Date: 20011002
Docket: A-337-00
Neutral Citation: 2001 FCA 279
Coram: DESJARDINS
DÉCARY
NOËL JJ.A.
BETWEEN:
LES MANUFACTURIERS DE BIJOUX L.S.M. LTÉE
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket: A-336-00
BETWEEN:
LES MANUFACTURIERS DE BIJOUX ST-JEAN INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket: A-338-00
BETWEEN:
LES MANUFACTURIERS DE BIJOUX LONGUEUIL INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket: A-339-00
BETWEEN:
LES MANUFACTURIERS DE BIJOUX CÔTE-VERTU INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket: A-340-00
BETWEEN:
LES MANUFACTURIERS DE BIJOUX ST-CONSTANT INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Hearing held in Montréal, Quebec, September 10, 2001.
Judgment rendered in Ottawa, Ontario, October 2, 2001.
REASONS FOR JUDGMENT BY: NOËL J.A.
CONCURRING: DESJARDINS J.A.
DÉCARY J.A.
Date: 20011002
Docket: A-337-00
Neutral Citation: 2001 FCA 279
Coram: DESJARDINS
DÉCARY
NOËL JJ.A.
BETWEEN:
LES MANUFACTURIERS DE BIJOUX L.S.M. LTÉE
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket: A-336-00
BETWEEN:
LES MANUFACTURIERS DE BIJOUX ST-JEAN INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket: A-338-00
BETWEEN:
LES MANUFACTURIERS DE BIJOUX LONGUEUIL INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket: A-339-00
BETWEEN:
LES MANUFACTURIERS DE BIJOUX CÔTE-VERTU INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket: A-340-00
BETWEEN:
LES MANUFACTURIERS DE BIJOUX ST-CONSTANT INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1] These are appeals and cross-appeals from decisions rendered by Mr. Justice Blais to the effect that the appellants were not deemed, pursuant to sections 23(11) and 43 of the Excise Tax Act, R.S.C. 1985, c. E-15 (the "Act"), to have manufactured certain jewels other than those they set on behalf of their respective clientele.
The Facts
[2] The facts and questions of law raised in each of the appeals and cross-appeals are identical, and these reasons will serve to dispose of the five cases at issue.
[3] The five appellants operate a jewel marketing business under the corporate name "Manufacturiers de Bijoux L.S.M. Ltée". Together with Créations Darnel Ltée they belong to a group of companies controlled by a holding company the shares of which are fully held by Denis Perrier.
[4] Darnel was the only company in the group to hold a manufacturers licence during the period in question but it did not have any employees on its payroll. Darnel purchased the raw materials such as gold and precious stones and sent them to the appellants for processing into a final product. The jewellers employed by the appellants mounted the jewels, did the settings and sent them to Darnel. As a wholesaler, Darnel shipped the finished product to one or another of the appellants, who then sold it to its clients. Darnel issued an invoice to whichever appellant made the sale and remitted to the Minister the sales and excise taxes in accordance with the price entered on the invoice.
[5] In addition to the retail sale of the jewels supplied by Darnel, the appellants made repairs and set jewels for their own customers. The same jewellers were responsible for these duties.
[6] In February 1991, the appellants received a notice of assessment for the period from January 1, 1988 to December 31, 1989. The Minister, relying on sections 43 and 23(11) of the Act, was of the opinion that the appellants were manufacturing the jewels set and mounted at Darnel's request, as well as the jewels set and mounted at the request of their respective clients. A sales and excise tax totalling $506,183.35 was levied.
[7] These provisions read as follows:
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23(11) Where a person has, in Canada,
(a) put a clock or watch movement into a clock or watch case,
b) put a clock or watch movement into a clock or watch case and added a strap, bracelet, brooch or other accessory thereto, or
(c) set or mounted one or more diamonds or other precious or semi-precious stones, real or imitation, in a ring, brooch or other article of jewellery,
he shall, for the purposes of this Part, be deemed to have manufactured or produced the watch, clock, ring, brooch or other article of jewellery in Canada.
