Canada v. Tom Baird & Associates Ltd., [1997] 1 CTC 86

McKeown J.: — The plaintiff, Her Majesty The Queen, appeals the decision of the Canadian International Trade Tribunal (CITT) allowing an appeal of the defendant, Tom Baird & Associates Ltd., from certain Notices of Determination of the Minister of National Revenue. The CITT held that certain articles hereinafter referred to as the “imaged articles at issue” were exempt from federal sales tax under subsection 29(1) (later renumbered as subsection 51(1)) of the Excise Tax Act, R.S.C. 1970, c. E-13 (the Act) and section 4, Part XIII, Schedule III to the Act.

The issue is the correct interpretation of section 4, Schedule III, Part XIII to the Act, that is, were the “imaged articles at issue made or imported by or sold to the manufacturer or producer for use exclusively in the manufacture or production of printed matter”?

Facts acts

The parties have agreed to the facts in an Agreed Statement of Facts and the facts are set out herein.

The defendant is an advertising agency. The defendant was a licensed manufacturer under the Act at all material times. The defendant generally creates a marketing strategy for its clients. In the circumstances of this case, the defendant’s objective was the manufacture of printed matter as advertising for its clients. To achieve this objective, the defendant engaged various suppliers to manufacture photographs, typesetting, film, camera- ready art work and colour-separated film negatives each of which carried an image for reproduction by printing (hereinafter referred to as “imaged articles”).

Imaged articles may be used to manufacture printed matter, and some types of imaged articles may also be used to manufacture other articles that do not carry an image for reproduction by printing but are used for other purposes including television and audio-visual presentations.

The suppliers engaged by the defendant manufactured imaged articles using designs, art work or film, and instructions, provided to them by the defendant. The imaged articles were sold by the various suppliers to the defendant on a federal sales tax exempt basis pursuant to Certificates of Exemption provided by the defendant to them. The defendant turned over the imaged articles without charge to printers who used them to manufacture both printed matter that was subject to federal sales tax (taxable printed matter) and printed matter that was exempt of federal sales tax.

This appeal is confined to those imaged articles that were used to manufacture only taxable printed matter, which are known hereinafter as “the imaged articles at issue”. The taxable printed matter manufactured by the printers from the imaged articles at issue was then sold to the defendant by the printers, who remitted federal sales tax on the sale price to the defendant of the taxable printed matter so sold. The imaged articles at issue having been supplied free of charge by the defendant to the printers, the sale price of the printed matter did not include an amount on account of the cost component of the imaged articles at issue. The defendant then resold the taxable printed matter to its clients. The defendant remitted no federal sales tax in respect of this sale. The imaged articles at issue were also sold by the defendant to its clients. Until sold by the defendant to its clients, the imaged articles at issue were used for the manufacture of taxable printed matter. Upon the sale of the imaged articles at issue to its clients, the defendant remitted an amount identified as federal sales tax, calculated on the amount it charged its clients for the imaged articles at issue. Upon sale of the imaged articles at issue to defendant’s clients, the physical disposition of the articles varied. In some cases, they were provided to the defendant’s clients, in other cases they were returned by the printer to the defendant and remained in its possession, or they remained in the possession of the printer.

The portion of the amount remitted by the defendant as federal sales tax attributable to the difference between the amount the defendant invoiced its clients for the imaged articles at issue and the cost to the defendant of those imaged articles (sometime known as “mark-up”), was subsequently the subject of refund claims by the defendant to the Minister of National Revenue and was refunded to the defendant. The defendant now seeks a refund of the remaining portion of the federal sales tax remitted in respect of the imaged articles at issue, calculated on the cost of those imaged articles to the defendant.

The refunds were sought by refund claim 206934 dated April 22, 1988, and refund claim 207077 dated May 3, 1988. By Notice of Determination PAC 39684 and PAC 39701 respectively, dated June 17, 1988, the Minister of National Revenue disallowed the defendant’s refund claims. The defendant filed Notices of Objection to these determinations dated September 14, 1988. By Notices of Decision 80688RE and 80689RE respectively, dated March 15, 1990, the Minister of National Revenue confirmed the Notices of Determination. By letter dated June 1, 1990, the defendant appealed the determinations of the Minister of National Revenue to the Canadian International Trade Tribunal.

Based on subsection 44(6) of the Act as it read prior to May 1, 1986, and section 44 of the Act as it read from that date, it was agreed between the parties before the CITT and continues to be agreed that refunds are barred under claim 206934 with respect to federal sales tax paid between the periods March 1, 1984 and April 21, 1984, and between May 24, 1985 and March 31, 1986, and under claim 207077 with respect to federal sales tax paid between May 24, 1985 and May 2, 1986.

The material times for this action are therefore April 22, 1984 to May 23, 1985, and May 3, 1986 to April 30, 1988. By its decision dated July 28, 1992, in appeal AP-90-037, the CITT allowed the defendant’s appeal with respect to the applicable time periods. Pursuant to section 81.24 of the Act, the plaintiff appealed the decision of the CITT to this Court.

It is also agreed between the parties that the only issue before the Court in this action is the liability of the defendant for payment of federal sales tax in the circumstances of this case, and that the quantum of the defendant’s tax liability, if any, will be determined between the parties following judgment of this Court and any appeal taken therefrom, by way of audit of the defendant by agents of the plaintiff.

Analysis

The defendant has received a refund of tax paid on the difference between the cost to the defendant of the imaged articles at issue and the amount later invoiced to clients (hereinafter “markup”), but now seeks a refund of the tax paid on the cost of those articles to it, apparently on the basis that imaged articles used exclusively in the manufacture of taxable printed matter are tax exempt without further qualification.

The plaintiffs position is that the imaged articles are tax exempt on the facts of this case only where they are sold to the manufacturer who uses them exclusively in the manufacture of printed matter, and that the defendant, not being such a manufacturer of printed matter is liable for the tax already remitted and not refunded, namely on the cost to it of the imaged articles at issue. Moreover, the plaintiff submits that the imaged articles at issue were used not only to manufacture taxable printed matter but were also sold by the defendant to its clients. Accordingly, the plaintiff’s further position is that the imaged articles at issue were not “for use exclusively in the manufacture or production of printed matter” because the sale of the articles by the defendant constituted a further and distinct use.

The relevant statutory provisions of the Act are as follows:

27(1) There shall be imposed, levied and collected a consumption or sales tax ... on the sale price of all goods

(a) produced or manufactured in Canada ...

(b) imported into Canada ...

29(1) The tax imposed by section 27 does not apply to the sale or importation of goods mentioned in Schedule III ...

A review of the legislative history of section 4, Part XIII of Schedule III is useful in understanding the current legislation.

Section 4 of Part XIII of Schedule III was introduced on August 2, 1963 with effect from June 14, 1963 by subsection 7(10) of An Act to Amend the Excise Tax Act, S.C. 1963, c. 12 under the heading “Printing and Educational”. The identical provision was included without change in 1966 as section 3 of Part XIII under the heading “Production Equipment and Processing Materials” by section 8 of An Act to Amend the Excise Tax Act, S.C. 1966, 14-15 Elizabeth II, c. 40 and provided as follows:

PART XIII

PRODUCTION EQUIPMENT AND PROCESSING MATERIALS

1. All of the following when for use by manufacturers or producers directly in the manufacture or production of goods:

(a) dies, jigs, fixtures and moulds;

(b) patterns for dies, jigs, fixtures and moulds; and

(c) tools for use in or attachment to production machinery that are for working materials by turning, milling, grinding, polishing, drilling, punching, boring, shaping, shearing, pressing or planing.

2. Materials (not including grease, lubricating oils or fuel or for use in internal combustion engines) consumed or expended directly in the process of manufacture or production of goods.

3. Typesetting and composition, metal plates, cylinders, matrices, film, art work, designs, photographs, rubber material, plastic material and paper material, when impressed with or displaying or carrying an image for reproduction by printing, made or imported by or sold to a manufacturer or producer for use exclusive in the manufacture or production of printed matter.

Section 9 of the same chapter added Schedule V to the Act and provided, inter alia, as follows:

SCHEDULE V

The following articles:

(a) machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in the manufacture or production of goods

Finally, the heading of Part XIII became “Production Equipment, Processing Materials and Plans”, effective September 1, 1967, upon the inclusion of a new section 3, “Plans and drawings ...” by subsection 11(10) of An Act to Amend the Excise Tax Act, S.C. 1967-68, c. 29, upon which the former section 3 became section 4 where it remained until repeal of the federal sales tax on December 31, 1990. Part XIII incorporated, inter alia, all of the provisions which had been found in Schedule V and Schedule V was itself repealed by section 12 of An Act to Amend the Excise Tax Act, S.C. 1967-68, c. 29.

As can be seen from the foregoing, the provision for the current version of section 4 has always been a discrete section of the Schedule and has always been worded differently from the provision for production equipment (i.e. paragraph 1(a) of the current version of Part XIII).

In my view, the plain meaning of the words in section 4 Part XIII of Schedule III to the Act is as stated by the defendant and the effect of the submissions of the plaintiff is that this Court should engage in legislative amendments by the addition of the words “by him” following the words “or use” in section 4. The meaning of section 4 cannot be determined in isolation. The principles of statutory interpretation require that reference be made to other parts of the Act. As stated by Lord Herschell in Colquhoun v. Brooks (1889), 14 A.C. 493 at page 506 (H.L.):

It is beyond dispute, too, that we are entitled and indeed bound when construing the terms of any provision found in a statute to consider any other parts of the Act which throw light upon the intention of the legislature and which may serve to show that the particular provision ought not to be construed as it would be if considered alone and apart from the rest of the Acct.

I will now make reference to the following provisions of Schedule III:

PARTI

COVERINGS OR CONTAINERS

1. Usual coverings or usual containers sold to or imported by a manufacturer or producer for use by him exclusively in covering or containing goods of his manufacture or production that are not subject to the consumption or sales tax, but not including coverings or containers designed for dispensing goods for sale or designed for repeated use.

PART 111

EDUCATIONAL, TECHNICAL, CULTURAL, RELIGIOUS AND LITERARY

2. Chalkboards, tackboards, desks, tables and chairs, not including upholstered chairs, when sold to or imported by educational institutions for their own use and not for resale, and articles and materials for use exclusively in the manufacture of tax-exempt goods specified in this section.

PART VIII

HEALTH

24. Articles and materials to be incorporated into or form a constituent or component part of any of the tax exempt goods mentioned in this Part when sold to or imported by a manufacturer or producer for use by that manufacturer or producer in the manufacture or production of any such tax exempt goods.

PART XII

MUNICIPALITIES

1. Certain goods sold to or imported by municipalities for their own use and not for resale, as follows:

PART XIII

PRODUCTION EQUIPMENT, PROCESSING MATERIALS AND PLANS

‘1. All the following:

(a) machinery and apparatus sold to or imported by manufacturers or producers for use by them primarily and directly in

(i) the manufacture or production of goods,

(ii) the development of manufacturing or production processes for use by them, or

(iii) the development of goods for manufacture or production by them,

(b) machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in the detection, measurement, prevention, treatment, reduction or removal of pollutants to water, soil or air attributable to the manufacture or production of goods,

(b. 1 ) machinery and apparatus for use primarily and directly in the treatment or processing of toxic waste in a toxic waste treatment plant,

(c) equipment sold to or imported by manufacturers or producers for use by them in carrying refuse or waste from machinery and apparatus used by them directly in the manufacture or production of goods or for use by them for exhausting dust and noxious fumes produced by their manufacturing or producing operations,

(d) safety devices and equipment sold to or imported by manufacturers or producers for use by them in the prevention of accidents in the manufacture or production of goods.

[Emphasis added. I

The absence of restrictive words such as “by him” or “for his own use”, in section 4 demonstrates in an unequivocal manner that Parliament intended section 4 to have broad application. Expressio unius est exclusio alterius. MacGuigan J.A. in Lor-Wes Contracting Ltd. v. R., (sub nom. Lor-Wes Contracting Ltd. v. The Queen) [1985] 2 C.T.C. 79, 85 D.T.C. 5310 (F.C.A.) concluded at page 84 (D.T.C. 5313):

Here the words “primarily for the purpose of logging” are not followed by the words “by him” or otherwise qualified so as to limit the benefit of the section to cases wherein the corporation taxpayer itself has the timber or cutting rights.

The basic principle of statutory interpretation that courts are not permitted to read words into legislation was eloquently stated in Mangin v. LR.C., [1971] A.C. 739 at page 746 (H.L.):

Secondly, “... one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used”: per Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue Commissioners, [1921] 1 K.B. 64, 71, approved by Viscount Simons L.C. in Canadian Eagle Oil Co. v. R., [1946] A.C. 119, 140.

It was also supported by Major J. in Friesen v. R., (sub nom. Friesen v. Canada), [1995] 3 S.C.R. 103, [1995] 2 C.T.C. 369, 95 D.T.C. 5551, at page 121 (C.T.C. 378, D.T.C. 5556):

It is a basic principle of statutory interpretation that the court should not accept an interpretation which requires the insertion of extra wording where there is another acceptable interpretation which does not require any additional wording. Reading extra words into a statutory definition is even less acceptable when the phrases which must be read in appear in several other definitions in the same statute.

Lamer J. also stated the same in Multiform Manufacturing Co. v. R., [1990] 2 S.C.R. 624, 113 N.R. 373 at page 631 (N.R. 381):

Further support for the general application of paragraphs (a) and (b), assuming any is needed, is found by reference to para. (e) of subsection 443(1), which reveals that when Parliament wanted to restrict the application of section 443 it expressly did so. In paragraph (e) of subsection 443(1), Parliament specifically provided for a restriction to the general application of this paragraph by making it “subject to any other Act of Parliament”. As the expressio unius est exclusio alterius maxim suggests, the presence of such a restriction in one paragraph reinforces the position that Parliament did not intend to restrict the scope of paragraphs (a) and (b). I therefore conclude that subsection 443(1 )(a) and (b) (now subsection 487(1 )(a) and (b)) is applicable to any federal statute whether or not that statute includes any reference to search and seizure powers.

[Emphasis added. ]

The plaintiff submitted that imaged articles are the same as production equipment. It was submitted that production equipment is used to manufacture widgets, for example, and is not sold to the customer. However, the difference is that imaged articles are made to a particular customer’s requirements. If a company wants a flyer it goes to a graphic production house and the image produced by it will be unique to that buyer. The client wants to have its own imaged article in many instances or else wants the advertising agency to keep it in its possession. The imaged articles are proprietary to the particular customer. Therefore, it is not an artificial transaction for the advertising agency to sell the imaged articles to the company that requested the flyer.

I have already reviewed the other parts of Schedule III and it can be seen that the words “by him” or “for his own use” which are found in other sections of Schedule III are not in section 4. This does not result in disharmony with the remainder of the Act or with the object and spirit thereof. As Estey J. observed in Stubart Investments Ltd. v. R., (sub nom. Stubart Investments Ltd. v. The Queen) [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305 at pages 575-76 (C.T.C. 315, D.T.C. 6322):

Thus, the statute [the Income Tax Act] is a mix of fiscal and economic policy. The economic policy element of the Act sometimes takes the form of an inducement to the taxpayer to undertake or redirect a specific activity.

The Supreme Court of Canada restated the matter recently in Québec (Communauté Urbaine) v. Corp. Notre-Dame de Bon-Secours, [1994] 3 S.C.R. 3 (sub nom. Notre-Dame de Bon-Secours (Corp.) v. Québec (Communauté urbaine)) [1995] 1 C.T.C. 241, (sub nom. Corp. Notre- Dame de Bon-Secours v. Québec (Communauté urbaine)) 95 D.T.C. 5017 at page 18 (C.T.C. 250, D.T.C. 5022) as follows:

With respect, adhering to the principle that taxation is clearly the rule and exemption the exception no longer corresponds to the reality of present-day tax law. Such a way of looking at things was undoubtedly tenable at a time when the purpose of tax legislation was limited to raising funds to cover government expenses. In our time it has been recognized that such legislation serves other purposes and functions as a toll of economic and social policy. By submitting tax legislation to a teleological interpretation it can be seen that there is nothing to prevent a general policy of raising funds from being subject to a secondary policy of exempting social works. Both are legitimate purposes which equally embody the legislative intent and it is thus hard to see why one should take precedence over the other.

In my view, section 4 of the Act is clear and requires no further interpretation or as Professor P.A. Côté succinctly puts it in The Interpretation of Legislation in Canada (Cowansville, Qué.: Y. Blais, 1984) at 2:

It is said that when an Act is clear there is no need to interpret it: a simple reading suffices.

I have already stated that in my view the section is not at odds with the object and purpose of the legislation but in any event even if it was at odds, when there is specific language the provision must be applied regardless to its object and purpose. (See Major J. in Friesen, supra at pages 113-14 (C.T.C. 373, D.T.C. 5553)).

The plaintiff suggested that the defendant’s position results in the phrase in section 4: “made or imported by or sold to” being redundant or superfluous. However, if those words were deleted, it is clear that the person who is not a manufacturer could import qualifying imaged articles exempt of federal sales tax. Such a person cannot, given the present wording of section 4, import qualifying imaged articles without federal sales tax. It is clear that the current wording of section 4 is not superfluous and does achieve the result which could not have been achieved if the phrase “made or imported by or sold to a manufacturer or producer” were absent therefrom.

The plaintiff further submitted that the expression “imaged articles” made or imported by or sold to a producer for use exclusively in the manufacture or production of printed matter necessarily implies that the sole or exclusive use for which the imaged articles are made, imported or sold must be the manufacture or production of printed matter; where the articles are for any other or further use the exemption does not apply. In the present case the articles were not only used for the manufacture of taxable printed matter but were sold by the defendant to its clients. Both parties have agreed that the federal sales tax is a single incidence tax which is payable at the time of the first sale, or at the time of importation, of taxable goods. This is also the time at which the application of the exemptions which are described in Schedule III to the Act are determined in accordance with subsection 29(1) of the Act. Thus it is the sale of the imaged articles at issue from Baird’s suppliers to Baird which is the relevant sale for federal sales tax purposes. The subsequent resale of the imaged articles at issue from Baird to its customers is a sale which is outside the scope of the Act and is irrelevant for purposes of the federal sales tax. This means, therefore, that the “use exclusively” argument is defeated since the second sale is irrelevant.

Section 4 is obviously interested in the physical production of goods because otherwise the exemption would never apply. While there are certainly instances where a sale can constitute use, it is clear in section 4 that a sale cannot be equivalent to physical use. An example of where a sale is equivalent to use is when there is no sale of goods which are manufactured or produced in Canada and which are subject to the federal sales tax because the manufacturer appropriates the goods for his own use (e.g. through the free distribution of same as described in the case of British Columbia Telephone Co. v. R., (sub nom. British Columbia Telephone Co. v. Canada) [1993] 1 C.T.C. 351, 59 F.T.R. 176, paragraph 28(l)(d) of the Act equates such transactions with a sale thereby subjecting the goods to the federal sales tax. In every other context of the Act the words “sale” and “use” are used for a different purpose and mean different things. Thus, it is the “sale” of the goods by the manufacturer or producer thereof which triggers the tax and it is the intended use thereof which determines the applicability of the exemption from federal sales tax. In the context of the Act, the term “sale” is equated with transfer of title. The word “use” in its most general sense includes a sale. The word “use” in the context of the Act, however, is employed in a very different sense. The word “use” is found in the Act in the context of the phrase “appropriated for use” as in subparagraph 27(l)(a)(iii) or in the context of physical use as found in Schedule III to the Act.

Therefore, the imaged articles at issue were “made by...or sold to the manufacturer...for use exclusively in the manufacture...of printed matter”.

For the foregoing reasons, the appeal by the plaintiff is dismissed and costs of the action are granted to the defendant.

Appeal dismissed.