the action to be relevant for the statutory inquiry. Therefore, for the purposes of a statutory inquiry, it is necessary to characterise the purpose or end of some action at the proper level of generality, as distinct from any motive for that purpose or the intended means of achieving that purpose: Automotive Invest Pty Ltd v Federal of Commissioner of Taxation [2024] HCA 36; 98 ALJR 1245 at [110]-[117] (Edelman, Steward and Gleeson JJ).

209    The appropriate description or characterisation of the end sought to be accomplished (purpose), as distinct from the reason for seeking that end (motive), may depend on the legislative or other context in which the task is undertaken. Thus, ‘in describing, for the application of a law relating to tax avoidance, the purpose of an individual, or of an arrangement, it will be necessary to look at what is sought to be achieved that is of fiscal consequence, not at a more remote, but fiscally irrelevant, object, such as increasing a taxpayer's disposable income’: News Ltd v South Sydney District Rugby League Football Club Ltd [2003] HCA 45; 215 CLR 563 at [18] (Gleeson CJ), cited with evident approval in Federal Commissioner of Taxation v Sharpcan Pty Ltd [2019] HCA 36; 269 CLR 370 at [49] and Automotive Invest at [112]. Likewise, in the application of a tax avoidance provision like s 165-5(1)(c), the statutory inquiry into purpose is not concerned with subjective actual motive or subjective actual purpose and is to be undertaken objectively taking into account the matters described in s 165-15: Consolidated Press Holdings at [89]; Federal Commissioner of Taxation v Hart [2004] HCA 26; 217 CLR 216 at [65].

210    The necessity to address the question of purpose or effect at the correct level of generality and by reference to the fiscal consequence sought to be achieved is also of relevance to consideration of the ruling, prevailing or most influential purpose. An entity may enter into or carry out a scheme or part of a scheme with the dominant purpose of getting an avoider a GST benefit where that dominant purpose is also consistent with a more remote and fiscally irrelevant pursuit of commercial gain in the course of or furtherance of an enterprise: Spotless Services at 415; Consolidated Press Holdings at [96].

Principal effect

211    An effect is also a consequence or result produced by some agency or cause, but it differs from a purpose in that it need not have been an intended consequence or even a consequence that was foreseen. As with purpose, a single action can also have multiple consequences whether or not intended by any person. In the case of effect, it is the relationship between multiple consequences or results of action to which the word ‘principal’ is directed. While ‘dominant purpose’ is focussed on the entity that entered into or carried out the scheme, the focus of ‘principal effect’ is on the fiscal consequences for the avoider, which may be, but is not necessarily, the entity that entered into or carried out the scheme. In its ordinary meaning ‘principal’ indicates first or highest in rank or importance. The ordinary meaning of that expression is consistent with the description ‘a principal effect is an important effect, as opposed to merely an incidental effect’ in the Explanatory Memorandum, para 6.345. As with purpose, a principal effect of getting an avoider a GST benefit may also be consistent with a more remote effect of commercial gain of the entity that entered into or carried out the scheme or part of the scheme or with the effect of commercial gain for the avoider. Therefore, as with purpose, the focus of the statutory inquiry under s 165-5(1)(c)(ii) centres on the fiscal consequences arising from the scheme or part of the scheme and not remote and fiscally irrelevant effects or preliminary and fiscally irrelevant effects.

212    It is also important to appreciate the differences in the manner in which the ‘dominant purpose’ and ‘principal effect’ tests are expressed. In the case of dominant purpose, it is a necessary precondition that the avoider gets or got a GST benefit from a scheme and it must be reasonable to be concluded that it was the dominant intended consequence that an entity gets or got a GST benefit from the scheme: s 165-5(1)(a), s 165-5(1)(c)(i). In the case of principal effect, it is a necessary precondition that the avoider gets or got a GST benefit from a scheme and it must be reasonable to conclude that it was the principal actual consequence that the avoider gets the GST benefit from the scheme. That is, the principal effect test is concerned with actual consequences of activities not with the intended consequences of the activities. The focus is quite different. Dominant purpose focusses on objective intended outcomes whereas principal effect focusses on objective actual outcomes irrespective of objective intent.

Full Court ACN, Complete Success Solutions and Mills

213    In the course of the reasoning in the appeal from the First Tribunal decision in Full Court ACN, amongst other things, the Full Court (Perram, Moshinsky and Thawley JJ) was called upon to consider an argument that the taxpayer advanced in that appeal that was similar to the argument which the Second Tribunal ultimately accepted on remitter. The taxpayer argued in Full Court ACN that the scheme was explicable only by the desire of the rogues to pocket the cash from the GST and the First Tribunal had erroneously put that benefit out of its mind. Further, that the Tribunal had asked itself the wrong question; namely, what made the scheme work, rather than what the scheme was working to achieve. Apart from certain grounds dealt with earlier in their reasons by which they concluded the First Tribunal had failed to accord the taxpayer procedural fairness, the Full Court considered that the taxpayer had not established that the First Tribunal had adopted the wrong approach or made an error of law in its consideration of dominant purpose and principal effect for the purposes of s 165-5. In this respect the Full Court said:

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

225    Further, ACN 154’s submission has echoes of the position rejected by the High Court in Spotless. In that case, as Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ noted at 414, the majority of the Full Federal Court held that Pt IVA of the Income Tax Assessment Act 1936 (Cth) (on which Div 165 of the GST Act is modelled, albeit there are some differences) did not apply to the scheme. The majority in the Full Federal Court decided that the “dominant purpose” of the taxpayers was to obtain the maximum return on the money invested after the payment of all applicable costs, including tax, and not to obtain a “tax benefit”. After setting out passages from the judgment of Cooper J (who formed part of the majority in the Full Federal Court), including a passage referring to a “rational commercial decision”, the plurality in the High Court stated (at 415):

The references in this passage on the one hand to a “rational commercial decision” and on the other to the obtaining of a tax benefit as “the dominant purpose of the taxpayers in making the investment” suggest the acceptance of a false dichotomy. … A person may enter into or carry out a scheme, within the meaning of Pt IVA, for the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit where that dominant purpose is consistent with the pursuit of commercial gain in the course of carrying on a business.

226    While the facts are very different, this passage nevertheless tends to indicate the flaw in ACN 154’s submission. The fact that the Division 165 Supplying Entities were pursuing their own (dishonest) gain is not necessarily inconsistent with a conclusion that it would be reasonable to conclude that an entity that entered into or carried out the scheme did so with the dominant purpose of ACN 154 obtaining the input tax credits.

(Emphasis added.)

214    The Full Court’s reference to (dishonest) gain as not necessarily inconsistent with a dominant purpose of the taxpayer obtaining input tax credits, in the context of the reasoning of the High Court in Spotless Services, alludes to the proposition that a (dishonest) non-fiscal purpose of gain or profit and the fiscal purpose of getting the taxpayer input tax credits are not incompatible, competing or contesting purposes. It is logically flawed to treat them as so; that would be a false dichotomy. An entity can have a purpose of (dishonest) gain and have a dominant purpose of getting an avoider a GST benefit from the scheme. An entity can have a purpose of (dishonest gain) and have some other dominant non-fiscal purpose sought to be achieved from the scheme. For example, obtaining GST-informed consideration in exchange for a thing (here, scrap gold) may be the dominant non-fiscal purpose of a transaction as would normally be the case for a genuine sale and purchase of a thing to which the GST Act applies. These observations are another way of saying that the statutory question posed in s 165-5(1)(c)(i) is focussed on the purpose of utilising the scheme or part of the scheme as the means chosen to achieve a fiscally irrelevant and remote end such as profit, gain or increasing wealth.

215    Ludekens to which the Full Court refers illustrates that there can be a dominant non-fiscal purpose of a scheme that is inextricably linked to a fiscal (tax benefit) purpose such that the purposes are a single composite dominant purpose. Thus, the purpose of obtaining GST-informed consideration (a non-fiscal purpose of the scheme) may be inextricably linked to the purpose of getting the taxpayer input tax credits (a fiscal purpose of the scheme). Each purpose (whether or not inextricably linked) is a means of achieving the more remote non-fiscal commercial objective of gain or profit. Therefore, identification of a remote non-fiscal objective will not supply the answer to the purpose of the scheme as the means of achieving that ultimate end.

