Saskatchewan Pesticide Container Management Assn. Inc. v. The Queen, docket 97-3205-GST-G

Date: 19991216

Docket: 97-3205-GST-G

BETWEEN:

SASKATCHEWAN PESTICIDE CONTAINER MANAGEMENT ASSOCIATION INC.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Margeson, J.T.C.C.

[1] By way of reassessment, notice of which was dated August 8, 1996 and numbered 09ES-CEN14860, the Minister disallowed input tax credits on all of the Appellant's activities during the period January 1, 1991 to June 30, 1994 in the amount of $269,822.17 and claimed interest and penalties.

[2] At the time of the trial the Respondent agreed to waive the penalties and interest.

[3] By way of motion the Appellant sought to file an amended Notice of Appeal and an amended List of Documents. This motion was allowed with costs of the motion to be costs in the cause.

Facts

[4] The parties submitted as Exhibit A-1 an Agreed Statement of Facts (in part) as follows:

AGREED STATEMENT OF FACTS (IN PART)

l.                      That Saskatchewan Pesticide Container Management Association Inc. ("SPCMA") is a body corporate having its registered office in Regina, Saskatchewan.

2.                     That the net tax refunds and interest paid to the Appellant is $269,822.17.

3.                     That interest of $25,899.14 and penalties of $28,380.39 have been reassessed against the taxpayer for a total reassessment of $324,101.70.

4.                     That the Appellant and Respondent do not dispute that the GST paid by the Appellant leading to the net tax refund was paid and incurred by the Appellant.

5.                     That Curtis Construction and/or Saskcon Repair Services Ltd. had contracts with the Appellant.

6.                     That the Appellant is a non-profit corporation incorporated March 21, 1991, pursuant to The Non-Profit Corporations Act of Saskatchewan.

7.                     By way of Notice of Assessment Number 09ES0200119, dated September 19, 1994, the Minister of National Revenue assessed the Appellant for failing to collect and remit tax pursuant to Part IX of the The Excise Tax Act (herein "GST") on the funds it received from the Crop Protection Institute of Canada ("CPI"), but otherwise did not adjust the input tax credits as previously paid to the Appellant for the reporting periods under assessment. Accordingly, the Minister assessed GST in the amount of $219,816.61, interest in the amount of $21,340.48 and penalties in the amount of $23,338.54.

8.                     the Appellant objected to this assessment by way of Notice of Objection, dated October 20, 1994.

9.                     The Minster issued a Notice of Decision, dated August 8, 1996, which varied the assessment referred to above by way of Notice of Reassessment Number 09ES-CEN140860, dated August 8, 1996, whereby the Minister reassessed the Appellant on the basis that no GST was payable on the funds received by the Appellant from CPI, but that the Appellant was not entitled to claim input tax credits as all of the activities in which it was involved consisted of making exempt supplies. Accordingly, the Minister assessed the Appellant as follows:

Net Tax Refund and Interest Paid to the Appellant $269,822.17

Interest $ 25,899.14

Penalties $ 28,380.39

Total $324,101.70

The details of the input tax credits claim and the refunds paid are set forth in Schedule "A" attached to this Agreed Statement of Facts. The Appellant and Respondent agree that the GST amount, as indicated in Schedule "A", were paid by the Appellant.

10.                  The Appellant objected to the second Notice of Reassessment by way of Notice of Objection, dated September 23, 1996.

11.                  The Minister confirmed the reassessment referred to in paragraph 10 above, by way of Notice of Decision, dated July 17, 1997.

DATED at the City of Regina, in the Province of Saskatchewan, this 23^rd day of November, A.D. 1999.

MELLOR & ANDERSON

Per: Kevin C. Mellor

Counsel for the Appellant

DATED at the City of Winnipeg, in the Province of Manitoba, this 25^th day of November, A.D. 1999.

