Citation: 2008TCC89
Date: 20080327
Docket: 2004-1236(GST)G
BETWEEN:
AMIANTE SPEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1]
This is an appeal
against a notice of assessment issued to the Appellant on
June 27, 2003, and bearing the number 03409693, for the period from
November 1, 1998, to February 28, 2002 (hereinafter
"the assessment").
[2]
By the assessment, the
Minister of Revenue of Quebec, acting on behalf of the Minister of National
Revenue (both shall be collectively referred to as "the Minister")
added $139,791.69 in net tax and imposed a penalty of $56,059.69 under
sections 280 and 285 of Part IX of the Excise Tax Act, R.S.C.,
c. E‑15, as amended ("the Act"). Lastly, the
Minister demanded $14,012.61 in net interest under paragraph 280(1)(b)
of the Act.
[3]
The net tax amount of $139,791.69
is attributable in part to $128,281.41 in input tax credits (ITCs)
that the Appellant claimed in respect of supplies made by subcontractors for an
amount equal to the Goods and Services Tax (GST) that the Appellant paid on
those supplies.
[4]
The remaining $11,510.28 in
net tax is attributable to disallowed ITCs, which the Appellant, following the
production of admissions at the commencement of the hearing, is no longer
contesting.
[5]
The Appellant is a
corporation duly incorporated under Part 1A of the Companies Act, R.S.Q., c. C‑38.
Its business consists in removing asbestos fibres and installing insulation in
buildings.
[6]
The Appellant is duly
registered under the Act. Its registration number is 140 392 515.
[7]
During the period
covered by the assessment, the Appellant's shareholders were Giovanni
Spiridigliozzi, Pietro Truschetta and Rocco Dimilo, each of whom owned one-third
of the shares.
[8]
The Appellant regularly
used the services of subcontractors as part of its operations.
[9]
The Appellant alleges
that it was the recipient of the following supplies, among others, from certain
subcontractors:
(a)
rental and setup of
platforms that enabled the Appellant's employees to remove asbestos fibres from
certain buildings and/or install insulation therein;
(b)
cleaning work at the
sites; and
(c)
professional accounting
services.
[10]
The Appellant alleges
that, between November 1, 1998, and February 28, 2002 ("the period in issue"), the
subcontractors made supplies received by the Appellant, and that the Appellant
paid the following consideration therefor:
(a)
Construction Des Forges
Inc. $150,859.75
(b)
9085-6329 Québec Inc.
(Systèmes intérieurs modernes) $99,500.00
(c)
Échafaudages Unic Inc. $20,737.50
(d)
3587991 Canada Inc.
(Gestion St-Martin - Concorde) $301,775.00
(e)
9092-0638 Québec Inc. (Les
Grands Travaux JJB) $97,570.00
(f)
9088-5518 Québec Inc.
(Chomedey Métal-IK) $165,715.00
(g)
9104-0667 Québec Inc.
(Construction Carnaval) $569,000.00
(h)
Poliquin et associés $361,435.00
(i)
Leonardo Canzeri $51,000.00
(j)
9085-5925 Québec Inc. $15,000.00
Total $1,832,592.25
[11]
During the period in
issue, the GST that the Appellant paid to the various subcontractors in respect
of this consideration totalled $128,281.41.
[12]
Upon filing its various
returns contemplated in section 228 of the Act for the period in issue,
the Appellant claimed ITCs under section 169 of the Act in respect of
supplies made by the subcontractors listed in paragraph 10. The amount of those
ITCs was equal to the GST paid.
[13]
Following a routine
audit of the Appellant's taxes, the Ministère du Revenu du Québec auditor
disallowed the ITCs claimed in respect of the period in issue because the
subcontractors' invoices appeared to be invoices of convenience. In her
determination, the subcontractors referred to above at paragraph 10 provided no
services to the Appellant. In addition, she noticed that, in most cases, the subcontractors
cashed the Appellant's GST cheques at currency exchange offices (where cheques
are cashed at a discount).
[14]
According to the auditor,
the audit began in December 2001, and a draft assessment was issued to the
Appellant's representatives on May 28, 2002 at a meeting attended, inter
alia, by Mr. Spiridigliozzi (the president and a shareholder of the
Appellant) and by Mr. Bodnar of Samson Bélair.
[15]
Another meeting with
the Appellant's representatives, including Mr. Bodnar, Mr. Spiridigliozzi, Mr. Truschetta
(a director and shareholder of the Appellant) and Mr. Bodnar and Mr. Perreault of
Samson Bélair, was held on July
3, 2002.
