Bristol-Myers Canada Inc. v. D.MNR for Customs and Excise, 85 DTC 5024, [1985] 1 CTC 23 (FCA)

MacGuigan, J:—This is an appeal under section 60 of the Excise Tax Act from a declaration by the Tariff Board under subsection 59(1) of the Act that four chlorine derivatives added to swimming pool water (trichloro-s-triazinetrione, sodium-dichloro-s-triazinetrione, calcium hypochlorite and sodium hypochlorite) are subject to and not exempt from the consumption or sales tax imposed by section 27 of the Act.

The relevant taxing sections of the Excise Tax Act are:

27.(1) There shall be imposed, levied and collected a consumption or sales tax of nine per cent on the sale price of all goods

(a) produced or manufactured in Canada

29. (1) The tax imposed by section 27 does not apply to the sale or importation of the articles mentioned in Schedule III,

SCHEDULE III

PART VIII

HEALTH

1. Any material, substance, mixture, compound or preparation, of whatever composition or in whatever form, including materials for use exclusively in the manufacture thereof, sold or represented for use in the diagnosis, treatment, mitigation or prevention of a disease, disorder, abnormal physical state, or the symptoms thereof, in humans or animals or for restoring, correcting or modifying organic functions in humans or animals, but not including cosmetics.

The Tariff Board set forth its conclusions as follows:

There is no doubt that the goods are compounds, the volatile ingredient of their base being elemental chlorine. The evidence also establishes that they are used as an additive to swimming pool water in order to kill or control a variety of micro-organisms that, if not killed or controlled, would cause various diseases in users of the pools, and that the goods are sold and represented for use for that purpose.

There remains to be determined whether such use and representation for use bring the goods within the relevant exemption, namely, the prevention of a disease. That determination must seek to give effect to the intention of Parliament in enacting section 1 of Part VIII of Schedule III, as that intention can be gathered from the words of the relevant exemption in the context of Part VIII as a whole.

The indefinite article “a” applies to the word “disease” and applies also to the word “disorder” and the phrase “abnormal physical state” which are the other bodily conditions included in the grouping dealt with in that part of section 1 of the exemptions under the heading HEALTH in Part VIII. Each of those conditions is referred to in the singular and it can be inferred that the intention was to limit the exemption to a substance, mixture, compound, or preparation for the prevention of a specific disease, disorder or abnormal physical state and their symptoms. The goods in issue are for use in the prevention of a variety of diseases by the killing or control of micro-organisms generally.

In the view of the Board, what was intended to be exempted under that part of section 1 with which we are concerned is a material, substance, mixture, compound or preparation in the nature of a medicinal remedy for an existing disorder or, such as a vaccine for the prevention of a particular disease. That conclusion might imply acceptance of the “direct application to the human body” argument advanced by counsel for the respondent so far as it applies to section I but it is arrived at for reasons different from those suggested by him. A reading of section 1 in the context of the other sections of Part VIII does not support the theory that all of the exemptions set out therein must necessarily be goods that are applied directly to the body.

The context of Schedule III does, however, throw further light on the intention of Parliament. The legislators have specifically provided in section 1(e) of Part XII of Schedule III, dealing with goods sold to or imported by municipalities, for an exemption for “chemicals for the treatment of water or sewerage”. If they had intended to provide an exemption for chemicals for the treatment of pool water such as the goods in issue here, they would have similarly so provided. It should also be noted that disinfectant materials of the kind in issue for the sole use of any bona fide public hospital are exempt under section 2 of Part VIII, but that no exemption is provided under Schedule III for the general or any other use of such materials.

The Board therefore declares that trichloro-s-triazinetrione, sodium-dichloro-s- triazinetrione, calcium hypochlorite and sodium hypochlorite are subject to and not exempt from the consumption or sales tax imposed by section 27 of the Excise Tax Act.

The appellant argues that the Board erred as to both of its legal conclusions, viz (1) in holding that the wording of section 1 of Part VIII of Schedule III limits the exemption to substances which prevent a specific disease or remedy a specific pre-existing disorder, and (2) in holding that if Parliament had intended to exempt the goods in question they would have done so by a provision such as that in section 1(e) of Part XII of the Schedule, which exempts chemicals for the treatment of water or sewerage sold to or imported by municipalities for their own use.

