Sturdy Truck Body (1972) Limited v. Her Majesty the Queen, [1995] 2 CTC 338

Tremblay-Lamer J.:—

In this world nothing is certain but death and taxes:

Benjamin Franklin, 1789

This case arises before me because Mr. Franklin was wrong: not even taxes are certain. The tax in question is an excise tax that over the years has been applied intermittently to the plaintiff. I am sure that had this tax been as certain as Benjamin Franklin suggests, it would have been promptly payed. This litigation only arises because over a long period no one seemed to know how the tax was to be applied, least of all the government. The Court’s role is to provide some certainty, and to apply the law to the plaintiff’s situation.

The present matter arises on appeal from a decision of the Canadian International Trade Tribunal (hereinafter the ’’Tribunal"), though the appeal. takes the form of an action. [1] The action is a trial de novo, although the evidence that was before the Tribunal forms part of the present record.

1. The facts

The basic facts of the case are undisputed. It is only the legal ramifications of these facts that are at issue. Essentially, the plaintiff has launched an appeal from a decision of the Tribunal that found that it had been correctly assessed by Revenue Canada. The plaintiff had claimed a sales tax exemption for some of its products, and had not charged sales tax to its customers. The plaintiff was subsequently reassessed and found to owe in excess of $60,000, including penalties.

The story begins with the formation of the plaintiff, Sturdy Truck Body, in the early 1970s. It is owned and operated by Lucien and Linda Roussy. This company was incorporated to import and manufacture truck parts and additions. Over time the company has become a manufacturer of many types of truck bodies, including stake bodies and service bodies. A truck body is a metal shell that fits on a truck chassis. A service body is characterized by multiple cabinets that allow a person to transport equipment to the field in an organized fashion. Under the Excise Tax Act, R.S.C. 1985, c. E-15, as amended, certain truck bodies are exempt from sales tax (see the statutory provisions below).

Prior to 1984, the plaintiff did not manufacture service bodies. All of the evidence concerning the pre-1984 period involved the taxation of truck bodies other than service bodies. During this period, there was some confusion as to whether, for the purposes of tax assessment, the government would focus on what weight of truck chassis the bodies were installed upon, or how much weight the body could bear. In January 1982, the government’s assessment policy changed from an end-use emphasis to a

carrying capacity emphasis. [2] By 1984 the plaintiff was making service bodies, and supplied the government with a report describing the carrying capacity of its service bodies. The Roussys indicated in their evidence that they did not collect any excise tax on their service bodies because they felt, and were told, that they fell within the tax exemption as their service bodies met the weight carrying capacity requirement.

On February 12, 1987 the plaintiff was advised by way of a letter from the Ministry of a change in policy:

In order for a truck body to be considered as being designed for and capable of permanent installation on a truck chassis with a gross vehicle mass rating of 7250 kg (16,000 lbs) or more, headquarters has indicated that the manufacturer must demonstrate that a sizeable percentage of that model of truck body is in fact installed on truck chassis over 16,000 lbs GVWR.

Thirty-three of the 36 truck bodies installed during the relevant period were installed on light trucks. The plaintiff was reassessed and on May 27, 1987 was found to be liable for $60,243.58 for tax, penalty and interest. This amount covered the period May 1, 1983 to October 31, 1986.

2. The relevant legislative provisions

A. The Excise Tax Act

27(1) There shall be imposed, levied and collected a consumption or sales tax at the rate specified in subsection (1.1) on the sale price of all goods

(a) produced or manufactured in Canada....

29(1) The tax imposed by section 27 does not apply to the sale or importation of the goods mentioned in Schedule III, other than those goods mentioned in Part XIII of Schedule III that are sold to or imported by persons exempt from consumption or sales tax under subsection 31(2).

51.1 (1) The Minister may, in respect of any matter, assess a person for any tax, penalty, interest or other sum payable by that person under this Act and may, notwithstanding any previous assessment covering, in whole or in part, the same matter, make such additional assessments as the circumstances require.

(2) The Minister may, in respect of any matter covered by an assessment, vary the assessment or reassess the person assessed.

