One is that Commissioner of Inland Revenue Naomi Ferguson's treatment of the transaction is wrong in law and that it is not a tax avoidance arrangement.
The second is an allegation that Ferguson has taken an inconsistent approach in her treatment of Michael Hill and other taxpayers who have used similar structures.
This, on Michael Hill's case, breaches her duty to treat all taxpayers alike.
While IRD accepted that the first argument was an orthodox challenge, it applied to strike out the inconsistency claim, saying it could not stand alone as a valid ground.
However, Justice Kit Toogood - in a decision released publicly this month - dismissed IRD's bid.
He did not think it was "plain and obvious that the inconsistency challenge cannot succeed".
"The present pleadings do not make it untenable that Michael Hill could succeed in its argument that the Commissioner has acted inconsistently in her treatment of its tax structure and her treatment of the structures used by other taxpayers," Justice Toogood said.
He awarded costs to Michael Hill.
Law firm Chapman Tripp, commenting on the case this afternoon, said:
"It is understandable why the Commissioner applied to strike-out as the way Michael Hill's case was pleaded would mean that she would need to provide discovery of material relating to her assessment and treatment of the affairs of other taxpayers, potentially raising real difficulties in terms of the IRD's obligations of confidentiality. However, the strike-out threshold is deliberately high. To succeed, the Commissioner needed to establish that there was no reasonably arguable case that she had breached her obligations of consistent treatment."
The acceptance of a duty of consistency as a standalone ground of review was a "less orthodox" part of the court's decision, the firm said.
"The outcome of the substantive hearing should be of real interest to taxpayers and others," it said.