[16]
Since false documents
purporting to be issued by the Commission de la construction du Québec (CCQ) and
the Quebec workers' compensation board (CSST) were submitted by the Appellant's
representatives at the meeting of July 3, 2002, the file was
referred to the special investigations division on August 31, 2002.
[17]
The special
investigations division returned the file to the audit unit on
June 12, 2003 without any significant results, and the assessment was
issued on June 27, 2003.
Leonardo Canzeri
[18]
The disallowed ITCs
total $3,570. They were disallowed because the invoices were invoices of
convenience and because the tax registration numbers therein were invalid and
belonged to other businesses. The GST number that had belonged to Mr. Canzeri
since October 24, 1995 (140946039) was cancelled on November 30, 1996. Mr. Canzeri reported no tax amounts, and
no income from the Appellant was reported in his income tax returns.
[19]
In his testimony, Mr.
Spiridigliozzi explained that the Appellant used Mr. Canzeri's cleaning
services at job sites for many years. The costs of his services were not
governed by the construction decree at the time. Mr. Spiridigliozzi admitted
that he prepared the invoice produced as Exhibit A‑1, tab 126
by hand, but said that the invoice was signed by Mr. Canzeri. In addition,
the invoice does not contain the Appellant's name.
[20]
The Respondent claims
that Mr. Canzeri's invoice is not an acceptable exhibit because it does
not contain the name of the recipient of the services and because the GST number
therein is invalid and not in force.
Poliquin et associés
[21]
Poliquin et associés is
a bookkeeping and accounting firm that began to provide accounting services to
the Appellant in 1998.
[22]
The Appellant claims to
have entered into subcontracts with Poliquin et associés for cleaning and
maintenance work. This process supposedly enabled the Appellant to save labour
costs. Instead of employing people who were paid construction industry wages,
the subcontractor could hire people who were paid the minimum wage.
[23]
The contracts entered
into with Poliquin et associés are as follows:
|
|
Date
|
Project
|
Cost
(before
tax)
|
|
(a)
|
January 25,
1999
|
Hôtel-Dieu de Saint‑Hyacinthe
Phase II, A Wing
|
$6,500
|
|
(b)
|
February 1, 1999
|
Hôtel-Dieu de Saint-Hyacinthe
|
$9,800
|
|
|
|
Berri Metro
|
$9,985
|
|
|
|
Ministère des transports
(Ormstown)
|
$3,500
|
|
(c)
|
March 1, 1999
|
Bell Canada
200 Bouchard
Dorval
Phase 1
Phase 2
|
$14,500
$6,000
|
|
(d)
|
April 5, 1999
|
Lantic Sugar
CLSC Hochelaga
Labatt Phases I and II
Hydro-Québec
|
$6,000
$16,500
$11,500
$2,500
|
|
(e)
|
no contract
(invoice of
April 19, 1999)
|
Hôtel-Dieu de Saint-Hyacinthe
|
$44,000
|
|
(f)
|
no contract
(invoice of
May 26, 1999)
|
Radio‑Canada (CBC)
|
$51,500
|
|
(g)
|
no contract
(invoice of
July 30, 1999)
|
Collège de l'Assomption
|
$53,500
|
|
(h)
|
no contract
(invoice of
Nov. 25, 1999)
|
Radio-Canada (CBC)
Studio 48
Studio A48
|
$32,000
$31,000
|
|
(i)
|
no contract
(invoice of
Dec. 11, 1998)
|
Accounting only
|
$11,650
|
|
(j)
|
no contract
(invoice of
January 3,
2000)
|
Hôtel-Dieu de Saint-Hyacinthe
|
$51,000
|
[24]
All the work referred
to above was paid for by cheques made out to René Poliquin. The cost
of the work described in the preceding paragraph totals $361,435 and the
amount of GST billed by Poliquin et associés to the Appellant totals $25,300.45.
[25]
René Poliquin testified,
producing an affidavit dated July 3, 2002 (Exhibit A‑23,
page 16) in which he confirmed that (a) he billed the Appellant for a
total of $361,435, including $25,300.45 in GST, from December 11, 1998, to
November 23, 1999; (b) he collected all the invoiced amounts from the
Appellant; (c) he subcontracted all the work to Entretien et
Réparation J.I.M.; (d) he was billed by Entretien et Réparation
J.I.M. for amounts equal to the amounts collected from the Appellant and he paid
the said amounts to Entretien et Réparation J.I.M.; and (e) he dealt
with Janal (JIM) Belmadil.
[26]
The copies of the
invoices issued by Entretien et Réparation J.I.M. to René Poliquin, and
the invoices issued by René Poliquin to Entretien et Réparation J.I.M. for a 5%
commission on the amount of each contract, were produced together as
Exhibit A‑23.
