Citation: 2008TCC12
Date: 20080108
Docket: 2002-1311(GST)G
BETWEEN:
GYPSE ET JOINTS MPG RIVE-NORD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] On March 31, 2000, the
Minister of National Revenue ("the Minister"), through the Quebec
Minister of Revenue, issued a reassessment against the appellant ("the
reassessment of March 31, 2000") under Part IX of the Excise Tax Act
("the ETA") for the period from January 1, 1995 to
December 31, 1996. On January 19, 2002, the Minister
issued another reassessment against the appellant ("the reassessment
of January 19, 2002") under the ETA, whereby he essentially disallowed
input tax credits (ITC) in the amount of $23,844.16 and imposed
penalties and interest for the period from October 1, 1996 to
September 30, 1999 ("the relevant period").
[2] I am of the opinion
that the appeal from the reassessment of March 31, 2000 must be dismissed
because it was not filed on time. Indeed, the appellant filed its Notice of
Appeal on the 643rd day following the expiration of the 90-day period in which
an appeal from that reassessment could be filed.
[3] In the reassessment
of January 19, 2002, the Minister essentially disallowed the ITCs that the appellant
had claimed, on the ground that the tax in respect of which it was claiming the
ITCs was paid to subcontractors who issued so-called "accommodation"
invoices.
[4] The appellant
operates a business in the construction field. Basically, it installs drywall.
During the relevant period, the appellant did business with roughly 20
subcontractors because it was short of employees and had too many contracts to
perform. The Minister contests the invoices issued by seven of these
subcontractors ("the problematic invoices"). The seven subcontractors
are:
(i) Construction B.V.
Champlain Inc.;
(ii) 9054-5419
Québec Inc., which, at the time, operated as Acoustique B.V. ("Acoustique B.V.");
(iii) 3323293 Canada
Inc., which, at the time, operated as Construction J.L. Green ("Construction
J.L. Green");
(iv) Construction S. Thuot Inc.;
(v) 9039-1210 Québec Inc.;
(vi) 9053-7168 Québec Inc., which, at
the time, operated as Les Entreprises BNS ("Les Entreprises BNS"); and
(vii) Acoustique B & A Inc.
[5] The Minister
acknowledged the legal existence of these seven subcontractors. He also
acknowledged that they each held a building contractor permit. He admitted that
they had registration numbers for the purposes of making goods and services tax
(GST) payments as well as source deductions. The Minister also acknowledged
that the problematic invoices existed, and that the appellant issued cheques in
payment thereof. However, on the basis of the profile of these subcontractors, he
made the assumption that the supplies of services that the appellant received
from them were fictitious. He made the assumption that the supporting documents
submitted by the appellant were accommodation invoices giving the appearance
that a regular supply had been made when in fact no supply of services was made
by the subcontractors referred to in the supporting documents. Lastly, the
Minister made the assumption that the strategy employed by the appellant
enabled it to pay its employees under the table.
[6] What, then, was the
subcontractors' profile which the Minister relied upon in making his assumption
that they issued accommodation invoices? That profile, on which the Minister
relied in assessing the appellant, is set out in the report of Richard Lafontaine
(Exhibit A‑1), the auditor from the Ministère du Revenu du Québec who
audited the appellant, and in his testimony. On the basis of his own
investigation and the information obtained from colleagues at the Ministère du
Revenu du Québec, Mr. Lafontaine testified that he had found with regard
to all the problematic subcontractors except Acoustique B & A
Inc. that during the relevant period:
(i)
They did not remit the
GST collected from the appellant.
(ii)
Their invoices were prepared
by employees of the appellant.
(iii)
They filed no income
tax return.
(iv)
They had no employees.
(v)
Mr. Lafontaine was
unable to contact their directors and obtain the subcontractors' accounting records.
(vi)
The cheques that the appellant
issued to these subcontractors in payment of their alleged services were either
cashed by their director at a Cheque Express counter for a 3% commission,
or deposited into their bank accounts. Mr. Lafontaine explained that, in the
latter case, a cash amount equal to the amount of the cheques thus deposited
was immediately withdrawn from their bank accounts.
