AMOCO Canada Petroleum Co. Ltd. v. MNR, 85 DTC 5169, [1985] 1CTC 240 (FCA)

MacGuigan, J:—The issue in this case is simply stated: the Government seeks to avoid paying the whole amount of a refund otherwise wholly owing to a taxpayer on the basis of a claimed one-year limitation period which it infers from the language of the taxing statute. For a Court so to limit a taxpayer’s right to what would otherwise be his own money would necessitate a clear statutory directive indeed.

In Morguard Properties Ltd et al v City of Winnipeg (1983), 3 DLR (4th) 1, 12 Estey J for a unanimous Supreme Court quoted with approval the statement of Brodeur, J in Canadian Northern R Co v The King (1923), 64 SCR 264, 275:

A law imposing taxation should always be strictly construed against the taxing authorities, since it restricts the public in the enjoyment of its property.

Later (at 13) he puts the same point in his own words:

In more modern terminology the courts require that, in order to adversely affect a citizen’s right, whether as a taxpayer or otherwise, the Legislature must do so expressly. Truncation of such rights may be legislatively unintended or even accidental, but the courts must look for express language in the statute before concluding that these rights have been reduced. This principle of construction becomes even more important and more generally operative in modern times because the Legislature is guided and assisted by a well-staffed and ordinarily very articulate Executive. The resources at hand in the preparation and enactment of legislation are such that a court must be slow to presume oversight or inarticulate intentions when the rights of the citizen are involved. Th Legislature has complete control of the process of legislation, and when it has not for any reason clearly expressed itself, it has all the resources available to correct that inadequacy of expression. This is more true today than ever before in our history of parliamentary rule.

The need for express language can only be a fortiori when it is a question not of the tax itself but of a refund of money paid in error. It cannot be lightly presumed that Parliament does not intend the Government to pay its debts. A Court must therefore carefully scrutinize the statute in question.

The application here is brought under section 28 of the Federal Court Act pursuant to subsection 44(7.3) of the Excise Tax Act to review and set aside the decision of the respondent made by letter of June 20, 1984, refusing to grant a refund of natural gas and gas liquids tax and Canadian ownership surcharge in the amount of $2,915,645.25 paid in error by the applicant.

In Shell Canada Resources Ltd v MNR, [1984] CTC 169; 84 DTC 6129; 52 NR 266, this Court held on February 3, 1984 that the natural gas consumed at a gas processing plant to incinerate a waste gas by-product which could not legally be released into the atmosphere was exempt from taxation under the natural gas and gas liquids tax and the Canadian ownership surcharge as gas consumed in the production of marketable pipeline gas. As a result of that decision, the applicant, Amoco Canada Petroleum Company Ltd (“Amoco”), a corporation in a similar situation to Shell Canada Resources Ltd, applied in writing on March 9, 1984 to the respondent for a refund of taxes paid in error in the amount of $3,923,971.81, covering the period November 1, 1980 to November 30, 1983.

By letter dated May 24, 1984 the applicant was first informed that it was entitled to a refund only for the period January 1, 1983 to November 30, 1983 by virtue of subsection 44(7) of the Act, such refund being in the amount of $1,008,325.66.

However, by a subsequent letter of June 20, 1984, the respondent (through Mr J R McKean, a person authorized by section 6 of the Delegation of Powers Regulations to reject a refund claim under subsection 44(7.3) of the Act) informed the applicant that pursuant to subsection 44(7) it was entitled to a refund for taxes paid in the one-year period February 4, 1983 to February 3, 1984. This modification in the respondent’s position came about as a result of a Notice of Ways and Means Motion introduced in Parliament on February 15, 1984, which inter alia established that the one-year limitation in subsection 44(7) ran from the date of the decision, which had not been how the respondent previously interpreted subsection 44(7). This moved the date used by the respondent back from March 9, 1984 to February 4, 1983. The respondent’s reason was stated as follows in the letter of June 20:

As you are aware the Federal Court on a similar case, in its judgment of 3 February 1984, referred the matter back to the Minister of National Revenue for reconsideration and redetermination on the basis that the gas consumed in the incinerators at the gas processing plants in issue was consumed in the production of marketable pipeline gas. As a result the Minister has determined that the gas consumed for such purposes qualifies for exemption under Section 25.13(3) of the Excise Tax Act. The effective date of this determination is 3 February 1984. The Minister then instructed officials of Excise Branch to allow refunds on taxes paid, on the gas in question, subject to the provision of Section 44(7) of the Excise Tax Act using that effective date.

As you can see, that decision places Amoco’s claim directly under 44(7). Under this section your refund can only be allowed back to 4 February 1983.

American Motors (Canada) Inc. (“American Motors”) is the applicant in another section 28 application pending in the Federal Court of Appeal (Federal Court File No A-1487-84), in which the Minister of National Revenue is also a respondent, and involving issues of law identical or substantially similar to those in dispute in this application. In the American Motors proceeding, the Minister of National Revenue has undertaken to apply the legal principles to be determined in this application to the claims for refund made by American Motors in its section 28 application. In the circumstances and with the consent of the applicant and respondent herein, American Motors was allowed to participate in the argument of this application.

The relevant paragraphs of the Excise Tax Act are as follows:

44. (1) A deduction from, or refund of, any of the taxes imposed by the Act may be granted

(a) where an overpayment has been made by the taxpayer;

(b) where a refund or adjustment has been made to the taxpayer by a licensed air carrier under Part II for the taxes collected or paid on any transportation of a person by air that has not been provided or only partially provided by the air carrier or that has been collected in error by the air carrier;

(c) where the tax was paid in error;

(d) where the original sale or importation was subject to tax, but exemption is provided on subsequent sale by this Act:

(e) where goods are exported, under regulations prescribed by the Minister;

(f) where, due to changes in statutory rates of tax or for other reasons, stamps are returned for exchange; or

(g) where the original receipt of marketable pipeline gas or natural gas liquids was subject to tax under Part IV. 1, but exemption is provided on subsequent use by that Part.

(6) Subject to subsections (7) and (7.1), no refund of or deduction from any of the taxes imposed by this Act shall be granted, and no payment of an amount equal to tax paid shall be made, under this section unless application in writing therefor is made to the Minister by the person entitled to the refund, deduction or amount within four years after the time the refund, deduction or amount first became payable under this section or the regulations.

(7) No refund of or deduction from any of the taxes imposed by this Act shall be granted, and no payment of an amount equal to tax paid shall be made, under this section as a result of

(a) a declaration under section 59,

(b) an order or judgment of the Federal Court or any other court of competent jurisdiction, or

(c) a decision of the Minister or other duly authorized officer respecting the interpretation or application of this Act,

in respect of taxes paid prior to such declaration, order, judgment or decision unless application in writing therefor is made to the Minister by the person entitled to the refund, deduction or amount within twelve months after the later of the time the taxes became payable or the time the refund, deduction or amount first became payable under this section or the regulations.

(7.1) Subject to subsection (7), no refund of moneys paid or overpaid in error, whether by reason of mistake of fact or law or otherwise, and taken into account as taxes imposed by this Act shall be granted under this section unless application in writing therefor is made to the Minister by the person entitled to the refund within four years after the time the moneys were paid or overpaid.

(7.2) An application under subsection (6), (7) or (7.1) shall be made in such form and in such manner as the Minister may prescribe.

(7.3) Where the Minister rejects in whole or in part an application under subsection (6), (7) or (7.1) for a refund, deduction or amount, the application ceases to have effect, for the purposes of determining whether the refund, or deduction may be granted or the amount may be paid, ninety days after notice of the rejection is sent to the applicant, unless, within that ninety day period, an application in respect of the refund, deduction or amount is made to the Tariff Board under section 59 or to the Federal Court under section 28 of the Federal Court Act.

