Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 111
ADMINISTRATIVE APPEALS TRIBUNAL	)
	)	No VT200300211-213, 
	)	No VT200400047, 
	)	No 2009/1459 
TAXATION         APPEALS        DIVISION	)	
	Re	SOGO DUTY FREE PTY LTD 	
	Applicant
	And	COMMISSIONER OF TAXATION 	
	Respondent
DECISION
Tribunal	Dr Gordon Hughes, Member 	
Date	12 February 2010 
Place	Melbourne 
Decision	The Tribunal affirms the decisions under review, save that it makes no determination as to quantum in any of the applications.  The Respondent is to calculate the Applicant's liability in accordance with the Tribunal's findings. 	
	(sgd) Gordon Hughes
	Member 

TAXATION - Alleged failure by duty free seller to comply with conditions of Warehouse Licence and Permission – failure to adequately ascertain identity of representatives of ships' crews – alleged failure to ensure goods received onboard – calculation of excise duty payable – income tax assessment based on difference between duty free and wholesale price – resultant GST liability.
A New Tax System (Goods and Services Tax) Act 1999  ss 35, 38-185, 195-1
A New Tax System (Goods and Services Tax) Regulations 1999  reg 38-185.01, Sch 5
Crimes Act 1914  ss 29D
Customs Act 1901  s 96A
Customs Tariff Act 1995  s 15
Excise Act 1901  ss 4, 54, 59, 60, 61, 61D
Excise Tariff Act 1921  s 5
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997  ss 6-5, 6-10, 8-1
Taxation Administration Act 1953  ss 105-50, 284-75, 284-90
Bolton v Federal Commissioner of Taxation (1964) 9 AITR 385
Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279
Federal Commissioner of Taxation v ANZ Savings Bank Ltd (1994) 181 CLR 466
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81
George v Federal Commissioner of Taxation (1952) 86 CLR 183
McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284
Sidebottom v Giuliano (2000) 98 FCR 579
Snook v London and West Riding Investments Limited [1976] 2 QB 786
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63

