Date: 20010326
Docket: 1999-491-GST-G
BETWEEN:
GESTION CHEERS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
McArthur J.
[1] This is an appeal from an assessment of goods and services tax made under the Excise Tax Act for the period June 1, 1991 to January 31, 1995. The issue is whether the Appellant is liable for the amount of $53,519 net tax of goods and services being 7% of $770,565 allegedly unreported sales. During the relevant period, the Appellant operated a bar in Montréal near the Montréal forum.
[2] The Minister of National Revenue found that a large part of the amounts deducted for spillage, events and promotion by the Appellant constituted unreported sales for which GST was collected or should have been collected and not remitted. The Minister also claims interest and penalties. Suspicions were aroused after an audit because the Minister used a rule of thumb to the effect that the average amount for spillage, events and promotions in similar establishments is about 10% of the total sales. The Appellant is claiming over 30% of the gross sales.
[3] The Appellant submits that the Minister's 10% is purely arbitrary. It agrees that it had an unusually high percentage of promotional activities due to the economic slowdown or recession in the first half of the 1990s. An all out promotional effort was made to increase sales.
[4] The owner of Gestion Cheers Inc., William Wolfstein, was the only witness on behalf of the Appellant. Over the years, he has operated nine similar bars and is an expert in his field. He described the bar as being very large with a 550 seating capacity and 50 employees. Because of its size he demanded stringent controls over the alcohol served. Documentation was kept to be prepared for an eventual audit and every ounce of alcohol was accounted for to prevent theft.
[5] He explained and demonstrated the anti-theft device used called the "Burg System". An outside company sealed each liquor bottle with a special heat gun. Every drop poured is accounted for whether or not money was collected. The Appellant's financial statements were based on the liquor poured through the "Burg", a small box-like machine. No liquor could be poured unless it went through the Burg which accounted each drink as a sale for the financial statements whether or not money was collected. The Appellant's financial statement sales figures reflected the value of drinks that were never paid for (about $4.00 per drink). This could include free drinks served during happy hours, ladies' nights, hockey players, spilled drinks or those returned because they were incorrectly prepared. There were times of the day that all drinks were $1.00 yet the financial statements reflected them as the full price.
[6] The actual sales figures were arrived at by deducting the compilation of the spillage and promotion amount (kept in a promotion book) from the original financial statement sales figures. Mr. Wolfstein stated that he modified the 1995 accounting system because of the Minister's position in this appeal. The 1995 financial statements did not account for promotional expenses while retaining a controlled accounting for the spillage and gratuities.
[7] In his lengthy examination-in-chief, Mr. Wolfstein stated that any drink prepared but not sold was reported on a chit signed by the manager with his justification or it had to be paid for by the bartender. A bundle of chits were submitted in evidence as an example. These chit amounts were then reported in the promotion book. He explained that spillage, broken glasses and returned drinks were inevitable in a large bar. To promote the bar, he invited hockey players and others celebrities who drank without charge. A price list was entered in evidence reflecting two-for-one nights and dollar-nights on specific days and times.
[8] The Minister's auditor testified that there was no substantial discrepancy between the cash register receipts and the bank records. The Appellant was assessed solely on the basis that reported spillage and gratuity amounts were excessive. The auditor noted that the promotion ledger book entered during the hearing was not available during the audit when another ledger book was presented for the audit using supporting chits because the original had been lost but found prior to trial. But for minor discrepancies, the entries in both books were the same.
Analysis
[9] The question before me is one of fact. Do I accept the evidence of Mr. Wolfstein or not? The onus of proof is on the Appellant as in income tax appeals.[1] The Appellant has the initial onus to refute the Minister's assumptions with at least a prima facie case which would shift the onus on the Minister to prove the assumptions on a balance of probabilities.
[10] While there are several weaknesses in the Appellant's presentation, I find it has made a prima facie case. The Appellant's case was well presented and Mr. Wolfstein was very knowledgeable. For the most part, his evidence was uncontradicted. On the negative side, there was no corroboration of the Appellant's testimony. Apparently, the bookkeeper who made the ledger entries now lives in Alberta. I was unable to reconcile all of the chits and tickets submitted with entries in the promotional book. There were notable discrepancies. Neither party has dealt with these discrepancies and I have given them very little weight.
[11] For the most part, the Appellant's books and records supported the oral evidence. The sales books reflected the Appellant's income and there was no conflicting evidence but for the Minister's suspicions. The promotional books were submitted. The made-up book and the book that had been lost were similar. I do not accept that one or both of these books were fictitious.
[12] The Appellant satisfied its burden of disproving the Minister's assumptions or shifting the onus of proving the assumptions to the Minister. The Minister has been unable to do that. Granted the Minister has cast doubt on the Appellant's submissions. The Minister refers to a 10% guideline. The Appellant replied to that with the evidence of serious promotional efforts. In paragraph 20(h) of the Reply to the Notice of Appeal, the Minister stated:
(Translation)
20(h) in the Respondent's view, therefore, the disallowed promotions and/or gratuities totalling $770,564 were excessive and unjustified and constituted unreported sales on which tax had to be remitted.
[13] The Appellant's justification of these promotional claims was not rebutted by the Minister when the onus shifted to him. To be successful, the Minister had to establish that the Appellant operated a scheme to falsify the chits and books of records. The Minister's auditor did not speak to any employees or managers with respect to the chits. The existing banking document and promotional ledgers were basically accurate. It would have taken co-ordinated planning and scheming on the part of Mr. Wolfstein and his employees to arrive at the Minister's conclusions. The evidence did not support this.
[14] The appeal is allowed, with costs, and the assessment is referred back to the Minister for reconsideration and reassessment in accordance with these reasons.
Signed at Ottawa, Canada, this 26th day of March, 2001.
"C.H. McArthur"
J.T.C.C.