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Citation: 2004TCC598
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Date: 20041007
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Docket: 2003-493(GST)I
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BETWEEN:
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UNIC DRYWALL LTD.,
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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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2002-4233(GST)I
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UNIQUE DRYWALL LTD.,
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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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2002-4234(GST)I
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BROTHERS DRYWALL 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
[1] These appeals were all heard on
common evidence.
[2] The following extracts from the
Reply to the Notice of Appeal in Unic Drywall Ltd., appeal
number 2003-493(GST)I, represent an attempt to explain the issues
in that appeal:
In reply to the Notice of Appeal to Notice of Reassessment No.
08EP118133446, November 25, 2002 (the "Assessment") for
the period from July 1, 1991 to September 30, 1995 (the
"Period"), the Deputy Attorney General of Canada
says:
A. STATEMENT OF
FACTS
...
3. With
regards to the Notice of Appeal, he only admits that the
Appellant did not have adequate documentation as required by
subsection 169(4) of the Excise Tax Act, R.S.C., 1985,
C.E. as amended (the "Act") and the Input Tax
Credit Information Regulations for the input tax credits
("ITCs") denied by the Minister during the Period.
4. He denies
that the Appellant acted with due diligence in relation to Part
IX of the Act, particularly in its claiming of ITCs
denied.
...
7. By way of
Notice of Reassessment No. 05DP0015096, dated July 18, 2000, the
Minister assessed additional GST in the amount of $46,444.08 and
disallowed ITCs in the amount of $ 194,004.17 for the
Period. The Minister also assessed late remittance penalties and
interest of $ 158,921.70 and $ 131,297.03, respectively
and other penalties of $ 5,646.73.
8. As a result
of a Notice of Objection having been filed in response to Notice
of Reassessment No 05DP0015096, by way of Notice of Reassessment
No. 08EP117448480, dated August 23, 2001, the Minister reassessed
additional GST in the amount of $ 46,444.08 and disallowed
ITCs in the amount of $ 194,004.17 for the Period. The Minister
also reassessed late remittance penalties and interest of $
158,591.18 and $ 131,087.06, respectively, and removed the other
penalties previously assessed.
9. As a result
of a Notice of Objection having been filed in response to Notice
of Reassessment No. 08EP117448480, the Minister issued the
Assessment. The Assessment removed any assessed amount relating
to ITCs taken by the Appellant between July 1, 1991 to December
31, 1993 as the Appellant was no longer required to maintain
books and records for July, 1991 to December 31, 1993 pursuant to
subsection 286(3) of the Act at the time the original
reassessment was made as detailed in paragraph 7 above. The
Minister reassessed additional GST in the amount of $ 46,444.08
and disallowed ITCs in the amount of $ 53,642.30 for the
Period. The Minister also reassessed late remittance penalties
and interest of $ 53,844.22 and $ 43,929.18
respectively.
10. In so reassessing the
Appellant, pursuant to the Assessment, the Minister made the
following assumptions of fact:
(a) the Appellant
operated as drywall contractor;
(b) the Appellant
reported Goods and Services Tax (the "GST") collected
in the amount of $ 610,777.59 and claimed ITCs in the amount of $
514,187.11 to claim a net tax remittable in the amount of $
96,590.48 for the Period;
(c) the Appellant
failed to maintain adequate books and records for the Period;
(d) the sales
reported for the Period by the Appellant for purposes of the
Act and the sales reported for the Period for purposes of
the Income Tax Act were significantly different;
(e) the Appellant
made material misstatements in its GST returns in relation to
sales, GST collected and ITCs claimed that are attributable to
neglect, carelessness or wilful default;
(f) the
Appellant did not have adequate documentation to allow the
Minister to allow the ITCs in the amount of not less than $
58,200.88 disallowed in relation to subcontract work between the
period January 1, 1994 to September 30, 1995;
(g) the Appellant
did not act with due diligence with respect to claiming ITCs in
relation to subcontract work pursuant to subsection 169(4) of the
Act and the Input Tax Credit Information
Regulations; and
(h) the Appellant
was required to report net tax remittable in the amount of not
less than $ 196,676.86.
[Note that $ 196,676.86 less $ 96,590.48 = $ 100,086.38
and $ 96,590.48 + $ 46,444.08 + $ 53,642.30 =
$ 196,676.86].