(vii)
There were no documents,
other than the invoices and the cheques issued by the appellant, to prove that
the services of the subcontractors in question were used.
(viii)
They were not among the
subcontractors that the appellant declared to the general contractors.
(ix)
According to the
records of the Commission de la construction du Québec, the inspectors of that
agency never saw the subcontractors in question on any construction sites.
[7] With respect to Acoustique
B & A Inc., Mr. Lafontaine testified that he found
during his investigation that this subcontractor issued some invoices for
services actually rendered to the appellant. He also stated, on the other hand,
that it had also issued accommodation invoices. Mr. Lafontaine called this
subcontractor a [TRANSLATION] "mixed accommodator". He testified that
he refused to accept any invoices of this subcontractor
(i)
that
were prepared by an employee of the appellant; and
(ii)
with
respect to which the GST that the appellant paid to the subcontractor was not
remitted by the subcontractor; and
(iii)
with
respect to which the payment cheques issued by the appellant were cashed by the
subcontractor's director at a Cheque Express counter for a 3% commission.
Pierre Ouimette's
testimony
[8] The testimony given by Mr. Ouimette, an
officer of the appellant during the relevant period, can be summarized as
follows:
(i) The appellant had about ten
employees during the relevant period.
(ii) During the relevant
period, the appellant granted contracts to around 20 subcontractors, including
the seven problematic subcontractors, because it was short of employees and had
too many contracts to perform. For certain contracts, the work was split
between the subcontractors and the appellant's employees.
(iii) The
contracts with the subcontractors were oral contracts. The remuneration
generally agreed upon with them was $120-$130 per thousand square feet of drywall
installed. The terms were [TRANSLATION] "payment immediately upon
completion". Mr. Ouimette explained that, in the commercial sector,
there was a 10% holdback to ensure that the work would be done properly. Thus,
the appellant held back 10% of the balance otherwise payable to the
subcontractors that had done work for the appellant in the commercial sector.
(iv) Certain
subcontractors trusted the appellant so much that they gave it blank invoices
that were filled out by employees of the appellant on behalf of those
subcontractors. Mr. Ouimette explained that this was the context in which Daniel Champagne
filled out on behalf of Acoustique B.V. an invoice dated April 27, 1998
(Exhibit A‑3). Mr. Ouimette explained that Mr. Champagne prepared
this invoice from a sheet (Exhibit A‑3) on which Mr. Champagne had noted
the work that he and the subcontractor had done on the appellant's various job
sites during the previous week. In my opinion, the statement made by Mr.
Ouimette (Exhibit I‑2) in the presence of, among others, Christian
Tremblay, an investigator with the Ministère du Revenu du Québec, is worth
reproducing here in full, because it strikes me as much more explicit than his
testimony on the subject of the appellant's modus operandi with the
problematic subcontractors.
[TRANSLATION]
I met with Christian Tremblay at the offices of the Ministère du
Revenu to clarify the situation of Gypse & Joints MPG Rive Nord Inc., now
named Gypse et Joints Rive Nord Inc. I am the president of G&JMPGRNI, the
company referred to above. In that capacity, I looked after the contracts
submitted to me and had the work performed. I have never been a shareholder of
the company, and my role as far as the accounting is concerned involves
controlling the subcontractors' invoices, and billing customers. I am also
authorized to sign the company's cheques. The bookkeeping is done by Sylvie
Tremblay, who is also the company's sole shareholder. The contracts that the
company obtains are submitted to me by telephone in view of my long standing in
the construction field. When I have a contract to perform, the workers
(of G&JMPGRNI) are notified the day before. If I am unable to perform
the contract on time, I use subcontractors. I call the subcontractor, which
sends me employees on request. The invoices of 3323293 Canada Inc. and Construction
B.V. Champlain Inc. were all filled out by Daniel Champagne, a salaried employee
of G&JMPGRNI. Thus, a large percentage of the invoices of Acoustique B & A
were completed by salaried employees of G&JMPGRNI. Those invoices were
obtained by our company from the person who represented the said companies; in
the case of 3323293 Canada Inc. and Construction B.V. Champlain Inc., that
person was Michel Dubois. The invoices of Acoustique B & A were given to me
by Yves Beauchamp. Stéphane Thuot gave me the invoices for Construction S.
