Tom Baird & Associates Ltd. v. Minister of National Revenue, [1998] 1 CTC 69

Létourneau J.A.:

Once again, we are thrown back into the quagmire of the Excise Tax Act. This time, the issue is whether imaged articles that were used only for the manufacture of taxable printed matter as advertising and that were subsequently sold by the Respondent to its clients were exempt from federal sales tax under subsection 29(1) of the Excise Tax Act! (the Act) and section 4, Part XIII, Schedule III of the Act. It involves the interpretation to be given to the said section 4 with respect to the words “made or imported by or sold to the manufacturer or producer for use exclusively in the manufacture or production of printed matter”. The section reads:

4. Typesetting and composition, metal plates, cylinders, matrices, film, art work, designs, photographs, rubber material, plastic material and paper material, when impressed with or displaying or carrying an image for reproduction by printing,

'R.S.C. 1970, c. E-13, s. 29(1) reads:

The tax imposed by section 27 does not apply to the sale or importation of goods mentioned in Schedule III, [other than those goods mentioned in Part XIII of that Schedule that are sold to or imported by persons exempt from consumption or sales tax under subsection 31(2)].

The part in square brackets is not relevant to this appeal.

made or imported by or sold to a manufacturer or producer for use exclusively in the manufacture or production of printed matter, (emphasis added)

The term “imaged articles” is a compendious expression which describes the articles listed in the first three lines of that section.

Facts and Procedural History

A short summary of the facts and the procedural history of this case is in order.

On July 28, 1992, the Canadian International Trade Tribunal allowed the appeal of the Respondent from certain Notices of Determination of the Minister of National Revenue dated June 17, 1988 and held that certain imaged articles of the Respondent were exempt from federal sales tax under the Act. The Appellant appealed to the Trial Division of the Federal Court and its appeal was dismissed on October 8, 1996 by McKeown J. Hence, a further appeal to this Court.

The parties have agreed to the facts in an Agreed Statement of Facts. Stripped of the unnecessary details, they are as follows.

The Respondent is an advertising agency which creates marketing strategies for its clients and was a licensed manufacturer under the Act at all material times. The Respondent’s objective was the manufacture of printed matter as advertising for its clients.

To achieve this objective, the Respondent engaged various suppliers to manufacture photographs, typesetting, film, camera-ready art work and colour-separated film negatives each of which carried an image for reproduction by printing (“imaged articles”). The suppliers engaged by the Respondent manufactured imaged articles using designs, art work or film, and instructions, provided to them by the Respondent. The imaged articles were sold by the various suppliers to the Respondent on a federal sales tax exempt basis pursuant to Certificates of Exemption provided by the Respondent to them. The Respondent turned over the imaged articles without charge to printers who used them to manufacture both printed matter that was subject to federal sales tax (“taxable printed matter”) and printed matter that was exempt of federal sales tax.

As I have already indicated, the appeal is confined to those imaged articles that were used to manufacture only taxable printed matter.

The taxable printed matter manufactured by the printers from the imaged articles at issue was then sold to the Respondent by the printers, who remitted federal sales tax on the sale price to the Respondent of the taxable printed matter so sold. The imaged articles at issue having been supplied free of charge by the Respondent to the printers, the sale price of the printed matter did not include an amount on account of the cost component of the imaged articles at issue. The Respondent then resold the taxable printed matter to its clients and remitted no federal sales tax in respect of this sale.

The imaged articles at issue were also sold by the Respondent to its clients. Until sold by the Respondent to its clients, the imaged articles at issue were used only for the manufacture of taxable printed matter. Upon the sale of the imaged articles at issue to its clients, the Respondent remitted an amount identified as federal sales tax, calculated on the amount it charged its clients for the imaged articles at issue.

Upon the sale of the image articles at issue to the Respondent’s clients, the physical disposition of the articles varied. In some cases, they were provided to the Respondent’s clients, in other cases they were returned by the printer to the Respondent and remained in its possession, or they remained in the possession of the printer.

The portion of the amount remitted by the Respondent as federal sales tax attributable to the difference between the amount the Respondent invoiced its clients for the imaged articles at issue and the cost to the Respondent of those imaged articles (“mark-up”) was subsequently the subject of refund claims by the Respondent to the Minister of National Revenue (“Minister”) and was refunded to the Respondent. The Respondent now seeks a refund of the remaining portion of the federal sales tax remitted in respect of the imaged articles at issue, calculated on the cost of those imaged articles to the Respondent.

