Citation: 2009 TCC 63
Date: 20090306
Docket: 2007-2679(GST)G
BETWEEN:
CAMIONS DM INC,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1]
Camions DM Inc. is
appealing from an assessment made under Part IX of the Excise Tax Act
(the Act) in relation to the period from October 1, 2002, to
March 31, 2006. After conducting an audit, the Respondent disallowed
input tax credits (ITCs) that the Appellant had claimed during the period in
issue in computing its net tax. The disallowed ITCs consisted of $237.12 for
non-conforming invoices and $25,984 for invoices characterized as invoices of
convenience. In addition, $2,755.46 in penalties, $1,221 in interest and $6,510
in additional penalties were assessed.
[2]
The Appellant is no
longer contesting the disallowance of $237.12 in ITCs for non‑conforming
invoices. As for the $25,984 in ITCs, it pertains to two of the Appellant's
suppliers: Pascal Bouchard ($1,876) and Mario Lussier ($24,108).
[3]
The Appellant is a
registrant for the purposes of the Act, and its commercial activity is the
purchase and resale of used trucks and truck parts. The Appellant was
audited in 2005 and 2006, and no discrepancy was found following a
reconciliation of tax collected and tax remitted. The auditor also
reconstructed the Appellant's sales figure based on cash inflows, and no
significant discrepancy was found. Nor was any significant discrepancy
found between the ITCs claimed and the ITCs entered in the Appellant's books.
However, an analysis of the invoices revealed that some of them did not conform
to the Act and that others were made by suppliers of convenience. It is
the latter invoices that are in issue in the case at bar.
[4]
There are four invoices
related to the supplier Pascal Bouchard. The invoices date back to the
fall of 2002 and the spring of 2003. That supplier sold truck parts and engines
to the Appellant. Three of the four invoices showing such purchases by the
Appellant were on the Appellant's own business letterhead, as were the invoices
for the purchases from the supplier Mario Lussier. Therefore, the invoices
bearing the Appellant's letterhead were used for both purchases and sales.
There was simply a box on the right-hand side of the invoice that could be
checked in order to indicate whether a purchase or a sale was involved.
[5]
Dany Williams
owns the Appellant Camions DM Inc. The Appellant's activities commenced
in 2003, and Mr. Williams purchased parts from the supplier Bouchard. Mr. Williams
says that the last time that he saw Bouchard was in 2003. The largest purchase
price was $16,793.65, including tax, for a transaction that took place on
March 11, 2003. The Appellant allegedly paid for this purchase
in three instalments, which were paid by cheques payable to "Cash"
and endorsed by Dany Williams, for the purpose, or so Mr. Williams says,
of paying the supplier Bouchard.
[6]
The purchased
parts, such as engines, are not identified by serial number. The parts
were resold by the Appellant as shown in certain sales invoices. Dany Williams
admits that the registrant numbers for the supplier Bouchard were added on the
invoices by his mother after the transactions took place.
[7]
Pascal Bouchard was
not called as a witness. However, the auditor's report (Exhibit I‑1, tab 1) shows
that Mr. Bouchard had no place of business, that he never reported taxes
or claimed refunds, and that he has no business or accounting documents. He
registered for the GST on September 11, 2002. In her report, the
auditor goes over the conversations that she had with the supplier Bouchard. At
the beginning of the conversation, Bouchard said that he did not recall the
transactions involving the Appellant. After receiving two of the four
invoices by fax, his memory was refreshed, but he specified that there were no
other invoices after saying that he had found the documents in his filing
cabinets and that there were only two invoices in it. He also told the
auditor that he received only a fraction of the amounts stated on the sales
invoices. An audit of his account disclosed no deposits that could
correspond to the payments made by the Appellant. Pascal Bouchard does not
remember who his own suppliers were.
[8]
Mr. Williams and
Mr. Bouchard met in 2001 when they were both working for Les Camions Jean
Guy Daviault. Jean Guy Daviault is Dany Williams' uncle by
virtue of being the brother of his mother Marie Paule Daviault, who
was an advisor to the supplier Bouchard. She is the Appellant's secretary
and was the secretary at Les Camions Jean Guy Daviault and at Les
Camions Makina Inc., which purchased trucks and parts from the Appellant.
[9]
With respect to the
supplier Mario Lussier, the disallowed ITCs are from two categories of
invoices: invoices for parts purchases by the Appellant, and invoices for fees
paid by the Appellant to Lussier. The relevant invoices for parts purchases and
for fees were all printed on the Appellant's letterhead. As we have seen, those
invoices state whether a purchase or a sale is involved. The supplier Lussier did
not prepare the sales and fee invoices because he is unable to read or write.
