Date: 19990408
Docket: 97-2914(GST)I
BETWEEN:
E.R. DESIGN IDEAS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] This is an appeal, by way of the
informal procedure, concerning the amount of input tax credits
the Appellant is entitled to under section 169 of the
Excise Tax Act (the "Act").
[2] The net tax reassessed was
calculated as follows:
tax
collected/collectible
54,741.63
input tax
credits
(39,315.47)
net tax
assessed
15,426.16
[3] The Minister of National Revenue
(the "Minister") made the assumptions of fact
described at paragraph 12 of the Reply to the Notice of
Appeal (the "Reply"), and among others:
(b) during the
relevant period [January 1, 1991, December 15, 1991]
the Appellant provided interior design services and supplied
wicker furniture that it manufactured and some carpeting and
accessories;
(c) the Appellant
carried on business under the trade name of Loft Interiors;
...
(e) the Appellant
registered for the purposes of the Act effective
January 1, 1991, and was assigned GST registration
number 120220132;
(f) the
Appellant was required to file its returns on a quarterly basis,
with a year end of December 31st;
(g) at all material
times the Appellant did not file any returns for the reporting
periods ending during the relevant period;
(h) any input tax
credits which the Appellant claims it is entitled to were not
claimed on a return for a reporting period ending during the
relevant period;
(i) during the
relevant period the consideration paid or payable by the
Appellant for the supplies of taxable property and services it
acquired was no more than $559,053.53;
(j) the
Appellant was entitled to input tax credits of no more than
$39,315.47 for the relevant period;
(k) the
Appellant's suppliers correctly verified that during the
relevant period no more than $39,315.47 was paid or payable as
tax for the supplies of property and services they made to the
Appellant;
(l) the
Appellant has no documentation, which includes the prescribed
information required by sections 2 and 3 of the Input Tax
Credit Information Regulations, to support that it is
entitled to input tax credits in excess of $39,315.47 for the
relevant period;
...
(n) at all material
times at least 5 of the individuals and corporations that the
Appellant alleges it acquired supplies of property and services
from during the relevant period were not registered for the
purposes of the Act and were not required to collect tax
from the recipients of their supplies;
...
(p) the Appellant
failed to provide any books and records to the Minister; and
(q) the Appellant
failed to maintain adequate books and records to enable a
determination of the Appellant's liabilities, obligations or
entitlements under Part IX of the Act.
[4] Mr. Philip Rosen
testified on behalf of the Appellant.
Mr. Wayne Ichiiwa, an appeals officer for the Minister,
testified for the Respondent.
[5] At the outset of the hearing,
counsel for the Respondent told the Court that, respecting
paragraph 12(j) of the Reply, the Respondent was agreeing to
increase the amount of input tax credit by $464.96, for a total
amount of input tax credits of $39,780.43.
[6] Mr. Rosen admitted
paragraphs 12(b), (c), (e), (f), (g) and (h) of the
Reply.
[7] Respecting the sales figures and
consequently the tax collected or collectible, Mr. Rosen
stated that there was no dispute. This confirmed what had been
stated in the Reply, that the dispute was on the amount of input
tax credits and therefore on the amount of purchases made by the
Appellant from January 1, 1991 to December 15,
1991.
[8] Respecting paragraph 12(i) of
the Reply, the Court asked Mr. Rosen what would be the
amount of supplies of taxable property and services that the
Appellant had acquired in the year 1991. Mr. Rosen,
surprisingly, told the Court, that he had not thought of the case
in this manner, but he would give an approximate amount of about
$800,000.
[9] Mr. Rosen produced as
Exhibit A-1 a summary of purchases of supplies that
should be added to the list made by the investigator.
[10] Mr. Rosen explained that the
Appellant's business stopped in the middle of December of
1991, when the landlord put the key into the business. In that
year, the Appellant mostly disposed of its inventory, selling it
at or below cost. The Court suggested to Mr. Rosen that since the
Appellant was only disposing of its inventory and selling at or
below costs, it might be assumed that the amount of purchases
would be very low. This suggestion received an evasive
answer.
[11] Mr. Ichiiwa, an appeals officer,
explained that in the beginning of 1992, on two occasions, an
agent for the Minister asked the Appellant to inspect his files.
They were refused access twice. They served requirement letters,
there were no answers, and on October 19, 1992, there was a
search and seizure made by the Special Investigations Unit. On
that occasion, the books and records were seized. Regarding the
purchases of supplies and services, the investigator listed all
of them and sent out copies of purchase invoices to suppliers for
confirmation. The Appellant had not made any income tax returns
and there were no financial statements.
[12] Mr. Rosen produced, as
Exhibit A-3, a letter written by the Chief, Special
Investigations, Mr. Charles Schau to
Mr. Peter Hog of the Department of Justice. It reads as
follows:
This is to clarify the position of Special Investigations
concerning the audit assessment related to the above case.
The latest assessment allowed the above ITC's of $39,000+.
This assessment will stand subject to information being bought to
my attention to show otherwise. Should David Myles agree not to
challenge our audit findings, we would be willing to go the extra
step and allow further ITC's based on bank statements from
National Trust. This would allow ITC's in the amount of
$41,000+.
As the later figure is known to be generous as it would
include personal expenditures of Phil Rosen, the adjustment
will not be considered without an agreement to the assessment not
being challenged.
[13] Mr. Rosen had produced this letter
because he thought that the amount of cancelled cheques should be
added to the amount of purchases determined from the invoices
issued by the suppliers.
[14] Mr. Ichiiwa produced as
Exhibit R-6 a letter from him to Mr. Rosen, dated
February 7, 1997. It says the following:
Your first representation appears to question how the sales
figure of $888,667.87 on which GST was assessed, was arrived
at.
A review of the assessment report indicates that the figure
was a compilation of sales figures that were obtained from two
sources. The main source was a working paper that you had
prepared. As there were no entries for the months of September
and December 1991 on that working paper, the investigator
obtained sales figures for those months by adding up all
available sales invoices issued in those months.
If there is anything further that you wish to object to with
respect to the sales on which GST was assessed, please identify
the specific issue(s) that you are objecting to and provide
documentary evidence to support your representation(s).
[15] As previously mentioned, the Appellant
later dropped that point of litigation.
[16] Respecting the input tax credits, the
letter from Mr. Ichiiwa to Mr. Rosen (Exhibit R-6)
stated the following:
The substance of your remaining representations is that there
are additional input tax credits (ITC's) that have not been
reflected in the assessment raised for the period January 1,
1991 to December 31, 1991.
...
Therefore, in order that we may further address your
representations, we request that you submit the documentary
evidence you have that supports your entitlement to the ITC's
that you contend were missed being accounted for by the
investigator for the above-noted period. ...
[17] The Appellant did not provide any
further documentary evidence.
[18] At the hearing, the Appellant's
representative brought a pile of invoices. They were reviewed by
the appeals officer, who commented at length on them. He told the
Court that, except for a few which are the object of the consent
expressed at the outset of the hearing, all of the invoices would
have to be reviewed to make sure that they were indeed paid to
the suppliers or that the suppliers were duly registered
suppliers, and that these invoices had not already been taken
into account by the investigator. Regarding the first invoice
mentioned in Exhibit A-1, the amount had been taken
into account by the investigator. Most of the suppliers mentioned
in the summary at Exhibit A-1 were also suppliers
mentioned in Exhibit R-1, which is made of purchase
invoices collected and listed by the investigator as mentioned in
paragraph 11 of these Reasons.
[19] Counsel for the Respondent had sent a
letter to the Appellant's representative, approximately three
weeks before the hearing, asking him to present to her before
hand all documentary evidence that needed to be reviewed by the
Minister's agents. The Appellant's representative did not
mention invoices nor did he provide photocopies of them.
[20] Mr. Rosen questions the fact that
the Minister has not taken into account the cancelled cheques and
argued that the said amount should be added to the amount of the
invoices.
[21] Counsel for the Respondent submitted
that it is the Appellant's responsability to provide the
prescribed information to the Minister. Nevertheless, Revenue
Canada has made every effort to audit the Appellant accurately.
The cancelled cheques mentioned by the Appellant are not in fact
cancelled cheques but bank statements. It was also the
Appellant's responsibility to bring forward satisfactory
evidence that the amount of supplies and services purchased was
more than the amount of $559,000, painstakingly determined by the
Minister's investigator.
[22] There is not much that can be added to
counsel for the Respondent's arguments. In the period in
question, the Appellant was winding down its operations and
selling at cost or below cost. The sales figure was $888,667,87.
It would not make sense that the purchase figure would be nearly
as high as the sales figure. The amount of bank statements cannot
be added to the purchase amount determined by the invoices. It is
one or the other. Sometimes a cancelled cheque or a bank
statement may be used as evidence when the invoice is lost, but
the audit has to make sure that this is the case and that the
amount is not computed twice. In my view, the audit has been
carefully made, and to a certain extent to the advantage of the
Appellant. If no better evidence was provided by the Appellant,
it can only be assumed from what I heard and saw at the hearing
that it was because it could not do so.
[23] The appeal is allowed to increase the
amount of input tax credits by the amount consented by the
Respondent, that is $464.94, for a total amount of input tax
credits of $39,780.43. In all other respect, the appeal is
dismissed.
Signed at Ottawa, Canada, this 8th day of April, 1999.
J.T.C.C.
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