Citation: 2010 TCC 167
Date: 20100416
Docket: 2006-1362(GST)G
BETWEEN:
501638 NB LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
McArthur J.
[1]
This is an appeal under
Part IX (Goods and Services Tax) of the Excise Tax Act (ETA) from
an assessment of the Minister of National Revenue (Minister). The issue is
whether the Appellant is entitled to a rebate of $59,992 ($60,000) Harmonized
Sales tax (HST) on beer bottle deposits for the reporting period commencing
January 1, 1996 and ending January 20, 2002. The Appellant operated several
bars in New Brunswick. It sold beer on premises and collected
HST on its sales.
[2]
The Minister denied the
Appellant’s claim for the $60,000 Input Tax Credits (ITCs) with respect of 15%
of HST calculated and remitted on the 10 cent deposit paid by the pub (bar) customers
on beer bottles. The tax was actually paid by the beer purchasers and remitted in
error to the Minister by the Appellant (the bar owner) over a period of six
years. Both the Appellant and the Minister claim entitlement although it was
the customer who actually paid the tax.
[3]
The Appellant, 501638
NB Ltd. (638) was registered under the New Brunswick Companies Act and
was a HST registrant. From 1996, it owned and operated at least four bars, two
in Moncton and two in Fredericton.
[4]
The Minister relied on
the following assumptions of fact
in denying the Appellant’s claim for a rebate of the HST collected in respect
of the beer bottles;
9(e) the Appellant owned and operated
Sweetwaters and Rockin Rodeo in Fredericton, and Looking Glass Lounge and
Rockin Rodeo in Moncton, New Brunswick (bars);
f) under New Brunswick law, when beer is
sold in a bar it may be served in its original container (“beer bottle”) to the
consumer or may be poured and served in a cup or glass;
g) the Appellant paid a deposit as required
by the New Brunswick Beverage Container Act, R.S.N.B. and regulations on
the beer bottles it purchased from its supplier, the New Brunswick Liquor
Corporation (“NBLC”);
h) the Appellant did not charge a different
price for beers sold in their bottles and the beer sold in a glass or a cup;
i) the Appellant charged prices for its beer on a tax
inclusive basis;
j) the Appellant did not keep books and
records indicating the GST/HST paid by its customers on the deposit amount with
respect to the provision of beer bottles; and,
k) the Appellant did not keep books and
records indicating the GST/HST paid by its customers on the deposit amount with
respect to the provision of beer bottles; and,
l) on February 19, 2002 the Appellant filed
the Return in which it claimed the amount of $59,992.86 as ITCs for the period
ending January 20, 2002.
10(a) the Appellant never filed a rebate application for taxes
paid in error;
b) the sale of beer is a taxable supply;
c) from January 1, 1996 to December 31, 2001,
the Appellant filed returns and reported net tax;
d) when filing its returns, the Appellant
included amounts paid to the NBLC on account of GST/HST in calculating its net
tax;
e) the Appellant was require to remit the GST/HST on the
beer bottles;
f) the Appellant did not pay the amount of
$59,992.86 on account of GST/HST for the beer bottles it purchased from the
NBLC;
g) the Appellant did not remit the amount of
$59,992.86 on account of GST/HST for the sale of beer bottles sold in its
Establishment to patrons;
h) during the period from January 1, 1996 to
December 31, 2001, the Appellant claimed ITCs with respect to GST/HST paid on
purchases of beer from the NBLC;
i) the Appellant’s usual practice was to
sell beer for prices which were greater than those paid by the Appellant to the
NBLC when purchasing the beer;
j) the Appellant did not keep proper books
and records, and in such condition as t enable the Minister to determine its
liability or its entitlement to a rebate with respect to the beer bottles; and
k) the NBLC is a registrant under the Act.
[5]
The only two witnesses
were on the Appellant’s behalf, namely, Deborah Ann O’Hara, the
Appellant’s accounting clerk and Brian Miles the director and sole shareholder
of the Appellant. Ms. O’Hara looked after the bookkeeping which included
calculating and remitting the HST on the deposit. She was aware of the operation
of the bars, and the purchase of the bottled beer from the New Brunswick Liquor
Commission including a 10 cent bottle deposit together with HST. The Appellant
had been collecting and remitting HST on the beer bottles since at least
January 1, 1996.
