Citation: 2013 TCC 85
Date: 20130321
Docket: 2012-1720(GST)I
BETWEEN:
9188-7646 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Masse D.J.
[1]
This is an appeal from
an assessment for which the notice is dated is March 15, 2011, with no
distinctive number, made pursuant to Part IX of the Excise Tax Act (the
ETA) for the following two quarterly periods: October 1, 2008, to December 31,
2008, and January 1, 2009, to March 31, 2009 (the relevant periods) established
for the appellant, 9188‑7646 Québec Inc. (Sport Auto Plex). The amount of
the assessment is $4,770, which represents input tax credits (ITCs) the
appellant claimed and obtained, allegedly in overpayment, erroneously or ineligibly,
regarding the goods and services tax (GST) it paid in the provision of two lots
of shoes it claims to have obtained. Moreover, the respondent claimed $476.23
for interest on arrears for a total of $5,246.23. The respondent claims that
the net tax the appellant should have claimed for the relevant period is $699.45.
The assessment was confirmed by a decision on the objection rendered February
3, 2011, hence this appeal.
[2]
The respondent claims
that the ITCs the appellant claimed and obtained ineligibly are for ITCs for the
provision of goods allegedly acquired from a dubious supplier, 6809821 Canada Inc.
(Canada Inc.). The respondent claims that Canada Inc. is a provider of false
invoices or so-called invoices "of convenience", and the appellant
never obtained the lots of shoes it claims to have obtained. Moreover, the
supporting evidence for the disallowed ITCs are false and/or the information
the appellant provided was inadequate and does not meet the standards required
under subsection 3(4) of the Input Tax Credit Information (GST/HST)
Regulations (the Regulations).
Factual background
[3]
It is undisputed that
the appellant is a legal person duly incorporated and registered for the
purposes of Part IX of the ETA. During the relevant periods, it operated a used
car dealership, doing business as "Sport Auto Plex". Between December
2008 and March 2009, Sport Auto Plex conducted two isolated transactions, outside
its usual activity, namely the purchase for resale of two lots of women's
shoes—unusual for a car dealership. These two transactions and the related
invoices are the subject of the present case.
[4]
Stefanio Pendenza (hereinafter
Stefanio) is the Chair and one of the shareholders of Sport Auto Plex.
When he was 18, he worked with Pasqualino Cersosimo (hereinafter Pat) at Aldo, a
shoe store. In August 2008, Pat went to Sport Auto Plex to purchase a
car. The two men had not seen each other in a long time, so they talked at
length and became reacquainted. Pat let Stefanio know that he was in the
business of importing and distributing shoes imported from China. Moreover, Pat
purchased a car.
[5]
Stefanio explained that
in the past he would purchase goods such as clothing or other items from a
business with a liquidation warehouse on Chabanel Street. This business was
Canada Inc. Stefanio stated that the warehouse had been there for years. In
December 2008, Stefanio and Pat talked about the possibility of buying and
distributing a large lot of women's shoes that Stefanio had seen at the
warehouse. The two of them went to the warehouse to examine the lot of shoes.
Since Pat had experience in the shoe business, he wanted to be able to show his
clients some samples, so Pat took photos of the shoes and showed them to
potential clients. After testing the market in this manner, Stefanio and Pat decided
to purchase the lot of shoes. They negotiated with Albert Malka (Albert) and Sport
Auto Plex purchased two lots of shoes. The first lot was sold from the
warehouse directly to Nero Bianco, a well-known shoe store. Eventually, the
second lot of shoes was delivered to the place of business of Sport Auto Plex in
Bois‑des‑Filion. Since Stefanio had very little experience in the
shoe business, Pat was the one who found buyers because he had the expertise
required. The shoes were sold or consigned to Pat's company, 9191‑0299 Québec Inc.
(hereinafter 9191). Then 9191 sold them to Nero Bianco and other bulk
shoe purchasers and collected a 15% commission. All the shoes were eventually sold.
[6]
The appellant submitted
a book of documents to the Court as Exhibit A-1. The documents at Tab R‑7
consist of two invoices issued by Canada Inc. to the appellant. Purchase
invoice No. 4336 is dated December 22, 2008, for a total of $78,466.19. Purchase
invoice No. 4372 is dated February 11, 2009, and is for $29,216.57. These
two invoices are the subject of the present case.
