R. v. Beals

R. v. Beals Court Court of Appeal Date 1993-06-15 Citation 1993 NSCA 63 Docket CAC 02889 Judge/Registrar/Adjudicator Jones, Malachi C. (Honourable Justice) (CA) Document Type Decision Decision Content S.C.A. No. 02784 NOVA SCOTIA COURT OF APPEAL Hallett, Hart and Pugsley, JJ.A. Cite as: Nova Scotia (Attorney General) v. Haddad Brothers Enterprises Ltd., 1993 NSCA 83 BETWEEN: ATTORNEY GENERAL OF NOVA SCOTIA, ) John D. Wood representing Her Majesty the Queen in Right of ) for the Appellant the Province of Nova Scotia ) ) Appellant ) A. Margaret Wadden ) for the Respondent - and - ) ) ) HADDAD BROTHERS ENTERPRISES ) LIMITED ) Respondent ) Appeal Heard: ) March 25, 1993 ) ) ) Judgment Delivered: ) April 5, 1993 ) THE COURT: Appeal and cross-appeal dismissed without costs per reasons for judgment of Hallett, J.A.; Hart and Pugsley, JJ.A. concurring. HALLETT, J.A. This is an appeal by the Minister and a cross-appeal by the taxpayer from a decision of the Nova Scotia Tax Review Board varying the Commissioner's estimate of tax due by the taxpayer under the Health Services Tax Act, R.S.N.S. 1985, Chapter 198. The estimate, made pursuant to Section 19(1) of the Act, was for tax on retail sales for a 31-month period. The business in question is a large, family operated, grocery store. The Commissioner estimated the tax payable at $48,391.00 plus penalties and interest which took the indebtedness of the taxpayer to $66,514.00. The taxpayer appealed. Donald K. Currie, C.A. heard the appeal as a one-man Board. The Minister asserts that there was no evidence upon which Mr. Currie could have concluded that he should vary the Commissioner's decision in the manner he did. After reviewing the evidence and the audit procedures used by Mr. DeYoung, the Commission auditor, Mr. Currie in his decision stated: " The auditor in his assumptions and calculations used prices for a six month period and presumed these prices to be constant throughout the thirty-one month audit period without consideration for any rise or fall or special volume prices to the Appellant. I am of the opinion that the auditor used too short a period (six months) in determining the scope of the thirty-one month audit when presumably records were available for examination for that period of time. I therefore vary the Provincial Tax Commissioner's decision to the extent that a reduction in taxable pizza sales be effected in the amount of $13,605. I am also of the opinion that some relief should be given considering the doubt regarding the assumptions made by the auditor and, although not supported by sufficient evidence by NSC, the difference between the auditor's conclusions and that of Mr. Simpson and the presence of a large meat department has also persuaded me to give serious consideration to the percentage used by the tax auditor when compared to similar types of businesses. I therefore reduce the percentage of taxable sales as a percentage of total sales to 39% from that of the calculation of the auditor of 54.4% and direct that the assessment be adjusted accordingly. The decision of the Provincial Tax Commissioner is hereby varied as outlined above as it relates to this appeal." There appears to be a typing error in the third paragraph of this quotation but the gist of the Board's reasoning is ascertainable. I disagree with the Minister that the Board did not have evidence upon which to base the conclusions reached. The Board had before it the evidence of Mr. Rod Simpson who was called on behalf of the taxpayer. He is a chartered accountant who reviewed the taxpayer's records and the work of the Commission auditor. He testified that a six month purchase audit was too short a period from which to extrapolate taxable sales for a 31-month period as was done by Mr. DeYoung. Mr. Simpson has considerable experience in preparing financial statements for small grocery stores. He stated that in similar stores taxable sales are in the range of 29% of total retail sales which closely corresponded to his assessment of the percentage of taxable sales to total sales at the taxpayer's grocery store for the 31-month period. Mr. Simpson relied on the summary of daily cash register sales tapes as the basis for the calculation of the total of sales made in the store on any particular day. In conflict with Mr. Simpson's opinion was that of the auditor, Mr. DeYoung, who concluded that 54.4% of the taxpayer's total sales were taxable sales. The summary of sales tapes indicated that the taxable sales were in the range of 26.4% of total sales. Mr. Currie, therefore, had before him conflicting opinions that were very far apart. It cannot be said that he did not have any evidence on the key issue before him - the percentage of total sales that were subject to tax under the Act. There was also an evidentiary base for the Board to conclude that Mr. DeYoung's