Her Majesty the Queen v. Caisses Enregistreuses Métro Canada Ltée, [1986] 1 CTC 462

Teitelbaum, J.:—This is an action by plaintiff, Her Majesty the Queen, against the defendant, Caisses Enregistreuses Métro Canada Ltée (Métro) wherein plaintiff is claiming the sum of $17,006.36. The said sum for which plaintiff is presently claiming is a penalty for allegedly false declarations made by defendant or its agent on thirteen occasions on the importation of merchandise between August 26, 1982 and March 30, 1984. The false declaration being the statement that the defendant was the holder of a federal manufacturer's sales tax licence which would exempt the defendant from paying the sales tax at the time of taking possession of the merchandise imported. The plaintiff claims the value of the merchandise imported by the defendant or its agent on the 13 occasions between August 26, 1982 and March 30, 1984 amounts to the sum of $207,186.65.

Defendant, in its plea, denies that it imported the merchandise in question herein, denies that it made any false declarations that would make it subject to any penalty. The defendant further alleges in its defence that the merchandise was imported by its agent Lep International Inc. and that if any false declarations were made, they were made by Lep International Inc. without the knowledge of the defendant.

A number of admissions are contained in the pleadings of the parties hereto. At the time of hearing before me, certain other admissions were also made. The important admissions made, both in the pleadings and at the hearing are:

(a) defendant admits it had imported the merchandise mentioned on the 13 occasions;

(b) defendant admits that the merchandise imported was subject to federal sales tax in accordance with Article 27 of the Excise Tax Act, 1970 R.S.C. c. E-13;

(c) defendant admits that when a federal excise tax is payable, the Customs Act, 1970 R.S.C. c. C-40 applies in the same manner as if the sales tax was owing in virtue of the Customs Act;

(d) defendant admits that the plaintiff received $17,006.36 from the defendant, which sum was left on deposit and which sum was confiscated by plaintiff on January 24, 1985 for the sales tax owing;

(e) defendant admits it never had a federal manufacturer's sales tax licence;

(f) defendant admits that the notice of seizure is dated October 16, 1984;

(g) defendant admits it received the official notice of seizure in virtue of subsection 161(1) of the Customs Act on November 23, 1984;

(h) defendant admits that [sic] the decision of the Minister confirming the penalty and receiving a copy of same, the decision being dated May 15, 1985;

(i) defendant admits it did not accept the Minister’s decision.

In that the defendant has made the above-mentioned admissions. it was the importer of the merchandise, it had no federal manufacturer's sales tax licence and that on 13 occasions it failed to pay federal sales tax when it should have, the issue remaining to be determined is whether the defendant is subject to a penalty for the false declarations made during the course of 13 importations.

The proof clearly shows that on the 13 occasions when the false declarations were made, the false declaration was made by defendant's agent Lep International Inc. Exhibits P-3.1 to P-3.13 are 13 occasions of defendant importing merchandise. The documentation for the importing of the merchandise was prepared by and signed by a representative of Lep International Inc. In most instances the B-3 form, the Canada Customs Import Entry Coding Form, the document which must be prepared in order to take possession of imported merchandise, was signed by a Carol Elkin for Lep International Inc. or by a B. Fabre for Lep International Inc.

On each of the B-3 forms in question it is noted under “Box 22” S/E For Status the number “55”.

All of plaintiff’s witnesses, Mr. Michel Moise, Mr. Louis Ponton, Mr. Richard Plante, and Mr. Lee McKenna, explained that the number “55” under "Box 22” on the B-3 form appears that the person or company whose name appears in "Box 3” Importer Number/Name Address has a Manufacturer's Sales Tax Licence exempting that person from paying the sales tax at the time of importing of the merchandise.

The fact that the false declarations made to the plaintiff's representtive were not made by defendant itself was corroborated by the testimony of plaintiff's witness Mr. Michel Moise when he stated in his testimony that the B-3 form, Exhibit P-1, the importation of merchandise on February 28, 1983, was prepared by Lep International Inc. and signed by a Mr. B. Fabre of Lep International, defendant's agent. In this document, the number “55” appears under "Box 22” denoting that defendant is the holder of a federal manufacturer's sales tax licence.

Mr. Serge Roy, the Director General of the defendant company testified that at no time, including the 13 occasions in the present case, did the defendant itself ever make a false statement to the plaintiff’s representatives on the occasion of importing any merchandise. He admits that the defendant's agent, Lep International, made the wrong declaration with regard to defendant being the holder of a federal manufacturer's sales tax licence.

The witness, Mr. Roy, also admitted that the defendant company had a written contract with Lep International Inc. authorizing Lep to act for and on behalf of the defendant to take possession of imported merchandise.