[27]
There are no GST
amounts on René Poliquin's invoices to the subcontractor because the total
amount billed was less than $30,000.
[28]
The Respondent submits
that René Poliquin's invoices to the Appellant are not acceptable exhibits
because the GST number stated therein was invalid.
[29]
The Appellant submits
that even though René Poliquin was not a GST registrant, he was still required
to collect GST and remit it to the Minister.
9085-5925 Québec Inc.
[30]
The relevant invoice is
a $15,000 invoice dated April 20, 2000, for temporary protective materials at the
Pav. J. Daoust, Lester B. Pearson and G. Vignal
schools. The GST collected was $1,050. The subcontractor was a GST
registrant with a valid registration number.
[31]
The Respondent submits
that this was an invoice of convenience because the tax return for the period
of February 11 to December 31, 2000, reports no tax collected or remitted.
Moreover, the subcontractor produced a return showing no source deductions, but
did not file a Quebec tax return and was not registered with the CCQ.
Échafaudage Unic Inc.
[32]
This invoice for
$20,737.50 (not including tax) dated August 15, 2000, is for scaffolding on a work platform in
a stairwell at Hôpital Lindsay. The ITC claim amounts to $1,451.63.
[33]
The Appellant paid this
invoice by cheque dated August
16, 2000, cashed at the
Centre d'encaissement Champion Inc.
[34]
The subcontractor was a
GST and QST registrant but its return for August refers solely to an invoice
for $1,461.13 and a tax amount of $484. The subcontractor did not file any
source deductions return, nor did it file any Quebec
income tax return for the year 2000.
[35]
According to the
records of the Société d'assurance automobile du Québec (SAAQ) the subcontractor
owned two vehicles, including a heavy truck, while the CCQ's records state that
there were no reported contracts between the Appellant and the subcontractor.
9092-0638 Québec Inc. (Les Grands Travaux J.J.B.)
[36]
Two invoices involving
the subcontractor are being challenged. The first invoice, dated October 31,
2000, in the amount of $3,070 (not including taxes) is for the rental of
scaffolding materials and equipment, including the installation and disassembly
of scaffolding for a Hydro-Québec project in Tracy.
The ITCs claimed amount to $214.90.
[37]
The second invoice,
dated October 23, 2000, is for $83,960 (not including taxes) for
equipment rental and transportation costs for the I.O.C. project in Sept-Îles.
[38]
The ITCs claimed in
respect of these two invoices total $6,829.90.
[39]
The Appellant paid the invoice
for the Hydro-Québec work by means of a cheque dated December 11, 2000, in the
amount of $7,062.54. The cheque, which was cashed at Centre d'encaissement
Champion Inc., also covered an invoice that was accepted.
[40]
The Appellant paid the
invoice for the work at I.O.C. by means of two cheques: the first one, in the
amount of $76,089.04, is dated October
28, 2000; and the second, in
the amount of $32,609.59, is dated December 19, 2000. Both cheques were cashed
at Centre d'encaissement Champion Inc.
[41]
Based on the computer
records of the Ministère du Revenu du Québec, this subcontractor filed no sales
tax, source deduction or provincial income tax returns for the period from
August 21, 2000 to February 28, 2002. Based on the SAAQ's records, no vehicles
were registered under this subcontractor's name.
9085-6329 Québec Inc. (Systèmes intérieurs
modernes)
[42]
The invoice for this
subcontractor is dated August 28, 2000, and is for $99,500 (not including taxes).
It refers to temporary protection for five floors during Phase 4 of the Hôpital
Hôtel-Dieu de Saint-Hyacinthe project. The ITCs claimed in respect of the
invoice total $6,965.00.
[43]
The Appellant paid the
aforementioned invoice by cheque dated August 31, 2000, which was
cashed at a cheque-cashing centre.
[44]
According to the
computer records of the Ministère du Revenu du Québec, the CCQ and the SAAQ,
(a) this subcontractor
filed a sales tax return late in April 2000;
(b) this subcontractor
filed source deduction returns reporting no deductions for February, March or
April 2000, and minimal amounts for June ($397) and August ($628) but
did not file any returns for May, July, September, October or
November 2000;
(c) this subcontractor did
not file any Quebec income tax return;
(d) this subcontractor has
no vehicle registered under its name with the SAAQ; and
(e) no contract between
this subcontractor and the Appellant was reported to the CCQ.
Construction Des Forges Inc.
[45]
A contract dated June 25, 2000, was entered into with this subcontractor for the
supply of all the labour and materials for a variety of work at Hôpital Lindsay.
[46]
The invoice pertaining
to this work was for $98,989.75 (not including taxes) and the ITCs claimed
in respect of the invoice are $6,929.28.
