Les voitures Orly Inc./Orly Automobiles Inc. v. The Queen

Les voitures Orly Inc./Orly Automobiles Inc. v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2004-04-22 Neutral citation 2004 TCC 86 File numbers 98-431(GST)G Judges and Taxing Officers Donald G.H. Bowman Subjects Part IX of the Excise Tax Act (GST) Decision Content Docket : 98-431(GST)G BETWEEN : LES VOITURES ORLY INC./ ORLY AUTOMOBILES INC., Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeal heard on June 2 to 27, 2003; on October 14, 15, 16, 17, 20, 21 and 22, 2003; on December 1, 2, 3, 4 and 5, 2003 and on January 19 and 20, 2004 at Montréal, Quebec. Before : The Honourable D.G.H. Bowman, Associate Chief Justice Appearances: Counsel for the Appellant: François Barette Mathieu Bouchard Counsel for the Respondent: Pierre Zemaitis Michel Dansereau ____________________________________________________________________ JUDGMENT The appeal from the reassessment made under the Excise Tax Act, notice of which is dated December 17, 1996 and bears number 032G0103727 for the period from August 1, 1995 to September 30, 1996, is allowed and the assessment is referred back to the Minister of National Revenue for reassessment and reconsideration to give effect to the respondent's concession with respect to the vehicle bearing Orly's stock number 6-388 and to reduce the disallowance of ITCs of $41,889.05 referred to in paragraph 3 of these reasons to $39,159.05 and to adjust the penalties accordingly. .../2 The respondent is entitled to her costs. Signed at Ottawa, Canada, this 22nd day of April 2004. "D.G.H. Bowman" Bowman, A.C.J. Citation: 2004TCC86 Date : 20040422 Docket: 98-431(GST)G BETWEEN: LES VOITURES ORLY INC./ ORLY AUTOMOBILES INC., Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT BOWMAN, A.C.J. [1] This appeal is from a reassessment made under the Excise Tax Act ("E.T.A.") by the Minister of National Revenue through his agent, the Deputy Minister of Revenue of Québec ("Revenue Québec") for the period from August 1, 1995 to September 30, 1996 (the "relevant period"). [2] The appellant is an automobile dealer. In the relevant period it acquired new automobiles which, for the most part, it exported to the United States and Europe. No sales tax is payable on such sales to non-residents. That is not the issue. The main issue is whether the appellant is entitled to claim input tax credits ("ITCs") in respect of the Goods and Services Tax ("GST") which it says it paid when it bought those automobiles. The respondent denies that the appellant is entitled to the ITCs claimed. [3] There were two assessments. The first was made on December 17, 1996. Revenue Québec disallowed ITCs of $518,109.91 with respect to automobiles acquired by the appellant, disallowed further ITCs of $41,889.05 with respect to other purchases and assessed tax of $69,287.55 on what it described as unreported sales of vehicles. Also, interest and penalties were assessed in the amounts of $25,920.25 and $27,997.07, respectively. The appellant filed a Notice of Objection on March 14, 1997, and on February 27, 1998, it filed a Notice of Appeal, over 180 days having passed without a response to the Notice of Objection. On April 27, 1998, Revenue Québec issued a reassessment. Some of the numbers were changed. ITCs in the amount of $792,631.24 were disallowed. In addition, interest and penalties were increased to $77,940.73 and $315,423.11, respectively. In the result the amount claimed under the reassessment was $1,297,171.68. The appellant amended its Notice of Appeal to refer to the reassessment. [4] The assessment and reassessment were made without warning and without prior discussion. Counsel for the appellant moved at the beginning of trial for a direction that since Revenue Québec had not, prior to mailing the assessments, disclosed to the appellant the assumptions upon which it proceeded, the onus was upon the respondent to justify the reassessment. In oral reasons given at trial I dismissed the motion, except with respect to the penalties imposed under section 285 of the E.T.A. and the allegation in paragraph 71 of the Reply to the Notice of Appeal relating to the conditions in subsection 169(4) of the E.T.A. [5] Four hundred and ninety eight exhibits were filed by the appellant and 486 by the respondent. The appellant called three witnesses and the respondent called 12. The trial lasted 31 days and the evidence was detailed. About 307 transactions were involved, most of which were exports of higher end automobiles such as Jeep Grand Cherokees, Chevrolet Tahoes, GMC Yukons or Chrysler Town and Countrys. Most of them had price tags in the neigbourhood of $40,000.00. Virtually every transaction was dealt with individually twice, once by Mr. James Doherty, a director and officer of Orly, and once by madame Linda Turcotte, an assessor with Revenue Québec, who conducted a detailed examination of the transactions. [6] I shall start by attempting to state in broad outline what I believe to be the respective positions of the appellant and the respondent. [7] Mr. Doherty testified that the principal business of the appellant, Les Voitures Orly Inc./Orly Automobiles Inc. ("Orly"), in the relevant period was the purchase and sale for export of automobiles. Orly and a large number of other auto dealers were black listed by the big three auto manufacturers, Ford, Chrysler and General Motors. What this meant was that their authorized franchised retail dealers were told not to sell automobiles to companies such as Orly. The reason given was that Orly and the other black listed companies were buying vehicles from dealers in Canada and selling them offshore thereby undercutting the big three's foreign dealers. [8] Therefore, according to Mr. Doherty, Orly was obliged to buy from what it called "secondary dealers". The appellant's position is that when it bought from the secondary dealers, some of whom had GST registration numbers, it paid GST on the purchase price and this was clearly shown on the invoice. It is further the appellant's position that when it paid the GST to the secondary dealer its responsibility came to an end and if the secondary dealer did not remit the tax to the Receiver General this was no concern of Orly. [9] The proposition of law that once a purchaser pays GST to a supplier of goods and services, the Minister cannot, unless there is fraud or collusion, recover GST from the purchaser a second time just because the supplier does not remit the GST to the government is unassailable. The matter was thoroughly discussed by Justice Campbell in Airport Auto Ltd. v. Her Majesty The Queen, 2003 TCC 683. The respondent does not dispute the principle of law but she contends that the facts do not support its application. The respondent's position is that any amounts shown on the invoices from the secondary vendors as GST were not paid as GST, were not intended to be paid as GST and were not intended to be transmitted to the government and, of course, were not paid to the government. The respondent alleges that some of the secondary dealers were not registered for the purposes of the GST and in many cases the amounts were paid to third parties other than the secondary dealers and the third parties were not registered for GST purposes. The respondent further alleges that the persons shown as vendors on the sales contracts were not the persons who sold the vehicles to Orly. On this hypothesis just who the "real" vendors were is a matter of some doubt. On one view of the matter they were Indians on reservations who paid no GST. On another view the Indians or corporations owned or controlled by Indians were simply conduits who did not pay for the vehicles, never took possession of the vehicles and indeed never really had title to them but who simply accommodated the transfer from franchised dealers to Orly who sold the vehicles to foreign purchasers or in some cases to domestic purchasers. [10] In essence, the respondent alleges that the appellant used a variety of means to create the illusion that GST was paid by it when in fact it was not paid so as to justify the claim for ITCs. It boils down to a matter of fact: Did the invoices represent reality or were the transactions shams? [11] The principal witness for the appellant, Mr. James Doherty, went through all of the transactions and put in evidence the sales contracts and other related documents. To illustrate the sort of evidence that was presented in this case, I shall start with one transaction described in the appellant's Exhibits A-3, A-4, A-5, A-6 and A-7 and in the respondent's Exhibit I-92. It would be difficult to find a transaction that could be described as "typical" of all of the transactions but I have chosen this one simply because it was the first one put in evidence by Mr. Doherty. It involved the purchase and export of a 1996 Dodge Caravan bearing serial number 1B4GP44R7TB165768. The vendor shown on the contract of sale dated August 9, 1995 is 2844-7167 Québec Inc. The purchaser shown is Orly Automobiles Inc. The stock number given to it by Orly and handwritten on the contract is 5-208. The name Daniel Foster appears besides the words "accepted by vendor". The price shown is $26,900.00, goods and services tax ("GST") of $1,883.00 and provincial sales tax ("PST") of $1,870.89 are also shown for a total of $30,653.89. The cheque dated August 9, 1995 in payment of this amount was drawn on the bank account of Crescent Auctioneers & Liquidators Inc. at the Bank of Nova Scotia, 505 St. Catherine Street West, Montréal, and is in favour of 3095-7344 Québec Inc. It was deposited on August 10, 1995 in the Royal Bank of Canada, St-Jean & Hymus branch at Pointe-Claire, Québec, in the account 3095-7344 Québec Inc. The export contract is dated 4-8-95 (which presumably is August 4, 1995) and shows the purchaser to be GECO which Mr. Doherty said was a German company with an address in Germany. The price is shown to be $29,000.00 and transport to Bremerhaven of $1,250.00 for a total of $30,250.00. An invoice for US$850.00 (converted to Cdn.$1,175.00 on Exhibit A-6) dated August 24, 1995 from a transportation company bears the notation "paid September 20, 1995". [12] Madame Turcotte, the investigator for Revenue Québec, who made the second assessment, appeared as a witness for the respondent. She put in evidence as Exhibit I-1, a stock sheet (a form of internal record of Orly) showing a purchase of automobile stock number 5-208 from De Geronimo. The purchase price was shown as $26,900.00, overhead $300.00 and SAAQ (Société de l'assurance automobile du Québec) fee of $8.00 and a commission payable to "Ron" of $896.00. The selling price was shown as $30,250.00, the amount shown on the export contract. [13] In addition, madame Turcotte put in evidence a sales contract for the same automobile from Embrun Dodge Chrysler of Embrun, Ontario, a franchised Dodge Chrysler dealer to John Wilfred Jerome ("Jerome"), an Indian, for a purchase price of $26,939.00. No GST or PST was charged presumably on the basis that the sale to Jerome was exempt. His certificate of Indian status was put in evidence. Throughout these reasons I am using the word "Indian" in the sense in which it is used and defined in the Indian Act. [14] The SAAQ records show nothing except the name of Orly. There is no document transferring the vehicle from Jerome or from Embrun Dodge Chrysler to 2844-7167 Québec Inc. or to Orly. Madame Turcotte also traced the payment of the purchase price shown in the contract between Embrun and Jerome from the bank account of 3095-7344 Québec Inc. to a cheque which was used to satisfy the price to the dealer. The cheque is dated August 9, 1995 and is drawn on the Royal Bank St-Jean & Hymus branch, Pointe-Claire, Québec, in the amount of $26,939.00. [15] I shall not describe all of the 307 transactions in such detail. Broadly, they follow much the same pattern. [16] I turn now to a summary of the facts.Mr. Doherty says that Orly bought automobiles from numerous intermediate dealers. Madame Turcotte says the invoices are false. The essential question is whether Orly paid GST on these approximately 307 purchases. A few general preliminary observations may usefully be made. They apply to the majority of transactions although there may be exceptions and