SHELL CANADA PRODUCTS LIMITED v. HER MAJESTY THE QUEEN, 2002 FCT 1304

Date: 20021219    

Docket: T-1956-01

          Neutral citation: 2002 FCT 1304

BETWEEN:

                   SHELL CANADA PRODUCTS LIMITED

                                                                                                        Plaintiff

                                                    - and -

                              HER MAJESTY THE QUEEN

                                                                                                    Defendant

                              REASONS FOR JUDGMENT

GIBSON, J.:

INTRODUCTION

[1]    By Statement of Claim filed the 30^th of October, 2001, Shell Canada Products Limited (the "plaintiff") appealed pursuant to s. 81.2 of the Excise Tax Act^[1] (the "Act") from a notice of determination dated the 10^th of October, 2000 and confirmed the 7^th of August, 2001 denying the plaintiff's claim for refund of excise tax paid on gasoline used as a cleaning solvent. The notice of determination and confirmation at issue (the "decision") related to two sales of large quantities of gasoline made by the plaintiff to Interprovincial Pipe Line Inc. ("IPL") in 1998. The excise tax remitted on the two sales was in excess of $400,000.

[2]    The plaintiff seeks the following judgment or order:

            (a)        that its appeal be allowed;

            (b)        that the matter be referred back to the Minister of National Revenue for processing on the basis that the plaintiff is entitled to a refund of excise tax on the gasoline sold by it in the sales at issue to IPL; and

            (c)        that it be entitled to its costs of this action.

The defendant urges that:

            (a)        the question of law before this Court be answered in the affirmative, to the effect that a gasoline producer who sells gasoline to a purchaser who uses the gasoline as a solvent and not in an internal combustion engine is liable to pay tax imposed by section 23 of the Act, as it read in 1998;

            (b)        it be awarded its costs; and

            (c)        it be awarded such further and other relief as this Court considers just.

Reference to the question of law that is before this Court follows.

[3]                 By order dated the 4^th of April, 2002, made on consent, this Court directed that it would determine a question of law stated by the plaintiff and the defendant in the form of a special case in lieu of the trial of the action, pursuant to Rule 220 of the Federal Court Rules, 1998^[2]. Rule 220 reads as follows:

[4]                 This Court further ordered that the stated question of law would be determined on the basis of an Agreed Statement of Facts which was attached to the Order as an Appendix.

THE QUESTION OF LAW ORDERED TO BE DETERMINED

[5]                 The question of law ordered to be determined is the following:

Is a gasoline producer who sells gasoline to a purchaser who uses the gasoline as a solvent and not in an internal combustion engine liable to pay the tax imposed by section 23 of the Excise Tax Act, R.S.C. 1985 c. E-15, as it read in 1998?

THE AGREED STATEMENT OF FACTS

[6]                 The Agreed Statement of Facts on the basis of which the above question of law is to be determined reads as follows:

1. The Plaintiff, Shell Canada Products Limited, is a corporation incorporated pursuant to the Canada Business Corporations Act, R.S.C. 1985, c. C-44.

2. The Defendant is Her Majesty the Queen, represented by the Minister of National Revenue (Canada Customs and Revenue Agency since November 1, 1999) in this action.

3. The Plaintiff is a "manufacturer or producer" for the purposes of the Excise Tax Act, R.S.C. 1985, c. E-15 [hereinafter the "Act"] in that it produces gasoline for sale from petroleum and crude oil.

4. The Plaintiff is licensed under s. 64 of the Act as a person required to pay tax pursuant to Part III of the Act.

5. On July 25, 1998 and on September 14, 1998, the Plaintiff sold gasoline manufactured by it (the "Gasoline") to Interprovincial Pipe Line Inc. ("IPL") for use by IPL as a solvent in one of IPL's pipelines.

6. IPL used the Gasoline as a solvent to remove sulphur deposits from the interior walls of the pipelines operated by IPL for the transmission of crude oil.

7. IPL did not use the Gasoline in an internal combustion engine.

8. In the course of its use as a solvent by IPL, the Gasoline became co-mingled in the pipeline with crude oil and was sold by IPL as crude oil to an unrelated third party.

9. The Plaintiff remitted excise tax on the gasoline sold to IPL in 1998.

10.             On July 31, 2000, the Minister of National Revenue received the Plaintiff's application for a refund of the excise tax that was remitted in respect of the Gasoline (the "Refund Claim").

