REASONS
FOR JUDGMENT
Boyle J.
[1]
This appeal involves the denial of an input tax
credit (“ITC”) and the imposition of penalties in
respect of invoices which the Respondent maintains are accommodation invoices.
[2]
The Appellant, Syscomax Inc. (“Syscomax”), has carried on a construction business for
over 30 years. For most of that time it has specialized in the construction of
specialized buildings and structures such as those used in the aviation, pharmaceutical
and food service industries. Syscomax is principally a general contractor and plays
a management role in its construction projects.
[3]
In 2003, Syscomax entered into a contract with Plaisirs
Gastronomiques Inc. (“Plaisirs Gastronomiques”) to construct a large addition to
its food products plant. Plaisirs Gastronomiques was in
the business of producing and marketing ready-to-serve
dishes. The existing Plaisirs Gastronomiques plant was
originally constructed, and has since been expanded, by Syscomax. The 2003
addition was to add an additional 5000 square feet to its approximately 50,000-square-foot
plant. The building systems and the food service equipment were to be
integrated into the existing plant. This addition was to be built by Syscomax
on a turnkey basis for a price of approximately 5.5 million dollars. The work
was to be completed within a period of less than 6 months.
[4]
The job involved a large number of contractors
and subcontractors performing all of the work necessary to build such an
addition and to integrate its systems and equipment into the existing Plaisirs
Gastronomiques plant. The construction project required a large
number of workers, up to 100 at a time on the work site.
The Input Tax
Credit
[5]
The only invoice challenged as an accommodation
invoice is that of 9128- 5882 Québec Inc. operating under the name TFX.
According to Syscomax, it hired TFX to provide labour for the Plaisirs Gastronomiques project. TFX’s bill for October 2003 was for $315,000 plus good and
services tax of $22,050 and Quebec sales tax of $25,278.75.
[6]
The purchase order and TFX’s bill specified that the services were
for [TRANSLATION] “the installation of the processing
equipment, providing mechanical coordination, the installation of the washing
units and of the equipment and conveyor software and the start-up of all this
equipment, including training in its use.”
[7]
The Respondent assessed Syscomax for a total of $43,524.66,
including interest and penalties. It is the Respondent’s position that TFX was
not the supplier of the labour or
any other goods or services to Syscomax, either directly, or indirectly through
subcontractors, and that, accordingly, Syscomax is not entitled to an ITC in
respect of its payment of the TFX bill. The Respondent maintains that TFX did
not have the capacity to provide either directly or indirectly the services in
question and that TFX in fact did not even contract with Syscomax to do so.
These were among the assumptions made by the Respondent in denying Syscomax’s ITC
claim and set out in her Reply.
[8]
It is not disputed that the addition to the plant was built to Plaisirs
Gastronomiques’s satisfaction, that all the necessary work was done and that
the subcontractors, suppliers and workers were all paid for their services and
supplies. Nor is it disputed that Plaisirs Gastronomiques paid Syscomax, that Syscomax
paid its subcontractors and suppliers, and that they in turn paid their workers
and suppliers.
[9]
The amount paid by Syscomax is also not in dispute. As regards TFX
specifically, a purchase order, a bill and Syscomax’s cheque in
payment, which was endorsed and cashed, were all entered in evidence. Putting
aside the issue of whether TFX supplied any goods or services at all to
Syscomax, these documents each involve TFX and Syscomax and appear to comply
with the information requirements regarding supplies set out in the
regulations. Syscomax’s cheque was cashed at a cheque-cashing centre through TFX’s account there. The amount
paid has been allowed as a deduction for income tax purposes. There is no
suggestion that whoever did the work, if it was not TFX, did not get paid.
[10]
It is clear that a commercial enterprise is entitled to an ITC
only in respect of payments to a person who has in fact supplied it with goods
and services. Such a supply can be made or provided directly by the contracting
supplier or by way of subcontract. The information requirements that must be
satisfied in respect of such a supplier are set out in the regulations. The
only question that needs to be decided in this case is whether in fact TFX was
such a supplier of goods and services to Syscomax in respect of its Plaisirs Gastronomiques
plant addition project.
[11]
The president of Plaisirs Gastronomiques, Mr. Beauvais, testified
on behalf of the Appellant. He was able to describe the work site, the
construction work, and the expanded plant, but he could not place any of TFX’s
officers, workers, suppliers or subcontractors on the site. At the
investigation stage he had provided to the tax authorities a statement
indicating that, having reviewed Syscomax’s progress billings of Plaisirs Gastronomiques
and the progress of the construction work, and having consulted two other officers
of Plaisirs Gastronomiques, he believed it was unlikely that the work described
in the TFX invoice could have been performed in the September-October 2003 time
period referred to. His testimony at the hearing was somewhat more nuanced on
this point.