[47]
The Appellant paid the
invoice by cheque in the amount of $113,862.96 dated August 28, 2000, and the
cheque was cashed at Centre d'encaissement Champion Inc.
[48]
A second invoice from
this subcontractor, dated May
8, 2000, was tendered in
connection with the installation of a temporary platform at Centre d'éducation
des adultes Le Moyne at a cost of $20,370.00. The ITCs claimed in respect of
this invoice are $1,425.90.
[49]
The Appellant paid the
invoice concerning the work at Centre d'éducation des adultes Le Moyne by means
of a cheque in the amount of $23,430.59 dated August 5, 2000, which
was not cashed at a cheque-cashing business.
[50]
A third invoice from
this subcontractor, dated May 18, 2000, was produced in relation to the
installation of a temporary platform at École St‑Zotique at a cost
of $31,500 (before taxes). The ITCs claimed in respect of this invoice total
$2,205.00.
[51]
The invoice concerning
the work at École St-Zotique was paid by means of a certified cheque in the
amount of $36,232.88, dated May
24, 2000.
[52]
The ITCs disallowed in
respect of this subcontractor's three invoices total $10,560.18.
[53]
According to the
computer records of the Ministère du Revenu du Québec, the CCQ and the SAAQ, this
subcontractor
(a) was a GST registrant
but did not file any sales tax return for the period from April 1, 2000, to
October 1, 2000 (the date that its tax number was cancelled);
(b) did not file any
source deduction return for the year 2000;
(c) did not file any Quebec income tax return for the years 2000 or 2001;
(d) did not report any
contracts with the Appellant to the CCQ; and
(e) used to vehicles on
long-term lease.
9088-5518 Québec Inc. (Chomedey Métal – IK)
[54]
The invoice from this
subcontractor, dated June 25, 2001, was for the supply of a platform and the
assembly and disassembly of that platform at the facilities of the Armstrong
company.
[55]
The invoice for the
work done for Armstrong was for $165,715.00 (not including taxes) and the ITCs
claimed in respect of this invoice total $11,600.00.
[56]
The Appellant paid this
invoice by cheque in the amount of $190,613.67, dated July 30, 2001, cashed by Jean‑Jacques Blouin at a cheque-cashing
centre.
[57]
According to the
computer records of the Ministère du Revenu du Québec, the CCQ and the SAAQ,
(a) this subcontractor was
incorporated on March 8, 2000, and existed until May 10, 2001, at which time it merged with another company, which
was struck off the record on May 16, 2001;
(b) it was a GST
registrant until May 10, 2001, at which time its GST number was cancelled,
and it never filed any GST returns;
(c) it filed no source
deduction returns;
(d) it never filed a Quebec income tax return;
(e) the CCQ's reports
dated April 29, 2001 and May 26, 2001 contain no reference to a contract
between the Appellant and this subcontractor; and
(f) it did not obtain a
certificate of compliance from the CSST, and the letter of
July 30, 2001 that was produced was a forgery.
3587991 Canada Inc. (Gestion St-Martin –
Concorde)
[58]
This subcontractor
issued 11 invoices to the Appellant between June 6 and July 14, 2000, for the supply of labour, materials and
transportation, and for the installation and dismantling of a temporary work
platform:
|
Date
|
Project
|
Cost
(before
taxes)
|
|
(a) June 6, 2000
(work
order dated May 18, 2000)
|
Riverdale School
|
$39,900
|
|
(b) June 15, 2000
(work
order dated June 15, 2000)
|
Radio-Canada
Studio 42
|
$81,795
|
|
(c) June 29, 2000
(work
order dated June 26, 2000)
|
C.V.R. High School Ormstown
|
$18,000
|
|
(d) July 5,
2000
(work
order dated June 28, 2000)
|
LaurinHill Academy
St‑Laurent
|
$20,475
|
|
(e) July 11, 2000
(work
order dated July 3, 2000)
|
École Hubert-
Maisonneuve
Rosemère
|
$9,450
|
|
(f) July 11, 2000
(work
order dated July 3, 2000)
|
École le Rucher
Bois-des-Filion
|
$9,450
|
|
(g) July 11, 2000
(work
order dated July 5, 2000)
|
École des
Moissons
Ste-Anne-des-Plaines
|
$20,475
|
|
(h) July 11, 2000
(work
order dated July 5, 2000)
|
Hôpital
Lindsay
|
$23,625
|
|
(i) July 7, 2000
(work order
dated July 31, 2000)
|
École l'Assomption
Granby
|
$32,000
|
|
(j) July 14, 2000
(work order
dated July 31, 2000)
|
École St-Luc
Granby
|
$16,400
|
[59]
The ITCs claimed in
respect of these invoices total $21,124.25.
