Citation: 2012TCC355
Date: 20121016
Docket: 2011-3660(GST)I
BETWEEN:
STANISLAW PAWLAK, JADWIGA PAWLAK,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1]
The issue in this case
is whether in assessing (or reassessing) the Appellants in relation to their
net tax for the purposes of the Excise Tax Act (the “ETA”) for the
reporting periods ending December 31, 2003 and December 31, 2004, input tax
credits (“ITCs”) for GST paid (or payable) during these reporting periods
should have been taken into account even though the GST returns for these
reporting periods were filed more than four years after the dates on which such
returns should have been filed.
[2]
The Appellants carry on
a business, as a partnership, of selling concrete drill bits on the internet.
Most of the customers of the Appellants are in the United States and therefore
most of the supplies made by the Appellants are zero-rated supplies for the
purposes of the ETA. The Appellants each have serious health related
problems and they did not file their income tax returns nor their GST returns
on time. They first concentrated on bringing their income tax returns up to
date and then they filed their GST returns.
[3]
In the GST returns for
the reporting periods ending December 31, 2003 (which was filed on September
28, 2009) and December 31, 2004 (which was filed on September 24, 2009) the
Appellants claimed the following amounts:
|
Reporting Period Ending
|
GST
Collectible
|
ITCs
Claimed
|
Net Tax
(Refund)
|
|
December 31, 2003
|
$1,389.54
|
$13,096.05
|
($11,706.51)
|
|
December 31, 2004
|
$3,246.31
|
$13,577.16
|
($10,330.85)
|
|
Total:
|
$4,635.85
|
$26,673.21
|
($22,037.36)
|
[4]
The input tax credits
(“ITCs”) that were claimed were mostly for imported supplies for which the
Appellants had to pay the GST to have the items released from customs. In
paragraph 6 of the Reply it is stated that the GST returns were reassessed. In reassessing the GST returns the ITCs
were reduced to the amount of the GST collectible so that the net tax that was
reassessed for each reporting period was nil. The only basis for reducing the
ITCs from the amounts as claimed to the amount of the GST collectible that was
stated in the Reply was that the ITCs were not claimed within the limitation
period as set out in subsection 225(4) of the ETA.
[5]
Subsection 225(4) of
the ETA provides in part as follows:
225
(4) An input tax credit of a person for a particular reporting period of the
person shall not be claimed by the person unless it is claimed in a return
under this Division filed by the person on or before the day that is
…
(b)
where the person is not a specified person during the particular reporting
period, the day on or before which the return under this Division is required
to be filed for the last reporting period of the person that ends within four
years after the end of the particular reporting period;
[6]
The Appellants were not
a specified person as defined in subsection 225(4.1) of the ETA during
either reporting period in issue. The last reporting period that ends within
four years of the reporting period ending December 31, 2003 would have ended
December 31, 2007. Since the business was being carried on by the partnership
and since a partnership is a person for the purposes of the ETA (and is not an individual for the purposes of the ETA), the
GST return for the partnership for 2007 would have been due March 31, 2008. Similarly,
the last reporting period that ends within four years of the reporting period
ending December 31, 2004 would have ended December 31, 2008 and the GST return
for this reporting period would have been due March 31, 2009. The ITCs for 2003
and 2004 were not claimed in any return that was filed within the time
specified in subsection 225(4) of the ETA.
[7]
The Respondent referred
to the case of Layte v. The Queen, 2010 TCC 281, 2010 G.T.C. 66,
[2010] G.S.T.C. 80, to support the position that the Appellants should not be
entitled to claim ITCs in this case. However, that case did not address the
provisions of subsection 296(2) of the ETA. This subsection provides
that:
296
(2) Where, in assessing the net tax of a person for a particular reporting
period of the person, the Minister determines that
(a)
an amount (in this subsection referred to as the “allowable credit”) would have
been allowed as an input tax credit for the particular reporting period or as a
deduction in determining the net tax for the particular reporting period if it
had been claimed in a return under Division V for the particular reporting
period filed on the day that is the day on or before which the return for the
particular reporting period was required to be filed and the requirements, if
any, of subsection 169(4) or 234(1) respecting documentation that apply in
respect of the allowable credit had been met,
(b)
the allowable credit was not claimed by the person in a return filed before the
day notice of the assessment is sent to the person or was so claimed but was
disallowed by the Minister, and
(c)
the allowable credit would be allowed, as an input tax credit or deduction in
determining the net tax for a reporting period of the person, if it were
claimed in a return under Division V filed on the day notice of the assessment
is sent to the person or would be disallowed if it were claimed in that return
only because the period for claiming the allowable credit expired before that
day,
the
Minister shall take the allowable credit into account in assessing the net tax
for the particular reporting period as if the person had claimed the allowable
credit in a return filed for the period.
