|
Citation: 2004TCC86
|
|
Date : 20040422
|
|
Docket: 98-431(GST)G
|
|
BETWEEN:
|
|
LES VOITURES ORLY INC./
ORLY AUTOMOBILES INC.,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
BOWMAN, A.C.J.
[1] This appeal is from a reassessment
made under the Excise Tax Act ("E.T.A.") by the
Minister of National Revenue through his agent, the Deputy
Minister of Revenue of Québec
("Revenue Québec") for the period from August 1,
1995 to September 30, 1996 (the "relevant period").
[2] The appellant is an automobile
dealer. In the relevant period it acquired new automobiles which,
for the most part, it exported to the United States and
Europe. No sales tax is payable on such sales to non-residents.
That is not the issue. The main issue is whether the appellant is
entitled to claim input tax credits ("ITCs") in respect of the
Goods and Services Tax ("GST") which it says it paid when it
bought those automobiles. The respondent denies that the
appellant is entitled to the ITCs claimed.
[3] There were two assessments. The
first was made on December 17, 1996. Revenue Québec
disallowed ITCs of $518,109.91 with respect to automobiles
acquired by the appellant, disallowed further ITCs of $41,889.05
with respect to other purchases and assessed tax of $69,287.55 on
what it described as unreported sales of vehicles. Also, interest
and penalties were assessed in the amounts of $25,920.25 and
$27,997.07, respectively. The appellant filed a Notice of
Objection on March 14, 1997, and on
February 27, 1998, it filed a Notice of Appeal, over
180 days having passed without a response to the Notice of
Objection. On April 27, 1998, Revenue Québec
issued a reassessment. Some of the numbers were changed. ITCs in
the amount of $792,631.24 were disallowed. In addition, interest
and penalties were increased to $77,940.73 and $315,423.11,
respectively. In the result the amount claimed under the
reassessment was $1,297,171.68. The appellant amended its Notice
of Appeal to refer to the reassessment.
[4] The assessment and reassessment
were made without warning and without prior discussion. Counsel
for the appellant moved at the beginning of trial for a direction
that since Revenue Québec had not, prior to mailing the
assessments, disclosed to the appellant the assumptions upon
which it proceeded, the onus was upon the respondent to justify
the reassessment. In oral reasons given at trial I dismissed the
motion, except with respect to the penalties imposed under
section 285 of the E.T.A. and the allegation in
paragraph 71 of the Reply to the Notice of Appeal relating
to the conditions in subsection 169(4) of the E.T.A.
[5] Four hundred and ninety eight
exhibits were filed by the appellant and 486 by the respondent.
The appellant called three witnesses and the respondent
called 12. The trial lasted 31 days and the evidence was
detailed. About 307 transactions were involved, most of which
were exports of higher end automobiles such as
Jeep Grand Cherokees, Chevrolet Tahoes,
GMC Yukons or Chrysler Town and Countrys. Most of them had
price tags in the neigbourhood of $40,000.00. Virtually every
transaction was dealt with individually twice, once by
Mr. James Doherty, a director and officer of Orly, and
once by madame Linda Turcotte, an assessor with
Revenue Québec, who conducted a detailed examination
of the transactions.
[6] I shall start by attempting to
state in broad outline what I believe to be the respective
positions of the appellant and the respondent.
[7] Mr. Doherty testified that
the principal business of the appellant, Les Voitures Orly
Inc./Orly Automobiles Inc. ("Orly"), in the relevant period was
the purchase and sale for export of automobiles. Orly and a large
number of other auto dealers were black listed by the big three
auto manufacturers, Ford, Chrysler and General Motors. What this
meant was that their authorized franchised retail dealers were
told not to sell automobiles to companies such as Orly. The
reason given was that Orly and the other black listed companies
were buying vehicles from dealers in Canada and selling them
offshore thereby undercutting the big three's foreign
dealers.
[8] Therefore, according to
Mr. Doherty, Orly was obliged to buy from what it called
"secondary dealers". The appellant's position is that when it
bought from the secondary dealers, some of whom had GST
registration numbers, it paid GST on the purchase price and this
was clearly shown on the invoice. It is further the appellant's
position that when it paid the GST to the secondary dealer its
responsibility came to an end and if the secondary dealer did not
remit the tax to the Receiver General this was no concern of
Orly.
[9] The proposition of law that once a
purchaser pays GST to a supplier of goods and services, the
Minister cannot, unless there is fraud or collusion, recover GST
from the purchaser a second time just because the supplier does
not remit the GST to the government is unassailable. The matter
was thoroughly discussed by Justice Campbell in Airport
Auto Ltd. v. Her Majesty The Queen, 2003 TCC 683. The
respondent does not dispute the principle of law but she contends
that the facts do not support its application. The respondent's
position is that any amounts shown on the invoices from the
secondary vendors as GST were not paid as GST, were not intended
to be paid as GST and were not intended to be transmitted to the
government and, of course, were not paid to the government. The
respondent alleges that some of the secondary dealers were not
registered for the purposes of the GST and in many cases the
amounts were paid to third parties other than the secondary
dealers and the third parties were not registered for GST
purposes. The respondent further alleges that the persons shown
as vendors on the sales contracts were not the persons who sold
the vehicles to Orly. On this hypothesis just who the "real"
vendors were is a matter of some doubt. On one view of the matter
they were Indians on reservations who paid no GST. On another
view the Indians or corporations owned or controlled by Indians
were simply conduits who did not pay for the vehicles, never took
possession of the vehicles and indeed never really had title to
them but who simply accommodated the transfer from franchised
dealers to Orly who sold the vehicles to foreign purchasers or in
some cases to domestic purchasers.
[10] In essence, the respondent alleges that
the appellant used a variety of means to create the illusion that
GST was paid by it when in fact it was not paid so as to justify
the claim for ITCs. It boils down to a matter of fact: Did the
invoices represent reality or were the transactions shams?
[11] The principal witness for the
appellant, Mr. James Doherty, went through all of the
transactions and put in evidence the sales contracts and other
related documents. To illustrate the sort of evidence that was
presented in this case, I shall start with one transaction
described in the appellant's Exhibits A-3, A-4,
A-5, A-6 and A-7 and in the respondent's
Exhibit I-92. It would be difficult to find a transaction
that could be described as "typical" of all of the transactions
but I have chosen this one simply because it was the first one
put in evidence by Mr. Doherty. It involved the purchase and
export of a 1996 Dodge Caravan bearing serial number
1B4GP44R7TB165768. The vendor shown on the contract of sale dated
August 9, 1995 is 2844-7167 Québec Inc.
The purchaser shown is Orly Automobiles Inc. The stock number
given to it by Orly and handwritten on the contract is
5-208. The name Daniel Foster appears besides the
words "accepted by vendor". The price shown is $26,900.00, goods
and services tax ("GST") of $1,883.00 and provincial sales tax
("PST") of $1,870.89 are also shown for a total of $30,653.89.
The cheque dated August 9, 1995 in payment of this amount
was drawn on the bank account of Crescent Auctioneers &
Liquidators Inc. at the Bank of Nova Scotia, 505
St. Catherine Street West, Montréal, and is in favour
of 3095-7344 Québec Inc. It was deposited on
August 10, 1995 in the Royal Bank of Canada,
St-Jean & Hymus branch at Pointe-Claire,
Québec, in the account 3095-7344 Québec Inc.
The export contract is dated 4-8-95 (which presumably
is August 4, 1995) and shows the purchaser to be GECO which
Mr. Doherty said was a German company with an address in
Germany. The price is shown to be $29,000.00 and transport to
Bremerhaven of $1,250.00 for a total of $30,250.00. An invoice
for US$850.00 (converted to Cdn.$1,175.00 on
Exhibit A-6) dated August 24, 1995 from a
transportation company bears the notation "paid
September 20, 1995".
[12] Madame Turcotte, the investigator
for Revenue Québec, who made the second assessment,
appeared as a witness for the respondent. She put in evidence as
Exhibit I-1, a stock sheet (a form of internal record
of Orly) showing a purchase of automobile stock number
5-208 from De Geronimo. The purchase price was shown
as $26,900.00, overhead $300.00 and SAAQ (Société
de l'assurance automobile du Québec) fee of $8.00 and a
commission payable to "Ron" of $896.00. The selling price was
shown as $30,250.00, the amount shown on the export contract.
[13] In addition, madame Turcotte put
in evidence a sales contract for the same automobile from Embrun
Dodge Chrysler of Embrun, Ontario, a franchised Dodge Chrysler
dealer to John Wilfred Jerome ("Jerome"), an Indian,
for a purchase price of $26,939.00. No GST or PST was charged
presumably on the basis that the sale to Jerome was exempt. His
certificate of Indian status was put in evidence. Throughout
these reasons I am using the word "Indian" in the sense in which
it is used and defined in the Indian Act.
[14] The SAAQ records show nothing except
the name of Orly. There is no document transferring the vehicle
from Jerome or from Embrun Dodge Chrysler to 2844-7167
Québec Inc. or to Orly. Madame Turcotte also traced
the payment of the purchase price shown in the contract between
Embrun and Jerome from the bank account of 3095-7344
Québec Inc. to a cheque which was used to satisfy the
price to the dealer. The cheque is dated August 9, 1995 and
is drawn on the Royal Bank St-Jean & Hymus branch,
Pointe-Claire, Québec, in the amount of
$26,939.00.
[15] I shall not describe all of the 307
transactions in such detail. Broadly, they follow much the same
pattern.
[16] I turn now to a summary of the
facts.Mr. Doherty says that Orly bought automobiles from
numerous intermediate dealers. Madame Turcotte says the
invoices are false. The essential question is whether Orly paid
GST on these approximately 307 purchases. A few general
preliminary observations may usefully be made. They apply to the
majority of transactions although there may be exceptions and
details may vary but in broad outline the following is the
picture that emerges.
(a)
There is no question that the sales invoices from the companies
shown as vendors to Orly show an amount for GST on each
transaction and the total amount paid to the person shown as
vendor or to some third party includes the amount calculated in
respect of GST.
(b)
In many of the cases the cheques or bank drafts were made payable
to an entity such as a corporation or a proprietorship that is
not the vendor shown on the invoice and went into a bank account
in the name of that entity or proprietorship (the "third party").
It was said that this was at the request of the "vendors".
Notwithstanding the huge amounts that went into the bank accounts
of the third parties, no written direction was produced with
respect to any payment. Indeed there was absolutely no evidence
(apart from Mr. Doherty's oral testimony) of any such
request or direction. It is strange, to put it mildly, that any
prudent business person would pay substantial amounts into bank
accounts of persons about which he or she knew nothing at the
oral request of some unknown person purporting to speak on behalf
of a vendor about whom equally nothing is known.
