Date: 20020408
Docket: 2001-2820-GST-I
BETWEEN:
URANUS AUTO SALES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Agent for the Appellant: Alam Kawaja
Counsel for the Respondent: Brianna Caryll
____________________________________________________________________
Reasonsfor
Judgment
(Delivered orally from the Bench at Toronto,
Ontario, on March 7, 2002)
Bowie J.
[1]
This Appellant is truly a one individual company. Noorollah
Ahrari is the only shareholder, the only officer and the only
employee. The company's business at all relevant times was
the purchase and resale of used automobiles.
[2]
The appeal before me is from a Notice of Reassessment for goods
and services tax (GST) under Part IX of the Excise Tax Act
for the period between January 1, 1996 and January 31, 1999. By
that assessment, as it was amended after objection, the Appellant
was required to pay additional GST of $17,039.72, plus penalties
and interest.
[3]
At the conclusion of the evidence for the Appellant, his agent
informed me that there were two, and only two, matters in
dispute. One of those is the exact volume of sales transacted by
the Appellant of vehicles not for export, and therefore subject
to tax at the rate of 7%. The other is whether sales in the
amount of C$163,182 in total for the three years were properly
considered by the Minister to be domestic sales subject to GST,
or were in fact export sales, and therefore zero-rated
commodities on which no tax was exigible.
[4]
As to the first issue, the Appellant has put itself at a
considerable disadvantage by failing to comply with section 286
of the Act. That section requires that a person in
business must keep records from which the liability under the
Act may be determined. It is clear from the evidence of
both Mr. Ahrari and the assessor, Mr. Bandali, that
this Appellant did not keep what might be called normal business
books and records. There was no sales ledger, and no ledger
account to show the GST collected and remitted.
[5]
The assessor, when he began his audit, was presented with
Exhibit A-1 which consists of cash flow statements and
a summary list of expenses month-by-month for each of the three
years under appeal. These had been prepared by his accountant,
Mr. Sheikhzadeh, who had been his accountant since 1994.
Apparently at the request of the assessor, Mr. Ahrari had
Mr. Sheikhzadeh prepare Exhibit A-2, which purports to
be unaudited statements of income and expenses for the business
for the years 1996, 1997 and 1998. No books were kept or
statements prepared for this business contemporaneously, and
Mr. Sheikhzadeh did not testify and so could not explain the
manner in which he prepared either the cash flow statements or
the statements of income and expenses. The assessor testified
that, having seen Exhibits A-1 and A-2, he asked
Mr. Ahrari if he operated his business on a cash basis, and
was told "yes". He then proceeded to conduct an audit
on that assumption, and to assess GST on the basis that the cash
receipts in each year, as provided to him, constituted the sales
of vehicles. In essence, he applied 7% tax to the total sales so
determined.
[6]
The assessor was shown bills of sale for a number of vehicles on
which the purchaser's address was shown as being in the
United States, or in two instances in Germany. He did not accept
that these were in fact export sales, and so he did not
zero-rate them in his assessment. In the result, he added
$77,177 to the sales figures based on his analysis of the cash
accounts, and assessed GST of 7% or $5,395. He also added GST in
respect of the purported export sales. This was apparently done
using the sales data from the Appellant's income statements
supplied to him, but treating all of the sales as domestic sales.
This produced a further liability for GST of $21,796.
[7]
On objection, the appeals officer reduced the assessment by some
$10,151. She testified that she had available to her the bank
statements to show the opening and closing balances, as well as
the sales invoices. Her analysis of these led her to believe that
the cash receipts should have been increased by approximately
$125,000 rather than by the $77,177 applied by Mr. Bandali.
However, she was not sufficiently satisfied of this to add GST on
this amount to the assessment. Instead, she reduced the amount
assessed as I have indicated, largely on the basis that certain
invoices had been double counted, and that Mr. Bandali had
applied 7% GST to the gross receipts of the business rather than
to the net receipts. Like the assessor, she did not accept that
any of the sales were for export, and therefore
zero-rated.
