Date: 20000209
Docket: T-2231-98
Ottawa, Ontario, the 9th day of February, 2000
Present: The Honourable Mr. Justice Pinard
Between:
ULTRAMAR CANADA INC.
Applicant
- and -
MINISTER OF NATIONAL REVENUE
Respondent
ORDER
The respondent"s retention by way of set-off against the applicant through the notice of determination dated October 22, 1998 is set aside. It is further ordered that the applicant is entitled to the refund by the respondent of the amount the respondent sought to retain by way of set-off, with interest calculated in accordance with the applicable provisions of the Excise Tax Act , R.S.C. 1985, c. E-15, as amended. Costs shall be awarded to the applicant.
Certified true translation
Bernard Olivier
Date: 20000209
Docket: T-2231-98
Between:
ULTRAMAR CANADA INC.
Applicant
- and -
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR ORDER
PINARD J.:
[1] This is an application for judicial review of a notice of determination (refund) dated October 22, 1998 issued by Revenue Canada, Customs and Excise, by which the respondent, citing section 224.1 of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the "Act"), informed the applicant (hereinafter "Ultramar") that it required the retention by way of set-off of some $378,376.60, an amount, as it happens, that was payable to Ultramar by Her Majesty the Queen in right of Canada.
The Facts
[2] The Société Sofati/Socanav, to which Socanav Inc. became successor in title on September 20, 1996 (hereinafter, collectively, "Socanav"), was a Canadian public company specializing in shipping bulk liquids. It sold its services to Ultramar. Ultramar and Socanav signed a number of agreements:
| - "Convention de vente" [Agreement of Sale], dated November 1, 1985; |
| - "Tanker Voyage Charter Party", dated January 8, 1986; |
| - "Master Time Charter Agreement", dated July 29, 1993; |
| - "Amended and Restated Master Time Charter Agreement", dated March 12, 1996. |
[3] On or about June 22, 1994, Ultramar sent the Minister of National Revenue an application for refund for taxes and drawbacks (N-15) under subsections 68(17) and 70(1) of the Excise Tax Act, R.S.C. 1985, c. E-15, as amended, in relation to some products sold to its client Socanav. This application for refund is a request for a tax exemption in the form of a potential refund on transactions affecting purchases of supplies used strictly for ships in domestic and secondary waters pursuant to the ships" stores regulations. The letter of claim of June 22, 1994, sent to Revenue Canada, Excise, Customs and Taxation, reads as follows:
| We are forwarding to you a claim for federal sales and excise taxes for our client Socanav. The goods were used for ship"s stores. All of the invoices on which this claim is based are in the offices of our client, Socanav, located at 1801 McGill College Avenue, Suite 1470, Montréal, Quebec. The particulars of this claim are attached hereto. |
| We thank you for your cooperation. |
[4] This refund claim was amended a few days later, on June 27, 1994, to read as follows:
| On June 22, 1994, we submitted to your office a refund claim for $1,332,771.51 (copy attached). We wish to revise this claim to read as follows. |
| We now submit to you two (2) claims (N-15 attached), one is a drawback claim in the amount of $985,171.62 for the period from May 31, 1990 to May 31, 1992 (inclusive) and the other is a refund claim in the amount of $347,599.89 for the period from June 1, 1992 to March 30, 1993 (inclusive). All other details and information remain the same as stated in our letter of June 22, 1994 (copy attached). |
| Should you need additional information or clarification, please do not hesitate to call the undersigned at (514) 499-6139. |
[5] On October 31, 1996, after deducting $660,476.41 and $43,746.78, sums that were considered ineligible, the respondent sent Ultramar a cheque in the amount of $720,770 in regard to the claim under the Excise Tax Act for the period from May 31, 1990 to March 30, 1993. Ultramar did not consider itself bound in relation to Socanav, and retained this amount for itself.
[6] Although Socanav was indebted to the respondent for some unpaid deductions at source, the respondent subsequently sent Ultramar two formal demands for payment under subsection 224(1.2) of the Income Tax Act:
| - On November 14, 1996, a demand in the amount of $196,428.68 (account no. 10490 2432 RP0002); |
| - On November 27, 1996, a demand in the amount of $107,280 (account no. NRH 374 395). |
Ultramar refused to pay anything and told the respondent, in a letter on December 2, 1997, that it considered itself to be the exclusive beneficiary of the refunds and drawbacks made under the Excise Tax Act and that there was no factual or legal evidence of the existence of any contract, oral or written, under which it had become the debtor to Socanav of such refunds and drawbacks.
[7] On April 27, 1998, Ultramar sent Revenue Canada, Customs, Excise and Taxation, a new application for refund of the excise tax, pursuant to section 69 of the Excise Tax Act. This application, in the amount of $677,094.94, was not connected in any way to the business relationship between Ultramar and Socanav.
[8] On October 28, 1998, after approving the latter demand in part only, the respondent issued the notice of determination (refund) that is the subject of this application for judicial review.
