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Docket: 2004-199(GST)I |
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BETWEEN: |
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ROCKWOOD MOTOR PRODUCTS DIVISION OF 958000 ONTARIO INC., |
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Appellant, |
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AND |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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Appeal heard on March 9, 2005 at Kitchener, Ontario.
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Before: The Honourable D.G.H. Bowman, Chief Justice |
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Appearances: |
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Counsel for the Appellant: |
W. Gerald Punnett
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Counsel for the Respondent: |
April Tate |
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JUDGMENT
The appeal from the assessment made under the Excise Tax Act, notice of which is dated February 5, 2002 and bears number 08EP0101610, is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the 24 automobiles exported to the United Statesare zero-rated.
Costs will be awarded to the appellant on a solicitor and client basis.
Signed at Ottawa, Canada, this 24th day of March 2005.
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"D.G.H. Bowman" |
Bowman, C.J.
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Citation: 2005TCC204 |
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Date: 20050324 |
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Docket: 2004-199(GST)I |
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BETWEEN:
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ROCKWOOD MOTOR PRODUCTS DIVISION OF 958000 ONTARIO INC., |
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Appellant, |
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AND |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Bowman, C.J.
[1] This appeal is from an assessment made under the Goods and Services Tax ("GST") provisions of the Excise Tax Act ("E.T.A.") for the period from October 1, 1998 to December 31, 2000.
[2] The issue is whether the appellant was required to collect and remit GST on 24 used vehicles which it sold to non-residents of Canada. The Minister of National Revenue assessed GST on the sale price of the cars; the appellant says they are zero-rated under subsection 165(3) of the E.T.A..
[3] The appellant carries on business in Rockwood, Ontario as a used car dealer. During the period in question it sold 24 used vehicles to purchasers in the United States. All but one were sold to KMM Marketing Inc. of Daytona Beach, Florida or Quincy, Illinois. One was sold to Thomas Breck Stratton, Jefferson City, Missouri.
[4] The invariable procedure was that Mr. Mead, the manager of Rockwood Motor Products, would drive an automobile across the border to Detroit where it would be picked up by Mr. Brian Rice who at that time worked for KMM Motors. In the case of the sale to Thomas Stratton the vehicle was taken across the border at Port Huron, Michigan. Mr. Rice brought Mr. Stratton to Port Huron.
[5] The evidence of both Mr. Mead and Mr. Rice was that the bills of sale were all signed in the United States, delivery of the automobiles was made in the United States and Ontario dealer plates were removed and replaced by plates of the purchaser.
[6] The appellant put in evidence the bills of sale and also the applications for registration of all of the vehicles in the United States.
[7] The evidence is uncontroverted that these vehicles were exported to the United States and were delivered to the purchasers in the United States and not Canada.
[8] The assessor, Mr. Wilton, prepared a memorandum (Exhibit A-1) in which he set out the adjustments that he proposed to make. He lists the 24 vehicles, with the vehicle identification number, the sale price, the purchasers and the purchasers' address.
[9] This information was readily available from the books and records of the appellant. I mention this because the Reply to the Notice of Appeal states that the Minister assumed in making the assessment that
"the appellant did not maintain proper books and records during the taxation year under appeal"
The same allegation is repeated in paragraph 9 of the Reply to the Notice of Appeal. Mr. Wilton strongly denied having ever made such a statement and it is patently false. I have on a number of occasions in the past expressed my disapproval of the Minister's pleading as assumptions facts that were not assumed. This is a blatant example of this type of abuse. I imply no criticism of Ms. Tate, who did not draft the reply and could not have known that the statement was false. However, I intend to deal with the matter further when it comes to costs.
[10] At all events, the appellant acquired the automobiles in Ontario and paid GST on their purchase. It sold them to the purchasers in the United States and, on the assumption that they were zero-rated, did not collect GST. Section 1 of Part V of Schedule VI to the E.T.A. reads as follows:
1. A supply of tangible personal property (other than an excisable good) made by a person to a recipient (other than a consumer) who intends to export the property where
(a) in the case of property that is a continuous transmission commodity that the recipient intends to export by means of a wire, pipeline or other conduit, the recipient is not registered under Subdivision d of Division V of Part IX of the Act;
(b) the recipient exports the property as soon after the property is delivered by the person to the recipient as is reasonable having regard to the circumstances surrounding the exportation and, where applicable, to the normal business practice of the recipient;
(c) the property is not acquired by the recipient for consumption, use or supply in Canada before the exportation of the property by the recipient;
(d) after the supply is made and before the recipient exports the property, the property is not further processed, transformed or altered in Canada except to the extent reasonably necessary or incidental to its transportation; and
(e) the person maintains evidence satisfactory to the Minister of the exportation of the property by the recipient.