Thuot Inc. Based on the time sheets of the salaried employees of G&JMPGRNI and
the work done, we do the following calculation: the quantities installed, as determined
by the site superintendent, are invoiced at the agreed rate; the hours worked
by the salaried employees of G&JMPGRNI are deducted from the total, along
with the various transportation allowances, the cost of the materials, and
other costs; the balance is taxed at the rates of 7% (GST) and 6.5% (QST) and is
payable to the subcontractor by G&JMPGRNI. Work done in the commercial
sector was subject to a 10% deduction from the total amount owing as a
guarantee that the work would be performed properly. It was then the role of G&JMPGRNI's
subcontractor to pay the workers that it had provided in order to complete the
contract. I do not know the names of the people who worked for the
subcontractors. The payment cheque was generally handed over to the
subcontractors' representatives as soon as the work was completed. I never
paid to workers—whether G&JMPGRNI's or others—any amounts other than those referred
to above, namely: salaries, transportation allowances and reimbursements for
purchases of materials and supplies.
[9] With respect to
this statement, I would note immediately that all the invoices of J.L. Green
and Construction B.V. Champlain Inc. were prepared by Mr. Champagne. I would note also with
regard to the same statement that a large percentage of the invoices of Acoustique B & A Inc. were prepared
by other employees of the appellant. Moreover, one learns upon reading the statement
that the blank invoices from J.L. Green and Construction B.V. Champlain Inc. were
given to the appellant by Michel Dubois, a representative of those
companies. Lastly, according to the statement, the blank invoices of Acoustique B & A Inc. were
given to the appellant by Yves Beauchamp and those of Construction S. Thuot
were given to the appellant by Stéphane Thuot. Furthermore, I would
point out here that Mr. Dubois pleaded guilty to the following offence:
[TRANSLATION]
In Repentigny, District of Joliette, and elsewhere in Quebec, did, between
January 1, 1996 and December 31, 1999, participate in the making of false or deceptive
statements in returns filed or made under section 238 of the Excise Tax
Act (R.S.C. 1985, c. E-15, as amended) by or on behalf of the following
persons, corporations or partnerships, to wit: Stabo Inc., Les Constructions
Dany Lachance Inc., Système Intérieur S. Lafleur Inc., 2942429 Canada Inc.,
Rénovation Allens Michel Inc., Système Intérieur Lebeau Inc., Acoustique B
& A Inc., Quapaz Inc., Construction Alban Perreault Inc., Construction
Patry Inc., 9053-3340 Québec Inc., Gypse & Joints M P G Rive-Nord
Inc., Gaétan Lepage, R. Tavano Enr., Acoustique DRT Inc., Système Intérieur A. Lagueux
Inc., Finition Intérieure Rojean S.E.N.C. and Entreprise Générale Gestram Ltée,
for the reporting periods comprised between January 1, 1996 and December 31,
1999, inclusively, by providing false invoices purporting to be issued by 9024‑4450
Québec Inc., 3323293 Canada Inc., Construction B.V. Champlain Inc. and
9054‑5419 Québec Inc., which these persons, corporations or
partnerships used for the purpose of claiming false input tax credits in the
amount of $223,922.81 and thus attempting to evade the tax or net tax, or to
obtain a rebate in the same amount, thereby committing an offence under section 327(1)(a)
of that Act and making himself liable on summary conviction to the penalty
prescribed in section 327(1)(f) or 327(1)(g) of the Act.
