Date: 19990114
Docket: T-2387-92
BETWEEN:
SUNTECH OPTICS INC.
Plaintiff
- and -
HER MAJESTY THE QUEEN
Defendant
REASONS FOR JUDGMENT
TEITELBAUM, J.
INTRODUCTION
[1] This is an appeal of a decision, dated June 2, 1992, of the Canadian International Trade Tribunal that sunglasses sold by the plaintiff are not exempt from federal sales tax.
FACTS
[2] The plaintiff, a corporation under the laws of British Columbia, carries on the business of importing and distributing non-prescription sunglasses. The sunglasses provide protection from ultraviolet light. The plaintiff imported about 200 different styles of sunglasses into Canada during the relevant period, that is, August 26, 1988 to July 20, 1990. During that time, the plaintiff paid federal sales tax (FST) in respect of the imported sunglasses pursuant to section 50 of the Excise Tax Act, R.S.C. 1985, c. E-15 (ETA) and in accordance with Revenue Canada, Customs and Excise's administrative policy.
[3] On August 22, 1990, the plaintiff filed a refund claim for a refund of $504,131.41 in FST that it paid on sunglasses imported from August 26, 1988 to July 20, 1990. The plaintiff's position was that the sunglasses were FST exempt when imported under section 1 of Part XV of Schedule III to the ETA and the applicable Clothing and Footwear Determination Regulations, SOR/84-247 (the Regulations).
[4] The Minister of National Revenue issued a Notice of Determination on September 28, 1990, indicating that the sunglasses were not FST exempt. The plaintiff filed a Notice of Objection on December 19, 1990, but the Minister confirmed the Notice of Determination by issuing a Notice of Decision on May 14, 1991.
[5] The plaintiff appealed the Minister's Notice of Decision to the Canadian International Trade Tribunal but this appeal was dismissed on June 2, 1992.
[6] As a result, the plaintiff initiated this appeal to the Federal Court under sections 81.24 and 81.28 of the ETA and section 48 of the Federal Court Act, R.S.C. 1985, c. F-7.
RELEVANT STATUTORY PROVISIONS
[7] Section 1 of Part XV of Schedule III to the ETA provides an exemption for:
| 1. Clothing and footwear, including articles and materials for incorporation in home or commercial production thereof, as the Governor in Council may determine by regulation.
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1. Vêtements et chaussures, y compris les articles et les matières devant être incorporés dans leur production domestique ou commerciale, que le gouverneur en conseil peut déterminer par règlement.
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[8] Section 2 of the Clothing and Footwear Determination Regulations states:
| 2. For the purposes of Part XV of Schedule III to the Excise Tax Act, it is determined that clothing and footwear includes |
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| (f) headwear such as balaclavas, cap covers, caps, ear muffs, hats, hoods, knitted headwear, night caps, rain bonnets, shower caps, toques, uniform hats and caps, |
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| (k) miscellaneous clothing and accessories such as bathrobes, bathing suits, beach wear, belts, dusters, garter belts, gloves, house coats, mitts, neckties, night gowns, pyjamas, scarves, smoking jackets and suspenders, |
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...
| (q) goods that are for use with clothing and footwear such as crowns, equipment carrying harnesses, handbags, pennants, purses, sceptres, shields, umbrellas, wallets and other garnishments used as trimmings for clothing and footwear. |
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SUBMISSIONS
1. The Plaintiff's Submissions
[9] The plaintiff argues that the sunglasses constitute exempt clothing under section 1 of Part XV of Schedule III to the ETA and the Regulations because they fall within the plain and ordinary meaning of clothing.
[10] In the alternative, the plaintiff claims that the sunglasses constitute exempt clothing under section 1 of Part XV of Schedule III to the ETA and the Regulations because they are specifically described in either or both of paragraphs 2(f) and 2(k) of the Regulations as "headwear" or "miscellaneous clothing and accessories."
[11] Finally, the plaintiff submits that the sunglasses are not excluded from exemption by paragraph 2(q) of the Regulations since sunglasses are not goods "for use with clothing and footwear".
2. The Defendant's Submissions
[12] The defendant's position is simply the exact opposite of the plaintiff"s submissions outlined above.
DISCUSSION
[13] The issue is statutory interpretation to determine whether sunglasses, when properly characterized, are subject to FST under the ETA and the Regulations. This requires a two-stage process: first, one must interpret the statutory provision; second, one must determine whether the evidence establishes that the sunglasses fall within the scope of the provision.
[14] It is a well-established principle that taxation statutes are to be interpreted according to the normal rules of interpretation for any other legislation ([1984] 1 S.C.R. 536">Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536). This suggests that words are to be given their ordinary meaning, while keeping in mind the context, scheme and object of the enactment with a view to its intent.