[8]
Therefore, provided
that the conditions of this subsection are satisfied, in assessing (or
reassessing) a person for net tax for a particular reporting period, that
person is to be allowed a credit for unclaimed ITCs for that period even if the
assessment (or reassessment) is issued after the expiration of the time period
within which such ITC could have been claimed.
[9]
In this case, the only
facts that are assumed by the Minister in the Reply are related to the business
of the Appellants, the amounts claimed as ITCs in the GST returns that were
filed and the dates on which the GST returns were filed. There are no facts
that are assumed by the Minister in relation to the issue of the documentation
that the Appellants had (or did not have) with respect to the ITCs that were
claimed. In The Queen v. Loewen, 2004 FCA 146, Justice Sharlow,
on behalf of the Federal Court of Appeal, made the following comments:
11 The
constraints on the Minister that apply to the pleading of assumptions do not
preclude the Crown from asserting, elsewhere in the reply, factual allegations
and legal arguments that are not consistent with the basis of the assessment. If
the Crown alleges a fact that is not among the facts assumed by the Minister,
the onus of proof lies with the Crown. This is well explained in Schultz
v. R. (1995), [1996] 1 F.C. 423, [1996] 2 C.T.C. 127, 95 D.T.C.
5657 (Fed. C.A.) (leave to appeal refused, [1996] S.C.C.A. No. 4 (S.C.C.)).
[10]
The only evidence that
was presented at the hearing of the appeal was the statement of one of the
Appellants that the ITCs claimed arose as a result of GST that was paid for
imported supplies that were used in carrying on their commercial activity and
that there were customs documents that supported the amounts claimed. Since no
assumptions were made in relation to the lack of the appropriate documentation
to support the ITCs that were claimed and since the only evidence confirmed
that there was documentation to support the amounts claimed, there is no basis
to deny the Appellants’ claim for ITCs based on any lack of documentation. The
Appellants were carrying on a commercial activity and were acquiring supplies
in the course of carrying on that activity and therefore they would have been
allowed the ITCs if the GST returns would have been filed by their due dates.
As a result the conditions as set out in paragraph 296(2)(a) of the ETA
are satisfied.
[11]
Paragraph 296(2)(b)
of the ETA provides that:
(b)
the allowable credit was not claimed by the person in a return filed before the
day notice of the assessment is sent to the person or was so claimed but was
disallowed by the Minister, and
[12]
The date that the
notice of reassessment was sent to the Appellants was not
disclosed in the Reply nor was there any evidence on this point. It seems
logical however that the notice of reassessment would have been sent sometime
after the date that the GST returns were filed by the Appellants. Therefore on
the day that the notice of the reassessment was sent to the Appellants, they
had claimed the ITCs in a return and, prior to the reassessment being issued,
the ITCs claimed had not been disallowed. A literal interpretation of this
paragraph would mean that the Appellants would not satisfy the conditions of
this paragraph. However, is this the correct interpretation of this paragraph?
[13]
The Supreme Court of Canada in The
Queen v. Canada Trustco Mortgage Company, 2005 SCC 54, 2005 DTC 5523
(Eng.), [2005] 5 C.T.C. 215, 340 N.R. 1, 259 D.L.R. (4th) 193, [2005]
2 S.C.R. 601, stated that:
10 It
has been long established as a matter of statutory interpretation that “the
words of an Act are to be read in their entire context and in their
grammatical and ordinary sense harmoniously with the scheme of the Act, the
object of the Act, and the intention of Parliament”: see 65302
British Columbia Ltd. v. R., [1999] 3 S.C.R. 804 (S.C.C.), at para. 50. The
interpretation of a statutory provision must be made according to a textual,
contextual and purposive analysis to find a meaning that is harmonious with the
Act as a whole. When the words of a provision are precise and
unequivocal, the ordinary meaning of the words play a dominant role in the
interpretive process. On the other hand, where the words can support more than
one reasonable meaning, the ordinary meaning of the words plays a lesser role.
