http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/108369/index.do 
Cherniak v. The Queen (March 2, 2015 – 2015 TCC 53, Hogan J.).
Précis: The taxpayer was assessed as a director for failure to remit GST in the amount of $6,165,394.23. The plan involved what is known as a “carousel sheme” under which “GST is drawn out of the system on the basis of fictitious export sales of zero‑rated supplies that allow the exporter‑seller to receive large refunds in connection with tax that was never remitted in the first instance.” The taxpayer argued that no GST was payable in the first place. The Court found that the taxpayer was not a credible witness and that the transactions in question were fictitious. The Court rejected his “due diligence” defence as the evidence indicated that he was an active participant in the scheme. The appeal was allowed only to the extent of a small concession ($8,482.71) (the “Concession”) on the total of tax at issue which had been made by the Crown. Costs were awarded to the Crown.
Decision: This GST decision arose out of a 5 day trial where Mr. Cherniak was self-represented. The subject matter was an alleged “carousel scheme” by a company known as GMC:
[18] In the audit report for GMC, Mr. Yasotharan carefully documents the alleged flow of computer parts starting with Micro Connections. His findings in that regard are illustrated in Appendix B to these reasons. He observes that Micro Connections was not registered for GST purposes until August 30, 2000. This explains why there was no GST number indicated on the invoices provided to GMC. He believes that Micro Connections became a registrant because Mr. Jacobs had learned that GMC was being audited. Mr. Yasotharan also noted in his testimony that Micro Connections did not remit the GST that it purportedly collected from GMC.
[19] Mr. Yasotharan further notes that payments from the final non-resident customers in the chain of transactions were made from an offshore bank account located in the Bahamas. Surprisingly, payments made by GMC to Micro Connections were also deposited in an offshore bank account with the Ansbacher Bank. He described it as odd that a Canadian supplier of computer equipment that allegedly purchased computer parts in Canada would deposit Canadian dollar payments in an offshore account. He could not identify the holders of these offshore bank accounts. GMC and the Appellant did not provide any credible evidence in this regard. Mr. Yasotharan’s conclusion was that the payments were simple window dressing designed to mask the fact that the entities inserted in the chain were engaged in artificial transactions designed to trigger large GST refunds in connection with fictitious zero-rated export sales. He also concluded that all documentation created into by the parties was window dressing.
[20] As pointed out by the Respondent’s counsel in his oral submissions, this type of arrangement is commonly known as a “carousel scheme”. Money flows in a predetermined manner opposite to the flow of fictitious transactions. The money starts and ends with the same parties. The GST is drawn out of the system on the basis of fictitious export sales of zero‑rated supplies that allow the exporter‑seller to receive large refunds in connection with tax that was never remitted in the first instance. Numerous buyers and sellers are inserted into the transaction flow to mask what is really going on.
[Footnote omitted]
The Court found that Mr. Cherniak’s evidence was not credible:
[24] In light of all of the above, I conclude that the evidence presented by the Appellant was neither reliable nor credible. The compelling inconsistencies noted above suggest that the Appellant did not testify truthfully. Mr. Abela’s evidence also fell well short of the mark. As a final observation, I note that Mr. Abela acknowledged that he declared bankruptcy soon after receiving an assessment for unremitted GST due by the corporations for which he acted as a director. Mr. Abela claims that he did not challenge the assessment made against him because he did not have the financial resources to do so. From his testimony, I infer that he likely concluded that he could not mount a successful defence. Many times, he answered questions on cross‑examination by claiming he could not recall the facts. The impression I was left with was that Mr. Abela was deliberately trying to mask his complicity in a so-called carousel scheme. Likewise, the Appellant left me with a similar impression.
Similarly it rejected his evidence of due diligence as a director of GMC:
[36] The Appellant tried his best to place the blame for GMC’s failure to remit the GST squarely on Mr. Nixey’s [the alleged manager] shoulders. Despite the Appellant’s best efforts in this regard, he failed to establish that he was an unsuspecting victim of a ruse implemented by Mr. Nixey. On the contrary, there were many suspicious and unusual circumstances that show that the Appellant was an active participant in the arrangement. For example, the Appellant acknowledged that GMC’s Suppliers needed to be registered for the GST and to provide GMC with proof of their registration in order for GMC to be able to claim ITCs on its purchases. In spite of this, the Appellant did not take adequate steps to ensure that the Suppliers had valid GST numbers. The evidence shows that no registration number was shown on the invoices that GMC received from the Suppliers. He claims that he inquired about and received a GST number from Micro Connections when GMC commenced purchasing goods from Mr. Jacobs. However, when he was asked by the CRA auditor to produce the number allegedly provided by Mr. Jacobs at the outset of his dealings with GMC, the Appellant provided the auditor with the number obtained by Mr. Jacobs only after the audit had commenced. There is not a shred of reliable evidence to support Mr. Cherniak’s assertion that he looked into this matter. The volume of purchases and sales was huge for a new business. Payments were made to an offshore bank account. RBC asked questions, yet Mr. Cherniak claims he did not have any reason to worry.
The appeal was allowed only to implement the Concession by the Crown. Costs were awarded to the Crown.