Citation: 2010 TCC 620
Date: December 3, 2010
Docket: 2008-2075(GST)G
BETWEEN:
1474282 ONTARIO INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Campbell J.
[1]
For the period January
1, 2002 to December 31, 2002, the Appellant claimed Input Tax Credits (“ITCs”)
of $11,447.22 in respect to invoices totalling $174,979.64. The Minister of
National Revenue (the “Minister”) disallowed the ITCs and imposed a penalty and
interest. The issue is whether ITCs in this amount were properly disallowed.
More specifically, the issue focuses on whether one particular invoice,
Invoice 122, issued by M.B. Property Management (“M.B. Management”) to the
Appellant, is a validly issued invoice relating to work performed on the construction
of two commercial properties located at 1547 and 1541 Hurontario
Street in Mississauga (the “Hurontario Project”). The Minister disallowed the
Appellant’s claim for ITCs with respect to Invoice 122 on the basis that it was
not a valid invoice and that the services were not acquired in the course of
the Appellant’s commercial activities at the Hurontario Project. Instead, the
Minister contended that Invoice 122 was a composite of four other invoices
- Invoices 105, 111, 113 and 116 - that had been issued in respect to a home
renovation project of Rajinder Chawla, the director of the Appellant, located
at 1143 Mississauga Road (the “Home Project”). The Minister’s position
is that the Appellant directed M.B. Management, a sole proprietorship
operated by Carmelo Boscarino, which was involved in both projects, to cancel
these four invoices and to issue Invoice 122 as a replacement invoice,
referencing services related to the Hurontario Project instead of the Home
Project. Consequently, the Minister argues that the services were not provided
for the Appellant’s use and, accordingly, the Appellant cannot claim the ITCs.
[2]
The assumptions of fact
upon which the Minister relied are set forth in subparagraphs 10(a) to 10(i) of
the Reply to the Notice of Appeal:
a) the Appellant is a GST registrant with GST
Registration No. 87707 8816 RT0001;
b) the Appellant is a holding corporation
with respect to two commercial buildings located at 1547 and 1541 Hurontario
Street in Mississauga, Ontario (the “commercial property”);
c) the Appellant is an annual filer for GST
purposes;
d) during the period, the Appellant employed
M.B. Property Management (“M.B. Property”) as a contractor with respect to its
commercial property;
Mr. Rajinder Chawla
e) Mr. Rajinder Chawla (“Mr. Chawla”) is the
director of the Appellant;
f) during the period, Mr. Chawla was having
renovations done on his personal residence located at 1143
Mississauga Road (the “home”);
g) Mr. Chawla retained the services of M.B.
Property to perform some of the renovations on his home;
h) M.B. Property was directed to cancel four
earlier invoices issued to Mr. Chawla for work performed on his home
during the period, which together totalled $174,979.64, including GST in the
amount of $11,447.22; and
i) M.B. Property was directed to issue a
false invoice in the amount of $174,979.64, including GST in the amount of
$11,447.22 to the Appellant, despite the fact that the amounts billed were in
respect of work done on Mr. Chawla’s home rather than the commercial property.
[3]
At the beginning of the
hearing, the parties filed an Agreed Statement of Facts, which is attached to
my Reasons as Schedule “A”.
[4]
The matter has reached
this Court as the result of two audits. During the first audit, the ITCs were
allowed with respect to Invoice 122. Subsequently, during an audit of the
business of the construction contractor, M.B. Management, Mr. Boscarino
alleged that the Appellant had instructed him to re-invoice certain amounts
that related to work on the Home Project and to re-direct them to the
Hurontario Project.
[5]
The Appellant relied on
the evidence of Mr. Virander “Ravi” Chawla. He supervised both of these
projects on behalf of the Appellant company and his brother, Mr. Rajinder “Raj”
Chawla. Raj Chawla is the president, director and sole shareholder of the
Appellant. The Respondent relied on the evidence of Carmelo Boscarino, the manager
and shareholder of M.B. Management and of M.B. Interlink Limited (“M.B.
Interlink”), together with the evidence of the Canada Revenue Agency (“CRA”) auditor,
Frank Ehrentraud. M.B. Interlink is another construction entity operated by Mr.
