T-1686-91
RJR-MacDonald Inc. (Plaintiff)
v.
Her Majesty the Queen (Defendant)
Indexed as: RJR-MacDonald Inc. v. Canada (T.D.)
Trial Division, Gibson J."Toronto, April 8; Ottawa, April 30, 1999.
Customs and Excise " Excise Tax Act " Appeal from disallowance of claim for refund of excise tax paid in respect of Sample Tobacco in 1987, 1988 " No difference between products sold in normal course of business to customers and sample tobacco " Sample tobacco provided free for advertising, promotional purposes to employees, wholesalers, retailers, business contacts, company and consumer events, to satisfy consumer complaints, short shipments to customers " Excise Tax Act, s. 23(1) imposing excise tax when goods mentioned in Schedule II (including cigarettes, manufactured tobacco) manufactured in Canada, delivered to purchasers " S. 23(2) providing tax payable by manufacturer at time of delivery " S. 23(10) providing goods manufactured for use by manufacturer and not for sale deemed delivered to purchaser when goods used or appropriated for use by manufacturer " S. 52(1)(d) permitting Minister to determine value for tax whenever difficult to determine value of goods manufactured in Canada because for use by manufacturer, and not for sale " Appeal allowed " S. 23(1), (2) must be read together " S. 23(10) concerning deemed delivery " Not providing for deemed sale, essential element of charging formula in s. 23(1), (2) taken together " S. 52(1) only applicable when circumstances, conditions rendering it difficult to determine value for consumption, sales tax because goods for use by manufacturer, producer and not for purpose of computing tax " Condition as to application of s. 52(1) not met " As neither sale nor deemed sale, plaintiff not liable to pay excise tax on sample tobacco.
This was an appeal from the Minister's disallowance of the plaintiff's claim for a refund of excise tax paid by it in respect of "Sample Tobacco" between January 1, 1987 and December 31, 1988. The plaintiff manufactures and sells tobacco products in Canada. From time to time it provides tobacco products free of charge, for advertising and promotional purposes (Sample Tobacco). This includes products provided to employees, wholesalers and retailers, business contacts, company and consumer events, and products supplied to satisfy consumer complaints and short shipments to customers. There is no difference between the products sold in the normal course of business to customers and the Sample Tobacco. The plaintiff treated the Sample Tobacco in its books as a necessary expense of its business, and included the costs of manufacturing the Sample Tobacco in calculating the cost and sale price of the tobacco products manufactured and sold by it to customers in the normal course of business. The plaintiff paid federal sales tax and excise tax on the Sample Tobacco. The defendant accepted that the Sample Tobacco was not subject to federal sales tax.
Excise Tax Act, subsection 23(1) imposes an excise tax whenever goods mentioned in Schedule II (including cigarettes and manufactured tobacco) are manufactured in Canada and delivered to a purchaser thereof. Subsection 23(2) provides that the tax shall be payable by the manufacturer at the time of delivery to the purchaser. Subsection 23(10) provides that goods manufactured for use by the manufacturer and not for sale shall be deemed to have been delivered to a purchaser when the goods are used or appropriated for use. Paragraph 52(1)(d) provides that whenever it is difficult to determine the value of goods manufactured in Canada because they are for use by the manufacturer and not for sale, the Minister may determine the value for the tax, and those transactions shall be regarded as sales.
The issue was whether the Sample Tobacco was subject to excise tax under the Excise Tax Act.
Held, the appeal should be allowed.
Excise Tax Act, subsection 23(1) imposes excise tax on the plaintiff's products manufactured or produced in Canada that are delivered to a purchaser. It provides for the computation of the tax. Subsection 23(2) answers the questions "by whom" and "when". Subsection 23(2) is an adjunct of subsection 23(1) and the two subsections must be read together to provide a complete charging scheme.
Subsection 23(10) concerns deemed delivery. It does not provide for a deemed sale, an essential element of the charging formula in subsections 23(1) and (2) taken together.
Although subsection 52(1) appears in the Part of the Act dealing with sales or consumption tax, not with excise tax, its closing words provide that the deemed sale flowing from "transactions" described in the subsection is a deemed sale for the purposes of the Act and not merely for the purposes of the Part in which the subsection appears. The subsection only applies when goods are manufactured or produced in Canada under circumstances or conditions that "render it difficult to determine the value for the consumption or sales tax because . . . the goods are for use by the manufacturer or producer and not for sale" (underlining added). There was no evidence that difficulty was encountered in determining value for the purpose of computing tax. The condition as to the application of subsection 52(1) was not met, and even if the diversion of Sample Tobacco could be regarded as a transaction, reading the subsection as a whole, subsection 52(1) did not apply to deem that transaction a sale for the purposes of the Act.
