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Citation: 2005TCC508
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Date: 20050817
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Docket: 2003-1220(GST)I
2003-1223(GST)I
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BETWEEN:
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LES CONSTRUCTIONS L.J.P. 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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AND BETWEEN:
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ÉQUIPEMENTS S.P.M. INC.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
[OFFICIAL ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
(Decision rendered orally from the bench on December 1, 2004,
at Montréal, Quebec.)
Lamarre J.
[1] The appellants are appealing from assessments by which they were denied, inter alia, input tax credits (ITCs) claimed during the period of April 1, 1999, to March 31, 2001.
[2] Specifically, Les Constructions L.J.P. Inc. claims ITCs of $12,637.03 in connection with invoices from two subcontractors, Gestion G. Gauvin and Location B.B.M, which it says that it paid.
[3] As for Équipements S.P.M. Inc., it claims ITCs totalling $12,396.98 in connection with invoices which it says that it paid to three subcontractors: Gestion G. Gauvin, Construction H.D. Inc. and Coffrage R.M.R. (Exhibit A-1).
[4] Both appellants are corporations, and their shares are held by the three Côté brothers. The appellants are in the construction business. Les Équipements S.P.M. Inc. is the corporation that owns the equipment, and Les Constructions L.J.P. Inc. is the corporation that carries on all the operations. Les Constructions L.J.P Inc's specialty is the erection of concrete structures. It bids on all the large construction sites in the city of Montréal. It did $2.5 million worth of business in 1999, and this figure has grown considerably since then, now standing at $25 million. It employs 200 people on construction sites and generally supplies the materials.
[5] According to Sylvain Côté, the president of both corporations and the only shareholder who testified on behalf of the appellants, labour has become more difficult to find in the past few years, and this is forcing the business to subcontract more and more. In 1999-2000, Sylvain Coté did business with 10 to 20 subcontractors, which he selected personally.
[6] Four of those subcontractors are in issue in the case at bar: Construction H.D. Inc. and Coffrage R.M.R., both represented by a certain Patrick Landry (based on information provided by counsel for the appellants), and Gestion G. Gauvin and Location B.B.M., represented by Marc-André Bond.
[7] Mr. Côté says that a worker named Dallaire, who had previously worked for his father, approached him to offer the services of Construction H.D. Inc. The only document that Mr. Côté required from this company was its building contractor's licence, which was issued pursuant to the provincial enabling statute. According to this document (Exhibit A-10), Bernard Emmanuel is listed as the contact person, and the place of business is given as 1362 Montée Masson in Laval. This address matches the one found on the invoices allegedly sent to and paid by Construction L.J.P. Inc. which are in evidence and in issue in the case at bar.
[8] According to these invoices, Construction H.D. Inc. did prefabrication work for one of the appellant corporations. Mr. Côté says that this work was done at a plant, not at construction sites. In connection with this work, the Appellant purportedly ordered columns, risers, skewbacks and headpieces for its various projects.
[9] Mr. Côté says that Marc-André Bond solicited over the telephone on behalf of subcontractors Gestion G. Gauvin, Location B.B.M. and Coffrage R.M.R. However, it appears that Coffrage R.M.R. did not belong to Mr. Bond. Only Gestion G. Gauvin provided a building contractor's licence. (No such licence was provided for the other two subcontractors.) The name of the contact person on the licence is Gilles Gauvin and the head office address is in Ste-Thérèse (Exhibit A-11). The address does not match the one that appears on the Gestion G. Gauvin invoices that were purportedly sent to and paid by the appellants (Exhibits A-4 and A-6). That address is in Terrebonne.
[10] Mr. Côté says that he did not know Mr. Bond at the time. He claims that he gave him the same sort of work that he had given to Construction H.D. Inc. According to the invoices, Gestion G. Gauvin allegedly obtained the barricade and beam prefabrication contract. Mr. Côté says the orders under that contract were used in large institutional projects in Montréal. As for Location B.B.M., it purportedly rented steel beams, walkways and other equipment to the appellants.
[11] Mr. Côté says that he gave his subcontractors oral instructions and that there were no drawings and specifications. He alleges that he rarely issued purchase orders. According to Jean-Luc Queneville, the appellants' accountant, Sylvain Côté supervised the purchase of materials, so it was unnecessary to issue purchase orders as a large business would. Mr. Côté provided only the dimensions of the beams and barricades. He never verified the address for the subcontractors' place of business. He says that he took delivery of the orders at the appellants' place of business, and that one of his brothers checked the delivered goods. According to Mr. Côté, an engineer also inspected the goods. Mr. Côté allegedly paid by cheque on delivery and provided no proof that the goods were received. Mr. Côté also claims that Mr. Bond filled his orders from his place of business in Terrebonne. However, Mr. Bond, who also testified, said that he worked in the double garage of his sister's home. He says that he hired three woodworkers, whom he paid in cash, and that he did not report any of this to the tax authorities. Although Gestion G. Gauvin had a Goods and Services Tax (GST) registration number, Mr. Bond made no remittances to the government. He does not recall the names of his employees. Mr. Bond says that he filled the appellants' orders using materials that he scavenged from site demolitions. However, Mr. Côté says that Mr. Bond used materials supplied by the appellants. With regard to walkways and other rentals, Mr. Bond says that he also got supplies from site demolitions.
