Supreme Court to hear landmark GST case

Thursday, 11 March 2010

The Supreme Court has allowed Contract Pacific to appeal its GST case against the Inland Revenue Department.

The Court of Appeal ruled in December in favour of the IRD which considerably enlarged the IRD's ability to withhold GST rebates in cases where there is a disagreement between the taxpayer and the department.

The case arose around a GST refund of $6,669,061.74 claimed by Contract Pacific. IRD initially granted the refund, posted the cheque and then cancelled the cheque before it reached the company.

The key issue is how long the IRD can hold up refunds. The Goods and Services Tax Act states the IRD can only hold up refunds and request further information so long as proper notice is given within 15 working days after the GST return being received by the IRD.

The IRD argued, successfully, that it had given notice of its intention to investigate the claim and this notice was delivered within 15 days.

The Court of Appeal also ruled that provisions in the Tax Administration Act which require the commissioner for IRD to "use best endeavours to protect the integrity of the tax system and a specific duty on the commissioner to collect the highest revenue that is practical having regard to resources and the importance of obtaining compliance" over-ride the provisions in the Goods and Services Tax Act relating to the timeframe required for release of the GST refund.

That ruling has been criticised as allowing the IRD too much leeway to issue a notice of intention to investigate a claim and then take its time before reaching a final decision.

That, and the Court of Appeal's ruling that the provisions of the Tax Administration Act over-rule timeframe provisions in the GST act, are likely to be the main points at issue before the Supreme Court.

A date for the Supreme Court hearing has not yet been decided.

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