REASONS FOR DECISION

12 February 2010 	Dr Gordon Hughes, Member 		
			
1.	The Tribunal heard three applications involving the same parties and the same background circumstances.  The issue common to all applications was whether the Applicant had, between 11 April 1999 and 24 May 2001 (the relevant period), sold cigarettes duty-free in circumstances where it knew or should have known that the goods were intended, or might reasonably have been intended, for domestic consumption.  This in turn gave rise to issues involving liability for income tax and goods and services tax (GST), and collateral liability for excise duty.
The Applications
2.	The three applications were: 
•	VT200300211-213, relating to a decision by the Respondent that the Applicant had understated its income for the financial years 1999, 2000 and 2001.  This was as a result of purporting to sell duty-free cigarettes to crews of visiting ships in circumstances where the crew sales invoices were shams (the income tax application); 
•	VT200400047, relating to a decision by the Respondent that the Applicant was liable to pay GST on sales which the Applicant claimed were to crew members of visiting ships and were therefore GST exempt as exports, but which were unsupported by the requisite documentation (the GST application); and
•	2009/1459, relating to a decision by the Respondent to demand payment of excise duty on the basis that the Applicant had breached the applicable conditions of its Permission to sell goods duty free, meaning that the goods were deemed to have been sold for home consumption (the excise application).
Undisputed Background Facts
3.	The same set of background facts underpinned each of the three applications.  Some of these facts were not in dispute.
4.	Specifically, there was no dispute that prior to 30 June 1998, Hoang Hai Chiem conducted a business involving the sale of duty free goods as a sole proprietor at premises at 248 Springvale Road, Springvale, Victoria.  The Applicant was incorporated on 30 June 1998 with Mr Chiem as its sole director and secretary, and the business was transferred to the Applicant on or shortly after its incorporation.  From 30 June 1998, the Applicant operated the business selling duty free goods, including cigarettes, to persons travelling overseas.  During the relevant period, the Applicant sold 46,017,670 single cigarettes (sticks) packaged in cartons.  
5.	On or about 18 January 2002, the Applicant was notified of the Respondent's intention to audit its affairs.  This followed a random check of a crew list carried out by the Australian Customs Service (ACS) in November 2000 involving another duty-free business of which Mr Chiem was also a director.  The ACS found that a ship to which individual purchasers had claimed to belong was not in the Port of Melbourne at the time of the sale of cigarettes by the Applicant.  The ACS auditors then re-examined documentation relating to an earlier audit of the Applicant and this also had similar inconsistencies.  An investigation was then carried out by the Australian Federal Police.
6.	In July 2002, the Respondent and the ACS commenced proceedings in the Supreme Court of Victoria against the Applicant, claiming that the Applicant had purchased large quantities of cigarettes which had been sold to persons unknown, not for overseas consumption but for home consumption.  The proceedings were subsequently discontinued by the Respondent.
7.	In May 2004, the Respondent commenced further proceedings in the Supreme Court of Victoria against the Applicant, claiming, inter alia, income tax for the financial years ended 2000 and 2001, pay as you go (PAYG) withholding for the period 1 January 2002 to 31 March 2003, PAYG quarterly instalment for the quarter ended 31 March 2002, GST for the tax period 1 January 2002 to 31 March 2003, general interest charge for late payment for the period 1 July 2000 to 30 September 2000, administrative penalties and interest totalling $923,262.69.  These proceedings are currently stayed.  
8.	In May 2005, Mr Chiem was charged with offences under section 29D of the Crimes Act 1914, being two counts of having defrauded the Commonwealth by failing to pay customs and excise duty in respect of goods which had been imported into Australia contrary to section 15 of the Customs Tariff Act 1995, and on a count of failing to pay excise duty in respect of goods which had been produced or manufactured in Australia, contrary to section 5 of the Excise Tariff Act 1921.  Mr Chiem was committed to stand trial in the County Court.  In February 2008, he was acquitted of all charges.
Issues
9.	The Respondent asserted that the Applicant had failed to demonstrate that, during the relevant period, it had sold the cigarettes to relevant travellers for export from Australia and that, as a consequence, it had failed to demonstrate that the goods were not delivered into Australian domestic consumption.  The Respondent further asserted that the Applicant had failed to demonstrate that the price recorded on the relevant invoices represented the actual price it received.  
10.	On the question of domestic consumption, the Respondent asserted that the Applicant had failed to comply with specific legislative requirements including a Warehouse Licence and Permission issued under the Excise Act 1901 (the Excise Act).  The Applicant's disregard of its obligation to ensure that the goods sold were in fact sold to relevant travellers for export, and were not delivered into Australian domestic consumption, rendered it liable for GST and excise duty, based on the inference that if not exported, the goods were deemed to have been delivered into Australian domestic consumption.
11.	With respect to the allegation of false pricing, the Respondent asserted that there had been an absence of genuine sales to relevant travellers at the ex facie invoice price.  The Applicant had been unable to prove to the contrary and its description of its sales process was, according to the Respondent, highly dubious.  The inference was that the price recorded on the relevant invoices was false and lower than the actual price received.  As a duty free shop, the Applicant had been able to acquire goods at a concessional price from its suppliers (without payment of excise duty) and was able to use that concessional acquisition price as a means of selling the goods domestically.  By not paying excise duty, it obtained income of an equivalent amount. 
12.	Accordingly the key issues to be determined were:
•	in relation to the excise application, whether the Applicant had complied with the conditions of its Warehouse Licence and Permission and, if not, the extent of its liability to pay excise duty;
•	in relation to the income tax application, whether the Applicant could be deemed to have derived taxable income from sales which was greater than the invoice price, either as a consequence of having avoided the payment of excise duty on goods sold within Australia or as a consequence of falsifying invoices and, if so, the extent of the understatement of income;
•	in relation to the GST application, whether and to what extent the Applicant was liable to pay GST on sales which the Applicant had claimed involved goods delivered to relevant travellers for export but which were in fact delivered into Australian domestic consumption.
13.	Of relevance to each of these claims was the question of where the onus of proof lay.  Also of relevance was the question of whether the Respondent was for any reason statute barred from pursuing any of the demands.  
The Excise Application
14.	Although the most recent application, it is convenient from a factual and evidentiary perspective to commence by considering the excise application.  
15.	It was undisputed that at all relevant times, the cigarettes the Applicant sold from its store were excisable goods as defined in section 4 of the Excise Act.  Under section 61(1) of that Act, the goods were subject to the Commissioner of Taxation's (the Commissioner’s) control until delivered for home consumption or else for exportation to a place outside Australia.  By virtue of sections 54(1) and 59 of the Excise Act, the Applicant was liable to pay excise duty on the goods if they were entered for home consumption.
16.	During the relevant period, the Applicant was the holder of a Warehouse Licence and a Permission granted under the Excise Act pursuant to which it was authorised to operate an outwards duty free shop within the meaning of section 61D of that Act and the Customs Act 1901 (the Customs Act) section 96A(2).  The Respondent contended that the Applicant had breached one or more conditions of the Permission which was dated 4 November 1999 and contained in Licence No. 2M007330.  The Permission was for:
(i)	the delivery of the said goods to the relevant traveller for export personally by the traveller when making the international flight or voyage in relation to which the person is the relevant traveller; and
(ii)	the exportation of the said goods by the relevant traveller when making that international flight or voyage without the goods having being entered for export.
17.	A relevant traveller is defined in section 61D(1) of the Excise Act to mean a person: 
(a)	who intends to make an international flight, whether as a passenger on, or as a pilot or member of the crew of, an aircraft; or 
(b)	who intends to make an international voyage, whether as a passenger on, or as the master or a member of the crew of, a ship.  
18.	Paragraph (iii)(e) of the conditions of the Permission provided: 
… in relation to ships other than cruise ships the proprietor shall deliver the goods in a sealed package to the relevant traveller on board the ship not more than 24 hours before the departure time of the ship and obtain a signed acknowledgement stamped with the vessel's name from a ship's officer for the goods received on board.
This has been described as the Delivery Condition.  
19.	Paragraph (iii) of the conditions of the Permission incorporated section 61D(10) of the Excise Act.  Section 61D(10)(b) provides that the granting of a Permission is subject to:
the condition that that proprietor [the Applicant] will provide a Collector [the Respondent or its delegate] with proof, in a prescribed way and within a prescribed time, of the export of goods delivered to a relevant traveller in accordance with the permission.
20.	Section 61D(12) of the Excise Act further provides:
Where the proprietor of an outwards duty free shop to which a permission under subsection (2) relates does not produce the proof required by paragraph 10(b) that goods delivered by him or her to a relevant traveller in accordance with the permission have been exported by that traveller, the goods shall be deemed to have been entered, and delivered, for home consumption by the proprietor, as owner of the goods, on the day on which the goods were delivered to that traveller.
This has been described as the Proof Condition.  
21.	Also of relevance is section 60 of the Excise Act which provides:
Where a person (including a licensed manufacturer) who has, or has been entrusted with, the possession, custody or control of excisable goods which are subject to the CEO's [the Commissioner’s] control:
(a)	fails to keep those goods safely; or
(b)	when so requested by a Collector, does not account for those goods to the satisfaction of a Collector;
the person shall, on demand in writing made by a Collector, pay to the Commonwealth an amount equal to the amount of the Excise duty which would have been payable on those goods if they had been entered for home consumption on the day on which the Collector made the demand.
The objective of section 60 is to ensure that excisable goods do not find their way into home consumption without the payment of duty.  
22.	The Respondent contended that the Applicant breached both the Delivery and Proof Conditions.  
23.	According to the Respondent, the Applicant breached the Delivery Condition by failing to deliver the goods in a sealed package to the relevant traveller on board the ship, and by failing to obtain a signed acknowledgement stamped with the vessel's name from a ship's officer for any of the goods received on board.  The Applicant had breached the Proof Condition by failing to produce proof that the goods purchased by or on behalf of the relevant travellers, and delivered to the relevant travellers or their representatives at the store, had in fact been exported by the relevant travellers.
24.	The Respondent further contended that, for the purposes of section 60 of the Excise Act, the Applicant had permitted the goods to find their way into home consumption by some irregular means.  By failing to keep the goods safely, they had become impossible to trace.  The Applicant had an absolute duty under section 60(1)(a) to keep the goods safe from loss or destruction so as to ensure they did not leave the Commissioner's control and enter into home consumption without the payment of duty.
25.	As a consequence of these alleged breaches, and by force of section 61D(12) of the Excise Act, the Respondent contended that the goods were deemed to have been entered and delivered for home consumption by the Applicant on the day on which each of them respectively was delivered at the store to the purchaser.  Accordingly, the Applicant was liable to pay excise duty on the goods when they were so deemed to have been entered for home consumption.
26.	The Respondent initially calculated that the amount of excise duty payable by the Applicant was $11,732,276.94, being an amount equal to the excise duty which would have been payable on the goods if they had been entered for home consumption on the day of that demand.  The amount of the demand was subsequently reduced to $11,711,497.02 upon discovery of an initial miscounting of the number of sticks.  The final demand figure was calculated as follows:
No. of sticks	
Multiplied by rate of duty on 30 September 2008	
TOTAL	

