Date: 20040521
Docket: T-942-02
Citation: 2004 FC 727
BETWEEN:
971346 ONTARIO INC.
Applicant
and
ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR ORDER
LEMIEUX J.:
[1] The sole issue in this judicial review proceeding pursuant to section 18.1 of the Federal Court Act is whether the Minister of National Revenue's delegate (the "auditor") erred in his determinations that two types of coin-operated machines (the "devices") did not qualify as eligible supply for the purposes of the Coin-Operated Devices Remission Order (the "Remission Order") made under P.C. 1999-326 on March 4, 1999, by the Governor-in-Council pursuant to subsection 23(2) of the Financial Administration Act.
[2] This issue is similar to the remaining issues I had to decide under the consolidated judicial review proceedings which I heard immediately before this judicial review application and in respect of which reasons are also being issued today. (See 469527 Ontario Inc. et al. v. Her Majesty the Queen, court file T-116-02, 2004 FC 726).
[3] I stress, however, the evidence in this proceeding is very different from the evidence in the record of 469527 Ontario Inc., supra, because the Minister's delegate - the auditor - was not the same person and the conduct of the audits were entirely different.
[4] The two devices for which the Minister's delegate found games ineligible were:
(1) continuous play video game machines or devices; and
(2) pinball machines that are programmed to supply a greater number of games by inserting multiple coins (commonly known as three games for the payment of two games, each of which required the payment of 25 ¢ ).
BACKGROUND
[5] It is generally recognized the purpose of the Remission Order was to return to the operators of certain coin-operated devices the GST remitted by those operators to Revenue Canada but who had no means to collect the GST from the ultimate consumer using those machines. Coin-operated devices dispense either goods such as peanuts, bubble gum or candy or supply games including video play games or pinball games.
[6] "Eligible supply" is defined in the Remission Order to mean:
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"eligible supply" means a supply in respect of which the tax payable under Division II of Part IX of the Act [Excise Tax Act] would be equal to zero because of subsection 165.1(2) of the Act if that subsection was in effect at the time the supply were made. [emphasis mine]
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« _fourniture admissible_ » Fourniture pour laquelle la taxe payable en application de la section II de la partie IX de la Loi serait nulle en raison du paragraphe 165.1(2) de la Loi, si ce paragraphe était en vigueur au moment de la fourniture.
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[7] Subsection 165.1(2) of the Excise Tax Act, which was enacted for the period subsequent to and including April 24, 1996, reads:
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(2) Where the consideration for a supply of tangible personal property or a service is paid by depositing a single coin in a mechanical coin-operated device that is designed to accept only a single coin of twenty-five cents or less as the total consideration for the supply and the tangible personal property is dispensed from the device or the service is rendered through the operation of the device, the tax payable in respect of the supply is equal to zero. [emphasis mine]
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(2) La taxe payable relativement à la fourniture d'un bien meuble corporel distribué, ou d'un service rendu, au moyen d'un appareil automatique à fonctionnement mécanique qui est conçu pour n'accepter, comme contrepartie totale de la fourniture, qu'une seule pièce de monnaie de 0,25_$ ou moins est nulle.
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[8] The explanatory note to the Remission Order reads:
The Excise Tax Act was amended to provide that, after April 23, 1996, the GST payable is equal to zero on goods dispensed from, or services rendered through, the operation of a mechanical coin-operated device that is designed to accept only a single coin of twenty-five cents ($0.25) or less as the total consideration for the supply.
[9] The applicant carried on business during the period from January 23, 1992, to October 1, 1998, as an operator of coin-operated devices, more particularly, video game and pinball machines. On February 27, 2000, it filed its GST rebate application pursuant to the Remission Order.
[10] On April 18, 2001, Canada Customs and Revenue Agency (the "Agency") received from Bruce Krupp Consulting, acting on behalf of the applicant, a revised rebate application claiming a rebate of $24,986.17 on account of "his 25 ¢ arcade games" (respondent's record, volume 1, page 7). Wilfrido Crisostomo (the "auditor"), was assigned to conduct an audit of the rebate application.
[11] Early on in the audit, it was established the devices could not be physically inspected by the auditor because they had all been sold by the applicant.
