Citation: 2013 TCC 8
Date: 20130111
Docket: 2011-1854(GST)I
BETWEEN:
9183-2899 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Batiot D.J.
[1]
The appellant is
appealing from an assessment dated April 6, 2010, for a total amount of $5,398.35
(interest included) for the period from July 1, 2007, to February 28,
2009. The respondent (eventually) disallowed an input tax credit (ITC)
of $4,861.62 for the purchase of dismantled spare car parts from 9183-7302
Québec Inc. (the supplier), as indicated on its invoices: the
supplier was unable to deliver the supplies to the appellant; therefore, these
were simply accommodation invoices and the appellant was not entitled to the
ITC.
[2]
The appellant, however,
submits the following:
[Translation]
1. To the appellant’s knowledge, 9183-7302 Québec Inc. was its
supplier. It had always been its supplier. The appellant paid the invoices by
cheque in exchange for the delivery of the parts after verifying the
merchandise and the supplier’s status with Revenu Québec.
2. The invoices show that there was a commercial activity and that the
appellant has made a prima facie case that demolishes the respondent’s
assumptions.
3. Although illegal, the activities of 9183-7302 Québec Inc. were still
commercial and taxable; since the GST number was valid, the amounts paid by the
appellant to that company are inputs that may be claimed against its own
remittances to Revenu Québec. It referred to Québec
(Sous-ministre du Revenu) c. Parent, 2008 QCCA 1476.
4. It is important to respect the GST system, including inputs; its
client paid these amounts in good faith; it is entitled to its claim.
5. The appellant always acted in good faith. Revenu Québec indicated
that the supplier’s registration number was valid. The appellant has the right
to rely on this information.
6. The respondent should have removed the registration number much more
quickly: she was the only one who knew whether 9183-7302 Québec Inc. was
engaged in illegal commercial activity and the only one who could verify
whether the supplier was an offender.
7.
The respondent assessed 9183‑7302 Québec
Inc. for a significant invoice amount ($4,345,600). She is the only one who
knows whether any part of the amount paid by the appellant had already been
paid by the supplier, which is a fact she would not disclose to the appellant. Therefore,
a double recovery of GST, which would be contrary to the system itself and
penalize the appellant or any other entity in the same situation, should be
avoided.
THE FACTS
[3]
Gaétan Laferrière, who
has worked in vehicle recycling for 45 years, is an experienced businessman. He
is now 66 years old and has been retired for two years. He created 9183-2899
Québec Inc., the appellant, after selling another company a few years ago. He
operated the company under the name Recyclage d'autos G.L.
[4]
The appellant purchased
about 2,500 cars per year as well as disassembled parts. It resold the parts to
garages and dealerships. It had some 12 employees and had annual sales of about
$1,200,000.
[5]
Mr. Laferrière performed
three quarters of the purchases and signed all cheques once assured by his
employees that the part was in good condition and that the supplier’s tax number
was valid.
[6]
Mr. Laferrière
always bought inexpensive car parts from a hundred or so suppliers and even
from individuals. He paid cash even though, when the parts were resold, the
appellant had to extend credit to its best clients.
[7]
His business relationship
with the supplier in this case began following a visit to the premises of a
salesperson and the first invoice (2007-08-29). It continued with three
salespeople, Michel Manceau, Dave LeFrançois and one more whose name he cannot
recall, until February 23, 2009, the date of the last invoice. Later in his
testimony, he remembered only the first names Pierre and Paul. These
salespeople always carried Entreprises Trudeau cards. The total amount of these
invoiced exchanges is $103,597.71; therefore, the ITCs in this case are $4,861.62.
[8]
At the time of
purchase, the appellant checked only the condition of the merchandise
delivered, its identification number and the status of the supplier’s
registration number with the respondent (which the respondent admits). But it
did not verify whether the supplier held a vendor licence for selling car parts
as required by article 153 of the Highway Safety Code, R.S.Q., c.
C-24.2.
[9]
The evidence was
presented by means of well-organized books of documents (A-1 and A-2) with 77
tabs. Tabs 8 to 77 contain purchase invoices, cheques in consideration and the
appellant's invoices for the sale of some relevant disassembled parts. The
appellant's invoices and cheques date from August 27, 2007, to February 23,
2009, but they are not always in correct chronological order (for example, an
invoice and its consideration cheque dated February 12, 2009, can be found at
tab 68, while an invoice and cheque dated December 24, 2008, can be found at
tab 77). The purpose is to create a paper trail for each transaction in
question. Parts that are not sold are added to the appellant's inventory.
