Citation: 2014 TCC 44
Date: 20140211
Docket: 2013-1768(EA)I
BETWEEN:
International Custom Pak Inc.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre J.
[1]
This is an appeal
against an assessment made by the Minister of National Revenue (Minister)
for excise duty payable on packaged spirits pursuant to section 73 and
subsection 122(1) of the Excise Act, 2001 (Act) and section 1 of Schedule 4
to the Act. More specifically, the appellant was assessed for the following
amounts (Amended Reply, paragraph 7):
a) $1,903
for the period from April 1, 2010 to April 30, 2010 (the “First Period”);
b) $11,457
for the period from May 1, 2010 to May 31, 2010 (the “Second Period”); and
c) $7,073 for the period from September 1, 2010 to September 30,
2010 (“the Third Period”).
[2]
The parties filed a
Partial Agreed Statement of Facts, which is reproduced below:
PARTIAL AGREED STATEMENT OF FACTS
The
parties hereto, admit the following facts, provided that the parties may adduce
further and other evidence not inconsistent with this Partial Agreed Statement
of Facts:
1. The
appellant is a privately owned Canadian corporation;
2. The
appellant has a user's license under section 14 of the Excise Act, 2001
(the Act");
3. The
appellant manufactures personal care products including various sanitizing
products in spray and gel form;
4. For
the First Period, Second Period and Third Period (as defined in the respondent's
Reply to the Notice of Appeal), the appellant purchased bulk, unpackaged
alcohol containing at least 95% absolute ethyl alcohol by volume;
5. At
the time the bulk alcohol was purchased, such alcohol was packaged in
containers greater than 100 litres in capacity;
6. All
such alcohol was used in the manufacture of sanitizing gels during the First
Period, Second Period and Third Period;
7. During
the First Period, Second Period and Third Period, the appellant used 171
litres, 1,031 litres and 637 litres of the bulk, unpackaged alcohol
respectively to manufacture 272 litres, 1640 litres and 1,012 litres of
sanitizing gels respectively;
8. At
the time such sanitizing gels were manufactured, packaged and sold for
consumption, such gels were not made in accordance with a formula for which the
appellant had approval from the Minister of National Revenue (the
"Minister");
9. The
formulas, of which the sanitizing gels were made in accordance with, each
received approval from the Minister on June 16, 2011;
10. Such
sanitizing gels contained all of the alcohol referred to herein at paragraph 7
in a diluted form;
11. Upon
manufacture, the sanitizing gels contained greater than 60% absolute ethyl
alcohol by volume;
12. At
the time the sanitizing gels were manufactured, packaged and sold for
consumption, no duty was paid under the Act in respect of the alcohol
contained therein;
13. The
sanitized [sic] gels manufactured and packaged by the appellant in the
First, Second and Third Periods, were packaged in containers each of which were
[sic] less than 100 litres in capacity;
14. Such
containers were not repackaged before being sold to consumers; and
15. The
formulas, of which the sanitizing gels were made in accordance with, were
approved and licensed by Health Canada's Natural Health Product Directorate on
February 3, 2010 for purposes of the Natural Health Products Regulations and
was [sic] assigned Natural Product Number 80015660 under such
regulations — the formulas were not approved by the Minister for the purposes of
the Act at that time (such approval of the Minister having been granted
on June 16, 2011).
[3]
In its notice of
appeal, the appellant mentions that it was approached during the H1N1 pandemic
to manufacture sanitizing gels. Due to the urgency of the situation, it started
manufacturing the sanitizing gels while simultaneously working to complete the
formulation submission for Canada Revenue Agency (CRA) approval.
[4]
The appellant stated
that their knowledge in “formulation development” and their use of sanitizing
ingredients that were common in the industry assured them that the new
sanitizing gel would be equal in performance and safety to the sanitizing spray
previously approved by the CRA. In addition, the sanitizing gel formulation had
already been approved by Health Canada’s Natural Health Products Directorate and
been given a Natural Health Product number.
[5]
The appellant also
stated in its notice of appeal that a lengthy wait time for CRA approval could
have cost it this business. Their intent was merely to expedite delivery of the
products so to as retain business and provide timely service to a public in
urgent need of the sanitizers.
