British Columbia Telephone Company v. Her Majesty the Queen, [1995] 1 CTC 62

Isaac C.J.:—This is an appeal from a judgment of the trial division (British Columbia Telephone Co. v. M.N.R., [1993] 1 C.T.C. 351, 92 D.T.C. 6128) which dismissed with costs, the appellant’s appeal against the determination of the Minister of National Revenue ("the Minister") dated November 20, 1987 with respect to the appellant’s claim for a refund of taxes paid pursuant to certain provisions of the Excise Tax Act, R.S.C. 1970, c. E-13, as amended ("the Act").

The amount which the appellant claims as refund is $4,089,995.87 and represents sale or consumption taxes which the Minister had imposed on the appellant on the basis of the production costs of telephone directories which the appellant had distributed without charge to its subscribers pursuant to the direction of its regulator, the Canadian Radio-Television and Telecommunications Commission.

It is common ground that, in imposing the tax in this case the Minister relied upon the provisions of subparagraph 27( 1 )(a)(iii) and paragraph 28(l)(d) of the Act, which, at the material times, read in relevant part:

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

(iii) payable, in a case where the goods are for use by the producer or manufacturer thereof, by the producer or manufacturer at the time the goods are appropriated for use.

[Emphasis added]

28(1) Whenever goods are manufactured or produced in Canada under such circumstances or conditions as render it difficult to determine the value thereof for the consumption or sales tax because

(d) such goods are for use by the manufacturer or producer and not for sale,

the Minister may determine the value for the tax under this Act and all such transactions shall for the purposes of this Act be regarded as sales.

In the trial division, as before us, counsel for the appellant made two principal submissions in support of its claim for refund. It was contended first that subsection 27(1) which is the only relevant charging section imposes a sales tax on the sale price of goods and that no sale price was established in this case. In support of this argument it was submitted that the definition of sale price in section 26 of the Act was exhaustive and, in any event, not applicable to this case. It was argued further that subsection 28(1) of the Act which authorizes the Minister to determine value for tax did not authorize him in this case to determine a "sale price" for the purposes of subparagraph 27(l)(a)(iii) of the Act.

The second submission was that the distribution of the directories without charge was not, in the circumstances of this case, a "use" by the appellant as producer or manufacturer within the meaning of subparagraph 27(l)(a)(iii) of the Act and consequently, no tax was payable.

Applying the words-in-total-context approach to the construction of a taxing statute as laid down in Stubart Investment Ltd. v. The Queen, [1984] l S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305, the learned trial judge determined both contentions adversely to the appellant. On the first issue, the "sale price" issue, he concluded that the Minister in determining "value" under subsection 28(1) had effectively determined a "sale price" for the purpose of applying the tax imposed by subparagraph 27(l)(a)(iii). Adopting the same interpretative approach and relying on dictum of Anglin C.J.C. in R. v. Henry K. Wampole & Co., [1931] S.C.R. 494, [1931] 3 D.L.R. 754 at pages 496-97 (D.L.R. 754-55), the trial judge concluded, on the second issue, that the distribution of the directories by the appellant to its subscribers did amount, in the circumstances of this case, to a "use" of those goods within the meaning of subparagraph 27( 1 )(a)(iii). As a result he dismissed the appellant’s appeal with costs, as I have already stated.

We did not find it necessary to require argument from counsel for the respondent on the first issue, the "sale price" issue, because we were all satisfied that the able and thorough contentions of Mr. Green for the appellant could not prevail against the conclusions of the trial judge with which we are in agreement for the reasons which he gave.

Having considered the submissions of counsel for both parties on the second issue, the "use" issue, we are all of the opinion that, despite the able arguments advanced by Mr. Millar, the appellant has not demonstrated any error that warrants our interference. Indeed, on this issue, we are also in agreement with the conclusions of the trial judge and with the reasons he gave.

We also note that subsection 27(2) of the Act, which is part of the context in which this appeal falls to be decided, does not include transactions of the kind in issue here in the classes of transactions which are not subject to taxation under subsection 27(1).

Before concluding, we consider it desirable to deal with one additional issue. Before us, Mr. Millar, who made submissions for the appellant on the second issue, contended, in the alternative, at the conclusion of his submissions, that the Minister had calculated the tax on a wrong basis and should, instead, have done so on the basis of the formula expressed in subsection 26(5.1) of the Act, which reads:

(5.1) For the purposes of this Part, a person who, pursuant to a contract of labour, manufactures or produces goods from any article or material supplied by another person, other than a licensed manufacturer, for delivery to that other person, shall be deemed to have sold the goods, at a sale price equal to the charge made under the contract in respect of the goods, at the time they are delivered to that other person.

This argument was not addressed by the trial judge in his reasons and was not raised by the appellant in its memorandum of fact and law. Counsel for the respondent contended that we should give no effect to the argument for a number of reasons. First, he said the point was not pleaded. Secondly, he said the position now taken by the appellant is at variance with the following portion of paragraph 8 of the agreed statement of facts upon which the appeal proceeded before the trial judge:

The parties are in agreement that if the said tax was exigible pursuant to subparagraph 27( 1 )(a)(iii) and subsection 28(1) of the Excise Tax Act, the aforesaid amount is correct amount of that tax.

Thirdly, he said the point was not taken below and was now being raised for the first time to the respondent’s prejudice.

We are in agreement with counsel for the respondent that we should give no effect to this argument. While it was touched upon by counsel for the appellant obliquely during argument in the court below and then dropped for tactical reasons when questioned about it by the trial judge, it was seriously raised for the first time toward the end of Mr. Millar’s submissions before us. The argument has no support in the pleadings or in the evidence and appears to us to be a belated attempt to put the appellant’s case on a new footing.

For all these reasons, we are of the opinion that the appeal should be dismissed with costs.

Appeal dismissed.