46,017,670 	
X $0.25450 per stick	
$11,711,497.02	

27.	The Applicant contended that the liability to pay excise duty was unfounded and ignored the proof it provided that the goods it sold were delivered in accordance with the requirements the Respondent imposed.  The Applicant contended it had complied with the conditions the Respondent imposed and therefore the Respondent was wrong in deeming the goods the Applicant sold as having been entered and delivered for home consumption.
28.	The Applicant submitted that neither the initial licence nor the initial Permissions specified with any particularity any condition or conditions the Applicant was required to follow in delivering the excisable goods.  The Applicant insisted that it had complied with the broad terms of the licence.
29.	In evidence in chief regarding the excise application, Mr Chiem relied on his affidavit of 23 June 2009.  In his affidavit, Mr Chiem described the Applicant's sales process in the following terms.
4.	During the period 11 April 1999 through to 24 May 2001 ("the relevant period") the business was the holder of a warehouse licence granted by the Australian Customs Services ("the ACS") the relevant permissions which authorises it to operate an outward duty free shop from the premises.
5.	The business sells goods in the nature of cigarettes, alcohol, perfumery, cameras, watches, sunglasses, electronics and some food products.
6.	The majority of the Applicant's customers are travellers departing Australia by air and sea as well as diplomats, ship and aeroplane crews.
7.	During the relevant period the Applicant sold goods to persons who identified themselves as representatives of crew members of ships docked at the port of Melbourne.
8.	These persons regularly purchased cartons of cigarettes and alcohol from the Applicant resulting in a large number of sales during the relevant period.
9.	These persons would upon collection of their orders present photocopies of the passports of the members of the crews they said to have represented together with a copy of the ship's manifest which contained the ship's name and departure date.
10	The ships manifests were then returned to the Applicant as signed by the captain of the vessel to which the crew member belonged and stamped with the vessel's stamp.
11.	As far as I was aware during the relevant period, the conditions of the sale of duty free goods by the Applicant to relevant travellers were included in the permissions received from the ACS.  
12.	I understood that purchasers of goods must not take the goods out of the sealed bag in which the goods are placed when sold and that the goods must be taken out of Australia before consumption.
13.	I also understand that if goods were sold to crews of ships they had to be delivered to the ship.  As the permissions received from the ACS did not specify how the goods were to be delivered, I understood the Applicant was free to engage any agent to deliver the goods to the purchaser on ship.  
30.	Mr Chiem stated that at all times during the relevant period he dealt with between four and ten individuals whom he accepted to be representatives of crew members.  He was unable, however, to name any of the individuals and claimed he had never known their surnames, with the possible exception of one person whose business card he had since mislaid.  
31.	Mr Chiem did not obtain verification that the individuals were representatives of crew members – he relied upon their word when they said they were buying for ships in port.  The Respondent submitted that Mr Chiem's evidence in relation to the representatives was a fabrication, underscored by Mr Chiem's vagueness in describing the persons with whom he had dealt. 
32.	All transactions were cash sales.  At the time of the ACS raid on 15 February 2001, approximately $150,000 in cash was found in the Applicant's safe on the premises.  
33.	Mr Chiem said that the purchasers would contact the Applicant by advance fax or telephone call outlining their respective orders.  The faxes contained no letterhead.  None of the faxes were retained.  On some occasions Mr Chiem would provide crew representatives with blank manifests which would be taken away and subsequently returned with the purported signature of a ship's officer and the ship's stamp in advance of a purchase, meaning that the document served no purpose in verifying delivery of the goods to the ship.  On other occasions, the ship's representatives would leave the shop with an unsigned manifest, along with goods in a sealed bag, in anticipation that the manifest would be signed and stamped and then returned.  
34.	The Applicant was, according to the Respondent, delinquent in its treatment of ships' manifests.  Where manifests were brought in by a representative, Mr Chiem did not know whether or not it had been signed by a ship's officer or whether the goods had been received on board the ships.  Blank manifests created by the Applicant were brought to Mr Chiem pre-signed and pre-stamped before sales had taken place, and clearly served no purpose as proof of delivery to the ship before any sale had taken place, a shortcoming exacerbated by Mr Chiem's practice of completing blank manifests by filling out the names of crew members himself.  
35.	Mr Chiem did not accompany the goods to the ship, nor did any of his employees.  He considered this an acceptable practice.  He said he considered he was meeting his licence obligations by entrusting the crew representatives to in effect, also deliver the goods to the ship.  Mr Chiem said it did not occur to him, to seek confirmation from the crew representatives that delivery had been effected.  
36.	Mr Chiem admitted he had not read the Permission in its entirety.  He said he just did what he thought was right.  He acknowledged that, with the benefit of hindsight, he had breached the applicable licence conditions.  
37.	The Respondent emphasised certain inconsistencies revealed by Mr Chiem’s description of the sale process when comparisons were made with Mr Chiem’s interviews with officers of the Commissioner on 2 November 2001 and January 2002, a written statement provided in June 2002, an affidavit sworn in Supreme Court proceedings in June 2003, statements made in the course of giving evidence in his criminal proceedings and his evidence given before the Tribunal in these proceedings.  
38.	Mr Chiem rationalised his failure to accompany goods to the ship on the basis that he thought he was complying with condition (iii)(e) of the Permission which he understood merely required the Applicant to arrange to deliver the goods in a sealed package to the relevant traveller onboard the ship.  In his statement of 9 September 2009, Mr Chiem said the Applicant always complied with this procedure.  This overlooked, however, the fact that the words arrange to had appeared only in a Permission dated 6 May 1996 issued to Mr Chiem as proprietor of the Sogo store prior to the Applicant's incorporation.  The words arrange to were omitted from the Permission granted to the Applicant effective from 1 July 1999.  Mr Chiem said he was not aware of this change to the conditions.  He had not read the new Permission and no one had brought the wording variation to his attention.
39.	It was submitted for the Applicant that Mr Chiem's failure to appreciate the change to the licence conditions was understandable, given that no formal notification had been provided to the Applicant pointing out the difference between the original licence and the subsequent one.  The slight difference in wording was not readily apparent to anyone on a cursory examination.  It was further pointed out that neither the licence nor the Permission granted to the Applicant, as amended, specified any condition that the Applicant was required to deliver excisable goods to relevant travellers in any particular manner.  
40.	The Respondent asserted that Mr Chiem was not prepared to be forthright about the true source of his statutory responsibilities, adopting a covert approach in his statements in order to minimise exposure to what the Respondent described as the clear wording of condition (iv)(e) of the Permission.  The Respondent described Mr Chiem's assertion that he failed to read or appreciate the distinction in the two Permissions as most extraordinary, and his assertion that he satisfied the obligation to deliver as colourable and bordering upon fantastic.  
41.	The Tribunal was shown a bundle of invoices, numbered sequentially from 21567 to 21580, all dated 10 February 2000 and relating to a vessel named Hanjin Cheju.  Each invoice contained the printed name of a crew member and the purported signature of that crew member.  Mr Chiem acknowledged that the same ship's representative had in each instance signed the name of the crew member, rationalising this process on the basis that he understood the representative was signing on behalf of the crew member.  Mr Chiem further justified this procedure on the basis that he assumed the nominated crew members actually existed as passport details provided by the representative appeared to be authentic.  His explanation did not address the fact that the signatories, if signing as representatives, were nevertheless signing the names of others in handwriting which appeared to vary from signature to signature, thus suggesting an attempt to make each signature appear to have been provided by a distinct individual.  Mr Chiem did not concede that these signatures amounted to forgeries.  The Respondent contended that the forging of crew members' signatures led to a clear inference that the goods were not purchased on behalf of the crew members and therefore had not been sold to relevant travellers for export.
42.	The Tribunal was shown a bundle of invoices relating to three ships and all bearing the same date, 25 August 2000.  The vessels were the Novorossiysk (invoices sequentially numbered 27504 to 27526), the Joint Spirit (27527 to 27545) and the MV Nivgini Chief (27546 to 27558).  The invoices revealed a total of 847 cartons of cigarettes for the Novorossiysk, 697 for the Joint Spirit and 442 for the MV Nivgini Chief, making a total of 1986 cartons at an average of 36 cartons per crew member for each of the Novorossiysk and the Joint Spirit and 40 cartons per member for the MV Nivgini Chief.  Mr Chiem said he did not regard this as odd.
43.	The Tribunal was also shown a bundle of invoices for the vessel Khudoznhnik Zhukov (sequentially numbered 33525 to 33546), each dated 18 January 2001 and each containing an identical quantity of cigarettes, being 10 packets of Winfield, 3 packets of Dunhill and 3 packets of Long Beach.  Mr Chiem said he did not regard it as remarkable that each crew member would buy the same cigarettes in the same quantities.  
44.	The Respondent described Mr Chiem's rationalisation of invoices from the various ships described in paragraphs 41 to 43 above as illustrating a lack of cogency, the proper inference being that the invoices were completed to present a façade of export sales and to disguise the underlying fact of domestic sales at higher prices.  
45.	The Tribunal was referred to Mr Chiem's supplementary witness statement referrable to all three applications and dated 9 September 2009.  Specifically, the Tribunal was referred to Mr Chiem's account of the ACS audit conducted in March 2000 in which he concluded: 
The Applicant's method of operation was examined by Customs in an audit conducted in March 2000 and its procedures were found to comply with Customs [sic] licencing [sic] conditions.
This summation was inconsistent with the report from ACS dated 5 April 2000 which referred to shortcomings in the recording of sales dockets, unaccounted dockets, information missing on dockets, destroyed documents, storage of goods in an uncertified area and concluding, specifically in relation to unaccounted dockets:
The discrepancies … are … taken very seriously.  You are therefore reminded, that continued errors of this kind could give grounds under Section 86 of the Customs Act for suspension of your licence. …
The ACS Report would, in the circumstances, appear to be inconsistent with Mr Chiem's conclusion that the Applicant's procedures were found to comply with Custom’s licensing conditions.  
46.	The Respondent submitted that Mr Chiem's evidence on contentious matters could not be accepted, referring to his evasiveness and prevarication under cross examination.  It was asserted that he had treated statements on oath as matters of little moment if they interfered with his financial interests, and statements made in the course of his criminal trial were inconsistent with his statements before the Tribunal.  
47.	The Applicant contended that each sale was supported by a signed ship’s manifest, proper identification of crew by way of passport photo and number, completed individual sales dockets, dockets which had been stamped by the appropriate officer and the absence of any knowledge or information in the Applicant’s possession that the goods were not delivered to the ships by the representatives as agent of the Applicant.  None of the cigarettes had been found in Australia despite extensive searches and enquiries by the relevant authorities.  It could therefore not be said that the duty free goods had not been safely kept.  Liability to pay excise duty was unfounded because the Respondent based its case on not accepting the proof the Applicant provided that the goods it sold were delivered by it in accordance with the requirements imposed by the Respondent.  The Applicant contended it had complied with all conditions imposed by the Respondent in accordance with the provisions of the Excise Act section 61D(10).  
