Date:
20000503
Docket:
1999-2503-GST-I
BETWEEN:
GKO ENGINEERING (A
PARTNERSHIP),
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Reasons for
Judgment
Rowe,
D.J.T.C.C.
[1] The appellant (GKO
Engineering) appealed from assessment number 10111802 dated July
31, 1998 and from assessment number 833427 dated December 21,
1998, each of which were confirmed by respective Notices of
Decision dated February 4, 1999. The appellant applied for a
rebate in the sum of $23,114.78 by way of an Input Tax Credit
(ITC) adjustment on line 207 of its Goods and Services Tax (GST)
return for the reporting period from February 1 to February 28,
1998 on the basis that it had - in error - remitted said sum in
tax when the services provided had been zero-rated and not
actually subject to GST. In April, 1998 the appellant also
submitted GST Form 189E entitled "General Application for
Rebate of GST" in the name of GKO Engineering, on the basis
the sum of $23,114.78 had been collected - in error - on the
provision of services and should be the subject of a rebate
issued by the Minister of National Revenue (the
"Minister").
[2] The
Minister issued a Notice of Decision - dated February 4, 1999 -
in response to the objection filed by the appellant and confirmed
assessment number 10111802. The relevant portion of the said
decision is as follows:
"The substance
of your representation is that you are entitled to a rebate of
$23,114.78 in respect of the GST you charged in error on supplies
which were zero-rated. You contend that the provisions of section
261 of the Excise Tax Act (the "ETA") are
available to you as a means to recover the GST remitted in
error.
Subsection 301(3)
of the ETA requires the Minister on receipt of a Notice of
Objection to:
"...reconsider
the assessment and vacate or confirm the assessment or make a
reassessment."
The evidence is
that on March 31, 1998, you filed a GST return for the reporting
period from February 1 to February 28 of 1998. You claimed an
input tax credit (ITC) adjustment in this return under the
provisions of subsection 232(1) of the ETA. This adjustment was
denied and you were assessed accordingly. You also filed a rebate
application on April 15, 1998 seeking a refund of the amount
which you initially claimed as an adjustment in your GST return.
The assessment of your rebate was made under the Notice of
Assessment number 833427.
As the assessment
under objection does not cover your rebate application, your
representations regarding the rebate application cannot be
addressed as part of this decision pursuant to subsection 301(3)
of the ETA.
With respect to the
assessment made to your GST return, subsection 232(1) of the ETA
provides that within two years after the day an amount was
charged to, or collected as tax from another person by a
particular person, the particular person may adjust the amount
charged in excess of the tax collectible, or refund or credit the
excess amount where the excess amount was collected.
Subsection 232(3)
of the ETA requires a particular person who adjusts, refunds or
credits an amount of tax to another person in accordance with
subsection 232(1) of the ETA to issue a credit note within a
reasonable time, unless the other person issues a debit note,
containing prescribed information for the amount. Where the
particular person has already accounted for the tax originally
charged or collected in a GST return for a previous reporting
period, an amount equal to the tax adjustment can be deducted in
calculating the net tax of the particular person for the
reporting period in which the credit note is issued, or the debit
note is received.
Subsection 123(1)
of the ETA defines a person as:
"an
individual, a partnership, a corporation, the estate of a
deceased individual, a trust, or a body that is a society, union,
club, association, commission or other organization of any
kind."
The evidence is
that the tax, which you allege to have charged and remitted in
error, was charged by GKO Design Consultants Inc. and not by GKO
Engineering (A Partnership). GKO Design Consultants Inc. and GKO
Engineering (A Partnership) are separate persons pursuant to
subsection 123(1) of ETA. Accordingly, the requirements of
subsection 232(1) of the ETA are not met as you are not the
particular person who charged the amount as tax. In addition,
there is no evidence to indicate that GKO Engineering (A
Partnership) was acting as the trustee on behalf of GKO Design
Consultants Inc.
Furthermore, a
credit note as required under subsection 232(3) of the ETA was
never issued.
Under the
circumstances, your representations do not provide a basis upon
which to make a reassessment."