(c)
In no case has the amount shown on the invoice as GST and paid to
the recipient or third party ever ended up in the hands of the
government.
(d)
In most cases the franchised General Motors or Chrysler dealers
signed an agreement of purchase and sale of the vehicle to
Indians living on reservations or their corporation and no GST or
PST was paid presumably on the theory that the sales are exempt
from tax under the Indian Act.
(e)
In the majority of cases the vehicles were exported and therefore
no GST was paid because the supply to non-residents is
zero-rated.
(f)
In some cases where the vehicles were sold to a German purchaser
the purchase price was split up and a portion was charged as
service and handling. There may have been reasons for this
relating to German tax but the question is not germane to this
case.
(g)
On all, or virtually all, of the sales invoices to Orly, a number
purporting to be the GST registration number of the person shown
as vendor is set out.
(h)
I do not propose to deal in any detail with the export of the
individual vehicles. The majority were exported to the
United States, Germany or France and in a few instances to
the United Kingdom. There is no suggestion that there is
anything amiss in the export of the vehicles. The tax free sale
and export to non-residents may have been important in the
overall scheme of things but it is really tangential to the issue
in this case, subject to one observation. Whether a supply is
exempt or zero-rated affects the right of a supplier to
claim ITCs on the purchase of the supply. If the subsequent
supply is exempt it cannot claim ITCs. If it is zero-rated
it can.[1]
(i)
In the early part of the period under review the cheques were
made by Crescent Auctioneers & Liquidators Inc. ("Crescent").
The testimony was that Crescent was financing Orly. I see nothing
in this fact by itself that is relevant to the issue here. After
the export of the vehicle we see cheques for Orly to Crescent
repaying it. Counsel for neither party made any point of it.
(j)
In some cases one or more pieces of documentation are missing -
for example a cheque from Crescent or Orly. The overall practice
that emerges is that an invoice would be given by a vendor to
Orly containing the stock numbers of the vehicle and its serial
number. Payment would frequently be made by Orly or Crescent to
an entity other than the vendor. The vehicle would be sold to a
non-resident purchaser or in some cases to a purchaser in Canada.
Where the purchaser was a Canadian, GST would be paid by the
purchaser. Also, where Crescent paid the cost of the vehicle,
there would generally be a cheque from Orly reimbursing it after
Orly had sold it. Crescent was evidently involved in financing
Orly until latterly when a bank took over the financing. Crescent
was paid interest and a share of Orly's profit.
(k)
The witness, madame Turcotte, provided copies of the records
of the SAAQ. I will be referring from time to time to these
records but I do not find them particularly reliable as evidence
simply because names of owners that one would not expect appear
on the records out of nowhere and names that one would expect to
be on title are not there. I regard the evidence of the SAAQ to
be at best secondary.
[17] The principal witness for the appellant
was Mr. James Doherty. He testified that there was a
demand in the United States for certain types of vehicles,
such as sports utility vehicles and pick-up trucks, which were
somewhat cheaper in Canada and were in short supply in the
United States. The North American automobile manufacturers
such as General Motors or Chrysler reacted to the export of
automobiles from Canada and the United States and elsewhere
by black listing such exporters as Orly and forbidding their
franchised dealers selling to them, on pain of having their
franchise cancelled.
[18] Mr. Doherty went through each
transaction identifying the invoices from the various persons
shown as vendors, the cheques or bank drafts used to pay for the
vehicles and subsequent sale usually to non-residents but
occasionally to Canadian purchasers. Mr. Doherty testified
that he knew nothing about 2844-7167 Québec
Inc., its owners, directors or employees, nor did he know
Daniel Foster whose name appears as representing the vendor.
Daniel Foster denied that the words Daniel Foster on the
invoices for which the stock numbers were 5-208 and
5-256 were his signature, as well as his name on the
invoices in which Autos 5ième
Ère Inc. is shown as vendor. Mr. Doherty also
testified that Orly was asked by 2844-7167 Québec
Inc. to pay third parties such as 3095-7344 Inc. who he
thought were financing vendors such as 2844-7167. He
testified that he knew nothing about 3095-7344
Québec Inc. In fact, he testified that he knew nothing
about the third parties to whom he says Orly was asked to make
the payments, or the persons shown as vendors. He did not know
who at the companies shown as vendors on the invoices asked that
the many millions of dollars be paid into the bank accounts of
these unknown third parties. There is no evidence that the
request or direction was made in writing, nor did he enquire. He
said it was not his concern.
[19] The names appearing as vendors on the
bills of sale were 2844-7167 Québec Inc. ("2844");
Autos 5ième Ère Inc.
("5ième"); Centre d'Auto Marc et Mario Enr. -
("M & M"); Benny Automobiles ("Benny"); Auto Cartier
("Cartier"); Réal Provost Outaouais Motors Inc.
("Provost"); J.L. Auto Exchange ("J.L."); Garage
Normand Duchesne ("Duchesne"); Gilles G. Caron Auto Service
Ltée ("Caron"); R.A. Succès Automobile
("Succès").
[20] The names of the holders of the bank
accounts to whom the payments were made were 3095-7344
Québec Inc. ("3095"); P.G. Auto ("P.G. Auto")
Tomken Auto Sales ("Tomken"); Gestion Bergeron ("Bergeron");
Camions Marc et Mario ("CMM"); Benny Automobiles ("Benny");
Camions Cartier ("CC"); Auto Cartier ("Cartier"); Garage
Normand Duchesne ("Duchesne");
J.L. Auto Exchange ("J.L."); Gilles G. Caron
("Caron"); Les Placements Locatifs Cécile Hogue
Ltée ("Hogue").
[21] The general picture that emerges from
the evidence of Mr. James Doherty is as follows:
(a) Where the bill of sale to
Orly bore the name of 5ième the payment went
into the bank account of 3095, Bergeron or Tomken.
(b) Where the bill of sale bore the
name of 2844 as vendor, the payment went generally into the bank
account of P.G., although sometimes they went into the account of
Tomken or Bergeron and once into the account of 3095.
(c) In the early part of the
period with which we are concerned, cheques were issued by
Crescent to the entities indicated above and the funds went into
the bank accounts in their name.
(d) Where M & M is shown as the
vendor Orly would sometimes issue the cheque to Bergeron, but
usually to M & M or CMM.
(e) Benny is shown on two
invoices and the cheques went to Benny.
(f) Where Cartier is shown
as the vendor, the cheques were issued to Cartier or, more
frequently, CC.
(g) Where Provost is shown as
the vendor the cheque was issued to Provost.
(h) Where the vendor is shown as
Caron, the cheque was issued to Caron.
(i) Where
Succès is shown as vendor, the cheque was issued to
Succès, except in one case where it went to Duchesne.
(j) Where the vendor
was shown as Duchesne the cheques were issued to Duchesne but the
money went into the bank account of Hogue.
[22] Before I set out with greater
particularity what I have summarized above I should mention a
point that is of tangential importance and that is the method of
payment. In the early part of the period in question Crescent
issued the cheques. Later, Orly issued the cheque, which was
either deposited in the bank account of the person to whom it was
issued or used to support a bank draft in favour of the payee. In
some cases the cheques were certified and in some cases they were
not. I mention these methods of payment simply for the sake of
completeness but I do not see how they add anything of
significance to the case. Orly appears to have proceeded on the
premise that the invoices gave it sufficient of the indicia of
title to permit it to sell the vehicles domestically or abroad.
In this appeal I am not required to decide that Orly acquired
good title to the vehicles, or if it did, from whom. Orly
disposed of the vehicles (usually abroad). The amounts shown on
the invoices to Orly were deposited to the bank account of
someone, whether the person shown as vendor on the invoice or
someone else. The invoices to Orly show GST and PST on the price
of the vehicle and although the total amount was deposited to the
bank account, nothing ever found its way into the governmental
coffers. Orly claimed ITCs in respect of the GST shown on the
invoices and the claims were paid. Now the government wants the
ITCs back because it says Orly never paid the GST in the first
place. That is substantially what this case is about.
[23] I come now to the transactions in which
various persons are shown as vendors to Orly.
Centre d'Auto Marc et Mario Enr. ("M & M")
[24] There were 79 vehicles involved in
which M & M is shown as the vendor on the invoices to Orly. In
13 cases the cheques were issued to Bergeron and in all the rest
the cheques were issued to CMM. According to the stock sheets,
the vendors were shown in three cases as Bergeron, in seven as
2844 and in all the rest as CMM. In the records of the SAAQ
neither M & M nor CMM is shown as the vendor. In some cases it
is a regular franchised dealership. In many others it is 2844 or
Alexandre Minassian. In about 61 cases, the vehicles were
exported and in about 18 they appear to have been sold
domestically. These figures may be slightly inaccurate because
occasionally a bill of lading or an invoice to a purchaser was
missing but by and large the numbers are substantially correct.
The same qualifications must be made about the following figures.
The evidence discloses that in all but five cases the vehicle
originated with a franchised dealership who had acquired it from
the manufacturer such as General Motors of Canada or Chrysler
Canada. The dealer entered into an agreement of purchase and sale
with an Indian living on a reserve or a corporation incorporated
and controlled by Indians. There are a couple of gaps in the
evidence where the name of the dealer or of the Indian is missing
but I think this is attributable to the fact that in dealing with
over 300 transactions with many moving parts, it is not
surprising that occasionally a document may not be found. I am
entitled, in this case, to draw an inference from the overall
pattern and the conclusion which I draw is that the dealers
entered into an agreement of purchase and sale of the vehicle
with the individual Indian or the Indians' corporation and were
paid by bank draft or cheque out of the bank account of the
various persons mentioned above into which Orly paid the price
shown on the invoice to Orly. No GST was paid on the transactions
between the dealers and the Indians or their corporations on the
basis that the sales were exempt. There is no evidence of any
document transferring title from the Indians or the aboriginal
corporations to the persons shown as vendors on the invoices to
Orly.
[25] One thing is clear. The Indians or
their corporations did not pay for the vehicles out of their own
funds. They had possession of the vehicles, if at all, for only a
brief moment. There seems to be some question whether some of the
vehicles were delivered to the reservation or whether the
exemption under the Indian Actwas properly claimed.
This is not a matter that I need consider. Whether the Indians
ought to have paid GST is not germane to the issue here, which is
whether Orly paid GST.