DEPARTMENT OF JUSTICE

Per: Gerald Chartier

Counsel for the Respondent

TO: The Department of Justice

#301 – 310 Broadway

Winnipeg, Manitoba

R3C 0S6

This Agreed Statement of Facts was

prepared and delivered by

MELLOR & ANDERSON

#1400 – 2002 Victoria Avenue

Regina, Saskatchewan

S4P 0R7

Lawyer in Charge of file: Kevin C. Mellor

Telephone: (306) 789-8868

Facsimile: (306) 789-3366

SCHEDULE "A"

The Appellant filed returns claiming the following amounts as input tax credits and net tax refunds for the reporting periods ending between January 1, 1991 and June 30, 1994 ("the relevant period"), which were paid as indicated below:

Period End Input tax Net tax Interest Refund

Date credits claimed reported paid paid

91/03/31 170.00 (170.00) 3.16 173.16

91/06/30 23,160.00 (23,160.00) 64.22 23,224.22

91/09/30 15,199.20 (15,199.20) 38.63 15,237.83

91/12/31 537.36 (537.36) 1.12 538.48

92/03/31 67,666.53 (67,666.53) 214.47 67,881.00

92/06/30 15,199.20 (15,199.20) 1.70 592.19

92/09/30 13,794.99 (13,794.99) 3.60 13,798.59

92/12/31 68,285.25 (68,285.25) 0.00 68,285.25

93/03/31 5,611.52 (5,611.52) 0.00 5,611.52

93/06/30 2,633.51 (2,633.51) 0.00 2,633.51

93/09/30 21,923.29 (21,923.29) 17.48 21,940.77

93/12/31 12,777.23 (12,777.23) 1.26 12,778.49

94/03/31 6,915.11 (6,915.11) 0.00 6,915.11

94/06/30 30,212.05 (30,212.05) 0.00 30,212.05

Total 284,085.24 (284,085.24) 345.64 269,822.17

Evidence

[5] Roberta Wyndrum was a consultant and occupied this position with the Appellant, hereinafter referred to as "SPCMA", during the period 1991 to 1997. She was referred to as the Executive Director of SPCMA's Pesticide Container Disposal Program. She administered the funds into and out of SPCMA, assisted in drawing up contracts, conducted some research and worked with the farmers and the Board of Directors of SPCMA.

[6] Before assuming her position with SPCMA, she had been a Rural Municipal Administrator and had been involved in the operations of municipalities. She had dealt with Revenue Canada and identified the Goods and Services Tax Registration form that she had completed on behalf of SPCMA and after registration made application for input tax credits in the years 1990, 1991 and 1992.

[7] She indicated that SPCMA received no response to the initial filing but after making further contact with Revenue Canada they were audited. Revenue Canada found nothing wrong with what they were doing. In the mid-1990's they were audited again with respect to the applicability of GST on the funds that they had received from the Crop Protection Institute of Canada (hereinafter referred to as CPIC) which was a federally incorporated not-for-profit agency. They appealed this assessment and were successful.

[8] SPCMA received $1.00 for each container that it disposed of. This funding came initially from CPIC. The activities of SPCMA never changed. They were surprised by the second audit since they had never been advised after the first audit that they were doing anything wrong. After the second audit they paid the assessment to avoid any further interest or penalties.

[9] The witness referred to Exhibit R-1, tab 11 which set out the activities of SPCMA such as retaining a contractor to collect and dispose of pesticide containers, metal containers, deal with storage, shredding and recycling as well as setting out various expenses that they incurred. She also chronicled, through Exhibit R-1, some of her dealings with Revenue Canada and its auditors. She said that they were confused about GST and she called Revenue Canada and also wrote to them. The information that SPCMA received from Revenue Canada was different from the opinions received from a sister organization in Manitoba. However, SPCMA never received an opinion from Revenue Canada.

[10] She referred to a letter to Revenue Canada dated May 6, 1992 wherein she indicated that SPCMA had not completed any taxable sales but that they would in the future and at that time they would pay GST.

[11] She referred to the Revenue Canada letter to her on June 29, 1992 as an admission by Revenue Canada that SPCMA in carrying out its activities was making a taxable supply. This was received after the first audit.

[12] She identified various documents such as SPCMA's financial statements, contracts and invoices with Curtis Construction Ltd. and documents relevant to GST returns and input tax credits.

[13] It was her position that these documents proved that sales of plastic occurred, (not by SPCMA) that markets were identified and therefore there was an ultimate product that could be produced for consumers. They talked to various companies in an attempt to secure a definitive market for their end product.

[14] She said that SPCMA operates in the recycling and disposal industry. Its activities included, collecting pesticide containers, shredding them, transporting them to a central storage facility, washing them and transporting the shredded plastic to someone to produce an end product. They also had toxicity tests performed on the plastics. Some came back as hazardous and some were not considered to be hazardous. Some of the markets that they identified dried up because the entities went bankrupt, some were destroyed by fire, some entities could not set up and others said that the plastic was still a hazardous product. One by one the markets disappeared by 1996.

