No jurisdiction to determine proceeding where disputes procedure not completed

Summary

This was a decision of the Taxation Review Authority ("TRA") striking out the disputant's Notice of Claim ("NOC") on the grounds that the disputes procedure under Part 4A of the Tax Administration Act 1994 ("TAA") had not been completed. Therefore, the TRA lacked jurisdiction to hear and determine the proceeding.

Impact of decision

This decision reaffirms the decision in Allen v Commissioner of Inland Revenue [2006] 3 NZLR 1that s 138H of the TAA provides a procedural mechanism for removing from the TRA proceedings that have been improperly commenced because of noncompliance with s 138B of the TAA.

Facts

The proceeding concerned an application made by the Commissioner of Inland Revenue ("the Commissioner") to strike out the disputant's amended NOC. The application was made on the grounds that the TRA lacked the jurisdiction to hear and determine the proceeding as the disputes procedure under Part 4A of the TAA had not been completed.

The underlying dispute involves a goods and services tax ("GST") refund claimed by the disputant for the period ended 30 July 2009 ("the GST period"). The Commissioner made an assessment on 23 November 2010 disallowing the input credit claimed. On 20 June 2012, the Commissioner issued an amended assessment ("Notice of Assessment") under s 113 of the TAA. The assessment was made pursuant to s 89C(eb) of the TAA, which provides that where the Commissioner has reasonable grounds to believe the taxpayer has been involved in fraudulent activity, the Commissioner may make an assessment without first issuing a Notice of Proposed Adjustment ("NOPA").

The disputant issued a NOPA, dated 23 September 2012 but received by the Commissioner on 3 September 2012. The Commissioner issued a Notice of Response ("NOR") on 1 November 2012 rejecting the disputant's NOPA.

At the same time as issuing the NOPA, the disputant filed a NOC in the TRA dated August 2012, purporting to challenge the assessment. The amended NOC was filed following a hearing held on 20 December 2012. The Commissioner filed the present application to strike out this claim on 7 March 2013.

The disputant then filed judicial review proceedings in the High Court seeking judicial review of the Commissioner's assessment of the GST period. The Commissioner filed an appearance and objection to jurisdiction and in the alternative, an application to strike out the causes of action against her. The High Court dismissed the causes of action against the Commissioner on the basis that s 109 of the TAA applied and each cause of action could be dealt with in the statutory disputes and challenge process ("jurisdiction decision").

The disputant attempted to appeal the jurisdiction decision but the application for an extension of time to appeal was dismissed by the Court of Appeal in September 2014 on the basis that the proposed appeal was hopeless and another statutory remedy was available. The Court of Appeal concluded it was not in the interests of justice to extend the time to appeal.

The disputant also had a damages claim running concurrently with the above proceedings. On 6 July 2012, the disputant filed a Statement of Claim ("SOC") seeking damages and/or compensation of $5,113,810.72, as well as an application for summary judgment seeking judgment in the sum of $594,210.48 for withheld GST refunds.

The summary judgment application was dismissed in April 2013 by the High Court. The disputant then filed an amended SOC, which included a fourth cause of action purporting to be a challenge under Part 8A of the TAA to the Commissioner's Notice of Assessment. The Commissioner made an application to strike out this cause of action and in a judgment delivered in July 2014, the Associate Judge granted the application noting that the disputes procedure had not been completed.

The disputant applied to review the strike-out decision and in December 2014 the High Court held the Associate Judge was right to strike out the cause of action.

Decision

The TRA struck out the challenge proceeding.

Lack of jurisdiction

Section 138H of the TAA provides that the Commissioner may apply to strike out a challenge commenced by the disputant if the disputant has failed to comply with s 89M or s 138B of the TAA.

The Commissioner argued that completion of the disputes procedure under Part 4A is required before a challenge under Part 8A can be commenced. The statutory disputes process has not been completed and so the TRA lacks jurisdiction to hear and determine the claim. Both parties filed Statements of Position, following which the proper step was to refer these and supporting evidence to the Disputes Review Unit ("DRU").

The dispute had not yet been referred to the DRU. There are currently three similar disputes underway concerning the disputant's GST returns, and the Commissioner believes they should be considered together. This process has been delayed by the various other proceedings in the High Court concerning these disputes.

Section 138B of the TAA sets out the circumstances in which an assessment can be challenged. The disputant relied upon s 138B(1) which sets out the disputes process where the Commissioner has proposed an adjustment. It said that by amending the assessment the Commissioner had proposed an adjustment, and further argued that in the judicial review proceeding the High Court had confirmed that s 138B(1) was the provision under which it should bring its challenge.

The Commissioner relied on s 138B(3) of the TAA, which deals with situations where the disputant has proposed the adjustment. She disagreed with the disputant's interpretation of the judicial review proceeding, and relied on Allen v Commissioner of Inland Revenue [2006] 3 NZLR 1 as authority that the reference to an "adjustment proposed by the Commissioner" in s 138B(1) was a reference to a NOPA.

Judge Sinclair agreed with the Commissioner and found the disputant initiated proceedings. While the Commissioner issued a Notice of Assessment, this could not be held to be a NOPA for the purposes of s 138B of the TAA. The disputant then issued a NOPA in response to the Commissioner's Notice of Assessment and this initiated proceedings. Section 138B(3) was held to be the applicable subsection.

If the taxpayer has initiated proceedings, and the DRU finds in favour of the Commissioner, a challenge notice pursuant to s 89P of the TAA is issued. Part 8A sets out the process by which a taxpayer may challenge an assessment. To engage in that process the taxpayer must first meet the requirements under s 138B.

Judge Sinclair found that, as the DRU stage had not been completed and no challenge notice issued, the disputes procedure under Part 4A of the TAA had not been completed and the challenge procedure under Part 8A (s 138B) could not be invoked.

Abuse of process

The Commissioner also submitted that the proceeding was an abuse of process, as the prerequisites for commencing a challenge proceeding had not been met. The disputant had raised the same issues in proceedings before the High Court, and been directed that it had to complete the statutory disputes process before it could issue a challenge.

Judge Sinclair agreed and held the proceeding to be an abuse of process.

Res judicata

The disputant contended that the issue of which subsection of s 138B of the TAA to apply, was determined in the judicial review proceedings, and so it was res judicata or alternatively the Commissioner was estopped from raising the issue.

Judge Sinclair found the judicial review proceedings did not specifically consider the application of s 138B(1) or apply it to the facts, and so concluded there was no issue with res judicata or estoppel.

Deemed acceptance

The disputant alleged the Commissioner's NOR was issued out of time and so the criteria of s 138B(3) of the TAA could not be met.

Her Honour stated that this matter had been dealt with in the judicial review proceeding. The High Court and Court of Appeal both concluded that any disagreement about the date each party issued its dispute document is a disputed fact that could be determined in the statutory dispute and challenge procedures.

Other arguments

The disputant also contended that the Commissioner had acted ultra vires and in breach of the New Zealand Bill of Rights Act 1990. Her Honour found those issues were not relevant to the present application, which turned solely on whether s 138B of the TAA had been complied with so that the challenge procedure had been properly commenced.

There would be no prejudice to the disputant in granting the Commissioner's application. Once the proper disputes procedure has been completed the disputant will still have the opportunity to raise all the substantive issues it wants to before a validly convened hearing authority.

Delay was an irrelevant consideration to the current proceeding, as delay does not affect jurisdiction.