Before us, the Appellant submitted that the learned Trial Judge erred in law first, with respect to the interpretation of section 4 of Part XIII and second, with respect to the notion of “exclusive use” found in that section. For the sake of convenience, I reproduce the arguments as defined by the Appellant in its Memorandum of Fact and Law:

That, with respect to the interpretative issue, the learned trial judge erred in law in the following respects:

e in finding section 4 of Part XIII of Schedule III to the Act to be “clear” and to have a “plain meaning”, namely that imaged articles used exclusively in the manufacture of taxable printed matter are tax exempt without further qualification;

• in failing to consider sufficiently the scheme and purpose of the Act in determining the meaning properly to be ascribed to section 4 of Part XIII of Section III to the Act;

• in failing to have regard to published administrative interpretations of the provision at issue, it being at best ambiguous.

That, with respect to the “exclusive use” issue, the learned trial judge erred in finding that the imaged articles at issue were “for use exclusively in the manufacture or production of printed matter”, given that their sale by Defen- dant/Respondent to its clients was integral to the transactions between these parties.

I will address these two contentions by reference to the findings of the learned Trial Judge.

The Interpretative Issue

At pp. 6 to 12 of his decision, the learned Trial Judge undertook a significant review of the legislative history of section 4, Part XIII of Schedule III and concluded that the provision was clear and required no further interpretation.

Ironically, the Appellant who had the duty and saw to the daily implementation and administration of that section, which remained unamended throughout after its inclusion into Schedule III of the Act on August 2, 1963 [2] , now claims that the section is ambiguous and requires a judicial rewriting.

In its quest for the ascertainment of the legislative intent of Parliament in those days, the Appellant submits that the words “made...by a manufacturer or producer for use exclusively in the manufacture or production of printed matter” should be read as restricting the exemption to the manufacturer who uses the article in the manufacture of printed matter, i.e., a printer. However, in order to achieve that result, one has either to rewrite section 4 to insert the words “by him” following the words “or use” in section 4 as the learned Trial Judge convincingly pointed out at p. 8 of his decision, or agree with the Appellant’s contention that such restriction is already in section 4 by implication.

With respect, I cannot agree with the Appellant’s proposed interpretation of section 4 which leads to an overly restrictive application of that provision not supported by the text itself.

First, to limit the application of the tax exemption to a printer as suggested by the Appellant is to ignore that the provision also grants the exemption to a producer. The terms “manufacturer” and “producer” in section 4 not only are not synonymous, but also are not necessarily synonymous with “printer”. For example, in R. v. York Marble, Tile & Terrazzo Ltd}, [3] Spence J., speaking for the Court, stressed that the words “produced” and “manufactured” are not words of any very precise meaning and concluded that their meaning has to be ascertained by looking at the context in which they are used. He also determined that the verbs “produce” and “manufacture”, used in the Act, are not synonymous so that a thing which was not manufactured in Canada may still have been produced there. In this regard, he cited with approval from a judgment of the Ontario High Court [4] that someone importing watch cases and movements separately is producing watches in Canada, though he is not manufacturing them, when he places the movements in the case. The mere insertion of the movement into the watch case was not the manufacture of the watch, but was a process in the production of the watch. In other words, an article may be “produced” although it is not “manufactured”.

The York Marble and Gruen Watch cases have been followed by our Court in Enseignes Impérial Signs Ltée c. Ministre du Revenu national [5] and in Hobart Canada Inc. v. Deputy Minister of National Revenue (Customs & Excise) [6] where our colleague Mahoney J.A. noted that all relevant references in the Act to manufacture and manufacturer are respectively, immediately and disjunctively associated with production and producer and concluded that manufacture and production are not synonymous.

In order to accept the Appellant’s contention, one would have to replace the words “manufacturer or producer” in the provision by the word “printer” and one would, thereby, exclude from the tax exemption the Respondent who is not a printer, but yet is a licensed manufacturer. In my view, Parliament has clearly identified the two categories of persons, to wit the manufacturer and the producer, who are entitled to the benefit of the exemption and it does not belong to us to rewrite the statute so as to replace them by a more restricted third category, namely the printer.

