Tribunal: Deputy President B McCabe and Senior Member G Lazanas
The applicant, a ‘refiner of precious metal’ within the meaning of s 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act), acquired scrap gold from third‑party suppliers for use in its refinery. Approximately 78 per cent of the supplies of gold to the applicant during the period 1 February 2012 to 30 June 2014 were comprised of scrap gold that had already been refined to 99.99 per cent fineness when delivered to the refinery. The Administrative Appeals Tribunal (Tribunal) found a significant amount of the scrap gold was delivered in the form of damaged or defaced bullion bars that were of 99.99 per cent fineness, or was in a form that was derived from bullion (that is it had been granulated or melted into slugs but still had a fineness of 99.99 per cent).
The applicant paid a GST-inclusive price on the supplies of scrap gold it received from the third-party suppliers but a number of those suppliers subsequently failed to remit the GST they collected to the Commissioner.
The applicant processed the scrap gold into ‘precious metal’ as defined in s 195-1 of the GST Act. It then supplied the precious metal to dealers in precious metal. The applicant claimed those supplies were GST-free supplies under s 38-385 of the GST Act. It then proceeded to claim input tax credits in relation to the supplies of scrap gold on which it had paid a GST-inclusive price. The Commissioner decided on objection that the applicant was not entitled to input tax credits with respect to the supplies of scrap gold that was already 99.99 per cent fineness. The Commissioner also made declarations under Div 165 of the GST Act with respect to a sub-set of those supplies. Div 165 contains the anti-avoidance provisions in the GST Act.
Supplies of precious metal are given special treatment under the GST Act. Supplies of precious metal do not attract GST because precious metal is traded in a world-wide market and Australian refiners and dealers would be at a disadvantage in that market if they were required to remit the GST. Section 40-100 of the GST Act achieves the policy outcome by providing supplies of precious metal are input taxed. Input taxed supplies do not have GST included in their price. Importantly, though, an entity making input taxed supplies is not permitted to claim input tax credits on acquisitions it made in the course of the manufacturing and supply process.
Section 38-385 of the GST Act creates a special rule which enables a ‘refiner of precious metal’ to make GST-free supplies of precious metal instead of input taxed supplies in certain circumstances. The ability to make GST-free supplies offers the best of all worlds because GST is not included in the price of the precious metal but the refiner is still able to claim input tax credits on the scrap gold and other acquisitions made.
A refiner of precious metal can only make GST-free supplies – and thereafter claim input tax credits – if it satisfies all of the requirements in s 38-385 of the GST Act. The outcome of this case turned on whether the applicant was making GST-free supplies of precious metal in accordance with s 38-385, or making input taxed supplies in accordance with s 40-100.
The Commissioner accepted (and the Tribunal agreed) the applicant was a ‘refiner of precious metal’ within the meaning of the GST Act. Even so, the Tribunal was not satisfied the applicant was able to satisfy at least one other aspect of the requirements in s 38-385 – specifically, the requirement in s 38-385(a) that the supply of precious metal was ‘the first supply of that precious metal after its refining by, or on behalf of, the supplier’. The Tribunal reached that view after finding the scrap gold in question had already been refined to investment grade and supplied to dealers before it was received by the applicant and then recycled through the refinery. Further supplies of that gold were input taxed and the applicant was, accordingly, not entitled to claim input tax credits.
The Tribunal affirmed the objection decision that disallowed the applicant’s claim for input tax credits. It affirmed the decision in relation to penalties as well.
The Tribunal also considered the Commissioner’s alternate objection decision which negated the GST benefits accrued to the applicant under Div 165 – although that decision would only take effect if the Tribunal’s conclusion with respect to the ‘no refining’ issue was wrong.
After reviewing the pattern of dealings between the applicant and certain suppliers and bullion dealers, the Tribunal was satisfied there was a ‘scheme’ within the meaning of Div 165 that delivered a ‘GST benefit’ (in the form of larger input tax credits) to the applicant. Furthermore, the Tribunal was satisfied one or more entities (including the suppliers of the scrap gold) entered into or carried out the scheme for the dominant purpose of giving the applicant the GST benefit, or the principal effect of the scheme was that the applicant got the GST benefit.
There was no suggestion the applicant was a party to any tax evasion by identified suppliers who failed to remit GST, but the applicant nonetheless benefitted from the scheme. Importantly, the Tribunal concluded the applicant was, through its officers, either aware or on notice of facts and circumstances that made clear it was the beneficiary of the scheme – a scheme premised on the applicant being able to claim input tax credits on transactions that were otherwise uneconomic in all the circumstances.
Read the full decision on AustLii.