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Citation: 2005TCC72
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Date: 20050120
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Docket: 2001-360(GST)G
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BETWEEN:
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INVERA 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,
A.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 January 1, 1996
to August 31, 1999. In that period the appellant was an information and
technology company which provided software systems to the metal manufacturing,
distribution and processing industry.
[2] The following statements in the Notice of
Appeal are admitted in the Reply to Notice of Appeal.
The Appellant is a duly constituted
corporation under the Canada Business Corporations Act, as amended,
having its head office and its principal establishment at 4333 St. Catherine
Street West, in the City of Westmount, Province of Québec.
Throughout the Relevant Period, the
Appellant was an information and technology company which provided software
systems to the metal manufacturing, distribution and processing industry.
Throughout the Relevant Period, the
Appellant was providing training services in regard of the software sold to non‑resident
distributors and customers of its wholly owned United States subsidiary. Such
training services:
(a) included a complete review
of the policies and the procedures associated with using the
software;
(b) pertained to a
specialized field of knowledge, namely the implementation of newly acquired
software systems, designed specifically for the metal industry; and
(c) were provided
sometimes in Canada, sometimes outside Canada.
Throughout the Relevant Period, the
Appellant did not charge the Goods and Services Tax (“G.S.T.”) when such
training services were provided in Canada to such non‑resident distributors and
customers.
. . . . .
[3] The
appellant was assessed tax, interest and penalties on the consideration paid
for the services when they were rendered in Canada. The issue is whether the services that the appellant provided to non‑resident
distributors and customers of its U.S. subsidiary
were zero‑rated when they were provided in Canada.
[4] Section 123
of the E.T.A. defines zero‑rated supply to be a supply included in
Schedule VI. Section 23 of Part V of Schedule VI of the E.T.A. reads
as follows:
23 – A supply of an
advisory, professional or consulting service made to a non‑resident
person, but not including a supply of
(a) a
service rendered to an individual in connection with criminal, civil or
administrative litigation in Canada, other than a service rendered before the commencement of
such litigation;
(b) a
service in respect of real property situated in Canada;
(c) a
service in respect of tangible personal property that is situated in Canada at the time the service
is performed; or
(d) a
service of acting as an agent of the non‑resident person or of arranging
for, procuring or soliciting orders for supplies by or to the person.
The French version reads:
23 – La fourniture d’un service
consultatif ou professionnel au profit d’une personne non-résidente, à
l’exclusion des fournitures suivantes :
a) un service
rendu à un particulier dans le cadre d’une instance criminelle, civile ou
administrative au Canada, sauf s’il est rendu avant le début de l’instance;
b) un service
lié à un immeuble situé au Canada;
c) un service
lié à un bien meuble corporel qui est situé au Canada au moment de l’exécution
du service;
d) un service
de mandataire de la personne ou un service consistant à faire passer des
commandes pour des fournitures à effectuer par la personne ou à son profit, à
obtenir de telles commandes ou à faire des démarches en vue d’en obtenir.
[5] The general
provision in Part V of Schedule VI is section 7 which reads:
7. – A supply of a service made to a
non-resident person, but not including a supply of
(a) a service made
to an individual who is in Canada at any
time when the individual has contact with the supplier in relation to the
supply;
(a.1) a service
that is rendered to an individual while that individual is in Canada;
(b) an advisory,
consulting or professional service;
(c) a postal
service;
(d) a service in
respect of real property situated in Canada;
(e) a service in
respect of tangible personal property that is situated in Canada at the time the service is performed;
(f) a service of
acting as an agent of the non-resident person or of arranging for, procuring or
soliciting orders for supplies by or to the person;
(g) a
transportation service; or
(h) a
telecommunication service.
[6] Section 7
provides a general zero-rating for services rendered to non‑residents,
and removes from that general provision a number of services, including
advisory, consulting or professional services. The zero‑rating of such
services when rendered to a non-resident is, however, revived in
section 23, with a number of exceptions some of which are the same as
those in section 7. There is a presumption against finding tautology in
legislation but the apparent repetitiveness in sections 7 and 23 is, I think,
justifiable to prevent ambiguity. The result is that professional, consulting
or advisory services made to a non‑resident are zero‑rated unless
they fall within the four exceptions in section 23.
[7] The
respondent’s position is that the services rendered to the employees of the
non-resident customers of the appellant were “training” (in French,
“formation”) and that they fall within paragraphs 7(a) for the
period January 1, 1996, to June 30, 1996, or 7(a.1) for the
period following June 30, 1996.