[7]
The documents at Tab R‑8
consist of three cheques, Nos. 190, 191 and 217, with which the appellant
allegedly paid for the shoes. Cheque No. 190 for $39,233 is dated December 8,
2008; cheque No. 191 for $39,233 is dated January 9, 2009, and cheque No. 217
for $29,216.57 is dated February 9, 2009. These three cheques are all signed by
Stefanio, payable to Canada Inc., and state they are for "shoes" or
invoice 4372.
[8]
Tab R‑9 includes
an inventory of the shoes with the styles, colours, number of packages, number
of pairs, prices and photos of the shoes. Tab R‑10 includes the appellant's
invoices issued to 9191. The purchase orders of various buyers are found at Tab
R‑11, and the delivery orders are at Tab R‑12. The accounting
documents establishing the GST collected on the resale and paid on purchases can
be found at Tab R‑13 and documents from Purolator courier indicating that
the shoes were actually sent from the Sport Auto Plex warehouse to the purchasers
are at Tab R‑15.
[9]
Stefanio testified that
he gave the Agence du revenu du Québec (the ARQ) all the documents he had in
his possession to establish the fact he did indeed purchase and obtain the
shoes and that he resold them. He paid GST and Quebec sales tax (QST) as
indicated on the invoices at Tab R‑7 of Exhibit A‑1. He
collected all the GST and QST due when the shoes were resold and remitted these
taxes to the ARQ. He testified that he calculated the net tax properly and was
eligible for the ITCs. Stefanio said he had no knowledge that Canada Inc. provided
invoices of convenience or was a tax offender. He tells us that the two invoices
in question are not false invoices; they represent genuine transactions. He had
been purchasing goods at the Chabanel Street warehouse for a long time. The
company did no advertising, but it was a place people knew they could go to
find bargains. It was a liquidation business.
[10]
Stefanio's testimony
was not contradicted; in fact, Stefanio was not cross‑examined.
[11]
Pat is an entrepreneur living
in Terrebonne. He is the chair and director of 9191. He has always worked in
the shoe business. His testimony supports Stefanio's regarding the way the two became
reacquainted in August 2008. Around a month later, Stefanio told him he might
have a deal, namely a lot of shoes to sell. They went to see the shoes at the
Chabanel Street warehouse. Pat thought it seemed like a good idea. Stefanio and
Pat met with Albert and he showed them the lot of shoes. Pat took photos of the
shoes, which can be found at Tab R‑9 of Exhibit A‑1. He
took photos to show the merchandise to his potential clients to determine
whether they would be interested in purchasing the shoes. Then, Stefanio and
Pat decided to purchase the shoes. Nero Bianco made the first purchase of 1,000
pairs of shoes. This lot was sent from the Chabanel Street warehouse directly
to the client. Once the second lot was transferred from the Chabanel Street
warehouse to the Sport Auto Plex warehouse, Pat established an inventory of all
the shoes, including photos, colours and styles of the shoes, so he could
provide these to the potential buyers (see Exhibit A‑1, Tab R‑9).
Pat was responsible for reselling the shoes. Once Pat found a buyer, Stefanio would
transfer the shoes to Pat who would then resell them to the potential buyers. This
is why the invoices are in the name of Pat's company, 9191. Pat collected a 15%
commission for this service.
[12]
Liette Lavoie, Carole
Girard and Lofti Rejeb are auditors for the ARQ. Their testimony is that Canada
Inc. provided invoices of convenience and was a tax offender. They concluded
that Canada Inc. had no commercial activity and therefore Canada Inc. did not
genuinely provide the shoes to the appellant. They came to this conclusion for
the following reasons, among others:
a.
Canada Inc. did
business with a cheque-cashing centre rather than a bank. Moreover, the cheques
in question were deposited at the cheque-cashing centre and then negotiated at
a second cheque-cashing centre
b.
The address for Canada Inc.
noted on the invoices in question is not a valid address; it does not exist.
c.
The address listed with
the Quebec Enterprise Register is different
than the one noted on the invoices.
d.
Canada Inc. used
different addresses for different invoices.
e.
Canada Inc. had not
produced any tax reports, income tax returns or payroll deduction reports since
it began operating.
f.
Canada Inc. declared no
employees.
g.