details may vary but in broad outline the following is the picture that emerges. (a) There is no question that the sales invoices from the companies shown as vendors to Orly show an amount for GST on each transaction and the total amount paid to the person shown as vendor or to some third party includes the amount calculated in respect of GST. (b) In many of the cases the cheques or bank drafts were made payable to an entity such as a corporation or a proprietorship that is not the vendor shown on the invoice and went into a bank account in the name of that entity or proprietorship (the "third party"). It was said that this was at the request of the "vendors". Notwithstanding the huge amounts that went into the bank accounts of the third parties, no written direction was produced with respect to any payment. Indeed there was absolutely no evidence (apart from Mr. Doherty's oral testimony) of any such request or direction. It is strange, to put it mildly, that any prudent business person would pay substantial amounts into bank accounts of persons about which he or she knew nothing at the oral request of some unknown person purporting to speak on behalf of a vendor about whom equally nothing is known. (c) In no case has the amount shown on the invoice as GST and paid to the recipient or third party ever ended up in the hands of the government. (d) In most cases the franchised General Motors or Chrysler dealers signed an agreement of purchase and sale of the vehicle to Indians living on reservations or their corporation and no GST or PST was paid presumably on the theory that the sales are exempt from tax under the Indian Act. (e) In the majority of cases the vehicles were exported and therefore no GST was paid because the supply to non-residents is zero-rated. (f) In some cases where the vehicles were sold to a German purchaser the purchase price was split up and a portion was charged as service and handling. There may have been reasons for this relating to German tax but the question is not germane to this case. (g) On all, or virtually all, of the sales invoices to Orly, a number purporting to be the GST registration number of the person shown as vendor is set out. (h) I do not propose to deal in any detail with the export of the individual vehicles. The majority were exported to the United States, Germany or France and in a few instances to the United Kingdom. There is no suggestion that there is anything amiss in the export of the vehicles. The tax free sale and export to non-residents may have been important in the overall scheme of things but it is really tangential to the issue in this case, subject to one observation. Whether a supply is exempt or zero-rated affects the right of a supplier to claim ITCs on the purchase of the supply. If the subsequent supply is exempt it cannot claim ITCs. If it is zero-rated it can.[1] (i) In the early part of the period under review the cheques were made by Crescent Auctioneers & Liquidators Inc. ("Crescent"). The testimony was that Crescent was financing Orly. I see nothing in this fact by itself that is relevant to the issue here. After the export of the vehicle we see cheques for Orly to Crescent repaying it. Counsel for neither party made any point of it. (j) In some cases one or more pieces of documentation are missing - for example a cheque from Crescent or Orly. The overall practice that emerges is that an invoice would be given by a vendor to Orly containing the stock numbers of the vehicle and its serial number. Payment would frequently be made by Orly or Crescent to an entity other than the vendor. The vehicle would be sold to a non-resident purchaser or in some cases to a purchaser in Canada. Where the purchaser was a Canadian, GST would be paid by the purchaser. Also, where Crescent paid the cost of the vehicle, there would generally be a cheque from Orly reimbursing it after Orly had sold it. Crescent was evidently involved in financing Orly until latterly when a bank took over the financing. Crescent was paid interest and a share of Orly's profit. (k) The witness, madame Turcotte, provided copies of the records of the SAAQ. I will be referring from time to time to these records but I do not find them particularly reliable as evidence simply because names of owners that one would not expect appear on the records out of nowhere and names that one would expect to be on title are not there. I regard the evidence of the SAAQ to be at best secondary. [17] The principal witness for the appellant was Mr. James Doherty. He testified that there was a demand in the United States for certain types of vehicles, such as sports utility vehicles and pick-up trucks, which were somewhat cheaper in Canada and were in short supply in the United States. The North American automobile manufacturers such as General Motors or Chrysler reacted to the export of automobiles from Canada and the United States and elsewhere by black listing such exporters as Orly and forbidding their franchised dealers selling to them, on pain of having their franchise cancelled. [18] Mr. Doherty went through each transaction identifying the invoices from the various persons shown as vendors, the cheques or bank drafts used to pay for the vehicles and subsequent sale usually to non-residents but occasionally to Canadian purchasers. Mr. Doherty testified that he knew nothing about 2844-7167 Québec Inc., its owners, directors or employees, nor did he know Daniel Foster whose name appears as representing the vendor. Daniel Foster denied that the words Daniel Foster on the invoices for which the stock numbers were 5-208 and 5-256 were his signature, as well as his name on the invoices in which Autos 5ième Ère Inc. is shown as vendor. Mr. Doherty also testified that Orly was asked by 2844-7167 Québec Inc. to pay third parties such as 3095-7344 Inc. who he thought were financing vendors such as 2844-7167. He testified that he knew nothing about 3095-7344 Québec Inc. In fact, he testified that he knew nothing about the third parties to whom he says Orly was asked to make the payments, or the persons shown as vendors. He did not know who at the companies shown as vendors on the invoices asked that the many millions of dollars be paid into the bank accounts of these unknown third parties. There is no evidence that the request or direction was made in writing, nor did he enquire. He said it was not his concern. [19] The names appearing as vendors on the bills of sale were 2844-7167 Québec Inc. ("2844"); Autos 5ième Ère Inc. ("5ième"); Centre d'Auto Marc et Mario Enr. - ("M & M"); Benny Automobiles ("Benny"); Auto Cartier ("Cartier"); Réal Provost Outaouais Motors Inc. ("Provost"); J.L. Auto Exchange ("J.L."); Garage Normand Duchesne ("Duchesne"); Gilles G. Caron Auto Service Ltée ("Caron"); R.A. Succès Automobile ("Succès"). [20] The names of the holders of the bank accounts to whom the payments were made were 3095-7344 Québec Inc. ("3095"); P.G. Auto ("P.G. Auto") Tomken Auto Sales ("Tomken"); Gestion Bergeron ("Bergeron"); Camions Marc et Mario ("CMM"); Benny Automobiles ("Benny"); Camions Cartier ("CC"); Auto Cartier ("Cartier"); Garage Normand Duchesne ("Duchesne"); J.L. Auto Exchange ("J.L."); Gilles G. Caron ("Caron"); Les Placements Locatifs Cécile Hogue Ltée ("Hogue"). [21] The general picture that emerges from the evidence of Mr. James Doherty is as follows: (a) Where the bill of sale to Orly bore the name of 5ième the payment went into the bank account of 3095, Bergeron or Tomken. (b) Where the bill of sale bore the name of 2844 as vendor, the payment went generally into the bank account of P.G., although sometimes they went into the account of Tomken or Bergeron and once into the account of 3095. (c) In the early part of the period with which we are concerned, cheques were issued by Crescent to the entities indicated above and the funds went into the bank accounts in their name. (d) Where M & M is shown as the vendor Orly would sometimes issue the cheque to Bergeron, but usually to M & M or CMM. (e) Benny is shown on two invoices and the cheques went to Benny. (f) Where Cartier is shown as the vendor, the cheques were issued to Cartier or, more frequently, CC. (g) Where Provost is shown as the vendor the cheque was issued to Provost. (h) Where the vendor is shown as Caron, the cheque was issued to Caron. (i) Where Succès is shown as vendor, the cheque was issued to Succès, except in one case where it went to Duchesne. (j) Where the vendor was shown as Duchesne the cheques were issued to Duchesne but the money went into the bank account of Hogue. [22] Before I set out with greater particularity what I have summarized above I should mention a point that is of tangential importance and that is the method of payment. In the early part of the period in question Crescent issued the cheques. Later, Orly issued the cheque, which was either deposited in the bank account of the person to whom it was issued or used to support a bank draft in favour of the payee. In some cases the cheques were certified and in some cases they were not. I mention these methods of payment simply for the sake of completeness but I do not see how they add anything of significance to the case. Orly appears to have proceeded on the premise that the invoices gave it sufficient of the indicia of title to permit it to sell the vehicles domestically or abroad. In this appeal I am not required to decide that Orly acquired good title to the vehicles, or if it did, from whom. Orly disposed of the vehicles (usually abroad). The amounts shown on the invoices to Orly were deposited to the bank account of someone, whether the person shown as vendor on the invoice or someone else. The invoices to Orly show GST and PST on the price of the vehicle and although the total amount was deposited to the bank account, nothing ever found its way into the governmental coffers. Orly claimed ITCs in respect of the GST shown on the invoices and the claims were paid. Now the government wants the ITCs back because it says Orly never paid the GST in the first place. That is substantially what this case is about. [23] I come now to the transactions in which various persons are shown as vendors to Orly. Centre d'Auto Marc et Mario Enr. ("M & M") [24] There were 79 vehicles involved in which M & M is shown as the vendor on the invoices to Orly. In 13 cases the cheques were issued to Bergeron and in all the rest the cheques were issued to CMM. According to the stock sheets, the vendors were shown in three cases as Bergeron, in seven as 2844 and in all the rest as CMM. In the records of the SAAQ neither M & M nor CMM is shown as the vendor. In some cases it is a regular franchised dealership. In many others it is 2844 or Alexandre Minassian. In about 61 cases, the vehicles were exported and in about 18 they appear to have been sold domestically. These figures may be slightly inaccurate because occasionally a bill of lading or an invoice to a purchaser was missing but by and large the numbers are substantially correct. The same qualifications must be made about the following figures. The evidence discloses that in all but five cases the vehicle originated with a franchised dealership who had acquired it from the manufacturer such as General Motors of Canada or Chrysler Canada. The dealer entered into an agreement of purchase and sale with an Indian living on a reserve or a corporation incorporated and controlled by Indians. There are a couple of gaps in the evidence where the name of the dealer or of the Indian is missing but I think this is attributable to the fact that in dealing with over 300 transactions with many moving parts, it is not surprising that occasionally a document may not be found. I am entitled, in this case, to draw an inference from the overall pattern and the conclusion which I draw is that the dealers entered into an agreement of purchase and sale of the vehicle with the individual Indian or the Indians' corporation and were paid by bank draft or cheque out of the bank account of the various persons mentioned above into which Orly paid the price shown on the invoice to Orly. No GST was paid on the transactions between the dealers and the Indians or their corporations on the basis that the sales were exempt. There is no evidence of any document transferring