Her Majesty the Queen v. R. Hammer Ltd., [1987] 1 CTC 299, 87 DTC 5139

Collier, J. [Orally]:—The plaintiff claims consumption or sales tax from the defendant. The action is based on the Excise Tax Act, R.S.C. 1970, c. E.-13, as amended. The time period in issue is February 3, 1981 to July 31, 1983.

The dollar amounts involved have been agreed to by the parties. If the defendant is liable, it owes, as of September 1, 1986, $87,095.53, including tax, penalties and interest.

If the defendant is not liable, it owes nothing further. It has already paid, on the goods in issue, for the period in issue, $76,404.07.

The defendant sells trendy gifts to customers. Ninety-five per cent of those customers are gift shops specializing in so-called trendy gift items. The items are aimed mainly at the adult under 40 age group.

Among the items sold by the defendant, in the period under review, were novelty soap products. The following general statement was agreed to by the parties:

Novelty soap products are composed of the same basic materials as toilet soap. However, the novelty soap products in issue are in various shapes and sizes depicting various objects such as cigarettes, crayons, hearts and “Garfield”.

I shall later go into more detail in respect of these products.

The issue, between the parties and for decision, is whether the novelty soap products fall within the definition of cosmetics, as set out in subsection 2(1) of the statute:

cosmetics means goods, whether possessing therapeutic or prophylactic properties or not, commonly or commercially known as toilet articles, preparations or cosmetics, that are intended for use or application for toilet purposes, or for use in connection with the care of the human body, including the hair, nails, eyes, teeth, or any other part or parts thereof, whether for cleansing, deodorizing, beautifying, preserving or restoring, and includes toilet soaps, shaving soaps and shaving creams, skin creams and lotions, shampoos, mouth washes, oral rinses, toothpastes, tooth powders, denture creams and adhesives, antiseptics, bleaches, depilatories, perfumes, scents and similar preparations;

The issue is primarily one of fact. The interpretation and meaning of the definition of cosmetics, is, as well, involved.

The onus is on the Crown to show, by a preponderance of evidence, the novelty soap products in issue are caught by the relevant statutory provision.

There is no dispute the products contain the basic ingredients found in what is termed toilet soaps. Toilet soaps, as I understand it, are the common well known bar-type soaps, of fairly standard size, and relatively simple and inexpensive packaging, used in most households. Examples are such well known products as "Dove”, “Camay”, “Ivory” and “Irish Spring”. There are many others.

The plaintiff adduced in evidence surveys done of various kinds of stores in the Montreal and Ottawa areas. (Exhibits 8 and 9.) These were done in January of this year by the witness Cheryl Fisher. They set out the areas in the stores some of the products in issue were found. Generally speaking, the novelty soaps were found in the same areas or sections displaying toilet soaps, health and beauty preparations and aids, and sometimes in “cosmetic” sections.

I give very little weight to this evidence. That is not a criticism of Ms. Fisher. She was a capable and good witness.

But the survey was, as I have said, done a few weeks ago, after Christmas, and while post-Christmas sales may have been going on. There was no evidence that the location of the novelty soaps was the same before Christmas, as after. Other evidence in this case is to the effect the novelty soaps are gift items, aimed at the Christmas trade.

There is a much more serious criticism of these two surveys. There is no reliable, or convincing evidence, to show the same situation existed between February 3, 1981 and July 31, 1983.

The other witness for the plaintiff was James Bellamy, of G.T. Fulford Ltd. That company manufactures proprietary medicines, toiletries and cosmetics. In the last four years, the company has produced novelty soaps, aimed as gifts for children. Examples were “Cabbage Patch Kids Soap” and “‘Hugga Bunch”.

Mr. Bellamy’s evidence, as to his company's intention, promotion, packaging, and marketing, cannot, in my opinion, be accepted as describing the industry's situation, practice and methods, and more particularly, the defendant's situation, practice and methods, from February 3, 1981 to July 31, 1983.