[12]
The president of Syscomax, Mr. Robitaille, also testified. He
described his company’s involvement in the Plaisirs Gastronomiques plant
addition project. He also described his own involvement with the project. He was
familiar with the TFX paperwork, but had no actual personal knowledge of anyone
from TFX or of any subcontractor of TFX ever actually working on the site or
meeting with anyone from Syscomax to obtain the contract, sign off on the work,
deliver a bill or get paid. Apparently, Syscomax has never had any other
dealings with TFX or its principal, Mr. Grignon, either before or after the
period in question. Mr. Robitaille acknowledged that the purchase order
for the TFX work was not in chronological order consistent with the sequential
numbering on the forms. He described how this could possibly occur, however
there was only one other example of a non-sequential purchase order on the Plaisirs
Gastronomiques project, and it was somewhat different.
[13]
Michel Piché, the project manager, would have had specific
knowledge of when and how TFX supplied what services on the Plaisirs Gastronomiques
project. However, Mr. Piché did not testify. The Court was simply told in
cross-examination that he no longer worked for Syscomax. No other project manager from Syscomax testified concerning the
role of a project manager in reviewing and signing off on the work done before payment
of a bill from a supplier under contract by virtue of a purchase order.
[14]
One of Syscomax’s field
superintendents, Mr. Ledoux, also testified. Mr. Ledoux was
the field superintendent
for the Plaisirs Gastronomiques project. He described the superintendent’s role
as one of coordinating the work being done and to be done on the work site, which
included ensuring on a daily basis that all labour and material would be on the
site when needed. His duties were largely performed on-site. However, he was
very clear in stating that he was not responsible for dealing directly with suppliers.
He simply communicated the daily labour and material needs to the project manager, who would contact the suppliers. Mr. Ledoux described the workers
as minimally qualified people who showed up with their tool kits. He referred to them as [TRANSLATION] “rental guys”, but
he had no need to know, and did not know, from whom the “rental guys” were rented. As far as he was concerned, they were rented
like a tool from an unknown rental centre to be directed and told what to do by
him. While he would know a small number of workers and for whom they worked or
their companies’ names, he did not know of TFX, of Mr. Grignon, or of anyone
who had said they were working for TFX or as subcontractors of TFX, even though
the work described in the TFX purchase order would have required a good number
of workers.
[15]
A representative of the Quebec Commission de la santé et de la
sécurité du travail (“CSST”) testified that she attended at the Plaisirs Gastronomiques work site each
month from June to October 2003 to monitor compliance with the legislation. On
each visit she would tour the work site and record the names of the workers she
spoke with. The purpose of her visit was to check work conditions and the CSST
registration of workers present. She did not speak with all of the workers on the
site each time. However, at no time did any worker say he or she or any other person
worked for TFX, nor was TFX ever mentioned. She also confirmed that TFX itself
was never registered for CSST purposes.
[16]
Another Quebec provincial official, from the Régie du bâtiment du
Québec (“RBQ”), testified that TFX was never registered for RBQ purposes.
Neither TFX nor Mr. Grignon was ever licensed by the RBQ as either a contractor or
an owner.
[17]
The president, sole shareholder and sole director of TFX, Mr. Grignon,
also testified. It was his testimony that TFX did not contract with Syscomax,
did not provide any services to Syscomax, did not bill Syscomax, and received
no payment from Syscomax. According to Mr. Grignon, TFX was not capable of
providing the services in question, nor was it aware of or did it have available
to it any subcontractors who could perform such services. In deciding the issue
of Syscomax’s ITC entitlement, I will place no weight on Mr. Grignon’s
testimony. Mr. Grignon has previously pleaded guilty to charges of providing
false invoices and accommodation invoices to ten or so other companies, for
which offences he was fined and incarcerated. (He served his time concurrently
with an earlier sentence for theft over $5,000 involving a 2.3 million dollar
heist from a Garda truck in 2009.)
[18]
One of the two Revenu Québec officers who testified said that the
president of the cheque-cashing centre where the cheque issued by Syscomax to TFX was cashed
using TFX’s account stated that the amount was withdrawn in successive $50,000
withdrawals but only after the endorsement signature would have been verified
against that on the documents opening the account and after speaking by phone
with the company issuing the cheque.
