Smc Pneumatics (Canada) Ltd. v. Canada (Mnister of National Revenue), docket A-397-97

Date: 19991021

Docket: A-397-97

CORAM:      LINDEN J.A.

         ISAAC J.A.

         ROTHSTEIN J.A.

     (In re the Federal Court Act, R.S.C. 1985, c. F-7, as amended)

BETWEEN:

     SMC PNEUMATICS (CANADA) LTD.

     Appellant

     - and -

     THE DEPUTY MINISTER OF NATIONAL REVENUE

     FOR CUSTOMS AND EXCISE

     Respondent

     REASONS FOR JUDGMENT

     (Delivered from the Bench at Ottawa, Ontario,

     on Thursday, October 21, 1999)

ISAAC J.A.

[1]      The appellant brings this appeal from an order of a Motions Judge in the Trial Division made on 7 May 1997. The order dismissed the appellant"s application for judicial review of a decision of the respondent. The respondent had rejected the request by the appellant, as transferee, for a refund of certain duties pursuant to section 77 of the Customs Tariff Act .

[2]      The appellant raised several objections to the judgment in appeal, but Mr. Justice Linden and I are unable to accede to them because we are both of the view that the learned Motions Judge was right to dismiss the appellant"s application for judicial review for the reasons that he gave. We are in substantial agreement with those reasons and would dismiss the appeal with costs. Mr. Justice Rothstein is of a different view and will deliver separate reasons.

     "Julius A. Isaac"

     J.A.

Date: 19991021

Docket: A-397-97

CORAM:      LINDEN J.A.

         ISAAC J.A.

         ROTHSTEIN J.A.

     (In re the Federal Court Act, R.S.C. 1985, c. F-7, as amended)

BETWEEN:

     SMC PNEUMATICS (CANADA) LTD.

     Appellant

     - and -

     THE DEPUTY MINISTER OF NATIONAL REVENUE

     FOR CUSTOMS AND EXCISE

     Respondent

Heard at Ottawa, Ontario, on Thursday, October 21, 1999.

Judgment rendered from the Bench on Thursday, October 21, 1999.

REASONS FOR JUDGMENT BY:      ISAAC J.A.

CONCURRED IN BY:      LINDEN J.A.

DISSENTING REASONS BY:      ROTHSTEIN J.A.

[3]     

Date: 19991021

Docket: A-397-97

CORAM:      LINDEN J.A.

         ISAAC J.A.

         ROTHSTEIN J.A.

     (In re The Federal Court Act, R.S.C. 1985, c. F-7, as amended)

BETWEEN:

     SMC Pneumatics (Canada) Ltd.

     Appellant

AND

     The Deputy Minister of National Revenue

     for Customs and Excise

     Respondent

     REASONS FOR JUDGMENT

     (Delivered from the Bench at Ottawa, Ontario

     on Thursday, October 21, 1999)

ROTHSTEIN J.A.

[1]      I regret that I am unable to agree with my learned colleagues in this appeal. I am of the opinion that the Minister did not have the discretion in this case to refuse the appellant's refund application made under subsection 77(1) of the Customs Tariff Act.¹ [2]      The legislation in question provides for the remission of customs duty when machinery and equipment is not available from production in Canada. The legislation provides that the Minister may establish a list of such machinery and equipment, in which case custom duties are not payable. When machinery and equipment is not on the list, an applicant may apply for a remission, and if the Minister is satisfied that the machinery and equipment is not available from production in Canada, he may remit custom duties paid on importation. A remission authority is granted for a specified period and during that time, refunds of custom duties paid on importation may be claimed.[3]      The facts may be briefly stated. In 1989, W.C.I. Manufacturing made an application under subsection 76(1) of the Customs Tariff Act for the remission of customs duties for the purpose of importing solenoid valves and other parts for the manufacture of washing machines. Subsection 76(1) provides:

76. (1) Where an application for remission is made in accordance with subsection (4) in respect of machinery and equipment not included on the list established pursuant to subsection 75(1) and the Minister is of the opinion, having regard to the criteria mentioned in subsection 75(3), that the machinery and equipment is not available from production in Canada, the Minister may remit in respect of the machinery and equipment

(a) the customs duties that, but for this subsection, would be payable in respect of the machinery and equipment, and

(b) that portion of the excise taxes that, but for this subsection, would be payable in respect of the machinery and equipment in an amount equal to the difference between the amount of the excise taxes payable in respect of the machinery and equipment and the amount of the excise taxes that would be payable in respect of the machinery and equipment if the duty paid value used to calculate the excise taxes so payable were the value for duty used to calculate the customs duties so payable,

and, notwithstanding Part I and the Excise Tax Act, the amounts of the customs duties and excise taxes payable in respect of the machinery and equipment shall be reduced in accordance with paragraphs (a) and (b).

[4]      On February 22, 1990, the Minister of National Revenue issued the requested remission authority for the period May 1, 1989 to February 28, 1995. The Notice of Remission provided:

Remission of duty in respect of goods described in this application and supporting documents thereto, has been authorized for any quantity, subject to restrictions described herein or as otherwise specified in respect of this application, under the noted authority during the period indicated, and to replacement parts therefor imported during the period commencing on the effective date of the said authority and ending ten years following the expiry date thereof. Duty is payable on the first $500 of aggregate value. Authority will be terminated if reasonably equivalent goods become available from Canadian production.

