Date: 20000110
Docket: 97-1575-GST-G
BETWEEN:
BÂTIMENT FAFARD INTERNATIONAL INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1]
This is an appeal from an assessment dated July 17, 1996, notice
of which bears number PQ-96-0356, for the periods
ending on May 31, 1995, and August 31, 1995.
[2]
For the first period, the issue has to do with the allocation of
a payment made by the appellant in respect of a given period and,
for the second period, it concerns the allocation of a refund
under the Act respecting the Québec sales tax. With
respect to the first period, according to the appellant, there
was a verbal agreement for non-recovery with an official of the
Quebec Department of Revenue concerning net amounts of tax owed
in respect of periods prior to that ending on May 31, 1995, and,
again according to the appellant, it was agreed that subsequent
payments would be for subsequent periods. The appellant claimed,
therefore, that the amount of $14,468.41 remitted by it in
payment of the assessment for the period ending on May 31, 1995,
should have been applied to that period and not to earlier
periods. As regards the second period, the appellant claimed to
have asked to have the amounts owed under the Excise Tax
Act (the "Act") offset by the amounts it
had allegedly overpaid under the Act respecting the
Québec sales tax.
[3]
At the opening of the hearing, a motion was heard that had been
filed on the day of the hearing. It was a motion for leave to
file an Amended Reply to the Notice of Appeal (the
"Reply"). Counsel for the appellant left the filing
of the motion to the Court's discretion and the Court agreed
to the filing, since the Reply did not contain new facts or
arguments. The Reply described the relevant provincial
legislation concerning the allocation of refunds owed under the
Act respecting the Québec sales tax and it referred
in this regard to section 31.1 of the Act respecting the
Ministère du Revenu (R.S.Q. c. M-31). It
did not, however, alter the respondent's main argument in
favour of having the appeal dismissed, namely that this Court has
jurisdiction to rule only on the validity of an assessment and
not on the methods of payment of that assessment.
[4] A
question was raised at the outset of the hearing: since the
appellant had declared bankruptcy on June 3, 1997, did it have
standing to pursue the appeal of the assessment?
[5]
Counsel for the appellant produced in evidence, as Exhibit A-1,
[TRANSLATION] "[an] Excerpt from the minutes of a meeting
of inspectors", held on June 19, 1997. The Exhibit shows
that the inspectors were in agreement that the trustee in
bankruptcy did not object to the filing of a motion under section
38 of the Bankruptcy and Insolvency Act which would allow
Jules Fafard to resume the proceedings. Counsel for the
appellant submitted a judgment of the Superior Court of Quebec,
dated October 29, 1998, allowing the applicant,
Jules Fafard, to resume and continue the proceedings pending
in the Tax Court of Canada in appeal No. 96-2665(IT)G and
appeal No. 97-1575(GST)G. The Superior Court ruling was
based on sections 37 and 38 of the Bankruptcy and Insolvency
Act.
[6]
Counsel for both parties also informed the Court that a decision
had already been rendered by this Court allowing
Jules Fafard to continue the appeal bearing number
96-2665(IT)G with respect to the bankrupt appellant. The
decision on that appeal is reported as Bâtiment Fafard
International Inc. v. The Queen, 99 DTC 1206. Counsel
for the Minister attempted to argue, but without insisting, that
this decision is based on different circumstances. He quoted from
the judgment at page 1210:
. . . In the case at bar, proceedings had been instituted in
this Court before the appellant even went bankrupt. . . .
[7]
If I understand correctly, counsel's submission was that this
appeal had not been instituted before the appellant's
bankruptcy. However, the Notice of Appeal was filed on May 22,
1997, and the date of the bankruptcy was June 3, 1997. In any
event, that is not a circumstance of any importance. On reading
sections 37 and 38 of the Bankruptcy and Insolvency Act
and the work by Houlden and Morawetz entitled Bankruptcy and
Insolvency Law of Canada, I can readily see that those
sections contemplate the continuation of a pending action as well
as the institution of a new action.
[8]
Sections 37 and 38 of the Bankruptcy and Insolvency
Act read as follows:
37.
Where the bankrupt or any of the creditors or any other person is
aggrieved by any act or decision of the trustee, he may apply to
the court and the court may confirm, reverse or modify the act or
decision complained of and make such order in the premises as it
thinks just.