2844-7167 Québec Inc. ("2844")
[26] 2844 is shown as the vendor to Orly of
88 vehicles. The pattern is much the same as in the case of
M & M. In one case the cheque was issued to 3095, in one case
to Lasalle Jeep Eagle. In 57 cases the cheque was to P.G., in 13
cases to Tomken, in 10 cases to Bergeron and in 3 cases to
Desmeules Dodge. It appears about 59 were exported. The stock
sheets show the vendor to have been P.G. in 58 cases, 2844 in two
cases, Lasalle Jeep Eagle in one case, Tomken in 14 cases,
Bergeron in eight cases and CMM in one and Desmeules Dodge in
three. If this does not add up to 88 it may be because there are
gaps in the documentation or it may be because my arithmetic is
faulty. As in the case of M & M, the SAAQ records bear little
relationship to any of the other documents.
[27] Again, the pattern is that franchised
dealers would execute agreements of purchase and sale with
Indians or aboriginal corporations. They would be paid out of the
bank accounts that were in the names of the persons to whom Orly
made the cheques payable. There is no evidence of any documents
transferring title to the vendors shown on the invoices to
Orly.
[28] I should have thought that where title
to a piece of property such as an automobile is transferred it
would be a relatively simple matter to trace the chain of title.
In this case it should look somewhat like this:
Manufacturer (GM or Chrysler)
↓
Licensed dealer
↓
Indian purchaser
↓
Vendor shown on invoice
↓
Orly
↓
Domestic or foreign purchaser
J.L. Auto Exchange ("J.L.")
[29] J.L. is shown on 19 invoices to Orly.
In every case the cheque was payable to J.L. J.L. does not appear
in any of the SAAQ records. Frequently it is
Huntley Crawford or Gérard Ouellette and once
9039-7662 Québec Inc. In all cases the evidence
shows that the vehicles originated with a licensed dealer and in
all but three cases that the dealer entered into an agreement of
purchase and sale with an Indian. This in my view is attributable
to a lack of documentation and not a difference in the pattern.
Only two vehicles appear to have been exported.
R.A. Succès Automobile
("Succès")
[30] Succès appears on 17 invoices to
Orly. All of the cheques were payable to Succès except
one, which was payable to Duchesne. The SAAQ records make no
mention of Succès. The owners are shown as
Huntley Crawford in 14 cases. Gérard Ouellette
in two and Ventes d'Auto Giordano Inc. in one.
Subject to the fact that there are a few gaps in the
documentation, the pattern repeats itself of an agreement of
purchase and sale from a licensed dealer to an Indian or an
aboriginal corporation.
[31] The evidence seems to disclose only
four exports from this group.
Benny Automobiles ("Benny")
[32] Benny appears as the vendor to Orly on
only two invoices and the cheques were both issued to Benny. One
vehicle was exported. Two licensed dealers were involved but the
documentation discloses only one contract with an Indian.
Gilles G. Caron Auto Service Ltée ("Caron")
[33] Caron is shown as the vendor to Orly on
40 invoices. The cheques were all issued to Caron. Various
vendors are shown in the SAAQ records, but never Caron. In one
case the individual, Gilles Caron, the owner of Caron, is
shown. The most frequent name is Huntley Crawford, about
whose testimony I will have more to say later.
[34] The same pattern as in the other cases
appears - an agreement of purchase and sale between a licensed
dealer and an Indian or an aboriginal corporation. In five cases,
the Indian with whom the dealer signed the contract is the
individual, Gilles Caron. The available documentation
appears to show that 11 of the 40 vehicles with which Caron was
involved were exported.
Réal Provost Outaouais Motors Inc.
("Provost")
[35] Provost appears as vendor on five
invoices to Orly. The cheques were all issued to Provost. Provost
appears on none of the SAAQ records. Huntley Crawford is
shown as the vendor of two and Ventes d'Auto Giordano Inc. on two
others. The documentary evidence indicates that one or possibly
two vehicles were exported.
Autos 5ième Ère
Inc. ("5ième")
[36] 5ième appears as the
vendor on 34 invoices of vehicles to Orly. No cheques were issued
to 5ième. Eight were issued to Bergeron, 15 to
3095, one to Lasalle Jeep Eagle and eight to Tomken. Two cheques
are missing. The vendors, according to the stock sheets, are in
most cases the same as the persons to whom the cheques were
issued.
[37] As in other cases the SAAQ records bear
no relationship to the invoices, the stock sheets or the cheques.
In some cases the vendors are shown as licensed dealers, in
others as 2844. Again, we have the same pattern of contracts
between franchised dealers and Indians. The documents indicate
that 26 of the 34 vehicles were exported.
Automobiles Cartier ("Cartier")
[38] Cartier is shown on the invoices as the
vendor to Orly of 11 vehicles. The cheques were issued either to
Cartier or CC. The same pattern emerges as in other cases with
respect to the contract between licensed dealers and Indians or
aboriginal corporations. Some vehicles appear to have been
exported.
Garage Normand Duchesne ("Duchesne")
[39] Duchesne appears on the invoices as the
vendor to Orly of six vehicles. The ubiquitous
Huntley Crawford appears as the supplier of four vehicles in
the SAAQ records. The cheques were all issued to Duchesne. The
pattern here is consistent with that in other cases, with a
contract between franchised dealers and Indians or their
corporations. The evidence does not indicate that any of this
group of vehicles was exported.
[40] Finally I come to a group of six
vehicles, set out in madame Turcotte's table which is
Exhibit I-437, where there are no suppliers identified
because there were no invoices. The evidence on these vehicles is
unsatisfactory and of course the SAAQ records cannot be relied
on. Two of the vehicles were exported. The only evidence that is
reasonably clear is that ITCs were claimed in respect of these
vehicles and ultimately denied and reclaimed by the respondent.
In respect of one vehicle bearing stock number 6-388 the
respondent concedes that GST was paid.
[41] In some cases, the stock sheets show as
the vendor the company into whose account the payment is made
such as 3095 or P.G., not the company whose name appears as
vendor on the invoice.
[42] Mr. Doherty stated that he did not
know most of the individuals or companies appearing in the
documents as vendors, but that perhaps one of his other employees
such as Shawn McGovern or Bob Robichaud would know
them. Bob Robichaud did not testify. It seems he was nowhere
to be found. "Rob" appears frequently in both the oral and
documentary evidence, particularly in connection with the
transactions with Indians.
[43] It is, I think, a fair conclusion on
all of the evidence that "Rob" is Robert Robichaud, the
employee of Orly and that he was very much involved in the part
of the overall transactions that had to do with the sales of the
vehicles in question here to Indians and from this I conclude
that so was Orly.
[44] The other employee,
Shawn McGovern, testified that he dealt with the various
persons shown as vendors. He said that the person with whom he
dealt at 5ième was Marcel Gaudreault. He
said he did not know Daniel Foster.
[45] He said he dealt with
Daniel Paquette and Claude Bergeron at 2844. At M & M
he says he dealt with someone called Alex and also
Claude Bergeron. At Duchesne he says he dealt with
Normand Duchesne. At Caron he dealt with Gilles Caron.
At J.L. he dealt with John Lemoyre, who died in 1996, and at
Provost it was Serge Létang. He did not recall who he
dealt with at Benny, Succès or Cartier. He did not know
any of the third parties to whom payments were made. He said he
thought they were financing the vendors. Mr. McGovern
testified with respect to a number of the invoices it was his
handwriting on them. This is contrary to Mr. Doherty's
testimony that the invoices were vendor generated and that they
would come in completed form to Orly. He also stated that he was
unable to recognize many signatures on the invoices of persons
said to be representing the vendors.
[46] Before I move on to the evidence of the
witnesses called by the respondent I should observe that quite
apart from any evidence from the respondent's witnesses that
contradicted that of Mr. Doherty or Mr. McGovern, I did
not find the evidence of these two appellants' witnesses
particularly persuasive. I had the distinct impression that they
were holding something back and were giving me the bare minimum
that they considered necessary. For example, the transactions
involving over 300 vehicles had a value in the millions of
dollars. Yet they remained inexplicably ignorant of anything
about the vendors to whom they were paying vast sums of money.
They did not appear to care where the cars came from or where the
money went. I find this, to say the least, implausible. It is
explicable only on the hypothesis that Orly knew what was going
on at every step of the way and was in control from the moment
the vehicle left the car dealer to the point at which it was
sold, whether abroad or domestically.
[47] I note, for example, that neither
Mr. McGovern nor Mr. Doherty mentioned in their
evidence the role that the sales to the Indians played. The
Indians were never mentioned. I should have thought that given
the serious nature of the allegations in the Reply to the Notice
of Appeal and in the other material disclosed by the respondent
to the appellant, they would have gone to great lengths to find
the representatives of the companies involved and have them
testify to establish the authenticity of the impugned
transactions. Mr. Doherty said that he did not try because
he was not concerned. I am inclined to draw a less favourable
inference and that is that the appellant knew that if it had
called the persons who, in the result, the respondent called,
they would not have supported its case.
[48] I turn now to the evidence of the
respondent's witnesses.
Daniel Foster
[49] Daniel Foster's name appears on a
number of invoices of 5ième and on two of 2844.
He denies that on any of the invoices it is his signature. He was
the owner of 5ième but he testified that it
sold only used cars and that it carried on no business after the
suspension of its licence on June 14, 1995. He stated that
5ième had carried on business selling used cars
between 1988 and 1993. He said that he knew nothing of the
transaction whereby 5ième was shown as selling
to Orly. He denied that the signature Daniel Foster on the
invoices from 2844 to Orly were his. He testified that he did not
know James Doherty, Shawn McGovern or
Bob Robichaud or Ron Snyder. The first time he heard of
Orly was when Revenue Québec contacted him.
Marcel Gaudreault
[50] Mr. McGovern said that he dealt
with Marcel Gaudreault at 5ième.
Mr. Gaudreault says he worked for 5ième
for a few weeks or months. His main function seems to have been
to "exchange cheques". He became involved with
Daniel Paquette in P.G. They opened a bank account in the
name of P.G. at the National Bank in Lachine, Québec. Both
had signing authority.
[51] He received $100.00 for each exchange
of cheques which involved depositing cheques and drawing cheques
for bank drafts. I find as a fact the cheques were from Orly (or
Crescent on Orly's behalf) and the bank drafts were to automobile
dealers to pay for cars allegedly sold to Indians. He had not
known Daniel Paquette before he approached him to open up
the bank account.
[52] The procedure was that a driver would
give Mr. Gaudreault a cheque at a meeting place near the
bank. He would deposit it and get a bank draft which he would
give to the driver. He did not recognize the name Orly or
Crescent. Any money that was left he would give back in the form
of cheques to the person who delivered the cheques. He knew
nothing about where the money came from or where it went. P.G.
had no function or business activity other than the exchange of
cheques. He said it never bought automobiles or sold automobiles
to Orly.