Mr. Tremblay's
testimony
[10] Lastly, I note that
Mr. Tremblay, the investigator who uncovered the scheme put in place by Mr. Dubois,
testified that his investigation resulted not only in Mr. Dubois's plea of
guilty to the aforementioned charges, but also in the guilty pleas of Yves Beauchamp
and Stéphane Thuot to similar charges. Mr. Tremblay explained that,
among other things, Mr. Dubois had provided false invoices which purported to
be issued by Construction B.V. Champlain Inc., Acoustique B.V. and Construction J.L. Green and which
the appellant used to claim false input tax credits. Mr. Tremblay explained
that Mr. Dubois set up these companies, had invoices printed, and used nominees
(in particular, Nathalie Dubois, Bernard Vinet and Marcel Benoît)
to act as directors of these companies, cash the cheques issued by the
appellant in payment of these false invoices, and hand over to the appellant
the amounts thus obtained (less a 10% commission), which amounts were
apparently used to pay the appellant's employees under the table.
Mr. Champagne's testimony
[11] Mr. Champagne corroborated
in a way Mr. Ouimette's testimony concerning his role in the appellant's
business during the relevant period by specifying that he filled out blank invoices
of Construction B.V. Champlain Inc. and J.L. Green on their behalf. He
explained that he had not met the officers of those companies, but had rubbed
shoulders with their employees at the appellant's various job sites. He added
that he was paid only by the appellant during the relevant period. Lastly, he
explained that he did not know why the amounts payable to these subcontractors
had been the subject of a 10% holdback.
The appellant's
position
[12] The appellant
submitted that the respondent's evidence that the invoices in question were
fictitious was based essentially on the subcontractors' profiles and on the
fact that their invoices were filled out by employees of the appellant. The appellant
asserted that the Minister has in no way shown that it colluded with these
subcontractors or that the tax that it paid them was used to pay its employees
under the table. With respect to the invoices filled out by employees of the appellant,
the appellant claimed that the subcontractors instructed it to prepare them on
their behalf, and so the Minister could not infer from this that the invoices
were fictitious. The appellant added that it always made sure that the
subcontractors had a GST registration number, and that this was all that it
could do, since all information about the payment of the tax by the supplier of
the service is confidential and cannot be disclosed to the appellant. The appellant
maintained that it had no way of knowing that it was dealing with delinquent
businesses. According to the appellant, it is the conduct of those businesses
that contravened the ETA. The appellant further stated that it should not have to bear
the economic burden resulting from these subcontractors' failure to remit to Her
Majesty the tax that the appellant had paid them. Lastly, the appellant submitted
that the invoices, the cheques that it issued in payment of those invoices, and
the credible testimony of Pierre Ouimette (corroborated by Mr. Champagne's
testimony) that the services were truly provided to the appellant by these subcontractors
constituted prima facie evidence that the invoices in question were not
fictitious, and that this prima facie evidence was sufficient to demolish the
assumptions of fact on which the Minister relied in assessing the appellant.
The appellant explained that once the Minister's assumptions of fact were
demolished, the burden of proof shifted to the Minister, who must accordingly rebut
the appellant's prima facie evidence.
Analysis and conclusion
[13] I would point out
that, in the field of tax law, the standard of proof is proof on a balance of
probabilities. I would also point out that, in making an assessment, the
Minister relies on assumptions, and that the taxpayer bears the initial burden
of demolishing the assumptions made by the Minister in his assessment. The taxpayer's
initial burden consists solely in demolishing the exact assumptions made by the
Minister, and nothing more. An appellant discharges this initial burden of
demolishing the exact assumptions made by the Minister if it presents at least prima
facie evidence. As a general rule, prima facie evidence is defined as evidence
sufficient to establish a fact until the contrary is proven. Once the appellant
has demolished the Minister's assumptions, the burden of proof shifts to the Minister,
who must rebut the prima facie evidence. I would note as well that the law of
evidence in force in the province of Quebec applies in the present case. Specifically,
the following provisions of the Civil Code of Québec apply:
2826. A private writing is a writing setting
forth a juridical act and bearing the signature of the parties; it is not
subject to any other formality.
