Date: 20000110
Docket: 97-1575-GST-G
BETWEEN:
BÂTIMENT FAFARD INTERNATIONAL INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] This is an appeal from an assessment dated July 17, 1996, notice of which bears number PQ-96-0356, for the periods ending on May 31, 1995, and August 31, 1995.
[2] For the first period, the issue has to do with the allocation of a payment made by the appellant in respect of a given period and, for the second period, it concerns the allocation of a refund under the Act respecting the Québec sales tax. With respect to the first period, according to the appellant, there was a verbal agreement for non-recovery with an official of the Quebec Department of Revenue concerning net amounts of tax owed in respect of periods prior to that ending on May 31, 1995, and, again according to the appellant, it was agreed that subsequent payments would be for subsequent periods. The appellant claimed, therefore, that the amount of $14,468.41 remitted by it in payment of the assessment for the period ending on May 31, 1995, should have been applied to that period and not to earlier periods. As regards the second period, the appellant claimed to have asked to have the amounts owed under the Excise Tax Act (the "Act") offset by the amounts it had allegedly overpaid under the Act respecting the Québec sales tax.
[3] At the opening of the hearing, a motion was heard that had been filed on the day of the hearing. It was a motion for leave to file an Amended Reply to the Notice of Appeal (the "Reply"). Counsel for the appellant left the filing of the motion to the Court's discretion and the Court agreed to the filing, since the Reply did not contain new facts or arguments. The Reply described the relevant provincial legislation concerning the allocation of refunds owed under the Act respecting the Québec sales tax and it referred in this regard to section 31.1 of the Act respecting the Ministère du Revenu (R.S.Q. c. M-31). It did not, however, alter the respondent's main argument in favour of having the appeal dismissed, namely that this Court has jurisdiction to rule only on the validity of an assessment and not on the methods of payment of that assessment.
[4] A question was raised at the outset of the hearing: since the appellant had declared bankruptcy on June 3, 1997, did it have standing to pursue the appeal of the assessment?
[5] Counsel for the appellant produced in evidence, as Exhibit A-1, [TRANSLATION] "[an] Excerpt from the minutes of a meeting of inspectors", held on June 19, 1997. The Exhibit shows that the inspectors were in agreement that the trustee in bankruptcy did not object to the filing of a motion under section 38 of the Bankruptcy and Insolvency Act which would allow Jules Fafard to resume the proceedings. Counsel for the appellant submitted a judgment of the Superior Court of Quebec, dated October 29, 1998, allowing the applicant, Jules Fafard, to resume and continue the proceedings pending in the Tax Court of Canada in appeal No. 96-2665(IT)G and appeal No. 97-1575(GST)G. The Superior Court ruling was based on sections 37 and 38 of the Bankruptcy and Insolvency Act.
[6] Counsel for both parties also informed the Court that a decision had already been rendered by this Court allowing Jules Fafard to continue the appeal bearing number 96-2665(IT)G with respect to the bankrupt appellant. The decision on that appeal is reported as Bâtiment Fafard International Inc. v. The Queen, 99 DTC 1206. Counsel for the Minister attempted to argue, but without insisting, that this decision is based on different circumstances. He quoted from the judgment at page 1210:
. . . In the case at bar, proceedings had been instituted in this Court before the appellant even went bankrupt. . . .
[7] If I understand correctly, counsel's submission was that this appeal had not been instituted before the appellant's bankruptcy. However, the Notice of Appeal was filed on May 22, 1997, and the date of the bankruptcy was June 3, 1997. In any event, that is not a circumstance of any importance. On reading sections 37 and 38 of the Bankruptcy and Insolvency Act and the work by Houlden and Morawetz entitled Bankruptcy and Insolvency Law of Canada, I can readily see that those sections contemplate the continuation of a pending action as well as the institution of a new action.
[8] Sections 37 and 38 of the Bankruptcy and Insolvency Act read as follows:
37. Where the bankrupt or any of the creditors or any other person is aggrieved by any act or decision of the trustee, he may apply to the court and the court may confirm, reverse or modify the act or decision complained of and make such order in the premises as it thinks just.
