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Citation:
2005TCC204
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Date: 20050324
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Docket: 2004-199(GST)I
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BETWEEN:
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ROCKWOOD MOTOR PRODUCTS DIVISION OF
958000 ONTARIO INC.,
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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 Goods and Services Tax ("GST") provisions of the
Excise Tax Act ("E.T.A.") for the period from
October 1, 1998 to December 31, 2000.
[2] The issue is whether the appellant
was required to collect and remit GST on 24 used vehicles which
it sold to non-residents of Canada. The Minister of
National Revenue assessed GST on the sale price of the cars; the
appellant says they are zero-rated under subsection 165(3)
of the E.T.A..
[3] The appellant carries on business
in Rockwood, Ontario as a used car dealer. During the period in
question it sold 24 used vehicles to purchasers in the
United States. All but one were sold to KMM Marketing Inc.
of Daytona Beach, Florida or Quincy, Illinois. One was sold to
Thomas Breck Stratton, Jefferson City, Missouri.
[4] The invariable procedure was that
Mr. Mead, the manager of Rockwood Motor Products, would drive an
automobile across the border to Detroit where it would be picked
up by Mr. Brian Rice who at that time worked for KMM
Motors. In the case of the sale to Thomas Stratton the
vehicle was taken across the border at Port Huron, Michigan.
Mr. Rice brought Mr. Stratton to Port Huron.
[5] The evidence of both Mr. Mead
and Mr. Rice was that the bills of sale were all signed in
the United States, delivery of the automobiles was made in
the United States and Ontario dealer plates were removed and
replaced by plates of the purchaser.
[6] The appellant put in evidence the
bills of sale and also the applications for registration of all
of the vehicles in the United States.
[7] The evidence is uncontroverted
that these vehicles were exported to the United States and
were delivered to the purchasers in the United States and
not Canada.
[8] The assessor, Mr. Wilton,
prepared a memorandum (Exhibit A-1) in which he set
out the adjustments that he proposed to make. He lists the 24
vehicles, with the vehicle identification number, the sale price,
the purchasers and the purchasers' address.
[9] This information was readily
available from the books and records of the appellant. I mention
this because the Reply to the Notice of Appeal states that the
Minister assumed in making the assessment that
"the appellant did not maintain proper books and records
during the taxation year under appeal"
The same allegation is repeated in paragraph 9 of the
Reply to the Notice of Appeal. Mr. Wilton strongly denied
having ever made such a statement and it is patently false. I
have on a number of occasions in the past expressed my
disapproval of the Minister's pleading as assumptions facts that
were not assumed. This is a blatant example of this type of
abuse. I imply no criticism of Ms. Tate, who did not draft
the reply and could not have known that the statement was false.
However, I intend to deal with the matter further when it comes
to costs.
[10] At all events, the appellant acquired
the automobiles in Ontario and paid GST on their purchase. It
sold them to the purchasers in the United States and, on the
assumption that they were zero-rated, did not collect GST.
Section 1 of Part V of Schedule VI to the E.T.A.
reads as follows:
1. A supply
of tangible personal property (other than an excisable good) made
by a person to a recipient (other than a consumer) who intends to
export the property where
(a) in the case of
property that is a continuous transmission commodity that the
recipient intends to export by means of a wire, pipeline or other
conduit, the recipient is not registered under Subdivision d of
Division V of Part IX of the Act;
(b) the recipient
exports the property as soon after the property is delivered by
the person to the recipient as is reasonable having regard to the
circumstances surrounding the exportation and, where applicable,
to the normal business practice of the recipient;
(c) the property is not
acquired by the recipient for consumption, use or supply in
Canada before the exportation of the property by the
recipient;
(d) after the supply is
made and before the recipient exports the property, the property
is not further processed, transformed or altered in Canada except
to the extent reasonably necessary or incidental to its
transportation; and
(e) the person maintains
evidence satisfactory to the Minister of the exportation of the
property by the recipient.
Paragraph (a) is inapplicable, and the respondent
agrees that paragraphs (b), (c) and (d) are
not in issue.
