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Citation: 2007TCC2
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Date: 20070130
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Docket: 2005-1778(EA)G
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BETWEEN:
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9129–9321 QUEBEC INC.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Bowman,
C.J.
[1] This
is an appeal from an assessment made under subsection 42(1) of the Excise
Act, 2001 (the “E.A.”) in the amount of $825,008.90.
[2] Since
this is the first case to come before this court under the E.A., which
imposes a duty on spirits, wine and tobacco, it is useful to set out or refer
to a few of the relevant statutory provisions.
[3] Subsection 42(1) of the E.A. reads:
42. (1) Duty is imposed on tobacco products manufactured in
Canada or imported and on imported raw leaf tobacco at the rates set out in
Schedule 1 and is payable
(a) in
the case of tobacco products manufactured in Canada, by the tobacco licensee
who manufactured the tobacco products, at the time they are packaged; and
.
. . . .
[4] “Manufacture”
is defined in section 2 of the E.A. as follows:
“manufacture”, in respect of a tobacco
product, includes any step in the preparation or working up of raw leaf tobacco
into the tobacco product. It includes packing, stemming, reconstituting,
converting or packaging the raw leaf tobacco or tobacco product.
[5] “Manufactured tobacco” is defined as follows:
“manufactured
tobacco” means every article, other than a cigar or packaged raw leaf tobacco,
that is manufactured in whole or in part from raw leaf tobacco by any process.
[6] “Prescribed
package” is defined at length in the Stamping and Marking of Tobacco Products
Regulations, PC 2003-1202 of August 13, 2003. I need not reproduce these
regulations. They contain detailed provisions about what should go on packages
of tobacco products. “Tobacco product” is defined:
“tobacco product” means manufactured
tobacco, packaged raw leaf tobacco or cigars.
[7] Schedule 1 to the E.A. provides for various rates of duty on
tobacco products. It would seem that the rate applicable here is $53.981 per
kilogram.
[8] Section 188 permits the Minister of National Revenue to assess duty;
section 195 provides for objections to assessments; section 198
provides for appeals to this court; and section 203 sets out what the
court may do with an appeal. All these provisions parallel substantially
similar provisions in other Canadian taxing statutes such as the Income Tax
Act and the Excise Tax Act.
[9] The issue in this appeal is whether the appellant is taxable on 15,283.32
kilograms of tobacco at $53.981 per kilogram for an aggregate of $825,008.90,
as the respondent alleges or, as the appellant alleges, on 253 kilograms. The
question is whose version of the facts should be accepted.
[10] The appellant, through its president and sole shareholder,
Nuruddin Wallani, stated that on November 5, 2003, and
November 12, 2003, it purchased 248 pounds and 310 pounds of tobacco
respectively from “Les tabacs du Québec”, a tobacco wholesaler owned and operated by
Daniel Coutu. The total of 558 pounds is the equivalent of 253 kilograms which
the appellant admits to having purchased and on which it says it paid duty.
[11] The same rules apply in cases under the E.A. with respect to onus
of proof and assumptions as in appeals arising under the Income Tax Act and
the Excise Tax Act.
[12] The assumptions upon which the assessment was based are set out in the Reply
to the Notice of Appeal as follows:
(a)
The
Appellant is a corporation wholly owned by Mr. Nuruddin Wallani;
(b)
The
Appellant was granted, in July 2003, a license to manufacture tobacco products
in Canada, under the trade name
of “Les Tabacs d’Or du Québec”;
(c)
Between
November 5, 2003 and May 28, 2004, the Appellant purchased from
various wholesalers more than 16 009 kilos of raw leaf and blended fine
cut tobacco;
(d)
However,
the Appellant only declared purchases of 253 kilos of raw leaf tobacco on which
it paid duties under the Excise Act, 2001, leaving 15,756 kilos
of blended fine cut tobacco purchases undeclared, on which duties were not
paid;
(e)
The
Appellant is therefore liable to pay excise duty totalling $ 825,008.90,
calculated as follows:
Purchases not declared 15,756
kilos
Less 3% loss allowed 472.68
kilos
15,283.32
kilos
@ duty rate of $ 53.981/kilo $
825,008.90
(for blended fine cut tobacco)
[13] Similarly, in part B of the Reply to the Notice of Appeal the Crown
states the issue as follows:
B. ISSUES TO BE
DECIDED
6. The Court has to
determine if between November 5, 2003 and May 28, 2004, the Appellant
purchased at least 15,756 kilos of blended fine cut tobacco that it did not
declare and hence did not pay excise duty on.