SCHEDULE III PART XVII TRANSPORTATION EQUIPMENT

1. Highway truck tractors; trucks designed primarily for the carriage of freight with a gross vehicle mass rating, within the meaning given to that expression by regulation of the Governor in Council, of 7,250 kilograms or more.

8. Parts and equipment, designed for permanent installation on the tax-exempt goods mentioned in sections 1, 2, 3, 4, 5, 5.1, 5.2 and 7 of the Part where, in the opinion of the Minister, the fair sale price by the Canadian manufacturer or the fair duty-paid value of the imported article, exceeds two thousand dollars per unit; all parts and equipment installed on the tax-exempt goods mentioned in sections 1, 2, 3, 4, 5, 5.1, 5.2 and 7 of this Part prior to the first use of those tax-exempt goods; except that parts and equipment designed for permanent installation or installed on the tax-exempt goods mentioned in section 1 of this Part are exempted from tax only if they are designed to facilitate the carriage or handling of freight.

B. Gross Vehicle Mass Rating Regulations

General

2. For the purpose of sections 1 and 2 of part XVII of Schedule III to the Excise Tax Act, the expression "gross vehicle mass rating" means the value specified by the vehicle manufacturer as the mass of a single loaded vehicle.

3. The substantive issues

1. Estoppel

Estoppel is a principle of equity. When one person, by declaration, act or omission, has intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he or she may be allowed in any suit or proceeding between them to deny the truth of that thing. [3] To make out estoppel a party must show that it has been prejudiced. [4] Moreover, the party must be influenced by the statement or act” and the sayer must intend the statement to be relied upon. (See Hegan v. Fredricton Boom Co. (1878), 18 N.B.R. 165 (C.A.).)

In the case at bar, the plaintiff claims that the Crown is estopped from proceeding because it held out an interpretation of the Act upon which the plaintiff relied to its detriment. Yet, the law is very clear: In the context of statutory interpretation, acts of the Crown cannot give rise to estoppel. [6] Allowing estoppel to lie against the Crown would allow the government to make decisions that it cannot make within its statutory jurisdiction. It is up to the Court to have the final word on the interpretation of statutes, not government officials. Nevertheless, "This reasoning, which results in denial of any remedy has all the beauty of logic and all the ugliness of injustice". [7]

In Gibbon v. The Queen, [1977] C.T.C. 334, 77 D.T.C. 5193 (F.C.T.D.) the Department of Revenue disallowed some deductions taken by a taxpayer after having told him that the deductions were acceptable. Had he known that the deductions would not be allowed, he could have chosen to claim other deductions. The Court found the entire matter unjust, but concluded that estoppel did not lie against the Crown. Similarly, in Shekel, v. M.N.R. [1972] C.T.C. 210, 72 D.T.C. 6178 (F.C.T.D.) reversed on other grounds [1973] C.T.C. 202, 73 D.T.C. 5178 (C.A.) affirmed (1974), [1975] 2 S.C.R. 233, [1974] C.T.C. 416, 74 D.T.C. 6268 the Court found that an Interpretation Bulletin could not estop the Crown.

The Courts in recent years have allowed some claims of estoppel to proceed against the Crown. Yet, it is quickly apparent when reading these decisions that estoppel can only lie against the Crown when an exercise of non-statutory discretion is involved. When interpreting a statute or acting pursuant to a legislative provision, all the authorities agree that estoppel cannot lie against the Crown (M.N.R. v. Inland Industries Ltd., [1974] S.C.R. 514, [1972] C.T.C. 27, 72 D.T.C. 6013): "It seems clear to me that the Minister cannot be bound by an approval given when the conditions prescribed by law were not met". In the case at bar, a provision of the Excise Tax Act was interpreted. It is up to the Court to determine the correct interpretation regardless of what interpretation the Crown has applied in the past.

In my view, in the circumstances of this case, estoppel does not lie against the Crown. The outcome may appear unfair, but it is necessary to prevent the statute from being subverted.

2. Legitimate expectations

The plaintiff submits that as a matter of fairness the Crown should not be allowed to proceed against a taxpayer to whom it has given bad advice. The Defendant and I both took this submission to mean that the plaintiff was invoking the doctrine of legitimate expectations.

