Citation: 2006TCC652
Date: 20061123
Docket: 2002-4702(GST)G
BETWEEN:
FANSHAWE COLLEGE
OF APPLIED ARTS AND TECHNOLOGY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] The subject matter of this appeal under the Excise Tax Act (ETA) is the interplay between the legislative schemes for returned goods under section 232 and for public service body rebates ("PSB rebates") under section 259.
[2] The appellant, Fanshawe College of Applied Arts and Technology (the "College"), appeals the determination of the PSB rebate for the period from July 1, 1999 to July 31, 1999 in respect of goods and services tax (GST) paid on books purchased for its bookstore. The amount in dispute is $118,696.69.
[3] There are two questions to be determined:
(1) Is the rebate claim in compliance with procedural rules applicable to PSB rebates?
(2) Has the amount in dispute been previously refunded? If it has, a further refund is prohibited by section 263 of the ETA.
[4] For the reasons that follow, I conclude that the appeal should be dismissed on both of these grounds.
I. Background
[5] The circumstances that give rise to this litigation are somewhat complicated but the facts are not in dispute. I am grateful that most of the relevant facts were described in an agreed statement of facts and it is reproduced in part as an appendix to these reasons.
[6] I will begin by setting out the legislative schemes for PSB rebates and for returned goods that are applicable to the College. I will then describe the unusual circumstances that give rise to this appeal.
[7] The general legislative scheme for PSB rebates is not complex. Public colleges and other public service organizations are entitled under section 259 of the ETA to rebates which enable the organizations to recover a portion of GST payable by them on certain inputs.
[8] The College qualifies for these rebates in respect of books purchased for its bookstore. In general, the College is entitled to recover 67 percent of the GST payable.
[9] PSB rebates are payable in relation to a "claim period" and an application must be filed by the organization to qualify to receive the rebate for a particular period. Only one application may be filed for each claim period.
[10] A "claim period" generally coincides with the organization's "reporting period" for which a GST return must be filed. In the case of the College, it has a monthly reporting period and likewise a monthly claim period.
[11] PSB rebates, then, are simply refunds of a portion of GST payable by public service bodies, which rebates are payable for a claim period upon application by the organization. Further details about the claim procedure will be outlined below in the discussion of the particular issue before me.
[12] The legislative scheme for "returned goods" is found primarily in section 232 of the ETA.
[13] In general, section 232 provides that if a supplier has refunded the purchase price on returned goods, the supplier may also refund the GST paid and be reimbursed by the government.
[14] Although it is not relevant to this appeal, it appears that section 261 may provide the public service body with an alternative way of recovering GST on returned goods by allowing it to make an application directly to the government. Providing this alternative is necessary because section 232 does not require the supplier to issue the refund.
[15] The returned goods that are central to this dispute are books that were returned by the College to publishers for a credit of the purchase price and GST.
[16] When the legislative schemes for PSB rebates and returned goods are looked at together, an obvious question arises. What happens when a supplier refunds the GST but the organization has already recovered a portion of the GST as a PSB rebate? It makes sense, of course, that the buyer should not be able to recover more than 100 percent of the GST paid.
[17] By virtue of what can only be described as a legislative oversight, a public service organization that had obtained a PSB rebate and subsequently returned the goods, was also able to retain the GST recovered from the supplier. In the case of the College, the result would be that it could recover a total of 167 percent of GST paid on returned books, 67 percent as a PSB rebate and 100 percent as a refund by the supplier.
[18] This situation came to its inevitable end on December 10, 1998. On that day, the government announced amendments to sections 232, 259 and 263 of the ETA, with the purpose of limiting to 100 percent the amount of GST that could be recovered by public service bodies on returned goods. The amendments were enacted on October 20, 2000, with effect from December 10, 1998.
[19] I turn now to the circumstances that give rise to this appeal.
[20] Although the College could have taken advantage of the windfall on returned books in the manner described above, it did not do so.