[14] Since the liability for duty arises at the time of packaging under
paragraph 42(1)(a), I should have thought that an assumption or
allegation would have been made that the appellant packaged the tobacco and its
obligation to pay duty arose at that time. The pleading of assumptions and its
effect upon the onus of proof gives the Crown a significant advantage. It is
therefore incumbent upon the respondent in an appeal to plead that the Minister
made assumptions that clearly lead to a liability for the duty that is being
asserted. Where neither the assumptions nor the assertions pleaded do so, the
appellant would be entitled to move for judgment on the pleadings. No such
motion was made and I am, in any event, reluctant to dispose of a case on the
basis of the pleadings. Moreover, in light of my acceptance of the appellant’s
version of the facts it does not really matter. Had I rejected the appellant’s
evidence and accepted that tendered by the respondent, I would have had to
consider the adequacy of the assumptions pleaded in the Reply. I shall deal
with the appeal on the basis of the factual issue that was put to me: Did the
appellant purchase 15,756 kilograms of fine cut tobacco between
November 5, 2003 and May 28, 2004?
[15] Mr. Wallani’s evidence was clear and unequivocal. He made two
purchases of uncut leaf tobacco, one on November 5, 2003 and one on
November 12, 2003 in the amount of 248 pounds and 310 pounds, respectively
for a total of 558 pounds. He cut it up and sold part of it. His records
indicate that between November and December, he sold 16.2 kilograms, about 35 pounds
and in January to April, he sold another 42 pounds. In the result he sold 134 pounds
and had 424 pounds left or 192 kilograms.
[16] Mr. Wallani testified that he tried, without success, to get the vendor
to take back the unsold leaf and that he telephoned
Mr. Richard Granger, an excise duty officer with the Canada Revenue
Agency, who inspected the warehouse and gave him, on May 31, 2004, a
certificate that 354 pounds were destroyed as well as 11,600 empty 200 gram bags.
He testified that the tobacco was destroyed by being put in cases of used oil.
[17] Mr. Wallani testified that the tobacco that he sold was sold to dépanneurs
(convenience stores) and that he collected the duty from them. He testified that
the only tobacco he purchased was on the two occasions when he visited
Mr. Coutu’s establishment and he paid for the tobacco by cheque. He said
he was accompanied by a helper, Hussein.
[18] Mr. Wallani gave his evidence in a straightforward manner. It was
not shaken on cross-examination and there was nothing in his demeanour on the
witness stand that would lead me to question the veracity of his testimony.
Moreover, his testimony in itself contained no internal contradictions or
improbabilities. Therefore, at the conclusion of Mr. Wallani’s testimony the
appellant had made out a prima facie case that it did not purchase
15,283.32 kilograms of tobacco and that it purchased only 253 kilograms. That
evidence, if unrebutted, would be dispositive of the appeal.
[19] The Crown’s evidence was put in through three witnesses.
[20] The first was Mr. Richard Granger. He appeared to be a
conscientious public servant. He confirmed that he visited the appellant’s
premises and authorized the destruction of 354 pounds of tobacco and 11,600
empty bags.
[21] He was unable to provide any direct evidence of the purchase of the
additional 15,756 kilograms. Indeed the destruction of 11,600 empty bags would
seem to be consistent with the appellant’s not having bought the substantial
amount of tobacco that the Crown alleges and certainly with its not having packaged
such an amount. Moreover, Mr. Wallani’s having called Mr. Granger and
invited him to his premises to do an inventory of the tobacco on hand is hardly
consistent with the appellant’s having purchased an additional 15,756 kilograms
of tobacco on which it evaded payment of excise tax.
