[OFFICIAL ENGLISH TRANSLATION]
Docket: 2002-804(GST)I
BETWEEN:
SOCIÉTÉ DE COMMERCE ACADEX INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on February 18, 2003, at Montréal, Quebec.
Before: The Honourable Judge Louise Lamarre Proulx
Appearances:
Counsel for the Appellant: Stéphane Eljarrat-Lambotin
Counsel for the Respondent: Gérald Danis
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under the Excise Tax Act for the period from June 1, 1996, to November 30, 1999, notice of which is dated November 30, 2001, and numbered 0319915, is allowed to cancel the penalty.
The appeal is dismissed in all other respects.
Signed at Ottawa, Canada, this 7th day of August 2003.
|
"Louise Lamarre Proulx" |
Judge Lamarre Proulx
[OFFICIAL ENGLISH TRANSLATION]
Citation: 2002TCC561
Date: 20030807
Docket: 2002-804(GST)I
BETWEEN:
SOCIÉTÉ DE COMMERCE ACADEX INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
LamarreProulx, J.
[1] This is an appeal under the informal procedure from an assessment made under the Excise Tax Act(the Act) on November 30, 2001, for the period from June 1, 1996, to November 30, 1999. The notice of assessment is numbered 0319915.
[2] The case concerns the input tax credit claim made in connection with the invoices of Alvaro Jimenez or Confection Alvaro Jimenez for the period from July 1996 to May 21, 1999.
[3] When the hearing began, counsel for the respondent amended the Reply to the Notice of Appeal to include the amounts involved in the above-mentioned reassessment.
[4] The appellant's witnesses were Michael Khouri, Brian Stott and Hélène Bellerose. Jean-Pierre Monette testified for the respondent. At the request of counsel for the appellant, the witnesses were excluded.
[5] Mr. Khouri has been the appellant's general sales director since 1995. The appellant manufactures undergarments. Some operations take place in the appellant's workrooms, while others are subcontracted. The company has about 600 suppliers, including 50 sewing suppliers. Mr. Khouri explained that the selection of a sewing contractor is based on the quality of the contractor's work.
[6] One of the suppliers was Alvaro Jimenez or Confection Alvaro Jimenez. Mr. Khouri said that the representative of that sewing company, or the person who introduced himself as its owner, was Robert Acuna Rocha. Mr. Khouri added that he had no reason to question that person's honesty. He acted the same way toward that contractor as he did toward the others. There was a trial period first and, if the appellant was satisfied, the contractor was given work. The appellant did more than $30,000 in business with that company in each of the years 1997, 1998 and 1999.
[7] Shortly after the appellant's fiscal year ending on February 28, 1999, the appellant's outside accountants notified it that the GST and QST numbers were missing from the invoices from Alvaro Jimenez. That message was given to Brian Stott, the internal accountant.
[8] The appellant therefore asked the business manager of Confection Alvaro Jimenez what the registration number was for the purposes of the Act. Alvaro Jimenez began providing a GST number and a QST number on May 25, 1999.
[9] Again according to Mr. Khouri, Mr. Stott asked the representative of Alvaro Jimenez whether the numbers had been valid since 1996, and the representative told him that they had. Mr. Stott checked the number with Revenue Québec, which told him it was valid. He wanted to find out when the number had taken effect but was told that this information was confidential.
[10] All the invoices of Alvaro Jimenez were filed as Exhibit A-1. The first is dated July 9, 1996. Taxes of 7 percent and 6.5 percent were added to the total. No registration number appears. The first invoice on which the GST number appears is the one dated May 25, 1999. The last invoice is dated December 22, 1999. All the invoices were paid by cheque, and all the cheques were filed as Exhibit A-2.
[11] Mr. Khouri stated that he did not have problems with any suppliers other than that company. At that time, as far as he was concerned, an invoice fulfilled the requirements if the tax amount was included. He later learned otherwise.
[12] Brian Stott was the appellant's next witness. He has been the controller since August 13, 1997. The administrative process used for the invoices of Confection Alvaro Jimenez was the same as for the invoices of the other suppliers. First, the production staff checked the quantity of goods provided against the price billed. Then he, as the controller, received the invoice, entered it in the computer and issued a cheque. He said that the computer program did not require the registration number.