The relative effects of ordinary meaning, context and purpose on the
interpretive process may vary, but in all cases the court must seek to read the
provisions of an Act as a harmonious whole.
[14]
In Re Rizzo & Rizzo Shoes Ltd., [1998] 1
S.C.R. 27, Justice Iacobucci, writing on behalf of the Supreme
Court of Canada, stated that:
27 In my
opinion, the consequences or effects which result from the Court of Appeal's
interpretation of ss. 40 and 40a of the ESA are incompatible with both the
object of the Act and with the object of the termination and severance pay
provisions themselves. It is a well established principle of statutory
interpretation that the legislature does not intend to produce absurd
consequences. According to Côté, supra, an interpretation can be
considered absurd if it leads to ridiculous or frivolous consequences, if it is
extremely unreasonable or inequitable, if it is illogical or incoherent, or if
it is incompatible with other provisions or with the object of the legislative
enactment (at pp. 378-80). Sullivan echoes these comments noting that a label
of absurdity can be attached to interpretations which defeat the purpose of a
statute or render some aspect of it pointless or futile (Sullivan, Construction
of Statutes, supra, at p. 88).
[15]
It seems to me that a
literal interpretation of paragraph 296(2)(b) of the ETA will
lead to illogical results. Assume, for example, that instead of claiming the
ITCs in the GST returns that were filed in 2009, the Appellants would have
filed GST returns in which only the GST collectible would have been reported
and in a separate letter had identified the amounts expended as GST in relation
to supplies that they had purchased. In this example the Appellants would have
satisfied the conditions in paragraph (b) because the ITCs would not
have been claimed in a return. A literal interpretation would lead to the
illogical result that claiming the ITCs in a late filed return would result in
the Appellants not being able to receive the benefit of having such ITCs taken
into account in determining their net tax but failing to include such ITCs in
such a late filed return would mean that the Appellants could receive the
benefit of having such ITCs being taken into account in determining their net
tax, assuming that the Minister is able to determine such ITCs. As well if an
auditor for the Canada Revenue Agency would have found the ITCs in auditing the
Appellants the condition would be satisfied but voluntarily disclosing the ITCs
in a late filed return would disqualify the person from the benefit of being
audited to net tax. It does not seem to me that this is the intended result and
it seems to me that a literal interpretation leads to illogical results.
[16]
In this case the
Respondent did not argue that the Appellants did not satisfy the requirements
of paragraph 296(2)(b) of the ETA. In reassessing the Appellants
they were allowed ITCs of $1,389.54 for 2003 and $3,246.31 for 2004. Since all
of the ITCs were claimed in the same returns, it appears that the Respondent
was acknowledging that, at least for these ITCs, the provisions of subsection
296(2) of the ETA were applicable and that the Appellants had satisfied
the conditions of paragraph 296(2)(b) of the ETA. Otherwise what
was the basis for allowing the Appellants’ ITCs of $1,389.54 for 2003 and
$3,246.31 for 2004?
[17]
If a literal
interpretation of paragraph 296(2)(b) of the ETA is applied and an order
were to be issued by this Court, as provided in subparagraph 309(1)(b)(ii)
of the Act, requiring the Minister to reassess the net tax of the
Appellants as provided in subsection 296(2) of the ETA, then, when the
Appellants are reassessed in compliance with such an Order, the conditions of
subparagraph 296(2)(b) of the ETA would be satisfied as on the
date of such reassessment the ITCs claimed would have been previously
disallowed. It does not seem to me that it would have been intended that
persons affected by an assessment of net tax would be denied the benefit of
subsection 296(2) of the ETA only to have the benefit of this provision
reinstated as a result of an Order of this Court requiring the Minister to
again reassess that person.