(7.4) Where the Minister approves an application under subsection (6), (7) or (7.1) for a refund, deduction or amount, the application ceases to have effect, for the purposes of determining whether the refund or deduction may be granted or the amount may be paid, ninety days after payment of the refund, deduction or amount is sent to the applicant, unless, within that ninety day period, an application in respect of the refund, deduction or amount is made to the Tariff Board under section 59 or to the Federal Court under section 28 of the Federal Court Act.

59. (1) Where any difference arises or where any doubt exists as to whether any or what rate of tax is payable on any article or on transportation by air under this Act, the Tariff Board constituted by the Tariff Board Act may declare what rate of tax is payable thereon or that the article or transportation by air is exempt from tax under this Act.

(2) Before making a declaration under subsection (1) the Tariff Board shall provide for a hearing and shall publish a notice thereof on the Canada Gazette at least twenty- one days prior to the day of the hearing; and any person who, on or before that day, enters an appearance with the Secretary of the Tariff Board may be heard at the hearing.

(3) A declaration by the Tariff Board under this section is final and conclusive, subject to appeal as provided in section 60.

(4) [Repealed, 1980-81-82-83, c 68, s 24.]

(5) An application to the Tariff Board for a declaration, or the entering of an appearance with the Secretary of the Tariff Board under subsection (2) of this section, shall, for the purposes of section 44, be deemed to be an application in writing. RS, c E-13, s 59; 1980-81-82-83, c 68, s 24.

It is unnecessary to consider the liability and remedies at common law and in equity for money paid under mistake of law, since paragraph 44(1 )(c) provides for a refund where a tax is paid in error. In Jack Herdman Limited v MNR, [1983] CTC 272; 83 DTC 5274; 48 NR 144 this Court held that where a tax has been paid in error within the meaning of paragraph 44(1 )(c), the taxpayer is entitled to a refund as of right rather than by discretion. The respondent nevertheless argued that subsection (7) limits the present applicant’s right to a refund through a one-year limitation period.

Subsections (6), (7), (7.1) are specifically linked together by internal reference (the expression “subject to” in subsections (6) and (7.1)) and their respective ambits are not immediately clear. The parties agree that subsection (6) has reference only to situations where taxes were properly paid but became subsequently refundable, in other words, situations covered by paragraphs 44(l)(d), (e), (f) and (g), but not these relating to 44(l)(a), (b), or (c).

The respondent argues: first, that subsection (7) applies where, as here, a refund is sought as a result of government error (or mutual error) whereas subsection (7.1) is directed to refunds where there is taxpayer error alone; and second, that the one-year restriction is a substantive limitation on the amount of tax recoverable and not merely a procedural limit on the timing of refund applications.

Taking this second argument first, I can find neither express language within the Morguard rule to substantiate the respondent’s position, nor any contextual need for such an interpretation. Subsection (7) requires only that a refund application be made “within twelve months after the later of” two events. There is nothing in the subsection or in the context to restrict the period of the refund itself to one year. It is therefore only a limitation on the timing of a refund application.

More broadly, and embracing the respondent’s first argument as well, the only basis I can find for the respondent’s combined interpretation of the two subsections (7) and (7.1) is the incorporation into subsection (7) of three circumstances all of which posit some unusual, indeed extrinsic, intervention in the ordinary process, whether by way of a Tariff Board declaration under section 59, a Court order or judgment, or an authoritative re-interpretation of the Act. But such an interpretation would necessitate this Court’s holding that the applicant’s refund would be “granted . . . as a result of . . . an order or judgment of the Federal Court’’ (ie, in the Shell Resources case). Now admittedly the applicant’s application was made as a result of the Shell Resources decision, but any refund payable is owing “as a result of” paragraph 44(1)(c) of the Act rather than “as a result of’ the judicial decision. Moreover, the consequence of such an interpretation is that a taxpayer that alone made a mistake would have a four-year period of grace for recovery (as substantively interpreted by the respondent), whereas a mutual mistake in which the respondent shares would limit the taxpayer to a one-year recovery period. It would appear in fact that merely by rejecting a refund claim the respondent could reduce the claim period from four years to one. It would require convincing language to show that Parliament intended such an unfair result.