2828. A person who invokes a private writing has the burden of
proving it. . . .
2831. An unsigned writing regularly used in the ordinary course of
business of an enterprise to evidence a juridical act makes proof of its
content.
2835. A person who invokes an unsigned writing shall prove that it
originates from the person whom he claims to be its author.
2836. Writings contemplated in this section may be contested in any
manner.
[14] The question that
now arises is as follows: is the evidence adduced by the appellant in the case
at bar sufficient to demolish the Minister's assumptions of fact?
[15] In the case at bar,
the appellant had to show that the invoices were from subcontractors. In order
to do so, it had to show that those subcontractors instructed it to fill out,
on their behalf, the blank invoices that the officers of the subcontractors had
given to the appellant. The appellant had the opportunity to call the officers
of those subcontractors to testify in this regard. These officers could have
testified that they gave such instructions to the appellant, and that services
were truly provided to the appellant. The respondent could then have cross‑examined
those witnesses, which the appellant was in a position to produce. But the appellant
did not produce the witnesses that it was in a position to call to testify. The
inference that I draw from this is, quite simply, that their evidence
would have been unfavourable to the appellant. In this regard, the appellant
wished to produce letters from officers of these subcontractors stating that
the services were truly provided. I would point out that I did not allow the appellant
to tender these letters in evidence since the respondent was not able to cross‑examine
those officers. In my opinion, the letters had no probative value
under the circumstances. Mr. Ouimette stated that three of the officers
had died and therefore could not testify. The fact remains that the appellant
could have called the other officers, who had not died. It did not do so.
[16] I note as well that
the appellant's evidence could also be contested in any manner. In this regard,
the respondent called Mr. Tremblay to testify, and tendered Mr. Dubois's
plea of guilty as Exhibit I‑3, and Mr. Ouimette's statement as
Exhibit I‑2.
[17] With respect to Construction
B.V. Champlain Inc., I note that the respondent
(i) produced as Exhibit I-3 Mr. Dubois's
plea of guilty to having participated in the making of false and deceptive
statements in returns filed or made under section 238 of the ETA by or on
behalf of the appellant, for the reporting periods commencing
January 1, 1996, and ending on December 31, 1999, by
providing false invoices purporting to be issued by Construction B.V. Champlain Inc.,
which the appellant used for the purpose of claiming false ITCs;
(ii) produced
as Exhibit I-2 Mr. Ouimette's statement that the blank invoices of this
subcontractor had been provided to the appellant by Mr. Dubois; (In this
regard, I note Mr. Ouimette's testimony that the blank invoices of this
subcontractor were filled out by Mr. Champagne, an employee of the appellant. I also note in this regard that
Mr. Champagne testified that he had filled out this subcontractor's
invoices.)
(iii) called Mr.
Tremblay as a witness. (I note that his testimony was that Mr. Vinet (the
director of this subcontractor who went to a Cheque Express counter and
cashed the cheques from the appellant that were related to these invoices) was
a nominee of Mr. Dubois.)
[18] With respect to
Construction J.L. Green, I note that the respondent
(i) produced
as Exhibit I-3 Mr. Dubois's plea of guilty to having participated in the making
of false and deceptive statements in returns filed or made under section 238 of
the ETA by or on behalf of the appellant,
for the reporting periods commencing January 1, 1996, and ending
December 31, 1999, by providing false invoices purporting to be issued by J.L.
Green, which the appellant used for the purpose of claiming false ITCs;
(ii) produced
as Exhibit I-2 Mr. Ouimette's statement that the blank invoices of this
subcontractor had been provided to the appellant by Mr. Dubois; (In this
regard, I note Mr. Ouimette's testimony that the blank invoices of this
subcontractor were filled out by Mr. Champagne, an employee of the appellant. I
also note that Mr. Champagne testified that he had filled out this
subcontractor's blank invoices.