Canada Inc. had no
transportation vehicle that would allow it to deliver merchandise. Moreover, Albert,
the shareholder, director and chair of Canada Inc. did not own a car.
h.
Albert was the majority
shareholder and chair of many companies whose tax numbers were retroactively cancelled
due to fraudulent activity. He had also transferred his property in the past.
i.
Canada Inc. had an
alleged business income of $4,500,000. This business income is highly unlikely
since Canada Inc. had neither the staff nor the equipment necessary to provide
the goods and services it allegedly provided to its alleged clients.
It is therefore clear that Canada Inc. is a bogus
company and a tax offender. Canada Inc. acts as a provider of invoices of
convenience. It is also clear that Albert likely earned a living through means
outside the tax law.
Appellant's position
[13]
The appellant claims
that according to the evidence on file, there is no doubt that the appellant
truly purchased and received the two lots of shoes from Canada Inc. It is also undeniable
that these shoes were all resold by Pat to shoe merchants. Moreover, all the
information required by the ETA and the Regulations are in the documents at
Exhibit A‑1. At all times, the appellant acted in good faith and provided
the Minister of National Revenue (the Minister) all the documentation he was
asked to provide. The appellant had no knowledge that Canada Inc. was a
provider of invoices of convenience or a tax offender. Stefanio had been
purchasing various goods from the liquidation warehouse for many years. The
shoes were actually purchased, paid for, delivered and resold. The appellant
paid the required GST and QST to Canada Inc. and it also collected these taxes
from its clients and remitted them to the ARQ in accordance with the ETA. The
appellant never claimed input tax credits to which it was not entitled and
therefore the assessment should be vacated and the appeal allowed.
Respondent's position
[14]
The respondent claims
that Canada Inc. is a provider of invoices of convenience that does not conduct
any commercial activity and, as a result, the appellant never acquired from
Canada Inc. the goods for which it claimed the ITCs of $4,770 in the
calculation of its net tax. If the appellant truly acquired these goods, it was
from a supplier other than the one listed in the supporting documents for the
period in question.
[15]
Moreover, the
respondent claims that two invoices allegedly established by Canada Inc. do not
meet the requirements of subsection 169(4) of the ETA or of the
Regulations. More specifically, the information is insufficient regarding the
identity of the supplier, the validity of the supplier's address, the terms of
payment and the description of the shoes acquired. Regarding the description of
the shoes, the respondent claims that the brand, model, size and colour of each
pair of shoes were not indicated on the invoices as required by the
Regulations. It is the appellant's responsibility to obtain the information to
establish the amount of the ITCs. The regulatory requirements are mandatory and
must be strictly enforced.
[16]
In addition, the
respondent claims that the appellant showed a lack of care in dealing with Canada
Inc. When a taxpayer conducts business with individuals or a corporate entity
that is a tax offender, it is the taxpayer that deals with them that is
responsible. It is the taxpayer's duty to conduct research for the purpose of
ensuring that the suppliers are legitimate suppliers.
[17]
The appellant did not
meet its burden of refuting the presumptions on which the respondent based the
assessment. The appellant therefore owes the Minister the amount of the
assessment including interest and penalties.
Legislative provisions
[18]
The relevant provisions
regarding GST are section 169 of the ETA and section 3 of the Regulations:
Excise Tax Act
169(1) 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:
...
169(4) 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;
Input Tax Credit Information (GST/HST) Regulations
3. 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 name of
the supplier or the intermediary in respect of the supply, or the name under
which the supplier or the intermediary does business,
(ii) where an
invoice is issued in respect of the supply or the supplies, the date of the
invoice,
...
(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 name of
the supplier or the intermediary in respect of the supply, or the name under
which the supplier or the intermediary does business, and the registration
number assigned under subsection 241(1) of the Act to the supplier or the
intermediary, as the case may be,
...
(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 paragraphs (a)
and (b),
(ii) the
recipient’s name, the name under which the recipient does business or the name
of the recipient’s duly authorized agent or representative,
(iii) the terms
of payment, and
(iv) a
description of each supply sufficient to identify it.
Analysis
Appellant's commercial
activities
[19]
The respondent notes
that the transactions in question were not conducted in the course of the
appellant's commercial activity. The appellant operates a used car business.