[3] On
the same day - February 4, 1999 - the Minister issued a decision
pertaining to assessment number 833427 which had been issued
following the appellant's application for a rebate. Following
an objection, the Minister confirmed the assessment, the relevant
portion of which is as follows:
"The substance
of your representation is that you are entitled to a rebate of
$23,114.78 in respect of the GST you charged in error on supplies
which were zero-rated. You contend that the provisions of section
261 of the Excise Tax Act (the "ETA") are
available to you as a means to recover the GST charged and
remitted in error.
Pursuant to
subsection 261(1) of the ETA, where a person pays an amount as or
on account of, or that was taken into account as tax, net tax,
penalty, or interest in circumstances where the amount was not
payable or remittable by the person, the person may claim a
rebate for the amount.
Subsection 123(1)
of the ETA defines a person as:
"an
individual, a partnership, a corporation, the estate of a
deceased individual, a trust, or a body that is a society, union,
club, association, commission or other organization of any
kind."
The evidence is
that GKO Design Consultants Inc. (GKO Design) made supplies for
$330,211.14 and charged GST of $23,114.78 on the supplies for a
total charge of $353,325.92. GKO Design received a total of
$298,323.03 leaving a balance receivable of $55,002.89. GKO
Engineering (A Partnership) (GKO Engineering) had previously
claimed an adjustment of $23,114.78, this being the GST charged
by GKO Design, to its net tax in the GST return for the reporting
period ending February 28, 1998.
Under subsection
123(1) of the ETA, GKO Design and GKO Engineering are separate
persons. There is no evidence to indicate that GKO Engineering
was acting as the trustee on behalf of GKO Design. Accordingly,
the only conclusion that can be made is that GKO Engineering
could never have remitted the $23,114.78 GST as part of its net
taxes.
Under subsection
261(2) of the ETA, a rebate cannot be paid to a person to the
extent that the amount was taken in account as tax or net tax for
a reporting period of the person, and the Minister has assessed
the person for the particular reporting period.
The evidence is
that GKO Design was audited and assessed for the period from May
1, 1992 to April 30, 1996. Subject to subsection 261(2) of
the ETA, a rebate cannot be paid for the amount remitted by GKO
Design as part of its net taxes for these particular reporting
periods.
By operation of
subsection 225(1) and 228(2) of the ETA, a person is required to
remit GST as part of its net tax for a particular reporting
period. Net tax includes all amounts collectible or collected as
tax or on account of tax by the person during the
period.
It is a fact that
GKO Design over a period of time had charged $23,114.78, and
collected part of the amount, as tax on the taxable supplies it
made. In the circumstances, GKO Design was required by subsection
225(1) and 228(2) of the ETA to remit the amounts charged as part
of its net tax remittance for the GST reporting periods in which
the amounts making up the $23,114.78 were charged. Therefore, the
remittances of net tax made by GKO Design do not come within
the ambit of tax or net tax paid in error under subsection 261(1)
of the ETA. Rather, the recipient of the supplies may be in a
position to apply for a rebate under this subsection.
Given the
foregoing, your representations do not provide a basis upon which
to make a reassessment."
[4] Don
Cimino testified he is a Chartered Accountant and, since
November, 1997, had been the Chief Financial Officer of the
appellant and is responsible for finance, accounting, treasury,
revenue and tax-related matters. He familiarized himself with the
details concerning the within appeal. Subsequent to joining the
appellant - an engineering consulting firm - that also provides
services to non-residents, he discovered certain invoices
which had been sent to a company called Man-Takraf Inc. (MTI) - a
corporate entity in the United States. The particular invoices
related to services provided by GKO Design Consultants Inc.