216    Ludekens was concerned with general anti-avoidance provisions of taxation legislation relating to promotion of tax exploitation schemes. The applicable provision provided that a scheme was a tax exploitation scheme if it were reasonable to conclude that an entity that entered into or carried out the scheme did so with the sole or dominant purpose of that entity or another entity getting a benefit from the scheme and it was not reasonably arguable that the scheme benefit was available at law. A scheme benefit was described as arising where a tax related liability was or could reasonably be expected to be less than it would be or its tax-related credit was or could reasonably be expected to be more than it would be apart from the scheme.

217    Dr Ludekens was a director of Lotus Capital Group Pty Ltd which held an Australian Financial Services Licence. Mr Van de Steeg and Mr Ezzy carried on a foreign exchange trading business through Meloka Pty Ltd. As part of a plan to obtain finance for Meloka’s business, Mr Van de Steeg and Mr Ezzy acquired, with Dr Ludekens and others, 3,250 fully-financed woodlots in the 2006 Gunns Woodlot project to the value of $22,165,000. To fund the acquisition a loan of $22,203,813.75 was necessary. As part of that plan, the acquirers agreed to forward all commissions, GST and tax refunds from the sale of Gunn trees to Meloka. These amounts were intended to partly fund and repay the loan to acquire the woodlots. The remaining acquisition cost and loan and interest were to be funded by on-selling woodlots to (secondary) investors. The secondary investors would fund the purchase price from a loan and obtain tax refunds on the acquisition of the woodlots. The tax refund would be used to repay the loan and interest. Regarding the dominant purpose of the plan (or scheme) the Court said:

243    In assessing the purpose and evaluating its importance, and whether it is dominant, one must appreciate that it is the scheme in question to which the enquiry is directed, not a general state of affairs other than the scheme. Persons engaged in trade and commerce do so for personal gain. The purpose of all commercial arrangements is, in a broad sense, the making of profit: cf, by way of example, Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 at [52] and the authorities cited and Federal Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235 at [96]. Here the respondents undoubtedly wished to make profits from the purchase of woodlots and from running a foreign exchange business. They chose the Plan to effect that. Integral to the Plan was that the entities acquiring woodlots on 30 June 2007 (see [69] above) would obtain scheme benefits from the GST refunds from the purchase of the woodlots and that the Secondary Investors would obtain scheme benefits from tax deductions and tax refunds from their participation. Those are not two purposes: they comprise one purpose — that scheme benefit in terms of lowered tax-related liabilities and increased amounts that the Commissioner must pay or credit (s 284-50(1)(a) and (b)) would flow to them and others. Those two streams of funding, together with the commission from Gunns, were to be used to prop up the foreign exchange business: see [41], [44]-[45] and [58] above.

244    The Plan required all three streams of funds — the Gunns commission, the GST refunds and the Secondary Investors’ tax refunds. The commission could have been obtained without the need for the scheme. However, the scheme was quite elaborate in nature. The getting of the GST refunds and tax refunds — in addition to the commission — was vital in order to reduce the level of indebtedness to Gunns and enable the respondents to retain a significant investment in the 2006 Gunns Woodlot Project thereby, it was hoped, to secure commercial gains from participation in the Project and from support of the foreign exchange business. The Plan was centrally driven by the level of the scheme benefits obtained, paid and on-lent to Meloka. The dominant purpose was to get the scheme benefits, and each of them. The additional purposes of profit making and the getting of commission do not affect that conclusion. Those are not competing purposes. There is but one purpose properly answering the description of s 290-65(1)(a)(i). The respondents entered into and carried out the Plan with the dominant purpose of getting the scheme benefits (and each of them) for them and others from the Plan.

245    Two examples perhaps illuminate the matter. First, if a promoter wanted to fund his or her private business by getting 99 streams of funds from 99 people by way of receipt of a percentage of the scheme benefits from the scheme inuring to each, as well as by raising subscribed capital or loan funds, would it be logical or conformable with the policy of the statute to say that the purpose of receipt of the tax benefits was not dominant because the capital or loan funds were a material and not de minimis source of funds for the business? No: because the dominant purpose is to obtain the scheme benefits to add to the other source of funds in order to make money from the business.

246    Secondly, if one takes a financial scheme and posits that a promoter marketed to members of the public a “wealth maximising scheme” of the kind in Hart, he or she would do so, no doubt, to make profit, perhaps from commissions paid by the financial institutions for the introductions of borrowers and also from sums of money from the introduced borrowers being commensurate with a proportion of their tax benefits. The profit of the promoter comes from the scheme overall. The purpose was to make money in one sense; but the dominant purpose in entering the scheme was to obtain for the prospective borrowers scheme benefits by way of a taxation advantage.

(Emphasis added.)

218    After Full Court ACN, in Complete Success Solutions, a differently constituted Full Court (Moshinsky, Thawley and Hespe JJ) heard an appeal from the tribunal in a proceeding in which the Commissioner had negated refunds under Div 165 another refiner of precious metals had derived from a gold-refining scheme that had substantially the same features as the scheme in this case. One of the questions of law the Commissioner raised in that appeal was whether there is a necessary dichotomy between the purpose and (or) effect of an entity getting a GST benefit from the scheme, and the purpose and (or) effect of another entity avoiding the payment of GST as part of the scheme. As to that question, consistently with Full Court ACN, the Full Court said:

85    It would be an error to assume that, because Manila Exchange wanted to obtain (and not remit) the GST embedded in its supplies of scrap gold, it was not possible that its purpose, ascertained in accordance with Div 165, was to ensure that CSS could obtain input tax credits on a GST‐free sale. As the Full Court (Perram, Moshinsky and Thawley JJ) stated in ACN FC at 514 [226], the purpose of obtaining (and not remitting) GST “is not necessarily inconsistent with” a conclusion that the dominant purpose was obtaining the relevant input tax credits. Indeed, it would be open to conclude that the purpose of obtaining (and not remitting) GST and the purpose of obtaining input tax credits for CSS were one purpose if the facts showed them to be inextricably linked: ACN FC at 513 [224]. Such a conclusion might be open, for example, if it were concluded that it was important to Manila Exchange that the scheme end with a GST-free supply by an entity which would be refunded input tax credits, so that the scheme as a whole would work by being sufficiently funded. It is not clear that the Tribunal reached its factual conclusion about Manila Exchange’s dominant purpose by excluding the possibilities just mentioned.

(Emphasis added.)

219    In Mills s 177EA of the 1936 Income Tax Assessment Act was under consideration. Section 177EA(3) provided that the section applied if, amongst other things:

(a)    there is a scheme for a disposition of membership interests, or an interest in membership interests, in a corporate tax entity; and

…

(e)    having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the relevant taxpayer to obtain an imputation benefit.

220    In that case, a bank raised Tier 1 capital by issuing stapled securities comprising a preference share issued from Australia and an unsecured subordinated note issued from New Zealand referred to as PERLS V securities. The securities provided for distributions that would be fully franked. Due to the structure of the securities the capital raised generated income that was not taxable in Australia but the distributions were deductible in New Zealand. Taxpayers who held PERLS V securities received imputation benefits from the fully franked distributions. There was no contest that the dominant purpose of the bank was to raise Tier 1 capital: Mills at [50]. Thus, the relevant question was whether the scheme was entered into and carried out for a purpose of enabling the relevant taxpayers to obtain imputation benefits which was more than an incidental purpose. Two other features of the PERLS V scheme were important. First, in whatever form of Tier 1 capital was issued, it would necessarily be treated as capital and not as debt. As a consequence, for tax purposes it was, in substance, whatever its form, equity and all distributions would be either dividends or non-share dividends. Second, flowing from certain rules in the 1997 Income Tax Assessment Act, any distribution on the securities the bank issued was effectively required to be franked at the same rate as other distributions of the bank. As the bank had fully franked other dividends that meant that the PERLS V securities were effectively required to be fully franked.

