OTTAWA, ONTARIO, FEBRUARY 22, 2002
CORAM: DESJARDINS J.A.
HER MAJESTY THE QUEEN
SOCIÉTÉ DES ALCOOLS DU QUÉBEC
The appeal is dismissed with costs.
Certified true translation
Suzanne M. Gauthier, C. Tr., LL.L
Neutral citation: 2002 FCA 69
CORAM: DESJARDINS J.A.
HER MAJESTY THE QUEEN
SOCIÉTÉ DES ALCOOLS DU QUÉBEC
Hearing held at Montréal, Quebec, on January 17, 2002.
Judgment delivered at Ottawa, Ontario, on February 22, 2002.
REASONS FOR JUDGMENT BY: NOËL J.A.
CONCURRED IN BY: DESJARDINS J.A.
Neutral citation: 2002 FCA 69
CORAM: DESJARDINS J.A.
HER MAJESTY THE QUEEN
SOCIÉTÉ DES ALCOOLS DU QUÉBEC
REASONS FOR JUDGMENT
 This is an appeal from a judgment of Lemieux J. of the Trial Division ( 1 F.C. 386) in which he concluded that paragraph 3(h) of the Federal Sales Tax Inventory Rebate Regulations, SOR/91-52 (hereinafter the Regulations) is ultra vires the powers conferred on the Minister of Finance by section 120 of the Act to amend the Excise Tax Act, S.C. 1990, c. 45 (hereinafter the Act).
-  In that judgment, the Trial Judge vacated two notices of determination, which limited the rebate claimed by the respondent to a total of $5,068,481.64 and held that the respondent was entitled to receive an additional $7,139,904.17, thereby authorizing a full rebate of the amounts that had been claimed.
-  This case arose in connection with the elimination of the former federal sales tax and the introduction, starting on January 1, 1991, of the goods and services tax. At that time, Parliament authorized a rebate of the sales tax paid on new products in inventory on January 1, 1991, based on the factors prescribed by regulation, as a transitional measure.
 In the respondent's case, the effect of the prescribed factor was to limit the rebate to slightly less than 45 percent of the federal sales tax paid on inventory held on January 1, 1991. The Trial Judge accepted the argument that only a full rebate of the tax paid under the former scheme was contemplated by the enabling Act and that the factor prescribed in the respondent's case was ultra vires because it did not produce that result.
Act and Regulations
 The relevant provisions of the enabling Act read as follows:
(3) Subject to this section, where a person who, as of January 1, 1991, is registered under Subdivision d of Division V of Part IX has any tax-paid goods in inventory at the beginning of that day,
a) where the tax-paid goods are goods other than used goods, the Minister shall, on application made by the person, pay to that person a rebate in accordance with subsections (5) and (8); and (Emphasis added.)
para. 120 (3)
(3) Sous réserve du présent article, dans le cas où l'inventaire d'une personne inscrite aux termes de la sous-section d de la section V de la partie IX le 1er janvier 1991 comprend, au début de cette date, des marchandises libérées de taxe, les règles suivantes s'appliquent :
a) si les marchandises libérées de taxe ne sont pas des marchandises d'occasion, le ministre verse à la personne, sur sa demande, un remboursement en conformité avec les paragraphes (5) et (8); [Je souligne.]
Subject to subsection (8), for the purposes of subsection (3), the rebate payable to a person in respect of the person's inventory as of the beginning of January 1, 1991 is, subject to subsection 337(7), the amount determined by a prescribed method using prescribed tax factors. (Emphasis added.)
Sous réserve du paragraphe (8) et pour l'application du paragraphe (3), le remboursement à verser à une personne relativement à son inventaire au début du 1er janvier 1991 correspond, sous réserve du paragraphe 337(7), au montant calculé selon une méthode prescrite utilisant des facteurs prescrits. [Je souligne.]
 The word "prescribed" is defined as follows in section 2 of the Act:
(a) in the case of a form, the information to be given on a form or the manner of filing a form, prescribed by the Minister, and
a) Dans le cas d'un formulaire, établi selon les instructions du ministre; dans le cas de renseignements à inscrire sur un formulaire ou de modalités de production d'un formulaire, déterminés selon les instructions du ministre;
(b) in any other case, prescribed by regulation or determined in accordance with rules prescribed by regulation.
b) dans les autres cas, visé par règlement, y compris déterminé conformément à des règles prévues par règlement.
 In addition, section 3 of the Regulations sets out the prescribed tax factors:
______3. For the purposes of subsection 120(5) of the Act, the prescribed tax factors in respect of the following classes of goods are:
(a) in the case of goods included in Schedule IV to the Act, 5.6%;
(b) in the case of gasoline, the rate of tax under Part VI of the Act applicable on December 31, 1990 in respect of unleaded gasoline;
(c) in the case of diesel fuel, the rate of tax under Part VI of the Act applicable on December 31, 1990 in respect of diesel fuel;
(d) in the case of propane, 1.4%;
(e) in the case of mobile homes and modular building units, 2.8%;
(f) in the case of motor vehicles designed for highway use, 11.1%;
(g) in the case of software products, 8.1%; and
(h) in any other case, 8.1%.
