The GST credit note rule in s. 232 provided that where a registrant received a credit note for a taxable purchase made by it, any GST included in that credit note would be added to its net tax liability for the reporting period in which it received the credit note to the extent that it had claimed an input tax credit for the related purchase in its return for that or a preceding reporting period. The legislative drafter missed the point (subsequently addressed in a retroactive amendment to s. 225(3.1)) that the related ITCs potentially could be claimed in a return for a reporting period following that in which a credit note was received, so that such ITCs were not be recaptured under s. 232.
D'Auray J. in the Tax Court confirmed this legislative gap, so that the registrant received full ITCs for the GST on its original purchases notwithstanding that it subsequently received credit notes for $2.3M of those claims.
In affirming this decision, Pelletier JA stated (at para. 9):
There may be cases where precisely-worded provisions or their interaction creates an advantage or a windfall… . But we do not interpret taxation provisions in a tendentious or result-oriented way to enhance the federal treasury… . Instead, absent words allowing us to address situations of abuse or windfall, where the provisions are precisely-worded, clear and unambiguous, they must be given their plain effect.