Citation: 2008TCC561
Date: 20081003
Docket: 2007-4325(GST)I
BETWEEN:
LORI JEWELLERY INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1]
This is an appeal from
a Notice of Reassessment dated March 13, 2007 which was issued pursuant to the Excise
Tax Act (“the Act”) for the period August 1, 2002 to July 31, 2004
(“the period”).
[2]
The Appellant was
assessed for the period by Notice dated April 6, 2006 wherein the Minister of
National Revenue (the “Minister”) increased Goods and Services Tax (“GST”) in
the amount of $2,171.51; denied Input Tax Credits (“ITC’s”) in the amount of
$18,565.06 and assessed late remittance penalties and interest. On reassessment
the Minister allowed additional ITC’s in the amount of $1,734.39.
[3]
The Appellant has only
appealed the disallowance of ITC’s.
[4]
The Appellant was
represented by Costa Abinajem of Alpha-Omega Accounting & Services Inc. Mr.
Abinajem, a public accountant, has been the Appellant’s accountant since 1997.
He prepared and filed the GST returns for the Appellant for the period under appeal.
[5]
At the beginning of the
hearing Mr. Abinajem stated that the Reply to Notice of Appeal (the “Reply”)
had been filed beyond the 60 day time period and therefore the assumptions in
the Notice of Appeal are assumed to be true.
[6]
The Reply was filed 6 days
late.
[7]
The relevant statutory
provision which deals with the situation when a reply is not filed on time is
subsection 18.3003(2) of the Tax Court of Canada Act which reads:
Where reply not filed in time
(2) The
Minister of National Revenue may file a reply to a notice of appeal after the
period referred to in subsection (1) and, where the Minister does not file the
reply within the sixty day period or within the extension of time consented to
by the person who has brought the appeal or granted by the Court, the
allegations of fact contained in the notice of appeal are presumed to be true
for the purposes of the appeal.
[8]
The presumption created in
subsection 18.3003(2) is a rebuttable one and its effect is to shift the onus
of proof.[i]
Consequently, the Respondent had the burden of bringing evidence to rebut the
presumed facts in the Notice of Appeal and to establish the assumptions upon
which the assessment was made.
[9]
Wendy Lai, the Appeals Officer who
worked on the Appellant’s file testified on behalf of the Respondent.
[10]
There were very few facts alleged
in the Notice of Appeal. The presumed facts that the Respondent had to address
were:
a)
The
Appellant’s claim for ITC’s was in accordance with the Act.
b)
The Appeals
Officer who allowed additional ITC’s on reassessment did not decrease the
penalty and interest in the reassessment and she has refused to issue a new
reassessment to correct her mistake.
[11]
The Appellant is a corporation
which operates a retail jewellery business.
[12]
Ms Lai stated that the Appellant filed
an annual return for the period ending July 31, 2003 and quarterly returns for
the periods ending October 31, 2003, January 31, 2004, April 30, 2004 and July
31, 2004.
[13]
Ms. Lai explained how she dealt
with the Notice of Objection filed by the Appellant. She reviewed the auditor’s
report and working papers and ascertained that the auditor had disallowed ITC’s
on the basis of his reconciliation of the Appellant’s General Ledger with the
ITC’s claimed on the tax returns. The auditor had found that there were more
ITC’s claimed in the returns than shown in the General Ledger and he disallowed
the excess. He allowed all ITC’s shown in the General Ledger.
[14]
Ms. Lai also reviewed the General
Ledger and the returns filed by the Appellant. She agreed with the auditor’s
conclusion.
[15]
She stated that she asked Mr.
Abinajem (the “agent”) how he calculated the ITC’s that were recorded in the
returns. She was informed that very often he received bunches of invoices; some
invoices were current and some were old. He added the ITC’s on the invoices and
entered the sum on the GST return.
[16]
The agent did not present Ms. Lai
with any of the invoices that he used in preparing the GST returns. He could
not identify the ITC’s claimed in the returns that were in respect of a prior
period.
[17]
Ms. Lai testified that the agent
did give her old invoices which he said had never been claimed. He further
submitted a list of these ITC’s to her. Ms. Lai checked the list against the
invoices and allowed the ITC’s for those items that had invoices. She did not
allow those items that were only supported by cancelled cheques nor did she
allow ITC’s for 2000 and 2001 as these years were outside the audit period. She
stated that she relied on subsection 296(2) of the Act to make her
decision.
[18]
There was no evidence concerning
the documentation that was given to support the ITC’s for 2000 and 2001.
[19]
The list of ITC’s given to Ms. Lai
totaled $5,127.27. The items supported by documentation which she allowed
totaled $1,468.85. She also allowed all items less than $20 which sum was
$265.54. The additional ITC’s allowed on objection were $1,734.39. Within this
list there was a claim for ITC’s that totaled $1,352.89 where Papissian
Jewellery was the supplier. These ITC’s had been previously claimed and allowed
in accordance with the General Ledger.