(iii) called Mr.
Tremblay as a witness. (I note that his testimony was that Mr. Michel
Benoît (the director of this subcontractor who went to a Cheque Express counter
and cashed the cheques from the appellant that were related to these invoices, paying
a 3% commission) was a nominee of Mr. Dubois.)
[19] With respect to Acoustique B.V., I note that the respondent:
(i) produced
as Exhibit I-3 Mr. Dubois's plea of guilty to having participated in the making
of false and deceptive statements in the returns filed or made under section 238
of the ETA by or on behalf of the appellant, for the reporting periods
commencing January 1, 1996, and ending December 31, 1999, by providing false
invoices purporting to be issued by Acoustique B.V., which the appellant used
for the purpose of claiming false ITCs; (I note Mr. Champagne's testimony that
he filled out this subcontractor's blank invoices.)
(ii) called
Mr. Tremblay as a witness. (I note that his testimony was that Mr. Bernard
Vinet (the director who went to a Cheque Express counter and cashed the
cheques from the appellant that were related to these invoices, paying a 3% commission)
was a nominee of Mr. Dubois.)
[20] With respect to the
subcontractor Acoustique
B & A, the respondent called Mr. Tremblay as a witness. Mr.
Tremblay testified that Yves Beauchamp, that subcontractor's sole
director, was a nominee of Mr. Dubois and had pleaded guilty to an offence
similar to that to which Mr. Dubois pleaded guilty. I note that in this
regard the evidence showed that Mr. Beauchamp was the person who cashed
the appellant's cheques related to that subcontractor's invoices at a
Cheque Express counter, paying a 3% commission. I also note
Mr. Ouimette's statement that a large percentage of that subcontractor's
blank invoices were filled out by employees of the appellant.
[21] With respect to the
subcontractor Construction Stéphane Thuot, the respondent called Mr. Tremblay
as a witness. Mr. Tremblay testified that Stéphane Thuot, that subcontractor's sole
director, was also a nominee of Mr. Dubois and had pleaded guilty to an
offence similar to that to which Mr. Dubois' pleaded guilty. In this
regard, I note Mr. Ouimette's statement that Stéphane Thuot provided that
subcontractor's blank invoices to the appellant. Lastly, I note that the
evidence disclosed that the appellant's certified cheques in payment of that
subcontractor's invoices were deposited into the subcontractor's bank account,
and that equal amounts were immediately withdrawn in cash from that account.
[22] In my opinion, the
Minister has shown, through Mr. Tremblay's credible testimony, Mr. Dubois's
guilty plea (Exhibit I‑3) and Mr. Ouimette's statement (Exhibit I‑2)
that the problematic invoices were fictitious. I would add that the fact
that the appellant never paid to the subcontractors in question the 10%
holdback (to guarantee the performance of the work) only reinforces my
conviction that these invoices were fictitious.
[23] Lastly, I would
point out that the invoices found at pages 56, 58, 55, 57, 59, 382, 384, 383,
60, 496, 498, 499, 500, 501, 502, 503, 374, 377, 378, 504, 505, 495 and 494 of
Exhibit I‑1 do not comply with either section 169 of the ETA or the Input Tax
Credit Information (GST/HST) Regulations in that they do not indicate the
registration number required for GST purposes. Consequently, the appellant
cannot claim the ITCs related to these invoices.
[24] Given my foregoing finding
that the invoices in issue were fictitious, I conclude that the Minister properly
disallowed the appellant's ITC claim. Since the Minister very clearly
showed that Mr. Ouimette participated with Mr. Dubois and other
persons of his ilk in fictitious transactions, I have no choice but to hold
that the Minister properly imposed the penalty under section 285 of the ETA.
[25] For these reasons,
the appeal is dismissed with costs.
Signed at Ottawa, Canada, this 8th day of January 2008.
"Paul Bédard"
Translation
certified true
on this 31st day
of July 2008.
Erich Klein, Revisor
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