When G.T. Fulford got into its novelty gift soaps, it was aimed, obviously I think, the soaps be, in fact used by children, partly as a toy, or attractive object, affording childish pleasure, in body care and grooming.

I prefer the evidence of the defendant's witnesses as to the state of affairs existing in the 1970s and very early 1980s. They were there. They knew the business, and the market place at that time. I accept their evidence as accurate and honest.

Mr. Hammer, of the defendant company, said items, made of soap, became popular in the time period in question, or even shortly before. Their individual novelty was usually short-lived, a matter of months. Most of them were jocular, or satirical, in design and packaging. I refer to some examples: “Soap Dog" (Exhibit 32); “Bathroom Graffiti" (Exhibit 5); "Chainsmokers" (Exhibit 3). Others were also put in as physical exhibits. The brochures found in Exhibit 5 contain photographs and descriptions of the products in issue.

Mr. Hammer's company sold approximately 90 per cent of this line of goods to independent gift stores, approximately 5 per cent to toy stores, and a very small percentage to department stores. The majority of sales were made for the Christmas season.

He, and other witnesses for the defendant, agreed these products could, if someone wished, ultimately be used as a soap for body care and grooming. But he, and the other witnesses, said the gift packages were meant as joke or amusement items, for novelty, display, and conversation pieces. It was his opinion, and I accept it, the ultimate recipient, after the novelty and amusement content disappeared, would not use it for washing, bathing, or grooming purposes. They would be thrown away.

In answer to some questions of mine, he said a lot of these novelty gift soaps, because of their shape and size, would not fit into bar soap receptacles found in many showers and baths. His observations accord with my own.

The witness Neiss, was, for 19 years, president of a company having a chain of retail drug stores. He, and the other witnesses for the defendant, said the industry never described or considered these novelty gift soaps as toilet soaps. In the period in question, they were not displayed alongside toilet soaps. He described taking two novelty type soaps home, thinking his daughters might be interested. Neither were ever used by them. After a time, he used one on himself, on the waste-not, want-not principle. He found it unsatisfactory for showering purposes. After that one use, he disposed of it.

At this point, I do not intend to set out the defendant's evidence in any more detail. I have accepted it.

I turn to the submissions made.

For the plaintiff, it is said the products in issue fall within the definition of cosmetics.

I do not agree.

The evidence put forward by the defendant satisfies me the products in issue were not “commonly known”, or “commercially known” as “toilet articles” or "preparations”.

The defendant's witnesses, a manufacturer, and retailers, as well as the company itself (through Mr. Hammer), were very clear these items were not commercially known as "toilet articles” or "toilet preparations”, in the years In issue.

The definition goes on.

The articles or preparations "are intended for use or application for toilet purposes”. The evidence is these products were never so intended, and, at that time, were not in fact used for those purposes. Nor were they used for the care or grooming of the human body.

In my view, the words "are intended” apply not only to the phrase "for use or application for toilet purposes”, but also to the following words "for use in connection with the care of the human body . ..”

That part of the definition in my opinion, need not be read disjunctively.

Even if it is to be read disjunctively, the products here, at the time in question, were not, on the evidence, used for the care or grooming of the human body. The fact that it was possible to use them, at that time, for those purposes, does not bring them within the definition.

The plaintiff relies on the last three words in the definition, in an endeavor to catch the goods in issue.

It is said that these products are "similar preparations” to the items set out after the word "includes”; the novelty soaps are similar preparations to toilet soaps and some of the other goods specifically enumerated.

I, once more, cannot agree.

The "similar preparations”, in my view, must relate to goods for use or application for toilet purposes, or use in connection with the care or grooming of the human body.

The specific goods in question here were not, in the period in question, for those uses. As I said earlier, the fact they could be so used, is not conclusive.

The action is dismissed. The defendant is entitled to its costs from the plaintiff.

Action dismissed.