______3. Pour l'application du paragraphe 120(5) de la Loi, sont visés les facteurs suivants quant aux catégories données de marchandises:
a) pour les marchandises mentionnées à l'annexe IV de la Loi, 5,6%;
b) pour l'essence, le taux de taxe prévu à la partie VI de la Loi et applicable à l'essence sans plomb le 31 décembre 1990;
c) pour le combustible diesel, le taux de taxe prévu à la partie VI de la Loi et applicable à ce combustible le 31 décembre 1990;
d) pour le propane, 1,4%;
e) pour les maisons mobiles et bâtiments modulaires, 2,8%;
f) pour les véhicules à moteur conçus pour servir sur les routes, 11,1%;
g) pour les produits logiciels, 8,1%;
h) pour les autres marchandises, 8,1%.
 The prescribed method is set out in subsection. 4:
____4. For the purposes of subsection 120(5) of the Act, the rebate in respect of a person's inventory is
(a) the total of all amounts each of which is determined, for a class of goods, by the formula
A x B
____4. Pour l'application du paragraphe 120(5) de la Loi, le remboursement à verser à une personne relativement à son inventaire correspond :
a) soit au total des montants calculés pour chaque catégorie de marchandises selon la formule :
A x B
A is the prescribed tax factor in respect of the class of goods; and
A représente le facteur applicable à la catégorie de marchandises;
(i) where the class of goods is gasoline or diesel fuel, the number of litres of gasoline or diesel fuel, as the case may be, that form part of the inventory,
(ii) where the class of goods is software products, the total value of the computer carrier media, excluding the value of instructions or data stored thereon, that form part of the inventory or the product obtained when $5 is multiplied by the number of those computer carrier media, and
(iii) in any other case, the total value of goods in the class (other than used goods) that form part of that inventory, as that total value would be required to be determined at the beginning of January 1, 1991 for the purpose of computing the person's income from a business for the purposes of the Income Tax Act;
B représente :
i) s'il s'agit d'essence ou de combustible diesel, le nombre de litres d'essence ou de litres de combustible figurant à l'inventaire,
ii) s'il s'agit de produits logiciels, soit la valeur globale des supports de transmission de données figurant à l'inventaire, à l'exclusion de la valeur des instructions ou des données enregistrées sur ces supports, soit le produit de la multiplication du nombre de ces supports par 5$,
iii) sinon, la valeur globale des marchandises de la catégorie figurant à l'inventaire, à l'exclusion des marchandises d'occasion, telle qu'elle devrait être déterminée au début du 1er janvier 1991 aux fins du calcul du revenu d'entreprise de la personne pour l'application de la Loi de l'impôt sur le revenu;
 In addition to the facts set out by the Trial Judge in his reasons, which are not in dispute and which I do not intend to repeat, I believe it would be worthwhile to note the following additional facts.
-  The rate of the sales tax that was levied under the Excise Tax Act, R.S., 1985, c. E-15 before it was eliminated (the former Act) varied depending on the goods in question. The most common rate was 13.5 percent. In the case of alcoholic beverages, the rate was 19 percent. The 9 percent rate applied to other goods, including construction materials (paragraphs 50(1.1)(a), (b), (c) and (d) and subsection 51(3) of the former Act).
-  The evidence was that the respondent, like certain importers and wholesalers, could have accurately determined the tax paid on inventory held of January 1, 1991, and would therefore have been able to claim a corresponding rebate. On the other hand, it would have been difficult, if not impossible, for retailers to do this, because they were not able to determine the amount of tax reflected in the cost of their inventory (testimony of George Kuo, Appeal Record, volume I, pages 90 to 93, 103 to 105, 144).
 The idea of refunding the amount claimed when the registrant was able to calculate the tax paid on the inventory on hand was considered by the Department of Finance (Internal analysis entitled Transition Rebates, Appeal Record, volume II, pages 206 to 213). However, on December 19, 1989, the Minister of Finance announced in the House of Commons that for reasons of fairness and simplicity, the rebate would be based on prescribed percentages of the value of goods in inventory as of January 1, 1991, in all cases. He added that because it was difficult in practical terms to distinguish between businesses based on their trade level, the same percentages would be applicable to everyone, without distinction (document entitled Goods and Services Tax tabled in the House on December 19, 1989, Appeal Record, volume II, page 224).
 The explanatory notes that accompanied Bill C-62, which was passed by the House of Commons a few months later, said, on this point:
The method and factors to be used to determine the amount of the sales tax rebate are to be prescribed by regulation. The calculation of the rebate amount will be based on prescribed rebate percentages applied to the inventory value of the goods, in all cases. There will be one general rebate percentage applied to the vast majority of tax-paid goods. Separate rebate percentages will be prescribed for construction materials (currently subject to the lower 9% rate) and motor vehicles. Rebates in respect of gasoline and diesel fuel will be a specific amount per litre, based on the sales tax rate for litre on these fuels on December 31, 1990. Given the practical difficulty of differentiating firms by trade level, the inventory rebate percentages will be the same for all businesses having FST-paid inventories. This will simplify the claiming of the sales tax rebate and the administration of the rebate program. (Emphasis added.) (Appeal Record, volume II, page 332).