[15] Even if the material was hazardous there were markets but if the material was less hazardous the markets would have been greater.

[16] She referred specifically to SPCMA's Revenue Statement for 1991 and 1992 and the relatively large amount paid for the toxicity studies. These expenses were incurred to enable SPCMA to decide which markets it would sell to. This was a prudent step according to her.

[17] She also referred to invoices from Saskcon Repair Services Ltd. (which were accepted subject to weight and only for the purpose of showing that they were requested by this witness and were from Saskcon). This witness took the position that these invoices showed that there was a market at a given price. These shipments went to Hong Kong and SPCMA intended to do the same with their shipments.

[18] She identified certain companies that would use a finished product and referred to various products that could be produced from the plastic. The municipalities assisted them in their program by providing storage sites, by assuming the liability for the sites and by maintaining them. Again, she reiterated that SPCMA would have collected GST on the ultimate sales, had they been made.

[19] In cross-examination she admitted that she was the sole employee of SPCMA and that she answered to a Board of Directors. By the end of 1996 the markets had disappeared or the sale of such a product was no longer allowed. There were problems with the product before 1996. It was hazardous in an unwashed state. In 1993, 1994 and 1995 it was washed but was unsold. It was not considered to be hazardous then.

[20] She was referred to the articles of incorporation of SPCMA, to the activities set out therein and its by-laws. She said that these were their objects and that there were no renegade activities considered that were not in the by-laws. The basic aim was the management of the pesticide container disposal program. It was a non-profit organization and was not out to make money. It had no business plan and she could not point to any specific authorization to sell plastic.

[21] She agreed that SPCMA never charged any fees to anyone and it had no receipts except the funds received from CPIC. No membership fees were charged to its directors. The reference in her letter of May 6, 1992 to Revenue Canada about future sales was based upon her discussions with the companies who washed the plastic and with other companies who would purchase it.

[22] When asked what they intended to do with it, she said that it was considered a hazardous material in Saskatchewan but not in South Carolina. They attempted to find markets in Canada and the United States. She admitted that even if they reduced its toxicity it might still be perceived as hazardous and its use in making an end product was thereby reduced.

[23] Their attempt to pelletize the material and sell it to a reformulator fell through. Then a company in St. Louis was found who could use it in energy recovery plants but they would not pay for it or pay for the costs of transportation. Further, they required a fee to dispose of it. SPCMA was being pressured to get rid of the material. The purpose of SPCMA was to get it out of Saskatchewan and so they had to pay to send it to South Carolina. There were no other active transactions regarding the plastic from January 1, 1991 to June 30, 1994, but there were discussions.

[24] She confirmed that their only source of funds was from CPIC and that they were generous in their funding because they were told that if they did not do something about the containers that the government would pass legislation.

[25] For each container sold in the province they received $1.00 by way of voluntary payment. The funding formula was changed in 1996 according to her but when she was referred to Exhibit R-1 at tab 21 she confirmed that it was in 1994 that the funding formula was changed. After that they received funds only after expenses were incurred and after all the earlier funds had been used up.

[26] In redirect she said that the plastic was sent to North Carolina and after that it accumulated in accordance with the program. She believed that the articles of incorporation entitled them to do recycling and this included the whole realm of sales.

[27] Counsel for the Appellant read into evidence a portion of the transcript from discovery being Questions 28, 43 – 47, 63, 64 and 84.

[28] Larry Gruber was an auditor with Canada Customs and Revenue Agency. He is an excise tax auditor and does GST audits. He is referred to as a "large case auditor". He has a chartered accountant designation. He was assigned the objection in the case at bar.

[29] He was an appeal's officer as well. He reviewed the objection and the issues, analyzed the facts and made a decision to reassess the Appellant. He took the position that SPCMA does not make any taxable supplies, is not required to collect and pay GST on its funding and is not entitled to input tax credits.

[30] He considered an interpretation provided by the agency's policy branch and concluded that SPCMA did not make any taxable supplies for consideration in the course of a commercial activity. He considered subsections 169(1) and 141.01(2) of the Excise Tax Act (the "Act").

[31] The expenses incurred by SPCMA were for the protection of the environment and were not made for taxable supplies. He has not changed his opinion as a result of the evidence given in Court.

