Treasurer, Revenue Management Division of the Ministry of Finance and Economic Management v Beachcomber Ltd [2001] CKHC 10; CA70.98 (18 June 2001)

IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
(CIVIL DIVISION)

NO: 70/98

BETWEEN

The Treasurer of the Revenue Management Division
MINISTRY OF FINANCE AND ECONOMIC
MANAGEMENT
PLAINTIFF

AND

BEACHCOMBER LIMITED
a duly incorporated Company having its registered office in Avarua Rarotonga
DEFENDANT

Mr P E Lynch for Plaintiff
Mr B J Gibson for Defendant

Hearing: 10 and 11 May 2001

Judgment of Chief Justice
Dated the 18th day of June 2001.

1. This is a claim for the sum of $42,485.80, as amended, for Value Added Tax (VAT) alleged to be due and unpaid by the Defendant on the sale of pearls and pearl related products based on an assessment dated 28 September 1998. The Defendant has challenged the basis of the assessment and claims that the subject sales are or ought to be zero-rated. The parties have agreed that this proceeding is to be dealt with as if it was an objection instituted and processed under Part VI of the Value Added Tax Act 1997 (the Act).
2. For the purpose of this case the Act imposed VAT on any supply of goods by a registered person in the Cook Islands in the course of carrying on a taxable activity. The tax applied to any supply of goods after 1 July 1997. The rate of tax is 12.5% of the value of supply but is 0% in the case of a supply which is one of the zero-rated supplies in the Third Schedule to the Act. The relevant clause in that Schedule is the first and it reads as follows:
   • "1. Any supply of goods if the registered person-
     • (a) exports the goods from the Cook Islands in the course of the supply; or
     • (b) satisfies the Collector that the goods have been exported from the Cook Islands by the registered person; or
     • (c) satisfies the Collector that the goods have been supplied to a person for consumption or use outside the Cook Islands (including as stores on departing ships or aircraft or where the acquirer of the goods is a departing sea or air traveller); or
     • (d) sells the goods, to an air traveller arriving in the Cook Islands, within an area under the control of the Collector of Customs as a customs examining place under the Customs Act 1913; -
   • Provided that this paragraph will not apply to a supply of goods by a registered person —
     • (a) Being goods in respect of winch a deduction under section 16(4)(c) of this Act has been allowed to the registered person; or
     • (b) Being goods which have been or will be reimported into the Cook Islands by the supplier."

Other provisions of the Third Schedule apply to the supply of goods and services outside the Cook Islands

