Her Majesty the Queen v. National Bank of Canada, [1991] 2 CTC 183

Pinard, J.:—By her action the plaintiff is claiming from the defendant payment of the balance of sales tax, penalty and accumulated interest pursuant to the Excise Tax Act, R.S.C. 1970, c. E-13, as amended.

The plaintiff based her claim for tax on the following provisions of section 27 of the said Act, in effect at the relevant time:

27.(1) There shall be imposed, levied and collected a consumption or sales tax of nine per cent on the sale price of all goods

(c) sold by a licensed wholesaler, payable by him at the time of delivery to the purchaser, and the tax shall be computed

(ii) on the price for which the goods were purchased by the licensed wholesaler, if they were not imported by him, and such price shall include the amount of the excise duties on goods sold in bond . . .

(1.4) Notwithstanding subsection (1), there shall be imposed, levied and collected a consumption or sales tax of five per cent on the sale price of the goods enumerated in Schedule V.

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

(d) sold by a licensed manufacturer to a licensed wholesaler otherwise than for his own use or for rental to others;

(e) sold by a licensed wholesaler to a licensed manufacturer if the goods are partly manufactured goods;

(f) sold by a licensed wholesaler to another licensed wholesaler, but if a licensed wholesaler sells goods to another licensed wholesaler at a price less than the value upon which the tax would be computed under paragraph (1)(c), the vendor forthwith becomes liable to pay the tax upon the difference between such value and his sale price.

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

The cumulative penalty is claimed first pursuant to the following provisions of section 50 of the same Act, in effect on December 9, 1982, until amended:

50.(1) Every person who is required by or pursuant to Part III, IV or V to pay taxes shall make each month a true return of his taxable sales for the last preceding month, containing such information in such form as the regulations require.

(3) The return required by this section shall be filed and the tax payable shall be paid

(a) in a case where the return is required to be filed in accordance with subsection (1) or (2), not later than the last day of the first month succeeding that in which the sales were made . . .

(4) Subject to subsection (5), upon default in payment of the tax or any portion thereof payable under Part 111, IV or V within the time prescribed by subsection (3), the person liable to pay such tax or portion shall pay, in addition to the amount of the default, a penalty of one and one-half per cent, in respect of each month or fraction of a month during which the default continues, calculated on the total tax and penalty outstanding; and for the purposes of this subsection and subsection (3), default shall be deemed to have commenced

(a) in a case where a return is required to be filed in accordance with subsection (1) or (2), immediately following the last day of the first month succeeding that in which the sales were made . . .

The penalty is then claimed in accordance with the procedure resulting from subsequent amendments relating to these provisions.

The cumulative interest is claimed at the outset pursuant to subsection 50(4), below, of the said Act, in effect in February 1985, until again amended:

50.(4) Subject to subsection (5), on default in payment of any tax payable under Part 11.1, I II, IV or V within the time prescribed by subsection (3), the person liable to pay the tax shall pay, in addition to the amount of the default, a penalty of one- half of one per cent and interest at the prescribed rate, in respect of each month or fraction of a month during which the default continues, calculated on the total tax, penalty and interest outstanding.

Interest is then claimed in accordance with the procedure resulting from subsequent amendments relating to this provision.

The evidence disclosed that on June 1, 1973 Raymond Dubois Inc., operating an industrial equipment business in Saint-Narcisse, province of Quebec, applied to the Minister of National Revenue for, and obtained from him, a licence as a wholesaler or jobber, having No. W0793984. From June 1,1973 to October 1982, this company regularly remitted the sales tax payable as a result of its operations to the Minister of National Revenue.

In view of the interest of the defendant National Bank of Canada in the property concerned of Raymond Dubois Inc., the following paragraphs of the statement of claim were admitted in the defence:

8. On or about October 20, 1981 Raymond Dubois Inc. signed in favour of the National Bank, 324, rue des Forges, Trois Rivières, a notice of intention to give a security pursuant to s. 178 of the Bank Act;

9. This notice of intention was registered with the Bank of Canada on October 27, 1981;

10. On December 9, 1981 Raymond Dubois Inc. signed a credit application and promise to give security pursuant to s. 178 of the Bank Act;

11. On December 9, 1981 Raymond Dubois Inc. gave the National Bank of Canada security over all the property mentioned in s. 178(1), namely:

Agricultural and forest products, products of quarries and mines, the sea, lakes and rivers, and without limiting the generality of the foregoing, to include wood tools, electrical and air-powered tools, compressors, packing goods, and on the security of effects, commodities and goods used or supplied for the packaging of its products.

12. In addition to this security, Raymond Dubois Inc. signed in favour of the National Bank of Canada the following securities: “Agreement establishing the powers of the National Bank of Canada respecting all advances made by it and the securities relating thereto”, a general transfer of book debts, a surety signed by Mr. Raymond Dubois and a commercial pledge. . .

