Citation: 2007TCC199
Date: 20070403
Docket: 2004-2783(GST)G
BETWEEN:
FOLZ VENDING COMPANY LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] This is an appeal,
under the general procedure, from an assessment by the Minister of National
Revenue ("the Minister") dated June 11, 2003.
The assessment stated that the Appellant should have collected, and paid
to the Receiver General for Canada, the sum of $388,506.23 in Goods and Services Tax (GST)
and Harmonized Sales Tax (HST) for the period from October 1, 2000,
to June 30, 2002 ("the relevant period"). The GST and HST
that the Appellant should, in the Minister's opinion, have collected and paid
to the Receiver General for Canada during the relevant period were related to sales of candy,
gumballs and toys by means of coin-operated devices designed to accept a total
consideration of more than $0.25.
Facts
[2] During the relevant period, the Appellant
sold candy, gumballs and toys by means of "single-coin" vending
machines the mechanism of which was designed to accept only one denomination of
coin, specifically, $0.25, $1 or $2 coins. These machines did not give back
change.
[3] During the relevant
period, the Appellant made a total of $9,465,402 in sales. Forty-four percent
(44%) of these sales, that is to say, $4,164,776 worth of sales, were made by
means of vending machines designed to accept a total consideration of more than
$0.25.
[4] Forty-three percent
(43%) of the Appellant's sales made by means of vending machines designed to
accept a total consideration of more than $0.25, that is to say, a total of $1,784,904
worth of sales, were made in provinces where the 15% HST was applicable during
the relevant period. In the Minister's opinion, the Appellant should have
collected the HST on these sales and remitted it to the Receiver General for Canada. Since the Appellant
did not collect and remit HST on these sales, the Minister determined, by
notice of assessment for the relevant period, that the Appellant should have
collected HST of $232,813.63 (15/115 x $1,784,904) and paid it
to the Receiver General for Canada.
[5] Fifty-three percent
(53%) of the Appellant's sales made by means of vending machines designed to
accept a total consideration of more than $0.25, that is to say, sales
totalling $2,379,873, were made in provinces where the 7% GST was applicable
during the relevant period. In the Minister's opinion, the Appellant should
have collected the GST on these sales and remitted it to the Receiver General
for Canada. Since the Appellant
did not collect and remit GST on these sales, the Minister determined, by
notice of assessment for the relevant period, that the Appellant should
have collected and remitted GST of $155,692.60 (7/107 x $2,379,873).
[6] During the relevant
period, the Appellant claimed $563,892.12 in input tax credits related to the
operation of its vending machines.
Issues
[7] The only issues are
as follows:
(i) Did
the tangible personal property or services, supplied by a "single‑coin"
vending machine designed to accept total consideration of more than $0.25 for
the supply, constitute taxable supplies?
(ii) Does
the Appellant have a defence of good faith against the penalties that were imposed
on it under section 280 of the
Excise Tax Act (ETA)?
Appellant's submissions
[8] In his oral
submissions, counsel for the Appellant essentially reiterated the arguments which
are set out in paragraph 6 of the Reply to the Notice of Appeal, and which read:
[TRANSLATION]
6. This is an appeal from the Respondent's decision, which is
based on subsection 165(3) of Part IX of the Excise Tax Act,
R.S.C. 1985, c. E‑15, as amended. The Appellant's grounds
of appeal are as follows:
(a)
The Appellant is actively engaged in the
operation of single-coin mechanical vending machines.
(b)
The Appellant is a member of the Canadian
Association of Kiddie Vendors (CAKV), and, since June 1990, has been trying,
through that association, to have the government acknowledge that its
single-coin mechanical devices cannot collect GST or HST.
(c)
The Respondent is not taking account of the
technical limitations of the Appellant's machines, which cannot collect the
consumption tax.
(d)
The Appellant is unable to program the
single-coin mechanical vending machines or modify their mechanisms, and thus,
while electronic multiple‑coin machines can collect the tax, these single‑coin
machines cannot.
(e)
Consequently, the Appellant is being made to bear
the entire burden of a mandate that it does not have the technical means to
carry out, and this means that it must pay, out of its own revenues, a tax that
it cannot collect from the consumer.
(f)
The Appellant is being made to absorb a direct
cost increase of 15%, which is discriminatory and impossible for it to bear.
(g)
It is discriminatory and unfair to require the
Appellant to collect GST and HST, and it imposes an immense financial burden on
the Appellant without permitting appropriate taxation.
(h)
Two important considerations prevent the
principle behind taxation from being applied: the agent's ability to
collect the tax, and the agent's obligation to collect only such tax as the
consumer has paid.
