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Docket: 2006-3931(GST)I
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BETWEEN:
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OAK RIDGES LUMBER CORP.,
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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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____________________________________________________________________
Appeal heard on April 23 and 24, 2008 at Toronto, Ontario.
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Before: The
Honourable D.G.H. Bowman, Chief Justice
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Appearances:
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Agent for the
Appellant:
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John Sbrolla
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Counsel for the
Respondent:
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Sharon Lee
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____________________________________________________________________
JUDGMENT
The appeal from the reassessment
made under Part IX of the Excise Tax Act, notice of which is dated October 6,
2006, for the period from February 1, 1998 to
September 30, 1998, is dismissed.
Signed at Toronto, Ontario, this 8th day of May 2008.
Bowman,
C.J.
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Citation: 2008TCC259
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Date: 20080508
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Docket: 2006-3931(GST)I
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BETWEEN:
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OAK RIDGES LUMBER CORP.,
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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 appeal is from
a reassessment made under the Goods and Services Tax (“GST”) provisions
of the Excise Tax Act (“ETA”) for the period from
February 1, 1998 to September 30, 1998.
[2] The
reassessment was complex and it involved the assessment of GST on alleged
unreported revenues of $546,959, a denial of input tax credits (“ITCs”) and the
imposition of penalties. None of these matters is in issue except for the
denial of ITCs in respect of payments that the appellant made to a company
called Vacation Properties Development Corporation (“VPDC”).
[3] The
issue boils down to a very narrow one: did the appellant include GST on
payments that it made to VPDC or did it not? If it did, the Crown agrees that
it is entitled to ITCs to the extent that the payments it made to VPDC
contained GST.
[4] The
situation is a little more complex than the above statement of the issue would
indicate. The president and sole shareholder of the appellant is
John Sbrolla. Mr. Sbrolla was a seafood wholesaler. He was persuaded
to get involved in a lumber retailing enterprise by the appellant’s wife’s uncle,
Paul Taylor (since deceased). The stated purpose of the enterprise was to
sell hardwood flooring to Hong Kong. To this end Taylor formed Bancroft Lumber and Wood Floor Products Limited (“Bancroft”).
[5] Bancroft
was financed in part by VPDC, a company owned by May Seto, wife of David
Seto. May Seto is the daughter of a wealthy Hong Kong family. David Seto has since absconded leaving
his wife and children. A number of people including Mr. Sbrolla were
charged with fraud and money laundering and convicted. Mr. Sbrolla’s role,
so far as I can see was relatively minor, although of this I cannot be certain.
Mr. Seto was apparently the driving force. Mr. Sbrolla got only
$32,000 out of what seems to be a multi million dollar scheme involving
defrauding US sellers of hardwood, kiting cheques and money laundering.
Mr. Sbrolla received a very light sentence.
[6] None
of this is particularly germane to the issue in this appeal but it is important
to show the background against which the payments to VPDC were made by the
appellant. The appellant bought lumber from Bancroft and apparently paid GST on
it and claimed ITCs which were allowed.
[7] VPDC
had advanced money to Bancroft and had a lien on its property. Canadian Maple
Hardwood Flooring was engaged in litigation with Bancroft and was in the
process of petitioning it into bankruptcy. Mr. Sbrolla testified that
Paul Taylor told him to make payments to VPDC in respect of lumber
Bancroft sold to the appellant. It did so over about two to three months (May,
June and July, 1998).
[8] It
seems it did not claim ITCs on all payments it made to VPDC. I have encountered
varying calculations of the amounts paid by the appellant to VPDC but it seems
to be in the neighbourhood of $360,000 to $380,000. Some of the payments were
made in U.S. funds.
[9] I
revert then to the central question: did the payments to VPDC include GST? The
letter from Mr. Plummer, the appeals assessor state “Input tax credits will not
be allowed on payments to Vacation Properties. There is insufficient evidence
to show that GST was paid on these payments”. Subsection 169(4) of the ETA provides:
(4) Required
documentation – A registrant may not claim an input tax credit for a reporting period
unless, before filing the return in which the credit is claimed,
(a) the registrant has
obtained sufficient evidence in such form containing such information as will
enable the amount of the input tax credit to be determined, including any such
information as may be prescribed; and
[10] The Input Tax Credit Information (GST/HST) Regulations provides supporting
documentations and this includes:
“supporting
documentation” means the form in which information prescribed by section 3 is
contained, and includes
(a) an invoice,
(b) a receipt,
(c) a credit-card receipt,
(d) a debit note,
(e) a book or ledger of
account,
(f) a written contract or
agreement,
(g) any record contained in
a computerized or electronic retrieval or data storage system, and
(h) any other document
validly issued or signed by a registrant in respect of a supply made by the
registrant in respect of which there is tax paid or payable;
[11] I think it is fair to say that none of these types of documents has
been produced, either to the Canada Revenue Agency or to the Court. The
requirement for documentation is not unreasonable nor indeed is it particularly
onerous. It is, in any event, a requirement under the ETA. In Helsi
Construction Management Inc. v. R., [2001] G.S.T.C. 39 the following was
said:
The main reasons for the
disallowance was that the suppliers’ GST numbers were not shown on the
invoices. This is a requirement under section 3 of the Input Tax Credit
Information Regulations. While there may be some justification in certain
cases for treating technical or mechanical requirements as directory rather than
mandatory (for example see Senger-Hammond v. R. (1996), [1997]
1 C.T.C. 2728 (T.C.C.)) that is not so in the case of the GST provisions
of the Excise Tax Act.
[12] Quite apart from the absence of documentation I am not satisfied that
GST was ever included in the payments to VPDC. Even if I accept the story that
Paul Douglas told Mr. Sbrolla to make the payments to VPDC that would
otherwise go to Bancroft (and there is no written confirmation of this), I have
seen no invoices from Bancroft corresponding to any of the payments made to
VPDC. Moreover, included among the payments in May and June to VPDC are
payments to Bancroft. This is inconsistent with the theory that they were
trying to bypass Bancroft to avoid the lawsuit by Canadian Maple Hardwood Flooring.
[13] Moreover it is unclear to me just how much the appellant is claiming
by way of ITCs in respect of the payments to VPDC. The amounts paid to VPDC in
respect of which ITCs are claimed seem to vary within a range of indeterminate
magnitude — perhaps somewhere between $192,000 and $483,000. Also, no ITCs were
claimed by the appellant on a large number of payments to VPDC.
[14] There are a number of cheque stubs relating to the payments to VPDC.
On the stubs is written the amount of the cheque in Mr. Sbrolla’s
handwriting and in different handwriting (that of the bookkeeper) is written
“GST amount”. This was done at a different time. It is merely a calculation
using the fraction 7/107 of the amount of the cheque. It does not prove that
GST was paid on the amounts paid to VPDC.
[15] Taking everything into account, I do not think it has been established
on a balance of probabilities that the payments to VPDC included GST.
[16] The appeal is dismissed.
Signed at Toronto, Ontario, this 8th day of May 2008.
Bowman,
C.J.
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