Date: 20080501
Docket: A-218-07
Citation: 2008 FCA 160
CORAM: DESJARDINS
J.A.
LÉTOURNEAU
J.A.
BLAIS J.A.
BETWEEN:
FOLZ VENDING
COMPANY LIMITED
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR
JUDGMENT
LÉTOURNEAU J.A.
Issues
[1]
The
appellant is appealing a decision by Bédard J. (the judge) of the Tax Court of
Canada.
[2]
In
that decision, the judge confirmed the assessment of the Minister of National
Revenue (the Minister), dated June 11, 2003. The assessment
relates to the goods and services tax (GST) and harmonized sales tax (HST).
The amount of the assessment of both taxes was $388,506.23. In addition, there
was a penalty of $39,859.52.
[3]
The
appeal raises two questions.
As an agent, was the appellant obliged to collect and
remit goods and services tax (GST) and harmonized sales tax (HST) on the
taxable supplies it sold? It is not disputed
that there were taxable supplies within the meaning of section 123 of the Excise
Tax Act, R.S.C. 1985, c.E-15, as amended (the Act).
[4]
Secondly,
did the judge err in upholding the penalty assessed by the Minister under
section 280 of the Act on the ground that the Appellant did not exercise
due diligence?
Facts giving rise to this case and
appellant’s submissions
[5]
During the
October 1, 2000, to June 30, 2002, period, the appellant failed to
collect and remit to the Receiver General for Canada the taxes from the sale of
candy, gumballs and toys made through vending machines that accept 25-cent and
1- and 2-dollar coins but do not give change. During the same period, it claimed input tax credits in the amount of $563,892.12
related to the operations of its vending machines.
[6]
The
appellant relies on the Tax Court of Canada judgment in Distribution
Lévesque Vending (1986) Ltée v. Her Majesty the Queen, [1997] G.S.T.C. 38
(T.C.C.) to support that it is not an agent within the meaning of
section 221 of the Act.
[7]
It also
argues that, first, its single-coin mechanical devices are not coin-operated
devices within the meaning of the Act, as they are operated manually and do not
give change. It adds that, secondly, the machines make it impossible to collect
taxes from consumers.
[8]
Below, I
reproduce some of the provisions of the Act that applied at the time and that
are useful for understanding the present reasons:
|
Coin-operated devices
160. Where a supply is made, and the consideration
therefor is paid, by means of a coin-operated device, the following
rules apply for the purposes of this Part:
(a)
the recipient shall be deemed to have
(i)
received the supply,
(ii)
paid the consideration for the supply, and
(iii)
paid any tax payable in respect of the supply,
on
the day the consideration for the supply is inserted into the device; and
(b)
the supplier shall be deemed to have
(i)
made the supply,
(ii)
received the consideration for the supply, and
(iii)
collected any tax payable in respect of the supply,
on
the day the consideration for the supply is removed from the device.
Division II
Goods and Services Tax
Subdivision a
Imposition of tax
Imposition of goods and services tax
165. (1) Subject to this Part, every recipient of
a taxable supply made in Canada shall pay to Her Majesty in right of Canada
tax in respect of the supply calculated at the rate of 5% on the value of the
consideration for the supply.
165.1
…
Coin-operated devices
(2)
Where the consideration for a supply of tangible personal property or a
service is paid by depositing a single coin in a mechanical coin-operated
device that is designed to accept only a single coin of twenty-five cents
or less as the total consideration for the supply and the tangible personal
property is dispensed from the device or the service is rendered through the
operation of the device, the tax payable in respect of the supply is equal to
zero.
Division V
Collection and Remittance of
Division II Tax
Subdivision a
Collection
Collection of tax
221. (1) Every person who makes a taxable supply
shall, as agent of Her Majesty in right of Canada, collect the tax under
Division II payable by the recipient in respect of the supply.
