Faema Distributeur Inc. v. Minister of National Revenue, [1993] 2 CTC 56

Pinard, J.:—This is an appeal under section 81.22 of the Excise Tax Act. R.S.C. 1985, c. E-15, as amended (the "Act"), which permits a person to appeal to this Court in respect of an assessment or determination by the Minister of National Revenue. When the Minister fails to send the plaintiff a notice of his decision within 180 days of the date of service of the notice of objection.

The following written admissions were filed by counsel for the parties:

THE PARTIES, BY THEIR UNDERSIGNED SOLICITORS, AGREE TO THE FOLLOWING ADMISSIONS:

(1) The machinery, apparatus and parts (“subject goods commercial type”) described generically in subparagraphs A, C, D, and E of paragraph 4 of the return, which are inter alia the subject of the application for a tax refund are of the same type as the machinery, apparatus and parts which appear on the following pages of a catalogue prepared by Faema (Schedule 1) and Prestigiosa (Schedule 2);

Action/paragraph 4	Exhibit P-1	Schedules 1 and 2
(A) Coffee making machines and parts	Pages: 1,2	Schedule 1: in
therefor		full
Idem D:
— Coffee bean grinding machines and
parts therefor

Idem E:

— Machine which makes whipping

cream and parts

(C) Pasta making machines and parts	Pages: 1, 2	Schedule 2:
therefor		pages: 1,2

(2) The said machinery, equipment and parts ("subject goods commercial type”) imported into Canada by the plaintiff are intended for sale to persons who will use them exclusively in the manufacture or production in a restaurant, a centralized kitchen or a similar establishment of food or drink, whether or not the food or drink is for consumption on the premises;

(3) The said machinery, equipment and parts ("subject goods commercial type”) are in fact sold by the plaintiff to persons who use them exclusively in the manufacture or production ina restaurant, centralized kitchen or similar establishment of food or drink, whether or not the food or drink is for consumption on the premises;

(4) The persons for whose use and to whom the said machines, apparatus and parts ("subject goods commercial type”) are sold are not "producers or manufacturers" within the meaning of section 42 of the Excise Tax Act;

(5) The machinery, apparatus and parts ("subject goods domestic type"} described generically in subparagraphs A to E of paragraph 4 of the return, which are inter alia the subject of the application for a tax refund, are of the same type as the machinery, apparatus and parts which appear on the following pages of a catalogue prepared by Simac (Schedule 3) and Faema (Schedule 4):

Action/paragraph 4	Exhibit P-1	Schedules 3 and 4
(A) Coffee making machines and parts	Pages: 1, 2	Schedule 4; in
therefor		full
Idem D:
— Coffee bean grinding machines and
parts therefor
Idem E:
— Machine which makes whipping
cream and parts
(B) Ice cream making machines and parts	Page: 1	Schedule 3:
therefor		pages 9, 10, 11
(C) Pasta making machines and parts	Pages: 1, 2	Schedule 3:
therefor		pages 1, 2, 3, 4

(6) The said machinery, equipment and parts—domestic type (“subject goods domestic type”) imported into Canada by the plaintiff are intended for sale to persons who will use them exclusively in the domestic manufacture or production of food or drinks;

(7) The said machinery, equipment and parts—domestic type (“subject goods domestic type") are in fact sold by the plaintiff to persons who use them exclusively in the domestic manufacture or production [of] food or drink;

(8) The persons for whose use and to whom the said machines, apparatus and parts—domestic type ("subject goods domestic type") are sold are not"producers or manufacturers” within the meaning of section 42 of the Excise Tax Act;

(9) Subject to decision on the plaintiff's arguments as to the merits of the case, the defendant admits that the plaintiff satisfies the eligibility criteria set out in section 68 of the Excise Tax Act for filing an application for a refund;

(10) The parties state that there is joinder of issue between them within the meaning of Rule 416 of the Rules of the Federal Court of Canada;

(11) The parties state that the documents attached as Schedules I, II, III and IV are the only documents which are relevant to a decision in the case at bar; [1]

