Docket:
A-134-14
Citation: 2014 FCA 296
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CORAM:
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PELLETIER J.A.
GAUTHIER J.A.
SCOTT J.A.
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BETWEEN:
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HER MAJESTY THE QUEEN
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Appellant
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and
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SALAISON LÉVESQUE INC.
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Respondent
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REASONS FOR JUDGMENT
GAUTHIER J.A.
[1]
This is an appeal from the decision of Tardif J.
of the Tax Court of Canada allowing the appeal of the respondent (Salaison) and
vacating the notice of assessment made under Part IX of the Excise Tax
Act, R.S.C. 1985, c. E-15 (the Act), for the period from August 7, 2006, to
August 29, 2009.
[2]
This assessment included, among other things, an
amount of $12,443.35 constituting the input tax credits (ITCs) claimed by
Salaison but disallowed by Quebec’s Minister of Revenue on the ground that they
were based on invoices of convenience (see A.R., Volume 3, page 538) and a
penalty of $3,110.84 imposed under section 285 of the Act. At the hearing, the
appellant stated that it was no longer challenging the judge’s decision to set
aside the penalty.
[3]
The assessment also included $2,348.29 for disallowed
ITCs for a motor vehicle and $855.09 with regard to the GST payable on an
automobile benefit. Salaison did not challenge these two items before the
judge. On this point, the parties agree that this Court must correct the error
in the terms of the judgment.
[4]
In its cross-appeal, Salaison is challenging the
amount of the costs the judge ordered it to pay.
I.
ITCs
[5]
At issue in the main appeal is essentially the
judge’s conclusion that Salaison established prima facie that the
Minister’s assumptions underlying the assessment were incorrect (paragraph 53
of the judge’s reasons reported under neutral citation 2014 TCC 36).
Moreover, as the appellant is not disputing that the services were indeed
performed for Salaison or that Salaison paid the amount of the invoices issued
for supplies taxable under the Act, a key issue is whether the judge could
conclude that the services were performed by the agencies whose name appears on
the invoices, as required by the Act and the Input Tax Credit Information
(GST/HST) Regulations, SOR/91-45 (the Regulations). The relevant provisions
are reproduced in Annex 1.
[6]
As indicated by the judge, Salaison is a family
business created in 1967 that specializes in the production of ham of various
types and forms. Its annual sales are between $15 and $18 million,
and the business employs about 75 people full-time. Since the products
that Salaison processes and sells are perishable, delivery deadlines are very
short, and during major holiday periods (roughly four times a year), Salaison
has to significantly increase its workforce. During the assessment period, after
unsuccessful efforts to recruit this workforce itself, the appellant retained
the services of four employment agencies, Placement Tout Azimut (PTA), Agence
Alina, Agence de Production Plus Inc. and Entreprise A. Bustos. However, the ITCs
claimed were not for the services invoiced by PTA, because when Salaison
verified whether this agency had a tax number, it was not satisfied that the PTA
agency was an agent of the Minister who could collect tax on the Minister’s
behalf (section 221 of the Act). It therefore did not pay any taxes on the
supplies obtained from PTA or claim any ITCs related to these supplies.
[7]
The hourly wage paid to the agencies was
approximately the same as the salary Salaison paid its own employees (paragraph 28
of the reasons), and, occasionally, Salaison recruited some workers from the
agencies who subsequently became permanent employees (paragraph 30 of the
reasons). This allowed it to provide information from these employees.
[8]
Prior to retaining the services of the employment
agencies in question, Salaison verified whether they had a GST registration
number under the Regulations (paragraph 23 of the reasons). That being
said, the impugned assessment is not based on any failure with respect to the
registration numbers used on the invoices produced by Salaison in support of
its ITC claim. This was therefore not at issue before the judge.
[9]
In the light of the findings made during the
summary audits performed by the Minister’s auditors, the judge concluded that
the agencies in question were unreliable and dishonest businesses in
that they had set up a tax scam in order to enrich themselves by paying their
employees little and keeping the taxes collected from their clients for
themselves (paragraphs 29, 32, 49 and 60 of the reasons).
[10]
That being said, the judge also concluded that
the business relationships between Salaison and these agencies were normal
and entirely consistent with standard practices and that the evidence did not
show anything that could raise questions about Salaison’s good faith or even
any negligence (paragraphs 41 and 67 of the reasons). He also concluded
that the Minister’s argument that the agencies were not carrying out a
commercial activity was without merit (paragraphs 46 to 47 of the
reasons).
