Interprovincial Pipe Line Limited v. The Queen in Right of Manitoba, [1978] CTC 774

Monnin, JA:—This is an appeal from a decision of Wilson, J, wherein he confirmed an assessment of the Minister of Finance made under subsection 17(3) of The Retail Sales Tax Act, RSM 1970, c R150, which notice of assessment is entitled “Under s 17(3) of The Revenue Tax Act", because the period of assessment, namely from March 1, 1972, to October 31, 1974, was covered by both statutes.

The necessary portions of the agreed statement of facts are as follows:

From March 1, 1972 to October 31, 1974 the Applicant purchased high strength line pipe from various manufacturers of such pipe, none of which pipe was manufactured in the Province of Manitoba.

Each such manufacturer provided quality control facilities and personnel, the cost of which was included in the price of the pipe to the Applicant and was not billed as a separate charge.

In regard to each such contract given to a manufacturer the Applicant entered into a separate contract with a consulting professional engineering firm to provide onsite mill monitoring of pipe fabricated by the said manufacturers.

Some of the pipe fabricated pursuant to the various contracts with manufacturers was subsequently used by the Applicant in the Province of Manitoba.

The firm of Tottrup & Associates Limited (hereinafter referred to as “Tottrup”) was retained by the Applicant to perform the said onsite monitoring of the manufacture of all pipe used in the Province of Manitoba by the Applicant during the said period and was paid a price for work done for the Applicant pursuant to the contracts (hereinafter called the “work done”).

All contracts entered into between the Applicant and Tottrup were entered into and payment was made in the Province of Alberta and all work done by Tottrup for the Applicant was done outside of the Province of Manitoba. Tottrup discharged its responsibility to the Applicant by providing personnel to work onsite at the manufacturer’s pipe mill. Such personnel witnessed certain specific tests required under the said Canadian Standards Association standard as performed by the manufacturer’s quality control staff. In addition, the manufactured pipe was visually inspected, and certain physical measurements-such as diameter and wall thickness were checked. Loading of the pipe on trucks or rail cars was also witnessed by these personnel. Tottrup’s employees had the authority to reject any pipe with which they were not satisfied, and any pipe that was so rejected was not charged to the Applicant by the manufacturer.

Tottrup billed the Applicant directly for work done on its behalf. No payments were made by the Applicant to the manufacturer of the pipe for any of the work done by Tottrup.

The point in issue is whether the cost of the work done by the engineering firm of Tottrup for the appellant, Interprovincial Pipe Line Limited, as purchaser, attracts tax under the Retail Sales Tax Act as forming part of the purchase price of the pipe.

At first impression the assessment of the Minister of Finance appears to be a bold attempt to tax engineering services performed by an Alberta firm outside the Province of Mantitoba and, therefore, readily exempt from taxation in Manitoba. A careful review of the necessary sections of the Act, obviously drafted with the decision of the Supreme Court of R v Westcoast Transmission Co Ltd (1961), 31 DLR (2d) 142; [1962] SCR 125; 37 WWR 57, in mind, reluctantly leads to the opposite conclusion.

As I have stated in Air Canada v The Queen in Right of Manitoba, [1978] 2 WWR 694, The Retail Sales Tax Act deals with direct taxation within the Province and is a tax on consumption or use of tangible personal property.

“Purchase price’’ is defined by clause 2(1 )(h). The relevant portions are:

2(1) In this Act

(h) “purchase price” or “sale price” means the value in Canadian money of the consideration, whether money, goods, things done, rental, or any other consideration whatsoever, accepted by the seller as the price of the tangible personal property or the service that is the subject of a sale; and, without restricting the generality of the foregoing, includes

(ii) where tangible personal property is purchased, manufactured, or otherwise acquired, outside the province and is subsequently brought into or received in the province for consumption therein, the cost to the purchaser of transportation and any other costs whatsoever in connection with the property, including any cost of installation, incurred by him prior to the consumption of the property in the province; and

Mr Ritchie argued that the moneys paid to the manufacturer and moneys paid to Tottrup were accepted by two different and separate sellers and cannot properly be called the purchase price of the pipe under subclause 2(1)(h)(ii) which states that the purchase price means the consideration accepted by the seller. The manufacturer was not paid and did not accept any moneys for the work done by Tottrup and the charges of Tottrup were not part of the manufacturer’s purchase price to the purchaser. The manufacturer only is the vendor of the pipe and it is his seller’s price only which should attract tax. Tottrup was not paid and did not accept any moneys on account of the purchase price, therefore, it cannot be said that moneys paid to Tottrup form part of the purchase price for tax purposes. Counsel further submitted that the purchase price of the property is the total consideration accepted by the manufacturer and includes all moneys paid to it. One must recall that payments made to Tottrup were as a result of separate billings of Tottrup and were kept separate, apart and distinct from payments made to the manufacturer.