[13] The witness stated that, when he began working for the appellant, it was already doing business with Confection Alvaro Jimenez.
[14] As mentioned earlier, the fiscal year ended on February 28. In May 1999, the outside accounting firm informed the appellant that the numbers were missing. Mr. Stott immediately contacted the representative of Confection Alvaro Jimenez. The next week, there were numbers on its invoices.
[15] The outside accountant gave him the telephone number he could call to obtain information from Revenue Québec. As stated by Mr. Khouri, he asked Revenue Québec whether the numbers were valid and how long they had been valid. Revenue Québec replied that the numbers were valid but it could not tell him how long they had been valid. Mr. Stott asked the supplier whether the numbers had been valid from the beginning. The supplier told him that they had but that he had simply not written them down.
[16] Mr. Stott stated that, if he had had all the information at that time, he would have recommended that the appellant stop doing business with that contractor and require it to pay tax to the tax authorities.
[17] During cross-examination, counsel for the respondent asked Mr. Stott whether he had known in 1997 that the GST and QST numbers were necessary. He answered yes but offered the excuse that he had 600 suppliers and that it was an oversight. There were no problems with the other suppliers.
[18] Hélène Bellerose, a tax auditing technician for Revenue Québec, testified at the request of counsel for the appellant.
[19] She began auditing the appellant on January 25, 2000. She met with Mr. Rocha at the address shown on the invoices. However, at the time, she was convinced that the owner of Confection Alvaro Jimenez was Cecilia Martinez, whom she was unable to reach. At the end of the audit, the auditor sent the file to the special investigations division.
[20] Counsel for the appellant filed as Exhibit A-7 interpretation bulletinTVQ 415-2/R1 entitled "Retroactive registration". Counsel for the respondent acknowledged that retroactive registration is possible and that, in this case, registration could have been retroactive to the dates of the first invoices. However, he said that such an application must be made by the supplier and not by the recipient.
[21] In cross-examination, counsel for the respondent filed as Exhibit I-5 the application for registration of Cecilia Martinez doing business as Confection Alvaro Martinez. The requested date for the registration to take effect is May 21, 1999. He filed as Exhibit I-6 a declaration of registration for a natural person operating a sole proprietorship. The declaration is dated May 21, 1999. The name of the natural person is Cecilia Martinez, and the name under which she does business is Confection Alvaro Jimenez.
[22] Jean-Pierre Monette, the personal services director, testified at the request of counsel for the respondent. He filed as Exhibit I-7 an information bulletin entitled "Tax News" for the third quarter of 1995. He referred to the section entitled "A Word from Our Auditing Branch" and to the following extract on page 10:
[TRANSLATION]
To claim an ITC and an ITR respecting the GST and the QST you actually paid, you must provide certain information regarding the transaction and your supplier. If the value of the supply is $30 or more, it is important to have the supplier's GST and QST numbers. It is also important to check the validity of the numbers to be sure that, after an audit of your books and registers, you will not be refused the ITC or ITR you are claiming with respect to the property.
If you have any doubts concerning the validity of a supplier's GST or QST registration number, you may contact the office of the Ministère du Revenu in your area. We cannot give you the person's registration number or any personal information regarding the account, but we can tell you (provided you have the supplier's name and address) whether or not that person is registered for the GST and the QST. As well, if you have the number used by the person, we can tell you if the number is valid.
Arguments and conclusion
[23] Counsel for the appellant argued that the appellant paid the tax as it was required to do. It did not notice that there was no GST number. It was an isolated case. All the other suppliers complied with the rules. When the absence of the GST number was brought to Mr. Stott's attention, he contacted the supplier immediately.
[24] Counsel for the appellant also pointed out that the controller was unable to find out from the department when the registration had become valid.
[25] Counsel further argued that, if the penalty question must be decided, the appellant is not subject to a penalty because it exercised due diligence in the circumstances.
[26] Counsel for the respondent referred to paragraph 169(4)(a) of the Act and to section 3 of the Input Tax Credit Information Regulations.