(12) In the event that the Court concludes that the plaintiff's arguments on the merits of the case are well-founded in fact and in law, it will order the defendant to conduct an audit to determine the amount to be refunded to the defendant [sic— translation] with the co-operation of the plaintiff, and the Court will make any order in this respect as it may deem appropriate;

(13) The parties state that the issue in this case is whether the tax imposed under section 50 of the Excise Tax Act applies to the sale or importation of the machinery, apparatus and parts ("subject goods commercial type" and "subject goods domestic type”) described in paragraph 1 hereof; the Court must therefore decide:

— Whether the machinery, apparatus and parts ("subject goods commercial type") are covered by subparagraph 1 (a)(i) of Part XIII of Schedule III to the Excise Tax Act;

— Whether the machinery, apparatus and parts ("subject goods commercial type") are covered by section 3 of Part V of Schedule III to the Excise Tax Act;

— Whether the machinery, apparatus and parts ("subject goods domestic type") are covered by subparagraph 1(a)(i) of Part XIII of Schedule III to the Excise Tax Act;

— Whether the machinery, apparatus and parts (“subject goods domestic type") are covered by section 3 of Part V of Schedule III to the Excise Tax Act;

Montreal, this 15 day of May, 1992

Michael Kaylor

Solicitor for the plaintiff

jean Lavigne

Solicitor for the defendant

At the hearing before me, it was further stated and admitted by counsel for the defendant, for the purposes hereof, that the machinery, apparatus and parts ("subject goods commercial type” and "subject goods domestic type”) referred to in the above written admissions are not for use in the manufacture or production of goods which are not tax exempt and which are listed in paragraphs (a) to (m) of section 1 of Part V of Schedule II! to the Act.

The provisions of the Excise Tax Act which will assist in deciding this case are as follows:

42. In this Part,

“producer or manufacturer” includes any printer, publisher, lithographer, engraver or commercial artist, but does not include, for the purposes of this Part and the Schedules, any restaurateur, caterer or other person engaged in the business of preparing in a restaurant, centralized kitchen or similar establishment food or drink, whether or not the food or drink is for consumption on the premises.

50. (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

(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;

51. (1) The tax imposed by section 50 does not apply to the sale or importation of the goods mentioned in Schedule Ill, other than. . . .

The relevant provisions of Schedule III, to which subsection 51(1) of the Act, supra, refers, stipulate:

SCHEDULE III

PART V

FOODSTUFFS

1. Food and drink for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of the food and drink), other than:

3. Articles and materials for use exclusively in the manufacture or production of the tax exempt goods mentioned in sections 1 and 2 of this Part.

PART XIII

PRODUCTION EQUIPMENT, PROCESSING MATERIALS AND PLANS

1. All the following:

(a) machinery and apparatus sold to or imported by manufacturers or producers for use by them primarily and directly in

(i) the manufacture or production of goods. . . .

The answer to the first question stated in paragraph 13 of the admissions set out above, that is, whether the "subject goods commercial type" are covered by paragraph 1(a)(i) of Part XIII of Schedule III to the Act, is no. As was acknowledged by counsel for the parties themselves, these goods are not sold to persons who are "producers or manufacturers" within the meaning of the definition of those terms set out in section 42 of the Act, as they must be.

The answer to the second question stated also in paragraph 13 of the admissions, that is, whether the "subject goods commercial type” are covered by section 3 of Part V of Schedule III to the Act, is yes.

The Court held in Coca-Cola Ltd. v. D./M.N.R., [1984] C.T.C. 75, 84 D.T.C. 6081, at page 79 (D.T.C. 6084), that the expressions "manufacturer or producer", “manufactured or produced" and “manufacture or production”, which are found in various places and contexts in the Act, are used for differing purposes, and accordingly that it would be wrong to interpret any one of these expressions by referring to what another of them means or includes either in a particular context or in general:

It appears to me that the expressions''manufacturer or producer"," manufactured or produced" and "manufacture or production”, which are found in various places and contexts in the Act, are used for differing purposes and that it is wrong to try to interpret one by reference to what another means or has been held to include either in a particular context or in general. . . .