(GKO Design), an entity that - prior to November 1, 1997 -
had been the vehicle through which engineering services had been
provided to MTI and other clients. Upon examining the invoices
and noting that 7% GST had been charged to MTI on the amount of
services rendered, he proceeded to confirm the services billed
out on the invoice had been related to a project in Indonesia. As
a result, Cimino stated he took the position that any GST
charged, collected and remitted to the Minister relating to those
invoices issued to MTI had been the subject of an error because
the services were clearly zero-rated and not subject to any
imposition of GST pursuant to the Excise Tax Act
(the"Act"). In the process of examining past
records, Cimino also discovered a small invoice to a company in
Chile on which GST had been charged, collected and remitted in
error. Cimino filed - Exhibit A-1 - a rebate claim under section
261 of the Act using the form entitled, "General
Application for Rebate of GST". The application was filed in
the name of GKO Engineering and Cimino had attached a separate
page listing the description of the work done on a Copper Smelter
Project in Indonesia for MTI together with the invoice dates and
the amount of GST remitted in error on each invoice. He also
listed additional invoices in which GST had been charged in error
on services provided to companies located in Chile and Thailand.
The total of the GST charged on all of the invoices totalled
$23,114.78 and the period covered by the claim was from January
31, 1996 to October 31, 1997. Cimino added a note at the bottom
of that sheet stating MTI was a non-resident corporation in the
United States and the engineering services had been supplied to
MTI in respect of foreign projects and, accordingly, such
services were for use exclusively outside of Canada and the
supply was zero-rated. He went on to point out that the GST had
been calculated and remitted on the fees charged to MTI and to
the others listed on the sheet. Cimino stated that - in his view
- GKO Engineering was the trade name of GKO Design, the
corporation. On November 1, 1997, GKO Engineering was established
to carry on the business formerly undertaken by GKO Design.
Cimino referred to a Trade Name/Partnership Search - Exhibit A-2
- filed with Corporate Registration System of the Province of
Alberta in which GKO Engineering had registered as a
partnership carrying on the business of engineering design
consultants and listed 9 members of the partnership, of which GKO
Design was one. Prior to the formation of the partnership on
November 1, 1997, GKO Design had used GKO Engineering as a trade
name and had - obtaining a Certificate - Exhibit A-3 - dated
August 14, 1997 issued by the Registrar of Corporations for the
Province of Alberta certifying that GKO Design Consultants Inc.
carried on its trade or business in the City of Edmonton and
elsewhere in the Province of Alberta under the firm name and
style of "GKO Engineering", a division of GKO Design
Consultants Inc. and that the said business had been carried on
under the name of GKO Engineering since the 1st day of May, 1997.
At that time, no other person or persons were associated with GKO
Design in the business. Cimino referred to an invoice - part of
Exhibit A-4 - dated October 31, 1997 sent to MTI in Englewood,
Colorado. The engineering services had been provided to MTI
during the period January, 1996 to October, 1997. The total
amount invoiced was $183,068.00 of which Cimino stated MTI still
owed a balance of approximately $55,000.00. The invoice referred
to: GKO Job No. E348.
[5] In
cross-examination, Don Cimino agreed that on October 31, 1997 the
partnership, GKO Engineering, was not yet in existence. The
majority of the services provided to MTI were prior to the
formation of the partnership. In reviewing invoices, it became
apparent to Cimino that the work had been done in relation to
offshore projects and he made inquiries of senior executives at
GKO Design which permitted him to confirm the services had
been provided to an offshore entity. Cimino stated he is also the
Chief Financial Officer of GKO Design, the corporation which
is a member of the partnership, GKO Engineering. GKO
Engineering is a multi-disciplinary group serving
industrial-based clients. The particular work forming the subject
of the invoices at issue in the within appeal was performed in
Edmonton and the resultant designs, drawings and reports were
provided to the client, MTI. A bundle of invoices presented to
MTI and a summary thereof was filed as Exhibit R-1. The summary
contained a calculation of the GST charged and remitted in error.
