Citation: 2006TCC477
Date: 20060901
Docket: 2004-3065(GST)I
BETWEEN:
ÉVASION HORS PISTE INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1] This is an appeal
from an assessment of Goods and Services Tax (GST) under the Excise Tax Act
(ETA) for the period from September 1, 2001, to February 28, 2003
("the relevant period"). In his assessment of
January 21, 2004, the Minister of National Revenue ("the
Minister") increased the net tax payable by Évasion Hors Piste Inc.
("EHP") by $35,397.88, plus $788.01 in interest and $1,965.13 in
penalties. The issue involves supplies made in Canada to customers of EHP who
reside in the United States.
Facts
[2] The parties agree
on the relevant facts of this appeal. EHP operates a business that sells
off-road vehicles, including snowmobiles and motorcycles. The business is
located in St‑Élie d'Orford, roughly 50 km from the Canada‑U.S.
border. During the relevant period, EHP sold 61 vehicles to persons who
reside in the United States, but it neglected to collect $35,397.88 in GST.
In his testimony, Yanick Le Clerc, EHP's chief executive officer
during the relevant period, confirmed that the vehicles in question were
transferred to U.S. residents at his place of business.
[3] Before making these
sales to the U.S. residents, Mr. Le Clerc contacted the Ministère du
Revenu du Québec (MRQ), the Minister's agent, for information about the
procedure for exporting off-road vehicles on a GST‑exempt basis.
The MRQ apparently confirmed that no GST was payable if the goods in
question were exported to the United States. Mr. Le Clerc described
the procedure that EHP followed in order to export its goods to the United
States. The American customer would go to EHP's place of business and pay by
cheque or money order, and a representative of EHP would transport the vehicle to
the border and cross it, having obtained a Form E 15, "Certificate of
Destruction/Exportation", bearing the statement "exported
under customs supervision" (Exhibit A‑4) and stating the
vehicle's serial number. The Minister did not assess GST on the vehicles
exported under these circumstances.
[4] EHP later changed
this method based on a proposal by Norman G. Jensen, Inc.
("Jensen"), an American customs brokerage company. Jensen offered to
fill out all the necessary export paperwork. Mr. Le Clerc described
the new procedure as follows. The U.S. resident went to EHP's place of
business and signed a form entitled "Proforma Invoice" bearing
Jensen's business name and a description of the off-road vehicle, including its
serial number. EHP was described on the form as "Exporter, Shipper,
Seller" and the U.S. customer was described as "Buyer (if
other than consignee)." The U.S. customer signed a portion of
the document entitled "Carrier's Certificate":
To the district
director of customs, port of arrival
The undersigned
carrier to whom or upon whose order the articles described above must be
released hereby certifies that Norman G. Jensen, Inc. is
the owner or consignee of such articles within the purview of
section 484(H), Tariff Act of 1930. I certify that this manifest
is correct and true to the best of my knowledge.
[5] Attached to this
"Proforma Invoice" was a "Certificate of Origin", a form
issued by the Department of the Treasury, United States Customs Service.
The form identified EHP as the "Exporter" and also contained the
serial number of the recreational vehicle. The certificate was signed by an EHP
representative.
[6] Lastly, in addition
to the "Proforma Invoice" signed by the recipient of the off-road
vehicle, there was the contract of sale between EHP and the recipient, bearing
the usual information, including the vehicle's serial number and the terms of
payment. The U.S. resident left with the vehicle, which had been delivered to
EHP's place of business.
[7] Afterwards, Jensen
mailed a copy of the "Proforma Invoice" and
"Certificate of Origin" along with another U.S. Customs
Service document entitled "Entry Summary", on which EHP is
identified as the importer of record, Canada is identified as the exporting
country, and the U.S. resident is identified as the "ultimate
consignee". As far as Mr. Le Clerc is concerned, the
entry summary was proof that his off-road vehicle was being exported.
