Date: 20020510
Docket: 2000-4853-ST, 2000-4854-ST,
2000-4855-ST
BETWEEN:
1146491 ONTARIO LTD., 964211 ONTARIO
LIMITED,
105572 ONTARIO INC.,
Appellants
BETWEEN:
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Miller J.T.C.C
[1]
The appeals of 1146491 ONTARIO LTD., 964211 ONTARIO
LIMITED and 105572 ONTARIO INC., (the
"Companies") were heard on common evidence.
The Companies carried on business under the common name of
Market Fresh. Their business was the sale of fresh fruits
and vegetables along with meat and seafood. Two of their products
were salad kits. The Minister of National Revenue
(the "Minister") assessed each of the companies
for the 1995, 1996, 1997, 1998 and 1999 taxation years, on the
basis that the salad kits constituted salads and were therefore
exceptions to basic groceries found in subsection 1(o.1)
of Part III of Schedule VI of the Excise Tax Act (the
"Act"). As such they were not zero-rated.
The Appellants objected to such assessments on the basis that the
salad kits were basic groceries and were not salads.
[2]
The President of the Companies, Mr. Brazeau, testified on
behalf of the Appellants. He indicated that Market Fresh
operated nine stores in the Ottawa-Gatineau area. The
assessments in issue arose from two stores in Gatineau and one in
Hull. Mr. Brazeau produced the two salad kits in issue: the
Greek salad kit and the Caesar salad kit. I will describe the
Caesar salad kit. It was contained in a transparent bag labeled
as a Caesar salad kit. It contained washed and cut romaine
lettuce which would serve four to six people. The bag also
contained transparent zip lock bags with parmesan, bacon bits and
croutons. Finally there was a small container (with a lid)
holding the Caesar salad dressing. The bag itself also closed
with a zip lock seal. Mr. Brazeau described how his
employees would manually force as much air as possible out of the
bag without bruising the lettuce. The zip lock was then
immediately sealed. This took place at Market Fresh's
premises.
[3]
The Greek salad kit was similar though its contents included the
lettuce and separate packages within the bag of olives, feta
cheese, red onion and croutons as well as a Greek dressing.
Mr. Brazeau presented two other demonstrative exhibits:
first, a transparent zip lock bag of just washed and cut lettuce,
again in a serving of four to six. This bag was not treated as a
salad by the Minister but was zero-rated as being basic
groceries. Second, Mr. Brazeau presented a single serving of
spinach salad which was already mixed with egg, bacon and
dressing, resting on a styrofoam base and covered with
cellophane. This salad was not sold by Market Fresh on a
zero-rated basis but was considered a salad subject to the
exception to basic groceries set forth in subsection
1(o.1) of Part III of Schedule VI of the
Act.
[4]
The quantities of the ingredients in a salad kit were determined
by Market Fresh's employees by mixing them together
and assessing which combinations produced the best result.
[5]
The Appellant Companies submitted as evidence a survey of its
customers in which they asked whether the customers considered
the product a salad or the ingredients to make a salad. While I
allowed this to be introduced, I attach very little weight to it,
not just because, as the Respondent pointed out, Mr. Brazeau
is not a qualified pollster, but because it is an attempt to
answer the very question before me. I will only say that the
resounding results in favour of identifying the kit as
ingredients, rather than the salad itself, is hardly
surprising.
[6]
The parties helpfully provided an agreed summary of the
assessments which is reproduced below: (Exhibit A-1)
SUMMARY
NOTICES OF (RE) ASSESSMENT - GST
- AUGUST 6, 1999
|
|
1146491 Ontario Limited
(Period: Dec. 13/95 -
Jan. 31/99)
|
964211 Ontario Limited
(Period: Jul. 1/95 -
Feb. 28/99)
|
105572 Ontario Limited
(Period: Jun. 1/95 - Aug. 31/98)
|
TOTALS
|
|
Tax Adjustment
|
Salad
28,015.39
Other
17,127.55
45,142.94
|
Salad 50,205.33
Other
57,818.89
108,024.22
|
Salad 96,934.47
Other
0.00
96,934.47
|
Salad 175,155.19
Other 74,946.44
250,101.63
|
|
Interest
|
1,396.33
|
4,143.75
|
7,026.26
|
12,566.34
|
|
Penalties
|
2,548.29
|
7,784.30
|
9,601.98
|
19,934.57
|
|
TOTALS
|
49,087.56
|
119,952.27
|
113,562.71
|
282,602.54
|
[7]
The Respondent submitted copies of various pages of the
Appellant's website. One page indicated "... where
customers can pick-up ready-made salads and ... chain's
signature toss-and-serve salad kits".
