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Citation: 2006TCC450
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Date: 20061130
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Docket: 2003-1072(GST)G
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BETWEEN:
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UNITED PARCEL SERVICE CANADA LTD.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Bowman,
C.J.
[1] This
appeal is from an assessment made under the Excise Tax Act (“ETA”).
The issue is whether the appellant, United Parcel Service Canada Ltd. (“UPS”)
is entitled to an allowance for an unclaimed rebate pursuant to subsection 296(2.1)
of the ETA. That at least is how the appellant stated the issue. I think
the question might be more accurately stated as whether the appellant is
entitled to a rebate at all in the circumstances of this case.
[2] The
parties entered into a statement of agreed facts (“SAF”) and it is attached as
Schedule A to these reasons. The essential facts can be stated fairly briefly.
UPS carries on business as a courier and in this business it brings shipments
into Canada from foreign locations for delivery to consignees at addresses in Canada.
[3] Such
shipments may attract Canadian customs duties and Goods and Services Tax (“GST”).
UPS is also a licensed customs broker. When goods are brought into Canada GST has to be paid as well as customs duties
and these taxes are paid by UPS. One question that may be relevant is whether
UPS pays the taxes as agent for and on behalf of the consignee and, if so, what
effect it has on the disposition of this case.
[4] At
all events, overpayments of GST were sometimes made by mistake by UPS. I
assume mistakes were made in the amount of customs duties paid but that is not
what we are concerned with in this appeal.
[5] The
overpayments fall into eleven broad categories as set out in paragraph 19
of the SAF.
[6] In
the result, in the 1996/1997 periods the amount of GST overpaid by UPS for the
shipments that it brought into Canada was $2,937,123.
This amount was claimed as a rebate by UPS, i.e. it was shown as a reduction of
its own GST liability on line 105 of the return.
[7] On
assessment, the Minister of National Revenue disallowed the rebate claim of
$2,937,123 and also assessed interest of $456,606.20 and a penalty of
$632,229.77.
[8] The
above is a somewhat simplified version of the relevant facts. A few other
points should be noted. As will be apparent from the SAF, UPS did not seek
reimbursement of the overpayment from its customers or from the consignees. The
overpayment was made from UPS’ own funds and it was UPS that was out of pocket.
[9] In
December 1996, UPS recognized that the system of dealing with GST adjustments
was unsatisfactory. Paragraphs 20 to 24 of the SAF outline in detail the steps
taken to recover the overpayment. On December 16, 1996,
Mr. Gilles Bazinet, who at present is the customer service supervisor
for UPS, wrote a memorandum. It is of sufficient importance that it warrants
reproduction in full:
To : Niran Nadarajah
From: : Sunil Rajaram
Gilles Bazinet
Re : Brokerage GST rebate
Date : December 16, 1996
Some changes are needed to address
the way in which GST adjustments are handled when GST is paid on the Canadian
Value of goods imported. The current procedure is very ambiguous. This causes
extensive delays in recovering our GST from the government, paid on our
customers behalf.
When a customer is given a credit
for a billing adjustment, the amount of the adjustment includes an amount for
GST. Since we are crediting the GST amount back to the customer we should also
be recognizing this GST refund as a reduction of our GST liability to the
government, for all adjustments. That is, at the end of the month a GST payment
is submitted to Revenue Canada for all services sold. The amount of the GST adjustment
will reduce the payment to Revenue Canada.
The current procedure is as
follows:
A) Customer
without GST registration number: the customer account is credited and the
GST adjustment is debited to the GL account # 203470 Good and Service Tax
which results in a reduction in our GST liability to the government.
B) Customer
with a GST registration number: the customer account is being credited and
a GST adjustment is debited to the GL account # 113511 – Account
Receivable-Others Custom Duty and Tax Refund. An Application must be processed
for the rebate of goods and services tax on behalf of our customer. To do this,
we must obtain specific documentation from our customers, Canada Customs, and
Fredericton Brokerage. This process may take several weeks. The time elapsed
between the process of the rebate application and the time we receive the
refund back from the government varies from 60 days to one year. Upon receipt
of the Government cheque, for the GST, the GL account # 113511 is
credited.
Most
common reasons for GST adjustment:
* Canadian
goods returning
* RTS
shipment
* Wrong
value for duty
* GST
exempt goods (i.e. medical supplies)
* NAFTA
*
Classification error.
