Monarch Concrete Products Ltd. v. The Queen, [1990] 1 CTC 1

Jerome, A.C.J.:—This plaintiff's claim for the balance of a refund owing for sales taxes paid pursuant to subsection 27(1) of the Excise Tax Act, R.S.C. 1970, E-13, came on for hearing at Edmonton, Alberta on May 18, 1988. On that day I ruled, for reasons given orally, that the plaintiff would succeed in this action, and indicated that these written reasons would follow.

The plaintiff has been in the business of manufacturing precast concrete septic tanks since June 1970. From the time it commenced doing business, the plaintiff has had a dispute with the Edmonton District Office of Revenue Canada, Customs and Excise, with respect to its liability for the payment of sales taxes on the septic tanks it was manufacturing.

In a letter to the Edmonton District Office dated March 16, 1973, the plaintiff advised the Department that it considered the imposition of sales tax a wrongful act by Revenue Canada, and that “unless we receive a letter advising us as to the current obligations, we will cease paying sales tax effective June 1,1973". By letter dated March 29, 1973, the Edmonton District Office advised the plaintiff that it was required by the Excise Tax Act to pay sales tax until such time as "the Department determines that you are no longer engaged in manufacturing or producing taxable goods for sale”. From June 1970 to March 1978, the plaintiff paid to the Receiver General for Canada sales taxes in the amount of $127,799.68.

In 1978 the Supreme Court of Canada's decision in Superior Pre-Kast Septic Tanks Ltd. and Lloydminister Pre-Kast Septic Tanks Ltd. v. The Queen, [1978] 2 S.C.R. 612; [1978] C.T.C. 431; 78 D.T.C. 6263 ruled in favour of the manufacturer in essentially the same dispute. Upon receipt of the Supreme Court's decision, and in a letter to the Edmonton District Office dated May 31, 1978, the plaintiff notified Revenue Canada of its intention to make a claim for a refund of sales taxes remitted on septic tanks of its manufacture for the period June 1970 to March 31, 1978. The plaintiff filed a refund claim on September 8, 1978. In late September 1978 the plaintiff received a letter from Revenue Canada informing him that because he did not make an application in writing for a refund, within the time period prescribed by subsections 44(6) and 44(7) of the Excise Tax Act, in respect of taxes paid during the periods June 1970 to March 26,1971 and March 26,1973 to April 1, 1975, only the portion of the sales tax remitted by the plaintiff corresponding to transactions between March 27, 1971 and March 26, 1973 and between April 1, 1975 and June 7, 1978 would be refunded. Ultimately, the plaintiff received a refund of $53,806.34.

The plaintiff now claims judgment in the amount of $73,993.34, being the balance of the refund which it maintains is owing. The defendant argues, echoing the original position of Revenue Canada, that the plaintiff is not eligible for a refund in excess of $53,806.34, since the plaintiff has not complied with subsections 44(6) and 44(7) of the Act in respect of taxes aid during the periods from June 1970 to March 26, 1971 and March 27, 1973 to April 1, 1975.

The statutory provisions relevant to this dispute are subsections 26(4), 27(1), 44(6) and 44(7) of the Excise Tax Act.

Subsection 27(1) imposes a consumption or sales tax on the sale price of all goods "produced or manufactured in Canada" payable by the "producer or manufacturer". Subsection 26(4) provides as follows:

26. (4) Where a person

(a) manufactures or produces a building or other structure otherwise than at the site of construction or erection thereof, in competition with persons who construct or erect similar buildings or structures not so manufactured or produced,

(b) manufactures or produces otherwise than at the site of construction or erection of a building or other structure, structural building sections for incorporation into such building or structure, in competition with persons who construct or erect buildings or other structures that incorporate similar sections not so manufactured or produced,

(c) manufactures or produces concrete or cinder building blocks, or

(d) manufactures or produces from steel that has been purchased by or manufactured or produced by that person, and in respect of which any tax under this Part has become payable, fabricated structural steel for buildings,

he shall for the purposes of this Part, be deemed not to be, in relation to any such building, structure, building sections, building blocks or fabricated steel so manufactured or produced by him, the manufacturer or producer thereof.

