[OFFICIAL ENGLISH TRANSLATION]
Date: 20011003
Docket: 2000-2281(GST)I
BETWEEN:
CENTRE DE LA CITÉ POINTE CLAIRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] This is an appeal under the
informal procedure from the assessment, the notice of which is
dated May 10, 1999, and bears
number T99-G-0007, for the period from
July 1, 1995, to December 31, 1998.
[2] The issue is whether, in computing
the input tax credit within the meaning of subsection 169(1)
of the Excise Tax Act (the "Act"), the
appellant is entitled to include a tax payment made to an
apparent agent of the respondent in respect of a supply.
[3] At the start of the hearing,
counsel for the respondent asked to file an amended Reply to the
Notice of Appeal because the contract of October 20, 1997,
was in the name of R.N. Bosada & Associates, not
R.N. Bosada. Counsel for the respondent wanted to amend his
Reply to the Notice of Appeal by deleting an admission that
R.N. Bosada had been retained by the appellant. He said that
it was R.N. Bosada & Associates that had made the
supply, and the invoice should have been made out in that name.
Counsel for the respondent had no evidence that two separate
entities were involved. Counsel for the appellant objected to the
request on the ground that it was late and that he did not see
the relevance of it. The Court denied the request on the same
grounds.
[4] Counsel for the respondent
informed the Court that the Minister of National Revenue (the
"Minister") consented to the cancellation of the
penalty that had been assessed.
[5] The appellant had subpoenaed
R.N. Bosada of Toronto. The subpoena was served on
June 18, 2001, and the hearing of the case was on
June 27 of that year. Mr. Bosada was asked in the
subpoena to bring with him all his income tax returns for the
years from 1990 to 1998, as well as all documents relating to his
goods and services tax account for the years 1991 to 1998 and all
documents relating to account number R-116990961.
[6] Mr. Bosada did not appear at
the hearing. He was represented by counsel, who filed an
affirmation by Mr. Bosada stating (a) that he had been
served with the subpoena on June 18, 2001, at
7:41 p.m., (b) that it was impossible for him to
produce all the documents requested in the time allotted to him,
(c) that the travel allowance of $196.38 was too small for
such a trip and (d) that the notice given him was much too
short because he had previously made foreign travel commitments.
He attached to his affirmation a plane ticket issued by Carlson
Wagonlit dated June 26, 2001, with a departure date of
June 27. The plane ticket had in fact been purchased the day
before the hearing, but counsel for Mr. Bosada said that it
had not been purchased so that his client could get out of
testifying. Tickets were always bought at the last minute,
counsel said.
[7] Counsel for Mr. Bosada argued
that Mr. Bosada could have been told before June 18
that he would be asked to come and testify. The goods and
services tax ("GST") claim was for two invoices for the
years 1997 and 1998. It was therefore excessive to ask
Mr. Bosada to bring his federal tax returns for 1990 to 1998
inclusive.
[8] Counsel for the appellant
explained that the appellant had often tried to reach
Mr. Bosada since 1997, but always without success. Counsel
filed as Exhibit A-1 registered mail and faxes that
had been sent to Mr. Bosada. The registered letter was never
claimed, and there was no answer to the faxes. Counsel for the
appellant explained that he had requested the income tax returns
for all those years because he wanted to prove that the supplies
made by Mr. Bosada were in amounts such that he had to be a
registrant for the purposes of the Act.
[9] Counsel for Mr. Bosada
informed the Court that he had offered the appellant a 1991
document granting Mr. Bosada a GST number. He also offered
to provide Mr. Bosada's testimony in an affidavit
stating that he had never been made aware in any way that the
right to use the GST number had been withdrawn from him. That
offer was refused.
[10] The Court indicated that contempt of
court might be involved here and that the witness could therefore
be compelled to come and testify. However, that is done in cases
where the testimony is essential. At the close of the evidence,
the Court, having heard the parties on this point, determined
that Mr. Bosada's testimony, although it would have been
relevant, was not essential in determining the outcome of the
appeal.