Boscarino.
[6]
The appeal to this
Court is the culmination of lengthy and contentious dealings among the parties
involving litigation and an eventual settlement agreement in the Ontario
Superior Court of Justice. Because of the animosity generated by this
background and the array of extremely incomplete and unreliable records
produced by parties on each side of the equation, I am left with the distinct
impression that the entire story may never be known, yet I must attempt to sort
through and piece together this documentary “mess” and the contradictory oral testimony
of the witnesses in order to provide coherent Reasons.
[7]
Because the Appellant
had not been incorporated on April 26, 2001, Le Niagara Commodities
Corporation (“Le Niagara”), another company in which Raj Chawla is the sole
shareholder, entered into an agreement with M.B. Interlink and Carmelo
Boscarino. According to the terms of this agreement, M.B. Interlink and Mr.
Boscarino agreed to construct the commercial buildings at the Hurontario
Project. Raj Chawla’s brother, Ravi, was responsible for overseeing the
project, and dealing with Mr. Boscarino on all of the financial aspects.
[8]
The Appellant corporation
was incorporated on April 27, 2001, the day after the date of this agreement,
to develop and eventually lease the buildings related to the Hurontario Project.
The Appellant is not a party and never became a party to this agreement,
although Ravi Chawla testified that the agreement was entered into for the
benefit of the Appellant. The evidence does not support or suggest that the
Appellant ever legally adopted the agreement in writing. However, the Appellant
became the legal owner of the Hurontario commercial properties on May 16, 2001
and remains the owner today.
[9]
Several months later,
Mr. Boscarino also agreed to oversee renovations on Raj Chawla’s personal residence.
The Home Project was governed by an agreement executed on October 3, 2001.
Again, Ravi Chawla supervised this project for his brother. Graydel
Limited was retained by Mr. Boscarino as the subcontractor to carry out most of
the home renovations. However, the evidence suggests that Mr. Boscarino
performed some of the subcontracting work on the Home Project. The estimated
cost of the home renovations was $585,000.00. Ravi Chawla testified that Mr.
Boscarino requested payments in advance of the issuing of invoices but that he
did not receive invoices for all of the cash payments. The invoices, according
to Mr. Chawla, were delivered by Mr. Boscarino at the end of the Home
Project.
[10]
M.B. Management
submitted invoices on its letterhead in respect to both projects. The invoices
were addressed to the Appellant and subtitled “Re‑Le Niagara Commodities
Corporation”. Most were forwarded to the attention of Ravi Chawla.
[11]
The agreement
respecting the Hurontario Project contained a payment schedule but, after the
first payment was made, the parties stopped following this schedule and,
instead of Le Niagara making these payments, the Appellant made the payments.
In fact, it was not Le Niagara that made the first payment of $270,000.00 in
May, 2001 but another of Raj Chawla’s corporate entities, Fritz Marketing
Inc. Mr. Boscarino stated that Ravi Chawla instructed him, at the
beginning of the invoicing, to direct the invoices to the Appellant and not
Le Niagara. Mr. Boscarino confirmed that the payment arrangement which the
parties followed was different than the payment schedule contained in the
agreement.
[12]
Until the spring of
2002, Raj Chawla and his brother were either oblivious to or simply
unaware of the importance of accurate record-keeping for these projects. When the
accountant informed Raj Chawla that certain credits could be claimed respecting
the Hurontario Project based on supporting records, invoices were requested
from Mr. Boscarino to support the payments that had already been made by the
Appellant. Ravi Chawla testified that once work began on the Hurontario
Project, Mr. Boscarino requested payments and while those payments were made,
invoices were not initially requested or obtained to support those payments.