[8]
Mr. Ram Kaushal gave evidence for the Appellant. I refused
to permit him to offer an opinion as to whether or not the
assessment was made in accordance with appropriate accounting
standards, as the Appellant's agent asked him to do, as no
attempt had been made to satisfy Rule 7 of the Tax
Court of Canada (Informal Procedure) Rules respecting a
written statement of opinion evidence, nor was any effort made to
establish his qualifications to offer an opinion. He then
attempted to show that the assessor had been in error when adding
$77,177 to the sales of the business for the period under
assessment. He admitted, however, that he had not made any actual
computation of his own of the Appellant's volume of
sales.
[9]
In my view, the best evidence as to the Appellant's gross
sales was that of Ms. Kelly, the appeals officer. The
Appellant has simply not shown that the Minister's
computation of the gross sales and the tax payable on them
(leaving aside the export issue) is wrong. The Appellant produced
two documents which were submitted in evidence as
Exhibits A-3 and A-4. Exhibit A-3 is a
handwritten document with an illegible signature at the bottom of
it bearing the date February 10, 1999; more exactly, it is a
photocopy of such handwritten document. It purports to declare
that the maker, Said Gajehbiglo, paid amounts totalling $52,705
in 1997 and $10,470 in 1998 by way of a loan to Uranus Auto Sales
Inc. The maker of the document was not available to authenticate
it, nor was there any evidence other than that of Mr. Ahrari
to authenticate this document.
[10] Exhibit
A-4 is a typewritten sheet signed by no one, enumerating
six items which total $19,728. It is headed "Disbursements
Against Borrowings and Personal Loans" and it says,
"Paid to Mrs. Forozan Vafie". Again, this document
could not be identified. I do not find Mr. Ahrari's oral
evidence with respect to either of these documents,
self-serving as it is, to be persuasive. I do not accept
his suggestion that these amounts were all injections of cash, by
way of borrowings, into the business, and therefore amounts that
should be deducted from the sales figures computed by
Ms. Kelly.
[11] I turn
now to the matter of the sales which the Appellant says were for
export. The Minister's position, as expressed by the assessor
and by the appeals officer in their evidence, and by counsel in
argument, is that the Appellant cannot satisfy paragraph
1(d) of Schedule VI, Part V of the Act, because he
does not have Form 7501 for each of the vehicles said to have
been sold for export. I shall come back to the matter of this
form shortly.
[12] In all
there are 17 vehicles on which the Appellant did not collect GST
because it considered them to be export sales: in 1996 there were
two vehicles which the Appellant claims were exported to the
United States and two to Germany, having a total consideration of
US$29,800, which translates to C$40,528; in 1997, three vehicles
to the United States aggregating US$28,500 or C$39,330; in 1998,
ten vehicles to the United States for an aggregate consideration
of US$56,300 or C$83,324. The GST assessed for these, after
adjustment by Ms. Kelly, is $10,675.46.
[13] The
provisions of the Act that apply are subsection 165(1)
which provides that the rate of tax for a zero-rated supply
is 0%, and subsection 123(1) which defines a zero-rated
supply to mean a supply included in Schedule VI. The part of
Schedule VI, Part V that applies here is section 1, the relevant
part of which reads:
1.
A supply of tangible personal property (other than an excisable
good) made by a person to a recipient (other than a consumer) who
intends to export the property where
(a)
the recipient exports the property as soon after the property is
delivered by the person to the recipient as is reasonable having
regard to the circumstances surrounding the exportation and,
where applicable, to the normal business practice of the
recipient;
...
(d)
the person maintains evidence satisfactory to the Minister of the
exportation of the property by the recipient or, where the
recipient is authorized under subsection 221.1(2) of the
Act, the recipient provides the person with a certificate
in which the recipient certifies that the property will be
exported in the circumstances described in paragraphs (a) to
(c).