[22] Mr. Granger’s evidence with respect to the large quantity of
tobacco which it is alleged the appellant bought is, with respect, insufficient
to establish taxability. It is in part hearsay and in part conjecture. The
following is an excerpt from his evidence in chief.
Q. Puis, ça serait quoi la
différence par rapport à du tabac qui est du « fine cut »? Les
droits sont payables à quel moment ?
R. Le droit est
payable quand le matériel est emballé, qu’il a été ouvragé, là, emballé puis
que vous allez le. . .
Q. O.K. Mais quand
vous n’avez pas de preuve qu’il est emballé, là, pourquoi ici, comme par
exemple, si on ne sait pas quand est-ce qu’il a été emballé, pourquoi qu’on
émet la cotisation?
R. Par rapport à ce
que l’on a cotisé, là ?
Q. Oui. Oui.
R. Bon. Étant donné qu’on a
trouvé ou j’ai trouvé qu’il y avait eu des quantités de tabac haché qui avaient
été achetées, c’est du tabac qui est prêt à être emballé ou qu’on pourrait
faire des cigarettes avec, là, il est déjà ouvragé ce tabac-là. Alors, il a été
acheté, il n’a pas été déclaré sur des déclarations mensuelles chez nous comme
quoi il a été acheté puis on n’a pas de trace de ce qui est arrivé après. Tout
ce qu’on peut, c’est présumer qu’il a été vendu sur le marché canadien alors il
y a des droits d’accise qui sont payables là-dessus, c’est comme. . .
Q. Comme par exemple,
si je reviens au tabac que monsieur Wallani dit avoir acheté, qui n’était
pas coupé. . .
R. Oui.
Q. . . . O.K., il l’a coupé mais il
n’était pas vendu?
R. Oui.
Q. Est-ce qu’il a payé
des douanes là-dessus?
R. Des droits
d’accise, non.
Q. Des droits
d’accise, excusez.
R. Non. Étant donné qu’il a été
détruit puis en ma présence, puis que moi, j’étais assuré, là, suffisamment,
que ce tabac-là n’était pas... était impropre à la consommation donc qu’il ne
pourrait pas se retrouver sur le marché de consommation domestique, bien, il
n’y a pas de droits à payer.
Q. O.K. Ça fait que ce
n’est pas parce qu’il n’a pas été vendu, là, c’est parce qu’il a été détruit?
R. Non, non. Ça aurait pu être du
tabac qu’il aurait déjà emballé puis qu’il n’aurait pas vendu puis qu’il nous
aurait payé les droits, bien là, s’il l’avait détruit, on aurait pu... il
aurait pu réclamer un crédit puis on aurait pu lui donner un crédit, là, mais
ce n’était pas le cas.
[23] Mr. Granger
was unable to swear that the money that went into the bank account of the
vendor “Les tabacs du Québec” (allegedly in cash) came from Mr. Wallani.
He also had no evidence that the tobacco, whatever its quantity, was ever
packaged. I have seen no reliable or admissible evidence that the appellant ever
bought more than 558 pounds of tobacco.
[24] In Chomica
v. The Queen, 2003 DTC 535, I discussed at some length the evidentiary
effect of the evidence of assessors. Usually it is hearsay. At pages 538‑9
the following appears:
[26] I do not intend this judgment to be
a discussion of the recent developments in the hearsay rule. That it is an
evolving concept is unquestioned, as is obvious from the discussion in The Law
of Evidence in Canada, supra, at pages 187 to 220. The rule nonetheless continues
to exist and effect must be given to it. Even if I believed that I could
stretch the principles stated in the recent cases, which require at least
reliability and necessity, the assessor's report and the memoranda would still
have to be excluded. For example, no witness was able to say who prepared the
memoranda found at tabs A, B and C of Tab 18. They were said to be
based on material seized by the police from files from the personal computer of
Alan Benlolo by a detective.
[27] Such material is at best
unreliable and at most wholly inadmissible as evidence.
[28] Such reports of the CCRA
(T-20 and T-401 reports) may be put in evidence for the limited purpose of
showing the basis on which an assessment is made but not as evidence of the
truth of their contents. There can be no objection to the CCRA basing its
assessments on hearsay — it must of necessity base its assessing action on such
material as is available, even though such material may be hearsay. However, when the respondent is called
upon to justify an assessment by calling evidence it must be evidence that is
admissible under the ordinary rules governing admissibility.
