Canadian Turbo (1993) Ltd. v. R., [1997] 1 CTC 130

McDonald J.A.: — This is an appeal from a judgment of the Trial Division, pronounced on May 18, 1995, which set aside a determination by the Minister of National Revenue that excise tax paid by the respondent, Canadian Turbo, on the sale of gasoline and diesel fuel was not refundable.

The sole issue in the appeal is whether the excise tax paid by the respondent was an ad valorem tax, which is refundable under subsection 68.21(2) of the Excise Tax Act, R.S.C. 1985, c.E-15, or whether it is a Specific tax which is not refundable.

Facts

The facts are not in dispute. On or after February 16, 1984, the respon- dent, Canadian Turbo Inc. (now Canadian Turbo (1993) Ltd.), sold gasoline and diesel fuel and paid and remitted tax on the sale pursuant to Part VI of the Excise Tax Act. The tax was imposed by subsection 50(1) of the Act:

There shall be imposed, levied and collected a consumption or sales tax at the rate prescribed in subsection (1.1) on the sale price or on the volume sold of all goods

(a) produced or manufactured in Canada ...

Paragraph 50(1. l)(c) provides the method of calculation of the excise tax on gasoline and diesel fuel:

Tax imposed by subsection (1) is imposed...

(c) in the case of regular gasoline, unleaded gasoline, premium leaded gasoline, premium unleaded gasoline and diesel fuel, at the rate set opposite the applicable item in Schedule II. 1, adjusted according to subsection 50.1(1) and multiplied by the rate of tax specified in paragraph (d), expressed as a decimal number and multiplied by one hundred…

Schedule IL 1 sets out a specific per-litre rate payable under subsection 50(1) for sales of gasoline or diesel fuel:

SPECIFIC TAX RATES ON PETROLEUM PRODUCTS

1. Gasoline, regular $0.00329 per litre.

2. Gasoline, unleaded $0.00360 per litre.

3. Gasoline, premium leaded $0.00370 per litre.

4. Gasoline, premium unleaded $0.00370 per litre.

5. Diesel fuel $0.00302 per litre.

Under subsection 50.1(1), the Schedule IL 1 rates are adjusted quarterly according to the Industrial Product Price Index for gasoline and diesel fuel.! [1] This rate is then multiplied by the general percentage rate of tax set out in paragraph 50(1.1)(d), that is, 13.5%. The overall rate of tax payable, then, is calculated based on a fixed per-litre amount, adjusted by the weighted average market price for gasoline or diesel oil over the 12-month period ending three months before the adjustment day, multiplied by the general percentage rate of tax.

Some time after the sale, the respondent wrote off certain debts arising therefrom as bad debts. In 1989, it applied pursuant to subsection 68.21(2) of the Act for a refund of the portion of the excise tax related to those bad debts. The Minister of National Revenue refused the respondent’s application for a refund on the basis that the tax it had paid was a non-refundable specific tax.

Subsection 68.21(2) of the Act reads:

(2) Where ad valorem tax under Part III or VI has been paid by a licensed manufacturer in respect of an arm’s length sale occurring on or after February 16, 1984 and the manufacturer has established, in accordance with generally accepted accounting practices, that any debt owing to him in respect of the sale has become in whole or in part a bad debt and has accordingly written off the debt as a bad debt in his books of account, an amount equal to the proportion of the amount of that tax that the amount of the debt written off is of the price for which the goods were sold shall, subject to this Part, be paid to that manufacturer if he applies therefor in the two years after the end of his fiscal period during which the debt was so written off.

It is clear that the subsection authorizes the refund of ad valorem tax only.

Decision of the Trial Division

The trial judge noted that there was no Canadian jurisprudence defining “ad valorem tax”, and she distinguished the U.S. caselaw on this point, correctly, in my respectful view, on the basis that that jurisprudence had developed in the context of constitutional concerns specific to the American context. Rather, the trial judge relied upon several dictionary definitions to conclude, again correctly in my respectful view, that ad valorem taxes are calculated on the basis of the price or value of the property being taxed, whereas a specific tax is assessed on the basis of the number of classifications or units of the commodity being taxed.