Positions of the parties
[9] The applicant submits that only a manufacturer like it may, under the Excise Tax Act and the applicable regulations, claim refunds for taxes on the purchase of fuel used to supply ships in domestic waters. Ultramar further submits that the respondent had the onus of proving it was indebted to Socanav, and that the respondent has failed to do so.
[10] The respondent, while conceding that only a manufacturer such as Ultramar may claim such refunds, nevertheless submits that there is nothing to prevent the latter, once the notice of determination and cheque have been sent in succession by Revenue Canada, from paying an equivalent amount to a client such as Socanav in order to honour an agreement previously entered into between the parties. The respondent submits that it has proved this agreement by presumption of fact, under article 2849 of the Civil Code of Québec.
Analysis
[11] It is worth reproducing at this point the following applicable provisions of the Income Tax Act:
| 222. All taxes, interest, penalties, costs and other amounts payable under this Act are debts due to Her Majesty and recoverable as such in the Federal Court or any other court of competent jurisdiction or in any other manner provided by this Act.
224. (1.2) Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act, any other enactment of Canada, any enactment of a province or any law, but subject to subsections 69(1) and 69.1(1) of the Bankruptcy and Insolvency Act and section 11.4 of the Companies" Creditors Arrangement Act, where the Minister has knowledge or suspects that a particular person is, or will become within one year, liable to make a payment
| (a) to another person (in this subsection referred to as the "tax debtor") who is liable to pay an amount assessed under subsection 227(10.1) or a similar provision, or |
| (b) to a secured creditor who has a right to receive the payment that, but for a security interest in favour of the secured creditor, would be payable to the tax debtor, |
the Minister may in writing require the particular person to pay forthwith, where the moneys are immediately payable, and in any other case as and when the moneys become payable, the moneys otherwise payable to the tax debtor or the secured creditor in whole or in part to the Receiver General on account of the tax debtor"s liability under subsection 227(10.1) or the similar provision, and on receipt of that requirement by the particular person, the amount of those moneys that is so required to be paid to the Receiver General shall, notwithstanding any security interest in those moneys, become the property of Her Majesty to the extent of that liability as assessed by the Minister and shall be paid to the Receiver General in priority to any such security interest.
224. (4) Every person who fails to comply with a requirement under subsection (1), (1.2) or (3) is liable to pay to Her Majesty an amount equal to the amount that the person was required under subsection (1), (1.2) or (3), as the case may be, to pay to the Receiver General.
224.1 Where a person is indebted to Her Majesty under this Act or under an Act of a province with which the Minister of Finance has entered into an agreement for the collection of the taxes payable to the province under that Act, the Minister may require the retention by way of deduction or set-off of such amount as the Minister may specify out of any amount that may be or become payable to the person by Her Majesty in right of Canada.
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| 222. Tous les impôts, intérêts, pénalités, frais et autres montants payables en vertu de la présente loi sont des dettes envers Sa Majesté et recouvrables comme telles devant la Cour fédérale ou devant tout autre tribunal compétent, ou de toute autre manière prévue par la présente loi.
224. (1.2) Malgré les autres dispositions de la présente loi, la Loi sur la faillite et l"insolvabilité, tout autre texte législatif fédéral ou provincial et toute règle de droit, mais sous réserve des paragraphes 69(1) et 69.1(1) de la Loi sur la faillite et l"insolvabilité et de l"article 11.4 de la Loi sur les arrangements avec les créanciers des compagnies , s"il sait ou soupçonne qu"une personne donnée est ou deviendra, dans les douze mois, débiteur d"une somme :
| a) soit un débiteur fiscal, à savoir une personne redevable du montant d"une cotisation en application du paragraphe 227(10.1) ou d"une disposition semblable; |
| b) soit à un créancier garanti, à savoir une personne qui, grâce à une garantie en sa faveur, a le droit de recevoir la somme autrement payable au débiteur fiscal, |
le ministre peut exiger par écrit de la personne donnée que tout ou partie de cette somme soit payé au receveur général, sans délai si la somme est payable immédiatement, sinon dès qu"elle devient payable, au titre du montant de la cotisation en application du paragraphe 227(10.1) ou d"une disposition semblable dont le débiteur fiscal est redevable. Sur réception de l"avis de cette exigence par la personne donnée, la somme dont le paiement est exigé devient, malgré toute autre garantie au titre de cette somme, la propriété de Sa Majesté jusqu"à concurrence du montant de la cotisation et doit être payée au receveur général par priorité sur toute autre garantie au titre de cette somme.
224. (4) Toute personne qui omet de se conformer à une exigence du paragraphe (1), (1.2) ou (3) est tenue de payer à Sa Majesté un montant égal au montant qu"elle était tenue, en vertu du paragraphe (1), (1.2) ou (3), selon le cas, de payer au receveur général.