3. It was the defence claim that the supply of goods in question was zero-rated because it fell within paragraphs (a) to (c) above. This was founded on the system which the defendant had introduced and operated for a time. This was that the purchaser of the pearls or pearl product being identified as a tourist was requested to provide a full name and address, a date of departure, and if known a passport number and the type of credit card used. These items were then recorded on the sale docket. The goods sold were then handed to the purchaser or were delivered to the purchaser the day before departure. The date of departure was taken from the air ticket if available at the time of purchase but otherwise was provided orally by the purchaser. In a number of cases the dockets indicated that the payment was made in cash. It was contended that this record was sufficient to satisfy the Collector that the goods had been supplied to a person for use outside the Cook Islands and a departing passenger. These were sales in the shop premises of the Defendant; to be distinguished from sales on shipboard or at the wharf to departing tourists which the Collector had accepted as being zero-rated. Nor were these sales made at the airport on what is known as the air side where the duty free shops are situated and where the passengers have already passed through customs. Nor were they sales where the goods were delivered to the purchaser at the airport on the air side. The Act does not provide for a sealed bag system in the Cook Islands which permits delivery before departure in a sealed bag which is checked by Customs on departure. Nor does the Act provide a recovery system by claim by the purchaser after departure.
4. The Collector contended that he could not be satisfied that the goods had been supplied for use outside the Cook Islands or to a departing passenger and that in any event the Schedule could not apply to a supply in the Cook Islands by the physical delivery to the purchaser in the shop premises not being in the airport on the air side. A number of hypothetical situations were put forward to indicate that the goods might not be exported in every case. The contention was that there could be no assurance that the goods were inevitably to be used outside Cook Islands.
5. Although the Defendant relied on the three paragraphs (a) to (c) only the last could apply since in no case in issue was the Defendant, the registered person, exporting the goods. It was the onus then on the defendant to show that it could satisfy the Collector, the Plaintiff, that the goods were for use outside the Cook Islands including the case of acquirer being a departing air passenger.
6. It is necessary in construing a part of an Act or a Schedule to it to have regard to the whole of the Act and its purpose. In doing this it has to be recognized that the Act, the Cook Islands legislation on VAT, differs in important respects from the New Zealand and other Commonwealth legislation on GST and VAT. This means that there can be no assistance from cases and decisions on these other Acts and provisions. Counsel did not cite any authority other than the general principles on statutory construction with particular reference to taxing statutes. The Act here must be considered and construed on its own.
7. I have already set out the principle purpose of the Act in imposing VAT and in doing so I was referring to the provisions of section 10. That makes clear the application to the supply of goods in the Cook Islands. In section 2 the same geographic emphasis is made in the definitions of "Exempt supply", "Taxable supply", and in "Open market value". The phrase "Time of supply" is defined in section 5 to fix the time at the earliest of the issue of a tax invoice, receipt of a payment for the supply or the time the supplier delivers the goods. The place of supply is determined by section 7. If the supply does not involve the removal of the goods from the Cook Islands the goods are treated as being supplied here if they are physically here at the time of supply (s. 7(2)(a)). If the supply does involve such removal the goods are treated as being supplied in the Cook Islands (S. 7(3)(a)).
8. There can be no doubt that in the sales in issue the time of sale or supply and the place of supply with certainty put the supply in the Cook Islands. The question was whether the supply fell within the provision of the Third schedule. That was the burden on the Defendant.
9. Paragraph 3 of the schedule is to apply to a situation different from the export by the registered person, paragraphs (a) and (b), or the sale to an incoming passenger on the air side, paragraph (d). It does require export in a general sense. That is the goods have to be removed or taken from the Cook Islands to be used outside them. There was a complaint on behalf of the defendant that the Collector had used the term export as the test in the correspondence between them and their advisers and had not raised the particular issue under the precise terms of paragraph (c) until the hearing. But that general use was acceptable in my view as being the underlying test in the case. The use outside must mean that there is no use inside. In the context the term "outside" is exclusive. It does not mean ultimate use outside the country. It means use outside and only outside. The parenthetical inclusions are extensions or additions to the primary provision. They extend the benefit of zero-rating to the cases of stores where the goods will inevitably be supplied or delivered on shore or to goods acquired by a departing air traveller who will receive the goods before departure. In spite of that supply in the country the goods can be treated as for use outside because inevitably and certainly they are to be exported and used outside. The departing passenger is one who is departing immediately. Departing, as the present participle, connotes no delay. It does not refer to a future date but to the immediate present. The fact that there may be a delay because of some change in time table or unforeseen eventuality does not alter the position of the acquirer as departing passenger at the time of acquisition.
10. On that construction the sales and supplies in issue cannot qualify as zero-rated. In every case there is the fact of supply inside the country and so the use of the goods cannot be exclusively outside the Cook Islands. The acquirer is not a departing passenger but is someone who is to depart at some later date. No doubt, assuming the correctness of the record of the docket and the information set out, the purchaser will depart, the goods will be exported and used outside the Cook Islands but not in the terms of the Third schedule.
11. The second point, against the defendant, is that the assumption to be made about the record and the information cannot assure that the goods will be exported and used outside. The authenticity of the evidence is doubtful. It relies on what the seller has been told and what has been recorded. It could not satisfy the Collector that in any case the qualifications of the Third schedule had been met.
12. The Plaintiff was correct in assessing the Defendant to VAT. There is agreement on the amount of the VAT. The Plaintiff is entitled to judgment accordingly. There will be judgment to the Plaintiff in the sum of $42,485.80. There is a further claim for additional tax pursuant to s.24 (a)(ii) of the Act. That additional tax, subject only to the provisions for relief at the discretion of the Collector (s. 32 of the Act), is imposed and determined by the statute. There is no discretion in the Court as to its imposition and recovery. Judgment therefore will include the amount of that additional tax to be calculated from 26 October 1998 at the rate of 1% per complete month to the date of judgment on the amount of $42,485.80). The plaintiff is entitled to costs disbursements witness expenses and other outgoings to be fixed by the Registrar.

CHIEF JUSTICE