[6]
The evidence of both
witnesses included that the Appellant during the period in issue had been remitting
HST of 15% on the 10 cent returnable container deposit amount resulting in an
overpayment of $60,000 which was claimed as an ITC in the reporting period ending
January 20, 2002 and, was filed February 19, 2002.After an audit,
the Minister denied the ITC. This appeal is made pursuant to section 296.
Position of the Appellant
[7]
Ms. O’Hara explained
how she arrived at the amount of $60,000. The Appellant proceeds on the basis
that the Minister is not attacking the calculation but rather whether a rebate
is available to the Appellant. 638 calculated the sale of all beer bottles over
that period of time through their Point-of-Sale system, and the calculation is
found in Exhibit A-1, Tab 11.
[8]
The Appellant has built
its case upon Sheridan J.’s decision in SAS Restaurants Ltd. v. R., (SAS)
stating that the only difference being that in SAS patrons were not
allowed to remove beer bottles from the premises under Nova Scotia law. New Brunswick Liquor
Control Act does not prohibit a patron from taking an empty beer bottle off
the promises, so long as it is emptied of its alcoholic contents. Mr. Miles
testified that although the empty beer bottles may be removed by the purchaser
but, the establishments try to prevent this from happening to prevent breakage
or other mischief. The
Appellant adds that the main thrust of
the SAS decision and the position of 638, is that the bottle is provided
to the customer as part of the sale. The beer and bottle are provided to the
customer as a unit for a set price and the unit is being taxed as a whole. The
bottle should not be a separate sale. The returnable item, the beer bottle,
should not have been subject to HST.
[9]
In SAS the Appellants were
allowed to go back four years to claim a rebate that was applied for
erroneously through an ITC. In the present matter, the Appellant is trying to
go back six years and relies on United Parcel Service Canada Ltd. v. Canada, finding that there is no
time limit on the application of subsection 296(2.1). Further ITCs were
added erroneously in February 2002. They were not aware that they should have
made an application for a rebate for taxes paid in error under subsection 296(2.1).
It claims $14,275 in interest
and costs.
Respondent’s Position
[10]
Allowing the Appellant
to succeed would result in a windfall due to some unfortunate wording in the Act
which has been since amended. It is customary that the person (here the bar
patron) who paid the tax is the one entitled to get it back not the person who
over-charged to receive it increasing his profit. The legislation must be
strictly applied and to succeed, the Appellant must meet a strict
interpretation of the relevant legislation.
[11]
With respect to the
limitation period, the Respondent argues that the appropriate recourse for the
Appellant is under paragraph 296(2)(a) and it has a four-year
limitation period which is arrived at by reading subsections 296(2) and 234(1)
in conjunction with subsection 234(2.1).
[12]
The crux of the
Respondent’s position is that the books and records of the Appellant are not
adequate to find that the sales were made in a returnable container and refers
to Exhibit A-1, Tab 8, which is an example of the receipts from one of the
establishments. The Appellant’s witnesses testified that the sale of beer
occurs in bottles and in glasses and that the tracking records do not indicate
which sales represented bottles and which sales represented glasses. There is
nothing in the records that distinguishes a glass from a bottle. The Respondent
relies on the evidence of both witnesses to conclude that when the beer was
ordered, it was opened and then given to the customer, therefore it was sold unsealed.
[13]
The definition of
“returnable container” in paragraph 226(1)(b) provides that a
“returnable container when acquired by consumers, is ordinarily filled and
sealed”.
Presently, when the bottles acquired by the patrons had been opened, and
therefore were not sealed, the definition of “returnable container” set out in
subsection 226(1) is not met.
[14]
Finally, the Respondent
attempted to distinguish the present matter from the decision in SAS. In
SAS, there were records that would allow the Court to distinguish how
much beer was sold in bottles and how much was not, which is not the case in
the present matter. Further, in SAS the price of beer was determined by
adding the cost of the beer to the deposit and then marking the total up. In
our case, the price of the beer was set by the market. The invoice does not
reflect the deposit and the computer does not record it.
[15]
The relevant
legislation includes the following:
226(1) In this section, “returnable container” means
a beverage container (other than a usual container for a beverage the supply of
which is included in Part III of Schedule VI) of a class that
(a) is ordinarily acquired by consumers;
(b) when acquired by consumers, is
ordinarily filled and sealed; and
(c) I s ordinarily supplied empty by
consumers for consideration.