221    A majority of a Full Court of the Federal Court had concluded that enabling the taxpayers to obtain imputation benefits was a purpose of the bank and that was not an incidental purpose. In the High Court the relevant taxpayer contended that the Full Court was in error by adopting an incorrect understanding of ‘incidental purpose’. He argued that a purpose answers that description if it is in furtherance of, or consequential upon, another purpose. The bank had the over-riding purpose of raising Tier 1 capital and the pursuit of that purpose inevitably required that the bank issue equity interests on which it would pay frankable distributions. The bank had a purpose of franking distributions on the particular equity interest it chose to issue (including the PERLS V securities) but that purpose was in furtherance of, or consequential upon, pursuit of its over-riding purpose of raising Tier 1 capital: Mills at [55]. Justice Gageler (French CJ, Hayne, Kiefel and Bell JJ agreeing) concluded that the jurisdictional fact in s 177EA(3)(e) did not exist. His Honour said it would be concluded from the perspective of a reasonable person that the bank entered into and carried out the arrangements for the issues of PERLS V securities for a purpose of enabling taxpayers who became holders of PERLS V securities to obtain franking credits. But, it would also be concluded that the purpose was incidental to the bank’s purpose of raising Tier 1 capital: Mills at [77].

222    A central component of the reasoning in Mills concerned the meaning of s 177EA(3)(e) and what was meant by an ‘incidental purpose’ in that provision. Justice Gageler gave the text of that provision a purposive construction taking into account that Pt IVA of the 1936 Income Tax Assessment Act was to be read in the context of that Act and the 1997 Income Tax Assessment Act as a whole. Further, an available construction that advanced the objects of the Part was to be preferred to one that does not. His Honour said that a ‘purposive construction of the text of s 177EA(3)(e) is particularly important given the place of s 177EA(3)(e) within the structure of s 177EA(3)’. His Honour observed that the requirements of ss 177EA(3)(a)-(d) would be present in circumstances that reflected ‘no more than the normal operation of Pt 3-6 of the ITAA 1997’. Consequently, if s 177EA was to be targeted to its purpose of ‘preventing abuse of that system, then it was through the operation of s 177EA(3)(e)’: Mills at [58]-[61]. Having identified the context, purpose and object of the provision, Gageler J then turned to the relevant questions of construction and said:

62    The questions of the construction of s 177EA(3)(e), pivotal to the application of s 177EA, are twofold: what amounts to “a purpose … of enabling”; and when is such a purpose “an incidental purpose”?

63    The reference to “purpose” in each of those phrases is to that of a person who may, but need not, be the issuer. A purpose is a consequence intended by a person to result from some action. Here it is a consequence intended by the person in entering into or carrying out a scheme for the disposition of relevant interests. A person will often intend that a single action have multiple consequences. It is to the relationship between multiple intended consequences that the parenthesised words of s 177EA(3)(e) are directed.

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

65    ...

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

67    On that construction of s 177EA(3)(e), there is in the case of a capital raising where the issuer intends to frank distributions on the equity interests disposed of a “purpose … of enabling” the holders of those equity interests to obtain franking credits. Any such capital raising is therefore potentially within the scope of s 177EA(3)(e). If, however, the intended franking of distributions serves no purpose other than to facilitate the capital raising then the purpose is an incidental purpose: s 177EA(3)(e) is not engaged and s 177EA does not apply. That is to be contrasted with franking credit trading and franking credit streaming where it is the issue of equity interests that is incidental to the provision of the franking credits. No doubt, there are other scenarios within the “catch-all” operation of s 177EA where the circumstances are more nuanced. The present case does not involve one of them.

(Emphasis added.)

223    These observations of Gageler J were made in explication of the meaning of ‘incidental purpose’ in a particular statutory provision that had a particular statutory purpose. And, importantly, within a statutory framework in which any capital raising where the issuer intended to frank distributions on equity interests would have potentially been within the scope of s 177EA(3)(e). The provision also operated with respect to a particular kind of scheme ‘for disposition of membership interests, or an interest in membership interests, in a corporate tax entity’. In that context, the meaning of ‘incidental purpose’ served an important and central function in distinguishing between ordinary capital raising involving franking distributions which were intended to give rise to imputation credits and schemes where the raising of capital is, in effect, incidental to imputation benefits such as franking credit trading and streaming. The focus of the statutory inquiry was on the non-fiscal purpose of raising capital through the means of the scheme and the fiscal purpose of enabling a taxpayer to obtain an imputation benefit. That was the sense in which the fiscal purpose facilitated the non-fiscal purpose. It was not a comparison between a fiscal purpose and a more remote non-fiscal purpose such as commercial gain for the bank.

224    Further, the purpose and features of s 177EA(3)(e) have no analogue in Div 165 of the GST Act. It would be an error to import and apply the concept and meaning of ‘incidental purpose’ in s 177EA(3)(e) of the 1936 Income Tax Assessment Act into s 165-5(1)(c) of the GST Act. It would also be an error to consider that the meaning given to ‘incidental purpose’ in Mills has a wider application than the specific statutory context in which that expression was used in s 177EA(3)(e). Likewise, it would be an error to treat s 165-5(1)(c) as if the statutory inquiry required consideration of whether a purpose of getting a GST benefit from a scheme was ‘not incidental’; the statutory inquiry requires consideration of ‘dominant purpose’ within the meaning of that expression in Div 165.

225    Although Mills is of little, if any, use in the construction of Div 165, it is illustrative of the manner in which consideration of alternative possibilities of fiscal relevance may be of assistance in the drawing of a conclusion that a purpose of enabling a taxpayer to obtain a tax benefit does or does not exist and the relative importance of that purpose. In Mills it was not in contest that the dominant purpose of the bank entering into and carrying out the scheme was to raise Tier 1 capital. Therefore, the relevant question was whether enabling taxpayers to obtain imputation credits was a non-dominant purpose that was not incidental. The bank needed to raise Tier 1 capital and all means available to raise Tier 1 capital (the alternative possibilities) would have involved the bank franking distributions to the same extent as the scheme in question with corresponding imputation benefits for the relevant taxpayer. In those circumstances, while it would be concluded from the perspective of a reasonable person that the bank entered into and carried out the arrangement for the issue of the relevant securities for the purpose of enabling taxpayers who became holders of the securities to obtain franking credits, it would also be concluded that purpose was incidental to the bank’s purpose of raising Tier 1 capital: Mills at [75]-[77].

226    By way of analogy with Div 165, if all alternative possibilities would result in an entity receiving the same or substantially the same ‘net amount’ refund it might be concluded that there is no GST benefit from the scheme or, if so, that it was an incidental and non-dominant purpose of the scheme. However, to reach such a conclusion would require evidence from which a conclusion could be made about the form or substance of any alternative possible activities and what GST benefits could reasonably be expected to flow from any such alternative possibilities. The facts of Mills and the facts of this case bear no resemblance. Therefore, not only is Mills of no real assistance in determining the meaning of ‘dominant purpose’ in s 165-5(1)(c), to the extent it could be of any assistance by way of analogy, it is distinguishable on the facts.

227    None of the foregoing should be taken to mean that, in any given case, it would be an error to reach the conclusion, taking into account the matters described in s 165-15, that it is not reasonable to conclude that an entity had a s 165-5(1)(c)(i) ‘dominant purpose’ because a purpose of the avoider getting a GST benefit from the scheme was ‘incidental’, within the ordinary meaning of that word, to some other non-fiscal purpose. That is, it may be reasonable to conclude that a purpose is not dominant because it is incidental.

