W.R. Mcrae Company Limited v. Canada, docket A-207-94

     A-207-94

     A-266-96

CORAM:              DESJARDINS J.A.

                 DÉCARY J.A.

                 CHEVALIER D.J.

BETWEEN:

     W.R. McRAE COMPANY LIMITED

     Appellant

     (Plaintiff)

AND:

     HER MAJESTY THE QUEEN

     Respondent

     (Defendant)

     Heard at Montreal on Thursday, June 12, 1997

     Judgment rendered from the Bench on June 13, 1997

REASONS FOR JUDGMENT

OF THE COURT DELIVERED BY:      DÉCARY J.A.

     A-207-94

     A-266-96

CORAM:      DESJARDINS J.A.

         DÉCARY J.A.

         CHEVALIER D.J.

BETWEEN:

     W.R. McRAE COMPANY LIMITED

     Appellant

     (Plaintiff)

     - and -

     HER MAJESTY THE QUEEN

     Respondent

     (Defendant)

     REASONS FOR JUDGMENT

     (Rendered from the Bench at Montreal on

     Friday, June 13^th, 1997)

DÉCARY J.A.

     These appeals raise the issue of the liability of W.R. McRae Limited ("the appellant") to pay federal sales tax on goods sold to retail customers between July 1, 1990 and December 31, 1991. The goods were purchased by the appellant in one instance from an importer and in another, from a person other than the importer.

     Although the appellant paid the taxes at issue, it applied for a refund on the ground that they were paid in error. The Minister of National Revenue ("the Minister"), disallowed the refund, and this compelled the appellant, by way of actions pursuant to subsection 81.21(2) of the Excise Tax Act¹ ("the Act"), to seek to vacate the notices of determination made by the Minister on December 24, 1992.

     Mr. Justice Noël, in file No. T-1595-93 (A-207-94) which pertained to a claim for refund filed by the appellant on August 5, 1992, found against the appellant on April 22, 1994. Madam Justice McGillis, in file No. T-1598-93 (A-266-96) which pertained to a claim for refund filed on August 21, 1992, found against the appellant on March 20, 1996 in a consent judgment "rendered without the need for oral hearing and in accordance with pages 19 and following of the decision of Noël J. [...]".

     The two appeals were argued together on the basis of an agreed statement of fact. The reasons that follow apply to both appeals and will be filed in the Registry in file A-207-94 and file A-266-96.

     The appellant alleges, essentially, that the sales tax imposed by subparagraph 50(1)(a)(i) of the Act does not apply to the sale of the goods to its retail customers because it did not in fact manufacture or produce the goods, and because the goods are not deemed by the Act to have been manufactured or produced in Canada in its hands. The Respondent disagrees on both counts. First, She states that the appellant is a manufacturer or producer of the goods pursuant to paragraph 2(1)(i) of the Act and is therefore liable to pay the sales tax exigible on those goods pursuant to paragraphs 50(1)(a). Second, She states that the goods are deemed to be goods manufactured or produced in Canada pursuant to subsection 2(3) of the Act, and are so deemed for all purposes of the Act.

     The relevant provisions of the Act read as follows:

INTERPRETATION

2. (1) In this Act [...]

"manufacturer of producer" includes

[...]

(g) any person who imports into Canada new motor vehicles designed for highway use, or chassis therefor,

(h) any person who sells, otherwise than predominantly to consumers, new motor vehicles designed for highway use, or chassis therefor,

(i) any person who sells goods enumerated in Schedule III.1, other than a person who sells those goods exclusively and directly to consumers, and

[...]

(3) For the purposes of this Act, a person who is a manufacturer or producer within the meaning of paragraph (d), (i) or (j) of the definition of that term in subsection (1), other than a member of a class of small manufacturer or producer that is exempted by regulations made under subsection 54(2) from the requirement of subsection 54(1) to apply for a licence, and who imports into Canada

(a) cosmetics,

(b) [Repealed, R.S., 1985, c. 12 (4th Supp.), s. 1]

(c) goods enumerated in Schedule III.1, or

(d) prerecorded video cassettes that are new or have not been used in Canada

shall be deemed to be the manufacturer or producer in Canada thereof and not the importer thereof and the goods shall be deemed to be goods produced or manufactured in Canada and not imported goods.

[...]

(4.1) For the purposes of this Act, a person who is a manufacturer or producer within the meaning of paragraph (g) of the definition of that term in subsection (1), other than a member of a class of small manufacturer or producer that is exempted by virtue of regulations made under subsection 54(2) from the requirement of subsection 54(1) to apply for a licence, and who imports new motor vehicles designed for highway use, or chassis therefor, into Canada shall be deemed to be the manufacturer or producer in Canada thereof and not the importer thereof and the vehicles or chassis shall be deemed to be goods produced or manufactured in Canada and not imported goods.

