[OFFICIAL ENGLISH TRANSLATION]
2000-2281(GST)I
BETWEEN:
CENTRE DE LA CITÉ POINTE CLAIRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 27, 2001, at Montréal, Quebec, by
the Honourable Judge Louise Lamarre Proulx
Appearances
Counsel for the Appellant: Stéphane Eljarrat-Lambotin
Counsel for the Respondent: Benoît Denis
JUDGMENT
The appeal from the assessment of goods and services tax made under the Excise Tax Act, the notice of which is dated May 10, 1999 and bears number T99-G-0007, is allowed, with costs, in accordance with the attached Reasons for Judgment.
Signed at Montréal, Quebec, this 3rd day of October 200l.
|
"Louise Lamarre Proulx" |
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Date: 20011003
Docket: 2000-2281(GST)I
BETWEEN:
CENTRE DE LA CITÉ POINTE CLAIRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] This is an appeal under the informal procedure from the assessment, the notice of which is dated May 10, 1999, and bears number T99-G-0007, for the period from July 1, 1995, to December 31, 1998.
[2] The issue is whether, in computing the input tax credit within the meaning of subsection 169(1) of the Excise Tax Act (the "Act"), the appellant is entitled to include a tax payment made to an apparent agent of the respondent in respect of a supply.
[3] At the start of the hearing, counsel for the respondent asked to file an amended Reply to the Notice of Appeal because the contract of October 20, 1997, was in the name of R.N. Bosada & Associates, not R.N. Bosada. Counsel for the respondent wanted to amend his Reply to the Notice of Appeal by deleting an admission that R.N. Bosada had been retained by the appellant. He said that it was R.N. Bosada & Associates that had made the supply, and the invoice should have been made out in that name. Counsel for the respondent had no evidence that two separate entities were involved. Counsel for the appellant objected to the request on the ground that it was late and that he did not see the relevance of it. The Court denied the request on the same grounds.
[4] Counsel for the respondent informed the Court that the Minister of National Revenue (the "Minister") consented to the cancellation of the penalty that had been assessed.
[5] The appellant had subpoenaed R.N. Bosada of Toronto. The subpoena was served on June 18, 2001, and the hearing of the case was on June 27 of that year. Mr. Bosada was asked in the subpoena to bring with him all his income tax returns for the years from 1990 to 1998, as well as all documents relating to his goods and services tax account for the years 1991 to 1998 and all documents relating to account number R-116990961.
[6] Mr. Bosada did not appear at the hearing. He was represented by counsel, who filed an affirmation by Mr. Bosada stating (a) that he had been served with the subpoena on June 18, 2001, at 7:41 p.m., (b) that it was impossible for him to produce all the documents requested in the time allotted to him, (c) that the travel allowance of $196.38 was too small for such a trip and (d) that the notice given him was much too short because he had previously made foreign travel commitments. He attached to his affirmation a plane ticket issued by Carlson Wagonlit dated June 26, 2001, with a departure date of June 27. The plane ticket had in fact been purchased the day before the hearing, but counsel for Mr. Bosada said that it had not been purchased so that his client could get out of testifying. Tickets were always bought at the last minute, counsel said.
[7] Counsel for Mr. Bosada argued that Mr. Bosada could have been told before June 18 that he would be asked to come and testify. The goods and services tax ("GST") claim was for two invoices for the years 1997 and 1998. It was therefore excessive to ask Mr. Bosada to bring his federal tax returns for 1990 to 1998 inclusive.
[8] Counsel for the appellant explained that the appellant had often tried to reach Mr. Bosada since 1997, but always without success. Counsel filed as Exhibit A-1 registered mail and faxes that had been sent to Mr. Bosada. The registered letter was never claimed, and there was no answer to the faxes. Counsel for the appellant explained that he had requested the income tax returns for all those years because he wanted to prove that the supplies made by Mr. Bosada were in amounts such that he had to be a registrant for the purposes of the Act.