48.	Ultimately, according to the Respondent, none of this assisted the Applicant because the fact remained that Mr Chiem did not deliver any of the goods to the ships, did not know what happened to them after they left the shop and, to Mr Chiem's knowledge, none of his staff took the goods to the ships.  Mr Chiem's assertion that representatives could have delivered the goods to the ships was no more than speculation and was further undermined by the fact that many of the ships were not in port at Melbourne, Western Port or Geelong at the time of relevant sales.  
49.	The Respondent observed that at his criminal trial, Mr Chiem had admitted that many ships involved in the transactions were not in the ports of Melbourne, Western Port or Geelong at the relevant times.  This was highly significant and showed that the Applicant could not discharge its burden of proof – if the ships had not been in port, the goods could not have been delivered to them.  The Applicant disputed the relevance of the fact that some ships were not necessarily in port at the time of the sales.  The Applicant could not be expected to check daily shipping movements and it was sufficient if it was shown the appropriate paperwork by the representatives and manifests signed by authorised ship officers returned to it.  
50.	The Respondent contended that even if the Applicant were to be believed that it intended to effect sales to relevant travellers for export, it was still insufficient for the purposes of the Excise Act.  Section 61D(12) deemed the entry and delivery of the goods into home consumption and therefore answered any contention regarding the Applicant's expectation or belief.  The Respondent contended that section 61(1) of the Excise Act focused on the place of consumption, not the subjective intentions of the parties.  It was a requirement on the Applicant that the goods actually be delivered on board the ship.  The Applicant's failure to meet this obligation meant that exportation could not be guaranteed as intended, and thus it could only be concluded that the goods had gone into home consumption and excise therefore attached to the goods.  
51.	Even if the goods had not been delivered for home consumption, the Respondent contended in the alternative that they had found their way irregularly into home consumption because the Applicant had sold them in circumstances where it could not demonstrate compliance with the legislative requirements for ensuring they were exported.  This irregular delivery of the goods gave rise to liability under section 60 of the Excise Act.  
The Income Tax Claim
52.	In its Statement of Facts and Contentions, the Respondent summarised the relevant facts as set out in its reasons for decision dated 24 May 2005.
53.	The Applicant, in its Statement of Facts and Contentions, summarised the Respondent's reasons for the decision in almost identical terms.
54.	For convenience, therefore, the Tribunal adopts the Applicant's summary of the relevant facts and this is reproduced (including, for completeness, the uncontentious background facts described in paragraphs [3-8] above) as follows:
4          …
(a)	Prior to 30 June 1998 Hoang Hai Chiem ("Chiem") conducted a business involving the sale of duty free goods (the business) as a sole proprietor at premises at 248 Springvale Road, Springvale, Victoria.
(b)	The Applicant was incorporated on 30 June 1998 with Chiem as its sole director and secretary.  Further the business was transferred to the Applicant on or shortly after its incorporation.
(c)	From 30 June 1998 to date, the Applicant operated the business from the premises at 248 Springvale Road, Springvale, Victoria.
(d)	The business provides sales, inter alia, of duty free goods to persons travelling overseas.
5	On or about 25 October 2001 the Applicant lodged its income tax returns for the 1999 to 2001 income years.
6	On or about 31 October 2001 assessments issued to the Applicant for the 1999 to 2001 income years.
7	On or about 18 January 2002 the Applicant was notified of the Respondent's intention to audit its affairs.  Between 23 January 2002 and 11 September 2003 a number of conversations and meetings occurred and some correspondence passed between the parties in relation to the proposed audit of the Applicant's affairs.
8	On or about 23 January 2002, the Applicant lodged amended income tax returns for the 2000 and 2001 income years.
9	On or about 12 March 2002, amended assessments issued to the Applicant in respect of the 2000 and 2001 income years.
10	On or about 18 September 2003, amended assessments issued to the Applicant in respect of the 1999 to 2001 income years.
11	On or about 18 September 2003, but after the issue of the amended assessments, the Respondent further considered the Applicant's affairs and, in particular, considered invoices purporting to record sales of duty free cigarettes to crews of visiting ships.
12	The Respondent concluded that these crew sales did not occur and that the crew sales invoices were shams.
13	The Respondent's reasons for this conclusion include:
13.1	invoices recording crew sales on days when the relevant ship was not in a port in Australia;
13.2	invoices did not record the name of the relevant ship; and
13.3	invoices recording crew sales to crew members not listed as crew members of the relevant ship.
14	Further the Respondent concluded that the purported crew sales of cigarettes were in fact sales made for domestic consumption to persons unknown, and that this resulted in an understatement of income by the Applicant for the purpose of Division 6 of the Income Tax Assessment Act 1997 ….
15	The Respondent calculated the amount of income understated by the Applicant by applying a recommended wholesale sales price to the quantities of cigarettes purported to have been crew sales in the relevant periods.  The recommended wholesale price was taken as that identified in the Australian Retail Tobacconist publication.
16	On 16 March 2005, the Respondent issued amended assessments for the income years ending 30 June 1999 to 2001.
17	On 11 April 2005, the Applicant objected to the amended assessments for the income years ending 30 June 1999 to 2001 as to the amounts assessed and as to the penalties imposed.
18	On 24 May 2005, the Respondent made his decision disallowing the objections for the 1999 and 2001 income years and partially allowing the objection for the 2000 income year.
19	On 28 June 2005, the Respondent's Objection Decision made 24 May 2005 was substituted as the decision under review.
55.	The Respondent contended that the Applicant's invoices purporting to record crew sales were shams and the cigarettes purported to be sold to crew of visiting ships were in fact sold in the domestic market to persons unknown.  Furthermore, the actual sales price on each invoice was grossly understated and accordingly the assessable income returned by the Applicant in accordance with section 6-5 of the Income Tax Assessment Act 1997 was understated.
56.	The Applicant contended that its invoices reflected bona fide sales of cigarettes.  It had sold the cigarettes to persons unknown in good faith and for the purpose of export, and that the cigarettes were not sold in the domestic market.  It did not underestimate its income from these sales in the 1999 to 2001 income years and in any event the methodology adopted by the Respondent in calculating what purported to be understated income was incorrect.  In the alternative, the Applicant contended that there were grounds warranting remission of penalties imposed by the Respondent.
57.	The Respondent calculated the amounts of income understated by the Applicant by applying a recommended wholesale sales price identified from the publication Australian Retail Tobacconist, and amended assessments were issued for the years ending 30 June 1999, 30 June 2000 and 30 June 2001.  The Applicant objected to the amended assessments and on 24 May 2005 the objections were partially allowed for the year ending 30 June 2000 but disallowed for the years ending 30 June 1999 and 30 June 2001.  The Respondent based its methodology on the assumption that the goods had been acquired excise free and, as a conservative assumption, would have been sold into domestic consumption at a sum equivalent to the domestic wholesale price of the goods.  The understated income was therefore the difference between the Applicant's cost price and the wholesale price. 
58.	In October 2008, the Respondent reviewed the amended assessments for the years ending 30 June 1999 and 30 June 2001 and decided not to rely upon estimated sales but rather to rely upon transactions evidenced by sales invoices.  
59.	The Applicant submitted that, on the evidence before the Tribunal, all income it had derived from gross sales had been included in its assessable income for the years ended 30 June 1999, 30 June 2000 and 30 June 2001.  There was no evidence that there were any receipts in excess of invoice prices, that the Applicant had in fact not sold the goods to representatives on behalf of ships' crews or that the accounts lodged on behalf of the Applicant which formed the foundation for the amended assessments were incorrect in any way.  The Applicant contended that the income deemed by the Respondent to have been received by the Applicant was a hypothetical which should not be included in the Applicant's assessable income as it did not constitute income pursuant to the Income Tax Assessment Act 1997 sections 6-5 and 6-10.
60.	Specifically, the Applicant contended that there was no general section in either the Income Tax Assessment Act 1936 or Income Tax Assessment Act 1997 which provided for substitution of a greater sales price than the amount actually received in the case of the sale of goods where property passed.  The Applicant’s cigarette sales involved the sale of trading stock in the ordinary course of business.  No section existed in the legislation to enable the Respondent to add back duty not paid or any other amount so as to increase the derived price.
61.	The Applicant further contended that if duty was payable, it would in any event be an expense incurred by the Applicant at the time the goods were entered for home consumption and would therefore be a deduction.  A deduction is allowable for any excise duty liability incurred pursuant to the Income Tax Assessment Act 1997 section 8-1.  This would have the effect of reducing the Applicant’s taxable income to the amounts returned in the 1999, 2000 and 2001 income years.  
62.	In summary, the Applicant rejected the Respondent's contention that the sales were shams.  They were not shams as that term is defined in Snook v London and West Riding Investments Limited [1967] 2 QB 786 at 802 per Diplock LJ and Bolton v Federal Commissioner of Taxation (1964) 9 AITR 385 .  If the sales were not shams, then the assessments were excessive.  The Applicant as vendor had clearly intended to pass property in the cigarettes to the purchasers.  As the sales were intended to have legal consequences, this meant they were not shams.  
63.	The Respondent contended that the Applicant had presumably relied upon its licences and Permissions to obtain the goods from its suppliers for a price exclusive of excise duty and thus obtained the goods for a price less than the wholesale price for sale in Australia.  This enabled it to sell the goods to an Australian domestic consumer at a lower price compared with sellers who were not selling duty free because it had avoided the cost of excise duty at acquisition.  
64.	The Respondent asserted that in the circumstances it was to be inferred that the Applicant's true receipt was an amount greater than the invoice price.  The Applicant was assessed to a transaction receipt being the domestic wholesale value of the goods, thus increasing its assessable income with no adjustment for allowable deductions.
65.	The Respondent rationalised its deemed price by adding the value of the excise duty not paid, and contended the Applicant had failed to discharge its onus of showing that this was excessive.  
66.	The Respondent further asserted that the Applicant had engaged in false pricing by failing to demonstrate that the price recorded on the relevant invoices was the true transactional price.  It based this conclusion on the facts that the: pricing of the transactions involving the goods and the purported crew members as purchasers appeared not to be genuine.  Of particular relevance were the sales purportedly made to members of ships' crews notwithstanding that the ship was not in port at the relevant time, the improbable quantities alleged to have been sold and taken away from the store, and similarities between invoices which suggested concoction.  
67.	The Applicant responded to the allegation of false invoicing stating that a mere inference was not sufficient to support an amended assessment, nor was a belief not based on actual facts.  There was no evidence that the Applicant had received anything but the invoice price for any sales it made to the representatives.  
68.	The Applicant pointed out that there was no evidence as to what price goods purchased from a supplier exclusive of excise duty would obtain on the domestic market and hence the Respondent's calculation as to the true value of the goods was unfounded.  It was also relevant, according to the Applicant, that no cigarettes were found in Australia, despite all the differences in packaging.  
The GST Application
69.	In the Applicant's GST returns for the four quarters of the financial year ended 30 June 2001, refunds totalling $439,970.00 were claimed on the basis that a high proportion of its goods were supplied as exports or, more specifically, involved supplies of goods that were not taxable supplies under A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) because they were GST-free supplies for the purposes of subdivision 38-E of that Act.  The refunds were calculated as follows:
Period of GST Return	
Amount of Refund Claimed	