 On May 31, 1991, Revenue Canada, Customs and Excise, published a document setting out the rebate percentages being considered (hereinafter "rebate factors"):
(a) general tax factor (8.1 per cent);
(b) specific tax factors for:
(i) small grocery/ convenience stores (2.5 per cent); [this factor was eventually relegated to the general factor]
(ii) motor vehicles (11.1%);
(iii) gasoline [rate for regular unleaded gasoline in effect on December 31, 1990];
(iv) diesel fuel [rate in effect on December 31, 1990];
(v) propane (1.4 per cent);
(vi) construction materials (5.6 per cent);
(vii) mobile homes and modular building units (2.8 per cent);
The document went on to say:
The general factor is to be used for all goods except those having a specific factor. (Memorandum GST 900 issued on May 31, 1990, Appeal Record, volume II, pages 351 to 362).
 A backgrounder that accompanied a news release dated June 1, 1990, provided the following additional information:
There will be one general rebate factor for the vast majority of tax-paid items -- 8.1 per cent of the value of those goods.
Building materials are currently subject to a 9 per cent rate of tax at the manufacturer's level. Wholesalers, retailers and contractors with tax-paid inventories of building material will qualify for a rebate equal to 5.6 per cent of these items. Mobile homes and modular building unites (currently taxed at the 9 per cent rate on one-half of the manufacturer's price) will be eligible for a rebate equal to one-half the general building materials factor -- 2.8 per cent.
The FST on gasoline and diesel fuel is a specific amount per litre, designed to approximate a 13.5 per cent ad valorem tax on these items. The specific tax rates are adjusted quarterly to reflect movements in the industrial product price index for these items. Rebates for tax-paid inventories of gasoline and diesel fuel will be specific per litre amounts, equal to the per litre FST rates on regular unleaded gasoline and diesel fuel in effect on December 31, 1990.
Propane is currently taxed at the rate of 13.5 per cent, but only on 17 per cent of the manufacturer's price. The rebate for tax-paid propane held in inventory will therefore be approximately 17 per cent of the general rebate factor -- 1.4 per cent.
Motor vehicles, currently taxed at the wholesale level [at 13.5 per cent], will qualify for an 11.1 per cent rebate factor (Appeal Record, volume II, page 506).
-  Because no specific factor was provided for alcoholic beverages, those goods were, according to the plan announced by the Minister of Finance, to be relegated to the 8.1 percent general factor. Despite the persistent objections of the respondent and the liquor boards of the other provinces, which called for a specific factor to be established for alcoholic beverages, the Minister of Finance adopted those factors on December 18, 1991, without making any changes (Appeal Record, volume II, pages 196 to 199 and 441 to 452).
-  The evidence provides an indication as to how the factors adopted by the Minister were formulated. It was expected that a majority of rebate applications would come from retailers (Appeal Record, volume II, pages 473 and 492). The general factor of 8.1 percent was designed to compensate for the tax that a retailer would have paid on goods taxed at 13.5 percent. The 5.4 percent difference between that rate and the rebate factor derived from the fact that the value of a retailer's inventory necessarily reflected costs on which no tax had been paid, such as profits taken by the intermediaries who preceded the retailer in the chain of distribution, and transportation costs (Appeal Record, volume II, pages 493-494). The rebate factor was therefore calculated by discounting 40 percent of the tax rate that applied to the goods in question, to reflect that untaxed portion of the cost of a retailer's inventory and to identify the amount of the tax actually paid by the retailer (Appeal Record, volume II, pages 493 and 494).
-  The rebate factors provided for construction materials, mobile homes and propane were designed in the same way while taking into account the specific rates that applied to those goods. For instance, in the case of construction materials, the tax rate was 9 percent and the rebate factor was set at 5.6 percent. Mobile homes were subject to the same rate, but since only half of the sale price was taxable, the factor was set at 2.8 percent (50% x 5.6%). The situation was the same for propane, 17 percent of the sales of which were taxable at 13.5 percent, and for which the rebate factor was set at 1.4 percent. In each of those cases, the rebate factor was established by discounting about 40 percent of the effective tax rate that applied to those goods.
-  On the other hand, as we can see, the rebate factor for gasoline and diesel fuel was equal to the tax rate that applied to those goods. The fact that the rate was not discounted suggests that the rate was designed to identify the tax that a firm at the top of the distribution chain would have paid and whose inventory costs did not include any component on which tax was not paid.
 Lastly, motor vehicles, which were taxed at a rate of 13.5 percent, were assigned a specific rebate factor of 11.10 percent. That factor is explained by the special treatment given to those goods under the former Act. Under subsection 2(1) of that Act, the wholesaler or importer of those goods was deemed to be the manufacturer thereof with the result that the tax was levied on their sale price rather than on the manufacturer's sale price. The effect of that change in the trade level where the tax was levied was to increase the tax, since the wholesaler's or importer's sale price included not only the manufacturer's profit, but also their own profit. The enriched rebate factor of 11.10 percent, reflects the fact that the tax on these goods was levied on a higher base.
-  The reductive effect of the general factor of 8.1 percent, when applied to the respondent's circumstances, limited the rebate to which it was entitled to $5,068,481.64, while the tax it had actually paid on inventory held as of January 1, 1991, amounted to more than double that amount. The rebate claimed was calculated by multiplying the value of the inventory held on that date by 19 percent (Appeal Record, volume II, pages 556 and 560; see also volume I, pages 155 and 183). Counsel for the appellant conceded at the beginning of the hearing that the respondent had correctly calculated the tax it had paid on the inventory on hand at January 1, 1991, and that the shortfall between the taxes paid and the amount refunded was as the Trial Judge had determined.