There is no suggestion in this case that the certificate
provision in the latter part of paragraph (d) would have
any application. To qualify as zero-rated, then, in the
context of the present case, goods must be shown first to have
been sold to a person who intends to export them, and second, to
have been exported as soon as is reasonable. In addition, the
vendor must maintain evidence satisfactory to the Minister of the
exportation of the property by the purchaser.
[14] The
Appellant's evidence, that of Mr. Ahrari, was that it
was audited for the periods 1994 and 1995, that the evidence as
to exportation that it had kept in respect of those years was
exactly what he had when he was audited for 1996, 1997 and 1998;
that is, it had copies of bills of sale which showed a U.S.
address for the purchaser. These, he said, were satisfactory to
the Minister at the time of the first audit. The export sales
were accepted as such. Mr. Ahrari was not told then, or at any
later time, that for the future the Minister would require some
higher standard of evidence as to exportation to satisfy
paragraph (d) of section 1 of Part V of Schedule VI, until
such time as Mr. Bandali audited him in 1999, and told him
that he needed Form 7501.
[15]
Mr. Ahrari also gave evidence that the Appellant was audited
subsequent to Mr. Bandali's audit and that on that
occasion, the Minister accepted the same evidence in respect of
export sales as in 1994 and 1995. None of this evidence was
seriously challenged, nor was it rebutted.
[16] I turn
now to the Reply to the Notice of Appeal filed by the Deputy
Attorney General of Canada in this matter. The substance of it is
to be found in paragraph 4, which I shall reproduce in its
entirety:
4.
In so reassessing the Appellant, pursuant to the Assessment, the
Minister made the following assumptions of fact:
(a)
the Appellant was registered for purposes of Part IX of the
Excise Tax Act, R.S.C. 1985, c. E-15, as amended
(the 'Act') at all material times;
(b)
the Appellant operated a used car sales business;
(c)
the Appellant failed to maintain adequate books and records for
the Period;
(d)
the Appellant failed to report all the Goods and Services Tax
(the 'GST') collectible pursuant to section 221 of the
Act;
(e)
the Minister used information available to him including cash
flow statements and financial statements to him to determine that
the Appellant failed to account for GST in the amount of
$17,039.72;
(f)
the Appellant did not provide and maintain adequate documentation
to substantiate and differentiate 0% taxable supplies from 7%
taxable supplies;
(g)
the Appellant was required to report and remit additional GST in
the amount of not less than $17,039.72; and
(h)
penalty and interest were properly assessed on the amount of net
tax the Appellant failed to remit as and when required to the
Receiver General for Canada for the Period and on the net tax
refundable claimed by the Appellant from the Receiver General for
Canada to which it was not entitled.
The Deputy Attorney General of Canada then states the issues
to be decided by this Court in the following cryptic terms:
5.
The issue is whether the Minister properly reassessed the
Appellant additional GST.
Part C of the Reply, entitled "Statutory Provisions,
Grounds Relied on and Relief Sought" is no more than a
recitation of various sections of the Act, not including
incidentally, Schedule VI, Part V, wherein the entire issue
relating to exportation arises, plus the bald assertion once more
that the Appellant had failed to collect and remit GST of
$17,039.72, and had not kept proper records.
[17] Nowhere
in this Reply could anybody, even on the most minute examination,
discern that there was an issue before the Court as to
exportation of these vehicles.
[18] The first
three subparagraphs of paragraph 4 indeed do assert facts which
the Minister presumably assumed, namely that the Appellant was
registered under the Act, failed to maintain adequate
books and records and operated a used car sales business. Beyond
that, all of the assumptions found in this Reply constitute
either bald assertions of conclusions of law, or at the best some
minor factual matters mixed inextricably with conclusions of
law.
