Date: 20120629
Dockets:
A-148-11
A-149-11
A-150-11
Citation: 2012
FCA 200
CORAM: NOËL J.A.
TRUDEL J.A.
MAINVILLE J.A.
A-148-11
BETWEEN:
LES PRO-POSEURS INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
A-149-11
BETWEEN:
LES PRO-POSEURS INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
A-150-11
BETWEEN:
CLAUDE SÉGUIN
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS
FOR JUDGMENT
NOËL J.A.
[1]
These are three appeals brought against decisions of
Justice Paul Bédard of the Tax Court of Canada (the TCC judge) confirming, in
one set of reasons, three series of assessments made regarding Les Pro-Poseurs
Inc. (the Company) and its main shareholder, Claude Séguin (collectively, the
appellants) under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), (the
ITA) and the Excise Tax Act, R.S.C. 1985, c. E-15 (the ETA).
[2]
The reasons that follow dispose of all three appeals. The
original will be placed in the file of A-148-11, and a copy thereof will be placed
in the other two files to stand as reasons in those cases.
[3]
The three series of assessments arose from the same factual
background, in which the appellants allegedly engaged in an invoice of
convenience scheme in which the Company pretended to pay subcontractors (the
accommodators) for supplies of goods or services when no such goods or services
were supplied and the cash value of the cheques issued to pay these invoices
was given back to the appellants. The Company would then deduct the sums
indicated in these invoices when computing its income and claim the associated
input tax credits.
[4]
The first series of assessments disallowed the deduction
made for the sum indicated in these invoices in computing the income of the
Company for the relevant years under the ITA (A-148-11). The second series of
assessments disallowed the input tax credits claimed by the Company on the
strength of these invoices under the ETA (A-149-11). Pursuant to
subsection 15(1) of the ITA, the third series of assessments added to the
income of Claude Séguin, as a Company shareholder, the sum indicated in the
false invoices, on the basis that he allegedly appropriated the cash sums given
back by the accommodators (A-150-11). Each series of assessments imposes
penalties for false or misleading statements, and some of the assessments were
made beyond the normal assessment period.
[5]
The TCC judge drew a negative inference from the fact that
the appellants could have called numerous witnesses to validate their position
but did not do so. Relying on the evidence and having found that the key
witnesses called by the appellants were not credible, he accepted the theory of
the Minister of National Revenue (the Minister) according to which the appellants
had participated in a false billing scheme as laid out in the replies to the
notices of appeal filed by the respondent. The TCC judge therefore confirmed
the Minister’s refusal to grant the Company the expenditures and tax credits
claimed in the false invoices.
[6]
Given this finding, and in the absence of any explanations
as to how the funds generated by the false invoices were used, the TCC judge also
found that the series of assessments made regarding Claude Séguin on the basis
that he had appropriated these funds for his own personal ends were justified.
[7]
Given the nature of the actions taken against the appellants,
the TCC judge had no difficulty finding that the Minister had met his burden of
proof such that the imposition of penalties under the ITA and the ETA (see
respectively subsection 163(2) of the ITA and section 285 of the ETA)
and the issuance of assessments beyond the normal period (see
subsection 152(4) of the ITA) were justified.
[8]
Finally, independently of the preceding, the TCC judge found
in docket A-149-11 that the input tax credits claimed by the Company had
to be disallowed because the supporting invoices do not adequately describe the
work done, as is required by subsection 169(4) of the ETA and, more
specifically, subparagraph 3(c)(iv) of the Input Tax Credit
Information (GST/HST) Regulations, SOR/91-45 (the Regulations).
[9]
In support of their appeals, the appellants rely on the
evidence they introduced before the TCC judge and argue that this evidence was
sufficient to establish prima facie that the Company was in fact supplied
with goods and services. According to the appellants, this evidence shows that
they have met their “initial burden of proof”, so it was then up to the
respondent, on behalf of the Minister, to prove the existence of the alleged
scheme, which the respondent failed to do. They add that the TCC judge could
not draw a negative inference from the fact that certain individuals were not
called as witnesses, since the evidence shows that they could not be located.
The TCC judge therefore erred in finding that the appellants had not met their
burden of proof.