The applicable statutory tests

228    It follows that the statutory inquiries under s 165-5(1)(c) required the Second Tribunal to consider if it was not reasonable conclude that:

(a)    getting the taxpayer a GST benefit was the dominant purpose of the Division 165 Supplying Entities or the taxpayer entering into or carrying out the particular scheme or part of the scheme (wide or narrow) the Commissioner articulated as the means by which the Division 165 Supplying Entities chose to make (dishonest) gain or profit; and

(b)    if getting the taxpayer the GST benefit was the principal effect of utilising the particular scheme or part of the scheme as the means of the Division 165 Supplying Entities making (dishonest) gain or profit.

CONSIDERATION

Was the facilitative purpose analysis an application of the wrong statutory test?

229    As already mentioned, questions 1 – 4 and grounds 1 – 3 and 5 of the supplementary notice of appeal, in substance, boil down to an assertion that the Second Tribunal applied the wrong statutory test because it applied a facilitative purpose analysis drawn from Mills in its consideration of dominant purpose.

Second Tribunal reasoning on dominant purpose

230    The Second Tribunal set out the relevant parts of Div 165 and principles applicable to consideration of dominant purpose: T [143]-[163]. The tribunal then considered each of the matters described in s 165-15: T [164]-[206]. After addressing the matters described in s 165-15 the tribunal then made a number of further observations regarding purpose: T [208]-[219].

231    It is evident from the manner in which the Second Tribunal addressed the s 165-15 matters and purpose that the Second Tribunal reached the conclusion that the dominant purpose of the Division 165 Supplying Entities was to obtain and dishonestly retain GST-informed consideration for the scrap gold the taxpayer acquired from them. The tribunal then addressed the question of single composite purpose or non-dominant incidental purpose facilitating a dominant purpose by asking itself if the purpose of creating a taxable supply formed part of the dominant (dishonest) purpose as a single composite purpose or whether creation of a taxable supply was a separate non-dominant purpose that facilitated the dominant (dishonest) purpose.

232    The Second Tribunal correctly identified the legal principle that Div 165 may operate even if the ultimate objective of the transaction is not a tax objective or the transaction producing the GST benefit also delivers a desired non-tax outcome and referred to Spotless Services and Hart (T [156]). However, in its application of that principle it drew a distinction between an honest non-tax outcome and a dishonest non-tax outcome and evidently considered the principle to be of diminished significance in circumstances in which the desired non-tax outcome is a dishonest end.

233    In the context of considering the manner in which the scheme was entered into or carried out, the Second Tribunal observed:

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

234    The Second Tribunal analysed the uncommercial and extraordinary step in the scheme involving the adulteration and deliberate devaluation of the bullion and observed that the transactions downstream of devaluation were not remarkable as a bargain struck between the Div 165 Supplying Entities and the taxpayer for scrap gold and the taxpayer only generated refining profit on those transactions: T [166]-[168]. The Second Tribunal then said:

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

235    In the context of considering the form and substance of the scheme the Second Tribunal said:

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

236    The Second Tribunal continued with the theme that a pursuit of a dishonest end was separate and distinct from pursuit of a GST benefit in its consideration of the purpose or object of the GST Act (T [178]-[179]), the timing of the scheme and period over which it was entered into or carried out (T [184]), the effect of the GST Act apart from the scheme (T [192]), change in the financial position of connected entities (T [199]) and circumstances surrounding the scheme and other relevant circumstances (T [205]-[206]). The tribunal then addressed single composite purpose and non-dominant incidental purposes facilitating a dominant purpose as follows:

208.    The passages from Ludekens and Complete Success Solutions extracted above indicate that a single purpose may appropriately be found in some circumstances. They did not go on and consider whether those purposes were facilitative of an ultimate purpose in the sense contemplated by Gageler J in Mills also noted above. The Mills analysis is apposite in the present circumstances for two reasons: first, creating taxable supplies that also produced GST-informed prices being paid and ITC entitlements to arise, was a necessary preliminary to an ulterior and ultimate goal as contemplated by His Honour’s analysis, and second because His Honour suggests that the text of the Explanatory Memorandum under discussion confirmed the ordinary meaning of language and natural reading of statutory text. Thus, the hierarchy of incidental and dominant purposes to which His Honour refers can and should have wider application. This analysis informs how facilitative steps in a wider design ought to be characterised. Viewed through this lens, any purpose of obtaining ITCs in the present circumstances, assuming there was one, was a purpose properly regarded as central to the design of a scheme directed to achieving an ulterior and ultimate purpose, and therefore any purpose of obtaining ITCs was incidental and not dominant.

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

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

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

Were Full Court ACN, Ludekens and Complete Success Solutions disregarded without explanation?

237    I agree for the reasons given by Goodman J and the reasons that follow that the Commissioner’s contentions that the Second Tribunal erred by disregarding Full Court ACN and Complete Success Solutions and failed to consider whether purposes were inextricably linked should not be accepted.

238    The Second Tribunal’s analysis of composite purpose versus incidental purpose starts with a recognition that Ludekens, cited with approval in Full Court ACN, and Complete Success Solutions stand for the proposition that ‘a single purpose may be appropriately found in some circumstances’ (T [208]). After citing Full Court ACN and Ludekens, it had earlier said that in appropriate circumstances the creation of a taxable supply, a GST liability and corresponding entitlement to input tax credit could be regarded as a single purpose, but that would not exclude a purpose of non-payment of the GST liability and retaining the whole consideration being the dominant purpose. It had also cited Complete Success Solutions and noted that the Full Court contemplates the possibility of obtaining and not remitting amounts referrable to GST liability and obtaining input tax credits as a single purpose, but the Full Court had not mandated that there was such a purpose (T [159]-[162]). None of that explanation of Full Court ACN, Ludekens or Complete Success Solutions is indicative of any misunderstanding of the correct legal principles. The tribunal’s observation that neither Ludekens nor Complete Success Solutions considered whether the purposes were facilitative of an ultimate purpose in the sense contemplated by Gageler J in the passages from Mills set out earlier in the reasons is also accurate (T [208], [163]). The tribunal then applied a facilitative purpose of an ultimate purpose analysis and reached the conclusion that any purpose of obtaining input tax credits was incidental and not dominant.

239    On a fair reading of the Second Tribunal’s reasons, it considered that the purpose of creating a taxable supply was a necessary preliminary to an ulterior and ultimate (dominant) goal of (dishonest) non-payment of notional GST liabilities. Consequently, the tribunal considered that the purpose of creating a taxable supply was incidental to the dishonest purpose and was not dominant. On that reasoning, it was not necessary for the tribunal to consider if the purpose of creating the taxable supply with resulting GST liability and input tax credit entitlements and obtaining GST-informed consideration were part of a single composite dominant purpose because the tribunal had found that the purpose of creation of the taxable supply was incidental and not dominant. The ‘different sides of the one coin’ question the tribunal had identified earlier in its reasons did not need to be answered because, on the tribunal’s facilitative purpose reasoning, the purpose of obtaining and not remitting GST and the purpose of obtaining input tax credits were not inextricably linked.

240    Therefore, I do not accept the Commissioner’s submission to the effect that the tribunal disregarded the relevant observations in Full Court ACN, Ludekens and Complete Success Solutions without proper or adequate explanation or failed to consider if the applicable purposes were inextricably linked. The real question is whether adopting and applying the Mills facilitative purpose analysis was an error of law that resulted in the tribunal disregarding the principles expressed in Full Court ACN, Ludekens and Complete Success Solutions and avoiding a fulsome consideration of the inextricably linked issue for erroneous reasons. In this regard, I respectfully take a different view to that of Goodman J.

Was a facilitative purpose analysis apposite and applicable?

241    In my view, the analysis in Mills is inapposite and inapplicable to the statutory inquiry required under s 165-5(1)(c). The Second Tribunal’s adoption and application of that analysis involved an error of law and misconstruction and misapplication of the statutory dominant purpose test. In its application of the analysis in Mills the tribunal also fell into error in failing to focus on the particular scheme (wide or narrow) as the means utilised by the Division 165 Supplying Entities to achieve the more remote and fiscally irrelevant (dishonest) end. Instead of asking the statutory question s 165-5(1)(c)(i) posed, the tribunal asked itself if the scheme was facilitative of a wider and fiscally irrelevant (dishonest) end. Further, in so doing the tribunal treated the statutory question as if the (dishonest) end and fiscal purpose were competing or contesting objectives when they are not inconsistent or mutually exclusive.

