REASONS FOR JUDGMENT
(Edited from the transcript of the Reasons
delivered orally from the Bench
at Montréal, Québec on April 13, 2007)
JUSTICE JORRÉ: These are my reasons for judgment in the appeal of
Automobiles Camtek-ER Limitée against Her Majesty the Queen, appeal number
2002-795(GST)G.
This is an appeal from a GST assessment dated 12 December 2000
bearing number 0319269 and covering the period from 1 October 1996 to 31 August
1999.
Pursuant to this assessment, there was an upward adjustment of
$32,285.75 plus penalty and interest thereon pursuant to section 280 of the Excise
Tax Act. The Minister’s adjustments in the reassessment were in two parts.
First, there was an amount of output tax of $7,434.98 that was reported by the
taxpayer but not entered into the Respondent’s data system. This was in respect
of the months of June, July and August 1999. Secondly, the assessment of 12
December 2000 reduced the input tax credit claims by an amount of $24,850.77.
The first issue can be disposed of very rapidly. The amount of
$7,434.98 is simply the sum of the output tax, the GST collected on sales, that
was reported by the Appellant in its returns for the three months in box 105.
These returns are in exhibit R-9 at pages 4.55, 4.56 and 4.57. Nothing in the
evidence has persuaded me that the sales, or the GST collected, in those three
months were anything less than what was shown in boxes 101 and 105 respectively
of the those three pages. The comments I shall make later with respect to the
evidence are equally applicable here.
Turning to the second issue, I should note that the Respondent at
the opening of the hearing made a concession that a mathematical error was made
and that there should be a reduction in the quantum of investment tax credits
disallowed, I will return to this at end of my judgment.
The Appellant is in the business of selling damaged cars that have
been repaired. The Appellant’s representative, Mr. Mansour, testified on behalf
of the Appellant. Mr. Mansour testified that he owns the Appellant company and
he is its director and president; he also testified that he owned, was director
of and president of Automobiles Noratel Limitée. We shall return to
Automobiles Noratel shortly.
I note that exhibit R-10 shows Linda Meadus, or Linda Mansour, Mr. Mansour’s
spouse, as owner and director of the company, however, nothing turns on whether
it was Mr. or Mrs. Mansour who owned the Appellant.
The Appellant company was late in filing its GST returns and filed
the 28 GST returns covering the period from 1 May 1997 to 31 August
1999 in September 1999.
When the Appellant was audited, the company did not have any
accounting books or records; it simply produced documents such as invoices, sales
contracts or cheques.
Mr. Mansour testified that he was responsible for the tax
matters of both the Appellant and Automobiles Noratel. He explained that there
was the following relationship between the Appellant and Automobiles Noratel.
The Appellant is not a conventional used car sales company, it sells
damaged cars that are rebuilt. The Appellant would buy the damaged cars,
Noratel would repair the cars and would purchase parts needed for the repairs.
In fact, Mr. Mansour testified that he filed the GST returns as if the
purchases by Noratel were purchases by the Appellant.
The Respondent called Mrs. Corbière, an auditor of Revenue Québec.
Mrs. Corbière took over the file from Mr. Groulx who left the department. She
verified the months where net tax was shown as payable. In the returns,
monsieur Groulx had already verified months for which there was a net tax
refund claimed. Her report is in exhibit R-4 and exhibit R-5 sets out her
adjustments. She testified that, in the absence of books and records, she
examined the various documents provided by the Appellant. When there were
invoices to the Appellant, she accepted that the Appellant was entitled to an
investment tax credit; where the invoice was to anyone else, she rejected any
investment tax credit claimed by the Appellant.
The net results are set out in pages 1 and 2 of exhibit R-5. On page
2, the net amount due of $41,314.94, which amount represents the adjustment of
Input Tax Credits (“ITCs”) plus interest plus penalty, corresponds with the box
“net amount due” on exhibit R-1. She also testified that prior to her work,
Mr. Groulx had disallowed approximately $22,000 of input tax credits
claimed for the months he examined, the months where a net tax refund was
claimed.
Mr. Mansour in testimony filed exhibits A-1, A‑2 and A-3 in
support of his claim that the assessment is in error. In A-1 and A-3, there are
summary sheets setting out sales, purchases, GST collected and GST paid as well
as net GST. He says that these sheets set out the GST situation for the periods
in question.
I should first note that the documents include periods prior to 1
October 1996. Given that the assessment in issue covers a period beginning on
1 October 1996, I do not need to consider anything prior to that time.
In A-1 and A-3, we have invoices from Auto Noratel to the Appellant’s
company as well as receipts and cheques. It was admitted that the invoices from
Noratel and the receipts were prepared after the auditor’s work. Mr. Mansour
says this was done to restructure the transactions, to properly reflect sales
from Noratel to the Appellant.
Invoices and receipts prepared after the period can have no value
whatsoever. To claim an ITC in the period, there must be GST paid or payable
within the period. There is no proof in front of me that any GST was payable or
paid by the Appellant to Noratel in the period.
More generally, I have another difficulty with A-1 and A-3. Exhibit
R-9 consists of copies of the Appellant’s GST returns from May 1997 to August
1997. If one adds up the output tax shown, one gets roughly $40,000 in output
tax. If one adds up the output tax in the summaries for the same period as R‑9
in exhibit A-1 and A-3 − and I note that A-1 and A-3 have the same summaries
− then one gets an output tax that is something like seventy percent lower
than that filed in the original returns.
Put another way, car sales are dramatically lower than as filed. Mr.
Mansour takes the position that this results from separating out the Appellant
and Noratel. Unfortunately, this cannot be reconciled with the testimony that
Noratel did its repair work for the Appellant. The number of car sales and the
car sale price does not change because Noratel did work for the Appellant.
When one compares the ITCs claimed in the returns in R-9 with the
same period in A-1 and A-3, one finds that the ITCs claimed have dropped by
somewhat less than one half but the net results of the changes in output tax and
ITCs is that in the period of 28 months there is now, according to the
Appellant, a very substantial net tax refund owing, quite different from what
was filed.
I do not accept Mr. Mansour’s explanations, I do not accept this
evidence. I do not see why in 1999, on filing the returns, he would think that
the company sold more cars in dollar value than it did but later, he would be
aware that the correct value of car sales and the correct value of GST
collected would be much lower.
There are other problems with the evidence presented by the
Appellant but for the reasons I have just given, that alone results in my
rejecting the Appellant’s evidence.
The Appellant argued that the level of expenses implied by the audit
was inconsistent with the sales. I would only observe that the question here
is: what GST did the Appellant company pay (GST that gives rise to ITCs for the
Appellant)? It is not what some other company or some other person paid; it is not
what the level of expenses is. This is not an income tax appeal; it is not a
calculation of profit.
In the absence of proper books and records, it is not surprising
that there are difficulties. The burden of proof is on the Appellant, I do not
find that I have heard any evidence that would be a basis for me to change the
assessment.
Penalty was levied under section 280. There is nothing in the
evidence to suggest due diligence and I conclude that the penalty must be
maintained.
Finally, I noted earlier that the Respondent conceded a mathematical
error in R-5. The error is $5,579.66. As a result, I will allow the appeal only
to the extent of the concession but not otherwise. Consequently, the appeal
will be allowed and the assessment sent back to the Minister for
reconsideration and reassessment on the basis that the amount of input tax
credit disallowed, which is shown as $24,850.77 on page 2 of R-5, should be
reduced by an amount of $5,579.66.
I award costs to Her Majesty the Queen.
END OF JUDGMENT
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