There was neither a sale nor a deemed sale in Canada. The plaintiff was not liable to pay excise tax under Part III of the Excise Tax Act in respect of Sample Tobacco manufactured or produced in Canada by the plaintiff at the relevant time.
| statutes and regulations judicially considered |
| Excise Tax Act, R.S.C. 1952, c. 100, s. 31(1). |
| Excise Tax Act, R.S.C., 1985, c. E-15, ss. 23(1) (as am. by R.S.C., 1985 (2nd Supp.), c. 1, s. 187), (2) (as am. idem), (3) (as am. idem, c. 7, s. 10), (3.1) (as am. by R.S.C., 1985 (1st Supp.), c. 15, s. 12), (10), 52(1) (as am. by R.S.C., 1985 (1st Supp.), c. 15, s. 20), 72(7) (as am. by R.S.C., 1985 (2nd Supp.), c. 7, s. 34), 81.22 (as enacted by R.S.C., 1985 (2nd Supp.), c. 7, s. 38), Sch. II, ss. 1 (as am. by R.S.C., 1985 (4th Supp.), c. 12, s. 39), 2 (as am. by R.S.C., 1985 (2nd Supp.), c. 7, s. 53). |
| Federal Court Act, R.S.C., 1985, c. F-7, s. 48. |
| Federal Court Rules, 1998, SOR/98-106, Tariff B. |
| Income Tax Act, S.C. 1970-71-72, c. 63. |
| Interest Rate (Excise Tax Act) Regulations, SOR/91-19. |
| Special War Revenue Act, R.S.C. 1927, c. 179, ss. 87(d),(2) (as enacted by S.C. 1931, c. 54, s. 12; rep. by S.C. 1935, c. 33, s. 1). |
| cases judicially considered |
| applied: |
| Friesen v. Canada, [1995] 3 S.C.R. 103; (1995), 127 D.L.R. (4th) 193; [1995] 2 C.T.C. 369; 95 DTC 5551; 186 N.R. 243. |
| not followed: |
| Vancouver Real Estate Board v. Deputy Minister of National Revenue for Customs and Excise (1962), 2 T.B.R. 247. |
| distinguished: |
| The King v. Wampole (Henry K.) & Co. Ltd., [1931] S.C.R. 494; [1931] 3 D.L.R. 754; Molson Newfoundland Brewery Ltd. v. Canada, [1993] 2 C.T.C. 141; (1993), 66 F.T.R. 115; 1 G.T.C. 6266 (F.C.T.D.); The King v. Standard Brands, Ltd., not reported, Exchequer Court of Canada, judgment dated 10/7/34. |
| considered: |
| Canada v. Dominion Tobacco Corp. (1989), 1 T.S.T. 3077 (Ont. Dist. Ct.). |
| referred to: |
| British Columbia Railway Company v. R., [1979] 2 F.C. 122; (1978), 1 C.E.R. 1; [1979] CTC 56; 79 DTC 5020 (T.D.); affd [1981] 2 F.C. 783; (1981), 3 C.E.R. 114; [1981] CTC 110; 36 N.R. 369 (C.A.); Canada v. Molson Newfoundland Brewery Ltd., [1995] 1 C.T.C. 107; (1994), 2 G.T.C. 7088; 167 N.R. 109 (F.C.A.). |
| authors cited |
| Canada. Department of National Revenue. Excise Division. General Excise and Sales Tax Regulations. Ottawa: Queen's Printer, 1961. |
| Canada. Department of National Revenue. Excise Division. Regulations under the Special War Revenue Act, Ottawa: Edmond Cloutier, King's Printer, 1947. |
| Canada. Department of National Revenue. Excise Division. Regulations under The Excise Tax Act. Ottawa: Edmond Cloutier, Queen's Printer, 1954. |
APPEAL from the Minister's disallowance of the plaintiff's claim for a refund of excise tax paid by it in respect of tobacco provided free of charge for advertising and promotional purposes to employees, wholesalers, retailers, company and consumer events and to satisfy consumer complaints and short shipments to customers between January 1, 1987 and December 31, 1988. Appeal allowed.