[15] "Sunglasses" are not defined in the ETA or the Regulations. The Regulations do set out that "clothing and footwear" includes "headwear" and "miscellaneous clothing and accessories" but do not include "goods that are for use with clothing and footwear". Under each heading, particular examples of clothing and footwear are provided but, as I noted, sunglasses are not mentioned.
[16] In determining the ordinary meaning, reference may be had to dictionary definitions. Relevant definitions from Webster"s Third New International Dictionary are set out below:
| clothing: covering for the human body or garments in general: all the garments and accessories worn by a person at any one time |
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| headwear: apparel for the head |
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| sunglasses: glasses used to protect the eyes from the sun |
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| accessory: any of various articles of apparel (as a scarf, belt, or piece of jewelry) that accent or otherwise complete one's costume |
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| apparel: a person's clothing |
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[17] It appears that the question at issue is whether sunglasses can be termed an accessory or, in the words of section 2 of the Regulations, a good that is for use with clothing and accessories.
[18] Plaintiff called Harold Atkinson as a witness. He was, during the relevant period, Sales Manager for Eastern Canada for the plaintiff company. He is now Sales & Marketing Manager for Eastern Canada.
[19] The plaintiff also called Dr. Keith Slater as a witness. Plaintiff wanted to have Dr. Slater give evidence, as an expert, on clothing. Counsel for defendant objected saying Dr. Slater may be an expert in textile engineering "or even in material science perhaps as it deals with science" but that his qualifications do not qualify Dr. Slater as an expert on clothing in general.
[20] After both counsel questioned Dr. Slater on his curriculum vitae (see Tab 1, Slater"s report) and on his qualifications generally and after both counsel made submissions, I decided that I could not accept Dr. Slater as an expert on clothing. I have no doubt, from reading Dr. Slater"s c.v., that he is well qualified as an expert on textiles and entitled to give expert evidence on textile engineering. In the Agreed Statement of Facts, it is agreed that sunglasses are not textiles and therefore cannot be so classified. Therefore, I could not accept Dr. Slater"s evidence as that of an expert on clothing.
[21] Dr. Slater was not asked to give any evidence.
[22] After Dr. Slater"s departure, the parties agreed to file, as an exhibit, a videotape filed as Exhibit P-3B which is the videotape that goes with the transcript filed as Exhibit P-3A.
[23] After viewing the videotape and reading the transcript of the videotape, I am satisfied that sunglasses are part of today"s fashion. From what is contained in the tape, I cannot accept that because sunglasses can make a "major fashion statement" that one can conclude that "sunglasses" can be considered as "clothing" and this because clothing can also make a "major fashion statement".
[24] It is interesting to note that at no time does Robert Marc, a designer of sunglasses, speak of sunglasses as "clothing". He only speaks of sunglasses, in the videotape, as a fashion accessory.
[25] Harold Atkinson is the main witness for plaintiff. After listening to Mr. Atkinson, I accept his evidence as someone fully knowledgeable of the sunglass industry and its importance to the fashion industry.
[26] As previously stated, during the period in issue, August 26, 1988 to July 20, 1990, Mr. Atkinson was Sales Manager for Eastern Canada for plaintiff company. At the time of the hearing of the case at bar, he was Sales and Marketing Manager for Eastern Canada. His evidence is that plaintiff sells its sunglasses, in the main, to drugstores who, in turn, retail the sunglasses to the public. That plaintiff purchases its sunglasses outside of Canada and that what is purchased is based on "what"s going on in the fashion business and react to that".
[27] After listening to this witness and after reviewing the testimony and exhibits filed by this witness, I am prepared to make the following conclusions:
| 1) that plaintiff purchases and sells sunglasses |
| 2) that plaintiff has expert employees designing sunglasses |
| 3) that plaintiff"s employees, in designing sunglasses for a particular season, work very closely with the clothing fashion industry |
| 4) that sunglasses may compliment what a person may be wearing |
| 5) That to continually "be in fashion", the plaintiff changes 75 to 80% of its styles each year to follow the fashion trends |
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| 6) that plaintiff attempts to design "celebrity" sunglasses as it too becomes part of fashion (see Exhibits P-2A and P-2B. |
[1] This witness also gave extensive evidence on the distribution of plaintiff"s sunglasses. He states that approximately 80% of plaintiff"s sunglasses are distributed (sold to the public) in drugstores. Mr. Atkinson introduced Exhibits P-1F to P-1R which are pictures taken by the witness showing where plaintiff"s sunglasses are sold and some pictures showing where plaintiff"s competitors sell their sunglasses. This all to show that sunglasses are part of fashion and sold, in many instances, in clothing accessory departments.
[2] Mr. Atkinson also gave evidence that in addition to purchasing sunglasses for fashion, they are also purchased to protect the eyes from ultraviolet rays and from light in general (glare).