The trial judge also held that a specific tax does not cease to be such simply because the value of the property is taken into consideration in setting the tax rate. She held, however, that where the tax rate varies within the classification based on the value of the goods, the value-based component goes beyond simply being “taken into consideration.” It transforms the specific tax into an ad valorem tax.

The parties agreed, and the trial judge accepted, that the legislative intent underlying subsection 68.21(2) is to avoid the payment of “tax on tax”. Where a taxpayer remits ad valorem tax on the value of property with respect to what later becomes a bad debt, the taxpayer will recoup its loss on the sale, including the excise tax paid on it, by increasing the price on its subsequent sales proportionately. The taxpayer will then be required to pay ad valorem tax on the subsequent higher sale price. In the case of a specific tax, however, the taxpayer will not be required to pay “tax on tax” because the rate does not increase with the price of the goods, but with their quantity. Thus a specific tax need not be refunded to avoid the payment of “tax on tax”. In this case, the trial judge concluded that in this case, the respondent would be required to pay tax on tax if the excise tax that it had paid on the bad debt was not refunded, although the tax on tax that the respondent would be required to pay would reflect the industry average experience with bad debt rather than its own.

The trial judge rejected the appellant’s argument that the reference in subsection 50(1) to tax imposed “on the sale price or on the volume sold” supports the characterization of the sales tax on gasoline, which is levied on a per-litre basis, as a specific tax. She held that the italicized words were added to the section to address an anomaly in legislative drafting and do not affect the characterization of the tax.

The trial judge also rejected the appellant’s argument that the heading found in Schedule II. 1, “Specific Tax Rates on Petroleum Products”, should be weighed as factor in favour of the characterization of the gasoline and diesel fuel tax as a specific, and not an ad valorem tax; she held that there was no doubt that the Schedule II. 1 tax rate imposed a specific tax, but that its adjustment according to the national market price under paragraph 50(1. l)(c) and subsection 50.1(1) transformed it into an ad valorem tax.

The trial judge also dismissed the interpretation bulletin [2] and Ruling [3] by the Minister of National Revenue, which had characterized the excise tax on gasoline and diesel fuel as a specific tax which was not refundable. She held: “It is trite law that memoranda and rulings do not carry great weight in considering matters of statutory interpretation.” [4]

The trial judge concluded, based on the context and objects of the Act, and on the rule of construction that tax legislation should be interpreted in favour of the taxpayer, that the tax was an ad valorem tax and therefore that it was refundable.

Analysis

It is the respondent’s position that since the tax rate is adjusted every three months to reflect the market price of gasoline, the tax should be categorized as an ad valorem tax. The appellant, on the other hand, argues that the trial judge erred in deciding that the tax on gasoline is an ad valorem, rather than a specific tax. The appellant argues that this tax is imposed as a fixed rate per litre of fuel and that it therefore constitutes a tax on the volume of fuel sold, rather than on its value.

For the reasons that follow, I am in agreement with the argument of the appellant.

The term “ad valorem” is not defined in the Excise Tax Act, or in Canadian jurisprudence. As the Supreme Court held in Canada v. Antosko, [5] it is a basic rule of statutory construction that, where the words of a statute are clear and precise and contain no ambiguity, their ordinary meaning should be applied without further analysis. [6] This is the approach that should be taken to the construction of subsection 68.21(2).

The purposive approach to interpretation resorted to by the trial judge is appropriate only when the construction of the statute is not apparent according to its plain and ordinary meaning; [7] purposive interpretation cannot change the sense of a provision where the words of the statute are clear and plain. [8] The trial judge erred, then, in discounting the plain words of the statute with regard to “the volume sold” on the basis that the purpose of the addition of these words had been to correct a drafting anomaly.

In its ordinary meaning, an “ad valorem" tax is one which is imposed according to the value of the property or commodity taxed. [9] Black’s Law Dictionary distinguishes an ad valorem tax from a specific tax. The latter is a tax imposed regardless of the value of the taxed goods:

(ad valorem tax. According to value. A tax imposed on the value of property.... A tax levied on property or an article of commerce in proportion to its value, as determined by assessment or appraisal. Duties are either ad valorem or specific; the former when the duty is paid in the form of a percentage on the value of the property; the latter where it is imposed as a fixed sum on each article of a class without regard to its value. [10]

[Emphasis in original; citations omitted.]