| appearances: |
| W. Jack Millar and Dennis A. Wyslobicky for plaintiff. |
| Frederick B. Woyiwada for defendant. |
| solicitors of record: |
| Millar Wyslobicky Kreklewetz, Toronto, for plaintiff. |
| Deputy Attorney General of Canada for defendant. |
The following are the reasons for judgment rendered in English by
Gibson J.:
| (1) INTRODUCTION |
By a claim dated February 24, 1989, the plaintiff sought a refund of $1,636,9191 representing excise tax paid by it in respect of "Sample Tobacco" during the period from January 1, 1987 to December 31, 1988. By notice of determination dated December 13, 1989, the Minister of National Revenue (the Minister) disallowed the plaintiff's refund claim. The plaintiff objected to the Minister's determination by notice of objection dated March 13, 1990. The Minister did not respond to the notice of objection within the ensuing 180 days. In the result, the plaintiff appealed against the notice of determination by statement of claim filed June 26, 1991, pursuant to section 81.22 of the Excise Tax Act2 (the Act) and section 48 of the Federal Court Act.3 These reasons arise out of the hearing of the plaintiff's appeal.
| (2) RELIEF REQUESTED |
The plaintiff seeks the following relief:
| (a) that its appeal be allowed; |
| (b) that the Minister's notice of determination be vacated; |
| (c) that the defendant be ordered to repay to the plaintiff the amount of $1,573,717.70 together with interest thereon in accordance with the Act; |
| (d) pre- and post-judgment interest; |
| (e) its costs of the appeal; and |
| (f) such other relief as this Court considers appropriate. |
| (3) FACTUAL BACKGROUND |
The hearing of the appeal proceeded entirely on the basis of an agreed statement of facts in the following terms:
The Plaintiff and Defendant, for the purposes of the trial of this action, agree to the facts set out in paragraphs 1 to 13 herein as if those facts had been established in evidence.
| 1. The Plaintiff is a corporation subsisting under the laws of Canada. During the relevant period, the Plaintiff carried on the business of manufacturing and selling tobacco products in Canada. |
| 2. The tobacco products manufactured by the Plaintiff included cigarettes, fine cut tobacco, and cigars. |
| 3. In carrying on its business, the Plaintiff from time to time provided tobacco products manufactured by it, free of charge, for advertising and promotional purposes (the "Sample Tobacco"). This included products provided to employees, wholesalers and retailers, business contacts, company and consumer events, and products supplied to satisfy consumer complaints and short shipments to customers. |
| 4. There was no difference between the products which were sold in the normal course of business to customers, and the Sample Tobacco. |
| 5. Finished tobacco products were shipped from the Plaintiff's plant in Montreal to various regional warehouses which in turn shipped the tobacco products to customers. In addition, some of the tobacco products were shipped to the sales branches and placed in a secure area within each branch. |
| 6. Sample Tobacco was generally distributed by the Plaintiff's sales representatives. The sales representatives drew tobacco products from the secure areas in the branches for use as Sample Tobacco, as well as for drop shipment sales to customers and for product exchanges. |
| 7. Sample Tobacco for distribution free of charge to employees was taken from secure areas located at the Montreal plant, the Plaintiff's Toronto head office and other employee work locations. |
| 8. The Plaintiff treated the Sample Tobacco in its books and records as a necessary expense of its business and included the costs of manufacturing the Sample Tobacco in calculating the cost and sale price of the tobacco products manufactured and sold by it to customers in the normal course of business. |
| 9. The Plaintiff paid excise tax and federal sales tax under Parts III and VI of the Excise Tax Act on tobacco products manufactured and sold by it to customers in the normal course of business. |
| 10. The Plaintiff also paid federal sales tax and excise tax on the Sample Tobacco. |
| 11. By separate refund claims dated February 24, 1989, the Plaintiff claimed a refund of the federal sales tax and excise tax paid on Sample Tobacco during the period January 1, 1987 to December 31, 1988. |
| 12. The Defendant has accepted that the Sample Tobacco was not subject to federal sales tax under Part VI of the Excise Tax Act and has paid the Plaintiff's refund claim for federal sales tax thereon. The current action is in respect of the Plaintiff's refund claim for excise tax on the Sample Tobacco. |
| 13. It is agreed by the parties that the amount in dispute in this action is $1,573,717.70 for the excise tax paid on Sample Tobacco, plus applicable interest. |
All of the uses described in paragraph 3 of the agreed statement of facts were agreed between counsel to be "Sample" uses. That such was the case was not, therefore, in issue before the Court.
| (4) THE ISSUE |
In the plaintiff's memorandum of fact and law, counsel wrote:
The sole issue to be determined is whether or not the Sample Tobacco was subject to excise tax under the Act during the Period.
