SMC Pneumatics (Canada) Ltd. v. M.N.R., [1997] 2 CTC 321

Pinard J.:

This is an application for judicial review of a decision of the respondent dated May 16, 1995, rejecting the applicant’s request for a refund of certain customs duties. The applicant made the application for refund on February 27, 1995, as transaction #01131-200224093 pursuant to section 77(1) of the Customs Tariff Act [1] (“the Act”). The applicant seeks an order in the nature of mandamus compelling the respondent to grant the applicant’s refund under section 77 of the Act, or in the alternative, an order setting aside the decision of the respondent.

The Legislative Framework

Under Part II, Division III of the Act, which, for convenience, is reproduced in Schedule A appended hereto, importers may qualify or apply for relief from payment of customs duties on machinery or equipment they bring into Canada, when such goods are not available from production in Canada. The policy objective of the Machinery program, as it is called, is outlined in Memorandum D8-5-1 put out by Revenue Canada [2] . It states:

The objective of the Machinery Program is to increase efficiency throughout Canadian industry by enabling users to acquire advanced equipment not obtainable from Canadian production, yet affording Canadian manufacturers tariff protection on the machinery and equipment they produce as soon as they are in a position to supply.

To establish eligibility for duty relief under Part II, Division III of the Act, the machinery or equipment must be classified under a tariff item enumerated in Schedule VI to the Act (sections 73 and 74 of the Act), and it must appear on a list established by the Minister indicating that the good is not available from production in Canada (section 75 of the Act). If the item of machinery or equipment does not appear on the Minister’s list, section 76 of the Act provides that an application for remission may be made, accompanied by evidence satisfactory to the Minister that the machinery and equipment is not available from production in Canada.

According to Paragraph 33 of Memorandum D8-5-1:

When goods are recommended for remission of customs duties, an approved application will be returned to the applicant containing an authorization number and specifying the time period covered by the remission.

(my emphasis)

Finally, Paragraph 36 of Memorandum D8-5-1 deals with assignment by applicants to another party of their right to remission in respect of their approved application. It reads as follows:

Transferability

36. Applicants may assign to another party their right to remission in respect of their approved application. Such assignment should be in the form of a letter from the applicant to the assignee, indicating the description and quantity of goods remitted which the assignment covers. This letter or a copy thereof should accompany the Notice of Remission when presented at Customs for clearance or refund. It should be noted, however, that the responsibility for the authorization remains with the applicant and in case of cancellation, it is the applicant’s duty to advise all assignees of the change in status of the application.

Note: This provision does not apply to refunds under section 77 of the Customs Tariff where the importation occurred more than 3 months prior to the receipt of the application by the Machinery and Equipment Advisory Board. Also, transferability is not permitted for special automotive remissions as described in par- agraph 19(c) of this Memorandum, or in the case of production part applications.

In addition, once an application is cancelled, it is no longer transferable to another party. It should also be noted that the letter of assignment shall be considered to not be in force after the expiry date of the application, after the cancellation date of the application or after the date the applicant named in the application goes out of business.

(my emphasis)

Facts

On February 22, 1990, the Secretary of the Machinery & Equipment Advisory Board (MEAB) signed an Application for Duty Remission under the Machinery Program (Application #2037644), submitted by W.C.I. Canada Inc. in respect of certain goods it imported on January 1, 1988. The Approved Application or Remission Order specified that the remission was to be effective from May 1, 1989 to February 28, 1995.

By letter dated February 24, 1995, W.C.I. Canada Inc. (“W.C.L”) purported to assign to the applicant SMC Pneumatics (Canada) Ltd. (“SMC”) the use of W.C.L’s approved machinery remission application #2037644 “for an unlimited quantity of solenoid valves for the effective period of this authority”. The letter indicated that “[T]his authorization is provided in accordance with paragraph 36 of Memorandum D8-5-1, published by Revenue Canada, Customs, Excise and Taxation”.