Mr. Chawla testified that when he requested that Mr. Boscarino deliver
invoices, he prepared invoices addressed to the Appellant and delivered those
invoices in batches in January, April and May of 2002. According to Mr. Chawla,
receipt of invoices did little to clarify the already existing chaotic
record-keeping. Many of the invoices did not record payments that had actually been
made. Mr. Chawla testified that he had difficulty sorting through this
paper maze and matching an invoice to a payment. He stated that, when he
reviewed the records in the spring of 2002 before forwarding them to the
accountant, he reviewed all payments made by the Appellant and verified those payments
through the Appellant’s records, including the bank account statements. During
this review, he discovered that three separate payments had been issued by the
Appellant which still lacked supporting invoices. Those three payments were
represented by a bank draft payable to Mr. Boscarino and dated October 10,
2001, in the amount of $107,000.00; a money order payable to Mr. Boscarino
and dated February 8, 2002, in the amount of $35,000.00 and an undated money
order payable to Mr. Boscarino in the amount of $32,979.64. Those three
payments could be traced through the Appellant’s bank records. Mr. Chawla’s
evidence is that he instructed Mr. Boscarino to deliver an invoice reflecting
these three payments. At this point the stories diverge. Mr. Boscarino
issued the invoice over which most of this appeal focuses – Invoice 122.
However, he testified that he issued it at the direction of Ravi Chawla to
enable the Appellant to claim ITCs to which it would not otherwise be entitled.
Put bluntly, Invoice 122 was fabricated, according to Mr. Boscarino,
pursuant to the direction of Ravi Chawla, on behalf of the Appellant, and
issued in respect of the Hurontario Project when, in fact, Invoice 122
replaced four invoices – Invoices 105, 111, 113, and 116 - which related
to work on the Home Project. Mr. Boscarino stated that Invoices 105, 111,
and 113 referenced amounts that were paid in cash while Invoice 116 was paid by
cheque.
[13]
The relationship
between the parties deteriorated and Mr. Boscarino did not complete the
Hurontario Project. Their issues were eventually resolved through litigation.
[14]
The auditor’s evidence
was that, in the second audit, he relied on statements by Mr. Boscarino that
the Appellant had not properly claimed ITCs because Mr. Boscarino had been
directed to re-issue a number of invoices that related to work completed on the
Home Project and to replace those invoices with Invoice 122, dated May 16,
2002, issued now in respect to the Hurontario Project.
The Appellant’s Position
[15]
The Appellant paid none
of the costs associated with the Home Project. Raj Chawla personally paid
the home renovation costs through his brother Ravi,
who was overseeing the project. Once the Hurontario Project commenced, cash
progress payments were made when Mr. Boscarino requested them, but without the
Appellant obtaining supporting invoices. When the Appellant requested those
invoices and they were eventually delivered, a number did not match the
payments that had been made, according to the Appellant’s records, and further supporting
invoices were requested. The Appellant claimed ITCs on only those invoices
which it had paid because it acquired the supply, that is, the construction
services as the owner of the Hurontario Project. The contract between Le
Niagara and Mr. Boscarino for the construction of the buildings at this
project was assumed by the Appellant and, as a result, all invoices were
addressed to the Appellant and paid by the Appellant. Therefore, Goods and Services
Tax (“GST”) was payable by the Appellant. Specifically, Invoice 122 was issued
by M.B. Management to the Appellant for work completed on the Hurontario Project
and not the Home Project. That invoice represented three amounts of $107,000.00,
$35,000.00 and $32,979.64 that had been paid to Mr. Boscarino but without
supporting invoices being provided. The Appellant, therefore, acquired the
supply for consumption in the course of its commercial activities. Mr. Chawla
stated that Mr. Boscarino’s story, that Invoice 122 was a re-invoicing of
other invoices for work supplied in relation to the Home Project, is false.
The Respondent’s Position
[16]
Invoice 122 was an
invoice of “accommodation”, issued upon the direction of Ravi Chawla to enable
the Appellant to claim ITCs to which it was not entitled. The Appellant was not
the recipient of the supply represented by Invoice 122, as the service was
not provided for the Appellant’s use. Instead, the services, for which ITCs are
claimed, were completed on Raj Chawla’s personal residence. The Respondent
relied on statements made by Mr. Boscarino that M.B. Management was directed to
cancel four earlier invoices totalling $174,979.64, including GST, issued in
respect of the home renovations and to replace these invoices with a false
invoice - Invoice 122 - in the same amount, for the commercial project, the Hurontario
Project. This enabled the Appellant to falsely claim ITCs of $11,447.22 in
respect to Invoice 122.
