Date: 20001115
Docket: 2000-1782-GST-I
BETWEEN:
WING CONSTRUCTION LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1] This appeal was heard at Thunder Bay, Ontario on October 16, 2000. At issue is whether, under the Excise Tax Act ("Act"), the Appellant should be denied certain Input Tax Credits ("ITCs"). If so, the Appellant will have under-reported net tax payable in an amount of $27,539.89.
FACTS
[2] The material facts are as follows.
1. At all relevant times the Appellant was a registrant under the Act involved in the business of a general contractor of commercial buildings, multi-unit apartments and sewer and water projects.
2. At all material times the Appellant was required to file Goods and Services Tax ("GST") returns on a monthly basis and had a business year-end of October 31 for GST purposes. During the period under appeal the Appellant made taxable supplies in the course of its commercial activities.
3. The differences between the Minister and the Appellant arise from the following. The auditor for Revenue Canada examined the GST returns for the periods in question and compared the GST amounts claimed by the Appellant as ITCs and found that certain amounts of GST claimed did not appear in the general ledger. The Appellant through its accountant, Leonard A. Arbour, who is in charge of all accounting matters for the Appellant, including preparing and filing GST returns, explained that the amounts in question were not entered into the general ledger as they represented the GST on two holdback amounts payable on subcontracts. Said amounts having not been billed were not entered into the general ledger. The amounts in question are $17,724 representing GST on unbilled amounts in relation to a contract with D. Lafreniere Builders Inc. The total amount of that contract was $2,440,663. (Exhibit A-1) The second amount in question was $9,815.89 representing GST unbilled to L & L Contracting. The two amounts of $17,724 and $9,815.89 are the actual amounts in dispute. They total $27,539.89 and not $29,158.62 as set forth in the Reply. The amount of the contract with L & L Contracting was approximately $7 million. Counsel for the Respondent objected to the introduction of the evidence concerning the two subcontracts in dispute because it could easily have been reported to the Revenue Canada Auditor and the Appellant had many opportunities to do so. Notwithstanding this objection, I allowed the evidence of the two subcontracts to be entered because without it the picture would not be complete.
SUBMISSIONS
[3] Counsel for the Respondent submitted that the Act and the ITC regulations require documentation to be submitted and there was inadequate documentation submitted although the Appellant had ample opportunity to provide same. Counsel for the Appellant submits that the subcontracts as well as the calculation of the GST on amounts unbilled. is a proper calculation in accordance with section 123 of the Act. In other words the Appellant is entitled to the ITCs representing the unbilled GST amounts, the total of which is, as mentioned above, $27,539.89.
ANALYSIS AND DECISION
[4] In effect what I had to do was essentially conduct a re-audit based upon the facts submitted, especially the aspect of the two subcontracts in question. With respect to the subcontract with Lafreniere Buildings Inc., Exhibit A-1 sets forth certain amounts. The amounts do not exactly correspond with the GST claimed and consequently the ITC entitlement but the Exhibit does establish that there was a subcontract, that the total contract amount was $2,440,663.35, that the total GST related thereto was $178,846.43.
[5] The subcontract with L & L Contracting was for approximately a total of $7 million and the evidence with relation to this contract was provided viva voce by Sam Constantino, the controller of L & L Contracting, having been controller for a period of 12 years.
[6] In my view the evidence submitted was sufficient to support the contention of the Appellant that GST was exigible in respect of the two unbilled amounts on the accrual basis resulting in ITCs of $17,724 and $9,815.89. The total of these two amounts, namely, $27,539.89 should have been allowed as claimable ITCs by the Appellant. Admittedly the Appellant perhaps could have avoided this litigation had the Appellant provided documentary evidence to the auditor. Further the Appellant had every opportunity to do so. Mr. Arbour explained that he did not do so because he thought the information was available to another auditor of Revenue Canada who conducted a separate audit of the Appellant's income tax situation. The Appellant may have been remiss in not providing all the information to the Auditor earlier but I do not consider that a sufficient reason to deny the Appeal.
[7] Consequently the appeal is allowed to the extent that the GST obligation of the Appellant is to be reduced for the period in question by $27,539.89. At the hearing the Appellant withdrew from the appeals the amounts described in paragraphs 4(b), (c) and (d) of the Notice of Appeal. Consequently, the Appellant is entitled to no further relief than that granted above. However, considering the rather remiss behaviour of the Appellant in not providing all documentation, although having ample time to do so, there shall be no costs.
[8] The matter is referred back to the Minister of National Revenue for reconsideration and reassessment on the foregoing basis.
Signed at Ottawa, Canada, this 15th day of November, 2000.
"T. O'Connor"
J.T.C.C.