226(2) For the purposes of this section, where a
person supplies a beverage in a returnable container,
(a) the provision of the container
shall be deemed to be a supply separate from, and not incidental to, the
provision of the beverage;
(b)
section 137 does not apply to deem the container
shall be deemed to be equal to that part of the total consideration for the
beverage and the container that is reasonably attributable to the container.
[emphasis added.]
226(3) Tax collectible on returnable containers –
Tax that is collected or that becomes collectible by a registrant in respect of
a supply of a returnable container shall not be included in determining the net
tax of the registrant.
226(4) Input tax credit for returnable containers –
Tax that is paid or that becomes payable by a registrant in respect of a supply
or the bringing into a participating province of a returnable container shall
not be included in determining an input tax credit of the registrant unless the
registrant is acquiring the container or bringing it into the province, as the
case may be, for the purpose of making a zero-rated supply of the container or a
supply of the container outside Canada
Analysis
[16]
When the beer bottle was acquired
by the Appellant’s consumers on the Appellant’s premises it was “filled” but
not “sealed.” As stated, the Appellant relies primarily on the reasons and
decision in SAS wherein Sheridan J. found that SAS satisfied the
conditions in section 226 and granted the Appellant an HST rebate paid on beer
bottles’ 10 cent deposits.
[17]
Following SAS, Parliament
enacted Bill C-40 to amend section 226 of the ETA to ensure that it no
longer applies to situations like the one found in SAS. The amendment came
into force on May 1, 2002 but was made retroactive to any supply of beverage
made after 1995. The retroactive amendments are in force during all the
relevant periods of this appeal.
[18]
After the decision of Sheridan J.
in SAS, Parliament responded by enacting Bill C-40, an Act to amend
the Excise Tax Act, the Excise Act, 201 and the Air Travellers Security Charge
Act and to make related amendments to other Acts). Bill C-40 received
royal assent on June 22, 2007. For our purposes, the most notable amendment
applied by Bill C-40 can be found at section 28, which sought to amend
subsection 226(2) of the Excise Tax Act by adding the following
underlined phrase:
226(2) For the purposes of this section, if a person supplies a
beverage in a returnable container in circumstances in which the person
typically does not unseal the container
The
underlined phrase did not form part of the law at the time Sheridan J. rendered
her decision in SAS. The phrase “in which the person typically does not
unseal the container” is designed to specifically prohibit the type of claim
that appears before the Court in the present matter.
[19]
The coming into force of the
amendment to subsection 226(2) of the ETA can be found at
subsection 28(3) of Bill C-40, where it states that the amended
subsection 226(2) applies:
226(2) . . . “to any supply of a beverage in a returnable container
made after 1995 and before May 2002, unless
(a) the supplier included, in determining
their net tax, a particular amount as or on account of tax that was calculated
on the total amount (excluding any tax prescribed for the purposes of
section 154 of the Act or any gratuity) paid or payable by the recipient
in respect of the beverage and the container and, before February 8, 2002, the
Minister of National Revenue received an application for a rebate under
subsection 261(1) of the Act of the portion of the particular amount attributed
to the container; or
(b) the supplier included, in
determining their net tax as reported in a return under Division V. of Part IX
of the Act received by the Minister of National Revenue before February 8,
2002, an amount as or on account of tax in respect of the supply of the
beverage and the container that was calculated on an amount less than the total
amount (excluding any tax prescribed for the purposes of section 154 of
the Act or any gratuity) paid or payable by the recipient in respect of the
beverage and the container.
For the Appellant to succeed, it must prove that it
met one of the above two conditions. The legislation sets out the appropriate
means for collecting the taxes remitted in error in respect of the beverage and
the container, the supplier can seek to retrieve the portion of the amount
attributed to the container through an application for a rebate under
subsection 261(1).
[20]
The amendments apply only
in circumstances where the person typically does not unseal the container. The
amendment effectively overruled SAS at least for our purposes and
probably most provinces, where beer bottles must be opened before served in the
premises. The SAS decision was rendered prior to passing of the
amendment. The 2007 amendment added the following underlined phrase to
subsection 226(2):
226(2) For the purposes of this section, if a
person supplies a beverage in a returnable container in circumstances in
which the person typically does not unseal the container
(emphasis added)
[21]
The underlined words did
not form part of the law at the time of the SAS decision. “In which the
person typically does not unseal the container” is designed to specifically
prohibit the type of claim that appears before me.