[53] His name appears also on the card of a
bank account of CMM. He denied any knowledge of this.
Specifically, he denied that it was his signature on the bank
account signature card. He denied any knowledge of the
transaction of CMM. The other signature on the card was
Jocelyn Bourcier, whom he said he did not know. When he
purchased bank drafts he bought them in the name of the person
given to him by the driver who brought the cheques to him and to
whom he gave the drafts.
[54] His memory with respect to the persons
to whom bank drafts were made payable was vague but he thought
there must have been payees containing names such as Jeep Eagle
or Chevrolet.
[55] He knew nothing about 2844 and he said
that he did not believe Orly ever loaned money to 2844.
[56] He did not know James Doherty,
Ron Snyder, Bob Robichaud or Serge Létang.
He admitted that he had met Shawn McGovern at the auto
auction at Saint-Eustache. He had no recollection of who asked
him to open up an account at the Royal Bank at
Pointe-Claire. He did not know the people who brought him
the cheques to exchange for bank drafts. There were several.
[57] He was not challenged in
cross-examination on his denial of sales to Orly or his
description of the manner in which he was involved in the
exchange of cheques.
[58] I asked him several questions for
clarification. He informed me that Mr. Paquette and he
performed the cheque exchange service and they were paid $100.00
for each transaction. He also stated that when he bought a bank
draft the difference between the cheques that he deposited from
Orly or Crescent and the draft payable to the dealer would be
given by way of a cheque to the person who brought him the cheque
from Orly or Crescent less his $100.00 fee.
Gabriel Bélanger
[59] Mr. Bélanger was the
incorporator of 2844. He was also the sole shareholder and
director. This company, it is alleged, sold about 85 automobiles
to Orly. Most of the cheques for the amounts on the Orly invoices
went to P.G. and some to Tomken or Bergeron. None went to
2844.
[60] Mr. Bélanger testified that
2844 sold only used cars. He denied any knowledge of the sales
shown on the invoices from 2844 to Orly. He stated that he did
not know Orly. Evidently he permitted a number of persons to work
under the bond of 2844, including Daniel Foster.
Mr. Foster, it will be recalled, denied his signature on any
of the invoices from 2844 to Orly. 2844 had no bank account and
he knew nothing of the companies into whose accounts amounts
shown on the invoices were paid such as Tomken, P.G. or
Bergeron.
[61] I did not find this witness' testimony
particularly satisfactory. He seemed to fear reprisals or
possible further criminal prosecution. Other people used the
company's name but he did not know James Doherty,
Shawn McGovern or Bob Robichaud.
[62] All I can take from the witness'
evidence is that he may have permitted other persons to use the
company's name but this is a far cry from supporting the position
that 2844 sold millions of dollars worth of vehicles to Orly. The
income tax and GST returns of the company show a relatively small
amount of commercial activity in the period when these numerous
sales were supposed to have been made by 2844 to Orly. Even if
one accepts that Gabriel Bélanger did give
Daniel Foster permission to use the company name of 2844,
this still leaves unanswered the question of establishing whether
2844 ever in fact sold 80 odd vehicles shown on the invoices to
Orly.
Huntley Raymond Crawford
[63] Mr. Crawford had carried on
business under the name of Succès, which sold used
automobiles. It carried on business from March 1995 to
November 1996. The only activity was the purchase and sale of a
few old vehicles and he stopped buying automobiles about five
months before November 1996 when the business closed.
[64] Mr. Crawford stated that it was
not his signature on the invoices from Succès to Orly of
the 17 automobiles and moreover it was not his company's stamp on
the invoices or on the endorsement on the cheques payable to
Succès. The cheques were deposited to the account of
Hogue. Mr. Crawford stated that he did not recognize this
company, Normand Duchesne or Orly. Moreover, he did not know
James Doherty, Shawn McGovern or Bob Robichaud.
Counsel for the appellant argued that Huntley Crawford was
not a credible witness and that he had made a deal with
Revenue Québec in exchange for his testimony. This
conclusion is not one that I am able to draw on the evidence. The
suggestion was put to him in cross-examination and he
denied it. I am not prepared to make an adverse finding of
credibility in respect of this witness.
Jocelyn Bourcier
[65] Mr. Bourcier was a production
manager in the field of entertainment. He was introduced to
Mr. Marcel Gaudreault who offered him a chance to make
some pocket money exchanging cheques. He subsequently learned
that this had to do with automobiles. He was told that he would
be paid $100.00 or $150.00 for each exchange of cheques. He was
with Mr. Gaudreault when he exchanged one cheque at the
National Bank in Lachine. He obtained a bank draft. The
difference between the cheque which was deposited after being
endorsed by Mr. Gaudreault or Mr. Bourcier and the bank
draft was taken in cash by Mr. Gaudreault. An account had
previously been opened by Mr. Gaudreault at the Royal Bank,
St-Jean and Hymus and Mr. Bourcier's signature appears
on the account card. The name of the account was CC. Cheques were
exchanged by Mr. Bourcier at this branch as well. The
procedure was fairly simple. Mr. Gaudreault told
Mr. Bourcier to go with a person - a certain Vito - to the
bank and exchange the cheques. Also, on Mr. Gaudreault's
direction, he registered a company, Les Camions Cartier.
[66] Mr. Bourcier stated that he never
went to the Royal Bank branch without Vito. He had never seen the
bank records before he was shown them at the trial. He went on a
number of occasions to the bank, in every case to exchange
cheques for bank drafts. The documents were always ready for him.
He had nothing to do but endorse the cheques and obtain a bank
draft.
[67] The bank drafts were in favour of car
dealers. Mr. Bourcier knew nothing about the automobiles or how
they were purchased but he was told by Vito that they were
shipped by containers.
[68] Vito himself remains a somewhat shadowy
character. His family name was not established although reference
was made to a Vito Cusano, a director of 3095, one of the
third parties to whom cheques were made payable when the vendor
was shown on the invoices to Orly as 2844 or
5ième. Vito Cusano is one of the persons
shown as authorized to sign on the account of 3095 but not on
that of CMM. It is probable that the Vito whom Mr. Bourcier
met was also the Vito Cusano involved with 3095 because in a
second declaration signed by Mr. Bourcier he stated that he
was accompanied by Vito Cusano to the Royal Bank.
[69] Mr. Bourcier's signature also
appears on the bank account of CC at the Lachine branch of the
National Bank, along with the signature of
Marcel Gaudreault. He admitted to having signed a few
cheques - ten at most - but that account (Exhibit I-211) shows
deposits of cheques and withdrawals in the millions of dollars.
He denied having signed that many cheques.
[70] Although at Mr. Gaudreault's
direction he registered CMM, he had never heard of M & M. He
did not know James Doherty, Shawn McGovern or
Bob Robichaud. He had heard of Orly only in a conversation
that he overheard between Vito and Mr. Gaudreault.
[71] In cross-examination he was shown
a declaration that he signed and gave to madame Turcotte in
which he denied any knowledge of CMM and Marcel Gaudreault.
His explanation of the contradiction in his oral testimony and
the declaration is that Mr. Gaudreault told him never to
mention it to anyone.
[72] This raises squarely a question of
credibility. This is not, however, unusual in this case in which
questions of credibility abound. The task before me is to
determine what evidence is most worthy of credence and from that
to extract what, on a balance of probabilities, is most likely to
be the truth, bearing in mind the somewhat complex rules relating
to onus of proof in tax cases. Some of the witnesses may be
telling the truth all of the time, some none of the time and some
part of the time. The problem is exacerbated by the fact that the
involvement of many of the witnesses was in activities that were,
if not downright dishonest, at least rather louche.
[73] On balance I think it more probable
that Mr. Bourcier was telling the truth when he was
testifying in Court than when he made the first declaration. In
the declaration he denied signatures that he admitted were his in
his oral testimony.
[74] On re-examination a further
declaration was put to Mr. Bourcier, which was signed over a
year after the first declaration. He said that document contained
the truth. It appeared to be consistent with his oral
testimony.
[75] In summary, and notwithstanding the
contradictions between his first declaration and his oral
testimony, his evidence establishes that he opened two bank
accounts, that he deposited cheques from Orly or Crescent into
those accounts and obtained bank drafts in favour of automobile
dealers.
David Fiset
[76] David Fiset was called as a
witness by the respondent. He has been a truck salesman for 27
years. In 1995 and 1996 he was employed as a salesman by
Lacie Chevrolet Motor Sales de Montréal Ltée
("Lacie").
[77] Lacie sold many trucks to Indians who
were referred to Mr. Fiset by other Indians or by Orly. He
knew the people at Orly - Doherty, Robichaud and Shawn
McGovern.
[78] The way it worked was that he would
receive a telephone call from one of the above representatives at
Orly - usually Shawn McGovern - asking about the
availability of a particular kind of truck. Lacie would fax to
Orly a complete description of the vehicle as well as the price.
An Indian would come in with his or her aboriginal status card
and driver's license and would sign a contract to buy the
vehicle.
[79] The truck would subsequently be picked
up by a tow truck and the cheque or bank draft delivered. In the
latter part of this period Lacie insisted on certified
cheques.
[80] In summary, the initial contact would
be with Orly and if an acceptable vehicle was available and the
price was suitable, an Indian would be sent in by Orly. A
contract would be signed by Orly and the Indian. The truck would
then be picked up and the cheque delivered. In many cases the
cheque would be delivered by Shawn [McGovern] or Bob [Robichaud]
or a representative of Orly before the truck was picked up.
[81] Mr. Fiset identified a substantial
number of contracts written up and signed by him between Lacie
and the Indians. Where the truck was picked up, either before or
at the time, a cheque or bank draft was delivered by a
representative of Orly (Ron, Shawn or Bob). The clear pattern
that emerges from this witness' evidence (which I accept) is that
someone from Orly (usually Shawn or Bob) would contact Lacie
about a particular kind of truck. The details and price of the
vehicle would be communicated to Orly and if they were acceptable
an Indian would come to the dealership, with his or her status
card, and sign the agreement which was prepared by
Mr. Fiset. Later a cheque or money order would be given to
Lacie in payment of the price. The cheque or money order would be
delivered either by someone from Orly or the tow truck driver and
the vehicle would be picked up. No GST was ever paid. The
Indians' involvement would be a fifteen minute meeting with
Mr. Fiset to sign the contract.
[82] Mr. Fiset knew that the vehicles
were to be exported. He had never heard of any of the numbered
companies or other entities whose names appeared on the invoices
to Orly or into whose bank accounts Orly's cheques went.
