9110-1568 Québec Inc. v. The Queen

9110-1568 Québec Inc. v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2009-10-28
Neutral citation
2009 TCC 554
File numbers
2007-214(GST)I
Judges and Taxing Officers
Paul Bédard
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2007-214(GST)I
BETWEEN:
9110-1568 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on October 3, 4, and 5, and May 5, 6 and 7, 2009,
at Montréal, Quebec
Before: The Honourable Justice Paul Bédard
Appearances:
Counsel for the appellant:
Jean-François Poulin
Counsel for the respondent:
Benoît Denis
____________________________________________________________________
JUDGMENT
The appeal from the assessment made December 7, 2005, with notice number 66 201 267, is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment so as to increase the goods and services tax reported by $11,947.21 instead of by $25,256.32 and reduce the input tax credits by $877.37 instead of by $4,096.08, which would mean an net tax adjustment of $12,824.58 instead of $29,352.40, with consequential adjustments to the penalties and interest, in accordance with the attached reasons for judgment.
Signed at Ottawa, Canada, this 28th day of October 2009.
"Paul Bédard"
Bédard J.
Translation certified true
on this 21st day of December 2009
Elizabeth Tan, Translator
Citation: 2009 TCC 554
Date: 20091028
Docket: 2007-214(GST)I
BETWEEN:
9110-1568 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] This is an appeal from an assessment made under Part IX of the Excise Tax Act (the Act) for the period of December 1, 2001, to November 30, 2001 (the "period in question").
[2] In this assessment, the appellant's reported goods and services tax (GST) was increased by $25,256.32 and the input tax credit (ITC) was reduced by $4,096.08, representing an adjustment of $29,352.40 to the net tax. The assessment also includes a $3,520.36 penalty and $1,432.74 interest for a total of $34,305.50.
[3] I immediately note that at the return of the hearing on May 4, 2009, the respondent agreed to reduce the GST assessed by $5,340.94.
[4] The appellant operates a restaurant on St-Denis Street in Montreal, under the name "La Sila". Franco Iaconetti is the appellant's manager.
[5] The appellant acquired the restaurant "La Sila" in 2001. Its fiscal year is December 1 to November 30.
[6] The audit of the appellant's company was carried out by Denis Duval and Sylvie Dagenais. The audit began in 2005.
[7] From the start of the audit, Ms. Dagenais noted that the appellant did not have a computerized accounting system, that the appellant used unnumbered, undated, hand-written bills (70%), that the appellant used cash accounting and the data collected were calculated and processed by hand. Ms. Dagenais also noted that the appellant did not have a general ledger, supplier's ledger, general journal, journal of purchases and sales, or an inventory control report. Lastly, Ms. Dagenais noted that the appellant did not keep records of the bonuses that were allegedly granted to clients and porters at certain hotels.
[8] Inventory was taken only at the end of each fiscal year. The documents in support of this inventory taking were not kept. Information related to the inventory taking was given to the appellant's accountant verbally. It must immediately be noted that the appellant's financial records as of November 30, 2002 (Exhibit I-12) show that the inventory of that fiscal year was zero. However, the appellant sent the Minister an inventory report dated December 1, 2001, showing the value of the inventory at the beginning of that fiscal year was many thousands of dollars. Ms. Dagenais also explained that the appellant's accountant sent her a letter (Exhibit I-18) that explained how the sales figures in the appellant's November 30, 2002, financial records had been established. The appellant's accountant explained in this letter that he deducted GST and QST, tips set at 8% and advances granted to the appellant by Mr. Iaconetti from the total amount the appellant deposited in its bank account. The letter indicates the following:
Total deposits
$824,173.41
Net sales
$542,589.19
GST
$ 37,985.08
QST
$ 43,542.77
Tips
$ 49,929.36
Loan Director
$150,127.00
I immediately note that the appellant's financial records as of November 30, 2002, show that the loans to be repaid to the administrators was $59,130 not $150,127.
[9] Since the appellant's accounting books and records were, to say the least, incomplete and in order to verify the accuracy of the taxable supplies declared, the Minister used an alternative measure to reconstitute the taxable supplies made by the appellant during the period in question, based on alcoholic beverages the appellant purchased during the same period.