B.
ISSUES TO BE DECIDED
11. The issues are whether
the Minister properly denied the Appellant ITCs claimed in the
amount of $ 58,200.80 and whether the Appellant acted with due
diligence in its claiming of the ITCs denied.
C. STATUTORY
PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT
12. He relies on, inter
alia, sections 165, 169, 221, 225, 228, 280, 286, 296, 298,
299 and 301 of the Act, the Input Tax Credit
Information Regulations and the Tax Court of Canada
Act.
13. He respectfully
submits that the Appellant did not maintain adequate books and
records as required under section 286 of the Act.
14. He respectfully
submits that the amount of ITCs claimed did not correspond to the
information available to the Minister.
15. He respectfully
submits that the Minister properly reassessed the Appellant
pursuant to subsection 298(4) of the Act.
16. He respectfully
submits that the Minister properly denied the Appellant ITCs in
the amount of $ 58,200.88 relating to subcontract work as
sufficient and appropriate evidence as required by subsection
169(4) of the Act and the Input Tax Credit Information
Regulations was not obtained and maintained by the
Appellant.
17. He respectfully
submits that the Minister properly reassessed the Appellant net
tax remittable and related penalties and interest pursuant to
sections 165, 169, 221, 225, 228, 280, 286, 296, 298, 299 and 301
of the Act and the Input Tax Credit Information
Regulations.
18. He respectfully
submits that the Appellant did not act with due diligence under
part IX of the Act, particularly in its claiming of ITCs
in relating to subcontract work.
[3] In Unic Drywall Ltd.,
appeal number 2003-493(GST)I, the Notice of Appeal reads as
follows:
...
· This Notice
of Appeal is being filed in conjunction to similar Appeals with
related companies Unique Drywall Ltd (Unique) and Brother's
Drywall Inc. (Brothers)
· Unic was
subject to an audit assessment in the period ending 91-06-30 in
the amount of $60,905.63. We have requested information on this
assessment but have yet to be provided with its specifics. It is
our understanding that the audit was done with respect to the Net
Tax (Tax Collected (GST) and paid (ITC's)) and hence no
mention was made about the lack of documentary evidence at that
time. My client has always claimed the ITC's in a similar
manner from January 1, 1991.
· We believe
that our client was exercising due diligence in claiming it's
ITC's in following the similar manner that was reviewed by
GST audit in 1991;
· We do not
suggest that the ITC's fulfill the documentary evidence that
is required by the Excise Tax Act but there has always been a
paper trail through note books, cheques, bank statements and this
information was always available as an alternate means of
providing that documentary evidence.
· All
companies continued to claim ITC's in a similar manner that
Unic did. Unic stopped operating in 1995 at which point Unique
and Brother's started in business.
· From 1991
onwards, Unic employed a Chartered Accounting firm called the
Sacks Partnership. Unfortunately, this firm got themselves into
trouble but the point was at the time my client employed them, my
client relied on that firm to provide accounting and tax
services. At the very least, if the Assessment is to be confirmed
by this court, my client has demonstrated due diligence and
should not be liable for the tax assessed as well as the penalty
and interest.
· The basis
for the extension under subsection 298(4) of the Excise Tax Act
citing misstatement should be disallowed. There was no intent to
misstate any ITC's and my client was simply following what
they thought was an acceptable manner of claiming ITC's.
· The whole
issue that led to the assessment is questionable. The Agency
violated the recommended One-plus-One audit policy, which
requires them to review the current year and one prior year
before reviewing further years with reason after the initial two
years. At the very least, the issue which led to this audit
(variance between the Sales reported between the GST and
Corporate Tax returns) would have been explained by the holdbacks
from contracts, which are not required to be recognized as Sales
under the Excise Tax Act but is under the Income Tax Act.
· The CCRA
has had information available (from individual tax returns) for
those subcontractors to able to determine that many of them were
not small suppliers and should have been registered and
collecting the GST (the same ITC's that my client paid and is
now being denied in this assessment).
[4] It will be apparent from the above
quotations from the Reply to the Notice of Appeal and
particularly the Notice of Appeal and similar quotations in the
other two appeals to be reviewed later that the exact issues to
be determined are clouded. This cloud was not removed by the
evidence given at the hearing consisting of verbal testimony and
numerous documents.