Counsel for the defendant adopted this issue statement. The issue is easily stated. It is not so easily resolved. As Gautreau D.C.J. wrote in Canada v. Dominion Tobacco Corp.:4
We now move into the labryinthian [sic] world of excise duty, excise tax, manufacturer's or federal sales tax, and how it applies to the tobacco industry.
| (5) THE STATUTORY FRAMEWORK |
It was common ground in argument before me that subsections 23(1) [as am. by R.S.C., 1985 (2nd Supp.), c. 1, s. 187] and (10) of the Act, as they read December 31, 1987, are critical to the determination of this matter. To these provisions, counsel for the plaintiff adds subsections 23(2) [as am. idem] and 52(1) [as am. by R.S.C., 1985 (1st Supp.), c. 15, s. 20], once again as they read December 31, 1987. Both subsections 23(10) and 52(1) were amended effective January 1, 1988 [R.S.C., 1985 (4th Supp.), c. 12, ss. 12, 19]. Counsel agreed at the hearing before me that those amendments would not in any sense affect the outcome of this matter. As at December 31, 1987, section 23 of the Act was in Part III entitled "EXCISE TAXES ON COSMETICS, JEWELLERY, RADIOS, ETC." Section 52 was in Part VI entitled "CONSUMPTION OR SALES TAX".5
On December 31, 1987, subsections 23(1), (2) and (10) and subsection 52(1) read as follows:
23. (1) Whenever goods mentioned in Schedules I and II are imported into Canada or manufactured or produced in Canada and delivered to a purchaser thereof, there shall be imposed, levied and collected, in addition to any other duty or tax that may be payable under this or any other Act or law, an excise tax in respect of those goods at the rate set opposite the applicable item in whichever of those Schedules is applicable computed, where that rate is specified as a percentage, on the duty paid value or the sale price, as the case may be.
(2) Where goods are imported, the excise tax imposed by subsection (1) shall be paid in accordance with the provisions of the Customs Act by the importer, owner or other person liable to pay duties under that Act, and where goods are manufactured or produced and sold in Canada, the excise tax shall be payable by the manufacturer or producer at the time of delivery of the goods to the purchaser thereof.
. . .
(10) When goods of any class mentioned in Schedules I and II are manufactured or produced in Canada and are for use by the manufacturer or producer thereof and not for sale, the goods shall, for the purposes of this Part, be deemed to have been delivered to a purchaser thereof, and the delivery shall be deemed to have taken place when the goods are used or appropriated for use, and the Minister may determine the value of the goods for the tax.
. . .
52. (1) Whenever goods are manufactured or produced in Canada under such circumstances or conditions as render it difficult to determine the value thereof for the consumption or sales tax because
| (a) a lease of the goods or the right of using the goods but not the right of property therein is sold or given, |
| (b) the goods having a royalty imposed thereon, the royalty is uncertain, or is not from other causes a reliable means of estimating the value of the goods, |
| (c) such goods are manufactured or produced in or under any unusual or peculiar manner or conditions; or |
| (d) the goods are for use by the manufacturer or producer and not for sale, |
the Minister may determine the value for the tax under this Act and all those transactions shall for the purposes of this Act be regarded as sales.
At the relevant time, cigarettes, manufactured tobacco and cigars were all goods mentioned in Schedule II to the Act. Cigarettes and manufactured tobacco were subject to a "specific rate tax", in the case of cigarettes at the rate of $0.10277 per five cigarettes or fraction in a package, and in the case of manufactured tobacco at the rate of $6.254 per kilogram.6 Cigars were subject to an ad valorem tax at a rate of 30% computed, as indicated in subsection 23(1), on the sale price of the cigars, if manufactured in Canada. As indicated in the agreed statement of facts set out above, at the relevant time the plaintiff carried on the business manufacturing and selling tobacco products in Canada. Thus, its products were subject to excise tax by virtue of subsection 23(1). Subsection 23(2) provided that the tax was payable by the manufacturer or producer at the time of the delivery of the goods to the purchaser.
Also as indicated in the agreed statement of facts, Sample Tobacco was not sold but was diverted for use by the plaintiff. Subsection 23(10) provided that, in such circumstances, the Sample Tobacco was deemed to have been delivered to a purchaser with the delivery deemed to have taken place when the goods were used or appropriated for use by the plaintiff. Subsection 23(10) did not deem "own use" goods to have been sold.
Subsection 52(1), with particular emphasis on paragraph (d) of that subsection for the purposes of this matter, provided that, when goods were manufactured or produced in Canada under circumstances or conditions that rendered it difficult to determine the value thereof for the consumption or sales tax, an ad valorem tax, because the goods were for use by the manufacturer or producer and not for sale, the Minister could determine the value "and all those transactions shall for the purposes of [the] Act be regarded as sales."
| (6) CASE LAW AND LEGISLATIVE AMENDMENTS REGARDING "SAMPLES" |
Case law concerning "Samples" relates to the treatment of "Samples" for the purposes of sales or consumption tax, and not of excise tax.