[20]
With respect to the adjustment for
the penalty and interest which had not been included in the Notice of
Reassessment dated March 13, 2007, Ms. Lai explained that she had made an
error. The reassessment should have included a credit for the penalty and
interest as a result of the additional ITC’s which were allowed. She stated
that shortly after March 2007, the procedure for issuing reassessments within
the Canada Revenue Agency (“CRA”) changed and she could no longer issue
reassessments. However her error has been corrected by a credit adjustment made
to the Appellant’s account.
[21]
The Minister reduced the penalties
and interest in the amount of $238.86 and $96.06 respectively. The reduction
was made on August 24, 2007 effective April 6, 2006. I find that the second
issue raised by the Appellant has been satisfactorily resolved.
[22]
Mrs. Hasmig Papissian, who was
described as the owner of the Appellant, and the agent testified on behalf of
the Appellant.
[23]
It was the Appellant’s position
that CRA was given 90% of the documentation for the ITC’s and it should have
accepted that the remaining 10% of the amount claimed for ITC’s was correct.
The Appellant also stated that CRA has the ability to check the data on the
invoices by accessing the supplier’s account.
[24]
The relevant statutory provisions
are:
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;
Input Tax
Credit Information (GST/HST) Regulations
2. In these
regulations,
"supporting
documentation" means the
form in which information prescribed by section 3 is contained, and includes
(a) an
invoice,
(b) a
receipt,
(c) a
credit-card receipt,
(d) a debit
note,
(e) a book
or ledger of account,
(f) a written
contract or agreement,
(g) any record contained in a
computerized or electronic retrieval or data storage system, and
(h) any other document validly
issued or signed by a registrant in respect of a supply made by the registrant
in respect of which there is tax paid or payable;
3. For the purposes of paragraph
169(4)(a) of the Act, the following information is prescribed
information:
(a)
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 less than $30,
(i) the name of
the supplier or the intermediary in respect of the supply, or the name under
which the supplier or the intermediary does business,
(ii) where an
invoice is issued in respect of the supply or the supplies, the date of the
invoice,
(iii) where an
invoice is not issued in respect of the supply or the supplies, the date on
which there is tax paid or payable in respect thereof, and
(iv) the total amount paid or
payable for all of the supplies;
(b)
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 $30 or more and less than $150,
(i) the name of
the supplier or the intermediary in respect of the supply, or the name under
which the supplier or the intermediary does business, and the registration
number assigned under subsection 241(1) of the Act to the supplier or the
intermediary, as the case may be,
(ii) the
information set out in subparagraphs (a)(ii) to (iv),
(iii) where the
amount paid or payable for the supply or the supplies does not include the
amount of tax paid or payable in respect thereof,
(A) the amount of tax
paid or payable in respect of each supply or in respect of all of the supplies,
or
(B) where provincial
sales tax is payable in respect of each taxable supply that is not a zero-rated
supply and is not payable in respect of any exempt supply or zero-rated supply,
(I) the total
of the tax paid or payable under Division II of Part IX of the Act and the
provincial sales tax paid or payable in respect of each taxable supply, and a
statement to the effect that the total in respect of each taxable supply
includes the tax paid or payable under that Division, or
(II) the total
of the tax paid or payable under Division II of Part IX of the Act and the
provincial sales tax paid or payable in respect of all taxable supplies, and a
statement to the effect that the total includes the tax paid or payable under
that Division,
(iv) where the
amount paid or payable for the supply or the supplies includes the amount of
tax paid or payable in respect thereof and one or more supplies are taxable
supplies that are not zero-rated supplies,
(A) a statement to
the effect that tax is included in the amount paid or payable for each taxable
supply,
(B) the total
(referred to in this paragraph as the "total tax rate") of the rates
at which tax was paid or payable in respect of each of the taxable supplies
that is not a zero-rated supply, and
(C) the amount paid
or payable for each such supply or the total amount paid or payable for all
such supplies to which the same total tax rate applies, and
(v) where the
status of two or more supplies is different, an indication of the status of
each taxable supply that is not a zero-rated supply; and
(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.