According to the ordinary meaning of subsection 50(1) and paragraph 50(1. l)(c), the tax at issue in this case is a specific, and not an ad valorem one. Subsection 50(1) provides that the tax shall be imposed “at the rate prescribed in subsection (1.1)”; paragraph 50(1. l)(c) imposes the tax “at the rate set opposite the applicable item in Schedule II. 1”, adjusted accord- ing to the Industrial Product Price Index and multiplied by the rate of tax specified in paragraph 50(1. l)(d). Paragraphs 1 to 5 of Schedule II. 1 to the Act clearly establish a flat rate of tax per litre.

After the prescribed adjustments, the tax imposed remains a per- litre tax based on the volume sold. Thus interpreted, the tax in this case is a specific tax imposed on the volume of fuel sold. It is not an ad valorem tax. The per-litre rate is calculated every three months according to a formula in which the market price of gasoline is only one of several factors.

This interpretation of the tax as a specific one is supported by reference to the heading in Schedule IL 1, “Specific Tax Rates on Petroleum Products”. The heading clearly indicates that Parliament intended Schedule IL 1, which is incorporated into the statute by paragraph 50(1. l)(c), to impose a specific tax on gasoline and diesel fuel. For the purposes of interpretation of federal statutes, headings should be considered part of the legislation and should be read and relied upon like any other contextual feature of the statute. [11] at page 269-73.}}

In Skapinker v. Law Society of Upper Canada,' [12] Estey J., speaking for the Court, held that courts can, and indeed should, refer to headings as an integral part of the legislation being interpreted. He observed:

It is clear that these headings were systematically and deliberately included as an integral part of the Charter for whatever purpose. At the very minimum, the Court must take them into consideration when engaged in the process of discerning the meaning and application of the provisions of the Charter. The extent of the influence of a heading in this process will depend upon many factors including (but the list is not intended to be all-embracing) the degree of difficulty by reason of ambiguity or obscurity in construing the section; the length and complexity of the provision; the apparent homogeneity of the provision appearing under the heading; the use of generic terminology in the heading; the presence or absence of a system of headings which appear to segregate the component elements of the Charter; and the relationship of the terminology employed in the heading to the substance of the headlined provision. Heterogeneous rights will be less likely shepherded by a heading than a homogeneous group of rights.

At a minimum the heading must be examined and some attempt made to discern the intent of the makers of the document from the language of the heading. It is at best one step in the constitutional interpretation process. It is difficult to foresee a situation where the heading will be of controlling importance. It is, on the other hand, almost as difficult to contemplate a situation where the heading could be cursorily rejected.... [13]

While Skapinker addressed the use of headings in constitutional interpretation, the same approach to statutory interpretation applies to ordinary federal legislation. [14] Thus, in this case, the heading in Schedule IL 1 should have been given at least some interpretive weight, particularly since the terminology of the heading relates directly to the content of the provisions in Schedule II. 1. This heading clearly shows a parliamentary intent to impose a specific, and not an ad valorem tax.

The trial judge also erred in discounting the administrative interpretation bulletins as being of little interpretive weight. It is true that, since administrators do not have power to legislate, administrative interpretations are not binding on the courts. [15] Nonetheless, interpretation bulletins have repeatedly been held by appellate courts to be of significant interpretive value where the statutory provision is ambiguous. [16]

In the present case, however, the meaning of the statutory provision is not ambiguous. Since the meaning and legislative intent of the words of the statutory provisions are clear, the legislation is capable of interpretation according to its plain and ordinary meaning. Resort to interpretation bulletins, to the purpose of the provisions and to the residual presumption in favour of the taxpayer is therefore unnecessary. The tax at issue here is clearly a specific tax on the volume of gasoline and diesel fuel sold, and is therefore non-refundable.

Conclusion

For all of these reasons, this appeal will be allowed with costs, and the judgment of the Trial Division set aside.

Appeal allowed.