[8]
The starting point for the analysis is subsection 1(o.1)
of Part III of Schedule VI of the Act. It is helpful
to reproduce all of section 1 as it provides the flavour to
the nature of the exception from basic groceries:
1.
Supplies of food or beverages for human consumption (including
sweetening agents, seasonings and other ingredients to be mixed
with or used in the preparation of such food or beverages), other
than supplies of
(a) wine, spirits, beer, malt liquor or other alcoholic
beverages;
(b) (Repealed by S.C. 1997, c. 10, S. 137(1).)
(c) carbonated beverages;
(d) non-carbonated fruit juice beverages or fruit
flavoured beverages, other than milk-based beverages, that
contain less than 25% by volume of
(i) a natural fruit juice or combination of natural fruit
juices, or
(ii) a natural fruit juice or combination of natural fruit
juices that have been reconstituted into the original state, or
goods that, when added to water, produce a beverage included in
this paragraph;
(e) candies, confectionery that may be classed as
candy, or any goods sold as candies, such as candy floss, chewing
gum and chocolate, whether naturally or artificially sweetened,
and including fruits, seeds, nuts and popcorn when they are
coated or treated with candy, chocolate, honey, molasses, sugar,
syrup or artificial sweeteners;
(f) chips, crisps, puffs, curls or sticks (such as
potato chips, corn chips, cheese puffs, potato sticks, bacon
crisps and cheese curls), other similar snack foods or popcorn
and brittle pretzels, but not including any product that is sold
primarily as a breakfast cereal;
(g) salted nuts or salted seeds;
(h) granola products, but not including any product
that is sold primarily as a breakfast cereal;
(i) snack mixtures that contain cereals, nuts, seeds,
dried fruit or any other edible product, but not including any
mixture that is sold primarily as a breakfast cereal;
(j) ice lollies, juice bars, flavoured, coloured or
sweetened ice waters, or similar products, whether frozen or
not;
(k) ice cream, ice milk, sherbet, frozen yoghurt or
frozen pudding, non-dairy substitutes for any of the foregoing,
or any product that contains any of the foregoing, when packaged
or sold in single servings;
(l) fruit bars, rolls or drops or similar fruit-based
snack foods;
(m) cakes, muffins, pies, pastries, tarts, cookies, doughnuts,
brownies, croissants with sweetened filling or coating, or
similar products where
(i) they are prepackaged for sale to consumers in quantities
of less than six items each of which is a single serving, or
(ii) they are not prepackaged for sale to consumers and are
sold as single servings in quantities of less than six,
but not including bread products, such as bagels, English
muffins, croissants or bread rolls, without sweetened filling or
coating;
(n) beverages (other than unflavoured milk) or pudding,
including flavoured gelatine, mousse, flavoured whipped dessert
product or any other products similar to pudding, except
(i) when prepared and prepackaged specially for consumption by
babies,
(ii) when sold in multiples, prepackaged by the manufacturer
or producer, of single servings, or
(iii) when the cans, bottles or other primary containers in
which the beverages or products are sold contain a quantity
exceeding a sing
(o) food or beverages heated for consumption;
(o.1) salads not canned or vacuum sealed;
(o.2) sandwiches and similar products other than when
frozen;
(o.3) platters of cheese, cold cuts, fruit or
vegetables and other arrangements of prepared food;
(o.4) beverages dispensed at the place where they are
sold;
(o.5) food or beverages sold under a contract for, or
in conjunction with, catering services;
(p) food or beverages sold through a vending
machine;
(q) food or beverages when sold at an establishment at
which all or substantially all of the sales of food or beverages
are sales of food or beverages included in any of paragraphs (a)
to (p) except where
(i) the food or beverage is sold in a form not suitable for
immediate consumption, having regard to the nature of the
product, the quantity sold or its packaging, or
(ii) in the case of a product described in paragraph (m),
(A) the product is prepackaged for sale to consumers in
quantities of more than five items each of which is a single
serving, or
(B) the product is not prepackaged for sale to consumers and
is sold as single servings in quantities of more than five,
and is not sold for consumption at the establishment; and
(r) unbottled water, other than ice.