[10] More specifically, the Minister reconstituted the total amount of taxable supplies made by the appellant during the period in question using the method explained below:
(i) for each of the appellant's fiscal years during the period in question, the Minister verified all the invoices of alcohol purchased and determined the total number of litres of alcohol purchased each year. The Minister established that the appellant had purchased 5,564.522 litres of alcohol (see Exhibit I‑2), 5,371.712 litres of alcohol (see Exhibit I‑3) and 6,233.33 litres of alcohol (see Exhibit I-4) during the periods of December 1, 2001, to November 30, 2002 (year 1), December 1, 2002, to November 30, 2003 (year 2) and December 1, 2003, to November 30, 2004 (year 3), respectively. Then, the number of litres of alcohol the appellant purchased was reduced by the following allowances granted by the Minister for losses, breakage, bonuses, promotions and kitchen use (see Exhibit I‑9):
NAME: 9110-1568 Québec Inc. "La Sila"
GST: 144242377 RT 0001
QST: 1090011061 TQ0001
ANALYSIS OF TOTAL PERCENTAGE GRANTED ANNUALLY
These figures are in working papers tabs 200x and 200x
Years
Litres purchased
Kitchen allowance
Manager employees promo party consumption
Allowance for increase
final inventory
Various allowances
theft, breakage
Litres for resale
Allowance in percentage without kitchen
Allocation in percentage
2001-12-01 to
2002-11-30
5,564.77
664.00
433.46
67.87
4,399.45
9%
21%
2002-12-01 to
2003-12-31
[sic]
5,351.71
736.00
422.60
65.02
4,128.08
9%
23%
2003-12-01 to
2004-11-30
6,233.33
821.00
431.00
160.00
75.03
4,746.30
8%
24%
17,149.81
2,221.00
1,287.06
160.00
207.92
13,273.83
9%
23%
Nota: No physical inventory record was submitted with the financial records, in support of the items in stock.
This resulted in:
Litres of alcohol purchased
Allowance granted by the Minister
Litres of alcohol considered sold
Year 1
5,564.522
1,165.33
4,399.45
Year 2
5,371.712
1,223.62
4,128.08
Year 3
6,233.33
1,487.03
4,746.30
Generally, the Minister presumed that all the litres of alcohol purchased (minus the allowances granted) had been sold, given that the ITC were claimed for all the purchases and there was no alcohol inventory at the beginning of each of the years in question.
(ii) Then, the Minister reviewed the sales receipts. To estimate the actual sales, and compare them to the reported sales, the Minister carried out a sampling. It was a statistical sampling of the food bills. The Minister calculated the appellant's sales (from which he deducted the rebates and the GST and QST billed to the clients) and the litres of alcohol sold during 55 days (selected at random by a computer program) from year 1, 47 days (selected at random by a computer program) from year 2, and 43 days (selected at random by a computer program) from year 3. Then, the Minister established a sales ratio for the sample periods, dividing the total sales by the total number of litres of alcohol sold. This resulted in:
Net sales
Litres of alcohol sold
Ratio
Year 1 (55 days)
80,471.65
559.048
$143.9440
Year 2 (47 days)
70,868.52
458.493
$154.5682
Year 3 (43 days)
71,316.91
451.524
$157.9470
In other words, according to this method, each litre of alcohol sold would have generated net sales of $143.9440, $154.5682 and $157.9470 in year 1, year 2 and year 3, respectively. Ms. Dagenais explained that the ratios in question represent values used to estimate the total sales for the relevant years. Since the purchase invoices indicated that 4,399.45 litres of alcohol had been purchased in year 1 (after deducting the allowance), the Minister multiplied the number of litres purchased by $143.9440 (year 1 ratio) and calculated that the appellant had made taxable supplies of $633,237.82 that year. I note that the appellant had reported making $542,588.00 in taxable supplies in year 1. According to the Minister, the appellant allegedly made unreported taxable supplies of $90,649.82 (representing a difference of 16.71%). Since the purchase invoices showed that 4,128.086 litres of alcohol had been purchased in year 2 (after deducting the allowance), the Minister multiplied the number of litres purchased by $154.5682 (year 2 ratio) and calculated that the appellant had made taxable supplies of $638,070.92 that year. I note that the appellant had reported making $506,335.00 in taxable supplies in year 2. According to the Minister, the appellant allegedly made unreported taxable supplies of $131,735.92 in year 2 (representing a difference of 26.02%). Since the purchase invoices indicated that 4,746.30 litres of alcohol had been purchased in year 3 (after deducting the allowance), the Minister multiplied the number of litres purchased by $157,9470 (year 3 ratio), and calculated that the appellant had made taxable supplies of $749,634.41 that year. I note that the appellant had reported making $610,881 in taxable supplies in year 3. According to the Minister, the appellant allegedly made unreported taxable supplies of $138,753.41 in year 3 (representing a difference of 22.71%).