Subsections 44(6) and (7) provide that:

44. (6) No refund or deduction from any of the taxes imposed by this Act shall be paid unless application in writing for the same is made by the person entitled thereto within two years of the time when any such refund or deduction first became payable under this Act or under any regulation made thereunder.

44. (7) If any person, whether by mistake of law or fact, has paid or overpaid to Her Majesty any moneys that have been taken to account as taxes imposed by this Act, such moneys shall not be refunded unless application has been made in writing within two years after the moneys were paid or overpaid.

The issue in Superior Pre-Kast Septic Tanks Ltd. et al. v. The Queen, supra, was whether the type of septic tank manufactured by the appellant was a "structure" so as to make subsection 26(4) of the Excise Tax Act applicable, thus relieving the appellant from the burden of paying sales tax on the septic tanks it was manufacturing. Mr. Justice Martland, for the Court, ruled at page 40, that:

The septic tanks in question here are things which are built or constructed. They are designed to be placed underground and become a part of the land in which they are installed. They are manufactured in competition with persons who construct such tanks at the site. In my opinion they are structures within the meaning of ss. 26(4) and the appellants are entitled to the exemption provided by that subsection.

Clearly, Mr. Justice Martland's ruling is applicable to the situation of the plaintiff in this case. What entitlement, therefore, has the plaintiff to a refund of sales taxes remitted during the period he has been in business?

I am unable to accept the defendant's argument that subsections 44(6) and (7) of the Excise Tax Act bar the plaintiff from receiving a refund except with respect to the periods of time covered by the plaintiff's letters of March 16, 1973 and May 31, 1978. I am of the opinion that the plaintiff's letter of March 16, 1973 to Revenue Canada, which was acknowledged by the defendant as a "letter of intent under subsection 44(6) of the Excise Tax Act, constituted an “application in writing" for the purposes of subsection 44(6) with a forward, and not only a present, or retroactive, effect. The defendant's reply to this letter included the information that "the matter referred to in your letter is presently under review by the Justice Department". Pending that review, the plaintiff was directed to pay the tax. It would seem to me to be reasonable for the plaintiff to expect to receive some information about that review, and in the absence of new information to assume that the dispute between itself and Revenue Canada was an ongoing one. The direction from Revenue Canada to the plaintiff to "pay sales tax until such time as the Department determines that you are no longer engaged in manufacturing . . . taxable goods", on any common sense interpretation, was intended to have some forward effect. Since that direction contained no indication to the plaintiff that, despite the ongoing nature of Revenue Canada’s direction, the plaintiff would be expected to reiterate every two years the disputed position evident in the correspondence, it would be grossly unfair to the plaintiff to interpret its letter of March 16,1973 as having no forward effect at all.

Even if I find that the plaintiff did not provide the “application in writing required by subsections 44(6) and (7), other jurisprudence favours the plaintiff. The Supreme Court of Canada’s decision in The Queen v. Premier Mouton Products Inc., [1961] S.C.R. 361; [1961] C.T.C. 160; 61 D.T.C. 1105, concerned a similar situation to the one before me, wherein the appellant argued that the respondent was barred from claiming any refund on taxes it paid on "mouton" skins, found in an earlier decision not to be "fur" under section 80A of the Excise Tax Act, as it failed to make any application in writing within two years after the moneys were paid, as required by subsection 46(6) (as the section was then numbered). With respect to subsection 46(6), it was noted by Mr. Justice Taschereau that: (at page 367)

This section applies, when the payment has been made by mistake of law or fact, but I do not think that such is the case here. The officers of the company were not mistaken as to the law or the facts.

The plaintiffs in Premier Mouton had, as did the plaintiff in the present case, continued to pay the disputed tax under protest. This led Mr. Justice Taschereau to conclude, at page 368:

When the respondent finally decided to pay under protest, I am quite satisfied that it was not because the officers were mistaken as to the law; they were fully aware of their legal position, and had repeatedly set forth their contentions to the Department's officers from the beginning of the discussions . . . There being no mistake of law or fact, s. 46(6) does not apply, and therefore the failure by the respondent to give a written notice is not a bar to the present proceedings.