(i)
The Appellant cites Distribution Lévesque
Vending v. The Queen, [1997] G.S.T.C. 38 (Tax Court of Canada) where
it was held, inter alia, that Distribution Lévesque Vending, which
operated single-coin vending machines, was unable to collect the GST from
consumers, and that it was unfair to make it bear the burden of this tax
instead of placing the burden on the consumer.
(j)
The federal government accepted the judgment of
the Tax Court of Canada and adopted the Coin-Operated Devices Remission Order, SI/99‑21,
March 27, 1999, P.C.
1999-326, March 4, 1999, under the Financial Administration Act.
The Order contains, inter alia, the following elements:
-
the Order is in the public interest; and
-
registrants who remitted the GST or were
assessed in a context identical to that of Distribution Lévesque Vending are
entitled to a rebate, which applies to GST, penalties and interest thereon.
(k)
The Appellant submits that since it is
impossible for it to collect the tax, it should be entitled to the same
treatment as Distribution Lévesque Vending.
The law
[9] Section 165 of the ETA is the Goods and
Services Tax provision. It provides that GST of 7% must be paid by the recipient
of a taxable supply. Furthermore, it provides that the recipient of a taxable
supply in a participating province must pay to Her Majesty the Queen in right
of Canada, in addition to the
GST, tax in respect of the supply calculated at the rate for that province on
the value of the consideration for the supply (HST).
[10] Section 123 of
the ETA defines "taxable supply" as a supply that is made in the
course of a commercial activity. The term "supply" is defined as the
provision of property or a service in any manner, including sale, transfer,
barter, exchange, licence, rental, lease, gift or disposition.
[11] The ETA contains express
exceptions to the general provision imposing the Goods and Services Tax. For
example, Schedule V of the ETA pertains to exempt supplies, and Schedule VI of
the ETA pertains to zero-rated
supplies. During the relevant period, subsection 165.1(2) of the Act also
provided an express exception to the general rule imposing the tax. It read as
follows during the relevant period:
165.1(2) Coin-operated devices – Where the
consideration for a supply of tangible personal property or a service is paid
by depositing a single coin in a mechanical coin-operated device that is
designed to accept only a single coin of twenty-five cents or less as the total
consideration for the supply and the tangible personal property is dispensed
from the device or the service is rendered through the operation of the device,
the tax payable in respect of the supply is equal to zero
[12] As of April 1,
1997, that subsection replaced subsection 165(3.1) without retroactive effect.
Subsection 165(3.1) read as follows:
165(3.1) Coin-operated devices – The tax payable in respect of a supply of
tangible personal property dispensed from, or a service rendered through the
operation of, a mechanical coin-operated device that is designed to accept only
a single coin as the total consideration for the supply is equal to
(a)
zero where the amount computed in accordance
with subsection (1) is less than $0.025;
(b)
five cents where the amount computed in accordance
with subsection (1) is equal to or greater than $0.025 but less than $0.05; and
(c)
in any other case, the amount computed in
accordance with subsection (1).
[13] In April 1996,
following representations by the vending-machine industry, Parliament created a
sort of exception to this obligation to pay the tax by enacting
subsection 165(3.1), albeit without retroactive effect.
[14] Subsection 165(3.1) was
replaced by subsection 165.1(2) because Parliament wanted to take the
Harmonized Sales Tax into account and simplify this exception in that, as of
April 1, 1997, it was essentially sufficient to verify whether the total
consideration was $0.25 or less in order to determine whether the exception was
applicable or not.
[15] Then came Distribution Lévesque Vending (1986) Ltée v. The Queen (1997), [1997] G.S.T.C.
38, 5 G.T.C. 1079 (T.C.C.), where Tremblay J.T.C.C. was of the opinion that it
was not possible to collect the GST in respect of supplies made prior to
April 1996 from machines that now meet the conditions listed in subsection
165.1(2) of the ETA. In view of the fact that the amendments were not
retroactive, one can disagree with Judge Tremblay's decision as to whether Parliament
intended to exempt supplies from these machines from the tax, but nonetheless, the
Governor in Council did enact the Coin‑Operated Devices Remission Order, P.C. 1999-326.
The Order allows any registrant who has paid the GST in respect of a supply which
was made between January 1, 1991, and April 23, 1996, and which
would be exempt under subsection 165.1(2), to claim, within two years after the
day on which the Order was made, a reimbursement of the GST paid. The Order
was made on March 4, 1999.
[16] Section 168 of the ETA provides that the GST
and HST are generally payable on the day that consideration for the taxable
supply was paid or the day that it becomes due. Section 160 of the ETA, which
is neither a taxing nor an exempting provision, specifies that where a supply
is made, and the consideration therefor is paid, by means of a coin-operated
device, the recipient is deemed to have received the supply, paid the
consideration and paid the tax on the day that the consideration is inserted
into the device, and the supplier is deemed to have made the supply, received
the consideration and collected the tax on the day that the consideration is
removed from the device.