[11] During the October 2007 hearing, the appellant showed some of the Minister's errors regarding the litres of alcohol sold during the sample days. The hearing was adjourned to allow the parties to discuss all the errors the Minister might have made in this regard. At the return of the hearing in May 2009, the Minister admitted he made certain errors during the initial audit. After a second audit, the Minister established that during the sample period of year 1 (55 days), the appellant made net sales of $80,277.39 (after deducting the rebates and GST and QST billed to clients) and had sold 571.90 litres of alcohol during that period. The Minister established the new sales ratio during this sample period at $140.3695 (a difference of 3.75% compared to the sales ratio initially established by the Minister) and therefore, the appellant made taxable supplies of $617,486.19 during year 1. After this second audit, the Minister established that during the sample period of year 2 (47 days) the appellant made net sales of $69,702.00 and had sold 475,265 litres of alcohol during that period. The Minister established the new sales ratio for this period at $146.659 (a difference of 7.91% compared to the sales ratio initially established by the Minister) and therefore, the appellant made taxable supplies of $605,409.05 during year 2. As for year 3, the Minister did not conduct a new audit of the appellant's net sales and litres of alcohol sold during the sample period (45 days) for that year. Moreover, he determined the new sales ratio for year 3 was $152.04. The Minister determined this ratio using the following calculation:
(Z) – ( (X + Y) ) x (Z) ) = $152.04
2
Z being the initially established sales ratio for year 3, in this case $157.95;
X being the difference in percentage between the sales ratio initially established by the Minister ($143.94) and the sales ratio subsequently established by the Minister ($140.37) for year 1, in this case, a difference of 2.48%;
Y being the difference in percentage between the sales ratio initially established by the Minister ($154.57) and the sales ratio subsequently established by the Minister ($146.66) for year 2, in this case, a difference of 5%.
The Minister used this new sales ratio to determine that the appellant had made unreported taxable supplies in the amount of $110,957 in year 3.
[12] To summarize, after the second audit, the Minister established the sales ratios at $140.3697, $146.6592 and $152.04 for year 1, year 2 and year 3 respectively. I will restate that after the first audit, the Minister had established the sales ratios at $143.9440, $154.5682 and $157.9470 for year 1, year 2 and year 3 respectively. As a result, after the second audit, the Minister established that the appellant had made unreported sales of $74,898.19, $99,074.059 and $110,957 in year 1, year 2 and year 3 respectively. After the first audit, the Minister had established that the appellant had made unreported sales of $90,649.82, $131,735.92 and $138,753.41 in year 1, year 2 and year 3 respectively. As a result, after the second audit, the appellant's alleged unreported sales dropped by $76,209.28, which explains that at the return of the hearing in May 2009, the Minister agreed to reduce the amount of the GST initially assessed by $5,340.94.
Appellant's position
[13] The appellant claims that:
(i) the Minister was not justified in using an indirect method of auditing its business;
(ii) the indirect method used by the Minister is purely arbitrary, an estimation that does not have the required level of reliability, in particular:
(a) the Minister's errors regarding the number of litres of alcohol sold during the sample days were substantial;
(b) the number of litres of alcohol purchased or sold by the appellant simply has no direct link to the number of meals sold or the value of those meals;
(c) the Minister's sample is simply not representative of its commercial reality;
(iii) the allowance for losses, breakage, bonuses, promotion and kitchen use granted by the Minister does not reflect reality;
(iv) the Minister is not within his right to reduce the ITC by $4,096.08.