[8] In
considering this argument it is necessary to describe briefly the type of
service rendered by the appellant to its non-resident clients. The technology
involved in the type of software that the appellant supplies to its non‑resident
clients is highly complex and in some cases requires that the client send
employees to Canada.
[9] The best
description of the type of service provided is found in the testimony of Mr. Ram Panda,
the President of the appellant.
Q. And the services that are at
issue today, the services for which we are claiming that they are zero-rated,
could you give the Court a rough idea of what percentage of your overall
activities or overall sales it represents?
A. I believe I have actually,
had our V.P. Finance prepare a document, the issue in question in terms of
dollars, I think it’s less than half a percent (0.5%) of our sales, I believe I
have a backup that I can provide you and the Court. But just to give you a
background, when the customer purchases our software, the customer receives
essentially all the material that helps the person implement and install the
software, like all the manuals, et cetera. We typically get involved because in
the U.S. we have a company in the U.S. that distributes the software, et cetera. Our role here, we only get
involved if a customer has a specific need that he’s unable to resolve because
of a business need with the software. So they have to from time to time come to
us to seek advice, to help them along in that specific case. I’ll give you a
typical example, once upon a time at one of our customers in Chicago, the U.S.
Trade Authorities came to them and they wanted, going back several years, to
pull out specific types of steel with specific batches that they received from
a specific source and how they processed and sold, they wanted a whole
statistics and there was no way any software can just simply provide that in a
report. So they had to come to us and say look, they had to first explain to us
their problem and then we had to give them advice on taking them through how
they can piece together this information and prepare this report.
The second typical example
would be, let’s say for customer went and bought another company and they
decided to change their year-end, their fiscal year-end, let’s say they went
from September the thirtieth (30th) to December thirty-first (31).
It seems like a simple thing in accounting side, but the processes involved
when they have databases and data that’s synchronized to specific month-ends
and year-ends, it’s very complex to change that sort of thing. And it’s a very
unique thing because this is not a generic thing that we can just tell all the
customers, well, this is the procedure, this is how you do it. So we have to
understand how they want to represent their statistics, what impact would they
have on their accounting, what impact would they have on their order
fulfilment, et cetera. These are services we do provide. And in most cases,
these services are provided on site and very infrequently, if we have a
restriction on our ability to send the people out, we ask the customers to come
here to Montreal otherwise this is a very tiny part
of our sales. Just to repeat myself, it’s less than half a percent (0.5%) of
our sales.
[10] What is
apparent from the above testimony and from Mr. Panda’s evidence generally,
which I accept, is that the appellant provides consulting and professional
services in a highly technical area involving the application of the software
to a very specific purpose in the metal industry. The respondent draws a
distinction between “training” and “advisory, consulting and professional
services”. “Training” is used on some of the invoices but to the extent that it
implies a mere routine basic educative process in how to use the software in a
computer it is a misnomer. It is far more than that. It is advice by highly
trained professionals in the application of the software to a specific purpose.
In my view the service provided to the appellant’s clients falls precisely with
the words “advisory, consulting and professional services”. Indeed, this
conclusion is consistent with the CCRA’s own interpretation. In the Revenue
Canada Questions and Answers Database the following appears:
A “consulting” service refers to a
service of providing information, instruction or expert advice. A consultant
generally provides services related to a field of specialized knowledge of
training.
An advisory or consulting service
may address business, management, marketing, data processing, public relations
and other issues or problems faced by the client. An advisory or consulting
service does not include any work that might be undertaken or performed as a
result of the plans or recommendations accepted by the client or the advice
provided to the client.
A “professional” service is
generally defined in terms of the individual providing the service. If the
person making the supply of the service is other than an individual — for
example, a partnership or company — the Department will consider the status of
the individual professional or professionals assigned to provide the service in
determining whether the service is a professional service.
[11] It is clear
from the evidence that the persons giving the advisory or consulting service
here are highly skilled professionals. In Montgomery v. M.N.R., [1996] 1 C.T.C. 2796, revised [1998] 1 C.T.C. 58,
restored [1999] 2 C.T.C. 196, the following observation was made:
Equally I think that it is clear
that the annual membership dues paid by him are “professional” membership dues.
We have come a long way from the days when the only recognized professions were
the clergy and the military. Somewhat later law and medicine became recognized
as “professions”. Since that time the expression has come to cover a vast
variety of callings: dentists, land surveyors, artists, ministers, teachers,
nurses, secretaries, dancers, therapists, scientists, accountants, professors,
social workers, druggists, engineers, computer specialists, and writers to
mention only a few that come to mind.
