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04 Dec 2009
Appeal Status

GST refunds and section 46 of the Goods and Services Tax Act 1985

2009 case note – CIR satisfied obligations under section 46 of the GST Act when investigation notice issued within the prescribed time limits in section 46(5).

The Commissioner of Inland Revenue v Contract Pacific Limited


The Commissioner had satisfied his obligations under section 46 of the Goods and Services Tax Act 1985 when he issued an investigation notice within the prescribed time limits in section 46(5).

Impact of decision

Where the Commissioner has issued a notice to investigate within the time limits set out under section 46(5) of the Goods and Services Tax Act 1985 ("GST Act"), he will not need to issue any requests for information (which form part of that investigation) within the time limits set out in section 46(4) to ensure the Commissioner maintains his authority to withhold the refund while he completes that investigation.


At all relevant times, Contract Pacific Ltd ("Contract Pacific") carried on the business of an inbound tour operator, selling New Zealand-based holiday packages to overseas wholesalers who then sold to overseas retailers. Those retailers in turn sold to overseas-based holidaymakers who were to visit New Zealand.

Between July 1993 and April 1999, Contract Pacific included goods and services tax ("GST") in the sale prices for the services it sold to overseas wholesalers while other inbound tour operators did not.

In May 1999, the law was changed to remove any ambiguity over liability to include GST in the sale prices for New Zealand-based services sold to overseas persons for the purpose of on-sale to New Zealand-bound visitors.

On 26 June 2000, Contract Pacific filed a GST return in which it sought a readjustment and refund of the GST it had paid between 1 July 1993 and 30 April 1999.

On 10 July 2000, the Commissioner advised that the GST refund had been withheld pending investigation of the readjustment claim.

Through an administrative error, a notice of assessment and refund cheque were issued on 5 February 2001. On 9 February 2001, the Commissioner became aware of the error and took steps to stop payment on the refund cheque.

On 2 April 2001, the Government introduced the Taxation (Annual Rates, Taxpayer Assessment and Miscellaneous Provisions) Bill ("the Bill"). On 2 July 2001 a notice of assessment was sent to Contract Pacific which disallowed the credit adjustment and consequential refund it sought.

On 24 October 2001, the Bill came into force as the Taxation (Taxpayer Assessment and Miscellaneous Provisions) Act 2001 ("2001 Act"), with retrospective effect. The general effect of the new legislation (section 241) was to make clear there was and always had been liability to pay GST on the services to overseas persons. A savings provision was enacted that exempted a small category of persons from this effect. Contract Pacific would come within this savings provision if the circumstances of receiving the refund cheque meant it had been "paid a refund".

In April 2005, Contract Pacific wrote to the Commissioner requesting payment of $6,281,767 plus interest, being the balance of the stopped refund cheque after a facilitation fee credit adjustment was deducted. The Commissioner rejected the claim.

High Court judgment

The High Court ((2009) 24 NZTC 23,092) confirmed that the Commissioner had issued a notice under section 46(2)(a) of the GST Act, notifying his intention to investigate the matter, and had done so within the 15-day time limit prescribed in section 46(5). However, the High Court held that as the Commissioner had also made requests for information pursuant to that investigation, and these were made outside the prescribed time limits in section 46(4), he had "lost his authority to withhold the disputed refund".

The High Court also held that, given it was concluded that the cheque issued by the Commissioner was valuable consideration, the position was "unaffected by section 241(6) of the 2001 Act". The High Court did conclude, however, that in any event, under the common law, the cheque was a "payment" for the purposes of section 241(6)(a).

The Commissioner appealed the decision. Both parties agreed to limit the appeal to two issues.


The Court of Appeal allowed the appeal.

Issue one - section 46 of the GST Act

The Court of Appeal concluded that the Commissioner, when investigating Contract Pacific's GST return, had satisfied the time limits contained in section 46(5) of the GST Act and therefore there was no obligation to make a refund.

In particular, the Court concluded that when the Commissioner issues a notice of investigation within the 15-day period:

[37] ... that investigation is not subject to any limitation, curtailment or restriction. If, in the course of the investigation, instead of or as well as seeking submissions, the Commissioner requires additional information, he can ask for it and such request will not engage section 46(2)(b).

[38] It is artificial to consider that, if the investigation route under section 46(2)(a) is embarked upon, the registered person is immune from information requests except in the 15 day period or subsequent 15 day periods following the provision of information. That is not what the words say and such an interpretation would be most impractical.

The Court of Appeal confirmed that some investigations are complex and therefore require a number of information requests, whereas others will only require additional information that has been overlooked.

The Court held that "it is not sensible for these two different kinds of inquiries to be governed by the same approach. The more expansive must necessarily include the narrower process".

Issue two - section 241(6)of the 2001 Act - the "paid" point

The Court did not consider this issue on the basis that the parties had agreed that the second issue was unnecessary for the Court to consider should it find in favour of the Commissioner on issue one.

Goods and Services Tax Act 1985