[6]
The appellant
acknowledged that it did not comply with section 73 of the Act, which prohibits
a licensed user from using or disposing of bulk alcohol other than, among other
things, in an approved formulation. It also acknowledged that duty must be
imposed for the infraction committed, but requested that, as a matter of
fairness, this Court consider reducing the amount of duty assessed, given the
unintentional nature of the offence.
[7]
At the hearing, Mr.
Hanif Adatia, president of the appellant, recognized that it was not true that
the appellant had submitted the formulation for sanitizing gels to the CRA. In
fact, the formula was approved on June 16, 2011, a few days after it was in
fact submitted by Ms. Anna Thow, the CRA officer conducting the audit (the
audit was conducted during the month of June 2011, the audit report completed
on June 8, 2011, and the formula processed by the senior chemist at
the Alcohol and Tobacco Section of the Science and Engineering Directorate (SED)
of the Canada Border Services Agency on June 10, 2011 and approved on
June 16, 2011, as shown by Exhibit R-3 and Exhibit R-4). At the time
of the approval, the gels had already been manufactured, packaged and sold.
[8]
Further, the SED senior
chemist confirmed that the unapproved gel formulations differed both as to the
amount of alcohol used and as to the other ingredients from the approved spray
formulations (Exhibit R-3 pages 4 and 6).
[9]
This is why it was
determined by the auditor that duty should be assessed against the appellant
for the alcohol used in the unapproved formulations. No penalty was assessed
pursuant to section 243 of the Act.
[10]
The applicable
provisions of the Act are reproduced hereunder:
Excise Act,
2001
S.C.
2002, c. 22
INTERPRETATION
Definitions
2. The definitions in this section apply in this Act.
. . .
“alcohol”
means spirits or wine.
. . .
“approved
formulation” means
(a)
any product made with alcohol by a licensed user in accordance with a formula
for which the user has approval from the Minister; and
(b)
any imported product that, in the opinion of the Minister, would be a product
under paragraph (a) if it were made in Canada by a licensed user.
. . .
“bulk”,
in respect of alcohol, means alcohol that is not packaged.
. . .
“duty”
means, unless a contrary intention appears, the duty imposed under this Act and
the duty levied under section 21.1 or 21.2 of the Customs Tariff and,
except in Parts 3 and 4, includes special duty.
. . .
“licensed
user” means a person who holds a user’s licence issued under section 14.
. . .
“Minister”
means the Minister of National Revenue.
. . .
“non-duty-paid”,
in respect of packaged alcohol, means that duty, other than special duty, has
not been paid on the alcohol.
. . .
“packaged”
means
. . .
(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.
. . .
“produce”
means
(a)
in respect of spirits, to bring into existence by distillation or other process
or to recover; or
. . .
“spirits”
means any material or substance containing more than 0.5% absolute ethyl
alcohol by volume other than
(a)
wine;
(b)
beer;
(c)
vinegar;
(d)
denatured alcohol;
(e)
specially denatured alcohol;
(f)
fusel oil or other refuse produced as a result of the distillation process;
(g)
an approved formulation; or
(h)
any product containing or manufactured from a material or substance referred to
in paragraphs (b) to (g) that is not consumable as a beverage.
. . .
PART 2
LICENCES AND REGISTRATIONS
Licences
Issuance
14. (1) Subject to the regulations, on
application, the Minister may issue to a person
. . .
(c)
a user’s licence, authorizing the person to use bulk alcohol, non-duty-paid
packaged alcohol or a restricted formulation;
. . .
Restriction
— licensed user
73. A licensed user shall not use or dispose of bulk alcohol other than to
(a)
use it in an approved formulation;
. . .
Imposition and Payment of Duty on
Alcohol
Imposition
— domestic spirits
122. (1) Duty is imposed on spirits produced
in Canada at the rate set out in section 1 of Schedule 4.
Time
of imposition
(2)
The duty is imposed at the time the spirits are produced.
. . .
Duty
payable when packaged
124.
(1) . . .
Payable
by responsible person
(2) Duty is payable by the person who is responsible for the spirits
immediately before they are packaged.