The doctrine of legitimate expectations is a procedural doctrine with procedural remedies. The doctrine does not create substantive rights. (See Reference re Canada Assistance Plan (Canada), [1991] 2 S.C.R. 525, 6 W.W.R. 1, reversing (1990), 45 Admin. L.R. 34, 46 B.C.L.R. (2d) 273) Therefore, the doctrine cannot be used to supersede statutory requirements or other legally defined criteria. The doctrine only creates procedural rights to make representations or to be consulted where a representee has been prejudiced by relying on the representor’s representations. (See Canada (Minister of Employment & Immigration), v. Lidder, [1992] 2 F.C. 621, 136 N.R. 254 (F.C.A.), reversing (1987), 3 Imm. L.R. (2d) 284 (Imm. App. Bd.))

In the case at bar the plaintiff has claimed no procedural remedies, and none are available. Therefore, in my view, the doctrine of legitimate expectations is not applicable.

3. The interpretation of the terms "designed for" under the Excise Tax Act

The decisive issue in this case revolves around the interpretation of the term "designed for" permanent installation. The expression "designed for” is not defined in the Act and Regulations, and has given rise to a number of different interpretations by the Department of National Revenue and the Canadian International Trade Tribunal. Some rulings suggested that the payload capability was the determining factor, while others found the enduse criterion to be of importance when there is no clear evidence that the bodies are designed for heavy chassis. The following list summarizes the many criteria that have been used by the Tariff Board [8] to define the words at issue:

1. The manner in which equipment is installed is important when deciding how it is to be characterized. (See GRS Tool & Die Inc. v. The Deputy Minister of Revenue for Customs and Excise (1981), 7 T.B.R. 313, 3 C.E.R. 109 (T.B.))

2. Functional considerations can be taken into account when comparing two pieces of equipment. (See Peerless Page Industries Ltd. v. The Deputy Minister of Revenue for Customs and Excise (1983), 8 T.B.R. 457, 5 C.E.R. 99 (T.B.))

3. The intent of the manufacturer is the deciding factor. (See Walkem and Wayne Machinery Ltd. v. The Deputy Minister of Revenue for Customs and Excise (1983), 5 C.E.R. 504 (T.B.))

4. The ultimate use of the product is the deciding factor. [9]

In my opinion, the words "designed for" relate to a concept in the mind of the manufacturer as to the nature of the article and the fashion in which he intends to use it. In most cases, the application of this interpretation will be obvious. The nature of the article will be consistent with a particular use. There will be no need for further evidence to determine whether the article was designed for that use. However, there will be situations, like the present one, where modifications to the product are necessary to meet a specific use. In such cases, the burden will shift to the manufacturer to demonstrate that, despite the modifications, his or her intention was to design the object for that specific use.

In other words, where the evidence shows that the article was used in a different manner than what is claimed by the manufacturer, a presumption exists to the effect that the article was not designed for the use claimed. However, this presumption is rebuttable.

In the case at bar, the manufacturer claims that the service bodies were designed for heavy chassis (over 7250 kg GVMR). However, because 33 out of 36 of the bodies were installed on light chassis (under 7250 kg GVMR), the presumption is that they were designed for light chassis. Therefore, the burden is on the manufacturer to demonstrate that the bodies were designed for heavy chassis.

Mr. Roussy testified that he had designed ’’components” that would be suited for large or small chassis. He started with basic components capable of modification to meet the particular needs of the customer. They could be installed on heavy trucks and in his view, the modifications required were not of such importance to imply a change of design. [10] He stated that had he intended his service bodies to be mounted on light trucks he would have not made them so strong and solid.

The government mandated before 1987 that truck bodies were "designed for” heavy trucks when they could carry at least 10,000 lbs. Although this interpretation of the words "designed for" was given for stake and van bodies, it was assumed by the plaintiff that the same interpretation would be valid for the service bodies. The interpretation was confirmed by a letter dated January 28, 1985 by the Tax Interpretation Unit, Department of National Revenue. [11] This interpretation clearly favours the plaintiff, and is that which the plaintiff wants applied.