On November 26, 1982, after actually taking possession of the inventoried goods and other property of Raymond Dubois Inc. thus given as security, the defendant called for tenders for the sale of these assets which it grouped in lots, and which it gave the “cash value" of as follows:

LOT No. 1: ROCKWELL, MAKITA, WEBSTER, PASLODE, POITRAS, RICHARD and

STANLEY tools and accessories.

Cash value: $220,000.00

LOT No. 2: Nails, cramps, screws, packing straps and so on.

Cash value: $259,000.00

LOT No. 3: Spare parts for tools mentioned in lot No. 1.

Cash value: $64,000.00

LOT No. 4: Sandpaper and adhesive paper.

Cash value: $85,000.00

LOT No. 5: NCR computer, model 8250, comprising:

1 printer

3 cathode screens

Cash value: $74,000.00

LOT No. 6: 1 1981 Chevrolet Malibu

Valued at $6,000.00

It was admitted that one of the conditions for the sale of these goods was that all taxes due would be paid by the buyer in addition to the bid price.

On December 9, 1982 the defendant sold all these assets or goods of Raymond Dubois Inc. to Maynards Industries, a corporation which did not hold a licence under the Excise Tax Act, for $165,000.

In June 1983 Albert Racine, acting as an auditor for the Department of National Revenue, met with Michel Rose, a representative of the defendant, and proceeded to examine and audit the latter's registers relating to the sale of the goods of Raymond Dubois Inc. In connection with this audit Mr. Rose gave Mr. Racine the documents relating to the call for tenders for the sale of the goods in question as well as the contract for their sale to Maynards Industries. Mr. Racine testified that this audit led him to send a notification to the defendant on June 17, 1983 claiming from it the sum of $46,851.53 in excise tax, broken down as follows:

The defendant subsequently, on or about September 15, 1983, tried to settle this claim by giving the plaintiff a cheque for $11,517.00 calculated on the selling price of the goods concerned, in proportions based on the cash value of each of the lots mentioned in the claim set out above to the plaintiff.

By a letter of October 3, 1983 to counsel for the defendant, a Department of National Revenue representative acknowledged receipt of the cheque for $11,517.00 “in partial payment of the assessment". Subsequently, by a letter of January 9, 1984 the Department of National Revenue claimed the balance of $35,334.53 plus a cumulative penalty of $2,914.15. By a letter of January 20, 1984 to Jocelyn Lafleur of the Department of National Revenue, Bertrand Leduc, counsel for the defendant, sought essentially to give reasons for the earlier offer of partial payment and stressed that he intended to "discuss these matters" with the legal advisers of the Department in question.

Finally, by a letter of April 11, 1984 the said Jocelyn Lafleur, for the Department of National Revenue, again told counsel for the defendant that the latter had to pay the balance of the sales tax and accumulated penalty within ten days, a total of $39,995.82. As the defendant refused or failed to respond to this latest notification, the plaintiff brought the action at bar which was filed in the Registry of this court in Montreal on April 9, 1986.

In light of all these facts the question is, first, whether the defendant is subject to payment of the tax pursuant to subsection 27(3) of the above Act.

The defendant argued that it certainly cannot be subject to the application of this provision because (1) it is a financial institution created pursuant to the Bank Act, (2) it did not purchase from Raymond Dubois Inc. the right to sell goods within the meaning of the provision, and (3) the only consumer tax owed to the Minister of National Revenue or to the plaintiff must be calculated on the selling price of the goods to Maynards Industries. Finally, the defendant argued that the acceptance by the plaintiff of its payment of $11,517 created a transaction within the meaning of article 1918 of the Civil Code of Lower Canada: [1] it accordingly pleaded res judicata. I do not accept any of these arguments.

On the first argument, it is the Bank Act itself, R.S.C. 1985, c. B-1, in section 4, [2] which provides that a bank like the defendant is a “body corporate". The French text of the section speaks of a “personne morale". In interpreting the word "personne" contained in subsection 27(3) of the Excise Tax Act concerned, reference must be made to the definition given in the same Act of the word “personne”, in section 2, a definition which includes “toute corporation". [3] The English text of the definition speaks of "any body corporate”. It is thus clear that the defendant is a person within the meaning of subsection 27(3), and it is not in dispute that it is not the manufacturer, producer, importer, transferee, licensed wholesaler or jobber mentioned in subsections 27(1) and (2).

