Price (Nfld.) Pulp & Paper Ltd. v. The Queen, [1977] 2 SCR 36

Supreme Court of Canada

Price (Nfld.) Pulp & Paper Ltd. v. The Queen, [1977] 2 S.C.R. 36

Date: 1976-10-05

Price (Nfld.) Pulp & Paper Limited Appellant;

and

The Queen Respondent.

The Price Company Limited Appellant;

and

The Queen Respondent.

1976: June 24, 25; 1976: October 5.

Present: Laskin C.J. and Judson, Spence, Pigeon and de Grandpré JJ.

ON APPEAL FROM THE FEDERAL COURT OF APPEAL

Sales tax—Machinery—Purchase under instalment contract—Tax payable with instalments—Machinery subsequently exempt from tax—No right to recover tax already paid—Excise Tax Act, R.S.C. 1952, c. 100, s. 30 as amended.

The appeals raised the following question: If machinery, to be delivered in a knocked down condition and purchased under a conditional sale contract, become exempt from sales tax before delivery and installation are complete and before all instalment payments have been made, is the tax paid in respect of instalments up to the time of exemption recoverable? The Federal Court of appeal affirmed the judgments at trial that the tax was not recoverable.

Held: The appeals should be dismissed.

The answer to the question depends on the construction of s. 30(1)(a) (ii) of the Excise Tax Act, R.S.C. 1952, c. 100, as amended. The section makes clear that where a conditional sales contract is concerned the tax is payable by the producer or manufacturer pro tanto when each instalment becomes payable. The tax, proportioned to each instalment of the purchase price, is due and payable when the instalment is payable, and is exigible and final.

R. v. Dominion Engineering Co. Ltd., [1944] S.C.R. 371, aff’d. [1947] 1 D.L.R. 1; Steel Co. of Canada v. The Queen, [1955] S.C.R. 161, referred to.

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APPEALS from a judgment of the Federal Court of Appeal[1] affirming a judgment of Kerr J. at trial[2]. Appeal dismissed.

Gordon F. Henderson, Q.C., and George Hynna, for the appellants.

D.H. Aylen, Q.C., and D.F. Friesen, for the respondent.

The judgment of the Court was delivered by

THE CHIEF JUSTICE—These two appeals raise the same primary question and it is this. If machinery (here a newsprint machine), to be delivered in a knocked down condition and purchased under a contract providing that title will pass only when all instalments of purchase price are paid, becomes exempt from sales tax before delivery and installation are complete and before all instalment payments have been made, is the amount of the tax paid in respect of instalments of the price up to the time of exemption recoverable from the Crown? The answer to this question depends on the construction of s. 30(1)(a)(ii) of the Excise Tax act, R.S.C. 1952, c. 100, as amended.

Apart from the fact that the newsprint machine purchased by Price (Nfld.) Pulp and Paper Limited was destined for Grand Falls, Newfoundland, and the newsprint machine purchased by the Price Company Limited was destined for Alma, Quebec, and that the contracts were concluded on different dates and provided for different numbers and amounts of instalment payments, the issues raised in the two petitions of right brought by the suppliants were the same. The two cases were tried together by Kerr J. who held that the amounts of tax paid up to the time the machines became exempt were not recoverable. His judgments were affirmed by the Federal Court of Appeal in reasons delivered by Thurlow J., as he then was.

A second, a subsidiary question arises if the tax payments are recoverable, and it is whether the appellant purchasers, to whom the tax was passed on by the manufacturer of the machinery, are

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entitled to claim recovery in their own names, although the tax payments were made by the manufacturer to whom they were first remitted by the purchasers along with instalment payments on the purchase price. Kerr J. held that only the person who paid the tax to the Crown had standing to recover the payments and the Federal Court of Appeal was of the same view, adding that it could not be said that as against the Crown the appellants were the owners of the money received from the manufacturer as payments of the tax.

I set out s. 30(1)(a)(i) and (ii) of the Excise Tax Act as it stood when the contracts of sale were made. It was in these terms:

30. (1) There shall be imposed, levied and collected a consumption or sales tax of eight per cent on the sale price of all goods

(a) produced or manufactured in Canada

(i) payable, in any case other than a case mentioned in subparagraph (ii), by the producer or manufacturer at the time when the goods are delivered to the purchaser or at the time when the property in the goods passes, whichever is the earlier, and

(ii) payable, in a case where the contract for the sale of the goods (including a hire-purchase contract and any other contract under which property in the goods passes upon satisfaction of a condition) provides that the sale price or other consideration shall be paid to the manufacturer or producer by instalments (whether the contract provides that the goods are to be delivered or property in the goods is to pass before or after payment of any or all instalments), by the producer or manufacturer pro tanto at the time each of the instalments becomes payable in accordance with the terms of the contract;

…

At the time the exemption from tax became effective, which was June 2, 1967, s. 30(1)(a) included an amendment made by 1966-67 (Can.), c. 40 which qualified s. 30(1)(a)(i) by adding a subpara. (iii) to s. 30(1)(a). Hence the tax payable under s. 30(1)(a)(i) was thereafter payable “in any case other than a case mentioned in subpara. (ii) or (iii)”. This change by 1966-67 (Can.), c. 40, is not material to the determination of the principal

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question in these appeals. The tax was raised to nine per cent by 1966-67 (Can.), c. 79 (and later reduced again to eight per cent) but this too has no bearing on these appeals.

