TricomCanada Inc. v. R - TCC: GST appeal - invoices produced were fraudulent

http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/127578/index.do

TricomCanada Inc. v. The Queen  (January 11, 2016 – 2016 TCC 8, Hogan, J.).

Précis:   This decision is fact intensive but, in the end, fairly simple.  CRA denied input tax credits (“ITCs”) of roughly $1,000,000 to the taxpayer on the purchase of gold from its alleged suppliers.  CRA claimed, and the Court accepted, that the invoices it relied upon from its alleged suppliers were fraudulent and designed to conceal the identity of the person or persons actually supplying the gold.

The appeal was dismissed with costs.

Decision:   The matters at issue were not complex:

[1]             This is an appeal from an assessment made by the Quebec Minister of Revenue (the “Minister”), acting for and on behalf of the Minister of National Revenue, under Part IX of the Excise Tax Act (the “Act”) for the reporting periods from April 2012 to November 2012 inclusive (the “Relevant Period”).

[2]             In its returns for the Relevant Period, the Appellant reported the goods and services tax (“GST”) it collected from its sole client, Diverse Equities Inc. (“Diverse Equities”), from the sale of used gold jewelry and impure gold bars (hereinafter referred to as “Scrap Gold”). The Minister denied the Appellant input tax credits (“ITCs”) of $994,730.97 claimed under the Act with respect to its purchases, as follows:

[3]             The Appellant’s claim for ITCs was denied on the grounds that the Appellant did not trade in gold or, alternatively, that it acquired gold from persons other than the alleged suppliers listed on its purchase invoices. The Minister alleges that the Appellant knowingly, or acting with willful blindness, participated in a false invoicing scheme. The Respondent now labels that scheme a sham.

[4]             In support of the assessments, the Minister also contends that the purchase invoices produced as part of the Appellant’s documentary evidence do not satisfy the requirements set out in paragraph 169(4)(a) of the Act and section 3 of the Input Tax Credit Information (GST/HST) Regulations because they do not identify the Appellant’s true suppliers.

[5]             The Appellant claims it purchased and resold Scrap Gold in bona fide commercial transactions. The Appellant points out that its officers regularly verified the registration status of its alleged suppliers, retained copies of photo identification and photocopied the batches of gold that it purchased. If the Appellant’s alleged direct suppliers were not the owners of the gold the Appellant purchased, the Appellant had no way of knowing this.

[Footnotes omitted]

Justice Hogan reviewed the evidence in considerable detail.  I will not review the evidence because the simple result is that the taxpayer’s evidence was not accepted as credible by the Court.  While the Court found that the appellant was engaged in a commercial activity of buying and selling gold, it found that the system of invoices it relied upon were a sham:

[162]   The Appellant would have the Court believe that individuals of very modest financial means could somehow acquire millions of dollars’ worth of gold over a very short period of time, all to be resold to the Appellant. The Appellant would have the Court believe that it is mere coincidence that its alleged suppliers sold gold to the Appellant on the same terms and conditions, while all the time using similar business practices. The Appellant would also have this Court believe that it was a mere coincidence that the Appellant could suddenly source gold from a new alleged supplier when an old alleged supplier’s business was disrupted by a tax audit. This is beyond all reasonable belief.

[163]   The Appellant complains that the Respondent’s case rests mainly on circumstantial evidence. This being the case, the only reasonable inference that I can draw from the evidence is that the Appellant, with the help of individuals acting on behalf of its alleged suppliers, put in place an elaborate paper ruse to mask the identity of the Appellant’s true suppliers.

[164]   The Appellant, in its written rebuttal representations, criticizes the Respondent for failing to have called other persons who could have shed light on these matters. The Appellant appears to overlook the fact that the burden of proof in tax matters resides initially with the appellant. It is well established that the Minister can rely on factual assumptions when raising an assessment. In the case at hand, the Minister assumed that the Appellant’s purchase invoices are false because they do not identify the Appellant’s true suppliers. After hearing the evidence, it is apparent to the Court that this assumption was made because the auditors assigned to audit the transactions at issue in this appeal concluded that the Appellant’s alleged suppliers were incapable of trading in large quantities of gold. The Appellant had the burden of showing on a prima facie basis that the Minister’s assumptions are incorrect. In my view, the Appellant has failed to do so. If other persons could have shed light on the circumstances surrounding the Appellant’s gold‑trading business, it was incumbent on the Appellant, and not the Respondent, to call them as witnesses to corroborate the Appellant’s version of the events.

[165]   Considering the evidence as a whole, I conclude that the purchase invoices relied on by the Appellant to claim its ITCs were indeed false. The Appellant used these invoices to knowingly mask the identity of its true suppliers. Likely the Appellant’s true suppliers will remain unidentified because of the sophistication of the false invoicing scheme that was put in place to hide their identity.

As a consequence the appeal was dismissed with costs.