[17] Sections 169, 221,
225 and 228 of the ETA
essentially provide that a person who makes a taxable supply must, as an agent
of Her Majesty in right of Canada, collect the tax payable from the recipient
and remit it to the Receiver General for Canada.
Analysis and conclusion
[18] In the case at bar,
I am of the opinion that the goods priced at more than $0.25 and sold by the
Appellant during the relevant period were taxable supplies within the meaning
of section 123 of the ETA, and that the GST or HST had to be paid by the recipient
of the supplies concerned, as prescribed by section 165 of the ETA. The ETA contains no exception
that could apply in the case at bar. Thus, the Appellant, as an agent
of Her Majesty in right of Canada, had to collect and remit the GST or HST on the taxable
supplies, and was entitled to the input tax credits associated with those
supplies.
[19] In the case at bar,
the Appellant was deemed, under section 160 of the ETA, to have made the supply,
received the consideration and collected the tax on the day that the
consideration was removed from the vending machine. It should be emphasized
that it is of little importance whether the Appellant actually collected the
tax, because the supplier is deemed by section 160 to have collected it.
Thus, the Appellant had to pay this deemed tax to the Receiver General for
Canada. Even if I had found
that section 160 of the ETA did not apply to the case at bar and that the Appellant's
vending machines were not coin‑operated devices but mechanical devices in
that they could accept only one denomination of coin and could not provide
change, I would still have been of the opinion that the assessment in issue is
valid, because the goods sold by the Appellant were taxable supplies within the
meaning of section 123 of the Act and thus, the GST or HST had to be paid
by the recipient of the taxable supplies, as contemplated in section 165
of the ETA. The Appellant therefore had to collect the GST or HST payable
by all recipients of taxable supplies during the relevant period, and had to
remit these taxes to the Receiver General for Canada under subsections 221(1)
and 228(2) of the ETA.
[20] The financial or
economic grounds that the Appellant has raised do not dispense it from the duty
to collect and remit the tax. In Roneson Enterprises Inc. v. Ontario
(Minister of Finance) [2005] O.J. No. 3179, the Ontario
Superior Court made the following observations in this regard:
16. In any event, just because compliance with the Act
may be difficult or may result in the imposition of a cap on the effective
purchase price of products sold through the vending machines does not affect
the legal duty of vendors to comply with the Act. If it should turn out that it
is too difficult or insufficiently profitable for the Respondent to comply, it
will have reassess the financial viability of conducting business through this
type of vending machine and perhaps even stop doing so. It may seem harsh but,
in law, there is no duty on the Appellant to facilitate this type of business
or to help maintain its profitability.
[21] As for the
imposition of a penalty under section 80 of the ETA, the Federal Court of
Appeal reiterated, in Corporation de l’École Polytechnique v. Her Majesty
the Queen,
that an Appellant must show that he acted with due diligence in order for the
penalty to be set aside. In the same decision,
the Federal Court of Appeal emphasized the importance of not confusing the
defence of due diligence with the defence of good faith:
The defence of due diligence should not
be confused with the defence of good faith, which applies in the area of
criminal liability, requiring proof of intent or guilty knowledge. The good
faith defence enables a person to be exonerated if he or she has made an error
of fact in good faith, even if the latter was unreasonable, whereas the due
diligence defence requires that the error be reasonable, namely, an error which
a reasonable person would have made in the same circumstances. The due
diligence defence, which requires a reasonable but erroneous belief in a
situation of fact, is thus a higher standard than that of good faith, which
only requires an honest, but equally erroneous, belief.
[22] In the same
decision, the
Federal Court of Appeal also recognized that
. . . [a]part from exceptions, mistakes
in good faith and reasonable mistakes of law as to the existence and
interpretation of legislation are not recognized as defences to criminal
offences, nor to strict liability offences or prosecutions governed by the
rules applicable in strict liability. However, two exceptions to the principle
should be noted: officially induced mistake of law and invincible mistake of
law.
[23] In my opinion, the
Appellant knew that it had to pay the GST and HST to the Receiver General for
Canada. There were no exceptions in the ETA apart from those related to
vending machines requiring $0.25 or less. Moreover, there was no order
concerning vending machines that were designed to accept more than $0.25 in
consideration. Thus, the Appellant did not exercise due diligence.
[24] For these reasons,
the appeal is dismissed, with costs.
Signed at Ottawa, Canada, this
3rd day of April 2007.
"Paul Bédard"
Translation
certified true
on this 20th day
of February 2008.
François Brunet, Revisor
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