242    As already mentioned, the meaning given to ‘incidental purpose’ in Mills is confined to its particular statutory context, purpose and object. Contrary to the Second Tribunal’s reasons, the ‘hierarchy of incidental and dominant purposes’ to which reference is made in Mills does not have wider application than the construction of s 177EA of the 1936 Income Tax Assessment Act. The particular construction of s 177EA that was declared and applied in Mills was that ‘a purpose of a person, in entering into or carrying out the scheme for the disposition of equity interests, of enabling the holder to obtain a franking credit is “an incidental purpose” outside the scope of s 177EA(3)(e) if that purpose does no more than further some other purpose or follow from some other purpose’. That notion of ‘incidental purpose’ has no bearing on the statutory meaning of ‘dominant purpose’ in s 165-5(1)(c)(i) of the GST Act.

243    Further, contrary to the Second Tribunal’s reasons, that construction of s 177EA(3)(e) does not inform ‘how facilitative steps in a wider design ought to be characterised’ for the purposes of Div 165 of the GST Act. A scheme or part of a scheme will inevitably be facilitative of some wider objective of an entity that enters into or carries out the scheme. The statutory question posed in s 165-5(1)(c)(i) is not directed to the purpose of a wider design or whether the scheme or part of the scheme facilitates that design, it is directed to the dominant purpose of the scheme or part of the scheme even though that scheme may form part of a wider design.

244    The Second Tribunal identified the ‘ulterior and ultimate purpose’ as (dishonestly) not paying the GST liability: T [211]. That identification was founded, in part, on the conclusion that non-payment of GST [was] the central feature upon which the viability of the suppliers’ unlawful endeavour rested’: T [210]. That was little more than a conclusion that a purpose of the Div 165 Supplying Entities was (dishonest) gain or profit through supplies of scrap gold for GST informed consideration. Non-payment of the GST liability was said to ‘stand aside from the creation of the GST liability and the entitlement to corresponding [input tax credits]’: T [210]. The Tribunal said that the ‘analysis informs how facilitative steps in a wider design ought to have been characterised’ (emphasis added): T [208]. The Tribunal also said that even if the making of taxable supplies and obtaining of input tax credits were a single purpose ‘that single purpose was a step in a wider process’ (emphasis added): T [211].

245    While it was permissible for the Second Tribunal to consider the wider design or process in order to understand and explain the scheme and the 12 matters described in s 165-15, the statutory inquiry was confined to the dominant purpose of an entity that entered into or carried out the particular scheme or part of the scheme the Commissioner articulated. It will inevitably be possible to characterise part of an articulated scheme as a step that furthers, follows, or facilitates the scheme as a whole. It will also inevitably be possible to characterise a narrowly articulated scheme as steps that further, follow or facilitate a wider overall transaction. Characterising part of a scheme from which an entity gets a GST benefit as a necessarily preliminary to an ulterior or ultimate goal or facilitative step in a wider design is inconsistent with the construction of s 165-5(1)(c)(i) set out earlier in these reasons. It is also inconsistent with and undermines the object of Div 165.

246    The Second Tribunal’s reasoning has echoes of an argument the High Court rejected in Consolidated Press Holdings as to the artificiality of the Commissioner selecting part of the overall transaction as the scheme. In so doing, the Court said:

96    … The fact that the overall transaction was aimed at a profit making does not make it artificial and inappropriate to observe that part of the structure of the transaction is to be explained by reference to a s 177D purpose. Nor is there any inconsistency involved, as was submitted, in looking to the wider transaction in order to understand and explain the scheme, and the eight matters listed in s 177D.

247    The point may be illustrated by adapting the example of an athlete competing at the Olympics given in Automotive Invest by which the difference between ultimate purpose, means and motive were explained. There, a majority of the High Court said ‘an athlete might engage in a sporting activity for the purpose or end of competing at the Olympics. The motive for that end might be personal fulfillment, profit, or glory. And the means to achieve that end might be many hours of training’: Automotive Invest at [111]. But, accepting all those elements of that example will not answer the question of whether particular medication taken by the athlete during training (means) was taken for the dominant purpose of enhancing performance at the Olympics (ends). The relevant question for that inquiry would be: what was the dominant purpose of the athlete in taking the medication even though taking the medication formed part of the means (training) to a more remote end (competing at the Olympics)? That question cannot be answered by asking if taking the medication was the means of achieving (furthered, followed or facilitated) a wider and more remote end (competing at the Olympics). That question would be meaningless because it is self-evident that that means facilitated that end. In the case of s 165-5(1)(c)(i), the statutory question concerns the dominant purpose of the means (scheme or part of the scheme) utilised to achieve (facilitate) the end (gain or profit). Therefore, asking the question of whether the scheme or part of the scheme facilitates a wider design of gain or profit (whether honest or dishonest) is meaningless in the context of the statutory object of Div 165.

248    The Second Tribunal’s reasoning regarding s 165-15 and its further observations on purpose or effect are also indicative of error in that they suggest that the Second Tribunal was of the view in the first instance that, typically, the nature of the statutory inquiry under s 165-5(1)(c)(i) involves a comparison between a commercial end (honest gain or profit), on the one hand, and a tax benefit end (obtaining a GST benefit), on the other. For the reasons already given, the focus of the inquiry is on the fiscal purpose of the scheme not any comparison between that purpose and a more remote and fiscally irrelevant purpose like gain or profit. Thus, the tribunal’s reasoning in this regard is suggestive of acceptance of a false dichotomy of the kind identified Spotless Services (at 415). Likewise, the statutory inquiry does not require a comparison between obtaining a fiscally irrelevant dishonest gain or profit and obtaining a GST benefit.

249    Drawing a distinction between honest and dishonest ends is also suggestive of a false dichotomy of a different kind. Division 165 is aimed at artificial or contrived schemes whether they be in the pursuit of honest commercial ends or dishonest ends. A scheme comprised of extraordinary, irrational or uncommercial steps is just as much artificial or contrived because it is entered into or carried out for dishonest gain or profit as is a scheme with such features entered into or carried out for legitimate commercial gain or profit. A particular course of action may be both ‘tax driven’ and bear the character of a dishonest design. The presence of the latter characteristic does not determine the answer to the question, within the meaning of s 165-5(1)(c)(i), whether an entity entered into or carried out a scheme for the dominant purpose of getting another entity a GST benefit: Spotless Services at 416.

250    It follows that, irrespective of the inapplicability of the Mills analysis, in the context of the purpose and object of Div 165, identifying (dishonest) gain or profit as the ultimate goal or end is indicative of a failure to focus on the statutory questions posed in s 165-5(1)(c) and the object sought to be achieved from the particular scheme that is of fiscal consequence. Here, the tribunal failed to focus on that object and, instead, focussed almost entirely on the more remote and fiscally irrelevant object of (dishonest) gain or profit. The tribunal’s misconstruction and misapplication of the statutory inquiry is, perhaps, best illustrated in its ultimate conclusions about dominant purpose when it said:

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

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

251    These passages confirm that the singular focus of the Second Tribunal was upon the dishonest motive it attributed to the Division 165 Supplying Entities for entering into or carrying out the wider design or process it had earlier identified and not the purpose of the scheme or part of the scheme (wide or narrow) as articulated (T [208], [211], [215]). Specifically, it is evident that the tribunal focussed on whether ‘fraud’ was the dominant reason for the Division 165 Supplying Entities entering into or carrying out the wider design or process. Whereas, the correct statutory inquiry was whether the object of getting the taxpayer input tax credits from the scheme or part of the scheme (wide or narrow) was the ruling, prevailing, or most influential intended consequence of the Division 165 Supplying Entities entering into or carrying out that particular scheme or part of that scheme as the particular means by which they chose to achieve the ultimate (dishonest) end.

