Date: 20000519
Docket: A-528-97
BETWEEN:
THE DEPUTY MINISTER OF
NATIONAL REVENUE
Appellant
- and -
CHARLEY ORIGINALS LTD., DIVISION OF
ALGO GROUP INC. AND MR. JUMP INC.,
DIVISION OF ALGO GROUP INC.
Respondents
Heard at Montreal, Quebec on Thursday, May 18, 2000
and Friday, May 19, 2000
Judgment delivered from the Bench at
Montreal, Quebec on Monday, May 15, 2000
REASONS FOR JUDGMENT OF THE COURT BY: NOËL J.A.
Date: 20000519
Docket: A-528-97
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
NOËL J.A.
BETWEEN:
THE DEPUTY MINISTER OF NATIONAL REVENUE
Appellant
- and -
CHARLEY ORIGINALS LTD., DIVISION OF ALGO
GROUP INC., and MR. JUMP INC.,
DIVISION OF ALGO GROUP INC.
Respondents
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Montreal (Quebec)
on Friday, May 19, 2000)
NOËL J.A.
[1] We have concluded that this appeal must fail.
[2] The main issue raised by the appellant is whether the Canadian International Trade Tribunal ("CITT") correctly held that quota payments made by the respondents to third parties in Hong Kong in order to secure export licenses were to be added to the price paid for the goods imported pursuant to s. 45 of the Customs Act1:
| "price paid or payable", in respect of the sale of goods for export to Canada, means the aggregate of all payments made or to be made, directly or indirectly, in respect of the goods by the purchaser to or for the benefit of the vendor;
|
"prix payé ou à payer" En cas de vente de marchandises pour exportation au Canada, la somme de tous les versements effectués ou à effectuer par l'acheteur directement ou indirectement au vendeur ou à son profit, en paiement des marchandises.
|
| [3] The CITT found, with regards to the respondents" imports from Taiwan, where quotas were purchased directly from the manufacturers of goods, that the quota payments were properly found to be "for the benefit of" the manufacturer/vendor within the meaning of that provision. However, unlike the Taiwan quotas, the Hong Kong quotas were purchased from third parties on the open market, such that the CITT found that their cost was not to be included in the "price paid or payable" for the imported goods. The CITT found that such payments were not, directly or indirectly, "for the benefit of the vendor." |
| [4] The appellant contends that the tribunal misconstrued s. 45 in failing to recognize that the quota payments made to third parties benefited the manufacturer/vendor since the latter would have been unable to proceed with the sale of the subject goods if the respondents had been unable to secure the quotas. Hence, the appellant submits that the payments were made "for the benefit of the vendor". |
| [5] The evidence however indicates otherwise. The contract between the respondents and their Hong Kong manufacturer/vendor is in no way contingent on the existence of quotas or on the respondents" ability to obtain an import licence for the subject goods. The obligations of the manufacturer/vendor are restricted to manufacturing the subject goods according to the respondents" specifications and delivering them FOB Montreal. Its entitlement to payment is guaranteed by an irrevocable letter of credit presentable at any time within a specified period following the issuance of the shipping documents. |
| [6] It follows that whether or not the respondents could acquire the required quotas and obtain the release of the goods from Customs, in Montreal, the manufacturer/vendor"s contractual position remained unaffected and it had both the right and the means to obtain payment for the goods upon causing the shipping documents to be issued. As the manufacturer/vendor"s entitlement under the contract was in no way contingent on the respondents" ability to obtain the required quotas, the payments made by the respondents to third parties to acquire these quotas cannot be said to have been made for the benefit of the manufacturer/vendor. |
| [7] The only way in which these payments can be linked to a form of "benefit" accruing to the manufacturer/vendor is based on the reasoning that the respondents would not have contracted for the manufacture of the subject goods unless it held the required quotas or was in a position to obtain them prior to importation. In that sense, the appellant submits that the payments can still be said to have been made "for the benefit of the vendor". |
| [8] However, as found by the CITT, the word "benefit" in s. 45 cannot be construed so broadly. The payments for the quotas were not made for the benefit of anyone in particular except the respondents themselves. Indeed, based on the argument advanced by the appellant, everyone involved in the manufacture and export of the goods in issue, from the labour force which manufactured the subject goods to the shippers and carriers, benefited from the payments as the goods would not have been manufactured and exported without the quotas. |
| [9] It also flows from this reasoning that any payment made to third parties by an importer in the market of export without which the subject goods would not, or could not, have been manufactured and exported would be "for the benefit of the vendor". This would include for instance, payments made to buying agents for their services over and beyond commissions and brokerage pursuant to subparagraph 48(5)(a)(i)2 or to foreign banks for the issuance of letters of credit3. Section 45 has never been held to extend this far. |
| [10] The appellant relied on the decision of the United States Court of Appeal in Generra Sportswear Company v. United States4 in support of its position. This decision does not support the appellant"s position, as in Generra the foreign vendor was directly paid for the quotas, such as was the case in regards to the respondents" exports from Taiwan in this case. The Court noted at 134-135: |
| Generra admits that the "question whether or not the seller benefited from the quota payment is a non-issue in this case." When the payment is made to the seller, it is not necessary to get into whether the seller benefited; the statute is written in the alternative: "to, or for the benefit of, the seller." |
| [11] Furthermore, the Court noted at 135-136: |
| ..., that a foreign seller must obtain quota before he can export goods to the United States reasonably indicates that quota payments are part of the "price actually paid or payable for the merchandise when sold for exportation to the United States." |
| There is no evidence in this instance that the manufacturer/vendor had or assumed any such obligation. Indeed, as we have seen, the evidence is to the effect that the manufacturer/vendor was in no way concerned with quotas. |
| [12] We can therefore detect no error in the decision reached by the CITT on the first issue. |
| [13] The second issue in this appeal turns on the treatment of amounts paid by the respondents to purchase unused fabric in the market of export. Fabric suppliers sell fabric in minimum quantities with the result that manufacturers are often left with excess fabric.5 The evidence indicates that this excess fabric remained "in a foreign market to Canada,6" and was sold there by the respondents at a discount. |
| [14] The CITT in its reasons considered whether the cost of unused fabric was to be added to the price of the imported goods pursuant to subparagraph 48(5)(a)(iii) according to which the value of certain goods and services provided by the purchaser for use in the production and sale of the produced goods are to be added. The CITT found that the amounts paid for unused fabric did not fall under the terms of (A) or (C) of that provision: |
| 48(5) The price paid or payable in the sale of goods for export to Canada shall be adjusted
(a) by adding thereto amounts, to the extent that each such amount is not already included in the price paid or payable for the goods, equal to
...