[32] He concluded that the activity of collecting the containers was not an activity undertaken for the purposes of delivering a taxable supply during the course of a commercial activity.

[33] In cross-examination he agreed that Curtis Construction Ltd. and Saskcon provided some services to SPCMA during the period in issue. He reviewed the transcripts and all of the documents. He never attended at the place of business of Curtis Construction Ltd. and did not contact anyone to whom SPCMA was attempting to sell.

[34] If SPCMA made taxable supplies they would have to collect GST and would be entitled to input tax credits to the extent that the expenses were incurred for a commercial activity. This required a "potential for sale" or a "history of sales".

[35] He agreed that in the first audit, by deciding that SPCMA had to collect GST, he was admitting that there was a commercial activity. The Department's position changed after the first audit.

[36] He referred to schedule 5, part V, section 10 of the Act and said that where supplies are made for no consideration they are deemed to be non-taxable supplies. In the case at bar there was no consideration for the supplies. The supply was to the general public and there was no charge for it.

[37] In the event that SPCMA had developed a product, the input tax credits could only be related to the expenses incurred for the supply and not for the service to the public. All expenses here were for the protection of the public.

Argument on behalf of the Appellant

[38] In oral and written argument, counsel presented that the Appellant had satisfied the requirements entitling it to the input tax credits. With respect to the first issue, on a plain and ordinary reading of the Act, the Appellant satisfies the definition of "commercial activity" under subsection 123(1).

[39] Counsel found support for his proposition in the case of Hleck, Kanuka, Thuringer v. The Queen, 2 GTC 1034 where Judge Bell allowed the Appellant to claim input tax credits for the costs expended by a lawyer in buying a ticket for his wife who accompanied him to a conference. Counsel argued that in that case it depended upon the extent to which the Appellant acquired the ticket for use in the course of a commercial activity of the Appellant. He opined that the Court used a lower threshold in deciding this issue in GST cases where the claim is based upon the expenditure. The Court allowed 100% as the multiplier under subsection 169(1).

[40] Likewise, Bailey v. M.N.R., 90 DTC 1321 is useful. In that case Judge Rip found that the Appellant was engaged in an adventure in the nature of trade and the Appellant in the case at bar was as well under paragraph 123(1)(b). It was not an exempt supply under paragraph 123(1)(a).

[41] The Appellant here collects, shreds, washes and has toxicity tests conducted on the plastic. The toxicity tests are to make the product more saleable. The ultimate action was to try and sell it. Even the witness for the Respondent agreed that if it were sold it would have been GST taxable.

[42] Sales were contemplated when the contracts with Saskcon and Curtis Construction Ltd. were prepared. The letter from the Appellant to Revenue Canada also indicated that sales would be made in the future.

[43] The evidence indicated that the Appellant had knowledge of sales of such plastic in the industry as was evidenced by the invoices. The Appellant was aware of markets for the plastic. The Appellant made a taxable supply and the requirements of paragraph 123(1)(a) are met.

[44] Further under Bailey (supra) one does not need a trade, you need only to be in the course of a trade. The supply was not exempt under paragraph 123(1)(b).

[45] The activities carried on by the Appellant were the common flow of a recycling business. There was evidence that the Appellant intended to sell the plastic, but had to get rid of it due to the government pressures. However, there was never any change in their intention to sell the product ultimately.

[46] The Minister had no problem in 1992 in concluding that there was a commercial activity and it was known that there were no sales. There were no problems with the input tax credits in 1994. The problem arose only because the Minister concluded that he could not claim the GST on the funds and the only way he could keep the amounts collected was to disallow the input tax credits.

[47] It is not significant that no sales occurred during the relevant period. The Appellant should be allowed the input tax credits on the basis of 100% as the inputs on which GST was paid related 100% to the recycle/disposal program. It was one continuous program and not one of many separate components. Each step in the recycling process was necessary to make taxable supplies.

[48] The second issue is whether or not the Appellant made exempt supplies pursuant to section 10 of part VI of schedule V of the Act.

[49] Counsel proposed that the Minister's position that the supplies were exempt because there was no consideration only applies to the matter of the collection of the plastic, if at all. However, there was consideration given by the municipality. The municipality provided the land site, it assumed the liability for the site and it maintained it. Section 10 does not apply.

[50] The Act allows a liberal interpretation of the GST legislation and the term consideration.