[5] The submissions of the
representative of the three Appellants and of counsel for the
Respondent in the three appeals will be reviewed later.
[6] The following extracts from the
Reply to the Notice of Appeal in Unique Drywall Ltd.,
appeal number 2002-4233(GST)I, represent an attempt to explain
the issues in that appeal:
In reply to the Notice of Appeal to Notice of Reassessment No.
08EP117448571, dated September 17, 2001 (the
"Assessment") for the period from March 21, 1995 to
July 31, 1999 (the "Period"), the Deputy Attorney
General of Canada says:
A. STATEMENT OF
FACTS
...
2. With
regards to the Notice of Appeal, he only admits that the
Appellant did not have adequate documentation as required by
subsection 169(4) of the Excise Tax Act and the Input
Tax Credit Information Regulations for the input tax credits
("ITCs") denied by the Minister of National Revenue
(the "Minister") during the Period.
3. He denies
that the Appellant acted with due diligence in relation to Part
IX of the Act, particularly in its claiming of ITCs
denied.
...
6. In so
reassessing the Appellant, pursuant to the Assessment, the
Minister made the following assumptions of fact:
(a) the Appellant
operated as drywall contractor;
(b) the Appellant
reported Goods and Services Tax (the "GST") collected
in the amount of $ 991,319.27 and claimed ITCs in the amount
of $ 776,867.21 to claim a net tax remittable in the amount
of $ 214,452.06 for the Period;
(c) the Appellant
failed to maintain adequate books and records for the Period;
(d) the Appellant
did not have adequate documentation to allow the Minister to
allow the ITCs in the amount of not less than 81,450.12
disallowed in relation to subcontract work;
(e) the Appellant
did not act with due diligence with respect to claiming ITCs in
relation to subcontract work pursuant to subsection 169(4) of the
Act and the Input Tax Credit Information
Regulations; and
(f) the
Appellant was required to report net tax remittable in the amount
of not less than $ 295,902.21.
[Note that $ 81,450.12 is the difference between
$ 295,902.21 and $ 214,452.06].
B.
ISSUES TO BE DECIDED
7. The issues
are whether the Minister properly denied the Appellant ITCs
claimed in the amount of $ 81,450.15 and whether the Appellant
acted with due diligence in its claiming of the ITCs denied.
C.
STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF
SOUGHT
8. He relies
on, inter alia, sections 165, 169, 221, 225, 228, 280,
286, 296, 299 of the Act, the Input Tax Credit
Information Regulations and the Tax Court Canada
Act.
9. He
respectfully submits that the Appellant did not maintain adequate
books and records as required under section 286 of the
Act.
10. He respectfully
submits that the amount of ITCs claimed did not correspond to the
information available to the Minister.
11. He respectfully
submits that the Minister properly denied the Appellant ITCs in
the amount of $ 81,450.15 relating to subcontract work as
sufficient and appropriate evidence as required by subsection
169(4) of the Act and the Input Tax Credit Information
Regulations was not obtained and maintained by the
Appellant.
12. He respectfully
submits that the Minister properly reassessed the Appellant net
tax remittable and related penalties and interest pursuant to
sections 165, 169, 221, 225, 228, 280, 286, 296 and 299 of the
Act and the Input Tax Credit Information
Regulations.
13. He respectfully
submits that the Appellant did not act with due diligence under
Part IX of the Act, particularly in its claiming of the
ITCs denied relating to subcontract work.
[7] In Unique Drywall Ltd.,
appeal number 2002-4233(GST)I, the Notice of Appeal reads
substantially the same as that in Unic Drywall Ltd. quoted
above except that the last three paragraphs in Unic Drywall
Ltd. are replaced by the following paragraph:
...
· It is our
position that the CCRA is denying ITC's for my client,
charging them penalty and interest, while pursuing the supplier
of the services who ceased to be a small supplier. These
suppliers are then being assessed (for the same GST my client is
being denied ITC's) creating a windfall situation for the
CCRA. We have evidence of such reviews.
[8] The submissions of the
representative of the three Appellants and of counsel for the
Respondent in the three appeals will be reviewed later.