(4.2) For the purposes of this Act, new motor vehicles designed for highway use, and chassis therefor, imported into Canada that are sold by a person who is a manufacturer or producer within the meaning of paragraph (h) of the definition of that term in subsection (1), other than a member of a class of small manufacturer or producer that is exempted by virtue of regulations made under subsection 54(2) from the requirement of subsection 54(1) to apply for a licence, shall be deemed to be goods produced or manufactured in Canada and not imported goods.

PART VI CONSUMPTION OR SALES TAX

Tax imposed

50. (1) There shall be imposed, levied and collected a consumption or sales tax at the rate prescribed in subsection (1.1) on the sale price or on the volume sold of all goods

(a) produced or manufactured in Canada

(i) payable, in any case other than a case mentioned in subparagraph (ii) or (iii), 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,

[...]

(b) imported into Canada, payable in accordance with the provisions of the Customs Act by the importer, owner or other person liable to pay duties under that Act;

[...]

(5) Notwithstanding anything in subsection (1), the consumption or sales tax shall not be payable on goods

[...]

(k) sold to or imported by a person described in paragraph (i) of the definition "manufacturer or producer" in subsection 2(1) who is a licensed manufacturer under this Act, if the goods are goods enumerated in Schedule III.1; or

[...]

(6) Where any person, other than the manufacturer or producer, importer, owner, licensed wholesaler or jobber mentioned in this section, acquires from or against any one of those persons the right to sell any goods, whether as a result of the operation of law or of any transaction not taxable under this section, the sale of the goods by him shall be taxable as if made by the manufacturer or producer, importer, owner, licensed wholesaler or jobber, as the case may be, and the person so selling is liable to pay the tax.

[...]

     It is beyond question that the effect of paragraph 50(1)(a) of the Act is that a manufacturer or producer, deemed or actual, who sells goods produced or manufactured in Canada, deemed or actual, is required to pay the applicable consumption or sales tax on the sale price or on the volume sold of all goods, unless that sale falls within the exemptions found in subsection 50(5). Similarly, by virtue of paragraph 50(1)(b), importers are required, in accordance with the provisions of the Customs Act, to pay tax on the value of the goods imported by them. It is clear from the wording and scheme of the Act that Parliament did not intend to tax the purchase of goods but rather intended to tax the importation of goods and the sale of goods by a manufacturer or producer, or a person so deemed, to retailers or wholesalers.

     In the case at bar, as the goods were imported by licensed manufacturers or producers under the Act, they were imported without the payment of tax pursuant to the exemption found in paragraph 50(5)(k). The goods sold to the appellant were also sold free of tax because both the vendors and the appellant are licensed under the Act. It is common ground that should the appellant's proposed interpretation of the Act be retained, imported goods acquired by a licensed wholesaler and sold to retailers in circumstances such as the present ones would escape tax altogether.

     The Trial Judge agreed with the Respondent's submissions and we have little to add to his views on the combined effect of subsections 2(1), 2(3) and 50(1) of the Act. The appellant has focused its attack on the interpretation given to the "deeming provision", i.e. subsection 2(3), but we have not been persuaded that the Trial Judge erred in his interpretation. He stated that the first deeming provision under subsection 2(3) deems a person who is a manufacturer or producer within the meaning of the Act and who imports Schedule III.1 goods, to be a manufacturer or producer of the goods in Canada. The Trial Judge stated that the second deeming provision under subsection 2(3) deems the imported goods to be goods produced or manufactured in Canada irrespective of the hands in which those goods may be found. Accordingly, whether the appellant purchased the goods at issue in these proceedings from the importer directly or from a person other than the importer, they were goods deemed to have been produced or manufactured in Canada.

     For the purposes of the application of the charging provision (i.e. paragraph 50(1)(a)), the goods are therefore clearly, in our view, "produced or manufactured in Canada" by virtue of the second deeming provision of subsection 2(3) and the appellant clearly is the "producer or manufacturer" by virtue of the defining provision of subparagraph 2(1)(i).

     That conclusion, in our view, was enough to settle the issue : where terms of a provision are clear and in conformity with the main object of a statute, there is no need to go further. But as counsel for the appellant had argued that the presence of a different wording in subsections 2(4.1) and 2(4.2) was evidence that Parliament had failed, with respect to producers and manufacturers falling under subsection 2(3), to use language sufficient enough to carry on in the legislation its intention to impose a sales tax on all goods sold, the Trial Judge went on to find that there was, indeed, a limited flaw in the legislation, but declined to give it any effect for the following reasons:

A redundancy did arise in the process of enacting subsection 2(4.1) in that an importer was again thereby deemed to be the manufacturer or producer of the imported goods. This, in my view, is but a limited flaw which can be reasonably explained by the result which was sought to be achieved. It certainly would not allow me, as counsel for the Plaintiff suggests, to disregard the intended effect of the legislation. As was stated by Lord Reid in Gartside v. Inland Revenue Commissioners, (1968) A.C. 553 at p. 612:

It is always proper to construe an ambiguous word of phase [sic] in light of the mischief which the provision is obviously designed to prevent, and in light of the reasonableness of the consequences which follow from giving it a particular construction.