[51] If the Respondent's position is accepted, monies designated for environmental clean up would go into the general revenue fund, thereby limiting the funds available for cleaning up the environment and this could never have been intended to be the result when the GST provisions were drafted.

[52] Counsel concluded that the appeal should be allowed and he wishes to address the Court on the matter of costs.

Argument on behalf of the Respondent

[53] Counsel for the Respondent dealt initially with the argument as to whether of not the municipalities gave consideration for the services of the Appellant by providing the storage site, by assuming liability for it and by servicing it. It was argued that there was no such evidence to support this. The Appellant called no one from any municipality to establish that it paid any consideration for the services of SPCMA. The evidence was clear that all that was received by the Appellant were the funds granted by CPIC which was not controlled by a government or municipality.

[54] What is involved in the case at bar is a non-profit organization whose aim was to manage the disposal of pesticide containers. It had only one employee. The purpose of the Appellant was to clean up the environment, not for the purposes of producing a product for sale.

[55] Until there was clean plastic there was no commercial activity. There was only one transaction during the whole period and the Appellant had to pay for transporting and disposing of the material. The costs were not incurred because there was a market for the product, but to clean up the environment.

[56] There were no taxable supplies provided by SPCMA under subsection 123(1) because there was no commercial activity. There was no supply made in the course of a commercial activity, i.e. during the course of a business.

[57] Further, there was no consideration received by the Appellant, so that pursuant to subsection 141.02(2) the Appellant is precluded from claiming input tax credits.

[58] The Appellant is a non-profit organization under subsection 123(1) of the Act and by definition is a public service body and a public sector body. Even if the Appellant made any supplies during the period in issue they were "exempt supplies" under section 10, part VI of schedule V to the Act since they were made by a "public sector body" and all or substantially all of those supplies were made for no consideration.

[59] Counsel relied upon the case of Club 63 North v. Canada, [1995] G.S.T.C. 75 (T.C.C.) in concluding that under section 10, part VI, schedule V of the Act, "all or substantially all" means 90%.

[60] Counsel also relied upon the case of London Life Insurance Co. v. Canada [1998] G.S.T.C. 93 (T.C.C.), where Hamlyn J. concluded that Leasehold Improvements were not undertaken in the course of a commercial activity and therefore subsection 169(1) was not applicable to these improvements.

[61] There is no injustice involved here because whatever was provided came outside those services where input tax credits can be claimed.

[62] In touching again upon the issue of any consideration paid by the municipalities for the Appellant's services, counsel said that there was no "quid pro quo" evidence given. It may have been a gift. There was no evidence that there was consideration. If it were consideration it would have to be for at least 10% of the activities and there was no evidence that it was.

[63] On the question raised by counsel for the Appellant as to why the product would be washed if they were not going to sell it, counsel said that one could equally answer that it was to protect the environment.

[64] The appeal should be dismissed.

Rebuttal

[65] In rebuttal counsel for the Appellant reiterated that there need not be a profit to entitle one to input tax credits.

[66] In essence, the issue comes down to whether or not it was a commercial activity.

[67] On the issue of calculating the value of the consideration in the event that not all of the input tax credits claimed are available, counsel submitted that the Court has the necessary information to calculate what percentage of the amount in question can be used to calculate the input tax credits.

[68] Further, the articles of incorporation are broad enough to allow this activity to take place. Even if they are not, this does not mean that a commercial activity did not occur.

[69] The municipality provided the land. It must be concluded that this was worth something. This was consideration.

Analysis and Decision

[70] A number of peripheral matters were raised by Counsel during their argument. The Court will deal with these matters first.

[71] The Court is satisfied that it is not necessary that an actual profit be shown in order for the Appellant to be involved in a commercial activity. It is not necessary that the articles of incorporation of the Appellant set out specific powers for the Appellant to be involved in a commercial activity for the purposes of the Act. That question might be raised in other proceedings but it does not bar the Appellant from seeking the relief that it claims in this case. However, the Court is entitled to consider the fact that the articles of incorporation do not specifically address this power when it is considering all of the evidence on the issue of whether or not the Appellant was engaged in a commercial activity.

[72] During the argument Counsel for the Appellant proposed that the Act could not have contemplated the result that the Minister is contending in this case. Whether or not that was a plea that the Act does not contemplate a collection of tax on the one hand and yet prevent a person in the position of the Appellant from claiming input tax credits, is not clear. However, under the scheme of the Act it would appear that this can be the actual result, whether or not it was the intention of the legislators when they drafted the Act. However, the Court cannot decide the issues in the case at bar on that basis and it is satisfied that the issues here are well defined.