[11]
The appellant submits that these conclusions
with respect to the agencies’ tax offences and Salaison’s good faith were
neither relevant nor necessary since the Minister’s position was simply that
the invoices were false as the agencies were not carrying out a commercial
activity and did not have the resources to supply these services.
[12]
In my opinion, the judge could not ignore the
following, among other things, in the Minister’s reply to the notice of appeal.
[translation]
22. In assessing the appellant, the Minister
relied, among other things, on the following findings and facts.
. . .
(d) The
amount of $12,443.34 was assessed for the disallowed ITCs relating to the
invoices of convenience;
(f) The
appellant is challenging only the portion relating to the invoices of
convenience;
(g) The
respondent disallowed the ITCs claimed because she believed that the
subcontractors in question provided invoices of convenience and that the work
was not performed or was not performed by those subcontractors; . . .
24. The
appellant undoubtedly did not act in good faith and was part of a scheme of
false invoices, among other things, but, without limiting the generality of the
foregoing, the appellant voluntarily sent the respondent’s representative false
information;
The purpose of the assumption in paragraph 24,
above, was specifically to support the imposition of a penalty under section
285 of the Act. It was therefore the appellant who put in issue Salaison’s good
faith and the fact that the invoices supplied were invoices of convenience. She
cannot therefore complain that the judge drew the necessary inferences on these
issues.
[13]
For an invoice to be one of accommodation or
convenience, the party receiving the invoice must be involved in some kind of
scheme as the invoice issuer presumably made this invoice to comply with the
demands or expectations of the receiving party (for a typical example, see Pro-Poseurs
Inc. v. Canada, 2012 FCA 200).
[14]
Before this Court, the appellant distinguished
between a [translation] “false invoice” and an [translation] “invoice of accommodation
or of convenience”. In my opinion, the phrase “false
invoice” can indeed cover several types of situation, including invoices
of accommodation or of convenience. The phrase is broader in scope as it can
encompass situations where the invoice recipient is not party to a scheme, but
the invoice is incorrect to the issuer’s knowledge, for various reasons: for
example, the name of the supplier appearing on the invoice does not match the
supplier to which the registration number was attributed or the company issuing
the invoice does not actually exist. There is no need to say more about this
matter here as truth is often stranger than fiction, and I could not provide a
complete list of all possible scenarios.
[15]
However, I understand from the appellant’s
argument that, before this Court, she is no longer alleging that the invoices
were indeed invoices of accommodation or of convenience, as defined above.
[16]
I will not address the judge’s many observations
on Revenue Quebec’s conduct. I agree with the appellant, however, that there
was no need to make assumptions regarding the appellant’s intention as the
appellant’s intention was irrelevant to the dispute before the judge.
[17]
In obiter, the judge also made a number
of comments on issues apparently raised by the appellant in its arguments or in
the auditors’ reports (for example, the fact that Salaison could have checked
with the CSST whether the agencies were complying with the requirements). These
fairly general observations seem to have created confusion about what there was
to determine in the present matter and especially about what is relevant to
satisfy the strict requirements of the Act and the Regulations in the sense
enunciated by this Court in Systematix Technology Consultants Inc. v. Canada,
2007 FCA 226. The Regulations are clear, and the only actual issue before
the judge in the present matter was to determine whether Salaison had produced invoices
describing the name of the service supplier of the intermediary as required by
the Regulations. That is a question of fact.
[18]
Moreover, even if the judge’s reasons could have
been more structured or clearer on the essential issues before the judge, this
does not by itself justify undue interference on the part of this Court with
respect to his assessment of the evidence or the questions of fact or questions
of mixed fact and law.
[19]
The appellant lists six errors in its
memorandum. In its oral submissions before us, she insisted on two issues that
cover all the errors described in its memorandum.
[20]
First, the appellant alleges that the judge
shifted the burden of proof by requiring, among other things, that the Minister
demonstrate that the agencies had not supplied the services and that the
invoices were invoices of convenience. According to the appellant, this is an
error of law to be reviewed against the standard of correctness.
