11 July 2001 GST/HST Interpretation 36509 - GST Exemption Code 55

Dear XXXXX:

Thank you for your fax transmission of June 20, 2001, concerning the clarification of the application of the Goods and Services Tax (GST) Exemption Code 55 regarding the importation of certain goods into Canada.

Interpretation Requested

The facts as I understand them are as follows:

1- Your client, XXXXX a GST/HST registrant since April 1, 1999, received a shipment of imported goods from a non-resident supplier, which was found to be "not according to order".

2- GST was paid at the time of the importation of the goods.

3- These goods have since been returned to the non-resident supplier and replacement goods have been received by XXXXX[.]

4- GST was charged on the importation of these replacement goods.

Interpretation Requested

Would the term "not according to order" be considered "deficient" for purposes of claiming the GST Exemption Code 55, bearing in mind that the goods being shipped would not constitute warranty replacement.

Interpretation Given

Based on the information provided, I am pleased to provide you with the following interpretation.

All goods entering Canada are generally subject to GST at the time of importation, except as specifically provided for as non-taxable pursuant to Schedule VII to the Excise Tax Act (the ETA) or in the related Non-Taxable Imported Goods (GST) Regulations.

Pursuant to section 5 of Schedule VII to the ETA, goods entering Canada as replacement parts and replacement goods sent to a particular person under a warranty arrangement qualify for GST/HST relief, insofar as the goods are supplied under a warranty for no consideration other than shipping and handling charges. Accordingly, GST Exemption Code 55 could be used for purposes of importing these goods. This relief applies to registrants and non-registrants alike.

However, where goods do not come within the ambit of section 5 of Schedule VI[I] to the ETA, where they are neither exported or imported as replacement goods or substitute goods under warranty, GST Exemption Code 55 would not apply. Therefore, the question as to whether such imported replacements goods would be considered "deficient" becomes a non-issue.

Moreover, where imported goods that are received by a recipient are not according to order, tax would have applied at that time the goods were accounted for and released by Customs. If the recipient is a GST/HST registrant, and if the goods were for consumption, use or supply in the course of a registrant's commercial activities, the registrant would be entitled to an Input Tax Credit (ITC) in regards to the tax paid at the time of importation. If the recipient were not a GST/HST registrant, a rebate of the tax would be available to the non-registrant either under subsection 215.1(2) or 215.1(3), depending on whether the imported goods are subject to customs duties as well as GST/HST.

Subsection 215.1(2) provides for a rebate of the GST/HST if the imported goods were damaged or destroyed, were of inferior quality, were defective, or were not according to order and that an abatement or refund of customs duties has been granted under the Customs Act.

Subsection 215.1(3) provides for a similar rebate if the imported goods were not subject to customs duties.

In respect to the importation of replacements goods, as mentioned above, Customs would apply GST upon their importation, based on a value determined by Customs. XXXXX as a GST/HST registrant, would be eligible for an Input Tax Credit to the extent that the goods are imported for consumption, use or supply in the course of its commercial activities.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8220.

Yours truly,

Daniel E.B. Chamaillard
Senior Technical Analyst
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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