calculation of taxable pizza sales to the school was erroneous. Mr. Simpson testified that in his opinion a number of the assumptions made by Mr. DeYoung were not valid. Therefore there was evidence upon which the Board could conclude, as it did, that the assumptions of the Commission's auditor were put in doubt by the evidence. The taxpayer's position on this appeal (as it was before the Board) is that the tax estimated as owing to the Commission for the 31-month audit period should be reduced to $1,759 as calculated by Mr. Simpson based on his reliance on the daily retail sales tape summaries (the so-called Z tapes). It is apparent that Mr. Currie did not accept the validity of this opinion of Mr. Simpson. There was ample evidence before the Board to warrant the rejection of this opinion as it assumed that substantially all sales were put through the cash register and punched in properly as taxable sales or non-taxable sales; there was evidence that indicated otherwise. Mr. Simpson accepted the reliability of the Z tapes as an accurate compilation of taxable sales at the store. Mr. DeYoung, who is a well qualified auditor, testified that the Z tapes could not be relied upon as being an accurate reflection of taxable sales. There was evidence, or a lack of the same, in the records of the taxpayer that would justify Mr. DeYoung's opinion. An appeal lies to this court on a point of law only (Section 21). The taxpayer has argued that the Commissioner was not authorized to assess under Section 19(1) of the Act as the tax return was substantiated by the Z tapes. Section 19(1) states: " 19(1) When a person having sold tangible personal property fails to make a return or remittance as required under this Act, or if his returns are not substantiated by his records, the Commissioner may make an estimate of the amount of the tax collected or that should have been collected by such person for which he has not accounted, and such estimated amount shall thereupon be deemed to be the tax collected or that should have been collected by that person, and he shall pay that amount to Her Majesty in right of the Province, and the Commissioner may give notice in writing, either by mailing or by personal service, to the vendor, his heirs, administrators, executors or assigns, or to his custodian or trustee in bankruptcy, requiring that such estimated amount shall be paid over to the Minister or otherwise accounted for within thirty days from the date the notice is mailed or served." {Emphasis Added} The taxpayer argues, that based on Section 16 of the Act and Regulation 8 that the word "records" as used in Section 19(1) means retail sales records such as cash register tapes that summarize daily retail sales for the business. Section 16(1) of the Act provides: " 16(1) Every vendor shall make returns to the Commissioner and shall keep such records in the form and at such location prescribed by the regulations, and any failure to do so shall constitute an offence against this Act." Regulation 8 states: " 8. Every vendor shall keep and maintain records of retail sales of goods made by him sufficient to enable him to complete the 'Vendor' Return Form." In my opinion the use of the word "records" in Section 19 has a much broader meaning than simply records of retail sales. The records of a business include the standard books of account and documents kept by a business such as sales and purchase journals, ledgers, purchase invoices, cancelled cheques, sales records and bank records. The word "records" as used in Section 19, 34 and 36, given its ordinary meaning, is not confined to records of retail sales sufficient to enable a vendor to complete the vendor return form. To hold otherwise would limit the scope of an audit to a review of retail sales tapes which would be absurd. Such an interpretation would render audits useless and thus negate the purpose and objective of the sections of the Act that authorize audits of a taxpayer's business to ascertain if the proper amount of tax has been remitted. Those sections are Sections 34(1) and (2) and Section 36(1) and (2). While cash register sales tapes can be capable of substantiating a return as stated by Mr. Currie in the Sea Breeze Catering Ltd. case the Z tapes clearly did not do so in this case; the Z tape totals appeared suspect to the Commission auditor in that taxable sales appeared to be too low a percentage of total sales for a grocery store of that type. In addition, video rental sales appeared to be extremely low in relation to the inventory of videos carried by the taxpayer ($17. in sales for the sample month on an inventory of $100,000.00 plus or minus). The taxpayer also argued that the Board misinterpreted Section 19(1) of the Act in finding that the Commission had jurisdiction under the section to make an estimate of the amount of tax that ought to