It is well settled that administrative policy and interpretation are not binding on either the Minister or the courts, as discussed above, but that they can be of some persuasive force when there is an ambiguity in the law. It is evident, in my view, that it is the ambiguity in the meaning of these words that has created the situation at bar. The failure of Benjamin Franklin’s maxim has resulted in a difficult situation for the plaintiff. In the light of the provision’s ambiguity, if in fact there is a reasonable interpretation which could favour the taxpayer, that interpretation should be effected. As stated by Estey J. in Johns-Manville v. The Queen, [1985] 2 S.C.R. 46, 2 C.T.C. 111, 85 D.T.C. 5373 at page 67 (C.T.C. Ill, D.T.C. 5382):

if the interpretation of a taxation statute is unclear, and one reasonable interpretation leads to a deduction to the credit of a taxpayer and the other leaves the taxpayer with no relief from clearly bona fide expenditures in the course of his business activities, the general rules of interpretation of taxing statutes would direct the tribunal to the former interpretation.

Therefore, if the evidence before me would have supported payload capacity test as a reasonable interpretation of the words "designed for", I would have been inclined to accept it. Unfortunately, this is not the case.

Mr. Patry, testifying as an expert witness for the defendant, contradicted the evidence of Mr. Roussy. The service bodies in question, he said, could not have been designed for heavy chassis mainly because of their width. The change of width required for installation on a large truck implies fundamental modifications because of a different centre of gravity:

Q. Now, why do you call that redesign?

A. Well, in the design process one cannot simply extrapolate from one design to the next and assume that it’s appropriate.

An example would be that the cabinets, one would assume that if you had 20 inch cabinets each cabinet was designed to carry a specific amount of the various compartments or a thousand pounds, whatever the original design was, and by widening the body and moving it out one has to assume that the cabinet, because it’s the same, is still capable of carrying the same general weights and whatnot, and so that would change the whole stress analysis of the frame where the loads were, how much the structural members were loaded and the general—generally, one would have to review all the welds and the attachment points and that sort of thing within the product to ensure that it would withstand the rigor of the extension.

Because what you’re doing is by broadening these is cantilevering more load over the end of the frame, and so it’s a bigger teeter-totter in layman’s terms, I guess, more weight out on the longer branch, makes it more susceptible to bending, that sort of thing, more susceptible, higher stresses.

Q. So is what I’ve just heard from you a statement that increasing floor width, in your view, is a redesign?

A. Yes. [12]

Further, the basic design would not fit the dual wheel design found on large chassis. As well, the truck bodies’ strong infrastructure is consistent with a rugged truck and is not a factor to support the pretention that it is designed for a heavy truck:

A. I think that the product here that Sturdy produces dimensionally and generally with the materials used are similar to other manufacturers in the industry typically, Munroe-Patterson Knapheid, various other manufacturers that manufacture for a heavy duty market, and I want to distinguish here between a heavy truck market and a heavy duty market because sometimes these things get confused.

One can produce a heavy duty or a light duty service body both for a heavy truck and for a light truck; in other words, one could consider, and I just hypothesize, someone repairing caterpillar tractors, these big bulldozers and heavy construction equipment might want a heavy duty vehicle to carry some of the parts and tools he needs, but he may not necessarily need a heavy truck to carry that, just a rugged component on the back of a light truck; whereas someone repairing computers or doing service work on computers and that sort of thing may only require to carry light service equipment and light parts and tools, so he would take a light service body on a light truck.

The same could apply on a heavy truck; one could have a light service body on a heavy truck or a heavy duty service body on a heavy truck, okay. [13]

I accept this evidence. I cannot agree with Mr. Roussy that the payload capacity is the main factor in deciding if a truck body is designed for permanent installation on large trucks. As well, I cannot agree that the changing the width of the body is a minor modification from the basic or generic design. The modifications, in my view, are of such a magnitude that they require a "redesign” of the article.

To summarize, the basic design of the service bodies is not wide enough for heavy trucks and would not fit the dual wheels found on heavy trucks. The fact that its load-bearing capability is strong enough for installation on a heavy chassis is only evidence, in my view, and as stated by Mr. Patry, that it is designed for rugged use. Therefore, I cannot conclude that it is reasonable to interpret "designed for" in such a way as to include the plaintiffs service bodies.

For these reasons, I conclude that the truck bodies manufactured by the plaintiff and installed on light trucks do not qualify for the exemption from excise tax. Consequently, the action is dismissed with costs.

Action dismissed.