In The King v. Wampole (Henry K.) & Co. Ltd.,7 Chief Justice Anglin wrote:
I was, at the hearing of this appeal, strongly of the view that the sample goods in question were subject to the tax sought to be collected in this case. My construction of clause (d) of section 87 is that the "use" by the manufacturer or producer of goods not sold includes any use whatever that such manufacturer or producer may make of such goods, and is wide enough to cover their "use" for advertising purposes by the distribution of them as free samples, as is the case here. I am, therefore, with great respect, unable to agree in the reasons assigned by the learned trial judge for dismissing this petition.
But, in clause 4 of the Special Case, we find the following statement:
| 4. The cost of producing such samples was paid by the company as a necessary expense of business, and the company in its books treated such expense as a necessary cost of production of articles manufactured and sold, in respect of which last mentioned articles the company has paid sales tax. |
It is obvious to me that it cannot have been the intention of the Legislature to tax the same property twice in the hands of the manufacturer. Having regard to the admission of paragraph 4, above quoted, such double taxation would ensue were we to hold the samples here in question to be now subject to the consumption or sales tax, it being there admitted that the cost of producing such samples is included in the
| cost of production of articles manufactured and sold, in respect of which . . . the company has paid sales tax. |
If the cost or value of these goods used as samples has already been a subject of the sales tax in this way, it would seem to involve double taxation if they should now be held liable for sales tax on their distribution as free samples. But for the admission of paragraph 4, however, I should certainly have been prepared to hold that the "use" by the company of goods manufactured by it as free samples for advertising purposes is a "use" within clause (d ) of section 87 of the Special War Revenue Act, R.S.C., 1927. ch. 179 [Footnote omitted.]
The Special War Revenue Act8 was the predecessor of the Excise Tax Act and section 87 thereof, and paragraph (d) of that section were the predecessor of subsection 52(1) of the Excise Tax Act and paragraph (d) of that subsection. No material change was involved in the evolution of section 87 to the form of subsection 52(1) at the relevant time.
In response to the Wampole decision, Parliament enacted a new subsection 87(2) of the Special War Revenue Act in 1931 [S.C. 1931, c. 54, s. 12].9 That subsection read as follows:
87. . . .
(2) Whenever goods are manufactured or produced in Canada and used by the manufacturer or producer thereof and not sold, or are given away or distributed by the manufacturer or producer thereof without consideration, the Minister may determine the value for the tax under this Act and all such transactions shall, for the purposes of this Act, be deemed to be sales, and the time when such goods are used or taken into consumption by the manufacturer or producer thereof, or distributed or given away by the manufacturer or producer thereof, shall be deemed to be the time of delivery.
The issue returned before the courts in The King v. Standard Brands, Ltd.10 President Maclean of the Exchequer Court wrote:
It seems to me that the new section, 87(2), along with the interpretation given to the word "use" in 87(d) by the Supreme Court of Canada, constitute rather formidable obstacles for the defendant to overcome. It is agreed that sec. 87(2) was intended either to clarify, or to add something to, sec. 87(d), or to remove any doubt following the decisions in the Wampole case. It seems to me sec. 87(2) is conclusive against the defendant's contention.
There is no doubt but that s.s. 2 of sec. 87 was intended to meet the facts of this case, and it is unfortunate that this intention was not more clearly and fully expressed, if section 87 was to be amended at all. Sec. 87(2), I think, must be held to mean that sample goods, representative of saleable goods, distributed without consideration, are liable to the tax on delivery, that is when given away or distributed, and which for the purposes of the Act are to be deemed as sales. I have no doubt that this was what was intended, and that interpretation must, I think, be given to sub-section 2 of sec. 87. I cannot see what other interpretation can be placed upon it, and it matters not, it seems to me, if the cost of the sample goods, as advertising material, was in practice computed in the cost of the saleable goods, and there paid the tax.
In 1935, subsection 87(2) was repealed [S.C. 1935, c. 33, s. 1] thereby, it would seem reasonable to assume, restoring the impact of the Wampole decision for sales or consumption tax purposes at least. This result would appear to have been acknowledged over the years by the Minister and to have extended to excise tax. Under date of January 1947, the Department of National Revenue, Excise Division published "Regulations" under the Special War Revenue Act .11 At page 21 of the publication, under the heading "Samples", the following appeared:
Samples which are manufactured in Canada and distributed gratis by the licensed manufacturers thereof are not subject to Excise Taxes.