[60]
The Appellant paid
these invoices by means of cheques payable to Gestion St‑Martin-Concorde,
dated August 10, 2000 (cheque-cashing business), June 16, 2000,
August 28, 2000 (cheque-cashing business), September 11, 2000 (cheque cashing
business), September 12, 2000 (cheque-cashing business), July 5, 2000
(cheque-cashing business), July 12, 2000 (no endorsement), July 12, 2000
(no endorsement), July 12, 2000 (no endorsement), July 12, 2000 (no endorsement),
August 2, 2000 (cheque-cashing business) and August 2, 2000 (no endorsement).
[61]
According to the
computer records of the Ministère du Revenu du Québec, the CCQ and the
SAAQ, this subcontractor
(a)
was a GST registrant,
but filed no return from July 15, 1999, to April 2000;
(b)
was not registered for
employee payroll source deductions;
(c)
filed no Quebec income tax returns;
(d)
owned a 1999 Ford Windstar
1999 and had a long-term lease on another vehicle; and
(e)
filed returns with the
CCQ on October 31, 1999, and April 29, 2000, but no subsequent returns.
[62]
At the meeting of
July 3, 2002, discussed above at paragraph 15, the Appellant
submitted false letters to the tax authorities concerning this subcontractor,
purporting to be from the CCQ and containing the subject line [TRANSLATION]
"Current situation at a specific site". These forgeries are dated
August 3, August 24, August 22, August 21, August 22, August 21, September 6,
September 6 and August 18,
2000, respectively.
9104-0667 Québec Inc. (Construction
Carnaval)
[63]
There are four
problematic invoices for this subcontractor, and the disallowed ITCs total $39,830.
[64]
The first invoice is
dated November 2, 2001, and pertains to the erection of a protective wall for
the snack bar at 1701 Parthenais
Street. The cost of the work
was $19,000 (before taxes). The Appellant paid this invoice by cheque dated December 21, 2001, and that cheque was cashed at Centre d'encaissement
Champion Inc. A false letter about this subcontractor, purporting to be
issued by the CCQ on November 13, 2001, and containing the subject line [TRANSLATION] "Current
situation at a specific site", was tendered by the Appellant on July 3, 2002, in connection with its representations.
[65]
The three other
invoices pertain to the Armstrong company site, which ended on December 21,
2001. The first invoice, dated December
6, 2001, concerned work done
until late November 2001. The cost of this work was $183,600 (before taxes).
The Appellant paid this interim invoice by means of a cheque dated
December 14, 2001, which was cashed at a cheque-cashing business.
[66]
The second invoice
related to the Armstrong company site is dated January 18, 2002 and contains the reference [TRANSLATION]
"Work done to date (50%)." The cost of this work was
$183,200 (before taxes). The Appellant paid this interim invoice by cheque
dated January 16, 2002, and that cheque was cashed at a cheque-cashing
business on January 17,
2002.
[67]
The third and last
invoice concerning the Armstrong company site is dated February 15, 2002, and
refers to work done to date (100%). The cost of this work is $183,200 (before
taxes). The Appellant paid this last invoice by cheque dated February 18, 2002, and that cheque was cashed at a cheque-cashing
business.
[68]
According to the
computer records of the Ministère du Revenu du Québec, the CCQ and the
SAAQ, this subcontractor
(a)
filed no GST returns;
(b)
was not registered with
the MRQ for source deductions and remitted no source deductions from the wages
paid to its employees;
(c)
filed no Quebec income tax return;
(d)
had no vehicles
registered under its name; and
(e)
reported no contracts
with the Appellant to the CCQ.
[69]
At the meeting of July
3, 2002, discussed above at paragraph 15, the Appellant gave the tax
authorities false letters about this subcontractor, purporting to be issued by
the CCQ and containing the subject line [TRANSLATION] "Current situation at
a specific site". These forgeries are dated December 17, 2001, January 29, 2002, and November 13, 2001, respectively.
[70]
False certificates of
compliance, purporting to be issued by the CSST in respect of this
subcontractor, were also submitted to the tax authorities at the meeting of July 3, 2002, described above at paragraph 15. The false
certificates are dated December 18, 2001, and February 7, 2002, respectively. They purport to certify
that the subcontractor is in compliance and that the 10% holdback on the
construction work can accordingly be released by the customer.