11.             By notice of determination dated October 10, 2000, the Minister of National Revenue denied the Plaintiff's Refund Claim.

12.             Following the filing of a notice of objection by the Plaintiff, the Minister of National Revenue confirmed the denial of the Refund Claim on August 7, 2001.

13.             By Statement of Claim dated October 30, 2001, the Plaintiff has appealed to the Federal Court (Trial Division) from the confirmation by the Minister of National Revenue of the denial of the Plaintiff's Refund Claim.

THE STATUTORY SCHEME

[7]                 Subsections 23(1) and (2) of the Act impose an excise tax on goods mentioned in Schedules I and II to the Act payable, in the case of goods manufactured or produced and sold in Canada, by the manufacturer or producer at the time of delivery of the goods to the purchaser thereof. Subsections 23(1) and (2)^[3], at the relevant time for the purposes of this matter, read as follows:

23. (1) Subject to subsections (6) to (8.3) and 23.2(6), whenever goods mentioned in Schedules I and II are imported into Canada or manufactured or produced in Canada and delivered to a purchaser thereof, there shall be imposed, levied and collected, in addition to any other duty or tax that may be payable under this or any other Act or law, an excise tax in respect of those goods at the applicable rate set out in the applicable section in whichever of those Schedules is applicable, computed, where that rate is specified as a percentage, on the duty paid value or the sale price, as the case may be.

23. (1) Sous réserve des paragraphes (6) à (8.3) et 23.2(6), lorsque les marchandises énumérées aux annexes I et II sont importées au Canada, ou y sont fabriquées ou produites, puis livrées à leur acheteur, il est imposé, prélevé et perçu, outre les autres droits et taxes exigibles en vertu de la présente loi ou de toute autre loi, une taxe d'accise sur ces marchandises, suivant le taux applicable figurant à l'article concerné de l'annexe pertinente, calculée, lorsqu'il est précisé qu'il s'agit d'un pourcentage, d'après la valeur à l'acquitté ou le prix de vente, selon le cas.

(2) Where goods are imported, the excise tax imposed by subsection (1) shall be paid in accordance with the provisions of the Customs Act by the importer, owner or other person liable to pay duties under that Act, and where goods are manufactured or produced and sold in Canada, the excise tax shall be payable by the manufacturer or producer at the time of delivery of the goods to the purchaser thereof.

(2) Lorsque les marchandises sont importées, la taxe d'accise prévue par le paragraphe (1) est payée conformément à la Loi sur les douanes, et lorsque les marchandises sont de fabrication ou de provenance canadienne et vendues au Canada, cette taxe d'accise est exigible du fabricant ou du producteur au moment de la livraison de ces marchandises à leur acheteur.

[8]                 Gasoline, both leaded and unleaded, and aviation gasoline, once again both leaded and unleaded, are goods mentioned in Schedule I to the Act. Section 9^[4] of that schedule reads as follows:

9. (a) Unleaded gasoline and unleaded aviation gasoline,_$0.10 per litre.

(b) Leaded gasoline and leaded aviation gasoline,_$0.11 per litre.

9. a) Essence sans plomb et essence d'aviation sans plomb, 0,10_$ le litre;

b) Essence avec plomb et essence d'aviation avec plomb, 0,11_$ le litre.

[9]                 "Gasoline" is a term defined by ss. 2(1) of the Act. The opening words of subsection 2(1) and the definition "gasoline" in that subsection read as follows^[5]:

2. (1) The following definitions apply in this section, Parts I to VIII (other than section 121) and Schedules I to IV:

"gasoline" means gasoline type fuels for use in internal combustion engines other than aircraft engines;                                                                                                                                       [emphasis added]

2. (1) Les définitions qui suivent s'appliquent au présent article, aux parties I à VIII (sauf l'article 121) et aux annexes I à IV.