Analysis:
[17]
The first issue that I
must address is whether, in assessing the oral testimony of the witnesses,
particularly Mr. Chawla and Mr. Boscarino, and the documentary evidence, as
incomplete and unsatisfactory as it was, Invoice 122 was, as the Respondent
contends, an invoice of accommodation or whether it was properly issued in
respect to work performed on the Hurontario Project. If I decide that it did
not relate to work on the Hurontario Project but, rather, to the Home Project,
that ends the analysis and disposes of the appeal. However, if I accept the
Appellant’s argument on this point, then I must next consider whether the
Appellant was the recipient of the construction services and therefore entitled
to claim ITCs in respect to the Hurontario Project.
[18]
Neither the records of
Mr. Chawla nor of Mr. Boscarino are entirely reliable. Many of the
invoices were not created contemporaneously with the completion of different
phases of the work or with the payments. Mr. Chawla admitted to directing
the re-issuance of some invoices that he disagreed with. The evidence supports
that Mr. Boscarino delivered multiple invoices, which contained the same
identifying numbers but reflected various dates and payments. Paragraph 14
of the Agreed Statement of Facts contains a list of invoices delivered by Mr.
Boscarino, but the invoice numbers, when compared to the dates of the invoices,
do not follow sequentially. The same invoice number sometimes referenced
entirely different dates and amounts.
[19]
Whether Invoice 122 is
a fabricated invoice, that was created and re‑directed to the commercial
project so that the Appellant could claim ITCs, is a question of fact. The
Appellant bears the burden of establishing its case and overcoming or
demolishing the Minister’s assumptions of fact. At paragraph 15 of Amiante
Spec Inc. v. The Queen, [2009] F.C.J. No. 603, Trudel J. refers to the
Supreme Court of Canada decision in Hickman Motors Ltd. v. The Queen
(1997), [1997] 2 S.C.R. 336, and goes on to state:
… the taxpayer has the initial burden of demolishing the exact
assumptions stated by the Minister. This initial onus is met where the taxpayer
makes out at least a prima facie case that demolishes the accuracy of
the assumptions made in the assessment. Lastly, when the taxpayer has met his
or her onus, the onus shifts to the Minister to rebut the prima facie case
made out by the taxpayer and prove the assumptions (Hickman, supra, at
paragraphs 92, 93 and 94).
[20]
So what evidence do I
have that would support that Invoice 122 was issued respecting work performed
on the Hurontario Project? Mr. Chawla testified that he never instructed Mr.
Boscarino to cancel four invoices on the Home Project and replace them with
Invoice 122. While his records on the Home Project were incomplete, he
maintained that it was done informally because any accounting for that project
was meant for himself and his brother, Raj Chawla, who owned the home. He
maintained that his brother made, and he delivered, substantially more cash
payments to Mr. Boscarino on the Home Project than were reflected in the
invoices. He also claimed that, in respect to the Hurontario Project, he could
trace the record of payments through the Appellant’s bank statements. He stated
that, when Mr. Boscarino eventually supplied the invoices, there were
insufficient invoices to cover all of the payments that the Appellant had made
respecting this project. In fact, Mr. Chawla alleges that the home renovation
invoices were not delivered until close to the end of that project and,
therefore, subsequent to the date on which Mr. Boscarino testified he cancelled
four invoices and issued Invoice 122. This would not be surprising, as
most of the invoices were not made contemporaneously with the completion of the
work phases or with the payments that were being made.
[21]
Mr. Boscarino stated
that he created invoices for the Hurontario Project based on the periodic
reports of the architect and then delivered them to the Appellant within
several days of the date of each report. However, that testimony does not correlate
to the number of multiple invoices that contain the same number but which reference
various amounts and contain different dates. In addition, Exhibit R-2, which,
according to Mr. Boscarino, was created to provide an accounting of all the
payments and disbursements for the Hurontario Project, contains a number of
invoices with the word “Paid” stamped at the bottom. Mr. Boscarino
testified that those invoices were stamped within days of payment of the
invoice. However, it is glaring that, again, these invoice numbers do not
appear sequentially and the summary does not account for the fact that if they
were delivered to the Appellant in close proximity to the dates contained on
the invoices, why then did Mr. Boscarino deliver multiple invoices
containing the same invoice numbers, sometimes for different amounts and containing
different dates? I was never given a credible explanation for this. I am unable
to place any weight on the letter of the accountant containing the summary of
the billings of Mr. Boscarino, as it was created after the fact in February, 2004
and apparently based on information supplied only by Mr. Boscarino.
