The Proprietary Association of Canada, Barnes-Hind/Hydrocurve Inc and Alcon Canada Inc v. Her Majesty the Queen, [1984] CTC 650, 85 DTC 5020

The Associate Chief Justice:—In this action, the plaintiffs seek a declaration that their products, solutions for cleaning and maintaining contact lenses, are exempt from taxes imposed under the Income Tax Act, RSC 1970, c E-13, as amended, and a refund of amounts paid to date. The trial came on for hearing at Toronto, Ontario on May 28, 1984, and at the conclusion of argument, I indicated for reasons given from the bench that the declaration would be granted and that these brief written reasons would follow.

The tax in question is imposed by section 27 of the Excise Tax Act'.

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

(a) . . .

(b) imported into Canada, . . .

Section 29, however, provides for exemptions which are in issue here:

29. (1) The tax imposed by section 27 does not apply to the sale or importation of the articles mentioned in Schedule III.

Schedule III, Part VIII, Paragraph 1 provides:

PART VIII

HEALTH

1. Any material, substance, mixture, compound or preparation, of whatever composition or in whatever form, including materials for use exclusively in the manufacture thereof, sold or represented for use in the diagnosis, treatment, mitigation or prevention of a disease, disorder, abnormal physical state, or the symptoms thereof, in humans or animals or for restoring, correcting or modifying organic functions in humans Or animals, but not including cosmetics.

Section 2(1) of the Act defines “cosmetics” as follows:

2. (1) In this Act

“cosmetics” means articles, materials or preparations of whatever composition or in whatever form, 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 including shaving soaps and shaving creams, antiseptics, bleaches, depilatories, perfumes, scents and similar preparations;

Are these “health products” and if so, are they caught by the definition of “cosmetics”?

The evidence consisted of two acknowledged experts in the field of ophthalmology and two others in the field of marketing of health care products. The medical evidence leaves no doubt that contact lenses cannot be used for any extended period of time unless the solutions are employed. In certain cases, the fluid actually forms the lens, but in the greater number, it is used as a cleansing solution to avoid the introduction of foreign substances into the eye. I find as a fact that any attempt to treat eye disorders by the wearing of contact lenses unsupported by the regime of these kinds of solutions creates a substantial risk of far more serious illness. The Crown contends that these solutions do not treat the disorder of the eye, but only prevent disease from the introduction of foreign substances into the eye. I would have difficulty with such a submission in any case, but here, contact lenses themselves are specifically included in the exemptions in Schedule III, Part VIII, paragraph 1. This can only be taken as an expression of Parliament’s intention that people with visual disorders ought to enjoy the option of treating them either with conventional or contact lenses and that both products, as a result, should enjoy the “health goods’’ exemption. Indeed, the medical evidence also leaves no doubt that certain disorders can only be treated with contact lenses, although they are in the minority. I therefore conclude that unless they are cosmetic products, these solutions should enjoy the same exemption as the lenses.

Are they “cosmetics” as defined in subsection 2(1)? I think not. Their primary purpose certainly is not beautification. They serve as a support system for optical aids, not unlike frames for conventional glasses.Without contact lenses for the correction of a visual defect, there will be no use for these products. They are not products for the cleansing of the eye, but rather for the proper use of the lens in treating the visual disorder. They are not cleansers for the skin and they are not, in the language of the statute, “commonly or commercially known as toilet articles, preparations or cosmetics that are intended for use or application for toilet purposes”.

I also accept the evidence of the plaintiffs’ witness that marketing of these products is primarily aimed at eye care professionals: ophthalmologists, optometrists, opticians, — those who diagnose and treat eye disease or optical disorders and in turn, prescribe contact lenses. They are not marketed or advertised to the general public as cosmetic or toilet articles, but directly to eye care professionals through direct sales and through advertisements in professional journals. The situation, in my view, is exactly that as previously considered in Cooper Laboratories Ltd v The Deputy Minister of National Revenue for Customs and Excise (unreported Tariff Board Appeal No 1364, November 8, 1979), wherein the Board states:

The evidence showed that the Packer’s Pine Tar Shampoo and Soap are sold and represented for use in the treatment and mitigation of skin and scalp troubles. Promotion of those products is directed to dermatologists and medical practitioners. The goods are only sold in drugstores and pharmacies. They are not marketed in a manner similar to that in which most toilet articles and preparations are marketed. The same remarks apply to the Aveeno Bars. Furthermore, advertising of those products is done through Modern Medicine publications aimed at the medical professions. People with normal skin conditions would not use or like the Pine Tar products because of their colour and perfume. The Aveeno Bar with its 52 per cent concentration in weight of colloidal oatmeal is sold mainly through pharmacies on professional recommendations.

In view of this evidence, the Board concludes that the Packers’s Pine Tar Shampoo and Soap, the Aveeno Bars, are Health products within the meaning of Schedule III, Part VIII, paragraph 1 of the Excise Tax Act.

I endorse entirely the analysis of the Board in the Cooper decision and I consider it to apply directly to the present case. I do not understand how the Board, looking at the present products, did not apply the same analysis and reach precisely the same conclusion.

The statutory provisions make it clear that Parliament intended an exemption from excise tax on health care products, but not those primarily of a cosmetic nature. The solutions in issue here are only used, — and indeed must be used, with contact lenses in the correction of eye disorders. They are health care products and have virtually no cosmetic function.

The declarations should therefore go as asked, with costs. Counsel may prepare the appropriate judgment for signature.