There were two separate projects undertaken by MTI and most
invoices had been submitted to MTI on the letterhead of GKO
Design except for the one dated October 31, 1997 which was in the
name of GKO Engineering. Upon issuing invoices - including GST -
to MTI, the amount of the GST was remitted to Revenue Canada in
the course of filing the next return. GKO Design was entitled to
certain ITC's but these were very small in relation to the
amount of the GST charged. Cimino agreed GKO Design was not out
of pocket, per se, and confirmed no credit note had ever been
issued to MTI and no debit note had been received from MTI. He
stated MTI was not aware it had overpaid the invoices by reason
of GST having been included. GKO Design claimed the outstanding
amount of the MTI invoice - in the sum of $55,000.00 - as a bad
debt for GST purposes when filing later returns. The application
for rebate - Exhibit R-2 - had been filed in the name of GKO
Engineering as claimant pursuant to section 261 of the
Act. Cimino stated that in preparing the application he no
longer used the old GST number which had been previously assigned
to GKO Design since all activities were done in the name of the
partnership.
[6] Counsel for the appellant submitted the central issue of the
appeal was whether the appellant could obtain relief in respect
of money wrongly charged as GST and remitted to the Minister.
Counsel pointed out the services were zero-rated and GST should
not have been charged, collected and remitted by GKO Design and
it should be entitled to the return of said amounts. The decision
issued by the Minister pertaining to assessment number 10111802
referred to a GST return for the reporting period from February 1
to February 28, 1998 in which the appellant had claimed an ITC
under the provisions of subsection 232(1) of the Act. In said
decision, the Minister stated that "Subsection 232(3) of the
ETA (Excise Tax Act) requires a particular person
who adjusts, refunds or credits an amount of tax to another
person in accordance with subsection 232(1) of the ETA to
issue a credit note within a reasonable time, unless the other
person issues a debit note, containing prescribed information for
the amount" (emphasis mine). Counsel submitted that was
clearly wrong as section 261 of the Act referred to a
"payment made in error" and it was obvious the
provisions of section 232 were not mandatory in terms of issuing
a credit note or receiving a debit note in order to make an
adjustment for an error. In any event, MTI is statute-barred from
claiming a rebate because more than two years have passed since
April, 1996. Counsel for the appellant concedes the appellant
could have utilized the provisions of section 232 but chose not
to do so. Counsel advised that the first four amounts set out on
Exhibit A-1 should be deleted from any reassessment if the
appellant were to be successful in the within appeal because they
were included in an assessment period under section 296 of the
Act. As a result, the most the appellant could be allowed
by way of rebate would be the sum of $16,690.66. As for the issue
of the proper entity to apply for the rebate, counsel submitted
GKO Engineering had been a trade name of GKO Design. The
application had been made in the name of GKO Engineering and
while the Minister would not have initially had knowledge the
rebate was on behalf of GKO Design, any confusion had been
cleared up at the objection level when the full information had
been provided to the officials at Revenue Canada. Counsel
referred to the fact the Minister - in April, 1998 - did not
advise the appellant that the Minister considered the wrong
entity to have applied for the rebate and - instead - only raised
that issue in December, 1998 when an Appeals Officer advised -
during the course of meetings - that GKO Design could not then
apply for a rebate because it was out of time. Counsel also
referred to Exhibit R-1 which included invoices in the name of
GKO Design wherein the relevant GST number was included at the
bottom of each page. The certification by Don Cimino on the
application only required that it had been "correct and
complete to the best of my knowledge" and perfection was not
the applicable standard.
[7] Counsel for the respondent submitted the use of section 261
in the manner desired by the appellant would permit a windfall.
Although GKO Design collected GST when it was not applicable to
the provision of services, when it remitted the amount of GST to
Revenue Canada it was not - itself - out of pocket. The
application for rebate was made in the name of GKO Engineering
which - as a partnership - did not exist until November 1, 1997
and the registration of the partnership was not done until April
29, 1998. Counsel submitted there is no duty on the Minister to
discover errors in documentation submitted by persons remitting
tax in accordance with the Act.
[8] The
position of the Minister seems to be that any amounts of GST
collected must be remitted pursuant to the provisions of
subsection 225(1) of the Act and if some tax has been
collected in error then the only method of making the appropriate
adjustment is to utilize the provisions of section 232 by issuing
credit notes or receiving a debit note as set forth in subsection
232(3) of the Act. In the Notice of Decision dated
February 4, 1999 pertaining to assessment number 10111802,
Ms. Sui Li, on behalf of the Minister, stated that said
subsection "required" a person to issue a credit note
within a reasonable time unless the other person issued a debit
note. The difficulty with that statement is it does not conform
with the wording of subsection 232(1) of the Act which
reads in part as follows:
232.(1) Where a
particular person has charged to, or collected from, another
person an amount as or on account of tax under Division II in
excess of the tax under that Division that was, collectible by
the particular person from the other person, the particular
person may, within two years after the day the amount was
so charged or collected, (emphasis mine)
(b) where the excess amount was collected, refund or
credit the excess amount to that other person."
