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Citation: 2004TCC286
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Date: 20040408
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Docket: 2003-1182(GST)I
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BETWEEN:
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ALIMENTS KOYO INC.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Lamarre Proulx, J.
[1] This is an appeal of an assessment
made pursuant to the Excise Tax Act
(the "Act"). The Notice of Assessment bears
number T02-DS2-RO-0015 and is dated
May 17, 2002. The period involved is from August 1,
1998, to February 28, 2002.
[2] The question at issue is whether
the supply of strawberry-flavoured soy beverages is a
zero-rated supply.
[3] At the beginning of the hearing, a
statement of Admissions of Fact was filed as
Exhibit R-3. These admissions are as follows:
1. Appellant
was registered for the purposes of Part IX of the Excise
Tax Act, R.S.C. 1985, c. E-15 (hereinafter
referred to as the "ETA"), for the assessed
period;
2. Appellant
is a wholesaler of varied basic groceries;
3. Among other
things, Appellant made the supply of strawberry flavoured soy
beverages, which beverages were sold in 946 millilitre
containers or in one (1) litre containers, to its clients during
the assessed period for an amount of $54,737.12;
4. The
strawberry flavoured soy beverage in question does not contain
dairy milk or any kind of milk secreted by the mammary glands of
female mammals;
5. The
strawberry flavoured soy beverage supplied by Appellant is a
non-carbonated fruit flavoured soy beverage that contains
less than 25% by volume of a natural fruit juice;
6. Appellant
did not collect the GST with respect to the supplies that it made
of such beverage;
7. The amount
of GST payable in dispute is $3,831.60 (i.e. 7% of
$54,737.12);
8. The
following documents are admitted and filed on consent:
(a) Exhibit R-1:
Documents of commissioner (subsection 308(2) of the
E.T.A.) dated May 29, 2003;
(b) Exhibit R-2:
Packaging of the strawberry flavoured soy beverage.
[4] Mr. Nick Feldman,
president of the Appellant and also of Aliments Nutrisoya Inc.,
testified. The relationship between Aliments Nutrisoya and the
appellant company is that Aliments Nutrisoya sells to the
appellant soy milk for distribution in Quebec and Ontario.
[5] Mr. Feldman explained that
soy milk is a healthy highly nutritious vegetable alternative to
dairy milk. It is made from whole soy beans and is
lactose-free. It is for consumers who are lactose
intolerant or vegetarians and is an excellent source of calcium,
vitamins and minerals.
[6] Mr. Feldman stated that
ninety-five percent of the product in question is composed
of soy milk. There are other ingredients, such as sunflower oil,
vitamins and minerals, natural colour, natural organic sweetener
and natural flavouring. The flavouring is less than 1% of the
product.
Argument
[7] The appellant's position is
that, in accordance with the rules of statutory interpretation,
the goods in issue are beverages for human consumption as
described in the general part of section 1 of Part III
of Schedule VI, and not "fruit flavoured
beverages" within the meaning of that phrase in
paragraph 1(d) of the said Part III of
Schedule VI.
[8] As alternative arguments, it was
submitted (1) that the goods are "milk-based
beverages" within the meaning of that expression in
paragraph 1(d), and (2) that under
subparagraph 1(n)(iii), in view of the size of the
packaging in which they are sold, that is, in containers holding
a quantity which exceeds a single serving, the goods in issue
comes within the exception with respect to goods so packaged.
[9] Counsel for the appellant
submitted that it appears clearly from a reading of Part III of
Schedule VI that Parliament, in enacting Part III, which is
entitled "Basic Groceries", intended that basic food
and beverages, namely those which are needed for a healthful
human consumption, would be zero-rated. The foods that are
excluded from zero-rated status would generally be
described as food without good nutritional value and as snack
food.
[10] In this regard, counsel for the
appellant referred to the decision of Judge Miller of this
Court in 1146491 Ontario Ltd. et al. v. The Queen, 2002
GTC 297. Counsel quoted paragraph 12 of that decision:
[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. . . .
[11] Regarding the matter of statutory
interpretation, counsel also referred to the decision of the
Supreme Court of Canada in Rizzo & Rizzo Shoes Ltd.
