Citation: 2012 TCC 167
Date: 20120516
Docket: 2011-3464(EA)I
BETWEEN:
LISE A. LEGAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hershfield J.
[1] The Minister of
National Revenue (the “Minister”) assessed the Appellant under the Excise
Act, 2001, S.C. 2002, c.22 (the “Act”).
[2] The Appellant held
a tobacco licence under the Act and manufactured tobacco products from
raw tobacco acquired in dry leaf bales from Canadian organic tobacco growers. As
a licensed manufacturer, the Appellant is liable under the Act to pay
duty on such products at the time they are packaged.
[3] The tobacco
products that are the subject of this appeal are asserted to have been offered
for sale to customers in packages of 13 and 36 grams each. Her customer base
was First Nations people. The tobacco processed was used for ceremonial
purposes.
[4] As a result of
changes to the Act or more particularly to the rate schedule introduced in
July 2008 the duty was $2.8925 per 50 grams or fraction of 50 grams contained in any package. Under such a rate
schedule, a 13 gram package and a 36 gram package were each subject to a flat
rate duty of $2.8925 which meant that the duty was much higher on a per gram basis
for smaller packaging.
[5] For the three-month
period commencing October 2008 through December 2008 the Appellant calculated
the duty owing by notionally combining packages sold so that the $2.8925 duty was paid for 50 actual grams of tobacco sold regardless
how they were packaged. The Minister’s assessment calculated the duty owing during
this period on the basis that each 13 gram package and each 36 gram package was
subject to duty at the rate of $2.8925.
[6] The relevant
provisions of the Act and the Stamping and Marking of Tobacco
Products Regulations, SOR/2003-288 (the “Regulations”) are as
follows:
2. The definitions in this section apply in this Act
“packaged” means
(a) in respect of raw leaf tobacco
or a tobacco product, packaged in a prescribed package; or
(b) in respect of alcohol,
packaged
(i)
in a container of a
capacity of not more than 100 L that is ordinarily sold to consumers
without the alcohol being repackaged, or
(ii)
in a marked special
container.
42.(1) Duty is imposed on tobacco products manufactured
in Canada or imported and on imported raw leaf tobacco at the rates set out in
Schedule 1 and is payable
(a) in the case of tobacco
products manufactured in Canada, by the tobacco licensee who
manufactured the tobacco products, at the time they are packaged; and
…
Schedule 1 Rates of Duty on Tobacco Products
3. Manufactured tobacco other than cigarettes and tobacco sticks:
(a)
…
(b)
$2.8925 per 50 grams or fraction of 50 grams contained in any package, in any other case.
Stamping and Marking of Tobacco Products
Regulations
Prescribed Package
2. For the purpose of paragraph (a) of the
definition “packaged” in section 2 of the Act,
(a) raw leaf tobacco is packaged
in a prescribed package when it is formed into a hand for sale or when a hand
of raw leaf tobacco or broken portions of the leaf are packed for sale; and
(b) a tobacco product is packaged
in a prescribed package when it is packaged in the smallest package – including
any outer wrapping that is customarily displayed to the consumer – in which it
is normally offered for sale to the general public.
Stamps
4.(1) Subject to subsection (5), every
package of the following tobacco products shall be stamped, in a conspicuous
place and in a manner that seals the package, with the stamp set out in the
applicable schedule, in accordance with the specifications set out in that
schedule:
…
(c) in the case of a package of manufactured tobacco, other
than cigarettes or tobacco sticks, a stamp set out in Schedule 3.
[7] There is no dispute
that the Appellant falls within the charging provision set out in section 42 of
the Act. That is, she acknowledges she is a tobacco licensee who
manufactured tobacco products in Canada and is liable to pay duty at a prescribed rate at the time
such products are packaged. There is no dispute that the applicable rate of
duty is as stipulated in paragraph 3(b) of Schedule 1 as reproduced above.
[8] The main issue in
this appeal as argued by the Appellant is whether the provisions as they came
into effect for the subject period were meant to (or should) apply to the type
of product manufactured and sold by her or to the type of business in which she
is engaged. The Appellant makes a strong case that that could not possibly have
been the intent of the statutory regime as amended and asks the Court to read
down the express language of the Act and Regulations so as to permit
her to prorate the $2.8925 per
50 grams on a per gram basis. As it was proposed to the Court, the duty payable
should be the total grams sold, per order, divided by 50, multiplied by the
duty rate.
[9] As well, a further issue
was raised at the hearing. Notwithstanding that the Appellant initially
accepted that the packages in question were in fact 13 gram and 36 gram
packages as illustrated in packages tendered at the hearing, she pointed out
via her sales records that almost all of her sales, on a per order basis, were
for a number of packages the aggregate weight of which was over 50 grams. Such
sales would be packaged by placing several 13 gram or 36 gram packages together
in one delivery package, typically a box. Finding the delivery package to be
the relevant package, would reduce her liability.
[10] In fact, since the
assessment issue arose, the Appellant has modified her packaging approach. She
now shrink wraps four individual 12.5 gram boxes in one package that are priced
and sold together. She affixes one duty paid stamp to this larger package so
the smaller packages inside cannot be sold separately. Formerly, she attached a
duty paid stamp to each 13 gram or 36 gram package and they could be sold
separately regardless of how they were packaged for delivery.