Analysis and conclusion
Indirect audit method
[14] In regard to the appellant's position that the Minister was not justified in using the indirect audit method, my comments will be very brief. When financial records are not reliable and when books and registers are inadequate or even nonexistent, the taxpayer is at risk for an audit that might lead the Minister to use less precise methods to establish the amount of under-estimated taxable supplies. Considering the evidence before me, the Minister was justified in using the indirect method in this case.
Errors by the Minister regarding number of litres of alcohol sold during the sample days
[15] Counsel for the appellant admits that his client had the burden of proving that the estimation method the Minister used to establish the appellant's sales was unreliable. However, he claims that by showing that the Minister committed significant errors regarding the litres of alcohol sold during the sample days, his client had, in a way, shown prima facie evidence that the method was unreliable. He added that from the time this prima facie evidence was made by his client, it was the Minister's responsibility to show that his estimation method was reliable. The truth is, during the hearing in October 2007, the appellant claimed that after having raised certain errors the Minister had made in that regard, the estimation method he used was unreliable and, to a certain extent, the burden of proof was reversed. I then asked counsel for the appellant if the appellant was able to show that the errors were significant. Clearly, the appellant was not able to do so. In a purely generous gesture, I adjourned the hearing, in particular to allow the appellant to better prepare itself, make note of the errors the Minister might have made and, lastly, to inform the Minister of them, when relevant, before the return of the hearing. The appellant finally did the work that, in my opinion, should have been done at the objection stage. Once the Minister was informed of his errors, he admitted them, except for a minor error regarding the consumption of 20 glasses of kir that had allegedly been sold in 2004 and represented an error of 1.7 litres of alcohol. I note that the Minister did not want to correct this error on the ground that he had been sufficiently generous by acknowledging the errors he had been informed of (after the adjournment in October 2007), and because after obtaining the invoices of the appellant's alcohol purchases from the SAAQ [sic] for the period in question (after the adjournment), he realized that substantial quantities of alcohol the appellant had purchased during that period were not included in the calculations when the assessment was made since the appellant had not given the Minister all the alcohol purchase invoices at the audit stage. In my opinion, the appellant is trying to defend the indefensible. It is using unjustified procedural tactics to attack an assessment by arguing an alleged reversed onus. In my opinion, this argument must be dismissed.
Non-representative sample of the appellant's commercial reality
[16] Counsel for the appellant claims that his client made a prima facie case that the method used by the Minister was not reliable and that his sample was not representative of the commercial reality and that the burden of proof was therefore reversed. Since counsel for the appellant basically read from his litigation plan during his arguments, I will reproduce the relevant part below, so as not to distort his reasoning:
[translation]
B- Non-representative sample (i) 2001-2002 period
29. The appellant respectfully submits that the Revenue Quebec sample is not representative of its commercial reality, for the following reasons.
30. The appellant was located in the immediate vicinity of the Théâtre St‑Denis, at approximately 320 metres.
31. Because of this advantageous location, the restaurant's is much busier on show nights because most people enjoy evenings with dinner and a show, and the restaurant had a good reputation; this was not contradicted by Revenue Quebec.
32. Under the circumstances, the Revenue Quebec sample was not proportional to the relationship between evenings with a show and evenings without a show, whereas this is an essential consideration.
33. According to pamphlet A-8, the relationship between evenings with a show and evenings without a show during the year is as follows, using the 2001-2002 period as an example:
Table A
Distribution over 365 days
%
Days with show
211
57.808
Days without show
154
42.192
34. The Revenue Quebec sample is distributed as follows for the same year:
Table B
Distribution over 55 days
%
Days with show
26
46.4
Days without show
30
53.6
35. It is important to note that the Revenue Quebec sample for the 2001-2002 period includes 349 days.
36. Since it is rather tedious to determine exactly which of the 365 days were not used in the sample, and to then determine whether there were shows on those days, we will use the same ratios established in Table A:
211 X (349/365) = 202 days
154 X (349/365) = 147 days
37. In fact, the analysis of the survey attached as Appendix "A" confirms that wine, cocktails and beer consumption was considerably higher on days with a show:
Average drinks/day
Days with show
15.89
Days without show
5.03
38. Using this data to adjust the results of the Revenue Quebec survey based on days with a show and days without, the reported consumption would be:
Year
Average drinks/day
Total litres reported
Days with show
202
15.89
3,209.78
Days without show
147
5.03
739.41
Total
349
n/a
3,949.19
39. The difference between litres sold (reported) and litres not sold (unreported) is therefore significantly modified:
Total litres sold according to RQ
4,399.45
Total litres reported according to sample adjusted to be representative
3,949.19
Difference
450.26
Previous difference according to Revenue Quebec, using the method that does not consider days with a show
533.578
40. The difference between reported and unreported alcohol sales is greatly modified under this new method and provides an explanation for a significant number of litres:
533.578L – 450.26L = 83.318L
(ii) 2002-2003 Period
41. The appellant notes that the difference for the 2002-2003 period is even greater than for the preceding period.
42. The Revenue Quebec sample is not proportional to the relationship between evenings with a show and evenings without.
43. According to pamphlet A-8, the relationship between evenings with a show and evenings without in a year is as follows, using 2001-2002 as an example:
Table A
Distribution for one year
%
Days with show
190
52.054
Days without show
175
47.945
44. The Revenue Quebec sample is distributed as follows for the same year:
Table B
Distribution according to RQ sample
%
Days with show
21
44.68
Days without show
26
55.32
45. It is significant to note that the Revenue Quebec sample for 2001-2002 includes 349 days.
46. Since it is rather tedious to determine exactly which of the 365 days were not used in the sample, and to then determine whether there were shows on those days, we will use the same ratios established in Table A:
190 X (348/365) = 182 days
175 X (349/365) = 167 days
47. According to the analysis of the survey, Exhibit A-18 confirms that wine, cocktails and beer consumption was significantly higher on days with a show:
Average drinks/day
Days with show
15.47
Days without show
5.13
48. Using this data to adjust the results of the Revenue Quebec survey based on days with a show and days without, the reported consumption would be:
Year
Average drinks/day
Total reported litres
Days with show
182
15.47
,2815.54
Days without show
167
5.13
856.71
Total
349
n/a
3,672.25
49. The difference between litres sold (reported) and litres not sold (unreported) is significantly modified as follows:
Total litres sold according to RQ
4,128.05
Total litres reported according to sample adjusted to be representative
3,672.25
Difference
455.83
Previous difference according to Revenue Quebec, per the method that does not consider days with a show
675.539
50. The difference between the reported and unreported alcohol sales is greatly modified under this new method and provides an explanation for a significant number of litres:
675.539L – 455.83L = 219.709L
(iii) 2003-2004 Period
51. The appellant respectfully submits that the results regarding the alcohol sold for the 2 preceding periods should be transposed to the last year.
52. The formula the appellant suggests is:
83.18L explained (2001-2002) + 219L explained (2002-2003) = 302.889L
Average for 2003-2004: 302.889/2 = 151.445L
53. In light of this, using 151 litres is also clarified, solely for the 2003-2004 period.
54. It is therefore clear that the Revenue Quebec sample was not representative for the periods in question.
55. At the time the hearing was adjourned in 2007, Revenue Quebec had stated that it would have an expert testify to show the accuracy of the audit method used.
56. However, nothing came of it and in the end, Revenue Quebec did not have an expert witness testify upon the return of the hearing this week.
57. The appellant notes that the reasonableness of a sample is not considered judicial notice, and moreover, the appellant has shown a reality that is its own and the sample used does not reflect its factual situation.
58. The relevance of the expert witness is clearer when the many faults revealed are taken into consideration.
59. The appellant refers, in particular, to Brasserie Futuriste de Laval v. The Queen (book of authorities, tab 7, paragraph 158):
It goes without saying that the gross profit margins in the restaurant industry, and the pub sector in particular, fall outside the scope of judicial notice.
If the tax authorities believe that the only way to determine the sales of a taxpayer whose accounting is deficient and who does not have the appropriate documents is to mark up its sales by a certain percentage, they must still show, by means of evidence regarding industry standards or otherwise, and, if not by an expert, then with statistics, that the markup being applied is a recognized, reasonable and appropriate standard for the taxpayer's business.