[9]
Counsel for both the Appellants and Respondent brought to my
attention how the provision formerly read, though there was no
further guidance as to the significance of such a change. Suffice
it to say that previously, for salads to be an exception to basic
groceries they needed to be "prepared foods in a form
suitable for immediate consumption". As the exception now
just reads "salads not canned or vacuum sealed", I am
no longer specifically required to determine whether the salad
was prepared or fit for immediate consumption. However, the
characteristics of the exceptions to basic groceries cannot be
overlooked in determining the issue before me, and certainly one
characteristic of many exceptions is that they are suitable for
immediate consumption. That alone however should not be
determinative.
[10] There was
agreement between counsel that the correct approach to this
matter of interpretation can be found in the decision Shaklee
Canada Inc. v. Canada, (1995) 191 N.R. 227 (F.C.C.A.), which
suggests it is appropriate to look at the common understanding of
a word. Having agreed on this, both counsel went on to provide a
number of dictionary definitions of salad. Frankly these are of
little or no assistance. To be told that a salad is "green
vegetables (as lettuce, endive, or romaine) and often
tomatoes, cucumbers or radishes served with dressing" has
not considerably expanded my understanding of salad. Neither was
I much further ahead to be advised that a salad is "a
mixture of usually raw vegetables, eaten either as a separate
dish or with other food". The Respondent's counsel
produced a history of the American salad. While it was indeed
fascinating reading, and acknowledged the emergence in 1990 of
the convenience salad, it did not specifically address the matter
of the salad kit. "Salad" has evidently not been
judicially defined. I am certainly not going to do so. What I
will do however is determine if the Market Fresh salad kits
are basic groceries or are exceptions to basic groceries.
[11] The
answer to this question hangs less on establishing a definition
for salad than it does on ensuring the Government's Policy of
exempting basic groceries from tax is implemented sensibly and
appropriately. A four to six serving bag of lettuce containing
separately packaged other ingredients which must be taken home,
and some or all tossed in a bowl before being consumed,
constitute basic groceries and not a salad.
[12] The
Government made it clear from the very early days of the Goods
and Services Tax that basic groceries were not to be included in
the tax base. Rather than attempting to define what is included
in basic groceries, subsection 1(o.1) of Part III of
Schedule VI sets out a list of exceptions from basic groceries.
In reviewing the list, two themes become evident as to what type
of foods are not to be considered basic groceries: snacks or junk
food, including anything that most people would find not
particularly healthy; and foods intended to be eaten immediately
after opening or removing the packaging. Salads would not fall in
the former category in most people's view, so to be caught by
the exception in keeping with this common characteristic, a salad
should fall in the latter category. Specifically, looking at the
foods contained in subsections 1(o.1), (o.2),
(o.3), (o.4) and (o.5), the common thread
can perhaps more aptly be described as a total convenience food.
These are foods that require no preparation - it is all
done for you. Respondent's counsel argued that the salad kit
is just such a food. I disagree. The purchaser must take the
salad kit home to assemble the salad. The salad may indeed be
used two or three days running by being re-sealed, or it
might well serve a family of four their salad for supper. It is
certainly more convenient than a head of lettuce, but it is not
the same level of convenience as the pre-made and assembled
spinach salad proffered as an exhibit. The Respondent's
counsel acknowledged the degrees of convenience, for the shopper
went from a head of lettuce, to pre-cut, pre-washed bags of
lettuce, to the salad kit, to the fully assembled salad. He
maintained the line of convenience between the bag of cut and
washed lettuce and the salad kit was the line over which the tax
bite arose. Again, I disagree. The context of salad as one of an
exception of foodstuffs with common characteristics suggest to me
that a salad as an exception must be a fully assembled ready to
eat salad, requiring no further effort to make it so. A salad is
a salad - a salad kit is a salad kit.
[13] In this
fast-paced day and age, where retailers market convenience to
households, in which spending more than one half hour on food
preparation is a rare luxury, it is inappropriate to find a salad
kit not to be part of basic groceries. Those steeped in culinary
arts might pooh pooh the idea that assembling a Caesar salad from
a salad kit constitutes food preparation or cooking. I have no
doubt there are a far greater number, be they university
students, law clerks, young urban professionals or retired
couples who think the assembly of the salad from the kit is
indeed cooking. As such, the kit itself cannot be considered the
salad.