252    The analysis in Mills also does not require that ‘a necessary preliminary to an ulterior and ultimate goal’ must be characterised as an incidental purpose or that the ultimate goal must be characterised as dominant for at least three reasons. First, as Gageler J observed ‘it does not follow that a purpose which does no more than further or follow from some dominant purpose is incidental’: Mills at [66]. Therefore, a necessary preliminary need not be incidental. Second, the analysis of one purpose furthering or following another is described in Mills in circumstances in which one purpose was already designated or identified as the dominant purpose. The concept of a necessary preliminary to an accepted dominant purpose is not necessarily a useful tool for identifying at the outset which of the competing purposes is dominant. Further, and in any event, merely because one purpose furthers or follows another purpose does not require that the purpose furthered or followed is dominant. Third, and relatedly, the Second Tribunal’s reasoning is founded on an implicit but unstated assumption that ‘ulterior and ultimate purpose’ is a synonym for dominant purpose. This is indicative of circular reasoning.

253    The Second Tribunal’s explanation of its reasons for concluding that any purpose of obtaining input tax credits was incidental started by identifying the creation of a product that the marketplace traded at a GST-informed price and the Division 165 Supplying Entities receiving that price and not paying the GST liability as ‘essential for the scheme to operate’. In that context, the tribunal observed that ‘availability of the [input tax credits] was an ordinary incident of a purchase of a taxable commodity on commercial terms by a GST-registered entity in the course of its enterprise’: T [209]. In substance, that is no more than an observation that an ordinary incident of the operation of the GST Act, in circumstances in which the Division 165 Supplying Entities adulterated the gold in investment form and sold scrap gold to the taxpayer, was that the sale of the scrap gold was a ‘taxable supply’. The tribunal then identified non-payment of amounts referrable to GST embedded in the GST-informed consideration as separate from the creation of the taxable supply. The tribunal identified that step as the ‘central feature upon which the viability of the [Division 165 Supplying Entities’] unlawful endeavour rested’. The tribunal considered that the taxable supply and entitlement to input tax credits was not dependent on the non-payment of the GST liability: T [210]. The tribunal then observed that the creation of taxable supplies was a step in a wider process and the non-payment of GST liabilities was a separate and ulterior and ultimate purpose to the creation of taxable supplies: T [211]. That analysis also illustrates that the tribunal failed to ask itself the statutory question posed in s 165-5(1)(c)(i); namely, what was the dominant purpose of performing the step that created the taxable supply as the means by which it achieved the (dishonest) ends it had identified in the wider process.

254    The Second Tribunal’s observation that any purpose of obtaining input tax credits ‘was properly regarded as central to the design of a scheme directed to achieving an ulterior and ultimate purpose’ draws on the first of two reasons that Gageler J gave in Mills for disagreeing with the construction Jessup J had given to s 177EA(3) of the 1936 Income Tax Assessment Act: Mills at [66]. The second reason Gageler J gave for his disagreement was that ‘counterfactual analysis is not antithetical to the statutory inquiry’ and that consideration of possible alternatives may well assist the drawing of a conclusion in a particular case that a particular purpose does or does not exist and that it is incidental to some other purpose. As already mentioned, the existence of possible alternatives all of which had the consequence of imputation benefits was central to the conclusion in Mills that enabling the taxpayer to obtain imputation benefits was an incidental purpose in that case. In the Second Tribunal’s analysis and application of Mills it ignored and overlooked that important and, on the facts of Mills, decisive consideration that assists to draw conclusions about the relative importance of competing purposes.

255    The Second Tribunal made no findings identifying any alternative possibilities that could have resulted in the taxpayer getting the same or substantially the same refunds from input tax credits as those the scheme or part of the scheme delivered to the taxpayer. Moreover, it is implicit in the Second Tribunal’s acceptance that the taxpayer obtained GST benefits from the scheme or part of the scheme that it found, contrary to the findings in Mills, that there were no alternative possibilities to the scheme. Therefore, there was no foundation for the tribunal to reach the conclusion (equivalent to the conclusion in Mills that all means of issuing Tier 1 capital would result in the same tax benefit) to the effect that the consequence of the taxpayer getting GST benefits from the scheme was merely the natural incident to the consequence of supplying and acquiring scrap gold for GST informed consideration.

256    Last, applying the natural and ordinary meaning of ‘incidental purpose’ described in Mills to the facts as the Second Tribunal found them, the creation of a taxable supply could not possibly be described as ‘fortuitous’. The creation of a taxable supply was manifestly not a consequence that happened by chance. Further, to describe the creation of a taxable supply as a consequence that was a ‘subordinate conjunction’ to the purpose of non-payment of GST liabilities or obtaining and retaining GST-informed consideration is also inapposite because without a notional taxable supply the Division 165 Supplying Entities would not have received GST informed consideration. The purpose of creating a notional taxable supply could not be described as a minor or insubstantial purpose that happened in mere conjunction with the purpose of obtaining GST-informed consideration. It is also not possible to characterise the creation of a taxable supply as the natural incident of obtaining and retaining GST-informed consideration. If anything, obtaining GST-informed consideration is the natural incident of the creation of a notional taxable supply. Therefore, the tribunal cannot be taken to have applied the ordinary meaning of ‘incidental’ as a means of explaining its conclusion that a purpose of obtaining input tax credits for the taxpayer was incidental to a dominant purpose of obtaining GST-informed consideration. Rather, the tribunal asked itself the question of whether a purpose of obtaining the taxpayer input tax credits from the scheme was incidental to a dominant purpose of (dishonestly) not paying GST liability and in so doing applied the meaning of ‘incidental purpose’ in s 177EA(3)(e) of the 1936 Income Tax Assessment Act.

Conclusion on application of statutory dominant purpose test

257    It follows that, contrary to the Second Tribunal’s reasoning, the analysis from Mills is inapposite and does not inform the statutory inquiry required under s 165-5(1)(c)(i). The Second Tribunal’s application of that analysis in its consideration of dominant purpose was an error of law.

258    Having regard to the conclusion I have reached on questions 1 – 4 and grounds 1 – 3, it is not necessary to address the other questions, grounds and issues raised in the supplementary notice of appeal. However, as these matters were fully argued, I will explain my reasons for accepting there were two further errors and rejecting the other asserted errors.

Was the importance of the taxpayer getting input tax credits considered?

259    The Second Tribunal clearly considered the economic feasibility of the scheme and considered, accepted or rejected aspects of the Commissioner’s relevant arguments about the relative importance of input tax credits to the scheme. The Second Tribunal acknowledged and accepted that the taxpayer was induced to pay GST-informed consideration for scrap gold (T [215]). The Second Tribunal found that the taxpayer had only made additional refining profits (T [168], [171], [194]). It rejected the Commissioner’s contention that the taxpayer had profited from the refund of GST and without that refund the transactions made no sense (T [194]-[195]). It was not satisfied on the evidence that ABC NSW enjoyed an enhanced turnover (T [200]). It had regard to the ‘round robin’ nature of the movement of gold metal and noted the scheme was structured to be ‘self-contained and possibly self-perpetuating (T [184]). In substance, the Second Tribunal found that the economic feasibility of the scheme depended upon the Division 165 Supplying Entities’ (dishonest) non-payment of the notional GST liabilities they incurred because the transactions involved losses if the GST Act consequences for the Division 165 Supplying Entities were taken into account (T [198], [210], [215], [218]). The Second Tribunal found, in effect, that the input tax credit in itself achieved no benefit for the taxpayer or the Division 165 Supplying Entities (T [218]).

260    In general, there is no error of law in failing to make a finding of fact: see, e.g., Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156 (Glass JA). An assertion that the tribunal failed to make a finding of fact is tantamount to an assertion that it made a ‘wrong’ finding which is no error of law: Waterford v Commonwealth [1987] HCA 25; 163 CLR 54 at 77 (Brennan J). Otherwise, the Commissioner made no assertion that the Second Tribunal made an error of law for failing to identify, understand and evaluate a substantial and clearly articulated argument of the Commissioner such as might support an error of law in the performance of the tribunal’s review function: Dranichnikov v Minister for Immigration and Multicultural and Indigenous Affairs [2003] HCA 26; 197 ALR 389 at [24]-[32] (Gummow and Callinan JJ), [95] (Hayne J); Minister for Immigration and Border Protection v SZMTA [2019] HCA 3; 264 CLR 421 at [13] (Bell, Gageler and Keane JJ), at [105] (Nettle and Gordon JJ).