Commission de la construction du Québec
[71]
As part of an
investigation conducted by the CCQ in the fall of 2000, the Appellant had
to provide the details of the costs of contracts commenced or completed between
May 1 and October 31, 2000, and a list identifying the
individuals and hours worked by each of the following subcontractors:
Construction Des Forges Inc., Échafaudage Unic Inc., Gestion St‑Martin‑Concorde
and Systèmes intérieurs modernes. Following this investigation, the Appellant settled
the matter by paying the CCQ $90,000 for overtime performed by workers supplied
by subcontractors and which had not been paid at the double time rate.
Analysis
[72]
The invoices submitted
by the Appellant with a view to claiming the ITCs were not accepted by the
Minister because some of the invoices did not meet all the conditions required
by the Input Tax Credit Information (GST/HST) Regulations
("the Regulations") and the Act in order to be entitled to the
credit, and because the other invoices were false in that the Appellant did not
truly acquire the supplies.
[73]
The audit disclosed
that the cheques tendered in evidence to show payment of the invoices were
negotiated at cheque-cashing businesses. This suggests that the
invoices were prepared merely for the sake of convenience and were not true
invoices. The audit also disclosed that the subcontractors in question did not
carry on business at the places (residences or post office boxes) referred to,
that certain subcontractors provided a GST registration number that did not
belong to them or that was no longer in force, and that none of the
subcontractors remitted source deductions or filed Quebec income tax returns.
Some of the subcontractors are untraceable. Based on the foregoing,
the Minister determined that these subcontractors were not capable of providing
the services rendered to the Appellant because they were not engaged in any
commercial activity. It was determined that, in view of the circumstances, the
subcontractors could not have rendered the services for which the Appellant is
claiming ITCs.
[74]
As part of its
representations in response to the draft assessment, the Appellant gave
the Minister false documents purporting to have been issued by the CSST and
CCQ. The Appellant entered into a $90,000 settlement with the CCQ in respect of
offences under applicable legislation concerning employee overtime. Lastly,
certain sites where the subcontractors were to make supplies of goods or
services to the Appellant were not reported to the CCQ.
[75]
The Appellant
challenges the Minister's submissions, arguing that the Minister has not
succeeded in showing any collusion or common intention between the Appellant
and its subcontractors. The Appellant submits that there has been no proof of
any fraudulent scheme to claim ITCs in respect of GST paid by the Appellant but
returned to it in whatever manner.
[76]
The Appellant submits
that the subcontractors provided it with services for which it was billed,
because it did not have the personnel and equipment necessary to install the
platforms at the sites. The Appellant refers to the testimony of Gilles Goupil
and Serge Labbé, two employees of the Appellant, who confirmed that the
Appellant had no platforms and that none of its employees set up platforms. The Appellant
also refers to the testimony of Jocya Pellerin, an engineer with Le Groupe
Solerka, who confirmed that she saw platforms at Radio-Canada's Studio 42
and at the Armstrong company site (Building 11, 2nd floor), and that of Raëd
Kassawat, founding president of Le Groupe Solerka, who confirmed, in a
letter, that he met with subcontractors Construction Carnaval Inc. and
Chomedey Métal at the Armstrong company sites. Furthermore, the Appellant
refers to the testimony of Maurice Duguay, a CSST inspector, who states,
in an intervention report of October 23, 2001, that while he was at
the Wilfrid-Delorme building site (a snack bar) on Parthenais Street, he met with Réal Pomerleau, who represented Échafaudage
Unic, and with three of that subcontractor's workers. The Appellant refers to
the testimony of Trullio Ricci of Ricci & Fils, and to a memorandum by
Mr. Ricci to the Appellant, in which he states that he saw the name Gestion St-Martin
on the platforms of the École Hubert‑Maisonneuve and École Le Rocher
job sites and asks whether this was a subcontractor. Lastly, the Appellant
refers to the testimony of Louis‑Pierre Lafortune, vice-president
with Fortier Transfert Ltée, who prepared a work order for the hire of a crane and
operator at the Hôpital Lindsay site in order to take down materials
belonging to Construction Des Forges Inc.
[77]
The Appellant is also
attacking the quality of the audit, and complains that the auditors did not
verify the witnesses' accounts of the facts and did not contact the customers
for more information about the subcontractors at the sites.
[78]
The burden to rebut the
assumptions on which the Minister based his assessment is on the taxpayer, and
the principle that the burden of proof put on the taxpayer is not to be
lightly, capriciously or casually shifted was clearly confirmed by the Federal
Court of Appeal in Orly Automobiles Inc.v. The Queen, 2005 FCA 425.
[79]
Based on the
testimonial and documentary evidence, the Appellant has not shown that the
transactions referred to in the invoices were genuine services in view of the
record as a whole. The shifting of the burden of proof is not justified in this
case because the Appellant adduced no prima facie evidence that it was
supplied with the services.