Buying and selling shoes is not related to the activities of this business
whatsoever. This raises doubts as to the legitimacy of the transactions in
question.
[20]
I agree with counsel
for the appellant, that although the purchase and resale of shoes is not the
appellant's main activity, nothing in the Act prohibits a company from
venturing into secondary activities on occasion or agreeing to a business
opportunity that could generate an additional income. The fact that this venture
was not consistent with the appellant's usual commercial activities is of
little importance in this case and is not evidence that the invoices in
question were invoices of convenience.
Address of Canada Inc.
[21]
The respondent also
claims that the address on the invoices in question is a non-existent address.
Moreover, the fact the address on the invoices does not correspond to the
address where Stefanio and Pat allegedly went to see the shoes should have
raised questions about the true identity of the supplier in question. The
respondent claims that no evidence was submitted to show that the appellant
verified the address of Canada Inc.
[22]
The appellant claims
that nowhere in the ETA does it state that the buyer must verify the accuracy
of the supplier's address. Moreover, often the address of the warehouse is
different from the head office or administrative offices of a company. Nothing
prevents a company from having many facilities and warehouses. The fact the
address on the invoices is different from the warehouse's address would simply
not raise suspicions of malfeasance on the part of Canada Inc. The fact the
address on the invoices is different from that of the warehouse is unimportant.
In this case, Stefanio and Pat dealt directly with Mr. Malka, the director
of Canada Inc. They went to the Canada Inc. warehouse, the same warehouse from
which Stefanio was used to purchasing discount goods. Moreover, the GST and QST
numbers of Canada Inc. that appear on the invoices were valid at the time,
and corresponded to the company. Therefore, it is difficult to imagine that the
different address might have raised some concerns in the appellant regarding
the true identity of the shoe supplier. Lastly, since Stefanio, agent for the appellant,
had visited the warehouse, had purchased and retrieved merchandise directly at
the Canada Inc. warehouse on Chabanel Street, there was no reason to believe
that the address on the invoice issued by Canada Inc. was a false address.
[23]
I find that the
difference in addresses is of little importance in this case.
Invoices of convenience
[24]
The phenomenon of
"invoices of convenience" is a strategy by which a taxpayer, the
person being "accommodated", seeks the services of a "provider
of invoices of convenience". This provider issues false invoices to the
"accommodated" person for goods and services the provider did not
provide and that the accommodated person did not receive. Invoices of
convenience allow the accommodated person to claim ineligible ITCs in the net
tax calculation.
[25]
Having considered all
the evidence on file, I find that the Minister is justified in concluding that Canada
Inc. is a tax offender and is likely a provider of invoices of convenience. The
issue is whether the invoices in question in the present case are invoices of
convenience or if they represent actual transactions.
Imaginary or real shoes?
[26]
I have already found
that Canada Inc. was a tax offender and a provider of invoices of convenience.
The respondent claims that the appellant did not truly receive the shoes. Given
that Canada Inc. is in fact a questionable supplier, in the present
circumstances, it is the appellant's responsibility to convince me that it
truly did receive the lots of shoes and that the invoices in question are not
invoices of convenience.
[27]
Although there were a
few contradictions between Pat's and Stefanio's testimony, these contradictions
are not surprising considering they were testifying about events that had taken
place four years earlier. At any rate, these contradictions are of little
significance. The evidence provided by Stefanio and Pat convince me that the
appellant truly did receive the two lots of women's shoes. The documents that
were submitted to the Court as Exhibit A‑1 in support of Stefanio's
and Pat's testimony are even more convincing. The photos at Tab 11, Exhibit A‑1,
taken during the visit to the Chabanel Street warehouse in Montréal are
convincing evidence. I accept that the shoes were resold and the delivery slips
from Purolator indicate that the shoes were delivered to various shoe stores.
These documents clearly show that the shoes were obtained and resold to companies
that were very well known in the shoe business, such as Nero Bianca.
Is Canada Inc. the supplier
of the shoes?
[28]
The respondent claims
that if the appellant truly did obtain the shoes and resold them, the appellant
did not get them from Canada Inc. The respondent claims that Canada Inc. did
not have the capacity to provide lots of shoes to the appellant because Canada Inc.
did not have any commercial activity to the ARQ's knowledge. Therefore, the
respondent claims that the appellant received the shoes from another supplier.