[11] The appellant's first witness was
Giovanni Cristinziani. He explained that the appellant was a
limited partnership which owned and operated a commercial
building in the City of Pointe-Claire, Quebec. The appellant had
the building constructed in 1977. In 1997, Mr. Cristinziani
was president of the appellant. The appellant wished to sell the
property and Mr. Bosada offered his services to attempt to
find a buyer. Mr. Cristinziani had known Mr. Bosada for
a number of years and had previously done business with him
through other companies which he managed. The appellant itself
had not done business with R.N. Bosada as a consultant at
any time other than in 1997.
[12] On October 20, 1997, an agreement
was signed between R.N. Bosada and Associates and the
appellant, in which the latter agreed to pay a certain percentage
of the selling price of its commercial building in view of the
fact that R.N. Bosada had identified a potential buyer. The
agreement was filed as Exhibit A-2.
[13] R.N. Bosada issued to the
appellant, for consulting services, an invoice dated
December 24, 1997, for a total amount of $286,027.05,
including an amount of $17,570 in respect of GST. That invoice
was filed as Exhibit A-1. A second invoice was issued
on January 14, 1998, for a total amount of $9,321.52,
including an amount of $572.60 in respect of GST. That invoice
was filed as Exhibit A-3.
[14] The relevant portion of the first
invoice (Exhibit A-1) reads as follows:
Re: Sale of Centre de la Cité Pointe-Claire
Consulting
Fee
$251,000.00
7%
GST
$17,570.00
6.5%
QST
$17,457.05
TOTAL
$286,027.05
GST # 116990961
[15] The second invoice
(Exhibit A-3) is identical, except for the
numbers.
[16] According to Mr. Cristinziani,
these were invoices like thousands of others that he had paid for
the businesses he managed.
[17] The money from the sale was handed over
in trust to the law firm of Byers Casgrain. The cheques from the
trust account of the lawyers in question, made payable to the
order of Mr. Bosada, were filed as Exhibit A-4.
There were two cheques, one for $286,027.05 and the second
for $9,321.52.
[18] Mr. Cristinziani stated that,
apart from those two invoices, nothing else was in dispute
at the time of the Minister's audit. The reason the auditor
gave was that R.N. Bosada had never been registered. He
believed the investigator had communicated with Mr. Bosada
on one occasion, but nothing came of it and, as far as he could
remember, the investigator subsequently did nothing.
[19] The appellant's second witness was
Alain Boulanger, head of the Legislation and Investigations
Branch. Within that branch, Mr. Boulanger handled requests
for access to information concerning tax legislation.
Mr. Boulanger held that position from June 1999 until
May 22, 2001. He was aware of the access to information
request dated February 6, 2001, submitted by the appellant
concerning R.N. Bosada.
[20] Counsel for the respondent objected to
this testimony on the ground that it was immaterial. The
objection was overruled.
[21] The appellant filed as
Exhibit A-6 a letter dated February 12, 2001,
signed by Mr. Boulanger. Exhibit A-7 is a letter
dated February 22, 2001, from Mr. Boulanger giving
notice that additional time would be taken. The last reply was
filed as Exhibit A-8. It is dated March 6, 2001,
and denies the request for disclosure of information.
[22] Exhibit I-2 is a letter
dated June 21, 2001, which states that the Excise Tax
Act portion of the request should have been forwarded to the
Access to Information Directorate of the Canada Customs and
Revenue Agency.
[23] Exhibit A-9 is a document
that Mr. Bosada sent by fax to his lawyer on June 26,
2001. That document was filed by counsel for the appellant to
facilitate matters as regards the evidence, although he would
have liked Mr. Bosada himself to be present. That document
is a letter dated January 7, 1991, from Revenue Canada,
Customs and Excise, addressed to Mr. Bosada. The first
paragraph of that letter reads as follows:
Thank you for returning your completed GST registration form.