[22]
Exhibit R-3 contains a
handwritten list of payments of Mr. Boscarino respecting the Hurontario
Project. The first payment is in relation to a cheque respecting a GST amount
of $17,663.40, and referencing a deposit amount of $270,000.00 on May 2, 2001. However,
Mr. Boscarino, in explaining why an invoice was not delivered until October,
2001, when payment had been made to him in May, 2001, stated that it was
because of a dispute as to whether the GST amount was included, or in addition
to, the deposit amount of $270,000.00. Again, I am left with the impression that
the record contained in Exhibit R-3 was not created contemporaneously as
contended. Either the record is a contemporaneous compilation of payments and,
therefore, there was no dispute regarding this GST amount as Mr. Boscarino
claims, or there was a dispute and, therefore, this record was a re-creation of
those payments at a later date.
[23]
I conclude that this
record is again a re-creation and this is further supported by the dates
contained in the left-hand column of this exhibit which are not in
chronological order as one would expect them to be if the document were a
contemporaneous creation of events as they unfolded.
[24]
Exhibit R-4 contained
invoices, handwritten notes and a summary memoranda of payments respecting the
Home Project. The handwritten note at page 7 entitled “Made by Ravi
Chawla” contains a handwritten notation at the bottom stating:
PROGRESS PAYMENT #1 = 100,000.00 + GST
$107,000.00
At one point, Mr. Boscarino’s evidence was that this
notation at the bottom was written by him and was acknowledged by the signature
of Ravi Chawla appearing below this notation and bearing the date October 3,
2001 below Mr. Chawla’s signature. However, the same handwritten note of
Ravi Chawla also appears at Exhibit A-1, Tab 86, page 152, containing the same
information concerning allowances, together with his signature and again dated
October 3, 2001, but omitting the above-referenced handwritten notation. On
cross‑examination, the following exchange occurred between Mr. Boscarino
and Appellant’s counsel concerning the omission of the handwritten note:
Q. Mr. Boscarino, I want to take you to tab 86
in the big book, please. I would like you to go to the third page there. Would
you agree that this document is quite similar to the other document we were
just referring to?
A. Yes.
Q. It doesn’t have that notation regarding the
progress payment $107,000.
A. Correct.
Q. It was signed on October 3, 2001.
A. Yes.
Q. Mr. Boscarino, I put it to you that you
added the note, “Progress payment $107,000” sometime afterwards.
A. Yes.
Q. So Mr. Chawla’s signature there has nothing
to do with that payment.
A. No.
Q. You told us before that his signature acknowledged
that payment, which was not the case.
A. Correct.
(Transcript, page 275, lines 1-23)
[25]
The conclusion I must
draw is that Mr. Boscarino added this note to Mr. Chawla’s memo above Mr.
Chawla’s signature on October 3, 2001 at some time subsequent to this date with
the intent to mislead.
[26]
Exhibit R-7 contained a
list of payments and deposit amounts (similar to the list for the Hurontario
Project contained at Exhibit R-3) respecting the Home Project, together with
statements from the line of credit of Mr. Boscarino and a page of handwritten
notes. Again, I have difficulty placing much weight with respect to any of this
information contained in these documents because I doubt they were drafted
contemporaneously due to several dates on the first page summary list not being
in chronological order as one would expect. Also, this summary is incomplete as
it does not reflect the cash payments that were made respecting this project.
[27]
The auditor testified
that, initially, Mr. Boscarino advised him that Mr. Chawla instructed him
to re-invoice Invoices 111, 113 and 116 and to replace them with another
invoice, Invoice 122. There was no mention of Invoice 105 and the evidence
remains unclear as to how exactly it became part of the audit. This is
reflected in Exhibit A-2, Tab 8, a Memo for File created by the auditor in the
course of the audit after speaking to Mr. Boscarino, where Invoice 105 is not included
as one of the invoices that was replaced by Invoice 122. Without Invoice 105,
Invoices 111, 113 and 116 total $181,590.00, not $174,979.64, the amount
contained on Invoice 122. However, initially, Mr. Boscarino’s evidence on
examination-in-chief was that Invoice 122 was comprised of Invoices 105, 113
and 116, which total $170,389.64. In reviewing the auditor’s calculations, Mr. Boscarino
subsequently changed his testimony and recalled that a partial payment, or as
Mr. Boscarino referred to it a “short payment”, of $4,590.00 respecting Invoice
111 had been added, along with the other invoice amounts from Inoices 105, 113
and 116, to total the amount equalling the amount contained in Invoice 122.