[10]
The appellants made several additional arguments which do
not, however, have to be considered if the Court finds, as the TCC judge did,
that they did not meet their initial burden of proof.
[11]
First of all, I note that in their grounds for appeal, the
appellants did not take into account the standard of review. It is settled law
that the questions of law are reviewable on correctness, while findings of fact
and findings of mixed fact and law are reviewable on a standard of palpable and
overriding error (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R.
235).
[12]
The appellants are not arguing that the TCC judge
incorrectly identified the applicable legal test concerning the burden of proof
(Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336; see also Stewart
v. Canada, [2000] T.C.J. No. 53, as restated in Amiante Spec Inc. v.
Canada, 2009 FCA 139 and House v. Canada, 2011 FCA 234). However,
they do submit that the TCC judge set the bar too high because, in their view,
the evidence they introduced was credible and sufficient to meet this burden.
[13]
The TCC judge’s assessment of the evidence and its
sufficiency and his assessment of the credibility of the witnesses who appeared
before him cannot be called into question unless it is shown that he made an
overriding and palpable error.
[14]
No such error was shown. On the contrary, the evidence
introduced by the appellants contains contradictions, ambiguities and inaccuracies
that justify the doubts expressed by the TCC judge regarding the weight and
credibility of this evidence.
[15]
Among this evidence, I note the following elements:
- the
testimony of Hermel Lanteigne, Claude Séguin’s brother-in-law, who supposedly
performed work for the many of the alleged suppliers when in fact none of them
declared the hours worked to the Commission de la construction du Québec (CCQ),
such that Mr. Lanteigne did not earn any vacation pay or pension in the
years at issue;
- the
fact that during his meeting with the Minister, Claude Séguin was unable to say
who had carried out the work for the alleged suppliers, whereas the evidence
that he himself later introduced shows that it was his own brother-in-law,
Mr. Lanteigne;
- the
fact that Claude Séguin never had any contact with the senior management of the
alleged suppliers because he only dealt with employees of these alleged
suppliers, on the basis of verbal agreements;
- the
fact that nearly all of the cheques issued by the Company in payment for
services rendered by the alleged suppliers were cashed at foreign exchange
offices and that some of the cheques issued to pay for the alleged work were
made out to foreign exchange offices;
- the
fact that the appellants’ witnesses were generally vague and imprecise in
describing the sites where the work was performed and the nature of the work,
and that the invoices generally contained no details or descriptions;
-
the fact that even though the 13 alleged suppliers are
distinct entities, many of the invoices are identical in form;
-
the fact that the numerical sequence of some of the
invoices is inconsistent with the dates the invoices were issued.
[16]
The TCC judge was also correct to draw a negative inference
from the fact that many of the individuals who supposedly could have backed up
the appellants’ claims were not called as witnesses. Here, I am thinking of the
staff of the hardware store where the Company recruited its workforce, as well
as the appellants’ accountant.
[17]
As regards the senior management of the alleged suppliers,
it is true that auditors were unable to contact them. However, this does not
establish that the appellants were unable to do so, and they could offer no
evidence that they had made any efforts in this regard. I would add that while
it is true that these individuals could not be found, this fact is in itself
revealing.
[18]
I therefore find that that on the basis of the evidence
before the TCC judge, it was open to him to conclude that the appellants did
not discharge their burden of showing that the invoices reflected real supplies.
Given this finding and the lack of any explanation as to how the money
generated by this false invoicing scheme was used, the evidence also allowed
the TCC judge to conclude that Claude Séguin had appropriated this money for
his own personal purposes, as alleged by the Minister. Finally, given the
nature of the actions taken with regard to the appellants, it was open to the TCC
judge to find that the Minister had met his burden in respect of the penalties
and the assessments made beyond the normal period.
[19]
In these circumstances, it is neither necessary nor
appropriate for the Court to consider the alternative conclusion accepted by
the TCC judge in A-149-11, according to which only the invoices meeting the
requirements set out in paragraph 46 of his reasons could entitle the
appellants to an input tax credit.
[20]
For these reasons, I would dismiss the three appeals with
costs in each case.
“Marc Noël”
“I agree.
Johanne Trudel J.A.”
“I agree.
Robert M. Mainville J.A.”
Certified true translation
Michael Palles
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