CITATION: 2014 TCC 62
Date: 20140304
Docket: 2012-3283(GST)APP
BETWEEN:
PATTERSON DENTAL CANADA INC.,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR ORDER
Masse D.J.
[1]
This is an Application
for an Order extending the time within which to file a Notice of Objection to
an Assessment made under Part IX of the Excise Tax Act, R.S.C. 1985, c.
E‑15 (the “Act”), which Assessment is dated March 16, 2010,
for the reporting periods from May 1, 2005 to May 31, 2009. The Notice
of Objection was filed on April 27, 2011, within the statutorily
mandated period of one year after the expiration of the original 90 day period
allowed to file a Notice of Objection as provided in paragraph 303(7)(a)
of the Act. This Application was rejected by the Canada Revenue Agency
(“CRA”) on July 19, 2012. Hence, the Application to this Court.
Factual Context
[2]
The Applicant is a
corporation whose business is the selling and distribution of dental products
and equipment to dentists across Canada. The Applicant carries on business in
Montréal.
[3]
The
products sold by the Applicant include products marketed as anaesthetic
solutions, some of which contain a drug called epinephrine. According to subsection 165(1) of the Act,
every purchaser of a supply must pay GST in the amount of 5% of the price of
that supply. However, according to subsection 165(3), there are some
supplies for which no GST is payable and these are called “zero-rated
supplies”. According to subsection 123(1), these zero-rated supplies are
set out in section 2 of Part I of Schedule VI of the Act.
Epinephrine and its salts are substances listed in
section 2 of Part I of Schedule VI of the Act and are
therefore zero-rated. Apparently however, epinephrine is not sold in its pure
state.
[4]
From 2005
until December 1, 2008, the Applicant considered its anaesthetic solutions
containing epinephrine to be zero-rated supplies for purposes of GST and
therefore the Applicant did not seek any payment of GST when it sold these
products to its clients. However, in the later part of 2008, the Applicant
became aware that a competitor had been unfavourably assessed by the CRA for
not having collected any GST on anaesthetic solutions containing epinephrine.
As well, according to Mr. Pierre Carfantan, Comptroller for the Applicant,
and Mr. Dennis Gosselin, National Director of Finance and Operations for
the Applicant, the Applicant became aware of a Letter of Interpretation number
07‑01033130 dated July 9, 2007, issued by the Ministère du
revenu du Québec (now the “Agence du revenu du Québec” or simply “Revenu
Québec”). This Letter of Interpretation, reproduced in Exhibit A‑1,
Tab 2, reads in part as follows:
Les solutions anesthésiques faisant l’objet de la présente
demande ne sont pas visées par cette disposition. De plus, bien que certaines
de ces solutions contiennent une quantité minime d’épinéphrine, qui, si elle
était vendue seule pourrait être détaxée, le produit final acheté par les
dentistes n’est pas de l’épinéphrine, mais une
solution anesthésique.
En conséquence, comme aucune autre disposition de la LTA ne
permet de détaxer la fourniture par un distributeur à un dentiste de ces
solutions anesthésiques, il s’agit donc d’une fourniture taxable.
[5]
On reviewing this Letter of Interpretation, the
Applicant came to
the conclusion that it had no choice but to change the tax codes for its
anaesthetic solutions from zero‑rated to taxable in its computer
accounting systems. According to Mr. Carfantan and Mr. Gosselin, the
Letter of Interpretation was clear and unequivocal — anaesthetic solutions
containing epinephrine were taxable even though epinephrine sold in pure state
was zero-rated. Mr. Carfantan and Mr. Gosselin testified that they at
all times wanted to be in compliance with the tax laws and therefore they
unilaterally decided to change their tax treatment of these anaesthetic
solutions from zero‑rated to taxable. The Applicant then began to charge
its clients GST and QST on those anaesthetic solutions containing epinephrine.
[6]
Around
October 2009, the Applicant was subjected to an audit by l’Agence du revenu du
Québec. The auditor, Mr. Serge Baril, noted during this audit that the tax
code for anaesthetic solutions had changed and he inquired as to the reasons
for the change. Mr. Carfantan explained to Mr. Baril that the
Applicant had changed the tax treatment for its anaesthetic solutions because
of the Letter of Interpretation of which he became aware in late 2008 (although
he was not in possession yet of a copy of the letter). Mr. Baril in fact
later obtained a copy of this Letter of Interpretation.