224.1 Lorsqu"une personne est endettée envers Sa Majesté, en vertu de la présente loi ou en vertu d"une loi d"une province avec laquelle le ministre des Finances a conclu un accord en vue de recouvrer les impôts payables à la province en vertu de cette loi, le ministre peut exiger la retenue par voie de déduction ou de compensation d"un tel montant qu"il peut spécifier sur tout montant qui peut être ou qui peut devenir payable à cette personne par Sa Majesté du chef du Canada.
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[12] The retention by way of set-off that is the subject of this application for judicial review was obviously made under section 224.1, supra. And it is clear from the provision that this retention by way of set-off cannot be valid if the person it directly affects is not a person who is indebted to Her Majesty.
[13] In this case, the respondent submits that Ultramar is a person indebted to Her Majesty through the combined effect of sections 222, 224(1.2) and 224(4), supra, of the Income Tax Act.
But given the clear language of section 224(1.2), these provisions clearly cannot make Ultramar a debtor to Her Majesty if, at the time of the written notice given by the Minister under section 224(1.2) or within the subsequent 12 months, Ultramar did not owe any money to Socanav, which was then a tax debtor within the meaning of paragraph 224(1.2)(a). Consequently, Ultramar is, after all is said and done, correct in arguing that unless the respondent fundamentally proves its indebtedness to Socanav at the relevant time, the retention by way of set-off in question must be set aside.
[14] The respondent submits that it has made this proof by presumption of fact, and makes much of the fact that the claims for federal sales and excise taxes sent to Revenue Canada, Excise, Customs and Taxation by Ultramar on June 22 and 27, 1994 were made "for the client Socanav Inc.". In the circumstances these letters of claim, the respondent says, "[Translation] undeniably show that a contractual relationship had developed between Socanav Inc. and Ultramar Canada Inc., to establish that Socanav Inc. had become the potential beneficiary of the application for refund for taxes and drawbacks (N15)".
[15] In my opinion, this is to presume too much. In a context in which, for example,
| - there is a complete absence of proof of considerations that would have led Ultramar to bind itself in this way to Socanav; |
| - it is established that Socanav, based on the opinion of its counsel Claude P. Desaulniers, thought it could avail itself of subsection 44(17) (now subsection 68(17) of the Excise Tax Act to claim a refund of tax paid on fuel from Revenue Canada; |
| - Ultramar never gave Socanav the amount refunded by the respondent pursuant to the claims of June 22 and 27, 1994; and |
| - the contracts signed between Ultramar and Socanav on November 1, 1985 and January 8, 1986 show that the price of fuel paid by Socanav for the operation of its vessels had a direct effect on the rates invoiced by Socanav to Ultramar for the shipping of its products, |
I am not persuaded that the facts relied on by the respondent are sufficiently serious, precise and concordant to give rise to a presumption of fact establishing the necessary indebtedness of Ultramar to Socanav.
[16] Furthermore, if, as the respondent argues, Socanav, by virtue of the realization of a contractual relationship, had become "[Translation ] the potential beneficiary of the application for refund for taxes and drawbacks (N15)" " which has not been established " it would be necessary at the very least to infer that Ultramar, the sole manufacturer authorized to claim and obtain such a refund had, directly or indirectly, assigned to its client Socanav its rights in such refund, which would constitute an assignment of debts that is null and void because it is prohibited by section 67 of the Financial Administration Act , R.S.C. c. F-10, which reads as follows:
| 67. Except as provided in this Act or any other Act of Parliament,
| (a) a Crown debt is not assignable; and |
| (b) no transaction purporting to be an assignment of a Crown debt is effective so as to confer on any person any rights or remedies in respect of that debt. |
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67. Sous réserve des autres dispositions de la présente loi ou de toute autre loi fédérale :
| a) les créances sur Sa Majesté son incessibles; |
| b) aucune opération censée constituer une cession de créances sur Sa Majesté n"a pour effet de conférer à quiconque un droit ou un recours à leur égard. |
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[17] The absolute unassignability of a Crown debt is now firmly established, as is shown by the decision of the Quebec Court of Appeal in Bief des Seigneurs Inc. v. Jean Fortin & Associés Syndic Inc., 44 C.B.R. (3d) 137.
[18] For all these reasons, the retention by way of set-off made by the respondent through the notice of determination of October 22, 1998 is set aside. It is further ordered that the applicant Ultramar Canada Inc. is entitled to the refund by the respondent of the amount the latter sought to retain by way of set-off, with interest calculated in accordance with the applicable provisions of the Excise Tax Act. Costs to the applicant.
OTTAWA, ONTARIO
February 9, 2000
Certified true translation
Bernard Olivier
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
| STYLE: ULTRAMAR CANADA INC. v |
MINISTER OF NATIONAL REVENUE
| PLACE OF HEARING: Montréal, Quebec |
| DATE OF HEARING: January 11 and 12, 2000 |
REASONS FOR ORDER OF PINARD J.
DATED: February 9, 2000
APPEARANCES:
Pierre Martel
Bruno Duguay for the applicant
Daniel Beauchamp for the respondent
SOLICITORS OF RECORD:
Stikeman, Elliott
Montréal, Quebec for the applicant
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Ontario for the respondent
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