« essence » Les carburants du genre de l'essence utilisés dans les moteurs à combustion interne autre que les moteurs d'aéronefs.                                                                                                            [je souligne]

[10]            For purposes of contrast, the definition "diesel fuel" in subsection 2(1) of the Act is reproduced here^[6]:

"diesel fuel" includes any fuel oil that is suitable for use in internal combustion engines of the compression-ignition type, other than any such fuel oil that is intended for use and is actually used as heating oil;                                                                                                                               [emphasis added]

« combustible diesel » S'entend notamment de toute huile combustible qui peut être utilisée dans les moteurs à combustion interne de type allumage par compression, à l'exception de toute huile combustible destinée à être utilisée et utilisée de fait comme huile à chauffage.                                                                                                       [je souligne]

[11]            It is to be noted that while "gasoline" is defined to "mean" gasoline as defined, "diesel fuel" is defined to "include" what is provided in the definition. By the use of "means" in the definition "gasoline", in contrast to the word "includes", the Act limits the gasoline-type fuels subject to excise tax to those gasoline-type fuels for use in internal combustion engines other than aircraft engines. In Nova, an Alberta Corp. v. Amoco Canada Petroleum Co.^[7], Mr. Justice Estey, for the Court, wrote at page 460:

I am satisfied that the same might be said in respect of words following the word "including" as in the definition "diesel fuel".

[12]            It is also to be noted that the definition "diesel fuel" incorporates the words "suitable for use" and "intended for use and is actually used" rather than the words "for use" that form part of the definition "gasoline". I will comment briefly on these distinctions later in these reasons.

[13]            Finally, it is to be noted that the english version of the definition "gasoline" utilizes the expression "for use" while the equivalent definition in the french version « essence » uses the expression « utilisés » which, in my view, is not identical in its sense to "for use". Once again, I will comment briefly on this distinction later in these reasons.

ANALYSIS

a)         General Principles of Statutory Interpretation and Specific Commentary on Interpretation of the Excise Tax Act

[14]            In Sunoco Inc. v. Canada^[8], my colleague Justice Lemieux, in the context of an Excise Tax Act matter, commented extensively on the subject of statutory construction, both generally and specifically. I can do no better than to quote paragraphs [13] to [15] of his reasons:

In Rizzo & Rizzo Shoes Ltd. (Bankrupt), (Re), [1998] 1 S.C.R. 27, ... Iabobucci J., at pages 40-41, speaks to the relevant principle of statutory construction with respect to interpreting legislative dispositions:

"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 (3^rd Ed. 1994) (hereinafter Construction of Statutes"); Pierre-André Coté, The Interpretation of Legislation in Canada (2^nd Ed. (1991)), Elmer Driedger in Construction of Statutes (2^nd 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.'

                                                                . . .

"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'.

"Although the Court of Appeal looked to the plain meaning of the specific provisions in question in the present case, with respect, I believe that the court did not pay sufficient attention to the scheme of the ESA, its object or the intention of the legislature; nor was the context of the words in issue appropriately recognized. I now turn to a discussion of these issues."

I take the following principle of statutory interpretation from the Supreme Court of Canada's decision in Minister of National Revenue v. Shell Canada Ltd., [1999] 3 S.C.R. 622; ..., when dealing with a taxing statute such as the Income Tax Act (and I add the Excise Tax Act) which was before that Court. McLachlin, J., as she then was, made the following points:

      "[40] Second, it is well established in this Court's tax jurisprudence that a searching inquiry for either the 'economic realities' of a particular transaction or the general object and spirit of the provision at issue can never supplant a court's duty to apply an unambiguous provision of the Act to a taxpayer's transaction. Where the provision at issue is clear and unambiguous, its terms must simply be applied... .

                                                                . . .

"[43] ... courts must therefore be cautious before finding within the clear provisions of the Act an unexpressed legislative intention: ... under the guise of purposive interpretation runs the risk of upsetting the balance Parliament has attempted to strike.

"[45] The Court's role is to interpret and apply the Act as it was adopted by Parliament." (emphasis mine)

With specific respect to interpreting the ETA, I share the view of Malone J.A. in RJR-MacDonald v. Minister of National Revenue (Customs and Excise), (2000), 265 N.R. 383 (F.C.A.), where he states:

"[5]          Other panels of this Court have struggled with interpreting the provisions of the Excise Tax Act which has been the subject of numerous amendments. Those difficulties were recently identified by my colleague Dècary, J.A. in the following words:

'When dealing with...piecemeal legislation such as the Excise Tax Act,...which, unlike, for example, the Income tax Act, has no coherent structure and contains no basic rules to start with and which is amended on a routine basis to accommodate or redress specific situations in a constantly evolving commercial reality, the Court should be reluctant to compare microscopically the words of provisions devised at different times and in a different context and meant to address distinct concerns.'