[21] Instead, it gave the windfall back to the government. When a publisher refunded the GST on a returned book, the College returned the PSB rebate (67 percent of the GST) to the government by making an adjusting entry in its next monthly rebate application.
[22] This adjustment was not required by the legislation. Nevertheless, the Minister "assessed" the rebates as filed and did not reverse the adjusting entries.
[23] In 1999, a few months after the government announced the amendments to close the loophole, the KPMG accounting firm suggested to the College that it apply to correct the prior adjustments. It recommended that the College increase the amount claimed on its next rebate application by an amount equal to the aggregate of the prior incorrect adjustments for all open periods. The result would be that the College would take advantage of the windfall that the government had just announced that it was shutting down.
[24] Pursuant to this advice, the College increased the amount claimed in its rebate application for the July 1999 claim period by $118,696.69. This amount is an estimate of the total adjustments for returned books that the College made in rebate applications for the monthly claim periods from June 1995 to December 1998. It excluded, though, adjustments where the PSB rebate and the corresponding adjustment were made in the same application, which I presume occurred when books were returned soon after purchase.
[25] In the "assessment" of the rebate for the July 1999 claim period under section 297 of the ETA, the amount of the rebate determined by the Minister excluded the $118,696.69 claim.
[26] The basis for the assessment was stated in the Notice of Decision which confirmed the assessment as follows:
It has always been the Agency's position that a rebate cannot be claimed in circumstances where the tax paid can be recovered in some other manner. The amendments which were tabled on December 10, 1998 and passed on October 20, 2000 were aimed at clarifying the application of the GST as it related to public service body rebates and does not indicate a new policy. Furthermore, new paragraph 263(d) that specifically adds the condition that a rebate of tax shall not be paid when a credit note has been received, became effective December 10, 1998 and Fanshawe's claim was received August 31, 1999. Therefore paragraph 263(d) was in effect at the time the claim was received.
[27] At the hearing of the appeal, the Crown raised a further argument that relates to the claim procedure. It submits that the claim is procedurally defective because it is not proper to include this amount in the rebate application for the July 1999 claim period. This argument was first raised in an amendment to the Crown's Reply, which was filed on consent.
II. Does claim comply with procedural rules?
[28] The first question is whether it is proper to include the amount at issue, $118,696.69, in the rebate for the July 1999 claim period.
[29] I will begin the discussion by describing in greater detail the PSB rebate claim procedure set out in the ETA.
[30] At the relevant time, section 259(3) required the Minister to pay a rebate equal to a prescribed percentage of an amount described as "non-creditable tax charged." The prescribed percentage for the College is generally 67 percent. The term "non-creditable tax charged" is defined by a formula that is set out in s. 259(1) and it is discussed below.
[31] Section 259(3) provided:
259.(3) Where a person [...] is, on the last day of a claim period of the person or of the person's fiscal year that includes that claim period, a selected public service body, charity or qualifying non-profit organization, the Minister shall, subject to subsections (4.1), (4.2) and (5), pay a rebate to the person equal to the prescribed percentage of the non-creditable tax charged in respect of property or a service (other than a prescribed property or service) for the claim period.
[32] Under the above provision, the PSB rebate is to be determined in relation to a "claim period," which is defined in s. 259(1) as follows:
"claim period" of a person at any time means
(a) where the person is at that time a registrant, the reporting period of the person that includes that time,
[...]
[33] As noted above, the College has a monthly reporting and claim period.
[34] Although section 259(3) is mandatory and requires the Minister to pay the rebate, the provision is subject to s. 259(5) which prohibits the payment of a rebate for a claim period unless an application in relation to that period has been filed. This provision also sets out the time period within which an application may be filed.