[29] Not only must the rules of
evidence be followed, particularly in cases governed by the General Procedure —
but also, where serious allegations of fraud are made the court must scrutinize
such evidence very carefully. Madam Justice L'Heureux-Dubé alluded to this
in the second paragraph of her judgment in Hickman Motors which is
quoted above.
[30] In Farm Business
Consultants Inc. v. The Queen, 95 DTC 200 aff'd
96 DTC 6085, the same point was made about the care with which
evidence adduced to establish penalties must be scrutinized, even where the
standard of proof is a civil one. We are not dealing with penalties here, but
we are dealing with an allegation that the appellant participated in a
fraudulent scheme. At pages 205-6 , the following was said:
A court must be extremely cautious
in sanctioning the imposition of penalties under subsection 163(2). Conduct
that warrants reopening a statute-barred year does not automatically justify a
penalty and the routine imposition of penalties by the Minister is to be
discouraged. Conduct of the type contemplated in paragraph 152(4)a)(i)
may in some circumstances also be used as the basis of a penalty under subsection
163(2), which involves the penalizing of conduct that requires a higher degree
of reprehensibility. In such a case a court must, even in applying a civil
standard of proof, scrutinize the evidence with great care and look for a
higher degree of probability than would be expected where allegations of a less
serious nature are sought to be established.3 Moreover, where a
penalty is imposed under subsection 163(2) although a civil standard of proof
is required, if a taxpayer's conduct is consistent with two viable and
reasonable hypotheses, one justifying the penalty and one not, the benefit of
the doubt must be given to the taxpayer and the penalty must be deleted.4
I think that in this case the required degree of probability has been
established by the respondent, and that no hypothesis that is inconsistent with
that advanced by the respondent is sustainable on the basis of the evidence
adduced.
___________________
3 Cf. Continental
Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164; 131 D.L.R. (3d)
559; 25 C.P.C. 72, per Laskin, C.J.C. at 168-171; D.L.R. 562-564; C.P.C. 75-77;
Bater v. Bater, [1950] 2 All E.R. 458 at 459; Pallan et al. v. M.N.R.,
90 DTC 1102 at 1106; W. Tatarchuk Estate v. M.N.R., [1993] 1 C.T.C. 2440
at 2443.
4 This is not simply
an extrapolation from the rule in Hodge's Case (1838) 2 Lewin 227; 168
E.R. 1136, applicable in criminal matters such, for example, as section 239 of
the Income Tax Act where proof beyond a reasonable doubt is required. It
is merely an application of the principle that a penalty may be imposed only
where the evidence clearly warrants it. If the evidence is consistent with both
the state of mind justifying a penalty under subsection 163(2) and the absence
thereof – I hesitate to use the words innocence or guilt in these circumstances
– it would mean that the Crown's onus had not been satisfied.
[25] Here I am
being asked to find that Mr. Wallani was not telling the truth under oath.
This is a serious allegation and the evidence must be compelling.
[26] The
following exchange of correspondence between Mr. Granger and
Mr. Wallani illustrates the stark difference between the parties.
9129‑9321 Quebec Inc
operating under the trade name of
“ Les Tabacs d’Or du Québec ”
829, Place Simon
St-Laurent, Qc
H4M 2W3
Attn: Mr. Nuruddin Wallani
president
Subject: Licence number
: 51-TL-49
Account
identifier number : 14505 3690 RD 0001
This letter is to advise you that
according to our information, 9129‑9321 Quebec Inc operating under the
trade name of “Les Tabacs d’Or du Québec”, has purchased over 16009 kilos of
tobacco between November 5, 2003 and May 28, 2004, from various
wholesalers of raw leaf and blended fine cut tobacco.
However, as per the B267 E tobacco
licensee excise duty monthly returns that were completed by your company during
the same period, you declared only purchases of 253 kilos of raw leaf tobacco
whereas an additional 15756 kilos of blended fine cut tobacco was purchased by
your company, but not declared on the said returns.