-  The evidence was that the respondent was not the only one so affected: alcoholic beverages are marketed in essentially the same way across Canada. The shortfall incurred by the liquor boards of the provinces, the Yukon and the Northwest Territories as a result of the application of the general rebate factor to their respective inventories of alcoholic beverages as at January 1, 1991, amounted to $29.1 million, according to a study by the Canadian Association of Liquor Jurisdictions (Appeal Record, volume II, page 453). That figure suggests that the total tax paid on the alcoholic beverages held in inventory by those boards was about $60 million.
 In his analysis, the Trial Judge noted that counsel for the appellant admitted that the purpose of section 120 was to refund the taxes paid under the former Act:
___Accordingly, the two parties agreed that the purpose of section 120 was to avoid the taxpayers in question, who had already paid the old sales tax on goods in inventory, having to pay again on the same goods, since they would be subject to the new taxation system of the GST, without receiving a full rebate. However, I must determine the veracity of this assertion by applying the aforementioned rules of interpretation..
 After noting that paragraph 120(3)(c) imposes a duty on the Minister of Revenue to pay a rebate (paragraph 38), he commented that the Act contains no definition of the word "remboursement" (paragraph 41). Citing the ordinary meaning of the word, the Trial Judge stated, at paragraph 44 of his reasons:
As can be seen, the use by Parliament of the word "remboursement" (rebate) allows us to conclude with greater certainty that its intent was in fact to require the rebate of a sum of money and that the sum of money owed must as a general rule be rebated in its entirety.
 In the opinion of the Trial Judge, the 8.1 percent general tax factor did not produce a result that was consistent with the purpose of the Act, in the respondent's case, for two reasons. First, that factor is disproportionate in relation to the tax previously paid by the respondent, at the rate of 19 percent (paragraph 49). Second, the general tax factor did not take into account the operating methods of the respondent, which is at the top of the distribution chain and does not use intermediaries to market its products (paragraphs 52 to 54).
 Ultimately, the Trial Judge concluded as follows:
[_57_]__Accordingly, having concluded that so far as the plaintiff's situation is concerned--and I make a point of limiting the scope of this judgment to the plaintiff's exceptional situation, performing in combination the functions of importer, distributor, wholesaler and retailer--it appears that the 8.1 percent rebate factor provided for in paragraph 3(h) of the Regulations, adopted under the regulatory power conferred by subsection 120(5) of the Act, is ultra vires the said powers conferred in that it does not comply with the purpose of the section in question as set out above. Nevertheless, since that section is intra vires in most cases, I do not intend to rule that it is invalid, so as not to have a needless legal void that could not be filled by adopting new regulations.
__However, as I have found that paragraph 3(h) of the Regulations is not consistent with the purpose of the Act, the plaintiff is necessarily entitled to compensation. In view of the particular circumstances of the case at bar, therefore, I find that the plaintiff is entitled to a full rebate of the amount claimed.
Alleged errors in the judgment a quo
-  The appellant contends that the Trial Judge erred in law when he concluded that the enabling Act intended to allow registrants to recover all of the tax paid on goods in inventory as of January 1, 1991. In the appellant's submission, Parliament rather intended to give the Minister of Finance the powers needed to ensure an equitable transition by taking into account the particularities of the two overlapping schemes.
-  The power to prescribe the method and factors to be used in calculating rebates is, on its face, very broad, and nowhere does it say that there must be a full rebate. The factors prescribed by the Minister of Finance did not have to produce a rebate of the tax paid under the former Act in all cases.
-  In the alternative, the appellant submits that the Trial Judge could not have declared subsection 3(h) of the Regulations ultra vires and inoperative solely as against the respondent. If that subsection is ultra vires, it is inoperative as against everyone, and so any rebate made under its authority is null and void.
-  Lastly, the appellant submits that it was not the role of the Trial Judge to declare that the respondent was entitled to receive the rebate claimed, after concluding that the Regulations were ultra vires as against it.
Analysis and Decision
Is subsection 3(h) of the Regulations ultra vires?
 As this Court said in Canada v. St. Laurence Cruise Lines Inc.,  3 F.C. 899 at page 912, per Décary J.A.:
The first thing that must be done when the validity of a regulation has been challenged is to construe the enabling statute. We must be careful not to apply the principles of interpretation laid down in the case law to the regulations without first considering the scope of the specific grant of regulatory power made by the legislation in question.
-  In this case, the regulation making power conferred by the legislation is, on its face, very broad. Subsection 120(5) provides that the rebate payable to a person in respect of the person's inventory as of the beginning of January 1, 1991 is the amount determined by the method prescribed by the Minister using the factors prescribed by the Minister.
-  On the other hand, that regulatory power must be interpreted having regard to the purpose of the Act and the purpose of the particular provision that grants the power ( 1 S.C.R. 2">CKOY Limited v. R.,  1 S.C.R. 2;  1 S.C.R. 261">Alaska Trainship Corporation et al v. Pacific Pilotage Authority,  1 S.C.R. 261;  S.C.R. 335">Attorney General of Canada v. Siek,  S.C.R. 335).
 The purpose of the Act in the instant case is plain when regard is had to the context in which it was enacted. A new scheme for the taxation of goods (and services) was to replace the former scheme as of January 1, 1991. When that day dawned, manufacturers, wholesalers and retailers would have goods in inventory on which the tax had been paid under the former Act, and which, absent transitional measures, would also be subject to the GST. As indicated by the document tabled in the house by the Minister of Finance on December 19, 1989, and the explanatory notes that accompanied Bill C-62, the undisputed purpose of the Act was to avoid double taxation by refunding the tax that had been paid under the former Act (Appeal Record, volume II, pages 224 and 312).