I cannot accept the submission by counsel for the Respondent that the presumption of an assessment's validity automatically carries with it a presumption that all the assumptions on which the Minister relied to make the assessment are valid and that no evidence of any kind need ever be offered. The 200% markup that Ms. Morand used may well constitute a recognized, reliable and reasonably applicable standard in this case, though I doubt it under the circumstances. It is also possible that the appropriate markup was 175%, 150% or even less.
In short, when a taxpayer can raise a serious doubt, it must be shown that the markup used is not a purely subjective standard, but, rather, a standard that is objective, reliable and acceptable under the circumstances. One cannot hide behind the presumption of an assessment's validity in order to avoid having to offer such evidence. To claim otherwise is to open the door to arbitrariness by allowing the tax authorities to propound any theory with the assurance that it would be deemed valid.
Just because a taxpayer has failed to meet its obligations, has deficient accounting, does not have the appropriate documents, or has destroyed those documents, does not mean that all assumptions are warranted and that those assumptions will be deemed valid under all circumstances.
60. In this context, the appellant respectfully submits that it has shown that the estimation method used by Revenue Quebec had many flaws that, when considered as a whole, tend to indicate that the assessments made are unfounded in fact and in law.
[17] Counsel for the appellant is essentially claiming that his client made a prima facie case before the court that demolished the Minister's assumptions when reconstituting the appellant's sales. He claims that failing in the duty to keep accurate records and reliable accounting do not give the Minister carte blanche to rely on arbitrary assumptions when establishing an assessment. In other words, relying on the decision by Dussault J. in Brasserie Futuriste de Laval Inc. v. The Queen 2006 TCC 503, he claims that it is not because the appellant failed in its obligations to keep accurate records, has deficient accounting or does not have the relevant documents or has destroyed them that the Minister may assume anything and claim those assumptions are valid in all circumstances. Counsel for the appellant claims that an appellant may, using prima facie evidence, demolish the respondent's assumptions, as L'Heureux-Dubé wrote in Hickman Motors, [1997] 2 S.C.R. 336, at paragraphs 92 and 93 :
…The Minister, in making assessments, proceeds on assumptions…and the initial onus is on the taxpayer to “demolish” the Minister’s assumptions in the assessment …The initial burden is only to “demolish” the exact assumptions made by the Minister but no more…
This initial onus of “demolishing” the Minister’s exact assumptions is met where the appellant makes out at least a prima facie case…
[18] In this case, the appellant claims to have made a prima facie case that the sampling was not representative of the commercial reality of the restaurant La Sila, by showing that the alcohol consumption at its restaurant was much higher on days when shows were held at the Théâtre St-Denis (days with show) than days when there were no shows at the Théâtre St-Denis (days without show) and that the days with show were significantly under-considered in the Minister's sampling, for each of the years in the period in question.
[19] Whether or not alcohol consumption was significantly higher on days with a show in no way indicates, in my opinion, that the Minister's sampling did not take the appellant's commercial reality into consideration. In fact, could the alcohol consumption have been higher during days with show than days without simply because the appellant's restaurant was busier during days with shows than days without? If the appellant had made a prima facie case that the sales ratio (net sales divided by litres of alcohol consumed) on days with a show was significantly lower than the sales ratio on days without show, if only for one of the years during the period in question, in my opinion, it would have raised serious doubt as to the validity of the Minister's sample where days with shows were significantly under-considered and the burden of proof would have been reversed. The minister would then have had the burden of showing (probably with an expert) that his sample was acceptable and reliable considering the specific circumstances of operating that restaurant. In this case, not only did the appellant not make this case, but it also admitted that the sales ratio during days without shows was essentially the same as the sales ratio during days with shows.
Allowances
Employee bonuses
[20] The appellant alleges that it gave its service and kitchen employees 416.5 litres of alcohol during each of the three years of the period in question, or 238 litres of alcohol during the lunch shift (an average of four employees who, during the lunch shift, would have had one 170 ml glass of wine each, for 349 days) and 178.5 litres for the evening shift (an average of four employees who, during the evening shift would have had one 170 ml glass of wine each, for 350 days). It must be noted that the appellant's evidence in this regard is based essentially on the testimony of Mr. Iaconetti and Youssef Ouali.