(Re), [1998] 1 S.C.R. 27, and quoted paragraphs 21
and 22 thereof:
21 Although much has
been written about the interpretation of legislation (see, e.g.,
Ruth Sullivan, Statutory Interpretation (1997); Ruth
Sullivan, Driedger on the Construction of Statutes (3rd
ed. 1994) (hereinafter "Construction of
Statutes"); Pierre-André Côté,
The Interpretation of Legislation in Canada (2nd ed.
1991)), Elmer Driedger in Construction of Statutes (2nd
ed. 1983) best encapsulates the approach upon which I prefer to
rely. He recognizes that statutory interpretation cannot be
founded on the wording of the legislation alone. At p. 87 he
states:
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.
Recent cases which have cited the above passage with approval
include: R. v. Hydro-Québec, [1997] 3 S.C.R. 213;
Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1
S.C.R. 411; Verdun v. Toronto-Dominion Bank, [1996] 3
S.C.R. 550; Friesen v. Canada, [1995] 3 S.C.R. 103.
22 I also rely upon
s. 10 of the Interpretation Act, R.S.O. 1980, c. 219,
which provides that every Act "shall be deemed to be
remedial" and directs that every Act shall "receive
such fair, large and liberal construction and interpretation as
will best ensure the attainment of the object of the Act
according to its true intent, meaning and spirit".
[12] Counsel argued that under the scheme of
Part III, food that is useful for one's health is
zero-rated. The only reason the Minister has assessed the goods
at issue is the presence of a very small amount, less than 1%, of
strawberry flavouring. However, the exceptions mentioned in
paragraph 1(d) concern fruit-flavoured
beverages that contain less than 25% by volume of a natural fruit
juice or combination of natural fruit juices. Those exceptions,
argued counsel, have more to do with beverages of the
Kool-Aid type than with a healthful beverage composed
mainly of soy milk.
[13] Counsel for the appellant also referred
to the GST/HST Memoranda Series, 4.3 Basic Groceries,
November 1997 (revised May 13, 1998), at paragraph 38,
which reads as follows:
38. Supplies of powdered
fruit-flavoured mixes that require mixing with water and
that contain little or no actual fruit (other than ice tea
mixes), are taxable at 7% or 15%. However, ice tea mixes,
including fruit-flavoured ice tea mixes, are
zero-rated.
[14] Counsel submitted that this acceptance
of ice tea mixes, including fruit-flavoured ice tea mixes,
as zero-rated supplies, confirms that the
fruit-flavoured beverage must be a beverage in which the
only taste is derived from natural fruit juices or from
artificial fruit flavouring. He concluded by saying that it is
the basic nature of the product that is determinative.
[15] Counsel for the appellant submitted in
the alternative that had Parliament wished to restrict the
meaning of milk to dairy milk, it would have used the term dairy.
Counsel advanced as a second alternative argument
subparagraph 1(n)(iii) of Part III of
Schedule VI of the Act and submitted that the product
was not sold in single-serving packaging.
[16] Counsel for the respondent began by
referring to the admission that the strawberry-flavoured
soy beverage in question does not contain dairy milk or any kind
of milk secreted by the mammary glands of female mammals. Also
referred to was the admission that the said
strawberry-flavoured soy beverage is a non-carbonated
fruit-flavoured soy beverage that contains less than 25% by
volume of a natural fruit juice.
[17] Counsel concluded by saying that this
product is included in the exceptions to zero-rating
described in paragraph 1(d) of Part III of
Schedule VI.
[18] He referred to various decisions
regarding the interpretation of statutes, namely: Hubka v.
Canada, [1995] T.C.J. No. 1090 (Q.L.), Canada v.
Paccar of Canada Ltd., [1998] F.C.J. No. 684 (Q.L.),
Suntech Optics Inc. v. Canada, [1999] F.C.J. No. 67
(Q.L.) and Canadian Occidental U.S. Petroleum Corp. v.
Canada, [2001] T.C.J. No. 112 (Q.L.). In all of these
decisions it was held that when the words of a statute are not
ambiguous, a court is to interpret them according to their
ordinary meaning. A court should be careful not to legislate.