-  However, in order to refund the tax paid under the former Act, it was first necessary to determine the extent of the tax so paid. The difficulty in this regard was significant. The tax under the former Act applied at the beginning of the distribution chain (on the manufacturer's sale price, or on the duty paid value of imported goods) and became part of the price paid by the subsequent purchaser. That person, while not necessarily knowing the extent of the tax, incorporated it into its sale price, so that it became practically impossible for the subsequent purchaser to identify the tax component reflected in its purchase price. The majority of rebate claims were expected to come from retailers, that is those who were least able to identify the tax component of their inventories (Appeal Record, volume II, pages 473 and 492).
-  On the other hand, it was possible to estimate with some accuracy the tax paid at each market level using theoretical models that discounted the applicable tax rate to take into account the specific market level where the tax had to be identified (Appeal Record, volume II, pages 216 and 493-494). That approach produced a relatively accurate picture of the tax reflected in firms' inventory cost, assuming that they were operating as manufacturers, wholesalers or retailers. However, in a diversified economy where those roles are combined and intermingled, it was not easy to classify firms within that framework (Appeal Record, volume II, page 474).
 This was in the context in which Parliament authorized the Minister of Finance to prescribe the method and factors to be used in calculating the rebate. It seems obvious that Parliament, having regard to the above described difficulties, entrusted the Minister of Finance with the task of identifying the amount of the tax paid under the former Act as accurately as possible, so that it could be refunded.
-  Generally speaking, any factor based on relevant considerations and designed with a view of allowing the tax paid under the former Act to be refunded was authorized by the enabling Act. The Minister had the authority to prescribe the number of factors that were needed in order to achieve that goal. It follows that he did not have to examine the specific situation of each registrant. It was open to the Minister to design rebate factors based on categories of goods. He could even identify a factor of general application, as long as the targeted goods were amenable to it.
-  The specific factors provided in the Regulations are consistent with the purpose of the Act, because they were designed on the basis of relevant considerations and in such a way as to identify the tax paid under the former Act. The same is true of the general factor, for virtually all of the goods to which it was to apply. However, like the Trial Judge, I do not see how the Minister of Finance could have relegated the treatment of alcoholic beverages to the general factor without going beyond the power granted by the enabling Act and falling into arbitrariness.
-  First, the sale of alcoholic beverage in Canada is not so minor that the Minister could have dealt with those goods in an incidental manner. The evidence was that the refund of the taxes paid on alcoholic beverages under the former Act exceeded the refund envisaged by the Department of National Revenue both for gasoline and for diesel fuel together (Appeal Record, volume II, page 462). It would have been equivalent to 80 percent of the anticipated refund for those goods, according to another study produced by the Department of Finance (Appeal Record, volume II, page 459).
-  The difficulties associated with identifying the tax paid under the former Act did not apply to all goods. The purpose of the Act is such that, the Minister had the duty to prescribe the factors that identified the tax paid as accurately as possible, based on the category of goods in question. The case of gasoline and diesel fuel illustrates the situation where the extent of the tax levied under the former Act could be calculated using the rate of the tax that applied to those goods, and where the rebate factor was established accordingly.
-  The evidence was that the sale of alcoholic beverages is a regulated business which is carried on in essentially the same manner across Canada. The provinces' liquor boards handle the sale of those goods, from start to finish of the marketing process, with the exception of corner stores and grocery stores in Quebec (Document entitled F.S.T. Rebate on Alcohol Beverage Inventories produced by the Canadian Distillers Association, page 449, paragraph 4). In the circumstances, the extent of the tax paid on those goods should, as a rule, have been equivalent to the rate of tax paid under the former Act, without the discount incorporated by the general factor, to take account of the market level.
-  As well, as we have seen, the general factor was designed on the basis of the 13.5 percent tax rate, while the tax levied on alcoholic beverages was 19 percent. The rate of the tax paid under the former Act was obviously an essential consideration in identifying the tax paid under the former Act, which was taken into account by the Minister in formulating each of the factors prescribed.
-  Apart from arguing that the Minister of Finance had broad discretion, the appellant offered no justification for the way in which alcoholic beverages were treated. That discretion, no matter how broad, certainly did not allow the Minister to establish the amount of rebates as he saw fit, or to favour certain goods at the expense of others. He had to identify the factor most likely to achieve the objective established by Parliament, based on relevant considerations. The way in which alcoholic beverages were treated disregarded the considerations that were relevant in identifying the tax that had been paid on those goods, and is contrary to the purpose of the Act.
-  Like the Trial Judge, I therefore conclude that subsection 3(h) of the Regulations is ultra vires. However, as may be seen, I believe that the Regulations are ultra vires not so much because they do not take the appellant's situation into account, but because they do not have take into account the goods which it was selling. In my opinion, subsection 3(h) is ultra vires in so far as it applies to alcoholic beverages.
Remedy to be granted
-  Two questions arise in terms of the remedy that may flow from that conclusion. First, can the Court declare subsection 3(h) of the Regulations ultra vires only in so far as it applies to alcoholic beverages?