He merely signed them.
[10]
The Appellant has been
doing business with the supplier Lussier since October 2002. For the first
few years, it bought truck parts. In 2005 and 2006, it began to pay fees to
Lussier for reasons that I will address further on in these reasons.
[11]
One of the anomalies that
the auditor noticed on the Appellant's used truck and parts purchase invoices
is that none of them contains the serial number of the part or truck purchased.
In his conversations with the auditor, Lussier was unable to tell her about the
source of the parts that he sold the Appellant. As for the supplier Lussier's
registration numbers, they were added to the invoices by Dany Williams'
mother during the audit.
[12]
The auditor's report
tells us that the supplier Lussier obtained his registration numbers in 2002, and
that he described his commercial activity as a truck parts and scrap business. He
did not file a single tax return using his registration numbers. He was
audited and assessed. Based on the audit, the Minister concluded that Lussier
was a provider of invoices of convenience, since there was no evidence of
commercial activity. Lussier declared bankruptcy on July 23, 2004. In September 2004,
he registered again, and filed tax returns. Based on another audit, the
Minister of Revenue of Quebec found that Lussier had no documents related to
his commercial activities, no place of business, and no inventory. He would cash
his cheques in a wide variety of places, and immediately withdraw whatever
money he would deposit. The audit showed that he had no vehicle registered
under his name, and that he used a truck registered under his spouse's
name. For the period from September 29, 2004, to December 31, 2005, the
supplier Lussier reported $19,560 in income, but the audit disclosed cash
inflows of $674,236. In 2004 and 2005, he reported receiving social assistance
benefits. Lastly, Lussier has a long history of health problems, which makes
it difficult for him to travel.
[13]
During his testimony,
Mr. Lussier was shown some invoices. He admitted that Dany Williams had
prepared these invoices, but that he had signed them. He supposedly gave Dany
Williams his registration number in writing. As for the items sold to the
Appellant, he said that he purchased them from several places and sold them to
the Appellant, who, in turn, resold them the same day or the following day to Camions Makina Inc.,
which was owned by Mario Daviault, Jean Guy Daviault's son.
After his bankruptcy, the supplier Lussier supposedly gave his new GST and QST
registration numbers to the Appellant in writing or over the phone.
[14]
Lussier acknowledges
that he had medical problems during the period in issue. When questioned about
the fees received from the Appellant, he testified that he had two or three
business dealings with Marcel Desjeans, but that, thereafter, the
Appellant dealt directly with Mr. Desjeans and the Appellant paid him fees
in return.
[15]
Desjeans is the foreman
at a trucking company, and during the period in issue, he was responsible for
maintaining the fleets of seven trucking companies, which totalled
approximately 700 trucks. His duties included the sale of trucks that he
characterized as [translation]
"unsuitable", that is to say, trucks with a high odometer reading or
in need of numerous repairs. These trucks were therefore sold as scrap. He
used the term "scrap" because anything usable had been removed from
the truck. These were trucks whose useful life had come to an end.
[16]
Indeed, Desjeans confirmed
that he did business with the supplier Lussier in the past. He found
Lussier difficult to deal with; the negotiations were complicated and the
transfers of ownership were always complicated. He therefore stopped doing
business with him. He called Lussier a [translation]]
"weasel". He said that Lussier introduced him to Dany Williams
of Camions DM Inc. With Williams, everything was easy and quick. The
supplier Lussier never called him to say that Dany Williams was going to
meet him or that he was acting on his behalf.
[17]
In the course of his
testimony, Desjeans was shown a few sample sales. For example, on June 16,
2005, one of the companies that Desjeans represented sold the Appellant a Volvo
truck for $2,000. The truck had been sold for the reasons cited earlier.
However, the Appellant resold the same truck four days later for $12,000.
Desjeans says that he was very surprised at the selling price. A second
sale, dating back to February 2006, also caused some surprise on Desjeans' part.
He had sold the Appellant a 1999 ten-wheel Freightliner truck for $1,000 at a
45‑foot trailer for $50 on February 21, 2006, and on the
following day, the Appellant resold the same truck to Les Camions Jean Guy Daviault Inc.
for $9,000, and the same 45‑foot trailer to Gamex Inc. for $1,500.
[18]
A total of 34 similar
transactions were tallied during the audit. The auditor found it particularly
noteworthy that the Appellant paid Mario Lussier a fee for each transaction. The
payment of fees to Mario Lussier is substantiated by an invoice, issued by
the Appellant on its own letterhead, and setting out the amount paid to Mario Lussier
in this regard, as well as the tax, which corresponds to the ITCs disallowed by
the auditor. During the period from May 22, 2005, to March 30, 2006, the
Appellant paid Mario Lussier $204,000 in fees.
[19]
The account of the
facts that Mario Lussier provided at the trial was that he did business with
Marcel Desjeans two or three times, but that since he did not have enough money
to make purchases, he introduced Dany Williams to Marcel Desjeans. According
to the arrangement entered into with Dany Williams, he would receive
a "commission" similar to the price for which he would have sold
the trucks to one Régis Dubois, who ran a garage and who purchased
and sold trucks. This "commission" was always roughly
$7,000-$8,000, and, according to Lussier, this arrangement was to remain
in place as long as the Appellant purchased trucks from Marcel Desjeans. He
claimed that he never gave any of his "commission" money to Dany Williams.
[20]
In a sworn declaration
made before a notary on July 13, 2006, Mario Lussier stated that all the
invoices for fees and purchases involving the Appellant, which totalled $353,200,
plus sales taxes, were genuine, accurate and real, and that no amount was paid
to Dany Williams after he cashed the cheques. Earlier (specifically, on
January 25, 2006), in another document entitled
"affidavit", Mario Lussier stated that the invoices for
purchases from Camion DM Inc. which were for "fees" were
actually for truck sales. He added that, for the fee invoices submitted to
Camion DM Inc., he received cheques, cashed them, kept a commission
averaging $500, and used the balance to pay for the trucks in cash, after which
he resold the trucks to Camion DM Inc. Thus, the "fee"
invoices issued to Camion DM Inc. pertained to the purchase and
resale of transport trucks from various companies. Lussier's affidavit also
stated that he repaired trucks. However, at the hearing, he stated that he
did not repair trucks. He explained that when he signed the affidavit of
January 25, 2006, he was taking medications, and everything was vague. However,
according to the auditor, he was no different at the hearing from the way he
was when he signed the affidavit. Lussier says that he does not recall giving
money to anyone.
[21]
In some of the
transactions, Mario Lussier endorsed his fee cheques but the cheques were cashed
by René Daviault, who was his father-in-law and Dany Williams' uncle.
Mario Lussier supposedly did these things because he had no bank account.
He added that he always kept $2,000 or $3,000 in cash, but that he did not have
enough to purchase the trucks himself. He prefers to purchase truck parts.
[22]
Twenty-five invoices concerning
parts purchases from Mario Lussier by the Appellant were identified for
the period from April 11, 2003, to March 23, 2006. The total value of the
transactions covered by those invoices was $149,200. Most if not all the invoices
bore Mario Lussier's registration numbers, which were added by Dany Williams'
mother at the time of the audit in 2006. Dany Williams testified that he
was in possession of Mario Lussier's registration numbers at the time that
the transactions in question took place. He supposedly asked Lussier for
his numbers, and wrote them on a cigarette package that he kept in his
briefcase (Exhibit A‑2). However, the cigarette package bears the
QST number only, and no date. Dany Williams says that his mother got
Mario Lussier's GST number.
[23]
For her part, Marie Paule
Daviault, Dany Williams' mother, testified as follows. She helped her son
make invoices and she had Mario Lussier's registration numbers in her possession
since 2003. She kept the numbers in question on sheets of paper and in a day
planner, which were adduced in evidence. She also confirmed those registration
numbers online. However, she acknowledged that even though she had the
registration numbers since 2003, she did not enter them on the invoices until
the audit in 2006. On cross-examination, Ms. Daviault acknowledged that,
at the time that she entered that information in her day planner, she was
working for Camion Makina Inc., not for her son. She says that she did
this for him anyway, even though she was not working for him. She did this for
her employer as well.
[24]
A few of the 45
invoices concerning the Appellant's purchases from Mario Lussier that were
adduced in evidence do not contain the truck or part serial numbers, the method
of payment, or Mario Lussier's signature. On a few of these invoices, no taxes
are charged. The most important thing, in my opinion, is that many of the goods
that the Appellant purchased from Mario Lussier were resold the same day
or the following day. There are even two cases in which the Appellant sold the
goods before they were even purchased from Mario Lussier (invoice #1009, for
which the goods were sold one day earlier, and invoice #1024, for which the
goods were sold three days earlier).