[19]
The Court concludes that the Appellant, Syscomax, has been unable
to produce sufficiently credible, complete and consistent evidence to satisfy
the Court that TFX did, on a balance of probabilities, supply services to it
with respect to the Plaisirs Gastronomiques plant expansion project. It is most
telling that no one from Syscomax, or anyone else, was able to place a single
TFX worker on the work site, or to claim to have met with anyone from TFX to draw
up the purchase order, inspect the completed work, review the bill, or turn over
the cheque. Further the project manager did not testify, though he would have been the Syscomax representative
who drew up the TFX purchase order. The evidence that is before the Court does
not allow it to conclude on a balance of probabilities that, to use the field superintendent’s term, the “rental
guys” were rented, either directly or
indirectly, from TFX.
[20]
It is also revealing that Syscomax seems to have never before or
since had any dealings with TFX or Mr. Grignon. No one was able to say that he or
she saw or met with anyone from TFX in connection with the purchase order, the
bill or the cheque in payment for the work performed,
or that anyone from TFX had ever attended at the premises of Syscomax or Plaisirs
Gastronomiques for any reason whatsoever.
[21]
Also of great concern is the TFX purchase order’s being out of numerical
and chronological sequence. The only other purchase order not in proper numerical
and chronological sequence was sequential by month, just not by day. The TFX
purchase order was significantly out of sequence, by several hundred purchase
order numbers. Mr. Robitaille’s explanation, while possible, was simply
unsatisfactory and insufficient given the other concerns in this case.
[22]
For these reasons, the Court dismisses the
Appellant’s claim for an ITC with respect to services supplied to it by TFX.
The Penalties
[23]
The burden is on the Respondent to justify the penalties
assessed. The evidence relied upon by the Respondent does not allow the Court
to conclude on a balance of probabilities that the Appellant was not entitled
to ITCs in respect of the amount paid by it to TFX, much less that the taxpayer
wrongly claimed ITCs in circumstances which would satisfy the requirements for
the imposition of penalties. It does not follow that, simply because the
Appellant has not met its burden on the substantive ITC issue, penalties are
justified. In this case the Respondent has failed to meet her burden of proof
with respect to the requisite circumstances and preconditions to justify the
imposition of penalties
[24]
Ms. Brigitte Gisquet of Revenu Québec explained that the Syscomax
file arose out of a three-year investigation and audit by Revenu Québec,
including several searches of TFX’s premises. There was no evidence to suggest that the
work in question in this appeal was not needed or was not performed, that those
who did the work were not paid, that the Appellant did not pay TFX, that there
was any double counting of the expenses for the work, that there were any
kickbacks, that there were any unreported amounts paid in respect of the
project, or that there was any collusion by Syscomax with Mr. Grignon or TFX.
After three years of investigation, Revenu Québec appears to have no idea who
did the work if not TFX, nor where any of the proceeds of the Appellant’s cheque
went after being credited to and withdrawn from TFX’s account. It is not clear
that any of these matters were even looked into during the three-year
investigation of TFX or during the audit regarding the payment by Syscomax.
[25]
To support its position that Syscomax knew, or ought to have
known, that the TFX invoice was from someone other than TFX, Revenu Québec
relied largely upon the fact that Mr. Grignon said that neither he nor TFX had
ever contracted with the Appellant, submitted an invoice to the Appellant, or
been paid by the Appellant. Given Mr. Grignon’s history, including the issuing
of false invoices and accommodation invoices for ITC purposes, his testimony
alone is insufficient for the Respondent to satisfy her burden of proof with
respect to the penalties. Ms. Gisquet’s explanation that she accepted Mr.
Grignon’s version of events because he had admitted to other false invoice and
accommodation invoice offences and so had no reason to lie about Syscomax, was astonishingly
simplistic, unconvincing and quite insufficient in the circumstances.
[26]
Revenu Québec also relied upon the fact that its investigation of
TFX turned up no business records whatsoever for TFX, but that is of very
little assistance in enabling it to provide any of the proof required in order to
satisfy this Court on the issue of the imposition of penalties on Syscomax.
[27]
As stated above, on the totality of the evidence the Court does
not find that TFX did not provide labour services to Syscomax for the Plaisirs Gastronomiques
project. The Court simply finds the Appellant’s evidence insufficient for a
conclusion that TFX provided such services to it. It does not follow that a
third party provided the services or was paid for them. It does not follow that
Syscomax knew or ought to have known that the TFX invoice was false, was actually
from another person, or was questionable. It therefore does not follow that the
Appellant had any clear obligation to make further inquiries regarding TFX or
regarding TFX’s provincial registrations, head office address, list of
available subcontractors, financial institutions, et cetera.
[28]
For these reasons, Syscomax’s appeal relating to its claim for an
ITC in respect of the TFX inputs is dismissed, and its appeal of the penalties
assessed against it is allowed.
Signed at Toronto, Ontario, this 19th day
of June 2014.
“Patrick Boyle”
Translation
certified true
on this 27th day
of November 2014.
Erich Klein,
Revisor
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