1 July to 30 September 2000	
$124,654	

1 October to 31 December 2000	
$156,194	

1 January to 31 March 2001	
$84,998	

1 April to 30 June 2001	
$74,124	

TOTAL	
$439,970	

70.	An amended GST return was lodged in respect of the first, third and fourth quarters which amended the refunds claimed in respect of these periods as follows: 
Period of GST Return	
Amount of Refund Claimed	

1 July to 30 September 2000	
$124,654	

1 January to 31 March 2001	
$85,649	

1 April to 30 June 2001	
$74,138	

TOTAL	
$284,441	

An amended return was not lodged in respect of the quarter 1 October to 31 December 2000.  
71.	According to the Respondent information the Applicant provided to it was to the effect that the claims of GST-free supplies comprised sales of duty free goods to crew members of ships docked in Melbourne.  Goods will be classified as GST-free if, amongst other things, the person supplied is a relevant traveller.  Relevant traveller, defined in section 195-1 of the GST Act which adopts section 96A of the Customs Act 1901, is a person who intends to make an international voyage, whether as a passenger on, or as the master or member of the crew of, a ship.  This requirement in turn raises the same issues as discussed above in relation to the reliability and bona fides of the Applicant's sales process.  
72.	In 2002, the Respondent inspected approximately 2,275 invoices relating to the four quarterly tax periods within the 2001 financial year and concluded that the persons to whom the sales were made were not members of ships' crews.  The Respondent issued a Notice of Assessment which assumed $1,669,686 in total sales during the year ended 30 June 2001, resulting in the following shortfalls:
Period of Assessment	
Shortfall Assessed	

1 July to 30 September 2000	
$241,056	

1 October to 31 December 2000	
$102,721	

1 January to 31 March 2001	
$102,721	

1 April to 30 June 2001	
$25,254	

The Applicant lodged objections in respect of three of the above quarters.  It did not lodge an objection in respect of the period 1 July to 30 September 2000.  Each objection was disallowed.  
73.	In February 2004, the Respondent issued a Notice of Assessment of Penalty regarding the shortfall amounts for the three periods objected to:
Period of Shortfall	
Shortfall Assessed	
Amount of Penalty	