[35] Subsection 259(5) provides:
259.(5) A rebate under this section in respect of a claim period in a fiscal year of a person shall not be paid to the person unless the person files an application for the rebate after the first day in that year that the person is a selected public service body, charity or qualifying non-profit organization and within four years after the day that is
(a) where the person is a registrant, the day on or before which the person is required to file the return under Division V for the period;
[...]
[36] Under this provision, the deadline for filing an application in the case of a GST registrant, which the College is, is four years after the day that a GST return is required to be filed.
[37] I believe that the College's monthly GST returns are required to be filed by the end of the month following the end of each reporting period. If this is correct, the deadline for making a rebate application is four years and one month following the end of a particular claim period. For example, the deadline for applying for a PSB rebate for the January 2001 claim period would be February 28, 2005.
[38] Another requirement is that only one application can be made for any claim period. Section 259(6) provides:
259.(6) Except where subsection (10) or (11) applies, a person shall not make more than one application for rebates under this section for any claim period of the person.
[39] Finally, I note that the Minister is required to "assess" the amount of the rebate and pay it. Subsections 297(1) and (3) provide:
297.(1) On receipt of an application made by a person for a rebate under section 215.1 or Division VI, the Minister shall, with all due dispatch, consider the application and assess the amount of the rebate, if any, payable to the person.
(3) Where, on assessment under this section, the Minister determines that a rebate is payable to a person, the Minister shall pay the rebate to the person.
[40] The process for "assessing" rebates and appealing assessments appears similar to the assessment and appeal procedure in the Income Tax Act.
[41] Under section 298(2) of the ETA, the Minister is able to reassess within four years from the date that the application is filed.
[42] Further, under s. 299(3) an assessment is deemed to be "valid" unless there is a subsequent reassessment or the assessment is vacated by virtue of an objection or appeal. Section 299(3) provides:
299.(3) An assessment, subject to being vacated on an objection or appeal under this Part and subject to a reassessment, shall be deemed to be valid and binding.
[43] I turn now to the computation of the rebate. This is described in s. 259(3) as a prescribed percentage of "non-creditable tax charged in respect of property or a service [...] for the claim period."
[44] The term "non-creditable tax charged" is defined by a formula described in s. 259(1). It generally includes GST payable or paid during a claim period.
[45] The relevant parts of the definition of "non-creditable tax charged" in s. 259(1) are:
"non-creditable tax charged", in respect of property or a service for a claim period of a person, means the amount, if any, by which
(a) the total (in this section referred to as "the total tax charged in respect of the property or service") of all amounts each of which is
(i) tax in respect of the supply, importation or bringing into a participating province of the property or service that became payable by the person during the period or that was paid by the person during the period without having become payable (other than tax deemed to have been paid by the person or in respect of which the person is not entitled to claim an input tax credit only because of subsection 226(4)),
[...]
exceeds
(b) the total of all amounts each of which is included in the total determined under paragraph (a) and
(i) is included in determining an input tax credit of the person in respect of the property or service for the period,
(ii) for which it can reasonably be regarded the person has obtained or is entitled to obtain a rebate, refund or remission under any other section of this Act or under any other Act of Parliament, or
(iii) is included in an amount adjusted, refunded or credited to or in favour of the person for which a credit note referred to in subsection 232(3) has been received by the person or a debit note referred to in that subsection has been issued by the person;
(Emphasis added)
[46] I would make two comments about this formula.
[47] First, clause (b)(iii), which excludes from the formula amounts for which a credit note is received, is not relevant to this appeal. The clause was added to the formula as part of the December 10, 1998 amendments relating to returned goods and is effective for amounts in respect of credit notes received after December 10, 1998. The College's claim does not include any of these amounts.
[48] Similarly, clause (b)(ii), which excludes from non-creditable tax charged for the claim period amounts which have otherwise been refunded, is also not relevant. None of these amounts have been claimed either.
[49] The computation of "non-creditable tax charged" for the July 1999 claim period of the College is quite simple, at least in so far as this appeal is concerned. It includes only GST paid or payable in that period.