This logic is not necessarily valid.
[29]
Stefanio was not
contradicted or cross-examined and so his testimony along with Pat’s was the
only evidence regarding the origin of the shoes. Although the respondent's
arguments warrant a presumption of validity, they are merely hypotheses and
testimonial evidence that is not rejected takes precedence over a hypothesis.
There is no evidence that the shoes came from any supplier other than Canada Inc.
If this evidence existed, it was not submitted. It must be noted that the
respondent's witnesses did not go to the Chabanel Street warehouse to verify
whether there was actually a warehouse there.
[30]
I come to the
conclusion that there is no evidence that Canada Inc. was not the supplier of
the shoes. In fact, the invoices and the testimonial evidence show that Canada
Inc. was the supplier of the shoes; the purchase of the lot of shoes supports it,
the cheques as consideration show it, the resales highlight it.
Sufficient information to
establish the ITCs
[31]
The respondent claims
that the two invoices allegedly established by Canada Inc. do not meet the
requirements under subsection 169(4) of the ETA and section 3 of the
Regulations. More specifically, there is insufficient information regarding the
supplier's identity, the validity of the supplier's address, the conditions of
payment and the description of the supplies acquired. It is the appellant's
responsibility to obtain sufficient information to establish the amount of the ITCs.
The regulatory requirements are mandatory and must be strictly enforced.
[32]
It is clear that the
information required should be sufficient to establish the amount of the ITCs;
no more and no less. If a registrant provides sufficient information to allow
the ITCs to be calculated, he is not then required to provide more simply
because the Minister asks for it. I also feel that the information and
supporting documentation under section 3 of the Regulations may include more
than just the invoices from a transaction. Although the invoices are very
important supporting documentation, I do not feel that it is mandatory for all
the required information to appear on the invoices. All the relevant documents
in a registrant's possession, including invoices if that is the case, can
provide the necessary information.
[33]
The ETA and the
Regulations have clear lists regarding the information to provide when claiming
ITCs. Subsection 169(4) of the ETA states that the registrant may only claim
ITCs if the information in the Regulations is provided. Section 3 of the
Regulations clearly states that the information must include:
a. the name of the supplier or name under
which the supplier does business,
b. the registration number assigned to the
supplier,
c.
where an invoice is
issued, the date of the invoice,
d. the amount paid or payable for all of the
supplies,
e.
the total tax paid in
respect to the invoice,
f.
the name of the
recipient,
g. the terms of payment,
h. a description of each supply sufficient to
identify it.
[34]
In Key Property
Management Corp. v. Canada, 2004 TCC 210, [2004] G.S.T.C. 32, Bowie J.
ruled that the purpose of subsection 169(4) of the ETA and section 3 of the
Regulations is to protect the tax authorities against both fraudulent and
innocent incursions. They can succeed in this purpose only if the requirements
are considered mandatory and are strictly enforced. Campbell J. agreed with
this position in Davis v. Canada, 2004 TCC 662, [2004] G.S.T.C. 134. She
ruled that it is not possible to sidestep the provisions because they are
"clearly mandatory". In Les Pro‑Poseurs Inc. v. The Queen,
2011 TCC 113, affirmed by the Federal Court of Appeal, 2012 FCA 200
(CanLII), Bédard J. reiterated this argument.
[35]
In the present case, did
the supporting documents provided by the appellant contain enough information
to establish the amounts of the ITCs?
[36]
In this case, the
invoices issued by Canada Inc. (Exhibit A‑1, Tab R‑7) give
the name of the supplier, 6809821 Canada Inc. The registration number
assigned to the supplier, 853436954RT0001, is indicated on the invoices. This
number, attributed to Canada Inc., was valid at the time of the transactions.
The date of the transactions, December 22, 2008, for invoice No. 4336 for $78,466.19
and February 11 for invoice No. 4372 for $29,216.57 are clearly indicated on
the invoices. The cost of the shoes is indicated on the invoices. The amount of
GST owing for each lot of shoes is clearly indicated. The name of the recipient,
9188‑7646 Québec Inc., appears on the invoices. The three cheques
themselves (Exhibit A‑1, Tab R‑8) indicate the terms of
payment.