[9] Counsel for Mr. Bosada informed the Court that he had offered the appellant a 1991 document granting Mr. Bosada a GST number. He also offered to provide Mr. Bosada's testimony in an affidavit stating that he had never been made aware in any way that the right to use the GST number had been withdrawn from him. That offer was refused.
[10] The Court indicated that contempt of court might be involved here and that the witness could therefore be compelled to come and testify. However, that is done in cases where the testimony is essential. At the close of the evidence, the Court, having heard the parties on this point, determined that Mr. Bosada's testimony, although it would have been relevant, was not essential in determining the outcome of the appeal.
[11] The appellant's first witness was Giovanni Cristinziani. He explained that the appellant was a limited partnership which owned and operated a commercial building in the City of Pointe-Claire, Quebec. The appellant had the building constructed in 1977. In 1997, Mr. Cristinziani was president of the appellant. The appellant wished to sell the property and Mr. Bosada offered his services to attempt to find a buyer. Mr. Cristinziani had known Mr. Bosada for a number of years and had previously done business with him through other companies which he managed. The appellant itself had not done business with R.N. Bosada as a consultant at any time other than in 1997.
[12] On October 20, 1997, an agreement was signed between R.N. Bosada and Associates and the appellant, in which the latter agreed to pay a certain percentage of the selling price of its commercial building in view of the fact that R.N. Bosada had identified a potential buyer. The agreement was filed as Exhibit A-2.
[13] R.N. Bosada issued to the appellant, for consulting services, an invoice dated December 24, 1997, for a total amount of $286,027.05, including an amount of $17,570 in respect of GST. That invoice was filed as Exhibit A-1. A second invoice was issued on January 14, 1998, for a total amount of $9,321.52, including an amount of $572.60 in respect of GST. That invoice was filed as Exhibit A-3.
[14] The relevant portion of the first invoice (Exhibit A-1) reads as follows:
Re: Sale of Centre de la Cité Pointe-Claire
Consulting Fee $251,000.00
7% GST $17,570.00
6.5% QST $17,457.05
TOTAL $286,027.05
GST # 116990961
[15] The second invoice (Exhibit A-3) is identical, except for the numbers.
[16] According to Mr. Cristinziani, these were invoices like thousands of others that he had paid for the businesses he managed.
[17] The money from the sale was handed over in trust to the law firm of Byers Casgrain. The cheques from the trust account of the lawyers in question, made payable to the order of Mr. Bosada, were filed as Exhibit A-4. There were two cheques, one for $286,027.05 and the second for $9,321.52.
[18] Mr. Cristinziani stated that, apart from those two invoices, nothing else was in dispute at the time of the Minister's audit. The reason the auditor gave was that R.N. Bosada had never been registered. He believed the investigator had communicated with Mr. Bosada on one occasion, but nothing came of it and, as far as he could remember, the investigator subsequently did nothing.
[19] The appellant's second witness was Alain Boulanger, head of the Legislation and Investigations Branch. Within that branch, Mr. Boulanger handled requests for access to information concerning tax legislation. Mr. Boulanger held that position from June 1999 until May 22, 2001. He was aware of the access to information request dated February 6, 2001, submitted by the appellant concerning R.N. Bosada.
[20] Counsel for the respondent objected to this testimony on the ground that it was immaterial. The objection was overruled.
[21] The appellant filed as Exhibit A-6 a letter dated February 12, 2001, signed by Mr. Boulanger. Exhibit A-7 is a letter dated February 22, 2001, from Mr. Boulanger giving notice that additional time would be taken. The last reply was filed as Exhibit A-8. It is dated March 6, 2001, and denies the request for disclosure of information.
[22] Exhibit I-2 is a letter dated June 21, 2001, which states that the Excise Tax Act portion of the request should have been forwarded to the Access to Information Directorate of the Canada Customs and Revenue Agency.