You have been assigned the following GST registration number:
R116990961
[24] The appellant's third witness was
Reynald Gignac, a sales tax auditor. He stated that his
audit had taken approximately two weeks and that that was
normal for this type of case. He said that, on the whole, it was
a very good file and that there had been no problems except as
regards these two invoices. The auditor explained that it is
usually the largest invoices that are audited and that was how
the invoice for $251,000 from R.N. Bosada, which was
addressed to the appellant, came into his hands. The first thing
he noticed was that there was no Quebec sales tax
("QST") registration number on the invoice. The auditor
telephoned Mr. Bosada to tell him that the QST number did
not appear on the invoice. Mr. Bosada confirmed that he was
not registered for QST purposes. He said that that was an error
on his part and that he would reimburse the customer for the QST
collected by mistake. The auditor then checked
Mr. Bosada's GST number with his department. He received
a return call telling him that the GST number was not valid. He
communicated once again with Mr. Bosada to inform him that
the GST number was invalid and that he would appreciate being
given the right number. Mr. Bosada confirmed that he always
used that GST number on his invoices. In his report, the auditor
mentioned that the GST number appearing on the invoice, that is,
116990961, was an invalid number and, according to the
information available from the Department, had never been in
effect.
[25] Jean-Marc Beaudoin testified
at the request of counsel for the respondent. He was head of
Registration and Support at Revenu Québec.
Mr. Bosada's registration form was received on
January 4, 1991. That account was managed by the Toronto
office. There were various communications between the agent
(Mr. Bosada) and Revenue Canada starting on March 31,
1995. The Toronto officer audited Mr. Bosada's personal
income tax returns for the years 1991 to 1994. Mr. Bosada
never reported business income in his personal tax returns. On
June 13, 1995, the account was closed. The Department
proceeded to cancel Mr. Bosada's registration
retroactive to January 1, 1991. A letter was sent to
Mr. Bosada informing him that the account had been closed.
According to the witness, 29 telephone calls had been made
and 20 letters sent with respect to that file. The witness
stated that the Department regularly closed accounts
retroactively. Retroactive cancellation is usually done, the
witness said, in cases where registrants have reported no
commercial activity. Asked what means were available to a
recipient of services for checking the validity of a registration
number, the witness answered that he could not answer that and
that it was a matter for the information service.
Arguments
[26] Counsel for the appellant argued that
the two invoices contained the required prescribed
information, namely: a description of the services rendered (in
this instance, consulting services with respect to the sale of
Centre de la Cité de Pointe-Claire), the supplier's
name, the dates of the invoices, the amounts payable, the
notation that the services were subject to GST, the total amounts
of GST payable and the supplier's GST registration number
(here, 116990961).
[27] Counsel argued that the amounts
involved were amounts of tax paid to R.N. Bosada, that
Mr. Bosada had collected them as an agent of the government
and had an obligation to remit those amounts of GST. Counsel for
the appellant argued that the payment of those amounts received
special attention since the payment was approved by
Mr. Cristinziani and by a large national law firm to be made
using the amounts held in trust.
[28] Counsel submitted that the invoices at
issue clearly contained the prescribed information. The GST
number had been assigned to the supplier under section 241
of the Act. This was all the information required by the
Act. Where the Act requires that information be
valid, it specifically states so. Counsel for the appellant cited
as an example section 2 of Schedule III, Part XIV
of the Act, as well as section 362 of the Act,
which use the word "valid":
S. 2 For the purpose of
section I of this Part, "certified institution" means
an institution in Canada that has as its main purpose the care of
individuals of a class described in that section and that holds a
valid certificate that has been issued by the Minister.
S. 362(3) Exemption Certificate - Subsection (2) does
not apply to a supply made to a recipient who is not the
Developer unless the recipient provides the supplier with a valid
exemption certificate in respect of the supply issued by the
Advisory Group.
[29] If the registration number was no
longer valid at the time the invoices were issued, the appellant
had in the circumstances neither an obligation nor the means to
verify the supplier's registration status, particularly in
the context in which the supplier was known to the appellant, and
given that the number appearing on the invoices was prima
facie valid. The appellant submits that it acted diligently
and met the obligations imposed on it by the Act.
[30] Counsel for the respondent argued that
the supplier that issued the supporting documents was not a
registrant for the purposes of Part IX of the Act
either at the time of making the supply of services to the
appellant or at the time of issuing the supporting documents.
Counsel avoided repeating the phrase "or at any other
time" used in his Reply. Thus, the appellant was unable to
comply with the requirements of subsection 169(4) of the
Act and was not entitled to the input tax credit for the
amount paid in respect of tax to R.N. Bosada.