[21]
It is within this framework, to support his
position on the shift of the burden of proof, that the judge wrongly, so the
appellant claims, refused to draw a negative inference against Salaison because
it did not call the agencies’ representatives to testify.
[22]
Let me begin by saying that, in his reasons, the
judge noted at paragraph 3 that “[t]o begin
with, the [appellant’s] position is nebulous”. He continues by stating
that the appellant, on the one hand, submitted that the invoices were false,
but, on the other hand, acknowledged that the work matching the description on
those same invoices had indeed been performed. The judge then compares that
position to the position described in the reply to the notice of appeal, which,
as I have already noted, indicates that the invoices were invoices of
convenience issued for work that was not performed or that was not
performed by certain subcontractors.
[23]
Nonetheless, the judge also states clearly in paragraph 8
of his reasons that “[d]espite certain inconsistencies,
the burden is on the appellant to show that the invoices related to the ITCs
claimed meet the mandatory requirements prescribed by the [Regulations] and,
specifically, that there were, in fact, bona fide commercial transactions
between it and the Agencies”. It is on this basis that the judge then
examines the evidence.
[24]
The appellant puts much emphasis on paragraph 53
of the reasons, where the judge writes that the appellant’s “flagrant lack of consistency means that the appellant has
succeeded in establishing prima facie that the [appellant’s] assumptions
underlying the assessment were false”.
[25]
Contrary to the appellant, who sees this as
confirmation of the burden of proof shifting, I see this as confirmation that
the judge understood correctly that Salaison had to demolish the assumptions
made by the Minister by making a prima facie case but no more (Hickman
Motors Ltd. v. Canada, [1997] 2 S.C.R. 336 [Hickman] at paragraph 92).
The judge also seems to wish to reemphasize, as he did at the outset and
elsewhere in his reasons (see, for example, paragraph 34), that the very
nature of the Minister’s assumptions in this case made it easier for Salaison
in this respect.
[26]
There is no doubt that once the Minister’s
presumptions and assumptions were demolished, the appellant had to prove on a
balance of probabilities the merit of her position that the names of the
suppliers or the intermediaries on the invoices were not correct for Salaison’s
appeal to be dismissed (Hickman, paragraph 94). The judge rightly
states at paragraph 54 that the appellant’s evidence was insufficient: it “does not pass the preponderance test”.
[27]
The appellant has not satisfied me that she
was imposed the initial burden by the judge, especially as even when the judge discusses
the issue of the negative inference the appellant asked him to draw, he
reiterates at paragraph 81 of his reasons that “[i]ndeed,
the onus of proof was on [Salaison] . . .”.
[28]
I will discuss the propriety of drawing such an
inference in addressing now the second major issue before us, namely whether
the judge committed one or more palpable and overriding errors in his
assessment of the evidence and of the questions of fact and whether he could
conclude as he did that Salaison had met its burden of demolishing the Minister’s
assumptions.
[29]
The trier of fact has discretion as to whether
or not to draw a negative inference from the absence of certain witnesses, in
this case, the agencies’ representatives. He or she can always consider the
background and all of the evidence submitted to determine whether there is
reason to exercise this discretion or not.
[30]
In the matter at bar, Revenue Quebec’s auditors
had an opportunity to interview the agencies’ directors (see, among others
things, paragraph 31, pages 8 to 11 of the reasons). The appellant’s
representatives subsequently confirmed that, for various reasons, it was difficult,
if not impossible, to contact these people. I also note that, contrary to the
situation in the cases that the appellant cites (Amiante Spec Inc. v. The
Queen, 2008 TCC 89, aff’d by this Court 2009 FCA 139; Les
Constructions Rossi & Fils 2000 Inc. v. The Queen, 2009 TCC 76,
aff’d by this Court 2009 FCA 349; Les Pro-Poseurs Inc. v. The Queen,
2011 TCC 113, aff’d by this Court 2012 FCA 200), the judge did find
Salaison’s witnesses credible.
[31]
I cannot therefore conclude that, as suggested
by the appellant, the judge erred in refusing to draw a negative inference in
this case.
[32]
The appellant also submits that, in the absence
of the agencies’ representatives, the judge had no evidence before him
suggesting that the agencies carried out commercial activities and that they
had indeed performed the services described in the invoices submitted by
Salaison.