On February 27, 1995, SMC submitted a refund claim to the Minister of National Revenue (“the respondent”) on the basis of remission order #2037644.

On May 16, 1995, the respondent completed a Detailed Adjustment Statement, whereby the applicant’s refund claim was rejected in the following terms:

THIS CLAIM IS CANCELLED. TIME LIMIT IS NOT PROTECTED. REMISSION APPLICATION #2037644 ISSUED IN FAVOUR OF W.C.I. MANUFACTURING IS A PRODUCTION PARTS APPLICATION. AS SUCH IS NOT TRANSFERABLE PER PARAGRAPH 36 (NOTE) OF D8-5-1.

S. SCRIVENS. 416.954.0771.

On June 16, 1995, the applicant filed the originating notice of motion in the present application.

The Issues

In my view, the issues in this matter have been well articulated by the respondent and are as follows:

a. Generally, must the respondent permit the transfer of a remission order from one importer to another, where the goods in question are production parts?

b. Is the decision refusing the refund affected by the fact that information on the respondent’s administrative policy on non-transferability of remission orders on production parts was first published after the remission order at issue was granted (though before it was transferred to the applicant)?

Analysis

With respect to the first issue, the applicant’s first contention is that there is nothing on the face of approved application or remission order #2037644 to indicate that it applies only to production parts. Accordingly, the prohibition against transfers of production part remission orders found in paragraph 36 of Memorandum D8-5-1, ought not to apply to the applicant’s refund claim (submitted February 27, 1995; transaction #01131- 200224093), and was an irrelevant basis for rejecting that claim.

It must be noted, however, that the parties are now agreed that Exhibit-2 of the Affidavit of Denise Neubauer dated June 16, 1995, (the “Application for Duty Remission Under the Machinery Program Part I”) submitted by the applicant should have included the second page, designated as Part II. In Part Il, a person applying for duty remission is asked to answer several questions pertaining to their claim. The relevant question for the present issue reads as follows:

2. Indicate if application covers (a) a complete machine for use in manufacture or for resale (b) repair or replacement parts for machinery imported under remission of duty but which the replacement parts provision has expired (c) production parts to manufacture machines for re-sale.

(my emphasis)

In application #2037644, W.C.I. Manufacturing answered the question as follows:

These items would be deemed production components.

As also admitted by the parties, only Part I of such an approved Application for Duty Remission is returned to the successful applicant, while Part II is retained by the Minister. In my view, this practice does not in itself render the information contained in Part II irrelevant to that contained in Part I once the application is approved. Clearly, Part II is part of application #2037644 in this matter and, thus, application #2037644 indicates “on its face” that it applies to “production components” or production parts. Conse- quently, absent any evidence to the contrary, Part IT in the present case provides evidence that the goods in question listed in Part I are production parts, the transferability of which is not permitted by virtue of Paragraph 36 (Note) of Memorandum D8-5-1.

The applicant further alleges that the prohibition against transferability of goods that would otherwise qualify for remission of duty is an irrelevant and extraneous consideration that is inconsistent with the statutory intent of the Machinery program. Moreover, the applicant submits that there is nothing in either the Act or the Regulations that confers the Minister with the power to prohibit the transferability of Machine Remission Orders in general, or those pertaining to production parts in particular. I do not agree.

The applicable legislative framework indicates that remissions under the Machinery program may be instituted in two ways. First, the Minister of National Revenue may establish a list of machinery and equipment that in his opinion, having regard to certain specified criteria, is not available from production in Canada. No customs duties are payable in respect of machinery and equipment that, at the time of importation, is included on this list (sections 74 and 75 of the Act). In addition, the Minister may in certain circumstances remit customs duties in respect of machinery and equipment not included on the list (section 76 of the Act).