[12] The invoices submitted by the appellants to claim ITCs were not initially accepted by the Ministère du Revenu du Québec ("the Minister") because they were not sufficiently detailed. There were either no dimensions, or no unit prices, or only a very brief description of the requested supplies.
[13] In addition, the Minister realized that the cheques adduced as evidence of payment of these invoices were cashed at a cheque-cashing business, which could suggest that the invoices were false and had been issued merely for the sake of accommodation. In addition, the audit revealed that the subcontractors in question had all given false addresses. Indeed, none of these subcontractors did business at the stated addresses. Some of them gave a GST registration number that was not theirs. None of the subcontractors paid rent or wages or had purchased materials. Based on this, the Minister concluded that the subcontractors did not have the capacity to provide the services ordered by the appellants because they carried on no commercial activities. Thus, the Minister determined that they could not have rendered the services for which the appellants now claim ITCs.
[14] Moreover, the Minister realized that while the costs of these invoices were entered in the appellants' general ledgers, they were not charged to the costs of the various projects. Mr. Queneville explained that this was a precautionary measure: at the time of payment, the project with which the expense was associated was not known. This explanation appears to be contradicted by the invoices, which generally stated the name of the project. Mr. Queneville also explained that the internal comptroller was the one who made the accounting entries, and that she had failed to record several invoices, not just the invoices issued by the suppliers in issue, to the cost of projects.
[15] Relying on sections 2 and 3 of the Input Tax Credit Information (GST/HST) Regulations ("the Regulations"), the appellants submit that the invoices that they have produced meet all the conditions precedent to entitlement under the Regulations and the Excise Tax Act ("the Act"). Specifically, the invoices state the recipient's name or the name under which the recipient does business, the date of the invoice, the registration number, the terms of payment, and a description of each supply sufficient to identify it.
[16] However, the reason that the Minister disallowed the ITCs is that the invoices are false and there was no actual payment made for actual supplies. Indeed, the contents of invoices will only be analyzed if they are premised on genuine transactions (see Les voitures Orly Inc. / Orly Automobiles Inc. v. Canada, [2004] T.C.J. No. 204 (QL), 2004 TCC 86).
[17] The appellants retort that the Minister was unable to show any collusion or common intent in this regard between the appellants and the four suppliers. They submit that the Minister never envisaged the possibility that the suppliers could have each contracted individually with third parties. They submit that just because the suppliers in question may have acted as accommodators, it cannot automatically be concluded that the appellants were the persons accommodated. According to the appellants, the invoices, cheques and general ledger entries, along with the testimony of Mr. Bond, which corroborated Mr. Côté's account, constitute sufficient proof that the appellants had received goods in good faith from these suppliers. In their submission, what the suppliers do thereafter is irrelevant.
[18] After giving the matter considerable thought, I find that the appellants did not show on a preponderance of the evidence that the Minister erred in determining that the suppliers in question did not genuinely render services to the appellants in exchange for payment by the appellants.
[19] Indeed, the evidence discloses that the appellants worked on large-scale institutional construction sites in Montréal. Their revenues rose exponentially since 1999. It is difficult to imagine that subcontractors were given orders for which there were no purchase orders, no precise specifications as to unit prices, dimensions, or the materials required in doing the work requested. It is also difficult to believe that a contractor, on worksites where public safety is at stake, would risk doing business with people who work out of the garage of a private residence without obtaining any guarantee regarding the quality of the products requested and without doing a somewhat more thorough verification that the subcontractors with whom they are doing business truly exist. The evidence did show that none of the four suppliers in question had a place of business, and none had any operational structure. It would be very surprising, in my view, that the appellants would put their reputations and liability on the line by subcontracting with people who work out of hastily established facilities, as Mr. Bond appears to have done.
[20] These implausibilities, combined with the terse invoices submitted in evidence, all of which were based on the same template regardless of the supplier, the fact that the cheques which the appellants sent to these suppliers were all lost after being cashed at cheque-cashing establishments, the fact that the appellants did not charge these cheques to the cost of the project, and the fact that both Mr. Côté and Mr. Bond's testimonies were not very specific and were rather nebulous with regard to the method that the orders were placed - a method that involved little verification and few specifications regarding the delivery or acceptance of the work - and with regard to the unlikelihood that Mr. Bond would have been able to fulfil the orders in question (such as the prefabrication of one hundred 10' x 3'6" barricades in a residential garage, to give just one example) all cause me to have serious doubts as to whether these invoices are genuine.
[21] In view of these factors, which weigh very heavily against the appellants, I agree with counsel for the Respondent, who submits that the appellants would have needed to provide more substantial additional evidence to counter the Minister's allegation that the suppliers did not actually make any supplies or perform any services for the appellants. Under the circumstances, it is my view that the invoices, cheques and general ledger entries, and the testimony of Messrs. Côté and Bond, are not sufficient to defeat the Minister's assumptions.
[22] Consequently, I have no option but to confirm the Minister's assessments, both with regard to the denial of the ITCs and with regard to the penalty imposed under section 280 of the Act.
[23] In this regard, the appellants did not satisfy me that they exercised due diligence or that they were not negligent under the circumstances.
[24] The appeals are dismissed.
Signed at Ottawa, Canada, this 17th day of August 2005.
Lamarre J.
Translation certified true
On this 21st day of February, 2006.
Garth McLeod, Translator
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