Here the construction suggested by the Plaintiff would result in allowing imported goods acquired by a licensed wholesaler and sold to retailers to escape tax altogether in circumstances where the contrary result is clearly and unequivocally intended.

The Act is awkward and most difficult to construe. Different deeming techniques are used interchangeably for different purposes. Obviously, the draftsmen cannot be commended for the clarity of the drafting style. A piecemeal approach was adopted over the years in enacting the numerous and significant amendments which were brought to the Act. No great effort was made at any time to consolidate these amendments in an organized fashion. A number of drafting flaws have since become apparent thereby giving rise to uncertainties.

However, throughout these amendments, the object of the Act has remained clear and the questions raised by the Plaintiff, while perplexing, do not allow me to hold, as counsel suggests, that the draftsmen failed to achieve what Parliament obviously intended.

The Privy Council in Salmon v. Duncombe, (1886) 11 A.C. 627, stated at p. 634:

It is, however, a very serious matter to hold that when the main object of a statute is clear, it shall be reduced to a nullity by the draftsman's unskilfulness or ignorance of law. It may be necessary for a Court of Justice to come to such a conclusion, but their Lordships hold that nothing can justify it except necessity or the absolute intractability of the language used.

In this instance, neither necessity or the intractability of the language used compel me to hold that the subject goods should escape taxation.

[A.B. at 38-40]

     That exercice, in our view, was unnecessary, but assuming, for the sake of discussion, that the trial Judge correctly found that there was "a limited flaw", we fully agree with his disposition of the argument.

     The drafting of the Act is remarkably asymmetrical and it is tempting for counsel to equate asymmetry with flaws. That is not necessarily so. Parliament may use different techniques to say the same thing, even though that avenue, as a general rule, should be avoided. When dealing with a piecemeal legislation such as the Excise Tax Act as it stood in 1990, which, unlike, for example, the Income Tax Act, has no coherent structure and contains no basic rules to start with and which is amended on a routine basis to accommodate or redress specific situations in a constantly evolving commercial reality, the Court should be reluctant to compare microscopically the words of provisions devised at different times and in a different context and meant to address distinct concerns. Imperfect drafting may well be inevitable in that kind of statute. But "the draftsman's unskilfulness", to use the words of Lord Hobhouse in Salmon v. Duncombe, supra, should not be used to nullify a statutory provision where that provision can be interpreted in a way such that the meaning given to it flows reasonably well, albeit not perfectly, from the words used by Parliament in the relevant context and accords with the main object, clearly expressed, of the statute.

     As we are satisfied that the Trial Judge's interpretation of the combined effect of subsections 2(1), 2(3) and 50(1)(a) is fully supported by the words used and accords with the object of the statute, we need not pass any comment on the interpretation he suggested, nor on that proposed by the appellant or by the Respondent, of subsections 2(4.1) and 2(4.2) which deal with motor vehicles. These subsections could only be relevant by way of comparison, and they are not, in our view, provisions that can be compared with those at issue in these proceedings.

     The appeals will therefore be dismissed, with costs of a single appeal against the appellant.

     Robert Décary

     J.A.

                 A-207-94/A-266-96

     W.R. McRAE COMPANY LIMITED

     Appellant

     (Plaintiff)

    

     HER MAJESTY THE QUEEN

    

     Respondent

     (Defendant)

    

    

    

                  REASONS FOR JUDGMENT

     FEDERAL COURT OF CANADA

     APPEAL DIVISION

     NAMES OF COUNSEL AND SOLICITORS OF RECORD

COURT NUMBER:                  A-207-94/A-266-96

BETWEEN:                          W.R. McRAE COMPANY LIMITED

     Appellant

     (Plaintiff)

                             AND:

                             HER MAJESTY THE QUEEN

     Respondent

     (Defendant)

PLACE OF HEARING:                  Montreal (Quebec)

DATE OF HEARING:                  June 12, 1997

REASONS FOR JUDGMENT OF THE COURT (DESJARDINS J.A., DÉCARY, J.A., AND CHEVALIER D.J.A.)

RENDERED FROM THE BENCH BY:          DÉCARY J.A.

DATED:                          June 13, 1997

APPEARANCES:

     Me Michael Kaylor              for the Appellant (Plaintiff)

     Me Michael Ciavaglio              for the Respondent (Defendant)

SOLICITORS OF RECORD:

     Lapointe Rosenstein                  for the Appellant (Plaintiff)

     Montreal, Québec

     George Thomson                  for the Respondent (Defendant)

     Deputy Attorney General for Canada

     Ottawa, Ontario

__________________

     ¹      R.S.C. 1985, c. E-15, as amended.