[9] The following extracts from the
Reply to the Notice of Appeal in Brothers Drywall Inc.,
appeal number 2002-4234(GST)I, represent an attempt to explain
the issues in that appeal:
In reply to the Notice of Appeal to Notice of Reassessment No.
08EP118133446, September 17, 2002 (the "Assessment")
for the period from April 21, 1995 to March 31, 1999 (the
"Period"), the Deputy Attorney General of Canada
says:
A. STATEMENT OF
FACTS
...
2. With
regards to the Notice of Appeal, he only admits that the
Appellant did not have adequate documentation as required by
subsection 169(4) of the Excise Tax Act, R.S.C., 1985,
C.E. as amended (the "Act") and the Input Tax
Credit Information Regulations for the input tax credits
("ITCs") denied by the Minister of National Revenue
(the "Minister") during the Period.
3. He denies
that the Appellant acted with due diligence in relation to Part
IX of the Act.
...
6. By way of
Notice of Reassessment No. 05DP0015098, dated July 18, 2000, the
Minister disallowed ITCs in the amount of $ 138,053.19 for the
Period. The Minister also assessed late remittance penalties and
interest of $ 37,627.04 and $ 28,483.89, respectively.
7. As a result
of a Notice of Objection having been filed in response to Notice
of Reassessment No 05DP0015098, by way of the Assessment, the
Minister reduced the disallowed ITCs to the amount of $ 35,249.35
for the Period. The Minister also reassessed late remittance
penalties and interest of $ 6,851.57 and $ 5,148.44,
respectively. The Assessment removed any assessed amount relating
to ITCs taken by the Appellant between April 21, 1995 to March
31, 1996 previously assessed pursuant to subsection 298(4) of the
Act and allowed ITCs where sufficient documentation was
presented as part of the Notice of Objection process.
8. The
Appellant filed a Notice of Objection to the Assessment and the
Minister confirmed the Assessment on June 18, 2002.
9. In so
reassessing the Appellant, pursuant to the Assessment, the
Minister made the following assumptions of fact:
(a) the Appellant
operated as drywall contractor;
(b) the Appellant
reported Goods and Services Tax (the "GST") collected
in the amount of $ 572,929.20 and claimed ITCs in the amount
of $ 449,458.64 to claim a net tax remittable in the amount
of $ 123,470.56 for the Period;
(c) the Appellant
failed to maintain adequate books and records for the Period;
(d) the Appellant
did not have adequate documentation to allow the Minister to
allow ITCs claimed in the amount of not less than $
35,249.35;
(e) the Appellant
did not act with due diligence with respect to claiming ITCs
pursuant to subsection 169(4) of the Act and the Input
Tax Credit Information Regulations; and
(f) the
Appellant was required to report net tax remittable in the amount
of not less than $ 158,719.91.
[Note the difference between $ 158,719.91 and
$ 123,470.56 is $ 35,249.35].
B.
ISSUES TO BE DECIDED
10. The issues are whether
the Minister properly denied the Appellant ITCs claimed in the
amount of $ 35,249.35 and whether the Appellant acted with due
diligence in its claiming of the ITCs denied.
C.
STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF
SOUGHT
11. He relies on, inter
alia, sections 165, 169, 221, 225, 228, 280, 286, 296, 298,
299 and 301 of the Act, the Input Tax Credit
Information Regulations and the Tax Court of Canada
Act.
12. He respectfully
submits that the Appellant did not maintain adequate books and
records as required under section 286 of the Act.
13. He respectfully submits
that the amount of ITCs claimed did not correspond to the
information available to the Minister.
14. He respectfully
submits that the Minister properly denied the Appellant ITCs in
the amount of $ 35,249.35 as sufficient and appropriate evidence
as required by subsection 169(4) of the Act and the
Input Tax Credit Information Regulations was not obtained
and maintained by the Appellant.
15. He respectfully
submits that the Minister properly reassessed the Appellant net
tax remittable and related penalties and interest pursuant to
sections 165, 169, 221, 225, 228, 280, 286, 296, 298, 299 and 301
of the Act and the Input Tax Credit Information
Regulations.
16. He respectfully
submits that the Appellant did not act with due diligence under
Part IX of the Act.