[80]
Serious allegations
concerning the submission of false CCQ and CSST documents to the tax
authorities taint the credibility of the Appellant and its representatives.
The CCQ investigation revealed that the Appellant was not in compliance with
respect to the overtime of its subcontractors' workers, for which the double
time rate was not paid. The Appellant settled the matter by paying $90,000
to the CCQ.
[81]
The fact that the
Appellant did not call any of the subcontractors' representatives other than
Mr. Poliquin as witnesses is also very telling, and a negative inference must
be drawn from this absence of important witnesses. Counsel for the
Appellant explained that he could not call people who defrauded the tax
authorities, and did not remit the tax amounts collected, as witnesses.
Apparently, several files involving these subcontractors are under
investigation.
[82]
The fact that no
witnesses actually saw the installation and/or dismantling of the platforms at
the sites concerned is also very troubling. The only exception is the
testimony of Mr. Duguay of the CSST, who saw employees of Échafaudage Unic Inc.
at the site of the snack bar at 1701 Parthenais
Street setting up a platform.
This information itself is problematic, because the Appellant's subcontractor
for the work done at that site was Construction Carnaval, not Échafaudage Unic
Inc. Was there perhaps a subcontract between those two businesses?
[83]
Certain witnesses
asserted that they saw platforms at job sites. Raïd Kassawat is one such
person. During his testimony, he acknowledged that the work orders that he
referred to in his letter had been provided to him by the Appellant, with which
he had been doing business for several years. On cross‑examination,
he was unable to associate the work orders with the Armstrong building numbers
on which the Appellant did work, or with the various phases of the work.
Moreover, he was unable to specify exactly which representatives he met, or
specify the dates or places where he met with the subcontractors. Trullio Ricci
made the same assertion. An engineer whose business, Ricci & Fils, was a
subcontractor of the Appellant for the removal of asbestos at École
Hubert-Maisonneuve in Laval, he saw the name Gestion Saint‑Martin‑Concorde
on platforms and asked, in a facsimile, whether that business was a subcontractor
of the Appellant's.
[84]
The same assertion was
made by Nicolaï Tchebotarev, an engineer who prepared the plans for the
installation of a work platform at Radio-Canada's Studio 42. During his
testimony, he confirmed (i) that he prepared the plans for Gestion
Saint-Martin-Concorde Inc. at the request of Réal Pomerleau while he was a
representative of Coffrage Universel; (ii) that he submitted the plans to
Mr. Pomerleau and (iii) that he inspected the platform with Mr. Pomerleau.
Mr. Tchebotarev said that he did not know who set up the platform.
[85]
The last person to make
this assertion was Jocya Pellerin, an engineer who worked for Le Groupe Solerka,
a firm whose services were retained in order to ensure that the subcontractors
met the job requirements. She was the project manager at Radio-Canada's Studio
42 and at the Armstrong site. With respect to the Radio‑Canada site, she
said that the Appellant's employees did not assemble the platform and that this
was done by a subcontractor whose name she did not recall. She said that she
was not present when the platform associated with the Armstrong sites was
assembled for a project that encompassed five work zones at Building 7 and four
phases at Building 11. She said that she saw only one platform in all, namely
the platform on the second floor of Building 11, which was above an electrical
room. In this regard, she specified that she did not see this platform
being set up and that she did not know who set it up.
[86]
The fact that the vast
majority of the invoices were paid with cheques that were cashed at a cheque-cashing
business is another serious indication that there was a fraudulent scheme in
which invoices of convenience were used in order to obtain ITCs. The
Appellant's use of subcontractors with few or no commercial activities, very
few assets such as vehicles, equipment or warehouses, and which had failed to
file their income tax returns, sales tax returns and source deduction returns,
is another important factor pointing to the existence of entities of convenience.
In addition to these indicia, there is the fact that the invoices
submitted to the Appellant lack details in view of the significant amounts claimed
and have the same structure, and that the amounts claimed in these invoices are
unreasonable in many cases having regard to the total value of the contracts
between the Appellant and the customers. During his testimony, Mr. Spiridigliozzi
explained that the cost of the platforms was normally 10 to15% of the total
amount of the contracts. At the hearing, it was proven that the cost of the
platforms was actually close to 35% of the total amount of certain contracts
obtained by the Appellant.