Alternatively, the appellant contends that if the Board’s restrictive interpretation of section 1 were accepted, that the Board erred in law in ignoring the evidence before it to the effect that the compounds in question prevent a number of specific diseases, including staphylococcus, pseudomonas, Norwalk virus, and streptococcus.

It is now settled law that, in the words of E A Driedger, Construction of Statutes, 2nd ed, (1983), at 207, “there are no special rules or canons of construction for tax exemptions, and whether a subject is taxable or exempt depends in all cases on the intention of the legislature to be ascertained in the normal way”. The normal way is stated by Driedger (ibid, at p 87), in a passage recently quoted with approval by the Supreme Court of Canada (Stubart Investments Ltd v The Queen, [1984] CTC 294; 84 DTC 6305 at 316 [6323]) as follows:

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.

Here, the Board relies on the singular number of the words in the exemption: “a disease, disorder, abnormal physical state”. But subsection 26(7) of the Interpretation Act sets out that “words in the singular include the plural”, subject to subsection 3(1) of the same Act, “unless a contrary intention appears”.

There is nothing here to rebut the presumption that the exemption should be read in the plural as well as in the singular. Indeed, in its own interpretation of this exemption (as revised to October 1984) the Department of National Rev- enue lists products such as bath crystals, skin cleaners, and ASA tablets which clearly would not qualify as substances which prevent specific diseases. As Dickson, J put it for the Supreme Court in Nowegijick v The Queen, [1983] CTC 20; 83 DTC 5041, at 24 [5044],

Administrative policy and interpretation are not determinative but are entitled to weight and can be an “important factor” in case of doubt about the meaning of legislation: . ..

The Board also relied on the wording of the exemption for water treatment chemicals in section 1(e) of Part XII of the Schedule. It reads:

1. Certain goods sold to or imported by municipalities for their own use and not for resale, as follows:

(e) goods for use as part of water distribution, sewerage or drainage systems, chemicals for use in the treatment of water or sewage, and, for the purposes of this exemption, any agency operating a water distribution, sewerage or drainage system for or on behalf of a municipality may be declared by the Minister to be a municipality,

It also relied on the wording of the public hospital exemption. Section 2 of Part VIII provides:

HEALTH

2. Articles and materials for the sole use of any bona fide public hospital certified to be such by the Department of National Health and Welfare, when purchased in good faith for use exclusively by the said hospital and not for resale.

But these exemptions, which are specific to municipalities and hospitals, are so different in character and purpose as to be irrelevant. They are, as appellant argued, end-user exemptions, benefiting certin activities of municipalities and all activities of hospitals. In a similar case, Irving Oil Ltd et al v Provincial Secretary of New Brunswick (1980), 109 DLR (3d) 513, at 518, where a provincial Minister had denied a sales tax exemption, inter alia, for electrical transformers, Pigeon, J, said for the Supreme Court:

Concerning the transformers, the basis on which the exemption was denied by the Minister was simply untenable in law. While it is proper to look at the various exemptions in considering each of them, they are nevertheless independent. The specific exemption allowed to the New Brunswick Electric Power Commission cannot create an inference to restrict the scope of other exemptions seeing that it reads [s 1 l(ff)]:

(ff) goods purchased by the New Brunswick Electric Power Commission for direct use in producing electricity;

In sum, the interpretation adopted by the Board is too narrow to be sustainable in the absence of a context which strongly pointed to such an interpretation. Here, there is nothing in the context even to support such a reading. Since the erroneous interpretation is fundamental to the Board’s decision, the declaration must be set aside.

In view of this holding, it is unnecessary to consider the appellant’s alternative argument as to the effect of the compounds on particular pathogenic organisms.

I would allow the appeal and remit the matter to the Board for reconsideration and decision based on the Court’s interpretation of section I of Schedule III, Part VIII as hereinbefore set forth.