[12] On June 21, 2001, the auditor wrote (respondent's record, volume 1, page 9) to Mr. Krupp in the following terms after pointing out the impossibility of conducting a physical inspection of the devices:
Arcade games would typically have the option to continue play for additional consideration or some would have the option to play more than one game by inserting multiple coin, e.g., a single game may cost 25 cents but three games may be played if two 25-cent coins are inserted. These machines do not qualify under subsection 165.1(2) of the ETA. [emphasis mine]
[13] In that same letter, the auditor advised Mr. Krupp the applicant's previous rebate application (claim filed on February 27, 2000) had been disallowed because the devices did not qualify "per the above guidelines". The auditor added:
Therefore, if you have any new information to submit that would show that these machines or any particular machine indeed do qualify, please feel free to submit them within two weeks from the date of this letter. Otherwise, we shall have no alternative but to likewise disallow the above claim.
[14] The guidelines the auditor was referring to were Revenue Canada's Communiqué AD-99-11, which had been issued by its Verification and Enforcement Section. One of its purposes was to identify which devices were excluded from the Remission Order.
[15] In response to this letter, on June 27, 2001, Mr. Krupp forwarded to the auditor the applicant's inventory of devices for the years 1992 to 1996 which focussed on machines which had a continuous play feature.
[16] During each of those years (1992 to 1996), the applicant's inventory of devices averaged approximately 70 machines. In the inventory list he sent to the auditor, Mr. Krupp identified with a C the machines which "had continuous play features" advising (respondent's record, volume 1, page 10):
Other games on the inventory listing offer one single play for each single quarter that is inserted. There appears to have been a misunderstanding between yourself and my client with respect to the definition of "continuous play". Arcade games do not "...typically have the option to continue play for additional consideration..." Continuous play features are dependant upon the particular type of machine, and are not an automatic feature.
I have confirmed that certain machines operated by my client did have continuous play features. Operating manuals can be provided to you to support my comments, if required. [emphasis mine]
[17] The continuous play machines identified by Mr. Krupp averaged during the relevant years approximately eleven (11) out of the seventy (70) in the inventory.
[18] The inventory list did not show a split between pinball machines and video games.
[19] On July 18, 2001, the auditor wrote back to Mr. Krupp. He asked Mr. Krupp to forward documentation in the form of operating manuals to show "whether particular arcade machines have « continuous play » options or not" and, for this purpose, he asked for documentation "to indicate whether the following sampling of machines in your list do not have the « continuous play » option or in the case of pinball machines, do not have the option of playing more than one game by inserting multiple coins". In his letter the auditor listed ten (10) coin-operated machines such as Adams Family, After Burner and Carrier Air Wing (respondent's record, volume 1, page 14).
[20] On July 24, 2001, Mr. Krupp provided the auditor with operating manuals "to support the single-play features that were identified on my client's inventory list" (respondent's record, volume 1, page 15). Six or eight out of ten manuals were provided. Operating manuals for the other machines listed by the auditor could not be located.
[21] On August 20, 2001, Bruce Krupp wrote to the auditor referring to a previous telephone conversation in which the auditor had advised him his client's entire rebate application would be disallowed, i.e. none of the on average 70 games per year qualified for rebate. He remarked the auditor had told him (respondent's record, volume 1, page 16) "that the manufacturers designed these particular machines with a default « continuous play » setting" making them ineligible in the auditor's view.
[22] In his letter of August 20, 2001, Mr. Krupp acknowledged the auditor "was correct in noting that these coin-operated games were shipped from the manufacturer with certain default settings". Mr. Krupp then referred to advice which he had received from the sole shareholder of the applicant Chris Conway (respondent's record, volume 1, page 16) to the effect:
... although the manufacturers sent us a game with default settings, we would change the settings, eg American coinage vs Canadian coinage, credits per coin, time per coin, lives per coin, etc. That is why the manufacturers sent us a manual with settings to change. These settings are called "Dip Switch Settings". By the definitions that you have sent to me, the games I had would be all single play machines... [emphasis mine]
[23] Mr. Krupp advised the auditor the fact that some of the games shipped by some manufacturers to his client came equipped with "options" and/or "features" that may or may not be activated should not automatically result in the machine being disqualified.