"[6]         I share that reluctance given the Byzantine history of Parts III and VI of the Act, and the changing administrative policies advanced by the Department since 1935. My task then is to interpret the meaning of the words used in subsections 23 (1), (2) and (10) and their interrelationship so as to ascertain the true intention of Parliament."

(emphasis mine)                                                    [some citations omitted]

I adopt the foregoing words of Justice Lemieux and those he relies on as my own.

b)         Reliance on Parliamentary History

[15]            In R. v. Morgentaler^[9], Justice Sopinka for the Court, commented on the use of extrinsic materials in interpreting legislation. He wrote at pp. 483-4:

In determining the background, context and purpose of challenged legislation, the Court is entitled to refer to extrinsic evidence of various kinds provided it is relevant and not inherently unreliable: ... . This clearly includes related legislation ..., and evidence of the "mischief" at which the legislation is directed... . It also includes legislative history, in the sense of the events that occurred during the drafting and enactment: as Ritchie, J., concurring in Reference re Anti-Inflation Act,..., wrote..., it is "not only permissible but essential" to consider the material the legislature had before it when the statute was enacted.

       [citations and some text omitted]

c)         The Interpretation of the Definition "Gasoline"

[16]            As is evident from the Agreed Statement of Facts quoted earlier in these reasons, it was not in dispute before me that the plaintiff is a manufacturer or producer of gasoline. It was equally not in dispute that the plaintiff sold gasoline that it produced in Canada to IPL which used the gasoline that it purchased from the plaintiff as a solvent and not in an internal combustion engine. Thus, the dispute before me turned essentially on the meaning of the words "for use" in the definition "gasoline", and in the equivalent french language definition, « utilisés » .   

[17]            Counsel for the plaintiff urged that "for use" should be interpreted by reference to the intention of the parties at the time of sale and purchase which intention could in part be determined by the eventual end use to which the gasoline was put. Put another way, the purchaser's end use of the gasoline would provide evidence as to the intent of the parties at the time of sale and purchase. Thus, "for use" would be interpreted as meaning much the same as the words "intended for use and is actually used" in the definition "diesel fuel". While not urged before me, I am satisfied that this interpretation is more consistent than any other with the french language version of the definition "gasoline".

[18]            Counsel for the defendant, by contrast, urged that "for use" should be interpreted as the equivalent of "capable of use" at the time of sale and purchase. This argument comes perilously close, in my view, to suggesting that the words "for use" in the definition "gasoline" have essentially the same meaning as the words "suitable for use" in the definition "diesel fuel", a proposition with which I have great difficulty.

[19]              Although I am cognizant that this Court "...should be reluctant to compare microscopically the words of provisions in the Act, I am satisfied that, in this case, had Parliament intended that the words "for use" mean essentially the same thing as "suitable for use" or "capable of use" or "intended for use and is actually used", it would have used the same words in the two definitions "gasoline" and "diesel fuel". I reach this conclusion notwithstanding that, against the words of Malone J.A. as adopted by Lemieux J. and thus by me, this view may be overly optimistic in the context of the Excise Tax Act.

[20]            Counsel referred me to only one authority that I found helpful in interpreting the concept "for use" in the definition "gasoline" in the Act. In The Deputy Minister of National Revenue for Customs and Excise v. Steel Company of Canada Limited^[10], the Court of Appeal had before it the task of interpreting, in the context of the Excise Tax Act, the following:

• (a)            machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in
•                  (i) the manufacture or production of goods.
• ...
• ...                                                                                                             [emphasis added]
• Justice Heald, for the Court, wrote at page 5303:
• The expression 'for use' clearly envisages, in my view, that the question of liability for an exemption from sales tax is to be answered before the goods are utilized.

I reach the same conclusion here.