[22]
Although I find that the amendment
to subsection 226(2) is fatal to this appeal, I will briefly deal with the
Appellant’s submissions.
[23]
An application for a rebate under
subsection 261(1) of the ETA is the proper means for retrieving the
portion of the HST paid in error attributed to the container and not through a claim for
ITCs. Subsection 261(1) provides that payments made in error may be subject to
a rebate by the Minister. This subsection was in force during all relevant
times of the present appeal, and continues to be in force today.
[24]
The recent Supreme Court of Canada decision in United
Parcel Service subsection 296(2.1) effectively allows the rebate even if no
prescribed form for the rebate was made within the limitation period.
[25]
While the decision in SAS appears factually similar to
the present appeal, there are several important differences. (i) The beer
bottles supplied by the Appellant bars do not meet the definition of a
“returnable container” and the requirement in subsection 226(2) in that when
acquired by consumers they are not sealed; and (ii) the Appellant has not satisfactorily
established that, in determining their net tax they included an amount as or on
account of tax in respect of the beer bottle. The Appellant’s records lack the
precision necessary to satisfy subsection 226(2), and specifically the
words “. . . the supplier charges the recipient a returnable container charge
in respect of the container.” I am not prepared to infer or guess that the
records included individual beer bottle tax.
[26]
I believe in SAS at
paragraph 6, the Crown had conceded that a beer bottle was a “returnable
container”. This is not the case in the appeal before me. To qualify as a
“returnable container”, the container must be “ordinarily filled and sealed”
when acquired by a consumer. Contrary
to the finding in SAS, I conclude that although subsection 226(2)
is broken down into paragraphs it is in essence one sentence and it applies to
the supply of “returnable containers” that are “ordinarily filled and sealed.”
[27]
The onus was on the Appellant to
prove that it was supplying “returnable containers” to consumers. I find as a
fact that it did not. Both witnesses stated that all bottled beer served at the
Appellant establishments were “ordinarily”
opened by the server and then served unsealed. This is the common practice in
the industry. The unsealed beer bottles provided by the Appellant were not a
“returnable container” as defined by subsection 226(1) of the ETA and
would therefore not satisfy subsection 226(2).
[28]
I will deal briefly with the question:
Did the Appellant include an amount as or on account of tax in respect of the
beer bottle pursuant to the amended subsection 226(2)? As opposed to my findings in the present situation, Sheridan
J. found there was sufficient evidence to conclude that SAS marked up
beer prices to reflect the deposit cost, and therefore part of the customer’s
consideration was for the bottle.
[29]
The present witnesses testified to
the effect that the beer prices were primarily set by the market, making it
unclear whether the bottled beer prices reflected the container deposit cost. Further,
I find that the financial records of the Appellant company were not sufficiently
detailed to determine whether the beer was sold in a glass or bottle or whether
the 10 cent bottle deposit was passed on to the consumers.
[30]
Section 286 of the ETA
requires any person applying for a rebate to keep records and books. The Appellant
entered into evidence sales summaries to identify the number of beers sold per
night per location during the relevant period and a document demonstrating
their calculation which forms the basis of their claim. However, it is not
clear how one can distinguish between beer provided in a bottle and beer
provided in a glass. Although, both witnesses confirmed that the calculations
do not include draft beer, the documentation is not convincing.
[31]
Ms. O’Hara testified that the
daily sales summaries determine how much beer was sold on a particular night
during the relevant period. However she admitted that the Point-of-Sale system
and the nightclubs themselves do not keep track of whether the beer was
supplied in a bottle or whether the contents of the bottle was poured in a
glass before being handed to the customer.
[32]
Mr. Miles, stated that beer was
served to customers at premises such as: (i) the traditional bar; and (ii)
from beer tubs at bars. At either location, bottled beer was provided to a
customer by removing the top, placing the beer on the bar at the traditional
bar locations or handing the beer to the customer at the beer tub locations. A
further service was provided at the traditional bar locations if the customers
wanted the beer poured into a glass.
[33]
For the above reasons, I find that
the Appellant did not satisfy the condition set out at subsection 28(3) of Bill
C-40, the amending of subsection 226(2) which would have allowed it to
claim the rebate.
[34]
The appeal is dismissed, with
costs to the Respondent.
Signed at Ottawa,
Canada, this 16th day of April, 2010.
“C.H. McArthur”
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