Citation: 2011 TCC 106
Date: 20110217
Docket: 2010-1500(GST)I
BETWEEN:
208539 ALBERTA LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
D'Arcy J.
[1]
The Appellant has
appealed a notice of assessment dated August 18, 2008 in respect of its GST
reporting period from July 1, 2007 to September 30, 2007.
[2]
Mr. Robert Madlener
testified on behalf of the Appellant. At all material times, Mr. Madlener owned
100% of the shares of the Appellant and was the controlling mind of the Appellant.
[3]
During the late 1990's,
the Appellant imported door reinforcement products in the course of its
commercial activities. In 1999, Canada Customs
disagreed with the value for duty declared by the Appellant for the imported
goods. As a result, Canada Customs physically seized certain goods of the
Appellant and made a demand for payment under section 124 of the Customs Act,
R.S.C. 1985, c. 1 (2nd
Supp.), s. 1 (the “Customs Act”) in respect of goods previously imported by the
Appellant.
[4]
The issue in this appeal
relates to the nature of the amounts collected by Canada Customs under section
124 of the Customs Act. The collection of amounts under section 124 is
referred to as an ascertained forfeiture.
[5]
The dispute between the
Appellant and Canada Customs continued for a significant period of time. The
agent for the Appellant attempted to explain the nature of the dispute, but it
was clear from his testimony that he did not fully understand the procedures used by
Canada Customs when it made the ascertained forfeiture. However, he did provide
numerous documents and letters issued by Canada Customs.
[6]
It is not clear from
the evidence before me when Canada Customs first indicated that they intended
to make an ascertained forfeiture. The Appellant did not provide the Court with
all of its communications with Canada Customs and the Respondent chose not to
provide any evidence with respect to the actions of Canada Customs.
[7]
The Appellant provided
the Court with a letter issued on February 19, 2003 by an appeals officer of
Canada Customs (the "First Canada Customs letter"). The letter
indicates that the ascertained forfeiture was made on or before February 19,
2003. The First Canada Customs letter states that Canada Customs has made a
Notice of Ascertained Forfeiture and a demand for payment of $96,462.77
"representing $32,150.93 of duties unpaid and an additional amount of
$64,311.84 representing a penalty of two times the revenue evaded."
(Exhibit A1, page 17).
[8]
The Appellant appealed
the ascertained forfeiture noted in the First Canada Customs Letter. In a
letter dated July 31, 2007 (the "Second Canada Customs Letter”), an
official of Canada Customs Adjudication Division states that the ascertained
forfeiture will stand, however the demand for payment was reduced to $96,124.78.
(Exhibit A1, page 1).
[9]
The Appellant also
provided the Court with a schedule, apparently prepared by Canada Customs,
which shows that the $96,124.78 was comprised of $15,001.66 of duty short paid
and $17,039.93 of GST short paid. (Exhibit A2).
[10]
Mr. Madlener paid the
$96,124.78 to the Receiver General on September 4, 2007.
[11]
When calculating its
net tax for its GST reporting period from July 1, 2007 to September 30, 2007, the
Appellant claimed an input tax credit of $54,607.28 in respect of the amount
paid to Canada Customs on September 4, 2007. The Minister of National Revenue
(the “Minister”) disallowed the $54,607.28.
[12]
Subsection 169(1) of Part IX of
the Excise Tax Act, R.S.C. 1970, c. E-13, s. 1
(the “GST Act”) allows a registrant to claim input tax credits for tax paid on
goods imported into Canada. The input tax credit can be claimed to the extent
the goods are imported for consumption, use or supply in the course of the
registrant’s GST commercial activity.
[13]
The Minister denied the
input tax credit on the assumption that the Appellant did not pay any tax on
the imported goods since the $96,124.78 collected by Canada Customs was an
amount forfeited to Her Majesty pursuant to sections 109.1, 109.3 and 124
of the Customs Act. It is the Respondent’s position that Canada Customs did not
receive any amount as duty, excise tax or GST. The Respondent did not provide
any jurisprudence to support its position.
[14]
The ascertained forfeiture in the
current appeal was made under subsection 124(1) of the Customs Act, which provides as follows:
124. (1) Where an officer
believes on reasonable grounds that a person has contravened any of the
provisions of this Act or the regulations in respect of any goods or
conveyance, the officer may, if the goods or conveyance is not found or if the
seizure thereof would be impractical, serve a written notice on that person
demanding payment of
(a) an amount of money
determined under subsection (2) or (3), as the case may be; or
(b) such lesser amount
as the Minister may direct.
(2) For the purpose
of paragraph (1)(a), an officer may demand payment in respect of goods
of an amount of money of a value equal to the aggregate of the value for duty
of the goods and the amount of duties levied thereon, if any, calculated at the
rates applicable thereto
(a) at the time the
notice is served, if the goods have not been accounted for under subsection
32(1), (2) or (5) or if duties or additional duties have become due on the
goods under paragraph 32.2(2)(b) in circumstances to which subsection
32.2(6) applies; or
(b) at the time the
goods were accounted for under subsection 32(1), (2) or (5), in any other case.
[15]
The Respondent’s
argument was predicated on the assumption that the $94,124.78 collected by
Canada Customs was comprised solely of a penalty equal to three times the
duties and GST payable on the importation.