have been collected. The taxpayer asserts that the audit by Mr. DeYoung was made pursuant to Section 34 and therefore the Commissioner could only assess under Section 34(2) and therefore was not within jurisdiction in making an estimate under Section 19(1) as was, in fact, done by the Commissioner. It is apparent from a review of the legislation that Mr. DeYoung could have been conducting an audit pursuant to either Section 34 or Section 36. Mr. DeYoung's audit clearly showed that the taxpayer's returns were "not substantiated by his records". In these circumstances the Commissioner could have assessed tax under Section 34 or Section 36 or made an estimate under Section 19(1) because the taxpayer's return was not substantiated by its records. In my opinion the Commissioner acted within his jurisdiction in making the estimate under Section 19(1) and the Board did not err in interpreting the said section. With respect to the appeal of the Minister, as noted, there was conflicting evidence before Mr. Currie as to the percentage of sales of the taxpayer that ought to have been categorized as taxable sales. Mr. Currie could accept either opinion or reject either in whole or in part in determining what was the appropriate percentage in the absence of reliable retail sales records. The onus was on the taxpayer, by reason of the provision of Section 19(2) to prove the Commissioner's estimate was in error. The Board obviously did not accept the opinion of Mr. Simpson that taxable sales were in the range of 29% of retail sales. Pursuant to Section 20(L)(5) the Board is empowered to vary the estimate of the Commissioner. There was evidence before the Board that put in doubt the position of both the Minister and the taxpayer. The taxpayer's evidence presented through Mr. Simpson apparently satisfied the Board that the Commissioner's estimate was wrong. In my opinion the Board acted within its jurisdiction in varying the estimate. The Board is a specialized statutory tribunal; the courts recognize such tribunals have an expertise in their field not possessed by the courts. A recent and oft quoted statement of the law on the subject of judicial review of decisions of statutory tribunals is that of Justice McLachlin, speaking for the majority, in Lester (W.W.) (1978) Ltd. v. United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry in the United States and Canada Local 740, [1990] 3 S.C.R. 664 where she stated at p. 669: " Courts should exercise caution and deference in reviewing the decisions of specialized administrative tribunals, such as the Labour Board in this case. This deference extends both to the determination of the facts and the interpretation of the law. Only where the evidence, viewed reasonably, is incapable of supporting a tribunal's findings of fact, or where the interpretation placed on the legislation is patently unreasonable, can the court interfere." That statement was made in the context of judicial review of a decision of a statutory tribunal that was protected by a strong privative clause. The matter before us is by way of an appeal on a point of law only. The remarks relating to curial deference are clearly applicable to the latter, although the scope of appellate review on a point of law requires the Board to be correct in its interpretation of the Act. Conclusion The taxpayer had full opportunity, as provided in the Act, to have the Board review the validity of the estimate of tax made by the Commissioner. The Minister likewise had full opportunity to support the Commissioner's estimate. A determination of what percentage of sales were taxable sales, based on projections from purchase orders and the nature of the retail operation, involved an exercise in judgment that was particularly suited to persons experienced in audit procedures such as Mr. Currie. In my opinion it was open to the Board on the evidence to vary the estimate of the Commissioner as he did and open to him to refuse to vary the Commissioner's estimate to the extent submitted by the taxpayer. The Board did not misinterpret the relevant provisions of the Act relating to the right of the Commissioner following an audit to estimate the tax that ought to have been collected by the taxpayer. Mr. Currie did not misinterpret the scope of the Board's jurisdiction as conferred by Section 20(L)(5) of the Act in concluding that he could vary the Commissioner's estimate made under Section 19(1). There were no other point of law raised on the appeal as there was evidence before the Board that could form the basis of its conclusions. There will be no order of costs. J.A. Concurred in: Hart, J.A. Pugsley, J.A. S.C.A. No.02784 NOVA SCOTIA COURT OF APPEAL BETWEEN: ATTORNEY GENERAL OF NOVA SCOTIA ) ) Appellant ) - and - ) REASONS FOR ) JUDGMENT BY: HADDAD BROTHERS ENTERPRISES ) LIMITED ) HALLETT, J.A. ) Respondent ) ) ) ) ) ) )