The reasoning in Premier Mouton must apply here. In that case, as in the present case, the fact that the tax in question had never been lawfully imposed meant that it was unlawful to demand it. Nonetheless, a plaintiff who, under protest, continues to pay a tax of dubious legality in compliance with a direction to do so does not commit an error of law. The tax was paid under protest, and the protest ultimately proved to be well-founded. Consequently, as was the result in Premier Mouton, subsection 44(7) of the Excise Tax Act does not apply, and the plaintiff's failure to give a written notice is not a bar to its collecting the remainder of the moneys owed it.

Finally, the more recent judgment of the Federal Court of Appeal in Amoco Canada Petroleum Co. Ltd. v. M.N.R., [1985] 1 C.T.C. 240; 85 D.T.C. 5169 provides support for the proposition that where the Government seeks to avoid paying the whole amount of a refund otherwise wholly owing to a taxpayer on the basis of a claimed limitation period inferred from the language of the taxing statute, a very clear statutory directive is required. As Mr. Justice MacGuigan stated at page 241 (D.T.C. 5170):

The need for express language can only be a fortiori when it is a question not of the tax itself but of a refund of money paid in error. It cannot be lightly presumed that Parliament does not intend Government to pay its debts. A Court must therefore carefully scrutinize the statute in question.

The result of the decision in Amoco is clear: I may feel confident in construing strictly and against the taxing authorities a law imposing taxation. The wording of subsection 44(7) of the Excise Tax Act is seemingly unambiguous, but any uncertainty with respect to "whether by mistake of law or fact" must be construed in favour of the taxpayer.

I must conclude, therefore, that the plaintiff is entitled to a refund of sales taxes it remitted during the periods June 1970 to March 26, 1971, and March 27,1973 to April 1, 1975. I base this conclusion on my finding that the plaintiff's letter of March 16, 1973, and the ensuing exchange of correspon dence between the plaintiff and Revenue Canada, constituted a sufficient "application in writing”, as required by subsection 44(6) of the Act, to cover the entire period in question. In the alternative, I base my decision on the Supreme Court of Canada's ruling in Premier Mouton, adopting the dictum of Mr. Justice Taschereau: "There being no mistake of law or fact, [(s. 44(7)] does not apply". The plaintiff is entitled to its costs.

The statement of claim filed on August 14, 1979 demands a repayment of funds from the Crown, seeks judgment for $73,993.34 and seeks "such further and other relief as this Honourable Court may deem fair and just". I am prepared, on that basis, to consider the issue of interest, although the plaintiff made no specific claim for interest in the pleadings.

Section 36 of the Federal Court Act provides:

36. In adjudicating on any claim against the Crown, the court shall not allow interest on any sum of money that the Court considers to be due to the claimant, in the absence of any contract stipulating for payment of that interest or of a statute providing in such a case for the payment of interest by the Crown. R.S., c. 10 (2nd Supp.), s. 35.

Since no contract stipulating the payment of interest exists, I am directed to “a statute providing . . . for the payment of interest by the Crown”, namely subsection 47(7) of the Excise Tax Act:

47. (7) Where an amount is paid to an applicant pursuant to subsection (6), interest at the prescribed rate shall be paid, in respect of each day between the day that is sixty days after the day on which the application was received by the Minister and the day on which the payment is sent, and compounded monthly on the total amount of the payment and interest outstanding.

The section clearly provides for the payment of interest "at the prescribed rate” to an applicant in the plaintiff's position. This provision did not, however, come into force until May 1, 1986. Accordingly, interest will be awarded to the plaintiff, at the rate prescribed by the Sales and Excise Tax Interest Rate Regulations, on the principal amount owing him from May 1, 1986 onwards.

The plaintiff will have judgment for $73,993.34 plus interest as indicated above and costs. If counsel are unable to agree on the calculation of interest, the matter may be spoken to.

Claim granted.