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20 Mar 2010
Appeal Status
Not appealed

Commissioner's right to withhold payments

2010 case note - Court held that CIR could continue to withhold payment - Section 46, letter to investigate, validity of NOPA, deemed acceptance.

Riccarton Construction Ltd v CIR


The Court did not exercise its jurisdiction to grant relief to the taxpayer's judicial review application. The Court held that the Commissioner was not yet satisfied with the goods and services tax (GST) return and could continue to withhold payment. The Court also held that although the taxpayer's Notice of Proposed Adjustment (NOPA) was valid and the Commissioner should have issued a Notice of Response (NOR), as the contract to which it related had been cancelled, relief was not granted.

Impact of decision

Given that the Contract Pacific case is to be argued in the Supreme Court this year it is unclear what precedential value this judgment will have in respect of section 46 of the Goods and Services Tax Act 1985 (GSTA). At present the judgment is authority for the proposition that a timely request for information in terms of section 46 suspends the 15-day period in section 46(5) within which the Commissioner must notify intention to investigate.

The Commissioner cannot use section 46 to compel a taxpayer to create a document that is not in existence (in this case, a valuation).

The judgment highlights the desirability of the Commissioner following the disputes process even in circumstances where the Commissioner considers the taxpayer's NOPA to be invalid or not to be a NOPA at all.


Riccarton Construction (Riccarton) entered into four agreements for the sale and purchase of existing motels. Riccarton's asserted plan was to unit title them, refurbish them and then on-sell them as individual units. Each agreement had a delayed settlement date of about 11 and a half months and required the vendor to provide an invoice to Riccarton. Riccarton immediately claimed the input tax while the vendors, who were registered for goods and services tax (GST) on a payments basis, would only account for GST if and when payment was received.

The Commissioner was not satisfied with the GST returns and withheld the claimed input tax under section 46 of the GSTA for each of the relevant GST periods.

This case concerns two of those four agreements.

Relevant facts for the first agreement

For the first agreement, the Commissioner issued a letter requesting further information within the 15-day period under section 46 and withheld the GST refund. He requested, among other things, a recent valuation. Riccarton replied to the request on 30 October saying that a valuation did not exist. On 4 November 2009, the Commissioner replied saying the return had now been selected for investigation. 4 November was more than 15 days from when the return was filed.

The Commissioner obtained an independent valuation and then reached a compromise with Riccarton that it would pay a partial refund based on the valuation (which was $3 million less than the price). Riccarton issued a NOPA for the balance. The Commissioner's Notice of Response (NOR) rejected the NOPA because it was not issued in time and there was no valid tax invoice (the GST number on the invoice was wrong).

Relevant facts for the fourth agreement

Riccarton filed its GST return, claiming net input tax of $736,763.72 for the period. The return included input tax of $750,000 in respect of the purchase of a motel. The Commissioner issued a timely notice of intention to investigate and withheld the refund under section 46. Riccarton then issued a NOPA claiming an adjustment of $750,000 requiring the Commissioner to refund the GST that had already been claimed in the return. The Commissioner did not issue a timely NOR or a letter rejecting the NOPA. The Commissioner argued that the NOPA was not a NOPA in that it did not propose an adjustment.


Issue 1

The Court held (at paragraph 39) that the 4 November letter was not out of time because the earlier request for information suspended the other timeframes in section 46. Despite the terms of the judgment, this was not an argument that was advanced by the Commissioner. The Commissioner argued, in line with Contract Pacific, that a notice of investigation that is issued outside of the time limit in section 46 does not invalidate the Commissioner's right to withhold a refund under a timely request for information.

The Court did go on to hold that once a timely request for information has been made pursuant to section 46, the refund is payable only when the Commissioner has determined that it is; a condition that was not met.

The Court dismissed the Commissioner's argument that as the valuation that had been requested had not been provided, the request for information remained alive and unmet. The taxpayer did not hold a valuation and section 46 cannot be used to oblige the taxpayer to obtain a valuation.

Issue 2

The Court held that Riccarton's NOPA under the first agreement was issued out of time. The return was filed on 30 September 2008 and the NOPA was issued on 19 June 2009. The date of the filing of the return (not the later letter) was the operative date.

Issue 3

The Commissioner's earlier NOPA based on an invalid tax invoice was valid.

Issue 4

The Court held, following Alam and Begum, that points of invalidity can be taken in the disputes process but in the interim the form of the document governs the process. However, in judicial review proceedings the Court did have the power to consider the validity of the NOPA.

Essentially, because the amount of the return for the period ($736,763.72) differed from the amount claimed in the NOPA ($750,000.00) the Court held that the NOPA was a genuine effort to adjust the return.

The Court held that had the NOPA restated the sum claimed in the original return it would have agreed with the Commissioner that it was not a NOPA. That not being the case the Court held there was deemed acceptance by the Commissioner.

Issue 5

Should relief be granted?

The Court exercised its discretion to decline relief on the basis that the agreement to which the NOPA related had been cancelled.

Goods and Services Tax Act 1985; Tax Administration Act 1994