As of October 31st 1996 the
GST refunds account shows an outstanding cumulative balance of $225,432.69
Proposed procedure :
The new proposal would utilize
procedure A only. Procedure A will allow all the GST adjustments to be coded to
the GL account # 203470, regardless if customer is GST registered or is
not GST registered. However, a credit note must be issued to GST registered
customers. (See sample attached). For audit purposes, copy of the credit note
will be kept on file with all relative documentation.
This procedure will be in
accordance with the General Rebate Guide and Application from Revenue Canada in which it is
stipulated on page 3 under Reason Code 1 – Amounts paid in error that “If you
collect an amount as or on account of GST that you should not have collected,
you have to include that amount in your net tax. You are not entitled to claim
a rebate for amounts you collected in error. To correct this error, you must
refund the amount of your customer(s) by way of a credit note which will be
reflected in your net tax calculation in a subsequent period”
This procedure has been reviewed
with Mrs. Edith D’Amour from Revenue Quebec which administrates GST on behalf
of Revenue Canada for Quebec customers and with Mr. Stephane Ferland from
Revenue Canada, Summerside Tax Centre
PEI.
Attached to that memorandum was a Revenue Canada Release which reads:
Who is responsible for
the verification and approval for GST issues on combined (Customs issue/GST
issue) claims submitted on Form B2s through Customs?
The procedure will be different for
registered and for non-registered claimants.
Non-Registrants
Non-Registrants who have overpaid
amounts as duties and GST on imported goods may recover the overpayment by
filing a CANADA CUSTOMS ADJUSTMENT REQUEST (FORM B2). Customs will refund the
duty portion of the claim and will advise Excise/GST to send the non-registrant
a rebate of the GST portion of the claim. After Customs has processed the duty
portion of the claim, the non-registrant should contact the nearest Revenue
Canada Excise/GST District office with enquiries about the GST rebate.
When the overpayment involves only
GST, the amount may be recovered by filing a GENERAL REBATE APPLICATION FOR
REBATE OF THE GOODS AND SERVICES TAX (FORM GST 189E), if no Customs issue is
involved. This form, which may be filed once a month, is available from Revenue
Canada Excise/GST District offices. However, if the rebate claim involves a
Customs issue (eg. a re-determination of tariff classification or re‑appraisal
of the value for duty of the goods), Form B2 must be filed with Customs, who
will advise Excise/GST to rebate the amount if entitled.
Registrants
Registrants who have overpaid
amounts as duties and/or GST should file a Form B2 to recover the
overpayment of Customs duties and file a GST 189E to recover the GST
overpayment on imported goods, unless an Input Tax Credit has already been
claimed for that amount. If the rebate claim involves a Customs issue, the GST
189E should not be filed until after the issue has been resolved. The Customs
decision should be referred to in order to support the GST rebate claim.
If an ITC has been claimed to
recover the excess amount paid on account of GST, it is not Excise/GST
administrative policy to require the registrant to adjust the ITC and claim a
rebate. No further action is required. The Excise Tax Act provides the
authority at the time of an audit to set off an unclaimed rebate against an
unentitled ITC taken. Consequently, an ITC may be taken for an amount overpaid
on account of GST on an imported good instead of filing a rebate claim. There
will be no tax, penalty or interest implications, provided an ITC is not claimed
where a rebate is paid for the same amount.
[10] As part of the procedure adopted to recover the overpayment, UPS had
the importer sign a credit note. A typical example is reproduced at
parapraph 24 of the SAF. It was addressed to the Minister of National
Revenue. The relevant portions read:
Please be advised that United
Parcel Services is authorized to take an input tax credit of the Goods and
Services Tax, under part IX of the Excise Tax Act, directly related to:
. . .
As a GST registrant we will not
claim a credit (input tax credit) for the same transaction.
. . .
Note to the Importer: Upon reception of
this authorization, United Parcel Service will credit your account #
for the above mentioned amount.
[11] I am inclined to question how legally effective this document is. A
person entitled to an input tax credit (“ITC”) cannot assign its right to
someone else. Under the Financial Administration Act Crown debts are not
assignable in the absence of statutory authority.
[12] Crown counsel put in evidence a variation of the credit note which
stated:
Please be advised that United
Parcel Service is authorized to sign, file and receive on my behalf,
applications for rebates of the Goods and Services Tax, under part IX of the
Excise Tax Act directly related to:
. . .
There is no evidence that this version was ever used. It might have been
somewhat more effective.