[50] The Crown submits that the College cannot include in the rebate application for the July 1999 claim period amounts of GST that arose in prior periods.
[51] This position appears to be correct based on the wording of s. 259(3) and the definition of "non-creditable tax charged." Under the definition of "non-creditable tax charged," the GST that is to be rebated for a particular claim period is limited to "tax [...] that became payable [...] during the period or that was paid [...] during the period."
[52] Notwithstanding that the legislation appears to support the Crown's position, it is troubling that the Crown is taking this position because the government itself has suggested otherwise in Technical Notes published by the Department of Finance.
[53] I reproduce, for example, the explanatory note for section 259(5.1) that was issued in December 1999. There are similar statements in earlier explanatory notes but I mention the more recent one because some of the earlier notes predate the introduction of the concept "non-creditable tax charged." The relevant part of the explanatory note to s. 259(5.1) reads:
Under subsection 259(5), persons that have not claimed a rebate for tax that became payable in a particular claim period on an application filed for that period have up to four years to claim the amount in another application.
(Emphasis added.)
[54] If this appeal involved a situation in which a public service body forgot to claim GST in relation to a property or a service in the application for the appropriate claim period, it would be necessary to decide if the words of the legislation should be applied strictly notwithstanding what appears to be the stated intention of the Department of Finance to provide more flexibility.
[55] However, that is not the situation that is before me. What we have here is a claim for amounts of GST that have already been claimed in prior periods. This claim could not succeed even if I were to interpret the legislation in accordance with the explanatory note above. The reason is that it is prohibited by other statutory requirements.
[56] One such provision that the Crown referred me to is section 262(2). It provides:
262.(2) Only one application may be made under this Division for a rebate with respect to any matter.
[57] The College submits that this section has no application because its claim relates to amounts which it has not previously claimed. Under the College's interpretation of s. 262, the word "matter" refers to an amount, or quantum, of GST.
[58] I disagree with this interpretation. The word "matter" in section 262 in my view relates to a transaction - in this case the purchase of a book. If, for example, the College is entitled to a $10 rebate in relation to the purchase of a book but it claims only $8 in error, section 262 precludes the College from including the remaining $2 in another rebate application. The manner in which the College could correct its claim for the GST in relation to the book is to object to the assessment which determined the rebate. This must be done within the time limits for filing objections.
[59] In this case, the College did not omit any transaction from its rebate claims. Rather, it made a series of incorrect deductions in computing the amount of the rebate payable.
[60] The proper way to adjust for these errors is to object to the assessments for the claim periods in which the errors were made. This was not done and, as the Crown noted in its argument, these assessments are now deemed to be valid by virtue of section 299(3).
[61] For these reasons, I find that the College's claim is procedurally defective.
III. Does section 263 apply?
[62] The Crown suggests in the alternative that payment of the amount claimed is prohibited by section 263. This is a provision of general application that is intended to prevent multiple refunds in respect of the same amount.
[63] Section 263 reads:
263. A rebate of an amount under subsection 215.1(1) or (2) or 216(6) or any of sections 252 to 261.31, or a refund or abatement of an amount that, because of subsection 215.1(3) or 216(7), may be granted under section 69, 73, 74 or 76 of the Customs Act, shall not be paid or granted to a person to the extent that it can reasonably be regarded that
(a) the amount has previously been rebated, refunded or remitted to that person under this or any other Act of Parliament;
(b) the person has claimed or is entitled to claim an input tax credit in respect of the amount;
(c) the person has obtained or is entitled to obtain a rebate, refund or remission of the amount under any other section of this Act or under any other Act of Parliament; or
(d) a credit note referred to in subsection 232(3) has been received by the person, or a debit note referred to in that subsection has been issued by the person, for an adjustment, refund or credit that includes the amount.
[64] The Crown submits that either paragraph (a) or (d) of section 263 prohibits the payment of the rebate in this case.
