Price (Nfld) Pulp & Paper Limited and the Price Company Limited v. Her Majesty the Queen, [1976] CTC 681

The Chief Justice (per curiam):—These two appeals raise the same primary question and it is this. If machinery (here a newsprint machine), to be delivered in a knocked-down condition and purchased under a contract providing that title will pass only when all instalments of purchase price are paid, becomes exempt from sales tax before delivery and installation are complete and before all instalment payments have been made, is the amount of the tax paid in respect of instalments of the price up to the time of exemption recoverable from the Crown? The answer to this question depends on the construction of subparagraph 30(1)(a)(ii) of the Excise Tax Act, RSC 1952 € 100, as amended.

Apart from the fact that the newsprint machine purchased by Price (Nfld) Pulp & Paper Limited was destined for Grand Falls, Newfoundland, and the newsprint machine purchased by The Price Company Limited was destined for Alma, Quebec, and that the contracts were concluded on different dates and provided for different numbers and amounts of instalment payments, the issues raised in the two petitions of right brought by the suppliants were the same. The two cases were tried together by Kerr, J who held that the amounts of tax paid up to the time the machines became exempt were not recoverable. His judgments were affirmed by the Federal Court of Appeal in reasons delivered by Thurlow, J, as he then was.

A second, a subsidiary question arises if the tax payments are recoverable, and it is whether the appellant purchasers, to whom the tax was passed on by the manufacturer of the machinery, are entitled to claim recovery in their own names, although the tax payments were made by the manufacturer to whom they were first remitted by the purchasers along with instalment payments on the purchase price. Kerr, J held that only the person who paid the tax to the Crown had standing to recover the payments and the Federal Court of Appeal was of the same view, adding that it could not be said that as against the Crown the appellants were the owners of the money received from the manufacturer as payments of the tax.

I set out subparagraphs 30(1)(a)(i) and (ii) of the Excise Tax Act as they stood when the contracts of sale were made. They were in these terms:

30. (1) There shall be imposed, levied and collected a consumption or sales tax of eight per cent on the sale price of all goods

(a) produced or manufactured in Canada

(i) payable, in any case other than a case mentioned in subparagraph

(ii), by the producer or manufacturer at the time when the goods are delivered to the purchaser or at the time when the property in the goods passes, whichever is the earlier, and

(ii) payable, in a case where the contract for the sale of the goods (including a hire-purchase contract and any other contract under which property in the goods passes upon satisfaction of a condition) provides that the sale price or other consideration shall be paid to the manufacturer or producer by instalments (whether the contract provides that the goods are to be delivered or property in the goods is to pass before or after payment of any or all instalments), by the producer or manufacturer pro tanto at the time each of the instalments becomes payable in accordance with the terms of the contract;

At the time the exemption from tax became effective, which was June 2, 1967, paragraph 30(1)(a) included an amendment made by 1966-67 (Can), c 40 which qualified subparagraph 30(1)(a)(i) by adding a subparagraph (iii) to paragraph 30(1 )(a). Hence the tax payable under subparagraph 30(1)(a)(i) was thereafter payable “in any case other than a case mentioned in subparagraph (ii) or (iii)”. This change by 1966-67 (Can), c 40 is not material to the determination of the principal question in these appeals. The tax was raised to 9% by 1966-67 (Can), c 79 (and later reduced again to 8%) but this too has no bearing on these appeals.

The position of the appellants on the main point is that the tax imposed by section 30 is a sales tax dependent for its ultimate exigibility on the passing of title to the machinery; and unless the taxing statute “deems” the instalment payments of the price to be separate sales, carrying tax liability with them, there is no tax liability if the machinery has become exempt before title has passed or if, for any other reason, there is no completed sale. Reliance is placed by the appellants on The King v Dominion Engineering Co Ltd, [1944] SCR 371; [1944] CTC 216; 2 DTC 674, affirmed by the Privy Council, [1947] 1 DLR 1; 2 DTC 890, and especially on the majority reasons of Rand, J at page 376 [220]. A second judgment of this Court invoked by the appellants is Steei Co of Canada Ltd v The Queen, [1955] SCR 161; [1955] CTC 21; 55 DTC 1022.

At the time that the Dominion Engineering Co case was decided, the taxing provision which was the predecessor of paragraph 30(1)(a) was paragraph 86(1)(a) of the Special War Revenue Act, RSC 1927, c 179, as enacted by 1936 (Can), c 45, section 5. So far as relevant, this provision was as follows:

86. (1) There shall be imposed, levied and collected a consumption or sales tax of eight per cent on the sale price of all goods,—

(a) produced or manufactured in Canada, payable by the producer or manufacturer at the time of the delivery of such goods to the purchaser thereof.

Provided that in the case of any contract for the sale of goods wherein it is provided that the sale price shall be paid to the manufacturer or producer by instalments as the work progresses, or under any form of conditional sales agreement, contract of hire-purchase or any form of contract whereby the property in the goods sold does not pass to the purchaser thereof until a future date, notwithstanding partial payment by instalments, the said tax shall be payable pro tanto at the time each of such instalments falls due and becomes payable in accordance with the terms of the contract,, and all such transactions shall for the purposes of this section, be regarded as sales and deliveries.

Provided further that in any case where there is no physical delivery of the goods by the manufacturer or producer, the said tax shall be payable when the property in the said goods passes to the purchaser thereof.

Following the judgments in the Dominion Engineering Co case, paragraph 86(1)(a) was repealed by 1947 (Can), c 60, section 14 and replaced by the provision which became paragraph 30(1 )(a) of the Excise Tax Act, RSC 1952, c 100.

There are two substantial changes in the formulation of the taxing provisions under subparagraphs 30(1)(a)(i) and (ii) as compared with their predecessor paragraph 86(1)(a). These changes are in the deletion of two clauses which appeared in paragraph 86(1 )(a). It will be noticed that subsection 86(1), in its paragraph (a), combined provisions (1) for a tax on goods, payable at the time of delivery, and

(2) for a tax on goods which were purchased under a conditional sale contract. In respect of conditional sale purchases, there was a concluding clause that “all such transactions shall for the purposes of this section, be regarded as sales and deliveries”. This clause does not appear in subparagraph 30(1)(a)(ii). In respect of sales generally, completed by delivery, and sales under conditional sale agreements there was a proviso in paragraph 86(1)(a) covering both; I reproduce it again, as follows:

Provided further that in any case where there is no physical delivery of the goods by the manufacturer or producer, the said tax shall be payable when the property in the said goods passes to the purchaser thereof.

This clause too does not appear in the substituted subparagraph 30(1)(a)(ii).

Counsel for the appellants takes comfort in the exclusion of the first- mentioned clause from subparagraph 30(1 )(a)(ii), and counsel for the respondent comfort in the exclusion of the proviso above-quoted. Both counsel rely on the same passage in the reasons of Rand, J in the Dominion Engineering Co case, which is as follows (at p 376 [220]):

Although the section declares the “transaction” to be a constructive sale and delivery, the fundamental support of the tax is an executory contract leading to the transfer of title and possession. That contract is conceived as a potential sale to which in turn is related a potential total tax: ‘‘the tax shall be payable”. Pro tanto portions of the tax are related to instalments of price and, when the latter becomes payable as parts of a whole, the right to the tax takes on the same character: but throughout, the tax depends for its efficacy upon the maturing contract. For the total tax there is only an inchoate liability created by the making of the agreement: and to sustain the right to the tax, the instalment become payable must remain an obligation of an executory contract.

The legal liability at any time for any portion of the tax in no degree restricts the parties in good faith from modifying the contract as they see fit. and a fortiori it does not prevent a modification by operation of law. If in the legal result, the actual transaction ceases to be one of sale, then the necessary support for the tax disappears. That result, at least where the termination of the contract does not effect a total rescission, will not affect the right to taxes on any portion of the price paid to the seller nor does it touch those that have been collected or reduced to judgment by the Crown.

That case involved a conditional sale of a pulp-drying machine to be built to certain specifications, the price to be paid in nine instalments and title to pass when the full price was paid. After six instalments had been paid, and as well the tax related to each of them, the purchaser went bankrupt and work on the machine stopped. There was, indeed, no delivery of the machine to the purchaser. The Crown sued for the tax payable on the last three unpaid instalments. Its claim was denied by the Exchequer Court, by this Court and by the Privy Council.

Hudson, J in this Court, in a concurring judgment, based his conclusion against the Crown squarely on the proviso in paragraph 86(1)(a) that where there was no physical delivery the tax was payable when title passed. The Privy Council affirmed on this ground. Neither this Court nor the Privy Council was called upon to determine whether the tax already paid was recoverable. The Privy Council may have given some hope to a taxpayer in this connection by saying that “the result of their view may lead to anomalies’', and then adding that “it would indeed have absolved the Dominion Company from liability to pay sales tax on the six instalments which they in fact received and on which they paid tax” ([1947] 1 DLR 1 at 5).

It is plain to me, from a comparison of paragraph 86(1 )(a) and subparagraphs 30(1)(a)(i) and (ii), that there has been a legislative reformulation of the incidence of the sales tax on the sale price of goods by dealing separately with the situations where delivery is made or title passes and where goods are purchased under an instalment contract with title deferred until the price is paid in full. The proviso to paragraph 86(1)(a), which determined the result in the Dominion Engineering Co case for both Hudson, J and for the Privy Council, became, in substance, part of subparagraph 30(1 )(a)(i) and no longer related to the tax position under a conditional sale agreement. However, the former provision making instalment transactions sales and deliveries was not made part of subparagraph 30(1 )(a)(ii). It is found in another context in subsection 31(1) of the Excise Tax Act.

Counsel for the appellant emphasized the absence of this “deeming” clause (as he called it) from subparagraph 30(1)(a)(ii) in support of his more general contention that paragraph 30(1 )(a) imposes a sales tax, that payments made before title passes are contingent payments, that the tax imposed is a total tax and (quoting Rand, J, supra) “For the total tax there is only an inchoate liability created by the making of the [conditional sale] agreement”. In short, it is urged that since (as shown by the Dominion Engineering Co case) the Crown cannot claim tax on instalments no longer payable because no longer an obligation of an executory contract, it cannot keep tax paid under instalments in respect of goods which have become exempt before title has passed. Of course, to apply the words of Rand, J strictly, the instalments in the present case are continuing obligations of an executory contract, and to this extent the parallel with the Dominion Engineering Co case disappears.

Steel Co of Canada Ltd v The Queen (supra) is of no direct assistance here. It did not deal with a purchase under a conditional sale contract, but with a contract of sale to Western Canada purchasers of unascertained goods, sold fob Head of the Lakes, and the question was whether there had been physical delivery of the goods or whether title had passed when the goods were destroyed by fire while in the carrier’s possession in Montreal. It was in this context that the language of Locke, J must be viewed when he said (at pp 169-70 [29, 1026]):

The tax is a sales tax and not a tax upon contracts of sale which are not carried out. Liability does not, in my opinion, attach unless and until the goods sold are delivered or the property in them passes to the purchaser and the latter becomes liable to payment of the purchase price.

I am unable to agree that the appellants can sustain their contention, either in terms of history surrounding subparagraph 30(1)(a)(ii) or under its provisions taken alone, that the sales tax under subparagraph 30(1)(a)(ii) is only contingently exigible until title has passed, at which time the tax liability is finally fixed. There are found in subparagraph 30(1 )(a)(ii) bracketed words which were not found in paragraph 86(1)(a) in the same terms, and they are as follows:

(whether the contract provides that the goods are to be delivered or property in the goods is to pass before or after payment of any or all instalments)

It is clear to me that where a conditional sale contract is concerned the tax is payable, pro tanto as the subparagraph says, when each instalment becomes payable, and liability for the tax is fixed accordingly irrespective of delivery and irrespective of when title passes. The tax, proportioned to each instalment of the purchase price, is due and payable when any instalment is payable and is, to that extent, exigible and final.

For the foregoing reasons, I conclude that the taxes paid on the instalments of purchase price are not recoverable by reason of the machinery subsequently becoming exempt from tax. It is unnecessary, therefore, to deal with the subsidiary point respecting the appellants’ standing to claim recovery. I would leave this point open for consideration in a case that calls for a conclusion upon it.

I would dismiss the appeals with costs.