title from the Indians or the aboriginal corporations to the persons shown as vendors on the invoices to Orly. [25] One thing is clear. The Indians or their corporations did not pay for the vehicles out of their own funds. They had possession of the vehicles, if at all, for only a brief moment. There seems to be some question whether some of the vehicles were delivered to the reservation or whether the exemption under the Indian Actwas properly claimed. This is not a matter that I need consider. Whether the Indians ought to have paid GST is not germane to the issue here, which is whether Orly paid GST. 2844-7167 Québec Inc. ("2844") [26] 2844 is shown as the vendor to Orly of 88 vehicles. The pattern is much the same as in the case of M & M. In one case the cheque was issued to 3095, in one case to Lasalle Jeep Eagle. In 57 cases the cheque was to P.G., in 13 cases to Tomken, in 10 cases to Bergeron and in 3 cases to Desmeules Dodge. It appears about 59 were exported. The stock sheets show the vendor to have been P.G. in 58 cases, 2844 in two cases, Lasalle Jeep Eagle in one case, Tomken in 14 cases, Bergeron in eight cases and CMM in one and Desmeules Dodge in three. If this does not add up to 88 it may be because there are gaps in the documentation or it may be because my arithmetic is faulty. As in the case of M & M, the SAAQ records bear little relationship to any of the other documents. [27] Again, the pattern is that franchised dealers would execute agreements of purchase and sale with Indians or aboriginal corporations. They would be paid out of the bank accounts that were in the names of the persons to whom Orly made the cheques payable. There is no evidence of any documents transferring title to the vendors shown on the invoices to Orly. [28] I should have thought that where title to a piece of property such as an automobile is transferred it would be a relatively simple matter to trace the chain of title. In this case it should look somewhat like this: Manufacturer (GM or Chrysler) ↓ Licensed dealer ↓ Indian purchaser ↓ Vendor shown on invoice ↓ Orly ↓ Domestic or foreign purchaser J.L. Auto Exchange ("J.L.") [29] J.L. is shown on 19 invoices to Orly. In every case the cheque was payable to J.L. J.L. does not appear in any of the SAAQ records. Frequently it is Huntley Crawford or Gérard Ouellette and once 9039-7662 Québec Inc. In all cases the evidence shows that the vehicles originated with a licensed dealer and in all but three cases that the dealer entered into an agreement of purchase and sale with an Indian. This in my view is attributable to a lack of documentation and not a difference in the pattern. Only two vehicles appear to have been exported. R.A. Succès Automobile ("Succès") [30] Succès appears on 17 invoices to Orly. All of the cheques were payable to Succès except one, which was payable to Duchesne. The SAAQ records make no mention of Succès. The owners are shown as Huntley Crawford in 14 cases. Gérard Ouellette in two and Ventes d'Auto Giordano Inc. in one. Subject to the fact that there are a few gaps in the documentation, the pattern repeats itself of an agreement of purchase and sale from a licensed dealer to an Indian or an aboriginal corporation. [31] The evidence seems to disclose only four exports from this group. Benny Automobiles ("Benny") [32] Benny appears as the vendor to Orly on only two invoices and the cheques were both issued to Benny. One vehicle was exported. Two licensed dealers were involved but the documentation discloses only one contract with an Indian. Gilles G. Caron Auto Service Ltée ("Caron") [33] Caron is shown as the vendor to Orly on 40 invoices. The cheques were all issued to Caron. Various vendors are shown in the SAAQ records, but never Caron. In one case the individual, Gilles Caron, the owner of Caron, is shown. The most frequent name is Huntley Crawford, about whose testimony I will have more to say later. [34] The same pattern as in the other cases appears - an agreement of purchase and sale between a licensed dealer and an Indian or an aboriginal corporation. In five cases, the Indian with whom the dealer signed the contract is the individual, Gilles Caron. The available documentation appears to show that 11 of the 40 vehicles with which Caron was involved were exported. Réal Provost Outaouais Motors Inc. ("Provost") [35] Provost appears as vendor on five invoices to Orly. The cheques were all issued to Provost. Provost appears on none of the SAAQ records. Huntley Crawford is shown as the vendor of two and Ventes d'Auto Giordano Inc. on two others. The documentary evidence indicates that one or possibly two vehicles were exported. Autos 5ième Ère Inc. ("5ième") [36] 5ième appears as the vendor on 34 invoices of vehicles to Orly. No cheques were issued to 5ième. Eight were issued to Bergeron, 15 to 3095, one to Lasalle Jeep Eagle and eight to Tomken. Two cheques are missing. The vendors, according to the stock sheets, are in most cases the same as the persons to whom the cheques were issued. [37] As in other cases the SAAQ records bear no relationship to the invoices, the stock sheets or the cheques. In some cases the vendors are shown as licensed dealers, in others as 2844. Again, we have the same pattern of contracts between franchised dealers and Indians. The documents indicate that 26 of the 34 vehicles were exported. Automobiles Cartier ("Cartier") [38] Cartier is shown on the invoices as the vendor to Orly of 11 vehicles. The cheques were issued either to Cartier or CC. The same pattern emerges as in other cases with respect to the contract between licensed dealers and Indians or aboriginal corporations. Some vehicles appear to have been exported. Garage Normand Duchesne ("Duchesne") [39] Duchesne appears on the invoices as the vendor to Orly of six vehicles. The ubiquitous Huntley Crawford appears as the supplier of four vehicles in the SAAQ records. The cheques were all issued to Duchesne. The pattern here is consistent with that in other cases, with a contract between franchised dealers and Indians or their corporations. The evidence does not indicate that any of this group of vehicles was exported. [40] Finally I come to a group of six vehicles, set out in madame Turcotte's table which is Exhibit I-437, where there are no suppliers identified because there were no invoices. The evidence on these vehicles is unsatisfactory and of course the SAAQ records cannot be relied on. Two of the vehicles were exported. The only evidence that is reasonably clear is that ITCs were claimed in respect of these vehicles and ultimately denied and reclaimed by the respondent. In respect of one vehicle bearing stock number 6-388 the respondent concedes that GST was paid. [41] In some cases, the stock sheets show as the vendor the company into whose account the payment is made such as 3095 or P.G., not the company whose name appears as vendor on the invoice. [42] Mr. Doherty stated that he did not know most of the individuals or companies appearing in the documents as vendors, but that perhaps one of his other employees such as Shawn McGovern or Bob Robichaud would know them. Bob Robichaud did not testify. It seems he was nowhere to be found. "Rob" appears frequently in both the oral and documentary evidence, particularly in connection with the transactions with Indians. [43] It is, I think, a fair conclusion on all of the evidence that "Rob" is Robert Robichaud, the employee of Orly and that he was very much involved in the part of the overall transactions that had to do with the sales of the vehicles in question here to Indians and from this I conclude that so was Orly. [44] The other employee, Shawn McGovern, testified that he dealt with the various persons shown as vendors. He said that the person with whom he dealt at 5ième was Marcel Gaudreault. He said he did not know Daniel Foster. [45] He said he dealt with Daniel Paquette and Claude Bergeron at 2844. At M & M he says he dealt with someone called Alex and also Claude Bergeron. At Duchesne he says he dealt with Normand Duchesne. At Caron he dealt with Gilles Caron. At J.L. he dealt with John Lemoyre, who died in 1996, and at Provost it was Serge Létang. He did not recall who he dealt with at Benny, Succès or Cartier. He did not know any of the third parties to whom payments were made. He said he thought they were financing the vendors. Mr. McGovern testified with respect to a number of the invoices it was his handwriting on them. This is contrary to Mr. Doherty's testimony that the invoices were vendor generated and that they would come in completed form to Orly. He also stated that he was unable to recognize many signatures on the invoices of persons said to be representing the vendors. [46] Before I move on to the evidence of the witnesses called by the respondent I should observe that quite apart from any evidence from the respondent's witnesses that contradicted that of Mr. Doherty or Mr. McGovern, I did not find the evidence of these two appellants' witnesses particularly persuasive. I had the distinct impression that they were holding something back and were giving me the bare minimum that they considered necessary. For example, the transactions involving over 300 vehicles had a value in the millions of dollars. Yet they remained inexplicably ignorant of anything about the vendors to whom they were paying vast sums of money. They did not appear to care where the cars came from or where the money went. I find this, to say the least, implausible. It is explicable only on the hypothesis that Orly knew what was going on at every step of the way and was in control from the moment the vehicle left the car dealer to the point at which it was sold, whether abroad or domestically. [47] I note, for example, that neither Mr. McGovern nor Mr. Doherty mentioned in their evidence the role that the sales to the Indians played. The Indians were never mentioned. I should have thought that given the serious nature of the allegations in the Reply to the Notice of Appeal and in the other material disclosed by the respondent to the appellant, they would have gone to great lengths to find the representatives of the companies involved and have them testify to establish the authenticity of the impugned transactions. Mr. Doherty said that he did not try because he was not concerned. I am inclined to draw a less favourable inference and that is that the appellant knew that if it had called the persons who, in the result, the respondent called, they would not have supported its case. [48] I turn now to the evidence of the respondent's witnesses. Daniel Foster [49] Daniel Foster's name appears on a number of invoices of 5ième and on two of 2844. He denies that on any of the invoices it is his signature. He was the owner of 5ième but he testified that it sold only used cars and that it carried on no business after the suspension of its licence on June 14, 1995. He stated that 5ième had carried on business selling used cars between 1988 and 1993. He said that he knew nothing of the transaction whereby 5ième was shown as selling to Orly. He denied that the signature Daniel Foster on the invoices from 2844 to Orly were his. He testified that he did not know James Doherty, Shawn McGovern or Bob Robichaud or Ron Snyder. The first time he heard of Orly was when Revenue Québec contacted him. Marcel Gaudreault [50] Mr. McGovern said that he dealt with Marcel Gaudreault at 5ième. Mr. Gaudreault says he worked for 5ième for a few weeks or months. His main function seems to have been to "exchange cheques". He became involved with Daniel Paquette in P.G. They opened a bank account in the name of P.G. at the National Bank in Lachine, Québec. Both had signing authority. [51] He received $100.00 for each exchange of cheques which involved depositing cheques and drawing cheques for bank drafts. I find as a fact the cheques were from Orly (or Crescent on Orly's behalf) and the bank drafts were to automobile dealers to pay for cars allegedly sold to Indians. He had not known Daniel Paquette before he approached him to open up the bank account. [52] The procedure was that a driver would give Mr. Gaudreault a cheque at a meeting place near the bank. He would deposit it and get a bank draft which he would give to the driver. He did not recognize