Second, I agree with the learned Trial Judge at p. 12 of his decision that the words “made or imported by or sold to” in section 4 are not redundant or superfluous. They qualify the conditions under which either a manufac- turer or a producer may benefit from the tax exemption. They clearly establish that the exemption is not limited to manufacturers or producers who make imaged articles, but also extend to imaged articles made abroad and imported as well as to articles made by a third party but acquired by a manufacturer or a producer. Again, this makes it clearly evident that the section was not intended to deal with printers only. In my view, none of the words in Section 4 are redundant as they clearly help to establish that the tax exemption does not apply when the making, importation or acquisition of imaged articles involves persons other than a manufacturer or a producer. To put it differently, they describe the persons who qualify for the sales tax exemption.

The Appellant has cited before us the following excerpt from the decision of our colleague Décary J.A. in W.R. McRae Co. v. R.’ [7] to criticize the comparative review of provisions of the Act undertaken by the learned Trial Judge:

When dealing with a piecemeal legislation such as the Excise Tax Act as it stood in 1990, which ... has no coherent structure and contains no basic rules to start with and which is amended on a routine basis to accommodate or redress specific situations in a constantly evolving commercial reality, the Court should be reluctant to compare microscopically the words of provisions devised at different times and in a different context and meant to address distinct concerns.

While this warning by Décary J.A. remains a sound one as we will see later on the issue of exclusive use, it has no application to the scope of the exemption at issue because these aspects of the provisions that the Trial Judge compared did not address distinct concerns in a different context. On the contrary, they all related, as in section 4, to the sale or importation of material or goods. With only two exceptions, they all referred to the sale or importation by manufacturers and producers. Finally, save for one, they all, as in section 4, required the material so imported or acquired to be used in the manufacture or production of goods.

Like the learned Trial Judge, I am satisfied that section 4 has a plain meaning and, with due respect, that the ambiguity alleged by the Appellant results not from the text of section 4, but from the restrictive interpretation it wants to give to the section. I am not willing to accept the Appellant’s contention that the Respondent’s interpretation retained by the Trial Judge leads to absurdities.

The case law is replete with judicial pronouncements on the need for judicial restraint in redrafting statutes at a time when Parliament disposes of qualified resources in the preparation and enactment of legislation [8] .

I need only refer to this passage of Major J. of the Supreme Court of Canada in the recent case of Friesen v. /?. [9] :

It is a basic principle of statutory interpretation that the court should not accept an interpretation which requires the insertion of extra wording where there is another acceptable interpretation which does not require any additional wording. Reading extra words into a statutory definition is even less acceptable when the phrases which must be read in appear in several other definitions in the same statute, (emphasis added)

In conclusion, I am in substantial agreement with the conclusion of the learned Trial Judge on the interpretative issue and I do not believe that the administrative practice developed by the Appellant in relation to section 4 and described in its bulletins of interpretation can be used to read an ambiguity into an otherwise clear legislative provision.

The “Exclusive Use” Issue

Simply put, the Appellant’s submission is that the imaged articles at issue were not “for use exclusively in the manufacture or production of printed matter” because the sale of the said articles by the Respondent to its clients constituted a further and distinct use. Consequently, where the articles are for any other use or where the use is not exclusive, the tax exemption does not apply.

It is true that in some other contexts, the term “use” has been interpreted as amounting to or encompassing a sale. For example, in R. v. Henry K. Wampole & Co. [10] as well as in British Columbia Telephone Co. v. R. [11] ', the Courts have understandably decided, in the context of an appropriation of goods by a manufacturer or a producer for its own use, that a sales tax was payable. Such interpretation in the particular context of a personal appropriation of goods manufactured or produced for sale is now governed by s. 27(1 )(a)(iii) of the Act, and is of no assistance at all in determining the meaning of “use” in the context of a physical use of imaged articles for the manufacturing and production of printed matters.

Nor are the decisions of Formea Chemicals Ltd. v. Polymer Corpf [12] and Pfizer Corp. v. Ministry of Health^ [13] applicable and helpful in the present instance. These two decisions merely stand for the proposition that the Government’s right to use a patent for the services of the Crown comprehends the right to sell patented articles produced by the use of a patented invention.

I agree with the learned Trial Judge that the context in which section 4 operates requires that there be a physical use of the imaged articles and that this physical use be exclusively in the manufacture or production of printed matter. Where, as in the present case, imaged articles are specific to a client and of no use to anyone else, the ultimate disposal of the articles by the manufacturer or producer, either by way of destruction or return or sale to its client who has a proprietary interest in them, is not, in my view, a physical use of the articles within the meaning of section 4 which deprives a manufacturer or a producer of the benefit of the tax exemption accorded by that section.

For these reasons, I would dismiss the appeal with costs.

Appeal dismissed.