[14] The
Respondent's counsel presented a number of cases dealing with
the concept of multiple versus single (compound) supply. He
relied on the following passage from Judge Rip in the case of
O.A. Brown Ltd. v. Canada, [1995] G.S.T.C. 40, reads as
follows:
22.
In deciding this issue, it is first necessary to decide what has
been supplied as consideration for the payment made. It is then
necessary to consider whether the overall supply comprises one or
more than one supply. The test to be distilled from the English
authorities is whether, in substance and reality, the alleged
separate is an integral part, integrant or component of the
overall supply. One must examine the true nature of the
transaction to determine the tax consequences...
[15] I do not
see this as particularly helpful to the Respondent's
position. He suggests that the various ingredients are a single
supply, the essence of which is a salad. Certainly the package
was sold as a single item; no one claimed the lettuce by itself
(because a bag of lettuce is not taxable) should trigger the
whole bag to be not taxable. Neither was there any argument that
parts of the package should be treated differently. The fact is
that the single supply is a single supply of a kit, not a
salad.
[16] In
summary, the following factors lead me to find that on balance
Market Fresh salad kits are not salads for purposes of
subsection 1(o.1) of Part III of Schedule VI of the
Act:
-
the bag is labelled as a kit, not a salad;
-
in Market Fresh's advertising, ready-made salads were
distinguished from the salad kits;
-
the serving is not a single serving but multi-servings;
-
not all the contents of the package need to be used in one
sitting, but can be re-sealed for a subsequent meal;
-
the content cannot be consumed on the spot;
-
the package must be brought home, as a bowl and utensils are
required to assemble the salad;
-
although there is an element of convenience to the kit, it is not
to the extent of a fully assembled salad;
-
the common sense approach would be to differentiate between a
salad and a salad kit;
-
the characteristics of the salad kit do not match
the characteristics of the other exceptions in
subsection 1(o.1) of Part III of Schedule VI of the
Act.
[17] Having
found the salad kits are not salads for the purposes of
subsection 1(o.1) of Part III of Schedule VI of the
Act, it is unnecessary to consider the matter of whether
the packages are vacuum sealed.
[18] The
appeals are allowed, and the matter is referred back to the
Minister for reassessment on the basis that the Market Fresh
salad kits are basic groceries and not salads. Costs to the
Appellant.
Signed at Ottawa, Ontario, this 10th day of May, 2002.
"Campbell J. Miller"
J.T.C.C.
COURT FILES
NO.:
2000-4853(GST)G; 2000-4854(GST)G;
and 2000-4855(GST)G
STYLES OF
CAUSE:
1146491 Ontario Ltd. and the Queen
964211 Ontario Limited and the Queen
105572 Ontario Inc. and the Queen
PLACE OF
HEARING:
Ottawa, Ontario
DATE OF
HEARING:
May 6, 2002
REASONS FOR JUDGMENT BY: The Hon.
Judge Campbell J. Miller
DATE OF
JUDGMENT:
May 10, 2002
APPEARANCES:
Counsel for the
Appellants:
Terry D. McEwan
Counsel for the
Respondent:
Pierre Zemaitis
COUNSEL OF RECORD:
For the
Appellants:
Name:
Terry D. McEwan
Firm:
Gowling Lafleur Henderson LLP
Ottawa, Ontario
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-4853(GST)G
BETWEEN:
1146491 ONTARIO LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the
appeals of 964211 Ontario Limited.
(2000-4854(GST)G) and the 105572 Ontario
Inc.(2000-4855(GST)G)
on May 6, 2002 at Ottawa, Ontario, by
the Honourable Judge Campbell J. Miller
Appearances
Counsel for the
Appellant:
Terry D. McEwan
Counsel for the
Respondent:
Pierre Zemaitis
JUDGMENT
The appeal from the assessment made under the Excise Tax
Act, with respect to assessment number H990120,
dated August 6th, 1999, for the period of
December 13th, 1995 to January 31st, 1999, is allowed,
with costs, and the assessment is referred back to the Minister
of National Revenue for reconsideration and reassessment, in
accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, on the 10th day of May, 2002.
J.T.C.C.
Email this Content