the name Orly or Crescent. Any money that was left he would give back in the form of cheques to the person who delivered the cheques. He knew nothing about where the money came from or where it went. P.G. had no function or business activity other than the exchange of cheques. He said it never bought automobiles or sold automobiles to Orly. [53] His name appears also on the card of a bank account of CMM. He denied any knowledge of this. Specifically, he denied that it was his signature on the bank account signature card. He denied any knowledge of the transaction of CMM. The other signature on the card was Jocelyn Bourcier, whom he said he did not know. When he purchased bank drafts he bought them in the name of the person given to him by the driver who brought the cheques to him and to whom he gave the drafts. [54] His memory with respect to the persons to whom bank drafts were made payable was vague but he thought there must have been payees containing names such as Jeep Eagle or Chevrolet. [55] He knew nothing about 2844 and he said that he did not believe Orly ever loaned money to 2844. [56] He did not know James Doherty, Ron Snyder, Bob Robichaud or Serge Létang. He admitted that he had met Shawn McGovern at the auto auction at Saint-Eustache. He had no recollection of who asked him to open up an account at the Royal Bank at Pointe-Claire. He did not know the people who brought him the cheques to exchange for bank drafts. There were several. [57] He was not challenged in cross-examination on his denial of sales to Orly or his description of the manner in which he was involved in the exchange of cheques. [58] I asked him several questions for clarification. He informed me that Mr. Paquette and he performed the cheque exchange service and they were paid $100.00 for each transaction. He also stated that when he bought a bank draft the difference between the cheques that he deposited from Orly or Crescent and the draft payable to the dealer would be given by way of a cheque to the person who brought him the cheque from Orly or Crescent less his $100.00 fee. Gabriel Bélanger [59] Mr. Bélanger was the incorporator of 2844. He was also the sole shareholder and director. This company, it is alleged, sold about 85 automobiles to Orly. Most of the cheques for the amounts on the Orly invoices went to P.G. and some to Tomken or Bergeron. None went to 2844. [60] Mr. Bélanger testified that 2844 sold only used cars. He denied any knowledge of the sales shown on the invoices from 2844 to Orly. He stated that he did not know Orly. Evidently he permitted a number of persons to work under the bond of 2844, including Daniel Foster. Mr. Foster, it will be recalled, denied his signature on any of the invoices from 2844 to Orly. 2844 had no bank account and he knew nothing of the companies into whose accounts amounts shown on the invoices were paid such as Tomken, P.G. or Bergeron. [61] I did not find this witness' testimony particularly satisfactory. He seemed to fear reprisals or possible further criminal prosecution. Other people used the company's name but he did not know James Doherty, Shawn McGovern or Bob Robichaud. [62] All I can take from the witness' evidence is that he may have permitted other persons to use the company's name but this is a far cry from supporting the position that 2844 sold millions of dollars worth of vehicles to Orly. The income tax and GST returns of the company show a relatively small amount of commercial activity in the period when these numerous sales were supposed to have been made by 2844 to Orly. Even if one accepts that Gabriel Bélanger did give Daniel Foster permission to use the company name of 2844, this still leaves unanswered the question of establishing whether 2844 ever in fact sold 80 odd vehicles shown on the invoices to Orly. Huntley Raymond Crawford [63] Mr. Crawford had carried on business under the name of Succès, which sold used automobiles. It carried on business from March 1995 to November 1996. The only activity was the purchase and sale of a few old vehicles and he stopped buying automobiles about five months before November 1996 when the business closed. [64] Mr. Crawford stated that it was not his signature on the invoices from Succès to Orly of the 17 automobiles and moreover it was not his company's stamp on the invoices or on the endorsement on the cheques payable to Succès. The cheques were deposited to the account of Hogue. Mr. Crawford stated that he did not recognize this company, Normand Duchesne or Orly. Moreover, he did not know James Doherty, Shawn McGovern or Bob Robichaud. Counsel for the appellant argued that Huntley Crawford was not a credible witness and that he had made a deal with Revenue Québec in exchange for his testimony. This conclusion is not one that I am able to draw on the evidence. The suggestion was put to him in cross-examination and he denied it. I am not prepared to make an adverse finding of credibility in respect of this witness. Jocelyn Bourcier [65] Mr. Bourcier was a production manager in the field of entertainment. He was introduced to Mr. Marcel Gaudreault who offered him a chance to make some pocket money exchanging cheques. He subsequently learned that this had to do with automobiles. He was told that he would be paid $100.00 or $150.00 for each exchange of cheques. He was with Mr. Gaudreault when he exchanged one cheque at the National Bank in Lachine. He obtained a bank draft. The difference between the cheque which was deposited after being endorsed by Mr. Gaudreault or Mr. Bourcier and the bank draft was taken in cash by Mr. Gaudreault. An account had previously been opened by Mr. Gaudreault at the Royal Bank, St-Jean and Hymus and Mr. Bourcier's signature appears on the account card. The name of the account was CC. Cheques were exchanged by Mr. Bourcier at this branch as well. The procedure was fairly simple. Mr. Gaudreault told Mr. Bourcier to go with a person - a certain Vito - to the bank and exchange the cheques. Also, on Mr. Gaudreault's direction, he registered a company, Les Camions Cartier. [66] Mr. Bourcier stated that he never went to the Royal Bank branch without Vito. He had never seen the bank records before he was shown them at the trial. He went on a number of occasions to the bank, in every case to exchange cheques for bank drafts. The documents were always ready for him. He had nothing to do but endorse the cheques and obtain a bank draft. [67] The bank drafts were in favour of car dealers. Mr. Bourcier knew nothing about the automobiles or how they were purchased but he was told by Vito that they were shipped by containers. [68] Vito himself remains a somewhat shadowy character. His family name was not established although reference was made to a Vito Cusano, a director of 3095, one of the third parties to whom cheques were made payable when the vendor was shown on the invoices to Orly as 2844 or 5ième. Vito Cusano is one of the persons shown as authorized to sign on the account of 3095 but not on that of CMM. It is probable that the Vito whom Mr. Bourcier met was also the Vito Cusano involved with 3095 because in a second declaration signed by Mr. Bourcier he stated that he was accompanied by Vito Cusano to the Royal Bank. [69] Mr. Bourcier's signature also appears on the bank account of CC at the Lachine branch of the National Bank, along with the signature of Marcel Gaudreault. He admitted to having signed a few cheques - ten at most - but that account (Exhibit I-211) shows deposits of cheques and withdrawals in the millions of dollars. He denied having signed that many cheques. [70] Although at Mr. Gaudreault's direction he registered CMM, he had never heard of M & M. He did not know James Doherty, Shawn McGovern or Bob Robichaud. He had heard of Orly only in a conversation that he overheard between Vito and Mr. Gaudreault. [71] In cross-examination he was shown a declaration that he signed and gave to madame Turcotte in which he denied any knowledge of CMM and Marcel Gaudreault. His explanation of the contradiction in his oral testimony and the declaration is that Mr. Gaudreault told him never to mention it to anyone. [72] This raises squarely a question of credibility. This is not, however, unusual in this case in which questions of credibility abound. The task before me is to determine what evidence is most worthy of credence and from that to extract what, on a balance of probabilities, is most likely to be the truth, bearing in mind the somewhat complex rules relating to onus of proof in tax cases. Some of the witnesses may be telling the truth all of the time, some none of the time and some part of the time. The problem is exacerbated by the fact that the involvement of many of the witnesses was in activities that were, if not downright dishonest, at least rather louche. [73] On balance I think it more probable that Mr. Bourcier was telling the truth when he was testifying in Court than when he made the first declaration. In the declaration he denied signatures that he admitted were his in his oral testimony. [74] On re-examination a further declaration was put to Mr. Bourcier, which was signed over a year after the first declaration. He said that document contained the truth. It appeared to be consistent with his oral testimony. [75] In summary, and notwithstanding the contradictions between his first declaration and his oral testimony, his evidence establishes that he opened two bank accounts, that he deposited cheques from Orly or Crescent into those accounts and obtained bank drafts in favour of automobile dealers. David Fiset [76] David Fiset was called as a witness by the respondent. He has been a truck salesman for 27 years. In 1995 and 1996 he was employed as a salesman by Lacie Chevrolet Motor Sales de Montréal Ltée ("Lacie"). [77] Lacie sold many trucks to Indians who were referred to Mr. Fiset by other Indians or by Orly. He knew the people at Orly - Doherty, Robichaud and Shawn McGovern. [78] The way it worked was that he would receive a telephone call from one of the above representatives at Orly - usually Shawn McGovern - asking about the availability of a particular kind of truck. Lacie would fax to Orly a complete description of the vehicle as well as the price. An Indian would come in with his or her aboriginal status card and driver's license and would sign a contract to buy the vehicle. [79] The truck would subsequently be picked up by a tow truck and the cheque or bank draft delivered. In the latter part of this period Lacie insisted on certified cheques. [80] In summary, the initial contact would be with Orly and if an acceptable vehicle was available and the price was suitable, an Indian would be sent in by Orly. A contract would be signed by Orly and the Indian. The truck would then be picked up and the cheque delivered. In many cases the cheque would be delivered by Shawn [McGovern] or Bob [Robichaud] or a representative of Orly before the truck was picked up. [81] Mr. Fiset identified a substantial number of contracts written up and signed by him between Lacie and the Indians. Where the truck was picked up, either before or at the time, a cheque or bank draft was delivered by a representative of Orly (Ron, Shawn or Bob). The clear pattern that emerges from this witness' evidence (which I accept) is that someone from Orly (usually Shawn or Bob) would contact Lacie about a particular kind of truck. The details and price of the vehicle would be communicated to Orly and if they were acceptable an Indian would come to the dealership, with his or her status card, and sign the agreement which was prepared by Mr. Fiset. Later a cheque or money order would be given to Lacie in payment of the price. The cheque or money order would be delivered either by someone from Orly or the tow truck driver and the vehicle would be picked up. No GST was ever paid. The Indians' involvement would be a fifteen minute meeting with Mr. Fiset to sign the contract. [82] Mr. Fiset knew that the vehicles were to be exported. He had never heard of any of the numbered companies or other entities whose names appeared on the invoices to Orly or into whose bank accounts Orly's cheques went. [83] In a couple of cases sales were cancelled and the refund cheques were given to Shawn McGovern. [84] Counsel for the