In my view, what Parliament did intend was that, just as subsection (6) should establish a four-year limitation period for the situations covered by paragraphs (d)-(g) of subsection 44(1) (as the parties agree), so subsection (7.1) establishes a four-year claim period for the other paragraphs of subsection 44(1) where the tax was never truly exigible, viz paragraphs (a), (b) and (c). In fact, the parallelism in statutory language between these two subsections is striking. It is unnecessary for this case to decide whether the four-year period in both subsections should be read as substantive or procedural.

On this interpretation, subsection (7) could have application to taxpayers directly involved in contesting departmental interpretations before the Tariff Board or a Court or to those affected by an authoritative re-interpretation — this third group could include all taxpayers. Their refunds might be said to be payable as a result of these special circumstances, and in this context I would interpret the time at which “the refund, deduction or amount first became payable” to be the time of the declaration, order, judgment, or authoritative pronouncement. In some cases, these taxpayers might have already made an application for a refund, deduction or payment, but in every case they would have the advantage under subsection (7) of a further application in the light of the declaration, order^ judgment or pronouncement. Such a result is in no way unreasonable or unfair.

This interpretation not only resolves the ambiguities of these subsections, but it does so without unfairness to the taxpayer who does not initially contest his obligation to pay. A taxpayer who pays his taxes in good faith and under the general compulsion of the law should not be penalized for not challenging his Government’s right to the tax at every stage — annually, as recommended before us by counsel for the respondent. Compliance with law is not a vice but a wholesome attitude in a democratic society.

I would therefore allow the application and refer the matter back to the respondent for reconsideration on the basis that the applicant is entitled to the further refund contemplated by subsection 44(7.1) of the Excise Tax Act.

Since this is a section 28 application, Rule 1408 applies. It provides that costs shall not be awarded — “unless the Court, in its discretion, for special reason, so orders” Since no special reasons were advanced, and none appear from the record, I would make no order respecting costs.

Ryan, J:—I agree that the section 28 application should be granted and that the application for refund filed by Amoco Canada Petroleum Company Ltd (“Amoco”) should be referred back to the Minister on the terms specified in Mr Justice MacGuigan’s reasons for judgment.

I agree with Mr Justice MacGuigan that, though Amoco’s application to the Minister for refund of the moneys paid by it in error may have been made as a result of — may have been suggested by “the judgment of the Federal Court of Appeal in Shell Canada Resources Ltd v MNR, [1984] CTC 169; 84 DTC 6219, no refund could be granted to Amoco “‘as a result of” that judgment. Amoco was not a party to that case. Nor was the judgment a judgment in rem; in that respect its effect might differ from the effect a declaration under section 59 or an order or judgment under section 60 might have: see Goodyear Tire and Rubber Co of Canada Ltd v T Eaton Co Ltd, [1956] SCR 610, particularly per Mr Justice Rand at p 616. Any refund payable to Amoco would be payable, as Mr Justice MacGuigan indicates, as “a result of” paragraph 44(l)(c) of the Excise Tax Act; the refund would be money payable to Amoco because of that provision, not because of the judgment in Shell Canada Resources Ltd, however helpful that case might be to Amoco in establishing that it paid the moneys of which refund is claimed on the mistaken view that the moneys at the time of payment were exigible as taxes. I do not find it necessary to consider what limitations might flow from subsection 44(7) were it applicable. In my view, the appropriate limitation period in this case is that specified in subsection 44(7.1). Amoco’s application to the Minister was in effect an application for the refund of “moneys paid” by reason of mistake of law, moneys mistakenly “taken into account as taxes imposed by this Act”.