[16]
The Appellant argued
that the $94,124.78 was comprised of duty, GST and a penalty. In support of its
position, the Appellant produced the First Canada Customs letter, which states
that amount of the ascertained forfeiture was comprised of unpaid “duties” and
a penalty equal to two times the unpaid “duties.” Exhibit A2 evidences that the
unpaid “duties” referred to in the First Canada Customs letter was comprised of
duty short paid of $15,001.66, and GST short paid of 17,039.93.
[17]
The only evidence
before me with respect to the nature of the amount received by Canada Customs
was the First Customs Letter, the Second Customs Letter and Exhibit A2. The
Respondent did not file any evidence with respect to the nature of the amount
received by Canada Customs.
[18]
I accept that, in
certain instances, the amount received by Canada Customs under the ascertained
forfeiture provisions of the Customs Act may be comprised solely of
penalties (see for example the Federal Court of Appeal’s decision in Amway
of Canada, Ltd. v. Canada, [1996] 2 C.T.C. 162, with respect to an
ascertained forfeiture made pursuant to former subsection 192(1) of the Customs
Act). However, the only evidence before me with respect to the nature of
the amount received by Canada Customs in the current appeal evidences that
$17,039.93 of the amount received was received as GST.
[19]
For the foregoing
reasons, I find that $17,039.93 of the $96,124.78 paid to Canada Customs on September
4, 2007, was collected by Canada Customs as GST.
[20]
However, this is not
the end of the matter; the Respondent raised two additional issues.
[21]
The Respondent argued
that even if GST was collected by Canada Customs the Appellant was still not
entitled to claim any input tax credits in respect of the importations since
the $96,124.78 was not paid by the Appellant, but rather was paid by Mr.
Madlener personally.
[22]
Section 212 of Division
III of the GST Act levies the GST (the “Division III tax”) on every person who
is liable under the Customs Act to pay duty on imported goods, or who
would be so liable if the goods were subject to duty. Section 214 of the GST
Act provides that the Division III tax on imported goods is paid and collected
under the Customs Act.
[23]
While Mr. Madlener may
have been the person who reported the imported goods to Canada Customs, the
evidence before me was that he reported the goods, and paid the $96,124.78 to
Canada Customs, as agent for the Appellant. As a result, it was the Appellant
who imported the goods under the Customs Act and paid the $17,039.93 of
Division III tax.
[24]
The final issue raised
by the Respondent was that the Appellant has not provided the Canada Revenue
Agency (the “CRA”) with the documentation required by subsection 169(4) of the
GST Act.
[25]
Paragraph 169(4)(a)
of the GST Act provides that
A registrant may not claim an input
tax credit for a reporting period unless, before filing the return in which the
credit is claimed,
(a) the registrant has obtained sufficient evidence in such
form containing such information as will enable the amount of the input tax
credit to be determined, including any such information as may be prescribed…
[26]
The prescribed
information is contained in the Input Tax Credit Information (GST/HST)
Regulations, to the GST Act. It is clear from the wording of the
regulations that the regulations are only intended to apply to tax paid by a
recipient to a supplier under Division II of the GST Act. The regulations do
not apply to tax collected by Canada Customs under Division III of the GST Act.
[27]
The Appellant satisfied
the paragraph 169(4)(a) documentary requirements once it provided the
CRA with sufficient information to enable the amount of the input tax credit to
be determined. As I noted previously, the First Customs Letter, the Second
Customs Letter and Exhibit A2 together evidence the amount of Division III tax
that Canada Customs collected from the Appellant ($17,039.93) and the fact that
the Division III tax was paid by the Appellant in respect of the imported goods.
[28]
I have not considered
whether the limitation periods contained in section 225 of the GST Act applied
to prevent the Appellant from claiming, in its reporting period ending on
September 30, 2007, an input tax credit for the $17,039.93 of Division III tax.
The Respondent did not raise this issue in its pleadings or during the hearing.
[29]
For the foregoing
reasons, the appeal is allowed, without costs, and the matter is referred back
to the Minister of National Revenue for reconsideration and reassessment on the
basis that the Appellant was entitled to claim an input tax credit in its
reporting period ending on September 30, 2007 of $17,039.93 in respect of GST
paid on imported goods.
Signed at Ottawa, Canada,
this 17th day of February 2011.
“S. D’Arcy”
CITATION: 2011
TCC 106
COURT FILE NO.: 2010-1500(GST)I
STYLE OF CAUSE: 208539
ALBERTA LTD. and HER MAJESTY THE QUEEN
PLACE OF HEARING: Calgary, Alberta
DATE OF HEARING: October
20, 2010
REASONS FOR JUDGMENT BY: The Honourable
Justice Steven K. D'Arcy
DATE OF JUDGMENT: February
17, 2011
APPEARANCES:
|
Agent for the
Appellant:
|
Robert Madlener
|
|
Counsel for the
Respondent:
|
Scott England
|
COUNSEL OF RECORD:
For the Appellant:
Name: n/a
Firm:
For the
Respondent: Myles J. Kirvan
Deputy Attorney General of Canada
Ottawa, Canada
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