Date: 20010326
Docket: 1999-491-GST-G
BETWEEN:
GESTION CHEERS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
McArthur J.
[1]
This is an appeal from an assessment of goods and services tax
made under the Excise Tax Act for the period June 1, 1991
to January 31, 1995. The issue is whether the Appellant is liable
for the amount of $53,519 net tax of goods and services being 7%
of $770,565 allegedly unreported sales. During the relevant
period, the Appellant operated a bar in Montréal near the
Montréal forum.
[2]
The Minister of National Revenue found that a large part of the
amounts deducted for spillage, events and promotion by the
Appellant constituted unreported sales for which GST was
collected or should have been collected and not remitted. The
Minister also claims interest and penalties. Suspicions were
aroused after an audit because the Minister used a rule of thumb
to the effect that the average amount for spillage, events and
promotions in similar establishments is about 10% of the total
sales. The Appellant is claiming over 30% of the gross sales.
[3]
The Appellant submits that the Minister's 10% is purely
arbitrary. It agrees that it had an unusually high percentage of
promotional activities due to the economic slowdown or recession
in the first half of the 1990s. An all out promotional effort was
made to increase sales.
[4]
The owner of Gestion Cheers Inc., William Wolfstein, was the only
witness on behalf of the Appellant. Over the years, he has
operated nine similar bars and is an expert in his field. He
described the bar as being very large with a 550 seating capacity
and 50 employees. Because of its size he demanded stringent
controls over the alcohol served. Documentation was kept to be
prepared for an eventual audit and every ounce of alcohol was
accounted for to prevent theft.
[5]
He explained and demonstrated the anti-theft device used called
the "Burg System". An outside company sealed each
liquor bottle with a special heat gun. Every drop poured is
accounted for whether or not money was collected. The
Appellant's financial statements were based on the liquor
poured through the "Burg", a small box-like machine. No
liquor could be poured unless it went through the Burg which
accounted each drink as a sale for the financial statements
whether or not money was collected. The Appellant's financial
statement sales figures reflected the value of drinks that were
never paid for (about $4.00 per drink). This could include free
drinks served during happy hours, ladies' nights, hockey
players, spilled drinks or those returned because they were
incorrectly prepared. There were times of the day that all drinks
were $1.00 yet the financial statements reflected them as the
full price.
[6]
The actual sales figures were arrived at by deducting the
compilation of the spillage and promotion amount (kept in a
promotion book) from the original financial statement sales
figures. Mr. Wolfstein stated that he modified the 1995
accounting system because of the Minister's position in this
appeal. The 1995 financial statements did not account for
promotional expenses while retaining a controlled accounting for
the spillage and gratuities.
[7]
In his lengthy examination-in-chief, Mr. Wolfstein stated that
any drink prepared but not sold was reported on a chit signed by
the manager with his justification or it had to be paid for by
the bartender. A bundle of chits were submitted in evidence as an
example. These chit amounts were then reported in the promotion
book. He explained that spillage, broken glasses and returned
drinks were inevitable in a large bar. To promote the bar, he
invited hockey players and others celebrities who drank without
charge. A price list was entered in evidence reflecting
two-for-one nights and dollar-nights on specific days and
times.
[8]
The Minister's auditor testified that there was no
substantial discrepancy between the cash register receipts and
the bank records. The Appellant was assessed solely on the basis
that reported spillage and gratuity amounts were excessive. The
auditor noted that the promotion ledger book entered during the
hearing was not available during the audit when another ledger
book was presented for the audit using supporting chits because
the original had been lost but found prior to trial. But for
minor discrepancies, the entries in both books were the same.
Analysis
[9]
The question before me is one of fact. Do I accept the evidence
of Mr. Wolfstein or not? The onus of proof is on the
Appellant as in income tax appeals.[1] The Appellant has the initial onus to
refute the Minister's assumptions with at least a prima
facie case which would shift the onus on the Minister to
prove the assumptions on a balance of probabilities.
[10] While
there are several weaknesses in the Appellant's presentation,
I find it has made a prima facie case. The Appellant's
case was well presented and Mr. Wolfstein was very
knowledgeable. For the most part, his evidence was
uncontradicted. On the negative side, there was no corroboration
of the Appellant's testimony. Apparently, the bookkeeper who
made the ledger entries now lives in Alberta. I was unable to
reconcile all of the chits and tickets submitted with entries in
the promotional book. There were notable discrepancies. Neither
party has dealt with these discrepancies and I have given them
very little weight.
[11] For the
most part, the Appellant's books and records supported the
oral evidence. The sales books reflected the Appellant's
income and there was no conflicting evidence but for the
Minister's suspicions. The promotional books were submitted.
The made-up book and the book that had been lost were similar. I
do not accept that one or both of these books were
fictitious.
[12] The
Appellant satisfied its burden of disproving the Minister's
assumptions or shifting the onus of proving the assumptions to
the Minister. The Minister has been unable to do that. Granted
the Minister has cast doubt on the Appellant's submissions.
The Minister refers to a 10% guideline. The Appellant replied to
that with the evidence of serious promotional efforts. In
paragraph 20(h) of the Reply to the Notice of Appeal, the
Minister stated:
(Translation)
20(h) in the
Respondent's view, therefore, the disallowed promotions
and/or gratuities totalling $770,564 were excessive and
unjustified and constituted unreported sales on which tax had to
be remitted.
[13] The
Appellant's justification of these promotional claims was not
rebutted by the Minister when the onus shifted to him. To be
successful, the Minister had to establish that the Appellant
operated a scheme to falsify the chits and books of records. The
Minister's auditor did not speak to any employees or managers
with respect to the chits. The existing banking document and
promotional ledgers were basically accurate. It would have taken
co-ordinated planning and scheming on the part of Mr. Wolfstein
and his employees to arrive at the Minister's conclusions.
The evidence did not support this.
[14] The
appeal is allowed, with costs, and the assessment is referred
back to the Minister for reconsideration and reassessment in
accordance with these reasons.
Signed at Ottawa, Canada, this 26th day of March, 2001.
"C.H. McArthur"
J.T.C.C.
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