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23(11) Lorsqu'une personne a, au Canada, selon le cas:
a) placé un mécanisme d'horloge ou de montre dans un boîtier d'horloge ou de montre;
b) placé un mécanisme d'horloge ou de montre dans un boîtier d'horloge ou de montre et y a ajouté une courroie, un bracelet, une broche ou autre accessoire;
c) serti ou monté un ou plusieurs diamants, ou autres pierres précieuses ou fines, véritables ou imitées, en une bague, une broche ou autre article de bijouterie,
elle est réputée, pour l'application de la présente partie, avoir fabriqué ou produit la montre, l'horloge, la bague, la broche ou autre article de bijouterie au Canada.
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43 Where a person has, in Canada,
(a) put a clock or watch movement into a clock or watch case,
(b) put a clock or watch movement into a clock or watch case and added a strap, bracelet, brooch or other accessory thereto, or
(c) set or mounted one or more diamonds or other precious or semi-precious stones, real or imitation, in a ring, brooch or other article of jewellery,
he shall, for the purposes of this Part, be deemed to have manufactured or produced the watch, clock, ring, brooch or other article of jewellery in Canada.
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43 Lorsqu'une personne a, au Canada, selon le cas :
a) placé un mécanisme d'horloge ou de montre dans un boîtier d'horloge ou de montre;
b) placé un mécanisme d'horloge ou de montre dans un boîtier d'horloge ou de montre et y a ajouté une courroie, un bracelet, une broche ou autre accessoire;
c) serti ou monté un ou plusieurs diamants ou autres pierres précieuses ou fines, véritables ou imitées, en une bague, une broche ou autre article de bijouterie,
elle est réputée, pour l'application de la présente partie, avoir fabriqué ou produit la montre, l'horloge, la bague, la broche ou autre article de bijouterie au Canada.
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(Emphasis added.)
[8] The appellants disputed the assessment notices, alleging they were not setting any jewels for Darnel. In regard to the jewels set for their own clients, the appellants acknowledged to the trial judge that they were their manufacturers within the meaning of the Act. However, they argued that the annual value of these transactions was for each of them less than $50,000, the effect of which was to exempt them from the tax otherwise payable as small manufacturers under subsections 54(2) and 64(2) of the Act. These provisions need not be reproduced. It is sufficient for our purposes to note that their effect is to exempt a small manufacturer from the sales tax and the excise tax under identical conditions.
[9] Blais J. found that the appellants were not the manufacturers of the jewels made at Darnel's request, noting that Darnel continued to be the principal contractor. He noted that Darnel's sales to the appellants of the jewels thus manufactured were at a reasonable price and that the taxes were duly paid. Blais J. also noted that the jewellers were doing this work in their free times and were aware that the finished product was going to Darnel. He explained that in the context of this particular activity, the jewellers were acting by way of exception under the direct supervision of Mr. Perrier or his assistant, who represented Darnel. The jewellers were attending to this duty as employees of Darnel, the trial judge held.
[10] Blais J. also concluded that the appellants were the manufacturers of the jewels that were set or mounted on behalf of their own clients and that they had to remit the taxes that were payable in this connection. However, he determined that the annual value of these transactions was less than $50,000 and that the appellants were therefore exempt from the sales tax under subsection 54(2) of the Act.
[11] In regard to the excise tax payable on these sales, the trial judge held that the appellants were liable for it in accordance with the reduced computation set out in administrative circular ET-101.
[12] Blais J. therefore ordered that the assessments in relation to the jewels mounted and set at Darnel's request be vacated. And he reduced the assessments on the jewels mounted and set by the appellants on behalf of their respective clientele by vacating the sales tax related to this activity and reducing the excise tax by one half. As a result of this judgment, only a tax of $7,066.73 remained unpaid.
Position of parties
[13] In support of their appeals, the appellants argue that the trial judge did not have to resort to administrative circular ET-101 for the purposes of computing the excise tax since, as a "small manufacturer", they were exempted not only from the sale tax but also from the excise tax. The trial judge, they argue, simply failed to note subsection 64(2) of the Act in the course of his decision, and they are not liable for any tax.