296(2)
Where, in assessing the net tax of a person for a particular reporting period
of the person, the Minister determines that
(a) an amount (in this subsection referred to as the
“allowable credit”) would have been allowed as an input tax credit for the
particular reporting period or as a deduction in determining the net tax for
the particular reporting period if it had been claimed in a return under
Division V for the particular reporting period filed on the day that is the day
on or before which the return for the particular reporting period was required
to be filed and the requirements, if any, of subsection 169(4) or 234(1) respecting
documentation that apply in respect of the allowable credit had been met,
(b) the allowable credit was not claimed by the person in a
return filed before the day notice of the assessment is sent to the person or
was so claimed but was disallowed by the Minister, and
(c) the allowable credit would be allowed, as an input tax
credit or deduction in determining the net tax for a reporting period of the
person, if it were claimed in a return under Division V filed on the day notice
of the assessment is sent to the person or would be disallowed if it were
claimed in that return only because the period for claiming the allowable
credit expired before that day,
the Minister shall take the
allowable credit into account in assessing the net tax for the particular
reporting period as if the person had claimed the allowable credit in a return
filed for the period.
[25]
Subsection 169(4) requires that a
registrant must be able to submit sufficient evidence in such form as to enable
the ITC’s that are claimed to be determined. This includes any information that
is prescribed by section 3 of the Input Tax Credit Information (GST/HST)
Regulations. It has been held that these technical requirements are
mandatory. See Helsi Construction Managemnt Inc. v. R., [2001] GSTC 39 (TCC)
where Associate Chief Bowman, as he then was, stated:
The main
reason for the disallowance was that the suppliers' GST numbers were not shown
on the invoices. This is a requirement under section 3 of the Input Tax
Credit Information Regulations. While there may be some justification in
certain cases for treating technical or mechanical requirements as directory
rather than mandatory (for example see Senger-Hammond v. R., [1997] 1
C.T.C. 2728) that is not so in the case of the GST provisions of the Excise
Tax Act.
[26]
Justice Bowie also
concluded that the requirements of subsection 169(4) were mandatory and that
they should be strictly enforced. In Key Property Management Corporation v.
The Queen, [2004] GSTC 32 (TCC) at paragraph 14 he stated the reason for
his conclusion as follows:
The amount of information that a
registrant must obtain in support of a claim for an ITC under these Regulations
increases as the consideration for the supply increases, and the requirements
at each level are quite specific. Counsel for the Appellant seemed to take the
position that the oral evidence of Mr. Krauel should be an adequate substitute
for compliance with the specific requirements of the Act and the Regulations.
I reject any such proposition. It is well known that any value added system of
taxation is potentially vulnerable to abuse, and that one of the most
vulnerable aspects is in connection with claims for input tax credits. The
whole purpose of paragraph 169(4)(a) and the Regulations
is to protect the consolidated revenue fund against both fraudulent and
innocent incursions. They cannot succeed in that purpose unless they are
considered to be mandatory requirements and strictly enforced. The result of
viewing them as merely directory would not simply be inconvenient, it would be
a serious breach of the integrity of the statutory scheme.[4]
[27]
Ms. Lai’s testimony and the
exhibits filed by the Respondent have rebutted the presumed fact that the
Appellant’s claim for ITC’s was in accordance with the Act. The
Appellant did not have the documentation to support the amount of ITC’s claimed
in the returns. At the audit and appeals stage, the Appellant thought that the
CRA should have investigated other taxpayers to help the Appellant substantiate
its claim for ITC’s. This is not CRA’s role or responsibility. It is the
Appellant’s duty to keep the records to support its claim and to meet the
requirements of subsection 169(4) of the Act.
[28]
At the hearing of the appeal the
Appellant tendered several exhibits which consisted of cancelled cheques and
invoices. The agent stated that these documents had never been given to the CRA
and had never been claimed. He relied on the decision in Byrnes,
2007-625(GST)I to assert that the documents tendered as exhibits should be
accepted by the court and that Ms. Lai should have considered the documentation
given for 2000 and 2001.
[29]
I have compared the Appellant’s
exhibits with both the auditor’s and Ms. Lai’s working papers. I have concluded
that the exhibits formed part of the documentation given to Ms. Lai. I have
also concluded that all ITC’s with proper documentation had been previously
allowed either by the auditor or by Ms. Lai.
[30]
The decision in Byrnes does
not assist the Appellant with its claim for additional ITC’s for the prior
periods 2000 and 2001. In that case the ITC claimed had been fully documented.
In the present appeal there were documents only for the 2000 year and it is my
opinion that the documentation was inadequate to support additional ITC’s. As
well, there was no evidence whether these amounts were claimed and allowed or
disallowed in a prior period. I found that the Appellant’s records were in
complete disarray.
[31]
In conclusion, the evidence
tendered by the Respondent established that the reassessment was correct. The
onus shifted to the Appellant to show an error in the Minister’s reassessment.
[32]
I have considered the documents
and the testimony provided by Ms. Hasmig Papissian and the agent and I have
concluded that the documents did not satisfy the requirements of subsection
169(4) of the Act and the Regulations. The Appellant has not
shown that the reassessment was incorrect.
[33]
The appeal is dismissed.
Signed at Ottawa, Canada, this 3rd
day of October 2008.
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