[12] In my view,
neither paragraph 7(a) nor paragraph 7(a.1) has any
application. The services are provided to the non-resident client by giving
advice and consulting services to employees of the client. Counsel for the
respondent noted that in paragraph (a) the word is “fourni” (“made” in English) whereas in paragraph (a.1)
the word is “rendu” (“rendered” in English). Since I do not think either
paragraph applies the distinction between the words “made” and “rendered” (“fourni”
and “rendu”) is not a meaningful one for the purposes of this case, whatever
may be its significance in a different context.
[13] Quite apart
from the interpretation of paragraphs 7(a) and 7(a.1),
section 23 deals specifically with consulting advisory and professional
services. To exclude the services provided here from zero-rating on the basis
of paragraphs 7(a) or 7(a.1) would render nugatory section 23.
This is a clear case in which both venerable Latin maxims expressio unius
est exclusio alterius and generalia specialibus non derogant apply.
[14] Counsel for
the respondent also mentioned section 18 of Part V of Schedule VI.
That section reads:
18. — A supply made to a non-resident
person, other than an individual, who is not registered under Subdivision d of
Division V of Part IX of the Act of a service of instructing non‑resident
individuals in, or administering examinations in respect of, courses leading to
certificates, diplomas, licences or similar documents, or classes or ratings in
respect of licences, that attest to the competence of the individuals to whom
the service is rendered or the examination is administered to practise or
perform a trade or vocation.
[15] The
argument is that since section 18 deals with a certain type of service (i.e.,
made to non-resident persons who are not individuals in a field leading to
certification or accreditation), any other type of training is impliedly
excluded. The word “training” is not used in this section.
[16] Essentially
this section deals with a certain type of instruction. It does not in my view
exclude the type of consultative and advisory service provided by the appellant
to its clients. The simple fact of the matter is we are not dealing here with
training in the rather rudimentary sense in which the auditor evidently
envisaged it. Although the word “training” is used in the invoices and the
notice of appeal it obviously in this case encompasses a broad range of
advisory and consultative services. Had Parliament intended to exclude all
training it would have done so in the manner used in sections 7 and 23,
i.e. a broad initial inclusion, subject to a relatively broad set of exclusions
which are themselves subject to being revived in other specific provisions. For
example, paragraph 7(b) is excluded from the opening words of section 7
and restored in section 23. Paragraphs 7(a) or 7(a.1)
arguably could exclude certain types of training which then enjoy a very
limited revival in section 18. Indeed I daresay all consultation and
advice have an educative element, whether it be in the field of law, computers,
medicine, fashion or interior decorating.
[17] It seems
that the scheme of Schedule VI, Part V, is that some services to non-residents
are specifically excluded in section 7 but are restored in other sections
of Part V whereas some services that are not specifically excluded by
section 7 are nonetheless specifically zero-rated in other sections.
[18] I am fortified
in my conclusion that the services here are zero‑rated by the fact that
precisely the same issue with this company arose under the Quebec sales tax
legislation in Invera Inc. c. Québec (Sous‑Ministre du Revenu) (no. 500‑02‑092098-016, 11 July
2003), Court of Quebec.
[19] The
Honourable Mr. Justice Dumais, after quoting section 191.10 of the Quebec
Sales Tax Act, (which is substantially the same as section 23 of Part
V of Schedule VI to the E.T.A.) said:
[17] En fait, l’article précité détaxe « le service de conseil, de
consultation ou professionnel », cependant que l’article 185 détaxe « la fourniture de service »,
avec des exceptions autres que la situation décrite en l’article 191.10.
[18] Si les services vendus à une personne ne
résidant pas au Québec, pour consommation hors Québec sont un « service de conseil, de
consultation ou professionnel », ils dépassent le cadre général de
l’article 185, et en sont une division bien précisée. Sans cette spécificité,
l’article 191.10 n’a pas de raison d’exister.
[19] Ou, plus spécifiquement:
est taxée la fourniture d’un service à une personne qui ne réside pas au Québec, s’il s’agit d’un « service
de conseil, de consultation ou professionnel » (art. 185 précité,
dans ses deux versions, avant et après le 23 avril 1996).
[20] While I am
not bound by the decisions of superior courts of the provinces they should,
where possible, be followed in the interests of comity and consistency. In this
case I am in complete agreement with Justice Dumais’ conclusion.
[21] The appeal from
the assessment made under the E.T.A. is allowed with costs and the
assessment is referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that the fees charged to the
appellant’s non-resident clients that are in issue in this appeal are
zero-rated.
Signed at Ottawa, Canada, this 20th day of January 2005.
Bowman,
A.C.J.
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