[OFFICIAL ENGLISH TRANSLATION]
2001-548(GST)I
BETWEEN:
MODES CROSSFIRE INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on April 30, 2002, at Montréal,
Québec, by
the Honourable Judge François Angers
Appearances
Agent for the
Appellant:
Haim Pinto
Counsel for the
Respondent:
Alain-François Meunier
JUDGMENT
The
appeal from the September 21, 1999, assessment made under the
Excise Tax Act, bearing number 0317785 and covering the
period from November 1, 1996, to April 30, 1999, is
dismissed, and the assessment made by the Minister of National
Revenue is confirmed.
Signed at Ottawa, Canada, this 7th day of May 2002.
J.T.C.C.
Translation certified true
on this 4th day of September 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20020611
Docket: 2001-548(GST)I
BETWEEN:
MODES CROSSFIRE INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the bench on
April 30, 2002, at Montréal,
Québec)
Angers, J.T.C.C.
[1] This is an appeal from a
September 21, 1999, assessment made under the Excise Tax
Act and covering the period from November 1, 1996, to
April 30, 1999.
[2] At the beginning of the hearing,
the agent for the appellant company accepted the amounts assessed
and set out in subparagraphs 5(a), (c) and (d) of the Reply to
the Notice of Appeal that dealt with the reconciliation of the
taxes declared and the taxes that should have been declared and
remitted to the Minister according to the appellant company's
accounting records in the amount of $2,710.09; with a figure that
was added and that corresponded to the value of the supply for
the use or operation of an automobile belonging to
Mr. Singh, a director of the appellant company, in the
amount of $986.15; and, lastly, with a disallowed input tax
credit in the amount of $27.80.
[3] As set out in subparagraph 5(b) of
the Reply to the Notice of Appeal, at issue therefore is whether
the increased consideration of the supplies sold by the appellant
company during the period at issue is taxable, which represents
an additional $5,430.76 payable by the appellant company. In
computing this amount, the Minister reconstructed the amount of
the taxable supplies sold by the appellant company during the
period at issue by increasing the actual amount of purchases for
resale shown on the appellant company's accounting records by
a factor established on the basis of the appellant company's
representations and on the financial statements it filed.
[4] The result of this exercise is
shown in Exhibit I-3. According to the auditor, all
the data used in these computations were obtained from the
financial statements included in the appellant company's tax
returns and from representations made by Mr. Singh, the
appellant company's representative, and by Mr. Bourbeau,
its accountant. Exhibit I-3 covers the period from November
1996 to April 30, 1997. For 1998, the auditor's report
had no tax implications. The second chart covers the period from
May 1, 1998, to April 30, 1999. The result of this exercise
for the entire period is an amount payable of $5,430.76 in tax,
which has obviously been contested by the appellant company.
[5] Mr. Pinto, the agent for the
appellant company at the hearing, did not call any of the
appellant company's directors or shareholders as witnesses.
However, he himself testified, adducing as evidence a financial
statement of the appellant company as at
April 30, 1999, showing an inventory of zero at fiscal
year end (Exhibit A-1), and another financial
statement of the appellant company showing a year-end inventory
of $65,764 (Exhibit A-3). That amount represents an outdated
inventory valued by him and the proceeds from an April 28, 1999,
inventory sale (contract adduced as Exhibit A-2),
apparently a sale made by the appellant company to another
company of which it is the shareholder. The agent for the
appellant also questioned the factor used by the auditor to
increase the amount of the appellant company's sales. He
acknowledged that Exhibit A-3 had not been prepared using
the financial statements filed by his client but was instead his
opinion of what the financial statements should have reflected
concerning the inventory. He even suggested that it might be
necessary to file amended tax returns and financial statements.
He also argued that the GST from the April 28, 1999,
inventory sale should be credited against the assessed amount of
tax payable by his client.
[6] The auditor testified that she
computed the amount of the assessment on the basis of the
financial statements included in the appellant company's tax
returns and on the representations made during the audit by the
appellant company's representative and its accountant. The
zero inventory declared by the representative at the time of the
audit was confirmed when the appellant company filed its tax
return and financial statements in November 1999. The auditor
also confirmed that in computing the amount of the assessment she
took into account the appellant company's GST return, due on
May 31, 1999, which included the GST from the April 28,
1999, inventory sale. Page 2 of Exhibit I-2, which consists
of handwritten notes made by the appellant company, confirms this
testimony. Therefore, adjustments should not be made, and I am
satisfied that the GST from that transaction was taken into
account when the amount of the assessment was computed.
[7] Nor did I detect anything in the
auditor's approach that might allow me to find that she made
any errors. All the amounts were computed on the basis of
representations made by the appellant company's accountant or
its representative and on the appellant company's financial
statements included in its income tax returns.
[8] Although the appellant
company's tax returns were prepared on the basis of unaudited
financial statements, they are assumed to be accurate and
complete and to show the appellant company's year-end
financial position. The appellant company alone knows its
financial position, and it is the company's responsibility to
ensure that no errors are made. If errors do occur, the law
allows for corrections and amendments may be made. In the present
case, no amendments were made to the appellant company's
financial statements or tax returns, except for this hearing. I
therefore prefer to rely on the financial statements and the
representations made at the time of the audit.
[9] The factor of 1.19 used to
increase the amount of the appellant company's sales as at
April 30, 1999, is the factor that was agreed upon between the
auditor and the appellant company's representative and its
accountant. There is no evidence before me indicating that this
was not the case. In fact, I have no evidence that would allow me
to send the matter back to the Minister and ask him to recompute
the amount using a different factor. Nor am I satisfied
that there was a lack of communication between the auditor and
the appellant company's representative. The appellant
company's accountant was present at all times, and neither
the
accountant nor the representative testified that they had been
misunderstood about the type of sale made and its impact on the
factor used to increase the amount of the appellant company's
sales.
[10] The onus is on the appellant company to
establish on the balance of evidence that the Minister erred in
making the assessment. There is nothing before me in this case
allowing me to find that the Minister erred in computing this
amount. The appellant company produced nothing concrete that
could allow me to send specific, accurate information back to the
Minister that might require him to recompute the amount of the
assessment. The Minister's position is based on the appellant
company's documents and representations. The explanations
provided by the appellant company are therefore clearly
insufficient.
[11] For these reasons, the appeal is
dismissed and the assessment is confirmed.
Signed at Edmundston, New Brunswick, this 11th day
of June 2002.
J.T.C.C.
Translation certified true
on this 4th day of September 2003.
Sophie Debbané, Revisor
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