[3] It is interesting to note that in addition to selling 80% of its sunglasses to drugstores, I believe stores that are not noted for their fashion wear, the plaintiff sells the 20% balance to "Canadian Tire stores" and to "some boutiques; we sell to some tourist traps, for want of a better description". Other than to "some boutiques", plaintiff does not appear to sell their sunglasses to stores featuring "clothing fashion".
[4] I think it important for this decision to state the following from the Partial Agreed Statement of Facts which corroborates much of what Mr. Atkinson stated in his evidence except for the sale of plaintiff"s sunglasses in department stores.
| The Sunglasses are worn on the head and equipped with qualities which protect the eye by blocking out certain bands of ultra-violet (ie., "UV") light from the colour spectrum. Approximately 200 different styles of Sunglasses were imported into Canada by the Plaintiff during the relevant period, each style varying in colour, size and shape. |
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| At all material times, the Plaintiff paid federal sales tax ("FST") in respect of the imported Sunglasses pursuant to section 50 of the Excise Tax Act (the "ETA"), and in accordance with Revenue Canada, Customs and Excise"s administrative policy. |
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| On August 22, 1990, the Plaintiff filed Refund Claim No. 224049 (the "Refund Claim"), claiming a refund of $504 131.41 in FST it paid on Sunglasses imported by it during the period from August 26, 1988 to July 22, 1990 (the "Period"). |
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| The basis for the Plaintiff"s Refund claim was the Plaintiff"s position that the Sunglasses were FST exempt when imported, under section 1 of Part XV of Schedule III to the ETA ("Section 1"), and the applicable Clothing and Footwear Determination Regulations (the "Regulations"). |
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| Minister of National Revenue (the "Minister") disallowed the Refund claim by issuing Notice of Determination PAC 22044 on September 28, 1990, indicating that the Sunglasses were not FST exempt. |
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| The Plaintiff objected to the Notice of Determination by filing a Notice of Objection on December 19, 1990. |
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| The Minister confirmed the Notice of Determination by issuing Notice of Decision 1011326RE on May 14, 1991. |
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| The Plaintiff subsequently appealed the Minister"s Notice of Decision to the Canadian International Trade Tribunal (the "Tribunal"), initiating Appeal No. AP-91-082 with the Tribunal (the "Appeal"). |
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| On June 2, 1992, the Tribunal concluded that the Sunglasses were not FST exempt, and dismissed the Appeal. |
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| The Plaintiff has initiated this appeal to the Court under section 81.24 and 81.28 of the ETA, and section 48 of the Federal Court Act. |
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| THE RELEVANT LEGISLATION (as stated hereinabove) |
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| Section 1 provides an exemption for the following clothing and footwear: |
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| Clothing and footwear, including articles and materials for incorporation in home or commercial production thereof, as the Governor in Council may determine by regulation. |
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| The relevant regulations were promulgated on March 22,1984, and are entitled the Clothing and Footwear Determination Regulations, SOR/84-247. |
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| Section 2 of the Regulations provides, in part, that: |
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| 2. For the purposes of Part XV of Schedule III to the Excise Tax Act, it is determined that clothing and footwear includes |
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| (f) headwear such as balaclavas, cap covers, caps, ear muffs, hats, hoods, knitted headwear, night caps, rain bonnets, shower caps, toques, uniform hats and caps, |
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| (k) miscellaneous clothing and accessories such as bathrobes, bathing suits, beach wear, belts, dusters, garter belts, gloves, house coats, mitts, neckties, night gowns, pyjamas, scarves, smoking jackets and suspenders, |
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...
| (q) goods that are for use with clothing and footwear such as crowns, equipment carrying harnesses, handbags, pennants, purses, sceptres, shields, umbrellas, wallets and other garnishments used as trimmings for clothing and footwear |
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| The Plaintiff says that the Sunglasses constitute exempt clothing pursuant to Section 1 and the Regulations since they fall within the plain and ordinary meaning of the word "clothing". |
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| The Plaintiff also says that if the Sunglasses are not exempt from FST for the reasons stated in paragraph 15, then in the alternative, the Sunglasses constitute exempt clothing for purposes of Section 1 and the Regulations since they are specifically described in either or both of paragraphs 2(f) and 2(k) of the Regulations as "headwear" or "miscellaneous clothing and accessories". |
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| The Plaintiff says that the Sunglasses are not excluded from exemption by paragraph 2(q) of the Regulations since Sunglasses are not goods "for use with clothing and footwear". |
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| The Defendant says that the Sunglasses do not constitute exempt clothing pursuant to Section 1 or the Regulations, since they do not fall within the plain and ordinary meaning of the word "clothing". |
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| The Defendant also says that the Sunglasses do not constitute exempt clothing for the purposes of Section 1 of the Regulations, since they are not specifically described in any of the sub-paragraphs of paragraph 2 of the Regulations, and specifically that sunglasses do not constitute "headwear" or "miscellaneous clothing accessories". |
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| The Defendant also says that the Sunglasses are excluded from exemption by paragraph 2(q) of the Regulations since the Sunglasses are goods "for use with clothing and footwear". |
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| The Plaintiff sells the Sunglasses through a number of distribution channels, including drug stores, food stores, gift stores and department stores. |
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| Generally, sunglasses are worn outdoors, and are not made of textiles. |
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[5] The issue in this appeal is the same issue that was before The Canadian International Trade Tribunal on February 20, 1992, that is, "whether sunglasses are exempt from federal sales tax as being "clothing and footwear" within the meaning of section 1, Part XV, Schedule III to the Excise Tax Act and the Clothing and Footwear Determination Regulations".