Mr Ritchie also argued that throughout the section it is the consideration accepted by the seller as the price of the tangible personal property and only that consideration which attracts tax. He further argued that the moneys paid to Tottrup would be taxable only if the service was. rendered in Manitoba and taxable as a service; and in the instant case it was agreed that the service was not rendered in Manitoba and further the learned trial Judge found that it was a non- taxable service in any event.

The wording of subclause 2(1)(h)(ii) is very clear. “Purchase price” means, firstly, the Consideration accepted by the seller as the price of the tangible personal property and, secondly, when the property is brought into Manitoba, includes the cost to the purchaser of transportation and any other costs whatsoever in connection with the property, including any cost of installation incurred by him prior to the consumption of the property in Manitoba. This second portion of the definition is clearly aimed at taxing all additional costs incurred by the purchaser.

In R v Westcoast Transmission Co Ltd, supra, Martland, J, said at 146 [130-1]:

In view of the nature of the contract for the purchase of the steel pipe in question, those goods became the property of the respondent while they were on the high seas. Accordingly, they became subject to tax as soon as they entered the Province.

The terminal charges paid by the respondent were not a part of the purchase-price, either within the general meaning of that term or within the definition contained in the Act. Matters such as installation charges, interest, finance charges, customs, excise or transportation, referred to in that definition, all relate to expenditures made by the vendor, whether or not they are separately shown on the invoice or in the vendor’s books. The terminal charges in question here were charges paid, not by the vendor, but by the purchaser, after property in the goods had passed to it, after the goods had been brought into the Province and after the tax attached and became payable.

(Italics mine.)

The text is clear. All additional costs to the purchaser in connection with tangible personal property attracts tax once it reaches Manitoba.

The argument of Mr Ritchie is appealing and one which I would have liked to accept, but the wording of the section is so unambiguous that it must carry the day. We have here a harsh, unfair and inequitable tax, but one clearly intended by legislation, which must, therefore, be enforced. He who purchases a manufacturer’s product without monitoring it himself, will pay a much lesser price including tax (if there are no additional charges included for monitoring quality), than he who insists on having his own control of qualtiy for which he shall pay and will also have to pay an additional tax on this extra monitoring service. The cost of the product will be much higher if extra monitoring is requested.

The appeal is dismissed and the assessment is confirmed. Had I reached the opposite conclusion, I would have ordered reimbursement of the tax, penalties and interest, with interest on the entire amount of the assessment for reasons given by me in Air Canada v The Queen, supra, decided a few days ago.

For the same reasons as expressed by the learned trial Judge, there will be no costs in this Court.

Hall and Matas, JJA, concur with Monnin, JA.

O’Sullivan, JA (dissenting):—I am not able to agree with the majority of the Court in this case. I know that The Revenue Tax Act, RSM 1970, Cc R150 speaks of ‘all additional costs to the purchaser in connection With tangible personal property”. The wording of subclause 2(1)(h)(ii) is very wide indeed. If a taxing statute clearly imposes liability for tax, we must follow the law even if we regard the result as harsh, unfair or inequitable.

Nevertheless, where words of wide import are used in a statute, I believe that it is erroneous to give them an extended meaning if the context in which they are used, and the scheme within which they are employed, makes a more restricted meaning more appropriate to give effect to the scheme as a whole.

Wilson, J, in the Court of Queen’s Bench [1977] 6 WWR 153 at 158 said:

The word “costs” is not defined and unless otherwise excepted would, I suppose, take in such costs as demurrage, warehousing, advertising, and indeed the taxpayer’s costs of overhead, as these may be distributed against the property in question “prior to consumption of the property in the province”.

I think the learned trial Judge was correct, if the word costs is to be given a literal or extended meaning, uncontrolled by the scheme of the statute. If so, however, the term would embrace not only the items mentioned by him, but such things as the expenses of a buying trip abroad, and finance, interest and carrying charges paid to the purchaser’s bank or other financial supporter.

Counsel for the appellant submitted that subclause 2(1 )(h)(ii) cannot be read as if it stood alone. The charging section is subsection 3(1) which imposes a tax on “every purchaser of tangible personal property’’. The tax is in respect “of the consumption thereof” and is “computed at the rate of 5% of the fair value thereof”.

There is no dispute in this case that the appellant is a purchaser under the Act or that the material imported was tangible personal property. What is in question is what is its “fair value”, which, by clause 2(1 )(e) [am 1974, c 57, section 2; 1976, c 67, section 55] means, for Our purposes, “the purchase price” as defined in clause (h).

Clause (h) as it affects this case must, in my opinion, be read as follows:

(h) “purchase price” . . . means the value in Canadian money of the consideration, whether money, goods, things done, rental, or any other consideration whatsoever, accepted by the seller as the price of the tangible personal property or the service that is the subject of a sale; and, without restricting the generality of the foregoing, includes

(ii) . . . the cost to the purchaser of transportation and any other costs . whatsoever in connection with the property, including any cost of installation,

incurred by him prior to the consumption of the property in the province.

whether or not the charges, (of) costs . . . included by sub-clause (i), (ii), and (iii) are shown separately on any invoice or in the books of the seller or of the purchaser.

Appellant’s counsel argued that this definition limits costs to those paid by the purchaser to a seller of tangible personal property. I am inclined to agree with him on this point, and I think that what was said by Martland, J, in Ft v Westcoast Transmission Co Ltd (1961), 31 DLR (2d) 142 at 146; [1962] SCR 125 at p 130-1; 37 WWR 57, supports, rather than opposes counsel’s submission.

Even if, however, costs include payments made by a purchaser to others such as transportation companies, I do not think that the Act should be interpreted as meaning that all costs, however remote they may be from the consideration paid in totality for the tangible personal property, may be brought into the “fair value” of the goods, merely because they have been incurred “in connection with the property”.

I think it was the intention of the Legislature to have the scheme of the Act applied with a view to an equitable application and administration of the Act and to avoid the double imposition of tax in respect of a sale.. The statute contemplates that persons who import goods into the Province for consumption should not have an advantage, “tax-wise”, over persons who purchase goods in the Province at retail. Manitoba does not want to—indeed, cannot—interfere with the free exchange of goods as between the Provinces, it is not intended that persons who import goods should pay more tax than they would pay if they bought within the Province. Exact parity may be impossible to achieve; the determination whether such and such a cost is incurred “in connection with the property” within the meaning of the Revenue Tax Act will depend on all the circumstances and there may well be borderline cases.

In the instant case, however, it is my view that the costs incurred by the appellant in hiring Alberta engineers to exercise on its behalf a quality control, which is in addition to and not in substitution for the quality control exercised by the manufacturer or vendor, should not be taken into account in determining the fair value of the tangible personal property in question in the proceedings.

Accordingly, I would allow the appeal and order reimbursement of the tax.

This Court has recently decided in Air Canada v The Queen in Right of Manitoba, [1978] 2 WWR 694, that in such a case interest should be payable at the rate of 9%. I do not agree with all that was said in that case and, in particular, I cannot believe that the maxim “the Queen can do no wrong” is an anachronism. Rather, I think that it is a fundamental principle of constitutional law which cannot be set aside merely because Judges do not like it. I think it is a maxim that is often used inappropriately and anachronitsically and that such misuse arises from a failure to distinguish between the Queen as a person and the institutions that are often referred to as “the Crown”. For myself, I think that the Queen is not a fiction, but a person. The maxim that the Queen can do no wrong has nothing to do with her morality, but rather with the impossibility in law of subjecting her to the rule of the Judges.

However, in accordance with the rule of stare decisis, I accept the result arrived at in that case on the subject of interest payable by the Government of Manitoba under the provisions of the Revenue Tax Act and, hence, I would order reimbursement with interest at the rate of 9%. The interest, however, should be reduced to the statutory rate once judgment is pronounced, since I think it is covered by the Interest Act, RSC 1970, c i-18, which is a federal statute not expressly dealt with. by the Court in the Air Canada case.