-  The appellant submits that a regulation cannot as a rule be ultra vires and consistent with the enabling Act at the same time. If subsection 3(h) is ultra vires in certain aspects, it must be declared inoperative in its entirety. The legal vacuum which would result if this argument was to prevail is significant, since the majority of rebates under the transitional program (70 percent) were to be paid pursuant to subsection 3(h) of the Regulations (Appeal Record, volume II, page 462).
 This Court recently considered a similar question (British Columbia Ferry Corp. v. M.N.R.  4 F.C. 3). In that case, regulations made under both the Excise Tax Act and the Customs Act were held to be ultra vires in that they excluded the British Columbia Ferry Corp. from an exemption. The Court (per Strayer J.A.), after finding the regulations to be ultra vires, examined the remedy that should be granted at considerable length:
 ... Should the Ships' Stores Regulations from 1986 onward be considered entirely invalid in respect of their designation of exempted ships so as to deny their benefits to all ship operators? Should the Court revise the regulations to give the appellants relief, by striking out the invalid parts or by reading in language that would extend the exemption to them? Should the regulations be severed so as to preserve their benefits for those previously entitled? Or should the Court simply declare that this is not a valid exercise of the regulation-making power?
 The Court answered those questions as follows:
 In determining first whether the whole of the regulations should be struck down because of their invalid effect on the appellants, the Court can, I believe, derive some guidance from the jurisprudence developed by the Supreme Court of Canada in respect of legislative provisions rendered invalid by the Constitution Act, 1867 [30 & 31 Vict., c. 3 (U.K.) (as am. by the Canada Act, 1982, c. 11 (U.K.), Schedule 1 to the Constitution Act, 1982, R.S.C. 1985, Appendix II, No. 5] and by the Canadian Charter of Rights and Freedoms. It has already been recognized by this Court in  1 S.C.R. 261">Alaska Trainship Corporation et al v. Pacific Pilotage Authority this Court ( F.C. 54 at 79-82) and by the Supreme Court of Canada on appeal ( 1 S.C.R. 261"> 1 S.C.R. 261 at 277-8) that tests of severability developed in pre-Charter cases involving the constitutional invalidity of portions of statutes could apply to regulations containing provisions not authorized by the enabling statute. There appear to be two main options. Either the Court can sever and annul the impugned portion where it can be determined that that portion was intended by the legislator to be cumulative, not dependent on other provisions, and was "enacted distributively and not with the intention that either all or none should come into force" (statement by Rand J. in  S.C.R. 1">Reference as to the validity of section 5(a) of the Dairy Industry Act  S.C.R. 1 at 53-54). Or the Court can refuse to sever where it considers that after finding a certain portion to be invalid
[W]hat remains is so inextricably bound up with the part declared invalid that what remains cannot independently survive . . . . (Viscount Simon in Attorney General for Alberta v. Attorney General for Canada (1947) A.C. 503 at 518).
In the Alaska Trainship case involving regulations made by the  1 S.C.R. 261">Pacific Pilotage Authority under the Pilotage Act, 1971 [S.C. 1970-71-72, c. 52], this Court applied the latter characterization holding the whole of an exempting regulation to be invalid. However Laskin C.J., writing for the Supreme Court on appeal, applied the former characterization, found the impugned portion to be invalid and severable, and allowed the remainder of the regulation to apply. In that case the net effect was for the ship in question to gain an immunity from compulsory pilotage requirements because, by the Court striking out a few words which had excluded the ship from the exemption, the remainder of the section became applicable to it and it would thus enjoy the exemption. It is important to note that the court's goal in both sets of reasons was to determine what the intent of the law-maker (there the Pilotage Authority) would have been if it had contemplated the possibility that some of the regulations might be invalid. (Emphasis added.)
-  In this case, we have seen that subsection 3(h) of the Regulations is consistent with the purpose of the Act, in relation to virtually all of the goods to which it applies. However, it is ultra vires in its application to alcoholic beverages, because, in the case of those products, its effect runs counter to both the objective of Parliament and the purpose of the Act.
-  In the circumstances, the question to be answered is what the intent of the holder of the delegated power would have been if he or she had contemplated the possibility that subsection 3(h) of the Regulations was invalid insofar as it applied to alcoholic beverages. That question is easily answered, when one considers that subsection 3(h), and in particular the factor that it reflects, achieves the objective of the Act with respect to the goods for which it was designed (see paragraph 17, supra), independently of the fact that it is not consistent with that objective in relation to alcoholic beverages. It is therefore likely that in the event that subsection 3(h) of the Regulations were invalid in relation to alcoholic beverages, the Minister of Finance would have intended the subsection to be severable and to remain in effect with respect to other goods.
 In the circumstances, it is the duty of the Court to sever subsection 3(h) of the Regulations and to declare it to be ultra vires only in so far as it applies to alcoholic beverages.
-  The second difficulty facing the Court is this: can we fill the legislative vacuum that results from this declaration of invalidity, or must we temporarily suspend this declaration in order to enable the Minister of Finance to make the Regulations consistent with the legislative intent? The Trial Judge upon declaring that the respondent was entitled to receive the rebate claimed, chose the former solution.