On the second argument, it seems clear that the defendant acquired from Raymond Dubois Inc. or against it the right to sell the goods in question "pursuant to the Act”, that is, the Bank Act and/or the Civil Code of Lower Canada. This follows inter alia from the allegations contained in paragraphs 8,9,10,11 and 12 of the statement of claim, whicn as I have already noted were all admitted. In the same vein, it is interesting to note that in Gérard Blais in quality as Trustee of St-Louis Textile Ltd. a Bankrupt v. M.N.R., [1985] 1 S.C.R. 849, the Supreme Court of Canada held that a trustee in bankruptcy has a duty under subsection 27(3) of the Excise Tax Act.

On the defendant's argument that the tax payable here should be calculated on the selling price of the goods to Maynards Industries, this third argument is wholly at variance with the actual provisions of subsection 27(3), which in the facts of the case at bar require that the calculation be based on the price at which the goods were bought by Raymond Dubois Inc. In this regard, the weight of the evidence is that the goods in question, when they were purchased by Raymond Dubois Inc., had not been imported into Canada and that they were paid for at a “cash value” price. It is the defendant itself which, in its call for tenders for the sale of these goods, mentioned their "cash value”, a value probably indicated to it by the documents and information relating to its taking possession of the assets of Raymond Dubois Inc. Moreover, it is this "cash value” that Michel Rose, the defendant's representative, gave to the Department of National Revenue auditor in June 1983; it is also this “cash value” that the defendant referred to in calculating its offer to the plaintiff of $111,517; finally, before the trial, such a "cash value” was never challenged by the defendant, which at that time preferred through its counsel to justify its offer of partial payment by completely different reasons.

Finally, as to the argument based on transaction, one must bear in mind the rule of precedent that deciding whether an agreement exists between the parties to reduce an amount, or as to the acceptance of a lesser amount in settlement, is a question of fact on which evidence may be submitted. In The Brilliant Silk Mfg. Co. v. J. Kaufman, [1925] S.C.R. 249, the Supreme Court of Canada recognized this rule, at 259:

The other point concerns the contention advanced and accepted by the learned trial judge, that the cheque of the 7th of July, 1920, having been expressed to be “in full payment to date for all claims”, and having been accepted and cashed in that form, the appellants are precluded from asserting a claim for any larger sum in respect of the deliveries of the 7th and 20th of February.

The appellants made it quite clear by their letter, written on the receipt of the cheque, on the 9th of July, that they declined to accept the condition, and that letter appears to leave no room for doubt that this contention cannot prevail.

The rule laid down in Day v. Mclea [2] , has been adopted and given effect to in the Province of Quebec, first in a decision of La Compagnie Paquet v. Paquin [3] , and more recently in Royal Trust v. White [4] , when such a condition is indorsed upon or inserted in the body of the cheque, it is a question of fact in each case whether the creditor has, by words or by conduct, agreed to that condition.

In my opinion, there can be no objection to someone sending a very clear and very formal letter in which he offers final settlement that the recipient did not know that cashing his cheque bearing the words “final payment" constituted final payment. The plaintiff would have had to give him notice to this effect and so the right to exercise his withdrawal or the stoppage of the offer.

[Emphasis added.]

Further, in the case at bar it is not the defendant's argument that the cheque for $11,517, which was not filed, contain any limiting notation.

Finally, after the cheque was cashed by the plaintiff and the latter subsequently asked for payment of the balance of the sales tax claimed and the outstanding penalty, the defendant did not react by claiming a transaction: instead, its counsel wrote the letter of January 20, 1984 seeking to justify its offer of partial payment on other grounds and indicating its intention to "discuss these matters" with legal counsel for the Department of National Revenue.

In all these circumstances, I consider that the acceptance and cashing of the cheque of $11,517 could not constitute acquiescence in an offer of settlement designed to prevent future litigation within the meaning of article 1918 of the Civil Code of Lower Canada.

I therefore conclude that the claim for the balance of the sales tax, namely $35,334.53, is valid.

The claim for the penalty and accumulated interest appears to be well established by uncontradicted evidence, namely the testimony of the auditor Jules Lépine and the detailed statement of account of March 25, 1991 which he filed at the hearing. In this regard the penalty of $50,338.87 and interest totalling $58,082.03 are additional amounts owed to the plaintiff by the defendant as of March 25, 1991, in accordance with subsection 50(1) and paragraphs 50(3)(a) and 50(4)(a) of the Excise Tax Act, in effect at the time the goods in question were sold by the defendant and in accordance with subsequent amendments relating to these provisions.

The balance of the sales tax, penalty and interest owed to the plaintiff, as of March 25,1991 when the trial began, thus totalled $143,331.36.

For all these reasons, judgment is rendered allowing the plaintiff's action and ordering the defendant to pay it the total sum of $143,331.36, with in addition penalties and interest payable pursuant to paragraph 79(1)(a) of the Excise Tax Act, R.S.C. 1985, C. E-15, as of March 25, 1991, the whole with costs.

Application allowed.