I am satisfied that the defendant itself did not make any false declarations to the plaintiff, but is this, in itself, sufficient for me to state that defendant should not be ordered to pay the penalty claimed? I think not.

The Customs Act, sections 116 and 117 clearly state what transpires when one is represented by an agent. Sections 116 and 117 state:

116. Any act or thing done or performed by a duly authorized agent is binding upon the person by or on behalf of whom the same has been done or performed as fully as if the act or thing had been done or performed by the principal, but whenever any person makes application to an officer to transact any business on behalf of any other person, such officer may require the person so applying to produce a written authority from the person on whose behalf the application is made, and in default of the production of such authority may refuse to transact such business. R.S., c. 58, s. 114.

117. (1) Any attorney or agent duly thereunto authorized by a written instrument, which he shall deliver to and leave with the collector, may, in his said quality, validly make any entry, or execute any bond or other instrument required by this Act, and shall thereby bind his principal as effectually as if the principal had himself made the entry or executed the bond or other instrument, and may take the oath by this Act required by a consignee or agent if he is cognizant of the facts therein averred.

(2) Any instrument appointing such attorney or agent is valid if it is in the form prescribed by the Minister. R.S., c. 58, s. 115.

It is very clear that any act or thing done by the authorized agent binds the person who authorized the agent and if the agent is authorized to act in writing any entry made by the agent binds the person.

Mr. Roy stated in his testimony that defendant, in writing, a written contract existing between defendant and Lep International Inc., authorized Lep to act on its behalf. Therefore, in virtue of sections 116 and 117 of the Customs Act, the defendant is bound in the same manner as if the defendant itself had made the declarations.

Once a false declaration has been made and so proven, is this sufficient to state that a “fraud” in the terms of the Customs Act has occurred?

It is my belief that if a statement that is false is made on the importation of goods, then a strong presumption exists that the statement is a fraudulent one.

The leading case, in my view, on this point is the case of The Queen v. Mondev Corp. Ltd. 33 C.P.R. (2d) 193. Mr. Justice Addy states, at 199:

In considering the meaning of the words ‘‘to make out a false invoice' in the context of s 192 of the Customs Act one must consider the general character of the words creating other offences in the same section. All of these words imply something fraudulent, something furtive or an intention to deprive the Crown of revenue.

It is my belief that a false statement that has the effect of not paying the federal sales tax falls squarely under paragraph 192(1)(c) wherein it states:

in any way attempts to defraud the revenue by avoiding the payment of the duty

The words "sales taxes” can be substituted for the word "duty” in this article creating the presumption of a fraud.

It therefore becomes incumbent upon the defendant to rebut the presumption so created, section 248 of the Customs Act, by proving that there was no wilful or improper conduct or intention on the part of the defendant. The mere statement of this by the defendant is not sufficient.

Section 248 of the Customs Act states:

248. (1) In any proceedings instituted for any penalty, punishment or forfeiture or for the recovery of any duty under this Act, or any other law relating to the customs or to trade and navigation, in case of any question of, or relating to the identity, origin, importation, lading or exportation of any goods or the payment of duties on any goods, or the compliance with the requirements of this Act with regard to the entry of any goods, or the doing or omission of anything by which such penalty, punishment, forfeiture or liability for duty would be incurred or avoided, the burden of proof lies upon the owner or claimant of the goods or the person whose duty it was to comply with this Act or in whose possession the goods were found, and not upon Her Majesty or upon the person representing Her Majesty.

(2) Similarly, in any proceedings instituted against Her Majesty or any officer for the recovery of any goods seized or money deposited under this Act or any other such law, if any such question arises, the burden of proof lies upon the claimant of the goods seized or money deposited, and not upon Her Majesty or upon the person representing Her Majesty, R.S., c. 58, s. 248.

The important words in this article are “the burden of proof lies upon the owner of the goods whose duty it was to comply with this Act.”

Mr. Justice Addy in the Mondev case at 200 states:

the mere statement that there was a clerical error, without more, is not sufficient. Even if proof of good faith or of an innocent intent would exempt a person from the operation of s 192, it seems clear to me that, once under-evaluation for duty purposes has been established, (a false statement as to retention of a manufacturer’s sales tax licence), the defendant would be obliged to adduce some credible evidence of good faith and lack of blameworthy conduct on its part.

Did the defendant, in this case, adduce credible evidence of “‘good faith and lack of blameworthy conduct on its part’’?