[10] In Brothers Drywall Inc., appeal
number 2002-4234(GST)I, the Notice of Appeal reads substantially
the same as that in Unic Drywall Ltd. except that the last
three paragraphs in Unic Drywall Ltd. are replaced by the
following paragraph:
...
· It is our
position that the CCRA is denying ITC's for my client,
charging them penalty and interest, while pursuing the supplier
of the services who ceased to be a small supplier. These
suppliers are then being assessed (for the same GST my client is
being denied ITC's) creating a windfall situation for the
CCRA. We have evidence of such reviews.
SUBMISSIONS OF THE REPRESENTATIVE OF THE APPELLANTS
...
As far as the closing arguments are concerned, I've taken
this approach in two parts, Unic, and again focusing on the issue
of the Minister going beyond four years. So I'll start with
that.
The sales that they have cited as being material, when it comes
down to it, it's not sales, it's not GST revenue. The two
transactions were a reimbursement from one company to the other
for services performed; another was a vehicle transfer, which is
wash from one company to the other one, a company wound down. The
only item I saw for sales was $364 and the GST. And the other,
just one transaction which includes the same property, assessing
for real property, the $12,652.71. You take all those numbers and
it comes out to $46,000. In my mind, I don't believe the
Minister has met the test to assess beyond four years. That's
all I want to say about Unic.
Regarding Brothers and Unique, Section 169(4) as per the
Act and the other attachments that come along with it, my
client does not meet the definition as put out. However, it did
have a paper trail of paying GST to the sub-contractors, who the
majority were signing these receipts after the fact. It's not
the perfect way, but it was the way we could figure out at the
last minute retrospectively to try and control the damage, so to
speak.
What I tried to put into evidence earlier, I've been involved
with clients who have come in on the other side where the CCRA
has pursued the sub-contractor or any contractor, for that
matter, some of them have nothing to do with drywall. In theory,
an income tax credit can be denied to a sub-contractor, even
though they may be over $30,000, and the CCRA can go after that
contractor on the same transaction for which the ITC is
originally being denied on. And I have examples where they've
gone back ten years. And so I don't believe the legislation
was written for the Crown to arrive at a windfall, but that's
what's happening here, from a practical point of view.
I put forward the numbers that I thought were the relevant
assessment numbers. I have a hard time understanding how the
assessment can be made in reverse, without taking the -
especially on a large scale like this. We're talking about
1.3 million in total, that was the original assessment, and
without going and doing a proper analysis of the subcontractors
in place, I mean that may be the policy of the CCRA, but my
feeling is that more attention can be paid to the sub-contractors
to see at the end of the day, whether the assessment made
sense.
In the numbers I calculated, the period where they denied all the
ITC's for the sub-contractors, the amount of that was greater
than the amount that's shown on the financial statements. How
can that be? I'm at a loss to explain that. And considering
that they have gone through the financial statements, to look at
the GST revenue, makes sense that they would be consistent and
follow the expenses as well, through the financial statements. I
think the assessment is over-stated, based on what I have
calculated.
And I guess the other point, regarding the due diligence and
penalty that's been applied to the three companies. If a
taxpayer or a representative gets an opinion from the CCRA in
terms of how to treat certain things, and it's determined
that it's wrong later, normally there's a Ministry's
tolerance and you never see the assessment. I'm not so sure
what the difference is when an auditor comes and looks at a
return, looks at ITC's, and perhaps they're wrong,
perhaps they didn't even look at it, but they didn't
raise a flag at that point in time. I just find it inequitable to
assess penalties seven, eight years after the fact on
transactions which could have been picked up if they're
incorrect earlier when there's an opportunity to do so.
I understand you can't audit every return, but there are
checks and balances to prevent these sorts of things from
happening. So I think there's some complicity on the part of
the government in allowing this sort of thing to happen, and I
think it's unfair to assess a penalty when eventually the
facts are uncovered.
I think that's all I have to say, Your Honour.
SUBMISSIONS OF COUNSEL FOR THE RESPONDENT
[11] The submissions of counsel for the
Respondent read in part as follows:
My argument will proceed first with the overall entitlement to
the ITC credit, and deal secondly with the issue of the years
being statute barred for the Unic company.