[13] As mentioned in paragraph 11 of the SAF, where a consignee had an
active brokerage account with UPS a general agency agreement would be signed.
It read:
GENERAL AGENCY AGREEMENT
Appointing a Customs
Broker
With Power to Appoint a
Sub-Agent
KNOW ALL PERSONS BY THESE PRESENT
That I/We
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(REGISTERED COMPANY
NAME / IMPORTER)
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OF (STREET, CITY)
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(PROVINCE/STATE) (POSTAL
CODE) (COUNTRY)
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(TELEPHONE)
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(FAX)
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do hereby constitute
and appoint United Parcel Service Canada Ltd (hereinafter referred to
as “our attorney”) of 900 Hanwell Road, Fredericton, New Brunswick E3B
6A2 our true and lawful attorney to transact business under the Customs Act
on our behalf in all matters relating to the accounting for and payment of
duties in respect of imported goods released under that Act, at all Customs
offices in Canada.
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I/We acknowledge that
any duties, charges or other amounts paid on our behalf or to our account by
our attorney or sub-agent shall be a debt due by us to our attorney or
sub-agent and any refund, rebate or remission of such duties, charges or
other amounts shall be the property of our attorney or sub-agent. We direct
and authorize any government agencies collecting same to deliver such rebate,
refund or remission to our attorney or sub-agent.
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I/We grant our attorney
full power and authority to appoint any other person to whom a licence to
transact business as a Customs Broker has been issued under the Customs Act
as a sub-agent to transact the aforesaid business on our behalf at any of the
aforementioned Customs offices, and to revoke any such appointment and to
appoint any other person who holds such licence as a sub-agent in the place
of any sub-agent whose appointment has been revoked, as our attorney shall,
from time to time, think fit.
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I/We agree to, on
demand, reimburse our attorney for all moneys properly expended by such
attorney, and/or by any sub-agent appointed by our attorney on our behalf,
including the payment of any duty and/or taxes, or posting of any surety bond
deposited as security with any Customs office.
This Power of Attorney
shall be and remain in full force and effect until due notice of its
revocation shall be given to our aforesaid attorney, in writing.
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[14] To recapitulate, the importer constituted UPS its agent for the
purpose of dealing with the Canadian customs authorities in bringing shipments
into Canada. This included paying GST on behalf of the
consignee. This is recognized in Mr. Bazinet’s memorandum where he states
in the first paragraph:
“This causes extensive delays in
recovering our GST from the government, paid on our customers behalf”.
[15] This sentence neatly illustrates the problem. He refers to “our” GST,
and describes it as “paid on our customers behalf”.
[16] There is merit to the argument that in fairness the appellant should
be entitled to recover the overpayments. UPS is the only person who paid the
money and is out of pocket. Its customers are not out of pocket and the
government admits that the GST has been overpaid. Nonetheless, we are dealing
with a technical statute and if the appellant has a right to recover the
overpayment, that right must be found in the statute itself. Section 212
of the ETA reads:
Imposition of goods and
services tax ― Subject to this Part, every person
who is liable under the Customs Act to pay duty on imported goods, or
who would be so liable if the goods were subject to duty, shall pay to Her
Majesty in right of Canada tax on the goods calculated at the rate of 7% on the
value of the goods.
Subsection 215(1) of the ETA reads:
Value of goods ― For the purposes of this Division, the value of goods shall be deemed to
be equal to the total of
(a) the value of the goods, as it
would be determined under the Customs Act for the purpose of calculating
duties imposed on the goods at a percentage rate, whether the goods are in fact
subject to duty, and
(b) the amount of all duties and
taxes, if any, payable thereon under the Customs Tariff, the Special
Import Measures Act, this Act (other than this Part) or any other law
relating to customs.
[17] Subsections 261(1),
(2) and (3) read:
261. (1) Rebate of payment made in error — Where a person has paid an amount
(a) as or on account of, or
(b) that was taken into account as,
tax, net tax, penalty, interest or other obligation
under this Part in circumstances where the amount was not payable or remittable
by the person, whether the amount was paid by mistake or otherwise, the
Minister shall, subject to subsections (2) and (3), pay a rebate of that amount
to the person.
(2) Restriction — A rebate in respect of an amount shall not be
paid under subsection (1) to a person to the extent that
(a) the amount was taken
into account as tax or net tax for a reporting period of the person and the
Minister has assessed the person for the period under section 296;
(b) the amount paid was tax,
net tax, penalty, interest or any other amount assessed under section 296; or
(c) a rebate of the amount
is payable under subsection 215.1(1) or (2) or 216(6) or a refund of the amount
is payable under section 69, 73, 74 or 76 of the Customs Act because of
subsection 215.1(3) or 216(7).