I do not believe so. The only proof made by the defendant comes from Mr. Serge Roy, the manager of the defendant. Mr. Roy states, and I am of the belief that it is only “a mere statement,” that the defendant had nothing to do with making the false statement, that the defendant never tried to avoid payment of the taxes, that it only occurred in 13 of approximately 95 cases of importing goods, that he himself did not know to the day of the trial what the number "55” meant on the B-3 form and that the defendant never informed the customs broker, Lep International, that the defendant possessed a Sales tax licence.

No proof of these statements, other than that the B-3’s were completed by Lep, was made. The customs broker was not present in Court to substantiate this proof. The mere statement of these facts by this witness is insufficient.

Plaintiff, through its witness Michel Moise, proved that on March 10, 1983 Mr. Moise attended at the office of the defendant and spoke to Mr. Roy, defendant's witness, concerning the importation of merchandise on February 28, 1983 (Exhibit P-1).

It was at this time that Mr. Moise asked Mr. Roy if he had a federal manufacturer's sales tax licence since the B-3 declaration showed that defendant had such a licence, to which Mr. Roy replied no, because the defendant was in the habit of paying the federal sales tax.

This indicates that defendant knew it must pay sales taxes on its importing of merchandise and knowing this and after being visited by Mr. Moise where the question of sales taxes was raised, the defendant, on six subsequent occasions had merchandise imported where the same false statement, was the holder of a federal sales tax licence, was made and no payment of sales taxes was made until the sum owing was seized by the plaintiff. The six importations are Exhibits P-3;13 (B-3 form stamped March 30, 1984), P-3:12 (B-3 form stamped November 25, 1983), P-3:11 (B-3 form stamped November 15, 1983), P-3:10 (B-3 form stamped October 12, 1983), P-3:9 (B-3 form stamped March 31, 1983), P-3:8 (B-3 form stamped March 8, 1983).

Mr. Roy, in trying to explain why the pattern continued after the visit of Mr. Moise, states that all amounts payable to the plaintiff for importing of goods are paid by the agent and he really never checks to see if only the duty was paid or if the duty and taxes were paid. He gave us an example, Exhibit D-1, an invoice from Lep Interational wherein the item “Droits et Taxes/Duty & Taxes” are on the same line and he thus would not know if taxes were or were not paid.

Exhibit D-1 speaks of duties and taxes. In verifying Exhibit D-1, which was filed “en liasse’’ we also see a form issued by Revenue Canada called Appraisal Note/Formule D'Appréciation wherein we can see that a sum of 94 cents was paid for sales tax.

No other invoices were filed into the record and I cannot say that if the sales tax were not paid, the invoice issued by Lep International would still read “Droit et Taxes/Duty & Taxes” or only “Droits/Duty.”

The burden of rebutting the presumption lies with defendant and since no other invoices were produced, I cannot accept the explanation of Mr. Roy on behalf of defendant that subsequent to Mr. Moise's visit he still did not know of the fact that a false declaration was being made. Even if I were to accept this explanation, there certainly was serious negligence on the part of defendant in not verifying the invoices and other documentation to see that the sales taxes owing were paid when the goods were imported.

The defendant was also aware that sales taxes had not been paid as a result of receiving an invoice from plaintiff on or about March 17, 1983 for goods imported from August 26, 1982. This invoice was sent as a result of a visit to defendant's premises by a Mr. Louis Ponton who verified early importations by defendant and found on the B-3 forms the code number “55” indicating the defendant as having a federal manufacturer's sales tax licence.

I am of the belief that in today's way of doing business in the importation of goods from outside Canada, an agent or customs broker is normally used because of the broker's special expertise. It is for this reason, amongst others, that the Customs Act makes the importer bound by the declarations of the customs broker in the same way as if the importer had made the declarations. If this were not the case, many importers would simply, on false or incorrect statements being made to save the payment of duties or sales taxes, use the excuse “well I did not know what was declared or entered on the required documentation to import certain merchandise.”

It is for this reason that the Courts have stated, Mondev case, that a statement alone with no substantiating proof of good faith is not sufficient.

Mr. Justice Addy states, in speaking of section 192, at page 199 of The Queen v. Mondev Corp. Ltd.:

From the fraudulent element contained in all of these expressions, it appears that parliament intended the word "Taise” to include an element of blameworthy intention” [emphasis is mine.]

Blameworthy intention is defined in Webster's Third New International Dictionary of the English Language Unabridged as “deserving blame,” “at fault.”

There is no doubt that the defendant's representative is at fault, the defendant is responsible as if it did the act itself, the false entry on the B-3 form stating that it had the required licence.

I am satisfied that mens rea, a guilty intent, is not a required element in “blameworthy intention?' What is required is an act of obvious negligence. The broker, in making the false declaration for which the defendant is responsible in law as if he himself made it, has been obviously negligent if we are to assume that there was no criminal intent to defraud the plaintiff of the sales tax.