[31] The input tax credits were disallowed
because the appellant did not obtain sufficient information,
including the prescribed information, to establish the amount of
the said credits.
Conclusion
[32] The relevant portions of
subsections 169(1), 169(4), 221(1), 222(1), 241(1), 242(1)
and 242(3) read as follows:
169(1) General rule for credits - Subject
to this Part, where a person acquires or imports property or a
service or brings it into a participating province and, during a
reporting period of the person during which the person is a
registrant, tax in respect of the supply, importation or bringing
in becomes payable by the person or is paid by the person without
having become payable, the amount determined by the following
formula is an input tax credit of the person in respect of the
property or service for the period:
A x B
where
A is the tax
in respect of the supply, importation or bringing in, as the case
may be, that becomes payable by the person during the reporting
period or that is paid by the person during the period without
having become payable;
. . .
169(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 . . .
221(1) Collection of tax-Every person who
makes a taxable supply shall, as agent of Her Majesty in right of
Canada, collect the tax under Division II payable by the
recipient in respect of the supply.
222(1) Trust for amounts collected
- Subject to subsection (1.1), every person who collects
an amount as or on account of tax under Division II is deemed,
for all purposes and despite any security interest in the amount,
to hold the amount in trust for Her Majesty in right of Canada,
separate and apart from the property of the person and from
property held by any secured creditor of the person that, but for
a security interest, would be property of the person, until the
amount is remitted to the Receiver General or withdrawn under
subsection (2).
241(1) Registration - The Minister may
register any person applying therefor and shall thereupon assign
a registration number to the person and notify the person in
writing of the registration number and the effective date of the
registration.
242(1) Cancellation - The Minister may,
after giving a person who is registered under this Subdivision
reasonable written notice, cancel the registration of the person
if the Minister is satisfied that the registration is not
required for the purposes of this Part.
242(3) Notice of cancellation or variation
- Where the Minister cancels or varies the registration of
a person, the Minister shall notify the person in writing of the
cancellation or variation and the effective date thereof.
[33] The relevant portion of section 3
of the Input Tax Credit Information (GST/HST) Regulations
reads as follows:
3. Prescribed Information- For the purposes of
paragraph 169(4)(a) of the Act, the following information
is prescribed information:
(a) Where the
total amount paid or payable shown on the supporting
documentation in respect of the supply or, if the supporting
documentation is in respect of more than one supply, the
supplies, is less than $30.
(i) the
supplier's name or the name under which the supplier does
business,
(ii) where an
invoice is issued in respect of the supply or the supplies, the
date of the invoice,
(iii) where an invoice is
not issued in respect of the supply or the supplies, the date on
which there is tax paid or payable in respect thereof, and
(iv) the total amount paid
or payable for all of the supplies;
(b) where the
total amount paid or payable shown on the supporting
documentation in respect of the supply or, if the supporting
documentation is in respect of more than one supply, the
supplies, is $30 or more and less than $150,
(i) the
information set out in paragraph (a),
(ii) the
registration number assigned to the supplier pursuant to
section 241 of the Act,
. . .
(c) where the
total amount paid or payable shown on the supporting
documentation in respect of the supply or, if the supporting
documentation is in respect of more than one supply, the
supplies, is $150 or more,
(i) the
information set out in paragraph (a) and subparagraphs
(b)(ii) to (v),
. . .
(Emphasis added.)
[34] I think it useful to cite a few
paragraphs from the respondent's Reply to the Notice of
Appeal, namely, paragraphs 9, 20(e), 26 and 27, which
contain statements to the effect that the registration number
never existed or was not a GST registration number:
[TRANSLATION]
9. He denies,
as drafted, paragraph 9 of the Notice of Appeal, and points
out that the number appearing on the invoices in issue is not a
GST registration number;
20(e) More specifically, the appellant
provided the Minister with supporting documents relating to the
ITCs in the amount of $18,142.60 claimed in computing his net tax
for the period concerned which did not contain a registration
number assigned to the supplier in accordance with
section 241 of the E.T.A.;
26. More specifically, the
said supporting documents provided to the Minister did not
contain a registration number assigned to the supplier in
accordance with section 241 of the E.T.A.;
27. More specifically, the
supplier who issued the said supporting documents was not
registered for the purposes of Part IX of the E.T.A.
either at the time of making the supply of a service to the
appellant or at the time of issuing the said supporting documents
or at any other time.