[23] Exhibit A-9 is a document that Mr. Bosada sent by fax to his lawyer on June 26, 2001. That document was filed by counsel for the appellant to facilitate matters as regards the evidence, although he would have liked Mr. Bosada himself to be present. That document is a letter dated January 7, 1991, from Revenue Canada, Customs and Excise, addressed to Mr. Bosada. The first paragraph of that letter reads as follows:
Thank you for returning your completed GST registration form. You have been assigned the following GST registration number:
R116990961
[24] The appellant's third witness was Reynald Gignac, a sales tax auditor. He stated that his audit had taken approximately two weeks and that that was normal for this type of case. He said that, on the whole, it was a very good file and that there had been no problems except as regards these two invoices. The auditor explained that it is usually the largest invoices that are audited and that was how the invoice for $251,000 from R.N. Bosada, which was addressed to the appellant, came into his hands. The first thing he noticed was that there was no Quebec sales tax ("QST") registration number on the invoice. The auditor telephoned Mr. Bosada to tell him that the QST number did not appear on the invoice. Mr. Bosada confirmed that he was not registered for QST purposes. He said that that was an error on his part and that he would reimburse the customer for the QST collected by mistake. The auditor then checked Mr. Bosada's GST number with his department. He received a return call telling him that the GST number was not valid. He communicated once again with Mr. Bosada to inform him that the GST number was invalid and that he would appreciate being given the right number. Mr. Bosada confirmed that he always used that GST number on his invoices. In his report, the auditor mentioned that the GST number appearing on the invoice, that is, 116990961, was an invalid number and, according to the information available from the Department, had never been in effect.
[25] Jean-Marc Beaudoin testified at the request of counsel for the respondent. He was head of Registration and Support at Revenu Québec. Mr. Bosada's registration form was received on January 4, 1991. That account was managed by the Toronto office. There were various communications between the agent (Mr. Bosada) and Revenue Canada starting on March 31, 1995. The Toronto officer audited Mr. Bosada's personal income tax returns for the years 1991 to 1994. Mr. Bosada never reported business income in his personal tax returns. On June 13, 1995, the account was closed. The Department proceeded to cancel Mr. Bosada's registration retroactive to January 1, 1991. A letter was sent to Mr. Bosada informing him that the account had been closed. According to the witness, 29 telephone calls had been made and 20 letters sent with respect to that file. The witness stated that the Department regularly closed accounts retroactively. Retroactive cancellation is usually done, the witness said, in cases where registrants have reported no commercial activity. Asked what means were available to a recipient of services for checking the validity of a registration number, the witness answered that he could not answer that and that it was a matter for the information service.
Arguments
[26] Counsel for the appellant argued that the two invoices contained the required prescribed information, namely: a description of the services rendered (in this instance, consulting services with respect to the sale of Centre de la Cité de Pointe-Claire), the supplier's name, the dates of the invoices, the amounts payable, the notation that the services were subject to GST, the total amounts of GST payable and the supplier's GST registration number (here, 116990961).
[27] Counsel argued that the amounts involved were amounts of tax paid to R.N. Bosada, that Mr. Bosada had collected them as an agent of the government and had an obligation to remit those amounts of GST. Counsel for the appellant argued that the payment of those amounts received special attention since the payment was approved by Mr. Cristinziani and by a large national law firm to be made using the amounts held in trust.
[28] Counsel submitted that the invoices at issue clearly contained the prescribed information. The GST number had been assigned to the supplier under section 241 of the Act. This was all the information required by the Act. Where the Act requires that information be valid, it specifically states so. Counsel for the appellant cited as an example section 2 of Schedule III, Part XIV of the Act, as well as section 362 of the Act, which use the word "valid":
S. 2 For the purpose of section I of this Part, "certified institution" means an institution in Canada that has as its main purpose the care of individuals of a class described in that section and that holds a valid certificate that has been issued by the Minister.
S. 362(3) Exemption Certificate - Subsection (2) does not apply to a supply made to a recipient who is not the Developer unless the recipient provides the supplier with a valid exemption certificate in respect of the supply issued by the Advisory Group.