The position of the appellants on the main point is that the tax imposed by s. 30 is a sales tax dependent for its ultimate exigibility on the passing of title to the machinery; and unless the taxing statute “deems” the instalment payments of the price to be separate sales, carrying tax liability with them, there is no tax liability if the machinery has become exempt before title has passed or, if for any other reason, there is no completed sale. Reliance is placed by the appellants on R. v. Dominion Engineering Co. Ltd.[3], and especially on the majority reasons of Rand J., at p. 376. A second judgment of this Court invoked by the appellants is Steel Co. of Canada Ltd. v. The Queen[4].

At the time that the Dominion Engineering Co. case was decided, the taxing provision which was the predecessor of s. 30(1)(a) was s. 86(1)(a) of the Special War Revenue Act, R.S.C. 1927, c. 179, as enacted by 1936 (Can.), c. 45, s. 5. So far as relevant, this provision was as follows:

86. (1) There shall be imposed, levied and collected a consumption or sales tax of eight per cent on the sale price of all goods,—

(a) produced or manufactured in Canada, payable by the producer or manufacturer at the time of the delivery of such goods to the purchaser thereof.

Provided that in the case of any contract for the sale of goods wherein it is provided that the sale price shall be paid to the manufacturer or producer by instalments as the work progresses, or under any form of conditional sales agreement, contract of hire-purchase or any form of contract whereby the property in the goods sold does not pass to the purchaser thereof until a future date, notwithstanding partial payment by instalments, the said tax shall be payable pro tanto at the time each of such instalments falls due and becomes payable in accordance with the terms of the contract, and all such transactions shall for the purposes of this section, be regarded as sales and deliveries.

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Provided further that in any case where there is no physical delivery of the goods by the manufacturer or producer, the said tax shall be payable when the property in the said goods passes to the purchaser thereof.

…

Following the judgments in the Dominion Engineering Co. case, s. 86(1)(a) was repealed by 1947 (Can.), c. 60, s. 14 and replaced by the provision which became s. 30(1)(a) of the Excise Tax Act, R.S.C. 1952, c. 100.

There are two substantial changes in the formulation of the taxing provisions under s. 30(1)(a)(i) and (ii) as compared with their predecessor s. 86(1)(a). These changes are in the deletion of two clauses which appeared in s. 86(1)(a). It will be noticed that s. 86(1), in its para. (a), combined provisions (1) for a tax on goods, payable at the time of delivery, and (2) for a tax on goods which were purchased under a conditional sale contract. In respect of conditional sale purchases, there was a concluding clause that “all such transactions shall for the purposes of this section be regarded as sales and deliveries”. This clause does not appear in s. 30(1)(a)(ii). In respect of sales generally, completed by delivery, and sales under conditional sale agreements there was a proviso in s. 86(1)(a) covering both; I reproduce it again, as follows:

Provided further that in any case where there is no physical delivery of the goods by the manufacturer or producer, the said tax shall be payable when the property in the said goods passes to the purchaser thereof.

This clause too does not appear in the substituted s. 30(1)(a)(ii).

Counsel for the appellants takes comfort in the exclusion of the first-mentioned clause from s. 30(1)(a)(ii), and counsel for the respondent comfort in the exclusion of the proviso above‑quoted. Both counsel rely on the same passage in the reasons of Rand J. in the Dominion Engineering Co. case, which is as follows (at p. 376):

Although the section declares the “transaction” to be a constructive sale and delivery, the fundamental support of the tax is an executory contract leading to the transfer of title and possession. That contract is con-

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ceived as a potential sale to which in turn is related a potential total tax: “the tax shall be payable”. Pro tanto portions of the tax are related to instalments of price and, when the latter become payable as parts of a whole, the right to the tax takes on the same character: but throughout, the tax depends for its efficacy upon the maturing contract. For the total tax there is only an inchoate liability created by the making of the agreement: and to sustain the right to the tax, the instalment become payable must remain an obligation of an executory contract.

The legal liability at any time for any portion of the tax in no degree restricts the parties in good faith from modifying the contract as they see fit, and a fortiori it does not prevent a modification by operation of law. If, in the legal result, the actual transaction ceases to be one of sale, then the necessary support for the tax disappears. That result, at least where the termination of the contract does not effect a total rescission, will not affect the right to taxes on any portion of the price paid to the seller nor does it touch those that have been collected or reduced to judgment by the Crown.