Consequently, we ask you to provide
us with explanations in order to account for the 15756 kilos which represents
the difference between the 253 kilos and the total purchases of 16009 kilos.
In the absence of a satisfactory
explanation, we will have no choice but to assess your company 9129‑9321
Quebec Inc in the amount of $ 850,524.63 plus interest and penalties
applicable, representing the 15756 kilos of fine cut tobacco at the duty rate
of $ 53.981 per kilo.
Please be advised that this
information is required by July 30th, 2004 at the latest. If no
information is provided by this date, an official notice of assessment will be
issued.
If more information related to this
matter is needed, do not hesitate to communicate with me at phone number (514)
229-0584 or by fax at (514) 283‑6154.
Your cooperation in concluding this
matter will be greatly appreciated.
Regards,
Richard Granger
Excise Duty Officer
Canada Revenue Agency
Montreal district office
and
Canada Customs and Revenue Agency,
305, Rene, Levesque Boul. Ouest
Montreal, Quebec H2Z 1A6
Attn: Mr. Richard Granger
Excise Duty Officer
Subject: License # 51‑TL‑49
Account #: 14505 3690 RD0001
We are in receipt of your letter
dated July 12, 2004 and write to advise you that we bought a total of 253
kilograms of Raw Tobacco Leaf on two different occasions and thereafter we
never bought anything from anywhere.
Mr. Granger, if you remember,
we called you sometime in the last week of May 2004 and requested you if
you could come over to our premises in Dorval to carry out the necessary inspection as we were unable to pay the rent
for April 2004. We then explained to you the urgent need for inspection
because we had advised the landlord of our inability to meet our rental
commitment until the end of the lease and that they came up with new tenants
who wanted to rent the premises from June 1, 2004. Since I had no idea if
we could move our Tobacco stock elsewhere without your consent, you agreed to
come over to our place on 31st May 2004 for inspection thus
accommodating our urgent request.
On 31st May 2004 you
inspected the complete Tobacco Stock cut/uncut. You weighed every kilo we had
on the premises, you counted all plastic bags and after you reconciled all
entries, verified invoices and issued the destruction certificate.
Sir, if you remember, you suggested
to us that if we were not willing to continue to do this business in future,
then you should destroy these bags since it bears Tabac D’Or name on it. We
readily agreed and gave you the bags for destruction. In view of the above, we
request you to please drop all charges laid against us and confirm to us as
soon as possible.
Thanks and Kind Regards
_____________
N. Wallani
For, 9129‑9321 Quebec Inc.
Dated: July 13, 2004
[27] Mr. Daniel Coutu,
the owner of “Les tabacs du Québec inc.” put in evidence a group of invoices.
The first two were made out to the appellant (9129‑9321 Québec inc.) and
were for the tobacco that Mr. Wallani agrees he bought and paid duty on.
The payment was by cheque. All of the other invoices are to 9129‑9326 Québec inc. They are for substantial amounts of tobacco. They total over $150,000
and are in amounts running from a few hundred dollars to over $10,000. The
transactions took place at intervals of a few days and everything was said to
have been paid in cash.
[28] Mr. Coutu
stated that the persons who picked up the tobacco were called Nacime (or Nissim
as it appears in the transcript) and Adam. He met Mr. Wallani (who went
under the name of “Jack”). He said “Jack” would telephone him or his son and
order tobacco. Mr. Wallani denies all this. He asserts that he never
telephoned Mr. Coutu at his company, that the only transactions he had with “Les
tabacs du Québec inc.” were the two when he bought the 558 pounds. I am not
satisfied that Mr. Mathieu Coutu was able to tell from the telephone
conversation whose voice it was, if indeed there was such a telephone
conversation.
[29] I do not
find that the evidence of Mr. Daniel Coutu is sufficient to rebut
Mr. Wallani’s testimony. I say this for several reasons:
(a) The name on all the
invoices except the first two is 9129‑9326 Québec inc., not the
appellant’s name 9129‑9321 Québec inc. A mistake could be made once but
not on dozens of invoices.