As it appears from the words “and the Minister is of the opinion” and “the Minister may remit” used in subsection 76(1) of the Act, and the words “satisfactory to the Minister” used in subsection 76(4) of the Act, the granting of such remissions by the Minister is highly discretionary. Though this discretion must be exercised within certain limits, there is no obligation to exercise it. Furthermore, as indicated in subsection 76(2) of the Act, the Minister may impose conditions on the granting of such remissions.

The duty imposed upon the Minister to grant a refund, in section 77 of the Act, applies only in relation to remissions granted under section 76 in respect of machinery and equipment not included on the list established by the Minister.

I fully agree with the respondent that it is as an exceptional matter of administrative convenience that the respondent permits certain remissions granted under section 76 to be transferred to other importers by the original applicant. This practice, as noted by the applicant in its Memorandum of Fact and Law, enhances the efficiency of the program by reducing the number of applications being submitted for the same goods. That this administrative practice is authorized by the legislative provisions set out in Part II, Division III of the Act is not in issue. However, these provisions do not in any way require the establishment of this practice, nor do they in any way fetter the manner in which, within that authority, the practice may be defined or implemented. In Maple Lodge Farms v. Canada^, [3] the Supreme Court of Canada considered the role of policy guidelines in the context of the Export and Import Permits Act*. [4] Mr. Justice McIntyre made the following comments, at pages 6, 7 and 8:

It is clear, then, in my view, that the Minister has been accorded a discretion under s. 8 of the Act. The fact that the Minister in his policy guidelines issued in the Notice to Importers employed the words: “If Canadian product is not offered at the market price, a permit will normally be issued; ...” does not fetter the exercise of that discretion. The discretion is given by the Statute and the formulation and adoption of general policy guidelines cannot confine it. There is nothing improper or unlawful for the Minister charged with responsibility for the administration of the general scheme provided for in the Act and Regulations to formulate and to state general requirements for the granting of import permits. It will be helpful to applicants for permits to know in general terms what the policy and practice of the Minister will be. To give the guidelines the effect contended for by the appellant would be to elevate ministerial directions to the level of law and fetter the Minister in the exercise of his discretion. Le Dain J. dealt with this question at some length and said, at p. 513:

The Minister may validly and properly indicate the kind of considerations by which he will be guided as a general rule in the exercise of his discretion (see British Oxygen Co. Ltd. v. Minister of Technology [1971] A.C. (H.L.) 610; Capital Cities Communications Inc. v. Canadian Radio-Television Commission [1978] 2 S.C.R. 141, at pp. 169-171), but he cannot fetter his discretion by treating the guidelines as binding upon him and excluding other valid or relevant reasons for the exercise of his discretion (see Re Hopedale Developments Ltd. and Town of Oakville [1965] 1 O.R. 259).

In any case, the words employed in s. 8 do not necessarily fetter the discretion. The use of the expression “a permit will normally be issued” is by no means equivalent to the words ‘a permit will necessarily be issued’. They impose no requirement for the issue of a permit.

In construing statutes such as those under consideration in this appeal, which provide for far-reaching and frequently complicated administrative schemes, the judicial approach should be to endeavour within the scope of the legislation to give effect to its provisions so that the administrative agencies created may function effectively, as the legislation intended. In my view, in dealing with legislation of this nature, the courts should, wherever possible, avoid a narrow, technical construction, and endeavour to make effective the legislative intent as applied to the administrative scheme involved. It is, as well, a clearly-estab- lished rule that the courts should not interfere with the exercise of a discretion by a statutory authority merely because the court might have exercised the discretion in a different manner had it been charged with that responsibility. Where the statutory discretion has been exercised in good faith and, where required, in accordance with the principles of natural justice, and where reliance has not been placed upon considerations irrelevant or extraneous to the statutory purpose, the courts should not interfere.

Finally, I find a refusal to recognize a right to a refund in respect of a transferred remission order relating to production parts to be wholly consistent with the Minister’s discretion not to grant a remission order under subsection 76(1) and to establish conditions under subsection 76(2) of the Act.