[28]
According to Mr. Boscarino,
in following directions to cancel invoices, he relied on a note written by Ravi Chawla
on a notepad of Fritz Marketing Inc. (Exhibit A-1, Tab 104,
page 188), which lists three amounts of $107,000.00, $35,000.00 and
$32,979.64 and opposite each of those amounts the note contains the dates of
October 10, February 8 and March 15 respectively. However, this handwritten
note, on its face, does not specifically refer to any invoice numbers nor does
it refer to the Home Project. In addition, it refers to only three amounts, not
four amounts from four invoices. Except for Mr. Boscarino’s testimony,
there is no suggestion in the documentary evidence that a so-called short
payment of a fourth invoice was made and, without the fourth invoice short
payment, the other invoices do not total the same amount as Invoice 122.
When I review Mr. Chawla’s explanation of this note, it just seems to be more
in line with what probably occurred. Until May 2002, these parties exchanged
payments but neither made any effort to ensure documentation was in place in
support of those payments. When Mr. Chawla’s accountant made suggestions concerning
the requirement of records for the commercial project, Mr. Chawla reviewed
the Appellant’s bank statements respecting the payments made on the Hurontario
Project. He discovered the three payments that were made, listed them on the
Fritz Marketing Inc. notepad and requested a supporting invoice. These three
payments were supported by and could be traced through the Appellant’s bank
statements [“Value Assist Plan Deposit Account”, with the Bank of Montreal on
October 10, 2001 (Exhibit A-1, Tab 58), February 8, 2002 (Exhibit A-1, Tab 67)
and on March 13, 2002 (Exhibit A-2, Tab 68)]. This note, which does in
fact reference the Hurontario Project, is more consistent with Mr. Chawla’s
evidence and the documentary evidence than it is with that of Mr. Boscarino’s.
[29]
In addition, according
to Mr. Chawla, the amount of $107,000.00 was paid in October, 2001. According
to the documentation, at the beginning of October, 2001, Mr. Boscarino’s line
of credit had an outstanding balance of approximately $107,000.00. At this
time, no work had been commenced on the Home Project. At this same time,
Mr. Boscarino had, however, completed preliminary work during the months
leading up to October 2001 on the Hurontario Project. This further supports
that this amount was, as Mr. Chawla testified, an expense incurred by the
Appellant in respect to the commercial project. Payment of Invoice 116
also supports Mr. Chawla’s explanation for these invoices. This invoice, dated
January 16, 2002, was paid on December 12, 2001 by personal cheque of
V. (Raj) Chawla and his spouse, N. Chawla (Exhibit A-2, Tab 9).
The invoice references the Home Project and contains a handwritten notation at
the bottom:
Paid
Cheque #137 dtd Dec 12, 2001
(Exhibit A-1, Tab 92)
This supports that Invoice 116 was, in fact, paid in
respect to the Home Project and that payment was drawn on the Chawlas’ personal
account. It also further supports the parties’ habit of providing payment (on
December 12, 2001) and then worrying about a paper trail at a later date
(invoice dated January 16, 2002).
[30]
For these reasons, I
conclude that Invoice 122 was properly rendered in respect to payments that had
been made by the Appellant and for work that had been completed on the
Hurontario Project.