[21] Moreover, I note that Ms. Dagenais, whose credibility is not questioned, testified that at their first meeting on June 2, 2005, Mr. Iaconetti claimed that the appellant did not offer free alcoholic beverages to its employees during the period in question. Ms. Dagenais explained that later, Mr. Iaconetti claimed that employees assigned to the kitchen and service had consumed the equivalent of 297 litres of wine during the three years of the period in question (an average of five employees who would have had the equivalent of one 170 ml glass of wine each per day, for 349 days). Ms. Dagenais added that she included the allowance of 297 litres Mr. Iaconetti declared on behalf of the appellant, despite the first statement he made that the appellant had not offered any free alcoholic beverages to its employees during the period in question. Now, the appellant is asking for such an allocation for 416.5 litres for each of the three years of the period in question.
[22] It is definitely not by changing the version of the facts three times regarding the free alcoholic beverages offered to employees during the period in question that Mr. Iaconetti will convince me that the appellant's employees had consumed not 287 litres of alcohol but 416.5 during each of the three years of the period in question. I think Ms. Dagenais was being very accommodating and generous towards the appellant by granting this allowance of 297 litres of alcohol per year considering the representative's initial statement on the subject.
Wine used in the kitchen
[23] The appellant claims that in addition to using "Auberge" and "Entre-Côte " wines when preparing dishes in the kitchen, its employees had to use other types of wine when the "Auberge" and "Entre-Côte" types ran out. The appellant claims that around two one-litre bottles of wine per week were used in the kitchen, namely one bottle of red wine (valued at around $10) and one bottle of white wine (valued at around $10). I note that during the audit, the Minister acknowledged that all the four‑litre sized Entre-Côte and Auberge brand wines purchased by the appellant during the period in question were used to prepare dishes in the kitchen; this represented 664.00, 736.00, and 821.00 litres of wine in year 1, year 2 and year 3 respectively, not considered to have been sold by the appellant during the period in question. In short, the appellant is asking for an additional allowance of 99.72 litres of alcohol for each of the three years of the period in question.
[24] The appellant's evidence on this is based solely on the testimony of Mr. Iaconetti, Youssef Ouali and Frank Mellace. On this, Mr. Mellace, the appellant's head chef during the period in question, testified that, on average, he used one one‑litre bottle of wine per week when preparing dishes. Moreover, Mr. Ouali testified that he himself brought an average of five or six one-litre bottles of wine into the kitchen to prepare dishes. Lastly, Mr. Iaconetti testified that around two one-litre bottles of wine (one red and one white) per week were used in the kitchen. I note that Ms. Dagenais testified that Mr. Iaconetti had stated during the first meeting that the appellant only used "Auberge" and "Entre-Côte" wines in the kitchen.
[25] In all, the appellant's testimony was based on three accounts that were rather inconsistent. It is not by presenting three such inconsistent accounts that the appellant could hope to convince me it used 99.72 litres of alcohol in the kitchen to prepare dishes in each of the years of the period in question in addition to the allowance the Minister already granted in this category. At any rate, it seems unlikely to me that the appellant had to use an average of two bottles of wine (one litre format) per week to help out the chefs who had depleted their stock of four-litre wine. In other words, the appellant is asking me to believe that it was always out of stock of wine (four-litre format) while Mr. Iaconetti, the chairperson and main shareholder, performed weekly inventory of alcohol and went to an SAAQ [sic] outlet many times a week, close to the La Sila restaurant (in this case, on Maisonneuve) in particular to purchase wine. I feel that the Minister was very generous towards the appellant by granting these allowances at the audit; I cannot support this generosity under the circumstances. For these reasons, the additional allowance requested by the appellant is simply dismissed.
Grayline party
[26] The appellant claims it had a verbal agreement with the company Grayline, under the terms of which it benefitted from free publicity in Grayline's fliers, in exchange for free meals (including free alcoholic beverages) offered during the holiday season to porters invited by Grayline; these superintendants had worked for Grayline during each of the years of the period in question.
[27] In this case, I do not see how the appellant can claim that the alcoholic beverages offered to these superintendants had not been sold or, in other words, that they were not taxable supplies. The appellant did not offer free alcoholic beverages to the superintendants. In fact, the appellant received consideration for this by benefitting from publicity in the Grayline fliers. The appellant bartered with Grayline. Therefore, it made a taxable supply by providing the alcoholic beverages to the superintendants invited by Grayline.
