Centre de traitement de la biomasse de la Montérégie inc. v. Agence du revenu du Québec, 2021 QCCA 1068

The taxpayer received organic sludge from suppliers in the agri-food industry, and was paid by them for taking over the sludge, which it then treated and transformed, using electricity, into residual fertilizer materials ("RFM"). It then paid companies (the "Receivers") to acquire the RFM, which they recovered for composting, agricultural land application or as an energy source. It profited by paying significantly less to the Receivers than it received from its sludge suppliers.

Although s. 206.1 of the Quebec Sales Tax Act denied an input tax refund for tax on supplies of electricity, s. 206.3 provided an exclusion from this rule where the electricity was used for a purpose that came within the exemption in s. 17(aa) of the Quebec Retail Sales Tax Act (“RSTA”), which exempted “sales of electricity … which a person … uses to produce movable property … intended for sale/” The Court of Quebec followed C.R.I. Environnement in finding that this exemption did not apply. C.R.I. Environnement on similar facts had found that the goods were not intended for “sale” because Article 1708 of the Civil Code of Quebec defined a sale as “a contract by which a person, the seller, transfers ownership of property to another person, the buyer, for a price in money which the latter obligates himself to pay,” whereas there, there was no monetary consideration received from the persons to whom the goods were transferred.

In reversing the decision below, and finding that the exemption applied, Marcotte JCA noted that “sale” was broadly defined in s. 2(9) of the RSTA to include “any other contract whereby, for a price or other consideration, a person delivers or binds himself to deliver, to another, movable property” and that “sale price” was defined in s. 2(7) to include “other considerations or prestations accepted by the vendor as the price of the thing covered by the contract of sale.”

Marcotte JCA quoted (at para. 56) from the statement of Waddams, The law of contracts, that:

A valuable consideration in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment loss, or responsibility given, suffered or undertaken by the other.

She then stated (at para. 57, TaxInterpretations translation):

In this case, by transferring its environmental obligations to the Receivers, the Appellant relieved itself of various environmental obligations or liabilities. In my view, this relief conferred a benefit on the Appellant and, in light of the foregoing analysis, constituted valuable consideration that may be characterized as "any other consideration" within the meaning of section 2(9) of the RSTA.

A processor of organic sludge was paid by suppliers in the agri-food industry for taking over the sludge, which it then treated and transformed, using electricity, into residual fertilizer material. It in turn paid companies (the "Receivers") to acquire the materials, which they recovered for composting, agricultural land application or as an energy source. It profited by paying significantly less to the Receivers than it received from its sludge suppliers.

Whether it was denied input tax refunds under the Quebec Sales Tax Act for the QST on its electricity purchases turned on whether it used the electricity “to produce movable property … intended for sale” within the meaning of s. 17(aa) of the Quebec Retail Sales Tax Act (“RSTA”) The Court of Quebec had followed C.R.I. Environnement in finding that this exemption did not apply. C.R.I. Environnement on similar facts had found that the goods were not intended for “sale” because Article 1708 of the Civil Code of Quebec defined a sale as “a contract by which a person, the seller, transfers ownership of property to another person, the buyer, for a price in money which the latter obligates himself to pay,” whereas there, there was no monetary consideration received from the persons to whom the goods were transferred.

In reversing the decision below, and finding that the exemption applied, Marcotte JCA noted that “sale” was broadly defined in s. 2(9) of the RSTA to include “any other contract whereby, for a price or other consideration, a person delivers or binds himself to deliver, to another, movable property.” After quoting Waddams, The law of contracts, as to the meaning of “consideration” under the common law, she stated (at para. 57, TaxInterpretations translation):

In this case, by transferring its environmental obligations to the Receivers, the Appellant relieved itself of various environmental obligations or liabilities. In my view, this relief conferred a benefit on the Appellant and … constituted valuable consideration that may be characterized as "any other consideration" within the meaning of section 2(9) of the RSTA.