Thus in this case the fact that the machinery, apparatus and parts ("subject goods commercial type”) are sold to persons who are not "producers or manufacturers” within the meaning of section 42 of the Act does not in any way mean that these items are not for use in the “ manufacture or production” of goods within the meaning of section 3 of Part V of Schedule III to the Act.

Moreover, the portion of section 42 of the Act [2] reproduced above does not necessarily imply that the tax exemptions set out in subsection 51(1) and Schedule III to the Act do not apply to a“ restaurateur, caterer or other person engaged in . . .", since that part of section 42 is strictly a particular definition which simply excludes such a“ restaurateur, caterer or other person engaged in . . .” from the specific expressions "producer or manufacturer” when those expressions are used in connection with Part VI of the Act.

It also appears clear to me that the tax exemptions set out in the separate portions of Schedule III to the Act, that is, paragraph 1(a)(i) of Part XIII and section 3 of Part V, relate to different matters. On the one hand, the first exemption covers certain goods in the nature of foodstuffs, as well as "articles and materials” for use exclusively in the manufacture thereof, without regard for the status of the persons who import or purchase the goods, articles and materials; on the other hand, the second exemption is available only to producers or manufacturers who are covered by the definition of the terms "producer or manufacturer” in section 42 of the Act and who import or sell articles consisting essentially in production equipment, processing materials or plans. Thus the provisions of Schedule III which contain these exemptions are independent, and although it may be useful to compare them, they must ultimately be considered and applied separately. Moreover, the Supreme Court of Canada followed this approach of interpreting the various tax exemptions individually in Irving Oil Ltd. v. Provincial Secretary of New Brunswick, [1980] 1 S.C.R. 787, 109 D.L.R. (3d) 513, at page 796 (S.C.R.):

Concerning the transformers, the basis on which the exemption was denied by the Minister was simply untenable in law. While it is proper to look at the various exemptions in considering each of them, they are nevertheless independent. The specific exemption allowed to the New Brunswick Electric Power Commission cannot create an inference to restrict the scope of other exemptions seeing that it reads:

(ff) goods purchased by the New Brunswick Electric Power Commission for direct use in producing electricity;

That passage was quoted with approval by the Federal Court of Appeal in Bristol-Myers v. M.N.R., [1985] 1 C.T.C. 23, 85 D.T.C. 5024, at page 26 (D.T.C. 5026). Finally, in the same vein, the Federal Court of Appeal also stated, in Coca-Cola, supra, at page 82 (D.T.C. 6086):

Further, even if it could be said that these cases and carriers fell within section 1 of Part I of Schedule II! and are not exempted because of the exclusion, the result is simply that the cases and carriers are not exempted by that provision. They are not on that account rendered ineligible for exemption by any other provision of the Act under which they qualify for exemption.

[Emphasis added.]

Finally, in this entire context, it appears clear to me that the machinery, apparatus and parts in question here constituted "articles" covered by section 3 of Part V of Schedule III to the Act. Nowhere in the Act and its schedules is the word “article”, as it is used in that provision, expressly defined or limited. Moreover, section 1, and paragraph (a) thereof, of Part XIII of Schedule II! themselves provide that machinery and apparatus are articles. In the circumstances, it would be entirely inappropriate to limit the scope of section 3 of Part V of Schedule Ill, as the defendant suggests, so as to exclude either everything that is not physically incorporated into the tax-exempt goods themselves, or any machinery, apparatus or part sold to a person other than a“ "producer or manufacturer” within the meaning of section 42 of the Act. On this point, it is interesting to note the following opinion expressed by the Canadian International Trade Tribunal in Tetra Pak Inc. v. M.N.R., CITT Appeal AP-91-147 (September 3, 1992):

Finally, the Tribunal finds that the use of the drinking straws in the production of tax-exempt juice does not require that they be incorporated into, or become a constituent part of, the tax-exempt goods. In the Tribunal’s view, if both sections 1 and 3, Part V, Schedule III to the Act required physical incorporation into the juice, then a redundancy would be created which Parliament could not have intended. . . .