[37]
Does the documentary
evidence provide a description of each supply to sufficient to identify it? Invoice
No. 4336 describes one lot of "7500 Ladies Shoes" at the unit price
of $9 and one lot of "336 Ladies Shoes" at the unit price of $6.
Invoice No. 4372 describes one lot of "4314 Ladies Shoes" at the unit
price of $6. The appellant claims that the description "one lot of ladies
shoes" with the quantity and unit price of the shoes is sufficient to
identify each invoice and establish the amount of the ITCs. However, the
respondent claims that the brand, model, size and colour of each pair of shoes were
not indicated on the invoices as required by the Regulations.
[38]
I cannot agree with the
respondent's argument on this. First, as I already noted, the information
required may be established with supporting documents the registrant has other
than invoices. Second, when we purchase something in a lot, it is not
reasonable to ask for a detailed description of each item in the lot,
especially when they are all similar and there are thousands of items.
Moreover, the inventory at Tab R‑9 of Exhibit A‑1 including
photos of the shoes gives us ample information and is a sufficient description
for at least the second lot of shoes.
[39]
The case law establishes
what a sufficient description is for each supply. Supplies are services or
goods. Bédard J., in Les Pro-Poseurs Inc., supra, provides an example
of a "sufficient description" to identify the supply of services such
as in a case of construction work carried out:
[46] ... I am of the view
that a description is sufficient if it allows the CRA to identify the work
carried out by the suppliers. In my opinion, the invoices filed in evidence by the
appellants cannot meet the condition provided for in subparagraph 3(c)(iv)
of the Regulations unless they include at least the following information:
(i) ...
(ii) The
nature of the supply. In the case at bar, if we rely on the testimonies of Mr.
Séguin and of those who testified in support of the appellants’ position,
almost all of the services rendered by the dubious subcontractors involved
wither the installation of drywall or the filling of joints. As a result, each
of the invoices filed in evidence by the appellants should indicate, where
appropriate, whether the dubious supplier installed drywall or whether it
filled joints. In my view, each invoice should also indicate the number of square
feet of drywall installed or installed with joint-filling compounds, as
appropriate.
[40]
In Bijouterie Almar
Inc. v. The Queen, 2010 TCC 618 (CanLII), Lucie Lamarre J. explains the
meaning of "sufficient description" when dealing with the supply of
goods:
[71] The
invoices...provide the general description "assorted gold jewellery".
The Regulations state that the description must be sufficient to identify each
supply. The Minister indicated in his assumptions that the description was not
sufficient in that it contained neither the quantity or quality of jewellery
supplied nor the consideration required for each item.
...
[75] The
Regulations require a description of each supply sufficient to identify it. The
respondent argued that to meet this requirement the invoice must show the
quantity and quality of the jewellery supplied and the consideration for each
item. The respondent did not, however, explain the basis for the requirements
so identified by her.
[76] ...
So the question that must be answered is the following: what is the meaning of
the requirement in the Regulations that the
information in the supporting documentation must include a description of each
supply sufficient to identify it? The Regulations make no mention of the
requirements that must be met according to the respondent. They speak of a
description of each supply sufficient to identify it. What is the meaning of
"each supply"? In the present case, can it be said that each item of
jewellery is a supply, or is it each lot of jewellery that constitutes a
supply? In the former case, the supporting documentation would be insufficient;
in the latter, it might be sufficient. The parties did not place any emphasis
on this point.
[77] In
view of the scanty evidence presented to me in this regard and the rather vague
terms used in the Regulations, and given
my conclusion that the respondent has not established the existence of
accommodation invoices, I consider the invoices submitted to be in conformity
with the Regulations. If, in
the respondent's view, standard business practice in the industry does not meet
the requirements of the Regulations, it is
incumbent on the respondent to demonstrate more clearly that the requirements
stated by her are those laid down in the Regulations. In the
present case, my opinion is that the appellant has shown on the balance of
probabilities that the invoices submitted do meet the requirements of section 3 of the Regulations.
[41]
I agree with Lamarre J.
If the expression "assorted gold jewellery" is a sufficient
description to identify each supply, then the expression "7500 Ladies
Shoes" is an equally sufficient description. Therefore, I find that the
supporting documentation provided by the appellant gives a description
sufficient to identify each supply and allow for the amount of the ITCs to be
established.
Who is at risk—the buyer or
the tax authorities?