[7]
On January 22, 2010, Mr. Baril submitted a
draft audit report to Mr. Carfantan that contained adjustments proposing
the application of GST to anaesthetic
solutions with epinephrine for the 2005 to 2009 period. There were also other
adjustments that are not relevant to the case at hand. This draft audit further
confirmed in the mind of Mr. Carfantan and Mr. Gosselin that they had
been correct in their decision in 2008 to change the tax code for their anaesthetic
solutions from non-taxable to taxable. On February 23, 2010,
Mr. Baril submitted his final audit report wherein he maintained his
position that anaesthetic solutions, even though they contained epinephrine,
were subject to GST. In relation to the Letter of Interpretation, he states in
his report reproduced in part as follows (Exhibit A‑1, Tab 3,
p. 15):
L’interprétation donnée dans cette lettre d’interprétation
(N/Réf.: 07‑01033130) est exactement la même c'est-à-dire que les
solutions anesthésiques faisant l’objet de la demande d‘interprétation ne sont
pas visée par les dispositions de l’article 2 de la partie I de l’annexe VI de
la LTA et le paragraphe 1 de l’article 174 de la LTVQ. De plus, dans cette
lettre d’interprétation on mentionne aussi le fait que bien que certaines de
ces solutions contiennent une quantité minime d’épinéphrine qui, s’il était
vendu seul pourrait être détaxé (en vertu de LTA VI‑I‑2e)x)),
le produit final acheté par les dentistes n’est pas de l’épinéphrine, mais une
solution anesthésique. L’opinion donnée dans cette lettre d’interprétation est
à l’effet que la fourniture par un distributeur à un dentiste de ces solutions
anesthésiques, constitue une fourniture taxable car aucune autre disposition de
la LTA ou de la LTVQ ne permet de détaxer la fourniture de tels produits.
Donc, l’opinion donnée dans cette lettre d’interprétation
vient supporter et confirmer notre position et en conséquence, comme aucune
autre disposition de la LTA or de la LTVQ ne permet de détaxer la fourniture par
un distributeur à ses clients de ces solutions anesthésiques, il s’agit donc
d’une fourniture taxable.
[8]
This portion of
Mr. Baril’s Final Audit Report also confirmed in the minds of Mr. Carfantan and Mr.
Gosselin that they had made the right decision back in 2008 and that they had
no choice but to charge GST to their clients to whom the Applicant sold
anaesthetic solutions.
[9]
On
March 16, 2010, an assessment was issued claiming in excess of $1,100,000
in GST, penalties and interest. Most of this assessment was in relation to
anaesthetic solutions. No objection was made to this assessment since the
Applicant was of the view that it had no choice but to accept it. The Applicant
arrived at this conclusion based upon the fact that a competitor had been
similarly assessed, the wording of the Letter of Interpretation and
Mr. Serge Baril’s Audit Report. All of this seemed to leave no room for
any other interpretation or conclusion. The assessment was paid by the
Applicant.
[10]
By the end
of 2010, the Applicant hired an outside consultant, Ryan LLC, to conduct a
comprehensive review of its accounting procedures and practices, including tax
compliance. The Applicant was quite concerned about making sure that it was
complying with all tax laws and so part of the consultant’s mandate was to
identify any other products sold by the Applicant that may have been
incorrectly categorized for the purposes of GST.
[11]
In March
2011, Ryan LLC provided the Applicant with a copy of the decision of Centre
Hospitalier Le Gardeur c. Canada, 2007 CCI 425, [2007] G.S.T.C.
21 (“Le Gardeur”), a decision of Justice Lamarre of this Court.
Ryan LCC and the Applicant studied Justice Lamarre’s reasons for decision
and interpreted it to mean that where a drug in pure state is zero-rated, then
the supply of that zero-rated drug when mixed with other products may also be
zero-rated. The test, as stated by Justice Lamarre, is not whether the drug is
supplied in pure state, but whether what was supplied was a mixture of
substances whose main or essential element is a zero-rated drug. Justice
Lamarre stated this test as follows:
[60] Ce que nous comprenons de l’alinéa 2a)
lorsqu’on entend le mot «drogue» de la manière que le définit la LAD,
c’est qu’est détaxée la fourniture d’une substance ou d’un mélange de
substances si ces dernières servent au diagnostic et si elles sont de l’annexe
D de la LAD. Aux fins de notre analyse, nous jugeons plus prudent de
parler d’un mélange de substances puisque le Dr Lepage a confirmé qu’on ne
pouvait retrouver une drogue de l’annexe D à l’état pur dans un contenant. La
drogue pure de l’annexe D avec les autres substances devant l’accompagner
résulte donc en un mélange de substances. Il ne fait d’ailleurs pas de doute
que tous les mélanges de substances présents dans les produits présentés par
les appelants servent au diagnostic, qu’ils soient de l’annexe D ou non. La
question est donc de déterminer si l’on a un mélange de substances de l’annexe
D. À notre avis, si la substance principale d’un mélange constitue une
substance de l’annexe D de la LAD, alors ledit mélange de substances
sera considéré comme un tout, et par conséquent comme une fourniture détaxée.
Comme il fut dit dans O.A. Brown, précité ([1995] A.C.I.
No. 678 (QL)), en son paragraphe 29, si les présumées fournitures
séparées sont liées à la fourniture détaxée à un point tel qu’elles font partie
intégrante de l’ensemble au complet, on peut parler de fourniture unique
détaxée. Ainsi, à moins de dispositions législatives à l’effet contraire, un
mélange de substances sera caractérisé selon sa substance principale aux fins
de l’alinéa 2a). Par conséquent, est détaxée la fourniture d’un mélange
de substances dont la substance principale est de l’annexe D de la LAD.