[87]
Moreover, the ITCs
claimed in respect of the invoices of Mr. Canzeri and Mr. Poliquin, and of
Chomedey Métal IK, must be disallowed for technical reasons. The GST numbers on
Mr. Canzeri's invoices are not valid, and the name of the recipient of the
services is not provided on the invoices. The invoices of Poliquin et associés
are not adequate supporting documents, because the GST number on those invoices
was not valid. Lastly, the ITCs claimed in respect of the invoice of Chomedey
Métal must be disallowed because that corporation ceased to exist on May 10, 2001, following an amalgamation with another corporation. The
GST number of that corporation was cancelled in 2002, with effect from May 10,
2001, which is prior to the issuance of the invoice of June 25, 2001. With respect to these three subcontractors, the case
law has clearly established that the requirements of section 169(4)(a)
of the Act and section 3 of the Regulations are mandatory, not merely
directory: Systematix Technology Consultants Inc. v. Canada, 2007 FCA 226.
Where a tax number on a supplier's invoice is invalid, it cannot be considered
to have been obtained for the purposes of paragraph 3(b)(ii) of the
Regulations in accordance with subsection 241(1) of the Act: Alexander Nix
Group Inc. v. The Queen, [2002] G.S.T.C. 100; Systematix Technology
Consultants Inc. v. The Queen, 2006 TCC 277). The seven other
subcontractors had valid GST registration numbers.
[88]
The facts of the
instant case are very similar to those described in Les Constructions
L.J.P. Inc. and Équipements S.P.M. Inc. v. The Queen, 2005 TCC 508. Even though the Minister did not show
collusion, connivance or common intent between the Appellants and their
subcontractors, the Court nonetheless disallowed the ITC claims because "the appellants did not show on a preponderance of the
evidence that the Minister erred in determining that the suppliers in question
did not genuinely render services to the appellants in exchange for payment by
the appellants." (paragraph
18). Just as in the instant case, the invoices contained few details, the
subcontractors were incapable of supplying the services requested because they
were not engaged in any commercial activity, and the cheques adduced in
evidence to show that the invoices were paid were negotiated at a cheque-cashing
business, which suggests that the invoices were purely invoices of convenience.
[89]
Mr. Spiridigliozzi's
testimony about the circumstances surrounding the granting of the contracts to
the subcontractors was very vague. He said that he phoned one Réal Pomerleau, who
represented platform assembly businesses. However, he did not specify the
reasons that he did business with this representative or the manner in which
this representative was paid. Mr. Pomerleau frequently changed businesses
because, in the course of the period in issue, he apparently represented Construction
Des Forges Inc., Gestion Saint‑Martin‑Concorde, Systèmes
Intérieurs Moderne, Construction Carnaval, Échafaudages Unic Inc.,
Coffrage Universel, etc. This representative could, among other things,
have confirmed that he saw the subcontractors' employees assemble and dismantle
the platforms and transport the equipment to the sites. The fact that this
important witness was absent leads me to draw the negative inference that his
testimony would have been unfavourable to the Appellant's case.
The penalties
[90]
The Minister assessed
the Appellant for the penalty contemplated in section 280 of the Act, in
the amount of $23,986.34, as well as the penalty contemplated in section 285 of
the Act, in the amount of $32,070.35.
[91]
Since the Appellant was
unable to demolish the Minister's assumptions, I have no choice but to confirm
the Minister's assessment with respect to the imposition of the penalty under
section 280 of the Act. The Appellant has not satisfied me that it exercised
reasonable care or that it was not negligent under the circumstances.
[92]
In my opinion, the
penalty under section 285 of the Act must also be confirmed. Since the
subcontractors supplied no services to the Appellant and as the invoices were
invoices of convenience, the Appellant must necessarily have known what was
going on and have been involved in the scheme. It strikes me as absurd
that the Appellant, who worked on large-scale institutional construction sites
in Montréal and the surrounding areas, did not know the subcontractors with
which it was doing business, except through a representative. It is also
difficult for me to imagine that the Appellant placed orders with
subcontractors without order forms, or with order forms that did not contain
precise specifications even though the platforms had to be approved by
engineers. It is also difficult for me to believe that, on sites where the
safety of its employees and of the public is at stake, a contractor takes the
risk of doing business with subcontractors that it does not know or that do not
have the ability to carry out the work entrusted to them. It is also astonishing,
considering the magnitude of the contracts, that the Appellant did not obtain
bids from other companies in the field before granting the contracts to the
subcontractors. For all these reasons, I am of the opinion that the Appellant,
knowingly or under circumstances amounting to gross negligence in the
performance of the duty contemplated in Part IX of the Act, made a false
statement or omission in its net tax returns for the period in issue. Consequently,
I have no choice but to confirm the Minister's assessment with respect to the
imposition of the penalty under section 285 of the Act.
[93]
The appeal is
dismissed, with costs.
Signed at Ottawa, Canada, this 27th
day of March 2008.
"Réal Favreau"
Translation certified
true
on this 7th day of
May 2008.
Brian McCordick,
Translator
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