38(1) Proceeding by creditor when trustee refuses to act
Where a creditor request the trustee to take any proceeding that in his opinion would be for the benefit of the estate of a bankrupt and the trustee refuses or neglects to take the proceeding, the creditor may obtain from the court an order authorizing him to take the proceeding in his own name and at his own expense and risk, on notice being given the other creditors of the contemplated proceeding, and on such other terms and conditions as the court may direct.
38(2) Transfer to creditor
On an order under subsection (1) being made, the trustee shall assign and transfer to the creditor all his right, title and interest in the chose in action or subject-matter of the proceeding, including any document in support thereof.
38(3) Benefits belong to creditor
Any benefit derived from a proceeding taken pursuant to subsection (1), to the extent of his claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any, belongs to the estate.
38(4) Trustee may institute proceeding
Where, before an order is made under subsection (1), the trustee, with the permission of the inspectors, signifies to the court his readiness to institute the proceeding for the benefit of the creditors, the order shall fix the time within which he shall do so, and in that case the benefit derived from the proceeding, if instituted within the time so fixed, belongs to the estate.
[9] Section 37 provides that the bankrupt or any of the creditors or any other person who may be aggrieved by any decision of the trustee may apply to the court and the court may make such order as it thinks just in that regard. Section 38 applies to the creditor. Jules Fafard may be a creditor of the bankrupt, or at least a potential creditor, since he may be required to personally assume liability with respect to the appellant's obligations relating to the non-payment of the tax assessed. It does not, however, have to be determined whether it is as a person aggrieved under section 37 or as a potential creditor under section 38 that Mr. Fafard is continuing the appellant's appeal, because the decision of the Superior Court of Quebec is based on both sections 37 and 38 of the Bankruptcy and Insolvency Act, and that decision allows the applicant, Jules Fafard, to resume this proceeding. I therefore do not see any reason in the instant case not to authorize Mr. Fafard to resume the appellant's proceeding in place of the trustee.
[10] Another matter was also determined at the beginning of the hearing. For the period ending on May 31, 1995, the assessment of net tax was $17,653.12, and, for the period ending on August 31, 1995, the net tax was $1,986.32. Counsel for the respondent informed the Court that the appellant's payment in the amount of $14,468.41 had now been applied to the first period, as requested by the appellant. Therefore, there is no longer any issue with respect to that period, since the validity of the assessment is not otherwise disputed. The only point remaining in dispute is in respect of a refund of $19,333.49 claimed under the Act respecting the Québec sales tax for the second period. However, no evidence was adduced of any refund balance to which the appellant would have been entitled under that Act that could have been applied to payment of the net tax.
Analysis
[11] Section 31.1 of the Act respecting the Ministère du Revenu of Quebec reads as follows:
31.1 The Minister, after proceeding with the allocation provided for in section 31, where applicable, may apply the remainder of the refund to which a person is entitled under the Act respecting the Québec sales tax (chapter T-0.1) to the payment of a debt owed by the person under an Act of the Parliament of Canada administered and carried out by the Minister in accordance with an agreement entered into under section 9.0.1.
[12] As noted above, there was no evidence of non-compliance with this section.
[13] The principal argument in the Reply was that, since it concerned not the validity of the assessment but rather the method of recovery of the assessment, this appeal did not fall within the jurisdiction of this Court. It is true that, under section 313 of the Act, it is the Federal Court that has jurisdiction with respect to the recovery of unpaid amounts of net tax. However, certain amounts, notably overpayments and refunds, described in sections 296, 297 and 298 of the Act are taken into account in calculating the net tax and in making the relevant assessment. The sections of the Act concerning the calculation of net tax and making an assessment that are applicable in this case were not referred to either in the Reply or during oral argument. I believe that, to properly portray the nature of the dispute, the respondent should have referred to sections 296, 297, 298 and 225 of the Act and explained the procedure that is followed in assessing a person's net tax—and this taxpayer's in particular—in cases involving an overpayment, a refund or the allocation of a payment.
[14] However, since there is no longer any issue as regards the first period, as the Minister has agreed to apply the appellant's payment to the period requested, and since, in respect of the second period, there is no evidence of any amount of Quebec sales tax being available to the Quebec Minister of Revenue to apply to the calculation of net tax, the appeal is dismissed.
Signed at Ottawa, Canada, this 10th day of January 2000.
"Louise Lamarre Proulx"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]