[…]
[62] Pour les produits de la
catégorie 1 et 2 ayant un seul contenant, nous avons en tout et pour tout un
mélange de substances à l’intérieur du produit. Le Dr Lepage est venu
indiquer que chacun des produits présentés avait une drogue de l’annexe D comme
drogue essentielle. Ainsi, nous pouvons affirmer avec certitude que si un
produit ayant un seul mélange de substances a pour drogue essentielle une
drogue de l’annexe D, la substance principale du mélange de substances sera
nécessairement cette drogue de l’annexe D. Nous aurions pu en arriver au
même résultat en regardant la description des catégories de produits. Les
autres substances accompagnent la drogue pure de l’annexe D ou y sont attachées.
Par ailleurs, on a indiqué que la valeur et l’importance de ces autres
substances étaient minimes par rapport à la drogue de l’annexe D. La seule
conclusion logique est donc que les produits de la catégorie 1 et 2 ayant un
seul contenant sont détaxées puisqu’ils sont un mélange de substances dont la
substance principale est de l’annexe D de la LAD.
[Emphasis added]
[12]
The
Applicant is of the view that this dicta of Madame Justice Lamarre
significantly changes the interpretation set forth in the Letter of
Interpretation and gives rise to the argument that its anaesthetic solutions
containing epinephrine may very well be zero-rated. If this argument is
accepted, then the Applicant was incorrectly assessed and ought not to have
paid the $1,100,000 it was assessed. At the time of the audit performed by
Mr. Baril, neither Mr. Carfantan nor Mr. Gosselin were aware of
the Le Gardeur decision. It would also seem that Mr. Baril was
himself also not aware of the Le Gardeur decision since he did not
bring it to the attention of the Applicant and the Le Gardeur
decision was also not considered in arriving at his assessment.
[13]
The Applicant
realized the possible impact that the Le Gardeur decision could
have on its tax responsibilities and so it set out to determine whether its
anaesthetic solutions containing epinephrine met the Le Gardeur
test. The issue that had to be determined was whether epinephrine could be
considered to be an essential ingredient of the anaesthetic solutions that were
sold during the period under review. This required scientific and medical
evidence and the Applicant simply did not have the in-house resources to
provide such evidence. To this end, the Applicant consulted experts in the
medical and dental fields. On April 21, 2011, the Applicant received an
opinion from Dr. Daniel Haas, a dentistry expert, to the effect that the
choice by a dentist of an anaesthetic solution containing epinephrine is
mandated by the nature of the medical procedure and the patient’s condition and
therefore, should a dentist choose an anaesthetic solution containing
epinephrine rather than one without epinephrine, then epinephrine could be
considered to be an essential ingredient of the solution.
[14]
Armed with
this opinion, the Applicant immediately (six days later, on April 27,
2011) filed an application to the Minister of National Revenue
(the “ Minister”) to extend the period of time for filing a Notice of
Objection. The Minister refused the Applicant’s request on July 19, 2012.
This is more than a year after the Applicant filed its application to extend
the time for filing a Notice of Objection. It certainly cannot be said that the
Minister considered the Application with all due dispatch as required by
subsection 303(5) of the Act. In its decision refusing the
Applicant’s request, the Minister gave the following reasons:
Considérant
la ou les raisons que vous nous avez données, nous ne pouvons pas vous accorder
de prorogation de délai puisque la raison invoquée dans votre demande n’était
pas de nature à vous empêcher de produire votre avis d’opposition dans le délai
prévu par la loi ou de demander à quelqu’un d’agir en votre nom. En effet, ce
n’est qu’après l’expiration du délai d’opposition que vous avez entrepris des
démarches auprès de votre représentant.
Par conséquent, nous considérons que vous
n’avez pas démontré, tel que l’exige le paragraphe 303(7) de la Loi sur
la taxe d’accise, que :
•
vous ne pouviez pas produire
votre avis d’opposition ou demander à quelqu’un de le faire pour vous dans le
délai prévu par la loi, ou que vous aviez l’intention véritable de faire
opposition à la cotisation,
•
il serait juste et équitable
de vous accorder la prorogation de délai en tenant compte des raisons indiquées
dans votre demande et des circonstances de l’espèce.
[15]
The
Applicant brought this Application before this Court. In the meantime, the
Applicant had retained another expert, Dr. Gino Gizarelli, a specialist in
dental anaesthesia, who is willing to provide and defend an expert opinion in
support of the Applicant’s position as presented in its Notice of Objection.
[16]
I found the
testimony given by Mr. Carfantan and Mr. Gosselin to be straightforward
and honest. Their evidence was not seriously challenged by the Respondent. I
accept the fact that at all times they were very concerned that the Applicant
comply with all of its tax responsibilities. I am also satisfied that had they
known of the potential ramifications of the Le Gardeur decision,
the Applicant would most certainly have filed a Notice of Objection within the
time period prescribed by the Act.
[17]
It is
interesting to note that as a result of the Le Gardeur decision;
the CRA has amended its policy at least in so far as in-vitro diagnostic kits
are concerned (see CRA GST/HST Notice No. 248).
The Applicant submits that Notice No. 248 is also applicable to
anaesthetic solutions containing epinephrine. However, as is made clear from the
testimony of Ève‑Marie Fortin, the CRA does not share this opinion
and the CRA is of the view that Le Gardeur and
Notice No. 248 are not applicable to anaesthetic solutions containing
epinephrine.