[83] In a couple of cases sales were
cancelled and the refund cheques were given to
Shawn McGovern.
[84] Counsel for the appellant did not
cross-examine Mr. Fiset and so I take it the appellant
accepts his testimony in its entirety. Mr. Fiset's testimony
confirms the conclusion that I have reached on the basis of the
other evidence, that the real purchaser of the vehicles was Orly,
not the Indians. The Indians' involvement was to enable Orly to
avoid the payment of GST.
Gilles Garon
[85] Mr. Caron is a status Indian. When
he was working on Mr. Serge Létang's boat he was
asked if he could "do some transactions". He was asked by
Mr. Létang to buy some vehicles because his position
as a status Indian resulted in no taxes being paid. He knew the
purchases were for Orly. In Montréal he met two people
from Orly - James Doherty and Shawn [he forgot the family name
but it was obviously Shawn McGovern]. His direct dealings
with the Orly representatives were limited. It was
Mr. Létang who was giving him directions. He was told
that he was to buy, in the name of the Indians, vehicles for
export. His role was to sign the purchase papers. On many
occasions he went to the dealers and signed the papers either in
his own name or in the name of Caron.
[86] The purchases were made, no taxes were
paid and Mr. Caron delivered the vehicles to Montréal
to the same street as the location of Orly or to a shopping
center where he left the papers and the keys on the seat of the
vehicle. He opened a bank account in the name of Caron, on which
he had sole signing authority.
[87] There were numerous transactions in the
bank account. He deposited cheques from Orly, then acquired
certified cheques payable to car dealers. He withdrew the
difference in cash, kept $500.00 per transaction, which he shared
with Mr. Létang, and gave the rest to
Bob Robichaud, whom he believed to be the courier for
Orly.
[88] If Mr. Caron picked up the vehicle
he kept the bank draft and gave it to the dealer. If someone else
picked it up he gave the draft to that person. Most of the
dealers from whom he picked up cars were in the Ottawa/Hull
area.
[89] On some of the invoices to Orly from
Caron he identified his signature on some and denied it on
others. There are about 40 invoices from Caron to Orly.
Mr. Gilles Caron admitted that he signed about 10. He
denied having signed the others. Those invoices which he admitted
to have signed were always filled out when they were presented to
him. He never signed any in blank and he never prepared any
invoices.
[90] Before he went to the dealer to sign
the contract of purchase he knew nothing about the vehicle - the
model, the price or the equipment. In those cases in which he did
admit to signing the invoices to Orly, in which the GST was
shown, he said that he was under pressure by
Mr. Létang. My impression of his testimony is that he
was told to sign and keep quiet and not ask any questions.
[91] Mr. Gilles Caron appears to
have performed different functions. In some cases as president of
his company, Caron, he would sign invoices to Orly, in others he
would sign contracts with dealers in his own name. He exchanged
cheques for money orders or certified cheques in favour of the
dealers in Caron's bank account and would either give them to Bob
Robichaud or would deliver the bank draft to the dealer, pick up
the vehicle and deliver it to Montréal. He also withdrew
the difference between the cheque deposited to Caron's bank
account and the bank draft or certified cheque and gave it to
Bob Robichaud or Mr. Létang, less his and
Mr. Létang's fee of $500.00.
[92] There is no exact correlation between
the invoices which he admits to having signed and the cheques to
Caron which he deposited to Caron's bank account. In other words,
it did not follow from the fact he did not sign the invoice that
he would not deposit the cheque to Caron's bank account. It
appears from his evidence that it was always Gilles Caron
who made all the deposits to and withdrawals from the bank
account.
[93] In order to demonstrate the sort of
detective work that was required here, I shall refer to just one
or two of the numerous transactions that were discussed with
Mr. Caron. Exhibit I-371 is an agreement of purchase
and sale between Gilles Caron and Gravel Chevrolet - Geo -
Oldsmobile Ltée of a 96 Chevy model CK 10706, serial
number 1CNEK13R7TJ404791. The price shown is $41,750.00. No GST
or PST was charged. The delivery date is shown as 29/07/96. A
receipt for the purchase price of $41,750.00 in favour of
Gilles Caron is in the file.
[94] On the same file there is an invoice
for a 96 Chev Tahoe with the same serial number dated
July 22, 1996. The vendor is shown as Succès and
the purchaser is Orly. The signature on the invoice is shown as
Huntley Crawford. The price shown is $39,500.00 plus GST, of
$2,765.00 plus PST, of $2,747.23 for a total of $47,012.23.
[95] The cheque in this amount is in favour
of Succès and was deposited to the bank account of Hogue.
Also, on July 29, 1996, Orly appears to have sold the
same vehicle to 3344202 Canada Inc. for export to Moscow for
$42,895.00 without GST.
[96] In other words, if the documents are to
be believed, it seems Mr. Gilles Caron was buying from
Gravel Chevrolet a Chevrolet Tahoe that had been sold by
Succès a week earlier to Orly and sold again by Orly for
export to Russia.
[97] I could seek to unravel more tangled
webs but it would serve no purpose. A number of other aboriginal
companies appear from time to time in
Mr. Gilles Caron's testimony such as
Pourvoirie Grand Renard Incorporée.
Mr. Caron's name appears on an invoice from Caron to Orly as
a signatory, but he denies it. It is dated
August 19, 1996 and the price is $38,700.00 plus GST
and PST for a total of $44,100.00. There is also a contract
between the dealer 417 Jeep Eagle and Pourvoirie
Grand Renard, a company on an Indian reserve, for the same
Grand Cherokee. The price is $40,363.00. The signature of
Gilles Caron is also on the contract, but Mr. Caron
denies it. The invoice to Orly from Caron is dated
August 19, 1996. The contract between
417 Jeep Eagle and Pourvoirie Grand Renard is
dated August 15, 1996 and the agreement between Orly
and the foreign purchaser to sell the same vehicle for $40,000.00
is dated August 15, 1996.
[98] Mr. Caron said that Pourvoirie
Grand Renard as well as Big Brown Beaver Trading Ltd.
were simply "noms d'emprunt". The expression
prête-nom is sometimes used as well in both French
and English. It denotes someone who allows his or her name to be
used but otherwise has no interest in the property - a mere
nominee.
[99] Similarly, in Exhibit I-336 there is a
contract dated July 15, 1996 between 417 Jeep
Eagle and Pourvoirie des Hiboux to sell it a Jeep Grand Cherokee
$40,897.00 (no GST). It is signed by Gilles Caron (he
admitted his signature) but said he knew nothing about Pourvoirie
des Hiboux. The receipts for the purchase price are made out to
Pourvoirie des Hiboux. There is also an invoice dated
July 16, 1996 from Caron to Orly for the same vehicle.
Mr. Caron admits his signature. The purchase price is
$38,700.00 and with GST and PST the total is $44,100.59.
[100] A certified cheque from Orly in this amount is
made out to Caron and was deposited in the bank account of Caron.
A sales contract dated July 16, 1996 shows the same
vehicle being sold to a purchaser in New Jersey.
[101] The pattern in this case was the same as in every
other case: an invoice to Orly from Caron; a deposit in Caron's
account; a bank draft to the dealer; a withdrawal of the
difference which would be given to Mr. Létang or
Bob Robichaud except for $500.00 which Caron would share
with Mr. Létang.
Claude Bergeron
[102] Mr. Bergeron opened a bank account in the
name of Gestion Bergeron. The original purpose was to carry
on a used car business but this did not materialize. The account
was simply used to exchange cheques, i.e. to deposit cheques and
obtain bank drafts. Cash withdrawals were made and the cash given
to "them". This witness was undergoing some type of treatment for
a medical condition and most of his testimony was to the effect
that he did not remember. He knew it was Orly that came to see
him, that he deposited cheques and obtained bank drafts but
beyond that his answers were a succession of "I don't remember; I
don't have any idea." In a general way he confirmed that the same
pattern occurred with Bergeron as with the other witnesses - a
deposit of cheques, and a withdrawal for bank drafts. This is
confirmed by madame Turcotte's evidence. Cheques were issued
to Bergeron where the vendor on the invoice is shown as
5ième, 2844 or M & M. There was a great deal
of activity in the Bergeron bank account and it is somewhat
surprising that Mr. Bergeron's memory was so defective. The
overall pattern that emerges is, however, reasonably clear.
Daniel Paquette
[103] Mr. Paquette opened an account with the
National Bank in Lachine, Québec, in the name of
P.G. Auto. He and Mr. Gaudreault were the two
authorized signatories.
[104] He testified that in 1995 the activity of
P.G. Auto was to exchange cheques. He deposited one cheque
in the account and issued another on the account. Someone would
give him a cheque to deposit and he would issue another one. He
seems to have suffered from the same selective amnesia as some of
the other witnesses. However, even if his memory was as bad as he
made out, what does emerge clearly is that he and
Marcel Gaudreault formed P.G. Auto for the sole purpose
of exchanging cheques. He was paid $100.00 for each transaction
(a deposit and a withdrawal).
[105] He did not know who issued the cheques or that it
was Orly or Crescent. He seems to have blindly deposited cheques
and signed other cheques without paying any attention to where
the cheques payable to P.G. Auto came from or where the
cheques he signed were going. He did admit however that if there
was any money left over after he drew the cheques, he took it out
of the account and gave it to the person who brought him the
cheques.
[106] He said P.G. Auto never bought or sold
anything. All it did was exchange cheques. Unsatisfactory as the
witness may have been he certainly confirmed that the same
pattern occurred with P.G. Auto as with the other bank
account holders.
Normand Duchesne
[107] Although Garage Normand Duchesne appears
on only six invoices of automobiles to Orly and the cheques were
all payable to Duchesne, Mr. Duchesne's evidence was
lengthy. The reason may be that Mr. Duchesne was a director
of a company Hogue, which was incorporated on June 19, 1992. The
other director was his mother, Cécile Hogue. The
cheques that were payable by Orly to Duchesne were deposited into
the bank account of Hogue. It does not appear that Duchesne had a
bank account in its own name at the time of the transactions in
which Orly was involved. In fact,
Garage Normand Duchesne Ltée, which had
been incorporated in 1977, was dissolved in 1984.
[108] This witness either suffered from or affected the
same amnesia as some of the other witnesses. Five of the six
transactions in which Duchesne was supposed to have sold vehicles
to Orly occurred in one week. The invoices were not signed by
him. He could not remember the circumstances in which Duchesne
acquired the vehicles which are shown on the invoices to Orly or
how he obtained the money to pay for them, nor could he remember
the negotiations of the sale to Orly or the price. When asked if
the vehicles shown on the invoices to Orly were the vehicles that
Duchesne sold to Orly, his reply was "I believe so. The invoices
are made in the name of Garage Normand Duchesne
.... They went through that company."
