Tax man gets first bite in GST ruling

By IRENE CHAPPLE

The Inland Revenue Department has come up trumps in a court appeal it took to enforce its rights over collecting GST money.

Yesterday's Court of Appeal decision means all mortgagee sales must prioritise payments to the IRD over the claims of mortgage holders.

The original judgment, given by Justice David Baragwanath, concluded the IRD did not have to be paid GST when funds from a mortgagee sale were not enough to repay the debts.

The decision turned on how the Goods and Services Act was read.

Justice Baragwanath said the act should be given a "strained construction", rather than a literal construction, that would give effect to "the settled public policy that mortgagees are entitled to first priority".

The judgment meant Edgewater motels, a second mortgagee which took the case, won priority over the IRD.

The appeal judgment given by Justice Peter Blanchard bluntly rejected the idea that there were alternative ways to read the act.

Justice Blanchard said it was wrong for the judge to consider the interpretation of one section "strained" in order to be consistent with a second section.

He also found Justice Baragwanath wrong in his view over how the assessment process for distribution of money should be treated.

IRD director of litigation Mike Lennard said he was pleased as the "good, firm, clear" judgment resolved doubt in the commercial area around the distribution of assets.