(3) Application
for rebate — A rebate in respect of
an amount shall not be paid under subsection (1) to a person unless the person
files an application for the rebate within two years after the day the amount
was paid or remitted by the person.
Subsection 296(2.1) reads:
Allowance of unclaimed rebate — Where, in assessing the net tax of a
person for a reporting period of the person or an amount (in this subsection
referred to as the "overdue amount") that became payable by a person
under this Part, the Minister determines that
(a) an amount (in this
subsection referred to as the "allowable rebate") would have been
payable to the person as a rebate if it had been claimed in an application
under this Part filed on the particular day that is
(i) if the assessment is in respect of net tax for
the reporting period, the day on or before which the return under Division V
for the period was required to be filed, or
(ii) if the assessment is in respect of an overdue
amount, the day on which the overdue amount became payable by the person,
and, where the rebate is in
respect of an amount that is being assessed, if the person had paid or remitted
that amount,
(b) the allowable rebate
was not claimed by the person in an application filed before the day notice of
the assessment is sent to the person, and
(c) the allowable rebate
would be payable to the person if it were claimed in an application under this
Part filed on the day notice of the assessment is sent to the person or would
be disallowed if it were claimed in that application only because the period
for claiming the allowable rebate expired before that day,
the Minister shall, unless otherwise requested by
the person, apply all or part of the allowable rebate against that net tax or
overdue amount as if the person had, on the particular day, paid or remitted
the amount so applied on account of that net tax or overdue amount.
[18] The question boils down essentially to this: UPS overpaid GST on
behalf of its customers. It did not recover from them the amount that it
overpaid. It now seeks to recover that amount from the Government of Canada.
Its entitlement to the amount as a matter of fairness is unquestioned and there
are various ways it might have used to get the money back. It might have sued
in the Federal Court. Whether it would have succeeded is a matter on which I
shall not speculate. If, as I conclude below, the remedy is found in the ETA
itself, the matter is within the Tax Court’s jurisdiction. It might have
charged its customers for the overpayment and applied on their behalf to get it
back from the government. When it recovered the overpayment it could have
credited it against the customers liability to it. This is obviously
cumbersome, time consuming and involves charging customers for mistakes made by
UPS. It might in computing its income have deducted the overpayments that it
was otherwise unable to recover on the basis that they were an ordinary costs
of doing business. I should think there would have been a strong case for doing
so. However, deducting an expense is only about one half as good as recovering
it fully.
[19] In the result UPS did none of these things. It
short‑circuited the process. The question is whether the legal
correctness of this approach is equal to its common sense practicality.
[20] Counsel for the respondent sets out a number of things that UPS might
have done and he points to a number of technical deficiencies in the
appellant’s approach. He states in paragraph 21 of the respondent’s
Memorandum of Fact and Law:
UPS asserts that even if it
remitted overpayments as agent for its customers, at common law an agent may
sue to recover amounts paid by the agent due to a mistake. As noted above, the
provisions of subsections 58(5) and (6) of the Customs Act
foreclose this argument with respect to a majority of the categories of
“errors” committed by UPS as the section deems the declaration UPS made to
Revenue Canada at the time of importation to be the “correct” tariff
classification and value for duty. The Customs Act contains a complete
statutory code which forecloses any common law relief. As UPS did not request a
re‑determination or re‑appraisal in the manner set out in
section 60 of the Customs Act, there is no amounts paid due to
a mistake.
[21] Whether there was an overpayment or the amount thereof is not before
me. The fact of the overpayment and the amount thereof are admitted.
[22] The Crown’s position when one cuts through the technicalities is
simply this: UPS was the agent for its customers. It paid GST on their behalf.
If it paid too much, it did so as agent for the customers and only they are
entitled to recover it or to treat the overpayment as giving rise to ITCs which
could be set off against their GST liability to arrive at their net tax.
[23] In interpreting any legislation, including the GST provisions of the ETA
as well as the Customs Act, it is important to follow an approach that,
where possible, achieves a sensible, practical and common sense result (Maritime
Life Assurance Co. v. The Queen, [1999] G.S.T.C. 1 (T.C.C.), aff’d [2000]
G.S.T.C. 89 (F.C.A.)) and one that is consonant with the scheme of the Act (Highway
Sawmills Ltd. v. M.N.R., 66 DTC 5116, per Cartwright J.).