1 October – 31 December 2000	
$102,721	
$51,360.50	

1 January to 31 March 2001	
$102,721	
$51,360.50	

1 April to 30 June 2001	
$25,254	
$12,627	

74.	In October 2008, the Respondent revised its calculations, concluding that the shortfall should be calculated by reference only to the 2,275 copy invoices provided to it.  These invoices totalled $1,067,069 compared with the figure of $1,669,686 upon which calculations for the full year had previously been based.  The shortfall and penalty were correspondingly reduced and are summarised in a table the Respondent prepared as follows:
Tax Period	
Shortfall assessed
($)	
REVISED SHORTFALL
($)	
Difference ($)	
Penalty assessed ($)	
REVISED PENALTY ($)	
Difference ($)	

1.10.2000-31.12.2000	
102,721.00	
24,853.00	
-77,868.00	
51,360.50	
12,426.50	
-38,934.00	

1.1.2001 – 31.3.2001	
102,721.00	
68,644.00	
-34,077.00	
51,360.50	
34,322.00	
-17,038.50	

1.4.2001 – 30.6.2001	
25,254.00	
26,207.00	
+953.00	
12,827.00	
13,103.50	
+476.50	

TOTALS	
696.00	
119,704.00	
110,992.00	
115,348.00	
59,852.00	
-55496.00	

75.	In making this determination, the Respondent relied in particular, on Item 7 of the table under section 38-185(1) (within Subdivision 38-E) of the GST Act which provides that a supply of goods to a relevant traveller is GST-free on certain conditions.  Item 7 provides the conditions on which a supply to a relevant traveller will be GST free, and this includes a requirement that the supply must be made in accordance with the rules specified in the regulations.  The Respondent disputed that the goods had been supplied to a relevant traveller and asserted that even if they had, the goods were not supplied in accordance with the rules specified in the regulations.  
76.	Schedule 5 of A New Tax System (Goods and Services Tax) Regulations 1999 (the GST Regulations) refers to two sets of rules for the supply of goods to a relevant traveller, namely, the Sealed Bag Rules (SB Rules) and the Customs Barrier Rules (CB Rules).  The SB Rules apply to goods taken possession of on the Australian side of the Customs barrier, and the CB Rules apply to goods taken possession of on the outward departure side of the Customs barrier.
77.	The SB Rules provide as follows:
SB Rule 1 – Seller to sight travel documents
The seller of goods must sight:
(a)	the purchaser's ticket for travel from Australia to a foreign country; or
(b)	if appropriate, a document relating to the purchaser that is an approved document.
The Commissioner may approve a document of a kind that provides evidence that a purchaser is to travel from Australia to a foreign country.
SB Rule 2 – Purchaser to sign an SB declaration
The purchaser must sign, and retain a copy of, a declaration (SB declaration) setting out, in the approved form:
(a)	details of the purchaser, the goods purchased and the proposed journey; and
(b)	if the following matters are true, a statement that the purchaser:
(i)	intends departing Australia with the goods within 30 days of taking possession;
(ii)	will not interfere with the goods, the sealed package containing the goods or the copies of the invoice relating to the goods before submitting the sealed package to the seller in accordance with the SB Rule 7 or 8;
(iii)	will, in accordance with SB Rule 7 or 8, submit the sealed package to the seller for removal of the barrier copy of the invoice;
(iv)	is aware of the penalty for making a false or misleading statement; and
(c)	any other information or statement required by the approved form.
SB Rule 3 – Seller to make an invoice
The seller must make an invoice:
(a)	at the time of the sale; and
(b)	in an approved form; and
(c)	in triplicate; and
(d)	containing a full description of the goods.
SB Rule 4 – Seller to retain copies of certain documents
The seller must retain:
(a)	the signed SB declaration; and
(b)	a copy of the invoice
…
SB Rule 8 – Invoice to be retrieved when beyond the Customs barrier
If the sealed package is carried beyond the Customs barrier by the purchaser in his or her own possession, the purchaser must then surrender the sealed package to the seller and the seller must retrieve the barrier copy of the invoice.
…
SB Rule 11 – Retrieved invoices must be validated
The seller must validate a retrieved barrier copy of an invoice:
(a)	as soon as is practicable; and
(b)	by the approved method.
SB Rule 12 – Invoices must be matched
The seller must reconcile the retrieved barrier copy of an invoice against the seller's copy of the invoice, by an approved method.
78.	The CB Rules provide as follows:
CB Rule 1 – Seller to sight travel documents
The seller of goods must sight:
(a)	the purchaser's boarding pass or ticket for travel from Australia to a foreign country; or
(b)	if appropriate, a document relating to the purchaser that is an approved document.
The Commissioner may approve:
(a)	a document of a kind that provides evidence that the purchaser is to travel from Australia to a foreign country; and
(b)	a document of a kind that provides evidence that the purchaser was beyond the Customs barrier when taking possession of the goods.
CB Rule 2 – Purchaser may have to sign a CB declaration
If the purchaser pays for the goods on the Australian side of the Customs barrier and will not take possession of the goods until he or she has passed through the Customs barrier, he or she must sign, and retain a copy of, a declaration (CB declaration) setting out, in the approved form:
(a)	details of the purchaser, the goods purchased and the proposed journey; and
(b)	a declaration that he or she is aware of the penalty for making a false or misleading statement; and
(c)	any other information or statement required by the approved form.
CB Rule 3 – Seller to make an invoice
The seller must make an invoice or receipt:
(a)	at the time of the sale; and
(b)	in an approved form; and
(c)	in duplicate; and
(d)	containing a full description of the goods.
CB Rule 4 – Seller to retain copies of certain documents
The seller must retain:
(a)	a copy of the invoice; and
(b)	the signed CB declaration (if any); and
(c)	if the goods are paid for on the Australian side of the Customs barrier and pass into the possession of the purchaser only after the purchaser has passed through the Customs barrier, an approved document giving evidence of that fact.
The Commissioner may approve a document of a kind that provides evidence that the goods have been passed into the possession of the purchaser after he or she has passed through the Customs barrier. 
79.	In relation to the SB Rules, the Respondent contended that the Applicant had failed to provide:
In relation to the subject supplies and each of them:
•	documents of the kind prescribed by SB Rule 1;
•	a SB declaration as prescribed by SB Rule 2 and retention of a copy of which by the seller is required by SB Rule 4;
•	a barrier copy of the invoice required to be retrieved by SB Rule 7 or 8;
•	documentation of the kind prescribed by SB Rule 11 evidencing validation of retrieved barrier copy invoices;
•	documentation of the kind prescribed by SB Rule 12 reconciling the retrieved barrier copy invoices against the seller's copy invoices by an approved method.
In relation to those of the subject supplies for which the Applicant has not provided any invoice, the invoice required by SB Rule 3 and in particular a retained copy as required by SB Rule 4.
80.	In relation to the CB Rules, the Respondent contended that the Applicant had failed to provide:
In relation to the subject supplies and each of them:	
•	documents of the kind prescribed by CB Rule 1, and without limitation, documentation prescribed by CB Rule 1(b) evidencing that the purchaser was beyond the Customs barrier when taking possession of the goods;
•	a CB declaration as prescribed by CB Rule 2 and retention of a copy of which by the seller is required by CB Rule 4;
•	documentation of the kind prescribed by CB Rule 4(c) evidencing that goods purchased on the Australian side of the Customs barrier and passing into possession of the purchaser only after the purchaser has passed through the Customs barrier;
In relation to those of the subject supplies for which the Applicant has not provided any invoice, the invoice required by CB Rule 3 and in particular a retained copy as required by CB Rule 4.
81.	The Respondent imposed an administrative penalty on the Applicant equivalent to 50% of the alleged shortfall amounts.  Section 284-75(1) of Schedule 1 of the Taxation Administration Act 1953 (TAA 1953) provides that an entity is liable to an administrative penalty if it makes a false or misleading statement to the Commissioner in a material particular, resulting in a shortfall amount.  Section 284-90(1) of the TAA 1953 provides that the base penalty amount is 25% of the shortfall if the entity fails to take reasonable care to comply with a taxation law, 50% in the case of recklessness as to the operation of the taxation law and 75% in the case of an intentional disregard of the law.  