[9] Then, subsection 232(3) goes on to explain the method to be
utilized in issuing credit or debit notes in order to carry out
the adjustment, refund or credit required.
[10] In the
Notice of Decision - also dated February 4, 1999 - pertaining to
assessment number 833427 confirming the Minister's refusal to
allow the application for a rebate pursuant to subsection 261(1)
of the Act, the last paragraph of the decision
reads:
"It is a fact
that GKO Design over a period of time had charged $23,114.78, and
collected part of the amount, as tax on the taxable supplies it
made. In the circumstances, GKO Design was required by subsection
225(1) and 228(2) of the ETA to remit the amounts charged as part
of its net tax remittance for the GST reporting periods in which
the amounts making up the $23,114.78 were charged. Therefore, the
remittances of net tax made by GKO Design do not come within the
ambit of tax or net tax paid in error under subsection 261(1) of
the ETA. Rather, the recipient of the supplies may be in a
position to apply for a rebate under this
subsection."
[11] The
wording of subsections 261(1) and 261(3) is:
"261(1)
Rebate of payment made in error-
Where a person has paid an amount
(a) as or on account of, or
(b) that was taken into account as,
tax, net tax,
penalty, interest or other obligation under this Part in
circumstances where the amount was not payable or remittable by
the person, whether the amount was paid by mistake or otherwise,
the Minister shall, subject to subsections (2) and (3), pay a
rebate of that amount to the person.
(3) Application
for rebate - A rebate in respect of an amount shall not be
paid under subsection (1) to a person unless the person files an
application for the rebate within two years after the day the
amount was paid or remitted by the person."
[12] The
definition of "person" is found in subsection 123(1) of
the Act, as follows:
""person" means
an individual, a partnership, a corporation, the estate of a
deceased individual, a trust, or a body that is a society, union,
club, association, commission or other organization of any
kind;"
[13] Counsel for the appellant posited a
hypothetical scenario where a clerk at a supermarket charged - in
error - GST on apples for a period of one month before the
mistake was discovered. According to the position taken by the
Minister in the decisions issued, the grocery store has to track
down each customer from whom GST was collected - in error - and
issue that person a credit note or in the
one-in-a-hundred-thousand chance that customer
is also registered for GST and makes a taxable supply to the
supermarket, to obtain a debit note for the amount of GST
charged. Counsel for the respondent submitted - at one point -
that section 261 of the Act would not apply to the appellant
because the appellant was never "a person who paid an
amount" of tax to the Minister. This proposition flies in
the face of the plain wording of the provision which refers to an
amount that was paid on account of tax that was
"remittable" by the person and the Minister's own
decision (re: assessment 833427) at page 2 - paragraph 4 - that
defined net tax as "all amounts collectible or collected as
tax or on account of tax by the person during the period". I
fail to see how the Minister could insist that section 232 of the
Act is the only manner by which an adjustment could be made. If
there is no continuing relationship between the parties how can
adjustments be made by means of debit or credit notes? It seems
to me that a customer who is not a GST registrant must be able to
use the provisions of subsection 261(1) in order to recover money
paid as tax which - under the circumstances - was not actually
"payable" by that person and, further, in paying money
- as GST - that was not due, therefore, the amount was not then
"remittable" by the person collecting the
tax."
[14] Since the period for which GKO Design was audited and
assessed was May 1, 1992 to April 30, 1996, the Minister
found that subsection 261(2) of the Act prevented a rebate
being paid to the extent that the amount was taken into account
as tax or net tax for the reporting period of the person and the
Minister has assessed the person for the particular reporting
period.