Counsel for the Respondent acknowledged that the document establishes that the vehicle
that EHP transferred to the American customer at EHP's place of business was
exported to the United States. The last document, another U.S. Customs Service
form, entitled "Customs Bond", identifies the
"principal" as EHP, represented by Jensen, and provides the name of
the insurance company. It is not possible, based on the evidence, to ascertain
why such a bond was obtained. It should also be added that Jensen billed
EHP for its brokerage services, as shown by Exhibit A‑2.
[8] Mr. Le Clerc
confirmed that he verified with a competitor in his area that this new
procedure was an adequate way to export a product without being subject to GST.
In addition, he contacted the MRQ's customer inquiries department, which
allegedly confirmed that it would be sufficient if the papers proved the item
was exported. This new procedure was attractive to EHP because its gross profit
margin on the sale of off-road vehicles was very small and the procedure would
save it the cost of transporting the vehicle from its establishment to the U.S.
border.
[9] On
cross-examination, Mr. Le Clerc acknowledged that Jensen never had
physical possession of the off-road vehicles. Jensen merely mailed or faxed him
the documents referred to above. In addition, Mr. Le Clerc acknowledged
that he did not show the Minister these documents when he contacted the MRQ to
verify whether they were sufficient to relieve him of the obligation to collect
GST.
Analysis
[10] The Minister's
assessment is based on paragraph 142(1)(a) of the ETA, which provides:
General rule — in Canada
142(1) For the purposes of this Part, subject to
sections 143, 144 and 179, a supply shall be deemed to be made in Canada if
(a) in the case of a supply by way of
sale of tangible personal property, the property is, or is to be, delivered
or made available in Canada to the recipient of the supply;
[Emphasis added.]
[11] Part V of Schedule
VI of the ETA, which defines zero-rated supplies —and, notably,
sections 1 and 12 of that Part — did not apply to the supplies
covered by the assessment either, with the exception of two sales to merchants.
Sections 1 and 12 provide:
1. [Goods purchased for immediate export] 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
. . .
(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;
(e) the person maintains evidence satisfactory to the
Minister of the exportation of the property by the recipient.
12. [Goods for delivery outside Canada] A supply of tangible
personal property (other than a continuous transmission commodity that is
being transported by means of a wire, pipeline or other conduit) if the
supplier
(a) ships the property to a destination outside Canada
that is specified in the contract for carriage of the property;
(b) transfers possession of the property to a common
carrier or consignee that has been retained, to ship the property to a
destination outside Canada, by
(i) the supplier on behalf of the recipient, or
(ii) the recipient's employer, or
(c) sends the property by mail or
courier to an address outside Canada.
[Emphasis added.]
[12] Since the off-road
vehicles were remitted to consumers at EHP's place of business and were not
shipped to the United States or transferred to a "common carrier or
consignee . . . retained to ship the property to a destination outside Canada
by . . . the supplier on behalf of the recipient", the sales were
deemed to have been made in Canada, and the supplies of the vehicles were not
zero-rated. However, the Respondent acknowledged that the two of the assessed
supplies were made to merchants, and that the corresponding amounts should
therefore have been excluded from the assessment. The supplies in question are
a supply for $490 made on September 11, 2001, to Jeff Manning, and a
supply for $420 to Claude Cotnoir.
[13] In his oral
argument, counsel for EHP acknowledged that there was no provision of the ETA
based on which he could contest the Minister's assessment. He submits that the
assessment should be cancelled because EHP was acting in good faith, and had
checked with the MRQ to see whether its approach was sufficient to relieve it
of the obligation to collect the GST, and because the vehicles really were
exported. In support of his argument, counsel for EHP cited the decision of the
Supreme Court of Canada in Lévis (City) v. Tétreault,
2006 SCC 12, [2006] S.C.J. No. 12 (QL). There, the Supreme Court
held that the defence of officially induced error was a valid defence against
penalty for a provincial offence. The city of Lévis had charged someone for
driving a vehicle without having paid the applicable registration fees,
contrary to section 31.1 of the Highway Safety Code,
R.S.Q., c. C‑24‑2.