82.	The Respondent determined that the appropriate rate of penalty was 50% on the basis that a shortfall had resulted from misleading statements by the Applicant to the effect that sales to members of ships' crews were GST-free and that the Applicant's behaviour fell within the meaning of recklessness as set out in Tax Ruling TR94/4 (the Tribunal is aware that this ruling was withdrawn from 14 May 2008 and replaced with a Draft Miscellaneous Taxation Ruling MT 2008/01).  
83.	In relation to the question of penalty, the Respondent contended that the Applicant had created a risk of a shortfall occurring by failing to retain crucial documents.  A reasonable person would, according to the Respondent, have been aware of the risks involved in not adhering to the relevant requirements of the GST Act and Regulations.  Although the Applicant claimed to have applied the ACS's operating procedures for exporting when making sales to members of ships' crews, it failed to have regard to the specific requirements of the GST Act and Regulations when completing GST returns.  
84.	The Applicant contended that the Respondent, in amending the GST Assessments, did not comply with regulation 38-185.01 of the GST Regulations.
85.	The Applicant contended that the sales dockets revealed compliance with each and every rule of the SB and CB Rules.
86.	The Applicant challenged the Respondent's assumption that sales of duty free goods were purportedly restricted to the crew of ships docked in Melbourne, noting that at no stage had it contended that this was the case and noting that a relevant traveller included anyone intending to leave Australia on any international flight or voyage.
87.	The Applicant further challenged the Respondent's reliance upon a statement made on 18 January 2002, purportedly by a representative of the Applicant.  The Applicant contended that the statement was drawn up by its previous tax agent, Alan Walker, at the instigation of the Respondent.  It contended that the statement was drawn up for Mr Chiem as an inducement to settle the dispute, an inducement upon which the Respondent allegedly subsequently reneged.
88.	The Applicant also challenged the Respondent's reliance upon another statement by Mr Chiem, claiming that the statement was made essentially to break the impasse on the refund of the input tax credits by the Respondent and was made at the instigation of the previous tax agent.
89.	The Applicant further contended that numerous minutes or records of interviews were not provided to the Applicant for review and therefore amounted to no more than hearsay on the part of the Respondent.
90.	The Applicant emphasised the uncertainty surrounding the assessments for the last three quarters in the 2001 financial year, submitting that the only believable evidence in respect of GST was the analysis made by Ross de Blaquiere, a chartered accountant called to give evidence on behalf of the Applicant.  
91.	The Applicant contended that the assessments of GST liability for the four quarters of the 2001 financial year were invalid as the Respondent was out of time under section 105-50 of the TAA 1953 to collect any outstanding liability from the Applicant.  
92.	In relation to the first quarter ending 30 September 2000, the Applicant stated that the Respondent's assessment of GST was raised on 12 August 2002 and expunged on 11 September 2006 when the Respondent credited the amount of the outstanding liability.  No GST liability existed in relation to the first quarter.
93.	In relation to the second quarter ending 31 December 2000, the Respondent raised a GST assessment on 22 April 2003 and the Applicant's liability had been expunged on 11 September 2006.  According to the Applicant, the Respondent had no power to debit the amended amount of $198,242 on 16 May 2008 as the GST became due and payable on 20 February 2001 and, under the TAA 1953 section 105-50 of Schedule 1 (which replaced the GST Act section 35), any indirect tax ceases to be payable four years after it became payable.  When the Respondent increased the Applicant's liability, no reference was made to fraud or evasion and no internal procedure had been followed by the Australian Taxation Office in order to assess the existence of fraud or evasion.  
94.	In relation to the third quarter, a GST assessment was raised on 1 May 2003, again with no reference to fraud or evasion.  This debt of $122,721 was fully expunged and reduced to nil by GST credit to the account on 11 September 2006.  Accordingly there was no GST liability for this quarter.
95.	With respect to the fourth quarter, the GST assessment was issued on 22 April 2003, effective from 13 August 2001, and the liability was fully expunged by a credit amending GST to the Applicant's account on 11 September 2006.  The Applicant's account had now been credited to nil.  Entries in the Integrated Client Account (ICA) made on 11 September 2006 were made by the Respondent to reflect an allowance of the objections made to all four quarters for the 2001 year.  
96.	On the basis of the above analysis, the Applicant contended that no valid liability existed for any GST after the credit amendments had been made to the ICA.  
97.	The Respondent contended that the sales were not GST-free because, to achieve that exemption, the Applicant was required to comply with certain obligations under the GST Act and Regulations which were designed to demonstrate that the goods had been sold to relevant travellers for export, and not delivered into home consumption.  The value of the taxable supply was determined by reference to the actual receipt of the transaction, which the Respondent deemed to be the wholesale value.  
98.	The Respondent further contended that for a supply to be GST-free, the Applicant would have to demonstrate that the goods had been supplied to relevant travellers and, if so, that it had complied with the prescribed conditions in making such supplies.
99.	The definition of relevant traveller in section 195-1 of the GST Act adopts the definition which appears in the Customs Act section 96A.  The Applicant had failed to demonstrate, for these purposes, that sales had been made to members of ships' crews.  
100.	The Respondent emphasised that even if the goods had been supplied to relevant travellers, the Applicant had still failed to comply with the rules set out in Schedule 5 of the GST Regulations which in turn provided the SB and CB Rules referred to above.  As the Respondent surmised, it is plain that these requirements are designed to ensure that the Goods were in truth sold to relevant travellers for export, and again Sogo has failed to demonstrate this.  
101.	Consistent with the Respondent's position in relation to determining liability and in relation to the invoices made available for examination, the Respondent sought a variation of the assessments for the second, third and fourth quarters of the 2001 financial year.  
102.	In relation to the Applicant's assertions regarding the validity of the GST assessments, the Respondent emphasised that GST assessments cannot become out of time.  Section 105-50 of Schedule 1 of the TAA 1953 provides that the Commissioner has a four year time limit on recovering amounts after they become payable.  This is contingent upon the timing of the notice of assessment and the Commissioner can make the assessment at any time.  The presence of notices of assessment, requiring payment of the assessed amount, meant that the Applicant remained obliged to make payment and the Commissioner was not prevented from recovering those debts.
Decision
103.	As acknowledged by both parties, the Applicant bears the onus of proof in any challenge to an assessment: TAA 1953 section 14ZZK.  It was further acknowledged that there was no onus on the Respondent to show that its assessment was correct and no obligation to support the assessment with evidence: Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81. 
104.	In addition to Mr Chiem, the Applicant called evidence from Mr de Blaquiere (a Chartered Accountant), Roger Pearce (a Customs Officer) and Brett Schultz (an officer employed in the Australian Taxation Office) and Richard Harnett.  The Tribunal has concluded that nothing turns on the evidence of Mr Pearce, Mr Schultz or Mr Harnett and only the evidence of Mr de Blaquiere warrants further comment.  
105.	Mr de Blaquiere's three reports demonstrated the Applicant's liability under the three separate headings of income tax, GST and excise duty.  These revealed that both the income tax and GST assessments were excessive (unless the Respondent was entitled to rely upon its notional retail price calculation).  The Respondent contended that Mr de Blaquiere's evidence merely served to summarise the Applicant's assessment history and did not assist in discharging the Applicant's onus of showing that the tax liability figures were excessive.  The figures submitted by Mr de Blaquiere were inherently deficient in that they assumed the Applicant had discharged its onus of showing that the tax liability figures were excessive, they did not include penalty and general interest charges and, in relation to the GST claim, were based on the ex facie prices on the invoices as opposed to the adjusted wholesale prices deemed by the Respondent.  The Tribunal agrees with the Respondent's submission on this point.