[6] Although the evidence is to the effect that sunglasses are a fashion accessory, the evidence does not indicate that because sunglasses can be considered a fashion accessory they would fall under section 2(f) or 2(k), that is, headwear or miscellaneous clothing and accessories such as bathrobes, bathing suits, beach wear, etc.
[7] I think it important to quote Mr. Justice Gibson in the case of Shaklee Canada Inc. v. Canada (1995) 93 F.T.R. 22 at 35 and 36 (paragraph 64) and Mr. Justice Hugessen in the appeal of the Shaklee case (1995) 191 N.R. 227 at 231 (paragraphs 6 and 7).
[8] Mr. Justice Gibson states:
| On the facts before me, I find myself in agreement with the observation of Lord Kilbrandon. I do not find the dictionary definitions that have been cited to me to be very helpful in, to paraphrase in part the quotation from Côté, determining what the person in the street, of at least average intelligence, well-acquainted with the language in which the Excise Tax Act is written, and informed of all the relevant facts, would conclude in this matter. No evidence was before me on this issue. None of the witnesses who appeared before me were qualified to express an opinion in this regard. I therefor rely on my own analysis. |
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[9] Mr. Justice Hugessen states:
| The issue before us is the same as that which was before both the Tribunal and the trial judge, and concerns whether the goods in issue are "food". Resolving this issue is, of course, a matter of statutory interpretation. Courts have developed well-tested rules for interpreting status, many of which appear and reappear in the various cases. One such rule is that the words of a taxing statute must be interpreted in light of all the relevant contextual factors. This is the words-in-total-context approach articulated by MacGuigan, J.A., in Lor-Wes Contracting Ltd. v. Minister of National Revenue (1985), 60 N.R. 321 (F.C.A.). It is a very important rule and has a significant bearing on cases like the present. Another rule, equally important to the present case, is that Parliament is presumed to use words in their ordinary and common meaning (Pfizer Co. v. Deputy Minister of National Revenue for Customs and Excise, [1977] 1 S.C.R. 456">[1977] 1 S.C.R. 456; 6 N.R. 440, at 463 S.C.R., per Pigeon, J.). Professor Côté (P.A. Côté, The Interpretation of Legislation in Canada (2nd Ed. 1991) at p. 219) put this rule as follows: |
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| "As it is presumed that the legislator wishes to be understood by the citizen, the law is deemed to have been drafted in accordance with rules of language in common use." |
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| Statutes are presumed to be written for the people they affect, and courts will strive for interpretations that respect as much as possible this presumption within the constraints of other competing, contextual factors. |
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| The goal of all of these rules is to give effect to Parliament"s intent. To aid this process, courts often refer to dictionaries. They may also consider the testimony given by expert witnesses, or other relevant aids such as academic and government publications. It is important to remember, however, that none of these aids are decisive. In the final analysis, a court must exercise its own judgment in weighing all the relevant factors in the factual and legislative context of the case. |
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[10] I take from what is said in the Shaklee case, supra, that one looks at the taxing statute as a whole to see what it is that Parliament is attempting to do and in doing so, to interpret the words in the statute by giving them their ordinary and common meaning.
[11] With all due respect to the submission made by counsel for the plaintiff, I cannot interpret the sections in the Excise Tax Act and the Clothing and Footwear Determination Regulations dealing with clothing to include sunglasses.
[12] As I have stated, the evidence has convinced me that sunglasses are a fashion accessory. Being a "fashion accessory" does not, in the ordinary sense of the word, make a pair of sunglasses, used to protect the eyes from glare or ultraviolet rays, clothing as clothing is defined in section 1 of Part XV of Schedule III to the Excise Tax Act .
[13] I have read the Reasons for Decision of the Canadian International Trade Tribunal dated June 2, 1992 and state that I agree with the findings of the tribunal.
[14] The present action is dismissed with costs.
"Max M. Teitelbaum"
J.F.C.C.
Ottawa, Ontario
January 14, 1999
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