Legislative Provisions
[18]
The
following provisions of the Act are applicable in the case at bar:
301 (1.1) Any person who has been assessed
and who objects to the assessment may, within ninety days after the day notice
of the assessment is sent to the person, file with the Minister a notice of
objection in the prescribed form and manner setting out the reasons for the
objection and all relevant facts.
[ … ]
303(1) Where
no objection to an assessment is filed under section 301, … within
the time limit otherwise provided, a person may make an application to the
Minister to extend the time for filing a notice of
objection … and the Minister may grant the application.
303(2) An application made under subsection (1)
shall set out the reasons why the notice of objection … was not filed within
the time otherwise limited by this Part for doing so.
[…]
303(5) On receipt of an application made under
subsection (1), the Minister shall, with all due dispatch, consider the
application and grant or refuse it, and shall thereupon notify the person of
the decision by registered or certified mail.
[…]
304(1) A person
who has made an application under section 303 may
apply to the Tax Court to have the application granted after either
(a) the Minister has refused the application,
[…]
304(4) The
Tax Court may dispose of an application made
under subsection (1) by
(a) dismissing it, or
(b) granting it,
and in granting an application, it may
impose such terms as it deems just or order that the notice of objection or the
request be deemed to be a valid objection or request as of the date of the
order.
304(5) No application shall be granted under this section unless
(a) the application was made under
subsection 303(1)
within one year after the expiration of the time otherwise limited by this Part
for objecting or making a request under subsection 274(6), as
the case may be; and
(b) the person demonstrates that
(i) within the time otherwise limited by this Act for objecting,
(A) the person was unable to act or to give a mandate to act in
the person’s name, or
(B) the person had a bona fide intention to object to the
assessment or make the request,
(ii) given the reasons set out in the
application and the circumstances of the case, it would be just and equitable
to grant the application, and
(iii) the application was made under subsection 303(1) as
soon as circumstances permitted it to be made.
Analysis
[19]
Pursuant to
subsection 301(1.1) of the Act, any person who has been assessed
and who objects to that assessment may, within 90 days after the assessment is
sent, file with the Minister a Notice of Objection in the prescribed form.
Missing the 90 day deadline however is not fatal. The legislation provides a
great deal of lee-way when it comes to filing a Notice of Objection. The
taxpayer may take up to a year following the expiration of the initial 90 day
period within which to file a Notice of Objection so long as the statutory
conditions for doing so have been met.
[20]
When no Notice of
Objection has been served within these 90 days, the taxpayer may apply to the
Minister pursuant to section 303 of the Act for an extension of
time to file the Notice of Objection. Where the Minister refuses the
application for the extension of time, then the taxpayer may apply to this
Court pursuant to section 304 of the Act for an order permitting
the filing of a Notice of Objection. For such an application to be successful,
the Applicant must show that:
a)
An application was made to
the Minister within one year after the expiration of the 90 day time period
allowed by subsection 303(1) for filing a Notice of Objection;
b)
The Applicant must
demonstrate that within that 90 day period;
i. The Applicant was
unable to act or to mandate another to act on behalf of the Applicant, or
the Applicant had a bona fide intention to object to the assessment or
make the request;
ii. It would be just
and equitable to allow the application given the reasons set out in the
application and the circumstances of the case, and;
iii. The application
to the Minister for an extension of time to file a Notice of Objection was made
as soon as circumstances permitted.
[21]
There is no dispute that
the one year deadline has been met. The issues therefore to be determined by
the Court are:
a)
Was the Applicant unable
to act or to mandate someone to act on its behalf within the 90 day period
allowed for filing a Notice of Objection OR did the
Applicant have a bona fide intention to object to the Assessment;
b)
Would it be just and
equitable to grant the Application given the reasons set out in the Application
and the circumstances of the case; and
c)
Was the Application made
as soon as circumstances permitted it to be made.
Was the Applicant unable to act?
[22]
The main issue is whether
or not the Applicant has demonstrated that it was unable to act or to mandate
someone else to act on its behalf within the 90 day period set out in
subsection 301(1.1) of the Act. The Applicant takes the position
that it has demonstrated that it was unable to act or to give a mandate to
someone else to act on its behalf in accordance with clause 304(5)(b)(i)(A)
of the Act due to circumstances attributable to Revenu Québec. It is
suggested that the auditor, Mr. Serge Baril, misled the Applicant by
confirming that the Letter of Interpretation was cast in stone whereas it had
supposedly been put in doubt by this Court in Le Gardeur. I cannot
and do not ascribe to Mr. Baril any intention to mislead the Applicant,
since it is clear that Mr. Baril was himself not aware of Le Gardeur.
However, it is arguable that Mr. Baril should have been aware of, and should
have advised the Applicant of the possible application of Le Gardeur as
well as of Notice No. 248.
[23]
In deciding whether or not
it was impossible for the Applicant to act, one must take a contextual approach
to the issue. Indeed this is the wisdom imparted to us by the Supreme Court of
Canada whenever a court has to interpret a statutory scheme: see Canada Trustco
Mortgage Co. v. Canada, [2005] 2 S.C.R. 601 at para. 10.