[19] Counsel
for the Attorney General was not able to refer me to any
statutory, or even published, requirement that Form 7501 was
required to be obtained in order to comply with section
1(d) of Part V of Schedule VI. Indeed, she said that she
herself had never seen the form. I can find no reference to it in
the Act, or the Regulations under the Act,
or in the standard reference works available to me relating to
GST. The GST forms published do not appear to have any numbers
consisting of four digits. The evidence of the assessor and of
the appeals officer leads me to believe that this may very well
be a form that is required under U.S. customs law in relation to
the importation of a vehicle into that country, but I am far from
certain of that.
[20] In any
event, the Appellant here was led to believe by the first auditor
that his duplicate bills of sale were evidence satisfactory to
the Minister. This despite the obvious catch-22 that it can
only be established that a vehicle qualifies as zero-rated
after it has been sold and in fact exported. The Minister has
chosen not to promulgate any regulation along the lines of the
Input Tax Credit Information Regulations which would fix
an objective standard of proof which people in business could
then reasonably be required to meet. He now seeks to move the
goal posts from where he once placed them, without any notice
whatsoever which would enable the taxpayer to adjust its business
practice accordingly. He comes to Court, represented by the
Deputy Attorney General of Canada, and argues that subsections
1(a) and (d) of Part V of Schedule VI have not been
met, when his Reply makes no reference whatsoever to the
exportation issue, or to the standard of evidence which the
Minister requires from time to time or even to Schedule VI.
[21] It was
decided long ago that where an Act confers a discretion on
the Minister he must exercise that discretion on proper legal
principles: see Pioneer Laundry & Dry Cleaner v.
M.N.R. [1940] A.C. 147; and Wrights' Canadian Ropes v.
M.N.R., 2 DTC 794. Proper legal principles require that the
Appellant have notice that will permit it to comply with a
revised standard established subsequent to the Minister's
recognition of a lesser standard as being adequate.
[22] It is
trite, too, that an Appellant must have some notice from the
pleadings of the case that it is expected to meet. The Minister
has not pleaded in this case, either by way of an assumption or
otherwise, that the vehicles were not exported, or that the
Appellant did not maintain satisfactory evidence of that fact,
other than the vague statement in subparagraph 4(f) of the Reply
that the Appellant did not provide and maintain adequate
documentation to substantiate and differentiate 0% taxable
supplies from 7% taxable supplies.
[23] In
Hickman Motors Ltd. v. The Queen, [1997] 2 S.C.R. 336,
Madam Justice L'Heureux-Dube said at page 378, in
discussing the onus of proof:
...The Minister, in making assessments, proceeds on
assumptions...and the initial onus is on the taxpayer to
'demolish' the Minister's assumptions in the
assessment...The initial burden is only to 'demolish' the
exact assumptions made by the Minister but no more:
(emphasis in the original)
[24] The
Appellant in this case has not been put on notice of any
assumption underlying the assessment that the vehicles were not
exported, or that there was any lack of intention on the part of
the purchasers to export them, nor has it been given any notice
of a standard of evidence required by the Minister to meet
paragraph (d) of section 1 which differs from that which
satisfied the first assessor.
[25] The
appeal is therefore allowed as to this issue, and the export
vehicles are zero-rated supplies. The assessment is
referred back to the Minister for reconsideration and
reassessment on that basis. The interest and penalties will be
adjusted accordingly. This is not a case in which I can award
costs, nor would I do so if it were open to me.
Signed at Ottawa, Canada, this 8th day of April, 2002.
"E.A. Bowie"
J.T.C.C.
COURT FILE
NO.:
2001-2820(GST)G
STYLE OF
CAUSE:
Uranus Auto Sales Inc. and
Her Majesty the Queen
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
March 5, 2002
REASONS FOR JUDGMENT BY: The
Honourable Judge E.A. Bowie
DATE OF
JUDGMENT:
March 11, 2002
APPEARANCES:
Agent for the
Appellant:
Alam Kawaja
Counsel for the
Respondent:
Brianna Caryll
COUNSEL OF RECORD:
For the
Appellant:
Name:
N/A
Firm:
N/A
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
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