Citation: 2013 TCC 212
Date: 20130628
Docket: 2012-4157(GST)I
BETWEEN:
SMART NET SYSTEMS LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Favreau J.
[1]
This is an appeal by
way of the Informal Procedure against reassessments dated September 26, 2011, made
by the Minister of National Revenue (the "Minister") under Part IX of
the Excise Tax Act, R.S.C. 1985, c. E-15, as amended (the "Act")
concerning the reporting periods ending April 30, 2010 and April 30, 2011 of
the Appellant.
[2]
The issue is whether
the sale of agricultural netting is a zero-rated supply under the Act.
The Respondent’s counsel submits that the supply of agricultural netting is a
taxable supply since the netting is not a prescribed property listed in the Agriculture
and Fishing Property (GST/HST) Regulations (SOR/91‑39) (the "Regulations")
and section 10 of Part IV of Schedule VI of the Act.
[3]
In computing its
liability for net tax for the period from February 1, 2010 to April 30,
2011 (the "Period"), the Appellant filed its Goods and Services Tax
("GST") returns for the reporting periods ending on April 30, 2010,
July 31, 2010, October 30, 2010, January 31, 2011 and April 30 2011 and
reported supplies totalling $1,580,835, GST collectible of $9,996.36 and Input
Tax Credits ("ITCs") of $18,608.84 for a total net tax refund of
$8,612.48.
[4]
On September 26, 2011,
the Appellant was reassessed by the Minister for unreported GST collectible of
$17,222.21 and was assessed arrears interest of $214.14 for the Period.
[5]
On December 23, 2011,
the Appellant filed a notice of objection to the reassessments only for the
reporting periods ending April 30, 2010 and April 30, 2011. The Appellant
did not object to the assessment for the reporting period ending July 31,
2010, nor to the reporting periods ending October 30, 2010 and January 31,
2011 because no adjustments were made by the Minister for the last two periods.
[6]
In determining the
Appellant’s liability for net GST, the Minister made the following assumptions
of fact set out in paragraph 6 of the Reply:
a) at all material times, the Appellant was a corporation; (admitted)
b) Doug Dickson and Leslie McIntosh each owned
a 50% share of the Appellant; (admitted)
c)
at all material times, the Appellant was a GST
registrant; (admitted)
d)
at all material times, the Appellant was
required to file GST returns on a quarterly basis; (admitted)
e)
at all material times, the Appellant was in the
business of importing and selling netting products; (admitted)
f)
at all material times, the Appellant imported
and sold various netting products that were used for various purposes including
agriculture, fishing, aquaculture, and sport; (admitted)
g)
the agricultural netting was used to protect
crops from pests and predators; (admitted)
h)
the agricultural netting supplied by the
Appellant differed from the netting that the Appellant supplied for purposes
other than agriculture; (denied)
i)
the agricultural netting was not produced for
use in fishing or aquaculture; (denied)
j)
in the reporting period ending April 30, 2010,
the Appellant failed to collect GST of $6,502.31 in respect of its sales of
agricultural netting; and (admitted)
k)
in the reporting period ending April 30, 2011,
the Appellant failed to collect GST of $6,969.90 in respect of its sales of
agricultural netting. (admitted)
[7]
The Appellant’s agent
explained that when the Appellant began importing agricultural netting, he
contacted the GST section of the Canada Revenue Agency ("CRA") in Ottawa and asked if agricultural netting felt under the same category as fish netting which
was a zero-rated supply. He was told that the agricultural netting was
zero-rated when supplied by way of sale. Based on that information, the
Appellant imported and sold agricultural netting during the audit period
without collecting GST.
[8]
The CRA’s position
during the audit was that the supply of agricultural netting was subject to GST
because the types of agricultural nettings sold by the Appellant were not
produced for fishing or agricultural purposes, and because there was no
provision for zero-rating netting specifically produced for use agriculturally
within the categories of products related to agriculture listed in section 1 of
the prescribed property schedule.
[9]
Despite the Appellant’s
representations that there is no differentiation between nettings that are used
for all the three industries: fishing, agriculture and aquaculture, and for the
same purpose being to prevent crop loss from predators, CRA maintained its
position but waived the interest portion related to the GST reassessments, and
did not assess any penalty because the Appellant had exercised due diligence in
seeking accurate information from CRA but was told repeatedly that agricultural
netting was zero-rated.
[10]
Farming and
fishing/aquaculture are generally included within the same headings and
articles in the Act. Products, such as netting, are used extensively for
both fishing/aquaculture and agriculture but netting is not included under the
subheadings of agriculture. This seems to be an omission or an oversight on the
part of the legislator.
[11]
As the Court’s only
jurisdiction is to apply and interpret the Act as written, the appeal is
dismissed. The Appellant was, however, encouraged to request from the
Department of Finance changes to the Act or to the Regulations to
specifically cover netting used in the agriculture industry and to apply for a
remission order under the Financial Administration Act to recover the
amount of tax assessed.
Signed at Vancouver, British Columbia, this 28th day
of June 2013.
"Réal Favreau"
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