With respect to the second issue, and contrary to the contention of the applicant, I am of the opinion that it is not contrary to the plain meaning of the policy statement of the Minister to have applied the prohibition on transferability to a remission order issued prior to publication of that statement. It is clear from the terms of the Act that the Minister has the power to revoke an approved application for remission of duty when the Minister is “of the opinion, having regard to the criteria mentioned in subsection 75(3), that machinery and equipment in respect of which remission has been granted under subsection (1) has become available from production in Canada” (s.76(3)). This power prevails “notwithstanding the terms and conditions of the remission”, and operates such that the remission “shall cease to apply to machinery and equipment accounted for under section 32 of the Customs Act after the effective date of the revocation”.

In my view, given that the Act expressly reserves to the Minister the right to revoke remissions of duty, there is nothing inconsistent with issuing a policy that restricts transferability of approved applications for duty remission on production parts from the date of publication of the policy onwards. As I see it, the transferability aspect of Memorandum D8-5-1 is entirely consistent with the power conferred upon the Minister by Part II, Division III of the Act to respond quickly to changes in the availability of goods from production in Canada. As noted by Mr. Justice Linden in Canadian Assn. of Regulated Importers v. Canada (Attorney General) [5] .

...these policy guidelines are not regulations; they may be easily changed from time to time, depending on the economic and political climate as well as the international situation. They are a useful guide only, which is as it should be.

Furthermore, even though the clarification of the administrative practice relating to transfers was first published after the remission order at issue was granted, it was published prior to both the purported transfer of the remission order to the applicant and the latter’s application for refund.

Conclusion

In my opinion, the applicant has not succeeded in demonstrating that the restriction on transferability of approved applications for remission of duty on production parts found in Paragraph 36 of Memorandum D8-5-1 either should not or does not apply to its application for refund. Moreover, the applicant has not established that the Minister was not entitled to issue such a policy in furtherance of the efficient administration of the Machinery Program. For the foregoing reasons, I find that the Minister was justified in refusing the applicant’s application for refund made pursuant to section 77 of the Act.

Accordingly, the application is denied.

Application dismissed.

Schedule A

Division III Machinery and Equipment

73. In this Division, except for the purposes of section 75.1, “machinery and equipment” means goods that are classified under a tariff item enumerated in Schedule VI and, where applicable, under a code enumerated in that Schedule with respect to that tariff item.

74. (1) No customs duties are payable in respect of machinery and equipment that, at the time the machinery and equipment is accounted for under section 32 of the Customs Act, is included on the list of machinery and equipment established by the Minister pursuant to subsection 75(1).

(2) The amount of the excise taxes payable in respect of the machinery and equipment referred to in subsection (1) shall be determined as if the duty paid value of the machinery and equipment were the value for duty of the machinery and equipment.

(3) The amount of the goods and services tax payable in respect of the machinery and equipment referred to in subsection (1) shall be determined as if the value of the goods, for the purposes of section 215 of the Excise Tax Act, were the value for duty of the machinery and equipment.

75.(1) The Minister may establish a list of machinery and equipment that, in the opinion of the Minister, having regard to the criteria mentioned in subsection (3), is not available from production in Canada.

(2) The Minister shall cause a list established under subsection (1) and every addition thereto and deletion therefrom to be published in the Canada Gazette within sixty days after the establishment, addition or deletion, and a list, addition or deletion so published shall be judicially noticed.

(3) For the purposes of subsection (1), the Minister shall have regard to the following criteria:

(a) whether a manufacturer has, within his normal operational framework, the full range of technical and physical capabilities necessary for production in Canada of machinery and equipment reasonably equivalent to the relevant machinery and equipment; and

(b) whether a Canadian manufacturer has so produced machinery and equipment as to demonstrate a production competence reasonably equivalent to that required to produce the relevant machinery and equipment.

75.1(1) No customs duties are payable in respect of machinery and equipment that, at the time the machinery and equipment is accounted for under section 32 of the Customs Act, is

(a) included on the list of machinery and equipment established by the Minister pursuant to subsection (3); and

(b) entitled to the benefit of the United States Tariff.