(iii) the value of any of the following goods and services, determined in the manner prescribed, that are supplied, directly or indirectly, by the purchaser of the goods free of charge or at a reduced cost for use in connection with the production and sale for export of the imported goods, apportioned to the imported goods in a reasonable manner and in accordance with generally accepted accounting principles:
(A) materials, components, parts and other goods incorporated in the imported goods,
...
(C) any materials consumed in the production of the imported goods, and
|
48(5) Dans le cas d'une vente de marchandises pour exportation au Canada, le prix payé ou à payer est ajusté :
a) par addition, dans la mesure où ils n'y ont pas déjà été inclus, des montants représentant :
...
(iii) la valeur, déterminée de façon réglementaire et imputée d'une manière raisonnable et conforme aux principes de comptabilité généralement acceptés aux marchandises importées, des marchandises et services ci-après, fournis directement ou indirectement par l'acheteur des marchandises, sans frais ou à coût réduit, et utilisés lors de la production et de la vente pour exportation des marchandises importées :
(A) matières, composants, pièces et autres marchandises incorporés dans les marchandises importées,
...
(C) matières consommées dans la production des marchandises importées,
|
| [Emphasis added]
|
[Nous soulignons]
|
[15] The conclusion of the CITT with respect to (A) appears well founded since unused fabric is, by definition, fabric that was not incorporated in the imported goods. It also appears well founded under (C) since the unused fabric was not "consumed in the production" of the imported goods, as it was by definition "unused", and the evidence indicates that the excess fabric was actually sold by the respondents, albeit at a discount.
[16] The thrust of the appellant"s argument on appeal is that the payments made to third party suppliers for the unused fabric nevertheless form part of the "price paid or payable" for the imported goods pursuant to s. 45. In support of this contention, the appellant again argued that the payments are "for the benefit of the vendor". Specifically, it is argued that these payments had to be made by the respondents in order for the manufacturer/vendor to be in a position to produce the subject goods; hence they were made for the benefit of the manufacturer/vendor.
[17] We have already expressed the view that the term "benefit" in s. 45 cannot be construed so broadly. That being said, it seems clear on the facts of this case that to include the cost of the unused fabric in the price of the subject goods would ignore the effect of subparagraph 48(5)(a)(iii) where Parliament has specifically addressed the treatment of materials supplied by the purchaser for use in the production of goods for export.
[18] The appeal will be dismissed with costs.
"Marc Noël"
J.A.
FEDERAL COURT OF CANADA
Names of Counsel and Solicitors of Record
| STYLE OF CAUSE: THE DEPUTY MINISTER OF NATIONAL REVENUE |
Appellant
- and -
| CHARLEY ORIGINALS LTD., DIVISION OF ALGO GROUP INC., and MR. JUMP INC., DIVISION OF ALGO GROUP INC. |
Respondents
DATES OF HEARING: THURSDAY, MAY 18, 2000 and
PLACE OF HEARING: MONTREAL, QUEBEC
REASONS FOR JUDGMENT
| OF THE COURT BY: NOËL J.A. |
Delivered from the Bench at Montreal, Quebec on Friday, May 19, 2000
APPEARANCES: Mr. Stephane Lilkoff
Mr. Michael Kaylor
| SOLICITORS OF RECORD: Morris Rosenberg |
| Deputy Attorney General of Canada |
| 1250 René-Lévesque Blvd West |
| Canadian International Trade Tribunal |
__________________
1 R.S.C. 1985, c. 1 (2nd Supp.).
2 On this point, see the reasons for decision of the CITT, Appeal Book, Vol. 6 at pp. 4, 5 and 6.
3 As will be seen in the lines that follow, it would also include in this instance payments made to third party suppliers for excess fabric.
4 8 Fed. Cir. (T) 132.
5 Both parties confirmed during the hearing that this excess fabric is not to be confused with trimmings or other waste material.
6 Appeal Book, vol. 4, p. 499.
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