[24]
The Supreme Court of
Canada provides some guidance in interpreting what is meant by “impossible for
a person to act”. In the case of Cité de Pont Viau v. Gauthier Mfg. Ltd., [1978] 2 S.C.R. 516 at
pp. 526-527, observed as follows:
[…] By
referring to impossibility “in fact,” which implies that the impossibility is
relative, the legislator has chosen a test that is certainly less demanding
that the criteria of absolute impossibility of force majeure.
[…]
For
the Superior Court to allow a motion in revocation of judgment to be filed late
pursuant to art. 484 C.C.P., it is therefore not necessary for the party to
show that he was prevented from acting by an insurmountable obstacle totally
beyond his control; the party need only show that the action was impossible in
fact, that there was a relative impossibility. The rule laid down in the last
part of art. 523 C.C.P. is the same. The wording is identical and there is no
indication that the legislator intended it to have a different meaning. It must
therefore be said that the litigant who applies for special leave to appeal
under this article does not have to prove that the action was absolutely
impossible, only that it was relatively impossible.
It is
impossible to specify in advance every situation that might constitute a
relative impossibility. Each case must be decided according to its own
particular circumstances, since the impossibility in question is really one of
fact.
[25]
Although the Court in Cité de Pont Viau was considering provisions of the Québec Code of
Civil Procedure, it stands to reason that the test for “impossibility to
act” in the context of the Act should be similar since, in Cité de
Pont Viau as in the present case, the Court was dealing with an application
to extend the time for filing an appeal.
[26]
The Applicant urges
this Court to conclude that it was impossible for the Applicant to act because:
a)
The CRA did not advise
the Applicant of the possible application of Le Gardeur and Notice
No. 248 to the case of mixtures of substances that contain epinephrine
(ie. the Applicant’s anaesthetic solutions).
b)
The Applicant has
always intended and has demonstrated its intention to be in compliance with the
law as shown by the fact that it voluntarily and unilaterally changed its own
accounting treatment for tax purposes of its anaesthetic solutions in December
2008. Had it known of Le Gardeur and Notice No. 248, it would not
have changed its accounting treatment and would have continued to treat its
anaesthetic solutions containing epinephrine as zero-rated.
c)
The Applicant now
believes that its prior tax treatment of its anaesthetic solutions was in error
and it has a reasonable chance of success in varying the assessment.
d)
The Applicant could not
act within the 90 day time limit prescribed by subsection 301(1.1) of the Act
because it was not possessed of the knowledge necessary to enable it to make an
intelligent and informed decision whether or not to challenge the assessment.
The circumstances were such that they suppressed any intention it may have had
to object let alone respect the formality of filing a Notice of Objection in
prescribed form.
e)
The Applicant could not
file a Notice of Objection since during the period of time allowed to do so, it
did not have available to it any expert opinion of whether or not epinephrine
was an essential ingredient of its anaesthetic solutions.
f)
Had the Applicant been
fully informed, and if it in fact had had knowledge of the possible impact of Le
Gardeur and Notice No. 248, it would have immediately challenged the
assessment and it would have filed a Notice of Objection within the prescribed
90 day time limit.
[27]
Was the Applicant,
under the circumstances, unable to act? I am of the view that the Applicant was
unable to act, and unable to file a Notice of Objection because the entire
circumstances combined to suppress any intention that the Applicant may have
had to object. The decision by the Applicant to take no further action at the
time that it was assessed was not a fully informed one. Had the Applicant known
of the possible impact of Le Gardeur and Notice No. 248, then
it is clear that it would have acted with due dispatch and it would have
retained expert witnesses to provide an opinion as to whether or not
epinephrine was an essential ingredient of its anaesthetic solutions and thus
whether or not a Notice of Objection would have any likelihood of success.
[28]
In 2950-5914 Québec
Inc. v. Sous Ministre du Revenu du Québec, 2003 CanLII 38721 (QC CQ) the
Honourable Judge Bousquet was of the view that mistaken information provided by
the tax authorities in good faith justifies an extension of time since it was
impossible for the taxpayer to act as a consequence of the defective
information. In Industries Bonneville v. The Queen, 2002 CanLII 849
(CCI), [2002] T.C.J. No. 426 (QL), it was held that when the nature of an
assessment is not entirely understood by the taxpayer, then an extension of
time is appropriate. In Charles v. M.N.R., 81 DTC 744, the Tax Review
Board came to a similar conclusion in the case of an individual who wrongly
believed that an assessment was for the disallowance of the dividend tax
credit, and therefore any objection would be in vain. The taxpayer subsequently
learned after the 90 day deadline, that the basis of the assessment was the
disallowance of a business investment loss, in which case an objection was
possible. An extension of time to challenge the assessment was granted.
[29]
In conclusion, I find
that the Applicant was not able to act under the circumstances.
Would it be just and equitable to grant the application?
[30]
The Applicant takes the
position that it would be just and equitable in all of the circumstances to
grant the Application (clause 304(5)(b)(ii) of the Act).