[24] The auditor filed an affidavit in support of the Minister's position in these proceedings. He was subsequently cross-examined on his affidavit. To his affidavit, he appended his audit report dated October 15, 2001, explaining why he had disallowed, in its entirety, the applicant's GST rebate claim. The applicant's machines, in his view, were ineligible coin-operated devices within the meaning of subsection 165.1(2) of the Excise Tax Act, i.e. not eligible for zero-rating.
[25] In his audit report, the auditor noted the operating manuals provided to him by Mr. Krupp "indicated the games to which they related had options to either have continuous play or the option to play more games by inserting multiple coins". However, he also noted "the manuals also indicate that the default settings are for continuous play or multiple coins". At respondent's record, volume 1, page 18, he wrote:
Physical inspections in some arcade places indicate that machines are set to continuous play or multiple coins. From a logical business practice stand point this is appropriate in order to generate more business out of a machine.
In as much as registrant is unable to provide satisfactory evidence to indicate that machines covered under the rebate claim are eligible machines under the remission order, rebate claim is denied in full. [emphasis mine]
THE CROSS-EXAMINATIONS
Of the auditor
[26] I find, after a review of the auditor's transcript of cross-examination, the applicant established the following facts.
[27] Before he contacted Mr. Krupp by way of letter dated June 21, 2001, the auditor reviewed the Remission Order and the Agency's Communiqué AD-99-11.
[28] The Communiqué considers certain "amusement devices" to be eligible devices. The relevant paragraph of the Communiqué reads:
6. Eligible Devices
The only type of device covered by the Remission Order is a mechanical coin-operated device that is designed to accept only one coin of twenty-five cents or less as the total price of the good or service. For example, certain devices that sell hard candy, gumballs and peanuts will qualify.
Certain amusement devices may also be zero rated per subsection 165.1(2) if the device is programmed or set to offer only a single game for a total consideration of twenty-five cents or less. One must look at what the machine is offering at that time, not what the machine could be altered to offer. For example, a device programmed or set to accept three twenty-five cent coins up front for three separate supplies (3 separate games) would qualify. [emphasis mine]
[29] The Communiqué also lists as ineligible or excluded devices the following amongst others:
l amusement devices for which a greater number of games is obtained by inserting multiple coins (e.g. a device that provides one game to the recipient when a single coin of twenty-five cents is inserted but three games when two coins of twenty-five cents are inserted);
l the devices that offer to make a supply to the recipient for a total consideration of more than twenty-five cents even if they also offer to make a supply to the recipient for a consideration of twenty-five cents or less. This includes all amusement machines that provide the option to the recipient to continue play of a specific game by depositing additional coins (i.e. not a new game but additional play of the same game at a given point or game level) regardless of when the coins are deposited. [emphasis mine]
[30] He visited an arcade in Scarborough Town Centre and inspected some ten machines which then formed the basis for his request to Mr. Krupp for the operating manuals for these ten machines.
[31] He acknowledged (applicant's record, page 146), he was bound by the terms of the Communiqué and was required to follow them. At page 172 of the applicant's record he confirmed he applied the Communiqué to determine the ineligibility of the two types of machines.
[32] He acknowledged at applicant's record, page 141, the audit of a rebate application was a restricted audit looking essentially at the GST collectible and the amount rebatable.
[33] To him, a continuous play game meant (applicant's record, page 152) "... if a device ... offers a player to put in a 25 cent coin to play - in order to play, and it allows them to add further amounts of 25 cent coins to continue to play...". He agreed with an example suggested by counsel for the applicant that a continuous play game would be a game where one had three lives for a character, the third life expired at level 5 and within a period of ten seconds or so, another 25 ¢ coin would be inserted and one could continue to play at that level 5 (applicant's record, pages 152 and 153).
[34] He stated at applicant's record, page 158, all of the machines he inspected in the arcade at Scarborough Town Centre that were on the applicant's inventory list had options to continue to play but there was no obligation for a player to do so.
[35] At applicant's record, page 160, he described 3 games for 2 pinball machines as "putting additional consideration to get more games". He said one of the applicant's machines had this feature; it is known as Adam's Family. At page 161, he stated he could not identify from the applicant's inventory list which other machines were pinball machines.
[36] At page 182 of the applicant's record, he conceded the purpose of asking for the manuals was to enable him to verify how these machines were being offered to the recipient in terms of the default settings, "does he have anything to show that ... it was being offered as a single machine ... for single consideration".
[37] At page 183, he was asked by counsel for the applicant how did he extrapolate from the eight manuals to the entire list. He answered "first of all I didn't preclude Mr. Krupp from presenting other manuals. So, I had to start with a sample". He stated the sample Mr. Krupp sent showed they were not eligible.
[38] At page 183 of the applicant's record he confirmed he had never written to Mr. Krupp to tell him that based on his review of ten games he believed all of the applicant's seventy odd machines operated in similar fashion nor did he invite Mr. Krupp to contradict that assumption. He did say, however, he thought he likely might have informed Mr. Krupp over the telephone but could not be sure he did so.
[39] At the same page he acknowledged that out of the applicant's inventory of machines, the only ones he inspected or reviewed were the ones which were available at the arcade he visited.
[40] At page 184, he stated he did not speak to any other auditors at the Agency dealing with this issue to determine how they had assessed specific games.
[41] At page 186 of the applicant's record, he confirmed he made an assumption that the games operated by the applicant during the rebate period, were operated in the same manner as the games he inspected in 2001. To come to this conclusion, he relied on what the manuals told him, namely, that default settings were showing the devices as being offered for continuous play or multiple games and to him, this made good business sense. The only other evidence he mentioned to support the assumption was his own personal experience with arcade games but conceded he had only conducted one other rebate audit applying the Remission Order and could not remember who the applicant was.
Of Mr. Krupp
[42] I find, after a review of Mr. Krupp's cross-examination, the respondent established the following facts.
[43] The applicant's inventory of devices which Mr. Krupp provided to the auditor did not show a breakdown between video games and pinball machines; that inventory was meant to show whether the listed video games had a continuous play feature.
[44] Mr. Krupp understood the continuous play feature to mean that where a player ran out of three lives paid for by 25 ¢ , the player could, within a time limit, insert an additional 25 ¢ coin into the device, obtain another three lives and continue playing another game at the level the player had reached when he ran out of lives in the previous game (respondent's record, volume 1, tab 2, pages 44 and 45).
[45] Mr. Krupp prepared the inventory list he sent to the auditor based on a list that was given to him and marked up by Ron Sures. Ron Sures had placed a checkmark under a column headed "continuous play" beside each game inventory he considered to be continuous play. Under a column called "single play" Mr. Sures either placed a checkmark or a question mark. Mr. Krupp acknowledged that, in the retyped inventory list he provided to the auditor, his list did not have split headings between "single play" and "continuous play" and for the single games beside which Mr. Sures had placed question marks, Mr. Krupp showed the game did not have a continuous play feature (respondent's record, volume 1, tab 2, pages 41 to 44).
[46] In Mr. Krupp's understanding, the machines indicated by the capital C had continuous-play features that could never be turned off, that is the default settings could not be altered to single play (respondent's record, volume 1, tab 2, page 44).
[47] Mr. Krupp did not personally know how the arcade games in respect of which he provided manuals operated. He had no idea whether the continuous-play feature had been turned on or off (respondent's record, volume 1, tab 2, pages 56, 58 and 60).
[48] Mr. Krupp acknowledged there is no log of when and if the continuous-play default setting had been turned off. He was unaware of any record of the applicant relating to whether default settings were changed (respondent's record, volume 1, tab 2, pages 59 and 60).
[49] The auditor did not prevent the applicant from giving him more manuals for review and acknowledged he did not provide any additional manuals of which he or Ron Sures had "hundreds" (respondent's record, volume 1, tab 2, pages 58 and 60).
[50] Mr. Krupp acknowledged the quote from Mr. Conway in his August 20, 2001 letter to the auditor was extracted from an e-mail Mr. Conway had sent him on August 19, 2001. The balance of that e-mail which he did not reproduce in his August 20, 2001 letter to the auditor reads:
"single play" means that whatever credits had accumulated with that quarter GO BACK TO ZERO when the game ends; ...
All my machines, worked by this principle, in that, if you put a coin in the machine you were given a credit or amount of "lives". Once that credit was finished or your lives ended the game finished. A person could play another game right after his initial credit, by inserting another coin only if he did this within a certain time frame, say 10 seconds.
By inserting another coin the player would not get additional game play for inserting the coins, he would be starting an entirely new credit.
The only benefit to the player would be his position (e.g. the level he is at in the game, e.g. level five verses level one) or his points would not be set back to zero. If a person did not insert another coin into the game they would have to start the game from the beginning.
You CANNOT maintain your credit/lives/etc by depositing another quarter. Depositing another quarter for all games would only allow you to keep the points or position in the game.
Whatever credits had accumulated with the quarter inserted initially, ENDED when the game ended. You couldn't continue playing with the same credits or quarter. [emphasis mine] [Respondent's record, vol. 1, tab 3, page 77]
[51] In answer to an undertaking given during cross-examination, Mr. Krupp and his counsel contacted Mr. Sures and on November 14, 2002, counsel for the applicant advised counsel for the Minister:
We have spoken with Mr. Ron Sures, who advises that the following games do not have dip switch setting that would allow, and cannot be programmed to offer, continuous play games (ie. they cannot provide continued play at a previously achieved level or location and they are therefore always single play games [respondent's record, volume 1, page 79].
[52] He then identified 27 pinball games and all seven driving games all of which appeared on the applicant's inventory list the applicant had provided the respondent:
In providing this list, Mr. Sures reviewed the inventory list set out at Exhibit "L" to the affidavit of Bruce Krupp sworn July 25, 2002, in its entirety". Please note that the pinball machines are capable of being programmed to offer three games for two coins of twenty-five cents ($0.25) each, but Mr. Crisostomo has earlier been advised that the games were not programmed as such. [Respondent's record, vol. 1, tab 3, page 79] [emphasis mine]
ANALYSIS
[53] Counsel for the applicant raised several issues challenging the Minister's decision finding none of the applicant's machines were rebate-eligible under the Remission Order including:
(1) whether the Minister erred in interpreting the phrase "mechanical coin-operated device that is designed to accept only a single coin of twenty-five cents or less as the total consideration for the supply";
(2) whether the Minister's delegate made a patently unreasonable decision when finding, in fact, the applicant's machines had activated continuous play or three games for two features; and
(3) whether the audit was fairly conducted.
[54] In my view, this case does not turn on any independent interpretation the Minister's delegate brought to the question whether the applicant's machines with continuous play or three for two features were eligible supplies.
[55] It is clear the Minister's delegate made his determination based on Communiqué AD-99-11 dated September 15, 1999.
[56] This Communiqué, intended for use by federal government auditors dealing with rebate applications made pursuant to the Remission Order, spells out what are eligible devices, what are excluded devices and what audit procedures should be followed.
[57] Amongst the suggested audit procedures were that the auditor should perform random checks of the devices on site, if possible, and perform third party confirmations with the manufacturers with respect to the types of machines.
[58] The Minister's delegate considered Communiqué AD-99-11 was binding on him and I think he was correct in so viewing although this Communiqué is not law (see Little Sisters Book and Art Emporium v. Canada (Minister of Justice), [2000] 2 S.C.R. 1120 at 1185 and Bambrough v. Canada (Public Service Commission Appeal Board), [1976] 2 F.C. 109 (C.A.).)
[59] Communiqué AD-99-11 contains instructions to auditors on how to apply the Remission Order. This Communiqué is somewhat analogous to the ministerial guidelines considered by the Supreme Court of Canada in Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817 at 862.
[60] I use the phrase "somewhat analogous" because in Baker, supra, the immigration officer's determination was a discretionary decision which is not the case here. Nonetheless, the Supreme Court of Canada in Suresh v. Canada (M.C.I.), [2002] 1 S.C.R. 3 at paragraph 36, page 27, stated:
¶ 36 . . .To the extent this Court reviewed the Minister's discretion in that case, [Baker] its decision was based on the ministerial delegate's failure to comply with self-imposed ministerial guidelines, as reflected in the objectives of the Act, international treaty obligations and, most importantly, a set of published instructions to immigration officers. [emphasis mine]
[61] That matter aside, as I see it, the question to be decided in this case is whether the Minister's delegate made a finding contrary to paragraph 18.1(4)(d) of the Federal Court Act which authorizes this Court to set aside a decision where a tribunal bases its decision or order on an erroneous finding of fact that it made in a perverse or capricious manner or without regard to the material before it.
[62] This provision in the Federal Court Act has been analogized to making a patently unreasonable decision (see Canadian Pasta Manufacturers' Association v. Aurora Importing and Distributing Ltd. (1997), 208 N.R. 329 (F.C.A.). That same Court in Canada (Attorney General) v. Norman, [2003] 2 F.C. 411, held paragraph 18.1(4)(d) represented a deferential standard of review, one similar to the standard of "palpable and overriding error" or "clearly wrong", articulated by the Supreme Court of Canada in Housen v. Nikolaisen, [2002] 2 S.C.R. 235.
[63] The auditor found the applicant's video game machines had, in fact, continuous play features and its pinball machines were in fact programmed to provide three for two games.
[64] These findings were made in the context of an audit against the backdrop of Communiqué AD-99-11 which recognized that certain amusement devices may also be zero rated "if the device is programmed or set to offer only a single game for a total consideration of twenty-five cents or less". Auditors were instructed to look at what the machine is offering at the time the coin was inserted, not what the machine could be altered to offer and gave as an example a device programmed or set to accept three 25 ¢ coins up front for three separate supplies (three separate games) would qualify.
[65] I find in conducting the audit, the auditor made palpable and overriding errors.
[66] The major reason for reaching this conclusion is that the evidence is clear the auditor did not verify whether each machine the applicant had submitted was rebate-eligible and which it and Mr. Krupp had characterized several times as single play machines either because they had no option but to offer single play or if they had the option the games were set for single play except in those cases where only continuous plays could be offered. In reaching this conclusion, I appreciate the auditor could not physically examine each machine because they had been sold.
[67] The auditor's examination of the applicant's rebate application was based on his one visit in 2001 to an arcade where he viewed the settings of ten machines which also appeared on the applicant's inventory list for the years 1992 to 1996.
[68] Because he found the video game machines on his arcade visit were set to continuous play, he made the assumption, unwarranted in my view, all of the applicant's video game machines operated in a different time frame were also set for continuous play. Such an assumption was not warranted, in part, because the auditor had no particular expertise in dealing with coin-operated devices for the purposes of rebate applications or for the application of section 165.1(2) of the Act.
[69] In addition, in the light of what the applicant had told him about the actual settings of its video game machines, evidence which he ignored, his hunch that it made business sense to set at continuous play had no evidentiary foundation.
[70] The same can be said of the applicant's pinball machines. The evidence adduced during discovery and on undertakings given at discovery shows at least thirty-four of the applicant's games did not have a dip switch setting that would allow the programming of continuous play games and were therefore always single play pinball games. The evidence confirmed some of the applicant's pinball machines were capable of being programmed to offer three games for two coins of twenty-five cents each but the auditor had been advised the games were not programmed as such.
[71] There is also an additional element with respect to continuous play games. Communiqué AD-99-11 recognizes a device programmed or set to accept three twenty-five cent coins upfront for three separate supplies (three separate games) would qualify. The evidence does not satisfy me the auditor examined this aspect of separate games each for a consideration of 25 ¢ .
[72] In sum, the audit performed by the Minister's delegate was flawed.
[73] Sending back to the Minister the applicant's rebate application requires me to determine whether, as a matter of statutory interpretation, continuous play video games and three for two pinball games constitute eligible supply for the purposes of the Remission Order which turns on a consideration whether these games are zero-rated for the purposes of subsection 165.1(2) of the Excise Tax Act.
[74] In 469527 Ontario Inc., supra, I wrote the following on whether pinball games with a feature of three games by paying the total of 50 ¢ for two games was an eligible supply:
[58] As I see it, as a matter of statutory interpretation, the plain words of subsection 165.1(2) of the Excise Tax Act, a pinball machine set to provide three games for two on the payment of 50 ¢ is not a supply of a game which is paid by depositing a single coin in a mechanical-coin operated device that is designed to accept only a single coin of 25 ¢ or less as the total consideration of the supply. Plainly seen here, the total consideration for the supply of three games is the payment of 50 ¢ for two games.
[59] I fail to see anything in Distribution Lévesque Vending (1986) Ltéé v. Canada, [1997] A.C.I. No. 338, which supports the applicants' interpretation. Distribution Lévesque, supra, was not concerned with interpreting subsection 165.1(2) of the Excise Tax Act and the devices under consideration were not amusement devices but coin-operated devices which delivered goods such as peanuts and bubblegum.
[60] The applicants' counsel relied heavily upon Les Amusements Jolin, supra, which did involve a consideration of the relevant provision of the Excise Tax Act. However, in my view, a careful reading of Judge Anger's decision does not support the applicants' argument this case is authority for the proposition that subsection 165.1(2) of the Excise Tax Act sanctions zero-rating pinball games where a player must insert 50 ¢ to play three games.
[61] At paragraph 13 of his reasons, Judge Anger said it was possible to insert as many as ten 25 ¢ pieces successively depending on the device and yet only one game is played per 25 ¢ coin. This is not the case for pinball games played three by paying for two.
[75] I did not deal directly with the issue whether continuous play games would so qualify.
[76] I agree with counsel for the applicant video games programmed to provide continuous play by inserting a fresh 25 ¢ coin when credits in the previous game have run out, qualify as eligible supply.
[77] Judge Anger came to this conclusion in Les Amusements Jolin v. Canada, [2002] T.C.J. No. 518. I consider that case directly applicable because it involved a consideration whether mechanical coin-operated devices designed to accept only a single coin of 25 ¢ or less as the total consideration for the supply qualified for zero-rating under subsection 165.1(2) of the Excise Tax Act. The devices under consideration included pinball-type devices (electronic billiards) and video games with a television screen.
[78] Judge Anger wrote the following at paragraph 13:
¶ 13 As to the coin collector (I-10) or acceptor, it comes with a coin validator (A-2), which may be interchanged in order to identify other coins, but only one validator can be used at a time. In this instance, the quarter, once validated, makes its way through an opening and its weight on a metal rod activates a switch, which Mr. Jolin referred to as a micro-mechanical switch. Once the coin completes its course, the device signals that a game can be played. It is possible to insert as many as ten 25-cent pieces successively, depending on the device, but only one game can be played per coin. Some devices enable the user to extend the game. Mr. Jolin acknowledged that the devices in the video game class are in fact computers and that, depending on the device, they may be programmed to extend or reduce the length of the game.
[79] He concluded the following at paragraph 23:
¶ 23 That some of these devices enable the user to accumulate credits by inserting more than one quarter does not alter the fact that the total consideration for each credit is 25 cents, in the same way that a quarter is added to extend the game. With the exception of the devices that require more than 25 cents to operate and in respect of which the appellant paid $1,000 in tax, the devices in issue, as described in Schedule A", are mechanical coin-operated devices, and the tax payable in respect thereof is zero.
[80] I make mine his conclusion. On the evidence in this case, I find that a person who inserts a fresh 25 ¢ coin to continue to play is, in fact, playing a new game each time he or she inserts 25 ¢ . That player is not playing one continuous game for a consideration of 50 ¢ .
[81] This finding of fact distinguishes the cases cited by counsel for the Minister on a single supply of one game even though payment for that game is made in two steps. Those cases are O.A. Brown Ltd. v. Canada, [1995] T.C.J. No. 678, Hidden Valley Golf Resort Association v. Canada, [2000] F.C.J. No. 869 (C.A.), and Club Med Sales Inc. v. Canada., [1997] G.S.T.C. 28 (T.C.C.).
[82] For all of these reasons, this judicial review application is allowed with costs, on a party-to-party scale, the Minister's delegate's decision is set aside, and the applicant's rebate application is remitted to the Minister for reconsideration, in accordance with these reasons, by a different Minister's delegate.
J U D G E
OTTAWA, ONTARIO
MAY 21, 2002
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-942-02
STYLE OF CAUSE: 971346 ONTARIO LTD
and
HER MAJESTY THE QUEEN
PLACE OF HEARING: Thunder Bay, Ontario
DATE OF HEARING: April 1, 2004
REASONS FOR ORDER : Lemieux J.
DATED: May 21, 2004
APPEARANCES:
Mr. T. Michael Strickland FOR APPLICANT
Mr. Arnold Bornstein FOR RESPONDENT
SOLICITORS OF RECORD:
Buset & Partners FOR APPLICANT
Barrister & Solicitor
Thunder Bay, Ontario
FOR RESPONDENT
Morris Rosenberg
Deputy Attorney General of Canada
Department of Justice
Toronto Ontario
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