The same paragraph appeared in an equivalent publication under the Excise Tax Act dated March 1954.12
Without explanation, the situation changed with the publication of "Circular ET 1" by the Department of National Revenue in April 1961.13 Under the heading "SAMPLES" at page 29 of that publication, the following appeared:
33. (1) Goods manufactured or produced in Canada, which are the regular product of the manufacturer, normally manufactured or produced for sale, when distributed free by the licensed manufacturer or producer thereof as samples, are not subject to sales or excise tax.
(2) The provisions of subsection (1) do not apply to goods of a class subject to excise duty under the Excise Act, effective on and after 1st January 1961.
The plaintiff's Sample Tobacco was, at that time, and for the relevant period in relation to this matter, "goods of a class subject to excise duty under the Excise Act". Thus, on the basis of no cited authority, and in the face of the Wampole decision, samples of a limited range of goods manufactured or produced in Canada were differentiated for sales or consumption tax and excise tax purposes from a much broader range of goods manufactured or produced in Canada.
Not surprisingly, the matter once again returned before the courts in respect of sales or consumption tax. In the Canada v. Molson Newfoundland Brewery Ltd.,14 Mr. Justice Hugessen wrote:
We are all of the view that we, like the learned trial judge . . . , are bound by the decision of the Supreme Court in the case of The King v. Wampole . . . . That decision may ring curiously to modern ears and it might be doubted, if the matter were tabula rasa, that it would now be decided the same way; double taxation, if not the norm, is certainly not unusual and both the finding that the circumstances in Wampole amounted to such double taxation and the view that Parliament could not have intended that result might not have been the same today. The decision stands, however, and the legislation which it interpreted was substantially unchanged from that which the trial judge had to interpret.
Indeed, the legislative history shows that after Wampole provisions were first enacted and subsequently repealed with the specific effect and purpose of imposing, and then removing, tax on free samples given away by a manufacturer or producer for promotional or advertising purposes. In our view, such history positively supports the conclusion that Parliament had decided that the consumption or sales tax imposed by the former provisions of the Excise Tax Act should not attach to such samples.
. . .
The trial judge made a finding that the facts in the present case were in all material respects "the same as those in Wampole" . . . . That finding has not been shown to us to be in error. [Citations omitted.]
I find it significant that both Chief Justice Anglin in the quotation from Wampole that appears earlier in these reasons, and Mr. Justice Hugessen in the immediately foregoing quotation essentially invite different decisions from those they felt compelled to reach in circumstances where a different fact situation comes before the courts. As I have previously indicated, both Wampole and Molson Newfoundland related to sales or consumption tax. That tax is, also as previously indicated, an ad valorem tax that unquestionably results in double taxation where the costs of producing sample goods are recovered by increasing the price or value of similar goods that are sold. In similar circumstances, double taxation does not result in the case of a specific rate tax such as that applying to all of the Sample Tobacco in question other than cigars. Justice Hugessen goes further to suggest that perhaps even the double taxation impact should not, in the current environment, be considered a significant factor.
| (7) GENERAL PRINCIPLES OF INTERPRETATION OF TAX LEGISLATION |
In Friesen v. Canada,15 Mr. Justice Major, for the majority, wrote at pages 113 and 114:
In interpreting sections of the Income Tax Act, the correct approach, as set out by Estey J. in Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, is to apply the plain meaning rule. Estey J. at p. 578 relied on the following passage from E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87:
| Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. |
. . .
I accept the following comments on the Antosko case in P. W. Hogg and J. E. Magee, Principles of Canadian Income Tax Law (1995), Section 22.3(c) "Strict and purposive interpretation", at pp. 453-54:
| It would introduce intolerable uncertainty into the Income Tax Act if clear language in a detailed provision of the Act were to be qualified by unexpressed exceptions derived from a court's view of the object and purpose of the provision . . . . (The Antosko case) is simply a recognition that "object and purpose" can play only a limited role in the interpretation of a statute that is as precise and detailed as the Income Tax Act. When a provision is couched in specific language that admits of no doubt or ambiguity in its application to the facts, then the provision must be applied regardless of its object and purpose. Only when the statutory language admits of some doubt or ambiguity in its application to the facts is it useful to resort to the object and purpose of the provision. |
I am satisfied that the foregoing applies with respect to the Excise Tax Act equally as it applies to the Income Tax Act [S.C. 1970-71-72, c. 63], although some might question whether the Excise Tax Act is as "precise and detailed" as the Income Tax Act .