[31]
I agree. I am of the
view that it would be just and equitable to allow the Application in the
circumstances of this particular case for the following reasons:
a)
The Applicant was at
all times completely transparent with the CRA during the audit process;
b)
The Applicant has
demonstrated a history of willingness to voluntarily comply with its tax
obligations;
c)
Since the assessment
has already been paid in full, the CRA will not suffer any prejudice as a
result of the extension of time;
d)
The extension of time
will permit a complete, open, frank and fully informed debate on the validity
of the assessment;
e)
The Applicant has
demonstrated that it has an arguable position to defend and therefore it is in the interest of
justice to allow it to do so;
f)
A full debate on the merits
will clarify the state of the law;
g)
The total amount of GST
and provincial sales taxes at stake are significant and amount to more than 1.6
million dollars including interest and penalties. The Applicant should not be
deprived of this significant amount of money nor should CRA be enriched by this
amount if in fact the assessment is based upon erroneous principles of law; and
h)
The Applicant submits
that both the benefit of the doubt and the balance of convenience favours the
Applicant.
[32]
With respect to this
last point, it is to be noted that if there is any doubt, the Court should find in favor of the means of
safeguarding the rights of the parties: see Québec (Communauté
urbaine) v. Services de santé du Québec, [1992] 1 S.C.R. 426,
pp. 442-443. The rights of the parties can only be safeguarded if we allow a
full debate on the merits to take place.
[33]
I am therefore of the
view that it would be just and equitable to allow the Application.
Was the application made as soon as the
circumstances permitted?
[34]
Pursuant to
subparagraph 304(5)(b)(iii), the Application must be made as soon
as circumstances permit it to be made. In this regard, the timeline of events
is an important consideration. As pointed out in the Applicant’s written
argument, the chronology of events is as follows:
a)
March 16, 2010: Notice of Assessment;
b)
June 14, 2010: Deadline for Objection;
c)
December 2010: mandate
given to Ryan LLC;
d)
March 2011: Applicant
advised by Ryan LLC of the existence of the Tax Court of Canada decision in Le
Gardeur. The Applicant then refers the matter to a dental expert for a
scientific opinion on the issue of whether epinephrine is the essential element
in its anaesthetic solutions;
e)
April 21, 2011: affirmative opinion received from dental
expert;
f)
April 27, 2011: application for extension of time made to
the Minister; and
g)
June 14, 2011: deadline for application to the Minister.
[35]
The total period of
time that has elapsed is admittedly quite long. However, context and
circumstances are everything. It is clear that, pursuant to subsection 303(3),
the Application to the Minister must be accompanied by a copy of the Notice of
Objection. The Notice of Objection must set out the reasons for the objection and all relevant
facts in support of the objection. Consequently in order to prepare a Notice of Objection the Applicant
must be possessed not only of the intention to file a Notice of Objection, but
also should put forth cogent reasons in support of its challenge to the
Assessment. In the case at bar, the Applicant was not possessed of sufficient
information upon which to base a Notice of Objection until it became aware of
the decision of the Tax Court of Canada in Le Gardeur; this was
early in 2011. It was then necessary to obtain an expert opinion to determine
whether or not epinephrine was an essential ingredient of its anaesthetic
solutions. It was only after it obtained such an opinion that the Applicant
could make an informed decision of whether or not it could be argued that the
test set out in Le Gardeur was applicable to the Applicant’s
anaesthetic solutions containing epinephrine. This expert opinion only became
available on April 21, 2011. After that date, the Applicant acted with due
dispatch and presented its Application to the Minister only six days later.
[36]
Upon the consideration
of the full chronology of events I come to the conclusion that the Application
to the Minister was made as soon as circumstances permitted it to be made
within the meaning of subparagraph 303(5)(b)(iii).
Officially induced error
[37]
During the course of this hearing,
I asked counsel to provide me with their arguments as to whether or not the doctrine of “Officially Induced
Error” was applicable in the circumstances. The Respondent argues that the
doctrine of Officially Induced Error is not applicable to cases of appeals of
tax assessments. I agree. In the case of Brenda G. Klassen c. Sa Majesté La
Reine, 2007 CAF 339, Justice Noël of the Federal of Appeal definitively
stated that such is in fact the case. Justice Noël stated at paragraph 27:
[27]
Enfin, la prétention de l’appelante selon laquelle il y a lieu de modifier la
cotisation en raison d’une erreur provoquée par un fonctionnaire m’apparaît
dénuée de fondement. Il est bien établi en droit que la réparation accordée par
un tribunal dans le cadre d’un appel interjeté à l’encontre d’une nouvelle
cotisation en vertu de la LIR doit être prévue par la loi. S’il s’avère qu’un
acte de négligence a induit l’appelante en erreur, d’autres recours s’offrent à
elle. Aucun redressement ne peut cependant être accordé pour ce motif dans le
contexte d’un appel en matière d’impôt.
[38]
In addition, the
learned author David Sherman in his work Canada GST Service – Sherman,
Carswell, Toronto, arrives at the same conclusion. The author states:
In
a criminal law context (such as a trial on charges for evasion of GST), one
could likely rely on “officially induced error of law” as a defence. See R.
v. Jorgensen, [1995] 4 S.C.R. 55 (S.C.C.). This does not apply to
appeals of tax assessments, however.