(b) Mr. Wallani
knew of no one called Nacime or Adam and Mr. Coutu knew of no one called
Hussein.
(c) The sheer
improbability of large quantities of fine cut tobacco being bought for cash by
Mr. Wallani without any trace militates against the assertion that
Mr. Coutu sold such amount to Mr. Wallani or his company.
[30] Again, with
respect to the evidence of Mr. Daniel Coutu’s son, Mathieu, I do not
think that I can rely on it to justify a finding that Mr. Wallani was
lying. He testified that whenever he delivered the tobacco to 2236 rue Pitre,
he never saw “Jack”. Mr. Wallani testified that he had never seen that
place before the day before trial.
[31] In Faulkner
v. M.N.R., [2006] T.C.J. No. 173, I said:
[13] Where questions of
credibility are concerned, I think it is important that judges not be too quick
on the draw. In 1084767 Ontario Inc. (c.o.b. Celluland) v. Canada, [2002] T.C.J. No. 227
(QL), I said this:
8 The evidence of the two
witnesses is diametrically opposed. I reserved judgment because I do not think
findings of credibility should be made lightly or, generally speaking, given in
oral judgments from the bench. The power and obligation that a trial judge has
to assess credibility is one of the heaviest responsibilities that a judge has.
It is a responsibility that should be exercised with care and reflection
because an adverse finding of credibility implies that someone is lying under
oath. It is a power that should not be misused as an excuse for expeditiously
getting rid of a case. The responsibility that rests on a trial judge to exercise
extreme care in making findings of credibility is particularly onerous when one
considers that a finding of credibility is virtually unappealable.
[14] I continue to be
of the view that as judges we owe it to the people who appear before us to be
careful about findings of credibility and not be too ready to shoot from the
hip. Studies that I have seen indicate that judges are no better than any one
else at accurately making findings of credibility. We do not have a corner on
the sort of perceptiveness and acuity that makes us better than other people
who have been tested such as psychologists, psychiatrists or lay people. Since
it is part of our job to make findings of credibility, we should at least
approach the task with a measure of humility and recognition of our own
fallibility. I know that appellate courts state that they should show deference
to findings of fact by trial judges because they have had the opportunity to
observe the demeanour of the witness in the box. Well, I have seen some accomplished
liars who will look you straight in the eye and come out with the most blatant
falsehoods in a confident, forthright and frank way, whereas there are honest
witnesses who will avoid eye contact, stammer, hesitate, contradict themselves
and end up with their evidence in a complete shambles. Yet some judges seem to
believe that they can instantly distinguish truth from falsehood and rap out a
judgment from the bench based on credibility. The simple fact of the matter is
that judges, faced with conflicting testimony, probably have no better than a
50/50 chance of getting it right and probably less than that when their finding
is based on no more than a visceral reaction to a witness. Moreover, it is
essential that if an adverse finding of credibility is made the reasons for it
be articulated.
[32] In the circumstances I am satisfied on a balance of probabilities that
the appellant has satisfied the onus of proof and has established that it did
not purchase the 15,283.32 kilograms of tobacco as alleged by the respondent.
For the reasons given above I do not think the Crown’s evidence is sufficiently
reliable to warrant a finding that Mr. Wallani engaged in a massive
evasion of excise duty and, in addition, committed perjury. Such serious
allegations require compelling evidence.
[33] Counsel for the appellant suggested that possibly the invoices were
fabricated. Counsel for the respondent suggested that perhaps Mr. Wallani was
acting or being used as a front for someone else. Interesting though it might
be to pursue these conjectural hypotheses (for which I might say there is no
evidence) I need only deal with the more mundane question whether the appellant
purchased 15,756 kilograms of blended fine cut tobacco. I am satisfied on the
evidence that it did not.
[34] The appeal is therefore allowed with costs and the assessment is
referred back to the Minister of National Revenue for reconsideration and
reassessment in accordance with these reasons to delete the duty of $825,008.90
imposed under section 42 of the Excise Act, 2001 together with any
interest and penalties related thereto that may have been imposed.
Signed
at Calgary, Alberta, this 30th day of January 2007.
Bowman,
C.J.
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