[ « Ça a passé par cette
compagnie-là » ].
[109] The invoices show amounts for GST and PST but
Mr. Duchesne could not remember if Duchesne was registered
for GST or PST purposes. It would be surprising if it were,
considering that it was dissolved in 1984.
[110] Mr. Duchesne's complete ignorance about the
Orly transactions leads me to believe that he knew nothing about
them. For example, a GMC Yukon with a serial number
19KEK13R9TJ707519 is shown as being sold by Duchesne to Orly on
an invoice dated July 29, 1996 for $39,000.00 plus GST
and PST for a total of $44,442.45. Mr. Duchesne denies that
it is his signature on the invoice. A cheque for $44,442.45 was
issued by Orly to Duchesne and deposited in the Hogue Royal Bank
account.
[111] In the same file is a sales contract dated
August 7, 1996 between Automobiles Goyette Inc. and
Gatineau Aventura Tourism Club Inc. to sell the same vehicle for
$40,400.00 ($40,100.00 plus a deposit of $300.00). On
August 8, 1996 a withdrawal of $40,106.50 is shown in
this account. The $6.50 is the bank's charge for a bank draft.
Mr. Duchesne denied all knowledge of this transaction.
[112] The same pattern is evident in all the
transactions: a cheque from Orly to Duchesne would be issued in
the amount of the invoice, it would be deposited and a bank draft
to the dealer would be purchased. Mr. Duchesne came up with some
imaginative and far-fetched explanations of some bank
drafts in favour of the dealer Jim Tubman Motors - that he was
lending money to Jim Tubman Motors or he was buying a
parcel of land from that company. Other cheques were issued in
favour of 417 Jeep Eagle, Meyers Chevrolet Oldsmobile.
Other cheques in favour of Giordano Auto Sales and
Succès were deposited into the Hogue account.
[113] Mr. Duchesne admitted that he "exchanged"
cheques issued to several companies, including cheques in favour
of Succès. While this witness' testimony was riddled with
implausibilities and inconsistencies, this much is crystal
clear:
(a)
Duchesne was not buying automobiles and reselling them to Orly,
notwithstanding the fact that Duchesne appeared on the invoices;
and
(b)
Mr. Duchesne was doing the same as the other witnesses -
using his (i.e. Hogue's) bank account to deposit cheques payable
to Duchesne and to other companies, such as Succès, and to
draw cheques or bank drafts to dealers.
[114] For his services in exchanging cheques,
Mr. Duchesne was paid $100.00 per cheque. He testified that
when there was a difference between the bank draft and the cheque
he would give the difference in cash to the person who brought
him the cheque. He did not keep it as a profit.
[115] Mr. Duchesne was asked whether in the cases
in which a vehicle was shown on a contract in which Duchesne was
the vendor it was the same as exchanging cheques for which he was
paid. He replied that it was different. He said it was a sale of
vehicles.
[116] I am setting out his answer verbatim, except that
I am reproducing it in the French language in which it was given
and then translating it into English. He was being cross-examined
on his exchanging of cheques:
Q. Étiez-vous
payé pour ça?
R. Oui.
Q. Combien?
R. Je
chargeais une commission.
Q. Combien?
R. 100 $
chaque chèque. C'est arrivé une couple de fois
200 $, là.
Q. Hum, hum.
R. Mais
généralement c'était 100 $.
Q. Quand on a vu les
factures puis les chèques au nom du
Garage Normand Duchesne, est-ce que c'était la
même chose?
R.
Même chose?
Q. C'était
changer le chèque . . .
R. Ce
n'était pas un changement de chèque, ça,
c'était une vente de véhicule. C'est ce que
j'imagine, là. Je ne me souviens pas, là, je ne me
souviens pas des contrats, mais si je me fie aux contrats
c'était une vente de véhicule.
Q. Hum, hum.
R. Un
véhicule que j'ai acheté puis que j'ai revendu.
Q. Mais vous dites
que vous ne les avez jamais vus ces
contrats-là?
R. Non, je ne
me souviens pas d'avoir vu ces contrats-là.
[MY TRANSLATION]
Q. Were you paid for
that?
A. Yes.
Q. How much?
A. I charged a
commission.
Q. How much?
A. $100 each cheque.
A couple of times it happened that it
was
$200.
Q. Mmhmm.
A. But generally it
was $100.
Q. When we see
invoices then cheques in the name of Garage
Normand Duchesne, was that the same thing?
A. Same thing?
Q. It was exchanging
the cheque . . .
A. It was not an
exchange of cheque, that, it was a sale of a vehicle. That's what
I imagine. I don't remember. I don't remember the contracts, but
if I rely on the contracts it was a sale of a vehicle.
Q. Mmhmm.
A. A vehicle which I
bought and then resold.
Q. But you say that
you never saw these contracts?
A. No I do not
remember having seen these contracts.
[117] His testimony that the invoices showing a sale
from Duchesne to Orly represented the sale of vehicles that
Duchesne had purchased is not tenable and I do not accept it, for
several reasons:
(1) He never saw the contracts and he
denies his signature on them.
(2) He took no part in negotiating the
price.
(3) He could not remember from whom the
vehicle was bought.
(4) In some cases the price on the
invoice was lower than the price charged by the dealer to the
aboriginal company.
(5) The idea that Jim Doherty would
permit him to keep a profit on these vehicles above the $100.00
he was paid is simply unbelievable.
(6) His statements that he sold vehicles
to Orly are so qualified by phrases such as "I imagine" or
"I can't remember" as to be virtually worthless.
[118] The invoices would indicate that in one week he
sold five or six vehicles to Orly for over $200,000.00. He says
he has no recollection of these sales. Yet his recollection of
the practice of exchanging cheques for $100.00 per cheque is
quite clear. The reason is that the business of exchanging
cheques for $100.00 is believable and conforms to the pattern of
activity described by the other witnesses and can therefore be
accepted as true. The same cannot be said for the allegation that
Duchesne was selling vehicles to Orly.
[119] In the case of cheques payable to Succès he
did not know who the person was who brought him the cheques, nor
did he know whether they were representatives of Succès or
who it was he gave the cash to.
[120] He identified a cheque for $5,000.00 to McGovern
Export Incorporée and another cheque for $5,000.00 to cash
which was endorsed by Shawn McGovern. He admitted that he
signed the cheques but he did not know what they were for.
[121] This witness' evidence was most unsatisfactory.
His testimony, however, contains sufficient facts that warrant
acceptance to permit one to safely conclude that he was
performing the same service for Orly as other witnesses, i.e.,
depositing cheques from Orly to companies such as Succès,
obtaining bank drafts payable to dealers and giving the
difference (less $100.00 per transaction) to the person who
brought him the cheque. On a preponderance of evidence I find
that that person was usually Shawn McGovern or
Bob Robichaud or some other representative of Orly.
[122] Before I summarize the evidence of the witness
Serge Létang I shall mention briefly the evidence of
madame Linda Turcotte, the investigator for Revenue
Québec who was the principal witness for the Respondent
and unquestionably the driving force behind the assessment. Her
examination and cross-examination were lengthy. She was, in
my view, a credible and impressive witness. Her knowledge of the
transactions and her organization of the files was formidable.
She conducted her investigation competently under difficult
conditions. I shall not endeavour to review her evidence in
detail. Adding another hundred pages to these reasons would serve
no useful purpose. Much of her evidence is summarized in a group
of schedules marked as exhibits I-41, I-42, I-43,
I-44, I-85, I-193, I-292, I-297, I-313, I-320, I-366,
I-398, I-405, I-437 and I-461. These schedules
summarize the information obtained with respect to each vehicle,
its make and model, its stock number and its price, as well as
the person shown on the invoice and other information.
Serge Létang
[123] Serge Létang is registered with the
North American Indian Nation which, he testified, is more
significant than being registered as a status Indian. It is not
necessary to go into the precise distinction for the purpose of
this case. He is also a member of the Long House which in the
North American Indian community confers on him an important
status. He stated that at present he works for the Department of
Indian and Northern Affairs. He went to a car auction with a
friend, Shane Pement, to buy a truck. He met some persons,
one of whom was called "Bob" who asked if he lived on the
reservation. He subsequently received a telephone call from
someone whom he believed to be connected with Orly. He was asked
if he wanted to buy some cars and was told that he would be paid
a couple of hundred dollars for each car he bought. All he had to
do was sign the contract. He signed contracts to buy a couple of
cars. One was with Crystal Plymouth Chrysler and one
was with Desmeules Dodge Chrysler. In the SAAQ records, these two
cars were registered in the name of Serge Létang and
then in the name of 2844.
[124] Mr. Létang has no knowledge of these
registrations or the transactions reflected in the invoices from
2844 to Orly. Indeed, he knew nothing about what happened to the
vehicles once he signed the contract at the dealership. He said
"The only thing we know, we signed the contract and we get out of
the place."
[125] He and Shane Pement both engaged in these
transactions whereby they signed contracts. He stated that he was
worried about the vehicles being registered in his name in case
of an accident. He was told that they would not be, but, as we
have seen, they were, although he did not know that at the time.
He was also worried that if the vehicle was not delivered to the
reservation he might end up having to pay tax. He was told not to
worry. He did not drive away with the vehicles. They were picked
up by a tow truck.
[126] It seems he and Shane Pement were involved in
contracts involving upward of 30 vehicles. Since some of the
Indians were on the black list of the automobile manufacturers,
Mr. Létang, who had also worked at the Department of
Corporate and Consumer Affairs assisted in incorporating a number
of corporations, such as Zadinongha Fishing Club or Gatineau
Aventura. A large number of these companies were incorporated
under the name of Mr. Pement with the assistance of
Mr. Létang. They were owned by the band and, rightly
or wrongly, the exemption from PST and GST was based upon that
ownership. He testified that sometimes "Bob" from Orly would come
and give Mr. Pement the money to cover the incorporation
fees.
[127] As Mr. Létang testified, it was a matter of
two minutes to sign the contract and receive the envelope
containing the two or three hundred dollars fee for doing so. He
knew that this could save thousands of dollars and that "they"
(presumably Orly) were using "us" (the Indians) "to buy cars to
save tax, it's as simple as that."
[128] He and Mr. Pement went to about 40
dealerships. Mr. Létang went to dealerships with a
number of other Indians who were to sign contracts. They would
receive a call and be told to go to a specific dealership and the
contract would be in the name of a specific person. Their
principal contact with Orly was with "Bob" who provided them with
the instructions where to go, and in whose name the contract was.
"Bob" also provided them with the fees of $200.00 to $300.00 for
each vehicle.
[129] Mr. Létang's testimony struck me as
credible. It had a ring of verismilitude to it and I accept it.
It was important in that it described the way in which the
exemption under the Indian Act was utilized to avoid the
payment of GST.
[130] I come then to a summary of my findings of fact
and conclusions of law. Essentially this case turns on the facts.
The propositions of law are relatively straightforward. They can
be summarized as follows:
(a) If you pay GST to a
registered dealer and the dealer does not remit it to the
government, the government cannot recover it from you. This is
the proposition for which Airport Auto Ltd., supra,
stands.
(b)
The proposition in Airport Auto Ltd. does not apply if you
are complicit in fraud or collusion.
(c)
If the GST is not paid or payable you are not entitled to an
ITC.
[131] The appellant's case is that the invoices for the
307 vehicles are authentic documents demonstrating genuine sales
to Orly by the persons shown as vendors on the invoices. It is
further the appellant's position that the payment into bank
accounts other than those of the persons shown as vendors was at
the request of the latter. Finally, it is the appellant's
position that the amounts shown on the invoices for GST or PST
were paid as such to the persons shown as vendors and Orly had no
obligation to ensure that the amounts shown as tax were paid to
the appropriate taxing authorities.
[132] The respondent's case is that the invoices were
false and that Orly was complicit in a scheme to claim GST that
was never paid. In support of this theory the respondent called
as witnesses a large number of persons who either denied selling
vehicles to Orly, or could not remember.
[133] The appellant contends that the evidence of
Mr. Doherty, Mr. McGovern and
Mr. Stephen Kisber, together with the invoices,
constitutes prima facie proof of the transactions and the
payment of tax. Counsel for the appellant pointed to a number of
flaws in the evidence of the respondent's witnesses and contended
that in light of the deficiencies in the respondent's evidence
the appellant's prima facie had not been
rebutted.
[134] Throughout these reasons I have referred, on a
number of occasions, to the unsatisfactory nature of the evidence
of some of the respondent's witnesses. On the other hand, the
evidence presented on behalf of the appellant was less than
compelling, with the result that the prima facie case that
the appellant says the respondent failed to rebut was itself
rather fragile.
[135] The fact that some aspects of a witness' testimony
are not satisfactory does not mean that the testimony is to be
rejected in its entirety. In a case such as this, where the
evidence is both complex and contradictory, the trier of fact
must endeavour to reach conclusions on the evidence as a whole.
This will involve, obviously, observation of the demeanour of the
witnesses and the plausibility or implausibility of the testimony
in light of other evidence. The witness, madame Turcotte,
spoke on a number of occasions of a "pattern". To base findings
of fact on a system or a pattern of behaviour - a general
modus operandi if you will - is something that must be
done with some care. First, there must be convincing evidence
that a pattern exists. Second, the Court must be cautious about
excessive use of the pattern simply as a means of filling in
lacunae in the evidence, although it may have a limited function
in this respect. Importantly the identification and articulation
of a pattern can be used as a touchstone against which to test
findings of fact. If they are consistent with a pattern they are
more likely to be veridical; conversely, one should be skeptical
of findings of fact that are inconsistent with an overall
pattern. I am, of course, not talking about similar fact evidence
in criminal law about which there is a great deal of
jurisprudence. The use of a pattern for the somewhat limited
purposes that I have indicated above as an aid, in civil cases,
to making or testing findings of fact is, I think, appropriate
provided one does not carry it too far. In civil cases courts
have used evidence of a system or scheme as probative of a
variety of matters, as discussed in Sopinka, Lederman &
Bryant, Evidence, Second Edition, pages 592-604.
[136] The conclusions of fact that I have reached - and
I have stated some of them throughout these reasons - are the
following:
(a)
The vendors shown on the invoices to Orly were not the true
vendors of the vehicles and the invoices did not represent
genuine transactions. There is simply too much evidence that the
signatures were not those of persons whose names appeared on the
invoices. Many of the persons who owned or represented companies
shown as vendors on the invoices denied selling vehicles to Orly
and stated that they did not know Jim Doherty,
Shawn McGovern or Bob Robichaud. The respondent did not
call representatives of all the persons shown as vendors but it
called enough that I would consider it dangerous to rely on the
authenticity of any of the invoices. Moreover, I consider it
significant that Orly did not call anyone from any of the
companies shown as vendors.
(b)
The GST shown on the invoices was, albeit a correct mathematical
calculation, not intended to be paid as GST. It was intended to
be paid into the bank accounts of persons shown as vendors or
other third parties.
(c)
The bank accounts were simply temporary repositories of the funds
shown as the purchase price plus tax. These funds were used to
pay dealers the price for vehicles shown on contracts between
Indians and the dealers. The rest was paid to Orly or
representatives of Orly such as Shawn McGovern or
Bob Robichaud, less the amount paid to the numerous persons
who made the bank accounts available and engaged in the business
at Orly's direction and for Orly's benefit of "exchanging
cheques."
(d)
The contracts between the dealers and the Indians did not
represent genuine transactions. They were simply an accommodation
to create the illusion of sales that were exempt from tax under
the Indian Act. The Indians never took possession of the
vehicles (except Gilles Caron who delivered some to Orly)
and did not pay for them. Orly paid for them through the bank
accounts into which the funds shown on the invoices as the
purchase price plus tax were deposited.
(e)
Orly remained in control of the vehicles from the moment they
left the dealership to the point at which they were exported or
sold domestically.
(f)
It was never intended that title to the vehicles would pass from
the dealers to the Indians whose names were shown on the dealer
contracts. The substance of the transactions was that the dealers
were selling to Orly without sales tax being paid.
[137] I base these conclusions upon a number of
considerations, some of which I have already mentioned throughout
these reasons and some of which are set out below:
(i)
Orly's professed complete lack of any interest in the persons to
whom it was ostensibly paying millions of dollars or the persons
into whose bank accounts it was paying the money goes beyond
strange. One might have thought that any car dealer who was
buying hundreds of vehicles from a variety of vendors would at
least be mildly curious about who the vendors were and where the
money was going. The only way in which the apparent lack of
curiosity can be rationally explained consistently with common
sense, logic and reality is that Orly through its employees or
officers, particularly Jim Doherty and Shawn McGovern,
knew precisely who these people were - they were simply
accommodation parties, some of whom knew how they were being used
and some of whom did not. I am not so ingenuous as to think that
Orly was oblivious to what was going on in this multi-million
dollar scheme - a scheme that was of Orly's own devising.
(ii)
The economic viability of at least some of the deals from Orly's
point of view depended on Orly keeping the GST and PST and then
claiming ITCs in respect of the GST.
(iii)
The payment to many of the individuals of a fee for exchanging
cheques - a process whereby a cheque would go into the ostensible
vendor's bank account or that of some third party, a bank draft
or certified cheque would be obtained payable to a dealer in the
amount shown on the contract between the dealer and an Indian and
the difference, less the fee, would be given in cash or by cheque
to the courier - is wholly inconsistent with a normal purchase
and sale of vehicles. Indeed, it is bizarre.
(iv)
There is absolutely no evidence of any transfer of title to the
vehicles from the Indians or the dealers to the various persons
shown on the invoices. I have not in this trial seen a single
contract of sale, invoice or any other document transferring
title to the vendors shown on the invoices to Orly. One would
have expected, if the invoices to Orly represented genuine sales
by authentic vendors, and given the allegations by the revenue
authorities that the invoices are false, that the appellant would
have endeavoured to trace the title into the hands of the alleged
vendors, who are sometimes called "secondary dealers." There is a
hiatus - or perhaps there are several hiatuses - between the
licensed dealers and the "secondary dealers." We have contracts
between the dealers and the Indians, which do not, in my view,
represent genuine legal relationships. The trail disappears there
and we pick it up again only when we find the secondary dealers
purporting to sell the same vehicles to Orly. The absence of any
of the indicia of normal commerciality is inconsistent with the
authenticity of the entire structure that the appellant seeks to
establish. Essentially the dealers were selling to Orly without
GST and the contracts with the Indians and the invoices from the
"secondary dealers" to Orly were mere window-dressing.
(v)
Even if the testimony of some of the respondent's witnesses was
somewhat weak, taken as a whole, the respondent's evidence is a
formidable obstacle to my accepting the evidence of
Mr. Doherty and Mr. McGovern. We have serious
allegations of falsification of documents, of signatures that are
not real, and of diversion of funds, ostensibly for GST, back to
Orly. Yet no attempt was made in reply to bolster the appellant's
claim that the transactions were authentic and that GST was
really being paid. I imply no criticism whatever of appellant's
counsel. Their presentation of the appellant's case was skilful
and professional in the extreme, but they simply did not have the
necessary ammunition.
[138] On the evidence I have concluded that the
appellant has not established that the transactions shown on the
invoices to Orly represent authentic sales or that the amounts
shown as GST on the invoices were genuine, or were paid as or
represented GST, or were intended to be paid as GST. Since I have
concluded that no GST was paid the appellant was not entitled to
the ITCs claimed and paid to it in respect of the 307 vehicles in
issue, except for a vehicle purchased from Ile-Perrot
Toyota bearing Orly's stock number 6-388.
[139] The conclusion that I have reached on the facts
makes it unnecessary that I deal with the argument that the
government is not going after the right people - the franchised
dealers, the Indians, or the persons shown as vendors on the
invoices. This case involves essentially factual questions and,
whatever factual conclusions may have been influential in other
cases, Orly was involved in a scheme to claim ITCs in respect of
GST that it did not pay and did not intend to pay. That is
sufficient to dispose of this case. The fact that there may be
many people up the line who ought to have paid tax does not alter
the fact that the appellant did not pay GST, did not intend to do
so, and is not entitled to the ITCs.
[140] The Notice of Appeal stated only that the GST was
paid. It does not raise as an alternative that GST was payable.
Section 169 of the E.T.A. requires that for ITCs to be
claimed the tax become payable in respect of a supply. The
appellant in its Notice of Appeal chose to put the case squarely
on the basis that it paid the GST. To have argued that even if I
find that the tax was not paid because the invoices were
subterfuges nonetheless it became payable constitutes implicitly
an admission that the very premise upon which the appellant's
case was based is faulty. Nonetheless the point was argued that
the tax became payable and therefore the appellant was entitled
to the ITCs claimed.