[29] If the registration number was no longer valid at the time the invoices were issued, the appellant had in the circumstances neither an obligation nor the means to verify the supplier's registration status, particularly in the context in which the supplier was known to the appellant, and given that the number appearing on the invoices was prima facie valid. The appellant submits that it acted diligently and met the obligations imposed on it by the Act.
[30] Counsel for the respondent argued that the supplier that issued the supporting documents was not a registrant for the purposes of Part IX of the Act either at the time of making the supply of services to the appellant or at the time of issuing the supporting documents. Counsel avoided repeating the phrase "or at any other time" used in his Reply. Thus, the appellant was unable to comply with the requirements of subsection 169(4) of the Act and was not entitled to the input tax credit for the amount paid in respect of tax to R.N. Bosada.
[31] The input tax credits were disallowed because the appellant did not obtain sufficient information, including the prescribed information, to establish the amount of the said credits.
Conclusion
[32] The relevant portions of subsections 169(1), 169(4), 221(1), 222(1), 241(1), 242(1) and 242(3) read as follows:
169(1) General rule for credits - 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:
A x B
where
A is the tax in respect of the supply, importation or bringing in, as the case may be, that becomes payable by the person during the reporting period or that is paid by the person during the period without having become payable;
. . .
169(4) Required documentation - 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 . . .
221(1) Collection of tax-Every person who makes a taxable supply shall, as agent of Her Majesty in right of Canada, collect the tax under Division II payable by the recipient in respect of the supply.
222(1) Trust for amounts collected - Subject to subsection (1.1), every person who collects an amount as or on account of tax under Division II is deemed, for all purposes and despite any security interest in the amount, to hold the amount in trust for Her Majesty in right of Canada, separate and apart from the property of the person and from property held by any secured creditor of the person that, but for a security interest, would be property of the person, until the amount is remitted to the Receiver General or withdrawn under subsection (2).
241(1) Registration - The Minister may register any person applying therefor and shall thereupon assign a registration number to the person and notify the person in writing of the registration number and the effective date of the registration.
242(1) Cancellation - The Minister may, after giving a person who is registered under this Subdivision reasonable written notice, cancel the registration of the person if the Minister is satisfied that the registration is not required for the purposes of this Part.
242(3) Notice of cancellation or variation - Where the Minister cancels or varies the registration of a person, the Minister shall notify the person in writing of the cancellation or variation and the effective date thereof.
[33] The relevant portion of section 3 of the Input Tax Credit Information (GST/HST) Regulations reads as follows:
3. Prescribed Information- 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 supplier's name or the name under which the supplier does business,
(ii) where an invoice is issued in respect of the supply or the supplies, the date of the invoice,
(iii) where an invoice is not issued in respect of the supply or the supplies, the date on which there is tax paid or payable in respect thereof, and
(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 information set out in paragraph (a),
(ii) the registration number assigned to the supplier pursuant to section 241 of the Act,
. . .
(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 paragraph (a) and subparagraphs (b)(ii) to (v),
. . .
(Emphasis added.)
[34] I think it useful to cite a few paragraphs from the respondent's Reply to the Notice of Appeal, namely, paragraphs 9, 20(e), 26 and 27, which contain statements to the effect that the registration number never existed or was not a GST registration number:
[TRANSLATION]
9. He denies, as drafted, paragraph 9 of the Notice of Appeal, and points out that the number appearing on the invoices in issue is not a GST registration number;
20(e) More specifically, the appellant provided the Minister with supporting documents relating to the ITCs in the amount of $18,142.60 claimed in computing his net tax for the period concerned which did not contain a registration number assigned to the supplier in accordance with section 241 of the E.T.A.;
26. More specifically, the said supporting documents provided to the Minister did not contain a registration number assigned to the supplier in accordance with section 241 of the E.T.A.;
27. More specifically, the supplier who issued the said supporting documents was not registered for the purposes of Part IX of the E.T.A. either at the time of making the supply of a service to the appellant or at the time of issuing the said supporting documents or at any other time.
