I refer to your memo of October 3, 1994 to General Tax Policy concerning the subject N 15 ref[u]d claim. This issue has been referred to our unit as it deals with whether FST was paid in error.
I agree with the rulings of July 8, 1991 and May 8, 1991 respectively from Mr. H.L. Jones, Director, General Tax Policy to the XXXXX Region and from Mr. K.H. McCammon, Director General, Policy & Legislation to XXXXX , to the effect that tax was not paid in error by the claimant, XXXXX . The latter has voluntarily chosen to remit tax under an administrative policy described in Memorandum ET-202 "Values for Tax", and has been greatly advantaged by paying taxes based on established values lower than the actual sale prices. To benefit from the administrative policy, the claimant consciously adhered to the conditions in Memorandum ET-202, and willfully remitted tax at the time of transfer of goods from its manufacturing premises to its retail branches. The claimant cannot suddenly renounce the use of the policy described in the ET Memorandum to circumvent the inventory rebate provisions and to obtain an extra 5.4 per cent on its inventory. In short, the fact that the claimant ceases to use established values, effective December 31, 1990, due to the introduction of the GST, does not take away from the fact that prior to January 1, 1991, it did not remit tax in error, but rather chose voluntarily to remit the tax based on Memorandum ET-202.
In addition, we do not agree with the claimant's statement in its letter of February 18, 1991 that "s. 118 of the Act is an exempting provision in the same manner as s. 50(5) and s. 5 1 of the Act." The purpose of s. 118 is to provide transitional rules to ensure that the federal manufacturers' sales tax does not apply to any goods sold or imported after 1990, to avoid the double taxation of goods, since starting on January 1, 1991 they are subject to GST. Section 118 is not an exempting provision but a provision which sets out transitional rules and puts transactions after 1990 outside the scope of the FST. It goes in hand with section 120 which would have allowed a rebate on the claimant's goods held in inventory on December 31, 1990, had the claimant filed for such a rebate .
In the Brandon Forest Products LTD case, the CITT said that "if a taxpayer argues that it falls squarely within the terms and conditions of the concessions made in a memorandum that is used by the Department of National Revenue, Customs and Excise, to levy sales tax under the Act, there is no reason why the Tribunal should refuse to hear the appeal and, if it agrees with the appellant why the Tribunal could not refer the matter back to the Minister for reconsideration pursuant to paragraph 81.27(1)(b) of the Act." This is relevant to the issue at hand only if the claimant appeals to the CITT our Notice of Determination disallowing the claim, based on sections 16 and of section 17 of Memorandum ET-202. Our position would be that paragraph 16(b) applies while the claimant has indicated that paragraph 17(a) applies.
s. 16 "Where a manufacturer has paid tax or has incurred for liability for payment of tax under this Part by reason of shipment or transfer of his goods to his retail branch, no adjustment of the amount of tax paid or payable is permissible in respect of
... (b) any change in the tax, ...".
s. 17 "Where a manufacturer has paid tax or has incurred liability for payment of tax under this Part by reason of shipment or transfer of his goods to his retail branch, a credit adjustment for the tax paid or payable will be permissible in respect of:
(a) goods sold out of the retail branch under tax exempt conditions, ..."
Finally, even if the section 68 refund provision on tax remitted in error applied, it would be subject to the two-year time limit prescribed in that section. Consequently, since the claim was filed on December 24, 1992, the refund period can only be from December 24, 1990 to December 31, 1990 and it would reduce the claim amount to about XXXXX .
Based on the above rationale, please cancel the subject claim.
If you have any questions on the foregoing, please contact Bao Tran, of my staff, at (613)-952-9587.
Anthony D'Abramo
Manager, Services Unit
Tax Policy - Special Sectors
GST Policy and Legislation
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