Paragraph (a) is inapplicable, and the respondent agrees that paragraphs (b), (c) and (d) are not in issue.
[11] The sole basis upon which the respondent denies that the automobiles are zero-rated is paragraph (e). Paragraphs 2 and 6 of the Reply to the Notice of Appeal read as follows:
2. With regards [sic] to the Notice of Appeal, he admits that:
· the supplies at issue in the appeal meet the conditions as required in paragraphs (b), (c) and (d) of section 1, Part V of Schedule VI to the Excise Tax Act, R.S.C. 1985, c. E-15, as amended (the "Act")
· the Appellant did not report Goods and Services Tax (the "GST") collected in respect of the supplies at issue in the appeal
· the Appellant did not have entry documentation from the government of the United States of America (the "USA") concerning the supplies at issue in the appeal
. . . . .
6. In so reassessing net tax and in confirming the reassessment of net tax, the Minister made the following assumptions of fact in relation to the issue under appeal:
(a) the Appellant was a registrant for purposes of Part IX the Excise Tax Act, R.S.C. 1985, c. E-15, as amended (the "Act") at all material times;
(b) the Appellant sold used motor vehicles;
(c) the Appellant failed to maintain adequate books and records;
(d) the Appellant sold motor vehicles to non residents in the USA that were not registered for purposes of the Act (the "NRNR");
(e) the Appellant received revenues in the amount of $ 199,500.00 in relation to the supplies to the NRNR; and
(f) the Appellant did not have satisfactory evidence of the vehicles exportation to the USA.
[12] In Exhibit A-1, a further statement is made as follows:
Discussions with the registrant reveal that the purchaser transports the vehicle into the United States. As a result, the supply takes place in Canada pursuant to paragraph 142(1)(a).
[13] Whether the statement is relevant or not it is at all events wrong. The evidence establishes that it was the appellant that transported the vehicles across the border.
[14] The memorandum prepared by Mr. Wilton in Exhibit A-1 reads as follows:
Relief may be available if the supply qualifies for zero rating under the provisions of section 1 of Part V of Schedule VI to the Act. Pursuant to section 1, a supply of tangible personal property made by a supplier to a recipient (other than a consumer) may be zero-rated if all of the following conditions are met:
1. The recipient exports the property as soon after the property is delivered by the supplier to the recipient, as is reasonable having regard to the circumstances surrounding the exportation, and where applicable, the normal business practice of the recipient. The facts of this case support this condition.
2. The property is not acquired by the recipient for consumption, use or supply in Canada before the exportation of the property by the recipient. The facts of this case support this condition.
3. After the supply is made and before the recipient exports the property, the property is not further processed, transformed or altered in Canada, except to the extent reasonably necessary or incidental to its transportation. The facts of this case support this condition being met.
4. The supplier maintains evidence satisfactory to the Minister of the exportation of the property by the recipient.
In this case the registrant maintains evidence of registration of the vehicle in the United States, but has no other information. Appendix A of Section 4.5.2 of Chapter 4 of the GST/HST Memoranda Series clearly identifies what standard documentation would be acceptable. For exports to the United States, the following items would be acceptable.
1. An embossed copy of U.S. Entry Summary, Form 7501;
2. U.S. Customs Entry
3. U.S.Certificate of Disposition of Imported Merchandise (Form 3227).
Based on the above, the registrant does not maintain sufficient documentation to zero rate the export of motor vehicles to the United States, and as a result, must collect and remit the GST on the supply.
The recipient may be entitled to claim a rebate on the GST paid.
As a result, the registrant should have collected GST on the sales to the United States, and as a result, the GST collectible is
$199,150.00 at 7/107= 13,028.50 To SAA
Conclusion: Except where noted above:
1) GST is applied correctly on, zero rated and 7% taxable sales.
2) GST is calculated correctly and is reported correctly on the GST returns.