[15] There is
provision for the Minister to deal with the matter of an
allowable rebate and it is found in subsection 296(2.1) as
follows:
"Allowance
of unclaimed rebate - Where, in assessing the net tax of a
person for a reporting period of the person or an amount (in this
subsection referred to as the "overdue amount") that
became payable by a person under this Part, the Minister
determines that
(a) an
amount (in this subsection referred to as the "allowable
rebate") would have been payable to the person as a rebate
if it had been claimed in an application under this Part filed on
the particular day that is
(i) if the assessment
is in respect of net tax for the reporting period, the day on or
before which the return under Division V for the period was
required to be filed, or
(ii) if the assessment
is in respect of an overdue amount, the day on which the overdue
amount became payable by the person,
and, where the
rebate is in respect of an amount that is being assessed, if the
person had paid or remitted that amount,
(b)
the allowable rebate was not claimed by the person in an
application filed before the day notice of the assessment is sent
to the person, and
(c)
the allowable rebate would be payable to the person if it were
claimed in an application under this Part filed on the day notice
of the assessment is sent to the person or would be disallowed if
it were claimed in that application only because the period for
claiming the allowable rebate expired before that day,
the Minister shall,
unless otherwise requested by the person, apply all or part of
the allowable rebate against that net tax or overdue amount as if
the person had, on the particular day, paid or remitted the
amount so applied on account of that net tax or overdue
amount."
[16] All of the
foregoing is background material which assists one in facing the
issue of whether the appellant - as the entity applying for the
rebate - was the correct person. This is extremely important
because subsection 261(3) requires the application for the rebate
be made "within two years after the day the amount was paid
or remitted by the person". GKO Engineering is a partnership
that was formed on November 1, 1997. Before that date, GKO Design
- a corporation - carried on an engineering consulting business
and on August 15, 1997 it filed a document - Exhibit A-3 -
entitled "Declaration As To Trade Name" with the
Registrar of Corporations for the Province of Alberta, declaring
it had carried on business using the name of GKO Engineering
since May 1, 1997. Counsel for the appellant submitted that
subsection 272.1(1) of the Act applied. It
reads:
"Partnerships - For the purposes of this Part,
anything done by a person as a member of a partnership is deemed
to have been done by the partnership in the course of the
partnership's activities and not to have been done by the
person."
[17] The
problem for the appellant - GKO Engineering - is that the
payments of GST collected from MTI and others were made prior to
the formation of the partnership of which GKO Design became a
member on November 1, 1997. Therefore, the GST payments made by
GKO Design cannot be deemed to have been made by the partnership
pursuant to subsection 272.1(1) because the partnership did not
exist at the time the payments were made. It follows that GKO
Design was the "person" required to apply for the
rebate since it had made the payments. The use of the trade name
GKO Engineering by GKO Design was not formally recognized by way
of registration until August 14, 1997 and referred therein to an
effective date of May 1, 1997, subsequent to the provision of the
majority of the services provided to MTI by GKO Design. Had GKO
Design applied for the GST rebate in accordance with subsection
272.1(1) that application would have been deemed to have been
done by the partnership and it should have had no effect on the
entitlement since GKO Design would have complied with section 261
of the Act. The reverse, however, does not apply and GKO
Engineering - the partnership - cannot apply for the rebate and
have that action deemed to have been done by GKO Design - a
member of the partnership. The nine entities making up GKO
Engineering following the formation of the partnership on
November 1, 1997 could now carry on business as partners and acts
by one could bind the partnership for various purposes but the
partnership could not - without more - perhaps, by way of formal
assignments of all receivables of whatever kind - purport to
become the qualified person to pursue rebates or entitlements
belonging specifically to a single member of the partnership, the
right to which had arisen before becoming a member of the larger
family. For example, if the City of Edmonton had wrongly assessed
an amount of property tax for 1995 on land owned by GKO Design,
it would be unusual for the City to entertain a rebate
application in the name of GKO Engineering and I doubt the
relevant legislation would permit it.