Your Honour, the issue in this case, from the Respondent's
view at least, is really very simple. It's whether the
Appellant companies are entitled to certain input tax credits
claimed under Section 169 of the Excise Tax Act. Very
simply, the Respondent's position is that the Appellant is
not entitled to the ITC credits claimed, as he has not provided
and did at no time provide documentation or information specified
in the Excise Tax Act to entitle him to the claim and to
show that the expenses were incurred, Your Honour.
It's also worth mentioning, Your Honour, at this point,
and it's appropriate to mention it upfront, that it does not
appear that the Appellant has done anything to demolish any of
the Respondent's assumptions. It appears that they have in
fact conceded the point that they do not meet the requirements of
Section 169(4), ...
[12] Counsel for the Respondent goes on to
quote Subsection 169(4) of the Excise Tax Act. It reads as
follows:
"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;"
[13] Counsel for the Respondent states
further:
...
the information that may be prescribed, is contained under the
Input tax Credit information Regulations, which specify as
follows: ...
Firstly, the date of an invoice or the date on which the tax was
paid or payable - and that's found in paragraph 3(a)(ii) and
(iii).
Secondly, the registration number assigned to the supplier,
pursuant to section 241 of the Excise tax Act which is
found in paragraph 3(b)(i).
And finally, it requires reference to the terms of the payment,
Your Honour. And that is included in 3(c)(iii).
None of the chits that were provided have any reference to the
terms of the payment, cash or any other means of payment, Your
Honour. We did allow the chits, which included a registrant's
number, nonetheless, Your Honour, although I do make reference to
the third requirement. There are actually several other
requirements, but those are the ones germane to this appeal, Your
Honour.
The cases are very simple, Your Honour. The Appellant was denied
ITC credits claimed where none of this information was provided,
in essence where there was no chits provided with a GST
registrant's number. And on that basis alone, Your Honour,
this appeal ought to be dismissed, at least insofar as it relates
to Unique and Brothers Drywall, ...
[14] Counsel goes on to refer to
Alexander Nix Group Inc. v. Canada, [2002]
T.C.J. No. 437, where Judge McArthur quoted from the decision of
Judge Bowman in Helsi Construction Management Inc. v. The
Queen, [2001] T.C.J. No. 149, where Judge Bowman remarked as
follows:
We are dealing with one of the technical requirements under a
statute that is somewhat unique for its specificity. Moreover, it
is the foundation of a self-assessing system that operates in the
commercial world. Unfortunate as it may seem to the appellant,
rules are rules. I can do nothing to help the appellant on this
point.
...
While there may be some justification in certain cases for
treating technical or mechanical requirements as directory rather
than mandatory, that is not so in the case of the GST provisions
of the Excise Tax Act.
[15] Counsel also referred to the case of
Rapid Transit Courier v. The Queen, [2000] T.C.J. No. 465.
In this at paragraph 14 the Court stated as follows:
"There are several cases dealing with precisely the issue
in question and I am not aware of any decision favouring a
taxpayer who claimed ITC's in relation to invoices which did
not contain the registration number of the supplier or
subcontractors or where their registration numbers were not
otherwise provided."
[16] Counsel for the Respondent stated
further as follows:
In support of its finding, Your Honour, the Court referred to
the San Clara Holdings case, which is included in this
Book of Authorities at Tab 7; and Design Build Ltd. in a
Federal Court of Appeal decision, I did not include, Your Honour;
and also Metro Exteriors, which I've included at Tab
10.
Your Honour, the way the Court summarized this is exactly the
case we are dealing with today. ITC claims were disallowed simply
where there was no documentation, including a valid or including
a registrant's GST number. And that was the sole basis upon
which ITC credits were disallowed.
I hesitate to mention, Your Honour, that there was some leniency
given in this case. All of the statute barred years were waived
in the Unique and the Brothers case, as we saw. Penalties were
waived in the Unic case. And indeed, there was even some leniency
with regard to allowance made for deregistered parties, those ITC
claims were allowed. But in essence, Your Honour, the
Respondent's case falls squarely within these authorities
and, indeed, all of the other authorities.
...