38(1) Proceeding by
creditor when trustee refuses to act
Where a creditor request the trustee to take any proceeding that
in his opinion would be for the benefit of the estate of a
bankrupt and the trustee refuses or neglects to take the
proceeding, the creditor may obtain from the court an order
authorizing him to take the proceeding in his own name and at his
own expense and risk, on notice being given the other creditors
of the contemplated proceeding, and on such other terms and
conditions as the court may direct.
38(2) Transfer to
creditor
On an order under subsection (1) being made, the trustee shall
assign and transfer to the creditor all his right, title and
interest in the chose in action or subject-matter of the
proceeding, including any document in support thereof.
38(3) Benefits belong to
creditor
Any benefit derived from a proceeding taken pursuant to
subsection (1), to the extent of his claim and the costs, belongs
exclusively to the creditor instituting the proceeding, and the
surplus, if any, belongs to the estate.
38(4) Trustee may institute proceeding
Where, before an order is made under subsection (1), the
trustee, with the permission of the inspectors, signifies to the
court his readiness to institute the proceeding for the benefit
of the creditors, the order shall fix the time within which he
shall do so, and in that case the benefit derived from the
proceeding, if instituted within the time so fixed, belongs to
the estate.
[9]
Section 37 provides that the bankrupt or any of the
creditors or any other person who may be aggrieved by any
decision of the trustee may apply to the court and the court may
make such order as it thinks just in that regard. Section 38
applies to the creditor. Jules Fafard may be a creditor of
the bankrupt, or at least a potential creditor, since he may be
required to personally assume liability with respect to the
appellant's obligations relating to the non-payment of the
tax assessed. It does not, however, have to be determined whether
it is as a person aggrieved under section 37 or as a potential
creditor under section 38 that Mr. Fafard is continuing the
appellant's appeal, because the decision of the Superior
Court of Quebec is based on both sections 37 and 38 of the
Bankruptcy and Insolvency Act, and that decision allows
the applicant, Jules Fafard, to resume this proceeding. I
therefore do not see any reason in the instant case not to
authorize Mr. Fafard to resume the appellant's proceeding in
place of the trustee.
[10] Another
matter was also determined at the beginning of the hearing. For
the period ending on May 31, 1995, the assessment of net tax was
$17,653.12, and, for the period ending on August 31, 1995, the
net tax was $1,986.32. Counsel for the respondent informed the
Court that the appellant's payment in the amount of
$14,468.41 had now been applied to the first period, as requested
by the appellant. Therefore, there is no longer any issue with
respect to that period, since the validity of the assessment is
not otherwise disputed. The only point remaining in dispute is in
respect of a refund of $19,333.49 claimed under the Act
respecting the Québec sales tax for the second
period. However, no evidence was adduced of any refund
balance to which the appellant would have been entitled under
that Act that could have been applied to payment of the net
tax.
Analysis
[11]
Section 31.1 of the Act respecting the Ministère
du Revenu of Quebec reads as follows:
31.1 The
Minister, after proceeding with the allocation provided for in
section 31, where applicable, may apply the remainder of the
refund to which a person is entitled under the Act respecting the
Québec sales tax (chapter T-0.1) to the payment of a debt
owed by the person under an Act of the Parliament of Canada
administered and carried out by the Minister in accordance with
an agreement entered into under section 9.0.1.
[12] As noted
above, there was no evidence of non-compliance with this
section.
[13] The
principal argument in the Reply was that, since it concerned not
the validity of the assessment but rather the method of recovery
of the assessment, this appeal did not fall within the
jurisdiction of this Court. It is true that, under section 313 of
the Act, it is the Federal Court that has jurisdiction
with respect to the recovery of unpaid amounts of net tax.
However, certain amounts, notably overpayments and refunds,
described in sections 296, 297 and 298 of the Act are
taken into account in calculating the net tax and in making the
relevant assessment. The sections of the Act concerning the
calculation of net tax and making an assessment that are
applicable in this case were not referred to either in the Reply
or during oral argument. I believe that, to properly portray the
nature of the dispute, the respondent should have referred to
sections 296, 297, 298 and 225 of the Act and
explained the procedure that is followed in assessing a
person's net tax—and this taxpayer's in
particular—in cases involving an overpayment, a refund or
the allocation of a payment.
[14] However,
since there is no longer any issue as regards the first period,
as the Minister has agreed to apply the appellant's payment
to the period requested, and since, in respect of the second
period, there is no evidence of any amount of Quebec sales tax
being available to the Quebec Minister of Revenue to apply to the
calculation of net tax, the appeal is dismissed.
Signed at Ottawa, Canada, this 10th day of January 2000.
"Louise Lamarre Proulx"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
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