[35] What is striking in the analysis of this case is that the facts on which the Minister purportedly relied are not accurate with regard to the supplier's registration number. It is astonishing that the facts as related by the respondent's witness, Jean-Marc Beaudoin, were not set out in the Reply. What is also surprising is the reason why counsel for the respondent asked at the start of the hearing to amend the Reply. It was not to correct the description of the facts concerning the registration number, but to emphasize the detail that the agreement had been entered into with R.N. Bosada and Associates rather than with R.N. Bosada, without having any evidence that they were not exactly the same person and in spite of the fact that the invoice had been prepared by the person who rendered the service, namely R.N. Bosada.
[36] It is strange as well that counsel for the respondent objected to the evidence adduced by counsel for the appellant concerning his application for access to the information concerning R.N. Bosada. It should be noted above all that counsel for the respondent produced no evidence of the means at the disposal of a recipient of a service for verifying the validity of a registration number.
[37] In my view, the dispute in this appeal calls for the application of the doctrine of mandate (agency). If the appellant paid the amount of tax shown on the invoice, it is because, under the scheme of the Act, a person who makes a taxable supply must collect the tax payable as mandatary (agent) of Her Majesty in Right of Canada and the person who acquires the service must pay the tax payable to that person and not to Her Majesty. It is the Act that, through its scheme, brings into play notions of mandate. Certain provisions of the Act set out the duties imposed on the mandatary. I do not believe that, because the Act appears to be silent on the duties of the mandator (principal), we cannot refer to the civil law notions of mandate. In the decision of the Supreme Court of Canada in Verreault & Fils v. A.G. Quebec, [1977] 1 S.C.R. 41, Pigeon J. wrote as follows at page 47:
Her Majesty is clearly a physical person, and I know of no principle on the basis of which the general rules of mandate, including those of apparent mandate, would not be applicable to her. . . .
[38] In civil law, certain obligations are imposed on a mandator. I refer to article 2163 of the Civil Code of Quebec:
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2163. Celui qui a laissé croire qu'une personne était son mandataire est tenu, comme s'il y avait eu mandat, envers le tiers qui a contracté de bonne foi avec celle-ci, à moins qu'il n'ait pris des mesures appropriées pour prévenir l'erreur dans des circonstances qui la rendaient prévisible. |
2163. A person who has allowed it to be believed that a person was his mandatory is liable, as if he were his mandatory, to the third person who has contracted in good faith with the latter, unless, in circumstances in which the error was foreseeable, he has taken appropriate measures to prevent it. |
[39] The Act provides that a person who makes a taxable supply shall collect the tax payable as an agent of Her Majesty. How can the recipient of a service know whether the person who makes a supply is actually an agent of Her Majesty? Neither of the Minister's auditors was able to describe the steps the Minister has taken to inform the recipients of services. Even counsel for the respondent, when writing the Reply, did not know, I believe-because good faith is to be presumed-that the registration number had previously been assigned and that it had been cancelled retroactively a number of years later.
[40] In the instant case, it was not a matter of a lack of diligence on the part of the recipient of the service. The Minister's auditor found nothing to criticize in the appellant's record keeping. The invoices in question were reviewed by the manager of the business and by lawyers. This is a situation in which the mandator allowed third parties to believe that a particular person was her mandatory and in which she did not provide those third parties with the necessary information services. The mandator is not without means. She has the ability to provide third-party recipients with information on the validity of a registration number and with the name of the registrant. It is my view that, not having taken appropriate measures to prevent the error, she cannot dispute the validity of the registration with regard to the appellant. The supporting documents must therefore be accepted for the purposes of the input tax credit because the information required by the Act was to all appearances contained therein.
[41] The appeal is allowed with costs.
Signed at Montréal, Quebec, this 3rd day of October 200l.
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"Louise Lamarre Proulx" |
J.T.C.C.