FBF Ltd. v. The Queen, docket 1999-3512-GST-I (Informal Procedure)

Date: 20000719

Docket: 1999-3512-GST-I

BETWEEN:

FBF LIMITED,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Beaubier, J.T.C.C.

[1] This appeal pursuant to the Informal Procedure was heard at Toronto, Ontario on July 13, 2000. The Appellant called Bilkis Bhana as its only witness. The Respondent called Phil Lanzarotta, John Bellamy, William Brown and Neil Reine as witnesses.

[2] Paragraphs 2 to 6 of the Reply to the Notice of Appeal read:

2. The Minister of National Revenue (the "Minister") assessed the Appellant for the period June 20, 1994 to May 31, 1997, notice thereof dated August 4, 1998 and numbered 620:

a) to include in the calculation of the Appellant's net tax for that period, the amount of $29,355.46 as goods and services tax ("GST") collectible or collected by the Appellant but not remitted as required by the provisions of sections 165, 221, 225 and 228 of the Act;

b) to assess interest and penalties in the amounts of $4,568.26 and $6,097.41, respectively, pursuant to the provisions of sections 280 and 296 of the Act;

c) to impose penalties in the amount of $7,338.86 pursuant to the provisions of 285 and 296 of the Act.

3. The Appellant objected to the assessment, notice thereof dated October 30, 1998.

4. The Minister confirmed the assessment, notice of decision thereof dated May 6, 1999.

5. In so assessing the Appellant, the Minister relied on, inter alia, the following assumptions:

a) the Appellant is a corporation;

b) during the period June 20, 1994 to May 31, 1997, the Appellant was a GST registrant with the GST Registration No: 138671805;

c) during the period June 20, 1994 to May 31, 1997, the Appellant was involved in the commercial activity of operating a smoke/convenience store and carried on business in Rexdale, Ontario under the name 'Mini Smokers Korner';

d) during the period June 20, 1994 to May 31, 1997, the Appellant purchased cigarettes (the "Cigarettes") for resale from a Naeem Chaudry and/or Husseun Alibhai and/or 10373259 Ontario Limited (the "Vendors"), as set out in Schedule "A" attached hereto;

e) during the period June 20, 1994 to May 31, 1997, the Appellant paid cash for purchase of the Cigarettes and the total amount of cash paid for the Cigarettes during that period was $364,513.07, as set out in Schedule "A" attached hereto;

f) during the period June 20, 1994 to May 31, 1997, the Appellant resold the Cigarettes and realized on the resale of the Cigarettes a total resale price of $419,356.68, (the Cigarette Sales"), as set out in Schedule "A" hereto;

g) during the period June 20, 1994 to May 31, 1997, the Appellant did not pay any GST on the purchase of the Cigarettes from the Vendors:

h) for the period June 20, 1994 to May 31, 1997, the Appellant failed to include in its calculation of net tax and remit, GST collectible or collected by it on its Cigarette Sales in the amount of $29,355.46, as set out in Schedule "A" attached hereto;

i) in failing to include in the calculation of its net tax for the period June 20, 1994 to May 31, 1997 and remit GST of $29,355.36, the Appellant knowingly or in circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by the Act, made or participated in, assented to or acquiesced in the making of a false statement or omission in returns made in respect of the reporting period June 20, 1994 to May 31, 1997;

j) as a consequence of failing to include in the calculation of its net tax for the period June 20, 1994 to May 31, 1997 and remit, GST of $29,355.36, the Appellant is liable to a penalty in the amount of $7,338.86, as set out in Schedule "A" attached hereto;

k) as a consequence of failing to include in the calculation of its net tax for the period June 20, 1994 to May 31, 1997 and remit, GST of $29,355.36, the Appellant is liable to pay interest and penalties pursuant to the provisions of sections 280 and 296 of the Act in the amounts of $4,568.26 and $6,097.41, respectively.

B. ISSUES TO BE DECIDED

6. The issue is whether the Minister correctly assessed the Appellant to:

a) include in the calculation of its net tax for the period June 20, 1994 to May 31, 1997, GST in the amount $29,355.46;

b) assess interest and penalties in the amounts of $4,568.26 and $6,097.41, respectively, pursuant to sections 280 and 296 of the Act;

c) impose penalties in the amount of $7,338.86 pursuant to sections 285 and 296 of the Act.