[31]
The next issue is
whether the Appellant is properly entitled to claim the ITCs as specified in
Invoice 122 on the Hurontario Project. Subsection 169(1) of the Excise Tax
Act (the “Act”) sets out the conditions that a taxpayer must satisfy
to successfully claim ITCs. This provision states:
169. (1) General rule for [input tax] credits - Subject to this Part, where a person
acquires or imports property or a service or brings it into a participating
province and, during a reporting period of the person during which the person
is a registrant, tax in respect of the supply, importation or bringing in becomes
payable by the person or is paid by the person without having become payable,
the amount determined by the following formula is an input tax credit of the
person in respect of the property or service for the period:
A x B
where
A is the tax in respect of the
supply, importation or bringing in, as the case may be, that becomes payable by
the person during the reporting period or that is paid by the person during the
period without having become payable; and
B is
(a) where the tax is deemed under subsection 202(4) to
have been paid in respect of the property on the last day of a taxation year of
the person, the extent (expressed as a percentage of the total use of the
property in the course of commercial activities and businesses of the person
during that taxation year) to which the person used the property in the course
of commercial activities of the person during that taxation year,
(b) where the property or service is acquired,
imported or brought into the province, as the case may be, by the person for
use in improving capital property of the person, the extent (expressed as a
percentage) to which the person was using the capital property in the course of
commercial activities of the person immediately after the capital property or a
portion thereof was last acquired or imported by the person, and
c) in any other case, the extent (expressed as a
percentage) to which the person acquired or imported the property or service or
brought it into the participating province, as the case may be, for
consumption, use or supply in the course of commercial activities of the person.
[32]
In General Motors of
Canada Limited v. The Queen, 2008 TCC 117, [2008] T.C.J. No. 80, at
paragraph 30, I outlined the three conditions that must be satisfied in respect
to subsection 169(1):
[30]
In order for GMCL to be eligible to claim an ITC, pursuant to
subsection 169(1) in respect of GST payable by it on receipt of Investment
Management Services, three conditions must be satisfied:
(1)
The claimant (GMCL) must have acquired the supply (the
Investment Management Services);
(2)
The GST must be payable or was paid by the claimant (GMCL)
on the supply (the Investment Management Services);
(3)
The claimant (GMCL) must have acquired the supply (the Investment
Management Services) for consumption or use in the course of its commercial
activity.
[33]
The Appellant argued
that it meets the conditions in subsection 169(1) because it acquired the
supply, that GST was payable and paid by the Appellant and that the supply of
construction services in relation to the Hurontario Project was acquired for
consumption or use in the course of its commercial activities. The Respondent’s
position is that the Appellant was not the recipient of the supply represented
by Invoice 122 because it was not a party to the contract for services
respecting the Hurontario Project. The parties to that contract were Le Niagara
and M.B. Interlink, together with Mr. Boscarino.
[34]
Although the Appellant
never formally adopted the contract in writing, respecting the Hurontario
Project, its actions and conduct, as well as the actions and conduct of the
parties to the contract, support the intent of all parties that the Appellant
be bound by the terms and conditions of this agreement.
[35]
On May 16, 2001, the
Appellant purchased the land upon which the Hurontario Project was to be
erected and obtained the necessary approvals for the development from the
municipality. Mr. Boscarino submitted invoices for this project on letterhead
of M.B. Management. The invoices were directed primarily to the attention of
the Appellant, and were addressed first to the Appellant and, second, to Le
Niagara in the following manner: “Re‑Le Niagara”. This implies that the
invoice was to the primary attention of the Appellant. The Appellant paid these
invoices and, where Fritz Marketing Inc., another of Raj Chawla’s companies,
paid the occasional invoice, Mr. Chawla’s evidence was that the Appellant
reimbursed Fritz Marketing Inc. The evidence suggests that it was the Appellant,
and not Le Niagara, that was intricately involved with the execution of
the terms of this agreement, and this included overseeing the dealings with Mr.
Boscarino. In fact, all of the relevant parties, and particularly Mr. Boscarino
and his corporate entities, treated the Appellant as a party to the agreement.
The auditor’s forensic accounting report, prepared by Grant, Thornton, in respect to M.B. Interlink, characterized the
Appellant as a party to the contract and, in the opening Introduction and
Background, stated the following:
In April, 2001, 1474282 Ontario Inc., through Le Niagara
Commodities Corporation entered into an agreement with M.B. Interlink
Limited and Mr. Carmelo Boscarino to construct two buildings located at
1541 and 1547 Hurontario Street in Mississauga,
Ontario.