[14] The Crown, in the context of the cross-appeals, argues that Blais J. misdirected himself in law when he held that the jewels mounted and set at Darnel's request were not deemed to be manufactured by the appellants. According to the Crown, Blais J., once he had found that this work was performed by the jewellers employed by the appellants, could not decline to apply sections 43 and 23(11) of the Act for the sole reason that Darnel remained the "principal contractor".
Analysis and decision
[15] In so far as the appeals are concerned, they should be allowed. Blais J., after holding that the appellants were exempt from the sales tax on the ground that they fulfilled the requirements of subsection 54(2) of the Act, had to find that the appellants were also exempt from the excise tax under subsection 64(2), since this exemption operates under the same conditions. Blais J. clearly failed to note this.
[16] On the other hand, I am of the opinion that the cross-appeals should be dismissed. In the first place, counsel for the Crown states in paragraph 36 of his memorandum that the deemed manufacturer of a jewel within the meaning of sections 43 and 23(11) is the one who physically proceeded to do the setting and mounting of the jewel. That is not the effect of the Act. If we were to apply this reasoning to the facts at issue here, it is the jewellers themselves who would be deemed the manufacturers.
[17] In this regard, counsel for the Crown conceded in the course of the hearing that the effect of sections 43 and 23(11) of the Act is to deem any person, whether a natural person or a corporation, to be the manufacturer of the jewels which it mounts or sets, and that a corporation should therefore be deemed the manufacturer in so far as it mounts or sets jewels through the actions of its employees. He submitted that Blais J., having recognized that the jewels in question were set and mounted by the jewellers employed by the appellant, had to give effect to sections 43 and 23(11) of the Act.
[18] A careful reading of the reasons indicates that Blais J. concluded that it was as employees of Darnel that the jewellers were setting jewels at the latter's request. The trial judge based this conclusion on the fact that the jewellers were aware that they were performing their duties for more than one employer within the group of companies controlled by Mr. Perrier and that they were acting under the direct control of Darnel and not the appellants, when they set jewels at its request (paragraph 88 of the reasons).
[19] In reaching this conclusion, the trial judge clearly accepted Mr. Perrier's testimony concerning the organization and modus operandi of the companies he controlled. According to Mr. Perrier, Darnel's use of the jewellers' services during their free time served to maximize the return of the business, and the costs pertaining to the jewellers' labour were adequately offset by the costs assumed by Darnel in regard to the moulds and other raw materials it supplied to the appellants (paragraph 81 of the reasons).
[20] The respondent's counsel argues that the fact that the jewellers' salary was paid by the appellants rules out the possibility that the jewellers could have been employed by Darnel. I do not share that opinion. The origin of the salary of an employee who works within a group of related companies does not necessarily circumscribe the employment relationship. That relationship must be analyzed in light of all the relevant factors. In this case, the evidence allowed the trial judge to conclude that the jewellers were working for more than one employer, and it is not the role of this Court to interfere in the findings of fact made by the judge below.
[21] I would allow the appeals with costs and dismiss the cross-appeals with costs in both the Appeal Division and the Trial Division. I would uphold in part the judgment at trial and vacate in their entirety the assessments issued against the appellants.
"Marc Noël"
J.A.
"I concur in these reasons.
Alice Desjardins J.A."
"I agree.
Robert Décary J.A."
Certified true translation
Suzanne M. Gauthier, LL.L., Trad. a.
FEDERAL COURT OF CANADA
APPEAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
FILE NO: A-336-00, A-337-00, A-338-00, A-339-00 and A-440-00
STYLE:
LES MANUFACTURIERS DE BIJOUX L.S.M. LTÉE ET AL.
AND
HER MAJESTY THE QUEEN
PLACE OF HEARING: MONTRÉAL, QUEBEC
DATE OF HEARING: SEPTEMBER 10, 2001
REASONS FOR JUDGMENT OF NOËL J.A.
CONCURRING: DESJARDINS J.A.
DÉCARY J.A.
DATED: OCTOBER 2, 2001
APPEARANCES:
Gilles Boileau FOR THE APPELLANTS
Francisco Couto FOR THE RESPONDENT
SOLICITORS OF RECORD:
Gilles Boileau FOR THE APPELLANTS
St-Jérôme, Quebec
Morris Rosenberg FOR THE RESPONDENT
Deputy Attorney General of Canada
Ottawa, Ontario
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