[14] In my opinion, the Lévis
decision provides no justification for setting aside the Minister's
assessment. The case at bar is governed by administrative law, not penal or
criminal law. It involves an assessment of taxes, to which interest, and
penalties computed like interest, are added in accordance with
subsection 280(1) of the ETA.
[15] In Lévis (City),
LeBel J. recognized that the "defence of officially induced error"
can be a valid "exception to the rule that ignorance of the law cannot
excuse the commission of [an] . . . offence" for, otherwise,
"regardless of whether it involves strict liability or absolute liability
offences, the fundamental fairness of the criminal process would appear to be
compromised."
(See paragraphs 20 et seq. of the decision). As Robertson J.A.
wrote in Canada (Attorney General) v. Consolidated Canadian Contractors
Inc., [1999] 1 F.C. 209, 98 G.T.C. 6303 (F.C.A.)
upon accepting, at para. 33, the due diligence defence to the penalty under
paragraph 280(1)(a) of the ETA, "the judicial value being
challenged is the general right of persons not to be punished without fault,
which is consistent with the common law principle that there should be no
liability without fault." Lastly, as Robertson J.A. added, at
paragraph 58:
. . . I am of the view that the application
of criminal law concepts in the present context is inappropriate. . . . [The]
registrants are not seeking to plead mistake of law as a defence to payment of
GST that they failed to collect and remit. That registrants remain liable for
any underpayment and restitutionary interest has never been questioned. Indeed,
the Act provides that registrants have the right to recover any amounts that
should have been collected from those responsible for its payment. It is only
the 6% automatic penalty that registrants find objectionable.
[16] The submissions made
by counsel for EHP did not distinguish between the taxes and the penalty,
perhaps because the GST liability amounts to $35,397.88 and the penalty is only
$1,965.13. Even if the criminal law "defence of induced error" can
also be applied against the imposition of the penalty under
paragraph 280(1)(a) of the ETA,
the conditions precedent to its application, which are set out in Lévis (City),
are not met in the instant case. Here is what Le Bel J. wrote about
these conditions at paragraphs 26-27:
26 After his analysis of the case law, Lamer
C.J. defined the constituent elements of the defence and the conditions under
which it will be available. In his view, the accused must prove six
elements:
(1) that an error of law or of
mixed law and fact was made;
(2) that
the person who committed the act considered the legal consequences of his or
her actions;
(3) that the advice obtained came
from an appropriate official;
(4) that the advice was reasonable;
(5) that the advice was erroneous;
(6) that the person relied on the advice in
committing the act.
(Jorgensen, at paras. 28–35).
27 Although the Court did not rule on this
issue in Jorgensen, I believe that this analytical framework has become
established. . . . The Attorney General of Canada’s concerns relate more to the
need to demonstrate that the advice was reasonable and that the accused relied
on it. It should be noted, as the Ontario Court of Appeal has done, that it is
necessary to establish the objective reasonableness not only of the advice, but
also of the reliance on the advice (R. v. Cancoil Thermal Corp.
(1986), 27 C.C.C. (3d) 295; Cranbrook Swine). Various factors
will be taken into consideration in the course of this assessment, including
the efforts made by the accused to obtain information, the clarity or obscurity
of the law, the position and role of the official who gave the information or
opinion, and the clarity, definitiveness and reasonableness of the information
or opinion (Cancoil Thermal, at p. 303). It is not sufficient in
such cases to conduct a purely subjective analysis of the reasonableness of the
information. This aspect of the question must be considered from the perspective
of a reasonable person in a situation similar to that of the accused.
[Emphasis added.]
[17] First of all, EHP
adduced insufficient evidence with respect to the role of the unnamed MRQ
representative and the error that he may have induced EHP to commit when he
answered the questions asked by Mr. Le Clerc over the telephone. The
evidence did not disclose the questions that he was asked or the precise
factual background on which those questions were based.
If Mr. Le Clerc did not provide the MRQ with all the relevant
facts, this could explain why he did not get the right answer. For example, it
is not known whether Mr. Le Clerc told the MRQ that his customers
included both merchants and consumers, or whether he revealed that the vehicles
were delivered to the consumers in question at his place of business and that
those consumers then transported the vehicles themselves.