-  In British Columbia Ferry Corp., Strayer J.A., again citing Charter decisions, also considered whether the Court could fill the regulatory vacuum resulting from its declaration of invalidity:
 The criteria for judicial remedies in respect of under-inclusive legislation were analysed at length in H.M. v. Schachter et al ( 2 S.C.R. 679) and these criteria have been applied since. (See e.g. Vriend v. Alberta  1 S.C.R. 493; M. v. H.  2 S.C.R. 3). In my view, with at least one exception, the criteria articulated there should also be applied in this non-constitutional area of ultra vires delegated legislation. In both cases the lawmaker has ignored either Charter or statutory limits on its authority in the distinctions it makes between those who are entitled to benefits and those who are not. In both cases if a court finds the denial of benefits to some to be unauthorized, to give that disadvantaged group an equivalent benefit it must either "read out" (i.e. sever) offending barriers or "read in" certain provisions which will remedy that provision. In Schachter, the Supreme Court laid down criteria for reading out or reading in and those criteria were mainly designed to give effect to the presumed will of the lawmaker. It seems to me that similar principles should apply to reading in, in the case of offending regulations. There is however at least one distinction between criteria applied to correct any violation of the Charter and criteria applied to correct unauthorized delegated legislation. In the Charter context, as stated in Schachter, there is an extra factor militating in favour of reading in, in order to "protect the purposes of the Charter". For example, as the Charter dictates equal benefits under the law a court should, in balancing various factors in favour and against reading in, give some weight to the importance of directly bringing about, through judicial remedy, the immediate extension of equal benefits to those wrongfully deprived. In a case of delegated legislation such as the present regulations, however, there is no particular principle of equality mandated by the governing law, the Excise Tax Act, nor does the evidence establish that we have a class of needy appellants, isolated from the mainstream and historically disadvantaged..
 This is the conclusion to which he came:
 In the present case I have concluded above that the distinctions which the Governor in Council did make in the Ships Stores Regulations could not be justified on the basis of the apparent purpose of the legislation authorizing those regulations. But I believe it is beyond the role of this Court in effect to devise a valid scheme for exempting "ships stores" through selective excisions or additions to the Ships Stores Regulations, or to the statutory definitions of "inland waters" or "inland voyage" or "minor waters of Canada" incorporated by reference in the regulations. I believe that a meaningful pursuit of the stated purpose of the tax exemption would require an extensive knowledge of the shipping industry. For example, we have no evidence before us as to the relative costs to the treasury of the scheme as it now exists and the scheme which the appellants would have us endorse, namely one of exemption of all vessels travelling in the inland waters of Canada (the definition of "inland waters" apparently being a matter left to common law and international law).
 In short, there is no practical way in which the Court can, through selective nullification of the regulations and their adopted definitions, or by reading in some simple exemptions, design a scheme which we could confidently pronounce as accurately implementing the intention of the Excise Tax Act in its conferral of the regulation-making power in subsection 59(3.2), nor which we could hold out as implementing an intention which the Governor in Council would have had, had it known the discrimination against the appellants to be invalid. We therefore cannot give the appellants a retroactive entitlement to claim refunds or drawbacks under the existing Ships Stores Regulations. ...
 In the circumstances, for the same rationale as prevailed in Schachter, the best solution would appear to be a delayed declaration of the invalidity of the Ships Stores Regulations. This will enable the Governor in Council to devise a scheme which is legally defensible given the terms of its regulation-making authority under the Excise Tax Act. It will prevent the indefinite continuation of a discriminatory scheme for which the respondent has provided no rationale explanation supported by the facts of the Canadian shipping industry. As the Governor in Council should be able to take corrective action much more quickly than Parliament I would set the effective date of a declaration of invalidity of the Ships Stores Regulations at October 1, 2001.
 It is important to note that whatever approach is taken in this case, the impact will be limited. Unlike the regulations in question in British Columbia Ferry Corp., the Regulations here have no ongoing application. Moreover, their effect once amended, would be confined to registrants who held inventories of alcoholic beverages as of January 1, 1991, and whose entitlement to a rebate is not statute barred. In this respect, the Act limited entitlement to a rebate to registrants who applied before January 1, 1992 (subsection 120(8)) and counsel for the appellant informed us that there was only one case pending in the Trial Division awaiting the decision to be handed down in this case.
-  The question that arises is this: is the Court in a position to say how the holder of the delegated power would have designed the factor to be applied to alcoholic beverages if he had known that the Act required that a special factor be established for those goods? A positive answer would invite the Court to fill the regulatory vacuum that results from its declaration of invalidity.
-  As we have seen, the purpose of the Act, and in particular of section 120, is unequivocal. The reasoning followed by the Minister of Finance in designing and implementing the method and factors that Parliament had authorized, in order to achieve that objective, is also readily understood. It involved formulating factors which, when applied to the cost of inventories held as of January 1, 1991, would identify, with as much accuracy as possible, the amount of the tax paid under the former Act, so that it could be refunded.
-  It can therefore be said, without fear of error, that in establishing a specific factor for alcoholic beverages the Minister of Finances would have had regard to the rate of tax that applied to those goods under the former Act. He would also have had regard to the uniform method by which those goods are marketed which results in the cost of inventories composed of those goods being, as a rule, equal to the amount on which the tax had been paid.
-  In the circumstances, it seems obvious that the Minister would have made the rebate factor that applied to alcoholic beverages coincide with the rate of tax that was levied on those goods under the former Act, as he did for gasoline and diesel fuel. Incidentally, the foresight that I am imputing to the Minister of Finance is verified by the experience of the respondent, which, as the appellant admits, accurately identified the tax levied on the inventory it held as of January 1, 1991, by applying a factor of 19 percent.