[21]            I find references to legislative history from the time when the excise tax here at issue, along with the definition "gasoline", were introduced into the Act to be quite unhelpful. In his speech entitled "Financial Statement of

the Minister of Finance" on the budget, in the House of Commons, on the 23^rd of June, 1975, the Minister of Finance stated:

I therefore propose, effective tonight, a special excise tax on gasoline for personal use. The tax will be at a rate of 10 cents per gallon. It will be imposed on the producer or importer of gasoline in a manner similar to the general 12-per-cent manufacturer's sales tax. Provision will be made, however, to refund the full amount of the tax on gasoline used for farming, fishing, construction, mining and most commercial transportation. Refunds of the tax to such users will be provided on the basis of certificates supported by receipts submitted to Revenue Canada.^[11]

[22]            In a document entitled, "Budget Highlights and Supplementary Information, Monday, June 23, 1975", apparently published by the Department of Finance^[12], under the heading "Special Excise Tax on Gasoline", the following statements appear:

• Because the tax will be paid by the producer of gasoline before it is sold by retailers to consumers, refunds on purchases of gasoline for other purposes will be provided through refund claims supported by receipts submitted to the Department of National Revenue. ...
• ...
• Gasoline purchasers from the commercial, industrial, resource and government sectors will be able to recover the tax.
• ...

[23]            As I have said, I find the foregoing quotations from the legislative history that is relevant to this matter, along with other references to which counsel referred me, to be quite unhelpful. The only thing I draw from them is this: it is clear that the Minister of Finance, and through him, eventually Parliament, intended that the special excise tax on gasoline payable at the time of sale, that being the tax here at issue, would, in certain circumstances, be refundable. It is an application for just such a refund and the rejection of that application that is here at issue.

[24]            The Agreed Statement of Facts that is recorded earlier in these reasons includes the following paragraph:

[25]            I take the foregoing paragraph as an agreement between the Plaintiff and the Defendant that, at the time of the sales of gasoline in question, the parties to those sales understood the sales to be of gasoline for use other than in internal combustion engines. The same Agreed Statement of Facts indicates agreement between the Plaintiff and the Defendant that Interprovincial Pipe Line Inc. did not use the gasoline so purchased in an internal combustion engine or engines. I am satisfied that those agreed facts are determinative.

[26]            As Justice Heald noted in Steel Company^[13], the expression "for use" clearly envisages a determination, not at the time of production of the gasoline, and not at the time of end use, but rather "before the goods are utilized". On the facts of this matter, I determine that time to be the time of sale and purchase. That the intent of the vendor and the purchaser at that time was that the gasoline be utilized other than in internal combustion engines is strengthened by the foregoing acknowledgments reflected in the Agreed Statement of Facts.

CONCLUSION

[27]            I repeat here the question of law that is before the Court for determination:

[28]            On the agreed facts underlying this matter, and based upon the foregoing brief analysis, I conclude that the foregoing question must be answered in the negative. That being said, there is no question that the Plaintiff followed the appropriate procedure under section 23 of the Act in paying the tax and subsequently applying for a refund. I am satisfied that the determination by the Defendant to refuse to provide the refund sought, is contrary to law.

[29]            Based upon the answer that I have determined to provide to the issue question before me, the Plaintiffs will succeed in their action giving rise to the issue question before me. The substantive reliefs that the Plaintiffs seeks in that action will be provided by judgment.

COSTS

[30]            At the close of the hearing before me, it was noted that both the Plaintiff and the Defendant seek costs of the action. Counsel agreed before me that it would be appropriate that costs follow the event. Neither counsel suggested special circumstances that would warrant an award of costs above or below the norm. In the result, the judgment herein will provide that the Plaintiff shall have its costs of this action assessed in accordance with Column III of the table to Tariff B to the Federal Court Rules, 1998.

   J.F.C.C.

Ottawa, Ontario

December 19, 2002

                                       FEDERAL COURT OF CANADA

                                                    TRIAL DIVISION

                 NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                 T-1956-01

STYLE OF CAUSE: SHELL CANADA PRODUCTS LIMITED v.

HER MAJESTY THE QUEEN

PLACE OF HEARING:         Calgary, Alberta                                    

REASONS FOR ORDER : GIBSON J.

DATED:                                   December 19, 2002

APPEARANCES:

Mr. H. George McKenzie, Q.C.                         FOR THE APPLICANT

Calgary, Alberta

Derek Rasmussen                                               FOR THE RESPONDENT

Department of Justice

Ottawa, Ontario

SOLICITORS OF RECORD:

H. George McKenzie, Q.C.                                FOR THE APPLICANT

FELESKY FLYNN LLP

3400,350 - 7^th Avenue S.W.

Calgary, Alberta

T2P 3N9 (403) 260-3303

Derek Rasmussen                                                 FOR THE RESPONDENT

Department of Justice

Civil Litigation Section

284 Wellington Street 2^nd Floor

K1A OH8

(613) 641-7330