Interest
280. (1) Subject to this section and section 281,
if a person fails to remit or pay an amount to the Receiver General when
required under this Part, the person shall pay interest at the prescribed
rate on the amount, computed for the period beginning on the first day
following the day on or before which the amount was required to be remitted
or paid and ending on the day the amount is remitted or paid.
|
Appareils automatiques
160. Dans le cas où une fourniture est effectuée,
et la contrepartie y afférente payée, au moyen d’un appareil automatique,
les présomptions suivantes s’appliquent aux fins de la présente partie :
a) l’acquéreur est réputé, le jour où la
contrepartie de la fourniture est insérée dans l’appareil, avoir reçu la
fourniture et payé la contrepartie y afférente ainsi que la taxe payable qui
y est relative;
b) le fournisseur est réputé, le jour où la
contrepartie de la fourniture est retirée de l’appareil, avoir effectué la
fourniture, reçu la contrepartie y afférente et perçu la taxe payable qui y
est relative.
Section II
Taxe sur les produits et services
Sous-section a
Assujettissement
Taux de la taxe sur les produits et services
165. (1) Sous réserve des autres dispositions de
la présente partie, l’acquéreur d’une fourniture taxable effectuée au Canada
est tenu de payer à Sa Majesté du chef du Canada une taxe calculée au taux de
5% sur la valeur de la contrepartie de la fourniture.
165.1
[…]
Appareils automatiques
(2)
La taxe payable relativement à la fourniture d’un bien meuble corporel
distribué, ou d’un service rendu, au moyen d’un appareil automatique à
fonctionnement mécanique qui est conçu pour n’accepter, comme
contrepartie totale de la fourniture, qu’une seule pièce de monnaie de 0,25 $
ou moins est nulle.
Section V
Perception et versement de la
taxe prévue à la section II
Sous-section a
Perception
Perception
221. (1) La personne qui effectue une fourniture
taxable doit, à titre de mandataire de Sa Majesté du chef du Canada,
percevoir la taxe payable par l’acquéreur en vertu de la section II.
Intérêts
280. (1) Sous réserve du présent article et de
l’article 281, la personne qui ne verse pas ou ne paie pas un montant au
receveur général dans le délai prévu par la présente partie est tenue de
payer des intérêts sur ce montant, calculés au taux réglementaire pour la
période commençant le lendemain de l’expiration du délai et se terminant le
jour du versement ou du paiement.
|
[Emphasis
added.]
Analysis of the appellant’s submissions
a) Are the
appellant’s single-coin mechanical devices coin-operated devices?
[9]
In Distribution
Lévesque Vending (1986) Ltée, supra, at page 13, Tremblay J.
relied inter alia on section 160 of the Act to conclude that
single-coin devices were not coin-operated devices.
[11]
With
respect, I believe that section 160 does not assist the appellant. In fact,
section 160 is not about imposition of tax. Instead, by way of
presumptions, it merely explains when a supply is made and received, and the consideration
therefor is paid and received.
[12]
Moreover,
the term “coin-operated device” is sufficiently broad and general to include
single-coin mechanical devices. In fact, unless there is a technical failure,
by inserting the required coin and operating the mechanism, the consumer
automatically receives, without intervention of a third party, the advertised
supply.
[13]
In
addition, subsection 165.1(2) of the Act, under the heading “coin-operated
devices”, refers to a supply made through “a mechanical coin-operated device
that is designed to accept only a single coin of twenty-five cents or less as
the total consideration for the supply” (emphasis added). In such a case, the
tax payable is equal to zero.
[14]
It is
clear that the use and application of the term “coin-operated devices” are not
restricted to electronic devices. The appellant is exempted from tax for its
single-coin mechanical devices that operate with a single coin of 25 cents or
less. How can these devices be coin-operated, but stop being so when the single
coin used is a one- or two-dollar coin rather than a 25-cent one? I think that
to ask the question is to answer it.
[15]
Lastly, I
would like to draw attention to the English version of subsection 165.1(2). The
term “coin-operated devices”, selected in English to render the French term
“appareils automatiques” is similarly general and not limited to “electrically
coin-operated devices”.
b) Was it
impossible for the appellant to carry out its mandate of collecting tax, as required
by the Act?
[16]
The
Appellant claims that the impossibility of carrying out the tax collection
mandate was recognized and accepted in Distribution Lévesque Vending (1986)
Ltée., supra.