[25]
The auditor, Sonia
Brin, testified about the contents of her report. I have already addressed her
written remarks concerning Mario Lussier. Suffice it to recall that Mario Lussier
never made any tax remittances and that it was impossible to verify anything,
even after sending a demand letter. The history of the registration numbers,
the bankruptcy of Mario Lussier, the fact that the invoices were not
proper and were all prepared by the Appellant, were some of the points on the basis
of which the auditor found that these were invoices of convenience. The auditor
also found that the same people participated in several transactions. Lastly,
the fact that neither Mario Lussier nor the Appellant appeared to have any
parts inventory raised doubts as to whether true commercial activities were
involved. At the time that the auditor told Dany Williams that the invoices did
not contain Mario Lussier's registration number, he and his accountant did
not tell her that they had his number in their possession. As for Mario Lussier,
he had no document in his possession.
[26]
According to the
auditor, the parts invoices are non-conforming because there is no way to
identify the goods by serial number. The invoices from supplier Pascal Bouchard
are non-conforming for the same reason, in her view.
[27]
Consequently, the issue
to be determined is whether the Respondent was warranted in disallowing the
ITCs claimed by the Appellant in computing its tax during the period in issue, and
in assessing a penalty under section 285 of the Act. In support of her
position, the Respondent notes that the invoices in respect of which the ITCs
are claimed are non‑conforming because they did not contain all the
information that is required by subsection 169(4) of the Act and set out in
section 3 of the Input Tax Credit Information (GST/HST) Regulations.
The provisions in issue read as follows:
169(4) Required documentation — 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; and
. . .
Section 3 of the Input Tax Credit Information
(GST/HST) Regulations reads:
3. Prescribed information — For the purposes of paragraph 169(4)(a) of the Act, the
following information is prescribed information:
. . .
(c)
where the total amount paid or payable shown
on the supporting documentation in respect of the supply or, if the supporting
documentation is in respect of more than one supply, the supplies, is $150 or
more,
(i) the information set out in paragraphs (a) and (b),
(ii)
the recipient's name, the name under which the
recipient does business or the name of the recipient's duly authorized agent or
representative,
(iii) the terms of payment, and
(iv) a description of each supply sufficient to identify it.
[28]
I have only reproduced
the portion of the Regulations that applies to supplies of $150 or more, but I
must point out that subparagraph 3(b)(i) requires the supplier's
registration number.
[29]
The Respondent further
submits that, not only are the Appellant's ITC claims non-conforming, but moreover,
in view of the evidence of the whole, the Appellant was not acting in good
faith in its transactions with Mario Lussier and Pascal Bouchard, and
thus, the Appellant could not legitimately believe that the information
contained in the supporting documents was accurate and recorded genuine
transactions between them. In other words, the Respondent submits that the
invoices were invoices of convenience that served to reduce the Appellant's net
taxes and income.
[30]
For its part, the
Appellant submits that all the requirements of the Act and the Regulations were
complied with in this case. The Appellant was at all times in possession of Mario
Lussier's registration numbers, and the terms of payment were clear and well
defined. The Appellant further submits that, even though certain invoices did
not specify the price of each item, and certain items are not identified by
serial number, this is not a basis for disallowing an ITC. Lastly, the
Appellant submits that there is no evidence of collusion between the Appellant
and Mario Lussier, nor is there evidence of kickbacks from the Appellant
to the supplier Lussier, although there was one occasion in which the Appellant
cashed a cheque payable to Mario Lussier.
[31]
In order to claim an input
tax credit, the registrant must obtain the information required by the
Regulations before filing the return. The registrant can be required to produce
the supporting documentation containing the information in question.
These provisions are clear, and the courts require that the information be
produced. This is especially true when the value of the supplies exceeds $150. These
statutory requirements are amply justified considering the fact that
registrants are the tax authorities' trustees and are accountable to them on that
basis.
[32]
I acknowledge from the
outset that the Appellant in this case kept proper accounting records using
Simply Accounting software. The auditor's report states that all auditing
exercises, such as the reconstruction of the sales figure based on cash inflows;
the reconciliation of the supply report (based on the sales journal) with the
supplies entered; or the reconciliation of the ITCs entered in the books with
the ITCs reported, showed no significant discrepancy. Thus, it is the analysis
of the invoices in issue that uncovered irregularities which, in view of the
evidence as a whole, led the auditor to find that the invoices were invoices of
convenience.
[33]
I also accept from the
outset that the Appellant is not responsible for the fact that Mario Lussier
did not remit the tax and did not keep accounting records that were good enough
to enable an audit of his commercial activities. However, this situation cannot
be totally disregarded, given all the commercial activities, spanning several
years, between the Appellant, the supplier Lussier and some customers of the
Appellant, whose owners are members of the same family. Mario Lussier is
married to the daughter of René Daviault, who is the brother of
Dany Williams' mother, Marie Paule Daviault, to name just those
relatives.