[65] Paragraph (d) was added to section 263 effective December 10, 1998 as part of the legislative amendments discussed above. It prohibits the payment of a rebate if a credit note has been issued by a supplier "that includes the amount."
[66] Paragraph (a) is a more general provision. It prohibits the payment of a rebate if the "amount" has previously been rebated or refunded under the ETA.
[67] Either of these provisions fit the circumstances of this case, in my view.
[68] Counsel for the College notes that section 232 is permissive. Under the provision, suppliers are allowed, but are not required, to pay GST refunds for returned goods. She submits that the refunds by the suppliers are not therefore paid "under" the ETA and that paragraph (a) does not apply.
[69] I disagree. Section 232 provides a statutory mechanism that enables suppliers to refund the GST and be reimbursed by the government. Clearly the GST would not be refunded by suppliers without this legislative scheme. Giving paragraph (a) the purposive interpretation that is required, I have no hesitation in concluding that the GST refunds by the suppliers were paid "under" the ETA.
[70] The College also argues that paragraph (d) does not apply. I have some difficulty understanding this argument and therefore I reproduce the relevant parts of the written submissions:
69. The Appellant concedes that new paragraph 263(d) does require that where an invoice is issued in a particular month and a credit note is issued in respect of that invoice in the same month, the GST rebate must be reduced by 67% of the GST on the credit note. However, paragraph 263(d) states that an amount shall not be paid if a credit note has been received that includes the amount.
70. To illustrate, if an invoice of $10.70 (including 70 cents GST) from XYZ is offset by a credit note of $10.70 from XYZ, issued in the same reporting period, paragraph 263(d) restricts the rebate of GST on the original invoice from being paid. If, however, that invoice was issued in a month, say April 1995, but a credit note in respect of that invoice was not issued until July 1995, paragraph 263(d) does not restrict the rebate of GST on the April 1995 invoice from being paid.
[71] The College suggests that paragraph (d) only applies where the invoice and the related credit note are issued in the same claim period. Paragraph (d) is not so limited. It clearly prohibits the payment of a PSB rebate if a credit note relating to the same goods has been received at any prior time.
[72] I would also briefly mention a further argument that was made in the College's notice of objection. It was submitted that the rebate that is being claimed is in respect of GST that became payable in the same claim period that the credit note was received. It does not relate to GST on returned books at all and therefore section 263 does not apply.
[73] The argument can be illustrated using the facts assumed in the example from paragraph 70 of the College's submission above. The facts assume that an invoice is issued in April 1995 and that a credit note in respect of that invoice is issued in July 1995. The argument is that this appeal relates to invoices issued in July 1995, which is the same period that the credit note was received. It does not relate to invoices for the returned books which were issued in April 1995.
[74] In my view, this argument misconstrues the College's application for the July 1995 claim period. The argument suggests that the College received inadequate rebates in relation to invoices issued in July 1995. But this ignores what really happened. If one has regard to how the College computed the amount of its claim for July 1995, it received the proper rebate for invoices issued in July 1995 and it gave back to the government the windfall portion of GST that it received in respect of returned goods. This appeal is not about invoices that were received in the same claim period as the credit notes.
[75] Finally, I would note that the Crown made an argument concerning the effective date of paragraph 263(d). It argued that the provision became effective on December 10, 1998, notwithstanding that it was enacted some time later. As the College did not raise this as an issue, I do not think that it is necessary to discuss it in these reasons.
IV. Disposition
[76] The appeal is dismissed, with costs to the respondent.
Signed at Toronto, Ontario, this 23rd day of November, 2006.
"J. Woods"
APPENDIX A
EXCERPT FROM PARTIAL AGREED STATEMENT OF FACTS
[...]
1. The assessment under appeal is assessment number 000 000 00756 dated February 7, 2000 for the rebate claim period of July 1, 1999 to July 31, 1999.