[19] Counsel admitted that the product in
issue, is not sold in single-serving packaging. However,
with regard to the meaning of paragraph 1(n), he
referred to the GST/HST Memoranda Series, 4.3 Basic Groceries,
but to paragraph 39 thereof, which reads as follows:
39. Consumer packages
containing multiples of single servings of beverages described in
paragraph 1(d) of Part III of Schedule VI
are taxable at 7% or 15%. These supplies are not zero-rated
under paragraph 1(n) of Part III of
Schedule VI.
Conclusion
[20] The definition of zero-rated supply in
section 123, and paragraphs 165(1) and (3) of the
Act read as follows:
"zero-rated supply" means a supply included in
Schedule VI.
165(1) Imposition of goods and services tax -
Subject to this Part, every recipient of a taxable supply made in
Canada shall pay to Her Majesty in right of Canada tax in respect
of the supply calculated at the rate of 7% on the value of the
consideration for the supply.
165(3) Zero-rated supply - The tax rate in
respect of a taxable supply that is a zero-rated supply is
0%.
[21] Paragraphs 1(d) and
(n) of Part III of Schedule VI read as
follows:
1.[Food] - 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
. . .
(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,
. . .
(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 pre-packaged specially for consumption by
babies,
(ii) when sold in
multiples, pre-packaged 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 single
serving;
. . .
[22] I do not read Part III of
Schedule VI as requiring that a criterion of wholesomeness
be met as a condition for obtaining the zero-rating of a
supply, and I have neither the discretion nor the power to read
such a criterion into Part III. Although a soy beverage may
be a healthful food product, if it comes within one of the
exceptions, it will not be a zero-rated supply.
[23] One may infer that if Parliament has
seen fit in paragraph 1(d) to exclude
milk-based beverages from the notion of
fruit-flavoured beverages, such beverages would otherwise
have been included in the meaning of that term. I am therefore
not convinced that Parliament was referring only to
fruit-flavoured beverages of the Kool-Aid type. I
cannot go in the direction suggested by counsel for the appellant
and find that paragraph 1(d) was not intended to
cover beverages composed mainly of healthful ingredients.
[24] According to the rules of statutory
interpretation, a word must be taken in its ordinary meaning
unless that word is given a specific meaning in the statute.
[25] Paragraph 1(d) excludes
from zero-rated status the supply of a
fruit-flavoured beverage other than a milk-based beverage.
The beverage in question in this appeal is a
fruit-flavoured beverage. Therefore, it comes under the
exception to zero-rating unless it can be considered a
milk-based beverage. Is it a milk-based beverage? The
dictionary meaning of the word "milk" and of the
French equivalent, "lait" is that it is a white liquid
produced by the mammary glands of mature female mammals. It can
also mean a liquid similar to milk in appearance, such as coconut
milk, milkweed sap, or plant latex.
[26] I therefore find that the common
understanding is that soy milk is not milk although it may have
the appearance of milk.
[27] Under
subparagraph 1(n)(iii) of Part III of Schedule VI,
supplies of beverages, other than unflavoured milk, sold in a
quantity exceeding a single serving, are zero-rated supplies. In
the present case, it is admitted that the appellant produced
strawberry-flavoured soy beverages. It is also admitted
that the packaging was of a size that held a quantity exceeding a
single serving. It may thus appear that supplies of the beverages
produced by the appellant should be considered zero-rated
supplies by virtue of subparagraph 1(n)(iii).
However, section 1 of Part III of Schedule VI
provides that supplies of food or beverages for human consumption
are zero-rated supplies unless the food or beverages fall within
the exceptions described in paragraphs (a) to
(r) of that section. Since the beverages produced by the
appellant have been found to come within the meaning of
paragraph (d) of that section, the supply of those
beverages is not zero-rated.
[28] It is Parliament's prerogative to
amend Part III of Schedule VI should it see fit.
However, in light of that Part as it is currently worded, I have
come to the conclusion that the supply of the beverage in
question is not a zero-rated supply for the reasons set out
above.
[29] The appeal shall be dismissed.
Signed at Ottawa, Canada, this 8th day of April, 2004.
Lamarre Proulx, J.
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