appellant did not cross-examine Mr. Fiset and so I take it the appellant accepts his testimony in its entirety. Mr. Fiset's testimony confirms the conclusion that I have reached on the basis of the other evidence, that the real purchaser of the vehicles was Orly, not the Indians. The Indians' involvement was to enable Orly to avoid the payment of GST. Gilles Garon [85] Mr. Caron is a status Indian. When he was working on Mr. Serge Létang's boat he was asked if he could "do some transactions". He was asked by Mr. Létang to buy some vehicles because his position as a status Indian resulted in no taxes being paid. He knew the purchases were for Orly. In Montréal he met two people from Orly - James Doherty and Shawn [he forgot the family name but it was obviously Shawn McGovern]. His direct dealings with the Orly representatives were limited. It was Mr. Létang who was giving him directions. He was told that he was to buy, in the name of the Indians, vehicles for export. His role was to sign the purchase papers. On many occasions he went to the dealers and signed the papers either in his own name or in the name of Caron. [86] The purchases were made, no taxes were paid and Mr. Caron delivered the vehicles to Montréal to the same street as the location of Orly or to a shopping center where he left the papers and the keys on the seat of the vehicle. He opened a bank account in the name of Caron, on which he had sole signing authority. [87] There were numerous transactions in the bank account. He deposited cheques from Orly, then acquired certified cheques payable to car dealers. He withdrew the difference in cash, kept $500.00 per transaction, which he shared with Mr. Létang, and gave the rest to Bob Robichaud, whom he believed to be the courier for Orly. [88] If Mr. Caron picked up the vehicle he kept the bank draft and gave it to the dealer. If someone else picked it up he gave the draft to that person. Most of the dealers from whom he picked up cars were in the Ottawa/Hull area. [89] On some of the invoices to Orly from Caron he identified his signature on some and denied it on others. There are about 40 invoices from Caron to Orly. Mr. Gilles Caron admitted that he signed about 10. He denied having signed the others. Those invoices which he admitted to have signed were always filled out when they were presented to him. He never signed any in blank and he never prepared any invoices. [90] Before he went to the dealer to sign the contract of purchase he knew nothing about the vehicle - the model, the price or the equipment. In those cases in which he did admit to signing the invoices to Orly, in which the GST was shown, he said that he was under pressure by Mr. Létang. My impression of his testimony is that he was told to sign and keep quiet and not ask any questions. [91] Mr. Gilles Caron appears to have performed different functions. In some cases as president of his company, Caron, he would sign invoices to Orly, in others he would sign contracts with dealers in his own name. He exchanged cheques for money orders or certified cheques in favour of the dealers in Caron's bank account and would either give them to Bob Robichaud or would deliver the bank draft to the dealer, pick up the vehicle and deliver it to Montréal. He also withdrew the difference between the cheque deposited to Caron's bank account and the bank draft or certified cheque and gave it to Bob Robichaud or Mr. Létang, less his and Mr. Létang's fee of $500.00. [92] There is no exact correlation between the invoices which he admits to having signed and the cheques to Caron which he deposited to Caron's bank account. In other words, it did not follow from the fact he did not sign the invoice that he would not deposit the cheque to Caron's bank account. It appears from his evidence that it was always Gilles Caron who made all the deposits to and withdrawals from the bank account. [93] In order to demonstrate the sort of detective work that was required here, I shall refer to just one or two of the numerous transactions that were discussed with Mr. Caron. Exhibit I-371 is an agreement of purchase and sale between Gilles Caron and Gravel Chevrolet - Geo - Oldsmobile Ltée of a 96 Chevy model CK 10706, serial number 1CNEK13R7TJ404791. The price shown is $41,750.00. No GST or PST was charged. The delivery date is shown as 29/07/96. A receipt for the purchase price of $41,750.00 in favour of Gilles Caron is in the file. [94] On the same file there is an invoice for a 96 Chev Tahoe with the same serial number dated July 22, 1996. The vendor is shown as Succès and the purchaser is Orly. The signature on the invoice is shown as Huntley Crawford. The price shown is $39,500.00 plus GST, of $2,765.00 plus PST, of $2,747.23 for a total of $47,012.23. [95] The cheque in this amount is in favour of Succès and was deposited to the bank account of Hogue. Also, on July 29, 1996, Orly appears to have sold the same vehicle to 3344202 Canada Inc. for export to Moscow for $42,895.00 without GST. [96] In other words, if the documents are to be believed, it seems Mr. Gilles Caron was buying from Gravel Chevrolet a Chevrolet Tahoe that had been sold by Succès a week earlier to Orly and sold again by Orly for export to Russia. [97] I could seek to unravel more tangled webs but it would serve no purpose. A number of other aboriginal companies appear from time to time in Mr. Gilles Caron's testimony such as Pourvoirie Grand Renard Incorporée. Mr. Caron's name appears on an invoice from Caron to Orly as a signatory, but he denies it. It is dated August 19, 1996 and the price is $38,700.00 plus GST and PST for a total of $44,100.00. There is also a contract between the dealer 417 Jeep Eagle and Pourvoirie Grand Renard, a company on an Indian reserve, for the same Grand Cherokee. The price is $40,363.00. The signature of Gilles Caron is also on the contract, but Mr. Caron denies it. The invoice to Orly from Caron is dated August 19, 1996. The contract between 417 Jeep Eagle and Pourvoirie Grand Renard is dated August 15, 1996 and the agreement between Orly and the foreign purchaser to sell the same vehicle for $40,000.00 is dated August 15, 1996. [98] Mr. Caron said that Pourvoirie Grand Renard as well as Big Brown Beaver Trading Ltd. were simply "noms d'emprunt". The expression prête-nom is sometimes used as well in both French and English. It denotes someone who allows his or her name to be used but otherwise has no interest in the property - a mere nominee. [99] Similarly, in Exhibit I-336 there is a contract dated July 15, 1996 between 417 Jeep Eagle and Pourvoirie des Hiboux to sell it a Jeep Grand Cherokee $40,897.00 (no GST). It is signed by Gilles Caron (he admitted his signature) but said he knew nothing about Pourvoirie des Hiboux. The receipts for the purchase price are made out to Pourvoirie des Hiboux. There is also an invoice dated July 16, 1996 from Caron to Orly for the same vehicle. Mr. Caron admits his signature. The purchase price is $38,700.00 and with GST and PST the total is $44,100.59. [100] A certified cheque from Orly in this amount is made out to Caron and was deposited in the bank account of Caron. A sales contract dated July 16, 1996 shows the same vehicle being sold to a purchaser in New Jersey. [101] The pattern in this case was the same as in every other case: an invoice to Orly from Caron; a deposit in Caron's account; a bank draft to the dealer; a withdrawal of the difference which would be given to Mr. Létang or Bob Robichaud except for $500.00 which Caron would share with Mr. Létang. Claude Bergeron [102] Mr. Bergeron opened a bank account in the name of Gestion Bergeron. The original purpose was to carry on a used car business but this did not materialize. The account was simply used to exchange cheques, i.e. to deposit cheques and obtain bank drafts. Cash withdrawals were made and the cash given to "them". This witness was undergoing some type of treatment for a medical condition and most of his testimony was to the effect that he did not remember. He knew it was Orly that came to see him, that he deposited cheques and obtained bank drafts but beyond that his answers were a succession of "I don't remember; I don't have any idea." In a general way he confirmed that the same pattern occurred with Bergeron as with the other witnesses - a deposit of cheques, and a withdrawal for bank drafts. This is confirmed by madame Turcotte's evidence. Cheques were issued to Bergeron where the vendor on the invoice is shown as 5ième, 2844 or M & M. There was a great deal of activity in the Bergeron bank account and it is somewhat surprising that Mr. Bergeron's memory was so defective. The overall pattern that emerges is, however, reasonably clear. Daniel Paquette [103] Mr. Paquette opened an account with the National Bank in Lachine, Québec, in the name of P.G. Auto. He and Mr. Gaudreault were the two authorized signatories. [104] He testified that in 1995 the activity of P.G. Auto was to exchange cheques. He deposited one cheque in the account and issued another on the account. Someone would give him a cheque to deposit and he would issue another one. He seems to have suffered from the same selective amnesia as some of the other witnesses. However, even if his memory was as bad as he made out, what does emerge clearly is that he and Marcel Gaudreault formed P.G. Auto for the sole purpose of exchanging cheques. He was paid $100.00 for each transaction (a deposit and a withdrawal). [105] He did not know who issued the cheques or that it was Orly or Crescent. He seems to have blindly deposited cheques and signed other cheques without paying any attention to where the cheques payable to P.G. Auto came from or where the cheques he signed were going. He did admit however that if there was any money left over after he drew the cheques, he took it out of the account and gave it to the person who brought him the cheques. [106] He said P.G. Auto never bought or sold anything. All it did was exchange cheques. Unsatisfactory as the witness may have been he certainly confirmed that the same pattern occurred with P.G. Auto as with the other bank account holders. Normand Duchesne [107] Although Garage Normand Duchesne appears on only six invoices of automobiles to Orly and the cheques were all payable to Duchesne, Mr. Duchesne's evidence was lengthy. The reason may be that Mr. Duchesne was a director of a company Hogue, which was incorporated on June 19, 1992. The other director was his mother, Cécile Hogue. The cheques that were payable by Orly to Duchesne were deposited into the bank account of Hogue. It does not appear that Duchesne had a bank account in its own name at the time of the transactions in which Orly was involved. In fact, Garage Normand Duchesne Ltée, which had been incorporated in 1977, was dissolved in 1984. [108] This witness either suffered from or affected the same amnesia as some of the other witnesses. Five of the six transactions in which Duchesne was supposed to have sold vehicles to Orly occurred in one week. The invoices were not signed by him. He could not remember the circumstances in which Duchesne acquired the vehicles which are shown on the invoices to Orly or how he obtained the money to pay for them, nor could he remember the negotiations of the sale to Orly or the price. When asked if the vehicles shown on the invoices to Orly were the vehicles that Duchesne sold to Orly, his reply was "I believe so. The invoices are made in the name of Garage Normand Duchesne .... They went through that company." [ « Ça a passé par cette compagnie-là » ]. [109] The invoices show amounts for GST and PST but Mr. Duchesne could not remember if Duchesne was registered for GST or PST purposes. It would be surprising if it were, considering that it was dissolved in 1984. [110] Mr. Duchesne's complete ignorance about the Orly transactions leads me to believe that he knew nothing about them. For example, a GMC Yukon with a serial number 19KEK13R9TJ707519 is shown as being sold by Duchesne to Orly on an invoice dated July 29, 1996 for $39,000.00 plus GST and PST for a total of $44,442.45. Mr. Duchesne denies that it is his signature on the invoice. A cheque for $44,442.45 was issued by Orly to Duchesne and deposited in the Hogue Royal Bank account. [111] In the same file is a