| (8) ANALYSIS |
It was not in question before me that subsection 23(1) of the Act, alone or in conjunction with subsection 23(2) is a charging provision, that is to say, as applicable to the facts of this matter, it imposes excise tax on the products of the plaintiff manufactured or produced in Canada that are delivered to a purchaser. It provides for the computation of the tax. It does not specify by whom the tax is payable or when the tax is payable. Thus, it can be said that subsection 23(1), of itself, is, at most, an incomplete charging provision. Subsection 23(2) answers the questions "by whom" and "when". I conclude that subsection 23(2) is an adjunct of subsection 23(1) and the two subsections must be read together to provide a complete charging scheme.
Subsections 23(3) [as am. by R.S.C., 1985 (2nd Supp.), c. 7, s. 10], (3.1) [as am. by R.S.C., 1985 (1st Supp.), c. 15, s. 12] and (10) each provide special rules for particular situations where goods manufactured or produced in Canada that would otherwise be subject to excise tax are not sold or are not sold at what Parliament determined to be the appropriate point in their transit through the commercial chain.
As indicated earlier in these reasons, subsection 23(10) provides a special rule for goods manufactured or produced in Canada and otherwise subject to excise tax that are diverted to the use of the manufacturer or producer and are not sold. Subsection 23(10) deems those goods to have been delivered to a purchaser with the delivery deemed to have taken place when the goods are used or appropriated for use by the manufacturer or producer. It does not provide for a deemed sale, an essential element of the charging formula in subsections 23(1) and (2) taken together, and it does not provide an identification of the person liable to pay tax, although that might be irrelevant since only the manufacturer or producer has anything to do with the goods and it would make little if any sense for any other person to be liable for the tax.
Subsection 52(1) appears in the Part of the Act dealing with sales or consumption tax, not with excise tax. Nonetheless, the closing words of the subsection provide that the deemed sale flowing from "transactions" described in the subsection is a deemed sale for the purposes of the Act and not merely for the purposes of the Part in which the subsection appears. Focussing on the facts of this matter, and the opening words and paragraph (d ) of subsection 52(1), the subsection only applies when goods are manufactured or produced in Canada under circumstances or conditions that "render it difficult to determine the value thereof for the consumption or sales tax because . . . the goods are for use by the manufacturer or producer and not for sale". [Underlining added.] The value of the goods is, of course relevant, because the consumption or sales tax is an ad valorem tax.
As indicated in the agreed statement of facts, there was no difference between the products which were sold by the plaintiff in the normal course of its business to customers and the Sample Tobacco. Further, the agreed statement of facts also indicates that the plaintiff paid federal sales tax and excise tax on the Sample Tobacco. There was no evidence before the Court to indicate that difficulty was encountered in determining value for the purpose of computing tax. Thus, it would seem reasonable to conclude that Sample Tobacco was not manufactured or produced in Canada by the plaintiff under circumstances or conditions which rendered it difficult to determine the value thereof for the consumption or sales tax because the goods were for use by the manufacturer or producer and not for sale. I reach this conclusion.
On the basis of the foregoing analysis of subsection 52(1), on the facts of this matter, I can only conclude that the condition as to its application is not met and that therefore, even if the diversion of Sample Tobacco could be regarded as a transaction,16 reading the subsection as a whole, I further conclude that the subsection simply does not apply to deem that transaction a sale for the purposes of the Act, including Part III dealing with excise tax.
In reaching this conclusion, I respectfully disagree with the interpretation of subsection 52(1), then subsection 31(1) [R.S.C. 1952, c. 100], reflected at pages 249 and 250 of the decision of the Tariff Board in Vancouver Real Estate Board v. Deputy Minister of National Revenue for Customs and Excise.17 The Tariff Board wrote:
The subsection [now 52(1)] deals with valuation difficulties; for the valuation difficulties it permits but does not compel the Minister to determine value; it lists four types of transactions which are not normally held to be sales; finally it deems the four types of transactions to be sales for the purchases of the Act.
The language of the statute about difficult circumstances was not conceived to restrict the entire ambit of the subsection but to explain the circumstances of the delegation of power to determine value made by Parliament to the Minister; it does not so restrict the deeming provision at the end of the subsection that difficulty, greater or lesser must be shown before it is effective.
I find no basis in the foregoing authorities on the interpretation of tax legislation that could lead to a conclusion that, whatever purposes underlay the conception of the opening words of subsection 52(1), the result was only to restrict the Minister's authority to determine value and not to restrict the circumstances in which there is a deemed sale.