[42]
In this case, Stefanio's
testimony indicates that he did not know Canada Inc. issued invoices of
convenience and that the company was the target of an ARQ investigation. There
is no evidence of knowledge, conspiracy, collusion or fraud on the part of
appellant.
[43]
The appellant does not
dispute that the law requires anyone who has paid GST amounts to a supplier
must ensure that valid registration numbers are provided for the suppliers when
they claim ITCs. The appellant claimed an ITC. The appellant states that at the
time it dealt with Canada Inc. and at the time it claimed the ITC, Canada
Inc.'s registration numbers were valid. The appellant claims that it is not
responsible for the economic burden that results when a supplier is a tax
offender and the appellant is unaware of this. The appellant claims that it
always acted in good faith and conducted its due diligence.
[44]
The appellant relies on
Joseph Ribkoff Inc. v. The Queen, 2003 TCC 397, [2003] G.S.T.C. 162. In
that case, it was determined that actual services had been rendered; that the
appellant had paid taxes in good faith and that it was not the appellant's
responsibility to bear the supplier's fraud. It is not the person who paid the
GST for an invoice that is responsible for the fact the GST was not then
remitted by the supplier, even when the supplier is not entirely reliable.
[45]
However, the current
case law seems to indicate that the flexibility granted to a registrant by Ribkoff,
supra, likely no longer applies.
[46]
A very informative
example of this is provided by Boyle J. in Comtronic Computer Inc. v. Canada,
2010 TCC 55, [2010] G.S.T.C. 13. Boyle J. noted the following facts at
paragraph 5:
[5]
It has been determined that the invoices issued by five suppliers to Comtronic
showed GST registration numbers that, while validly issued and current registration
numbers, had been issued to persons other than the suppliers. This appears to
be a case of wrongdoing on the suppliers’ part. There has been no suggestion
that Comtronic was complicit or aware in any way of any supplier wrongdoing. It
is agreed that Comtronic paid for these supplies together with GST and received
them. Apparently the GST collected from Comtronic was never remitted by the
suppliers. It is noted that by operation of law, the GST paid by Comtronic and
received by the suppliers was received by the suppliers as the Crown’s agent.
[47]
Boyle J. wondered
whether it was the Canadian buyer or the Canadian government that bears the
risk related to illicit acts carried out by the supplier in such circumstances.
He comes to the conclusion that it is the Canadian buyer that must bear the
risk. Boyle J. made note of this, as did Archambault J. at first instance in Systematix
Technology Consultants Inc. v. The Queen, 2006 TCC 227, affirmed by the
Federal Court of Appeal, 2007 FCA 226 (CanLII), at paragraphs 29 and 30 of
Comtronic, supra:
[29] In this case I am bound to follow the Federal Court of Appeal’s
decision in Systematix. I should note, however, that (as noted by
Archambault J. of this Court in deciding the Systematix case at first
instance) this strict approach can result in unfairness to a purchaser who pays
the GST in good faith. It leaves Canadian businesses bearing the risk of fraud,
identity theft, and wrongdoing and effectively requires them to put into place
risk management practices in dealing with new and continuing suppliers to
identify supplier information that may require further investigation. A result
such as this may prove harsh and unfair but it is open to Parliament to
legislate such a regime and I am bound to apply that legislation as it has
already been interpreted by the Federal Court of Appeal.
[30] Whether
it is the purchaser or the fisc that should bear the risk of supplier identity
theft and wrongdoing in GST collection and remittance matters is a valid policy
question to be debated. However, in circumstances such as those before me, the
Federal Court of Appeal has ruled that Parliament has already turned its mind
to this question. The Tax Court cannot reopen the question.
[48]
Boyle J. specifically
notes, at paragraph 33, that the approach in Ribkoff, supra,
could no longer apply since the Federal Court of Appeal decision in Systematix,
supra:
[33] With
respect to both of the appellant’s arguments, I am unable to see how the broad
wording of the relevant provisions and the interpretation thereof by the
Federal Court of Appeal that the wording is mandatory and should be strictly
enforced, and which requires that the ITC claimant have the registration number
assigned to the supplier, should result in any different outcome in this case.
Similarly, while Archambault J. at trial in Systematix did distinguish Ribkoff
and the Federal Court of Appeal found no error on the part of the trial judge,
I cannot discern how this Court’s approach in Ribkoff and other earlier
cases survive the Federal Court of Appeal’s decision in Systematix.