[73] The Court is satisfied on the basis of the evidence in this case that the Minister did change his mind in this case between the first and second audits. The evidence makes it clear that the Minister had originally concluded that the funds that SPCMA originally received from CPIC attracted GST, which would mean that the Appellant must have been involved in making taxable supplies and this would have been a tacit admission that SPCMA was involved in commercial activity. However, the evidence makes it clear that the Minister changed his opinion by the time of the second audit and had concluded that the funds received from CPIC were not GST taxable and that SPCMA was not entitled to input tax credits.

[74] This obviously caused considerable uncertainty and distress with the officials of SPCMA and obviously led to the belief on its behalf that the Minister was merely taking this new tact in order to hold on to the funds. This position was denied by the witness who gave evidence on behalf of the Respondent and the Court accepts his evidence in that regard.

[75] The Court is satisfied that there was indeed a change of policy by the Minister as a result of discussions with the Policy Division in Ottawa and that the Minister's actions to reassess were based upon the conclusion that the funds received from CPIC were not GST taxable and that the SPCMA was not entitled to input tax credits.

[76] The evidence also shows that SPCMA was having some difficulty in receiving a definitive response from the Minister regarding the matters in dispute here and one can readily understand the anxiety of the officials of SPCMA up to the time that the Minister completed the second audit and made the assessment which is under appeal here.

[77] SPCMA in its wisdom decided to pay the assessment while the matters in issue were litigated so that there would be no additional penalties and interest payable.

[78] All of these matters were obviously considered by the parties by the time the trial commenced as the Minister agreed to waive all penalties and interests.

[79] The Court turns now to consideration of the substantial issues in this case which have been fairly well defined by both counsel.

[80] Counsel for the Appellant put the issue quite distinctly in his rebuttal when he took the position that the issue comes down to whether or not SPCMA was involved in commercial activity. In argument, the position of the Respondent reflected the position of the Minister when the assessment was raised and that position was that SPCMA was not entitled to input tax credits because it did not make any taxable supplies for consideration in the course of a commercial activity. In essence, this position takes into account all of the sections of the Act, which were referred to.

[81] The easiest way to dissect the matter is for the Court to ask the question, what was the commercial activity in which SPCMA was involved? To answer that question one has to determine what activities SPCMA was involved in. The evidence makes it clear that principle mandate of SPCMA, as set out in the articles of incorporation and confirmed by the evidence given in Court was that it was to attempt to clean up the environment by safely disposing of pesticide containers. There was nothing in the articles of SPCMA to indicate that its intention was to develop a product which could be sold on the open market and from which SPCMA might be able to derive a profit. Indeed the evidence given on behalf of the Appellant indicated that the objects as set out in the by-laws and in the articles of incorporation were the objects of SPCMA and there were no renegade activities considered. The witness admitted that the basic aim was the management of the pesticide containers disposal program. It was clearly a non-profit organization and was not out to make money.

[82] The witness admitted that there was no business plan and she could not point to any specific authorization to sell plastic. She further admitted that SPCMA never charged any fees to anyone and that it had no receipts except the funds received from CPIC. A reasonable review of these considerations would indicate that, initially at least, SPCMA had no intention of entering into what could be reasonably referred to as commercial activity and there was no hint that the purposes of the activity was to create a final product which could be sold and which might ultimately lead to a profit.

[83] There can be no doubt that in attempting to accomplish the immediate objective of cleaning up the environment by disposing of these contaminated pesticide containers it was necessary for SPCMA to carry on certain activities. It is clear that the plastic had to be gathered, it had to be washed, it had to be decontaminated and ultimately it had to be disposed of in some way or other. In order to realize its objective of disposing of the containers SPCMA discussed the matter with other companies and concluded that one way of disposing of the containers was to create a product which they believed could be disposed of in the market place. But even then there was no indication whatsoever from anyone on behalf of SPCMA that there was any profit motive involved in seeking out this market. The Court can only conclude that its only purpose was to reduce the containers to a form which was acceptable and useable by someone and in that way the ultimate goal of disposing of the containers in Saskatchewan would have been realized.