261    In any event, I am not persuaded that the asserted failure to expressly consider and make findings on the importance of the input tax credits to the economic feasibility of the scheme was in and of itself an error. If anything, the absence of full or complete consideration of the importance of input tax credits is an illustration or indication of the Second Tribunal’s erroneous approach to dominant purpose rather than a standalone error. The absence of direct consideration of the potential importance of input tax credits to the economic feasibility of the scheme is best explained by the tribunal not having to fully engage with the inextricably linked issue. If the tribunal had not erroneously applied a facilitative purpose analysis and, thereby, sidestepped direct consideration of composite purpose at the level of taxable supply, it would have been required to directly confront the importance of creation of notional taxable supplies, entitlements to input tax credits and inducement to the taxpayer paying GST-informed consideration for the scrap gold. That forensic enquiry was avoided because the tribunal concluded that creation of taxable supplies was an incidental purpose to (dishonest) gain or profit.

Was there error in the application of the s 165-5(1)(c)(ii) principal effect test?

262    The Second Tribunal addressed aspects of ‘principal effect’ in the course of dealing with each of the matters described in s 165-15. When addressing the s 165-15 matters the Second Tribunal identified what it described as the ‘principal effect’ of the manner in which the scheme was entered into and carried out and the form and substance of the scheme in the following way.

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

…

176    The system of levying GST on dealings in gold substances is very much form driven. Metal in substance, i.e. chemically and atomically, identical, may be treated differently depending on its presentation or its form. Producing something that is in form different to its substance and transacting in it, as has happened here, transformed the character and transferred the ownership of the highly valuable commodity. This was the principal effect to be recognised.

263    The Second Tribunal said that the other s 165-15 matters also did not suggest or support a conclusion that the principal effect of the scheme or part of the scheme was for the applicant to obtain input tax credits: T [181], [187], [192], [196], [202], [204]. Later, in the course of addressing its ultimate conclusions on dominant purpose, the tribunal said that if an alternative principal effect of the scheme or part of the scheme was that the Division 165 Supplying Entities benefit from their fraud, or to place an inflated, GST-informed, price or amount of money into their hands so as to set up the possibility of the fraud being executed profitably, it was unlikely that it would be reasonable to conclude that the scheme had the requisite principal effect: T [216]. Ultimately, the Second Tribunal concluded, for the reasons given in the sections dealing with principal effect, that it would not be reasonable to conclude that the scheme or part of the scheme had the s 165-5(1)(c)(ii) principal effect: T [226].

264    The Commissioner contends that the Second Tribunal applied the wrong s 165-5(1)(c)(ii) ‘principal effect’ test for two reasons. First, it failed to recognise the benign and mechanical non-fiscal effects of the scheme were not inconsistent with a principal effect of getting the taxpayer input tax credits. Second, it did not undertake an assessment of the importance of the creation of refund entitlements to the scheme and each part of the scheme. I accept the first contention, but not the second.

265    In the passages dealing with the s 165-15 matters in which the Second Tribunal identifies what it considers to be the ‘principal effects’ of the scheme (T [172], [176]) there is no explanation of the reason(s) for considering those effects to be of the highest rank or importance except for the association between changing the form of the gold metal and transferring it to the taxpayer in exchange for GST-informed consideration so as to place the Division 165 Supplying Entities in a position to (dishonestly) not pay notional GST liabilities. Therefore, as with dominant purpose, the focus of the tribunal is on the ‘effect’ of the wider design or process and the consequence of (dishonest) gain or profit which the tribunal considered to be the principal effect of that wider process. As with dominant purpose, identifying an effect of the wider design or process as (dishonest) gain or profit does not answer the question posed in s 165-5(1)(c)(ii) because that effect is not inconsistent or incompatible with a ‘principal effect’ of the scheme or part of the scheme (wide or narrow) of getting the taxpayer input tax credits.

266    The effect of changing the form of the gold metal and transferring ownership of the gold metal to the taxpayer and the effect of creating a taxable supply with corresponding GST liabilities and entitlements to input tax credits were both effects of the scheme or part of the scheme that placed the Division 165 Suppling Entities in a position to (dishonestly) retain the GST-informed consideration. Thus, the question posed for the purposes of s 165-5(1)(c)(ii) was whether the principal effect of the particular scheme or part of the scheme (wide or narrow) by which the Division 165 Supplying Entities were placed in that position was the exchange of gold metal (as would be the case in an ordinary legitimate transaction) or getting the taxpayer input tax credits. It is evident from the tribunal’s reasons that it did not ask itself that question but rather asked if the principal effect of the wider process was to place the Division 165 Supplying Entities in a position to (dishonestly) gain or profit. Thereby, the tribunal applied the wrong statutory test.

267    Otherwise, for the reasons already given with respect to consideration of the dominant purpose, mere failure to consider and make express findings about the importance of input tax credits is not directly indicative of an error of law but more illustrative of the primary error and incorrect focus of the statutory inquiry.

Was there an erroneous failure to take into account the purpose or object of Div 165?

268    The Second Tribunal’s reasons suggest that it considered that the GST Act operated largely as intended with respect to the activities of the scheme (wide or narrow): e.g., T [166], [177], [190]. In that context, when addressing s 165-15(1)(c) of the GST Act the Tribunal said:

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

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

269    In substance, the Commissioner contends that these passages reveal that the Second Tribunal failed to take into account the purpose or object of Div 165; namely, to deter schemes to give entities benefits by reducing GST, increasing refunds or altering the timing of payment of GST or refunds. Specifically, its focus on non-payment of GST liabilities as the element of the wider design that departed from the object of the GST Act indicates that it failed to fully and completely take into account the steps in the narrow scheme that included the adulteration of bullion and deliberate devaluation of the gold metal that resulted in an artificial creation of taxable supplies and that Div 165 is aimed at such artificial or contrived schemes. I largely accept these submissions.

270    On the facts as found, the activities of the Division 165 Supplying Entities could only be said to have been carried on with a view to profit or gain if the GST liabilities arising from notional taxable supplies of scrap gold are ignored. As taxable supplies, the activities were loss-making and there was manifestly no expectation that they would ever produce a profit or gain when the notional GST liabilities are taken into account. Therefore, taking into account the notional effect of the GST Act on the supplies of scrap gold tends to undermine any assumption that the Division 165 Supplying Entities made the supplies in the course of or furtherance of a genuine enterprise. The uncommercial nature of the activities calls into question the extent to which there were any genuine taxable supplies that would support genuine entitlements to input tax credits. At the heart of the scheme was the ‘creation’ of taxable supplies, but these were not genuine transactions undertaken as part of a genuine enterprise because gold in investment form was deliberately devalued, sold at a loss based on the ‘value’ of the gold metal content of the refining materials, and the ‘profitability’ of the transactions depended upon non-payment of the notional GST component of the consideration. As the Full Court observed in Complete Success Solutions ‘it is not consistent with the object or policy of the [GST] Act for GST to become embedded in supply of goods that has been deliberately devalued’: Complete Success Solutions at [103]. To the extent that there were taxable supplies within the meaning of the GST Act, these were clearly artificial or contrived resulting in artificial or contrived GST liabilities and corresponding artificial or contrived input tax credits. The Commissioner aptly characterised the effect of the scheme as creating an artificial market for gold.