(2) The amount of the excise taxes payable in respect of the machinery and equipment referred to in subsection (1) shall be determined as if the duty paid value of the machinery and equipment were the value for duty of the machinery and equipment.

(2.1) The amount of the goods and services tax payable in respect of the machinery and equipment referred to in subsection (1) shall be determined as if the value of the goods, for the purposes of section 215 of the Excise Tax Act, were the value for duty of the machinery and equipment.

(3) The Minister shall, for the purpose of implementing paragraph 6 of Article 401 of the Canada-United States Free Trade Agreement, establish a list of machinery and equipment in accordance with Annex 401.6 thereof.

(4) The Minister may add machinery and equipment to the list established under subsection (3).

76. (1) Where an application for remission is made in accordance with subsection (4) in respect of machinery and equipment not included on the list established pursuant to subsection 75(1) and the Minister is of the opinion, having regard to the criteria mentioned in subsection 75(3), that the machinery and equipment is not available from production in Canada, the Minister may remit in respect of the machinery and equipment

(a) the customs duties that, but for this subsection, would be payable in respect of the machinery and equipment, and

(b) that portion of the excise taxes that, but for this subsection, would be payable in respect of the machinery and equipment in an amount equal to the difference between the amount of the excise taxes payable in respect of the machinery and equipment and the amount of the excise taxes that would be payable in respect of the machinery and equipment if the duty paid value used to calculate the excise taxes so payable were the value for duty used to calculate the customs duties so payable,

and, notwithstanding Part I and the Excise Tax Act, the amounts of the customs duties and excise taxes payable in respect of the machinery and equipment shall be reduced in accordance with paragraphs (a) and (b).

(2) Subject to subsection (3), remissions under subsection (1) may be conditional or unconditional and may be granted regardless of whether in a particular case any liability to pay the duties has arisen.

(3) Where the Minister is of the opinion, having regard to the criteria mentioned in subsection 75(3), that machinery and equipment in respect of which remission has been granted under subsection (1) has become available from production in Canada, the Minister may revoke the remission and, notwithstanding the terms and conditions of the remission, it shall cease to apply to machinery and equipment accounted for under section 32 of the Customs Act after the effective date of the revocation.

(4) An application for remission must be accompanied by evidence satisfactory to the Minister that, having regard to the criteria mentioned in subsection 75(3), the machinery and equipment is not available from production in Canada.

77. (1) A refund shall be granted of the portion of the customs duties or excise taxes described in paragraph 76(1)(a) or (b) if

(a) a remission of the portion is made under subsection 76(1);

(b) the portion of the duties was paid; and

(c) an application for refund is made in accordance with subsection (2). (2) For the purposes of paragraph (1)(c), an application for refund must be

(a) supported by such evidence as the Minister may require; and

(b) made in the prescribed manner and in the prescribed form containing the prescribed information within five years, or, where another time is prescribed, within that other time, after the machinery and equipment in respect of which it is made is accounted for under section 32 of the Customs Act.

(3) The Governor in Council may make regulations prescribing, for the purposes of subsection (2), the manner of making an application and the time within which it must be made.

78. [Repealed, R.S., 1985, c. 9 (4th Supp.), s. 3]

79. (1) Where a remission is granted under section 76, the Minister shall issue to the person who applied for the remission a certificate bearing a number to be used to identify the machinery and equipment.

(2) Where a remission granted under section 76 ceases to have effect or is revoked pursuant to subsection 76(3), the Minister may cancel the certificate issued under subsection (1) in respect of the remission.

(3) Machinery and equipment in respect of which remission is granted under section 76 may be released without payment of the portions of the duties remitted thereby if the number mentioned in the certificate issued under subsection (1) is disclosed when the machinery and equipment is accounted for under section 32 of the Customs Act and the certificate is in force at that time.