[84] There can be no doubt that at some point in time SPCMA had satisfied itself that there were possible markets that either existed or would exist which would enable them to dispose of the pesticide containers and get them out of Saskatchewan. For various reasons these markets never materialized and the end result was that none of the plastic was ever sold, no funds were realized from the plastic and indeed at the end of the day SPCMA had to pay considerable amounts of money to have someone else take the product off of their hands and also had to pay to transport the plastic to a disposable site in the United States. SPCMA had no history of sales, even though it used its best endeavours to find a market and even though it may have been confident that such a market was available. The steps that it took were at least preparatory in nature and their activities had certainly not reached the stage where one could consider it to be a business.

[85] In any event the ultimate result of the actions of the Appellant and the activities in which it was involved were merely to meet its stated object of cleaning up the environment in Saskatchewan from these pesticide containers and all of the actions it took were to that end. One could hardly say that at any point in time SPCMA was involved in an adventure or concern in the nature of trade or that it was involved in the business as argued by counsel for the Appellant.

[86] Counsel for the Appellant relied upon the case of Hleck, Kanuka, Thuringer (supra), but this case can be distinguished from the facts in the case at bar. In that case Judge Bell had no problem in finding that it was a commercial activity. However, that commercial activity was a law practice of the husband and counsel for the Appellant was able to convince the trial judge that his wife's participation in the activities of the conferences fell into the "undistinguished" common flow of business and was made in the course of a law firm's commercial activities despite the element of personal enjoyment involved therein. This conclusion was obviously a very liberal interpretation of the test in the Act but counsel for the Appellant in that case was obviously up to the task and the learned trial judge must have been satisfied that the burden had been met.

[87] The Court is not satisfied that the Appellant here has met the burden of showing that it was involved in a commercial activity during the relevant period of time. Consequently, it is unnecessary for the Court to consider the fraction to be applied to determine the quantum of the input tax credits. However, had the Court concluded that the Appellant was involved in a commercial activity during the relevant period of time the argument made by counsel for the Appellant that the program is not one of many separate components but is one complete process, may very well have found favour with the Court.

[88] It seems reasonable that had the Court found that the Appellant had been engaged in making taxable supplies in the course of a commercial activity it would have to conclude that each step in the recycling process was a necessary part in making the taxable supplies and that the proper fraction to be applied would be 100%.

[89] Counsel for the Respondent argued that the Appellant made no taxable supplies pursuant to subsection 123(1) of the Act because the supplies were not made in the course of a commercial activity. The Court has so found and accepts the argument of counsel for the Respondent in that regard.

[90] Counsel further submitted that there was no consideration received by the Appellant for these activities and consequently any supplies made by it during the relevant period of time were exempt supplies under subsection 141.01(2), since in essence they were made for no consideration.

[91] The Court is satisfied on the evidence that the Appellant is a non-profit organization as defined is subsection 123(1) of the Act, is also by definition a public service body and also by definition a public sector body. Counsel's argument was that consequently, the supplies were "exempt supplies" within the meaning of section 10, part VI, schedule V of the Act because they were made by a "public sector body" and all or substantially all of those supplies were made for no consideration.

[92] The only argument made with respect to any consideration passing from SPCMA was the evidence that the municipalities had provided the storage facility, were responsible for the liability relating thereto and were responsible for its maintenance. The Court is not satisfied that this evidence supported the contention that this was consideration for the activities of SPCMA.

[93] The only funds that were received by SPCMA were the funds granted by CPIC and there was no evidence to suggest that any further consideration passed from the municipalities to SPCMA. There was no evidence of any agreement between the municipalities and SPCMA which set out, referred to or took into account the possibility that the act of the municipalities in supplying, being responsible for the maintenance and for liability for the lot amounted to consideration. If it were, this case would have required that such evidence be produced.

[94] The Court has already touched upon the question of possible injustice which was raised by counsel for the Appellant and it accepts the argument of counsel for the Respondent that there was no injustice involved here because whatever was provided came outside those services for input tax credits that can be claimed under the Act.

[95] The Court is satisfied that the Appellant has failed to meet the burden of showing that he was entitled to the input tax credits that he claimed and the appeal in that regard is dismissed.

[96] The appeal is allowed with respect to penalties and the penalties are hereby deleted.

[97] Under the circumstances there will be no costs.

Signed at Ottawa, Canada, this 16^th day of December 1999.

"T.E. Margeson"

J.T.C.C.