In order for liability for tax to arise, all the elements of the charging provision, in this case as I have earlier determined, subsections 23(1) and (2) read together, must be fulfilled or be deemed to be fulfilled.18 On the facts of this matter, the plaintiff manufactured or produced in Canada the Sample Tobacco. By virtue of subsection 23(10), the Sample Tobacco is deemed to have been delivered to a purchaser thereof and I am prepared to imply that the tax is payable by the plaintiff at the time of deemed delivery which is, once again pursuant to subsection 23(10), when the Sample Tobacco was used or appropriated for use by the plaintiff. One essential charging component remains missing. There simply was no sale in Canada, nor was there a deemed sale in Canada. In contrast, in each of subsections 23(3) and (3.1), earlier referred to, there is a deemed sale. If subsection 52(1) of the Act were applicable on the facts of this matter, and I have determined it is not, the missing element, a deemed sale, would be present. In the absence of that element, I conclude that, in respect of the goods in issue, that is, Sample Tobacco manufactured or produced in Canada by the plaintiff, at the relevant time, the plaintiff was not liable to excise tax under Part III of the Excise Tax Act.
| (9) CONCLUSION |
On the basis of the foregoing brief analysis, judgment will go in favour of the plaintiff.
Agreement was reached between the parties on the issue of pre-judgment interest.
The agreement was provided to the Court in the following terms:
The parties agree that any interest payable by the Defendant in this matter shall be calculated as set out below, in accordance with subsection 72(7) of the Excise Tax Act, R.S.C. 1985 c. E15 and the Interest Rate (Excise Tax Act) Regulations, SOR/91-19.
Principal Amount $1,573,717.70
Date Interest Begins April 26, 1989
Assumed Closing Date April 30, 1999
Total Days in Interest Period 3,657
Interest Rate as prescribed
Interest Amount $1,592,417.35
My judgment will provide for pre-judgment interest as agreed and also for post-judgment interest. If the parties have any difficulty in reaching agreement on post-judgment interest, I stand prepared to address that issue, either on the basis of written submissions or through a teleconference.
Both counsel before me were in agreement that costs should follow the event and that no special circumstances existed that would warrant variation from the normal scale. The plaintiff will have costs against the defendant assessed in accordance with Tariff B to the Federal Court Rules, 1998.19
1 In the agreed statement of facts reproduced later in these reasons, this amount is adjusted to $1,573,717.70.
2 R.S.C., 1985, c. E-15 [as enacted by R.S.C., 1985 (2nd Supp.), c. 7, s. 38] as it read December 31, 1987.
3 R.S.C., 1985, c. F-7, as am.
4 (1989), 1 T.S.T. 3077 (Ont. Dist. Ct.), at p. 3077.
5 With the introduction of the Goods and Services Tax (GST) on January 1, 1991, the Consumption or Sales Tax provisions of the Excise Tax Act were repealed.
6 $0,10688 per five cigarettes or fraction of a package and $6.504 per kilogram effective February 19, 1987. See R.S.C., 1985 (2nd Supp.), c. 42, s. 11, in force on February 27, 1986.
7 [1931] S.C.R. 494, at pp. 496-497.
8 R.S.C. 1927, c. 179.
9 See: Molson Newfoundland Brewery Ltd. v. Canada, [1993] 2 C.T.C. 141 (F.C.T.D.), at pp. 146-147 under the heading "Legislative history".
10 Unreported, Exchequer Court of Canada, 10 July, 1934.
11 Department of National Revenue Excise Division, Regulations under the Special War Revenue Act, Ottawa: Edmond Cloutier, King's Printer, 1947. It was not in dispute before me that these "Regulations" and subsequent publications of the Department of National Revenue, or "Revenue Canada" as it came to be known, were of no legal force or effect.
12 Department of National Revenue, Excise Division, Regulations under The Excise Tax Act, March 1954, Ottawa: Edmond Cloutier, Queen's Printer, 1954.
13 Department of National Revenue Excise Division, General Excise and Sales Tax Regulations, April 1961, Ottawa: Queen's Printer, 1961.
14 [1995] 1 C.T.C. 107 (F.C.A.), an appeal from the trial decision cited in note 8.
15 [1995] 3 S.C.R. 103.
16 See British Columbia Railway Company v. R., [1979] 2 F.C. 122 (T.D.); affd. [1981] 2 F.C. 783 (C.A.).
17 (1962), 2 T.B.R. 247.
18 See for ex.: British Columbia Railway Company v. R., [1979] 2 F.C. 122 (T.D.).
19 SOR/98-106.