[49]
In the present case,
the respondent claims that the testimony of the witnesses for the appellant indicates
that no evidence was submitted to show that the appellant verified the tax
numbers of Canada Inc. and the respondent therefore argues that the appellant
must bear the consequences of not inquiring into the legality of the supplier's
business, regardless of whether or not it acted in good faith.
[50]
The appellant claims
that it always acted in good faith and with due diligence in all circumstances.
There is no evidence of knowledge, conspiracy, collusion or fraud on the part
of the appellant. The appellant had no knowledge that Canada Inc. was the
subject of an investigation by the Minister or that Canada Inc. was a tax
offender or that Canada Inc. was a provider of invoices of convenience. The
appellant states that it had no reason to think that Canada Inc. was a malicious
supplier. The appellant claims that once it acted in good faith and showed due
diligence it cannot be held responsible for the misconduct of its supplier. The
appellant met the requirements regarding ITC claims, and the Minister cannot place
more on its shoulders. The appellant claims that imposing the responsibility on
the buyer of ensuring the supplier is not a fraudster is inconsistent with the
legal requirements. Only the Minister can know whether a registered supplier is
an offender.
[51]
The strict approach
outlined by Systematix and Comtronic, supra, is not
absolute. It requires businesses to implement risk management measures in their
relations with suppliers and to determine what information provided by the
suppliers might require more thorough research.
[52]
Batiot D.J. provides an
example in 9183‑2899 Québec Inc. v. The Queen, 2013 TCC 8 (heard
on October 4, 2012, decision dated January 11, 2013), a case similar to the
present case. The appellant had done business with a tax offender whose
registration numbers were valid at the time of the transactions. Despite the
fact the supplier was a provider of invoices of convenience, the appellant did
indeed receive and pay for the supplies and paid the required tax. The supplier
did not remit the tax to the Minister. Batiot D.J.
accepted that the appellant did indeed receive the supplies and had no evidence
of knowledge, conspiracy or collusion on the part of the appellant. The
appellant relied on the fact the registration numbers of the questionable
supplier were valid. Batiot D.J. allowed the appeal, finding that the appellant
conducted the due diligence that was required and reasonable to avoid
committing the error that the respondent attributed to it.
[53]
In this case, there is
nothing in the circumstances as known by the appellant that would require it to
conduct further research into Canada Inc. Its registration number was valid at
the time. Stefanio, agent for the appellant, often purchased goods at the
liquidation warehouse on Chabanel Street. Stefanio and Pat went to the
warehouse in person and verified the existence of the lots of shoes. They
negotiated the purchase of the lots of shoes with Albert, the shareholder and
director of Canada Inc. The appellant truly acquired the lots of shoes from Canada Inc.
The appellant paid for the shoes and paid the required tax to Canada Inc. The
registration numbers on the invoices were valid at the time and the appellant
had no reason to believe they were not. The appellant resold the shoes, collected
the required GST and remitted this tax to the ARQ as it was required to. The
respondent was the only one to know whether Canada Inc.
was involved in illegal commercial activity and the only one able to verify
whether this supplier was an offender. The appellant had no reason to believe
that Canada Inc. was a provider of invoices of convenience or a tax offender.
Since Canada Inc.'s GST number was valid, the amounts the appellant paid to the
company are input that can be claimed against its remittances to the ARQ. In
this case, and in the absence of knowledge, conspiracy, collusion, fraud or negligence
on the part of the appellant, it could legitimately believe, as a reasonable,
diligent and informed person in its field of activities, that the author of the
invoices it produced in support of its claim was the true supplier of the
shoes. Moreover, the appellant had no reason to believe that the supplier would
not remit the GST it collected from the appellant for these invoices to the
ARQ.
Conclusion
[54]
The appellant met its
burden of proof to demolish the respondent's assumptions: Hickman Motors
Ltd. v. Canada, [1997] 2 S.C.R. 336 (S.C.C.).
[55]
For these reasons, the
appeal is allowed with costs.
Signed at Montréal, Quebec, this 21st day
of March 2013.
"Rommel G. Masse"
Translation certified true
on this 3rd day of May 2013.
Elizabeth Tan,
translator
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