[18]
It does not seem to me
that paragraph (b) should be interpreted to mean that a person would be denied
the benefit of the provisions of subsection 296(2) of the ETA if the
person reports ITCs in a late filed return but will receive the benefit of this
subsection if the ITCs are not reported (and the CRA determines the ITCs as a
result of an audit or as a result of a disclosure made outside a return). It
would also seem to me that it would not be intended that the conditions as set
out in subsection 296(2) of the ETA would not be satisfied because the
ITCs were claimed in the return in relation to which the assessment (or
reassessment) is issued (which assessment or reassessment disallows such ITCs)
but such conditions would be satisfied if the Minister were to subsequently be ordered
to reassess the person as a result of an appeal to this Court following such
initial assessment (or reassessment).
[19]
It seems to me that the
purpose of the condition in paragraph 296(2)(b) of the ETA is to ensure
that a person has not already been allowed the benefit of such ITCs in
determining that person’s net tax for any reporting period. Therefore, the
condition in paragraph 296(2)(b) of the ETA will be satisfied as long as
the ITCs had not been previously allowed as ITCs in computing the net tax of
the person for any reporting period. In this case, the Appellants satisfy this
condition.
[20]
The last condition as
set out in paragraph 296(2)(c) of the ETA is that the ITCs would
be allowed or only disallowed because of the timing of the claim. Since the
only reason stated for denying the ITCs is the timing of the filing of the GST
returns, the Appellants satisfy this condition.
[21]
As a result, the
Appellants should be reassessed on the basis that their net tax for 2003 is
($11,706.51) and their net tax for 2004 is ($10,330.85).
[22]
Counsel for the
Respondent also referred to subsection 296(4) of the ETA. This
subsection provides that:
296
(4) An overpayment of net tax for a particular reporting period of a person and
interest thereon under paragraphs (3)(b) and (c)
(a)
shall not be applied under paragraph (3)(b) against an amount (in this
paragraph referred to as the “outstanding amount”) that is payable or
remittable by the person unless the input tax credit or deduction to which the
overpayment is attributable would have been allowed as an input tax credit or
deduction, as the case may be, in determining the net tax for another reporting
period of the person if the person had claimed the input tax credit or
deduction in a return under Division V filed on the day the person defaulted in
paying or remitting the outstanding amount and the person were not a specified
person for the purposes of subsection 225(4); and
(b)
shall not be refunded under paragraph (3)(c) unless the input tax credit or
deduction would have been allowed as an input tax credit or deduction, as the
case may be, in determining the net tax for another reporting period of the
person if the person had claimed the input tax credit or deduction in a return
under Division V filed on the day notice of the assessment is sent to the
person.
[23]
This subsection
provides restrictions on the application of an overpayment of net tax and on the payment of a refund of an
overpayment of net tax. It does not change or affect the amount assessed.
[24]
The jurisdiction of
this Court is set out in the Tax Court of Canada Act. Section 12 of that
Act provides, in part, as follows:
12. (1) The Court has exclusive original
jurisdiction to hear and determine references and appeals to the Court on
matters arising under the … Part IX of the Excise Tax Act, … when
references or appeals to the Court are provided for in those Acts.
[25]
Therefore the only
matters over which this Court has jurisdiction in relation to appeals under
Part IX of the ETA (the GST provisions) are in relation to appeals that
are provided for in that Act. Section 309 of the ETA provides as
follows:
309.
(1) The Tax Court may dispose of an appeal from an assessment by
(a)
dismissing it; or
(b)
allowing it and
(i)
vacating the assessment, or
(ii)
referring the assessment back to the Minister for reconsideration and
reassessment.
[26]
The only remedies that
may be granted by this Court if an appeal is allowed are directly related to
the assessment. There is no power to order the Minister to pay a refund.
Therefore since subsection 296(4) of the ETA does not affect the
assessment and only deals with the payment of a refund (in this case), it is beyond
the jurisdiction of this Court to determine whether the provisions of this
subsection will prevent the Appellants from receiving a refund. Unfortunately
for the Appellants, if this matter is to be litigated, it would have to be
resolved, in the first instance, by the Federal Court.
[27]
As a result, the
Appellants’ appeals under the ETA are allowed, without costs, and the
matter is referred back to the Minister of National Revenue for reconsideration
and reassessment on the basis that:
(a)
the net tax of the
Appellants for their reporting period ending December 31, 2003 is ($11,706.51);
and
(b)
the net tax of the
Appellants for their reporting period ending December 31, 2004 is ($10,330.85).
Signed at Ottawa, Canada, this 16th day of October,
2012.
“Wyman W. Webb”
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