106.	Mr Chiem’s evidence was integral to the Tribunal’s decision in this matter.  Under cross examination Mr Chiem was less than convincing in relation to a number of key aspects of the sale process and his description led the Tribunal to the conclusion that the process was, at best, inefficient and unreliable and, at worst, suggestive of a cynical if not calculated disregard for the destination of the goods sold.  The Tribunal concluded that Mr Chiem's evidence was unreliable.  It is possible that Mr Chiem was confused by some of the questions put to him under cross examination and it also appears to be the case that some of the inconsistencies in his various statements and sworn testimonies were semantic only.  Taken in its totality, however, Mr Chiem did not assist the Applicant in discharging the requisite burden of proof in relation to each of the three applications.  
107.	The Tribunal considers it improbable that Mr Chiem could have dealt with a small group of individuals (the so called representatives) over a protracted period, engaging in transactions worth millions of dollars, without ever knowing their names and without having any means, apparently, of being able to contact them.  It is significant that none were called to give evidence.  
108.	The process apparently adopted for handling ships' manifests appears to have been an inconsistent and futile procedure which served no purpose in verifying delivery of the goods to the ship.  In relation to the handling of ships' manifests, and in relation to the Applicant's failure to ensure that the goods were accompanied to the ship, it is not to the point whether or not Mr Chiem thought the Applicant was complying with the Permission – more to the point is that the conditions in the Permission were clearly not observed.
109.	The Tribunal regards as persuasive the bundles of invoices tendered by the Respondent in relation to sales purportedly made to crew members of the vessels Hanjin Cheju, Novorossiysk, MV Nivginichief, Joint Spirit and Khudoznhnik Zhukov.
110.	The invoices relevant to the Hanjin Cheju demonstrated to the Tribunal's satisfaction that the Applicant was prepared to accept forged signatures on invoices.  The forgery practice was so blatant as to arguably support the conclusion that Mr Chiem may have considered it legitimate, but ultimately no reasonable person could have assumed that it was acceptable for representatives – assuming the representatives were bona fide – to sign the name of another individual, particularly in a manner which suggested an attempt to replicate the signature of that individual.  
111.	In relation to the invoices relevant to the Novorossiysk, MV Nivginichief and Joint Spirit, the quantities of goods purportedly ordered on average by each crew member were so great as to be implausible to any reasonable person.  This supports a conclusion that the invoices were not bona fide and in fact were created with the objective of disguising the sales which actually took place.
112.	The invoices relevant to the Khudoznhnik Zhukov, purportedly showing each crew member ordering exactly the same quantities of exactly the same three brands of cigarette, is again suggestive to the Tribunal of an invoice created solely for the purpose of completing the paperwork rather than accurately recording a genuine series of transactions.
113.	Having made this assessment of Mr Chiem's evidence, it follows that the Tribunal is not satisfied that the Applicant has discharged its onus of proof in relation to each of the three applications.  
114.	The Tribunal finds in favour of the Respondent in relation to the income tax application.  With respect to this application the burden of proof lies with the Applicant to establish affirmatively and on the balance of probabilities that the amount of taxable income for which it has been assessed exceeds the actual taxable income which it derived during the relevant year or years of income: George v Federal Commissioner of Taxation (1952) 86 CLR 183; Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614; Federal Commissioner of Taxation v ANZ Savings Bank Ltd (1994) 181 CLR 466; McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284.  In the Tribunal's opinion, the Applicant has failed to discharge this onus.
115.	The Tribunal does not consider that anything turns on the question of whether or not the sales were shams as such.  For reasons contended on behalf of the Applicant, it was probably incorrect for the Respondent to describe the sales as shams but any such characterisation, as opposed to the substance of the transactions, is of no relevance.
116.	Contrary to the Applicant's assertions, the Tribunal considers the Respondent’s methodology in determining the Applicant's taxable income as quite logical and possibly conservative.  Certainly the Applicant has not demonstrated that the approximation by the Respondent had no intelligible basis: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63; George v Federal Commissioner of Taxation [1952] 86 CLR 183; Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614.  Indeed, the methodology adopted by the Respondent is the only logical means of determining the Applicant's income once one accepts the premise of the Respondent's claim.  It is not necessary for the Respondent to go further and establish the precise accuracy of the assessment: Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81. 
117.	In relation to the GST application, it is relevant (as it is to all three applications) that the Applicant failed to prove that the goods were sold to relevant travellers.  Accordingly the actual sales by the Applicant are not GST-free.  Given this conclusion, it is not necessary for the Tribunal to determine whether or not there was a breach of the SB or CB Rules.  It follows that the Applicant understated its GST liability as recorded in its GST returns for each quarter of the 2001 year – given that the first quarter is not the subject of an objection by the Applicant, the Tribunal's finding is restricted to the second, third and fourth quarters of the 2001 year.  
118.	In relation to the excise claim, it follows from the Tribunal's findings of fact that the Applicant is liable to pay the Respondent's demand.  It is the Tribunal's conclusion that the goods were not sold for export but were delivered into home consumption, thus rendering the Applicant liable to pay excise duty on each stick in the manner submitted by the Respondent.  By delivering the goods into home consumption, the Applicant failed to keep the goods safely within the meaning of section 60 of the Excise Act.
119.	The object of section 60 is to ensure that excisable goods do not find their way into home consumption without the payment of duty: Sidebottom v Giuliano (2000) 98 FCR 579.  The Applicant had an obligation to keep the goods safe from loss or destruction: Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279.  The Applicant failed to meet these fundamental obligations.  The Applicant rarely, if at all, exhibited any concern as to whether goods leaving its shop had been entrusted to genuine representatives of ships' crews or whether the goods ultimately found their way onto a ship purportedly in port in Victoria at the time.  The Applicant quite clearly contravened the Delivery Condition and failed to satisfy the Proof Condition which formed the basis upon which he had been entrusted the possession of the goods.  Therefore the goods must be deemed to have been entered and delivered for home consumption, rendering the Applicant liable to pay excise duty on those goods. 
120.	On the question of penalties, the Tribunal considers that the appropriate rate was imposed by the Respondent in each instance – that is, 75% in the case of the income tax application and 50% in the case of the GST claim.  
121.	The Tribunal does not propose to calculate the precise amounts payable by the Applicant as a consequence of this decision.  The above findings will provide the appropriate parameters within which the relevant calculations can be made.
122.	For the reasons above, the Tribunal affirms each of the decisions under review.  	
I certify that the one hundred and twenty two [122] preceding paragraphs are a true copy of the reasons for the decision herein of  
Dr Gordon Hughes, Member
(sgd) Mya Anumarlapudi
		Clerk
Dates of Hearing	10 & 11 September 2009, 13 October 2009 
Date of Decision	12 February 2010 
Counsel for the Applicant	Mr George Beaumont 
Solicitor for the Applicant	Felipe Tellez 
Counsel for the Respondent	Mr Peter Sest 
Solicitor for the Respondent	Australian Government Solicitor