[39]
Therefore, the doctrine
of Officially Induced Error is not applicable in the instant case.
The principle of judicial comity
[40]
I have been informed by
counsel that on March 20, 2013, the Honourable Judge Sylvain Coutlée
of the Cour du Québec rendered his decision regarding the Applicant’s
Application for an extension of time to file a Notice of Objection against the
assessment issued pursuant to the Act respecting the Québec Sales Tax:
see Patterson Dental Canada Inc. c. Agence du Revenu du Québec,
No 500‑80‑023039-127, [2013] J.Q. no 2606
(QL), 20 mars 2013, Montréal, Chambre civile. This was a parallel
Application involving essentially the same principles as in the case at bar.
Judge Coutlée granted the Application. I have read with great interest the
reasons for decision of Judge Coutlée. The essence of Judge Coutlée’s
judgment is contained in the following paragraphs:
[33] Dans
les faits les deux parties ignoraient la décision Le Gardeur. Le rapport
du vérificateur, monsieur Serge Baril, confirme que l’Agence ignorait non seulement
le jugement Le Gardeur, mais aussi le Bulletin d’interprétation de
l’Agence sur le statut taxable des produits d’épinéphrine utlilisés par les
dentistes.
[34] Il
est vrai que Le Gardeur porte sur certaines trousses de diagnostic in
vitro. Cependant, ce qui importe est de déterminer l’applicabilité de la
décision de Le Gardeur dans le cas qui nous occupe.
[35] Le
Tribunal n’a pas a décider du fond du litige, mais bien si Patterson rencontre
les critères de l’article 93.1.4 L.A.F..
[…]
…
[39] Il
ne fait aucun doute dans l’esprit du Tribunal que Patterson n’a pas essayé
d’éluder le paiement de la cotisation, au contraire. Lorsque Patterson prend
connaissance du bulletin d’interprétation (P‑2), elle taxe immédiatement
ses produits. Suite à la réception de l’avis de cotisation, elle l’acquitte.
Patterson s’est comportée en citoyen corporatif responsable. Patterson ne
pouvait s’opposer à la cotisation de l’Agence basée sur la décision Le
Gardeur. L’Agence elle-même l’ignorait. Comment peut-on exiger plus du
contribuable alors que l’Agence, dont le mandat est d’appliquer les lois
fiscales, ne connaît pas, dans le cas qui nous occupe, le droit applicable?
[40] La
séquence des événements, l’ignorance par l’Agence, d’une part, des différents
bulletins d’interprétation et, d’autre part, de la décision Le Gardeur,
fait en sorte que la demanderesse a été dans l’impossibilité de fait d’agir.
Conclure autrement signifierait que l’Agence exigerait du contribuable qu’il
ait une meilleure connaissance qu’elle des dispositions fiscales applicables.
Il est entendu que le contribuable ne peut plaider l’ignorance de la loi. En
l’espèce, c’est le contribuable qui a mis l’Agence sur la piste. On ne peut
donc reprocher à la demanderesse son défaut d’agir.
[41] Dans
les circonstances, le Tribunal conclut que la demanderesse, Patterson, était
dans l’impossibilité de fait d’agir.
[42] Qui
de plus est, il est du devoir des tribunaux de sauvegarder les droits des
parties. Sans se prononcer sur le fond de cette affaire, il appert prima
facie, que Patterson a une position à faire valoir. Quant à l’agence, elle
ne subit aucun préjudice puisqu’elle a déjà encaissé la cotisation dans ses
coffres.
[43] En
conséquence, Patterson s’étant acquittée de son fardeau de preuve, le Tribunal
donne droit à sa requête.
[41]
The reasons given by
Judge Coutlée are more or less the same as the ones that I have given in
the matter that is before me. Even if I did not agree with Judge Coutlée,
then I would have to give serious consideration to the principle of judicial
comity.
[42]
In Houda International Inc. c.
Sa Majesté la Reine, 2010 CCI 622, [2011] G.S.T.C. 8, Justice Boyle
of this Court had to consider whether to grant an extension of time to file an
appeal of an assessment made against the Appellant pursuant to section 305
of the Act. The Cour du Québec had already granted an extension of time
in the same case regarding the Québec Sales Tax assessment. Justice Boyle
had the following to say about the principle of judicial comity:
[4] En
premier lieu, la Cour doit rechercher si elle est liée par la décision de la
Cour du Québec en raison de la règle de la préclusion fondée sur la chose jugée
et de la règle d’abus de procédure; c’est la principale question. Si la réponse
est négative, elle doit alors rechercher dans quelle mesure elle doit faire
preuve de déférence à l’égard de la décision de la Cour du Québec par
courtoisie judiciaire.
[43]
With regard to the
doctrine of abuse of process and res judicata, Justice Boyle
observed as follows:
[21] Cependant, la doctrine de l’abus de procédure n’exige pas qu’il y ait identité
des parties lorsqu’elle s’applique pour empêcher la remise en cause d’une
question déjà tranchée. Je conclus que la question dont je suis saisi a déjà
été tranchée par la Cour du Québec et que je ne
dois pas la réexaminer, car cela pourrait donner lieu à une issue différente en
l’espèce. Je ne dois pas rouvrir cette question parce que cela donnerait lieu à
une utilisation inefficace des ressources publiques et privées, pourrait
aboutir à des décisions contradictoires qui ne pourraient pas être
raisonnablement expliquées aux contribuables au Québec et ailleurs au
Canada, et porterait inutilement atteinte aux principes d’irrévocabilité,
d’uniformité, de prévisibilité et d’équité dont dépend la bonne administration
de la justice.