[10]
For example, Exhibit
A-1, tab 8, contains an invoice from 9183-7302 Québec Inc, the supplier, in the
amount of $1,139.50. It has a description of parts from two different car models
(Sedona and MPV), which cost $500 each plus GST and QST, dated August 23, 2007,
including its valid GST number (857444954RT0001), a cheque (#246) for $4,558
(to pay for several invoices) issued on September 14, 2007, and cashed (the
date is illegible) at a C.E.C.M. (described as a cheque-cashing centre) as well
as the appellant's invoice to Luxe Automobile for the sale of one of these
parts (Sedona) for $846.56, tax included.
[11]
This is repeated for
each invoice, for one or more parts, with a cheque in consideration of one or
more invoices (for example, Exhibit A-1, tab 21) and the appellant's invoice,
if any, for the any resold parts.
[12]
All the invoices,
whether they were issued to or received by the appellant, include relevant GST
and QST (or GST and Prov. Tax) as well as the unique identification number of
each part. We can see the excellent profit that can sometimes be made.
[13]
The respondent does not
question the validity of the serial numbers on the invoices. The two books of
exhibits were also admitted in evidence by mutual agreement.
[14]
The respondent does not
deny that the transactions took place and that the dismantled car parts were
exchanged for consideration. She simply states that the supplier was not
9183-7302 Québec Inc. but several other people who remain unknown to her; that
9183-7302 Québec Inc. did not have the physical means to carry on this type of
business or perform such transactions because it had no warehouse, no
employees, no administrative or transportation services and no sub‑contractors;
that it was only a supplier of accommodation invoices; and that therefore the
GST number associated with 9183-7302 Québec Inc. is not valid for these
transactions. In fact, the number was removed in December 2009 following the
audit investigation started by Serge Giroux in March 2009.
Was 9183-7302 Québec Inc. the appellant's supplier?
[15]
The appellant claims
that it was and reiterates it in its submissions: the invoices prove it; the
purchase of dismantled parts supports it; the cheques in consideration show it,
the resales demonstrate it. These facts are sufficient to demolish the
assumptions on which the assessment in this case is based.
[16]
The appellant paid 76
invoices to 9183-7302 Québec Inc. from August 29, 2007, to February 23,
2009, and received in exchange the car parts described, which it resold in
part. It is therefore conclusive evidence of commercial transactions, made
possible only by the transactions with 9183-7302 Québec Inc.
[17]
Both Mr. Laferrière's
testimony and the documentary evidence show that cheques were issued only after
a satisfactory verification of the registration number's validity with Revenu
Québec. A certificate of this is added to the books of exhibits starting at tab
33 for a transaction dated January 28, 2008. This certificate indicates only
the status of the QST number; the status of the GST number was not available. There
is no explanation for this change of practice.
[18]
The company 9183-7302
Québec Inc., business number 1164504897, received a licence number on June 15,
2007, the day it was registered with the Quebec Enterprise Register. It is
described there as licensed, without a shareholder or president, secretary,
chief executive officer, delegated authority and having a sole director, Trudeau,
Guy, having the same address, 9251 15th Avenue, Montréal, Quebec H1Z 3P4
(Exhibit A-1). That Exhibit is dated 2011-06-07. It may not reflect the reality
during the period at issue (2007-08-29 to 2009-02-23), but there is no evidence
to that effect.
[19]
Mr. Laferrière has
never met Guy Trudeau. He never visited his head office. Indeed, the address on
his invoices is different (251 15th Avenue). It is missing the first number,
but the city and postal code are the same. This address does not exist.
[20]
The invoices are the
only connection between the appellant and 9183-7302 Québec Inc. Neither Pierre
nor Paul nor Michel Manceau nor Dave LeFrançois testified. The only evidence is
that of Mr. Laferrière and of Mr. Giroux, the respondent's witness who was also
called by the appellant, explaining the supplier's status as discovered by him a
few months after the last invoice.
[21]
There is no evidence
nor is it suggested that the appellant was in collusion with the supplier on
the accommodation invoice scheme described in the respondent's reply. From Mr.
Laferrière's point of view, his company had a business relationship with the
supplier for almost 18 months on the most basic level: an exchange of inexpensive
merchandise that it needed for a cheque, without credit or security. He simply
followed his usual practice. Is that prima facie evidence?
[22]
In Amiante Spec Inc.
v. Canada, 2009 FCA 139, Justice Trudel states the following at paragraph
23:
A prima facie
case is one “supported by evidence which raises such a degree of probability in
its favour that it must be accepted if believed by the Court unless it is
rebutted or the contrary is proved. . . . (Stewart v. Canada, [2000]
T.C.J. No. 53, paragraph 23).