Bonuses for friends and members of the Iaconetti family
[28] The appellant claims that during the period in question:
(i) nine family parties were held at the restaurant La Sila;
(ii) on average, 40 members of Mr. Iaconetti's family, including 5 or 6 children, attended each of these parties;
(iii) during these parties, alcoholic beverages were offered by the appellant for free;
(iv) each guest consumed an average of 500 ml of alcohol, less than two beers or around three glasses of wine.
[29] The appellant is requesting an allowance of 50 litres, 57 litres and 45.5 litres of alcohol for year 1, year 2 and year 3, respectively. I note that the Minister granted such an allocation of 39.75 litres of alcohol for each of the three years of the period in question.
[30] The appellant's evidence on this is based on the testimony of Mr. Iaconetti and his sister Cindy Reiss, and a table (Exhibit A‑14, tab 5) indicating the dates of the parties and the number of people who allegedly attended. I note that the table is new as of the hearing, and was therefore created using Mr. Iaconetti's memories since the appellant did not keep any records regarding these bonuses.
[31] Mr. Iaconetti essentially testified that large amounts of alcohol were consumed at the appellant's expense during these nine family parties. Mr. Iaconetti explained that he estimated each guest consumed 500 ml of alcohol (beer and wine). Mr. Iaconetti's sister reported that she attended nine of these family parties. She also said the alcohol (beer and wine) had been offered for free during these nine parties. Lastly, Mr. Iaconetti's sister-in-law essentially testified that she attended four of the nine family parties. She also stated that alcohol was offered by the appellant during these four family parties.
[32] Counsel for the appellant, relying on 9022‑8891 Québec Inc. v. R., 2006 G.T.C. 214 claims that the testimony of the appellant's director, uncontradicted and moreover corroborated by the testimony of his sister and sister-in-law, constitute a prima facie case sufficient to reverse the burden of proof. In 9022‑8891 Québec Inc., which also addressed the issue of unreported alleged sales made in the operation of a bar, the auditor set the proportion of alcoholic beverages lost and used for promotions at 10% of total sales, whereas the appellant claims it was 30% of the total sales. The Court allowed the appeal, having accepted the testimony of the appellant's senior director.
[33] Here, the testimony given by Mr. Iaconetti was corroborated by the testimony of witnesses who cannot be qualified as independent witnesses; at any rate, these accounts did not shed any light on the amounts of alcohol consumed or how many people attended these family parties. Mr. Iaconetti's testimony was not supported by any documentary evidence such as a database with the names of the guests who attended each of the family parties, the amount of alcohol consumed and the nature of that alcohol. Mr. Iaconetti's testimony cannot be considered reliable since he was rather vague and inaccurate. Mr. Iaconetti used the words "I estimate" and "around" regarding the amounts of alcohol consumed a little too often. In general, the appellant's evidence on this subject does not create the degree of probability required for a prima facie case. I feel that the allowance the Minister granted as such was more than reasonable in the circumstances.
[34] Moreover, I note that regarding the decision raised by counsel for the appellant that, even if the judge had indicated that the testimony of the senior director of the appellant had not been corroborated, the appellant did in fact present a book proving the promotional activities carried out by the bar, and the judge accepted this in support of the testimony.
Bonuses for VIP members
[35] Counsel for the appellant claims that his client gave its clients (to whom it had sent VIP member cards) 47.74 litres of beer and 214.20 litres of wine in each of the three years of the period in question. However, counsel for the appellant only requested an allowance on behalf of his client for 250 litres of alcohol (wine and beer) for each of the three years of the period in question. I note that during the audit, the Minister had admitted that the appellant gave its clients with VIP member cards 22.08, 33 and 30.87 litres of beer in year 1, year 2 and year 3 respectively. Moreover, during the audit, the Minister did not acknowledge that the appellant gave glasses of wine to its VIP cardholders during the period in question.
[36] The appellant's evidence in this regard is essentially based on the testimony of Mr. Iaconetti, his sister Giovanna, Youssef Ouali and