(Emphasis added)
[36]
It is also telling that
the assumptions, relied upon in the Reply to the Notice of Appeal, also
characterize the Appellant as a party to the agreement where, at paragraph
10(d), it states:
d) during the period, the Appellant
employed M.B. Property Management (“M.B. Property”) as a contractor with
respect to its commercial property;
(Emphasis added)
[37]
With such an
arrangement among the parties and the intent that the Appellant be involved in
and treated as a party to this contract on the Hurontario Project, any supplier
or subcontractor seeking to enforce payment would have looked to the Appellant,
among others, in enforcing its rights and resolving any disputes.
[38]
With respect to the
first condition in subsection 169(1) of the Act, I conclude that the
Appellant, as the legal owner of the Hurontario Project that made all payments
related to this project, acquired the services and supply at issue.
[39]
Subsection 169(1) also
requires that the Appellant has paid the GST in respect to the supply or that
it was payable by the Appellant. The evidence supports that the Appellant paid
all of the invoices in respect to the Hurontario Project. Specifically for
Invoice 122, three payments could be traced through the Appellant’s bank
account. Subsection 123(1) of the Act defines “recipient” as:
“recipient”
of a supply of property or a service means
(a)
where consideration for the supply is payable under an agreement for the
supply, the person who is liable under the agreement to pay that consideration,
(b)
where paragraph (a) does not apply and consideration is payable for the
supply, the person who is liable to pay that consideration, and …
A determination in respect to this condition must focus
on which party is liable contractually to pay the GST. The parties did not
follow the payment schedule contained in the contract covering the project. In
fact, after the first payment by Fritz Marketing Inc., it bore no resemblance
to the contractual arrangement – the party paying the invoices was different
than stated in the contract, the party being paid was different and the amount
of the payments was different. They followed an entirely different payment
arrangement and, pursuant thereto, the invoices were issued, not by M.B.
Interlink, as the contract anticipated, but by M.B. Management, and they were
issued not to Le Niagara, again as anticipated by the contract, but to the
Appellant. This applied to all of the invoices, not only Invoice 122. Mr.
Boscarino agreed that it was a different payment arrangement than the
arrangement contained in the contract. There was no dispute that the
contractual payment terms were not followed and the documentary evidence, in
the form of the invoices, supports this. Following my Reasons at paragraph 54
of the General Motors decision, I believe that liability crystallizes
upon delivery of the invoices. Ultimately, the Appellant was responsible for
payment of Invoice 122 under this alternate payment arrangement upon delivery
of that invoice and it would be liable in an action to collect on Invoice 122
or, for that matter, any of the invoices relating to this project.
[40]
The Appellant is in the
business of owning and leasing commercial space. In particular, the Appellant
is the owner of two commercial buildings referred to as the Hurontario Project
and continues today to lease commercial space in those buildings. Since I have
already concluded that Invoice 122 was issued by Mr. Boscarino and
payments were made by the Appellant in respect to the Hurontario Project and
not in relation to the Home Project of Raj Chawla, the third condition of
subsection 169(1) is met because the Appellant clearly acquired the supply
for consumption or use in the course of its commercial activities. In fact, it
is interesting that the Minister accepted all of the other similarly worded
invoices relating to this project issued by M.B. Management to the Appellant,
with the exception of Invoice 122. The Minister accepted that those other
invoices were validly issued in respect to work relating to the Appellant’s
commercial activities. For example, Invoices 128 and 130, although they failed
to list the supply in question and referenced the supply as progress payments, were
accepted by the Minister. Invoice 122 was similarly worded. This wording
appears to be specific to the method of payment employed by the Appellant and
M.B. Management.
[41]
In summary, Invoice 122
meets the requirements of subsection 169(1) and of subsection 169(4) of the Act
and the Input Tax Credit Information (HST/GST) Regulations (the “Regulations”).
Invoice 122 is a validly issued invoice containing the Appellant’s name as the
recipient of the supply, as well as other pertinent information required
pursuant to the Regulations. As a result, the Appellant is entitled to
claim the ITCs described and contained in Invoice 122.
[42]
The appeal is allowed,
with costs.
Signed at Ottawa, Canada, this 3rd day of December 2010.
“Diane Campbell”
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