sales contract dated August 7, 1996 between Automobiles Goyette Inc. and Gatineau Aventura Tourism Club Inc. to sell the same vehicle for $40,400.00 ($40,100.00 plus a deposit of $300.00). On August 8, 1996 a withdrawal of $40,106.50 is shown in this account. The $6.50 is the bank's charge for a bank draft. Mr. Duchesne denied all knowledge of this transaction. [112] The same pattern is evident in all the transactions: a cheque from Orly to Duchesne would be issued in the amount of the invoice, it would be deposited and a bank draft to the dealer would be purchased. Mr. Duchesne came up with some imaginative and far-fetched explanations of some bank drafts in favour of the dealer Jim Tubman Motors - that he was lending money to Jim Tubman Motors or he was buying a parcel of land from that company. Other cheques were issued in favour of 417 Jeep Eagle, Meyers Chevrolet Oldsmobile. Other cheques in favour of Giordano Auto Sales and Succès were deposited into the Hogue account. [113] Mr. Duchesne admitted that he "exchanged" cheques issued to several companies, including cheques in favour of Succès. While this witness' testimony was riddled with implausibilities and inconsistencies, this much is crystal clear: (a) Duchesne was not buying automobiles and reselling them to Orly, notwithstanding the fact that Duchesne appeared on the invoices; and (b) Mr. Duchesne was doing the same as the other witnesses - using his (i.e. Hogue's) bank account to deposit cheques payable to Duchesne and to other companies, such as Succès, and to draw cheques or bank drafts to dealers. [114] For his services in exchanging cheques, Mr. Duchesne was paid $100.00 per cheque. He testified that when there was a difference between the bank draft and the cheque he would give the difference in cash to the person who brought him the cheque. He did not keep it as a profit. [115] Mr. Duchesne was asked whether in the cases in which a vehicle was shown on a contract in which Duchesne was the vendor it was the same as exchanging cheques for which he was paid. He replied that it was different. He said it was a sale of vehicles. [116] I am setting out his answer verbatim, except that I am reproducing it in the French language in which it was given and then translating it into English. He was being cross-examined on his exchanging of cheques: Q. Étiez-vous payé pour ça? R. Oui. Q. Combien? R. Je chargeais une commission. Q. Combien? R. 100 $ chaque chèque. C'est arrivé une couple de fois 200 $, là. Q. Hum, hum. R. Mais généralement c'était 100 $. Q. Quand on a vu les factures puis les chèques au nom du Garage Normand Duchesne, est-ce que c'était la même chose? R. Même chose? Q. C'était changer le chèque . . . R. Ce n'était pas un changement de chèque, ça, c'était une vente de véhicule. C'est ce que j'imagine, là. Je ne me souviens pas, là, je ne me souviens pas des contrats, mais si je me fie aux contrats c'était une vente de véhicule. Q. Hum, hum. R. Un véhicule que j'ai acheté puis que j'ai revendu. Q. Mais vous dites que vous ne les avez jamais vus ces contrats-là? R. Non, je ne me souviens pas d'avoir vu ces contrats-là. [MY TRANSLATION] Q. Were you paid for that? A. Yes. Q. How much? A. I charged a commission. Q. How much? A. $100 each cheque. A couple of times it happened that it was $200. Q. Mmhmm. A. But generally it was $100. Q. When we see invoices then cheques in the name of Garage Normand Duchesne, was that the same thing? A. Same thing? Q. It was exchanging the cheque . . . A. It was not an exchange of cheque, that, it was a sale of a vehicle. That's what I imagine. I don't remember. I don't remember the contracts, but if I rely on the contracts it was a sale of a vehicle. Q. Mmhmm. A. A vehicle which I bought and then resold. Q. But you say that you never saw these contracts? A. No I do not remember having seen these contracts. [117] His testimony that the invoices showing a sale from Duchesne to Orly represented the sale of vehicles that Duchesne had purchased is not tenable and I do not accept it, for several reasons: (1) He never saw the contracts and he denies his signature on them. (2) He took no part in negotiating the price. (3) He could not remember from whom the vehicle was bought. (4) In some cases the price on the invoice was lower than the price charged by the dealer to the aboriginal company. (5) The idea that Jim Doherty would permit him to keep a profit on these vehicles above the $100.00 he was paid is simply unbelievable. (6) His statements that he sold vehicles to Orly are so qualified by phrases such as "I imagine" or "I can't remember" as to be virtually worthless. [118] The invoices would indicate that in one week he sold five or six vehicles to Orly for over $200,000.00. He says he has no recollection of these sales. Yet his recollection of the practice of exchanging cheques for $100.00 per cheque is quite clear. The reason is that the business of exchanging cheques for $100.00 is believable and conforms to the pattern of activity described by the other witnesses and can therefore be accepted as true. The same cannot be said for the allegation that Duchesne was selling vehicles to Orly. [119] In the case of cheques payable to Succès he did not know who the person was who brought him the cheques, nor did he know whether they were representatives of Succès or who it was he gave the cash to. [120] He identified a cheque for $5,000.00 to McGovern Export Incorporée and another cheque for $5,000.00 to cash which was endorsed by Shawn McGovern. He admitted that he signed the cheques but he did not know what they were for. [121] This witness' evidence was most unsatisfactory. His testimony, however, contains sufficient facts that warrant acceptance to permit one to safely conclude that he was performing the same service for Orly as other witnesses, i.e., depositing cheques from Orly to companies such as Succès, obtaining bank drafts payable to dealers and giving the difference (less $100.00 per transaction) to the person who brought him the cheque. On a preponderance of evidence I find that that person was usually Shawn McGovern or Bob Robichaud or some other representative of Orly. [122] Before I summarize the evidence of the witness Serge Létang I shall mention briefly the evidence of madame Linda Turcotte, the investigator for Revenue Québec who was the principal witness for the Respondent and unquestionably the driving force behind the assessment. Her examination and cross-examination were lengthy. She was, in my view, a credible and impressive witness. Her knowledge of the transactions and her organization of the files was formidable. She conducted her investigation competently under difficult conditions. I shall not endeavour to review her evidence in detail. Adding another hundred pages to these reasons would serve no useful purpose. Much of her evidence is summarized in a group of schedules marked as exhibits I-41, I-42, I-43, I-44, I-85, I-193, I-292, I-297, I-313, I-320, I-366, I-398, I-405, I-437 and I-461. These schedules summarize the information obtained with respect to each vehicle, its make and model, its stock number and its price, as well as the person shown on the invoice and other information. Serge Létang [123] Serge Létang is registered with the North American Indian Nation which, he testified, is more significant than being registered as a status Indian. It is not necessary to go into the precise distinction for the purpose of this case. He is also a member of the Long House which in the North American Indian community confers on him an important status. He stated that at present he works for the Department of Indian and Northern Affairs. He went to a car auction with a friend, Shane Pement, to buy a truck. He met some persons, one of whom was called "Bob" who asked if he lived on the reservation. He subsequently received a telephone call from someone whom he believed to be connected with Orly. He was asked if he wanted to buy some cars and was told that he would be paid a couple of hundred dollars for each car he bought. All he had to do was sign the contract. He signed contracts to buy a couple of cars. One was with Crystal Plymouth Chrysler and one was with Desmeules Dodge Chrysler. In the SAAQ records, these two cars were registered in the name of Serge Létang and then in the name of 2844. [124] Mr. Létang has no knowledge of these registrations or the transactions reflected in the invoices from 2844 to Orly. Indeed, he knew nothing about what happened to the vehicles once he signed the contract at the dealership. He said "The only thing we know, we signed the contract and we get out of the place." [125] He and Shane Pement both engaged in these transactions whereby they signed contracts. He stated that he was worried about the vehicles being registered in his name in case of an accident. He was told that they would not be, but, as we have seen, they were, although he did not know that at the time. He was also worried that if the vehicle was not delivered to the reservation he might end up having to pay tax. He was told not to worry. He did not drive away with the vehicles. They were picked up by a tow truck. [126] It seems he and Shane Pement were involved in contracts involving upward of 30 vehicles. Since some of the Indians were on the black list of the automobile manufacturers, Mr. Létang, who had also worked at the Department of Corporate and Consumer Affairs assisted in incorporating a number of corporations, such as Zadinongha Fishing Club or Gatineau Aventura. A large number of these companies were incorporated under the name of Mr. Pement with the assistance of Mr. Létang. They were owned by the band and, rightly or wrongly, the exemption from PST and GST was based upon that ownership. He testified that sometimes "Bob" from Orly would come and give Mr. Pement the money to cover the incorporation fees. [127] As Mr. Létang testified, it was a matter of two minutes to sign the contract and receive the envelope containing the two or three hundred dollars fee for doing so. He knew that this could save thousands of dollars and that "they" (presumably Orly) were using "us" (the Indians) "to buy cars to save tax, it's as simple as that." [128] He and Mr. Pement went to about 40 dealerships. Mr. Létang went to dealerships with a number of other Indians who were to sign contracts. They would receive a call and be told to go to a specific dealership and the contract would be in the name of a specific person. Their principal contact with Orly was with "Bob" who provided them with the instructions where to go, and in whose name the contract was. "Bob" also provided them with the fees of $200.00 to $300.00 for each vehicle. [129] Mr. Létang's testimony struck me as credible. It had a ring of verismilitude to it and I accept it. It was important in that it described the way in which the exemption under the Indian Act was utilized to avoid the payment of GST. [130] I come then to a summary of my findings of fact and conclusions of law. Essentially this case turns on the facts. The propositions of law are relatively straightforward. They can be summarized as follows: (a) If you pay GST to a registered dealer and the dealer does not remit it to the government, the government cannot recover it from you. This is the proposition for which Airport Auto Ltd., supra, stands. (b) The proposition in Airport Auto Ltd. does not apply if you are complicit in fraud or collusion. (c) If the GST is not paid or payable you are not entitled to an ITC. [131] The appellant's case is that the invoices for the 307 vehicles are authentic documents demonstrating genuine sales to Orly by the persons shown as vendors on the invoices. It is further the appellant's position that the payment into bank accounts other than those of the persons shown as vendors was at the request of the latter. Finally, it is the appellant's position that the amounts shown on the invoices for GST or PST were paid as such to the persons shown as vendors and Orly had no obligation to ensure that the amounts shown as tax were paid to the appropriate taxing authorities. [132] The respondent's case is that the invoices were false and that Orly was complicit in a scheme to claim GST that was never paid. In support of this theory the respondent called as witnesses