271    While the Second Tribunal acknowledged that the artificial creation of taxable supplies may not be regarded as an object of the GST Act, it evidently considered that, irrespective of the circumstances in which these taxable supplies came into existence, it was consistent with the object of the GST Act to impose GST liabilities on those taxable supplies. But, that is to ignore that a purpose or object of Div 165 is to deter artificial or contrived schemes from which an avoider gets a GST benefit. Moreover, the example of the GST Act imposing a GST liability on illegal transactions is not to the point. An illegal transaction may be genuine in the sense that it is neither artificial or contrived and is made in the course or furtherance of a genuine enterprise. It is consistent with the purpose or object of the GST Act that illegal transactions in the course or furtherance of a genuine enterprise attract a GST liability and result in increased taxation revenue. The same cannot be said of artificial or contrived transactions not made in the course or furtherance of a genuine enterprise which operate to decrease taxation revenue. Transactions of that character are a target of Div 165. Thus, the tribunal’s reasons indicate that it failed to take into account that a purpose or object of Div 165 is to deter artificial or contrived schemes of which the scheme (wide or narrow) as articulated by the Commissioner was an example par excellence.

Was the taxpayer’s failure to disprove informed participation correctly taken into account?

272    As already mentioned, one of the issues raised before the Second Tribunal concerned the extent to which the taxpayer was an informed participant in the scheme (wide or narrow). The Commissioner contended that the transactions in which the taxpayer participated were co-ordinated and cohesive and the result of sophisticated planning and interaction between the participants including the taxpayer. He contended that the tribunal should conclude that the taxpayer knew of, or at least, turned a blind eye to the activities of the Division 165 Supplying Entities including the adulteration of bullion before on-supply to the taxpayer. In the appeal the Commissioner submits that such a finding, if made, would be objective evidence that could inform the evaluation of the taxpayer’s purpose of entering into or carrying out the scheme or part of the scheme: Minerva Financial Group v Commissioner of Taxation [2022] FCA 1092 at [270] and the authorities there cited. The tribunal was not prepared to make a positive finding that the applicant was an informed participant that knew of, or ought to have known of and turned a blind eye to the activities of the Division 165 Supplying Entities. But, the tribunal was also not prepared to make a positive finding that the taxpayer was not such an informed participant in the arrangements constituting the scheme (T [96]).

273    The reasons for the Second Tribunal’s refusal to make positive findings included the absence of evidence from a director of the taxpayer and ABC NSW, Ms Simpson. It was to be expected that she could have given evidence about the nature of any participation of the taxpayer in co-ordination of the activities of the Division 165 Supplying Entities: T [104]. The Tribunal remarked that it was ‘curious that [the taxpayer] did not call Ms Simpson’: T [105]. However, the Second Tribunal did not draw any adverse inferences against the taxpayer specifically relating to informed participation on the ground of an unexplained failure to call a witness in its camp: e.g., Jones v Dunkel [1959] HCA 8; 101 CLR 298.

274    The Second Tribunal returned to the topic of the taxpayer’s informed participation in the last part of its reasons in which it addressed dominant purpose (T [215]). After reaching its ultimate conclusions on the dominant purpose of the Division 165 Supplying Entities and that it was not reasonable to conclude that any entity had the s 165-5(1)(c)(i) dominant purpose to which reference is made in para [113], to the tribunal said:

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

275    The Commissioner characterises the effect of that paragraph as a conclusion that Div 165 would not apply to the scheme irrespective of the taxpayer’s failure to establish that it was not an informed participant in the arrangements constituting the scheme. Relying on Minerva Financial Group, the Commissioner submits that conclusion is wrong because objective evidence which reflects a participant's actual or constructive knowledge about the effects and characteristics of the wider scheme in which it is a participant could be evidence relevant to the evaluation of its purpose.

276    I do not accept the Commissioner’s characterisation of the Second Tribunal’s reasons. The tribunal gave reasons for its view that its conclusion would not change, assuming the taxpayer was an informed participant, none of which is that informed participation would not be a relevant circumstance to be taken into account. In any event, the tribunal did not make a finding that the taxpayer was an informed participant and, therefore, even if the tribunal had made the error asserted, it could not have had any effect on the outcome.

277    Next, the Commissioner contends that the Second Tribunal ought to have concluded that because the taxpayer failed to establish that it was not an informed participant, the tribunal could not be satisfied that it was not reasonable to conclude that the taxpayer had the s 165-5(1)(c)(i) purpose. The Commissioner submits that the tribunal, in effect, reversed the onus of proof imposed by s 14ZZK of the Taxation Administration Act. The tribunal was wrong to focus its attention on the Commissioner’s inability to persuade the tribunal to make a positive finding (T [97]-[102]) because the onus was on the taxpayer to prove it was not an informed participant not on the Commissioner to prove that it was an informed participant. For the reasons that follow, I do not accept that the tribunal’s approach to the issue of informed participation reveal that it misconstrued or misapplied s 14ZZK resulting in a reversal of the onus.

278    The effect of s 14ZZK of the Tax Administration Act is that the Commissioner’s assessment is taken to be correct until falsified: Binetter v Federal Commissioner of Taxation [2016] FCAFC 163; 249 FCR 534 at [93]-[95] (Perram and Davies JJ). Consequently, the taxpayer was taken to have entered into or carried out the scheme or part of the scheme with the s 165-5(1)(c)(i) ‘dominant purpose’ unless the Second Tribunal made a positive finding that it would not be reasonable to reach that conclusion. That required the tribunal to undertake the statutory inquiry in s 165-5(1)(c)(i) taking into account the matters described in s 165-15. However, the absence of proof of a fact of potential relevance to that inquiry did not deprive the tribunal of the ability to reach the ultimate conclusion based on such other facts as were proved.

279    Nonetheless, a consequence of the Second Tribunal concluding that it was not prepared to positively find that the taxpayer was not an informed participant was that it was required to approach the statutory inquiry under s 165-5(1)(c)(i) and take into account the matters described in s 165-15 from the perspective that the evaluation of the facts could not be undertaken on the footing that the taxpayer was not an informed participant. That might have been another ‘relevant circumstance’ to be taken into account in accordance with s 165-15(1)(l).

280    Although the tribunal was not prepared to draw any adverse inferences, that does not mean that an unexplained failure to call a witness in the taxpayer’s camp was not relevant to the evaluation of whether it was reasonable to conclude that the taxpayer participated in the scheme or part of the scheme with the s 165-5(1)(c)(i) ‘dominant purpose’. Division 165 sits within a broader statutory taxation framework that is largely based on ‘self-assessment’ and places the onus on taxpayers to comply with revenue laws. It is inherent within that framework that there is an information asymmetry between Commissioner and taxpayers concerning the information upon which taxation assessments are formally made. Therefore, the Commissioner has power ‘where it is reasonable to conclude’ certain matters to negate the foundation for GST benefits. The process of assessment, amendment of assessment, objection to assessment, and appeal in the Taxation Administration Act places the onus on the taxpayer, who should be in possession of all necessary information required to do so, to prove that the assessment is incorrect and to prove the correct amount of the assessment. In that context, an unexplained failure of a taxpayer to provide evidence from a witness in its camp who it is reasonable to expect could give evidence going to the factual substratum of the extent of the taxpayer’s knowledge of the elements of a scheme and informed participation in the scheme may be a ‘circumstance’ that is ‘relevant’ for the purposes of s 165-5(1)(c)(i) and s 165-15(1)(l).

281    The Commissioner does not contend that the Second Tribunal was in error for disregarding that the taxpayer had not positively proved that it was not an informed participant as a ‘relevant circumstance’ and matter the tribunal was obliged to take into account by operation of s 165-5(1)(c)(i) and s 165-15(1)(l). Otherwise, it is not a case where it could be said that, taking into account that the taxpayer had not proved that it was not an informed participant, only one outcome was possible; such that it could confidently be concluded on the facts as found that the taxpayer had failed to discharge its overall burden of proof under s 14ZZK of the Taxation Administration Act.

DISPOSITION

282    For the reasons given, I would allow the appeal and set aside the Second Tribunal’s decision. The matter should be remitted to the Administrative Review Tribunal for determination according to law. The taxpayer should pay the Commissioner’s costs of the appeal.

Associate:

Dated:    24 October 2025