http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/135307/index.do
SNP L.P. v. The Queen (January 28, 2016 – 2016 TCC 12, Rip J.).
Précis: The question in this appeal was very narrow:
[1] The issue in this appeal is whether, or to what extent, a purchaser of goods who pays the required Goods and Services Tax ("GST") under Part IX of the Excise Tax Act ("ETA" or "Act") to a person who is registered as a supplier, but may not be a supplier, is entitled to input tax credits ("ITCs") if the purported supplier, among other things, does not remit the GST to the Receiver General. And if the purchaser in such circumstances is not entitled to ITCs, is it entitled to a rebate of tax paid in error? (Section 261 and subsection 296(2.1) of the ETA.)
In short the Tax Court found that SNP was entitled to the ITCs claimed with the exception of purchases from a Ms. Bergeron where they did not follow their own internal procedures and one purchase from a Mr. Vanier at a time when his GST registration had been cancelled.
Decision: Justice Rip adopted a measured and practical approach in dealing with the obligations of purchasers under the GST legislation:
[78] A government does not issue GST registration numbers haphazardly leaving it to businesses to determine the legitimacy of a supplier. The fact that a person has been issued a GST registration number announces to the world that this person has the right to collect GST. A registrant cannot itself be reckless in determining whether a supplier is legitimate or not. However, neither the Act nor its regulations provide the registrant with any procedures to follow. For example, does the registrant have to make inquiries each time it purchases items from a supplier or is it sufficient to make inquiries, as SNF did, when the registrant prepares to make the first purchase from a supplier and an account is opened for the supplier? In my view it should be at the time the parties initiate their relationship, subject always to change if the registrant subsequently becomes aware that the supplier's legitimacy is suspect. Making inquiries at each purchase may be a costly expense to a registrant and would impede the business process. The registrant must rely on its own best efforts. When Revenu Québec or the Canada Revenue Agency issues a GST registration number to a person, that person becomes an agent of the Crown. The taxing authority must bear some responsibility with respect to whom it appoints as agents.
[79] Nevertheless, a registrant purchasing supplies or services from a person must use reasonable procedures to verify that the person is a valid registrant, that the registration number actually exists and that the number is registered in the name of that person. In addition, if the registrant suspects the person's legitimacy as a supplier, then the registrant purchases supplies at its own risk. SNF suffered such risk when it dealt with Ms. Bergeron.
[80] Otherwise, SNF made reasonable efforts to ensure that the suppliers and the GST registration numbers on invoices and in its files were legitimate.
[81] In the appeal at bar, the evidence suggests that the 12 suppliers operated a fraudulent scheme, either individually or in concert, to defraud not only the tax authorities but also SNF. I have no doubt that many of the 12 suppliers were not supplying scrap metal to SNF on their own account; the names of suppliers on the invoices were not those of the real suppliers. But SNF was not part of this exercise and was not aware of it when it purchased supplies from these suppliers. On the facts before me, SNF took reasonable precautions to ensure that the registration numbers were real and that they were issued to 11 of the 12 suppliers. The appellant did make reasonable inquiries to satisfy itself that the GST registration numbers were validly issued to 11 of the suppliers, and it had obtained sufficient evidence in various forms enabling the ITCs to be determined in accordance with subsection 169(4) and the relevant Regulations. That any or all of the other 11 suppliers may not have carried on a business or were "prête‑noms" does not, on the facts, affect the appellant's right to claim ITCs.
[82] Again, one cannot expect a business, whether a small marginal business or a large business like the appellant and AIM with hundreds, if not thousands, of suppliers to make exhaustive inquiries of each potential supplier. There is a reasonable limit, economic or otherwise, to the extent to which a taxpayer must be diligent. Where the tax authorities do not make reasonable inquiries, it does not follow that businesses should be expected to do the tax authorities' job or face a tax liability. This could not have been the intention of Parliament when it passed the GST legislation.
This decision will undoubtedly be welcome in the business community.