[27] He also referred to this Court's decisions on the absence of a registration number, in particular to Design Build Ltd. v. Canada, [1996] T.C.J. No. 1793 (Q.L.); Helsi Construction Management Inc. v.Canada, [2001] T.C.J. No. 149 (Q.L.); Rapid Transit Courier Ltd. v.Canada, [2000] T.C.J. No. 465; San Clara Holdings Ltd. v. Canada, [1994] T.C.J. No. 1208 (Q.L.); and Metro Exteriors Ltd. v. Canada, [1995] T.C.J. No. 1302 (Q.L.).
[28] Paragraph 169(4)(a) of the Act reads as follows:
(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; ...
[29] Paragraph 3(c) of the Input Tax Credit Information Regulations reads as follows:
(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),
(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.
[30] That paragraph refers to the information set out in paragraph (a) and in subparagraphs (b)(ii) to (v), which read as follows:
(a) . . .
(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 supplies;
(b) . . .
(ii) the registration number assigned to the supplier pursuant to section 241 of the Act,
(iii) where the amount paid or payable for the supply or the supplies does not include the amount of tax paid or payable in respect thereof,
(A) the amount of tax paid or payable in respect of each supply or in respect of all of the supplies, or
(B) where provincial sales tax is payable in respect of each taxable supply that is not a zero-rated supply and is not payable in respect of any exempt supply or zero-rated supply,
(I) the total of the tax paid or payable under Division II of Part IX of the Act and the provincial sales tax paid or payable in respect of each taxable supply, and a statement to the effect that the total in respect of each taxable supply includes the tax paid or payable under that Division, or
(II) the total of the tax paid or payable under Division II of Part IX of the Act and the provincial sales tax paid or payable in respect of all taxable supplies, and a statement to the effect that the total includes the tax paid or payable under that Division,
(iv) where the amount paid or payable for the supply or the supplies includes the amount of tax paid or payable in respect thereof and one or more supplies are taxable supplies that are not zero-rated supplies, a statement to the effect that tax is included in the amount paid or payable for each supply in respect of which there is tax paid or payable, and
(v) where the status of two or more supplies is different, an indication of the status of each taxable supply that is not a zero-rated supply; ...
[31] In my view, the evidence showed that the appellant wanted to comply with the Act and believed it was doing so. It paid the tax amounts shown on the invoices. Regrettably, the registration numbers were not on the invoices. Yet a registration number is an essential element for the input tax credit.
[32] The case law referred to by counsel for the respondent is consistent enough that I must follow it. Moreover, I am of the same view. Any person that charges the tax must be a registrant and must therefore have a registration number.
[33] It seems to me that this requirement of the Act and the Regulations can easily be met if the computer program is well made. I find it surprising that the appellant's computer program did not require the inclusion of a registration number in connection with the supplier's name and address when a tax amount was paid on the supplier's invoices.
[34] In my view, it is not a relevant argument in this case to say that, had the appellant known in May 1999 that the number was not valid from the beginning, that is, since July 1996, it could have asserted its rights with the supplier differently.
[35] This is not really a case about information to be provided by the tax authorities to the recipient of a service or good. This case simply involves a failure to comply with the requirements of the Act for a period of nearly two-and-a-half years. In this regard, the appeal cannot succeed.
[36] However, what of the assessment of the penalty? As I said earlier, the evidence showed that the appellant wanted to comply with the Act and believed it was doing so. The appellant was already doing business with the supplier in question when the controller started working for the appellant. This may explain the omission. The appellant took action as soon as the outside accountants informed it that the supplier had no registration number and needed one. The respondent did not argue that there had been a similar omission in the past or that there was otherwise a lack of diligence or care regarding compliance with the Act. I am therefore of the view that there is no evidence of a lack of diligence by the appellant. Rather, in my opinion, the evidence showed due diligence by the appellant with respect to its obligations under the Act. It is therefore not subject to a penalty.
[37] The appeal is allowed to cancel the penalty. It is dismissed with respect to the input tax credit claim in connection to the supplier Confection Alvaro Jimenez.
Signed at Ottawa, Canada, this 7th day of August 2003.
|
"Louise Lamarre Proulx" |
Judge Lamarre Proulx