97-2914(GST)I
BETWEEN:
E.R. DESIGN IDEAS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on February 11, 1999 at Winnipeg, Manitoba, by
the Honourable Judge Louise Lamarre Proulx
Appearances
Agent for the Appellant: Phillip Rosen
Counsel for the Respondent: Tracy Harwood-Jones
JUDGMENT
The appeal from the assessment of goods and services tax made under the Excise Tax Act, notice of which bears number RA SI 92024 and is dated July 2, 1997 is allowed, without costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment to increase the amount of input tax credits by the amount admitted by the Respondent, that is $464.94, for a total amount of input tax credits of $39,780.43, in accordance with the attached Reasons for Judgment.
In all other respect, the appeal is dismissed.
Signed at Ottawa, Canada, this 8th day of April, 1999.
|
"Louise Lamarre Proulx" |
J.T.C.C.
Date: 19990408
Docket: 97-2914(GST)I
BETWEEN:
E.R. DESIGN IDEAS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] This is an appeal, by way of the informal procedure, concerning the amount of input tax credits the Appellant is entitled to under section 169 of the Excise Tax Act (the "Act").
[2] The net tax reassessed was calculated as follows:
tax collected/collectible 54,741.63
input tax credits (39,315.47)
net tax assessed 15,426.16
[3] The Minister of National Revenue (the "Minister") made the assumptions of fact described at paragraph 12 of the Reply to the Notice of Appeal (the "Reply"), and among others:
(b) during the relevant period [January 1, 1991, December 15, 1991] the Appellant provided interior design services and supplied wicker furniture that it manufactured and some carpeting and accessories;
(c) the Appellant carried on business under the trade name of Loft Interiors;
...
(e) the Appellant registered for the purposes of the Act effective January 1, 1991, and was assigned GST registration number 120220132;
(f) the Appellant was required to file its returns on a quarterly basis, with a year end of December 31st;
(g) at all material times the Appellant did not file any returns for the reporting periods ending during the relevant period;
(h) any input tax credits which the Appellant claims it is entitled to were not claimed on a return for a reporting period ending during the relevant period;
(i) during the relevant period the consideration paid or payable by the Appellant for the supplies of taxable property and services it acquired was no more than $559,053.53;
(j) the Appellant was entitled to input tax credits of no more than $39,315.47 for the relevant period;
(k) the Appellant's suppliers correctly verified that during the relevant period no more than $39,315.47 was paid or payable as tax for the supplies of property and services they made to the Appellant;
(l) the Appellant has no documentation, which includes the prescribed information required by sections 2 and 3 of the Input Tax Credit Information Regulations, to support that it is entitled to input tax credits in excess of $39,315.47 for the relevant period;
...
(n) at all material times at least 5 of the individuals and corporations that the Appellant alleges it acquired supplies of property and services from during the relevant period were not registered for the purposes of the Act and were not required to collect tax from the recipients of their supplies;
...
(p) the Appellant failed to provide any books and records to the Minister; and
(q) the Appellant failed to maintain adequate books and records to enable a determination of the Appellant's liabilities, obligations or entitlements under Part IX of the Act.
[4] Mr. Philip Rosen testified on behalf of the Appellant. Mr. Wayne Ichiiwa, an appeals officer for the Minister, testified for the Respondent.
[5] At the outset of the hearing, counsel for the Respondent told the Court that, respecting paragraph 12(j) of the Reply, the Respondent was agreeing to increase the amount of input tax credit by $464.96, for a total amount of input tax credits of $39,780.43.
[6] Mr. Rosen admitted paragraphs 12(b), (c), (e), (f), (g) and (h) of the Reply.
[7] Respecting the sales figures and consequently the tax collected or collectible, Mr. Rosen stated that there was no dispute. This confirmed what had been stated in the Reply, that the dispute was on the amount of input tax credits and therefore on the amount of purchases made by the Appellant from January 1, 1991 to December 15, 1991.
[8] Respecting paragraph 12(i) of the Reply, the Court asked Mr. Rosen what would be the amount of supplies of taxable property and services that the Appellant had acquired in the year 1991. Mr. Rosen, surprisingly, told the Court, that he had not thought of the case in this manner, but he would give an approximate amount of about $800,000.
[9] Mr. Rosen produced as Exhibit A-1 a summary of purchases of supplies that should be added to the list made by the investigator.
[10] Mr. Rosen explained that the Appellant's business stopped in the middle of December of 1991, when the landlord put the key into the business. In that year, the Appellant mostly disposed of its inventory, selling it at or below cost. The Court suggested to Mr. Rosen that since the Appellant was only disposing of its inventory and selling at or below costs, it might be assumed that the amount of purchases would be very low. This suggestion received an evasive answer.
[11] Mr. Ichiiwa, an appeals officer, explained that in the beginning of 1992, on two occasions, an agent for the Minister asked the Appellant to inspect his files. They were refused access twice. They served requirement letters, there were no answers, and on October 19, 1992, there was a search and seizure made by the Special Investigations Unit. On that occasion, the books and records were seized. Regarding the purchases of supplies and services, the investigator listed all of them and sent out copies of purchase invoices to suppliers for confirmation. The Appellant had not made any income tax returns and there were no financial statements.