[44]
He also had the
following to say about the principle of judicial comity:
[28] Je n'ai nul doute que permettre à l'intimée d'agir donnerait lieu à un
abus de procédure. Cela dit, subsidiairement, je conclus que, compte tenu des
circonstances, il est dans l’intérêt de la justice que la requête soit
accueillie par déférence pour la Cour du Québec. Si la requête
n’était pas accueillie, l’administration de la justice pour les appels en
matière fiscale serait exposée à une inutile confusion, le droit deviendrait
incertain et la confiance du public serait minée. L’effet serait le même, que
la Cour se prononce en faveur de la requérante ou non pour ce qui est du bien‑fondé
de l’appel.
V. Conclusion
[29] La demande présentée par la contribuable tendant au dépôt tardif de son
appel en matière de TPS devant la Cour est accueillie. La Cour du Québec s'est déjà
prononcée, en substance, sur la même question pour l’application de la taxe de
vente du Québec. Compte tenu
des circonstances, je conclus qu’il serait inapproprié d’examiner le bien‑fondé
de la thèse de l’intimée: cela donnerait lieu à un abus de procédure.
Subsidiairement, à mon avis, la requête doit être accueillie parce que, selon
le principe de la courtoisie judiciaire, je dois faire preuve de déférence à
l’égard de la décision de la Cour du Québec. Je ne vois pas
pourquoi des ressources judiciaires rares devraient être consacrées à l’examen
d’une telle requête sur le fond puisque la demande provinciale correspondante a
déjà fait l’objet d’une décision.
[30] Lorsque des requêtes de dépôt tardif d’avis d’appel sont présentées dans la
période d’un an suivant l’expiration du délai normal par des contribuables qui
avaient demandé à leur avocat ou à leur comptable de déposer une opposition ou
un appel en vertu de la Loi de l’impôt sur le revenu ou de la loi
relative à la TPS, la Cour est généralement appelée à rechercher si le
contribuable avait véritablement l’intention de s’opposer à la cotisation ou
d’interjeter appel et s’il est juste et équitable de faire droit à la demande.
Mon analyse et mes conclusions n’y changent rien. Cependant, lorsque la Cour du
Québec a conclu que,
compte tenu des circonstances particulières de la contribuable, les exigences
correspondantes de la LMR étaient remplies, la Cour, qui contrôle sa
procédure, devrait généralement faire preuve de déférence envers cette
décision; il ne faut pas s’attendre à ce que celle-ci réexamine la question sur
le fond. Il ne faut pas considérer que cela constitue l’adoption par la Cour
d’une approche moins stricte quant à l’examen des demandes de dépôt tardif dans
les cas où le dépôt tardif en raison du manquement de l’avocat ou du comptable
du contribuable en l’absence d’une demande provinciale correspondante qui a
déjà fait l’objet d’une décision.
[45]
I am in total agreement
with Justice Boyle. For this Court to now render a decision that is contrary to
that arrived at by the Cour du Québec involving essentially the same parties
and the same facts would, in my opinion, bring the administration of justice
into disrepute in the eyes of the informed citizen.
Conclusion
[46]
It is not for me to
decide the merits of the arguments of the Applicant. After a full hearing, the
Applicant’s arguments may well be rejected with the result that anaesthetic
solutions containing a small percentage of epinephrine will continue to be
taxable. On the other hand, it may be held that the test as stated in Le Gardeur
holds sway with the result that anaesthetic solutions containing epinephrine
are to be zero-rated. That is for another forum to decide in due course.
However, I am of the view that the Applicant ought to be provided with the
opportunity to make its argument and have it determined on the merits.
[47]
In conclusion I find
that:
a)
the Applicant has shown
that its objection against the Notice of Assessment is one that can reasonably
be argued and ought to be determined after a full, frank and well-informed
debate;
b)
the Applicant has shown
that it was unable to act or to mandate someone else to act on its behalf,
within the time otherwise limited by the Act to file a Notice of
Objection in accordance with clause 304(5)(b)(i)(A) of the Act;
c)
it is just and
equitable to grant the Application in accordance with
subparagraph 304(5)(ii) of the Act; and
d)
the Application was
made as soon as the circumstances permitted it to be made in accordance with
subparagraph 304(5)(iii) of the Act.
[48]
Therefore,
it is ordered that:
a)
The application is
granted.
b)
The Notice of Objection appended to the Applicant’s Application is deemed to
be a valid Notice of Objection as of the date of this Order.
c)
There is no order as to
costs.
[49]
These Amended Reasons
for Order are issued in substitution to the Reasons for Order issued on
June 6, 2013, for the purpose of issuance of a citation number for
publication.
Signed at
Montréal, Québec, this 4th day of March 2014.
"Rommel G. Masse"
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