[11] The sole basis upon which the
respondent denies that the automobiles are zero-rated is
paragraph (e). Paragraphs 2 and 6 of the Reply to the
Notice of Appeal read as follows:
2. With
regards [sic] to the Notice of Appeal, he admits that:
· the
supplies at issue in the appeal meet the conditions as required
in paragraphs (b), (c) and (d) of section 1, Part V of
Schedule VI to the Excise Tax Act, R.S.C. 1985, c. E-15,
as amended (the "Act")
· the
Appellant did not report Goods and Services Tax (the "GST")
collected in respect of the supplies at issue in the appeal
·
the Appellant did not have entry documentation from the
government of the United States of America (the "USA") concerning
the supplies at issue in the appeal
. . . . .
6. In so
reassessing net tax and in confirming the reassessment of net
tax, the Minister made the following assumptions of fact in
relation to the issue under appeal:
(a) the Appellant was a registrant for purposes of
Part IX the Excise Tax Act, R.S.C. 1985, c.
E-15, as amended (the "Act") at all material
times;
(b) the Appellant sold used motor vehicles;
(c) the Appellant failed to maintain adequate books
and records;
(d) the Appellant sold motor vehicles to non residents in
the USA that were not registered for purposes of the Act
(the "NRNR");
(e) the Appellant received revenues in the amount of
$ 199,500.00 in relation to the supplies to the NRNR;
and
(f) the Appellant did not have satisfactory evidence
of the vehicles exportation to the USA.
[12] In Exhibit A-1, a further
statement is made as follows:
Discussions with the registrant reveal that the purchaser
transports the vehicle into the United States. As a result, the
supply takes place in Canada pursuant to paragraph 142(1)(a).
[13] Whether the statement is relevant or
not it is at all events wrong. The evidence establishes that it
was the appellant that transported the vehicles across the
border.
[14] The memorandum prepared by
Mr. Wilton in Exhibit A-1 reads as follows:
Relief may be available if the supply qualifies for zero
rating under the provisions of section 1 of Part V of Schedule VI
to the Act. Pursuant to section 1, a supply of tangible personal
property made by a supplier to a recipient (other than a
consumer) may be zero-rated if all of the following conditions
are met:
1. The recipient exports the property as
soon after the property is delivered by the supplier to the
recipient, as is reasonable having regard to the circumstances
surrounding the exportation, and where applicable, the normal
business practice of the recipient. The facts of this case
support this condition.
2. The property is not acquired by the
recipient for consumption, use or supply in Canada before the
exportation of the property by the recipient. The facts of
this case support this condition.
3. After the supply is made and before the
recipient exports the property, the property is not further
processed, transformed or altered in Canada, except to the extent
reasonably necessary or incidental to its transportation. The
facts of this case support this condition being met.
4. The supplier maintains evidence
satisfactory to the Minister of the exportation of the property
by the recipient.
In this case the registrant maintains evidence of registration
of the vehicle in the United States, but has no other
information. Appendix A of Section 4.5.2 of Chapter 4 of the
GST/HST Memoranda Series clearly identifies what standard
documentation would be acceptable. For exports to the United
States, the following items would be acceptable.
1. An
embossed copy of U.S. Entry Summary,
Form 7501;
2. U.S.
Customs Entry
3.
U.S.Certificate of Disposition of Imported
Merchandise (Form 3227).
Based on the above, the registrant does not maintain
sufficient documentation to zero rate the export of motor
vehicles to the United States, and as a
result, must collect and remit the GST on the supply.
The recipient may be entitled to claim a rebate on the GST
paid.
As a result, the registrant should have collected GST on the
sales to the United States, and as a result, the GST
collectible is
$199,150.00
at 7/107=
13,028.50 To SAA
Conclusion: Except where
noted above:
1) GST is applied correctly on, zero rated and 7%
taxable sales.
2) GST is calculated correctly and is reported correctly on
the GST returns.
END
[15] The Minister's position may essentially
be paraphrased as follows:
"Yes, we know you exported the automobiles. This is clear from
your records. We have the bills of sale to the United
Statespurchasers, the Carfax reports and the application for
registration in the United States. However, we have an
administrative procedure contained in a memorandum prepared by
the officials of the CRA. It is GST/HST memorandum Series 1
Chapter 4.5.3, Appendix A, Exhibit R-1:
Appendix A
Evidence of exportation
1. Evidence of exportation must
enable the entire shipment of tangible personal property to be
traced from its origin in Canada to its destination outside
Canada. When the specific destination cannot be determined
because of industry practices or because the property is
homogeneous, the Minister of National Revenue (the "Minister")
must be able to ascertain that the property did leave Canada.
2. The following documents will
establish evidence satisfactory to the Minister that the tangible
personal property has been exported from Canada, whether the
supply of the property has been zero-rated or tax has been paid
on it. This list is not exhaustive. Paper documents as well as
electronically stored data will be acceptable.
A.
Standard Documentation
• a commercial invoice;
• purchase agreement(s) or
billing(s) between the supplier
and the customer(s);
• a copy of the transportation
document that describes the delivery service. This could be in
the form of a bill of lading issued by or on behalf of a carrier.
A bill of lading can also be replaced by non-negotiable documents
such as a pro-bill, way-bill, consist sheet, sea waybill,
liner waybill, freight receipt, combined or multimodal transport
documents. When bills of lading are not used in the relevant
trade, the parties should either use the terms "Free Carrier
(name point)" or "Freight/Carriage paid to (name point)" or
alternatively, stipulate in the F.O.B., C. & F. and C.I.F.
terms that the seller should provide the buyer with the usual
documents or other evidence of the delivery of the goods to the
carrier;
• customs brokers' or freight
forwarders' invoices relating
to the supply;
• import documentation required by
the country where the goods
are exported; and
• copies of the documents from the
foreign regulatory authority if the property has been
licensed in the case of
automotive
vehicles, including boats, ships and aircraft.
For exports
to the United States of America:
• embossed copy of U.S. Entry
Summary, Form 7501 (this document is invalid unless filled out at
the moment of exportation);
• U.S. Customs entry; and
• U.S.Certificate of Disposition
of Imported Merchandise (Form 3227).
We are satisfied that you exported the cars as you say you
did. However, we are denying zero-rating because although we are
satisfied objectively that you exported them we are not satisfied
with your documentation because it does not comply with our
memorandum."
[16] If the Minister accepts and admits that
the goods were exported this subsumes his satisfaction about the
sufficiency of the documentation. The point of paragraph (e) is
to ensure that the taxpayer present sufficient evidence of
exportation. To say, as the Minister does, that he accepts that
the appellant exported the goods (and therefore that the evidence
of exportation is sufficient to attain the requisite degree of
ministerial satisfaction) but that zero-rating is denied
because the appellant did not comply with some administrative
procedure that the Minister has devised that does not have the
force of law is illogical and contradictory. It is a mechanical
application of paragraph (e) of section 1 of Part V of Schedule
VI that entirely misses what that provision is there for.
[17] The appeal is allowed and the
assessment is referred back to the Minister of National Revenue
for reconsideration and reassessment on the basis that the 24
automobiles exported to the United States are zero-rated.
[18] I am awarding costs to the appellant on
a solicitor and client basis. I am doing so because as noted
above the reply asserted an assumption that was patently false. I
imply no criticism of counsel for the respondent. Ms. Tate
presented the Crown's case with her usual skill and
professionalism. She did not draft the reply and could not have
been expected to know of the falsity of the assertion that the
Minister assumed that the appellant did not maintain proper books
and records. In the informal procedure the replies are drafted by
"agents" who are employees of the Customs and Revenue Agency. It
is entirely unacceptable for the respondent to mechanically and
routinely toss into the list of assumptions unsubstantiated
boilerplate that bears no relationship to the facts.
Signed at Ottawa, Canada, this 24th day of March
2005.
Bowman, C.J.
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