[12] Mr. Rosen produced, as Exhibit A-3, a letter written by the Chief, Special Investigations, Mr. Charles Schau to Mr. Peter Hog of the Department of Justice. It reads as follows:
This is to clarify the position of Special Investigations concerning the audit assessment related to the above case.
The latest assessment allowed the above ITC's of $39,000+. This assessment will stand subject to information being bought to my attention to show otherwise. Should David Myles agree not to challenge our audit findings, we would be willing to go the extra step and allow further ITC's based on bank statements from National Trust. This would allow ITC's in the amount of $41,000+.
As the later figure is known to be generous as it would include personal expenditures of Phil Rosen, the adjustment will not be considered without an agreement to the assessment not being challenged.
[13] Mr. Rosen had produced this letter because he thought that the amount of cancelled cheques should be added to the amount of purchases determined from the invoices issued by the suppliers.
[14] Mr. Ichiiwa produced as Exhibit R-6 a letter from him to Mr. Rosen, dated February 7, 1997. It says the following:
Your first representation appears to question how the sales figure of $888,667.87 on which GST was assessed, was arrived at.
A review of the assessment report indicates that the figure was a compilation of sales figures that were obtained from two sources. The main source was a working paper that you had prepared. As there were no entries for the months of September and December 1991 on that working paper, the investigator obtained sales figures for those months by adding up all available sales invoices issued in those months.
If there is anything further that you wish to object to with respect to the sales on which GST was assessed, please identify the specific issue(s) that you are objecting to and provide documentary evidence to support your representation(s).
[15] As previously mentioned, the Appellant later dropped that point of litigation.
[16] Respecting the input tax credits, the letter from Mr. Ichiiwa to Mr. Rosen (Exhibit R-6) stated the following:
The substance of your remaining representations is that there are additional input tax credits (ITC's) that have not been reflected in the assessment raised for the period January 1, 1991 to December 31, 1991.
...
Therefore, in order that we may further address your representations, we request that you submit the documentary evidence you have that supports your entitlement to the ITC's that you contend were missed being accounted for by the investigator for the above-noted period. ...
[17] The Appellant did not provide any further documentary evidence.
[18] At the hearing, the Appellant's representative brought a pile of invoices. They were reviewed by the appeals officer, who commented at length on them. He told the Court that, except for a few which are the object of the consent expressed at the outset of the hearing, all of the invoices would have to be reviewed to make sure that they were indeed paid to the suppliers or that the suppliers were duly registered suppliers, and that these invoices had not already been taken into account by the investigator. Regarding the first invoice mentioned in Exhibit A-1, the amount had been taken into account by the investigator. Most of the suppliers mentioned in the summary at Exhibit A-1 were also suppliers mentioned in Exhibit R-1, which is made of purchase invoices collected and listed by the investigator as mentioned in paragraph 11 of these Reasons.
[19] Counsel for the Respondent had sent a letter to the Appellant's representative, approximately three weeks before the hearing, asking him to present to her before hand all documentary evidence that needed to be reviewed by the Minister's agents. The Appellant's representative did not mention invoices nor did he provide photocopies of them.
[20] Mr. Rosen questions the fact that the Minister has not taken into account the cancelled cheques and argued that the said amount should be added to the amount of the invoices.
[21] Counsel for the Respondent submitted that it is the Appellant's responsability to provide the prescribed information to the Minister. Nevertheless, Revenue Canada has made every effort to audit the Appellant accurately. The cancelled cheques mentioned by the Appellant are not in fact cancelled cheques but bank statements. It was also the Appellant's responsibility to bring forward satisfactory evidence that the amount of supplies and services purchased was more than the amount of $559,000, painstakingly determined by the Minister's investigator.
[22] There is not much that can be added to counsel for the Respondent's arguments. In the period in question, the Appellant was winding down its operations and selling at cost or below cost. The sales figure was $888,667,87. It would not make sense that the purchase figure would be nearly as high as the sales figure. The amount of bank statements cannot be added to the purchase amount determined by the invoices. It is one or the other. Sometimes a cancelled cheque or a bank statement may be used as evidence when the invoice is lost, but the audit has to make sure that this is the case and that the amount is not computed twice. In my view, the audit has been carefully made, and to a certain extent to the advantage of the Appellant. If no better evidence was provided by the Appellant, it can only be assumed from what I heard and saw at the hearing that it was because it could not do so.
[23] The appeal is allowed to increase the amount of input tax credits by the amount consented by the Respondent, that is $464.94, for a total amount of input tax credits of $39,780.43. In all other respect, the appeal is dismissed.
Signed at Ottawa, Canada, this 8th day of April, 1999.
|
"Louise Lamarre Proulx" |
J.T.C.C.
COURT FILE NO.: 97-2914(GST)I
STYLE OF CAUSE: E.R. Design Ideas Inc. and The Queen
PLACE OF HEARING: Winnipeg, Manitoba
DATE OF HEARING: February 11, 1999
REASONS FOR JUDGMENT BY: The Hon. Judge Louise Lamarre Proulx
DATE OF JUDGMENT: April 8, 1999
APPEARANCES:
For the Appellant: Phillip Rosen (Agent)
Counsel for the Respondent: Tracey Harwood-Jones
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada