Lafarge Canada Inc. c. La Reine, 2001 FCT 194

                                                                                                                                            Date: 20010316

                                                                                                                                     Dockets: T-1161-97

T-1162-97

T-1168-97

Neutral citation: 2001 FCT 194

Between:

LAFARGE CANADA INC.

Plaintiff

AND

HER MAJESTY THE QUEEN

Defendant

REASONS FOR ORDER

NADONJ.

[1]         On February 10, 1997, the Canadian International Trade Tribunal (the "Trade Tribunal") dismissed three appeals filed by the plaintiff from decisions of the Minister of National Revenue (the "Minister"). The Minister had refused the applications for refund of the federal sales tax filed by the plaintiff under section 68^[1] of the Excise Tax Act (the "Act"), R.S.C. 1985 c. E-15. The statements of claim filed by the plaintiff in this Court constitute its appeals pursuant to section 81.24 of the Act.

[2]         In two of the appeals, the issue is whether the plaintiff is entitled to a refund of the federal sales tax paid on the sale of premixed concrete (the "concrete"); in the third appeal, the issue is whether the plaintiff is entitled to a refund of the federal sales tax paid on the sale of asphalt paving mixtures (the "asphalt").

[3]         The following are the amounts claimed by the plaintiff:

Docket T-1161-97       =           $ 429,667.05

Docket T-1162-97       =           740,026.77

Docket T-1168-97       =           $ 264,493.25

TOTAL                          =           $1,434,187.07

[4]         The plaintiff operates a road construction firm serving inter alia the various levels of government, including municipalities. In the context of these operations, the plaintiff manufactures asphalt and concrete for the purpose of executing its contracts as well as for sale to third parties. In the case at bar, the amounts paid by the plaintiff result from contracts with the City of Montréal and the Province of Quebec.

[5]         On January 25, 2000, following a pre-trial conference held January 19, 2000, Mr. Richard Morneau, a prothonotary, rendered an order in which he stated as follows the questions that were to be determined by the Court at trial:

[Translation]

(a)            The Court will have to determine whether the plaintiff is using asphalt mixtures and ready-mix concrete products "for its own use" within the meaning of section 52 of the Excise Tax Act (the Act);

(b)            If the Court replies in the affirmative to this question, it will have to determine whether the plaintiff is entitled to use the method of calculation provided in Memorandum ET 207 for the purposes of section 52 of the Act.

In paragraph 3 of his order, the prothonotary also stated:

[Translation]

The parties agree that if the Court answers the two questions in dispute in the affirmative, the merits of the amount of the claims in the cases will be the subject of a reference under Rule 153.

[6]         The relevant facts are quite simple. The plaintiff called only one witness, Mr. Nick Lalla, the director of special projects. He explained, as Mr. Yvan Grisé had done before the Trade Tribunal, that the plaintiff filed some bids for contracts for the construction of roads, sidewalks, sewers, aqueducts, etc. Mr. Lalla testified that the services provided by his company, after obtaining a contract, included the labour and materials such as concrete and asphalt. Mr. Lalla clearly stated that the plaintiff's clients, for example the City of Montréal and the Province of Quebec, did not purchase the concrete or asphalt. I understood from this statement by Mr. Lalla that the contracts entered into between the plaintiff and its clients, the City of Montréal and the Province of Quebec, were not at all contracts for the sale of concrete or asphalt.

[7]         In light of the evidence, I have no hesitation in concluding that the plaintiff's contracts are contracts for services under which the plaintiff uses concrete and asphalt to perform the work that is the subject matter of these contracts. In the case at bar, the concrete and asphalt used by the plaintiff in the execution of its contracts originates from its own plants.

[8]         With respect, I am unable to share the opinion of the Trade Tribunal, which is found at page 4 of its reasons, that the amounts paid by the plaintiff result from contracts for the sale of concrete and asphalt. The opinion of the Trade Tribunal reads as follows:

In the Tribunal's opinion, the appellant's contracts were simply construction contracts which included the sale of ready-mix concrete and/or asphalt paving mixtures at a price which included delivery and installation. Consequently, the Tribunal is of the opinion that the appellant, in fact, sold the ready-mix concrete and the asphalt paving mixtures and that it did not appropriate them for its own use within the meaning of subsection 52(1) of the Act or Memorandum ET 207. The appellant, therefore, would not have had recourse to the method of calculating FST according to the fair market value outlined in Memorandum ET 207. ...

[9]         Subsection 52(1)^[2] of the Act states:

[10]       In my opinion, there can be no doubt in this instance that the concrete and asphalt used by the plaintiff in the execution of its contracts for services are goods appropriated by the plaintiff for its own use, within the meaning of subsection 52(1) of the Act.

[11]       In my opinion, the Trade Tribunal's conclusion that the concrete and asphalt were sold to the plaintiff's clients is erroneous. In view of the decision of the Supreme Court of Canada in Will-Kare Paving & Contracting Limited v. Her Majesty the Queen, S.C. 2000-07-20, AZ-50077650, J.E. 2000-1455, there can be no doubt, in my opinion, that the contracts entered into between the plaintiff and its clients are in no respect contracts for the sale of concrete and asphalt. In the first paragraph of his reasons, Mr. Justice Major, writing on behalf of the majority, explains the issue before the Court:

1.              This appeal concerns the appellant's ability to claim two manufacturing and processing tax incentives in respect of its 1988, 1989 and 1990 taxation years based upon the capital cost of an asphalt plant it constructed in 1988. The availability of both incentives, an accelerated capital cost allowance and an investment tax credit, turns upon whether using the plant to produce asphalt to be supplied in connection with paving services constitutes use primarily for the purpose of manufacturing or processing goods for sale.

[12]       More particularly, the Supreme Court had to determine whether the plant built by the appellant Will-Kare to manufacture the asphalt it was using in the performance of its contracts constituted a property used primarily for the purpose of manufacturing or processing goods for sale. In his summary of the facts, Major J. states that Will-Kare paved driveways, parking lots and small public roadways for commercial and residential customers. He also states that 75 percent of Will-Kare's asphalt output was utilized in its own paving business and approximately 25 percent of its output was sold to third parties. In paragraph 26 of his reasons, Major J. summarizes one of the arguments of the appellant Will-Kare as follows:

In this appeal, Will-Kare admits that asphalt supplied in connection with its paving services is provided pursuant to a contract for work and materials. Nevertheless, Will-Kare requests that we adopt the Halliburton and Nowsco ordinary meaning interpretation such that the manufacturing of goods for sale includes all manufactured goods supplied to a customer for consideration, regardless of whether paving services are provided in connection with that supply. To the contrary, the respondent asserts that, as noted in Crown Tire and Hawboldt Hydraulics, use of the term sale in the manufacturing and processing incentives necessarily imports common law and statutory sale of goods concepts.

[13]       In paragraphs 31 to 36, Major J. answers Will-Kare's argument as follows:

31.            To apply a "plain meaning" interpretation of the concept of a sale in the case at bar would assume that the Act operates in a vacuum, oblivious to the legal characterization of the broader commercial relationships it affects. It is not a commercial code in addition to a taxation statute. Previous jurisprudence of this Court has assumed that reference must be given to the broader commercial law to give meaning to words that, outside of the Act, are well-defined. See Continental Bank Leasing Corp. v. Canada, [1998] 2 S.C.R. 298. See also P. W. Hogg, J. E. Magee and T. Cook, Principles of Canadian Income Tax Law (3rd ed. 1999), at p. 2, where the authors note:

                The Income Tax Act relies implicitly on the general law, especially the law of contract and property. ... Whether a person is an employee, independent contractor, partner, agent, beneficiary of a trust or shareholder of a corporation will usually have an effect on tax liability and will turn on concepts contained in the general law, usually provincial law.

32.            Referring to the broader context of private commercial law in ascertaining the meaning to be ascribed to language used in the Act is also consistent with the modern purposive principle of statutory interpretation. As cited in E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87:

                Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

See Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 21. The modern approach to statutory interpretation has been applied by this Court to the interpretation of tax legislation. See 65302 British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, at para. 5, per Bastarache J., and at para. 50, per Iacobucci J.; [1984] 1 S.C.R. 536">Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, at p. 578.

33.            The technical nature of the Act does not lend itself to broadening the principle of plain meaning to embrace popular meaning. The word sale has an established and accepted legal meaning.   

34.            Will-Kare's submissions essentially advocate the application of an economic realities test to the interpretation of what constitutes a sale for the purpose of the manufacturing and processing incentives. However, as noted above, in the absence of express legislative direction to the contrary, I view the incentives' reference to the concepts of sale and lease as importing private law distinctions. As such, the provisions at issue are clear and unambiguous and reference to economic realities is not warranted. See Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622, at para. 40.

35.            It would be open to Parliament to provide for a broadened definition of sale for the purpose of applying the incentives with clear language to that effect. Given, however, the provisions merely refer to sale, it cannot be concluded that a definition other than that which follows from common law and sale of goods legislation was envisioned.

36.            For the taxation years in issue, approximately 75 percent of the asphalt produced by the Will-Kare's plant was supplied in connection with Will-Kare's paving services. Thus the plant was used primarily in the manufacturing or processing of goods supplied through contracts for work and materials, not through sale. Property in the asphalt transferred to Will-Kare's customers as a fixture to real property.

[14]       In my view, the Supreme Court's decision in Will-Kare fully supports the plaintiff's submission that the asphalt and concrete used in the performance of its contracts constitute, within the meaning of subsection 52(1) of the Act, goods appropriated for its own use. The Will-Kare contracts appear to me to be of the same nature essentially as those of the plaintiff in this proceeding. Will-Kare's submission, unlike that of the plaintiff, was that the asphalt manufactured in its plant was manufactured for purposes of sale to its clients. Major J. concluded that the asphalt used by Will Kare in the context of its asphalting business was not manufactured for purposes of sale but in order to enable Will-Kare to execute its contracts for the supply of work and materials. Since I am unable to distinguish the facts of this case from those in Will-Kare, I can only conclude, as the plaintiff is asking me to do, that the concrete and asphalt used in the performance of its contracts are goods appropriated for its own use. Consequently, the answer to the first question is yes. I go now to the second question.

[15]       The second question stated by Prothonotary Morneau concerns the plaintiff's right to use the method of calculation provided in Memorandum ET 207, and more particularly the one prescribed in paragraph 3(c) of the Memorandum for determining the sale price within the meaning of subsection 52(1) of the Act. Paragraph 3(c) of Memorandum ET 207 reads as follows:

3. Where a value for tax cannot be established by the methods set out in paragraphs 1 or 2 of this memorandum, it must be determined in accordance with the following formulae authorized by the Minister:

(c) Machinery and equipment - the aggregate of

(i) the cost of all materials used,

(ii) the cost of direct labour,

(iii) one hundred and fifty per cent (150%) of the cost of direct labour, for overhead, except where the determined overhead as supported by adequate cost records can be shown to be actually less, in which case the determined overhead may be used, and

(iv) fifteen per cent (15%) of the accumulated total, for administration and profits.

[16]       In Jack Cewe Ltd. v. Canada (1999), 162 F.T.R. 4, Mr. Justice Wetston of this Court had occasion to review the scope of Memorandum ET 207. At issue was the calculation of the federal sales tax on some asphalt used between November 1985 and December 1986. At the time, the relevant provision of the Act was paragraph 28(1)(d),^[3] which read as follows:

28. (1) Whenever goods are manufactured or produced in Canada under such circumstances or conditions as render it difficult to determine the value thereof for the consumption of sales tax because

(d) such goods are for use by the manufacturer or producer and not for sale;

the Minister may determine the value for the tax under this Act and all such transactions shall for the purposes of this Act be regarded as sales.

[17]       The introductory paragraph of Memorandum ET 207 briefly explains the purpose of the memorandum. It reads as follows:

If you manufacture or produce taxable goods for your own use, you are liable for sales tax on such goods unless they are for use under tax exempt conditions or you can qualify as a small manufacturer. Under the provisions of section 28(1) of the Excise Tax Act, the Minister of National Revenue may determine the value for tax on such goods. This memorandum outlines the values on which sales tax is payable.

ACT PROVISIONS

Section 27(1) of the Excise Tax Act provides:

There shall be imposed, levied and collected a consumption or sales tax on the sale price of all goods produced or manufactured in Canada.

Section 28(1)(d) provides:

Whenever goods are manufactured or produced in Canada under such circumstances or conditions as render it difficult to determine the value thereof for the consumption of sales tax because such goods are for use by the manufacturer or producer and not for sale, the Minister may determine the value for the tax under this Act and all such transactions shall for the purposes of this Act be regarded as sales.

[18]       It is clear from a reading of paragraph 28(1)(d) or paragraph 52(1)(d), which was repealed and replaced by the present subsection 52(1), that Memorandum ET 207 was issued by the Minister pursuant to the authority conferred on him by paragraph 28(1)(d) in fine. At pages 12 and 13 of his reasons in Jack Cewe, Wetston J. wrote:

[49] At the outset I am of the opinion that Memorandum ET 207 in the excise tax bulletin was issued by the Minister pursuant to his discretionary power under s. 28(1)(d) of the Act. However, the Communiqués are administrative policies and were not issued pursuant to a discretionary power and may only be considered as concessions made by the Minister to resolve inequities within the Act. I agree that ET 207 is based on the Minister's discretion to provide guidance to the industry as to the method to calculate the tax when sale price and s. 27 applies to determine the tax liability. If there is no sale then alternative accounting methods are provided in the Minister's discretion in ET 207. It is evident that tax liability is to be determined pursuant to the Act. The Minister does, however, have a duty in issuing policies pursuant to a statutory discretion, such as Memorandum ET 207, to act in a manner which is "within the four corners of his jurisdiction" and not in any way arbitrary nor capricious: Vanguart Coatings, supra.

[50] I agree with the defendant's submission that the plaintiff's tax liability is ultimately determined by the Act and thus cannot be contracted out of...

In the same vein, Wetston J. wrote, at page 14:

[56] ...Tax liability is clearly determined under the Act and thus it is not relevant to this taxpayer how other taxpayers may have been treated in similar situations. The Minister is not bound by representations made by authorized officials within the Department, even if these are made contrary to the statutory provisions: Granger, supra, p.86 [F.C.]. The statute prevails over any such representations. Moreover, an appeal from an assessment is just that. It is not the reasons or basis upon which the assessment was made that is under appeal.

[19]       Needless to say, the plaintiff's submission is that it is entitled to use the calculation method provided in paragraph 3(c) of Memorandum ET 207. Mr. Fournier, the plaintiff's counsel, asks me to find that an agreement was entered into between the plaintiff and the defendant under which the amounts payable by the plaintiff would be determined in accordance with paragraph 3(c) of Memorandum ET 207. Furthermore, he says, the estoppel criteria have been fulfilled.

[20]       In support of his submissions, Mr. Fournier cites the two briefs filed by the defendant with the Trade Tribunal, the reasons for the decision rendered by the Trade Tribunal, and the testimony of Marcel Bouthillier, an appeals officer with the Department of National Revenue, in this Court and before the Trade Tribunal. According to Mr. Fournier, the second question stated by Prothonotary Morneau was intended only to determine whether the payments made by his client had been made in error. In support of this submission, Mr. Fournier refers me to the statements of defence filed by the defendant in opposition to the statements of claim. In other words, Mr. Fournier is saying that if I decide in favour of his client on the first question, to the degree that he has demonstrated that the payments made by his client were made in error,^[4] I should send the matter back for a reference so that the taxable value may be determined pursuant to paragraph 3(c) of Memorandum ET 207.

[21]       Mr. Vézina, counsel for the defendant, argues that the briefs filed with the Trade Tribunal do not support Mr. Fournier's argument that an agreement had been reached concerning the applicability of paragraph 3(c) of Memorandum ET 207. Furthermore, he says, no admission can be found in these briefs, and they cannot be used as a basis for estoppel. In regard to the decision of the Trade Tribunal and Mr. Bouthillier's testimony, Mr. Vézina states that there was no express or explicit admission before the Trade Tribunal.

[22]       In the first place, I agree with Mr. Vézina that the defendant made no admission or concession concerning the plaintiff's right to use the method of calculation provided in Memorandum ET 207 for the purposes of section 52(1) of the Act. I have carefully examined the briefs filed by the defendant with the Trade Tribunal and the reasons given by the Tribunal, but they give me no reason to find that the defendant admitted or conceded that the plaintiff could calculate the sale price according to the method of calculation provided in paragraph 3(c) of Memorandum ET 207.

[23]       Secondly, I am satisfied that the doctrine of estoppel is not applicable in this case, and that even if it were, the tests pertaining to this doctrine have not been fulfilled.

[24]       In Dufresne Engineering Company Limited v. Le Sous-Ministre du Revenu du Québec, [1984] R.D.F.Q. 164, Dubé J.A., on behalf of the Court of Appeal of the Province of Quebec, made the following remarks at page 168 about the applicability of the doctrine of estoppel in the province of Quebec:

[Translation]

I think, therefore, that there is no reason whatsoever for the appellants in this case to invoke estoppel; moreover, I do not think this theory of estoppel is applicable in the province of Quebec in opposition to a clearly defined law; it is up to the courts, and not the government officials, to define the provisions of the law; Mignault J., in Grace and G. v. Perras (3) (1921) 62 S.C.R. 166, 172, ruled clearly on this issue and I think his opinion is still valid:

I have no doubt whatever that Mr. Justice Greenshields will fully agree with me when I venture to observe that the doctrine of estoppel as it exists in England and the common law provinces of the Dominion is no part of the law of the Province of Quebec.

Obviously, I am in this instance looking at the theory of estoppel as simply a rule of evidence preventing a person who has admitted an established fact from denying it subsequently; such a theory may of course have some effect as to the decision to be rendered on the facts, but I am unable to consider it authority to alter the law.

[25]       Recently, in Alameda Holdings Inc. v. Canada, [1999] T.C.J. no. 839, Dussault J.T.C.C. of the Tax Court of Canada, faced with submissions concerning the applicability of the doctrine of estoppel in Quebec, made the following comments at pages 14-16 of his reasons:

[70] Counsel for the appellant pleaded the doctrine of estoppel and that of fins de non-recevoir. According to counsel, the characteristics and conditions of application of these two institutions are similar, and so should be their effects. This is an over-simplification in my view. I believe that the doctrine of estoppel cannot be pleaded in the instant case and that it is the Civil Code of Quebec that applies. In Soucisse, supra, Beetz J. of the Supreme Court of Canada distinguishes between the two concepts, while recognizing that there has often been confusion between the two and that both terms are used. He refers in particular to Mignault J.'s opinion in Grace and Company, supra, that the concept of estoppel, as applied in the English system, is unknown to the civil law. However, he expressly acknowledges the existence of fins de non-recevoir in civil law and recognizes that one possible legal basis for a fin de non-recevoir might be the wrongful conduct of a party under articles 1053 et seq. of the Civil Code of Lower Canada (articles 1457 et seq. of the Civil Code of Quebec).

[72] As stated above, I believe the doctrine of estoppel is not applicable in the instant case. I will nevertheless venture a few remarks in view of the position adopted by counsel for the appellant on this question.

[73] In [1970] S.C.R. 932">Canadian Superior Oil v. Hambly, [1970] S.C.R. 932, Martland J. of the Supreme Court of Canada summarized the essential elements of "estoppel by representation" as follows, at pages 939 and 940:

The essential factors giving rise to an estoppel are I think:

(1) A representation or conduct amounting to a representation intended to induce a course of conduct on the part of the person to whom the representation is made.

(2) An act or omission resulting from the representation, whether actual or by conduct, by the person to whom the representation is made.

(3) Detriment to such person as a consequence of the act or omission.

[74] As may be seen, the intention to induce a course of conduct constitutes an essential element of the doctrine of "estoppel by representation". On this point, in The Law Relating to Estoppel by Representation, 3rd ed. (London: Butterworth, 1977), Bower and Turner emphasize the essential nature of this factor as follows, at page 93:

                 It is clear that for the purposes of estoppel, no less than for those of an action for misrepresentation, inducement in fact is established by proof that the representation was made both with the object, and with the result, of inducing the representee to alter his position. Neither element suffices without the other. To prove the representor's intention to produce the effect comes to nothing, unless the effect itself be proved; and it is equally idle to establish the result, unless it be also shown that the representor, actually or presumptively, intended to bring it about.

[26]       At paragraph 75 of his reasons (page 16), Dussault J.T.C.C. concludes, in part, as follows:

In the instant case, not only was this intent not proved, it was never even alleged. ...

[27]       Since, in the case at bar, the plaintiff has neither alleged nor proved the existence of the intention referred to by Dussault J.T.C.C. in Alameda, I must reject Mr. Fournier's submission that there is estoppel. Consequently, the answer to the second question is no.

[28]       During argument, on November 30, 2000, Mr. Fournier concluded his submissions as follows:^[5]

[Translation] And I urge you therefore to allow our claim, and to find that this is a context in which 52 applies. And, first, to find that once 52 applies, the Crown has opened up and accepted and recognized the moral and legal undertaking to Laberge in terms of 207(3)(c). If not, I urge the Court to find that under 52 there should be, in the context of the reference, a process by which expert opinion is heard in order to determine the price that should have been established in the circumstances.

[29]       In view of my negative answer to the second question, there should, in the context of the reference, as Mr. Fournier anticipated, be some factual evidence, and by an expert, if necessary, to determine the sale price of the asphalt and concrete used by the plaintiff in the performance of its contracts.

[30]       It remains, now, to decide the issue of costs. Mr. Fournier asks that I award his clients the costs of the trial. Mr. Vézina is of the opinion that it would be preferable to postpone any decision as to costs until the reference has taken place. After some thought, I agree with Mr. Vézina that it would be preferable to decide the question of the costs simultaneously with the determination of the sale price on the reference. Accordingly, I will retain jurisdiction over this case both for the reference and for the determination of the costs.

[31]       I would therefore invite counsel to contact me within sixty (60) days in order to discuss the reference and an appropriate schedule so that the reference can be held at the earliest opportunity.

                          Marc Nadon

                                     J.

Québec, Quebec

March 16, 2001

Certified true translation

Suzanne M. Gauthier, LL.L., Trad. a.

FEDERAL COURT OF CANADA

TRIAL DIVISION

Date: 20010316

Dockets: T-1161-97, T-1162-97, T-1168-97

Between:

LAFARGE CANADA INC.

Plaintiff

AND

HER MAJESTY THE QUEEN

Defendant

REASONS FOR ORDER

FEDERAL COURT OF CANADA

TRIAL DIVISION

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKETS:                                T-1161-97, T-1162-97, T-1168-97

STYLE:                                       LAFARGE CANADA INC.

Plaintiff

AND

HER MAJESTY THE QUEEN

Defendant

PLACE OF HEARING:            Montréal, Quebec

DATES OF HEARINGS:          October 31, 2000, November 1, 2000,

November 8, 2000 and November 30, 2000

REASONS FOR ORDER OF NADON J.

DATED:                                     March 16, 2001

APPEARANCES:

Serge Fournier                                                                               FOR THE PLAINTIFF

Louis Sébastien and

Patrick Vézina                                                                               FOR THE DEFENDANT

SOLICITORS OF RECORD:

Brouillette Charpentier Fortin

Montréal, Quebec                                                                          FOR THE PLAINTIFF

Morris Rosenberg

Deputy Attorney General of Canada

Ottawa, Ontario                                                                             FOR THE DEFENDANT