Accordingly, taking into account the admission of the parties in relation to the intended use of the machinery, apparatus and parts ("subject goods commercial type”) imported into Canada and sold by the plaintiff, I believe that section 3 of Part V of Schedule III to the Act must be interpreted in such a way as to exempt these goods from tax. This conclusion is the result of applying to this case the modern rule of statutory interpretation, as defined by E.A. Dreidger and set out as follows by the Supreme Court of Canada when it was asked to interpret the provisions of the Income Tax Act in Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305, at C.T.C. page 316 (D.T.C. 6323):

While not directing his observations exclusively to taxing statutes, the learned author of Construction of Statutes, 2nd ed, (1983), at 87, E.A. Dreidger, put the modern rule succinctly:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

The answer to the third question stated in paragraph 13 of the admissions is no, because of the fact that the goods in question, as was acknowledged by counsel for the parties themselves, are not sold to persons who are” producers or manufacturers” within the meaning of the definition of those terms set out in section 42 of the Act, as they must be. It therefore is not necessary in the circumstances to make a distinction between commercial machinery, equipment and parts and others of a domestic type.

Finally, the answer to the fourth question stated in paragraph 13 of the admissions is no.

It is important to note that the word used by Parliament in both paragraph 1(a)(i) of Part XIII of Schedule III to the Act and section 3 of Part V of that Schedule to designate the subject matter of the” production or manufacture" is "goods". In my opinion, Parliament thus intended to establish that the tax exemptions set out in Parts V and XIII of Schedule III to the Act apply in the context of commercial, and not domestic,"manufacture or production”.

Mr. Justice Marceau, writing for the Federal Court of Appeal, which had been asked to interpret the word goods" as it is used in the expression goods . . . not subject to the consumption or sales tax” set out in section 1 of Part I of Schedule II] to the Act, in Les Entreprises Kato Inc. v. D./M.N.R., [1983] C.T.C. 416, 18 C.E.R. 31, at pages 416-17 (C.E.R. 33), stated:

The ordinary and accepted meaning of the words "marchandises" (goods) is that of items circulated on the commercial market, items intended for sale.

In using the word "marchandises" and not a more general word such as "article" (article) (a word used elsewhere in the Act) or the word "bien" (good, item of property), in my opinion the legislator disclosed that the exemption was to apply only to containers in which are to be placed goods, items in circulation on the commercial market and destined to be sold, goods offered for sale.

Additionally this is the only interpretation which is completely in keeping with the context in which the provision occurs. . . .

In my view, if Parliament had wished to extend the benefit of the tax exemption set out in section 3 of Part V of Schedule III to the Act, it would have used either the word "foodstuffs" or the words “food and drink” which are found in section 1, or it would simply have adopted wording similar to that which appears in Part XV of Schedule III, section 1 of which refers specifically to "domestic or commercial production”.

Accordingly, I conclude that the tax exemption set out in section 3 of Part V of Schedule II] to the Act does not apply to the machinery, apparatus and parts designated in this case as "subject goods domestic type”, since it applies only in respect of commercial "manufacture or production”. This conclusion also results from applying the modern rule of statutory construction, to which I referred earlier and which was set out in Stubart, supra, to this case.

Thus judgment must be given for the plaintiff, but only in respect of the machinery, apparatus and parts designated as "subject goods commercial type” in the document entitled "Admissions" filed by the parties, taking into account paragraph 12 of that document, and costs also awarded to the plaintiff.

This is a case in which I believe it advisable, in accordance with Rule 337(2)(b), to require that the plaintiff prepare a draft of an appropriate judgment to implement the Court's conclusion and move for judgment accord- ingly.

Appeal allowed in part.