[141] This raises a number of questions. If the
contracts with the Indians and the invoices from the "secondary
dealers" did not constitute evidence of valid legal
relationships, when was the supply made and when did the tax
become payable?
[142] The appellant relied upon the decision of
Archambault J. in Ventes d'Auto Giordano Inc. v. R., 2001
G.S.T.C. 37 where he said:
. . . Whether we consider that GAS purchased its 19 vehicles
from CAM or whether, as is alleged by the Respondent, GAS
purchased those vehicles from the car dealers through the agency
of the natives, GST was "payable" with respect to all the
vehicles. GAS does not qualify for any exemption under the Act or
under the Indian Act and GST was payable with respect to
the supplies it acquired from whatever supplier. And that is all
that is required under subsection 169(1) of the Act. The fact
that GST may not have been paid is irrelevant.
[143] Counsel for the respondent quoted the commentary
by David Sherman on the above passage as follows:
The Crown's position was that there was no real purchase and
sale by the broker, but that the broker was acting as a "front"
or agent for Giordano. Thus, in the Crown's theory, Giordano was
never really charged GST. Unfortunately, the Court decided that
it did not have to determine whether this was the case.
Judge Archambault stated at para. 47 that even if the
natives were acting as Giordano's agents: "the invoices issued by
the car dealers would then become the invoices for [Giordano].
Those invoices provide sufficient information to determine the
ITC amount that could be claimed by [Giordano]." With respect,
this analysis cannot possibly be correct. If Giordano was really
using the invoices from the dealers to the Indians, then those
invoices did not show GST and did not meet the documentary
requirement in subpara.(3)(b)(iii) of the Regulations that the
amount of tax be shown!
[144] I have no difficulty with the proposition that one
is entitled to an ITC where GST is payable on a supply but has
not been paid where there is bona fide acceptance of the
liability to pay. Where I find the reasoning advanced by the
appellant problematic is where the taxpayer does not admit that
it did not pay the tax but nonetheless advances the argument that
at an unspecified point in time a supply was made to it and the
obligation to pay tax arose. I should have thought that where the
claim is based on the obligation to pay the taxpayer should
identify with clarity and specificity just who it was obtaining
the supply from, what the consideration was and what the tax
should be. That is essentially the purpose of
subsection 169(4) and the regulations under it. The
appellant has in my view made its bed and must accept the
consequences of lying in it. Accepting, as I do, that the
respondent had the onus of proof of establishing non-compliance
under subsection 169(4), I think is has met that onus.
[145] Where the taxpayer receives a taxable supply in a
bona fide transaction and GST becomes payable, the
amount that thereby becomes payable as GST will enter into the
computation of ITC in the formula A X B in
subsection 169(1) even though the actual payment is not made
at that time. Where, however, the transaction upon which the
claim for an ITC is asserted is a sham and the money purportedly
paid as GST is never intended to be treated or paid as GST but is
simply sent on a detour back to the claimant through a bank
account that is essentially controlled by the claimant, this in
my view prevents the claimant's basing a claim on the tax having
become payable.
[146] The computation of net tax under section 225
of the Act requires the application of a formula in which
GST collectible or collected is netted against ITCs determined
under subsection 169(1) to arrive at a positive or negative
amount which defines a person's entitlement to a payment or an
obligation to pay. In that calculation it is obvious that whether
an amount is payable or collectible (and not necessarily paid or
collected) is an essential ingredient if the system is to work
smoothly. It must of necessity be premised upon the existence of
genuine transactions. If the transactions upon which a claim is
based are fictitious and it is then sought, once the fiction is
discovered, to create a new theory of entitlement upon a
previously inarticulated hypothesis in which the original
hypothesis is simply expunged, this throws a spanner in the
orderly workings of the system and leads to a result which this
court should not, in my view, sanction.
[147] If a taxpayer bases its entire case for ITCs upon
a structure that is a sham, and that structure collapses, can the
taxpayer base a new claim on what it asserts is a new reality
that arises, Phoenix-like, from the ashes of its original case? I
should have preferred to say that as a matter of law it cannot,
on the basis of a principle that the original deception prevents
it from relying upon a new state of affairs that arises only once
its deception is uncovered. The principle is undoubtedly sound,
as a matter of fairness and common sense. I will however confine
myself to saying that the evidentiary obstacles to creating a new
theory that is diametrically opposed to the case that the
taxpayer has been steadfastly asserting to the bitter end after
the old basis collapses in ruins are virtually insurmountable.
They have not been surmounted here.
[148] So far as the tax of $69,287.55 on what the
respondent alleges were unreported sales is concerned, I do not
think the appellant put forward any evidence to rebut the
assumption on which this part of the assessment is based and
accordingly it must stand.
[149] Penalties were also imposed under sections 280 and
285. To challenge the penalties under section 280 requires that
the appellant demonstrate due diligence. This has not been
done.
[150] The onus is upon the respondent to support the
section 285 penalties. The onus is a civil one but it requires
somewhat more stringent level of proof. In Klotz v. The
Queen, 2004 DTC 2236, I quoted from the decision of this
Court in Urpesz v. The Queen, [2001] C.T.C. 2256 at
2559 to 2661
As it happens, the authorities on this branch of the law are
legion. One might start with the numerous pages under
subsection 163(2) of the Act in the CCH Canadian Tax
Reporter or the DeBoo Canada Tax Service. A recent case is
Farm Business Consultants Inc. v. The Queen,
96 DTC 6085, in which the Federal Court of Appeal
upheld a decision of this court (95 DTC 200). At
pages 205-6 this court said:
I am cognizant of the fact that
subparagraph 152(4)(a)(i) has as its purpose the
opening up of returns for statute-barred years where items of
income, for a wide variety of reasons, are omitted or misstated,
whereas subsection 163(2) is a penal provision and that in
applying it if there is doubt as to the type of conduct to which
the misrepresentation is attributable the benefit of that doubt
should be given to the taxpayer. In Udell v. M.N.R., 70
DTC 6019 Cattanach, J. said at page 6025:
There is no doubt that section 56(2) is a penal
section. In construing a penal section there is the unimpeachable
authority of Lord Esher in Tuck & Sons v. Priester,
(1887) 19 Q.B.D. 629, to the effect that if the words of a penal
section are capable of an interpretation that would, and one that
would not, inflict the penalty, the latter must prevail. He said
at page 638:
We must be very careful in construing that section because it
imposes a penalty. If there is a reasonable interpretation which
will avoid the penalty in any particular case, we must adopt that
construction.
and at page 6026:
I take it to be a clear rule of construction that
in the imposition of a tax or a duty, and still more of a penalty
if there be any fair and reasonable doubt the statute is to be
construed so as to give the party sought to be charged the
benefit of the doubt.
See also Holley v.
M.N.R., 89 DTC 366 at 369; De Graaf v. The Queen, 85
DTC 5280.
A court must be extremely
cautious in sanctioning the imposition of penalties under
subsection 163(2). Conduct that warrants reopening a
statute-barred year does not automatically justify a penalty and
the routine imposition of penalties by the Minister is to be
discouraged. Conduct of the type contemplated in paragraph
152(4)(a)(i) may in some circumstances also be used as the
basis of a penalty under subsection 163(2), which involves the
penalizing of conduct that requires a higher degree of
reprehensibility. In such a case a court must, even in applying a
civil standard of proof, scrutinize the evidence with great care
and look for a higher degree of probability than would be
expected where allegations of a less serious nature are sought to
be established.3 Moreover, where a penalty is imposed
under subsection 163(2) although a civil standard of proof is
required, if a taxpayer's conduct is consistent with two
viable and reasonable hypotheses, one justifying the penalty and
one not, the benefit of the doubt must be given to the taxpayer
and the penalty must be deleted.4 I think that in this
case the required degree of probability has been established by
the respondent, and that no hypothesis that is inconsistent with
that advanced by the respondent is sustainable on the basis of
the evidence adduced.
_________________
3 Cf.
Continental Insurance Co. v. Dalton Cartage Co., [1982] 1
S.C.R. 164; 131 D.L.R. (3d) 599; 25 C.P.C. 72, per Laskin, C.J.C.
at 168-171; D.L.R. 562-564; C.P.C. 75-77; Bater v. Bater,
[1950] 2 All E.R. 458 at 459; Pallan et al. v. M.N.R., 90
DTC 1102 at 1106; W. Tatarchuk Estate v. M.N.R., [1993] 1
C.T.C. 2440 at 2443.
4 This is not
simply an extrapolation from the rule in Hodge's Case
(1838) 2 Lewin 227; 168 E.R. 1136, applicable in criminal matters
such, for example, as section 239 of the Income Tax Act
where proof beyond reasonable doubt is required. It is merely an
application of the principle that a penalty may be imposed only
where the evidence clearly warrants it. If the evidence is
consistent with both the state of mind justifying a penalty under
subsection 163(2) and the absence thereof - I hesitate to use the
words innocence or guilt in these circumstances - it would mean
that the Crown's onus had not been satisfied.
I have obtained great assistance in this matter from two
decisions of Strayer J. in Venne v. The Queen,
84 DTC 6247 and De Graaf v. The Queen,
85 DTC 5280. None of the cases I have mentioned were
referred to by counsel.
At page 6256 in the Venne decision Strayer J.
said:
With respect to the
possibility of gross negligence, I have with some difficulty come
to the conclusion that this has not been established either.
"Gross negligence" must be taken to involve greater
neglect than simply a failure to use reasonable care. It must
involve a high degree of negligence tantamount to intentional
acting, an indifference as to whether the law is complied with or
not. I do not find that high degree of negligence in connection
with the misstatements of business income. To be sure, the
plaintiff did not exercise the care of a reasonable man and, as I
have noted earlier, should have at least reviewed his tax returns
before signing them. A reasonable man in doing so, having regard
to other information available to him, would have been led to
believe that something was amiss and would have pursued the
matter further with his bookkeeper.
[151] This is, I think, an appropriate case for
penalties in respect of the claim for ITCs. Orly, in my view,
through Jim Doherty, knowingly claimed ITCs to which it was
not entitled.
[152] It appears that no penalty was imposed in respect
of the $69,287.55 of unreported GST.
[153] The appeal is allowed and the assessment is
referred back to the Minister of National Revenue for
reassessment and reconsideration to give effect to the
respondent's concession with respect to the vehicle bearing
Orly's stock number-6-388 and to reduce the
disallowance of ITCs of $41,889.05 referred to in
paragraph 3 of these reasons to $39,159.05 and to adjust the
penalties accordingly.
[154] The respondent is entitled to her costs.
Signed at Ottawa, Canada, this 22nd day of April
2004.
Bowman, A.C.J.
Email this Content