[33]
The appellant adds that the judge erred in
considering evidence that was extraneous to the assessment, such as its
intention, that he was mistaken about certain facts (for example, the issuing
of assessments for the agencies’ unreported income, for unreported source
deductions and the acceptance of Salaison’s business expenses — see, however,
A.R., Volume 7, page 1233, lines 16 to 19, and Volume 8, page 1492,
lines 21 to 26, and page 1493, lines 1 to 5). He also, according to
the appellant, ignored that the Regulations contain a definition of “intermediary”, even though that definition is very
similar to the definition provided by the judge in Note 7 of his reasons.
[34]
Salaison did not dispute that the reasons
contained some errors; it limited itself to stating, correctly, in my opinion,
that these errors were not overriding because ample evidence allowed the judge
to conclude that Salaison had discharged its burden of demolishing the Minister’s
assumptions by presenting prima facie evidence and that the appellant
had failed to establish on a balance of probabilities that these services had
not been provided by the suppliers whose names appeared on the invoices. I
agree.
[35]
As stated by my colleague Stratas J. in
Canada v. South Yukon Forest Corporation, 2012 FCA 165, at paragraph 46,
[w]hen arguing palpable and overriding
error, it is not enough to pull at leaves and branches and leave the tree
standing. The entire tree must fall.
[36]
It is inaccurate to say that there was no
evidence before the judge regarding each of the agencies’ commercial activities
and that the agencies had indeed supplied the services provided to Salaison.
That is especially obvious when one considers that much of the information
obtained by the auditors supported and corroborated the testimonial and
documentary evidence produced by Salaison. For example, the agencies were duly
incorporated, and Salaison’s contact persons appeared in the Register as either
shareholders or officers. They had a place of business (except for PTA as of
2008). The agencies’ representatives could be contacted periodically by
telephone, email or facsimile, and they replied to Salaison’s requests by
sending the number of people required for the time required. Most of the
cheques drawn in favour of the agencies transited through normal channels (bank
accounts), and the persons listed as agency employees in Salaison’s documents
confirmed that they had been hired and paid by these agencies. In at least one
case, a former employee found an old pay slip from the agency for which he had
worked, and the hours recorded in Salaison’s documents matches the hours
indicated on the pay slip.
[37]
Whether the wages of the employees who provided
the services were paid under the table or whether these employees were not all
declared is irrelevant as such to the issue whether the sub-contractors who
hired and paid them provided the services supplied to Salaison. The weight to
be given to missing or incomplete payroll records depends on the context and
other evidence on the record. This too is an issue for the trier of fact to
determine. It is therefore of little use for the appellant to cite the decision
of the Tax Court of Canada or that of this Court in Kosma-Kare Canada Inc.
v. The Queen, 2014 TCC 13 and 2014 CAF 225. In this
case, I noted that the judge’s conclusion of fact that the subcontractors
described in the invoices were neither service suppliers nor intermediaries was
not challenged before us.
[38]
I am satisfied that the judge was entitled to
conclude that the argument that the agencies with which the appellant dealt did
not carry out any commercial activities was unsubstantiated and that Salaison
discharged its burden by relying on the testimony and the documentary evidence
produced by it, which, with respect to some items, was completed and
corroborated by information provided by the appellant’s representatives. In the
circumstances, the Court’s intervention is not warranted.
II.
Costs
[39]
The parties agree that they did not have an
opportunity to make representations before the judge as to the amount of costs.
They also do not dispute, as submitted by Salaison, that the judge did not
apply the correct test in paragraph 125 of his reasons, where he writes
that “[t]he award of a lump sum or of any other
increase to the statutory tariff requires circumstances and an exceptional
context where the history of the case shows elements of abuse, frivolousness
and/or bad faith”. The matter must therefore be referred back to the
judge so that he can redetermine this issue after hearing the parties or
allowing them to file written representations.
III.
Conclusion
[40]
For the above reasons, I propose that the main
appeal be dismissed, except with regard to the $2,348.29 and $855.09, amounts
which Salaison never disputed. Salaison should be entitled to costs on appeal.
[41]
The matter should also be referred back to the
judge so that he can redetermine the amount of costs to be awarded to Salaison.
“Johanne Gauthier”
“I agree.
J.D. Denis Pelletier J.A.”
“I agree.
A.F. Scott J.A.”
Certified true
translation
François Brunet,
Revisor
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