I would just like to move on very briefly before I talk about
Unic. I would like to address one of the other points made by my
friend. He mentioned that, if I understand his point correctly,
that because the three companies were audited in 1991 and there
was no problem with the ITC claims as they were being made at the
time, that the Crown is in some form of an estoppel position, if
I'm to understand his argument correctly. Your Honour, I do
not have the cases with me on that point, but I believe it trite
law to say that the Minister is not bound by previous assessment
or even on the conduct of an auditor or an appeals officer in a
previous tax year. There is case law to that effect, Your Honour.
For example, TransCanada Pipelines vs The Queen, and the cite, if
you would like it, is 2002-1CTC43, and that's a Federal Court
of Appeal case. Similarly, in Queen vs Bowater Mersey, the cite
is 1987-2CTC159.
I mention those cases, Your Honour, only to underscore the fact
that the Minister did not catch, for lack of a better word, or
correct the Appellant's behaviour in 1991 or on a previous
assessment in telling him he should have been filing for his ITC
credits in the proper way, should have no bearing on this case,
Your Honour.
Finally, with regard to the Unic case, Your Honour, the
Respondent would submit that we are entitled to consider those
years, in spite of the fact that they are statute barred. The
authority for that is in subsection 298(4), ... of the Excise Tax
Act. ... I will read it out for you.
"An assessment in respect of any matter may be made at
any time where the person to be assessed has, in respect of that
matter, made a misrepresentation that is attributable to the
person's neglect, carelessness or wilful
default."
Very similar to Section 152(4) of the Income Tax Act, Your
Honour, and it's really a question of fact, whether someone
has acted, first, made a misrepresentation; and second,
carelessly or negligently with wilful default.
Your Honour, the Respondent would submit that there was clearly a
misrepresentation made. The fact of the Appellant claiming
ITC's when no GST number was provided, runs afoul of the law,
Your Honour. That, I would submit, is a prime facie case of
misrepresentation, which would be tantamount to carelessness.
Your Honour, I believe it was R-2, the letter dated November
24th, 1999 in paragraph 3, the Appellant's bookkeeper
actually acknowledges carelessness where she says:
"We have noticed carelessness on our part, but the majority
seem to be sub-contractors to whom we have paid GST."
Again, Your Honour, it seems that the Appellant acknowledges
that there was some carelessness on their part in making the ITC
claims without properly verifying their entitlement to them.
Your Honour, thirdly, there's the evidence by the Director of
the company itself. I have to confess, I wasn't very clear as
to which version or which policy he had in place during the tax
years in question. I questioned him as to whether assurances were
made that GST was only paid to people who had a GST number, he
said yes, they did assure themselves accordingly. At the same
time I asked him to explain the method by which they made these
assurances. He said I know nothing about that, the bookkeeper
does all that. And it also appeared that he was saying that the
entitlement to ITC claims was done on the basis of how much GST
was paid out to subcontractors, with no regard to whether they
actually had a registrant's number.
Fourthly, Your Honour, the discrepancy in the sales issue. That
again, in the Respondent's view, would point to a prima facie
case of a misrep, attributable to at least carelessness,
entitling us to reassess the otherwise statute barred years, Your
Honour.
Finally, on that issue, the total lack of documentation available
to or provided by Unic, with regard to the ITC credits, no chits,
no invoices were kept. The only documentation is appears were the
cheques, which have no reference to GST numbers, it's another
indicia of carelessness on the Appellant's part.
Your Honour, we would submit that this appeal should be dismissed
in full. And I have no further submissions, subject to any
questions you might have.
ANALYSIS AND DECISION
[17] In my opinion the submissions of
counsel for the Respondent are correct. Further the onus is on
the Appellants to establish the reassessments are wrong and to
demolish the assumptions contained in the Respondent's
Replies and this has not been done.
[18] Also the books and records of the
Appellants were incomplete or inadequate. Section 169 of the
Excise Tax Act explains when Input Tax Credits are
allowed. Counsel for the Respondent quoted Subsection 169(4) as
well as the relevant portions of the Input Tax Credit
Information Regulations and adds that the Appellants did not
meet the necessary requirements.
[19] Counsel for the Respondent further
pointed to the considerably leniency granted by CCRA in arriving
at its final determinations and this is evidenced by the
testimony of D. W. Thorpe an appeals officer with CCRA.
[20] For all of the above reasons the
appeals are dismissed. There shall be no costs.
Signed at Ottawa, Canada, this 7th day of October, 2004.
O'Connor, J.
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