Non-dutiable Uses and Removals of
Alcohol
. .
.
Non-dutiable
uses — approved formulations
144. Duty is relieved on bulk alcohol
and non-duty-paid packaged alcohol used by a licensed user in an approved
formulation.
. .
.
Contravention
of section 73, 74 or 90
243. (1) Unless section 239, 241, 242 or
243.1 or subsection (2) applies, every person who contravenes section 73, 74 or
90 is liable to a penalty equal to
(a)
if the contravention relates to spirits, 200% of the duty that was imposed on
the spirits; or
(b)
if the contravention relates to wine, $1.24 per litre of that wine.
SCHEDULE 4
(Sections 122 and 123)
RATES OF DUTY ON SPIRITS
1. Spirits: $11.696 per litre of absolute ethyl alcohol contained in
the spirits.
2. Spirits containing not more than 7% absolute ethyl alcohol by
volume: $0.295 per litre of spirits.
[11]
In the present case, it
is agreed by everyone that the appellant has a user’s licence under section 14
of the Act. It is also agreed that, in the periods at issue, the appellant
purchased bulk, unpackaged alcohol containing at least 95% absolute alcohol by
volume in containers greater than 100 litres in capacity. That alcohol was used
in the manufacture of sanitizing gels containing greater than 60% absolute
ethyl alcohol by volume and was packaged in containers each of which was less
than 100 litres in capacity. Those containers were sold to consumers without
being repackaged.
[12]
It is also not
contested that at the time those gels were manufactured, packaged and sold for
consumption, they were not made in accordance with a formula for which the
appellant had approval from the Minister.
[13]
Therefore, it is clear
under sections 73, 122 and 144 of the Act that the appellant was not exempt
from paying duty on bulk, unpackaged alcohol at the rate set out in section 1
of Schedule 4 ($11.696 per litre of absolute ethyl alcohol contained in the
sanitizing gels). This duty was payable at the time the sanitizing gels were
packaged, that is, when they were packaged in containers of a capacity of not
more than 100 litres to be sold to consumers (see subsection 124(2) and the
definition of “packaged” in section 2 of the Act).
[14]
Even though the
appellant had received approval under the Natural Health Products
Regulations at the time it manufactured the gels, the Act does not give any
exemption on that basis. The Act is aimed at taxing alcohol products but grants
relief to a licensed user of bulk alcohol and non-duty-paid packaged alcohol in
an approved formulation as defined in the Act. The definition of “approved
formulation” in section 2 clearly states that the approval must be given by the
Minister.
[15]
Here, the appellant
seeks relief based on fairness. This Court does not have the authority to provide
such relief. There is no provision in the Act that grants the judiciary
authority to deviate from the strict application of its provisions.
[16]
Further, it is not open
to the Court to make exceptions to statutory provisions on the grounds of
fairness or equity (Chaya v. The Queen, 2004 FCA 327, 2004 DTC 6676, at
paragraph 4).
[17]
I would also add that I
am not convinced that the appellant was not negligent in failing to comply with
the Act. According to the evidence, the Minister’s approval was received in
fairly short order after the request was made. As a matter of fact, as soon as
the request was made by the auditor to the senior chemist, the latter advised
the auditor that the submissions were “nominally” approved on the day they were
received, so that alcohol used in production as of that day would not be
subject to duty (Exhibit R-3, page 6). This tends to show, in my view, that had
the appellant submitted the form right at the beginning and had Mr. Adatia
checked the “urgent” box on that form (Exhibit R-2), the appellant could have
avoided the duty completely.
[18]
Finally, the appellant
was only assessed the duty payable on the alcohol. It could have faced a
harsher situation had the Minister imposed a penalty. Indeed, under paragraph
243(1)(a) of the Act, every person who produces spirits in a manner that
contravenes section 73 (which is the case here) is liable to a penalty equal to
200% of the duty that was imposed on the spirits. In my view, by not having
that penalty imposed against it, the appellant has already benefited from significant
lenience.
[19]
The appeal is
dismissed.
Signed at Ottawa, Canada, this 11th day of February 2014.
“Lucie Lamarre”
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