At paragraph 24, referring to Orly
Automobiles inc. v. Canada, 2005 FCA 425, Justice Trudel states the
following:
. .
. the burden of proof put on the taxpayer is not to be lightly, capriciously or
casually shifted . . .
and that the taxpayer
. .
. knows how and why it is run in a particular fashion rather than in some other
ways. He [or she] knows and possesses information that
the Minister does not. He [or she] has information within his [or her] reach
and under his [or her] control” (ibid.).
[23]
I accept Mr.
Laferrière's testimony for the appellant, which, given all the transactions
made in its name that were verified with the authorities, believed that it was
doing business with the supplier. At this stage of the hearing (prima facie
case), we heard the respondent's evidence and her very clear position:
9183-7302 Québec Inc. existed only in name, and, even though it had valid tax
numbers, it simply did not have the means to perform the transactions described
by the appellant.
[24]
The testimony of the
two auditors, Mr. Giroux for 9183-7302 Québec Inc. and Lise Lavoie for the
appellant, can be summarized as follows:
[25]
9183-7302 Québec Inc.:
-
gave a false address on
its invoices, 251 15th Ave., Montréal, which does not exist;
-
had a phone number that
was not in service (at least during the 2009 audit);
-
had a real address, 9251
15th Ave., Montréal, in a residential area, with no evidence of commercial
activity;
-
had a director, Guy
Trudeau, at the same address, indicated in the enterprise register. He did not
live there during Mr. Giroux's audit;
-
had no warehouse;
-
had no means of
transportation (truck);
-
had no officer or
director
-
had a sole shareholder,
Guy Trudeau, a tax offender who remains unreachable
-
issued many invoices
often without respecting their numerical sequence, to some 195
"clients";
-
did not hold a valid
licence that would enable it to sell dismantled car parts, as prescribed in
article 153 of the Highway Safety Code.
-
was assessed for sales
of over $4 million on evidence of numerous invoices from 195 accounts including
that of the appellant.
-
never provided the GST
reports required of it as an agent of Revenu Québec.
[26]
These facts are
sufficient to prove the respondent's assumptions, which are the basis for the
assessment in this case: 9183-7302 Québec Inc. provided accommodation invoices
and could not carry on the business described in the invoices issued to the
appellant. Therefore, the appellant made an error.
Did the appellant exercise due diligence in order to
prevent the error?
[27]
It argues that it acted
in good faith and that the respondent, who is responsible for her own proper
administration, was negligent in keeping the tax registration number on which
the appellant relied valid on her Web site.
[28]
The respondent began
the audit of 9183-7302 Québec Inc. only in March 2009, almost two years
after its creation, but had already received a significant number of ITC claims
relating to this supplier, even if it was only from the appellant, which
reported every quarter.
[29]
It seems that different
sections of Revenu Québec do not always communicate and that an ITC claim is
not always connected with the agent who collected or ought to have collected
and remitted the tax, which would explain the delay of this audit that had
uncovered significant fraud.
[30]
I accept that the
appellant verified the registration number even before it retained a copy of
this certificate in its files (practice instituted on January 25, 2008, tab
33). I also accept that, without a valid number, it would not have paid the
invoice and that there is no evidence or suggestion of collusion between the appellant
and the supplier.
[31]
It argues that it acted
in good faith and that it should not have to insure Revenu Québec, who, not
having received the money from its agent, turned on it without justification.
[32]
The appellant refers to
Joseph Ribkoff Inc. v. The Queen, 2003 TCC 397, and Québec
(Sous-ministre du Revenu) c. Vêtements de sport Chapter One Inc., 2008 QCCA
598.
[33]
The latter deals with
an appeal from a Court of Québec decision allowing the taxpayer's appeal in
respect of a QST assessment for disallowed ITCs. At paragraph 26, the
Court of Appeal of Québec approved the defence of good faith as stated by
Revenu Québec in its Interpretation Bulletin and determines that the issue is
simply as follows:
[Translation]
. .
. whether the respondent was in good faith, that is, whether, based on the
assessment of the facts of the case, it could legitimately believe, as a person
who is reasonable, diligent and experienced in its area of activity, that the
author of the invoices it produced in support of its claim was the actual
supplier.