It also relies on the Civil Code of Québec
provisions on mandates to support its argument.
[17]
I
agree with counsel for the appellant that the mandate in question in this case
is a mandate imposed and governed by the Act and not a contractual mandate as
described in articles 2130 et seq. of the Civil Code of Québec. Unless excluded from the
general rule concerning imposition of tax, the
appellant is obliged to carry out its mandate.
[18]
Distribution
Lévesque Vending (1986) Ltée is a decision that was rendered in equity, but is erroneous
in law. As the judge in this case correctly pointed
out, during the period at issue, the case gave rise to an exception to the
general rule concerning the imposition of tax. This
exception can be found at subsection 165.1(2) of the Act, replacing the former
subsection 165(3.1).
[19]
The
exception made by Parliament is a limited exception with regard to its purpose.
In fact, it applies to mechanical coin-operated devices, such as the
appellant’s. But as stated previously, it is limited to devices that are
designed to accept only a single coin of 25 cents or less as consideration
for the supply. The appellant cannot benefit from this exception for devices
that are operated using one- or two-dollar coins.
[20]
As for the
impossibility of carrying out the mandate, which the appellant claims exists,
if there is an impossibility, it is not a physical one, but one that arises
from the cost of the modifications to be made to the devices.
[21]
There is
no doubt that such modifications would incur substantial costs for the
appellant and would result in a financial burden. However, as the Supreme Court
of Canada reminded us the Reference re Goods and Services Tax, [1992] 2
S.C.R. 445 at paragraph 48, “this is precisely the burden contemplated by
the statute”. Tremblay J. erroneously, and I say this with respect, used the
notion of cost to dispense Distribution Lévesque Vending (1986) Ltée of its
duty, under section 221 of the Act.
[22]
Tremblay
J. also erred when he then concluded in equity that it was unjust to oblige Distribution
Lévesque Vending (1986) Ltée to pay the tax for the consumer considering the
cost of modifying the devices: see pages 11 and 12 of the reasons for this
decision.
[23]
As in the
case before us, a seller of supplies always has the option of increasing its
prices to cover the tax, reducing the quantity or quality of the supply,
reducing its profits, or maintaining its profits by negotiating better
conditions of purchase with its own suppliers. A company’s loss of or reduction
in profits does not relieve it of its duty to collect tax on the supplies it
sells.
[24]
I agree
with the following excerpt from the reasons for judgment of the Ontario
Superior Court of Justice (Divisional Court) in Roneson Enterprises Inc. v.
Ontario (Minister of Finance), [2005] O.J. No. 3179, where the judge wrote
at paragraph 20:
In any event, just
because compliance with the Act may be difficult or may result in the
imposition of a cap on the effective purchase price of products sold through
the vending machines does not affect the legal duty of vendors to comply with
the Act. If it should turn out that it is too difficult or insufficiently
profitable for the Respondent to comply, it will have to reassess the financial
viability of conducting business through this type of vending machine and
perhaps even stop doing so. It may seem harsh but, in law, there is no duty on
the Appellant to facilitate this type of business or to help maintain its
profitability.
c) Did the judge err in upholding the penalty
imposed by the Minister?
[25]
Despite
the efforts of the appellant’s counsel, I am not satisfied that the judge
misapprehended the legal principles applicable to the penalty and the due
diligence defence.
The appellant was unable to identify an error in fact
which led it to believe on reasonable grounds in a non-existent state of facts
which, if it had existed, would have made the appellant’s failure to collect
and remit the tax innocent: see Corp. de l'École Polytechnique
v. Canada, 2004 FCA 127, at paragraph 38.
[26]
Similarly,
the appellant failed to bring to our attention any steps it took to comply with
the Act, the second and last element of a due diligence defence. In the circumstances, the judge was not wrong in concluding that the appellant
did not exercise due diligence.
Conclusion
[27]
For these reasons, I
would dismiss the appeal with costs.
“Gilles Létourneau”
I
concur in these reasons.
Alice
Desjardins J.A.
I concur.
Pierre Blais J.A.
Certified
true translation
Johanna
Kratz
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