Schedule "A" to the Reply

Date	Cost Amount	Mark Up @15%	Sale Price	GST @7%	Gross Neg. @25%
09/30/94	$48,815.84	$7,322.38	$56,138.22	$3,929.68	$982.42
10/31/94	$48,219.87	$7,232.98	$55,452.85	$3,881.70	$970.42
11/30/94	$62,290.65	$9,343.60	$71,634.25	$5,014.40	$1,253.60
12/31/94	$68,914.20	$10,337.13	$79,251.33	$5,547.59	$1,386.90
01/31/95	$48,759.29	$7,313.89	$56,073.18	$3,925.12	$981.28
02/28/95	$30,163.43	$4,524.51	$34,687.94	$2,428.16	$607.04
03/31/95	$37,207.34	$5,581.10	$42,788.44	$2,995.19	$748.80
04/30/95	$13,779.85	$2,066.98	$15,846.83	$1,109.28	$277.32
05/31/95	$6,513.60	$977.04	$7,490.64	$524.34	$131.09

[3] Assumptions 5 (a), (b), (c), (d), (e), (f), (g) and (h) were not refuted by the Appellant. Despite the testimony of Bilkis Bhana, the reasons for the Appellant's failure are as follows:

(1) Ms Bhana did not attend in the Appellant's store during the period in question except, very occasionally, in the evening.

(2) Members of her family owned the Appellant and operated the store. None of them testified to refute the assumptions.

(3) When Ms Bhana attended upon the auditor of the Respondent. She admitted that she didn't know that the Appellant received two of alleged deliveries of cigarettes (on April 19, 1995 and June 14, 1995) until the auditor advised her that they had videotapes of the deliveries being made of the Appellant's store. Thereupon she asked unnamed members of her family if this had occurred and they admitted it; these members failed to testify and no reason was given for their failures to testify. Thus Ms. Bhana had no knowledge of the operations of the store and her testimony was hearsay in all of its important particulars.

(4) Ms. Bhana stated that the Appellant would report for GST purposes if there were documents of the transactions. There was no documentation of the transactions assessed.

(5) Ms. Bhana agreed on cross examination respecting Exhibit R-1 Tab 19, page 2 that a shipment dated 17/5/95 described as Islington #7 for $7,390 probably went to the Appellant's store and stated that she could not think of a reason why the invoice date 17/05/95 to "Peter Rice R-7" on the last page of R-1 Tab 1 was wrong. This evidence ties all of the R-7 invoices to the Appellant and confirms the assessment in its entirety (R-1 Tab 19 is one of the documents seized by Mr. Bellamy from Mr. Chaudry's residence.)

(6) The failure by the Appellant to bring knowledgeable family members to testify creates an inference against the Appellant.

(7) The Appellant's summary of disbursements July 1, 1994 – May 31, 1995 Exhibit R-1 Tab 26 shows "shareholder withdrawals" of $15,900 even though the statements indicate that there are no funds in the Appellant from which to withdraw.

[4] The Respondent called Messrs. Bellamy and Brown, investigators for the Ontario Ministry of Finance, to establish the chain of evidence of cigarette sales billed to one Peter Rice, an Indian of the Six Nations Reserve, under his own name and "Studio USA" of which he was proprietor. These were billed by the wholesaler Lanzarotta Wholesale Grocers of Vaughn, and picked up by 103729 Ontario Inc., carrying on business as "C & A Sales & Distribution" ("C & A"). They did not deliver the cigarettes to the Six Nations Reserve. Rather each account number, such as R-7, represented a retailer in the greater Toronto area to which Naeem Chaudry and Husseun Alibhai made deliveries in C & A vans. Videotapes were made of these deliveries including one to the Appellant's premises on June 14, 1995 in which a middle-aged man, who never testified or appeared in Court, opened the back door to the Appellant's premises and received deliveries of cigarettes. One of the deliverors left holding a small, grocery-sized bag. Evidence was led that payments for cigarettes are cash or certified cheque or bank draft. The June 14, 1995 delivery was for $7,193.80 of cigarettes at wholesale price.

[5] Mr. Brown tied the June 14, 1995 delivery from the order (Exhibit R-2), to the wholesale invoice (Exhibit R-3, "Peter Rice R-7") to the videotape of the delivery itself (Exhibit R-5). These plus the evidence that ties account R-7 to the Appellant are accepted as completing the chain of evidence that the Appellant purchased the cigarettes described in Lanzarotta Wholesale Grocers invoices coded R-7. Thereupon, the calculation by Mr. Reine confirms the taxes and the amounts of penalties assessed.

[6] These cigarette sales and collection of GST were not reported by the Appellant. No undocumented purchases and sales were reported by the Appellant so that the sales of the two purchases admitted by Ms. Bhana were not reported either. On the evidence these sales would have almost doubled the Appellant's total sales and they amounted to 200% more cigarette sales than were reported. The Appellant deliberately made false statements in its returns which were done knowingly as part of a fraudulent scheme from the purchases, through the sales, and through its reports for both GST and corporate financial statement purposes. The assessments of penalties are confirmed.

[7] For these reasons, and the calculations placed in evidence by Mr. Reine, the auditor, the appeal of the assessment of GST and penalties is dismissed.

Signed at Ottawa, Canada, this 19th day of July, 2000.

"D. W. Beaubier"

J.T.C.C.