There was obvious negligence on the part of the defendant for failing to verify that the customs forms prepared by others were properly completed, particularly after having been visited by Mr. Michel Moise and after having received an invoice for sales tax from the Minister of Revenue following the visit of Mr. Ponton.

The defendant in its argument has a three-prong defence. Its first defence is that there was no Fraude Véritable, secondly, it states that there was no intention to evade the sales tax and thirdly, the most novel defence, Negligence Excusable, excusable negligence.

I shall deal with these three defences.

Fraude Véritable

As was pointed out by Mr. Justice Addy in The Queen v. Mondev Corp. Ltd., the fact that a false statement was made is sufficient to state that a “fraud" existed and that only by concrete evidence can this presumption be rebutted.

Other than the testimony of the defendant's general manager, no proof was made to rebut the presumption established by section 248 of the Customs Act.

I must disregard this defence.

Intention to Evade Taxes

The proof made by the plaintiff is that on five or six occasions after being visited by a representative of the Minister of Revenue, the defendant or defendant's representative for whom the defendant is responsible, continued to make a false entry on the B-3 forms. This can only lead me to believe that there might have been an idea to avoid the payment of the sales tax. It was for defendant to show otherwise. It failed to do so.

I must set aside this defence.

Excusable Negligence

The defendant's attorney defines “excusable negligence" as negligence with no intention, in this case, no intention to avoid the payment of sales tax.

I would state that the effect of this negligence, negligence with no intention, had it not been discovered by the employees of the plaintiff, would be that the plaintiff would not collect moneys legally due it by the defendant.

The defendant's attorney explained, and the proof of defendant confirms, that the defendant company is relatively small having five or six employees in Montreal and 20 or 25 employees in its office in Toronto. Being small, the attorney argues, the defendant has no expertise in the importing of merchandise and relied on a specialist, a customs broker. The broker being the one to make the incorrect, I say false, declaration, there is therefore excusable negligence.

Defendant's attorney admits that there is an element of negligence on the part of the defendant but in dividing the negligence between Gross Negligence and Light Negligence, the latter applies. The attorney relates it to what could be expected of a “bon père de famille.”

I cannot agree that this theory can be applied in cases involving the evading of the payment of custom duties or sales taxes. Once it has been proven that a false statement was made and, in this case, it resulted in the avoidance of the payment of sales taxes, it is for the defendant to show with the best proof that there was no blameworthy intention or that it was a simple clerical error. This was not done.

I am satisfied from the testimony I have heard during the hearing, Lep International Inc. not being present, that the false entry on all of the B-3 import entry coding forms for the 13 transactions was made by Lep International Inc. This, in itself, is insufficient for me not to find in favour of the plaintiff.

No proof was made before me to explain the false statement, the defendant's statement that he did nothing wrong because he really did not want to avoid the payment of sales taxes due and owing is insufficient.

The defendant submitted two cases which it believes upholds its argument that no penalty should be imposed. The first, The Queen v. Canabec Trailers Inc., [1982] 1 F.C. 788 and the second, Donald Stanley Harris v. The Queen, [1984] 1 F.C. 865.

I am of the opinion that these two cases are very different from that now before me.

In the Canabec case, it was simply a question of an error in interpretation of the exemption. Mr. Justice Marceau states at 791:

On the contrary, the defendant acted in good faith, in my view, its error in interpreting the scope of the exemption being quite understandable, as indicated by the fact that it has been made by certain customs officers themselves. Moreover, counsel for the plaintiff did not insist on this part of the claim.

It can be seen that the defendant in the Canabec case made proof of its good faith and also proved that the error in interpretation was also made by custom officers.

No proof of any kind was made before me as to why the false statement of having a sales tax licence was made.

In the Harris case, the error as made by the customs officer who completed the form and not by the importer. The customs officer, on his own, without any statement made by Harris, after verifying the book which gives the values of automobiles, filled in the value of the car being imported. It was the customs officer who failed to take into consideration that the car was a “collector's item.” Harris did not make any false statement as did Lep International Inc. on behalf of the defendant Métro.

The importer has an obligation to declare all that is required of him by the law and to declare truthfully. The burden placed on the importer by the Customs Act and the Excise Act are rigorous because the Crown is entitled to ensure that what is legally due to it is paid.

I find that the defendant failed to discharge its burden of proof and is subject to the penalty demanded.

I hereby order the defendant Caisses Enregistreuses Métro Canada Ltée to pay to plaintiff, Her Majesty the Queen, the sum of $17,006.36 with interest and costs.

Order accordingly.