[18] In addition, it is
my opinion that EHP acted quite carelessly in limiting its inquiry to a
telephone call. The evidentiary problems that it faced in relation to that call
are a good illustration of this. The fact that the American customs broker
merely provided EHP with Treasury Department forms should have set off the
alarm bells. At least one of the following two additional efforts should have
been undertaken. First of all, EHP should have submitted a technical
interpretation request to the Minister in writing, specifically
describing the procedure that it intended to follow in order to export its
vehicles to the United States. Under such circumstances, it would have
been easier to find out precisely whether or not the MRQ officer made an
interpretation error capable of inducing the failure to collect the GST.
Secondly, it would have been more prudent of EHP to obtain an opinion from its
legal counsel with respect to the application of the ETA. As one can see,
ultimately, the wording of paragraph 142(1)(a) of the ETA, and
sections 1 and 12 of Part V of Schedule VI of that statute, is clear enough to
show that the procedure followed by EHP did not enable it to refrain from
collecting GST.
[19] Counsel for EHP did
not plead the defence of due diligence in relation to the penalty under
paragraph 280(1)(a) of the ETA, and it is clear that the defence is
unavailable in the case at bar. Here is what Bowman T.C.J. (as he then was)
wrote in Stafford, Stafford and Jakeman v. Canada, [1995]
T.C.J. No. 89, at paragraph 15, [1995] G.S.T.C. 7, at 7‑4:
. . . Due
diligence involves more than merely accepting, without more, some oral
advice that an assessor with the Department of National Revenue may have
given them.
[Emphasis added.]
The same judge also held
as follows in Wong v. Canada, [1996] T.C.J. No. 1237 (QL), at
paragraph 24, [1996]
G.S.T.C. 73, at 73‑5:
. . . Due
diligence is nothing more than the degree care that a reasonable person would
take to ensure compliance with the Act. It does not require perfection or
infallibility. It does, however, require more than a casual inquiry of an
official in the Tax Department. I have great sympathy for taxpayers
struggling with a complex and difficult statute, particularly in the early
years. But the words in the penalty section cannot be ignored completely. I
do not think that a defence of due diligence has been made, although I
accept that Mr. Wong acted honestly and in good faith.
[Emphasis added.]
In my opinion, these
remarks also apply to EHP's efforts.
[20] In conclusion, EHP
has not succeeded in showing that the Minister's assessment was erroneous,
except in relation to the sales to the two merchants. Accordingly, EHP's appeal
must be allowed and the assessment referred back to the Minister for
reconsideration and reassessment on the basis that a total of $910 in GST must
be excluded from the taxable supplies covered by the assessment.
[21] While the Minister's
assessment is consistent with the letter of the ETA, I cannot help but
note that it does not conform to its spirit. It is clear from the provisions of
the ETA that tangible personal property exported outside Canada should not be
subject to GST. In fact, this reflects one of the major reasons for replacing
the old federal sales tax with the GST: to make Canadian goods more competitive
in the global marketplace. Since both the auditor and counsel for the
Respondent acknowledge that some of EHP's vehicles were truly exported to the
United States but that the proper procedure was not followed, EHP is being
penalized by having to pay a tax that would not have had to be collected if EHP
had followed the correct procedure. Consequently, I strongly recommend that the
Minister exercise his power under subsection 23(2) of the Financial
Administration Act and issue a remission order reimbursing EHP for the GST,
interest and penalty for which it was assessed, but — and this is obvious — only
to the extent that he is satisfied that the vehicles were actually exported to
the United States. If the Minister does not take this measure, a grave
injustice will be done to EHP, which is unable to force its U.S. customers to
pay it the GST that they should have paid it in its capacity as agent for the
Minister. Indeed, the American courts refuse to allow foreign countries to
enforce tax debts in the United States, and this should be one more reason for
the Minister to remedy this injustice.
Signed at Montréal, Quebec, this 1st day of September
2006.
"Pierre Archambault"
Translation
certified true
on this 4th day of
July 2007
Monica F.
Chamberlain, Reviser
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