|
Citation:2004TCC46
|
|
Date: 20040113
|
|
Docket: 2002-4935(GST)I
|
|
BETWEEN:
|
|
NEHZAT OWRAKI,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent,
AND
2002-4938(GST)I
KEHRAM OWRAKI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
|
REASONS FOR JUDGMENT
O'Connor, J.
[1] These appeals were heard on common
evidence at Toronto, Ontario on December 17, 2003. Testimony was
given by Nurool Sarkar, the agent for the Appellants, by Kehram
Owraki and by the auditor Mr. Bovell of Canada Customs and
Revenue Agency (CCRA). Several exhibits were filed.
[2] The facts and issues are disclosed
in the following paragraphs of the Amended Reply to the Notice of
Appeal in Kehram Owraki's appeal.
...
8. The Minister of National Revenue (the "Minister")
assessed the Appellant for a total amount of $11,573.49 (the
"Amount Assessed"), consisting of $10,197.44 in ITCs
disallowed, plus $799.81 in penalty and $576.24 in interest.
9. The Appellant filed a Notice of Objection with respect to
the Assessment on June 20, 2002.
10. A Notice of Decision was issued on November 13, 2002,
confirming the assessment.
11. In so assessing the Appellant, the Minister made the
following assumptions of fact:
(a) at all material times, the Appellant was a GST registrant
engaged in the wholesaling of electronic and other products (the
"Taxable Supplies");
(b) during the Period, the ITCs claimed did not correspond to the
information made available to the Minister by the Appellant;
(c) the Appellant failed to obtain sufficient evidence in such
form containing such information as would enable the amount of
ITC's denied to be allowed;
(d) the Appellant is not entitled to ITCs denied in the amount of
$10,197.44; and
(e) the Appellant claimed net tax refundable to which he was not
entitled.
B. ISSUE TO BE DECIDED
12. The issues are whether
(a) the Minister properly assessed the Appellant as stated in
paragraph 8 above; and
(b) the Minister properly disallowed the $10,197.44 in ITCs
claimed by the Appellant.
...
D. GROUNDS RELIED ON AND RELIEF SOUGHT
...
15. He respectfully submits that the Appellant is not entitled
to the ITCs claimed and disallowed in the amount of $10,197.44 on
the basis that there was insufficient evidence obtained by the
Appellant in such form containing such information as would
enable the amount of ITCs to be determined, including any such
information as may be prescribed, pursuant to section 169 of the
Act and Regulations.
16. He respectfully submits that the Appellant is not entitled
to ITCs claimed and disallowed in the amount of $10,197.44 as
they did not correspond with the Appellant's books and
records.
17. He respectfully submits that the Appellant failed to remit
the net tax as stated in paragraph 7 as and when required by
subsections 165(1), 221(1), 225(1) and 228(2) of the
Act.
18. He respectfully submits that due to the Appellant, having
claimed net tax refundable to which he was not entitled,
corresponding penalty and interest were duly levied pursuant to
section 280 of the Act.
19. He respectfully submits that the Appellant did not act
with due diligence in relation to Part IX of the Act.
...
[3] The Reply in the appeal of Nehzat
Owraki, the wife of Kehram Owraki is substantially the same as
the Amended Reply in the appeal of Kehram Owraki with the
following exceptions; in Nehzat the amounts involved were
$24,847.88 in input tax credits disallowed, plus $1,948.88 in
penalty and $1,404.12 in interest; and the "Taxable
Supplies" that the Appellant was wholesaling consisted of
cosmetics and related products, whereas the "Taxable
Supplies" in the appeal of Kehram consisted principally of
electronic products.
[4] The main issue in both appeals is
that there was insufficient evidence furnished by the Appellants
in such form containing such information as would enable the
amount of the ITCs to be determined including any such
information as may be prescribed pursuant to section 169 of the
Excise Tax Act (the "Act") and the
Input Tax Credit Information Regulations (the
"Regulations").
[5] Pursuant to subsection 169(1) of
the Act, GST registrants who make "Taxable
Supplies" are entitled to input tax credits for the GST they
pay on purchases of any property or service for use in the course
of their commercial activities. These claims are computed on a
self-assessing basis.
[6] Paragraph 169(4)(a) of the
Act requires that registrants, before filing their
returns, obtain sufficient evidence to determine the amount of
input tax credit allowable. The Regulations[1] set out the required
evidence in section 3 and define supporting documentation in
section 2 as follows:
"supporting documentation" means the form in
which information prescribed by section 3 is contained and
includes:
a) an invoice
b) a receipt
c) a credit-card receipt
d) a debit note
e) a book or a ledger of account
f) a written contract or agreement
g) any record contained in a computerized or electronic
retrieval or data storage system, and
h) any other document validly issued or signed by a registrant
in respect of a supply made by the registrant in respect of which
there is tax paid or payable.
[7] The Appellants maintain that
approximately 70% of their sales consisted of exports to Iran
(with a small portion going to Germany and Italy) and 30% of
sales in Canada. There is no dispute with respect to the GST on
sales in Canada. The dispute relates to the sales made
principally in Iran upon which no GST is collectible, yet the
Appellants were obliged to pay GST on purchases of goods or
services acquired to enable the sales in Iran.
[8] The main difficulty was the fact
that the auditor for CCRA was unable to determine from the books
and records submitted by the Appellants the correct percentages
of sales and more importantly the exact amount of ITCs. Both
counsel for the Respondent and the Appellants through their agent
submitted various calculations attempting to establish what were
the correct amounts.
Analysis
[9] I find the testimony of Kehram
Owraki credible. He stated that he was unable to come up with all
the necessary documentation because many purchases and sales were
made in cash. He further explained the main reason for not being
able to furnish all the records required was a loss of a
briefcase containing numerous documents, which loss occurred
during a taxi ride in Iran. The documents lost consisted of
invoices, sales records, a detailed logbook, a checkbook and
approximately $20,000 US in cash. Kehram Owraki gave a very
detailed account of the circumstances surrounding the loss and
has convinced the Court that as a result of the loss it became
impossible for the Appellants to prove all the sales and
purchases.
[10] In these very unusual circumstances I
find that on a balance of probabilities the ITCs claimed by both
Appellants are to be allowed. The testimony of the auditor who
admittedly did his best to calculate the sales and purchases was
mainly to the effect that cash must come from somewhere. He
reviewed two possible sources of cash namely cash sales and
cash withdrawals based on bank statements and concluded that the
maximum ITCs that could be allowed were what the Minister did
allow. On balance however I believe the Appellants and their
agent and find that they have established their case.
[11] Consequently, the appeal of Nehzat
Owraki is allowed and the matter is referred back to the Minister
of National Revenue for reconsideration and reassessment on the
basis that in the period in question namely April 1, 2000 to June
30, 2001, she is entitled to the input tax credit claimed of
$24,847.88 and further she is not liable for any penalty or
interest. Also the appeal of Kehram Owraki is allowed and
the matter is referred back to the Minister of National Revenue
for reconsideration and reassessment on the basis that he is
entitled to input tax credits claimed of $10,197.44 in the period
in question namely April 1, 2000 to June 30, 2001 and
further that he is not liable for any penalty or interest.
Signed at Ottawa, Canada, this 13th day of January 2004.
O'Connor, J.
Email this Content