[24] I do not see how allowing the person who has paid the GST −
and who, I emphasize, has an obligation to pay it − to avail itself
of the mechanism in the ETA for recovering overpayments can be
inconsistent with the scheme of the Act.
[25] Section 212 of the ETA is set out above but I shall repeat
it. It reads:
Imposition of goods and
services tax ― Subject to this Part, every person
who is liable under the Customs Act to pay duty on imported goods, or
who would be so liable if the goods were subject to duty, shall pay to Her
Majesty in right of Canada tax on the goods calculated at the rate of 7% on the
value of the goods.
[26] Subsection 12(1) of the Customs Act reads:
Subject to this section, all goods that are imported
shall, except in such circumstances and subject to such conditions as may be
prescribed, be reported at the nearest customs office designated for that
purpose that is open for business.
[27] Subsection 18(1) and 18(2) of the Customs Act read:
(1) Presumption
of importation -- For the purposes
of this section, all goods reported under section 12 shall be deemed to have
been imported.
(2) Liability
of person reporting goods short landed -- Subject to subsections (3) and 20(2.1), any person who reports goods
under section 12, and any person for whom that person acts as agent or employee
while so reporting, are jointly and severally or solidarily liable for all
duties levied on the goods unless one or the other of them proves, within the
time that may be prescribed, that the duties have been paid or that the goods
(a) were destroyed or
lost prior to report or destroyed after report but prior to receipt in a place
referred to in paragraph (c) or by a person referred to in paragraph (d);
(b) did not leave the
place outside Canada from which they were to have been exported;
(c) have been received
in a customs office, sufferance warehouse, bonded warehouse or duty free shop;
(d) have been received
by a person who transports or causes to be transported within Canada
goods in accordance with subsection 20(1);
(e) have been exported;
or
(f) have been released.
[28] Clearly, UPS is either the person who reports the imported goods, or
it is the agent for that person (its customer, the importer). It follows
therefore that it is jointly and severally liable for the duties under
subsection 18(2) of the Customs Act and is therefore liable to pay
GST on the value of the goods under section 212 of the ETA. The
obligation of UPS to pay the customs duties (and therefore the GST under
section 212) is further confirmed by subsection 32(5) which imposes
upon a person “authorized under paragraph 6(a) to account for the
goods ...” (a licensed customs broker as set out in SOR/86‑944) a liability
to pay the GST.
[29] The amount of $2,900,858 was paid as or on account of tax by UPS. It
was paid by mistake or otherwise and therefore subsection 261(1) of the ETA
requires the Minister to pay a rebate.
[30] The appellant did not claim a rebate within the time required under
section 261. It is clear from subsection 296(2.1) of the ETA,
which I have quoted above, that such an unclaimed rebate must be taken into
account in the computation of net tax. I need not elaborate on this point. It
was fully dealt with by Bowie J. in Peach Hill Management v. The Queen,
[1999] G.S.T.C. (T.C.C.), aff’d [2000] G.S.T.C. 45 (F.C.A.) and by
Sheridan J. in SAS Restaurants Ltd. v. The Queen, [2005] G.S.T.C.
159 and by David Sherman in his commentary on Club de Hockey Les
Seigneurs de Kamouraska Inc. v. The Queen, [2005] G.S.T.C. 73 (T.C.C.).
[31] A number of other cases and commentaries were discussed by counsel for
the appellant, including a decision of this court in McDonnell v. The Queen,
[2005] G.S.T.C. 134 (T.C.C.) and the commentary thereon by David Sherman.
I do not think it is necessary to comment further on these arguments. The
statutory provisions and the case law are clear. UPS was a person liable to pay
the GST on the imported goods. It overpaid it and was entitled to the
rebate which it could claim under the mechanism of subsection 296(2.1).
[32] The appeal is therefore allowed, with costs, and the assessment is
referred back to the Minister of National revenue for reconsideration and
reassessment on the basis that the appellant is entitled to a rebate of
$2,900,858 which may, in accordance with subsection 296(2.1) be taken into
account in computing its net tax for the purposes of the GST provisions
of the ETA. The Minister should also in reassessing take into account
any other adjustments to which he may have agreed at the objection level.
Signed at Ottawa,
Canada, this 30th
day of November 2006.
Bowman, C.J.
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