-  The approach advocated by Strayer J.A. in British Columbia Ferry Corp. would therefore lead me to conclude that the Trial Judge was justified in declaring that the respondent was entitled to receive the rebate claimed, despite the regulatory vacuum that resulted from the declaration of invalidity.
-  However, it is not necessary to rely on decisions under the Charter to dispose of this aspect of the case. It is a matter of settled administrative law that regulations may not be necessary if the legislative intend is clear and unequivocal.
-  In Carling Export Brew & Malt Co. v. the King,  A.C. 435, the Judicial Committee of the Privy Council held that an excise tax exemption for goods "manufactured for export, under regulations prescribed by the Minister of Customs and Excise" was applicable even though the Minister had made no regulations. The purpose of the Act, in the opinion of the Privy Council, was sufficiently clear that no regulations were necessary in order for the Court to be able to give effect to the Act.
-  The Supreme Court of Canada disposed of an identical question in  1 S.C.R. 787">Irving Oil Ltd. v. Provincial Secretary of New Brunswick,  1 S.C.R. 787. That case involved a provision that exempted the following from the sales tax levied by the province of New Brunswick:
... machinery and apparatus as defined by the Minister, and complete parts thereof, which in the opinion of the Minister one to be used directly in the process of manufacture or production of goods for sale or use.
[...] les machines et appareils que le Ministre détermine et leurs pièces achevées qui, de l'avis du Ministre, doivent servir directement à la fabrication ou à la production de marchandises destinées à la vente ou à l'usage.
(Social Services and Education Tax Act, R.S.N.B. 1973, c. S-10, s. 11(o))
-  The New Brunswick Supreme Court, Appeal Division, had first concluded that this provision was inoperative, in the absence of a ministerial definition (page 793). The Supreme Court, relying on the decision of the Privy Council in Carling Export, supra, held that the exemption was applicable even in the absence of such a definition.
-  Pigeon J., writing for the Court, stated the issue as follows (page 794):
The question therefore is whether, in the absence of a ministerial definition, the exemption avails for all machinery and apparatus coming within the class specified in para. (o). It is obvious that this class of goods is sufficiently described to be ascertainable without a definition. It is not the kind of indefinite expression which requires a definition in order to make sense.
 He added, regarding the decision of the Privy Council in Carling Export (page 795):
It was held that, although no regulations had been prescribed by the Minister [in Carling Export] under the provision, the brewery company was entitled to the benefit of the exemption. Lord Thankerton said (at pp. 438 and 439):
In their Lordships' opinion it is not to be readily assumed, in a taxing act, that Parliament has delegated to a Minister the power to settle the limits of taxation, and such intention must be clearly shown by the terms of the statutory provision. A good example of such clear expression is to be found in the Dominion Press case,  A.C. 340, which related to a statutory proviso that the taxes should not be payable "on goods exported or on sales of goods made to the order of each individual customer by a business which sells exclusively by retail under regulations by the Minister of Customs and Excise, who shall be the sole judge as to the classification of a business." It is obvious that no business could claim to be one of the class on which the benefit of exception was conferred unless and until the Minister had placed the business within the class. Their Lordships are unable to find any similar clear expression in the present case, ...
In my view this reasoning applies a fortiori in the present case. Section 28 of the Act, already quoted, provides for an appeal to the court from the decision of the Minister on an assessment. If by issuing no definition, the result was, as the Appeal Division held, that the claim of exemption failed it would mean that by the simple expedient of not making use of the defining power, the Minister could make his decisions unassailable. It must also be considered that the power of issuing a definition is to be exercised in good faith and it would be usurpation of power for the Minister to suppress the exemption by issuing no definition. For those reasons, I must hold that the decision of the Court of Appeal cannot be supported.
 The purpose of the Act in this case is also clear. The Minister of Finance did not have the power to determine the amount of the rebates as he saw fit. He had to prescribe the factors most apt to provide for the refund of the taxes paid under the former Act for each category of goods. In the case of alcoholic beverages, this factor, in order to achieve that goal, had to be equivalent to the rate of the tax levied under the former Act. Accordingly, in my opinion, the Trial Judge was justified in concluding that the respondent was entitled to a rebate calculated on the basis of that rate, despite the regulatory vacuum.
 I would dismiss the appeal with costs.
"I concur in these reasons.
Alice Desjardins J.A."
Robert Décary J.A."
Certified true translation
Suzanne M. Gauthier, C. Tr., LL.L
FEDERAL COURT OF APPEAL
COUNSEL AND SOLICITORS OF RECORD
FILE NO.: A-571-00
STYLE OF CAUSE: Her Majesty the Queen v. Société des alcools du Québec
PLACE OF HEARING: Montréal, Québec
DATE OF HEARING: January 17, 2002
REASONS FOR JUDGMENT: Marc Noël, J.A.
CONCURRED IN BY: Alice Desjardins, J.A.
Robert Décary, J.A.
DATE OF REASONS: February 22, 2002
Jacques Savary FOR THE APPELLANT
Claude Desaulniers FOR THE RESPONDENT
SOLICITORS OF RECORD:
Morris Rosenberg FOR THE APPELLANT Deputy Attorney General of Canada
McCarthy Tétrault s.r.l. FOR THE RESPONDENT