[34]
In Corp. de l'École
Polytechnique v. Canada, 2004 FCA 127, the Federal Court of Appeal states
that there are two separate defences: that of good faith and that of due
diligence (for charges involving strict liability). It observes the following
at paragraph 29:
The
defence of due diligence should not be confused with the defence of good faith,
which applies in the area of criminal liability, requiring proof of intent or
guilty knowledge. The good faith defence enables a person to be exonerated if
he or she has made an error of fact in good faith, even if the latter was
unreasonable, whereas the due diligence defence requires that the error be
reasonable, namely, an error which a reasonable person would have made in the
same circumstances. The due diligence defence, which requires a reasonable but
erroneous belief in a situation of fact, is thus a higher standard than that of
good faith, which only requires an honest, but equally erroneous, belief.
[35]
The difference between
these two judgments is more apparent than real since both stress the importance
of due diligence to be informed about the circumstances. I am bound by the
Federal Court of Appeal judgment.
[36]
Given the evidence
adduced in this appeal, the appropriate defence for this error is whether the
appellant made a reasonable error in its understanding that the supplier was
9183-7302 Québec Inc. or took reasonable precautions to prevent it.
[37]
Indeed, this is the key
issue in this appeal.
[38]
From the outset, the
appellant did business only with salespeople who claimed to be representatives
of 9183-7302 Québec Inc. That was its normal practice. It had its usual clients
from whom it purchased parts regularly. Indeed, that was what it did with the
supplier for 18 months. The ending of the relationship after February 23,
2009, remains unexplained.
[39]
Because it made cash
purchases without security or credit, I infer that it did not need to contact
the company itself. Every transaction was carried out on its premises.
[40]
Certainly, the audit after
the fact shows a lack of numerical order in some invoices, sometimes on the
same day. But in this case, purchasing from various itinerant salespeople is
not in itself extraordinary. It is not shown that all businesses must save and
regularly verify this type of statistics.
[41]
Several invoices were dated
earlier than the payment date. I accept that payment was made on delivery of
the merchandise after its quality was verified. I infer that these invoices
were probably orders for certain parts needed, which were delivered later. Exhibit
I-2 demonstrates this, for example, for payments dated 2008‑10-09
(invoices dated 2008-09-26 and 2008-10-08); 2008-04-28 (invoices dated
2008-04-28 and 2008-04-25); 2008-04-29 (invoices dated 2008-04-25 and 2008‑04-29);
2007-10-04 (invoices dated 2007-09-07, 2007-09-10, 2007-09‑11, 2007‑09-12,
2007-09-13 and 2007-09-03).
[42]
The appellant made sure
that this supplier existed on the Revenu Québec and enterprise register Web
sites. The first Web site had only the QST registration number. However, the
appellant reported both taxes to Revenu Québec, which admits that the two
numbers were valid until they were removed at the end of November– beginning of
December 2009, some nine months after the last invoice. I accept Mr. Laferrière's
testimony that the validity of these numbers was a prerequisite to every
payment, as required by the Act and case law (Systematix Technology
Consultants Inc. v. Canada, 2007 FCA 226 and Comtronic Computer Inc. v.
Canada, 2010 TCC 55, rendered on January 28, 2010). The only way to make
sure of it is to check Revenu Québec's Web site or to call them. That was what
it did every time. The QST number was valid. It filed its returns and claimed
its ITCs for QST and GST in respect of this supplier every three months since
August 2007. It received a notice that there was a problem from the respondent only
in 2010, more than a year after its last return that included ITCs for this
supplier.
[43]
Although it held a
licence under article 153 of the Highway Safety Code, it never requested
that relevant information from salespeople. Such a licence is obtained after
its holder has given a security to guarantee adequate reimbursement to the
owner of a stolen road vehicle or execution of a judgment or of a
transaction . . . opposing a consumer and the holder of a licence
(art. 154 H.S.C.).
[44]
I note that the
appellant saved identification numbers of road vehicles or their parts on its
own invoices and those it received from the supplier. This is admitted by the
respondent, and there is therefore no question of whether this information
meets the standards set out in article 155. It seems to do so prima
facie, for example, the identification number of every road vehicle . .
. a description of its major components and the identification thereof by means
of the identification number, etc.
[45]
It would have been
preferable that the appellant obtain this licence number, but the direct result
of this omission is that, in case of a claim (by the owner of a stolen road
vehicle . . . or . . . a consumer), the appellant is the only one
who is liable and cannot hold the surety jointly and severally liable,
as set out in article 154.
[46]
Given the circumstances
at the time of these transactions, the appellant exercised the necessary due
diligence required to prevent the error that is now attributed to it by the
respondent based on her submissions.
[47]
The appeal is allowed.
Signed at Montréal, Quebec, this 11th day of January
2013.
"Jean-Louis Batiot"
Translation certified true
on this 21st day of February 2013
Margarita Gorbounova, Translator
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