2. The Appellant is a public college of applied arts and technology operating in southwestern Ontario.
3. The Appellant is a "Public Service Body" (PSB) within the meaning of that term in the Excise Tax Act (the "Act"), and has a business number, being 10737 6576 RT.
4. The Appellant files it Goods and Services Tax ("GST") returns on a monthly basis.
5. The Appellant has a monthly PSB claim period that corresponds to its monthly GST reporting period, and files PSB rebate applications on a monthly basis.
6. The Appellant had elected, pursuant to the Act, to account for its GST using the Special Quick Method and, accordingly, claimed rebates for operating expenses relating to GST taxable activities instead of input tax credits during the relevant period.
7. Each claim period, with the possible exceptions of the claim period for October 1996 and October 1997, was assessed by the Minister. Each claim period was either assessed as filed or assessed with minor corrections.
8. No Notice of Objection was filed in respect of any of the assessments for the Appellant's June 1995 to December 1998 claim periods.
9. As part of its undertaking, the Appellant operates a book store and engages in the sale of books and related educational supplies to students, teachers and other customers.
10. Most of the inventory purchased by the Appellant is purchased, and thus invoiced, at the beginning of the academic year.
11. At the end of each term during the academic year, the Appellant often returns unsold inventory to the suppliers and receives credit notes from the suppliers in respect of the returned goods. Consequently, credit notes are often received by the Appellant in a month subsequent to the month of the original invoice.
12. When the Appellant received an invoice for the supply of goods and services, 67% of the GST payable was recorded in the Appellant's "GST receivable" account and the Appellant then claimed a rebate of the amounts in the GST receivable account on its monthly PSB rebate application[1]. The amount of the PSB rebate was shown as an offset against Net Tax on the Appellant's GST return for the corresponding GST reporting period. For most months, the PSB rebate exceeded Net Tax payable and the difference was paid to the Appellant.
13. If a credit note was received in respect of an invoice in the same month that the invoice was received, the GST receivable account was reduced by 67% of the GST included in the credit note and, accordingly, no amount was included on a PSB rebate application with respect to that invoice.
14. In situations where the invoice for books was received in one month and the credit note for those books was issued in a later month the accounting procedure was as follows: the PSB rebate for 67% of the GST on that invoice would be claimed in the reporting period in which the invoice was received. For the month in which the credit note was received, 67% of the GST on that note would be applied to reduce the GST receivable account. This reduction offset the PSB rebate in respect of GST payable on other invoices received in that subsequent month.
15. The Appellant received credit notes from suppliers during the period June, 1995 to December, 1998.
16. Subsequently, in July, 1999, the Appellant was advised by its accountant that it had incorrectly reduced its rebate amounts for the periods June, 1995 to December, 1998 in the amount of $118 696.69 and, accordingly, in its July, 1999 PSB rebate application, the Appellant claimed an adjustment to its rebate amount equal to $118 696.69. This adjustment included only GST on credit notes that were issued in a month subsequent to the month in which the GST on the related purchase became payable.
17. For the July 1999 claim period, the Appellant's GST paid or payable for goods and services acquired was $233 938.72 plus an additional $7090.39 for library books.
18. The Appellant calculated its July 1999 PSB rebate claim as follows:
|
GST paid or payable in July 1999:
|
$233 938.72 x 67%=
|
$156 738.94
|
|
GST paid of payable on library books:
|
$7090.39 x 100%=
|
$7090.39
|
|
Rebate adjustment claim:
|
|
$118 696.69
|
|
Total Claim
|
|
$282 526.02.
|
19. On February 7, 2000, the Minister issued a Notice of Assessment to the Appellant denying $118 696.69 of the PSB rebate claim.
20. The Appellant filed a Notice of Objection to the Notice of Assessment on April 11, 2000.
21. The Minister considered the Appellant's Notice of Objection and issued a Notice of Decision dated September 10, 2002 disallowing the objection and confirming the assessment.
[...]
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