[34]
Mario Lussier and
the Appellant run businesses whose commercial activities are identical. Neither
of them has a place of business that would enable them to store an inventory.
The parts that the Appellant purchased from Mario Lussier were almost all
resold the same day (13 of 45, by my count), the following day (9 of 45) or the
day after that. Only one part was sold 10 days later. What is strange,
however, is that there are two transactions in which the Appellant sold the
part before he had even bought it from the supplier Mario Lussier. The
invoice in question is invoice #1009 dated May 5, 2003, which shows
that the Appellant purchased a 14½-foot dump truck with a cylinder for $2,500 — a truck that he had sold three days
earlier, on May 2, 2003, for $3,000 to Camions Thomas Lapointe Inc. The
other similar transaction is #1024: on July 9, 2003, the
Appellant bought a Dana 44 differential from Mario Lussier, which he had sold
to Camions A & R Dubois the previous day.
[35]
The Appellant used his
own invoices to make his parts purchases from the supplier Mario Lussier. In
fact, the Appellant prepared those invoices itself. I find it rather unusual
that a supplier like Mario Lussier, with a sales figure like his, did not have
his own invoices or look after preparing them himself. This situation raises
doubts about Mario Lussier's good faith. The fact that the Appellant chose
to continue operating in this manner also raises doubts about his good faith.
[36]
Mario Lussier's
testimony is far from impressive. His numerous contradictions and his complete disregard
of his obligations under the Act as a registrant were clear during the audit
and it has testimony, and should have been clear to the Appellant as well.
[37]
The Appellant must
show, on a balance of probabilities, that all its parts purchase transactions,
for which it is claiming ITCs, comply with the statutory requirements and are
not transactions of convenience. The Appellant must also show that all the
commission fees paid to Mario Lussier in conjunction with the sales of
trucks were actually paid, and that the Appellant was not in connivance with
Lussier for the purpose of reducing its net tax and its income.
[38]
In all, there were 34
transactions over a 13‑month period. The Appellant paid $204,000 in
commissions and fees to Mario Lussier. Mario Lussier's fee invoices are
all on the Appellant's stationery. All the Appellant's truck purchase and sale
transactions and fee payments to Mario Lussier took place within a few days. Allegedly,
the reason that the fees were paid by the Appellant to Mario Lussier is
that Lussier had introduced Dany Williams to Marcel Desjeans. In
return, the Appellant paid this commission, the amount of which was based on
the year of the truck. One wonders what would have happened if one of the
trucks have been resold by the Appellant for a price lower than the price for
that year. There was no written agreement between them, and Mario Lussier's oral account of the invoice is
contradictory, to say the least. It is quite implausible, in my opinion, that
such an agreement would have lasted such a long time and involved such large
amounts.
[39]
Not only are the fees
purportedly paid to Mario Lussier questionable, the transactions with Pascal Bouchard
are questionable as well. In my opinion, these were sham transactions. The Act
and Regulations were devised for bona fide transactions between bona
fide businesspeople: Orly Automobiles Inc. v. Canada,
2005 FCA 425.
[40]
Dany Williams placed
considerable emphasis on the fact that he was in possession of the supplier Mario
Lussier's registration number at the time that the transactions took place.
First of all, it must be understood that the registration number was only
entered on the invoices at the time of the audit. Dany Williams claims
that he had copied this number on a package of cigarettes that he kept in his
briefcase, and then his mother had transcribed it into a day planner for 2003,
2004 and 2005. I should specify that only the QST registration number was
on the cigarette package in question. As for the day planner, it belonged
to Dany Williams' mother, who was working for Camions Makina Inc. at the
time. The day planner does not indicate the year to which it pertains, and it
is difficult to believe that it could have been used for three consecutive years.
On the basis of the evidence as a whole, I am unable to find that the Appellant
obtained supporting documentation containing the information required by
subsection 169(4) of the Act before filing a return.
[41]
In my opinion, and in
the light of my findings, the Appellant has not shown on a balance of
probabilities that it is entitled to the disallowed ITCs, and it is not
necessary for me to address the terms of payment, or whether the supporting
documents were adequately designated.
[42]
Given my finding, it is
clear that the Appellant knowingly made a false statement in his return during
the period in question, and, therefore, the Respondent was entitled to impose
the penalty provided for in section 285 of the Act. The appeal is dismissed,
with costs.
Signed at Ottawa,
Canada, this 6th day of March 2009.
"François Angers"
Translation certified true
On this 27th day of June 2009
François Brunet,
Reviser
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