a large number of persons who either denied selling vehicles to Orly, or could not remember. [133] The appellant contends that the evidence of Mr. Doherty, Mr. McGovern and Mr. Stephen Kisber, together with the invoices, constitutes prima facie proof of the transactions and the payment of tax. Counsel for the appellant pointed to a number of flaws in the evidence of the respondent's witnesses and contended that in light of the deficiencies in the respondent's evidence the appellant's prima facie had not been rebutted. [134] Throughout these reasons I have referred, on a number of occasions, to the unsatisfactory nature of the evidence of some of the respondent's witnesses. On the other hand, the evidence presented on behalf of the appellant was less than compelling, with the result that the prima facie case that the appellant says the respondent failed to rebut was itself rather fragile. [135] The fact that some aspects of a witness' testimony are not satisfactory does not mean that the testimony is to be rejected in its entirety. In a case such as this, where the evidence is both complex and contradictory, the trier of fact must endeavour to reach conclusions on the evidence as a whole. This will involve, obviously, observation of the demeanour of the witnesses and the plausibility or implausibility of the testimony in light of other evidence. The witness, madame Turcotte, spoke on a number of occasions of a "pattern". To base findings of fact on a system or a pattern of behaviour - a general modus operandi if you will - is something that must be done with some care. First, there must be convincing evidence that a pattern exists. Second, the Court must be cautious about excessive use of the pattern simply as a means of filling in lacunae in the evidence, although it may have a limited function in this respect. Importantly the identification and articulation of a pattern can be used as a touchstone against which to test findings of fact. If they are consistent with a pattern they are more likely to be veridical; conversely, one should be skeptical of findings of fact that are inconsistent with an overall pattern. I am, of course, not talking about similar fact evidence in criminal law about which there is a great deal of jurisprudence. The use of a pattern for the somewhat limited purposes that I have indicated above as an aid, in civil cases, to making or testing findings of fact is, I think, appropriate provided one does not carry it too far. In civil cases courts have used evidence of a system or scheme as probative of a variety of matters, as discussed in Sopinka, Lederman & Bryant, Evidence, Second Edition, pages 592-604. [136] The conclusions of fact that I have reached - and I have stated some of them throughout these reasons - are the following: (a) The vendors shown on the invoices to Orly were not the true vendors of the vehicles and the invoices did not represent genuine transactions. There is simply too much evidence that the signatures were not those of persons whose names appeared on the invoices. Many of the persons who owned or represented companies shown as vendors on the invoices denied selling vehicles to Orly and stated that they did not know Jim Doherty, Shawn McGovern or Bob Robichaud. The respondent did not call representatives of all the persons shown as vendors but it called enough that I would consider it dangerous to rely on the authenticity of any of the invoices. Moreover, I consider it significant that Orly did not call anyone from any of the companies shown as vendors. (b) The GST shown on the invoices was, albeit a correct mathematical calculation, not intended to be paid as GST. It was intended to be paid into the bank accounts of persons shown as vendors or other third parties. (c) The bank accounts were simply temporary repositories of the funds shown as the purchase price plus tax. These funds were used to pay dealers the price for vehicles shown on contracts between Indians and the dealers. The rest was paid to Orly or representatives of Orly such as Shawn McGovern or Bob Robichaud, less the amount paid to the numerous persons who made the bank accounts available and engaged in the business at Orly's direction and for Orly's benefit of "exchanging cheques." (d) The contracts between the dealers and the Indians did not represent genuine transactions. They were simply an accommodation to create the illusion of sales that were exempt from tax under the Indian Act. The Indians never took possession of the vehicles (except Gilles Caron who delivered some to Orly) and did not pay for them. Orly paid for them through the bank accounts into which the funds shown on the invoices as the purchase price plus tax were deposited. (e) Orly remained in control of the vehicles from the moment they left the dealership to the point at which they were exported or sold domestically. (f) It was never intended that title to the vehicles would pass from the dealers to the Indians whose names were shown on the dealer contracts. The substance of the transactions was that the dealers were selling to Orly without sales tax being paid. [137] I base these conclusions upon a number of considerations, some of which I have already mentioned throughout these reasons and some of which are set out below: (i) Orly's professed complete lack of any interest in the persons to whom it was ostensibly paying millions of dollars or the persons into whose bank accounts it was paying the money goes beyond strange. One might have thought that any car dealer who was buying hundreds of vehicles from a variety of vendors would at least be mildly curious about who the vendors were and where the money was going. The only way in which the apparent lack of curiosity can be rationally explained consistently with common sense, logic and reality is that Orly through its employees or officers, particularly Jim Doherty and Shawn McGovern, knew precisely who these people were - they were simply accommodation parties, some of whom knew how they were being used and some of whom did not. I am not so ingenuous as to think that Orly was oblivious to what was going on in this multi-million dollar scheme - a scheme that was of Orly's own devising. (ii) The economic viability of at least some of the deals from Orly's point of view depended on Orly keeping the GST and PST and then claiming ITCs in respect of the GST. (iii) The payment to many of the individuals of a fee for exchanging cheques - a process whereby a cheque would go into the ostensible vendor's bank account or that of some third party, a bank draft or certified cheque would be obtained payable to a dealer in the amount shown on the contract between the dealer and an Indian and the difference, less the fee, would be given in cash or by cheque to the courier - is wholly inconsistent with a normal purchase and sale of vehicles. Indeed, it is bizarre. (iv) There is absolutely no evidence of any transfer of title to the vehicles from the Indians or the dealers to the various persons shown on the invoices. I have not in this trial seen a single contract of sale, invoice or any other document transferring title to the vendors shown on the invoices to Orly. One would have expected, if the invoices to Orly represented genuine sales by authentic vendors, and given the allegations by the revenue authorities that the invoices are false, that the appellant would have endeavoured to trace the title into the hands of the alleged vendors, who are sometimes called "secondary dealers." There is a hiatus - or perhaps there are several hiatuses - between the licensed dealers and the "secondary dealers." We have contracts between the dealers and the Indians, which do not, in my view, represent genuine legal relationships. The trail disappears there and we pick it up again only when we find the secondary dealers purporting to sell the same vehicles to Orly. The absence of any of the indicia of normal commerciality is inconsistent with the authenticity of the entire structure that the appellant seeks to establish. Essentially the dealers were selling to Orly without GST and the contracts with the Indians and the invoices from the "secondary dealers" to Orly were mere window-dressing. (v) Even if the testimony of some of the respondent's witnesses was somewhat weak, taken as a whole, the respondent's evidence is a formidable obstacle to my accepting the evidence of Mr. Doherty and Mr. McGovern. We have serious allegations of falsification of documents, of signatures that are not real, and of diversion of funds, ostensibly for GST, back to Orly. Yet no attempt was made in reply to bolster the appellant's claim that the transactions were authentic and that GST was really being paid. I imply no criticism whatever of appellant's counsel. Their presentation of the appellant's case was skilful and professional in the extreme, but they simply did not have the necessary ammunition. [138] On the evidence I have concluded that the appellant has not established that the transactions shown on the invoices to Orly represent authentic sales or that the amounts shown as GST on the invoices were genuine, or were paid as or represented GST, or were intended to be paid as GST. Since I have concluded that no GST was paid the appellant was not entitled to the ITCs claimed and paid to it in respect of the 307 vehicles in issue, except for a vehicle purchased from Ile-Perrot Toyota bearing Orly's stock number 6-388. [139] The conclusion that I have reached on the facts makes it unnecessary that I deal with the argument that the government is not going after the right people - the franchised dealers, the Indians, or the persons shown as vendors on the invoices. This case involves essentially factual questions and, whatever factual conclusions may have been influential in other cases, Orly was involved in a scheme to claim ITCs in respect of GST that it did not pay and did not intend to pay. That is sufficient to dispose of this case. The fact that there may be many people up the line who ought to have paid tax does not alter the fact that the appellant did not pay GST, did not intend to do so, and is not entitled to the ITCs. [140] The Notice of Appeal stated only that the GST was paid. It does not raise as an alternative that GST was payable. Section 169 of the E.T.A. requires that for ITCs to be claimed the tax become payable in respect of a supply. The appellant in its Notice of Appeal chose to put the case squarely on the basis that it paid the GST. To have argued that even if I find that the tax was not paid because the invoices were subterfuges nonetheless it became payable constitutes implicitly an admission that the very premise upon which the appellant's case was based is faulty. Nonetheless the point was argued that the tax became payable and therefore the appellant was entitled to the ITCs claimed. [141] This raises a number of questions. If the contracts with the Indians and the invoices from the "secondary dealers" did not constitute evidence of valid legal relationships, when was the supply made and when did the tax become payable? [142] The appellant relied upon the decision of Archambault J. in Ventes d'Auto Giordano Inc. v. R., 2001 G.S.T.C. 37 where he said: . . . Whether we consider that GAS purchased its 19 vehicles from CAM or whether, as is alleged by the Respondent, GAS purchased those vehicles from the car dealers through the agency of the natives, GST was "payable" with respect to all the vehicles. GAS does not qualify for any exemption under the Act or under the Indian Act and GST was payable with respect to the supplies it acquired from whatever supplier. And that is all that is required under subsection 169(1) of the Act. The fact that GST may not have been paid is irrelevant. [143] Counsel for the respondent quoted the commentary by David Sherman on the above passage as follows: The Crown's position was that there was no real purchase and sale by the broker, but that the broker was acting as a "front" or agent for Giordano. Thus, in the Crown's theory, Giordano was never really charged GST. Unfortunately, the Court decided that it did not have to determine whether this was the case. Judge Archambault stated at para. 47 that even if the natives were acting as Giordano's agents: "the invoices issued by the car dealers would then become the invoices for [Giordano]. Those invoices provide sufficient information to determine the ITC amount that could be claimed by [Giordano]." With respect, this analysis cannot possibly be correct. If Giordano was really using the invoices from the dealers to the Indians, then those invoices did not show GST and did not meet the documentary requirement in subpara.(3)(b)(iii) of the Regulations that the amount of tax be shown! [144] I have no difficulty with the proposition that one is entitled to an ITC where GST is payable on a supply but has not been paid where there is bona fide acceptance of the liability to pay. Where I find the reasoning advanced by the appellant problematic is where the taxpayer does not admit that it did not pay the tax but nonetheless advances the argument that at an unspecified point in time a supply was made to it and the obligation to pay tax arose. I should have thought that where the claim is based on the obligation to pay the taxpayer should identify with clarity and specificity just who it was obtaining the supply from, what the consideration was and what the tax should be. That is essentially the purpose of subsection 169(4) and the regulations under it. The appellant has in my view made its bed and must accept the consequences of lying in it. Accepting, as I do, that the respondent had the onus of proof of establishing non-compliance under subsection 169(4), I think is has met that onus. [145] Where the taxpayer receives a taxable supply in a bona fide transaction and GST becomes payable, the amount that thereby becomes payable as GST will enter into the computation of ITC in the formula A X B in subsection 169(1) even though the actual payment is not made at that time. Where, however, the transaction upon which the claim for an ITC is asserted is a sham and the money purportedly paid as GST is never intended to be treated or paid as GST but is simply sent on a detour back to the claimant through a bank account that is essentially controlled by the claimant, this in my view prevents the claimant's basing a claim on the tax having become payable. [146] The computation of net tax under section 225 of the Act requires the application of a formula in which GST collectible or collected is netted against ITCs determined under subsection 169(1) to arrive at a positive or negative amount which defines a person's entitlement to a payment or an obligation to pay. In that calculation it is obvious that whether an amount is payable or collectible (and not necessarily paid or collected) is an essential ingredient if the system is to work smoothly. It must of necessity be premised upon the existence of genuine transactions. If the transactions upon which a claim is based are fictitious and it is then sought, once the fiction is discovered, to create a new theory of entitlement upon a previously inarticulated hypothesis in which the original hypothesis is simply expunged, this throws a spanner in the orderly workings of the system and leads to a result which this court should not, in my view, sanction. [147] If a taxpayer bases its entire case for ITCs upon a structure that is a sham, and that structure collapses, can the taxpayer base a new claim on what it asserts is a new reality that arises, Phoenix-like, from the ashes of its original case? I should have preferred to say that as a matter of law it cannot, on the basis of a principle that the original deception prevents it from relying upon a new state of affairs that arises only once its deception is uncovered. The principle is undoubtedly sound, as a matter of fairness and common sense. I will however confine myself to saying that the evidentiary obstacles to creating a new theory that is diametrically opposed to the case that the taxpayer has been steadfastly asserting to the bitter end after the old basis collapses in ruins are virtually insurmountable. They have not been surmounted here. [148] So far as the tax of $69,287.55 on what the respondent alleges were unreported sales is concerned, I do not think the appellant put forward any evidence to rebut the assumption on which this part of the assessment is based and accordingly it must stand. [149] Penalties were also imposed under sections 280 and 285. To challenge the penalties under section 280 requires that the appellant demonstrate due diligence. This has not been done. [150] The onus is upon the respondent to support the section 285 penalties. The onus is a civil one but it requires somewhat more stringent level of proof. In Klotz v. The Queen, 2004 DTC 2236, I quoted from the decision of this Court in Urpesz v. The Queen, [2001] C.T.C. 2256 at 2559 to 2661 As it happens, the authorities on this branch of the law are legion. One might start with the numerous pages under subsection 163(2) of the Act in the CCH Canadian Tax Reporter or the DeBoo Canada Tax Service. A recent case is Farm Business Consultants Inc. v. The Queen, 96 DTC 6085, in which the Federal Court of Appeal upheld a decision of this court (95 DTC 200). At pages 205-6 this court said: I am cognizant of the fact that subparagraph 152(4)(a)(i) has as its purpose the opening up of returns for statute-barred years where items of income, for a wide variety of reasons, are omitted or misstated, whereas subsection 163(2) is a penal provision and that in applying it if there is doubt as to the type of conduct to which the misrepresentation is attributable the benefit of that doubt should be given to the taxpayer. In Udell v. M.N.R., 70 DTC 6019 Cattanach, J. said at page 6025: There is no doubt that section 56(2) is a penal section. In construing a penal section there is the unimpeachable authority of Lord Esher in Tuck & Sons v. Priester, (1887) 19 Q.B.D. 629, to the effect that if the words of a penal section are capable of an interpretation that would, and one that would not, inflict the penalty, the latter must prevail. He said at page 638: We must be very careful in construing that section because it imposes a penalty. If there is a reasonable interpretation which will avoid the penalty in any particular case, we must adopt that construction. and at page 6026: I take it to be a clear rule of construction that in the imposition of a tax or a duty, and still more of a penalty if there be any fair and reasonable doubt the statute is to be construed so as to give the party sought to be charged the benefit of the doubt. See also Holley v. M.N.R., 89 DTC 366 at 369; De Graaf v. The Queen, 85 DTC 5280. A court must be extremely cautious in sanctioning the imposition of penalties under subsection 163(2). Conduct that warrants reopening a statute-barred year does not automatically justify a penalty and the routine imposition of penalties by the Minister is to be discouraged. Conduct of the type contemplated in paragraph 152(4)(a)(i) may in some circumstances also be used as the basis of a penalty under subsection 163(2), which involves the penalizing of conduct that requires a higher degree of reprehensibility. In such a case a court must, even in applying a civil standard of proof, scrutinize the evidence with great care and look for a higher degree of probability than would be expected where allegations of a less serious nature are sought to be established.3 Moreover, where a penalty is imposed under subsection 163(2) although a civil standard of proof is required, if a taxpayer's conduct is consistent with two viable and reasonable hypotheses, one justifying the penalty and one not, the benefit of the doubt must be given to the taxpayer and the penalty must be deleted.4 I think that in this case the required degree of probability has been established by the respondent, and that no hypothesis that is inconsistent with that advanced by the respondent is sustainable on the basis of the evidence adduced. _________________ 3 Cf. Continental Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164; 131 D.L.R. (3d) 599; 25 C.P.C. 72, per Laskin, C.J.C. at 168-171; D.L.R. 562-564; C.P.C. 75-77; Bater v. Bater, [1950] 2 All E.R. 458 at 459; Pallan et al. v. M.N.R., 90 DTC 1102 at 1106; W. Tatarchuk Estate v. M.N.R., [1993] 1 C.T.C. 2440 at 2443. 4 This is not simply an extrapolation from the rule in Hodge's Case (1838) 2 Lewin 227; 168 E.R. 1136, applicable in criminal matters such, for example, as section 239 of the Income Tax Act where proof beyond reasonable doubt is required. It is merely an application of the principle that a penalty may be imposed only where the evidence clearly warrants it. If the evidence is consistent with both the state of mind justifying a penalty under subsection 163(2) and the absence thereof - I hesitate to use the words innocence or guilt in these circumstances - it would mean that the Crown's onus had not been satisfied. I have obtained great assistance in this matter from two decisions of Strayer J. in Venne v. The Queen, 84 DTC 6247 and De Graaf v. The Queen, 85 DTC 5280. None of the cases I have mentioned were referred to by counsel. At page 6256 in the Venne decision Strayer J. said: With respect to the possibility of gross negligence, I have with some difficulty come to the conclusion that this has not been established either. "Gross negligence" must be taken to involve greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not. I do not find that high degree of negligence in connection with the misstatements of business income. To be sure, the plaintiff did not exercise the care of a reasonable man and, as I have noted earlier, should have at least reviewed his tax returns before signing them. A reasonable man in doing so, having regard to other information available to him, would have been led to believe that something was amiss and would have pursued the matter further with his bookkeeper. [151] This is, I think, an appropriate case for penalties in respect of the claim for ITCs. Orly, in my view, through Jim Doherty, knowingly claimed ITCs to which it was not entitled. [152] It appears that no penalty was imposed in respect of the $69,287.55 of unreported GST. [153] The appeal is allowed and the assessment is referred back to the Minister of National Revenue for reassessment and reconsideration to give effect to the respondent's concession with respect to the vehicle bearing Orly's stock number-6-388 and to reduce the disallowance of ITCs of $41,889.05 referred to in paragraph 3 of these reasons to $39,159.05 and to adjust the penalties accordingly. [154] The respondent is entitled to her costs. Signed at Ottawa, Canada, this 22nd day of April 2004. "D.G.H. Bowman" Bowman, A.C.J. CITATION: 2004TCC86 COURT FILE NO.: 98-431(GST)G STYLE OF CAUSE: Les Voitures Orly Inc./ Orly Automobiles Inc., and Her Majesty The Queen PLACE OF HEARING: Montréal, Quebec DATE OF HEARING: June 2 to 27, 2003; October 14, 15, 16, 17, 20, 21 and 22, 2003; December 1, 2, 3, 4 and 5, 2003 and on January 19 and 20, 2004. REASONS FOR JUDGMENT BY: The Honourable D.G.H. Bowman, Associate Chief Justice DATE OF JUDGMENT & REASONS FOR JUDGMENT: April 22, 2004. APPEARANCES: Counsel for the Appellant: François Barette Mathieu Bouchard Counsel for the Respondent: Pierre Zemaitis Michel Dansereau COUNSEL OF RECORD: For the Appellant: François Barette/Mathieu Bouchard Name: Davies Ward Phillips & Vineberg Firm: Barristers & Solicitors 1501 McGill College, 26th Floor Montréal, Quebec H3A 3N9 For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada [1] See Reference re Excise Tax Act (Canada) [1992] 2 S.C.R. 445, para.4. Exempt supplies and zero-rated supplies do not attract any tax from the ultimate consumer. However, in respect of exempt supplies, the vendor, while paying the GST on purchases, is not entitled to an input tax credit. In consequence, in the case of exempt supplies GST is paid to the federal government at the penultimate stage in the production chain rather than by the ultimate consumer. In principle, zero-rated supplies attract the GST in the same way as any other taxable supply as they move through the production chain to the ultimate consumer. However, the consumer pays a tax set at "0%," and suppliers are entitled to the input tax credit, so that no net revenue is raised for the federal government at any stage in the production chain by the production and sale of these goods.