[5]      On February 24, 1995, W.C.I. assigned the remission authority to the appellant SMC Pneumatics (Canada) Ltd. On February 27, 1995, the appellant applied for a refund of customs duties by reason of the remission authority assigned to it by W.C.I. [6]      The refund claim was rejected by the Minister. As of January 1, 1994, the Minister had issued Memorandum D8-5-1 providing, amongst other things, that applicants may assign rights to remission in respect of an approved application for remission. However, the Memorandum provided for restrictions on assignment, one being that production parts approved applications could not be assigned. No explanation was given to the Court for this restriction. The Minister's refusal to recognize the assignment in this case was on the basis that the goods were production parts. [7]      The narrow issue in this appeal is whether the Minister had discretion to reject the refund application in this case because it was made by the assignee of the original applicant for remission. [8]      I have no difficulty with the proposition that the Minister may place conditions on remission authorities under subsection 76(1). Subsection 76(1) confers on the Minister wide discretion with the use of the words "... the Minister may remit ...". Under those words, the Minister might choose to limit a remission authority to original applicants in respect of particular goods, as was done in Memorandum D8-5-1. Further, I think a restriction on assignment could also be a condition contemplated by subsection 76(2), which provides:

(2) Subject to subsection (3), remissions under subsection (1) may be conditional or unconditional and may be granted regardless of whether in a particular case any liability to pay the duties has arisen.

[9]      In evidence was a remission authority issued by the Minister on August 3, 1995 in another matter, containing a condition providing "remission authority is not transferable". I accept that as a valid condition in a remission authority. [10]      Further, the Minister may revoke a remission authority if machinery and equipment has become available from production in Canada. In such case, the remission authority ceases to apply after the effective date of the revocation. Subsection 76(3) provides:

(3) Where the Minister is of the opinion, having regard to the criteria mentioned in subsection 75(3), that machinery and equipment in respect of which remission has been granted under subsection (2) has become available from production in Canada,the Minister may revoke the remission and, notwithstanding the terms and conditions of the remission, it shall cease to apply to machinery and equipment accounted for under section 32 of the Customs Act after the effective date of the revocation.

The Minister did not purport to revoke the remission authority in this case.[11]      However, the remission authority is not at issue in this case. The Minister issued the remission authority on February 22, 1990, long before issuing Memorandum D8-5-1. When the remission authority was issued, it was not subject to any restriction on assignment. Once it was issued, the Minister had completed the exercise of the discretion vested in him under subsections 76(1) and (2). [12]      The question then is whether the Minister had discretion under section 77 to refuse the refund claimed by the appellant. Section 77 provides:

77. (1) A refund shall be granted of the portion of the customs duties or excise taxes described in paragraph 76(1)(a) or (b) if

(a) a remission of the portion is made under subsection 76(1);

(b) the portion of the duties was paid; and

(c) an application for refund is made in accordance with subsection (2).

(2) For the purposes of paragraph (1)(c), an application for refund must be

(a) supported by such evidence as the Minister may require; and

(b) made in the prescribed manner and in the prescribed form containing the prescribed information within five years, or, where another time is prescribed, within that other time, after the machinery and equipment in respect of which it is made is accounted for under section 32 of the Customs Act.

(3) The Governor in Council may make regulations prescribing, for the purposes of subsection (2), the manner of making an application and the time within which it must be made.

It is apparent that subsection 77(1) is mandatory. The opening words are "A refund shall be granted ...". Provided there is compliance with section 77, there is entitlement to the refund and the Minister has no discretion to refuse it. [13]      There is no suggestion of noncompliance with paragraphs 77(1)(a) and (b). A remission authority had been issued and the portion of the duties claimed had been paid. The only question is whether, pursuant to paragraph 77(1)(c), the application for refund was made in accordance with subsection 77(2). [14]      Paragraph 77(2)(a) requires that the application for refund be supported by such evidence as the Minister may require. While this paragraph gives the Minister a discretion as to the evidence he may require in order to pay a refund, it does not confer upon him the authority to re-exercise the discretion that was vested in him under subsections 76(1) and (2) and in respect of which he was functus when the refund application was made. [15]      Paragraph 77(2)(b) provides that the application for refund be made in the prescribed manner and in the prescribed form containing prescribed information. Counsel for the appellant has advised that no regulations were prescribed in respect of paragraph 77(2)(b) at the relevant time. Counsel for the respondent had no different information. While that seems unusual, I proceed on that basis. With nothing prescribed with reference to applications for refund, the Minister would appear to have been accepting applications for refund on some type of informal basis. Does the informality of the refund application process vest in the Minister a discretion to refuse an application for refund if it is made by an assignee of the remission authority? I am of the respectful view that it does not. [16]      Section 77 is a mandatory provision. The fact that no application form or required information has been prescribed does not turn it into a discretionary provision and reconfer on the Minister the discretion he had but did not exercise under section 76. It was open to the Minister to restrict the remission authority under subsections 76(1) and (2) by providing that it was not assignable in whole or in part. This was not done. It was also open to him to revoke the Authority in accordance with subsection 76(3). This also was not done.[17]      At law an assignee stands in the shoes of the person to whom the remission authority was issued and is entitled to the refund to which the original applicant for remission was entitled. Indeed, refunds to assignees are recognized by Memorandum D8-5-1 which sets out the procedure and information necessary to satisfy the Minister as to the validity of the assignment. It appears that this procedure was followed and information provided in this case. [18]      I would have allowed the appeal with costs and remitted the matter to the Minister on the basis that the refund claimed by the appellant should be allowed.

     "Marshall Rothstein"

     J.A.

__________________

     ¹      R.S.C. 1985, c. 41. (3rd Supp.).