ATO ID 2002/235: GST and time of supply of goods manufactured before 1 July 2000
Date of decision: 24 October 2001
Business line: Indirect Tax

Issue
Did the entity, a manufacturer of goods, make a supply before 1 July 2000 as determined by subsection 6(2) of the A New Tax System (Goods and Services Tax Transition) Act 1999 (Transition Act), when it manufactured goods for a customer and made them available for collection before 1 July 2000, even though the customer neither collected nor paid for the goods before 1 July 2000?

Decision
Yes, the entity made a supply before 1 July 2000 as determined by subsection 6(2) of the Transition Act when it manufactured goods for a customer and made them available for collection before 1 July 2000, even though the customer neither collected nor paid for the goods before 1 July 2000.

Facts
The entity is a manufacturer of goods. The entity reached a verbal agreement with a customer for goods to be manufactured and supplied. The entity manufactured the goods, invoiced the customer for the goods, and made the goods available to its customer for collection, all before 1 July 2000. Property in the goods also passed to the customer prior to 1 July 2000. However, as at 1 July 2000, the customer had neither collected nor paid for the goods. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: Section 6 of the Transition Act sets out how to determine when a supply is made for the purposes of that Act. Under subsection 6(2) of the Transition Act, a supply of goods is made: The word 'removed' is not defined in the Transition Act. Therefore, it is appropriate to examine the ordinary meaning of this term. The Macquarie Dictionary (1997) defines 'remove' to mean: '1. to move from a place or position; take away; take off ... 2. to move or shift to another place or position ... 5. to take, withdraw, or separate (from) ... 8. to move from one place to another, especially to another locality or residence...' Based on the ordinary meaning of the word 'removed', it is considered that this term in subsection 6(2) of the Transition Act refers to a physical removal of goods from the supplier's possession. The phrase 'not to be removed' in paragraph 6(2)(b) of the Transition Act is capable of two interpretations - whether the goods are never to be removed or whether the goods are not to be removed immediately . In relation to the interpretation of legislation, Lord Wensleydale in Grey v Pearson (1857) 6 HLC 61 at 106, stated that: '... the grammatical and ordinary sense of the words is to be adhered to, unless that would lead to some absurdity, or some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified, so as to avoid the absurdity and inconsistency, but no farther.' Interpreting the phrase 'not to be removed' to mean that the goods are never to be removed (the literal interpretation), would leave a gap in the transitional 'time of supply' rules for goods that are not removed immediately but physically remain in the supplier's possession for a period of time until the goods are collected by or delivered to the recipient. For example, as part of a contract for the sale of goods, title passes to the purchaser when the goods are paid for on 29 June 2000. The goods are available for collection at the time of payment, but the purchaser does not collect the goods from the supplier's premises until 2 July 2000. In this example, the goods are made available to the purchaser before 1 July 2000, but are not removed from the supplier's possession until after 1 July 2000. If paragraph 6(2)(b) of the Transition Act was interpreted to refer only to goods that are never to be removed, this paragraph would not apply to the above example. Therefore, under paragraph 6(2)(a) of the Transition Act, the supply of the goods would be made when the goods were removed, on 2 July 2000. Under this interpretation, the supply would be subject to GST although the goods are also subject to wholesale sales tax. However, under section 16 of the Transition Act, the supplier would not be entitled to a special GST credit for any sales tax incurred on acquiring those goods, as the goods have already been sold on 29 June 2000 and therefore would not have been on hand for the purposes of sale at the start of 1 July 2000. The double taxation that arises from this interpretation is inconsistent with the object or purpose of the Transition Act and leads to the conclusion that the legislature could not have intended such an interpretation. Therefore, it is considered that the phrase 'not to be removed' in paragraph 6(2)(b) of the Transition Act refers to circumstances where the goods are not to be removed immediately. Under paragraph 6(2)(b) of the Transition Act, if the goods are not to be removed immediately, the time of supply of the goods is when the goods are made available to the recipient. In relation to the sale of goods, when the goods are made available to the purchaser will depend on the terms of the particular contract for the sale of the goods. Relevant factors to consider will include when property in the goods passes to the purchaser, when the purchaser has the power to dispose of the goods or to direct how the goods are to be dealt with, conditions under which deposits are paid or consideration is provided, conditions requiring something further to be done (or not done) in relation to the goods and any other conditions of sale. In this case, the entity completed the manufacturing of the goods for its customer before 1 July 2000. The goods were not removed immediately but were made available to the customer for collection at the time that the manufacturing of the goods was completed. Although the customer neither collected nor paid for the goods before 1 July 2000, as the goods were made available for collection before 1 July 2000, the time of supply under paragraph 6(2)(b) of the Transition Act is before 1 July 2000. Therefore, the entity made a supply before 1 July 2000 as determined by subsection 6(2) of the Transition Act when it manufactured goods for its customer and made them available for collection before 1 July 2000, even though the customer neither collected nor paid for the goods before 1 July 2000.

Legislative references: A New Tax System (Goods and Services Tax Transition) Act 1999 section 6 subsection 6(2) paragraph 6(2)(a) paragraph 6(2)(b) section 7
Case references: Grey v Pearson (1857) 6 HLC 61 at 106
Other references: The Macquarie Dictionary, 1997, 3rd edn, The Macquarie Library Pty Ltd, New South Wales
Subject references: Goods & services tax GST supplies & acquisitions GST supply GST transitional issues Time of supply/acquisition