[35] What is striking in the analysis of
this case is that the facts on which the Minister purportedly
relied are not accurate with regard to the supplier's
registration number. It is astonishing that the facts as related
by the respondent's witness, Jean-Marc Beaudoin,
were not set out in the Reply. What is also surprising is the
reason why counsel for the respondent asked at the start of the
hearing to amend the Reply. It was not to correct the description
of the facts concerning the registration number, but to emphasize
the detail that the agreement had been entered into with
R.N. Bosada and Associates rather than with
R.N. Bosada, without having any evidence that they were not
exactly the same person and in spite of the fact that the invoice
had been prepared by the person who rendered the service, namely
R.N. Bosada.
[36] It is strange as well that counsel for
the respondent objected to the evidence adduced by counsel for
the appellant concerning his application for access to the
information concerning R.N. Bosada. It should be noted above
all that counsel for the respondent produced no evidence of the
means at the disposal of a recipient of a service for verifying
the validity of a registration number.
[37] In my view, the dispute in this appeal
calls for the application of the doctrine of mandate (agency). If
the appellant paid the amount of tax shown on the invoice, it is
because, under the scheme of the Act, a person who makes a
taxable supply must collect the tax payable as mandatary (agent)
of Her Majesty in Right of Canada and the person who acquires the
service must pay the tax payable to that person and not to Her
Majesty. It is the Act that, through its scheme, brings
into play notions of mandate. Certain provisions of the
Act set out the duties imposed on the mandatary. I do not
believe that, because the Act appears to be silent on the
duties of the mandator (principal), we cannot refer to the civil
law notions of mandate. In the decision of the Supreme Court of
Canada in Verreault & Fils v. A.G. Quebec, [1977]
1 S.C.R. 41, Pigeon J. wrote as follows at
page 47:
Her Majesty is clearly a physical person, and I know of no
principle on the basis of which the general rules of mandate,
including those of apparent mandate, would not be applicable to
her. . . .
[38] In civil law, certain obligations are
imposed on a mandator. I refer to article 2163 of the
Civil Code of Quebec:
|
2163. Celui qui a laissé croire qu'une
personne était son mandataire est tenu, comme
s'il y avait eu mandat, envers le tiers qui a
contracté de bonne foi avec celle-ci, à moins
qu'il n'ait pris des mesures appropriées
pour prévenir l'erreur dans des circonstances
qui la rendaient prévisible.
|
2163. A person who has allowed it to be believed
that a person was his mandatory is liable, as if he were
his mandatory, to the third person who has contracted in
good faith with the latter, unless, in circumstances in
which the error was foreseeable, he has taken appropriate
measures to prevent it.
|
[39] The Act provides that a person
who makes a taxable supply shall collect the tax payable as an
agent of Her Majesty. How can the recipient of a service know
whether the person who makes a supply is actually an agent of Her
Majesty? Neither of the Minister's auditors was able to
describe the steps the Minister has taken to inform the
recipients of services. Even counsel for the respondent, when
writing the Reply, did not know, I believe-because good faith is
to be presumed-that the registration number had previously been
assigned and that it had been cancelled retroactively a number of
years later.
[40] In the instant case, it was not a
matter of a lack of diligence on the part of the recipient of the
service. The Minister's auditor found nothing to criticize in
the appellant's record keeping. The invoices in question were
reviewed by the manager of the business and by lawyers.
This is a situation in which the mandator allowed third parties
to believe that a particular person was her mandatory and in
which she did not provide those third parties with the necessary
information services. The mandator is not without means. She has
the ability to provide third-party recipients with
information on the validity of a registration number and with the
name of the registrant. It is my view that, not having taken
appropriate measures to prevent the error, she cannot dispute the
validity of the registration with regard to the appellant. The
supporting documents must therefore be accepted for the purposes
of the input tax credit because the information required by the
Act was to all appearances contained therein.
[41] The appeal is allowed with costs.
Signed at Montréal, Quebec, this 3rd day of October
200l.
J.T.C.C.
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