END
[15] The Minister's position may essentially be paraphrased as follows:
"Yes, we know you exported the automobiles. This is clear from your records. We have the bills of sale to the United Statespurchasers, the Carfax reports and the application for registration in the United States. However, we have an administrative procedure contained in a memorandum prepared by the officials of the CRA. It is GST/HST memorandum Series 1 Chapter 4.5.3, Appendix A, Exhibit R-1:
Appendix A
Evidence of exportation
1. Evidence of exportation must enable the entire shipment of tangible personal property to be traced from its origin in Canada to its destination outside Canada. When the specific destination cannot be determined because of industry practices or because the property is homogeneous, the Minister of National Revenue (the "Minister") must be able to ascertain that the property did leave Canada.
2. The following documents will establish evidence satisfactory to the Minister that the tangible personal property has been exported from Canada, whether the supply of the property has been zero-rated or tax has been paid on it. This list is not exhaustive. Paper documents as well as electronically stored data will be acceptable.
A. Standard Documentation
• a commercial invoice;
• purchase agreement(s) or billing(s) between the supplier and the customer(s);
• a copy of the transportation document that describes the delivery service. This could be in the form of a bill of lading issued by or on behalf of a carrier. A bill of lading can also be replaced by non-negotiable documents such as a pro-bill, way-bill, consist sheet, sea waybill, liner waybill, freight receipt, combined or multimodal transport documents. When bills of lading are not used in the relevant trade, the parties should either use the terms "Free Carrier (name point)" or "Freight/Carriage paid to (name point)" or alternatively, stipulate in the F.O.B., C. & F. and C.I.F. terms that the seller should provide the buyer with the usual documents or other evidence of the delivery of the goods to the carrier;
• customs brokers' or freight forwarders' invoices relating to the supply;
• import documentation required by the country where the goods are exported; and
• copies of the documents from the foreign regulatory authority if the property has been licensed in the case of automotive vehicles, including boats, ships and aircraft.
For exports to the United States of America:
• embossed copy of U.S. Entry Summary, Form 7501 (this document is invalid unless filled out at the moment of exportation);
• U.S. Customs entry; and
• U.S.Certificate of Disposition of Imported Merchandise (Form 3227).
We are satisfied that you exported the cars as you say you did. However, we are denying zero-rating because although we are satisfied objectively that you exported them we are not satisfied with your documentation because it does not comply with our memorandum."
[16] If the Minister accepts and admits that the goods were exported this subsumes his satisfaction about the sufficiency of the documentation. The point of paragraph (e) is to ensure that the taxpayer present sufficient evidence of exportation. To say, as the Minister does, that he accepts that the appellant exported the goods (and therefore that the evidence of exportation is sufficient to attain the requisite degree of ministerial satisfaction) but that zero-rating is denied because the appellant did not comply with some administrative procedure that the Minister has devised that does not have the force of law is illogical and contradictory. It is a mechanical application of paragraph (e) of section 1 of Part V of Schedule VI that entirely misses what that provision is there for.
[17] The appeal is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the 24 automobiles exported to the United States are zero-rated.
[18] I am awarding costs to the appellant on a solicitor and client basis. I am doing so because as noted above the reply asserted an assumption that was patently false. I imply no criticism of counsel for the respondent. Ms. Tate presented the Crown's case with her usual skill and professionalism. She did not draft the reply and could not have been expected to know of the falsity of the assertion that the Minister assumed that the appellant did not maintain proper books and records. In the informal procedure the replies are drafted by "agents" who are employees of the Customs and Revenue Agency. It is entirely unacceptable for the respondent to mechanically and routinely toss into the list of assumptions unsubstantiated boilerplate that bears no relationship to the facts.
Signed at Ottawa, Canada, this 24th day of March 2005.
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"D.G.H. Bowman" |
Bowman, C.J.
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CITATION: |
2005TCC204 |
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COURT FILE NO.: |
2004-199(GST)I |
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STYLE OF CAUSE: |
Rockwood Motor Products Division of 958000 Ontario Inc. and Her Majesty The Queen |
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PLACE OF HEARING: |
Kitchener, Ontario |
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DATE OF HEARING: |
March 9, 2005 |
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REASONS FOR JUDGMENT BY: |
The Honourable D.G.H. Bowman, Chief Justice |
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DATE OF JUDGMENT AND REASONS FOR JUDGMENT: |
March 24, 2005 |
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APPEARANCES: |
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Counsel for the Appellant: |
W. Gerald Punnett |
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Counsel for the Respondent: |
April Tate |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
W. Gerald Punnett
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Firm: |
Punnett & Rae
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For the Respondent: |
John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada |