Eastern Provincial Airways (1963) LTD v. Her Majesty the Queen, [1979] CTC 293, 79 DTC 5187

Pratte, J:—This is an appeal from a judgment of the Trial Division ordering the appellant to pay the respondent the sum of $587,769.63 together with the penalty prescribed by subsection 50(4) of the Excise Tax Act and the costs of the action. That sum of $587,769.63 is the unpaid balance of the sales tax which the Trial Division held to be payable in respect of the importation by the respondent of an aircraft into Canada.

In 1973, the appellant, which already owned and used four Boeing 737 aircraft, imported into Canada another aircraft of the same type which it had purchased for the sum of $5,331,683.19. Sales tax in the amount of $639,801.98 would normally have been payable by the appellant on the sale price of that aircraft pursuant to section 27 of the Excise Tax Act, RSC 1970, c E-13 (as amended in section 24 of the Old Age Security Act, RSC 1970, c 0-6, as amended). But the appellant was entitled to a remission of a portion of that tax under the provisions of the Aircraft (Combined Services) Remission Order (PC 1970-356, as amended by PC 1971-142). The appellant claimed to be entitled, under that Order, to the remission of the sum of $601,238.98 and paid to the respondent the sum of $38,563 as representing the unremitted portion of the sales tax. According to the respondent’s interpretation of the Order, the amount of tax remitted to the appellant was the sum of $13,469.35, and the unremitted portion of the tax amounted to $626,332.63. The respondent sued the appellant claiming the unpaid balance of the tax and the penalty prescribed by subsection 50(4) of the Excise Tax Act. This is the action that was found to be well founded by the judgment against which this appeal is directed.

The sole issue in these proceedings relates to the interpretation of the Aircraft (Combined Services) Remission Order*. [1] That Order provides that, on certain conditions, the air carrier who imports an aircraft “for use in combined international and domestic service” is entitled to a remission of a portion of the sales tax ‘‘equal to the international percentage of the fleet of the importer during the year of importation.” (subsection 3(2)).

In order to know the portion of the tax that, under the Order, is remitted to an importer, it is therefore necessary to calculate the “international usage percentage of the fleet of the importer’. That calculation cannot be made without first determining what constitutes the importer’s fleet. It is that determination which is at the source of the dispute between the parties.

The word “fleet” is defined as follows in section 2 of the Order:

“fleet” means all qualifying aircraft that are owned or leased by an eligible carrier and are used in combined international and domestic service;

The sole issue between the parties is whether, for the purposes of the Order, an importer’s fleet which provides both domestic and international services is composed only of its qualifying aircraft which were actually used in both kinds of services or whether it is composed of all its qualifying aircraft irrespective of the fact that some of these aircraft may been used exclusively on international or domestic routes. If, as the appellant contends, the first interpretation were to prevail, it is common ground that the appellant’s fleet for the year here in question included only one aircraft which flew both on international and domestic flights and that the appellant was, aS a consequence, entitled to the remission of the whole amount of the tax that it failed to pay. If, on the other hand, the second interpretation were to be adopted, it is also common ground that the judgment of the Trial Division was well founded.

The expression “combined international and domestic service” has no technical meaning. As held by the trial judge, those words are used in the Order in their usual sense which, I must confess, is not too clear. According to the appellant, an aircraft is not used in “combined international and domestic service” unless it is used in both international and domestic services. According to the respondent, the air carrier which operates both an international and a domestic service must be said to operate a “combined international and domestic service” and all the aircraft that he uses in either branch of that combined service must be held to be used in the combined service.

In my view, the learned trial judge was right in adopting the respondent’s interpretation of the Order. The word service is used in the singular in the phrase “combined international and domestic service” and, in the French version of the Order, the same expression is translated by the words “un service combine international et national”; this, in my view, supports the respondent’s view and suggests that, for the drafter of the Order, the international and domestic services operated by an air carrier consituted only one service. If that is so, then it is clear that an aircraft is used in such a service irrespective of the fact that it might have been used only in one of its branches.

The conclusion reached by the learned trail judge is also supported, in my view, by the absurd consequences which would flow from the interpretation proposed by the appellant. Indeed, following that interpretation, the amount of sales tax payable, on the importation of identical aircraft by two air carriers providing exactly the same services with two identical fleets, would be different merely by reason of the fact that one of those air carriers would have chosen to use all his aircraft on both international and domestic routes while the other would have used some of his equipment on domestic routes exclusively.

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