That case involved a conditional sale of a pulp-drying machine to be built to certain specifications, the price to be paid in nine instalments and title to pass when the full price was paid. After six instalments had been paid, and as well the tax related to each of them, the purchaser went bankrupt and work on the machine stopped. There was, indeed, no delivery of the machine to the purchaser. The Crown sued for the tax payable on the last three unpaid instalments. Its claim was denied by the Exchequer Court, by this Court, and by the Privy Council.

Hudson J. in this Court, in a concurring judgment, based his conclusion against the Crown squarely on the proviso in s. 86(1)(a) that where there was no physical delivery the tax was payable when title passed. The Privy Council affirmed on this ground. Neither this Court nor the Privy Council was called upon to determine whether the tax already paid was recoverable. The Privy Council may have given some hope to a taxpayer in this connection by saying that “the result of their view

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may lead to anomalies”, and then adding that “it would indeed have absolved the Dominion Company from liability to pay sales tax on the six instalments which they in fact received and on which they paid tax” ([1947] 1 D.L.R. 1, at p. 5).

It is plain to me, from a comparison of s. 86(1)(a) and s. 30(1)(a)(i)(ii), that there has been a legislative reformulation of the incidence of the sales tax on the sale price of goods by dealing separately with the situations where delivery is made or title passes and where goods are purchased under an instalment contract with title deferred until the price is paid in full. The proviso to s. 86(1)(a), which determined the result in the Dominion Engineering Co. case for both Hudson J. and for the Privy Council, became, in substance, part of s. 30(1)(a)(i) and no longer related to the tax position under a conditional sale agreement. However, the former provision making instalment transactions sales and deliveries was not made part of s. 30(1)(a)(ii). It is found in another context in s. 31(1) of the Excise Tax Act.

Counsel for the appellant emphasized the absence of this “deeming” clause (as he called it) from s. 30(1)(a)(ii) in support of his more general contention that s. 30(1)(a) imposes a sales tax, that payments made before title passes are contingent payments, that the tax imposed is a total tax and (quoting Rand J., supra) “for the total tax there is only an inchoate liability created by the making of the [conditional sale] agreement”. In short, it is urged that since (as shown by the Dominion Engineering Co. case) the Crown cannot claim tax on instalments no longer payable because no longer an obligation of an executory contract, it cannot keep tax paid under instalments in respect of goods which have become exempt before title has passed. Of course, to apply the

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words of Rand J. strictly, the instalments in the present case are continuing obligations of an executory contract, and to this extent the parallel with the Dominion Engineering Co. case disappears.

Steel Co. of Canada Ltd. v. The Queen, supra, is of no direct assistance here. It did not deal with a purchase under a conditional sale contract, but with a contract of sale to Western Canada purchasers of unascertained goods, sold F.O.B. Head of the Lakes, and the question was whether there had been physical delivery of the goods or whether title had passed when the goods were destroyed by fire while in the carrier’s possession in Montreal. It was in this context that the language of Locke J. must be viewed when he said (at pp. 169-170):

The tax is a sales tax and not a tax upon contracts of sale not carried out. Liability does not, in my opinion, attach unless and until the goods sold are delivered or the property in them passes to the purchaser and the latter becomes liable to payment of the purchase price.

I am unable to agree that the appellants can sustain their contention, either in terms of history surrounding s. 30(1)(a)(ii) or under its provisions taken alone, that the sales tax under s. 30(1)(a)(ii) is only contingently exigible until title has passed, at which time the tax liability is finally fixed. There is found in s. 30(1)(a)(ii) bracketed words which were not found in s. 86(1)(a) in the same terms, and they are as follows:

(whether the contract provides that the goods are to be delivered or property in the goods is to pass before or after payment of any or all instalments)

It is clear to me that where a conditional sale contract is concerned the tax is payable, pro tanto as the subparagraph says, when each instalment becomes payable, and liability for the tax is fixed

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accordingly irrespective of delivery and irrespective of when title passes. The tax, proportioned to each instalment of the purchase price, is due and payable when any instalment is payable and is, to that extent, exigible and final.

For the foregoing reasons, I conclude that the taxes paid on the instalments of purchase price are not recoverable by reasons of the machinery subsequently becoming exempt from tax. It is unnecessary, therefore, to deal with the subsidiary point respecting the appellants’ standing to claim recovery. I would leave this point open for consideration in a case that calls for a conclusion upon it.

I would dismiss the appeals with costs.

Appeals dismissed with costs.

Solicitors for the appelants: Gowling & Henderson, Ottawa.

Solicitor for the respondent: D.S. Thorson, Ottawa.