[11] Under her new packaging
approach she pays the $2.8925 duty on the 50 grams of tobacco sold. But for the
duty paid stamping, this approach does not, practically speaking, vary too much
from a delivery perspective from that employed under her old approach. The
Canada Revenue Agency has apparently blessed this approach. That is the result
she wants applied to her old packaging approach.
[12] While this position
makes sense, the applicable provisions as written allow me no room to
accommodate it. The time when the duty is imposed under section 42 of the Act
is when the tobacco is packaged and “packaged” is defined in section 2 as “packaged
in a prescribed package”. The stamping regulations as set out above make it
clear that the relevant package is “the smallest package – including outer
wrapping that is customarily displayed to the consumer – in which it is
normally offered for sale to the general public”.
[13] The smallest
packages offered for sale to the general public were the 13 and 36 ounce
packages. That they were later packed in a larger package for delivery purposes
does not address the requirement to focus on the time the tobacco product was
first packaged. As such, this argument had no legs.
[14] Aside from this argument,
the Appellant admitted that the relevant package during the subject period was
the 13 gram package or 36 gram package, each wrapped to be displayed, marketed and
sold to her customers as such. Indeed, that was her main issue: either her
prices had to go up if she continued her original packaging approach to reflect
the higher duty or she had to package and sell in larger quantities. Either way
her business was being adversely affected by what she asserted was essentially
bad policy at least in the circumstances of her particular business.
[15] She suggested that
if the policy was to discourage small tobacco packaging by, for example, making
tobacco less accessible, then the one area where that might make sense would be
in respect of cigarette sales, but due to effective tobacco industry lobbying
that sector was not made subject to this new duty regime.
[16] She may have a point
given that her tobacco products are, as I will elaborate on momentarily, only intended
for ceremonial use by First Nations people. I am not in a position to say one
way or another, but, regardless, lobbying this Court for her vision of a fairer,
more sensible approach to levy excise taxes on her tobacco products will not
give her satisfaction. The lobby must be directed at Parliament.
[17] Having identified
the Appellant’s main argument which was whether the provisions as they came
into effect for the subject period were meant to apply (or in reason should be
read as applying) to the type of product manufactured and sold by her or to the
type of business in which she is engaged, it is necessary for me to say more
about the tobacco product she manufactures and her business.
[18] The Appellant’s
business operates as “Mother Earth Tobacco” in Portage la Prairie, Manitoba. During the relevant
period it was operated as a sole proprietorship. Currently, however, it is operated
in partnership with Ms. Bullard who was identified as a Dakota woman
knowledgeable in the process of manufacturing ceremonial tobacco used in a
manner associated with the rituals of her people. Although she has only more
recently been in partnership with the Appellant, she has been involved in the
business since its inception in 2005 and had personal knowledge of all aspects
of its operations since its inception. She was said to be knowledgeable of the
meaning and integrity of the work as well as the processing requirements for
the manufacture of ceremonial tobacco. She appeared as a witness on behalf of
the Appellant.
[19] She explained that
ceremonial tobacco was not a product for habitual use. It was considered by
aboriginal people as one of four sacred medicines and was used as a ceremonial
offering by the community Mother Earth Tobacco served.
[20] She explained that the
original packaging size of 36 ounces was too large considering its use and
customers requested smaller packaging sizes. The 13 gram package became more
successful. It became the bulk of their business. At a selling price of some
$12.00 a package it was more affordable to the low income customers being
served by the Appellant’s on-reserve retail buyers. Under the new regime, a package of
four boxes, which could not be sold separately, would cost buyers over $50.00
which was less viable in the market they served in terms of both quantity
needed and the price that had to be paid.
[21] While the new
packaging approach resolved a pricing issue caused by the new duty regime, it
too had a negative impact on sales given the realities of the quantity needs
and price point requirements necessary to satisfy the ceremonial users of the
product.
[22] Essentially what is
being pleaded is that the subject duty provision in Schedule 1 of the Act
is taxing tobacco that has never been manufactured and to add insult to injury
that onerous concept is being thrust on aboriginal peoples’ sacred rituals in
the course of their practising their religious and spiritual beliefs all
because they require packaging in culturally appropriate quantities. As further
insult, the cigarette tobacco sector has successfully lobbied out of this regime.
The Appellant asks: Hello? Why isn’t anybody listening?
[23] I hear and
understand the plea. And as I said earlier in these Reasons, the Appellant
makes a strong case that that could not possibly have been the intent of a
reasoned statutory regime. However, her request, based on that possibility and
the apparent unfairness of the impact of this regime, that I read down or
reconstruct the regime as imposed by our parliamentary system, cannot be
accommodated given the limited jurisdiction of this Court and my ignorance of
what answers to the Appellant’s concerns might be given by other stakeholders
including government policy makers.
[24] I have no
hesitation, however, in recommending that the policy of this taxing regime be
revisited and any necessary amendments be considered. Indeed, if the
Appellant’s pleas are as worthy as she makes them out to be, a remission order
might even be considered.
[25] Regardless, the
appeal must fail. The duty as assessed is the duty payable under the relevant
terms of the Act. The appeal is dismissed, without costs.
Signed
at Ottawa, Canada this 16th day of May 2012.
"J.E. Hershfield"
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