[18] The Court
does not have any jurisdiction to extend the deadline for an
application for the rebate. In the case of Sterling Business
Academy Inc. v. The Queen, 99 GTC 3038, Judge Rip, Tax Court
of Canada, held that a flaw in the legislation did not allow the
Court to extend the deadline. He stated at page 3038:
"To be sure,
the section 261 of the Act permits persons who paid the GST to
apply for a rebate, but the rebate will not be paid unless the
person files the application for the rebate within two years
after he paid the GST. Since the payments we are concerned with
were made before 1996 and it is now December, 1998, the students
are not eligible for the rebate. The same problem affects the
appellant who may have been entitled to a refund or adjustment of
tax pursuant to section 232. There is no procedure available in
the Act to permit the students to have returned to them what is
rightfully theirs. The Tax Court of Canada Act does not give a
judge of the Tax Court jurisdiction to issue an order that may
remedy the matter. This is a flaw in the legislation."
[19] It is
unfortunate the application for the rebate was made by GKO
Engineering when it should have been made by GKO Design, a
corporate body which still existed and was a member of the
partnership, GKO Engineering. The Minister would be in no
position - initially - to comprehend the situation as the GST
number of GKO Engineering was used in the rebate application.
Earlier, the relief sought in relation to the GST remitted on tax
improperly collected was by way of an ITC on the return of GKO
Engineering for a particular reporting period from February 1 to
February 28, 1998. This led to an assessment which was then
confirmed in a decision and the application for rebate in April,
1998 by the appellant led to the other decision being issued,
although both were dated February 4, 1999. Later on, the
correct identity of the person collecting the tax was known to
the Minister and the proper invoices to MTI and others were
provided which clearly showed the GST registration number of GKO
Design having been used to collect and remit the tax. The
corporation - MTI - was never aware it had overpaid invoices by
remitting amounts inclusive of GST. The appellant did not want to
notify MTI of any right to claim a refund because MTI owed it the
sum of $55,000.00. There would have been no incentive on the part
of MTI to make application for the rebate since the appellant
could have sued, obtained a judgment and then issued a garnishee
to divert payment of the rebate to itself. The facts in the
within appeal are peculiar and it is unfortunate the incorrect
entity - the appellant - applied for the rebate and the matter
was not corrected until time expired. I would not like to think
the Minister hid in the weeds on this one in order to take
advantage of the misstep by the appellant. It is obvious the
Minister has great difficulty in accepting that the GST wrongly
collected from MTI - although it did not come directly from the
pocket of the appellant - still creates a windfall for the fisc
since it was never properly exigible pursuant to the provisions
of the Act. In fact, until I indicated I was not prepared
to entertain the submission - because it had never formed any
part of the two decisions nor had it been referred to in the
pleadings filed on behalf of the Minister - counsel for the
respondent was prepared to make the argument that the services
provided by GKO Design to MTI and others were not proven -
conclusively - to have been zero-rated and, therefore, maybe the
tax had been properly collected, after all. It is true the
Minister is not a tax planner for anyone, including GST
registrants and the appellant in the within appeal should have
taken the time to think the matter through and to have applied
for the rebate in a timely fashion by using GKO Design as the
proper applicant. The problem was, I suspect, that the erroneous
charging, collecting and remission of tax occurred prior to Don
Cimino coming on board as Chief Financial Officer for both GKO
Engineering and GKO Design and he was working to unscramble the
matter in a manner whereby a portion of the former account
receivable of GKO Design in the sum of $55,000.00 could be
collected by means of the rebate application and then be placed
into the partnership coffers, probably in accordance with the
agreement of all members upon forming the partnership on November
1, 1997. However, like the Income Tax Act and other
legislation dealing with the collection of revenue, the Excise
Tax Act requires strict compliance and, as a result, the
technical provisions may not otherwise appear to possess any
stand-alone rationale for their existence. Unless great care is
taken, this can lead to errors which cannot later be undone
except in accordance with statutory time limits, rigid confines
from which there is no escape.
[20] For the
foregoing reasons, the appeal is dismissed.
Signed at Toronto,
Ontario, this 3rd day of May 2000.
D.J.T.C.C.
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