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12 Mar 088 Taxpayers entitled to refund of mistakenly paid GST - KAP Motors

The Federal Court (Emmett J) has held that s 105-65 of Schedule 1 to the Taxation Administration Act 1953 (Cth) did not entitle the Commissioner to refuse to refund GST mistakenly paid by 2 taxpayers (both motor vehicle dealers) in circumstances where the 2 taxpayers had not agreed to reimburse the GST to the motor vehicle distributors which had been charged the GST by the 2 taxpayers. The GST had originally been paid by the 2 taxpayers in the mistaken belief that they had supplied goods or services to the motor vehicle distributors; however, the Commissioner conceded that there had been no supply of goods and services and therefore no taxable supply.

Section 105-65(1) relevantly provides that the Commissioner need not give to a person a refund of GST if:

- the person overpaid the amount because a supply was treated as a taxable supply to an extent;
- the supply was not a taxable supply to that extent; and
- the Commissioner is not satisfied that the person has reimbursed a corresponding amount to the recipient of the supply.

The taxpayers argued that s 105-65(1) had no application because there had been no supply. The Commissioner argued that s 105-65(1) should be interpreted as extending to "purported" supplies. The Court rejected the Commissioner's arguments and found for the taxpayers. The Court said at para 34:

"As I have said, the term supply as it appears in s 105-65, is defined for the purposes of the GST Act and s 105-65.  To depart from the defined meaning given to a term, even if it is done by reading words into the context surrounding the use of the defined term,  requires a particular justification.  Such justification must be all the stronger in a case involving the interlacing complexity and delicate wording of a statute constituting part of the federal tax system. No such justification is present in this case."

KAP Motors Pty Ltd v FCT [2008] FCA 159 (Federal Court, Emmett J, 28 February 2008).

For a copy of the decision, go here

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